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.

Yeah, so the last slide here, outlook for this year. The pandemic is expected to have a considerable impact also on the second quarter results, Yeah, it's impossible right now to forecast the magnitude and the duration of the impact at this stage, given the limited visibility on how this global crisis will unfold. And as I said before, we have several scenarios worked out. We will continue to monitor this closely and to decide on additional measures when needed. So given the high level of uncertainty, the implications of the current situation on 2020 revenue, margin and free cash flow cannot be reliably assessed at this moment. And therefore, the company cannot provide a meaningful outlook for 2020 at this moment in time. And with that, I end this short introduction and we open up for questions.

Thank you, sir. If you would like to ask a question, please press the star or asterisk key followed by the digit one on your telephone. Please ensure that the mute function is turned off on your telephone to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Thank you. Our first question will come from Luke. Yes, thank you for taking my question.

First a question on the customer behavior. Can you explain a bit how you see that also in, you mentioned that in March obviously there was very little order intake or maybe have been an additional reaction. Do you see some pickup and activity mainly outside of oil and gas? In oil and gas it's obviously that they're really looking for cash savings. Are they pushing for price cuts or how are they behaving? That's my first question.

So look, shall I go finish the questions maybe?

Okay. The second question is mainly on the cost savings. You mentioned how much have you already taken? How quickly can you expect to see results? And can you give any indication of the expected savings that are already in the pipeline? Okay.

Okay, so let me first take the question on the customer behavior. So a couple of things there. As you have or as we have announced, we also saw still in the first quarter oil and gas growing and also offshore wind renewables picked up additional growth there. What we see is that particularly the activity is still high on, for instance, subsea cables. So those are internet cables, intercontinental cables that are being installed by various parties for internet behavior. So that is something that the FIGRO has a lot of activity in right now outside of oil and gas. If you talk about oil and gas, we had a high order intake in January, February, which reduced significantly in March although we see tender activity still continuing in most of the areas but tender activity doesn't mean necessarily order intake and some of it is just for later in this year or the years to come. So it doesn't immediately indicate what will happen with activity moving forward. We had a solid backlog at the start of the year and good intake in January and February however affected by March. What is maybe also good to note is that normally quarter one is a low season activity. And a month of March, especially in a busy year, we would normally start up projects in a marine environment. And this is also what has happened. basically hit us somewhat on the Europe-Africa side. There were a number of projects about to start in March in Africa, and those were stopped basically because of the COVID-19 pandemic, so to say. So we were particularly hit in March there where the ramp-up of activity could not happen as envisaged earlier in the year. So that is what we see. If we talk about price cuts, then we obviously see oil companies, energy companies immediately reacting in sending letters where they demand price reductions. Having said that, and that is also in the presentation that I just showed you, there's limited room there. If you talk about the early stage business, we have grown the pricing somewhat. but we're coming out of a crisis there, and especially if you talk about a late-stage business that was still about to ramp up again, and prices have not recovered there yet. So, yeah, if you want to get more prices down, that's a nice request, but we at the moment also have to say no to these customers simply because there's nothing to give. And then maybe the second question on cost savings, I think, Paul, maybe you can answer that.

Yes, so as announced, Luc, depending on the scenario going forward, it's still difficult to assess. There's quite a wide range we will have to cut. We have announced that we might have to cut up to 10% of FTE. Now, you know what total the salary cost last year. That was $640 million. So the average salary or the average personnel cost, which is more than only salary, of course, is around 60K. So if you would cut up to 10%, you can do the math yourself. In addition, there's, of course, further savings on discretionary spending. There's barely any travel, trade shows, communication, IT programs, other improvement programs we will, of course, put on hold. Then, of course, we are... full force on our suppliers to also have them share with us the pain that is happening. So procurement is on top of a third-party cost. We're reducing charters where possible. What is important to note is that we were actually gearing up for growth. And also the headcount increased in Q1 somewhat compared to year-end because we had a good backlog at year-end, 10% year-on-year growth. January was very good order intake. February was very good order intake. We had also already lined up some charters, so we were ready for growth, and then COVID hit. So it's now literally adjusting as quickly as we can to the new reality. But there will be, as I just said, significant cost savings, and I think you can do the math based on what I said. The numbers that I just gave you are annualized numbers. Your second question was when can you have this implemented. That's obviously different per country. Certain countries we can move quick. Other countries it takes time. It will be a mix. Not most likely the answer you want to hear, but that is the reality. But we will go as fast as we can, given that also the revenue is impacted and will be impacted as a result of what's happening due to COVID and compounded by the situation in the oil and gas markets.

Yes, I have two follow-ups. One is can you also say something about the customer behavior outside of oil and gas? And the second is on the savings on chargers. You mentioned that in Q1 you had a relatively high level of chargers because your own vessels were not in the right locations. I can imagine with your smaller fleet than some years ago that it will remain challenging to keep your vessels in the right locations for projects, especially when they are awarded at a late stage. So how difficult will it be to reduce those vessel chargers?

Okay. So behavior of the customers outside of oil and gas is what I said on the offshore wind side. We see some delays in projects, but generally we expect them to continue to ramp up with the activity. moving forward, so that's a temporary postponement, I would say. On the land side, you see in building infrastructure, what I said as well, that there's maybe somewhat less activity there on awarding new work, simply because these companies are very busy trying to keep their ongoing projects going, so to say, so there are delays there as well in projects. It's more delays and postponements than cancellations in itself. So work will come later, but this is basically the behavior that we currently see. And we expect offshore wind to further pick up again and also in the longer term or mid-term, so to say, building an infrastructure to come back again because governments will announce or further announce support programs to support the economy as a whole. So that's what we see and then as I said the subsea cable activity is high and that will continue. Hydrography work will continue. It is primarily the oil and gas work that is impacted the most and then obviously some delays in projects in other industries. And then if we talk about the charters, so yeah the fleet is somewhat smaller but not a lot smaller than some years ago. with 25 vessels, owned vessels. We have also stated before that we'll see a more mixed picture moving around the world. Last year we had a lot of vessels in dry dock for maintenance in the Americas. This year there's more dry docks happening in Europe, Africa region. And then we had a number of vessels, as I said, in the Africa region for a number of projects that were about to start there. and those came to a grinding halt, and in the end, some were canceled even, and these vessels had to be brought back to the European region. And then on top of that, with, yeah, especially in January and February, very stormy weather, difficult weather compared to last year or the years before, significantly more storms. At the beginning of the year, we had vessels our own capacity on standby in Europe, Africa. And then in other areas where we have less owned capacity, for instance, in Asia Pacific, the activity was still high, and that continued with chartered vessels. And you cannot bring, as we discussed before, you cannot bring for one or two months a vessel to the other side of the world.

Okay. Mr. Kirsten?

Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone the opportunity to signal. Thank you. Our next question will come from this Birkenhild with ABN AMRO.

Yeah, that's very good. ABN AMRO, good morning. Five questions. Coming back on the staff reduction plan, 10% of salaries is 64 million. Typically, getting rid of personnel costs you one annual salary. So should I assume around 50, 60 million one-off costs for the staff reduction? That's the first question. The second question, coming back on the refinancing, pulling the refinancing track, Can you explain who now exactly made the decision to pull from the track? Because my understanding, it primarily was a matter of rates that USFIGUR were not prepared to pay the rate required, but that the money was available. Then the third question, state support. What is progress there? Is it only in the Netherlands? But do you also expect state support from the UK? If any state support will be received? The fourth question is on governance. My understanding is that the government requirement is a 12 months rolling EBITDA of 125 million. Where did you end the current quarter? And isn't it logical that you will break that 125 million in this quarter? Final question, April. Can you be more specific on what has happened in April in terms of revenue declines in marine, inland, and in the order backlog?

Okay, Thijs, thank you very much. I will hand over to Paul to start answering the questions. I might answer one of them, but Paul, please go ahead.

Yeah, on the cost of restructuring, you assume a pretty rich severance package there, Thijs. That will definitely not be one year on average. Again, it depends very much per country, obviously, and on seniority of people. We think it will be in the range of 20 to 30 million. That's still, I have to say, a very preliminary assessment. This all happened, this whole COVID outbreak and lockdown is, let's say, since five, six weeks. So it is not like, although it feels like it goes on for many, many months, that's not the case. But this is a current estimate. That's what you can take into account. On the refi, as I mentioned already, it was a combination of things. Yes, for sure, we did not want to pay the coupon given the the increase that we saw in the week when markets were crashing when we were out. At the same time, markets were also closing down. So we have not tried it, but if we would have tried it, it might even not have been possible. But we don't know because we pulled it, but this was the feedback that we got from our advisors that, on the one hand, the coupon goes up. You can maybe push it, but if you would push it, You can even question if you want it, given this corona premium in that week. But two, as I said already, it might not even have been possible because markets were literally closing down in that week as well pretty rapidly, and maybe in particular for first-time issuers. So that's on the refi. On the state support, yes, we're trying everything we can. to mitigate, of course, the impact on FTE reductions. It's in multiple countries that we are trying to get some level of support. It's, of course, in the Netherlands, but it's also in the U.K., in Singapore, in the U.S., and Hong Kong. So where possible, we will try to get some BRIDGES support. Again, there are certain requirements that you need to meet before you basically can become eligible for support. At the same time, we have certain businesses where it's a matter of a bridge. That's where the support would work. There's also, of course, parts of our business where it's more than COVID only because of the oil and gas situation, which will continue thereafter. And, of course, if there is a restriction that you cannot reduce headcount, then that would not work for us because we would expect for our oil and gas business to last longer this current crisis than what you would expect only on the back of COVID. So we're doing what we can there. On the covenants, we have metal covenants, also the 125 million EBDA floor. What I can say for Q2 is If we would not be able to meet it, then we will proactively arrange for a waiver or an amendment. We've done it in the past as well. I see no reason why that cannot be done and why we should not get it. So from that point of view, we will stay within our covenants, either the current covenants or amended or waived covenants. One way or the other, we will proactively manage that. And then you had a question on April.

Yeah, so what we can say, if we want to give you some insight in what is happening in Q2 so far, then we see obviously most impact, as mentioned before, in the Europe-Africa region with deteriorated market circumstances there, but also a little bit in the Americas, but to a lesser extent. We expect actually impact of COVID in all the regions. the least in Asia Pacific that has been business more as usual, although having said that, I think all the businesses that we currently execute will have complexities to deal with related to moving people around and starting up projects. But the majority of the projects still continue. But we see some cancellations and, as I said, more postponements. and that will obviously have an impact on the Q2 figures and results. So we proactively address these issues by obviously implementing the measures on cost and CAPEX, as we mentioned before, and we'll amend those measures once we see that the new reality is again changing. And that's what we can say about Q2 so far.

Maybe a question, are you also looking at more divestments? Although probably also there the market at this moment is more or less closed.

Yeah, so what we can say about that is obviously we still have the non-core asset CBAT EU solutions for sale and that process is ongoing and continuing. Other than that, we have obviously the closure of the first part of the HMN, the global marine joint venture in China that is also completing or basically has completed, but we're still waiting for the proceeds there in the upcoming period weeks. And the second part will be in two years from now. So, apart from that, we have the portfolio of services that we believe are core to Fugro, and we're taking the measures right now that we feel are necessary for the current market circumstances. If those circumstances change again, we might review that again, but that's something I'm not going to speculate on.

Thank you. Our next question will come from Andre Molder with Kepler Capital.

Good morning. Firstly, on the order intake, can you give us a feel of how much higher was the order intake in the first two months to see what the decline has been? Secondly, you were talking about cancellations. Any numbers to me mentioned there, maybe in percentages or in size? Last, you mentioned this 20 to 30 million, but the line got cold, so I do not know what that referred to. Can you fill me in there?

Yeah, okay. Paul, maybe you can answer the order intake.

Yeah, on the order intake, there was a significant increase decline in the month of March, exceptionally low levels. We still had a backlog year-on-year growth in January and February, decent growth, but then March came almost to a grinding halt. I'm not going to give you precise figures, André. We don't disclose monthly order and take figures, but it was a fraction of what we got in January and February. It was really significantly lower. We'll see what happens in April. As Mark said, tendering goes on. Unfortunately, still projects are being delayed, partially, of course, COVID-related, simply because we cannot get the people or the assets or whatever at the right location. But it's very unfortunate, obviously, that this happened because Jan and Feb was strong, strong order intake.

Maybe good to add there is that the season obviously is starting now in Q2 as well. So normally Q2 would see a ramp up also, as I mentioned, in a busy year already starting in March, which we expected actually this year to happen as well, which was slower. because of COVID, but also and maybe that gives a little bit of color moving forward. Yeah, the season in the North Sea is starting up and the marine work is also starting, maybe with additional complexities. We're still mobilizing our assets and get projects going. Having said that, as Paul says, there are delays in projects and some cancellations. which is also your second question. Maybe I can take that as well there. We're not specifically releasing exact amounts of projects, but there are primarily cancellations happening in the oil and gas area, so not in other markets. Those are more postponements. Some oil and gas postponements that are coming through, and we have spoken about For instance, the impact projects in Indonesia that is now being postponed or ExxonMobil in Mozambique, also an oil and gas related project. So those are postponed or project for offshore development in Ghana that has been canceled. Those are all oil and gas related projects. Some of these postponements might eventually turn into cancellations. We don't know. That's difficult to envisage right now. So that's what I can say about cancellations.

And your last question, the 20 to 30 million, Paul was talking about restructuring costs around... Cash restructuring costs related to severance for redundancies.

That relates simply to the start of the, let's say, the 640 million.

That's, of course, related to the potentially up to 10% FTE reduction. Our current estimate is 20 to 30 million cash restructuring costs there. That number might change. It's still early days. Of course, it depends on country and seniority. We have a reasonable idea, but not all details are fully clear yet. But anyhow, this is our current estimate, around 20 to 30 million cash out.

Can you give any indication of which division? It looks like marine has been hit the most because there's a double whammy there. Does it also affect the land division? And again, any size of constellations? So we're talking about tens of millions or larger?

So maybe to give it a little bit more color, on the marine side, we are obviously hit by some of the projects that I mentioned just now. So we have communicated to give you some indication around the large project in Indonesia for impacts that has been announced in the market in March. So that's a large project that is now canceled, so you can give you a bit of an idea that's tens of millions that are related to that project. Not everything was in the backlog for this year, by the way, but that will have an impact. It gives you an indication there. It is not only marine being impacted. Marine is also able to, as I mentioned before, to switch gear and move to other markets. We have seen, for instance, assets that become available because of a project postponement on the oil and gas side that we can use it now in offshore wind, which is, I think, important to take note of. And therefore, we can mitigate some of these postponements simply because that market is still buoyant. But having said that, it will also affect the land activity in particular countries. For instance, as you have known and seen in the news, a country like France has been completely closed down. So land activities there also have stopped. In many other countries, land activity continued, was hindered, but we also believe that there some of these activities will dry up at some point if you don't build up new backlogs. So that is obviously, as Paul says, to be seen in April and May onwards, how the backlog will be further built up also for the land activities there. Again, those are more postponements and delays rather than cancellations, and that's, I think, important to take note of as well.

Thanks. Thank you. Our next question will come from Q Mulder with ING.

Yeah, good morning, everyone. Two basic questions. So, your $20-30 million restructuring cost, what sort of savings do you pencil in? And related to that, if I hear Paul speaking about government support, does it include that you're looking for government support under the denominator of COVID-19? And then later on, let me say after three or six months, you say, okay, it's not oil price. Is that what you're going to communicate with the government to discuss that sort of points? And my final question is about the, about the vessels. So if I remember, the first quarter of 2019, it was said that because of the strong fourth quarter of 2018, that the first quarter of 19 had suffered from a lot of maintenance in that period. And we now see the same effect in the vessels, whereas the fourth quarter of 2019 was not very acceptable. So is it possible to elaborate on that?

Yes, maybe on your first question, 20-30 million cash restructuring costs, as I said already before, depending on the scenario, we might cut up to 10%. If you take our total personnel cost as a reference, which was 640 million in 2019 with around 10,000 employees, the average cost per per person is around 60K, so you can do the math, and the 20 to 30 million relates to that. That's an annualized number. Just to be clear, speed of implementation will be different per country depending on local regulations. Some markets you can go very quick, others takes literally months, if not quarters. So we will manage that, of course, as good as we can with a very high level of priority. On the government support, what I said was that we are trying where possible to qualify for government support. The only thing is in certain markets you need to commit that you will not reduce FTE so that you will not have layoffs. We can obviously not commit to that, especially not for the oil and gas part in the business. So if that's the case, we will not qualify. On the land part, where literally it's a temporary slowdown as we see it, where there's a bridge need for government support, we can qualify in certain markets for government support. And that's what we will try to do to avoid as much as possible layoffs, but also to be able to continue work when it comes back after this first COVID lockdown. So that's all the government support. Then on Q1 last year, you're right, America was very weak last year. We were hard hit in the Americas, mainly because of more than planned dry docks, but also longer than planned dry docks, unforeseen repairs, LDs with customers, additional charters, et cetera. It was not a nice story. Now, America did better marine. than this year, both marine site characterization and marine asset integrity. They did not do as much better as we targeted them. They still had, I think, two dry jogs. They still had some also, sorry to say, but the weather, we never like to say that, but that is the unfortunate reality. So we would have expected the Americas to do even better, but marine was better than last year. But, yeah, that was more than offset by a very hard hit to Europe-Africa, where, yeah, as Mark already explained, Europe-Africa was hit in Jan-Feb. March is actually the first month where activity normally starts to pick up. We were preparing for growth. As I said, we even have an increase in headcount in Q1 compared to year-end. We had already some charters ready. We were preparing for projects that came to a sudden stop. because of this more or less global lockdown. And Europe, Africa has basically wiped out any improvement that we would have seen if that would not have happened. So that's on, I think, on your third question.

Maybe we can add a little bit there. For instance... We were with five vessels in Africa since a long time the activity in Africa was about to pick up again and those vessels were not able to start their projects which had an impact on the Europe-Africa region. And then I think coming back on your question around COVID-19 and oil price, Let us not forget that the oil price is also responding to COVID, so it is also related to each other. And the drop in demand for energy is purely related to this pandemic that has taken hold of the world.

No, I understand your remarks on the problems in the oil price where especially when the Russians and the Saudis did not come to an agreement. With regard to geoscience, maybe a question, or let me say more CBET. I see a sale that the order book is 50 million. Can you maybe elaborate on what's going on in CBET, and how do you look at the second quarter, for example, outside the impairments maybe?

Yes, CBET was actually at a good start of the year, also a good backlog. which again literally has changed completely in the course of a few weeks. Unfortunately, we had a project to start early April in Brazil, which is postponed and ultimately might be canceled, but so far it's still a postponement. The good news at least there is that there's a mutual agreement with the customer. There is a good compensation for cost recovery. As I said, the project is still on the radar. It might happen, it might not happen, but that was about to start in April. Then we had two projects early in the year in the Gulf of Mexico with very good operational execution, better than planned. The first one is completed. The second one will be completed early May. And then, of course, we had S-79, which was in our backlog, was supposed to go on until, I think... April or so next year, April, May, and quite unexpected unilateral decision has been taken by our partner and the customer there to stop it because of COVID, because of the lockdown, because of, and most likely in the background also the situation in the oil and gas market. We were also the best bidder on another large project in Brazil with decent margins and That project was officially not set in a backlog, but has been publicly disclosed by the customer. We were anticipating to get that, but that one will at least be postponed and maybe even be canceled. So that one will not continue. So from a pretty solid, good, full backlog and good performance, suddenly we're in a situation where there is basically no backlog after early May. There is still this one project in the backlog that might happen in the course of this year or not. There is still some level of tendering going on. But, yeah, hard to say at this moment in time whether or not that will result in projects and if these projects will start up. I mean, we literally have to see and wait. We will cut very hard and very quickly and very deep in the seabed. We will keep the cash burn rate to a very low amount, the monthly cash burn rate, especially in the first months after the restructuring because of this cost compensation that we still get in relation to this one project. And thereafter, once that stops, we will see if we need to cut even further. As Mark said, we'll also continue the divestment process. Also, of course, difficult to say how that will evolve. But I think in this market, trying to consolidate makes a lot of sense. So it might work, it might not work. We'll see. I'm not going to speculate on that. But the situation has changed quite a lot for CBET from a pretty decent, strong outlook to a pretty empty backlog for the very short term.

Okay, thank you. But with regard to the divestment process, is there anything to mention? Let me see, is that still the case, what it was, let me see, in January, February, or has also the potential buyers have said, okay, it's fine, but we are not looking at it anymore? Is there any progress or anything to mention there?

What I said before is that the process is still ongoing, and we have an investment banker contract to help us with that process, and there are still parties interested. So in that sense, no change compared to January, February, and there's no additional information to report on right now. But as Paul says, we still see this as... as a process that is an active process that is ongoing, and hopefully we can announce in due course something.

Okay, thank you.

Thank you. Our next question will come from Des Berkelder with ABN AMRO.

Yeah, Des Berkelder again, ABN AMRO. Coming back on the net debt and the sub-10, you did the sub-10 in February. to make refinancing possible. Meanwhile, looking at COVID impact at all the cash relations, it looks as if your net debt hasn't improved and that the cash raised has been or is being burned away very rapidly. What kind of mandates do you have from the AGM for new sub-tents and or I recall a kind of emergency shut down. Is that also still there?

We have the AGM this afternoon, so tomorrow we will know. Maybe this afternoon we will know. The net debt has come down. You've seen that. I've shown that. I think what is important here as well is that you say you're burning cash very quickly. Q1 is typically a low seasonal quarter. Last year, we were cash for negative. This year, we were cash for negative. Not a huge difference. So that in itself, given, let's say, the recent levels of profitability is what we've seen also last year. That in itself is not a very big deal. More important, of course, is what's going to happen going forward. Typically, Q2, Q3 are strong quarters. How hard will we be hit? How many projects will be postponed? What will continue? Now, we have different scenarios. It's hard to tell. We are ready and we'll implement depending on what scenario will unfold. That's what I can say now, but on the back of Q1 only, as you know, last year we made a big improvement compared to the year before. Last year Q1 was weak. This year Q1 is also maybe a little bit too weak or at least mixed, I would say, with APEC doing significantly better. Europe, Africa, because of COVID, significantly worse. And America and the Middle East are more or less similar. So what is very important is literally the coming two quarters. What is going to happen and do we see more postponements or not? How difficult will it be to continue our projects or not? So far we've managed. We think we can continue to manage. But, yes, there is, of course, a level of uncertainty that is difficult to predict.

Yes. Clear. Thanks.

Yes. Maybe good to add that there is also a negative impact of 10 million around the forex exchange market.

And if you do the net debt swing test, so the positive, of course, the negative is, of course, the negative free cash flow in the first quarter, but we had that also last year. And you know how we closed the year, which was not bad. Secondly, there was almost 10 million currency impact on currency balances as a result of which net debt increased we always have the impact of the accrued interest versus the paid interest on the bonds. You know that gradually the value in the books will accrue to nominal value due to the fact that the accrued interest is higher than the paid interest. That's the accounting required under IFRS. So that is every quarter an increase to net debt. We did a small acquisition in Q1, but that's only a few million, which we announced in Belgium. That, of course, impacted net debt somewhat. But if you add it all up, it improved as communicated.

Thank you. Our next question will come from Andre Moller with Kepler Capital.

Yeah, two remaining questions. First, if for the first time reported hard EBIT numbers, What kept you from giving numbers per deficient or for the geodeficients as well?

Yeah, that is a decision that we have taken to give you something more. And I understand, obviously, if we give you a finger that you want the whole hand, but this is what we have decided. We give, so to say, hard numbers for the group. And obviously, moving forward, mid-year, you will get more information.

Last question, and that's possibly the $1,000 question. Can you give us a feel of your rates on leverage? Let's say you lose $100 million in sales. What kind of costs will drop off the list? Any measures that you plan?

That's always difficult, André, because If it happens as quickly and as unexpected as now happened due to COVID, you are in a different position than when you can plan for a decline in revenue. Because then, of course, you can plan your charters better. You plan your variable costs will then come down because they were supposed to be variable. But if you just, let's say, locked in a charter for a few months because you were expecting growth and because of COVID suddenly that stops, It's difficult, of course, to see a subsequent reduction in cost as well. Normally, I would say that with revenue, it depends again, business line, service line, et cetera, but if you take a variable cost of around, I don't know, 40%, 50% maybe even, that's a reasonable indication, but things can be. We've seen it in March. Things can be very different if it comes extremely sudden and unexpected. And that's what makes this situation pretty damn complex.

What is maybe good to emphasize there, André, is also that the situation is different than a couple of years ago where we had more longer-term charters on our books. Those are... are now not there anymore. So the short-term charters that we have, the seasonal charters, we can let go of quite easily, which is important, obviously. And secondly, we're also preparing, obviously, for a situation where we might need to stack one or two vessels ourselves in a particular region. So we're also preparing for reducing capacity there temporarily if that is required. Right now, that is not being executed right now.

Okay, thanks for the insight.

Thank you. Our final question comes from Q Mulder with ING.

Yeah, from Q Mulder for web questions too. With regard to the short-term charges, I understand that there is some impact in the second and the third quarter with regard to the short-term charges not can, yeah, they were higher, let me say, in January, February, based on optimistic scenarios. Is that correct? And my second question is, What is the cash outflow related to the Manta investments, or let me say the customer, or let me say the supporter of the Manta has given to you? What is the cash outflow in the second quarter?

Yeah. Maybe first on the short-term chart, as you're right, some charters indeed were already high short-term for either a number of months or maybe two quarters. Some of them we might still be able to get rid of them. Of course, procurement is on top of this. So, where possible, we will try to negotiate and push this on due to the current situation. So, it will be a mix. Some, we will be successful. Others, maybe not. We'll see, Corijn. As you know, we had this buyback obligation for the nodes. We had a net debt in our books of around 20 million euros related to this buyback obligation because now we buy the notes back earlier. We buy them back at a higher value because they are less depreciated, of course, and it will be around 25 million euros, which means that we'll have in Q2 a net debt increase of around 5 million or so because the debt, of course, is then being redeemed by buying back these notes, but at a somewhat higher value because the notes are not their depreciated one year less than what was anticipated in the buyback.

Okay. Thank you.

Thank you. At this time, there are no further questions. I would like to hand it over to Mark Hayman for closing remarks.

Yes, I would like to thank everybody for your participation, and I wish you all a very nice day. Good luck.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.