Edited Transcript of BOKA.AS earnings conference call or presentation 5-Mar-20 12:00pm GMT

Full Year 2019 Koninklijke Boskalis Westminster NV Earnings Presentation and Corporate Business Plan 2020-2022

Papendrecht Apr 6, 2020 (Thomson StreetEvents) — Edited Transcript of Koninklijke Boskalis Westminster NV earnings conference call or presentation Thursday, March 5, 2020 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlo van Noort

Royal Boskalis Westminster N.V. – CFO & Member of Management Board

* Peter A. M. Berdowski

Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO

================================================================================

Conference Call Participants

================================================================================

* Andre F. M. Mulder

Kepler Cheuvreux, Research Division – Analyst

* Bart Cuypers

KBC Securities NV, Research Division – Financial Analyst

* Luuk Van Beek

Banque Degroof Petercam S.A., Research Division – Analyst

* Maarten Verbeek

The Idea-Driven Equities Analyses Company – Equity Analyst

* Thijs Berkelder

ABN AMRO Bank N.V., Research Division – Equity Research Analyst

* Tijs Hollestelle

ING Groep N.V., Research Division – Research Analyst

================================================================================

Presentation

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [1]

——————————————————————————–

Okay. Very welcome to all of you meeting today. As usual, we will pay attention, obviously, to the full year results. But on top of that, we also have a second part to present to you. That’s the new corporate business plan 2020-2022. The way we’ve divided it is that Carlo will take the lead in part 1, being full year results, and I will then take — takeover from Carlo and present the new corporate business plan.

As far as highlights are concerned, for last year, and you’ve all seen the press release, obviously, is that I think, overall, we finalized the year better than we did the half year, obviously. And we managed to improve the total outcome of the year by, I think, a very good performance in the second half. So overall, the revenue was EUR 2.6 billion, a bit higher than in 2018. EBITDA, we already set. We already gave the guideline. We expect to arrive at a comparable level, and we ended a little higher than that.

Net profit of EUR 75 million. Net profit last year was extremely negative, but obviously due to amortizations that we had then, so corrected for the extraordinary charges then. It was EUR 83 million versus the EUR 75 million of this year. We had also an extraordinary income for over 2019, EUR 82 million pretax, and Carlo will zoom in further later on.

Order book. And that is very good to see is we ended up with an order book of EUR 4.7 billion, which is a record, highest ever. And 2018 being EUR 4.3 billion in order book. Both rose on the Dredging side and on the Offshore side, and also that Carlo will explain later.

We’re very proud of the net cash financial position, net cash of plus EUR 26 million. We worked hard on that, particularly on the working capital side. You may have noticed that in the numbers. It’s positive. That is a little bit positive, but it could have been at breakeven or a little below debt. I think, the takeaway, obviously, is also towards the future later on, is that we have a very healthy balance sheet, where we stand today, which gives us in a unique starting position also for the coming 3 years, obviously, then the years thereafter.

Dividend. Most of you had already calculated this one in. I saw in all the comments. But again, we decided that the balance sheet position on one hand, the cash generation capabilities that we have on the other hand, brought us to a decision that whilst the policy is a payout between 40% to 50%, we decided to go above that with EUR 0.50 all cash, choosing, obviously, for a stable dividend.

We almost forgot, and it’s also interesting to see how short the memory of the market is and in comments, but 0.5 year ago, we sat here, and I explained about difficulties that we had with some onerous contracts. And we made a provision of over EUR 100 million then. Obviously, that has been all consumed in the numbers of full year. But just to refresh memory at the EUR 100 million then, obviously, we had to deal with, in particularly, the difficulties we had in the offshore market wind. Due to unexpected changes in the attitude of clients that we had seen in the last 1 to 1.5 year, sharp increase in disputes, all kind of claims and variation, order positions that we are discussing. A thorough review we made after that of the total portfolio, and we decided to take debt loss provision. A prudent approach, and as we said then already, we expect that a substantial part of the EUR 100 million, at the end of the day, will be recovered with the clients, but that will take time. And not much of that has influenced the second half year already to cover that. But we still feel confident that a substantial part will be recovered later on.

That’s my part, and I will give you the floor.

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [2]

——————————————————————————–

Yes. Good afternoon, everybody. In about 19 slides, I will guide you through the year 2019 results, starting with the segment results, then the balance sheet and, last but not least, the outlook.

Turning to Slide 7. First, the mix of our revenue over the regions. As said, on total, we have a slight increase in revenue of about 3%. But over the mix, you see quite a stable development in all regions, except for Australia, Asia, which is up 30%. So about EUR 100 million, which I explained mainly in Southeast Asia, and then in particular, in the projects in Singapore. The development of Finger Pier 3 at the Tuas terminal. And, of course, the polder development, and one of the first polders in Southeast Asia we are developing at Pulau Tekong, which had a considerable impact also on these revenue numbers and also in the years to come. But the rest is rather stable, I would say.

Then the segmentation by segment. The top, the revenue; and the bottom, the EBITDA. Revenue, dredging, inland infra, higher, approximately EUR 1 million. And as explained, especially because of the developments in Southeast Asia. Offshore Energy, flat. We will come to the — some more detail later on. Towage & Salvage is more or less spot on with the same with 2018 numbers. And as familiar by most of you at this — these are the numbers consolidated of Salvage only as the Towage activities are in joint ventures and equity accounted for. So this is the Salvage revenue. Then Holding & Eliminations, which is in a total not irrelevant, I would say.

EBITDA, some more activity there. Dredging, Inland Infra, stable. However, offshore energy, of course, a steep decline, as explained by Peter a minute ago. Of course, in the first half year, heavily impacted by the onerous contracts provision of more than EUR 100 million. However, quite a good to — second half year with almost delivering EUR 80 million of EBITDA. So it compensated the first year for part of it.

Then Salvage & Towage, quite a — also a good year, especially Salvage was again a good year 2019. Holding & Eliminations, this includes the extraordinary gain of EUR 82 million, but the details will follow later on. And very important to state also where the revenue, and it’s not — it’s really like-for-like because not impacted by divestments or acquisitions as these M&A activities done this year are not consolidated in those numbers because they are equity accounted for. So it’s really a like-for-like comparison.

As already said, record order book. So this year, an order taking of around EUR 3 billion. So the book-to-bill ratio well above 1. This number does not include the order book of our JVs, which is EUR 1.4 billion. And then you also can see here that both divisions of Dredging, Inland Infra and Offshore Energy have seen a considerable growth, and especially in H2. Some slides later on, we’ll show you some details.

As in Q&A, you always ask about the timing, the phasing of the order portfolio. We now included a slide on this. So here, you can see, of the EUR 4.7 billion for 2020 in hand is already EUR 2.1 billion. If you would make a reference to the 2019 revenue, you could say that at almost 80% of this yearly revenue is already in hand. And, of course, by nature, a lot of our activities or service activities are — have shorter lead times and are also dependent on the spot markets so will — they’ll follow in the year. And then again, with a quite a long tail also into 2021 and later on, so especially, of course, the major projects in Southeast Asia, but also the new one in Taiwan, Changfang, Xidao wind project, of course, are in there.

Then somewhat deeper dive into the segments, starting with Dredging and Inland Infra. You see a picture of our Duqm development, which is nearing its end. It’s always difficult to see the size of it with a picture, but somewhere in the middle there is the big cutter of us. And the quay wall is around 1 kilometer long, so quite a big sizable project also for Boskalis. And, of course, with good utilization of our cutter, the Helios.

Dredging and Inland Infra, revenue up, as already mentioned, in Singapore projects, et cetera. EBITDA, stable. Net result of JVs, which are mainly our asphalt production facilities in the Netherlands, so always quite stable, leading to an operating result, which is slightly lower, which is also impacted by some projects with a lower asset intensity in a more a bigger civil part. I believe important also to mention that Dutch Inland Infra, and again, contributed well also to this number. We always say that the target is around an EBIT of 4% to 5%. And again, this year was close to 5%, so quite an accomplishment, I believe, also in the Dutch Infra market comparing to our competitors.

The order book. Important one, of course, already mentioned in the press releases, but the Manila Bay development in the Philippines is an important one, of course, for us, especially for the utilization also in the coming years of the hoppers. A nice project in Maldives, also for land reclamation, but also protecting the Maldives against the environmental impact. Adelaide development in Australia, so expanding the excess channel there. Land reclamation project in Bahrain. Replenishment of beaches in Romania, Europe, also a very nice project. Port-la-Nouvelle, the deepening and expanding of that port and some other ones. And then maybe also to mention the last ones, the road projects, the M206 is EUR 100 million-plus project, Infra project in Netherlands. So also the Dutch portfolio of Infra projects is for 2020 quite well filled already.

Then as you used to the utilization numbers. The hoppers at 32 weeks, which is a bit lower than last year. Especially in the fourth quarter, we had some delays with projects in some countries but which are now in 2020 executed, still above the industry average of around 28 weeks.

The cutters quite high with 26 weeks, especially, of course, due to the Helios very busy on the Duqm project. But also in quarter 4, the other cutters, with — including the Helios were busy in Middle East, so quite a good utilization of the cutters this year.

Then going to some more detail of Offshore Energy. You see our flagship, the Vanguard, transporting one of the FPSOs for Petrobras from China to Brazil, also in the — this is the P67, but also the P60 is transported by us late 2019, beginning of 2020. So also quite an accomplishment because this was, again, a record for the Vanguard, transporting a vessel of 91,000 tonnes successfully and in time.

Revenue, as said, stable. You see also the split between contracting and services. So 60% contracting, 40% services-related business.

The services part declined a bit compared to 2018 because of the decision to leave the low-range transport market and scrap some of the vessels. You see the split of renewables and nonrenewables. Also something to stretch, I believe, is that already 40% of revenue is linked to renewables, and especially, of course, in our case, with wind developments.

Contracting. So going to some pieces of the — our business units. Within contracting, seabed intervention delivered quite well, quite successful. It also in the second half year with some landfill projects have bring — gas lines, umbilicals, et cetera. So from sea to shore, quite some successful rock insulation projects protecting subsea structures like gas pipelines, but also the scale protection of monopiles, for instance, in wind parks. So a very good year for seabed intervention.

Offshore wind, of course, in the first half year, impacted heavily by the owners contracts provision on some projects. However, H2 were — was quite — saw quite an improvement. For instance, on a nice project we had in the U.K. for an existing wind park, repairing and replacing array cables in time and that was a successful and sizable project in H2.

Reinsulation also already explained. Of course, the decommissioning projects where we had to take some onerous contract provisions. So all in all, yes, disappointing H1 with a very, very well, H2 and delivering some extra EBITDA to the total year number.

Then going into our service activities within Offshore Energy, Marine Transport. Although we were quite dependent on the spot market, still in 2019 there was quite a good performance, utilization of 66%. In that sense, it was quite an achievement. However, more importantly, we saw an increased tender activity in this business unit. So also a lot of tenders, which we’re — which we will mention in a minute. We’re awarded also in the second half year for our transport vessels.

Subsea, we — with the 2 new vessels on the North Sea, we now believe we are seeing as a Tier 1 contractor as because you need a track record first to be seen as a Tier 1 contractor by the oil majors that we were quite successful accomplishing that. So we — I believe we made progress there.

Survey, again, a very successful year, comparable with 2018. Of course, this year, including Horizon, and as already highlighted, I believe, several times, the Horizon is equity accounted for in 2019. As of January, we have full control of Horizon. So in 2020, Horizon will be fully concentrated in our books.

Order book also grew within Offshore Energy. Changfang, Xidao, of course, a very important projects for us in Taiwan. Wind project, transporting, installing 62 jackets and the needed pin piles. And also the anchor launching project for the decision to build the Bokalift 2.

Hornsea, that we will install 3 export cables with a total length of 400 kilometers, quite a sizable project. In Australia, we won Scarborough, which is a gas development, where we will do all kind of activities surrounding the — a gas connection. So the trenching, the pre and post insulation of rock, et cetera. Lillebaelt, also in the connection of a gas pipeline, also trenching, insulation activities within this project.

Then in El Salvador, we were awarded a contract where we connect an onshore power plant with a so-called FSRU, Floating Storage Regasification Unit. So in — a very complex but, well, a nice project for Boskalis, I believe. Then various marine contracts, marine transportation contracts, so transporting FPSOs, LNG models, et cetera, already contracts in for 2021 and later. So also in the second half year, we won quite sizable projects.

Then to Towage & Salvage. As we are the firefighters of the international sea, you see here the Salvage of the — one of the attacked tankers in the Gulf of Oman, where we made sure that the crew could safely leave the vessel and that things get stabilized and that the fire put out, and the ship could be returned to port.

Towage & Salvage. Salvage, very strong year, a lot of emerging response activities, which we benefit of Towage, despite the fact that we sold Kotug Smit and Saam Smit, also delivered to the bottom line quite well. So in the end, an operating result even higher than 2019. And again, I said, Salvage very — quite successful in this year.

As you’re used to, we always transparently also showed the 100% numbers of the remaining Towage joint ventures. So that’s now excluding Saam Smit and Kotug Smit. Maybe you see the — maybe to mention the order book increase, we won the Lamnalco joint venture, won a sizable project in Mozambique for 10-year delivering — for 10-year services within this terminal.

Holding & Eliminations. As said, this includes the EUR 82 million. I will come to some of the details of the transactions in a minute, but this includes EUR 82 million extraordinary gain included in the numbers of 2019. But excluding those, you see a slight increase in cost. These include the overall and quite stable overhead cost, but also the sundries. So things like FX results and other things, but no remarkable events there.

For the last time, I believe, here are the extraordinary items, 2019. So in H1, we had the book profit of the Kotug Smit transaction. In H2, we had a book profit on the sale of Saam Smit. And also in H1, we had the sale of the — of a vessel.

Then turning to the balance sheet. As already mentioned by Peter, we still have a very strong balance sheet. If you look at equity here, EUR 2.5 billion on a balance sheet, total of EUR 4.6 billion, so solvency rate of 54%. If you then also look at the net financial position, we have to combine the cash and equivalents and the interest-bearing debt. You see that we have a net cash position of plus EUR 26 million compared to a minus — to a debt of EUR 131 million. And at the half year figures that is — was still above EUR 400 million debt. So in H2, we had quite in an increase in net debt position.

Maybe just to highlight the main variances, then I would take the intangibles and other fixed assets, which is fully linked to IFRS 16, where we have to sort of capitalize the operational leases.

If you then look at associated companies, that is explained by the divestment and the decline, divestments of, of course, the JVs within Towage, so Kotug Smit and Saam Smit. But compensated or the increase is the acquisition of Horizon. But overall, the decline in asset value.

Then the provisions and long-term liabilities that is also linked to IFRS 16. So we have an inclusion of an asset of EUR 100 million, also an inclusion of a liability for these contracts of EUR 100 million. I believe these are the highlights of the balance sheet.

CapEx this year, so around EUR 250 million, of course, the second new cutter. The Krios is in there for a big part, also the first payments on the new Bokalift 2. Also, the development of the new geophysical survey vessel is there in this amount. And as regular, of course, also the dry-docking [so the yearly] regular dry docks, about EUR 50 million are in there. Next to a lot of smaller investments.

Cash flow slightly increased, especially, of course, due to the H2 achievements and still slightly lower than recent years.

Maybe important to highlight here the movement in the net financial position. And just to take out some particulars from this cash flow statement. So bottom line, you see the movement of the total year, the EUR 157 million. Take out some particulars, the movement in working capital. So we improved more than EUR 100 million in working capital.

And as again, we already stressed it, I believe, several times, but there is more focus also in 2019 on working capital, which is seen over here. The divestments, of course, the EUR 290 million, the divestments of Kotug Smit Towage and Saam Smit Towage. Then the acquisitions in the beginning of this year of BoDo and the near-shore cable installer, and especially, of course, Horizon, the new survey company in our portfolio.

Then maybe as last point to mention, of course, in this overview is next to our dividend. We also started the share buyback program in beginning of 2019, and we have now purchased 2.3 million shares, representing a value here for EUR 47 million.

Then just shortly where the IFRS 16 impacted our numbers. As already said, the EUR 100 million on the assets and liability side. So an increase of assets and an increase of liabilities, then an increase of depreciation as you have to capitalize those contracts and have to depreciate them. With it also comes an interest charge on your liability. No impact on equity, net increase in EBITDA because of IFRS 16. And bottom line, a decrease in net profit of EUR 1.2 million.

Then the outlook. As already mentioned, we look more favorable to 2020 or at the beginning of the year look more favorable at business circumstances than at the beginning of 2019. Dredging, stable volume, stable margins, I would say, comparable to the recent 2 years. Offshore Energy, gradual market recovery, so no V-shaped recovery, but gradually in certain markets, especially, we see, of course, the market recovery in the late cyclical activities that we already saw it within server — survey activities, but now it’s also in transport and installation activities. And then we’re talking about projects of 2021 and later.

Towage, business stable, I would say. And at this moment, it’s still too early to really make a positive directional guidance due to the normal contracting uncertainties, but also, of course, we all read the papers, and we did not shake hands a minute ago. So also, in our business, this could impact, of course, the coming months, the coming year.

CapEx. At this moment, we expect a CapEx of EUR 400 million. It’s quite high compared to recent years. This is related mainly also to the Bokalift 2, because the biggest part of this investment will be done in 2020. But also next to that, we have the Krios and some other survey vessels in this number, so quite a sizable CapEx number for 2020.

And then we come to Q&A.

================================================================================

Questions and Answers

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [1]

——————————————————————————–

Maybe — thank you, Carlo. Just as an introduction to Q&A. Please focus your questions for this moment on, let’s say, the financials and market because a lot of that will be covered, obviously, in the corporate business plan presentation. So if you have questions on the numbers, whatever respect, please ask them now. This is the moment. And later, we can discuss business market, competition and what have you.

Are there questions for this moment? Over here.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [2]

——————————————————————————–

Tijs Hollestelle, ING. Yes, let’s start with my favorite subject, the loss provision. I think you gave a lot of insight already. The problem with these things is you have these arbitrage cases with deadlines and difficult to predict, but do you expect any material outcome this year? Because I think for the share price, it’s always nice to know that this year nothing will happen in terms of a decision, whether your loss provision is sufficient, too low or too high. Therefore — but it will not impact the numbers? And if so, would you put out a press release on that? Because it can be quite substantial.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [3]

——————————————————————————–

Now, obviously, if it’s that substantial, we would put out a press release. And yes, you will see effects this year, obviously, as already in the second half of the year we saw some minor effects, but it will be a revolving process. And obviously, again, you will — that also will be mixed with the normal process that we have. But a small portion already was, let’s say, absorbed in the second half year, and we will see more in this year. When you talk about substantial effects, obviously, if they’re that big, we will come with the press release.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [4]

——————————————————————————–

Okay. That’s clear. Another question. Maybe it’s in the press release, but I have not read that yet. Do you expect to — yes, that’s painful, yes, but do you expect…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [5]

——————————————————————————–

No. You know this is live.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [6]

——————————————————————————–

Yes, I know I am on television. What is the performance of Horizon? So what can we expect more or less in terms of addition of the revenue, EBITDA margin? Anything you can give on that.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [7]

——————————————————————————–

Yes. We haven’t been explicit on it other than that we’ve said that the performance is good, number one. And number two, that it will be fully consolidated in the numbers for this year. Right, Carlo?

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [8]

——————————————————————————–

Right.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [9]

——————————————————————————–

So looking at the initial press release, you get an idea of the substance of it.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [10]

——————————————————————————–

You certainly get an idea.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [11]

——————————————————————————–

Yes. And then another favorite subject, the Dutch Infra market is more or less safe, you said, in terms of feasibility in order book. Some of the big contractors have…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [12]

——————————————————————————–

2020, as Carlo said.

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [13]

——————————————————————————–

2020.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [14]

——————————————————————————–

Yes, for this year, yes. Some of the Dutch contractors are warning of the PFAS and nitrogen emissions impact maybe later in this year and then in 2021. Any views on that?

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [15]

——————————————————————————–

As I said, 2020, we see a good well-filled order portfolio. However, we also see delays in bigger projects like also our competitors. So 2021 and later is still an unknown.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [16]

——————————————————————————–

And the project you currently have in portfolio is not impacted?

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [17]

——————————————————————————–

No, no, no.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [18]

——————————————————————————–

Or even better, a project where we were lowest bidder that was still under final discussion got cleared earlier this week. So it’s not all negative. You still see projects coming to the market, but it’s getting more difficult. And as Carlo rightfully said, in particular, you see a delay of new projects coming to the market. The big road projects on one hand, but also reclamation jobs for the coast are being affected not as much by PFAS, but more by nitrogen. But — so we say we feel safe with the backlog that we have today, looking, let’s say, 18 months ahead, and we expect that somewhere down that line that we should come to some kind of a solution, and it will pick up again.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [19]

——————————————————————————–

Thijs Berkelder, ABN AMRO. Yes, the coronavirus, can you maybe elaborate what kind of measures you are currently taking as an organization to contain the spread?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [20]

——————————————————————————–

So shall I start with that? Maybe. I think there are 2 sides. Number one, how are we impacted and the impact currently is limited. Obviously, we don’t depend on a continuous supply stream from China or other places in the world to perform and execute our business. Most of our business is being run quite autonomously in that respect on projects. So there is no, let’s say, direct impact on the business as we speak. Obviously, we work on projects in Singapore and Singapore was one of the first countries. We work in projects in the Middle East, like Bahrain, like the Emirates, where we’ve seen it before. So we have a very strict policy where we look at the advisers of the World Health Organization all the time and have a restricted travel policy as so it’s on a — we travel on a need-to-travel basis to these countries. And obviously, we take all the measures that most other companies also take. So no direct impact to the business, and I don’t foresee that for the coming months either. You see some delays in loading of structures on heavy marine transport vessels in China, as you would expect. Some of them are picking up again also, so it’s limited. And there, you get into the discussion talking about the demerge rates of projects. Is it an advantage for us or a disadvantage? Well, let’s forget about that at this moment in time, but also there, a limited impact. The big question, obviously, what is the indirect impact? How will the coronavirus have an impact on the total global economy? Well, God knows, and it depends on how deep the crisis will develop, and how long it will last, et cetera. There is a lot of psychology involved also as we all realize. So it’s very difficult for us to make a judgment call on that. One of the reasons is, as Carlo explained, obviously, to be even more than normal reluctant in the outlook for this year. And it is not because we expect difficulties, but I think we have to be realistic that where we stand today, it’s very difficult to look 9 months ahead.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [21]

——————————————————————————–

That was very clear, I must say. Maybe in addition, you’re using quite a lot of Philippines or Philippinian subcontractor for quite a lot of personnel. I presume they follow your policy? Or how should I look?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [22]

——————————————————————————–

The Philippines is net debt — not that much hit, obviously, by corona. It has been the other way around. We are starting up a project to Manila, together with the Chinese contractor, and we had difficulties to get the Chinese into the Philippines. But as far as the Philippines on board of our vessels, it’s more or less business as usual. Nothing has changed because it’s not a truly affected country. We have no difficulties with traveling visas there. And the policy on board for all our crew members is the same. Obviously, we don’t make a distinction on board, looking at the passport of people. We look at the safety and security of people in that respect.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [23]

——————————————————————————–

I presume the CapEx questions are more for this afternoon.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [24]

——————————————————————————–

Yes. Yes, this afternoon, but later on, the end of the presentation. We are in the afternoon, yes, but later on. Later on, Thijs.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [25]

——————————————————————————–

Maarten Verbeek, The Idea. When we look at your offshore business, it was somewhat 40%, so roughly EUR 400 million. When we look at your order book, that’s about half, so EUR 750 million. So it’s growing steadily in time. What kind of measures have you taken that you won’t be faced with having to take tens of millions of provisions again? What has changed in your contracts form or your relationship with your customers, et cetera?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [26]

——————————————————————————–

Referring to wind, that is? I think the most important thing we’ve done there is that we’ve taken a close look at the total tender procedures that we have, went through them in detail and clearly define the go/no-go positions again, and also the authorizations in those decisions, sharpened that more into the direction that we already had with Dredging. And important shift that we’ve seen in the market is that if you come from a relatively, let’s say, mild climate with your clients, obviously, you are less focused on what could be the pitfalls and the downside of certain conditions in a contract. Once you see that contracts of — or that clients abuse some of the clauses that you have in contracts in their favor, you get more aware, obviously, on those type of conditions. So it’s been a learning process, certainly, for the people in that aspect where we have used, obviously, the experience that we already had with Dredging. I think that’s the most important step there, that’s one.

Secondly is the notice, and I come back to that later in the corporate business plan that there is enough business in the market for us as a company as a whole, also should take away some pressure, some stress from business units who obviously, see here, see the business unit as the most important shop in Boskalis. And they want to make sure that the turnover is there, but in particularly, that the utilization of fleet is covered. So holding back, taking back a bit of that pressure is also important. And again, an important guideline towards the future, we have to focus on the things that we can truly do, where we are experienced, where we have the specialism and the knowledge in-house. So stick to your competence profile, and don’t step out of that. And as far as wind is concerned, we make a distinction between the countries where there still is subsidy, countries like Taiwan, where you still have a $0.15 per kilowatt hour subsidy in comparison with $0.00 subsidy in — on the North Sea. In a country like Taiwan, we are willing to take a bigger chunk of a job on a lump sum basis because we see that both on the contractual part but also on the margin part, it’s still quite responsible to do so.

Looking at the North Sea, we are much, much sharper to look at where are we willing to take which activities. And if we undertake them, what are the risks involved, and how do we make sure that if things go wrong, if things shift that we are not hit. And that means that we position ourselves more as a subcontractor than as a main contractor on the North Sea currently.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [27]

——————————————————————————–

So in nutshell, you never can exclude provisions, but the provisions you have seen as last year, you think that’s out of the — that won’t happen again? Or you really have done something wrong?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [28]

——————————————————————————–

Well, as a contractor, you know that for us, 1 out of 1,000 projects will be delivered at the calculated cost price. It’s 1 out of 1,000 and I haven’t seen them yet, but I’m still waiting for it. So it’s a Gauss curve, but a Gauss curve has a certain shape. And the one thing you don’t want is that you end up in a lengthened part of the curve. And typically that happens. So you get an asymmetric Gauss curve because on the low end of that Gauss curve, you are in business that you don’t truly understand, you don’t — you can’t truly manage, and at the end of the day you can’t truly predict what will be outcome if you tender, start up a project, et cetera. So the most important part is that you try to narrow the Gauss curve but you have to make sure that the low tail of it is that you try to not be involved in those type of projects. But at the end of the day, contracting is always a Gauss curve. You have winning contracts, and you have losing contracts. And at the end of the day, it’s because we run a lot of projects that you end up very close to what you expect it somewhere early in the year. But if you look at the breakdown of all these projects, you’re always surprised what the mix on the Gauss curve is.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [29]

——————————————————————————–

Andre Mulder, Kepler. Few questions. First, on heavy lift. With that part recovering, can you give us any insight into what the size of the share, the turnover has been, possibly in the backlog, kind of split of that? And maybe some statements on the profitability.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [30]

——————————————————————————–

We haven’t done it in recent years, and we haven’t done it last year, so we won’t do it this year. So we could do it, but we won’t do it. It’s no longer Dockwise, and it’s very much amalgamated in the rest. We don’t even have Heavy Marine Transport as a unit. So it’s Marine Services and Heavy Marine Transport also in our own unit. So we really had to — would have to make an own exercise to beat it off where you end up with what type of — what kind of overhead is calculated to which activity, et cetera. So it’s very much integrated into the transport part of the business.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [31]

——————————————————————————–

On CapEx, commitments are the same, around EUR 262 million. Still you end up EUR 0.25 billion higher. Can you give us a bit more details as how you will spend that?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [32]

——————————————————————————–

We’ll spend it.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [33]

——————————————————————————–

The EUR 400 million compared to the EUR 160 million, so there’s EUR 250 million undetailed.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [34]

——————————————————————————–

Well, as already set — and maybe it’s better that I explain it after the corporate business plan because you have a breakdown of all our plans. Next one?

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [35]

——————————————————————————–

Working capital, EUR 80 million better. Any special actions you have taken?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [36]

——————————————————————————–

Yes. That’s Carlo’s influence. Carlo?

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [37]

——————————————————————————–

No. As already several times mentioned, I believe, when you have an earning profile like some years ago, you lose maybe a bit of focus on working capital. And I believe this year the total [CapEx] also been — guys, the money has to come in. So both on the receivables side, also in contract negotiation, it is not the last item to be negotiated but one of the first ones. And, of course, the market stays the market. So you cannot always win on payment schemes, et cetera. However, it has focus now within Boskalis. So it is like a sort of sport to really get the money in time, earlier, et cetera, et cetera.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [38]

——————————————————————————–

Last question on Taiwan Offshore Wind. Taking your statements, I assume that the margins are higher there. Can you give us any feel of what that difference is? And what you’re making in Europe?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [39]

——————————————————————————–

Well, it’s between minus and plus to start with. No, but healthy margins. And I’ve always said that I feel that healthy margins in an industry like that should be around 15%.

Any further questions on the numbers? If not, okay.

================================================================================

Presentation

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [1]

——————————————————————————–

Okay. We continue then. Corporate Business Plan. Yes.

Number of chapters I would like to run through. Starting to look back a bit because we’re not only starting a new 3-year plan but we’ve also finalized, and it’s good to look back and to share with you what happened. What did we expect and what did not happen. Short introduction on our business, important drivers, and these are particularly the macro drivers and also the longer-term drivers. Market developments, that’s more a focus on the coming 3-year strategic framework and then the wrap-up [note].

Maybe good to share with you how do we set up a business plan like this because it’s quite an exercise. It takes us approximately 6 months, also because we want to involve as much as possible of the management. So all of the 25 business units that we have are also being invited to draw up their own business plan. So what we typically see, it’s a top-down approach where we in the top analyze macro trends, also set scenarios because a lot — certainly long term is uncertain, but we all want to work into the future according to one scenario. So we take a lot of time looking at those macro developments on one hand. On the other hand, we invite all the business unit managers to look at their own markets, their own competition, but also to drive their own plans as far as, for instance, investments are concerned, acquisitions are concerned, et cetera. We then synthesize, yes, the top-down and the bottom-up into one integral plan, which has obviously far more detail than I can present today. But what I will try to do is to share as much as possible of the essence of that journey with you today that as an introduction.

Well, the strategic cornerstone, you all know, I’m not going to explain it to you. But I can say, as a starting point, obviously that hasn’t changed. It’s not that we’ve come to the conclusion. We’re going to be a completely different company. We get rid of all the assets. And from now on we are in services. We are still very much working along the line — this line, as you all obviously have expected.

Strategic framework of last year — of the last period, I should say: Focus, Optimize and Expand. We’ve explained it to you. Maybe it’s good to share what are the main actions that we had in 2017, ’19. And if you look back 3 years, it’s always quite impressive what has happened, and on the other hand, what we’ve done and we have achieved.

Focus. When we started, we still had a stake in Fugro. We got rid of that. We also divested last year in the Towage joint ventures. And just for your reference, in total, we cashed in over EUR 600 million through those 3 actions. We also decided in focusing to draw back from the low-end business in Heavy Marine Transport last year, as you will recall. Important step also, one hand because we cut off a — the low end but also cash-bleeding tail. And on the other hand, we created a better focus on the high end where we really want to be as a company, certainly, also for Heavy Marine Transport. And you don’t want to compete with every Tom, Dick and Harry in South Korea or in China.

Optimize. We started that phase with the rationalization of fleet. We got rid of 24 vessels. We started to reorganize the head office. That was exactly 3 years ago when we started that process. We took a review at the top structure of offshore. What are the activities that we have, the lines of business, and what are the business units we want to create. And we introduced very important one harmonized way of working, one new quality assurance set, which makes it now possible to mix all kind of activities, business unit vessels in all kinds of projects, but all work on the same platform of how do we control our processes. Very important to synthesize also the activities in the organization.

Expand. Although, yes, we all saw market was coming down, margins were under pressure, cash flow was under pressure. We said this is also the time for opportunities. We want to expand and invest countercyclical. We had acquisitions of Gardline and Horizon on the survey side and of Bohlen & Doyen on cabling and also Germany. And we invested in assets, 2 DSVs that we bought from the market 2 years ago, 2 CSVs, the Bokalift 1 and the Bokalift 2 we started, the Helios and Krios cutter dredger. So all in all, quite a mix of rationalization. On one hand, reorganization, cost cutting and you name it; but on the other hand, also investing and also building on the future.

Well, this is who we are today as far as the geographical spread is, but also number of people involved, number of vessels and in which countries we are active.

Historic performance. This also goes to show the roller coaster we’ve been through where we had extreme years, ’15 — ’14, ’15, ’16, come back to that later, on — both on revenue, but also on EBITDA.

A couple of step-ups. As you see from 2004 to 2009 was more or less the growth of dredging. In 2010, we added Smit. The decline that you see then also has to do with the deconsolidation of some of the activities at the joint ventures that we created, which is reflected obviously in turnover — less in revenue but more in EBITDA. The step-up in 2013 obviously is Dockwise. With Dockwise, we generated also in the years thereafter a huge amount of cash. And then we see more or less a decline from ’15 downwards.

This is our performance. It is also good to compare yourself with peers once in a while. There is not an exact peer of Boskalis. But you could say, we have 2 type of peers. One are on the offshore side and obviously are the usual suspects on the dredging side. Here you see the mixture of both in the peer group comparison, where you see that the average EBITDA of Boskalis has been somewhere around 22%, which puts us in the top 3 of performance on average EBITDA in that period. Maybe more interesting also to see that in a time context, where you see that we’ve had an above-average performance, but in particularly the period 2013 to ’16. And again, the addition of Dockwise was very important there. Made us certainly, on average, a top 3 player in EBITDA. You have a full peer group. In yellow, you see the dredging peer group because we compare more obviously with them on a lot of aspects. But also there you see the outperformance certainly in that period. As we speak, a balanced business mix, approximately 10% towage and salvage, and then 40% offshore, and a 50% dredging, all very known.

What are the qualities and capabilities that we have? What makes us different? What makes us distinctive? Well, obviously, the financial operational discipline, as you all are aware, and a strong balance sheet as we said, debt-free. We have a strong track record and reputation, leading market position. The latter is important because, eventually, we only target activities where we can reach a top 3 position in the market, and it can be the global market like salvage, like dredging. Or it can be a regional market, think of subsea services here in the North Sea. But if eventually we don’t foresee a top 3 position, at the end of the day, we will not pursue that activity for the long time. It’s all around the value-adding assets with the global fleet management capabilities that we have, with innovative engineering which is very important these days, focus on responsible growth, responsible both from a sustainable point of view but also from a sustainable economic point of view. And last but not least, we have very professional but extremely committed, loyal, enthusiastic and very passionate people.

Okay. First thing we do is look ahead and not only, let’s say, 3 years ahead, but one of the questions you ask yourself also when you set up a corporate — new corporate business plan, you talk about investments in vessels. When we invest in a vessel, we invest in a vessel for the coming 30 years at least. And that means that you can say, yes, I invest in a vessel because I see a market next year. At the end of the day, you also ask yourself the question, are we still relevant with our business in 20 years’ time or 30 years’ time. So what we did is we looked at 2040 as a reference point, and we looked at the drivers of our industry. So how do they develop, because from that you can derive whether or not there is still a need for our products in the longer term. But it all starts obviously with the continued growth of world population. The world population is expected from 2020 to 2040 to grow another 15% to 16%. Growth is obviously concentrated, not all over the world. It’s in Africa mainly. It’s in the Americas. Still in Asia Pacific, but very little in Europe. Europe is quite flat in that respect. So world population, still growing. More importantly, we see a continued growth of the GDP per capita of it, and it’s no less than 50%. And that means that we will see more people; but more important, on average, people will be substantially richer than they were today, because that drives obviously consumption. And at the end of the day, consumption of all these people is the driver for our businesses.

Also important, where will all these people live? Well, population already is concentrated in coastal areas. Those are the areas that will grow also in the future. And those areas will become obviously more wealthy because the GDP will grow. 70% of this population is living nearby the sea, which is important for us being a maritime player obviously.

Consumption growth is also driving global trade, but what’s more important for us is obviously physical trade, seaborne trade. Also, that is expected, depending on the scenarios, to grow 50% to 75%. I make a distinction. It’s not, let’s say, more per definition of the growth that we’ve seen of Trans-Atlantic and Trans-Asian transport per definition. It’s less intercontinental, but you will see more regional flows also. But from our analysis, it strongly appears that you will see further growth of seaborne trade be it in different type of vessels and port we expect.

And then this is a very important one, and everybody talks about it these days obviously. For us also, an important driver. What will happen with energy demand? Well, we’ve looked at scenarios of the International Energy Agency. We’ve looked at scenarios of BP and all the others. We’ve come to, let’s say, an average scenario, which is reflected in most of the study that we’ve seen is you will see a further growth in energy demand that will not be in the OECD countries, and in Europe you could expect it even to be less. It’s not even China that’s the biggest driver, but the biggest drivers will be the other countries. So India, rest of Asia, Africa and rest of the world. Those are no longer the OECD countries. Not even China will drive the growth in energy demand. And that obviously has a lot to do with the growth of the GDP per capita because that’s driving the growth in energy demand. And even a bigger question obviously is how will we supply for that energy demand? We, in a base case scenario, as we’ve analyzed it, expect a further growth still of fossil but an even faster growth of renewables. And the biggest grower with fossil energy will be gas. But you still see an increase obviously in demand because of demand also in supply, but still also in fossil. You could argue that, that is not acceptable. And that on a global scale run, that’s the big challenge. We as humanity are successful in changing this. So there could be an ambitious rapid transition scenario. We believe it will look like this that will surely push out coal, push out oil. Also, you see that gas will still grow. And on top of that renewables will grow because this would mean you would see less energy demand and a different mixture. But even then, you see that still half of supply is fossil. And because of that, because of the continuous use of fossil energy, obviously, the climate change effects that we are already encountering will be amplified. So global temperature will rise and sea level will rise faster and higher, and we will see an increase in frequency and severity of extreme weather because of this development. And those developments are threatening more and more people and assets in the coastal areas. So these are the areas where we already said you will see most of the growth of the global populations in these areas, and those — these are also the areas that will be threatened by this development.

And if you want to protect these areas, and as we speak, we are already involved in this type of business, it would take immense investment in flood protection. You see here an analysis that has been made by U.N., where there are 2 scenarios, a low and a high scenario; and the amount of money, and this is on an annual basis, needed in order to protect these areas. And from studies also executed by U.N., it follows that the cost of, let’s say, preservation to make sure that you are already protected, if you compare that with the cost if the disaster does take place. So do I prevent or do I repair? There is a factor 10 in cost between the 2. Having said so, that doesn’t drive politicians by definition, obviously. The factor 10 that you see here is the low scenario is based on the norms of these countries that they use today. If we would use the Dutch standards, and this has to do with the number of disasters that you would see in [100,000] years, so if we would use the Dutch protection norms for the rest of the world, the $74 billion would even increase to $777 billion per year in order to protect. So I’m not pretending here to expect that as from next year we will see investments of this number worldwide, but it does give a feeling of the amount of money needed in order to protect this area.

Well, to finalize, the driver analysis is — what we conclude is that all the drivers that we’ve seen, all these forces, they drive our business be it population growth, growing world trade, more energy demand, climate change or energy transition. At the end of the day, we need more maritime infrastructure, and that drives both the dredging activity we have and the offshore energy activities that we have.

So for the long term, that’s the takeaway of the analysis. We see the drivers of our industry to work out very positively for our business. But that’s the long term. It’s obviously even more interesting to see what does it mean for the short term, starting with looking at dredging and also starting by looking back a bit. So what has happened with the dredging market in the recent years, let’s say, from 2008 on? So from 2008 to 2015, the average international dredging market was — and that’s the relevant and open market for us, as we’ve always defined it, the average has been around EUR 6.5 billion. We see an uplift in 2015 and that is purely due to the Suez Canal. Without the Suez Canal, you would have seen an even flatter development. And then you see a drop, as of 2016, of EUR 1.7 billion lower average market level, and also that has been pretty flat since then. So we dropped from EUR 6.6 billion to EUR 4.9 billion almost in 1 year. And obviously that is reflected in our numbers because if you look at the turnover of dredging within Boskalis, you see the same drop in 2016, but you see a gradual recovery in turnover since then. So we haven’t been flat. We’ve been gradually recovering. You can also do it — only do that through market share obviously.

How does our competitive landscape look like? We used to talk about the Big 4. We in Boskalis talk about the Big 5 these days because CHEC, we see also in the international arena, as a comparable competitor. This is shares calculated to hopper capacity. And you all know hoppers stand for 80%, 85% of the cash flow that we generate. So this is more or less the division of market shares in capacity. Capacity is one. In our industry, obviously, it’s not about capacity. It’s about the jobs that you win. And at the end of the day, every competitor with every project has one ticket. So let’s say, there is a drive towards a 20% market share based on the number of tickets you have, where we have to make the distinction that CHEC is not invited for a lot of jobs obviously, for instance, in Europe or Australia or other countries. So — but focusing, let’s say, on the Big 4. In that respect, the Western 4, you would expect as far as market share a more — close to 20% share not fully driven by capacity. If there is very high demand, at the end of the day your market share is defined by capacity. But as we already saw, we made a fall down. So utilization is not 100%. Utilization is substantial below 100%. So the big question is, what is then the division in, let’s say, the truly sales market capacity? So this is utilized hoppers capacity. And there you see, you see a correction more towards the 20-plus percent you would expect. So Boskalis and DEME at 23%, De Nul at 29%. The enormous amount that — of cutter capacity. So the 33% in capacity share, in utilized share go — falls back a bit to 29%, but still a very strong position. And you see DEME and Boskalis quite comparable and Van Oord a bit behind. But it is also reflected in the hopper utilization that we’ve seen in the last 3 years as explained before. As of, let’s say, 4 years ago, we are capable of tracking all the vessels of all competition, and we know exactly when a vessel is sailing and when it’s idle. And from that you can obviously derive the utilization rate. So here you see the utilization of our hoppers in ’17, ’18, ’19. And you can see it has been above the average in the industry, which explains the fact that our turnover in the last year hasn’t been flat but has increased a little bit because of higher market share.

Yes, what we then always try to do, most of you know this picture already, we make an analysis of the dredging prospects in pipeline, looking ahead for, let’s say, 5 to 7 years. A total pipeline, as you see here, and you get the sheets later, you can study it as much as you want, but a pipeline of approximately EUR 56 billion. In comparison with 3 years ago, it was EUR 52 billion. So a bit more but again still quite comparable. The reason that we also say the expectations for the dredging markets are quite stable, quite flat, because it’s — on an analysis like this it’s quite comparable but a bit higher, as we said.

This is also an illustration. Here, we try to make, let’s say, a short-term projection of the order backlog — hopper order backlog of the industry. On the drawn yellow line, you see, let’s say, the hard backlog, that’s already in backlog. And what you see in the dotted line are the identified prospects, of which we expect that they will come to the market in the coming years. This would, certainly for people who see it the first time, maybe give you the idea that we see a literally V-shaped recovery of the dredging market. Don’t sell out your buy note yet because I have to nuance this a little bit because this is what we see every time, but what we also learn is this figure does not reflect the delays in projects that you eventually will see. With the, let’s say, the know-how that we have of this figure of the last 15 years, our judgment is, if we compare this shape with shapes that we saw before, the projection where we say it will be flattish and maybe a bit positive, let’s say, is the safest approach, so to speak. So don’t see the dotted line as a hard projections of turnover that we will see in the market. But the good news is, is this quite a number of projects in pipeline, which gives us at least confidence that we won’t slide off with the dredging market in the years to come.

We also look obviously at our fleet, how are we positioned in comparison with others. The blue position that you see here in the bars is Boskalis. And you see that we feel that we are well positioned on the low end of the hopper capacity spectrum, and at the high end. But we also we feel that we are underrepresented in the middle segments being large and jumbo. And to complete our consideration there already set, we believe that we will see more port developments in the years to come. But we also believe that a lot of those developments will have to do with secondary ports and not with the primary ports. Yes, you will see — still see development in primary ports, but the secondary regional ports are far more important for us in the years to come because there will be more interregional trade. And that means that you will see repositioning of the smaller vessels that are smaller container vessels, and there is a growing volume in these secondary ports, typically 10 to 13 meters water depths. You don’t talk about 16- to 18-meter water depths here. And that means that you will see a shift also towards the demand in our industry.

And in addition, apart from port development, we also see a growing demand for land reclamation in shallow coastal areas, particularly in the Middle East and Southeast Asia. And if we, again, project that on our fleet, we feel that in the competitive field with large and jumbo hoppers, we have 4 vessels, the Willem van Oranje and the Gateway, with good draft, good shallow draft, so to speak. But in the higher part of that range and certainly around, let’s say, 18,000 to 20,000 cubic meters, we don’t have the shallow water hoppers that our competitors typically have been building in recent years. And if we look at the 2 vessels that we have there, the Prins der Nederlanden and the Oranje, they have a far too deep draft to compete any longer in that segment. So that’s the reason why we say we feel strongly underrepresented there. And what we are is lacking a position with hoppers in what we see as the sweet spot in the market for the coming years.

So for that reason, we feel, on one hand, that we have to strengthen our position in that box. So we need to strengthen the fleet there with shallow water hoppers, and we are going to invest in there, as I will explain later. That’s one. But secondly, what comes out of this is that you clearly see that the Prins and the Oranje are not longer competitive in this field. So what we are going to do, we will lengthen the Prins der Nederlanden and the Oranje. And by lengthening it, shifting it up with, let’s say, 6,000 to 8,000 cubic meters, we are shifting it more into the region of deeper draft vessels. And these are typically the vessels that you don’t use for the deepening of ports, but these are the vessels that you use for the larger land reclamation jobs, like a job in Pasay. A Prins and Oranje that is lengthened is very useful in a project like that, but not very useful in the deepening, for instance, of the Elbe River where we are missing a hopper like that. And by doing so, we reposition 2 hoppers, we add 2 hoppers, and then have a far better spread in the medium to large hopper segment of the industry. And we strongly feel by repositioning ourselves, we also prepare ourselves better for the projects of the longer term in the industry.

So wrap-up for dredging market. To start with, we did volume step-down in 2006 was mainly caused by the absence of oil and gas megaprojects, and we’ve explained that earlier. We’ve seen a stable volume since then. There has been a modest increase in hopper capacity, no new entrants. That’s important. For ourselves, we’ve performed above-industry average with utilization through increasing market share. Outlook is a pipeline of EUR 56 billion, limited new capacity. And very important, we will strengthen our fleet on one hand by the investment in 2 new trailers, and on the other hand by the lengthening of the Prins and the Oranje, starting with the lengthening of the Prins. And as we speak, we have started with the engineering of that already because, again, the Prins would already be very welcome with the land reclamation jobs that we foresee in the Philippines. That’s as far as dredging.

Offshore. Also with offshore, we’ve seen a step-down in 2016 afterwards. But what we managed to do there is we added wind and wind has, in that respect, more or less balanced the total development that we’ve seen. Without wind, we would have fallen down more than that obviously. The proposition that we have with offshore is marine survey since the addition of Gardline and Horizon. Subsea services with the investment in the 2 DSVs, as we did obviously. Marine transport and services, that’s partly Smit-related, partly Dockwise-related, obviously. Installation and intervention, mainly the former part of the Boskalis Offshore, that’s related to dredging. But on top of that, also the lifting activities also with Bokalift. And offshore wind with the foundations, substations, export and array cables. Nothing new in that respect.

What is important is to see what drives the market for these activities on the short term. So what are the indicators in the market that we look at to have a feeling? Is the market growing for a certain activity? Or is it stable or even declining? So that has related to rig activities, fixed platform, et cetera, et cetera. What I will do quickly is run through these indicators and to give you a feeling how will these indicators develop because these are the indicators for us. And these are the indicators that we monitor on a monthly basis. Is the market going up or is the market going down? So I’ll run through them quickly.

Number one, number of contracted rigs is — gradually since 2017 we’ve seen a steep decline, that’s picking up. And between now and 2024, we see — we foresee a growth in the number of contracted rigs of 143; so going up. The number of fixed platform installations, going up, as you see from the slide. And in total, in the period 2020-2024, about 450 platforms will be installed. And these are the platforms that are of interest to Boskalis.

Look at the number of floating production installations. Here you see a very steep increase and particularly related to FPSOs. Some of you follow SBM and I’m very much aware of this development, obviously. But certainly in the coming years, you will see a lot of FPSOs that will be installed but also will be transported, which is interesting, either wet or dry, for us.

Pipeline, SURF and power cables, and these are the power cables installed for oil and gas, not wind. This has not included wind. Also here you see substantial growth to come. Subsea installation and the number of units, trees and manifolds, again, substantial growth from 2020 onwards and total 1,771 subsea installations there. This is, in particular, good news for Subsea 7 because this is their core business, but we also work a lot for them.

IRM Services, Subsea Services also there. It’s all about the number of days, DSV days in particularly that you can sell. Also here, you see an increase by the huge amount, almost 210 — over 270,000 days in the years to come. And decommissioning, and even steeper development expected, almost 700 removals projected in this period, all leading to a gradual recovery of the oil and gas expenditures. This is money. It is not amounts, not kilometers. This is pure money. In total, USD 990 billion to be expanded in the years to come. That’s for oil and gas.

Wind. Similar analysis. It’s about foundation installations, array cables, et cetera. Array cables, also here, continued increase in offshore energy. In total, almost 30 gigawatts to be installed and over 3,500 foundations to be placed. Continuous growth also in offshore cables. It’s not only the amount of wind farms, but also the distance towards the coasts because new wind farms will be further at sea. And Europe, as you can see, the biggest contributor here on the demand side.

Okay. This — to conclude, we see all the indicators in green. You see growth for most of the indicators that are important for our activities, and that’s the reason why we say we are positive about the recovery of the market. It’s not V-shaped, as we said, but it’s important to see that there is more activity and more money is being spent.

Little bit here also about the competitive landscape, as I just did with Dredging. Starting with Heavy Marine Transport, looking at our most important competitors, ZPMC and COSCO, both from China, as you know — OHT from Norway; GPO, partly ZPMC, partly Singaporean. In the relevant segment, it’s the higher segment of the market as of vessels with a deadweight above 25,000 megatonnes. We have a market share of approximately 35%.

Competitive landscape with offshore survey. And this is focused on shallow water, not on deepwater, so — because we are not a deepwater player. So this is not all marine survey. Don’t get me wrong. Otherwise, people will say, how is that possible because if you got so many more vessels, et cetera, et cetera. Now this is apples-for-apples in a relevant market for us. So this is shallow water. And typically, the projects that you would see for wind or for oil and gas either in the Middle East, in the North Sea, Taiwan wind, East America wind. So 56% still by Fugro, the leading company. Through the takeover of Gardline and Horizon, we have a market share for 28%. Geoquip, 11%. Geoquip is completely focused on geotechnical surveys, not on geophysical surveys. And GEOxyz, only geophysical and much smaller vessels than both Gardline, Horizon and Fugro have. So what you see is already quite a substantial runner up, so to speak. We have half the market share that Fugro has here. And as now, we have ambition to grow here further.

Crane vessels. Most important players, and particularly for the next-generation wind turbines. There are hundreds of crane vessels all over the world. Obviously, we are here focusing again on the relevant competition for the next-generation wind turbines and focusing on 2022 because a number of vessels are being built by us, by De Nul, by DEME. So it’s not interesting to talk about the situation today, but the situation in 2 years’ time when most of the vessels will come to the market, then you see the vision here. And looking at competition in the market, who are our main competitors with wind projects, with wind farms? It’s about — obviously, about Subsea 7. It’s about Heerema, DEME, De Nul. Van Oord is not included here because they don’t have a vessel, but obviously, they’re one of our competitors in wind. SAIPEM is not that much a wind competitor. And OHT, obviously, still very much to position themselves because they will not be a contractor, they will just be leasing their vessel out. So this is the situation there.

Competitive landscape, cable-laying vessels. Here you have to realize, there are 2 categories. Let’s say, the cable-producing, cable layers, NKT, Nexans and Prysmian. They lay their own cables and they don’t work for third parties. And the rest that you see are the cable layers who don’t own a cable-production facility. So it’s 1/3 with, let’s say, the captive cable layers, and 2/3 is the open competition part of the business. Now we, by far, the biggest, as you can see, De Nul, Subsea 7, Global Marine, DEME, Van Oord, DeepOcean, usual suspects that we know. Here, I strongly expect a further shakeout. I think that Boskalis, De Nul, DEME and Van Oord are here to stay. Global Marine for the long term, cable laying in sustainable for wind farms. I don’t think that they are truly interested. I think they’re more focused with the new owner on telecom. Subsea 7 is here to stay and DeepOcean has been struggling for quite a while. And let’s see whether or not they will be with us in 3 years’ time.

Market share for wind in the last 10 years, 10% in foundations. You see the biggest players in the past have been DEME and Van Oord and Subsea 7. Obviously, that was Seaway Heavy Lifting before. And others, including De Nul, that is changing now rapidly to looking towards the future. Array cables, almost 30%; and export cables, even a bit over 30%. So this has been our market position in the last couple of years.

Wrap up for offshore energy. We see a gradual recovery because we see increased activity levels, the indicators, as I pointed out, in the addressable markets. We see a recovery of offshore oil and gas expenditures. We see further increase in offshore wind. And as an outlook, we see that Heavy Marine Transport is well positioned on the high end of the S-curve and well positioned for the oil and gas recovery in that respect, complemented with offshore wind opportunities. We get many, many requests these days for the transportation of foundations for wind farms, typically to be fabricated in Asia and to be used in either East America or in Europe. And for Heavy Marine Transport, that’s a nice add-on business certainly also from a utilization perspective.

Survey. We’re very glad with the addition because we see survey as a strong platform for early cyclical growth in oil and gas, and that’s what we’ve seen last year. And also our expectations for this year for survey are positive. There are, on top of that, numerous opportunities in offshore wind, Europe, Asia and U.S.A., and we will expand our proposition with the addition of 4 new survey vessels, and again, focusing on shallow water. We are not a deepwater player. We don’t have the intention to become one, but it’s all about shallow water, both on the oil and gas side but also very much on the wind side. We feel strongly positioned already with geophysical survey. But certainly, geotechnical survey outside of the Middle East needs further strengthening.

Seabed intervention. We are positive about that. We see many pipeline projects coming to the market, and we will invest in a new fallpipe vessel. We will use the shell as the platform to do so. So we already have the whole, so to speak, and we’ll put the rock pipe fall (sic) [fallpipe] installation on top of that. And we feel that offshore wind is very strong positioned in the large and growing European market. And on top of that, we see Asia and U.S.A. offering additional mid-term opportunities. And we will invest in a new vessel, but it has already been communicated. That was the Bokalift 2.

Salvage. Always nice pictures, as you see. Steady performance. If you look at 10 years of turnover, it has always been somewhere between EUR 100 million and EUR 125 million, and you have some top years, but on average, I would say, it’s about EUR 125 million. Position is good. We’ve positioned ourselves stronger in the last 10 years since Smit has been with us. We see an increase in size and complexity of salvage cases, certainly, the emergency response cases. There’s been a shakeout of competition as Switzer and Titan came together, formed Ardent, and Ardent has been taken over recently by new shareholders and are struggling very much. And certainly, if you look at emergency response part of the business, yes, we are the market leader, as we speak, with LOF contracts, et cetera. And you see it’s very difficult for competition to pick up because you need quite a network in order to provide that service.

The position within the Boskalis Group is a key to success. We leverage on our global assets. We can work with our own vessels. We can capitalize on the survey, engineering and contracting capability that we have. And last but not least, the business being backed by a strong balance sheet. As we speak, you should realize that within Salvage, because we focus on LOF contracts, it means that you have to prefinance a lot of working capital. So approximately EUR 70 million working capital that we have is related to Salvage. This cannot easily be done by a small independent operator. So you see small independent operators who focus on wreck removal because you don’t need that much working capital for wreck removal, but certainly for LOF contracts. And at the end of the day, those are the most attractive contracts for us. You need also the capability to prefinance and also to come up with guarantees when you need them.

It’s good to realize that Salvage, you look at it from one perspective, and that’s, let’s say, the pure business perspective, but through Salvage — protect economic and ecological value. It’s good to break that down maybe just for your understanding. The last 5 years, we have done salvage every 5 days, every 5 days. And if you look at the effect of that, we have prevented oil pollution, the equivalent of 52 Exxon Valdez disasters that we’ve seen. We talk about a huge amount of exposure. And on top of that, we have salvaged the equivalent of [105,000] dumper trucks hazardous cargo by taking it away from it. So the total combination is that, on one hand, it’s a nice niche position from an economical point of view. But on the other hand, if you look at the enormous damage to the maritime environment that we have averted, it’s also from that perspective, a very nice activity towards the outside world.

Okay. I come to the strategic framework. Starting with what is the mission. Well, the mission hasn’t changed that much. We are the leading dredging and marine-contracting expert creating new horizons. But important is, we’ve discussed about what is now the purpose and also looking ahead into the future and looking to the scenarios, what drives us. I think that what we do and certainly where we see our added value also towards society is where we can say that we create welfare because we create maritime infrastructure. And from all studies that you’ve seen also from U.N. is that — [and you saw], the best way to develop welfare, certainly for developing countries, is through infrastructure, and we create that infrastructure, that’s one. We protect welfare from climate changes, from floodings, et cetera, and we advance the energy transition. So it gives us also a very nice reason directed towards the future. We create and protect welfare and advance the energy transition.

Strategic framework. It’s quite comparable, but with different elements in it. Focus, sustainable growth, human excellence. This one you know. Focus, that’s a very important one and already mentioned, because we see gradual market recovery. And looking at the market, we see opportunities in most business lines that we have, but we should not forget that the market conditions are still challenging. We’ve come from a period in time where it has been a sellers market. We shifted into the period of a biased market. That won’t change just overnight because what happened is not only that the prices have come down and margins have become thinner, but that the conditions and contracts have become far and far more difficult. Well, that’s a situation that has developed in the last 5 years and that won’t change overnight. So it will take quite a while of time to rebound to a situation where contract conditions become, again, more fair, more realistic as they were before. So the market conditions will stay challenging, and we have to be very focused, disciplined and selective in tendering. You have to — we have to focus on those activities and also those jobs that fall exactly been within our profile of competencies, and we need the right risk reward balance, I say, but it also means cash balance. That, for instance, also means is, “I don’t want to work with other people’s assets to run the risk in — at the end of the day bleeding in cash, whilst others are still making cash.” That’s one of the reasons why we prefer to use our own assets if we run risk.

Operational excellence is then very important. We have to come with creative innovative solutions as we always try to do. And as — a part of focus is also capital allocation and returns. We have to be also very selective on which are the assets that we truly want to own, where can we make a true difference with the assets that we have, and which assets are more commodity type assets, and do you have to own them or can you lease them or whatever. So also, part of that is looking very much at your cost of capital.

Second one is sustainable growth. Growth from an economical point of view. We will build on our existing business platform very much. We feel comfortable with the profile that we have achieved, also after the 3 years with all the reorganizations and refocusing of our businesses. So the platform, as we have it, is the platform we should use. And it’s more a matter of harvesting that platform, then trying to make big changes in that respect, and we feel comfortable with it, also because we see market recovery. Yes, we will have additional core assets, obviously. And yes, we are open to bolt-on acquisitions if we can strengthen ourselves in the activities to become a true #3 or a true #2 or even #1 in the top 3 that at the end of the day we are trying to achieve, obviously, we will take a serious look at it. And there are still possibilities. One of the nice elements of why do we emphasize that we have such a strong balance sheet, it’s not only emphasizing that we are strong towards the future, but we have a strong balance sheet and we have cash. And it also means that in — with companies in distressed situations, we are first to be approached because they know with Boskalis I can make a quick deal, I can make a cash deal, and I can get my money within 2 weeks, which sometimes can make the difference. So what we often feel is that if there are true issues with company or with assets, we are the first to be contacted. Most of the time, we say no, obviously. But it also means that we are sometimes surprised by how early in a process we are being involved, and how easily we are being invited to be exclusive because they know we can deliver in short time with cash. So that also creates a distinctive position in that respect. And we will be also — still, we’ll be looking at strategic alliances and consolidation in that respect. And when you talk about strategic alliances, where should I think about — for instance, think about Heavy Marine Transport market. We think there is still an opening for consolidation there. But you have — it has to be clever in that respect and sometimes through pooling. It doesn’t mean that you have to take over. It doesn’t mean you have to merge. Sometimes pooling can also be a strategic alliance to bring more discipline into a market.

CapEx, EUR 900 million in total, front-loaded, with the EUR 400 million underway that we talked about. What will be included? In that period, 1 of the 2 distinctive shallow draught, large hoppers. You come by and build 2 in 3 years. It’s as easy as that. It will take us a year to engineer and 2 years to build the first. So the second one, by definition, will be in the next period. The lengthening of the Prins Der Nederlanden, the same story. We started engineering, that will be the first, but probably the second will be in the next 3-year plan, but it’s on the agenda, so to speak. Bokalift is being built as we speak. The crane has been ordered with Huisman and is currently being built in China. The total rebuilding of the vessel will take place in Dubai. We signed a contract with Dubai dry docks last month. So also that — the vessel should arrive this week and then we get started with Dubai Drydocks. So that’s more or less on the way. Fallpipe vessel, as we said, the shell that will be rebuilt, and 4 new survey vessels. Now the breakdown of the first EUR 400 million, Carlo, is…

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [2]

——————————————————————————–

The first EUR 400 million is especially the Bokalift 2, with EUR 140 million. The other part is the Krios, which also falls partly still in 2020 for an amount of, let’s say, EUR 50 million. Then the…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [3]

——————————————————————————–

Two vessels for Gardline.

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [4]

——————————————————————————–

For Gardline is around EUR 35 million. And then we also have, of course, the regular dry docking, which is for next year also a bit higher than this year or 2019. It’s about almost EUR 50 million, quite so blend dry docks, and then a lot of smaller parts.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [5]

——————————————————————————–

Yes, but those are the biggest chunks.

——————————————————————————–

Carlo van Noort, Royal Boskalis Westminster N.V. – CFO & Member of Management Board [6]

——————————————————————————–

Yes.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [7]

——————————————————————————–

It’s not only about growth but also sustainable growth. So we are very much focused because clients are demanding it more and more. How can we mitigate the adverse environmental and social impact of our business? So I’m continuously looking at innovative solutions for that. Part of that is also promoting the possibilities that we see for ecologically and socially responsible alternatives, promoting them to our clients. A lot of clients are not even aware that there are alternatives for the solutions that where their engineers come up with. So it’s also the dialogue with the client in getting there. We want to invigorate climate change adaptation. What we strongly feel is that still a lot of governments are not aware of the threat or not aware of the fact that the earlier you are with your protective measures, the cheaper at the end of the day it will be. So we will invest, on one hand, in new sustainable coastal protection technologies, but also we will try to improve general awareness, also through symposia and stuff like that to put it more on the agenda. And there is a lot of money, obviously, going around for climate change adaptation, but a lot of that money is also being on the spend because they don’t know how to use it. So we also want to unlock some of the reserve that we see there in the market.

So for us, a very important focus point in the coming years. And obviously, we will advance the energy transition through the growth, the broad offshore wind proposition that we have, but it’s all about what others can do. A fair question is, obviously, “Boskalis, what can you do about it?” So we also will reduce our own carbon footprint, and we have the very strong ambition, but also we think realistic ambition to be climate-neutral by 2050.

How can we get there? Well, you have to realize that as far as carbon emission is concerned, 95% of carbon emission is related to the vessels. So it’s very much the story about how will you change the propulsion system on board of your vessels. And there, you should realize that there is a large installed base, fossil-fueled engines, and we can’t change that overnight. Lot of vessels. It is even technologically and physically impossible to change the engines. And we strongly believe that it’s not necessary either because we also believe that we should invest in technology and experience with new carbon-neutral fuels for existing engines. You can use current engines that we have also with different fuels. We have been building up experience with biofuels in the last 3 to 5 years, and we’ve even seen projects here in Holland that have been fueled for 100% with biofuel. So it is possible to use different fuels in your installed base because that is the quickest fix, obviously. And that’s not only about biofuels, but it’s also about using methanol, ammonia, and in the long run, obviously, hydrogen. That’s not for the existing vessels, as you can understand.

So we will invest in further experience with new fuels with existing engines that we have on one hand. And on the other hand, we will also invest in new energy conversion technologies and particularly in fuel cells. We’ve decided to put a large-scale fuel cell on one of our hoppers, not for as a main engine but as a supportive engine for the electricity for all systems outside of propulsion because we believe that also fuel cells can be an important technology in the long-term future, but obviously, not with existing vessels, but with new-to-build vessels.

These are options that we have to develop in close collaboration with our colleagues in the European industry, because we can clearly find out that our alternative fuels like biofuel, but you have to realize is that we depend at the end of the day that the distribution systems imports harvest all over the world to make that work. So it is not that much, in my view, the process of getting the technology on board because on board the vessels can be easily fixed, but it’s more the story of how do we make sure at the end of the day the fuel will be available in all the parts in the world where we will dredge.

Human excellence as the last one. I strongly believe now even more than in the recent past that at the end of the day, human capital is the only main differentiator that we will see for us as Boskalis. The client’s demand has become more complex, more integrated, more innovative solution. We need deep understanding of the environment of the stakeholders around us. Increasingly, our clients ask more value for money and more local content. So a lot of challenges in that respect. And you can only make a difference through your people. We very strongly believe assets are commoditizing. 10 years ago, it was — you still felt very unique with a towing vessel as Smit developed vessels — together [DEME]. They were unique in the industry. And today, you can buy every amount you want directly in China, and they’re even cheaper than they were before. And if you don’t have the money to finance them, that’s also not a problem because you can get it with a 5% equity or you can get a 1-year lease, a 3-year lease or 5-year lease. Everything is available.

So capital is no longer a differentiator. Assets is no longer the differentiator, but people more and more are. And the good thing is that the world is getting that complex and that difficult that you need truly good people in order to make the difference. That means that the challenge is to recruit, retain, develop and develop the right people. What we’ve done parallel with the corporate plan development is also developed a strategic plan of the resource, the key resources in the company, from your strategic targets. You can derive also the competencies you need in order to get there. And from that, you can derive also the number — the amount of people, but the qualities of the people that we need. So we made a big database with demand on one hand of all the functions, and supply was the people that we have on the other hand. Obviously, you see white spots. We don’t have the competencies. Either you develop here, you educate your people further in order to fill those white spots or you attract these people from outside. So we have a strategic planning tool now in place that matches the competencies that we need in the market with the competencies that we have inside or that we have to attract outside. And that’s now a continuous process that we monitor. And based on that, we’ve developed new tools, we’ve refreshed our performance management tool, the leadership and talent development tool, the knowledge-sharing tool and employee engagement tools that we have. So we are putting a lot of time and effort to make sure that we continuously monitor what we need in the long-term future, near-term future, but also what we have in-house, what we have to develop and what we have to attract.

Well, it’s been a long session, but I’m to my final sheet. In conclusion, I think we have a robust future-proof business model, looking even up to 2040. It’s — there are lots of chances for our company. We are uniquely positioned to create and protect welfare to advance the energy transition. We have a relatively positive market outlook long term, but also short term; stable supply and demand in dredging; gradual recovery in oil and gas; and continued growth in offshore wind. And the company, I think, is excellently positioned to capitalize the market opportunities that we see through a very strong balance sheet. It’s a good starting point through a unique combination of assets and capability. There is no second Boskalis in the mix and combination that we have and through a proud, committed and professional passionate workforce.

So all in all, it was a long journey to set it all up, 6 months, but it gained a lot of market information. We gained a lot of market information through it. And we feel maybe stronger than before that there is a unique position for Boskalis, not only the 3 years to come but also in the 3 decades to come.

I thank you for your attention. Questions and answers.

================================================================================

Questions and Answers

——————————————————————————–

Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [1]

——————————————————————————–

Bart Cuypers, KBC. It’s clear for the CapEx plan for the next 3 years. So hopper fleet, very targeted — as well, yes, Bokalift 2, as it was already announced, survey. Yes, 2 areas which are here not addressed are, for instance, let’s say, a Vanguard 2 or cabling. So perhaps starting with the Vanguard 2. You did mention that there are possibilities for pooling, let’s say, in having marine transport. Is that something that you’re still looking at the Vanguard 2 from that angle with another player? Or is that off the table right now?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [2]

——————————————————————————–

Well, there are a lot of vessels we’ve decided not to invest in, and I didn’t mention all of them, but Vanguard 2 is a vessel that we have been speculating about earlier. So it’s a good question. Vanguard 2 is very much related to the FPSO development because if you look, let’s say, at the rest of the market, we feel that most of that is covered through the Vanguard 1. We’ve seen very nice examples. As Carlo already showed, the P-67, P-70 for Petrobras from China. And it’s clear for Petrobras that it has a huge advantage. We save 5 weeks of sailing time through a dry transportation solution. Having said so, you have to realize that, let’s say, the future is not completely crystallized as far as the shape of the new FPSOs is concerned. And most of them will be newbuild, book shapes probably, but the exact size, weight and shape is still not boiled down, that’s one. And secondly, there is also, let’s say, limited number of FPSOs you can transport and the amount of money in the current competition between wet tow and dry transport. Also, the amount of money you can ask for is limited.

So you talk about an investment of approximately EUR 215 million, which is a huge investment. And you talk about current price levels of one transport of approximately, let’s say, EUR 25 million. And let’s say that in an ideal world, you have 50% cash from that. So you need a substantial amount of these transports, that’s number one. But you also need more than one transport per year because you can’t draw up a earn-back plan based on one transport per year. So — and that’s, let’s say, a bit the challenge is, number one, probably by mid-next year, we will know the exact details of the box-shaped type that we will talk about next generation. But number two, same time, I think because we are in continuous discussion, both with MODEC, both with SBM, but also with Petrobras, with Chevron. So we talk to everybody about how will it develop. What will be the most likely shape of a vessel, but also how valuable is dry transport for these parties because if it — at the end of the day, it’s a continuous fight against wet tow, the prices won’t allow you to invest. It’s as easy as that. So also the clients will need to be convinced that there is a true advantage in dry transportation. That also explains why cost levels are substantially higher than wet tow. So it’s very much still on the drawing board with Boskalis. It’s not out of sight. But I think we would give the wrong message today if we would say here we will invest in a second Vanguard with all the provisions that we still see. So mid-next year, we know better what the size will be. We will know better what the exact demand will be, but we also will know better what, let’s say, the opportunity from a return point of view will be. And that means that I expect that somewhere in the second half of next year, we will take a definite position on that.

——————————————————————————–

Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [3]

——————————————————————————–

Okay. Very clear. And then maybe cabling division?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [4]

——————————————————————————–

Yes, cabling. As you said, we already have a lot of cable layers, and it’s not that there are not enough cable layers in the market. So — and then it’s always the big discussion. If you look at our cable layers, I think they are sufficient. But let’s say, workability, and particularly during the winter season is limited.

And you can look at it from 2 sides. My first side is thank God, then we stay away from the winter. Because before we start offering jobs in the winter, cable laying, and that’s suicidal in my view. And people are sometimes look a bit parochial on — they look at the workability at the cable laying part of the total process, and there are other ways to compensate that. But it’s not only about cable laying. It’s also about trenching, it’s about backfilling and it’s also about connecting. It’s about crew vessels that need to board and onboard so — and so there are so many activities surrounding the pure cable laying that I personally are — very cynical about the true differentiator as far as workability is concerned with the cabling laying vessel. And then you’ve seen cable laying vessels that have been built with bigger capacities at EUR 80 million to EUR 90 million. You have to realize that on a cable laying project, the average EBITDA you can make is around 10% because all the other elements involved. So also the — let’s say, the return room that you have on project basis for an investment like that is limited.

So I’ve seen a number of competitors investing in a cable laying vessel that is, in my view, typically a connector cable laying vessel or an export cable laying vessel. And then you have to realize you are not competing against, let’s say, the — all the dredging operators. You are competing against Prysmian and against Nexans, who at the end of the day have their own vessels and who were lay their own cables because they see it as strategic part of the proposition that they have for an offshore cable.

So we’ve looked at it for many ways. We’ve also looked at possibilities of buying a CSV and turning that into a cable laying vessel, can be done quite easily. But in all the calculations we’ve made, it’s not easy to make a return, that’s number one. But secondly, my big worry is that we start tendering for projects of cable laying in the winter, because I’ve seen the last month of February, and I’m very glad that I wasn’t on the North Sea for a cable laying project at that time.

Yes, that’s all. That’s — and it will be a discussion, and I’m still not excluding that. And also there, you see the large number of players. I’m not excluding some kind of consolidation also, and that could also be a solution for that issue.

——————————————————————————–

Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [5]

——————————————————————————–

Okay. One additional question for now, to dredging. If you look at the market, you included the Chinese counterpart as the big 5. There has been some activity in trying to get a whole of technology through a shipyard here in the Netherlands. How do you look at the updated, let’s say, stance on the Chinese in your space on the quest to get a hold of the technology, and how you can maintain that edge right now?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [6]

——————————————————————————–

Yes. I haven’t seen that different attitude, let’s say, in the last couple of years. They very much focus abroad on, let’s say, the strategic position from physicians from a geopolitical point of view. And you should take into account that hardly ever and the dredging part of CCCC or CHEC is driving the decision to bid for jobs abroad. 9 out of 10, it’s the civil part that’s driving that. It’s related to the construction of a port, CCCC taking the lead and sometimes CHEC following, but often also CCCC being very pragmatic and looking at vessels that are in the area. Like currently, we are working for CCCC in West Africa on a job, where they typically do all the construction activities of the port, but they have invited us to be a subcontractor for all the dredging. Currently, the same for a project with CHEC in Saudi Arabia. And so — and we’ve joined them. We’ve teamed up for Pasay in Manila. So their positioning, although we say looking at capacity, et cetera, they’re 1 of the big 5. But to be honest, their position is quite different. And also the autonomaty that they have in making their own choices is quite different than, let’s say, the 4 western dredging companies.

——————————————————————————–

Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [7]

——————————————————————————–

So you don’t see a shifts right now in the…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [8]

——————————————————————————–

I haven’t seen a shift. I haven’t seen a shift. It doesn’t mean — I’m talking about IHC that I strongly feel that IHC should be in — should stay, first of all, should stay alive, that would be nice. But secondly, if they stay alive, preferably, they would also say in Dutch or Belgium or even better in, let’s say, in western hands. So having said that, it’s not a typical Chinese acquisition either. The Chinese are not interested in all kinds of social issues, which is shipyard somewhere in their view in a small town in Holland. So it’s a big step for them. The steps they make, high-end technology, well-managed companies. And yes, you will see a brain drain, obviously, but they are not typically bottom fishers.

——————————————————————————–

Luuk Van Beek, Banque Degroof Petercam S.A., Research Division – Analyst [9]

——————————————————————————–

Luuk Van Beek of Petercam. One question about the oil and gas market. Because on the one hand, you clearly explain why you expect growth in the coming years on the offshore energy site. At the same time, it was one of the key reasons why in 2015 the dredging markets went down. And there, you guide for a flattish or slightly increasing market. Is that because there’s a different timing effect on dredging? Or do you see a fundamental shift in that market? What’s the reason for that?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [10]

——————————————————————————–

Well, in the bubble chart we made with all the projects, you can read it later, but you see also an explanation of the color related to the type of activity. And there, you see in the total overview that is still — there are still very limited number of oil and gas projects there. And that has to do with the fact that earlier, yes, we’ve seen, particularly the big LNG developments because gas has been driving the dredging industry far more than oil. What you now see is that oil is picking up in offshore, but all the rig moves and all the subsea installations, et cetera, they don’t drive the dredging industry. So there’s a different dynamic between gas and oil in that respect. So we with offshore energy, obviously, can also now have profit from oil, where it used to be only gas, but gas is very important for dredging. And then you talk about the bigger port developments, Ras Laffan. The bigger LNG developments, like you’ve seen in Australia, and you don’t see those really happening. So that’s the big difference.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [11]

——————————————————————————–

Tijs Hollestelle, ING. I had that exactly the same question. Because in the past, indeed, the profitability or the risk-reward of those LNG gas contract was causing also very high margin for both gas [industry] for a long time. So we have to be very careful in looking at the expected recovery and then penciling in those kind of margins.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [12]

——————————————————————————–

No, no. That’s the reason why we say — and also — first of all, we show the bubbles with the different segments, oil and gas. And secondly, we say, no, we don’t see the drop that we made EUR 1.5 billion recovered now and back to the same level. Neither in turnover, but certainly not in composition, including oil and gas. No, we don’t foresee that, certainly not in the coming 3 years.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [13]

——————————————————————————–

And if there are — and let’s say, a kind of a trend that you will see much smaller LNG type of ports needed around the world because of it’s becoming more available.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [14]

——————————————————————————–

No, that’s what you see. The FSRU — act like developments, where we recently signed a contract in middle of May — America. But this is — these are smaller developments with relatively small content in dredging, a bit of a channel, a bit of a turning circle. It’s all offshore in that respect. Most of the time, if there is some kind of connection ,it’s a jetty. It’s not even a breakwater, so it’s all relatively small. Still, you can talk about projects for the whole of Boskalis, EUR 40 million, EUR 50 million, EUR 60 million, but a very, very small portion of that are being dredging.

——————————————————————————–

Tijs Hollestelle, ING Groep N.V., Research Division – Research Analyst [15]

——————————————————————————–

Okay. Yes. And also, it’s a bit of a difficult question, but the world is indeed changing rapidly with the strategic review as to also been a bit more focused on — how can I put it, it’s a bit of a bank robber asking a pirate, but compliance issues, business controls because doing business in all the emerging markets like Boskalis is active everywhere, the reputation risk seems to be increasing with all kinds of lawsuits more focus on that. Has that been discussed? Is there more focus within the Boskalis on that?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [16]

——————————————————————————–

Well, I recognize the bank robber, but I don’t agree with the pirate, Tijs. No, but this has been on the agenda for us for the last 10 years. And it has been a continuous process. And I can guarantee you that it’s been high on the agenda of our auditor also. And take into account, the auditor we have is also the auditor of [DEME] and of Van Oord. So they also understand the issues of the sponsor contracts, agency contracts, et cetera, that we all need because in some countries, you can’t live without literally. You’re not allowed to do business without an agent in — or sponsor in, for instance, Kuwait. But this has been extremely high on our agenda already for 10 years. And we have been continuously sharpening our knives in that respect that we have to be — all the agency contracts that we have, have been renewed in the last couple of years. We’ve said farewell to a number of agents. So the whole organization is very aware of the risks that we run, and not only on the reputational side but also on the financial side.

And as far as our, let’s say, environment is concerned, our business environment, the type of countries you work in. You saw the first sheet in that respect, with all the places we are in the world. We have been working in Nigeria now for 60 years, so we know the country very well and are very aware, very much aware of the pitfalls of these type of countries. And so the focus is there, but it’s not because of, let’s say, this business plan that we have a higher awareness, the awareness is high, and the whole world is still changing there. And we continuously have to improve ourselves there. So nothing new.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [17]

——————————————————————————–

Thijs Berkelder, ABN AMRO. You talked a lot about investments, what kind of divestments can we expect in the coming 3 years?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [18]

——————————————————————————–

Well, 2 kind of divestments here. Let’s say, we continuously look at our portfolio, certainly looking at our vessels because assets need to be brought higher of the S-curve because if they slip down, at the end of the day, you end up in a true commodity environment. And before you know you’re a cash out, as we’ve seen with the low-end Heavy Marine Transport vessels. So that process, yes, will always be part of the considerations that we will make in our business, on a day-to-day basis almost. We are being approached sometimes, “Are you willing to sell a vessel?” And every time the question is asked is the reason to think about it. So the first trigger is, “why not?” And the second trigger, “because of.” But we are always open in that respect. But that’s something that will go on, not specifically because of this business plan.

Another part is looking at the total portfolio that we have. As I said, we’ve cleaned up that portfolio quite drastically in the last 3 years. And I also said, we feel quite comfortable with the platform for further business development that we have today. So I don’t — do not foresee big divestments of the business that we — businesses we have today. It is known that we’ve decided to pull back from the arbitrage business. That is not completed yet. So you can obviously expect further steps there. So that’s obvious, but it’s, let’s say, work in progress, so to speak. But to put new activities for divestment on the agenda is not very likely.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [19]

——————————————————————————–

Clear. Then your explanation on the dredging market and at the usual bubble, which, again, will not happen, more or less a free interpretation of what you said. So I conclude, there is hopper capacity in the hopper market, and still you now want to add more capacity to the same hopper market. Isn’t it more logical there in line with heavy transport to pull and/or consolidate?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [20]

——————————————————————————–

Well, you know what our strong feelings about consolidations are. So we are not against it, but we are very much in favor of it. But again, it takes 2 to tango there, has been for years. So if there are opportunities for consolidation, we will always try to achieve it. So that’s one. The only part is, you can’t make consolidation that depends on others. You can’t make yourself dependent in the development of your company of that. So, of course, if we would bring be it DEME, be it De Nul, be it Van Oord, together with us, the biggest advantage you would have is CapEx. Everybody always starts to talk about, you lose a bit of market share, and how big are your cost synergies, but the biggest advantage you have is CapEx by far, because you don’t need to invest now. 5 years, 10 years.

And so it’s clear that a consolidation step between 2 in our industry has huge advantage, is huge. But you can’t enforce it. Having said so, we do want to make sure that we are, from a competitive point of view, well positioned. And we feel that we are under positioned in that mid-segment, as I’ve shown you, both in number of vessels, but also in draft of these vessels. So we have to strengthen ourselves at the end of the day not to lose market share.

I started by saying we took out a lot of vessels. We also took out the [Cornelius Sand], and we took out the Barent Zanen. So in the total new constellation, we still see it very much as replacement. And you could always argue, yes, but other capacity is taken out. So this is new capacity in that respect. You saw the market shares, we are at 23% at best. So we still feel that we aren’t not yet at the level where we should be. And be sure that we won’t move into the direction of the mill with a huge amount of overcapacity. But you have to make sure that, certainly, the whole configuration of your hopper fleet, which is the strategic fleet of our company, has to be up to par.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [21]

——————————————————————————–

Okay. Then you announced to invest in 4 new survey vessels. What kind of capacity expansion is that in percentage terms roughly?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [22]

——————————————————————————–

Money?

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [23]

——————————————————————————–

No, in potential work.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [24]

——————————————————————————–

Potential work? There’s a bit of replacement there. You are aware that Gardline has all the vessels. So we will certainly take a number of vessels out. So if it’s account for count in numbers, it won’t change a lot. But if you look at the efficiency of the vessels, the amount of business that can be done with the vessels and the day rate of the vessels, it’s quite an addition of, let’s say, money-generating capacity. I won’t take numbers to it, but it’s substantial.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [25]

——————————————————————————–

Okay. And those vessels are still manned vessels because there are now 2 operators entering the market with big unmanned plant vessel announcements?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [26]

——————————————————————————–

Yes, and we wish them safe travels.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [27]

——————————————————————————–

And what are you as Boskalis doing in terms of unmanned?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [28]

——————————————————————————–

Oh, yes, we are — I’ve always said, and it’s within dredging as was in offshore, I never want to lead the market with innovative solutions in that respect. As I said, a vessel is there for 30 years. We’ve seen some investments in high-end green cutters, still not come to the market yet, but — and let’s hope that it will be there. And if I’m 3rd or 4th to buy and build, it’s — you never lose market definitely in our industry because it’s project-driven. And we waited 10 years with the right cutter against the right price, and I can wait a long time with unmanned vessels. Good thing is that’s more important. The vessels that we are going to use are existing vessels. We even think that we can use 2 or 3 vessels of our own fleet in order to do so. So it’s more the addition of high-end survey equipment that makes the vessel truly different. But you have to realize that with a vessel survey, vessel, you have a sailing crew on board of maybe 12. And in addition to that, you have a survey crew sometimes of 20 because you are continuously analyzing all the data, processing the data and et cetera. And then you could argue but it can also be done onshore. But the client who’s often present at those surveys still very much ask you to do so, demand to do so.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [29]

——————————————————————————–

Okay. Then maybe a final marketing proposal for the U.S. Your slide on rising sea levels. It’s — the bulk of it is U.S. needs. So is there any progress…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [30]

——————————————————————————–

With the Jones Act?

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [31]

——————————————————————————–

Your approach towards the U.S.?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [32]

——————————————————————————–

No. Maybe if you can do some marketing for us with the Jones Act. With the current president, I’m not sure that we will see changes on short term. But it’s obvious they have a huge issue there, and we will see flooding certainly in Florida in the years to come. But the Jones Act is still what it is. Further questions?

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [33]

——————————————————————————–

Andre Mulder, Kepler. Three questions. If I look at your offshore of the dredging horizon, so a rise around 10%. That’s remarkable decline in markets like the Middle East and Africa, it’s around 20%. What’s the reason for that?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [34]

——————————————————————————–

Yes, Africa have — has everything to do with the lower economic — the low level of economic developments that you see there currently. And there are some developments on the Eastern side, oil and gas related, obviously, like Mozambique. But on average, it’s quiet in Africa. That’s the current situation. The Middle East is more in comparison with a number of huge projects that were then pending but have been — you could argue they are still pending, but some projects can be pending for 10 years. Sometimes, like the canal in Turkey. We have not concluded a canal in Turkey. I’m not saying that it won’t ever happen, but that’s a huge bubble. Now we’ve seen some of these huge bubbles like connections between Bahrain and Qatar or Bahrain and Saudi that we’ve taken out. So it’s not — do not read it as if we foresee that the level of activities in the Middle East will be lower than they were in the last 3 years. I think that it will be higher. But let’s say, a number of huge projects with a very small likelihood have been taken out.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [35]

——————————————————————————–

Would you put the framework contract with Saudi Arabia on that same line? So far, it’s been a disappointment.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [36]

——————————————————————————–

Well, I would have been more disappointed if I would have scored some of the contracts that have been scored by McDermott, Larsen & Toubro and others. So we’ve been extremely disciplined on pricing. Also because we still have to learn, and I truly believe some of them are probably more efficient in that respect and cost-efficient than we are. But let’s say, the price levels that we have seen, it’s absolutely irresponsible for us to be involved. I wonder even Subsea 7 with Larsen & Toubro. And I already have seen that even they are now more reluctant, given the last tenders that they have participated in, where they were 30% higher than the first one.

So again, there, newcomers are still learning, that’s one. And secondly, McDermott, they had been fighting for only one thing. You can’t show cash. You can’t show result. You can’t show EBITDA. So the only thing we can show is a backlog because we know every [moron] can fill a backlog. So the price levels have been dramatic in our view. And then it’s a combination of dramatic price levels with a client that is one of the most difficult you can encounter certainly in the Middle East. So we are very disciplined on that.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [37]

——————————————————————————–

In offshore wind, you don’t have almost full portfolio, except for turbine installation. Would there be an activity that you would want to add? Or can you do that with the backlog, too?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [38]

——————————————————————————–

No, we have no ambition whatsoever.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [39]

——————————————————————————–

Why not? That’s the only activity that’s failing in the portfolio.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [40]

——————————————————————————–

Yes, I can’t think of more, but I’m not Elon Musk in that respect. But now — but you have to be realistic is that certainly, next-generation turbine installation. We don’t believe it can be done floating. And we are very much a believer in floating solutions. That’s why we were the first to come up with the Bokalift 1. And with foundations that can easily be done and has everything going with the height of what you’re doing. But if you really go to up to let’s — 150 meter for installations that cannot be done for, but done floating. And that’s the reason why Jan De Nul is investing in a jack-up — sizable jack-up the size of Eiffel Tower. But then you’re entering into a kind of activity that the only thing you then can do is install turbines because the rest of the market in the oil and gas, there’s no need whatsoever for a jack-up platform like that. So it’s a one-trick gold and pony. And I’ve always said, we want to keep away from a position like that. So with the Bokalift, we can do decommissioning. We can do installation of oil and gas platforms. Yes, we can do jackets. We can do monopiles. But we are multifunctional. And that’s what we want to be with a vessel, but extremely expensive. You talk about an investment of EUR 350 million. It’s huge. For a one-trick pony, it’s not something that we aspire.

——————————————————————————–

Andre F. M. Mulder, Kepler Cheuvreux, Research Division – Analyst [41]

——————————————————————————–

Last question, GSR is investing in the harvesting of the bottom nodules. In the past, you talked about — you mentioned these boulders. Anything to say about that?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [42]

——————————————————————————–

Well, the interesting part is, obviously, that people who know us longer know that we were involved in deep sea mining in the ’90s — late ’80s, early ’90s. That was diamond mining. South Africa, Namibia with [Namohote]. It was a joint venture we had. We developed technology, et cetera. And with diamonds, you could still see the uniqueness of that. The last 4 years, we have been looking at rock phosphate with different parties. And you’re always looking with one eye to how much does it cost, what are the technological solutions, it’s always expensive. Vessels, easily EUR 250 million, EUR 300 million, that’s one. But the other eye, you have on the price of whatever you want to mine. And what you typically see in the 20 years that we’ve been following it up is that prices go up, prices go up, go up. And then you reach the level, well, if they go further, deep sea mining will become attractive.

But the same holds, obviously, for onshore solutions. So there are cheap solutions. When they run out, and the prices go up further, all of the sudden there are many, many places in the world where you can still mine at a higher price level. So your biggest risk you run, and I’ve seen it with rock phosphate going up like this and this and that. And the Chinese no longer exporting rock phosphate, prices went up. The only supply being [Morocco]. There’s not enough. All of the sudden, Saudi Arabia also has a lot of phosphate. They threaten to open that, and all of the sudden, there’s more rock phosphate from Morocco because it’s also a game that countries are playing in that respect.

So my lesson learnt is that on short term, you never reach a sustainable price level of whatever you try to mine deep sea that will not be disturbed by new technologies onshore that at the end of the day are always that much cheaper than deep mining. So it really has to be a unique commodity that cannot be find anywhere onshore that you make a chance that in the 20 years that you need to reearn the investment that you made. In the 20 years to be sure, if you have a stable price level, and you can make the cash flows that you need. There’s one part. Secondly, with — we were very close, at least in, let’s say, some kind of a testing operation, et cetera, in New Zealand. All the licenses in place and last hurdle to be taken, environmental. At the end of the day, there’s a pushback, certainly in the western world. Some countries don’t even want to be in oil and gas. Now I can tell you that deep-sea mining has a bit more impact on the environment than a little bit of oil and gas. So the pushback there is also very strong. So there are so many uncertainties surrounding it. We know the technologies. We have technologies in-house. We know how much is cost, and I always wanted to reach that level to make sure we can step in tomorrow. And we know exactly what we have to invest, how much to cost, et cetera, et cetera. But I do not foresee in the foreseeable future a position where you could say we are — we feel so sure about this commodity that we will see the price, the top price, that the market may have reached for 2 months, and then you went down again.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [43]

——————————————————————————–

Maarten Verbeek, The Idea. When we look for the next 3 years making investments of about — so first, let me start with one technical question. The lease payments for lease liabilities, are they included in the EUR 900 million CapEx projections?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [44]

——————————————————————————–

No, they’re not.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [45]

——————————————————————————–

Okay. Then coming back to this EUR 900 million, that’s a cash out for the next 3 years. If I add to that dividend taxes and even also the lease payments you will be at about EUR 1 billion in the quarter. If I would divide it by 3, you need an EBITDA of slightly more than EUR 400 million. That is more than what you have achieved this year. You also talked about making acquisitions. How will you finance that? By simply leveraging the company? Or will it have to come from first making divestments, reinvesting those proceeds? Or…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [46]

——————————————————————————–

Well, we are currently net debt-free. It’s not that we say that’s the ideal situation. I’ve always said, I think a company like Boskalis should somewhere balance out around 1 to 1.5x EBITDA as net debt. So there’s room there in that respect. If there are bigger chances — and don’t get me wrong, it’s not that we are planning for the coming 3 years, but hypothetical we are talking about how much room do you see. We’ve shown with Smit. We’ve shown with Dockwise that we are capable and also ready to go above 2x, even up to 2.5x EBITDA as long as you foresee that it can be brought back. So from that respect, there is so much room on the balance sheet for adventures in any way. That’s it, not again. It’s not our ambition to stay at zero debt. You could argue that’s an inefficient balance sheet, and I would agree with you. So we don’t have a 3-year liquidity planning in that respect. We know that the bandwidth is big enough to maneuver for both ways. And on top of that, we also make sure that in that period, we don’t end up as the bank of Boskalis, and we will return to the shareholder if we don’t need it.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [47]

——————————————————————————–

And I’ll read my second question. If in case you would not make acquisitions, not leverage.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [48]

——————————————————————————–

No, have come and it’s coming.

——————————————————————————–

Maarten Verbeek, The Idea-Driven Equities Analyses Company – Equity Analyst [49]

——————————————————————————–

Okay. If you made any thoughts in what manner, would it be a special dividend or buying back shares or…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [50]

——————————————————————————–

No. You’ve seen in the last years that we went from stock to all cash. We went from 40% to 50% payout to above 80%. We are using, as we speak, we are still using the share buyback program. So we are flexible in that respect. We look at the different tools there are. You look at the market circumstances, and I’m referring to the financial market circumstances, and use the tool where you feel it’s best to use. One of the things that we saw as soon as we started with the share buyback, the exposure to the shorts on the option market, obviously, came down considerably because that’s something that they don’t like then. That’s one of the things you take into consideration. I’m not saying it was the driving factor. But that’s why I say you always look at your full spectrum of considerations there, and you take your measures.

——————————————————————————–

Unidentified Analyst, [51]

——————————————————————————–

(foreign language) Oh, in English, sorry. A question related to Slide 83 about the IRM services. You expect the market to be rather flattish. So what is your current view on your own fleet and to invest further in that market or not?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [52]

——————————————————————————–

Well, we actually just entered the market, let’s say, which is the 2 DSVs, the twin bell set of vessels that we have. A year ago, we started with the operation in Aberdeen. We are a year further, and that operation is now fully up to speed, they’ve been quite successful in the first year, but they’re being recognized now in the Aberdeen community, and that’s where, let’s say, 80% of the relevant — for us relevant DSV market is being defined. We are now being recognized as a serious player below both Subsea 7 and Technip there. We are being approached for smaller SURF jobs, where at the end of the day you see more value, but we are still very much in the early stage of that learning curve.

So for us, it’s a matter of proving ourselves better and further to the market, try to grow there, but the position with 2 DSVS for us there is sufficient. We’ve just made the decision to fully focus with the 2 DSVs this year on North Sea. And last year, we also at 1 of the DVs for a time in Middle America. So our focus will be in the North Sea, and let’s try to create the best reputation and name we can get there and also build a platform in order to grow the business there for — but it’s not growth of capacity because at the end of the day, it’s not our ambition to sail as many as diving vessel days as possible. At the end of the day, you want to score the smaller SURF jobs that are around. And one of the interesting parts of the North Sea is that you see a shift, let’s say, from the major investors. Shell always was a huge investor but is gradually pulling out. And one of the complaints that Subsea 7 is making is that what typically was their market, that market is disappearing. And now you see smaller operators coming to the market with a lot of brownfield developments, and those are typically developments where they had a measure, et cetera. They don’t have their own engineer; we can assist them. Typically, jobs are of EUR 40 million, EUR 50 million, EUR 60 million. Too small for Subsea 7, too small for Technip, but very interesting for us. So the curve that we have to really go up there is the curve from a pure diving operator into a small SURF operator with very nice margins, as we’ve seen.

——————————————————————————–

Unidentified Analyst, [53]

——————————————————————————–

And 2 ships is enough currently to have — skills to operate and to be competitive in that sense?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [54]

——————————————————————————–

Yes. But because before you know, we start acquiring job for the utilization of vessels. And I always want to be very, very reluctant with that. And as long as — as you talk about straightforward diving vessel days, it’s a matter of cash flow. I have the vessel idle or I have the vessel utilized and I earn a couple of thousand dollars per day. That’s an easy comparison. But as soon as you are in SURF jobs, where you say, “Oh, I need a SURF jobs.” And SURF job because then I have some utilization. Well, the utilization on a SURF job is maybe 60 days. But if the job goes wrong, you end up in the winter, et cetera, et cetera, you will lose manyfold of that.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [55]

——————————————————————————–

Thijs Berkelder again, ABN AMRO. Lamnalco, it’s an energy business. Is it logical to expect it to be reported in ’20 within the Energy segment? And why not?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [56]

——————————————————————————–

Well, since we don’t consolidate it, to me it doesn’t make a big difference where we report a nonconsolidated activity, but — and the EBIT contribution is not that impressive. But it will stay with Towage for your understanding.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [57]

——————————————————————————–

Okay. And I saw the you typically had a leverage of net debt-to-EBITDA of about 3x for your Towage entities in the recent past. And you’re now back to 2x. Can we expect refinancing or so that…

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [58]

——————————————————————————–

With Lamnalco, you…

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [59]

——————————————————————————–

Yes.

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [60]

——————————————————————————–

We are currently looking at that because we thrive at 3x to 3.5x, and we are currently below that. And it’s not so that we say, let’s buy some vessels and then we solve that problem. So it’s high on the agenda also with shareholders what’s the optimal structure. So balance sheet on one hand. And on the other hand, if there are no opportunities to invest in the business, we will pay it out as dividend.

——————————————————————————–

Thijs Berkelder, ABN AMRO Bank N.V., Research Division – Equity Research Analyst [61]

——————————————————————————–

Okay. So it’s not that you’re preparing for M&A or so in terminal related to operations?

——————————————————————————–

Peter A. M. Berdowski, Royal Boskalis Westminster N.V. – Chairman of Management Board & CEO [62]

——————————————————————————–

No. Not really, not really, no.

Any further questions? If not, I thank you very much for your presence, for your sharp questions. And there is a possibility to share drinks with us at the bar. And if not, obviously, you can go your own way. Thank you.

Leave a Reply