Fugro N.V. (FUR) Earnings Call Transcript & Summary

Welcome to our half year results Webinar webcast. I'm Catrien Van Buttingha, Investor Relations, Fugro. I'm here with Mark Heine, CEO; and Paul Verhagen, CFO. I would like to hand over to Mark.

Yes. Thank you very much, Catrien. I will give a short introduction. Start the presentation with an introduction before I hand over to our CFO, Paul Verhagen, with more details about the financial results. But let me first give an initial overview of what we have achieved in the first half of 2020, and then in particular, in the second quarter of this year, we see obviously a steep decline related to COVID and the related decline in oil price and market there of 19.3% in the revenue. However, what is also worthwhile saying is that due to the cost measures that we put in quite immediately after the announcements of COVID, we stepped in very decisive, and immediately, we managed to reduce the cost in such a way that the second quarter ended up on 7.4% margin -- EBIT margin. The backlog grew 1.1% after the order intake that picked up during May and June, which was very low in March and April, but then luckily, it recovered during those months. All in all, we can state that the outlook for the rest of the year is a better second half, and we expect to improve compared to the first half of 2020, and also with a positive free cash flow for the full year. If we look at the cost actions that we have taken, so the proactive actions that we implemented, this is beyond the normal regular cost reduction that you have because certain revenue is not there. We look at these cost buckets, so to say. Obviously, a lot is related to workforce reduction of up to 10%. And we are still in the process of implementing that, finalizing that, so to say. A lot has been done already. We also looked at specifically focusing on using more of our own equipment and vessels, so to say, in particular, but also personnel, which ended up on a reduction on the short-term charters and the third-party personnel and equipment that we used. Then, we specifically had our procurement department looking at the whole cost profile of Fugro and talking to suppliers and renegotiating some of the agreements and managed to achieve a reduction already. And for the full year, annualized, so to say, I must say, this has accounted for, I'd say, EUR 20 million that could be achieved for a full year. Then we have a lot of expenses that didn't take place. We stopped some of the programs, the global programs, improvement programs that are more applicable to the mid- to longer term. We have been very decisive and abrupt in stopping some of these programs. We also reduced and stopped all the travel that is not related directly to projects or to client interaction, and basically, this will sustain for the remainder of the year, and probably we'll move into a new reality moving forward where a lot less travel will take place moving forward. Then we also -- we have communicated about the rationalization of the footprint, stepping in, in some of the specific countries on the land side. And we obviously stepped it up during the COVID situation, and that also brings in for an annualized amount of another EUR 5 million cost reduction. So for the first half of this year, EUR 25 million cost reduction already realized. We expect another roughly EUR 55 million, and this is all related to the direct actions that we have taken. So there's more cost saved, and Paul will talk about that a little bit later. Then, our strategy consists of 3 pillars. The first pillar is capturing the growth in energy and infrastructure. And we have shown here some very good examples of projects that we have recently executed or still in the process of executing related to wind. Wind is a theme, certainly in the second quarter, with strong growth. I will show you a bit more on that. But we see now offshore wind picking up all around the world, not only in Europe, it's an important area, but also in the Far East, in Taiwan, Korea, Japan. There's a lot more activity. There's a project shown here as an example. But also the East Coast of the U.S. is very busy with offshore wind work. And then in the middle there, an important project for the Middle East, in the Maldives, where we were working on collecting the geo data in a pretty challenging, yes, metocean conditions actually for building a bridge there. This was an important project and also helped the region to perform well in the nearshore area, so to say. The second pillar for our strategy is differentiating by integrated digital solutions. And here, some examples are shown. First and foremost, we have seen that -- something that we are on that path already for quite some time that we want to do more things remotely out of our -- 1 of our 7 control centers in the world. And we have now seen during the COVID period that clients are obviously specifically interested in using this more and more. And we have seen a number of examples all around the world where clients actually ask for these services specifically. These are some examples for the Far East. In Australia, we have a very robust center running already doing all sorts of remote projects now for clients in Australia, New Zealand and other areas. Another example there is what we do pretty sophisticated with cloud automation, analytics, but also 3D modeling on the A9 highway in the Netherlands, quite a large project for Fugro. We offer there, I think, well-integrated services and then very much, as the title says, an integrated digital solution for the end customer, so to say. And then we also see, obviously, more and more demand for mapping the oceans. And there are some governments, obviously, that have to produce the hydrographic charting, and they outsource that more and more. We spoke about that before. We see that coming up almost everywhere in the world. In Europe, Americas, this is happening already for a long time. We have a multiyear contract recently signed again for NOAA. And there, we actually applied one of our first autonomous surface vessels. It's an ongoing project right now. So we have very good experiences there now collecting the data from the seabed for these hydrographic projects. And then the last pillar in our strategy is leveraging our existing core expertise in new growth markets, and a few are mentioned here. We have seen over the last year, actually, a pickup in the amount of cable route surveys that we actually requested to execute for clients like Alcatel, SubCom, and is all related to, yes, obviously, broadband Internet that is required. There are simply cables needed to connect the continents in the world, so to say. You put these cables on the seabed. And there's a lot of survey work related to that to actually define the routes, but also the landings to the various countries. It is a big project ongoing and shown here, but there are various large projects actually soon to be started up. This is definitely a growth area for us at the moment. Then also, I spoke about nautical charting the coastlines, but then in particular, understanding the coastlines better, for instance, defense modeling, coastal defense modeling for sea level rise. This is becoming more and more important for many countries to understand what the potential risks are there, and we get involved in these kind of projects, actually all around the world more and more. And another good example, more local example here in the Netherlands is the dike research project that we do in a particular province here. We bring, together with several other parties, pretty innovative solutions also by using our laboratories very well to reuse the soil that is actually found there in the neighborhood of these dikes, which brings a much more efficient solution to these customers. I spoke about offshore winds, and I think this is an important element. Certainly, if we look at our second quarter, we see that we further diversified ourselves. We have a strong growth, in particular, in the second quarter of 40% of offshore wind. And all the other markets are actually declining. Obviously, oil and gas is logical. I think everybody understands that, with a lower demand and a lower price there. But also other markets have been affected by COVID quite a bit. But in particular, offshore wind seems to pick up and continue to pick up, so to say, in the future. I will show some market slides a little bit later. By now, in the second quarter, we had only 42% oil and gas-related. What is maybe also a good indication, if you look at the Europe-Africa region, we only had 27% oil and gas-related work. And the rest was basically the majority, so to say, 3/4 was related to other work beyond oil and gas. So this is a great example that, as we communicated before, we're a very resilient company, we can apply our expertise and equipment in various markets. We are market-agnostic, and now we can step in, in this growing offshore wind environment. What I would like to do, just to give you a better indication of what kind of services Fugro supplies in the offshore wind market, I have a small video of 3 minutes that we'll show right now. And thereafter, I will hand over to Paul Verhagen, who will talk in a bit more detail about the financials of the first half of this year. [Presentation]

Okay. Let's go into some more details of the financials after this great video, which hopefully gives you a little bit better understanding of what we do in Fugro. First, a few key messages. As Mark already said, of course, revenue is strongly impacted by COVID, low oil price, but strong growth in offshore wind. Immediate and decisive cost reductions, which have supported our result in Q2 a lot to 7.4% margin. Significant margin decline in Europe-Africa. We'll come back to that, but with a strongly recovered Q2 compared to a difficult Q1. Improvements in all the other regions, which is positive. Some one-offs, I will get back to that. Cash flow positively supported by almost EUR 50 million divestment proceeds from Global Marine. Working capital, 12%, so good, but also supported by some nonrecurring benefits. I will come back to that as well. Positive free cash flow for the group, which is important. Leverage improved somewhat to 1.7. And last but certainly not least, we have been able to extend our revolving credit facility to September '21, which allows us more time to review the refinancing options. Mark already talked about it. We've taken a lot of actions basically across the P&L to cut costs immediately from day 1 onwards. So it was very clear that this would hit us hard in terms of top line. So we needed to, of course, take immediate action to adjust the cost to that top line. Here, you see the total impact. So also including the variable costs that, of course, will not be there if revenue does not come in. So this total cost-benefit here is somewhat larger than what you've seen in Mark's slide. In total, it is close to EUR 70 million. You can see from the steep revenue drop, yes, how important this has been because, otherwise, we would have gone from EUR 23 million minus EUR 90 million, close to minus EUR 70 million EBIT. But because of all the cost measures that we've taken immediately, we've still managed a marginal positive EBIT in the first half in a very challenging environment. Both marine and land were impacted, as you can see from this slide. You see left, the EBIT impact for marine, and right, the EBIT impact for land. You also see that, in particular, Europe-Africa was hit the hardest in terms of EBIT hit, and it's all on the back of significantly lower revenue, but also a difficult Q1 with bad weather, low utilization, quite a few dry docks. So all in all, a difficult Q1 for Europe-Africa. You see Americas, APAC and Middle East, either improving or staying in line in marine. In land, the situation is very different. The Americas were hit very hard, but we see improvements in APAC and Middle East, and Europe-Africa stayed more or less flat, again, in a very difficult environment. Now coming back to Europe-Africa. Here, you see the revenue development. So marine was hit harder than, say, land, to a lesser extent. Revenue, ultimately, EUR 290 million from EUR 339 million. You see the EBIT impact and EBIT drop in marine. Obviously, Europe had a difficult comp. They had a very good first half last year, 10.9%. So in today's environment, that was, of course, a difficult challenge, and particularly with already a difficult Q1 just before COVID started. And then on top of that COVID, that resulted in a very weak Q1, but actually in a double-digit profitability in Q2, which is positive. And land, yes, remained flat, as I mentioned already. Americas, yes, also hit pretty hard, in particular, land. You see actually that marine improved year-on-year, in particular, Q2 again was better than Q1. Strong growth in marine site characterization, again, thanks to offshore wind, but declines in all the other business lines. Land was hit hard, up to 40% revenue decline in the second quarter. And the largest business line in land, just to give you a flavor of the impact that the Americas had to deal with over the first half, also a significant revenue decline. Having said that, still action needs to be taken there. Even in this difficult environment, we need to turn around the land profitability, and we're working hard on that to get that done. And hopefully, we start to see the impact going forward. APAC, first, revenue, both marine and land impacted. Marine, very strong Q1, strong growth, but hit very hard in Q2 mainly because of the delay of a large project in Indonesia that's moved into next year. Hopefully, it happens next year. It's even uncertain now with COVID, but we'll see if that will be deferred further into the future or not. We cannot yet tell. Land, actually, did reasonably well. So saw some impact, but yes, in combination with the cost measures the APAC team has taken and government support that we obtained, yes, we've been able to still show improvement in land as well as we did in the marine. Last year, we were minus 6%. You might recall that we came from a pretty deep loss in APAC in 2018. That improved in '19. And now in '20, we see further improvement. Over the full year of '19, we were marginally positive. We'll see what this year brings, but at least the first half is an improvement compared to last year. Now Middle East. Now you see there the impact in marine, mainly low vessel utilization in marine site characterization and some revenue loss by design because of restructuring activities that we have undertaken in the diving services. So that, of course, had an impact as well on the top line. Land, you see a marginal growth in revenue, but a significant improvement in the bottom line. And that is to a very large extent on the back of restructuring efforts that have been ongoing there for the last, I think, maybe 6 quarters or so. We start to see the results from that, which is positive, but also, of course, the marginal revenue increase contributed to the improved EBIT as well as good operational performance by the local teams. Seabed. The result in itself, as you see in the bottom, is okay for the first half. We had a very difficult first half last year, minus EUR 20 million. This year, plus EUR 11 million, which is not bad, of course, but the EUR 11 million includes the EUR 5 million gain related to shallow water cable assets. But even without that one-off gain, it would still be pretty okay given the steep decline in revenue. We had 2 projects completed in the first half that went very well, very good project execution, good results. We had 1 project in the Middle East, which was unexpectedly terminated because of COVID, which we do not agree to, and we'll take a legal action going forward. That will, of course, have an impact on the second half of the year. We had a delay of a large project that was supposed to start in April. That is delayed maybe until end of this year and maybe into next year. That is uncertain yet when that will restart. But based on that, you see the guidance here because the previous guidance was not part of -- did not include Seabed. The results in Seabed could turn negative up to EUR 10 million EBITDA and EBIT, depending on revenue development, depending on awards that we might get or not get. It's uncertain. We'll see how it will develop. Now results impacted by specific items. There was around EUR 8 million restructuring, excluding Seabed, an impairment of a few million and EUR 3 million other costs, which relate to legal expenses of an arbitration that is ongoing or that we actually lost, but there are still some other things ongoing. We had to take an impairment on DTAs, deferred tax assets, in the U.S. Based on the results that you just saw in the U.S., that might not be a full surprise. That's under IFRS, very strict rules when you have to take these impairments. So it does not necessarily mean that you will not make any money, but you just don't meet the criteria that you need to meet under IFRS. And then in Seabed, so the result on a discontinued ops, you see there are some specific items, EUR 40 million impairment, EUR 25 million related to the early termination of the Seabed Middle East project, and then we also had EUR 4 million restructuring costs as we have cut very deep in Seabed, more than -- slightly more than 50% of our people had to leave the company. Adding it all up, this leaves a net result of minus EUR 113 million, obviously, not good. But again, given the circumstances, given the rebound of the result in Q2 on the back of cost actions, on the back of growth in offshore wind, the operational result at least is showing a very different picture than the net income, including all these one-offs. Working capital was okay-ish. DRO, you see, there are 94 days. I will say 90 days, plus or minus 5, that's within our target range. Obviously, we prefer to be below 90. So this will get additional attention going forward. But again, it's still within our target range. There's also approximately EUR 20 million favorable impact in these numbers related to deferred tax payment as a result of government support, which is also not important -- unimportant, of course, and have helped this working capital improvement year-on-year. Now positive free cash flow, including everything I just said, we have an operating cash flow before change in working capital of EUR 24 million. Last year, it was EUR 35 million. Change in working capital, slightly negative. This is because of the payment related to this arbitration loss. This would have been a positive excluding this payment. EUR 50 million income from Global Marine. EUR 45 million CapEx. Last year, we had EUR 40 million. Adding it all up, you get to EUR 18 million positive free cash flow. And last year, at this moment in time, we had EUR 34 million negative free cash flow on the back of, yes, mainly a steep growth in working capital because last year, we could still show growth in our top line, which is, this year, obviously, not the case. All covenants met, which is positive. Just to remind you that the leverage covenant, as you know, is 1.7 is good, but does not include subordinated debt. That is always to be noted. And the solvency covenant reduced somewhat as a result of mainly the operational net loss that I just showed, which was, of course, impacted by impairments and specific items. Our debt maturity profile. Now we have been able to extend the RCF to September '21. You see that in the graph there, the bond to October '21. We also bought back approximately EUR 40 million, EUR 39 million of the bonds, we have a discount. So you see the EUR 190 million is now EUR 151 million. So a reduction there of the outstanding bonds plus the EUR 100 million bonds in 2024. Liquidity remains good, very important, of course, in this situation, EUR 370 million in cash and available facilities. And last but not least, we are assessing all the refinancing options. We do think that we can make significant progress in the next 3 to 6 months. Obviously, the total window that we have is longer. So we do have more time just in case if markets would not support a refi like we've seen at the beginning of this year, so the good news is that we have time. The other thing that I should mention is that this RCF extension goes hand-in-hand with a positive pledge if and when we would not be refinanced by the end of March next year or if we would have a covenant bridge before that time. The good news is that all other -- or materially, all other terms and conditions remained unchanged. For instance, also the coupon, which is, of course, pretty low on the current RCF remained unchanged, which is positive and also shows the support from our lenders. Now I hand back to Mark for the outlook and the management agenda.

Thank you very much, Paul. So I will show you a little bit on the 3 key markets for us, which is obviously, first and foremost, oil and gas, significantly reduced for Fugro, but still an important market. And as we all know, COVID had an impact on the oil price. As a result of COVID, the demand for oil and gas went down. This obviously had an impact on the price, although it has recovered, yes, to $40 roughly since April. So there's a recovery there and a rebound, which is also due to the increasing demand again. But also because the supply has been reduced basically because OPEC+ took some decisions there and made some agreements. But we expect, in total, this market to be volatile in this year, very likely also moving into next year. So in that sense, a market that we are a little bit less optimistic about. Specifically, certainly also, the nonconventional area of this market is hit hard. Fugro is not operating in that area. So it's maybe important to state that. And yes, the well-known body, Rystad, expects a gradual recovery between 2021 and 2023. If we move over to offshore wind, we spoke about that -- about our own results related to offshore wind, steep growth in the second quarter of 40%. For the whole first half of the year, it was 30% growth for offshore wind. And you can see here the market developments with obviously a strong market in Europe. And we are involved in practically 90% or more of the projects, one or the other way, sometimes to do weather measurements or current measurements or either some survey work or geotechnical work or installation work. We get always involved mostly in all these projects one or the other way. We see steep growth in the future, specifically in the Americas and Asia Pacific, with big projects now happening on the East Coast in the U.S. but also in Japan, Taiwan, Korea, there's more work coming up. Australia has it's first project started, so to say, and we're involved in those projects as well. This is going to be an important market for Fugro. In the future, we can apply our services. And I very often get the question, okay, what do you do for offshore wind? Is that exactly the same as you do in oil and gas? Well, in actual fact, some of the work is a bit more complex. It requires some more complex tests because the monopiles have a certain strength obviously because there's just 1 pile in the ground, so to say, which is different than maybe an oil platform. And it also requires some extensive, more advanced testing in our laboratories. And we have some very advanced laboratories in the world, and we can do those projects very well, especially also because some of them are pretty large. And also on the geophysical side, there is a bit more complex work related to offshore wind because we have to, first and foremost, determine if there's any ammunition UXO, unexploded ordinance, out there because a lot of these windmills are placed in the -- yes, the shallow-water nearshore environment where, yes, certainly, in Europe, there are still a lot of unexploded ordinance ammunition from the first and the second world war out there, which is a risk. We can identify those bombs, so to say, and make sure that we don't get any problems or the clients don't end up in having these risks. But also stones, boulders that are in ship sea or ship service can damage the installation of a monopile. So there's a lot of work to be done there. It's slightly different than what we do in the oil and gas environment, but it's based on all the same expertise, understanding the ship service and collecting geo data. If we then move in the infrastructure markets, you see that the markets are growing. This is a pretty broad picture. So it doesn't zoom in very much in 2020 because there you see due to COVID, that, in particular, in the last quarter and also this quarter, in certain areas of the world, there's an impact in this market. Nevertheless, we also don't work globally. We work in some countries, as you know, more extensively than others. If you look at our top countries, the growth is slightly smaller than what is seen here for the total market. We're staying behind, in general, with the growth of the market, and this is obviously one of the reasons why we're also attacking, so to say, the structure and how we're organized in the land business. We have programs running also to focus more on the integrated, more complex and larger projects where we really can add value with our consultants and the expertise that we have, combining all the different services into 1 project. Great potential for the future because there's more people out there, or basically, moving to cities. Cities become more complex. It's basically more complex to live on this planet, more tunnels, more roads, train tracks are needed. So bridges, for instance, as we've shown before in an example. Then our backlog, as I said before, backlog is growing currency comparable 1.1%, which is actually quite remarkable, if you see in the second quarter, a decline in revenue of 19% or close to 20% revenue decline. And then picking up a new order, so to say, in the second quarter, in particular, May and June, has helped us to, yes, keep our backlog almost at the same level as last year or even a little bit more. So this is really giving the comfort that the remainder of the year, there is at least enough activity. Obviously, there is one small caveat that we don't know. Nobody knows what the impact of potentially COVID will be moving forward. Having said that, we also now got used to COVID and the first wave in certain areas and how to deal with this. It is a logistic hurdle. At the same time, many projects still continued during this quarter and has helped us obviously to put in a decent result with the cost measures implemented as well. Then if we look at the outlook, I spoke about the markets last quarter, end of March, we could not give any outlook because, basically, it was too fresh. We couldn't see which direction this was going. Right now, we have a bit more visibility. Obviously, also, we see what the markets are doing a little bit better. There's a half year to go. We do not know what is happening with the pandemic, the COVID pandemic. So that is the only caveat that we have to put in. But if it continues as is right now, we believe that most of the work is still possible to continue. And then with strong growth in renewables, also our backlog is differently filled now. We have more offshore wind and infra and nautical projects in the backlog compared to the past. We also expect infrastructure markets to benefit from incentive programs from the government moving forward. So this is particularly coming in next year. Oil and gas, volatile, certainly this year, very likely also into 2021. And then the overall outlook is a bit more specific than we normally give. We have been clearly saying that the second half will further improve compared to the first half. And for the full year, we expect a positive cash flow. Then the last slide, basically, gives you our management agenda, what we have on our Board as top priorities. First and foremost, and I cannot emphasize that enough, is obviously looking after the well-being of our employees and other stakeholders that we work with, very important. We will never compromise that element. Then, second priority is obviously continuing with the program of cost reduction, but also reducing investments, CapEx to protect the liquidity and the profitability of the company. And then next item is obviously continuing on the underperforming land business. It has actually improved in quite a few regions in the second quarter, in particular, but we have to definitely see further improvements. And we have taken a lot of action, as we spoke about before, and we are seeing now the benefits of that already kicking in, in the second quarter, and certainly, more in the remainder of the year. Paul spoke enough about the refinancing. It's obviously a key priority, and also the divestment of the noncore interest in Seabed Geosolutions is something that we keep working on. There are still interested parties basically that talk to us, and this is just an ongoing process. With that, we close the presentation, and I hand over to the operator for any Q&A.

[Operator Instructions] We will now take our first question from Henk Veerman from Kempen.

My first question would be on your free cash flow guidance. Could you please confirm that your free cash flow guidance excludes the impact from IFRS 16 leases, in your cash flow statement, but it includes the divestments? And how much tax deferrals will it include for the full year in your expectation? That's my first question.

Yes. So it includes, of course, the proceeds from Global Marina. It also includes the impact of IFRS 16. We have to all get used to IFRS 16. So we're not going to talk about pre and post anymore. We have now comparable numbers. So it includes the impact of IFRS 16 in line with current accounting requirements. And the tax payment, we have deferrals from 3 months up to, I believe, 15 months. I don't know precisely, Henk, how much of the 20 is, let's say, to be paid after 3 months and how much would be after 20 months. But there will still be some millions, at least in the year-end working capital as well. So we will benefit for sure for a number of millions, but I don't have the precise number.

Okay. That's clear. And my follow-up on that would be -- sorry, there's quite an echo in the line, but anyway. If I look at your free cash flow, like excluding the divestment over the first half of the year, include IFRS 16 and include the tax you would pay if there were no tax schemes active, I get to about EUR 50 million of -- sorry, minus EUR 50 million of free cash flow for the first half of the year. That also obviously includes a strong performance in offshore wind. But as Mark just mentioned, oil and gas will remain volatile, probably also in 2021. So my question would be, can this company afford being basically cash flow neutral for the next 1.5 years when looking at the debt if the current restructuring isn't enough to secure sufficient cash generation for the next 1.5 years? Or do you think more will need to happen if oil and gas demand will remain lackluster?

Yes. I can say a few things. And then of course, Mark, please add. So on your question on cash flow, you've seen that we take action when needed, Henk. So if the market would continue to come down further than where it is today, we will also take further cost actions, which will, of course, benefit cash flow as well after the restructuring costs related to that will have been paid. You also know that because of our seasonality, which, of course, this year is not there, typically, Q2, Q3 is high; Q1, Q4 is low. And as a result, first half year cash flow is typically low or negative. And we see always a pretty big positive inflow in the second half of the year. That was not there this year. But what we saw this year, of course, was 0 performance, that was not good enough. 94 days is in the target range, but if you would have had, let's say, 87 days, that would be an additional EUR 20 million to EUR 30 million cash flow almost. So we have to do better on DROs. But our target, obviously, and I'm not going to guide, I'm just saying our target, of course, obviously, will be, assuming no special CapEx in a certain year, to be cash flow positive also next year. And we will take actions to, of course, try to achieve that as much as we can.

Okay. On Seabed Geosolutions, it's still recorded as a discontinued operation, but it has been for quite a while now. Could you update us because I was quite surprised to still see it there because I can imagine in this environment for this kind of asset, it's very difficult to sell. So could you maybe highlight what -- why your accountant was still willing to record this as a discontinued operation?

Yes. I think this is all categorized always as is there a high likelihood that this business will be divested. And based on what is going on right now, there is enough proof that the accountant accepts this as basically held-for-sale, so to say. And basically, what also is applicable there is obviously, as I said before, we're still talking to a number of interested parties. So this is an ongoing process. At the same time, at some point in time, if that doesn't materialize, yes, that discussion will come up again. For the time being, this is held-for-sale, and I cannot speculate when that will stop.

And maybe to add there, which is the obvious, but I still want to say it, Seabed is 100% owned by Fugro. So the net income will not change, cash flow will not change, covenants will not change because in covenant calculation, the full result of Seabed is included as if it were not held-for-sale. So, of course, the presentation of consolidated EBITDA, consolidated EBIT and consolidated revenue will change, but that's just presentation of figures. The real economics of the company, of course, don't change and has no impact on covenants because it's already included.

And maybe good to add what played the role, obviously, is that this process is somewhat stagnated by the COVID situation. Obviously, that's logical that some of these things will take a bit longer and are stalled because all the companies have other priorities right now to actually look at themselves, and then it continues again. So that might also have played a role with our accountant to basically be lenient because this process is still ongoing, and there's a good reason for keeping it held-for-sale.

Okay. My last question will be on land. You mentioned in the call that you are continuing to look how to improve returns there. You're working on restructuring and improving returns on land. But is that -- basically, when you mentioned that, does that refer to the existing restructuring as already announced? Or is there something else which makes you believe that returns will improve because backlog is 2% up year-on-year, which is nice, but it's probably not enough to improve the returns. So maybe there's something in the quality of the orders there. Could you maybe elaborate a little bit more on that?

Yes. So this is a program that basically is all the time adapted, and we've mentioned that before. We analyze our results of all our businesses very much in detail on a monthly basis. Then we always decide, okay, is there a particular area or particular service in a country that we need to step up reorganizations? Having said that, this -- what we refer to is the program that we have ongoing. A lot of actions have been taken. So in that sense, we have seen the results of that already in certain areas, and Middle East is a good example there. The backlog growing now under these difficult circumstances, I think, is still an important signal that this market is also, for us, still a very interesting market to further grow and expand into. What is important there is that we're also focusing, if you talk about backlog, we're focusing more on, yes, the complicated integrated projects, which is different than in the past, where maybe the isolated services for, I don't know, a particular drilling exercise where we have to drill a lot of holes and not do any tests, for instance, in our laboratory, we will probably steer away from and look much more at the consultancy-led projects where we have integrated services, where we combine the varied services, also where we can bring in the new digital solutions that we have actually built and have better ground models made, so to say, that we can actually have a varied service integrated in the data model. So this is a different approach for sure. We also look at the management teams there. We have actually made it a lot more light. We have removed some of the management layers on the land side because we felt that this was required. COVID did give us maybe an additional push to do a little bit more in combination of the cost program that we put on top of this. So in general, I think we'll come out there as a much leaner and more focused land organization, which is in full progress, and we see the first benefits of that already. Moving forward, it obviously has to improve a lot more.

[Operator Instructions] We will now take our next question from Mr. Berkelder from ABN AMRO.

Thijs Berkelder, ABN AMRO, here. Yes, coming back on the questions from Kempen. My calculation is a bit different. On Slide 10, you state, you generated positive free cash flow in H1 of EUR 18 million. But if I look underlying, so after lease expenses, adjusted for the divestment of EUR 50 million and adjusted for the government support of EUR 20 million to EUR 26 million is underlying a negative of EUR 70 million, 7-0 million, not EUR 50 million, in my view. And as such, yes, I understand why you guide for a positive free cash flow for the full year, but we have no clue what you include in that guidance or exclude in that guidance. I think the market wants to get grip on the underlying free cash flow guidance and not on this -- including all kinds of one-offs guidance. But my questions are the different CapEx. I think in H1, you already spent EUR 45 million of the EUR 60 million to EUR 70 million guided for the full year. Why is the second half so low? Can't we expect more maintenance CapEx? Or is not more maintenance CapEx needed in the second half and why not? Can you further specify where you spent the EUR 45 million in terms of assets, maintenance, dry dockings? And second question, on fleet utilization in marine. Can you explain Q2 utilization versus Q1? And what do you roughly expect for Q3? And then I'll follow up on other questions. Let's start with these ones first.

Paul, do you want to first talk about the CapEx?

Yes. Let's first do the cash flow, Thijs. So indeed, it includes EUR 50 million Global Marine. So we're not hiding anything. Just to be clear, it's very clearly transparent in the slide. There's also EUR 20 million benefit from tax. So that's clearly mentioned. And there is EUR 24 million, but including other expenses related to that almost EUR 30 million related to this arbitration loss, which is negative. So if I add up EUR 50 million plus EUR 20 million minus EUR 30 million, I would get to EUR 70 million minus EUR 30 million, plus EUR 30 million benefit compared to your number. Having said that, we follow the IFRS guidance precisely. One-offs, we show separately. So that's clear to everybody, yes, how the cash flow has been built up. For the guidance, for the full year, that's the same. It will include all these elements that I just mentioned, noting that the tax benefit will reduce because of the EUR 20 million we will have to pay quite something. But again, as I said already to Henk, I don't know precisely how much. On the CapEx, EUR 45 million. Now we had quite some dry docks in the first half. I don't know by heart how many, but more than we will have in the second half. We invested in, in particular, innovation as well, U.S. fees, but also other innovation-related to particularly marine, to be honest. I don't have the precise breakdown. We believe that EUR 60 million to EUR 70 million is feasible. Although if you ask me, it will be close to EUR 70 million than to EUR 60 million, I think. But we'll see that moving forward. Rest assured that we will maintain our fleet properly. We've always done that during all the difficult years. We will continue to do that. There's also requirement to do that to keep vessels in class. So for any -- for the reasons that I mentioned, we will definitely make our fleet -- keep our fleet well maintained. Utilization was approximately 10 percentage points better in Q2 than in the Q1. As already explained by Mark, although with a similar revenue with Q2 versus Q1, we tried to do much more with owned vessel, own people, own equipment, cut as much as we could and as quickly as we could, third-party costs, including short-term charters, including, of course, third-party equipment, including third-party contracted personnel, et cetera, et cetera. For Q3, we don't guide, but annual Q2 was approximately 10% points better utilization than in Q1.

Maybe 1 element to add there, Thijs, is it's indeed to what Paul has said, but the combination of the CapEx and the fleet utilization is actually connected to each other because in the first half or the first quarter, we had significantly more dry docks, as Paul said, which obviously meant also that we had to hire in with the higher revenue that we had more third-party vessels, which we could reduce in the second quarter. So we had more cost savings on that side. And in the second quarter, we could use our own fleet more, but it meant more CapEx at the beginning of the year, which we normally do. We try to maintain the vessels, obviously, at the beginning of the year so that we can start the season with well-maintained equipment and also to get that out of the way to use it for the remainder of the year. And indeed, as Paul says, as you also know, the third quarter is also a seasonal quarter, so you can expect a decent utilization.

Okay. Then a question on your EBITDA guidance. Your first half EBITDA excluding exceptional is standing at EUR 61 million. You're guiding for a higher EBITDA in the second half. So let's say that if you can come in at EUR 70 million to EUR 80 million whatsoever, then your full year EBITDA would be EUR 130-plus million. But this is still IFRS 16 accounting. So subtracting the IFRS benefit of close to EUR 30 million, this leaves you underlying at still around EUR 100 million plus. And on top, you will get to see that loss of EUR 10 million. So that leads me to think that your total EBITDA for the covenants is then just around EUR 100 million or EUR 100 million-plus, but the covenants clearly require EUR 125 million. And in your report, you indeed also indicate that there is a possibility that you will miss that floor at end of year 3. Yes, the question is, am I taking the right conclusions? And in your new RCF, there is a clear statement that the deal only stands if you will still meet the covenant?

The -- so on the guidance, indeed, we guided as a minimum better than the first half EBITDA for the continuing business. So as a minimum, EUR 122 million. That indeed includes the IFRS, which you can, yes, get from the financial statement. I think it's slightly less than EUR 30 million, but doesn't matter, it will be close to that number. I'm not going to comment on your EUR 100 million, if it's EUR 100 million to EUR 110 million or EUR 120 million or whatever it will be, we only guide what we guided for. What I can say is that the covenant, the EBITDA floor is only relevant for the sale and leaseback of our 2 vessel sales, Scout and a Voyager. This covenant is not relevant for the RCF agreement. So if we were to breach that, which is likely to happen, as we indicated already, in the third quarter, then that will have no impact on this positive pledge that we agreed as part of the RCF extension because we do think that under the RCF, we will stay within our covenants, of course, assuming that there is no material impact from COVID-19 or any other unforeseen circumstances. So that is important. Having said that, this breach, we have multiple times gotten a waiver. Sometimes, we didn't even need it. But still, if it was closed, then we would always ask for a waiver. We also expect to get a waiver in Q3 for this EBITDA floor, so not a big deal. But you're right, we would expect that to -- that we need a waiver to prevent a breach in Q3 for the EBITDA floor again, which is only relevant for the 2 charters.

Okay. A follow-up question on your backlog. Do I understand this correctly that the Abadi project is still in your order backlog and for how much?

The Indonesian project, you say?

Yes. Yes.

I'm sorry, I didn't hear what you said. Yes, they are still scheduled to go ahead with that project. So yes, that is for a certain amount in the backlog. I can't say for how much exactly, but it is in the backlog. And we are still in there.

Yes, my understanding is it's -- more or less, that has been canceled, but maybe not formally. Can you tell me why you decided to buyback convertibles? And if it was done at a discount, where do I see the gain? Is it purely in the balance sheet?

If you go to the -- yes, it's pretty much in the balance sheet. It's not up to EBIT. But if you go to the cash flow statement, Thijs, in the half year report, you will see the amount that we used to buyback, which was EUR 32.5 million to buyback EUR 39 million of bonds. So there's approximately close to EUR 7 million gain. I'm not sure if that's in the financial expense. I believe it's not -- I believe it's only in the balance sheet as far as I can recall. Why did we buy it back? Yes, simple, because we have good liquidity. We could buyback at a discount, so we made use of that. And yes, that's it.

And the RCF allows for that?

RCF allowed for that, otherwise, we would not have done it.

We will now take our next question from Luuk Van Beek from Degroof Petercam.

A couple of questions. One on the refinancing, you say that you expect to make significant progress in the next 3 to 6 months. Should we read that as -- that we should not expect anything within the next few months? Or could it also come earlier? And taking into account the volatility in financial markets, why not do this as quickly as possible? So what is the reason to take such a long period for it? It's that first question.

Okay. More questions, Luuk, or just this one? Otherwise, I'll answer it.

Yes, maybe take them one by one, that's maybe easier.

That's fine. No problem. Now we have indicated, indeed, 3 to 6 months. Could it happen earlier? Maybe. I don't know, although it seems a long time. 3 months are gone pretty, pretty quickly. As we've stated in the press release, we are evaluating options. That takes time. We want to do that properly. By the way, after the refi attempts that we did in the Q1, which failed because of COVID, we have basically paused the whole process for a number of months because we first needed to get into a situation where there was a little bit more visibility in relation to, let's say, COVID. How does order intake develop? How does the backlog develop? How do our costs develop? Now we've gotten now somewhat more visibility. So this is, I believe, the good moment again to kick-start this process. We have engaged a financial adviser as well, who helps us. So we'll go through a diligent process and come out when we believe it's appropriate, of course, taking into account, yes, the volatility that might be there in the financial markets.

Okay. And my second question is on Seabed. Two things on it is that you now guide for a loss of up to EUR 10 million in the second half. And earlier, you seemed to indicate that it could be breakeven or slightly below that based on the standby fee that you received. So what has made you more negative on that? And the second thing on Seabed is the new valuation after the impairment. Is it still based on the expected selling price? Or did you use a different basis this time?

So the second one, yes, it's a mix of, let's say, fair value and value in use for the simple reason that, in today's environment, to get a decent indication of fair value is close to impossible, especially, of course, after COVID hit so hard in the second quarter. So it's a mix. It's a little bit of a judgment as well, but it's a mix of value in use and fair value. I missed your first question. Was it on the Seabed guidance?

Yes. The Seabed guidance came down because the project is somewhat delayed. So initially, it was scheduled to start earlier. This is a little bit later. So that had the effect of -- and also because we need some up -- extra work to actually fill up the remainder of the year, that has not been done. We obviously have insight in what the options are there that have tenders outstanding, and we made another assessment and said, well, we have to adapt that somewhat. But again, it's fully dependent, as Paul said, on the revenue development. So it could swing in a different direction if there has a project, obviously, been awarded that we have tender right now, then this will obviously be different.

Okay. That's clear. And my final question is on COVID. Initially, obviously, you were a little surprised when you got a couple of vessels projected that were canceled as vessels that -- they were idle. To what end have you been able to take measures that if a second round of lockdowns or other measures appears that you can limit the impact of the change in the agreements with the chartered vessels, for example, crew rotations are becoming easier. And so how have you prepared for possibly future measures?

Okay. So first and foremost, I think we are now more used to the situation with COVID. So we have to realize that it's -- the whole organization is used to now the fact that part of the countries are completely locked down. Others are, so to say, a bit more open and more flexible in operating. In many countries, we got basically the approval to continue to work. We're essential services, so to say, that means that the clients can continue with the projects, and we can obviously come along with that. There are no projects that we are not able to execute up till now when the client was still progressing with it. So it is all a logistic hurdle in all the areas of the world, so to say, in some more than in others. So we are affected everywhere. I'm not going to speculate or can say that we have everything under control because I don't know what will happen in the remainder of the year or how a second wave comes in. Having said that, if a second wave comes in as similar or very similar to the first wave, we now know what we need to do to actually continue with projects. So I think there will be a different impact if we will see a similar situation, which is actually happening now maybe in some areas of the world in a similar manner as we experienced it in Europe in the second quarter. So in that sense, I think we're better equipped in taking measures. And then on your short-term charters, we are running actually now the business with significantly less short-term charters. So in that sense, it's more with own equipment, and that helps also to be more flexible there and to have less third-party costs, so to say. So in that sense, probably a better situation than what we had when we started this crisis at the end of quarter 1. So actually, during the second quarter, specifically May and June, we continued work more normally than the impact that we had in March and April.

We will now take our next question from Andre Mulder from Kepler.

Yes. Three questions. First question, you took a deeper dive in land. Do you plan to keep the current structure in place? Or should we expect some disposals there? Second question on the convertible bonds, again. Are you completely free to buyback more of those bonds? Or are there any limitations there except for the covenants? Last on Seabed, if you're talking to several parties, I would have expected that, that gives you an indication of the price, and that would be the price that you are taking up in your balance sheet rather than, for example, value in use. Value in use seems to indicate that you're sort of going value without any outside interest. And is that much different from the pricing levels that you're talking about on the sale of Seabed?