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 oil & gas and 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 favorable long-term growth prospects, our markets can be regularly – certainly in the short and medium term – negatively impacted by factors outside our control. Such factors include e.g. general and/or regional geo-political developments, such as political unrest, piracy, regime changes, government-imposed trade barriers, turmoil on financial markets and crises in the financial sector. Such developments may negatively affect our activities in certain regions or even globally if they have major negative consequences for the economic developments in certain regions or for the global economy, or for exploration and exploitation activities in the energy and commodities markets. Boskalis aims to respond as effectively as possible to both positive and negative developments in individual markets by means of 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.
Boskalis does not include contracts in the 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 cancellation or substantial reduction occurs, losses may arise from the unwinding or settlement of financial derivatives which were taken out to cover related currency risks and/or fuel cost risks, but for which the underlying transaction or cash flows will no longer be realized.
Boskalis deals with a variety of competitors in the various markets in which it operates. Such competitors vary from large, internationally operating competitors to more regional and local competitors with activities restricted to one or several (geographical or service) submarkets. With respect to a large part of our revenues, contracts are awarded through public or private tender procedures. Competition for most contracts is primarily price-based. However, many clients – particularly in the oil & gas sector and private port operators – are increasingly taking other factors, including qualitative ones, such as assuring safety and environmental guidelines and policy, into consideration when awarding contracts. We have appropriate approval processes in place for the submission of tenders, including the evaluation of identified risks and/or potential risk factors associated with the execution of a particular project.
Almost all of Boskalis’ activities are capital-intensive, with Dredging and, to a somewhat lesser extent also Heavy Marine Transport, being capital-intensive businesses with high entry and exit barriers, especially for companies operating globally. Because of the capital intensive nature of these activities, market prices are to a great extent influenced by the balance between the demand for these services and the availability of capacity be it actual utilization levels of the relevant equipment. This implies that a broad international spread of market positions as well as a leadership position in terms of equipment, costs and standardization 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 as in terms of capital expenditure strategy. A sound evaluation and approval process is in place for individual investment proposals.
A key principle of our tender and contracting policy is to aim for a good balance in terms of size and type of projects tendered for, type of equipment available and geographical spread of activities.
In the course of implementing its strategy, Boskalis also acquires other companies. In order to be able to realize 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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