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Boskalis: Strong Full Year Result in Difficult Market

Boskalis: Strong Full Year Result in Difficult Market

View all news from: Boskalis Subsea Ltd
View directory entry for: Boskalis Subsea Ltd

09 March 2016

Boskalis have announced a set of strong results for the year in 2015 despite tough market conditions. 

Royal Boskalis Westminster (Boskalis) achieved net profit of EUR 440 million in 2015 (2014: EUR 490 million).

Revenue rose by 2.3 per cent to EUR 3.24 billion (2014: EUR 3.17 billion). Adjusted for consolidations, deconsolidations and currency effects, revenue was stable.

EBITDA amounted to EUR 885 million and the operating result (EBIT) was EUR 563 million (2014 EBITDA: EUR 946 million and EBIT: EUR 652 million).

From an operational perspective the result for 2015 was even better than the 2014 record result, which included a large number of exceptional items of EUR 200 million on balance before taxation.

Dredging & Inland Infra achieved a high fleet utilization rate and good results on projects in progress. The large Suez Canal project, which was completed successfully in 2015, made a significant contribution to both revenue and earnings.

Offshore Energy also had a good year and despite the deteriorated market conditions earnings increased slightly, partly helped by the strong US dollar. The good result was driven by good utilization of the equipment and good project results.

Towage & Salvage saw a decline in the result on balance compared to the previous year, mainly as a result of deconsolidation effects at Towage. From an operational perspective Salvage can look back on a very busy and successful year.

In the course of 2015 Boskalis increased its stake in Fugro N.V. from 19.9% to 28.6% at end-2015. The revaluation gain from the first half of the year was reversed as at end-2015, as a result of which the Fugro stake is now recognized at EUR 16.15 per share - virtually equal to the average purchase price.

The order book fell to EUR 2,490 million (end-2014: EUR 3,286 million).

Peter Berdowski, CEO of Boskalis:

 "We look back on a very successful year in which we achieved excellent results across the entire business. While the storm was gathering strength outside, we had an exceptionally busy year with many impressive projects. At Dredging, with projects such as the expansion of the Suez Canal - a project of unprecedented scope that was delivered on time and within budget. At Offshore Energy, where we were actually able to beat our record year of 2014. Salvage, too, had one of its busiest years ever, with prominent projects such as the removal of the wreck of the Baltic Ace from the access channel to the Port of Rotterdam.

The stormy conditions outside are also increasingly being felt within our company. Falling prices for oil, gas and commodities are also taking their toll in various market segments we operate in. Volumes and prices are under pressure, which is also translates into our order book. Conditions that require us to steer a different course and demonstrate helmsmanship. We are tightening up the fleet and the organization and are alert to respond to the opportunities the market continues to present - opportunities in existing market segments as well as opportunities created by adjusting our playing field and extending it to growth markets. A good example of this is the acquisition of VolkerWessels' offshore activities, which substantially strengthens our position in the growing offshore wind market.

Our fleet, organization and balance sheet put us in an excellent position to weather the storm with reason and consideration and come out of it even stronger."

Market developments

The megatrends on which the Boskalis business model is based continue to apply. These are global population growth and increasing prosperity. However, the timing and momentum with which these trends translate into promising projects varies widely from region to region. In a number of regions and markets where Boskalis is active these trends are developing less favorably in the short and medium term, making the outlook uncertain. Boskalis continues to focus on market segments that display structural growth in the longer term whilst also offering opportunities in the short term: Energy (oil, gas, wind and the decommissioning of old offshore platforms), Ports and Climate change-related projects (coastal defense and riverbank protection).

In the past 18 months the oil price has fallen by approximately 75% to USD 30-40 per barrel. Prices of numerous commodities have also dropped by around 50%. Players in these markets have invested heavily in production capacity, but in the meantime there has been a substantial drop in demand, partly because the Chinese economy has moved onto a much lower growth path than predicted. Many investments in the oil and gas industry have now been scaled down or put on hold.

Against this backdrop short-term developments in the Dredging and Offshore Energy segments have become more unpredictable. There is a reluctance to invest in major new port and offshore-related projects. Despite this the global megatrends on which our strategy is based remain unchanged. Global population growth is fueling sustained structural demand for our land reclamation and infra activities. Climate change is forcing governments on several continents to take steps to protect their populations against flooding and rising sea levels. This will result in growing demand for integrated sustainable solutions for complete maritime infrastructures. Moreover one of the positive developments for Boskalis arising from the extremely low oil price is that many old offshore oil and gas rigs are now being taken out of service and decommissioned. The following underlying trends also remain favorable for Boskalis:

demand for larger and deeper ports with associated infrastructure to accommodate larger oceangoing and other vessels with deeper drafts, despite current expectations for the slower growth in seaborne trade;
demand for energy and the associated increase in offshore exploration and production, also in vulnerable regions, which in turn increases the need for sustainable solutions;
the greater focus on climate-related issues partly as a result of the Paris Agreement (COP21), which creates opportunities such as new offshore wind farm projects and potentially greater demand for coastal defense and riverbank protection projects.

In the coming period the general market conditions will be characterized by lower volumes of work and pressure on utilization rates and margins. At Dredging & Inland Infra the emphasis will be on maintaining utilization rates at responsible levels of project risk. With the current orders in hand a good part of the fleet is utilized for 2016, albeit at lower margins than in previous years. The picture at Offshore Energy remains mixed. A number of long-term contracts and work already contracted provide stability for part of the fleet, but the spot market-related transport activities and subsea services are experiencing pressure on utilization rates and margins. The offshore wind market presents new opportunities, partly through the recently announced intention to acquire offshore activities of VolkerWessels. By the end of this year all the Towage activities will have been transferred to joint ventures. Market volumes in this segment are relatively stable, although competition is expected to increase here, too, especially in terminal services.

To respond to these market developments we have launched a fleet rationalization and cost reduction program. It is expected that equipment will be taken out of service at both Dredging and Offshore Energy with the associated implications for staffing levels. In addition, we are taking a critical look at reducing the cost of the global office network.

The project-based nature of a significant part of our activities, in addition to the uncertain market conditions, makes it difficult to give a specific quantitative forecast with regard to the 2016 full-year result early on in the year. It is, however, clear that net profit will be substantially lower than the very strong 2015 result.

Capital expenditure in 2016 is expected to be approximately EUR 200 million, excluding acquisitions, and will be financed from the company's own cash flow. Boskalis has a very sound financial position and the solvency ratio has increased to 56%. The good result and lower net debt position has further reduced the net debt : EBITDA ratio to 0.4.

Dividend policy and dividend proposal

The main principle underlying the Boskalis dividend policy is to distribute 40% to 50% of the net profit from ordinary operations as dividend, with Boskalis aiming to achieve a stable development of the dividend for the longer term. The choice of dividend form (in cash and/or fully or partly in shares) takes into account the company's desired balance sheet structure as well as the interests and wishes of the shareholders. In light of this, Boskalis will propose to the Annual General Meeting of Shareholders to be held on 10 May 2016 that a dividend of EUR 1.60 per share be distributed in the form of ordinary shares, unless the shareholder opts to receive a cash dividend. The dividend will be payable from 3 June 2016. 

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