Based on the market trends, the company expects revenue of EUR 2 – 2.5 billion for the mid-term. The plan will drive substantial improvements in profitability and cash flow generation, resulting in the following targets for the mid-term:
- Return On Capital Employed of 10 - 15%
- EBIT margin of 8 - 12%
- Free cash flow of 4 - 7% of revenue
1Unless otherwise indicated, all figures are before the impact of IFRS 16.
Drivers for the projected improvement in profitability are:
- Volume growth in combination with continued disciplined cost management, benefiting from operating leverage
- Price recovery, driven to a large extent by the oil and gas and renewables markets
- Improved productivity and operational excellence through:
- Fully leveraging technology developments to change the way of working
- Increasing efficiencies of transactional and businesses processes through digitalisation
- Strengthening procurement
- Driving uptime of assets and equipment
- Further leveraging of the shared service centres
In light of Fugro’s current asset base and less capital intensive business model going forward, Fugro expects average annual capital expenditure of around EUR 100 to 130 million to support profitable organic growth.
As a result of the gradual improvement in profitability and disciplined asset management, Fugro targets an annual positive free cash flow resulting in deleveraging of the balance sheet, and consequently a net debt/EBITDA ratio below 1.5. Dividend payments will be resumed once leverage allows.
The implementation of the new IFRS 16 standard on leasing on 1 January 2019 is expected to result in an on-balance sheet increase in net debt from long term lease liabilities of around EUR 200 - 225 million. The reclassification of related lease expenses is expected to have a positive impact on EBITDA of EUR 35 - 45 million and on EBIT of EUR 5 - 10 million. In addition, due to front loading of interest expenses, Earnings Before Tax (EBT) will decrease in the early years by around EUR 5 million per annum. This change is an accounting change only and has no impact on the economics of the company. Furthermore, there is also no impact on covenants as these are based on “frozen GAAP”.