Navigating through challenging times

Rotterdam, 21 March 2017


• Revenue: EUR 1.71 billion (2015: EUR 2.58 billion)
• EBITDA: EUR 333 million (2015: EUR 406 million)
• Net profits: EUR 90 million (2015: EUR 169 million)
• Order book: EUR 3.27 billion (2015: EUR 2.35 billion)
• Net debt: EUR 79 million (2015: EUR 68 million)
• Solvency: 33.3% (2015: 32.2%)
• Difficult dredging, offshore oil & gas markets
• Opportunities for growth in offshore wind

Revenue and profit
The year 2016 was a challenging one for Van Oord. Revenue decreased to an amount of EUR 1.71 billion (2015 EUR 2.58 billion) and net profits went down to EUR 90 million (2015: EUR 169 million).

In dredging, revenue was EUR 1,189 million in 2016 (2015: EUR 1,622 million): the downward trend being most obvious in Areas Europe and Middle East & West Asia (Suez Canal). Deteriorated market conditions were tangible in the Offshore oil & gas division, with revenue standing at EUR 130 million, considerably lower than in 2015 (EUR 242 million). Offshore Wind Projects generated EUR 394 million in revenue, compared with EUR 715 million in 2015. The decline mainly had to do with the Gemini project, which was in full swing in 2015 and was completed in 2016.

Pieter van Oord, CEO Van Oord: After two years of explosive growth, 2016 was a year of dwindling revenue and declining profits. Worsening conditions in the dredging and offshore oil and gas markets put revenue and margins under pressure. The downward trend has many different causes: the completion of major projects, the low oil price, slower growth in world trade and overcapacity of dredging and offshore equipment. Market conditions in the maritime sector were extremely difficult in 2016.

The year 2016 also saw a breakthrough in the costing of offshore wind projects. The price level that won Van Oord the Borssele III & IV tender (in a consortium with Eneco, Shell and Mitsubishi) set a new standard. Such low costs mean that offshore wind will form an increasingly important part of Northwest Europe’s low-carbon energy mix. We are proud to be playing a prominent role in making this happen.


Results
The decrease in net profit to EUR 90 million was driven largely by lower revenues and pressure on project margins. The profit for 2016 also comprised an impairment (EUR 17 million) on the Stingray, a shallow water pipe-lay barge active in the Offshore oil & gas division. This impairment reflects revised expectations in terms of the vessel’s utilisation rate over its lifetime.

Robust growth of order book
The growth in our order portfolio in 2016 is due largely to offshore wind projects, including Borssele III & IV (Netherlands), Norther (Belgium) and major dredging projects such as Marginal da Corimba project in Angola. In 2016, we acquired new projects valued at EUR 2,635 million, compared to EUR 1,706 million in 2015. Because many of these new projects will be executed in 2018 or later, they will not contribute to our revenue in the short term. Our order portfolio is robust and stood at EUR 3,271 million at year-end (2015: EUR 2,349 million).

Financial position
Van Oord is a solid business with a robust financial position. The company’s shareholders’ equity amounts to EUR 905 million, compared with EUR 902 million at year-end 2015. Its solvency ratio (equity as percentage of assets) stood at 33.3% (2015: 32.2%). Net debt amounted to EUR 79 million, up slightly on the level reported at the end of 2015 (EUR 68 million). These numbers mean that we remain well within the limits of our existing credit facilities.

Cash flow from operating activities amounted to EUR 308 million, compared with EUR 496 million in 2015, due to lower results, as previously explained. In 2015, we reported a higher cash inflow on account of working capital. Cash flow from investing activities was EUR -232 million in 2016, up on 2015 (EUR -191 million), in line with our multi-year investment programme. Cash flow from financing activities, including payment of a dividend (2016: EUR -114 million) moved more or less sideways compared with 2015 (EUR -119 million). Total net cash flow for 2016 was EUR -38 million (2015: EUR 186 million).

Dredging
Van Oord executed various dredging projects in 2016. In the Netherlands construction of the largest sea lock in the world, IJmuiden, started. Van Oord dredged the waterways for diverting shipping traffic.

Furthermore 2016 was also the year in which Van Oord worked on the Prorva project in Kazakhstan. A new 68-kilometre-long access channel to the Tengiz oil and gas field will be completed mid-2017.

In the port development segment, Van Oord deployed its jumbo hoppers on the Kaohsiung project in Taiwan, where it has begun reclaiming 250 hectares of land. Van Oord worked also on the project for APM Terminals to construct a new container terminal in Moín, Costa Rica.

Offshore oil & gas
In 2016 we frequently deployed our flexible fallpipe vessels on Subsea Rock Installation (SRI) projects for pipeline protection. We did so in the United Kingdom, Egypt and Norway. Especially our work stabilising a mercury-laden submarine (war wreck) on the Norwegian seabed was an technical challenge.

Our Offshore oil & gas division has been affected by the low price of oil, which has led clients to postpone or cancel investments.

Offshore wind
The year 2016 was a special one for offshore wind. The completion of the Gemini Offshore Wind Park in the autumn of 2016 added a total power output of 600 MW to green energy production in the Netherlands. This was Van Oord’s biggest project ever and its execution was very successful. We have once again shown that complex offshore energy projects can be completed on time, within budget and to the client’s satisfaction. In 2016, Van Oord was awarded contracts for a large number of new offshore wind projects, such as Borssele III & IV (Netherlands), and Norther (Belgium).

Market developments
The world economy is volatile, uncertain, complex and ambiguous. Growth in global gross domestic product will remain slow (for the coming years), and world trade growth is lower than before the financial crisis. For the time being, it will not rise to its former level.

The dredging market is troubled by overcapacity and deferred project investments. The oil and gas industry is still suffering from the low price of energy, with investments in offshore installations thus moving to the back-burner. On the positive side, the market for offshore wind installations achieved a breakthrough in 2016, thanks in part to governments’ ambitious and detailed energy transition plans. This led to a fierce reduction in the cost of offshore wind farm construction. Installations are also bigger and more powerful these days, and are increasingly being constructed in deeper waters, making heavy demands on their designers and builders. The offshore wind market has matured rapidly.

The demand for all-round solutions continues to grow, with clients inviting tenders for Engineering, Procurement and Construction (EPC) contracts. Solid value chain management, the integration of disciplines and strong project management are indispensable in such contexts.

Organisation and safety
Our Offshore Wind division expanded quickly. Over the summer we acquired the offshore activities of Bilfinger Marine & Offshore Systems in Hamburg, allowing us to sharpen our focus on the German market. The expanding offshore wind industry and worsening market conditions in the oil and gas sector led us to transfer a large number of employees to our Offshore Wind Projects division. Staffing levels contracted worldwide in 2016 to 4,816 employees (number of employees in 2015: 4,912).

We are pursuing a proactive safety culture. Our company-wide safety programme, Say YES to safety, makes our safety targets clear to our employees and, in many cases, to our subcontractors and suppliers. The purpose of the programme is to raise their awareness, influence their behaviour, and encourage them to work proactively on safety. In 2016, there were fewer lost-time injuries and an even lower accident rate than in the previous years.

Investments and divestments
In 2016, Van Oord expanded its fleet and replaced various vessels. We invested in modern and efficient vessels that can produce more output at a lower unit price and require less maintenance. Modern vessels consume less fuel, allowing us to achieve our carbon emission reduction targets. All in all, our investment has lowered the total cost of ownership of our fleet.

Van Oord launched two new cutter suction dredgers in 2016: the Mangystau – which we were able to deploy immediately on the Prorva project in Kazakhstan – and the Biesbosch. In the summer of 2016, we added the Costa Verde to our fleet, a small trailing suction hopper dredger with a hopper capacity of 2,680 cubic metres, making it ideal for the Mediterranean market with its shallow waters and small harbours. The Costa Verde sails under Spanish flag for our subsidiary Dravo S.A.

We also continued supervising the construction of three new vessels in 2016, with Van Oord itself defining and designing the technology, i.e. the mission equipment. Subsea Rock Installation (SRI) vessel Bravenes, a new type of flexible fallpipe vessel, will be completed in Xiamen (China) in 2017. The Vox Amalia and the Vox Alexia, two mid-sized trailing suction hopper dredgers, are currently under construction in Bilbao (Spain), in part according to our own design. We will launch these vessels in 2017 and 2018.

We are also modernising our existing fleet to prepare it for the challenges of our times. For example, we are working to upgrade heavy-lift installation vessel Svanen to install mono-piles (for wind turbines) of more than 2,000 tonnes. Installation vessel Aeolus will be enlarged and will soon be able to lift up to 1,600 tonnes. Trailing suction hopper dredger Volvox Terranova, which sustained heavy damage in 2014 after striking a mine in Surabaya, underwent repair and a simultaneous and complete overhaul in 2016. We are proud of our investment decision to build a new crane ship that will be powered by LNG, the clean energy of the future. The new ship will be named the Werkendam. Our total investment in 2016 amounted to EUR 240 million (2015: EUR 207 million).

Participations in wind farms
Van Oord has had a 10% stake in the Gemini offshore wind project since 2014. The other shareholders are Northland Power Inc. (60%), Siemens Project Ventures (20%) and HVC (10%). Altogether, the shareholders have contributed a total equity of EUR 400 million. We will also own a stake in the Borssele III & IV project, awarded to Van Oord and its consortium partners in late 2016.

Outlook
We added a considerable number of projects to our order portfolio in 2016. However, since most of these projects will be executed in 2018 and later, we will not see any positive effects on our financial results until then. 2017 will be a challenging year. The harsh market circumstances for dredging and Offshore oil & gas will continue to impact us. Van Oord is a robust company with an excellent financial position.

Van Oord press release


Image by Van Oord