Koninklijke Vopak NV

AEX:VPK

Earnings Call Transcript 2023-Q2

[Operator]

[Abrupt Start]

Fatjona Topciu, Head of Investor Relations to begin today's conference. Thank you.

[Fatjona Topciu, Head of IR]

Good morning, everyone and welcome to our First Half 2023 Results. My name is Fatjona, Head of IR. Our Executive Board will guide you through our latest results, we will refer to the first half of 2023 analyst presentation which you can follow on screen and download from our website. After the presentation, we will have the opportunity for the Q&A. A replay of the webcast will be made available on our website as well.

Before we start, I would like to refer you to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statement during the presentation, which involves certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answer provided to questions during the Q&A.

And with that, I would like to turn over the call to our CEO, Dick Richelle.

[Dick Richelle, CEO]

Thank you, Fatjona. And a very good morning to all of you joining us in the call.

Let's take a look at the key highlights of this first half of '23. The first half of the year shows improved performance. The need for our services was strong across the different products and regions. And we served our customers well. We continue to deliver on our strategy to improve our financial and sustainability performance to grow our base in industrial and gas terminals, and to accelerate towards new energies and sustainable feedstocks.

We reported improved financial results with an EBITDA of €494 million a 14% increase compared to the same period last year and an occupancy of 91%. We are actively managing our portfolio by divesting assets like Savannah as well as repurposing existing capacity, for example, in Los Angeles and Deer Park in the United States.

Besides financial improvements, I want to emphasize the focus on improving our sustainability performance. We continued the trend of reducing our CO2 emissions in the first half of '23.Looking ahead, I'm pleased to confirm our 2023 outlook as we remain focused on long-term value creation through disciplined and balanced capital allocation.

Now moving over to growth, we are solidifying our leading industrial position in Singapore and China while at the same time expanding our footprint in gas with LPG and LNG investments. Today, we announced that in Singapore, we are creating a long-term industrial integration between the Banyan terminal and the new production plant of an existing customer.

In LPG, we announced in April an agreement with AltaGas gas for a partnership to study a large scale LPG export facility in Western Canada that's next to our existing RIPET facility. In India, we announced in April to proceed with four expansion projects. Together with our joint venture partner Aegis in existing locations, strengthening our leading position in this fast developing country. We're pleased that the first project has already been commissioned Haldia just a few weeks ago.

Our LNG projects in the Netherlands that further enhanced the energy security and supply of Northwest Europe are going as planned. To continue we strategic goal of accelerating towards new energies and sustainable feedstocks. We have commissioned new infrastructure in the Port of Rotterdam related to waste-based feedstocks. Also, we successfully got access to a prime location in Europe's leading petrochemical and industrial cluster.

Willing to share some of the key market dynamics and how they impact the demand for our infrastructure services, like to give you some details on how the markets in which we operate develop and their impact on Vopak. To start with the gas side energy markets normalized in the first half of 2023, after the disruption of the Russia/Ukraine war. While LPG prices were volatile during the first half, LPG imports in India continue to grow by - about 5% per year.

For Vopak, we see that the demand for LNG infrastructure remains healthy, particularly in the Netherlands. The other terminals in Mexico, Colombia and Pakistan show a stable performance as per their role in the local energy systems.

Moving on to new energies and sustainable feedstocks. The momentum for hydrogen and ammonia continues to accelerate. We see an increasing interest in infrastructure to store and handle ammonia in the different regions. And the trend of a growing demand in sustainable fuels also continues to be there.

So moving on to the energy markets through the storage of oil products, flows are still rebalancing following the international sanctions regime. This leads to changing flows being more long haul generally spoken. A growing demand at the one side versus production cuts, announced by OPEC plus, are causing volatility in the market. These market dynamics cause favorable demand for our storage services. Oil distribution terminals, serving local growing markets have a stable performance.

Now, let's take a look at the manufacturing markets. We serve through our industrial and chemical terminals. Activity in the global manufacturing markets are slowing down in the first half of this year, caused by among others, higher costs of production. Also, China's economic recovery is slower than expected, resulting in an overall bearish sentiment also for the second half of the year.

In Europe, higher input volumes that make up for less local production lead to favorable demand for our infrastructure services, serving chemical markets. Throughput flows in our industrial terminals remain stable, but may be impacted in the second half of the year. Specifically in Asia and China. Relative impact is limited, since the majority of our revenue on these terminals come from take-or-pay contracts.

We're actively managing our portfolio in multiple ways, first, by rationalizing. In this past half year, we divested our chemical terminal in Savannah in the U.S. Also we received offers to divest our chemical terminals in Colombia, the strategic review of our chemical terminals here in Rotterdam is still in progress. Furthermore, we are repurposing some of our existing assets, like in Los Angeles, for example, where we repurpose existing tanks for sustainable aviation fuel and renewable diesel.

Finally, some assets are transformed to serve our customers for future new energies. A good example is the concession of the prime location we acquired in Antwerp which will be transformed for new energy projects.

Now, let me take you through the different elements of our business performance in a bit more detail. The starting point is the first half year of 2022, with an EBITDA of €433 million. Divestments, we did had a negative impact of around €5 million on the EBITDA when we compare it to this first half year. Also, we experienced some negative currency translation effects of €2 million.

The oil markets have been favorable in the first half of this year, high occupancy rates and contract renewals, drive growth and EBITDA from our oil portfolio. With regards to the chemical markets, we have overall stable demand across the portfolio, next to the increased need for import of chemicals in mainly Europe indexation of our contracts is partially compensating the rising costs and has supported the revenue increase.

In the gas market, we see the LNG market is back to a normalized level, as the available capacity is meeting the market demand on our LNG and LPG terminals and our LNG and LPG terminals are performing their role in local energy systems. And comparing our cost base to the first half of last year, we see an increase of €30 million, mainly driven by inflation, higher energy and personnel cost.

Finally, we have delivered on our growth projects, which have contributed €6 million in this first half year. This all results in 14% EBITDA growth to €494 million. Next to the financial performance, improving our sustainability performance is important to us. All elements environmental, social and governance, we improved or maintained a stable performance. As you know, safety is our first and foremost priority.

To take care of our employees and contractors and the communities we are in. We maintained a good performance on our Process Safety Event Rate and are happy with our improved personnel safety performance. We reduced our emissions by 13% compared to the first half of 2022. Also on diversity and inclusion, we make steps forward, women make up for more than 20% of our senior management today.

Moving on with our second strategic pillar to grow our base in industrial and gas terminals. As you can see on this slide, we solidify our position in the key industrial clusters of Houston and Singapore. At our wind park terminal, strategically located in Houston ship channel, we will repurpose and expand part of the existing capacity into vegetable oil storage underpinned by a long-term commercial agreement, we will invest €58 million and expect to commission the first phase in the first half of 2024.

In Singapore at our Banyan terminal, we will repurpose existing capacity and create a new pipeline connection with a new industrial plant of an existing customer also supported by a long-term commercial agreement. The investment is around €50 million and commissioning is expected in the first half of 2025.

Next to solidifying our footprint in industrial terminals, we expand in gas terminals. I want to highlight four projects in LNG and LPG which we have announced in the first half of 2023. We signed a new partnership with AltaGas for an LPG and bulk liquids export facility in West Canada. The strategic location has a significant logistical advantage in terms of deep water access and transport time towards Asia.

On two locations in India, we will expand LPG capacity by 20% together with our partner Aegis. These terminals fulfil an important distribution role to switch to cleaner fuels. Commissioning is expected to be in 2025. In the Netherlands, we are progressing well on two LNG opportunities related to the fourth tank expansion at Gate, and completion of the acquisition of 50% of the shares of EemsEnergyTerminal.

We're also delivering on the third and last strategic pillar to accelerate towards new energies. We focus on four areas hydrogen, CO2 infrastructure, low carbon fuels and feedstocks and long duration energy storage. We see momentum continue to build around these four areas by increasing interest from our customers and new regulations worldwide.

Two proof points mentioned here in Vlaardingen in May, new capacity was commissioned for waste-based feedstocks for the production of biodiesel and sustainable aviation fuel. This project started in 2021, and around €90 million was invested. In Antwerp, we have access now to a prime location in Europe's leading petrochemical cluster, which will be redeveloped with the primary aim to make a positive contribution to the decarbonization of the industrial cluster.

The market interest for new infrastructure for ammonia, a product that we are storing already for more than 20 years at six locations around the world remains high. To summarize, we improved results and make good progress on our strategic growth in the first half of this year. The need for our services was strong, and most divisions were strong across most divisions and along all lines of products we store and handle.

We benefited from Vopak's well diversified infrastructure portfolio, serving both the manufacturing markets, as well as the energy markets around the globe. We improved our financial performance with strong first half results and continue the efforts in further improving our sustainability performance. We make good progress in growing our base in industrial and gas terminals around the globe. And a healthy interest is shown in accelerating towards new energies and sustainable feedstocks.

Supporting these three strategic priorities, we simplified our organization structure with the aim of enhancing execution capabilities may be - mainly at the country level and improving efficiency. As a result, we removed the division layer in our structure. Going forward, we will be organized in nine business units. We're positive that this change will help us on all strategic priorities.

With that, I want to hand it over to our CFO, Michiel Gilsing who will give you some more insights on the financial side of things.

[Michiel Gilsing, CFO]

Thank you, Nick. And good morning to everyone on the call also from my side.

So let's start the presentation, to get a bit more clarity on the financial areas we're focused on and what I will cover in the slides to come. Our primary focus is on strong and improved financial business performance that will and has led to an improved cash flow generation, a solid balance sheet, and disciplined capital allocation.

To start off with the financial performance of the first half year compared to half year '22. We increased our revenues to €721 million an increase of 9% compared to the first half of '22 and EBITDA increased even more with 14% to €494 million. This was underpinned by the higher occupancy compared to last year, which is five percentage points up to 91%. This results in a higher operating cash return of 14.6%.

Growth expenditures are lower compared to last year, but in line with our expectation for the year. Total net debt to EBITDA ratio came down to 2.46 times just below our range of 2.5 to three times net debt to EBITDA. A closer look at the second quarter of this year shows a stable performance. Even that was slightly lower compared to the first quarter being €245 million and this was driven mainly by a negative currency translation effect of €4 million euro.

Also, occupancy was down with one percentage point compared to the first quarter of this year. This is mainly related to capacity out of service in Los Angeles and the bearish sentiment in China, impacting our spot chemical occupancy there. Cost remained stable as the increased personnel expenses were offset by a decrease in energy and utility costs. This all and higher operating CapEx resulted in a lower operating cash return this quarter compared to Q1.

However, the 13.7% is still well above our OCR target of above 12%. Due to the seasonality of the operating CapEx spend in line with prior years we expected in the second half of the year, the operating CapEx will be higher.

Going back to the first half year, compared to last year's first half, a strong EBITDA growth was seen across most of the divisions, driven by favorable market developments in both oil and chemicals. Currency effects and divestment had a slightly negative impact offset by strong performance in the Americas, Asia and Middle East and Europe, Africa regions. China and North Asia remained flat due to the weak spot chemical markets.

The new energy and LNG division saw improved results driven by the Gate terminal in Rotterdam and our SPEC terminal in Colombia handling higher throughputs. All in all, this leads to an EBITDA of €494 million in the first half, which is 14% growth compared to the first half of 2022. We have often mentioned to the market that the main drivers of our performance are the terminals, which we operate.

In this slide, we are giving some more detail regarding the proportional revenue EBITDA and operating CapEx for the different terminal types we have in our portfolio. We see growth across all terminal types. The market conditions were favorable in the first half translated in the market opportunities we captured and the increased occupancy. Vegetable oils and biofuels not being a segment on their own and mainly part of chemical terminals is the fastest growing product in the mix.

Proportional EBITDA improved by 12% due to increased occupancy coupled with portfolios, indexation, abilities, and effective commercial management. Proportional operating CapEx spend is expected to be higher in the second half of 2023 in line with our outlook for 2023. As we have often mentioned, we are determined to improve the quality of our portfolio by positioning our assets towards long-term contracts and attractive returns.

For some of you its familiar, we have approximately 60% of our proportional revenues coming from contracts that are longer than three years. This positions as well in times of volatility, as well as gives the opportunity to capitalize on our commercial capabilities. The proportional EBITDA margin improved in the first half year '23, reaching 57%.

Our cash flow generation continued to be strong in the first half of the year driven by positive business performance working capital movement and derivatives, which were offset by lower dividends received from joint ventures. Operating CapEx was €120 million, reflecting the timing of the low operating cap expense typically at the beginning of the year.

Growth investments include growth projects in Vlaardingen, Alemoa in Brazil, Vopak Aegis in India joint venture as well as the transformation of Eurotank in Belgium. The positive cash flow generation of the company is funding growth investments and the dividends paid to our shareholders, while at the same time keeping leverage in the low end of the range.

We have a solid balance sheet that is supporting our growth ambitions. Our management philosophy is to keep our senior net debt to EBITDA ratio in the low end of the range of 2.5 to three times EBITDA. The leverage ratio in the first half year was 2.46 just below the management range coming down all the way from just above the range with debt being 3.06 times EBITDA last year.

This improvement was driven by better cash flow generation of the business. Majority of interest bearing loans have a fixed interest rates been 3.9% and the remainder has an average floating rate of 4.5%. We did a lot of work in our corporate debt portfolio project financing and refinancing of terminals in the first half of this year.

We reached an agreement to amend all existing private placement note programs resulting in an increase of our senior net debt to EBITDA covenant from 3.75 to four times. We signed an agreement for new debt issuance, for a total amount of €400 million equivalent and will receive these proceeds in June.

As per half year, the revolving credit facility of €1 billion is fully available and we successfully exercise, the option to extend its maturity till 2028 at the same terms and conditions. In Singapore, we refinanced maturing debt with a new five-year facility of around €150 million which is sustainability linked.

In our Pengerang terminal in Malaysia, PITSB we have successfully refinanced the maturing project financing with better terms and conditions. Also, this facility is sustainability linked and approximately €225 million in size. Following the successful refinancing, we received a one-off dividend of €47 million out of a total of €56 million in full year '23.

Lastly, in China, we finalized a non-recourse financing facility of around €73 million with a tenure of 14 years to finance our previously announced expansion at the charging terminal in Shanghai. We're going to stay focused on a disciplined capital allocation approach that will support and enable the strategic improve, grow and accelerate priorities.

First of all, we remain committed to a very solid balance sheet, maintain our healthy leverage ratio, because that provides us with the license to invest for growth opportunities. We will return value to shareholders by our progressive dividend policy. Any remaining capital will be spent on growth investments with attractive operating cash returns.

Focus on cash flow generation is further supporting the robust balance sheet and is providing available capital for growth investments. The deployment of growth CapEx towards our strategic priorities is going well. Since Capital Market's Day in June '22, when we announced the new strategic framework €128 million is allocated to improving our portfolio like in the Eurotank terminal as well as in the U.S. where we are repurposing and building vegetable oil storage.

We have allocated €284 million to grow our footprint in gas and industrial terminals. In India, we announced to proceed with four expansion projects together with our joint venture partner Aegis in existing locations, strengthening our leading positions in this fast developing country.

We are pleased that the first of these investments have been commissioned just a few weeks ago in early July.

Aegis Vopak joint venture has commissioned 51,000 cubic meters of liquid storage in Haldia in the East of India. We are also strengthening our industrial terminal position in Singapore by creating a long-term industrial integration between Banyan terminal and an existing customer in their new industrial plant with a total investment of around €50 million underpinned by a long-term commercial contract.

The investments in LNG that we announced earlier is not included in this number. Upon successful FID of Gate, the fourth tank in Rotterdam and the closing of EemsEnergyTerminal in the Netherlands, this number will obviously increase. Including these, the investment amount will go to approximately 40% of our ambition to invest €1 billion in gas and industrial terminals.

The investment on our partnership with AltaGas in West Canada will also be added once the financial final investment decision is being made. Accelerating towards new energies and sustainable feedstocks is progressing well and in line with our expectations. We are confident in our project funnel in new energies and foresee that the material capital allocation will be after 2025 as we already indicated when the framework was presented initially.

To summarize our performance year-to-date, we have improved our revenue and EBITDA performance both in a reported as well as a proportional way. As mentioned above, we have been able to improve occupancy by capturing market opportunities, particularly in consolidated companies.

In addition to business performance being positive, our balance sheet strength has been further enhanced, reducing both reported as well as proportional debt. We remain committed to a disciplined capital allocation strategy. The return metrics have also improved. We have an encouraging trend of both the roci at a consolidated level as well as the proportional operating cash return.

Then moving to the outlook drivers, market indicators, we expect favorable demand for storage of oil to continue, while chemicals and gas markets remain stable. Costs remain an area of attention. In Q1, '23 energy costs were more stable and lower compared to the second half of '22. For the remainder of '23, we expect some volatility in the energy prices, inflation and pressure from increasing labor cost.

On the business performance, we see momentum and improved financial performance leading to an EBITDA increased by 14% year-on-year and operating cash return by 3.2 percentage points year-on-year. Finally, we're confident that we can keep capturing growth opportunities and accelerate to the company we want to be in the future.

So to bring it altogether, we confirm the short and long-term outlook we gave earlier. On the short-term outlook, the EBITDA outlook for full year '23 is expected to be above €950 million, with an equivalent in proportional EBITDA of €1.14 billion. Consolidated growth investments outlook for full year '23 is expected to be around €300 million, including the expected FIDs for the LNG projects that we have announced.

We confirm the consolidated operating CapEx outlook and its proportional operating cash return outlook for the full year '23. On the long-term outlook, also in the long-term outlook, we confirm our previously given outlook. We aim to maintain an operating cash return of above 12%, which we believe is a healthy return for the type of company we are. Vopak long-term commitment to invest €1 billion in industrial and gas terminals by 2030 and €1 billion in new energies and sustainable feedstocks remains unchanged.

On leverage, we confirm our ambition to maintain a healthy leverage ratio with a range of around 2.5 to three times going forward. As well, our progressive dividend policy which aims to maintain or grow our annual dividend remains unchanged.

Finally, I would like to bring our Analyst and Investor Day to your attention, which we will organize on the 1st of November in Rotterdam. We will provide analysts and investors with a comprehensive update on the progress of our strategy execution. And we will host a visit to the planning and terminal in the Netherlands with its newly commissioned capacity for waste-based feedstocks.

Please reach out to the investor relations team to get registered for the events. Also on behalf of Dick and Frits. We look forward to meeting you there. This concludes my remarks in the presentation.

And I would like to hand it back to Dick for the Q&A.

[Dick Richelle, CEO]

Thank you, Michiel. And with that, I would like the operator to please open the line for Q&A.

[Operator]

Thank you. [Operator Instructions] We have our first question from Lampros Smailis from Kempen. Please go ahead.

[Lampros Smailis, Kempen]

Yes, hi. Good morning to all and congrats on another great quarter. I have two questions, please. The first is, can you give us a bit more color on the warnings from the chemical players and very sentiment that you see for the industry for the second half? And how do you see this playing out for Vopak? And perhaps a general comment on the overall market outlook for the second half? And then for the second question. Also, occupancy seems to remain sequentially flat. And if we normalize for the LA terminal, what do you expect for the second half there? Thank you.

[Dick Richelle, CEO]

Thank you very much, Lampros. I would share with you, the second question was specifically on the oil side or was it - just in general?

[Lampros Smailis, Kempen]

On occupancy and in general?

[Dick Richelle, CEO]

Occupancy and general. Okay. Maybe let me start on the chemical side Lampros. So what I've shared also in the presentation just now, I think the best way to look at this to start in China, where industrial activity is slowing down, and people have expected economic activity to pick up. So there's a few things that are happening. Because at the same time, there was new capacity, chemical production capacity added actually towards the end of last year, and gradually over the beginning of 2023.

Now with economic activity lagging behind expectations, you basically see a double effect happening today in in the Chinese market, which is there's excess product, there's not enough demand. And therefore you see that there's quite a bit of product that moves into the different areas in Asia. So for us in terms of demand, as I explained just now, we see it having an effect on the industrial terminals and the activity at the industrial terminals in China.

Since we have long-term contracts, we're relatively well protected there. But you also now see that that has a bit of impact on activity levels in let's say, Southeast Asia. And activity levels, I would say that's pure throughput levels from some of our customers, that doesn't immediately have an effect on demand for our services, because the occupancy is expected to still remain healthy.

Where it might have an effect, which is what Michiel also alluded to, and I shared in my presentation is spot capacity demands, maybe some access services, revenue to a limited extent, for - towards the latter end of this year. I think that's Asia, China, if I then move to Europe, relatively unchanged from what we shared before, meaning still pressure on local production with a healthy demand for import.

And in the U.S., actually, we see a relatively stable developments, I wouldn't be - the signal that I will be giving is not the alarming signal that maybe some of our customers are sharing. Because we simply don't see it at least for the immediate short-term in 2023. We're happy with the first half also the chemical side, the big push has been coming more from the oil side then from the chemical side.

But if you still look year-on-year, healthy improvement on the chemicals, and to be followed up towards the end of the year how that starts to develop on the chemical side. That's how where we positioned up on the total occupancy side 91%, high end for oil. Because that's where you really see a lot of healthy, healthy pickup and still good developments also from the revenue line. But that's I think my overall comment on market sentiment, if that's helpful.

[Lampros Smailis, Kempen]

Yes, absolutely. So just to follow-up, so assuming China indeed picks up let's say, in Q4 or '24 Q1. Do you expect any offset, from the higher inputs in Europe or those two regions would you say are unrelated so, essentially, if China, Europe, and this will only provide the upside risk?

[Dick Richelle, CEO]

Yes, I wouldn't immediately linked the additional imports coming from Europe, to whatever happens directly in China, that's much more finished goods related. So that's not so much - the activities that we would be exposed to. I think there is an inter linkage between what happens in China on their capacity and then vice versa in Thailand, Malaysia, Singapore, that's where we see a bit of linkage in terms of how the demand figures are developing, but not so much Europe.

[Lampros Smailis, Kempen]

Okay. And last thing, so on occupancy, basically for the second half, I mean you would expect levels to remain, at the same levels that we have seen around H1?

[Dick Richelle, CEO]

Yes, no reason to see that that will be fundamentally different going forward, Lampros.

[Lampros Smailis, Kempen]

Okay. Great. Thank you very much.

[Operator]

Thank you. Our next question comes from Rachel Fletcher from Morgan Stanley. Please go ahead.

[Rachel Fletcher, Morgan Stanley]

Good morning, gentlemen, thank you for taking my question. I have two please. The first is on the balance sheet strength. So your target leverage ratio hasn't changed. It's still 2.5 to three times, I believe. But this ratio now includes subordinated debt. So I wanted to ask you why you've decided to make this change. And also, despite the change to include subordinated debt, you're still below your target. So should we expect this target ratio to come down as your subordinated debt comes down. How should we think about the outlook for balance sheet strength going forward, please?

And on my second question, CapEx, so I was wondering what your CapEx outlook for the second half is, so it seems you're well within the rate implied by your annual guidance. I think growth CapEx for the half was €149 million. So that's broadly halfway to the €300 million you've guided operating CapEx seems below you're at €120 million for the half. So should we expect this to remain kind of flat or to pick up in the second half? Thank you.

[Michiel Gilsing, CFO]

Yes, thanks, Rachel, let me start on the balance sheet strength. Indeed, we have taken a bit of freedom on the subordinated debt to include it in the overall target, because it was still a little bit of an outstanding issue on how to, how to take the subordinated debt. But there were also a lot of comments of people saying, well, you should also take that into account in your total debt position.

And as a result, it was sometimes confusing, let's say the covenant which is without the subordinated debt, and then the total debt is actually larger than what is in the covenant. So, we think this is a more fair representation of our total debt position as a company, first of all. Indeed, we dropped just below the 2.5 to 3 times, but there is also some growth coming up.

So that means that we will further invest in growth, which normally takes a bit of an increase on our leverage to be seen what happens a bit, I think, related to any potential divestments going forward. So, we still have the strategic review taking place for the Rotterdam terminals too early to tell what is going to be the outcome. So at the moment, there is no reason to adjust the target or to make it a lower target. So, we still in a position that we think this is a fair, fair target going forward. So that's on the, on the balance sheet.

On the CapEx outlook and indeed growth CapEx more or less hard way. And if you look at the potential projects, we should be able to come close to the €300 million guidance we have given. On the operating CapEx yes it is always a bit of a pattern, which is relatively low operating CapEx in the first quarter or higher in the second quarter. And that trend effectively continues in Q3 and Q4.

And Q4 is normally where we spend most on the operating CapEx, so definitely is not going to remain flat, it will have an increasing pattern during the year. And we still think that the maximum outlook we have given off the €300 million is still a valid, valid outlook at this moment in time.

[Rachel Fletcher, Morgan Stanley]

Okay, thank you very much.

[Operator]

Thank you. Our next question comes from Quirijn Mulder from ING. Please go ahead.

[Quirijn Mulder, ING]

Good morning, everyone.

[Dick Richelle, CEO]

Good morning.

[Michiel Gilsing, CFO]

Good morning.

[Quirijn Mulder, ING]

So my question about how you view the outlook for oil in 2024 at this moment, do you think you can continue this story and there's more growth if possible, or do you think okay, this is this is it? We have now adjusted for let me say the oil boycott from Russians. We have longer distances, there's a good utilization rate. The rates are up. So what is the, what is the next - what's the next level to see an improvement in the oil terminals? And my second question is about utilization rates over 90%. So what is the upside there for utilization? Can you go to 95%? We have seen it, if I look in the past maybe 2011, 2012, it was over 90%. But it's difficult to raise this further? That was my second questions?

[Dick Richelle, CEO]

Thank you, Quirijn for the questions. I'll take the first one. And then if you can share his thoughts on the on the occupancy maybe on the oil side, as I said, so strong in 2023, first half expected to continue second half. No indications at this moment why that will be fundamentally already different in 2024. At the same time, and that's the standard disclaimer that you would expect me to say. I mean, the oil market, especially volatility, global flows, are dependent on any events that may happen from a geopolitical perspective.

So that's obviously always hard to predict how that would work out in 2024. But if you look at the fundamental drivers today, why there's a high demand for oil, it is security of supply, it is a continuation of those redirected flows. So although the world may have adapted to it, it still means that flows are generally traveling a lot further than they were doing before. And continued high volatility in that market.

And those three elements, maybe with the exception of the last one, which is difficult, more difficult to predict, but they are expected still to continue in 2024. So for now, no immediate indication of why that would be fundamentally different in 2024. From an oil perspective.

[Quirijn Mulder, ING]

What is to come? What will happen then if the container returns certainly?

[Dick Richelle, CEO]

Then it looks to me that the market has even more upside, yes.

[Michiel Gilsing, CFO]

Yes, could potentially be clear and but we also know that the direct correlation between contango and backwardation in the demand for at least the services that we provide is relatively limited and has been relatively limited, as you can see in the last 12, 18, 24 months, which the backwardation on a lot of the products. So you see, generally speaking that therefore demand for us, I think, genuinely maybe in the market, that would be increased demand, but I don't see the immediate effect on the occupancy levels in in our terminals.

And then again, the other part of our oil business is fuel distribution and fuel distribution in Australia, South Africa, in Mexico certain extent Brazil, that remains just a normal, healthy, predictable and relatively stable development.

[Quirijn Mulder, ING]

Yes, okay. But it is supported for - on the average general tariffs in my view, if you have a contango, that's okay, fine.

[Michiel Gilsing, CFO]

Maybe to the second question Quirijn on the utilization, yes how can you go both effectively, if you look at the trend, which has been upward, definitely was supported by good market conditions. But also what helped us quite a bit, is that we have we are running at a much lower out of service percentage as a company if you compare it to a few years ago.

So that means let's say there's more things available in our network as well than we previously had, because of the lower out of service or the operations team has done a very good job to really get that to a lower level that has helped us. Can it go further up? If you look at the different divisions. I would say that if you look at the Americas, we're now at running 92%. We have historically sometimes see 94%, 95%.

So depending on market conditions, yes, that could still go up. But very limited, I would think on Asia, Middle East, we're running at record high utilization. So that's 93%. So not a lot of upside is left there. And if you go to China, that then you see that the occupancy has come down to 82%. So that there is still quite some upside, if the market really rebounds to grow, then that obviously could have and positive impact on our overall utilization.

Although you have to realize that the China capacity is relatively small versus the other divisions, but it will have - it could have a positive impact. Europe is running at 90%. Still some available capacity, but we historically we never reached like 93%, 94%. So, we're running at quite a high utilization. And the new energy and LNG is 100% occupancy, so there's no upside there.

And there's only down sites, but if you look at the contracts structures, these are all rented out capacity. So, yes, there is always an opportunity that the utilization may go up 1% or 2% more will it reach 95%. That's probably quite unlikely if you look at the history, but also where we are today and how the markets look going forward.

[Quirijn Mulder, ING]

Thanks a lot.

[Operator]

Thank you. We have our next question from Thijs Berkelder from ABN AMRO. Please go ahead.

[Thijs Berkelder, ABN AMRO]

Yes, good morning. All the stacks there call ABN AMRO, ODDO BHF. For questions, my 25 year experience on Vopak is that if occupancy is higher than 90%, that you see an uplift in your pricing power/contract renegotiation power. So can you maybe explain what you see in terms of pricing power in various businesses? And then the second question on the outlook, quite simple. H1 EBITDA €494 million. Why not lift the four year EBITDA guidance at this moment? What could make this EBITDA still lend at let's say €951 million? Third question. You announced a couple of restructuring measures. What kind of cost savings should we expect from these research range coming in 2024? And may for now final question is, you are about to potentially divest three chemical terminals in Rotterdam. Can you maybe give a rough indication what their EBITDA contribution has been in the first half?

[Dick Richelle, CEO]

Thank you, Thijs. I'll take the first one. And then we'll take two, three and four also through, Michiel maybe pricing power. I think that's a process. To be fair, that's a process that has been ongoing quite a bit over the past period, especially on the on the oil side. So if you zoom out on the 91%, and then what do you mean, basically to say, how does it look at the oil side that looks already higher than the 91%. So that process of pricing power has been going on gradually over the past, let's say, half a year to a year.

And that is still in this current period, there are contracts, longer term contracts that are opening up that give us some pricing power. And you have to link that to the average kind of like contact portfolio duration on the on the oil side. So there's always a bit of pricing power that has left, which we are making use of. And that is indeed also a reason why we feel relatively comfortable. On the longer term, the medium to longer term outlook on specifically on the oil side, I think on the chemicals are already quite detailed in the outlook.

I think they're from a pricing power perspective, if you look at that, from the global markets, it's probably a bit less. I think, also, traditionally, our pricing power in that part of the market has been a bit less because alternatives are, are developing in an easier fashion. I think there you see a bit more pricing power in the locations that are further away from the main applications. And that's and that continues to be relatively healthy, I think now. So overall, I see, I would reconfirm a positive and a healthy outlook.

[Michiel Gilsing, CFO]

Yes, and maybe on that outlook, two times half a year. A very valid question, of course, is why is it not two times, first half year? We have looked at, let's say, different aspects of the outlook. First of all, if you look at the foreign exchange, the currency impact is has been negative for us in the in the second quarter versus first quarter. And even after closing, let's say the second quarter, you see that certain of the currencies are moving negative for us.

So we said let's be at least cautious on the on the foreign exchange and if you look at the impact, so the outlook, we've given €950 in debt, we already absorbed €6 million of more negative currency impacts than we had in had anticipated. The second is on the, is that we did a divestment of the savannah terminal, which obviously has a negative impact for the second half of the year because it was running at a positive EBITDA.

And then we also look at the run rate for our capacity, and what is the clean run rate of our business as sometimes you have some one-offs, which are positively influencing the results. And during the first half year, we had some of that, although not large, but some of it was positive. And if you then look at the clean run rate of our business, take the divestments into account and the currency impact.

We said, well, it's still valid to have an above €950 outlook. And let's see how the coming months develop and then we can update you in in Q3. But that's on the outlook on the restructuring the cost savings. Yes, what is also in the in the press release, it will impact around 50 jobs worldwide, we will take a provision going forward which will be around the €10 million and then as an exceptional item. You may expect a payback somewhere between one and two years.

That's the normal way of let's say, of these provisions versus let's say the financial benefit of it. So savings between €5 million and €10 million over time. And that's what we anticipate. And then the last one, the EBITDA for Bob leg a we don't normally disclose individual EBITDA or levels and also given the sensitivity of this divestment program.

We will not disclose that to the market and we will update the market once we have a more firm outlook on where this strategic review is heading towards to. So a bit a bit patience here, please. But we hope that in Q3, we will get more clarity.

[Thijs Berkelder, ABN AMRO]

Okay, thank you.

[Operator]

Thank you. We have our next question from Andre Mulder from Kepler Cheuvreux. Please go ahead.

[Andre Mulder, Kepler Cheuvreux]

Good morning. I'll Andre. Two questions I would say first question on Rotterdam. Can you detail what kind of parties have made to mate over? Second question is on the new split. What's the reason? What's the real reason behind it? More details, if I look at the countries that are singled out, should we expect that also those countries will be will be sold like Colombia. I'm missing Spain. In the in the picture, all of the countries have been mentioned that except for Spain, and last what will be under the heading of order are not being able to allocate.

[Dick Richelle, CEO]

Very good Andre maybe let me take those questions. The first one Rotterdam process is still ongoing. So I hope you understand we're not disclosing what type of Parties at this stage are in the process, the process is continuing. And whenever we have news to share with the market, we will do so accordingly. Maybe on the second one on the new split, maybe one step back of actually trying to, do what we, what we have today before this change.

We have basically three layers in our organization, we have an operating company, which is composed of a few terminals with a full responsible P&L holder and a management team that sits on it, let's say the operating company Brazil, they report today into the second layer and that's the division layer. And that sums up and rounds up the numbers of the whole Americas, North Canada, and Latin America.

That's the second layer and they report the five decisions for present NG they report to the Global office, what we are now doing in this new setup, we are removing the entire division layer. And we are basically creating a sufficient scale in these individual operating companies which we now will call business units to make sure they have sufficient scale and therefore report directly to the Global office.

So that's why you see Brazil instead of reporting to the U.S. in office they will start now in the future to report to global directly and directly into us as EB so To say you see the same for instance in Singapore instead of having our Singapore business report to the Asia region, they will start to report directly to Rotterdam. Why do we do that? Because we think it will shorten the decision lines, it will shorten and decrease the distance between the Global office and the operating companies where the action sets.

And that's where we were we came to this to this change, no divisions and nine business units. Now, where does the so on your particular question the individual countries that have been singled out? Is there any strategic reason for singling him out? Not at all. It's basically a logical setup for us to make sure that we can execute our strategy in a better way. That's, that's the way to do it, in our view, so we set Netherlands aside, we put Belgium aside.

We put South Africa aside and we feel that by giving the teams locally the opportunity to fully focus on those countries that will actually help us a lot. And we can support them very well from the center here. So it's a real simplification of our business structure. And then your last question was related to Spain and to other Spain is indeed a joint venture that we will manage directly with people from the head office in the joint venture board.

So it doesn't geographically sit in the one of the other individual be use. And we will report that as well. I think the other category and in other is basically the head office cost of what we have today, which, which is head of course, that we would then not be able to allocate to all the business units. So it's more of a reporting element rather than anything else. So I hope that clarifies and thank you for the question.

[Andre Mulder, Kepler Cheuvreux]

Yes. Thanks. Okay.

[Operator]

They are no further questions, I would like to hand the call over to your host Dick Richelle to concludes today's conference. Thank you.

[Dick Richelle, CEO]

Thank you very much, everyone for being in the call. Thanks for your good questions. You know if there's any follow-up questions or comments you would like to make, please reach out to the Investor Relations team. Thank you for now and wish you a nice summer for all of you. Bye-bye.

[Operator]

That concludes today's events. Thank you for your participation. You may now disconnect.