Fugro Q1 2017 trading update: results impacted by continued decline in offshore oil and gas market

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Overig advies 02/05/2017 07:09
Outlook 2017 unchanged
? Year-on-year revenue decline of 14.6% or 16.3% on a currency comparable basis, which is less severe than last year, reflecting continued underinvestment in the offshore oil and gas market.
? Negative high-single digit EBIT margin (excluding exceptional items) in seasonally weak first quarter, compounded by the impact of challenging market conditions.
? Net debt/EBITDA of 1.3 well below covenant requirement of under 3.0.
? Backlog for the next 12 months has stabilised since mid-2016. Compared to the same quarter last year, backlog decreased by 12.9% on a currency comparable basis.
? Outlook 2017: For the first half of the year Fugro continues to anticipate a significant decline in revenue, however less severe than in the same period of 2016, and a negative low single digit EBIT margin (excluding exceptional items). Revenue decline is expected to bottom out towards the latter part of the year. Full year cash flow is expected to be positive.

Key figures (x EUR million)
unaudited
Q1 2017 Q1 2016 reported growth currency
comparable growth
Revenue 376.7 441.1 (14.6%) (16.3%)
Backlog remainder of the year 961.3 1,054.7 (8.9%) (11.1%)
Backlog next 12 months 1,051.9 1,175.8 (10.5%) (12.9%)
Net debt/EBITDA 1.3 1.7

Paul van Riel, CEO: ‘At the release of the full-year 2016 results we guided for a tough first half of 2017.
In line with this, we experienced a seasonally weak first quarter which was further impacted by work volume reduction and price pressure due to continued underinvestment in the offshore oil and gas
market.
We are addressing these still challenging market circumstances by continuing to reduce our cost base, improve efficiency, differentiate our service offering and invest in innovation to improve our competitive position. In combination with our strong global presence and technological capabilities this allows us to expand our market leading positions.
Our revenue in the building and infrastructure market grew, supported by a strengthening global economy. We are also benefiting from our very strong position in the growing offshore wind farm market, which has begun to expand globally from its North Sea nucleus.
We are pleased to see that the backlog is stable since mid-2016. This indicates the decline of revenu from the oil and gas market may bottom out towards year end.’

Operational summary
This is the start of the fourth consecutive year of an exceptionally deep downturn in the oil and gas services market, resulting in a further decline of oil and gas related revenue, especially in the Marine division. On the other hand, revenue of the Land division grew, driven by the building & infrastructure and power markets.
The Marine division was the most impacted by the tough oil & gas market conditions, resulting in a negative margin, below last year. The margin of the Land division improved and turned positive due to revenue growth and performance improvement measures. The Geoscience division (Seabed Geosolutions) generated a positive margin, although lower than in the comparable period last year, when revenue was substantially higher.
Fugro started the year operating in its new Marine / Land / Geoscience organisational structure, designed to provide more integrated and cost-effective solutions to its clients.
Over 2017 benefits of the reorganisation will continue to accrue by:
? Completing the integration of the inspection, repair and maintenance services coming from the previous Subsea Services division into the new Asset Integrity business line within the Marine division.
? Capturing the synergies from having all marine assets under a single marine division, and, similarly, all
land assets under a single land division.
? Implementing further opportunities to standardise and improve operational efficiency.
Clients’ reactions on the new organisational set-up have been very positive, as indeed it has strengthened Fugro’s ability to more effectively provide integrated geo-intelligence and asset integrity solutions.
The Marine division has been working successfully on creating a leading position in the growing market for offshore hydrocarbon seep surveys based on its advanced vessels, equipment and know-how. This has resulted in recent awards of key projects in the Gulf of Mexico, Myanmar and Kenya.

Cost reduction and performance improvement measures
Fugro continues to implement cost reduction and performance improvement measures as required by the continued challenging market conditions:
? Third party expenses were further reduced by 10.9% on a currency comparable basis.
? During the quarter, headcount was reduced by 223 employees to 10,307.
? Working capital improved further. Days of revenue outstanding was reduced to 91 days compared to 92 days at year-end 2016 and 100 days at the end of March 2016.
? Capex continues to be strongly curtailed albeit capex in the first quarter (EUR 20.7 million) was above same period last year among others due to dry-docks and investment in Manta™ nodes for Seabed Geosolutions.
? For the marine installation and construction activities, Fugro will continue to pursue partnerships or
divestment, as these do not fit its strategy of providing asset integrity solutions.
? The rationalisation of operating companies is progressing according to plan. Since the beginning of 2016, 60 legal entities were closed and merged into country organisations.

Operational review per division
Marine division
(x EUR million) Q1 2017 Q1 2016 reported
growth currency comparable growth
Revenue 211.0 261.2 (19.2%) (21.2%)
Backlog remainder of the year 597.5 652.1 (8.4%) (10.4%)
Backlog next 12 months 655.1 727.0 (9.9%) (12.1%)
? The first quarter is traditionally weak for the marine business due to seasonality. This was amplified by the continued underinvestment in offshore projects. The EBIT margin for the division was negative (excluding exceptional items) and declined compared to the comparable period last year. This was caused by generally lower rates, less volume and the low utilisation of the high-cost construction and installation vessels.
? Revenue of the Site Characterisation business line decreased by 24.6% at constant currencies to EUR 90.4 million. EBIT was negative and lower than last year due to limited work in the North Sea and Gulf of Mexico, partially compensated by positive results in Asia Pacific and the Middle East.
? Revenue of the Asset Integrity business line dropped by 18.5% at constant currencies to EUR 120.6 million and the EBIT margin was negative, below the same period in 2016. This was due to low vessel utilisation in the construction and installation segment. Higher utilisation is expected in the summer period. The core asset integrity activities performed largely in line with last year.
? Significant project awards in the quarter include:
o a five year inspection, repair & maintenance (IRM) contract with INPEX in the Timor Sea and another three year framework agreement for similar services in Asia Pacific.
o marine site characterisation work for Exxon in Guyana.
o the next phase of the Mareano hydrographic survey in the Barents Sea to the north of Norway.
? Fugro has taken the option to acquire the REM Etive vessel, following the two recently awarded multiyear IRM contracts as purchase is significantly more beneficial than charter renewal. This purchase will take place in the second quarter.
? Compared to mid-2016, the 12-month backlog is slightly down on a currency comparable basis. The backlog is 12.1% lower versus the end of March 2016, primarily due to reduced construction and installation activity and limited work in the Gulf of Mexico.

Outlook
As expected, the market for offshore related oil and gas services will show a further decline in the first half of the year. Towards the latter part of the year it is expected to bottom out as oil and gas companies move from a cost savings mode to cautious preparations for new investments. This expectation is supported by the stabilisation of Fugro’s backlog since mid-2016.
The outlook for 2017 is unchanged. For the first half of the year, Fugro continues to anticipate a further significant decline of its revenue, however less severe than in 2016, and a negative low single digit EBIT margin. Towards the latter part of the year, the company expects a bottoming out of the revenue decline.
For the full year, cash flow is expected to be positive, taking into account capex of around EUR 100 million.
Until the oil and gas market recovers, the company will continue to adjust its resources and cost base in line with activity levels.
In the building & infrastructure, offshore wind and mining markets, Fugro expects modest growth.

read more on
www.fugro.com

Fugro shareholders adopt all resolutions at AGM

At today's annual general meeting, Fugro’s shareholders approved all resolutions including the adoption of the company's 2016 financial statements, the reappointment of Maarten Schönfeld to the Supervisory Board and the adjustments to the remuneration policy.






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