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ANNUAL REPORT 2016 – BOSKALIS
49
RISK
MANAGEMENT
STRATEGY AND BUSINESS DRIVERS
Boskalis’ strategy is aimed at the opportunities and challenges
that present themselves to the company. This strategy is based on
three pillars: Focus, Optimize and Expand. A detailed description
of the Boskalis strategy can be found in the Strategy section of this
annual report.
A large number of our markets are currently heavily impacted by
low prices for oil and other commodities and by stagnating growth
in world trade. As a result, many of our clients are faced with the
need to reduce cost and increase operating efficiencies. The lower
demand combined with often increased capacity supply have put
many markets under competitive pressure, in some cases very
severe, generally resulting in strong buyers’ markets. In addition to
putting pressure on prices, this also has the effect of increasingly
moving the burden of risk onto suppliers of services. Additionally,
clients often require more integrated, innovative services or turnkey
solutions. While this creates opportunities that are consistent with our
strategy to provide value-added services, it goes hand-in-hand with
an increased pressure to transfer the associated risks from the client
to the provider of the services.
Particularly in the context of the above, effective management of
both risks and opportunities is essential for the successful realization
of the group’s strategy and plans. The proper identification,
assessment and management of risks and opportunities – notably
with respect to tendering, preparation and execution of projects –
is therefore an integral part of our management approach.
An overview of the key strategic, operational and financial risks as
well as risks regarding financial reporting is set out below. Where
possible, given the nature of our activities, we have stated what
kinds of risks we are prepared to accept and for what kinds of risks
we generally take mitigating measures.
STRATEGIC AND MARKET RISKS
The Boskalis markets are heterogeneous and often develop
disparately. 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, insurance 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 or regional geopolitical developments, such as
energy policies, political unrest, piracy, government-imposed trade
barriers and volatility in the energy and commodities markets.
In recent years, in particular the latter has strongly manifested itself
in terms of substantially lower energy and other commodity prices,
which has impacted activity levels in particular in the oil and gas
sector, as well as 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, postponements
or substantial reductions in the scope or size of contracts are quite
rare, they do occur, certainly in markets that are under severe
pressure. Consequently, 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 will 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 is derived from contracts awarded
through public or private tender procedures, with competition
often being predominately price-based. However, other factors –
such as the assurance of adequate safety, social and environmental
practices as well as the financial resilience of the contractor – are
also regularly taken into consideration when awarding contracts.
Proper 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 Boskalis’ activities are capital-intensive. This applies in
particular to Dredging and the Transport & Services activities
within Offshore Energy and means that prices in these sectors are
largely influenced by the utilization rate of the relevant equipment
at a given time. This implies that a broad international presence
along with a leadership position in terms of type and quality of
equipment and cost competitiveness are key success factors.
Boskalis places a great deal of emphasis on these, both as a