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

Good morning. Thank you for dialing in to this webcast. Sorry for the slight delay. I'm here with Mark Heine, the CEO; Barbara Geelen, CFO, Fugro. And now I'm Catrien van Buttingha from Investor Relations. Mark and Barbara have a presentation for you, which will last, I think, around 20 minutes or so. And after that, there will be ample time to answer all your questions. Mark, please go ahead.

Thank you very much, Catrien. Welcome also from my side. We have a short presentation, and I'll hand over for the detailed finances to Barbara. But in 2021, we delivered an improvement, a clear improvement for our results for the full year. Revenue grew by a decent 5.8%. Margins increased as well, and we generated a positive free cash flow and positive net result. And the resilient performance was a combination of cost management which I think is very important, operational delivery, execution of the projects, which is very important there. And early signs of improved pricing, which I think is also good to mention now. And particularly, that was driven by a tightening supply market. And also, we saw the new digital geo-data solutions that we introduced contributing there. And in this rapidly changing world, we see also an increasing need for geo-data, and that is, I think, important to say. And we see that also in our strong backlog growth of 11.6% for -- compared to the previous year. And that is actually back to pre-pandemic levels, its largest growth in the last 3 years. In the fourth quarter, our revenue increased by almost 25%, supported by all regions, which is also, I think, a very good data point, all regions, all business lines, I must say, and also all market segments. And Fugro season, accelerating diversification of the markets that we serve, we now generate 61% of our revenue in renewables, infrastructure and water. And the revenue from renewables, yes, sustained its growth trajectory with 21% increase. And also the other markets infrastructure and water, respectively, were up 5% and 11%. And in the fourth quarter, also oil and gas started to grow again, and that was visible in all the regions. And for the full year, we did see a decline, as you can see here on the slide, of 8% for oil and gas. And the energy transition, but also the climate change adaptation work and a sustainable infrastructure are actually at the heart of our strategy. We spoke about this many times before and we're very well positioned to support our clients in their transformation in the light of these important trends in the world. But also this rapidly changing world has a few major global developments, as you can see here on the slide, and they will drive, yes, the structural trends for more geo-data and more insights in geo-data. I think that is really important there. So population growth, but also urbanization obviously drives the increasing need for infrastructure development, which is really important to see in this environment where we have more and more aging infrastructure, bridges, tunnels, roads, so there's a lot more work required, but also demand for more energy, and that is very visible in the market growth there. Different kinds of energies, offshore wind is growing, the CAGR that is shown here. This is market data that we used there for 4C offshore. 20% for the upcoming years, which is quite significant. But also climate change is actually driving the need for a better understanding of the natural environment, which is also very important, that's where Fugro comes in to serve with our solutions there as well. And that asked for more coastal, resilience projects, ocean mapping, all these things are very important. And then the other, yes, global trend development is the technological developments with a lot more connected devices there, but also allows us to really change the way we operate, how we do our work, how we collect our geo-data and actually also to reduce the CO2 footprints. And we have many examples shown, and we'll talk about a few of those as well. But also the increasing interest from society in ESG, yes, really ask for companies to change there. And we believe that Fugro's diversification and the ambition that we have there really helps in delivering better geo-data. And that will also support the world in that direction, especially if you look at the markets like climate change, energy transition and so on. So we're well-positioned, as the leading geo-data specialist, to actually serve these markets in the upcoming period. They're all growing. And then Fugro is, yes, its market leadership is actually supported by continuous investments in innovation and digitalization, which we also have done during the difficult years and the last 2 years during COVID were also not easy, but we continue to actually develop our services, our technology, and we identified 4 digital building blocks, and they are listed here on the slide, the mobile, autonomous, modular solutions, the robotics that we bring in there, but also the remote operations and then the analytics and the cloud automation services, and last but not least, also providing portals for our clients, really helping them to create the insights from the geo-data that we collect and that we analyze and advise on. And all these elements actually drive impact for our clients but also for ourselves. And that helps us to be more asset-light, these technologies. Or to really go to the net-zero road map, which is also very important. We have an ambitious road map there to be net-zero in Scope 1 and 2 for 2035. But also for safer and more efficient operations or improved asset control or accelerating delivery of data to the customers and also reducing, in total, the cost for the asset development and management of the lifetime of the assets for our clients. If we then look at a few examples. The project examples, I think they always speak for themselves, and I'd like to talk about these examples. Three on the board here. If you look on the left side, the site characterization work that we do for the Energy Island in Denmark. And this is a very purpose-built artificial island that is created to really connect hundreds and hundreds of turbines, wind turbines, offshore. And we have now been contracted to do the geophysical work, the geotechnical work, but also the cable route surveys, and we have been involved in the initial wind measurements there as well. And all this data will be integrated in a total geo-data integrated model of the subsurface that helps really the future development -- developers, actually to plan and design this whole project very efficiently. And then in the middle, you see -- and this is quite recent. We have been awarded the site characterization work, geotechnical work for Hornsea 3 and 4. This is the Ørsted's project that is under development in the United Kingdom. So this is a project that really will run in the field between May and August. So this will start -- we have multiple vessels then deployed on this project to collect all the information and to help the customer with the inside of the geo-data that we collect there. But we also process this data and analyze this information in the laboratory -- laboratories that we have in Europe. We really had to ramp up the capacity there because there's more and more work with the growing wind farm work. And then on the right side, a very futuristic picture of a new city there. It's the largest infrastructure development in the world in Saudi Arabia, the Neom City. It's a city of 170 kilometers long and more than 100 kilometers wide, it really needs to be built in a very short time frame. They're very ambitious there and we help them to really characterize the subsurface or before the design can be finalized, so to say. And we have to bring in new technologies. If we don't do this with new technologies, it would take much longer than they currently have in their schedule. Really good examples of where we deploy also new technologies and new innovative solutions. If we then look at the next slide, some more projects, and I won't dwell on them too much, but on the left side, I think it's also a very remarkable project there here in the Netherlands, very close to the office here, where we are involved in the reinforcement of a dike between Tiel and Waardenburg. And we have done similar work also in previous projects here in the Netherlands. And yes, actually, beginning of 2021 when there were so many floods in the south of Holland. We saw the result of a very innovative solution that we brought there in the South of Holland. And yes, the local communities, they are very pleased with the result and the outcome after this dike was reinforced. So this is a really interesting project for Fugro because it brings together, yes, our soil investigation with the laboratory testing services, but also the advice that we can give on the geo-data that we analyze and, obviously, also collect. In the middle, you see a development in Hong Kong. There, we have an interesting project now for the development of technology and innovation park. The Hong Kong Shenzen park there, which is, I think, very important also that environment is -- yes, the subsurface is really dynamic and instability of slopes is an interesting element there in Hong Kong area, where, really, we can add value in creating more insight on the geo-data that we collect there. And then on the right, an example of our, yes, on crude service vessel, where we have done a pipeline inspection work with no people on board of the vessel, which is quite remarkable. It's one of the first that is done in the world. We have done one in Australia as well. Now we have run the second project here in the Netherlands. We gained a lot of experience in these first commercial projects to really enhance the technology and to really make it more effective. And we're very pleased with the first results there. And now I hand over to Barbara for more details on the financials, and I'll come back with the closing there -- thereafter.

Thanks, Mark. And hello, everyone. In 2021, we delivered a clear improvement in our results, and you can see this from the slide that we show here. The revenue was up by 5.8%, and our margins increased, and we generated positive cash flow and a positive net result. And I will get back on the details of all these financials when presenting the next couple of slides. But for now, I would just like to highlight a couple of things. The EBITDA grew by 8.4% to a margin of 12%. And the EUR 71 million net profit was the result of the improved EBIT, net finance expense and income tax. And the backlog increased by 11.6%, as already mentioned by Mark, to more than EUR 1 billion and this represents the largest increase since the end of 2018. And it was supported, also mentioned by Mark already, but I would like to mention it again because it shows the robustness of the development underlying and this was supported by all business lines in all regions. Now let me take a quick step to quarter 4, which we'll also report on. And there, you can -- as you know, the business is quite [ seasonal ]. Historically, the second and third quarters can be considered to be our high season and activity levels in the other 2 quarters, Q1 and Q2 are largely determined by the weather. And in the fourth quarter of 2021, we were very busy. We've shown an increase of 24.8% revenue. And that was due to the weather. It was relatively benign. We could work longer, and we've also seen some positive developments on the oil and gas front. On par on the full year, oil and gas was down, but we saw increasing activity in Q4, again, supported by all regions, business lines and market segments. And the EBIT margin was 4.3% compared to 1.1% last year, and this was driven by improved performance in the Americas and Middle East and India, and particularly, in Marine. Now let's look at the remainder of the presentation, and then we will focus on full year. So moving away from Q4 to the full year. The full-year revenue increased by 5.8% on a currency comparable basis. And the sales from renewables sustained its growth trajectory with an increase of 21%. And this obviously strongly supported our revenue growth as Marine makes up 71% and of group total. The land revenue also increased by roughly the same percentage as Marine. And when we look at the EBIT margin, the improvement in Marine was partly, unfortunately, offset by land. Now let's look at Marine. And on the previous slide, I've shown an overview of marine and land at the group level. And on the coming 2 slides, I will focus on the performance of the regions. And let's first have a look at Marine on this slide where 3 out of the 4 regions reported higher revenue and margin. And in the pie chart on the top, you can see that our marine activities predominantly relate to the renewables, for offshore wind, oil -- and oil and gas markets. And throughout the year, offshore wind activity levels increased, as I just mentioned, by 21% overall. And we executed numerous projects, as Mark already alluded to and gave you more details, in Europe, Africa, America and Asia Pacific. And in the fourth quarter, oil and gas revenue increased in all geographies. However, it was down for the full year, except for Europe and Africa in the oil and gas. The EBIT margin improved driven by asset integrity in all regions. Site Characterization margin was lower, however, mostly related to the subdued activity levels in the Middle East. Again, in all regions combined, vessel utilization was better as well. It was 72% compared to 66% in 2020. And now some comments on land. The revenue increased by 5.7%, amongst others, thanks to 5% growth in infrastructure revenue. Only in the Middle East and India, revenues were lower. The operational performance improved. But as the title of the slide say, performance is lagging despite progress made. We have made progress with the portfolio rationalization as part of the land turnaround program that we have been implementing over the last 2 years. And that shows, already clearly, in the Asset Integrity margin, which was up in all regions. However, the site characterization presented a mixed picture, which was impacted by a number of specific local circumstances. Now let's look at the bottom half of the P&L statement, which I just want to highlight, briefly, the biggest swing factors because quite a lot has happened, right? We go from a negative EUR 173 million to a positive EUR 71 million. So specific items in 2021 were limited. In '20, there was EUR 28 million related to restructuring costs, which we did not have last year. The net expenses decreased by EUR 55.7 million. That is if you add the interest expense and the exchange rate variances together. We saw a big movement in the U.S. dollar development, which led to the 18.7% exchange rate variance. And there was an income tax gain of EUR 3 million compared to an expense of EUR 25 million in 2020. And that variance is the result of an increased taxation due to better results in various geographies, which was subsequently offset by higher recognition of available deferred tax assets and the utilization of carryforward tax losses. As you all know, or some of you may know, we have had negative results over the past few years. And this actually now comes back and allows us to benefit of those positions. And finally, a few words on the result from discontinued operations of EUR 11.5 million. As we announced at half year, we have sold the Seabed solutions -- Geosolutions business. And that was actually ending in a pretty good operational results. On the last project that was executed under Fugro's ownership. And this was partly offset by the charges related to the divestment, which was completed in June. Now let's look at capital expenditure and working capital. On the left hand of the slide, you can see that our 2021 capital expenditure was in line with the previous years. Typically, around half is spent on maintenance of existing assets and the other half is spent on expansion and transformation. And with transformation, Mark has already given a number of examples. We refer to investments to future technology and solutions, digitalization, conversion of vessels and the design and construction of unmanned vessels. In 2021, a Fugro-led consortium also secured a grant of EUR 24 million from the Netherlands enterprise agencies for the development of methanol and low-carbon shipping fuel, and this will be used to fund vessel conversion CapEx. The working capital, as a percentage of 12 months rolling revenue was 10% at the end of '21 compared to the historically low 8.1% a year ago. And this reflects good collections despite a particularly busy fourth quarter. As you could see from the days of revenue outstanding at year-end '21, it was 82 days compared to 83 at year-end 2020. Then on free cash flow. To start off, I'm very pleased to report that our operating cash flow before changes in working capital was EUR 33 million higher than in 2020. And this increase was offset by higher working capital, as you can see, which can be explained by the revenue growth in the second half of the year and especially in the fourth quarter. And overall, we reported a free cash flow of EUR 39.5 million compared to EUR 38.5 million in 2020, excluding EUR 50 million proceeds from the sale of the Global Marine Group, as you can see in the bridge. Finally, just a couple of remarks on the balance sheet. Let's start with leverage. After a strong improvement in the fourth quarter of 2020 due to the refinancing, it has improved further in 2021, as you can see. We have showed another step down, and the net leverage decreased to 1.7x at year-end in '21. And even though Fugro reported a positive net result in '21, we will only resume dividend payment once dividend -- sorry, once leverage structurally allows. And through an ongoing focus on cash generation, a gradual improvement in profitability and disciplined asset management, we target an annual positive free cash flow, resulting in the further reduction of net debt, deleveraging of the balance sheet and consequently, net leverage of 1.5x. And as a final remark from my side, which you can also see on the slide, we're reviewing the possibility to extend our debt maturity profile. And now I would like to hand back to Mark for the outlook.

Thank you very much, Barbara. So a little bit on the outlook for this year, 2022. We expect an increase in revenue in offshore wind, infrastructure and the water market. But in addition to that, we also anticipate a modest growth in the oil and gas market again. And we're focused on, yes, further margin improvement, which is towards our midterm targets. So 2023, 2024, on the back of, first and foremost, higher pricing; utilization that can go up; disciplined cost management, which we will continue with; operational excellence, which has been a priority for us in the last few years, and we will continue to focus on that; but also as we spoke about, the digital transformation. And we will continue to focus on actively managing the impact on the pandemic because basically, this is not gone, COVID not gone. It has very much impacted the last 2 years and also 2021 has been a very difficult year because of COVID. But despite that, we will continue to focus on that as it's not gone. Everywhere in the world, we're still affected, but also the inflationary pressures resulting from this and the tight labor market. And to support the anticipated growth and company's transformation agenda, we estimate to spend around EUR 100 million on CapEx, which is an increase compared to, obviously, what we have spent in 2021, which was EUR 82 million. Then a little bit on the midterm targets, 2023, 2024, I spoke about that already. This is also the last slide of today, and then we hand over for questions. This is the overview of the financial targets that we have on the EBIT margin level on the free cash flow after lease payments 4% to 7% of revenue. EBIT margin, by the way, 8% to 12% of the revenue and ROCE, return on capital employed, 10% to 15%. We also will -- we have said in the past, everything above 10% in all the areas of the businesses, that's what we focus on. And this is, yes, underpinned by following drivers, volume growth, which is very important, in particular, renewables, infrastructure and water. As I mentioned before, those markets are growing faster than we believe the oil & gas market. The value-based pricing, very important, integrated digital solutions, but also disciplined cost management, operational excellence, as I mentioned, and the digital transformation to further increase the efficiency of our operation. And with that, we complete this presentation on the annual results of 2021 and we will hand over -- yes, to Catrien for questions.

Now to the operator. I believe.

[Operator Instructions] We will now take our first question from Luuk Van Beek from Degroof Petercam.

First of all, I have a question about the Middle East. It's very encouraging that, actually, all the regions are improving. And the exception is the Middle East now, which is more dependent on oil revenues. So is this something that you expect to improve now that the oil market is already recovering? Or do you think that traditional measures to change your positioning or adjusted capacity will be needed there? And my second question is that the...

Sorry, Luuk. Sorry to...

The availability of the vessels in the market. Do you still see sufficient availability to maintain your policy of using [ short charts ] with the projects? And also, do you see any pricing power and building up because of lower availability of sector competitors? Those are my questions for now.

Yes. Luuk, I would love to answer your questions, but I -- the volume is too low to really hear everything. So I understood your question around pricing power, but I'm asking the operators here to turn up the volume so that we can hear your question once again. My apologies for that, Luuk.

Can you hear me now?

One second, Luuk. Yes, go ahead.

Yes. So basically, the first question is on the Middle East. If you expect a recovery in oil & gas will be sufficient to get the desired results there? Or do you think that you should just [ turn ] your positioning or your capacity? And second question is on availability of vessels for charters. And is there any price power building up because of the lower capacity in the market?

Very good. Now he heard you loud and clear. So thank you very much for the question, Luuk. So first question around the Middle East and how the market is coming back there on the oil & gas side. So what we have seen in, actually, all the regions end of last year in the fourth quarter that oil & gas is growing again and actually, in the fourth quarter quite steeply. And also, the Middle East is really picking up. And obviously, in the Middle East, the activity also on the infrastructure side is related or, yes, indirectly related to the earnings potential for these countries in oil & gas. So we also see that there's more investments and continued projects, so to say, that are kicked off on the infrastructure side. So the activity there seems to really ramp up based on more market dynamics which is, obviously, has been very painful for the Middle East over almost 7 quarters in a row, but the fourth quarter is really a turning point for the Middle East there. So we believe that we don't have to take additional action on top of what we already have done over the last couple of years because we have also stepped in there on the land side, on the Land asset integrity business. We have changed quite radically, but also in a few other countries as we spoke about previously. So that is on the Middle East and the oil & gas developments there. If we look at the pricing power and the vessel availability in the market, in the busy areas and that is obviously, over the last period of time, primarily Europe, Africa. And then in the latter part of the year or the second part of the year, also in the Americas, you see there is much more tightness in the supply -- on the supply side of the market. So yes, also the lease prices have gone up. And that means, obviously, also the market prices, as I said, early signs of increased sell rates as well towards our customers. This is just a fact of life. This is what is happening with oil & gas growing, and that was already the case a little bit longer in Europe, not very steep, but some small growth we saw also in Europe earlier than the other regions. Then basically, you see both markets, oil & gas and renewables, offshore wind primarily, really growing quite rapidly that there's a higher demand on these vessels. So this is becoming definitely tighter, and that also means that there is pressure on the pricing there also, for us to lease vessels. And the availability is reducing significantly. So it's important to utilize our assets, our own assets. We also contract, and we still have the availability there, and we can still contract assets from the market for the season, so to say. And this is very important because we always believe that the mix of owned assets and leased assets need to be in balance so that we can ramp up in the high season and then we can trim it down again in the low season. I hope those were answering your questions.

We will now take our next question from Olivier Vandewoude from KBC Securities.

Yes. The first question is about the margin in the land business. In the second half of the year, you had an EBIT margin of 2.7% compared to 9.6% in the second half last year, which was also COVID year and despite the higher revenues. Can you explain the reason for that, what's exactly the difference is? And maybe also, can you quantify what the impact is of the COVID situation on the margins in certain regions? And then also on the land and the put order book, it's high in 3 years. Maybe a bit explanation on the margin profile of those projects in the land business. And then second question is on the outlook. You guys saw a modest growth in oil & gas activities for 2022. I have the impression that peers in the sector are a bit more enthusiastic on that front. Could you maybe tell us more about why you see that as modest and what should change going forward to be more optimistic on that front?

Yes. Thank you very much for those questions. I will start answering probably last one first, and then I'll move back to the first question around the margin inland and Barbara will probably chip in there. So let's first talk about the outlook in oil & gas. And this is obviously very difficult to see where this is going. And we collect a lot of market information, so we have the market report from Rystad and so on. And you have also seen in our slides that this is actually the market that is growing most modestly. So a small percentage there. Now how that eventually will pan out is a big question, Mark (sic) [ Olivier ], and I cannot really predict that very accurately. So that's not possible to do. But this could easily be a little bit higher in certain quarters and then drop again. We have also seen that over the last 2 years, that there were certain quarters where we had some jumps and then it came down again. So there can be quite a few differences there throughout the year. But in general, I think the most important data point that you take out from our outlook is that we believe that this market starts to grow again. And that is, I think, what you should see. And we believe, and that's the second point that you can take out of this, that our, yes, infrastructure, wind and water markets will grow faster than the oil & gas side. And it's also to indicate that we're not banking on oil & gas coming back. If it comes back a little bit more steeply, then we will also serve that market accordingly. Then the land order book, well, our order book, as you might know, is relatively short, the period. We look ahead -- most of the projects that we have in our order book in the backlog are 6 to 9 months out, maximum. There's obviously also some multiyear projects in there, but that is significantly less than the majority. And therefore, actually, yes, with pricing recovering in the busy areas, we see that we have also a decent price level in the order book. So in that sense, we are pretty comfortable with what we have there and the healthiness of the backlog there. And then a little bit on the COVID situation for land. But in general, I think it's important to take note of the fact that it is affecting, actually, all the operations everywhere. And I think everybody experiences the hinder of COVID and has experienced the hinder of COVID. When you go to a shop or to a restaurant or try to travel, it is affecting everybody in every operation or company there. And in that sense, we are still affected by it throughout all the services. However, having said that, we see an opening. We see that we have learned how to deal with certain things, but also the Omicron variant is very impactful, especially on our marine operations, a little bit less so on the land side. So the landside should actually be a bit more easy in that sense. But there is differences between the various areas and geographies in the world. So Europe is obviously further ahead with the Omicron variant. And just to touch wood that there's nothing else coming after that, then we should be okay and more okay in -- on the European side with COVID in the upcoming period, whereas Asia Pacific is a little bit lagging behind. In the beginning, they were maybe one step ahead of Europe 2 years ago, but now they are following, I think, the European region. So this is important to realize. It's painful because certainly, Asia Pacific has been hit very hard by COVID over the last 2 years. So in that sense, I would hope that this can be out of the way very soon. Then on the margin side, I will hand over to Barbara and see -- you can answer those.

Thanks, Mark. No, I think it's in line with what you said in 2020 in -- compared to '21 performance in Land was very much also offset by the difference of one-offs COVID compensation that we still had in 2020 and other operational logistical challenges. Now we cannot clearly, as I also mentioned on the slide, be happy with the 2.5%. I would like to say there are pluses and minuses in that margin. So it is not that it's an average across the board. And there, I think that is also what Mark alludes to, that is actually quite encouraging that we see some pluses that are going actually towards the midterm EBIT margins. We have some really good innovations on land. So -- but it's more a scattered setup as we all know. And LSC has, in certain areas, been in difficult market conditions still. But all in all, we feel we are well-positioned to bring all the land operations up to the level that it should be.

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

Yes, number of questions. Firstly, on the pricing. Can you give us an indication of what the average price increase has been of that period? A question on the maintenance CapEx, down from EUR 48 million to EUR 38 million. Is it an occasional blip? Or is that a sustainable level? And can you give a bit more detail on what you mean with possibilities to extend debt maturity?

Okay. Thank you, Andre. Maybe first on the pricing. We have been able to increase prices in the areas where we're busy. So you can clearly see in Europe, Africa and this was the case and also the second part of the year, in the Americas and then maybe in some other pockets in the world. So there, you see pricing increasing. And then particularly in the areas where you're growing faster in the business lines, for instance, where the wind business was growing steeply, then there's more tightness on the resources there. So to give you a price indication for the whole of Fugro is very difficult. But we have, in those areas seen steeper price increases. There may be, in other areas, where we simply cover the cost of the inflations there. But our general feeling is that, yes, pricing will outpace the inflation cost that we face. And therefore, we believe that we can also focus on margin improvement there coming out of the prices that should further go up. So that's what I can say on the pricing, then maybe on the CapEx, I'll hand over to Barbara.

Yes, sure. Yes, on CapEx, I would say that it's very important that we have a well-invested asset base. And that means that from year-to-year, as you know, we have 26, now 25 vessels. We have a lot of equipment and that -- it's important that we maintain that well. And that -- so that may change from year to year. So it's not -- so there will be -- it will be moving in the bandwidth. That's why we've given a direction on around half that may be up a little bit in 1 year because we need to do a dry docking, which is to keep the vessels in spec. Now clearly, we try to do that in a very smart way. So we dry dock down in low season, so to speak. So it's the bandwidth. That's why we've actually showed 3 years as well on the slide. It is a good proxy to work with. On the possible expansion of the debt maturities, as you know, we have a midterm term loan. There's no new maturities. We do have a convertible outstanding. So things are happening and it's only prudent that we look at potential refinancing options, and that's what I would say. Clearly, we see changes in the rate environments, inflationary pressures. So that is all things that we keep into consideration when reviewing this.

Look at the plain debt? Or will there be also, an equity part of that?

Well, I think, I cannot really go into much more detail at this point in time, but I would say that we have a pretty healthy capital structure with a relatively low leverage. And so that is what I would like to say about that.

[Operator Instructions] We will now take our next question from Quirijn Mulder from ING.

I can hear myself. But...

We can hear you as well.

Okay. Perfect. With regard to the CapEx, what is, in your view, the breakdown for that EUR 100 million in 2022 between expansion and maintenance? And can you also maybe elaborate somewhat on the Hugin Explorer, what you're doing there? And has it already -- can it start working in 2022? And then on the environment, if I look at what you have put down that -- it looks like that after 7 quarters that the Middle East is recovering. But it should, in my view, Site Characterization, but I missed somewhat that I also read that Asset Integrity is improving. So how can I mix -- how can I understand that's exactly what's happening? Is that -- is Site Characterization now recurring because it was not as profitable as 2020 compared to 2021? So I'm somewhat puzzled about what is in the text.

Okay. Very Good. So I will take the questions. The last question, and you can explore and then hand over to Barbara for the CapEx breakdown. So thank you for the questions, Quirijn. If we look at the Middle East and what is happening there, I think if we go back to 2021 and also 2020, what you have seen there is that the Middle East was significantly investing less in -- on the land projects, infrastructure projects as well as oil & gas, so the energy side. And that had an impact on a lot of things across the business. If you look at 2021, we also have started to do some, yes, some self-help, so to say, to fix the business. And over the last period of time, so the last 1 to 2 years, also on the Asset Integrity side, we have been trying to fix that business. And we have seen, yes, slowly, the result of that coming through as well in 2021. So Asset Integrity, Marine Asset Integrity definitely was better for the full year, and that is, by the way, the case around the globe. But also LAI, we see -- so the Asset Integrity business on the land side, we see improvements there as well. That's relatively small in the Middle East because we have closed down a lot of the loss-making activities there over the last, yes, 1 to 2 years, as we spoke about before. But what we still do there is now -- majority is related to the NEOM project in Saudi Arabia, which has been very good for us. There's a lot of work. That will probably come to an end and then move over to the land site characterization work. So that is also picking up now in the mid- -- in Saudi Arabia for the NEOM project. So it's more moving from asset integrity now into the land site characterization. But also, we have the bridge project for the Maldives, which is actually happening now which was postponed a few times due to COVID, and now it's kicked off in the fourth quarter of last year. So that is what is happening there on the land side. So we do expect, actually, in the Middle East, that all the businesses will be growing again coming out of this COVID period because there has been a very long period of low investment in oil & gas, energy in general as well as infrastructure. So that's what I can say there. I hope that answers your question, Quirijn. Let me check that with you.

No, no, that is fine. But I also sense that the IOCs are very reluctant with investing. Is that correct?

Maybe the IOCs here and there, yes, in general in the world, you see that. And obviously, that's why also Rystad is obviously very careful in their prognosis moving forward in the upcoming period. Having said that, I think, specifically, if you talk about the traditional energy sources, they will obviously not scream from the roofs what they're doing there because everybody wants to hear about their renewables' development, the majority of their CapEx and investments are still going into the traditional energy sources. Having said that, for instance, for certain major energy companies like the Shales, the BPs and the Totals, we do, very often now, more wind development projects than actually the traditional energy sources. So that's important to note as well. Having said that, we do see activities now picking up, as I said, end of last year, fourth quarter, everything going up, actually, quite steeply on the fourth quarter there. And I do expect that they will also start investing more moving forward. They are careful about what they say there. That is clear. The Middle East, in particular, actually announced, even in January, some release of big funds to invest on a number of projects also related to energy, but also infrastructure money. So they released billions of investments there. So in that sense, yes, there is clear activity coming up.

And if -- let me say, if the oil markets are growing, let me say, double digits, that is possible in 2022, given the oil price and invest with a character with political situation, et cetera, are you prepared for that? Are you able to handle that demand in combination with wind, et cetera?

Yes. So we have seen in the history of Fugro in '18, '19, we were also growing quite steeply on the oil & gas side. At the same time, where wind was growing, we saw that we were able to actually ramp up with temporary charters. Now I have to say that this time, and we also mentioned the tight labor market, it is a bigger topic today. So we have to realize there will be tightness in the market. And that might be also the case that we cannot serve all the projects, which is again, just a fact of life. And that also means that the pricing in the market will obviously have to respond to that as well. So, yes, it's not necessarily always bad if we cannot serve a particular project because that means that we probably can be also a bit more picky in what we take and what we want to do and where the best tenders lie for us. So that is what I can say there. On the Hugin Explorer, if you allow me to continue, we have taken that vessel, obviously, over from the remainder of the assets that was still with Fugro when we sold Seabed Geosolutions. That is now transformed into a geotech vessel, and it's obviously the idea that in 2022, we can use her in the season. So that will be a bit foolish to do a lot of work on her and not to be able to deploy her in the season. So that's definitely the case. And then I move over to Barbara for the CapEx question.

Yes. Thanks. Quirijn, so we're guiding on EUR 100 million for this year. And as I already mentioned in my presentation, around half of that is maintenance and the other half is expansion and transformation. Now the way to think about CapEx is really also a capital allocation question. As I said, we need well-invested assets, but we also need to be able to analyze in connection with the tight labor market. We need to serve our clients and execute the work that we have. So there is the project-related and expansion element of the CapEx. And clearly, we have -- we are on a transformation road map. And we have, as Mark already explained, a lot of innovations coming up which some of them are really commercially viable already and some which we are building out further and others, we're bringing to the market. And that's why I'm explaining that because there's a phasing element in it. Now we would, of course, like to invest a lot in the transformation. So we have [ divided ] up the EUR 100 million in that sense. However, execution of projects is key. So you could say that we aim to do a big part of the 50% in transformation. There's also -- coming back to the capital allocation question, we will have to make choices where we allocate the capital. We're on a midterm target trajectory, which we plan to arrive at. So there is that element as well, if you think about the CapEx and how we deal with that.

We will now take our next question from Henk Veerman from Kempen.

My first question is on your plans to refinance the debt. Because if I remember correctly at the previous refinancing, I think the term loan, it will go after 2 or 3 years from Euribor, plus 5.5% Euribor, plus 8%. Maybe first, can you confirm this and when has that kick in? And then secondly, how easy is it for you? Can you give some more color on your ability to, let's say, in inflationary markets and obviously, an environment where let's say, the risk-free rate just keeps is going up. How hard is it then for you to refinance this term loan to more attractive rates? Also given your oil & gas exposure and the view of the banks with regards to that? That's my first question.

Sure. Let me -- first of all, there is a term loan. It matures in '23 -- no more. Yes, and it hasn't -- it could go plus 2 years, but there's a ratchet in there. And at the moment, we pay 6%. So -- and I mentioned this also in my -- in the previous announcement, there comes a moment that this becomes inefficient. Now clearly, we also have to deal with the markets that we're in. We're not in a rush as such. Equally, we're also looking at the same picture when we look at the rate development. So that does play a role. In terms of our ability to refinance and oil & gas exposure, let me comment as follows. The oil and gas exposure, from where I sit, we have transitioned pretty much kind of faraway already. If you think about [ it ], we only have, 39% at this point in time, oil & gas exposure. So we've really already demonstrated and have a strong track record in moving away from that market. Now clearly, we are dealing with the situation. We understand the perception of the markets, but we have made and demonstrated a strong track record. If you look at the current balance sheet, we look at a leverage of 1.7x. We have a target of 1.5x. These are, from where we sit, not very high leverage levels for refinancing. So we are pretty mainstream, so to speak. So from that angle, we don't see that as an issue.

Right. And could you just confirm that, let's say, I think as of next year, that term loan is going to Euribor plus 8%, right? Is that correct?

Yes. It steps up with 50 bps every half year.

Every half year.

So the 8% is for June.

Okay. Okay. And then on your equity participation, so I think -- yes, sorry, I'm hearing a big echo. But yes, on your -- sorry, on your equity participation, I think its report -- you report quite a big profit there. And then I think about EUR 5 million in dividends. Is -- can we expect quite a large dividend from your equity participations into this year also given the oil price and given that you also report quite a big profit over 2021 in your equity participation plan?

I think you -- I think, at the beginning, you weren't not 100% -- we couldn't understand you. So you were asking if we would pay dividends?

No, sorry. So your equity accounts indices, right? You booked almost EUR 80 million of profit in your joint ventures. And I was wondering, and I think in the cash flow statement, those participations only sort of pay you out EUR 5 million dividend. So I was wondering, into next year, let's say, if you continue to book quite high profits in your equity participations, will this dividend from equity participations will go up significantly? Also given, I think, some of these equity account indices are more exposed to the oil problem.

Yes. I don't know from the top of my head how much the dividends exactly are from these joint ventures that we have because those are noncontrolling interests that we have, very often close to 50% interest. For instance, in China, in our joint venture there or in Iraq, where we do work on land. So those are part of this. And they normally pay and keep up quite well with the dividend payment, so this is not a major topic. We do get the cash out quite regularly. So in that sense, if it would be the case that they're lagging behind a little bit, then they will be catching up at one point in time. Unless there is a particular investment requirement there on their side, where they probably invest a little bit more and also the growth and technology that they go through.

Okay. Clear. Then my last question is on your -- I think a lot has been said on, let's say, your ability to lever up on higher sales into next year and thereby growing the margins a little bit despite cost inflation. But I was also wondering also, I think in your outlook, you also speak about operational excellence and very tight cost control. So can anything still be done on the cost side in terms of maybe some restructuring perhaps in the land business? Could you perhaps comment on that a bit?

Yes, I'll give it a start, and then Barbara can chip in later. So I think there is a limitation to what you can do. Obviously, after you have gone through a previous crisis between 2014 and '17 and then '18, '19, all moving in the right direction, and then you get COVID and you have to step in again and executing a cost program of EUR 130 million or EUR 120 million, but achieving EUR 130 million in this program, that's quite significant. And you obviously burdened the organization quite a bit with these reorganizations. Now there is always more efficiencies to get out of the system. So I have to be clear, we will continue to do that. And that's also why we say that we will continue to be very disciplined in cost management and cost control because we always feel that in certain pockets of the organization, we can further optimize, we can introduce new technologies, new ways of working where we can further reduce cost but also stay on top of the expenditure itself. So obviously, when the world is changing and opening up, you can either open up the floodgates or you can be very controlled and turning the tap only a little bit open where you say, "Okay, people can only travel because of certain reasons or because of certain activities." So we're very careful there because we obviously want to see the operational leverage when we start growing again. So that's basically the message that we have. Barbara, you want to add anything there?

No. I think that's pretty complete. I would say that we're constantly looking also within the company if we can do things smarter. Automation is on the agenda, and we're required, as I mentioned before, we have to make some choices on some further isolated, well, restructuring. I wouldn't call it restructuring. I don't think we're in that territory, but operational improvements, I would call it. So that's what I could add.

Congrats on the strong results today.

Thank you.

We will now take your next question from Thijs Berkelder for ABN AMRO.

Yes. This is Thijs Berkelder...

Thijs, we cannot hear you anymore. We heard your name, but that's it.

Can you hear me?

Yes. Now we can hear you again.

Yes.

Okay. First question, order intake this year has been growing strongly say, in H1, something like 20%, 30% year-on-year, growing to close to 40% or over 40% even in Q4 now. This implies you probably made quite a lot of tender costs compared to a year ago. Can you maybe roughly quantify what cost effect this year? Related to that very strong order intake, can you maybe give us a bit more flavor on what we can expect in terms of revenues. Your backlog is already at 12%, 13% for the coming year. So that would assume already close, like, 10% to 15% growth in revenues have been well. You mentioned order intake, also very strong at the start of the year. So it's just logical that you maybe look at the revenues going up by maybe 15%, 20% in the coming year?

Okay. Thanks, Thijs. So your first question is around tender cost, if I understood correctly. In that sense, I think it's important to note that we do not have tender teams that are maybe comparable to, for instance, EPC contractors that really need to ramp up large departments to run a tender and do a lot of design work in these standard processes. So yes, there has been more activity on the commercial side. So we take, obviously, more resources to prepare for these tenders, but it's not a high cost against it because we don't have to do drawing work or design work in these tenders. So in that sense, it's a relatively low, more labor cost related than anything else. So in that sense, I wouldn't see that as an item that you should be triggered on too much. So that's important. Then the next question, and the follow-up question is obviously all steering towards, okay, backlog is up 11.9%. Is your growth -- can you be more specific on the growth? And the answer is obviously, no, we cannot because that is a conscious decision that we communicate what we have communicated. We believe that the markets, as we have spoken about in the slides also grow accordingly, so wind steeper than the other markets. So this year, 2021, we saw, yes, quite a steep growth on offshore wind. So you can expect that growth to continue in that sense. And that is not unlikely to be double digit because we try to follow the market there. Now if you look at the other markets, there are single digit, as we have communicated. Infrastructure, 5%, 11% and on the water market. So probably with these markets picking up somewhat, you can expect some growth there, but -- it will never be 1:1. So the markets might go a little bit faster, we come a little bit slower, and it's always a mixed picture there. And then oil & gas, as you have seen on the page there, is low. The market pictures and the market reports for the next few years, a gradual increase, but a significantly lower percentage there, so we take that as guidance. Can it be more? Yes, it can be more, but we are not specifically stating that because we have to see how things develop because there's also still a lot of uncertainty and I have mentioned that as well. We need to be careful in how we grow, and we need to grow in a profitable manner. We need to be able to handle it. So that is also quite important that we control this well. And then we have the pandemic still lingering on. We have the inflationary cost. So it's great if you win a lot of work, but that the prices are not right. So you need to be careful there as well, but we have a very robust tender process in place. And then we need to have the people execute the work. So at some point in time, there is a limitation on how fast you can grow. But the markets in itself in the upcoming years, if -- well, presuming that COVID is not burdening those markets too much, you can expect some growth according to what we show on the slide there. How much we can keep up with all of it, that's the question of a few more factors there.

Okay. Then an add-on question on your reporting on oil and gas being 39% of revenues. In Europe, we have decided that gas is green. Can you maybe give us a bit of what the percentage for oil-related and what for gas related? And then maybe within oil, what part is now asset integrity. So protecting the environment for poor -- for damage, and what part is Site Characterization?

Yes. Thanks for the question, Thijs. Well, some of the specifics you're looking for, I, unfortunately, do not have to do a lot of detail, but I can say a few words about it. So first and foremost, I can only echo what you have said that, obviously, everybody and also our customers, the energy companies are talking more about gas development, natural gas development as it is a transition fuel and still very important for the world to serve the energy needs there. So it's very important, and it's good to see that energy companies are also steering more towards the more, yes, lower CO2 emission, in that sense, compared to petroleum and using coal. So I always said very clearly, it needs to start with coal, needs to stop there. Then petroleum is the next thing. And then obviously, you can only look at gas thereafter. But everything you can move from coal or petroleum to gas is super-efficient for the energy transition and the climate change problems that the world is facing. So I can only emphasize that and echo that. Now in that sense, it is important for us also to have more granularity in our figures there. And we are working on that as we speak as well. So it's a very logical question that you have. We have asked the question as well. It takes a little bit of time to get to the details there. How much we will release and in what time frame, we will discuss first. What I can say over the last year, there has been significantly less site characterization work, for instance, on the oil and gas side. So that has significantly been reduced because there were a lot of -- or significantly reduced amount of investments done there by the energy companies. So what was remaining or a large part that was remaining was Asset Integrity work. And for us, we have never made the distinction. Okay, is this pipeline inspection for an oil pipeline or a gas pipeline as the work that we do, yes, this is irrelevant to know. More important is that we do the measurements to prevent leakage to prevent their pollution to the environment if these pipelines might be damaged or will come under a certain strain or pressure that needs to be prevented. So in that sense, we haven't got all the details yet. We are looking into it. I can say that oil and gas, the 39%, a large part is related to Asset Integrity work and it's relating to, yes, existing infrastructure at sea, marine infrastructure to keep that safe, to make sure there's no corrosion to do the inspection on that. Because I can only emphasize over and over again, you know and many other people, I think it's important to know, we do not produce, we do not transport, we do not process, we don't drill for, we don't look for any oil or natural gas anymore. So we only get involved in the site characterization work there, understanding the subsurface and also making sure that these assets are safe and sustainable and cannot pollute the environment.

No, that's clear. So hopefully, we will get a split on gas soon. Because clearance gets a rather dark picture on the order outlook with the ICO, especially looking at the situation in Europe. And I see -- more in general, we see a clear pickup in gas demand in all parts of the world and a clear pickup activity all over the world. Qatar, Mozambique, U.S., Australia, you name it. A final question maybe -- can you maybe give a more specific outlook per region? What do you want to deliver in 2022 versus 2021?

Yes. So for the outlook, we obviously always give that on a group level. But let me give you a little bit of color because I think that we're entitled to do that there as well. And what we see is obviously -- and if you look at the numbers, Europe, Africa has been producing very, very decent returns and that is obviously very important. Then we also communicated that the second half of the year, Americas is also coming in with better results, helping to really produce a better return for Fugro as a whole. Now that means that for the Americas, we fully focus on the full year needs to be contributing there. That is our focus because it's unacceptable that they only contribute in half of the year, so to say. Now if I look at the other regions, we have looked at -- we spoke about Middle East, India as the region, 7 quarters down, fourth quarter last year, really picking up. And we believe that there is, indeed, also a healthy backlog there. So that region will slowly start to, yes, produce better results again and also contribute to the bottom line of Fugro because we eventually want to fire on 4 cylinders being the 4 regions. And then obviously, we focus on Asia Pacific there as well, very affected by COVID in 2020 and 2021. In 2020, also much more compensated and helped by government there locally, there was a big difference between 2020 and 2021 for the support that we have received there. So that's also important to take note of. So in 2021, they had to do it more -- much more themselves and recover the cost there themselves. Now that Marine Site Characterization business in the middle -- sorry, in Asia Pacific has been very much affected and did not yet have the replacement market as Europe has and probably the Americas has in the second half of the year, being the offshore winds' development. We have done a lot of wind projects in Asia Pacific, but not to the same extent as we have done in Europe, Africa -- or Europe, I should say, and the Americas. So with that coming in, and I have said that before 2022 is really the start of more projects there and that industry further picking up, the Marine Site Characterization can also come in when COVID allows us to really start working on these projects again and that we can move people and vessels around. Then also, the Asia Pacific region on the site characterization side, and the marine element can start to contribute, because the other business lines are actually doing reasonably well and better than the year before. So we are on the right to the trajectory there, but it takes a little bit of time because we also need the help of the market there.

Thank you. This completes the Q&A. I will now hand over to Catrien van Buttingha for any closing remarks.

Yes. Thank you very much. I'd like to thank everybody for participating. And if you might have any further questions, please let me know. Thank you. Have a nice day and weekend.