Ladies and gentlemen, thank you for holding and welcome to the Vopak Q3 2016 interim update webcast and event call. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over conference to Mr. Jack de Kreij, Vice Chairman of the Executive Board and CFO. Go ahead, please.
Ladies and gentlemen, a very good morning and welcome to the Q3 interim update. What we would like to do in the next, let's say, 20 minutes is give you a bit of a clarification about the financial developments in the Q3 and year-to-date period. I will flip pages on the presentation as published on our website, and by making a reference to the number of the page, I sincerely hope it will facilitate an easy engagement on this presentation. Looking at page two, you are familiar with the forward-looking statements. At this stage, I will not repeat the contents other than that, of course, any event in the future can have an impact on the guidance and outlook we have provided.
If we look at the topics we would like to address in this interim update, we will quickly go through the year-to-date Q3 2016 business highlights, the key figures, but also provide you with an update on the status of the projects and the financial year 2016 outlook as published in our press release this morning. I'm now referring to page four. On page four, we have summarized a few critical metrics in looking at our total company. Of course, the terminal network is critical. Occupancy rate is a very relevant KPI in our business model. Derived from both metrics, we look at revenues and EBITDA. The terminal network is more or less stable compared to last year.
While taking into account, of course, that the total capacity has been affected by realized divestments in different countries of the world, like the U.K., the U.S., Finland, and Sweden, while at the same time expanding new capacity in other regions. The occupancy rate compared to last year is in line with our full-year outlook, where we indicated at the start of the year that the playing field for our total global network would be above 90%. As you are aware, the 90%-95% range is what we would call a healthy playing field, enabling us to leverage on the utilization of our assets to an optimal level.
That has supported us in growing our EBITDA with another 4% compared to the year-to-date figures, while not taking into account, of course, the adverse implications of any divestments, as a result of which we are missing the corresponding EBITDAs in the current reporting period. That's the reason why we have added a column just for indication purposes. What the EBITDA increase would have been if we would not have divested the terminals involved in that global network, and that would have resulted in an increase of 8%. The same applies to the revenues. Total revenues around EUR 1 billion, but dependent on including or excluding divestments, we talk about a -3% drop or a +4% increase.
Overall, occupancy fully aligned with the guidance we have provided at the beginning of the year, resulting in solid financial results with explanations due to divestments when we look in more detail to certain reported numbers. Looking at page five, it gives a bit more total overview of the occupancy rate development since the year 2004. As you can see that the majority of this period, we have been able to utilize our assets in the 90%-95% range. We have gone through certain periods, like in 2013 and 2014, where we were operating between 85% and 90%. As we have guided you in the course of this year, we have operated in the 90%, 95% at the high end of the range with a Q3 of 93%, slightly below the Q2 utilization rate.
Looking at page six, the same numbers in comparison with 2014, but also including the net profit development, which shows an increase of 10%. The reason that EBITDA is 4% and net profit is 10% is most of the time the consequence of a different mix between the contribution of group company, which of course where the income is still subject to taxation. Whereas if on a relative basis, the EBITDA reflected by results from joint ventures and associates after taxation is relatively increasing, that is already including the taxation, as a result of which this mix is resulting in a net profit increase of 10%. Looking at page seven, we were talking about divestment. Just to provide you with a total overview of all the, I would say, rationalizations we have been able to execute since our announcements in 2014, is that we have been divesting 17 terminals.
That means that the original program of divesting relatively smaller terminals in order to sharpen our global network has been successfully completed. The total storage capacity covered by these divestments is 2.6 million cubic meters, and the total cash proceeds, and we will come back on that later, was around EUR 750 million, positively contributing, of course, to the net debt EBITDA development, which is now around 2. Looking at the EBITDA and revenues adjusted for divestments, again, we demonstrate an 8% growth in EBITDA and a 4% in revenues. Now on page eight, to give you a bit of an analysis about the difference between the year-to-date Q3 numbers in 2015 and the year-to-date Q3 numbers 2016, where we have reported a 4% increase.
If we nail that 4% down and we adjust it for the previously mentioned divestment implications and the foreign currency implications, the adjusted Q3 2015 EBITDA would amount to EUR 570 million. Then the positive news is that based on our outlook of high occupancy rates, we see that every region has positively contributed to that development without any exception. The overall conclusion is we not only have operated in the 90%-95% utilization range, but also at the higher end of that range, contributing positively to the individual EBITDA development of all individual geographical segments, contributing to the development of a year-to-date Q3 2016 EBITDA of EUR 624.7. On page nine, we have summarized the key figures, but then not on a year-to-date basis, but on a Q3 basis.
Of course there, the impact on specific divestments is quite significant if you want to compare from quarter to quarter. Looking at Q3 EBITDA, it shows a 5% increase compared to the Q3 period in 2015. The net profit shows a 16% increase and the revenues are 2% down. As said, the main reasons, one is, of course, FX is one of those elements, but firstly, the most important factor is that all the geographical segments reflected by our divisions 2016 and contributing positively to the EBITDA and net profit development. Page 10. You are aware that we announced that we were considering to build out our facility in Houston. We call that the Deer Park Brownfields capacity expansion of 139,000 cubic meters. This is progressing properly well.
The contracting is ongoing and we expect at this stage to be able to start construction end 2016, early 2017. More important, of course, is when we expect a commissioning and that at this stage is planned for Q4 2018, meaning that, let's say, a reasonable contribution to the results can only be expected somewhere in 2019 and not just in the fourth quarter of 2018. On Panama, we already started the operatorship of the Chevron assets after our announcements, and that was on September 1st, 2016. We are now, let's say, evaluating and also looking at many contracts in order to ensure that we can start the construction of the Greenfield capacity. Also there, we do not expect this to be completed before the end of 2018.
That means from a guidance point of view with respect to EBITDA development, that it is only to be expected to contribute positively to our EBITDA development in the year 2019. Looking at page 11, that is the closing, in fact, of the clarification session before we allow any questions. That is the outlook. Taking into account the divestments, which if you look at it on a full year basis, has an impact of around EUR 35 million negative and the negative FX results of EUR 10 million. We have taken into account the current Q4 potential conversions of certain commercial contracts, the year-to-date results in EBITDA. We have come to the conclusion that it's absolutely well-positioned to exceed the 2015 EBITDA of EUR 812 million.
That means that we have been able, with the earlier explained positive developments in all the different geographical segments of our divisions, that we have been able not only to compensate the adverse impact of the divestments and the foreign currency results, but on top of that, we likely are going to contribute something in addition above the current 2015 level of EUR 812 million. With that, I would like to refer to the moderator in order to allow any questions you may have.
Ladies and gentlemen, if you would like to ask a question, please press star one. For questions, please press star one. The first question is from Mr. David Kerstens, Jefferies. Go ahead, please.
Hi. Good morning, Jack. I have a question regarding your performance in Asia. If you strip out the joint venture result is showing a 6% increase of the subsidiaries. Does that imply that your Chinese import business is starting to improve compared to the first half of the year? Secondly, on the joint ventures up 43%, do you now see a much larger? What is your view on the recent M&A in the industry with the sale of stakes in Universal Terminal and VTTI? Does that change your competitive landscape? What are the action to your U.K. assets? Thank you.
Yes. Good morning, David. Looking at Asia, it is not only the, let us say, the stability in China, which is contributing slightly positive indeed to the demand of specifically chemical storage in Singapore. It is more that also additional capacity has been added to our Asian operation in VTS Singapore. Like for instance, the LPG storage, that is an explanation. So it is more that you have to think about the positive development of occupancy rate, which might slightly come from the stability in the China region, but also the additional capacity expansions, for instance, in LPG and other small positive developments. So it is not one factor. It is a combination of all those small factors, but it would be wrong to say that it would only be the result of some stability and positive development in China. With respect to your question about what is happening in the industry.
It's a very broad question. The reason being is that you know that there has been an increasing interest from a financial investment perspective for infrastructure-like activities with stable cash flows. As a result of that, we have seen increasing interest from infrastructure funds. We have seen increasing interest indeed from the areas you were mentioning. That has supported, of course, in an efficient capital market, has supported, I would say, fair market value-based valuations. Why do I mean fair market value base?
It is because that if you are operating in an industry where you are able to position yourself in a value chain, where you can add so much stability and value, that there is hardly any significant volatility in utilization rates while you are still adding value to your customers, that at a certain point is going to be reflected in this type of transactions. Does this mean that the competitive landscape is going to change? I don't think so, because at the end of the day, it's only about one thing, and that is what is the truly added value from an infrastructure services point of view, what you can contribute to the success of your customers, and that is almost independent of the owner.
We feel that being, let's say, a corporate specialized infrastructure service provider for the last 400 years, that we are well-positioned in order to support those developments from a customer perspective, and that we don't see from a competition and a competitive edge point of view, that suddenly those new owners would be able to change and disrupt that significantly. At the same time, if you have transactions at appropriate fair market values, it's also securing that there would not be an incentive, of course, by starting to offer services at below fair market value rates. Long story short, I understand the development from a financial market perspective. From a competitive landscape, I don't see any significant changes resulting from those transactions.
Thank you, Jack.
Next question is from Mr. Yaroslav Rumyantsev, Credit Suisse. Go ahead, please.
Good morning. Thank you for taking my question. Could you please give us your thoughts regarding the recent IMO decision to implement a sulfur cap of 0.5% in 2020? What are the implications for global imbalances of diesel and fuel oil? In the longer term, what do you think is an impact on LNG market? Thank you.
Okay. That's quite a broad question. Indeed, in fact, you could say, what is the impact of the change of a specification of a certain product? Indeed, you have two elements in it. One, in the energy mix, which is used in that sector, and secondly, on the imbalances. I will try to answer that as broadly as possible, but it almost warrants a separate meeting on this specific topic. Starting with LNG, as you know that because of this rule, it means that the shipping transportation business is looking for alternatives in order to be able to comply with this new guidance and standard, and there are different solutions. You could use scrubbers. You could use LNG. You could use more, let's say, marine diesel with this lower specification, which might be more expensive.
The question is at a certain point, what is the best fit for purpose economic solution for that particular shipping company? Some shipping companies are going through a stage of development where additional investments might not always be most easy way. The question is: Is the conversion to LNG the most appropriate one, or is the investment in a scrubber the more appropriate one? What we are doing, of course, as a business, is ensuring that we facilitate both developments. We have taken care by our investments in what we would call the small break facility, which we have added to our LNG terminal in Gate. We facilitate the accelerated use of LNG, which is going to be distributed to different stations by one of our customers.
It's too early to say whether this acceleration, how that will materialize in such a short period as the 4 years. For the time being, we are looking at two developments, investments in scrubbers. What does it mean for the storage of those products? Secondly, what does it mean for the LNG development? Looking at your question, does this have a significant impact on global imbalances? At the end of the day, if you take another 10 or 20 years, we absolutely are of the opinion that LNG is going to develop as quite a significant volume in the total energy mix, where the supply and demand imbalances between the regions will drive the need for additional infrastructure. There, the answer is absolutely yes. What does it mean for those products which are not meeting the standards of this new European regulation?
You have a number of options. Of course, you could try to limit the sulfur levels by going through a desulfurization unit, or there might be still an economic rationale for those areas in the world where this product can be legitimately used to transport the product. There will be different consequences of this legislation. It will not be one-dimensional. It could be even an increase of certain flows to other regions. At the same time, we expect, but not immediately accelerated in a 12 or 24 months period, we will see an accelerated development of the LNG flows on a global basis.
Thank you.
The next question is from Mr. Dominic Edridge, UBS. Go ahead, please.
Yeah. Hello there. Two questions from myself. Firstly, just with regard to guidance, both in terms of thinking about Q4 2016 and also into 2017. What are the key variables you would be flagging up, Jack, in terms of things that could either go slightly better or slightly worse? I know that you've talked about FX and some of the divested share effects, but what other issues are there out there that you would say are the other key sort of variables? Secondly, I suppose just going back to the point about the recent transactions in the sector, et cetera. When you look at your own pipeline, do you think you're being held back by the fact that prices are so high for assets out there and for new projects?
Can you just maybe give us an update on your thoughts on how the pipeline could shape up over the next couple of years? Thanks so much.
Maybe starting with the last question and then maybe referring to our capital markets update we provided in July 2016. In July 2016, we have tried to summarize what we see as the main driver for potential incremental infrastructure service needs in the different product market segments, LNG, chemicals, and oil. In July, we concluded that if you look and you take different scenarios, on the one hand with demographic developments, you look at economic growth on a worldwide basis, you look at the energy use, then, in general, we have come to the conclusion that the drivers for potential additional infrastructure are positive in the next decade. However, we had one small warning, and that we said is that the pace in which those factors are developing is relatively, I would say, not disruptive, but slow.
Meaning that it's not apparent when you have to make those investment decisions. That remains the same at this stage. Long story short, positive direction of additional incremental needs for infrastructure services in the selected product market segments in which we are operating. The timing is maybe not as apparent as 5 or 10 years ago. The fact that we have announced Panama, the fact that we have announced Deer Park in Houston, the fact that we are exploring different opportunities in those product market segments, give you a bit of an indication in which direction we are looking at to expand intelligently and in a very disciplined way, our total network. Looking at the variables of the Q4, which I would say are the normal variables.
The normal variables are, if let's say, a contract with a duration of less than one year expires in the coming weeks. The question is: Will there be immediately a renewal? Could there be a small timing difference of three or four weeks as a result of which the renewal will materialize in Q1 of 2017? That would be the variable on the top line. The second variable is also a natural variable. That is sometimes in certain periods, if we exceed certain throughputs, we are allowed to our contract to charge that additional premium for our services. You never know whether or not you are going to achieve that, and there are differences between quarter to quarter.
We are not talking about tens of millions EUR. At a certain point, if you want to have an explanation of a range which is so small, then you get all these, let's say, small natural clarifications. On the cost side, as you know, we are exploring business opportunities. You can imagine that if you are doing that the pre-operating expenses which cannot be capitalized, if you have not made a significant decision, then it means that it could have a negative impact on your Q4. Fourthly, we have started quite some innovation initiatives on what we would call the alignment between the digitization in the world on the one hand, customer needs, operational automation, and also there we are spending some money.
Long story short, we are not talking about swings of tens of millions EUR, but the combination, of course, could have either slightly a pressure impact and could have slightly a positive impact. At least at the end of the day, if we take it all together, we are very confident that at the end of the day, we will end up in 2016, higher than the year 2015, where we have one, positively compensated the implications of the divestments, positively compensated the FX effects, and maybe on top of that, we are able to generate something in addition, as a result of which the 2016 to be reported EBITDA might come higher than the year 2015. I hope that this covers your questions.
Yes. Thank you very much, Jack.
Next question is from Mr. Andre Mulder, Kepler Cheuvreux. Go ahead, please.
What's your view on the capacity expansion in the industry? For example, HES is developing this terminal. We got rid of the Russians, but now HES is returning there. What do you see happening in your other main hubs in terms of capacity development?
Yes. Good morning, Andre. Indeed, we have been discussing this topic, I think, since 2008. Since 2008, we have seen that in this industry, sometimes more proactively, capacity expansions have materialized. At a certain point, we saw in 2012 a slowdown of new initiatives. All those capacities have been added to the market and have been successfully utilized. What we see again, of course, is that indeed, specific parties are looking at specific product market combinations. It's a generic development. On the one hand, not surprisingly, on the other hand, sometimes as part of our disciplined capital investment strategy, we sometimes take different decisions, and that is all I wanted to say instead of commenting, let's say, individually on the individual plans of our competitors.
Can you also make a statement on the development regarding the FSRU use of EXMAR? Why EXMAR? What are the different options? There are other parties in the market there.
Yes. You can imagine that if we evaluate strategic options, we look at all kind of alternatives, and we never disclose, of course, our thinking process in that respect, because that would mean that we would share business intelligence with our competitors. We have explained in our capital markets day why we think that it's an area as a use which we should look at as an adjacent activity to our land-based logistics, and whether or not that will materialize, we will see. At this moment, we have no comments or whatever on this specific business development activity.
Thanks.
The next question is from Mr. Quirijn Mulder, ING. Go ahead, please.
One moment.
Mr. de Kreij, I've lost Mr. Mulder.
Yes, I don't hear him either. I know he's calling from a long distance location, that might be the reason.
Okay. Please continue, sir. There are no more questions at this time.
There are no more questions. I invite if Quirijn hears me, instead of waiting at this moment, that he could contact us personally. We were more than pleased to answer his questions. I take this opportunity to thank you all for participating in this interim update and to invite you, if you have any follow-up questions, to touch base with our investor relations department. I would like now to ask the moderator to close off this interim update call.
Ladies and gentlemen, this concludes the webcast and interim call of Vopak. You may disconnect your line.