--Revenue rose by 24% to EUR 1,434 million --Net result rose by 42% to EUR 141 million --Result from operating activities (EBIT) rose by 47% to EUR 212 million --All the divisions contributed towards the improvement of the net result --Very well-filled order backlog at the beginning of 2007 --It is proposed that the dividend for 2006 be increased to EUR 0.83 per (certificate of) ordinary share (2005: EUR 0.60)
K.S. Wester, President and Chief Executive Officer of Fugro N.V., commented:
"This past financial year was, in every sense, a success for Fugro. Favorable market conditions helped us to once again achieve record highs for revenue and net result. Our strong organic growth shows Fugro's flexibility to respond to market developments. The number of employees was increased during 2006 by approximately 1,300 to almost 10,000 at the end of the year, which is also the result of strategically important acquisitions. Based on a very well-filled order backlog we are working towards continuing growth of revenue and result in 2007 and given the current market conditions, Fugro's objective for the coming period is to at least maintain a net profit margin of around 10%."
The strong organic growth was mainly the result of continuing high global demand for oil and gas related offshore services, as well as of the increase of investments in infrastructure. To enable us to continue to meet the increasing demand, in 2006 we invested in extra people and additional equipment: ROVs (Remotely Operated Vehicles), a new AUV (Autonomous Underwater Vehicle), seismic equipment (including measuring cables – so-called 'streamers') and aircraft. These investments only made a limited contribution towards the 2006 result because, due to delivery times, not all the equipment will be available until 2007.
The expansion and modernization of Fugro's seismic capacity is a response to the growing demand for this type of service. Fugro's goal is to expand its position in the offshore seismic market. With the focus on a good geographical spread, Fugro wants to operate in this market segment with a fleet of eight to ten vessels, some owned, some chartered.
This fleet expansion and modernization program comprises five new vessels some of which are replacements for vessels on short-term charter.
The goal is to triple the revenue from seismic surveys in the period 2005-2008. The revenue is expected to come close to EUR 400 million in 2008.
The fleet expansion involves the following vessels:
Fugro is also investing in five new vessels for activities other than seismic surveys:
Globally Fugro operates around 45 vessels.,P> During 2006 Fugro undertook several strategically important acquisitions.
Several smaller companies were also acquired.
In January 2006 Fugro acquired a 100% interest in Surrey Geotechnical Consultants Ltd in the United Kingdom.
The acquisition of the Canadian data management company Trango Technologies Inc. in August 2006 has enabled Fugro Data Solutions to broaden its package of services in the field of data collection and management.
Fugro also purchased the business activities of the geotechnical company ECOS Umwelt GmbH in Germany in August 2006. This acquisition has strengthened Fugro's position in Germany.
In the same month Fugro Data Solutions acquired the activities, projects and client database of Geodata Inc, the United States.
In December 2006, Fugro acquired all the shares of Aperio Ltd in the United Kingdom.
This company specializes in geophysical surveys for infrastructure projects.
Revenue and costs development
In 2006 revenue rose by 23,6% to EUR 1,434.3 million (2005: EUR 1,160.6 million). Organic growth was 18.9 %. Acquisitions increased the revenue by 6.8 %, while foreign currency effects and disposals together caused 2.1% drop in revenue.
The increase in revenue has higher costs as a consequence. Third party costs rose by 24.0% to EUR 503.1 million (2005: EUR 405.7 million), which is in line with the revenue. Personnel expenses rose by 18.2% to EUR 426.6 million (2005: 361.0 million). Personnel costs as a percentage of revenue declined slightly to 29.7% (2005: 31.1%).The average costs per employee rose by 3.6% (2005: 5.4%).
Depreciation of tangible fixed assets rose by 12.7% to EUR 78.2 million (2005: 69.4 million). Depreciation as a percentage of revenue declined slightly to 5.5% (2005: 6.0%).
Other operating expenses rose by 20.0% to EUR 221.7 million (2005: 184.7 million), as a percentage of revenue they decreased slightly to 15.5% (2005: 15.9%).
Result from operating activities (EBIT)
Result from operating activities (EBIT) was EUR 211.6 million. This is 46.8% higher than in 2005 (EUR 144.1 million).
Net finance costs and taxes
The net finance costs amounted to EUR 26.4 million (2005: EUR 16.2 million). Exchange rate differences are included in the net finance costs (2006: loss EUR 7 million; 2005: profit EUR 4 million).
The tax charge on the profit before taxes rose to 23.4% (2005: 20.9%). In 2006 more profit was achieved in countries with a relatively higher tax rate, which meant that the overall tax charge rose. The company strives for a relatively low tax rate through an efficient tax and company financing structure. The increase was partially offset because the non-capitalized fiscally compensable losses could be utilized in a number of countries due to the better than expected results achieved in those countries. The final tax charge depends in part on the geographical spread of the projects that are carried out.
The net result rose by 41.9% to EUR 141.0 million (2005: EUR 99.4 million), after deducting third party interests in the profits of subsidiary companies. This amounts to EUR 2.05 per share (2005: EUR 1.51), an increase of 35.8%.
There were no impairments (extraordinary devaluations) of tangible and intangible assets in 2006. The net profit margin rose for the third consecutive year and amounted to 9.8% (2005: 8.6%).
Cash flow and investments
In 2006 the total cash flow from operations amounted to EUR 226.1 million (2005: EUR 176.1 million). This equates to EUR 3.29 per share (2005: EUR 2.67), an increase of 23.2%. Investments in tangible fixed assets (including acquisitions and assets under construction) against this operational cash flow amounted to EUR 245.9 million (2005: EUR 90.4 million).
Investments in assets under construction amounted to EUR 42,0 million (2005: EUR 1.5 million). Each year Fugro invests between EUR 85 million and EUR 90 million to maintain the existing capacity in so-called 'maintenance capex'. As announced at the beginning of the year, additional investments were made to enable organic revenue growth to continue in the future. These investments amounted to around EUR 100 million. In the course of 2006 Fugro also announced that the vessel fleet would be expanded.
This involves investments not only in vessels but also in equipment (including streamers). Part of these investments in vessels and related equipment will not become operational until 2007 respectively 2008.
The relevant installments (EUR 42.0 million) are recognized in the annual accounts as assets under construction.
The 2006 investments can be analyzed as follows (x EUR million):
In 2007 and 2008 further investments to an amount of EUR 250 million will be made in addition to the annual maintenance capex of approximately EUR 90 million. These extra investments of around EUR 250 million relate to the progress payments for the vessels and the expansion of the operational asset base.
Dollar exchange rate
The average US dollar rate for 2006 was EUR 0.79 (2005: EUR 0.81). A decreasing dollar rate during the year was one of the causes of the negative exchange rate result of around EUR 7 million, compared with the EUR 4 million exchange rate gain achieved in 2005. The balance sheet was also influenced by the US dollar. At the end of 2006 the dollar rate was EUR 0.76 (end of 2005: EUR 0.85). As a result, Fugro's (shareholders') equity movement at the end of 2006 was 7% negative.
Number of employees
In view of the favorable market conditions and prospects, during 2006 the number of employees was increased by 1,303 to 9,837 at the end of the year (2005: 8,534). Approximately 29% of this growth was the result of acquisitions. The average number of employees over the year was 9,262 (2005: 8,121). Fugro also has a large, global pool of experienced and reliable freelance professionals at its disposal who are employed on a project basis.
It is proposed that the dividend for 2006 be increased to EUR 0.83 per ordinary share (2005: EUR 0.60), paid, according to the preference of the shareholder: in cash, or in (certificates of) ordinary shares. The proposed dividend equates with a payout percentage of 41% of the net result.
Post balance sheet date events
In January 2007 the geotechnical company GECO Umwelttechnik GmbH in Austria was acquired. This acquisition involved an amount of EUR 1.0 million.
In January 2007 orders were confirmed for geotechnical soil surveys related to coast protection work in New Orleans and California, the United States. These orders represent a total value for Fugro of around EUR 40 million.
In the same month Fugro has been awarded contracts for offshore seismic surveys in Norway to be executed during the summer season in 2007. The combined value of the contracts is in excess of USD 50 million (EUR 40 million).
In February 2007 Fugro has been awarded a contract for offshore seismic surveys in the Middle East. Work will start in late April 2007 and the duration of the project is up to twelve months. The total value of the contract is USD 38 million (EUR 29 million).
In March 2007 Fugro signed a letter of intent to acquire 100% of the shares in MAPS Geosystems. The transaction is subject to contract finalization and is expected to be completed in April 2007. MAPS is a leading producer of aerial survey images with more than thirty years of operational experience throughout the Middle East and Africa. MAPS' revenue in 2006 was USD 16 million (EUR 12 million).
At the beginning of 2007 the backlog of work to be carried out during the year amounted to EUR 1,146.4 million – a considerable increase of EUR 332.3 million compared with the previous year (beginning of 2006: EUR 814.1 million). The backlog contains definite orders to an amount of EUR 757.5 million (beginning of 2006: EUR 514.1 million) and probable orders EUR 388.9 million (beginning of 2006: EUR 300.0 million). The part related to definite orders has slightly increased to 66% (beginning 2006: 63%). The backlog calculation is based on end of year exchange rates and, despite the US dollar exchange rate dropping from EUR 0.85 to EUR 0.76 for 1 USD, the backlog in EUR was 41% higher than in 2006. Had the US dollar exchange rate remained the same the backlog would have increased by 48% compared with the beginning of 2006. The growth of the backlog is partly due to orders received in an earlier stage than historically has been the case and the increased size of projects.
Financial targets and strategy
Given the current market conditions, Fugro's objective for the coming period is to at least maintain a net profit margin of around 10%. It is anticipated that the organic revenue growth will then be higher than the average of around 7% achieved over the past five years.
Fugro will also continue its policy to expand and broaden its activities through acquisitions.
The prospects for suppliers to the oil and gas industry remain positive for the coming period. Fugro is well equipped to respond to the worldwide demand from clients in this sector. Fugro will make further substantial investments in 2007, using its own means, to cope with this.
According to external reports, the oil and gas industry's investments will continue to increase in 2007. A major portion of these investments will end up with the suppliers, such as seismic and survey companies and integrated services providers like Fugro. Our extra investments of 2006 and the (programmed) fleet expansion take this into account. The positive effects of these investments will become apparent starting 2007. Good developments are expected for deepwater projects in the Gulf of Mexico, West Africa and Brazil. Good capacity utilization is also foreseen in the Middle East, on the North Sea and in Asia.
Fugro will also profit from its focus on improving the productivity of (existing) oil and gas sources.
The company is in a good position to expand its activities in large-scale infrastructure projects onshore and in coastal waters. The same applies for the mining sector, due to a continuing demand for diamonds, gold and uranium in particular.
Fugro is well positioned and the market conditions in our segments promise ample opportunities for further growth in the coming years. At the beginning of 2007 our order backlog was very good. We remain focused on a strong organic revenue growth, supplemented with growth through strategic acquisitions and on maintaining and where possible, improving the profit margin.
Based on the above the Board of Management has confidence in Fugro's future. Under the present market conditions we expect a continuing growth of the revenue and the result in the coming year, whereby we have the objective to at least maintain a net profit margin of around 10%.
Due to the short-term character of some of our projects, as in previous years we will not be able to give a forecast for the entire year until August when the 2007 half-yearly report is published.
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