Financial targets and strategy

Fugro’s target is to achieve a structural increase in earnings per share for its shareholders. Fugro’s long-term policy is aimed at generating a steady growth in net result based on an increasing revenue. To achieve this, a transparent and consistently implemented strategy for all stakeholders is vital.

Given the current market conditions, Fugro’s objective in the coming period will be to at least maintain the net profit margin of about 12%.

Important financial targets are:

• a growth in earnings per share averaging 10% per annum;
• a strong cash flow with an average annual growth per share of 10%;
• maintaining a healthy balance sheet and level of solvency (30 – 35%) and
• a healthy interest cover (EBIT/Interest) of more than 5.

Fugro’s financing strategy is aimed at the utilisation and/or optimisation of:

• the ratio between risk and return of the various business activities;
• the ratio between shareholders’ equity and short-term/ long-term borrowings;
• the use of both public and private capital markets;
• the duration and phasing of the different financing components.

Strategy
Fugro aims at achieving equilibrium between its various activities in order to achieve its targets. Fugro strives for a good balance between services related to exploration and production activities for the oil and gas industry and those related to other markets, such as mining and construction. This also results in a balance between offshore and onshore activities. This diverse range of cohesive activities reduces Fugro’s sensitivity to market fluctuations in one particular sector and the broad spread of its activities, in terms of both products and geography, ensures good control of business risks. In the most important sector – oil and gas – the spread of Fugro’s services across the exploration and production phases is a key factor. This means Fugro is involved in many phases of the (20 – 30 year) life-cycle of an oil or gas field. Avoiding dependence on one market or single group of clients is an essential component of Fugro’s strategy. The result is a company that is less cyclical.

Profit margins vary per activity depending on the specific market circumstances. The target profit margin for the more risky or capital intensive activities is higher than the overall company average.

The aim is to achieve robust but controlled profit growth through:

• a broad but cohesive activity portfolio;
• the manner in which Fugro is financed;
• the market-oriented organisational structure;
• continuous education and training of employees;
• specific investments in equipment and technology;
• management based on increasing net result.

Fugro strives to increase the relatively high margin with a focus on core activities and niche markets by:

• increasing operational scale;
• strong market positions;
• continuous research and development;
• internal cooperation and development for and with clients;
• being selective about the projects that are taken on, and
• acquiring companies with a high added-value .

To summarise, Fugro’s combination of professional and specialised employees, technologies (mostly developed in-house) and related high-value services enables it to offer clients more and more added-value.

Given the current market conditions, Fugro strives for a revenue growth over the coming year that is above the average of approximately 15% achieved over the past five years. The assumption is that, as in previous years, around 5% of this growth can be achieved by expanding the activities through acquisitions.
As acquisitions, in general, cannot be planned in advance they will be evaluated as they present themselves.

In Fugro’s view, revenue and profit growth are important, but so too are other components such as human resources policy, health, safety and environment (HSE) and ICT. One of the aims of the human resources policy is to stimulate and increase the cooperation between the various business units so that, assisted by the Group’s own training centre – the Fugro-Academy – employees always have opportunities to acquire continuing education and (project) training.

In the coming period Fugro will continue to further optimise its HSE systems at every level and in every operating company throughout the entire global organisation.

Sustainability, transparency and reliability are the core themes of Fugro’s central policy. Furthermore Fugro’s (financial) targets and the implementation of its strategy are achieved on the basis of:

• market position;
• acquisitions;
• research;
• cooperation and scale advantages.

Market positions
Fugro’s policy is based primarily on securing and, where possible, expanding its existing strong market positions. Complementing and broadening its package of closely related services is a primary objective. Growth in other adjacent sectors, by responding positively and fl xibly to developments in new growth markets, is also an important policy component.

Acquisitions
To broaden its base and ensure continued sustainable growth, Fugro usually completes a number of acquisitions each year. Generally these serve to strengthen or acquire good market positions or to obtain special technologies. Because acquisitions always involve an element of risk, in general a very thorough and extensive due diligence is carried out before the decision to acquire a company is taken. This limits the risks considerably.

Acquisition evaluation is based not only on financial criteria but also on:

• added-value for Fugro;
• cohesion with Fugro’s activities and services;
• match with Fugro’s culture;
• growth potential;
• a leading position in a niche market or region;
• technical and management qualities;
• risk profile.

Research
Research is of strategic importance for Fugro. The search for ways to expand and improve its service to clients is unceasing and cooperation with clients plays a major role in this. Many new ideas are generated through joint development projects. Specific measuring equipment and analytical models play an important role. Each year Fugro spends an estimated 3 to 4% of revenue on research. Some of this expense takes place during the execution of projects.

Cooperation and scale advantages
Effective cooperation between the business units is promoted at various levels. Critical mass is also a key factor for the successful execution of large assignments. Capacity utilisation and cooperation are optimised through the exchange of equipment, employees and expertise between the various activities and by extensive employee training. Fugro promotes technological renewal by clustering the knowledge available within and outside the Group. The integration of information systems and the utilisation of scale advantages enhance the service provided to clients.