IHC MERWEDE: major growth again in 2008

Headlines

– order book rises to € 2 billion;
– 40% increase in revenue to € 1.1 billion;
– profit before tax up to € 105 million;
– four acquisitions completed of technology and engineering companies.

Revenue and result
IHC Merwede revenue increased sharply in 2008 to € 1.1 billion (2007: € 774 million). The net profit was € 76 million (2007: € 64 million). Ongoing improvements in project management made a major contribution to the rise in the profit. At the same time, profitability in 2008 clearly suffered from the heated supplier market: large and unpredictable price rises and average supplier performance on a number of large projects leading to cost overruns and delays in completion. Nevertheless, this is still a very satisfactory result.

IHC Merwede expects similar revenue in 2009.

Markets
IHC Merwede is the global market leader in the field of dredging equipment, generally custom-built. Our global market share is 50%. IHC Merwede also sets the standard in the building of complex offshore construction vessels and equipment. Both markets developed very well, certainly until the fourth quarter of 2008. From the start of the fourth quarter, the markets were dominated by client caution in response to the turbulent events on the financial markets.
The overall outcome was a large, high-quality, order book amounting to € 2 billion as at the beginning of January 2009.

In 2008, we sold 14 custom-built vessels to the dredging and offshore sector and 23 dredging vessels from our standard Beaver series. In China, we sold five large standard cutter suction dredgers that were built at our Chinese partner shipyard, the Dalian Liaonan Shipyard. The group’s Technology & Services companies booked record numbers of sales.

The global economy is driven by a number of long-term factors that are relevant for IHC Merwede: the constant rise in demand for energy, the rapid expansion of transport flows across the world, the increase in demand for infrastructure generated by developing economies, and calls for a new approach to water management.

As a consequence of the credit crunch and the subsequent global recession, a number of large dredging projects in the Middle East were suspended recently. At the same time, governments throughout the world want to stimulate their economies, for example by initiating large-scale infrastructure projects.
As a whole, the current dredging market is characterised by a careful approach but prospects for the long term are favourable.

The search for oil and gas is extending ever further into the deep seas and arctic regions. Approximately 35% of our oil comes from the seabed. This requires specialised, high-grade vessels and other offshore equipment. IHC Merwede caters to this market, not only with equipment such as high-grade vessels for drilling operations, wellhead clearance and pipelines, but also with hydraulic piledrivers, lifting equipment and other specialised equipment and systems.
The offshore market is also adopting a slightly careful approach at the moment. The major oil companies have indicated that they will be going forward with their investment plans for the development of new oil wells.

Although we expect the markets in which IHC Merwede operates to develop well in the medium and long terms, the impact of the global economic crisis will certainly be felt in the shorter term. That is demonstrated by the fact that, even for financially healthy clients, it has become much more difficult to obtain financing for their investments in new ships. Financing procedures at the moment are much too lengthy and the costs are generally too high. Just like in many other sectors of the global economy, our markets need adequate volumes of financing to get back into gear quickly and at reasonable cost if the tide is going to be turned our way.

In this respect, temporary measures have a decisive role to play in the current conditions. An example is the provision of extra export financing instruments by the Dutch government. Another necessity at present is the establishment of adequate guarantee arrangements for shipbuilding – which must also be acceptable to the banks – by the Ministry of Economic Affairs. The Dutch government is aware of the problem and is working on further support measures. We hope this will lead to results soon.

All things considered, we do not think the markets will be as good in 2009 and we therefore expect fewer orders to come in.

Growth
The healthy market conditions in recent years gave IHC Merwede the opportunity to achieve strong growth, not only in the Netherlands but also internationally. Engineering capacity expanded sharply both in the Netherlands and on the international stage. Four companies were taken over in 2008: the offshore technology companies The Engineering Business and Sea Steel, both located in the United Kingdom, as well as the engineering companies Vuyk Engineering Rotterdam in Capelle aan den Ijssel and R-Project in Rijeka, Croatia. These companies make an important contribution to IHC Merwede’s profile as ‘the technology innovator’.

In the important Chinese dredging market, IHC Merwede has boosted capacity considerably: the production location in Guangzhou has grown strongly and a joint venture has been established with the Dalian Liaonan Shipyard to build dredging vessels designed specifically for the Chinese market.

IHC Merwede, the technology innovator
IHC Merwede owes its competitive position to a large extent to the technical excellence, innovative nature and low operating costs of its products: our clients can earn more money with our products than with those of our competitors. In order to build on this position, IHC Merwede is making considerable investments in product development. In 2008, the company spent approximately € 30 million, or 3% of revenue, on product development. Precisely in the more difficult years to come, IHC Merwede will continue investing in product development, and we will actually invest more in 2009 than in 2008.

IHC Merwede is aiming for a further extension of its technology and service position in the dredging and offshore market by means of targeted acquisitions. With the takeover of Vuyk Engineering and R‑Project, IHC Merwede has brought high-grade engineering knowledge of the dredging, oil & gas and ‘marine operations’ markets into the company. The Engineering Business supplies specialised equipment for the offshore market. The takeover of Sea Steel, which rents out frames for underwater foundations, will enhance the position of IHC Hydrohammer.

In the years to come, IHC Merwede will be aiming to extend its technology range further with targeted acquisitions. Adequate financial resources are available for this purpose.

Work continued in 2008 on the development of the ‘life cycle support’ concept. IHC Merwede wishes to supply its clients with specific support for the maintenance of the ships. The ‘life cycle support’ concept caters to clear demand from our clients, both in the international arena and among the major Dutch and Belgian dredging companies. Agreements have been made with the Belgian company DEME about the joint development of a forecasting model for maintenance work on dredging equipment.
IHC Merwede extended its international service organisation worldwide in 2008. In India, we opened a new Regional IHC Organisation branch in Mumbai. Ongoing growth of the international network is expected.

Human Resources
A feature of 2008 was the large workload at the various IHC Merwede companies. The recruitment campaign launched in 2008 – “Groter dan bij ons kun je niet worden” (“You can’t get bigger than here”) – was highly successful. In 2008, the campaign recruited more than 400 new staff. In addition, another 1,400 people were hired in 2008 through agencies. The total IHC Merwede workforce therefore increased in 2008 to approximately 4,200.

IHC Merwede is continuing to make major investments in its workforce in the form of in-house training such as the IHC Merwede company school, our own Management School and the talent programme, or external courses. In 2009, € 2.5 million will be invested in a new training centre at our Kinderdijk location.

At present, IHC Merwede still has 120 vacancies, in particular for management/project management, engineering and production positions.