Vopak waits for the payoff

INTO THE WIND

RESULTS • MARKET CONDITIONS HAVE NOT BEEN KIND TO VOPAK OF LATE AND THE COMPANY MAY HAVE TO WAIT ANOTHER YEAR BEFORE RECENT INVESTMENTS BEGIN TO PAY OFF

ROYAL VOPAK, WHICH operates the most extensive network of independent tank storage facilities in the world, had a comparatively poor 2017, according to its annual financial results. Global revenues fell 3 per cent to €1.31bn and group operating profit, excluding exceptional items, was down 12 per cent at €490.4m.

Nevertheless, CEO Eelco Hoekstra remains upbeat. “Despite challenging market conditions, particularly in the oil markets, and following a strong performance in 2016, we had a satisfactory performance in 2017,” he says, although his comments do not suggest that there will be any immediate upturn: “We aim to identify and seize growth opportunities swiftly, ensure timely completion of projects under development and step up the global roll-out of our new digital systems. These steps will improve our financial performance by 2019.”

The company’s financial performance in 2018 is expected to be influenced by currency exchange movements – particularly in the US and Singapore dollars – and what Vopak describes as a “currently less favourable oil market structure”, which is impacting occupancy rates and price levels in the hub locations in which it has concentrated much of its storage capacity.

“As an infrastructure and service provider, we do not drive market choices but facilitate energy flows,” Hoekstra says, indicating the limited power the company has over the markets in which it operates.

The company has, though, made strategic decision that it believes will, in due course, allow it to benefit from changes in the market. Aside from ensuring that it has the right tank capacity in the major hubs, Vopak’s growth strategy is, Hoestra says, “directed towards chemical (industrial) terminals and gas markets, while facilitating the increasing demand for fuel in emerging countries”. In addition, Vopak plans to continue to explore new opportunities in the LNG market and to expand its role as a service provider in the LNG value chain.

Vopak has also taken strategic decisions regarding technology, Hoekstra says: “We are making substantial investments to deliver the full benefits of the digital transformation in future years to our customers and shareholders.”

WORK THAT STRATEGY Those strategic choices were on display throughout 2017. In developing markets, it twice announced expansions of its wholly owned Alemoa terminal in Brazil and also laid plans to expand its operations in South Africa, in partnership with Reatile. Along with its partners, it announced a major expansion of the independent storage terminal in Pengerang, in southern Malaysia, which will help support development of the local refining and petrochemical cluster.

In gases, Vopak and AltaGas set up a joint venture to develop the Ridley Island Propane Export Terminal on the west coast »

of Canada; and in collaboration with Gasunie and Oiltanking it established a joint venture to look into the possibility of developing an LNG terminal in northern Germany.

Vopak’s strategy, formalised after intensive work in 2014, also saw it divest some holdings, including a share of its Eemshaven joint venture in the Netherlands, in which it will retain a 10 per cent holding, and the decommissioning of the small joint-venture Tianjin terminal in China.

During 2017 as a whole, Vopak increased its global storage capacity by 1.2m m3 to 35.9m m3. This does not include the associated Chemtank terminal in Saudi Arabia, which opened with a capacity of 284,000 m3, nor its operatorship of the Banyan Cavern Storage Services company in Singapore, which offers 990,000 m3 of underground storage. At the end of 2017 Vopak had another 3.1m m3 of capacity additions and expansions in various stages of development. Of that, only 231,000 m3 is due to be in service during 2018.

Since the end of 2017 Vopak has announced a 100,000-m3 expansion of its import/distribution terminal in Jakarta, Indonesia that it owns in a joint venture with PT AKR Corporindo. Vopak says this project will help handle the rapid increase in road fuel demand in the greater Jakarta area. Eight new tanks will be built, together with a new vapour recovery unit and in-line blending facilities. The project is due to come onstream in phases over the course of 2019. Current capacity is just over 250,000 m3 .

Vopak has also announced a plan to expand storage capacity at its Sebarok terminal in Singapore by 67,000 m3 , primarily to handle marine gasoil in order to cement the position of the terminal as a bunkering hub following the introduction of the global sulphur cap in marine fuels that will enter into force on 1 January 2020. AROUND THE GLOBE In its home market of the Netherlands, which is the largest operating division, revenues dropped by 5 per cent last year to €471.6m. Operating profit excluding exceptional items was down 22 per cent at €140.5m. Vopak reports “the absence of a positive market sentiment for the storage and handling of oil products”, particularly for fuel oil as a result of the curtailment of Russian exports. In addition, the company suffered higher than usual out-of-service capacity at its chemical terminals. As a result of these factors, average occupancy fell from 95 per cent in 2016 to 90 per cent in 2017.

The Europe, Middle East and Africa (EMEA) division also suffered a fall in its figures, with revenues down 7 per cent at €176.3m and operating profit excluding exceptional items down 23 per cent at €61.9m. The decline largely reflects the divestment of its UK terminals in early 2016, which also impacted on average occupancy, which dropped from 96 per cent in 2016 to 92 per cent. The bottom line figure for the EMEA division was also affected by a €52.0m impairment charge on its Vopak EOS joint venture terminal in Estonia.

Vopak’s Asia division fared somewhat better, with revenues down by 4 per cent at €370.1m and operating profit excluding exceptional items down by 9 per cent at €210.3m. The decline reflects adverse currently exchange movements and lower occupancy rates at its Singapore terminals. Its joint venture and associate terminals in China also fared comparatively weakly, although Vopak says it now expects the Haiteng terminal to restart operations for its main customer in the middle of this year.

The only improvement in results was seen in the Americas division, where revenues were up 4 per cent at €286.0m and operating profit excluding exceptional items rose 9 per cent to €83.4m. Revenue growth would have been closer to 8 per cent had it not been for adverse currency exchange movements and for a fall in average occupancy from 91 per cent in 2016 to 89 per cent. Growth in this division was due primarily to better revenues in Brazil and Mexico and a full-year contribution from operations in Panama. HCB www.vopak.com

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