Fugro N.V. (FUR) Earnings Call Transcript

Very welcome. Good afternoon to everyone to the full year result presentation of 2022. Very welcome to everyone here in the room but also obviously on the webcast. I would like to go to the first present slide, which presents the key messages, and that's actually well represented by the headers in the slide. We saw strong revenue growth in 2022 of 14.8%, with margin expansion, whilst we also see the need for further investments to cater for the growth in the future. If we look at the details of the finances, Barbara Geelen, our CFO, will do that a little bit later, but the highlights are obviously the margin improvement coming up to 6.1%. Let me be clear. That's not where we want to end up. We have targets for the midterm that are higher between 8% and 12%, but we feel that we are well on track to meet those targets. What is good to see there is that it's actually supported by all regions and all business lines, which is, I think, very powerful to see because we have seen other years where this was not the case.  It's also driven by a solid improvement in the land business, which is also something Barbara will elaborate a little bit more on, which is also good after all the restructuring and work that we have done over the past few years. Then I think we should also recognize that it was a special year with the war in Ukraine and the result of that with a very high inflation across the world. A lot of companies obviously been affected also in the whole supply chain. And then it's good to see that we have been able to mitigate the higher cost in that whole supply chain inflation cost in everything we had to deal with. Operating cash flow significantly higher, however, offset by also higher CapEx and working capital, obviously due to the higher growth in the market and in our revenues. I think what is very positive to see is the order book, the 12-month backlog going up close to 38%, which obviously a combination of volume and price, which is also quite important to understand because, to handle a volume of 38% will be very steep. So it's good to know that this is a combination of the 2. In general, we can also say that we have a high demand for our services moving forward. I'll elaborate on that a little bit later. And we also feel that we're on track to meet our targets in the midterm, which is '23, '24.  As I said before, I will come back on that, and we have made a separate announcement of the acquisition of 2 vessels that will be transformed into -- repurposed into geotechnical platforms, which we feel was a great opportunity that we really require to meet our requirements for the business need in the future. We'll come back on that as well. And last but not least, also very good to emphasize is that in the second half of the year, we'll come back on, yes, the next phase of our path to profitable growth strategy, which is, I think, important. And obviously, people will have questions with the market dynamics we currently see in the market. If we then move to the next slide, we see that we feel that we're on track for the financial and non-financial targets. You see them here on the board related to people, planet and profit. We'll elaborate, obviously, on the financial targets a little bit later. But if you look at, for instance, the objectives that we have for the planet, so to say, the sustainability, the environmental sustainability targets that we have, we feel that we're doing quite well there as well. First target was related to the amount of work that we do in the infrastructure, water and renewable energy market. We have a target there for the midterm to go above 65%. We've made another good step towards that. We're now at 63% coming from the 61% last year.  If we then look at the very important target, the reduction of CO2 emissions, then we have there a target in 25 of 20% reduction of CO2 emission. We have now reached already 13% with an achievement of last year, a reduction of 7%, which I think is quite good. And then there is another target there, CDP rating, which is the carbon disclosure project rating. That's already met the target that we have. Now it's important that we keep it also on the B level or even improve further up. We have the intention to go to science-based targets as BTI targets. That's a whole process that normally takes 2 years. We're now one way underway and 1 year underway. And we're basically going to submit those targets and then they need to be approved by SBTI, and then there will be, yes, accredited, so to say, and then we can move forward to start delivering on that.  If we move forward, then this is a favorite slide to me because I'm actually quite proud of what we have achieved here over the years. We now see a nice spread mix diversification of diversified portfolio of markets that we serve, 37% oil and gas, which obviously came down from 80%, probably 7, 8 years ago. It's not visible here anymore from 2015, we show on the page 74%, which is a steep reduction. And this was by design because I clearly recall that we sat down 6 years ago with the team to actually say we want to further diversify and also serve other markets with the expertise, the core expertise that Fugro has. So this worked out quite well. And as I just said, we want to aim for a minimum of 65% of, yes, water infra and renewable energy market. So we're well on track with the 63% that we have met to now. So something to be proud of, and I think this is a slide that we'll obviously keep on the board. It's also good to see what have we done growth-wise in the markets over the last year, 42% growth in offshore wind, which is obviously very steep, again, a combination of volume and price. And then if you look at the other markets, oil and gas, 9% growth, which is probably largely driven by price increases. So probably volume-wise, there is a minimal growth on the oil and gas in 2022 yet. So probably more to come in the future.  If we then move forward and look at the markets in general, we could say the following. I think it's important to start noting that, obviously, this world is becoming more crowded in 2050, 10 billion people on this planet that obviously all need food, water, energy and infrastructure. And that's all happening in an environment where the world is changing faster than ever before with climate change coming in and things that we have to do to actually build that safe and livable environment for everybody that lives on this planet that uses this planet as our home. So a lot of things to do there, and that's also what you see in these markets moving forward. So all the markets that we serve, the energy market split in the renewables, which is largely offshore wind and oil and gas, very much energy going up. Oil and gas market here is shown with a minimal growth of 4% per year, a CAGR of 4% per year. That is changing each time that we actually ask the experts, the market experts for new reports, then there is fluctuation in that. So it's obviously going up and down a little bit. But over time, we expect, and you see that in the news as well that energy companies are also investing in the traditional energy sources because simply the world needs these energy sources. And then specifically, we see the need for gas, and that is also quite visible already in our revenues. We can say a few more words about that a little bit later.  If you then look at all these markets and these developments and what is happening in the world, then there's only one thing that is very clear and there's more need for geodata, the expertise that Fugro has because we want to build more in this world and if you want to build, you want to fix something to the sub-service, the planet and the planet is dynamic. It's moving all the time, and then you need the Fugro expertise. So -- and what is also changing there is that probably people are now looking at building something responsibly, I call that nature inclusive. So very interesting. If we look at our markets for Fugro moving forward. Another thing to add. Last but not least, and that's something we will take on board also if we look forward in the second half of the year when we come out with an update on our strategic direction or more to say the strategic agenda that we already have, things like hydrogen, but also CCUS, carbon capture and music and storage are things that will come on the board and Fugro is already getting involved in these markets as well.  Then we all know that end of last year, and I move forward to this picture. End of last year, we did a deep dive in 2 things, which was related to our land business, but also to the offshore wind business. And I want to repeat some of the slides that we used in this deep dive. It was available to everyone. And the slides are still on our website. So if you haven't seen it, you can always find them there. And what is important is we focus on the land business, but is also extending into the marine business, then this picture says a lot because this is what Fugro does in their core activities, and that is reducing risk related to the ground. So we call it the geo risk management framework when you develop an asset in the world, the whole life cycle, you can actually bring the risk down, you can actually increase the schedule of building and also maintaining these assets over time by bringing in more geodata, by thinking well ahead and well in advance what you need. And there are multiple services that Fugro throughout this whole lifetime cycle of these assets is bringing in some technologies we have already presented also in this deep dive, I won't go into this today. But one of them is, for instance, swans where we use geophysics to actually characterize the subservice of particular sites that are being developed and where assets are being built.  So it is technology, but also the data portals that really helps our customers to answer their questions to further reduce the risk and also to speed up their building process. And this is core expertise of Fugro, and we can use that throughout every asset on every place on the planet, land and marine to help our customers. So many opportunities there moving forward. One of the things that is a really good example there, and I wanted to bring that in. This is not in the slide deck that is already shared this morning with you, but 2 slides on Turkey, which I think is a great example where Fugro gets involved with their core expertise in something that is, yes, visible to everyone in this world. There, we have a problem because there are simply a movement of tectonic plates. Basically, the country is, yes, ripped in 2, basically, moving apart, and that has an enormous consequence for the people that live there, which is extremely painful and many casualties obviously, which is the problem that we all have to deal with now and then because the planet is so dynamic and will continue to move and change.  What is important to see there, and that is, I think, interesting to note, Fugro has an office in Turkey, 2 offices in Turkey with the core expertise on earthquakes. And we have been actually involved over the last decade or even longer to look at these specific faults in the tectonic plates and what it does to Planet Earth and the environment. So even today, we're advising the government with our experts on the ground to really help them to think about, how do you actually, in the future, rebuild Turkey in a responsible manner, also to keep it safe there for the people that live there. What we have done, moving forward here, you see some pictures on the board where you see the dramatic shift in -- on the earth, so to say, major shifts. Basically, the country ripped the part over the fault that you see there in the subservice and Fugro is offering to the government to map actually this area of 300 kilometers and bring this data to the government to really help understanding what the damage has been and what we can do to help the lives of the people there moving forward. Great example to the point where the expertise of Fugro can help, and especially now in this dramatic, quite disastrous event.  Another example is the coastal resilience work, which comes to the board more and more. And that has all to do with the climate change work or the climate change adaptation work that is now required related to the changes on our planet. And that has to do with sea level rise, flood control, but also the risk of water and severe weather patterns that we have seen already over the last couple of years. And we have seen projects now over the last few years, build up and also request for our services in Florida, Louisiana, Texas, India, Ireland, Romania, Australia and various other islands, what they call actually the big ocean, small islands that really need to be helped because they have actually the risk to completely disappear in the next 100 years. So there's a responsibility there for the rich countries to, yes, deploy their expertise to help the world. Coastal resilience, urban resilience are the themes of the future, unfortunately, due to climate change.  If we look at the deep dive on offshore wind, we also presented these slides before, end of last year. And if you look then specifically at the growth in the market there, then you see steep growth of 25% CAGR year-on-year for the investments that actually move into this business. Fugro actually grew -- outgrew this growth of 42% last year. So something that is really neat. And -- that is the reason is that we are very much in the forefront in the early stage to help these clients to understand the total environment the service, but also, yes, everything around the environment around it, how to build in a responsible manner, but also how to design their field and make sure that they mitigate all the risks involved related to the ground and the conditions around it. So quite steep growth. And if you look on the right side there, you see how much is installed today, gigawatts installed on the wind offshore inside, 42 in 2022. And that means to move in the next 8 years to 210 gigawatts being installed.  And I think that is sometimes with people very difficult to understand what it actually means and how much is required -- and therefore, maybe one example, if you look at the country very close by the Netherlands here, we have 3 to 4 gigawatts installed today, offshore wind. We're working now with Fugro, providing, collecting all the information for the next 4 gigawatts, so 2x 2 gigawatts, that project that will be sent out at the end of this year. In September, the government will launch these license rounds. Fugro is collecting all the information before that so that everybody has the same data pack and then can bid on these licenses. That is another 4 gigawatts together, let's say, 8 gigawatts in the Netherlands. They have an ambition in 2030 to have 20 gigawatt watts on the board. That is another more than double 2.5x what we're working on today or what is already installed. 10 years later, in 2040, they want 50 gigawatts. That is a magnitude of 10 compared to what is installed today. In 2015, they want 70 gigawatts only in the Netherlands. Germany is moving as fast. Denmark is moving very fast, the U.K., Italy, many other countries. That's only Europe.  So the magnitude of this market is enormous and the growth will continue for many years to come. And the governments are good to give insight in what is coming up for the next 10 years or even 20 years, and they do that so that companies can also think about the investments that are required. I believe there will be definitely a capacity constraint in how fast we can build all these high demands and wishes that we have. If you then look at what is Fugro all doing in this environment, there are key questions that we need to answer for our clients, and I will put them all on the board one by one. See that I don't skip the slide by doing it. So these are common questions that clients have. Very simple, how do I install my power straight at location? But before you can actually install, you need to understand the subsurface. Is it sand? Is it clay? Are there any rocks because if you want to put your monopile in the seafloor and you hit a big boiler, yes, you can start redesigning your power again because it will be damaged.  So you need to know all these things in advance or think about the bombs of the World War II that are still on the seafloor buried under the ground. You don't want to put your power on one of these old bombs. So I think people can imagine what is required throughout the whole life cycle of the building process, but also thereafter, what is required for the inspection and maintenance of these assets. And Fugro provides a very nice mix of services that is very applicable in the whole development of these fields. And just a small comparison with the traditional energy environment where maybe some of our clients will do maybe geotechnical boreholes every year, 10 boreholes they said, for instance, for the traditional energy. And now they built an offshore wind farm and they need 200 wind mills, and that is suddenly 200 boreholes. So you compare the 10 maybe with 200, and there's only one wind farm. So you can see the magnitude of the problem that we have here and what is required.  And then I have not spoken about the biodiversity requests that are popping in into Fugro supply, environmental baseline studies, looking at what kind of organisms are living there on the seafloor, how can we build responsibly moving forward. It's all about the data, and I have a great picture if it works. Yes. So Fugro created a platform to present this data real-time or semi real time to the customers, by cloud-based where they see actually what data is collected and they want to, during the design, enter this data multiple times. So they have different departments that need this information. Some need the water depth, others need the sub-service conditions for further developing these wind farms. This is very interesting. This is exactly what we do, creating the insights on the geo data that we collect and analyze, and this is where we can really help our customers. And it could be with design, there could be with route planning. So we also have modules that they can work on in this software delivery.  If we look at the services that Fugro provides, and that's I think the beauty of this, clients have a wide variety of services that they require. And Fugro has the beauty that we have that all in-house. And we can combine these services and the contracts become larger and larger and ask for these integrated packages. So widespread of services where we move from initially, maybe only determining what kind of wind there is in one area to actually determine, do we want to build a wind farm in this particular location towards doing the site investigation, the site characterization, the bomb detection, the UXO surveys, the installation supporting that, Fugro is not installing anything. And then later on, the inspection, making sure that the assets are also safe and in the good and right condition. On the right side, you see, well, an external party has looked at what is the market all about in the geophysics and geotechnics because that's where the majority of the work right now for Fugro is, is in the Marine site characterization area. You see that we have a market-leading position. You can obviously argue if these percentages are all correct. That's an external report from Rystad, but it gives you good indication that we're well positioned to also maintain that position if we take the right steps.  And that brings me to the next slide, which is a message that we also brought out this morning in the news next to our annual results. That is the acquisition of 2 vessels, platform supply vessels that will be repurposed into geotechnical platforms, really very good platforms for us. We have investigated that. This was something that came to our board last minute, and we see it as a great opportunity to dive into this, and that's why we pushed through with a high-intensity investigation that had to be done if this is the right solution for us. Why are we doing this? We're doing this because we want to keep our market-leading position. The market is growing. You have seen it. You see it in our backlog, and we need to have these core strategic assets to be able to deliver on this high expertise that Fugro has on the geotechnical side.  Unfortunately, these things cannot be done with an uncrewed platform yet, as you can potentially remember that you can see yourself because we need to do drilling in the sea floor, you need to drill tower for that, and we only go 100 meters deep. So it's always for geotechnical purposes, the drilling that we do. It's also important to emphasize that. We're not deep drillers or so. And that is to determine the characteristics of the subservice -- very important, as I explained, if you want to design your windmill and your windmill location, but that cannot be done in the next probably 10 to 15 years from a remote uncrewed platform. That's simply too complex. There's too much required there. So we need to also have the stable platforms where we can actually do the geotechnical work for. There will be attempts obviously, to do the lighter geo tech also from smaller platforms and also from remote platforms.  So our road map that we have for our U.S. fees and developing U.S. fees for the geophysical fleet, that is still in place. We have still the same ambition there to actually move towards asset lighter in that front with smaller assets with reducing the CO2 footprint, the net 0 emission road map that we have, very important and we'll continue to move on with that. To be honest, these platforms are actually very good fitting into our net 0 road map. And the reason for that is that they are very fuel efficient. They actually burn a lot less fuel when we actually use them on DP. It's significantly less than many other vessels that we use. So I think it's important to also understand that these are exactly fitting into our net 0 road map, not only because they use less fuel, but also because they are prepared with the engines that they have, those are the first Caterpillar engines that will be transformed into methanol usage.  So I think we are well prepared to also use different fuels in the future, specifically methanol that fits the size of vessels and our operations quite well. let alone that some of these vessels or these 2 vessels have also tanks for methanol, which is also a benefit that many other vessels do not have -- it also lies for hybrid solution in the upcoming years, if we want to include that, but that's something we're currently investigating. For our current backlog, and that's maybe also good to realize, we already have increased our fleet. So these things do not come in for this year, so to say, to actually deliver on the high backlog that we currently have because we were already ramping up in 2022 with the addition of the Fugro Quest, but also an additional lease vessel, but also the lease vessel that we have committed to for the upcoming period. We are doing actually 2 -- another 2 lead lease vessels for the upcoming period to actually cater for the high growth in the other region -- or in all the regions, so to say.  So I think it's important to say why not moving on with leasing more assets? Well, the dynamics in this vessel market has also changed, prices actually really climb up. And then you get into the situation where you say, okay, leasing is becoming very expensive and then owning is also important. And we have leased more over the last couple of years because it was very attractive, the lease market. But that has changed now. We're back into a situation where vessels are becoming more expensive, and that means that you need to find that right balance between owned and chartered vessels. That's very important. And specifically for the geotech vessels, that means for the geotech solution, that means that we need these larger platforms to cater for our growth.  Last but not least and also to emphasize once again our focus on U.S. fees. Just earlier this week, we just got the approval from the U.K. Maritime and Coast Guard Agency, the MCA to be able to work completely remotely in U.K. waters. And this is quite remarkable because we're the first party that received accreditation or approval to actually work 60 nautical miles away from the shoreline, from a fixed platform category 2. That means that is the same problems that 20 years ago, we had with drones in the air that there was no regulation and actually as the same problem applies there, but we have worked on this for many, many months, and we have now received this approval. So I think good steps moving forward to that in that road map that we have on the U.S. fees. With that, I come to the end of my part, and I hand over to Barbara.

Thanks, Mark. Good. Welcome, everyone. Mark has already spoken about the significant growth in our revenue last year and the backlog as well, 37.5%. But just to summarize also, the revenue was up by 14.8%, double digit. And I will get back on the details of the financials when presenting the next couple of slides. But for now, I just want to highlight a number of things. The growth in our revenue translated into an improvement in our margins. EBITDA margin improved by 1% from 12% to 13%. However, in absolute terms, there was an increase of EUR 54 million, which is quite substantial. The EBIT margin also approved in line with the midterm targets that we set ourselves upon S22 being a step-up year increased from 4.3% to 6.1%, and that is an increased absolute of EUR 45 million. So clearly, good progress was made, and we can be satisfied by them.  Now we're clearly not there because the targets are 8% to 12%. But this was an important year, and it was not an easy year with the war in Ukraine, the inflationary pressures, the supply chain pressures and lots of moving parts to move the shift to the energy transition, as already highlighted by Mark. Our net result is EUR 74 million. And if we look at the leverage, we deleveraged from 1.7 to 0.9x. And this was a combination of higher EBITDA, as just mentioned and the equity raise, which we did as refinance part of the refinancing in last summer. So let me then go to the next slide. So let's look at Q4, Q4 of last year. Q4, if you look at the revenue, it increased by 8.5%. And this was compared to a particularly strong growth in the comparable period of '21. And if we remember and look back, we actually -- that was the first fourth quarter that was very strong vis-a-vis earlier years before. And this was supported by high client demand in the renewable market, especially in Q4.  Now if we look then at the right-hand side of the chart, the EBIT and the EBIT margin was impacted by disappointing operational performance, mainly in Marine site characterization in the Americas. And this was driven by the first half year incident, supply chain difficulties, which resulted in a delayed startup of a large geotechnical survey in the U.S. East Coast. And this unfortunately had a related knock-on effect on several other projects, which were pushed into the poor weather season in the fourth quarter. The underlying EBIT margin performance in Q4, adjusting for this event or the sequence of events, I should say, is sound. So this is what I want to reiterate. We are still traveling towards the midterm targets from an EBIT margin perspective. now then after Q4, let's focus on the full year and look at some comparisons. And as Mark already showed, the revenue growth was strongest in the renewables, 42% revenue growth. And this benefited actually both marine and land business.  Marine revenue increased by 12.9%. This was mostly driven by Marine site characterization and the utilization of our vessel fleet. -- which relates both to owned and long-term chartered vessels, and this was 72% throughout the year on average because clearly, we have low and high season, and this is the average that we achieved on owned and long-term chartered vessels. And also in land, the site characterization business showed the strongest increase. And this was particularly, as I mentioned, in the renewable side on the near-shore activities for offshore wind, but also we saw strong activity on LNG developments, and this was mainly in the U.S. where land showed a remarkable improvement, and I'll get back to that later.  Net positive exchange rate was mostly related to the dollar, the U.S. dollar. So the bottom graph shows that, in particular, land contributed to the margin improvement. And our EBIT margin improved to 6.1%, as I just mentioned. And overall, all regions contributed. And this is what I've said before. For Fugro to achieve the midterm targets from an EBIT margin perspective, is very much that all regions contribute to the EBIT margin. And this is what we see happening actually already last year. And apart from Europe, Africa, which is already performing in the midterm target range, APAC is closing in on the midterm target -- midterm target range as well. And as you can see on this slide, the biggest driver was the solid improvement in the land business, and I will get back to that later.  Now let's look at Marine. First, marine, and then we'll focus on land. So to summarize, we reported the largest revenue increase in Europe, Africa, as you can see in this slide. And also Middle East and India showed the strongest growth. If you look at the right-hand side of the slide, you see the EBIT. And there you see that actually Europe, Africa and APAC have been able to translate into EBIT. And overall, as already Mark said, we have been successful in passing on higher cost of fuel, charters and third-party personnel. And this was quite a juggle as we saw high top line growth last year coming from not so high top line growth, so the company really had to shift gears in what was global turmoil. And we are there, we are happy with the results that we delivered on because this was not easy.  At the same time, the strong growth in the site characterization requires the additional mobilization of vessels. So that is the gear change I was just talking about, which has resulted in delays, unfortunately, in Middle East and India and the Americas, and we could not translate the increase in revenue to the EBIT. Only in APAC, we saw a decrease in revenue as a result of an unexpected change in permitting for geotechnical site investigations in South Korea. And we talked about that in the press release on the certain immaturity levels of offshore wind markets. But the outlook and the underlying plans of the governments in Asia gives us a lot of comfort that in the longer term, those projects will be there, but it will not happen in a straight line. So Marine APAC starts to contribute better. This is also what was happening from '21 to '22. So we're shifting there from volume to value, increasing the margins as the market activity picks up.  In Marine in the pie chart, the right-hand corner, I would like to highlight that 37% was offshore wind in '22. And in '21, that was 21 -- sorry, that was 27%. So that's an increase of 10%. Then let's look at land. Land reported a marked improvement in its results. EBIT margin improvement of 2.5% to 7.2%, a year-on-year EBIT growth of 250% in absolute terms, maybe not so big. But for land, this was really a remarkable result, definitely after a couple of challenging years. And during the past years, we have been implemented and we have been talking about it several changes in the land organization in various regions. It's more a local business, but we have now turned a corner in the various regions where we're active in land, and all regions contributed to the overall margin improvement. And in particular, the Americas region, we benefited from nearshore projects in LNG. And there in land, there's also offshore wind activity, renewable activity. It was 13% last year and the year before in '21, it was only 4%. So also there, we see a shift.  And let's look at the increased operating cash flow. And I'm pleased to show you -- to be able to show you that we increased the operating cash flow by 50%, an absolute number of EUR 60 million before changes in working capital. I've said before, I'm focused on that, I find this is an important indicator. And now let's look at what then happened after. Then we have working capital. And working capital took some effect away from them, some positive effect, let me put it like that, and also CapEx. And that resulted in the end in a free cash flow of EUR 24 million. So as a percentage, let's quickly look at working capital. As a percentage of revenue, this increased. It was 12.9%, up from 10.9% a year ago, consuming EUR 69 million more. And the DRO was 85 compared to 82 in the year before. And of course, we're growing our top line. And this is actually one of the reasons why the working capital is higher. But it doesn't mean that we're pleased with the working capital results. This needs our focus, even additional focus because we were already focused on it in an upgoing market.  The contracts are getting larger, and we're doing a lot of work for government. And especially, you see the working capital consumption going up in Europe, Africa. And this is something that has our attention. But if contracts get bigger and milestones need to be hedged before you can get paid, this consumes more capital. So this has marked and my attention -- and then on the CapEx, what happened on? As Mark already said, we're adjusting the asset base for future growth, and it's driven by the strong top line growth, the backlog development of further opportunities that we want to grasp. And therefore, we're stepping up our investment levels. And also in light of the uncrewed surface vessels, strategy and the net 0 road map, and I do want to reiterate that. We're not deviating from that with the purchase of 2 new vessels. But we simply cannot execute the backlog in Geotech in the offshore wind in an uncrewed manner. So in '22, as we guided in Q3 trading update, we upped the CapEx to EUR 125 million. And we realized EUR 123 million of CapEx spend. And this was a combination as each year of maintenance and transformation and expansion CapEx. And the maintenance CapEx was much more driven by a high number of scheduled dry docking and special service, which we need to do to maintain the integrity of our fleet and to ensure we have reliable vessels to execute the work.  And then also we had the conversion of the Fugro Quest, which came onstream later than we had planned for, but we have added it. It has been working, and it's working successfully. Going forward, as Mark already presented, we're stepping up our investment levels. With a guidance of EUR 225 million of CapEx in '23, and that includes the 2 new vessels -- then let's look at the bottom part of the P&L. And let's just briefly highlight the biggest swing factors. We had specific items more than the year before, but they were mainly composed of EUR 5.7 million onerous contract charges, EUR 2.8 million restructuring costs, EUR 2.6 million net asset impairments and EUR 2.1 million refinancing cost. If we look at the net foreign exchange gain in '22, this was primarily the result of the appreciation of the dollar, just like what happened in '21, where that was already the case and the dollar development continued in '22.  Now the net reduction of the interest expense follows from the full repayment of the remaining outstanding balance of EUR 190 million convertible bond in October '21 and the partial repayment of the EUR 100 million convertible bond in '22. And then the refinancing in July '22, we did at improved terms and conditions, reducing the cost of debt. And these effects were largely offset because the difference is not that big if you see going down from 38.1% to 35.3%. The effects were largely offset by expensing the remained unamortized direct cost upon the settlement of the previous facilities as well as the higher interest expense on leases due to higher lease liabilities. Then let's look at the leverage at the balance sheet and the capital structure. Net debt declined to EUR 207 million from EUR 293 million at year-end in '21 as a result of the equity raise that we did in July of EUR 115 million. And where we, at the same time, put a comprehensive sustainability linked refinancing package in place. And as I mentioned before, this combined with the increase in EBITDA, the net leverage improved from 1.7% to 0.9% at year-end. And in light of the growth in the food markets, the company will not propose a dividend over 22%, and we will reinvest the generated cash flow in the business. And now back to Mark for the outlook.

Yes. Just one more slide holding us from the questions. So we'll go over to questions very soon. So that's the outlook for 2023, which you probably all have read already, we expect growth in all our core markets, resulting in continued revenue growth -- steep revenue growth -- yes, as a strong revenue growth, so to say, as we have seen also in 2022. Further margin expansion towards yes, getting closer to those midterm margins. And then as we also spoke about the CapEx, the additional investment, EUR 225 million is the guidance now, which includes indeed the investments in the 2 vessels, also additional geotechnical equipment, additional U.S. fees, as I just mentioned before, but also the net road map asked for particular investments that we continue to do.  So that's quite important to take note of that. And then you obviously have questions around the years thereafter, which I fully understand. And therefore, we also have been clear that in the second half of the year, we will come up with an update on our strategic direction or more so the strategy is quite to the point, but we want to see with the dynamics in the markets if we actually cater for all the opportunities that are out there. And that also means that probably we need to make some choices here and there, and we will do so in the upcoming period and present that to you in the second half of the year in a Capital Markets Day. So that will be coming up in the second half. With that, I would like to move over to questions. So I'll close this presentation. Obviously, afterwards, there can always be questions towards our Investor Relations Catrien van Buttingha, but for now over to questions.

Catrien van Buttingha, a couple of questions. First, on your backlog. Can you give a rough indication about split between volume and price? And also to what extent the share of oil and gas is increasing because you noticed that could increase going forward, the volume that you see from that business. Second question is on your dividend versus your CapEx. You did some additional CapEx because all described, you want to increase your fleet and view of the lease rates. Maybe there are further opportunities later this year. Can you describe how you will make that balance going forward between future dividends and expansion CapEx? And finally, a question on the vulnerability for delays in both vessel availability and permits. On the one hand, that depressed to some extent to our results last year. On the other hand, the market is becoming more supportive, so you probably are in a better position to exclude that risk. So can you comment on the outlook there?

Absolutely. Thank you, Luuk. First and foremost, to talk about the backlog, yes, the 38% growth in backlog. And maybe it's also good to mention that we announced another large contract in the Americas, which was not part of the backlog presented before. So quite good development, specifically focused on oil and on renewables, offshore wind, sorry. And if you look at oil and gas, we see a similar split as what we have seen before in our revenue split, also translating again the same trend translating into our backlog moving forward. So that means that still offshore wind will play a large element moving forward. Oil and gas is definitely growing again as well. You have seen it in our previous year results, which basically meant that we grew 9%. As I said before, there will be a large part of that, which is price related and not volume related. But moving forward, I expect also more volume to come in, specifically on the gas side. And Barbara already mentioned a few things there. We have seen specifically in the Americas, quite a few projects around LNG developments, nearshore LNG developments, fast LNG developments, which was quite visible in the U.S., off the U.S., Gulf of Mexico, but also in Mexico itself. And we have also seen some other gas projects, for instance, the Indonesia project as well as the project in Brunei coming back on the board again. So multiple gas projects moving forward.  There's big differences between the regions. And I think I'll give you one more number. If you look at Europe, MSC, more than 90% is offshore wind. So -- and also Americas is following this trend. It's moving very rapidly into the wind environment. Then we obviously look at the total of Furgo growth. Then there's also the Middle East and India, which will be more related to oil and gas, which is always good to realize if you look at the total of Fugro. And we see now Asia Pacific also coming in more steeply with movements in the offshore wind, potentially being the area which will grow fastest. And I always talk about this area without China because if I include China, it will blow everything from the table because they develop as much as the rest of the world develops. So that we never consider because we will not operate in that market. Then maybe I will answer first the vessel availability and the risks that we see there. And then maybe Barbara can jump in also for a dividend. What we see right now is the change in the charter market. So that's one thing. So there's higher costs in charters and chartering, which means that it becomes also attractive to own vessels and to have the right mix there.  That tilted towards more chartering over the last couple of years when this vessel market was very attractive. What we have seen in our results end of last year is twofold, to different reasons, what happened in Q4, and we're not satisfied with that. Let's be clear on that. And that is, first and foremost, what happened in Asia Pacific, a sudden change in regulation in South Korea, which meant that we -- or no, our clients did not have the permits to continue with the work and that actually had the result that we were on standby. We were paid for standby, but standby had different returns than being operational, and that was actually happening for quite a long time. The projects -- or not all the projects have started even now, and therefore, we had to reposition our vessels elsewhere. That is now happening. That means that there might still be some impact also at the beginning of this year, but much smaller than what we saw before.  And then the big ticket item and the big shift we saw in Q4 was the Americas, specifically on the geotechnical side, where we were hindered by actually an effect that was created by ramping up our capacity in Q3, which did not go according to plan, which had a knock-on effect from multiple projects, which meant that eventually we had projects that need to be executed in a very difficult environment at the end of the year, actually off-season period and weather was even worse than actually normal, but we always see that in the Americas that this can be very much fluctuating year-by-year. But that was causing big problems, and we couldn't generate any operational days or very minimal operational days there, which had an enormous impact on the result there in Q4. That will have some impact at the beginning of this year, but again, also there much smaller. The problem has been tackled. We know what we have been doing. The vessel is operating well, but this was the cause of it and had primarily an effect on the fourth quarter and less so on the third quarter.  So that is those 2 things. If I look forward, because that's the next question, what can happen then again. You're absolutely right that we can actually reduce the risk moving forward. So also standby fees are different nowadays moving forward. We also have different contract conditions because, yes, if clients want to work with us, then we also need to have the decent terms and conditions in the contract to be able to deliver our services. That means that we cannot have a vessel very long on standby in a particular period or in a particular area because there are projects to be executed. So we need to be able to move our vessels around accordingly. So we take that on board. We reduced the risk for Fugro on that side as well. So that helps. We are going to, as you know, now also, we purpose new vessels and these assets that we have secured already. That means that, yes, you also have the risk that some things go wrong there. Having said that, we are obviously learning also from the past. So we're on top of that. We have good people on it, but we have to realize when you move assets, when you make changes, there will be things that never go in a straight line, as Barbara said before. It will have some hurdles now and then. But in general, we're very positive around the trends that we're moving in the right direction and also how we organize ourselves for these repurposing and yes, we are transforming these assets. I think that answers those 2 questions. And look at Barb, you want to answer the one on dividend.

Happy to do it as well, but go ahead.

Thanks, Mark. Yes, on dividend last year for the first time in 7 years, over '21. And Fugro made a profit again of EUR 71 million. This year, that is EUR 74 million. We do want to return to be a dividend being stock. The timing thereof has been impacted in the sense of, as I mentioned, operating cash flow is important. What are you -- how are you going to repurpose or use the cash that you generate? We have the very strong end markets -- we know that the asset capacity in our markets is actually smaller than what the market requires. You've seen the build-out slide from Mark. That means there are opportunities. The companies of the view, we are of the view that those opportunities also represent a lot of value for the shareholders, future value for the shareholders. And therefore, we want to take those opportunities also to maintain the leadership of the company in the businesses to continue to invest. The net 0 road map costs money, the uncrewed vessel strategy costs money.  And for now, we have decided to divert that cash into good opportunities where the company is convinced that this provides value also for the shareholders. Having said that, we've also said that going forward, we will come back in the second half of this year to present the next phase of the path to profitable growth because we are on that path, as I just mentioned, from a free cash flow perspective and the CapEx component in that. That has changed a little bit. So we're looking at the midterm targets, and we'll get back on that. In terms of going forward, RCE, and we haven't discussed ROCE yet. ROCE needs to go up as well at the end of the day. In the midterm targets, we can reconfirm that we're working very hard on that. And that is what the investments should also demonstrate that we're doing now. And that is how we make the trade-off between dividend and return of capital employed. Having said that, we're very well aware that shareholders also expecting a dividend at some point, but we're not proposing a dividend for '22.

I am Andre Mulde. First question on cost. Can you maybe give a feel for the impact of fuel costs in 2022? And yes, and what you expect there in terms maybe of release in 2023? Second cost question is on what kind of average cost right should we expect in staff expenses Third question is on the backlog, backlog up 38%. The backlog, I would say, is primarily booked in the past 12 months. So I presume that the backlog -- in principle, the budgeted backlog margins are already in line with the midterm targets. Is that right or not? Then a CapEx question, a question I got from many clients. What kind of return can we expect on the investments in the new geotechnical vessels? And related to that, I would say, in your official reporting, you're still reporting a ROCE of 8% to 9% or so on EUR 1.1 billion capital employed. But I think this still includes EUR 70 million of goodwill, which is not really an asset you're investing in. So excluding goodwill, I would say, ROCE is already well above 10%. So then the required ROCs probably more like 15%, 20%. Is that correct?

Very good -- thank you, This, for the questions. Let me first talk about a few. I do not have a very exact number on the fuel. I don't know if you have one, but what I can say about that is that we saw the impact primarily in the second quarter of this year. So -- and there was some effect also in the second half of the year. But the second quarter, obviously, when the Ukraine war started, obviously, they had a very rapid effect on cost increases. And there, we had to deal with existing prices, so to say, that we're climbing up very, very rapidly. So that was a problem end of this first quarter and the second quarter. In the latter part of the year, we were more pricing this in and also pushing the risk towards the customer. So we now feel that we're in a very good position where we have either the right prices in or we have, let's say, caps when it goes above a certain threshold, we can actually have a new discussion with the customer to say, okay, how are we going to do with the differences there? So that is well covered. How much it exactly is? I had a number in mind for the second quarter, but I need to first verify that. So we'll come back on that. But you could easily see that for the largest region that goes above EUR 10 million, where the impact lies around fuel.  And then staff expenses, I will leave for Barbara to answer what we have, how we look at that and how we do that for the total of Fugro. Maybe the backlog because your question was, okay, the backlog is pretty new, so to say. So you can expect that they are a bit in line with the midterm markets or midterm targets -- and the only answer I can give you, of course, that is the case because it will be strange in this environment, not to bid in this line with midterm targets there. So the backlog is more healthy pricing-wise. So prices have moved up. And yes, that's also communicated in the press release. So on that side, I can be clear. So then we have the staff expenses, Barbara, maybe you can answer that and then the ROCE on.

Yes, sure. Average cost rise in staff expenses, we have done as every company has been battling with one dear on talent and to the inflationary pressures. We've decided at the end of last year to do a company-wide increase of 4%. We felt that was the right thing to do and also to make sure that we keep our employees motivated and happy and compensate also for the higher cost of living. So that is what we've done. Then for this year, what can you expect? We have annual rounds of increase as is normal for any company. And this is what is included in the budget for this year. So that may vary a little bit more per region, and that is what we're not disclosing, but there will be, as any company would be doing an annual increase that will be applied. And then on your CapEx on your return, what can we expect or you can expect a return above the WACC at least on the CapEx. Geotechnical vessels are not the cheapest. So therefore, we apply a higher rate of return than perhaps for the land business that we would expect.  So that is definitely something that we're working towards. And that means that the compensation also needs to be in line with, as Mark says, if we have, for example, special service cost money, potential breakdowns or inefficiencies cost money. So that should be included in there and still get us through the return that we are having set a southbound. Therefore, I also reconfirm the ROCE mid-term target. That is a nice segue into your ROCE question. Yes, there is goodwill in there. This is a definition that we've applied. So that's the measure that we use. So if you want to subtract goodwill, that is fine. Then we're already there. I wouldn't say we're there because we need to be better at the road sentient targets which we set ourselves upon. And that's what we're focused on.

I think maybe good also on that side that we always had more than 10% in all the businesses, and that's a starting point because traditionally, Fugro was higher on the ROCE side, and that's also our ambition.

I think in the past, you were contemplating about reporting a backlog in a different manner. So we're reporting the full size of the backlog. Can you give any indication what is beyond 12 months included in the backlog, again, pointing at the longer projects in offshore wind.

Yes, sure. I'm happy to take that question. Yes, we have said that, that also needs to be meaningful if we do so. We do see, indeed, the request from our customers being in government or private companies for commitment because everyone, as I mentioned, is well known in the market that there's a shortage of assets and people to execute the work. We are considering that if it's meaningful, we're not committing to it and nor are we committing to a time line when we will do so. What we can say is that we do indeed see that trend of larger contracts on the wind, as explained by Mark, the 200 boreholes and equally the desire of the customers to ensure that they have assets also for beyond the 12 months as we communicated.

You've already had capacity reservations for, let's say, 24, 25.

Yes, we have.