Koninklijke Vopak NV

AEX:VPK

Earnings Call Transcript 2018-Q3

[Operator]

Hello, and welcome to the Vopak Q3 2018 Interim Update Call. [Operator Instructions] Today, I'm pleased to present Gerard Paulides, Member of the Executive Board and CFO. Please go ahead with your meeting.

[Gerard B. Paulides, CFO & Member of the Executive Board]

Thank you, Sarah, and welcome, everybody. Ladies and gentlemen, a very good morning and welcome to the Third Quarter Interim Update of Royal Vopak. In the next 20 to 30 minutes, I will update you on the development of the third quarter. In my prepared remarks, we'll refer to the analyst presentation as published on our website this morning while making reference to the slide numbers. As an interim update, I will focus mainly on the results. However, based on feedback during this year, we have decided to add various financial items in this interim update to accommodate shareholder and analyst views. After this presentation, there will be time for questions. Also, for the follow up on any specific questions you may, of course, contact our Investor Relations team. And going to Slide 2, I refer to the disclaimer content of the forward-looking statements, which you are very familiar with. The clarifications in the statements should be taken into account with respect to any looking-forward ahead comments and/or guidance provided. Accordingly, this disclaimer is applicable to the entire call, including the answers provided to your questions during the Q&A session. With that said, I will now turn to Slide 3 for the key messages. This quarter, we delivered a solid performance and commissioned the first phase of our new industrial terminal PT2SB in Pengerang, Malaysia. Our year-to-date EBITDA, excluding exceptional items, was EUR 550 million. Adjusted for EUR 20 million adverse currency translation effects, our EBITDA was EUR 3 million higher than prior year even though we operated at an occupancy rate of 86%. This 86% is at the lower end of our 10-year range, but up by 1 percentage point from the second quarter. We delivered a quarter with resilient cash flow from operations and momentum in investment levels driven by our growth projects in South Africa, Panama, Brazil and Deer Park. In end of September, the industrial terminal PT2SB in Malaysia commissioned 700,000 cubic meters of capacity. The remainder of the capacity, bringing it towards 1.5 million cubic meters, is scheduled to be commissioned before the end of the third quarter 2019, in line with the commissioning schedules of PETRONAS and Saudi Aramco's RAPID project. Furthermore, we continue to deliver on our growth ambition with the expansion of our global LPG and chemical gases network in the Netherlands and in South Africa. Turning to Slide 4. You will see that the year-to-date third quarter EBITDA, again excluding exceptional items, decreased by 3% compared to the same period in the previous year. Adjusted for currency effects, the underlying EBITDA was EUR 3 million higher than prior year. The Asia & Middle East division and the Europe & Africa division reduced financial performance at the hub locations due to a less favorable oil market structure. Strong performance in the Americas and China and North Asia were supported by the good business environment in the chemical segment. Turning to Slide 5, where we will focus on the third quarter versus the second quarter. In our last call, I commented on a total of EUR 4 million positive one-off result in Q2 and across reporting divisions. This quarter, earnings do not show noteworthy net items influencing the numbers. Q3 EBITDA came in at EUR 180 million, an improvement compared to the previous quarter. So let's turn to Slide 6 and look at the divisional performance. Occupancy rate in the Europe and Africa division saw some support in the oil segment in the Netherlands resulting in an improved financial performance. Asia and Middle East division showed a comparable occupancy rate as the previous quarter. And Australia's performing well and benefited in Q2 from various one-off settlements in aggregate of EUR 10 million as mentioned before. The chemicals occupancy rates have been stable, which is noticeable in the strong performance of our Americas division. And switching to China, China occupancy is sensitive to small changes in our subsidiaries, Zhangjiagang and Lanshan, that reported lower occupancy levels in this quarter. Joint venture industrial terminals, which are operating at higher up occupancy rates, are not included in this calculation. Financial performance for China and Northeast Asia improved as our industrial terminal in Haiteng in China contributed to full quarter after it restarted operations in June. On Haiteng, also various discussions on financial aspects from the downtime period that is now mostly behind us continue to progress for settlement. The LNG division showed increase in costs related to new business development, where we continue to invest and have good momentum. The German LNG project is progressing really well on the commercial and the technical aspects. And in China, the LNG project is also progressing. In Pakistan, we see further opportunity to expand our earlier announced decision to take a 29% participation in the LNG terminal announced in July. Our joint venture terminals for LNG in Mexico and Gate in the Netherlands showed strong occupancy rates of 95%. Turning to Slide 7 and looking at the quarterly developments of our key figures. Financial results delivered this quarter are solid, although occupancy was 86%. Financial results reflected cost and commercial performance. Tank storage demand at our hub terminals remains impacted by the oil markets structure in 2018 year-to-date; whereas chemicals, gases and industrial terminals showed stable demand for tank storage surfaces. In terms of capital efficiency, we delivered the return on capital employed of 11.8% in the third quarter, and net profit attributable to holders of ordinary shares amounted to EUR 71 million, resulting in an earnings per share of EUR 0.55 in the third quarter; and year-to-date, EUR 1.65 per share. Moving to cash flow, Slide #8. Q3 shows another quarter with resilient cash flow from operations. Our year-to-date growth cash flow from operations was almost EUR 500 million, which resulted in close to EUR 280 million free cash flow before growth. We have investment momentum towards 2019 and invested just over EUR 200 million of capital to our growth projects. Free cash flow available for financing debt service and shareholder distributions amounted to EUR 100 million this year. Our net debt position of EUR 1.7 billion resulted in a net debt to EBITDA ratio just above 2.2 at the end of the third quarter. This cash flow from operations, combined with the financial flexibility of our balance sheet, provides us with a position to keep investing in our project portfolio and create shareholder value. Turning to Slide 9, we'll discuss the exceptional items for the third quarter. In fact, I also highlighted the same items in our last call during the second quarter. First, pensions, which we accounted for partly as an exceptional item in the second quarter. The update is that in July, we formalized the agreement regarding a defined contribution plan as per IAS 19, the accounting guidelines in the Netherlands. The total exceptional gain before tax from the release of the pension provision is EUR 19 million, including the cash contribution to be made by Vopak. Secondly, the deconsolidation of our Venezuela operations for financial reporting was also mentioned at Q2 as a Q3 event. We've now reassessed the accounting position for this terminal and concluded that from an accounting point of view, we no longer have the basis to consolidate this asset. In the third quarter, the income statement therefore includes the effect of recycling historical, unrealized currency translation losses from equity to the income statement. This reduces the reported net income, with EUR 51 million as an exceptional item. The deconsolidation is a noncash effect. It also has no significant impact on shareholder equity as equity was already adjusted in previous reporting periods, each quarter over the years applicable. Going forward, the participation in the terminal will be accounted for as an instrument measured at fair value. The contribution of the terminal to the results of Vopak is immaterial. We will remain a 100% shareholder and we'll continue to operate the terminal as before. Going to Slide #10, talking about our growth projects. The associate industrial terminal PT2SB in Malaysia, commissioned in September 2018, approximately 700,000 cubic meters of capacity. The remainder of capacity will be commissioned before the end of the third quarter, as I said before 2019, and in line with plan. With respect to our growth ambitions, we announced today to expand our LPG and chemical gases network. Firstly, we will further expand our activities in South Africa with our partners, Reatile, and we will invest in a new LPG import and distribution terminal with a capacity of 15,000 cubic meters in Richards Bay. This investment facilitates further imports of LPG as a cleaner energy into the South African market. In addition, and closer to home, we will expand our gas terminal in Vlissingen in the Netherlands by 9,000 cubic meters of LPG and chemical gases capacity, which will serve the Northwest European gas market. Both growth projects are expected to be commissioned in 2020 in the second quarter. Turning to the next slide, where we see a total sulfur fuel portfolio developments. Construction is progressing well and commercial coverage is high. The developments reflect execution of our strategy in line with our financial framework and towards 2019 momentum. Going to the next slide, and we've discussed fuel oil and our bunkering network on many occasions, and let me come back to it again today. Our priorities in this segment is to be ready for the IMO 2020 bunker fuel regulations that will come into force in the 1st of January 2020. Last call, we announced our investment plans for Rotterdam, where we convert roughly 0.5 million cubic meters of capacity to handle very low sulfur fuel oil with Maersk as an anchor customer, which anchor customer was actually announced in July. Further to Maersk, we've recently -- very recently, signed a second significant deal with a large oil and gas company for the largest part of the remaining low sulfur fuel oil capacity of Rotterdam. Conversion will be completed in the second half of 2019. Moving to the non-IFRS proportionate information, Slide #13. And in response as I said to request by investors, we provided the non-IFRS proportionate consolidated segment information in this interim update, and we'll be doing so going forward. The proportionate information provides transparency and underlying performance and provides good comparable basis for subsidiaries, joint venture and associates. EBITDA, excluding exceptional items on the proportionate level, amounts to EUR 615 million year-to-date third quarter 2018. And excluding Estonia and Hainan, the proportionate consolidated occupancy rate was 86%. So comparable to the IFRS base occupancy. Moving to Slide #14, where I'll repeat some of our key messages. This quarter, we delivered a solid performance. We started our operations of our new industrial terminal in Pengerang in Malaysia towards 2019. We expand our LPG and chemical gases in South Africa and the Netherlands towards 2020. We focused on performance of delivery from our assets and businesses in 2018 through cost and commercial management, and we'll be doing the same for the quarters to come. And therefore, we managed long-term value through our strategic direction set towards 2019 and beyond. Slide 15, looking ahead. Our outlook statement for '18 and '19 is fundamentally unchanged. The financial performance in '18 is expected to be influenced by currency exchange movements of the U.S. dollar and the Singapore dollar mainly and changes in the oil market structures. This impacts occupancy rates and price levels mainly in the hub locations. Given the 3.2 million cubic meters expansion to be delivered in mainly 2019 with high commercial coverage and in conjunction with our efficiency program for cost management, Vopak has the potential to significantly improve the 2019 EBITDA performance, and again subject to market conditions and currency exchange movements. Our cost program continues to develop well, and we've increased our cost target from the earlier announced EUR 25 million and delivered mid-year 2018 to a number of EUR 40 million to be delivered in end of '19. Lastly, end of November, we will have a Capital Markets Day in Houston, including a visit to our Deer Park facility at the Houston Ship Channel. And Deer Park is commissioning its expansion of 138,000 cubic meters of capacity this quarter, and you will be treated to a visit to the site. In November, we will talk about our views on the markets and portfolio development as well as our financial framework. And during the day, we will also give you some more insights in our digital agenda and application thereof at our network of terminals. Moving on, I finished my prepared remarks, so we can switch to Q&A. I think we have until the hour to do so. We'll see how many questions there are and how much time we need. But I will meanwhile hand back to the operator to open the lines so that we can have some dialogue. Thank you.

[Operator]

[Operator Instructions] And our first question comes from the line of a Thomas Adolff from Crédit Suisse.

[Thomas Yoichi Adolff]

Just one quick question. You've obviously reiterated your outlook for 2019 for EBITDA to significantly improve, but I had a more specific question on Pengerang. Obviously, it's ramping up. As I understand it, there's a bit of a take-or-pay structure in there, so that even if there was some delay to the ramp-up that you actually get paid nevertheless. So if that's the case, there should be a decent amount of visibility on the potential EBITDA uplift in 2019. So I wondered whether you can quantify a little bit more.

[Gerard B. Paulides, CFO & Member of the Executive Board]

Right. Thank you, Thomas, yes and I am well. On the Pengerang, Malaysia developments, we've commissioned and are in the process of commissioning 700,000 cubic meters of capacity in Malaysia as you point out, and this is out of total of 1.4 million cubic meters that will be commissioned of our quite a complex set of industrial machinery that sits behind our terminal in terms of the facilities that the joint venture partners of the RAPID project, PETRONAS and Saudi Aramco, will be commissioning. Now the commissioning pace of the facilities will substantially be in the first quarter of 2019, and then there is a smaller part of commissioning still going on in the second and third quarter. So you will see part of the commissioning happening now, as I said, approximately half. Then there's another substantial part in the first quarter, and then there's the residual parts in the second and third quarter. Now together with the commissioning, there's a whole complex of commercial contracts that kick in. Some of them are based on actual performance. Some of them are based on capital structures, et cetera, what have you. So you will see that ramp up in the course of 2019. I think you will need to see the entire year come through before you actually get a good handle on the financial effects. I'm not going to give a number on it, but it needs to stabilize in 2019 across the commissioning of the projects. There are certain payment structures that, indeed, are kicking in when you actually commission, when you're commercially ready, you are correct in that, but the exact pacing of that is as per quite a complex set of different contracts across different facilities. So the commissioning pace gives you a flavor of it. I would focus on the entire year.

[Thomas Yoichi Adolff]

And maybe just a quick follow-up on the Rotterdam conversion, 0.5 million cubic meters was Maersk and then you've got -- signed a major contract with a major. Is it -- why the preference for very low sulfur fuel oil and not for marine gas oil?

[Gerard B. Paulides, CFO & Member of the Executive Board]

What is happening in the facilities in fuel oil, Thomas, as you know, is people are trying to figure out what is the ideal mix for that particular demand. And at the same time, on the supply side, people are trying to figure out what can their lineup of refining capacity actually produce. And when those 2 come together, people will make the choices on how to optimize volumes given pricing that is being set. Very low sulfur fuel is a component. Marine gas oil is a component. There's other fuel oils that will be mixed in the blends that people will ask for. So we do have the capacity to mix and blend, but we also will have capacity to accommodate very low sulfur fuel oil. So yes, you see the term very low sulfur oil, but how people actually get to that composition, whether it's a straight supply of that particular product or whether there's a blended desire to accommodate is to be seen. The Maersk contract is one which essentially goes into their own demand, their shipping demand. And they may take a few positions around that or may market somewhat to third parties, I would assume. The second contract is more a -- let's call it, a market contract where a major oil and gas company has committed essentially its supply and taken [ a few ] on how demand will be based for that. So it's a mix truly, and we'll see how it plays out, Adolff -- Thomas, excuse me, sorry.

[Operator]

Our next question comes from the line of Dominic Edridge from UBS.

[Dominic Edridge, Executive Director and Analyst]

Apologies, probably another question on the IMO 2020 and fuel oil on the same topic. I mean, given the very limited scrubber installation and the time remaining, obviously, it appears as though ultra-low sulfur fuel oil will be the predominant form. Can you just discuss what you've done with your own capacity? I know you've talked about the 0.5 million cubes that you've converted in Rotterdam. Can you talk about what you're doing elsewhere and how much capacity are going to remain in the traditional fuel oil market? And just allied with that question, is it fair to assume, given your comments on the weakness you've seen because of the oil price structure, that the capacity that you've contracted with the likes of Maersk is maybe the area that's been the weakest? In other words, could we assume that the fuel oil side has been where the occupancy has been lowest in the last few years? And then on a completely different matter, on 2019, I know there were some comments there about -- on Reuters about you saying that most of your capacity, the new capacity, is covered. Can you just maybe give some numbers around how much of the capacity you've currently got covered by contracts?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Okay. A whole range of questions there. So the scrubber capacity. First of all, I think important to confirm that IMO itself has reconfirmed its commitment to implement the new regulations, which also includes their views on how ships that do take high sulfur fuel oil, what conditions they need to meet and whether a scrubber needs to be onboard in order to demonstrate compliance, which is reconfirmed. So this will happen it seems, and the market is getting ready for that. You're right, we have mainly converted high sulfur fuel oil capacity into the range that also Thomas mentioned, different products ranging all the way to low sulfur fuel oil. There's a majority shift into the lighter products than the high sulfur fuel oil. And we've invested in different, and are investing in different lineups at our terminal to allow blending different pumping capacity to allow pumping speeds, et cetera, to accommodate that mix. But there's a substantial shift from high sulfur fuel into accommodating the other grades. And the weakness that we cited about oil market conditions, I think you can split it into -- one is IMO 2020 and the other one is the, let's call it, the crude market, and to some extent, clean petroleum products in terms of backwardation or contango, which is impacting the occupancy. What you now see is a period of time in '17 and towards -- well, almost the entire year of '18, a backwardated market, which is not favorable for storage. Very recently, we've seen some moments of contango come back in the market. The market then immediately responds into its trading behavior. You see some of that coming through in the numbers. I'm not going to split out IMO 2020 and crude oil, but they are both important factors into our occupancy. IMO 2020 will play out, as I said, also with the commitment we have just received as an illustration in Rotterdam towards the end of '19. How the oil market will play out in terms of backwardation or contango, we will see as it plays out. There's not a lot more I can say about that. The other segments that influenced our occupancy, which is chemicals, gases, LNG, they're performing well, either steady or healthy or improving. And we've also seen some pickup in the oil occupancy in, for instance, Europoort. Did I answer all your questions, Dominic, or...

[Dominic Edridge, Executive Director and Analyst]

That's the first bunch. Just very quickly, just on the 2019. I know there's some comments on Reuters saying that most of your capacity for next year is covered. Could you -- is it possible to quantify that at all?

[Gerard B. Paulides, CFO & Member of the Executive Board]

I think what we said is high confidence, which I would pitch somewhere between 50% and 100% in terms of coverage. It's not 50% and it's not 100%, but it's that type of range.

[Operator]

Our next question comes from the line of David Kerstens from Jefferies.

[David Kerstens, Equity Analyst]

A few related questions from my side, please. First of all, regarding the IMO 2020 and your conversion. Just to confirm, the second customer that you recently signed, that is part of the 0.5 million cubic meters in Rotterdam that you announced back in August, if I understood correctly. And then following up to Dominic's question regarding the expectation that only 5% of the global fleet will be retrofitted with scrubbers. Do you not need to convert much more capacity than what you currently have announced? So you gave a number for Rotterdam, but could you also give an indication how much you have already converted in Singapore and in Fujairah, please? And my understanding was that it is still below 50%, whereas, given the number of scrubbers you would expect this would be a lot more. And then finally, regarding the commissioning of Pengerang. In the presentation, you highlight 700,000 cubic meters already commissioned at the end of September, but another 1.5 million to follow. Does it mean that you have increased the total capacity for Pengerang, because I think the last number I have, the number is 1.5 million cubic meters?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Okay, David. Thank you. The second one is easy. The total is 1.5 million. The first 700,000 has been commissioned, so we're not increasing the number. The 700,000 is what we are commissioning this quarter. The 1.4 million is what will be commissioned at the end of last year -- next year, sorry.

[David Kerstens, Equity Analyst]

All right. Okay, yes.

[Gerard B. Paulides, CFO & Member of the Executive Board]

In terms of scrubber penetration and commitments of fitting that into vessels and what percentages are needed, where and how and when. What we've said is, across our portfolio, we have stress-tested what will be needed in the market as we see play out. And in order to get to the right mix of products, you will need certain base capacity and you would need certain -- and that's why I mentioned blending pipelines up and pumping capacity for your vessels. We will make adjustments, and are making and have made adjustments in Europoort in -- sorry, in the Netherlands, in Singapore, in Fujairah, and to a limited extent, in some of the other locations that handle bunker fuels. The total that we need for that is EUR 40 million. We mentioned that before. That number hasn't changed. Our insights in the lineup that we require hasn't changed. We're now implementing it. Some of it this is still being spent, so we can still make adjustments if we feel it's needed. That's not our anticipation, we think we're well set. The market will need to price the different flows that come out. So if your premise is correct that the scrubber capacity is not going to accommodate, then that will reflect its -- that will be reflected in the pricing of the different flows that will trigger different behavior again, and that may trigger installation of more scrubbers if high sulfur fuel is prized in such a distressed manner that it cannot find a market otherwise. We have run the numbers. We're not going to give the proportions of how much we put in what bracket across the high sulfur to very low sulfur fuel oil spectrum because that would show into our commercial competitive lineup, which we don't want to do. I feel we're ready to accommodate the market, and we'll see how many people will put scrubbers on.

[David Kerstens, Equity Analyst]

And the 0.5 million in Rotterdam, that is for Maersk and this second customer, is that correct?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Yes. That's by and large correct, yes.

[David Kerstens, Equity Analyst]

Maybe if I may, one quick follow-up on the proportionate data that you've provided, please. I think in the second quarter, you highlighted a difference between the IFRS occupancy rate and the proportions occupancy rate was largely related to Hainan and Estonia. And now they are in line at 86%. What drives the improvements versus the difference you reported in the second quarter?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Now let me try to figure that one out. What is your question exactly in terms of -- is there a different momentum from the second quarter to the third quarter? Because if I include my normal...

[David Kerstens, Equity Analyst]

Basically, do you see an improvement in occupancy?

[Gerard B. Paulides, CFO & Member of the Executive Board]

If I include them, it's 84%. If I exclude them, it's 86%. Now the reason why I -- or why we decided to exclude them is because they don't contribute to the results anymore because they've been impaired. So in order to get a proper read-through, which is the intention of what drives the EBITDA, I felt -- we felt it was appropriate to show it excluding those 2 assets. Does that answer the question?

[David Kerstens, Equity Analyst]

Right. So there's no change in the underlying numbers compared to the second quarter in terms of occupancy?

[Gerard B. Paulides, CFO & Member of the Executive Board]

No, no, no. It's -- for transparency, it's as I said the -- if I were to include them, which in itself doesn't make a lot of sense, it would be 2 percentage points lower at 84%.

[Operator]

Our next question comes from the line of Giacomo Romeo from Macquarie.

[Giacomo Romeo, Analyst]

First one is on China utilization. You mentioned that it's very sensitive to single-asset movements. Just wondering if you can give a little bit more outlook for the year's utilization, if you expect it to recover in fourth quarter? And second question is on IMO. You mentioned last quarter about nice contract this quarter, another contract for your new storage or upgrade storage in Rotterdam. Just thinking at this point in the process, what are the -- would you say are the key factors that allow attracting early demand for ultra-low sulfur storage from customers? You mentioned, obviously, blending and pumping. What do you mean -- why are you making to make -- in order to make your offering better placed, so to speak? If you can provide a little bit more clarity there, it would be helpful.

[Gerard B. Paulides, CFO & Member of the Executive Board]

Okay. First, let's focus on China. I think the China performance, indeed as you point out, as I mentioned, is sensitive to relative small capacity movements in a small set of terminals that is in the consolidated storage capacity number. So as I said, even a relatively small change impacts the number. There is some seasonality in China. Typically, first half and second half. There are also some conflicting positions that impacted the third quarter. There's nothing fundamental going on here. If I look at the trend for China, it is improving, as you see from the EBITDA line that is immediately shown below the occupancy line. You see an EBITDA performance of EUR 13.6 million. That includes, in all fairness, the start-up of Haiteng. So Haiteng, which is the asset that has been out of production for, what was it, end of 2015 or thereabouts, is now coming back online and making a contribution into the EBITDA. However, it's not in the reported occupancy rate for subsidiaries because it's an associate. So you see better occupancy coming through from Haiteng in EBITDA and in occupancy, but the occupancy for subsidiary companies is essentially dynamic in the third quarter with a very minor impact on EBITDA. The trend is going up. Chemical activity in China is doing very well. It's competitive as it would be, but it is doing well. I don't see a negative trend or turning point in China, Giacomo, across the different quarters. And it's good news, because we're starting up Haiteng. In terms of -- again, IMO 2020, what drives our decision to put a certain capacity and what drives our customers, what you see at the moment is that the material players are starting to make their decisions. I think the rest of the market will, at a certain moment, sort of have to squeeze in into that supply-demand equation and take a decision on how they want to play in that market. But the big players as we've now seen it, Maersk and the oil and gas company, decide not to wait for that moment and they are ready to commit material capacity for reasonable time periods into this market. And it really will remain to be seen how the different grades of fuel oil will price. And these big players don't want to be, I guess, caught out by that and they want to be ready to move their physical streams, because they also need to move the product from the refinery into the market or from the storage into their vessels, and they feel ready to commit there. What do clients appreciate at Vopak, I think what they also -- always appreciate at Vopak which is our offering at the terminal, our commitment to customer flexibility and services in a safe and responsible manner, I guess. In order to be able to offer that, we've made the commitment, as I said, to invest EUR 40 million to anticipate what might be their wishes, and those 2 discussions are now coming together quite nicely. The scrubber penetration, we also gave the same answer to David. We don't know how it plays out. It seems to be low at the moment. I agree with David and yourself on that. I think, ultimately, the consequence of that is that high sulfur fuel oil will have to be seeing a price impact of that because the volume will, to a large extent, still come to market, and then the market will respond.

[Operator]

Our next question comes from the line of Thijs Berkelder from ABN AMRO.

[Thijs Berkelder, Equity Research Analyst]

First question on LNG. I see quite a lot of, let's say, corporate costs relating to LNG, EUR 4 million, I believe. Can you maybe give some indication or guidance on what to expect in the coming quarters there in terms of, let's say, preoperational expenditures? Second question on Haiteng. I think Haiteng was 1 month in business previous quarter, 3 months this quarter. How would you describe the performance? Is it already back to normal or will that take another year or so? Then a third question is, in the press release, you're stating that the strategic review and testing of the market failures of the terminals in Algeciras, Amsterdam, Hamburg and Tallinn is progressing on schedule. What do you exactly mean with on schedule?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Okay, thanks. That is 3 questions I will deal with, thank you. And thanks for the diligence in following the Haiteng start-up sequence. Indeed, you're absolutely right, it had produced 1 month in the second quarter, it now contributed 3 months. It's fair to say that the start-up of a complex like this, including the start-up of the related facilities of our customer, is a complex process, so that will play out over the next quarters. In addition, we will also be discussing the settlement of, let's say, the period which is behind us, where parties agreed that because we all had different priorities focusing on technical investments to bring the facilities back online, operational requirements, the safety, health and environment focus we need to have on those discussions, to park those commercial discussions for the interim period, we're now getting to a point where parties are ready or starting to get ready to concentrate on that again and engage. So that's another factor of commercial financial settlements that still need to play out over the forthcoming period. So I would give it a few quarters, Thijs, for this to play out. LNG costs, in fact, these are what I would call good costs. We've decided not too long ago to have a LNG division in Vopak to concentrate on capturing our part of this high-growth segment in the market. It is becoming more successful. The market is now coming to us in terms of identifying opportunities and seeing whether we can create a new business development opportunity and deliver it into an investment decision. We're working on Hamburg LNG. We're working on Pakistan LNG, where we see also opportunity to expand further than the 29% we've really spoken about earlier. We're talking about China LNG in the Yangtze River, which we've mentioned before. There's a lot discussions in China going on and other places in the world. That triggers an amount of new business development costs that we're happy to spend. Sometimes these things are successful, sometimes not. You've seen some of these costs come through in, amongst others, the third quarter. So I would not be too worried about that. I think it's a little bit higher than normal this quarter, maybe EUR 2 million or EUR 3 million higher than normal, and we'll see how that plays out. In itself, it's good costs that we are happy to spend in its own right. The strategic review, progressing to schedule, what does it mean -- or to plan. At second quarter in July, we said we will take 6 to 12 months to execute the strategic review, which includes testing the value in the market. We're now more than 3 months, 4 months into that progress. We are starting to engage with the market. We've taken a few on how to engage and what is the profile of those terminals, which need to have ready for your engagement with the market. We will then take our soundings back into the company, discuss it at the Executive Board and see what we think of that process. Timeline hasn't changed. We said 6 to 12 months, and that's happening right now. It's going well in its own right, the preparations are going well. The material is getting ready, that's why I say we are on plan, on schedule.

[Operator]

[Operator Instructions] And our next question comes from the line of Quirijn Mulder from ING.

[Quirijn Mulder, Research Analyst]

A question on IMO 2020. So you have earmarked 0.5 million cubic meter for this IMO 2020, in fact, by 2 contracts. Can you tell me what more capacity do you have available if there's -- let me say, if there's demand from a third and a fourth quarter -- a fourth client arriving in Europoort or somewhere else?

[Gerard B. Paulides, CFO & Member of the Executive Board]

Across our network, we have spoken earlier about 4 million cubic meters of capacity, which for convenience I've excluded the Estonian capacity, which is a part of that strategic review which is going on, which is 1 million. So the 4 million we've got available in our network, the bulk of that is concentrated in Fujairah, in Singapore and in Europoort. I think we are well advanced in our commitments in Europoort. We are still seeing commercial opportunity in Singapore and in Fujairah. In Singapore, we are also adding some -- as Thomas actually raised earlier, some MGO capacity into the mix. That was the 67,000 cubic meters that we were -- that we announced, I think at Q1, as an expansion at Sebarok in Singapore. So there's another stream being added to the mix. So to phrase it that positively, we still have commercial opportunity in Fujairah, in Singapore, to commit into that market in 2019 towards the implementation. To phrase it negatively, we still have opportunity to place fuel oil into that market in 2019 in Singapore and Fujairah. And why am I saying it like that? There's a lot of commercial discussion that you need to have on fuel oil with a market that is still unsettled on the supply and the demand side, as I just explained. In Europoort, those contours of the market, by and large, for us settled. In the other places, we think it will settle. We think we know what's coming. We stress-tested the assets. We know exactly what to do. But there's still some commercial distance to be covered to utilize that, which is a good opportunity and it will play out, as I said before. A functional specification change in any of the product lines, whether it's petroleum products or any other product, or in other words, a dislocation of the market in itself is good business for Vopak. We level matching supply and demand. So that supply and demand needs to be matched, and we take a few on that if we made the right call. With the lineup of our capacity, we can accommodate the customers. It has been uncomfortable in 2018 because that was almost a perfect negative storm, also with the backwardation of the crude oil market, and we'll see how that plays out in 2019. I'm not going to talk about the shape of the market on backwardation or contango in '19, but we have recently seen some moments of contango go into the market, and it immediately responds. But we have predominantly a backwardated market year-to-date. I hope that gives you some context, Quirijn.

[Operator]

[Operator Instructions] And as there are no more questions registered, I now hand back to Gerard for any closing comments.

[Gerard B. Paulides, CFO & Member of the Executive Board]

Okay. Thank you, Sarah, and thank you, everybody, on the call. We do appreciate your coverage and your analysis and your interest in the company. Thank you for attending today. I would want to summarize as follows. We're satisfied with the performance year-to-date. We've delivered a solid performance on the financial -- to the quarterly performance, and we are de-risking 2019 in terms of capacity delivery. We're also seeing the contours of the fuel oil market come through. And today, I've been able to talk a bit about Europoort in particular. There's still a little bit of distance to go on that, but we feel well positioned to accommodate that as the market unfolds. The Q3 momentum is encouraging. The 86% utilization is a change with 1 percentage point from the second quarter, which is good. And our EBITDA performance and cash flow performance is solid or satisfactory or resilient, whatever term you want to put on it, to deliver shareholder value in actual performance and in value creation to growth. I look forward to hopefully seeing most, if not all, of you at our Capital Markets Day in Houston. We look forward to it. Hopefully, we talk a little bit more than IMO 2020 only. But no doubt, we will also talk about that. And not to worry, we're more than happy to do so every time it comes up. So thanks again for your questions, thanks for your support. Thanks for being with us, and speak to you next time. Operator, you can now close the call. Thank you.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.