Fugro N : Press release half-year results 2020

July 29, 2020 at 04:55 am EDT

PRESS RELEASE

Leidschendam, the Netherlands, 29 July 2020

Fugro results reflect quick response to Covid-19 and strong growth in offshore wind

Second quarter revenue declined by 19.3% due to Covid-19 and downturn in oil and gas markets, partly offset by strong growth in offshore wind.
Due to decisive and immediate cost reductions, robust EBIT margin of 7.4% in the second quarter.
Recovery of order intake during second quarter, resulting in backlog growth of 1.1%.
Non-cashimpairment of Seabed Geosolutions' assets in second quarter by EUR 40.3 million.
Net debt/EBITDA improved to 1.7 compared to 1.9 at year-end 2019.
Revolving credit facility extended to September 2021; review of refinancing options ongoing.
Outlook 2020: second half-year EBIT(DA) expected to improve compared to the first half-year. For the full year, Fugro expects a positive free cash flow.

Key figures (x EUR million)
from continuing operations unless otherwise	H1 2020	H1 2019	Q2 2020	Q2 2019
indicated1
Revenue	707.4	796.9	349.0	441.1
comparable growth2	(10.3%)	5.7%	(19.3%)	5.3%
Adjusted EBITDA3	61.3	83.3	54.1	68.7
Adjusted EBIT3	4.3	23.3	25.8	39.7
Adjusted EBIT margin3	0.6%	2.9%	7.4%	9.0%
EBIT	(10.7)	16.8	15.8	36.2
Net result4	(51.6)	(17.6)
Net result incl. discontinued operations4	(113.1)	(86.0)
Backlog next 12 months	845.2	856.3	845.2	856.3
comparable growth2	1.1%	0.5%	1.1%	0.5%
Cash flow operating activities after investing	18.2	(34.4)	39.7	(16.1)
Cash flow operating activities after investing incl. disc. ops.	15.5	(58.9)	33.0	(25.2)
Net debt/EBITDA5	1.7	2.8	1.7	2.8

Seabed Geosolutions is held for sale
Corrected for currency effect
Adjusted for restructuring costs (EUR 8.2 million), impairment losses (EUR 3.4 million) and certain other costs (EUR 3.4 million); all amounts relate to EBIT impact in H1 2020
Attributable to the owners of the company
Covenant calculation includes Seabed Geosolutions and excludes the impact of IFRS 16

Mark Heine, CEO: "The past months were dominated by the pandemic and the actions we took to deal with this unprecedented situation. Our first priority was and continues to be the health and safety of our employees. In many countries people are working from home, and at times marine crews were confronted with longer rotation periods and specific mitigation measures such as pre-boarding quarantines. Despite these operational complexities and in close cooperation with clients we have been able to continue working on the majority of our projects. In fact, this period has clearly demonstrated the value of our advanced remote and automated solutions, supporting clients in their critical operations.

To protect our profitability and liquidity, we have acted quickly and decisively by implementing a comprehensive cost and capex reduction programme. This enabled us to improve our EBIT margin in the second quarter in very challenging market circumstances. For the second half-year, we target an improvement in our EBIT compared to

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the first half, increasingly benefiting from cost measures, assuming no material impact from additional Covid-19 developments.

Even in the current tough macro environment, our offshore wind business grew by 40% in the second quarter. This shows our leading position in this market and flexibility to shift our assets and capabilities to new growth markets. During the first half year, we have both completed and won numerous prestigious site characterisation projects for offshore wind throughout the world. This is in line with our strategy to further grow in this market and become less dependent on the oil and gas market.

For the coming quarters, our management agenda is clear: preserve the health and wellbeing of our employees and other stakeholders, continue to implement cost and capex reductions, complete the turnaround of the underperforming land business, ensure the refinancing, and divest Seabed Geosolutions. In the meanwhile, we continue to enhance our service delivery with new market leading digital solutions."

Performance review

Especially during the second quarter, Fugro's revenue was impacted by the dual challenge of the Covid-19 pandemic and the declining oil price, leading to clients reducing activity levels and spending. Revenue declined across all regions, business lines, and most market segments. In particular oil and gas decreased strongly, by 29%, partially offset by an exceptionally strong growth in offshore wind of 40%. As a result, oil and gas represented 42% of Fugro's business, while offshore wind, infrastructure and nautical markets together generated 54% of revenues.

From the start of the pandemic, taking guidance from medical experts, Fugro has been taking appropriate measures to keep its employees safe and healthy. This includes the obvious restrictions regarding non-essential travel, with international travel almost coming to a standstill. For those working at project sites, the company has put additional mitigating measures in place, and marine staff follows strict crew-change protocols, including quarantine prior to mobilisation or crew rotation. Despite increased operational complexities, Fugro has been able to adapt its processes and work procedures very quickly to this new reality and continue its operations effectively. This was supported by an increasing demand for Fugro's remote operations and communications tools.

In March, when it became clear that the pandemic and deterioration of the oil and gas market would seriously impact Fugro's business, the company started implementing a program to significantly reduce costs. This includes minimising the use of short-term charters, third party equipment and contracted personnel, price reductions, a hiring and salary freeze, cut on executive pay, measures to reduce the workforce by up to 10%, reducing overhead costs and further optimising service offering through rationalisation of the company's geographical footprint. Based on these actions, Fugro targets annualised savings of EUR 120 million, of which approximately EUR 25 million has been realised in the second quarter. Furthermore, the company has applied for government support in various countries, resulting in approximately EUR 6 million other income in the first half-year.

Helped by these cost savings, the adjusted EBIT margin in the second quarter amounted to 7.4%, a strong improvement compared to the first quarter margin of minus 6%. As a result, the first half-year EBIT margin was marginally positive, with further improvement expected in the second half-year.

After very low levels in March and April, order intake recovered during May and June, resulting in a growth of the 12-month backlog by 1.1%.

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In the first half-year, cash flow from operating activities after investing was EUR 18.2 million thanks to a positive operational free cash flow in the second quarter and the proceeds from the sale of Global Marine of EUR 49.9 million. In the first quarter, which is typically a relatively slow season, free cash flow was negative, amplified by the impact of the pandemic and the payment of the Southern Star arbitration settlement (EUR 24.1 million). Working capital as a percentage of 12 months rolling revenue was 12.0% at the end of June, compared to 15.1% a year ago, in part related to delayed tax payments through government support programs. Days of revenue outstanding was within the target range at 94 days per the end of June compared to last year at 87 days. Cash flow from discontinued operations after investing was minus EUR 2.7 million.

Net debt at the end of the quarter was EUR 593.1 million (including Seabed Geosolutions), compared to EUR

666.3 million at year-end 2019, thanks to EUR 81.8 million proceeds from the sub-10 equity placement completed in February 2020 and EUR 49.9 million proceeds from the Global Marine divestment. Excluding the impact of IFRS 16, net debt decreased to EUR 442.9 million compared to EUR 503.3 million at year-end 2019. Net debt/EBITDA improved to 1.7 compared to 1.9 at the end of 2019.

Liquidity is good with EUR 370 million in cash and available facilities, supported by the sub-10 equity placement and the Global Marine divestment proceeds.

Refinancing

Fugro has obtained unanimous lender agreement to extend the maturity of the revolving credit facility to September 2021. This provides the company greater flexibility to arrange its refinancing. Terms and conditions remain materially unchanged, except for the inclusion of a positive pledge that will be triggered under certain conditions, namely if the refinancing is not completed prior to 31 March 2021 or if a covenant breach under the revolving credit facility agreement would occur before that date.

Together with its financial advisor, the company is evaluating possible refinancing alternatives to address the balance sheet, and expects to make substantial progress over the next 3 to 6 months.

During the first half-year Fugro repurchased a nominal amount of EUR 39.1 million of the 2021 convertible, at a discount.

Review by business

Marine

Key figures excluding specific items			comparable
(x EUR million)	H1 2020	H1 2019	growth1
Revenue	499.2	562.9	(10.0%)
EBITDA	51.6	67.9
EBIT	6.2	20.0
EBIT margin	1.2%	3.6%
Backlog next 12 months	567.8	582.6	0.4%
Capital employed	778.1	956.6