Fugro N.V.

Good afternoon. Welcome to the Full Year Results webcast of VUGO. I'm Katrien van Buttingaai, Vest Relations. I'm here with Mark Heijnen, CEO, and Paul Vragen is CFO. They'll give a presentation that will last about 30 minutes or so, I guess, in total, and afterwards there will be room for questions. Mark, can I turn it over to you, please?

Sure. Thank you very much, Katrien. I will first go for an introduction and then hand over to Paul for the detailed financials. We'll start with some highlights of 2020. I would like to say that obviously 2020 was a special year. As we all know, COVID very present and started the second quarter of the year, obviously having an effect on Fugro. Therefore, we also see over the full year a revenue decline of 12.4%. However, having said that, looking back on the full year, we can be pleased with the results that we managed to get in this quite difficult year for many companies as well for Fugro. I will touch base on all these items that are here listed on the highlights. So I will go to the next slide to talk a bit more about the revenue development. So for the full year, as I said, 12.4% decline. If you look at the second half of the year, it's more, it's 14.4%, which obviously has to do with two quarters affected by COVID. Whereas in the first half, it's obviously only majority in the second quarter. If you then look at the bottom line result, the EBIT margin, then there you can see that that was hugely affected in the first half of the year. We also started with a difficult first quarter in 2020. and then compounded with the second quarter where the revenue came down by 19.3%, that had an enormous effect on the bottom line. Having said that, Figueroa managed to step in very quickly and therefore also see the result of that in the second half of the year, and we even managed to achieve a better result, a better margin for the second half of the year compared to the second half of the year in 2019, a margin of 6.5%. compared to 5.4. If we look at the diversification of Fugro, which is also an important element that we have spoken about quite a lot over the last period of time, especially also around the refinancing, Fugro is diversifying. This is a conscious decision from the company to see if we can balance the mix better with different end markets. Obviously talking about oil and gas, used to be very prevalent, close to 80% in 2014, and now down in 2020 to 45% for the full year. If you look at the two separate half years, and we have to realize that quarter by quarter, we mentioned that in quarter three, due to the refinancing, we actually issued quarterly results for the market. We will continuing to list half year by half year. That has to do with the fact that there's quite a bit of fluctuation between the quarters. and therefore we will continue to present these by half year. Also, we saw in the second half of the year a further decline of oil and gas and stepping up even more in the offshore wind. The renewables is then 24%, close to a quarter of the total revenues for fuel growth, which is a nice imbalance with infrastructure, also 24%, and also growth in nauticals. There's a small correction between the quarters in the second half of the year, 6 million correction is also listed there in the footnote. But all in all, we see a growth in offshore renewables for the full year of 28%, which is remarkable, especially if you look at the COVID year. If we, oops, let me see, I went a bit too quick. If we look at the market by market, no, one back, yeah. So the trends in the Fugro markets, I think there's the general global trends we can talk about, and we spoke about that population growth, urbanization, climate change, but also the technology developments are quite important for the whole world. And that has an effect on the specific industry that Fugro is working for. And this results in topics like energy transition, climate change adaptation, but also sustainable infrastructure development. and then obviously the digitalization that the company needs to go through. So this is our key industry trends that we will continue to focus on and to also support these industries in this development that we will see becoming more and more important every year from now on. In the short term, if you look at the markets, we can obviously see that the pandemic, the COVID pandemic will have an effect and continue to have an effect on the global economy, on the world, the society in general. And that will continue for the upcoming quarters. That is obviously clear and it creates uncertainty. We have to be clear about that as well. But Fibro does expect in the second half of the year that we will get to more normal market circumstances. That's maybe good to mention there. What we also see is that the pandemic has an effect on a number of topics, global topics, primarily climate change. And we'll come back on that a little bit later in another slide. If we look at the energy transition in itself, then you can talk about the renewables in particular. We see obviously a number of movements there, especially the growth in offshore wind, which has been for multiple years now above 20%. And also for the upcoming years, we expect a steep growth in the offshore wind development. Oil companies or energy companies, I must say, they shift their investment program also much more to the offshore wind development, the renewables development, wind and solar. But for Fugro specifically in the offshore environment, the wind market is quite important. And we see growth in Europe, as we spoke about, but also in the Americas and Asia Pacific. And that is growing in every sector. area of the world. If you look at oil and gas in total, you could say that that will remain volatile for 2021. Reports obviously give different insights there, but especially Fugro is quite careful in estimating a return on the oil and gas side. But also, having said that, oil and gas will continue to play a role for Fugro, and also moving forward, I think oil and gas is also needed for a sustainable world for decades to follow. Some examples in this area, and it's always good to be a bit more concrete, what is FIGRO doing there? Well, if you look at the energy transition, for instance, in the wind business, you see that we also get involved now in floating wind. Here you see an example of a project that we support in Portugal. The first floating wind projects are starting up right now. FIGRO has to play a role there for the foundation, the mooring on the seabed, but also for the positioning. and moving these structures offshore in the right location. This is a semi-submersible offshore wind floating solution and Fugro has helped there with various services and solutions that we have to offer. So we see probably floating wind picking up more and more in the upcoming years. Specific companies are only focusing on floating wind. We'll see more and more in that sense. On the right side you see another project in Germany where there's power cables, underground power cables installed to actually transport all the wind power that is collected also offshore. This is a big project. FIBRO is involved with the AAA services that we have, so acquisition of geodata, analytics in our laboratories, we have 37 laboratories in the world, and then also providing the advice that is required for these projects. and the geodata forms a central role there. If I go to the next important industry trend that Fugro supports is the sustainable infrastructure development, which is obviously an important driver as a whole in the world where we see urbanization and population growth becoming very prevalent. And if you look at this market trend for a number of years, infrastructure market is growing. We also managed to pick that up again, that growth, and we expect 2021 to grow again. Obviously, COVID has stopped that growth for a period of time, especially because projects were delayed, postponed, not so much canceled. But those projects are also being picked up right now globally. We see projects starting again. That always takes time. Certainly in the winter months, it will take a little bit longer. But we definitely see with the government support that you see in various countries coming up now, the recovery of this market segment. Very important. We also bring in more digital solutions there that we actually can drive efficiency and actually make the operations more effective, cost effective as well. Maybe if we look at an example there. This is a very good example of something that we do very close by here in the Netherlands, in Amsterdam. We're monitoring with new technology, Fugro Total Light Solution, which is something that we're just deploying for the first projects now. Very innovative, based on light, we can actually monitor the behavior, the stability of these walls and bridges, in Amsterdam, which is very critical, especially in an area where we see more and more aging assets in the world. Everywhere the assets become older, maintenance is postponed. It will be an enormous program to get back to that maintenance program. And in the meantime, you need to start monitoring to ensure the safety for the people that live there. And that will become more and more important everywhere in the world. We see similar requests coming up more and more. And you can, with the technology nowadays, also go to near real-time or real-time measurements where you continuously monitor these structures. If we then talk about climate change adaptation, that is also very important in a world that faces this climate change and the temperature rise. We see an enormous effect by climate change with natural disasters of extreme weather. I don't have to give you the examples there. And there's an enormous investment needed. We're talking about 140 to 300 billion investment required to actually get the adaptation in the world implemented. This is an area where Fugro can actually help with solutions for flood protection, coastal resilience, but also areas where water is scarce, is drying up. We will see an enormous effect on foundations there. And we see that here in the Netherlands, we see that globally as being a big topic. But also freshwater, sourcing freshwater is becoming important everywhere. Now, we see a number of areas and the new Biden administration also gives us hope that even there in that area of the world, there will be more attention to the climate change adaptation work. And Fugro can play an important role there. Let's look at a few examples there. Some good projects here. We have been very active in Romania, where we, for the World Bank and Romania, did an extensive survey on building a digital terrain model to actually calculate what floods could take, how it works, model things. Very important for climate change, flood control type of work. On the right side, we see something else where we talk about mapping the seabed, which is hydrography work that we do in many places in the world. This is in Australia, where we also deployed our USVs, the new USVs that we launched, the Blue Shadows, we call them now. And they basically collect seabed information, water depth, which is very important to also better understand the behavior of the oceans, and how actually it affects the coastlines, and therefore also important for coastal resilience. This is something that is now more and more outsourced to commercial parties. Even this year, the UN started the UN Ocean Decade. That started at the beginning of this year, which is a decade long, where they will focus on mapping all the oceans. There's only 19% mapped of the oceans, so there's still a lot of work to be done. Then two more slides from my side and I hand over to Paul. We also announced that we have a ambition to contribute to moving towards carbon neutrality. Very important. The full management team in Fugro is very committed to work towards carbon neutrality in 2035. And we will do that for our own operations. So you talk about scope one and scope two here. We have a number of actions listed there. We obviously have to look at our vessel fleet because that's very important. 80% of the carbon emission and footprint comes from the Fugro vessels and the vessels that we obviously use in our operations. And we have a whole program obviously replacing them with remote solutions, lightly crude solutions, uncrude solutions, but also maybe with hybrid propulsion or energy sources, different fuels, and maybe even different platforms in the future. And it obviously has an impact on many stakeholders here, our clients, employees. Clients want to progress with their programs as well. So it's very important that we as a supplier in this market actually help the world to become faster in changing to carbon neutrality. By the way, Europe has a target in 2050 to be carbon neutral. So I think companies have an obligation to contribute to that. Then my last slide before we go into detailed finances. This is a slide that many of you have seen before. We have used it during our refinancing as well, where we list very clearly our key investment highlights, the strong points of Fugro. We believe that they are still very applicable. We are well positioned, much more resilient company that obviously focuses on our technology, our solutions that we can offer. much more mobile, much more remote, much more flexible in basically serving markets that still change over time. And we have seen in 2020 that we have adapted ourselves quite well under very difficult circumstances. And with that, I would like to hand over to Paul for the results.

Thank you, Mark. Maybe first a few key messages. Modest year-on-year EBIT decline despite the strong revenue decline with even a recovery in H2 as Mark already said. Acted quickly and decisively with cost measures which contributed of course to the EBIT recovery in H2 growth in offshore wind and also important improvements in land. As I said, the actions in land start to yield results in the second half, clearly visible, I will show it in the upcoming slides. Very good working capital performance, resulting in a DRO of 83 days. Good cash flow, 105 million Euro, including some, let's say one offs, like the 50 million divestment proceeds from Global Marine and 20 million COVID related deferred tax payments. And as you all know, refinancing is done successfully and will provide flexibility to deliver on our path to profitable growth strategy. One too far. Here you see the cost measures. So you see that we had a very significant revenue decline. So the EBIT in 2019 was 68 million. Revenue declined by 245 million, so if no cost measures would have been taken, then if the same cost base, we would, of course, would have been down with the same amount. But you see there the various buckets, Other income year-on-year increased by 15 million. Third-party costs were lowered by 132 million. Personnel expense lowered by 55 million. And other expenses, mainly discretionary, lowered by 20 million. And DNA also slides over, resulting in a 48 million EBIT in 2020. Maybe good to note that these cost reductions that you see here are also supported by currency developments. is around 30 to 40 million currency impact, further reducing the cost. And in my next slide we will show now that there we put it excluding currency effect and also only the measures that we have specifically taken and not the benefits from other cost reductions that we have seen. Yeah, we're on track to realize 130 million cost savings. You've seen it also in the previous slide, which is in excess of our previous target. It was 120 million. Here you see the various buckets where we have explicitly taken action. 95 million is in the pocket, is done, and we expect in the coming three, four months in this year, year and year, a saving of around 35 million as per the various buckets that you see highlighted here. For the full year 2021, of course, you have to realize that this cost program kicked in already from, let's say, April, May onwards last year. So from that moment onwards, of course, the comp is similar to the reduced cost base as we have it today. So the big change you will see in the first, let's say, four months or so. That's one. And two, another important point is that these savings reflect the savings of actions that we specifically take and do not include some other items that result in cost increases, like, for instance, salary increase. So this is the net amount of personnel expense reduction as a result of tax we've taken. But, of course, that will be partially offset even when we decide to do a salary increase somewhere in the first part of this year. The same is true for discretionary expenses. Of course, COVID has resulted in no travel, no marketing conferences, low office utilization, low utility costs, Obviously, when this gets back to normal, these costs will increase somewhat compared to the very low level that we see here. Now, despite double-digit revenue decrease, modest fiscal year EBIT decline, we mentioned that already, you see the 12.4% revenue decline for the full year and 14.4% for the second half. It was around minus 10% in the first half. I think most important here is the H2 EBIT which improved from 5.4% to 6.5% with a decline in marine, I will come back to that, and a pretty significant improvement in the land business. Here we see the marine figures. So for the full year, revenue decline of 15%. Half year, so second half year, 20% decline. And in the first half, it was approximately a 10% decline. You see the margin full year coming down from 5.7 to 3.5. But also in the second half year, a strong recovery compared to H1. H1 was 1%. H2 is 5.9%, but year on year still a decline from 7.6 to 5.9, but which is limited again on the back of the 20% revenue decline, mainly because of the cost measures we've taken and the very strong growth in offshore wind. Land, here you see a different picture in terms of revenue. For the full year, revenue down 5.4%, but for the second half, flat, marginal growth even, 0.6%. And in the first half, we had a tough time, particularly in the Americas. We were down approximately 10%. You see here the margin development, 2019 more or less flat, 2020 3.4%. And you see the big improvement in... In the second half, 16 million. And I think most important here is that this improvement is visible in all regions. All four regions, the improvement is basically carried across the board. And that is very important. Two, the 16 million includes 3 to 4 million transaction gain on the sale of property in China. That's, of course, a one-off and should be adjusted for that if you do a like for like. And maybe also important to note, although I don't have the specific figures, in H2 there's government support included, also in H1, but more in H2 than in H1. And some of that government support is most likely related to H1. But we can only account for it once we know that we get it. So some of the H1 government support was accounted for in H2. Now the four regions, Europe, Africa, 11% down in revenue. Second half revenue decline was actually, contrary to all the other regions, was lower than the first half. So the first half revenue decline was higher, around 13%, and the second half around 9% to 10%. Still, despite this 11% revenue decline, a decent EBIT margin, although down year-on-year from 10.5% to 7.9%. But I think more important, Europe-Africa did an incredible job in the second half, still with a significant almost 10% revenue decline. We saw the margin improve to 12.8%. compared to 10.4% in the second half of 2019. So very, very strong result in Europe-Africa. And again, that has everything to do with the cost measures taken, but also, of course, with the strong growth in offshore wind. Americas, different picture, 12.6% revenue decline for the full year. Second half revenue decline was higher, was almost 15%. First half, around 10%. You see very different pictures for marine and land. Marine improving year-on-year in the bottom part of the slide, land coming down. If you zoom in into the half years, you see that the improvement of marine was fully in the first half and was down year-on-year in the second half, on the back of a pretty steep revenue reduction. Land is the opposite. The result that you see there coming down is fully related to the first half and land year-on-year was improving in the second half. Again, on the back of quite some measures that we have taken. One too far, Asia-Pacific, yeah. APEC, 10% declines. You see basically across the board all double-digit declines, 30% in the second half and around 7%, 67% in the first half. The revenue decline in Asia-Pacific is fully related to, for the full year at least, fully related to marine site characterization, because we saw growth in the marginal growth, but still growth in the other business lines, which is in itself good, of course. You see there the decline in EBIT for the marine business, but a very significant improvement in the land business. This part, of course, includes also this transaction result of China, But overall, we saw growth in the land business all in the second half, but even so much that the full year resulted in a growth with cost measures and growth plus cost measures give this result, which is pretty good, obviously. Middle East and India. Yeah, that's challenging H2. And what we see in all the regions is that H2 is better than H1, except for the Middle East and India. You see there the revenue decline of 20%. Now, the revenue decline in the second half was slightly more than 30%, and around 10% in the first half. So a very significant revenue decline. It has everything to do, of course, with the large ONG, oil and gas exposures, that we still have in the Middle East and India, with limited offshore wind and other work that we see in the other regions. The land business improved a lot, as you see there, also growth in the land business, so that's a positive, but the marine business, in particular again due to the oil and gas exposure, had a pretty difficult time and we are taking further actions to adjust the organization and the call space, of course, to the new revenue reality. And CBET, yeah, CBET is still held for sale, as you all know, most likely, and has been very severely impacted in 2020 by COVID. As you know, the large project was stopped in the middle of the project. unexpected, to be honest, with a pretty big impact on the bottom line. We have had basically no work since May of last year and started to work at the end of this year for a project in Brazil. Workforce reduced by around 60%, so a very significant cut, and as you see quite a few specific items a 70 million non-cash impairment, 25 million on-roads contract provision, mainly related to this SM79 project, and net result in an adjusted EBDA of 4 million, which includes, by the way, a 5 million gain related to the sale of shallow water cable assets. Then everything below the EBIT, there's quite a few things. You see there are 28 million in specific items. That's mainly restructuring cost, 18 million. But as you've seen, we target 60 million personnel expense savings at a cost of 18 million. So that's not too bad. non-cash impairment of 6 million and other costs, many legal costs related to the Southern Star arbitration of 5 million. Then in the financial expenses you see a big currency revaluation loss, so revaluation loss on cash balances and related to US dollar cash balances, Singapore dollar cash balances, Angola, but also a few smaller ones like the Brazilian REI, the Norwegian Crown, etc. but the largest one were the three that you see on this slide. In addition, we had a DTA deferred tax assets write down in the US of 19 million. And yeah, if you add it all up, that brings you to the 74 million net result from continuing operations, negative minus 74. And then we see that basically the 100 million negative, there is almost all specific items impairments and restructuring cost and onerous contract provision. Working capital, very good performance. As you know, we are typically around 90 days, plus or minus five. Every quarter we see swings, obviously. Now this quarter, again, it will cause a lot of attention and effort on it. We managed to get to 83 days, the best I've seen in Fuglo so far. really good performance, good contributions from all regions, which is also important. Then in addition, there is a 20 million deferred tax payment in this 8.1% of revenue working capital in this 1.112. That will partially, let's say, be paid in the course of 2021, approximately 50%. And we expect that at year-end 21, we still will have around 10 million deferred tax payments in our working capital. Maybe also good to note that last year, so December 29, we also saw very low working capital. And that was because of the working capital, the impact of the Southern Star provision on working capital. And there was a payable in there. It was not yet paid. And that payment was done in 2021. and of course impacting as a result of that also the cash flow of 2020. Now you see the cash flow, 105 million free cash flow. Last year, 58 million. You see the swings here. Operating cash flow before change is 86. Working capital, a big, big plus. Of course, because of this deferred tax payment, also because of the revenue decline, because of revenue declines, Of course, we release cash from working capital, and once revenue starts to grow again, you build up working capital. The divestment proceeds from Global Marine, 50 million, Capex, 81, and some others, resulting in a pretty decent cash flow of 105 million. The refinancing is known, I can be quick, it's done, successful, very pleased that we have been able to achieve this. towards the end of last year. You see here the maturity profile. We have 59 million and that was a deliberate choice of the 2021 bonds remaining. They'll be paid of course at maturity. There's still 100 million of the other bonds maturing in 24 with a put in 2022, November. And then of course the term loan and the RCF. And the RCF is undrawn at this moment and only the term loan is fully drawn. Then the net debt, 296 million including IFRS 16 and only 163 million excluding the impact from IFRS 16. As a result of the refi and of course the equity raise, you might have expected of course a strong improved balance sheet which you see here. a leverage of 2.1, including the impact of IFRS 16. If you just forget IFRS 16 for a second, it's 1.6 at a relatively low point in the cycle, I believe. So a decent, very good leverage. Interest coverage 3.2 and solvency 41%. So all of that looks good. And that brings me to the outlook, and Mark will do that. So over to you, Mark.