Good morning to everybody here and welcome to the viewers online. Welcome to the presentation of Vopak's Half Year Results 2015. With us here today is our Chairman of the Executive Board and CEO, Ilkka Hoekstra our Vice Chairman of the Executive Board and CFO, Jack DeCry and our COO, Fritz Wildering. After this presentation, there will be an opportunity to ask questions first by the analysts present with us here today and thereafter for the analysts dialing in. This presentation will be available afterwards on Valparks website.
I would like to give the floor to Ilkka Huxler.
Thank you very much, Giel, and welcome everyone here in Rotterdam and particularly welcome to all the viewers online. And it's a pleasure again to be able to present to you the first half year results of 2015. Quickly the forward looking statement, which has been seen and reviewed I'm sure by many of you as a reminder of the content of the presentation. So the highlights for 2015 and you have already in the last few years been informed about the strategy that Vobak is pursuing. So what I believe today is that you will find again testimony of that strategy and a very clear summary of the direction that we're taking as well the results that we've established in the first half of the year.
So already in the last few presentations when we talked about the strategy and the issues we're pursuing, you'll find that there are some very recognizable elements to the presentation today. So I would like to keep it relatively short and sweet. So we have a lot of opportunities to particularly focus on the questions that might arise from the results in 2015. So let me give you the summary. First of all, first half year an EBITDA of $4.00 €8,000,000 which is an 11% improvement compared to the same period last year.
We've seen a cash flow which has been out of the operation which is more or less the same to the year before. But what's striking in the result is that we had a positive effect on our occupancy rate which marks the improvement of our results from 88% in the same period last year to 91% now, which is a 3% increment. But what you see in this summary is something which has been relatively novel and new, which is actually a decrease of our cubic meters from January 1 this year to 06/30/2015 and that marks a decrease and that has to do with the fact that we have divested part of our cubic meters. So what has influenced the results in the first half year? I'd like to cite two specific issues, which is on the one hand differences in the different geographies, so differences per division.
We've seen an improvement in the results particularly in Europe and in Americas. And we've seen a weaker result in the Asia division, which is gives a clear sign on where we've seen the improvements and where we've seen the challenges. Similarly, it's good to note that also this year we've been supported by the positive translation effects of the euro compared to the U. S. Dollars and the Singapore dollar.
So in which environment have we been running our company? That environment is particularly influenced by the price of oil And that has been on the top of the agenda of many analysts and the press also this morning. Generally, if you look at the four categories of business that we are involved in, so that's oil, chemicals, I would say biofuels and LNG. The current pricing environment has been positive for oil, positive for chemicals and positive for LNG in our business. So we've seen some headwind in biofuels, which is a smaller part of our business.
So overall, we've been supported by the current pricing environment. We've seen the effects of the oil price going down. Yesterday, we reached a level for WTI just over $40 per barrel, which marks that we've reached a relatively low level if you look at it historically. How do we come there? Well, certain effects on obviously on the availability of oil.
We've cited before the availability of shale gas which has entered into the markets. We've seen obviously in the reports that OPEC has kept its quota for production. And even now in the press we see and in the discussions that there's an overhang of a possible entry of Iran again on the oil markets, which means that there's sufficient supply these days in the world economy. Similarly, if we look at the demand factors, some concerns have been raised about the growth of the upcoming economies, particularly China has been cited whereby we've seen a transition from a typical export oriented economy to consumption oriented economy is leaving itself in a few struggles. And therefore, we've seen the growth come from historic highs now to levels which are slightly lower and has led to the question whether less oil is required.
Similarly, we've seen that also Japan has started again with nuclear power at the expense of certain demand for oil. And we should also cite that we've seen that effects of further efficiency in the oil sector has led to the belief that the total demand for oil is at lower levels than what was cited previously before. So the growth in the oil demand is slightly lower than expected. This has led to a bit of a reshuffle and a new balance from why we've seen that low oil is happening today. How has that affected our business?
Well, what we've seen is that it has obviously again let's say spurred and supported several opportunities in the oil industry. We've seen for instance additional export of oil moving from Russia via the Port Of Rotterdam to Asia. We've seen that the refineries for instance in this part of the world in Northwest Europe have had a good run and solid margins because of the low oil price. So that has spurred our activities in Europe. We've seen that generally the oil production in The Middle East and the refining in Fujairah has supported our business And we've seen also that the volume in Asia has been relatively stable.
So the demand for oil is there. But obviously you've seen that we've seen more capacity being added overall in that market, which has led to a new rebalancing. Chemicals, almost similar story. We've seen that the manufacturers have a benefit of either cheap feedstock in alternatives like gas. Similarly, we've seen that the naphtha price has gone down.
So the profitability of our customers generally across the board has looked fairly favorable in the first half of the year and they're trying to sell their products now in the different markets. So there we've seen a very stable pattern in the first half year going forward. I mentioned biofuels as well because of that low oil price. What we've seen is that the biodiesel industry particularly has diminished its overall blending and has diminished its overall production. That has to do with the fact that producing biodiesel from alternative standard oil is no longer truly economically feasible.
So we see that the biodiesel particularly is blended on mandate levels. And then lastly on LNG, what we've seen in the first half years is that additional production has provide the liquidity for LNG. Also the pricing that we've seen because of the what I previously mentioned the Fukushima return of after the Fukushima disaster and the return of nuclear power has led to overall lower price level for LNG. And we've seen also for instance in Northwest Europe, the amount of cargoes for LNG that have entered our terminal in the gate on the rise. So as I said, understandable why the oil price has been at a relatively low environment which has spurred certain activities which have been generally advantageous for our network.
If we look forward to how it will be how this environment will influence us in the second half of the year, it is our opinion that generally the low oil environment and the structure that we see in the market will continue. And therefore, we'll see that there not be any major change to the supply and demand that we see today. We do see a few effects whereby we are cautious on how these effects will take shape on our result in the second half of the year. So we think it's prudent to highlight that for instance in the Asian market, we have seen that the slowdown of the Chinese economy has resulted in less demand in distribution of chemicals in that particular part of the world. We have highlighted that with the incident in Haiteng of one of our customers and the fact that the plant has been shut down, we are cautious about the speed to which that plant will become operational again and contribute in our results.
And lastly, we also have seen that the Asian markets because of the expansion of capacity, a lot of capacity has been added particularly in the Chinese market as well what we've seen in the oil markets in Singapore needs a rebalancing and the timing issue needs to be gone through before we see the clear take up there as well. So that's why we said in Asia, we'd like to highlight that these are effects which might have an influence on our results. Secondly, we are highlighting that with new capacity being commissioned by Vopak and particularly the ones that have been cited many times is Pengerang and Hainan will play a role ultimately in how successful we'll be able to complete the second half of the year 2015. And also there, we would like to mention that there is flexibility in numbers because of the speed to which that capacity will be taken up until Christmas. And then lastly, maybe good to mention is that we expect a lower result which is a given because of the divestments that we have executed because of our strategy going forward.
We've chosen the four particular groups of terminals that we'd like to invest in decided to divest those that are not particular part of our long term view and that has led to diminishing cubic meters in the first half of the year. So please consider these effects in your assessment on the opportunities for Vopak moving forward. A few words on the strategy, but I'm going to keep it very short for the reasons that I've cited this before and you should recognize it in the previous discussions that we had. Again, the focus of this company is not on the short term, but remain on the long term profitability of our network. We are working on having the right network in place to be able to facilitate future flows and we're working very diligently on improving our business performance, whether it's safety or operational capabilities or service experienced by our customers.
For that three pillars important growth leadership, making right choices on where to invest operational leadership, ensuring that we are the safest, most efficient and effective operator and lastly, our customer, which is crucially important in how we continuously listen to them, relate to them, understand them and ensure that we have the right services. And underneath it, I'd like to reiterate again is that sustainability foundation, whereby we believe that having a proper safety system, understanding your community that lies around you, not hindering the environment in our next door facilities where there's water, air or our people working for us is really the key of that sustainability. So the framework is still very much alive today and you recognize it and will recognize it from the previous discussions. So what have we done in the last six months particularly that can be cited within those within that framework is first of all the categories that we've mentioned before. I can repeat them quickly again.
It's the hub terminals in the major shipping and trading routes. It's industrial terminals for chemicals. Its major shorts in which we want to invest in distribution terminals like Australia, The U. K. Or Canada and lastly everything that has to do with the development of gas markets around the globe.
We've started divestment program of 15 terminals. You've seen the results of that in the first half year. We still aim to reduce our sustaining CapEx, is well underway over a period of three years with about €100,000,000 without lowering the our threshold for safety. We're still very safety conscious and do not like to change that. And lastly, improve the profitability of this company by having a very, very good eye for detail on how we operate and reduce our overall cost base.
So we've been working on this strategy also in the last six months since we announced it in 2014 and we'll continue to keep that focus in 2016. If we go specifically to the divestments, we are pleased to announce that in the first half year we've divested the Wilmington terminal and the Galena Park terminal in The United States, whereby we've been able to find a buyer relatively quickly and we are pleased with the result on how we have been able to conclude that. And equally, we are satisfied with the speed and the process and financial results of our sale of Finland and Sweden. So this is a good result after we made the announcement in mid-twenty fourteen, started to prepare 2014 and we've been able to already provide some clear results on that strategy early twenty fifteen. And we will continue with that program in the next eighteen months to come.
Also very pleased with two additions to network. One is the third phase or Phase 1C in our Pengerang terminal in Malaysia. Why are we so pleased with that is first of all because it underlines the fact that we've completed the first phase or the first overall part of our expansion in Pengerang, which is the 1,200,000 cubic meter independent terminal in Pengerang for particularly clean oil and crude oil. The Phase 1C is significant because we've been able to add the crude capacity to the market and we're very happy now that as you might know, we have already received well over 200 ships in Pengerang since we started commissioning. So we see that activity is picking up there and we're very satisfied with how the terminal is performing operationally.
Another nice example to cite is the expansion of of our Vlaisenge terminal. We believe that with let's say the growing production of gas, we'll see not only LNG come to market, but also more propane and butane in the next few years, which can be used in several industries and amongst others in tracking as a supplement to naphtha. We had our sights on expanding our base in The Netherlands, particularly at the terminal in Flushing where we already had a solid basis to work from. And we've added 36,800,000 cubic meter storage, which is both cryogenic and pressurized, which is working well, commissioned well and where we have also a good customer base for the next few years to be economically active. So overall, are the highlights for the first half year.
Where does this lead from a capacity standpoint. Well, as I cited the in the first half year, we've seen quite a unique reduction in our cubic meters even with the let's say with the expansion in greenfields of 0.4, but the reduction of 1,600,000 cubic meters has led us now to an overall network of 32.7. But not long from now we'll see that number rising again. We'll start commissioning in the second half of the year, the Hainan Terminal and the Dongguan Terminal and we also have new projects in place, is the second phase of our Pangengan expansion amongst others. And that will lead ultimately in 2019 to a terminal network of 38,300,000 which I think is good to cite that in that 38,300,000 is not included the possible divestments that we still have on the cards for the company.
So this is the development in storage capacity. As I said, it's not only having the right portfolio and the right terminals for the future, it's crucial in a competitive environment that you have the right ability to execute your business and get most value out of your assets. There are three things that you need to keep a clear and very good focus on is on the one hand safety, it's your license to operate otherwise you do not have a position in this business. Second of all, it's the efficiency to which you operate your terminals, It's your relative cost level compared to your competitors. And lastly, it's the service that you render for your clients who have to make a daily choice on with whom they store in one particular port.
So these are the three elements which we continuously keep a focus on. And also I'm happy that within the last six months, I believe we've made progress on all three elements. I'd like to highlight particularly the safety performance, continuous effort from our team all the way from the Executive Board to the lowest levels in the organization. And what you see is that over time we are continuing this journey in the right line and in the right direction, but it's always a matter of attention as we go along. What you will see is that on personal safety, we are slightly better than the overall performance of last year.
So it gives us a stark reminder that we need to work as hard as last year to get this organized. And then if you look at the process incidents, we're happy to see that the process safety event rate has gone down, which means that the events that we're having from a process control perspective have diminished in the area which are the most severe. So although we had the total process incidents on the rise, this number tells you that at least the severity of those incidents and where they occur are moving down, which is a very good sign that we are getting more control over our operations as we go along. So therefore the safety performance both on personal and process safety are very encouraging and you can expect this Executive Board and everyone within Vopak to keep its full attention to the details of safety in the next few months. So this is where I would like to leave.
Just a short summary as I said, we're pleased with the solid results for the year for the first half twenty fifteen. We see it's very recognizable in the sense that we haven't changed our focus on the long term profitability of the company, looking at the right network and having the right network in place not only for today but for the future. And secondly, improving our business performance with safety efficiency and service. So that's where I would like to leave it today. I would like to give the microphone to Jack who will give you more insight on the details of our performance in the first six months.
Please Jack.
Good morning, ladies and gentlemen. It's indeed a pleasure for me to explain in more detail the business performance, specifically the reconciliation with our long term objectives and the short term progress, the difference between H1 and H2 for the year 2015 and also the value drivers affecting let's say the progress we are going to make in the near future. Starting with an overall summary of the 2015 results for the first half year, we have been able to increase all the financial KPIs supported by higher occupancy rates, higher EBITDA, but it's also a pleasure for us to mention now that besides EBITDA increases also the aligned EBIT numbers and net profit numbers are fully aligned and reflect an increase compared to previous year. When going in a bit more detail, it's critical to see that indeed we have been able to improve the EBITDA performance on a quarterly level as said supported by higher occupancy rates in all regions of the world except Asia. And that's the reason why in the further clarifications, I will give a bit more perspective on the current Asian situation in our total global network.
On the other hand, it's also important to emphasize that one of the challenges we experienced two years ago with respect to the occupancy in The Netherlands has been fully recovered and that is exactly the core of the core of our strategy. What we try to do is to build up a global network of very well located infrastructure fitting perfectly the long term market needs with respect to imbalances, with respect to long term deficits, with respect to positive development of new energy products like LNG and long term contracts supported by pipeline connections. And in this long term strategy, it's evident that short term developments on a worldwide scale like the credit crisis, like the current volatility in China, like the uncertainties with certain currency developments have an impact on your short term results, but the bandwidth in which they are going to change is exactly the focus in our risk return profile improvement program we are currently executing since the announcement of our strategy update in July 2014. And we feel that demonstrated by this EBITDA development, we are making the right progress. Looking at the EBITDA development per division, it's evident that every division has contributed positively to this EBITDA development with one critical remark of course that in this financial translation, the appreciation of for instance the U.
S. Dollar and the Singapore dollar and other Asian currencies have supported this financial reporting increase. But if we eliminate this financial currency, then you still see that from an autonomous or organic growth point of view, we have been able to demonstrate progress in our EBITDA improvement and cash flow improvement program as we have defined in July 2014. As you can clearly see in this EBITDA analysis, positive contributions from The Netherlands, Americas and a recovery in EMEA compared of course to quite a low level, which we experienced in the previous years and a decline in Asia, but with one important point to keep in mind. Asia for the last ten years has been a top performer in our total portfolio.
We had successful expansions, high occupancy rates and attractive profitability for our shareholders. Indeed the slowdown in the Asian economy combined with some uncertainties means that we now are reporting a slightly lower result adjusted for constant currencies, but that doesn't mean that this is an indication of a deviation for our long term strategy. We strongly believe that our Asian hub location, our industrial terminals in Asia are absolutely critical and important assets in our global portfolio supporting us in generating attractive risk return profile going forward. But for the short term, we have to accept the reality that there is some uncertainty and that is clearly demonstrated in our outlook for the second half of the year, which I will explain in a bit more detail later on. Looking at the result of joint ventures, as known the result of joint ventures is reported under IFRS as part of our EBITDA generation and has increased as well specifically in Asia because of the expansion projects because of the acquisition of the Haiteng terminal in China.
Looking at the summary of the EBIT level, as said important in focusing on all economic indicators is that we have now achieved again a positive alignment between EBITDA improvement, EBIT improvement and net profit improvement. In the last two years as you might recall is that as a result of huge investments and the impact of depreciation, there was a bit of a disconnect and we are pleased to inform you now that the progress we have made in our improvement programs are clearly demonstrated in the alignment between those economic indicators. Looking at one of the critical value drivers in our global network is that even since the credit crisis in 02/2008, we have never operated below 85% in our global network. We have been able to maintain an occupancy rate of our overall assets between 8590% and we are now even operating at the low range of 90% to 95 That has absolutely positively supported the business performance. Part of it is of course caused by the current market circumstances, low oil prices, lot of interest, but the majority is supported by the main value drivers of our business model being bridging imbalances on a worldwide scale requiring physical transportation.
Looking at the occupancy rate per division, immediately it attracts attention that we see quite a drop in Asia. The reasons for this drop are very natural. After a period of undiminished growth in China and in Asia itself in other regions, the capacity now available in this market is slightly higher than immediately needed in the short term. That doesn't say anything about the long term alignment. But in the short term, because of the slowdown in the economy, the capacity available in that market is slightly more than you would absolutely need on the short term.
Because of the volatility in the oil prices, you could also say that in the short term there is insufficient capacity available. But on the chemical side, there is always a correlation between the economic developments and GDP developments. So the challenge we have is now that we come from a top performing region with high occupancy rates, excellent economic contributions from now still a very good contribution, but with one uncertainty what can we do to increase the occupancy rate in the near future. And that's what we really reflect as businessmen is that for the second half of this year, we find it difficult to predict whether or not we are able to increase the occupancy rate as compared to the first year of 2015. That's an uncertainty.
That's a reality. It doesn't say anything about the long term critical value drivers of our business model. Without talking about Asia, you should almost overlook the recovery in The Netherlands. You might recall the period that we were discussing two years ago concerning developments which we also earmarked as temporarily attention points taking into account all the volatile developments on a worldwide scale and we are very pleased to see that we are now benefiting from increased demand as a result of which the majority of those terminals who were at that time presenting capacity available for the market are now operating at those high levels. So a long story short, volatility will remain in this current world.
There are uncertainties. There are changes, but the whole objective of the Vopak strategy is to develop such a diversified global network that we can operate in an attractive bandwidth of EBITDAs, net cash flows and return on investments, but we cannot mitigate or exclude certain volatility as explained for the H2 period of this year. Looking at the cash flow developments, as said, in July 2014, we have reiterated our strong focus not only on the risk return profile of the total network, the segmentation we have decided to focus on, hub terminals, countries with structural deficits, industrial terminals and LNG or more in general gaseous products developments. We also looked at sustaining CapEx management. We looked at cost management.
And then suddenly, we demonstrate almost a non increased cash flow in the 2015. And a lot of people ask questions about it and the answer is very simple, because it's just a timing difference. If you report EBITDAs on IFRS basis where you consolidated all your group companies then at a certain point in time you have to make an adjustment for so called non controlled interest. You either do that on an accounting basis or on a cash basis. So long story short, the fact that it's equal has everything to do with only one factor, timing difference between the distribution of dividends compared to results from participations, which could be different between one reporting period and the other reporting period.
And the second one is the cash distribution by dividends affecting your group companies where you have non controlled interest. So I would like to emphasize this is absolutely not an indicator that the cash flow would get undiminished on tension or diminished attention? No, it's just a technical explanation and I invite everyone of this community still having questions to contact our Investor Relations department after this analyst presentation in order to ensure there is a full understanding that is absolutely not an early warning that the cash flows are going down. Translating the financial ratios, on the one hand cash flow generation, on the other hand investments. As said during our strategy meeting, there will be some pressure on certain indicators.
But at the end of the day, it's about risk return profile. The part where you cannot see of course where we have made progress is it whether we have been able to reduce the risk profile of certain terminals. It is something where we are working hard on. And during the Analyst Day in Fujairah, we have explained the type of actions we have been taken to also reduce the risk not necessarily immediately resulting in higher cash flows, but in fact improving the quality of the returns on your investments. To emphasize for the avoidance of any doubt, the cash flow return on gross assets is after tax.
So please keep that in mind. And what we see now is that the return on equity is showing quite a slow a small uplift, But also from an accounting point of view, I have to emphasize that this is also the result because we had to recognize reduction in our equity because of decreased discount rates for the calculation of pension obligations in last year. But the point is, it's all within the bandwidth we are aiming for. And the strategy of Vopak is indeed as said to improve that risk return profile and to ensure that these indicators reflect this. Looking at non IFRS proportional information on the request of many investors and analysts doesn't show any deviation from the financial picture I just explained.
And I said this is done on a proportionate basis including all the joint ventures in that respect. Talking about occupancy rate as a value driver, average of course revenues per cubic meter is also an important. We haven't addressed that in this presentation because it's fully aligned, no big changes. We are successful in managing that within the bandwidth as we explained in previous meetings. So the next value driver is indeed, are we able to successfully implement new capacity expansions covered by commercial contracts.
Looking at that, as already explained by Ilco, we are heading towards the €38,000,000 but that will still take quite some years. And within that process, there are of course different projects. Some projects are fully covered by commercial contracts and will immediately contribute to the positive cash flow and EBITDA development. Some of them have not been covered originally by commercial contracts of which two projects have already been explained in the past being Hainan and Peng Arawang as a result of which we already indicated last year. Please be careful the moment they will be started up the expectation is that they will not be immediately contribute positively from an IFRS reporting point of view to the EBITDA development of that year.
The reason is simple, because the startup is somewhere in the period beyond August only a short period. So the question is, can you immediately build up the right occupancy levels to achieve your breakeven levels from a full cost point of view? And the expectation was at that time that will most likely not happen. And we would like to reiterate that indeed our expectation is that also in the remainder of the year this will probably contribute negatively to the H2 developments meaning that if you compare H1 and H2 all things being equal that we have to take into account besides divestments also a negative contribution for this year for those two terminals. That doesn't mean of course that we indicate any expectations for the future.
And we also don't want to include any expectation for the future, but we only want to focus on the hard facts for the remainder of this year. Looking at the realized divestments, because that's another factor which has an implication on the EBITDA development for the second half of this year. Please note that in this graph, the Finland divestment is already included, which of course didn't affect our cash position or EBITDA in the first half of the year because the divestment was completed in July. But this gives you a bit of a flavor from a more progress reporting point of view. We initially gave indication that we would like to divest 15 terminals with around 4% implication on our overall EBITDA and we are on track.
We have now divested nine terminals, two plots of land, total proceeds almost €300,000,000 and we are now still trying to complete the other selected terminals. It will take some time. Hopefully, we can report that in the course of 2015 or 2016. The other factor in cash flow focus of course is the level of amount we spent on the one hand on completing projects under construction secondly on sustaining CapEx on improvement CapEx also there no changes with respect to the outlook for the remainder period as we have previously stipulated being the period 2015, 2016. That means that for the period beyond 2016, we have to determine how much cash flow needs to be spent on growth, which we might still approve going forward on sustaining CapEx, on an improvement CapEx.
And so in the course of 2016, we will update all our terminal master plans on a worldwide basis for those where we feel it's relevant. We will update our five year sustaining CapEx planning. We will look at the improvement opportunities generating additional opportunities for cash flow generation or risk return profile improvement. So 2016 will be the year where we will guide you with respect to 2017, 2019. It's too early now to come with a detailed analysis at this stage.
Looking at the balance sheet, we also added some sheets in the presentation in the appendices, but the most important one of course is always the net debt to EBITDA ratio, specifically when you have volatile exchange rates where the balance sheet exchange rates and the average rates are going to deviate significantly, it always has an impact on this calculation. But we are still within the bandwidth which we would like to execute our strategy. Looking ahead, as said, the important value drivers of our business are still absolutely quite solid, quite steady. And of course, we also have certain segments which are quite mixed. Referring to the explanation by ERCO about the biofuels and veg oils, you see that we still find it a mixed picture with respect to the future development.
But as you can see the percentage of impact on our global network results has decreased significantly over the years because we have refocused on the other segments. So it's now having an impact of 5% to 7%. Mixed picture, certain terminals relatively low contributions And so that is something in our global network approach from a full potential improvement program, which will of course be an attention point. But more important is in the long term and the short term, how we can leverage on all the other positive value drivers. And one of the aspects where we can leverage on is specifically the high demand for oil storage currently combined with increased and continued imbalances, but also with short term focus where we can make available certain capacity when necessary.
Long story short, no big changes in our assumptions with respect to the value drivers between H1 and H2 except for Asia that we would like to reiterate. If we look at the foreign currency for instance developments, we really don't know what will going to happen in the next few months. We have two projects in Asia starting up where it's a fact that more likely than not they will contribute negatively in that period. If you combine that with divestments then it's absolutely clear that the hard facts about the development can be easily explained. And secondly with the uncertainty, we should not be concerned about enormous impacts.
But if we want to match the H1 results, a lot of positive things in that things should be happening compared to H1, not compared let's say to other expectations, but compared to H1. So talking about H1, H2 and the whole year 2015, we strongly believe that the results of H1 are fully aligned with the strategic program. We executed the strategic program is of course long term focused, but we are very pleased that the short term results are aligned with it. We came to the conclusion that the H1 results are very solid. The results for 2015 will also be solid, but in comparing H1 and H2 you have to take into account the aspects I just mentioned divestments, uncertainties in Asia and the projects starting up and that is in fact included in the uncertainties in Asia.
With that, I would like to close off the presentation and enable any questions you might have. And I'm now referring to the moderator for the transition to this question and answer session.
Thank you very much, Jack. We will now start with the question and answer session. For clarity reasons please state your name and the company you represent. We will first start with the question from the analysts present with us here today. And after these questions we will switch over to the analysts dialing into this presentation.
Michel Lauber, Schlavo Bank. I have a question about Hainan and Pengerang. Can you update us about the commercial contracts coming in? Might there be a positive impact from contango or low oil price? And you stated there will be loss making or could be loss making on the IFRS basis, but are they cash flow positive?
I can update you on business side and Jack will update you on the financials. First start with Pengerang. We've started the terminal. The full terminal is now commissioned as of the second quarter of this year. We are and I mentioned it before, I'm pleased with the location.
I'm pleased with the services, which is confirmed also by our customers. And I'm very positive about the ability for us to rent out those terminals. And you see that also the occupancy rate is moving in absolutely the right direction. It's moving along the line which we all envisage. So Pengerang will be seen as an integral part of our Singapore storage capacity.
And therefore the commercial outlook looks good. If you look at Hainan, Hainan is specifically for crude oil. You know that the larger part of it is almost all of it is for crude oil, particularly for movements of crude oil into the Middle or northern part of Asia. We've always mentioned that there are several elements that need to improve. It's the heavy shipping economics, the ability to freely trade oil in China and the and let's say the liquidity of that market.
We've seen developments there. Some are encouraging, some are less encouraging. We've seen for instance that in China the market is opening up for the first time although it's small, it's a small but significant step. We've seen that two independent refiners are allowed to buy their own crude which gives us a signal that the authorities are more let's say thinking along those way. But at the same time, we see that what we'd hoped is that the let's say the cabotage rules and regulations and the shipping to also make the let's say the transport, the storage and the redistribution more economic hasn't moved in the right direction.
What I can tell you is that, so the fundamentals of the terminal, I think are still something that we are cautiously optimistic about in the long term that it will change. We need time for that. But what I am optimistic about is at least that the current market environment with a very advantageous oil pricing curve is assisting us in our dialogue. So therefore you see that we have engaged in discussions with several traders and customers across the globe. And therefore I believe that we'll be able to start it up successfully.
But the relationship between sort of the short term opportunities that I see now and the long term opportunities is where we as an Executive Board still would like to give guidance and say we see positive developments, but be cautious. It's not the structural position that we are still looking for. But maybe a small kick start. This is how I should see it. So
you should see it indeed as you said a long term investment with now a horizon of only a few months where we give us guidance the indication please be aware that from an IFRS point of view probably it will contribute negatively because you get the whole depreciation all the charges whereas you are building up your occupancy. Then you ask a second question, will it be cash flow positive or negative? That depends on a few assumptions with respect to the renewal for instance for spot contracts you can conclude. But I have no indication that it would not be cash flow positive, let's say even in the coming half year or coming let's say six
to nine months, but depend on certain assumptions. And then one follow-up regarding your new strategy. You sold for almost €300,000,000 of terminals. You've not done a lot of new plans, expansion plans in the portfolio at this stage. Might you consider to increase the payout to your shareholders?
Hi, Hans. Long story short, what we have discussed with our shareholders already for many, many years, the starting point is value creation. So the value creation where we execute our strategy as an investment grade company with a very cautious net debt to EBITDA management. So your question is, let's assume your operational free cash flow is exceeding your investment levels. That is scenario one.
Then the second step is indeed, are you immediately paying that out as a dividend or alternatively, you decreasing your net debt to EBITDA ratio to create even more flexibility for scenarios you might anticipate? So we discussed the step by step approach. So it's much too early to already go to the third scenario of saying, okay, it makes perfect sense already to start distributing more because we first have to do those first two steps.
Derek Ripice, KBC. A question on the market environment in Asia besides the expansion projects that you already discussed. At the first quarter results you were already issued some let's say cautionary statements on occupancy in Asia. What we see now is that the cool down in China is also affecting the Singapore weakening as you state in the press release that has also some pressure in that region. What is happening to pricing and discussions with clients given the comments you made previously on supply and demand in that region?
That's my first question. Second question is on the we see some movements in working capital in the first half unfavorably. Is that a temporary thing or both on the asset and liability side? That's my second question. And third question is where are you on the cost savings of €30,000,000
Okay, Jack. I I'll inform you on the first one and then Jack will take the questions on the financial part for two and three. On the first one, you talked about the market environment generally in Asia. It's good to cite and to note that we have had the main businesses that we're having in Asia are the following. It's in different categories.
It's particularly oil storage for oil trading predominantly in the ones that mentioned in Singapore, Hainan and Pengerang. We have distribution for oil, which is particularly in Australia and Jakarta. We have industrial terminals quite a fair bit. As you know some chemical distribution as well in China and then our gas portfolio is relatively small still in Asia which we have several propane tanks which are more from an industrial perspective than anything else. If you have to look at the market today on the let's say the distribution side for oil and on the let's say the chemical side for industrial, we haven't seen any changes.
It's still very much let's say tuned towards providing the volume for the markets that's required. If you look particularly at the oil markets and so this being the trading markets then you need to look at the Singapore markets what we've seen is that the effect is not so much on the volume which is not there, it's the fact that we've seen a lot of capacity being added in the last few years, which we also in the years before mentioned in different regions as something which has influenced the supply and demand for tank storage in the region. So we've seen approximately 3,500,000 cubic being added in what I would call the Greater Singapore area. And as a result what you've seen is that the fact that the volumes are there spread over a larger group of terminals and it will take some time for these let's say for the occupancy rates again to recover. We've seen it happening in many different geographies and that's where Jack also made the comment.
We are very much supporter and very much believe in the long term strategic value of those assets. So that's the oil part. It's not a correction of the economic activity per se. A lot of it has to do with the capacity which is being added. And then the last one has to do with chemical distribution particularly in China.
And there also we said there are two effects there. On the one hand we've seen along the coast of China and for instance, Zhangjia Gong is a good example where we have been very successful in adding faces. We've seen that along the coast and next to Zhangjia Gong for instance, we've seen similar activity of our competitors. And therefore you see now that when indeed the growth of China is diminishing, you see a correction there on the activities. So I hope that this gives a bit of a perspective on how the Asian market is developing.
Pierre? I believe there were two questions about average rate development. That was an important one. Similar answer as we have been sharing in previous meetings. There are always if I oversimplify the situation three scenarios.
Either we are in a product market combination where we can even increase the rates if we demonstrate significant efficiency improvements from which the customer can benefit. We still have those situations. The second one is as we call straightforward indexation, primarily in situations where we have of course long term contracts. And you were referring to the third situation. Are there situation where sometimes you have to adjust your pricing downwards if you are not able to demonstrate that operational efficiency improvement?
And as we shared with you in the previous meeting, of course there are those sort of situations sometimes not on an overall terminal, but maybe only within a certain tank pit with respect to a certain product. But more important is that for many, many years the mix of these pricing strategies have supported us in maintaining on average a similar EBITDA margin, a similar revenue per cubic meter. So it's a mixed which has not changed in the last half year and we also have no indication that its mix would change significantly in the second half of this year. Working capital is in our business a timing difference, because if you look at our DSO development, we have sometimes situations that of course it could increase temporarily or that in the credited situation, but it's only a temporarily development nothing structural. The cost savings about what we said, we mentioned a number of €30,000,000 on a structural basis.
We are making absolutely good progress in achieving that. But you should also note if you make your analysis that if you would try to reconcile that on an apple to apple basis, there are a few complexities. For instance, our pension charges this year has increased significantly. So it's almost €50,000,000 higher. But on an apple to apple basis where we would like to change the cost basis, we are making the progress we want to make.
But still activities to be performed. It's not that we have completed the program and that the full effect is already visible in the year 2015. We still have to complete activities in order to benefit from that objective later on twenty sixteen, twenty seventeen.
Luc from Bernstein, again.
First a
question to reference some safety incidents outside of your company within a wider industry. You see a change in the risk awareness in that regard among your customers? And does it provide opportunities for your terminals? The second question is on the €17,000,000 legal provision that you took in the second quarter. Can you provide some more background on that?
And finally, could you give an update on the EBITDA still to be divested in the form of terminals from for future divestments?
Thanks, Ludwig. Fritz why don't you Yes.
On the safety awareness definitely with the type of products that we are in contact with safety is always of the utmost importance of course. And I think the vast majority of our customers really realize this themselves as well. And I think those occasional people in our industry perhaps not our customers, but in our industry who don't are unfortunately starkly reminded by sometimes tragic accidents and incidents. So overall, I believe if you look at the long term trend of the industry, it is definitely continuing to go for safer and safer. And obviously being a front runner in that trend ultimately we believe is a benefit to us as a company.
Thanks Luke. Maybe Jack you can ask the answer the questions.
On the one question was about the divestments, the implications for the future. As you remember, the 15 terminals altogether were three percent to 4% of our EBITDA. We have now completed two thirds of the program. So there will be going forward there could be another let's say small adjustment of the future EBITDA development. The only effect is now indeed why are we emphasizing that is because if you look at H1 where these terminals still contributed and you look at H2 then it has more effect than of course looking at longer periods.
But when we compare 2016 then you should bear in mind of course that if we have completed two third of that program that it will have almost two third impact on the 4% EBITDA.
A few words on Finland.
Few words on Finland. There was you said it's not Finland. It's the legal claim. So that is in the EMEA division where you said why did you recognize a legal claim, very complex situation where we had to make an IFRS adjustment. And under IFRS as an Executive Board you have to make a representation at a certain point that you say, do you think it's more likely than not that the outcome will be positive or do you think it's more likely than not that the outcome will be negative.
From a business point of view, we are of European that we are well positioned to avoid that legal claim. But if we have to support it with a lot of evidence to support that expression more likely than not that's the reason why we had to recognize under IFRS a provision for that situation without going into details because that would not be in the benefit of our shareholders in our position against the counterparty.
Bjorn Krakow, Bjorn. In Asia, the sequential drop that you see of five percentage points so from Q1 to Q2 that's a drop that we've not seen I think ever before not even in Netherlands at the height of the crisis from one quarter to the other. So just to get my head around what is really causing this sharp drop? I just can't reconcile it with the comments on industrial terminals in China which should be long term contracts etcetera. So a bit more spread on that a bit more color on that.
Then the spread between the chemical and oil business in Asia,
if
you could give me something on that? How much capacity you still see coming to market not only from yourself but in a general wider theme? And then my second question although I'll keep it at two. The impact you see from the decline in occupancy rates from moving from 90% to 85% and in The Netherlands the other way around. There seems to be less impact on group EBIT or group EBITDA.
So what is causing that? So if I look at Singapore for instance, it's flat from Q1 to Q2. So a bit of a disconnect between the occupancy rate drops and the development of group EBIT.
Let me start again on the occupancy, because I'm I thought we were clear the first time around Bjorn, but we'll try it again. Is the drop in occupancy predominantly because of the additional oil capacity being added in those markets? And I think we've cited before the expansion programs that we've seen in Europe, in Fujairah and in Asia. And Asia has not reached the attention of the outside world and the analysts as well because of the fact that it has all been running at a very high level of occupancy. What you see now is that we've added 1,300,000 cubic meters to the total tally, but we've also seen that the two other companies have started up right in this particular quarter.
And we expect one more as you might be aware of to come either at the end of this year or early next year. So it means what you've seen in the last six months, there has been a bit of actually the discussions and activity has been the same volume wise. But what you see is that obviously packages of clients have been moving and you should not consider this as everyone is moving in one go, but certain packages have been moving around. And that has led where you see that there is a short term effect on occupancy. And again, restating it, I feel comfortable from the strategic perspective that we see that it will come back to levels that you are aware of.
So that has been the main influence there. And then if you look at occupancy levels from a chemical perspective Then I'd like to raise your attention to head to China to the import terminals particularly what I mentioned where you see that the competition is fierce and where we've particularly we have long term contracts for industrial which are obviously there. We've seen in the spot business a few movements there. We do not have the numbers of chemical oil and distribution by heart. But I know that you're long enough an analyst to look at the terminals to put a label on it and I'm sure that within a short period of time you have a very proper estimate of where that lies.
Yes? Yes.
Maybe one point of emphasis in your analysis. When we report the occupancy rate as a value driver of revenues, it only relates to group companies. And with respect to the proportionate information, we include subsidiaries as well. So you have to think about group companies and one of the terminals we discussed already in the past is the enormous good position of Saint Germain, but also the enormous capacity expansions in that market putting downwards pressure on the occupancy rate. And with respect to your EBITDA question, what you see of course, we have experienced expansions in Asia, but then overall a lower occupancy rate as a result of which the financial result in total was still let's say reflecting not a huge decline you would have expected when you only look at occupancy rate.
Graham Mullen from ING. Two questions. You suggested that you are going
to look for something let
me say to raise your utilization rate in the second half in the Far East by and I'm very interested what you're going to do because it's not going by automatic system. And the second question is about the CapEx. Your target is €700,000,000 In the first half year you declined your CapEx already by over €40,000,000 So can you maybe update us on because it seems to me that it is not 700,000,000 maybe going into the direction of 600,000,000 in the sustainability and maintenance CapEx? Thank you. There's no magic bullet for raising occupancy as you are aware.
So we will just continue the things that we've been doing for the last decades. And I think that we've been concentrating on the service delivery and the packages that we have in But what you see now is that that's something that I mentioned about Hainan as well as that we are supported a little bit also by curve of oil. So that's why I'm saying we see that now that the capacity is coming in particularly around this stage you see that renewed attention is coming in for looking at these contracts. So again nothing that we change from the ordinary. So we are not a company and I've said it before not a company that gets too concerned about some volatility in the take up rate of tanks.
That's something that we've lived through on many, many occasions. So it will do exactly the same in Asia.
The CapEx question, if you look at the remainder periods, so the 2015 and the whole of 2016 and we look at the sustaining CapEx planning in that period and the improvement CapEx opportunities, we feel that this better reflect the guidance we should provide than giving you the impression that we could reduce it in that particular period.
Thomas?
Thanks. This is Thomas Kempen. I was actually hoping that you could help me on the on your Asian market. Revenue actually still increased quarter on quarter where occupancy declined and total size in your portfolio stayed stable. Could you explain this dynamic?
Is it pure the effect of pricing that actually increased?
There's a foreign exchange effect in there. So if you take that away, you'll see that the overall revenue of our consolidated companies in Asia has decreased slightly.
Okay. That's clear. And Q2 ended the June. We're now two months down the road. Where is occupancy today in Eurasian portfolio?
You have to wait until the first quarter to get that answer.
And if you would include your joint ventures?
Then you still have to wait for the third quarter to get that answer.
No, Bob will be the number at half
year. Half That's year the
If you look at the paragraph proportionate information, you see a 90% occupancy rate for the group companies and the joint ventures. So mathematically you could conclude 91% for group companies on average let's say 90%. So you can derive the answer on that particular question. Okay. That's clear.
And if you would exclude your new capacity, what would have been your occupancy rate then in Asia? That's
at least if you look at Hainan that still needs to come into fruition. So on the proportionate levels the one that's there that's Pengerang that will have the largest effect.
So what will be interesting follow-up of your question, if we are going to report Q4 then we include of course Hainan. We include also the remainder of Panorama. You can see then what the implications will be. Perfect. Thanks.
Thank you very much. We will now switch over to the analyst dialing in. And I would like to give the word to the online moderator.
The first question is coming from Mr. Doug Hayes from Morgan Stanley. Please go ahead, sir.
Yes. Good morning. A couple of questions, please. First, just to follow-up on an earlier question to make sure I understand the answer correctly. When you were talking about the quarterly drop in utilization in Asia, did I understand it correctly that the Q over Q drop was driven mainly by the oil services sorry, the oil capacity and that the chemical side of things did not deteriorate sequentially?
No, Doug. Thanks for the question. We said the effects were twofold, right? Yes. Would you cite them both?
On the one hand, indeed the oil drop, but we do like to cite as well that in China we've seen a drop in occupancy as well. So those two effects you need to combine in total number. It's a blended number.
Okay. So both weakened Yes. Quarter over Okay. Okay. Understood.
Secondly then, again focusing on Asia, stepping out a little bit back to the longer term. We've seen some of the projects in Singapore, some of the capacity projects there being canceled. And so does this change how you view the market at all?
No. I'm a bit which one do I refer to which have been canceled? I find that interesting to learn from you, Doug.
Think one by Sinopec was delayed. And then there was another one I think on the West Coast Of Malaysia that's been canceled?
Well, never that project particularly has been was very conceptually in my mind being discussed in those days. So the ones that we have always been very serious about which would be added are the ones that have been already announced a few years back actually started construction. And as I said, two of the three that we consider sort of the series expansions or additions have already materialized and there's a third one coming. So the one on the West Coast in my humble opinion was never one that was either constructed or being constructed. So it was still in a very conceptual phase.
But I don't think it has I don't think our opinion and I'm citing what Jack was saying, our opinion of the strength of the Asian market and the strength of our assets has not diminished in light of the results that we've shown now. And it's something which we don't cite quarter by quarter because that's too short a period of time to draw conclusions on the strength of those assets. We need to have a bit of patience and see how that develops in the years 2016, 2017 and onwards. And we have a great deal of confidence that those were the right decisions to add the capacity in Asia.
Okay, great. Thank you. And then finally flipping back to The Netherlands, I mean you guys are pretty much full at this point effectively with the 95% utilization. I mean, there anything we need to think about in terms of sensitivities on the utilization there going forward? Or do you feel pretty comfortable with that situation for now?
Well, depends on your timeframe. And I mentioned as well, up until the end of the year, comfortable with the market structure what we see in Rotterdam today. And let's say the price of oil on the market structure, are three effects which you've seen is first of all, it's the high utilization rate of the refineries in Northwest Europe with the low oil price. The refining margin has very healthy and we haven't seen it this healthy in a long period of time and that is looks to be sustained at least till the end of the year. The second thing that we see is that the Russians are pushing out product also to keep the let's say the oil flow and the opportunities to earn dollars at continuous momentum.
So we see that the oil is moving via Rotterdam to Asia. So we've seen a lot of activity in the second quarter there. And the third effect that we've seen is that with the low oil price, also low sulfur diesel is a very interesting commodity now for the shipping industry, so the marine diesel. Therefore, these are typical, let's say, effects of the price. And I expect it for the next two quarters that we'll see that continue.
Okay, great. And just
a quick follow-up on some of
the older infrastructure that you have in The Netherlands. Is it safe to assume that you're still reviewing those sites for sort of a medium term plan?
What we see is that in Rotterdam, we still see the volumes that we move through there are require quality infrastructure. A lot of effort that we're putting now is integration of those assets within the Rotterdam community. We're looking at building, let's say, more efficiency in our systems. So as and when we see and whether it's in we've seen it in crude oil or in fuel oil or in middle distillates. If we can upgrade with smart investments our assets to improve the efficiency, we'll do so.
So that's something that is continuously on our minds. And also in if you look at the next decades in Europe will be very important subject matter to discuss to keep the efficiency of your assets up to standards. Obviously, besides the safety and sustainability, but that's a given for me.
Okay, great. Thank you very much.
The next question is from David Kersten from Jefferies International. Go ahead sir.
Hi, good morning everybody. A couple of questions please. First of all regarding Pengerang with capacity now fully covered by commercial contracts according to your joint venture partner dialogue last night. Would you still expect Pengerang to record start up losses in the second half of the year? Or is there some delaying effect before you actually see occupancy improving following the signing of commercial contracts.
The second question is regarding your improved performance in Shanghai. I realize that's an industrial terminal for chemicals, exception to the rule in an overall weaker chemical market in China or were there specific factors? And then finally regarding your new joint venture Haiteng, how will that impact your earnings in the second half of the year as you are covered by long term contracts in an industrial terminal? Thank you very much.
Okay. I suggest Jack takes the first question on the cash position of Pengerang and the occupancy rate.
With respect to indeed Pengerang, as explained by Ilco, a lot of interest, very good progress made with contracts, contract negotiations. But as I said in the beginning, if you want to make a scenario analysis for the second half of the year, you also have to make assumptions with respect to renewal of spot contracts and we want to be careful with respect to that because of the short timeframe, because of the indeed as you said buildup of the occupancy rates that will not be immediately 100% occupied. So that's the reason why we still remain cautious with respect to the contribution of the Pengerang terminal in the second half of the year and specifically with the Hainan terminal. So that is the reason behind it. You were referring Sorry,
is it fair to say that Pengerang is filling up much faster than you had previously expected or what you expected at the end of last year when we were in Dubai?
In Dubai, were flagging different scenarios indeed of delays with number of months compared to the scenario where we would have needed let's say six to nine months. This scenario is better than that scenario, but it was always on our radar screen. The difficulty for us as management is that if you work with different scenarios with different assumptions, you cannot provide any let's say certainty about any of those scenario. We can only share with you what are the typical scenarios which might materialize. But compared with indeed that scenario which we discussed in Dubai that it would take at least six to nine months, this is a slightly better scenario compared to that scenario.
And then you are referring to Qiaozheng.
I think reflect an improved performance in Shanghai. I realize that's an industrial terminal, not an import terminal,
so maybe less trading activity. Because on the top of my head, we have an improved result contribution from joint ventures let's say Asia that is driven indeed by also the Haiteng acquisition and it's driven by expansions in Caojing. So that are the two factors which are explaining that.
So it's on the one hand indeed the expansion in Chongqing. On the other hand in Haiteng that's the question you said in Gulai because of the incident our customer had in the parasitin plant. What are the effects of that? I think that at least people sitting here they know the incident we had in Moerdijk as well for instance is very comparable. We have a facility there which provides services to that manufacturing facility.
In April that facility had an explosion and had stop producing effectively. We have been waiting for the report on the root causes and basically the requirements of government laid out before they can start up again. That report was issued only four days ago, which is being digested obviously by the manufacturer of Paraxylene and our client in Haiteng. It's too early to draw any conclusions on the timing David on when that will available. But what will happen in the next period going forward is that the manufacturer will look at what's required to start up again.
He will put a plan against it to mitigate those issues. And then once we start resuming the business again is when we will start utilizing our terminal to the full. So it's too early to draw any conclusions and that's also why we've been cautious and mentioned in our half year results that we said that we want to see the full effects of the outcome of that discussion before we can wholeheartedly discuss on the outcome of the results in Asia. So I hope that explains a bit in which phase we are with respect to that terminal.
Okay. Thank you very much.
Mr. Rietzel, there are no further questions coming from Audi part. Please continue.
Thank you very much. That brings us to the end of the presentation. I would like to thank the analysts with us here present today. I would like the analysts to thank the analysts dialing in and I would like to thank the viewers online. Our next update the Q3 update will be on 11/06/2015.
Thank you.