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

Good morning. This is Catrien van Buttingha, Investor Relations, Fugro. Thank you for dialing in to this webcast. I'm here with Mark Heine, CEO; and Barbara Geelen, the CFO. They will present our third quarter trading update, it will take about 20 minutes. And thereafter, we'd be happy to take and answer your questions. Mark, please go ahead.

You very much, Catrien. Good morning, everyone. Good afternoon, maybe for some of you. Welcome to the third quarter results webcast. So -- as usual, we start with a bit of a brief overview of the headlines of the results. You have seen the header there. Quarter 3, we have put an increased margin, a robust cash flow and also a further growth in the backlog. On the other hand, it's a bit of a 2-sided story. On the one hand, we see strong growth in 2 regions: Europe-Africa being the largest region, with most of our assets where we see growth close to 10%, with markets growing as before. And also in Asia Pacific, where we see a more than 30% growth with growth across the boards in various markets, and we'll come back on that a little bit later. On the other hand, we see our business in the Americas was held back by short-term market-driven challenges. Short term, we will emphasize that later on as well. And in the Middle East, as you can imagine, we have the ongoing conflicts that have some impact on that region, also coming from a high third quarter last year, but we'll come back when we look at our markets there. Overall, the result was lower than anticipated on the top line. That is quite clear and also earlier communicated as well. The third quarter didn't see any growth in the top line. At the same time, we were able to increase our EBIT margin to 16.7% and that's well within our midterm target range and we're very pleased that we can further improve that margin on an already high third quarter last year. And the free cash flow increased by 53% due to the higher EBITDA, but also due to lower working capital, a trend that we see normally, and Barbara will talk about that a little bit later. And we continue to see a solid order momentum resulting in a growth of 16.8% increase in the 12-month backlog, which will also indicate that we see a steady activity levels in the fourth quarter and moving forward into 2025. Next slide, please. If we look at some highlights of the third quarter. I think the numbers also highlight and the performance highlights that it's strong, that Fugro has a well-diversified portfolio of markets but also different regions as we always see differences between those regions and markets. And that means that we now still can put a very good result, a bottom line on the third quarter by having that nice diversified markets and regions. A year ago, we also launched our strategy towards full potential, which is building on our highly skilled people, but also our assets, market-agnostic assets and scalable technology. I will come back on the technology a little bit later. We continue to execute on our plans, and we realized further margin progression, as I mentioned before, through ongoing commitment to operational, but also commercial excellence. And that's underpinned by our healthy backlog and growing backlog. And we are confident, I'm confident in our future as the geo data solutions play a critical role in the various markets, energy transition, sustainable infrastructure development, but also in the climate change adaptation work. And finally, before we dive into the market updates, you will have seen that we also provided an update on the Brumadinho dam incident in Brazil in the press release, and we have done that because the federal prosecutor has now completed its investigations into the matter. And this is a relevant milestone as both the state prosecutor and the federal prosecutor have now completed their investigation on the facts of the incident. And neither the prosecutor has taken any steps to indict Fugro or any Fugro employee, which underlines the previous view that we always have had, that Fugro is not liable for the events related to the failure of the dam. Next slide, please. If we look at our markets, then we see strong market fundamentals for Fugro services, Geo-data solutions in the future. And you see this slide is being split up in 2 parts on the left side, there's some short-term challenges that are affecting our markets. We'll dive into them. And then on the right side, the long-term fundamentals that actually stay as they have been communicated before. If we talk about the short-term challenges, then I think it's good to mention a few things. First and foremost, we see economic growth slowdown. In some areas, we have heard about obviously weaker oil demand from China, which has an impact on the oil price, which then affects obviously multiple markets. We also see geopolitical uncertainty and instability in the world. Obviously, the ongoing conflicts in the Middle East and Ukraine. And this also, yes, includes also some increasing tensions in Asia, albeit that doesn't have an immediate effect on our work there. In the Middle East, we have seen lower activity levels. We should remind ourselves that last year, third quarter, we had a large project, the Lower Zakum, which had high activity levels compared to now a market that is somewhat careful with lower oil prices. But is also being affected by a closure in the Red Sea where we have some assets currently stuck in the Arabian Gulf that we are now also moving back into the Mediterranean, but we have to sail around Africa. So that has impacted the Middle East region. I think we all know that the situation there is affecting business to a certain extent. In the Americas, we have seen several client postponements in the -- yes, postponements related to the offshore wind environment, twofold. First and foremost, we see that the takeoff prices have been renegotiated over the last couple of months. So the operators in the various licenses, they had to agree to new prices and that takes time. And because they don't know where the cable landings will be, as they have first to agree on the various takeoff, they don't know the routing for the power cables. That's one thing. The other thing is that there are various redesigns around the turbines and the blades of these turbines, and that means that also these end clients cannot yet decide how they want to do the soil investigation. So some of these projects have been postponed in the East Coast of the U.S. Having said that, most of these problems have been solved by now, and these projects will continue to pick up again and continue to move on. The other element in the U.S. is the LNG projects. We know about the Biden ban on LNG exports. That Biden ban has been lifted, but that meant that compared to last year, there were no LNG projects, which were very high activity for Fugro in 2023, and we have communicated about that before. That is all compounded by uncertainty in the run-up to the elections. So that means that some of these problems are not solved with the speed of light as people see some uncertainty, which direction this goes with either Biden -- with either Harris or Trump being elected. So that is specifically, I think, what to say on the short term. We talk about the right side of this picture on the longer-term. The market dynamics are very solid. We still see the same type of growth percentages on the offshore wind. As I just said in the short term, some delays in the Americas. Having said that, steep growth in Asia Pacific picking up really steeply in countries like Taiwan, Korea and Japan, but also Australia. Oil and gas is also back on the board in some of the regions, but still careful in some of the projects, certainly in the Middle East. But oil and gas in the longer term will not grow so much, but we'll certainly stay there and stay there for a bit longer as we also have seen that peak oil has now shifted backwards a few years. Infrastructure has still continued to grow. A good example there is the Europe-Africa region, but also Asia Pacific, where they have been growing also in the infrastructure market. And there are still many opportunities also in the Middle East, as we see in the Middle East, many projects on the board and in the mid- or even in the short term, we see those projects to pick up again in these areas as well. So if we then move on to the next slide. I want to come back on some of the things we have communicated before, also a little bit technology related. We have expanded our geotechnical fleet and here you see some of the new vessels that we have been working on: the Resolve, the Resilience, the Zephyr and the Zenith. Basically, those have been busy in the last period of time. So we also see that activity levels on the geotechnical side have increased, and we see the utilization also increased on the geotechnical side and slowdown on the geophysical side, which meant overall a lower utilization of our total fleet. Having said that, we now -- if we look at these assets, we have the Fugro Resolve, formerly known as the Topaz Endurance, now operational. We have already executed a number of projects there in Europe, and we're now actually moving her over to install one of the new assets, the Blue Dragon, which is a robot that we can place on the seabed. And we're moving into a testing phase there early -- yes, basically, that has now been installed and will move into the field to do more and more tests. She is also equipped with some [ ROV ] equipment so that we can -- between those testing also make use of other equipment like a Blue Snake, which is already installed there, with an integrated CPT and sampling system in one single pass, very efficient, unique in the world, and we will also deploy that in the upcoming period from Fugro Resolve. If we talk about the Resilience, formerly known as the Topaz Energy, is now fully booked since -- are coming into service early July, and we have already several projects executed on that, for instance, a project on Ocean Winds. That is just now finished and she starts to -- she's about to start a new project in the Caribbean for Chevron in Suriname. So if we then look at these last 2 new additions, so to say, the Zenith is actually already the last one on the list here. It's already working for us in the geotechnical [ motors ] under a charter agreement. She is not in ownership yet of Fugro. That will probably happen at the end of the year or early next year. But if we jump to the Zephyr, that's now -- we have taken delivery of the Zephyr as previously known as the Seagold Crest, and we have started the conversion and she is expected to be operational for us early next year. As I said, all the geotechnical assets, I think the whole fleet has shown a good return and utilization, which is exactly as we expected before, that this market is very buoyant and with a high demand in both oil and gas as well as renewables. If we move to the next slide. I also want to come back on the USVs and the remote operations because we have some successes there as well, and we'll continue to expand there. So I think it's worthwhile to give some insights there. Here on the board, a number of project examples. So we have done a project in Europe for SSE on the Beatrice Offshore wind farm, where we have actually inspected 84 jacket structures and this is our water depths between 35 and 60 meters. This is a visual inspection from the ROV that we deployed from the back of this uncrewed surface vessel. We are unique in that still. There are not any other party out there that deploys these vehicles from these platforms, enhance these operational experiences now. It's just our multibeam bathymetric surveys that we do. We do debris clearance surveys from the jackups, but we can also do cathodic protection surveys or other inspections from the J-tubes or general video inspection from pipes and risers and so on. The second project in the middle is also very exciting because we now work for Allseas on a pipelay project, where we do touchdown monitoring. This is also unique in the world. Nobody else has done with uncrewed surface platforms, touchdown monitoring. And I think it's good to see that we now have a good project there for several months' running in Australia, where we USV fleet behind the pipelay barge of Allseas, the Sandpiper, and we basically monitored touchdown there. So this is also a quite unique setup and survey that we're now executing on. And then on the right side, another example, and this is in the Middle East because we have vessels now spread around the world for projects there. And this is one of the first projects we did there for a large NOC there in the Middle East. This was more a demonstrator project, where we do a clearance survey, debris survey and yes, basically have shown the clients all the capabilities we have with these vessels, and they are very interested to further expand on these capabilities. If I move to the next slide, we also have plans to further expand our USV fleet apart from the vessels that we already have operational, the 12-meter Blue Essences in various regions. We now have the 18-meter Blue Eclipse in the water. And we're doing the first test with this, also with the deeper water eROV, that's our electric ROV. It's now planned to be operational in projects in 2025, early 2025. And this gives us the capabilities with -- yes, basically longer endurance, more deeper water capabilities with more sensors on the ROV, and that is really required in the future to have even more projects done by uncrewed surface vessels. And then for site characterization, there are obviously many parties out there that have small geophysical solutions out there in the water. They exist already for multiple years. Fugro is focusing on a bit more capabilities there, and we're having a design and builds ongoing on a 16-meter Blue Prism. And this is for larger scale deepwater hydrography and geophysical data acquisition. We also expect this vessel to be operational in 2025. And this is just the first 2 of the new versions of USVs that we expect to further expand on, the 16-meter geophysical one but also the 18-meter Asset Integrity USV. If we move on, then I think it's also nice to share some successes there. In October, we proudly celebrated the remarkable milestone, 10 years of remote operation centers and 1 million operation hours already completed. This is not only the USV work, this is also other projects that we do, survey projects that we do remotely. You see here the teams from various ROCs. In fact, the ROC in Houston has just moved to a new location, brand new, it just opened and we are now well set up to further serve the remote operations moving forward. Okay. That's it on the USVs. Then I would like to also show you something on the land sites, some developments that we're working on for land site characterization. This is very revolutionary. We're looking at a scalable site screening solution with these nodes, as you see them on the picture here, that are deployed and that can basically collect geophysical data. And on the right side, you see some project examples in various areas in the world where we collect a 3D cube of data. And if we combine that with geotechnical information, we can really do ground investigation on land in a much faster manner. It gives also a lot more insight for the customer. And this is also really applicable for early site screening where the customer then can do proper design for the future. And we're also planning to now further expand into site investigation work, as I said, combined with cone penetration and with drilling. And then we can actually -- probably change quite a bit of the land work that we do in a different way using nonintrusive and noninvasive geophysical solutions. By the way, this has been presented before to the market as SWANS. It's now called GroundIQ, and it will be combined also with the standard geotechnics and then it will have a huge potential to change the way the land business is running. And with that, I would like to also mention one thing that we heard earlier this week announced is a great cooperation also on the land side with Autodesk, a company that is obviously critical in providing the basic information for design on infrastructure. And we have now a plug-in developed by Fugro already some time ago, and we are now going to work together, to also combine basically the basic information that any construction company needs from Autodesk with the subsurface information that we provide with GeoDin. I think this is a fundamental step also for our land business to further develop and move into the future. And with that, I would like to hand over to Barbara for the financials.

Thank you, Mark, and good morning, everyone, and good afternoon. Next slide, please. As usual, I will start with a quick overview and just a bit more detail than presented by Mark just now. First of all, a few comments on growth. On a currency comparable basis, revenue was in line with the strong third quarter of last year. We saw strong growth in Europe-Africa and certainly also in APAC. This was offset by significant declines in Americas and the Middle East and India. Our backlog is -- 12 months backlog is robust, growing by over 16%, 16.8% to be precise. And in Europe-Africa and Asia Pacific, our margins increased, driven by the top line growth, operational leverage and solid project execution. In Americas and Middle East and India, we had the active cost management, and therefore, we were able to mitigate the impact of the lower revenues. On balance, as you can see, our EBITDA and EBIT margins increased. Our free cash flow increased by 53% due to higher EBITDA and lower working capital. Next slide, please. On this slide, you can clearly see the structural year-on-year improvement in our margins that we delivered in the last couple of years. And I think actually that these numbers speak for themselves. And with a 14.4% realization year-to-date or 13.7% on a last 12-month basis, by now, we are achieving margins well within our midterm target range. So let's have a look at the underlying regional performance. Next slide, please. So the revenue bridge, which you can see on top of the slide shows the ongoing growth in our marine business, in Europe-Africa of 9% and Asia Pacific of 39%. And there, we're capitalizing on the strong market backdrop. And this is enabled by the expansion of our geotechnical vessel fleet as just highlighted by Mark in his presentation. However, the marine revenue in these 2 regions were -- well, they were up actually, Europe-Africa, EUR 28 million and APAC, EUR 32 million. However, this was offset by significant declines in the other 2 regions, as you can see, by EUR 31 million and EUR 27 million, respectively. Then if we look at land, land revenue decreased slightly by 4.2%. And this was due to lower activity levels in the Middle East and restructuring of the onshore site investigation business in the U.K., where we are moving our capacity to our growing nearshore operations. Overall, our margin increased to 16.7%. In Europe-Africa and Asia Pacific, the margin increased driven by top line growth, operational leverage and solid project execution. And in the other 2 regions, we were able to mitigate the impact of lower revenues through active cost management. Next slide, please. I'm happy to report on the cash flow, an increase of 53% free cash flow. And in the graph on the top left side, you can see that operating cash flow before working capital decreased slightly year-on-year. And despite an increase in the EBITDA, tax was higher on the back of the increased profits in Europe-Africa. You can also see that working capital declined by EUR 30 million during the quarter. And in the graph on the right, we show that at the end of September as a percentage of revenue, it amounted to 14.4% of revenues. And this is within the targeted bandwidth of 10% to 15%. So we're making good progress with continued focus on cash collection. Moreover, in line with previous years, as mentioned also before, working capital is expected to unwind further in the fourth quarter towards year-end. Capital expenditure was EUR 51.7 million compared to EUR 31.7 million in the comparable period last year. And as usual, this is a combination of maintenance transformation and expansion CapEx. We maintain our guidance for the full year for CapEx of EUR 250 million. Next slide, please. We have a look at the balance sheet, we remain conservatively financed with a current net leverage of 0.6x, which is well below our target of 1.5x. And in October, last week, our 2024 convertible bonds matured, resulting in no near-term maturities. And on the final conversion date of 24th of October, we received notices of EUR 42.1 million in total, converting into 2.2 million shares, which have all been delivered by now. And this has resulted in a total number of outstanding shares of 113.5 million, excluding 2.2 million treasury shares. And the remaining outstanding amount of the convertible of EUR 400,000 will be repaid in November. Then on some concluding remarks. So next slide, please. We -- overall, we see steady activity levels in the fourth quarter. And as a result, for the full year, we expect a mid-single-digit growth. And more specifically, we see ongoing growth in Europe and Asia Pacific, but also a resumption of growth in the Americas. And on the margin, I would like to say that for the full year, we expect a margin of around 13%. And as we've already communicated at the first half year results, we will have a couple of key assets in drydock and in particular, a number of our geotechnical vessels in Europe-Africa. And as just mentioned, the CapEx we're guiding for around EUR 250 million for the full year. And with that, I would like to move to the next part of the call. We're going into questions then. Thank you.

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

First of all, on the cost flexibility, you did a good job of protecting your margins in the Americas and in the Middle East through cost flexibility. We're going into a period of maybe higher volatility. Do you have a similar level of cost flexibility in Europe and the other regions as well?

Thanks, Luuk, for the question. Yes, we have everywhere, actually, the option to do anything on the cost side. That is not a problem, we have actually showed in the past even when COVID hit us that within 2 months even before everybody realized it, we took EUR 150 million cost out of the system. We can easily do that again if we need to. But let me emphasize here, we do not anticipate this. We are able to do it, but we have very busy activities as you have seen in the third quarter in Europe-Africa as well as Asia Pacific. We expect also the other regions to come back and have a lot of activities, and we need the assets and the people to execute on the work.

And my second question is on the contract conditions because I think you've included more protection against delays in your contracts and standby rates and so on. But did that apply in these cases where it was a matter of permits and government changes and so on? So did you get any compensation in the third quarter for that?

Yes. That's a good question, Luuk. In principle, what we have said is around Americas where offshore wind projects were delayed -- those who are not necessarily contracts that we were already executing on, our signed contracts. The majority is basically related to the whole market shifting because of the 2 elements I mentioned, where they have redesigns of turbines and so on. And that means that there are simply not projects in that realm of expertise on the market. So it's also not like we have lost the market share compared to other parties where they were executing the work. Now the work wasn't there because it's paused because they cannot hand out the work to parties like Fugro.

And my final question is on the additional shares that -- from convertible. Well, looking at that dilution, but also at your very strong balance sheet and leverage well below the target, do you have any plans to repurchase them to offset the dilution?

Well, this is -- Luuk, I can answer that question. We are, of course, actively managing our balance sheet. And if we would have decided by now to do that, we would have announced it. Having said that, rest assured, it's on the board that we're closely looking at this.

And we will now move on to our next question from Jeremy Kincaid of Van Lanschot Kempen.

Two questions for me, just to start. Could we get some comfort on or could you provide your views on when you think the various elements within the U.S. operations could turnaround? Obviously, you mentioned the Biden ban and that we might get clarity on the outlook there after an election, but there was also, obviously, the carbon capture projects and then also offshore wind. Can you just provide some timing on when you think those markets will rightsize? And then the second question is, obviously, Mark, you talked about one of the issues is that these turbine blades were being redesigned, which caused some delays. Is that isolated just to the U.S.? Or is there any risk that redesigned turbine blades could pose a risk to other offshore wind operations around the globe?

Thank you very much, Jeremy, for the question there. If we talk about the U.S. operation, first and foremost, if we talk about the Biden ban on LNG exports, that has been lifted, if I'm not mistaken, 2 months ago, roughly. So those projects are coming back on the board. We're also bidding already on a few of these new projects. So they offer quite a bit of opportunities for the U.S. to further develop again. The carbon capture element is more regulation-wise, what they are allowing to do in the offshore environment. There, the regulation is not 100% clear yet. And therefore, some of the parties that really actively want to dive into this are holding back for the moment. Having said that, there is a lot happening on carbon capture. And actually, globally, there are many projects kicked off on CCUS, CCS projects. We have in Europe a number of things, but also, for instance, the work that we do in Indonesia for INPEX and other players in the future, Eni and so. They always have an element of CCS in there as well. So this will be there. This will come to the plate in the U.S. I'm not 100% sure how long it will take, but we have the anticipation that certainly, there will be more work on the board, also in the CCS field in the upcoming period. Offshore Winds is actually already close to having solved those issues around offtake prices, purchase agreements, PPAs. So most of it has been renegotiated and these projects start to run again. I think, in general, when you look at all these issues in the U.S., nobody is very keen on moving very fast because of the general uncertainty around elections and nobody knowing exactly where this is going. There are even companies that refuse to work on forecasting for the future, as they have no clue which direction this is going. We see opportunities in both directions, whatever is going to happen. If it's Harris or Trump being elected, we see that there are benefits and downsides to both of these cases. And it will take maybe a little bit of time before everything has settled down, but we do expect those things to move on and more clarity will also help to move the whole of the U.S. and the Americas forward again. So we are confident that there's lots of opportunities out there, but it's difficult to say which one will get priority over the other at this moment in time. If we talk about the turbine blades, and I'm not an expert on this. I do not think that this is a general topic that plays around the world. So it's not to my knowledge the case, that this is something that is a major issue that will play around everywhere in these developments. Having said that, obviously, changes to set up or turbines being used is always a topic also in Europe, where people are demanding more standardization on these developments. But this is not the same as what they have seen in the U.S. right now.

And we will now move on to our next question from Thomas Martin of BNP Paribas.

Firstly, on the cost reductions, could you give us some further insight into what form of cost reductions you are delivering? I guess, are you at the stage yet where you doing anything with lease vessels? Are you letting personnel go? And related to that, is there a -- or what is the sort of delay on bringing capacity back? You've spoken about how some of these are short-term impacts, particularly in U.S. What's the delay on bringing capacity back? I have another couple as well.

Sure. Thomas, thank you. So the cost savings that we do are more generic cost savings more related to overhead to make sure that we don't have too many people in certain positions, where we cannot maybe afford them because the growth is slowing down somewhat. At the same time, we need to be very careful, as I said before, because we need our people. We have 700 vacancies in Fugro today, and that is not going down very rapidly. We are hiring a lot of people. We have hired this year up to now 1,500 people, to be exact 1,463. And we will continue to hire more people because we need people to execute the work. So I like the fact that people are picking on the cost savings because this is what you're supposed to do if you slow down a little bit in a certain period. And that is what these regions have done very well, I think, and stepped in and looked at the general overhead cost and see what they can do to reduce the cost and therefore -- and specifically in the Americas, kept the margin up to a decent level, despite the fact that they went down by 20-plus percent on the top line. I think that is exactly how you should run your business. Having said that, we need to be extremely careful because we need the people, there is work out there. It's in the backlog. We need to execute on it. It will come partly in Q4 and the rest in 2025 and in the years to come.

Okay. And then on that backlog point, on the one hand, you've spoken about some of the challenges you face. On the other hand, you've got the backlog growth. Is it sensible to conclude that the backlog growth is being driven by areas which are currently strong, Europe-Africa, Asia Pacific? Or is the backlog growth also strong in the Americas?

Yes. So the backlog growth, and I think it's listed at the end of our press release, the various backlog growth figures are there. So Asia Pacific is growing fastest. Actually, the backlog growth there is the slowest because we are already high there. In fact, Middle East and India, which is now low and goes down, has the highest backlog growth of 31.2%. Americas is also close to 25% backlog growth and then also Europe-Africa, with 15% backlog growth being our largest region. So it is actually across the board, very healthy. We see -- also throughout the various markets, we see new projects coming to the table. And with the lowest one, actually the region that has made the biggest step-up already and has in their backlog, a lot of work that they need to execute now on but also there, we'll probably see more projects coming to the table.

A final one, sorry, just -- you spoke about opportunities under both for Trump or Biden. I mean, should we broadly understand that as increased oil and gas and LNG under Trump and continued growth in offshore wind under Biden? Can you speak a little bit about the absolute levels of growth potential you see under these 2 outcomes? I mean, yes, offshore wind is a big opportunity, isn't it? So although you see opportunities under both, is it actually as balanced in terms of monetary value for you?

Yes. So I'm probably not the right person to ask this, but because it's difficult, and nobody knows exactly where this is going. We all hear what Trump is saying maybe in the news around renewables, that there's no new licenses that he will sign off on. To be honest, most of the licenses were signed in his first period. So those were the states that simply moved on with offshore wind development. So the federal government cannot necessarily dictate everything. So that's nice, that he's saying all these things in the news, but that's to be seen where this is going. Additionally, he is very sensitive for employment in the U.S. And related to the wind -- offshore wind market, there's 125,000 workers related to that business. So I think he will be careful and also probably be advised not to necessarily be too drastic there. Having said that, it's obviously in general, the case that he's probably preferring more oil and gas other than the offshore wind himself. How much he will change and influence, I'm not 100% sure. I'm probably not the right person to ask. Probably, you mean what happens when Harris is chosen. Well, then it's probably more likely that, that wind will get an additional boost. But also there, we don't know all those details, and it's difficult to predict all these things. So I think we first need to have the election done. That will be done very soon and then we'll see more clarity coming in very quickly.

Yes. And maybe if I can add to that, Mark. It's good to highlight we have market-agnostic assets. So if it's wind or oil and gas, we can service the markets in both those situations.

Correct, yes. We can move them around quite easily. And then maybe also to add what we have seen because you spoke about capacity ramping up again. A great example is earlier in the year, we moved one asset from the U.S. because there was a slowdown in these activities, one geotechnical asset. We moved over to Europe. Europe was so busy that they kept the asset busy all the time. And early next year, probably this asset is moving back to the U.S.

We will now move on to our next question from Thijs Berkelder of ABN AMRO.

Yes. I have a couple of questions. First question on your outlook, on top line. You now expect mid-single-digit growth for top line for the full year. Can you maybe be a bit more specific on Q4? Your backlog for Q4 is flat year-over-year, your working capital, by the way, as well. So that seems to pre-indicate more or less 0 growth in Q4 as well. And so implying a more low single-digit growth for the full year than the mid-single-digit growth. So that's the first question, more grip on Q4. Then the second question is on a risk of further project delays, especially in the U.S., how the elections are taking place next week but the real appointment of the new president is only by January. Well, Q1 normally not the season, they could tend to work a lot. So isn't it logical that further U.S. wind project delays will take place until summer '25? And on top, is there a risk of import tax duties for Fugro being implemented? Finally, it's still not clear to me when you exactly will drydock which vessels. Is it now in Q4 or primarily in Q1 that we will see a bigger impact?

Yes. Thank you, Thijs, for your questions. So first and foremost, we have specifically written down mid-single digit growth for the full year. So if the comparison, what you make would be true, then we would have written down low single-digit growth for the full year. So we expect the fourth quarter to grow again, to answer that question compared to last year. And that is maybe, as I said before, different than what we have said before because we anticipated the third quarter to be higher than -- on the growth side than in the previous call. Midyear we said that in the second half of the year would grow faster than the first half of the year. That is now corrected with this guidance on mid-single-digit guidance where we also recognize that the third quarter did not grow, and we have seen more impact in the U.S. So that is a fact. And at the same time, we expect that activities will be solid in the fourth quarter. Why do we expect that? Because projects are being executed at the moment. So the U.S. is busy right now executing work. So that is also important to mention. It's not that they are waiting to get projects started that can be further delayed. Will there be more project delays? There will always be project delays and postponements everywhere in the market and in the business. But we are confident that we will have more activity now in the U.S. because we have started those projects already. So that is maybe good to mention. Then furthermore, on drydocking. I think it's logical that you don't know all the details of every vessel when it goes into drydock and when it comes out of drydock, that is obviously for us to keep an eye on and manage very well. And we have quite a few vessels going into drydock in the fourth quarter. And obviously, some of them will run into the first quarter because some are big overhauls that we need to do. And we have also mentioned that there are some key production assets in there from the Europe-Africa region that are high on the returns, as well on the profitability. So therefore, we have also guided before and that stays the same, that maybe on the profitability level it might have some impact. And we also have, obviously, always in the last quarter, in the first quarter, some lower pricing to deal with. So that is because it's off season work. So the majority of the vessels will obviously be taken care of during the winter months. So that is in November, December, January, February. And then when the winter months are over, we are ready to start the new season again with busy activities in the second and the third quarter and then running into the fourth quarter.

Okay. And I have one remark on the blade redesign, those were the blades used for GE Vernova and not only in the U.S. but also in the U.K. GE Vernova had turbine problems. And as far as I'm aware, that's the only manufacturer right now with these problems. My additional question is on the vessels which are stuck in the Arabian Gulf and need to sail through the Mediterranean. When are they to arrive in the Mediterranean? And these extra costs or off days have been taken in Q3 or will be taken in Q4?

Yes. So thanks for the update on the blades, Thijs. Good to be aware. We haven't heard any impact for us on the U.K. side, by the way. It's maybe good to emphasize there. At the same time, your other question, so we have one asset. And for the people that follow our vessels on a day-to-day basis, it's the Kobi Ruegg, that has been idle for the first 3 quarters in the year because we sailed her over to the Arabian Gulf from Egypt. She was permanently based in Egypt for activities there in the Mediterranean. And when we saw the unrest coming up in the Mediterranean and in the Red Sea, we sailed her over to the Arabian Gulf, anticipating projects to start there in the Arabian Gulf for various parties. That did not materialize as we expected with the reasons already given in the Middle East. So we have basically a surplus of assets there with also the Proteus in that region, another vessel that we operate in that region. And she has been idle the majority of the first 3 quarters, not all the time but quite a lot of days. So therefore, we have decided now to move her over to the Mediterranean again and picking up, hopefully, some work along the way in Africa. We're still -- she's sailing. We're passing by, obviously, various countries that have activities, and we are talking to various customers to see if we can pick up some work there. If it doesn't materialize, we just continue to sail and have her operational in Egypt. Normally, the sail will take, I think, 4 weeks or so. And depending on how long we will maybe stop or pause to execute work or to wait to execute work along the way. Cost will be spread partly in Q3 and Q4 and hopefully, we'll be also charged partly to the customers that execute work in those local areas.

And any indication of Trump import duties will also affect Fugro?

I have no indications for import duties on Fugro. I think it's also important to mention that Fugro in Americas is an American company, run by Americans. We have 2,500 Americans in that region. We have in Brazil, Brazilians. And in the U.S., we have people from the U.S. And in Canada, we have people from Canada, and they execute in their local markets. So I don't necessarily see a ban coming to Fugro on anything there. And if it happens, they damage their own economy because they have no capacity to do the work themselves.

And we will now take our next question from Andre Mulder of Kepler Cheuvreux.

Four questions from my side. Firstly, one related to the numbers again, related to Thijs' questions on -- of sales and EBIT. What I see happening is that if you expect a margin which will be around 13%, it sort of assumes that your EBIT in Q4 will be down by something like 20%. That's strange in a quarter, which is up in terms of sales and also compared to Q3 where both sales and EBIT were static. So that's the first question. Second question on the backlog. You mentioned to Europe, you mentioned Asia. You mentioned Americas resumption of growth. You didn't mention the Middle East, whereas the backlog there, the growth is strongest there. So I would assume that also you would see growth returning in the Middle East on the top line. Then a question on competition. What I see happening is that in Offshore Winds, companies like TGS is gaining projects in geophysical whereas you and Ocean Infinity are taking the projects in geotechnical. Can you give us a bit of a feeling of what's the difference in sizes between those segments? And also in terms of margins. I would expect that geophysical is indeed a more simple work and geotechnical the more complex ones. Last question is on CapEx. The latest statement was that you see CapEx coming down from EUR 250 million to around EUR 200 million in '27. Is that still the case? So those would be my questions.

Maybe I'll take the first sales and EBIT question. It is the right observation there on the EBIT, and that has to do with the drydocks and the OpEx we have on the drydocks. So we have lower available days, which we are actually selling at a higher rates, but we have the OpEx, and I'm talking mostly Europe-Africa, we have the OpEx of the vessels in drydock on the other hand. So that has a dumping effect.

Yes. And maybe to add there, so it obviously depends. We have guided for around EUR 13 million. I have calculated for myself. If you -- and you can do the same, obviously, then you might be around a certain percentage margin, indeed, that is maybe 20% lower. I haven't checked that. So I need to check that for you, Andre, if I have a similar view on that. Having said that, yes, around 13%, can also be 13% plus. But at least we felt that this is the right guidance for the remainder of the year. So -- and then you have a question around the backlog and the growth possibility in the Middle East. So for sure, absolutely. We have 30-plus percent growth in the backlog there for the Middle East region, and that obviously means that we anticipate growth in the future for the Middle East, which is also not strange because it came down steeply. And the work, as soon as it moves up again, will come back into the business. So we also see that region being a region with a lot of potential in the future. So let's be clear, we don't necessarily see that this region is a region that is on a shrinking mode or so, not at all. So that is on the backlog side. Then you talk about competition. I think what is important to mention is that there are quite a few things that people sometimes throw on one big lump and think that the work that we do, for instance, on the geotechnical side, one company does or the other company does is the same. And there's absolutely overlap. But, right now, there are still big differences between the various companies that you mentioned. Also on the geophysical side, so there are certain projects, large-scale geophysical projects maybe in certain setups that TGS could execute on in an efficient manner. But there are lots of work that we do on the geophysical side that TGS is definitely not equipped for to do in an efficient manner or in a cost-effective manner. So I don't think we should be too quick in comparing these things with each other. But yes, there is competition out there, which is healthy. That keeps us on our toes, and we have spoken about that in the past as well. And we will continue to differentiate ourselves. I showed you in the presentation a few examples of what we do to differentiate ourselves on the technology front. We believe that we have a good handle on this, and we're moving in all the various markets and service lines in a direction where we feel that we can be competitive and also secure the work for the future.

Yes. And then maybe on your CapEx question, yes, towards -- we have a full -- towards full potential strategy. And as part of that strategy, we are moving to a more asset-lighter business model, as you are aware. So indeed, the CapEx over time is going down. We can confirm that. We're not going to give guidance for CapEx next year as we're going through the budget. Equally, what I've also said before, if we can accelerate the asset-lighter strategy that we have, for example, on the USVs, this is also something that we're looking into. So that is on the CapEx. But overall, yes, we are moving towards an asset-lighter structure.

One additional question. So on these markets in geophysical, geotechnical. Can you indicate what the sizes of those markets and how they relate to each other in terms of maybe geophysical is 25%, geotechnical 75%? And what kind of margins you normally make in those segments, whether there's a big difference?

Yes. Well, I will keep it a little bit generic, Andre, because certain things we do not release and we have not done that in the past. But if you talk about margins, and let me start there, then geotech because you have a higher capital intensity and also more commitment required to basically get an asset up and running, it's much more complex because you also need to build something for a longer time and has a higher investment involved. The margins are also higher. There's also more demand -- or not more demand, but less availability of those assets. And therefore, this is the area where we were comfortable in investing more owned equipment that we see working out very well for us and also helps us to drive our margins up in Europe and other regions. So this is a successful strategy and has actually delivered exactly what we expected in actual fact, probably even better than we expected. So that worked out very well. On the geophysical side, this is a much more difficult market. It is very easy to create competition there. And it's more easy because you can have vessels that you rent on a spot market. You can rent equipment from equipment rental companies and you hire on the freelance market a few people. Then you are in the business, which is very easy. But if those projects are large and complex, and you need multiple vessels and a lot of processing because you need to basically integrate the geotechnical and geophysical data, and this is actually the crux of Fugro as well. The crux of the matter is that you need a site characterization data and site characterization data can only be collected if you have geophysical and geotechnical data. Last -- this year -- earlier this year, I was in Houston talking to a client. And they said, we had a great example of a project somewhere in South America where they had 2 different companies collecting one, the geophysics and the other one, the geotechnics, and they clearly said to us, we will never ever do that again because it was very difficult to integrate the data. So this is where we believe and we have said that many times before that the integrated solution, also the scale of Fugro being able with multiple vessels to execute these campaigns. First geophysics, then geotechnics and then geophysics again and integrate data and also deliver the data in one integrated data set in an online fashion. That is where the power of Fugro lies, including the combination of having the laboratory capacity on the geotechnical side. Because it's great if you expand on your acquisition in the field, but if you don't have the processing capacity in your laboratories, then you also have a problem and a bottleneck. So geophysical projects can be large. If you have a large area that needs to be done, let's say, for a large -- geophysical survey for a large offshore wind field, then sometimes it can be efficient to maybe have a large project, so that could be easily a big project. Normally, the top line value of geotechnical projects are larger than geophysics. So that is the other thing. And it's because of the assets involved and the capital intensity and therefore, also the margins being higher. I think I answered those questions.

And we will now move on to our next question from Kristof Samoy of KBC Securities.

A few questions, if I may. First one on the backlog. Obviously, you're referring to backlog growth. But part of it is obviously due to project postponements. Could you maybe quantify the impact of project postponements in your backlog, especially for the Middle East and U.S.? And also as an add-on, indicate whether some of these postponed projects have already been started now already in the fourth quarter. And then in terms of end markets, could you shed some light on the evolution of the renewable market versus the oil and gas segment? I know you traditionally do not officially disclose, but can we extrapolate trends from the first year half in the third quarter? And then as a follow-up, within oil and gas, could you shed some light between the division of asset integrity and site characterization there?

Okay. Thank you very much for the questions. So first, on the backlog growth, is that also partly because of postponements or things moved, pushed backwards? Yes, of course, because, yes, if you have work that you haven't executed and you already won, then it's still in your backlog. So it stays there. On the other hand, you execute on work. So you also yes, let's say, burn some backlog by executing the work in the third quarter. So -- and because we only issue 12-month backlog, yes, you basically shift and the 12 months and you get -- you add the quarter at the end, and you basically burn a quarter at the beginning. So that is true. So if a project is postponed by one quarter, yes, then it just simply moves into the next quarter. So if there is something that we anticipated in the third quarter, it moves over to the next quarter. Now how big is it or how much is it? That's a very exact question. I cannot give you those answers region by region. But if we would have anticipated some growth in the third quarter, then those percentages have moved into the backlog shifted at the same time. We filled up another quarter, obviously, of backlog at the end. So that is, I think, how you should look at it. Some projects have started in the fourth quarter, of course. So that's happening. So things were pushed out in the Middle East and in the U.S., and now we have kicked off some of these projects already. So that's really good. The market sizes in the third quarter, as you say correctly, we only issued that twice a year, and we do that on purpose because if we would do that on a regular basis, everybody will draw conclusions on numbers that will go up and down quite quickly quarter-by-quarter, and that is not a decent trend to look at. So I think it is actually good to look at what is happening in midyear and the data that we have given and take that as a good guidance. Also, if you look at the slide that I showed on the market development, then you see that renewables is growing faster than oil and gas quite a bit. So what kind of trend can you expect? Well, the trend is obviously still to continue that oil and gas will grow faster, and there's more and more investments going into oil -- in renewables than into oil and gas. So the trend will stay like that. And does that mean that it cannot move maybe one quarter to the other direction? That could easily be. We're now executing in Asia Pacific, actually on the oil and gas side as well as on the renewables side a lot of additional projects. But maybe you have a quarter where you have a little bit less wind projects and still executing on the large project in Indonesia so. And then you will suddenly see in one region a shift between the 2 markets. And is there a trend? No, it's not a trend. It's just you have a big project, yes or no. So we need to be a little bit careful there. If you talk about oil and gas, how much is asset integrity and how much is basically site characterization or new projects being developed? Then, the majority still is absolutely asset integrity. There's hardly anything on, and we have issued that end of last year, we don't keep that as an ongoing mark to issue. Maybe we will do that in the future a little bit more also when we have data to split oil and gas from each other, which we have promised everyone to come back on at a certain time frame. When we have good comparable numbers year-on-year, then we might also have another look at how much is in exploration, which is hardly anything. In November last year, we said less than 4%, but then we have obviously work that we do on the site characterization side during development of these fields. So that's not exploration, that's really developing the field. For instance, what we do in Indonesia for INPEX right now, geotechnical and geophysical work. But the majority of the oil and gas work is in asset integrity, inspecting, monitoring existing pipelines, existing platforms, corrosion detection, preventing leakage and pollution in the oceans.

And we will now take our next question from Quirijn Mulder of ING.

I have 2 short questions and one long. So Mark, you can confirm that there were no cancellations in any way in the Middle East or in U.S. It was purely postponements or delays, et cetera. That is question one. Question 2 is the Brumadinho. In Brazil, there are more authorities who have an eye on certain ports. Let me say certain issues like car wash, et cetera, we have seen with SBN. Are you -- let me say, the federal government is one of them. Are you 100% certain that this is now over? It's completely concluded. There's no -- let me say, tail risk there? And my final question somewhat longer is, if you look at the summer 2025 and you look at, let me say, the different markets, especially with regard to wind also in Europe, how this order book look? Is that -- let me say, is that volume plus mix? Or is that a volume plus price? Or is that purely, let me say, in a volume-driven place then in 2025? Can you maybe somewhat elaborate on that? And the background question is there, of course, is there still shortage with regard to geotechnical capacity as we have seen in 2024?

Yes. Let me see. And the first question was a quick question on.

No cancellation.

Okay. Yes. So yes. For sure, so it's no cancellation in the third quarter that we're talking about. So we have seen, obviously, at the beginning of the year, a big cancellation in the Middle East, where big fields that would have been developed has been postponed and canceled, and we were expecting probably roughly EUR 30 million to EUR 40 million turnover on that work. But that was already at the beginning of the year and we have spoken about that at the beginning of this year. So it's not in the third quarter that in the U.S. or in the Middle East we have cancellations. It's just general movement in the market. If we then talk about Brumadinho, then I'm not going to say that -- no, let me say the following. It is an important milestone because now we have seen both prosecutors, federal and local going the same conclusion that Fugro should not be held liable for anything that happened there. We have also said before that we might have caused it to happen as the final drop because of our work that we did on the dam. However, we were not informed properly about the state of the dam and that is also what the federal and state government have said. So this is not over in a way that Brazil will -- for Fugro is not held liable, but the court cases now for the 14 individuals and the 2 companies will continue. And we will hear a lot more about this. So you won't hear me saying that we will never ever talk about this anymore. But I think it's very important to conclude that the government has done their investigation and conclude, again, the same thing as we have stated as well, that we are not held liable for this. Volume price, 2025. The majority is volume. There's a little bit less price in there. But obviously, we need to correct on inflation globally. So there will be a price in there as well as a minimum. And we still see in some areas that we can still increase prices here and there as well. And obviously, that is more in the higher demand areas. And then it's easy to conclude that it's maybe more likely geotech than it is geophysical. So is there still a shortage of geotechnical vessels in some areas? For sure, from time to time, we could easily have more capacity there, but not in every region across the world. So we need to also plan this very carefully to make sure that we have the availability for our key clients, but also don't oversupply regions with certain capacity because then we have to make movements like we did earlier in the year from the Americas to Europe. So I hope that answers your questions.

And then say, if the wind market in the U.S. is slowing down, then you can easily resend the vessels to Europe, if you - if necessary?

Yes, yes. We have done that and it's possible. And Europe is eager to get additional capacity from time to time. So the problem is, in that sense, limited risk. We also have charters that we actually have that we can let go of. In actual fact, we don't do that because we need them.

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

Thank you so much. Thank you for participating in the call. If you might have any further questions, please contact us. Thank you. Have a nice day. Bye.