Financial targets and strategy
Fugro’s target is to achieve, under comparable economic circumstances, 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 increasing revenue.
Important financial targets are:
- growth in earnings per share averaging 10% per annum
- strong cash flow with an average annual growth per share of 10%
- maintaining a healthy balance sheet and solvency (> 331/3 %)
- interest cover (EBIT/Interest) of more than 5
Fugro’s financial 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
Fugro aims at achieving equilibrium between its various activities in order to be able to meet its targets. Fugro strives for a balance between services related to exploration, development 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 combination of offshore and onshore activities. Moreover, Fugro strives for a balanced geographical spread. This, and the diverse range of related activities, reduces Fugro’s sensitivity to market fluctuations in a particular sector. As an independent service provider, Fugro provides a broad spread of services to its clients. The elements of geographical diversity, range of services and wide client base contribute to our ability to control our business risks.
Fugro strives for growth, both organically and through acquisitions. To achieve organic growth Fugro invests in equipment and human capital. Organic growth is also achieved by actively developing new technologies and services.
In the most important market sector – oil and gas – the spread of Fugro’s services across the exploration, development and production phases is a key factor.
This means Fugro provides services in many phases of the (20 – 30 year) life-cycle of an oil or gas field. Avoiding dependence on one phase of this market or single group of clients is an essential component of Fugro’s strategy. The result is a business that is less cyclical.
Profit margins vary per service and activity depending on the specific market circumstances. For the more risky or capital intensive activities a higher profit margin is aimed for than the overall company average.
The long-term aim is to achieve robust but controlled profit growth through:
- a broad but cohesive services portfolio
- the manner in which Fugro is financed
- the market-oriented international organisational structure
- continuous development and training of employees
- specific investments in equipment and technology
- management focus on increasing net result
Fugro strives to improve profitability with a focus on core activities and niche markets by:
- increasing operational scale
- building strong market positions
- continuing research and development
- cooperation and development for and with clients
- being selective about the projects that are taken on
- acquiring companies with a high added-value
- leveraging and optimising capabilities and resources
Over the period 2005 – 2008 revenues from both continued and discontinued doubled and the net profit margin increased from 8.6% to 13.2%. As from late 2008 the market conditions have been negatively influenced by the global economic downturn, resulting in a slight decrease in both revenue and net profit in 2009. In the course of the second half of 2010 revenue growth was resumed and continued in 2011 and 2012. Price pressure remained in some segments, resulting in moderate profit increases in 2010 through 2012. The oil and gas industry is expected to modestly increase investments in 2013 and some improvement in market conditions is anticipated in this sector. The timing of recovery of the world economy is still difficult, which may affect other sectors in which Fugro operates.
Fugro has recently started a process to review its strategy after the divestment of the majority of its geoscience business in January 2013. The review is taking place with the help of an external consulting firm and will be completed by mid year. Fugro will communicate the outcome in the course of the second half year 2013.
“Financial targets and strategy” covers the following topics:
- Financial targets
- Market positions
- Research and development
- Cooperation and scale advantages