Good morning to everybody here, welcome to the viewers online. Welcome to the presentation of Vopak's full year 2016 results. With us here today is our Chairman of the Executive Board, Eelco Hoekstra, our Vice Chairman of the Executive Board and CFO, Jack de Kreij, and our CEO, Frits Eulderink. After this presentation, there will be an opportunity to ask questions, first by the analysts present with us here, thereafter by the analysts dialing in. This presentation will be available afterwards at vopak.com. Prior to the start of the presentation, I would like to call attention to our forward-looking statements applicable to all information shared with you here today. Now I would like to give the floor to Eelco Hoekstra.
Thank you, Giel. Good morning, ladies and gentlemen, also viewers today online. Thank you for joining us at the presentation of the full year results for the year 2016. I stand in front of you very satisfied with the results that we've achieved in 2016. After completed the 2014, 2016 strategic direction, we're a company with very solid foundation. Strong results, very strong company, also qualitatively and a very solid balance sheet. That will provide us opportunities to really look ahead and see growth and further productivity improvements.
What I'd like to do with you is go through the results of the year 2016, reflect a bit on what we have achieved in the years 2014, 2016, and look ahead, as I said, to give direction to our strategy and also give you a sense of direction on what it is that we would like to achieve. If I start with the performance of the year 2016. As I said, we wanted to achieve in the year that we reached our 400 years of existence, not only strong financial results, but also truly have a remarkable year for Vopak in the wider sense. That means having strong safety results, having strong service results, excellent engagement scores from the employees that work for Vopak, and obviously, good financial metric.
If I take the first three, you're happy to show and happy to demonstrate that indeed, on those qualitative aspects, we've had a very good year. Our safety performance was very strong. If you look at the TIR, which indicates the total amount of incidents and accidents that we've recorded, we've moved the dial from 0.39 to 0.29, which is a 25% improvement on our efforts, and which indicates that we have more control over our assets, our processes, and the mind of our people. That's reflected in not only the personal statistics, but also the process statistics, we've seen an improvement. The amount of events and the safety event rates have also decreased, which means an improvement over our performance. This is really key and the foundation of how we operate our terminals.
It's an indication of not only how well we perform our service, but an indication of how much control we have over the business that we run. Similarly, the service that we've provided to our customers has been appreciated in 2016, with strong NPS targets, net promoter scores, indicating that, again, we are demonstrating that we are valued by our customers for the services that we provide. I'd like to highlight also that if you look at the engagement scores that we measure, which basically provides insights in how well the staff is engaged on the objectives of Vopak, understands where we'd like to take the company and its ability to work together. Also there, if you look at the external benchmark, we've reached what they would call high performance companies, which means that the engine of Vopak to look for further opportunities is strong indeed.
If I look specifically at the financial results 2016 in itself. We have seen a modest increase in our overall capacity. That had to do with the fact that we have divested terminals on the one hand, of which U.K. has been the biggest one, but we've also invested again in new capacity. That modest increase over 15 was just 1%, resulting in 34.7 cubic meters that we have been operating throughout the year. We've been able to capture through our global network, strong engagement with the business, and a 93% occupancy indicates that we have been able to very solidly, in a very solid manner, been able to store products for our customers. That's a good result overall, and it indicates the strength of our network. That has resulted to EUR 822 million EBITDA for the year 2016.
A modest increase if you compare absolutely to 2015, but that's why we put also for indication purposes, just to demonstrate that the results are slightly better than the 1% improvement, the comparison to 2015 without the effects of our divestments. There you see that we've grown our business by 5%. It shows that we've been able to maintain our margins, capture the additional business from an occupancy perspective, and improve the results in 2016. The themes that have clearly run through the 2016 results are indicated on this particular slide. Allow me to elaborate on them shortly. First of all, the topic on everyone's mind has been the low commodity prices, and particularly the price of oil, and how the price of oil would affect the results of Vopak.
What we've seen is a low oil price in the early quarters of the year 2016, and a steady increase in the latter part of the year, driven by the decision made by OPEC to cut production and get supply and demand more in balance. We've seen that now the price has risen to $55 per barrel for Brent Crude today. That theme has been there throughout the year on whether the contango would maintain and whether the backwardation would come back into the business model of Vopak. The second thing that has been a lot on people's mind, and a lot discussed by stakeholders of the company, has been in relation to the adaptation of Vopak to the energy sector, and particularly the changes to the energy sector with respect to renewables and the drive for efficiencies.
There, what we've seen is that the theme has been more apparent, so we had to communicate more about our long-term ambitions in that respect, but equally, the energy transition and the oil price has resulted in more efficiency drive from our customers. The third theme, which has been high on the agenda, is how India and China have the ability to take the world economy by the hand and lead from the front in growth of the economic sector globally. What we've seen is a remarkably strong India, that has outperformed above its expectations and the expectations of the world. We've seen China to be in a relatively moderate and stable state.
We expect also next year that the India economy will grow further, and we do anticipate further stimulus from China, but both India and China will remain important economic indicators and parameters for growth in energy. Lastly, you will not be surprised is that a lot of debate and attention has been given, both in the press, but also in boardrooms and generally in discussions about the geopolitical uncertainty that we've seen. 2016 has been a remarkable year in which we've seen the Brexit discussion taking full shape, which was unexpected. We've seen the president in the White House, President Trump, being elected, which was not expected early 2016. That has led to many questions on people's mind on how these two incidents will shape the future of the economic landscape, and more particularly, how energy markets and chemical markets and edible markets will respond to that.
How they have responded in 2016, just a short synopsis of that. What we've seen is that the crude price has been there from low to high. Despite the uncertainty and despite the cuts, we've seen that there has been a relative balance or a relative new equilibrium in supply and demand. Demand of oil has increased, but supply has been able to move forward, and we see that with the $55, people anticipate in 2017 a more equilibrium to come into state. Similarly, what we've seen is that similarly to 2015, the downstream activities of the oil sector has been more profitable in relative terms, in historic terms, to the upstream sector. Also there we've seen refining margins being high. We've seen a lot of output from refineries and a lot of liquidity, which has supported particularly our positions in the hubs.
If we take LNG, people expected in 2016 that there will be a lot of liquidity on the market and that there will be a lot of long supply. What we've seen is that its supply has not taken shape to the magnitude yet that people expected. That has been pushed into 2017. Still in Q4 2016, we've seen spot cargoes in certain instances not being available. We expect that liquidity will be there, but more in 2017 than in 2016. More importantly, the belief that long-term liquidity and availability of LNG will be there, we've seen that a lot of countries have been looking for import facilities. A lot of demand is there for small scale opportunities to develop import facilities and regas facilities for LNG. Chemicals and gases has been very much the whole discussion has been a lot about cheap feedstocks.
We've seen that early 2015 with gas. We've seen it continue in the years 2016, where we've seen also an effect that the demand for chemicals has slightly subsided and been less strong than people anticipated. Also there, we've seen from an exceptionally strong chemical environment in 2015, a good and solid environment for 2016. We've benefited from that in using our terminals globally, in maintaining the relations with our customers, in maintaining the contracts, and basically serving them in locations that we have. Lastly, the vegoil and biofuel segment. What we've seen in vegoils is that about a year ago, people anticipated the El Niño effect. Products were cheap, we've seen a lot of stock taking place, and slowly and gradually in the second half of 2016, we've seen those stocks again, slowly but surely diminish.
Nevertheless, we've benefited to the maximum ability in an industry which is relatively solid and relatively stable. Lastly, on biofuels and bioethanol, we've seen the regular flows that take place between the Americas, China, and South Asia, and we've benefited from that as well in the past year. If we look more closely at the divisions and how these product developments had an effect on how we have been able to benefit or either have seen challenges in our particular regions. If you look at the Netherlands, a little bit more specifically, a highlight in 2016 was that we've loaded a record number of VLCCs from our Rotterdam facility. We've seen fuel oil moved predominantly from Russia via Rotterdam to Asia, with large quantities, and we've benefited from that to our fullest.
We've invested in the Gate terminal expansion for their jetties to also discharge smaller cargos of LNG and even for bunkering. Overall, what we've seen is that the business environment in the Netherlands was good, and we had a high occupancy and benefited from the abilities that were there in oil. The only weaker part of our business in the Netherlands was our LPG proposition and business in Flushing. That had to do with the relative price differential between the propane price and the crude oil price, which made the tradability of propane slightly less in 2016 than in 2015. Overall, a strong year for the Netherlands. If we move our attention to EMEA, we were very satisfied with the successful completion of the divestment in the U.K.
We completed that by the end of Q1 and are very pleased that we have been able to complete it without any disruptions and just before the Brexit took place. Overall, if we look at our position in ARA from EMEA's perspective, and particularly in chemicals, as I said, because of the chemical industry being very healthy, we had a healthy continuation of our business in ARA. Similarly, with more liquidity from refining in the Middle East, we had a healthy business in Fujairah, where we've been blending substantial amount of products, particularly for the Middle East or for the eastern part of Africa. That business has grown and has been very stable in the way that we have seen results develop in EMEA.
A point of concern which we raised has been the contribution of Vopak E.O.S. to our business, whereby the real situation, but also the competition from the Russian terminals, has not improved for us, and unfortunately, has led to results which were below our expectations. In Asia, we've seen the effects of the transition of the economy in China from a more production-oriented economy to a more consumption-oriented economy, the availability of tankage, particularly in the distribution segment, has been, in 2016, not strong. Despite that, we've seen some improvements in the Asia business compared to 2015. What we've seen is that liquidity in Singapore, again, on the oil side, has been very solid and good indeed. That was actually led by two effects. First of all, surplus capacity of refining products in China has found its way to Singapore for trade.
That increased the liquidity and the throughput in the terminals there. Also we've seen a record sales of bunkering volumes in Singapore, which obviously supported our business more for black oil storage and blending. A point of concern for Asia remains the Haiteng Terminal, our industrial terminal, which we had to close down temporarily because of an incident within one of the factories of our clients. We're working hard together with all the stakeholders to mitigate and bring that facility back into operation, we can inform you that that will not happen in 2017, we expect that this is to come back on stream in 2018. Overall, very solid and good business in Asia with a few highlights and a few points of concern to be mentioned. Last but not least, our America business.
Very happy to tell you that we have received all permits that are required for the Panama expansion. That constitutes the deal with Chevron. We've taken over their facility, their distribution terminal to operate, we have also taken the decision and are pressing on with the construction of a new terminal for fuel oil in Panama. Overall, we've seen the Americas, both North America and Latin America, perform strong. We've seen solid business for chemicals in our Deer Park facilities, particularly in North America. Similarly, we've seen that the demand for products in Mexico and Brazil have risen, we've been able to benefit from that through our import terminals in those geographies. Overall, it demonstrates again the huge diversity of our network. It demonstrates our ability to play in multiple markets. Overall, as I said, with 93% occupancy, a good result.
If we take not the 2016 results in isolation, we look at it in a slightly longer term, we look back to 2014, 2016 period, where we communicated to the markets on what we wanted to achieve in those days. We made very clear we wanted to change the portfolio of our terminals to move the portfolio into a different direction. We said that we would spend a lot of time on capital discipline and on cost discipline to ensure that we have strong margins and protect those margins that we have. I'm very happy to inform you that we've been able to achieve those objectives set in 2014. If you look at the reallocation or the redeployment of capital, we have divested approximately 2.3 million cubic meters in mature markets like Sweden, Finland, and the United Kingdom.
We've invested 3.9 million cubic meter in growth markets like Malaysia, Saudi Arabia, and South Africa. There you see the change in direction that we wanted to achieve. If you look at the net cash outcome of that is that we have taken EUR 800 million out of those terminals through divestments, and we've redeployed EUR 600 million in investing it in the new facilities. There you've seen that we've made the first step in changing the face of our portfolio. Equally, through good pricing and through good occupancy management, we've seen that we've increased our EBITDA margin in the period 2014 from 49.9% to 51.3%. That is a good achievement looking at where we've come from a margin perspective, but also to maintain that is a solid performance. Lastly, we've been able to keep our EBIT margin where it is.
Overall, a good and solid performance in the years 2014, 2016. Now allow me to leave the past behind and look at the next three years. The next 2017, 2019 period for us is a period in which we will continue our step-by-step solid performance to show growth and to work on our productivity. In doing so, we like to highlight a few specific themes that we'd like to take forward. Before I go there, I'd like to reiterate on what I would call sort of the pillars of our existence, the pillars of our success. What you can expect in the next years, that once again, the EB, together with all its employees and its contractors, will try to achieve leadership in a few of these key aspects of our business.
I would like to see leadership in our ability to find the right locations and invest. The quality of our investments, both from a risk return profile, dictate the long-term value of this company. The second thing where I expect leadership from Vopak is in what I would call the operational capabilities, its front line execution. I do not know any leader in the industry or in any industry that is not leader in how it runs its front line, and their safety, service, and costs are the things that come to mind. We'd like to exercise leadership in having connectivity with our customers. That's not only for striking the deals in the short term, but also having a network of customers and interactions with customers to find the important business development opportunities.
Fourthly, with technologies being available today that are very strong in its capabilities, but more importantly, affordable, I'd like to exercise technological leadership, because as a company, if we can deploy the right technology at the right time, I think we can improve, again, safety, service, and costs. Lastly, people leadership. We need to have the best organization in the tank storage industry to fulfill our dreams. These are the five pillars that we are working on meticulously day by day to get organized. If we do that well, I'm sure that together with a strong engagement survey, we will be able to drive the engine of Vopak for the next few years. What are the highlights? The highlights of our 2017, 2019 focus is, first of all, is growth. Growth in our terminal network.
We have invested in a lot of work in assessing what are the right locations to invest in, what are the right markets to invest in, what are the right opportunities. We feel that, after having done that work and after having assessed and grown as a company on business development, that in the next 3 years, we are capable of making good, solid investment decisions to further grow the company. The second thing that we need to do is maintain capital discipline. With that, previously, like we've done in 2014, 2016, highlighted to you how much we believe is required to maintain this network of terminals. We can give guidance to you that that's going to be EUR 750 million in sustaining and service CapEx.
Thirdly, in our journey as a company in the last 10 years, we've invested in the effectiveness of our business, the effectiveness of our business development efforts, the effectiveness of our commercial efforts, effectiveness operationally, and so on. We think that we have, if you look at our assets, our processes and people have reached a maturity level, which is demonstrated by the level of control and ability that we portray. We believe that it's time for Vopak to also spend a lot of time on the efficiency of both our organization and the efficiency of our operation, therefore, in the next 3 years, but also following those 3 years, efficiency and productivity will be high on our agenda.
In the next 3 years, we'll spend a lot of time on the efficiency of our organization, and with new technology, we believe that following 2019, we have the ability to spend a lot of effort on efficiency of our operation. That's a theme that you can expect will be coming back in our regular dialogue with the different stakeholders of Vopak. Lastly, if we want to achieve efficiency in our operations, we need to make investments, and those investments need to be made today. We will invest EUR 100 million over a period of 3 years in not only replacing our IT systems but also developing key technologies both in the IT domain but also in the OT domain to improve the efficiency of our operations, but also in the safety and the service.
The overarching theme for us will be drive growth and drive productivity in the organization. With that, we believe that we can continue our growth journey and grow our earnings per share accordingly, and all do that within a cash flow return on growth assets between 9% and 11%. That is what you can expect from this executive board in the next 3 years. If I highlight the projects under construction today, there's one that I would like to bring to your attention because you know the projects under construction today, which is Houston, Panama, Jubail, and Tangerang. Also today, we announced the South Africa development, which is 230,000 cubic meters. Again, a key investment in a market which is growing, whereby we have the location available, the ability to execute, and that's something which we are very pleased to add to our portfolio.
To summarize, if you look at the performance in 2016, we think it is a strong performance both quantitatively and qualitatively. If we look at the direction that we have set in 2014, 2016, in reshaping our network and driving the quality of the organization, we have achieved our objectives. Now in 2017, 2019, we would like to further grow, use the capital that we have in projects, and at the same time, protect our margins and improve our organization as we go along and really use technology to get that done. Why am I confident about the strong foundation? It is, first of all, because I think our network is unique. There is not another company in the world that has the ability already to be present in the markets that matter. We have proven track record, not only in oil, but also in gas, which is important, and in chemicals.
We have locations which are available for expansion, and we are a market leader in how we operate. If we apply the strict investment criteria and we keep, as we have done, a disciplined view and keep our eye on the ball, I am very confident that we will reach our objectives for the 2017, 2019 period. Thank you very much for now. Thank you for listening. I would like to give the floor to Jack, who will elaborate on the details of the results achieved in the year 2016. Please, Jack.
Good morning, ladies and gentlemen. Indeed, it is my objective in the next 30 minutes to cover the financial performance, both in a long-term perspective, but also in a short-term perspective, to ensure that everything is fully aligned with the principles of our strategic direction. That is the reason that the key topics I would like to address are linking from long-term value creation up to the Q4 results, to put them in the right perspectives, the outlook for 2017 and 2019, and also the 2016 results as part of our journey, which we accomplished three years starting ago with the 2014-2016 plan. Looking at the journey we are making, and that is the reason why we are using the terms, it is capital discipline on the one hand to ensure that we remain focused on being located in the right product market segments, but also in the right ports.
Because at the end of the day, that determines whether we are able to drive an attractive occupancy rate and a corresponding attractive margin in order to create returns on a capital-intensive business model. That remains the foundation of our journey going forward. What I have summarized here is that this step-by-step approach, as you can see, has supported us in increasing our average EBITDA, as you might call it, in the period 2005 to 2007, from around EUR 300 million up to EUR 800 million. The next step we would like to make in the next three years period or the period beyond, is increasing that step-by-step, while of course, remaining within our disciplined capital return strategy of realizing a total cash flow return on gross assets after tax. I will elaborate later on this, of the whole portfolio between 9% and 11%.
If we do that properly, that also will support us, of course, to increase step-by-step the earnings per share development, which has increased from EUR 1 in the period 2005, up to around EUR 2.50 in the period 2014 to 2016. As said by Eelco, it's our ambition in this growth journey to increase that step-by-step again in the coming three years. The average dividend as part of our capital distribution has increased as well from around EUR 0.40 in the 2005-2007 period, up to EUR 1 in the 2014-2016 period. The good news is that as part of our growth strategy, we have created sufficient, what I would call financial flexibility with a net debt EBITDA ratio around two to, let's say, fund the growth without changing our strong investment grade position in the world marketplace.
The starting point for our journey going forward is very healthy, is very solid, and as part of that, I will explain more the journey we have made in the last three years. First, start with the occupancy rate, because one of the main value drivers, of course, of our business model is realizing healthy occupancy rates because they are directly connected with the revenue generation. As you can see, we have been able to continue our journey in a 90%-95% occupancy rate, which is, according to our principles, a healthy playing field. Of course, there are differences, that's one of the main reasons why you have to always be careful when looking at a quarterly results. If you look at Q4, it's 1% lower than Q3. That is, of course, affecting the EBITDA development.
It's still within the 90%-95% playing field, that's the reason for the avoidance of any doubt that we provide very clear guidance for the year 2017 that we are well positioned, taking into account the contract durations, taking into account the fundamental demand for our storage and handling services, and taking into account our expectation for renewal of contracts, that also in 2017, we will at least achieve an occupancy rate of 90%. The question, of course, if you translate that in financial terms, is whether it's 91%, 92% or 93%, because that makes a difference of some EUR 10 million, EUR 20 million, EUR 30 million, which in our view are not critical as part of our long-term journey.
We try to create a business model in a very dynamic, volatile, continuously changing world in such a way that we can demonstrate a robust business model being able to operate at high occupancy levels while knowing, of course, that from quarter to quarter, from year to year, there might be differences with a few basis points compared to the past. Critical is the fundamental need for our services, we are confident that with the sharpening of our total portfolio, with the diversification in the different product market segments, with also the geographical segmentation, that we are well positioned to continue that journey going forward.
Looking at contract duration, there are not many changes, in fact, compared to the past, with a few small shifts, which we would like to emphasize, that what we saw in the Netherlands is that we, in fact, have increased the contract duration for certain product segments to one to three years instead of one year. The reason why we reemphasize that is that you might recall the discussion we had in the 2013 period, where we had quite a significant capacity available for crude oil storage, putting a lot of pressure on our occupancy rate in that particular year. We have been able, in the 2014-2016 period, to fully cover that, of course, in a very positive market sentiment of contango, but that we are now still well positioned for the year 2017 with this contract duration to cover this going forward in that particular period.
Does this mean that you can increase the margins? A very often asked question. Then we say always, you have to be careful in a business model which is capital intensive on the one hand, which already generates solid margins, then there is only one justification for increasing the margins by means of contract rate increases, is that if you have a value proposition, increasing more value for your customer by, for instance, an enormous increase in efficiency, an enormous increase in throughput, as a result of which the cost per ton for the customer is going to decrease. We see those opportunities, but they are not opportunities you can realize, let's say, in a quarter, in one year. They are terminal by terminal different.
That's the reason why we sometimes make those service improvement CapEx investments to ensure that what we try to achieve to make our customers successful is already also paying off and contributing to our margin development. Looking at this margin development, you see a slight pressure since 2012 on the EBIT margin development. I would say properly identified as the result of increasing sustaining and service improvement CapEx, resulting in higher depreciation, not immediately realized or resulting in higher contract rates. That's exactly, let's say, the challenge in the business model where we are. The good news is that we have been extremely successful in driving our sustaining CapEx program in the 2014-2016 period. As we said, we wanted to do everything needed to maintain the functionality of our infrastructure.
On the other hand, to increase the service capabilities at certain selected locations, while remaining within a total frame of EUR 700 million of investments from mid-2014 up to the end of 2016. We have completed that program within this complete framework. For 2017, 2019, in fact, we want to copy that concept. For the whole three years period, the other guidance was, in fact, for two and a half years, we use the same thresholds that we are going to complete all the maintenance, sustaining CapEx, compliance CapEx, but also service upgrades within a total amount of EUR 750 million. Then we can also look, are there any service upgrade investment opportunities where we can improve the margin? That's the reason why we put three elements with respect to this EBITDA margin development. One is, of course, occupancy rate development.
That makes a huge difference, whether you operate at 94% or at 90% with respect to the EBITDA margin. That is the first factor. Secondly, margin management, has efficiency on the one hand of your operations, which is a full focus in our program. And secondly, are there justifications for increasing the contract rate because of additional contribution to the efficiency from which the customer can benefit? Thirdly, of course, capacity expansions at the early stage sometimes you have lower occupancy rates below the average of 90% negatively affecting at that particular moment, your result development. All these three factors are very critical to monitor.
A long story short, we feel that we are operating at a healthy margin, that we are able to, and well-positioned to maintain that healthy margin, there are still, be it step-by-step, small opportunities to step-by-step increase sometimes the margin in certain locations. Looking at the key figures, between 2015 and 2016, you don't see from a financial performance point of view, a spectacular change from EUR 812 to EUR 822. You have to do a deep dive, which I will later on explain, to understand that if you eliminate the impact of divestments, if you eliminate the impact of AVICS, that we still show a 7% increase of our EBITDA. All the other metrics are, in fact, corresponding with that.
Long story short, we started with a journey in 2014, we our EBITDA generation from EUR 763, while even absorbing the negative impact of missing the contributions of the divested operations. That is summarized in this picture where you can see that the impact of changes in foreign currencies and divestments had a EUR 40 million negative impact on our EBITDA development, which is fully compensated by the positive contributions of new projects coming on stream, and also by the positive contribution of the different divisions, fueled by higher occupancy rates while maintaining good margins. There are two blocks in this total view which seem to be negative, being LNG and Global Function.
LNG is not a result of deteriorating business circumstances, has all to do with the additional efforts we are currently doing from a business development point of view to increase the opportunities in this particular segment to grow our business. This is just additional costs we incur on the business development activity. Global functions is a good reflection of what we are doing now on technological innovation, on global engineering. We take initiatives from which we would like to benefit, of course, in the long run, that's why we have indicated you should expect somewhere in 2019 and beyond, now we are incurring additional costs in order to achieve that. This means that if you look at the 2016 outlook we provided at an earlier stage, that we have all realized what we have been expecting.
We exceeded the occupancy rate above 90%, and we have been able to exceed the 2015 EBITDA. The question, of course, is always, could the number have been higher, while taking into account the explanations we just provide? The answer is no. This is a solid outcome of a thoughtful, disciplined process where we also started to incur higher costs to the benefit from the growth into the future. That is essential. Also, you have sometimes, of course, one-offs. You have so many things happening in a dynamic company and in a volatile world. You have new provisions. You have small items which are higher.
The main item is that we have started to increase our costs, specifically to support business development activities, supporting investment decisions in the future, supporting innovations, supporting efficiency improvements, and the benefits from that will take some time, not immediately in 2017, more likely 2019 and beyond. With that, if you look at the IFRS base numbers and the non-IFRS proportional base numbers, the only conclusion is there is not a huge difference in, let's say, the quality of the environment in which our group companies operate and our joint ventures operate, reflected by a similar type of occupancy rate. That is the only key message. That's the reason why we always share this in a very transparent manner. We take the occupancy rate, we take the proportion EBITDA, and also the cash flow return on gross assets.
What you see is that whether it's a group company, whether it's a joint venture, they are operating on similar metrics on a worldwide basis. Looking at return indicators, very critical, because it's a capital-intensive business model where we are allocating capital to the benefit of the shareholders for future growth, but also for future option value. Now, what we mean with the option value is the fact that we have expanded now, for instance, two projects in South Africa, creates a new opportunity for further growth. That option value, it has been proven to be critical in our growth strategy. When we look at the CF ROGA, cash flow return on gross assets, which is a metric before interest, after tax. It's not dependent on the finance structure. It's a pure indicator, cash flow focused, not affected by any accounting distortion.
The objective we have defined is that we would like to realize a premium on our cost of capital for the whole group. We want to benefit from economies of scale. We would like to leverage on our strong position in key hub locations, and we would like to benefit from the fact that we are uniquely diversified in different product market segments. That's the reason why we have defined a playing field of between 9%-11% for the group as a whole as what we see an attractive playing field in order to allocate capital on behalf of our shareholders. The 9%-11% is for the group as a whole. You should not see this as an individual indicator for investment decisions.
Certain investment decisions might yield much higher returns, some of them even slightly lower, provided the option value for further growth provides additional opportunities for ensuring that our Cash Flow Return on Gross Assets remains attractive within that playing field of 9%-11%. Since you also have other indicators very often used, we publish that, like the Return on Capital Employed, which is more an accounting denominator because it's EBIT divided by the net book value being capital employed. Which normally will always become under pressure when you invest much more than your depreciation, because the likelihood that you will continuously add projects which immediately generate EBIT with a full investment base being the capital employed higher than, let's say, 15%, 60%, seems to be very remote. Of course, there is a turning point, and that will happen in the future.
We come from ROGAs of 20%, where we were not investing a lot, as a result of which the capital employed was automatically reduced by the depreciation while EBIT was increasing because of the improved EBITs. We are now operating at the 13%, 14% levels, might be even slightly lower, and that's the reason why we also add the Return on Equity, where we currently have still room in the balance sheet to, let's say, leverage more on the efficiency of our capital in order to improve Return on Equity going forward, once we are going to use the headroom in our current balance sheet. The main starting point remains cash flow driven, Cash Flow Return on Gross Assets as the indicator we use to manage our total portfolio.
If you look at the Q4 numbers, we understand from a few signals that there has been a slight surprise in the markets of the reduction in the Q4 results compared to Q3. That's the reason why we have summarized some of the considerations we have to take into account. One is, in Q3, we had an overall occupancy rate of 93%. In Q4, 92%. That has an impact. Secondly, we have incurred additional costs for business development activities. We have incurred additional costs as a result of which we are focusing on innovation. We are focusing on new developments altogether, as a result of which your EBITDA is slightly lower than the previous period.
If you translate that to the period 2017, and that's the reason why I would like to do that, while knowing that we have operated at 93% in the whole year of 2016, now operating at 92% with, let's say, a floor of at least 90%, there might be still small differences from quarter to quarter. It might be that one quarter we operate at 91%, the other at 90, the other at 92. I'd just like to share this. We find this from a long-term growth perspective, irrelevant as long as the deviations can be well explained by non-structural elements. There will always be short-term volatile developments in a dynamic world and a dynamic market. Our objective is to ensure that our portfolio is operated from the right locations, in the right product market segments, well-positioned to maintain a healthy occupancy rate.
We are realistic, not necessarily meaning that we are always able to achieve the highest end of the range of 90%-95%. That is the inherent, I would say, normalized volatility in a healthy business model in which we are, let's say, confronted. If you look at the translation of net profit, that is something which is, of course, always a complexity from EBITDA to net profit. If you have, let's say, a higher impact than you would have expected, you have to look at minority interest, you have to look at tax charge, you have to look at the AVICS impact on, let's say, your interest rate cost. That are the normal elements if you make that, let's say, reconciliation between the drop of EBITDA compared to the drop of net profit. The financial flexibility, extremely critical in a long-term focus growth model.
To emphasize that, we do this step by step. We are not changing our philosophy. We remain free cash flow focused. We remain capital disciplined. We try to allocate the capital to the best possible projects to ensure that the quality of the portfolio remains intact or even improve it, while ensuring an attractive risk-return profile, and as said, generating a cash flow return on gross assets after tax while taking into account all the maintenance CapEx, while taking into account the service improvement CapEx in those calculations between 9%-11%. The good news is that with a net debt to EBITDA ratio of two, while knowing that going forward in the next three years, we will generate operational free cash flow, that we are quite flexible in our growth strategy, and we feel that it's critical.
The reason why it's critical is the reason which we explained at the Capital Markets Day. If we look at the mega trends which we have identified, increasing the demand for certain storage and handling services in particular ports in the world, resulting from either deficits in a country or more flows between one continent and the other, it means that you need to have this flexibility to make the right choices at the right moment. This is a critical moment also, again, in, I would say, the journey of Vopak, that we have this flexibility to position ourselves. The decision we announced today is a beautiful example of that. We selected South Africa as a good example of a market with an ink time you are go the economies of scale options for in that part of the region.
That means that we are trying markets with similar characteristics. You know, we look at hub terminals, we look at markets with structural deficit, looking at the gas markets, and we continue looking at industrial, and we have the power in the flexibility. When looking at the forecast to put it in the perspective of the past, you can see that in the period 2014-2016, we spent less than in the previous periods. That was a known factor. Because of the uncertainty on the worldwide scale, we want to be a bit more careful in allocating capital while the world growth was, let's say, flattening down, while China was resetting itself, while the uncertainty in certain regions was increasing, and we remained very focused and disciplined as a good portfolio of We cannot. If you then look at the forecast period, 2017-2019, there are two elements absolutely sure.
One is the amount we still have to spend on the expansion of our current projects under construction. That is the amount of EUR 550 million as explained in this chart. The other amount, called other CapEx, comprises, 1, the total program we are, let's say, currently managing for the sustaining CapEx, service improvement CapEx, entailing the EUR 750 million guidance we provided, and on top of that, the additional EUR 100 million we are going to spend in the replacement of our IT systems, but also in technological innovation projects, linked to operational and IT opportunities to improve the service capabilities to improve efficiency of our processes. The only thing we don't know yet is the question mark, it is how much are you going to spend in the next 3 years on new projects?
That depends, of course, on the timing of those projects, the decisions where we made them, whether those projects are in joint venture or in group companies. You may expect in the next 3 years, at the right moments, certain announcements of the executive board of new project fitting in our overall strategy, as a result of which, the total forecasted CapEx might exceed, dependent on the timing, the 2014-2016 period. I think South Africa has been properly covered already, both in the presentation of Eelco and myself, the reason why we emphasize this investment, because this is a good example where a capital discipline focus, while identifying the right markets and having the patience to make the investment at the right moment, provides new opportunities, which are very attractive in a growing distribution market. This is the overview of the current projects under construction.
We have 3.8 million cubic meters of capacity under construction, that reconciles with the previous sheet where we explained that we are going to spend EUR 550 million to complete these expansions. Dividend. We have always explained to the shareholder we consider it very critical that besides capital discipline in allocating capital new projects, that we also remain extremely disciplined to distribute sufficient dividend by means of cash to the shareholder. That's the reason why we have a full cash distribution dividend policy, where it's our intention to pay out an annual cash dividend of 25%-50% of the net profit. As you can see, we have been able to increase it step by step from €0.25 in the year 2003 up to €1.5 in 2016. It's our objective, simple as that, to continue that journey in line with, of course, fundamental growth of the business.
That's the reason why we have this payout ratio of 25%-50%. As long as we are able to fundamentally increase our EBITDA performance, as long as we are able to improve also the associated cash flows and the improved earnings per share and net profit, it's our intention to continue the cash distribution strategy in line with this, that's the reason why we have a proposal to the shareholders to increase the dividend from €1 in 2015 to €1.5 in 2016. In summary, outlook 2017. Important is at least an occupancy rate of 90%, while realizing that specifically in the oil business, there are a few differences. The strong contango which we have experienced in certain parts of the 2014-2016 period has, of course, almost disappeared. That means that you are much more dependent on different demand drivers.
That's the reason why we provide clarity on what we think is the occupancy rate 2017, because we felt that a lot of people thought that if the contango disappears, that the impact would be significant on the occupancy rate. I'm not saying that missing 1%, 2%, 3% occupancy as a result of that is immaterial, but it's not critical. The reason being is that as part of our business, we remain focused on what we would call bridging supply and demand imbalances. That is the main driver of our business model. It's not about accommodating all kind of trading position. Of course, as good businessmen, if we have capacity available and if there is a contango market, we will of course rent out every tank we have still available, but it's not the principal business drive.
We hope that by providing clear guidance about what we think we can achieve in 2017, that we eliminate all kind of what we would call bearish considerations about oil storage capability of Vopak going forward in the year 2017. The outlook 2017. Two important elements, occupancy rate, and the other one will be that if you take into account the fact that we are, of course, missing the contributions by the divestments, the fact that we have increased our business development activities and the innovation, more likely than not, we will not exceed the 2016 result. Specifically, if you also take into account what we just discussed, the likelihood that you will be able to end up at the high end of the occupancy rate in the year 2017. Q1, Q2 was 94% in 2016, 93% in Q3, and 92% in Q4.
We take all these factors into account and come then to a realistic, I would say, guidance for the year 2017, while at the same time emphasizing that we will continue the growth beyond 2017, more likely to be realized in the year 2019 because of all the activities we are currently performing contributing to that result development. That's the reason why we have summarized, in fact, the first sheet, but also a kind of looking ahead aspect. It is that this step-by-step approach where we have added capacity, where we also have divested terminals to sharpen the total portfolio will continue within the thresholds we have defined from a capital disciplined risk-return profile of the total portfolio.
We expect that 2017-2019 will support us again in continuing the long-term growth journey while having sufficient flexibility in the balance sheet to make decisions for attractive growth projects. The key takeaways, we have been able to increase our EBITDA starting 2014 from EUR 763 million to EUR 822 million, with a corresponding increase of our earnings per share from €2.31 to €2.56. If you look at 2016, the conclusion is that despite missed contribution from the divestments, we have been able to increase our EBITDA in 2016. We are well positioned to take investment decision and to continue our long-term growth journey also in the period 2017-2019.
That's the reason why we emphasize this element, because we realized that at the moment we had the capital markets day, we found it difficult at that moment to give some guidance about the timing of being able to make those investment decisions. We feel that we have now sufficient clarity to give you this guidance going forward for the next three years. As said earlier, we have sufficient flexibility in the balance sheet while being able to continue raising our dividends when justified, of course, by the growth of our EBITDA generation. With that, I would like to ask the moderator for opening the session for question and answers.
Thank you, Jack. We will now continue with the question and answer session. Please clearly state your name and the company you represent.
Good morning, gentlemen. This is Thomas Kerstens. A few questions, if I may. First of all, I appreciate and understand that your focus is on the long term, but I still would like to understand the fourth quarter development in EBITDA a bit better. How much of the EUR 50 million increase in cost quarter-on-quarter, were related to one-off costs as you refer to with like M&A, Exmar, startup cost of Panama, and how much is reoccurring as a starting point for basically 2017? Second, the sustaining CapEx is in line with previous years. However, you add the EUR 100 million IT investments and innovation spends. Could you indicate if this is all incremental investments, or does it also include your regular IT investments? What kind of efficiencies do you expect to achieve? Can you quantify that number?
Third question, your guidance a year ago was over 90% occupancy. Basically, you're repeating that guidance for 2017. I just want to like to understand, are you more or less confident than 12 months ago? Has the flattening of the oil curve any impact on your outlook there? Last question, there are new terminals in Iran being opened. Will this impact your Middle East portfolio? As the rumor is that the storage costs are much lower there. Got a couple more, but I'll leave it here.
Yeah. Thomas, it might be that we need to ask you questions again because.
Good.
Maybe on the fourth quarter, Jack, if you can elaborate.
Yeah. If I understand your question well, you say, "Look, I understand that you incurred more costs, but which part of that cost are, let's say, more one-off items which are not recurring in future quarters?
Correct.
Yes. The complexity in a volatile world is that of course some costs are one-off if you look at them on a standalone basis. The reality is that in a volatile world, you might have other one-off costs going forward. I'm not trying to give the impression that you should see the EUR 50 million as a one-off occurrence in the Q4 period, not being repeated by other one-off costs, going forward in the coming years. What some of them, of course, if you look at a certain transaction, it's one-off for that transaction, but we might decide in Q1, taking into account the current portfolio, that we also start spending a bit more on another opportunity not related to that transaction. That's the reason why we give as guidance for 2017.
We don't know yet what the outcome of that will be, that's the reason why we say, let's be careful. Take into account that the likelihood that we are going to exceed 2016 seems to be not really likely if you take all the factors into account, like occupancy rate development. More likely than not immediately at the high end of the 90%-95% range if we end up in Q4 with 92%. Secondly, knowing that we started with some additional costs, which might reoccur for other type of projects. We want to be careful to see how that will evaluate in the year 2017. I hope this answers the question.
Basically to summarize, we can multiply EUR 200 million by four for 2017 as your guidance.
No. That is one scenario. You can do that of course, it's one scenario. It's not the only scenario.
Okay. Thanks.
Maybe on the IT question you asked, Thomas, yes, the 100 is supposed to portray our entire investment in IT, so it's not an incremental investment. It is, however, higher than in previous years, and that is to do with the two factors as explained. One is we're modernizing our systems to make use of technology that's currently available, that wasn't there, say, 5-10 years ago. Think for instance about operators working with handhelds and therewith we automatically have the data immediately available throughout the company to understand what's going on and act on that. We avoid double entry of data, which is sometimes now the consequence of having paper processes. Think also about integration with authorities like customs authorities and customers, that we all try to do now in a software virtual way. Inspecting our tanks from the inside.
Robots and is part of development. We think to make our operation more efficient. I think that is actually at this stage, still very hard to determine, but definitely, we believe that the payback in staying with the times and therefore being able to remain a competent service provider as we do see that certainly double entry and basically customers effectively inputting their own orders will ultimately also help us with cost.
For cost cutting, cost efficiency, then?
It's also, I think, service improvement to the customers. I think the challenge then commercially is can we translate that service improvement where we give them more direct insight into what's happening, where we allow them to input their orders directly. If that is going to be translated into top line or not, I think is a question for the future. For sure, I believe that some of the things I mentioned in front of these robots that inspect tanks. Maybe to elaborate a little bit on that. If we want to inspect the tank on the inside, we have to build a scaffold because they are high structures to just inspect it. With a drone, we don't have to build that scaffold because the drone will just fly.
Meaning that if the outcome of the inspection is the tank is still fine, the operation will be done far quicker, therefore, we will be able to take the tank into revenue generation service again. Only in case we find we need to do some work, we may need to build a scaffold still. In a lot of cases, you avoid building a scaffold, you have the tank available. I definitely also see top-line potential of all the technologies.
Should we link the EUR 25 million cost savings to this program, or is this potentially on top?
The way I would look at it, Thomas, is twofold. As I said, top 450 will be on top of our minds, not only in the next three years, but only after that. The next three years by adopting a few early technologies, but also by, almost in the analog world, by looking at how we're organized and how we do things. We think we can, as a minimum, drive EUR 25 million improvement on our costs. What you see is all the investments we're making. The EUR 100 million investments that we're making between 2017 and 2019 will really drive the efficiency beyond that point. This is how you should look at our comments there.
Okay.
Yeah. To come to your Iran question.
Yes.
That was the one that I can recall. The third one I might need to ask more specifically. The Iran question is one of no because you said, are you concerned? The answer there is no, I'm not. Reason being is that the developments on bringing on Iran take time. I'm sure that if you listen to the common press or listen to the comments before the, let's say, the people are established, investments are taking place before they become part and parcel of the international energy community, will take a few years. Once that happens, I think it also adds to liquidity in markets. There have been fields that have been relatively at the sidelines. If that happens, you'll probably see that more volume will move into Iran, and more will go out.
I think it will benefit our current position that we have in oil. If you look, basically, a 10, 15 year perspective, if it matures beyond that point, it might have an effect, but that's really speculation. In short, no short-term concern about the opening up of the economy there. Then with a caveat, again, I think you've seen geopolitical developments and comments made from the White House is to be seen, and people are waiting for that. To be seen what guidance will be given on the, let's say, the rules and regulations set towards the openness of the trading with Iran. It's a bit wait and see.
Thanks. The last question was on the guidance. You said above 90% a year ago. You say it again now.
The question is, are you more or less confident than 12 months ago? Also taking into account the flattening of the oil curve.
Similar, I would say. In other words, in 2014, we said about 15 above 90. We look at the business environment for 2017, we say similar. There's a similar belief.
Okay, thanks.
Dirk Verbuijst, KBC Securities. Following on occupancy, maybe you can shed some more light on the moving parts there. You sound pretty confident. Although the gap towards 90% is more limited than a year ago, I would say. With the story on contango that Thomas just described, maybe further on into throughput from chemicals at a very low oil price environment last year versus the situation now. Is that also something that as a, let's say, a ripple through effect from contango or the higher oil price situation that could also affect your storage so that refineries are now putting through less actually due to the recent oil price increase. That's my first question. Second question I have is on the favorable mix you describe in the Netherlands. Veg oils and base oils was mentioned in the press release.
Was that a situation that occurred throughout the year, or was that mostly in H1 because of the difference in the earnings run rate towards the end of the year? Third question I have is on situation in Asia, particularly China. Do you still see a year-on-year impact on, let's say, earnings potential, in 2017 versus 2016 as the Haiteng situation as you described, which already occurred, I think, largely in 2016. Last question I have is on Exmar. Any update on the situation and what happened over the past few months since the announcement late December? Thanks.
Let's start with occupancy. Occupancy in the different regions. If I was to compare, what we've seen in 2016 and make an assessment of why we said above 90% and where we see the relative strength and weakness. I said it before, I haven't seen today any major difference in, let's say, the dialogue that we have with customers, the engagement that we have about talking about storage. In other words, it's still very much tied. Most of it is very much tied to supplying particular markets. Obviously, exceptions are there. For instance, we said it before, we are always critically assessing how Haiteng is doing, where we said that we are looking at that more from a price perspective. There are a few exceptions to the rule, but overall, and that's what we're really describing here in this discussion is: How's the company generally doing?
What's the general health of what we see? There we see that particularly on chemicals, particularly on distribution assets, if you look at the oil assets, generally we see a similar type of engagement there. I hope that gives you a sense on how we view the market. Whether backwardation in your question will have an effect, has to be seen. I think if you look at the curve of the market has flattened. Obviously if you are purely strong perspective, your debate or your discussion will change. Again, I'm repeating myself. It feels where we stand today, still comfortable in how we engage the customer and where we see the business develop. What was your second question there?
On the mix in the Netherlands.
Yeah.
The impact of the-
Well, the comments there lead into the fact that we've seen, let's say, a strong performance of our edible oil and base oil terminal. It had to do with a few facts. As I mentioned, El Niño was predicted, there was a lot of product there for people to stock under the premises that the price would go up, and we benefited from that in the first half of the year, predominantly. That might give you a sense of why first half is different than the second one. Also we've seen that also more structurally, for instance, the base oil play in Rotterdam has supported the wellbeing of that terminal. Generally we've looked back at a good performance in that.
Third question was Asia and China, if there still is a year-on-year impact to be seen in 2017 versus 2018.
I think what we've seen in China, that we've seen a similar business environment in 2015 as we've seen in 2016. We made the same comment in 2015 that there was more capacity in distribution assets than strictly required by the market. We've seen occupancy and price erosion in China take place in 2015. That stabilized throughout 2016, but has not improved. That's the part which I mentioned in my presentation, which we still believe needs care and attention. The industrial bit, and particularly Caojing, has seen good results throughout the year of 2016. The Bohai, together with our partner Bohai Chemicals in Lingang, we've seen strong results. Also, their industrial business has held up very nicely. The major difference in China 2015, 2016 onwards is the fact that we had in 2015 still a small part of Haiteng in there.
That did not appear in 2016. As I said, unfortunately, the speed to which that issue is solved takes longer than required. I'm confident standing before you today that with the work that we see put into Haiteng today, that by 2018 we should be able to bring that terminal back to service.
Exmar was the last one. Question. Just tell me what happened in the last few months in discussions.
Well, as you can imagine that since we signed that deal, several closing conditions need to be fulfilled.
We are actively working with the different stakeholders to resolve those. Once there's more to be informed, we'll let you know.
The other stakeholders you're talking to, okay, that's still open, but there will be a deal in any way with Exmar? Because you signed the agreement with Exmar.
I'm confident standing-
The others don't.
No, I'm confident standing in front of you. As always, if there would have been a deal, I'm assuming we'd be there, we would have told you.
Yeah.
That's why we said we've signed a contract with Exmar, in which the conditions of the deal have been agreed. We need to fulfill several conditions, and that's what we're doing now. Only when those are fulfilled, the deal will be substantiated.
Thank you.
Yes. Luuk van Beek from Petercam. One thing you are starting a number of programs to improve efficiency from 2019 on, and you expect EUR 100 million CapEx for that. Should we also expect a significant impact on OpEx in the meantime? Are there any P&L costs for that?
That was one of the reasons when I said, if you look at Q4 and also Q3, when you start these programs, you have absolutely also OpEx items instead of only CapEx items. That's the reason why we said business development, innovation brute costs while we are going to increase our cost base to the benefit of course, future growth, because the business development is meant to make high-quality investment decisions. Some of those innovation activities might result in some OpEx items because they are not allowed to be capitalized, because they are more on experimental stage or more innovation stage. The answer is, long story short, yes, there will be OpEx items.
Okay. My second question is on, you now say you have clarity on your ability to take several investment decisions. I'm a bit confused about, say, the difference between your previous statements, for example, during Capital Markets Day, where you said you have a great pipeline for opportunities, the only question basically is the timing. Now you say we have clarity with it. At the same time, obviously, the timing is still dependent on lots of factors. What has changed, say, in the last 6 to 9 months in the clarity on the timing of those investment decisions and the size of the CapEx that's ?
Indeed, when we had the Capital Markets Day, we shared with you that we found it difficult to translate potential business opportunities and the timing of the investment decisions. It could be a difference of maybe 12, 24, 36 months. When we were looking in July, that would be a decision early 2017, late 2017. Some of these elements on certain projects have become more clear 2017, 2019 period. In that feel that we are well-positioned to make some.
This now primarily interested in guidance. Says was occupancy rate of 94%. You say, let's assume contango fades away, that's 9. Jack indicated, well, contango effect maximum EUR 30 million, roughly. Does it mean that the bottom EBITDA is EUR 790 million or so? What is now really the grip on guidance? Because you basically say 2017 will be lower. The main question is, how much lower? I don't have a clue there. Long-term contracts. What is the aim in term contracts? In 2014, it was 53% of total. 88% higher than average ROCE or lower than average ROCE. Fourth, Trump's threats. Can you explain a bit what the Trump's threats are for OPEC in terms of flow from Europe, Canada, Brazil to the U.S. or vice versa? Finally, Haiteng, you indicate it will be back in 2018.
Is that early 2018, mid 2018, or late 2018?
Thank you, Thijs. Let me help you on the guidance because you are looking for that. The guidance we set is we do not expect 2016. Right? We also said Also went in our step-by-step growth story. In other words, we said that we expected in the period 2017, 2019, we will continue our growth journey. We will do that with a growing EPS, and we'll do that with a CFROGA between 9% and 11%. Let's say, already the direction in which we're taking the company should be sufficiently, let's say, worded for you to have a sense of where the company is taking. You're looking for an exact number for the year 2017, I think, and that's what Jack alluded to as well.
That exact number, let's say, first of all, doesn't add great value, nor is it a number that is so clear today that we can provide it to you. I think that we don't expect EUR 822 million for us already gives you sufficient idea on where this is going to land. As the year progresses, guys, we'll give you an insight on how the year is moving.
Does it, by the way, include Exmar contribution or not?
Which year you are referring to?
'17.
2017. No. This is what we do always is if we give guidance about what we think we can realize, that is the starting point. 2019, we are well positioned to report growth, EBITDA, EPS. That is the conceptual design of our three-year strategy. In that outlook, we don't take into account other projects we still might have to complete or let's say approve other than those currently under construction. We take into account the current network, we take into account the current under construction. Put it in, let's assume in the very hypothetical situation that we would not approve any project, that should not be an excuse of not achieving that guidance in 2019. Maybe that's more clear if I stipulate. The reason why we said something about 2017, if same as 2016 or lower. Transparent to avoid any misunderstanding.
Long-term contracts?
Jack already alluded to the structures of long-term contracts. I can be nothing to read in that from what Jack has mentioned to you. We've seen that, again, if we renegotiate our contract, it's a mix depending on the geography, depending on the requirement. We've seen the tenor change, we've seen the pricing change. There's nothing out of the ordinary that I can report to you today.
Sorry?
Sorry?
Long term.
Yeah. It's a question which I'm sure that will come often, is what will be the effect of the policies that are being drafted currently in the White House.
Especially the import taxes.
The import taxes. Well, the import taxes, since Vopak doesn't import anything particularly into the U.S., we're not directly affected. Obviously, we're looking at if that would occur, how are our customers affected? Let's say a lot of our business is still very much on exports of product. The bulk of our, particularly if you look at U.S., is very export oriented. That might be an effect, but to assess, first of all, on which products and how it will be conducted is to be seen.
There are no longer these flows between Europe and U.S. and vice versa purely to make money on the subsidies and/or flows from Brazil to U.S. on vegoils.
Well, that's still happening, that's for a different reason. There's export ethanol from the United States, it has to do with the blend wall. In other words, they cannot get rid of that product in the domestic market, they send it to Brazil. That's still happening. Again, that's export oriented. That will not be affected by any import policy.
The timing.
Sorry?
The timing of Haiteng.
I think it's very hard to assess because work needs to be done, obviously by our customers, in the first instance on their plants. I think the positive sign is definitely that we see that the key parties that need to come together to make this happen, being the Chinese authorities and the shareholders are indeed making some progress. After they have a clear agreement, our best estimates, but this is from a big distance because it's not our site that's on the critical path, but it is their site, is that you would have to expect anywhere between half a year to one and a half years of work.
Yeah.
I think that gives you a little bit of why we say 2018 is for us good. When you say, is it going to be early or late? Unfortunately impossible to tell at this stage.
Finally, on IT, referring to the question of Luuk, can you give more clarity on the exact timing of the cash out for the IT expenditures? Will it be EUR 17 million in 2017, EUR 30 million in 2018, or will it be evenly spread? How should we look at it?
Reasonably well spread. It's not EUR 90 million in the beginning and then five. It's reasonably well spread if I look at the total picture. Yeah.
Yeah. Martijn van der Dijs for NIBC. Well, the question was already asked with regard to the CapEx reasonably well spread. With regard to OpEx, what should we think in terms of magnitude? EUR 30 million, EUR 50 million? Again, there as well, how should we think about the spread over those three years? That's question number one. The second question relates to Vopak E.O.S. Can you report to us what you're planning there in terms of the business model restructuring? Second to that is also an update on the LNG terminal, because there's some local news flow about that element there. Two questions first.
Yeah. Over to you.
Going back to the guidance for 2019, in fact, it has a couple of elements in it. First of all, of course, the positive contribution we expect from the projects we are having under construction and also the development of our current network. The development of our current network depends, of course, on the margin development. In order to ensure that we are not, let's say, at first be surprised by only those one-off costs of increasing our OpEx with respect to business development and innovation. That's the reason why we said we total function efficiency improvement program, different from the innovation, where we try to reduce the cost base of EUR 25 million in 2019. The spread and let's say the combination, it will hardly have any impact in 2019 anymore.
There might be some timing difference in 2017 and 2018 of both different initiatives, increasing some costs while increasing some efficiencies. By using these amounts, they will never be as significant as you are referring to on a yearly basis. It's not that you should multiply the amount we, by just discussing on Q4 with four, for instance. No. It gives an impression of what a run rate might be and then slightly compensated by the benefits of this efficiency program. That's the reason why 2017, 2018, we will see what focus on 2019, where it'll decline quite a bit to where the has been looking at what opportunities there are, and depending on the cost structures, there have been opportunities in the recent past where we a very useful, blending of fuel oil.
That's one business model which they have developed and have been likewise, they are looking at other things to make use of the tankage. For instance, also gasoline imports are being purposes than compared to the primary purpose. As long as from a logistics perspective, if the politics were ever out of it is still a very attractive and very cost-efficient export route for Russia, for its fuel oil. That's if you take a purely non-political view.
Do I understand it correctly that you're actually accepting very low profitability or even break-even levels just for the optionality of the terminal?
Well, we are trying our very best to make it as profitable as can be under a much harder market than we had when we were just able to serve our primary market. Yes.
Okay. Thank you.
On the LNG you asked, I would say also on the subject of politics, it is, I would say, very similar. Of course, Estonia is very dependent right now on Russian gas, but is politically not always close, although currently a little bit closer than it used to be to Russia. This LNG terminal is primarily a political decision, whether they want to invest as a backup slash replacement for their Russian gas supply. We are honored to be part of the discussion there. I would say it is still not something that is very imminent, in my view.
Then a final question on your competitive environment. It seems as though the U.S. MLPs are becoming more active in some of the regions where we did not see them previously. Do you feel, do you share that sentiment, and what would you do or can you do in order to respond to that?
I think if you look at the general environment in tank storage and midstream assets, we have seen in the year 2005 to post 2010, huge opportunities because of imbalances globally. I think the world has gotten used to that, and we've seen that the speed to which the development is taking place, the speed of growth has been slower in the last five years than we've seen in that period. What I think is that people will need to work much harder to get the right projects in and to get the positions. I actually think that we're entering a phase in which the capabilities of a company, meaning the intrinsic capabilities to construct, to operate, and to run them, or the intrinsic capabilities of where you are already will play a bigger role in the coming years than it did in the past.
I do see that they want to expand their footprint, but I'm confident in today's environment and what I see ahead of us in the next five or 10 years, that we have a strong position to play competitively.
Yeah. Good morning. Roland van Aartsen. A couple of questions about the market state 2014. We discussed the CapEx in the period, and you say, okay, not any gold-plated CapEx we had done in the past, and let me say over, in fact, better than the rules demanding us. I remember in maintenance, sustaining CapEx of between EUR 150 million and EUR 200 million. You're raising that now to EUR 250 million, if I'm correct, on a yearly basis. What is the reason that, I think given the capacity is the same, given the fact that the pricing level is also comparable, then, of course, I'm coming back on one of my teams is about terminal master plans you had in mind with regard to maybe Rotterdam, Botlek, et cetera. Maybe you can elaborate on that. Then I have a couple of additional questions.
First one is easy to answer, Ferdinand. EUR 250 million is both for sustaining and service. We've combined them both. It means that on sustaining, I think your run rate is probably similar, somewhere between EUR 150 million and EUR 200 million. But we've included also an amount for service to give the whole picture. Because sometimes, like we've taken a decision yesterday to invest in jetties in Westport, whereby we say it's a tremendous opportunity both to improve our service and we will obtain additional revenue, but not in a similar run rate as you see with, let's say, expansion greenfields, et cetera. That's where we say EUR 250 million is both for sustaining and for service. That's easy to answer. The second question that you had to do with?
Yeah, that's about the TMP, of course.
The TMP. The TMP plans, the terminal master plans that we have made are for the, let's say, the larger operations that we have, and that's a continuous process. We have the terminal master plan in Europoort is running as we speak. I think the extension for the phase 3, phase 5 fuel oil to be able to move high viscous products through the terminal is part and parcel of that. We're really looking at how can we improve the quality. We're looking at the terminal master plan, for instance, in Sebarok, for instance, in Singapore, how we can improve that. We have a terminal master plan for our facility in Houston.
What you see is that that basically is a guideline for us to look beyond five years, how we're going to put that terminal into service, what type of sustaining CapEx needs to go in, what type of service CapEx needs to go in, what type of markets do we like to serve, what's the profitability in those markets. We're still on that.
That's in the 750 then?
Yes.
Okay. Then about the Capital Markets Day 2016, where we discussed, of course, the situation with regard to plans to expand. You show more confidence today, and you gave an example of South Africa. Have you made more progression with more projects since then, that you might announce more projects in the coming quarters? Or is that too early to say that?
The period you mentioned is too early. The point is what we try to elaborate on with a long-term focus, assessing whether you can decide on a certain project in a quarterly, let's say, timeframe is too short for this business model. That was the message in 2016 Capital Markets Day, and we said even two quarters might be too short. We even think that 12-18 months is more likely the period where we have to assess. Indeed, we show more confidence based on a better insight, a better understanding of the drivers behind certain projects, and the corresponding, I would say, timing scenarios, which seems to be realistic to materialize in the 2017, 2019 period. That is, in fact, what we try to elaborate on.
Thank you.
Thank you, Ferdinand. We will now switch over to the analysts dialing in with us today. Thank you.
The first question is from Mr. David Kerstens, Jefferies International. Go ahead, please.
Good morning, gentlemen. Two questions, please. First of all, your partner in Malaysia Dialog highlighted the strong performance of the Pengerang Independent Terminal earlier this week, and they mentioned higher prices. Is that what you see generally in the greater Singapore Straits area, or is Pengerang pricing catching up with the levels that you're already charging in Singapore? My second question is regarding the scope of the Exmar transaction. Does your balance sheet allow you to take 100% of the five FSRUs, taking into account your project pipeline? Sorry, I forgot one other question related to Pengerang. I understand they said they are looking for partners for the further expansion. I think at the Capital Markets Day, you highlighted the potential expansion by 1 million cubic meters. Are you involved in this expansion?
Given the tanks are now already full, I think for about a year or so, when do you expect that this expansion will materialize? Thank you very much.
Okay, David. Shortly on Pengerang. The relationship with Dialog is very strong, very respected partner. As you know, we are both in phase 1 and phase 2, SPV one, SPV two, working together with them. It means that all developments in Pengerang is something that at least that we are aware of, in other words. Those comments were related basically also to ensure that, let's say, the location of Pengerang is top of mind for people who want to either invest in manufacturing in that part of the world. What we've seen in Pengerang is that the assets are functioning very well. We made that comment already several years ago, that we see it as a natural extension to our business in Singapore.
What you see is that it's not only in Pengerang, but generally the business environment in Southeast Asia, particularly in the Singapore Straits, has been good and improved in 2016 over 2015. That had to do with, I said, the amount of bunkers that have been delivered. It had to do with the amount of gasoline that came in from China. It had to do with the amount of gasoline that needed to go into Indonesia. We've seen on occupancy and pricing, a healthy development in Singapore and Pengerang benefits from that as well. If you then on There's the other question on Exmar, I think.
Yes. In fact, on the impact, if I understand well, on the total headroom we have available if you combine, dependent on the scoping of the Exmar transaction debt with other projects. Of course, the complexity with those questions always is scenario analysis and timing. If I would answer it very conceptually, you can think of different scenarios dependent on timing, impact, and size of projects. That, for instance, you end up with net debt EBITDA ratio below 2.5, between 2.5 and 3, and even beyond 3. That is exactly the reason, because of the realistic potential of those scenarios, that we say we want to use the flexibility of the balance sheet at this moment.
Taking into account that we are looking at the scoping of this transaction and taking into account opportunities at other projects where the timing of those projects might result in those outcomes, that we feel, to the benefit of the shareholders, that we should absolutely maximize on this flexibility going forward. Dependent, of course, on the developments in the next 12 to 18 months, of course, we can, as an agile, dynamic strategy, look at again, what is the headroom? What are the opportunities? A very conceptual answer, I realize, but different scenarios possible, even beyond 3, if many things materialize in a certain time frame. Don't see that as a guidance. Just scenario analysis, different outcomes, different concepts for different purposes, and that's the reason why we would like to leverage on maximum flexibility.
Okay.
Thank you very much. There are no further questions. Back to you, please, Mr. Rietveld.
That brings us to the end of this presentation.
I agree.
Sorry, one more question. One very more.
We have one. Yeah.
Adamo, there are four questions. The first, if I take a very simple approach on group EBITDA for 2016 of EUR 822. You made a CFR of 10.5%. If you give a range of 9%-11%. That would bring the range in terms of absolute numbers, to EUR 700 million-EUR 860 million. What kind of circumstances would you expect to be there in order to reach this EUR 700 million lower limit there?
What you are doing now is that we provide a structural, sustainable, long-term guidance for the next 12 months, which doesn't seem a realistic scenario. You should see this more as we are making a long-term journey, and we feel that for the next three, four, five, six, seven, eight years, we see this as a range, which we feel is a realistic one. Translating the lower end of that range immediately for the next 12 months is not a realistic scenario. Because that would, what you say, EUR 700 million, I could not come up with a scenario because that would mean if we say that, we could not provide guidance on the occupancy rate. The only way you could achieve EUR 700 million is an enormous pressure on your occupancy rate, because that is the main value driver.
Long story short, the 9%-11% is long-term guidance, how we try to run a growth strategy with a diversified portfolio of infrastructure assets, growth opportunities, and we use it as a critical reference point on behalf of our shareholders to maintain that cash flow profitability.
Okay. Looking at sheet 28, it shows this CapEx column. Just simply looking at the size of the column, it seems to indicate that your CapEx on new projects would be anywhere between zero and EUR 500 million. Would that be your best guess going forward?
I like the question because I had a discussion indeed with our investor relations department whether the size of the box would trigger any question. Of course, the question mark means don't conclude anything from the size of that box. Don't conclude anything. It's just a question mark. It could be in whatever range.
On the forecast 2017, you explained, for example, the effect of contango on the oil business. On chemicals, you also are a little bit less positive. Any specific reasons for that if I look at the colors of the box?
Well, coming back to You remember, when we had this reset in the Chinese economy, we were quite negatively affected in the storage of chemical products in China. As a result of that, we were adversely affected on the distribution terminals in Singapore. We also have some, let's say, Latin American operations. It's more that the playing field on chemicals has changed since 2014.
Okay, last question on Exmar. Of course, you have not really detailed what you could be doing there. If you look at the mix of intangibles and tangible assets, I can understand why you would want to have the technology as a new market and a quite promising market. What about the assets? What would bring, let's say, one or two or maybe three of those vessels with long-term contracts, which would be very unlike Vopak, because you cannot do anything with those? They're simply sort of static investments there. Why would you want to invest in those assets? I can see the rationale behind the intangibles, the technology, and so on, what about the assets there?
Well, from a strategic point of view, I think you almost already answered that question. What we like is that if you look at the LNG business, if you assume a world in which more LNG will be distributed and traded across the globe, you have large storage terminals for regasification, which the ones that we have in Rotterdam and in Mexico. You have slightly smaller scale, everything between sort of two to six million tons. FSRU is exceptionally effective from an economic perspective. You have the really small scale where you come more into bullets, et cetera.
If you look at the discussions that we're having from a portfolio perspective, we'd like to have the capabilities, and that's why we engaged with Exmar on the dialogue, to be able to have, let's say, FSRU capabilities and the ability to construct them, ability to run them, let's say, ingrained in what we do. We think it fits naturally. We have the ability to market with the local knowledge to also construct jetties or put it into land. There's a natural fit there. I think it makes sense to have both. I think it makes sense, first of all, because of intrinsic capabilities, so that's more from an operational engineering commercial perspective. I also very much like the fact that if you have assets that are running, the learning curve becomes much steeper because the cloud that you get is substantially better.
That's why if you look at our objectives, is to have both capabilities, soft skills, but also learn with the assets as we go along. That's the philosophy behind our, call it our venture or search or our idea in 2016. Very happy that we've been able to reach a new deal with Exmar, which I think is a fantastic company. What we need to do now is just wait, be patient, and see when we can give you more news on that, Andre. Yeah?
Thank you very much. That brings us to the end of this presentation. We would like to thank the analysts present with us here today, the analysts dialing in, and the viewers online for joining. Our next presentation is the Q1 interim update, which is planned on April 19, 2017. Thank you.