This Dutch company could help us tame floods

If there's one country that knows how to manage flood defences, it's the Netherlands. Matthew Partridge explains why this Dutch company is set to benefit.


Climate change means flooding will become more common

Ever since Christmas, flooding around the country has dominated the headlines.

Thousands of people have had to leave their homes. Many are without power.

But there are some grounds for optimism in the long-term, anyway.

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That's because there are some viable options that don't involve giving up, or leaving people to fend for themselves.

Indeed one European country has developed particular expertise in flood control the Netherlands.

And as global demand for flood management services grows, at least one Dutch company looks set to benefit.

The Dutch have been forced to become experts in flood control

While the Netherlands, Belgium, England and Scotland were all affected Holland suffered the worst with nearly 2,000 deaths. 300,000 people ended up losing their homes.

This was a major wake-up call to the Dutch. They realised that something had to be done. With 20% of the Netherlands below sea level, and only half significantly above, the only real option was to build defences that could withstand higher tides. As a result, the Dutch built a huge network of dykes and fortifications.

Since then the basic policy has remained, with a law passed in 1990 ensuring that the coastline cannot be abandoned.

The government has also ploughed billions into periodic upgrades of the sea defences to take account of rising sea levels. Floods from Alpine snow in 1993 and 1995 have also forced them to focus on building up river defences.

Of course, it isn't simply a case of building bigger and tougher sea walls. The Dutch have been forced to become experts in modelling the movement of water, so they can predict the impact of storms.

They have also worked out how to use trees to take the force out of waves and dredge rivers to increase their storage capacity. To find enough sand to create the beaches that will maintain the coastline, they are mining the North Sea.

The success of this is shown by the fact that the Netherlands has not been flooded from the sea since 1953. While there has been a tiny amount of managed retreat', this has been confined to a few small areas next to the banks of major rivers.

Overall, the Dutch are confident that in most places they are now protected against anything other than a one-in-10,000-year event.

Demand for Dutch know-how is growing

Take the United States. In the past, America has spent extremely little on preventing floods, even as hundreds of billions were wasted elsewhere. The big problem has been that there isn't one single body tasked with tackling flood control. Instead, responsibility is split between city, state and national agencies.

There's also been a reluctance to spend money on flood control projects where the benefits may not become obvious for a long time.

As a result, between 1985 and 2004, the US government has spent 15 times more on flood relief than on flood prevention.

Thankfully, policy seems to be changing. This is partly due to the fact that the 2012 floods in New York grabbed people's attention in a way that previous floods didn't.

Ironically, the lack of past investment means that new projects have very high rates of return. Indeed, the American Society of Civil Engineers thinks that every dollar in improving levies could save $6 in disaster relief.

For instance, last year New York's outgoing mayor, Mike Bloomberg, proposed a massive $20bn programme to defend the city against a repeat of Hurricane Sandy. In a rare show of unity, Congress has also passed a major investment in flood control that could result in as much as $12.5bn of new spending.

Other countries are also opening their wallets. Japan has increased its annual spending to $8.5bn. Overall, the World Bank estimates that flood prevention could take a large chunk of the $130bn that it thinks will be spent each year by 2030 to combat the effects of climate change.

Arcadis - a company well-placed to benefit from all this

Arcadis (LSE:0N6B) is an engineering firm that provides advice and management services for a range of infrastructure projects. The company is especially focused on water and the environment.

Arcadis is involved in a large number of projects, including ongoing work to protect New Orleans from a repeat of Hurricane Katrina which involves improving over 110 miles of levees. Arcadis has also been commissioned by New York to develop Mayor Bloomberg's proposal further.

Thanks to fast growing revenue, the company's price/earnings ratiois set to fall from just under 19 now to 13.2 by 2015. It also has a dividend yield of 2%.

So if you think more floods are likely in the years to come, Arcadis could be a decent investment.

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Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri