Fugro N V FURGF CEO Mark Heine on Q4 2019 Results

This was a second year of continued revenue growth and margin expansion, with revenue up 5% from the prior year and core activities delivering positive. The backlog grew 14% on top of last year's 20% growth. Cash flow improved from the core business. We completed a comprehensive refinancing to extend our maturity profile. Key financials for 2019: revenue growth, EBIT margin of 1.2 to 2.0% for core activities, though land site characterization lagged. Regionally, Europe, Africa, and the Middle East saw strong performance, while the Americas had mixed results. Our markets: oil and gas (50% of revenue) is recovering but clients are cautious; offshore wind is rapidly growing, driven by sustainability; infrastructure benefits from urbanization and climate adaptation. Client diversification is strong. Our services support safe, sustainable development: site characterization, geo-data analysis, remote operations via ROV and digital solutions. We are investing in technology like remote operations centers and lidar mapping for vegetation management. The land business business is being restructured—it underperformed, and we are cutting commoditized work to focus on higher-value integrated projects and technology. We reviewed the non-core portfolio: in December we agreed to sell 10% of Seabed Solutions, and we are divesting from Global Marine, with a deal expected in Q1 2020 for about 30 million euros. We remain committed to divesting non-core assets. Overall, our strategy is focused on profitable growth, one-company culture, and leveraging expertise in high-growth markets like offshore wind and infrastructure.

Discussed vessel downtime and business improvements, noting that some downtime is part of the business but will be reduced. Addressed revenue decline in certain regions, profitability improvements, and cash flow performance. Explained refinancing plans and the strategy update. Emphasized the sustainability roadmap, people business, and outlook for 2020 with targets of 8-12% EBIT margin and sustained free cash flow. Opened for questions.

Addressed vessel utilization, noting it is not at the desired level but there is room for improvement. Discussed the fair value range for the vessel held for sale, supported by external advice, and that the decision depends on market conditions. Also covered the impact of IFRS 16 and the valuation process.

Explained that growth capex is primarily focused on new technology and software development, but cannot give an exact split due to competitive sensitivity. Discussed the roadmap for autonomous vessels and remote operations, emphasizing the combination of technology and expertise. Mentioned winning an AI competition. Addressed the sustainability roadmap and remote control center. Also discussed the valuation of the seabed business and the fair value range. Concluded with plans for capex and cash flow.

Discussing maintenance governance and covenants. The current market is calm and light, mostly in cash. We have a positive leverage on maintenance covenants. The financing will give precise details. It's important to note that it's very calm and light.

Regarding the fleet, first and foremost, we believe our vessels are still quite young, average 12 years. Some are five or six years old. They are high quality and built according to new standards, diesel-electric. We see a shift towards more remote solutions and smaller assets where possible. This is aligned with our thinking, but it will move gradually. We will still use vessels for particular work, but also short-term charters to surf the markets.

The guidance is not a hard code. It is not related to dividend resumption. The leverage is not related to your pleasure. We need to get to a sustainable level. It is important to pay down debt. The dividend resumption will come when we have the opportunity. The timeline is logical. Once you see it happening, you will understand. We are comfortable with our financing.

We have not disclosed margins at business level for competitive reasons. The bulk of the business is around one billion. You can get a reasonable indication from the total profit of the region. In Europe, there is a good improvement. In the Americas, there is still a loss but less than before. In the Pacific, the business is a little bit comparative. We prefer not to be very precise. You will see some fluctuations. Some assets from Europe moved to the Americas, so the growth in America may come at the expense of Europe.

We are looking at the guidance given by analysts. The first two months of the year have been much better than expected. We are working on company values and purpose-driven culture. We believe working together and innovation will benefit Fugro in the long term. Employees will enjoy their work more, and that will drive profitability. Teamwork can achieve ten times more than individuals. We are clear about that.

We would be careful. We have four reasons. We will develop and given the biggest challenges, we will deliver growth and improve margins. How quickly that will go depends. We publicly say that may be the case. We can give an indication of how management sees 2020. We are targeting 6% this year, but it could be higher.

We are very specific about that. We will give you our budget for it. We are clear that teamwork and innovation will drive profitability. Employees will come with pleasure to work. That will drive profitability. We are convinced about that.

We stick to our guidance for the year. Nevertheless, you see a quick start. That is normal. We anticipate as best as we can for the flow in 2020.

We have not disclosed margins at business level. The bulk of the business is around one billion. You can get a reasonable indication from the total profit. In Europe, there is improvement. In the Americas, still loss but less. In the Pacific, comparative. We prefer not to be very precise. You will see fluctuations.

We look at every red cell in the boards by service line and country and take action. We are managing operations. We can give an indication that every month we look at the data.

The answer is similar to before. We will disclose at regional level. We look at it globally. We have a concrete plan. We will disclose numbers when the story works perfectly. We are very granular at country level, but we prefer not to disclose too much.