Vopak strategy pays off

ON THE RIGHT PATH

RESULTS • VOPAK HAD A PROFITABLE 2019, INDICATING THAT ITS STRATEGY TO FOCUS ON LIGHTER FUELS IS TAKING THE COMPANY IN THE RIGHT DIRECTION

ROYAL VOPAK HAS reported full-year revenues of €1.25bn for 2019, virtually flat on the figure for 2018. Profitability, however, has increased significantly, boosted by contributions from new assets, positive currently movements and the effect of the new IFRS 16 accounting standards. Excluding exceptional items, group EBITDA increased by 13 per cent to €829.8m, with net profit attributable to shareholders up 24 per cent at €357.8m.

As a result of this improvement, Vopak has announced a 5 per cent increase in dividends together with a €100m share buyback programme.

The year was, however, not without its headwinds. Vopak is still experiencing low demand at its oil hub terminals in Europe and Singapore and, overall, tank occupancy was down from 86 per cent in 2018 to 84 per cent, though the company notes an upturn in capacity use in the fourth quarter as capacity came back onstream at some sites after being taken out of service for conversion to cope with the changes in bunker fuel standards after the introduction of the ‘IMO 2020’ rule.

Commenting on the results, CEO Eelco Hoekstra says: “2019 was a successful year for Vopak. We executed our strategy, realised strong EBITDA and significantly increased earnings per share. Over the years 2017-2019, we have been transforming our portfolio through €700m of divestments and €1bn of investments in new growth projects. We successfully divested almost 5m m³ of oil capacity, mainly in Europe, and bolstered our hub positions. We prepared our oil hub terminals for IMO 2020 and expanded storage capacity in future growth markets. In 2019, we expanded our LNG business in Pakistan and Colombia and started the construction of new industrial terminals in China and the US. Our portfolio is well-positioned for future developments. As part of our new energies focus, we made our first investments in hydrogen and solar.

“Delivery of our digital strategy has progressed well,” Hoekstra continues. “We continued the roll-out of our new cloud-based system for our terminals, as part of broader efforts to develop our digital architecture. Growing Vopak’s digital capabilities and using

data are key to our short-term performance and long-term value creation, as well as to our position as the leading independent tank storage company.”

AROUND THE GLOBE During 2019, Vopak added 1.8m m³ of new capacity to its network. Of this, nearly 970,000 m³ was located at the two major terminals at Pengerang, Malaysia and another 320,000 m³ was built at the greenfield terminal at Bahia Las Minas in Panama. During the fourth quarter there were also new tanks commissioned in Brazil, Mexico and Singapore. However, the sale during the year of oil terminals in Amsterdam, Hamburg, Hainan and Tallinn, as part of Vopak’s strategy to shift its focus towards lighter fuels, resulted in an overall net decrease in tank capacity to 34.4m m³. At the end of 2019 there was 1.5m m³ of new capacity in various stages of development that will take capacity up to 35.5m m³ by the end of 2022.

One outcome of the 2019 disposals was a decline in revenues and profits in the Europe & Africa division, although the effects of operating expenses and depreciation were also lower. Revenues were down 6 per cent at €590.3m and EBITDA excluding exceptional items was down slightly at €299.9m.

Revenues were also down in the Asia & Middle East division, largely due to a less favourable market for the oil terminals in Singapore and IMO 2020 conversion projects, with average occupancy falling from 86 per cent in 2018 to 81 per cent. Operating profit increased by 20 per cent, however, mainly as a result of the completion of the PT2SB industrial terminal in Malaysia in the first half of the year.

Revenues in the China & North Asia division increased by 17 per cent to €38.9m, following a full-year contribution from the Ningbo terminal, which became a full subsidiary early in the year. Group operating profit, excluding exceptional items, rose 15 per cent to €50.8m as a result mainly of better returns from joint ventures, most significantly final customer settlements at the associated Haiteng terminal in December 2019.

The Americas division reported strong results, with revenues up 12 per cent at €313.7m and group operating profit, excluding exceptional items, up 27 per cent at €108.5m. The increases reflect the commissioning of new tank capacity in the US and Panama from 2018 through to the end of 2019, together with the contribution of the newly commissioned Ridley Island Propane Export Terminal (RIPET) in British Columbia, Canada.

Vopak’s LNG division also posted better returns. All its activities in this sector are through joint ventures or associate companies and are not reflected in revenues, but EBITDA and EBIT were both up by 9 per cent at €38.1m, following the acquisition of interests in facilities in Pakistan and Colombia. IFRS 16 has had a negative impact on this division, reducing profits by €2.9m.

CASH TO SPEND Looking further ahead, Vopak has also announced a 65,000-m³ expansion of its Caojing terminal in Shanghai, with additional tankage for chemical gases. Caojing is an industrial terminal serving chemical plants in the Shanghai Chemicals Industry Park (SCIP) and its adjacent areas. The additional storage capacity has been fully rented out under long-term contracts and is expected to be commissioned in the second half of 2022.

In broader terms, Hoekstra promises that Vopak will continue the course it has set in recent years, with a focus on performance and value. “Our financial framework and priorities for cash are unchanged,” he says. “We will use the majority of cash from recent strategic divestments to grow our portfolio. We aim to grow EBITDA over time with new contributions from growth projects and IMO 2020 converted capacity and replace the EBITDA from divested terminals, subject to general market conditions.”

Investment plans are not set in stone but Hoekstra expects the three years from 2020 to 2022 to see some €750m to €850m invested in sustaining and service improvement projects, and €30m to €50m annually to build on Vopak’s digital terminal management system. Investment in growth projects for 2020 could be in the range of €300m to €500m. www.vopak.com

WHILE SELLING OFF SOME SMALLER OIL TERMINALS

IN EUROPE, VOPAK HAS INVESTED IN NEW CAPACITY IN SUCH LOCATIONS AS MEXICO (OPPOSITE) AND BRAZIL