Fugro N.V.

Welcome to the Fugro Analyst Call in relation to the First Quarter Trading Update, which was published today. At this time, all participants are in a listen-only mode. Mark Hainan, Fugro CEO, and Paula Verhagen, CFO, will start today's call with a short introduction. Thereafter, there will be time for questions. At this time, I would like to turn the conference over to Mr. Hainan. Sir, please go ahead.

Thank you for participating in this call. Good morning, everybody. I'm Mark Heijnen, CEO, and I'm here with Paul Verhagen, CFO, and Katrien Buttinga from Investor Relations. As usual, I will present a few slides. It should take me probably 10 minutes, and after that, I'm happy to take any questions. So let's start. Next slide, please. During the past two years, we have made significant progress with the implementation of our path to profitable growth strategy. leading to a gradual recovery of the results and cash flow. While we were anticipating further growth of our business, the sudden and unprecedented deterioration in the market circumstances has created a new reality. In the past weeks, the COVID-19 pandemic has taken hold around the world, affecting all of us. Our priorities are clear, preserve the health and well-being of our staff and other stakeholders, ensure business continuity, and reduce cost and to protect liquidity and profitability. As for any other company, the exposure in the, with exposure to the oil and gas industry, the situation has aggravated by the collapse of the oil price because this is resulting in strongly reduced spending by our clients. Next slide, please. It will not come as a surprise that this has impacted our first quarter operations and results. Despite intense efforts to keep business going, some projects could not be executed as planned. This has resulted in operational complexities and related additional cost, but also delays, postponements, and some cancellations. The impact varies by region. In the first quarter, the pandemic had the most notable impact in Europe-Africa, where operations were already hampered by several storms in the North Sea in January and February. We probably can all recall Kiara and Dennis there. The Americas and the Middle East-India were slightly impacted, Asia and Pacific to the least extent. That region even reported significant improvement in revenue and results thanks to the rationalization of the marine asset integrity business last year. Overall EBITDA and EBIT were below the comparable period last year. Pre-cash flow was negative due to a seasonally weak quarter amplified by the impact of the pandemic. The payment of the Southern Star arbitration settlement was more than offset by the proceeds from the sale of Global Marine. The year started with a 9.9% increase in our 12-month backlog, and the order intake was good in the first two months of the year. However, in March, intake was very low, resulting in a flat year-on-year backlog. Next slide, please. Marine, first, the revenue was 3% up. After a very strong increase in last year, site characterization realized mid-single-digit growth. This was driven by the Americas and Asia Pacific, mainly related to offshore wind and oil and gas, respectively. Asset integrity revenue was in line with last year. The vessel utilization was relatively low at 52% compared to last year, in addition to relatively high chartering activity. This was owing to the geographical locations of the vessels. Also several storms in the North Sea, as I mentioned, in January and February, and planned dry docks in Europe and Africa. EBIT margin was high single-digit negative below the comparable period last year as integrity continued its improvement trajectory. However, the site characterization margin declined primarily in Europe-Africa due to lower revenue while growth was anticipated. Adverse weather conditions and operational complexities due to COVID. On the land side, the revenue was 5% lower. Site characterization and asset integrity both declined. Site characterization declined in the Americas and Asia Pacific, while it increased in other two regions. The EBIT margin was low single-digit negative, slightly below the comparable period last year, mostly related to the revenue decline in the Americas. The ongoing restructuring program has been accelerated in the light of the recent market deterioration. Next slide, please. The Cost and CapEx Reduction Program. We're taking decisive and immediate action by implementing a program to significantly reduce cost and capital expenditure. This includes minimizing the use of short-term charters, implementing a hiring and salary freeze, measures to reduce the workforce by up to 10%, reducing overhead costs, cut on executive pay, and further optimizing service offering throughout through rationalization of the company's geographical footprint. Furthermore, all available possibilities for government support are being assessed to bridge this difficult period. CAMPEX for 2020 will be reduced to 60 to 70 million euro. We have several scenarios worked out and we will continue to monitor the situation closely and decide on additional measures when needed. Next slide, please. We talk about the markets very briefly, the three key markets for Fugro. First, oil and gas. There we see a demand and price fall resulting in spending cuts. And the graphs shown on this page are obviously produced by industry reports, Rijstad Energy, and they are changing almost on a weekly basis now. So take that into account while you look at this. So the current challenging environment for oil and gas industry is, I think, clear and has an impact on oilfield service spending as well. especially we see a drop in demand in April, but also in the upcoming period, and also a drop in the final investment decisions planned for 2020. Then you also see a large impact in the non-conventional area of oil and gas. Luckily, Fugro is not involved here. It's maybe good to emphasize that. But this business segment is hit very hard. As I said, you have to take these pictures with a pinch of salt, so to say, as they are changing almost on a weekly basis. But the outlook for oil and gas in the upcoming period is significantly different than what we looked at two months ago. If we go to the next slide, offshore wind, there are not a lot of cancellations there. We see more project delays in some projects. And I would like to again stress that by now we're generating roughly 50% in other markets than oil and gas, primarily offshore wind and infrastructure. And we are ant market agnostic. As we mentioned before, many times we use the same staff and expertise and vessels, irrespective of the ant markets, which makes us very flexible. And we have seen that now also in the last period already where some projects were postponed on the oil and gas side and we picked up some additional projects on offshore wind. Current market opportunities gives us, therefore, also the opportunity to utilize our assets in the, yeah, in other markets instead of serving oil and gas clients. Offshore wind, in which Fugro has a strong position and reputation, is anticipated to continue to show strong growth, though somewhat slower than assumed at the start of this year. Next slide. Then we talk about the infrastructure markets. Also, these market reports are, I think, not 100% up to date yet. This is changing still almost on a weekly basis. And the database used for this, the CIC database, I think is not 100% yet up to date if you look at these figures, what the impact would be for the upcoming period. The pandemic will have an impact, I think, on the building and infrastructure activities in the short term. On the other hand, Fugro may also benefit from government initiatives for additional infrastructure investment programs. That's basically what we see in the longer term. We expect this market to grow again by government support. Next slide. In the next slide we'll talk about governance and the refinancing and I will hand over to Paul Verhagen to discuss this.

Paul Verhagen Yeah. Thank you, Mark. You've seen that the leverage further improves from 1.9 to 1.7, which, of course, is supported by the September. That was done in February, in addition to, of course, the receipt of some divestment proceeds, which were partially offset by the payment related to the arbitration loss, as you know. All covenants are met in Q1. which obviously is good and important. As you all know, the refinancing was pulled in February due to the sudden deterioration of financial markets in the week that we were out. Coupon was increasing rapidly, but also market was closing. So even if we would have tried to push it, it might not even have been successful. We don't know, but we decided to not do it. because the market deteriorated very rapidly in the week that we were out with this senior secured note. At this moment in time, we are reassessing our financing options. There's not a lot I can tell. Financial markets are very volatile. It's even pretty difficult for us to give a meaningful outlook, as you have read. And that's also, of course, not unimportant to determine whatever refinancing we will go with going forward. So in the second half of the year, we will provide more updates there. Liquidity is good. We have close to 400 million in cash and available facilities. So that's a positive, of course. And the maturity profile of the debt is unchanged compared to before. to last year, and as you know, our first maturity is May of next year. Yeah, that's it, so I hand back to Mark for the outlook for this year.