Fugro N.V.

You have dialled into the Fugro Q3 Trading Update audio webcast. At this time, all participants are in listen-only mode. Mark Hine and Barbara Gehlen will present the results, which will take around 15 minutes. Thereafter, there will be time for questions. You will be put on hold until the start of the webcast.

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Good morning. Thank you for dialing in to our Q3 trading update call. I'm here with Mark Heine, our CEO, and Barbara Gehlen, our CFO. They will start with a presentation, a short presentation of the trading update. It will last about 10, 15 minutes in total, max, and afterwards there will be Time to answer your questions. I would like to turn over to Mark.

Yes, good morning, everybody. Welcome to this quarter free trading update call. As Katrien mentioned, we'll go through a presentation. I'll do that together with Barbara. I will take the first part of the presentation and then Barbara will take over and I will round off. So we go to the second slide. In the quarter, our revenue increased by 3.7%, and our ambition to support the energy transition and climate change adaptation is driving the ongoing growth in the renewables and the water segments. On the other hand, after a slight increase in the second quarter, oil and gas-related revenue declined. In general, this quarter business operations continue to be impacted by the pandemic, certainly to a larger extent than we initially anticipated, even also around mid-year. And this was the case in particularly in Asia Pacific and the Middle East. And that also in combination with a lower margin in Europe, Africa, compared to a strong quarter, third quarter in last year, 2020. Our margin altogether for the group in this quarter was 7.6%. This is slightly below the 8.1% of the second quarter this year. I'm pleased to report that the free cash flow was 77.4 million due to good activity levels and a lower working capital. Following a good order intake in August and September, the 12-month backlog is up by 8.9%. The increase was supported by all business lines and all regions, except for a marginal decline in the Americas. I will get back to the 2021 and the mid-term outlook towards the end of this presentation. Next slide, please. When presenting the previous slide, I already referred to our ongoing diversification, and that is obviously highlighting our strong position and flexibility to shift our assets and capabilities to strategic growth markets. And we grew in line with a very buoyant offshore wind market, which now accounts for 30% of our revenue. And another 30% or another third of our revenue was generated in infrastructure and water. And with our technical innovation, digital solutions, and strong reputation, we are well positioned to contribute to the energy transition, climate change adaptation, and sustainable infrastructure. And this is demonstrated by a couple of our recent project awards. which you see here illustrated on this slide. We have done multiple site characterization projects for offshore winds. For instance, in Germany, the USA, South Korea, Japan, there are many more countries like the Netherlands, but also Japan, Vietnam, and so on. We also have done various positioning projects for damage assessments in the aftermath of the Hurricane Ida. And what you also see here, research into the cause of subsidence, a former peat extraction site here in the Netherlands, very close to Assun. And we also recently signed a strategic partnership with the Intergovernmental Oceanographic Commission of the UNESCO. Having been involved in the UN Ocean Decade Planning since 2019, we are committed to help build a digital ecosystem encompassing all the sources and types of ocean science data. And this bold global initiative focused on reversing the cycle of decline in ocean health fits perfectly fine with our purpose to create a safe and livable world. Next slide please. So if we have a look at the markets, and first the renewables market. The renewables business continues to grow. And this very buoyant market, as I said, is obviously very visible in Europe and more and more in the Americas. But also now Asia Pacific picks up, and we eventually believe that this could even be the fastest growing market in this field. The majority of Fugro's work in the offshore wind is site characterization work that is done two to five years before installation, acquiring and analyzing geodata, providing insight around ground condition and its local environment. Next to the traditional key players in this field, like the Ørstedts and the Vattenfalls, RWE, and various governments, we clearly see the international energy companies shifting their investments towards these new energy forms. Hugo does a lot of work for companies like Shell, Total, BP, ENI, Equinor, and many others in this field right now. And Fugro is a clear market leader in this field of expertise. Also expanding in combined solutions now involving hydrogen and carbon capture and storage is really becoming increasingly visible in the world. Next slide, please. The oil and gas market, and in particular gas, is expected to grow again. And as clearly stated at the start of the year, we do not expect revenue growth for Fugro in this field in 2021. We did, however, expect the market to slowly recover for the remainder of the year, as we also saw in the second quarter a small growth. However, that did not continue during the third quarter of this year. So the only growing region in this field in the third quarter was Europe. And that is very much aligned with what you see here in the bottom right of this slide, the investment profile built by the data received from Rijstad. You see the investment profile there. Only Europe, Africa is the region that is growing there, and that is also what we see back in our revenues. And I would like to also use this opportunity to emphasize that Figueroa is not involved in searching, nor drilling, nor production, nor transportation of any oil and gas services. Figueroa is purely involved in ensuring that the marine infrastructure is safe and does not create any harm or leakage and will not pollute any oceans or coastlines. A very critical task that we managed to do with more and more sustainable solutions and where we help our customers with insights on geodata and moreover reduce their CO2 footprint. We do expect our oil and gas services to further bounce back next year, probably more clearly. Next slide, please. And in the world where infrastructure is rapidly aging and where governments really step up their investments, this field In this field, with the expertise of Fugro, we see many attractive opportunities. Albeit still somewhat hindered by COVID in several areas in the world, we expect growth in this market in the mid to longer term. Several new solutions and technologies have been developed by Fugro that support the clients in more efficient and more insightful ground risk-related information. Next slide, please. the water market. As announced during the mid-year results, in future we'll speak more about water market. And this market is growing rapidly and is a combination of the nautical activities that you saw in Fugro before, which is all related to seabed and coastline mapping, but also the risk mitigation work related to sea level rise and flood control, summarized very often as coastal resilience work. This growth market is expected to continue to grow, and also further mature. And Fugro deploys our existing expertise and assets in this area. We were already present in this area, but it's growing much more in the years to come, and therefore we see more and more opportunities to deploy our expertise here. All the work here has direct connection to climate change and moreover actually to climate change adaptation type of work. And I would like to hand over to Barbara now for the next few slides. So over to you, Barbara.

Thanks, Mark. So we go to the slide eight. And on top part of this slide, you can see how very different the revenue development has been per quarter. And this is mostly the result of the outbreak of the pandemic at the end of the first quarter of 2020 last year. This quarter, revenue increased by a modest 3.7%, led by the Americas and Asia Pacific. In Europe, revenue was stable, and in Middle East and India, revenue was down 3.4%. And as Mark already said, business operations continue to be impacted by the pandemic, and in particularly, operational complexities of cross-border projects in Asia Pacific and low oil and gas activity levels in Middle East and India. And in addition, our margin in Europe-Africa was below a strong third quarter last year in 2020. And all in all, our EBIT margin came in at 7.6 percent, slightly below the 8.1 percent in the second quarter. Next slide, please. Now let's take a closer look at the revenue development of our marine and land business lines. Let's first look at marine on the left-hand side, where revenue increased by 6.7% in the quarter, or 20 million. This was led by the asset integrity business line in all regions. In site characterization, however, only in Asia-Pacific revenue was up, in particular on the back of renewal projects in Japan, South Korea, Taiwan, and Vietnam, as already mentioned by Mark. This was, however, offset by declines in the other regions on MSC. Overall, vessel utilization was 76% compared to 74% in the third quarter of 2020. driven by Asia Pacific and Middle East and India. The 3.7% decline in land on the right-hand side of the slide, or 3 million decrease, was fully driven by site characterization, and in particularly, again, on the Middle East and India. And this region is still strongly affected by low oil and gas activity, as we said, and infrastructure spent in the Emirates and Gulf region. In the Americas, the business line realized a double-digit increase. Asset integrity was up in three of our four regions. Next slide, please. In the typically busy third quarter, free cash flow was 77.4 million euros, substantially higher than the 36.7 million in the same period last year. And this is a result of good activity levels and lower working capital. And I'm pleased to report that working capital was substantially lower compared to the end of June. As a percentage of 12 months' revenue, it was 13% compared to 16.1% at mid-year. In the number of days of revenues outstanding, the DRO decreased to 86%. from 92 days at mid-year. And this all together resulted in a net debt amount of $306.6 million compared to $368.4 million at half-year, 21, and $295.8 million at the year end of 2020. Net leverage remained stable over the quarter at two times leverage, and liquidity is good with over 400 million in cash and available facilities. We've also repaid the convertible at the end of October, which I would also like to mention here. Then I would like to hand back to Mark for the outlook.

Thank you, Barbara. Then the outlook for this year. For the remainder of the year, we expect further revenue growth in renewables, infrastructure, and water markets. And that's despite the ongoing pandemic-related challenges. The modest recovery of oil and gas-related revenue, which we expected for the second half of this year, has not yet materialized. Still, for the full year of 2021, we reconfirm our guidance of revenue growth, a modest margin improvement, and an around break-even free cash flow. Next slide, please. Then the mid-term targets. In November 2018, we announced our path to profitable growth strategy. And at that time, we also defined our mid-term targets that we were aiming to reach by 2021 to 2023, between that range or in that range. In the meantime, a lot has happened, in particular COVID and a related energy imbalance. and therefore we had to reset the timeline. So now we can announce the following. The timing of the mid-term targets has been redefined to 2023 to 2024, by when Figueroa aims to achieve an EBIT margin of 8 to 12%, a free cash flow of 4 to 7% of revenue, and a return on capital employed of 10 to 15%. Our path to profitable growth strategy targets improvements in profitability and cash flow based on the following drivers. Revenue growth, in particular in renewables, infrastructure and water, value-based pricing, integrated digital solutions, but also disciplined cost management and operational excellence and digital transformation to increase efficiency. With that now, I would like to hand over for further questions from your side, so I'll turn back the line to the operator.

Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your phone line is switched off to allow your signal to reach all equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. We will pause for just a moment, though everyone to signal. We'll take the first question from Teusk Berkelder from ABN AMBRO. Please go ahead.

Yeah. Good morning, Mark and Barbara. First question on the disappointing performance of Europe-Africa in the third quarter. Can you explain what happens there? I've understood there was a project incident. Can you maybe quantify the size of the damage of that incident for the third quarter? And meanwhile, I see that the order backlog for Europe, Africa for next year is clearly higher than even the pre-COVID year 2019. There is the question, what is your grip on the margin profile towards 2022, looking at that water backlog?

Very good. Okay, Thijs, thank you very much for the question. Good morning. So I will start answering the question and then also hand over to Barbara maybe to fill in some further details. So we have clearly stated that the margin in Europe-Africa is lower than last year. That does not necessarily mean that we are completely disappointed with the performance there, just to emphasize that. The region is still the region that produced best results globally, very important for us, and as you say, a very good backlog, busy work right now, and also expected to have a very high work level moving forward. and the region itself is obviously primarily growing, but not only on the marine side, also on the land side, but primarily growing in the wind business offshore. Wind is obviously a very buoyant market there, and the most mature market in this field, and obviously the other regions following that. Now there's still great potential there for a real market leader as Fugro is in their field of expertise to further expand there. There is high activity on the tender side as well and we really believe that this will continue to further grow and help this region to flourish moving forward. Also in the other areas, so beyond a site characterization on the marine side, we see also in the asset integrity side, and that is actually the only region that grows in oil and gas, which is maybe good to mention as well. We see that particularly back in the marine asset integrity element of the business. but also land is recovering, not in every country in the region, so it's a mixed picture, but we're really pleased with the further development of this region as a whole. Now, the margin profile, as you mentioned, and then I hand over to Barbara maybe to talk a little bit more about a specific incident that you referred to, but the margin profile of the backlog will be better than before. So you can imagine that obviously with high activity in this region that prices should obviously also go up and we already see that happening during the tendering. So I can only be pleased with the current situation that we have in this region. Nevertheless, if you compare obviously quarter three last year with quarter three of this year, there is a mismatch. And that's why we also specifically mentioned that. And that has to do with a number of things, particularly a breakdown of a vessel, but also a strong third quarter last year with a number of projects that really went well in the third quarter last year. So there's probably a high income there in the third quarter last year, particularly because we had good execution, very good execution on a number of projects last year in the wind environment, by the way, and an additional breakdown of a vessel in this year. Maybe Barbara can give some more color there, please.

Yes, sure. To add some more granularity to the story of Mark, if you think about the comparison of a relatively high Q3 2020 versus Q3 2021 in Europe on the MSC side and the combination of the breakdown of the vessel and therefore the related downtime, you need to think about an impact of around 5 to 10 million divided over two years. So there is a plus and a minus here. That is how I think we can best phrase the impact.

Okay. I have a question on the outlook. You still free cash flow for the full year around break even but your year to date you already are at i would say plus 12 million and q4 normally is a working capital inflow quarters also a quite good positive why are you still expecting a free cash flow for the full year around break even

Because, yes, that's right. The year-to-date is two, if you add it up. And what we will see, it includes also a one-off of the discontinued, which we expect to reverse. So this is in relation to CBAT, as is noted in the release. And this is based on the revenue development and the working capital development, as we see it now.

And also maybe good to add there, Thijs, there's the element of CAPEX and the phasing there. We see CAPEX at the beginning of the year to be very low and also quarter three was not particularly high, but there's still quite a few things in the pipeline, so they shift over to the fourth quarter. So that has also an influence on the overall balance of cash flow.

That was indeed my question, what the gross capex number was in Q3. And if it stands so low, why should we still make that 80 million for the full year? For now, final question is, you gave the percentage. for renewables 30% of revenues in the third quarter. Can you also give those percentages for oil and gas?

Yeah, so Thijs and we have pre-warned I think everybody on the line here that we would in the future refrain from doing that on a quarter by quarter basis because you see some fluctuation there. We felt it's still very important to mention at least the element of the renewables because this is growing so rapidly and I think it's important to note that Fugro is even compared to the first half of this year where we had 23% of wind revenue and now 7% higher being 30% for the third quarter. So we felt that this is something that we should probably let you know anyway. but we are not going to release the specific details although if you read well the press release you can take some figures out quite decently as well but we will not release the very specific percentages right now. But we grow in wind, we grow in nautical and we have said that we declined in in oil and gas, where we actually said earlier that we would expect a small growth that we saw, the 5% oil and gas growth in the second quarter, to continue in the second half of the year. That has not materialized in the third quarter. Overall, we have always been clear at the beginning of the year and at mid-year that for the full year, oil and gas will not grow for fuel growth. and that's going to take longer because, yeah, the energy companies take time before they release their investments in this field as well.

Okay. And the capex in Q3, the gross capex?

Yeah, we're not specific about the quarter now in this particular area. It is... grossly in line with last year, Q3, and as I said, some is shifting to the fourth quarter, so we stick to our guidance of 80 to 90 million for the full year.

Okay, thanks. As a reminder, to ask a question, please press star one. We'll take the next question from Andre Mulder from Kepler.

Good morning.

Good morning. Good morning. Hi. I have a few questions. Firstly, you mentioned water as being an area where you deal with more frequently. Does it give us a feel of what the exposure is in terms of sales? Is it included in infra or in other or anywhere else in renewables markets? Second question is on the mid-term outlook. The headline numbers have basically been unchanged. Can you fill us in on possibilities of maybe the ingredients themselves have changed? Maybe you're more positive on offshore wind, less positive on oil and gas. I'm looking a bit about the granularity there. And the third question is on the EBIT margins. You now have fully skipped reporting EBIT margins for marine and land. Can you maybe spend some words on, let's say, the trends that we have seen in those divisions without mentioning any numbers now?

Yeah. Okay. Thank you for the questions, André. Okay, let's start with first the water market. We brought this in as a description at mid-year because we want to warm everybody up that we in the future will talk not anymore about the nautical market, for instance, that will be embedded into the water market. So there's the nautical market moving over to water. There's a few other elements that we now have in, for instance, the infrastructure business that relates maybe to flood control type of work that will also be packaged more clearly in the water market. So altogether, yeah, the nautical market, let's say, has always been roughly between 8% to 10% of our revenues. So water in itself will be higher than that, but it obviously is a growth market that starts a bit smaller than the other markets and will further grow moving forward. That is basically what I can say. To be more specific now is, I think, risky because then I'll probably give you wrong information. So at the end, obviously, we'll make a comparison between the new market segments or markets that we will report on. But this is in the ballpark what I could say about this market. Then you talk about the differences maybe in the market outlook if we talk the differences between oil and gas versus building and infrastructure and renewables. So we have always been clear that we believe that for the full year, wind infra will grow and the water market will grow, whereas oil and gas will not grow over the full year. Now, I have already given some color by saying that we are actually trying more impacted in some regions by COVID than we initially anticipated at the start of the year. We felt that at the start of the year, that the second half of the year would be more normalized, and therefore probably also that oil and gas, and particularly gas, obviously the world is focusing much more on gas nowadays than oil, It's always pushed together in one field, but it's definitely something different and I think people should look at it as different things as well. But if you look at that, then we would have expected that that market would have a modest growth in the second half of the year as well in line with the second quarter. Now, that is clearly not what we have seen in the third quarter. So we see a decline there in oil and gas. So it's not coming back as quickly as we initially expected. It doesn't change the picture that we have over the full year that oil and gas will be down for Fugro. Probably a little bit more with this knowledge now that the third quarter has declined than what we said earlier. So there will be continued growth in wind, infra and water, and oil and gas will be down and probably a little bit further down than we initially thought. Now if we, and that's maybe some call that I can give as well, if we look at, for instance, the Middle East region, that is obviously very dependent on oil and gas work, but also on oil and gas income, because they invest that into the infrastructure market, then I think it's interesting to see that obviously the first two quarters, revenue declined very steeply in the Middle East and India still at the first half of this year. Now, in the third quarter, you have seen in the graphs that the Middle East, India, is not so low as we saw before. So they're getting closer to comparable revenues compared to last year. Now, I think that is a good signal of one of the signals that we see, that also this market is coming back now. We had actually some backlog that is simply not executed in the time that we expected it in the Q3, for instance, which is now pushed out to Q4 and next year, which will be good for that region to further recover. It's also good in the other two regions, America and Asia Pacific, to see obviously the growth there. which is also there strongly related to site characterization coming back and related to wind more than oil and gas. So I think I give quite a bit of color there. Now, your next question was, and I will make a start, and maybe Barbara can say more about it, is the EBITD. margins because we do not release that for marine and land at the third quarter now and that's because we don't want to add to and increase further the information that we provide at quarter trading update so we're careful there as well and what we can say and you can see what the first half of the year was You can see that both the margins in land and marine were climbing up, and I'm pleased to say that that trend continues. In particular, I would say it's good to see that some of the issues that we have had in the past on the land side are slowly fading away, at least with all the action that we have taken. I think it's good to see that the results are actually also showing that we have taken appropriate action in various areas. Now, I have to be honest that some of these things are colored and somewhat probably masked by the ongoing COVID situation in certain countries. even though that maybe, let's say, half of the countries are doing great in Europe, you can still have maybe one or two countries really spoiling the party by not putting in their weight, so to say. But obviously there, we're taking action where required, and we have been doing that over the last couple of years. You know that from us. Paul and I have been on top of this, and now Barbara and myself are also very focused on the detailed analysis of service lines and businesses per country and step in where we're required to do that. That doesn't mean that we have a large program going on, but obviously this is just normal course of business to manage and to be really on top of the people that manage the business there. Barbara, if you want to add something, please go ahead.

No, I think that pretty much reflects the story on the development of the EBIT margins that is on marine. It's the MSC also in Europe. But on the other hand, the MAI, that is really there contributing. So all in all, as you say, it's It's local, to be honest, but the underlying fundamentals are positive.

Let me follow up on the mid-term guidance. As I said, the 8% to 12% margin is still there. But it's, of course, a combination of a number of items. Can you fill us in about any changes that you've made in those, let's say, sub-segments or ingredients to arrive at an unchanged margin?

Yeah, I think in general, André, these are the same ticket items that we have seen when we presented the end of 2018. There's obviously an element of productivity that we can work on, where we obviously are very busy with our innovative solutions to offer different ways of working and also providing the benefits there to our clients but obviously also keeping the benefits in our own hands partly because otherwise we would be very foolish but we bring in new technologies and efficiencies there to also drive the margins up, because over the last two crises, margins have been way too much under pressure. That takes time, I have to be honest, and therefore in the mid-term, but we definitely feel that there is something around the productivity element there. I mentioned as well that we continue to be very much on top of the cost, This is something that, as I said, I have been doing that over the last couple of years, and we are known for that. We are stepping in where we are required to do that. Now, volume and price are two elements, as mentioned on the sheet as well, that are very important. Now, you obviously want to know exactly how much is coming out of what Well, if I had my crystal ball, I can tell you very exactly. But unfortunately, it will probably be a mix of half coming out of volume and the other half out of price. And having said that, price obviously needs to go up enough to at least cover the cost inflation that we obviously will see in the years to come and already now. very visible in the supply chain, but also with personnel costs moving up and people expecting maybe corrections of a number of years of freezing salaries and zero lines there. So we have to be realistic. Cost inflation is there. That is no surprise to anybody. And obviously price needs to come along. Luckily, we see that happening already in the areas where there's most tension, obviously, but across the board, we're working on programs to also really materialize that. So that's what I can say. I can obviously continue to talk about what we do on the digital transformation and the remote solutions that we currently really continue actively deploying. We're now launching another Blue Essence as we speak here in the Netherlands to go out for the first projects. A new boat on the water there. I'm actually going to see that myself tomorrow, which is really exciting. So we're making really good steps there. And those are big changes in the way we acquire the geodata and how we deal with with that acquisition in itself and the people involved. I hope that that answers your question, André. Yes, that's okay.

Thank you. We will now take the next question from Henk Vierman from Kempen. Please go ahead.

Hi, thank you for taking my questions. I actually have two follow-ups on what has been said already by you and by the analysts. So on the guidance, on the long-term guidance, so you committed to the margin, margin guidance and free cash flow margin guidance. Yeah, given that the margin guidance is unchanged, should we also assume that your revenue guidance, or at least the bandwidth that you provided previously, are unchanged? Because, yeah, you obviously need sales growth to achieve the margin targets. Or are those not valid anymore, these bandwidths for marine and land? That's my first question.

Yeah, I think as Mark presented on the slide, we have them not as targets but as underlying assumptions that that is still, that we are reconforming that by having them there. So the answer is yes.

Okay, Claire.

I think, Hank, maybe to add there, to compliment Barbara, I think you also asked the difference between marine and land there on the margins. And you're right that in the past we had a split between marine and land. And that is obviously logical because there's less capital intensity on the land side. So we always spoke about 6% to 9% for land and 10% to 13% for marine. We have stopped doing that simply because we don't have a marine and land division anymore, but the underlying fundamental thoughts there are still the same because the calculation has not changed.

Okay, that's clear then. And then my second question is on inflation. You touched upon it briefly already, and I Just came out of another call where that was discussed quite elaborately for that company. But for your company, when it comes to inflation of external services, of materials, but especially for employees, can you comment on your ability to transfer that to clients and how that affects demand? And also, the second question is on tight labor markets, which also leads obviously to employee cost inflation. Has that translated to elevated employee turnover yet within the company? And if so, what is being done to target that elevated turnover? Thank you.

Yeah. Okay. Very logical question, Henk and So as I mentioned, cost inflation is really happening. Not yet on the personnel side across the board. Obviously, we still have some areas in the world where due to COVID, revenues have not really picked up. Activity levels have not really picked up yet. But we do see that this will become a serious topic moving forward indeed. personnel turnover is higher, in particular in the areas as any other company currently experiences, in particular in the areas where we're more busy. So let's say Europe, where activities are high, obviously there's a lot of demand and pull also from other companies in a similar area or maybe even our clients that need expertise in This is very logical. We have discussed this internally in quite some detail also, how to deal with prices and cost inflation. And obviously, we're stepping in where we need to. But at the same time, I cannot say that this is not a concern for the world. I think it's a general concern for every other company. And if we come across or you will come across any senior management of a company that doesn't see this problem, then I would be very interested to hear about it.

This has not led to elevated churn. Well, you don't see the employee churn as a problem, at least for now.

Yeah, no, no, absolutely. As I said, in the areas where it's busy, we definitely see attrition rates to go up and be high. we also and that is I think also good to emphasize that we are capable of hiring people so we have vacancies also in September to keep it very close we hired more people than eventually left the company so there are lots of people that think that Fugro is a very interesting and attractive company and that is obviously very positive but I cannot prevent that the situation that everybody experiences at the moment and articles from reputable companies also write about that, that a lot of people are looking for maybe shifting their position to another company. That's just a fact of life. We step in there where we think it's needed. We are able to hire new people and also experienced people, so that's good to see that Fugro is attractive. And we obviously up our game on training people also in specific expertises where we need it. So this is definitely an important element and we will probably continue to step up training as well in the years to come. because that's simply a period that is ahead of us where people will need to be trained up to be there when the work needs to start.

Okay, that's very clear. Thank you.

We will now take the next question from Kouar Mulder from ING. Please go ahead.

Yeah, Kouar Mulder from ING. Can you hear me?

Yes, we can. Good morning. Perfect.

Good morning, everyone. If I look at the margin per quarter, we go from 40 to 29. Is that purely Europe-Africa with a break of a vessel? Is that the 11 million difference? Or is there more on balance? Is there more going on?

Yes, Quirijn. I will make a start here and see if Barbara needs to add anything there. There's a couple of things there. We have spoken about that in the press release. We had impact, more impact of COVID in some areas of the world than we initially anticipated. That impact was there also in the second quarter, but I think we're also doing margins that are in line with the second quarter. There is a difference, obviously, with last year where that cost was also there, obviously, because COVID Q3 last year was there as well. But there has been also compensation in those years from governments all around the world in various areas we had support there. That support is significantly less this year. So, yeah, the cost is not gone. We cannot charge everything to the customers. We have more logistical hurdles to overcome there. For instance, in Asia Pacific, where the work is there and in the backlog, but sometimes postponed, sometimes difficult to execute cross-border projects simply because we cannot get the vessels in particular countries. So the cost is higher and it's not fully compensated globally everywhere. And that's a problem not by clients or not by subsidies. And then on top of that, two things, as Barbara clearly said, If you look at Europe-Africa region, there is a down on the vessel breakdown this year in the third quarter. There was an up in the third quarter last year because we had a number of projects in the wind environment that were executed much faster than we also anticipated, and that had a very good result in the third quarter of last year. So that is a plus and a minus, so to say, and therefore the gap in that region is is maybe more visible if you would look at the details there. Nevertheless, that is still a very positive region and also producing very decent results.

Yeah, but I'm trying to combine it with your utilization rate 400 basis points up. Because if you postpone, then your utilization is not going up. Or let me say, did you have even lower number of vessels? Or can you maybe give some... give some background on that and the combination of utilization levels. Revenue is somewhat disappointing, but profit, yeah, okay. I understand. So the cost for COVID, let me say, switch, let me say, where you got, let me say, contribution from, let me say, from governments, maybe 6 million, and let me say, it was now turning into an, and on balance, it was maybe a couple of millions. And now you have a serious down. Let me say it's more down than last year, but still utilization rates are up and that makes it somewhat confusing.

So let me help you a little bit on utilization there. So utilization is calculating the occupation of the vessels that we have in the water and on the project. Whereas in Europe, we had last year executed the work exceptionally well with great weather in August and just finalizing the work on two or three projects weeks in advance. That actually had a really nice result. And now this year, we have actually during the August period also a period where we had vessels on standby, not only because of the breakdown, but also of less favorable weather, for instance, and you're waiting and we price for that. We have different prices very often for weather standby periods, so we're still paid, but you get less money, and that has an impact on your loan margin. So we were also specifically, and we don't like to talk about weather things because this is very unpopular, But to give you a flavor there that has an impact on the utilization, unfortunately, you are on the project, but you don't have the same return.

Okay, okay. So let me say standby also implies visual utilization, in fact.

Yeah, because it's booked on the project, and I can't use it elsewhere.

Okay, but it's not, yeah, okay. Then my other question about land is, So you were able to grow nicely in the first half of 2021, and the second half was down. Let me say, looking at the future, how volatile are the revenues of land? Because it seems to me that you have a relatively, yeah, your order book is growing, everything is growing, your revenue is in principle growing, but let me say your volatility looks like to be quite high in land. Is there maybe an explanation for that?

Yeah, so Graham, thanks for the question as well. I'll try to give some, shine some light on this as well. The land business, you're right, went down by 3.5% or so, which is obviously on the third quarter of 105 million. Yeah, not a lot. So it's a few million down. Yeah, so that's correct. Now we have had a number of things that I think are important to take note of, and that is, as I said, COVID, particularly in the Middle East and Asia Pacific, and that means that in the Middle East, we actually have seen some work being delayed, and I give one example. We had a a great project, and we still have the project, for wind development in Japan. We are about to mobilize, in the third quarter, two vessels to Japan, and also jack up a barge to do work from the land business, or the nearshore business, but that's in the land environment actually, close to the shoreline. also to support the Japan project. And that came out of the Middle East. So the Middle East saw an impact in the third quarter because that Japan project suddenly was postponed to next year. So we had two vessels, no work, and one jack-up barge not being deployed. Now that has quite an impact of several million people. for the Middle East region, for instance. Now, just to give some comfort there, we managed to deploy the vessel quickly elsewhere for one of the energy companies, but one of the vessels had a bit of longer standby before it could start somewhere else. Now, on the JECA part, that was on standby, not being deployed on the project because the project is delayed to next year. But now, to give you the comfort that we also have seen improvements in the Middle East. They actually have already received the request to further extend that project next year with their jackal barge in Japan. And they have actually seen also an extension, and this is more from the last month or so, an extension that was brought forward where they said we want to do extra work and we want to already start in November. So, yeah, that's how developments go. As an example, Quirijn, and then You can have a few million impact here or there. And as we have seen now in Europe, yeah, you have a vessel that breaks down. That can happen always. That's a risk. When we are higher in utilization and in production, then these things are less visible. If you're coming out of a crisis in some regions, things like this are more visible. We step in where we can, we reduce costs where we can, we take action and we have done that also in Asia Pacific, for instance, to put one vessel for this year on, yeah, alongside in a stacking mode, which we haven't even done in some of the deep crisis between 14 and 17, but we already anticipated this vessel will not have any work in 2021. and therefore let's put her in waiting mode. So those kind of things you have to do. It's a normal course of business and that explains maybe a little bit how these swings can come in. Land in itself also had an impact in the Americas, I think, where we have projects and where we saw a pretty minimal call-off on multi-year contracts on the land side that we have in the backlog and that have a potential to have very high call-off in the upcoming years because those are longer contracts. And also there we have seen that the government is super slow in returning back to work after COVID and to pick up this work and increase the work orders. So this is also something that plays a role. I'm significantly less worried about this now because we actually see great improvements over the last period of time on the land side. We have stepped in, as I just mentioned. I think it's moving in the right direction. We're on top of it. Barbara is on top of it. All the elements need to produce positive results and increase their profits. And moving forward, infrastructure and water-related markets very close to land business and the nearshore elements have great potential to further grow. So I'm not particularly worried about this element.

My final question is then about the second quarter we discussed that you were going to address the land problems in America with a reorganization or something like that. And I've just seen that back. Is there anything to mention about it? Or let me say, do you think that the revenue growth is compensating for that, that maybe it's not necessary anymore? How should I look at that?

Yeah, so there are a couple of things there, Quirijn, on the America side. First and foremost, you will see very soon an announcement that will deploy a new director because the current director is retiring. So we will announce that any moment now, a new director for the Americas. But the new director is not going to make a major change because we have to obviously, that will give more guidance maybe in a different way, but you need to obviously work at the heart of the business there And that's also what is ongoing. So we have been looking at the LAI business and stepped in on a number of elements there. For instance, now we are also, we have still, which is maybe not known to everybody, we still had a few planes on our books ourselves to do the work on acquiring geodata on the land side there. We are now actually selling those planes and divesting that and only do the work with third-party assets there. So it becomes smaller in that sense a little bit here and there, but it's also less risky in that sense. So we concentrate very much on the elements that make money and have stepped in on the elements that did not produce returns, so to say. So that is, I think, what we have been doing there and that continuously goes on because that is, as I say, normal course of business.

Okay, thank you.

We will now take the last question from Luc van Beek from Decof Petercam. Please go ahead.

Yes, I have a question about the relationship between the FIDs that you show in the presentation and your revenues because in the past you did typically you do some work pre-FID and then obviously some work when the project is being executed, which is typically with a delay. But I think the upcoming FIDs are for a relatively large part FIDs that have been postponed. So probably the pre-FID work has already been done. Maybe things can be executed more quickly so that the delay will also be shorter. So can you explain a bit of how you expect these new FIDs to affect your revenues?

Yeah. Good morning, Luc. Thanks for the question. So, yeah, you can see in the presentation that the FIDs are shown there as well. And first and foremost, this is data not from us, but from external parties like Rijstad Energy. So how they work is very simple. They have contact with all the energy companies and ask for which projects are you going to start, et cetera, et cetera. And... Yeah, if something is postponed, they just simply put it in next year because they talk to the technical departments there that have all these plans on their books. That doesn't mean that these are the FIDs that are already approved by higher management. So a lot of these things probably still need to be finally approved and discussed. So it could easily be that some of the FIDs that you see in the 2022 draft will move down to 23 or even later or might not even be approved at all. So that is, I think, one thing to mention. Nevertheless, we do expect on the new FIDs also work related to the site characterization site. And we have actually seen already tender activity that gives visibility on that to a certain extent. So there have been an uptake there in tender activity. So as we said, we anticipate this market to grow. We don't anticipate the market to grow as a market like renewables and offshore wind in itself. That's a fast-growing market. This is a market that will return and needs more investments because the world is absolutely still dependent. on oil and gas, and particularly gas, but that is just a fact of life, and if we like it or not, that's what is going to happen.

Okay, so there's no real difference between the upcoming FIDs and what you've seen in the past regarding your revenues?

No, we had a few projects ourselves as well, and we spoke about that in the past, where where we were involved or even won the work and they were pulled out during COVID and they will come back on the board and then that work still needs to be done. I think it is important to note that energy companies look at this market differently than they did in the past. They're not going around and explore everywhere in the world anymore. They're very focused. around the areas where they also already have assets and do subsea tiebacks and those kind of things. So it is a different market and it will be a different market moving forward. And that's perfectly fine. We are aware of it. We focus on the growth in other areas, wind, infra and water, and oil and gas will be there. to play a significant role. As I said, very important to ensure that the marine infrastructure is safe and that we do not create any pollution or harm to these assets.

Okay, thank you. That's clear.

Okay, with that... Oh, sorry.

Thank you. At this moment, there are no further questions. I would like to hand back over to Mark Hein for any closing remarks. Thank you.

Yes, I was a little bit too early. My apologies for that. But I would like to thank everybody for the questions and your attention there. If there are any follow-up questions, please do not hesitate to reach out to Katrien Buttengraaf. She will be able to answer those. Thank you very much and enjoy your day.