Good morning to everybody here. Welcome to the viewers online. Welcome to the presentation of Vopak's full year 2015 results. With us here today is Chairman of the Executive Board and CEO, Eelco Hoekstra, our Vice-Chairman of the Executive Board and CFO, Jack de Kreij, and our COO, Frits Eulderink. After this presentation, there will be an opportunity to ask questions, first by the analysts present with us here today, and thereafter by the analysts dialing in. This presentation will be available afterwards at Vopak's website. I would like to first point out the forward-looking statement in the presentation. This is regarding the presentation today and the comments made by the Executive Board. I would like to give the floor to Eelco Hoekstra.
Good morning, everyone. Thank you for joining in and be with us here today to give you a presentation on the annual results of Royal Vopak for the year 2015. Today, I'm happy to be able to share with you that we have achieved our financial results for the year 2015. Similarly, we have confidence in our ability to sustain these earnings in 2016, and at the same time provide a dividend which will be 11% higher than the year before to EUR 1 per share to underline our confidence. What I'd like to do with you today is to elaborate on those points that I've made and to give you insight on why that confidence is there and give you insight in the results of the year 2015. What I'll discuss with you is a few key topics.
Just shortly give you a bit of insight in our 400-year anniversary, inform you on our sustainability drive, give you insight in the business environment, spend some time on the strategy execution and our performance throughout 2015 in that regard. Spend time on the financial performance in 2015 and give you some insight in the outlook. As always, my presentation will be then followed by presentation of Jack, who will give you insight in the numbers of the year 2015 and our outlook. Let me start with our 400-year anniversary. I think this is the appropriate time and moment to share with you that we are very proud that we have been able to reach that milestone.
If you look at it's quite a journey in 400 years, what I would say from tea to LNG. We're very happy that we have been able to sustain our business over such a long period of time. We hope that in this particular year, we can underline the success of the company by demonstrating excellent safety results, good service results to our customers, and obviously, very strong financial results in 2016 to really make that celebration the icing on the cake. If we look at our ambitions, we have confidence in our long-term future. There's good reason to be.
If we look at the long-term trends that are happening globally, if you look at on the one side, population growth, demand for energy, demand for plastics and products, and the demand for agricultural products, we believe that we're very well positioned to capture the value that's there in those markets ahead of us. If you look at those ambitions, the way we would like to continue our journey and to create value is, first of all, to stay very much focused on the prime locations and focused on the quality of our assets. Second of all, if you are a leader in any industry, you need to be a leader at how you execute your frontline and be excellent in safe, efficient, and effective operations.
Thirdly, we believe that we need to put ourselves in strong value chain with long-term contracts and have long-term commitments from customers and provide services to them, which can add to our long-term sustainability. Lastly, we need to be a company that is agile and has the ability to innovate and look for new markets, new combinations, but also innovate within our business model. Lastly, always stay true to the values that we have at Vopak. The values that we have, the non-negotiables, obviously our integrity, our care for safety, health, and environment. Our other values I'd like to share with you is our team playing. We act as a team. It's commitment to what we do, and it's the combination of those assets and values which underline our ability to move forward. Maybe a few words on sustainability.
If you're a company that has a history of 400 years, sustainability needs to be on the front of your mind. It's our ambition to stay reliable and relevant. For that, we have a framework which we like to use in our daily dialogue, in our thinking, and in our decision-making. We handle products which are dangerous and valuable to our customers. Our prime responsibility, and we are very much aware of that responsibility, comes with storing products safely in a good manner. Both for process and personal safety, those are the things which are on the top of our minds to stay relevant and sustainable in this industry. Second of all, obviously, with process safety comes good environmental care, that we don't emit any products either to soil, sea, or to the land and to the air.
With that comes our interlink with our partners and stakeholders to be responsible, act responsible, and have the right people at the same time to make those decisions and to drive the business forward. Our sustainability framework is something which I believe has brought us where we are today, and we'll continue as a company to focus on the elements that we've set ourselves apart. A few comments on safety particularly, which we do every year. What you see is that with our commitment to safety, we have been able to continuously, in the last 10 years, show a positive trend on our safety statistics. What you'll see in the year 2015 is that we have not been able to significantly improve our safety statistics. I would like to tell that remains on the top of our agenda to get that organized.
We'll relentlessly continue with our efforts on infrastructure, processes, and people behavior to improve that as we go forward, as this lies at the top of our sustainability drive. If we go to the results of 2015 and spend some time on which topics have influenced our result, and which topics have been continuous in the dialogue, not only within the boardroom of Vopak, but most likely in many boardrooms around the world. That's first of all the sliding oil price, which at the start of 2015 was substantially higher than at the end of the year, and a continuing downward trend to the price where we are today. The second topic, which has been addressed extensively, is the growth of China. To be more specific, the slower growth of China.
It has created quite some questions around the world on how stable and how continuant the growth will be, and what effect it will have on the different industries and the economy of the globe as a whole. The third topic, which has been on the boardrooms' minds and ours as well, is geopolitical events. Particularly developments on the political scene within Europe. We've had conflicts in the Middle East, to name a few throughout the year, which had an effect on the complexity of the predictions of how economies would develop. These three topics have been influencing the results in 2015. Let me elaborate now on how these three topics have influenced the result of Vopak.
On the one hand, on the different products that we store and the industries that we're active in, and after that, I will highlight on the different geographies and what effect it had. Let me start with the overview per product group. The sliding oil and the lower oil price had an effect, obviously, on the oil markets. We've seen that the refining sector was more profitable than the years before, and as a result, has been producing more products than the years before. We've seen with the lower oil price that more trade could be conducted because demand was growing because of the lower price. As such, we've seen that the trading environment downstream has been very active, which has supported our business model.
Secondly, we have seen that also speculative storage has come into play because of that oil price environment in which we are less active, but that has been clearly a topic that has been discussed within our industry. The second thing is that within the chemical industry, we've seen that the difference between the profitability of chemical manufacturing between gas and oil has diminished slightly. As a result, we've seen a competitive playing field globally has resulted in very consistent movements of chemicals across the globe. Maybe on LNG, we've seen, first of all, that the supply of gas and the supply of LNG is on a steady climb, is growing. We expect actually in the coming years that the same will happen since a lot of liquefaction plants have been announced and under construction. At the same time, not all supply has been absorbed by demand.
As a result, we've seen more interregional flows. We've seen more short-term trades happening in gas, which ultimately has a positive effect on our business model. Maybe lastly to mention is that what we've seen, not so much in the veg oil, but particularly in the biofuels industry, is that for biodiesel and bioethanol, we've seen that the blending mandates have been acted upon. We have not seen a lot of blending because of economic reasons, because of the lower oil price. What you see is that generally we've seen a rather neutral effect in the veg oil and biofuels atmosphere, but we've seen a positive effect generally in oil products, chemicals, and LNG because of the low oil environment. If we translate that to the market developments, we look from a geography point of view.
We see clearly that the Netherlands has benefited clearly from this new environment. We've seen that the parameters for trade and throughput in the Rotterdam Harbor as well, crude deliveries to the refineries has been very positive. As such, we have been able to improve our results compared to 2014 substantially in the Netherlands. EMEA, similar story. Because of the environment we've seen both in Europe, Middle East, and Africa, a very solid demand for our storage services. Maybe on Asia, we've highlighted that in our half year call, is that we've seen that the Chinese economy had to go through a bit of a reset. At the same time, we've seen that our new tankage in both Pengerang and Singapore, which came new to market, needed to be absorbed.
What we've seen is that we had a relative weakness compared to historic results in Asia, but that fortunately in the second half of the year 2015 picked up gradually and has been improving as a result. Lastly, the Americas. We've seen a very stable environment for storage service, particularly in North America. The few exceptions that we've seen, where we've seen a slightly weaker development, has been particularly in those economies like Brazil, who had through lower economic activity and currency exchange, has not been able to import as aggressively as they did in the years before. Net, if you look at the Americas as a whole, we've also seen an improvement compared to the year before. In short, if you look at the geographies, we've seen Netherlands, EMEA, and Americas improving.
We've seen Asia gone through a weakness mid-year 2015, but we've seen an improvement of our results as a result of the environment today. If we look at how we have been actively pursuing our strategy, our strategy again is to have the quality infrastructure and the right portfolio of terminals to be able to successfully interact with customers and provide them storage services. Secondly, to be the leader in how we execute and how operate at the front line of our business. Lastly, is that interaction with customers over a longer period of time to understand what they require and how we can serve them. I'm happy to say that we have been very successful in, again, the execution of that particular strategy, and that's also highlighted by our growth leadership pillar.
We have added 2.2 million cubes in the year 2015, but at the same time have sold 1.7 million cubes. We've added half a million cubes net to our total portfolio of terminals. The good news is that on the basis of long-term trends, we try to reallocate the location where our assets are to ensure that we can capture future growth and opportunities in the market. We're very happy with the developments there. Equally, if you look at the new terminals that we have been able to announce, a good example is the storage terminal in Jubail, together with Dow and Saudi Aramco, in which we signed a long-term industrial deal, which really fits at the heart of our strategic intent.
Which underlines you that as a company, if we look at the portfolio, we are executing the things that we have mentioned in the last few years. If you look at operational leadership, the initiatives that we've taken are bearing fruit. If you look at, for instance, how we operate and how we train our staff, or you look at how we maintain our terminals and the control that we are assessing over the different assets that we're having, is now bearing fruit and we see that in the way that not only we talk about our terminals, how we talk to our customers about our services, but also how it's perceived. I'm very happy with the progress in that regard.
Lastly, maybe on the customer front, we'd like to demonstrate to our customer that also in dialogue, we know very well what are the assets that they require. We've made major improvements in the infrastructure that we're operating. I'm happy to share with you, and these are just a few examples of the things that we've been doing, is in the hub terminals, for instance, if you look at the modernization of the processes on the jetties. Deer Park is a good example, where we use smart technologies to improve the efficiency. If you look here in Rotterdam, in Vlissingen, connectivity to new modalities like rail car loading stations, which are crucial to our service offering to our customers in the edible oil markets. Also, for instance, with refineries near our terminals, that we try to seek connections to simplify processes and make them more efficient.
To highlight its connectivity to our Banyan terminal, to a refinery in Singapore, or connectivity to our terminal here in the Laurenshaven in Rotterdam to one of the refineries here in Rotterdam. I hope this gives you a sense of that every year we have a strategy on these pillars, and we try to very clearly demonstrate and implement a few of these key parts of our strategy going forward. Maybe the punchline is that the business highlights for the year 2015. How has all our efforts ultimately resulted in financial numbers? As I said, I'm happy to inform you that our network has grown by half a million cubes, I'm more satisfied with the fact how we have been able to grow that via rebalancing our network.
Second of all, with that, we've seen that we've benefited from the market environment in particularly in the second half of 2015, which led to an overall occupancy of our network of 92%, which is a very healthy indicator of where we stand as a company in this industry. That has resulted in an EBITDA of EUR 812 million for the year, and we've got cash flows out of our operations, my apologies, of EUR 867 million. As I said, healthy financial results for the year 2015. If we go to the outlook and to give you a sense why we have confidence in the year, that has to do with the fact that we believe that the main drivers for the current market circumstances will be maintained in the year 2016.
What we like even more is that, first of all, we have a network which we believe both for oil, chemicals, and gas is very suited to capture the opportunities out there because of their geographical spread and because of their product group spread. We have a healthy contract coverage for 2016, which adds to the confidence for the year. We see that the contracts that we have and the relations that we have with customers is not because of speculative means that we are there, but we are really ingrained in their supply chains, which believes that we have a confidence for the future. I have to add, obviously, in the results, we need to be mindful that we have divested several terminals. That will obviously be reflected in our 2016 results. With this, I'd like to leave it there.
As a final summary, we are happy with the financial results for 2015. We're keen to demonstrate that by improving our dividend by 11% to EUR 1 per share. Lastly, confidence in 2016. With this, I'd like to hand it back to Jack, who will give you insight in the details of the numbers. Thank you.
Good morning, ladies and gentlemen. I'm more than pleased to walk through the results of this year, but also to put them in a long-term perspective and how it fits in our strategy. That's the reason why we selected the following topics, the long-term value creation journey we have been starting many years ago. The key demand drivers for our business model as they have been developing in 2015, but also with a link up to 2016. The recent business development. Critical in our capital-intensive model is, of course, capital management, how to allocate operational free cash flow, what type of projects, dividend policy, and of course, to put the financial results in a more quarterly perspective, how has it developed during the year? I also would like to come back to the priorities for 2016, which we defined in 2014. Where are we?
What is outstanding, do we achieve our objectives as defined in 2014? Starting with the basics, our business model. As we have been explaining in many of our presentations and in our interactions, we try to achieve a diversified portfolio of terminals, perfectly matching the market needs in different product market combinations. That's the reason why in the presentation of Eelco, he has referred to hub terminals in countries or markets with structural deficits, industrial terminals, pipeline linked with petrochemical complexes, and the gaseous markets, which is a broader range of LPG, LNG, and other gaseous products. That is a starting point. That is also the reason how we try to allocate capital to new projects. Critical in a capital-intensive industry, of course, is that you can generate stable margins.
That is one of the focus areas that we try to achieve a balanced contract duration portfolio of longer-term contracts, specifically for the industrial terminals. Those terminals located in the middle of product flows, of course, you could handle one to three year, three to five year contracts because the likelihood of successful renewal is very high. In order to support the portfolio structure and the growth, you need a strong balance sheet. That's the reason why in all these years, we have maintained quite a rigid approach of trying to execute a strategy with a debt equity balance of 60% debt, 40% equity. We would like to maintain that going forward. As said, in allocating the capital, you have to be extremely disciplined according to very strict criteria. Starting point for the criteria are, of course, the four identified product market combinations.
Further down, we also look, of course, at the risk-return profiles of each individual projects. It makes a huge difference whether you enter a new market with new prospects where growth opportunities can be materialized, or whether you are entering an existing market with hardly any growth opportunities. They all have different risk-return profiles, so they have to be taken into account in our evaluation. As said, in the operational execution, we focused a lot on cash flow generation, whether it's working capital management, whether it's CapEx management, whether it's increasing the margins, whether it's trying to improve our service capabilities to our customers in order to support occupancy rate. They all make a balanced view on how we try to operate that portfolio. The question is, how have we done that in 2015?
The first element, of course, is that from the demand drivers, it's very critical to agree that with the growth of the world economy, which is relatively limited, but with the increasing urbanization and the closure of refineries, as well as the increased energy consumption, we see more flows to being physically transported from different regions to other regions. That is exactly matching the profile of our portfolio. We try to identify those locations where there is a structural imbalance in order to ensure that also in five or 10 years, our terminals are located at the right locations. Of course, in the turbulence of the world, if we look at 2008, the European crisis, geopolitical tensions, oil price volatility, we have to take into account that we cannot continuously operate, of course, at the highest occupancy levels.
That you have to be able to generate a good return on the investment, where you also operate at 85%-90%. That has always been the driving factor in managing our portfolio. That's the reason why we are pleased that after a couple of years, having operated our total portfolio between 88% and 90%, that this year we are exceeding the 90% threshold again. Partly because of the choice we made in the past of operating hub terminals in the right location, being very well positioned in the supply chain of the chemical industry, which is a continuous growth factor linked to the GDP developments. Of course, the solid basis of our industrial terminals with long-term contracts. If you translate that to the other opportunity we could create in growing our business, of course, capacity expansions.
In growing our top line, in growing our earnings capabilities, we only have available three elements. One is capacity growth, which should be extremely disciplined. Secondly, we can try to maximize our occupancy rates, which is a result of selecting the right locations. Thirdly, margin management. If you look at the capacity expansions, we have still expanded our network this year with around 2.2 million cubic meter of capacity, and at the same time, we have divested 1.7 million cubic meter of capacity. That's the reason why you see a difference between 2015 and 2014 of a net increase of 0.5. If you take into account the projects currently under construction, up to 2019, we will end up at a network of around 38 million, 38.5 million. Of course, we have to deduct the upcoming divestment of our U.K. terminals, which transaction we try coming weeks.
Looking at the other value driver, occupancy rate. As said, in 2015, we exceeded the threshold of the 90% entering the new playing field of 90%-95%. The main question, of course, is this a structural change? Is this a temporarily change? That's the reason why we have provided clarity at least about 2016, that we strongly believe that when we take into account our total network, the current contract durations, the inquiries for contract renewals, that we are well-positioned to also exceed this occupancy level in the year 2016. Looking at the contract duration, we have seen some slight shifts in the long-term durations exceeding three years from 52% in 2013 up to 48% in the year 2015. It has partly to do with a change in mix of your portfolio.
If you add more capacity in, let's say, hub terminals and terminals in countries with deficits, then the percentage of contracts between one and three year will on average increase. The factor which has impacted a small change is that we have seen that because of the uncertainties in the Asian region, that some of the customers during the period 2014 and 2015 have preferred in specific smaller product market combinations to, let's say, reduce the duration of the contract from three years to, for instance, one years. Then on top of that, in a small percentage of our business, of course, when we have tanks available, there is currently an interest also by traders in order to leverage on the contango situation, normally that are short-term contracts.
A long story short, the change from 52% longer than three-year contracts in 2013, up to 48% in 2015 is not a fundamental change, but is an explanation of those three factors. If you look at the long-term value creation in a capital-intensive industry where it also take quite some time to identify new opportunities to construct a terminal and then start operating, but it could quite be a difference from the origination of the idea and the execution and the operation from three to seven years. We can only grow the business step by step in a very disciplined way. What we try to reflect here is indeed that despite this step-by-step approach, we have been able to grow our EBITDA levels cumulative average growth rate of 9%, and this year it was a level of 6%.
I have to mention also that the 6% was positively influenced by positive foreign currency translations. If you look at the other critical element, growth of the total capacity, occupancy rate, very critical, is of course maintaining your margins, whatever happens in the environment, in the world economy. What it demonstrates here is that we have been able, on our overall network, to maintain healthy margins, critical for driving a healthy business model. The financial position. As said at the beginning, in executing our growth strategy, we strongly believe that you need a strong balance sheet, specifically because of the capital-intensive character of our investments. That's the reason why we always look very carefully at the debt equity relationship. As you can see, we have carefully allocated operational free cash flow to new projects.
We have effectively used the availability of headroom in our balance sheet, we have never deviated significantly from the solvency threshold of around 40% in executing our strategy in the last 30 years. Translated to the allocation of capital to new projects, we can give guidance that for the coming year, 2016, we know that we are going to spend around EUR 500 million, partly because of the completion of existing capacity expansions, which have already been approved in the past, and EUR 300 million because we are having a combination of maintenance CapEx, improvement CapEx, alignment CapEx. The total will be EUR 500 million. For the period 2017-2019, we have not any guidance at this moment because we would like to review, during 2016, the prioritization of all our projects, taking into account our four product market combinations we have selected.
The update of terminal master plans, which could indicate new service improvement opportunities in order to reposition some of our terminals in certain product market combinations. More likely than not, somewhere early 2017, we will come back to give you a bit more indication what we think might be an indicative number for that particular period from a CapEx allocation point of view. The conclusion, with the current plans on the table, we feel that the current operational free cash flow is more than sufficient to finance, to fund this forecasted CapEx. Secondly, of course, when we complete the divestment of our U.K. terminals, additional proceeds will be made available for supporting our growth strategy going forward.
That means that we have sufficient flexibility, both from an operational free cash flow point of view, as well as room in the balance sheet to leverage on the capabilities and opportunities we might identify. Looking at capital management, not only from a solvency point of view, but also from a net debt-to-EBITDA ratio point of view, you see we have always been able to execute our strategy somewhere between a net debt-to-EBITDA ratio of 2.5 and 3.0. We are now reporting a 2.7 net debt-to-EBITDA ratio, which will further decrease once we have received the proceeds from the completed transaction of the U.K. That means that indeed with a net debt-to-EBITDA ratio and then pro forma of around 2.5, that we have sufficient flexibility for evaluating new projects as part of our growth strategy. Dividends.
Allocating, of course, operational free cash flow to, on the one hand, new projects, on the other hand, debt reduction, also critical that as part of our dividend policy, we continuously try to increment our dividend distribution when justified, of course, not only by the profit development, but also by the free cash flow development. That's the reason why we decided this year, taking into account the increase of our net profit, to also increase the dividend from EUR 0.90 per share to EUR 1 per share. That coincidentally equals EUR 400 per 400 shares, and we thought that would be a nice gesture in the year of existence, of 400 year of the Vopak company. 2015, not much to say. High occupancy rates supporting positive revenue development, EBITDA development, net profit development. No specific remarks to be made over there. Of course, spread over different divisions.
What we have decided to allow as much as possible time for questions. We have included in our presentation an appendix with more details about the individual divisions for your convenience. Looking at the quarterly developments in a more longer term perspective, you can see that the EBITDA has in fact been developing somewhere between 190 million, and the major shift from Q3 to Q4 is, of course, on the one hand, that in Q3 we had the negative contribution of some new joint venture capacity, which started up at that moment, which has become less negative or even positive. We also have benefited in Q4 of higher occupancy rates. So that explains the difference between one quarter and the other quarter. As said, it is a playing field where you have the negatives and the positives of different developments. That is summarized in this bridging statement.
If you look at 2014, the 763, and you adjust it for equal FX rates as applicable in 2014, then a comparable number would be 804. Then you have a number of developments in the year 2015 positively and adversely affecting the EBITDA development. The first one, of course, what we discussed in our previous updates, was the negative contribution of new joint venture startups where we did not immediately have high levels of occupancy rates, as a result of which the net result contribution was negative. Secondly, we have, of course, divested terminals, as a result of which we have now a lower EBITDA generation capability. Thirdly, you have pre-operating expenses for new projects, et cetera. So that is 14.5 in total affecting the total EBITDA development.
We have the Netherlands, EMEA, and Americas, which, as a combination of higher occupancy rates, positive EBITDA developments, have contributed positively. I think we have talked a lot during Q3 and Q2 of the developments in the Asian markets, in the China market, how did they affect the reporting of that particular region. That is reflected with the 27.7 decrease in our total operations. Other, that is a combination of higher pension charges, higher charges to, for instance, accruals for LTIP plans, et cetera. That brings up the EUR 812, which we have been realizing in the year 2015. More quick explanation. If you dig into the numbers, there is a huge difference between the EPS development, including exceptionals and excluding exceptionals.
The only reason is that because of the divestment of our U.S. terminals, because of the structure there, we have to incur a capital gain tax. That's the reason why you see that in the EPS development compared to the EBITDA development, there is a higher decrease than you would normally have expected. Return indicators. Because talking about capital intensive, talking about top-line developments, talking about EBITDA developments, talking about free cash flow development, of course, you have to link them both. What is the return on investment we are trying to achieve? We look at different indicators, but two we have selected for this presentation. On the one hand is the return on equity indicator. How effectively are we leveraging on the invested equity?
On a more proportional basis, taking into account all our joint ventures and excluding, in fact, the debt structure, we look at the so-called cash flow return on gross assets, which is after tax. What we have seen is that in our journey, of course, in the top year of 2012, that we were absolutely able to leverage on everything we were able to do, generating an extremely high return on equity, which is not sustainable on the long run. As said, our playing field, we are in line with our ambition is that we operate this portfolio in such a way that we can generate somewhere between 15%-20%, and we are still spot on in that bandwidth. The cash flow return on gross assets is developing in line with our ambitions above 10% after tax.
The whole question is, can we continue selecting projects fitting in those criteria, further improving, I must say, the risk-return profile of our total network? That is top on the agenda of the Executive Board. Looking at this non-IFRS proportional information, in fact, no deviations from what we report under IFRS from a development perspective. The occupancy rate, also, if you include the joint ventures on a proportional basis, is above 90%. The EBITDA increases with around 10% or 11%. There is not a disproportional different development, whether you look at the portfolio performance from an IFRS equity accounting perspective versus looking at a portfolio from a total consolidated proportional perspective. Where are we? In 2014, because of quite some uncertainties in short-term developments, we have in fact reconfirmed a few of the principles in our strategy and in the execution of the strategy.
A long story short, all the elements we included as an area of focus in our July 2, 2014 press release are on track. Some of them have already been realized. Some of them we are on track and are progressing extremely well and will be completed. A long story short, what we have shared in 2014 will be to the largest extent being completed in the year 2016. Looking at the outlook, as already explained by Eelco, if you go back to the fundamental drivers for demand for the different product market combinations, and we look at the current contract durations, and we look at the inquiries, and we look at our market positions, and we take into account the macroeconomic developments, we feel that we are very well positioned to also operate our terminal portfolio in 2016 above on average 90%.
That means that there's a solid starting point for not only the revenue development, but also the EBITDA development. The only thing is what should be included then in the analysis, which could be a plus compared to 2015 or which could be a minus, and that's what we have tried to summarize here. Expansions might contribute positively. Of course, we already have a healthy occupancy rate, but what we have seen is that it was slightly better in Q4. The question is, how far will we be able to occupy our assets in the year 2016 beyond the 90% threshold? Will we operate at 91, 92, 93? That is something we will see during the year. Of course, is there any activity going on from an innovation point of view or from a process improvement point of view, which could support a better margin development?
That normally takes quite some time, that is not something which we will be able to improve significantly in only a one-year period, but it's on the strategic agenda also for the coming years. Divestments will be negatively, of course, affecting the EBITDA development, the ones we have completed, but also a major one which when completed, hopefully at the end of March, will have a nine-month negative impact on the EBITDA development. And of course, the remaining factor is foreign currency effects, which are difficult to predict. A long story short, we feel that the individual components affecting, let's say, the EBITDA development of 2015 compared to 2016, will be in a very limited bandwidth if you take them all together.
That's the reason why we are very encouraged that we have a great starting point for also another year of solid results, which we expect to realize in the year 2016. A question very often raised, what is Vopak going to do with the interim reporting? Are you continuing that? Are you stopping with that? We have decided that although we maintain, of course, our long-term focus, that is the primary driving factor of executing our strategy. We feel it appropriate and also effective to continue updating the financial markets with a few indicators how we are doing in that journey. A long story short, we will continue with so-called interim updates, with a few condensed views about certain KPIs, which gives you the impression how we are doing in that long-term journey and within that particular year.
The half years and the year results will be presented as detailed as they are presented now. With that, I would like to transfer to the moderator for accommodating any questions you might have.
Thank you very much, Jack. I would like to invite the executive board to answer the questions from the analysts. We will start with the questions of the analysts present with us here today. I would like to invite Dirk Verbiest to start. Please state your name and the company you represent. To ensure all analysts have the time to ask questions, we would like to ask you to limit the number of questions to two.
Yes. Good morning. Dirk Verbiest, KBC. First question on Asia, especially on the recovery we saw in fourth quarter EBITDA. What is the level of comfort with the contract, let's say quality of the contracts, going into 2016 as the volatility in earnings in Asia has been quite significant over the year? Can you give us some comfort or guidance in that respect? Basically same question for North America. Big improvement in Q4. Exceptionally high contribution in my view. What was the main catalyst for that strong improvement quarter-on-quarter?
Okay. To start off with Asia. The uncertainty that we had was the massive expansion that we brought to market. Obviously, the Pengerang terminal had more than a million cubes in fuels, fuel products particularly, and Hainan more than a million cubes in crude oil was obviously the most important capacity that we had to fill. Since we started Hainan in, I would say, Q3 last year, there was still some uncertainty there. I'm happy to inform you that that part of the recovery is because we have been able to find employ for those terminals. We are confident about 2016. The comment I made about the contract portfolio, that we feel comfortable there. Same goes for the year 2016 in Asia.
What we've seen is that the refining sector, as well as the demand drivers for fuel and transport fuels in Asia, have continued to grow and have absorbed, at least where we stand today, the additional capacity that has been taken. With the small addition is that in Pengerang it is more balanced on the refining system and the long-term supply of fuels in that region. Whereby we have mentioned as well that the developments in Hainan have not been all structural, is more related to the current price of oil, whereby we've been able to maximize our opportunities there. Yeah.
Was that the main reason for the, let's say, the increase quarter-on-quarter also in the JV results? Let's say the high occupancy in Hainan, is that the main driver or?
Those have been the biggest changes in our joint venture, let's say, earnings. Yes, that's correct. As for America, we've seen the improvements there. America is, I would say, a long-term success story. We have a lot of our capacity in chemicals, as you might know, in Latin America. What you've seen is that also in North America, particularly in Houston, working very hard to have positioned our terminal in the opportunities that are there. What you see is that occupancy levels have been high, and as a result, have been able to, let's say, renew contracts, maintain our margins, which have contributed to the success.
Thijs Berkelder, ABN AMRO. Three questions. Firstly, Netherlands had a very high occupancy in Q4. Why is the result still so low? Secondly, although all majors are busy with huge cost-saving programs, what do you see come back from these cost-saving programs? Where do you have to deliver there? Third question, what percentage of occupancy is now being rented out in view of contango and traders?
Start with question number one. I do not recognize the fact that the results in Netherlands are low. If you look at it, what we've been able to achieve since 2014, at least from the way we interpret those numbers, we've seen a good improvement. Maybe you can elaborate on where you see the weakness in the earnings.
Well, if I look at year-on-year, you have an 11 basis points improvement in occupancy, I think. 96% versus 85%. EBITDA up, what is it? Well, a much lower number. I would say the transition of higher revenues should almost one-on-one go to the EBITDA level.
Maybe I can elaborate slightly on it. We go back almost to the story 2013 again. It's all about mix of portfolio. If you take occupancy rate and you compare the Netherlands 85/96, then you have to ask your question, in which product market combination was that lower occupancy rate? That had specifically to do with the non-used crude oil tanks, which have relatively lower rates than any other product market combination. That is explanation number one. Secondly, of course, in the year 2015, because of IFRS pension charges, we had to charge higher pension charges, and that is specifically with respect to the Netherlands because of the defined benefit plans which are in place in the Netherlands. That is another cost factor.
That's the reason why Eelco said we do not recognize from a performance point of view, because if you take into account the capital invested, if you look at the cash flow generation, Netherlands is operating as a division at healthy levels. These are two examples of explanations why it might deviate from average numbers if you compare one year to the other.
Pension charges 2016, will we see another extra charge there?
No. What I have seen now, up to the understanding, there's hardly any impact. Maybe a slight positive impact, but too insignificant to mention it even. Not the same negative impact as we have seen in 2015, no.
The oil majors?
Say a few words on that, Eelco.
I think clearly with the low oil prices, a lot of players in the oil industry are looking particularly to cut down on their investment, I would say, in the first instance in the upstream, because that is where they are most exposed now. That's also the area where we are perhaps least exposed to. I think refining has had a solid year, and obviously with less money being available, they need to look at being very careful with investments there too. It looks on the relative size for the oil majors, I think, a better investment in the current time. Generally, in terms of their savings, they would obviously be looking at others who can efficiently and effectively and in a safe manner provide services for them that they might be doing themselves today.
We think from that perspective, there could be opportunities arising for us as well for adding value in their supply chains as we try to do.
Finally, percentage contango traders in total occupancy. Your occupancy outlook is, well, more than 90%. If you look at how extreme the environment is, I would say, isn't that a too cautious statement?
I think we've always mentioned that the playing field we seek to perform in is between 90 and 95. The 95 is always as a practical sort of maximum because of the requirement for us to take tanks out of service. That's point number 1. Somewhere there is sort of our maximum. Obviously, if you renew contracts or change, let's say, between different supply chains, obviously, there's always a timing difference. There's always a bit of a question how quickly you can turn over these tanks. If you look at our historic bandwidth in which we have operated What you find is that even when the oil price was exceptionally high, we've been able to perform at relatively high levels. If you look at the overall occupancy of the company, and again, 50% is oil, 50% is non-oils.
That means that chemicals and gas and edible oils are 50% of that equation. Your question is particularly addressed towards the oil part. If you look there again, if you take the hubs and the distribution terminals, for instance, and you segregate them, you see that particularly the distribution terminals, again, are not dependent particularly on the oil price. If there is a shortage in the market, you need to fulfill the supply chains for people to heat their houses or to drive their cars. What remains is in particularly our positions in the hubs. What we've seen there was the comment I made in my presentation, we've seen that because of the additional refining that is taking place and the additional materials that comes to market because of additional demand, we see that the activity of our normal customers has increased.
If you take the share of what I would call pure speculative or pure contango play in our portfolio, it is relatively small. The exception that I mentioned, whereby we've seen that the percentage is relatively high, and that is in Hainan, which we already mentioned to you previously. Apart from that, the terminals, and that's why we've confidence in 2016, are very much related to supply chains and not so much on the price of oil today.
Maybe one additional question on Hainan. You say the percentage is relatively high. Is that contango related also, or is that temporary storage for the strategic storage demand of China, or is that a mix of both? How should I look at that?
The reason why we constructed that terminal is because we believe, and still do, that the forward-selling market of crude will change in Asia. We've seen predominantly a lot of crudes being traded in North Sea. That's the Brent marker. We've seen a lot of crudes being traded in the Houston area, on the WTI marker. We have not seen the development of such a physical marketplace and contract marketplace in Asia yet. We do see that the refining demands, and if you look at the amount of refineries that are constructed, are still increasing east of Suez. It's on that premises that we believe that supply and demand might change, whereby more crudes are being committed to Asia without necessarily already having a market.
We've seen that happening in Pengerang, whereby we've successfully commissioned earlier this year crude oil tankage, which is taken up by more structural players who have a physical need to move oil to refineries. In Hainan, we've positioned ourselves to develop that, particularly for refineries in the south of China, if you look at Vietnam and Philippines, in those areas. I made the comment, I think, in the half year or maybe even a year before, that if you look at the structural changes to that market, that means the amount of buyers, i.e. non-state-owned enterprises, means teapot refineries are independent. Also, let's say, the way that cabotage is taking place in that market has not changed in the speed to which we had hoped.
We are depending there on the, let's say, the economic model of people to bring oil in, and that momentarily, if you look at today's markets, is more based on the price of oil, the curve, than it is on structural deliveries into teapot refineries or independent refineries. Yeah.
Eric van Engelen, SNS Securities. Just one question, I guess, for Jack. We were looking for net debt to really improve somewhat more given the strong cash flow in Q4, but it actually deteriorated versus Q3. Could you explain that?
If you, let's say, are still completing projects, then the cash out from a CapEx management point of view might be in Q4 higher than in the previous quarter. From an operational cash flow point of view, you are right. You would have expected an improvement, but the same other element is, of course, that you have a cash out for completion of other projects, sustaining CapEx. There might be a difference in timing. That's the reason why you have a slight change in Q4. The next step, of course, will be if you look at 2016, then the major contributor to a reduction of the net debt-to-EBITDA ratio will be besides operational free cash flow, then the spend levels, of course, on the projects to be completed will be the proceeds of, let's say, the U.K. divestment.
Andre Mulder, Kepler. Can you give us a feel of where you are in terms of utilization at Banyan and what the range would be? How confident are you that you can keep that position? Is it possible that you could again turn in empty at the end of this year?
Andre, in this world and life, everything is possible. Let me make the comment is that we are confident for the year 2016 that we will be able to operate at high levels at Banyan. I think that's at least sufficient guidance for the year given.
Okay. Every quarter we saw a terminal like Dongguan being postponed by a few quarters. Now it's completely dropped off the page. What has happened there? I was under the impression that it was under construction, there was no statement in the press release whatsoever.
On Dongguan, we've identified that we believe that that's a market, at least from our perspective, our view is that we see that that market is not bringing the additional value that we had expected. We have, as part of the divestment program, have looked for buyers to see if anyone is interested to acquire that particular facility.
Any reason yet for an impairment or so? What kind of costs did you already make there?
As I said, we are currently exploring to sell that, so there's no statement of impairment.
It's not covered by contract or so?
No.
No. Third question, it's a numbers question on what's the provision release in the LNG? You said it's not exceptional, but would like to know what kind of amount we should be looking for.
We should follow that up after the meeting before I give the wrong indication, because I am not sure which reference you are making. If it is okay, we follow that up after the meeting.
Okay. Last question on the effect of disposals. You have already made some divestments for this year. Can you give us an indication what amount of EBITDA could be lost because of these already announced plans?
You mean excluding the U.K.?
Yeah.
What we gave as an indication on previous question, you should take into account in a range of EUR 10 million-EUR 15 million EBITDA. As said at the beginning, when we started the program, it has a limited impact of around 4% in total. That means that when we started, we expected to divest terminals with a contribution between EUR 25 million and EUR 28 million of EBITDA at that particular moment. Now you should expect around EUR 15 million, which will not contribute positively in the year 2016 because of the completed divestments.
For the U.K.?
For the U.K., we are not specifying individual terminals.
For the total, because you're selling a pack of terminals.
I think you have made already very good calculations. What I've seen up to now, that you gentlemen are thinking about the right ballpark.
[Michel] from Rabobank. I have two questions. One regarding the Hainan and Pengerang terminals. Did I get the impression that they had a negative impact on EBITDA 2015?
That was the, let's say, guidance we provided at the beginning of 2015.
Yeah.
You might recall, please take into account when those two terminals start up, they will initially negatively contribute.
Yeah, because you're adding, on the opening of the terminal, you have, say, the net income actually
Yes. You get the full depreciation charge, you get the full interest expense of the financing, so you get your net result. If you have, let's say, assume the terminal starts up and has only an occupancy rate in the first quarter of 30%.
Yeah
You know that it will have a negative result contribution. What happened between Q3 and Q4, because of the increased demand, that negative contribution, which was already guided for, was less than maybe expected in that short-term period. Your question is then, yeah, but if you add it together, is it then still negative in the year 2015? That might still be the case.
What do you expect for 2016?
We expect a total occupancy rate exceeding 90% for our total network. What we have tried to do is we have a total network of different product market combinations with all these challenges, and the combination of all these, let's say, inquiries we have, the duration of contracts, we expect over 90% for our total network. Of course, that will be individual different for each individual terminal.
Based on your contracts in hand for Hainan and Pengerang, you're not saying that it's a positive contribution in 2016, the EBITDA line.
What we are saying is that we are not providing any derived guidance-
Okay
on individual terminals, also not on Hainan or Pengerang. That's the reason why we have decided we give guidance for the total network, because we believe that at the end of the day, we are giving the right guidance on the main driver of our EBITDA. Otherwise, we start providing guidance on elements where there could be a EUR 0-5 million difference, a EUR 5-10 million difference. That's what we try to avoid, because it's already difficult enough to evaluate all those factors, trying to have an impact on the demand drivers. As said by Eelco, what you should assume, that when we took into account the analysis of over 90%, we are still, let's say, quite positive about the opportunities also of these terminals in the year 2016.
Okay. My next question is about the balance sheet. You sold the U.K. activities for an excellent price, which shows a good indication of your, and the way you look at the capital allocation. As a consequence, your balance sheet is, well, very unleveraged going forward, below the average of Vopak. Your CapEx commitments are only EUR 200 million for new projects at this stage.
Yeah.
What would be a level you more, you'd like to see regarding net debt to EBITDA? How are you going to realize that? What are, for instance, the hurdle rates for new projects? Are you also considering give a little bit back to shareholders if you don't find those new projects?
First, very unleveraged. We don't agree with that description. We feel that in quite an uncertain world and in a capital-intensive industry, we have tried to find a balanced middle-of-the-road strategy where we are using still leverage financing, but absolutely not to the maximum. There is absolutely a reason for that. The reason is that we want to execute this strategy as a strong investment-grade company because we are working with partners in different geographies, and we feel that a robust business model requires a solid financial position and a good investment-grade reflection in the market. That's the reason why I respond to very unleveraged.
You can say two, three or 2.8 or 2.7.
Now is the next step. Within that, if you would like to execute that, what would be the level of flexibility you feel is functional also on behalf of your shareholders to enable you to grow? Up to now we have operated between 2.5 and three. The question is, and that's what we have to ask ourselves, is around 2.5, is that a good indicator? Is somewhere between 2.2 and 2.5? You come to the next question. Indeed, let's assume that from a timing point of view, we have not identified what we feel attractive projects. Of course, the next step is what you should consider is if you don't have the right projects, your shareholders are entitled, and so that are communicating factors.
We have to ask ourselves, is around net debt EBITDA ratio of 2.5, of 2-2.5? That depends also on the total list of projects we are currently evaluating, whether we feel that, let's say, flexibility is functional to create value for our shareholders in the long run. That is something, of course, we will elaborate on after 2016 presentation to ensure that everybody has the same understanding why we are doing what we then decide.
Okay, thanks.
Good morning. Quirijn Mulder from ING. Questions especially about divestments and expansion. Maybe you can update us on the 2 charts you took for Indonesia and for Japan. Especially with regard to Japan. As I remember for Gothenburg, you had also taken in 2014 a charge, in 2015 it was sold. Maybe is this an indication that you're going to sell the Japanese assets? Then with regard to your expansion in Pengerang in 2019, as I understand, by 2 million cubic meter. Can you elaborate us on that? Also why the participation is only 30%?
Any preference?
Well, you could take the first one. I think Frits is very well equipped to take the Pengerang question, and I'm not.
There was the question about, indeed, impairment analysis. Impairment analysis is not connected at all, whether or not you would like to sell an asset. Impairment analysis is required by IFRS reporting requirements that every year you do a so-called impairment testing, whether the value in use based on all kind of templates is, yes or not, exceeding your book value, your carrying value. The value in use is a cash flow model where uncertainties with respect to your business plan, cost of capital are included. In the case of Sweden you were referring to, when we made our five-year business plan and we looked at the forecast and we looked at the cost of capital, there was a justification to impair that. The same applies for Japan.
What could happen, and that is what happened with Indonesia, when we started with Indonesia, of course, the top-line developments were quite uncertain, and that should be reflected in your value in use model. If you have indications that you can easily sell your assets at a fair value, which is higher than your carrying value, you don't have to recognize an impairment charge. That is sometimes in new economies, in new market circumstances, not easy to prove. In existing markets, that's quite easy. Long story short, the reversal of the impairment in Indonesia, in fact, is a reflection of the strength of the business case, as a result of which the original uncertainties have diminished, and then you have to reverse that impairment charge.
Japan, the fact that we recognize an impairment has nothing to do whether or not you would like to sell it or not.
If that's okay, maybe I'll continue with the Pengerang question. In Malaysia, we have for a long time been partnered with Dialog, a local Malaysian construction and oil and gas constructions group. Also our entire Pengerang development has been jointly with Dialog. Obviously the development that you refer to, what we call our SPV2, is essentially a terminal that will serve a Petronas refinery complex. Also Petronas, of course, were interested in becoming a shareholder in this terminal. The net result of that has been our participation. In the overall complex as part of the deal also the state of Johor, so that's the province we would say in the Netherlands, also has a small interest. As a result of all of that negotiation, that sort of set our participation rate.
Final question about your plans with regard to Panama and, for example, the Houston Ship Channel, or let me say the area there.
Happy to comment on that. We indeed still see the Houston Ship Channel as well Panama as areas of interest. For obvious reasons, is that in North America we think that the shale play, both oil and gas, is interesting in the profitability of the refining sector and the chemical sector along that route. You can expect that on our long list of ideas on where to expand, that's still on the cards, and that we're pursuing that to develop, and it fits within our strategy on looking at the major hubs. Secondly, at Panama, that's something where we have already informed you on, that that's an area of interest to venture into, and we're going through the process of obtaining permits and licenses. All good things come to those who wait, is an expression.
I think that applies to us as well. What we're just doing, Krijn, is just be patient, go through the process. We realize that it takes longer than we had anticipated, but I think the location justifies the wait. Long story short, I think both locations are of interest in our business development efforts, which is nothing new, I think. We just want to get confirmation that we are continuing.
This is [Thomas Kemper]. Actually, first question on your renewal rate. You indicated that in the U.S. you have seen the positive effect in Q4 already. Do you see the same trend in the Netherlands and EMEA, given the high occupancy? If so, what is the magnitude, roughly?
Well, we can answer that question on more generic again, instead of going terminal by terminal. What you've seen in the presentation of Jack, if you look at the margin development, you've seen that in our business model, we've been able, about 10 years ago, to come from sort of a 30% to sort of 50% margin, which is required in this capital intense industry to have a decent return. What you've seen also is that for the year 2015, we've been able to protect that margin. You have the inflation in your cost and at the same time we're able to protect it. That gives you an indication that at least globally, we have been able to find levers in our contract negotiations to at least, let's say, protect ourselves there. That's basically, I would say, the overall position. Generally, this is a general comment.
What we've seen is that as occupancy goes up and tightness comes into the market, obviously your ability to protect your margin or even expand it obviously increases. As a general trend, if you look at that, if you look at the years 2012 and 2013 and 2014, where we've been able, in giving you guidance, particularly on the earnings, that it was sometimes difficult to renew or at least to get the prices in. I think that the situation in the overall tank storage industry is that we see a much more balanced dialogue happening between supply and demand.
Okay. On Asia, your occupancy increase in the second half of the year, is that purely driven by oil products or also some positive renewal or increase in occupancy for chemicals?
Both.
Okay. Then the final question, given that we've seen stabilization in chemicals in Asia, you did your non-core asset sales up to July last year. The EUR 209 million EBITDA in Q4 seems relatively stable for next year. That brings you to EUR 840 minus the EUR 30 million, roughly, for the U.K. sale EBITDA. Are you confident to reach, maybe it's too early, but are you confident to reach EUR 800 million EBITDA or more in 2016?
We're confident to reach an occupancy of 90% and higher.
Okay.
Thank you very much. That brings us to the end of the questions of the analysts with us present here today. I would like to switch over to the online moderator for the analysts dialing in today.
Ladies and gentlemen, if you have a question, please press star one. Star one for questions, please go ahead. First question is from Mr. David Kerstens from Jefferies International. Please go ahead.
Good morning, gentlemen. I have a question on contract durations. You highlighted in the presentation that 2015, your proportion of longer term contracts became relatively lower. In the current market environment with occupancy rates as high as they are, do you expect that to change again? Are there still any customers that are interested in short-term contracts with oil prices not expected to recover any time soon? That's my first question. With occupancy rates of 96% in the Netherlands currently, what is your potential to further improve your profitability for the Netherlands division? How much further can you increase your EBITDA if you're already at a 96% occupancy rate? Finally, regarding the CapEx, the remaining expansion CapEx of EUR 200 million. Did I understand correctly from the slide that you expect to spend all of that in 2016 and nothing in the years thereafter?
I recall at the Q3 stage, I think you were guiding for EUR 100 million in the remainder of 2015, 2016, and EUR 200 million from 2017 onwards. That was a total of EUR 300 million. Now the remaining CapEx is EUR 200 million. Will it all be spent this year? Those are my questions. Thank you.
Starting with the last question, indeed, it focuses on 2016 only.
The guidance we provided in Q3 with respect to 2017 and 2019, will be updated when we have finished the year 2016, because we are looking at new opportunities, terminal master plans. We look at the service improvement CapEx in order to reposition ourselves. That guidance provided in Q3 with respect to 2017 and 2019 will be included in an updated guidance going forward. To answer your question again, indeed, 2016 only relates to 2016, the EUR 200 million.
The EUR 200 million, that's an equity contribution at your Pengerang expansion that you'll make this year? Or it should be seen as a more gradual expenditure?
It's a combination. It's a combination of, for instance, expansion projects on group companies where we are spending CapEx. Indeed, it could be an equity contribution in a joint venture, so it's a combination.
Okay.
David, maybe a few words on the second question, which is the upside in the Netherlands. Indeed, you're correct stating that the occupancy levels in the Netherlands are currently high. You can expect this that therefore, obviously the occupancy stretch is limited. Any upside in the Netherlands has to come either from renewal of contracts, so that means price setting accordingly, or it has to come from further efficiency improvements. Those are the two levers that are left in the Netherlands since no new capacity is coming onto market.
Maybe to elaborate on that topic we dealt with at several capital markets days. That is renewal of contracts, of course, you get the business moment where you have to demonstrate again to your customer what is the incremental added value from a customer perspective. That could be a reduction in their logistic costs, that could be added value services. That is more important driver than just the renewal moment. That is one of the areas where each division are looking at. If you nail it down for one year, then the opportunities for a division to significantly improve their service offering in only a one-year period is relatively limited to justify a jump in those rates.
Their customers that are willing to pay up to reduce their waiting times to get into the Port of Rotterdam?
Yeah. I mentioned in my presentation, for instance, the connectivity to our hub terminals. A very clear example is when we can offer a flexibility in their refining system with our tanks, obviously those are very valuable contributions to their business. These are typical things that we would pursue to get organized. That's a clear example.
On the contract duration question you asked, I think first of all, you're looking at relatively very minor shifts, as you can see in the 3 years that we presented. It's largely a consequence of the type of terminals that we built and that come on stream in that particular year. Where as you know, in our industrial terminals, we tend to have long-term contracts for 10-15 years. In our gas terminals, we tend to have longer-term contracts. In the distribution terminals, it can sometimes be somewhat shorter, and likewise in our hub terminals, typical durations are 1-5 years. I think what we've seen last year is we've seen a number of new terminals come on stream which are not at this stage industrial terminals. They serve different purposes.
Typically what you find, particularly in an uncertain market, is that people will come in on a relatively modest contract durations to check out the terminal, see if the service offering fits their model, if the trading routes that they have in mind actually turn out to be efficient in practice, et cetera. Hopefully after we've given people confidence in delivering good services from the terminal, you will start to see a tendency to prolong those contracts.
Thank you very much.
Next question is from Mr. Dominic Edney from UBS. Go ahead.
Hello there. Just in terms of two questions from myself. In terms of the project pipeline, obviously you're quite low in terms of the projects you have now in terms of the pipeline. Can you just say about how active you are looking at new projects at the moment? Is it a case of there's just not enough out there, or is it the case that the return profile is unattractive from your perspective? The second question is on earnings and cash flow and I suppose how that feeds into the dividend. Obviously, you've stated the payout ratio 25%-50%. Can you just give some historical context on that and maybe looking forward, given the way the CapEx profile is falling, how maybe cash flow as well as earnings could maybe feed into that? Thank you very much.
Dominic, let me start making a few comments on the business development pipeline. You are correct in stating that the amount of construction momentarily ongoing is, if you look also at the CapEx, set at EUR 200 million, might be from a historic perspective, slightly lower than what we have been doing. Your question is whether the business development pipeline is therefore less occupied. The statement I would make is that, first of all is that, one of the things that we've done, and I think for very good reasons, is that we have concentrated very much also on the quality of the investments that we'd like to make.
That ties into the risk-return profile that you mentioned in the investment, is in changing the focus from wanting to expand almost in every region and to plant as much Vopak logos in the different geographies, we have a very clear strategy of looking at those four particular components. I have mentioned before, it's the Hub, Industrials, Gas, major ports. What we've seen is that if we spend more time on that and develop them, the quality of the investment is better. It does take, obviously, if you limit yourself in pursuing those quality investments, obviously the uncertainty of when you get them might be the most difficult thing to manage. From where standing, I think that it's not necessarily the amount of projects that has changed significantly.
I think that the quality of what we're doing is significantly better and I hope that translates, obviously, when we announce them, that you will see visible sort of, let's say, Vopak signature on it. I hope that then after that you see it also coming back in the earnings profile of the company. This is really where we put our efforts in. That might be what you sense looking at the BD project pipeline that we have today. What was the other one?
There was a question about dividend policy, if I understand well.
Yeah.
Of course, the payout ratio is just a simple KPI to reflect the outcome of the analysis of all the factors you were mentioning. We look at the balance sheet, we look at the free cash flow generation, we look at the functionality of, let's say, having additional headroom for growth. That's the reason why we defined such a wide range, in order to ensure that every time we feel that we make a balanced decision. If I understand your question well, and I translate it in line with another question, if for whatever reason your growth strategy would slow down, for which we don't have any indication at this stage, only the timing is not as apparent as maybe as we have experienced in the previous years.
If that hypothetical situation would occur, of course, then you look not only at the three elements I just mentioned, that might then also result, for instance, in a redefinition of the range of the payout ratio. If then the 50% would be a blocking factor, then you have to redefine that dividend policy. Long story short, we look at all the elements, free cash flow, balance sheet functionality, and up to now, we can execute that policy within the defined range.
Okay. Thank you very much.
Next question is from Mr. Nick Miller from Haitong Bank. Please go ahead.
Well, good morning, everyone. Thanks for taking my call. I just had a quick question. I noticed in Vopak's annual report, the comment we foresee that the export orientated capacity expansions from the Middle East and the additional new chemical capacities in Asia will stimulate storage demand throughout Asia. I wonder whether you could just elaborate on that statement and just give us a bit of an overview about how you're thinking about product flows of refined products both coming out of China from the effects of this expansion in exports from teapot refineries, but also what is happening in the Middle East. Specifically, I suppose what I'm trying to get at is it seems like Middle East is expanding refined capacity exports at the same time as China is.
How do you see those two competing and influencing product flows across the globe and obviously with respect to your own storage capacity? Thanks.
If you take a longer term view on refining in Asia, the common view is that you see that the additional capacity coming out of China and additional capacity being commissioned today and has been commissioned out of Middle East will create a surplus in both regions and will most likely be pushed either into most Southeast Asia, it's the biggest market, or East Africa, partially for the Middle Eastern refineries. If you take a longer term view, people expect that demand both in Middle East and China will increase, whereby room will be given again for local refining initiatives in Southeast Asia. One of those initiatives is, for instance, the Pengerang Refinery, which we were very well positioned to take over that role. In any given scenario is how we look at it.
We think that the balancing point, I would say almost, of Singapore having the opportunity to act as a lever on both supply and demand in that region will continue to drive demand for storage in that part of the world.
Okay, that's all. Thank you very much.
Thank you.
Thank you. We still have time for two last questions from the analysts dialing in.
Ladies and gentlemen, if there are any additional questions, please press star one for questions. There are no further questions. Please continue.
Thank you very much. That brings us to the end of this round of questions. We would like to thank the analysts with us here present today, and we hope to see you on our next presentation for the Q1 interim update on April 20. Thank you very much.