Annual Report • Mar 3, 2018
Annual Report
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Geo-intelligence & asset integrity solutions
The information and geo-intelligence we provide is essential to our clients: we characterise their building sites to facilitate the safe, cost effective and sustainable design of their buildings, industrial facilities and infrastructure.
Increasingly, we also support our clients with information on the condition of their assets (as they are built and operated) to support optimal operation.
A good example is the monitoring of power companies' overhead electricity networks. We use highly automated airborne acquisition and cloud processing technology to deliver centimeter-accurate 3D models. Through web-based visualisation and reporting tools, Fugro's solution pinpoints for example power lines that are too close to the ground or surrounding vegetation, presenting a high risk of failure or injury. With such an understanding of their network, power companies can ensure compliance with regulations and plan more efficient maintenance programmes, resulting in significant cost savings.
Fugro's revolutionary technology is reducing cost of electricity network inspection programs today, while building the digital foundation for tomorrow.
This annual report may contain forward-looking statements. Forward-looking statements are statements that are not historical facts, including (but not limited to) statements expressing or implying Fugro's beliefs, expectations, intentions, forecasts, estimates or predictions (and the assumptions underlying them). Forward-looking statements necessarily involve risks and uncertainties. The actual future results and situations may therefore differ materially from those expressed or implied in any forward-looking statements. Such differences may be caused by various factors including, but not limited to, developments in the oil and gas industry and related markets, currency risks and unexpected operational setbacks. Any forward-looking statements contained in this annual report are based on information currently available to Fugro's management. Fugro assumes no obligation to make a public announcement in each case where there are changes in information related to, or if there are otherwise changes or developments in respect of, the forward-looking statements in this annual report.
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Financial Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
FUGRO ANNUAL REPORT 2017
Message
from the CEO Profile Strategy
Group
Divisional Financial Performance Performance Governance
Financial Statements
Other Information
CONTENTS Key figures 3
| Profile | 6 |
|---|---|
| Our purpose | 6 |
| Our services | 6 |
| Our values | 8 |
| Our organisation | 9 |
| Our clients | 10 |
| Our divisions | 13 |
| Trends | 17 |
|---|---|
| Long-term value creation | 21 |
| Building on Strength strategy | 21 |
| Sustainability | 26 |
| Mid-term targets | 29 |
| Financial performance | 31 |
|---|---|
| Overview important contracts | 39 |
| Sustainability performance | 43 |
| Divisional financial performance | 52 |
|---|---|
| Marine division | 52 |
| Land division | 52 |
| Geoscience division | 53 |
| Board of Management | 54 |
|---|---|
| Risk management | 57 |
| Corporate governance | 65 |
| Fugro on the capital markets | 78 |
| Management statements | 82 |
| Report of the Supervisory Board | 83 |
|---|---|
| Supervisory Board | 83 |
| Supervisory Board report | 85 |
| Remuneration report | 93 |
| Financial statements 2017 | 101 |
|---|---|
| Other information | 183 |
| Independent auditor's report | 183 |
| Foundation boards | 190 |
| Statutory provisions regarding the | |
| appropriation of net result | 190 |
| Report of Stichting Administratiekantoor Fugro | |
| ('Foundation Trust Office') | 191 |
| Historical overview | 194 |
| Glossary | 196 |
Divisional Financial Performance Performance Governance Key figures Information
Report of the Supervisory Board Other
| (x EUR million) | 2017 | 2016 |
|---|---|---|
| Revenue | 1,497.4 | 1,775.9 |
| – reported growth | (15.7%) | (24.8%) |
| – currency comparable growth 1,2 | (13.2%) | (22.7%) |
| EBITDA (excluding exceptional items) 1 | 100.8 | 189.5 |
| EBIT (excluding exceptional items) 1 | (32.1) | 8.5 |
| EBIT | (51.7) | (218.7) |
| EBIT margin (excluding exceptional items 1 | (2.1%) | 0.5% |
| EBIT margin 1 | (3.5%) | (12.3%) |
| Net result | (159.9) | (308.9) |
| Backlog next 12 months1, 2 | 927.8 | 1,169.6 |
| – reported growth | (20.7%) | (11.6%) |
| – currency comparable growth | (7.3%) | (11.6%) |
| Cash flow from operating activities after investments | (50.5) | 186.1 |
| Capex | 108.0 | 92.5 |
| Capital employed1 | 1,841.1 | 1,341.2 |
| Return on capital employed1 | (3.3%) | (0.7%) |
| Net debt/EBITDA1 | 1.9 | 1.1 |
| Earnings per share (x EUR 1) | (1.98) | (3.82) |
| Dividend per share (x EUR 1) | 0.00 | 0.00 |
| Number of employees (at year-end) | 10,044 | 10,530 |
| Lost time injury frequency (x million hours) | 0.66 | 0.67 |
1 Refer to financial terms glossary (page 197) for definitions.
2 Revenue growth corrected for currency effect; 2017 backlog growth corrected for currency effect and for portfolio changes related to the marine construction & installation activities.
The term 'shares' as used in this annual report should, with respect to ordinary shares issued by Fugro N.V., be construed to include certificates of shares (also referred to as 'share certificates' or 'depositary receipts' for shares) issued by Stichting Administratiekantoor Fugro (also referred to as 'Foundation Trust Office' or 'Trust Office'), unless the context otherwise requires or unless it is clear from the context that this is not the case. In this annual report, Fugro N.V. is also referred to as 'the company' or 'Fugro'. Fugro N.V. and its subsidiary companies are together referred to as 'the Group'.
Message from the CEO Group
Report of the Supervisory Board Financial Statements Other Information
This was the fourth consecutive year of an exceptionally deep downturn in offshore oil and gas services, currently our largest market. The impact of the 25% lower oil and gas related revenue could not be fully compensated by continued capacity and cost reduction measures, and an organic 9% revenue increase in our other markets (most notably building & infrastructure, renewables and power). We ended 2017 with an operational margin of -2%.
Working safely is key to all Fugro's operations. We spend a lot of time and effort in training and improving safety awareness. Yet, sadly, in 2017 we suffered a fatality. We must and will continue to address safety, as our ultimate goal is zero serious incidents.
For 2018 we anticipate improved results. For the first time since the start of the downturn in the offshore oil and gas market, we see signs of stabilisation, and our other markets are expected to grow further as the world economy is strong. In addition, we will benefit from the implementation of our new client centric organisation and from the portfolio and performance measures taken in 2017.
The offshore oil and gas services market, from which we generated 57% of our 2017 revenue, declined further as our clients continued to reduce offshore spending, resulting in continued overcapacity and price pressure. At the publication of the first half results we announced a set of measures with an annualised contribution to EBITDA of EUR 50 to 70 million. The programme is on track. Part of the financial benefit of these measures has been realised in the second half of 2017 though the largest part will contribute to 2018 EBITDA improvement.
The most notable measure is the divestment of our marine cable trenching assets on 30 November in return for a 23.6% shareholding in Global Marine. In addition, we early terminated the long-term charter agreements for the two remaining installation and construction vessels. This means we have also achieved our strategic portfolio objective of ending our active participation in the installation and construction part of the subsea market.
Unfortunately, we also had to further cut back on staff, be it less severely than in prior years. Over 2017 we reduced headcount by 486.
Since the launch of our 'Building on Strength' strategy in 2014, we have transformed our organisation from a locally managed operating company structure into an integrated and efficient organisation. As per 2017, the company is managed through two main divisions, Marine and Land. Both offer integrated services to clients from site characterisation and asset integrity business lines which are uniformly set up across the divisions and regions. Client reactions have been positive, as it has clearly strengthened Fugro's ability to effectively provide integrated, standardised solutions across the globe.
A key strategic driver for Fugro is to work across different markets, as this improves resilience. In 2017, non-oil and gas represented 43% of total revenue because of growth in building & infrastructure, renewables, power and nautical markets on the one hand, and a decline in the oil and gas market on the other hand. Fugro targets a balanced market exposure through continued growth in non-oil and gas markets, supported by population growth, urbanisation in coastal areas, energy transition and mitigation of the impact of climate change. At the same time, the company will
Divisional Financial Performance Performance Governance
Report of the Supervisory Board
Financial Statements Other Information
continue to benefit from its activities in the oil and gas which is expected to remain the key source of energy for the comping decades next to the increasing share of renewables to meet global energy demand.
Over the coming decades, the megatrends mentioned above will lead to increased demand for renewable energy, water, natural resources, buildings and infrastructure. Fugro's services are essential for the development and management of the required resources and assets. Growing demand for our services in these areas provides a solid foundation on which we can achieve our purpose: to contribute to a safe and liveable world.
Growing sustainably requires balancing short and long-term interests of our stakeholders and integrating social and environmental factors into our decision making. In 2017, we further embedded the most relevant topics for the company and its stakeholders into a sustainability framework. Based on our strategy and organisation, we also formulated our long-term value creation model. We firmly believe that being a sustainable company will support our long-term success and economic performance.
Overall we anticipate that our markets will improve. The offshore oil and gas market shows signs of stabilising as the oil price has moved to within a range that supports current investment levels. The market for offshore wind is strong, supported by technology development and supply chain efficiency that has brought costs down to levels at which government support is hardly needed. The global economy is expected to develop positively in 2018, which is especially supportive of our building and infrastructure and power related activities.
We will continue to implement our Building on Strength strategy. Our current strategic priorities are to enhance client focus by professionalising account management and broaden its range of differentiated and innovative value propositions, strengthen staff engagement, improve delivery excellence by digitalisation, and further enhance organisational performance. We will also continue with our drive to grow in markets outside oil and gas as it supports our purpose and our objective to create robustness by having a balanced exposure to multiple markets.
We anticipate that these efforts, backed by a stabilising oil and gas market and positive outlook for the other market segments, will result in stabilising revenue, an improved EBIT margin and a positive cash flow from operating activities after investments.
I will retire at the 2018 annual general meeting at the end of my term. Looking back at the past five years, I realise how profoundly we've transformed the company to deal with changing customer needs, globalisation and the downturn in the oil and gas market, and to take on opportunities in a world that needs solutions to support population growth and tackle climate change.
I am very grateful to all employees for their trust, tremendous daily efforts to serve our clients and their contributions to transforming Fugro and making it a stronger and better company that can fulfill its purpose. Working with and building Team Fugro has been the key motivator for me in my years at the company. I am also grateful to our many other stakeholders for their continued support during the past challenging years. We are now moving into a more stable oil and gas environment and our other markets are growing, and I am sure Fugro will make the most of the available opportunities. I hand over with confidence to my successor Øystein Løseth and wish him and Team Fugro all success in the next phase of the Fugro journey.
Paul van Riel Chairman of the Board of Management Chief Executive Officer
Divisional Financial Performance Performance Governance Profile Information
Financial Statements Other
Message
Fugro is the world's leading, independent provider of geo-intelligence and asset integrity solutions. We acquire and analyse data on topography and the subsurface, soil composition, meteorological & environmental conditions and built assets, and provide related advice.
The information and geo-intelligence we provide is essential to our clients for characterising their building sites to facilitate the safe, cost effective, sustainable design of their buildings, industrial facilities and infrastructure, and to enable the exploration and development of natural resources. We also support our clients with information on the precise location and condition of their assets (as they are built and operated) to optimise asset reliability, utilisation and longevity.
Fugro is unique in its capabilities to provide integrated and often innovative site characterisation and asset integrity solutions. Our activities extend from data acquisition through analytics to customised advice. We serve clients' needs across the spectrum from modest assignments to the most challenging, multi-disciplinary, integrated projects. We work around the globe, predominantly in oil & gas, large building & infrastructure, renewables and power markets, in both land and marine environments.
Over the coming decades, population growth, increasing wealth, urbanisation and climate change will lead to increased demand for energy, water, natural resources, buildings, industrial plants and infrastructure.
Fugro's purpose is to contribute to a safe and liveable world by providing geo-intelligence and asset integrity solutions that support the sustainable growth of the world's population and mitigate the impact of climate change. Our solutions support the design, development and operation of large buildings, industrial facilities and infrastructure, and the exploration and development of natural resources.
Fugro's services and solutions are based on geo-data, derived geo-intelligence and associated data about man-made structures. Our projects are typically carried out in three phases:
■ Acquisition: collection of geo-data on topography, the subsurface and spatial characteristics of manmade structures, soil composition, meteorological, oceanographic and environmental conditions and asset condition data
Group
Divisional Financial Performance Performance Governance Profile Information
Financial Statements
Fugro differentiates itself by: Knowledge
In the planning and build phases of assets Fugro uses its services to provide clients with geo-data, geo-intelligence and advice that characterises their sites and how those sites can be used for safe, efficient and sustainable building and natural resource development. Once assets are built and deployed, further data, geo-intelligence and advisory services are used to provide information about the integrity and performance of the client's assets to support optimal operation and to increase life time. Client's assets Financial Wages, interest, taxes and dividends Share price performance Human Engaged employees with enhanced skills Health and safety performance Knowledge Our purpose Contribute to a safe and liveable world
Different clients or different client departments are generally involved with either the planning and build phase or the operational phase of assets and natural resource exploitation. Fugro has organised itself accordingly into Site Characterisation and Asset Integrity business lines within its divisions and regions. Within these business lines Fugro can provide any of the data acquisition, analytics or advisory services required by its clients separately or in combination in large, integrated projects. Geo-intelligence and asset integrity solutions solutions Intellectual property (patents) Stakeholder relationships Ethical business conduct Solutions advancing a safe and liveable world Provision of services Total value of acquisition, analytics and advisory services Safe and reliable delivery
Group
Divisional Financial Performance Performance Governance Profile Information
Supervisory Board Financial Statements
Report of the
Other
Message
Understanding our client's needs is the starting point for everything we do. We create win-win relationships by working closely with clients and delivering on their requirements while executing projects profitably. As an independent service provider, we have no further interest in our clients' projects and can therefore assure we provide our services on an impartial and confidential basis.
We strive to deliver results safely, on time and within budget, thereby meeting or exceeding client requirements. We offer standardised, innovative and effective solutions.
We believe that our people make the difference and we recognise the immense strength of teamwork. We trust each other and promote open, constructive debate and feedback. Unless confidential, information is shared, internally and externally.
Regardless of background, gender, religion, political orientation, age or position, we treat people with integrity and respect. We put safety first, by understanding the risks associated with our work, are trained in safety requirements and work accordingly. We aim to be a good corporate citizen in the communities in which we work, minimising our impact on the environment. Each of us is responsible for learning about and adhering to the laws and regulations applicable to our work.
Group
Divisional Financial Performance Performance Governance
Other Information
Fugro N.V. is a public limited liability company managed by a Board of Management under supervision of an independent Supervisory Board. The majority of Fugro's activities are managed within its Marine and Land division. Both divisions are comprised of a Site Characterisation business line and an Asset Integrity business line, organised within five geographical regions. The other activities take place in the Geoscience division, which almost fully consists of Fugro's 60% stake in Seabed Geosolutions (fully consolidated) and some indirect interests in Australian exploration projects via Finder Exploration.
At group level, the company has corporate departments in place for QHSSE, accounting & control, treasury, tax, insurance, internal audit, legal, human resources, IT, strategy & communication. Within the regions, support functions for human resources, finance, QHSSE and IT are increasingly organised in shared service centres.
We provide our services from a global network of 169 offices located in 65 countries.
10,044 employees 40 laboratories 16 research and development centres 32 consulting centres
26 vessels 1 98 cone penetration testing systems 239 onshore and 18 offshore drilling rigs 28 jack-up platforms 5 autonomous underwater vehicles 119 remotely operated vehicles 23 diving systems 2,742 seabed seismic nodes 2 374 kilometres of sea bed cables
| Key figures |
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Group
Divisional Financial Performance Performance Governance
Revenue by client type
Financial Statements
2% Design & engineering firms
1% Other
Our main offshore clients are oil and gas companies, marine construction and installation contractors, wind farm developers and government agencies. Our main onshore and nearshore clients are large infrastructure, industrial installation and building developers, construction and installation contractors, government agencies, oil and gas companies and mining companies.
1% 4%
7% 7% 24%
Power
As many of our clients operate internationally, we aim to deliver consistent, standardised services across all geographies. We are experiencing an increase in demand for solutions based on large, integrated multi-disciplinary projects and long-term framework agreements. We have a large and diverse client base, and typically in any year there is no client that accounts for more than around 5% of total revenue.
Autonomous underwater vehicle on board of Fugro Equator in Perth, Australia.
Our largest client groups are the major international, other independent and national oil and gas companies. In addition, we provide services to a diverse group of service providers such as construction & installation contractors and design & engineering companies.
The majority of our revenue is in the offshore upstream (exploration and production) segment. We provide our services through the full life cycle from exploration, through the initial feasibility and planning stages of a project to final investment decision, and then through development and production to eventual decommissioning of assets and infrastructure. In the downstream segment we provide services to support the construction and operation of LNG
plants, refineries, petro-chemical facilities, refineries and pipelines.
Our main clients are government agencies, construction project developers, railroad companies, design & engineering contractors, construction & installation contractors and industrial companies. We provide our site characterisation solutions to support them in optimising the design, construction, installation and operation of the assets they develop. The geo-intelligence information we provide helps local, regional and national government agencies manage their urban planning, security and development of natural resources. Our asset integrity solutions are used to optimise performance and enhance life time of assets.
Installation of wind farm project off the north coast of Wales, United Kingdom.
In this market, our key clients are the offshore wind farm developers, mostly in North Western Europe and recently also in the USA and Far East. We are the largest provider of services for general site assessment to target the optimal location of the wind turbines and we provide advice regarding the foundation design and for routing of power cables. We also provide asset integrity services comprising performance monitoring and inspection services. Due to the widely supported push towards sustainable electric power generation to achieve carbon emission reduction objectives, combined with generation cost coming down to grid parity and with significant potential to further reduce cost, the offshore wind farm market offers significant growth potential.
Another, smaller client group are the owners or developers of hydro, geothermal, solar and tidal wave energy to whom we provided site characterisation services.
This segment comprises our activities in power distribution, and conventional and nuclear power generation excluding renewables.
We provide site characterisation services and solutions to power plant engineering companies and owners, mostly in the development phase. For nuclear power plants we provide specialty earthquake risk assessments.
Fugro Explorer on its way to planned offshore wind farm in Massachusetts, transiting via New York to Long Island sound, USA.
For asset integrity services, our main clients are the power distribution companies. Reliable and safe power distribution is critical to support the electrification of society based on renewables and to achieve carbon emission reduction objectives. We provide innovative, cloud based asset integrity solutions for their distribution infrastructure based on geospatial technology. Our solutions support maintaining high network up time by identifying potential geo-risks.
Fugro also services non-energy related maritime clients. Activities include port and harbour surveys, hydrography for the production of sea charts, Law of the Sea surveys and consultancy, accurate positioning of vessels, in particular large cruise and container vessels, telecom cable surveys and search and recovery operations following ship or aircraft calamities at or over sea.
Fugro serves global and local mining companies, government agencies, construction contractors and design & engineering companies. We offer geo-intelligence and site characterisation and asset integrity solutions, often with a focus on hydrogeology and site inspection and monitoring. Our services are aimed at supporting mining companies recover natural resources efficiently, safely and responsibly, and remediate mining areas responsibly as part of mine decommissioning.
The marine business is a truly international market with large, globally active clients. We are the global leader in providing offshore geotechnical investigation, geophysical survey, positioning and construction support services.
Our market shares are high in providing services and solutions for site characterisation due to our capability to take on large, integrated projects, provide data management and related consultancy services. We are particularly well positioned to take on work in frontier areas and deep water. In other services such as metocean and inspection, repair and maintenance, Fugro is one of the top three players globally with strong regional positions in Asia-Pacific and Europe.
Report of the Supervisory Board Financial Statements Other Information
Fugro's geo-data, derived geo-intelligence and related advice reduce uncertainty relating to seabed ground conditions and the surrounding marine environment at project sites. Fugro's services enable clients to select the optimum site for building and placing their marine assets, identify and mitigate project risks and reduce uncertainties in design and construction.
| Geotechnical investigation | Soil sampling via extraction of soil samples (in water depths down to 3,000 metres) or cone penetration testing, location based testing and logging of soil and rock layers |
|---|---|
| Geophysical surveys | Mapping of the seabed and geological features and hazards below, in advance of drilling and construction of large installations and infrastructure, or to identify hydrocarbon seeps |
| Hydrographic surveys | Hydrographic surveys relating to the production of navigation charts, route surveys for cables and seabed searches |
| Metocean measurement | Provisioning of systems and services to measure, analyse, model and predict meteorological, oceanographic and environmental conditions |
| Geoconsulting | Provision of consulting services , expertise and advice (geo-intelligence) based on geotechnical, geophysical and environmental data. Includes ground modelling, geohazard risk assessments, geo-data management and geotechnical engineering |
Fugro's marine asset integrity business encompasses a comprehensive range of services and technologies designed to help clients to operate their offshore installations and infrastructure in a cost effective manner.
| Inspection, repair and maintenance | Extensive range of services designed to assess the condition of the underwater part of offshore assets and execute subsequent light repair and maintenance programmes; executed by divers (up to 300 metres) or by remotely operated vehicles |
|---|---|
| Positioning signals and services | ■ Subscription based service which enhances public satellite positioning data to a high accuracy and the provision of positioning equipment ■ Positioning services during construction and installation activities, both above and below the water surface |
| Construction support | Provisioning of survey systems and related expertise to support offshore construction projects, either on site or from onshore control centres |
| Metocean monitoring and forecasting | Real-time monitoring and forecasting of weather, sea currents and environmental conditions |
| Drill support | Inspection and light intervention services in support of drilling operations at oil or gas wells |
| Remote systems technology | Design, development and manufacturing of remotely operated systems for the subsea environment |
The asset integrity business previously encompassed non-core construction and installation activities, which were discontinued in the fourth quarter of 2017. The majority (the trenching and cable laying assets) was sold on 30 November, and the remaining long-term charter agreements for two construction and installation vessels were terminated early.
Group
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
Land revenue by market segment
The land business serves a broad spectrum of clients across multiple market segments world wide - from small, local municipal governments to some of the largest international engineering and construction firms. Our unique value proposition is to enable our clients to optimise the design, construction and maintenance of their land and nearshore assets through integrated geodata acquisition, analytics and consulting. We deploy our geotechnical, geophysical, testing and monitoring expertise safely and efficiently to all corners of the globe, even in extreme environments. Our site characterisation services achieve solid market share on complex, high-profile international projects, such as high-rise buildings, nuclear power plants, tunnels and bridges. Focusing on road, rail, electric utility networks and industrial plants, our maturing asset integrity business is steadily gaining market share in developed economies.
Land revenue (of total Fugro revenue)
Fugro delivers geo-data, the derived geo-intelligence and, as required, advice, resulting in full site characterisation solutions. This allows clients to make informed decisions during the engineering, design and construction phases to support sustainable and cost effective development of large buildings, industrial plants and infrastructure by reducing risk and accelerating project schedules.
| Geotechnical investigation | Soil sampling via extraction of samples or cone penetration testing, in-situ testing and logging of soil and rock layers, both on land and in nearshore environments (to water depths of around 40 metres) |
|---|---|
| Testing and monitoring | Laboratory testing of rock and soil samples; testing of foundation and construction materials; instrumentation and monitoring of building sites and constructions |
| Geoconsulting | Customised advice covering a wide spectrum of geotechnical, geophysical and environmental data. Includes ground modelling, geohazard risk assessments, geotechnical engineering, water resource management, flood control |
| Geophysical surveys | Remote sensing survey techniques to provide surface feature maps and data on the subsurface |
Group
Divisional Financial Performance Performance Governance
Supervisory Board Financial Statements
Report of the
Other Information
Fugro offers a broad range of asset monitoring services of large buildings and infrastructure that allow clients to optimise effective operation and extend the life time of their large buildings, industrial plants and infrastructure maintenance of their assets. We operate in three specific markets in which we provide bespoke, integrated asset integrity solutions.
| Power, rail, road | 3D digital remote inspection, modelling and analysis of power lines, railroads and roads pavement using highly-automated, digital data collection and cloud based processing, analysis and hosted delivery |
|---|---|
| Land and property | Remote sensing and mapping of land and properties |
| Oil and gas infrastructure | 3D digital remote inspection, modelling and analysis of industrial plants using cloud-based data analysis and information management platform |
This division almost entirely consists of Fugro's 60% stake in Seabed Geosolutions (fully consolidated; CGG owns the other 40%) and some indirect interests in Australian exploration projects, via Finder Exploration.
Seabed Geosolutions supports the optimal development and production of offshore oil and gas fields by providing high quality seismic data collected directly on the seabed. These data are used for detailed reservoir characterisation, monitoring of the impact of production, and detection of potential geohazards.
Traditionally, the company has collected seismic data on the seabed in areas where the water depth is too shallow, obstructions at the surface such as infrastructure do not allow for conventional surface streamer based data acquisition or where data of particularly good quality is required. Ocean bottom seismic data is now becoming increasingly competitive with streamer based data due to operational innovations creating a step change in seabed seismic data acquisition efficiency and cost effectiveness, which expands the traditional boundaries of the seabed market.
With its global footprint, Seabed Geosolutions is one of the largest seabed geophysical data acquisition service providers with the broadest range of technology solutions for projects up to water depths of 3,000 metres.
Ocean bottom nodes 3D and 4D imaging in water depths up to 3,000 metres using individual nodes deployed on the seabed via wire (node-on-a-wire) or with remotely operated vehicles
Shallow water cables 3D and 4D imaging through sensor cables placed on the seabed in nearshore and shallow water environments
Group Information
Divisional Financial Performance Performance Governance
Financial Statements Other
Fugro's short term strategic objective is to restore profitability and returns in a stabilising oil and gas market following years of sharp decline, and as a key step towards achieving our mid-term financial targets. At the same time we target continued growth in the building & infrastructure, renewables, power and nautical markets. This will support Fugro's leadership positions and further our purpose of contributing to a safe and liveable world by providing geo-intelligence and asset integrity solutions to support sustainable development and operation of our client's assets and natural resources.
With our Building on Strength strategy we focus on leveraging and developing the strengths of Fugro to achieve our financial targets and further develop our position as a market leading, sustainable company.
Growing sustainably requires balancing short and long-term interests of our stakeholders and integrating social and environmental factors into our decision making. In 2017, we further embedded the most relevant topics for the company and its stakeholders into a sustainability framework. Based on our strategy and organisation, we also formulated our long-term value creation model, as we firmly believe that this will support our long-term success and economic performance.
The development of Fugro is dependent on trends in our markets, technology and society. These trends drive our overall strategy and short to mid-term priorities.
The world's population is increasing at a rapid rate and everyone aspires to at least reasonable living standards. This results in a continued growth of the built environment and demand for natural resources. It also increases the need for infrastructure for people transport, trade, power, water and communications. By far most of the growth will take place in large urban centres increasing the need for smarter cities with good infrastructure. As many population centres are located in deltas and other low lying areas, protection against severe weather hazards and rising sea levels resulting from climate change will drive general water management, flood protection and coastal defense projects. To maintain a safe and liveable world in the face of strong population and urban growth and climate change, sustainable development is a necessity. Fugro's services and geo-intelligence, site characterisation and asset integrity solutions are essential for the sustainable development and operation of large buildings, infrastructure, industrial plants and natural resources; and for the protection against natural hazards. Supported by solid global economic growth, this trend is especially supportive of Fugro's building and infrastructure, renewables and power markets.
Carbon emission is a key cause of climate change. This is driving policies around the globe to reduce emissions by improving energy efficiency and by converting to sustainable power generation. As a result, growth in solar and wind power generation is rapid, with attendant growth in power distribution networks. Investments in renewable power generation have rapidly grown in the past decade and now already stand at around US\$ 300 billion per year compared to current annual investments in oil and gas of US\$ 650 billion per year (source: IEA's World Energy Investment 2017). Growth of investments in renewable energy is expected to continue at a considerable rate.
Solar and wind power in their initial growth phase relied strongly on government support. By now, technology, scale and efficiency gains are such that solar and wind on land are price competitive with fossil fuel alternatives in many areas of the world. Similarly, recent bids for offshore wind concessions no longer require government support. Government policy combined with economic viability are the drivers for the anticipated rapid growth in renewable power generation. Renewables are the fastest growing fuel source, quadrupling over the next twenty years, to around 10% of energy consumption (source: BP Energy Outlook 2017).
Fugro's potential in renewables is driven mainly by the development of the offshore wind market. Currently this market is dominated by North West Europe. However, decreasing cost and improving reliability is opening up other geographies, the USA and Eastern Asia in particular. Also the market for asset integrity services is beginning to develop as more and more windfarms enter into operation.
Development of the renewables market is very rapid, but it is still small compared to energy generated from oil and gas. For the coming years growth in renewables is not sufficient to cover overall energy demand growth and it will take time
Detecting possible defects in tunnel structure by infrared thermography, Hunghom Cross Harbour Tunnel, Hongkong.
before the demand for oil and gas starts to decline. Even then decline is expected to be slow. This means that oil and gas will dominate energy supply for years to come and Fugro can continue to operate in and benefit from the oil and gas market for a long time. At the same time we are anticipating on the long-term decline by growing our activities in the building & infrastructure, renewables, power and nautical markets.
Most renewable energy is produced as electric power. In addition, demand for electric power continues to increase driven by population growth and growth in use of electronics and electric transport.
Demand growth at this stage cannot be met by renewables. As a result, there is a continuing demand for conventional and nuclear power stations, requiring geo-intelligence and site characterisation services. In particular nuclear power stations require extensive and specialist site characterisation solutions.
In addition, demand growth and distributed power generation from renewables is putting new requirements on power distribution. As a result, distribution networks are being expanded and there is an increasing need for network asset integrity services to maintain high levels of operability. This plays to Fugro's activities in the power market, in which it provides specialist asset integrity services based on geospatial data acquisition and cloud based data processing and management.
The oil and gas market is subject to volatility typical of commodity markets. The period 2014 - first half of 2017 was dominated by oversupply, as technological improvements led to a strong increase in the production of shale oil in the United States of America, new supply from mega projects of the preceding years and continued ample supply from the Middle East and Russia. This resulted in a steep drop of the oil price, which prompted oil companies to strongly reduce their capital and operational spending. On the back of supply discipline of OPEC and Russia, in the course of 2017 the surplus has started to decrease and oil prices have been rising to above US\$ 60 per barrel Brent. In 2017 this resulted in a modest single digit increase in overall capital spending by oil and gas companies, after continuous declines since 2014. This increase was fully applied to the US shale market; offshore spending, which is most relevant for Fugro, was down by another 20%.
For offshore oil field services companies this has resulted in continued low work volumes and significant price pressure due to overcapacity. This has impacting all sectors of the offshore market. The bankruptcy of some competitors, notably in the subsea services segment, has resulted in some overall capacity reduction, but less than face value suggests as good vessels eventually tend to return to the market.
Depletion of producing oil and gas fields amounts to several million barrels per day on a current production of around 98 million barrels per day. The depletion rate is increasing due to more efficient reservoir production and reduced spending on maintaining production. In addition, the demand for oil is expected to grow by around 1.5 million barrel per day as the world economy improves. The gap can only partially be filled
Fugro's Roames analytics and visualisation tool enhances the management of power transmission and distribution networks.
by OPEC and Russian spare capacity. New developments are required and investment levels will need to increase to fill the gap caused by depletion and increasing demand.
Increasing investment currently is targeted mainly at shale oil development as this supports quick returns. However, shale oil is not low cost and cost will increase as development moves to more difficult areas. Offshore, the downturn has forced massive cost reduction throughout the supply chain and has prompted the development of standardised, more cost effective solutions. As a result, many reservoirs offshore, including deep water, have a development and production cost per barrel below or at the lower end of the cost range of shale oil, and have attractive, low cost production profiles following higher upfront investment. Hence, offshore activity levels, including deep water, are expected to increase again as offshore oil can profitably support filling the production gap caused by depletion and demand growth.
Shale oil development works on a much shorter time scale than offshore creating the flexibility to in part act as swing producer. Also some of the larger OPEC countries and Russia have reserve capacity. As a result, we anticipate recovery of the offshore market to be slow, after an initial phase of stability in 2018. Slow recovery implies that the offshore market will be characterised by overcapacity for some time, therefore we anticipate that price recovery will also be slow. Hence, to return to satisfactory profitability levels, Fugro will continue to improve cost efficiency and provide differentiated solutions that help reduce client's overall cost levels.
Due to technology development, the world today has an abundance of accessible oil and gas. This means the driver for oil companies is to find, develop and produce oil and gas at the lower end of the cost range. Similarly, wind is an abundant resource, and here also cost is key to successful development. In building and infrastructure cost has always been a consideration, and continues to be so.
In particular the oil and gas companies have been relentlessly cutting costs since the start of the downturn. This has manifested itself in lower prices for oil services companies, but also in the streamlining of projects through simplification, standardisation, efficiency and technological advancement. For suppliers like Fugro this implies that clients expect a high level of delivery excellence based on global standardisation of services, solutions and deliverables, quality, health, safety, security and environment (QHSSE) and contracts. In addition, solutions that help reduce client cost of development and operation are well received as well.
We also see large clients increasingly seeking integrated solutions rather than contracting for a series of separate services. This allows process simplification and staff reduction on their side and lower project costs as suppliers can pass on part of the efficiency benefits gained with providing integrated services. This is leading to an increase in size and complexity of projects. At the same time, larger projects can carry more risk and there is a push to transfer risk to suppliers. To counter this, more time is being spent upfront on detailing specifications and deliverables to help control project risk, cost and timelines.
Bathymetric map of Diamantina Escarpment off the Australian Coast. Image courtesy of Geoscience Australia.
With our scale as market leader, we benefit from standardisation, in particular in areas where we can help drive standards. With our broad capabilities, we are best placed to deliver large, integrated projects. Finally, by means of our innovations we can support clients to reduce development and operation cost.
Clients are embracing digital technology to increase efficiency and reduce overall asset management cost. We are seeing remarkable developments in various technology fields relevant to Fugro, such as robotisation, sensing, remote operations, data processing and analysis. Sensors are a case in point, where improvements in sensitivity, speed, lower power consumption, miniaturisation and cost reduction enable ever increasing volumes of different kinds of digital data to be gathered with higher resolution and higher density. Processing, management and analysis of all this data is increasingly being achieved by leveraging rapidly developing cloud technologies.
The rapid rise of digital capabilities is leading clients to ask for digital representations of their key assets. This is happening across Fugro's markets. Examples are the digital oil field, the so called digital twin of industrial plants, digital representations of power distribution networks and substations, and digital representations of pipelines (on land and on the seabed), rail and road infrastructure. These digital representations are used for various purposes, for example for comparison of as built versus engineering plans, to detect and document changes over time and for predictive maintenance.
Acquiring, processing, analysing geo-data to derive the digital representations of sites and constructions and managing these representations is at the heart of what Fugro does and is a core capability. Fugro expects good growth in the demand for digital representation of key assets of its clients as it offers clear cost and efficiency benefits. Given its capabilities, Fugro will benefit. However, this new market will also be interesting for various consulting, technology and engineering companies. Also, the client organisations will have to adjust to working with digital representations of their assets.
The fast development of technology further supports Fugro in its ability to innovate and differentiate its existing services, enhance delivery excellence, and broaden its range of services and reduce cost. For example, we are currently working with clients to deliver project results on a fully digital basis in order to reduce project cycle time and costs. Another example is robotisation and automation, where we are able to completely automate the deployment of data acquisition nodes for seabed data acquisition, reducing cost and improving health and safety performance.
We are experiencing a growing demand for our services from clients related to improving the sustainability of their projects. During the design and build phase of their projects we are seeing increasing demand for environmental mapping, water management, geo-hazard data and analysis and studies to support development of built assets and natural resources with minimum environmental impact. We are providing these services either independently or as part of integrated site characterisation services. Similarly, clients seek asset integrity solutions to ensure environmentally sound and safe operation of their assets
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and to increase longevity. We are also increasingly becoming involved in projects that target sustainability directly. This includes providing solutions to support the development and operation of windfarms and the optimal operation of power distribution networks. It also includes water management infrastructure to mitigate the impact of climate change and water resource projects.
Clients and other stakeholders like employees and shareholders expect responsibly run businesses, and reporting on non-financial performance. This has been done for many years for safety management, the prevention of environmental incidents and training. External reporting on other sustainability related topics like diversity, equal opportunity, carbon emissions and ethical business practices is becoming mainstream as well. Many sustainability topics have been embedded in Fugro's policies and reporting, and new topics that make business sense will be adopted as they emerge.
Fugro's value creation model shows how we use the resources, capabilities and expertise at our disposal to create value for our stakeholders. Our business model transforms these capital inputs into value outputs and outcomes that over the short, medium and long-term create value for the organisation, its stakeholders and society at large. This model is based on the 'six capitals' model of the International Integrated Reporting Council.
The objective of Fugro's strategy is to deliver on its mid-term financial targets, further develop its position as a market leading company, and fulfill its purpose. In the short term, the key objective is to improve profitability and returns, which are under pressure due to the unprecedented downturn in the oil and gas market.
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A key element of the Building on Strength strategy launched in 2014 was the transformation of our organisation from local operating companies delivering separate survey, geotechnical and subsea services, into one that efficiently and cost effectively delivers on today's client requirements for large, integrated, multi-disciplinary projects. We have successfully completed this transformation into a regionally managed organisation, offering geo-intelligence and asset integrity solutions from uniform business lines.
The new organisation is also much more cost efficient, which will support result improvements as the oil and gas market stabilises and eventually recovers. The new structure also provides the platform for driving growth in our building and infrastructure, renewables, power, nautical and mining markets to support the long-term sustainability of the company.
The next phase in implementing Fugro's strategy focuses on leveraging and developing specific strengths that will improve profitability and returns, and support sustainable growth in markets other than oil and gas. The current strategic priorities are to enhance client focus by professionalising account management and broaden its range of differentiated and innovative value propositions, strengthen staff engagement, improve delivery excellence by digitalisation, and further enhance organisational performance.
In 2017, Fugro achieved its strategic objective of ending its active participation in the installation and construction part of the subsea market. On 30 November, Fugro finalised the divestment of its marine cable laying and trenching assets in exchange for a 23.6% interest in Global Marine Holdings (Global), a leading global supplier of subsea cable installation and maintenance services. Fugro now participates in a more diversified business in which cable installation services are complemented with long-term telecom cable and windfarm maintenance services and sales of subsea telecom systems. Fugro is the preferred provider of marine site characterisation and asset integrity services to Global. In addition, towards the end of the year we early terminated the long-term charter agreements for the two remaining installation and construction vessels.
We continue to be open to reducing our stake in Seabed Geosolutions or enter into an extended partnership. Seabed Geosolutions expects to benefit from a growing seabed
geophysical market focused on oil and gas development and production, its new Manta data acquisition system and the synergies with Fugro's marine division regarding the efficient deployment of nodes using remotely operated vehicles.
Market leadership is a key strategic driver for Fugro and underpins long-term value creation as market leaders generally enjoy superior through-the-cycle financial performance and are the most resilient in case of downturns.
In the offshore market, Fugro is global market leader in providing marine site characterisation services. We are particularly strong in frontier environments such as deep water. Market shares are high as we are an independent service provider and with our organisation, people and assets we can take on large, integrated projects; leverage our global footprint; and provide the full range of acquisition, analytics and advisory services. In the marine asset integrity space, Fugro holds strong regional positions in Asia-Pacific and Europe. On land, based on the same capabilities as in marine, Fugro is market leader in site characterisation on a regional and local basis, and in our ability to provide integrated services to globally operating clients anywhere in the world. In asset integrity we have leadership positions in specific market segments in selected countries.
Fugro's market leadership is predicated on being an independent services provider. Fugro provides geo-intelligence and asset integrity solutions. Data, information and advice regarding natural resource development and sites for construction of large buildings, industrial plants and infrastructure are vital to costing, design and risk mitigation during the development phase and to mitigate development risk. As independent service provider, we have no conflict of interest with respect to other parties involved in clients' projects and results are provided impartially and confidentially. Furthermore, Fugro increasingly provides asset condition data and information during the asset construction and operational phases. This information can be used to determine construction quality and operational reliability. To avoid conflicts of interest, such services must be provided independently from parties involved in the construction and maintenance phases of a client's project.
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A further requirement to achieve and maintain market leadership is that we consistently meet client project requirements anywhere we operate. To achieve this we provide quality services that are delivered by well-trained people, safely, within budget, on time and meeting client specifications. We use a wide range of high- end equipment including vessels, jack-ups, remotely operated vehicles, autonomous underwater vehicles, laboratories, and a huge range of sensing and measurement equipment. Further, we strive to deliver consistently around the globe by operating to high technical, sustainability, integrity and business standards set for our industries and supplemented by the client's and our own standards. Often the technical requirements demand technology driven, innovative solutions. In 2018 we will be paying particular attention to digitalisation of client deliverables and to introducing innovations that support our clients with solutions that deliver better results, enhance safety, and reduce overall cost of asset development and operation.
In the last few years Fugro has been successful in further strengthening its market leading positions in the currently very competitive oil and gas services market. In site characterisation services for offshore wind, Fugro has become market leader. Based on our global footprint, we are also leading in emerging offshore wind markets in United States of America and the Far East. On land, we are able to maintain our market positions and grow regional positions in specific market segments, for example in digital rail asset integrity management in Europe and digital power network asset management in Australia.
While we strive to provide high quality services that are valuable to our clients, we have to ensure value also accrues to Fugro. With the downturn in our offshore oil and gas market, prices for offshore services have come under strong pressure. To counter this development, we have started a drive to strengthen our commercial capabilities. This includes developing differentiated and appropriately priced value propositions that are supported higher up in client organisations, and putting more emphasis on account management, in particular with our large, global clients to maintain and develop long-term customer relationships. These steps also support a further strengthening of our market positions.
Fugro is constantly adjusting its organisation to better support its clients in managing their projects and operation of their assets in a sustainable, smart and cost effective way. In the past two decades Fugro has successfully served its clients by operating from a large pool of local entities offering specific services. Globalisation has been driving the demand for standardisation and increasing project complexity and cost reductions measures at clients driving demand for large, integrated projects. These demands could not be met with the local operating company model. Over the past years, Fugro has transformed to a centrally coordinated, regionally organised company that operates site characterisation and asset integrity business lines within both a marine division and a land division. Fugro started reporting in the new structure in 2017. During the year, clients' reactions on the new organisational set-up have been positive, as it has strengthened Fugro's ability to more effectively provide standardised and integrated geo-intelligence and asset integrity solutions.
The new organisation offers many benefits. Large integrated projects can in most cases be fully resourced within the regions, so that they can be efficiently executed. The new divisional structure allows us to capture further synergies by having all marine assets under a single central management structure. Similarly, other assets are now regionally or globally pooled. A further benefit is that client and internal requirements for standardisation, quality, digitalisation and technology are much easier to identify, analyse and implement as it is now driven centrally through the business line structure.
To further improve the organisation, Fugro is merging local entities into country organisations. This simplifies the organisation by reducing the number of legal entities. In 2017, good progress was made and 50 legal entities were closed. In parallel, support functions are being merged into shared service centers, resulting in cost efficiencies and an improved service delivery. Shared service centres are now in operation in Fugro's largest hubs in the USA, EU, Middle East, Asia and Australia. Rationalisation of the legal entity structure and implementation of the shared service centers will be largely finalised in 2018.
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Safe realisation of tunnels in urban area using real time monitoring
The city of The Hague in the Netherlands has contracted Fugro to monitor any movements of buildings and the ground surface during construction of the Rotterdamsebaan tunnel. Fugro has installed one of the largest monitoring and Internet of Things systems ever developed in the Netherlands. A network of sensors feeds data into Fugro's GeoRiskPortal®, where it is immediately processed and analysed to present the monitoring results in real-time to the client and the contractor.
In combination with Fugro's unrivalled geo-information database and geo-risk management expertise, this solution supports the client with early warning capability, leading to risk reduction and optimised construction performance. GeoRiskPortal® can also be applied during the life time of an asset for early detection of possible failure risks, ultimately reducing maintenance costs.
5,000 sensors
GeoRiskPortal® has so far been used in 70+ projects world wide
Instrumentation of offshore windfarm monopile for strain, temperature and vibration with fiber optic sensors, Vlissingen, The Netherlands.
Engaged and talented employees are essential for any organisation to function well. Our purpose to contribute to a safe and liveable world, our market leading positions, solutions based on large multi-disciplinary projects, global footprint, and focus on innovation all contribute to creating an exciting work environment with many development opportunities.
Safety is a key priority. Much of our work is performed in challenging environments. Fugro is committed to keeping its employees and others involved in its operations safe by eliminating workplace hazards and preventing incidents. After years of improvement in safety performance, further improvement is stagnating, which is happening industry wide. Fugro is dedicated to further improve its safety performance and uses and promotes Fugro's safety leadership programme to enable everyone to become a safety leader in their own workplace by encouraging peer-to-peer discussions, involvement, engagement and ownership of safety on the worksite. The programme is supported by key clients and is currently being rolled out across Fugro's vessel fleet and other operations in the marine and land environments. The intent of the programme is achieving a step change in safety performance.
We support employee development with an array of tools including in-house training by the Fugro Academy. In the last two years we implemented a group wide talent identification programme which we are expanding in order to improve talent development on a group basis. This will include more attention to broadening diversity, which is important to Fugro.
A short term target is to improve employee engagement. We acknowledge that this is a challenge in a period that Fugro has been restructuring vigorously to deal with the oil and gas downturn. Since the start of 2015 Fugro has had to let go of around 3,500 employees or 25% of the total work force. In addition, the organisational transformation we have undertaken has meant significant change for a lot of people, even if the need for change has been widely appreciated and supported and people recognise it is creating good opportunities. We are addressing employee engagement vigourously, with groupwide communication supported by new group wide collaboration tools. In 2018 we will hold a group wide engagement survey.
Another priority is to transform the human resources function from a mainly transactional to a business partner role. We are establishing an environment that appeals to employees and is supportive of employee engagement and achievement by encouraging safe, productive and positive work practices throughout all aspects of the employment life cycle. A job architecture and job levelling foundation has been designed, which will be implemented in 2018 and which will serve as a platform to develop career programmes. Further priorities for 2018 are the implementation of a new groupwide human resources SaaS solution, a structured group wide approach to succession planning and a groupwide diversity policy.
Fugro's leading market position is supported by its technology leadership. Fugro uses high-performance assets, equipment, technologies, software and business processes. Much is developed in-house through research and development, innovation and digitalisation programmes, complemented as needed or when advantageous by
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working with clients, suppliers, research institutes and universities. Our technology development and innovation capabilities are a core strength of Fugro and essential to being able to achieve our strategic objectives. We will continue to invest in innovation, with an increasing focus on digitalisation.
Fugro has established a strong tradition in innovation since developing electric cone penetration testing in the 1960s. Other examples, such as the Starfix high accuracy global positioning system, our in-house designed and built remotely operated vehicles and fibre optic sensing tools demonstrate that Fugro continues to be an innovation leader in the markets in which it operates.
Digitalisation is becoming increasingly important as part of technology development and innovation. Clients are starting to embrace digital solutions to increase efficiency and reduce overall cost of development and operations. For Fugro it creates the opportunity to enhance delivery excellence by developing and offering client project deliverables in fully digital form. Fugro is spending a significant part of its development budget to support this trend. Examples are our cloud based, fully digital asset management solutions for roads, railways and power networks and solutions to provide remote operations offshore. Also internally we are benefiting from digitalisation of our processes.
In 2017, Fugro launched several new technologies and innovations and we organised an innovation fair for clients where we highlighted 35 innovations and other relevant developments. Examples are Quickvision (digital visionbased survey system to support subsea operations), 3D ultra-high resolution seismic surveys (for boulder identification to reduce risk of wind turbine foundation placement and drilling operations) and Seadevil (a hybrid geotechnical system that exploits the advantages of both vessel-based and seafloor drilling, enabling high quality offshore geotechnical samples to be acquired and assessed with greater accuracy and efficiency). A further example is the successful installation of multiple Fugro FAZTFiber™ based road wear monitoring systems, which includes digital cloud based data analysis, management and web delivery of results to clients.
In the technology fields in which Fugro works the number of patents is rising, requiring careful consideration when developing new technologies to apply for patents for novel
technologies and applications and to ensure patents of others are not violated or that licensing agreements are put in place. In 2017 we applied for 84 patents.
Fugro is actively seeking to grow in the building and infrastructure, renewables, power, nautical and mining markets. In these markets we provide essential services that support our purpose by contributing to solutions to support a world with a growing, increasingly more affluent population and to mitigate the impact of climate change. In addition, it is desirable to have exposure across multiple markets that run in different cycles and to be active across the different phases of these markets to improve the overall sustainability of Fugro and the robustness of our performance.
Currently Fugro is most exposed to the oil and gas market, in which it generated 57% of its 2017 revenue. Within this market, over the last few years, Fugro has created a balanced exposure across the exploration, development, production and decommissioning life cycle. This is providing some cushion to the current strong downturn in the oil and gas services market.
In 2017, Fugro generated 43% of its revenue from non-oil and gas related markets, up from 34% in 2016. The majority of the shift is attributable to a 9% currency comparable organic growth in the markets outside oil and gas; the other part is due to the reduction of our oil and gas activities resulting from the downturn. Following good growth in its markets outside oil and gas in 2017, Fugro will strive for further growth in 2018.
Achieving a balanced exposure across multiple markets is, where possible, supported by skewing investments to markets where we want to increase exposure on a relative basis. Also, once Fugro regains sufficient balance sheet strength to resume acquisitions, it is anticipated these will be biased towards these markets. Over time, these actions will result in the desired rebalancing.
Fugro is committed to conducting its business ethically and responsibly, to contribute with its services to the development of sustainable energy, to support the electrification of society and to support building and infrastructure projects that mitigate the impact of climate change and other geo-hazards. The sustainability topics for
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Fugro with the highest priority for our stakeholders and the largest business impact are at the center of our sustainability policies and reporting.
In 2017, the company has adopted the EU Transparency Directive regarding the disclosure of non-financial and diversity information (2014/95/EU). In addition, Fugro endorses the OECD Guidelines for Multinational Enterprises.
At the end of 2016, Fugro, in cooperation with an independent sustainability consultant, performed a materiality assessment in order to identify the most relevant sustainability topics for the company and its stakeholders covering economic, environmental and social impacts. Materiality refers to the threshold at which topics become sufficiently relevant to be reported and are therefore important to Fugro's business and stakeholders.
The assessment started with a long list of topics and eventually the selection process resulted in the nine materials topics as shown in the four upper right quadrants of the materiality matrix.
Going forward, Fugro will review this matrix periodically, and adjust its policies and reporting accordingly.
In 2017, we further embedded the nine material topics into a sustainability framework, which fully supports Fugro's business objectives and purpose of contributing to a safe and liveable world by being the world's leading, independent provider of geo-intelligence and asset integrity solutions. The topics are embedded in Fugro's values and strategy development and are integrated into its decision making and reporting. The sustainability framework reinforces the implementation of Fugro's overall strategy and supports our economic performance.
Safety is key to all Fugro's operations, and therefore an essential element of its sustainability approach. Fugro is committed to providing a safe work place for all its employees, subcontractors and clients. Fugro firmly believes that incidents can be prevented by identifying and managing health and safety risks arising from its activities. Management is accountable for training of its employees
| Material topics | ||||||
|---|---|---|---|---|---|---|
| Very relevant | Human rights Sustainable supply chain |
Carbon footprint | Employee health & safety Business ethics & anti-corruption |
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| Relevance for external stakeholders of Fugro | Biodiversity Waste management and effluents Energy and resource management Support of local communities |
Regulatory & legal compliance Diversity & equal opportunity |
Stakeholder engagement Employee training & development Sustainable innovation & services Talent attraction & retention |
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| Less relevant | Water resource management Environmental accidents and remediation |
Tax policy Environmental compliance Climate change mitigation & adaptation |
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| Less relevant | Very relevant | |||||
| Relevance for Fugro |
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and takes a proactive approach to embed appropriate safety standards and practices in operations and workforce behaviours.
Fugro's global presence exposes the company to regional and local laws, regulations, customs and practices in at times challenging political and economic environments. Fugro is committed to adhere to applicable laws and regulations and expectations of society at large, and to conduct business in an ethical and responsible manner. To ensure this, Fugro has appropriate procedures and training in place. Moreover, management stimulates a culture that drives this commitment and adherence to Fugro's Code of Conduct throughout the organisation.
People are Fugro's strength and future and therefore recruiting, developing, retaining and engaging a diverse pool of talent is key. The company works continually at developing its employees by supporting the further development of their skills and talents and enhancing their knowledge.
Fugro is an equal opportunity employer that values and promotes diversity and treats everyone with integrity and respect, irrespective of gender, age, race, religion or background. The company promotes a strong local presence and benefits from diversity through a better understanding of challenges and complexities from a local point of view.
The increasing global drive to reduce carbon emission caused by fossil fuel consumption is leading to growing investments in renewable energy. Fugro offers site characterisation and asset integrity services and continuously develops new and innovative solutions in support of renewable energy projects, like for example offshore wind farms. In addition, Fugro offers environmental assessments services, and other solutions that assist its clients and other partners in limiting the environmental impact of their operations and to mitigate the consequences of sea-level rising and severe weather events caused by global warming. Reducing the environmental impact of its own activities also is an essential part of Fugro's
| Our purpose | Contribute to a safe and liveable world | ||||||
|---|---|---|---|---|---|---|---|
| Sustainability drivers | Operating safely and compliant |
Valuing people | Partnering for a sustainable world |
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| Health & safety | Diversity & equal opportunity |
Sustainable innovation & services |
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| Focus areas (Material topics) |
Business ethics & anti-corruption |
Talent attraction & retention |
Carbon footprint | ||||
| Regulatory and legal compliance |
Employee training & development |
Stakeholder engagement |
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| UN sustainable development goals |
Lead driller onboard Fugro Synergy vessel.
sustainability approach, and is focused on limiting carbon dioxide emissions, mostly of its vessel fleet.
Fugro is actively involved in the communities in which its works. Fugro's people actively engages and consults with a variety of stakeholders.
The United Nations sustainable development goals (SDGs) are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. Of the seventeen interconnected SDGs, Fugro's activities mainly contribute to seven, which are clearly linked to Fugro's purpose, strategy, sustainability framework, practices and culture. For a description of these goals and Fugro's contribution, see the graph on the next page.
Fugro's policies, performance and ambitions regarding its sustainability focus areas (which are equal to its material topics) are addressed in the chapter 'Group performance – sustainability performance'.
The Global Director QA & HSSE, who reports directly to the CEO, coordinates the groupwide development and implementation of the sustainability framework. The relevant topics are managed and monitored by the appropriate corporate directors: Global Director Human Resources, General Counsel & Chief Compliance Officer and Global Director QA & HSSE. Fugro's business entities are responsible for local implementation of relevant practices within the policy framework set by the Board of Management.
The sustainability performance data have mainly been obtained from our global consolidation and management reporting systems. The reporting scope relates to all of Fugro's activities. For certain of the non-financial indicators this is the first year of reporting and for these indicators there is no comparable data on previous years. The maturity of our non-financial performance reporting will grow over time.
In 2014 Fugro formulated mid-term targets, both for the group and per division. Adjusted to the divisional structure as per 2017, the targets are as follows:
| Target range | |
|---|---|
| EBIT margin group | 8 – 12% |
| EBIT margin Marine division | 10 – 13% |
| EBIT margin Land division | 8 – 11% |
| EBIT margin Seabed Geosolutions | 5 – 10% |
| Return on capital employed group | 8 – 12% |
The timeframe in which Fugro will realise these targets is dependent on a structural recovery of the oil and gas market. In the current challenging market, Fugro will continue to focus on recovering profitability and delivering positive cash flow.
Taking soil samples in shallow water along the coastline of Dubai.
Fugro supports professional development of all its employees, and has its own Fugro Academy to facilitate this. Employees are trained to abide by its Code of Conduct and work in accordance with Fugro's core values.
Fugro provides innovative solutions for development of a variety of clean energy resources. The company focuses on reducing its own carbon footprint, most notably from its vessel fleet, through a variety of technical innovations and programs, and promotes the energy efficiency of its offices.
Fugro treats people with dignity, respect and offers equal opportunities for all based on performance and development. Fugro works in parts of the world where equality and labour rights may be viewed differently. While recognising this, high business ethics in general and the compulsory training on the Code of Conduct in particular ensure that all within the company live up to the core values.
Fugro's HSSE policies and programs are focused on the wellbeing of employees, by managing safety in the workplace. Fugro adheres to local and international guidelines and legislation, and applies and promotes (industry) best practices in line with its human rights policy and core values.
Fugro's site characterisation and asset integrity solutions and innovations ensure the safe and sustainable development and management of a broad variety of infrastructure assets in the world.
Fugro actively contributes its expertise and vast knowledge of subsurface conditions to urban development initiatives and protection of cities and communities from flooding. Fugro is part of the Human Cities Coalition, a Dutch public-private partnership dedicated to making cities more sustainable, inclusive and resilient.
Fugro adheres to local and international guidelines and legislation and applies and promotes best practices in line with its human rights policy, core values and the objectives of SDGs 8 and 10.
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Net debt/EBITDA of 1.9, well below covenant requirement of maximum 3.0.
Backlog for the next 12 months is down 7.3% on a currency and portfolio comparable basis compared to a year ago, and up by 9.1% compared to the third quarter of 2017.
Revenue decreased by 13.2% at constant currencies caused by over-capacity and pricing pressure in the oil and gas market. In 2017, revenue from oil and gas decreased by 16.3% in Marine and 47.3% in Land. Revenue from other markets increased by 9.4%, supported by favourable economic conditions and a few relatively large projects in power and infrastructure.
| Reported | |||
|---|---|---|---|
| Revenue by region 1 (x EUR million) | 2017 | 2016 | growth |
| Europe | 581.2 | 629.0 | (7.6%) |
| Americas | 334.9 | 373.1 | (10.2%) |
| Asia Pacific | 303.1 | 384.8 | (21.2%) |
| Middle East and India | 220.6 | 299.2 | (26.3%) |
| Africa | 57.6 | 89.7 | (35.8%) |
| Total | 1,497.4 | 1,775.9 | (15.7%) |
1 By region of origin.
| Currency | ||||
|---|---|---|---|---|
| Revenue by division (x EUR million) | 2017 | 2016 | Reported growth |
comparable growth |
| Marine | 947.3 | 1,096.1 | (13.6%) | (11.3%) |
| Land | 476.0 | 506.8 | (6.1%) | (3.0%) |
| Geoscience | 74.1 | 173.0 | (57.2%) | (55.7%) |
| Total | 1,497.4 | 1,775.9 | (15.7%) | (13.2%) |
Performing cone penetration tests for reconstruction of quay wall in center of Amsterdam, The Netherlands.
Revenue decline due to disposals related to the divestment of the marine construction and installation activities. The trenching and cable laying assets were divested to Global Marine Holdings on 30 November 2017 and two long-term charter agreements were terminated early in November.
| Revenue growth 2017 | Organic Exchange rate | Acquisitions | Disposals | Total | |
|---|---|---|---|---|---|
| (11.0%) | (2.5%) | - | (2.2%) | (15.7%) |
| EBIT by division (x EUR million) | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| Reported | Excluding exceptional items | Reported | Excluding exceptional items | |||||
| EUR | Margin | EUR | Margin | EUR | Margin | EUR | Margin | |
| Marine | (56.5) | (6.0%) | (43.3) | (4.6%) | (160.9) | (14.7%) | (18.8) | (1.7%) |
| Land | 15.7 | 3.3% | 21.4 | 4.5% | (20.1) | (4.0%) | 6.6 | 1.3% |
| Geoscience | (10.9) | (14.7%) | (10.2) | (13.8%) | (37.7) | (21.8%) | 20.7 | 12.0% |
| Total | (51.7) | (3.5%) | (32.1) | (2.1%) | (218.7) | (12.3%) | 8.5 | 0.5% |
EBIT margin (excluding exceptional items) decreased from 0.5% to a loss of 2.1% mainly due to price pressure and incidental operational issues in the Marine division, and a lower activity level at Seabed Geosolutions. EBIT for the Land division was significantly above last year, reflecting improved profitability and a positive one-off of EUR 6.1 million from a contractual settlement.
A digital copy of an industrial plant helps clients to lower maintenance costs.
| Exceptional items by division (x EUR million) | Marine | Land | Geoscience | Total |
|---|---|---|---|---|
| Gain/ (loss) | ||||
| Onerous contract provision | (17.0) | (0.6) | - | (17.6) |
| Restructuring costs | (5.8) | (5.7) | (0.7) | (12.2) |
| Other | 7.6 | 2.8 | - | 10.4 |
| EBITDA impact 2017 | (15.2) | (3.5) | (0.7) | (19.4) |
| Impairments | 2.0 | (2.2) | - | (0.2) |
| EBIT impact 2017 | (13.2) | (5.7) | (0.7) | (19.6) |
| EBITDA impact 2016 | (15.6) | (12.7) | (6.2) | (34.5) |
| EBIT impact 2016 | (142.1) | (26.7) | (58.4) | (227.2) |
EBIT was impacted by exceptional items in total EUR 19.6 million. Key items were:
The decrease in the finance income is mainly related to less interest income as a consequence of the sale of the CGG vendor loan in 2016. Interest expenses decreased from EUR 65.0 million to EUR 48.0, mainly as a result of the changes in debt mix with a lower average interest rate. The EUR 48.0 million interest expenses in 2017 included
EUR 24.0 million consisting of accelerated amortisation of capitalised amendment fees, fee payments in connection with the early repayments of the US private placement loans, and accrued interest as a consequence of the amortised interest accounting relating to the convertible bonds.
The negative exchange rate variances of EUR 28.2 million are mostly caused by the strengthening of the Euro.
| Finance costs (x EUR million) | 2017 | 2016 |
|---|---|---|
| Finance income | 5.4 | 8.9 |
| Interest expenses | (48.0) | (65.0) |
| Net change in fair value of financial | ||
| assets | 0.1 | (0.3) |
| Exchange rate variances | (28.2) | (14.5) |
| Finance expenses | (76.1) | (79.8) |
| Net finance costs | (70.7) | (70.9) |
Divisional Financial Performance Performance Governance
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The profit in equity accounted investees of EUR 4.7 million (net of tax) is mostly related to the joint ventures with China Oilfield Services Limited, Wavewalker B.V. and joint ventures in Azerbaijan and Iraq.
Income tax expense was driven by taxable profits in certain countries. In addition, in a number of jurisdictions no deferred tax assets were recognised for current year tax losses and previously recognised deferred tax assets were partially written down because of recoverability risk with a significant impact in the USA. Furthermore, the effect of domestic tax rate change on the deferred tax asset in the USA was EUR 9.4 million.
| Tax excluding exceptional items Tax on exceptional items |
(47.9) 0.3 |
(13.2) 4.0 |
|---|---|---|
| Total tax | (47.6) | (9.2) |
The loss attributable to non-controlling interests was EUR 0.3 million and was mostly the result of the negative result in Seabed Geosolutions, offset by the profit of a subsidiary in the Middle East. The decrease compared to last year is mainly caused by Seabed Geosolutions, in which CGG has a 40% interest and was profitable in 2016.
The profit from discontinued operations is related to the release of provision for tax indemnities and warranties connected to the sale of majority of the Geoscience business to CGG in 2013.
| Net result (x EUR million) | 2017 | 2016 |
|---|---|---|
| EBIT | (51.7) | (218.7) |
| Net finance costs | (70.7) | (70.9) |
| Share of profit/ (loss) in equity accounted | ||
| investees | 4.7 | (2.2) |
| Income tax expense | (47.6) | (9.2) |
| (Gain)/ loss on non-controlling interests | 0.3 | (7.9) |
| Net result | (165.0) | (308.9) |
| Profit from discontinued operations | 5.1 | - |
| Net result (including discontinued | ||
| operations) | (159.9) | (308.9) |
The change in intangible assets from EUR 393.5 million to EUR 372.3 million was mainly related to a decrease in goodwill by EUR 20.4 million, driven by foreign currency translation differences.
Working capital as a percentage of revenue was broadly in line with prior year. Fugro managed to further improve days of revenue outstanding by 7 days through improved billing and cash collection. The year-on-year revenue decline in the fourth quarter of 9.5% was the other main reason for the decline in receivables and payables.
| Working capital (x EUR million) | 2017 | 2016 |
|---|---|---|
| Working capital | 164.9 | 192.9 |
| Working capital as % of last 12 months | ||
| revenue | 11.0% | 10.9% |
| ■ Inventories | 30.5 | 22.1 |
| ■ Trade and other receivables | 477.0 | 546.2 |
| ■ Trade and other payables | (342.6) | (375.4) |
| Days revenue outstanding | 85 | 92 |
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The decrease in capital employed is the result of lower working capital, decrease of deferred tax assets, capex significantly below depreciation plus amortisation and currency translation effects. The return on capital employed was below last year due to increased net operating losses.
| Return on capital employed (x EUR million) | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| YE16 | HY17 | YE17 | Average | YE15 | HY16 | YE16 | Average | |
| Capital employed | 1,341.2 | 1,267.8 | 1,184.1 | 1,264.4 | 1,689.7 | 1,481.0 | 1,341.2 | 1,504.0 |
| Exceptional items EBIT | ||||||||
| impact | - | 25.3 | 19.6 | 15.0 | - | 151.7 | 227.2 | 126.3 |
| Exceptional items tax impact | - | (0.2) | (0.3) | (0.2) | - | (2.6) | (4.0) | (2.2) |
| Adjusted capital employed | 1,341.2 | 1,292.9 | 1,203.4 | 1,279.2 | 1,689.7 | 1,630.1 | 1,564.4 | 1,628.1 |
| 12 months rolling | 12 months rolling | |||||||
| EBIT excluding exceptional | ||||||||
| items | (32.1) | 8.5 | ||||||
| Equity accounted investees | 4.7 | (2.2) | ||||||
| Profit before tax 1 | ||||||||
| excluding exceptional items | (27.4) | 6.3 | ||||||
| Tax expense 2 | (14.6) | (17.3) | ||||||
| NOPAT excluding | ||||||||
| exceptional items | (42.0) | (11.0) | ||||||
| Return on capital | ||||||||
| employed | (3.3%) | (0.7%) |
1 Excluding net finance costs.
2 Tax on profit excluding net finance costs.
Capital expenditure increased from EUR 92.5 million to EUR 108.0 million and included the purchase of the REM Etive vessel, including equipment, for EUR 23.6 million and EUR 17.0 million on the new ocean bottom nodes for Seabed Geosolutions. Other capital expenditure was almost entirely related to regular maintenance and project equipment.
| Capital expenditure (x EUR million) | 2017 | 2016 |
|---|---|---|
| Maintenance capex | 37.0 | 33.2 |
| Other capex (including fixed assets | ||
| under construction) | 71.0 | 59.3 |
| Total capex | 108.0 | 92.5 |
Recovery of wavescan buoy, Gulf of Mexico.
Cash outflow from operating activities after investments of EUR 50.5 million was the result of a reduction in cash generated from operating activities and an increase in capex, partly offset by the proceeds from the sale and lease back of an office building in United Kingdom. Last year's cash flow included proceeds from the sale of the CGG term loan (EUR 62.5 million) and the sale and leaseback of a geotechnical vessel (EUR 48.6 million).
Cash flow from financing activities of EUR 53.6 million was largely related to the placement of the subordinated convertible bonds and drawings under the revolving credit facility, used to repay the US private placement loans.
| Cash flow (x EUR million) | 2017 | 2016 |
|---|---|---|
| Cash flow from operating activities | 24.4 | 130.8 |
| Cash flow from investing activities | (74.9) | 55.3 |
| Cash flow from operating activities | ||
| after investments | (50.5) | 186.1 |
| Cash flow used in financing activities | 53.6 | (228.0) |
| Net cash movement | 3.1 | (41.9) |
Net cash from operations was EUR 24.4 million and net investments were EUR 74.9 million, resulting in cash flow of -EUR 50.5 million. Working capital was well managed, resulting in a decline in days of revenue outstanding from 92 to 85 days. As a percentage of revenue, working capital was 11.0%.
Net debt increased from EUR 351.0 million to EUR 430.4 million, primarily as the result of the negative cash flow and the exchange rate impact on cash positions.
On 2 November, subordinated convertible bonds were successfully issued with proceeds of EUR 100 million. The proceeds were used for full repayment of the outstanding United States private placement loans, leading to reduced interest expenses and extension of the debt maturity profile.
The debt component of the subordinated convertible bonds and related interest costs are excluded from the covenant ratios, creating additional headroom. The subordinated convertible bonds (EUR 190 million maturing in 2021 and EUR 100 million maturing in 2024) contain a debt component of EUR 243.2 million and an equity component of EUR 37.5 million as at 31 December 2017. This results in a net debt for covenant purposes of EUR 187.2 million as at 31 December 2017.
Fugro is well within its covenants. Net debt/EBITDA was 1.9 at year-end 2017 compared to 2.9 at the end of September and a covenant requirement of maximum 3.0. The fixed charge cover improved to 2.2 compared to 1.9 at the end of September 2017 and a covenant requirement of at least 1.8 as a result of reduced interest and lease expenses.
3D laser scanning at water pumping station, Terwisscha, The Netherlands.
In December 2017, after the placement of the EUR 100 million subordinated convertible bonds, the additional covenants agreed with the owner of two geotechnical vessels (following the issue of the EUR 190 million subordinated unsecured convertible bonds in October 2016) were adjusted as follows:
As a result of the fluctuations in average exchange rates during the year, the net foreign exchange effect in the profit and loss was EUR 28.2 million negative (EUR 14.5 million negative in 2016). The currency translation difference related to foreign operations had a negative effect of EUR 116.5 million on equity per 31 December 2017 (31 December 2016: EUR 26.9 million positive). The majority of the translation difference relates to the US dollar and British pound.
| 2017 | 2017 | 2016 | 2016 | |
|---|---|---|---|---|
| Exchange rates (versus Euro) | Year-end | Average | Year-end | Average |
| US dollar | 0.84 | 0.88 | 0.95 | 0.91 |
| British pound | 1.12 | 1.14 | 1.16 | 1.22 |
| OUTLOOK | Reported | Comparable | ||
|---|---|---|---|---|
| Backlog per division for next 12 months (x EUR million) | 2017 | 2016 | growth | growth1 |
| Marine | 545.3 | 719.8 | (24.2%) | (7.6%) |
| Land | 273.6 | 356.4 | (23.2%) | (17.0%) |
| Geoscience (Seabed Geosolutions) | 108.9 | 93.4 | 16.6% | 31.9% |
| Total | 927.8 | 1,169.6 | (20.7%) | (7.3%) |
1Backlog growth corrected for currency effect and for portfolio changes related to discontinued marine construction & installation activities.
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Message
The oil and gas market is stabilising. Oil prices have risen to above US\$ 60 per barrel Brent and clients are increasingly taking final investment decisions regarding new offshore field developments. As there is still overcapacity in the market, it is uncertain at what pace the challenging pricing environment in oil field services will improve. In the building & infrastructure and renewables markets Fugro expects continued growth, driven by global economic growth, population growth, urbanisation and an ongoing shift towards renewable energy.
As the oil and gas market is stabilising and other markets are growing, Fugro expects stabilising revenue, an improved EBIT margin and a positive cash flow from operating activities after investments. Capex is expected to be around EUR 80 million.
Due to the negative net result, Fugro will not propose to pay a dividend over the year 2017.
At the end of 2017 the number of employees was 10,044 (2016: 10,530). In most local entities, reductions in staff were implemented during the year as part of the ongoing cost reduction and performance improvement measures. The net effect of these reductions and few new hires was a decrease of 486 employees. The average number of employees for the year was 10,287 (2016: 11,245), a decrease of 8.5%.
| Employees by region | 2017 | 2016 |
|---|---|---|
| Europe | 3,316 | 3,251 |
| Americas | 2,088 | 2,276 |
| Asia Pacific | 2,076 | 2,127 |
| Middle East & India | 2,108 | 2,086 |
| Africa | 456 | 790 |
| Total (at year-end) | 10,044 | 10,530 |
| Total (average) | 10,287 | 11,245 |
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Denmark – Fugro is carrying out a unique site characterisation contract for the wind turbine locations and inter array cables of Vattenfall's Kriegersflak wind farm. The services include the detection of unexploded ordnance and subsurface boulders, in situ testing and laboratory tests. With the complete spectrum of services Fugro is helping to mitigate ground risk during the construction and installation phases.
The Netherlands – Fugro is providing consultancy and site characterisation services for the Zuidasdok project to the ZuidPlus engineering and construction partners Fluor, Heijmans and HOCHTIEF. The project is one of the largest infrastructure projects in The Netherlands and includes the widening and partial tunnelling of the busy A10 highway, high way and expansion of the Amsterdam South railway station. Fugro will provide monitoring services, geotechnical risk management consulting services and soil investigations throughout the project, which is expected to be continue until 2028.
The Netherlands – Fugro is working on a survey to identify unexploded ordnance at the Borssele wind farm. The contract includes specialised survey and identification work in relation to cable routes for the planned grid connection between TenneT's two offshore platforms and its high-voltage substation onshore. The award follows a number of multi-disciplinary site characterisation contracts undertaken by Fugro since early 2015.
Norway – The largest road project in Norway's history has seen Fugro win a second major contract from the Norwegian Public Roads Administration for the E39 coastal highway. The data will support foundation designs of the bridge and tunnel solutions for the fjord crossings.
Norway – Fugro has been awarded a long-term contract for the provision of rig positioning services to Statoil Petroleum. The contract includes positioning of all rigs and associated vessels operating for Statoil. It includes use of proprietary technology to remotely configure the offshore systems from Fugro's onshore bases which will reduce mobilisation times.
Switzerland – Fugro was contracted for a 2-year framework contract by Swissgrid, the national grid company, to survey its electricity transmission assets. The goal is to create a
3D-model of the network combined with cloud-based analytics to extract valuable information on asset condition and possible vegetation infringements.
United Kingdom – Heathrow Airport has awarded Fugro a five year framework contract for ground investigation works as part of its major redevelopment programme, comprising the development of a third runway, diversion of the M25 motorway and a new terminal. Fugro has been on site since late 2017 and has undertaken investigations works to extract soil samples and undertake associated in situ and laboratory testing.
Brazil – Seabed Geosolutions was awarded a large 3D ocean bottom node (OBN) survey in Petrobras' Santos Basin. The new, highly efficient Manta® node system will be used for the industry's largest ever OBN survey, spanning more than 1,600 square kilometres.
Canada – Fugro teamed up with Amplified Geochemical Imaging in search of hydrocarbon seeps (leakages) as indicator of the presence of oil or gas reserves, in advance of Canada's 2018 East Coast licensing round. The data will support clients' exploration programmes. The seafloor mapping included the acquisition of 10,500 square kilometres of geophysical data, followed by geochemical sampling and heat flow measurements at targeted locations with further lab analysis to deliver an integrated data package.
Guyana – As during the previous two years, in 2017 Fugro was involved in site characterisation for ExxonMobil's offshore Liza development, undertaking various geophysical, geotechnical and geoconsulting campaigns. There is good potential for future projects in Guyana, based on continuing exploration success.
Mexico – Fugro was contracted for a multi-disciplinary site characterisation programme for ENI in Area 1 in the Campeche Bay. The work is in support of a new discovery and includes geotechnical engineering and soils analysis, geophysical surveys for site investigation and pipeline corridor evaluation, near-shore and onshore geotechnical, land survey and site evaluation. The project is a continuation of work performed for ENI in late 2016 and will continue through mid-year 2018.
Oedometer test gives information on compressibility of soils, Luanda, Angola.
Trinidad and Tobago – Fugro was contracted by Shell Trinidad and Tobago Limited to conduct a high-resolution site survey. The scope of work consisted of high-resolution 2D seismic, analogue geophysical, and light geotechnical work. BP also contracted Fugro for extensive work in Trinidadian waters throughout 2017.
USA – Fugro was contracted for several site characterisation surveys for future wind farms off the East Coast. Deepwater Wind awarded a geophysical and geotechnical survey. In addition, Fugro was contracted by Ørsted to undertake geotechnical investigations at the Bay State Wind farm, off the coast of Massachusetts and the Ocean Wind farm, off the New Jersey coast. For laboratory testing and data analysis, Fugro will draw on its expertise with wind farms in Europe and provide fully integrated results.
USA – The Alaska Department of Transportation & Public Facilities awarded Fugro the initial phase of a potential multi-year contract to collect, process and deliver a wide range of digital roadway data for public roads. Fugro will also implement a suite of roadway data applications that will feed into the Department's existing business systems to facilitate informed decision-making and support transportation programmes.
Angola – Fugro secured a further three year contract to provide Total E&P Angola with survey and positioning services relating to its activities in Blocks 17 and 32. The services are a continuation of the work performed over the last 12 years, with an expansion in the latest contract to include subsea metrologies.
Nigeria – Seabed Geosolutions has been awarded a 4D OBN project for Shell Nigeria Exploration and Production Company. The project in the Bonga field will use Seabed Geosolutions' Hugin Explorer vessel equipped with CASE Abyss® nodes and will commence in the first quarter of 2018.
Senegal/Mauretania – Fugro was awarded a fast track site characterisation contract for Cairn Energy on its SNE fields, approximately 120 kilometres offshore Dakar. The work comprised deepwater geophysical and geotechnical surveys.
Egypt – In the year under review, Fugro has worked on several site characterisation campaigns for the Zohr development, the largest gas field in the Mediterranean Three Fugro vessels were covered over 200 vessels days. Geophysical pre-engineering reporting and basic geotechnical laboratory testing of the soil samples was done in Cairo, Egypt and advanced testing in Wallingford, United Kingdom.
India – Fugro has commenced integrated survey work for the oil and gas company ONGC. The contract calls for engineering surveys for field developments off both western and eastern shores. The scope of the work includes bathymetric surveys, seabed mapping, shallow seismic profiling and well head investigation. Fugro has been supporting field developments offshore India for over two decades.
India – Fugro was awarded an offshore site investigation programme in Block KGD6, off the east coast by Reliance Industries Limited. The scope of work includes geotechnical
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data acquisition in water depths ranging from 500 to 1,500 metres, using a sea floor drill. The campaign period is about 50 days followed by a detailed advanced laboratory testing and engineering programme.
Saudi Arabia – Fugro provided extensive construction support and ROV services to McDermott on various projects for Saudi Aramco in the Arabian Gulf. Fugro provided its novel 3Direct positioning system to install a series of jackets.
United Arab Emirates – Fugro conducted a geotechnical site characterisation campaign for the new addition to Dubai's skyline, 'The Tower at Dubai Creek Harbour', which is expected to surpass the 828-metre high Burj Khalifa. Fugro carried out one of the most comprehensive geotechnical investigations in the region, and tested the in situ performance of the proposed foundations.
United Arab Emirates – Fugro has commenced a site characterisation programme on one of the largest sour gas fields projects ever developed by Abu Dhabi National Oil Company, the Hail and Ghasha fields. The project will see the construction of artificial islands that will be used for the drilling of wells and to support production facilities. Fugro will deploy its state-of-the-art geotechnical and surveying solutions in this environmentally sensitive area.
Australia – Essential Energy is New South Wales' electricity infrastructure company, its 200,000 kilometre network servicing more than 800,000 homes and businesses. To enhance the understanding of its network and for example vegetation related risks, Essential Energy has been using Fugro Roames technology since 2014 to build a 3D, virtual world representation of its network, allowing informed decision making.
Australia – Following the successful execution of the geophysical survey for Shell's proposed Crux pipeline, Fugro has been awarded the geotechnical investigation to establish the soil characteristics of the seabed, relevant for the siting of other subsea assets in the Crux Field. The work will be undertaken using the Fugro Voyager commencing in the first quarter of 2018.
Australia – Fugro have been awarded contracts to perform inspection of subsea assets, removal and replacement of subsea infrastructure as part of an inspection campaign for a major oil and gas operator in Australia's North West Shelf region. The work scope includes saturation diving services and will be executed in 2018.
Papua New Guinea – The National Maritime Safety Authority awarded Fugro six packages of work valued funded by the Asian Development Bank to conduct hydrographic surveys. The Maritime Waterways Safety Project aims to improve the safety and efficiency of the country's international and national shipping.
Papua New Guinea – Fugro was contracted to join the search for lost WW1 submarine, HMAS AE1. Using specialised survey technology, Fugro scanned the seafloor to collect detailed data. On 19 December an object of interest was located and further inspection confirmed that it was AE1. Following the discovery of the submarine, a service was conducted onboard the Fugro Equator to commemorate the 35 crew.
Philippines –Fugro was awarded a site characterisation contract at a major power generation complex near Batangas City. The contract involves drilling, cone penetration testing, pressure-meter testing, engineering geophysics and laboratory testing. This six-month contract will provide information to support the design and construction of new facilities.
Hong Kong – Throughout 2017, Fugro was working on several contracts for the various contractors involved in the ground improvement and reclamation works for the third runway at Hong Kong International Airport. In the current phase of the works, Fugro has provided a wide range of environmental and geotechnical services to the various contractors including marine mammal monitoring, real-time water quality monitoring, geodetic monitoring of the existing airport infrastructure adjacent to the reclamation works.
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Fugro was contracted by Emaar Properties in advance of the construction of the Dubai Creek Tower, which is expected to be completed in time for the Dubai Expo trade fair in 2020.
Because of the height and unique design of the structure, detailed ground engineering is critical to reducing risks and maintaining the project on its tight schedule.
In August 2017 Fugro completed one of the most comprehensive geotechnical site investigations ever performed in the region. The study allowed the engineering fi rm to optimise the initial design of the deep foundations, allowing the client to save costs on construction.
anticipated height of 928 metres
36,300 tons: world record for deep foundation testing load, applied on a single barrette
Fugro also undertook additional load testing of the proposed foundations at the construction site, using a state-of-the-art combination of fi ber optics and Fugro's Osterberg Cells®. The fi ber optics installed in some of the foundations can also be used to track the actual behaviour of the foundations once the tower is completed.
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Fugro is committed to providing a safe working place to its employees, contractors and clients, and promotes continuous health and safety education.
Focusing on employee health and safety is an integral part of Fugro's operational management. Fugro firmly believes that incidents can be prevented and has therefore implemented an organisation wide health, safety, security and environment (HSSE) management system, which defines Fugro's groupwide related standards and policies. Fugro continuously reviews potential areas of improvement and ensures thorough evaluation of every incident.
All operations with a relatively high safety risk profile need to operate in accordance with OHSAS 18001, the world's most recognised occupational health and safety management systems standard, or equivalent certification. At year-end 2017, 97% of Fugro's operations are executed under a OSHAS 18001 or similar certified management system.
Fugro promotes visible leadership and a sense of responsibility throughout the organisation, in particular with respect to safety. Senior managers set and implement the relevant policies and procedures, decide on organisational objectives and priorities and lead by example. At the same time every single employee is personally responsible for his own, and his co-workers', safety.
Key activities in 2017 included:
| Lagging indicators | Leading indicators | ||||
|---|---|---|---|---|---|
| Total | Number of | ||||
| Lost time | recordable | participants | |||
| injury | case | Senior | that | ||
| frequency | frequency | management | completed | ||
| (x million | (x million | Total lost | project and | MSiF | |
| hours) | hours) | work days | site visits 2 | course 1 | |
| 2013 | 0.81 | 2.17 | 820 | – | – |
| 2014 | 0.74 | 2.67 | 503 | 155 | 72 |
| 2015 | 0.45 | 1.79 | 258 | 967 | 564 |
| 2016 | 0.67 | 1.89 | 403 | 373 | 565 |
| 2017 | 0.66 | 1.68 | 502 | 552 | 274 |
1 Managing safely in Fugro.
2 As of 2016, visits of project managers are excluded.
Panel session during Fugro Innovation fair.
Fugro suffered one fatal incident in 2017 offshore Congo when a member of a remotely operated vehicle crew sustained fatal injuries during maintenance operations. This tragic incident shows that the company must continue to work on its safety awareness and performance.
Fugro's HSSE efforts over the years have been effective in improving related performance. However, in recent years the rate of improvement has been stagnating, which is an industry wide trend. Although Fugro's total recordable case frequency (TRCF) improved in 2017, lost time injury frequency (LTIF) was only marginally better.
To continuously improve safety performance, it is essential that not only lagging but also leading safety metrics are monitored. The leading indicator 'senior management site visits' improved during 2017; the number of participants of the 'Managing safely in Fugro' HSSE training declined under the pressure of cost efficiency in response to the prevailing market conditions. Fugro aims to finalise the course for the initial target group by the end of 2018.
Fugro's objective is to achieve safety indicators which are at least in line with the benchmark for the sectors in which it operates or higher. On the key LTIF indicator, the target is to achieve an LTIF of less than 0.3 per million man hours worked. For Fugro this is a high bar, as a large number of our staff work in general civil construction where safety standards are lower than in the oil and gas industry.
The stagnating improvement in safety performance during the last two years is being addressed and for 2018 the company targets a year-on-year improvement measured in both the leading and lagging indicators, amongst others through continuous training and senior management
engagement, further focus on the company's safety culture, increased focus on improving employee awareness and engagement through Fugro's safety leadership programme and further focus on compliance with the Golden Rules of HSSE and existing procedures.
Fugro's commitment to health and safety and Fugro's performance continues to be recognised by external organisations, as evidenced by the various awards and formalised client recognitions Fugro and its employees received again in 2017:
In addition to the above mentioned OSHAS 18001 certified management systems, by the end of 2017, 98% of Fugro's activities are executed under a ISO9001 or similar certified management system.
Wharf stability evaluation, Port of Los Angeles.
Developing, retaining and engaging a diverse pool of talent is key to the success of Fugro.
The internal Fugro Academy will continue to be instrumental in the further development of behavioural, commercial technical and management skills of employees at all levels in the company. Fugro Academy combines class room, onsite and virtual training and operates dedicated live marine training facilities. Over time, the range and depth of courses available to staff has continued to grow. Selected courses use external expert support. Since its inception in 2007, user numbers and course completions have continually grown.
Fugro Academy was the winner of the Learning and Development Award of the Year at the HR Network Scotland National Awards Ceremony 2017 in Glasgow. The nomination was made for the work the Academy has been doing around leadership development, specifically the junior, middle and senior leadership development programmes launched in 2014.
In 2017 and continuing into 2018, Fugro Academy is supporting the roll-out of two major initiatives across the group: the Code of Conduct and the Golden Rules of HSSE, in addition to supporting the normal syllabus.
For the Golden Rules refresh campaign, a significant effort was put into the design and creation of a series of e-learning animations to illustrate the key points of each rule, showing best practice for each topic as well as highlighting some bad practices which should be avoided. In 2017, 3,815 employees (2016: 957) completed the e-learning course.
Developed together with the corporate legal department, the Code of Conduct roll-out represents a large scale e-learning programme deployed in 11 different languages to ensure the message and information reaches as wide an audience as possible across Fugro. The multi-phase regional deployment will continue into the first quarter of 2018.
Utilisation of Fugro Academy grew over the past year. In 2017, a total of 8,557 staff made use of the system, with total enrolments on courses almost reaching half a million in total since 2017. Courses per user fell in 2017 as a combination of increased number of users and the focus on the mentioned specific campaigns.
| Year | Enrollments | Completed courses |
|---|---|---|
| 2013 | 49,784 | 49,659 |
| 2014 | 85,710 | 85,331 |
| 2015 | 77,757 | 76,954 |
| 2016 | 59,659 | 59,659 |
| 2017 | 77,136 | 75,766 |
During 2017, in partnership with the global HSSE team, Fugro Academy continued the group-wide roll-out of the in class training of 'Managing safely in Fugro' and the 'Working safely in Fugro' e-learning courses. Fugro Academy also continued the supervisor's training programme, with 109 participants in 2017.
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Fugro is a service provider and working with motivated, engaged employees is critical to the business and to achieving the company's strategic objectives. Fugro is committed to employ talented staff and keep employee turnover limited, which is a challenge in a period that Fugro has been transforming the organisation and restructuring vigorously at the same time. Since the start of 2015, the total workforce has been reduced by around 3,500 people (25%). During 2017, 8% of Fugro's staff left the company out of their own initiative.
Recruiting, developing and retaining talented and skilled experienced staff are key challenges for Fugro's future and relevant global human resources processes and practices are being implemented to meet these challenges, which includes implementation of a new HR system and development of a new job architecture in support of career planning. This is important for management development, general business development and attraction and retention of engineering, consulting and scientific staff, where Fugro faces strong competition. Furthermore, Fugro aims to recruit the majority of its senior managers internally and aims to increase diversity.
An engaged workforce is essential for Fugro to achieve its ambitions. Following some smaller staff engagement survey initiatives in 2016 and 2017, Fugro will engage in a full staff engagement survey in 2018 covering all employees.
During the year under review, there was a continued focus on leadership development through Fugro Academy. During the year, 47 managers attended the junior programme, 37 the mid-level and 14 the senior level. A total of 329 managers have by now attended one of these three programmes.
Determining the impact of the programme on the business was defined as one of the success measures when the initiative was launched and continues to be assessed as each class reaches it's 6-month marker after the programme ends. Recognition of this, as well as the involvement of the entire business and senior management in the process, was rewarded when the series of programmes won the afore mentioned Learning and Development Award of the Year 2017.
Fugro uses a specific tool for performance and personal development in order to engage with its employees individually two times per year, whereby managers and employees discuss current performance, behaviour, professional competences, development priorities and goals and objectives which are linked to Fugro's overall strategy and objectives. Currently Fugro targets an increased usage of this tool for all employees worldwide which will be further facilitated by the new SaaS HR solution targeted for implementation in 2018.
Diversity recognises and values the contributions of people with varying capabilities, experience and perspectives, including gender, age, ethnicity and religious or cultural backgrounds. Fugro believes that a diverse workforce is a key competitive advantage. The organisation's success is a reflection of the quality and skills of its richly varied global talent base. Fugro is committed to provide fair terms and conditions of employment and provide equal opportunity for all. Recruitment of employees, evaluation, promotion, development, discipline, compensation, and termination decisions are based on qualifications, merit, and performance or business considerations.
Fugro works across the globe and its office locations are predominantly staffed with local people, bringing Fugro benefits from knowledge of local business procedures, legislation and traditions. Internal systems are allowing staff at almost any location to benefit from information spread through Fugro's online systems and to collaborate with colleagues across the world. Key information and training materials are provided on a multi-lingual basis. More opportunities are being provided for international training and postings, which encourages interaction of staff from different backgrounds.
The overall female representation was 19% in 2017 (2016: 18%). The company's field operations work teams are still predominantly male. Irrespective, the company has the ambition to increase gender diversity at all levels of the organisation. Fugro will implement a groupwide diversity policy in 2018. Fugro has specific diversity policies in place for the Board of Management and the Supervisory Board (see 'Corporate governance').
Crew survey vessel Fugro Brasilis, Guanabara Bay, Brazil.
| Region | 2017 | 2016 |
|---|---|---|
| Europe | ||
| - Female | 22% | 22% |
| - Male | 78% | 78% |
| Americas | ||
| - Female | 19% | 18% |
| - Male | 81% | 82% |
| Asia Pacific | ||
| - Female | 24% | 23% |
| - Male | 76% | 77% |
| Middle East & India | ||
| - Female | 7% | 8% |
| - Male | 93% | 92% |
| Africa | ||
| - Female | 19% | 19% |
| - Male | 81% | 81% |
| Group | ||
| - Female | 19% | 18% |
| - Male | 81% | 82% |
Fugro's long standing culture is founded upon empowerment of its people in all work locations and the company is committed to having a workplace where there is mutual trust, respect for human rights and equal opportunity, and is free from inappropriate conduct such as bullying, discrimination, harassment and violence. In line with this company culture, in 2017 Fugro implemented its human rights policy to formalise its responsibility under the Universal Declaration of Human Rights to respect human rights affected by its activities. This policy addresses
principles such as diversity and non-discrimination, freedom of association, fair working hours, fair wages, protection of health and safety, no child labour and adequate grievance procedures. The company also seeks to foster similar standards in third parties that work for Fugro or on its behalf. To that end, Fugro has implemented its supplier and partner code of business principles in 2017. Fugro endorses the ILO international labour conventions and the OECD Guidelines for Multinational Enterprises.
Fugro has implemented several channels under which employees, with full protection of their rights and anonymously if desired, can lodge complaints if Fugro's values and its Code of Conduct are not upheld. Through the speak up reporting line (see 'business ethics and anti-corruption' for more details), in the year under review one case related to potential human rights grievances was reported. It has been fully investigated and appropriate and adequate action was taken.
Fugro values transparent engagement with its stakeholders, supports them with extensive information on performance and progress, and actively seeks their opinions and ideas through regular discussions and consultation. This includes customer satisfaction surveys, management reviews with key customers, internal and external audits, meetings with shareholders, works councils, governments, local communities, and contacts with industry and research and development partners including a broad range of international universities and participation in standard setting organisations.
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| Stakeholders | Objective | Relevance for Fugro | Relevance for stakeholder |
Interaction |
|---|---|---|---|---|
| Customers | Customer satisfaction and loyalty |
Purchase services to support their projects |
Provision of high quality competitive solutions to support and de-risk their investment |
Work visits, exhibitions, periodical reviews with senior management (including members Board of Management), technology & innovation fairs |
| Employees | Employee motivation, engagement and retention |
Essential for providing high quality services and continuity |
Good employer, satisfying work environment, development, adequate remuneration |
Intranet, collaboration tools, newsletters, quarterly bulletins, engagement surveys, performance appraisals, social media |
| Capital providers (shareholders, bond holders, banks) |
Communication on strategy, results, markets, opportunities and risks, engagement |
Access to capital markets | Solid investment | Annual general meeting, trading updates, bi-annual visits to main shareholders, investor conferences, website |
| Suppliers | Strong, reliable suppliers | Provide products and services required to perform company activities |
Having reliable customer/ partner |
Negotiations and contracts, review meetings, supplier & partner code of business principles |
| Governments | Adherence to legislation, understanding new developments, good citizenship |
Setting local regulations and minimum requirements |
Support economic development and employment, promote R&D and sustainability |
Internet, trade missions, working groups |
| Technical universities |
Recruitment of staff, joint R&D activities, good citizenship |
Source of potential employees with appropriate education, scientific know-how |
Potential future employer and provider of traineeships and practical experience |
Internet, social media, seminars, Fugro sponsored scholarships, joint R&D projects |
| Industry societies (IMCA, IRO,etc) |
Exchange of knowledge, improvement of industry standards |
Setting national and international industry standards, science and technology exchange |
Partnership to secure and roll out industry standards, science and technology exchange |
Internet, company representatives on work committees, board positions |
| Local communities | Good citizenship | Societal support | Support of local community | Sponsorship events, engagement activities |
Most of the community projects supported by Fugro are initiated by local entities, and range from voluntary work, sponsoring in kind to donations to local schools, sports clubs, care facilities and other charities.
In addition, Fugro seeks to preserve and promote accessibility to valuable culture, local heritage and nature, and supports many different initiatives around the world. In the Netherlands, Fugro is a sponsor of the world
renowned Concertgebouw in Amsterdam, and also provides financial support to the Hermitage foundation in Amsterdam, the Mineralogisch-Geologisch Museum in Delft and the Hoge Veluwe national park (all in the Netherlands).
In the year under review, Fugro management had 184 meetings with investors, which mostly took place after the publication of the full year and half year results. The majority of these meetings take place as 'one-on-one' meetings; the remainder as group presentations.
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During the year Fugro further formalised its global key account management structure making full benefit of the transformation implemented in recent years to a client centric organisation based on common business lines. As a result Fugro now shares more efficiently relevant market knowledge and specific information on the engagement with key clients through a dedicated internal central database. This significantly improves the quality and depth of client engagements. Fugro will continue the roll out of this customer relationship management system across the group in 2018.
Fugro is committed to limiting the impact of its own operations on the environment and comply with environmental regulations for all its operations. Fugro has strict groupwide guidelines for risk analyses, incident and accident reporting and mitigation to prevent incidents.
Fugro operates according to environmental standards in all its activities and strives to achieve a high coverage based on external standards and accreditation. The requirements of ISO 14001 or similar have been integrated into over 93% of Fugro's activities, which provides practical tools to manage the companies environmental responsibilities. Compliance audits are carried out, both internally and by external ISO certification bodies and clients.
The risks that Fugro's activities pose to the environment are largely related to possible small spills during execution of the data collection activities, be it on land or at sea. Land data collection equipment such as drill rigs and cone penetration trucks are hydraulically powered and could pose a risk of spillage. Fugro's equipment is managed under appropriate pro-active maintenance programs and subject to periodical inspections including daily pre-start checks. Field teams are provided with spill kits and training to capture, contain and clean any possible spillage during operations.
On Fugro's vessels we are adopting and monitoring environmental initiatives ranging from emissions monitoring to a focus on waste reduction through for example the promotion of usage of water fountains instead of bottled water and the reduction of usage of paper cups to be replace by washable glasses or mugs. Fugro will continue to streamline its environmental initiatives throughout its vessel fleet in 2018.
Fugro's leading market positions are supported by advanced technologies and methods in the majority of its work. Innovation, which includes digitalisation, is a key strategic driver for Fugro to support long-term value creation for all its stakeholders. Furthermore it supports the provisioning of services for projects targeting renewable energy; the use of sustainable resources; mitigation of the impact of climate change, safe and environmentally sound development and operation of assets; longevity of assets leading to reduction of the environmental impact of renewal; and the sustainability of Fugro's own services.
The increasing drive to reduce fossil fuel consumption and carbon emissions is leading to growing investments in renewable energy around the world. With its technology, expertise and assets, Fugro plays an important role in the market for offshore wind and is growing its portfolio of services targeting renewable projects of clients. It also provides services to maintain the integrity of power distribution networks required to deliver renewable power.
Fugro has sixteen research & development centres around the world which actively work on the development of innovations. These centres are located internationally and support local development. In 2017, Fugro spent around 2% of its revenue on research & development and technology innovation.
Scientific partners are important stakeholders for Fugro. A significant part of Fugro's technology is developed in close cooperation with its clients. Moreover, joint research and development activities are carried out with universities and institutes across countries in which Fugro works to develop new technologies and as part of Fugro's commitment to local communities.
Fugro maintains relationships with over 30 universities and other knowledge institutes across the globe. Examples are: Oregon State University, Universities of California, Berkeley and Santa Cruz, University of Texas and Texas A&M University (United States), University of Leicester, University of Southampton (United Kingdom), University of Montpellier, ENSTA Bretagne (France), Delft University of Technology (the Netherlands), ISTAC Institute Supérieure de Technologie d'Afrique Centrale (Cameroon), National University of Singapore, University of Western Australia and the Hong Kong University of Science and Technology and the University of Hong Kong (China).
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Fugro also contributes to knowledge dissemination through publications, and publishes or is involved with publishing around 100 scientific papers per year.
Fugro actively protects the intellectual property it develops.
| Patent filings | 2017 | 2016 |
|---|---|---|
| Priority patent filing | 17 | 18 |
| National/regional patent filings | 67 | 45 |
| Granted patents | 9 | 7 |
Fugro works as a service provider and consultant and does not own or operate any industrial assets or production facilities. Therefore its own operations have a relatively low impact on the environment, with the main CO2 emissions coming from its vessels being used in its operations. For its own operations, Fugro promotes and undertakes projects to achieve energy savings. As well as reducing the impact Fugro's operations have on the environment, this will generate cost savings.
In 2017 Fugro saw the further positive effects of its fleet renewal programme with two older vessels leaving its fleet and one new geophysical survey vessel, with a much lower CO2 emission, joining.
In 2017 Fugro continued with the ship energy efficiency management plan, incorporating best practices for the fuel efficient operation of ships. This includes the economic speed model pilot which advises the crew on the most favourable speed from an economic and emission control point of view. It takes into account fuel consumption and subsequent emissions, vessel capabilities and the normal running cost of the vessel.
Fugro's reporting on carbon emissions encompasses Scope 1 (direct emissions from the combustion of fossil fuels) of its own vessels, which in 2017 emitted a total of 123 kilotonnes CO2 equivalent. This covers by far the largest environmental impact of the group's operations. Fugro aims to include the CO2 emissions of chartered vessel in the external reporting as of 2018.
Fugro is committed to conduct its business in an ethical and responsible manner. Its values form the foundation of its culture and provide the ethical guidelines for its business decisions. The company's Code of Conduct, together with its underlying policies, helps employees to put Fugro's values into practice. Together they provide practical guidance on how to conduct Fugro's business ethically, comply with legal requirements and maintain Fugro's reputation.
The Code of Conduct addresses a variety of topics including non-discrimination, health and safety, drugs and alcohol, anti-corruption, conflict of interest and fair competition. It applies to all Fugro employees. Continuous efforts are made to convey the importance of the Code of Conduct and adherence with its contents.
In 2017, new policies related to the code were rolled-out throughout the organisation. This includes a policy on fair competition and a policy on human rights. Also, existing policies were updated, such as the policy on anti-corruption. Fugro's speak up procedure forms an essential part of the company's integrity-focused compliance programme. It offers various channels for reporting a suspected violation of the code and describes the subsequent internal investigation process which is supervised by the Fugro corporate integrity committee. One of these channels is a reporting line (web based as well as telephone line), which was opened in the course of 2017. It is available in over 30 languages 24 hours a day, seven days a week. Through this line, operated by an external third party, reports on suspected irregularities can be made anonymously. This reporting line is open not only to employees and contract staff, but also to third parties with whom Fugro has a business relationship, such as customers, suppliers and agents. The speak up procedure clearly stipulates that any party reporting in good faith is protected from any kind of retaliation. Fugro aims to start publishing statistics on speak up reporting in the 2018 annual report.
In order to make the code's underlying policies and the speak up procedure easily accessible to all employees, the documents have been translated in the company's most relevant working languages. At the end of the third quarter of 2017, Fugro commenced the roll-out of a new mandatory interactive e-learning course about the code, its underlying policies and the speak up procedure. The e-learning is split
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into three modules. The first module was completed by 80% of Fugro staff world-wide by the end of 2017. For 2018, the company aims at a completion rate of all three modules exceeding 90%. Webinars and guidance material on the speak up procedure was provided to managers and other staff to support them in promoting our values and to create a culture of transparency and respect, as well as to assist in promoting awareness of the (anonymous) reporting channels available as part of the speak up procedure. Recordings of the webinar and the guidance material are available on Fugro's intranet for future reference for all Fugro employees.
Fugro promotes ethical and responsible business conduct throughout its supply chain. To that end, in 2017, Fugro introduced an updated supplier and partner code of business principles. The company requires suppliers and subcontractors to comply with this supplier and partner code of business principles.
In some countries Fugro works together with commercial agents. All these agents are screened by an independent specialised third party at least every two years or more often as appropriate. The standard Fugro agency agreement includes both clear compliance obligations, reporting requirements and audit rights, require approval from the Board of Management and only run for a limited amount of time, generally one or two years. Extensions require approval from the Board of Management. Any agent relationship is closely monitored and each agent has to sign a compliance declaration once a year.
Fugro is committed to adhere to the applicable laws and regulations in all countries where business is conducted. This commitment is embedded in all parts of the business through policies and training.
Annually, an extended group of senior management worldwide has to fill out a declaration regarding compliance with the code and related policies. For the year 2017, 100% of these managers have submitted the signed form. Adherence to the code and its related policies and procedures, as well as the supplier and partner code of business principles, is also monitored by Fugro's internal audit department. The head of the internal audit department also plays an integral part in any investigation led by Fugro's corporate integrity committee.
Fugro's global presence exposes the company to various complex tax jurisdictions and tax systems. These systems are increasingly under development following global initiatives from individual countries and organisations such as the OECD and the European Union, and the societal debate leading to these developments is still ongoing. Other developments arise from the economic environment. As tax is a crucial component of the financial budget of national jurisdictions, economic developments have a direct impact on the way fiscal regulations are designed and upheld.
Fugro believes a responsible approach to tax is an integral part of doing business sustainably. The company recognises that tax is an integral part of doing business and that it is both a cost of doing business, as well as a contribution to the countries in which it operates. Tax effects are one of the components in the commercial process, but only legitimate business considerations are driving final decisions. Fugro's tax risk appetite is moderate.
The tax strategy supports Fugro's business strategy by providing value to the group through delivery of high quality tax services within boundaries of legal and tax frameworks. The global tax department is equipped to support Fugro's global activities in an effective and compliant manner. The global tax department further leverages from an extended tax function, represented by professionals across finance, business, procurement and human resources. This alignment is part of the integrated control framework. Fugro's audit committee reviews, at least once per year, the tax strategy including financial impact, valuation of deferred tax assets, compliance and tax implications of any acquisition or divestment. Based on its risk based audit plan, the internal audit department monitors tax compliance. External tax support is provided by a reputable network of external tax advisers that strictly follow their professional standards.
Fugro's tax statement, which can be found on the website, highlights Fugro's global tax principles which illustrate good corporate practice in the areas of tax management and tax transparency.
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| Key figures (x EUR million) | 2017 | 2016 |
|---|---|---|
| Revenue | 947.3 | 1,096.1 |
| - Currency comparable growth (%)1 | (11.3%) | (20.9%) |
| EBITDA excluding exceptional items | 47.8 | 98.1 |
| EBIT excluding exceptional items | (43.3) | (18.8) |
| EBIT margin excluding exceptional | ||
| items (%) | (4.6%) | (1.7%) |
| EBIT | (56.5) | (160.9) |
| EBIT margin (%) | (6.0%) | (14.7%) |
| Capital employed | 820.6 | 974.0 |
| Backlog next 12 months1 | 545.3 | 719.8 |
| - Currency comparable growth (%)1 | (7.6%) | (9.8%) |
| Number of employees (at year-end) | 5,053 | 5,327 |
1 Revenue growth corrected for currency effect; 2017 backlog growth corrected for currency effect and for portfolio changes related to the marine construction & installation activities.
Revenues for the Site Characterisation business line decreased by 15.2% at constant currencies to EUR 390.0 million. EBIT was strongly negative, mainly due to the adverse impact of the operational issues (notably in Europe), low utilisation in Asia Pacific and price pressure.
Revenue for the Asset Integrity business line declined by 8.3% at constant currencies to EUR 557.3 million. Due to stronger utilisation in the second half of the year, EBIT recovered to a positive low single digit margin for the full year, compared to a small loss in 2016.
| Key figures (x EUR million) | 2017 | 2016 |
|---|---|---|
| Revenue | 476.0 | 506.8 |
| - Currency comparable growth (%) | (3.0%) | (8.5%) |
| EBITDA excluding exceptional items | 42.4 | 29.3 |
| EBIT excluding exceptional items | 21.4 | 6.6 |
| EBIT margin excluding exceptional | ||
| items (%) | 4.5% | 1.3% |
| EBIT | 15.7 | (20.1) |
| EBIT margin (%) | 3.3% | (4.0%) |
| Capital employed | 218.9 | 231.2 |
| Backlog next 12 months | 273.6 | 356.4 |
| - Currency comparable growth (%) | (17.0%) | (3.0%) |
| Number of employees (at year-end) | 4,804 | 5,002 |
Presentation to clients during Fugro innovation fair.
mainly as a consequence of reduced oil and gas infrastructure activity. EBIT was breakeven and improved significantly compared to last year.
The Geoscience division almost fully consists of Fugro's 60% stake in Seabed Geosolutions (100% consolidated). It also covers some indirect interests in Australian exploration projects, via Finder Exploration.
| Key figures (x EUR million) | 2017 | 2016 |
|---|---|---|
| Revenue | 74.1 | 173.0 |
| - Currency comparable growth | (55.7%) | (52.4%) |
| EBITDA (excluding exceptional items) | 10.6 | 62.1 |
| EBIT (excluding exceptional items) | (10.2) | 20.7 |
| EBIT margin (excluding exceptional | ||
| items) | (13.8%) | 12.0% |
| EBIT | (10.9) | (37.7) |
| EBIT margin | (14.7%) | (21.8%) |
| Capital employed | 144.6 | 136.0 |
| Backlog next 12 months | 108.9 | 93.4 |
| - Currency comparable growth | 31.9% | (41.7%) |
| Number of employees (at year-end) | 187 | 201 |
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Name Paul van Riel (1956) Function Chairman Board of Management and Chief Executive Officer
Nationality Dutch Employed by Fugro Since 2001. Appointed to Board of Management in 2006, appointed Chairman of the Board of Management and Chief Executive Officer in November 2012.
Paul van Riel has a MSc in Applied Physics from Delft University of Technology. After his studies he continued for three years at the university, as co-founder and team leader of a large international oil industry research consortium. He established the seismic reservoir characterisation company Jason Geosystems in 1986, which was acquired by Fugro in 2001. While at Jason Geosystems, he worked in the USA for 6 years.
Name Paul A.H. Verhagen (1966) Function Chief Financial Officer Nationality Dutch Employed by Fugro Since 2014. Appointed to Board of Management per January 2014, appointed Chief
Paul Verhagen worked for Philips for 23 years in various financial management positions in the Netherlands, Hong Kong, USA, China and Taiwan. He has been active in various global CFO positions since 2005, lastly as Executive Vice President and Chief Financial Officer of Philips Lighting. Paul holds an MSc in Business Administration from the Catholic University Brabant in Tilburg, and a post graduate chartered controlling degree from the University in Maastricht.
Name Brice M.R. Bouffard (1970) Function Director Land division Nationality French Employed by Fugro Since 2016. Appointed to Board of Management in 2016.
Current term Until AGM 2020
Before joining Fugro, Brice Bouffard worked at several oil field services companies, where he held a range of technical, IT and commercial positions in various countries. He most recently worked at Weatherford and Spectraseis. Brice spent the first 13 years of his career at Schlumberger. He holds a master degree in maritime engineering from École Nationale Supérieure de Techniques Avancées Paris and a masters degree in geophysics from IFP School (Paris).
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Name Mark R.F. Heine (1973) Function Director Marine division Nationality Dutch Employed by Fugro Since 2000. Appointed to the Board of Management in 2015. Current term Until AGM 2019
Mark Heine joined Fugro in 2000 and served, amongst others, as regional manager Europe-Africa for the Survey division. He holds a MSc in Geodetic Engineering from Delft University of Technology.
Name Øystein Løseth (1958)
Function Member of the Board of Management; Chairman Board of Management and Chief Executive Officer as from AGM 2018 Nationality Norwegian Employed by Fugro Appointed to Board of Management per January 2018. Current term Until AGM 2022
From October 2014 until recently Øystein Løseth was on the board of directors of Norwegian company Statoil AS, of which the last two years as Chairman of the Board. Previously he was CEO of Vattenfall AB, one of Europe's largest producers of electricity and heat, and of NUON, a Dutch energy company. Mr. Løseth started his career at Statoil. He holds a master degree in mechanical engineering from the Technical University of Trondheim.
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Custom 3D software solution for effi cient and accurate installation of offshore wind farm
Since the start of 2017, Fugro has been supporting Seaway Heavy Lifting with the installation of pre-piles on the Beatrice offshore wind farm, which will be Scotland's largest and one of world's deepest.
84 turbine foundations and two offshore transformer modules had to be installed on top of 4-legged pre-piled jackets. Fugro developed and applied real
time decision support survey software using data from sensors on the subsea pile installation frame. This has allowed Seaway Heavy Lifting to pre-install the piles precisely and effi ciently.
Following the installation campaign, Fugro is currently providing support during the second phase of the project: the installation of the jackets on the piles.
Analysing soil samples in laboratory, Wallingford, UK.
Doing business inherently involves taking risk and therefore risk management is an essential element of Fugro's culture, corporate governance, strategy development, and operational and financial management. On a daily basis risks are managed by employees as part of their overall role and responsibilities. Employees are expected to be willing to take risks, provided that they are sufficiently equipped to successfully manage these, and that they operate within the boundaries set by senior management. These boundaries ensure that the actions of a single individual (whether knowingly or unintentionally) will not result in disproportionate risk for the entire company.
Fugro's risk management is aimed at supporting long-term sustainable value creation. It is designed to provide reasonable assurance that objectives are met by integrating management control into daily operations, ensuring compliance with legal requirements and safeguarding the integrity of the company's financial reporting and its related disclosures. Fugro's risk management framework is in line with the Dutch Corporate Governance code.
The risk boundaries are driven by the company's culture, corporate governance and strategic risk assessments. This is detailed in Fugro's values, Code of Conduct, policies and procedures and authorisation schedules. The company's risk management aims to identify, assess and manage risks in accordance with its risk appetite in the different categories.
3D Laser scanning of new North/South metro line in Amsterdam, The Netherlands
| Risk category | Key risks | Key risk appetite | Page | General risk appetite |
|---|---|---|---|---|
| Strategic | ■ Portfolio | High | 60 | For strategic risks, acceptable risk levels vary depending |
| ■ Innovation | Above average | 60 | on the subject at hand, where expected rewards have to | |
| ■ Employees | Moderate | 60 | justify the risk. Generally the appetite is between above average to high. |
|
| Operational | ■ Project management | Moderate | 61 | Operational risks are handled with a moderate risk |
| ■ QHSSE management | Low | 61 | appetite. However, all risks related to QHSSE and cyber | |
| ■ Cyber security | Low | 61 | security are subject to low risk appetite. | |
| Financial | ■ Credit | Low | 62 | Financial risk appetite is low, with the intent to limit |
| ■ Currency | Low | 62 | financial risks and maintain long-term solvency and stay well within bank covenants. |
|
| Compliance | ■ Legal compliance | Low | 63 | Compliance is subject to a low risk appetite as Fugro |
| ■ Intellectual property | Low | 63 | strives for the highest level of compliance with legal and regulatory requirements and strives to not infringe on third party IP or properly license. |
| Assumption (based on 2017 financials | ||||
|---|---|---|---|---|
| Change | Impact | On | excluding exceptional items) | |
| Revenue (volume) | + 1% | EUR 9 million | EBITDA | Flat net revenue own services |
| Revenue (price) | + 1% | EUR 15 million | EBITDA | No change to cost base |
| Operating expenses | + 1% | EUR (14) million | EBITDA | No change to revenue |
| Vessel utilisation | + 1% | EUR 5 million | EBITDA | Equal contract terms |
| Days of revenue outstanding | + 1% | EUR 4 million | Working capital | All other conditions remaining equal |
| Euro versus US dollar | + 10% | EUR 7 million | Net profit | Stable revenue and margin in USD |
| Euro versus British pound | + 10% | EUR 2 million | Net profit | Stable revenue and margin in GBP |
| Interest rate | + 100 bp | EUR (2) million | Net profit | Net debt year-end 2017 |
| Net debt | + 100 million | EUR (3) million | Net profit | Stable interest rates |
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Fugro is aware of the risks it can be confronted with and has a risk management framework in place to identify and manage risks and internal controls.
The first level of the control environment consists of Fugro's employees who perform the day to day activities in the business operations, and their management. They undertake these activities in accordance with the applicable authorisation matrix, which is updated regularly by the Board of Management. They have the obligation to obtain an appropriate level of understanding regarding their roles and responsibilities and carry them out correctly and completely. Every employee is expected to comply with applicable laws and regulations.
The second level consists of regional and divisional management and the company's support functions such as QHSSE, corporate control, IT, tax, human resources, insurance, treasury and legal. These functions carry out various risk management and compliance activities to support and/or monitor the first level controls.
The third and final level consists of the independent internal audit department which reports to the line management, the Board of Management and the audit committee on the structure, existence and effect of the system of internal control.
Responsible for managing risks
Reporting on risk
Independent review of risk management activities
Fugro's risk management governance is based on a delegated accountability across the regions, business lines and global functions, so that risks and opportunities are the responsibility of those best placed to manage them. Risks that can and should be managed by the regions, business lines and global functions, remain subject to their own risk management processes within the boundaries set by the Board of Management. Management with delegated authority (e.g. country management, regional management, etc.) is expected to perform annual risk assessments. The identified risks and (when applicable) mitigating measures are documented, assigned to an appropriate owner, and monitored. The risks are communicated with all relevant employees and significant risks are reported to the Board of Management.
The Board of Management holds ultimate responsibility for risk management within the company and determines the risk appetite for the company. Internal audit supports the Board of Management in monitoring implementation of the risk management framework. On an annual basis the Board of Management performs a comprehensive assessment (assessing strategic, operational, financial and compliance risks) to determine the top risks. The identified risks are assigned to owners within the Board of Management, who have ultimate responsibility to manage these.
The Board of Management reports to the audit committee on the risk management processes (assessments, response and monitoring). The audit committee and the Board of Management receive independent information on risk management activities from the internal audit department. The audit committee extensively reports their observations and findings to the Supervisory Board.
This structured risk management process allows Fugro to take risks in a controlled manner. Constant monitoring of markets and the operating and financial results is intrinsic to its way of working due to the generally short-term nature of its assignments. Clarity and transparency are essential for assessing and evaluating risks. These are fundamental characteristics of the company's culture. All management is bound by clear restrictions regarding representation and decision-making.
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Fugro's strategy Building on Strength has associated risks, for which the company has risk management measures in place. Apart from the key strategic risks, Fugro also recognises strategic risks related to its market leadership, utilisation of its asset base and the ongoing consolidation and transformation of its organisational structure. All these risks are mitigated with proportionate measures and monitored on different levels within the company.
| PORTFOLIO | Risk appetite: High | |
|---|---|---|
| Description | Risk direction | Mitigation |
| A high proportion of Fugro's activities, around 60%, is related to the oil and gas industry and as such Fugro is significantly exposed to declines of the oil price and the related reduction of oil companies' investment and operational budgets. In addition, the growth in offshore oil and gas markets in the foreseeable future is expected to be limited due to the increasing importance of shale and the global drive to reduce carbon emissions and the related increasing investments in renewable energy. |
The market for oil and gas services is expected to improve the coming years as new investments are needed to satisfy the still growing demand for oil and gas. In the longer term, the increasing commitment by countries, companies and citizens to reduce carbon emissions to mitigate climate change poses a serious risk. |
To a degree this is mitigated by Fugro's balanced exposure across the oil and gas field life cycle and strong market positions. Additionally, Fugro is increasing its exposure to non-oil and gas markets such as general infrastructure, power, rail, telecom cable routing, wind farms and hydrography, to be less dependent on the oil and gas services market. These markets run in different economic cycles than the oil and gas markets and offer good opportunities for Fugro. |
| INNOVATION | Risk appetite: Above average |
| It is expected that this risk will |
|---|
| increase. With the ever increasing |
| pace of technological advancement |
| and digitalisation the lifespan of |
| innovative competitive advantages is |
| decreasing. There is an increasing risk |
| that innovative disruptions will make |
| certain current revenue generating |
| activities obsolete. |
Description Risk direction Mitigation
By continuing to invest, even during the recent downturn and by working closely with clients and understanding their needs, Fugro is able to effectively invest in research and development resources that are relevant to clients. Furthermore, working with universities, technology institutes and other high tech companies gives Fugro the opportunity to leverage third party technology and research and development, resulting in increased effectiveness. The new business line structure also mitigates risk as market innovation within the group is now organised globally.
| EMPLOYEES | ||
|---|---|---|
EMPLOYEES Risk appetite: Moderate
Description Risk direction Mitigation
Fugro acknowledges the value of its employees and focuses on achieving a healthy level of retention. This is done by providing opportunities to its employees, through training, leadership and expertise development and career opportunities. The introduction of a global career framework will provide employees with a better understanding of the possibilities to advance within the group, both on the technology and managerial ladder.
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Being a project organisation, the main operational risks are related to projects. Apart from the key operational risks presented below, Fugro recognises operational risks related to commodity price changes, capacity management in its asset heavy activities, and the possibility of natural disasters. All these risks are mitigated with proportionate measures and monitored on different levels within the company.
| PROJECT MANAGEMENT | Risk appetite: Moderate | |||
|---|---|---|---|---|
| Description | Risk direction | Mitigation | ||
| Good project management is essential for satisfactory execution, especially as contract size and complexity of projects are increasing. Lack of management or control, due to time or knowledge constraints, can cause delays and serious damage to a project and Fugro's reputation, and may result in (financial) penalties. |
It is expected that this risk will increase. There is a trend showing increasing project complexity and size. |
Projects and contracts with a value or risk exceeding a specified amount must be approved in accordance with the applicable authorisation matrix, which is updated regularly by the Board of Management. A proper risk assessment also ensures that a sufficiently qualified manager is selected to manage these projects, reducing the risk that unnecessary costs are incurred. Fugro is strongly focused on further improving its efficiency, amongst others by a relentless focus on delivery excellence, for example by implementing a global equipment pool and process standardisation. |
||
| QHSSE MANAGEMENT | Risk appetite: Low | |||
| Description | Risk direction | Mitigation | ||
| Fugro recognises that the industries in which it works expose employees to health, safety and security risks and is therefore committed to preventing these from turning into incidents. In 2017, Fugro experienced only a very slight improvement in safety performance, and 1 fatality. |
It is expected that this risk will remain the same. QHSSE management has been very relevant for Fugro, as its employees have always worked in harsh environments, and this is not expected to change. It is noted however that in the current oil and gas market, price pressure makes it at times more challenging to maintain high levels of QHSSE management. |
Fugro has a group wide QHSSE strategy and related standards and policies where all levels are expected to actively motivate, influence and guide individual and collective behaviour. This is fuelled by the belief that all incidents are preventable. To improve safety performance and boost awareness, strong emphasis will be placed on individual and collective safety in 2018, with personal involvement from the Board of Management. Every employee and contractor is expected to abide by Fugro's Golden Rules of HSSE. Employees receive regular safety training and Fugro's processes are analysed to identify possible risks and opportunities for improvement. |
||
| CYBER SECURITY | Risk appetite: Low | |||
| Description | Risk direction | Mitigation | ||
| Fugro relies on a range of IT systems (hardware, software and network connections) to manage its business, support operations and deliver many of its advanced technological solutions. Fugro develops proprietary hardware and software to support its specialist services. Consequently, malfunctioning of Fugro's IT systems, due to an outside attack (e.g. phishing, malware) or other internal system instabilities, may result in a delay of projects or a negative impact on Fugro's reputation. |
The increase in IT dependency, combined with an increase in cyber threats, underpin the expectation that this risk will be increasing in the next few years. |
Fugro has a dedicated global IT security team and a solid security IT infrastructure which consists of advanced spam and internet filters, firewalls, policy-based access to the internet and tooling to monitor network and cloud usage. Fugro's IT systems are constantly monitored and controlled for contamination by viruses, malware or malicious content. The team operates independently from IT staff in the country organisations. In 2016, Fugro launched a highly visible cyber security awareness campaign, which continued in 2017. There has not been any major security incident in 2017. |
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Fugro has to fund its operations, which is done with a mix of own capital and external capital (bank facilities, convertible bonds), and holds bank balances and receivables in different locations and currencies. Apart from the key financial risks presented below, Fugro also recognises financial risks related to financing and interest rates. All these risks are mitigated with proportionate measures and monitored on different levels within the company.
| CREDIT | Risk appetite: Low | |||
|---|---|---|---|---|
| Description | Risk direction | Mitigation | ||
| Fugro has credit exposure to accounts receivable with customers. A default by counterparties can have a material adverse effect on operating results. Also, aging debtors have a negative impact on the available working capital, exposing Fugro to the risk of increased cost of capital. |
It is expected that this risk will Fugro continues to focus on timely collections of outstanding decrease. There is an expectation that debt in order to minimise this risk and by training its staff on weak players have been taken out of proper working capital management. the market and that those that remain will be able to survive with the oil and gas market bottoming out. The improving oil price should enable national oil companies to pay their subcontractors, which would decrease the aging of receivables. |
|||
| CURRENCY | Risk appetite: Low | |||
| Description | Risk direction | Mitigation | ||
| Fugro is exposed to fluctuations in exchange rates, which can impact equity, debt, revenue and profitability. The currency movements at group level can be substantial, in particular related to equity and debt. Fugro holds cash balances in local currencies in certain countries where it is difficult to transfer cash abroad or to convert it to USD or EUR at short notice. These local trapped cash balances expose Fugro to risk of devaluations against the euro. In Angola an amount of EUR 48.2 million is in Angolan Kwanza's which is subject to currency risk at year end 2017. |
It is expected that this risk will remain the same. Given the global presence of Fugro, there will always be currency exposure, and a change in fluctuations between currencies is not expected. |
As most of the company's revenue in local currencies is used for local payments, the effect of currency movements on operational activities at a local level is reduced. The group treasurer focuses on improving transparency regarding the various currency exposures and provides advice on how to mitigate these. Fugro strives to match revenue with costs and assets with liabilities in each applicable currency or in USD and hence makes use of natural hedges. The usage of forward exchange contracts is limited. Through standardisation and centralisation and improved treasury management systems Fugro will be able to monitor and mitigate its transactional currency risks and the group treasurer is monitoring all foreign exchange contracts and, together with group control, their significance for the assessment of assets, liabilities, and the financial situation and results. |
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Fugro is a multinational company, trading globally with subsidiaries and branches in various countries. Apart from the key compliance risks presented below, Fugro also recognises compliance risks related to agents, tax, insurance, and claims and disputes. All these risks are mitigated with proportionate measures and monitored on different levels within the company.
| LEGAL COMPLIANCE | Risk appetite: Low | |
|---|---|---|
| Description | Risk direction | Mitigation |
| Fugro's global presence exposes the company to regional and local law and regulation, as well as changing and challenging political and economic environments. This can impact the realisation of business opportunities. Other risks may include non-compliance with Fugro's Code of Conduct such as its anti-bribery provisions. |
It is expected that this risk will increase. Especially in the Western world, there is a drive to implement increasingly detailed and more complex regulations and regulatory standards covering an ever broader scope of a company's activities. |
The Code of Conduct directs Fugro's employees, subcontractors and business partners to conduct business ethically, comply with the law, and maintain Fugro's reputation. Continuous efforts are made to inform employees, suppliers and business partners about the Code of Conduct. Initiatives in 2017 included developing specific policies addressing the key topics of the Code of Conduct, as well as rolling out a new, multi-language e-learning training for all employees. |
| INTELLECTUAL PROPERTY | Risk appetite: Low | |
| Description | Risk direction | Mitigation |
| Fugro uses high-performance equipment, | It is expected that this risk will | In order to mitigate this risk there is a corporate department |
technologies, software and business processes, and develops a significant part of this in-house. There is a risk that Fugro unintentionally infringes the intellectual property (IP) of others in this process, which could result in material financial claims, high license fees or even prohibition of applying certain technologies or methods.
increase. With the focus on innovation and the increasing utilisation of innovative solutions (both by Fugro and its competitors), there is an increase in competitive use of IP.
managing Fugro's IP by increasing awareness within Fugro, and by assisting the company's research and development centers with the prevention of unintentional IP infringements.
Fugro operates in many different parts of the world, sometimes differing in accounting policies and local reporting requirements. This exposes Fugro to the risk of reporting figures that are not in line with the group's IFRS framework, which may lead to a (material) impact on the reported figures. To mitigate this risk a financial handbook and an accounting manual, containing detailed guidelines for the financial reporting, is available for the senior management and the controllers of all reporting entities. Every 6 months all managers and controllers of reporting entities and the responsible division director sign a detailed statement regarding the financial reporting and internal control.
The business plans of every reporting entity are translated into forecasts. Deviations from the forecast are reviewed on a monthly basis. Any unforeseen circumstances that arise, or any substantial deviation from the forecasts, must be reported immediately to the responsible management. The monthly reports submitted by the operational management include an analysis of the achievements versus the approved plans and a forecast for the coming periods including actions to address any shortfall.
Fugro intends to implement internal control self-assessments (ICS) at all the financial shared service centers in the different countries and regions. These self-assessments are aimed at increasing awareness of Fugro's overall internal control framework. They are focused on financial reporting, consistency in the use of standards and the effectiveness of
Asphalt testing laboratory, Arnhem, The Netherlands.
controls, ultimately leading to an enhanced control environment. This process will evolve in the coming years, depending on evaluation of the shared service centers that use ICS, changes in the risk environment, and demands from internal or external stakeholders.
Fugro is implementing a groupwide IT system to optimise the way Fugro works in business development, project management and operations, procurement, and finance across the company. These key business processes are in the process of being standardised based on best practices and will be supported by a global cloud-based tool. After developing a blueprint in 2015, a first 'proof of concept' was rolled out in one operating company in 2016. Based on the lessons learned, a part of the system (the finance components) were implemented in the finance shared service centre in the Netherlands during 2017. A second proof of concept will be rolled out in another operating company in 2018 in order to further prepare for a global roll-out.
The internal audit department assists the company with accomplishing its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
In 2017, 19 reviews took place including 3 project focused reviews. The internal audit department is independently accountable to the audit committee of the Supervisory Board and participates and reports in each audit committee meeting (5 times per year). Additionally, the head of internal audit has direct access to the chairman of the audit committee and they meet at least twice per year.
The financial statements of Fugro are audited annually by external auditors, who are not part of the internal controls of the company, but do contribute to the internal control framework. These audits take place on the basis of Dutch law. The external auditor does not act in an advisory capacity. In the majority of cases that advisory services are required, Fugro selects firms that are not selected to carry out component audits. The performance of the external auditor is evaluated annually by the audit committee, assisted by the Board of Management. The audit committee advises the Supervisory Board on their proposal to the annual general meeting regarding (re)appointment of the external auditor.
The audit committee comprises three members of the Supervisory Board and, given the risk appetite of the company, it ensures an independent monitoring of the risk management process from the perspective of its supervisory role. The committee focuses on the quality of the internal and external reporting, the effectiveness of the internal audits and the functioning of the external auditor. See 'Supervisory Board report – Supervisory Board committees ' for further information on the audit committee. The terms of reference of the audit committee (included in the terms of reference of the Supervisory Board) are posted on Fugro's website.
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The Dutch corporate governance code contains principles and best practices on the governance of listed companies and their accountability to their shareholders on this topic. Fugro has complied with this code since it was first introduced in 2013, with few deviations. In December 2016 a revised version of the code was published (the 'Code'). The Code was designated as the new corporate governance code by Decree on 7 September 2017 and entered into force for the financial year 2017.
The most important change is the central role given to long-term value creation, and the introduction of culture as a component of effective corporate governance. The principal changes revolve around seven themes: greater focus on long-term value creation; reinforcement of risk management; shift of focus in effective management and supervision; introduction of culture as an explicit part of corporate governance; improvement and simplification of the remuneration provisions; shareholders and the general meeting and quality requirements for the "comply or explain" statements.
In 2017 Fugro has acquainted itself with the Code and, where needed, has brought its corporate governance structure in line with the revised principles and best practices. The key aspects of the corporate governance structure and compliance with the Code will be discussed at the 2018 annual general meeting ('AGM').
In February 2017, the Supervisory Board and the Board of Management received a comprehensive overview of the Code and the various changes were discussed at length. During the year, understanding of the Code was created and the needed changes and the implications were mapped. In August 2017, the three Supervisory Board committees (audit committee, nomination committee and remuneration committee) received comprehensive compliance overviews of the relevant principles and best practices. These overviews were discussed at length in the respective meetings of the committees. With regard to the audit committee, account was taken of the EU Audit Regulation, the EU Audit Directive and the Decree Establishing Audit Committees. In October, the same was done with the Board of Management and the Supervisory Board. The preliminary conclusion was that Fugro already complies or will be able
to comply before year-end 2017 with most of the key aspects of the corporate governance structure of the Code and that the only relevant exceptions relate to Fugro's certification structure just like with the previous code.
During the year, the relevant governance documents were updated, including, amongst others, the rules governing the internal proceedings of the Board of Management and of the Supervisory Board, the profile of the Supervisory Board, the charters of the Supervisory Board committees, the charter of internal audit and the risk management framework (final version approved in January/February 2018).
Furthermore, Fugro further embedded long-term value creation, its values and social and environmental considerations into its strategy, business operations and reporting by formulating Fugro's long-term value creation model and sustainability framework, improving on its non-financial reporting and a further roll-out of its Code of Conduct.
Fugro applies the principles and best practices of the Code, except for the following and for the reasons set out below. A full overview ('comply or explain'-report) of Fugro's compliance with the Code in 2017 is posted on Fugro's website, as are the rules governing the internal proceedings of the Board of Management and of the Supervisory Board (including its three committees).
Maintaining its role as independent service provider is crucial for Fugro (see 'Protective measures' on page 68 for further explanation). One of the ways to safeguard this independence is share certification. Although the Code provides that the certification structure is not meant as a protective measure, Fugro has chosen, in the interest of its clients to also view the certification structure as part of its protective measures. When carrying out assignments Fugro often receives or can have access to extremely confidential information. Fugro can only perform its assignments if it can safeguard the confidential nature of such information towards its clients. Furthermore, it is strategically extremely important for Fugro that it is able to maintain its position as an independent service provider and to deter influences in conflict with these interests which might affect the independent position or the continuity and identity of Fugro
Fugro Synergy resupplying in port of Saint-Malo, France.
and its group companies. At this moment, Fugro does not intend to change this.
The second reason for the certification structure is the prevention of possible harmful effects as a result of absenteeism in the shareholders' meetings of Fugro. Fugro considers it not to be in the interest of its stakeholders in general that through absenteeism an accidental majority can, based only on its own interest, force through its opinion. Preventing this, ties in with this Principle 4.4.
In accordance with this provision, the Board of Stichting Administratiekantoor Fugro ('Foundation Trust Office') enjoys the confidence of the holders of certificates and operates independently of Fugro. One deviation from this provision is that the administration terms and conditions of the Foundation Trust Office do not stipulate in what cases and subject to what conditions holders of certificates may request the Foundation Trust Office to convene a meeting of holders of certificates. However, see the explanation on best practice provision 4.4.2. At this moment, Fugro does not intend to change this.
According to this provision the meeting of holders of certificates may make recommendations to the Board of the Foundation Trust Office for the appointment of a member to the Board. It depends on whether or not a meeting of holders of certificates is held in which the holders of certificates can make such recommendations. The Board has decided that holders of certificates representing at least 15% of the issued share capital in the form of certificates of shares may request that a meeting of holders of certificates is convened in order to make recommendations concerning
persons to be appointed as a member of the Board of the Foundation Trust Office. At this moment, Fugro does not intend to change this.
According to this provision the Foundation Trust Office, in exercising its voting rights, should be guided 'primarily by the interests of the holders of certificates, taking the interests of the company and its affiliated enterprise into account'. The articles of association and the administration terms and conditions of the Foundation Trust Office provide that if the Foundation Trust Office exercises its voting rights, it will do this in such a manner that the interests of Fugro and the enterprise affiliated therewith and all those concerned therewith are observed and complied with as far as shall be possible (article 2 of the articles of association and article 4 of the administration terms and conditions of the Foundation Trust Office). The interests of some stakeholders need not necessarily at all times run parallel with that of other stakeholders. For example, some will have a short term focus whilst others have a long-term focus. It is up to the Board of the Foundation Trust Office to, after balancing the interests, come to a well-considered decision on the exercise of the voting rights. In addition, when considering the exercise of the voting rights the Board in any case takes into consideration the (Dutch) law as well as the articles of association and the administration terms and conditions of the Foundation Trust Office. The Board can (also) opt, for reasons of its own, to not exercise the voting rights on the shares held by the Foundation Trust Office.At this moment, Fugro does not intend to change this.
Based on the provisions of section 2:118a Dutch Civil Code and article 18.2 of the administration terms and conditions,
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the Foundation Trust Office will provide a proxy to any holder of certificates of shares who so requests, to exercise the voting rights on the (underlying) shares corresponding to the certificates held by the holder in a shareholders' meeting of Fugro. Holders of certificates of shares can (also) choose to have themselves represented in the shareholders' meeting by a written proxy, whether or not including a voting instruction. In specific situations the Foundation Trust Office may solely limit, exclude or revoke a proxy. See page 68 for more details. This is necessary – summarised – when Fugro's continuity, independence, identity or development is at stake. Therefore the deviation of this provision of the Code relates to the fact that proxies to vote are not issued without any limitation and in all circumstances. This deviation is of course the consequence of the fact that the structure of share certification is also meant as a protective measure. At this moment, Fugro does not intend to change this.
The authorised capital of Fugro amounts to EUR 16,000,000 and is divided into:
On 31 December 2017 the issued capital amounted to EUR 4,228,626.25 divided into 84,572,525 ordinary shares. No preference shares have been issued. All the ordinary shares have equal voting rights (one share, one vote). There are no restrictions on the voting rights of the company's ordinary shares and preference shares (if issued). As of 31 December 2017 almost all (83,556,943) issued ordinary shares have been exchanged for certificates of shares. See page 68 for more information on certificates of shares.
The Board of Management's approval is required for each transfer of preference shares. The approval has to be
requested in writing stating the name of the intended acquirer of the shares in question.
Ordinary shares may be transferred only to natural persons. Notwithstanding the provisions of the preceding sentence, the transfer of ordinary shares shall not be possible if and insofar as the acquirer, either alone or under a mutual collaboration scheme jointly with one or more others, natural persons and/or legal entities, either directly or – otherwise than as a holder of certificates of shares issued with the cooperation of Fugro – indirectly:
Exchange of certificates of shares for the (underlying) ordinary shares is only possible in accordance with the above-mentioned.
The restrictions to the transfer of ordinary shares stated above are not applicable to:
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with the approval of the Supervisory Board by an irrevocable resolution has wholly or partially lifted the restrictions limiting the transfer or issue of ordinary shares, to which lifting of restrictions conditions may be attached
When carrying out assignments Fugro receives or can have access to clients' extremely confidential information. For this reason it is essential for Fugro that Fugro can safeguard its position as independent service provider.
The main point of Fugro's protection against a hostile takeover depends on the one hand on certification of the ordinary shares and, on the other hand, on the possibility of Fugro to issue cumulative protective preference shares. In addition to this, protective preference shares may also be issued by two of Fugro subsidiaries, Fugro Consultants International N.V. and Fugro Financial International N.V., to 'Stichting Continuïteit Fugro' (see 'Foundation Continuity Fugro').
The aim of the protective measures is to safeguard the interests of Fugro and of its group companies and of all parties concerned in the best possible way, including Fugro's position as an independent service provider and to deter influences in conflict with these interests which might affect the independent position or the continuity and identity of Fugro and its group companies.
Only (non-voting) certificates of shares are listed and traded on Euronext Amsterdam. These exchangeable certificates are issued by Foundation Trust Office and the Board of the Foundation exercises the voting rights on the underlying shares in such a manner that the interests of Fugro and the enterprise affiliated therewith and all those concerned therewith are observed and complied with as far as shall be possible. The Board of the Foundation operates completely independent from Fugro. For the report to holders of certificates with respect to the year 2017 and for the composition of the Board see pages 190 to 192.
Holders of certificates (and their authorised proxies):
Generally speaking a certificate holder's notification to attend a shareholders' meeting will be treated as a request to Foundation Trust Office to grant a proxy to vote for the (underlying) shares corresponding to their certificates.
The objects of Stichting Beschermingspreferente aandelen Fugro ('Foundation Protective Preference Shares') are to attend to Fugro's interests and of Fugro's businesses as well as the businesses of the entities that form part of the group,
Land and marine site characterisation programme for '1915 Canakkale Bridge', Turkey.
in such way that Fugro's interests and the interests of the relevant businesses as well as the interests of all parties involved, are safeguarded to the extent possible, and that Fugro and the relevant businesses are defended to the extent possible against factors that could negatively affect the independence and/or continuity and/or identity of Fugro and the relevant businesses, as well as all activities which are incidental to or which may be conducive to any of the foregoing.
The Foundation aims to achieve its objects independently from Fugro, by acquiring protective preference shares and by exercising the rights attached to such shares. Fugro has entered into a call option agreement with the Foundation pursuant to which the Foundation was granted the right to acquire cumulative protective preference shares in Fugro's share capital, each share with a nominal value of EUR 0.05, up to an amount to be determined by the Foundation and up to a maximum equal to 100% minus 1 share of the aggregate nominal value of ordinary shares and preference financing shares in Fugro that are held by third parties at the time the right to acquire protective preference shares is exercised by the Foundation. By entering into the option agreement, the Foundation is in a position to achieve its objects – i.e. safeguarding Fugro and its businesses – autonomously, independently and effectively should the occasion occur. The Board of Foundation Protective Preference Shares operates completely independently from Fugro; for the composition of the Board see page 190.
The objects of Stichting Continuïteit Fugro ('Foundation Continuity') are similar to those of Foundation Protective Preference Shares. Foundation Continuity has entered into call option agreements with Fugro Consultants International N.V. ('FCI') and Fugro Financial International N.V. ('FFI') (both registered in Curaçao) pursuant to which the Foundation was granted the right to acquire preference shares B in each of FCI and FFI up to a maximum equal to 105% of the nominal value of the then issued capital of the relevant company (in a form other than cumulative preference shares B), not including any shares that company holds in its own capital. The grant of these call options has been approved by the AGM in 1999. Foundation Continuity, at the level of FCI and FFI, basically has similar features as a Dutch Protective Preference Shares Foundation and under circumstances may acquire a veto right on important decisions relating to the Fugro businesses operating under FCI and FFI. The Board of the Foundation operates completely independent of Fugro but Board member A is appointed by the Board of Management of Fugro with the approval of the Supervisory Board of Fugro. For the composition of the Board, see page 190.
The protective measures described above shall be put up, especially in a takeover situation, when this is in the interest of Fugro to protect its independence and also in defining Fugro's position in relation to that of the raider and the raider's plans. It creates the possibility, when necessary, to look for alternatives. The protective measures will not be put up to protect the Board of Management's own position. Due to the uncertainty regarding the situations with which Fugro could be confronted, the use of protective measures in circumstances other than those described above cannot be discounted.
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Currently Fugro has the following long-term incentive plans:
Until 2014, unconditional options were granted to members of the Board of Management and to a large number of employees. This changed after amendment of the remuneration policy for the Board of Management in 2014 and a number of subsequent minor adjustments to that policy in 2015 and 2017.
With effect from 2014, unconditional options were no longer granted to members of the Board of Management. Instead, performance options and performance shares were granted to members of the Board of Management and senior management. From 2017 onwards, only performance shares are conditionally granted to members of the Board of Management and senior management. Unconditional options are still granted to a large number of other employees.
Furthermore, with effect from 2017, these unconditional options and performance shares are no longer granted at the end of the year but the grant date has been shifted to the open period immediately following the publication of the annual results. The first grant under this revised timetable is scheduled for 1 March 2018. The vesting date has also been shifted to match the new grant date, but this is not applicable to unconditional options that were granted in the period 2012 – 2016. These option series still vest at year end, three 3 years after the option grant date.
The exercise price of the unconditional options to be granted on 1 March 2018 is equal to the average closing price at Euronext Amsterdam of the five trading days preceding the grant date. The vesting period of the options and performance shares is three years. The term of the options is six years and the term of the performance shares is five years.
Unconditional options granted are in principle not subject to any vesting conditions, except continuous employment of the holder by Fugro or one of its subsidiaries. The usual terms and conditions are applicable including exceptions in
connection with retirement, long-term disability, death and change of control.
The vesting conditions of the performance options (last grant in 2016) and the performance shares are also subject to continuous employment of the holder by Fugro or one of its subsidiaries, but also to performance testing. Vested performance shares have a holding (lock-up) period of two years and may be partly sold only to meet tax requirements at vesting. The usual terms and conditions are applicable including exceptions in connection with redundancy, termination of the employment without cause, prorated vesting, retirement, long-term disability, death and change of control.
Options and performance shares are granted in such a way that at any moment the maximum number of outstanding options and performance shares will not exceed the mandate of 7.5% of the issued ordinary share capital (including treasury shares but excluding the conversion rights under the outstanding convertible bonds), taking into account the number of treasury shares repurchased to cover the options and performance shares. It is Fugro's policy to repurchase own shares to cover the options and performance shares granted in order avoiding the issue of new shares when options are exercised and performance shares vest.
The table below gives an overview of the series unconditional options, performance options and performance shares that are currently outstanding and of the vesting and the expiration dates.
| Unconditional | Exercise price | Vesting | Expiration |
|---|---|---|---|
| options | (EUR) | date | date |
| Series 31/12/2012 | 44.52 | 31/12/15 | 31/12/2018 |
| Series 31/12/2013 | 43.32 | 31/12/16 | 31/12/2019 |
| Series 31/12/2014 | 17.26 | 31/12/17 | 31/12/2020 |
| Series 31/12/2015 | 15.06 | 31/12/18 | 31/12/2021 |
| Series 31/12/2016 | 14.55 | 31/12/19 | 31/12/2022 |
from the CEO Profile Strategy
Group
Divisional Financial Performance Performance Governance
Report of the Supervisory Board
Other Information
| Performance | Exercise price | Vesting | Expiration |
|---|---|---|---|
| options | (EUR) | date1 | date |
| Series 31/12/20142 17.26 | 01/03/18 | 01/03/2021 | |
| Series 31/12/2015 | 15.06 | 04/03/19 | 04/03/2022 |
| Series 31/12/2016 | 14.55 | 06/03/20 | 06/03/2023 |
| Performance | Exercise price | Vesting | End of |
| shares | (EUR) | date1 | lock-up |
| Series 31/12/20142 n/a | 01/03/18 | 01/03/2021 | |
| Series 31/12/2015 | n/a | 04/03/19 | 04/03/2022 |
| Series 31/12/2016 | n/a | 06/03/20 | 06/03/2023 |
1 Based on preliminary schedule publication dates annual results in 2019 and 2020. 2 On 21 February 2018, following the advice of the remuneration committee, the Supervisory
Board decided that the targets for vesting of both these performance shares and performance options have not been achieved because the ROCE target (50% weight) was below the threshold and the TSR (50% weight) ranking was above 7. As a result, these performance shares and performance options will not vest on 1 March 2018 and expire.
See note 5.31.1 of the financial statements for further information on option and share plans.
General meetings are convened by the Board of Management or the Supervisory Board. Meetings can also be convened by shareholders who, individually or jointly, represent at least 10% of the issued share capital if authorised by the relevant Dutch court.
The powers of the general meeting are stipulated in legislation and in the articles of association of Fugro and can be stated concisely as follows: approval of decisions that would entail a significant change to the identity or character of Fugro or its business; appointment and dismissal of members of the Board of Management and of the Supervisory Board; adoption of the remuneration policy of the Board of Management; approval of option and share plans for the Board of Management; approval of the remuneration of the Supervisory Board; adoption of the annual financial statements; discharge of members of the Board of Management and of the Supervisory Board; approval of the profit appropriation in accordance with article 36 paragraph 7 of the articles of association; authorisation to repurchase or cancellation of shares, to issue shares (or to grant rights to subscribe for shares) and to restrict or exclude pre-emptive rights in respect of shares; and approval of decisions to amend the articles of association or to dissolve Fugro.
The AGM is held within six months of the end of the financial year (often at the end of April or the beginning of May) in order to discuss the management report and the financial
statements, any appointments of members of the Board of Management and of the Supervisory Board and any of the other topics mentioned above. Extraordinary general meetings (EGM) are convened as often as the Supervisory Board or the Board of Management deems this necessary.
The shareholders' meeting is chaired by the chairman of the Supervisory Board. The Supervisory Board and the Board of Management provide the shareholders' meeting with all the information requested, unless there is a very good reason why providing the information would not be in the interests of Fugro.
Shareholders who, individually or jointly, represent at least 3% of the issued share capital may request to the Board of Management that items be placed on the agenda. Such requests need to be received in writing not later than 60 days prior to the meeting date.
Fugro N.V. is a public limited liability company under Dutch law. Fugro is also an international holding company. It has a two-tier board structure, consisting of a Board of Management and an independent Supervisory Board. Each Board has its specific role and task regulated by laws, the articles of association, the Code and the rules and the rules of both Boards.
The Board of Management is responsible for the continuity, the goals, objectives, long-term value creation strategy, policies and results of Fugro. The Supervisory Board supervises the policies, management and the general affairs of Fugro, including the relations with shareholders. The Supervisory Board assists the Board of Management Board with advice on general policies related to Fugro and the business connected with it. In fulfilling its responsibilities, the Supervisory Board is guided by the interests of Fugro and its stakeholders.
Members of the Board of Management and of the Supervisory Board are appointed (and, if necessary, dismissed) by the general meeting for a maximum period of four years. The Supervisory Board determines the number of Board of Management after consultation with the Board of Management. The Supervisory Board consists of such number of members as shall be set by the Supervisory Board (currently six). Board of Management members may be reappointed. In case of an appointment or reappointment of Supervisory Board members, the Supervisory Board
Group
Divisional Financial Performance
Financial Other
3D mapping of tank storage.
profile should be observed. A Supervisory Board member may be reappointed once for a second period of four years, and subsequently reappointed again for a period of two years, which appointment may be extended by at most two years. In the event of a reappointment after an eight-year period, reasons should be given in the report of the supervisory board.
For every appointment to the Supervisory Board and the Board of Management, the Supervisory Board is entitled to make a (binding) nomination. The general meeting can overrule a binding nomination by a resolution adopted by an absolute majority of the votes cast, provided such majority represents more than one-third of the issued share capital. If this part of the share capital is not represented at the meeting, but an absolute majority of the votes cast is in favour of the resolution to cancel the binding nature of the nomination, a new meeting may be convened at which the resolution may be passed by an absolute majority of votes, irrespective of the part of the capital represented at such meeting. On a non-binding nomination, the general meeting decides on the appointment with an absolute majority of votes.
The Supervisory Board appoints one of the members of the Board of Management as chairman (CEO) and determines, in consultation with the Board of Management, the division of tasks. The Supervisory Board appoints one of its members as chairman and one as vice-chairman. The chairman of the Supervisory Board is assisted in his role by the company secretary. The Supervisory Board has established three committees from amongst its members: an audit committee, a nomination committee and a remuneration committee. The function of the committees is to assist the Supervisory Board and to prepare the decisionmaking.
The general meeting can dismiss or suspend members of the Board of Management and the Supervisory Board. Such a decision, other than proposed by the Supervisory Board, requires at least two-third of the votes, representing at least half of the issued share capital. With regard to the overruling of the binding nature of decisions to suspend or dismiss members of the Board of Management or Supervisory Board, convening a second meeting pursuant to section 2:120, subsection 3, Dutch Civil Code is not permitted. The Supervisory Board may at any time suspend a member of the Board of Management.
During 2017, the members of the Board of Management and the Supervisory Board have not been involved in transactions involving conflicts of interest for Board of Management or Supervisory Board members which were of material significance to Fugro and/or to members of the Board of Management or the Supervisory Board. Such transactions have not been reported by members of the Board of Management or the Supervisory Board.
Further information on the Board of Management and the Supervisory Board included in the rules governing the internal proceedings of both boards, which can be found on the website.
The Board of Management regularly, and at least annually, evaluates its own and the individual members' performance. The Supervisory Board regularly, and at least annually, evaluates the performance of the Board of Management Board and the members individually. The Supervisory Board discusses the conclusions of this evaluation, including in relation to the succession of directors. The evaluation takes place without the Board of Management being present. The Supervisory Board regularly, and at least annually,
Divisional Financial Performance Performance Governance Report of the Supervisory Board
Other Information
evaluates its own and the individual members' performance without any Board of Management member being present. The performance of the various committees is evaluated as well.
Diversity Board of Management and Supervisory Board
Fugro believes that diversity and inclusion should extend to all areas of its organisation. Starting at the top, in 2017, diversity policies for the composition of the Supervisory Board and Board of Management were discussed and determined. Reference is made to the diversity policy for the Supervisory Board and for the Board of Management and to the profile of the Supervisory Board. Both the diversity policy and the profile (included in the Supervisory Board rules) which are posted on Fugro's website.
Fugro will benefit from a broad range of skills and a variety of backgrounds in both boards, allowing for better oversight and governance reflecting the diversity of the Fugro client base and employees.
Based on the nature and complexity of the Fugro business, the markets in which Fugro operates and the diversity of the client base and employees, Fugro identified the diversity aspects of gender, nationality/geographical provenance and background (education and/or experience) as being most relevant for Fugro and its business. For both boards, these diversity aspects are taken into account when vacancies have to be fulfilled.
On the basis of these diversity aspects, targets have been set in order to achieve a diverse composition of both boards. Going forward Fugro will continue to identify and search internal and external candidates for positions in the Supervisory Board and Board of Management from a variety of backgrounds, whilst at the same time not compromising on other relevant aspects such as quality, expertise and experience. In the event that a global recruitment firm is engaged, Fugro gives search instructions in line with the diversity policies.
In line with applicable Dutch legislation, the Supervisory Board has set the following gender diversity targets: for both the Supervisory Board and Board of Management at least 30% shall consist of female members and at least 30% shall consist of male members. When the Board of Management consists of four members, as is the current situation, the target is deemed to be achieved when one of the members is female.
The Supervisory Board consists of four male (67%) and two female members (33%). With this percentage, the gender diversity target for the Supervisory Board has been achieved. The Supervisory Board has established a profile for its composition, taking into account the desired diversity with respect to the other diversity aspects. This profile sets out: the size of the Supervisory Board; the desired expertise, experience and background represented in the Supervisory Board; the desired diversity among Supervisory Directors; and the desired independence of Supervisory Directors. The Supervisory Board is of the opinion that its current composition meets the profile and therefore also the desired diversity regarding these aspects.
The Board of Management consists of four members (since 1 January five, but this will go back to four after the upcoming AGM). As all members are male, the diversity target regarding gender has not been met. In the past few years, two new members have been attracted: Brice Bouffard, appointed by the AGM in April 2016 and Øystein Løseth, appointed by the EGM in December 2017. In both cases, the Supervisory Board also seriously looked for female candidates. However, the potential female candidates did not meet the requirements of the profile, were not interested in the job or retracted their candidacy. The difficulty to find qualified female candidates can probably be explained by the highly technical nature of Fugro's business and the limited pool of female candidates with a relevant background. Diversity in the broad sense is discussed by the nomination committee on a regular basis and the Supervisory Board supports all efforts of the company to strive for a more diverse workforce, especially with respect to gender.
When a vacancy in the Board of Management arises, the Supervisory Board will continue to take the gender diversity target into account, besides other relevant criteria for the specific vacancy such as geographical provenance, experience, educational background, growth potential, personality, fit within the team. The Supervisory Board is of the opinion that, except for the gender diversity target, the current composition of the Board of Management meets the relevant criteria with respect to geographical provenance, experience, educational background, growth potential, personality and fit within the team.
Diver performing inspection, repair and maintenance services.
See pages 54 to 55 and 83 to 84 for more information about the gender, the nationality/geographical provenance and the background (education/work experience) of the members of the Board of Management and the Supervisory Board.
A resolution to amend the articles of association of Fugro may be passed only on a proposal thereto of the Board of Management with the prior approval of the Supervisory Board and by a majority of at least two-thirds of the votes cast at a general meeting, representing at least half of the issued share capital. If this proportion of the share capital is not represented at the meeting, a second meeting may be convened at which the resolution may be passed by a majority of at least two-thirds of the votes cast, irrespective of the proportion of the capital represented at such meeting.
Insofar as a resolution to amend the articles of association brings about a change in the rights vested in the holders of protective preference shares or the holders of financing preference shares or the holders of convertible financing preference shares (currently no such preference shares are issued), such a resolution shall require the approval of the meeting of holders of protective preference shares or the meeting of holders of financing preference shares or the meeting of the holders of convertible financing preference shares, as the case may be. Fugro's articles of association were last amended on 19 December 2017 and are posted on the website.
Fugro regularly proposes to its shareholders to authorise the Board of Management to grant or issue (rights to acquire) shares and to repurchase own shares. On 2 May 2017 the AGM authorised the Board of Management for a period of
18 months as from 2 May 2017 until 2 November 2018, to, subject to the approval of the Supervisory Board:
The above-mentioned authorisation of the Board of Management with respect to the issue of ordinary shares and financing preference shares and/or the granting of rights to acquire ordinary shares and financing preference shares is limited to a number of ordinary shares and financing preference shares amounting to 10% of the issued capital at the time of issue and, in addition, a maximum of 10% of the issued capital of Fugro at the time of the issue in connection with or on the occasion of a merger, takeover or strategic partnership.
Surveying highways in Lake District, United Kingdom.
The Board of Management may resolve, with the approval of the Supervisory Board, to dispose of shares acquired by Fugro in its own capital.
Fugro differentiates the following categories of agreements as referred to in the Decree on Article 10 of the EU Takeover Directive:
or CGG. In such a case the other party may terminate the agreement. Some other agreements Fugro N.V. and Fugro subsidiaries have entered into also contain change of control clauses, which agreements are in itself not considered key agreements within the meaning of the Decree on Article 10 of the EU Takeover Directive, but jointly they are considered significant
Group
Report of the Supervisory Board Other
Fugro has not entered into any agreements with members of the Board of Management that provide for a specific severance payment on termination of the services agreement as a result of a public bid within the meaning of section 5:70 or 5:74 of the Dutch Act on Financial Supervision. The agreements with the members of the Board of Management do – in accordance with the Code – provide for a general severance payment amounting to a maximum of one year's fixed base salary which in principle is applicable in the event of termination or annulment of the agreement unless this is for cause. This severance payment is also applicable when the termination is justified by such change of circumstances that the members of the Board of Management cannot reasonably be expected to continue the performance of their function/services as a statutory director of Fugro. This may be the case, for example, if Fugro is liquidated, is merged with or taken over by a third party, is subject to an important reorganisation or to a major change of policy. This severance payment is in addition to a three months' notice period for both parties.
This is a statement concerning corporate governance as referred to in section 2a of the decree on additional requirements for board reports (Besluit inhoud bestuursverslag) effective as of 1 January 2018 (the 'Decree'). The information required to be included in this corporate governance statement as described in sections 3, 3a and 3b of the Decree and in best practice provision 2.1.6 of the Dutch corporate governance code of 8 December 2016 (the 'Code') can be found in the following chapters, sections and pages of this annual report 2017 and are deemed to be included and repeated in this statement:
The information concerning Fugro's main features of the internal risk management and control systems relating to the financial reporting process, as required by section 3a sub a of the Decree, can be found in 'Risk management'
The information regarding the functioning of Fugro's general meeting, and the authority and rights of Fugro's shareholders and holders of certificates of shares, as required by section 3a sub b of the Decree, can be found in 'Corporate governance'
Group
Divisional Financial Performance
Performance Governance
Internet satellite provider
Vessel
In June 2017, at the United Nations' Ocean Conference in New York, the world was introduced to Seabed 2030, a project of General
Bathymetric Chart of the Ocean (GEBCO) and the Nippon Foundation with the aim to facilitate the complete mapping of the ocean fl oor by the year 2030. This initiative is driven by a strong motivation to use the ocean sustainably and undertake scientifi c research based on detailed information of the Earth's seabed.
OARS Command Center
OARS command
Client desk
Key figures
Message
from the CEO Profile Strategy
Fugro is leading private sector industry support of this initiative by acquiring and contributing bathymetric (seabed topography) data from its vessels while transiting between projects. Using its offi ce assisted remote services (OARS) technology, Fugro is able to support this mission from land-based data centers, without the need for surveyors onboard. In September 2017, the Fugro Discovery acquired and contributed its fi rst set of bathymetry data in the North Atlantic during a transit from the United Kingdom to Canada.
35,000 square kilometres of bathymetry data contributed so far
Report of the Supervisory Board Financial Statements Other Information
covering 5,195 kilometers of ocean during an 8-day transit
Report of the Supervisory Board Other
Fugro's investor relations policy is aimed at providing timely, complete and consistent information to existing and potential shareholders, other capital providers and its intermediaries. Fugro wants to enable them to develop a clear understanding of the company's strategy, activities, historical performance and outlook for the future. Fugro offers comprehensive information on its website and through presentations to and meetings with analysts, investors and media and by means of press releases.
Investors are able to follow analyst presentations via webcast. Roadshows are held twice a year, amongst others in the United States, the United Kingdom, the Netherlands, Switzerland and Germany. In combination with further individual personal contacts with investors throughout the year this resulted in a total of 184 'one-on-one'-meetings, presentations and telephone conferences in 2017.
These activities are carried out in strict accordance with the requirements of Euronext and the Dutch Authority for the Financial Markets. Fugro has a policy on bilateral contacts in place, detailing how information is provided to investors, analysts, financial institutions, the press and other stakeholders. For this policy and all other relevant publications such as press releases and presentations, see www.fugro.com.
Fugro is listed on Euronext Amsterdam since 1992 (symbol: FUR/ISIN code: NL0000352565). Options on Fugro shares are traded on the European Option Exchange in Amsterdam (Euronext Life).
On 31 December 2017 Fugro had 84,572,525 shares outstanding. Not the shares themselves, but certificates of shares are listed on Euronext Amsterdam. These certificates are issued by the Foundation Trust Office, which carries out the administration of the underlying shares. On 31 December 2017 the Foundation Trust Office administered 83,556,943 or 98.8% of the issued underlying shares. For more information on Fugro's capital structure, see 'Corporate governance – corporate information'.
In 2017, Fugro's share price declined by 11%, compared to a 19% decrease in the OSX, the most commonly used oil field services index. The major Dutch index, the AEX, increased by 13% during the year.
The average daily trading volume on Euronext Amsterdam was 786,522 shares, which was in line with the year before. On a daily basis around 75% of the observable trading volume in Fugro shares took place on the Euronext platform; the remaining volume was realised on alternative platforms such as Equiduct, Chi-X and Turquoise.
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Financial Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
* AEX (Dutch large cap index) and OSX (US oil services index composed of amongst others Halliburton, Oceaneering, Schlumberger, Transocean, Weatherford) calibrated to Fugro share price on 2 January 2017.
| Trading information | 2017 | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|
| Market capitalisation (x EUR 1 million) | 1,099 | 1,231 | 1,274 | 1,460 | 3,663 |
| Highest closing share price on Euronext | 15.61 | 19.28 | 27.21 | 47.72 | 48.81 |
| Lowest closing share price on Euronext | 10.30 | 10.34 | 13.86 | 9.07 | 35.24 |
| Year-end closing share price on Euronext | 12.99 | 14.55 | 15.06 | 17.26 | 43.32 |
| Average daily trading on Euronext (shares) | 786,522 | 750,484 | 940,270 | 1,133,414 | 475,733 |
| Information per share (x EUR 1.–) | 2017 | 2016 | 2015 | 2014 | 2013 |
| (Basic) earnings per share | (1.98) | (3.82) | (4.60) | (5.67) | 5.29 |
| Diluted earnings per share | (1.98) | (3.82) | (4.60) | (5.65) | 5.27 |
| Dividend paid out in the year under review | – | – | – | 1.50 | 2.00 |
Group
Divisional Financial Performance Performance Governance Report of the Supervisory Board
Other Information
Under the Dutch Financial Supervision Act, substantial holdings of 3% or more must be disclosed to the Dutch Authority for the Financial Markets (AFM).
| Position | Date notification | |
|---|---|---|
| Kiltearn Partners LLP | 10.25% | 13 March 2017 |
| NN Groep N.V. | 10.01% | 4 October 2016 |
| Sprucegrove Investment | ||
| Management Limited | 5.18% | 14 March 2013 |
| Fugro N.V. (treasury shares) | 4.20% 30 September 2014 | |
| Deutsche Bank AG | 3.63% | 6 November 2017 |
| Norges Bank | 3.57% | 15 March 2017 |
| BNP Paribas Asset Management | ||
| Holding | 3.02% 11 September 2017 |
On 31 December 2017, Fugro owned 3,613,347 of its own shares (treasury shares) which could be (partly) used to cover the employee option and share plans and (partial) conversion of the outstanding subordinated convertible bonds. Treasury shares are not entitled to dividend and there are no voting rights attached to these shares. See 'Corporate governance – corporate information – stock options and share plans' and note 5.31.1 of the financial statements for more information on Fugro's option and share plans.
| Treasury shares | 2017 | 2016 |
|---|---|---|
| Balance on 1 January | 3,628,347 | 3,628,347 |
| Purchased | – | – |
| Sold in connection with option exercise | – | – |
| Vesting of restricted shares | – 15,000 | – |
| Balance on 31 December | 3,613,347 | 3,628,347 |
| Granted, not exercised options at | ||
| year-end | 3,141,153 | 4,281,670 |
| Granted, not exercised performance | ||
| options at year-end | 565,544 | 623,589 |
| Granted, not vested performance shares | ||
| at year-end |
During 2017, Fugro has not been involved in any transaction with holders of at least 10% of shares in Fugro. This means that best practice provision 2.7.5 of the Code has been observed.
Fugro strives for a pay-out ratio of 35% to 55% of net result. Shareholders have the choice between cash or shares. In case no choice is made, the dividend will be paid in shares.
Fugro offsets dilution resulting from the optional dividend (cash or shares). Fugro will repurchase the number of shares issued as stock dividend and these shares will be cancelled after having obtained shareholder approval. This way, dilution is being offset while the tax advantage for a substantial part of the shareholders related to stock dividend is retained.
Due to the negative net result, Fugro has not paid a dividend since 2014 (over the year 2013) and will not propose to pay a dividend over the year 2017.
Fugro has a revolving credit facility in place with seven banks. On this 5-year facility of EUR 575 million, as per 31 December 2017 EUR 387 million has been drawn. The interest is EURIBOR plus 110 to 190 basis points, dependent on the level of net debt/EBITDA. The credit facility contains covenant requirements, most notably net leverage (net debt/EBITDA) of below 3.0 and fixed charge cover of above 1.8 (above 2.0 as per March 2018). With net debt/EBITDA of 1.9 and a fixed charge cover of 2.2 per 31 December 2017, Fugro is well within its covenants. See note 5.50.6 in the financial statements for details.
In October 2016, Fugro issued EUR 190 million in subordinated convertible bonds, maturing in 2021, and with a coupon of 4.0% and an initial conversion price of EUR 19.4416. The proceeds were fully used for early repayments on the private placement loans with US and UK investors (USPP notes) which were placed in 2002 and 2011, and carried a weighted average interest rate of around 5.7%. On 2 November 2017, Fugro issued a further EUR 100 million in subordinated convertible bonds. These bonds carry a coupon of 4.5% and an initial conversion price of EUR 14.9412. Again, the proceeds were fully used for early repayment on the USPP notes, which were fully redeemed
| Key figures | Message from the CEO |
Profile | Strategy |
|---|---|---|---|
Other
* Will be lower than EUR 290 million if bonds are (partly) converted into equity.
per year-end 2017. The bonds are trading on the Open Market (Freiverkehr) segment of the Frankfurt Stock Exchange (symbol: ISIN: XS1508771216 respectively XS1711989928).
The issue of the convertible bonds has resulted in additional headroom under the financial covenants, reduced interest expense and increased financial flexibility, as these bonds and related interest costs are excluded from the covenant ratios as described above. The shares underlying the bonds correspond to approximately 11.5% respectively 7.9% of Fugro's issued share capital.
Fugro offers the possibility to grant proxies, whether or not with voting instructions, by electronic means. Fugro also offers the holders of certificates of shares the possibility to issue voting instructions by using an internet e-voting system: www.abnamro.com/evoting. As the technology matures and becomes more trustworthy, Fugro will evaluate whether to facilitate the use of electronic means to cast votes during the meeting without being present in person or by proxy.
| Of which | |||
|---|---|---|---|
| Of which | shares held by | ||
| % of issued | certificates | Foundation | |
| capital1 | and shares | Trust Office2 | |
| EGM 2017 | 99 | 46 | 53 |
| AGM 2017 | Convertible bond 2017 - 2024* 99 |
56 | 43 |
| AGM 2016 | Convertible bond 2016-2021* 99 |
71 | 28 |
| AGM 2015 | Revolving credit facility 99 |
71 | 28 |
| AGM 2014 | 99 | 74 | 25 |
1Excluding own shares held by Fugro (treasury shares). 2 Foundation Trust Office votes on the shares for which certificates have been issued and on which shares the certificate holders do not vote themselves as representative of the Foundation Trust Office. For more information see 'Corporate governance - Foundation Trust Office' and 'Report of Stichting Administratiekantoor Fugro'.
| 26 April 2018 | Publication trading update first quarter 2018 (7.00 CET) |
|---|---|
| 26 April 2018 | Annual general meeting (The Hague Marriott Hotel, Den Haag, 14 CET) |
| 1 August 2018 | Publication half-year results 2018 (7.00 CET) |
| 26 October 2018 | Publication trading update third quarter 2018 (7.00 CET) |
| 25 February 2019 | Publication 2018 annual results (7.00 CET) |
| 26 April 2019 | Annual general meeting |
For further information contact Catrien van Buttingha Wichers Director Investor Relations +31(0)70 3115335 [email protected] [email protected]
Group
Divisional Financial Performance Performance Governance
Report of the Supervisory Board
Other Information
The Board of Management is responsible for the design and operation of the internal risk management and control systems. In discharging this responsibility, the Board of Management has made an assessment of the effectiveness of the design and operation of these systems.
Fugro is aware of risks it can be confronted with and has an internal control framework in place to identify and manage risks. The Board of Management has reviewed the effectiveness of Fugro's internal risk management and control systems, based upon the following information:
The management letter notes good progress in the company's change programs to decrease risks and increase efficiency and effectiveness of internal controls through centralisation and improving controls and monitoring. Points of attention for further improvement included the relatively informal culture at local level towards documenting control activities which is being addressed by the implementation of regional shared service centres.
The establishment of the internal risk management and control systems is based on the identification of external and internal risk factors that could influence Fugro's operational and financial objectives and contains a system of monitoring, reporting and operational reviews. All material risk management activities have been discussed with the audit committee and Supervisory Board. For more information on Fugro's risk management activities, internal control, risk management systems and key risks, see pages 57 to 64.
The purpose of Fugro's internal risk management and control systems is to adequately and effectively manage the significant risks to which it is exposed. Such systems can never provide absolute assurance as to the realisation of
operational and strategic business objectives, nor can they prevent all misstatements, inaccuracies, errors, fraud and non-compliances with legislation, rules and regulations. These systems do not provide certainty that the company will achieve its objectives.
Based on the annual evaluation and discussion of Fugro's internal control and risk management systems and identified risk factors, the Board of Management confirms, in accordance with best practice provision 1.4.3 of the Dutch corporate governance code as published on 8 December 2016, that, according to the current state of affairs to the best of its knowledge:
Furthermore, in view of the above, the Board of Management confirms, in accordance with article 5:25c of the Financial Supervision Act, that, to the best of its knowledge:
Leidschendam, 21 February 2018
P. van Riel, Chairman Board of Management/ Chief Executive Officer P.A.H. Verhagen, Chief Financial Officer
Divisional Financial Performance Performance Governance Other Information
Function Chairman Committee Chairman nomination committee Nationality Dutch First appointed 2012 Current term Until AGM 2020
Worked at ARCADIS as of 1975, from 1989 until 2000 in several senior management positions. From 2000 until May 2012 Chairman Executive Board and CEO of ARCADIS N.V.
Chairman Supervisory Board Royal BAM Group N.V., Extraordinary Board member Dutch Safety Board, Chairman Board Foundation Trust Office TKH Group
Function Vice-chairman Committee Chairman audit committee Nationality Dutch First appointed 2013 Current term Until AGM 2021
1977-2001 Several positions with Royal Dutch Shell Plc. From 2001 until 2008, CFO and vice-chairman of the Board of Management of Stork B.V.
Member Supervisory Board and chairman audit committee ARCADIS N.V. and SiF Group N.V., member Board Foundation Continuity ICT
Multitude of senior management positions at Schlumberger and CEO of Integra Group
Vice-chairman Board Basin Holdings, Executive director of National Energy Services Reunited Corporation
Group
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
Name Petri H.M. Hofsté (1961)
Committee Member audit committee Nationality Dutch First appointed 2015 Current term Until AGM 2019
Senior financial management positions at various organisations; partner at KPMG, group controller and deputy chief financial officer of ABN AMRO Bank, division director of the Dutch Central Bank and chief financial and risk officer of APG Group
Member Supervisory Board Rabobank, Kas Bank (Chair audit committee), Achmea B.V. and Achmea Investment management, member of the Board and Chair of the audit committee of Nyenrode Foundation
Name Anja H. Montijn (1962)
Committee Chair remuneration committee; Member nomination committee Nationality Dutch First appointed 2015 Current term Until AGM 2019
Various national and international leadership positions at Accenture, ao managing director Resources practice in France and Benelux, Country Managing Director Accenture the Netherlands, Global Managing Director Management Consulting Resources
Other functions Non-executive director at OCI N.V.
Name Douglas J. Wall (1953) Committee Member audit committee Nationality American/Canadian First appointed 2014 Current term Until AGM 2018
President and CEO of Patterson-UTI Energy, Group President of completions and production at Baker Hughes, variety of executive positions with other oilfield services companies in Canada
Other functions Director of Select Energy Services, LLC
Company secretary Wouter G.M. Mulders (1955)
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
The year 2017 was again a difficult year for Fugro with disappointing results. For the fourth consecutive year, the company had to deal with the downturn in the oil and gas market. After revenues already declined by 25% in 2016, in 2017 revenues went down by another 16%, showing how strongly Fugro has been hit by this unprecedented downturn. In the infrastructure, buildings and renewables markets, Fugro was able to expand its business, but not sufficiently to compensate for the decline in the oil and gas business. At the end of 2017, we began to see signs of stabilisation of the oil and gas market. When this market starts improving, Fugro can reap the benefits of the cost reduction and performance improvement measures that it has taken in the recent past. But for the time being, we remain cautious.
In view of the continued pressure on revenues, the most important subject in our discussions with management was how to weather the storm and how to prepare the company for a future that anyhow will be different from what the company has been used to, also when the oil and gas market recovers. We believe that management has taken the right actions by building a more client centric organisation and continuously reducing costs, lowering working capital, curtailing investments and divesting non-core assets. Despite all of these measures, for the first time since the downturn began, Fugro had to report a negative EBIT before exceptional items, mainly caused by strong price pressure in the oil and gas market. We also noted that cost reductions become increasingly difficult as Fugro wants to retain good people and continue to deliver high quality services globally. We support management's initiatives to enhance Fugro's commercial capabilities by focusing on value propositions for clients. That will strengthen the company's competitiveness and have a positive impact on its market position.
We regularly discussed with the Board of Management the financial condition of the company and the near-term outlook. As the downturn lasted longer than expected, we agreed with management's proposal to issue – as a matter of financial prudency – another subordinated convertible bond which was placed successfully in November 2017, for an amount of EUR 100 million. This resulted in additional headroom under the financial covenants. At year-end 2017, the net debt to EBITDA ratio under these covenants came out at 1.9, well below the maximum level of 3. We fully agree with management that
restoring profitability, steering on cash flow and reducing net debt are key priorities for 2018.
In February 2017, we noted Boskalis' announcement that it had sold its remaining stake in Fugro, after it had already reduced its shareholding to 9.36% by the end of 2016. This closed a chapter in which both the Board of Management and the Supervisory Board had to spend a lot of time and effort defending the importance of Fugro's ability to provide its services independently, which is fundamental to the success of the company and a key pillar of its strategy.
This annual report includes the 2017 financial statements, which are accompanied by an unqualified independent auditor's report of Ernst & Young Accountants LLP (see the independent auditor's report starting on page 183). These financial statements were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and section 9 of Book 2 of the Dutch Civil Code.
On 20 February 2018, the audit committee discussed the draft financial statements with the CFO and the auditors. The audit committee also discussed the management letter and the long form auditor's report, the quality of internal risk management and control systems and had a discussion with the auditor without Fugro's management being present.
On 21 February 2018, we discussed the annual report, including the 2017 financial statements, with the Board of Management in the presence of the auditor. Furthermore, we took note of the reporting from the audit committee and reviewed the independent auditor's report and the quality of internal risk management and control systems. We concluded that we agree with the 2017 financial statements.
We recommend that the annual general meeting (AGM), to be held on 26 April 2018, adopts the 2017 financial statements. In addition, we request that the AGM grants discharge to the members of the Board of Management in office in the 2017 financial year for their management of the company and its affairs during 2017, and to the members of the Supervisory Board in office for their supervision over said management. We concur with the decision of the Board of Management that due to the negative net result no proposal will be submitted to pay a dividend for 2017.
Underwater survey by remotely operated vehicle for meteorological mast, Ninepin Island, Hong kong.
We consider health and safety of critical importance for Fugro and its people. We start each regular meeting with the Board of Management with a discussion on safety. In 2016 we had seen a decline in safety performance compared to the previous year and we had noted that many in the industry are experiencing a levelling off in the rate of improvement of safety indicators. In 2017 we regularly discussed the various measures taken by management to improve safety performance. Despite these measures, safety performance did not improve, but remained more or less at the same level compared to 2016. Unfortunately, Fugro suffered one fatality during maintenance work which we extensively discussed with management. This was a tragic accident and we supported the care and the actions taken. This incident illustrates that safety awareness need to be top of mind. We support management's drive to continuously increase safety awareness,
In our view, the levelling off of safety performance, not only in Fugro but in the industry in general, cannot be isolated from the current market circumstances. The strong price pressure leads inevitably to pressure on projects and people and results therefore in additional risks regarding safety. Of course, this should not be the case, as safety comes first, but in reality, these additional risks are unavoidable as people have to perform their job within restricted budgets causing pressure on time and resources. We therefore support management in their efforts to address this issue with clients as safety is a common responsibility of clients and service providers. Rewarding safety performance within tendering processes would certainly help in reducing safety risks in projects.
Fugro's strategy Building on Strength, introduced in 2014, was developed to deal with the deteriorating market circumstances in the oil and gas market. It means that the company focuses on its core activities where it has global market leading positions as an independent service provider and historically a track record of solid operational and financial performance.
Already for several years, part of the subsea activities was earmarked as non-core but divesting turned out to be difficult under the present market circumstances. We were pleased that in November 2017 Fugro was able to close an agreement regarding the divestment of the trenching and cable laying business. Although this was not a cash deal, we approved it as it valued the business at a reasonable price and gave Fugro an equity stake in a more diversified cable installation and maintenance company and a role as preferred services provider. With this transaction and the subsequent early termination of the long-term charter agreements for the two remaining installation and construction vessels, the divestment of the heavier construction and installation support part of Fugro's subsea activities has been completed. The remaining part of these activities has been integrated in the Marine division.
We regularly discussed Seabed Geosolutions, which had a difficult year. The investments in new technology that we had approved after lengthy discussions with management, should bring the company again at the forefront in its market. We support management's intention to eventually reduce Fugro's exposure in Seabed Geosolutions. Further consolidation would be the logical answer to the need for investments and the cyclical nature of this market.
from the CEO Profile Strategy
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Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
We agree with the Board of Management that given the still increasing demand for oil and gas and the depletion of existing resources, at a certain point in time the oil and gas market will recover. However, in the longer run, that market will decline because of the shift to renewable energy. That shift is strongly promoted by many governments and others because of climate change and the need to reduce CO2 emissions. We had several discussions with management on the potential consequences for Fugro's strategy and agreed that growing the business outside oil and gas is an important priority for the future. This will be high on our agenda in the coming years. We also discussed Fugro's long-term value creation model, which is explained in the report of the Board of Management.
As of 2017, Fugro's geotechnical, survey and subsea activities have been regrouped in a Land and in a Marine division with two business lines per division: Site Characterisation and Asset Integrity. The goal is to create better conditions for internal synergies and to improve Fugro's ability to deliver integrated service packages to clients. Management kept us appraised of progress with the implementation and informed us that the new structure is meeting expectations and has been received well, both internally by staff and externally with clients.
In December 2016 a revised version of the Dutch corporate governance code ("Code") was published. We were informed on the Code and we discussed the various changes. The overall conclusion was that Fugro's governance was already broadly in line with the new Code. During the year, the relevant governance documents and processes were updated, including, among others, the rules governing the internal proceedings of the Board of Management and of the Supervisory Board, the profile of the Supervisory Board, the charters of the Supervisory Board committees, the charter of internal audit and the risk management framework. A diversity policy was drafted which we discussed and agreed upon. For further information on the new Code we refer to the chapter on corporate governance.
During 2017, the Supervisory Board met nine times jointly with the Board of Management. Six regular scheduled meetings were held, all of which were preceded or concluded by internal meetings without the Board of
Management being present. In addition, three extra meetings were held, partly by conference call. None of the Supervisory Board members was frequently absent from the Supervisory Board meetings. When necessary or useful, the Chairman was outside of the meetings in regular contact with his colleagues, the CEO and other members of the Board of Management and the company secretary.
| attendance record | SB | AC | RC | NC |
|---|---|---|---|---|
| Harrie Noy | 9/9 | - | 5/5 | 5/5 |
| Maarten Schönfeld | 7.5/9 | 5/5 | - | - |
| Antonio Campo | 9/9 | - | 5/5 | 5/5 |
| Petri Hofsté | 9/9 | 5/5 | - | - |
| Anja Montijn | 9/9 | - | 5/5 | 5/5 |
| Douglas Wall | 9/9 | 5/5 | - | - |
The Chairman acts as the first point of contact within the Supervisory Board for the CEO. By way of preparation, many subjects are discussed in advance in one of the three permanent Supervisory Board committees. The Supervisory Board receives all the meeting documents and the minutes of the meetings of the three committees. The Board of Management is an important source of information for the Supervisory Board. It is supplemented with information from the external auditor, from internal audit and from presentations and discussions with corporate directors and with regional management and staff in meetings and during site visits. The Supervisory Board receives monthly reports on the company's financial performance. Information is also provided outside meetings, in bilateral contacts or whenever a Supervisory Director feels the need to be informed on a specific topic.
Some members of the Supervisory Board attended part of Fugro's annual 'May managers meeting', at which senior management discussed, among others, strategic priorities of the various business lines, market conditions and improvements of operational and financial performance.
In the regular scheduled meetings, the recurring items on the agenda were, among others, market developments, financial performance and forecasts per division and for Fugro as a whole, developments in the regions, the quarterly press releases, organisational developments, internal control and risk management and compliance. On a regular basis, we were informed on investor relations including feedback
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Report of the Supervisory Board Financial Statements Other Information
from road shows, share price developments and the composition of the shareholder base. The meeting reports of the audit committee, the nomination committee and the remuneration committee were also discussed.
Throughout the year we paid a lot of attention to Fugro's financial position. Topics such as business development, cost reduction, capex, working capital, cash flow, financial scenario's and their impact on Fugro's financial headroom under its covenants, were intensively considered and discussed.
Next to the regular agenda items and insofar as not already mentioned above, we discussed, among others, the following items:
In a conference call in January we discussed the budget for 2017. We had some feedback and it was decided to discuss an adjusted budget in the regular February meeting.
In our regular February meeting the annual results 2016 and related items were discussed. The external auditor (EY) attended the financial topics. We also discussed the outcome of an internal risk assessment workshop in which the board of Management had participated. The annual report 2016 and the draft agenda for the 2017 AGM were approved. We also approved the remuneration report and the proposal of the remuneration committee to adjust the remuneration policy for the Board of Management. We decided to propose the external auditor (EY) for reappointment. We received an update on security measures for working in high risk countries. We also received a presentation on the HSSE performance in 2016 and discussed the key actions for 2017. We received an update on compliance including updated policies regarding prevention of fraud, conflict of interest, fair competition, confidential information, disciplinary measures, the speak up procedure and the policy regarding agents including an overview of the requirements for entering into agent agreements or similar relationships. We approved the budget for 2017. In an internal meeting, we discussed and approved the proposal of the remuneration committee regarding the remuneration and the bonus 2016 for the members of the Board of Management and the bonus criteria for 2017.
In May we discussed the first quarter results. We received a presentation on an action plan of the Marine division in view of the ongoing difficult market circumstances. Based on a
presentation we discussed sustainability and the roadmap for 2017. In view of the market circumstances we suggested to prioritise the actions. We also prepared for the 2017 AGM.
In August, the half-yearly report 2017 was discussed and approved. The external auditor (EY) attended the financial part of the meeting. We approved the potential sale of the trenching business subject to the outcome of due diligence. We had extensive discussions on covenant scenarios and various contingencies were considered to improve financial headroom. In a separate dinner meeting we had an open discussion with the Board of Management on the present situation and concluded that although the oil and gas market will recover, the situation that Fugro was used to before the crisis started, will never come back. With that in mind, we asked the Board of Management to prepare a follow up discussion in our September meeting.
In September, we had a three-day 'off-site' meeting in the Netherlands in combination with a visit to Fugro's 'innovation fair' in Rotterdam. We had in-depth discussions on issues relevant to overcome the present downturn and to prepare the company for the future. In addition, management of the European operating companies gave presentations on, among others, market developments, competitive position and plans for the future. The visit to the 'innovation fair', organised for clients, offered us useful insights into various innovation initiatives and the latest technology developments. It also offered us an opportunity to meet with clients. These visits with operating companies and meetings with senior management and staff take place annually and we highly value them because it gives us a better view on local operations, management and key employees.
In an internal part of the September meeting we discussed the composition of the Board of Management and the intention to nominate Mr. Øystein Løseth for appointment as member of the Board of Management and as successor of Paul van Riel after his retirement at the AGM in 2018. In a conference call at the end of September, we were informed on the due diligence outcome regarding the sale of the trenching business and we discussed different financial scenarios prepared by the Board of Management.
In October, we discussed the third quarter results. We also discussed the issue of a subordinated convertible bond and gave the Board of Management the green light to continue the process. We decided to hold an extraordinary meeting of shareholders in December with the purpose to have Øystein
Dimensional control of the spools for deepsea offshore project, Porto Amboin, Angola.
Løseth appointed as member of the Board of Management. We were informed on the post-acquisition analysis of RailData and discussed lessons learned.
In a conference call at the end of November we discussed the preliminary budget for 2018. We emphasised the necessity of generating positive cash flow and a reduction of net debt. In December, we approved the annual budget and the operational plan for 2018. The corporate director human resources gave a presentation with a focus on succession planning and talent identification. We concluded that good progress had been made, but that additional efforts are needed to build a solid pipeline of potential successors for senior management positions. Based on a presentation of the corporate director IT, we discussed progress regarding the upgrading of IT, including cyber security issues. Management responsible for the Roames business presented a post-acquisition analysis and we discussed lessons learned.
The Supervisory Board has three permanent committees from amongst its members: an audit committee, a nomination committee and a remuneration committee, to which certain tasks are assigned. The function of the committees is to assist the Supervisory Board and to prepare the decision-making. The chairman of each committee reports the main considerations, findings and recommendations to the full Supervisory Board.
The audit committee consists of three members, Mr. Maarten Schönfeld (chairman). Mrs. Petri Hofsté and Mr. Douglas Wall. All members are independent pursuant to best practice provision 2.1.8. of the Code. Collectively the members possess the required experience and financial expertise. At least two members have specific expertise in financial reporting and in the reviewing of financial reports.
The audit committee met five times in 2017. All meetings were attended by the CFO, the head of internal audit and the external auditor. In the meetings in which the annual results and half-year results were discussed, also the CEO was present. The chairman of the audit committee had regular contact with the CFO to discuss financial performance, risks and any other matters.
The chairman and also the full audit committee had a closed meeting with the head of internal audit. Among others, the performance and independence of internal audit and its members were discussed and evaluated. Conclusions were positive.
Recurring items on the audit committee agenda were, among others, the annual financial statements and the quarterly and half-yearly results, risk management and control, the internal audit plan, internal audit reviews, management letter and reports of the external auditor, pensions, taxation, insurance, IT (including cyber security and the phased roll out of a global IT system for commercial, finance, procurement and project management), treasury, developments in IFRS regulations, claims and disputes, compliance, bank covenants and financing, planning of the external auditor, follow-up group audit management letter, working capital, and the annual budget. Many of these topics were presented by the responsible managers.
In August, we assessed the follow-up to the group management letter 2016. It was concluded that the follow-up was adequate and that some actions were
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
pending. In May, an update was received from the auditor with respect to materiality, scoping and planning, and an overview of the preliminary key audit matters. It was noted that materiality amounted to EUR 10 million and that there were no significant changes in scoping.
Furthermore, the functioning of the internal risk management and control system and specific risk areas, such as hedging and fluctuations in currency exchange rates were discussed, as was the finance roadmap (improvement and strengthening of the financial processes and the financial organisation) and compliance/due diligence processes on agents. Regarding the finance roadmap, discussions were focused on the standardisation of management information systems and the results of pilot projects that were undertaken in 2016.
Considerable time was spent on bank covenant scenarios, (possible) impairments and other one-offs, the placement of a subordinated convertible bond and on capex.
Throughout the year the key audit matters as identified by the auditor were reviewed and discussed. These included: changes in internal reporting structure resulting in re-identification of reporting segments and allocation of goodwill to groups of CGUs, sensitivities and estimates with respect to the valuation of goodwill, vessels and other operational equipment, revenue recognition, project accounting and valuation with respect to unbilled receivables and trade receivables including onerous contracts and legal contingencies, availability of finance and compliance with debt covenant requirements, continued compliance with regulatory requirements, litigation and claims and disclosure of held-for-sale and discontinued operations following planned restructuring exercises.
At the AGM on 2 May 2017, Ernst & Young Accountants LLP (EY) was reappointed as external auditor to audit the financial statements for 2018. At the upcoming AGM on 26 April 2018, it will be proposed to reappoint EY to audit the financial statements for 2019.
The members of the nomination committee are Mr. Harrie Noy (chairman), Mr. Antonio Campo and Mrs. Anja Montijn.
In 2017, the committee met five times, mostly with the CEO and the corporate director human resources being present. The committee also met informally on several occasions. The recurring topics that were discussed included, among others, global human resources management, succession planning, leadership competencies, (re)appointments, annual assessment of the Board of Management and its individual members and the process for self-assessment of the Supervisory Board. A lot of time was spent on the selection process for a successor of Mr. Paul van Riel as CEO of the company. The committee made recommendations to the Supervisory Board regarding the reappointment of Maarten Schönfeld to the Supervisory Board and the appointment of Øystein Løseth to the Board of Management. The committee also discussed diversity within the company (including Supervisory Board and Board of Management).
The members of the remuneration committee are Mrs. Anja Montijn (chair), Mr. Harrie Noy and Mr. Antonio Campo.
In 2017, the committee met five times, mostly with the CEO and the corporate director human resources being present. Discussed were, among others, the remuneration report 2016, the annual bonus for the members of the Board of Management with respect to 2016 and the bonus targets for 2017, adjustment of the remuneration policy, the grant and allocation of performance shares following the adoption by the AGM on 2 May 2017 of the adjustments to the remuneration policy and the calculation method of internal pay-ratio's. Please refer to the remuneration report starting on page 93 for further details.
The Supervisory Board has formulated a profile defining its size and composition, taking into account the nature of the company and its activities. The Supervisory Board has set the number of members of which the Supervisory Board shall consist at this moment at six. The current composition of the Supervisory Board (four men, two women) is in compliance with the requirement of at least 30% of each gender. The profile was updated in 2017 but no major changes were made. The composition of the Supervisory Board with the mix of knowledge, skills, experience and expertise of its members, is such that it fits the profile and strategy of the company and also fits the diversity policy (see page 73 of this annual report). Gender diversity is an important consideration in the selection process for Supervisory Board members. However, when considering
Other Information
vacancies, quality, expertise, experience, independence and nationality are equally important.
In the AGM held on 2 May 2017, Maarten Schönfeld, was reappointed for his second four-year term. He continued to be the vice-chairman of our board.
At the end of the upcoming AGM on 26 April 2018, the first four-year term of Antonio Campo and Douglas Wall will expire. Based on their valuable contribution in the past years, the Supervisory Board has decided to nominate them both for reappointment as members of the Supervisory Board.
The Supervisory Board attaches great importance to the independence of its members. All members of the Supervisory Board qualify as independent in the meaning of best practice provisions 2.1.7 to 2.1.9 inclusive of the Code. They do not carry out any other functions that could jeopardise their independence. The Supervisory Board members also comply with the requirement under section 2:142a of the Dutch Civil Code that they do not hold more than five supervisory board positions (including non-executive directorships at one tier boards) at certain "large" (listed) companies or entities. For the current composition of the Supervisory Board and its committees, please refer to pages 83 to 84 of this annual report.
The Supervisory Board undertakes a board self-evaluation on an annual basis. Once every three years an external, independent consultant is engaged to assist in the self-evaluation. As this was done in February 2017, we conducted the self-evaluation this year based on a questionnaire, which was completed by each Supervisory Board member and plenary discussed in an internal meeting. Attention was paid to the composition of our board, the functioning of our board and its three committees, the interaction with the Board of Management and lessons learned from certain events. The main conclusion of this process was that the Supervisory Board is operating well and that discussions are open and constructive. The Supervisory Board consists of a good mix of competencies and experienced professionals. Several suggestions were made for further improvement. These suggestions relate, among other things, to paying more attention to permanent education, contacts with clients, spending more time on long term strategy including developments in digitisation and the impact on Fugro,
continued focus on management development and succession planning and timely distribution of information.
At the beginning of 2017 it had been decided to reduce the size of the Board of Management, as a logical consequence of the reduction in the number of divisions. Steve Thomson was therefore not nominated for reappointment at the AGM on 2 May 2017.
As announced on 16 October 2017, Fugro's current CEO, Paul van Riel, will retire as planned at the end of his term at the upcoming AGM on 26 April 2017. He will be succeeded by Øystein Løseth who was appointed to the Board of Management as of 1 January 2018 by the EGM on 14 December 2017. We want to thank Paul for what he has done for Fugro and particularly for leading Fugro through one of the most difficult periods in its history. Under his leadership Fugro has been able to weather the unprecedented downturn in the oil and gas market while maintaining its strong market positions as independent services provider. We are pleased that with Øystein Løseth we have found a seasoned leader, with solid experience in the oil and gas market and a broader scope facilitating Fugro's ambitions to further extend its business outside oil and gas.
At the end of the upcoming AGM on 26 April 2018, the four-year term of Fugro's CFO, Paul Verhagen, will expire. In view of his performance and contribution to Fugro in the past four years, the Supervisory Board decided to nominate Paul Verhagen for reappointment for a four-year term.
The Supervisory Board evaluated the performance of the Board of Management and its members individually with input from the CEO. Following this, the nomination committee met with each member of the Board of Management and gave feedback on personal performance. Also, the personal targets for 2017 were evaluated and the functioning of the Board of Management as a team was discussed. The conclusions were discussed in an internal meeting of the Supervisory Board.
The size and composition of the Board of Management and the combined experience and expertise fit the profile and strategy of the company. The current composition meets the diversity criteria regarding age, nationality and background, but not regarding gender. See also pages 54 to 55 of this
Terrestial laser scan of bridge for lightrail traffic, IJburg, The Netherlands.
report. When vacancies arise, we will take gender diversity (again) into account, besides other criteria such as quality, expertise, experience and fit with the team. Equally important is the identification of female talent throughout the organisation and offering them development opportunities to grow into more senior management roles.
For the current composition of the Board of Management and information about its members, please refer to pages 83 to 84 of this annual report.
Also last year, the continuing challenging oil and gas market has put considerable pressure on everybody in Fugro. Nevertheless, in our contacts with people in the organisation, we have experienced a strong dedication to the work we do for clients and a strong commitment to Fugro. This dedication and commitment are critical in weathering the current storm. We want to thank management and all employees for their contribution in this respect. With all the measures taken, the excellent people that Fugro has and the technical capabilities and innovations that we bring to our customers, Fugro is well positioned to benefit from a recovering oil and gas market and to grow its business outside this market.
Leidschendam, 21 February 2018
Harrie Noy, Chairman Maarten Schönfeld, Vice-chairman Antonio Campo Petri Hofsté Anja Montijn Douglas Wall
Group
Divisional Financial Performance Performance Governance
This remuneration report has been prepared by the remuneration committee of the Supervisory Board. The responsibility of this committee is to prepare the decision-making of the Supervisory Board regarding the remuneration policy and the determination of the remuneration of individual members of the Board of Management within the framework of the remuneration policy and it assists and advices the Supervisory Board in this respect. The Supervisory Board is responsible for the implementation. The members of the remuneration committee are Anja Montijn (chair), Antonio Campo and Harrie Noy.
This remuneration report contains:
Further information on remuneration and on option and share ownership of members of the Board of Management is available in note 5.61.2 of the financial statements in this annual report, while note 5.61.3 contains more information on remuneration of the Supervisory Board members. The remuneration policy and the remuneration committees' charter, which is included in the Supervisory Board's rules, are posted on Fugro's website.
The main objective of Fugro's remuneration policy is to attract, motivate and retain qualified management that is needed for a global company of the size and complexity of Fugro. The members of the Board of Management are rewarded accordingly. The remuneration policy aims at compensation in line with the median of the labour market reference group. Variable remuneration is an important part of the total package. The policy supports both short and long-term objectives, whereas the emphasis is on long-term value creation for Fugro and its stakeholders.
The current remuneration policy was first adopted by the AGM in 2014 and has since been adjusted twice, most recently by the AGM in 2017. When preparing the
adjustments of the remuneration policy in 2017,
the Supervisory Board considered (where applicable) the aspects as formulated in best practice provision 3.1.2 of the Code. The adjustments concerned:
The remuneration policy will be reviewed once every three years to verify its market conformity, potentially leading to adjustments. The last review took place at the end of 2016/ beginning of 2017. The last review took place in 2017 and the next review will in principle take place in 2020.
In preparing the remuneration policy and to determine the remuneration of the members of the Board of Management, the remuneration committee uses external benchmark information to assess market comparability of the remuneration. The labour market reference group consists of 14 Dutch listed companies of comparable scope with international/ global business activities. These are: Aalberts Industries, Accell Group, Aperam, Arcadis, ASM International, BAM Group, Boskalis, Brunel, Refresco, SBM Offshore, TKH Group, TomTom, Vopak and Wolters Kluwer. In addition, an international group has been used to assess market competitiveness within the sector, especially regarding short and long-term incentive levels
The Supervisory Board will periodically evaluate the composition of the labour market reference group, among others, in light of corporate events. Companies removed from the reference group will be replaced by other listed companies of comparable scope with international/global business activities.
When formulating the remuneration policy, the pay ratios within Fugro are taken into consideration. In 2017 an independent external consultant was requested to review and analyse internal pay ratios and to provide the internal pay ratio between the CEO and the average of the employees for the year 2017. Based on the value of the actual long-term incentive awarded to the CEO in 2017,
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Report of the Supervisory Board Other Information
Fugro had a pay ratio of 13 (2016: 14), implying that the CEO pay was 13 times the average pay within the organisation. The average pay takes into account all employee costs, i.e. salaries, variable pay, pensions and other benefits. Based on the expected value of the CEO long-term incentive at target vesting, the pay ratio would have been 23 (2016: 22).
In the design of the remuneration policy and in determining the remuneration of the members of the Board of Management, the Supervisory Board takes into account possible outcomes of the variable remuneration elements and how they may affect the remuneration. The level and structure of the remuneration are designed by taking into consideration these scenario analyses, internal pay differentials, development of the market price of the Fugro shares and the performance indicators relevant to the long-term objectives of the company, as included in the strategic agenda. The remuneration structure and elements do not encourage risk taking that is not in line with Fugro's strategy and risk appetite. The remuneration committee takes note of individual Board of Management members' views with regard to the amount and structure of their own remuneration.
The Supervisory Board encourages the Board of Management to hold shares in Fugro to emphasise their confidence in Fugro and its strategy. Since 2014 minimum share ownership guidelines are applicable. For the CEO this amounts to 250% of fixed base salary and for the other members of the Board of Management this amounts to 125% of fixed base salary. The build-up period equals 5 years.
Pursuant to section 2:135 paragraph 6 of the Dutch Civil Code, the Supervisory Board is authorised to adjust a variable remuneration component to an appropriate level if payment of that variable remuneration component would be unacceptable according to standards of reasonableness and fairness. Pursuant to section 2:135 paragraph 8 of the Dutch Civil Code, Fugro is authorised to claw back a variable remuneration component in full or in part to the extent the payment was made on the basis of incorrect information with respect to the achievement of the targets on which the variable remuneration component was based or with respect to the circumstances on which this variable remuneration component was dependent.
The remuneration of the Board of Management consists of the following four elements:
The principles of the remuneration policy are cascaded to the next senior management level.
Fixed base salaries of the members of the Board of Management are determined by the Supervisory Board (based on advice of the Remuneration Committee) and set in line with the median of the labour market reference group. Once a year, the Supervisory Board determines whether, and if so, to what extent the base salaries will be adjusted. At least once every three years, the outcome of external benchmarking by an independent consultant is taken into consideration. In view of market developments and Fugro's performance, base salaries have not been increased since 2015.
Each member of the Board of Management is eligible for an annual bonus. The bonus may vary from 0% to 100% of fixed base salary, with 67% being applicable when targets are achieved. The STI is linked to financial targets (75%) and to non-financial (personal) targets (25%). The non-financial targets give the possibility to include health and safety, corporate social responsibility, personal development goals, etc. into the bonus program.
At the beginning of each financial year, the Supervisory Board will set the targets, based on the budget and taking into account the strategy aspirations. In respect of the financial targets, three to four financial metrics will be selected from the following list:
from the CEO Profile Strategy
Modeled network visualisation of power lines.
The Supervisory Board will also determine the relative weighting for the selected financial metrics and the applicable performance zones for each target (financial and non-financial). These performance zones determine: (i) the performance level below which no pay-outs are made; (ii) the performance level at which 100% pay-out is made; and (iii) the performance level at which the maximum pay-out of 150% is made. There will be no overshoot possibility for the non-financial targets. The maximum multiplier for the financial targets is therefore 1.67. The Supervisory Board ensures that the targets are challenging, realistic and consistent with Fugro's strategic goals. Achievement of the targets is determined by the Supervisory Board and the bonus, if any, is paid after adoption by the AGM of the financial statements.
To strengthen the alignment with shareholder's interests, the LTI consists of performance-related shares which are conditionally granted annually to members of the Board of Management (and to other senior management). These shares vest after three years, conditional on the achievement of predetermined targets, which are focused on long-term value creation. Vesting is also subject to continuous employment with exceptions in connection with retirement, long-term disability and death.
The number of granted performance shares is set for a period of three years. The principle being that the expected value as percentage of fixed base salary of the members of the Board of Management is as follows: CEO 100%, CFO 90% and other members 80%. As the previous three-year period was finished in 2017, a new three-year period will start with the granting early 2018.
Grants under the LTI are made in the open period immediately following the publication of the annual results. The performance period is from 1 January of the year of granting to 31 December three years later. The next grant will be at the beginning of March 2018 (after publication of the 2017 annual results), with the number of conditionally granted performance shares being based on the average share price of the Fugro shares in the last quarter of 2017.
The maximum number of shares that can vest after three years equals 175% of the conditionally granted number of shares (only in the case that maximum performance is achieved on all criteria). The criteria used for vesting and their relative weight are as follows:
TSR is defined as the share price increase, including reinvested dividends. TSR is measured over a three-year (calendar year) period based on a three-month average of the last three months of the year before grant and before vesting date. The relative position within the peer group determines the award level. The composition of the peer group is evaluated on a yearly basis, amongst others, in light of corporate events, and comprises of: Arcadis, Boskalis Westminster, Core Laboratories, Fluor, John Wood Group, Oceaneering International, Schlumberger, Subsea 7, TechnipFMC, Transocean and WorleyParsons.
from the CEO Profile Strategy
Group
Divisional Financial Performance Governance Report of the Supervisory Board Other Information
The Supervisory Board will set each year at granting the performance criteria with respect to ROCE, taking into account the ROCE target for the year of vesting. Return will be based on NOPAT, excluding impairments; capital employed will be corrected for impairments (these will be set back when applying the vesting criteria).
7 25% 8-12 0%
The strategic target has been added as strategic targets are an important driver for long-term value creation. Each year at granting, the Supervisory Board will set a strategic target to be achieved in the coming three-year period. These targets will be derived from Fugro's strategy to create long-term value for its shareholders and other stakeholders. Examples would be a target related to Fugro's long-term goal to develop more business opportunities outside the oil and gas market or a target related to new business development based on innovative technology.
Achievement of the performance targets is determined by the Supervisory Board in the first quarter of the year following the three-year performance period. The vesting period starts at the first day following the grant date. Vested shares have a holding (lock-up) period of 2 years and may be partly sold only to meet tax requirements at vesting. The holders of performance shares are not entitled to shareholders' rights, including the right to dividends, during the period between granting and vesting.
The pension contribution for the members of the Board of Management is in line with market practice. In accordance with Dutch law, tax deductible pension accruals are only possible for the part of salary up to EUR 103,317 (2017). Members of the Board of Management are compensated by a non-tax deductible, age dependent pension contribution, which allows building up pension out of net salary, resulting
in pension costs for Fugro at a similar level as before the legislative changes per 1 January 2015.
The fringe benefits of the members of the Board of Management are commensurate with the position held and include expense and relocation allowances, a company car and health and accident insurance.
Fugro does not grant loans, advance payments or guarantees to members of the Board of Management.
In 2017 (as well as in 2016 and in 2015), fixed base salary of the members of the Board of Management was not increased.
Based on input from the remuneration committee, in February 2017, the Supervisory Board discussed the achievement of the targets and the grant of bonuses to the members of the Board of Management. The Supervisory Board concluded – also based on advice of the Board of Management itself – that rewarding bonuses based on the performance of Fugro in relation to the financial targets set for the year, would result in bonuses that would not be justifiable, given the negative earnings per share and the still difficult market circumstances that Fugro is experiencing. In view of what has been achieved in 2016 despite these difficult circumstances, the Supervisory Board decided to grant a bonus based on achievement of 100% of the personal targets, leading to a bonus of 16.7% of base salary. In addition, 5% of base salary was added to reward the strong performance in working capital, resulting in a total bonus pay-out of 21.7% of base salary.
On 21 February 2018, the Supervisory Board discussed the achievement of the targets and the grant of bonuses to the members of the Board of Management. The financial metrics applied for the STI in 2017 were adjusted EBIT margin (weight 35%), working capital percentage (weight 20%) and adjusted cash flow (weight 20%). In view of the overall financial performance, the Supervisory Board, based on the advice of the remuneration committee, decided that no bonus will be paid on the financial targets. As the personal (non-financial) targets were met, the Supervisory Board decided to pay 16.7% of base salary to the eligible members
Performance
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
of the Board of Management. The Supervisory Board will propose to the AGM on 26 April 2018 to pay the bonus amounts in a fixed number of restricted shares in Fugro (based on a share price of EUR 12 per share) on 1 May 2018 as follows: Mr. Van Riel 8,300 shares, Mr. Verhagen 6,250 shares, Mr. Heine 6,250 shares and Mr. Bouffard 6,250 shares. The shares will have a vesting period of 3 years and
thereafter a holding (lock-up) period of 2 years. An exception is made for Mr. Van Riel who will retire after the AGM. His shares won't have a vesting period, but a holding (lock-up) period of 3 years. Further details will be available in the explanatory notes to the agenda for the AGM on 26 April 2018.
| Remuneration overview | P. van Riel | P.A.H. Verhagen CFO |
B.M.R. Bouffard Director Land division |
M.R.F. Heine Director Marine division |
S.J. Thomson | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| CEO | ||||||||||
| (x EUR) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 3 | 2016 |
| Fixed base salary | 600,000 | 600,000 | 450,000 | 450,000 | 450,000 | 339,3121 | 450,000 | 450,000 | 160,086 | 450,000 |
| Short-term incentive (STI) 2 | 99,600 | 130,200 | 75,000 | 97,650 | 75,000 | 73,630 | 75,000 | 97,650 | n/a | 97,650 |
| Pension costs including | ||||||||||
| disability insurance and | ||||||||||
| related costs | 43,129 | 41,315 | 59,032 | 42,362 | 43,385 | 34,057 | 43,505 | 27,335 | 50,481 | 34,268 |
| Pension compensation | 98,847 | 95,135 | 75,936 | 75,708 | 65,605 | 40,674 | 59,618 | 58,545 | 53,216 | 89,908 |
1 Mr. Bouffard joined Fugro as of 15 March 2016 and was appointed to the Board of Management as of 29 April 2016. The information shown above covers the period as of 15 March 2016. 2 STI 2016, paid in 2017; subject to AGM approval, STI 2017 will be paid in a fixed number of restricted shares on 1 May 2018, based on a price of EUR 12 per share. See text above this table for further details. 3 Mr. Thomson was not nominated for reappointment and stepped down from the Board of Management on 2 May 2017. His management services agreement ended on 31 July 2017. Mr. Thomson was entitled to a severance compensation equal to one year's fixed gross salary (EUR 450,000). This amount was paid in August 2017.
Until 2014, the LTI for the members of the Board of Management and other senior management consisted of unconditional options with a vesting period of three years and a lifetime of six years. As of 2014, the LTI consisted of a mix of performance shares and performance options. These have been awarded per 31 December 2014, 2015 and 2016. As of 2017, the form of conditional awards has been changed – in line with market practice – from a mix of performance shares and performance options to conditional awards in the form of performance shares only. Furthermore, the moment on which LTI grants are made has been shifted
to the open period immediately following the publication of the annual results, instead of as per 31 December. As a result, the awards at the end of 2017 have been shifted to 1 March 2018. These changes as of 2017 have been approved by the AGM in 2017.
The following table shows an overview of unconditional options, still outstanding under the 'old' unconditional option plan, held by members of the Board of Management who were in office in 2017. As of 2014 no unconditional options were granted anymore to members of the Board of Management.
| Unconditional options | P. van Riel | P.A.H. Verhagen | B.M.R. Bouffard | M.R.F. Heine | S.J. Thomson 1 | |
|---|---|---|---|---|---|---|
| Outstanding on 31 December 2016 | 168,000 | 30,000 | n/a | 42,500 | 111,000 | |
| Exercised in 2017 | 0 | n/a | n/a | 0 | 0 | |
| Expired with no value on 31 December 2016 | (53,000) | n/a | n/a | (6,000) | (111,000)2 | |
| Outstanding on 31 December 2017 | 115,000 | 30,000 | n/a | 36,500 | 0 |
1 Mr. Thomson stepped down from the Board of Management on 2 May 2017. 2 These options have expired automatically on 1 September 2017 (1 month after expiration of Mr. Thomson's management services agreement on 31 July 2017).
Divisional Financial Performance Performance Governance Report of the Supervisory Board Financial Statements Other Information
The following table shows an overview of performance shares and performance options held by members of the Board of Management who were in office in 2017.
| Performance shares and options | P. van Riel | P.A.H. Verhagen | B.M.R. Bouffard | M.R.F. Heine | S.J. Thomson 1 |
|---|---|---|---|---|---|
| Performance shares | |||||
| Outstanding on 31 December 2016 | 45,000 | 33,750 | 11,250 | 31,000 | 33,750 |
| Outstanding on 31 December 2017 2 | 45,000 | 33,750 | 11,250 | 31,000 | 17,811 |
| Performance options | |||||
| Outstanding on 31 December 2016 | 90,000 | 67,500 | 22,500 | 62,000 | 67,500 |
| Outstanding on 31 December 2017 2 | 90,000 | 67,500 | 22,500 | 62,000 | 35,625 |
1 Mr. Thomson stepped down from the Board of Management on 2 May 2017. If and insofar as these performance options and performance shares will vest, they will vest prorated based upon the number of full months that elapsed between the grant date and the date on which the management service agreement has ended (30 July 2017), divided by thirty-six (36) months. Prorated vesting has already been taken into
account in these numbers. 2 The performance shares and performance options granted as per 31 December 2014 would have vested on 1 March 2018. On 21 February 2018, following the advice of the remuneration committee, the Supervisory Board decided that the targets for vesting of both these performance shares and performance options have not been achieved because the ROCE target (50% weight) was below the threshold and the TSR (50% weight) ranking was above 7. As a result, these performance shares and performance options will not vest on 1 March 2018 and expire.
| Shares held | P. van Riel | P.A.H. Verhagen | B.M.R. Bouffard | M.R.F. Heine | S.J. Thomson | |
|---|---|---|---|---|---|---|
| Number of shares on 31 December 2017 | 190,876 | 19,9801 | 7,000 | 6,100 | 13,733 |
1 Includes 7,980 shares with a holding (lock-up) period of 2 years until 31 December 2018.
The additional benefits remained unchanged in 2017.
When members of the Board of Management are nominated for (re)appointment, the nomination is for a maximum period of four years. The current appointments expire as follows:
| P. van Riel (CEO) 1 | AGM 2018 |
|---|---|
| P.A.H. Verhagen (CFO) 2 | AGM 2018 |
| M.R.F. Heine | AGM 2019 |
| B.M.R. Bouffard | AGM 2020 |
| Ø. Løseth 3 | AGM 2022 |
| S.J. Thomson 4 | AGM 2017 |
1 Mr. Van Riel will step down at the AGM on 26 April 2018. He will be succeeded by Mr. Løseth
as CEO. 2 Mr. Verhagen is nominated for reappointment at the AGM on 26 April 2018. 3 Mr. Løseth has been appointed as of 1 January 2018 by the EGM held on 14 December 2017.
He will succeed Mr. Van Riel as CEO at the AGM on 26 April 2018. 4 Mr. Thomson was not nominated for reappointment and stepped down at the end of the AGM
Severance payment to members of the Board of Management is limited to one year's fixed base salary and in principle is applicable in the event of termination or annulment of the management services agreement unless this is for cause. This severance payment is also applicable when the termination is justified by such change of circumstances that the members of the Board of Management cannot reasonably be expected to continue the performance of their function/ services as a statutory director of Fugro. This may be the case, for example, if Fugro is liquidated, is merged with or taken over by a third party, is subject to an important reorganisation or to a major change of policy.
In 2017 a severance compensation of one year's fixed base salary was paid to Mr. Thomson when he was not nominated for reappointment at the AGM in 2017, and his management services agreement ended. Mr. Thomson was entitled to this compensation in accordance with his management service agreement.
on 2 May 2017.
Divisional Financial Performance Performance Governance
Report of the Supervisory Board Other Information
The remuneration of the Supervisory Board was determined by the AGM in 2011. The remuneration is not dependent on the results of Fugro. Supervisory Board members may not be awarded remuneration in the form of shares and/or rights to shares. Fugro does not grant loans, advance payments, guarantees, shares or rights to shares to Supervisory Board members. None of the Supervisory Board members holds shares or rights to shares in Fugro.
The fixed fee for the Chairman of the Supervisory Board is EUR 70,000 and EUR 55,000 for the vice-chairman. The other members of the Supervisory Board each receive a fixed fee of EUR 50,000. Audit committee, nomination
committee and remuneration committee membership is awarded EUR 8,000 per member and EUR 10,000 for the chairman. In addition, Supervisory Board members that live or have business in the United States receive an attendance allowance of EUR 5,000 per physical meeting to compensate for the additional time commitment due to travelling when meetings are held outside the US.
No proposal to increase the remuneration for Supervisory Board members will be submitted to the AGM in 2018.
The following table provides an overview of the remuneration awarded to Supervisory Board members in 2017.
| Remuneration overview (x EUR) | Fixed fee | Membership committee |
Attendance allowance |
Total |
|---|---|---|---|---|
| H.L.J. Noy (chairman) | 70,000 | 10,000 | – | 80,000 |
| J.C.M. Schönfeld (vice-chairman) | 55,000 | 10,000 | – | 65,000 |
| A.J. Campo | 50,000 | 8,000 | 30,000 | 88,000 |
| P.H.M. Hofsté | 50,000 | 8,000 | – | 58,000 |
| A.H. Montijn | 50,000 | 10,000 | – | 60,000 |
| D.J. Wall | 50,000 | 8,000 | 30,000 | 88,000 |
Fugro's current CEO, Mr. Paul van Riel, will retire as planned at the end of his term at the AGM on 26 April 2018. In view of attracting a new CEO, an independent external consultant was requested to conduct a remuneration level benchmark against the labour market reference group. Based on the outcome of this benchmark, a fixed base salary of EUR 660,000 gross per year has been agreed with Mr. Øystein Løseth when he succeeds Mr. Paul van Riel as CEO of Fugro. Mr. Løseth has been appointed as of 1 January 2018 and his fixed base salary amounts to EUR 450,000 gross per year until his appointment as CEO.
Fugro's CFO, Mr. Paul Verhagen, will be nominated for reappointment at the upcoming AGM. Based on the outcome of the benchmark, his fixed base salary will be increased as of his reappointment to EUR 500,000 gross per year, to bring it more in line with the market.
No further changes are foreseen in 2018.
Leidschendam, 21 February 2018
On behalf of the remuneration committee Anja Montijn, Chair
Group
Divisional Financial Performance Performance Governance Report of the Supervisory Board Financial Statements Other Information
Fugro's detailed data brings successful close to search for lost submarine
In December, Fugro joined a campaign to fi nd the Australian submarine HMAS AE1 which was lost during the First World War off the coast of Papua New Guinea. Using specialised survey technology, Fugro scanned the seafl oor through strong undersea currents and a complex terrain located between two land masses.
Quickly, an object of interest was found. Following analysis of the data, further inspection confi rmed that it was indeed HMAS AE1, solving Australia's oldest naval mystery.
Following the discovery, a small commemorative service was conducted onboard to remember the 35 crew, made up of Australian, New Zealand and British subjects.
Fugro deployed the Fugro Equator vessel (with a sonar system mounted on the hull) and an autonomous underwater vehicle, which fl ew at 35 metres above the sea fl oor
Divisional Performance Performance Governance
Report of the Supervisory Board Financial Statements Other Information
| 1 | Consolidated statement of comprehensive income |
102 |
|---|---|---|
| 2 | Consolidated statement of financial position | 104 |
| 3 | Consolidated statement of changes in equity | 106 |
| 4 | Consolidated statement of cash flows | 108 |
| 5 | Notes to the consolidated financial statements | 110 |
| 6 | Subsidiaries and investments accounted for using the equity method of Fugro N.V. |
175 |
| 7 | Company balance sheet | 177 |
| 8 | Company income statement | 178 |
| 9 | Notes to the company financial statements | 179 |
| Independent auditor's report | 183 |
|---|---|
| Foundation Boards | 190 |
| Statutory provisions regarding the appropriation of net result |
190 |
| Report of Stichting Administratiekantoor Fugro ('Foundation Trust Office') |
191 |
| Historical review | 194 |
| Glossary | 196 |
| Message | Group | Divisional | Report of the | ||||
|---|---|---|---|---|---|---|---|
| Key figures | from the CEO | Profile | Strategy | Performance | Performance | Governance | Supervisory Board |
Financial Statements Other Information
For the year ended 31 December
| (EUR x 1,000) | 2017 | 2016 | |
|---|---|---|---|
| (5.26) | Revenue | 1,497,392 | 1,775,874 |
| (5.29) | Third party costs | (621,936) | (678,757) |
| Net revenue own services (revenue less third party costs) | 875,456 | 1,097,117 | |
| (5.30) | Other income | 31,802 | 30,403 |
| (5.31) | Personnel expenses | (629,572) | (694,436) |
| (5.37) | Depreciation | (126,942) | (172,366) |
| (5.38) | Amortisation | (6,060) | (8,562) |
| (5.32) | Impairments | (164) | (192,716) |
| (5.33) | Other expenses | (196,242) | (278,118) |
| Results from operating activities (EBIT) | (51,722) | (218,678) | |
| Finance income | 5,408 | 8,880 | |
| Finance expenses | (76,147) | (79,810) | |
| (5.34) | Net finance income/(expenses) | (70,739) | (70,930) |
| (5.39) | Share of profit/(loss) of equity-accounted investees (net of income tax) | 4,712 | (2,223) |
| Profit/(loss) before income tax | (117,749) | (291,831) | |
| (5.35) | Income tax gain/(expense) | (47,595) | (9,152) |
| Profit/(loss) for the period from continuing operations | (165,344) | (300,983) | |
| (5.51) | Profit/(loss) for the period from discontinued operations | 5,070 | - |
| Profit/(loss) for the period | (160,274) | (300,983) | |
| Attributable to: | |||
| Owners of the company (net result) | (159,901) | (308,934) | |
| (5.48) | Non-controlling interests | (373) | 7,951 |
| Profit/(loss) for the period | (160,274) | (300,983) | |
| Earnings per share from continuing and discontinued operations | |||
| (attributable to owners of the company during the period) | |||
| (5.47) | Basic and diluted earnings per share from continuing operations | (2.04) | (3.82) |
| (5.47) | Basic and diluted earnings per share from discontinued operations | 0.06 | - |
Divisional Performance Performance Governance
Report of the Supervisory Board
For the year ended 31 December
| 2017 | 2016 | ||
|---|---|---|---|
| Profit/(loss) for the period | (160,274) | (300,983) | |
| Other comprehensive income | |||
| Items that will not be reclassified to profit or loss | |||
| (5.50) | (EUR x 1,000) Defined benefit plan actuarial gains/(losses) Total items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss Foreign currency translation differences of foreign operations Foreign currency translation differences of equity-accounted investees Net change in fair value of hedge of net investment in foreign operations Net change in fair value of cash flow hedges transferred to profit or loss Net change in fair value of available-for-sale financial assets Total items that may be reclassified subsequently to profit or loss Total other comprehensive income for the period (net of tax) Total comprehensive income/(loss) for the period Attributable to: Owners of the company Non-controlling interests Total comprehensive income/(loss) for the period Total comprehensive income attributable to owners of the company arises from: Continuing operations Discontinued operations |
17,025 | (14,145) |
| 17,025 | (14,145) | ||
| (5.34) | (116,498) | 26,935 | |
| (5.34) | (835) | (1,425) | |
| (5.34) | 16,117 | 5,079 | |
| (5.34) | 103 | 288 | |
| (5.34) | 218 | 34 | |
| (100,895) | 30,911 | ||
| (83,870) | 16,766 | ||
| (244,144) | (284,217) | ||
| (237,738) | (295,447) | ||
| (6,406) | 11,230 | ||
| (244,144) | (284,217) | ||
| (242,808) | (295,447) | ||
| 5,070 | - | ||
| (237,738) | (295,447) |
| Message Key figures |
from the CEO | Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
| ------------------------ | -------------- | --------- | ---------- | ---------------------- | --------------------------- | ------------ | ------------------------------------ | ------------------------- | ---------------------- |
As at 31 December
| (EUR x 1,000) | 2017 | 2016 | |
|---|---|---|---|
| Assets | |||
| (5.37) | Property, plant and equipment | 643,695 | 805,992 |
| (5.38) | Intangible assets | 372,325 | 393,497 |
| (5.39) | Investments in equity-accounted investees | 69,701 | 20,068 |
| (5.40) | Other investments | 31,146 | 33,750 |
| (5.41) | Deferred tax assets | 39,423 | 80,602 |
| Total non-current assets | 1,156,290 | 1,333,909 | |
| (5.42) | Inventories | 30,543 | 22,102 |
| (5.43) | Trade and other receivables | 476,930 | 546,226 |
| (5.36) | Current tax assets | 16,124 | 22,743 |
| (5.44) | Cash and cash equivalents | 213,574 | 248,488 |
| (5.45) | Assets classified as held for sale | 4,843 | 981 |
| Total current assets | 742,014 | 840,540 | |
| Total assets | 1,898,304 | 2,174,449 |
|---|---|---|
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
|
|---|---|---|---|---|---|---|---|---|---|
| ------------- | ------------------------- | --------- | ---------- | ---------------------- | --------------------------- | ------------ | ------------------------------------ | ------------------------- | -- |
As at 31 December
| (EUR x 1,000) | 2017 | 2016 | |
|---|---|---|---|
| Equity | |||
| Total equity attributable to owners of the company | 712,054 | 934,859 | |
| (5.48) | Non-controlling interests | 41,610 | 55,250 |
| (5.46) | Total equity | 753,664 | 990,109 |
| Liabilities | |||
| (5.49) | Loans and borrowings | 634,893 | 573,503 |
| (5.50) | Employee benefits | 68,867 | 95,477 |
| (5.51) | Provisions for other liabilities and charges | 17,068 | 26,845 |
| (5.41) | Deferred tax liabilities | 1,247 | 1,650 |
| Total non-current liabilities | 722,075 | 697,475 | |
| (5.44) | Bank overdraft | 2,638 | 4,043 |
| (5.49) | Loans and borrowings | 6,488 | 22,006 |
| (5.52) | Trade and other payables | 342,594 | 375,377 |
| (5.51) | Provisions for other liabilities and charges | 8,005 | 14,810 |
| Other taxes and social security charges | 35,406 | 36,710 | |
| (5.36) | Current tax liabilities | 27,434 | 33,919 |
| Total current liabilities | 422,565 | 486,865 | |
| Total liabilities | 1,144,640 | 1,184,340 | |
| Total equity and liabilities | 1,898,304 | 2,174,449 |
The notes on pages 110 to 182 are an integral part of these consolidated financial statements.
Other Information
| Message | Group | Divisional | ||||
|---|---|---|---|---|---|---|
| Key figures | from the CEO | Profile | Strategy | Performance | Performance | Governance |
Other Information
3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital |
Share premium |
Translation reserve |
Hedging reserve |
Reserve for own shares |
Equity com ponent of convertible bonds |
Retained earnings |
Unappro priated result |
Total | Non controlling interest |
Total equity |
|
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2017 | 4,228 | 431,227 | (20,715) | (103) | (353,958) | (308,934) | 934,859 | 55,250 | 990,109 | ||
| Total comprehensive income | |||||||||||
| for the period: | |||||||||||
| Profit or (loss) | (373) | (160,274) | |||||||||
| Other comprehensive income | |||||||||||
| Foreign currency translation differences | |||||||||||
| of foreign operations | (110,476) | (110,476) | (6,022) | (116,498) | |||||||
| Foreign currency translation differences | |||||||||||
| of equity-accounted investees | (835) | (835) | (835) | ||||||||
| Net change in fair value of hedge of net | |||||||||||
| investment in foreign operations | 16,117 | 16,117 | 16,117 | ||||||||
| Defined benefit plan actuarial gains/ | |||||||||||
| (losses) | 17,036 | 17,036 | (11) | 17,025 | |||||||
| Net change in fair value of cash flow | |||||||||||
| hedges transferred to profit or loss | 103 | 103 | 103 | ||||||||
| Net change in fair value of available | |||||||||||
| for-sale financial assets | 218 | 218 | 218 | ||||||||
| (83,870) | |||||||||||
| Total comprehensive income/(loss) | |||||||||||
| for the period | (95,194) | 103 | 17,254 | (159,901) | (237,738) | (6,406) | (244,144) | ||||
| 3,103 | |||||||||||
| 11,830 | |||||||||||
| - | |||||||||||
| (7,234) | |||||||||||
| Total contributions by and | |||||||||||
| distribution to owners | 11,830 | (305,831) | 308,934 | 14,933 | (7,234) | 7,699 | |||||
| 753,664 | |||||||||||
| Total other comprehensive income/(loss), net of tax Transactions with owners recognised directly in equity Share-based payments Issuance of subordinated unsecured convertible bonds, net of tax Addition to/(reduction of) reserves Dividends to shareholders Balance at 31 December 2017 |
4,228 | 431,227 | (95,194) (115,909) |
103 - |
(353,958) | 11,830 37,546 |
25,716 1,157,398 17,254 3,103 (308,934) 868,821 |
308,934 (159,901) |
(159,901) (159,901) (77,837) 3,103 11,830 - 712,054 |
(6,033) (7,234) 41,610 |
| Key figures | |
|---|---|
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
| Equity com Reserve ponent of Unappro Non Share Share Translation Hedging for own convertible Retained priated controlling capital premium reserve reserve shares bonds earnings result Total interest - 4,228 431,227 (48,023) (391) (353,958) 1,537,094 (372,522) 1,197,655 Balance at 1 January 2016 |
Total equity 36,702 1,234,357 (300,983) |
|---|---|
| Total comprehensive income | |
| for the period: | |
| Profit or (loss) (308,934) (308,934) 7,951 |
|
| Other comprehensive income | |
| Foreign currency translation differences (5.34) |
|
| of foreign operations 23,654 23,654 3,281 |
26,935 |
| Foreign currency translation differences (5.34) |
|
| of equity-accounted investees (1,425) (1,425) |
(1,425) |
| Net change in fair value of hedge of net (5.34) |
|
| investment in foreign operations 5,079 5,079 |
5,079 |
| Defined benefit plan actuarial gains/ (5.50) |
|
| (losses) (14,143) (14,143) (2) |
(14,145) |
| Net change in fair value of cash flow (5.34) |
|
| hedges transferred to profit or loss 288 288 |
288 |
| Net change in fair value of available (5.34) |
|
| for-sale financial assets 34 34 |
34 |
| Total other comprehensive | |
| income/(loss), net of tax 27,308 288 (14,109) 13,487 3,279 |
16,766 |
| Total comprehensive income/(loss) | |
| for the period 27,308 288 (14,109) (295,447) 11,230 |
(284,217) |
| Transactions with owners recognised | |
| directly in equity | |
| Share-based payments 6,935 6,935 (5.31) |
6,935 |
| Issuance of subordinated unsecured (5.46) |
|
| convertible bonds, net of tax 25,716 25,716 |
25,716 |
| - Addition to/(reduction of) reserves (372,522) 372,522 |
- |
| Contributions by shareholders 17,290 |
17,290 |
| Dividends to shareholders (9,972) (5.48) |
(9,972) |
| Total contributions by and | |
| distribution to owners 25,716 (365,587) 372,522 32,651 7,318 |
39,969 |
| Balance at 31 December 2016 4,228 431,227 (20,715) (103) (353,958) 25,716 1,157,398 (308,934) 934,859 55,250 |
990,109 |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
For the year ended 31 December
| (EUR x 1,000) | 2017 | 2016 | |
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit/(loss) for the period | (165,344) | (300,983) | |
| Adjustments for: | |||
| (5.37/5.38) Depreciation and amortisation | 133,002 | 180,928 | |
| (5.32) | Impairments | 164 | 192,716 |
| (5.40) | Write-off long-term receivables | 1,019 | 12,042 |
| (5.39) | Share of (profit)/loss of equity-accounted investees (net of income tax) | (4,712) | 2,223 |
| (5.30/5.33) Net gain on sale of property, plant and equipment | (13,870) | (5,061) | |
| (5.31) | Equity-settled share-based payments | 3,103 | 6,935 |
| Change in provisions for other liabilities and charges and employee benefits | (3,491) | (35,497) | |
| (5.35) | Income tax expense/(gain) | 47,595 | 9,152 |
| Income tax paid | (15,744) | (30,646) | |
| (5.34) | Finance income and expense | 70,739 | 70,930 |
| Interest paid | (24,750) | (37,563) | |
| Operating cash flows before changes in working capital | 27,711 | 65,176 | |
| Change in inventories | (9,740) | 7,606 | |
| Change in trade and other receivables | 63,255 | 195,121 | |
| Change in trade and other payables | (56,878) | (137,143) | |
| Changes in working capital | (3,363) | 65,584 | |
| Net cash generated from operating activities | 24,348 | 130,760 | |
| Cash flows from investing activities | |||
| Proceeds from sale of interests in business, net of cash disposed of | - | 62,510 | |
| Proceeds from sale & leaseback transaction of property, plant and equipment | - | 48,631 | |
| Proceeds from sale of property, plant and equipment | 30,801 | 7,224 | |
| (5.38) | Acquisition of intangible assets | (5,923) | (6,052) |
| (5.38) | Other additions to intangible assets | (3,249) | (5,060) |
| (5.37) | Capital expenditures on property, plant and equipment | (107,974) | (68,643) |
| (5.28) | Acquisitions of investments in equity accounted investees | (3,788) | - |
| Interest received | 5,408 | 11,126 | |
| (5.39/5.40) Dividends received | 8,843 | 5,582 | |
| Repayment of long term loans | 1,018 | - | |
| Net cash (used in) / from investing activities | (74,864) | 55,318 | |
| Cash flows from operating activities after investing activities | (50,516) | 186,078 | |
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
For the year ended 31 December
| (EUR x 1,000) | 2017 | ||
|---|---|---|---|
| Cash flows from financing activities | |||
| (5.49) | Proceeds from issue of long-term loans | 152,918 | 59,986 |
| (5.49) | Proceeds from issue of subordinated unsecured convertible bonds | 100,000 | 190,000 |
| (9,235) | (21,490) | ||
| (5.49) | Repayment of borrowings | (177,048) | (439,671) |
| (5.48) | Dividends paid | (7,234) | (9,972) |
| Payments of finance lease liability | (5,807) | (6,802) | |
| Net cash from / (used in) financing activities | 53,594 | (227,949) | |
| Change in cash flows from operations | 3,078 | (41,871) | |
| (5.44) (5.44) |
Net increase in cash and cash equivalents | 3,078 | (41,871) |
| (5.46/5.49) Transaction costs relating to loans and borrowings Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 December Presentation in the statement of financial position Cash and cash equivalents Bank overdraft |
244,445 | 283,085 | |
| (36,587) | 3,231 | ||
| 210,936 | 244,445 | ||
| 213,574 | 248,488 | ||
| (2,638) | (4,043) | ||
| 210,936 | 244,445 |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Message
Fugro N.V., hereinafter to be referred to as 'Fugro' or 'the company', has its corporate seat in The Netherlands. The address of the company's principal office is Veurse Achterweg 10, 2264 SG, Leidschendam, the Netherlands. The consolidated financial statements of Fugro as at and for the year ended 31 December 2017 include Fugro and its subsidiaries (together referred to as the 'Group') and the Group's interests in equity-accounted investees. An overview of the main subsidiaries is included in chapter 6.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code.
On 21 February 2018, the Board of Management and Supervisory Board authorised the financial statements for issue. Publication will take place on 2 March 2018.
The financial statements will be submitted for adoption to the annual general meeting on 26 April 2018. The official language for the financial statements is the English language as approved by the annual general meeting on 10 May 2011.
The financial statements are presented in EUR x 1,000, unless stated otherwise. The Euro is the functional and presentation currency of the company.
The financial statements have been prepared on the basis of historical cost, except for that the following assets and liabilities are stated at their fair value: derivative financial instruments, available-for-sale financial assets and plan assets associated with defined benefit plans.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The company accounts for any change in accounting principle retrospectively. The amendment to IAS 7 has been applied by Fugro as at 31 December 2017. The amendment enables users of financial statements to
evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as effect of movements in foreign exchange rates). It is not required to provide comparative information for 2016. Refer to note 5.49.5. There are no new standards, amendments and/or interpretations that are required to be adopted as from 1 January 2017, which have a material impact on the Group.
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ materially from these estimates.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making the judgements about the carrying values of the assets and liabilities that are not readily apparent from other sources. The estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty and references to the notes which include information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in note 5.63.
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and have not been early adopted by the Group. The impact of these new standards and interpretations are assessed in the table and paragraphs below.
The Group has completed its transition projects with respect to IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. IFRS 9 and IFRS 15 will not have a material impact on the Group's 2018 consolidated financial statements. These conclusions have been shared with the
| Key figures | |
|---|---|
Divisional Performance Performance Governance
Report of the Supervisory Board Financial Statements Other Information
Board of Management, the audit committee of the Supervisory Board and the external auditors. The Group has commenced its transition project with respect to IFRS 16 Leases.
| Nature of change | Impact | Mandatory application date |
|---|---|---|
| IFRS 9 Financial Instruments | ||
| IFRS 9 introduces (1) new classification and measurement requirements for financial assets and liabilities, (2) a new expected loss impairment model and (3) new hedge accounting requirements. |
Classification and measurement: Fugro concluded that all material financial assets and liabilities will continue to be measured on the same basis as currently applied under IAS 39 (mainly amortised cost). |
Must be applied for financial years commencing on or after 1 January 2018 (endorsed by EU). |
| Impairment: IFRS 9 requires the Group to record expected credit losses on long-term loans, deposits and other long-term receivables either on a 12-month or lifetime basis. The Group monitors whether a significant increase in credit risk occurs. The Group will apply the simplified approach to recognise lifetime expected credit losses on trade and other receivables (including unbilled revenue from contracts with customers). |
||
| Hedge accounting: The Group does not engage in material hedging transactions with derivatives. The Group hedges foreign currency exposure for net investments in certain foreign operations with certain financial liabilities as hedging instruments. The Group will continue the aforementioned hedging relationships upon application of IFRS 9. |
||
| Impact: IFRS 9 will not have a material impact on the Group's 2018 consolidated financial statements and the 2018 company financial statements. |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
Nature of change Impact Mandatory application date
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled. The standard introduces a five-step approach to revenue recognition. An entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control' is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, new disclosures are required.
The Group is in the business of providing geo-intelligence (site characterisation) and asset integrity solutions. These services are typically sold in a bundled package of services. Under IFRS 15, the Group will continue to recognise revenue for those bundled packages of services (i.e. one performance obligation) over time. The Group will not apply the portfolio approach. The method to measure progress towards complete satisfaction of the performance obligation remains unchanged (generally the cost-to-cost method). The recognition and measurement of variable consideration (i.e. liquidated damages, weather standby fees or discounts) remains unchanged. Contracts with significant financing components are rare. Insofar applicable, Fugro qualifies for the application of the practical expedient in IFRS 15 and will not adjust the transaction price. Generally, the Group does not incur costs to obtain a contract.
The Group will apply the modified retrospective transition approach. As explained above, there are no material recognition and measurement transition differences. The Group has implemented system changes, policies and procedures to collect and disclose the required information.
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for financial leases under IAS 17. IFRS 16 includes two recognition exemptions for lessees – leases of 'low-value' assets and short-term leases. At commencement of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting will remain substantially unchanged from current standards. IFRS 16 requires more extensive disclosures.
The Group anticipates total assets, total liabilities, EBITDA and operating cash flows to increase upon transition to IFRS 16. The expense profile in profit and loss will be front-loaded, due to higher interest expenses in early years on the lease liability. The Group has set up a Leasing Steering Committee with active involvement of board of management, audit committee of the supervisory board and the external auditors. The IFRS 16 transition project commenced in the second quarter of 2017. It is not practicable to provide a reasonable estimate of the financial effect until the Group completes this project in 2018. The Group will apply the modified retrospective transition approach.
Mandatory for financial years commencing on or after 1 January 2019 (endorsed by EU).
| Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
|---|---|---|---|---|---|---|---|
| Nature of change | Impact | Mandatory application date | |||||
| IFRS 17 Insurance Contracts | |||||||
| IFRS 17 establishes the requirements that a company must apply in reporting information about insurance |
IFRS 17 is not applicable to Fugro. | Mandatory for financial years commencing |
|||||
| contracts it issues and reinsurance contracts it holds. | on or after 1 January 2021 (subject to EU endorsement). |
||||||
| IFRIC 23 Uncertainty over Income Tax Treatments | |||||||
| The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically |
completes this project in 2018. | The Group has commenced its impact assessment during the third quarter of 2017. It is not practicable to provide a reasonable estimate of the financial effect until the Group |
Mandatory for financial years commencing |
on or after 1 January 2019 (subject to EU endorsement). |
|||
| considers: | |||||||
| ■ collectively; |
Whether tax treatments should be considered | ||||||
| ■ | Assumptions for taxation authorities' examinations; | ||||||
| The determination of taxable profit (tax loss), tax | |||||||
| ■ rates; |
bases, unused tax losses, unused tax credits and tax |
Certain other new standards, interpretations and amendments issued by the IASB (i.e. Annual Improvements Cycle 2014-2016, IAS 40, IFRS 2, IFRIC 22, IAS 28 and IFRS 4) are either not material for Fugro or not applicable to Fugro.
The accounting policies set out below have been applied consistently by all subsidiaries and equity-accounted investees to all periods presented in these consolidated financial statements.
Key figures
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. Non-controlling interest in the acquiree are measured at the proportionate share of the acquiree's identifiable net assets.
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.
Other Information
Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, it is accounted for as an equityaccounted investee or as an available-for-sale financial asset depending on the level of influence retained.
The Group's interests in equity-accounted investees comprise interests in joint ventures and associates. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Associates are all entities over which the group has significant influence but not control or joint control. This is generally the case where the group holds between 20% and 50% of the voting rights. Refer to note 5.10 or the accounting policy for equity-accounted investees.
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
Other investments are those entities in whose activities the Group holds a non-controlling interest and has no control or significant influence. Refer to note 5.11 for the accounting policy for other investments.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no objective evidence of impairment conditions.
5.5.1 Foreign currency transactions and translation Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the respective functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at foreign exchange rates effective at the date the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale financial assets and equity-accounted investees, a financial liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow hedges, which are recognised in other comprehensive income. A summary of the main currency exchange rates applied in the year under review and the preceding years reads as follows:
| USD at year-end |
USD average |
GBP at year-end |
GBP average |
NOK at year-end |
NOK average |
AUD at year-end |
AUD average |
|
|---|---|---|---|---|---|---|---|---|
| 2017 | 0.840 | 0.880 | 1.120 | 1.140 | 0.101 | 0.107 | 0.650 | 0.680 |
| 2016 | 0.950 | 0.910 | 1.160 | 1.220 | 0.110 | 0.108 | 0.690 | 0.670 |
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to EUR at foreign exchange rates effective at the reporting date. The income and expenses of foreign operations are translated to EUR at exchange rates effective at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve for foreign operations (Translation reserve) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of, such that control, significant influence or joint
control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount in the translation reserve is reattributed to non-controlling interests. If the Group disposes of only part of its investment in an equity-accounted investee that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount in the translation reserve is reclassified to profit or loss.
If the settlement of a monetary item, receivable from or payable to a foreign operation, is neither planned nor likely in the foreseeable future, foreign exchange gains and losses
Divisional Performance Performance Governance Report of the Supervisory Board Other Information
arising from such monetary items are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the Translation reserve in equity.
The Group applies hedge accounting to foreign currency differences arising between the functional currency of the foreign operation and the functional currency of Fugro (EUR), regardless of whether the net investment is held directly or through an intermediate parent.
Foreign currency differences arising on the (re-)translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in other comprehensive income to the extent that the hedge is effective, and are presented within equity in the Translation reserve. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net investment is disposed of, the relevant amount in the Translation reserve is transferred to profit or loss as part of the profit or loss upon disposal.
A number of the Group's accounting policies and disclosures requires the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, additional information on the determination of fair values is disclosed in the notes of the specific asset or liability.
The fair value of equity and debt securities is determined by reference to their quoted closing bid price at the reporting date, or if unquoted, determined using a valuation technique. Valuation techniques employed include market multiples and discounted cash flow analysis using expected future cash flows and a market-related discount rate.
The fair value of trade and other receivables is estimated at the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.
The fair value of forward exchange contracts is based on their quoted market price, if available.
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date, taking into consideration the Group's own non-performance risk. For financial leases the market rate of interest is either determined by reference to similar lease agreements or based on the implicit discount rate if determinable.
Fugro operates equity-settled share-based payment plans. For members of the Board of Management and other selected senior employees, a long-term incentive plan is applicable since 2014. Under this plan, a combination of performance options and performance shares has been granted and awarded on an annual basis subject to continued services. In addition, Fugro operates a share option scheme with only service conditions for other eligible and selected employees.
The fair value for shares awarded and options granted (conditional options) subject to a market condition is determined applying a Monte Carlo simulation model. The fair value of the options granted is determined using the Black and Scholes option pricing formula for the performance options not being subject to market conditions (conditional performance options with non-market service conditions) or based on the binomial model (options with only service conditions).
The grant date fair values of the employee share incentives are measured, taking into account the terms and conditions upon which the options and shares were granted and awarded. Relevant measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on the historical volatility of Fugro's (certificates of) shares, particularly over the historical period that commensurate with the expected term), expected term of the instruments (based on historical experience and general option holder exercise behaviour), expected dividends and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the share-based payment
Key figures
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
transactions are not taken into account in determining the grant date fair value.
The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. Reference is made to accounting policy (5.11) and note (5.40).
Loans and receivables comprise cash and cash equivalents and trade and other receivables. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
Financial liabilities and assets are offset and the net amount presented in the statement of financial position when,
and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Other financial liabilities are initially recognised at fair value net off any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.
The fair value of the liability portion of a convertible bond is initially determined using a market interest rate for an equivalent non-convertible bond at the issue date. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders' equity, net of income tax effects and is not subsequently remeasured.
Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables. Reference is made to note (5.44) Cash and cash equivalents and note (5.52) Trade and other payables.
The Group holds derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational and financing activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
On initial designation as the hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of
from the CEO Profile Strategy
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be 'highly effective' in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80-125%.
Derivatives are recognised initially at fair value and directly attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Gains and losses resulting from the settlement of transactions in a foreign currency, as well as from the translation of monetary assets and liabilities denominated in foreign currencies at year end are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying net investment hedges to the extent the hedging relationship is effective. Gains and losses accumulated in equity are reclassified to profit or loss when the foreign operation is partially disposed of or sold.
The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses (refer to accounting policy 5.16). The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the costs of materials and direct labour, any other costs directly
attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Property, plant and equipment that is being constructed or developed for future use is classified as property, plant and equipment under construction and stated at cost until construction or development is complete, at which time it is reclassified as land and buildings, plant and equipment, vessels or other property, plant and equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within 'other income' or 'other expenses' in profit or loss.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership and are not recognised in the Group's statement of financial position. Lease payments are accounted for as described in accounting policy 5.23.2. If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss is recognised immediately.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is
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derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.
Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. The estimated useful lives for the current and comparative period of significant items of property, plant and equipment are as follows:
| Category | Years |
|---|---|
| Buildings | 20 – 40 |
|---|---|
| Fixtures and fittings | 5 – 10 |
| Vessels and jack-ups | 2 – 25 |
|---|---|
| Plant and equipment | 4 – 10 |
|---|---|
| Survey equipment | 3 – 5 |
| Ocean bottom nodes | 5 – 6 |
| Aircraft | 5 – 10 |
| AUVs and ROVs | 6 – 7 |
| Computers and office equipment | 3 – 4 |
| Transport equipment | 4 |
| Dry-docking | 3 – 5 |
|---|---|
| Used plant and machinery | 1 – 2 |
Goodwill that arises upon the acquisition of subsidiaries is presented with intangible assets. For the measurement of goodwill at initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested for impairment annually and when there is an indication for impairment (refer to accounting policy 5.16). In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole.
These intangible assets relate to the to a profit sharing agreement with Finder Exploration Pty Ltd (Finder), relating to Australian exploration projects. The Finder asset is accounted for at cost and is not amortised but assessed for impairment when facts and circumstances suggest that the carrying amount of the asset may exceed its recoverable amount.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The capitalised expenditure includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in profit or loss as incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses (refer to accounting policy 5.16).
Software and other intangible assets acquired or developed by the Group and that have finite useful lives are measured
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at cost less accumulated amortisation and accumulated impairment losses (refer to accounting policy 5.16).
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
Amortisation is based on the cost of an asset less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite life are annually tested for impairment or when there is an indication for impairment (refer to accounting policy 5.16). Other intangible assets and software are amortised from the date they are available for their intended use. The estimated useful life of software and other capitalised development costs is, in general, five years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The Group's interests in equity-investees comprise interests in joint ventures and associates. Investments in equityaccounted investees are accounted for using the equity method. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the group's share of the post-acquisition profits or losses of the investee in profit or loss, and the group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term
receivables that form part of the entity's net investment, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in 5.16.
Other investments in equity instruments are accounted for at fair value with changes through profit and loss. Dividends received are accounted for in profit or loss when these become due.
Long-term loans and other long-term receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method; less any impairment losses (refer to accounting policy 5.16).
Available for sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments (refer to accounting policy 5.16), are recognised in other comprehensive income and presented in the other reserves in equity. When an investment is derecognised, the cumulative gain or loss accumulated in equity is reclassified to profit or loss. Available-for-sale financial assets comprise equity securities and debt securities.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is determined using on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realisable value of inventories is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
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Trade and other receivables are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method less, any impairment losses (refer to accounting policy 5.16). Unbilled revenue on (completed) projects represents the gross amount expected to be collected from customers for contract work performed to date. It is measured at costs incurred plus profits recognised to date less progress billings and recognised losses. Advances received from customers are presented as advance instalments to work in progress.
In the consolidated statement of cash flows, cash and cash equivalents include cash in hand and call deposits. Bank overdrafts that are repayable on demand and which form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. Bank overdrafts are shown within the current liabilities in the consolidated statement of financial position.
Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, these assets are remeasured in accordance with the Group's accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair values less costs to sell. Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated and any equity-accounted investees are no longer equity-accounted.
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in other comprehensive income, and presented in equity, to profit or loss. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss.
Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.
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The carrying amounts of the Group's non-financial assets other than inventories, assets arising from employee benefits and deferred tax assets (refer to accounting policy 5.24), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of cash-generating units) and then to reduce the carrying amount of the other assets in the cash-generating unit (or group of cash-generating units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit (CGU) is the higher of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating unit. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated, are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of cash generating units that are expected to benefit from the synergies of the combination.
The Group's corporate assets do not generate separate cash inflows and are utilised by more than one cash-generating unit. Corporate assets are allocated to cash-generating units on a reasonable and consistent basis and tested for impairment as part of the testing of the cash generating units to which the corporate asset is allocated.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are reviewed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Share capital is classified as equity. The term 'shares' as used in the financial statements should, with respect to ordinary shares issued by Fugro, be construed to include certificates of shares ('share certificates' or 'depositary receipts' for shares) issued by 'Stichting Administratiekantoor Fugro' (also referred to as 'Fugro Foundation Trust Office' or 'Foundation Trust Office'), unless the context otherwise requires or unless it is clear from the context that this is not the case. The surplus paid by shareholders above the nominal value of shares is recognised as share premium. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
When shares are repurchased or sold, the amount of the consideration paid or received, including direct attributable costs, net of any tax effects, is recognised as a change in equity. Repurchased shares and related results are reported as reserve for own shares and presented separately as a component of total equity.
Dividends are recognised as a liability in the period in which they are declared.
Loans and borrowings are recognised initially at fair value, less directly attributable transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost using the effective interest rate method.
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A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than twelve months after the end of the period in which the employees render the service are discounted to their present value.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The discount rate is the yield at the reporting date on AA credit-rated (high quality) corporate bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by qualified independent actuaries using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in profit or loss. Employee contributions for which the amount is independent of the number of years of service are recognised as a reduction of the service costs in the period in which the related services are rendered.
When the benefits of a plan are changed or when a plan is curtailed, then resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
The Group's net obligation in respect of long-term employee benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any assets is deducted. At the reporting date, the discount rate is determined by reference to the yield on AA credit-rated corporate bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid. The actuarial calculations are performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise.
The share incentive schemes allow Members of the Board of Management and some assigned Group employees to acquire shares in Fugro. The fair value of granted options and shares (awards) is recognised as an employee expense, with a corresponding increase in equity. The fair value is determined on the date of grant and is spread over the period during which the employees (share options) and the members of the Board of Management and other selected senior employees (performance shares and options) provide services and become unconditionally entitled to the share options or shares. The amount recognised as an expense is adjusted to reflect the number of awards for which the related non-market performance and service vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet these conditions at the vesting date.
The expenses recognised for the conditionally awarded share options and shares are adjusted annually to reflect the actual number shares that are likely to vest based on the related service and non-market performance conditions.
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A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions for other liabilities and charges are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as finance expenses.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of performing under the contract. The expected net cost of performing under the contract is based on cash flow calculations discounted using a rate that reflects current market assessments of the time value of money. Before a provision is established, the Group recognises any impairment loss on the assets associated with and/or dedicated to that contract.
A provision for restructuring cost is recognised when the Group (i) has a detailed formal plan for the restructuring identifying at least the business or part of a business concerned, the principal locations affected, the location, function, and approximate number of employees who will be compensated for terminating their services, the expenditures that will be undertaken, and when the plan will be implemented; and (ii) has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.
Trade and other payables represent liabilities for services and goods provided to the group prior to the end of financial year which are unpaid. Trade and other payables are recognised initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services rendered in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when persuasive evidence exists, usually in the form of an executed sales agreement, the amount of revenue can be measured reliably, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenue from sales of goods of seismic data, software licences and subscription income do not qualify as a significant category of revenue as referred to in IAS 18.35 (b); however for completeness sake the relating revenue recognition policies are set out in accounting policies 5.22.2 and 5.22.3.
Revenue from services rendered to third parties relate to fixed price contracts and 'cost plus' contracts (mainly daily rates or rates per (square) kilometre). This revenue is recognised in profit or loss in proportion to the percentage of completion of the transaction at the reporting date. The percentage of completion is based on the input measure and is generally determined as a percentage of the contract costs incurred in relation to the total estimated contract costs (as this method is most appropriate for the majority of the services provided by the Group) and are only recognised to the extent of costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs of goods can be estimated reliably, and there is no continuing management involvement with the goods.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or
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associated costs. An expected loss on a contract is recognised immediately in profit or loss.
Software licences and subscription income are recognised in the period during which the underlying services have been provided, using a straight line basis over the term of the contract.
Net revenue own service comprises all revenue minus costs incurred with third parties related to the employment of resources (in addition to the resources deployed by the Group) and other third party cost such as charter-lease costs and other cost required for the execution of various projects.
Other income consists of income not related to the key business activities of the Group, such as income from the sale of non-monetary assets and/or liabilities, exceptional and/or non-recurring income.
Government grants are recognised initially as deferred income at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group (partly) for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Grants that (partly) compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.
Third party costs are matched with related revenues on contracts and accounted for on a historical cost basis.
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time.
When assets are leased out under a finance lease, the present value of the lease payments is recognised as a lease receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group's incremental borrowing rate.
Net finance income and expenses consist of finance expenses, finance income and foreign currency gains and losses. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, losses on disposal of available-for-sale financial assets, fair value losses on financial assets at fair value through profit or loss, impairment losses recognised on financial assets (other than trade receivables), and losses on hedging instruments that are recognised in profit or loss.
Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale
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financial assets, fair value gains on financial assets at fair value through profit or loss, gains on the re-measurement to fair value of any pre-existing interest in an acquiree, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in profit or loss on the date the Group's right to receive payment is established, which in the case of quoted shares is normally the ex-dividend date.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.
Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: taxable temporary differences arising on the initial recognition of goodwill; temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting
date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.
The consolidated statement of cash flows is prepared using the indirect method. The cash flow statement distinguishes between operating, investing and financing activities. Cash flows in foreign currencies are converted at the exchange rate at the dates of the transactions. Currency exchange differences on cash held are separately shown. Payments and receipts of corporate taxes are included as cash flow from operating activities and interest paid is shown as cash flow from operating activities. Cash flows as a result from acquisition/divestment of financial interest in subsidiaries and equity accounted investees are included as cash flow from investing activities, taking into account the available cash in these interests. Dividends paid are part of the cash flow from financing activities.
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An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly by the board of management to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.
Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.
As a consultant with operations throughout the world, the Group delivers its services to clients located all over the globe and collects and interprets data related to the Earth's surface and the soil and rock beneath. On the basis of this data the Group provides geo-intelligence and asset integrity solutions, generally for purposes related to the oil and gas, building and infrastructure, renewables, power, nautical and mining markets.
In 2016, Fugro decided to regroup the geotechnical, survey and subsea services activities into Marine and Land divisions, with the aim to better serve the increasing demand from customers for integrated services. The organisational structure, management structure and internal reporting structure have changed accordingly as of 2017. The Geoscience division remains unchanged.
Based on Fugro's evaluation on how the company allocates resources and analyses performance in the new organisational structure, the company has revised the presentation of its operating segments by the identification of three operating and reportable segments: Marine, Land and Geoscience. The performance of the Marine, Land and Geoscience divisions are separately reported to and reviewed by the Board of Management (as the Chief Operating Decision Maker: CODM). For each of the divisions, the Board of Management reviews internal
management reports on a monthly basis. Previously, there were four operating and reportable segments: Geotechnical, Survey, Subsea Services and Geoscience. The comparative figures of segment information have been restated accordingly for comparison purposes.
The segments are managed on a worldwide basis, and operate in five principal geographical areas: Europe, Africa, Middle East/India, Asia Pacific and the Americas. In presenting information on the basis of geographical areas, segment revenue is based on the geographical location of operating companies. The allocation of segment assets is based on the geographical location of the operating company using the assets. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit or loss before income tax, as included in the internal management reports that are reviewed by the board of management. Segment profit or loss is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
Fugro allocates all other corporate expenses and finance income to the reportable segment profit (or loss) before income tax of the respective operating segments pro-rate based on net revenue. Assets that are used by more than one operating segment and liabilities that relate to more operating segments are pro-rate allocated based on net revenues to the respective reporting segments as well.
The following summary describes the operations in each of the Group's reportable segments:
The Marine division encompasses the acquisition of soil samples (geotechnical drilling) and related laboratory testing, and the mapping of soil characteristics using non-invasive techniques (geophysical surveys) including the related interpretation and visualisation. Its services include geoconsulting, general purpose navigation charts and environmental, meteorological & oceanographic measurement services. The division also offers positioning signals and services, construction support, monitoring and forecasting services, drill support, remote systems technology, and inspection, repair and maintenance services (IRM). The division also had construction and installation related activities, which were ended per December 2017.
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
The Land division services encompass the determination of soil characteristics via cone penetration testing and/or the acquisition of soil samples (geotechnical drilling) and related laboratory testing. These services are offered both onshore and near shore. In addition, the division provides material testing, and water and geo-consulting services. The division also offers integrity solutions (monitoring, analysis, modelling) for clients in the electrical power business, railroads, roads and oil & gas infrastructure.
The Geoscience division provides services to acquire geophysical data that are used for the appraisal, development and production of offshore natural resources.
The division almost fully consists of Fugro's 60% stake in Seabed Geosolutions (100% consolidated). Seabed Geosolutions supports the optimal development and production of offshore oil and gas fields by providing high quality seismic data collected directly on the seabed. These data are used for detailed reservoir characterisation, monitoring of the impact of production, and detection of potential geohazards. The remaining shares of Seabed are held by CGG. Clients of Seabed are oil and gas companies. The Geoscience division also contains some indirect interests in Australian exploration projects, via a profit sharing agreement with Finder Exploration Pty.
| (EUR x 1,000) | Marine | Land | Geoscience | Total | ||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Segment revenue | 1,029,466 1,177,390 | 493,845 | 531,321 | 74,078 | 172,983 1,597,389 1,881,694 | |||
| Of which inter-segment revenue | 82,205 | 81,294 | 17,792 | 24,526 | - | - | 99,997 | 105,820 |
| Revenue | 947,261 1,096,096 | 476,053 | 506,795 | 74,078 | 172,983 1,497,392 1,775,874 | |||
| Segment result | 32,576 | 82,433 | 38,937 | 16,596 | 9,931 | 55,937 | 81,444 | 154,966 |
| Depreciation | (89,492) | (113,746) | (18,348) | (20,204) | (19,102) | (38,416) | (126,942) | (172,366) |
| Amortisation | (1,641) | (3,083) | (2,724) | (2,466) | (1,695) | (3,013) | (6,060) | (8,562) |
| Impairments | 2,075 | (126,515) | (2,200) | (14,040) | (39) | (52,161) | (164) | (192,716) |
| Result from operating activities (EBIT) | (56,482) | (160,911) | 15,665 | (20,114) | (10,905) | (37,653) | (51,722) | (218,678) |
| EBIT in % of revenue | (6.0) | (14.7) | 3.3 | (4.0) | (14.7) | (21.8) | (3.5) | (12.3) |
| Finance income | 8,890 | 12,540 | 2,130 | 2,758 | 7,068 | 3,826 | 18,088 | 19,124 |
| Finance expense | (60,941) | (64,841) | (16,219) | (13,974) | (11,667) | (11,239) | (88,827) | (90,054) |
| Share of profit/(loss) of equity-accounted investees | 2,462 | (2,742) | 2,250 | 519 | - | - | 4,712 | (2,223) |
| Reportable segment profit/(loss) before income tax | (106,071) | (215,954) | 3,826 | (30,811) | (15,504) | (45,066) | (117,749) | (291,831) |
| Income tax | (27,947) | (13,442) | (19,390) | (7,457) | (258) | 11,747 | (47,595) | (9,152) |
| Profit/(loss) for the period from discontinued operations | - | - | - | - | 5,070 | - | 5,070 | - |
| Profit/(loss) for the period | (134,018) | (229,396) | (15,564) | (38,268) | (10,692) | (33,319) | (160,274) | (300,983) |
| Capital employed | 820,641 | 973,980 | 218,912 | 231,176 | 144,555 | 136,018 1,184,108 1,341,174 | ||
| Reportable segment assets | 1,249,648 1,450,642 | 431,408 | 451,918 | 217,248 | 271,889 1,898,304 2,174,449 | |||
| Reportable segment liabilities | 762,227 | 828,395 | 304,241 | 224,374 | 78,172 | 131,571 1,144,640 1,184,340 | ||
| Capital expenditure, property, plant and equipment | 76,376 | 49,870 | 11,913 | 10,227 | 19,685 | 32,396 | 107,974 | 92,493 |
| Capital expenditure software and other intangible assets | 1,028 | 1,743 | 128 | 102 | 4,767 | 4,207 | 5,923 | 6,052 |
| Other additions to intangible assets | - | - | - | - | 3,249 | 5,060 | 3,249 | 5,060 |
| Movement in other investments | (2,650) | 15,388 | 877 | 5,189 | (831) | (78,253) | (2,604) | (57,676) |
| Geographical areas | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (EUR x 1,000) | Europe | Africa | Middle East/India | Asia Pacific | Americas | Total | ||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Revenue from external | ||||||||||||
| customers | 581,193 | 629,045 | 57,618 | 89,743 | 220,655 | 299,176 | 303,058 | 384,822 | 334,868 | 373,088 1,497,392 1,775,874 | ||
| Non-current assets | 617,824 | 656,464 | 10,013 | 34,802 | 84,457 | 74,105 | 202,420 | 258,909 | 241,576 | 309,629 1,156,290 1,333,909 |
Divisional Performance
Performance Governance
from the CEO Profile Strategy
Key figures
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| Adjustments | |||||
|---|---|---|---|---|---|
| and other | |||||
| Reportable | unallocated | Consolidated | |||
| (EUR x 1,000) | segment totals | amounts | totals | ||
| Finance income | 18,088 | (12,680) | 5,408 | ||
| Finance expense | (88,827) | 12,680 | (76,147) |
| Finance expense | (90,054) | 10,244 | (79,810) |
|---|---|---|---|
| Finance income | 19,124 | (10,244) | 8,880 |
| (EUR x 1,000) | segment totals | amounts | totals |
| Reportable | unallocated | Consolidated | |
| and other | |||
| Adjustments |
The company has not been awarded any significant government grants in 2017 and 2016.
On 30 November 2017, Fugro finalised the divestment of its trenching and cable laying assets in exchange for a 23.6% interest in Global Marine Holdings LLC (Global), which interest thereby became an associate of Fugro, and a vendor loan of EUR 6.3 million. The divested assets were part of the Marine division. At the date of the transaction, Global became an associate of Fugro and is accounted for as an equity-accounted investee. Global is located at Delaware in the United States. The associate forms part of Fugro's Marine division. HC2 Holdings Inc., a listed company on the New York Stock Exchange, is the majority owner of
Global. Global Marine is a supplier of subsea cable installation and maintenance services in four market segments: telecoms, offshore renewables, power and oil & gas. The transaction is a major step forward in delivering on Fugro's Building on Strength strategic objective of ending its active participation in the installation and construction part of the subsea market. Furthermore, Fugro will become the preferred provider of marine site characterisation and asset integrity services to Global (on an arm's length basis).
Report of the Supervisory Board Financial Statements Other Information
The trenching and cable laying assets that were divested consist of a vessel, two trenchers and two remote operated vehicles including the employees involved on those assets. An amount of EUR 2.4 million has been paid to Global in connection with the associated normalised working capital for the vessel and trenchers (bunker fuel, lubes, spare parts). The transaction costs involved for this divestment amounted to EUR 1.4 million. Previously, the trenchers and vessel were partially impaired. The divestment formed an indication that these impairment losses no longer exist. Accordingly, the recoverable amount of such assets was EUR 57.1 million, based on fair value less cost of disposal. An impairment loss of EUR 11.7 million has been reversed. Refer to note 5.32.
Fugro's share in the profit or loss and other comprehensive income, which latter mainly relate to currency translation differences, of this associate amounts to EUR 0.4 million (loss) and EUR 0.6 million (gain) respectively. (Refer to note 5.39 investments in equity-accounted investees.) No dividends have been received from Global in 2017. The carrying amount of this associate amounts to EUR 54.8 million as at 31 December 2017. Fugro has no significant commitments to this associate.
| Key figures | |
|---|---|
Divisional Performance Performance Governance
Report of the Supervisory Board
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Wages and salaries | 546,259 | 597,493 |
| Compulsory social security contributions | 50,499 | 52,091 |
| Equity-settled share-based payments | 3,103 | 6,935 |
| Contributions to defined contribution | ||
| plans | 20,073 | 23,794 |
| Expense related to defined benefit plans | 10,042 | 13,809 |
| Increase/(decrease) in liability for | ||
| long-service leave | (404) | 314 |
| 629,572 | 694,436 |
The share-based payments plans of Fugro N.V. can be divided into a long-term incentive plan (LTIP), which includes the annual grant of conditional performance shares and (until 2017) conditional performance options, and a share option scheme, which includes the annual grant of unconditional options.
At the annual general meeting (AGM) held in May 2017, the LTIP was adjusted. One of the adjustments was a shift of the grant date to the 5th trading day following the publication of the annual results, instead of 31 December. Furthermore, under the LTIP going forward, only conditional performance shares will be granted, instead of a mix of performance shares and performance options.
The performance period of three years remains the same. Granting under the adjusted LTIP will for the first time take place in early 2018, after the publication of the 2017 annual results. Fugro also decided to shift the grant date under the share option scheme to the same date in further alignment with the LTIP. The share price as measurement input for the fair value for the options will be determined based on the average closing price of 5 days preceding the grant date instead of the share price at year-end date of the year of grant. Consequently, as of 2018, the costs of granted performance shares and share options shall be recognised in profit or loss over the total service period of three years. Previously, this was four years. As a result, no new performance awards and share options have been granted as at 31 December 2017, and the costs recognised in profit or loss 2017 only relate to performance awards and share options previously granted.
| Third party costs 5.29 |
||
|---|---|---|
| (EUR x 1,000) | 2017 | 2016 |
| Cost of suppliers | 458,311 | 477,403 |
| Operational lease expense* | 61,172 | 91,760 |
| Other rentals | 45,465 | 49,832 |
| Onerous contracts | 17,658 | (6,087) |
| Other costs | 39,330 | 65,849 |
| 621,936 | 678,757 |
* The operational lease expense includes an amount of EUR 12.5 million (2016: EUR 31.7 million) relating to maintenance and repair. Refer to note 5.49.6.
Cost of suppliers comprises costs of third party equipment hire, fuel, demobilisation and mobilisation, consumables and third party personnel. Costs of other rentals relate to any lease or agreement with a term of less than one year or any project-based lease or agreement with a term that begins at the start of a specific project and ends upon completion of such project. Other costs mainly relate to withholding taxes on projects and subcontracted cost at request of the client which can be recharged to the client directly.
For the provisions relating to the onerous contracts, reference is made to note 5.51.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Settlements claims | 6,453 | 726 |
| Government grants | 2,482 | 2,971 |
| Gain on sale of property, plant and | ||
| equipment | 14,352 | 5,364 |
| Reversal of the asset retirement | ||
| obligation | - | 14,056 |
| Sundry income | 8,515 | 7,286 |
| 31,802 | 30,403 |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
The long-term incentive plan for members of the Board of Management, and other selected senior employees, effective as of 1 January 2014, consists of performance shares and consisted of performance options. Vesting is subject to continuous employment and performance measurement after three years.
The performance targets and their relative weights for the performance awards are as follows:
The Supervisory Board will set each year at granting the performance criteria with respect to ROCE, taking into account the ROCE target for the year of vesting.
TSR measurement is related to share price performance versus a specific peer group of companies, which has been set by the Supervisory Board under guidance from an external consultant. The composition of the peer group,
which is evaluated on a yearly basis, consists of: Arcadis, Boskalis Westminster, Core Laboratories, Fluor, John Wood Group, Oceaneering International, Schlumberger, Subsea 7, TechnipFMC, Transocean and WhorleyParsons. Vesting is subject to the following performance incentive zone:
| Total shareholder return ranking | Vesting | |||
|---|---|---|---|---|
| (weight: 37.5%) | (% of conditional award) | |||
| 1 | 175% | |||
| 2 | 150% | |||
| 3 | 125% | |||
| 4 | 100% | |||
| 5 | 75% | |||
| 6 | 50% | |||
| 7 | 25% | |||
| 8-12 | 0% |
The performance period is three years starting at the first of January of the year following the grant date. The costs of the previously granted performance awards (and share options) are recognised in profit or loss over the total service period of four years.
As at 31 December 2017, Fugro granted no performance options (2016: 257,200) and awarded no performance shares (2016: 128,600). The average remaining term of the performance options outstanding is 4.3 years as at 31 December 2017 (31 December 2016: 5.2 years).
As at 31 December the following performance options were outstanding:
| Number of | Outstanding at | Additional | Forfeited in | Exercised in | Outstanding at | Exercisable at | Exercise price | |||
|---|---|---|---|---|---|---|---|---|---|---|
| Year of issue | Duration | participants | Granted | 01-01-2017 | grant in 2017 | 2017 | 2017 | 31-12-2017 | 31-12-2017 | (EUR) |
| 2014 | 6 years | 22 | 158,500 | 152,889 | - | 4,410 | - | 148,479 | - | 17.26 |
| 2015 | 6 years | 39 | 219,200 | 213,500 | - | 24,622 | - | 188,878 | - | 15.06 |
| 2016 | 6 years | 44 | 261,200 | 257,200 | 4,000 | 33,013 | - | 228,187 | - | 14.55 |
| 638,900 | 623,589 | 4,000 | 62,045 | - | 565,544 | - |
| Key figures |
|---|
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
As at 31 December the following performance shares were outstanding:
| Year of issue | Duration | Number of participants |
Granted | Outstanding at 01-01-2017 |
Additional grant in 2017 |
Forfeited in 2017 |
Vested in 2017 |
Outstanding at 31-12-2017 |
|---|---|---|---|---|---|---|---|---|
| 2014 | 3 years | 22 | 79,250 | 76,444 | - | 2,206 | - | 74,238 |
| 2015 | 3 years | 39 | 109,600 | 106,750 | - | 12,312 | - | 94,438 |
| 2016 | 3 years | 44 | 130,600 | 128,600 | 2,000 | 16,508 | - | 114,092 |
| 319,450 | 311,794 | 2,000 | 31,026 | - | 282,768 |
The grant date fair value of the 50% portion with a TSR performance condition has been derived using a Monte Carlo Simulation model. The fair value of the portion with a ROCE performance condition (50%) has been determined using the Black & Scholes option pricing formula.
No performance shares have been granted as per 31 December 2017. The weighted average grant date fair value for 2016 amounted to EUR 14.33 for the performance shares. The significant inputs into the valuation models are:
| 2017 | 2016 | |
|---|---|---|
| Performance | Performance | |
| Shares/ | Shares/ | |
| Options | Options | |
| Share price (in €) | - | 14.55 |
| Exercise price options | - | 14.55 |
| Volatility (%) | - | 62.8% |
| TSR correlation | - | 41.5% |
| Dividend yield (%) | - | 0.0% |
| Vesting period (in years) | - | 3 |
| Risk-free interest rate (%) | - | (0.74%) |
| Expected term shares/options (in years) | - | 3/6 |
| Costs of granted performance shares | ||
| and performance options at the end of | ||
| 2014 in EUR | 225,862 | 236,047 |
| Costs of granted performance shares | ||
| and performance options at the end of | ||
| 2015 in EUR | 301,325 | 443,342 |
| Costs of granted performance shares | ||
| and performance options at the end of | ||
| 2016 in EUR | 422,847 | 518,923 |
The expected volatility is based on the annualised historical volatility prior to the date of grant, and the dividend yield is estimated based on the historic dividend yield on Fugro shares at the date of grant.
The total costs allocated to 2017 for the performance awards granted in 2014, 2015 and 2016 amount to EUR 950,034 (2016: EUR 1,198,312).
Fugro's share option scheme allows some assigned Group employees, who do not participate in the new long-term incentive plan, to acquire shares in Fugro. A share option entitles the employee to purchase ordinary shares in Fugro. The granting of options is dependent on the contribution of the relevant employee to the long-term development of the company. The vesting period for the previously granted options was three years starting at the first of January of the year following the grant date. The vesting period of the options to be granted in 2018 is three years starting at the grant date. The option period is six years. The options granted are not subject to any further conditions of exercise, except that the option holder is still employed by Fugro or one of its subsidiaries. The usual terms and conditions are applicable including exceptions in connection with retirement, long-term disability, death and change of control.
The Board of Management and the Supervisory Board decided annually on the granting of options. Options were granted annually on 31 December and the option exercise price was equal to the closing price of the share certificates traded on Euronext Amsterdam on the last trading day of the calendar year. The costs of the options are recognised in profit or loss over the related period of employment (four
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
years). As of 2018, granting will for the first time take place in early 2018 instead of 31 December, after the publication of the 2017 annual results. The costs of granted options shall be recognised in profit or loss over the total service period of three years. In 2017, therefore, no new share options have been granted to employees. In 2017, no options have been exercised.
Year of issue Duration Number of participants Granted Outstanding at 01-01-2017 Forfeited in 2017 Exercised in 2017 Outstanding at 31-12-2017 Exercisable at 31-12-2017 Exercise price (EUR) 2011 6 years 684 1,161,100 845,150 845,150 - - - 44.895 2012 6 years 674 1,093,300 824,150 69,300 - 754,850 754,850 44.520 2013 6 years 621 956,925 839,430 88,225 - 751,205 751,205 43.315 2014 6 years 654 770,638 690,120 59,902 - 630,218 630,218 17.260 2015 6 years 654 534,470 510,970 43,390 - 467,580 - 15.060 2016 6 years 695 571,850 571,850 34,550 - 537,300 - 14.550 5,088,283 4,281,670 1,140,517 - 3,141,153 2,136,273
As at 31 December the following options were outstanding:
The outstanding options as at 31 December 2017 have an exercise price ranging from EUR 14.55 to EUR 44.52. The average remaining term of the options is 2.8 years (2016: 3.2 years). The movement during the year of options and the average exercise price is as follows:
| 2017 Weighted average exercise Number of price (EUR) options 32.45 4,281,670 41.24 1,140,517 - - 29.25 3,141,153 |
2016 | |||
|---|---|---|---|---|
| Weighted average exercise price (EUR) |
Number of options |
|||
| Options outstanding at 1 January | 39.95 | 4,834,902 | ||
| Forfeited during the period | 55.65 | 1,125,082 | ||
| Options granted during the period | 14.55 | 571,850 | ||
| Options outstanding at 31 December | 32.45 | 4,281,670 | ||
| Exercisable at 31 December | 2,136,273 | 2,508,730 |
The fair value of the share options with only service conditions is determined by using a binomial model. Concerning the estimate for early departure (forfeitures), different percentages for different categories of staff are used: Board of Management 0% (only performance shares and performance options as from 2014) and other management/employees 3% per annum. The expected behaviour for exercising the options is estimated until the end of the exercise period. Expected volatility is estimated by considering historical share price volatility.
Divisional Performance Performance Governance Report of the Supervisory Board Other Information
No share options have been granted as per 31 December 2017. The inputs used in the measurement of the fair values at grant date of the share options are the following:
| 2017 | 2016 | |
|---|---|---|
| Average fair value of the granted options during the year in EUR | - | 6.60 |
| Exercise price (and fair value of shares at grant date) in EUR | - | 14.55 |
| Expected volatility | - | 50% |
| Option term | - | 6 years |
| Expected dividends | - | 0.00% |
| Risk-free interest rate (based on government bonds) | - | (0.31%) |
| Costs of granted options at the end of 2013 in EUR | - | 2,873,577 |
| Costs of granted options at the end of 2014 in EUR | 712,546 | 967,486 |
| Costs of granted options at the end of 2015 in EUR | 632,054 | 820,648 |
| Costs of granted options at the end of 2016 in EUR | 808,072 | 858,633 |
| Total | 2,152,672 | 5,520,344 |
| 2017 | ||||||
|---|---|---|---|---|---|---|
| Netherlands | Foreign | Total | Netherlands | Foreign | Total | |
| Technical staff | 611 | 6,854 | 7,465 | 641 | 7,068 | 7,709 |
| Management and administrative staff | 252 | 1,858 | 2,110 | 202 | 2,018 | 2,220 |
| Temporary and contract staff | 128 | 341 | 469 | 93 | 508 | 601 |
| Number of employees at 31 December | 991 | 9,053 | 10,044 | 936 | 9,594 | 10,530 |
| Average number of employees during the year | 964 | 9,323 | 10,287 | 940 | 10,305 | 11,245 |
Intangible assets that have an indefinite useful life or intangible assets not ready for use are not subject to amortisation and are tested annually for impairment. Other non-financial assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
In 2017, a total impairment loss of EUR 164 thousand has been recognised comprising an impairment loss of EUR 11,820 thousand, and a reversal of an impairment loss of EUR 11,656 thousand that relates to the trenching and cable laying assets divested in November 2017. Refer to
note 5.28. The amount of EUR 11,656 thousand comprises a reversal of an impairment loss of the vessel of EUR 2,512 thousand and a reversal of two trenchers for the amount of EUR 9,144 thousand. The loss of EUR 11,820 thousand mainly consist of an impairment loss of EUR 9,232 thousand on certain vessels within property, plant and equipment (PP&E) in the Marine operating segment, which is due to poor market conditions. Also, certain equipment within PP&E that form part of the Land operating segment has been impaired for EUR 2,200 thousand. Other items within PP&E, such as buildings and other equipment, have been impaired for EUR 388 thousand of which EUR 349 thousand and EUR 39 thousand is related to the Marine and Geoscience operating segments respectively.
| (EUR x 1,000) | 2016 |
|---|---|
| Goodwill Seabed Geosolutions | 20,505 |
| Goodwill Subsea Services | 17,650 |
| Goodwill Onshore Geotechnical Europe/Africa | 12,933 |
| Subtotal | 51,088 |
| Property, plant and equipment (PP&E) | 117,480 |
| Finder | 16,633 |
| Other intangible assets (and other non-financial fixed | |
| assets) | 7,515 |
Total 192,716 * As from 2017, the Subsea Services and Survey divisions have been integrated in the Marine division and the onshore geotechnical activities form part of the Land division. Last year, an amount of EUR 100.1 million of PP&E impairments was related to offshore geotechnical activities, Subsea Services and Survey divisions. The impairment of other intangibles was fully related to the offshore geotechnical activities. As from 2017, the offshore geotechnical activities form part of the Marine division.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Maintenance and operational supplies | 14,683 | 44,818 |
| Indirect operating expenses | 38,958 | 56,618 |
| Occupancy costs | 19,041 | 22,330 |
| Property lease expense | 20,213 | 24,328 |
| Communication and office equipment | 32,272 | 31,469 |
| Write-off receivables | 1,897 | 27,744 |
| Restructuring costs | 12,196 | 22,035 |
| Research costs | 2,103 | (260) |
| Loss on disposal of property, plant and | ||
| equipment | 482 | 303 |
| Marketing and advertising costs | 3,908 | 5,115 |
| Other | 50,489 | 43,618 |
| Total | 196,242 | 278,118 |
Other expenses include amongst others professional services, training costs, audit fees, miscellaneous charges and sundry costs. Certain adviser and other costs amounting to EUR 0.8 million (2016: EUR 6.0 million), included in other, are considered as exceptional item under the covenant requirement. Refer to note 5.49.6. Audit fees, as charged by EY, are disclosed in note 9.16.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Interest income on loans and receivables | (5,408) | (8,878) |
| Dividend income on available-for-sale | ||
| financial assets and other investments in | ||
| equity instruments | - | (2) |
| Finance income | (5,408) | (8,880) |
| Interest expense on financial liabilities | ||
| measured at amortised cost | 48,032 | 64,993 |
| Net change in fair value of financial | ||
| assets at fair value through profit or loss | (143) | 317 |
| Net foreign exchange variance | 28,258 | 14,500 |
| Finance expense | 76,147 | 79,810 |
| Net finance (income)/expenses | ||
| recognised in profit or loss | 70,739 | 70,930 |
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Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
| Key figures | |
|---|---|
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
The table set below summarises the net finance cost recognised in other comprehensive income and how they are categorised in the statement of changes in equity.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Recognised in other comprehensive income | ||
| Net change in fair value of hedge of net investment in foreign operations | 16,117 | 5,079 |
| Foreign currency translation differences of foreign operations | (116,498) | 26,935 |
| Foreign currency translation differences of equity-accounted investees | (835) | (1,425) |
| (101,216) | 30,589 | |
| Net change in fair value of cash flow hedges transferred to profit or loss | 103 | 288 |
| Net change in fair value of available-for-sale financial assets | 218 | 34 |
| Total | (100,895) | 30,911 |
| Recognised in: | ||
| Hedging reserve | 103 | 288 |
| Translation reserve | (95,194) | 27,308 |
| Retained earnings | 218 | 34 |
| Non-controlling interests | (6,022) | 3,281 |
| Total | (100,895) | 30,911 |
| Income tax expense/(gain) 5.35 Recognised in profit or loss (EUR x 1,000) |
2017 | 2016 |
| Current income tax expense/(gain) | ||
| Current year | 18,931 | 25,552 |
| Adjustments for prior years | (5) | (11,902) |
| 18,926 | 13,650 | |
| Deferred income tax expense/(gain) | ||
| Origination and reversal of tax losses and temporary differences | 8,538 | (5,419) |
| Change in tax rate | 10,550 | 2,240 |
| Recognition of previously unrecognised tax losses and temporary differences | (7,297) | (22,738) |
| Write down of deferred tax asset | 16,386 | 27,820 |
| Liability for undistributed foreign earnings (deferred) | (48) | (1,190) |
| Adjustments for prior years | 540 | (5,211) |
| 28,669 | (4,498) | |
| Total income tax expense/(gain) | 47,595 | 9,152 |
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
| (EUR x 1,000) | 2017 % | 2017 | 2016 % | 2016 |
|---|---|---|---|---|
| Profit/(loss) for the period from continuing operations | (165,344) | (300,983) | ||
| Income tax expense/(gain) | 47,595 | 9,152 | ||
| Profit/(loss) before income tax | (117,749) | (291,831) | ||
| Income tax using the weighted domestic average tax rates | 29.1 | (34,285) | 30.8 | (89,962) |
| Change in tax rate | (8.9) | 10,550 | (0.8) | 2,240 |
| Recognition of previously unrecognised tax losses and temporary differences | 2.2 | (2,523) | 7.8 | (22,738) |
| Current year tax losses and tax credits not recognised | (43.5) | 51,199 | (25.6) | 74,692 |
| Write down of deferred tax asset | (13.9) | 16,386 | (9.5) | 27,820 |
| Non-deductible expenses | (13.5) | 15,852 | (12.7) | 37,119 |
| Tax exempt income | 6.3 | (7,371) | 1.5 | (4,356) |
| Liability for undistributed foreign earnings (deferred) | 0.0 | (48) | 0.4 | (1,190) |
| Adjustments for prior years (deferred) | 3.6 | (4,234) | 1.8 | (5,211) |
| Adjustments for prior years (current) | 0.0 | (5) | 4.1 | (11,902) |
| Dividend and other income taxes | (1.8) | 2,074 | (0.9) | 2,640 |
| (40.4) | 47,595 | (3.1) | 9,152 |
The weighted domestic average tax rate is computed by multiplying the result before tax of each tax group with the applicable local corporate income tax rates that vary from 0% to 35%. The decreased weighted domestic average tax rate when compared to prior year is caused by a significant different mix of results in the various tax groups.
| (EUR x 1,000) | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|
| Tax (expense)/ | Tax (expense)/ | |||||
| Before tax | benefit | Net of tax | Before tax | benefit | Net of tax | |
| Defined benefit plan actuarial gains (losses) | 19,916 | (2,891) | 17,025 | (14,758) | 613 | (14,145) |
| Net change in fair value of cash flow hedges transferred to | ||||||
| profit or loss | 103 | - | 103 | 288 | - | 288 |
| Net change in fair value of hedge of net investment in | ||||||
| foreign operations | 16,117 | - | 16,117 | 5,079 | - | 5,079 |
| Share-based payment transactions | 3,103 | - | 3,103 | 6,935 | - | 6,935 |
| Net change in fair value of available-for-sale financial assets | 218 | - | 218 | 34 | - | 34 |
| Subordinated unsecured convertible bonds | 15,773 | (3,943) | 11,830 | 34,538 | (8,822) | 25,716 |
| Foreign currency translation differences of foreign | ||||||
| operations and equity-accounted investees | (109,355) | (7,978) | (117,333) | 26,010 | (500) | 25,510 |
| (54,125) | (14,812) | (68,937) | 58,126 | (8,709) | 49,417 |
Reference is also made to note 5.41
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
|---|---|---|---|---|---|---|---|---|
The net current tax liability of EUR 11,310 thousand (2016: EUR 11,176 thousand liability) represents the balance of current tax assets and liabilities in respect of current and prior periods less advance tax payments.
(EUR x 1,000) 2017
| Fixed assets | ||||||
|---|---|---|---|---|---|---|
| Land and | Plant and | under | ||||
| buildings | equipment | Vessels | construction | Other | Total | |
| Cost | ||||||
| Balance at 1 January 2017 | 211,982 | 1,258,294 | 954,004 | 40,857 | 221,191 | 2,686,328 |
| Investments | 1,318 | 43,090 | 41,240 | 15,995 | 6,331 | 107,974 |
| Transfers from fixed assets under construction | - | 8,606 | 30,690 | (39,907) | 611 | - |
| Disposals | (18,359) | (67,170) | (135,576) | - | (6,603) | (227,708) |
| Effects of movement in foreign exchange rates | (12,410) | (69,997) | (96,010) | (836) | (21,488) | (200,741) |
| Transfers to assets classified as held for sale | (10,676) | - | - | - | - | (10,676) |
| Balance at 31 December 2017 | 171,855 | 1,172,823 | 794,348 | 16,109 | 200,042 | 2,355,177 |
| Depreciation and impairment losses | ||||||
| Balance at 1 January 2017 | 88,070 | 1,072,593 | 522,040 | - | 197,633 | 1,880,336 |
| Depreciation | 5,773 | 71,642 | 37,975 | - | 11,552 | 126,942 |
| Impairment loss (note 5.32) | 56 | (6,665) | 6,720 | - | 53 | 164 |
| Disposals | (5,820) | (53,076) | (89,255) | - | (6,255) | (154,406) |
| Effects of movement in foreign exchange rates | (5,547) | (62,511) | (49,824) | - | (17,839) | (135,721) |
| Transfers to assets classified as held for sale | (5,833) | - | - | - | - | (5,833) |
| Balance at 31 December 2017 | 76,699 | 1,021,983 | 427,656 | - | 185,144 | 1,711,482 |
| Carrying amount | ||||||
| At 1 January 2017 | 123,912 | 185,701 | 431,964 | 40,857 | 23,558 | 805,992 |
| At 31 December 2017 | 95,156 | 150,840 | 366,692 | 16,109 | 14,898 | 643,695 |
Other Information
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
Message
| Fixed assets | ||||||
|---|---|---|---|---|---|---|
| Land and | Plant and | under | ||||
| buildings | equipment | Vessels | construction | Other | Total | |
| Cost | ||||||
| Balance at 1 January 2016 | 213,625 | 1,267,914 | 948,416 | 38,865 | 235,716 | 2,704,536 |
| Investments | 2,124 | 34,751 | 40,906 | 10,285 | 4,427 | 92,493 |
| Transfers from fixed assets under construction | 440 | 5,646 | 145 | (7,777) | 1,546 | - |
| Disposals | (2,615) | (51,889) | (70,860) | - | (21,426) | (146,790) |
| Effects of movement in foreign exchange rates | (1,592) | 1,872 | 35,397 | (516) | 928 | 36,089 |
| Balance at 31 December 2016 | 211,982 | 1,258,294 | 954,004 | 40,857 | 221,191 | 2,686,328 |
| Depreciation and impairment losses | ||||||
| Balance at 1 January 2016 | 81,429 | 977,174 | 458,337 | - | 201,011 | 1,717,951 |
| Depreciation | 6,806 | 108,901 | 39,964 | - | 16,695 | 172,366 |
| Impairment loss (note 5.32) | 2,193 | 36,153 | 78,714 | - | 420 | 117,480 |
| Disposals | (2,305) | (50,617) | (70,854) | - | (20,855) | (144,631) |
| Effects of movement in foreign exchange rates | (53) | 982 | 15,879 | - | 362 | 17,170 |
| Balance at 31 December 2016 | 88,070 | 1,072,593 | 522,040 | - | 197,633 | 1,880,336 |
| Carrying amount | ||||||
| At 1 January 2016 | 132,196 | 290,740 | 490,079 | 38,865 | 34,705 | 986,585 |
| At 31 December 2016 | 123,912 | 185,701 | 431,964 | 40,857 | 23,558 | 805,992 |
The Group has assessed whether any impairment triggers exist for its property, plant and equipment. Reference is made to note 5.32 Impairments.
This mainly relates to vessels. At 31 December 2017, capitalised borrowing costs related to the construction of vessels amounts to nil (2016: EUR 1.8 million and interest rate of 4.5%).
In 2016, Fugro entered into a finance lease arrangement for a certain vessel (Hugin Explorer). The total carrying amount of this vessel is EUR 18.8 million as at 31 December 2017 (31 December 2016: EUR 23.9 million). Refer to note 5.49.4.
| Key figures |
|---|
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
(EUR x 1,000) 2017
| Goodwill | Finder | Software | Other | Total | |
|---|---|---|---|---|---|
| Cost | |||||
| Balance at 1 January 2017 | 853,037 | 38,671 | 27,977 | 86,902 | 1,006,587 |
| Purchase of intangible assets | - | - | 1,118 | 4,805 | 5,923 |
| Other additions | - | 3,249 | - | - | 3,249 |
| Disposals | - | - | (895) | (86) | (981) |
| Effect of movements in foreign exchange rates | (59,641) | (2,406) | (2,121) | (7,701) | (71,869) |
| Balance at 31 December 2017 | 793,396 | 39,514 | 26,079 | 83,920 | 942,909 |
| Amortisation and impairment losses | |||||
| Balance at 1 January 2017 | 509,116 | 18,124 | 23,612 | 62,238 | 613,090 |
| Amortisation | - | - | 1,808 | 4,252 | 6,060 |
| Disposals | - | - | (895) | (86) | (981) |
| Effect of movements in foreign exchange rates | (39,267) | (1,071) | (1,857) | (5,390) | (47,585) |
| Balance at 31 December 2017 | 469,849 | 17,053 | 22,668 | 61,014 | 570,584 |
| Carrying amount | |||||
| At 1 January 2017 | 343,921 | 20,547 | 4,365 | 24,664 | 393,497 |
| At 31 December 2017 | 323,547 | 22,461 | 3,411 | 22,906 | 372,325 |
| Message | |||
|---|---|---|---|
| Key figures | from the CEO | Profile | Strategy |
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
| Goodwill | Finder | Software | Other | Total | |
|---|---|---|---|---|---|
| Cost | |||||
| Balance at 1 January 2016 | 851,005 | 32,469 | 33,766 | 80,662 | 997,902 |
| Purchase of intangible assets | - | - | 1,910 | 4,142 | 6,052 |
| Other additions | - | 5,060 | - | - | 5,060 |
| Disposals | - | - | (8,099) | (125) | (8,224) |
| Effect of movements in foreign exchange rates | 2,032 | 1,142 | 400 | 2,223 | 5,797 |
| Balance at 31 December 2016 | 853,037 | 38,671 | 27,977 | 86,902 | 1,006,587 |
| Amortisation and impairment losses | |||||
| Balance at 1 January 2016 | 454,426 | 823 | 19,798 | 56,228 | 531,275 |
| Amortisation | - | - | 3,847 | 4,715 | 8,562 |
| Impairment loss (note 5.32) | 51,088 | 16,633 | 7,515 | - | 75,236 |
| Disposals | - | - | (8,091) | (125) | (8,216) |
| Effect of movements in foreign exchange rates | 3,602 | 668 | 543 | 1,420 | 6,233 |
| Balance at 31 December 2016 | 509,116 | 18,124 | 23,612 | 62,238 | 613,090 |
| Carrying amount | |||||
| At 1 January 2016 | 396,579 | 31,646 | 13,968 | 24,434 | 466,627 |
| At 31 December 2016 | 343,921 | 20,547 | 4,365 | 24,664 | 393,497 |
For the impairment loss in 2016 reference is made to note 5.32. The Group has not reversed any material impairment losses.
As disclosed in note 5.26 Segment reporting, the organisational structure, management structure and internal reporting structure changed as of 2017. Fugro has therefore reassessed the (groups of) cash-generating units to which goodwill has been allocated. As of 2017, for the purpose of goodwill impairment testing, Fugro allocates goodwill to the following cash-generating units: Marine, Land and Seabed Geosolutions. For the purpose of impairment testing, these three cash-generating units represent the lowest level within the Group at which goodwill is monitored for internal management purposes and are not larger than the Group's three operating segments. The revised goodwill CGU structure did not give rise to any goodwill impairments. As of 2017, the Marine CGU with allocated goodwill comprises the former offshore Survey and offshore Geotechnical CGU's. Geospatial Services, onshore Geotechnical Middle East & India/Asia Pacific and onshore Geotechnical Americas CGU's all with goodwill form part of the Land CGU.
Divisional Performance Performance Governance
Report of the Supervisory Board
| (EUR x 1,000) | Growth rate first year |
Growth rate long-term |
Pre-tax discount rate |
Division | Goodwill 2017 |
|---|---|---|---|---|---|
| Marine | (4.5%) | 2.0% | 10.2% | Marine | 175,562 |
| Land | (4.4%) | 2.0% | 10.2% | Land | 86,962 |
| Seabed Geosolutions | 146.5% | 2.0% | 11.0% | Geoscience | 61,023 |
| Total | 323,547 |
The capitalised goodwill was allocated to the following CGU's as at 31 December 2016:
| Growth rate | Growth rate | Pre-tax | Goodwill | ||
|---|---|---|---|---|---|
| (EUR x 1,000) | first year | long-term | discount rate | Division | 2016 |
| Offshore Survey | (2.4%) | 2.0% | 10.1% | Survey | 119,646 |
| Geospatial Services | (3.5%) | 2.0% | 10.1% | Survey | 17,793 |
| Offshore Geotechnical | (10.3%) | 2.0% | 10.1% | Geotechnical | 63,919 |
| Onshore Geotechnical Middle East & India/Asia Pacific | 5.6% | 2.0% | 10.1% | Geotechnical | 30,884 |
| Onshore Geotechnical Americas | (2.4%) | 2.0% | 10.1% | Geotechnical | 42,664 |
| Seabed Geosolutions | 8.6% | 2.0% | 12.8% | Geoscience | 69,015 |
| Total | 343,921 |
The recoverable amounts of the cash-generating units have been determined based on value in use calculations. Value in use was determined by discounting the expected future cash flows from the continuing use of the CGU's. The calculation of the value in use was based on the following key assumptions:
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
The recoverable amounts for Marine, Land and Seabed Geosolutions exceed the carrying amounts of the CGU's with significant headroom.
The aggregate carrying amount of the equity-accounted investees of EUR 69,701 thousand as at 31 December 2017, consists of joint ventures for EUR 14,861 thousand (31 December 2016: EUR 20,068 thousand) and associates for EUR 54,840 thousand (31 December 2016: nil). The Group's share of profit from continuing operations from its joint ventures amounted to EUR 5,121 thousand in 2017 (2016: EUR 2,223 thousand loss). No amounts were reported as other comprehensive income from its joint ventures in 2017 (2016: EUR nil). In 2017, the Group received dividends of EUR 8,843 thousand (2016: EUR 5,580 thousand) from its joint ventures.
The Group's share of profit (or loss) from continuing operations and of other comprehensive income from associates in 2017 amounts to a loss of EUR 409 thousand (2016: nil) and a gain of EUR 649 thousand (2016: nil) respectively. The other comprehensive income from Fugro's associates mainly relates to foreign currency exchange differences. None of the group's equity-accounted investees are publicly listed entities and consequently they do not have published price quotations. Refer to note 5.28 for the acquired interest in Global Marine Holdings LLC in 2017.
The group has no significant commitments to its joint ventures and associates.
The Group holds the following other investments:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Other investments | 1,095 | 1,095 |
| Long-term loans | 8,070 | 9,180 |
| Deposits | 12,447 | 11,971 |
| Advance lease payment | 8,066 | 9,074 |
| Available-for-sale financial assets | 558 | 372 |
| Other long-term receivables | 910 | 2,058 |
| 31,146 | 33,750 |
The Group received no dividends from its other investments in 2017 (2016: EUR 2 thousand).
Long-term loans mainly comprise a loan due from Wavewalker B.V. for the principal amount of EUR 7.5 million (31 December 2016: EUR 8.3 million). An amount of EUR 0.8 million was repaid in 2017. The loan bears annual interest of 5%. The loan has to be fully repaid, including interest, before 30 April 2027.
The fair value of the available for sale financial assets is based on quoted prices of these companies on the Australian Securities Exchange (ASX).
In 2017, certain loans of approximately EUR 1.0 million have been fully written-off as the collectability of such loans are considered as unlikely. The costs are included in other expenses as write-of receivables in the consolidated statement of comprehensive income.
| 5.41 | Deferred tax assets and liabilities |
|---|---|
| ------ | ------------------------------------- |
Deferred tax assets and liabilities are attributable to the following items:
| (EUR x 1,000) | Assets | Liabilities | Net | |||
|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Property, plant and equipment | 10,197 | 26,107 | (202) | (136) | 9,995 | 25,971 |
| Intangible assets | 765 | 2,951 | (105) | (1,272) | 660 | 1,679 |
| Loans and borrowings | - | - | - | (997) | - | (997) |
| Subordinated unsecured convertible bonds | - | - | (10,593) | (8,503) | (10,593) | (8,503) |
| Employee benefits | 7,822 | 15,415 | - | - | 7,822 | 15,415 |
| Provisions for other liabilities and charges | 2,879 | 3,752 | (382) | (139) | 2,497 | 3,613 |
| Tax loss carry-forwards | 26,263 | 39,222 | - | - | 26,263 | 39,222 |
| Other items | 4,251 | 7,744 | (2,719) | (5,192) | 1,532 | 2,552 |
| Deferred tax assets/(liabilities) | 52,177 | 95,191 | (14,001) | (16,239) | 38,176 | 78,952 |
| Set off of tax components | (12,754) | (14,589) | 12,754 | 14,589 | - | - |
| Net deferred tax asset/(liability) | 39,423 | 80,602 | (1,247) | (1,650) | 38,176 | 78,952 |
The recognised deferred tax assets are dependent on future taxable profits in excess of profits arising from the reversal of existing taxable temporary differences. The recognised amounts relate to tax groups that are profitable or are expected to be profitable in the foreseeable future.
| Recognised | ||||||
|---|---|---|---|---|---|---|
| in other | Recognised | |||||
| Balance | Recognised in | comprehensive | directly in | Balance | ||
| (EUR x 1,000) | 01-01-2017 | profit or loss | income | equity | 31-12-2017 | |
| Property, plant and equipment | 25,971 | (15,976) | - | - | 9,995 | |
| Intangible assets | 1,679 | (1,019) | - | - | 660 | |
| Loans and borrowings | (997) | 997 | - | - | - | |
| Subordinated unsecured convertible bonds | (8,503) | 1,853 | - | (3,943) | (10,593) | |
| Employee benefits | 15,415 | (4,702) | (2,891) | - | 7,822 | |
| Provisions for other liabilities and charges | 3,613 | (1,116) | - | - | 2,497 | |
| Tax loss carry-forward | 39,222 | (12,959) | - | - | 26,263 | |
| Exchange differences | - | 5,273 | (5,273) | - | - | |
| Other items | 2,552 | (1,020) | - | - | 1,532 | |
| Total | 78,952 | (28,669) | (8,164) | (3,943) | 38,176 |
Financial Statements
Divisional Performance Performance Governance
Report of the
Supervisory Board
Key figures
Message
Divisional Performance Performance Governance Report of the Supervisory Board Other Information
| (EUR x 1,000) | Balance 01-01-2016 |
Recognised in profit or loss |
Recognised in other comprehensive income |
Recognised directly in equity |
Balance 31-12-2016 |
|---|---|---|---|---|---|
| Property, plant and equipment | 6,789 | 19,182 | - | - | 25,971 |
| Intangible assets | (9,905) | 11,584 | - | - | 1,679 |
| Loans and borrowings | (4,288) | 1,832 | 1,459 | - | (997) |
| Subordinated unsecured convertible bonds | - | 319 | - | (8,822) | (8,503) |
| Employee benefits | 18,638 | (3,836) | 613 | - | 15,415 |
| Provisions for other liabilities and charges | 4,980 | (1,367) | - | - | 3,613 |
| Tax loss carry-forward | 60,876 | (21,654) | - | - | 39,222 |
| Exchange differences | - | 1,431 | (1,431) | - | - |
| Other items | 5,545 | (2,993) | - | - | 2,552 |
| Total | 82,635 | 4,498 | 641 | (8,822) | 78,952 |
Deferred tax has not been recognised in respect of the following items:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Tax credits | 1,079 | 2,170 |
| Deductible temporary differences | 41,113 | 28,823 |
| Tax losses | 189,355 | 176,010 |
| Total | 231,547 | 207,003 |
Unrecognised deferred tax assets relate to tax units previously suffering losses for which it is currently not probable that future taxable profit will be available to offset these losses, taking into account fiscal restrictions on the utilisation of loss compensation.
The deductible temporary differences and capital allowances do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items, because it is not probable that future taxable profit will be available against which the Group can utilise these benefits. Unrecognised tax assets changed over the period as follows:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| As of 1 January | 207,003 | 136,290 |
| Movements during the period: | ||
| Additional unrecognised losses and | ||
| temporary differences | 67,585 | 102,512 |
| Recognition of previously unrecognised | ||
| tax losses and temporary differences | ||
| (profit or loss) | (7,297) | (22,738) |
| Recognition of previously unrecognised | ||
| tax losses and temporary differences | ||
| (equity) | (507) | 465 |
| Effect of change in tax rates | (32,115) | (316) |
| Exchange rate differences | (19,699) | 9,775 |
| Change from reassessment | 16,577 | (18,985) |
| As of 31 December | 231,547 | 207,003 |
Of the total recognised and unrecognised deferred tax assets in respect of tax losses carried forward an amount of EUR 14,109 thousand expires in periods varying from two to five years. An amount of EUR 23,254 thousand expires between five and ten years, an amount of EUR 51,031 thousand expires between ten and twenty years and an amount of EUR 127,224 thousand can be offset indefinitely. Based on forecasted results per tax jurisdiction, management considered it probable that sufficient future taxable profit will be generated to utilise recognised deferred tax assets depending on taxable profits in excess of the profits arising from the reversal of existing temporary differences.
Divisional Performance Performance Governance
Report of the Supervisory Board
At 31 December 2017, no deferred tax liabilities relating to investments in subsidiaries have been recognised (2016: EUR nil), because Fugro controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future due to permanent reinvestments. The aggregate amount of temporary differences for which these deferred tax liabilities have not been recognised is EUR nil (2016: EUR nil).
In some of the countries where the Group operates, local tax laws provide that gains on disposal of certain assets are tax exempt, provided that the gains are not distributed. The company does not intend to distribute such gains; therefore no tax liabilities are recognised in this respect.
In 2017, EUR 23,404 thousand (2016: EUR 48,275 thousand) of other inventories was recognised as an expense and no inventory was written down (2016: EUR 96 thousand).
| Trade and other receivables 5.43 |
||||||
|---|---|---|---|---|---|---|
| (EUR x 1,000) | 2017 | 2016 | ||||
| Unbilled revenue on (completed) projects | 146,590 | 151,991 | ||||
| Trade receivables | 240,655 | 308,810 | ||||
| Other receivables | 83,385 | 85,425 | ||||
| Vendor loan | 6,300 | - | ||||
| 476,930 | 546,226 |
Unbilled revenue on (completed) projects represents the gross amount expected to be collected from customers for contract work performed to date. It is measured at costs incurred plus profits recognised to date less progress billings and recognised losses. The contracts in progress for which this amount exceeds progress billings are presented as unbilled revenue on (completed) projects.
The contracts in progress for which progress billing exceeds costs incurred plus profits recognised to date less progress billings and recognised losses are presented as advance instalments to work in progress. At 31 December 2017, trade receivables include retentions of EUR 17.3 million (2016: EUR 13.5 million) relating to completed projects.
Trade receivables are shown net of impairment losses amounting to EUR 17.9 million (2016: EUR 39.5 million) arising from identified doubtful receivables from customers. Trade receivables were impaired taking into account the
financial position of the debtors, the days outstanding and expected outcome of negotiations and legal proceedings against debtors. Unbilled revenue on (completed) projects does not include (material) impairment losses (2016: EUR nil). Other receivables include VAT receivables, prepayments for insurance and claims, deposits, current portion of long term receivables and sundry receivables.
The vendor loan has been issued in connection with the divestment of Fugro's trenching and cable laying assets. Refer to note 5.28. The loan bears annual interest of 4%. After 11 January 2018 the loan bears interest of 10% per annum. The loan has to be repaid before 11 October 2018.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Cash and cash equivalents | 213,574 | 248,488 |
| Bank overdraft | (2,638) | (4,043) |
| Cash and cash equivalents in the | ||
| consolidated statement of cash flows | 210,936 | 244,445 |
The cash and cash equivalents disclosed above and in the consolidated statement of cash flows include EUR 48 million (31 December 2016: EUR 53 million) of Angolan kwanza's in Angola where exchange controls apply. These cash balances are therefore not available for general use by the other entities within the group. Refer to note 5.53.
The assets held for sale relate to buildings which sale is going to take place in 2018. As at 31 December 2016, the assets classified as held for sale were related to a building which sale took place in 2017.
| (In thousands of shares) | Ordinary shares | |
|---|---|---|
| 2017 | 2016 | |
| On issue and fully paid at 1 January | 84,572 | 84,572 |
| Number of (certificates of) own shares | ||
| held by Fugro N.V. (treasury shares) | (3,613) | (3,628) |
| On issue and fully paid at 31 December | ||
| – entitled to dividend | 80,959 | 80,944 |
from the CEO Profile Strategy
Group
Divisional Performance Performance Governance Report of the Supervisory Board Other Information
On 31 December 2017, the authorised share capital amounts to EUR 16 million (2016: EUR 16 million) divided into 140 million ordinary shares (2016: 96 million), each of EUR 0.05 nominal value and 180 million (2016: 224 million) various types of preference shares, each of EUR 0.05 nominal value. At the extraordinary general meeting in 2017, it was approved to amend the articles of association and to adjust the authorised share capital. The number of ordinary shares within the authorised share capital has been increased by decreasing the number of various types of preference shares. The aggregate number of authorised share capital remains the same.
On 31 December 2017, the issued share capital amounted to EUR 4,228,626.25. As of this date, 60% of the ordinary shares (84,572,525 shares) were issued. No preference shares have been issued. In 2017, no certificates of shares were issued by the Foundation Trust Office (2016: nil). The holders of ordinary shares are entitled to dividends as approved by the annual general meeting from time to time. Furthermore, they are entitled to one vote per share in Fugro's shareholders meeting. The holders of certificates of shares are entitled to the same dividend but they are not entitled to voting rights. Under certain conditions the holder of certificates can exchange his/her certificates into ordinary shares and vice versa.
No dividend is (to be) paid for 2017 (2016: EUR nil).
The share premium can be considered as paid in capital.
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the company's net investment in a foreign subsidiary.
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
Fugro purchases and sells own shares in relation to the share option scheme. The cost of these shares held by the Group is recorded as a reserve within shareholder's equity. Fugro has purchased no certificates of own shares to cover its option scheme in 2017 (2016: nil). In 2017, fifteen thousand (15,000) shares were used (2016: nil). As per 31 December 2017, Fugro holds 3,613,347 own certificates of shares (2016: 3,628,347) with respect to the option scheme, subordinated unsecured convertible bonds and performance awards. This was 4.3% of the issued capital (2016: 4.3%).
The equity component of the subordinated unsecured convertible bonds EUR 100 million issued on 2 November 2017 as presented in the consolidated statement of changes in equity can be summarised as follows:
| (EUR x 1,000) | 2017 |
|---|---|
| Subordinated unsecured convertible bonds EUR 100 | |
| million- equity component | 16,167 |
| Initial direct cost attributable to equity component | (394) |
| 15,773 | |
| Tax on subordinated unsecured convertible bonds | (3,943) |
| Equity component of subordinated unsecured | |
| convertible bonds EUR 100 million, net of tax | 11,830 |
| Equity component of EUR 190 million issued in 2016, | |
| net of tax, as at 31 December | 25,716 |
| Total equity component of subordinated unsecured | |
| convertible bonds as at 31 December | 37,546 |
Refer to note 5.49.3.
No dividend is proposed to be paid-out for 2017.
The basic and diluted earnings per share for 2017 amount to EUR 2.04 negative (2016: EUR 3.82 negative). The calculation of basic earnings per share at 31 December 2017, is based on the loss from operations attributable to owners of the company consisting of a loss of EUR 165,344 thousand (2016: EUR 300,983 thousand loss) that is adjusted for the loss of the non-controlling interest of EUR 373 thousand (2016: EUR 7,951 thousand gain), and the weighted average number of shares outstanding at 31 December 2017 of 80,959 thousand (2016: 80,944
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thousand). The share options on issue and the subordinated unsecured convertible bonds could have an impact on the weighted average number of (diluted) ordinary shares. However, their conversion to (certificates of) ordinary shares would not decrease earnings per share or increase loss per share and as such they have not been treated as dilutive.
Basic earnings per share from discontinued operations for 2017 amounts to EUR 0.06 and is based on the profit from discontinued operations of EUR 5,070 thousand (2016: nil) and the weighted average number of shares outstanding of 80,959 thousand at 31 December 2017. The share options and subordinated unsecured convertible bonds could have an impact on the weighted average number of (diluted) ordinary shares and could decrease the earnings per share from discontinued operations. However, the diluted earnings per share from discontinued operations equals the basic earnings per share for 2017.
subsidiaries is considered as insignificant.
Summarised balance sheet
5.48.1 Subsidiaries with non-controlling interest The total non-controlling interest for the period is EUR 41,610 thousand (surplus), of which EUR 30,065 thousand (surplus) is for Seabed Geosolutions B.V. and EUR 10,359 thousand (surplus) is attributable to Fugro-
Suhaimi Ltd. The individual non-controlling interest of other
Set out below are the summarised financial information for the subsidiaries Seabed Geosolutions B.V. (Seabed) and Fugro-Suhaimi Ltd (Suhaimi) that have material non-controlling interests to the Group. The non-controlling interest in Seabed and Fugro-Suhaimi is 40% and 50% respectively, which also represent 40% respectively 50% of the companies' voting rights in the general meeting of shareholders.
Fugro controls the operations and management of Seabed and Suhaimi as it directs the relevant revenue generating activities of both companies. Fugro also determines the strategy, policies and day-to-day business of these activities; therefore both subsidiaries, with a significant non-controlling interest, are fully incorporated into these consolidated financial statements. The shareholders of these companies have certain customary rights on certain key decisions, such as decisions on the declaration and payment of dividend and any significant change to the scope of the business, which rights are considered as protective in nature and normally go beyond the normal scope of business. Such decisions must be taken by a majority of 75% of the votes cast in both entities, but do not affect Fugro's ability to control the activities of both companies.
| (EUR x 1,000) | Seabed | Suhaimi | |||
|---|---|---|---|---|---|
| As at 31 December | As at 31 December | ||||
| 2017 | 2016 | 2017 | 2016 | ||
| Current | |||||
| Assets | 33,797 | 90,709 | 23,820 | 33,286 | |
| Liabilities | (40,107) | (70,479) | (10,600) | (17,322) | |
| Total current net assets | (6,310) | 20,230 | 13,220 | 15,964 | |
| Non-current | |||||
| Assets | 86,034 | 94,123 | 12,665 | 15,380 | |
| Liabilities | (4,561) | (11,386) | (5,166) | (5,131) | |
| Total non-current net assets | 81,473 | 82,737 | 7,499 | 10,249 | |
| Net assets | 75,163 | 102,967 | 20,719 | 26,213 | |
| NCI percentage | 40% | 40% | 50% | 50% | |
| Carrying amount of NCI | 30,065 | 41,187 | 10,359 | 13,107 |
| Key figures |
|---|
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(EUR x 1,000) Seabed Suhaimi
| For period ended 31 December |
For period ended 31 December |
|||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Revenue | 73,582 | 172,978 | 30,354 | 30,435 |
| Profit/(loss) before income tax | (15,060) | 693 | 12,011 | 12,482 |
| Income tax (expense)/income | (1,354) | 3,883 | - | - |
| Post-tax profit/(loss) from continuing operations | (16,414) | 4,576 | 12,011 | 12,482 |
| Other comprehensive income | (26) | - | - | - |
| Total comprehensive income/(loss) | (16,440) | 4,576 | 12,011 | 12,482 |
| Total comprehensive income/(loss) allocated to non-controlling interests | (6,576) | 1,830 | 6,005 | 6,241 |
| Dividends paid to non-controlling interests | - | - | 7,234 | 9,972 |
| (EUR x 1,000) | Seabed | Suhaimi | |||
|---|---|---|---|---|---|
| For period ended 31 December |
For period ended 31 December |
||||
| 2017 | 2016 | 2017 | 2016 | ||
| Net cash generated from operating activities | (11,740) | 63,727 | 9,246 | 14,594 | |
| Net cash used in investing activities | (24,307) | (12,526) | (856) | (901) | |
| Net cash used in financing activities | (5,807) | (48,937) | (14,467) | (18,061) | |
| Net increase in cash and cash equivalents and bank overdrafts | (41,854) | 2,264 | (6,077) | (4,368) | |
| Cash, cash equivalents and bank overdrafts at beginning of year | 50,073 | 46,263 | 11,256 | 15,174 | |
| Exchange gains/(losses) on cash and cash equivalents | (3,723) | 1,546 | (1,087) | 450 | |
| Cash and cash equivalents and bank overdrafts at end of year | 4,496 | 50,073 | 4,092 | 11,256 |
The information above are the amounts before intercompany eliminations.
| Key figures | Message from the CEO |
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|---|---|---|---|---|---|---|---|---|
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to liquidity risk, currency risk and interest rate risk and, refer to note 5.55, 5.56 and 5.57.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Bank loans | 386,699 | 243,537 |
| Private placement loans 2011 in USD | - | 133,058 |
| Private placement loans 2011 in EUR | - | 17,171 |
| Private placement loans 2011 in GBP | - | 14,108 |
| Private placement loans 2002 in USD | - | 14,862 |
| Subordinated unsecured convertible bonds in EUR 190,000 | 160,399 | 153,900 |
| Subordinated unsecured convertible bonds in EUR 100,000 | 82,827 | - |
| Finance lease liabilities | 10,973 | 18,336 |
| Other loans and long-term borrowings | 483 | 537 |
| Subtotal | 641,381 | 595,509 |
| Less: current portion of loans and borrowings | 6,488 | 22,006 |
| 634,893 | 573,503 |
The bank loans and private placement loans contain covenants. The Group is in compliance with these covenants as at 31 December 2017. Reference is made to 5.49.6.
As at 31 December 2017, Fugro has drawn a total amount of EUR 387 million under the committed multicurrency revolving facilities (31 December 2016: EUR 245 million).
Other Information
Terms and conditions of outstanding loans were as follows:
| (EUR x 1,000) | 2017 | 2016 | |||||
|---|---|---|---|---|---|---|---|
| Nominal | Year of | Face | Carrying | Face | Carrying | ||
| Currency | interest rate | maturity | value | value | value | value | |
| EURIBOR/ | |||||||
| LIBOR + | |||||||
| Bank loans | EUR/USD | 190 bps | 2020 | 387,000 | 386,699 | 245,000 | 243,537 |
| Private placement loans: | |||||||
| 320 million USD bonds 2011 | USD | 5.05% | 2018 | - | - | 53,411 | 52,193 |
| 330 million USD bonds 2011 | USD | 5.78% | 2021 | - | - | 56,381 | 53,998 |
| 100 million USD bonds 2011 | USD | 5.88% | 2023 | - | - | 28,204 | 26,867 |
| 27.5 million GBP bonds 2011 | GBP | 5.06% | 2018 | - | - | 5,521 | 5,380 |
| 40 million GBP bonds 2011 | GBP | 5.82% | 2021 | - | - | 9,170 | 8,728 |
| 35 million EUR bonds 2011 | EUR | 5.81% | 2021 | - | - | 18,212 | 17,171 |
| 37 million USD bonds 2002 | USD | 8.10% | 2017 | - | - | 14,987 | 14,862 |
| 190 million EUR Subordinated unsecured | |||||||
| convertible bonds 2016 | EUR | 4.00% | 2021 | 190,000 | 160,399 | 190,000 | 153,900 |
| 100 million EUR Subordinated unsecured | |||||||
| convertible bonds 2017 | EUR | 4.50% | 2024 | 100,000 | 82,827 | - | - |
| Finance lease liabilities | USD | 5.15-5.55% | 2019-2022 | 11,553 | 10,973 | 19,784 | 18,336 |
| Mortgage and other loans and long-term | |||||||
| borrowings | Variable | 3.5-8.6% | 2018-2024 | 483 | 483 | 537 | 537 |
| 689,036 | 641,381 | 641,207 | 595,509 |
The bank loan represents a 5-year multicurrency revolving credit facility of initially EUR 500 million. Rabobank and ING Bank N.V. provided EUR 127.5 million each, HSBC Bank Plc. provided EUR 75 million, Barclays Bank plc and ABN AMRO Bank N.V. provided EUR 50 million each, Credit Suisse provided EUR 40 million and BNP Paribas S.A./N.V. provided EUR 30 million. The interest is LIBOR, or in relation to any loan in EUR, EURIBOR plus a margin based on the consolidated net debt/adjusted EBITDA at each period of twelve months ending on the last day of the company's financial quarters. In 2017, the multicurrency revolving credit facility has been increased by EUR 75 million to EUR 575 million. Rabobank and ING Bank N.V. provided EUR 17.25 million each. ABN AMRO Bank N.V. provided EUR 30 million. Credit Suisse and BNP Paribas S.A./N.V. have provided EUR 6 million and EUR 4.5 million respectively. At 31 December 2017, a total amount of EUR 387 million of the multicurrency revolving credit facility
was in use (31 December 2016: EUR 245 million), of which an equivalent of EUR 147 million was drawn in USD (USD 175 million).
The total amortised transaction costs amounts to EUR 1.4 million (31 December 2016: EUR 1.0 million) of which EUR 0.6 million relate to the drawn part of the bank loans. These are included in the carrying amount of the bank loans for the drawn facility and recorded as other current assets for the undrawn portion and are amortised over the term. An amount of EUR 0.6 million of transaction costs was paid in 2017 (2016: EUR 0.2 million).
In 2017, the private placement loans have been fully repaid from the net proceeds of the issuance of the unsecured subordinated convertible bonds, from further usage of the multicurrency revolving credit facility and cash-flows generated from ordinary course of business. In 2017, total
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amortised transaction costs amounts to EUR 16.4 million (2016: EUR 24.3 million) and an amount of EUR 6.2 million of transaction costs has been paid (2016: EUR 17.5 million).
5.49.3 Subordinated unsecured convertible bonds
On 2 November 2017, Fugro issued 1,000 subordinated unsecured convertible bonds (the bonds) at a par value of EUR 100 thousand each (i.e. EUR 100 million in total), which are publicly traded on the Frankfurt Stock Exchange. The bonds were issued at 100% par value. A coupon of 4.5% per annum will be paid semi-annually in arrear in equal instalments on 2 May and 2 November in each year. Unless previously redeemed, converted or purchased and cancelled, the bonds will be redeemed at their principal amount on or around 2 November 2024. At the option of the holders, the bonds are convertible into certificates ("certificaten van aandelen"), representing ordinary shares in the capital of Fugro. The initial conversion rate is 6,693 certificates for each bond (an initial conversion price of EUR 14.9412). The certificates underlying the bonds correspond to approximately 7.9% of the company's issued share capital.
The conversion price of the bonds is subject to standard anti-dilution adjustments in the event of share consolidations, share splits, capital distributions, rights issues and bonus issues and in the event of a change in control, a merger, or other events. Fugro will have the option to convert all but not some of the outstanding bonds into certificates at the then prevailing conversion price at any time from 23 November 2020, if the value of the certificates underlying a bond exceeds EUR 150 thousand for a specified period of time. Holders of the bonds have the option to force redemption of the principal amount plus interest (in cash) by Fugro on 30 October 2022 or in the event of a change in control. Fugro has an early redemption option (clean-up call) if 15% or less of the aggregate principal amount of the bonds remains outstanding. Fugro has an option to redeem all, but not some of the bonds in the event of certain changes in tax law. Fugro considers the bond as a compound financial compound financial instrument containing a debt host (including closely related embedded liability derivatives) and an embedded equity derivative (conversion option).
The bonds are presented in the consolidated statement of financial position and consolidated statement of comprehensive income as follows:
| (EUR x 1,000) | 2017 |
|---|---|
| Face value of subordinated unsecured convertible bonds | |
|---|---|
| EUR 100 million, issued on 2 November 2017 | 100,000 |
| Subordinated unsecured convertible bonds EUR 100 | |
| million- equity component. Refer to note 5.46.6. | 16,167 |
| Liability component | 83,833 |
| Initial direct cost attributable to liability component | (2,039) |
| Interest expense* | 1,033 |
| Interest paid | - |
| Non-current liability | 82,827 |
* Interest expense is calculated by applying the effective interest rate of 8.1 % to the liability component.
The initial fair value of the liability portion of the subordinated unsecured convertible bonds was determined using a market interest rate for an equivalent non-convertible bond at the issue date. The liability is subsequently recognised on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognised in shareholders' equity, net of income tax, and not subsequently remeasured. The total transaction costs paid attributable to the issuance of the subordinated unsecured convertible bonds amounted to EUR 2,433 thousand of which EUR 394 thousand has been allocated to the equity component of the subordinated unsecured convertible bonds.
As at 31 December 2017, the carrying amount of the EUR 190 million subordinated unsecured convertible bonds issued in 2016 amount to EUR 160,399 thousand (31 December 2016: EUR 153,900 thousand) with an interest expense (at 9.2%) of EUR 14.1 million in 2017. EUR 7.6 million coupon of 4% has been paid in 2017. Unless previously redeemed, converted or purchased and cancelled, these bonds will be redeemed at their principal amount on or around 26 October 2021. Upon exercise of their conversion rights, these bonds will be convertible into certificates (certificaten van aandelen) at a conversion rate of 5,144 for each bond held, representing ordinary shares in the capital of Fugro. Fugro will have the option to convert all but not some of these outstanding bonds into certificates at the then prevailing conversion price at any time from 18 November 2019, if the value of the certificates underlying a bond exceeds EUR 150 thousand for a specified period of time.
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. On 1 July 2016, Fugro entered into a finance lease arrangement in connection with the purchase of a chartered vessel Hugin Explorer with a lease term of three years for the amount of EUR 23,850 thousand. At expiry of the charter period, Fugro will acquire and ownership will be transferred to Fugro by payment of the remaining purchase price.
Commitments in relation to finance leases and the present value of these liabilities, which are mainly related to the finance lease arrangement in connection with the purchase of a chartered vessel, are as follows:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Gross finance lease liabilities – minimum lease payments | ||
| No later than one year | 6,342 | 7,108 |
| Later than one year and no later than 5 years | 5,211 | 12,676 |
| 11,553 | 19,784 | |
| Future finance charges on finance lease liabilities | 580 | 1,448 |
| Present value of finance lease liabilities | 10,973 | 18,336 |
| Of which: | ||
| Non-current* | 4,631 | 11,228 |
| Current | 6,342 | 7,108 |
* Are due later than 1 years and no later than three years.
The table below sets out an analysis of the changes in liabilities arising from financing activities.
| Subordinate unsecured |
Subordinate unsecured |
Mortgage and | |||||
|---|---|---|---|---|---|---|---|
| Private | convertible | convertible | Finance | other loans | |||
| placement | bonds | bonds | lease | and long-term | |||
| (EUR x 1,000) | Bank loans | loans | EUR 190,000 | EUR 100,000 | liabilities | borrowings | Total |
| Balance at 1 January 2017 | 243,537 | 179,199 | 153,900 | - | 18,336 | 537 | 595,509 |
| Cash flow from financing activities | 152,011 | (183,212) | - | 97,567 | (5,499) | (39) | 60,828 |
| Equity Component of convertible bond | - | - | - | (15,773) | - | - | (15,773) |
| Effect of movement in foreign exchange rates | (9,449) | (9,029) | - | - | (1,864) | (15) | (20,357) |
| Other changes* | 600 | 13,042 | 6,499 | 1,033 | - | - | 21,174 |
| Balance at 31 December 2017 | 386,699 | - | 160,399 | 82,827 | 10,973 | 483 | 641,381 |
* Other changes include interest payments, accrued interest and amortisation.
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The cash flow from financing activities of EUR 60,828 thousand in 2017 represents the total net cash from financing activities in the consolidated statement of cash flows of EUR 53,594 thousand excluding dividends paid of EUR 7,234 thousand.
The multicurrency revolving credit facility as well as the US private placement loans, contains certain covenant requirements. In 2015, Fugro has reached agreement with its lenders on the refinancing of the multicurrency revolving credit facility, and has aligned the terms and conditions of the private placement loans with new multicurrency revolving credit facility. The private placement loans have been fully repaid in 2017. Refer to note 5.49.2. Upon the refinancing, the margin fixed charge coverage (fixed charge cover) has been adjusted as shown in the table below:
| or ending | Net leverage | Fixed charge cover | ||
|---|---|---|---|---|
| Covenant | Original covenant |
Adjusted Covenant |
||
| March 2016 | < 3.00x | > 2.25x | > 1.80x | |
| June 2016 onwards | < 3.00x | > 2.50x | > 1.80x | |
| December 2017 | < 3.00x | > 2.50x | > 1.80x | |
| March, June, September | ||||
| and December 2018 | < 3.00x | > 2.50x | > 2.00x | |
| March 2019 onwards | < 3.00x | > 2.50x | > 2.50x |
The covenant requirements consist of the following:
■ Declared dividend < 60% of the profit of the group for such financial year (dividend payment in 2017 (over the year 2016) is conditional on covenant compliance at original levels).
The covenant requirements are applicable at each period of twelve months ending on the last day of the company's financial quarters.
The adjusted consolidated EBITDA for purpose of the covenant calculations comprises the income (or loss) from operations before interest expense, depreciation, amortisation and taxes, but not including any exceptional items as listed below, and are further adjusted by:
Exceptional items comprise:
For purpose of the calculation of the net interest expense, any amortised transaction costs directly attributable to covenant amendments (advisor and other fees), other amortised transaction costs of a non-recurring nature in relation to the loans and interest expenses related to the subordinated unsecured convertible bonds are not included. For purpose of the calculation of the net financial indebtedness, the amounts of the subordinated unsecured convertible bonds are not included.
The operating lease expense comprises operational lease expense under third party costs as well as the property lease expense under other expenses. For covenant requirements (a) part of the operational lease expense is excluded for amounts that relate to maintenance, repairs, taxes, insurance, assessments or other similar charges, and additional rentals (in excess of fixed minimums) based on gross receipts. Amounts required to be paid pursuant to (i) any lease or agreement with a term of less than one year
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or (ii) any project-based lease or agreement with a term that begins at the start of a specific project and ends upon completion of such project are reported as costs of other rentals under third party costs, are not included for covenant requirements to an amount equal or less than EUR 175 million as from 2015. Total operational lease expense relating to (a) amounts to EUR 12,456 thousand (2016: EUR 31,672 thousand) and is therefore excluded from operating lease expense. The property lease expense for the amount of EUR 20,213 thousand (2016: EUR 24,328 thousand) is therefore included in the operating lease expense as from 2016. Total operating lease expense for covenant requirements therefore amounts to EUR 68,929 thousand in 2017 (2016: EUR 84,416 thousand).
| (EUR x 1,000) | ||
|---|---|---|
| Adjusted consolidated EBITDA | 100,120 | |
| (5.29) | Operating lease expense | 68,929 |
| (5.34) | Net interest expense | 9,659 |
| Margin fixed charge coverage > 1.8 | 2.15 | |
| Net consolidated financial indebtedness | ||
| (loans and borrowings less net cash) | 187,165 | |
| Bank guarantees exceeding cap of | ||
| EUR 250 million | - | |
| Total | 187,165 | |
| EBITDA coverage < 3.0 | 1.87 | |
| Consolidated net worth | 712,054 | |
| Balance sheet total | 1,898,304 | |
| Solvency > 33.33% | 37.5% | |
| Financial indebtedness < EUR 55 million | 14,042 | |
| Dividend < 60% of the profit | - |
As from 31 December 2016 and onwards, an aggregate maximum amount of EUR 35 million is applied in respect of exceptional items excluded from adjusted consolidated EBITDA, excluding any gains from exceptional items unless such gains represent an adjustment or reversal relating to a loss previously counted as an exceptional item. Some of the covenant requirements such as the margin fixed charge cover(age), solvency and net leverage (EBITDA coverage) are incorporated in certain sale and lease back arrangements.
As can be concluded from the table below, Fugro complies with all (adjusted) covenant requirements and also complied with all covenant requirements for the multicurrency revolving credit facility and US private placement loans during 2017. In case Fugro would not comply with the (adjusted) covenant requirements, the multicurrency revolving credit facility will become immediately due.
The table below summarises the covenant requirements of 2016:
| (EUR x 1,000) | 2016 |
|---|---|
| Adjusted consolidated EBITDA | 184,605 |
| Operating lease expense | 84,416 |
| Net interest expense | 29,390 |
| Margin fixed charge coverage > 1.8 | 2.36 |
| Net consolidated financial indebtedness | |
| (loans and borrowings less net cash) | 198,386 |
| Bank guarantees exceeding cap of | |
| EUR 250 million | - |
| Total | 198,386 |
| EBITDA coverage < 3.0 | 1.07 |
| Consolidated net worth | 934,859 |
| Balance sheet total | 2,174,449 |
| Solvency > 33.33% | 43.0% |
| Margin Indebtedness subsidiaries < 10% | 2.4% |
| Financial indebtedness < EUR 55 million | 23,361 |
| Dividend < 60% of the profit | - |
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In October 2016, following the placement of the EUR 190 million subordinated unsecured convertible bonds, two additional covenant requirements have been agreed with the owner of two geotechnical vessels:
As at 30 September 2017, Fugro has obtained a waiver for the consolidated EBITDA requirement.
In December 2017, after the placement of the EUR 100 million convertible bonds, the covenants were adjusted as follows:
Fugro complies with these requirements as at 31 December 2017.
The interest rate on mortgage loans and other loans and long-term borrowings over one year amounts to 3.5% – 8.6% (2016: 1.0% – 11.5%).
A change of control of Fugro could result in early repayment of the bank loans (note 5.49.1) and the unsecured subordinated convertible bond (note 5.49.3). An amount of EUR 387 million was drawn from the bank facilities as at 31 December 2017 (31 December 2016: EUR 245 million). The sale and lease back arrangement for two vessels contains certain change of control clauses.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Present value of funded obligations | 438,188 | 441,449 |
| Fair value of plan assets | (381,274) | (359,565) |
| Recognised net liability for defined benefit obligations |
56,914 | 81,884 |
| Liability for long-service leave | 11,953 | 13,593 |
| Total employee benefit liabilities | 68,867 | 95,477 |
The Group makes contributions to a number of pension plans, both defined benefit plans as well as defined contribution plans, that provide pension benefits for employees upon retirement in a number of countries. The retirement age is in line with the provisions in the different plans. The most important plans relate to plans in the Netherlands, United Kingdom and the United States. Details of these plans are as follows:
■ In the United Kingdom (UK) the Group operates two defined benefit pension schemes. For Fugro Holdings, the company operates a final salary defined benefit pension scheme. The scheme is an HMRC registered pension schemes and is subject to standard UK pensions and tax law. The Robertson Research International Group Pension Scheme is a funded, defined benefit pension plan. The pension schemes have been closed in previous years for new participants, but include the on-going obligations to their members (both former and present employees). The pension schemes assets are held in separate Trustee-administered funds. The schemes includes indexation in line with RPI.
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■ In the United States of America the Group operates a 401K plan for its employees. The Group contributes towards the deposits of its employees in accordance with agreed rules and taking into account the regulations of the IRS, the US tax authority. This plan qualifies as a defined contribution plan.
Plan assets consist of the following:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Equity securities | 81,346 | 72,405 |
| Government bonds | 8,270 | 4,628 |
| Corporate bonds | 41,953 | 39,785 |
| Investment funds | 19,825 | 20,553 |
| Insurance policies | 195,793 | 190,264 |
| Real estate | 21,291 | 19,959 |
| Cash | 12,796 | 11,971 |
| 381,274 | 359,565 |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Present value of the funded obligation | ||
| at 1 January | 441,449 | 431,190 |
| Current service costs (see below) | 7,411 | 7,482 |
| Interest expenses | 9,944 | 12,047 |
| 17,355 | 19,529 | |
| Remeasurements: | ||
| (Gain)/loss from change in demographic | - | |
| assumptions | (1,726) | |
| (Gain)/loss from change in financial | ||
| assumptions | (5,694) | 38,076 |
| Experience (gains)/losses | 1,729 | (4,222) |
| (3,965) | 32,128 | |
| Exchange differences | (8,049) | (35,072) |
| Paid by plan participants | 1,819 | 1,871 |
| Benefits paid by the plan | (10,414) | (11,665) |
| Plan amendments and curtailments | (7) | 3,468 |
| Present value of the funded obligation at | ||
| 31 December | 438,188 | 441,449 |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Fair value of plan assets at 1 January | 359,565 | 354,001 |
| Interest income | 8,045 | 9,870 |
| Remeasurement: | ||
| Return on plan assets, excluding | ||
| amounts included in interest income | 15,951 | 17,370 |
| Exchange differences | (5,912) | (25,198) |
| Paid by the employer | 13,239 | 14,004 |
| Contributions paid by plan participants | 1,819 | 1,865 |
| Benefits paid by the plan | (10,414) | (11,665) |
| Administrative expenses | (879) | (682) |
| Settlements | (140) | - |
| Fair value of plan assets at 31 December | 381,274 | 359,565 |
| Expenses recognised in profit or loss (EUR x 1,000) |
2017 | 2016 |
| Current service costs | 7,411 | 7,482 |
| Past service costs | (147) | 3,468 |
| Administrative expenses | 879 | 682 |
| Interest on obligation | 9,944 | 12,047 |
| 18,087 | 23,679 | |
| Interest income | (8,045) | (9,870) |
| 10,042 | 13,809 |
The expenses are recognised in the following line items in the statement of comprehensive income:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Personnel expenses | 10,042 | 13,809 |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Actual return on plan assets | 23,996 | 27,240 |
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
|---|---|---|---|---|---|---|---|
| Financial | |
|---|---|
| Statements |
| Other | |
|---|---|
| Information |
| income (EUR x 1,000) |
2017 | 2016 |
|---|---|---|
| Cumulative amount at 1 January | (67,865) | (61,151) |
| Recognised during the year | 19,916 | (14,758) |
| Effect of movement in exchange rates | 2,124 | 8,044 |
| Cumulative amount at 31 December | (45,825) | (67,865) |
Refer to note 5.35 with respect to the income tax impact on the actuarial gains / (losses) of EUR 19,916 thousand gain (2016: EUR 14,758 thousand loss).
Principal actuarial assumptions at the reporting date (expressed as a range of weighted averages):
| 2017 | 2016 | |||
|---|---|---|---|---|
| UK | Netherlands | UK | Netherlands | |
| Discount rate at 31 December | 2.5% | 1.9% | 2.7% | 1.9% |
| Future salary increases | 0.0% | 1.4% | 0.0% | 1.5% |
| Future pension increases | 2.6% | 0.0% | 2.7% | 0.0% |
The financial effects of differences between the actuarial assumptions and actuals for the pension liability and plan assets are included in the remeasurements.
Netherlands: AG2016 Generation table for men and women with an age correction according to ES-P2. United Kingdom: 90% of S2NxA with improvements in line with CMI 2014 and a long-term rate of improvements of 1.5% per annum and SAPS2 CMI 2016 1.25% long term + 1 year adjustment.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
| Impact on defined benefit obligation | |||
|---|---|---|---|
| Change in assumption | Increase in assumption | Decrease in assumption | |
| Discount rate | 0.50% | Decrease by 10.2% | Increase by 11.2% |
| Salary growth rate | 0.50% | Increase by 0.5% | Decrease by 0.4% |
| Pension growth rate | 0.50% | Increase by 2.5% | Decrease by 2.4%% |
| Increase by 1 year in assumption | Decrease by 1 year in assumption | ||
| Life expectancy | Increase by 3.3% | Decrease by 3.1% |
The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded.
| Key figures | |
|---|---|
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Financial Statements Other Information
| (EUR x 1,000) | 2017 | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|
| Present value of the defined obligation | 438,188 | 441,449 | 431,190 | 454,345 | 352,301 |
| Fair value of plan assets | 381,274 | 359,565 | 354,001 | 352,063 | 268,451 |
| Deficit in the plan | (56,914) | (81,884) | (77,189) | (102,282) | (83,850) |
| Experience adjustments arising on plan liabilities | 1,729 | (4,222) | (545) | 2,552 | (4,403) |
| Experience adjustments arising on plan assets | 15,951 | 17,370 | (9,993) | 52,814 | (1,814) |
| (EUR x 1,000) | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| Quoted | Unquoted | Total | % | Quoted | Unquoted | Total | % | |
| Equity instruments | 81,346 | 81,346 | 21% | 72,405 | 72,405 | 20% | ||
| Debt instruments | 70,048 | 70,048 | 18% | 64,966 | 64,966 | 18% | ||
| Government | 8,270 | 8,270 | 2% | 4,628 | 4,628 | 1% | ||
| Corporate bonds (Investment | ||||||||
| grade) | 41,953 | 41,953 | 11% | 39,785 | 39,785 | 11% | ||
| Corporate bonds | ||||||||
| (Non-investment grade) | 19,825 | 19,825 | 5% | 20,553 | 20,553 | 6% | ||
| Insurance policies | 195,793 | 195,793 | 52% | 190,264 | 190,264 | 53% | ||
| Property | 21,291 | 21,291 | 6% | 19,959 | 19,959 | 6% | ||
| UK | 21,291 | 21,291 | 6% | 19,959 | 19,959 | 6% | ||
| Cash and cash equivalents | 12,796 | 12,796 | 3% | 11,971 | 11,971 | 3% | ||
| Total | 185,481 | 195,793 | 381,274 | 100% | 169,301 | 190,264 | 359,565 | 100% |
* Previously stated as unquoted.
Through its defined benefit pension plans, the Group is exposed to a number of risks. Most of these risks come with the nature of a defined benefit plan, and are therefore not country specific. The most significant risks are detailed below:
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The plan liabilities are calculated using a discount rate set with reference to AA credit-rated corporate bond yields; if plan assets underperform this yield, the deficits will increase. The UK plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short-term.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans' bond holdings.
Some of the group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plan's assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that an increase in inflation will also increase the deficit.
The majority of the plans' obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans' liabilities. This is particularly significant in the UK plan, where inflationary increases result in higher sensitivity to changes in life expectancy. This risk is limited in the Netherlands where the insurer guarantees the payment of the accrued benefits.
In addition, the Group is exposed to a number of local risks. This is considered to be limited for the Netherlands as in the Netherlands the company has taken out an insurance contract to cover the pension plan. The insurance company guarantees all accrued entitlements. The insurance contract includes a separate account in which 80% of the investments are used to match the liability on a funding basis and 20% of the investments are used to invest in equity. The insurance company ultimately decides on investment policies and governance, as they run the downside risk. Returns over the unwinding interest are used to increase pensions. Fugro pays additional amounts to fund the indexation for active participants, but otherwise is only responsible for the annual cost of pension accrual. The pension increases for deferred and pensioners are depending on the means available in the investment depot
and therefore changes in the value of the investment depot will affect future pension increases as well.
In the UK, the Trustees set the Scheme's investment strategy, in consultation with the employer. The Robertson and UK Holdings plan include return seeking assets and bonds. The Robertson plan also includes matching assets to cover the pensioner liabilities. The employer is ultimately responsible for funding the accrued pensions and the pension increases.
The expected 2018 contributions amount to EUR 16.2 million (2017: EUR 16.6 million).
The weighted average duration of the defined benefit obligation is 21 years (2016: 22 years).
| United | Total | ||
|---|---|---|---|
| As at 31 December 2017 | Netherlands | Kingdom | weighted |
| Duration of plan | 23 | 19 | 21 |
from the CEO Profile Strategy
Group
Divisional Performance Performance Governance
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(EUR x 1,000) 2017 2016
| Asset | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Onerous | Onerous | retirement | |||||||
| contracts | Procedures Restructuring | Total | contracts | obligations | Procedures Restructuring | Total | |||
| Balance at 1 January | 13,017 | 21,173 | 7,465 | 41,655 | 37,454 | 13,900 | 22,642 | 2,734 | 76,730 |
| Provisions made during the year | 19,915 | 3,112 | 12,980 | 36,007 | 9,623 | - | 657 | 22,702 | 32,982 |
| Provisions used during the year | (14,013) | (272) | (14,721) | (29,006) | (18,848) | - | (1,397) | (17,361) | (37,606) |
| Provisions reversed during the | |||||||||
| year | (2,257) | (5,853) | (784) | (8,894) | (15,710) | (14,056) | (1,292) | (667) | (31,725) |
| Unwinding of discount | - | - | - | - | - | 308 | - | - | 308 |
| Effect of movements in foreign | |||||||||
| exchange rates | (1,049) | (380) | (352) | (1,781) | 498 | (152) | 563 | 57 | 966 |
| Transfer to trade and other | |||||||||
| payables | (12,215) | (693) | - | (12,908) | - | - | - | - | - |
| Balance at 31 December | 3,398 | 17,087 | 4,588 | 25,073 | 13,017 | - | 21,173 | 7,465 | 41,655 |
| Non-current | 342 | 16,726 | - | 17,068 | 5,682 | - | 21,163 | - | 26,845 |
| Current | 3,056 | 361 | 4,588 | 8,005 | 7,335 | - | 10 | 7,465 | 14,810 |
In 2017, the restructuring costs amounted to EUR 12.2 million (2016: EUR 22.0 million), including a reversal of EUR 0.8 million, and EUR 14.7 million has been used (2016: EUR 17.4 million). An amount of EUR 19.9 million in respect of onerous contract provisions was made during 2017. An amount of EUR 12.2 million of the onerous contract provision has been transferred to trade and other payables as certain onerous lease contracts have been ceased in 2017, and shall be actually further paid off in 2018. Fugro has accounted for certain tax indemnities and warranties under procedures in respect of the sale of the majority of the Geoscience business to CGG for liabilities arising from tax exposures. In 2017, an amount of EUR 5.8 million has been released as these exposures will not further materialise. Furthermore, an amount of EUR 0.7 million has been made during the year in respect of these tax indemnities and warranties for exposures additionally identified. This latter amount shall be actually settled in 2018 and has therefore been transferred to the trade and other payables. The corresponding gain of EUR 5.1 million has been classified as profit for the period from discontinued operations in the consolidated statement of comprehensive income as the cost for this provision was previously
presented accordingly. The total provision amounts to EUR 12.1 million as at 31 December 2017 (31 December 2016: EUR 17.9 million).
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Trade payables | 98,797 | 109,232 |
| Advance instalments to work in progress | 42,300 | 47,010 |
| Other payables | 201,497 | 219,135 |
| Balance at 31 December | 342,594 | 375,377 |
Other payables include elements such as accrued expenses of invoices to be received, employee related accruals and considerations payable regarding acquisitions.
The company's risk management policy includes the long-term sustainable management of its business activities and where possible, the mitigation of the associated business risks. Based on the nature and relative significance
Divisional Performance Performance Governance
Report of the Supervisory Board
of the risks related to the Group's wide diversity of markets, clients and regions and its broad portfolio of activities the risks have been quantified to the extent possible.
The Group has exposure to the following risks from its use of financial instruments:
This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital.
The Board of Management has overall responsibility for the establishment and oversight of the Group's risk management framework.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their role and obligations.
The audit committee oversees how management monitors compliance with the group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the group. The audit committee is assisted in its oversight role by internal audit. Both regular and ad hoc reviews of risk management controls and procedures are performed, the results of which are reported directly to the Board of Management. A summary of important observations is reported to the audit committee.
Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the group's receivables from customers.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each client. However, management also considers the composition of the Group's client base, including the default risk of the industry and country in which clients operate, as these factors may have an influence on credit risk. As the Group operates to a large extent in the oil and gas industry a significant portion of trade and other receivables relates to clients from this industry.
Some of the Group's orders are awarded on the basis of long-term preferred supplier agreements. In the course of a year Fugro often carries out multiple projects for the same client. Fugro typically has no single client that generates more than 5% of its revenue in the year. On occasion one client may generate more than 5%, which can happen in case of exceptionally large contracts where most of the revenue falls in the accounting year. Having a large number of clients and short project time spans mitigates Fugro's credit risk as the individual amounts receivable with the same client are limited.
New customers are analysed individually for creditworthiness before payment and delivery terms and conditions are offered. The Group's review may include external ratings, where available, and in some cases bank references. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group only on a prepayment basis or have to provide a bank guarantee.
The majority of the Group's clients has done business with the Group for many years and significant losses have only occurred incidentally in prior years. However, as a result of the expected negative effects of the current crisis in the oil and gas industry the credit risk has increased significantly. Clients that are known to have negative credit characteristics are individually monitored by the group controllers. If clients fail to pay timely the Group re-assesses the creditworthiness and stronger debt collection is started if deemed necessary. The Group publishes an internal list of clients that need extra attention before a contract is closed.
The Board of Management reviews frequently the outstanding trade receivables. Local management is requested to take additional precaution in working with these clients. The Group establishes an allowance for impairment that represents its estimate of incurred losses in
Group
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respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar receivables in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
The Group held cash and cash equivalents of EUR 213.6 million at 31 December 2017 (2016: EUR 248.5 million), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties, which have 'investment grade' credit ratings.
In principle Fugro does not provide parent company guarantees to its subsidiaries, unless commercial reasons exist. Fugro has filed declarations of joint and several liabilities for a number of subsidiaries at the Chambers of Commerce. Fugro has filed a list with the Chamber of Commerce which includes all financial interests of Fugro as well as a reference to each subsidiary for which such a declaration of liability has been deposited.
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The global cash pool was introduced in 2015, which made it possible for the company to use the cash surplus within the group to reduce the overdrafts at its main uncommitted facilities.
Although the result of the United Kingdom referendum to leave the EU leads to uncertainties, its impact on Fugro's business will not be fully visible until negotiation between UK and EU are completed.
As at 31 December 2017, Fugro holds cash balances in Angolan Kwanza's for the amount of EUR 48 million (31 December 2016: EUR 53 million) in Angola where exchange controls apply. The company expects that these exchange controls will become less when the oil and gas market conditions are expected to improve and when Angola will have increased inflow of USD in relation to their oil business. In addition, several actions have been explored to further lower this amount in the coming year and thereafter.
The Group monitors cash flow on a regular basis and operates with a global cash pool. Consolidated cash flow information, including a projection for the year, is reported on a monthly basis to the Board of Management, ensuring that the Group has sufficient cash on demand (or available lines of credit) to meet expected near term operational expenditures, including the servicing of financial obligations from lease commitments not included in the statement of financial position. Cash flows exclude the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Group maintains the following lines of credit:
■ A total amount of multicurrency revolving credit facility agreements with seven banks totalling EUR 575 million. Rabobank and ING Bank N.V. provided EUR 144.75 million each, HSBC Bank Plc. provided EUR 75 million, Barclays Bank Plc. provided EUR 50 million and ABN AMRO Bank N.V. provided EUR 80 million, Credit Suisse provided EUR 46 million and BNP Paribas S.A./N.V. provided EUR 34.5 million. At 31 December 2017, an amount of EUR 387 million has been drawn. These bank facilities have been secured until December 2020.
■ A variety of unsecured overdraft facilities in various currencies totalling around EUR 155 million of which EUR 3 million has been drawn at 31 December 2017 (31 December 2016: around EUR 219 million with EUR 4 million drawn).
Market risk includes changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. About 57% of the Group's activities relate to the oil and gas industry. The general downturn in the oil and gas market has resulted in pressure on work volume and pricing for oil services companies.
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The global nature of the business of the Group exposes the operations and reported financial results and cash flows to the risks arising from fluctuations in exchange rates. The Group's business is exposed to currency risk whenever it has revenues in a currency that is different from the currency in which it incurs the costs of generating those revenues. In the case that the revenues can be offset against the costs incurred in the same currency, the balance may be affected if the value of the currency in which the revenues and costs are generated varies relative to the Euro.
Cash inflows and outflows of the operating segments are offset if they are denominated in the same currency. This means that revenue generated in a particular currency balance out costs in the same currency, even if the revenues arise from a different transaction than that in which the costs are incurred. As a result, only the unmatched amounts are subject to currency risk.
To mitigate the impact of currency exchange rate fluctuations, the Group continually assesses the exposure to currency risks and if deemed necessary a portion of those risks is hedged by using derivative financial instruments. The principal derivative financial instruments used to cover foreign currency exposure are forward foreign currency exchange contracts. An amount of EUR 48 million (31 December 2016: EUR 53 million) is in Angolan Kwanza's which is subject to significant currency risk at year-end 2017. The national bank of Angola has devaluated its currency in 2018, which resulted in a further fall of the Angolan Kwanza against the Euro. The national bank might devaluate its currency further in 2018, which might further affect the value of the Angolan Kwanza against the euro.
Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily Euro, US dollar and British pound. This provides an economic hedge without derivatives being entered into and therefore hedge accounting is not applied in these circumstances. The Group's investment in its subsidiaries with US dollar as functional currency is partly hedged by means of the US dollar private placement loans and the use of the multicurrency revolving credit facility in USD, which reduces the currency risk arising from the subsidiary's net assets. In 2017, all private placement loans have been fully repaid. The Group's investments in other subsidiaries are not hedged.
The hedge on the investment on foreign operations is fully effective. Consequently all exchange differences relating to this hedge have been accounted for in other comprehensive income. The Group is sensitive to translation differences resulting from translation of its operations in non-Euro currencies to Euros. In 2017, significant exchange differences arose from the US dollar and British pound.
The Group's liabilities bear both fixed and variable interests. The Group's objective is to limit the effect of interest rate changes on the results by matching long term investment with long term (fixed interest) financing as much as possible.
The Board of Management's policy is to maintain a strong capital base in order to retain investor, creditor and market confidence and to sustain future development of the business. Capital consists of share capital, retained earnings and non-controlling interests of the Group. The Board of Management monitors the geographic spread of shareholders, the return on capital as well as the level of dividends to ordinary shareholders. The Board strives for a dividend pay-out ratio of 35 to 55% of the net result. No dividend is proposed to be paid-out for 2017.
The targeted solvency is set > 33.33%. The solvency at the end of 2017 was 37.5% (2016: 43.0%). The Group's objective is to achieve a healthy return on shareholders' equity. However, as in previous year(s) the return is significantly affected by the current market conditions and impairments identified in the current and mainly in prior years. As a result the return is 8.5% (negative) in 2017 (2016: 28.9% negative).
From time to time Fugro purchases its own certificates of shares. These certificates are used to cover the options and shares granted by Fugro. Purchase and sale decisions are made on a specific transaction basis by the Board of Management. Fugro does not have a defined share buy-back plan.
There were no changes to the Group's approach to capital management during the year.
The Group is subject to the externally imposed capital requirements related to covenant requirements as set out in note 5.49.6. As per 31 December 2017 and 31 December 2016 the Group complied with all imposed external capital requirements.
Message
| (EUR x 1,000) | Carrying amount | ||
|---|---|---|---|
| 2017 | 2016 | ||
| Other investments in equity instruments | 1,095 | 1,095 | |
| Available-for-sale financial assets | 558 | 372 | |
| Long-term loans | 8,070 | 9,180 | |
| Deposits | 12,447 | 11,971 | |
| Other long-term receivables | 910 | 2,058 | |
| Unbilled revenue on (completed) projects | 146,590 | 151,991 | |
| Trade receivables | 240,655 | 308,810 | |
| Other receivables | 83,385 | 85,425 | |
| Vendor loan | 6,300 | - | |
| Cash and cash equivalents | 213,574 | 248,488 | |
| 713,584 | 819,390 |
The maximum exposure to credit risk at the reporting date is the carrying amount of each class of financial assets mentioned above. The group holds no collateral as security on the long-term loans.
The maximum exposure for trade receivables and unbilled revenue on (completed) projects at the reporting date by geographic region was:
| (EUR x 1,000) | Carrying amount | |
|---|---|---|
| 2017 | 2016 | |
| Netherlands | 32,328 | 73,965 |
| Europe other | 102,717 | 101,443 |
| Africa | 19,526 | 28,603 |
| Middle East | 79,931 | 87,297 |
| Asia | 37,102 | 58,093 |
| Australia | 26,920 | 11,508 |
| Americas | 88,721 | 99,892 |
| 387,245 | 460,801 |
The ageing of trade receivables and unbilled revenue on (completed) projects at the reporting date was:
The individually impaired receivables mainly relate to customers, which are in difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered. The ageing of trade receivables and unbilled revenue on (completed) projects is as follows:
Divisional Performance Performance Governance
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| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
| (EUR x 1,000) | 2017 | 2016 | ||
|---|---|---|---|---|
| Gross | Impairment | Gross | Impairment | |
| From 0 to 30 days | 272,029 | 988 | 326,836 | 535 |
| From 31 to 60 days | 41,100 | 44 | 47,899 | 566 |
| From 61 to 90 days | 18,661 | 294 | 16,916 | 627 |
| Over 90 days | 56,059 | 13,834 | 91,763 | 37,754 |
| Retentions and special items | 17,288 | 2,732 | 16,869 | - |
| 405,137 | 17,892 | 500,283 | 39,482 |
The movement in the allowance for impairment in respect of trade receivables and unbilled revenue on (completed) projects during the year was as follows:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Balance at 1 January | 39,482 | 29,211 |
| Impairment loss recognised | 7,133 | 18,590 |
| Impairment loss reversed | (5,236) | (2,887) |
| Trade receivables written off | (21,860) | (5,435) |
| Effect of movements in exchange rates | (1,627) | 3 |
| Balance at 31 December | 17,892 | 39,482 |
The allowance accounts in respect of trade receivables and unbilled revenue on (completed) projects are used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount considered irrecoverable is written off directly against the allowance.
The impairment loss recognised is mainly attributable to a limited number of clients for which receipt is doubtful or no longer probable.
Besides the impairment loss on certain long-term loans (refer to 5.40.3), no impairments related to other financial assets than trade receivables and unbilled revenue on (completed) projects are recognised. In general, the Group considers credit risk on other receivables and cash and cash equivalents to be limited. Cash and cash equivalents are held with large well known banks with adequate credit ratings only. Refer to 5.53.2.
significantly different amounts.
| 986,613 | 1,127,333 | 359,859 | 14,544 | 27,669 | 620,671 | 104,590 |
|---|---|---|---|---|---|---|
| Carrying amount |
Contractual cash flows |
6 months or less |
6 – 12 months |
1 – 2 years |
2 – 5 years |
More than 5 years |
|
|---|---|---|---|---|---|---|---|
| Bank loans | 243,537 | 254,489 | 1,245 | 1,191 | 4,728 | 247,325 | - |
| Private placement loans: | |||||||
| 320 million USD bonds | 52,193 | 56,558 | 1,349 | 1,349 | 53,860 | - | - |
| 330 million USD bonds | 53,998 | 70,300 | 1,629 | 1,629 | 3,259 | 63,783 | - |
| 100 million USD bonds | 26,867 | 38,625 | 829 | 829 | 1,658 | 6,634 | 28,675 |
| 27.5 million GBP bonds | 5,380 | 6,354 | 128 | 140 | 6,086 | - | - |
| 40 million GBP bonds | 8,728 | 12,292 | 245 | 267 | 534 | 11,246 | - |
| 35 million EUR bonds | 17,171 | 23,503 | 529 | 529 | 1,058 | 21,387 | - |
| 37 million USD bonds | 14,862 | 14,937 | 14,937 | - | - | - | - |
| Subordinated unsecured convertible bonds | |||||||
| in EUR | 153,900 | 228,021 | 3,790 | 3,810 | 7,600 | 212,821 | - |
| Finance lease liabilities | 18,336 | 19,784 | 3,525 | 3,584 | 7,108 | 5,567 | - |
| Other loans and long-term borrowings | 537 | 585 | 141 | 53 | 66 | 190 | 135 |
| Trade and other payables | 375,377 | 375,376 | 375,376 | - | - | - | - |
| Bank overdraft | 4,043 | 4,043 | 4,043 | - | - | - | - |
| 974,929 | 1,104,867 | 407,766 | 13,381 | 85,957 | 568,953 | 28,810 |
The interest included in the above table is based on the current amounts borrowed with current interest rates against the current exchange rate (if applicable). No assumptions are included for possible future changes in borrowings or interest payments. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at
| Carrying amount |
Contractual cash flows |
6 months or less |
6 – 12 months |
1 – 2 years |
2 – 5 years |
More than 5 years |
|
|---|---|---|---|---|---|---|---|
| Bank loans | 386,699 | 418,088 | 5,251 | 5,251 | 10,503 | 397,083 | - |
| Subordinated unsecured convertible bonds | |||||||
| in EUR 190,000 | 160,399 | 220,421 | 3,790 | 3,810 | 7,600 | 205,221 | - |
| Subordinated unsecured convertible bonds | |||||||
| in EUR 100,000 | 82,827 | 131,500 | 2,250 | 2,250 | 4,500 | 18,000 | 104,500 |
| Finance lease liabilities | 10,973 | 11,553 | 3,153 | 3,189 | 4,994 | 217 | - |
| Other loans and long-term borrowings | 483 | 539 | 183 | 44 | 72 | 150 | 90 |
| Trade and other payables | 342,594 | 342,594 | 342,594 | - | - | - | - |
| Bank overdraft | 2,638 | 2,638 | 2,638 | - | - | - | - |
(EUR x 1,000) 2017
Message
Key figures
The following are the contractual maturities of financial liabilities, including interest payments:
Group
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(EUR x 1,000) 2016
Group
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Report of the Supervisory Board Other Information
Refer to 5.5.1 for the significant main currency exchange rates applied in the year.
A 10 percent strengthening of the Euro against the above currencies at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the reporting date. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases. The analysis is performed on the same basis as for 2016. Refer to note 5.53.4 Currency risk.
| Profit or loss | ||
|---|---|---|
| Effect in EUR x 1,000 | Equity | after tax |
| 31 December 2017 | ||
| USD | (18,557) | 9,621 |
| GBP | (16,710) | 772 |
| AUD | (7,000) | 1,636 |
| NOK | (4,994) | (1,075) |
| 31 December 2016 | ||
| USD | (47,265) | 13,881 |
| GBP | (16,090) | 2,506 |
| NOK | (8,749) | (61) |
A 10 percent weakening of the euro against the above currencies at 31 December would have had the equal but opposite effect on the amounts shown above, on the basis that all other variables remain constant. The effect for 2017 in the table above on profit or loss is mainly positive as the losses reduce if the euro would increase against the other currencies.
AUD (8,518) 3,785
At the reporting date the interest rate profile of the Group's interest-bearing financial instruments was:
| (EUR x 1,000) | Carrying amount | ||||
|---|---|---|---|---|---|
| 2017 | 2016 | ||||
| Fixed rate instruments | |||||
| Financial assets | 14,370 | 9,180 | |||
| Financial liabilities | (254,682) | (351,972) | |||
| Variable rate instruments | |||||
| Financial assets | 213,574 | 248,488 | |||
| Financial liabilities | (389,337) | (247,580) | |||
| (416,075) | (341,884) |
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This analysis is performed on the same basis as in 2016. At 31 December 2017, it is estimated that a general increase (decrease) of 100 basis points in interest rates would decrease (increase) the Group's profit before income tax by approximately:
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
| (EUR x 1,000) | Profit or loss Equity |
||||||
|---|---|---|---|---|---|---|---|
| 100 bp increase |
100 bp decrease |
100 bp increase |
100 bp decrease |
||||
| 31 December 2017 | |||||||
| Variable rate instruments | (1,758) | 1,758 | - | - | |||
| Cash flow sensitivity (net) | (1,758) | 1,758 | - | - | |||
| 31 December 2016 | |||||||
| Variable rate instruments | 9 | (9) | – | – | |||
| Cash flow sensitivity (net) | 9 | (9) | – | – |
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:
| (EUR x 1,000) | 2017 | |||
|---|---|---|---|---|
| Carrying | Carrying | |||
| amount | Fair value | amount | Fair value | |
| Loans and receivables | ||||
| Trade receivables and other receivables* | 476,930 | 476,930 | 546,226 | 546,226 |
| Cash and cash equivalents | 213,574 | 213,574 | 248,488 | 248,488 |
| Deposits | 12,447 | 12,447 | 11,971 | 11,971 |
| Long-term loans | 8,070 | 8,070 | 9,180 | 9,180 |
| Other long-term receivables | 910 | 910 | 2,058 | 2,058 |
| Available-for-sale financial assets | ||||
| Other investments | 1,095 | 1,095 | 1,095 | 1,095 |
| Available-for-sale financial assets | 558 | 558 | 372 | 372 |
| Financial liabilities measured at amortised cost | ||||
| Bank loans | (386,699) | (386,699) | (243,537) | (243,537) |
| Mortgage and other loans and long-term borrowings | (483) | (483) | (537) | (537) |
| Private placement loans in USD | - | - | (147,920) | (170,664) |
| Private placement loans in GBP | - | - | (14,108) | (17,168) |
| Private placement loans in EUR | - | - | (17,171) | (23,212) |
| Subordinated unsecured convertible bonds EUR 190,000 | (160,399) | (168,929) | (153,900) | (157,102) |
| Subordinated unsecured convertible bonds EUR 100,000 | (82,827) | (84,835) | - | - |
| Finance lease liabilities | (10,973) | (10,973) | (18,336) | (18,336) |
| Bank overdraft | (2,638) | (2,638) | (4,043) | (4,043) |
| Trade and other payables | (342,594) | (342,594) | (375,377) | (375,377) |
| Total | (273,029) | (283,567) | (155,539) | (190,586) |
| Unrecognised gains/(losses) | (10,538) | (35,047) |
* Due to the short-term nature of the trade receivables and other receivables, their carrying amount is considered to be the same as their fair value.
Group
Divisional Performance Performance Governance
Report of the
The private placement loans carried for which fair value is disclosed were categorised within level 2 of the fair value hierarchy. The fair values of the subordinated unsecured convertible bonds are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
The fair value for several Fugro vessels and other assets were based on bids received, broker quotes and valuein-use calculations. Management considers the value to be within level 3 of the fair value hierarchy. Refer to note 5.32.
The Group uses the government yield curve as per the reporting date plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Loans and borrowings | 1.9% – 8.6% 1.0% - 11.5% | |
| Long term receivables | 5.0% | 5.0% |
The different fair value hierarchy levels have been defined as follows:
Fugro has available-for-sale financial assets of EUR 558 thousand as at 31 December 2017 (31 December 2016: EUR 372 thousand), which are categorised within level 1. As in last year, there are no assets or liabilities categorised within level 2 or 3.
The group's finance department performs the valuations of financial assets required for financial reporting purposes, including Level 3 fair values. The valuations are directly reported to the Chief Financial Officer.
Changes in Level 2 and Level 3 values are analysed at each reporting date.
5.59.1 Operating leases as lessee
Non-cancellable operating lease rentals are payable as follows:
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Less than one year | 69,504 | 84,268 |
| Between one and five years | 162,845 | 192,963 |
| More than five years | 88,802 | 77,471 |
| 321,151 | 354,702 |
The Group leases a number of vessels, offices and warehouse/laboratory facilities under operating leases. The leases typically run for an initial period of between three and ten years, with in most cases an option to renew the lease after that date. Lease payments are adjusted annually to reflect market rentals. None of the leases include significant contingent rentals. During the year an amount of EUR 127 million was recognised as an expense in profit or loss in respect of operating leases and other rentals (2016: EUR 166 million).
Per 31 December 2017, Fugro's bank has issued bank guarantees to clients for an amount of EUR 85 million (2016: EUR 96 million).
At 31 December 2017, the Group has no material contractual obligations to purchase property, plant and equipment (2016: EUR 6.8 million).
Report of the Supervisory Board Other Information
Message
Some Group companies are, as a result of their normal business activities, involved either as plaintiffs or defendants in claims. Based on information presently available and management's best estimate, it is not probable that the financial position of the Group will be significantly influenced by any of these matters. Should the actual outcome differ from the assumptions and estimates, the financial position of the Group would be impacted. Fugro N.V. and its Dutch operating companies form a fiscal unity for corporate tax. Each of the operating companies is severally liable for corporate tax to be paid by the fiscal unity.
No significant subsequent events to be noted.
The Group has a related party relationship with its subsidiaries, equity-accounted investees, members of the Board of Management and Supervisory Board.
Members of the Board of Management of Fugro hold 0.3% (2016: 0.3%) of the outstanding voting shares and certificates of shares in Fugro. Members of the Board of Management also participate in Fugro's share option scheme (refer note 5.31). In December 2017, Mr. Ø. Løseth has been appointed as member of the Board of Management as of 1 January 2018.
The remuneration of the Board of Management for 2017 and 2016 is as follows:
| (in EUR) | P. van Riel | P.A.H. Verhagen | M.R.F. Heine | |||
|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Fixed base salary | 600,000 | 600,000 | 450,000 | 450,000 | 450,000 | 450,000 |
| Compensation pension contribution | 96,847 | 95,135 | 75,936 | 75,708 | 59,618 | 58,545 |
| Short-term incentive plan | 99,600 | 130,200 | 75,000 | 97,650 | 75,000 | 97,650 |
| Pension costs (including disability insurance) | 43,129 | 41,315 | 59,032 | 42,362 | 43,505 | 27,335 |
| Severance | - | - | - | - | - | - |
| 839,576 | 866,650 | 659,968 | 665,720 | 628,123 | 633,530 | |
| Long-term incentive plan (see note 5.31.1) | - | 63,570 | - | 47,678 | - | 47,678 |
| Total | 839,576 | 930,220 | 659,968 | 713,398 | 628,123 | 681,208 |
| (in EUR) | B.M.R. Bouffard | S.J. Thomson | Total | ||||
|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||
| Fixed base salary | 450,000 | 339,312 | 160,086* | 450,000 | 2,110,086 | 2,289,312 | |
| Compensation pension contribution | 65,608 | 40,674 | 53,216 | 89,908 | 351,225 | 359,970 | |
| Bonus | 75,000 | 73,630 | - | 52,650 | 324,600 | 451,780 | |
| Pension costs (including disability insurance) | 43,385 | 34,057 | 50,481 | 34,268 | 239,532 | 179,337 | |
| Severance | - | - | 450,000 | - | 450,000 | - | |
| 633,993 | 487,673 | 713,783 | 626,826 | 3,475,443 | 3,280,399 | ||
| Long-term incentive plan (see note 5.31.1) | - | 34,675 | - | 47,678 | - | 241,279 | |
| Total | 633,993 | 522,348 | 713,783 | 674,504 | 3,475,443 | 3,521,678 |
* Fixed base salary comprises fixed salary until July 2017 compensated by allowances of the insurer due to sickness leave of this former board member and a payment of EUR 77,586 for outstanding vacation days.
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
Mr. Thomson has not been proposed for re-appointment during the annual general meeting on 2 May 2017. The severance includes an annual fixed salary of EUR 450,000 in accordance with the standard exit clause of the management agreement.
There are no guarantees or obligations towards or on behalf of the Board of Management.
The current remuneration policy was adopted by the AGM in 2014 and took effect retroactively as of 1 January 2014. The policy was amended twice after the adoption in 2014, the most recent amendment was adopted by the AGM in 2017. Within the framework of the policy, the remuneration for the Board of Management is determined by the Supervisory Board on the advice of the remuneration committee. The remuneration policy will be reviewed once every three years to verify its market conformity, potentially leading to adjustments. This remuneration policy is available on Fugro's website: www.fugro.com.
Each member of the Board of Management is eligible for an annual bonus. The bonus may vary from 0% to 100% of fixed base salary, with 66.7% being applicable when targets are achieved.
Targets are set yearly by the Supervisory Board, based on the budget and taking into account the strategy aspirations. Financial targets determine 75% of the bonus, non-financial or personal targets determine the remaining 25%. For each of the financial targets, a performance zone is set, with no bonus below the threshold level and the maximum bonus when performance exceeds the upper end of the performance zone. There will be no overshoot possibility for personal targets. The maximum multiplier for financial targets is therefore 1.67. The Supervisory Board ensures that the targets are challenging, realistic and consistent with Fugro's strategy.
The measures used and their relative weight are as follows:
| Financial targets: | Adjusted EBIT margin | 35% |
|---|---|---|
| Working capital | 20% | |
| Adjusted cash flow | 20% | |
| Non-financial (personal) targets | 25% |
The non-financial targets give the possibility to include health and safety, corporate social responsibility, personal development goals, etc. as targets into the bonus programme.
In view of the overall financial performance, the Supervisory Board, based on the advice of the remuneration committee, decided that no bonus will be paid on the financial targets. As the personal (non-financial) targets were met, the Supervisory Board decided to pay 16.7% of base salary to the eligible members of the Board of Management. The Supervisory Board will propose to the AGM on 26 April 2018 to pay the bonus amounts in a fixed number of restricted shares in Fugro (based on a stock price of EUR 12.0 per share) as follows on 1 May 2018: Mr. Van Riel 8,300 shares, Mr. Verhagen 6,250 shares, Mr. Heine 6,250 shares and Mr. Bouffard 6,250 shares. The shares will have a vesting period of 3 years and thereafter a holding (lock-up) period of 2 years. An exception is made for Mr. Van Riel who will retire after the AGM. His shares won't have a vesting period, but a holding (lock-up) period of 3 years.
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
As at 31 December the following performance options for the Board of Management under the long-term incentive plan were outstanding:
| Year of issue | Duration | Number of participants |
Granted | Outstanding at 01-01-2017 |
Forfeited in 2017* |
Exercised in 2017 |
Outstanding at 31-12-2017 |
Exercisable at 31-12-2017 |
Exercise price (EUR) |
|---|---|---|---|---|---|---|---|---|---|
| 2014 | 6 years | 4 | 97,500 | 97,500 | 3,125 | - | 94,375 | - | 17.26 |
| 2015 | 6 years | 4 | 97,500 | 97,500 | 10,625 | - | 86,875 | - | 15.06 |
| 2016 | 6 years | 5 | 120,000 | 120,000 | 18,125 | - | 101,875 | - | 14.55 |
| 315,000 | 315,000 | 31,875 | - | 283,125 | - |
* The performance options forfeited relates to Mr. Thomson, who has not been proposed for re-appointment. If and insofar as these performance options will vest, these will vest prorated based upon the number of full months that elapsed between the grant date and the date on which the management service agreement has ended. The prorated vesting has been reflected in the table.
The members of the Board of Management received no performance options in 2017 (2016: 30,000 for the chairman of the board and 22,500 for each of the other board members). Refer to note 5.32.1.
As at 31 December the following performance shares for the Board of Management under the long-term incentive plan were outstanding:
| Year of issue | Duration | Number of participants |
Granted | Outstanding at 01-01-2017 |
Forfeited in 2017* |
Vested in 2017 |
Outstanding at 31-12-2017 |
|---|---|---|---|---|---|---|---|
| 2014 | 3 years | 4 | 48,750 | 48,750 | 1,563 | - | 47,187 |
| 2015 | 3 years | 4 | 48,750 | 48,750 | 5,313 | - | 43,437 |
| 2016 | 3 years | 5 | 60,000 | 60,000 | 9,063 | - | 50,937 |
| 157,500 | 157,500 | 15,939 | - | 141,561 |
* The performance shares forfeited relates to Mr. Thomson, who has not been proposed for re-appointment. If and insofar as these performance shares will vest, these will vest prorated based upon the number of full months that elapsed between the grant date and the date on which the management service agreement has ended. The prorated vesting has been reflected in the table.
The members of the Board of Management received no performance shares in 2017 (2016: 15,000 of the chairman of the board and 11,250 for each of the other board members). Refer to note 5.31.1.
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
The table below provides an overview of the outstanding number of options for the (former) members of the board of management in respect of the share option scheme:
| Number of options | In EUR | Number of months | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Number at | Granted in | Exercised in | Forfeited in | Number at | Share price at | |||||
| Year | 01-01-2017 | 2017 | 2017 | 2017 | 31-12-2017 Exercise price | exercise day | Expiring date | Bonus | ||
| P. van Riel | 2011 | 53,000 | - | - | 53,000 | - | 44.895 | 31-12-2017 | 9 | |
| 2012 | 60,000 | - | - | - | 60,000 | 44.52 | 31-12-2018 | 8 | ||
| 2013 | 55,000 | - | - | - | 55,000 | 43.315 | 31-12-2019 | 8 | ||
| Total | 168,000 | - | - | 53,000 | 115,000 | |||||
| P.A.H. Verhagen | 2013-2014 | 30,000 | - | - | - | 30,000 | 43.315 | 31-12-2019 | ||
| Total | 30,000 | - | - | - | 30,000 | |||||
| W.S. Rainey | 2011 | 53,000 | - | - | 53,000 | - | 44.895 | 31-12-2017 | 9 | |
| 2012 | 53,000 | - | - | - | 53,000 | 44.52 | 31-12-2018 | 8 | ||
| 2013 | 47,000 | - | - | - | 47,000 | 43.315 | 31-12-2019 | 8 | ||
| Total | 153,000 | - | - | 53,000 | 100,000 | |||||
| S.J. Thomson | 2011-2012 | 64,000 | - | - | 64,000 | - | 53.010* | 31-12-2018 | - | |
| 2013 | 47,000 | - | - | 47,000 | - | 43.315 | 31-12-2019 | 5 | ||
| Total | 111,000 | - | - | 111,000 | - | |||||
| J. Rüegg | 2011 | 53,000 | - | - | 53,000 | - | 44.895 | 31-12-2017 | 9 | |
| 2012 | 53,000 | - | - | 53,000 | - | 44.52 | 31-12-2018 | 9 | ||
| Total | 106,000 | - | - | 106,000 | - | |||||
| A. Jonkman | 2011 | 53,000 | - | - | 53,000 | - | 44.895 | 31-12-2017 | 9 | |
| 2012 | 53,000 | - | - | - | 53,000 | 44.52 | 31-12-2018 | 8 | ||
| 2013 | 47,000 | - | - | - | 47,000 | 43,315 | 31-12-2019 | 8 | ||
| Total | 153,000 | - | - | 53,000 | 100,000 | |||||
| K.S. Wester | 2011 | 80,000 | - | - | 80,000 | - | 44.895 | 31-12-2017 | 9 | |
| Total | 80,000 | 80,000 | - | |||||||
| Total | 801,000 | 456,000 | 345,000 | |||||||
* Weighted average.
Key figures
The remuneration of the Supervisory Board is as follows:
from the CEO Profile Strategy
| 2017 | 2016 | |
|---|---|---|
| H.L.J. Noy, Chairman | 80,000 | 80,000 |
| J.C.M. Schönfeld, Vice-Chairman | 65,000 | 65,000 |
| A.J. Campo | 88,000 | 88,000 |
| P.H.M. Hofsté | 58,000 | 58,000 |
| A.H. Montijn | 60,000 | 58,000 |
| D.J. Wall | 88,000 | 88,000 |
| 439,000 | 437,000 |
There are no loans outstanding to the members of the Supervisory Board and no guarantees given on behalf of members of the Supervisory Board.
The Group has not entered into any significant joint ventures in 2017. Reference is further made to note 5.28 in respect of Fugro's interest in Global Marine Holdings LLC.
For an overview of (significant) subsidiaries we refer to chapter 6.
Management discussed with the audit committee the development in and choice of critical accounting principles and estimates and the application of such principles and estimates.
The preparation of financial statements in conformity with EU-IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts
recognised in the consolidated financial statements is included in the following notes:
■ Impairments: Impairment analyses, amongst other relating to vessels, are performed whenever a triggering event has occurred to determine whether the carrying amount exceeds the recoverable amount. Goodwill is at least tested for impairment annually. Impairment tests are based on estimates of future cash flows. The accounting policies regarding impairments are included in accounting policy 5.16. Note 5.38.2 contains information about the key assumptions used to determine the recoverable amount of the various cash generating units. Specific information on credit risk is disclosed in notes 5.53.2 and 5.54. These notes contain information about the assumptions used relating to impairment of trade receivables, unbilled revenue on (completed) projects and other receivables and appropriate sensitivity analysis.
■ Deferred tax: The assumptions used in recognition and measurement of deferred taxes are disclosed in note 5.41.
Other Information
Divisional Performance
Performance Governance
Report of the Supervisory Board
Divisional Performance Performance Governance
Supervisory Board Financial Statements
Report of the
Other Information
(including statutory seat and percentage of interest)
Unless stated otherwise, the direct or indirect interest of Fugro in the subsidiaries listed below is 100%. Insignificant, but consolidated, subsidiaries in terms of third party recompense for goods and services supplied and balance sheet totals have not been included. For entities where the direct or indirect interest of Fugro is less than 50%, the Group consolidates financial information of such entities based on the definition of control.
The subsidiaries listed below have been fully incorporated into the consolidated financial statements of Fugro, unless indicated otherwise.
The information as required by sections 2:379 and 2:414 of the Dutch Civil Code has been filed at the trade registry of the Chamber of Commerce in The Hague.
| Company | % | Office, Country |
|---|---|---|
| Fugro Albania sh.p.k. | Tirana, Albania | |
| Fugro Angola Limitada | 49% | Luanda, Angola |
| Fugro ROAMES Pty Ltd | Brisbane, Australia | |
| Fugro TSM Finance Pty Ltd | Perth, Australia | |
| Fugro Exploration Pty Ltd | Perth, Australia | |
| Fugro Survey Pty. Ltd. | Balcatta, Australia | |
| Fugro LADS Corporation Pty Ltd | Kidman Park, Australia | |
| Fugro Holdings (Australia) Pty Ltd | Perth, Australia | |
| Fugro Spatial Solutions Pty Ltd | Perth, Australia | |
| Fugro TSM Pty Ltd | Perth, Australia | |
| Fugro Satellite Positioning Pty Ltd | Perth, Australia | |
| Fugro AG Pty Ltd | Perth, Australia | |
| Fugro Austria GmbH | Bruck an der Mur, Austria | |
| SOCAR-Fugro LLC | 49%* | Baku, Azerbaijan |
| Fugro Belgique/België S.A./N.V. | Brussels, Belgium | |
| Fugro In Situ Geotecnia Ltda. | Pinhais, Brazil | |
| Fugro Brasil Levantamentos Ltda. | Rio de Janeiro, Brazil | |
| Sudeste Serviços Ltda. | Rio de Janeiro, Brazil | |
| Fugro Sendirian Berhad | Bandar Seri Begawan, | |
| Brunei Darussalam | ||
| Fugro Survey (B) Sdn Bhd | 70% | Kuala Belait, Brunei Darussalam |
| Geofor Cameroun SA | Douala, Cameroun | |
| GIE GEOFOR Afrique | Douala, Cameroun | |
| Fugro Canada, Corp. | St. John's, Canada | |
| Fugro Chile S.A. | Santiago, Chile | |
| Fugro Technical Services (Beijing) Ltd. | Beijing, China | |
| Fugro Technical Services (Guangzhou) | Guangzhou, China | |
| Ltd. | ||
| Fugro Pacifica Qinhuangdao Co., Ltd. | Qinhuangdao, China |
| Company | % | Office, Country |
|---|---|---|
| China Offshore Fugro GeoSolutions | 50%* | Shekou, Shenzhen, China |
| (Shenzhen) Co. Ltd. | ||
| Fugro Curaçao N.V. | Willemstad, Curaçao | |
| Fugro Consultants International N.V. | Willemstad, Curaçao | |
| Fugro Financial International N.V. | Willemstad, Curaçao | |
| Fugro S.A.E. | Cairo, Egypt | |
| Fugro Geoid S.A.S. | Jacou, France | |
| Fugro GeoConsulting S.A.S. | Nanterre, France | |
| Fugro Holding France S.A.S. | Nanterre, France | |
| Fugro Topnav S.A.S. | Palaiseau, France | |
| GEOTER S.A.S. | Clapiers, France | |
| Geofor Gabon SA | Libreville, Gabon | |
| Fugro Gabon SARL | Port Gentil, Gabon | |
| Fugro Germany Land GmbH | Berlin, Germany | |
| Fugro Germany Marine GmbH | Bremen, Germany | |
| Fugro Certification Services Ltd. | Kwai Fong, Hong Kong | |
| Fugro Technical Services Ltd. | Tuen Mun, Hong Kong | |
| Fugro Geotechnical Services Ltd. | Fo Tan, Hong Kong | |
| Fugro (Hong Kong) Ltd. | Wanchai, Hong Kong | |
| Fugro Geosciences International Ltd. | Wanchai, Hong Kong | |
| Fugro Holdings (Hong Kong) Ltd. | Wanchai, Hong Kong | |
| Fugro Hydrographic Surveys Ltd. | Wanchai, Hong Kong | |
| Fugro Geospatial Services | Wanchai, Hong Kong | |
| (Hong Kong) Ltd. | ||
| Fugro Geotechnics Vietnam | Wanchai, Hong Kong | |
| (Hong Kong) Ltd. | ||
| Fugro Marine Survey International Ltd. | Wanchai, Hong Kong | |
| Fugro SEA Ltd. | Wanchai, Hong Kong | |
| Fugro Subsea Services Ltd. | Wanchai, Hong Kong | |
| Fugro Survey Ltd. | Wanchai, Hong Kong | |
| MateriaLab Consultants Ltd. | Kwai Fong, Hong Kong | |
| Fugro Consult Kft | Budapest, Hungary | |
| Fugro Geotech (India) Private Limited | Navi Mumbai, India | |
| Fugro Survey (India) Private Limited | 90% | Navi Mumbai, India |
| PT Fugro Indonesia | Jakarta Selatan, Indonesia | |
| Fugro-ETW LLC | 50%* | Basra, Iraq |
| FAZ Technology Ltd. | 96.5% Dublin, Ireland | |
| FAZ Research Ltd. | 96.5% Dublin, Ireland | |
| Fugro Italy S.p.A. | Rome, Italy | |
| Fugro Japan Co., Ltd. | Tokyo, Japan | |
| Fugro-KGNT LLP | 50%* | Almaty, Kazakhstan Republic |
| MAPS SARL | Beirut, Lebanon | |
| Fugro Eco Consult S.a.r.l. | Munsbach, Luxembourg | |
| Fugro Technical Services (Macau) Ltd. | Macau, Macau | |
| Fugro Geodetic (Malaysia) Sdn Bhd | 30% | Kuala Lumpur, Malaysia |
| Fugro Geosciences (Malaysia) Sdn Bhd | 30% | Kuala Lumpur, Malaysia |
| Fugro Malaysia Land Sdn Bhd | Puchong, Malaysia |
from the CEO Profile Strategy
Key figures Information Group
Divisional Performance Performance Governance
Report of the
Other
| Company | % | Office, Country |
|---|---|---|
| Fugro TSM Labuan Pty Ltd | Federal Territory of Labuan, | |
| Malaysia | ||
| Fugro Holding Malta Ltd. | Luqa, Malta | |
| Fugro Malta Ltd. | Luqa, Malta | |
| Geofor International SA | Quatre Bornes, Mauritius | |
| Fugro Mauritius Ltd. | Quatre Bornes, Mauritius | |
| Fugro Mexico S.A. de C.V. | Ciudad Del Carmen, | |
| Campeche, Mexico | ||
| Geomundo S.A. de C.V. | Ciudad Del Carmen, | |
| Campeche, Mexico | ||
| Fugro Mozambique Ltda. | Maputo, Mozambique | |
| Fugro CIS B.V. | Leidschendam, The Netherlands | |
| Fugro-Elbocon B.V. | Leidschendam, The Netherlands | |
| Fugro Engineers B.V. | Nootdorp, The Netherlands | |
| Fugro Financial Resources B.V. | Leidschendam, The Netherlands | |
| Fugro NL Land B.V. | Leidschendam, The Netherlands | |
| Fugro Intersite B.V. | Leidschendam, The Netherlands | |
| Fugro Marine Services B.V. | Leidschendam, The Netherlands | |
| Fugro Nederland B.V. | Leidschendam, The Netherlands | |
| Fugro South America B.V. | Leidschendam, The Netherlands | |
| Fugro Survey B.V. | Leidschendam, The Netherlands | |
| Fugro Vastgoed B.V. | Leidschendam, The Netherlands | |
| FNV IP B.V. | Leidschendam, The Netherlands | |
| Fugro Satellite Positioning B.V. | Leidschendam, The Netherlands | |
| Seabed Geosolutions B.V. | 60% | Leidschendam, The Netherlands |
| Fugro BTW Ltd. | New Plymouth, New Zealand | |
| Fugro Survey (Nigeria) Ltd. | Port Harcourt, Nigeria | |
| Fugro Nigeria Ltd. | Port Harcourt, Nigeria | |
| Fugro Norway AS | Oslo, Norway | |
| Fugro Middle East & Partners LLC | 70% | Muscat, Oman |
| Fugro Symphony Inc. | Panama City, Panama | |
| Fugro Peru S.A. | Lima, Peru | |
| Fugro Peninsular Services | 49% | Doha, Qatar |
| GEOINGSERVICE LLP | Moscow, Russia | |
| Geofor Sao Tome Ltda. | Sao Tome City, Sao Tome | |
| Fugro-Suhaimi Ltd. | 50% | Dammam, Saudi Arabia |
| Decca Survey Saudi Arabia Ltd. | 40% | Dammam, Saudi Arabia |
| Fugro Saudi Arabia Ltd. | Dammam, Saudi Arabia | |
| Fugro Satellite Positioning Pte Ltd | Singapore, Singapore | |
| Fugro Singapore Pte Ltd | Singapore, Singapore | |
| Fugro Survey Pte Ltd | Singapore, Singapore | |
| Fugro TSM Pte Ltd | Singapore, Singapore | |
| Fugro Subsea Technologies Pte Ltd | Singapore, Singapore | |
| Fugro Global Environmental and Ocean | Singapore, Singapore | |
| Sciences Pte Ltd | ||
| Setouchi Services Pte Ltd | Singapore, Singapore | |
| Fugro Survey Africa (Pty) Ltd. | Cape Town, South Africa | |
| Company | % | Office, Country |
|---|---|---|
| Fugro Maps South Africa (Pty) Ltd. | Cape Town, South Africa | |
| Fugro Earth Resources (Pty) Ltd. | Johannesburg, South Africa | |
| Fugro Finance AG | Zug, Switzerland | |
| Fugro Geodetic AG | Zug, Switzerland | |
| Fugro International Holding AG | Zug, Switzerland | |
| Fugro South America GmbH | Zug, Switzerland | |
| Fugro Survey GmbH | Zug, Switzerland | |
| Middle East Investment GmbH | Zug, Switzerland | |
| Fugro Sial Ltd. | Ankara, Turkey | |
| Fugro Subsea LLC | 49% | Abu Dhabi, United Arab Emirates |
| Fugro GB Marine North Limited | Aberdeen, United Kingdom | |
| Fugro-ImpROV Limited | Aberdeen, United Kingdom | |
| Fugro Subsea Services Limited | Aberdeen, United Kingdom | |
| Fugro-BKS Limited | Coleraine, United Kingdom | |
| Fugro GeoServices Limited | Falmouth, United Kingdom | |
| Fugro Alluvial Offshore Limited | Great Yarmouth, United Kingdom | |
| Fugro GB Marine Limited | Wallingford, United Kingdom | |
| Fugro Holdings Limited | Wallingford, United Kingdom | |
| Global Marine Holdings LLC | 23.6%* Delaware, United States | |
| Fugro Holding (USA), Inc. | Houston, United States | |
| Fugro Enterprise, Inc. | Houston, United States | |
| Fugro Synergy, Inc. | Houston, United States | |
| Fugro Roadware, Inc. | Richmond, United States | |
| Fugro USA Land, Inc. | Houston, United States | |
| Fugro USA Marine, Inc. | Lafayette, United States | |
| Fugro Geotechnics Vietnam LLC | Ho Chi Minh City, Vietnam | |
* Joint arrangements classified as joint ventures or associates that are equityaccounted.
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
As at 31 December, before result appropriation
| (EUR x 1,000) | 2017 | 2016 | |
|---|---|---|---|
| Assets | |||
| Intangible assets | 160 | 804 | |
| Tangible fixed assets | - | 3 | |
| (9.1) | Financial fixed assets | 1,203,907 | 1,634,156 |
| Deferred tax assets | 186 | - | |
| Total non-current assets | 1,204,253 | 1,634,963 | |
| (9.2) | Trade and other receivables | 8,113 | 12,365 |
| Current tax assets | 137 | 6,735 | |
| Cash and cash equivalents | 384 | 127 | |
| Total current assets | 8,634 | 19,227 | |
| Total assets | 1,212,887 | 1,654,190 | |
| Equity | |||
| Share capital | 4,228 | 4,228 | |
| Share premium | 431,227 | 431,227 | |
| Translation reserve | (115,909) | (20,715) | |
| Hedging reserve | - | (103) | |
| Other reserves | (316,412) | (328,242) | |
| Retained earnings | 868,821 | 1,157,398 | |
| Unappropriated result | (159,901) | (308,934) | |
| (9.3) | Total equity | 712,054 | 934,859 |
| Provisions | |||
| (9.4) | Provisions for other liabilities and charges | 13,172 | 18,694 |
| Deferred tax liabilities | - | 682 | |
| Liabilities | |||
| (9.5) | Loans and borrowings | 243,226 | 318,237 |
| Total non-current liabilities | 256,398 | 337,613 | |
| Bank overdraft | - | 60 | |
| (9.5) | Loans and borrowings | - | 14,862 |
| (9.6) | Trade and other payables | 238,075 | 365,230 |
| Current tax liabilities | 6,006 | - | |
| Other taxes and social security charges | 354 | 1,566 | |
| Total current liabilities | 244,435 | 381,718 | |
| Total liabilities | 500,833 | 719,331 | |
| Total equity and liabilities | 1,212,887 | 1,654,190 |
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|---|---|---|---|---|---|---|---|---|---|
For the year ended 31 December
| (EUR x 1,000) | 2017 | 2016 | ||
|---|---|---|---|---|
| (9.7) | Revenue | 37,263 | 39,994 | |
| Other income | 970 | 67 | ||
| (9.8) | Personnel expenses | (20,699) | (20,928) | |
| Depreciation | (3) | (31) | ||
| Amortisation | (644) | (647) | ||
| (9.9) | Other expenses | (23,022) | (51,713) | |
| Results from operating activities (EBIT) Finance income Finance expenses |
(6,135) 11,530 (37,964) |
(33,258) 30,711 (64,457) |
||
| (9.10) | Net finance income/(expenses) | (26,434) | (33,746) | |
| Profit/(loss) before income tax | (32,569) | (67,004) | ||
| Income tax gain/(expense) | (1,001) | 21,006 | ||
| Share in results from participating interests, after taxation | (126,331) | (262,936) | ||
| Profit/(loss) for the period | (159,901) | (308,934) |
Divisional Performance Performance Governance
Report of the Supervisory Board
The company financial statements form part of the 2017 consolidated financial statements of Fugro.
For setting the principles for the recognition and measurement of assets and liabilities and determination of the result for its company financial statements, Fugro makes use of the option provided in Clause 8 Section 2:362 of the Netherlands Civil Code. This means that the principles for the recognition and measurement of assets and liabilities and determination of the result (hereinafter referred to as principles for recognition and measurement) of the company financial statements of Fugro N.V. are the same as those applied for the consolidated EU-IFRS financial statements. Investments in subsidiaries are accounted for at net asset value which comprises the cost, excluding goodwill, of Fugro's share in the net assets of the subsidiaries. Participating interests, over which significant influence is exercised, are stated on the basis of the equity method. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code. Reference is made to accounting policies 5.3 to 5.25 for a description of these principles.
The share in the result of participating interests consists of the share of Fugro in the result of these participating interests. Results on transactions, where the transfer of assets and liabilities between Fugro and its participating interests, and mutually between participating interests themselves, are not incorporated as far as they can be deemed to be unrealised.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Subsidiaries | 1,203,907 | 1,235,774 |
| Long-term loans to group companies | - | 398,382 |
| 1,203,907 | 1,634,156 |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Balance at 1 January | 1,235,774 | 1,172,025 |
| Share in result of participating interests | (126,331) | (262,936) |
| Capital increase | 181,342 | 321,650 |
| Dividends | (7,242) | (9,972) |
| Currency exchange differences | (98,262) | 28,654 |
| Other | 18,626 | (13,647) |
| Balance 31 December | 1,203,907 | 1,235,774 |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Balance at 1 January | 398,382 | 926,151 |
| Loans issued | - | 235,761 |
| Write-off receivable | - | (12,042) |
| Redemptions | (388,744) | (742,379) |
| Currency exchange differences | (9,638) | (9,109) |
| Balance 31 December | - | 398,382 |
The long-term loans due from subsidiaries have been redeemed in 2017.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Receivables from group companies | 7,334 | 11,022 |
| Other receivables | 779 | 1,343 |
| Balance 31 December | 8,113 | 12,365 |
The equity movement schedule is included in chapter 3 of the consolidated financial statements. For the notes to the equity reference is made to note 5.46 of the consolidated financial statements. The translation reserve and hedging reserve qualify as legal reserves (Dutch: 'wettelijke reserve') in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Group
Report of the Supervisory Board
For the notes on provisions reference is made to note 5.51 of the consolidated financial statements. Fugro has accounted for certain tax indemnities and warranties under procedures in respect of the sale of the majority of the Geoscience business to CGG for liabilities arising from tax exposures amounting to EUR 12.1 million as at 31 December 2017 (31 December 2016: EUR 17.9 million). An amount of EUR 0.6 million (31 December 2016: EUR 0.5 million) and EUR 0.5 million (31 December 2016: EUR 0.3 million) relate to a restructuring provision respectively employee benefit obligations. An amount of EUR 0.6 million is expected to be settled within one year. Refer to note 9.9.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Private placement loans, non-current portion |
- | 164,337 |
| Subordinated unsecured convertible bonds EUR 190,000 |
160,399 | 153,900 |
| Subordinated unsecured convertible bonds EUR 100,000 |
82,827 | - |
| Private placement loans, current portion | - | 14,862 |
| Balance 31 December | 243,226 | 333,099 |
For the notes on private placement loans reference is made to note 5.49 of the consolidated financial statements. The average interest on loans and borrowings amounts to 4.2% per annum (2016: 4.9%).
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Trade payables | 1,267 | 3,934 |
| Payables to group companies | 230,547 | 355,108 |
| Other payables | 6,261 | 6,188 |
| Balance 31 December | 238,075 | 365,230 |
The payables to group companies mainly relate to the cash-pool overdraft of Fugro N.V. The interest is calculated on the total balance of the cash pool. Reference is made to note 5.53 of the consolidated financial statements.
Revenue relates to the services provided by Fugro N.V. to subsidiaries in respect of their management activities and responsibilities.
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Wages and salaries | 18,230 | 16,673 |
| Compulsory social security contributions | 824 | 523 |
| Equity-settled share-based payments | 759 | 2,195 |
| Contributions to defined contribution | ||
| plans | 8 | 612 |
| Expense related to defined benefit plans | 878 | 925 |
| 20,699 | 20,928 |
Refer to note 5.61 of the consolidated financial statements for remuneration of the Board of Management.
The average number of employees within Fugro N.V. during the year was 45 (2016: 43).
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Indirect operating expenses | 1,709 | 2,750 |
| Occupancy costs | 62 | 91 |
| Communication and office equipment | 1,163 | 2,084 |
| Write-off receivables | - | 12,041 |
| Restructuring costs | 1,923 | 589 |
| Marketing and advertising costs | 1,980 | 2,302 |
| Release provision tax indemnities | (5,070) | - |
| Other | 21,255 | 31,856 |
| Total | 23,022 | 51,713 |
Other expenses include amongst others professional services, training costs, audit fees, miscellaneous charges and sundry costs. Refer to note 5.33 of the consolidated financial statements. Audit fees, as charged by EY are disclosed in note 9.16. In 2017 Fugro released an amount of EUR 5.8 million related to certain tax indemnities and warranties under procedures in respect of the sale of the majority of the Geoscience business to CGG for liabilities arising from tax exposures. Furthermore, an amount of EUR 0.7 million has been made during the year in respect of these tax indemnities and warranties for exposures additionally identified. In the consolidated financial statements the corresponding gain of EUR 5.1 million has
Key figures
Report of the Supervisory Board Other Information
been classified as profit for the period from discontinued operations. Refer to note 5.51 of the consolidated financial statements.
| 9.10 | Net finance (income)/expenses | ||
|---|---|---|---|
| ------ | -- | ------------------------------- | -- |
| (EUR x 1,000) | 2017 | 2016 |
|---|---|---|
| Interest income on loans and receivables | ||
| from group companies | (9,659) | (29,136) |
| Interest income on loans and receivables | (71) | (1,575) |
| Net foreign exchange variance | (1,800) | - |
| Finance income | (11,530) | (30,711) |
| Interest expense on financial liabilities | ||
| measured at amortised cost | 37,964 | 54,989 |
| Net change in fair value of financial | ||
| assets at fair value through profit or loss | ||
| (refer to note 5.40.3) | - | - |
| Net foreign exchange variance | - | 9,468 |
| Finance expense | 37,964 | 64,457 |
| Net finance (income)/expenses | ||
| recognised in profit or loss | 26,434 | 33,746 |
Fugro N.V. and the Dutch operating companies form a fiscal unit for corporate tax. Each of the operating companies is severally liable for corporate tax to be paid by the fiscal unity.
Per 31 December 2017, Fugro's bank has issued bank guarantees to clients for an amount of EUR 66 million (2016: EUR 67 million).
Fugro has filed declarations of joint and several liabilities for a number of subsidiaries at the Chambers of Commerce. Fugro has filed a list with the Chamber of Commerce, which includes all financial interests of the Group in subsidiaries as well as a reference to each subsidiary for which such a declaration of liability has been deposited. Fugro N.V. is borrower and guarantor under this multicurrency revolving credit facility agreement.
For the notes to contingencies reference is made to note 5.59.4 of the consolidated financial statements.
For the notes to related parties, reference is made to note 5.61 of the consolidated financial statements. In note 5.61.2 of the consolidated financial statements the remuneration of the Board of Management and Supervisory Board is disclosed.
| Message | Group | Divisional | Report of the | Financial | Other | ||||
|---|---|---|---|---|---|---|---|---|---|
| Key figures | from the CEO | Profile | Strategy | Performance | Performance | Governance | Supervisory Board | Statements | Information |
Divisional Performance Performance Governance
Other
Message
With reference to Section 2:382a of the Netherlands Civil Code, the following fees for the financial year have been charged by EY to the company and its subsidiaries:
| (EUR x 1,000) | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|
| Ernst & Young | Ernst & Young | |||||
| Accountants | Other EY | Total | Accountants | Other EY | Total | |
| LLP | network | EY | LLP | network | EY | |
| Statutory audit of financial statements | 1,242 | 2,269 | 3,511 | 1,470 | 2,215 | 3,685 |
| Other audit services | 260 | - | 260 | - | - | - |
| Other assurance related services | 2 | - | 2 | - | 86 | 86 |
| Tax advisory services | - | 201 | 201 | - | 902 | 902 |
| Other non-audit services | - | - | - | - | 72 | 72 |
| Total | 1,504 | 2,470 | 3,974 | 1,470 | 3,275 | 4,745 |
Tax advisory services primarily consist of tax compliance work. Other audit services relate to a non-recurring audit of general purpose financial statements and other assurance related services relate to certain agreed-upon procedures. Audit and (non-)audit related fees for the respective years are charged to the income statement on an accrual basis. The fees paid for the above mentioned services, which are included in profit or loss of the consolidated financial statements in the line other expenses, are evaluated on a regular basis and in line with the market.
The members of the Supervisory Board have signed the financial statements pursuant to their statutory obligations under Section 2:101 sub 2 Netherlands Civil Code.
The members of the Board of Management have signed the financial statements pursuant to their statutory obligations under Section 2:101 sub 2 Netherlands Civil Code and Section 5:25c sub 2 (c) Financial Markets Supervision Act.
Fugro will not propose to the annual general meeting on 26 April 2018 to declare a dividend for 2017 to shareholders.
Leidschendam, 21 February 2018
P. van Riel, Chairman Board of Management, Chief Executive Officer P.A.H. Verhagen, Chief Financial Officer M.R.F. Heine, Director Marine division B.M.R. Bouffard, Director Land division Ø. Løseth, member Board of Management
H.L.J. Noy, Chairman J.C.M. Schönfeld, Vice-chairman A.J. Campo P.H.M. Hofsté A.H. Montijn D.J. Wall
Divisional Performance Performance Governance
Other Information
To: the shareholders and Supervisory Board of Fugro N.V.
Report on the audit of the financial statements 2017 included in the annual report
We have audited the financial statements 2017 of Fugro N.V., based in Leidschendam. The financial statements include the consolidated financial statements and the company financial statements.
The consolidated financial statements comprise:
The company financial statements comprise:
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the "Our responsibilities for the audit of the financial statements" section of our report.
We are independent of Fugro N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the Audit firms supervision act (Wet toezicht accountantsorganisaties, Wta), the Code of Ethics for Professional Auditors (Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten, ViO, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Dutch Code of Ethics (Verordening gedrags- en beroepsregels accountants, VGBA).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Materiality € 10,000,000
Benchmark Approximately 0.7% of revenue
We have applied this benchmark based on our professional judgment and taking into account the users of the financial appropriate benchmarks, given their volatility over the years.
We have also taken misstatements into account and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the Supervisory Board that misstatements in excess of € 500,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
Fugro N.V. is at the head of a group of entities. Our group audit mainly focused on group entities that are either significant based on their size or risk relative to the consolidated financial statements. All entities exceeding 1.2% of revenues are included within our audit scope. We used the work of other EY member firms when auditing entities outside the Netherlands. We performed audit procedures ourselves at certain group entities located in the Netherlands and performed analytical review procedures at group entities without an audit scope.
The procedures performed for group entities with an audit scope represent 78% of revenue and 74% of total assets. By performing the procedures mentioned above over group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group's financial information to provide an opinion about the consolidated financial statements.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The nature of four out of five key audit matters is consistent with the prior year. The fifth key audit matter is new and is related to changes in the internal reporting structure during the year.
| Description | Fugro's financing arrangements, including the multicurrency revolving credit facility, US private placement notes and two leased vessels contain certain financial covenant requirements as described in note 5.49.6. Continued compliance with debt covenant requirements is part of management's assessment of the going concern assumption. |
|---|---|
| At 30 September 2017, Fugro has obtained a waiver for one of its financial covenants related to two leased vessels. | |
| On 2 November 2017, Fugro N.V. issued € 100 million subordinated unsecured convertible bonds. The bond and related interest costs are excluded from the covenant ratios, which has positive impact on the headroom in the covenants. |
|
| At 31 December 2017, headroom remains available within the financing facilities and the debt covenant requirements. Management's forecasts and assessments also presents sufficient headroom in connection with the going concern assessment. |
|
| Audit approach |
As part of our audit procedures, we analysed Fugro's financing arrangements, with a particular focus on the newly issued subordinated unsecured convertible bonds. Our analysis included evaluation of compliance with the debt covenant requirements including covenant ratios and events of default. |
| For the verification of the forecasted covenant calculation, as part of our evaluation of management's assessment of the going concern assumption, we evaluated the 2018 financial forecast, the solidity of the financial forecast preparation process and the reasonability of the 2018 forecasts at the level of individual entities as well as at corporate level. Our assessment included covenant sensitivity analyses as well as stress-testing. |
|
| Key | We agree with the covenant calculations as per 31 December 2017 as well as management's conclusion that the use of the going |
| observations | concern assumption is appropriate. |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board
| Description | As of 2017, Fugro has changed its divisional, management and internal reporting structure. In the new organisation, Fugro is operating in three divisions; Land, Marine and Geoscience. The former Geotechnical, Subsea Services and Survey divisions are regrouped into the new Land and Marine divisions, while the Geoscience division remains unchanged. This restructuring triggered a re-identification of reporting segments as well as re-allocation of goodwill to groups of cash generating units (CGUs). |
|---|---|
| Following the implementation of the new divisional and internal reporting structure, Fugro performed a reassessment of its reporting segments in accordance with IFRS 8 and concluded that the reporting segments mirror the divisional structure, being Land, Marine and Geoscience. Further, Fugro concluded that goodwill should be re-allocated to three groups of CGUs, being Land, Marine and Seabed Geosolutions. The change in operating segments was key to our audit considering the significance of segmented information in Fugro's external communications, including the annual report. |
|
| Audit approach |
Our audit procedures included evaluating Fugro's assessment of the impact of the restructuring on reporting segments and on groups of CGUs to which goodwill is allocated. As part of our evaluation of the appropriateness of the impact assessment in accordance with EU-IFRS, we assessed the appropriateness of the identification of the Chief Operating Decision Maker in accordance with IFRS 8 and we verified that Fugro's conclusions are consistent with management information, including monthly management reports, as well as our general knowledge and experience as auditor of Fugro. |
| For the re-allocation of goodwill to groups of CGUs we further analysed whether the reallocation of goodwill would result in the avoidance of impairment risks through combining specific CGUs and whether goodwill could be allocated at a level lower than the identified operating segments. |
|
| Key observations |
We concluded that Fugro has appropriately reassessed its operating segments in accordance with EU-IFRS and we concur with management's conclusion that the operating segments are Land, Marine and Geoscience. |
| We concluded that Fugro appropriately reallocated the remaining goodwill to groups of CGUs, being Land, Marine and Seabed Geosolutions. |
Description At 31 December 2017, property, plant and equipment and intangible assets amount to, respectively, € 644 million and € 372 million, together amounting to approximately 54% of total assets presented in the statement of financial position.
The impairment tests carried out by management are complex and require significant management judgement. The recoverable amounts of (groups of) cash-generating units (CGUs) have been determined based on value in use calculations. Value in use was determined by discounting the expected future cash flows from continuing use of the CGU's. Cash flows in the first year of the forecast are based on management's approved 2018 financial forecast. The cash flows for the first five years are made explicit and a long term growth rate is assumed for the remaining period. During 2017, the prior year financial forecast was not met due to stronger than anticipated decline of market conditions. The recoverable amount of one vessel is based on fair value less cost of disposal, quoted by an external broker.
Management performed the annual impairment tests for goodwill and specific impairment tests for other assets when indicators had been identified. These impairment tests resulted in €11.8 million impairment of property, plant and equipment (excluding reversal of impairment).
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
| Audit approach |
Our audit procedures included an assessment of the historical accuracy of management's estimates through retrospective review, evaluating and testing the assumptions, methodologies, the discount rates and other data used by the Company, for example by comparing them to external data. This assessment included support of EY valuation experts. |
|||||||
|---|---|---|---|---|---|---|---|---|
| We evaluated the 2018 financial forecast, the solidity of the financial forecast preparation process and the reasonability of the 2018 | ||||||||
| forecasts at the level of individual entities as well as at corporate level. Furthermore, we evaluated management's outlook in the | ||||||||
| explicit period as well as the long term growth rate, in particular around forecasted revenues, EBITDAs and capital expenditures. Our | ||||||||
| assessment included sensitivity analyses. | ||||||||
| We assessed the adequacy of the disclosures included in notes 5.32, 5.37 and 5.38 of the consolidated financial statements | ||||||||
| including those assumptions to which the outcome of the impairment test is most sensitive. | ||||||||
| Key | We noted the assumptions relating to the impairment models fell within the acceptable ranges. | |||||||
| observations | ||||||||
| We agree with management's conclusions that an impairment of € 11.8 million is required this year and we concluded the disclosures | ||||||||
| in the consolidated financial statements being proportionate and in accordance with EU-IFRS. |
| Description | The project revenue recognition process, including determining the appropriate cut-off of revenues, involves management estimates. |
|---|---|
| The valuation of work in progress is affected by subjective elements including estimated costs to complete and projected revenue, | |
| whether impacted by additional/reduced services, project progress and disputes or potential disputes. | |
| Audit | Our audit included evaluation of internal controls with respect to project management, project accounting and the project results |
| approach | estimation process. In addition, we performed amongst others (substantive) audit procedures relating to contractual terms and |
| conditions, revenue, costs incurred, including local representatives' fees, and disputes or potential disputes. For individually | |
| significant projects, we performed detailed procedures, such as substantiating transactions with underlying documentation, including | |
| contracts and third party correspondence, to obtain evidence for the accuracy and collectability of work-in-progress. We involved | |
| subject matter experts when performing inquiry of the project controllers, inspection of contracts and underlying documentation, | |
| testing of the project progress, forecasts and appropriateness of the (planned) result and whether the project status has been | |
| appropriately reflected in the consolidated financial statements. | |
| Key | We did not identify evidence of material misstatement in the revenue recognised in the year as well as the valuation of unbilled and |
| observations | trade receivables. |
Divisional Performance Performance Governance
Report of the Supervisory Board
| Description | The Group's results on operations are subject to income taxes in various jurisdictions. Due to reported losses since 2014, Fugro has significant tax loss carry forwards available. For part of these tax loss carry forwards, deferred tax assets were recognized. |
|---|---|
| The assessment process of recoverability of deferred tax assets involves a high degree of judgement. Fugro reassessed the recoverability of deferred tax assets and recorded write-downs totalling €16.4 million. The remaining deferred tax assets amount to €39.4 million. |
|
| Audit approach |
Our audit procedures included amongst others analyses of tax positions and the effective tax rate reconciliation. We involved specialists for the audit of the accuracy of the amounts recognized in the income statements and assessment of judgmental (deferred) tax positions. |
| For tax positions where management's assumptions are used to determine the probability that deferred tax assets recognized in the statement of financial position will be recovered through taxable income in future years and available tax planning strategies, we evaluated the 2018 financial forecast, the solidity of the financial forecast preparation process and the reasonability of the 2018 forecasts at the level of individual jurisdictions. |
|
| We also assessed the adequacy of the disclosure in notes 5.35 and 5.41 of the consolidated financial statements. | |
| Key observations |
We concluded that management's judgements in relation to the recognition of deferred tax assets are appropriate. |
In addition to the financial statements and our independent auditor's report thereon, the annual report contains other information that consists of the reports of the Board of Management and Supervisory Board and the other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
Based on the following procedures performed, we conclude that the other information:
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the report of the Board of Management in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
We were engaged by the Supervisory Board as auditor of Fugro N.V. on 7 December 2015, as of the audit for the year 2016 and have operated as statutory auditor since that date.
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audit of public-interest entities.
In addition to the statutory audit of the financial statements we provided the following services:
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
■ Agreed upon procedures in connection with legal ownership of certain subsidiaries of Fugro N.V.
Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company's ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the company's financial reporting process.
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.:
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause a company to cease to continue as a going concern
Group Performance Governance
Divisional Performance Financial Statements Other Information
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/ or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this independent auditor's report.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our independent auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Amsterdam, 21 February 2018
Ernst & Young Accountants LLP
signed by A.A. van Eimeren
Group
Divisional Performance Performance Governance
Financial Statements
The Board of the Foundation Trust Office, Leidschendam, The Netherlands, is composed as follows:
| Name | Function | Term |
|---|---|---|
| M.C. van Gelder, Chairman | Board member | 2019 |
| R. Willems | Board member | 2020 |
| J.A.W.M. van Rooijen | Board member | 2019 |
| D.F.M.M. Zaman | Board member | 2019 |
The (Board of the) Foundation Trust Office operates completely independent of Fugro.
The Board of Foundation Protective Preference Shares, Leidschendam, The Netherlands, is composed as follows:
| Name | Function | Term |
|---|---|---|
| M.W. den Boogert, Chairman | Board member | 2018 |
| J.J. Nooitgedagt | Board member | 2021 |
| S.C.J.J. Kortmann | Board member | 2020 |
| J.C. de Mos | Board member | 2018 |
The (Board of the) Foundation operates completely independent of Fugro.
The Board of Foundation Continuity, is composed as follows:
| Name | Function | Term |
|---|---|---|
| G.E. Elias, Chairman | Board member B | 2020 |
| A.C.M. Goede | Board member B | 2021 |
| R. de Paus | Board member B | 2019 |
| M. van der Plank | Board member B | 2018 |
| G-J. Kramer | Board member A | 2021 |
The (Board of the) Foundation operates completely independent of Fugro.
Board member A is appointed by the Board of Management of Fugro with the approval of the Supervisory Board of Fugro.
The provisions regarding the appropriation of profit are contained in article 36 of the Articles of Association of Fugro and, as far as relevant, read as follows:
Group
Divisional Performance Performance Governance
Other Information
percentage is adjusted, increased or decreased, if applicable, by a mark-up or mark-down set by the Board of Management upon issue and approved by the Supervisory Board of at most two percentage points, depending on the market conditions then obtaining, which mark-up or mark-down may differ for each series, or, if Reuters does not publish this information or if such state loan and information source that is or are most comparable thereto as to be determined by the board of Management and approved by the Supervisory Board.
36.4 If in any financial year the profit is insufficient to make the distributions referred to above in paragraph 3 of this article, then in subsequent financial years the provisions of paragraph 3 shall not apply until the deficit has been made good and until the provisions of paragraph 3 have been applied or until the Board of Management, with the approval of the Supervisory Board, resolves to charge an amount equal to the deficit to the freely distributable reserves, with the exception of the reserves which have been set aside as share premium upon the issue of financing preference shares or convertible financing preference shares.
36.5 If the first issue of financing preference shares or convertible financing preference shares of a series takes place during the course of a financial year, the dividend for that financial year on the respective series of financing preference shares or convertible financing preference shares shall be decreased proportionately up to the first day of such issue.
36.6 After application of paragraphs 2 to 5 no further distribution of shall be made on the protective preference shares, the financing preference shares or the convertible financing preference shares.
36.7 Of any profit remaining after application of the paragraphs 2 to 5 such amount shall be allocated to the reserves by the Board of Management with the approval of the Supervisory Board as the Board of Management shall deem necessary. Insofar as the profit is not allocated to the reserves pursuant to the provisions of the preceding sentence, it shall be at the disposal of the annual general meeting either for allocation in whole or in part to the reserves or for distribution in whole or in part to the holders of ordinary shares pro rata to the aggregate amount of their ordinary shares.
In accordance with article 19 of the administration terms and conditions of the Foundation Trust Office ('Trust Office') and best practice provision 4.2.6 of the Corporate Governance Code, the undersigned issues the following report to the holders of certificates of ordinary shares in the share capital of Fugro N.V. ('Fugro').
During the 2017 reporting year, all the Trust Office's activities were related to the administration of ordinary shares against which certificates have been issued.
During 2017 the Board met five times. In the meeting of 15 February 2017 the Trust Office's annual report 2016 was approved. In the meeting of 14 March 2017 we were updated by the chairman of the Supervisory Board of Fugro on the Supervisory Board's intention to propose amendments to the remuneration policy for the Board of Management. The meeting of 4 April 2017 was mainly dedicated to the preparation for the annual general meeting of Fugro on 2 May 2017. Also, attention was paid to the revised Dutch Corporate Governance Code that would be applicable in 2017 and Mr. J.A.W.M. van Rooijen was reappointed as member of the Trust Office's board (also see below). In the meeting (conference call) on 10 October 2017 we discussed Fugro's intention to issue a subordinated convertible bond. In the meeting on 6 November 2017 we discussed, amongst other things, general business developments and the proposals to appoint Mr. Ø. Løseth to the Board of Management of Fugro and to an amendment of the articles of association of Fugro at an extraordinary general meeting that would be held on 14 December. In the meetings in April and November, it was also discussed whether it would be necessary or useful to convene a meeting of holders of certificates. Both times it was decided that at that particular moment this was not the case. Prior to the meeting in April, the Board discussed with members of the Board of Management and the Supervisory Board of Fugro the activities and performance of Fugro on the basis of the annual report 2016. Corporate governance within Fugro and the Trust Office was also discussed in the various meetings.
All the Trust Office's Board members are independent of Fugro. The Board may offer holders of certificates the opportunity to recommend candidates for appointment to the Board. The voting policy of the Trust Office has been laid
Divisional Performance Performance Governance
Report of the Supervisory Board Other Information
down in a document that can be found on the website of the Trust Office: http://stichtingakfugro.nl/ and on http://www.fugro.com/about-fugro/corporate-governance/ fugro-trust-office. The Trust Office is authorised to accept voting instructions from holders of certificates and to cast these votes during a general meeting of Fugro.
The Board attended the annual general meeting of Fugro held on 2 May 2017 as well as the extraordinary general meeting on 14 December 2017. In the annual general meeting the Trust Office represented 43.25% of the votes cast and in the extraordinary general meeting the Trust Office represented 53.4% of the votes cast. The Trust Office voted in favour of all the proposals submitted to both meetings. In accordance with the administration terms and conditions, holders of certificates were offered the opportunity to vote, in accordance with their own opinion, as authorised representatives of the Trust Office. This opportunity was taken by holders of certificates representing 56.34% of the votes cast at the annual general meeting and by holders of certificates representing 46.26% of the votes cast at the extraordinary general meeting.
The previous report of the Trust Office stated that the Board intended appointing Mr. J.A.W.M. van Rooijen as member of the Board for a period of two years. In accordance with article 4.3 of the articles of association, the Board offered holders of certificates who represent at least 15% of the issued certificates the opportunity to request, until 3 April 2017, that the Board convenes a meeting of holders of certificates in order to recommend a candidate to the Trust Office's Board. As no request for such a meeting was submitted, in its meeting of 4 April 2017, the Board, in accordance with its announced intention,(re) appointed Mr. Van Rooijen as member of the Board until 30 June 2019.
In July 2017, Mr. A.L. Asscher informed the Board that he would step down from the Board on 1 August 2017 due to health reasons. On 24 July 2017, the Board of the Trust Office announced on its website that it intended appointing Mr. D.F.M.M. Zaman as member of the Board for the time period Mr. Asscher still had before him. In accordance with article 4.3 of the articles of association, the Board offered holders of certificates who represent at least 15% of the issued certificates the opportunity to request, until 30 August 2017, that the Board convenes a meeting of holders of certificates in order to recommend a candidate to the Trust Office's Board. As no request for such a meeting was submitted, on 5 September 2017, the Board,
in accordance with its announced intention, appointed Mr. Zaman as member of the Board until 30 June 2019.
In accordance with the roster, no members of the Trust Office's Board will step down in 2018.
At present the Board of the Trust Office comprises:
Mr. Van Gelder was amongst others Chairman of the Board of Management and Chief Executive Officer of Mediq N.V. He presently serves, amongst others, as supervisory board member of VastNed Retail.
Mr. Van Rooijen was, amongst others, Chairman of KPMG Corporate Finance N.V. and member (CFO) of the Board of Management of KPMG Holding N.V.
Mr. Willems was in a 38 year career with Royal Dutch Shell. He presently serves, amongst others, as supervisory board member of Essent, Caldic Chemie and the Netherlands Investment Institute (NLII).
Mr. Zaman was notary and partner at Loyens & Loeff from 1987 until 2015. He was professor Notarial Corporate Law at Utrecht University from 2006 until 2016 and is since 2013 professor Notarial Corporate Law at Leiden University.
In 2017 the total costs of the Trust Office amounted to EUR 93,906 including the total remuneration of the members of the Board of EUR 45,083 (excluding VAT).
On 31 December 2017, 83,556,943 ordinary shares with a nominal value of EUR 0.05 were in administration against which 83,556,943 certificates of ordinary shares had been issued. During the financial year 171,335 ordinary shares were exchanged into certificates and 7,980 certificates were exchanged into ordinary shares. The activities related to the administration of the shares are carried out by the administrator of the Trust Office: Administratiekantoor van het Algemeen Administratie en Trustkantoor B.V. in Amsterdam, the Netherlands.
The Trust Office's address is: Veurse Achterweg 10, 2264 SG Leidschendam, the Netherlands.
Leidschendam, 12 January 2018 The Board
| Key figures | Message from the CEO |
Profile | Strategy | Group Performance |
Divisional Performance |
Governance | Report of the Supervisory Board |
Financial Statements |
Other Information |
|
|---|---|---|---|---|---|---|---|---|---|---|
| -- | ------------- | ------------------------- | --------- | ---------- | ---------------------- | --------------------------- | ------------ | ------------------------------------ | ------------------------- | ---------------------- |
Group
Divisional Performance Performance Governance
Report of the Supervisory Board Financial Statements Other Information
| IFRS | IFRS | IFRS | IFRS | IFRS | |
|---|---|---|---|---|---|
| 2017 | 2016 2)* | 20152) * | 2014 2) * | 2013 2) * 4) | |
| Income and expenses (x EUR 1,000) | |||||
| Revenue | 1,497,392 | 1,775,874 | 2,362,986 | 2,572,191 | 2,423,971 |
| Third party costs | 621,936 | 678,757 | 918,396 | 1,227,011 | 915,412 |
| Net revenue own services (revenue less third party costs) | 875,456 | 1,097,117 | 1,444,590 | 1,345,180 | 1,508,559 |
| EBITDA 5) | 81,444 | 154,966 | 353,258 | 251,746 | 545,467 |
| Impairments | (164) | (192,716) | (363,318) | (509,048) | – |
| Results from operating activities (EBIT) | (51,722) | (218,678) | (249,928) | (548,568) | 267,020 |
| Cash flow 6) | 24,348 | 130,760 | 324,930 | 336,696 | 365,381 |
| Net result (including discontinued operations) | (159,901) | (308,934) | (372,522) | (458,870) | 428,303 |
| Net result from continuing operations | (164,971) | (308,934) | (372,522) | (457,870) | 224,230 |
| Balance sheet (x EUR 1,000) | |||||
| Property, plant and equipment | 643,695 | 805,992 | 986,585 | 1,198,024 | 1,129,920 |
| Capital expenditures | 107,974 | 92,493 | 177,560 | 296,934 | 318,767 |
| Total assets | 1,898,304 | 2,174,449 | 2,841,184 | 3,565,672 | 3,630,602 |
| Provisions for other liabilities and charges | 17,068 | 26,845 | 61,827 | 61,046 | 225 |
| Loans and borrowings | 634,893 | 573,503 | 728,082 | 949,954 | 689,023 |
| Equity attributable to owners of the company | 712,054 | 934,859 | 1,197,655 | 1,517,766 | 2,024,971 |
| Key ratios (in %) | |||||
| Results from operating activities (EBIT)/revenue | (3.5) | (12.3) | (10.6) | (21.3) | 11.0 |
| Profit/revenue | (11.0) | (17.4) | (15.8) | (17.8) | 9.3 |
| Profit/average capital and reserves | (20.0) | (29.0) | (27.4) | (25.8) | 11.3 |
| Return on capital employed | (3.3) | (0.7) | 3.9 | 1.3 | 8.2 |
| Total equity/total assets | 39.7 | 45.5 | 43.4 | 42.4 | 58.1 |
| Data per share (x EUR 1.-) 2) | |||||
| Equity attributable to owners of the company 1) | 8.42 | 11.05 | 14.16 | 17.95 | 23.94 |
| Results from operating activities (EBIT) | (0.64) | (2.70) | (3.09) | (6.78) | 3.30 |
| Cash flow | 0.30 | 1.62 | 4.01 | 4.16 | 4.52 |
| Net result | (2.04) | (3.82) | (4.60) | (5.65) | 5.29 |
| Dividend paid in year under review 3) | - | - | – | – | 1.50 |
| One-off extra dividend in connection with the divestment of the majority of | - | - | - | - | - |
| the Geoscience business | |||||
| Share price (x EUR 1.-) 1) | |||||
| Year-end share price | 12.99 | 14.55 | 15.06 | 17.26 | 43.32 |
| Number of employees | |||||
| At year-end | 10,044 | 10,530 | 11,960 | 13,537 | 12,591 |
| Shares in issue (x 1,000) 1) | |||||
| Of nominal EUR 0.05 at year-end | 84,572 | 84,572 | 84,572 | 84,572 | 84,572 |
2) On a continued basis, unless otherwise stated.
3) Including a one off extra dividend of EUR 0.50 in 2013. 4) As of 2013 the amortisation on multi-client data libraries is reclassified from third party costs to amortisation costs.
activities.
7) Excluding the revenue and results of the majority of the Geoscience division which have been sold as per 31 January 2013
| IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 7) | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | |
| 2,164,996 | 1,858,043 | 2,280,391 | 2,052,988 | 2,154,474 | 1,802,730 | 1,434,319 | 1,160,615 | 1,008,008 | 822,372 | |
| 793,250 | 617,107 | 765,587 | 624,413 | 722,321 | 604,855 | 503,096 | 405,701 | 364,644 | 273,372 | |
| 1,371,746 | 1,240,936 | 1,514,804 | 1,428,575 | 1,432,153 | 1,197,875 | 931,223 | 754,914 | 643,364 | 549,000 | |
| 545,467 – |
465,368 | 481,925 | 561,083 | 551,130 | 535,178 | 439,590 | 295,948 | 218,833 | 177,453 | 124,056 |
| - | - | - | - | - | - | - | - | - | - | |
| 267,020 | 306,624 | 352,016 | 351,479 | 367,422 | 385,732 | 324,813 | 211,567 | 144,070 | 104,236 | 63,272 |
| 365,381 | 400,148 | 431,495 | 489,757 | 456,773 | 438,902 | 337,106 | 226,130 | 176,093 | 125,802 | 80,480 |
| 289,745 | 287,595 | 272,219 | 263,410 | 283,412 | 216,213 | 141,011 | 99,412 | 49,317 | 18,872 | |
| 231,535 | 293,911 | – | – | – | – | – | – | – | – | |
| 1,065,873 | 981,104 | 1,291,314 | 1,043,227 | 859,088 | 599,298 | 412,232 | 262,759 | 232,956 | 268,801 | |
| 261,687 | 359,238 | 446,755 | 330,244 | 337,469 | 299,699 | 203,944 | 90,414 | 71,028 | 123,983 | |
| 3,630,602 225 |
4,169,716 | 3,861,595 | 3,089,991 | 2,366,317 | 2,123,306 | 1,700,130 | 1,405,698 | 1,138,660 | 983,350 | 1,056,003 |
| 1,165 | 4,215 | 5,204 | 6,240 | 13,155 | 16,278 | 13,888 | 398 | 1,075 | 584 | |
| 1,166,734 | 1,215,173 | 590,862 | 441,339 | 395,384 | 449,957 | 341,997 | 300,753 | 184,268 | 431,895 | |
| 1,956,729 | 1,655,785 | 1,508,318 | 1,187,731 | 928,329 | 699,989 | 562,417 | 465,460 | 223,913 | 211,196 | |
| 14.2 | 18.9 | 15.4 | 17.9 | 17.9 | 18.0 | 14.8 | 12.9 | 10.3 | 9.2 | |
| 10.7 | 15.8 | 11.9 | 12.8 | 13.2 | 12.0 | 9.8 | 8.6 | 4.9 | 2.3 | |
| 11.3 | 12.8 | 18.6 | 22.3 | 24.9 | 34.8 | 34.3 | 27.4 | 28.8 | 22.7 | 17.6 |
| 8.2 58.1 |
11.0 | 12.5 | 14.6 | 20.2 | 24.1 | 25.1 | 20.5 | 19.8 | 15.8 | 11.1 |
| 47.4 | 43.4 | 49.3 | 50.7 | 44.1 | 41.6 | 40.2 | 41.3 | 23.2 | 20.2 | |
| 20.34 | 18.79 | 15.08 | 12.12 | 9.94 | 8.08 | 6.76 | 3.60 | 3.48 | ||
| 23.62 | ||||||||||
| 3.82 | 4.44 | 4.49 | 4.82 | 5.29 | 4.67 | 3.08 | 2.18 | 1.76 | 1.09 | |
| 4.99 | 5.45 | 6.25 | 5.99 | 6.01 | 4.84 | 3.29 | 2.67 | 2.12 | ||
| 23.94 3.30 4.52 5.29 |
3.61 | 3.63 | 3.47 | 3.46 | 3.88 | 3.11 | 2.05 | 1.51 | 0.83 | |
| 1.50 | 1.50 | 1.50 | 1.50 | 1.50 | 1.25 | 0.83 | 0.60 | 0.48 | 0.48 | |
| 1.39 0.33 0.46 |
||||||||||
| 0.50 | - | - | - | - | - | - | - | - | - | |
| 44.52 | 44.895 | 61.50 | 40.26 | 20.485 | 52.80 | 36.20 | 27.13 | 15.35 | 10.20 | |
| 12,165 | 11,495 | 13,463 | 13,482 | 13,627 | 11,472 | 9,837 | 8,534 | 7,615 | 8,472 | |
| - 43.32 12,591 84,572 |
82,844 | 81,393 | 80,270 | 78,772 | 76,608 | 70,421 | 69,582 | 68,825 | 62,192 | 60,664 |
Divisional Performance
Performance Governance
Report of the Supervisory Board Financial Statements Other Information
Group
Key figures
Message
from the CEO Profile Strategy
Group
Divisional Performance Performance Governance
Other Information
Message
Asset integrity Monitoring and inspection of assets and their condition, combined with relevant geo-intelligence (see Geo-intelligence below). Clients use these solutions to optimise operational uptime and performance of their assets, to increase life time and support eventual decommissioning. In case of inspection, it is often desirable to immediately provide remedial services when needed. This is particularly the case offshore.
AUV (autonomous underwater vehicle) Unmanned submersible launched from a 'mother-vessel' but not connected to it via a cable. Propulsion and control are autonomous and use pre-defined mission protocols.
Bathymetry Study of underwater depth of lake or ocean floors. Underwater equivalent of topography.
Brent crude Major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. Brent Crude is sourced from the North Sea.
Construction support Offshore services related to the installation and construction of structures such as pipelines, drilling platforms and other oil and gas related infrastructure, usually involving the use of ROVs.
CPT (cone penetration test(ing)) Pushing a steel cone-tipped probe into the soil, measuring resistance, in order to identify soil composition.
CPT truck Truck that can be used for estimation of soil type and soil properties.
FLI-MAP® Fugro's airborne laser scanning system for obtaining highly accurate topographic data.
Gas hydrates Mixture of semi-solid methane gas and water molecules that are created by water pressure and cold temperatures found deep in the ocean.
Geo-intelligence Acquisition and analysis of data on topography and the subsurface, soil composition, spatial reference, meteorological and environmental conditions, and the related advice.
Geophysics Mapping of subterranean soil characteristics using non-invasive techniques such as sound.
Report of the Supervisory Board
Geoscience Range of scientific disciplines (geology, geophysics, petroleum engineering, bio stratification, geochemistry, etc.) related to the study of rocks, fossils and fluids.
Geotechnics Determination of subterranean soil characteristics using invasive techniques such as probing, drilling and sampling.
In situ In original situation, position.
IRM Inspection, repair and maintenance of clients' subsea assets such as platforms and turbines.
Jack-up platform Self-elevating platform. The buoyant hull is fitted with a number of movable legs, capable of raising its hull over the surface of the sea.
(Q)HSSE (Quality), health, safety, security and environment.
LiDAR Measuring system based on laser technology that can make extremely accurate recordings.
LNG Liquefied natural gas.
Metocean Meteorological and oceanographic.
NOC National oil company.
Node Autonomous battery powered component recording device deployed by ROV.
Ocean bottom node (OBN) 4D imaging through individual nodes placed on the seabed.
Ocean bottom cable (OBC) 4D imaging through nodes attached to a cable on the seabed.
OHSAS British standard for occupational health and safety management systems. It is widely seen as the world's most recognised occupational health and safety management systems standard.
Positioning Subscription based service which enhances public satellite positioning data (GPS, GLONASS etc.) and the provision of positioning equipment, expertise and
Report of the Supervisory Board Other Information
solutions to support a wide variety of marine operations. Highly reliable, centimetre accuracy 3D positioning services, available in any weather condition, anytime and anywhere to make offshore operations more predictable, faster and safer.
ROV (remotely operated vehicle) Unmanned submersible launched from a vessel and equipped with measuring and manipulation equipment. A cable to the mother-vessel provides power, video and data communication.
Site characterisation Solutions focused on recommendations for the location and specification of constructions and foundations during the planning and design phases. Fugro also provides solutions to support the exploration to production life cycle of natural resources. Integrated solutions are often requested in case of complex ground conditions, very large and heavy constructions, and risk of geo-hazards such as earthquakes and flooding.
Saturation diving Method of prolonged diving, using an underwater habitat to allow divers to remain in the high-pressure environment of the ocean depths long enough for their body tissues to become saturated with the inert components of the pressurised gas mixture that they breathe.
Work class ROV Large remotely operated vehicle with the ability to operate multiple tools and sensors. With their ability to operate across the depth range required by the client base, these systems operate in support of subsea operations across all business line segments.
Fugro uses non-GAAP financial measures or alternative performance measures (as defined by European Securities and Market Authority). These measures adjust the reported GAAP results, which facilitate a users' understanding of a company's underlying operational performance, liquidity or financial position. This information provide or may provide additional insights into the company's business, its past results, and its potential for future prospects. All of these measures, disclosed in the list of financial terms below and used by management, are included in this annual report.
Backlog The amount of revenue related to signed contracts and work that can reasonably be expected based on framework contracts and outstanding tenders and proposals of which a good chance of success is expected (>50%) weighted with the likelihood of winning this work. Regarding Seabed Geosolutions, only signed contracts are taken into account.
Capital employed Total equity plus loans and borrowings and bank overdrafts, minus cash and cash equivalents. The capital employed is calculated at the end of the (full or half year) reporting period.
Currency comparable growth Reported revenue growth versus comparable period last year at last year's exchange rates.
Days of revenue outstanding Trade receivables plus the unbilled revenue minus advances expressed as a number of days. The number of days is calculated backwards based on monthly revenue.
Dividend yield Dividend as a percentage of the (average) share price.
EBIT Reported result from operating activities before interest and taxation.
EBIT excluding exceptional items Result from operating activities before interest and taxation, excluding: ■ Impairment losses
EBITDA Reported result from operating activities before interest, taxation, depreciation, amortisation and impairments related to goodwill, intangible fixed assets, and property, plant and equipment.
Divisional Performance Performance Governance
Report of the
Other Information
operating activities before interest, taxation, depreciation, amortisation and impairments related to goodwill, intangible fixed assets and property, plant and equipment, excluding:
covenant calculations EBITDA, excluding exceptional items for covenant purposes:
Gearing Loans and borrowings plus bank overdraft minus cash and cash equivalents, divided by shareholders equity.
Interest cover Result from operating activities (EBIT) divided by the net interest charges.
Net debt Loans and borrowings, bank overdraft minus cash and cash equivalents.
Net debt for covenant purposes Loans and borrowings (not including the subordinated unsecured convertible bonds), net liabilities under or pursuant to swaps, bank overdraft minus cash and cash equivalents.
Net profit margin Profit as a percentage of revenue.
NOPAT Net operating profit after tax excluding net finance income/(expenses).
Pay-out ratio Proposed dividend, multiplied by the number of shares entitled to dividend, divided by one thousand, divided by the net result.
Return on capital employed NOPAT as a percentage of a three points average capital employed. The three points consists of the last three reporting periods. Exceptional items (post-tax) are added back both in the NOPAT as well as the capital employed for the same period.
Solvency Shareholders' equity as a percentage of the balance sheet total.
Fugro N.V. Veurse Achterweg 10 2264 SG Leidschendam The Netherlands T +31 (0)70 3111422 F +31 (0)70 3202703 E [email protected]
Chamber of commerce 2710091
Realisation: Domani B.V., The Hague
Photography and images: Fugro N.V.
Fugro has endeavoured to fulfil all legal requirements related to copyright. Anyone who, despite this, is of the opinion that other copyright regulations could be applicable should contact Fugro.
Veurse Achterweg 10 2264 SG Leidschendam The Netherlands
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