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

Good morning, good afternoon, good evening for some of you. Very welcome to the first half year result presentation of Fugro for the First Half of 2024. First, I would like to start with a few highlights of the results today. You all have seen the press release, but we are particularly pleased with, obviously, the results development, the EBIT development being significantly better than the first half of 2023. We also would like to take note of the fact that this is the first time that the revenues for renewables are larger than oil and gas. That in itself is not a target for Fugro. The target is to have a very diversified revenue mix, but we had to make another step to bring that more in balance. We'll talk a little bit more about the market developments a little bit later, but this is an important point to mention. Also good to say that the operational cash flow is progressing nicely along with the results, the bottom line results. And then last but not least, we're particularly pleased with also a good order book backlog of close to 17%. Maybe good to remind everyone of our strategy that we launched end of last year in November, towards the full potential. You see a strategy canvas here on the board, something you've seen before. Obviously, the purpose, vision and our values are there. But more importantly, on the right, there are the 3 priorities on our strategy. And we always like to emphasize that the first priority, growing and transforming our current business is the one that will generate in the midterm in 2027, most of the value. So we're going to obviously grow the business there, but we also want to do the work in a different way, more efficiently with different technologies involved, and we feel that, that can really boost the current operations, so to say. But also the other 2 priorities are quite important, specifically for the mid to longer-term because we feel that we have certain expertise that we can also deploy in new developing segments. Some of these segments, we'll talk about a little bit later, has to do with the water market, for instance, climate and nature, a segment that is still nascent and small right now, but it's a developing segment, and it could be seen as a future market for Fugro. But also carbon capture and storage is an area where Fugro can deploy their expertise, and we feel that we have good services to offer there. And last but not least, the third pillar is related to building recurring revenue, basically geodata as a service, combined with specific hardware solutions. We see some opportunities in all the technologies that we developed over the last couple of years. And we want to also further develop that. And we do that actually in an accelerated manner in a type of start-up environment within the larger Fugro. And this is all supported by 3 key enablers: people, technology and execution excellence really required to drive all these priorities to the next level. And talking about people, I think it's very important to say that while we're growing as Fugro, a steady 7% the first half of this year, we also need to focus on our talent and attracting talent, obviously, also retaining the talent and developing the talent. And I think it's good to take note of the fact that we have been able to hire again more than 1,000 people in the first half of this year. We see that people are really eager to join Fugro. We get a lot of applications every month, I think more than 10,000 applications come in, and we can select the people that we would like for the vacancies that we have in the company. It's also important with close to 11,000 people that we maintain and retain those people. And for that, we obviously need to drive our engagement with the staff and you see the left graph here that we consistently step up the employee engagement, the employee Net Promoter Score moves up nicely every half year that we measure this. And that also results in reducing the outflow of people, the turnover of people that's now below 9%. So that has come down after COVID was very high, 14%, and now we're dropping below 9%, and we have a target, as you know, to go below 8%. So talent, really important, and we're also focusing on continuous learning, really building a learning organization where people can professionally and personally develop themselves. If we look at the overall targets that we have issued end of last year during our strategy launch in the Capital Markets Day, then we see these targets for 2027, for, obviously, financial targets, very important. You're familiar with those on the EBIT level between 11% and 15% consistently also in the midterm. So when we get to a level of EUR 3 billion to EUR 3.5 billion as we gave as a guidance, we want to be within this range. And obviously, we have said before, the 11% wouldn't satisfy us as we know that we also are able to do 13% plus. So we are focusing on cash flow, and we'll talk more about that. Barbara will pick that up. And ROCE, obviously, also something very important consistently in the long term while we are investing in the business to have that at the right level. Then on the people and the environmental, the planet side, we have good targets. You can see them here on the board. We also communicated now where we stand at midyear. Some of them we have already met, but there are also others that we're still very much working on. And the ones that we met, we really need to maintain on that level also being a larger organization in the future. Then, carbon reduction is a very important one. We have our net-zero target for 2035 for Scope 1 and Scope 2. So we're really putting all sorts of actions in place, a full road map to implement the steps to eventually get to the 2035 net-zero. So important steps that we're taking here. I think it's also good to mention that we're making good progress in diversifying the management team. We have a target here for women in senior management positions, now 23% with a target to between 25% and 30%. If we then get to this slide. You know that I always say this is one of my favorite slides because it presents a little bit the history of Fugro. And also based on some conscious decisions that we took around the 2015 '16 time frame, where we said we want to further diversify. And we want to get in the nicely balanced revenue mix. And you can see that we now get into a situation where we have a really good balance between different forms of energy that we work on the traditional energy, renewable energy and then infrastructure and water. And I think it's good to see renewables further developing with all the demands and the wishes of the world to become greener and cleaner, now being 40% of our revenues. And then you see also how these have been growing either decreasing a little bit these markets. So obviously, very clear to see the growth in renewables. You see in oil and gas, a reduction of 8%. And I think that is good to say is that this is fully related to the reduction in LNG projects in the United States. So we had a lot of work on LNG in 2023 and before, and this is now stopped due to the pause that Biden introduced in January this year. By the way, that has now stopped again beginning of this month. So this should also pick up again. But this meant that we reduced quite a bit of oil and gas revenues in the U.S. and therefore also offsetting some of the growth in other areas in oil and gas. So that's good to mention. I'll talk a little bit more about infrastructure later on, but also on the infrastructure side, we see that the markets continue to develop, but we have experience. We're not a global business in infrastructure as a whole, but the countries that we're working in, for instance, Hong Kong, but also Saudi Arabia and the U.K., they have also faced some difficulties. But I will come back on that later on when I talk about the market developments. But before I go to the markets, I want to give a few sample projects that we got involved in over the last period of time. Just to give you an idea of what Fugro is doing nowadays. The first project on the left is very much related to carbon capture. There's a project for Equinor Energy in Norway where we actually do site characterization work, the initial phase of a project where they want to store carbon in the subsea environment. And we see CCS project coming up everywhere in the world, in particular, in Europe a few, but also in the Americas, we have been involved, and we see more coming in when the regulation is maturing, we will see more and more projects on that side as well as well as in Asia Pacific, where we're getting involved in projects, oil and gas projects in Indonesia, where there's also a part related to carbon capture and storage. And in the future, we see opportunities for Fugro also to do monitoring services because, obviously, no carbon should be seeping through the layers above the fields where you store carbon. The second project is very much related to inspection and monitoring services or what we do with [ huge fleets ] like pipelay support. So this is touchdown monitoring work here for all seas, but we have done this now also with uncrewed service platform for Saipem for instance, in Australia. And there, we basically use instead of a large support vessel, we use our uncrewed platforms of 12 meters to actually monitor the touchdown of pipelines. This is the first in the world. I think Fugro has done this for the first time. There's nobody else doing this yet. So this is really a development of what we can do with our uncrewed service platforms. The third project is a project related to offshore wind and the work that we do on these fields for a really good example for wind development offshore. This is a project for the Community Offshore Wind, which is a joint venture between RWE and National Grid. And this is a 3.3 gigawatt project in the New York Bight area. And this should eventually deliver power for more than 1 million homes in the U.S. This is roughly 37 miles away from New Jersey and more than 60 miles from New York City. And it gives an indication of the work that we get involved in. Initially, we did geophysical work, and now we're getting involved in the geotechnics for this project. And then last one on the right side is a good example of what is happening with aging assets in the world. This is a bridge in Quebec, where you see that they basically have sat and they are talking about this already for more than 20 years that this bridge is not in the category of being safe or at least in the future, not being safe anymore. And that means that the bridge needs to be replaced. And then you have to do also geotechnical investigations surveys to eventually build this new bridge. The bridge needs to be opened in 2028. We do this work for TYLin, and this is something that should eventually per year have 800,000 visitors crossing this bridge. A big project for Quebec, more than $2.5 billion. And those are great examples of work that we do in various areas of the world. Then I would like to talk a little bit about the markets that we are operating in, and before I hand over to Barbara talking about the finances. So first, the offshore wind. And I think it's good to say that there is a very high ambition in many places in the world. We see that governments have ambition to get to more than 200 gigawatts of wind power offshore in 2030, and we now have 40 gigawatts installed globally. So there is a big jump required. A lot of the surveys for that have been done. But you know as well that even Europe is talking about maybe 300 gigawatts in itself in Europe in the long term. So there is a lot more required thereafter again, if you talk about 2040 and '50. So there's site characterization work required because every wind power location is different. Every wind power in the North Sea, for instance, is different because some areas are more sand, others are softer clays. So you need to develop all these monopiles in a very -- or jackets in a very specific manner for that particular location. So that means a lot of geotechnical work, geophysical work, and we see this market growing quite nicely with steep CAGRs, as mentioned here on the board. This is changing all the time. This is based on databases, public databases. Everybody can make these graphs on what's happening and it's changing. So you see as well that these markets are immature, and therefore, some of the operators have said, well, certain fields are not economically viable, and therefore, we're not continuing with them. And we have seen these things in Europe, in the Americas and even in Asia Pacific, where they postponed or even totally cancel certain fields. That's not too bad because actually the ambition levels are actually too high. We have said this before in Fugro as well. There is not enough capacity to really build for all the ambition that these governments have. So if there's a little bit of a consolidation or a little bit of maturing markets that is actually a good thing. You also see that some of the traditional energy companies have said, okay, maybe we should stop with certain developments because they are not economically viable. So everybody is quite critical in where do I invest my money and what are the returns. Floating wind is also an area is being looked at. We are involved in multiple pilots. The verdict is still out if this can be done in large scale economically viable manner. But we do feel that in the long term, there probably will be solutions found, and we see more and more coming to the Board. If I then jump to traditional energy. I think it's important to mention that we see most of the energy companies really focusing on maximizing the value from their existing fields and projects. So also subsea tiebacks developing in areas where they're already present. This is something that we saw starting already quite some time ago, but you see that people are critical in where do they invest their money. Also here, and what you see in the development here on these graphs, if you compare it with what we have shown before in the past is that it is flattening a little bit, but still steady investment. So in the long term, in the next 5 years to 10 years, we believe that also the traditional energy area will be something for Fugro to serve, and it's quite important for us to be able to move our assets around between these different markets. Our expertise can be deployed in multiple markets. We don't have to change anything in the setup of our equipment and we can move around. It's market agnostic, and that helps Fugro to move around. And if both markets are buoyant, then that is also good for us. I think it's good to mention that some areas are obviously shifting and changing. We see a pickup in some areas in oil and gas. We do expect also in the midterm or at least in the second half of the year that oil and gas will be growing in some areas in Fugro again. And we'll have to see what happens with the U.S. LNG market, which is also something that was stagnated by the pause that Biden introduced, as I said. But the fact that we still have to deal with the energy trilemma, availability, affordability and the wish to go greener and cleaner, is still a conflict that needs to be served, and that also will mean that we will see for a long time, traditional energy still being quite important. If I then jump to infrastructure. I already spoke about that a little bit, but we see aging assets. We see and one -- the bridge project is a great example. We have more of these bridge projects going on, and we're providing site characterization work for that. It's a great example of what needs to be done of assets that are close to 100 years old or now beyond the lifetime. And in the U.S. alone, there's more than 10,000 bridges that need to be served. We have lots to do in Europe as well in multiple countries. So there's a lot of work around aging assets, but also around large infrastructure projects. And you can see that this market is also growing in the midterm. And then you have seen that we are growing a little bit less. And that has to do with the fact that there are certain specific countries we're working in. I mentioned already, Hong Kong but also Saudi Arabia that's shifting priorities a little bit. It's still very much developing and investing, but it's shifting for instance, between NEOM now to the Asian Winter Games that they reprioritize some of the projects. And the U.K. also is very often related to economic developments in these countries as well. Governments are careful all to do with fiscal discipline as well after the period of COVID. And now you see that they think very carefully what they do and where they spend the money, but there's a lot that is required in the mid- to longer term. Some examples again. I think we see, apart from these bridges and tunnels and so on, a lot required on the power infrastructure. You can imagine, if you build wind parks, you have a lot of countries that need to sort out also the power grid. But also telecom cables, yes, it's not telecom. It's more fiber optic cables now offshore. So the marine fiber optic cable work that we do is also marine infrastructure work that we do. Okay. Then my last slide before I hand over to Barbara. So the water market, in particular, yes, something that we now more and more sell also as climate and nature solutions, very much has to do with the 3 areas on land, inland water work, but also the coastal areas and then offshore talking about ocean health. These markets are growing, very important related to climate change and the climate change adaptation that we need to do. And a great example is also listed here on the board on the right side. We have spoken about the Italy project, the ISPRA project in the past where we map seagrass, the whole coast line of Italy. But this is another great example where we involved in mapping mangroves. And mangroves are very important also for coastal erosion. And for instance, in Australia, they have close to 11,500 square kilometers of mangroves that are very important to maintain and also restore again where they are deteriorating. So this is an important area where Fugro can also deploy their measurements and services, and this will grow moving forward. So with that, I would like to hand over to Barbara talking about the finances. And obviously, I will be back for questions and the last part.

Thanks, Mark. Good afternoon, everyone. As usual, I'd like to start with a brief overview of the main results and only make a couple of observations and dive deeper in the next few slides. So first, a couple of comments on growth. Revenue growth, as you can see, plus 7.1% continues to be robust, although as expected, lower than the previous 2 years, and we've also communicated about that before. But we do continue to see an ongoing strong growth in demand for especially our geotechnical services on the marine site characterization side. And across our markets, the demand, we see a little bit weakened demand for the geophysical vessels. That is a little bit less buoyant and there are some projects that are shifting to the right driven by client postponements. Especially in the U.S., we see that happening. And also if you look at comparable period last year, we see that there the fast LNG on the back of the Biden ban is not here this year, as mentioned also by Mark. Now if we look at the backlog, strong backlog growth, 16.6%. So revenue growth is expected to pick up in the second half year on the back of this. Then if we look at the profitability, EBITDA, EBITDA margins are strong at 20.5% and EBIT margins of 13.2%. And this is especially fueled by the strong marine performance. And this EBITDA improvement has also driven and translated into EUR 56 million of higher operating cash flows, which were quite satisfied with. However, this is offset by a higher working capital and CapEx, and I will elaborate on that further. Now if we then look at the -- as you all know, there is a seasonality in the business. So it's always good to show the quarter-by-quarter development, and you can clearly see the year-on-year improvement per quarter in our margins that we have been able to deliver. Just a couple of observations here. Regarding the second quarter, again, a very significant year-on-year [indiscernible] EBIT margin from 11.8% to 16.9%, with the same drivers as in the first quarter. So then we're talking about improved terms and conditions with our customers, operating leverage and solid project execution. So then let's have a look at the regional performance. And then zooming in first on the Marine results. Revenue was up by 10.9% and the margin expanded to 15.4% during the first half year. And this is mostly driven by the site characterization work we're doing for offshore wind, which is the biggest growth driver as also demonstrated and showed by Mark. The results in Europe-Africa, as you can see from the bridge, are very good. Also good client terms and conditions and especially the operational leverage that is working also for Europe-Africa, together with the solid project execution. In the Americas, you can see that the growth was limited, and this was due to client postponements mostly. But as a result of cost control and project execution, the region's margin did improve slightly. In APAC, the EBIT was mostly affected by a large equipment breakdown, and this affected execution of MSC projects. And even though the MAI, the Marine Asset Integrity performed quite well in the Middle East and India region. The business operations were impacted by the ongoing conflict in the region. And we expect that, unfortunately, to continue also on the back of the recent news and increased tensions over the last week. Then if we move to land, then there's a different picture. Land revenue decreased revenue by 3.5%, although the EBIT margin was stable. And as you know, we've said this -- I've said this before, land is a global business, and we see varied performance in different regions, but mainly also locations. In Europe-Africa, as you can see from the bridge, we realized growth in the nearshore projects, for example, related to landing zones of offshore wind projects. In the Americas, we've seen a decrease, and that was mainly driven by the nearshore fast LNG work that was not there this year. As Mark just mentioned, we expect the ban to be lifted, so we will see impact of that going forward. In APAC, the margin was mostly affected by the late start of some nearshore work activities in Japan and a subdued continued -- continued subdued market in Hong Kong from an infrastructure perspective. In Middle East, the revenue was impacted by the scale back of some large projects in the region, but the margin has improved. And in general, the infrastructure market, which is by far the largest segment in our onshore business, we are experiencing limited growth in some of our key geographies. Still, I would like to highlight that the mid- to long-term outlook for this market remains robust. And also in order to drive efficiencies and service delivery to our customers by sharing technology, best practices and achieve greater scale. Land site characterization and Land Asset Integrity have been bundled into one business line, and that is the land business line. That means, going forward, maybe some of you have already noticed it, we have MSC, we have MAI, and we have land. So we are addressing actually that component of the land business. If we then look at the bottom of the P&L, some highlights. Finance expenses were slightly lower as resulting from lower interest charges, partly offset by a small increase in lease mainly vessel-related. And the exchange rate variance, as you can see, they are mainly related to strengthening of the dollar, which is a plus of EUR 7.8 million compared to the devaluation of the comparable in the same period last year. Then the next slide is the equity accounted investees. There, it includes EUR 7.4 million of our joint ventures results including COFG, China Offshore Fugro Geosolutions. Last year, we still had the EUR 9.7 million gain on the on the disposal of our remaining interest in Global Marine, which clearly was a one-off included last year. Now if we look at the income tax line and the P&L, it's EUR 22.9 million, and it comprises of a current tax expense of EUR 22.6 million, and the current tax expense increased in line as expected, with profit before income tax. Last year results included a deferred income tax gain of EUR 11.4 million, driven by the recognition and utilization of previously unrecognized tax losses. Bottom line, we report earnings per share of EUR 1 compared to EUR 0.66 last year earnings per share for the same period. Now if we look at then the free cash flow, I'm pleased with the 43% increase in cash flow from operations. I think this is really the line item to focus on and look at and that results into EUR 187 million for the first half year. However, this increase was offset by a higher working capital of EUR 177 million, of which I would like to highlight that already EUR 91 million of the increase in working capital was reported in the first quarter on the back of a very low year-end 2023, and, to a lesser extent, an increase in CapEx. So I will get back on the 2 topics. First, working capital. In general, due to the seasonal pattern of our business, working capital is highest at midyear. And we expect a wind down towards year-end. Also, as you can see from the graph, the working capital was very low at year-end '23 at 8.9%. So it was to be expected that the working capital would increase in the first half of this year. Still, the increase was quite significant, and we currently have too much capital tied up. And this is due mainly to the strong revenue growth that we've seen in Q2 in Europe-Africa, resulting in an elevated work and progress position and outstanding positions of specific clients in other regions. And we're putting extra efforts in place to address the high working capital position because as I've said before, working capital is an important driver of free cash flow. And rest assured, we as management are very focused on cash conversion. And I've said also we would like the working capital to move within a bandwidth of 10% to 15%, 10% at year-end and max 15% at midyear. That is what we're managing for. So now we're too high. So we will continue to focus on matching cash flows at project level as being a project business, matching the incoming and the outgoing cash flows. DRO is at 88, in line with what we have said before as well. Then the CapEx, other big component in the cash flow. CapEx amounted to EUR 119 million, and this was compared to EUR 70 million for the same period last year. And that includes a EUR 83 million of transformation and expansion CapEx that includes the delivery of a new vessel, the Zephyr -- Fugro Zephyr, formerly known as the Sea Goldcrest as announced late last year, which is currently being converted into a geotechnical vessel. And also, this includes the completion of the conversion of the resilience and the resolve. And both vessels are now out since the beginning of July, working and have already closed successfully the first project. And on this slide, you can also see our midterm targets on CapEx, the guidance that we've given between EUR 200 million and EUR 250 million per annum, of which around half is related to maintenance and sustaining and the other half is related to discretionary CapEx, transformation and expansion. And I would like, again, to stress here that all CapEx is subject to strict capital return guidelines and to our capital allocation policy. Then the balance sheet. We remain conservatively financed with a leverage at midyear of 0.7x and well within our target of 1.5x leverage. The net debt increased, and this was mainly due to a reduction of cash position from a relatively high cash position at year-end of EUR 326 million. So we're now back "at a similar level as last year, cash at EUR 188 million for the same period at the end." And this is mainly due to the dividend payout that we've done of EUR 45 million as well as to the replenishment of our treasury stock of EUR 46 million to cover the long-term incentive plans. We have a near maturity that's a convertible that's still outstanding. But other than that, we have no near-term maturities. The large financing does not mature until 2026. So with that, I would like to hand over to Mark for some concluding remarks.

Yes. Thank you very much, Barbara. So before we open up for questions, a few concluding remarks. I think it's good to see Fugro developing in the right manner. We feel that we are well positioned to play a role, an important role in the energy transition, but also in all the development that's required worldwide in infrastructure development and in the future, very much related to coastal resilience, ocean health, inland water work, everything to do with climate and nature, the water market becoming more and more important. So we're well positioned there. We do a lot to have the expertise and the technology available to serve our clients in the best possible manner. And that is all happening while we're also trying to improve our way of working, further making it more efficient, trying to drive the execution excellence, not only on the financial side, but also operationally and commercially. So there's a lot happening all part of our strategy that we launched end of last year. For the outlook, I can say a few things. We just commit to further growth for the full year, and I wouldn't surprise anybody. And we have tuned a little bit our EBIT guidance because we didn't want to raise the impression that the 11% is in light as well. So therefore, an EBIT margin around 13% that we now also issued. And then last but not least, the CapEx is just a reconfirmation of what we have said before. And then the other new thing to mention is that we have now a new person for the Supervisory Board that we want to nominate for to the shareholders for election in the third quarter will come with a Shareholders Meeting to have her appointed for replacing Antonio Campo, who has been extended. We're really pleased with [ Jennifer ] as she has the right mix of being American, also having a lot of knowledge from large organizations that are also moving through a digitalization process and also with an energy background. So the right mix for us in the Supervisory Board to further complement the expertise that we have over there. With that, I want to round off the presentation and open up for questions for the people that are here present with us. So who wants to be first? And it's maybe good for also the people online to say your name before you ask the question.

Luuk van Beek of Petercam. I have 2 questions to start with. One is that if I look at the profitability, then it's by far highest in EMEA or Europe and Africa. And the difference is also expanding. And I think lots of reasons for that. Also some temporary factors in some regions. But there's probably also a structural factor in the sense that it's by far your largest region where you are most flexible with your capacity and have most competition basically from customers for your capacity. Do you see any opportunities to create a similar situation in other regions? Or is that something that will remain unique to Europe? And the second question is on -- well, actually also on this European market, other people probably also see this market with these opportunities and high demand. Do you see any capacity expansion from your competitors and how do you look at your future market share in this region?

Yes. Very good. Thank you very much, Luuk. So to talk about Europe-Africa being, yes, the majority of the driver now for the performance for the bottom line, that's absolutely correct. And we -- as you referred to see some specific reasons for that in the other regions why they somewhat stay behind. It's good to see that Middle East to cover that first steps up somewhat compared to last year. However, they have seen postponements as well and some changes there. And they are somewhat affected by the situation there between Hamas and Israel, where they had also to move a vessel to the Arabian Gulf and that means that they don't have the assets in the right location at the moment. So that is affecting some of their business. So that plays a role. Second half, we expect them to be better again and also all the regions will contribute and do better than last year for the full year. So that is something that we can say there. But if you look at Europe-Africa, in particular, before I go to the other regions, they have obviously the benefit for many, many years, 2 decades already of activity in offshore wind. So there are multiple, obviously, fields already in operation, which we don't see in other areas in the world. We even took down 2 years ago, the first offshore wind farm in the U.K., which means that they are very much ahead of the rest in the world. And that creates a benefit because they see competition between the various markets and there's higher demand for services there. The scale of the Americas, for instance, is a lot smaller than Europe-Africa. We run more than 25 vessels in the season in Europe-Africa alone, whereas obviously a very different number in the Americas or the Far East or even the Middle East. So that is a benefit, the scale, the amount of demand there where they can really benefit from multiple markets growing at the same time. The Americas faced specific difficulties around the market with some postponement and critical operators looking at, okay, what is economically viable? Also regulation plays a role there and policy making as we have referred to, for instance, around the LNG work and what Biden introduced. So that is something that we see in that area. But we do expect and we have seen also projects that are now coming back in 2025. Moving forward, we expect more activity also in that region. And Asia Pacific is actually quite busy. You have a strong backlog. And what we, by the way, also see in other regions like the Middle East and Europe-Africa. But in Asia Pacific, we had a specific problem where we had an effect of well, I could say, multi-million on the bottom line, but also on the top line, and that has an effect on the overall results for the first half of the year. That is not something that will continue much longer. We do expect in the second half of the year that this is resolved and that we can continue as normal in that region as well and where the profitability can also be better. Now the last thing to mention here because before you get too wild in your plans and your ideas, we have, in Europe, Africa, the situation that in the latter part of the year, we will have to take out a number of vessels for planned maintenance. Some of the key assets in geotech will be taken out at the latter part of the year, which means that their earning capacity will go down. And that's, I think, important to mention. So the other regions will step up and do better, whereas we don't think necessarily that Europe-Africa will be the same as you might think, looking at the first half of the year. So that's, I think, important to say. The second part of your question was related to competition, yes exactly. So we see worldwide competition also increasing because the whole market is growing, and obviously, competition is following. And especially what we have seen and Barbara was talking about that or had it on the slide as well on vessel utilization, we see that we have higher vessel utilization on the geotechnical side, whereas, for instance, geophysics, where the barriers of entry in this market is much lower and where you have more competition, that there is less demand and also because the activity levels came down. And almost everywhere in the world, we have seen less high utilization on the geophysical fleet than what we, for instance, saw last year. And this also has to do with competition ramping up. But we feel that we maintain our market share in these areas and that we continue to further grow and also be in the forefront on the technology development. Who wants to go next for questions?

Quirijn Mulder from ING. My first question is with regard to sustainable income with regard to the monitoring systems. Maybe you can elaborate somewhat on that. And more for Barbara is a question about the fleet situation at this moment. So what do you expect in terms of capacity? And how is the situation to improve with regard to survey vessels in the second half of 2023? And what is the impact given the fact that you are going to drydock a couple of vessels in the last quarter, what is the impact on the third quarter? Are you working extra hard or what's happening there?

Yes. Okay. So if you talk about monitoring systems, you're talking obviously about longer-term recurring revenue that we're also looking at in the third priority of our strategy. We're obviously doing these things already in the marine environment more extensively where we have yearly pipeline inspection surveys or scour monitoring or maybe corrosion surveys, more on a visual manner in the subsea environment. If you talk about land business, this is a market that we expect to further grow. You know that we have developed technologies as well that we want to deploy in this field. We have always said that takes time. So this is really a start-up within Fugro that needs to mature and then scale up, which we're working on with dedicated people and teams within Fugro. And this will further develop in the upcoming years, but we shouldn't expect major contribution in the upcoming period. As I said before, this is really for the mid to longer-term. But there are still very high expectation on it in the longer term that we are able to take advantage of this market as well as there is a lot required, and we feel that we have a much more efficient system that we have developed and there may be others currently used in the more traditional ways of doing the monitoring. So that is maybe your first question. Is that answering your first question, Yes, Barbara?

So on the fleet, of course, in the busy market, we have kept especially the main assets in business as far as long possible. But the lead times of the shipyards have actually been extended after COVID. So planning is key. Planning is also key in terms of preparation, but there comes a point that you have to go. So what we do with that is that we will put the larger assets, and we have a planning in place. So do we work harder? Well, we make sure that we perform with our customers at the quality that they need and equally are transparent in terms of when the vessel is available or not. So are we going to work harder in Q3? We always work hard. So there's no exception there. The quicker we do the job at quality, the better it is. On the other 2 things I want to highlight here is that we, of course, have purchased quite a number of vessels. So we have also been practicing our muscle in terms of conversions better. So very important to do detailed engineering before you move into drydock and do things modular as you can. So you really minimize the time in drydock, and this is important. So we'll strive for that. That is really important, especially we're in a very attractive day rate market at the moment. So every day in drydock is a lot of money. So we're managing carefully. Having said that, we still have to go at some point, even though it's a busy market. we'll have to make the conversions. And this also has to do with the Net 0 road map, but also from a special survey perspective and also from a DP perspective and then I'll stop because I could in the meantime quite talk long about it. But the dynamic positioning systems, if we have better systems in place, we have higher reliability. So we're very focused to improve high reliability of our vessels, so we can continue to work because especially in Europe-Africa, the backlog is very strong and there is a lot of work that can be executed. So we'll continuously strive for that.

But given the fact that the weakest period is in the beginning of the year, so January, February, so are these vessels also out in the beginning of 2025. And you bring them in somewhere in November. Is that the idea?

I'm not going to speculate on timing because we have a shipyard who is working very hard to prepare for the vessels to come in, but it will be towards year-end, and we try to time it as most efficient for everyone as possible.

And we're obviously aware of the fact that this is the slower period, and we'll make use of it most efficiently.

Thijs Berkelder, ABN AMRO ODDO BHF. First question on your much better-than-expected results, but that's still missing EUR 7 million, EUR 8 million profit in Asia Pacific due to equipment failure, something like EUR 10 million because of LNG Americas. Can you maybe add what your estimate is the impact from the closure of the Red Sea for you? Then on restructuring costs, you're announcing EUR 4.5 million restructuring costs. What kind of cost savings should we expect from these restructurings? And for now, the final one is your backlog is up 16% year-over-year. Can you give a split volume price roughly?

I will take the first question and hand over to Barbara for the other questions. So first and foremost, you may make some pretty bold statements how much we are suffering in Asia Pacific and the Americas. Those figures were not issued by us, but we have obviously said what we said before that the Americas has been suffering on the top line because of delays of projects and postponements and then moved into 2025. That's top line work. We have done work on the cost side and some restructuring in some specific places as well like Mexico, for instance, where we have been able to maintain also a decent bottom line in the Americas. So I don't want to necessarily confirm what you just said. The Asia Pacific region has indeed a multi-million impact ranging from top line and bottom line on the equipment breakdown. So in that sense, yes, the first half has been impacted multi-million in that sense for that region. If we talk about Middle East, India, they basically had to decide pretty early on in the conflict there to bring the vessel from Egypt over to the Arabian Gulf. And that meant that we had 2 geophysical vessels there, where in actual fact, the work wasn't readily available, and we had one of the vessels at least for a long period on standby. Now you can only sail around Africa. You might want to do that. We are considering all the options when we have work in between in Africa. This is a good option. But potentially, it can also go to Asia Pacific. So we're going through all these steps. It has impact because, yes, you have a vessel on standby and the cost is continuing. I'm not going to give very exact numbers, but this is obviously a shame that we have also seen 2 projects in Egypt at the beginning of the year that had impacted the region being canceled. So that is obviously something that Middle East, India has to deal with. Having said that, in the long run, we see also that region with large projects on the horizon and in the planning, obviously not offshore wind because that's not necessarily what this region is focusing on. So that's different than the other places in the world. but there's a lot happening on the infrastructure side and on the energy side. And we see, yes, growth potential there in that region as well, which is reflected in the backlog as well, what you can see in the Middle East, India. And over to Barbara.

Yes. So for the restructuring, Mark already mentioned Mexico, the biggest restructuring component in the EUR 4.5 million, EUR 4.6 million is the U.K. land. We've taken steps to turn around that business to more focus it to nearshore. That doesn't mean necessarily that we try to keep, as you know, we have very specific personnel, specifically trained personnel, which we can deploy in other markets. Having said that, we had to restrict or to make choices to ensure that we get the land even margin up as well. So I'm not going to give you a pro forma new run rate of the U.K. business that would go too far. But rest assured that we're aiming, as we've said before, for the land business towards an EBIT margin of 8% to 10% on a consistent basis. And to be honest, given the near-shore activity with the often jackups involved, and platforms, the margins need to be higher to ensure we can also maintain the assets. So that is what has been happening in the U.K. We've also moved together the Belgium and the Netherlands offices more to make more use of shared personnel that we have. And we will continue on that path in pockets to really actively manage the EBIT margin in land, which clearly is not where we wanted to be, nor does that sufficiently contribute to the midterm targets. But we're confident that with the actions that we take, we're building for higher run rates and higher margins. On the backlog split volume and price, what we have seen, and I'm talking globally, right? So I've said before, it's kind of directionally, we now see that it's more volume related. So if you would now ask me for a guesstimate, and again, it's a guesstimate could be different per market. It's more volume driven, even to 75/ 25 or 80/20. So we do see and you also see that back-ended top line growth, that it's more volume driven.

Andre Mulder, Kepler. Four questions. First one, you gave an impression of your growth trajectory of the segments. What should we take into account for water? Is that, let's say, the usual 5%, 6%? Or do you see a change there? Secondly, looking at especially offshore wind, it seems like already in '24, you're going to surpass the target of EUR 1 billion that you set for '27? And any idea to change that? Third question is, you mentioned the convertible, but you did not mention what you're going to do with that? And last question, looking at the segments, looking at the share of the segments, the growth of the segments. How does that picture look for the backlog?

So first, growth, and it's very difficult to speculate on the growth of water. It's not a small market, but a small revenue element for Fugro at the moment. So there's opportunities there, but it needs to develop over time. So we see projects coming up, very specific projects around coastal resilience, questions for sea level rise surveys. But because it's so small, it can still have a swing. So you might pick up a big project and then you see a jump in the direction of growing. But then the next quarter, you might see that project being completed and then it's out again. So we'll see a pattern of some jumps moving forward in both directions. So I think we shouldn't focus too much on that in the short term. In the mid to longer term, we believe that the water market can be a significant market for Fugro, and I'm talking about 5 to 10 years future market for Fugro where we see more and more coming in. So I wouldn't necessarily focus too much on that, but we want to report on it because we want to also indicate this is an important growth area in Fugro moving forward and focus area. Then for offshore wind, surpassing the EUR 1 billion. Indeed, we have clearly stated that we want to have more than EUR 1 billion. Well, we will meet that now quicker than maybe initially anticipated in November last year. So things are progressing well in that aspect. We might need to revise that just to give another exciting target moving forward. But for the moment, we say more than EUR 1 billion, and we'll keep it for the time being, and we'll review that again on an annual basis what we have to do potentially with our targets and maybe we need to adjust 1 or 2. So that are the first 2, then for the convert and for the other question, I will hand over to Barbara.

Yes. So the convert indeed matures in early November, and we have not made a statement on what we're going to do with it. Otherwise, we would have done that today. But what I can say is that we are comfortable issuing shares when the convertible is due. That's around 2.2 million of shares. And that sits within the mandate that we have as management. Then on the growth of the segment was your last question. What I can say there is that basically the composition, and we have 40% of renewables, 35% of oil and gas going forward, the backlog roughly mirrors that with a little bit of a higher component of oil and gas that we see coming back also in line with the story that we've said that postponements are there, but they are still in the backlog. So it is around the same profile with a little bit more of oil and gas and the continued growth of renewables as we've seen it.

Does that also account for the growth that you've seen? In this first half, it was, of course, quite some volatility, quite some swings. Is that profile the same for the backlog? So let's say, decline in oil and gas and still some growth in offshore wind.

Because the oil and gas component in the backlog is slightly increasing. I would expect that the decline we've seen in oil and gas to be lesser. So I would expect that to be more balanced going forward.

Some follow-up on the convertible. Looking at your financial ratios, looking at the CapEx that you see, let's say, sort of muted CapEx for the next few years. why should you want the convertible to be exercised? Why not buy it back if you simply have the money left?

We could do that. As I mentioned, if we would have a clear defined decision taken on the convertible, we would be presenting that today. So we keep all the options open, and it will be at some point early November.

Jeremy Kincaid from Van Lanschot Kempen. I have 2 questions. Firstly, maybe for Barbara. You mentioned that the pricing environment was robust. You said the day rates were pretty favorable. And if I recall from the past, it's been improving partly because demand in offshore wind has been rising, but also oil and gas. But clearly, this result is a little bit softer on the oil and gas side. So I was just wondering if that was having an impact on your day rates going forward? And then my second question is just on the land division. Obviously, you have this helpful slide here, which talks to 7% to 8% CAGR growth over the next 5 years. And that's helpful traffic lights where it's all green and everything suggests it's positive. But when we look at the land performance over the last decade, there hasn't really been any material growth and certainly, your backlog suggests that there's still probably no growth for that division going forward. So I was just hoping if you could talk to some of the dynamics that have impacted that performance in the past? And then why the future might be different than the past?

Very good. Do you want to do first pricing?

Yes. On pricing, day rates. Day rates are driven, I would say, by the shortage of vessels in the market. For a very long time, no new builds have been made. So there's a supply-demand mismatch. That has been driving up day rates. For a very long time until a year or 2 ago, a lot of vessel owners were not able to make a lot of money, and now they are. So that has also driven day rates quite high across the globe, actually, I should say. And especially, it's not the vessels that we have, especially in the MSC. So especially on the geotechnical side, they're highly customized. So I wouldn't say across the board, day rates are booming in the same, but they're certainly for specific areas, specific vessels, the supply and demand dynamics are really favorable. And then you have the leased and you have the owned. So in this market, you should be able to make good money with own vessels right if the day rates of the charters go up. Having said that, we also want to keep a balance of the portfolio. So we are, of course, also still chartering. And that also drives still the day rates up, and that means that we have to still also pass on those prices to the customers to make the same margin. So there is a mix effect I would say, and various reasons why day rates are where they are. And we foresee that day rates will continue to stay quite high for the next period. I'm a little bit careful to say how long that period is, but we haven't seen a decrease yet. And there's more talk of new builds now, but still lead times are quite long. So it may still take a while until the market is replenished with new vessels.

Okay. On the land side, let me first and foremost, say that the land backlog is obviously growing with 6.5%, quite in line with the market. So in that sense, those pictures are quite in line with each other. In the past, there have been a lot of movements on the land side. So I always say, even internally, be careful, not talking about land because land is very different in Australia than in the U.S. or in Germany or in the U.K. totally different markets, different services that we provide. So you really need to zoom in to understand what is happening region by region and even country by country. So that is complex. That's complex for the outside world to review and to have an opinion about it. I think a couple of things. As Barbara said, land should be around 8% to 10% in most of the areas. We're concentrating ourselves also on, for instance, growing on the nearshore side, which is something where Fugro can play an interesting role because we have marine experience and we have land experience. So that's really a unique position that we sometimes have in certain areas in the world. But land is not a global business. We are active in probably larger active in 10 countries, and you really need to understand what is happening in these 10 countries. So as I mentioned 3, Hong Kong, Saudi and U.K. being quite large for the land business, and there are some effect there, and you will see that over the full land results. And last but not least, what I would like to say, and we can talk a lot more about that, maybe not here but offline, but we have had quite a bit of actions taken, restructuring actions in the past where we maybe saw bits and pieces from the land side. So that reduced also revenue. So sometimes comparisons between one and the other year are difficult. We spoke about Russia, France, Germany and other businesses. And the year before, we spoke about Middle East restructuring on the land business as well. So there's a lot over the years that has happened. We're obviously looking at that ourselves. What is very important, and we showed that very clearly in November is that the return on capital employed for land is actually better than for marine because you have significantly less investments that are required to do our business there. So in that sense, the return on this business, even with lower margins are significantly better compared to areas where you invest a lot of capital. So we have to always take this into account and be a little bit careful in judging it at the face value of land as a whole.

Thijs Berkelder again, ABN AMRO ODDO BHF. A couple of follow-up questions. First, on working capital. Previous times, you primarily indicated that European governments are not quick payers. Can you maybe now give an explanation on who is slow in paying and who is maybe quick in paying? Then on marine asset Integrity, it's more or less flat year-over-year, still 100% oil and gas related or not? And are there any larger contracts about to end there? Finally, maybe you're busy building a new headquarter, in general, headquarter costs, are they divided over land versus marine or between the segments still based on revenue breakdown or not?

Okay. Maybe first on MEI and then working capital, Barbara can give an answer. But MEI is primarily right now related to doing positioning work, doing inspection work for the existing infrastructure in oil and gas. So pipeline inspections, corrosion surveys. This is the area that we really focus on in the marine environment. Obviously, there is a lot of wind parks being built, but they're not in a situation where they already need a lot of maintenance. So yes, we have now and then projects like that as well, where we do an inspection or scouring around the monopower for instance, that could be something or a cable running from the wind park to shore or something else. But it's still very minimal. This market really needs to pick up in the years to come. It's also a different market. The dynamics are different. We're looking at what kind of services we can provide and where is our edge to make the difference there. and where can we differentiate. So this is something that will take you a bit of time. We have been certainly doing projects also with our [ used fees ] in that area. So that is also something that we're looking at what we can do there, also in a slightly different setup, less people out there, a much safer environment than with no people offshore, so to say. So this is something that will develop over time, but it's still early days, I would say. Working capital?

Yes. Interesting question. I was thinking about how I'm going to reply if I'm going to give you a list, but I'm not. I'm going to make some general comments around it. It's still the case, unfortunately, in some jurisdictions. And having said that, what I've also said in the past is that I felt that the risk return division in the whole supply chain was not really working in an optimal fashion. And we've seen that last year where maybe the PPA tariffs of the governments were just too low to get it going. So what I've also said is we need the entire industry to come together to make sure that everyone can make good money to give everyone in business and to focus on standardization. I think that is a more important point. Are we seeing some progress on that? Yes, we are. And I think that is very important for a sector to mature. Also, if you think it's not only the payment terms, but it's also, for example, the liability caps, it's the general terms and conditions that some of the governments have been demanding. And there, we have also seen progress, and that has to do with, in my opinion, with fairness of how to work together in an industry. And some governments are paying quite quickly, by the way, but not all of them. On the headquarters, that's a very interesting question as well. It depends on many things, but also on who is the tenant of the building where we do overhead allocation, how we do overhead allocation. And of course, well, we will follow, as you may expect, the transfer pricing approaches, how should you allocate cost that are maybe not allocatable and what key do you use to do so? And in general, across the board, as is guided by transfer pricing principles, its revenues. And with a lower-margin business because maybe that's the question underneath the question is something that we need to look into. Because if you're going to burden the lower-margin businesses and they operate in a different competitive environment, that's a difference. So it's certainly something we're looking at. within the overall dynamics as well and what we have to do to be compliant.

Maybe if I can add a little bit because I don't want to have the impression that the headquarter is only corporate people sitting in the headquarters because this building will be filled with people that do business on the land and the marine side. There will be a laboratory in there. There will be people running service and business lines. So it's actually a very small group on the corporate level because we don't have a very large corporate [ organism ], so to say, in Fugro. There will be a big burden at taking such a large building because, yes, I think the business needs to be accelerated and empowered to do really well. And that's not by burdening them with high cost from headquarters.

One remaining question. Looking at development of free cash flows, I would expect that the development in the second half results will be fairly similar to the first one. say will go for CapEx. Would you be able to remove the EUR 105 million negative that you saw in the first half to turn cash flow positive for the full year?

Do you want to answer that?

Yes, that is absolutely what we're focused on. If you look at the unwind that we envisage and that we've always demonstrated towards year-end. And the bandwidth that we're managing on, you could do the math and come out at that.

And as Barbara said, it's a seasonal pattern that we have seen over all the years in Fugro, first half, cash flow negative, second half cash flow positive, and we can see big swings between those 2 periods. So just to make it very clear, are we worried about working capital? Not at all.

Yes, Quirijn Mulder from ING again. The first word I would like to use is the U.S. General elections in November. Has any shadow visible on the investment policy by corporates, et cetera, especially with regard to renewables or maybe oil and gas. Is there anything visible there? And has it any impact on you? The second question is about the Saudi Kingdom about NEOM. Is that still in your order book NEOM? Or have you scrapped it? And what is the impact there of the decisions of the Arabs to reuse that project massively? And then my third question is about the follow-up on the net working capital. So you mentioned EMEA, but also that other regions are somewhat problematic in fact. So I assume that's not America, so that must be in the Middle East and the Far East. Is that assumption correct? And maybe you can elaborate on that somewhat. And then on tax, second half, you're paying as I look at the cash flow statement, EUR 90 million tax. So is that something also we can expect in the second half given the fact that you have still a lot of [ component able ] fixed, let me say, tax for your company in general. That were my questions for this moment.

Very good. First 2 for me. And second 2 for Barbara. So first, talking about the U.S. elections and what is happening. Obviously, I don't know what the outcome will be. But yes, there will be obviously a different approach. And I think we can all figure out what that will be if we get the Republicans and Trump reelected, then he already claimed that he will start drilling and drilling and drilling. And there will be more of a boost on the traditional energy side, which obviously is for the, I think, whole world, not necessarily the right way to go. But that's one thing he said. Can he stop all such developments around the renewable side? That is a question that is out there because even in the period that he was in the capital, so to say, he was not able to stop all the developments, the states were actually starting. So this is state politics and not necessarily federal regulation. Having said that, will there be uncertainty? For sure, there will be uncertainty and that will have an effect on investments and so on. So I think it will have an effect. Having said that, certain things are independent from who is elected. So there are pluses and minuses on both sides. So we see opportunities whatever happens in that respect, and we'll follow it very closely. Then your next question on Saudi. First and foremost, NEOM, we are working on NEOM. So there's still work going on and NEOM is an enormously large project with many different elements in it, and we're still doing some work on one of the elements. The government has postponed the work or the majority of the work, they did not cancel the project. They have reprioritized because they said we want to focus on a few other projects first. For instance, the Asian winter games that are coming up, they need to work on. And they have several other large infrastructure projects related to the development of the country that they want to first focus on. Have we canceled work that we already had on the books? No, we have not, not on NEOM. Were we expecting work on NEOM in the future? For sure, we were expecting. Are we expecting work for the other projects that now get priority? Yes, we're also expecting to be involved. So it's just shifting, and that is obviously creating a bit of a gap for a period of time. But Saudi is really going on with developing that country tremendously like a few other countries in that area like Qatar, for instance, is also enormously developing itself. So we see opportunities moving forward as well with maybe different priorities on different projects. Barbara?

And yes, your question on net working capital and the reference to the specific clients. Indeed, it's right to say that is not in Europe. But I mean, it's in Middle East and EMEA and APAC. But what I would say is we know very much which customer. It's which customers those are. It's a handful of customers. But as you know, some of the projects we do are quite sizable as well. And we have arrangements with those customers in place. So we're quite confident that they will be met. But unfortunately, they were not met on the 30th of June. So that is where we are on net working capital. So it's a combination of. And then on the tax losses, we did indeed not recognize any additional tax losses in the first half. We did so last year, based on the estimates we do because you recognize, of course, tax losses based on the trading you expect and the likelihood of those being used. We are reviewing it. For this half year, we haven't added any additions to it. We, of course, will continue to closely monitor trading and we'll assess where we can move from unrecognized to recognized and bring them onto the balance sheet.

Okay. Maybe we should move over to the last question, if there's any other burning question, anybody? If not, then we would like to close here. Thank you very much for the questions. Thank you for your attention, everybody dialing in as well, and I would say have a nice day. Thank you very much.