According to general market consensus, spending by oil and gas companies for the full year 2016 will decline by around 25% in 2016, and is expected to bottom out in 2017. With demand for oil remaining strong, it is anticipated that the supply-demand balance will be restored in the course of next year.
The significant price reductions and efficiency gains being achieved throughout the supply chain since 2014 are making (offshore) projects economically feasible at a lower oil price This is expected to spur project approvals, also in a ‘lower for longer’ oil price environment, which will benefit Fugro.
In the building, infrastructure and power markets, Fugro sees good opportunities.
Backlog for the next 12 months at constant currencies is down by 19.8% compared to a year ago, in particular at Seabed Geosolutions. Backlog was flat (+ 0.7%) compared to the previous quarter.
Fugro’s key focus areas are unchanged: cash flow generation, deleveraging of the balance sheet, and strengthening of our market leading positions. For 2016, we expect a positive cash flow from operating activities after investments. Capex will be curtailed to around EUR 100 million.
We continue to implement measures to further reduce our cost base to realise further efficiencies. However, the overcapacity in the market and the resulting strong price pressure lead to ongoing year-on-year double-digit revenue decline, which cannot yet be fully offset by cost reductions. This is expected to result in a negative low single digit EBIT margin (excluding exceptional items) for the full year, although somewhat better than previously expected.