Fugro in further cost-cutting push after ‘tough first half’

After experiencing a tough first half of the year, the Dutch geotechnical, survey, subsea and geoscience services provider, Fugro, has made plans to further cut costs to counter the continued challenging market conditions. 

In its Thursday report for the first half of the year, Fugro said it reduced its net result for the period to EUR 96.4 million ($114.2M) from EUR 202.1 million ($239.4M) in the first half of 2016.

The company’s revenues for the first half of 2017 declined by 14.5% to EUR 774.3 million from EUR 904.9 million in the same period of 2016.

Year-on-year revenue decline on a currency comparable basis reflected ongoing underinvestment in the offshore oil and gas market but the decline was less than during the last two years.

According to the company, additional measures are being implemented to streamline business processes and further reduce cost, in order to restore profitability.

Backlog for the next 12 months is bottoming out with a decrease of 5.5% on a currency comparable basis compared to a year ago and 2.4% compared to the end of March.

Paul van Riel, Fugro CEO, commented: “The offshore oil and gas market continued to decline resulting in a tough first half of 2017. Marine site characterization activities performed below last year mainly due to pricing pressure, and currently utilization at Seabed Geosolutions is low. The marine asset integrity business showed an improved performance at close to break-even level.”

However, Riel sees more stable environment looking ahead: “We are seeing early signs of moving into a more stable environment. The marine site characterization and marine asset integrity backlog, excluding construction and installation activities, is growing, supported by signals of increased tender activity. The pipeline of potential projects for Seabed Geosolutions is solid.

“In order to restore profitability we are implementing additional measures, including significant cost savings, adjusting pricing strategies and focusing on innovative, higher margin services. This will already start to contribute to improved performance in the second half of this year.”

Further cost-cutting measures

Fugro continues to implement cost reduction and performance improvement measures to counter the continued challenging market conditions. In the first half of 2017, the company’s headcount was reduced by 178 employees to 10,352 and third party expenses were further reduced by 9.6%. In addition, capex continues to be curtailed strongly.

Additional measures being taken to restore profitability include improving terms and conditions and early termination of vessel charter agreements. Fugro will also retire two older vessels in the second half of the year.

Furthermore, the company concluded that the acquisition of the REM Etive vessel, following the award of two multi-year inspection, repair and maintenance (IRM) contracts earlier in the year, is at significantly more beneficial financial conditions than charter renewal.

Other measures include down-manning of vessels and vessel support enabled by standardization and application of new technologies, further FTE reduction and more flexible staffing to deal with seasonality.

Another measure will be further streamlining of the organization by standardizing work processes, further reducing the number of legal entities and consolidation of support functions into shared service centers.

In total, cost savings and performance improvement measures are expected to result in an annualized contribution to EBITDA of EUR 50 to 70 million, most of which will be realized in the coming 12 months.

Fugro’s net debt increased from EUR 351.1 million at year-end 2016 to EUR 433.5 million, partly as a result of the seasonal increase in working capital.

For the full year 2017, Fugro anticipates a decrease in revenue, however less severe than during the first half. This expectation is supported by a bottoming out of Fugro’s backlog since mid-2016.

Capex is expected to be around EUR 100 million.

Offshore Energy Today Staff