Koninklijke Vopak NV

AEX:VPK

Earnings Call Transcript 2022-Q4

[Fatjona Topciu, Head-Investor Relations]

Good morning everyone and welcome to Vopak Full Year 2022 Results. My name is Fatjona and I'm the Head of IR. I'm very pleased to be joined by our CEO and CFO who will guide you through our latest results. During the presentation, we will refer to like the slides, which you can follow them on screen or download from our website. After the full presentation, we will have ample opportunities for the Q&A.

Before we start, I would like to draw your attention to the forward-looking statements. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and some uncertainties. Accordingly this is applicable to the entire call, including the answers provided to questions during the Q&A.

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

[Dick Richelle, Chairman & Chief Executive Officer]

Thank you very much, Fatjona, and a very warm welcome and a good morning to all of you. Thank you for joining us in this call.

Let's move to the slides. During 2022, Vopak has once again proven to be solid. The need for our services was healthy. And across the world, we continue to serve our customers well. We made good progress in 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 solid financial results in line with 2022 expectations. We improved our EBITDA underpinned by good results across most divisions and positive currency translation effects, notwithstanding, cost pressure due to surging energy prices and personnel expenses. This led to an improved operating cash return of 11.4%, which Michiel will talk about more later.

We actively manage our portfolio, divested our port agencies companies -- company and our Canadian oil terminals. Moreover, today we announced that we started a strategic review of our three chemical terminals in the Port of Rotterdam being Botlek, TTR and Chemiehaven. The outcome of the review may include full or partial divestment of these locations.

We also progressed on our sustainability performance by reducing our CO2 emissions by 10% during 2022 compared to the baseline of 2021. The deployment of growth CapEx towards our strategic goals is going well with growth in industrial and gas terminals.

On LNG, our Gate LNG terminal is fulfilling an important role in the energy security of Northwest Europe. We are growing our base in industrial terminals through a brownfield expansion in Caojing, China, as well as creating the largest independent tank storage company for LPG and chemicals in India as we concluded the JV partnership in India with Aegis.

An important part of our strategy is to accelerate towards new energies and sustainable feedstocks. This can be done by building new sites or repurposing existing sites. In our Los Angeles terminal, we are doing the latter by repurposing 22 oil tanks to sustainable aviation fuel and renewable diesel.

In the third quarter, we invested in Elestor, an electricity storage company. Elestor has developed a flow battery that will be able to store electricity on a large scale and in the safe conditions.

In the fourth quarter, we announced an MoU with Petronas on CO2 for Southeast Asia and we announced the development of the first industrial scale hydrogen supply chain together with hydrogenous using a liquid organic hydrogen carrier. This is a good addition to the green liquid hydrogen and ammonia projects that we started together with partners. We are observing a growing interest for the storage of green ammonia in several key hubs given its potential to decarbonize several sectors.

We have a unique network of strategic locations, capabilities and partnerships and are the biggest operator in large growth markets like China and India with 18 terminals. Our industrial terminals in Asia are showing good performance, while the gas and chemical terminals in Europe are supporting energy and supply security. We have a position in the industrial cluster of the Gulf Coast in the US, which is also performing well.

Vopak has a solid core strength, and this gives us a good starting point of capturing the many opportunities that will materialize in the years to come. We have over 1,000 customers globally, who we serve in multiple locations for a long period of time. All of these have created the robust foundations that lead to the improved results year-to-date.

Moving to share some of the key market dynamics and how they impact the demand for our services. I'd like to give you some details on how markets in which we operate developed and the impact it had on Vopak. Starting with gas. LNG infrastructure is in high demand, due to a lack of Russian pipeline gas towards Europe and the gas market tightness is expected to continue into 2023. For Vopak, our Gate terminal in Rotterdam is currently fulfilling a very important role in the energy security of Northwest Europe and expanded its sent-out capacity.

Moving on to new energies and sustainable feedstocks. In line with increased market interest in hydrogen and sustainable fuels, we are making good progress in accelerating towards new energies and sustainable feedstocks. We witnessed a growing market interest for the storage of green ammonia in key hubs. We have good momentum in sustainable feedstocks, and we are currently building storage capacity for biodiesel and jet fuel in Vlaardingen and repurposing oil storage tanks to sustainable fuels in our LA terminal.

Move on to the energy markets, we serve through oil products. Following the international sanctions regime, global oil flows continue to rebalance. The oil market was initially geared for maximum efficiency. But as a consequence of sanctions, we see more long-haul product trade flows from alternative origins. China's ongoing reopening is expected to provide a boost to demand going forward. For Vopak, this means that the demand for storage in hubs has been improving during 2022, as a result of change product flows and the drive for security of supply. Our fuel distribution terminals continue to perform well.

Looking at the manufacturing markets, we serve through our industrial terminals and chemical terminals. The chemical market is under pressure, due to macroeconomic headwinds. Surging utility prices have led to lower European production, increasing the need for imports. Solid demand for chemical storage capacity with throughput, stabilizing in the second half of 2022. Furthermore, European chemical storage continues to benefit from strong imports to make up for production cuts in the region.

Let's continue to the next slide. Let me take you through each element of our business performance in more detail. The starting point is last year's EBITDA of €827 million. We divested our Canadian terminals, board agencies and experienced positive currency translation effects of €58 million. Oil markets remained volatile during 2022 on the back of high prices and limited availability of product.

During the second half, we noticed a sequential improvement in oil market conditions. The chemical and industrial market further improved as demand for chemicals remains strong. Chemical supply chains continue to fill up with product and we observed an increase in both storage demand, as well as chemical throughput across the different geographies. The gas market is strong, especially at our Gate terminal. At the same time, surging energy and utilities prices combined with higher personnel costs led to an increase in our cost base.

Finally, we have delivered on our growth projects, which have contributed €23 million this year. As we mentioned before, we are committed to actively manage our portfolio. We do this by rationalizing and during 2022, we concluded the sale of our Canadian oil assets and Vopak Agencies. Today, we also announced that we have started a strategic review of three chemical terminals in the Port of Rotterdam, being Botlek, TTR and Chemiehaven. The outcome of the review may include full or partial divestment of these locations.

Repurpose. Accelerating towards new energies is taking place, as we will repurpose oil storage tanks to sustainable aviation fuel and renewable diesel in our Los Angeles terminal. And lastly, Transform. In Belgium, we are refurbishing our Eurotank terminal by rebuilding 41,000 cubic meters. With this investment, we solidify our position as leading chemical terminal infrastructure provider in the Port of Antwerp, by strengthening our service, offering and facilitating the continuous chemical imports.

The attention to the portfolio is critical. It's a journey we started some time ago. We have taken important steps to increase the gas, and industrial share and lowered the proportional capital employed to around 20% in oil products by divesting oil terminals and by the recent impairment.

We aim to further increase the share of industrial gas and new energies, which are usually underpinned by long-term stable commercial contract. In this way, we are positioning the portfolio towards higher and more stable returns. When it comes to sustainability, we are ambitious and performance-driven with a balanced road map, focusing on care for people, planet and profit.

I would like to highlight three of them mainly greenhouse gas emissions, safety performance and diversity inclusion in our corporate governance. In 2022, we achieved 10% CO2 reduction in 2022, compared to the year before for Scope 1 and Scope 2 and we're making good progress towards our 2030 target to reduce emissions with 30% from 2021 – from the 2021 base including our growth investments.

We maintained good performance on process safety. On diversity and inclusion we're also making good progress. In 2022, we increased the percentage of women in senior management positions to 20% and we have upgraded the target from 20% in 2023 to 25% in 2025.

The momentum is building around the infrastructure required for energy products of the future. We will invest €1 billion into new energies and sustainable feedstocks by 2030. You will see us active in four main areas: hydrogen, low-carbon feedstocks, CO2 infrastructure and long-duration energy storage. Ammonia, liquid organic hydrogen carrier and liquid hydrogen offer opportunities for Vopak. We already have the experience operating ammonia in six locations around the globe.

In addition, Vopak Singapore is exploring the expansion of its ammonia infrastructure for low carbon power generation and bunker fuel. On low carbon feedstocks, we have already a solid footprint of around 25 existing biofuel locations around the globe. We believe that for any CO2 infrastructure the right terminal infrastructure is needed to be in place with the adequate scale and competence.

We recently announced that we've signed a memorandum of understanding with PETRONAS for the development of the value chain for CCS in Southeast Asia. Increasing renewable energy production and consumption will require intermittent storage of this energy, an area which we are also active in. Our efforts here will be accelerated through our investment in Elestor, an electricity storage company. And a few days ago, we announced that we will, together with the authorities, redevelop a prime location in the Port of Antwerp and Michiel will explain more in the next slide.

We signed an agreement to acquire the shares of Gunvor Petroleum Antwerp. This is a prime location in Europe's leading petrochemical cluster and entails a large industrial plot of 105 hectares. It offers deep sea water access and excellent river, road, rail and pipeline connectivity into Northwest Europe.

Over the next two to three years, we will reconfigure the concession with the primary aim of making a positive contribution to the decarbonization of the industrial cluster on the Antwerp port platform. Where necessary, soil remediation will take place in close consultation with internal and external experts and authorities. The adjacent and future pipelines are suitable for transporting for example, propylene, ethylene, CO2 and hydrogen.

Accelerating towards new energies is taking pace, as we will repurpose oil storage tanks to sustainable aviation fuel and renewable diesel in our Los Angeles terminal. The total investment is approximately €30 million and is related to repurposing the current infrastructure with above company average operating cash return.

Transition to sustainable fuels and the long-term commitment from the customer is anchoring our business in Los Angeles for the long-term. Our repurposing to biofuels is progressing well in Vlaardingen, where we are building capacity for waste-based feedstocks.

To summarize, we look back at the year, with solid results and good progress towards our strategic goals. We made good progress in 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.

The need for our services was healthy. And across the world, we continued to serve our customers well. To achieve this, we benefited from Vopak's well-diversified infrastructure portfolio, serving both manufacturing markets as well as the energy markets around the globe.

With our global scale, geographic diversity and various products and infrastructure solutions, we are well positioned to capitalize on the strength of our portfolio, as storage demand indicators continue to be favorable in the near term.

Now, I will hand it over to Michiel, our CFO.

[Michiel Gilsing, Chief Financial Officer]

Thank you, Dick, and good morning to everyone in the call, from my side as well. As Dick said from a financial point of view, we had a good year. Most of the divisions have contributed to the improved financial performance. We have also been able to improve our cash flow, as a company leading to a more healthy cash return on our capital, and a reduced leverage. We delivered on our ambition, to improve the performance of our portfolio.

We increased revenues to €4 billion, a 11% increase compared to last year. EBITDA also increased to €887 million, a 7% increase compared to the same period last year, which was underpinned by better business conditions and currency tailwinds partially offset by cost increases.

Strong cash flow generation, led to an operating cash return of 11.4%, ahead of last year's 10.2%. The increase was also related to the asset revaluation and lesser accounting, which I will explain later. Excluding these impacts, the operating cash return was 10.4%.

We continued to invest in growth by allocating €313 million, to expanding our base in gas and industrial and accelerating towards new energies and sustainable feedstocks. The financial performance was underpinned by a solid balance sheet, well within the target of 2.5 3 times senior net debt to EBITDA.

A strong financial performance, a solid balance sheet and a rigid commercial position at a foundation for the increased dividend that we are proposing today of €1.30, a €0.05 increase compared to last year.

Now moving to the key messages of the fourth quarter 2022. Occupancy improved during the quarter reaching 90%, a 1% point improvement compared to last year, which was driven mainly by improvements in Europe. Revenues also increased to €355 million as a result of this improved occupancy.

In the fourth quarter, we had cost of €191 million, which were impacted by a nonrecurring soil provision of €12 million in Europe. Excluding this nonrecurring item, the costs were broadly unchanged compared to the third quarter.

In the fourth quarter, we also had provision releases related to short-term and long-term incentive plans. The total net nonrecurring costs were around €10 million. We recorded a record high EBITDA of €228 million, broadly flat from Q3 2022.

We improved our EBITDA in 2022, primarily due to currency exchange and better performance across most of the divisions. Americas performance improved due to higher sales in Brazil, Mexico and the US, benefiting from better chemical market conditions.

On the other hand, Europe and Africa performance was impacted by weak market conditions in the beginning of the year and an increase in costs, during the second half of 2022 related to energy prices and personnel expenses.

Some more details on the divisional performance trends. The Americas division, benefited from growth projects and an improvement in autonomous performance. The uptick in occupancy is the outcome of strong economic activity, mainly in countries such as United States and Brazil.

The Asia and Middle East division, saw occupancy rate reflecting improved performance in Singapore and Fujairah, as we were able to capture market opportunities there. The China and North Asia division performance remained solid, notwithstanding the economic impact of the COVID-19 lockdown.

Performance of Europe and Africa reflects the improved market conditions in Europe, combined with the nonrecurring provision of the fourth quarter. And regarding New Energy and LNG, the performance of the New Energy and LNG division was higher, mainly related to Gate terminal running at 100% occupancy.

Moving on to the cash flow generation. Our cash flow generation was also solid during the year. In 2022 we generated significantly higher cash flow from operations, driven by higher dividends from our joint ventures, emphasizing the cash flow generating ability across the portfolio.

Sustaining service and IT CapEx, also known as the operating CapEx, was €291 million compared to €360 million last year. Cash flow from financing activities increased in 2022 due to higher financing expenses and the interest component of our leases. The divestment of our Canadian assets Kandla in India and agencies also resulted in divestment proceeds for 2022.

As a result, the proportional operating cash flow, which is the basis for our operating cash return, improved. Our operating cash return metric is a fundamental to the performance of our business and the key value driver indicator for all our activities.

In 2022, we generated higher proportional EBITDA and our proportional operating CapEx was lower, resulting ultimately in a higher proportional operating cash flow for the full portfolio.

The strong cash flow generation in 2022 and the positive market environment led to an operating cash return of 11.4%, better than our initial outlook of a minimum of 10.5% which we gave during Q3, 2022. The asset revaluation that we performed in the first half of this year had a positive impact of around 0.4% in cash return 2022.

Proportional operating cash return in the full year 2022 includes lesser accounting. The impact of lesser accounting is 0.6 percentage points. The change in the methodology of calculating proportional operating cash return provides a better insight in our cash generating of the business. Proportional operating cash flow increased by 24% compared to last year.

As we have mentioned in the past, joint ventures are becoming more important to our business. The key value drivers that we see in the joint ventures are threefold. First of all, a healthy cash return on the capital, which drives performance; secondly, a healthy leverage to drive return on equity; and thirdly, maximum dividend distributions from joint ventures to drive the cash position of Vopak.

Operating cash return performance improved in 2022, driven by positive EBITDA performance and lower operating CapEx. The strong cash flow generation in the first nine months and the positive market environment encourage us to increase the guidance for cash return to a minimum of 10.5%, instead of around 9.5% as previously communicated.

For the full year, we reported operating cash return of 11.4%, adjusted for the lesser accounting impact of 0.6 percentage points. The operating cash return was 10.8% better than our target of minimum 10.5% and delivering on our target to improve the return levels of our portfolio.

Looking at our commercial portfolio and inflation protection. Our commercial expertise is also supporting our strong results. More than 70% of our proportional revenues come from contracts that have an indexation clause.

Indexation clauses are mostly applied in January, looking at average CPI from previous year. Our contract structure has been a significant protection of our EBITDA margins, notwithstanding the macroeconomic environment through the years. Further steps were taken during 2022 to improve on indexation and pass-through of higher energy costs.

As an infrastructure solution provider, Vopak is characterized by long-term contracts. Portfolio transitioning towards more stable and higher returns towards gas and industrial terminals has also supported the contract portfolio towards contracts with a longer duration. Around 34% of the revenues comes from contracts longer than 10 years currently. And we have more than halved our exposure to contracts less than one year compared to 2015, which has improved our earnings quality and reduced the volatility of earnings.

We are going to stay focused on a disciplined capital allocation approach that will support and enable the strategic priorities. First of all, we remain focused on 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 the shareholders by a progressive dividend policy. Any remaining capital will be spent on growth investments with attractive operating cash returns. And with these three priorities, we aim to generate an attractive total shareholder return.

And I would like to spend a few minutes on the robustness of our balance sheet. We have a solid balance sheet that is supporting our growth ambitions. Our management philosophy is to keep our net debt-to-EBITDA ratio between 2.5 times and 3 times. We closed the year at a leverage ratio of 2.65 times, an improvement compared to last year's leverage of 2.93 times driven by better cash flow generation of the business.

We will continue to manage the leverage ratio by focusing to increase EBITDA free cash flow and improve dividend upstreaming from our joint ventures. In the current uncertain environment, our debt structure is well positioned and creates enough headroom for growth. Around 70% of our interest-bearing loans have a fixed interest rate and an average time to maturity is around five years.

Moving on to the dividends and the shareholder distribution. Our progressive dividend policy aims to maintain or grow our annual dividend, subject to market conditions. Earnings per share resulted in €2.35 and we announced a 4% increase in our cash dividend to €1.30 per ordinary share, reflecting our good performance in 2022.

Now let's move on and share some insights on the outlook drivers for 2023. First of all, the EBITDA outlook for 2023 is expected to be in the range of €910 million to €950 million. This range is subject to three main factors. The storage demand indicators are expected to remain favorable in the first half of 2023, similarly to the second half of 2022. The second half of 2023, remains subject to uncertain market developments.

Regarding Vopak, we will continue the momentum in improving financial performance in 2022, capturing growth opportunities and accelerating towards the company we want to be in the future. Volatility in the currency exchange remains a factor, particularly for our two main foreign currencies the US dollar and the Singapore dollar.

2023 EBITDA guidance is set on at end of January rates. And if we would reset the 2022 EBITDA in those rates then the full year 2022 EBITDA would have been €873 million. Based on this rebase, the full year 2023 EBITDA reflects an increase of €37 million to €77 million, which corresponds to the low and the high-end of the EBITDA outlook for 2023.

So to bring it all together, here is a view of our short-term and mid-term financial outlook. On the short-term outlook, EBITDA outlook for 2023 is expected to be in the range of €910 million to €950 million, subject to market conditions and currency exchange as explained in the prior slide.

Consolidated operating CapEx outlook for the full year 2023, which includes IT CapEx is expected to be a maximum of €300 million. Consolidated growth investment outlook for the full year 2023 is expected to be around €300 million. And then our proportional operating cash return is expected to be around 12% by the year-end 2023, but also subject to market conditions and currency exchange movements.

Moving from the short term to the long-term outlook. We have updated our prior target to reach at least 10% operating cash return by 2025 to have an operating cash return of above 12% by 2025, including our growth projects. Vopak's 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, within the range of around 2.5 to 3 times going forward. And as well, today's announcement on proposed dividend reconfirms our progressive dividend policy, which aims to maintain or grow our annual dividend subject to market condition.

This concludes my remarks in the presentation, and I would like to invite, Dick to handle the Q&A session.

[Dick Richelle, Chairman & Chief Executive Officer]

Thank you very much, Michiel. And with that, I would like to ask the operator to please open the line for question-and-answers.

[Operator]

Thank you. [Operator Instructions]

[Fatjona Topciu, Head-Investor Relations]

Yes. Perfect. And we will take the first question from Lampros. Lampros, please un-mute yourself.

[Lampros Smailis, Kempen]

Hi. Good morning of all of you. Congrats on a great quarter. I will start my questions with – on the strategic review that you announced for the chemical assets in Rotterdam. If you can give us a bit of color on how this came about the decision. Is there any external interest that created that need, or was it let's say preemptively done by you? Is there any interest when you started this process? And when would you expect to be done? So, a bit more color on the overall process. And then assuming that, this ends up with some divestments, where would you redeploy those funds. That would be first question.

And then on the – where do you see as key risks for H2 assuming that given what you said that, H1 seems pretty let's say solid or secured. What would be key risks for the second half to understand EBIT the range in the guidance? Thank you.

[Dick Richelle, Chairman & Chief Executive Officer]

Very good. Thank you, Lampros and good to see you. Maybe a few words from my side on the strategic review, and then Michiel will take you through some of the key risks related to the outlook for H2. Starting with the chemical terminals in Rotterdam, what we – what you've seen from us in the past period is that, we continue to look at a rationalization of our portfolio. As part of our improved priority that we set, we look at ways that we can improve the performance of our existing portfolio. But as I said also, the rationalization of it.

We sold Canada. We sold our Agencies business in 2022. And we looked, and we continue to look at many of our operations through the lens of strategic attractiveness financial performance. And through that lens, we've also looked at our position in ARA, so and with Rotterdam. And felt that this would be the right timing to strategically review our three chemical terminals in Rotterdam. If you recall also from our Capital Markets Day, we have indicated also the overall return elements of our chemicals business, not our industrial, but our chemicals business. So, that specifically is an element that we brought forward also in this analysis for ourselves.

Outcome is uncertain. So, on your question, do you already have people that are interested, I won't disclose anything. We are announcing today that we start the process of a strategic review, and that may have as an outcome that we divest all three or maybe a partial divestment. So that is the outcome. We've announced it today, and we will have to see in the coming period how that will develop and keep you updated when there is something notably to mention on that. It's obviously a big step, because we have not done this before in Rotterdam, but we have done it in Amsterdam.

So if you look at it overall, the impact for the people and the impact on the future of the individual terminal, we've seen it in other places.

Generally, we are able to find, if we go for a divestment good owners for the terminal to take it in a direction that they like to do. So let's see how the process will unfold and maybe towards the redeployment of funds that we might get out of a potential divestment.

If that happens it is along the lines of our strategy. So it is following our strategy in terms of the growth opportunity that we see in industrial and gas and accelerating towards new energies and using also the funds where needed, to look at our debt position.

[Michiel Gilsing, Chief Financial Officer]

Yeah. Maybe taking over here from Dick on your question on the key risks for especially the second half of the year, so the way we look at the first half year is a continuation of what we have seen in Q3, Q4 2022. And if you look at the different lines of business what you may expect in the first half year is that, gas will definitely continue.

The oil market position at the moment, especially if you look at Singapore, Rotterdam and the Middle East is strong for us in the first half year. And on Chemicals, we remain optimistic that the performance of the last half year will continue also in the second -- in the first half year of 2023.

Then for the second half year, the uncertainty sits not really in gas. We continue that will develop in line with expectations, but more on the oil side and the chemical side. There's still quite a bit of renewals to be done for the second half of the year. The market is still quite volatile.

So that is a risk we foresee. It's a potential risk for us. That is a risk we normally have in our portfolio with most of the oil business, especially in the hub locations, to a lesser extent in the fuel distribution locations, because these have more stable contracts. So that is a risk we are facing. And that's why we have a wider range in our outlook.

On the chemical side, it's still to be seen. There might be still a recession. It's also unclear what's going to happen in Europe with restarting maybe some of the production going forward. Chemicals most of the times is, -- takes a bit more time to adapt to the market conditions than oil, because of the nature of it but there's definitely uncertainty for the second half of the year. And also that has been included in the guidance for this year.

[Lampros Smailis, Kempen]

Thank you. Thank you very much.

[Fatjona Topciu, Head-Investor Relations]

And we will take the next question from Rachel.

[Rachel Fletcher, Morgan Stanley]

Good morning. Thank you for taking my questions. I have two please. So the first is on the 2023 CapEx expectation. So CapEx broadly flat year-on-year, according to the guidance you put out this morning.

At the Capital Markets Day, you announced you plan to invest €1 billion in industrial and gas terminals and €1 billion in new energies and sustainable feedstocks after 2030. I was wondering how much of this €2 billion in total, is included in the 2023 growth CapEx guidance that you put out this morning please? So that's my first question.

And the second question is on your dividend policy. So you've announced a €0.05 per share DPS growth this morning that's 4%. How should we think about growth of the dividend going forward?

Should it simply be €0.05 per share every year? And what would underpin that growth? Is it improvement in your balance sheet? Should we see it as a payout ratio? Just looking for what the drivers are there please? Thank you.

[Michiel Gilsing, Chief Financial Officer]

Yeah, maybe start with the CapEx expectation. Indeed, we have announced two times, €1 billion. This is by the way and that makes it maybe a bit more complicated, but I'm trying to be clear here. This is the consolidated CapEx.

So we always announce the growth CapEx which is the consolidated number. What you also tend to see is that quite a bit of CapEx growth CapEx is effectively taking place in the joint ventures. And then, the only thing you see in our consolidated growth CapEx is the equity contribution we have to make to such a project.

So if you look at it from a proportional growth CapEx point of view the number is higher than the €1 billion in order to reach that €1 billion. So that's maybe good to explain. If you look at the €300 million we are quite confident that that is definitely in line for industrial and gas. So that the trajectory towards the €1 billion in our mind is definitely achievable. So in line with the strategic priority, if you look at the new energy side obviously, it takes a bit more time to materialized projects because it's a new territory and people are let's say trying to get their hands around it to make projects work. But if we look at the funnel, we're quite confident that also there we would be able to reach the €1 billion by 2030. So of the growth CapEx for 2023 we are well on track for let's say these ambitions.

On your dividend question yes, that is always hard to give a prediction. I can only well remind you of the dividend policy, which is stable to progressing. Definitely what you have seen over the last years is effectively a €0.05 increase. If you look at the results over 2022, which ultimately after the big impairment resulted in a loss for the company but we still said while the underlying business is performing quite well.

So let's commit ourselves to the increasing dividend. Also the cash flow and the leverage are supporting that. But we will assess that every year looking at leverage, looking at cash flow, looking at the outlook for ourselves, what can we afford to pay out to the shareholders. So I can't give you any sort of prediction for the coming years but that is the sort of assessment we make.

[Rachel Fletcher, Morgan Stanley]

Okay. Thank you.

[Fatjona Topciu, Head-Investor Relations]

And the next question will be from Andre. Andre, please unmute yourself.

[Andre Mulder, Kepler]

Hi, good morning. Just a couple of questions. Firstly on these chemical terminals. Can you make any statements on what kind of returns these terminals have been making or possibly a sort of a combined number for the EBITDA contribution? Second question related to that this is of course the heart of your company. To what extent do you feel that this could impair your total market position in the Rotterdam area?

Vlaardingen, you could also consider this as sort of the chemical terminal it's in fresh oils I know. But I actually looked at that one to be included. And last on the Gunvor plot. Can you give us any numbers there? Do you – have you taken into account the possible soil cleaning of that place? And any view that you could have on what kind of activities you would exploit there and what kind of time frame or investment is needed there?

[Dick Richelle, Chairman & Chief Executive Officer]

Thanks a lot. Andre, I'll give it a first try on the questions you asked. Maybe on the chemicals. First chemicals in Rotterdam prefer not to disclose any specific results on the performance of these three terminals. I would say we've been quite specific on the overall return levels that we make in the segment of chemicals. We've disclosed that in Capital Markets Day and also in the presentation today, there's an indication of what the Chemical segment in terms of operating cash return is generating.

So if you take that into account I think the process that we went through as I just explained also to Lampros, it's the process to look and that's to your second question do you – are you concerned that you're going to impair your market position? If you look at it from an overall perspective, Rotterdam and Antwerp altogether, it's nine terminals that we own for 100% and we basically look in this portfolio rationalization question for strategic outlook and financial performance to name a few.

And within that context we have looked at our position in that area and feel that we don't weaken our position. We feel that actually with the other facilities that we still hold and that we own we have sufficient opportunity to play in the strategic opportunities that we see happening and unfolding in Rotterdam and in Antwerp. And hence the reason that we don't feel that this would impair our position in Rotterdam.

Obviously, if this goes ahead, three terminals would not be part of the network anymore. But if you then take into account the investment profile that we have in Rotterdam, LNG, CO2 developments, ammonia developments, investment in Vlaardingen, the new land in Antwerp. So within that whole range we still feel that we have a lot of flexibility and a lot of attractive positions from a strategic point of view to play an important role. So I think that's the way we look at it. That's also partly the answer to the Vlaardingen question that you asked.

It is vegetable oils that we do over there. It's the feedstock for the biorefinery that we store. That's a big important project that we are currently constructing that we're excited about. And again from a total relative position of these three Botlek facilities compared to Antwerp, Vlaardingen and the other facilities, we've come to this conclusion and hence the announcement that we have today.

Then maybe last but not least on the project in Antwerp. It is 105 hectares. We've reached agreement with the seller to acquire. We're still going through the closing process that will take a few months before we get there. Then we have to physically also clean up the site. That will take as I said in my presentation somewhere between two and three years. That's a tedious process to go through. It may include and will include by the way some soil sanitation that will happen. And we have good arrangements with the seller around that responsibility for the soil sanitation and are comfortable that we can execute that well.

And then we are very excited because as I said it sits right in the middle of the industrial cluster in the Port of Antwerp that we have a fantastic plot of land that we can develop for industrial use to support nearby chemical industry to support CO2, demand that is over there to support maybe something on the plastic side, on the energy storage side. So there's a lot of elements that we feel that we can develop over there.

And again we're excited about the opportunities that it brings. And we'll also update you on the plans going forward. But again it will take quite some time before we actually get to that moment. And subsequently we will announce also what the specific plans are in the investment opportunities. We thought it was a good opportunity for us to get involved in it and are excited.

[Andre Mulder, Kepler]

Okay. Thank you.

[Dick Richelle, Chairman & Chief Executive Officer]

Yeah.

[Fatjona Topciu, Head-Investor Relations]

And the next question is from Thijs.

[Thijs Berkelder, ABN AMRO ODDO]

Yes. Good morning. Good to see you. First question can you give us an update on the progress made in India so far. Looking at Aegis reporting last quarter was significantly better than the previous quarter. What can we expect there in 2023?

Then on LNG, can you maybe be a bit more specific on what to expect in 2023 in terms of level of performance? And maybe can you confirm how Hong Kong to be opened midst this year? And maybe give an update as well on what the time frame is for Victoria LNG in Australia, the new propane terminal in Western Canada and expansion Gate and potential in Chemiehaven.

[Dick Richelle, Chairman & Chief Executive Officer]

Any more questions Thijs?

[Thijs Berkelder, ABN AMRO ODDO]

Yes, tons of questions.

[Michiel Gilsing, Chief Financial Officer]

Okay. Very good. Let me start on India, Thijs and then Dick will take it over for the LNG effectively performance and portfolio. On India indeed you have seen the announcement the results of Aegis. So Aegis in itself is a combination of distribution activities and terminal activities and we have the joint venture for the terminal activities.

You see that in the business in India that on the chemical side and the virtual side the markets are very strong for us for the joint venture. We had a bit of a slower start after closing the deal on the LPG side, but you see that the LPG volumes are picking up quite nicely in line with our expectations in the business plan.

So effectively financial performance in, especially, the fourth quarter was above our expectations. We are considering a few growth projects at the moment which also Aegis announced in their presentation. No final conclusion on it yet. But India definitely is a territory or a country where a lot of things are happening.

Well the good news is with the 11 terminals, we have in five ports we are well-positioned to capture those growth opportunities. So it is not concluded but the outlook for growth in India is quite solid.

[Dick Richelle, Chairman & Chief Executive Officer]

And then maybe on the LNG side, Thijs, let me take you through a few questions that you had. Let me start with Gate. So Gate performed strongly in 2022. Your question is on the outlook for 2023. I think if you look at -- so in broad sense I think it looks positive for Gate for what we can see in 2023, the only element to keep in mind, which is harder for us to assess at the moment. Some of the specific good results in some months in 2022 for Gate was the price of the extra spot capacity that we could get in the market. And that remains on the moment that those opportunities are there what you can price them for. So that's a bit of an uncertain situation and we have to see how that will pan out in the year. And that was already slightly less in Q4 than it was in Q3. So you see that already reflected somehow in the number of Q4 on LNG. I think that's on Gate.

And maybe on the medium-term Gate and that's related also, I would say to tenants, and the discussions that we are having with Gasunie, we see in the medium to long-term an attractive proposition to add a fourth tank in Gate. As we've mentioned before, we are now in the process of an open season, see result of the commercial interest coming back and hence are preparing ourselves for an investment decision potentially on that fourth tank in the second half of 2023.

The recent announcement of Gasunie was that tenants [ph], which is a project that both Gasunie and Vopak are working on together is not moving ahead. And you have to look at that much more in the context of the timeline to deliver a project ready by the winter of 2023-2024. And in light of the feasibility of really developing that and getting an attractive commercial proposition over there it was decided not to move ahead at this stage with that project.

And then lastly on HES International [ph] discussions are ongoing between ourselves and Gasunie on our involvement potentially are not in HES. More to get back to you once we have some clarity on that.

Then your question on Hong Kong, specifically. As you know and as we announced also last year, the project was delayed from an initial start-up in 2022 to 2023. Therefore, also the conditions of the project have changed and we're currently in discussion with MOL, the shareholder, the owner of the FSRU to decide on the moment and the conditions under, which we can step in and potentially will step into the project. So also there no definitive conclusion and once we have that we, obviously, will inform you on where we stand on Hong Kong.

Then specifically you said Victoria, what's the development over there. Nothing new to develop or nothing new to mention. Activities are ongoing. A lot of engagement is happening and we're positive about the market dynamics in Australia and the fact that we're as Vopak at least early positioned. It helps a lot, Thijs, that we have an organization locally built up that we have the expertise that we can mobilize fairly quickly in Australia but also from Singapore to Australia. So let's see how that will develop. It will take some time but in terms of prospects for a new project, it has some attractive elements in it exactly for the fact that we're early on involved in the project.

And then your last question was Western Canada, the Prince Rupert project. As you know we've obtained the federal approvals for the permit. We've now also reached an agreement with the port authorities of Prince Rupert for the lease of the land and are in the final stages of discussion with the customer/partner to move into the next phase of the project.

So far it looks okay. But as you get towards the end, it always gets -- the devil is in the details. So too early to comment on it now. But we've been working on it for a long time. And I think the progress that we've been able to make to actually get a site permitted on the Canadian West Coast for potential exports, including the marine infrastructure I think is something that we're very happy with and are confident that we find the right partner and customer to work that out in a terminal.

[Thijs Berkelder, ABN AMRO ODDO]

Thank you.

[Fatjona Topciu, Head-Investor Relations]

And we get the next question from Quirijn. Quirijn, please unmute yourself.

[Quirijn Mulder, ING]

Okay. This is Quirijn Mulder from ING in Amsterdam. A couple of questions. First about this €12 million soil. Yes I think it looks like some extra costs. And that's -- is that completely separated from this, let me say, €430 million related to the Botlek, Europoort. That's my first question. And why wasn't it taken earlier, because it's part of your returns in fact.

My second question is about Gasunie, let me say, Gate, in fact. So you have an open season there. So how is that progressing for the fourth terminal? And no that were my questions for this moment.

[Michiel Gilsing, Chief Financial Officer]

Good morning. Quirijn. On the first question, let me take that and then I hand over to Dick on the Gate and the open season question. Yes, on the soil provision indeed this was taken out predominantly at the Botlek location, but also part of it was at Europoort. Some of it is basically a regular update we do every year on the soil provision. But in this instance, we also looked at really the legal commitments we have as a result of what is called in Dutch [Foreign Language] which means you effectively have to make an agreement with the government on how are you going to treat, let's say, the environmental pollution in the soil. And the legal obligation has been amended, and we as a result have also amended our soil provision. And that number effectively runs through our EBITDA. So it's not an exceptional item.

We reported as a normal cost line item that had quite a significant impact on the EBITDA -- ultimate EBITDA result for the fourth quarter, and also had a quite a bit of an impact on the overall full year EBITDA. So if you would correct for that one-off item then obviously EBITDA would have been significantly higher for Q4, but also we would have met or exceeded the full year outlook, but it is still a cost and we need to still spend money on it. So, you will continuously see going forward updates of the environmental provision, but not to the size as we have seen this year, which was really more exceptional adjustment for the Botlek location.

[Dick Richelle, Chairman & Chief Executive Officer]

And then maybe Quirijn to your question on Gate, fourth tank open season too early to tell. We're in the middle of the open season. So, whatever, I would -- first of all, I don't know exactly where we stand. And once we get the results back from the open season, we will collect that go through the attractiveness of a potential expansion over there. And as I said before, it's probably a second half of the year that we plan to have an update on that.

[Quirijn Mulder, ING]

Okay. And then my final question is about the costs. So cost levels were €715 million or in that range. So maybe Michiel, can you tell me something about your cost outlook for 2023 given, let me say, the developments with regard to utilities, wages, et cetera?

[Michiel Gilsing, Chief Financial Officer]

Yes. No, we don't give any separate outlook anymore on the cost side what we did in the past, because we have said, well, let's make sure that we give a proper outlook on the EBITDA instead of all the different components, which then have to be connected to the EBITDA outlook, which was hard for the market to follow.

On the cost outlook if you look at labor cost, it's definitely increasing for 2023 versus 2022 with quite a -- if you look at the collective labor agreement, for example in the Netherlands, it showed quite a bit of an increase, but you see also quite some increases in the rest of the world. So, for us, very carefully, we need to monitor, let's say, our overall personal expense base.

On energy and utilities, yes, the question is where are the markets heading towards to part of that position has been hedged. Well, now you see prices coming down. To a certain extent we will benefit from it, to a certain extent we will not benefit from it. It's very hard to predict the ultimate volatility of that cost in 2023.

For us, it is very important to monitor our EBITDA margin to make sure that we have an ability to pass higher cost on -- in the commercial contracts we have and that we maintain a healthy EBITDA margin, while effectively costs may move further up in '23, especially as I said on labor, on energy and utilities still to be seen, how that is compared to '22. But ultimately, for us, making sure that we maintain the margin and protect our business is the key driver for us.

[Quirijn Mulder, ING]

Thank you.

[Fatjona Topciu, Head-Investor Relations]

Yes. And the next question is from Lampros. Lampros, please?

[Lampros Smailis, Kempen]

Yes. Sorry, I just have a couple of follow-ups if you don't mind. First, on the cost that you just said that is essentially an environmental fee, if I got it right. And obviously, this year was a bit exceptional. So, first I assume that this fee for next year is included in your guidance, one. And then, if you can give a bit of color on what is the -- let's say normal range that is expected every year? Just to understand the level of provision, that is one.

And then, I would like to ask a couple of more questions. The first is how is the rebalancing of oil going? And when do you expect that to let's say get close to what it was before or a bit normalized portion? And if I see from the proportional occupancy that only essentially China has been trending down obviously as an effect of the lockdowns et cetera. So, would it be fair to assume that a full reopening of China can lead to a much higher occupancy in the 90% we saw this quarter? Thank you.

[Dick Richelle, Chairman & Chief Executive Officer]

Do you want to start?

[Michiel Gilsing, Chief Financial Officer]

Yes. Let me start on the environmental side, maybe to zoom in a bit on the overall position of environmental provisions on the balance sheet. It's around €25 million for the whole company. So, if you then look at the provision we took in '22 of over '22, that's actually quite a significant number. Normally, what you tend to see is we amend these plans on a year-by-year basis. It leads to €1 million, sometimes maybe €2 million per site, but it's predominantly on the European site. So it is not a massive number. This number is rather exceptional.

And so, if you take the regular number and take the difference with this exceptional number, it is in the order of magnitude of around €10 million, more than what you would normally expect. Is it included in our guidance? Yes, it is included in our guidance. So, any normal adjustment of the environmental provisions, we take that into account in our budget and in our guidance.

[Dick Richelle, Chairman & Chief Executive Officer]

And then maybe Lampros to your other two questions, rebalancing of oil and China. First maybe China occupancy, I wouldn't focus too much on that. So yes, China will open up and it will probably increase slightly the occupancy of one of the sites, because it depends quite a bit on some import/export flows. The rest is almost predominantly industrial terminals. So, that's already a very fixed occupancy. So yes, you see that 80% -- I think 86% or so will be slightly up. But on the total, that's not where the big impact would sit, I would say.

Then on rebalancing of oil, when that would normalize, I think first of all, as far as we can see with the current sanctions in place, I do not expect this to normalize and go back to where it was before. So it's very simple. If you look at it Russian flows today are not moving to Europe anymore as a result of sanctions. They are still needed in the global energy system so to say. They are flowing through China, to India, to Southeast Asia, to the Middle East, and you see flows that are needed in Western Europe that are being imported from different countries around the globe.

So, as a result you see transit times for products being imported increased dramatically, factor three or four on a total basis. Shipping rates, increasing quite dramatically as a result, because there's simply a lot more tankers and tanker capacity that is needed. And for us, if you look at it from a demand perspective, fuel distribution sites relatively stable. The hub locations, it has kind of like rebalance. You see increased demand for this reason and other reasons in Southeast Asia, Fujairah. And you see Europort particularly improving in the second half of '22, which we predict to continue into the first half of '23 with the uncertainty that Michiel talked about before. So hope that gives you a bit of a flavor of how that rebalancing of oil is looking, Lampros.

[Lampros Smailis, Kempen]

Yeah, I know. Very clear. Thank you, very much.

[Fatjona Topciu, Head-Investor Relations]

And with that, there are no further questions. I would like to hand over to Dick and to Michiel for any closing remarks.

[Dick Richelle, Chairman & Chief Executive Officer]

Well, thank you very much. Thank you for joining us on the call today. If there's any further questions, you know where to find us and look forward to engaging with you and look forward to a successful 2023.