Fugro HY 2017: Slower than anticipated bottoming out of oil and gas market impacts results.
Growth in building & infrastructure and power segments
? Year-on-year revenue decline of 14.5% on a currency comparable basis, reflecting ongoing underinvestment in the offshore oil and gas market. The decline was less than during the last two years.
? EBIT margin (excluding exceptional items) declined to - 3.3%, mainly caused by continued price pressure in the Marine division and low utilisation at Seabed Geosolutions; marine asset integrity and land businesses improved compared to prior year.
? Additional measures being implemented to streamline business processes and further reduce cost, in order to restore profitability.
? Negative cash flow of EUR 66.1 million was to a large extent related to seasonality. Cash flow in the comparable period last year was negative EUR 44.3 million excluding EUR 111.1 million proceeds from certain asset disposals.
? Net debt/EBITDA of 2.2, well below covenant requirement of under 3.0.
? Backlog for the next 12 months is bottoming out with a decrease of 5.5% on a currency comparable basis compared to a year ago and 2.4% compared to the end of March.
? Outlook 2017: For the full year Fugro anticipates a decrease in revenue, however less severe than during the first half. The EBIT margin is expected to improve significantly during the second half year compared to the first, resulting in a negative low single digit margin (excluding exceptional items) for the full year. Cash flow from operating activities after investments is anticipated to be positive excluding the purchase of the REM Etive vessel (at conditions significantly more beneficial than a renewed charter agreement).
Key figures (x EUR million) HY 2017 HY 2016
Revenue 774.3 904.9
currency comparable growth (14.5%) (24.5%)
EBITDA1 excluding exceptional items 2 46.6 98.9
EBIT excluding exceptional items2 (25.3) 1.4
EBIT margin excluding exceptional items (%)2 (3.3%) 0.2%
Net result (96.4) (202.1)
Backlog next 12 months 971.2 1,065.2
currency comparable growth (5.5%) (26.3%)
Cash flow from operating activities after investments3 (66.1) 66.8
Net debt/ EBITDA1 2.2 1.8
The information in this report is unaudited
1 Refer to annual report 2016 for definition of EBITDA and EBITDA for covenant purposes.
2 Impairments, onerous contract charges and restructuring costs of EUR 25.3 million in HY2017 compared to EUR 151.7 million in HY 2016 (EBIT impact).
3 HY 2016 cash flow of EUR 66.8 million includes EUR 111.1 million proceeds from certain asset disposals.
Paul van Riel, CEO: “The offshore oil and gas market continued to decline resulting in a tough first half of 2017. Marine site characterisation activities performed below last year mainly due to pricing pressure, and currently utilisation at Seabed Geosolutions is low. The marine asset integrity business showed an improved performance at close to break-even level.
Our non-oil and gas related activities in markets such as building & infrastructure and power, by now amount to 40% of revenue. The results in these market segments were generally stable or improved. In particular, building and infrastructure in the Land division showed strong growth while we also benefit from a growing offshore wind farm market. Further growth of these businesses continues to be a key focus area.
We are seeing early signs of moving into a more stable environment. The marine site characterisation and marine asset integrity backlog, excluding construction and installation activities, is growing, supported by signals of increased tender activity. The pipeline of potential projects for Seabed Geosolutions is solid.
In order to restore profitability we are implementing additional measures, including significant cost savings, adjusting pricing strategies and focusing on innovative, higher margin services. This will already start to contribute to improved performance in the second half of this year.”
Cost reduction and performance improvement measures
Fugro continues to implement cost reduction and performance improvement measures to counter the continued challenging market conditions. In the first half of 2017:
? Headcount was reduced by 178 employees to 10,352.
? Third party expenses (excluding exceptional items) were further reduced by 9.6% on a currency comparable basis.
? Working capital at half-year improved from 15.2% to 12.6% of revenue. Days of revenue outstanding improved to 92 days compared to 99 at the end of June 2016 and was unchanged compared to year-end 2016.
? Capex continues to be curtailed strongly; the increase compared to last year by EUR 12.4 million to EUR 43.1 million was mainly due to investments in Seabed Geosolutions’ Manta® nodes.
? The rationalisation of operating companies is progressing according to plan. Since the beginning of 2016, 70 legal entities have been closed or merged into country organisations.
Additional measures are being taken to restore profitability, including:
? Improving terms and conditions and (early) termination of vessel charter agreements.
? Two older vessels will be retired in the second half of the year.
? The acquisition of the REM Etive vessel, following the award of two multi-year inspection, repair and maintenance (IRM) contracts earlier in the year, at significantly more beneficial financial conditions than charter renewal.
? Down-manning of vessels and vessel support enabled by standardisation and application of new technologies.
? Further FTE reduction and more flexible staffing to deal with seasonality.
? Further streamlining of the organisation by standardising work processes, further reducing the number of legal entities and consolidation of support functions into shared service centers.
In total, cost savings and performance improvement measures are expected to result in an annualised contribution to EBITDA of EUR 50 to 70 million, most of which will be realised in the coming 12 months.
In addition, financial performance will be further improved by the ongoing implementation of Fugro’s ‘Building on Strength’ strategy. This includes continued investment in innovation to develop differentiating, higher margin services as well as new ways of working (including digitisation of workflows) that will lower cost of operations. Fugro is also investing in improving commercial capabilities in contracting and pricing and enhancing account management to benefit more from Fugro’s unique, global capability to deliver large, multi-disciplinary projects.
Revenue per division (x EUR million)
HY 2017 HY 2016 reported growth currency comparable growth
Marine 467.2 551.7 (15.3%) (15.5%)
Land 245.7 249.8(1.6%) (1.0%)
Geoscience 61.4 103.4 (40.6%) (41.9%)
Total 774.3 904.9 (14.4%) (14.5%)
Group revenue decreased by 14.5% at constant currencies. The Marine division faced continuing price pressure. Overall vessel utilisation was slightly better than last year, driven by the Asset Integrity business line.
Vessel utilisation in the Site Characterisation business line was around the same level as last year. In the Land division, growth in the Site Characterisation business line was offset by a decline in the Asset Integrity business line.
Revenue in Geoscience declined by 41.9% with only two crews active during the first quarter and one during the second quarter.
Cash flow from operating activities after investments was negative EUR 66.1 million, to a large extent caused by a seasonal increase in working capital required for the higher activity level in the summer season. Cash flow in the comparable period last year was negative EUR 44.3 million excluding EUR 111.1 million from certain asset disposals.
Due to seasonality, working capital increased from 10.9% of revenue at year-end 2016 to 12.6% at the end of June 2017. This was a strong performance compared with first half of last year when working capital was at 15.2% of revenue.
Days of revenue outstanding improved to 92 days compared to 99 at the end of June 2016 and was unchanged compared to year-end 2016.
Net debt increased from EUR 351.1 million at year-end 2016 to EUR 433.5 million, partly as a result of the seasonal increase in working capital. In addition, it includes EUR 14.2 million related to exchange rate differences and to amortisation related to voluntary early repayments on US private placements.
Due to lower EBITDA and increased net debt, net debt/EBITDA increased to 2.2 at the end of June compared to 1.1 at year-end 2016 and a requirement of under 3.0. The fixed charge cover was 2.3 compared to 2.4 at year-end 2016 and a requirement of above 1.8.
For the full year 2017 Fugro anticipates a decrease in revenue, however less severe than during the first half. This expectation is supported by a bottoming out of Fugro’s backlog since mid-2016.
The EBIT margin is expected to improve significantly during the second half year compared to the first half, resulting in a negative low single digit margin (excluding exceptional items) for the full year. Capex is expected to be around EUR 100 million. Cash flow from operating activities after investments is anticipated to be positive excluding the purchase of the REM Etive vessel (at conditions significantly more beneficial than a renewed charter agreement).
Fugro expects continued growth in the building & infrastructure, offshore wind and mining markets, driven by a global economic growth, population growth, urbanisation and an ongoing shift towards renewable energy.
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