Fugro NV's (FURGF) CEO Paul van Riel on Q2 2016 Results - Earnings Call Transcript

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Fugro NV (OTCPK:FURGF) Q2 2016 Results Earnings Conference Call August 4, 2016 8:00 AM ET


Paul van Riel - CEO

Paul Verhagen - CFO


Dirk Verbiesen - KBC Securities

Martijn den Drijver - NIBC Markets

Quirijn Mulder - ING

Thijs Berkelder - ABN AMRO

Wim Gille - ABN AMRO


Paul van Riel

[Abrupt Start]…

to our analyst presentation this afternoon about Fugro's first half results.

As usual, what I'd like to do is I'd like to take you through the business highlights, and then Paul will follow up on the financial side. And I'll close out with the outlook for the year. And thereafter, of course we'll take Q&A from you. There may be some attendees externally also that may ask questions, so we'll just take them as they come.

Half year results 2016 -- by the way, what you see over here is another one of our big, I would say, marquee projects. This is Alaska LNG working for ExxonMobil, beautiful mountains in the background and a beautiful Fugro jack-up in the foreground. And it's one of those wonderful examples where we do integrated site characterization, both marine from vessels, near shore with the jack-ups, onshore, and we do all the geophysics and the geology and the geotechnical work that is required.

So, what's happening in our market? All of you have had time to see the results, and what you can see is an enormous impact of the decline in the oil and gas markets. So, what we do and have been doing, it means for us relentless focus on positive cash flow and strengthening of our market leading positions, because we are not forgetting the latter part. It's very important for us. We use the opportunity to strengthen our positions.

So, we are dealing with the issue. And what we're doing is continuously adjusting capacity, operating cost, and investments to the reality of the oil and gas market. We focus very strongly on winning work and strengthening our leadership positions, and we are successful in doing that.

Finally, on the financial side, it's all about, again, strong cash flow, reducing net debt, and we even continue to do so though the margins have come down. That's the, let's say, daily business side of things. On the other hand, we've always said, and we are continuing with that even in times like this, we have to continue to focus on our strategy.

So, what have we done? And we're very pleased to be able to announce that today. It's been hanging out there for quite some time, that we've announced already in 2014 that we would look at our portfolio of activities. And one of the key activities that we identified did not fit with our core geotechnical survey activities was our heavy end of subsea services.

Well, we were able to sign a transaction with Shelf Subsea, which means for us the divestment of the Asia-Pacific subsea services business, which for the largest majority was actually on the heavy end of subsea. So, from a strategic perspective, this is a very important step for us in getting back to the portfolio where we wanted to be.

Second, we continue to work on our customers. So, we're building a customer centric, effective, and efficient organization. And finally, we also continue with strengthening the Company through innovation. I'll give some nice examples of that.

First the financial highlights. Top left you see the revenue and the backlog. Well, you can only read one thing from that, and that is the market is in decline. We know that. We can't and will not beat around the bush with that, of course, that we are seeing around a 25% decline, which is completely in line with what is being said about the oil and gas market.

Top right, and that is of course also for us the real disappointing development that has a strong impact on our margins. That has to do with two things. It is, first of all, volumes in the markets coming down, so there's just less work, even though we are winning more of the work that is available.

On the other hand, it also means that there is overcapacity coming in the market. And once you get serious overcapacity in the market, what happens? Price pressure goes up and you see price erosion yet next to fact that there is less work. And that's what you see happening in the EBIT margin development.

On the other hand, the bottom left, we continue to generate strong cash flow from activities after investments. Top right -- sorry, bottom right, what that means, our leverage covenant stays well below 3.

So, what are we doing in terms of cost reduction and performance improvement? Personnel, increased that somewhat relative to what we published in quarter one. So, we are now really seriously cutting in the business. And as the bullet says, in some of our businesses we are actually down 35% to where this -- before this crisis started.

Third party expenses, we have those well under control. So, they're coming down absolutely in line with our revenue decline.

Vessel fleet, we've flagged that. We continue to reduce the vessel fleet. We have reduced the active fleet by five vessels through a combination of scrapping vessels and warm stacking. And as needed, we will make more reductions.

Finally, and I'd say this is a real nice positive, and that has to do with the performance improvement side of things. We have decided, to realize further efficiency gains, to invest in a new node technology that is proprietary.

It's quite innovative, and we want to have a crew out in the course of the first half of next year with this new technology. It's much more efficient than the technologies that are out there and are available today. So, it should help us very well in competing in a price sensitive market.

Market development, what are we really seeing? Well, some of this, I think, is obviously well known, is that fossil fuels, it will remain dominant yet for years to come, and gas is the most important part in terms of growth within that group of energies.

The reduction in oil price that we've been seeing over the last couple of years is now really beginning to take hold. We're seeing production coming down, in particular in the States but also in Europe. And so, that is obviously the impact of less investment beginning to cycle through. At the same time, in part driven by the lower oil price, the demand side is coming back up. So, on the supply-demand side, things are becoming imbalanced.

Now, that's not the only thing. I'm pointing out the fourth bullet, the price reductions. What's now also beginning to happen is that the supply chain in the oil and gas industry, A, as we see in Fugro, there's price pressure, okay? But also the value chain is becoming more and more efficient.

So, what we're seeing is that the oil price required to FID new projects is actually coming down. And as that happens there, projects that maybe would have been out of reach two, three years ago are now actually coming in reach.

So, if you look at all those factors together, they're all pointing the right direction. So, at some point, all these factors will make the market come back in balance. And also our market, our parts of where we perform our services, should start recovering only, want to be really clear here as Fugro, in the parts of the market that we operate.

It's too early to say that we have reached a bottom. We don't see it. So, there will be a positive impact of these factors. I mean, it has to or there's no way, because our services are mandatory. If you want to do new things, you need super services. But when the impact of rebalancing and cost reductions starts benefitting us is, at this point in time, uncertain.

The other quarter of our market, building and infrastructure, generally speaking we believe and we see signs that it is, on a global basis, slowly improving. Good opportunities overall, but also there we serve the oil and gas industry. So, that part, here for example with LNG plants and refineries, is also slowing down a bit, and we are feeling it in our infrastructure markets.

The general building infrastructure outside oil and gas, Asian countries and Western Europe, the expectations are from the latest reports, and we're actually seeing in certain countries, is that budgets are being increased.

A special market in which we operate, geospatial, the analytics and data part of that, trends are that there is going to be a lot of growth there as people start automating their processes to quality control their assets.

And finally, water related projects all over the world are taking hold, and people are beginning to take measures and beginning to invest in their water management infrastructure.

Another sector increasingly important to Fugro, power, and in particular investments in European offshore wind and wind generally. It's absolutely become clear that there is increasing confidence in the role that renewable energy and also offshore wind can play.

First of all, the cost reductions are going much more quickly than people had anticipated. And I think, for example, if you look at the bids for some of the projects that are now being done offshore in the Netherlands, you can really see that they have come down. And those are commercial.

Also interesting that we're now beginning to see offshore wind farm projects popping up in the Far East, not only in China but also in Taiwan, in Korea, in Japan. So, offshore wind is growing, and obviously it has good political support.

Just to give some numbers, in Europe in 2016 13 offshore wind farms are actually under construction at this point in time. And to give an idea of scope, in the first half of 2016 seven projects reached final investment decisions for €14 billion of spending. So, these are really beginning to be sizeable numbers.

This is a regional overview. I took you through it. Generally speaking, oil and gas depressed overall is one takeaway, expect the Middle East where investments continue. And we're actually also seeing India where people are also not shy of investing. And that's obviously that, as the country grows there, they want to have as much indigenous oil and gas as possible, so there's also a political drive there to keep going.

Building and infrastructure, I mentioned that Middle East and India good; Asia-Pacific good; Europe, certain countries picking back up; Americas still a bit subdued but some interesting projects popping up here and there. Africa in terms of building and infrastructure difficult, in particular in the countries that are hit by the oil and gas and also mineral resources lower pricing.

So, let's turn to our strategy, a couple of slides on that just to give you an update how we are executing on our strategy. First of all, I talked about this slide before. It is absolutely clear that we are facing an era coming ahead of us with large population growth, a large drive to urbanize.

Now, that means we're going to get -- this is another picture of Hong Kong. It's perhaps the best example. We're going to have dozens and dozens and dozens of Hong Kongs developing in the world, and those cities need energy. They need infrastructure. They need transport. They need everything that Fugro is involved with.

So, how do we look at ourselves and how do we see ourselves moving ahead with that? Well, as an independent service provider, first of all we want to be involved in all phases of infrastructure and building for whatever sector, planning, building, managing, decommissioning.

And as Fugro, we want to be involved with the big stuff, oil and gas platforms, pipelines, wind farms, nuclear power plants, bridges, railways, the real big infrastructure. That's really what we're after.

And for the clients in that area, what do we want to do? We want to provide an integrated service covering acquisition of survey and ground investigation data. We also want to do the analytics for them, so the data processing, the data management, the data analysis, etc., and finally turn that all into advice which tells the customer, for example, that you can build your site -- or you can build on the site here, but you shouldn't be building over there because of hazards, and this, that, and the other.

So, the AAA, the Triple A, as we like to call it internally, that's really where Fugro is driving for its future.

A couple of elements of what we have been achieving in the last half year on implementing our strategy, portfolio changes; building a customer centric, effective, and efficient organization, all the more important. Customers want efficiency. Customers want a lower cost. In part, we can achieve that by being more efficient ourselves. And finally, just continue with our technology leadership position and innovation and build out on that.

So, a couple of highlights on our divestment of our Asia-Pacific subsea business. We have divested to a company called Shelf Subsea Holding UK Limited. And for us, I think the most important thing is that we achieved the strategic objective of reducing our exposure to heavier subsea services. That's the key thing. So, it's really part of our focusing back of the core -- back around the core of survey and geotech services.

The transaction is consistent with our building on strength strategy. Cash came in. We also retained -- or we obtained a 25% equity share in Shelf Subsea. And also important for us in this day and age next to the strategic importance, it actually also helps us to meaningfully de-risk our business profile.

Some details, close to 300 employees are transferring as part of this divestment. It involves offices in Perth and in Singapore. We have a services agreement between Fugro and Shelf Subsea and also the other way around, where basically, assuming that pricing is competitive, we preferentially use each other's services.

Now, subsea work requires quite some services on the survey side. So, this is actually really interesting for us because it means basically, as long as we do our work well, a long term relationship that should also generate a good amount of survey services.

And finally, transfer of three chartered and one owned vessel. And the three charters, of course, means that our operational leverage reduces.

So, second topic, the customer centric, effective, and efficient organization. We've spoken about that before. One of the key things we are doing is integrating our offshore survey and offshore geotechnical groups into one new business proposition, which we call site characterization, and because that's really what you do.

It's you go out to a building site and you want to know everything about it. You want to know about the currents. You want to know about the geology. You want to know about the soil structure. You want to know about the wave height and everything that there is to know about that site. And the idea of looking at it as a holistic way as site characterization means that we can achieve that goal. Well underway in putting this together.

Technology leadership and innovation, what we are doing actually -- this is actually part of our client approach. All the new things that Fugro is developing or has developed recently, we are putting out messages to our customers with a question. So, for example, the top left, our new SEADEVIL, how does it work and what does it do?

The bottom right, we have a way of mounting a LIDAR laser scanning inspection system on any train so you no longer require it -- are requiring these big specialty instrumented trains. Now we can mount a small piece of equipment on top of the train. And without having to mess up the schedules or have to put people on the track, whatever, we can collect an incredible amount of data about the quality of the rail tracks. So, this is again a good example of geospatial automation.

So, we are running many of these programs. You can see number 18. I think, Rob, you have something that we could hand out with several of those things that Fugro is innovating and new things that Fugro is doing.

Some of the key projects to give a flavor for that, these are some of our large projects. At top left, wind farms. We are by far the largest supplier of site characterization services to the wind farm industry.

Top right, the third runway has been -- has gotten a green light in Hong Kong. Fugro has been heavily involved in the first two runways. We are yet again involved in a third runway, so that will be a project that will be with us for quite some time, doing all the site investigation, doing all the testing that is involved with it.

Bottom left, another good example. In Norway they're going to build a coastal highway, and we have a 12 year contract for environmental monitoring where they're going to put the highway and during the build phase.

And bottom right is a good example. There still is exploration going on in oil and gas where you try and measure leakage -- of natural leakage of oil and gas from the subsurface to detect where reservoirs could be. We're involved -- again, we are by far market leader in that space. And this is an example of the biggest survey in the world of this kind that's currently being acquired, and Fugro is doing the work.

So, with that as a brief business overview of where we are and also a strategy overview on where we were in terms of strategy, Paul, I would like to hand over to you. And take us through the financials.

Paul Verhagen

Good afternoon, everybody. Financial key takeaways, the first one, cash flow. That's our key focus as we've consistently stated in the last few updates.

And our key highlight thereof is EBITDA of close to €100 million; CapEx very much contained to €31 million in the first six months of the year; working capital increase compared to a very strong working capital performance year-end 2015; DRO maintained at 99 days, which is quite a challenge in today's environment, but we succeeded; divestment of CGG loan and sale and leaseback of a vessel-- you're aware of that, it has been separately announced -- and reduced interest expense due to lower debt.

That results in a net debt decrease to €467 million second half, end of June; leverage of 1.8, Paul mentioned that; and a fixed charge cover of 2.5.

Now, a difficult oil and gas market that continues to impact results, I mean, it's clearly demonstrated here. I mean, the year-on-year comp, everything is down; a steep currency comparable decline in revenue in line with markets; EBIT more or less break-even; capital employed down a lot, in particular, of course, because of impairments, but also depreciation relative to CapEx is significantly higher, so also fixed assets base as a result of that will decrease; and of course the sale and leaseback of the two vessels that we did. ROCE is still well below our cost of capital, but that will not be a surprise with these -- we have these numbers in this very challenging market.

Here just a different graphical visualization of the revenue decline. It's in all divisions. It's across the board. It's double digit. Our market is going into its third year now of decline. And of course that also has an enormous impact on each and every division that we have in Fugro.

EBIT decline, last year €70 million, this year break-even. The biggest drop was in survey. I will come back to that. Subsea was worse, or was below prior year €22 million. Seabed did better than the first half of last year, and that brings us to basically €1 million positive EBIT.

What we have continued to do and will continue to do, of course, is focus on cost reductions. We tried to cut as much as possible as we can. Third party costs have very much been reduced, in line with top line. So, we try, of course, to give -- the pressure that we receive, we try to pass it on to our suppliers. And this first half, June year-to-date, we have done that fairly well.

Personnel expenses, it's more difficult to get that in line with volume decline and price decline. We do manage with volume decline. But the matter of fact is that, actually in the second quarter utilization, both in the -- in particular in survey and geophysical but also in offshore geotech, was actually not bad. The only thing is that the pricing that we got for it was not very good; cash flow positive, but not delivering the margins that you are used to from Fugro.

Depreciation, amortization declined mainly, of course, because we are lowering investment, but also because of prior year impairments that we have done. So, that simply means that depreciation and amortization declines as well as the sale and leaseback of the two vessels that we have done.

And also, in other income, we decreased by €36 million. So, all in all, let's say €200 million if I don't take into account depreciation, amortization, cost reduction, a significant amount but not sufficient to compensate for the enormous drop in revenue which, again, is fully caused by the markets. As a matter of fact, we are gaining market share, so we are doing slightly better than the markets in our core divisions.

This is a subset of the cost savings. You are used to this slide, so it does not take into account all cost savings we do. It shows an estimated number of the savings related to FTE, 585 FTE reduced in the first half. Unfortunately, we have to do more, and for the full year we will target to reduce more than 1,000 FTEs.

So, the annualized saving that you see here will of course an annualized base be almost double towards the year-end.

We have five vessels reduced or stacked, at least active vessels reduced, let me put it this way. In geotechnical, it's one vessel. It's the Synergy that you're aware of. In survey, it's three vessels. It's three older vessels, so the year-on-year saving is limited, but still there is a saving. And in subsea, one charter expired in Q1. So, in total five vessels reduced. And on an annualized basis, that would give that saving. So, €71 million for actions taken in the first half.

As we communicated already last year, there is always a carryover from savings from actions you've taken let's say the prior year into, in this case, this year. You see that in addition in this year, around €100 million savings that were generated last year will land in this year's P&L. And as I said, this is a subset of the total saving. It only covers vessels and FTE.

So, all in all, a lot has been done. We will continue to do that. Unfortunately, we have to do that. But as long as the market continues to decline, we will continue to adjust our cost base.

Now, this also has led to further impairments. As you all know, once you do an impairment, almost by definition it depends a little bit on the nature of the impairment, but in most cases you have limited or zero headroom. So, if and when market conditions deteriorate even further than what you have assumed in your previous tests, you are faced with another impairment, which also has hit Fugro.

So, in total, €152 million. The first one is a positive onerous contract provision release, mainly in seabed. We have better project performance than what was tendered and planned for. There were onerous contracts on certain projects, so we could basically release the provision that was taken too much, which is a positive of €8 million; €8 million restriction costs related to the FTE reduction that I spoke about.

In geoscience, that is mainly the impairment we took on the CGG term loan that was monetized, and then impairment losses of €137 million, consisting of the items that you can read before. Equipment, which is mainly in offshore geotech with the Synergy, seafloor drills, a subsea vessel. I will come back to that. That's part of the transaction that we announced this morning.

And in seabed, since we had lost, let's say, the last big contract for this year, we had to take also an impairment on the cables. And in addition, as Paul already announced, we're going to invest in much more efficient and innovative proprietary nodes, which will over time, of course, replace these cables.

Goodwill impairment, as well in seabed we had some goodwill impairments. And the remaining goodwill that we have in the subsea services and in onshore geotechnical Africa was also impaired. So, no goodwill left in our subsea valuation. Also, no goodwill left in our onshore geotechnical Africa cash generating units.

And then we also had some intangible write-downs, which is a small impairment on our Finder portfolio. It was one permit. We have, I believe, 14 permits that required an impairment. But, anyhow, there is quite some other that have at least a -- could have potentially a reasonable to significant value depending, of course, on how this market will develop going forward, because with this oil price everything almost related to oil and gas is under pressure.

So, that led in total to €152 million. Again, the fact that we again had to take an impairment simple means that these assets where we have taken impairments, there is limited to no headroom. So, if and when the market would again further deteriorate than what we currently expect, yes, new impairments could happen. It's not planned. It's not foreseen at this moment. But depending on how the market develops, we can never rule this out.

Results by division, the first one being geotech, a decline in onshore at 12% currency comparable, mainly in Middle East. We see there the consequences of, of course, also the oil and gas crisis but also Qatar, where we had -- we were heavily involved in the preparations for the World Cup. That work all has been completed.

But at the same time, we see gradually new opportunities coming up in the Middle East, so that's in itself good. Africa is still on the decline, although results in Africa are improving in onshore geotech. We've taken a lot of measures. There is -- there are more work to be done. We are not finished yet, but at least we clearly start to see improvements going forward.

Offshore, 22% decline whilst markets here strengthened further. So, the markets went down by more than 22%.

Onshore results, although in line with first half year 2015, it's important to note that the second quarter in 2016 was better than the second quarter in 2015, and mainly as reserves improved results in three regions, in Europe, in APAC, and also in Africa, which is positive.

Offshore was just low single digit negative, just below half year 2015. 2Q, so second quarter 2016, above second quarter 2015. And that was mainly because of, as I said earlier, good -- reasonably good utilization and increased market share. We had pretty strong market share in offshore geotech in the second quarter.

Also here a steep decline in capital employed. It relates to impairment of goodwill, as I mentioned, in Fugro Synergy, but also the sale and leaseback of two vessels that had a book value of around €130 million and that are not on our balance sheet now.

Survey, that's -- I think that's come up also in the early reports that we saw this morning, has been a surprise to you. What is important to note there, that market share is good and strong. Based on our vessel capacity relative to the vessel capacity in the market, we get a higher share than what you would assume based on our vessel capacity, which is good.

We also have five business lines in survey it's good to understand. We have geophysical survey. That's where the vessels are operating. We have positioning signals. We have positioning services. We have construction support. We have Metocean. And the dynamics for all these business lines are somewhat different.

For instance, in geophysical survey, there you see very, very strong price pressure. And although our services are better and stronger and we have a stronger portfolio than most of our competitors, there is an unrelentless focus -- or a relentless focus, I should say, by our customers on price.

It's price, price, and price. And even though the services that we offer offer better quality and we can offer a broader portfolio, the customer is still about price. And if needed for certain services, they might be willing to switch if we don't follow the market price with a reasonable extent. And that's what you see back in the numbers.

For, for instance, positioning signals it's different. There, I mean, a lot of vessels operate with our navigation services. There's around 1,200 vessels stacked. A reasonable part of these vessels use Fugro navigation services. A lot of these contracts are suspended. They will start up once these vessels start to work again. But, as long as they are stacked, basically you have no income, which is volume again.

Now, also construction support, underwater positioning, rig positioning, there was simply much less work so it was mainly a volume decline. And Metocean, which is a relatively smaller business line in survey, held up reasonably well.

Now, as I mentioned, significant decline due to overcapacity. And it's really driving pricing down. The overcapacity, of course, where we are today is bigger than where we were last year because yet this market is going down, down, down. And it simply means that this pressure is increasing literally quarter after quarter after quarter.

A decline related to lower working capital; survey had a very good working capital performance and also significantly less investments that depreciation. They still had a pretty okay EBITDA, so it's still very cash flow positive, but overall a margin that you're definitely not used to from survey.

Subsea, a steep revenue decline on a very steep revenue decline also last year, 31%. I'm not sure if I did that. I don't think so, but I can continue the story. A steep revenue decline, significant losses which were anticipated, but still severe losses in subsea, and a huge drop in capital employed because we have impaired quite some goodwill but also assets in subsea over the last -- actually in the last 12 months, end of last year but also beginning of -- we can go to subsea -- also, of course, end of June another €11 million, and I believe €15 million or so goodwill.

Of course, the divestment of the subsea APAC business will improve these results after closing, so that in itself is good. And we also believe that the new owner of the subsea APAC business is a better owner than Fugro is. It's their core business. They can take different decisions than we can. And as a result, they should be better positioned to make that business work and make it profitable than we could do, as we identified at least that part of the subsea business as a non-core part of our activities.

These are some more numbers, some you've seen from Paul already on the subsea APAC divestment. Annual revenue in 2015 was €142 million. Three chartered vessels, one owned vessel, and 18 ROVs have been transferred. Related assets and liabilities classified as assets held for sale is €22 million. So, the net assets, so assets minus liabilities that will be transferred, is €22 million.

The divestment will have a positive impact on net debt to EBITDA, and in particular on the fixed charge cover. As I mentioned, we took an impairment on one of the vessels. The rest basically transferred at book value. And we will continue to keep around a 25% equity stake.

We'll receive a cash consideration of around €14 million. And even then, of course this market recovers and this business starts to hopefully grow again, we still benefit for a quarter of that, which is not unsignificant.

Geoscience; seabed, despite a 41% revenue decline, that's almost half, had actually -- I would say given the revenue decline and almost exceptional performance, also if I take out the €11 million one-off benefit that we had related to the Hugin, it's still a high single digit, almost double digit EBIT. And that is very simple because of the following reasons, very, very solid operational performance, low operational leverage.

We have tried over time to modernize this business as much as possible. And now in particular, with the agreement that we've reached with one of the vessel owners where we have converted an operational lease into a, let's say, financial lease with a purchase obligation, we will have a vessel as well for the same cost that we would have had if we simply would have continued this charter contract, which of course is a good outcome for us.

We had a asset retirement obligation. That means that, at the end of the charter period, we would have to put the boat back in its original state. That would have cost quite an amount of money. That obligation we don't have any more. We had created a provision for that, and that we have been able to release, of course, end of June as part of this deal.

We had some impairments on goodwill and also on ocean bottom nodes. As I mentioned before, that and the other part in geoscience is Finder, where we had a small impairment. And the remaining book value of the Finder projects that we still have with them is €26 million.

Net finance and income costs, the first view looks pretty ugly, €43 million versus €26 million. Actually, the underlying story is much better. We have lower interest expenses because we have been able to lower debt, which of course drives down interest.

We had to pay make-whole on some of the prepayments we did. The majority of the prepayments we did were without make-whole, which was actually good, but there was also one tranche that we had to pay make-whole. That was €11 million. Excluding this make-whole, interest expenses were actually €10 million below our last year, which is a significant reduction.

And we had, yes, just translation. We're a euro based company, negative exchange rate variances year-on-year related to the currencies, that you can read.

Reduced tax expenses, still a small tax, which never feels good if you make a loss. But, as you all know, tax -- you don't pay taxes on a consolidated IFRS profit before tax. I wish we would based on these numbers, but we don't. You pay tax per jurisdiction per country. So, if and when you make money in a certain country, you still pay regardless of how much money you lose in another country.

So, that's one reason. The other one is we have not -- it's quite tough under IFRS to recognize deferred tax assets, especially now in the market in which we operate. What is important is the fact that we don't recognize this. It doesn't mean that we cannot use them.

So, these tax assets will remain in place. And if and when we start to make money again when this market recovers, of course they will be fully to our benefit if we at least make money in the markets where we have these losses. That's important. And certain expenses are not tax deductible, so also that distorts the picture somewhat.

Working capital, I think all in all a good performance. We had in the end of 2015 a very strong performance, 11.9%. You see where we come from. We are now at the same level as mid this year. We do expect going forward to see a positive development in working capital and also a positive cash flow from working capital.

One note there, it will -- it's not a slam dunk. It will become more and more challenging. I said it the last time. I say it again. Customers are not only putting pressure on price but also putting pressure on terms. So far we have been able to manage that. We have kept DRO at 99 days. Working capital at 15% is, relative to last year, at the same level. And last year was improvement compared to the year before, so we have kept it at an improved level. And of course, the target for year-end will be to bring this down further.

Here you see the development of the DRO. So, already now for quite some quarters we are hovering around 100 days. And hopefully we can maintain that, but that's for sure in the targets that we have.

This is the key, €67 million positive cash flow. That is for us the absolute key focus area, positive cash flow, I would almost say regardless where it comes from. Obviously, we will also try to manage a positive cash flow from operations, but the most important one is that the number is positive.

And the number is positive at €67 million. Also for the year it will be a positive. And also our target for the year remains, but that will be a challenge. But still it remains our target to also have a positive cash flow from operations. And of course, that we will use to further de-lever the balance sheet and improve our net debt.

Our balance sheet ratios, they look good; fixed charge cover 2.5. And as I mentioned, with the subsea APAC divestment this number will improve after closing. We have a net debt to EBITDA of 1.8. We have here the maturity of our debt. We still have undrawn facilities under the RCF of €350 million, so we have access to plenty of cash, so strong liquidity. So, this looks pretty good.

And that's it. And now I hand over to Paul for the outlook.

Paul van Riel

Paul, thanks. So, let me finish with the outlook. This gives the overview. And as you'll appreciate, the outlook is mostly based around what we see in the development of the backlog.

So, what we see is the backlog coming down in line with the market. We discussed that before. And this is the trend here that we try and analyze and take a look forward how things are moving.

Perhaps good to note in this backlog development, that the percentage of definite orders that we have below is very steady. So, it shows that the Company is managing, and its definitions, how its using its backlog, in a consistent way. So, we have quite some confidence in how this backlog is built up.

I think one important one to note is the top one, where in particular we see the backlog in seabed decreasing. That's of course a concern, but that's quite simple. It is that we have very large projects. And as we operate the projects, obviously the backlog going forward for those projects drops. And right now we have limited visibility on concrete projects to add to the pipeline.

I do want to say though that tendering activity, and in particular requests for information around projects, remains consistent and remains good for that business. Hence, also one of the reasons for us to invest in that Manta technology, but that has not shown up in the backlog.

This is the table around the backlog. It just gives you more details and an easy way to analyze, so nothing more or much for me to say about that. You have it as a reference.

And then finally, what are we seeing in the markets and how are we looking at the development? Well, quite simply, Paul already indicated this. I already indicated it. It's for us, 2016, we'll continue to be working in a challenging market.

Trends that we're seeing, already discussed that, but just again to point out that we see the balance in terms of supply and demand slowly but surely recovering. So, at some point next year we believe that that will actually come back in balance. Importantly, the price reductions and efficiency gains in the supply chain are lowering the oil price required for clients to give their final investment decisions, so that should also have a positive effect.

However, the combination of those two positive bullets, the one thing we cannot say much about at this point in time looking at our backlog, is that we see that this is beginning to have the market bottoming out and then hopefully at some point coming back up again. It's just, for us, too early at this point in time.

To reiterate, in the other 25% of our markets around building and infrastructure, there basically the market outlook is good overall across the globe and still positive growth.

So, what does that mean for the remainder of 2016? It's first of all, in this market environment, we continue with our cost measures and our performance improvement program. We will get the cost base down to basically align to the market reality and, again, focus on performance improvement, because it is the combination of those that will keep Fugro the leading company that it is in the market today.

Paul mentioned it also. We are in many of our market segments the largest player, and we firmly have evidence that our market share has actually improved relative to the competition.

Second, expectation is a negative low single digit EBIT margin, excluding exceptional items. So, basically it means a continuation, to a degree, of the trend that we have seen going from last half year to this half year into next.

Capital expenditure, we will manage that to be around €100 million, and very important, positive cash flow from operating activities after investments.

Message in terms of what we focus on unchanged, cash flow generation, deleveraging the balance sheet, and strengthening and continuing to strengthen our market leading positions so that we can immediately benefit as soon as stabilization or improvement sets in.

So, with that, I'd like to turn over to questions. And [Katrine] and [Rhea] [ph] if you also keep an eye on people calling in or who are following through the webcast, then we can handle all the question. So, please, the floor is yours.

Question-and-Answer Session

A - Paul Verhagen

Dirk, go ahead.

Dirk Verbiesen

Yes. Dirk Verbiesen, KBC. I had a question on the transaction in subsea services. It was acknowledged as assets held for sale at the end of the first half.

Paul Verhagen


Dirk Verbiesen

Is the backlog also corrected for that, or is the backlog still including that Asia-Pacific?

Paul Verhagen

No, the only change in assets held for sale that you see is in the balance sheet. This is €22 million assets, so assets are net assets. So, assets and liabilities that will be transferred, they are regrouped to one line in the balance sheet. P&L, backlog, nothing changed, and nothing will change until closing.

Dirk Verbiesen

And what can you say about the backlog of those activities in relative terms?

Paul Verhagen

The revenue was around -- last year around €142 million. I mean, the last four quarters are more or less the same. And the backlog is slightly less than a third of that. That's a reference that you can take.

Dirk Verbiesen

A third of the revenues?

Paul Verhagen

Yes, slightly less than a third of the revenues.

Dirk Verbiesen

And then on the survey activities, what we see in geotech, for example, is that the third party costs are coming down quite significantly, contrary to what we see in survey. How do you explain the difference? Because it's quite a big gap.

Paul Verhagen

Yes. No, that's correct. So, in survey, we have to do more work to get that better balanced. At the same time, it's partially caused by actually pretty good utilization in survey.

On the one hand, you would say that should not make a difference, but actually it does, given that the price pressure has been so enormous. So, we have good utilization still with certain costs that we had to make. That resulted in I think a few percentage points gap between, let's say, the third party costs as a percentage of revenue last year compared to this year.

So, it's for sure an attention point that we are fully aware of. As a group, we have been able to manage the third party costs very much in line with the revenue decline. But indeed there is differences per division, yes.

Dirk Verbiesen

And about the vessel adjustments in survey also, there are a number of vessels which exceed 30 years in the fleet. We don't show an opportunity to retire that or -- because I think two are stacked and one is retired.

Paul van Riel

One is retired. One is retired, yes.

Dirk Verbiesen

Okay. But those that are stacked can be put at work again in the future?

Paul van Riel


Dirk Verbiesen

Okay. So, you see opportunities going forward for those.

Paul van Riel

Well, if --.

Dirk Verbiesen

Because looking at the --.

Paul van Riel


Dirk Verbiesen

Comments you make about the market, the pricing pressure, it's maybe a reason to rationalize capacity, but it's too early for that.

Paul van Riel

I think Paul indicated you could see it from the savings. They're older, relatively small vessels. So, the cost savings that you achieve by completely scrapping relative to stacking, what we've done, are not that large. And we've obviously made that call, and we think that the better call is to stack rather than retire.

Dirk Verbiesen

Okay. Thanks.

Martijn den Drijver

Yes, Martijn den Drijver for NIBC. With regards to the charters and also in relation to the fixed charter coverage ratio, the three vessels that will be divested, can you tell us something about your operating leases that are involved? And it also applies to the -- as you call it, the Hugin . That's just something that would be beneficial, first question.

Paul Verhagen

Yes. No, that's fine. Yes, we're not going to disclose precisely what these charter rates are, but you can still work with, let's say, relative assumptions.

This is three charters in the subsea vessel out of the six. In geotech, we have another two charters, which is of course the Scout and the Voyager as a result of the sale and leaseback. And in seabed, we had one charter, the Hugin .

So, if you take the charter expense that are related, because I think that's the background of the question, for covenant purpose, which is a part of the charter expenses -- it's not everything. It's just a bare boat charter. We also have time charters. So, the cost to us could be, let's say, a 10, while for a covenant calculation we only take into account six or five depending if it's a bare boat or a time charter.

But three vessels out of, let's say, nine vessels is a significant number. So, that gives an indication you should think of. The Hugin is not the most expensive charter where we have it ran until mid 2018. It's, I think for us and I think for both parties, a good deal for the same amount of money that we had under the charter contract including our liability to put the boat back in its original condition.

We have now a vessel. And as a result, already from this quarter onwards a lease expense will change into a depreciation because it will be accounted for as a financial lease.

Martijn den Drijver

Okay. Thank you. Then on to the other subsea activities, you had a number of tripartite contracts from Brazil. You mentioned that Brazil is doing well, or at least relatively well. But if I recall correctly, some six of those nine contracts were to be expired or were to expire in the first half of 2016. Can you update us a little bit about the consequences or the wins that you've had in that segment?

Paul van Riel

Yes. What we are seeing at the moment is that -- well, when we made our plans, the situation in Brazil was extremely unclear. So, what has happened is that, first of all, we have obtained an interesting contract for the Aquarius vessel, which was Brazilian built, so that's good. That's out there. That is working and performing quite well.

The second aspect to mention, when we launched our strategy a couple of years ago, one of the elements was to focus on performance improvement to subsea and particularly in Brazil. That's paying off. So, Brazil is really paying off. The operations in Brazil, operational uptime is now good to very good.

And finally is I guess your real question, what happens to the six remaining projects. Right now we're in the middle of all of them coming up. It's all pretty much, to a large degree, coincidental. And what we are seeing is partial extensions.

We're also seeing them -- some of them go in hold mode, but not yet being terminated dependent on the so-called vessel blocking thing that they have in Brazil. It depends if you have a boat that comes from outside Brazil or inside Brazil. We do expect to lose some of those contracts, but certainly the outlook is far less bleak than it was a couple of months back.

So, it's too early to say what exactly is going to happen, but it should be better than we thought half a year ago.

Martijn den Drijver

And when you talk about some, may not be one, may not be extended, those expectations have been a part of your overall expectation/guidance?

Paul van Riel

Sorry, the --?

Martijn den Drijver

Well, you have guidance for the full year.

Paul van Riel

Yes, that's as we see it today. That is in there. And still in Brazil there is uncertainty there. So we'll see what happens, if some of them come around or not.

Martijn den Drijver

And then the final question, what other measures do you think you can take? You still have the Symphony, which is a vessel that you're not really happy with. Can you delay the venture? Do you see other asset sales, possibly even ones that you haven't thought about before, at least not thought about, but considered like the JV in China? Can you update us a little bit about your thinking?

Paul van Riel

Yes. Well, to be clear, to look at some of our biggest assets, the Symphony, we announced that already quite some time ago. Both the Symphony and Saltire are busy way into next year on this Rampion wind farm project.

There will be some gaps in the program, but those are planned gaps. And there will be some gaps over the wintertime dependent on the weather. But importantly, both vessels are on a very large, long, profitable project, and I think that is the key thing. So, they are happily part there.

Now that we have -- because we focused all our energy there on getting the transaction in Australia across the line, this will now give us the opportunity to also start looking at other parts of subsea. And certainly, we will be looking at, among others, the Symphony. That's for sure.

You can also imagine that we will be looking at assets in general. Nothing is safe from scrutiny. So, we will definitely go through our asset base and look at the options to see what we can do there.

Yes? [Audio Gap]

Paul Verhagen

It's around -- I hope you can hear me. It's about the average result EBIT margin that you see in subsea.

Unidentified Analyst

Okay, thanks. And then when you said that you're talking about looking at different assets, and subsea services included, are you actually in any discussions at the moment about selling other parts of the division?

Paul van Riel

That is something that we're not -- obviously not disclosing.

Unidentified Analyst

Okay, great. Okay. Well, yes, that's it for me. Thank you very much.

Unidentified Analyst


Paul van Riel

Yes. It is weaker, unless you have to…

Unidentified Analyst

Okay, this sounds better. A couple of questions on the covenants. First of all, if we look at your outlook of a low single digit loss on the EBIT level, if I add about €200 million to -- in depreciation, amortization on a normalized basis, you get to an EBITDA on a full year basis below €200 million versus the current net debt. You're getting a bit closer to the 3 times level. How comfortable are you that you will be able to generate some cash flow and de-lever towards the end of the year versus the current net debt number?

And in relation to that, if we look at your working capital, the main issue for the first half is mainly the creditors. Can you explain a bit better what happened there? Because it's quite a bit of cash out. And obviously you are managing your debt quite well, which is difficult, but the credit is quite important as well.

Regarding the net interest cover, just to be fairly sure, I only include the cash interest payments in there, so not the FX movements. And on the other side, just to put a number in there, you now have €90 million in -- right at €90 million in lease commitments in that net interest cover. Given the fact that you are losing about four of the nine charters that you have, is it safe to assume that this number will drop to, roughly speaking, €50 million on kind an annualized basis going forward? That's my questions on the covenants.

Then on the Synergy, reading in between the lines I see you make another impairment of about €30 million on that vessel. What's the book value -- remaining book value left of this vessel? And how is the market for well intervention vessels? Given the fact that you also warm stacked this, can we expect anything in terms of divestment program on this side?

And my last question would be on the other income. It's €24 million, relatively high versus what we normally see. Can you give us a bit of feeling what that is?

Paul van Riel

Yes. A big thanks; they are nearly all financial questions, so I am going to happily leave them over to Paul. Let me just answer the question on the Synergy.

The Synergy indeed was built to be a light well intervention vessel. But at the same time, let's not forget it was also built and designed to be able to take very high end geotech work. So, that is the reason she is warm stacked, so that we can still pick up high end geotech work when it comes.

Your question, what does that mean for the light well intervention market, well, let's be clear there. Just like other markets, that market at the moment today is soft, and hence the reason to warm stack her for that purpose.

Paul Verhagen

On the covenants, I can be very clear that we will take measures needed to stay within the covenants. So, there should not be any doubt that we must stay within the covenants.

As we've said already many, many quarters in a row, our key focus is positive cash flow. We have delivered a positive cash flow in the first half. We will deliver a positive cash flow in the full year, which includes, of course, the monetization of a few assets.

At the same time, as I mentioned also, from an operational point of view we'll target positive cash flow. We'll see if we will achieve that. Given the market, that's not easy but also not impossible. So, that's the focus, and that should help us to stay within the covenants. And that's what we are managing, and make sure that that happens.

On the fixed charge cover, yes, as far as I can recall. If that would be different, I'll let you know. It's only the cash interest expense that we take into account there.

Lease commitments, yes, it will drop. I just explained the number of charters that will leave relative to the total. So, if you work with that ratio, you will not have a totally unrealistic number. And more I cannot say about that.

Other income, I have to come back on you with them. I though, I had most of the numbers in my head, but actually that one I don't have in my head. But I will get back to you on that one.

Unidentified Analyst


Paul Verhagen

Yes, what you see in the payables is a particularly strong cash outflow related to seabed. As you know, we had big customer contracts at the end of last year. We have some delayed payments from a particular NOC. We had back to back payments in place with a lot of suppliers, and that has -- when we got these payments, which is why they are fully paid. That's led to a disproportionate also amount of cash outflow related to payables.

Paul van Riel

Katrine, nothing?

Quirijn Mulder

Good afternoon, Quirijn Mulder from ING. I have about four questions for you, first about the CapEx. You say €100 million. Your investments was €30 million. So, the Hugin Explorer is there included in the third quarter then, or how should I see it? Or is that the amount -- sorry, the underlying CapEx has been -- is lower than even that €1 million? That's my first question.

Paul Verhagen

Yes. So, the Hugin Elite will be included in the third quarter. That's accounting for CapEx. That's not cash for CapEx. It's something different.

The cash flow profiles related to CapEx will more or less follow the charter agreement that we had. Actually, it's even somewhat extended beyond the charter agreement, so it's a little bit more favorable even. So, the cash out related to that CapEx that you will see in Q3 will be somewhat on the part of 2017, 2018, and 2019 even.

Quirijn Mulder

Okay, thank you. With regard to provisions, restructuring, etc., how is the cash outflow you expect for the second half in 2016 with regard to layoffs, etc.?

Paul Verhagen

Total provision we expect, and it's not -- you know this of course depends a little bit on what we have to do still. But as we see it now, there will I think around €20 million, maybe somewhat less. And since we also have still a cash outflow related to restructuring that was taken and accounted for last year, the overall cash flow related to restructuring will be more or less that amount. Partially it will flow into next year, but also last year as from -- and partially into this year. So, net-net, it will be more or less that amount.

Quirijn Mulder

Okay. And then on seabed, you're investing in the Mantra nodes, and you are investing in the Hugin Explorer, in fact. Are you more optimistic about this market? Or let me say is this something in a step forward, hoping that something is going -- will do better or have you -- different for you? And we also remember that you were very cautious with regard to seabed because of the size of the contracts which you sought in the past to be too large for Fugro to handle.

Paul Verhagen

I'll take the first part, and the rest I give to Paul. Just to clarify the point on the Hugin, as we tried to explain in the press release, we are not investing in the Hugin.

We have a contract in place. We have liabilities under that contract. And the fact that we know purchase this vessel has not increased that liability by one euro. So, the liabilities were there.

What has happened is that, because of the combination of this asset retirement obligation and the lease liability that we had, we could manage in this market to have an agreement with the owner to confer this in a purchase, which is good for the owner for a number of reasons, but also good for Fugro.

So, the amount of money that we spent has not changed. So, you cannot see that as an additional investment. From an accounting point of view, it looks like that. But from a cash point of view it's exactly the same. Actually, it's even slightly more favorable.

Paul van Riel

Yes. So, then Quirijn, to answer your question, what we now clearly see is that seabed technology is really becoming a preferred technology to map reservoirs and potential reservoirs during production and during development.

So, the volume of potential projects that is out there is actually quite significant. And the way to attack that is by technology that can -- our new generation technology that can do it more efficiently than the old generation technology if we do so.

Let's not forget that with seabed we are basically the largest player in the market. And we should be able to retain our market share that we've had and we should be able to get our fair share of those large projects, which we also believe, even in this environment, should be attractive to us. So, that's the justification for going in it.

Quirijn Mulder

My final question is about the impairments. You have taken €136 million impairments for the different divisions, excluding survey. If you look at the pricing development and, let me say, maybe your cash flow calculations, can we expect an impairment in survey in the second half 2016 if this goes on and you -- let me say you will make your -- you take different assumption for this division, which in past makes something like over 20% margins?

Paul Verhagen

It's extremely unlikely that that will happen. You could have maybe a small asset impairment of a vessel that we might retire or something like that. But, no, not in terms of values.

Thijs Berkelder

Thijs Berkelder, ABN AMRO. A couple of questions, first just to check. You have got 585 employees in H1. You target 1,000 by year-end. That includes, I presume, the 285 for the subsea Australia.

Paul Verhagen

No. No.

Thijs Berkelder

That already was in the H1 number. Okay, clear.

Second question, you mentioned as well tax assets. Can you give a bit of indication of how large tax assets now are and in which regions?

Paul Verhagen

I think in the balance sheet -- I'm not 100% sure, but you can check it in the financial statements that are on the Web. I think around €90 million or so. The total amount of tax assets is a multiple of that that are not recognized. And it's -- yes, it's actually in all regions, in Australia and in the U.S., in the U.K., in Brazil. They are in many markets.

Thijs Berkelder

Okay. Then third question, I think Schlumberger called the bottom of the services market and said to look for price increases again. What's your view or your feeling there in your discussions with clients?

Paul van Riel

Yes. Well, I think we've been absolutely clear on that point. We see the backlog declining. On the other hand, like Schlumberger, we also see the pluses developing. We see the overall costs coming down. We see that balance coming back.

However, we work offshore where new projects have longer lead times, whereas Schlumberger, A, has an exposure onshore in shale in North America, which can come back more quickly, plus they really are all over the map in terms of oil and gas services that they provide.

So, it may very well be that in certain of their segments they already see things going better. Great. We just want to be very clear that on the Fugro side we are uncomfortable with saying we've seen that bottom. We are still uncertain, though it must come with those factors going the right way for anybody and everybody in the oil services sector.

Thijs Berkelder

Thanks. Then a final question, and this may be not so related to the Q2 results. As your AGM there were some votings takings place. Can you explain why the foundation is not joining shareholders in that voting? There were, I think, one or two agenda points where the -- let's say the external shareholders were in a majority no and where the foundation, let's say, made the agenda point a yes. Is that normal for Fugro? Will that stay normal, or are there developments taking place there?

Paul van Riel

Well, that is a question that depends on the situation and it depends on our perception of possible threats to Fugro. So, generally speaking, like in the last AGM, essentially that foundation covers absentees. And that's really what it's all about.

Thijs Berkelder

Yes. But isn't it normal to assume that the absent shareholders vote in line with the ones present?

Paul van Riel

Look, that's how we handled it.

Thijs Berkelder

And towards them making the decision, is that the Board's making that decision and the foundation listening, or is the foundation --?

Paul van Riel

No, of course not. Yes, the foundation is an independent body. And of course, the foundation will be informed by the Board on developments, etc., but they make their decision. That's their job. They're an independent foundation.

Thijs Berkelder

Okay, clear. Thanks.

Paul Verhagen

Okay, I've got one clarification here, which the answer might have been misunderstood on the redundancies in the first half. So, the 585 do not include the subsea FTEs that will be transferred too. That was maybe misunderstood. Maybe it was well understood. I don't know.

But, just to be clear, so the 1,000 that we announced do not include the subsea. So, including the subsea transfer, it will be around 1,300, just to make that fully clear.

Quirijn Mulder

Yes, I have three questions left here. One is about how do you define your markets, that you can say so bluntly my market share is growing in these markets. How can you see that? It's an interesting question, I think.

And then with regard to survey, about Metocean you said that's better in the second quarter or second - in first half 2016. First quarter, as I remember, it was still lower than last year, or let me say it was not improving there in that activity, as I remember.

And then my final question about subsea, you said it's about the same margin as -- the divested activity as the whole subsea. Do you mean 2015 or the first half of 2016? Because 2015 was minus 7% for subsea, and the first half is minus 20%. So, maybe you can give some difference there or some idea about how the development is there relatively to the other part of subsea.

And also, given your breakdown subsea in OEM and IRM markets, do you have an idea about how large that OEM market is now left after divesting this subsea ECO?

Paul van Riel

Okay. Quirijn, what exactly do you mean with OEM markets?

Quirijn Mulder

Operational equipment markets, so the newbuilt. So, newbuilt against inspection, repair, or maintenance.

Paul van Riel

Okay. All right, I see what you mean. All right, let me take a couple of those questions. I think Paul, just to -- when we talked about relative percentage of subsea, we meant the H1 numbers, right?

Paul Verhagen

Yes. It's the last 12 months. It's a mix, but -- so, the H1 number are in there, but also the --.

Paul van Riel

For the profitability?

Paul Verhagen


Paul van Riel

Okay. All right. Yes. But again, if you roughly do the pro rata, you're in good shape.

Paul Verhagen


Paul van Riel

Yes, Quirijn, the question on OEM versus IRM, generally what we're seeing, I don't know the numbers off the top of my head. Let me be clear here. But Brazil is actually also -- still an enormous of field development going on, so there will be plenty of OEM part of the market, if you will, together with IRM.

Without really knowing, but given what's going on in Brazil, I would judge that the market there or that relation -- relative piece of the market are pretty much the same as they were before, given the ongoing developments. In the -- also, by the way, in the Middle East, because developments in the Middle East are also still ongoing, so expect that balance to stay in place.

The difference is in the North Sea where we are absolutely seeing a reduction in new development activity. And you are actually seeing a shift to more IRM activity, but also to more wind farm activity. So, there I'm pretty confident, without knowing the exact numbers, that the OEM piece of the market is down relative to IRM.

Your comment about Metocean, I'm not sure I completely recognize it. It's a fairly steady, consistent business.

Paul Verhagen

Did you mean offshore geotech maybe, Quirijn? You mentioned Metocean, but we've said here Metocean is holding up.

Paul van Riel


Quirijn Mulder

I think in the first quarter press release you said it was initially down.

Paul van Riel


Paul Verhagen


Paul van Riel

Yes, then I would have to…

Paul Verhagen

For the first half at least it's holding up. If indeed that's correct, I cannot recall when. And that would mean that the second quarter was somewhat better. But the first half is very much in line.

Paul van Riel

Okay, Quirijn, and then your question about market share. Well, these days that is actually quite easy to do.

All vessels carry a call signal so you can determine where each vessel in the world is at any one time. And we take snapshots of the market. We obviously know all competitor vessels, so we just can quite easily count vessels at work. Well, and that makes it pretty clear that we have, relatively speaking, a very large percentage of our fleet working and the competitors -- the competition just doesn't.

Wim Gille

Wim Gille, ABN. I've got two follow up questions on the transaction. Which vessel did you sell alone? That's my first one.

And the other one is can you give us a bit of feeling on what Shelf Subsea looks like, given the fact that you will be having a 25% stake in the new co? So, give a bit of feeling for the size but also about the shareholder structure, because I think it's owned by private equity. So, how is that entity funded? Are there shareholder loans in there, or any other way that private equity can basically screw you over?

Paul van Riel

All right. Yes, yes. Well, good to hear you're suspicious. Let me start with the latter.

In this case, I think all parties are pretty much aligned, and we've made absolutely sure that anything and everything is that we are on the P/E side of this. So, I want to be absolutely clear on that. We have the same rights. If they go out, we go out. We have everything, drag along, tagalong, you name it.

In terms of financial structure, it is really the intent to build, and otherwise Fugro wouldn't join. It really is the intent to build the company here. So, as far as we can judge, there are no plans here to go overboard with financing that just bleeds them dry, nothing like it. The intent here is build a good company.

It's maybe good to mention that the private equity parties in this in various forms and fashion have already been involved previously with subsea activities. They know the teams well. Actually, in part they were involved with the old Fugro-TSM. So, it's a group that knows the business, understands the business, knows the people. So, I think from that perspective that gave us the confidence to also become a shareholder in that new entity.

The vessel that was sold was the Atlantis Dweller. That is a -- if you will, a medium size IRM/diving vessel. And that fits their markets very well. What Shelf does is Shelf came out of the Chapter 11 of Cal Dive. And they took over the Asia-Pacific activities of Cal Dive, which was mostly around diving. And so, together with Fugro subsea services, it really is a full scope service provider for the IRM/light installation, construction market, which is exactly the segment they want to be.

Okay. Katrine, any questions from external? No? All right. We're clear. Then any final questions? No? Good.

Paul van Riel

Then everybody, thanks very much for attending. Thanks for your questions, and I'm sure we'll have an opportunity to chat for a little bit more. Thank you.

Paul Verhagen

Okay. Thank you.

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