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Edited Transcript of FUGR.AS earnings conference call or presentation 31-Jul-19 10:00am GMT

Half Year 2019 Fugro NV Earnings Presentation

Amsterdam Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Fugro NV earnings conference call or presentation Wednesday, July 31, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mark R. F. Heine

Fugro N.V. - Chairman of Management Board & CEO

* Paul A. H. Verhagen

Fugro N.V. - CFO & Member of Management Board

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* Henk Veerman

Kempen & Co. N.V., Research Division - Research Analyst

* Jean-Christian Brunke

* Luuk Van Beek

Banque Degroof Petercam S.A., Research Division - Analyst

* Martijn P. den Drijver

NIBC Bank N.V. (ESN), Research Division - Former Head of Research

* Quirijn Mulder

ING Groep N.V., Research Division - Research Analyst

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Presentation

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [1]

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Okay. Good afternoon, everybody. Welcome to the half-year results presentation of Fugro. I will start this presentation and I have the following agenda.

I will first talk about the highlights of the first half of the year. Then I'll refer back to the strategy and the strategy implementation, in particular. And then I give you some insight on how we look at the market.

And then I'll hand over for the half-year results financially to Paul Verhagen, and close out with the outlook statement.

Also a warm welcome to everybody on the webcast.

Good afternoon, everybody, or good morning. So let's have a look at the highlights for the first half year of Fugro. After a first weak quarter beginning of this year, the second quarter was significantly better and improved for the core activities because, as you know, and you have read in the press release, we have now stepped up our efforts to divest our noncore Seabed Geosolutions, which means that it's now classified as held for sale. So the presentation and all the numbers shown there will be for the continuing business.

And I can, therefore, also report that the core activities have grown with 5.7%, which is mainly driven by Marine, in particular, offshore wind, oil & gas and the nautical markets.

Backlog also grew in all the regions except for Asia Pacific, which was by design. I will come back on that a few times.

So if you look at that financially, presented here, revenue now grown to EUR 797 million. EBIT margin for the first half of the year, close to 3%, 2.9% coming from 0.1% in 2018. This is obviously strong revenue increase for the core activities and also a significantly improved margin, primarily due to Marine site characterization; but also, as stated before, the Asia Asset Integrity market turned around in that sense -- or not the market itself -- but we have stepped in, reorganized the business there, reduced the capacity and, therefore, also reduced the losses in Marine Asset Integrity.

EBIT margin in the Americas impacted by relatively high vessel maintenance. We have communicated about that before as well, we were busy last year in the fourth quarter. Some of the maintenance moved over to this year and on top of that, unfortunately, we also have seen some unforeseen repairs and extended dry docks there.

As I said, the backlog is increasing, but also there, Asia Pacific is somewhat reduced, which has an effect on the overall backlog figures.

Now I would like to repeat something on our strategy because we are obviously very focused on implementing our strategy that we launched end of last year in November, where we have a clear strategy compass with a purpose for Fugro. Together, we create a safe and livable world.

And by doing that, we want to be the world's leading geodata specialist, helping our clients to provide valuable insight from geodata during the design, built and operating phase of their assets.

And we want to do that in a safe and sustainable manner. Actually, sustainability is a very important element in the whole Fugro strategy. It will come through by the way we operate our services, but also the services that we get involved in and the projects that we get involved in. I will give a few examples during the course of this presentation.

The 3 strategic targets are still very much focused on capturing the upturn in energy and infrastructure, differentiating by integrated digital solutions and leveraging our core expertise in new growth markets.

We have defined a few enablers as you know, and I will not go into detail there.

So if we look specifically at the priorities for the strategy implementation, they can be drawn down by these few lists here.

On the first target, capturing the upturn, we first and foremost focus on increasing our asset utilization and the effectiveness of our mobilizations.

In the past, we communicated about leakage in the projects, underutilization, and we feel that we have more to gain there if we can up the utilization and I've spoken about that in the past as well. There's still some things to gain.

But we also now very clearly communicated to the market that we are going to increase our pricing. This is not possible throughout the industry yet, but certainly in the early cyclical business, but also slowly, we see some signs that in the Marine Asset Integrity business, prices will stabilize and improve.

We have mentioned there very clearly and it's maybe good to say a few more words about that we're going to restructure some of our service offering in selected countries. And it's important to understand what we're doing there because this is basically not major reorganization in certain areas; we spoke about Asia Pacific, in particular, Asset Integrity there, where we reduced the capacity by basically bringing in vessel over to Europe. And obviously, as you know, we also handed back the Southern Star due to technical problems. That has resulted altogether in restructuring the organization there and reducing the losses.

Now in several other areas of the world and an example has been given, for instance, in Qatar, but also in Oman, in Lebanon, small steps that we take in the organization on services that are not generating enough return. And we will continue to do that. That was part of our strategy and this is basically what we will review on a continuous basis and step in where needed.

On the integrated digital solution part, we are first and foremost focusing on the Digital Foundation, the concept that we launched last year in the strategy update, which basically means combining the geodata that we get in the various phases of a project and delivering insight of that for our customers.

And then we have spoken about all sorts of examples of remote autonomous operations and for the robotics. And I will give you a few more examples on projects there.

Last, but not least, on the third strategic target, new growth markets. I am pleased to see real movement there, particularly in the nautical markets, hydrography, cable route surveys, but also water management.

And that brings me to 2 examples. The first example where we basically have done on the remote side, the first project, remotely positioning an FPSO from our control center -- our new control center in Aberdeen, which was opened in June.

We are very pleased to report that now we have more than 100,000 project hours globally out of our 7 remote control centers, and this new center has also the capability to operate ROV operations remotely.

This was one of the first projects that we did out of this center, I think, which is a good milestone so to say, and we'll move forward. All these kind of operations are very important thinking about sustainability. This means that less people go offshore, some of the services that we used to supply with people onboard of the vessels or the FPSO or the tugboats that are involved do not have to travel by helicopter to the site and can be operated remotely. This is definitely something that we will continue to expand on, and I'll have another example later on in the presentation.

One other example, particularly in the new growth markets is the California Delta Conveyance project and this Sacramento-San Joaquin Bay Delta supply -- drinking water project is supplying drinking water to 27 million people in the southern part of California.

And it's very important, this is an earthquake prone area. There's obviously risk involved there if something goes wrong there around earthquakes. And this is a structure that was developed in the '60s and they have decided now to completely restructure and redefine and redesign this conveyance of water. And we are supplying many services there, which is geological assessment, geophysics, drilling, sampling, laboratory testing, but also, obviously, using our consultancy and our earthquake expertise and engineering in that area. A good example of a project where Fugro is contributing to a safe and livable world.

Then progress on the divestments. I think one of the key things, and you have read that in the press release this morning, we have stepped up our efforts around our stake in Seabed Geosolutions to divest this element of the business. And we're obviously fully aligned with our partner CGG there who also communicated that they want to divest Seabed Geosolutions.

And I have to make it very clear here, we believe that this is a promising business moving forward. The worst is behind us. We have obviously communicated about some difficult projects on the execution side. But we're getting to an end of these projects and that means that the worst is behind us and the market is looking promising moving forward, which is, for us, also the reason that now multiple parties have shown interest and, therefore, we felt that this is the right moment to classify this business as held for sale.

Global Marine is not a lot of new things to report on. You all know that the main shareholder has -- HC2 has communicated that they want to divest this part of their business, and we are fully aligned with them and we will follow them. Some signs that there are some movement maybe can be concluded from the fact that Huawei has already communicated they want to sell their 51% stake in the joint venture between Global Marine and Huawei, Huawei Marine Systems. And this is very likely going to Hengtong.

And then the last element, the last block there refers to Finder. Finder is basically boiling down to these 3 bullets. First and foremost, it's all return that we can expect hopefully later. It's a multiyear investment that Fugro has made and the returns will follow in the future. And one of the things is a royalty agreement on 4 Bedout permits and those will have a return when production starts happening.

Three licenses were sold to Sapura in exchange of the development of the expiration permits so to say. That is now under the responsibility of Sapura; and Fugro still retains 50% of these licenses.

And last, but not least and maybe some of you have not seen that before, we have a 50% share in Theia Energy, which is a promising onshore shale development and this is an area where the government recently lifted the moratorium.

And that brings me to the section of the market update. First by starting to show what kind of share Fugro has in the various key markets that we operate in. You have seen this picture before, but then with different data. Obviously, the growth, on the revenue side, 5.7% and then in the second part, you see where this growth is sitting. A lot in renewables again, 23%. The last year we saw a big growth of -- for the full year of 139%. It's difficult to beat that one, but certainly still steep growth in renewables, but also nautical, which is hydrography, cost of protection surveys and all these kind of things related to the shoreline protection is growing rapidly. It's small, but it's growing.

Power, you see a big negative there, which is maybe surprising, but, again, I can say that this is related to the Hinkley project in U.K. where we had in 2018 -- in the beginning of 2018, still quite a large income for these projects -- for this project.

Infrastructure is down. It's good to report that -- and that has an effect on the results of the Land division. Nevertheless, on land business, it's good to note that the second part of the first half of the year, the second quarter, was already significantly better than the first quarter.

Also good to note here is that now almost half of our business is related to non-oil and gas activity, which is increasing the diversity of the types of business that we're doing.

If we then look at the market forecast. So to say, on various key indicators, this is the forecast for 2019 versus 2018, then the market expects and the reports basically produced there report a 5% decrease in the Brent oil price. These are estimates. Obviously, these are not our own data and you can see how much value you want to give this and you see enough reports yourself. This is all based on $60 to $70 price if you look at this forecast, for instance, on the final investment decisions and the expenditure for the oilfield services. Plus 9%, that's the largest growth that we have seen up till now since the crisis.

GDP growth still around 3.3%. Offshore wind now for the third time I think that we present this above 30% growth, which is remarkable. Infrastructure, a little bit down to 6%, used to be 7%.

Then the key markets of Fugro, slightly differently indicated. They are the offshore oil and gas growing with a CAGR of 6%. And I've mentioned that before that '18 is the absolute low point in this graph and as you know, Fugro was already growing in oil and gas in '18, so we're a little bit earlier in the cycle there.

Offshore wind, 18%, which is similar steep growth as we've shown before, small difference. And then onshore energy combined with the onshore infrastructure work that we do, 7% growth.

I will zoom in a little bit on the offshore element, offshore oil and gas.

So on the next slide, comes up there, you can see the FID commitments. So on the left side, again, it's 6% growth for the offshore oilfield services. The number of FIDs in 2019 estimated to get to 99. And the committed CapEx for these FIDs are now $179 billion, which is obviously with the additional 99 FIDs significant and will determine how much investment is made in the future in these business segments.

Where is the money spent? As seen on the next slide and this is the E&P cycle. Basically, where you see first exploration growing and as also seen in a number of seismic companies that have reported results already. They are also seeing that back in their numbers. But if you look at the expenditure between greenfield and brownfield, there you see a big difference, big growth in greenfield and a reduction in brownfield. And this is also I think positive news for companies like Fugro that are operating in these fields.

Production OpEx is also increasing. And also the abandoning cost, which has stayed behind for too long, has been spoken about for many years, is now finally increasing also.

Now if we have a look at shale, which is obviously a topic that is hot. Shale has grown rapidly over the years and you can see that also in these graphs how the expenditure is done in the oil and gas field on and offshore together. But for us, it's important to see that now also in the years to come, and this is a forecast for 2019, '20 and '21, the blue boxes are growing again. So there is more work in the deep offshore development, the deepwater, but also in the offshore shallow water developments. So that is also returning, maybe slower than some people expected, but certainly coming back. But also good to know that still shale is very prominently visible.

One thing on infrastructure, just an example. We have spoken about that the world is becoming a more complex place to live. We have a lot of people or population growth and urbanization coming up: 800,000 people getting to cities per week to meet the target of 1.4 additional people -- billion additional people in cities by 2050.

That also means that infrastructure becomes more complex and here you see a graph on the number of tunnel projects and the number of kilometers of tunnels that need to be developed in the years to come with a beautiful picture on a Fugro rig there on the Thames in London, developing also the data or gathering the data, acquiring the data for this tunnel project over there.

A big growth there expected. It's one of the asset classes that Fugro is now serving, and we believe that with our expertise, we can play an important role.

Then I have a number of examples of projects. I thought it was maybe interesting to give you some very specific examples of what is Fugro doing over the last couple of months and quarters. And I'll show examples from all the regions. Here still the revenue split between the regions. Obviously, a large share in Europe and Africa that is now combined in 1 region, but also in the Americas, Asia Pacific and then obviously, Middle East a little bit smaller.

The first project is a very typical site characterization project, Marine site characterization project with equipment setup developed by Fugro, the Clair Ridge site characterization. And this is very complex dataset that we're gathering, complex soil. And we use all sorts of equipment to gather the right geodata with AUV, but also with 3D UHR, 2D UHR, side-scan sonar, hull-mounted profilers, multibeam echosounder, seismic processing, obviously mammal detection. If you work nowadays offshore, you need to also do mammal detection; and also, passive acoustic monitoring.

A lot of things that are coming to play in one go on one of our sophisticated survey vessels and gathering data of the soil, ship service information, basically determining where the boulders are in the ship service. Very important; and we're also doing all sorts of trials to actually automatically detect these boulders out of the data, which is self-learning computer algorithms that we will use more and more moving forward for data processing.

Another very typical Dutch example is the quarry monitoring project in Valkenburg. You see a map there of the quarry there and we have fiber-optic sensors installed. So there is a 10-kilometer fiber-optic cable running through these quarries with 80-plus monitoring points and basically, real-time gathering data for the safety of these quarries, which is basically helping 300,000 visitors that come to these quarries to visit the place. Very interesting project. Also, very strongly related to building a safe and livable world.

Another project that is I think a good example of building a safer and a more livable world is the Lake Michigan project and that is ongoing as we speak. Very complex drilling with a vessel on the lake there. They're building a tunnel to put an existing pipeline in there just to basically protect the environment. If something goes wrong with the pipeline, it's protected by the tunnel there, which is again a good example of safe and livable world.

We work for a client here in good cooperation and the benefits there are obviously risk reduction. It's an important project for them to show the environment there that we take care of their surroundings and basically acquire again the geodata that is needed to build these tunnels ship service.

So this is below the lakebed. And we're drilling 100 to 200 feet deep boreholes and these are 4-inch boreholes in the bedrock to gather that information.

Coming back again on remote positioning. One of the first remote control centers we had in the world was in the Gulf of Mexico, in the U.S. and there, we have now done many projects for remote rig positioning and vessel positioning using our proprietary Fugro OARS technology. Out of the office, significantly reduced crews offshore, reducing CO2 footprint. Again, contributing to a sustainable world.

Clients are very enthusiastic there, and we see the activity further increasing more and more. We also manage to actually reduce the amount of time that sometimes these rig moves are -- or the time that is required to get the operation done. So we're really helping our customer in a more efficient operation.

One more example, if it wants to move to the next slide. Here we go. This is the 2019 project for GMGS, which is projects that we have done for the Chinese government. We have done a number of them, and we have communicated about them before. This is quite complex research project and the Chinese government has an extensive 10-year program to do research on gas hydrates in the South China Sea.

We have helped them with a number of projects before. These are long and large projects and complex because you have to capture the gas hydrates under the water, deeply under pressure so that you can do all the research on the samples that they gather, which is a very good cooperation with the Chinese there, and we're very pleased that we can continue to serve them. A multiyear effort that has been ongoing for us for the last 5 years-or-so.

The next project is also in the same area in Asia Pacific, where we help the building industry -- and this is in particular a large organization, Country Garden -- and that is one of the top 500 largest public companies of the world. They develop a lot of real estate and obviously, with these large towers that need to be developed, there is a complex consultancy question that needs to be answered around the soil conditions, the site characterization on land. And this is typically a project where we can combine all our expertise in the consultancy, gathering the data that we need to help this customer to model and design the buildings and their real estate that they have in mind.

And then the last example that I want to show moving to the Middle East, to the UAE, is a project that we do also in other areas of the world with our roadware technology. And we basically help the customer here, the government, to inspect the conditions of the road and also the surrounding.

We can have a very detailed equipment on the vehicles to see where the conditions are and help them to make their maintenance plans moving forward.

And with that, I would like to hand over to Paul Verhagen to go into the results, financial results, in more detail. And I will be back with you for the outlook of the year.

Paul?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [2]

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Thanks, Mark. Financials. So you've seen a lot of very interesting great projects. I always are amazed to see what fuel can do, but equally important what does that mean financially and in particular, for this group of people, I believe that's very interesting.

First, key messages, very similar to what Mark already has said. Obviously, strong margin improvement, driven by Marine. Land has had a difficult disappointing start, but improved in Q2, which is important.

Mixed regional performance, will come back to that. Seabed classified as held for sale, as you know by now. Negative free cash flow, which is very much in line with our seasonal pattern: first half negative, second half positive. All covenants met. We'll come back on that one. And last point, we have gotten an extension of our revolving credit facility to May 2021, which is almost 2 years from now, providing increased refinancing flexibility.

Recovery continues clearly. You see here the revenue and EBIT of our Marine division, steep as -- of the group, split in Marine and Land. And steep growth in Marine, 9.2%. Land was low-single-digit, down minus 1.8% for the group growth of 5.7% on the back of last year's growth of more than 16%. So this is second year, pretty healthy growth year-on-year.

EBIT, major improvement in Marine, EUR 23 million, Land down EUR 1 million, but Q2 in Land was better than last year's Q2, but yes, because of a disappointing Q1, the first half year was slightly down for Land. But overall, yes, almost 3% margin improvement in the first half year for the continuing business for our core activities.

Mixed regional performance. In terms of growth, you see Europe-Africa growing. You see Americas growing steeply. APAC, by design, a decline in revenue. Middle East growing and a positive FX effect because of strengthening of the dollar mainly and dollar-correlated currencies.

In EBIT, you see there the increase in Europe-Africa, EUR 28 million. Americas, very disappointing, EUR 27 million revenue growth, 17% currency comparable growth. I will come back to that later on why we see this year-on-year EBIT decline. APAC reduced losses and Middle East and Asia more or less flat.

So now a little bit more detail per region. As you know, we have changed our top management structure. We report by region, but continue to also give information by division.

So first, Europe-Africa. Strong growth in Marine. Land down somewhat in particular because of the reasons mentioned on the slides. Reduced work scope on the certain projects, mainly in the U.K. and also some delays of certain projects, customer delays, not because of us.

But yes, EBIT, strong improvement from 2% to double-digit margin, 10.5%. A very, very good performance in the first half of the year and to a large extent, driven by Marine, in particular, Marine site characterization. But also, Marine Asset Integrity is performing very well in Europe-Africa.

Americas, as I said, 17% currency comparable growth. So you would expect obviously a steep improvement in the bottom line, that did not happen unfortunately. And the only thing I can say there is that we do expect a significant improvement in the second half because the issues that we've seen in the first half are dealt with. They are history.

We had quite a few vessels in maintenance because we had a very busy Q4 last year. We pushed out some scheduled maintenance of last year into this year, but, unfortunately, it was compounded by some unforeseen repair work that took longer than anticipated; even longer than we thought, end of Q1.

We had to charter quite a few vessels because you can imagine, we've 17% currency comparable growth that the backlog was well filled. So we had to incur a lot of additional cost to get the work done. Very unfortunate with such a strong backlog and as a result, you see this year-on-year decline of EUR 3 million EBIT last year to minus EUR 14 million.

Having said that, we do expect a significant improvement in the second half.

APAC revenue declined, at least in Marine Asset Integrity; Marine site characterization was growing. Land site characterization also declined, mainly pressured by a challenging Hong Kong market where we have a very strong presence.

Results up nevertheless, in particular, because of the actions taken in Marine Asset Integrity. We have reduced capacity. We've further restructured the organization. We've taken out costs and, as Mark already said, we also clearly focus on better margin projects going forward, which is important to, of course, bring this still negative minus EUR 6 million into a positive territory, but the first step has been taken from minus EUR 16 million to minus EUR 6 million.

Middle East and India, steady margin. Growth, in particular, in Marine Site Characterization, especially in Qatar. Also healthy growth in Land characterization and Land Asset Integrity. EBIT margin, more or less stable, 7.6%, 7.1%. In absolute terms, it goes up a little bit, but as a percentage of revenue, down a little bit. And partially, that is impacted by the whole geopolitical and economic environment in that region. There's quite a few things going on as you know.

Seabed held for sale. Good revenue growth. We had 2 node crews working in the first half year, full half year, and also the shallow water crew.

Start of S-79 project was actually anticipated, as we said in the beginning of Q1, to start beginning of May. It has started now, but somewhere first half of July, so it has been delayed, mainly due to logistic issues and permit -- permitting issues. The good news is it has started, the bad news is it has impacted, of course, H1 because it started later.

In addition, we have these 3 projects that you, by now, I believe, are aware of. Two of them have been completed. It's good news. One got into more trouble, mainly because of bad weather. We entered significant bad weather periods that led to a change in our acquisition strategy and that has led to an extension of 6, 7, maybe 8 weeks. We hope and we think now we will be completing this project end of September. So also Q3 will still be impacted by this project, but then after that, we will have the worst behind us, as Mark has said.

It's a very interesting business. Still the market is growing tremendously. S-79 has started, which is positive. There's a lot of tendering going on. So overall, it's a good moment to -- we believe to start discussions or to have discussions about a divestment.

And also on the year-on-year comparison, maybe as a side note, last year, the plus EUR 3 million included EUR 5 million one-off, which we disclosed related to the sale of cables. So the net comparison is minus EUR 2 million to minus EUR 20 million, but still not good obviously.

Strong reduction in net loss from continuing operations. You see a lot of numbers on this slide, I will not dwell too long on it. But the net loss from continuing operations was minus EUR 40 million the last year. And the pro forma, if you forget IFRS 16 for a moment because that's like-for-like, is from minus EUR 40 million to minus EUR 12 million. So a significant improvement, still negative though.

Other important point on this slide is the reduced tax expense. As I said previously, we have quite a lot of unrecognized DTAs still; and sooner or later, we will start benefiting from that. Also this half year, we have been able to recognize some previously unrecognized DTAs and that's reflected on the tax line, which is positive.

Including the Seabed impairment of goodwill of EUR 61 million, there's still a few million goodwill remaining, not a lot, less than EUR 5 million. Yet a net loss basically doubled from minus EUR 40 million to minus EUR 80 million.

Working capital was good. Please note from '18 onwards, it's continuing operations. Before that, it included Seabed. The working capital of Seabed has always been better than the average of the group, which you can see. Seabed has a lot of large projects where we can do a lot of back-to-back agreements with suppliers. So it's typically a business that -- where working capital can be very efficiently managed and that's also reflected in this slide because the moment the Seabed is taken out, you see it jumping up.

But also Land and Marine and the regions that it did a great job in managing working capital, DRO of 87 days, which is good and the increase that you see in absolute terms is all related to revenue growth.

Capital employed. Not a lot to mention here. It's EUR 1.2 billion. By the way, this is -- capital employed is still pre-IFRS 16. IFRS 16 will not change a lot, a few million to this picture. So it's not really relevant.

I think most important here is the Seabed part. The impairment, we had a capital employed end of last year of EUR 147 million. It's now for EUR 81 million in our books, 100%, and the equity part is EUR 63 million in our books.

And valuation is based on fair value because it's held for sale, while previously, it was based on value in use. So a different valuation principle has been used here.

Negative free cash flow in the first half. Yes, very normal. As I said, we always see an increase in Q2 and Q3 because these are our seasonal quarters. Revenue goes up. Q4, Q1 low. So in the second half, you will see a cash inflow. You've seen it last year, the year before, the year before, et cetera. It will also happen this year.

There's EUR 13 million impacts from IFRS 16. Obviously, that's reclassed from cash flow -- from operations to cash flow from financing. Ultimately, cash does not change, of course, as a result of IFRS 16. Resulting in minus EUR 34 million cash for the first half.

Important, the extended RCF maturity, has extended to May 2021, which basically gives us 6 months more for refinancing. So it gives us more time. It gives us more flexibility. We have a wider window to review options, explore alternatives, et cetera, et cetera. Once we have more news on that, we will, of course, inform you. But overall, this is good news because it allows us to continue our improvement trajectory that we see and hopefully, also chip-in some proceeds from divestments, which is not unimportant.

Net debt. You see a lot of different lines there. The EUR 735 million is the net debt for continuing operations. The EUR 757 million, including discontinued; and for covenant purpose, it's the EUR 327 million. And if you forget IFRS 16 for a second, it's EUR 570 million. So I think that's the most relevant number on this slide to remember.

Within all covenants. That's important, obviously. Also important to note that this includes Seabed. So for the covenant calculation, held for sale or not held for sale, continuing, not continuing, IFRS 16, no IFRS 16, it's all irrelevant. It's frozen GAAP. It includes Seabed. So only if and when Seabed will be divested, that's the moment when, yes, basically the impact of the negative EBITDA of Seabed in the last 4 quarters will be taken out and then you'll see a further improvement obviously in these covenants. But even including a disappointing performance of Seabed, we stayed well within our covenants, which obviously is important.

That said, I hand back to Mark for the outlook.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [3]

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Thank you, Paul. Okay. Then we go back to the backlog, which I think we have spoken about already somewhat. Backlog increases a little bit compared to last year, 12 months rolling backlog. And we believe it's a healthy backlog, especially if you take in account that, obviously, Asia Pacific, where we have restructured the Marine Asset Integrity business came down significantly by design. So that is obviously affecting the backlog moving forward. So we are pleased with the backlog that we have shown here.

Then to end our presentation here and then we'll open up for questions. The outlook for the remainder of the year, for the full year, so to say, from continuing operations, as stated in the press release, continued revenue growth, further EBIT margin improvement, positive free cash flow and a CapEx now guided around EUR 70 million for the continuing business. That's the outlook for the full year for the continuing business.

With that, I would like to complete the presentation and basically invite Paul to open up for questions, and thank you very much for your attention.

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Questions and Answers

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [1]

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Is there anybody with a question?

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [2]

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It's Henk Veerman from Kempen. First question, actually 2 questions on Marine. The first one, you encountered 2, I think, negative one-offs in Marine. The first one was the vessel maintenance in the U.S., the second one, I think, sale of Southern Star vessel in Asia. And yet you managed to surprise I think consensus significantly in Marine on earnings. Could you maybe indicate what margins, EBIT margins were excluding, let's say, assuming a clean quarter?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [3]

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Paul, you want to answer that one?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [4]

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Yes, I could answer it, but I'm not sure if I want to answer it. You're right. The results would have been significantly better if that would not have happened. Yes, we're not going to disclose precisely how much the impact of these issues has been.

But for instance, for the U.S., you can do your own math assuming that contracts did not get worse. Although I have to say, in the U.S., there was still a few contracts from 2017 that were executed now with very low margin because they were captured at the bottom of the market. But nevertheless there were also quite a few good contracts that were contracted later. We have a 17% revenue growth and we've plus of EUR 2 million last year, you would expect a number significantly more than EUR 2 million. And we ended up with minus EUR 14 million, so that's at least an indication.

For APAC, yes, Q1 was difficult and challenging amongst all because of the reasons you mentioned. That was gone for a large part in Q2 and there we saw margins improving and you see the reduced loss in APAC of EUR 10 million. So it's a material impact. But I think you can reasonably do the math of how large that impact is, more or less.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [5]

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And I think maybe to add there, maybe have a look at European-Africa region where you see already decent margin if you're growing and you don't have any particular issue in your business.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [6]

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A follow-up on that. The backlog in Marine is almost flat year-on-year, probably with some improved pricing though. I think it's also fair to say that the OpEx savings in Marine have more or less now all materialized and maybe you'll encounter some cost inflation even from loans.

So is it fair to assume, I think all factors considered, that you still guide us for an EBIT margin in the sort of the medium to long term of 10%, 13%. That's because of the pricing and because of the, let's say, the more one-off type of issues that you faced in the first half, that a 10% to 13% is still doable?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [7]

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Yes. So I can respond to that. You're referring to the midterm targets, which we guided for between 2021 and 2023. So there's a window there between 10% and 13% for the Marine activities. We still believe that this is possible.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [8]

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Okay. Clear. On the cash flow, I noticed that you changed the phrasing a bit of the cash from operations/cash from operations post-investments guidance. Is that basically because due signs disappointed the results? Or have you also changed your view on second half cash flow generation now versus, let's say, at the start of the year when you gave the initial guidance?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [9]

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For cash flow, you've seen the whole press release is based on continuing operations. Also the outlook is based on the continuing operations. So for continuing operations, we still expect a positive cash flow for free cash flow, which is the same as operating cash flow after investments. It's the shorter word for the same. So if you refer to that, it's exactly the same.

For Seabed, the focus is on the divestment now. And we deal with the cash once we get there, but the focus is, as we said, it's held for sale. There's multiple interested parties. That has the focus, and is less relevant I believe now to include that in an outlook statement for a update that is fully focused on continuing operations.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [10]

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Because you also let go of the net debt to EBITDA guidance being lower year-end '19 versus year-end 2018, also didn't see that statement anymore in the press release.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [11]

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That's correct because that's actually I think the only indicator that is based on including Seabed because the covenant definition is based on frozen GAAP including all, basically, activities that we have until divested. And because of the disappointing result of Seabed in the first half, still one project will impact Q3.

At the same time, S-79 started, the tender activity is good. The market is growing. As Mark said, it's still a very interesting business going forward.

But for covenant calculation, we have to take that into account. And if Seabed would still be in our books, then it will be a challenge maybe to reach that 2.2[x]. I'm not saying it's not possible, but it will definitely be a challenge. Where we are very comfortable is that it will significantly improve including Seabed as well. That's what we guided for now.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [12]

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Okay. Clear. And if I assume you will divest Seabed already this year and I do the math on that then I think based on the covenant calculation, you would already sort of delever towards 1.5x net debt to EBITDA by year-end. Is that how I should see it?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [13]

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Yes. I'm not going to confirm the number, but you are right. There will be another big improvement in the leverage covenants because of the negative EBITDA that we've seen in the most recent 4 quarters of Seabed, so yes. But it is 1.5x, that's your words, that's not my words. But it will significantly improve.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [14]

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Last question on Land. You indicated you will step-up the efforts to make sure that the margin will increase in the next periods to come. Could you maybe elaborate a bit on what kind of actions you're expecting to take? And also should we expect a significant decline of sales since you also indicated that you want to phase out the low margin projects.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [15]

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Yes. So on the land side, we have to be clear. We are not satisfied with the results right now, too flat. And as I show the market -- the infrastructure market where we're primarily operating in Land is growing faster than the Fugro business right now or at least the forecast shows a faster growth. So we want to obviously improve the margins there as well. That has been part of the path to profitable growth strategy. So it has always been included there. But we review that on a very regular basis. So we take additional measures where needed.

This is not something that we step in drastically in one particular area or so. This is really looking at the details of the business and say, well, maybe this service line in a particular area, we should not continue with or maybe go a little bit slower on because it's not generating the return that we expect.

So -- and examples that I've given are clear. We have communicated in the press release about the Land business in Qatar. Oman, we're stepping in as well. There are some other elements like South Africa, we have stepped in Africa, and the past was actually drastically reorganized, that was already behind us in 2018. But we will do a few more things and we look at the details.

Cost of that, because that's your next question. What does it cost? Probably a couple of million of reorganization cost in total over time, and it will bring probably a margin improvement of -- for -- annualized margin improvement of at least 1%.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [16]

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For the group.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [17]

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For the group, yes.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [18]

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Luuk from Banque Degroof Petercam. A couple of questions. If I look at Asia Pacific, then you're scaling down your business to improve profitability. The backlog is still coming down. Can you explain how far you are in that process in the sense to what extent -- when do you expect the backlog to stabilize? And when should we see an effect on revenues? It's the first question.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [19]

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Yes. Okay. So yes, we can answer that. So basically, the key reason, and this is related to Asset Integrity only and primarily also to the IRM business that we had. We had 3 vessels operational there and as you know, unfortunately, we had to hand back the Southern Star earlier this year, which -- basically due to technical problems. And we also decided to actually move 1 vessel out of the region that was already designed before that, which brings us now down to 1 vessel in that region.

This vessel is occupied nicely moving forward. So there is only a limit that you can take on as additional work. So I don't expect the backlog to further decrease significantly. I also don't expect the backlog certainly with 1 vessel to increase significantly. So I think we're going through that reorganization now.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [20]

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Okay. That's clear. And the second question is on the covenants. Obviously, year-end will be clearly better, but if I look at Q3, then typically the working capital can move in any direction and the cash flow as well. On the other hand, the outlook for the EBITDA is clearly better. How comfortable are you that you will also remain well within the limits in Q3?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [21]

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Very comfortable. So we will stay within our covenants in Q3 and in Q4. And so that will happen. Yes.

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Unidentified Analyst [22]

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ABN AMRO, (inaudible). A couple of questions on [RCF] side. The RCF is extended until May '21. What was the extra fee? And was it already booked in 2Q '19?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [23]

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Yes. The extra fee was a few basis points, so neglectable. So nothing big. The terms and conditions stayed exactly the same. No change. So it's for us a very good extension of the facility.

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Unidentified Analyst [24]

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On the corporate cost, can you explain how large the headquarter costs were in H1? And how many of these costs were booked on Seabed Geosolutions?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [25]

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I think -- and I'm looking also at the group as well -- that there is no management allocation fee to Seabed, so 0.

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Jean-Christian Brunke, [26]

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Christian Brunke, Kepler Cheuvreux. A small question on the EBIT margin. I see that if you would have achieved the same EBIT number in Americas as in H1 2018, the EBIT margins of your core business would have been 4.9%. That's a pity. For H2, do you expect a positive EBIT contribution coming from the Americas?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [27]

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Yes. We expect the positive EBIT contribution.

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Jean-Christian Brunke, [28]

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All right. And the second question would be, do you expect EBIT margin improvement in all other regions in H2 versus H1?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [29]

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I'm not going to, specifically region by region. The reason is what you see also today is because we are more granular in our disclosure. You see -- you will see more ups and downs year-on-year because of maintenance schedules that will be in a particular quarter, in a certain region, in a certain year that were not in the same quarter in that region, in that year. So there will be more swings. So I don't like to guide on the region-by-region basis for this reason.

So the answer is no. There will be swings left and right, but for good reasons, just to be clear. What we only can repeat is that we do expect a further EBIT improvement for the full year year-on-year compared to last year.

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Jean-Christian Brunke, [30]

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If I want to rephrase question. For all regions, combined, excluding Americas?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [31]

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I didn't do the math, Christian. Maybe, but again, I'm not going to guide on the regions. It's really -- actually you can be very lucky with this additional disclosure.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [32]

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Take the U.S. as an example.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [33]

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Oh, yes, the U.S. If you would have only seen the Global Marine results, which you would have seen last year, you would have thought, "Wow, strong improvement in Marine," and you would be very happy. Now we give you a little bit more. And of course, you ask also more and rightfully so, but it gets a little bit tricky to guide at that detailed level. So again, I'm not -- I understand your question, but I'm not going to tell you.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [34]

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Andre Mulder, Kepler. 3 questions. First on this covenant target. You said that net debt was at EUR 570 million, the covenant said EUR 530 million, excluding the liability component of the convertible. Where are you on that covenant?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [35]

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Which covenant?

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [36]

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On this additional covenant.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [37]

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The EBITDA floor you mean for the...

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [38]

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At this additional covenant related to the leased vessels?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [39]

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Okay. Yes. So the EBITDA floor for the second quarter was EUR 115 million and in the financial statements, which are on the web, you can see that's based on the covenant definition, which includes the full result of Seabed, it's EUR 117.7 million. And it was EUR 105 million end of Q1 this year.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [40]

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Second question, on CapEx, has scaled-down from EUR 90 million to EUR 70 million. Can you tell us what happened there?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [41]

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I can be -- it's not a scale down.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [42]

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It's not a scale down. Because we guided for EUR 90 million inclusive of Seabed Geosolutions.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [43]

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So...

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [44]

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That's fully responsible for that difference.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [45]

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Yes.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [46]

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Yes. It's excluding Seabed.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [47]

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And last, you stepped up your efforts to sell Seabed. In terms of timing, wouldn't it be better to show what the Q3 and Q4 results look like after a bad first half?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [48]

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I think we have been clear about the fact that we expect this better second half of the year. We have said that before. There are some changes now, as Paul referred to, that one project is actually running into Q3 and will still have negative impact on the results of Seabed. But we can still hold onto the phrase that second half will be significantly better than the first half.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [49]

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And on the price, you said it's now more directed towards disposal. Is this indicative of the potential price that you get there?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [50]

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Yes.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [51]

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In the recent assessment of fair value, of course, every bit can be somewhat different, but this -- we have done an assessment and this has come out of it, yes.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [52]

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Can you give us a bit more detail on who the buyers are? In terms of what industry or...

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [53]

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No, we cannot.

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Martijn P. den Drijver, NIBC Bank N.V. (ESN), Research Division - Former Head of Research [54]

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Martijn den Drijver. You stepped up the effort to sell Seabed and you're expected to be dealt with during the year. For Global Marine, you're dependent on the HC2. But also I just want to know, with respect to your other indirect interests, have you stepped up the efforts as well to divest those businesses? And is there also some kind of time frame of within a year?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [55]

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No. That's a slight -- you referred to Finder, obviously, in Australia. That's a slightly different situation there because this is more a multiyear investment that has been done. You need to choose the right moment to divest anything and that's also related to Seabed Geosolutions. Obviously, we feel that this is the right time. For Finder, this is not the right time yet and that will differ for each of these lines that are mentioned in the presentation. So there will be over time steps that we might be able to take, but nothing in the short term.

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Martijn P. den Drijver, NIBC Bank N.V. (ESN), Research Division - Former Head of Research [56]

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Could you give some guidance with respect to the time line? Will it be within -- after 3 years or first starting after 5 years or something like that?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [57]

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I think if you look at what you see there, the closest that is to some return is related to one of the -- the Bedout permits, so Dorado well is the -- Dorado-1 is drilled. I think if you follow the news and see when that starts to get into production then you have an idea on what the return could be.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [58]

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Quirijn Mulder from ING. Congratulations with your excellent second quarter results moving forward.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [59]

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Thank you.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [60]

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I would like to ask you about the covenants. Is there any change in covenants when you have sold your Seabed Geosolutions activities? That's my first question. Because I think it has an impact. And second question is about utilization rates. I understood this second quarter much better. How much further then do you think you can go with your utilization rate? And does it also include some short-term charters like for the U.S. you had in the second quarter?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [61]

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Yes, you want to?

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [62]

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Yes, I'll take the first one and you take the second one. So the covenants as such don't change, the definition of the covenants, Quirijn. But, of course, Seabed will be removed. So for the last 4 quarters, so whatever result was in there, so if you would now take out, as per today, the Seabed from the covenants, in the last 4 quarters, we had a negative EBITDA of EUR 20 million. You can increase the EBITDA and then depending on the proceeds that will come in, reduced net debt with similar amounts and do the math. But the definition as such will not change.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [63]

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Okay. Then your question on utilization. Indeed quarter 2 was significantly high utilization, 80% coming from 72%, which is obviously contributing to better results on the Marine side and the majority of the utilization is related to site characterization. What can we expect more? Well, if you look at a region like Europe, but even also in the Americas, if you look forward then all the owned capacity will be fully utilized. And there is obviously positive, but we also need additional third-party vessels, which is a healthy situation because you never want to rely only in your busy periods on your own capacity because when you end up in the low season activity, you want to be able to scale down, which is very important. That is part of the business model. And the third-party vessels were -- the numbers were quite significant and in some regions you have to basically get another additional amount of vessels on top to be able to execute your work. So in the Americas, we had a significant amount of vessels, third-party higher, especially in the first half when we had some of our own capacity down.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [64]

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Okay. Then my traditional question about Brazil. Maybe you can elaborate on that? And about APAC, maybe you can give me some idea about the situation there because you have removed one vessel, Southern Star, out of question now. Do you think you can sustain activities there with 1 vessel? Is that enough? Or do you, in the midterm, need at least 2 vessels given that you have still couple of contracts, have to be executed for Shell or Chevron whatsoever?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [65]

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Yes. Good question. Thank you, Quirijn. I'll start with the last one. Basically, Asia Pacific, I think we definitely need to ramp up capacity now and then and you have seen it over the last period of time as well. We have used an additional third-party vessel for a project. We'll contract that for a certain period of time. It's a fine business model, same as I just explained. There's no problem in hiring in capacity if you have peak activity. So we'll continue to do that. That's still possible in the market for sometimes good rates as well. So we'll continue to run with that model rather than permanently committing to a long-term chartered vessel. So that's on APAC.

Brazil, I'm not sure what you referred to, but what I can say about Brazil is that we have basically a few contracts on the diving side, diving saturation projects that have been tapered down over time and they came to an end. Also, on the air diving side, a contract came to the end and this is now picked up by a local party there, which means that the diving probably stops certainly for Fugro for a period of time or maybe even permanently.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [66]

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That means, of course, there's only one vessel left in Brazil?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [67]

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We have the Aquarius and there is also -- that's our own vessel. We also have more ROV work on third-party vessels.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [68]

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So you're not aggressively -- are you not bidding at all in -- anymore in Brazil for big projects from Petrobras for example?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [69]

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We are, but that's more on the ROV side. So we're going to supply ROVs, which is, in fact, also replacing diving work, so to say, which is a trend in the industry where in many places in the world, they try to actually get divers out of the water, because it's high-risky, to actually replace it with robotics -- underwater robotics like ROVs.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [70]

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And that's still on the tripartite discussion with the guys from, what is it -- the vessels are being -- still being in the contract with the partners.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [71]

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Some of these contracts that we bid for indeed, but there are various parties where we do that with, so we have no fixed partnership there. We basically use everything that is applicable for a particular project and then obviously, the Fugro Aquarius.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [72]

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A question on the backlog. And Marine up 1%, but result of quite a diverse development of site characterization, up and robust, and Asset Integrity down significantly. Can you put a bit of a number behind those words?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [73]

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We're not releasing per business line exactly what the backlog has been globally. And basically, what we can say is that Marine Site Characterization is up because of the market obviously recovering there in the early cyclical part of the market, both combination of oil and gas coming back as well as offshore wind. If you look at Asset Integrity, by design, as we said, Asia Pacific, but also in other areas, focused on profitable work, prices need to stabilize. And we just spoke about Brazil, which also has an impact on the backlog moving forward. So Asset Integrity is for some good reasons down in Brazil and APAC, but also, in general, worldwide because we focus on the profitable work and this is late cyclical business, which is obviously later in recovery. And we have said that we see a turnaround in this business this year in 2019 and we still feel that this is indeed happening.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [74]

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But that -- are we looking for an increase of 10% or 20% in that direction without mentioning the decimals?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [75]

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You mean in Asset Integrity?

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [76]

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In the backlog development.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [77]

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In the backlog in the future. It...

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [78]

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For what happened in the first half.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [79]

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I'm not sure if I understand it.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [80]

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This is a robust increase, but here we don't look at, let's say, a 10% increase or a 20% increase. Give us a little indication.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [81]

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So the backlog towards the end of June, I think that's what you referring to. So going forward, this is growing year-on-year from Marine site characterization. I don't give you a precise number, but if 10%, you're closer than 20%, it's double-digit. That's what I can say. But it's close to 10% than to 20%. And Marine is entirely, of course, the other way.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [82]

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A bit about pricing. It's quite that the site characterization in Marine is -- pricing is better because there's somewhat competition between what you said last year between wind and oil and gas. With regard to Asset Integrity, there is no pricing. Do you -- when do you think the pricing in Asset Integrity will go up? Is that 20% or 20s?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [83]

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Good question, but, in actual fact, we already said that we see some -- in some areas of the world, pricing increases coming through in Asset Integrity as well. To say that across-the-board is not possible yet. Site characterization, true. That's moving up obviously because there's more competition between the various projects that are ongoing. And I expect Asset Integrity also to basically bounce back during the course or at the latter part of the year and then moving forward. This is in particular areas of this market. Does that mean that all the Asset Integrity activities through the whole industry are coming back during the course of this year and next year? I cannot say that and I will not say that.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [84]

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A follow-up question on cost inflation. Your own capacity is filling up quite well at the moment. Can you comment about how the capacity in the market is changing into what extent you see pressure on the rates you pay for vessels you hire or new staff that you need and things like that? And what extent you can pass it on to customers and new contracts as well?

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [85]

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Yes, this is obviously very different between different areas of the services that we supply. So if you look at the early cyclical business where we see obviously rates improving somewhat, which is not to the level that we want, obviously. Let's be clear, everything still needs to further improve. We feel that the cost inflation is still under control. There are still vessels that we can mobilize for good pricing. Nevertheless, moving forward, you can expect more pressure on the system, also related to personnel and, therefore, prices need to go up. It's very clear. And we have been also very clear to our customers, we have sent out letters that prices will go up moving forward.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [86]

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In principle, short-term charges, we would only, of course, charge if -- in this market now and if we see that we can make a healthy margin on a project, that's never a guarantee because issues can happen, of course, during a project. But suppose if prices were to go up and we could not reflect it in the price then maybe we'd not move the project forward. So that makes that a more easier decision.

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Mark R. F. Heine, Fugro N.V. - Chairman of Management Board & CEO [87]

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Any other questions? If not, I would like to thank everybody also on the webcast for your attention and have a nice afternoon. Thank you very much.

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Paul A. H. Verhagen, Fugro N.V. - CFO & Member of Management Board [88]

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Yes, thank you all. Bye.