EQUITY RESEARCH Boskalis September 2015

. Change in recommendation 11 September 2015

Boskalis Hold (previously Buy) Strong, but not immune

Price (10/09/15) We downgrade our recommendation for Boskalis from Buy to HOLD and cut €44.70 our target price from €49.0 to €45.0. The key reason is that we believe too Target price (12-mth)

€45.00 (previously €49.00) many people are taking the one-off positives for granted. We believe chances

Forecast total return are high for the Dredging unit to soon start showing the underlying indicated 4.3% EBIT margins of 10-12%. In addition, the Offshore Energy unit has visibility until roughly 3Q16 but, with the current weak oil price, few new projects are

Construction & Materials being started, while the stable order backlog represents new work from Netherlands Europe’s offshore wind market, which has a lower margin profile compared Bloomberg: BOKA NA Reuters: BOSN.AS with oil & gas work. Given the persistently low oil price, we believe Boskalis will be able to acquire cheap assets in the next few quarters but do not expect

Share data any change in the Fugro situation. We do not materially change our 2015-16F

Avg daily volume (3-mth) 436,503 operating income forecasts but slightly lower our target valuation metrics on Free float (%) 67.0 the core business units to 7.5x 2016F EV/EBITDA, or €34.39 per share, plus Market cap (€m) 5,466.6 Net debt (1F, €m) 300 €7.68 per share for tugboats and €2.84 per share for the Fugro stake. In our Enterprise value (1F, €m) 5,775 view, Boskalis will come out of this oil downturn stronger than before, but Dividend yield (1F, %) 3.6 things are likely to first get worse before they get better. Source: Company data, ING estimates

1H15 results were a clear beat versus our and consensus expectations, but due to Share price performance Suez Canal dynamics and project-specific characteristics, we increase our 2015F EPS 50 forecasts by 26%, aiming for 2015F net profit of €453m, which we consider well below 45 last year’s €490m. Boskalis guidance says the company “will not approach 2014 net profit 40 levels”. Our forecast includes a €32.4m positive incorporated in holding costs, related to 35 Fugro (€16.84; Hold; TP €18.0), and we have taken no view on Fugro in 2H15F (net profit 30 25 vulnerable to charges and impairments). For 2016F, we lower our net profit forecast by 20 3.6% to €327m, with our numbers excluding income from participations from the tugboat 9/10 9/11 9/12 9/13 9/14 9/15 business and the potential Fugro impact. Price AEX All Share (rebased) Given Boskalis’s excellent financial position and known buy-low, sell-high business

Source: ING development approach, we expect the company to acquire cheap assets in the coming

period if oil prices remain at the current low levels, causing distress at some too- leveraged oil services companies. Note that we do not expect a bid on Fugro in the short to medium term as Boskalis is supporting the current strategy and Fugro’s balance sheet distress has improved somewhat. In due time, we expect the rather late-cyclical Offshore business to also be negatively impacted by the low oil price environment. In our view, Boskalis’ robust financial position (1H15 leverage ratio: 0.7x) makes it a survivor in this downturn, from which it is likely to emerge stronger.

Forecasts and ratios

Year end Dec (€m) 2013 2014 2015F 2016F 2017F

Revenues 3,635 3,178 3,051 2,859 2,826 Normalised EBITDA 800 889 765 615 583 Normalised net profit 366 490 453 327 309 Normalised EPS (€) 3.09 4.03 3.61 2.60 2.46 Normalised PER (x) 14.5 11.1 12.4 17.2 18.2 EV/normalised EBITDA (x) 7.6 6.7 7.5 9.4 9.9 FCF yield (%) 7.0 13.2 8.6 5.7 6.0 Tijs Hollestelle Dividend yield (%) 2.8 3.6 3.6 3.6 3.6 Amsterdam +31 20 563 8789 Price/book (x) 2.1 1.7 1.6 1.5 1.5 [email protected] Normalised ROE (%) 16.5 17.3 13.6 9.1 8.3

Source: Company data, ING estimates

research.ing.com SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION1

Boskalis September 2015

New divisional forecasts Dredging We have encountered too Figure 1 shows our divisional revenue and operating income forecasts for the Dredging many investors who take division. Boskalis has consistently stated in the past few years that conditions in the one-off positives for granted Dredging market are stable and that new work entering the order book includes a pre- calculated EBIT margin of c.10-12%. Being a contractor, it points out that none of the contracts executed ever end at their pre-calculated margin – the margin is always above or below. Given that Boskalis’s operational execution track record is very good, we see the possibility of the margins reaching the high end of the range, or even 100bp above that. However, we have come across too many people who have started to take these very high operating margins for granted. We believe the likelihood of Boskalis reporting an EBIT margin in the range of 10-13% (let’s add a notch to company guidance) in the foreseeable future is high.

Although one can never tell Our Dredging EBIT forecast for 2016F drops by c.€40m YoY. We note that Boskalis’s the exact chance of dredging 1H15 EBIT margin was 18.6%, reporting as much as €151.5m EBIT partly due to the margins reaching 10-12%, Suez Canal and generally high utilisation rates for the hoppers. Boskalis has indicated EBIT is high for 2016-17F that maintenance work has been delayed due to tight deadlines in Egypt, which means that ‘normal’ maintenance has been pushed into 2H15 (higher costs and lower fleet occupancy rates). Maintenance costs, especially for cutters, easily approach 15% of the contract value, hence the impact will be significant in 2H15F. That said, the Suez contract ended in 3Q15, and Boskalis is known to be a conservative – or, to use a better word, realistic – profit recogniser.

• We believe the company continues to have positive claim settlements on contracts finished some time ago. However, the substantial contracts from the past are now all settled. For example, a 10% scope change or variation order on a €500m contract versus a similar percentage on a €100m contract. Operating margins in 2014 were impacted by claim settlement payments relating mainly to the Gorgon LNG project (Boskalis scope c.€1bn).

• Currently, we do not have any visibility on any very large dredging contracts that are close to being awarded and/or started. The Fehmarn Belt project concerning the tunnel connection between Germany and Denmark is large (dredging, wet infra scope between €800m and €1bn) but has a limited impact on fleet utilisation rates. This project could be awarded at end-2015 or early-2016. That said, nobody talked about the Suez either at the beginning of 2014 and dredging projects, especially in emerging markets, could pop up out of nowhere.

• The book-to-bill ratio hit 1.0x which, from a historical perspective, is still acceptable but not exceptionally high, and hence there is a chance of longer-term historical EBIT margins returning. Order book reached €1.72bn, down versus €2.01bn at end-2014.

Fig 1 Boskalis: Dredging division (€m)

2013 2014 2015F 2016F 2017F 2018F

Revenue 1,725.5 1,664.8 1,648.1 1,598.7 1,598.7 1,614.7 Revenue growth (%) -3.5 -1.0 -3.0 0.0 1.0 EBITDA 352.0 484.4 355.2 315.0 308.2 307.2 EBITDA margin (%) 20.4 29.1 21.6 19.7 19.3 19.0 Depreciation 103.8 107.4 113.8 115.2 116.3 117.5 EBIT 248.2 377.1 241.4 199.8 191.8 189.7 EBIT margin (%) 14.4 22.7 14.7 12.5 12.0 11.8

Participations 6.9 3.1 2.2 2.2 2.2 2.2

EBIT incl participations 255.1 380.1 243.6 202.0 194.0 191.9 EBITDA incl participations 358.9 487.5 357.4 317.2 310.4 309.4

Source: Company data, ING estimates

2 Boskalis September 2015

Offshore Energy Dockwise is late-cyclical and The Offshore Energy division also performed strongly during the first half of 2015. Even currently brings large though some activities have been affected by the low oil price environment, the key modules from Asian vessels of heavy marine transporter Dockwise are still very busy. Dockwise is executing shipyards to LNG sites in the Wheatstone LNG transport contract, bringing the finalised oil platforms and modules Australia, but is likely to see from Asian shipyards to LNG sites in Australia. We note that these contracts relate to lower activity in 2016-17F expansion capex of the oil & gas industry from several years ago. This type of work has visibility well into 2016, but Boskalis is frank about the fact that it currently does not see much tender activity for new large transport contracts.

Boskalis also stated that, for instance, its subsea business in the Nord Sea is impacted by the low oil price environment (more equipment from the Northern part of the Nord Sea steaming in the Southern part of the Nord Sea, looking for work). Boskalis’s Offshore Energy division comprises a wide array of activities. Heavy marine transporter Dockwise is the largest part (ING estimates 45% of the divisional sales, but this tends to be lumpy). Wet heavy marine transport Fairmount operates six ocean-going tugs. Boskalis’s former Specialist Dredging business is included in the Offshore Energy division (rock dumpers and fallpipe vessels), as well as the recently added new multi-purpose vessels (although the cable layers operate in the JV with VWS). Former Smit International divisions, Transport and Heavy Lift, are also part of the Offshore division. Here, for instance, the sheer legs operating in the Nord Sea see lower demand, while the sheer legs operating inside the port of Singapore are as always very busy. All in all, there are too many different drivers and activities to draw outright conclusions, but that business is getting slightly more difficult is clear.

Order book excluding Veja For instance, Boskalis’s order book in the Offshore division was €1.2bn in 1H15, stable Mate wind project is down versus €1.21bn at end-2014 and €1.15bn in 1H14. This is in sharp contrast to the oil c.27% in Offshore division services industry in which order backlogs are dropping by up to 20-30%. Boskalis won a large offshore windmill project in 1H15 of c.€250m (Veja Mate). We believe the European offshore wind market shows rosy growth prospects for the next few years, but the margin profile of these contracts is lower compared with the oil & gas industry.

Fig 2 Boskalis: Offshore Energy (€m)

2013 2014 2015F 2016F 2017F 2018F

Revenue 1,055.8 1,238.6 1,201.4 1,141.3 1,107.1 1,118.2 Revenue growth (%) 17.3 -3.0 -5.0 -3.0 1.0 EBITDA 262.5 372.8 387.4 321.8 296.9 299.9 EBITDA margin (%) 24.9 30.1 32.2 28.2 26.8 26.8 Depreciation 130.5 151.7 169.9 172.3 174.0 175.8 EBIT 132.0 221.1 217.5 149.5 122.9 124.1 EBIT margin (%) 12.5 17.8 18.1 13.1 11.1 11.1

Participations 15.0 15.1 9.0 8.0 7.0 7.0

EBIT incl participations 147.0 236.1 226.5 157.5 129.9 131.1 EBITDA incl participations 277.5 387.8 396.4 329.8 303.9 306.9

Source: Company data, ING estimates

Boskalis stated that the recent performance of Dockwise surpassed its expectations when it acquired the business and that it is familiar with the cycle-specific features of the business. Dockwise has c.50% global market share in the dry heavy marine transport sector, with c.20 vessels available, strategically positioned around the world. Unlike in Dredging, where Boskalis starts scrapping older equipment in periods of low demand, it will not reduce the Dockwise fleet. The cost structure is different from the dredgers’ (unique pricing) and one or two cargos per year justify relatively long idle periods for these transport vessels. Depreciation is high – over 2008-12, median depreciation as a percentage of sales was 20% – and hence cash flow-wise the business can endure slow demand periods.

3 Boskalis September 2015

Other Our forecasts in Figure 3 are for the Salvage division excluding business from the European tugboat business. Boskalis is likely to reach an agreement with Kotug in 2H15 to put the European business in a JV structure as well (moves to income from participations). Going forward, only the Salvage business will be included in this division.

Fig 3 Boskalis: Towage & Salvage (€m)

2013 2014 2015F 2016F 2017F 2018F

Revenue 363.0 270.6 203.0 125.8 127.1 128.4 Revenue growth (%) 0.0 -25.4 -25.0 -38.0 1.0 1.0 EBITDA 82.0 80.3 43.4 28.9 29.3 29.7 EBITDA margin (%) 22.6 29.7 21.4 22.9 23.0 23.1 Depreciation 36.7 34.6 12.5 10.0 10.2 10.4 EBIT 45.3 45.7 30.9 18.9 19.1 19.3 EBIT margin (%) 12.5 16.9 15.2 15.0 15.0 15.0

Participations 21.9 38.3 46.0 55.4 57.5 58.1

EBIT incl participations 67.2 84.0 76.9 74.3 76.6 77.3 EBITDA incl participations 103.9 118.6 89.4 84.3 86.8 87.7

Source: Company data, ING estimates

Holding-related costs in 1H15 were impacted by a €32.4m gain on Fugro, hence the reported +€3.9m was in reality more like -€28.5m. Our forecasts include a holding cost level of c.€50m pa.

New forecasts Figure 4 shows our new 2015-17F forecasts for Boskalis.

Fig 4 Boskalis: New forecasts, 2015-17F (€m)

2015F 2016F 2014 Old New Diff (%) Old New Diff (%) 2017F

Revenue 3,166.9 2,997.4 3,047.5 1.7 2,974.4 2,858.9 -3.9 2,825.9 Sales growth (%) -10.5 -5.4 -3.8 -0.8 -6.2 -1.2 Other income 11.3 0.0 3.0 0.0 0.0 0.0 Total revenues 3,178.2 2,997.4 3,050.5 1.8 2,974.4 2,858.9 -3.9 2,825.9

EBITDA 889.4 642.1 765.0 19.1 594.5 614.8 3.4 582.9 EBITDA margin (%) 28.1 21.4 25.1 20.0 21.5 20.6 Depreciation 293.5 267.7 292.2 9.2 271.2 293.4 8.2 296.4 EBIT 595.9 374.4 472.8 26.3 323.2 321.4 -0.6 286.6 EBIT margin (%) 18.8 12.5 15.5 10.9 11.2 10.1 Income from associates 56.4 92.1 78.7 -14.6 107.6 94.3 -12.4 103.0 EBIT including associates 652.3 466.5 551.5 18.2 430.8 415.6 -3.5 389.5 EBIT margin (%) 20.6 15.6 18.1 14.5 14.5 13.8 Interest expenses (46.1) (41.2) (41.3) 0.4 (35.5) (35.0) -1.4 (34.0) Pre-tax income 616.4 435.5 520.3 405.4 390.7 365.6 Tax (124.2) (75.5) (66.2) -12.3 (65.5) (63.0) -3.8 (55.8) Tax rate (%) 22.2 22.0 15.0 22.0 21.3 21.3 Minorities (1.9) (1.0) (1.0) (1.0) (1.0) (1.0) Net profit 490.3 359.0 453.0 26.2 338.9 326.7 -3.6 308.8

EPS (€) 4.03 2.86 3.61 26.2 2.70 2.60 -3.6 2.46 Number of shares (m) 118.4 121.6 121.6 0.0 125.6 125.6 0.0 125.6 DPS (€) 1.24 1.60 1.60 0.0 1.60 1.60 0.0 1.60

Source: Company data, ING estimates

Our abbreviated cash flow forecasts are shown in Figures 5 and our net debt estimates are shown in Figure 6. Boskalis lowered its capex guidance to €225-250m, of which c.€100m is committed. Hence the company has the opportunity to shift between add-on assets purchases and ordering new vessels. Boskalis normally uses market weakness (such as currently in oil & gas) to acquire assets from distressed companies that are forced by banks to divest vessels and equipment. Further, as shipyards are less occupied, Boskalis uses this to negotiate better prices and expand its fleet. We believe Boskalis is looking for lifting equipment (for the Nord Sea installation market) and

4 Boskalis September 2015

construction vessels (as versatile as possible) as it does not want to purchase equipment suitable for only one job (risk sharing is also possible, such as with VWS in the Offshore wind market).

We expect Boskalis to maintain its dividend per share at €1.60, which (assuming all cash) can be facilitated by existing cash flow. Depending on capex timing, NWC movements and the market outlook, Boskalis might return excess cash to shareholders via a share buyback (former share buyback halted due to Fugro share purchase). A decision on the restart of the share buyback is expected at the 2015 results presentation.

Fig 5 Boskalis: Adjusted cash flow estimates, 2015-17F (€m)

2015F 2016F 2017F

EBITDA 765.0 614.8 582.9 Capex (250.0) (275.0) (280.0) Change in NWC (78.2) (39.7) (6.9) Change in provisions 0.0 0.0 0.0 Cash taxes (121.7) (63.0) (55.8) Cash interest (31.2) (24.9) (23.9) Dividends (48.8) (201.0) (201.0) Acquisitions (99.9) 0.0 0.0 Disposals 29.4 0.0 0.0 FX USPP impact (39.0) 0.0 0.0 Kotug JV cash injection 72.0 0.0 0.0 Other 9.5 (1.0) (1) Change in cash 207.0 10.2 14.3

Source: Company data, ING estimates

Figure 6 shows our net debt projections.

Fig 6 Boskalis: Net debt, 2015-17F (€m)

2014 2015F 2016F 2017F

Gross debt 912.4 678.3 668.3 653.3 Gross cash 393.4 377.9 378.1 377.4 Net debt(+)/cash(-) 519.0 300.4 290.2 275.9

Source: Company data, ING estimates

Boskalis’s financial position continues to be robust.

5 Boskalis September 2015

Valuation

TP cut to €45.00 We cut our TP from €49.0 to €45.0 on: (1) our updated 2015-16F forecasts; (2) the harbour towage and terminals business being larger than we had anticipated in January 2015; and (3) the market value of the stake in Fugro being worth €2.84 per Boskalis share. Reading between the lines, we believe earnings visibility for the larger part of the Offshore Energy division continues to be quite good despite the lower oil price and budget cuts at oil companies. Dredging is, as expected, stable

Core business Dredging and Offshore Energy Our valuation approach is as follows: we apply a target EV/EBITDA multiple of 7.5x on Boskalis’s projected EBITDA forecast for Dredging and Offshore Energy, including Salvage (our forecasts already exclude the tugboat business in NW Europe as we separately value the tugboat business). Given the lowered outlook for mainly the Offshore Energy division, we use a somewhat lower target EV/EBITDA multiple of 7.5x (versus 7.9x previously).

Fig 7 Valuation: Dredging and Offshore Energy (€m)

2015F 2016F 2017F

EBITDA 765.0 614.8 582.9 Net debt 300.4 290.2 275.9 EV/EBITDA (x) 7.5 7.5 7.5 Enterprise value 5,737.4 4,610.8 4,372.1 Market capitalisation 5,437.0 4,320.6 4,096.2 Boskalis shares outstanding (m) 125.6 125.6 125.6 Value per share (€) 43.28 34.39 32.61

Source: Company data, ING estimates

Figure 8 shows Boskalis’s historical trading multiple. The Dockwise mid-cycle historical EV/EBITDA multiple is 5.7x and the Smit International historical mid-cycle multiple is 7.0x.

Fig 8 Boskalis: Historical EV/EBITDA (x)

12

10

8

6

4

2

0

EV/EBITDA (x) Mid-cycle (x) Pos (x) Neg (x) Target (x)

Source: Bloomberg

Harbour Towage & Terminals business Tugboats a leading global In our separate valuation analysis of Boskalis’s global harbour towage and terminals business business in January 2015 (Boskalis, Fugro: If you swim with sharks do not act as bait, 23 January 2015), we estimated annual total revenue including PB Towage and the JV with Kotug to be €688m and EBITDA at €179m, reflecting an EBITDA margin of 30.0%; our net debt estimate was €536m.

6 Boskalis September 2015

During the 2014 results presentation, Boskalis provided additional financial information on this business, as shown in Figure 9. In addition, the company stated that annual revenue in 2014 including PB Towage and the JV with Kotug was c.US$1bn. Given that this business under IFRS is no longer consolidated (now only shown in income from participations), it is important to highlight its significance for the valuation of Boskalis. In short, Boskalis has a 50% stake in a business that operates 450 tugs in c.90 ports in 35 countries. Like many other markets, Boskalis is active in the terminals business (tug services provided for LNG export terminals is a duopoly global market with occasionally some local competitors) and the harbour towage business in the main ports is also characterised by two or three relevant operators per port.

Fig 9 Boskalis: Towage business (excluding PB Towage and Kotug) (€m)

2014 (100%)

Revenue 641.0 EBITDA 256.0 EBITDA margin (%) 39.9 EBIT 160.0 EBIT margin (%) 25.0 Order book 1,226.0 Net debt 622.0 Leverage ratio (x) 2.4

Source: Company data

Based on this information, we update our model for Boskalis’ Towage business. The shaded cells are actuals from Boskalis and our 2015F revenue forecast is based on the US$1bn 2014 revenue guidance including 2% growth. We lower our EBIT margin forecast as the acquired business of PB Towage does not report Boskalis’s standard high margins yet. We assume net debt in 2015F will increase as we expect Boskalis to retrieve c.€100m of cash from the JV structure with Kotug and the takeover of PB Towage.

Fig 10 P&L forecast: Towage business (€m)

2014 2015F 2016F 2017F 2018F

Revenue 641.0 948.8 958.3 977.5 992.2 Revenue growth (%) 0.0 1.0 2.0 1.5 EBITDA 256.0 355.6 355.8 362.9 369.1 EBITA margin (%) 39.9 37.5 37.1 37.1 37.2 Depreciation 96.0 142.1 144.9 147.8 150.8 EBIT 160.0 213.5 210.8 215.0 218.3 EBIT margin (%) 25.0 22.5 22.0 22.0 22.0 Interest (33.6) (54.6) (52.5) (50.8) (48.9) PBT 126.4 158.9 158.3 164.3 169.4 Taxes (36.7) (47.7) (47.5) (49.3) (50.8) Tax rate (%) 29.0 30.0 30.0 30.0 30.0 Net profit 89.7 111.2 110.8 115.0 118.6 Retained 55.6 55.4 57.5 59.3

Net debt 622.0 964.0 917.7 878.1 835.6 Gross cash 125.0 250.0 250.0 250.0 250.0 Gross debt 747.0 1,214.0 1,167.7 1,128.1 1,085.6 Interest rate (%) 4.5 4.5 4.5 4.5 4.5 Leverage (x) 2.4 2.7 2.6 2.4 2.3

Source: Company data, ING estimates

Based on these forecasts, our valuation of the Towage business is shown in Figure 11. We apply a target EV/EBITDA of 8.0x to this stable business with market leading positions.

7 Boskalis September 2015

Fig 11 Valuation of Tugboats (€m)

2014 2015F 2016F 2017F 2018F

EBITDA Harbour Towage & Terminals 256.0 355.6 355.8 362.9 369.1 EV/EBITDA (x) 8.0 8.0 8.0 8.0 8.0 Enterprise value 2,048.0 2,844.7 2,846.2 2,903.1 2,952.6 Net debt 622.0 964.0 917.7 878.1 835.6 Equity value 1,426.0 1,880.8 1,928.5 2,025.0 2,117.0 Boskalis stake (%) 50.0 50.0 50.0 50.0 50.0

Value Boskalis 713.0 940.4 964.3 1,012.5 1,058.5 Value per share (€) 5.68 7.49 7.68 8.06 8.4

Source: Company data, ING estimates

Fugro at market price We value Fugro based on the current share price, as shown in Figure 12.

Fig 12 Fugro (€m)

Share price Fugro (€) 16.84 Shares outstanding (m) 84.6 Market capitalisation 1,423.8 Boskalis stake in Fugro (%) 25.1 Value of the stake 357.4 Boskalis shares outstanding (m) 125.6 Value per Boskalis share (€) 2.84

Source: Bloomberg

In our January 2015 Boskalis research note, we anticipated Fugro to run into more trouble, causing heavy share price pressure and creating an opportunity for Boskalis to acquire the whole company at an attractive discount. Fugro has shown some progress with regard to its restructuring and NWC programmes, and management has expressed its intention to divest the Subsea division. We maintain our opinion that Boskalis is mainly after leading market positions, which in Fugro’s case are Survey and Geotechnical, and not Geoscience and Subsea. In the current climate, it seems unlikely that Fugro is able to divest its Subsea activities (in such way that it benefits its various bank covenants). We expect Boskalis to watch what will happen to Fugro and, in our view, much depends on the length and depth of the downturn in oil & gas, not only for Fugro but also for Boskalis. Either way, Boskalis has created a comfortable position with regard to Fugro: (1) Fugro successfully restructures itself, with higher margins and lower net debt while bringing more focus to the company (disposals of non-core assets), and Boskalis’s stake increases materially in value; (2) Fugro’s profitability continues to be pressured and cash generation too low to facilitate debt, and the Fugro share price might drop as fear of a dilutive share issue increases among investors. Boskalis might make a move in this scenario, but preferably having visibility on Subsea and Geoscience disposals; (3) given the increased M&A activity in the global oil services market, other companies might be interested in acquiring Fugro, in which case Boskalis will be an important shareholder to speak with. It is not too difficult to see the potential value creation in this for Boskalis, although currently it is difficult to see the real direction in which Fugro is moving.

Fig 13 Boskalis target price (€)

Boskalis Dredging & Offshore 2016F 34.39

Tugboats 2016F 7.68 Fugro (current share price) 2.84 Total 44.91 Target price 45.00

Source: ING estimates

8 Boskalis September 2015

Risk factors The main upside risks to our HOLD recommendation: (1) an unexpectedly strong performance in the Dredging and Offshore Energy divisions, with business remaining at peak margins; (2) a strong and lasting recovery of the oil price, which would create a significant change in sentiment towards equities in this field – and even if oil majors do not immediately launch new projects, discussions and planning will resume quickly; (3) Boskalis is able to buy good quality assets at distressed prices, creating future value and cash flow; and (4) Boskalis hits the capex breaks and outpaces our NWC expectations, bringing a large pile of cash. The downside risks to our HOLD: (1) the oil price worsens further, resulting in lower prices for offshore equipment and intensified competition; (2) a Chinese hard or soft economic landing starts to impact global GDP growth, which would also impact port and wet infrastructure projects; and (3) our cautious 2015-16F operating margin assumptions prove overly aggressive.

9 Boskalis September 2015

Financials

Year end Dec (€m) 2010 2011 2012 2013 2014 2015F 2016F 2017F

Income statement

Revenues 2,713 2,810 3,095 3,635 3,178 3,051 2,859 2,826 Cost of goods sold (1,595) (1,670) (1,947) (2,259) (1,775) (1,791) (1,780) (1,784) Gross profit 1,118 1,140 1,148 1,377 1,403 1,260 1,079 1,042 Operating costs (496) (550) (580) (576) (514) (495) (464) (459) EBITDA 621 590 568 800 889 765 615 583 Depreciation & amortisation (220) (236) (231) (334) (294) (292) (293) (296) Impairments 0 0 0 0 0 0 0 0 EBIT 402 354 337 466 596 473 321 287 Net interest (37) (40) (34) (55) (36) (31) (25) (24) Associates 25 2 0.3 20 56 79 94 103 Other pre-tax items 0 0 0 0 0 0 0 0 Pre-tax profit 390 316 303 431 616 520 391 366 Tax (77) (55) (50) (64) (124) (66) (63) (56) Minorities (2) (7) (3) (0.8) (2) (1) (1) (1) Other post-tax items 0 0 0 0 0 0 0 0 Net profit 311 254 250 366 490 453 327 309 Normalised EBITDA 621 590 568 800 889 765 615 583 Normalised EBIT 402 354 337 466 596 473 321 287 Normalised net profit 311 254 250 366 490 453 327 309

Balance sheet

Tangible fixed assets 2,179 2,206 2,261 2,627 2,744 2,600 2,581 2,565 Intangible fixed assets 594 596 596 566 518 518 518 518 Other non-current assets 80 164 306 465 1,097 1,196 1,196 1,196 Cash & equivalents 358 398 398 330 396 378 378 377 Other current assets 1,105 1,310 1,327 1,334 1,158 1,185 1,226 1,319 Total assets 4,315 4,674 4,889 5,321 5,913 5,876 5,898 5,975 Short-term debt 104 128 390 10 80 80 80 80 Other current liabilities 1,907 2,119 1,977 1,814 1,850 1,664 1,570 1,554 Long-term debt 705 680 605 965 823 598 588 573 Other long-term liabilities 0 0 0 0 0 0 0 0 Total liabilities 2,716 2,926 2,973 2,789 2,753 2,342 2,239 2,207 Total equity 1,599 1,747 1,916 2,532 3,160 3,534 3,660 3,768 Total liabilities & equity 4,315 4,674 4,889 5,321 5,913 5,876 5,898 5,975 Capital employed 2,409 2,555 2,912 3,507 4,063 4,212 4,328 4,421 Net working capital (744) (771) (617) (485) (719) (641) (601) (594) Net debt (cash) 452 410 598 644 507 300 290 276

Cash flow

Cash flow EBITDA 646 593 568 820 946 844 709 686 Change in working capital 158 27 (154) (47) 234 (78) (40) (7) Other non-cash items 49 (19) (6) (81) (12) 0 0 0 Operating cash flow 854 600 409 692 1,167 765 669 679 Cash interest paid (30) (45) (30) (43) (36) (31) (25) (24) Cash taxes paid (64) (76) (50) (47) (124) (122) (63) (56) Net cash from operating activities 760 480 328 603 1,007 613 581 599 Capex (297) (293) (314) (293) (280) (250) (275) (280) Net acquisitions (731) (105) (160) (235) (44) 0 0 0 Other net investing cash flows 33 119 39 78 (217) 3 0 0 Cash from investing activities (995) (280) (435) (450) (541) (247) (275) (280) Increase (decrease) in equity 0 0 0 0 0 0 0 0 Increase (decrease) in debt 910 (78) 199 (377) (125) (225) (10) (15) Dividends & minority distribution (29) (45) (40) (43) (45) (49) (201) (201) Other financing cash flow (569) (22) (46) (4) 0.5 0 0 0 Cash from financing activities 312 (145) 113 (425) (169) (274) (211) (216) Forex & discontinued operations (569) (22) (46) (4) 0.5 0 0 0 Net change in cash & equivalents (492) 33 (40) (276) 298 92 95 103 FCF 526 350 84 431 789 496 331 343

Normalised earnings (eg, EBITDA, EBIT, net income and other sector-specific line items) are in the opinion of the analyst the best representation of a company's underlying and sustainable earnings derived from its regular operating activities. Source: Company data, ING estimates

10 Boskalis September 2015

Valuation, ratios and metrics

Year end Dec 2010 2011 2012 2013 2014 2015F 2016F 2017F

Performance & returns

Revenue growth (%) 24.3 3.6 10.2 17.4 -12.6 -4.0 -6.3 -1.2 Normalised EBITDA growth (%) 38.3 -5.0 -3.8 40.8 11.2 -14.0 -19.6 -5.2 Normalised EBIT growth (%) 61.2 -11.9 -4.9 38.3 27.9 -20.7 -32.0 -10.8 Normalised EPS growth (%) 20.5 -20.1 -4.6 30.4 30.6 -10.6 -27.9 -5.5 Gross margin (%) 41.2 40.6 37.1 37.9 44.2 41.3 37.7 36.9 Normalised EBITDA margin (%) 22.9 21.0 18.4 22.0 28.0 25.1 21.5 20.6 Normalised EBIT margin (%) 14.8 12.6 10.9 12.8 18.8 15.5 11.2 10.1 Reported net margin (%) 11.4 9.0 8.1 10.1 15.4 14.9 11.4 10.9 Reported ROE (%) 21.7 15.4 13.8 16.5 17.3 13.6 9.1 8.3 Normalised ROA (%) 11.3 7.9 7.0 9.1 10.6 8.0 5.5 4.8 ROAIC (%) 17.8 11.2 10.5 13.1 12.5 8.5 6.1 5.3 ROACE (%) 21.2 14.3 12.3 14.5 15.7 11.4 7.5 6.6 ROACE - WACC (%) 13.9 7.0 5.0 7.2 8.4 4.1 0.21 -0.76

Leverage & solvency

Working capital as % of sales -27.4 -27.4 -19.9 -13.4 -22.6 -21.0 -21.0 -21.0 Net debt (cash)/EBITDA (x) 0.73 0.69 1.1 0.81 0.57 0.39 0.47 0.47 Net debt (cash)/equity (%) 28.2 23.4 31.2 25.4 16.1 8.5 7.9 7.3 EBITDA net interest coverage (x) 16.9 14.6 16.5 14.5 24.7 24.5 24.7 24.4 Current ratio (x) 0.73 0.76 0.73 0.91 0.81 0.90 0.97 1.0 Dividend cover (cash flow) (x) 11.7 7.8 2.4 10.0 17.9 10.5 2.5 2.6

Valuation

EV/revenue (x) 2.2 2.1 2.0 1.7 1.9 1.9 2.0 2.0 EV/normalised EBITDA (x) 9.6 10.0 10.7 7.6 6.7 7.5 9.4 9.9 EV/normalised EBIT (x) 14.8 16.6 18.1 13.1 10.0 12.2 17.9 20.1 EV/capital employed (x) 2.5 2.3 2.1 1.7 1.5 1.4 1.3 1.3 EV/invested capital (x) 2.5 2.3 2.1 1.7 1.5 1.4 1.3 1.3 Normalised PER (x) 14.4 18.0 18.9 14.5 11.1 12.4 17.2 18.2 Price/book (x) 2.9 2.6 2.5 2.1 1.7 1.6 1.5 1.5 Dividend yield (%) 2.8 2.8 2.8 2.8 3.6 3.6 3.6 3.6 FCF yield (%) 8.8 5.9 1.4 7.0 13.2 8.6 5.7 6.0

Per share data

Reported EPS (€) 3.11 2.48 2.37 3.09 4.03 3.61 2.60 2.46 Normalised EPS (€) 3.11 2.48 2.37 3.09 4.03 3.61 2.60 2.46 Dividend per share (€) 1.24 1.24 1.24 1.24 1.60 1.60 1.60 1.60 Equity FCFPS (€) 4.96 2.98 0.51 3.28 6.19 3.70 2.44 2.54 BV/share (€) 15.66 16.92 17.96 21.32 25.92 28.07 29.07 29.93

Source: Company data, ING estimates

Company profile Royal Boskalis Westminster is a global company operating in Dredging (54% of EBIT in 2013), Towage and Salvage (14%) and Offshore Energy (32%), in more than 75 countries across 6 continents. Its core activities include the construction and maintenance of harbours and waterways, the creation of land in water, coastal defence and riverbank protection. The Offshore activities support clients in the global energy sector under the Boskalis and Dockwise brands. Boskalis has significant harbour towage positions in the ports of Rotterdam, Antwerp and Brazil, as well as JVs in the LNG terminal markets.

11 Boskalis September 2015

Disclosures Appendix ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES For disclosures on companies other than the subject companies of this report visit our disclosures page at http://research.ing.com or write to The Compliance Department, ING Financial Markets LLC, 1325 Avenue of the Americas, New York, USA, 10019. US regulatory disclosures • The following subject company/ies of this report are or have been a client of ING Financial Markets LLC or an affiliate within the last 12 months and have received investment banking services: Koninklijke Boskalis Westminster NV Valuation & risks: For details of the methodologies used to determine our price targets and risks related to the achievement of these targets refer to main body of report and/or the most recent equity company report at http://research.ing.com. Research analyst(s): The research analyst(s) for this report may not be registered/qualified as a research analyst with the NYSE and/or NASD. The research analyst(s) for this report may not be an associated person of ING Financial Markets LLC and therefore may not be subject to Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by the research analyst’s account. European regulatory disclosures • The following subject company/ies of this report are or have been party to an investment banking agreement with one or more members of ING Group over the last 12 months: Koninklijke Boskalis Westminster NV The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Financial interests: One of more members of ING Group may hold financial interests in the companies covered in this report other than those disclosed above. Securities prices: Prices are taken as of the previous day’s close on the home market unless otherwise stated. Job titles. The functional job title of the person/s responsible for the recommendations contained in this report is equity research analyst unless otherwise stated. Corporate titles may differ from functional job titles. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com. Other disclosures Target prices, where included, are based on reasonable assumptions supported by objective data. Unless otherwise stated, neither historic share price performance data nor ING projections on potential share price performance reflect the impact of commissions, fees and charges. Past performance is not indicative of future results. Forecasts are not a reliable indicator of future performance. FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.

RATING DISTRIBUTION (as of end 2Q15) RATING DEFINITIONS

Equity coverage Investment Banking clients* Buy: Forecast 12-mth absolute total return greater than +15% Buy 47% 53% Hold: Forecast 12-mth absolute total return of +15% to -5% Hold 48% 62% Sell: Forecast 12-mth absolute total return less than -5% Sell 5% 13% 100% Total return: forecast share price appreciation to target price plus forecast annual dividend. Price volatility and our preference for not changing recommendations too * Percentage of companies in each rating category that are Investment Banking frequently means forecast returns may fall outside of the above ranges at times. clients of ING Financial Markets LLC or an affiliate.

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PRICE & RATINGS HISTORY TO 04/09/15: BOSKALIS (BOSN.AS)

55

50

45 H B

40

35

30 B

25 3/9/12 3/12/12 3/3/13 3/6/13 3/9/13 3/12/13 3/3/14 3/6/14 3/9/14 3/12/14 3/3/15 3/6/15 3/9/15

Price Target price

B = Buy; H = Hold; S = Sell; NR = Not Rated; R = Restricted Chart shows ING coverage: current analyst may or may not have covered the stock for the entire period shown Where ING coverage is longer than three years, chart shows recommendation current at start of the share price history Source: ING

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Boskalis September 2015

AMSTERDAM BRUSSELS LONDON NEW YORK SINGAPORE Tel: 31 20 563 8758 Tel: 32 2 547 7534 Tel: 44 20 7767 1000 Tel: 1 646 424 6000 Tel: 65 6535 3688

Bratislava Frankfurt Madrid Paris Sofia Tel: 421 2 5934 6111 Tel: 49 69 75936 519 Tel: 34 91 789 8880 Tel: 33 1 56 39 32 84 Tel: 359 2 917 6400

Bucharest Geneva Manila Prague Taipei Tel: 40 21 222 1600 Tel: 41 22 592 3079 Tel: 63 2 479 8888 Tel: 420 257 474 111 Tel: 886 2 8729 7600

Budapest Hong Kong Mexico City Sao Paulo Tokyo Tel: 36 1 235 8800 Tel: 852 2848 8488 Tel: 52 55 5258 2000 Tel: 55 11 4504 6000 Tel: 81 3 3217 0301 Buenos Aires Istanbul Milan Seoul Warsaw Tel: 54 11 4310 4700 Tel: 90 212 335 1000 Tel: 39 02 55226 2468 Tel: 82 2 317 1800 Tel: 48 22 820 5018 Dublin Kiev Moscow Shanghai Tel: 353 1 638 4000 Tel: 380 44 230 3030 Tel: 7 495 755 5400 Tel: 86 21 2020 2000

Research offices: legal entity/address/primary securities regulator Amsterdam ING Bank NV, Foppingadreef 7, Amsterdam, Netherlands, 1102BD. Netherlands Authority for the Financial Markets Brussels ING Belgium SA/NV, Avenue Marnix 24, Brussels, Belgium, B-1000. Financial Services and Market Authority (FSMA) Bucharest ING Bank NV Amsterdam - Bucharest Branch, 48 Iancu de Hunedoara Bd, 011745, Bucharest 1, Romania. Financial Supervisory Authority, Romanian National Bank Budapest ING Bank NV Hungary Branch, Dozsa Gyorgy ut 84\B, H - 1068 Budapest, Hungary. National Bank of Hungary Frankfurt ING-DiBa AG, Theodor-Heuss-Allee 2, 60486 Frankfurt, Germany. Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) Istanbul ING Bank AS, ING Bank Headquarters, Resitpasa Mahallesi Eski Buyukdere Cad. No.8, 34467 Sariyer, Istanbul, Turkey. Capital Markets Board London ING Bank NV London Branch, 60 London Wall, London EC2M 5TQ, United Kingdom. Financial Conduct Authority Manila ING Bank NV Manila Branch, 20/F Tower One, Ayala Triangle, Ayala Avenue, 1226 Makati City, Philippines. Philippine Securities and Exchange Commission Milan ING Bank NV Milano, Via Arbe, 49, Milano, Italy, 20125. Commissione Nazionale per le Società e la Borsa Moscow ING Bank (Eurasia) JSC, 36, Krasnoproletarskaya ulitsa, 127473, Moscow, Russia. The Central Bank of Russia New York ING Financial Markets LLC, 1325 Avenue of the Americas, New York, United States,10019. Securities and Exchange Commission Prague ING Bank NV, Prague Branch, Českomoravská 2420/15, Prague 9, Czech Republic. Czech National Bank Singapore ING Bank NV Singapore Branch, 19/F Republic Plaza, 9 Raffles Place, #19-02, Singapore, 048619. Monetary Authority of Singapore Warsaw ING Securities SA, Ul. Pulawska 2, Warsaw, Poland, 02-566. Polish Financial Supervision Authority

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EQ Additional information is available on request

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