Annual r eport 2004 eport 2004 eport 2004

Transcription

1 Annual report 2004 We move the earth to a better place

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3 Annual Report Royal Boskalis Westminster nv

4 Boskalis: working on the growing world Good infrastructure is essential to a growing world. Boskalis is a market leader in wet infrastructure, a perfect example of a sector driven by long-term growth factors and accompanied by long-term investments. The final chapter in the seven-year fleet expansion and renovation program was the maiden voyage of the trailing suction hopper dredger Oranje, launched in Annual Report 2004

5 Table of contents Table of contents Company profile 6 Mission, objectives and strategy 9 Corporate social responsibility 12 Basic principles of the corporate strategy 14 Corporate Governance 17 Management 24 Key figures 28 Investor Relations 29 Message to the shareholders 31 Report of the Board of Management on Report of the Supervisory Board 46 Financial statements Principles of financial reporting 52 Consolidated balance sheet before proposed profit appropriation 56 Consolidated profit and loss account 57 Consolidated cash flow statement 58 Explanatory notes to the consolidated balance sheet and profit and loss account 59 Company balance sheet before proposed profit appropriation 70 Company profit and loss account 71 Explanatory notes to the company balance sheet and profit and loss account 72 Other information 75 Provisions in the articles of association relating to profit appropriation 75 Proposed profit appropriation 76 Auditor s report 76 Stichting Continuïteit KBW 77 Report 77 Declaration of Independence 77 Ten years Boskalis 78 Boskalis: working on the growing world 4 Driven by global population growth and climate change 10 Driven by growing world trade 22 Driven by increasing global energy consumption 44 Driven by growing global tourism 50 Driven by sustainability 80 Legal structure 79 The world of Boskalis 82 Organization 83 Offices around the world 85 Glossary 90 Equipment 95 Unless stated otherwise, all amounts in this report are in euros ( ). Some of the projects referred to in this report were carried out in joint venture or in a sub-contractor role. This is a translation of the official Annual Report in the Dutch language. 3 Royal Boskalis Westminster nv

6 Boskalis: working on the growing world Dredging company Boskalis is a market leader in the world of wet infrastructure: harbor construction, land reclamation and beach replenishment, coastal defense, and riverbank protection. These are concrete products of a recognizable international sector that is driven most effectively by long-term economic growth factors. The products literally give room to a world experiencing sustainable growth. Because the world is expanding. From two billion in 1935, the global population has grown to more than six billion people in According to the United Nations, the earth will have eight billion inhabitants 25 years from now. As part of that population growth, people will increasingly migrate toward major urban areas, especially in coastal regions with rapid economic development. Such economic development is driven by the globalization of world trade. Consumer goods destined for the Western world are manufactured in distant lands and shipped to their markets in containers; growing consumer markets in Asia import increasing amounts of products. Raw materials are shipped in bulk across great distances to major industrial areas; oil and gas are transported over the oceans to feed the world s growing hunger for energy. People/km 2 < > 500 Without infrastructure, the world We move the earth to a Growing trade, more maritime More people, more need for sustainable room to grow, more work for Boskalis. transport: these are the drivers of harbor construction and maintenance. 4 Annual Report 2004

7 Growth for the economy, growth in the demand for energy, growth The world is expanding. From two billion in 1935, the global population has grown to more than six billion people in for Boskalis. Moreover, the growing prosperity boosts global tourism. According to the World Tourism Organization, some 1.6 billion international trips will be taken in 2020, more than twice the current annual number of 700 million. The common bond in all these developments is infrastructure in all its forms. After all, it does not matter whether we are talking about virtual forms of infrastructure like telecommunications and internet markets, or more concrete forms like residential neighborhoods, airports, roads, and waterways; without infrastructure, the world cannot develop. In addition, due to an increasingly critical approach to growth, it is evaluated in the context of its long-term quality of life. Boskalis responds to this trend by offering expertise and innovative solutions. So that the world can experience sustainable growth. We move the earth to a better place (Source: U.S. Department of Agriculture) cannot develop. better place. Meer toerisme betekent meer stranden, meer toeristische eilanden in More zee tourism en meer means cruisehavens. more beaches, En meer more werk islands voor in the sea for tourists and more cruise Boskalis. harbors. And more work for Boskalis. Royal Boskalis Westminster nv

8 Company profile Company profile We move the earth to a better place. Boskalis, a leading international company with a unique market position. Royal Boskalis Westminster nv is an international service provider in the area of maritime infrastructure. Its core activities include the construction and maintenance of harbors and waterways, the creation of land in water, coastal defense, and riverbank protection. The company also operates in numerous home markets in a wide range of related activities such as sand and gravel production, soil improvement, dry earth movement, environmental activities, marine offshore services, munitions clearance, tunnel building, and hydraulic engineering projects. Boskalis has a wide spread of operations worldwide, operating in more than 50 countries on five continents. The company has a unique market position with wholly owned home market positions in five major European markets and in joint ventures with local partners in Nigeria, the United States, and Mexico. In the Middle East, Boskalis plays an important role in the developments in the Persian Gulf via its 50% subsidiary Lamnalco (port services for oil and gas exports), its 40% participating interest in Archirodon (wet and dry infrastructure), and its own market position in harbor and land reclamation projects. The company has grown significantly in the past decade. This growth was achieved both autonomously and through takeovers and participating interests in other companies. The company has a solid financial basis and a healthy cash flow. Core activities The global market for maritime infrastructure is driven by long-term economic factors such as increases in the global population, the growth of the world economy, and the growth of international trade volumes. The long-term prospects for these factors are favorable. Its global spread and operational flexibility mean that Boskalis can respond to changing opportunities in different markets. Construction and maintenance of harbors and waterways. The growth in the volume of global trade has increased the demand for container ports on international shipping routes. Not only are the ports becoming larger and deeper as a result of the scaling up of container ships, the number of ports is also increasing as more and more countries get involved in the global production and exchange of goods. The established ports are competing with each other for regional leadership, as we can see in Asia (Singapore, Hong Kong, Pusan), Western Europe (Rotterdam, Antwerp, Hamburg, Felixstowe) and North America (New York, Halifax). Ports are also being built or scaled up in numerous industriallydeveloping countries such as India, Malaysia, and Mexico. The increasing demand for larger and deeper ports is accompanied by the need for keeping them at depth. This results in increases in maintenance volumes, particularly in areas with strong currents or tidal variations. Creation of land in water. The global population continues to increase and economic centers are congested and overpopulated. Solutions for the increasing scarcity of available land are being sought in the creation of new land. Boskalis plays a prominent role here. It uses innovative, large trailing suction hopper dredgers to generate a favorable ratio of cost price to market price per square meter of new land. Coastal defense and riverbank protection. Here also, Boskalis expects continuing market growth given the intensification in the global focus on environmental protection. The market will also benefit from the ongoing growth of tourism. 6 Annual Report 2004

9 Company profile Boskalis created an artificial temporary lagoon and extended the existing beach in Barcelona, Spain at the end of 2004, using the cutter suction dredger Para. Related activities In addition to these core activities, Boskalis is involved in a range of related activities (the dredgingplus activities) such as offshore services, gravel and sand trading, soil improvement, dry earth moving, environmental activities, munitions clearance, underwater rock fragmentation, pipeline construction and hydraulic engineering. These activities are an extension of the range of services, and the margins are generally attractive. Markets The global dredging market consists of numerous submarkets with individual development patterns. This means that the market as a whole is heterogeneous, with varied patterns of market dynamics. The annual volume of sales on the global dredging market for maritime infrastructure is approximately 7 billion. Half of these sales (approximately 3.5 billion) are made to reasonably open markets. Four large Western European dredging companies account for approximately 60% of operations in these open markets, with roughly 40% of the free sales going to many different smaller regional and local players. With a share of approximately 20%, Boskalis is an important player in the open market segment. In the less open markets, dredging work is generally done by local players or state companies and there are no openings for private international dredging companies like Boskalis. The past decade has seen extensive deregulation of global trade and economic development in traditionally closed markets. As a result, the free market has expanded in favor of professional dredging companies, which can provide economies of scale and competitive cost levels. Major factors affecting access to the global dredging market are scale, professional staff, technical knowhow, a flexible fleet, cost leadership, and financial strength. However, the broad geographical spread means that a global player like Boskalis can achieve balanced growth. The main Boskalis clients are governments (national, regional, and local), harbor operators, international project developers, oil companies, mining companies, and other contractors. Boskalis offers its clients high-quality products and services at competitive prices. 7 Royal Boskalis Westminster nv

10 Company profile Market positioning Operating on the richly varied global market often requires an approach tailored to each situation. In response, Boskalis has both broader home market positions and (narrow) specialist niche markets. In addition, the company uses another approach for major international projects, as well as a multidisciplinary, regional approach for areas like the Middle East. The Boskalis market approach is flexible, customer-oriented, and open to (local) partnerships. Home markets. For many years now, Boskalis has had a home market strategy which distinguishes it from its competitors. A home market means that Boskalis has a permanent presence in countries where this presents commercial advantages. The strengths of this home market concept lie in the stable flow of projects and the opportunities for extending its range of activities. The home market organizations have a local commercial profile, as well as their own fleets and infrastructures. They also know that they can call on the support of the financial and technical resources of the global Boskalis organization. Particularly in the home markets, there are opportunities to generate additional margins with associated activities. Boskalis generates approximately 40% of its turnover on its home markets. It now has wholly owned home market positions on five major European markets, as well as home market positions in joint ventures with local partners in Nigeria, the United States, and Mexico. A regional approach: the Middle East. Boskalis generates approximately 25% of its turnover in the Middle East. The company has a strong position in the area around the Persian Gulf, where countries invest their oil earnings in economic expansion of the trade and tourism sectors. Boskalis operates in the region across the full spectrum of maritime services, holding a strong market position in harbor and land reclamation projects, its 40% participating interest in Archirodon (wet and dry infrastructure), and its 50% subsidiary Lamnalco (harbor services for oil and gas exports). International projects market, the rest of the world. Approximately 30% of turnover is generated in the international projects market, which focuses primarily on dredging and on coastal and riverbank projects. These are generally larger works involving investments in construction activities and/or extensions. In addition, there are projects which regularly involve cooperation with third parties. This makes it possible to provide clients with optimal services and to share risks. Specialist niche markets. Approximately 5% of turnover comes from specialist niche markets like the offshore market and the market for underwater rock fragmentation. 8 Annual Report 2004

11 Mission, objectives and strategy Mission, objectives and strategy Transparent, consistent and result-driven. Mission Boskalis is always aiming to maintain and strengthen its leading position in the global dredging market. The company is committed to giving its shareholders excellent profitability and value creation. Boskalis wants to be an attractive employer, the customer s first choice and a responsible citizen in those countries where it operates. Boskalis aims for an optimal balance in its services between functionality and the effects on people and the environment. Objectives In the short term (one to two years) the key objectives will be to optimize the market position, streamline the organization, and achieve strong cash flow generation. The central objectives in the longer term (three to five years) are solid growth (both in the core activities and through broadening the activities) and the realization of above-average profitability.*) Strategy The core Boskalis activity is dredging. The company also engages in related dredging-plus activities, particularly in the home markets. These activities fit in with the core activities and core competences of the company. The corporate strategy consists of growth in the core activities and in the dredging-plus activities, both autonomously and by means of acquisitions. Strategy for the core activity of dredging maintain and, where possible, increase market share; broaden and extend home market positions; improve the competitive position, for example through investments in cost leadership. Strategy for the dredging-plus activities Active portfolio management in both home markets and specialist niche activities, for example by: extending and expanding activities that contribute to the achievement of the growth target; making the most of home market positions in the core activity for the extension of dredging-plus activities. In most markets where Boskalis is active, there will be even more emphasis in the future on the competitive position. The lead given by its competitive position therefore plays a major role in the Boskalis strategy. The key to this position is continued innovative investment in: staff quality, primarily in the form of training and competence management; fleet innovations and fleet rationalization; processing technology; improvements in business processes; the development and optimization of modern ICT systems. *) We consider profitability to be above average if the annual return on capital employed exceeds the cost of capital (WACC) relevant for Boskalis. 9 Royal Boskalis Westminster nv

12 According to the report World Urbanization Prospects: The 2003 Revision published by the United Nations ( the global population will increase by more than 30% in the next 25 years, rising from six to eight billion people. Driven by global population growth and climate change This growth will take place primarily in developing countries in Asia and Africa, mainly due to rising life expectancies as a result of increased prosperity and better health care. The population growth will take place almost exclusively in urban areas. Cities will also grow due to migration from the rural areas. The earth currently has three billion urban inhabitants; by 2030, that number will have swelled to five billion, or 60% of the global population. Since the very beginnings of history, urban areas have developed along rivers and coastlines, close to the regional and international flows of goods for trade and industry. A glance at a map of the world shows the current densely populated coastal regions in America, Europe, and Asia. Looking to the future and the expected increase in population and urbanization, the congestion in coastal areas can be expected to become even more severe. Harbors are becoming congested, ground is growing scarcer and more expensive, coasts and riverbanks are becoming overpopulated and the environment is threatened. People need new room to grow. Beach replenishment in Egmond aan Zee, the Netherlands. More people, more need for 10 Annual Report 2004

13 Land reclamation in Singapore, using a trailing suction hopper dredger that pumps the sand through a pipeline to shore to the bulldozer on the dump site. In addition, the global climate is changing, accompanied by more extreme weather conditions, changing precipitation patterns, and rising temperatures. Due to storms, flooding, and the rising seas, the pressure on beaches, coasts, and riverbanks is increasing. Scientists agree that these phenomena are part of a longer-term trend and that countries need to invest in protecting their coasts and riverbanks. And that is where Boskalis comes into play: the creation of new land in coastal regions, beach replenishment, coastal defense, riverbank protection, and dike construction. But also: innovation using environmentally-friendly solutions, project financing, and innovative contract forms. It often involves large-scale projects, technically complex and highly demanding, deploying the world s biggest dredgers and the best people. More people, more need for sustainable room to grow, more work for Boskalis. NASA photo of the city lights in the densely populated coastal regions in America, Europe and Asia. sustainable room to grow, more work for Boskalis. Royal Boskalis Westminster nv

14 Corporate social responsibility Corporate social responsibility Boskalis has a clear view of its role in society and its responsibilities towards the global community. Code of conduct Boskalis has a Statement of General Business Principles that applies to all the relationships it maintains throughout the world. This document is the guide for the company in the area of social responsibility and is freely available from the company website. The basic idea behind corporate social responsibility is that Boskalis is a decent company where respect for people and the community is an accepted value. Boskalis accepts responsibility for matters that it can influence. However, the world is large and Boskalis is only one of many actors. Boskalis respects local rules and customs: so many countries, so many customs. How those rules and customs evolve is a matter for governments and people and Boskalis plays only a very minor role in that respect. The responsibility of Boskalis Boskalis has its own standards for its organization. Boskalis has a direct responsibility for, among other things, its own workforce, suppliers and sub-contractors, safety and the environment. Boskalis acts like a responsible member of society: decently and properly. That means complying with local legislation, being a good employer for the workforce and working on enduring relationships with suppliers and sub-contractors. Boskalis does its utmost to meet quality, safety and environmental standards covering dredging and other company activities. Initially, these standards are set by clients (often governments) but Boskalis also brings its professional know-how and commitment to their implementation. Boskalis also assumes responsibility for the proper disposal of the work spoils, such as waste and contaminated material. Boskalis in the world National laws and rules apply in countries where Boskalis works. The company does not make cultural judgements. Boskalis conducts itself like a responsible member of society or a good guest. National laws and rules are the guidelines for Boskalis activities, in combination with Dutch norms that cover international dealings. Boskalis does not get involved in national politics, nor does it state opinions about political issues. These are the responsibility of national government. Boskalis also follows the guidelines of the United Nations, WHO and the Dutch government for travel to, or business dealings with, certain countries. Contribution to sustainable development The nature of the services supplied by Boskalis means that the company is closely involved in sustainable developments in society. Maritime infrastructure is for many countries a precondition for structural economic development and increasing prosperity. Because Boskalis works on the basic infrastructure, the company is involved directly and positively in the social benefits of its services. Sometimes, economic interests can clash with other community interests. It is the responsibility of local governments to make the appropriate choices. It is up to Boskalis to work as professionally as possible within the resulting framework. 12 Annual Report 2004

15 Corporate social responsibility An important aspect of dredging is the impact it has on the ecology. Boskalis has the expertise to advise clients how to measure environmental impact and keep it to a minimum. Furthermore, Boskalis always makes its own assessment to determine the best working method for the environment. The company develops its own systems for precise monitoring of the dredging work. In that way, clients understand the environmental impact of the work; working methods can also be adapted if there is a possibility of tolerances being exceeded. Trailing suction hopper dredger Prins der Nederlanden at work on the Jubail King Fahd Industrial Port in Saudi Arabia. The work comprises dredging three berths, deepening the access channel and land reclamation to create a second wharf in the petrochemical port. 13 Royal Boskalis Westminster nv

16 Basic principles of the corporate strategy Basic principles of the corporate strategy The key success factors for a leading international service company in the area of maritime infrastructure are: enterprise and risk management; employee efficiency; transparency in corporate governance; professional expertise and skills; a large and versatile fleet; efficient organizational and communications structures. Enterprise and risk management Doing business means working on a daily basis with uncertainties, opportunities, and risks. Chapter Corporate Governance (pages 17 21) of this report discusses the risk management and internal monitoring systems used at Boskalis. Employee efficiency At Boskalis, the workforce is central. They are the critical success factor of the company. They are the people who, in day-to-day operations, deal with changing circumstances and challenging operational situations. The company works globally with high-grade technical production resources, dealing with a very wide range of physical and cultural conditions. There are many other nationalities involved alongside the Dutch, both onshore and offshore. It is vitally important in a complex environment of this kind for people to collaborate and develop. Boskalis aims to provide an attractive working environment in which employees can make the most of their abilities. To this end the company has an active human resources policy in which the personal development of employees takes priority. The policy is based on the continuous matching of the requirements of the company and the quality of the workforce. This takes the shape of a coordinated program for Human Resources Development consisting of long-range forecasts, planning, development, training and rewards. An important HR tool in this context is the competence management program, which focuses specifically on the systematic development of employees on the basis of their talents and competences. Transparency in corporate governance Chapter Corporate Governance of this annual report takes a separate look at the topic of Corporate Governance. Professional expertise and skills Innovation. Every project is a source of creativity and innovation. Boskalis is one big innovative playground. The client s needs and preferences are translated into a technical design, using the optimal working methods and utilization of equipment. Due consideration is given to local conditions, such as the weather, tidal movements, environmental factors, and safety and security issues. Special equipment is often developed; new techniques are regularly created on projects in practice. Clients increasingly look for innovative forms of tender, where the knowledge and creativity Boskalis offers can play a greater role. Examples include Design & Construct tenders, public-private partnerships, or even alliance contracts, in which Boskalis and its client are project partners. 14 Annual Report 2004

17 Basic principles of the corporate strategy Research and development (often not project-specific). It is strategically crucial that constant work is done on new techniques and more in-depth knowledge. For many years now, Boskalis has also been conducting research not linked to specific projects, in part on its own and in part in joint projects with other sector operators, universities, and knowledge institutes. The Research & Development department at Boskalis has experienced staff, simulation and calculation models, and laboratory facilities. The R&D staff is regularly present on the projects and on board the ships, both at home and abroad, to take measurements. A steering group, representing the Board of Management, the operational units, and the technical staff departments, sets the priorities and evaluates the long-term planning of most of the nonproject-specific R&D work. Engineering capacity (usually project-specific). Major infrastructure projects such as Design & Construct projects are increasingly put out to tender. The engineering capacity Boskalis can offer and its own engineering consultancy Hydronamic are very important in this context. By taking working methods and options for available equipment into account in the design phase, efficient solutions for cost price and implementation timelines can be proposed. The Boskalis engineering capacity can also be deployed during the implementation phase of the projects. A large and versatile fleet Boskalis has a large and versatile fleet. It includes every variety of dredging equipment so that the right tool can be used at all times. Innovations in the fleet and modifications to existing units keep the fleet in line with modern requirements. Fleet automation is a highly-developed area, and this means that productivity during dredging work is high. Meticulous maintenance work is carried out on the fleet and auxiliary equipment, with modernization and improvements where necessary. With the exception of the basic equipment in the home markets, all Boskalis equipment is managed centrally by the Central Technical Department in Papendrecht. The Central Technical Department makes its units available for operating companies in The Netherlands and abroad. A lot of attention is paid to the quality of the services provided by the department. The organization is ISM-certified. A Plant Management System creates the conditions for the optimal deployment and structured management of the ships. In fleet management, an important element is the safety of the ships and the crews. Efficient organization and communications Health, safety and environment. Boskalis policy is to provide the entire workforce with healthy, safe and environmentally-friendly working conditions. The prevention of hazardous and/or unhealthy working conditions applies to all workers, including those from sub-contractors and suppliers. This principle is expressed in the Boskalis slogan: Safety matters. In order to raise safety awareness and increase the understanding of safety risks, Boskalis organizes training courses and information meetings, both at offices and on projects. In addition, safety audits are carried out as the first step towards reducing risks. Concern for environmental protection is a component of quality control, and of day-to-day thinking and working at Boskalis. The company is continuously looking at dredging processes in order to make them more environmentally-friendly. It develops techniques for reducing environmental loads during dredging work. 15 Royal Boskalis Westminster nv

18 Basic principles of the corporate strategy These activities result in a structural, systematic and transparent approach in the area of safety, health and the environment. Healthy, safe and environmentally-acceptable working methods require cooperation and communications, not only within the company but also with third parties, partners and service providers. Quality assurance. One of the basic principles of quality assurance at Boskalis is the wish to meet customer requirements efficiently and as planned. Another involves the continued professionalization of the internal organization. A lot of work goes into continuous improvements in the quality of the preparation, execution and evaluation of the projects. The same applies to the availability of equipment, as well as staff planning and supervision: they are all critical success factors. The quality systems in place are structured around the Boskalis core business: contracting and executing dredging and dredging-related work. These systems are certified in accordance with ISO Information and communications technology. Boskalis sees information and communications technology as an instrument for improving efficiency and management information. But ICT is also a way to make work easier and, above all, to operate more effectively in the market. Boskalis has an integrated ICT system which covers the entire business process worldwide, at all levels of the organization; from projects, through country organizations, to the head office in Papendrecht. The use of modern standardized software, hardware and communications technology is vital here. To facilitate the arrival of the largest cruise ship in the world, the Queen Mary 2, in Rotterdam, the Netherlands, Boskalis dredged the harbor in front of the HAL wharf and provided a new waterbed protection. 16 Annual Report 2004

19 Corporate Governance Corporate Governance INTRODUCTION Boskalis regards clarity and openness in supervision and accountability as the cornerstones of good governance and business practice. To this end, the company has adopted a sound system of corporate governance with a Board of Management charged with managing the company, a Supervisory Board that supervises the policies of the Board of Management, a General Meeting of Shareholders to which the Boards render account for their management or supervisory activities respectively, and a Works Council that gives shape to employee participation in the way Boskalis is managed. BOSKALIS AND THE DUTCH CORPORATE GOVERNANCE CODE Boskalis has taken note of the Netherlands Corporate Governance Code drawn up by the Tabaksblat Commission (the Code ), which came into force on 1 January In this context, the changed structural regulations (the 2004 amendment to Book 2 of the Dutch Civil Code) provide a legal basis for enforcing adherence to the Code. The Code applies to Dutch companies listed on the stock exchange and comprises a code of conduct for good and responsible governance, as well as for proper supervision thereof, including accountability for such supervision. The guiding principle is that the company is a long-term partnership consisting of various parties involved in the company. The stakeholders are those groups and individuals that influence or are influenced directly or indirectly by the achievement of the company s objectives, such as employees, shareholders and other financiers, suppliers, customers, but also the government and groups in society. The Board of Management and the Supervisory Board of the company bear integral responsibility for weighing these interests, always maintaining a focus on the continuity of the company and the creation of value for the shareholders in the long term. The code of conduct in the Code consists of some twenty principles and a great many associated concrete best practice provisions. Most of the principles can be seen as modern and now widely supported general views on good corporate governance. Companies listed on the stock exchange must include the general outlines of their corporate governance structure for the first time in their annual report for the 2004 fiscal year, and indicate the extent to which they deviate from the Code (i.e. the Apply or Explain rule). Boskalis supports the concept that a solid and transparent system of checks and balances is an important tool for inspiring confidence in companies operating on the capital market. For Boskalis, the main guarantees of good corporate governance are provided by an open corporate culture based on enterprise, professionalism, and normal standards of decency. In 1998, the Board had an extensive exchange of ideas with shareholders on the topic, in the context of the report on Corporate Governance in the Netherlands: The Forty Recommendations of the Peters Commission. In addition, on 29 May 2001 Boskalis had already discontinued the system of issuing depositary receipts of shares, a system which was generally seen as shareholder-unfriendly. 17 Royal Boskalis Westminster nv

20 Corporate Governance In the case of a focused dredging company such as Boskalis, most of the principles and many of the best practice provisions in the Code are consistent with the principles and codes of conduct already applied in the company. In addition to the principles and conduct already applied in the company, best practice provisions from the Code were implemented at Boskalis during the past year. The text of the Code (the principles and best practice provisions) is enclosed as a whole in an appendix to this annual report. A note beside each best practice provision indicates whether or not Boskalis applies that provision. In those cases where Boskalis applies a best practice that differs from a provision in the Code, an explanation has been added setting out the company s position. Two such differences concern temporary deviations necessary for existing employment contracts with members of the Board of Management to be respected. As a result, we are able to state that Boskalis already applies or will apply all of the principles and 91 of the 92 best practice provisions. In one case, Boskalis considers that the specific nature and character of the company mean that it is in its best interests to apply a best practice that differs from the relevant provision in the Code. This concerns provision III.2.1. The motivation behind the Boskalis best practice is included in the relevant explanation for that best practice provision in the appendix to this annual report. The General Meeting of Shareholders in 2005 will have the opportunity to express its views on the corporate governance policy that the company has chosen. RISK FACTORS 1. Market and competition The Boskalis markets are heterogeneous and often develop in different ways. In most cases, the clients are national, regional, and local governments or associated institutions and oil and gas companies. These markets are generally driven by long-term economic factors, such as increases in the global population, the growth of the global economy, and the growth of international trade volumes. The long-term prospects for these factors are favorable. In the short term, factors such as limited government budgets and falling oil and gas prices may have a negative impact on the markets, despite the long-term growth trends. Boskalis is well placed to respond to both positive and negative developments in individual market segments because of its global spread of activities, its extensive, versatile, and internationally-based fleet, and its strong positions in the home markets. Moreover, the dredging industry is largely focused on the maintenance and development of infrastructure. This means that long-term developments will generally be more important than shortterm economic fluctuations. On its markets, Boskalis is facing both large, internationally operating competitors and more regional or local competitors that are limited to one or several submarkets. In most cases, projects are brought to the market using private or public tender procedures. Competition is mostly on the basis of price. The dredging industry is a capital-intensive industry with high entry and exit barriers, particularly for companies operating in the international arena. Prices are influenced greatly by the relation between the demand for dredging services and the available capacity and utilization of the equipment. 18 Annual Report 2004