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

Okay. Good morning, everybody. Welcome to the call in relation to Fugro's Q1 trading update. I'm Catrien van Buttingha from Investor Relations. And I'm here with Mark Heine, CEO; and Barbara Geelen, CFO. They have a couple of slides to present. We think that that will take around 15 to 20 minutes. So it's quite short presentation, and afterwards, they will have time to answer any questions you might have. Mark, please, can I turn over to you?

Absolutely. Good morning, everyone. And we can go to the next slide, Slide #2. This quarter, Fugro reports a strong growth in revenues and backlog, which is obviously demonstrating higher demand for our solutions, specifically for the energy transition and climate change adaptation but also sustainable infrastructure development. And it supports this growth by all the regions in the world. Energy security is now firmly back on the agenda, as we read in the papers, and the traditional energy activities are also growing at a faster pace than we maybe originally anticipated at the start of the year. Overall margin was around breakeven in a typically slow first quarter, and it's obviously encouraging to see that we improved our margin as well as the cash flow. All in all, the current market outlook supports our Path to Profitable Growth strategy and, obviously, I will get back to the 2022 and the mid-term outlook towards the end of the presentation. Next slide, please. Let me briefly talk about the situation in the world related to the war in Ukraine. Apart from that humanitarian crisis, we see a strong effect on the global economy, in particular, with a rising inflation, 5% to 8% globally, which is very steep, obviously, but also an effect on the GDP growth, in particular, reduction of the GDP growth here. There is, obviously, also sanctions as you see on the slide here listed imposed on Russia, which has impact on everybody that works there. But in particular, that has impact on the energy security in Europe and in the world because there is a large part of the energy coming from Russia, and I think affordable and available energy is obviously key for everybody in the world. And this -- all these elements have an effect on Fugro as well, but in particular, for the items listed here on the right side of the slide, which means that we have 120 -- or we had 120 people in the marine crew for our vessels, primarily officers and the captains coming from these areas, Ukraine and Russia, and that created problem for the logistical -- yes, logistically for the staffing for the vessels there. We have installed immediately a team that is dedicated to get these people moving around properly and also to help the families involved, specifically around in Ukraine. We have now stopped using most of our Russian crew and, obviously, we have helped the Ukrainian people to find another home in Europe that we can still help them and support them, including their families. We also are suspending all our Russian activities, and as listed here as well, it has an impact on cost on various items but, in particular, fuel. We go to the next slide, please. So briefly on the markets, and the first one is renewables and then particularly offshore wind. I think it's good to mention that we see now the regions, Americas, and we saw that already second half of 2021, but also now, and APAC, Asia Pacific, really coming in with ambitious targets for various countries to really step up their ambitions for renewable energy. And a few things are listed here on the page with high accelerated ambition, for instance, Brazil now but also South Korea and also the U.S.A. committing to 45 gigawatts, more than that because actually, the states in the U.S.A. have already committed to more than 45 gigawatts. So this is also growing very rapidly. It has been an area for us as well to grow the U.S.A., and we see Asia Pacific now picking up in the years to come and particularly, this year, that will become more visible. Europe, obviously, has also, related to the security of energy, accelerated the ambition on renewable energy. So the energy transition is also accelerated or at least, the wish is there to accelerate the energy transition, and here listed, going from 40% to 45% by 2030, energy coming from renewables. Impact on Fugro is visible in our tender activity but also in the fact that clients do realize that capacity is becoming more scarce, especially around the season. And therefore, they also try to secure capacity, and some are even looking at years -- the coming years and years ahead after 2022. We also see that projects become larger, simply because there are more fields and larger fields under development. We go to the next slide. We talk about oil and gas, then this is obviously also back on the boards and in particular gas projects, you see that the majority of the larger energy companies, obviously, in the future will focus on gas as a transition fuel. As mentioned before, a lot of the energy in the world -- the total supply in the world comes from Russia. Over the last couple of years -- last 3 years, more than 12% of the world supply comes out of Russia. Last year, it was oil, more than 14%, and for gas, I think 17%. So there is an enormous wish to obviously not depend on the energy sources from Russia in the future, and that means that all the energy majors are looking to refocus their sourcing and also supply of oil and gas from different areas. That obviously increases the activity around oil and in particular gas. So that's also what we see in our tenders and the work that we're doing. And this is specifically, obviously, related also around marine site characterization projects that are growing in the years to come. What is also good to mention there is, particularly that these projects are on fast-track. So all needs to happen now and it needs to happen fast because, obviously, also the energy companies do realize that there is a need for the solution to steer away from Russia, but not only that they also know that oil will probably be more difficult to finance in the near future, and therefore, that needs to be done very soon and also have a very short payback time and gas is obviously the main focus for them. If we then move over to the next slide, infrastructure, has also been growing in Fugro, the revenue in the first quarter. Yes, what you see there is obviously disturbance in that market is specifically because the material prices and power prices have increased a lot. So, especially for the building, the EPC contractors in the infrastructure world, this is now very difficult, especially already awarded work needs to be reviewed if it can still be done with the cost levels that are bid for these projects. We also see an additional requirement around the energy security topic, especially in Europe, for additional infrastructure investments there. And, in general, as we spoke about before as well, we see various governments introducing stimulus programs after COVID, that is now more visible and especially also the Biden infrastructure plan is obviously gaining momentum now with already $100 billion specifically allocated to certain areas. It does take time before that money starts to flow because the central government in the U.S. is not financing anything. They hand this money out to institutes and local governments that will obviously contract the work. We also see in Fugro, in particular, the projects that were already awarded to us in the past, also multi-year projects that are now back on the board and starting to prepare to execute work on those. We then move to the next slide. Wanted to give 2 examples of projects and this time maybe slightly different examples, we have a bit more detail. Here you see a first example of a contract extension, this is a multi-year contract extension that we just signed for '22 till '26. We were executing over the last couple of years already this project for the Department of Transportation of Colorado, and we are doing road inspection there, which is high-accuracy work, you see on the page here. Our ARAN truck that has a lot of sensors on the truck that very accurately detects all the super-small cracks in the tarmac. And if you do that well in advance, you can actually prevent a lot of maintenance cost in the future. So this is also an obligation in the U.S. to inspect all these roads. And we have been involved, as I said, on many -- in many states, actually, we do this work, but this is a very good example of what we're doing there. We also detect all the elements that are built around these roads, like poles, guard rails, fences, pavement markings, and so on. So this is part of the 3D visualization that we prepare for these customers. We have done already 13,500 miles of data on an annual basis since 2016, which means that we drive a lot of miles there in the U.S. to get all these roads characterized and to collect the geo data there. And there are some samples given on the page here as well. So let's move to the next page, another example, also maybe slightly different than the traditional ones, but here we are mapping 900 kilometers of Indian coastline. This project is ongoing. It started early this year and it's still progressing, we'll complete this June this year. And here we have 56,000 line kilometers to [ seal ], to map the ocean floor. And this is up to a water depth of 30 meters from the coastline, so from 5 meters to 30 meters, high accuracy bathymetry data that we collect here to really also be able to provide a geo dataset to the government there that they can actually make plans for protecting the coastlines, which is I think the whole idea of this project, so it's a coastal resilience type of work that we now see more and more in the world popping up as governments need to ensure that there is a safe and livable environment for the people that live along the coastlines there. What you see is that, that we collect this information with boats like shown on the page here, but also for the very shallow water, we actually have our equipment on jet skis in the surf zone. So it's maybe good to give you some details there. And the next slide is for Barbara. So I hand over to Barbara.

Thanks, Mark. I will get back on some details of the financials when presenting the next couple of slides, but for now, I would just like to highlight the following. In line with the fourth quarter of '21, year-on-year revenue growth was strong. And it was driven, as indicated by Mark already, by strong client demand in the energy market. And both in the renewable and oil and gas as well as in the infrastructure market, we saw these developments. And we see a similar increase in our 12 months backlog. Q1 is a seasonally weak quarter, but even though in this situation, our EBITDA margin improved to 7.3% and the EBIT margin to around breakeven, which was specifically supported by the Americas and Asia Pacific, which is encouraging to see, as previously, it was predominantly happening in Europe, Africa in the last year. The free cash flow was minus EUR 7.2 million compared to the minus EUR 44.8 million last year, and this was the result of higher profitability and good working capital management. And by the way, before we turn to the next slide, to make our Q1 and Q3 trading updates more concise and to the point, we've decided, and some of you may already have noticed that, to shorten the narrative in our trading update release somewhat commencing this year, we still disclose the numbers with the same level of granularity. And for that, you can see the tables in the appendix of the press release and the factsheet, as most of you will be aware, you can still find on our website. Next slide, please. If we then look at the revenue and EBIT, both in marine and land, in the graph on the top, you can see that the revenue growth was strong in both marine and land, and this was supported by all regions and business lines. Positive exchange rate effect was related to the dollar. And in the bottom graph, you can see the margin development, demonstrating an encouraging improvement both on marine and land, and land margin turning positive. And there, we see that we can start reaping the benefits of the restructurings as we have taken them. We do see, however, lower -- higher cost levels due to rising inflation, geopolitical uncertainty and the lingering impact of the pandemic. And in addition, this quarter, we executed a relatively large number of scheduled dry-dockings of vessels. To give an example, we had 5 in dry-docking this year versus 2 last year, and this resulted in a relatively low vessel utilization of 61% and an increase in the number of short-term charters. Then we move to the next slide to look at the revenue development per region. And there, you can see that from a regional perspective, all regions contributed to the revenue increase, except for a small decline in land in Asia Pacific, and this is particularly driven by the ongoing pandemic effects in Hong Kong, where we've witnessed in January and February of almost a full lockdown, making working -- executing jobs very difficult. Let's move then next to the next slide where we look at cash flow. So the number of days of revenues outstanding in the top left graph was 87 at the end of the quarter, and working capital as a percentage of 12 months revenue, the right -- top right graph, it was 10.8%. And although net debt was slightly up compared to year-end 2021, the net leverage was still in line with 1.7x, driven by a higher LTM EBITDA of EUR 188 million versus EUR 174 million in full year '21. The free cash flow, I already highlighted, it was minus EUR 7 million. And although it is still negative, this clearly represents a strong improvement compared to last year. And as mentioned before, this was a result of higher profitability and good working capital management. And then lastly, we are reviewing the possibility to extend our debt maturity profile. And at this stage, it is uncertain whether we will proceed, and if so, when this might happen. And for the next slide, I will turn for the outlook back to Mark.

Yes. Thank you, Barbara. So for the outlook of 2022, we expect, as mentioned before, an increase in revenues in all our market segments, and we, obviously, continue to focus on further margin expansion towards our mid-term '23-'24 targets and with an EBIT margin of 8% to 12% and free cash flow 4% to 7% of revenue. And on the back of -- we do that on the back of higher pricing, increase in vessel utilization but also disciplined cost management. Operational excellence is also a very strong focus from us and, obviously, our plans for digital transformation. At the same time, the company will also have to focus actively on managing the impact of geopolitical uncertainties, inflationary and also supply chain pressures there. And to support this anticipated growth, our CapEx for 2022 is estimated at around EUR 100 million. And with that, we come to the end of our presentation, and we would like to open up for questions.

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

I have 3 questions. The first one is on the price increases. You mentioned that you have implemented price increase to offset cost inflation so far. Can you give some more color on the size of the cost inflation year-to-date and discussions -- and the discussions you have today with your clients and the current orders in the backlog? Do you expect to, let's say, fully pass that on to clients if inflation sort of increases throughout the year? That will be my first question.

Okay. Yes, I'm happy to answer that. The price increases, yes, we have been -- we see this in the backlog. Actually, as we communicated before, inflationary pressures started already kind of midterm last year, but they really increased further, especially also in Q1 this year. And what we see there is that -- so we have already been working on refreshing our backlog. We have a pretty short backlog relatively, so we have to balance there the refresh of existing contracts with new contracts. And we have been able to, we believe, overall, to offset inflation. Clearly, we are also looking at a margin expansion. So we are doing so over and above inflation, and we need to keep up with that. And we believe we are successful in doing that.

Okay. That's clear. Second question is on, yes, let's say, the renewed momentum in some of your more traditional energy end markets. Can you -- perhaps, can you give some more color on, let's say, the margin differential? Like is that a strong driver of margin expansion year-to-date and also in the remainder of the year, let's say, yes, your ability to achieve higher margins increases when sort of these more traditional energy end markets improve? Is that a correct assumption or...

Yes. Thank you, Henk, for the question there. So what we have said a number of times before, and I think it's good to emphasize that again that for us, our margins that we, in particular, for instance, on the marine site characterization side, the geotechnical, the geophysical work that we do is actually agnostic to the end market. So it's one asset or it's a group of assets that we deploy in the marine environment, and we can move it 1 day to an oil and gas project or an oil project versus a gas project or maybe an offshore wind project. Or if we talk about geophysical work or equipment that we have, we can also do coastal resilience work, for instance, as presented in the presentation in India. So for us, it does not matter where we deploy those assets in a way that the pricing is very similar. And as we have also seen in '18 and '19 when oil and gas -- or yes, the oil and gas was coming back and we were growing on the oil and gas side but growing even faster on the offshore wind side which is also something that I think we can emphasize now, we don't release on a quarter basis anymore the exact percentages for our market developments because there is quite some fluctuation between quarter and quarter. So we do that twice a year at mid-year and year-end, but I can say that the wind was even growing faster than the traditional oil and gas market for Fugro. So that continues to grow aggressively, so to say, and we can deploy our assets flexibly, which is very important, because that also gives us a way to find good utilization for our assets there. So we can have good projects on the wind side. We can have good projects on the oil and gas side, and vice versa, we can sometimes also have bad projects on wind or oil and gas. So the pricing is very similar. There is not too much to say about differences in returns in oil and gas, traditional energy versus the renewable energy there.

Okay. That's clear. And yes, when you look at your medium-term guidance, the 2023-2024 guidance, especially on the EBIT margin side, the range is still quite -- let's say, quite large, 8% to 12%. When you look at the market conditions today and discussions you have with your clients, let's say, do you already see potential or scope to, let's say, arrive at the mid- to upper end of that margin range? Have you become more optimistic in that regards now versus, let's say, last year? Perhaps, you can give some more color on that.

Yes. Henk, thanks for the question. Unfortunately, I cannot give more color on that. So I have to disappoint you there. The guidance is the guidance that we have given. I'm not in disagreement that that's a wide range. So we keep it exciting for everyone.

And then, like, is there -- will there be, I don't know, like later this year or perhaps beginning of next year, will you give, let's say, more detailed guidance on that? Or will you just keep it open until 2023-2024?

If there is a reason to further fine-tune our outlook for this year, we obviously will do that, or if there is more particular view on the mid-term and how that develops, then we can always do that. But that's too early to speculate on that.

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

First of all, I have a question about seasonality, because if I remember well, oil and gas customers are less sensitive to weather conditions than wind customers. So does that mean that you expect less of a seasonal pattern this year than in the past couple of years? And also because customers may be willing to move out of the peak season because of the scarcity of demand -- I mean, of capacity. And my second question is on the dry-docking. It was significantly higher in Q1. Is that because you just have -- happen to have a lots of vessels that need dry-docking this year? Or have you been able to do a larger percentage of this year's dry-docking in Q1, so will you have more -- higher availability later this year than last year?

Yes. Thank you for the question. So first one on seasonality, we believe that there is no real change in the seasonality pattern that Fugro experienced over the last number of years versus this year. Obviously, we have seen some strange developments during the COVID period and we spoke about that in the past, but normally quarter 1 is the slowest quarter for Fugro. If you have a busy season, then second and the third quarter, then you will also very often be bit more busy on the fourth quarter. And then at some point in time, it's working towards the winter months and then Q1 is a bit slower. We also need to execute, and that jumps to your next question, the dry docking. Yes, we need to execute dry docking for our vessels. There is special surveys and intermediate surveys that you have to do, that's an obligation for every vessel every 5 years, every 3 years an intermediate survey. You cannot deviate from that, otherwise, you lose your certificates and you're not allowed to work anymore. So that's just an obligation, and you can play around with that within a few months, but then it needs to be done. So that is something that sometimes 1 year you have more assets with intermediate or special surveys coming up, and this is such a year. So it's nothing strange, it is just more than what we had first quarter last year. As Barbara already mentioned that we have 5 vessels in dry dock and we are also doing an additional vessel transformation. So we took the vessel from Seabed Geosolutions, the Hugin Explorer, and that's now transformed into a geotechnical asset, the Fugro Quest. So that's also an ongoing element. But that is what is happening on the dry docking side. So 5 versus 2 plus that conversion that is ongoing. So jumping back on your seasonality a little bit more. So related to the traditional energy sources versus wind, it's absolutely the case that on the offshore wind side, we do primarily or majority only marine site characterization work. And that is happening more in the season, and we have spoken about that before that, obviously, particularly in these areas where they build the wind farms there is a strong weather patterns, obviously, and strong winds. So the winter months are not ideal situation to collect seabed information because there is quite harsh weather patterns there. So you're right, the oil and gas work is also related to asset integrity inspection work that needs to continue. That also continues to a certain extent, more in the off-season, in the winter months and therefore, there is a smoother trend there. But you see -- in both markets you see seasonality, it's picking up in the season, but in particular, wind, it will ramp up even more probably in the season, and that's also what we see in our backlog.

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

Yes. Thijs Berkelder, ABN AMRO, ODDO BHF. First, congrats on the beautiful performance for this year. Can you maybe explain in the revenue growth what has been the volume effect of your services, roughly, and similar in the backlog growth? Second question on, let's say, the EBITDA margin uptick in Q1, already was [ 270 ] basis points. Can you explain last year what did you lose because of the Texas winter storms? And what did you roughly lose this year because of the dry dockings? And third question is also on order backlog. You report only, let's say, 12 months order backlog, but I assume that you probably also are clearly seeing more activity already in terms of order backlog for 2023 and '24. Can you maybe shortly describe how activity there is different from, let's say, the past 2 years?

Okay, Thijs, thanks for the congrats there. I think it's important to see obviously the developments, at the same time, I think it's always good to emphasize that we are not satisfied if we're not making money in a quarter, and we're still -- despite the fact that this is maybe the best one in the last 8 years as a first quarter, we are still not satisfied with the return on our business there. So we're working very hard to get those margins up towards that mid-term level. So the first question is around how much is in volume and how much is maybe in price? To be honest, I do not have that exact split for you and probably if we would have had it, we probably would not release it exactly because that is sensitive as well. There is visible in the utilization of the vessels, quite clearly that our own vessels had less vessel days, which is obviously related to those dry dockings. We have had a higher number of third-party vessel days or short-term charter days, which is making up for that to a certain extent, but that also means that the volume is definitely larger, but some of the revenues is also price-related, the increase is price-related. And how the split is, I cannot answer that. So, apologies for that. Then you asked a question around EBITDA, maybe Barbara, you want to say a few words about the EBITDA element?

Yes, sure. And what I would say, and some of them -- the EBITDA, the operating cash flow has improved. I'm doubting a little bit because I wasn't here when the Texas storm happened. So I'm going to hand that back to Mark. So we are improving margins, EBITDA, and that is mostly driven by better operating cash flows, which is indeed encouraging to see, the revenue is there and we have tried to improve on those margins and succeeded. So now in terms of cost, costs have still been quite high, as also Mark alluded to, and that was a combination of the inflationary pressures, the higher -- the dry dockings, and then in comparison to last year, the Texas winter storm. I would say that there are a lot of variables going into that and it's really difficult from where I sit today to single out these events, but I would hand over to Mark to maybe have a more clear answer on the impact.

I think what Barbara says is absolutely true, Thijs, that there is ups and downs in both years, and this year we see, indeed, cost inflation, maybe related to general inflationary pressures and material cost. Nevertheless, also the additional dry dockings. Having said that, obviously, some of that is obviously capitalized also on these vessels because it's written down over the period. Let's say, if we do an intermediate survey, then that's written down in the next 3 years. If we do a special survey, it's written down in the next 5 years. So some of it is also capitalized. But you have to hire other capacity to execute your work, so third-party charters are again coming in. So you have in a season like the first quarter then, not double the cost but certainly higher cost because your own vessels are on standby and you need crew there and things to be done, whereas you also have to execute work if there is still work and you have seen that also on the volume side that there is still work. So that is an additional cost that you have to carry then. Having said this, then there is, in 2021, indeed also a number of effects like Texas storm, we have spoken about that, that had an impact on some of our land activity, and also on the marine activity, we have standby of a number of vessels there at the East Coast of the U.S. To give exact numbers, I stay away from that, but that is certainly an effect that we did not have this year. Having said that, I have to, unfortunately, refer back a little bit to COVID once again, because the beginning of the year, especially January, February, luckily, a milder variant, the Omicron variant was affecting a lot of people in Fugro as well and we had a number of dry docks that were affected and extended also due to infections on board of these vessels. So that has also had an effect, and maybe those things balance each other out. And then there is maybe some costs that we have today that we didn't have last year related to the additional dry docking and the inflationary pressure. So that's what I can say there. I don't think we will give you any exact detailed numbers on how much the dry docking additional cost is. I think we have given a more specific indication, we had only 2 vessels in dry dock in 2021, now we have 5 and we are also working on that transformation there. So quite a bit of additional work. Then I go back to your -- or go to your last question on the order backlog -- 12-month order backlog. You're right that we only report 12-month order backlog, which is by the way, and I think it's also important always to say relatively short backlog. So the majority is in the next 6 to 9 months for -- coming up. And at the same time, and I think it's a good question there, Thijs, there is more a view even also on the offshore wind side that people are looking further than only the season that is coming up, because clients obviously do realize that capacity might be tight in certain periods of the year in particular areas also in the world, because not every region is as busy as, for instance, Europe, Africa, but it is picking up globally. So some of these clients are clever and they realize that there will be a bit of a crunch in certain periods of the year, and if they want to secure capacity then they might also have to look at 2023. We see more of those discussions happening over the last period of time than what we have seen before. So in that sense, I can confirm that this is certainly also happening. And then as we have spoken about before as well, on the land side, in particular, in the U.S., for instance, we have multi-year contracts which are more call-off contracts that don't have necessarily prices already agreed, but they are multi-year and some of them are now re-servicing after the COVID period. I hope I have answered as best as I can your questions there.

Very good. Let's say, 1, 2 additional small ones. Can you maybe give a short update on your non-core activities in Australia? What are the settlements there and the timeline? And I don't know whether it's non-core, but you are a 50% owner of SEA-KIT. SEA-KIT is manufacturing your unmanned -- new unmanned vessels and also -- and meanwhile also for third parties, I think. What is the game plan there from a Fugro perspective?

Yes. No problem, Thijs. So, if we look at Australia, and that's indeed totally non-core to Fugro, then there is 2 elements there. There is an involvement and that is reducing very rapidly on the marine side with -- and ownership on the licensing offshore, and I think we have still 3 involvements on 3 offshore licensing, 1 will expire very soon, that doesn't have any value. So that goes away. Then there's 2 left. And it's not 100% clear what will happen with those in the upcoming period, but there are attempts made to farm them out, so to say, as the company Finder has been doing over the last decade already. They are actually themselves raising some money on the stock markets, and that is to finance some of their other interests, so Fugro is not involved at all in that aspect. Where Finder is not involved and Fugro is still part of the Dorado fields there that are developed and there is production license is coming up as well there. Fugro has a royalty agreement in place on all the licenses and fields on the Dorado field in Australia. And what you see there is that, there is more successful drilling activity from the owners there, which means that potentially there is a higher value against our royalties. Now I don't want to speculate too much on that, but if they go for new licenses like drilling license, then we get a one-off payment as well from that part of the agreement and we get a one-off payment, and those things are normally no cost to us, just an upside potential. And then there is the royalties that have a certain value, but that's all speculative till the time that we sell them. At the moment, we keep them to see how the ongoing exploration activity is going on. And this is super-low percentage we have on these royalties, but still it could be interesting in the long run to have some additional cash from that. And then last part on that side is license that they have on the land side, which is more fuel related, that is a multi-year development. Obviously, Fugro does not want to be actively involved, but I know from regular updates that they are now looking at a total energy solution in those fields. So they are looking also at hydrogen, solar, ammonia, all sorts of things combined with traditional energy sources. So they are also trying to pitch a more interesting package there for potential investors to sell off the opportunities that are there. So that's what I can say about Australia. And then on SEA-KIT, it's very simple, we have I think in a year from now, or something in a year or 1.5 years from now, we can actually buy a larger part of the share of SEA-KIT. We have not decided how we want to act, we just work together as a partner, which works well for us to bring our -- and we call them uncrewed service vessels because we have no men and no women on board. And basically, they help us producing those assets. They do a good job there. And they also produce assets for third parties as you just mentioned, as long as these -- that is only for markets that we are not operating in. So there is no major development on these other markets, but at least for us, they are actively building our new assets there.

We will now take our next question from Mr. Mulder from ING.

Excuses for the noise behind, but okay. First question about the Dorado, so does that mean if the FPSOs being designed, let me say, in 2022 and they are going to start production in 2026, but then the royalties will come in, is that correct? That's my first question. Second question is, if you speak about the improvement in geographical sense, you mentioned Far East or Asia Pacific plus Americas. So what about the increasing profitability in the Middle East? Is there something to say about that? And then my third question and the last one is about the dry docking. Maybe I missed it, but what is the timing and when is the dry docking finished? Or is it already finished that you have not -- that they are able to fully employ it in the rest of the year?

Yes. Quirijn, welcome back in the Netherlands. I heard that you were on a flight, so welcome back, well landed. I don't have any background noise. So, that's fine. So, Dorado is -- yes, in principle, when they start production, yes, then you have obviously return on your royalties, if you not sell the royalties before. And so, these royalties are also things that you can trade, and we just need to find the right moment to trade them and we're not necessarily looking to be involved in production there. So we might divest that. There are multiple wells in different areas of the Dorado field and you sometimes see some messages on new wells and it's good to look at all those details to see which one are in which phase. So -- and if there is a production license or a drilling license that triggers different payments to us, one-off payments and that's independent from the royalties. Then on your performance based on the geographies, we don't release the exact details, but you have read the press release there. Indeed, see specific improvement compared to last year first quarter in Asia Pacific and the Americas, which is obviously good to see that we have more regions improving there, and obviously, we're focusing completely on having all the 4 cylinders, all the 4 regions contributing to the bottom line. There is great potential in the Middle East and also growth expected there. However, they had to deal with some particular issues and delays in the first quarter. So their profitability did not improve compared to last year. So that's what we can say, but we do expect them to start also contributing to the bottom line very soon. So that's what I can say about that. And on the European, Africa region, I can say that was in line with previous year. So that is what we can say on that. The dry docking, obviously, the dry docking is scheduled, so the 5 dry docks that we're going through were all scheduled dry docks. So it's just something that is planned and we plan them like this that we have them done before the season starts, because then we need to have high production mode. So maybe -- or some of them that we refer to are already out of dry dock and now mobilized and working and others are being finalized as we speak.

That is -- and the Hugin Explorer is also [ improved ], or is that takes more -- it takes a longer period?

Yes, the Hugin Explorer, we will -- we call the Hugin Explorer in the future the Quest. So if you see something about the Quest, then that is the renewed name of the Hugin Explorer. That will take a little bit longer because that's a major overhaul and we need to make modifications to the vessel to carry a drill rig, to install a moon pool. So that's quite a significant overhaul, that will take a little bit longer, but we obviously will try to finish that as soon as we can, so that we can start production there also this year.

Okay. That is nice that is the scope of Quest, we can ask a lot of questions about it.

[Operator Instructions] We will now take our next question from Andre Mulder from Kepler.

Most questions have been answered, so just 2 left. Firstly, looking at the development of sales in Q1, plus 23%. Looking at your backlog, plus 28%. I think expecting sales growth for the year is really a no-brainer. What kept you from giving a bit more guidance in terms of the sales level?

Yes, Andre. So I think what is important is to emphasize that we focus on the bottom line and obviously, growth is important and we want to grow again. That is also part of our strategy, profitable growth. But we are particularly focused on the bottom line and we felt that the current outlook is sufficient for the time being. Obviously, during the course of the year, at midyear, we'll review that once again if we need to be a bit more specific there. We also have to emphasize -- maybe Andre, I can add one thing. I think it's also good to mention that obviously we compare here with the first quarter of 2021, which was in the middle of the COVID period, and I think it's important that despite the fact that it's very strong growth that we have to take it also in that context.

Okay. Then a question on the manned vessels and the unmanned vessels. How many of your fleet of, let's say, 30 ships that can be replaced by unmanned vessels and what segment will be impacted mostly there?

Yes. Okay. So, first and foremost, I feel obliged to make the comment once again, we talk about uncrewed vessels and crewed vessels, because we have to all work on our wording there related to diversity and also not downplay the fact that we have a lot of females working for us in also the marine environment. So -- but coming back on your question there, obviously, there is a difference, as you can imagine, for the vessels where we currently use drill rigs, so the geotechnical work, it will be quite clear to understand that putting a drill rig on an uncrewed platform is pushing the limit there. So these uncrewed platforms are, at the moment, let's say, 12 meters, we go up to 18 meters now, we have won an order for 18 meters, we probably increase to 24 meters as well. We are learning, obviously, as we go in the way that -- where we want to further improve. So we really like the way we have this in our plan, where we go along and step up phase by phase and focus on particular areas where we can serve the market with these uncrewed platforms. And that is focused on -- because that was your question -- on the geophysical work. So geophysical work can be done via an uncrewed platform because you have sensors in the water, hull-mounted or you tow certain sensors, and we are also moving towards towing sensors from an uncrewed platform. The other thing is that, what we can do, and we just had a message out in the news yesterday, I think around replacing a very large traditional inspection vessel of 75-plus meters with ROVs on board that we can actually do some of that work, we have an uncrewed platform, we have an ROV that we operate from that platform. So as you might have seen some videos and pictures from that, and that's also what we're focusing on. Now, you also know that we don't have a lot of owned vessel capacity on the marine asset integrity side. So if you talk about the 25 owned platforms that we have and then additionally, some of the longer-term lease assets that we have on top of that, then you talk about replacing probably, over time, more of the geophysical vessels and some of the asset integrity, inspection-type of ROV vessels rather than the geotechnical platforms because those require drill rigs and will be taking longer and more investigation how far we can push the boundary -- technology boundary there. Now, having said that, we, at the moment, also look at and we need that for our net-zero road map 2035 is, obviously, we need to replace some of these assets over time or put different engines on board of them or put hybrid solutions with battery-powered -- battery power on board as well to reduce the CO2 emissions. But we are actually focusing on expanding our capacity, primarily by adding uncrewed platforms and not so much the traditional-sized larger assets. So it's not like we're going to take one by one our own assets out. The older ones, yes, we will retire them and probably not add large assets, albeit we also feel that with the current market conditions, we probably need sufficient larger assets, especially on the geotechnical side.

At this moment, there are no further questions. I would like to hand the call back to Catrien van Buttingha for any closing remarks.

Well, thank you all so much for participating. If you might have any additional questions, please contact me. Thank you so much and have a very nice day.