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

Good morning. Thank you for dialing in to our Q1 trading update call. My name is Catrien van Buttingha Wichers, Investor Relations. I'm here, as usual, with Mark Heine, our CEO; and Barbara Geelen, CFO. I will hand over to Mark shortly for a very short introduction, after which we will open the floor for your questions. Thank you. Mark, please go ahead.

Thank you, Catrien, and good morning to all. And I would like to start with a few slides and then hand over to Barbara to close off before we go over to questions, as Catrien mentioned. As you probably know, on the 15th of April last week, we already published an update on the first quarter of 2025. That release already contains the highlights of today's full Q1 trading update, which you can see here on this slide. The year was off to a challenging start. Market conditions have rapidly shifted, making clients more hesitant to commit to new projects. This happened while we were already adapting our business in the Americas to the new political and economic reality in the U.S., which, as you will understand, takes a little bit of time to recover and stabilize. As a result, we're reporting a lower revenue and EBIT compared to a strong first quarter of 2024. Our immediate priority is ongoing implementation of cost-saving measures and efficiency gains to safeguard profitability and cash flow without losing the momentum on our long-term strategy, and I will come back on this in the next slide. Free cash flow was minus EUR 84 million, as you can see on the slide, Paolo will say a few more words about that. And our 12-month backlog declined modestly by 3.3%, reflecting the current market dynamics. Next slide, please. At the publication of the 2024 results, full year results, we already guide for a challenging first part of the year as a result of new political landscape in the U.S., resulting in a pause in new offshore wind projects. However, by now, we're faced by rapidly increased geopolitical and economic uncertainties in other regions, too. And this is influencing client investment behavior worldwide. As a result, we see some scope reductions of projects and award decisions taking longer, including in the Europe/Africa region and exacerbating the typically slow start of the year. We're taking appropriate measures. We have taken those already starting last year, and we're continuing to take measures to safeguard our profitability and meet our 2025 margin guidance. Of course, we're taking multiple market scenarios into account. We're able to act quickly and decisively as we demonstrated in the Americas in 2024, where we were able to increase our margin in spite of the pressure on the top line. These measures include reducing short-term charters, third-party personnel and equipment, also reallocating assets, as I mentioned last week, reducing lease assets, longer-term lease assets that come to an end, and we have implemented a hiring freeze for non-project-related staff, and we'll continue with targeted workforce reductions. At the same time, obviously, we continue to focus on high-quality execution of projects, accelerating digital workflow implementations and remote operations. Next slide, please. Here, you see a selection of recent project awards. On the top left corner there, Fugro and Dana have partnered to support the Royal Netherlands Navy with a marine security and surveillance vessel, including also supplying the crew of the vessel. The Navy will deploy the surveillance vessel to conduct security operations within the Netherlands North Sea in our zone, the exclusive economic zone, both above and below the water. So it's also in the water. Using advanced technologies like uncrewed vehicles, it will enable the Navy to monitor vessel activities in the North Sea and survey critical underwater infrastructure such as cables and pipelines. It's a 2-year charter agreement with an option to extend twice for another year. And this is the first step in a promising new market for us. Then the bottom left for Enercon for Holtec, we are currently working, yes, regarding for a development of the small modular reactors. These are nuclear reactors that's already existing there, and that's in the nuclear power plant site in Mexican. And the field work was recently completed, and we're now compiling the final reports for the client. This is a development that we see happening now across the U.S. where they build also data centers and they need to plow power supply and they look for mini nuclear power plants. Then the top right corner, you see Blue Macarl. This is a recently awarded project to start the second geotechnical site investigation for the Australian offshore wind farm market. The first was Star of the South that started 2 years ago. We communicated about that before. When complete, it will become one of Australian's pioneering offshore wind energy projects with a projected capacity of 1 gigawatt by 2032 and it's located off the coast in Gippsland, Victoria. And in the bottom right corner there, also an interesting development, the Dubai Metro Blue Line. And this is a project where we do geophysical and geotechnical site investigation for a rapid transit line in Dubai of the Dubai Metro. So now I would like to hand over to Barbara to talk a little bit more in detail about the revenue margin and cash flow development.

Thank you, Mark, and good morning, everyone. As you can see on the slide, in Marine, the revenue declined by 10% and the overall vessel utilization was 61% versus 65% in the comparable period last year. Now what we see is that in the Americas region, a lack of offshore wind site characterization projects was only partly mitigated by higher activity levels in the traditional energy markets. In Europe-Africa, we've seen in Q1 that a lower number of wind development projects took place in combination with the reduced availability of the geotechnical vessel fleet. And this was mainly caused by a relatively large number of maintenance days and expanded vessel conversions, leading to a lower revenue compared to last year. Now if we look at land, where the decline is 15.6%, this was driven by the restructuring of our U.K. onshore site characterization business. This happened actually Q2 last year. So there a lower revenue base. We see also on the nearshore lower activity in Q1 in the Europe-Africa region. And lastly, we saw in the Middle East projects shifting to later in the year, which resulted in this revenue decline. If we look at the EBIT, the EBIT decline to 0.2% was compared to a strong first quarter of 2024, which had an EBIT margin of 8.8%. And this was primarily driven, as I mentioned, by lower Marine site characterization revenue in both Europe, Africa and the Americas region. Next slide, please. Then let's briefly look at cash flow and the balance sheet development. If we look at the operating cash flow before changes in working capital, this amounted to EUR 21 million in comparison with the EUR 66 million of a strong quarter last year. Working capital at the end of March in the right top, you see that was 8% of 12 months revenue. And this is a strong performance considering our targeted bandwidth of 10% to 15% we are improving there, and I'm quite pleased with this performance. Then if we look at the CapEx, this amounted to EUR 101 million. It's front-loaded this year, largely related to the final phase of the geotechnical fleet expansion program and the vessel conversions. In total, the free cash flow was negative EUR 84 million, as also communicated last week. Now if we look at the balance sheet, our strong financial position enables us to execute on our strategies. As you know, we have refinanced our debt end of last year, which means we have no near-term maturities. The leverage at the end of Q1 is 0.5x. Next slide, please. And then we move to the outlook for '25, reiterating the 12 months backlog is around EUR 1.5 billion, reflecting current market conditions and dynamics. And we continue to implementing efficiencies and cost measures to safeguard EBIT margin and free cash flow. And we remain committed to execute our strategy towards full potential and are focused on leading in emerging areas such as critical minerals and surveillance of critical underwater infrastructure. And with that, I want to open the floor for questions.

Thank you. [Operator Instructions] We will now take our first question from Paul Chevron of [indiscernible].

2 quick questions on my side. First, I'd like to understand what your clients are telling you in terms of what they need to take investment decision. I think we are expecting a vote on U.S. budget on the 19th of May. Do you think any investment decision could be unlocked there? And second question, I'm still struggling to understand how you can expect or maintain your EBIT margin guidance of 11% to 15% when margins in Q1 were close to 0, and you seem to expect similar trends for Q2. Are you confident that cost saving measures will be enough to achieve the 11% to 15% margin for the year?

Thank you, Paul. So I didn't get the vote on, maybe you can repeat that, the vote on what?

That was the vote on, I think, the reconsideration bill in the U.S. on May 19th.

Yes. Okay. Okay. Very good. So what do we hear from clients? So obviously, most of the clients, especially if you talk to the clients in the renewables sphere in the Americas, they are all waiting, and they're waiting for clarity on the policy. So as we communicated before also at full year results, we do not expect that the projects, which is the vast amount of projects, I think, were 28 listed that have no license agreement yet or power purchase agreement will continue in this current -- under this current administration in the U.S. So very unlikely that, that will continue. However, we do expect some movement in other projects that are either already ongoing or that have license agreements but no power purchase agreements. So over time, we'll probably see something coming back to the table. However, let me emphasize, we do not anticipate anything on the renewable side in the U.S. for 2025. So we're already factoring in nothing there. Now if you go and look at oil and gas clients, we see some more oil and gas activity already in the U.S. in the first quarter, but decisions are taken slowly also there and including other markets, they expect more clarity on the policy side, as well as they are monitoring what is happening as well. So clients are, in general, much more reluctant to take bold decisions on projects. We do expect when the reconsideration bill comes out, then their policies will clarify in multiple markets what will happen. And that will definitely give the go ahead on a number of things. We do see quite a lot of activity in tendering at the moment. So high activity on tendering in the U.S. on multiple fronts, and that ranges from LNG to critical minerals to what I spoke about nuclear power plants to infrastructure developments. So there's a lot happening on that side. But yes, final decisions on these projects are probably delayed a little bit more, albeit we see some things already moving. So I think this is what we can say about the U.S. If I take it a little bit wider, and we spoke about that last week as well, we do see clients, especially in the offshore wind environment to be reluctant to step into new projects because of the high interest rates, the higher cost in the supply chain and the difficulty to actually get power purchase agreements with people that basically take off prices at the right level for large amounts of renewable energy. Now we do expect governments in Europe, for instance, and other areas in the world to step in and to make sure that the contracting rules are in such a way that it's still attractive for operators to continue to bid on these licenses. But it will take also a little bit of time, and they're monitoring a little bit more carefully what's happening. Then you spoke about maintaining the margin. So maybe I hand over to Barbara that she...

Yes. As you say, Paul, there are uncertainties in the market as we also communicate about. Having said that, we are committed to take the measures that are required. And we're already implementing measures and have been implementing measures, for example, in the Americas to preserve the profitability within the midterm target range of 11% to 15%.

And I think maybe to add one thing there, apart from not listing all the actions that we're taking, as we mentioned, already reallocating assets, reducing short-term charters, reducing lease assets, specific personnel reductions, which we already have done in the first quarter, but also end of last year, not only in the U.S., by the way, we have also done some things in other areas as well. I think it is also important to mention that the first quarter, the availability of some of the assets was not there. And now that we have the second and the third quarter being the high season coming up with the backlog that we have in hand, we see activities to start again as we normally see every year. So there's quite a big contrast between the first quarter and the other quarters to follow. Having said that, yes, we'll see impact in the second quarter as we announced as well. But -- so it's not like we're going to go and do cost savings on the fly or so. We have taken swift action already end of last year, beginning of this year, and we'll continue to do so and executing on those. If there is any other surprising developments, we obviously will have another look and take more action if required. But that's not necessarily how we want to run it.

We'll now take our next question from Luuk Van Beek of Banque Degroof Petercam.

Yes. I have a question about the new markets that you are entering, which can also be an offset for pressure in the energy markets like surveillance and coastal resilience. Do you have a view on how quickly these can -- the revenues there can become significant? And also can you discuss your competitive position? Do you have unique characteristics that protect you from competition? Or do you see that others are bidding very aggressively as well in those markets too because they also see pressure in the main markets?

Yes. Yes. So if you talk about marine surveillance and inspection market, you could see a couple of things happening. So we already announced that contract that we just secured with -- together with Damen. This was all done in a very swift action. So tender came out end of the year. We were bidding in February, and it was secured in more or less in March and announced last week. So quite a swift action. We had to secure an asset, acquire the asset and bring it up to speed to be deployed in the upcoming month. So it can move quite fast. Obviously, this is under high pressure with everything that is happening at the moment. The government is ordering surveillance vessels in the longer term. So they have new vessels coming up but they're going to test a lot of things on this platform. So we felt that it's quite important to be part of this initial surveillance vessel because now they're going to test remote operations, remote inspection, see what is possible to be done maybe in combination with also USV operations. So that is quite interesting to be part of that because in the future, even with the new frigates and mining solutions that they will have in the future, there will be requirements for U.S. fees as well. And Fugro feels that we are well positioned with our remote solutions and the advanced solutions that we developed over the last, I think, already 5 years on the USV side, gaining a lot of experience also in a commercial environment with projects that we can deploy our expertise also in this area for government, navies and maybe coast guards. So this is beyond obviously the Netherlands, it's in other areas as well. So we see opportunities there. It will take time to develop, but obviously, as we all know, there's a lot of money available for the safety and security in Europe and in the world in itself. And Fugro can play a role not only with what I just described, but we can play a role with satellite imagery as well. You know, we acquired the company EOMAP. That company can play a role in analyzing imagery or vessels that actually enter the North Sea. So tracking, for instance, vessels that have no AIS beacons on, we can even backtrack where these vessels come from via satellite imagery, then maybe tap into what kind of communication the crew has had in the last couple of weeks. So there's a lot of options there. When it's entering the North Sea, we can also have a buoy network with monitoring systems on the buoys that Fugro also deploys for wind measurements. We can equip them with different sensors. So this is a discussion we also have. It's a whole, yes, you could say data fusion system for Geo-data and then obviously these surveillance vessels and then underwater surveillance comes in with knowledge where Fugro has by far the market-leading position in the world to do inspection and monitoring of critical or infrastructure as a whole in the maritime environment. So there's a lot of things that is coming together. We are for the last couple of 2 years probably with one of the last one year and more intensively talking to governments and marine departments to see where we can help. And they are very, very interested to deploy Fugro expertise in a joint fashion, for instance, with other partners. Have you asked about the competition? Sorry, thank you, Barbara, for reminding me. So competition, there is obviously other players that want to offer specific solutions, but the interaction between what I said from satellite down to subsea solutions with all the knowledge that we have on the Geo-data and infrastructure at sea already, I think we're a leg up to the competition. But for instance, on this contract now that came out end of the year, there were multiple parties bidding, but we won together with Damen. And to be honest, I think the government was really pleased that we had a partnership with 2 main companies there, joining forces to supply the right solution that they were looking for. And we see more opportunities there in the future.

Thank you. We will now take our next question from Philip Ngotho of Kepler Cheuvreux.

Hi, good morning. I have 2 questions. First of all, on your capital expenditure outlook for 2025, you provided one with the full year 2024 update of a CapEx of about 250 million. How much room do you have to potentially lower that given how the markets are developing? And also for the outer years, so 2026, 2027, you also provided some guidance there. So how much room do you have to reduce that going forward? And the other question that I have is on the comments on the Middle East and India, where you saw some projects being delayed. Could you just maybe elaborate a little bit on that? What caused that and to what extent the lower oil prices also impacted this?

Yes, sure. Thanks, Philip. I can answer the question on CapEx. As I mentioned, CapEx for this year has been front-loaded due to also the finalization of the geotechnical fleet expansion. As you know, we have guided indeed for 250 million CapEx for the full year at year-end. This is built up mostly from 2 perspectives. I think that's good to keep in mind. Partially, that is maintenance CapEx, around 100 to 125 million, and then there is the part of expansion and transformation CapEx that we have in there. Now, we remain fully committed to our long-term strategy as we have it, and we have the commitments that we've already been committing. So, of course, we will look at all the measures that we can take, but we do want to also continue on the path. So this will be scrutinized again, as you can expect from us, but with the 2 different build-ups in terms of what we need to spend and what we can afford to spend at this point in time.

Then maybe on the Middle East, your particular question there. I think obviously that region can be affected by a lower oil price. That is obviously quite logical. Having said that, the region was already quite affected compared to the year before last year. So we dropped quite a bit compared to 2023. We had a large project in 2023 that wasn't there in 2024, so you see a big swing there. Therefore, last year the Middle East was already down quite a bit. So now we see activities picking up again, albeit some of it delayed, because they're always slow there in awarding work and handing out work, especially when you have periods like Eid coming through, and these holiday periods don't really help in project awards and how to move forward with projects. But now that is out of the way, so we expect things to really start and to kick off. We have quite a bit of backlog there also on the land side, well filled, that backlog for the upcoming quarters. And in that sense, there's lots of opportunities in that region to get back to a higher baseline, so to say, of turnover. But as you say, that region is obviously prone to be affected by lower oil prices, and we should be aware of the fact that this can always be the case. It doesn't mean that everything comes to a grinding halt, because there have been slowing down on some projects already in the last couple of years, and some of it is really getting to the stage where it's now being kicked off. So this is also good to realize.

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

Thanks for the opportunity. First question is, can you give us a bit more clarity on your revenue guidance for the year? I see that most analysts have lowered their forecasts and lowered their EBIT margin forecasts to the low end of the guidance range. But on revenues, I think consensus is still stuck at a minus one or 2 percent, probably based on your order backlog. Q1 was minus 13%, your order intake was more than minus 30% in Q1. So it, to me, seems more logical that we are heading for a full-year revenue decline of more than 10%, and not the - 2, -3% of consensus. Can you confirm that now is more a logical scenario than the very low revenue decline? Then, second question is, can you maybe give us a bit of indication on the size of your call sections in case revenues come down by roughly 10%? Does it mean that you're cutting your hedge counts by around 10%, including flexible layer, I mean? And same for, does it mean you're cutting your fleet capacity by around 10%?

Yes, that's a good morning. Thank you for the questions. Maybe let me start with the last thing. So it is not the case as you describe it. If top line comes down by 10%, it's not like 10% of the people and the assets will be removed as well. Obviously, we'll do what is required there. And if assets are not working, assets should obviously be reallocated or reduced or taken out, so to say. So we'll do that accordingly. But if, for instance, in some areas, as we mentioned last week as well, prices are coming down in geophysics, then the work is still But if, for instance, in some areas, as we mentioned last week as well, prices are coming down in geophysics, then the work is still there and needs to be executed. So it's not like maybe your top line comes down by pricing pressure, but it doesn't mean that you can take the asset out and the people out. So you still need to execute the work. So this is important to keep in mind. That's obviously, I fully realize maybe not what is most positive because, yes, it's easier if you say top line comes down with 8%, 10% and then you cut the 10%. Yes, that's always very easy to do, but it doesn't really work in every area like that, unfortunately. And then on your revenue guidance, we have specifically hold off to give a specific guidance there because of the uncertainty. That doesn't mean that we're aiming for or that we are insinuating that it's moving in a certain direction. We are working on multiple scenarios ourselves. I think that is an important comment to make, and we will be prepared for those scenarios. And obviously, if it's significantly lower as you use sketch a scenario maybe on the lower side, then there is more to be done. So that is obviously quite clear. As I said before, we're not doing this on the fly. We are doing certain things already prepared for a certain impact on the top line. And then obviously, we'll monitor that, and we'll be ready to take more action if required. But it is very difficult to say because it's also anticipating that maybe everything moves along as you described, with order intake in Q1 coming down by a certain percentage. Yes, we have always awards for the upcoming quarters in certain periods of the year. So end of last year, we got most of the projects awarded for the Q2 and Q3. So it's not like in the first quarter, we are expecting project awards for the second and the third quarter. So we need to be a little bit careful in how we look at that. Most of the assets in the upcoming 2 quarters will be in decent activity and busy. And if not, then we're looking for other solutions to respond there. And we're looking very carefully how that is moving in these 2 quarters. But we have more insight in these 2 quarters coming up than maybe the end of the year. As you know, backlog is relatively short and 6 to 9 months, majority of the work is for us in our backlog. And therefore, more visibility in the short term than in the longer term.

[Operator Instructions] We will now take our next question from Thomas Martin of BNP Paribas Exane.

Just a quick clarification really. The 61% utilization that you've spoken about, I just wanted to be clear how you've included or if you've included anything from the impact on the maintenance and the conversion side in that calculation. Obviously, days active divided by days available. But in the days available part, the vessels that are in the conversion phase not yet included in that number? Is that clear as a question?

Yes. So your question is, is the 61% taking in all the vessels? Obviously, it is. So the vessels that are in maintenance cannot be utilized. So that reduces the amount of utilization. That's correct.

Okay. So 61% of the fleet that is available, excluding those that were in maintenance or conversion during Q1. Is that right?

Yes. There's one vessel that is not yet brought to, yes, let's say, availability because that's being built or transformed into operational mode. That's the Zefer that we just bought. So that one is not part of the 61%. But all the other vessels that are in maintenance mode cannot contribute to utilization and therefore, high amount of maintenance ongoing means lower utilization.

We'll now take our next question from Kristof Samoy of KBC Securities.

Just a few of my questions have already been addressed, but I have a few more, if I may. Regarding the backlog, I recall at the time of the full year release last quarter, you indicated that you would disclose more information on the backlog to investors, especially regarding framework. As of what time do you intend to start with this practice? And then, yes, regarding the utilization rates, if I understand correctly, you attribute the same weight to a geotechnical vessel than a geophysical vessel, whereas the earnings power of these type of vessels are different. Have you ever considered giving more insight there and disclose utilization rates between Geotech and geophysical? And then finally, on today's AGM, a new authorization for share purchases has been set on the agenda. When is the first upcoming Board of Directors who could, if approval is given by the AGM, relaunch a new share buyback?

Yes. Thanks, Kristof. Maybe I'll take those questions. So on the disclosure of the backlog, as you know, we're very focused on extending our cash flows and the framework agreements within the backlog. We've not been splitting that information. This is something that we are looking to do. So the buildup of that within the framework agreements within the overall backlog extending actually mostly beyond 12 months, we expect to grow. And we are not definite or promising now when we will disclose that. But this is something that we're really actively looking at to really communicate more explicitly about the longer-term contracts that we have actually in the portfolio. And we want to do that in a meaningful way so that actually it adds value to the market. So when we're ready to do so, we will proceed with that. On the utilization days, you mentioned that indeed, a vessel is a vessel regardless of size and activities that are being performed on those vessels. It is also right to say that in the geotechnical work that we execute, the margins are significantly higher in general than, for example, the geophysical vessels that we operate. However, we don't think it is meaningful to be explicit about that. And therefore, we will not be disclosing that information. We will be talking about, and this is what we have been talking about, about the business and also where we see the activities, the geophysical side, especially from a competition perspective, the difference with the geotechnical activities where we are the clear market leader and also there have more pricing power, so to speak. But of course, this is also fluctuating. So I think more color on that we can give, but not more different numbers to be very precise. I think that would really not help the analysis. On the AGM point of the share purchases, as we know, we have a capital allocation framework. So the part of that is, of course, the liquidity is the balance sheet is financing growth, but also absolutely is the return to shareholders. And share buyback as a tool besides dividends, we are now paying EUR 0.75. Share buyback is a tool to do that. And we are at that in terms of the overall return to shareholders, how and when we can use that tool, taking the overall framework into consideration.

That's our last question. I would like to hand over to Catrien for any closing remarks. Thank you.

Yes. Thank you all so much for participating, dialing into the call. If you might have any further questions, please let me know. Thank you. Have a nice day. Bye.