Fugro NV Accounting Review 0311 2013 Rating 4: High Concerns Price: €42.

Summary:

Based on our review of the 2012 annual report, we are reiterating our concern level of 4 on Fugro NV as:

- Billed and unbilled receivables are higher than they were at the end of FY11 and management mentioned problems
with receivables collection.

- Library cost capitalization trends worsened in FY12 and raise questions about the drivers of the capitalization of costs.

- Excluding one-time items recorded in FY12, FUR’s EBIT margin declined to X% in FY12. Also, while FUR’s EBIT margin
from continued operations declined to 10.8%, they appear to have benefited from the recognition of income in the
Geoscience division at a higher than 100% margin. We will clarify this issue with management during our meeting on
3/13/13.

- We continue to express concerns over the resignation of the head of FUR’s audit committee. The internal investigation
was conducted between December and March. We believe that the timing of the resignation of the head of the audit
committee is at odds with the conclusions of the investigation.

Receivables trends are concerning

Receivables for continued operations are growing at a concerning pace. In FY12, the Company’s revenue from continuing
operations declined yet, receivables grew from €715.6 mil to €740.4 mil. Receivables expressed in days of sales (DSO)
grew to 125 days, up 24 days yoy. Our concerns are heightened by statements made during the call which suggest that
customers are taking longer than usual to pay their invoices. We are also note that unbilled receivables are at historically
high level.

These trends suggest that FUR may have been aggressively recognizing revenue in FY12.

in € mils, days FY12 FY11 FY10 FY09 FY08 FY07

Unbilled 219.4 221.6 221.4 154.4 132.4 119.4

Trade 521.0 494.1 444.1 328.4 421.8 361.9

Total (continued ops) 740.4 715.6 665.5 482.8 554.1 481.3

Revenue 2165.0 2577.8 2280.4 2053.0 2154.5 1802.7

DSO 125 101 107 86 94 97

FUR continues to capitalize an increasing amount of expenses

During its FY12 conference call, FUR highlighted the significant increase in the amortization of its capitalized library costs
and even suggested that its EBIT performance had been adversely affected by the higher amortization expense incurred
in FY12. While the absolute amount of the Company’s data library amortization increased, the amount of total library
costs capitalized also increased relative to FY11 and FUR is still capitalizing more data library costs than it is expensing. In
fact, in FY12, FUR’s capitalized data library cots increased to €459 mil from €334 mil. in FY11 and €205 in FY10. Also
while FUR’s FY12 library amortization expressed as a percentage of total capitalized costs was higher than in FY11 and
FY10, it was still materially lower than in FY09 and in FY08.

Our main concern is the magnitude of the Company’s cost capitalization relative to its operating profit. We are
concerned that FUR’s inability to continue to capitalize these costs could result in significant deterioration in its
operating performance.

FY12 FY11 FY10 FY09 FY08 FY07

Data Library 458.5 333.8 204.5 68.5 27.2 34.6
Amortization 142.9 78.9 88.8 63.9 55.3

Total Capitalized Costs 267.6 208.2 224.8 105.2 47.9

Amortization / Total 53% 38% 40% 61% 116%

Capitalized

EBIT 417.3 349.3 351.5 367.4 385.7

Total Capitalized Costs / 64% 60% 64% 29% 12%
EBIT

Continued Operations EBIT Margins Declined Materially in FY12

We express concerns over FUR’s ongoing decline in EBIT margins. Specifically, in FY12 FUR’s adjusted EBIT margins for
continued and discontinued operations declined to 12.7% from 13.6%, 15.4% and 17.9% in FY11, FY10 and FY09
respectively. Our concerns are heightened by the fact that the decline was driven by a significant decline in the
performance of the Company’s continued operation where adjusted EBIT margins declined to 15% from 19% in FY11.
We also note that despite the observed decline in margins, FUR’s continued operations EBIT margins may have
benefited from the recognition of Geoscience continued operations profit at more than 100% margin. We do not know
what is driving the current level of profit in FUR’s Geoscience continued operations but caution that margins may have
been inflated by the recognition of an unsustainably high level of profit in FY12.

FY12 FY11 FY10 FY09 FY08

EBIT 417.3 349.3 351.5 367.4 385.7

Capitalized costs / EBIT 64% 60% 64% 29% 12%

Adjusted EBIT 376.4 349.3 351.5 367.4 385.7

Sales 2952.7 2577.765 2280.391 2052.988 2154.474

Adjusted EBIT / Sales 12.7% 13.6% 15.4% 17.9% 17.9%

Adjusted EBIT (continued) 317.3 352

Sales continued 2165 1858

15% 19%

Corporate Governance Issues