Fugro N.V.

Welcome to the webinar of VUGRO's half-year 2021 results. I'm Katrien van Buttinga, Investor Relations. I'm here with Mark Heijnen, CEO, and Barbara Geelen, CFO. They will hold a presentation, which will take, I think in total, around 20, 25 minutes or so. After that, there will be time to answer your questions. Mark, I'd like to hand over to you now, please.

Thank you, Katrien, and also welcome from me. Good afternoon, everybody, or good morning. So I will first give you some insight on the highlights for the first half of this year. So, and to start with, yeah, to say is the second quarter of this year is quite different than the first quarter of this year. During the second quarter, after exactly one year after the pandemic started, we have returned back to growth. And this was largely on the account of renewables business, which also highlights the flexibility we have to move assets around to various end markets. And that is also reflected in the profitability that improved for the second quarter, but also for the total of the first half of this year. And we saw that in both the land and the marine business lines. In the coming slides, the three slides, I will briefly highlight the first few bullets, and then thereafter I will talk a bit about the business, some of the changes there, and then I'll hand over to Barbara to talk about the financials in more detail. So in this slide you can see how different actually the second quarter was from the first quarter. Very visible here where we see a decline of 17% in the revenue in the first quarter and a 14.1% growth in the second quarter. that is visible in all the regions except for the Middle East and India, which is obviously a bit more dependent on the oil and gas market, and also the infrastructure markets there obviously rely on the earnings from the oil and gas market there. We also have to say that COVID pandemic is still very visible around the world. Obviously, in some areas here in Europe, we can see the benefits of the vaccinations that really have increased, and that is obviously good to see. It also reflects in the numbers. But actually, in many places of the world, we're still very affected by the COVID pandemic and the difficulties to keep the projects going, the logistics of the projects in itself. In this slide you can see what the margin has done over the first half of the year. And both in the first quarter, but also in the second quarter, we see an improvement compared to last year. It is visible again in land and marine, which is, I think, pleasing to see. On the left side, you see the various quarters there, 8.1% for the second quarter compared to 7.4% in the second quarter last year. On the right side, you see that we have for the first half 2.5% margin for the full first half of the year. contributed by also the land and the marine business, as I said. It's also important to say that the margin obviously went up, not only because of the revenue growth, but also because of the cost savings program that was implemented at the beginning or shortly after the COVID pandemic hit us last year. And we continue to make progress on our diversification, which is very visible in this slide. You can see on the graph in the middle there, currently 60% of our revenue is related to renewables, infrastructure, and nautical. And this is obviously in line, as mentioned before, with our strategic objective to further support our clients with the energy transition, the sustainable infrastructure development, and the climate change adaptation type of work that is more and more required nowadays. And I think what is very important to note here is obviously the continued growth on the renewable side, the offshore wind business, 20% growth for the first half of the year, which is very important because we can also use our assets, the same assets, in the various end markets. So one day we work maybe on offshore wind, the next day on a fiber optic cable installation or a survey that needs to be done for the routes there, or maybe an oil and gas project. Also for the first full half year, we see that oil and gas is still down 20%, quite significant, but that's fully attributed to by the first quarter of this year, because we saw a small increase there in our revenues in oil and gas in the second quarter. Infrastructure was also up, which is good to see after a very challenging 2020. The next slide gives you a few examples of recent project awards in the first quarter or first half of this year. On the left, you see the offshore wind project in Vietnam, where we actually start in a very early stage with weather measurements for this development of offshore wind. Where is the wind, so to say? Where should we place these windmills? That is something that we get involved in, a very early stage. In the middle, you see a project that has been discussed and is very actual, I would say, in the news here in the Netherlands that we also are involved already for multiple years. But now also for a new contract measuring these bridges and key walls in Amsterdam. There are 850 bridges and 2,000 kilometers of key walls only in Amsterdam to inspect. And that gives you an indication how much work there is with the aging assets in the world, because this is only one city in one country, let alone if we broaden that towards the rest of the world. And on the right side, you see a coastal mapping project that we recently got awarded to us in Northern Ireland, bathymetric survey work that we do to actually measure the erosion around the coastlines. And this is also much more important nowadays due to the climate change adaptation work and requirements that we see there in the world. As I already alluded to, markets are changing and driving actually the increasing need for accurate geodata. Our ambition is to support this transition in these various markets, the energy transition with the support to net zero carbon emissions, the sustainable infrastructure development very much to enable safe infrastructure, a safe living environment, Very applicable also to these examples in Amsterdam, but also what we see that we do with reinforcements of the levees and the dikes here in the Netherlands. And then on the right side, the climate change adaptation is obviously a good example there that I just mentioned is to strengthen the climate resilience. And then, in the end, we actually really want to get to the contribution to the UN Sustainable Development Goals. These are the five UN Sustainable Development Goals that we have picked where we feel that we can really have an impact. Obviously, the other 12 that are out there, we want to do well on as well. But these are the ones where we can have most impact. And in the future, FUGO will continue also to report on these and also We aim to actually be more exact on the impact that we have on these UN Sustainable Development Goals. Our strategy really capitalizes on the transition in these markets, so in the energy transition, sustainable infrastructure, and the climate change adaptation. We have three pillars in our strategy, capturing the growth in energy and infrastructure, then leveraging the core expertise in new growth markets. Those are existing markets and existing expertise that we want to apply in the markets that are now growing faster. And that can be because climate change is becoming more prevalent or sustainable infrastructure development. And therefore, we see growth opportunities. And the last pillar in the strategy is the third pillar. They are differentiated by integrated digital solutions. Maybe a very good example there of climate change adaptation is driving the growth in the water market. And the water market consists of a number of elements there. Flood control, I mentioned that already previously. alluded to that with the North Island project there, but it's obviously along the coastlines, but also inshore and inland projects that we do there. Water management in itself, that can be freshwater, but it can be also waterways, more and more projects there. And then in general, the ocean science, mapping the oceans. Think about the ocean decade that just started this year, 10 years of focus from the UN on the oceans to map the oceans globally. Only 20% is mapped in detail, and there's a lot to do. And the areas that are mapped at the moment is the most congested areas where we always have the sailing routes of the vessels, but there's a lot of unexplored terrain there. So there's a lot required because that has a real impact on the climate change and how we can handle that. And that is really driving the growth in the water market. And this is a market that in the future we will keep on the board as one of the key markets for Fugro, so also the nautical market that we report right now, together with the things that are mentioned here on the board, we will form a new water market for Fugro. And during the course of the year, we will communicate more about this. And hopefully we can give you already an insight how large that market is for us at the end of the year. And then moving forward, we will have that on the board on a regular basis. Some examples there, very clear examples on the water market there. I think in the past we have spoken about the seawall resilience project that we have done and that we're still involved in in the USA, in San Francisco. Other examples are the hydrography work, mapping actually, all the oceans around Australia and New Zealand, which is a big project. There's also a 10-year effort for these countries to get this done, and many countries will follow. And they will contribute that data also to the Seabed 2030, another project closely related to the UN Ocean Decade, to map all the oceans in the world. And we do that now also with new technologies, with our airborne laser technology for the shallow water areas and then the unmanned service vehicles that we have, the USVs that we deploy there in this area in Australia to really map the seabed, which is very interesting because we really push the boundaries on the technology there. and we gain a lot of experience there. On the right side, very applicable obviously in the Netherlands, the south of the Netherlands there we have seen floods, which is quite severe, and Fugro has been involved over the last couple of years in a lot of dike projects, levee projects, reinforcement there. And even in the south of Holland now we see the first proofs of the work that Fugro has done. We also won an innovation prize two years ago for a very innovative way and a sustainable way to reinforce these levees, these dikes. And now we have seen actually that it's working quite well. So we will continue to be involved in these kind of projects. What is also good to talk about is our progress on the remote and autonomous operations, the technology that we use. And we see here on the picture several examples of that. I think in the middle, that is maybe good to mention, we see the USVs, the Blue Essence. That's the new USV that we have recently deployed. And the second one is now in the water as well. We're using that, for instance, for inspection work now in Australia for Woodside. We have done the first inspection work there, completely unmanned, out of the control center that you see here as well on the top right side. And also the blue shadow there on the picture on the right side in the middle, that's much more used for mapping the seabed. as I showed you for the hydrographic work that we do in Australia as well. And we will deploy the USVs in various regions, so we'll have one coming to the market in Europe very soon, but also in the Middle East. We will start doing work there and then coordinate it out of the control center. On the top left side, you see also an ROV, which is a smaller electric ROV. We call it the EROV, which is specifically developed to actually operate also remotely from these USVs, which is also something that is in the water right now. Great development. We're really making steps. Obviously, it's a lot in pilot still, pilot phases, but we see real progress there. bottom right there, you see the deep drive system, maybe also good to mention is a technology developed in the marine environment with a coiled rod where we do the CPTs. We can unwind the rod and have then a much more effective and efficient way of collecting cone penetration data. We brought it now also to the land site and have a new solution there, the deep drive system that can be fully automated and remotely controlled so that you don't have any people on the site, but only out of the control center. I can obviously talk about that for hours, but I'll move on. So the second part of the presentation is for Barbara, giving you some more details on the finances, and then we'll come back to me. So over to you, Barbara.

Thanks, Mark. Well, I'm here today. Welcome, everyone. I'm here today to present my first set of results at FUGO, and I'm very pleased that I can start with an increase in our margin. And this is the result of ongoing cost control combined with revenue growth in the second quarter. And I will get back to that in more detail in the next slides. Due to the seasonality of the business, it is not unusual that our first half year cash flow is negative still. A free cash flow of minus 52.5 million clearly requires some explanation, and I will provide that to you as well. Now, on this slide, you see three graphs, the Q1 of this year, Q2 of this year, and the first half, which is a combination basically of both. And then you can see how very different, I would say, the second quarter is vis-à-vis the first quarter. In the top graph, you can see the first quarter development. The revenue decline of 17.2% was still substantial in comparison with the first quarter of 2020 when the impact of COVID became visible towards only the end of the quarter. Marine declined in Q1 by 24.2% due to a weak oil and gas market and COVID. and land showed a limited growth of 0.7%. And in the second quarter, we realized a 14.1% year-on-year growth. Revenue of the marine business lines increased by 11.8% in total. And this swing compared to the first quarter was mostly driven by the site characterization business in Europe and Africa. And in this region, we have experienced continued growth in the offshore wind and a slight increase in the oil and gas work in the second quarter. In the land side, revenue increased by 20.2%. in quarter two, supported by both business lines, asset integrity and site characterization. Activities mainly grew as a result of a pickup of the infrastructure market in three out of four regions, except the Middle East. Overall, first half revenue was down 1.8%. Now, moving to the next slide. I would like to talk about margins, which have improved. In the first quarter, the revenue decline, again Q1, was fully offset by significantly lower third-party cost and personnel and other operating expenses. As a result, EBIT improved slightly. In the second quarter, The margin was supported by the revenue growth, as you could see on the previous slide, and the margin was healthy at 8.1%. In marine, the improvement was driven by Europe-Africa. And in land, the margin benefited from the land restructuring, which has been completed during the past quarters. Asset integrity improved in all regions, as well as site characterization in the Americas. Overall, the first half-year margin was 2.5% compared to 0.6% last year over the same period. Now, on the previous two slides, I have commented on the two separate quarters, quarter one, quarter two of this year. And on the coming slides, also on this slide, I will focus on the regional results during the full half year. So let's first have a look at marine. Europe-Africa was the only region that reported higher revenue. which was entirely driven by marine site characterization business line in the second quarter. And this was a result of the strong growth in the offshore wind business, combined with slightly higher oil and gas levels. In the Americas, site characterization was down, in particular in the first quarter, while asset integrity was up, driven by a number of new ROV support contracts in the region. specifically in Brazil. In Asia Pacific, just like in the Americas, side characterization revenue did not recover, sorry, did recover somewhat during the second quarter. The Middle East, a region with the highest oil and gas revenue and exposure, was the most impacted by the related challenging market conditions. The margin improvement overall in marine was driven by the growth of the off-site characterization in Europe from 1.8% to 3%. Now looking at the land business overall, Europe and Americas are the largest contributors to the EBIT improvement, and land activities grew thanks to a pickup of the infrastructure markets in all regions except for the Middle East and India, as mentioned before, and in particular in the Americas and APEC, and to a lesser extent in Europe and Africa. The margin benefited from the restructuring, which was completed during the past quarters. Asset integrity improved in all regions, as well as site characterization in the Americas. Now, as you know, immediately after the outbreak of the pandemic, we initiated a cost savings program. offsetting the revenue decline, resulting in an annualized savings of around $130 million. In 2020, we already realized 95 million of that, and the remainder was to be realized this year. And this program included, amongst others, a reduction of the workforce by 10%, a salary freeze, and the minimized use of short-term charters and lower overhead costs. And just like my predecessor, Paul Verhagen, already pointed out at the first quarter results, I would like to highlight that not all of the savings are structural. Some costs will return, especially now that revenue has started to grow again. Regarding the bottom half of the P&L statement, I want to just briefly highlight a couple of items. Specific items were composed of 4.8 million impairments, 1 million of restructuring costs, and around 100K of certain other costs. After many years of tax charges, despite making a loss, we can now report an income tax gain of 1.5 million euros. And this was mainly driven by the recognition of deferred tax assets in the Netherlands and a change in tax rate in the UK, in the United Kingdom, from 19 to 25%. All in all, we can report a positive net result for the first time since our 2013 results. Finally, a few words on results from discontinued operations of 11.8 million. This is the combination of Seabed Geo Solutions' good operational results on the project for Equinor in Brazil, partly offset by the costs related to the divestments. And these costs are in line with around the 10 million negative EBIT impact that we mentioned in the closing press release end of June when we announced the closing. Now, let's look at working capital, which was, as I highlighted in the beginning, very much impacted by the revenue growth. And at the end of June, working capital was 218 million. And this is a substantial increase from the 112 million at year-end 2020. But there are a number of good reasons for this. Working capital was exceptionally low at the end of 2020. As a percentage of revenue, it was only 8.1%, in part related to 20 million deferred tax payments. Although we are pleased with the revenue growth in the second quarter, it is logical that this leads to higher working capital. And seasonality is also a factor. As you can see in both graphs on this page, our cash collections tend to be better at the end of the year. The DRO is at 92 at the end of June and is within the range compared to 94 in the same period last year. As the cash flow is impacted by growth, we felt it was good to set that out as well. Now, due to the seasonality of the business, as I mentioned, it's not unusual that our first half-year cash flow is negative. And as you can see on the bottom part of this slide, we did generate a positive free cash flow in the first half of 2020, and this was related to the divestment proceeds from Global Marine. And I am pleased now with the higher cash flow from activities before working capital, which increased from 24 million last year in the first half to 44 million this year. And as explained while presenting the previous slide, the growth in working capital was to a large extent related to revenue growth. And this can be broken down in two components. The largest part related to the revenue growth and seasonality impact, as you can see on the 61. And the remainder is related to DRO and DPO performance, which we remain focused on. CAPEX was relatively low in this period, but we expect a catch up in the second half year, resulting in a total of 80 to 90 million for the full year. Cash flow from discontinued operations, mainly being CBAT, was a plus of 13 million. And this is the result of an excellent performance of the project that we've completed for Equinor, as well as 13.4 million cash proceeds received on completion of the divestment, partly offset by a change in working capital. In conclusion, Revenue growth is a good reason for working capital, higher working capital as far as I'm concerned. However, still I cannot be satisfied with negative cash flow. So this has my full attention. Finally, just a couple of words on debt and liquidity. Net debt at the end of June was 368 million compared to 296 million at year end 2020. And the increase was mainly the result of the higher working capital. Liquidity is good with 369 million in cash and available facilities. And now I would like to hand back to Mark for the outlook. Thank you.