Boskalis_Annual_Report_2016

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