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Koninklijke Vopak NV (VOPKF) CEO Eelco Hoekstra on Q2 2020 Results - Earnings Call Transcript

About: Koninklijke Vopak N.V. (VOPKF), VOPKY
by: SA Transcripts
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Earning Call Audio

Koninklijke Vopak NV (OTCPK:VOPKF) Q2 2020 Earnings Conference Call July 29, 2020 3:00 AM ET

Company Participants

Laurens de Graaf - Head of Investor Relations

Eelco Hoekstra - Chief Executive Officer

Gerard Paulides - Chief Financial Officer

Frits Eulderink - Chief Operating Officer

Michiel Gilsing - Global Director, Commercial and Business Development

Ismail Mahmud - Global Chemicals Director

Hari Dattatreya - Global Oil Director

Conference Call Participants

Thomas Adolff - Crédit Suisse

David Kerstens - Jefferies

Andre Mulder - Kepler Cheuvreux

Thijs Berkelder - ABN AMRO

Quirijn Mulder - ING


Hello, and welcome to the Vopak Analyst Presentation HY1 2020. [Operator instructions]

Today, I'm pleased to present Laurens de Graaf, Head of Investor Relations. Please begin your meeting.

Laurens de Graaf

Well, good morning, everyone, and welcome to our Q2 and half year 2020 results. My name is Laurens de Graaf, Head of Investor Relations. And today, we will host an extended webcast as we announced, that is going to cover a range of topics, and we might take 1.5

[Technical Difficulty]

In which you operate and share our views on the expected short and medium-term developments. The reason for doing so is justified by the current dynamics of these markets. We aim to provide transparency and how this market influenced our performance and how resilient our portfolio is for these dynamics.

Lastly, we want to discuss our financial framework, which is unchanged, and update you on the good financial performance we delivered in 2020. We will have quite a number of speakers today, led by Eelco Hoekstra, our Chief Executive Officer. Our other executive Board members are dialed in as well. Speaking will be Gerard Paulides, our Chief Financial Officer, and available for questions in the Q&A session will be Frits Eulderink, our Chief Operating Officer.

I'm very pleased that we also have some of our global product directors on the call, who will be sharing their reflections on the various product markets. Presenting will be Michiel Gilsing, our Global Director, Commercial and Business Development, dialed in from Italy. Then Ismail Mahmud, our Global Chemicals Director, dialed in from Singapore; followed by Hari Dattatreya, our Global Oil Director, here in the Netherlands.

Throughout the call, we will be referring to the half Year 2020 analyst presentation, which you can follow-on screen and download from our website. After we have gone through all presentations, which might take us 50 minutes to an hour, we will open the lines for some questions from our analysts.

So, before we start, I would like to remind you of our safe harbor for any forward-looking statements. This disclaimer is applicable to the entire conference call, including Q&A.

So, with that, I would like to turn the call over to Eelco.

Eelco Hoekstra

Thank you, Laurens, and a very good morning to you all joining us in this call here this morning. It's my pleasure to share with you our second quarter and half year results for the year 2020. And I will give a short introduction on the results and the execution of our strategy. And then, as Laurens mentioned, our product directors will provide you on an update on the markets; and Gerard will update you on the financial performance.

Let's begin with Slide 4 and the review of the highlights. We delivered good financial performance in a volatile business environment in the first half of 2020. We captured opportunities in our oil storage portfolio, resulting in improved occupancy rates. At the same time, we experienced reduced throughput for chemicals, in particular, in Houston and Singapore. We initiated a further response in cost management to protect earnings. And relative to our original plan, however, we missed some contributions to delays in growth projects and out-of-service capacity as some construction work was restricted in the second quarter. Fortunately, the value of these growth projects is not affected. So, on balance, we achieved an EBITDA of €403 million in the first half of the year. It's important to note that Vopak's strategy remains unchanged and has proven to be robust. We continue to invest in 2020 and 2021, with confidence, and continue executing our share buyback program to increase distribution to shareholders.

This year, we have again taken good steps in the delivery of our strategy. We completed a divestment program of some European assets and have taken new capacity into operations in Malaysia, Panama and Vietnam. We announced the construction of a new chemical gases terminal in the U.S. and a capacity expansion for an industrial terminal in China, both fully rented out on the long-term contracts with reputable customers. Additionally, good progress has also been made with the development of our LNG and industrial terminal portfolio.

Similarly, our digital transformation has progressed well. The rollout of a new cloud-based system for our terminals has continued in an efficient manner. In the second half of this year, we remain focused on the short-term delivery and protection of our long-term value. We look forward to the start-up of our projects in South Africa after a long delay. Vopak is well-positioned, and we are keen to grasp opportunities to deliver our strategy execution in the current dynamic market circumstances.

Allow me to give you an update on COVID-19. These are very unusual times, and the changes came to us all suddenly and abruptly. Everybody within Vopak has responded very well to keep all our terminals in operation. I sincerely want to thank our employees, our partners and also our customers, contractors, authorities for working constructively and in good cooperative spirit together in these times. We've been taking effective measures to manage this pandemic.

Our first priority is to protect the health and well-being of our people, the families, the communities in which we operate, and strictly follow the local governmental instructions. Our strategy has remained unchanged. And if and where possible, we keep an attitude of business as usual in unusual times in order to not procrastinate decision making. We've put extra emphasis on governance. So we continue to manage our performance in line with our original business plan for 2020, despite some growth projects delay and global uncertainty.

As I mentioned, Vopak's strategy remains unchanged and has proven to be robust. And allow me to recap our strategic objectives that we have consistently presented to you over the years. Our key objective is to deliver our strategic portfolio transformation, focused on growing our portfolio towards gas and industrial terminals, and strengthen our chemical position and our oil hub positions. We closed the strategic divestment of 5 assets in Europe and China at attractive prices. And we have successfully announced significant projects in the last years. This year, we've commissioned 275,000 cubic meters of new capacity from growth projects in Malaysia, Panama and Vietnam.

In the remainder of the year, we expect to deliver more capacity from growth projects in Indonesia, the Netherlands and South Africa. In new energies, we're expanding our capabilities and aim to allocate capital to this segment. We've made our first investments in the hydrogen value chain and continue exploring more opportunities. We want to become the digital leader in the tank storage industry and protect our position as the leading independent tank storage company.

We continue the rollout of our terminal management system and exploring ways to integrate some of our innovations with a digital setup. These objectives are all geared to manage and to protect the long-term value creation of Royal Vopak. To deliver on the short-term performance, we have provided some metrics and guidance.

Going forward, we aim to grow EBITDA over time and replace the €70 million EBITDA from the recent divestments. We aim to operate our portfolio with an occupancy rate between 85% and 95%, depending on the commercial and operational circumstances. And finally, we aim to deliver a return on capital employed between 10% and 15%.

This year, our financial performance has been influenced by multiple events and actions. Market conditions in the oil markets are supportive with contango and IMO 2020 converted capacity. This is visible in revenue, contract portfolio and occupancy rates in oil. At the same time, market conditions in chemicals are mixed. Although occupancy rates have been stable, revenues were impacted by lower throughput activity levels.

We will manage our costs further down this year with operating costs at some €600 million in 2020, a reduction beyond our original intent. In the second quarter, we have increased our available operational capacity as out-of-service capacity was managed down. Available capacity is ever still below the original plan. We fell short of expectations since we were impacted by governmental work restrictions in, for instance, Singapore. As a consequence of improved oil market conditions and lower out-of-service, occupancy rate improved. We achieved, on average, 88% occupancy rate for subsidiaries and 90% proportional occupancy rate in the second quarter. Similarly, delivery of some growth projects have been delayed.

And as a consequence, we've seen a €10 million setback in our EBITDA performance in the first 6 months due to the delays in South Africa and Indonesia. It is good to note the value of this growth portfolio and commercial coverage is not affected, but will contribute later to the performance of Vopak. So we'll continue to grow EBITDA over time, and we made a good start in the first half year. However, there has been many influencing developments this year, which you should take into account when listening to our presentations today.

Our global product directors will update you in detail on the developments in 2020 and the impact on Vopak, and provide their views on the expected short- to medium-term developments in these markets. I will quickly create the framework for this dialogue. Our strategy is centered around our well-balanced portfolio with a focus on four terminals or four types of terminals, being gas terminals, industrial terminals, chemicals and oil terminals. And our aim is to add new energies in that mix on the longer term. Capital allocation to these assets is based on thorough analysis and understanding of the supply and demand dynamics in these products and long-lasting customer relations and partnerships. That is the reason why we want to provide some insight into the current market dynamics and share why we have such strong confidence in the portfolio that we have built over the last decades based on our insights.

So starting with chemicals. The chemical industry already faced the start of a down cycle in the second half of 2019, which was exacerbated with the impact of the pandemic. Impact on the demand for chemicals varies widely between durable and consumable goods. Thanks to our portfolio, we experienced relative stable occupancy rates at our chemical terminals. However, throughputs have been lagging, impacting the variable component of our revenues.

In the oil markets, we've seen extremely high volatility in price, supply and demand. The market structure has been supportive for storage, which resulted in increased interest in oil storage capacity globally. We've been benefiting from contango and the IMO 2020 converted capacity, and virtually all operational oil capacity has been rented out.

In the gas markets, COVID-19 and the dynamic oil markets had its influence. Natural gas prices dropped to historic lows, providing positive momentum for regasification due to the increased price competitiveness. On the other hand, LPG demand surged due to residential demand, while supply was curtailed from used producers. So demand for Vopak's gas infrastructure has been resilient and is supported by long-term contracts, providing stability to earnings.

So moving on to new energies. Global growth in production of renewable energy has been resilient in the COVID-19 pandemic. Going forward, the speed of the transition to new energies could be further influenced by the government stimulus. Opportunities for Vopak will emerge for storage of renewable electricity in liquids or gas. Therefore, our new energy strategy focuses on hydrogen and other liquids to store energy. Last quarter, we announced feasibility studies to explore ammonia, as a possible alternative fuel for the shipping industry, and we explored the viability of LNG-to-power infrastructure in Singapore. This year, we aim to start a pilot to supply hydrogen towards the ARA region using LOHC technology with partners in Europe.

So to sum up, a dynamic business environment in which we delivered good financial performance and improving the occupancy rate of our terminals and keep developing new opportunities. That having said, I would like to invite our global product directors to share their view on the markets in detail.

Our first presenter will be Michiel Gilsing, our Global Director, Commercial and Business Development, who will elaborate on the gas markets. So Michiel, please go ahead.

Michiel Gilsing

Thank you, Eelco. A very good morning, ladies and gentlemen. My name is Michiel Gilsing. I'm the Global Director, Commercial and Business Development for Vopak. And based in Rotterdam normally, today I will dial in from Italy. I will provide you with a brief update on the gas markets today. First, I would like to frame the gas markets for Vopak from a portfolio perspective. Gas terminals contribute 10% to 15% of our proportional revenues, and this segment has been growing in the last years. Gases that we typically store are LNG, LPG and chemical gases that include, among others, ammonia, ethylene and propylene. For today, the main focus will be on the most important gases, LNG and LPG. We see good growth opportunities in gas all across the globe, and would like to make this segment even more sizable for Vopak.

Let's begin with some key messages on Slide 12. First of all, both the LNG and LPG markets have been very much influenced by COVID-19, leading to a very dynamic market circumstances. However, storage and handling demand of LNG and LPG has remained strong at most of our terminals. Moreover, it's important to note that our gas terminals often have long-term take-or-pay contracts ranging from 5 to 25 years. Our expertise in handling and storing gases dates back more than 40 years. Since then, we have been building a global gas network with a proven track record of safe, sustainable and reliable operations. Our growth and new business development projects are on track, although uncertainty as a result of COVID-19 may affect the speed of some of these projects. Going forward, we expect healthy gas infrastructure demand supported by strong global gas fundamentals.

Let's reflect on the developments in the gas markets in the last half year, starting with LNG. In summary, LNG demand reduced and oversupply deepened. The LNG market was already in a state of oversupply due to the relative warm winter and a wave of liquefaction projects coming on stream. Global lockdowns have reduced industrial and power consumption further, lowering LNG demand and its prices. Spots and oil-linked LNG prices dropped to a record low spot price levels, touching $1 per MMBtu, a historical low level. As a result, all FIDs for new liquefaction capacity have been postponed beyond 2020, as the pricing environment is putting pressure on these investments. The Low LNG prices have also resulted in increased levels of coal-to-gas switching, especially in Europe. Still LNG inventories have been building and are at a record high level in Europe.

Now I will move to LPG. LPG demand, on the other hand, has been strong due to a surge in the residential demand amidst lockdowns and strong intake from propane dehydrogenation plants. Countries like India, Indonesia and Brazil, which depend heavily on LPG for residential cooking, saw high LPG imports, especially as domestic refineries were running at low rates. PDH plants, mostly in China, saw run rates rising from below 70% in March to about 90% in June. The main driver was the strong demand for the plastic polypropylene used in medical supplies, such as face masks. Price-sensitive LPG demand at steam crackers was significantly reduced due to a tight LPG supply-demand balance and in combination with low naphtha prices. The LPG supply was more tied to the U.S. shale shut-ins and upstream production cuts. Naphtha LPG crackers typically increased their LPG intake when LPG prices are below 90% of the naphtha prices. However, low oil and subsequently low naphtha prices have made LPG cracking largely uncompetitive over the past few months.

Vopak's global gas footprint. Vopak has developed a strong well-diversified global gas network of terminals, which are facilitating imports and exports of gases, beginning with the Vlissingen terminal in the Netherlands. This terminal is predominantly offering services to Northwest Europe for imports and exports of LPG as well as chemical gases as feedstock to industrial complexes. With the Gate LNG terminal, also in the Netherlands, Vopak services the LNG market in Northwest Europe for importing natural gas.

In addition, we also have several positions in China, which are linked to industrial complexes in key petrochemical parks. And our latest addition is the Prince Rupert terminal at the West Coast of Canada, facilitating LPG exports to the attractive Asian markets. In total, today, gases are stored at 18 of Vopak's terminals worldwide, spread across 12 countries, with a total capacity of 2.2 million cubic meters.

We consider this an attractive global gas foot, portfolio, which is underpinned by long-term take-or-pay contracts from our customers. Growth developments in gas. We aim to grow our gas exposure in the Vopak portfolio beyond today's 10% to 15% of proportionate revenues. Our focus is on growth in LNG regasification, LPG imports and exports, and industrial use of LPG and chemical gases, mainly for the petrochemical industry.

In LNG, we have a number of projects that we are developing, in Germany, Pakistan, China and Singapore, for storage and regasification of LNG. In Pakistan, for instance, Vopak already has an FSRU in partnership with Engro. The FSRU is currently being expanded, whereby we will replace the existing FSRU with an FSRU with increased capacity. At the same time, we aim to develop an onshore terminal since we believe that this market holds promise for even more LNG demand.

In LPG and chemical gases, we continue to see import opportunities in Northwest Europe. And as a result, are currently constructing a capacity expansion in Vlissingen. Growth of industrial use of chemical gases is proven by our last announced projects. First of all, an expansion in Houston in the U.S., at our joint venture Vopak Moda; and secondly, our joint venture, Vopak Shanghai Caojing in China. Both projects are covered with long-term contracts with decent customers.

On top of these developments, Vopak is exploring opportunities for green ammonia as a marine fuel in Singapore. In the short term, we see a supply-driven LNG market, as it is in a state of oversupply. In a low price environment, access to regasification is then key. Low LNG prices might persist, as European gas inventories are at record high levels and might even be full by the end of the summer.

The global arbitrage opportunity closed in May with the TTF, the European gas hub price, falling below the Henry Hub, the U.S. gas hub price. The LNG market is expected, though, to grow by more than 20% in the next 5 years. And we, as Vopak, have the position and experience to service the infrastructure needs of the market.

On the LPG side, LPG production depends on the oil environment. LPG is a byproduct, and its supply is therefore driven by oil and gas demand. Market expectations is that oil price and demand recovery might take one to two years' time. A recovery in oil and naphtha prices will be good for LPG's competitiveness and will increase the demand for LPG as a cracker feedstock.

The growth in supply, exports and demand, the imports, will ultimately require more infrastructure to support the growing seaborne trade. In short term, Vopak's gas performance in our global network is expected to be resilient due to the long-term take-or-pay contracts. We continue to see opportunities in LNG and LPG and chemical gases and aim to further grow our global network. We would like to make gas a relatively larger part of our portfolio going forward.

And with this summary of the gas market dynamics and our portfolio, I will hand back to Eelco.

Eelco Hoekstra

Thank you, Michiel. Our next presenter will be Ismail Mahmud, our Global Chemicals Director, who'll elaborate on the chemicals and industrial terminal markets. So Ismail, please go ahead.

Ismail Mahmud

Thanks, Eelco, and good morning, ladies and gentlemen. My name is Ismail Mahmud. I'm the Global Chemical Director of Vopak, based in Singapore. It's indeed a pleasure to speak to you all again. I hope you are well and keeping safe. Over the next eight to 10 minutes, I will share my views on what's happening in the chemicals market and what developments will we see, and this is what I call a fairly complicated and changing chemicals market, especially these days due to the pandemic.

Today, I will be speaking mostly about industrial and chemical terminals that make up about 50% to 60% of our revenue portfolio. With our focus on industrial terminals, projects worldwide, I do see this business growing over the coming years. Now let me begin by presenting a few key messages that you may wish to take away from my talk today.

Due to the significant production capacity buildup in recent years, added by the COVID-19 impact and further by a low oil scenario, leading to low chemical prices, the chemical industry, as a whole, is under significant pressure. Margins have been squeezed. Profits have fallen. This has been reflected in quarterly results of major chemical companies in the first quarter and also expected shortly in the second quarter.

Changes in consumption patterns due to COVID lockdowns across the world have impacted demand. Markets have behaved, what I may call, strangely, and I will help explain. However, having said that, demand for storage and logistics is still holding up. Although throughput activity levels are down, occupancy is okay. This is expected to continue in the short term. In the medium-to-long term, trade flows are expected to recover as demand slowly absorbs new or excess capacity. In our conversations with our customers in the long-term industrial projectivity, we see the same sentiments.

Now let me go into a little bit more detail. After having witnessed 8 very profitable years, growing at about 6% per annum and peaking in 2018, the chemicals industry in 2019 started to move into a typical petrochemical down cycle. This is shown on the graph on the left. This, due to large plant capacity increases we have witnessed over the last several years, coupled with weakening demand due to trade war, China self-sufficiency, not to forget China being the largest chemical market in the world, political concerns and others, some experts had already predicted a typical down cycle, seeing a weaker, slower 2020, 2021, and not expected to recover until 2023. A typical multiyear cycle. This was impacted in first quarter by COVID-19 and low oil prices. The downturn may have been expected, but the COVID and oil crash only accelerated the decline and deepened it. On the right side, you see global-based chemical capacity being -- outpacing demand. And this is visible already in 2018, where 20 million tons of new products came on stream, 25 million in 2019. And this year, in 2020 alone, 40 million ton of additional capacity is expected to be commissioned. So, the market is in a very interesting situation at this stage.

Let's take a look at the end markets and see how consumption trends may have changed, in particular, due to the COVID situation. Change in consumer behavior during the lockdowns has impacted demand, and end markets have behaved very differently to what we have seen in the past. Products that are typically longer lasting, they call durable goods, such as automobile, construction, furniture, household and textile, these end markets saw a swift decline. These are shown in the red arrows pointing down. While products that are once used of consumable nature increased in demand substantially. These are packaging items like food packaging, in particular, during the COVID days, lockdown days, online shopping, including personal care, pharmaceutical and health care. These are all markets that move really well and actually peaked in demand during these COVID days. Very strange happening is what we saw in the market. Producers who are operating in durable markets have been greatly affected. And those that could balance their output by shifting away from durable to nondurable of consumer products have been able to manage much better. When we look at our own storages and products that we handle for our customers, benzene, isocyanates, methanol, even base oil stored at our chemical terminals were more affected. While glycols, caustic, xylenes, alpha olefins, among others, producers have done much, much better.

Now looking at Vopak's global industrial and chemical footprint, we believe we have a balanced portfolio.

As shown in the pie chart in green, on the left, 50% to 60% of our proportional revenue comes from industrial terminals alone, which are based on long-term contracts, typically 15 to 20 years of duration, although we do have some contracts that are shorter. However, 80% of that revenue from industrial terminals is based on fixed guaranteed payments. The remaining chemicals portfolio, typically hub terminals and distribution terminals, have shorter duration, but they still maintain a portfolio with about 50% of their contracts that last for 3 years or more. This has brought some stability during these times, especially what we're experiencing these days.

On a regional perspective, 55% to 65% of our industrial and chemicals businesses is located East of the Suez. And we expect this proportion to increase given the opportunities and the exciting business development work we are currently doing. Given the market conditions due to all 3 aspects, which is the down cycle, petchem down cycle, the COVID-19 and oil price movements, our occupancy looks fairly stable at this stage.

This is due to the way our industrial contracts are structured on guaranteed revenues and a 3-plus-year contract portfolio at our hubs and distribution sites, which will help us ride this industry downturn. We are keeping very close to our customers, increasing our communication and especially with those that, maybe, are in a more difficult durable product market or those who struggle to shift end markets easily. For some, volumes have increased. While for others, inventory is piling up and throughput falls. However, our overall volumes are about 6% lower than first half 2019, and we are watching market developments very closely.

Let me summarize our view of the chemicals market and what we could expect in the future. It seems we may have bottomed out in Q2. Although the COVID situation is still unclear due to a threatening second wave, short-term industry margins are challenged and will remain so until the next 2 to 3 years, as new production capacity is fully consumed. However, the longer-term sentiments in the chemicals industry is still optimistic.

Projects are still moving ahead, and a few new ones have been announced in this period. Looking at Vopak and our performance, demand for storage is expected to remain fairly stable in short-to-medium term. A balanced customer and contract portfolio, should assist Vopak to ride the downturn successfully. And finally, our large business development projects are continuing, and we are very excited to see the opportunities that are out there for us.

I'd like to leave it there, and thank you very much for your time and attention. Eelco?

Eelco Hoekstra

Thank you very much, Ismail. We go on to our next presenter, and that's Hari Dattatreya. He's our Global Oil Director, and he will elaborate on the oil markets. So Hari, please go ahead.

Hari Dattatreya

Thank you, Eelco. Ladies and gentlemen, good morning. Nice to see some familiar people on the call. You have seen this slide before. We are going to talk about oil, an interesting commodity, especially given all the developments we have seen and will see in the coming period. We will be going through the following items: the current markets and the amazing developments we have seen this year, like high volatility in oil prices, parallel with major swings in demand due to COVID, but also supply. Our hub and distribution terminals. Hubs are in logistic trading and refining centers and have seen the positive impact of volatility and the supportive market environment. Distribution terminals focused at large deficit markets with, so far, a relative limited impact of COVID on throughput. The future, always a question, but with the current uncertainty, all markets are expected to remain volatile for the next one to two years.

The past six months have been unprecedented. As you can see, the oil price, the black line, started this year at approximately $70 per barrel, dropped to $20 and is currently close to $43 a barrel. Looking at underlying drivers, we started the year with a focus on geopolitics and trade disputes and the discussions within OPEC+. Since then, a number of well-known events occurred that had a direct impact on the oil market and drove volatility. The market structure, the red and green bars, responded to the oil price and future outlook. It was a pretty exciting time, and we were in constant contact with our hub teams, talking about the latest developments and what our sensing of the market was.

Being globally connected and deep in the local markets, these discussions are fascinating. We focused on capturing the opportunities, while appreciating long-term relations with customers. Oil markets have been recovering, and we are currently in Karma waters. But there is still uncertainty with regard to the speed of economic recovery, but also supply. Think about OPEC+ and Shell. We expect that uncertainty, but also volatility will continue into 2021 and 2022.

There has been a lot of debate on the total oil storage capacity in the world. Where it is located? And how much there is? It is complex to estimate given the fact that there is underground storage. It's not always clear how much can be stored in a tank at the so-called working capacity, and whether a tank is still able to be used. Therefore, we use estimates with a range. But there is a different split for crude and products. For crude storage capacity, the main part is strategic and production based, followed by refinery storage with commercial capacity as the smaller segment. For products, it's the other way around.

Vopak is primarily active in the commercial segment with most capacity used for products. Commercial storage is located in the prime hubs, secondary locations and in distribution locations. Vopak is active in three prime hubs, a market leader in ARA, Fujairah and the Singapore Straits. Hubs strategically located at the crossroads of international trade are important for oil markets; refining, logistics, blending and price discovery. Hubs will see an additional importance when all the refineries are closed and supply is taken over by new world-class facilities that are being developed East of Suez. In distribution markets, Vopak is focused at large growing deficit markets like South Africa, Indonesia, et cetera. Meeting long-term demand growth is our prime approach.

Following the outbreak of COVID-19, demand for crude, the orange line, dropped and it took some time before supply, the blue line, following the OPEC+ agreement responded. The additional barrels of oil needed to be stored. A massive stock building of crude and product, that's the gray bar, was the result. With demand recovery expected to exceed supply in the third quarter, stocks will be drawn. Floating storage as the most expensive way of storing, is the first that is drawn. Looking forward, fundamentals look positive with the future recovery in demand, in line with structural demand post the immediate pandemic effects and limited supply growth. COVID will remain a prime factor with regard to demand. And on supply, the main wild cards are the consensus between the OPEC+ parties and the development of U.S. shale production in a lower oil price environment.

For crude, reducing production to balanced markets resulted in prices starting to rise from recent lows. For products, there is a different story. Since refinery capacity is given and lower demand leads to lower utilization rates and, in many cases, margins. Some of the least competitive refineries are under pressure, and the market may see some closures. With the closure of a refinery, the end markets need to be served from alternative locations, and hubs are well-positioned to take that role.

For petroleum demand, there are differences per product, with currently an outlook that is primarily driven by COVID, but also consumer behavior. The table shows demand and outlook on a per product basis. As you can see, demand for gasoline was initially strongly affected due to the lockdowns around the globe. Demand for gasoline is bouncing back rapidly. And one of the key questions will be how this will develop in the coming period. Avoiding public transportation and flights has the potential to boost driving and gasoline demand.

Jet fuel and gas oil diesel are so-called middle distillates. Demand for jet fuel dropped tremendously due to COVID, with limited long-haul flights that consume a large portion of jet fuel. And uncertainty on recovery, demand is expected to be constrained for the next 2 years. Gas oil and diesel have, in general, a direct link to transport of goods and industrial activity. So in general, less correlation to passenger transport and recovery is more depending on the economic developments. Refineries have, in some cases, the ability to shift yields from jet to diesel. The jet fuel can also be blended in gas oil. And as a consequence, lower jet demand affects middle distillates as a whole. Given the high middle distillate yield of new refineries and depressed demand, a longer-term period of surplus is expected, which drives demand for storage of middle distillates.

Now a few words on IMO. The drop in demand from the marine sector was, so far, relatively limited. Shift to lower sulfur fuels, as a result of IMO 2020, was relatively smooth in the first months of the year, stock building of VLSFO, a very low sulfur fuel oil. In 2019, in anticipation of the new sulfur cap, ensured that sufficient material was available, whereas COVID resulted in sufficient supply to meet low sulfur bunker demand.

At our terminals, the transition went as planned. And given the ongoing marine transport demand, the outlook is in line with our views. With regard to naphtha, the attractiveness, as a chemical feedstock, in a low oil price environment, can be noted.

Now wrapping it up, we have seen an unprecedented market with a high level of volatility given the uncertainty with regard to COVID, but also the supply in oil markets, for both crude and products, we expect dynamic and volatile markets that drive trade and provide a supportive basis for our business. Our hub terminals with leading positions in ARA, Fujairah and the Singapore Straits are positioned to meet long-term and sustainable demand for storage services. And our strategy is to strengthen our position in these hubs.

Well, it has been an exciting journey, and it will be interesting times ahead. Thank you for your time.

Eelco Hoekstra

So many thanks again to Michiel, Ismail and Hari for sharing your views on the different product developments. We can bring this all back to our purpose, which is storing vital products with care. We take a long-term view and perspective on our portfolio of products per geography. We've made significant steps in our portfolio to create long-term value aligned with long-term trends. We've chosen for a portfolio with focus on industrial terminals, gas, chemicals and oil. The current market dynamics underscore our belief, we are making the right choices and we made them at the right time. Let me expand on that point first.

The current market dynamics have a lot of companies question their portfolio. We, as Vopak, have already made these choices. In the last 5 years, we kept the core and directed business development efforts towards new priorities. Our choices proved to be the right ones. Our gas terminal positions, which is now 18 across the globe, sit well in a growing gas market, but also provide the key capabilities and relations for new energy possibilities. Our chemical terminals, including our industrial terminals in chemicals, will remain an attractive growth market, not one that captures huge upsides, but equally has proven to be resilient in a downturn. Chemical growth is expected to take place predominantly east of Suez. And we've invested decades-long in the Middle East and Suez and are well presented in the main growth areas. This is an excellent point of departure.

Lastly, we remain committed to strengthening our hub positions. We believe that oil conversion and, in particular, refining will be concentrated more and more in large refining centers. We have redirected our oil terminal portfolio in those locations. So with that in mind, you need to have the right location and the right capabilities to deliver the value. And therefore, looking at the current trends, our portfolio is in an excellent foundation from which we can further work and expand. Simultaneously, we need to deliver the short-term results and manage the company during any particular market situation.

And I think that's an excellent bridge to Gerard, who will update you in great detail on the actual performance delivery of Vopak in the first half of the year.

Gerard Paulides

Thank you, Eelco, and a very good morning to everyone. We have a unique portfolio and strategy and are actively positioning in the energy transition and digital developments for the periods ahead. This makes our investment exciting and also part of the new economy. Meanwhile, our portfolio needs to perform in the dynamic world of 2020. And I will now update you on the financial performance. And for more details, I refer you to our 2020 half year report as published this morning.

Vopak has proven to be able to adjust quickly in the changing business dynamics of 2020. Our governance to manage our business has performed well at all levels. Earnings over the first half of 2020, post the recent divestments, were good, and EBITDA came in at €403 million, despite delays in projects. Corrected for foreign exchange movements and divestments, an increase of €18 million, or 4%, reflecting a mix of COVID-19, contango, and cost and commercial management. Earnings per share came in at €1.31 post the divestments. These results are good.

However, foreign exchange movements and the delay in growth projects held back the EBITDA performance with more than €10 million compared to our expectations at the start of the year. Our financial framework and capital allocation priorities are unchanged. We continue to invest in growth, surface and our digital infrastructure and data management. We distributed dividends in April, and we continued €100 million share buyback program, with 65% completed today.

Our balance sheet flexibility was further optimized with a $500 million equivalent debt capital transaction in July, that was more than 9 times oversubscribed by investors. This confirms market interest in Vopak's business and our disciplined approach. The transaction supports our capital structure to deliver performance and create value. Looking ahead, we aim to grow EBITDA over time with new contributions from growth projects, cost and revenue management to replace the €70 million EBITDA from divested terminals. We've continued to strengthen our cost culture, and operating expenses will be further managed this year to be at some €600 million for the full year.

During these unpredictable times of the pandemic and turbulent markets, we made a good start in the first half year. We adjusted quickly using our digital capabilities and governance discipline to manage the company. All our 66 terminals worldwide continue to operate. We are alert to actively manage delivery of performance and to create value through new business development.

Let me recap our financial framework that is unchanged. You are familiar with our financial framework, which is aimed to support our strategy with flexibility to manage market conditions. We remain focused on operational cash flow generation and maintain a disciplined approach towards investment and portfolio management through new business development and M&A, including divestments.

Our aim is to generate competitive and compelling returns on our individual investment decisions and on the portfolio as a whole, with a targeted return on capital employed in the range of 10% to 15%. In terms of balance sheet strength, we aim for senior net debt-to-EBITDA ratio in the range of 2.5 to 3. This results from a balanced approach between allocating capital to growth, a robust capital structure and shareholder distributions.

Let's look at the balance sheet. Our total debt position at the end of June was EUR 1.9 billion, excluding lease liabilities. Senior net debt-to-EBITDA ratio was 2.81 by the end of June, in the target leverage range of 2.5 to 3, and compared to 2.75 at the start of this year.

With our portfolio performance and robust balance sheet, we are well-positioned to support growth investments in 2020 and to fund the buyback program. Last week, we signed agreements for a new debt issuance, confirming our ongoing competitive access to relevant capital markets. This demonstrates Vopak's resilient business model and disciplined financial framework, also, during the turbulent markets of 2020.

Funding of the transaction will take place towards the end of this year, and will further align the well-spread debt maturity profile of the outstanding debt and will provide maximum flexibility under the current EUR 1 billion revolving credit facility. Continuing with capital disciplined growth.

In the last years, we've announced and delivered a significant number of projects, focused on growing our portfolio towards industrial, gas and chemicals terminals, created value by allocating capital to attractive growth projects. The growth project investment portfolio for the period 2017 to 2022 has and is being constructed with an attractive average investment multiple of around seven times EBITDA.

Individual project investment multiples vary depending on the type and the size of the projects. As promised, we've also, in 2020, increased our shareholder distributions, with rising annual cash dividend and the share buyback program that we are executing. So we covered strategy, financial framework and market dynamics. Now let me take you through our 2020 performance in a bit more detail.

As said, EBITDA post divestments was EUR 403 million, an increase of EUR 18 million, reflecting growth, contango oil markets, lower chemicals throughputs, IMO 2020, converted capacity as well as cost and commercial management. Strong performance in the Americas division was supported by the good contribution of new assets in Canada, Panama and Brazil and cost management.

The LNG division benefited from growth of the portfolio as well through the acquisition of the LNG facility in Colombia last year. The Asia & Middle East division and the Europe and Africa division, post divestments, performed slightly better than last year. Oil hub terminals in Rotterdam, Fujairah and in Singapore Straits benefited from IMO 2020 capacity and the improved market structure and bringing capacity back into service. At the same time, we experienced reduced throughput for chemicals, in particular, in Singapore.

Furthermore, we had elevated out-of-service capacity for maintenance and inspections in Singapore, and in Rotterdam at the chemicals terminal in Botlek and in Europoort. China and Northeast -- sorry, China and North Asia performed in line with last year. This included the early lockdowns in China and South Korea and shows how well the division performed, global functions, corporate activities and other included costs related to IT and business development. In aggregate, the portfolio delivered a return on average capital employed of 11.8% in the first half of 2020.

Turning to the divisional performance trends. The Americas division continued its upward performance trend benefiting from growth and occupancy improvements, although throughput for chemicals in Houston was weaker. The Asia & Middle East division performance has not yet benefited from the contango performance in full. Occupancy rate remained impacted by out-of-service capacity, as construction work was still restricted in the second quarter. Also lower chemicals throughput in Singapore impacted the results. The China & North Asia division benefited from increased opportunities driven by continued supply chain uncertainties. And performance of Europe & Africa reflect a new asset line-up post last year's divestment and an upswing in occupancy in the oil segment. The LNG occupancy rates have been strong and in line with the long-term take-or-pay commitments.

Comparing the quarters, Q2 versus Q1. The 202 million EBITDA posted for the second quarter reflect resilient performance, influenced by contango out-of-service capacity and lower chemicals throughput levels. Contango oil markets contributed to the performance of the European and African division as well as Asia & the Middle East division. However, lower chemicals throughput activities were impacting the results as well, mainly in the Americas and the Asia & Middle East division. Both these divisions have performed well on cost management. The EBITDA performance and potential for the second quarter was higher. But current -- sorry, let me rephrase that. The EBITDA potential for the second quarter was higher, but currency translation and project delays have set back our performance compared to plan. This quarter, we, however, still delivered good overall financial performance, as I have already explained.

Let's go to the occupancy rate developments. Occupancy rate for subsidiaries of 88% in the second quarter and trended up following support from contango markets. Out-of-service capacity reduced to 1.4 million cubic meters, so behind schedule due to work restrictions from governments in various locations. In the last call, I commented on 4 tanks of 60,000 cubic meters in Laurenshaven in Rotterdam that we were preparing for the contango market. These have been delivered and are back into operations in this quarter and are fully rented out. At our Botlek chemical terminal cluster in Rotterdam, we continue our service improvement program and have taken further decisions to invest in infrastructure to strengthen our chemical storage position, and therefore, the out-of-service component continues at Botlek.

Delays in bringing back out-of-service capacity is mainly noticeable in Singapore due to governmental work restrictions related to COVID-19.

Our reduced fuel oil capacity of 3.5 million cubic meters continued operating at high occupancy levels after our interventions last year. And Panama is now also completely filled up. Our proportional occupancy rate for the quarter was 90%. This number includes the performance of subsidiaries and of joint venture asset terminals.

The increase in the last quarters was mainly the result of good performance of joint venture oil terminals in Asia & the Middle East, and continued strong performance of our joint venture gas and industrial terminals. Proportional occupancy is becoming more relevant as the share of joint ventures and associates in our portfolio is increasing.

Moving on to our cash flow performance. This year, we delivered a solid cash flow from operations of €410 million. Sustaining service and IT investments were €132 million and include investments for maintenance and inspections of out-of-service capacity. Our cash momentum in 2020 is mainly driven by the cash inflow from the divestments of Algeciras and the additional gain for the 2019 divestment of the joint venture terminal in Hainan in China, received in 2020, and the €85 million repayment of our preference share capital in the industrial terminal in Malaysia. Investment in growth projects resulted in €238 million investments this year. We can confidently say that we expect growth investments for the full year to be up to €500 million.

Turning to proportional results. Performance of joint ventures and associates is becoming increasingly important, with our joint venture assets in Canada, Colombia, Pakistan and Pengerang, fully operational. Today, capacity under joint venture management has reached approximately 2, 12.5 million cubic meters. Capacity in subsidiaries has reduced to 18 million cubic meters with the successful divestments of Algeciras, Amsterdam and Hamburg. Another 4 million cubic meters is managed by Vopak as operator.

Proportional EBITDA is almost €250 million this quarter, of which proportional EBITDA from joint ventures is more than €100 million. Our proportional occupancy rate was 90% and reflects good performance and continued strong performance of our joint venture gas and industrial terminals. Divisional proportional occupancy rate performance is well within the 85% to 95% range. Divisions with strong joint venture performance are Asia & the Middle East, China & Northeast Asia and the LNG division.

Let me recap the key messages. We've proven to be able to quickly adapt to the changing business dynamics of 2020. We delivered good financial results with a mix of COVID-19, contango, commissioned assets, and cost and commercial management. Our financial framework is unchanged. We further optimized the balance sheet with new debt issuance, which was oversubscribed nine times. In these unpredictable times of the pandemic and turbulent markets, we made a good start of the first half year of 2020, somewhat held back by project delays and also influenced by currency movements.

Looking ahead, and closing out, we aim to grow EBITDA over time. Growth investments for 2020 could amount up to €500 million. We continue to strengthen our cost culture. And the outlook for the year 2020 is an operating expenses level of €600 million. We are prepared to respond to different economic scenarios, and we are alert to actively manage delivery of performance and creating value through new business development.

Thank you, and I will now hand back to Eelco. Eelco?

Eelco Hoekstra

Yes. Thank you, Gerard, and thank you all for listening to us for this one hour and five minutes. So before we go to Q&A, let me just very quickly summarize the key messages before we start. I think, first of all, we delivered good financial results in a volatile business environment. Second of all, our strategy remains unchanged and has proven to be robust. And therefore, we continue to invest in 2020 and '21 with confidence. And lastly, and I cannot repeat this enough, but we are really very well-positioned and have an really irreplaceable and unique global portfolio that is fully aligned with the long-term trends.

So with that, I would like to open the lines for questions that might have arrived, and we're happy to answer them to our best ability. And another global directors are on the line as well, so they can support us in giving you the details required. So I hand it back to the moderator.

Question-and-Answer Session


[Operator Instructions] The first is from the line of Thomas Adolff at Crédit Suisse.

Thomas Adolff

My first question is just on how the business will evolve longer term. And I'm sure you have an idea, and you haven't given any numbers. But let's say for, by 2030, how much of -- in terms of share of revenue will come from the New Energies division? How much more will oil products drop? If you can talk about kind of the moving parts, that would be great.

The second question I have is more specific on 2020 and maybe the guidance for EBITDA this year. I mean, we've seen the first half of this year, and how much EBITDA you've generated. I'm sure you have an idea about the second half, at least, the visibility is better than when you reported 1Q results. You did mention your plan is to grow EBITDA over time and to offset the disposals made last year. So is it fair to assume that, on that basis an absolute -- and on a reported basis, that your EBITDA this year is going to be lower on a year-on-year basis?

And my final question, if I may. You talked about oil contracts to be largely rented out, the oil terminals, thanks to contango. And maybe you can talk about the contango duration. Does it extend into the early parts of 2021? Or, yes, anything on that, that would be great. Thank you.

Eelco Hoekstra

Okay. Thanks, Thomas, for taking your questions. I'll answer the first one, then Gerard will take the EBITDA outlook, and then maybe Hari can give us some insight and his views on the contango and volatility.

First of all, I really like your question, 2030, because that's, I think, indeed, where you need to have your mindset on if you look at long-term value creation. I think it's hard to make a clear prediction on what the contribution will be percentage-wise. We've taken a view that we cannot see a world function without the maritime sector. We think the maritime sector will be used to redistribute oil chemicals and gas across the globe. And even in 2030, we expect all 3, let's say, commodities to play an active role in our global economic model.

If I would look at where we've been trending the company towards, is a more industrial type of layout. So what you've seen is we've invested heavily in industrial terminals. We will continue to do so. So I would expect the industrial terminal part to grow. We have momentum in LNG and LPG, which we mentioned. So I expect also that part to relatively grow. And therefore, if you look at the sort of the relative contributions, if you look at new capital being deployed in the next 10 years, it is likely that it will be more in industrial, chemicals and gas; then it will be, particularly, in growth in oil. I'm not excluding investments in oil because we still believe that there are some good opportunities there. But if you look at simply sort of to reuse the cash that you earn, it will most likely be in that scenario.

If we go to new energy, I think we would just like we've done with LNG. If you take LNG 10 years ago, we made the first investment in Rotterdam, which was the Gate terminal. And if you look at where it contributes now in our portfolio, it's about 10%, 15% contribution. I think if all goes well, Thomas, one could say that maybe in 10, 15 years, we have -- so 10 years, we have a 10%, 15% contribution in new energy. But as again, that depends on regulations and opportunities that arise. So I hope this gives you a sense of at least where our mindset sits when we look at, sort of, long-term capital deployment. Yes?

With that, I give it to Gerard on the outlook of EBITDA in 2020.

Gerard Paulides

Thomas, thanks for the question. We, always, as you know, are careful on not really giving guidance on EBITDA, but I'll give you some of the moving parts. We gave you the outlook for the cost. And we said, for the full year, €600 million. And if you look at our year-to-date, that is more or less twice the year-to-date number. And hopefully, we can do a little bit more. The main swing factor, in my mind, for the second half of the year is -- if I look at Q2, which was at its own dynamic versus Q1, so if I look at Q2, the main dynamic going forward is the delivery of new projects; our continued, hopefully, outperformance on cost and also whether the throughput levels, how they will play out. I think in terms of occupancy, we've seen an acceleration of utilization of our assets in a positive way during Q2. And it's also fair to say that the June number was the best of the quarter. So it's trending up. So it's positive in my mind. The timing of the replacement of the €70 million from divestments in many ways is, in our mind, ahead of schedule. So we're doing pretty well on that. But it will depend on the factors that I've just mentioned.

Eelco Hoekstra

And with that, we'll go to Hari.

Hari Dattatreya

Yes, thank you. Well, maybe to go back to your question. I think, primarily, if you look at our hubs, they are focused at meeting long-term demand for our storage services. I mentioned a number of the elements, like, its refining centers, logistic roles, think about price discovery. So that is the key driver of our business in the hubs. If you look at contango, that is supporting our -- the demand for storage. Now I think if you look to the coming period, we expect this volatility and the fluctuations in price that go with it. Now if you take that, you will see that the contango will increase; it can shrink at a certain time.

Yes, and if you then ask a question on the outlook for '21, '22, you can look at the screen and see that there is a contango, but it's very much also depending on how the contango is at a specific moment. And the reason to mention that is that if there is a solid contango for 1.5 years, that could drive a customer to take the decision to lease a tank at a specific moment. So even if that market structure changes a bit later in the time, he still has his position and he's fully covered. So that's a bit how we look at it. We will see some -- yes, some volatility in the forward pricing, as we have always seen in these markets.


Thank you, in terms of what you have secured in the second quarter presumably the little longer lasting than the quarter and do these contracts that you secured in recent months, how long do they extend into the next year or is it just 2020 phenomenon.

Hari Dattatreya

Some do. And then we see, in general, markets that expect volatility, and, yes, dynamic markets and others, they have options to renew. So not very special in that. It's what we see more often.

Eelco Hoekstra

But Thomas, if I would have to look for this particular year compared to the years before, if I look at '19 and '18, I think it's very safe to say that this volatility drives opportunities for trading. And we see substantially more confidence in trading houses trying to take positions to be well-positioned to capture those opportunities. So I think the, and I think that's what we try to bring across, is that the environment for oil storage momentarily is advantageous.


And our next question comes from the line of David Kerstens at Jefferies.

David Kerstens

First question for Ismail. I think you mentioned during the presentation that you think chemical demand might have bottomed in the second quarter. What does that imply for throughput? How quickly do you think throughput can recover? Will there be a V-shape recovery in the second half or in 2021 or more U or L-shape? And will it take much longer to come back?

Second question for Hari, on the oil storage capacity fully booked. To what extent will there be a further ramp-up in the second half of the year from those bookings coming in? And what was, what percentage of the potential oil storage recovery that you foresee was already realized in the second quarter?

And then, maybe, a final more strategic question for Eelco and Gerard. Do you see any changes in the competitive landscape in the current environment, potentially attracting more investment in oil storage after all the reports that there was such a huge shortage of storage capacity?

Eelco Hoekstra

Ismail Mahmud and Hari, if you can be so kind to answer the questions of David.

Ismail Mahmud

Yes, sure. Thanks. Ismail here. In terms of the recovery time-frame, it is of course difficult to predict. I have to admit that. However, if we look at our inventory levels, they're slightly higher than they have been in the past. So what is happening now is with prices down, the market has started to move again. We are seeing some results coming in already. A couple of results have been quite drastic from the results of the chemical companies, while some of the others are a little bit more optimistic. So we do expect that there will be some demand recovery. However, this is going to take the better part of 2020. I expect a slightly slower recovery.

I'll leave it there for now, Eelco?

Eelco Hoekstra

Thank you. Hari?

Hari Dattatreya

Yes. And I think from the oil part, I think we saw the real change in the markets starting in March only. So if you talk about the contango storage, has been ramping up in the second quarter, and it's coming into more full of force from here on, if you talk about the tanks that are deployed for that service.

Eelco Hoekstra

David, on the question of the competitive position, I actually think that our competitive position has strengthened in this environment. Let me elaborate on that.

Firstly, I think what you see is, I made that comment, I think people are looking to see in which commodities they would like to be long term. So there are a lot of portfolio choices that are made, and we have already gone through that particular cycle. And if you look at where people would like to invest in, which asset class, it's more gas, it's more industrial, it's more chemicals.

And if you look at our the -- at least the communication from our competitors, you see that they will have a similar view on where future opportunities will lie. So the incumbent player that has those positions has an advantage from the start. The second thing is that if you want to play well in these markets, you need to have certain capabilities, and these capabilities are obviously technical and operational, but equally on the digital side that you have capabilities to execute. And I think these are, again, attributes that we've been developing over time.

So I also noticed that in the dialogue that we're entertaining today, for instance, I think a good example is that you hear in the press momentarily that manufacturers are looking at outsourcing, possibly tankage and get it off their balance sheet in this period of time. We are uniquely fit to be on the other side of that dialogue because we have that industrial base, we have our industrial terminals and we have the capability to execute on that.

So you would find me actually in a position that I'm actually strengthened in our capabilities than I was probably a year or -- a year or two ago because of the unique circumstances that have been imposed on us.


Thank you. Our next question comes from the line of Andre Mulder of Kepler Cheuvreux. Please go ahead your line is open.

Andre Mulder

Good morning. Yes. A couple of questions. First one on throughput and chemicals, that is lower. I also heard a volume decline of 6%. Is that the, let's say, the size of change that we see for throughput? Second question on annual capacity expansion in the chemical side. How does the pipeline look for '21 and '22 compared to this EUR 40 million for '20?

Third question on the page 34, the multiples that you mentioned there. I see a multiple of 10, but also see a multiple four to six. How should I read that? And then last two questions. Firstly, on out-of-service capacity, currently 1.4%. Where do you see that at the end of this year? Probably you will also have always some capacity out of the service. So I'm looking for, let's say, sort of normalized level there.

And last is on CapEx. Growth is EUR 500 million. What's your view on total CapEx for the year?

Eelco Hoekstra

Well, Andre, we are normally pretty quick on our feet. But this was five questions in a row. Let me see if we can recapture that. I think you had a question on the throughput levels of chemicals. So you say, how should I look at the 6% decline in throughput? How should I normalize that in typical cycles of chemicals? This is how I understood your question. The second question was on the, what I understand, the BD portfolio or the pipeline of projects in chemicals. Is that correct?

Andre Mulder

That's right.

Eelco Hoekstra

Good, good then the third question was on page number 34, and I know that people here are frantically looking for p34 on the multiple. We will lean into that. I'm sure that Gerard will have a view on that. Out-of-service capacity, where it stands today and how that will trail for the remainder of the year? I think, also, Gerard can take that. And I think the 500 million CapEx. What was your question on the CapEx?

Andre Mulder

Yes. Growth is EUR 500 million. So what are you feeling for the total CapEx for the year?

Eelco Hoekstra

Total CapEx. Got you. Okay. So we'll work through it one by one. Let's start listening to Ismail on the first question on the -- on how we should, sort of, normalize that 6% decline in throughput. So Ismail, could you give some guidance on that?

Ismail Mahmud

Yes. Typically, throughput levels are fairly flat as we go ahead. So, 6% is slightly weaker than we would normally see that. But it's not a disturbing factor at all. Because in the fourth quarter, usually, companies manage their volumes a bit quicker to obtain commercial advantages. So I think we should see this pick up fairly well towards the end of the year. I'm not concerned of the 6%. I think we should be okay when we look forward. Eelco, do you want to take the second question?

Eelco Hoekstra

Thanks. No, we'll take questions 3, 4 and 5 first. I'm going to ask Gerard to give some guidance.

Gerard Paulides

Yes, the multiple. What we try to illustrate here is how we deploy capital. And if you see, we indicate a range, indeed, as you point out. The higher end of that range you typically see in, let's call it, an acquisition in the North America or, possibly, in a Singapore market, where you typically see higher multiples in the acquisition range. And we also see that we will not always be able to compete in those markets because of those high multiples that, sometimes, are posted in M&A transaction. We would occasionally sell into those markets, but if it really is at the very high and it's harder. If you have a Brownfield expansion in your existing terminal, where you make an improvement or an expansion, you could invest at the multiple of -- at a very low end. So, you gain a lot of extra EBITDA for relative little capital. That is what is the extreme ends of the range that you see. In terms of capital spend, we did say initially in the year, 300 million to 500 million for growth. We now indicate we will be at the high end of that range, which is positive. Because of that, we can invest at these multiple levels, as we indicated.

The other elements of service and IT investments have not changed from what we said before. So, the ranges we have indicated before over a three-year period, of 750 million to 850 million and for digital, 30 million to 50 million, are unchanged. Let me just see what else.

Eelco Hoekstra


Gerard Paulides

Out-of-service. What was the question there?

Eelco Hoekstra

The trends and, where it stands today and how they should look at it in, for the remainder of the year?

Gerard Paulides

Yes. We still have some out-of-service, which we had hoped would move a little bit quicker, but which was impacted by the limitations in the supply chain following the governmental lockdown interventions. Some of that, we've seen also in Singapore. We've taken some extra decisions in Europoort. We've decided to continue with improving the services in Botlek. So there is a level of normal out-of-service activities that will continue, that typically drives ultimately the high end of the 95%. So you have the 5% left to do this type of work.

But there's still probably, what is it, 1.4 million cubic meters at the moment, which is out-of-service. And in the second half of the year, we would see that drop by, maybe, 300 million, 400 million, if I remember it correctly. If I said that wrong, I will come back to it in a second. But I think it's reducing somewhat in the second half of the year. Yes, I think I'm right, yes, 300 million to 400 million, 300,000, 400,000, sorry.

Andre Mulder

Would you say that that's phenomenal at 1 million?

Gerard Paulides

Yes. So that would then be the normal level. And it's about...

Eelco Hoekstra

And it's about 5% of the 20 million cubes that we have in subsidiaries. So that's about the right level. And of course, all of this depends a lot on how much progress we will be able to make in places like Singapore in the second half of the year, where currently still there are massive restrictions on working with contractors.

Gerard Paulides

And that, I think, sums up a little bit the quarter performance. We're very pleased with the performance because we know we could have done a lot better if we had delivered the projects on time as per our original plan. But due to the lockdowns, that performance was impacted and to a certain extent, the maintenance. At the same time, we've been able to be very responsive in the oil markets, bringing back capacity. So all of that is in the mix. Now I think you had one more question on...

Eelco Hoekstra

Yes, we have one more and then I need your guidance because you mentioned you wanted to know more about the business development pipeline for chemicals. And you made a number of 14 million to 20 million. I'm just trying to understand what it was that you were alluding to. Would you help me there?

Andre Mulder

Yes. It was about the capacity expansions in chemicals. You said that supply would be increasing by something like 40 million tons for this year. So I'm looking at how the pipeline is looking for '21 and '22.

Eelco Hoekstra

Okay. So the I think on that, you know that we do not give any guidance on particular projects on the way. But what we've done is, and you know, by 2016, we've made a review of our portfolio. I'm repeating myself, chemicals was one of the areas where we wanted to grow, particularly industrial. As you've seen, more than 50% of our chemical terminals today come from industrial terminals. So we've started to fill that pipeline. We are looking at, first of all, where can we expand in brownfield because we already had a good position globally. And second of all, which industrial opportunities are there at this moment in time. What you find is that when you look at brownfields, we started to develop brownfield expansions, for instance, in Vietnam, in Singapore, in Rotterdam, in Houston, basically to strengthen the backbone that we already have.

The second thing that we've been doing is looking at industrial, and you've already seen a few announcements. The most notable one has been the one in the southern part of China, which is under construction today and is already disclosed and put into the numbers, and which will contribute in the timeframe mentioned. I think what you can expect us to do, without going to do, you can expect us to maintain that rigor on these industrial opportunities. Because what we see is that there are multiple expansion programs for large chemical complex is still ongoing. And we are in dialogue with several chemical manufacturers to see how we can support them.

And what I mentioned previously in the call was that there's a new element brought to the mix, is that already also existing facilities are being reviewed now by chemical manufacturers, which also offers, I would say, a new opportunity for us to enter into. So without giving you growth number on CapEx spend and contribution, I can give you a qualitative assessment, is that, that I'm pleased with the relative position that we command in that dialogue globally.


And our next question comes from Thijs Berkelder of ABN AMRO.

Thijs Berkelder

Two types of questions on pricing and again on CapEx. Can you maybe explain whether clients, at this moment in the chemical sector, are being under pressure now for more than a year, are indeed not only looking at potentially divesting storage assets, but also renegotiating their contracts at potentially lower prices?

And similar to that on oil prices. In oil -- to be honest, the oil storage effects -- the positive effect is clearly visible in the numbers in Americas but in the other regions, not so much. What can we expect there? I believe you once communicated a potential EBITDA uplift of, let's say, €50 million to €100 million. So far, we have seen, maybe, €20 million. When can we expect the rest? And your oil capacity, well, is now fully booked. But is it fully booked for the coming six months, for the coming 12 months? So for the coming 18 months, you're not floating oil storage, but your land storage are looking at more long-term contracts. Can you may be shed light there? So the other topic, CapEx. Can you maybe explain the planned €500 million growth CapEx. Roughly, what is the mix there, the percentage mix there per segment on industrials, chemicals, gas and oil? On CapEx related, we've seen a nice slide on all the new LNG and LPG projects being planned. Can you give a rough timing on the FID for various new gas projects? When do you plan the FID for German LNG for the LNG project in China, for LNG-to-power in Singapore? And why is Hong Kong LNG not in that picture?

Finally, you already made some remarks on New Energy CapEx. What kind of start-up costs are we already seeing going through the P&L for taking the time of planning new energy segment to start up? And when, more or less, can we expect the first project, let's say, a larger project in this segment being launched? Thanks.

Eelco Hoekstra

Okay, Thijs. That's -- again, I think we're on the right questions. And if not, please intervene. Let's start with the first question, which has a lot to do about pricing and contract structure in both chemicals and oil. And I will start it and maybe I'll ask Ismail and Hari to complement my remarks if I've missed out on anything.

First of all, on chemicals, I think that was in the presentation of Ismail. I think you need to remember that more than 50% of our chemicals is in industrial locations, meaning that these are long-term contracts, which have been locked in for a longer period of time, far exceeding an up and a down cycle. And second of all, I think if you look at the term of our contracts for chemicals, and if you take our hub and our distribution terminals, also there, the majority of the contracts is longer than 3 years.

In addition to that, if you look at our customer portfolio, it is extremely -- we have a very long relationship. I think about 80% or so of the contracts that we have, has been with us for more than 10 years. So the dynamics in chemicals are such that the relationship is there, and there's always a balanced approach to how we enter in the new phase of service. We have not seen at this stage, and I don't expect it, any chemical customers that have come back to renegotiate existing positions. That has not happened in the industrial sides, that has not happened in the hubs or in the distribution sides.

So I think that what you see is that if there is an effect, up or down, normally, in chemicals, it takes a while, sort of, to enter reality.

As for the oil storage, I think, indeed, the -- all, but the last few cubic meters of our oil tanks have been rented out. What we see is that it -- normally 2 things happen in the cycle. So first of all, we see occupancy go up across the globe. And second of all is that when renegotiations take place, you have an opportunity to discuss pricing. Judging from my comments previously, I think that we're in a situation that now that the occupancy has gone up, we expect actually, for the next few periods, that we should have an interesting discussion on pricing, which is already visible in our renewables today. Our contract portfolio in oil is everything between sort of 0 to 3 years. So you can expect that as we renew these contracts, sort of, 30%, 35% every year, you have an opportunity again to engage on tenor and price. And I can tell you that the effects that we have on our renegotiations now in the second quarter already have an impact on '21. So it's not -- we're not discussing contracts of 3 to 6 months. We're discussing contracts over a year and maybe, in certain instances, 2 years. So that's where the confidence comes from in our portfolio there on pricing and contracts.

And maybe Hari and Ismail, I'm sure that you have maybe other views on that, but please amend anything that I said.

Ismail Mahmud

Yes, sure, Eelco, thanks. I'll take the chemicals one first. I think you covered it very well. Just a comment I'd like to add here, is the reason I have mentioned in my presentation about the pre-COVID situation of the chemical market. It's very important to address that because we were going into a pet chem down cycle. And some of our customers who are just those few, like I said -- like Eelco presented, it's long-term contracting, not up for discussion; some long-term contracts -- some 3-year contracts not up for discussion. It's those that may have expired or are expected to expire in the coming weeks and months. That's where you might have a conversation. And again, I think we need to really try and separate the pre-COVID pet chem down cycle impact from the real COVID impact. So that's a conversation that we tend to have. But it's relatively smaller compared to the larger portfolio. So the impact is not that great. Surely, customers will ask for relaxations. But this is, like, I said, this is a very small component of the overall conversation. So again, I think in these situations, you do find a balance. We have relationships with these customers for a very long time. You tend to sort of work with them. So we can show our commitment to their, somewhat, pain that they might feel. But this is relatively small, and no real major impact. I think we have been able to secure longer-term contracts' renewals for another 3 years, even during this period of time. So people are willing to maintain their positions, especially in hubs, because hub locations is not easy to get a hold of because these are more sought after places, Singapore, ARA region, Houston. These are important locations.

On the distribution side, again, there's an impact of competitiveness. How saturated is the market? And how competitive is the market? I think we do have a leading position in some of these places as well where we are price leaders. So the conversation is okay for now. I've been in touch with most of the locations, and I think they are quite okay. I’ll pause there and I’ll leave it to Hari to comment on the oil. Hari?

Hari Dattatreya

Okay. Thank you, Ismail. Maybe to go back, in line with Eelco's comments, I think we see some proof points where we are renegotiating some contracts and yes, about the rate level, but also the duration is being extended at this time. So that is really underlining the outlook from quite a few market parties that the near future for '21, '22, we'll see the volatility in these dynamic trading markets.

Eelco Hoekstra

Fantastic. Maybe Gerard, maybe, your view on revenues. There was something on revenue...

Gerard Paulides

Yes. There was a question on revenue, on oil, in particular, and the visibility of that. So in the Americas, you're right, that is the mainly the start-up contribution from Panama that you see coming in. The commercial success is mostly about developing a new bunkering position and, obviously, in the context of contango. But it's, in essence, it's a new business development result that you're coming, that you see coming through in that revenue line. The other one is actually Europe and Africa because it, on first inspection, it looks like revenue in oil is dropping in Europe & Africa. But of course, that's the effect of the divestments. And if you clean the divestments up out of the revenue, then you see a significant step up, an increase in Europe & Africa relative to a year ago.

Thijs Berkelder

Can you answer, tell me what the increase is?

Gerard Paulides

Well, the decrease from last year, from the divestments, is about €45 million. And therefore, the increase is about €15 million, if you clean that up. The one that didn't show the same momentum is Asia & Middle East. Although we did see more or less unchanged revenue in oil in Asia & Middle East, you see a positive contributions from, for instance, Fujairah, PITSB in Malaysia. But you also see held-back oil revenue in Singapore Straits because of the out-of-service capacity that we couldn't fully bring back in yet. So that is a bit counterintuitive that Singapore oil didn't show the same as Europe & Africa and the Americas.

Eelco Hoekstra

Exactly. So two things left, Thijs. I think you wanted to know the LNG portfolio. So I think Frits will give you a comment on that, and then you would like to know how the split of CapEx is for €500 million in growth between the different segments? So first, let's go to Frits.

Frits Eulderink

Yes, Thijs, on the LNG portfolio, if I look at that, I think, across the board, we have a very nice range of opportunities. Some are, I would say, fairly close to the FID, others are still very much long range. So if I go a little bit through the portfolio, let me start with Hong Kong, which you asked about. In Hong Kong, we are currently a technical adviser to the project. But the project, per se, has already taken FID. So in other words, the power contract has been given to our partner there, and construction will start imminently. And we have an option to discuss with them if we want to take a wider role than just technical adviser in that project.

In China, as we reported, in -- near Zhangjiagang, we have finished constructions of the base of the jetty. And I would say things are progressing well. Now when can we take FID for that? As always, with an LNG project, a lot of things need to align. So I think in the case of China, we are mostly doing, I would say, the technical work that will allow all the permits, et cetera, that we need to mature. And once the time scale is there, I think the chances of taking a positive FID are very appealing.

If you go to German LNG, there, I think, we are still in the middle of a feasibility study. It's by no means, an easy call, where, ultimately, long term, with also the Nord Stream pipeline that is coming to Germany, an LNG terminal, is a long-term requirement there. But we do get quite some support from customers that are interested.

So we are in the middle of that study. And I don't anticipate that, that FID will be within the next year. Then if you look at our existing sites. In Pakistan, we have very interesting possibilities for further expansion. Again, hard to say when that FID will come because a lot of stars need to align to take FID, but certainly, I would say, a good promise.

And I would say, in Keppel in -- together with Keppel in Singapore, we're very excited. That project is still in the very, very early stages of the study. But what makes that, to us, extremely interesting is that the idea is also to, longer-term, look at hydrogen there. So there, not only do we have the usual LNG, I would say, studies to do in order to be able to take a positive FID, but also at the same time we're already looking at this future potential and how to best incorporate that in what we do in the first phase of the project. So that gives you a bit of a sense, I hope, of where these various opportunities sit.

Eelco Hoekstra

Thanks, Frits. Then, Thijs, if we go to the relative contribution of projects, vis-à-vis the EUR 500 million CapEx, I'd like to turn your attention to Page 51 of the presentation because that gives the geography, the terminal, but also the product type, and it gives you the cubic meters capacity in our ownership. And I think we've mentioned it before, if you -- I'm afraid that you need to do the work yourself.

But if you take sort of roughly $500 per cubic meter for oil, roughly $1,000 for chemicals and $2,000 for gas, and this is not the exact numbers, but gives you sort of a proportion, I'm sure that you will get a fair assessment of what falls in which category. And then I would suggest you call Laurens and see whether your assessment is indeed on the money.

And then maybe the last question, I -- we have one last question recorded or have -- yes, it's the start-up cost on New Energy. So your question is how much is in the P&L for New Energy? And I think I'd like to give it to Frits to give an insight on that.

Frits Eulderink

I think it's -- currently, I would say, a highly efficient and very agile and small team that's working on it. So I think we are literally involved with, I would say, some 20 projects right now worldwide, but this is all done by a very small team. So, I think at this stage, I would say our pre-investment costs are still relatively modest in this. But obviously, as we are getting more excited about the opportunities and as this matures, that cost, I expect to go up over the coming years. But for now, it's still a fantastic effort by a relatively limited group of people within our company, leveraging a lot of what we have in the rest of our business, for instance, LNG knowledge and other capabilities on the commercial and technical front.

Gerard Paulides

Yes. I think that in the P&L, you won't be able to find it. It's just too small in terms of expenses at the moment. The most noticeable money we spent is probably in Vopak ventures where we've taken several positions in equity participations in interesting companies. That's not only New Energy, but that's also digital, software, industrial applications. And then you're talking, again, small amounts of money. But expenditure wise, it's not a big deal at the moment. It's commitment, skills, people, management time, that's where the effort goes. And from that point of view, the money, I don't think, is representative to the actual progress we've made because we feel pretty good about it, and the funnel has some real realistic opportunity to get into the New Energy exposure, with either pilot plans or scale-up plans or full industrial applications.


[Operator instructions] Okay. We've had one further question coming from the phones. [Operator instructions]

Quirijn Mulder

Quirijn Mulder from ING. I'm on telephone. I have a couple of questions for all divisions. First, to start with chemicals. You have discussed Houston and Singapore, where there was some effect of the throughput due to the downturn. And we have heard about Botlek, a 1.4 million, let me say, most is the capacity out of -- outage in Botlek. So, what about the chemicals in China? Maybe you can give me an idea about the trends there and the developments. With regard to oil, if you look at the clients, for, let me say, benefiting -- trying to benefit from the contango situation in March, April and the overflow. Is that a new sort of client? Is that an -- or is that existing clients, let me say, typical IOCs also adding that to the portfolio?

And then with regard to the LPG business, are you expecting to make major steps there given the fact that the outlook for LPG, in general, is quite positive given the high demand there given the fact that the outlook for LPG, in general, is quite positive given the high demand, especially in China and, let me say, the overproduction in the U.S. related to shale gas? So maybe you can say something about it.

And then on the cost savings. Maybe if Gerard can elaborate on what sort of cost savings you might have in mind in the coming period. So the €600 million is a yardstick. But maybe you can look at further down 2021, '22 for further cost savings. And does it also include, for example, benchmarking and looking at further opportunities in the IT? These were my questions.

Eelco Hoekstra

Okay, Quirijn, we'll make sure to end at 11:00. So we'll give you short answers, and then you can follow-up with Laurens, if required. First of all, chemicals china. Chemicals China is performing very well. We've seen occupancy going up. Demand for tanks has increased. We've experienced there that in the distribution terminals, the occupancy has gone up, throughput has gone up. And equally, we've seen that the industrial terminals are performing well. So no concern in China.

Second question is for LPG and maybe Michiel Gilsing, if he is still on the line, can give a short reply on that?

Michiel Gilsing

Yes, sure, Eelco, I'm still on the line. In general, for LPG, the portfolio of business development opportunities is relatively rich, I would say. But what we see is that there are some delays in executing these projects due to the COVID environment. Although longer term, and I think also the dynamics are positive for China, indeed, where we see quite a few PDH opportunities, and there are many projects on the table in the different chemical parts there.

More related to shale gas, what we see in the U.S., that it is more difficult to execute projects at the moment given the environment. But there are still opportunities on the table, but it will take a bit more time, that's what we expect.

And for our Canada West Coast export terminal, we still are working on an expansion of that facility because effectively the exports are running ahead of the schedule, to be seen how it will develop over time, but still very positive on the development. So in general, portfolio is sound and solid, takes a bit more time, but still very good value creation opportunities.

Eelco Hoekstra

Thank you, Michiel. As for the contango customers and the oil customers, I think I can be very short. And there's no change in our customer portfolio. We've seen sort of our usual large accounts and key accounts, which we have a long-standing relationship with, who have been able to engage in a dialogue with us. So it's the, these are the usual large oil accounts that we serve. And then for costs?

Gerard Paulides

Yes, cost, we had an existing outlook for the year in our budget, which of course you can't see. You only know what our actuals are. But in our budget, we had the new projects coming in, we had inflation, of course, into account. You take the few on your new business development. In aggregate, what we say is we wanted to compensate inflation for 2020. Now that resulted in a certain number. We've now intervened in that number and gone for a substantially lower number of €600 million. And although it's not a straight comparison, the total cost number of last year was €633 million. So you can see a delta in cost. Now it's not like-for-like, but it is bottom line delta. If you look forward, we always feel we are on top of cost. But then when you see what we actually can do, we continue to see that we have space to manage our costs down further. So I have an ambition or we have an ambition to continue to, at least, compensate for inflation. And for the rest, we'll see how it goes. What sometimes distorts the number is our positive investment in new business development. Those are good costs, and we're more than happy to spend those.

Eelco Hoekstra

Thanks, Gerard . I think this concludes our presentation and prepared remarks for you today. I think we were very happy that we had some extended time with you here. We took the decision in light of COVID-19 and the difficulty to really understand how markets are behaving, that we thought it was time well spent to give you additional insights in the markets. And we do appreciate that it's still a complex environment.

And I hope that you have taken away the most important lessons of, at least, what we've experienced and how we view the markets going forward. So we hope that this was seen as a valuable time spent. I think how we leave this call, and I think that, probably, comes from the results, is that we unfortunately missed the icing on the cake in the second quarter. I think that we've performed well. I think the business is running well.

But unfortunately, we were not capable of delivering the projects in time, which would have made the cake complete. But we still believe that the value is there in the quarters to come. So we leave this quarter with confidence. And there, I would like to just to bid you fair well for, hopefully, a good holiday and a break, and obviously stay safe and healthy. And we'll see each other again in the second half of the year. Until then, thank you very much again for listening. Bye-bye.