Boskalis posts strong result amid challenging market conditions
Royal Boskalis Westminster N.V. realized a net profit of € 123.9 million in the first half of 2010, up from € 102.7 million in the first half of 2009. The profit contribution from Smit Internationale N.V. (“SMIT”), excluding interest expenses on the acquisition finance but including all other effects related to the transaction, was € 9.5 million.
Revenue increased to € 1,135 million. The merger with SMIT came into effect at the beginning of the second quarter and the revenue contribution of these activities was € 160 million. Excluding the consolidation effect of SMIT, revenue in the first half of the year was € 975 million (first half of 2009: € 989 million).
The performance of the core Dredging & Earthmoving activities was particularly strong. Boskalis benefited from its broad, well-filled order book in the first half of 2010. This resulted in solid equipment utilization levels and good margins. On balance the result of SMIT was lower than in the comparable period last year. For the Transport & Heavy Lift activities a weaker market for spot contracts mainly from the oil and gas industry led to a drop in the result. On the other hand, a gradual recovery of port freight volumes had a positive effect on the Harbour Towage result.
Order intake excluding SMIT was € 890 million in the first half of the year. Including the SMIT order book, the end-of-period order book amounted € 3.3 billion.
Peter Berdowski, CEO: “We have had a very strong first half year with a particularly good performance within the core dredging activities. Thanks to the well-filled and broadly spread order backlog we had at the start of the year, we had solid utilization rates for our vessels and realized fine margins on these projects.
Our earnings also reflect the contribution from the SMIT activities. Following the merger, we prepared the integration process. The outcome of this process is that we see substantial market and cost synergies for the coming years.
Based on the current order book, we are upbeat on the financial outlook for the rest of the year. However, in the current market we are seeing reluctance with clients causing a decline in the volume of work as well as further pricing pressure.”
The markets in which Boskalis is active with the following activities – dredging, maritime infrastructure and maritime services – are driven by factors such as growth in world trade, the global population, energy consumption and the effects of climate change.
While structural long-term growth factors remain positive, the short-term prospects for dredging and maritime infrastructure have become considerably less certain since the start of 2009 due to a drop in oil prices, uncertainty about demand for raw materials and a flagging recovery of the global economy. These market conditions have made clients critical and reluctant about taking on new projects. This is resulting in a decline in the volume of work in the market and is putting pressure on margins. A quick recovery in the broader market is not foreseen.
Demand for harbour towage and terminal services is developing favorably. Freight volumes are recovering after the slowdown in 2009 and new terminal contracts are emerging as new oil and gas fields are being taken into operation. Developments in the salvage market are difficult to predict due to the nature of the work. In Transport & Heavy Lift the focus is mainly on signs of upturn in the spot market. A convincing recovery of the global economy and high oil prices are key factors in this respect.
Barring unforeseen circumstances the Board of Management expects reported full-year net profit for 2010 to be 10-15% higher than reported net profit in 2009. The synergies resulting from the SMIT merger are estimated at € 15-20 million per annum pre tax and will gradually be realized starting in 2011 over a two to three year period. A total level of investment of € 325-350 million is expected in 2010. Boskalis SMIT has reached an agreement in principal to increase its stake in the Harbour Towage joint venture Rebras, Brazil, from 50 per cent to 100 per cent by the end of 2010. A number of conditions still need to be satisfied before a final agreement is reached.