Morning, ladies and gentlemen. Thank you for waiting and welcome to this Royal Vopak conference call. At this time, all of the participants are in the listen-only mode. After the presentation, there will be an opportunity to ask questions. I would now like to hand the conference over to the Chairman, Mr. Jack de Kreij, Vice Chairman and CFO of Royal Vopak. Go ahead, please, sir.
Very good morning, ladies and gentlemen. Thank you for your participation in this Q1 2015 trading update conference call. As a matter of logistics, as you know, we have organized our AGM today. That means that we have a hard close for this conference call at 9:40 A.M. I will take care that we have sufficient time for questions and answers. I will give a quick explanation about the Q1 trading results by referring to the presentation, which is on our website. I will refer to the pages where we are when we are talking about the business development. Starting with page two, the forward-looking statement. I assume that you are familiar with that in a very complex business environment, there are always assumptions and uncertainties that is explained in this paragraph.
We then go to page four. The key topics I would like to address in this call is that, 1, we have been able to deliver very good results against a very volatile background of geopolitical developments, of economic growth, which is relatively disappointing compared to earlier periods in our economy, and a very dynamic business environment with volatile oil prices. In line with our previous outlook, as a result of that, we have come to the conclusion that we are well-positioned to exceed the earlier indication of EUR 768, which was the EBITDA result we generated in the year 2012. We will absolutely be well-positioned to exceed that in the year 2015. We are on track in executing our updated strategy as announced on July 2nd, 2014. In the remainder of the presentation, I will provide you a bit more details and explanation on individual developments.
Of course, as said, we will leave plenty of time for any questions you may have and clarifications you would appreciate with respect to the trading update. When we go to page five, you will immediately see that the increase of occupancy rate from 89% in 2013 to 88% in 2014 has now exceeded the 90% level. That doesn't mean. That is the first warning. That doesn't mean that this is already a structural change of which you could conclude that we will now be operating in the 90%-95% playing field. That is too much uncertain if I look at the demand drivers. Of course, we are well-positioned to benefit from these demand drivers also in the short term.
This has fueled both a positive EBIT development and EBITDA development. We can report a 15% increase of our EBITDA compared to the lowest quarter. I have to emphasize that, the lowest quarter in the year 2014. We also have benefited from some foreign currency translations, and this time in a positive way. Despite that, the positive business developments in the Q1 period are the increased occupancy rate in certain regions. Secondly, that we have been able to sustain the EBITDA margins. Thirdly, we have been growing the EBITDA development in line with our ambitions. The net profit, as a result of that, has benefited disproportionately, of course, which we have not been able to report in the previous year. We are very pleased that also this indicator is going in the right direction.
As said on July the 2nd, our whole philosophy is on trying to improve the risk-return profile of our portfolio. This has to do with the existing business. We try to de-risk existing terminals by concluding different type of contracts, by providing different type of services. That is not something we can accomplish from one quarter to the other, but that is the strategic focus we are executing in the coming years. Secondly, of course, we are looking very carefully to our free cash flow generation by managing our sustaining and improvement CapEx and our cost levels. Thirdly, on top of that, we continue identifying selective growth opportunities on hub terminals, on industrial terminals, on countries with structural deficits and gaseous products. The trading update, I would say, perfectly fits and perfectly matches this journey, which is, of course, longer than just one quarter.
Going to page seven, talking about cash flow development. As you can see that we have been able since the focus on cash flow generation. That started already at the early stage of 2003. That we have been able to improve the cash flow development. If you look at the Q1 period and the Q1 period 2015, it looks like that it's almost equal, the cash flow development despite the EBITDA growth. That is right, because components like dividend distribution of joint ventures and working capital changes have also an impact on this cash flow calculation. An integrated cash flow approach where we are eliminating any accounting number. That's the reason why it could be that even if an EBITDA growth is reported, that the cash flow component is almost equal, lower, or even disproportionately higher. That's the reason why we follow that in very much detail.
Looking at page seven, it gives, I think, a very good reflection of the magnitude of volatility. The magnitude of volatility, which we have been able to address in previous meetings, where we said, "Look, if you look at our portfolio of terminals, the majority, the core of the core, is fixed and focused on physical transportation of energy products, on chemical products, industrial terminals and LNG," where oil prices have no impact on. The main driver of the functionality of our incremental additional value we provide with our service is the ability and capability to provide storage and transshipment services for those products which need to be physically transported from one region to the other or within any region.
As explained in our previous meetings, we also have certain locations where capacity is rented, for instance, by traders or other parties, where oil prices might play a role in their decision-making to take a position. If you are operating at a level between 85% and 90% of occupancy rates, then it makes absolutely clear that the upside, if there is hardly any economic growth, if there is hardly any growth in the volumes to be transported on a worldwide scale, that the upscaling of your utilization should come from other demand drivers where oil prices could play a role. I think this picture perfectly reflects the type of volatility and swing factor you could have from one quarter to the other. You could also conclude the other side, and that is that we are operating in a certain bandwidth.
The bottom of this bandwidth is supported by long-term contracts, by the physical transportation of products, which are completely independent of oil price developments. The only factor which is uncertain is how large is the bandwidth, how large is that volatility within that bandwidth, and that is something which we are exploring ourselves as well going forward. A long story short, if you look at those two years, it gives a bit of an indication that we have apparently been operating between EUR 180 million, EUR 206 million. Of course, for a thorough analysis, we should normalize that for AVIX developments. We should normalize that for maybe capacity expansions.
It gives a bit of an indication of the swing factor, and that's the reason why I emphasize this, because going forward, in the remainder of the year, we have to take into account a certain swing factor which we find difficult to assess at this stage. Because we have to make an assessment that if certain spot business contracts will expire in the next three to six months, we have to assume again whether or not they will be immediately renewed or whether it takes some more time. What are the conditions under which they will be renewed? That's the reason why we have reiterated our previous outlook that we are extremely strongly positioned to exceed the EUR 768, but at this stage, we don't want to make any, I would say, almost academic accurate assessment in which range we might end up.
That is, in fact, the message we try to link. First of all, the quarterly development with the outlook later on. Looking at page eight, you see quite a bridge statement of the EBITDA development in Q1 2015, where I would like to emphasize the foreign currency effect and then the positive business effects, where indeed the Netherlands is quite positive because of the increased occupancy rate, because of the opportunity we have been able to capture to store more crude oil products and gas oil products than the year before, and that has everything to do with the positive developments in the oil markets and the corresponding oil prices, let's say, enabling traders to take profitable positions.
We look at page nine, we see that the total EBITDA contribution, a growth of 15%, is fueled by positive developments in all the regions with one remark, and we come back on that later, that specifically in Asia, the positive AVIX translation has contributed a lot to this growth, whereas the decrease in occupancy rate has absolutely, let's say, put some pressure on the further growth of our EBITDA in Asia at this particular moment. We go to page 10 and we look at the joint ventures, of course, the growth in Asia is fueled by, for instance, the acquisition that we have done of our 30% stake in Haiteng and also the Gate LNG because of the expansion of our stake in previous periods.
Looking at page 11, referring to my initial comment, we are still operating in the 85%-90% playing field, whereas we are now, let's say, moving towards the 90%-95% playing field, I find it much too early to say that this is absolutely already a structural step we are going to take. The positive news is that with our focus on Agenda, with our focus on improving the risk-return profile, that we have been able to improve our utilization since the crisis period, but that there is no indication yet that this is a structural improvement we can easily maintain for the longer term. I find it much too early to say that, but it's looking very encouraging. We are well on the way.
I see opportunities, it will take time, I don't want to give the impression that this is the first step to even higher occupancy rates in the periods to come. Page 12. You look at the occupancy rate per division, we see indeed that the Netherlands has reported quite an increase because of the increased demand for crude oil storage capacity in Rotterdam. Also we have been successful in the renewal of contracts in Amsterdam. The EMEA improvement is primarily due to the significant increased occupancy in Sweden. As you might recall, Sweden was hampered by quite some available capacity in the backwardation situation. Now we have quite for a long time, a contango situation. We also see an increased interest in using this storage facility as a result of which EMEA is able to report an increased occupancy rate.
The decrease in Americas is primarily in Latin America, so not in North America. Canada and our Houston terminals are very well positioned. In Asia, we report a lower occupancy rate, and it has everything to do with a phenomenon we have been discussing during our capital market today, that in the world of storage facilities, the matching of expansions and economic growth and increased volumes might temporarily be imbalanced. That is the case in, let's say, Singapore. In that region, we have an expansion of new capacity, which is absolutely matching the future needs, but might be temporarily, of course, being a mismatch between the current short-term needs, and that is reflected, in my view, with this occupancy rate reported. As said, we are a strong believer in the positive developments in the Asian region.
We are extremely excited about our expansion in Pengerang in order to support our strategic hub, Southeast Asia service function. In the short term, it could be that we have to deal with the relatively lower occupancy rate between 90%-95%, or even between 85%-90%. That is something which is too early to say, but it's absolutely from a strategic point of view, not an issue at all. Looking at page 13. As we have shared in previous meetings, despite, let's say, all kind of IFRS reporting, this is the straightforward non-IFRS proportional information, and we see the same developments with all KPIs. Also, with respect to the occupancy rate, we see that we report a 90% occupancy rate if we take the group companies and the joint ventures together.
In the earlier indicator, we only report the group companies as an indication for revenue development from an IFRS reporting point of view. What we also could see is that we have been able to balance the cash flow return on gross assets, based on our strong focus on free cash flow improvement besides only EBITDA growth. Looking at the divisions, page 15. A long story short, increased results, higher occupancy rates, and some expansions which we have been able to put in the market in the Netherlands. So far, so good. As said, from a strategic point of view, the contributors to the improvement are not yet structural contributors. We continue focusing on what we could do, both from a free cash flow improvement, both from a cost management point of view.
What we can do to de-risk, what we can do to improve our service proposition in this highly competitive market, that remains top on our agenda for the Netherlands. On EMEA, an improvement, primarily because of the Sweden activity, where we have done quite a good quarter, resulting from the increased demand and as a result of that, higher occupancy rate. If we look at Asia, in fact, we have already covered that topic on page 17, where we have experienced a decreased occupancy rate, specifically in the oil storage. We have opened up Pengerang on the one hand, and we see that the occupancy rate on Banyan and on Sebarok has slightly decreased in line with our expectations. It's a timing difference. The only thing is, how long will be the timing difference? That is what we are investigating.
It's absolutely encouraging that we can see that we have been able to maintain quite high EBITDA levels. We are able to maintain, based on our excellent service levels, we can provide good pricing, good EBITDA margin. Going to the Americas. As said, the main reason of the occupancy rate lies more in Latin America than in North America. I would say the remainder of America is very well positioned, still growing strong. Nothing special to report. Going to selective growth. I said, on our strategic agenda, selective growth in one of the four markets remain an extremely important area of attention. We look at hub terminals, we look at countries with structural deficits, we look at industrial terminal opportunities, we look at gaseous products.
As I said, we do this in a very capital disciplined manner, taking into account the limited economic growth, the uncertainties in volumes in the world, while continuing improving our position of the existing terminals in our network. Looking at page 20, we are operating now 33.8 million cubic meters. In 2019, we might operate 39.8 million. Just one small note, this still includes the announced, but not yet completed divestments. The 38 million will be lower once we have been able to complete those divestments, and we can announce them. That is the only, I would say, side remark I would like to make on this overview. On page 21, you are familiar with that. We have been able to divest in Q1 some smaller terminals on the East Coast of the U.S. and a plot of land in the U.S.
We started our operations in Pengerang. We also announced quite a huge project, the Pengerang Industrial Terminal, and we expanded our activities in Europoort, where we have specialized storage facilities for jet fuels. What does this mean? Page 22. For the development of our storage capacity, you are familiar with this. You see that in the year 2014 up to 2019, we not only grow with 5.8 million cubic meters of capacity, but that the majority of this capacity growth will be materialized in joint ventures. That, of course, has an impact on the level of EBITDA growth from an IFRS point of view, we could further develop. Looking at page 23, how are we funding the whole selective growth? We are still well below the maximum covenants.
The positive cash flow developments, the completed divestments on the one hand, have a negative impact, of course, because we have low EBITDA going forward. On the other hand, it has a short-term positive cash impact, but we are still well below the covenant. We are well positioned to execute our current projects under construction by funding it with our operational free cash flow and the available headroom. Page 24. No changes in the capital structure. We keep on focusing on the capital discipline growth. Up to now, the source of growth funding is operational free cash flow. The second source is using the headroom, and we have no indication in the short term that we have to use any of the other sources for being successful in realizing our growth ambitions. Looking ahead, page 26. Looking at subsequent events, we have now a 50% stake in Gate.
That means that when we started this project together with our strategic partner, Gasunie, that both partners have now 50%, and that all the minority shareholders have decided, in fact, to offer their shares to us. We are very pleased with that because it provides us a very stable basis for executing our LNG growth strategy. You might be aware that on April the 6th, there was an unfortunate incident with one of our main customers of our Vopak terminal Haiteng. This means that although it's located on quite a distance from our terminal, that the activities have been shut down for inspection by the government. We don't know when and in which format these activities will be continued. At this moment, there are hardly any activity at our terminal as well.
On April the 7th, we received an ultimatum from the labor unions, as you might recall, and we have been informed by the unions that they have suspended their actions in anticipation of consulting their members in the coming periods. Looking at page 27. As always, we always take a look at our contract portfolio. We look at the different product market segments. If you look at the Q1 results, they, in fact, reconfirm the trend we have been experiencing in 2014. Instead of having a downward trend, we seem to be bottoming out. The bandwidth in which we are able to operate seem to be narrowing down, and that is, in fact, the starting point for defining our outlook for the year 2015.
From a demand driver point of view, we don't see any significant differences between 2015 and 2014, other than in the short term, we seem to be well positioned to benefit from the additional demand resulting from the oil price developments. Relate that to page 21 and try to make an assessment of the year 2015. That means that if we look at the performance of the year 2014, which was EUR 763 million, if we look at the highest performance in the last few years of 2012, which was EUR 768 million, we strongly believe that based on the current contracts, based on our assessment of renewals, based on our opportunities of pricing, cost management, and all other relevant factors summarized here in this graph, that we are well positioned to finalize the year 2015 in excess of the EUR 768 million.
That means that I have ended my short clarification and explanation, and it means that we have 30 minutes left for any questions you may have, and I would request the moderator to open up for the question and answer session.
Thank you very much, sir. Ladies and gentlemen, we are now starting the question and answer session. If you have a question, please press star one now. Star one for your questions or remarks. Go ahead. Okay, we have quite a few questions. The first question is from Mr. Björn Krüek from ABN AMRO . Go ahead please, sir.
Good morning, Jack. Couple of questions. I will try to limit myself to two as requested. On Asia, I understand the point you make about the short-term mismatch about new capacity coming on stream and short-term demand. In the press release, you mentioned a more competitive and dynamic spot market and changes in the product mix. Could you just shed a bit more light on what you mean with that? What is the cause of that? Is there perhaps also an impact of the capitalized cost unwinding with new capacity coming on? Has there been a negative impact from Pengerang? Just a bit more clarification on the situation in Asia. On the net debt, CapEx, kind of cash flow situation. If I look at the CapEx, it's down quite steeply from Q1 2014 into Q1 2015.
I do see the net debt moving up despite the M&A proceeds, what I said, lower CapEx, good cash flow. Is that only currencies or am I missing something there?
Good morning, Björn . Indeed, you are not missing anything with respect to the latter. It's primarily the currencies which have an impact on those comparisons.
Could you quantify the impact of currencies on that debt?
Oh, I don't have it on the top of my head.
All right.
If you look at the enormous volatility in the U.S. dollar rate, you can imagine that if I have to recalculate my U.S. debt at 133 or 109.
Yeah.
It has a significant impact on that part. The difference between the average rate you use for EBITDA and let's say a fixed rate you use for the net debt calculation, that is normally, let's say, a source for quite some differences.
All right.
All the other are no reasons for any difference. It's only debt factor. It's only primarily debt factor.
Okay. The massive step down in CapEx is the result of what's causing that?
That is a result of the program and a timing difference. You should not, let's say, extrapolate it as an indication for the remainder of the year. It's partly timing difference and partly indeed, you are now seeing the impact of our strategic agenda where we said as from July 2014, we would like to reduce the total program of around estimated EUR 800 million for sustaining an improvement CapEx to end up for that period in EUR 700 million. You see slightly now the results and consequences of that program. On top of that, a timing difference that certain, let's say, expenditures will take in other parts of the year than Q1.
Okay. Thank you.
Asia. A very short answer to your question. Indeed, of course, Pengerang has an impact. I don't want to give that as a clarification because if Pengerang would be, let's say, the only factor, then we would not have to report a decrease in our occupancy rate from the group companies.
Yeah.
The main factor is indeed that we experience specifically in Banyan and specifically in Sebarok, where we also had capacity rented out to traders where spot business was in place, and where the traders have multiple opportunities to store that not all contracts have been, let's say, renewed or have been renewed at the same stage. That is absolutely the main root cause. I would not, although Pengerang could be a part clarification, is not the root cause of this difference.
Yeah. Are they moving from Banyan, Sebarok to Pengerang, or is there?
Also to other, let's say, service providers or, let's say, decide to stop the trading or whatever. That is the volatile part of it.
Okay. The part on the capitalized costs with new projects-
That's always a difference. Capitalized cost and pre-operating expenses is always an explanation of, let's say, if you look at a yearly basis, what I've seen in the last few years, it could be a difference between EUR five million and EUR 10 million on a yearly basis. It's not something which I feel is the overriding factor.
Okay.
The main message from a business point of view, although Pengerang plays a role, although pre-operating expenses play a role, the main factor is the drop of the occupancy rate.
Okay, cool. I will go back in the queue. Thanks, Jack. See you this afternoon.
Thank you. The next question is from Mr. Luuk van Dijk from Petercam. Go ahead, sir.
Yes. Basically two questions regarding Asia. First, on Hainan. I understand that there's still no commercial contracts. Can you give any indications if you'd expect significant pre-operating expenses in Q2 and significant start-up losses from Q3 on? Second, the drivers, as you mentioned, a mismatch between the timing of capacity expansion. Can you give any indication to what extent this is exacerbated by increasing competing capacity? Is that something that can continue in the next couple of years, or is it really a very short-term impact?
Luuk, starting with the last question. If you, let's say, take a time frame of the last five or 10 years, the total capacity in that market has almost tripled. If you take a shorter time frame, that also since 2008, we have seen expansions, in Singapore, in Indonesia. That's what we are referring to. You are talking about a couple of million cubic meters. I don't know the exact numbers in which time frame on the top of my head, but you are talking about quite some expansions. That means that taking into account, of course, the expected increase in volumes over the longer term, that this capacity is absolutely well-matched with that scenario, but that in the short term, you see that it is not easy to continue operating at 95% occupancy rates.
That's the reason why we flagged it as an attention point that going forward, we are well-positioned to continue operating at very high levels. Also taking into account these developments, I'm not sure whether we can easily go back from one quarter to the other at again, 95% occupancy rate. We really have to see that in the coming months. Looking at Hainan, as indicated in our previous meetings, indeed, we said the terminal will be commissioned most likely, just at the end of Q2 or at the beginning of Q3.
Based on the current inquiries we see, which have not been translated in formal legal contracts, you should assume that in the second half of this year that indeed from an IFRS accounting point of view, that Hainan will contribute negatively to our result development because if you start with a relatively low occupancy rate at that particular stage, while you have to recognize all the depreciation and all the interest costs from day one, that will automatically result in a negative, let's say, contribution. Of course, that factor is not new. We have already included that in our outlook of previous year. We have emphasized that, and we have reiterated that in our outlook for the year 2015. It's not a surprise. We are continuously looking, of course, at the developments over there.
Okay. Pre-operating expenses in Q2, is that significant?
If you say, are they more significant than Q1, then that's not the case compared in 2015. As I said, from one year to the other, sometimes you have changes between EUR 5 million-EUR 10 million in pre-operating expenses dependent on the nature of the projects.
Okay. Thank you. That's clear.
The following question is from Mr. Michiel Kuipers from Rabobank. Go ahead, sir.
Hi. Good morning, [Jack]. I have a short question about your outlook. Did you include the divestment program into your outlook?
Yes. What we have tried to do, what we said is, okay, if we have to divest or will be successful in divesting smaller terminals, we take that factor into account. We also take into account, the point just raised by Luuk, that he said, "Look, if I understand well, your Hainan operations might contribute negatively." That's absolutely right. We have taken into account all these factors in reiterating our outlook.
The plan is to divest something like 4% of EBITDA. Are you assuming the complete execution of this divestment program in full year 2015?
What we said is, in July, the likelihood that we might complete it before the end of 2016 is quite high, but we have never referred to that we would complete it in 2015.
To some extent, it's included in your outlook.
We have taken that into account. Otherwise, it becomes so complicated, indeed, that you have to give an outlook, including, excluding divestments. Well, what we did is, we started a program. You know that we are talking about 15 smaller terminals. We divested already in Q1 the three U.S. East Coast terminals and a plot of land. We know exactly what the impact is of the lower EBITDA from those divestments. We have to assess, okay, could we complete some other divestments in the remainder of the year? We have made a likelihood assessment of that, but you should not take into account a scenario where we are on a program where we try to complete everything in the year 2015. That has never been the intention, and it's also not currently the actual case.
What we have tried to do is give a strategic direction and execute the divestments at the right natural fit for purpose moment.
Okay. I'm still struggling a little bit with your outlook. If you make EUR 206 in the first quarter and your total divestment is EUR 30 million. You easily arrive at around EUR 800 million. I'm just wondering why you're so cautious.
We are not in the business of providing narrow, accurate outlooks. We are giving a direction. We are not cautious. We are realistic that we say, look, we know where we are. We have a few swing factors, positively and negatively. We have to try to assess them all independently. Will we be able to increase the occupancy rate further, or will there be quite a drop? Secondly, yes or no, will we be able to complete the divestment? What is the assumption we have to take into account for Hainan? That's a mixed bag of swing factors, the only thing what we say now at the beginning of the year, we reconfirm that we are well-positioned to exceed the EUR 768. Where we will end up, we will probably have a better view in the coming months.
Okay, clear. Thank you so much.
The next question is from Mr. Dirk Verbiest from KBC Securities. Go ahead, please.
Yes. Good morning, gentlemen. A question on the earnings momentum in the Netherlands. Can you maybe shed some light on the take-up of the new capacity, impact of utilization increase, and top-line improvement as well, and how that came through to EBITDA with regard of the, let's say, on a run rate basis into the quarter? Has that contribution from improved utilization been significant already from the start, or has that materialized towards the end of Q1? That is my first question. Second, on the Haiteng and the impact of that on earnings and the uncertainty you are currently facing there. Would you take that as a one-off or an exceptional item in your results this year, or is that just an operational risk that you are bearing? Then on the cash flow, if I may, on the cash flow from operations.
I appreciate the comments, can you shed some light on the actual impact of working capital and the contributions from dividends from JV? Because year-on-year, there is still some open ends, I think, looking at the earnings profile and then the cash flow from operations, which was down a bit year-on-year. Thanks for that.
Okay. That all in the light of a trading update, if I understand it correctly.
Yeah.
Just to put it in balance perspective. Try to cover the Netherlands. If I understand your question well, and please interrupt if I have completely wrongly interpreted it. If you look carefully on page 15 of the total presentation, I think that partly answers your question because you see that in Q4, we reported an EBITDA of EUR 61 million and now in Q1 of EUR 68.2 million. That means that a combination of factors have fueled this positive development. One is indeed that in Q4 2015, we had some contracts being expiring at certain locations which were not immediately renewed. Of course, they were renewed in the course of 2015. That was the positive contribution. We had some contracts which started only in December.
You see indeed that the turning point has been from Q4 to Q1, if that answers your question with respect to the earnings momentum of the Netherlands. You can also see that back in the appendix of the press release, where you see page 10. If you look at the revenues, we reported about a 7% increase in revenues from Q1 to Q1 2015. The Q1 period 2014, where we reported EUR 60.9 million EBITDA, and now EUR 68.2 million EBITDA in Q1 2015. That's a difference of almost EUR 7 million. That means that almost the full revenue we have been able to capture in our EBITDA development, and that's a result, of course, of the cost management focus.
Also the free cash flow focus. I hope that answers a bit of your question. Haiteng is too early to say anything. It's just that we felt that if something important happens with one of our main customers without us knowing yet the impact. You ask me to all kind of scenarios. At this stage, we have just a take-or-pay contract. In fact, what you could argue is independent of the activities, the customer, of course, just has to pay on a monthly basis. I think this is a topic I'm better positioned to address at the half-year report.
Okay. If I may, on the Netherlands, on the revenues bit. If you compare it, you can compare it year-on-year, but if you compare it to Q3 2014, where you also had a EUR 68 million EBITDA, that was on a somewhat lower revenues base. That's why I asked the timing of the new capacity and that's the background of my question.
Okay. Sorry. On the Q3, because that's the reason why I didn't include it in that exception. The Q4 and the Q1, you can compare apple for apple. The Q3, at that period, we had some additional throughputs, which were not linked, of course, to occupancy rate, but were fueling the revenues.
Okay.
We were benefiting from some throughput revenues in that particular quarter. If you focus on an apple-by-apple basis, Q1, Q4, and Q1 2015 is the best analysis you can make.
Yeah. Okay, that's clear.
The cash flow from operations, the swing factor you talk about, for instance, is because it's such a short period, a quarter. If you talk about results from participations and dividend distributions, it makes a huge difference, of course, if you declare the dividends in the Q1 period, the Q2 period, or the Q4 period.
That is business as usual. You say shine a light on those differences. I would propose, since this is a trading update, that we spend a bit more time on this topic at the half year numbers. Then we have half a year of dividend flows. Also, the working capital developments is not linked to one quarter or the other, but you can give it a more flavor on the whole picture. That fits more in a more comprehensive reporting style as we do on the half year numbers.
Okay. Thank you.
Thank you.
The next question is from Mr. David Kerstens from Jefferies International. Go ahead, sir.
Good morning, Jack. You recently commissioned Pengerang 1C, which I understood was mainly crude capacity and almost full on the day of commissioning. Can you give an indication on the overall occupancy rate development for Pengerang? I think when you commissioned 1A, you said occupancy initially was at about 40%. Is it now at better occupancy levels than you had previously assumed? Does this reduce your expected startup loss for Pengerang and Hainan of EUR 10 million for 2015? My second question is regarding the performance in Estonia. In the first quarter, the net profits from EMEA was stable from the joint venture line. It's up substantially compared to Q3 and Q4 last year. Are flows coming back and what are the further plans with this terminal? Thanks very much.
Starting with the last question, David. If you look at Estonia, you know the principal business model was focused on physical transportation of fuel oil flows out of Russia. That part of the business is hardly existing at this particular situation. What has Vopak E.O.S. done? They have looked at other type of product market segments in which they could provide any additional value. The difference between these new business models is that they are not as much throughput focused as the original fuel oil business. The fuel oil business was high throughputs in order to facilitate huge volumes in a very short time frame, adding the highest value to our customers who wanted to export fuel oil flows out of Russia. In the new business model, it's just traditional storage contracts, but it has become relatively stable, as you noted.
The good news is we have found other business opportunities in more wide products, complete different business model with much lower throughputs, and as a result of that, much lower revenues. Going forward, that is in fact the area of focus we have, but it means also that, as you noted, we can also report quite a stable situation in that part of our network. If you look at Pengerang, the answer is it will be a step-by-step approach. Specifically, if you look at such a short period of only eight months or nine months left, that it's very difficult to assess when inquiries will be converted to new contracts. You should assume indeed that the percentage you were referring to, that that has been the starting point.
How fast we will be able to increase the occupancy levels in Pengerang in the remainder of the year is at this stage an uncertain factor on which I do not want to provide any specific detailed indication, other than that we have absolutely promising inquiries. We also see that the role from a strategic point of view of Pengerang as absolutely an expansion of the Southeast Asia hub function is recognized by the market. You also have seen the announcement of Platts, which is reconfirming that, but that a further translation from a timing point of view in a short time frame, I find at this stage, very difficult to do in an accurate way, and that's the reason why we do not try to do this.
On the whole, we still take into account a negative contribution, in combination of Hainan and Pengerang for the remainder of the year. Maybe lower than you just mentioned in total, but still negative.
Okay. Thank you very much.
The next question is from Mr. Quirijn Mulder from ING. Go ahead, sir.
Good morning, Jack. Quirijn Mulder from ING. On the balance sheet, your interest bearing debt was EUR 2.4 billion almost. You already received this, I think your EUR 160 million from the divestments, as I understand. Is that correct? The remainder is, of course, currency effect on your U.S. private loans. To give some feeling on this balance sheet.
Okay. The 2.4, of course, is also a translation FX. We have quite some US debt, that's one factor, in EUR. The receipt of, let's say, the divestment at the end of the quarter. That has positively affected indeed the cash flow. On the other hand, we also made investments in the Pengerang facilities going on and also in the preparations of the industrial terminal. Those are the factors. FX is an important factor. Indeed, the divestment proceeds were positively on that number, but we also made quite some investments in the further expansion of Pengerang and the industrial terminal.
Okay. With regard to China, you mentioned also China, which was down, but it is, let me say, probably not related to a dynamic spot market, given the fact that it's only chemicals thus far. Maybe you can elaborate on that. Is it a purely economic situation there?
Yes, absolutely. You are spot on. As you know, we are not having any oil storage yet in China. We have one well-performing industrial terminal that's in Caojing. We have also a distribution terminal in Zhangjiagang. The majority of the explanation, I think, you could refer to the operations in Zhangjiagang, which is a very important strategic location, but because of the slowdown of the economic growth and also the expansions of terminal capacity in that region, we have seen that also part of our capacity was not only on the physical distribution and the supply chain of the chemical production, but also some spot business on certain chemical products. That means that with respect to that terminal, we have also experienced some volatility with the occupancy rate. That's primarily, if you look at the group companies, that's primarily the terminal in Zhangjiagang.
Okay. That's for the first time then, I think in the.
No, it has step by step. It has been developing step by step. What we have seen since the startup of Zhangjiagang, of course, that was a terminal which was ahead of all the developments, as a result of which we have been able to operate that terminal at the highest level of occupancy rates. We have been able to expand that terminal in three, four, five phases. The payback of our investments from a cash flow point of view has been extremely successfully. Now in this period, with hardly any economic growth, slowdown in the economy, and also increased expansion of capacity in that particular period, we have experienced step by step, a reduction in the occupancy rate of that particular product market segment.
Okay. Thank you.
You're welcome.
We have another question from Mr. Björn Krüek from ABN AMRO. Go ahead, sir.
Yes. Thank you. It is regarding the Netherlands, the occupancy rates that I am not really getting. You had 88% occupancy rate in Q3 for a EUR 68 million group EBITDA. Now we are at 92% occupancy rate, and we are still at EUR 68. Is that solely explained by the higher throughputs you saw in Westpoort? I have really trouble in getting those numbers together, in terms of operational leverage that you would see from higher demand for storage.
It is indeed a combination. First of all, you have to look also at the total capacity.
Yeah.
The total capacity has increased. That is, of course, the first revenue driver. On top of that, we have higher occupancy rates. That is second revenue driver. On top of that, you might have slight throughput revenues if you compare one quarter to the other.
Okay. What I am struggling with is the 4% point step-up in occupancy rate on flat EBITDA. That could also be a product mix, for instance, if more crude-
No. If you compare because I terribly sorry.
Yeah.
If you compare Q3, the comment I made earlier, be careful with Q3 because that included throughput revenues.
Yeah.
If you adjust for the throughput revenues, which were a couple of EUR millions, you have a normalized picture again, the primary demand drivers and value drivers are again, available capacity rented out and increased occupancy rate.
Okay. The increased capacity is in there as well. The MedEx, the jet fuel in Rotterdam.
You can see that on page 15. You see, let's say, in Q1 2014, we had 9.5 million cubic meters.
Yeah.
You see in Q1 2015, 9.9, and the difference is the MedEx expansion of 400,000 cubic meters.
Yeah. All right. I'll make some calculations. I'll get back to you. Thank you.
That means with three minutes to go or five minutes to go, that we have maybe opportunity for the last two questions.
The next question is from Mr. Dirk Verbiest from KBC Securities again.
Yes, one question. Maybe if you can give your view on how spot market trading has materialized into Q2, if possible to say at this stage. If you look at the curve of oil, it's been flattening a bit. I'm happy to hear your comments on the recent inquiries in this respect.
Of course, the focus in this call is on the Q1 reporting. If indeed, if you take the current flattening of the curve, the good news, of course, is that because of the low oil price, the total investments to be made by the traders is relatively lower. Shipping costs are still manageable, and financing costs are still attractive. It depends on the size of the margin, whether you still could see continued interest in trading. We are answering your question differently in the Q4 and Q1 period. We have absolutely experienced intensified interest in the storage activities from a trading point of view. The start of Q2 is only now two and a half weeks.
I find that a period which is so short that I would prefer not to comment on whether we have seen any activity in the last two and a half weeks.
Okay, thanks.
That means the last question, moderator.
We have no further questions, sir.
Okay. That means that I all would like to thank you for the participation in this call. As said in previous calls, if there are any other clarifications you would like, although Giel will not be easily reachable during the AGM, we are available this afternoon for any questions you might have, and we thank you for your attention.
Ladies and gentlemen, this concludes this telephone conference. On behalf of Royal Vopak, thank you for attending. You can disconnect your line now.