Good morning, everybody. This is Catrien van Buttingha Wichers, Fugro Investor Relations. Thank you for dialing in to this call. We're here to talk about our Q3 trading update, a brief presentation from Mark Heine, CEO, and Barbara Geelen, CFO. After about 15 minutes, there'll be room for your questions. Mark, please go ahead.
Yeah, thank you, Catrien. Also, very welcome from my side to this Q3 2023 trading update call. If we can go to the first slide. Highlights of the Q3 2023 performance. Obviously, we are excited that we can report another set of strong results, with the revenue going up 32.6%. We are, yeah, clearly successful in capturing the high client demand that we see, particularly in the energy markets. We also can state that we realized again a substantially higher revenue in renewables, which is offshore wind, and that is now representing one third or more than one third of the group revenue year to date.
The world needs energy. It needs actually affordable energy, and then there's also the strong wish in a large part of the world to go green and to be cleaner on the energy side. And this is what we also call the Energy trilemma, and that trilemma is also a dilemma, but that's the tension that we see obviously in the world right now. This also means that we expect further growth in the traditional energy, especially in the gas market, where Fugro solutions continue to help our clients to operate safely and efficiently. The 12-month backlog continues to be robust with a 14.5% increase, and that is after obviously steep growth during the previous quarters.
The margin continued to expand to 16% EBIT margin for this quarter, and that's driven by an outstanding performance, particularly in the Marine Site Characterization business. Operating cash flow was up by 95% to EUR 135 million. Over the past years, we have successfully transformed the company into a diversified company with significant position in renewables and strongly improved results. And we believe that we are ready for the next phase, and we'll obviously, as you know, update the market on our strategy and midterm targets at our Capital Markets Day on the fourteenth of November this year. Today, we already communicated our intention to resume dividends with a payout of EUR 0.40 per share for 2023, and that's obviously subject to shareholder approval. And Barbara will say a few more words about that later on. Next slide, please.
So we communicated on our Path to Profitable Growth strategy five years ago, end of 2018, which included midterm targets, as you see them here on the board, for our margin, EBIT margin, free cash flow, and return on capital employed. And this latest set of results reconfirms that we are delivering on these targets, and that we're ready for the next phase for our strategy and related midterm margins or targets.
And it's actually pleasing to see that we've managed to deliver this within the original time frame that we originally set in 2018, albeit the COVID years obviously delayed the execution of the strategy, but due to swift and firm action at the time, we have mitigated these effects significantly, and we managed to get back on track right now and anticipated to deliver on this in the original time frame, 2023. Next slide, please. I always like to make our work more tangible with a few project examples. So the first one listed here on the left is the Thor Wind project, wind farm project, for RWE.
Fugro has been appointed for the pre-construction survey for Denmark's largest offshore wind development, and the data acquired will define actually all the cable routes and turbine locations. This award builds on Fugro's prior involvement in this project. We have done multiple things there, including comprehensive geotechnical site investigation in 2022. Regarding offshore wind, it's maybe good to make a few general remarks there, because despite the recent news flow around the delays in several offshore projects, we believe that we have not seen any immediate impact in our business right now, as we are actually operating in a very early cycle, moment of the whole lifetime of this development. We expect the growth actually to continue.
It's what we see is actually a maturing of the market, which is quite normal for this fast-growing market at the moment. And with these high demands from all these governments, we believe that there's a lot still to do, and it's actually quite healthy that this is actually stabilizing a little bit and also logical that it consolidates somewhat. We feel that we will be supported by the Wind Power Package that is this week, earlier this week, launched by the EU, which is a reflection of the industry coming up with some advice to all these governments, European governments, to solve a few issues.
There was a list of 10 points that should be addressed to allow the industry to actually be able to deliver on all these high ambition there. We believe that the energy transition is anyway on the way and will continue, and the world needs yeah available energy and also affordable energy. So therefore, we also expect that further growth in the field of traditional energy will continue, especially in the gas market, where our solutions continue to enable our clients to operate safely and efficiently. So that on offshore wind, a totally different project is listed there as the second project, is a South Carolina road scanning project. It's a five-year contract for yeah pavement data collection and condition assessment services.
It's for the local government there, the South Carolina Department of Transportation, and we detect the small cracks in the tarmac to help them also reduce the maintenance cost in future for these roads. And then the third project there is the big bridge, the Manila Bridge, also called the Bataan-Cavite Bridge. And we're doing all the near shore geotechnical work, yeah, before the design can be made to actually get this whole project going. It's a major infrastructure program, yeah, to improve the road connectivity in the Philippines.
This is actually the first phase of site investigation that we get involved in, and the field work, this time for this last phase, is now planned to start next month in November. Then the last element mentioned there is actually referring to the first Middle East remotely operated subsea inspection. We have done that in other areas in the world, but recently we have done the first one in the Middle East, and this is totally done out of a control center, remotely operated control center, that we have in an onshore location, operating this uncrewed vessel, doing the inspection work offshore. With that, I close this part of the presentation and hand over to Barbara for some more details on the financials.
Thanks, Mark. Just like Mark, I am excited to present this set of results. On this slide, some of these items have already been shown by Mark, but it shows the highlights of our trading update. Just a couple of brief comments here. Across the globe, we are successfully capturing high client demand for our solutions, most notable in renewable and oil and gas. As we have said before, for us, it's not about the growth in itself. It's important that we also expand our EBIT margins. I'm pleased to report on that today, that again, we have been able to progress this further on EBIT and EBITDA. Driven by a significantly higher EBITDA, operating cash before changes in working capital increased by 95%.
This was offset by higher working capital as a result of this very steep revenue growth, resulting in a free cash flow in line with last year. Next slide, please. This slide clearly shows our margin expansion trajectory. Overall, we have reported a steady year-on-year improvement over the last four years, and in particular in this year. Looking at 2023, all regions contributed, in particular the Americas and Europe, Africa. Overall, better contracting conditions, high activity levels, and good project execution led to a very strong performance, especially in the Marine Site Characterization. As a result, year to date, our EBIT margin was 11.5% and 9.9% on a last 12-month basis. Next slide, please. In the graph on the top, you can see that the revenue increase was driven by Marine in all regions.
Revenue was up by 47%, and this steep increase was the result of, on the one hand, better pricing, and on the other hand, an increase in the number of paid vessel days, enabled also by a larger geotechnical fleet. Overall, the utilization of Fugro's owned and long-term charters vessels was 75%. Revenue in Land was in line with last year due to some local subdued markets in several geographies around the world. On the bottom half of the slide, you can see the development in EBIT. All regions reported higher margins as a result of top line growth in combination with operational efficiencies. Driven by an outstanding performance in the Marine Site Characterization, the EBIT margin amounted to 16%, compared to 10.9% in the Q3 of last year.
In our Land business, EBIT margin declined, mainly as a result of lower revenue and local circumstances, as just mentioned. Next slide, please. Driven by a significantly higher EBITDA, as I just mentioned, operating cash flow before changes in working capital increased from EUR 69 million to EUR 135 million, and this increase was offset by higher working capital as a result of high revenue growth. At the end of September, working capital as a percentage of revenue amounted to 15.6%, compared to 14.6% per September last year. We expect a partial unwind of this working capital position in the Q4, in line with previous years. Overall, free cash flow amounted to EUR 67 million, in line with last year. Next slide, please.
Year to date, CapEx increased slightly, and this was mainly due to the delivery of the first of the two geotechnical vessels planned for this year. We are currently in the process of converting this vessel, the Fugro Resilience, and she's planned to be available for geotechnical work early next year. I will get back to the Scout and Voyager when presenting the next slide. For the full year, CapEx is estimated at around EUR 200 million, which is below the previous guidance of EUR 200-225 million. This includes the acquisition of the Fugro Resolve, but not the conversion of the vessel, as this will shift to 2024, as we will only take her in later this month, early next month. Next slide, please.
So as a result of our strong performance, the net leverage has come down to 0.7 times, as you can see in the chart on the right hand. And therefore, after careful consideration, we have come to the conclusion that we will take early delivery of the Scout and Voyager instead of extending the financing arrangement, because this results in a further reduction of gross debt and financing cost. And our current performance and liquidity position allow us to take this step now, and additionally, this action is also a cleanup of the balance sheet. The cash consideration, net of the deposits and prepayments, will be EUR 39 million, and this will be financed from existing cash resources. Now, moving on to dividend. For full year 2023, Fugro intends to resume dividends with a payout of EUR 0.40 per share, subject to shareholder approval.
In conjunction with benefiting from further opportunities in the market, Fugro will amend its dividend policy to 25%-45% of net results. More details on capital allocation will be shared at the upcoming Capital Markets Day on the fourteenth of November. Next slide, please. Then that leaves, the outlook for the full year. We foresee an ongoing strong revenue growth, as we said, for the full year. The EBIT margin and return on capital employed to be within the midterm target range and new midterm targets will be communicated again on the fourteenth of November. Put that in your calendar, and a positive free cash flow. Thank you very much.
Yeah, with that, we open up for questions. So I guess you get the instruction.
Thank you. Thank you. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone keypad is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone to signal. Thank you. We'll take our first question from Luuk van Beek at Degroof Petercam. Please go ahead.
Yes, good morning. Well, first of all, question about the organic growth, which was very healthy in Q3. Can you give a rough indication how that was split between volume and pricing?
Thanks, Luuk, for the question. So, we do not have those exact figures for the total group. But we do, we do have an indication of that. And in the past, you might recall, us stating that we felt that half was related to price and half to volume. Over the last period of time, we believe that it shifted a bit more to towards price. So, so it tilts more to to potentially, yeah, 60/40 or in that range. And that is, and that is not very exact, and not the same for every area of the business.
Okay, thank you. That's helpful. Then I have a question about the vessel utilization of 75%. It is a bit lower than in Q3 and below the optimal level of high 70s%, as you mentioned earlier. Well, activity levels were very high, so can you explain what is preventing you from realizing higher vessel utilization and how you look at, say, optimum levels going forward?
Yeah. Yeah, so I think it's always important to understand very well what what we're looking at and and what we're talking about, because we guide for yeah, probably an ideal vessel utilization in the in the ideal situation, probably in the high 70s, as you say, 78 or something like that. I mentioned in the past as well. That is for the the the average for the total fleet, so in every area of the world. Whereas at the same time, you will see in busy areas that the vessel utilization could be in the high 90s or close to full full-time use, which is which is quite common in a quarter, in the Q3.
What we have to realize, that is also containing obviously the general moments where we have to do some maintenance and also related to that is maybe one or two vessels that might be just on the wrong side of the world, and doesn't have any work or do not have any work, or have a delayed project that they can't start up. We also always face difficulties with one or two vessels around the world with maybe temporary breakdowns. So then the utilization goes down for the total group, and that effect is quite intense for the total number, so to say.
So, we believe that the 75% is a very solid utilization. Is it possible to get some more? Yes, it's possible, then everything needs to go well with the whole fleet in every area of the world. And that is probably more an exception that it happens than that it happens all the time. The 75% is now applicable on a larger fleet. So, we do have additional capacity, and that's also why you see more vessel days and more turnover generated in the Marine Site Characterization business.
Thank you. My final question for now is on Land, where you mentioned that a couple of geographies were more challenging. Can you give an outlook for those geographies? Do you see any signs of improvement there? And also, are you satisfied with your current positions, or do you think that you need to readjust your network to optimally position it for the future?
Yeah. Thanks for that question as well. Yeah, so just to be probably brief, I'll mention a few examples, obviously, very close to home. Here in the Netherlands, we have the problems with the nitrogen situation, which affects the whole building industry and the infrastructure development, and that also affects our business in Fugro. Other examples are, for instance, to mention another one, Hong Kong. The government is postponing some projects, so also there, yeah, the economy slows down a little bit. It's more postponement than things won't happen.
But all these kind of things, because if you have that in, in, yeah, a number of countries, that the growth is limited, or nonexistent, right now in land. And I think it's also important to emphasize that, the growth is not the most important thing for us, it's actually the return of that land business. And we're well-positioned in many countries, and in some other areas, we would like to further expand and build ourselves a stronger portfolio of services. And we'll obviously provide more information on that in the Capital Markets Day, where we want to go.
Okay, thank you. That's clear for now.
Thank you. We'll take our next question from Thijs Berkelder at ODDO BHF. Your line is open. Please go ahead.
Hi, good morning. Congratulations with very strong performance in the past quarter. First question on the dividends, can you tell us whether it will be a cash dividend or a choice dividend?
Yeah, we'll keep the choice dividend, Thijs.
Okay. Next question on the outlook still for 2023. Is it logical that we can expect a higher EBIT margin in Q4 than in Q4 last year?
Well, we have been a little bit careful and very specific about not guiding too much on the Q4. And you know that very well, following Fugro for many years. This can be varying quite a bit in the last few weeks of the year. Actually, sounds a bit silly, but it's a quarter obviously affected by seasonality in general, but especially in the last couple of weeks of the year by the weather, and that can actually have quite an impact on the total quarter performance.
Now, having said that, you know what we have done over the last couple of years in the Q4, and you have also seen what we have done in the earlier quarters in the year. I think it's logical to expect that we can improve in all the quarters. How much? It's difficult to say. So, that's what I can say about it.
Okay, thank you for that. Then on offshore wind, you give a continuously optimistic outlook for the sector. Can you tell us whether you've seen any larger cancellations or delays of Fugro projects in the past few weeks, slash, months coming in, in offshore wind?
No, so there have been no delays in any project that directly affects any business that we already secured or that is now not happening or something that we were involved in already. And the reason for that is that we are very early stage involvement and yeah, some of the projects that we do actually not get to fruition at all. So but if clients want to make an economic assessment on how much the development actually for a particular area will cost, they need the basic site characterization information. So we also get involved in areas where potentially in the future no development will take place. So that's good to realize that.
But yeah, what we have heard in the last few weeks over a few projects in the U.S. and also in Europe, we already did the work there, and we're not directly involved in these particular projects. We also see, in general, that there's a lot of work out there, and we were actually concerned of the last few years, even that the ambition of many governments were so high that the whole industry could not supply this demand. And in that aspect, we believe that it's a healthy situation, that it and that it consolidates a little bit. It's also, I think, normal to see this in a maturing industry and market, because...
And market that grew obviously in a very short timeframe, very fast, and it's logical that people start to take a little bit of a helicopter view in what should we develop and what not? And how does it work in the current cost environment? So we don't see this as a long-term down cycle. We see that as something that was going to happen probably anyway, and it will have an effect for sure. We do not see that having a major effect or a significant effect on the Fugro business moving forward.
Also, in the light of the fact that we can actually move our assets and people around quite easily to other projects as well, and we have said that also in the traditional energy market, potentially even the inspection on existing infrastructure could easily be done with the same assets and people involved. So we can move our assets around, and that helps also between various regions. So, and last but not least, it's also mentioned in the press release, we see that even Europe is listening very carefully to all the comments from the industry around offshore wind development. And obviously, the Wind Power Package is an important one, as mentioned before, that supports the total industry moving forward.
So, um-
Okay, that-
We feel that yes, there is impact on the industry for sure. We do not see a direct impact on our results right now, and we also do not anticipate a significant effect there. But having said this, I think it's also a moment maybe to say that we do have two project cancellations related to the Middle East disturbance that we see obviously in Israel at the moment, and then in Gaza. We had two projects that were one was canceled and one was postponed. So that has some effect in the Q4.
It's going to be in the sphere of EUR millions on the turnover, but it not a major overall effect, or not a major effect in relation to the overall result of Fugro. But there will be an effect in the Q4 and the Q1, as we can see right now.
Okay. For now, my final question is on the transaction on the Fugro Scout and Voyager. Can you maybe give an indication for what kind of savings this handover gives for potential net result 2024, and/or whether there's maybe extra CapEx needed for an upgrade or maintenance of these vessels in 2024?
Yeah, I can take this, Thijs. We will see... I'm not gonna go into the precise amounts. We're not... But what I can tell you is that, we're not gonna have the interest that we will be paying on the financing arrangement going forward. We will also release the prepayments and the deposits, so there is some interest on there as well. So this will have a positive impact as such. And on the conversion, as you asked the question, we are planning for both vessels to have a pretty extensive hybrid conversion that will be taking place 2024 and 2025. We're planning that.
Planning is now very important, both from a shipyard perspective, long-lead items perspective, and equally from a business expectation perspective. We're very busy in the market, as you can see, so timing there is something that we're still looking into. At the moment, we're not giving guidance on the cost of these conversions, but I can tell you they're quite expensive.
Okay, thank you.
Thank you. We'll move on to our next question from Thomas Martin at BNP Paribas. Your line is open. Please go ahead.
Hi, good morning. You've answered a few of mine, but maybe following on from that last comment on the conversions, can you tell us how many vessels you actually plan to start converting in 2024? I think you had one that you've been working on for a while, if I remember, with planning, but there's been yard activity yet. Is it just those two that you've mentioned, or are there other vessels going in in 2024 for conversion?
Well, it's some conversions are bigger than others, depending what needs to be done on the back deck. What I can say is that the two vessels we purchased this year are being converted. So one is actually already in the shipyard for conversion. That is the first one. That is the Resilience and the Resolve, that's the second vessel, which we will get delivered, will be converted next year. And this is also one of the things we need to time this quite carefully.
Also, what we are working on, if we have these long-term charters added to the fleet, for example, we had that with the Pacific Hornbill in Singapore, with the HOS Browning last year, with the Seagull this year. These are all just for the avoidance about geotechnical vessels, so they need drill towers on top of the vessels and a moon pool. And these are quite elaborate conversions. Having said that, a number of them have already been done very successfully now. But these are the ones, the Resilience, the Resolve, the Scout, and the Voyager. Those are the big conversions.
Sorry, I probably wasn't clear in my question. Those are, those are conversions, including from, you know, PSV to geotechnical. But specifically, in terms of the net zero targets in greening the fleet, how many do you plan to convert in terms of fuel source?
We are working on one methanol conversion at the moment. That's the vessel called the Pioneer. So that is. That will have a full conversion. On the Scout and Voyager, these will be hybrid conversions. So they all are aligned with the net zero strategy, but the methanol conversion and the being that mainstream or not yet mainstream, you know, we are carefully planning for the net zero investments. Technology is not fully matured yet. Availability of methanol is not there. So we are making those investments. We're converting that. We have subsidies to partially fund those conversions. And we expect the technology also to mature, and we are contributing to actually also maturing that technology in our way to convert it.
Okay, thank you.
But it's early days, I would say. So I'm also looking at Mark here, which you cannot see. Maybe he wants to add something.
No, I think it's important to take note of the fact that, as Barbara says, that technology is not really mature yet for these kind of vessels to transform into a net zero solution. That we're quite far away from that. The Pioneer situation, as Barbara said, with subsidies, is a pilot project, so we're really running that pilot to see how we can use methanol on these kind of vessels. And then we need to monitor that for one or two years to see how that develops and if we can then thereafter start to transform other vessels in a similar fashion. So that's quite far in the future.
But fuel needs to be available as well, affordable and available. And on the hybrid situation, yeah, there’s limited benefits of installing battery packs. It’s not not necessarily always economically viable, and the reduction of CO2 emission is very limited. And therefore, we are experimenting with that as well. On the Scout and the Voyager, those will be the first hybrid conversions that we do. And that is to also build up experience on that front. But that will not be the solution in the future because it will only reduce maybe 10% the CO2 emissions, and that will differ vessel by vessel. So that is basically the situation.
Very clear, thanks. On offshore wind, could I just ask one, a bit geographically focused, I guess? You know, lots of the recent news flow, not all of it, but lots of the recent news flow has been in the U.S. You know, you've spoken in broad terms about how you're very positive about the outlook for the future, but I just wondered, specifically in that North American market, have you sensed any, you know, reduction in appetite to push ahead with projects there?
Yeah. So, I think it's good to mention, and you probably picked up the news on the New York Bight project from CIP. I think it was yesterday or day before yesterday, with 4 GW award to them on the east coast of the U.S. So also there, things will continue, maybe on different conditions than what the earlier fields were agreed on.
We have to realize that some of these operators need to secure licenses, and then we'll define and decide in the years thereafter if they're really going to pursue with it, because they only pay a certain amount of fee if they don't go ahead with it. In that sense, sometimes they take a little bit of risk, and then they have the optionality in there. So that's also what we feel is probably normal and logical in a fast-growing and developing market. We do feel that maybe some of the discussions will have more impact maybe on the U.S.
Having said that, I think it's positive to see the developments there in the U.S., again, with the announcement of CIP, and we expect more, more to happen there. We're still very busy in that area as well. But, yes, we do, we do feel that also the Inflation Reduction Act is, is not, not working for everyone very well. So we hear mixed messages there. And, I think it, it might take a little bit longer on the U.S. side to really get to fruition there.
Okay, thank you. Margins, if I could just go back to that to clarify, I guess, you know, Q3, very strong. Year to date, actually pretty strong as well, you know, 11.5%. I'm not hearing any reason to think that what you've achieved this year isn't sustainable, if operational execution remains good. I noticed your points earlier about a couple of Middle East projects in the Q4 and the weather at year-end. But in broad terms, is there any reason not to interpret your recent delivery, combined with the fact that you said contract terms, I think, are still improving? You know, margins are gonna continue to rise, aren't they, if operational execution remains good? Is there anything exceptional in there that I've overlooked?
Yeah, so I think it's important to, and if you look back to look back at the previous years as well, and what normally happens in the Q4, and it has to do with the fact that seasonality kicks in. Normally, that means also that less clients are eager to do the work in the Q4. So we are actually we have secured the work, so we have work. So in that sense, that is positive, maybe more positive than some of the previous years, where maybe some of the assets still needed to secure work. So I think we're quite confident that the work is out there.
But in general, you see pricing going down a little bit in the Q4 because it's off-season time, more the latter part of the Q4. So that has an effect, and I would certainly suggest that you look back in the previous years what the Q4 normally does. And as I just said, also to Thijs Berkelder, yeah, it's logical to assume that we can improve ourselves throughout the whole year. In that sense, that every quarter is somewhat better than previous year. But we are careful because we do not know which side we will be on, because yeah, the weather of the last few weeks will be very impactful on the overall results.
If we can continue to work a bit longer, then that has a positive effect. And we have seen in the previous announcements in previous years as well, that if the weather is not good for us, then it will also press the year results a bit down.
Okay, so I understood. Yeah, I wasn't meaning just Q4 then, I was thinking, so on a year-forward basis. You know, Q3 margins are up, what, 4% year-on-year, roughly. And, yeah, there's nothing exceptional in there. It's just good execution and good contracts.
Yeah, I think it's probably good to emphasize here that the Q3, and I think we even used the word exceptional in exceptional growth in the Q3. And why do we do that? Because there's a combination of growth, demand, and more work, but also a very strong execution. And I think that is helping us, and it all comes together in the Q3. So, I would not take that as the new normal. That's why we wrote it like that. Moving forward, we obviously feel that we have also fixed quite a few things, and that we're now also performing out of all the regions in Marine Site Characterization.
Where we sat in the previous calls and previous years, yeah, a couple of years ago, it was only one region, then it was all the regions, but not site characterization. This year, site characterization had to kick in in all the regions as well, and that is actually happening right now. So we are firing on all the cylinders, also on Marine Site Characterization, and that is, I think, very positive. That means we are at a new level. That doesn't mean that the Q3 performance is the new normal for, yeah, let's say, a normal high-season work.
Okay. Great, thank you. Sorry, maybe one final, final one. You know, utilization, the market's growing. Okay, 75%, maybe add a few percent headroom in Q3, but you know, you're pretty busy. You've got the two PSV conversions coming in. You know, do you have the ability to continue meeting this growing demand? When do you think you need to further expand the fleet?
Yeah, so, obviously, that is the big question out there. I fully understand that, and the good thing is you only have to wait 2.5 weeks, because then we have our Capital Markets Day , and then we'll give some more insights into, yeah, all the plans for the future.
No problem. Worth a try. Thanks.
Thank you. We'll now move on to our next question from Quirijn Mulder at ING . Your line is open. Please go ahead.
Yeah, good morning, everyone. My congratulations on the results, and I would like to have a couple of questions. My first question is about working capital was quite large. Is that for a part related to, or for most related to the fact that you did a lot of work in the second part of the quarter? Is that the right conclusion or not?
There, there's a couple of reasons for the higher working capital, is indeed the steep growth. And as I mentioned in some calls before, what we're seeing as a trend in the market is that we're really dealing with larger projects. And that means that the work takes longer, but that also the milestone payments are and the milestones that you agree in a contract are stretched out, but are also larger. And that in combination with the steep growth is eating up a lot of working capital. So around 75% of that is related to top line growth. The part that indeed, as you state correctly, Quirijn, is we have done work in the second half of the quarter as well.
And the unbilled portion in the working capital is actually quite large, and this is what we need to, you know, we need to make sure that, you know, we can bill our customers and also get paid in time. And that we expect to happen. And as I said, I expect to see and partially unwind of this position, towards the year end, also in line with previous working capital developments.
Okay. No, that, that's fine. But let me say, in general, if the Q3 is so busy, then it has a good overflow in October. Can you confirm that? That, let me say, the activity ratio in October was already quite good.
Yeah. No, and that is, that's correctly stated, but as you also heard Mark say, the weather in October has the weather that we had in Q3 is not all continuing in October. So we'll have to see. It will be a combination of both. But the work is there. That is the right statement, yeah.
Okay. Then on the, let me say, the lost orders due to the Middle East contentions, who are these clients who are, let me say, cancellations or let me say, postponing? What's behind that? Is that, let me say, for political reasons, or is that for fear, or is that... Can maybe Mark elaborate on that?
Yeah. So, one of the clients, I can say that the Chevron, and they basically canceled all the projects in the neighborhood.
So the whole Middle East, they have canceled all sort of projects?
Oh, no. So around Egypt and in the waters, in the Mediterranean waters. So they were starting a project close to the Gaza, and that is now not happening. So-
Okay.
That is basically stopped.
Okay, that is a military fear effect. Do you expect some, let me say, hostilities there?
They were quite quick. They were quite quick in taking that decision, yeah.
Okay, so but they easily pick it up when the tensions are less than they are today?
Yeah, that, that could be. It's difficult for me to speculate on that.
The other was against. This is a delay, yeah, in fact, or is that a cancellation?
Yeah, there's another project in Egypt that was also postponed now, and I can't share any details on that. But yeah, there's another project that was postponed, and that that also has an effect on yeah, on the region's performance. And some of it will be was work that that we're planning to start in in the first in the Q1 of next year. And the other project was supposed to start I think in November time frame, and and that's not happening. So it it will have an impact on some impact for the region. You will not see that for Fugro overall, but it will have an impact on the region in the Q4 as well as in the Q1.
Okay. So my final question is about the fleet. So maybe, Barbara, you can update us on the fleet, when, when the startup? So this, the Topaz Vessel, number one, let me say, the Resilience, when will it start up? Is that in April, or is that earlier? And when do you plan the second one, the, after the conversion?
Well, I'm not gonna pinpoint the date, Quirijn, and-
No, I wasn't. I would only know the hour as well, but
Well, it's the first of April, Quirijn. No, it's Sorry, that's, it's the, we are, you know, the conversions are quite a complex thing. So two things need to come together, as you well know, and that is the drilling tower that you put on top and actually the conversion of the vessel itself. And we're planning for that. So this is quite a complex operation. The Resilience will be moving to the U.S., so there's also some sailing involved. Around that time, as I just mentioned, we expect the Resilience to be active. On the Resolve, we get that delivered, and we are working out the detailed planning for that. So I don't have a detailed timing for that as of yet.
I can only say, we go as fast as we can, clearly in this market, and there's constantly trade-offs, what we're gonna put on top of the vessel in terms of what drill tower, what solution we're gonna use. Are we gonna go for mobile solutions or not, and how we're gonna fit that out? And this is what we're really discussing, today. But this will be live vessel in 2024.
But has it any impact on your order intake? Are you more positive now?
No, well, there is a tightness in the vessel market, as we all know, so we will have to look for combinations of chartered vessels, long-term and owned. And this comes back to really Thomas' question as well, in terms of what is the fleet capacity that you need? And, you know, let me be clear, this is only about the geotechnical fleet that we're talking about here, in terms of expansions and conversions, not the geophysical. Okay, thank you.
We'll take our next question now from André Mulder at Kepler Cheuvreux. Your line is open, please go ahead.
Good morning. Still a handful of questions left. Firstly, taking a bit deeper dive in the offshore wind. You said there have been no delays in existing projects, but what do you see in terms of order intake, and what do you see in terms of the pipeline, the inquiries of clients? Do you see any change there?
No. So, the order intake, we haven't seen any change there. It's still a buoyant market for us. There are still many requests coming out, and the trend of larger projects for Fugro, as we have seen over the last one or two years, is still applicable. And I think there's a lot of ambition also with these energy companies. So it's not only an ambition with these governments, but these energy companies also have lots of plans. And yeah, we see lots of things happening.
Europe, Americas, I spoke about already as well, and you just saw the news there, and then Asia Pacific is definitely coming up and coming in, in the upcoming period, probably a bit more and more aggressively as well.
A question on the client base. You do work for governments. They are continuously developing new projects, not being limited by any case. The hesitancy is definitely with the private clients. Are you able to give any split between, let's say, what you do for governments and what you do for private clients in terms of sales, or the percentages?
No, I don't have that at the top of my head right now. I don't know. But what I can say is that the larger projects that we do in Europe, for instance, is actually government work. So there's a large scope for RVO here in the Netherlands. There's a big scope for BSH in Germany. They coordinate all the license rounds that come out in Germany, and all the work that needs to be done, Fugro is involved. Then we have the work in Denmark with high ambition there as well on Energinet. We're involved in that. That's also government work.
And then we have the Crown Estate on the UK side, and that's probably the most difficult area right now, and that is only because they have certain decisions taken on also a cap on the energy prices and so on, where these licenses, as you have seen, probably a month ago, didn't come through. So that's the difficulty that they face there. But these are the largest projects actually that we undertake, and then we have the larger players, RWE, CIP, Vattenfall, all these clients are continuing to develop fields. And also, the traditional energy companies are really very involved.
The Shells, the BPs, Total, and so on, they are all going after these, these projects as well.
Okay, next question is on margins. Looking at the sheet number seven, it appears that your margin in Land has about halved. Is that right?
Maybe Barbara.
No, it hasn't halved. It has just slightly decreased and, as such, has not contributed to the expansion. I would look at it that way, from 10.9% to 16%.
Okay. Then your expansion on the fleet, how many uncrewed vessels do you plan to add to the fleet, let's say this year or next year?
I think this is a really good question for in two weeks' time, when we have the Capital Markets Day , when we will unfold also the plans with regard to the uncrewed surface vessels . This will mostly be, as you know, on the Asset Integrity side and also on the geophysical side of the existing business.
Mm-hmm.
But in terms of numbers, this is also something, and again, we will talk about it more, you know, there's components like its functionality, so technology, its customers, and it's also regulatory framework. Where can we work? How can we work with what customers? This is, we're very confident that this is the way to go, but to be specific on the number of USVs, I think that's, we'll come back on that.
I believe you now have 10 control centers, that's even larger than your uncrewed fleet at this moment.
Yes.
So I think, I think it's important, André, to say that we do a lot more than, than only operating these uncrewed platforms from these control centers. So we might, might have even mobile control centers in the future that can be placed in particular countries or in particular areas. We're now also operating, for instance, in Denmark, out of the control center in Aberdeen, that works extremely well. So that's an example where we, yeah, we operate in multiple countries out of one control center. That's the whole idea. Having said that, that is only for the uncrewed service vessel. We do a lot of positioning work, survey work out of the control centers. U.S. is a great example.
They have built up that uncrewed, or not uncrewed, but remotely operated work on the survey side for a lot of dive support vessels and other remotely operated survey crews, so to say, that we would normally have maybe two or three people on board. Now, it's only one or none, none on board of the client platform, and then we basically do all the work remotely out of the control center. And that is what we envisaged already years ago, that this can drive the margin up and also will put less people in harm's way and less travel.
It reduces the CO2 emissions significantly, so it's greener, it's faster, it's more reliable as well, in a way that you have always the support that you need out of that control center from the best experts that are in there. So we see this as a future development. We'll continue to transform the existing business, but that's not only the vessel business. We're always very eager to talk about the vessel business, which is only probably 55% of the total Fugro revenue related to these kind of assets.
And then, of that, only half of it is Geotech or even less, maybe 20% of the Fugro revenue, and that's why we're talking about these big assets, and the rest is all going into a direction of smaller and more remotely.
Okay, thanks. And the last question, all the calls that I have from Fugro always end with the last question on the dam. There's no statement in the press release, so I take it there's no news to be mentioned there.
Well, let me say a few words about that. Because we don't talk about it because there is nothing to talk about. There is no investigation to Fugro. There's no liability on Fugro. Fugro is simply not able to say anything about this, because we're not involved anymore. We were on the dam. We have lost four of our colleagues. There are 16 people currently in court, not Fugro people. There are two companies prosecuted, not Fugro, and that's it. Nothing else.
Okay, clear. Thanks.
Thank you. We'll now take our final question from Thijs Berkelder at ODDO BHF. Your line is open. Please go ahead.
Yeah, thank you for coming back to me. A question on the cancellations in the Middle East. Do, do these contracts have penalty clauses so that you recoup, part of, let's say, your costs, or maybe all costs?
Yeah, good question, Thijs, and we have that question also outstanding in the region. I don't have the details at the moment.
Okay, then on the order backlog growth in Marine, it's up 18% comparable. Is there in the mix also still something like 50% price, 50% volume in the growth rate?
I think probably moving forward, where we stabilize again, and where the growth on the backlog is not necessarily in line with the high growth of the 45%+ in Marine. We probably see that stabilizing, probably moving more towards the 50/50 again. However, in the last period of time, we feel that it's on the Marine side, more two-thirds, one-third, or 20/30, what I said, 60/40, 70/30, around that level. With more price-
And volume.
-and volume.
Yeah. Okay, then final question. There was an announcement on Australian Space Agency. You're receiving a subsidy. Is Australian Space Agency Land or Marine? And is that subsidy booked in 2023, as well as the related costs?
Yeah. So sorry, that last part, once more?
Is the subsidy booked in 2023, as well as the related costs?
No, no, no. So, thanks for the question. So, so we, we had a subsidy program, already ongoing, from the Australian government, for this remote control center. This, this is a combined remote control center. It's booked in Marine, because, simply, we have all the remote activities primarily done out of the Marine division, and this, this is actually, a bit of a, yeah, an initiative, side step that we, we take. We see an opportunity. Government has asked us to get involved, because they see that Fugro has particular expertise that they can use also, in, in the Australian Space Agency, and, and therefore, we got involved in talking to them.
We have people that are specialized in this field right now, so we have people that have been in the space industry before, and they focus on these elements. We had a subsidy program already that is running out, and now we just secured the next subsidy program of AUD 5 million, and that is to really support round for Fugro to get involved and stay involved in the space area. To help with remote control because this is our expertise, and specifically also in the efforts to design a moon rover where we got involved in a consortium of companies to help with that design.
Okay, thank you.
At this moment, there are no further questions. I would like to hand over to Catrien for any closing remarks. Thank you.
Thank you all so much for participating. If you might have any additional questions, please, let me know. And well, on behalf of all of us, have a very nice day, and hope... Sorry. Finally, hope to see you at our Capital Markets Day on the fourteenth of November. Bye.
Thank you. Bye-bye.
Thank you.