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Boskalis jaarverslagen 2012

Strategic and market risks

The Boskalis markets are heterogeneous and often develop differently. Our main (end) customer groups are national, regional and local governments, or associated institutions such as port authorities, private port operators and major international oil and gas companies and wind energy companies (operators as well as contractors). Other customer types are (container) shipping companies, mining companies and (infrastructure and real estate) project developers.

Despite the positive long-term growth prospects for our markets they can be – certainly in the short and medium term – negatively impacted by factors outside our control. Such factors include for example general and/or regional geopolitical developments, such as political unrest, piracy, regime changes, government-imposed trade barriers (such as in Russia) and volatility on the energy and commodities markets. The latter has mainly manifested itself in terms of the sharp decline in oil prices, which has impacted activity levels in the oil and gas sector and therefore in countries which are dependent on this sector for income.

Boskalis aims to respond as effectively as possible to both positive and negative developments in individual markets through a global spread of its activities, an extensive and versatile fleet operating out of various international locations, and strong positions in its core markets. Moreover, our activities are largely focused on the development, construction, installation and maintenance of infrastructure, which means that longer-term developments will generally outweigh short-term economic fluctuations.

Contracts are not included in our order book until agreement has been reached with the client. Although experience shows that, once agreement has been reached, cancellations or substantial reductions in the size of contracts are rare, such cancellations or substantial reductions of work in the portfolio cannot be ruled out. As a consequence, if such a cancellation or substantial reduction occurs, losses may arise from the unwinding or settlement of financial derivatives which were taken out to hedge related currency risks and/or fuel price risks, but for which the underlying transaction or cash flows can no longer be realized.

Boskalis deals with a variety of competitors in the various markets and submarkets in which it operates. Such competitors vary from large, internationally operating companies to more regional and local companies.

A large part of our revenue derives from contracts awarded through public or private tender procedures, with competition often being largely price-based. However, many clients, particularly in the oil and gas sector and private port operators, are taking other factors – such as the assurance of an adequate safety and environmental policy – into consideration when awarding contracts. Decision-making processes have been put in place for the submission of tenders to ensure that the risks associated with the execution of a particular project are systematically identified and assessed.

Almost all of Boskalis’ activities are capital-intensive, with the dredging activities within Dredging & Inland Infra and the Heavy Marine Transport business units within Offshore Energy in particular being capital-intensive sectors of the market with high entry and/or exit barriers, especially for companies operating globally. The capital-intensive nature of these activities means that market prices in these sectors are largely influenced by the utilization level of the relevant equipment at a given time. This implies that a broad international spread of market positions as well as a leadership position in terms of equipment are key success factors. Boskalis places a great deal of emphasis on these, both as a critical point of attention in operational management and in its capital expenditure policy. As a consequence, individual investment proposals are subject to a thorough evaluation and approval process.

In the course of executing its strategy, Boskalis also acquires other companies. In order to achieve the anticipated results, Boskalis attaches great importance to integrating such acquisitions with care. Creating value for our stakeholders and retaining key personnel are important elements in this process.

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