Annual report 2019

123

a one-on-one relationship and in principle in a hedge ratio of one. The Group tests the economic relationship of the hedges periodically.

Exposure to currency risk The Group’s currency risk management policy was maintained in 2019 and resulted in a non-material sensitivity of the Group to currency transaction risk.

The following significant exchange rates applied during the year under review:

Average rate

Spot rate as at 31 December

2018

2018

2019

2019

Euro

US Dollar

1.180 0.886 1.590

1.143 0.898 1.558

1.121 0.876 1.527

1.123 0.847 1.509

Pound Sterling Singapore Dollar

Currency translation risk Currency translation risk arises mainly from the net asset position of net investments in foreign operations. Investments are viewed from a long-term perspective. Currency risks associated with such net investments in foreign operations are not hedged by means of derivatives based on the assumption that currency fluctuations and interest rate and inflation developments balance out in the long run. Items in the statement of profit or loss of these subsidiaries are translated at average exchange rates. Currency translation differences are charged or credited directly to equity.

At the reporting date the net investments in foreign operations were as follows:

31 DECEMBER

2018

2019

Euro

US dollar

746,524 92,665 107,346 946,535

711,374 75,256 95,554 882,184

Pound Sterling Singapore dollar

The Group has mitigated its currency translation risk by formally designating its US Private Placement loan (see note 24), amounting to USD 325 million (EUR 289 million as at 31 December 2019), for its remaining duration, as a hedge for some of its USD net investments in foreign operations. Consequently, the currency loss of EUR 5.2 million on this loan is accounted for in Currency translation differences on foreign operations (see note 23.6.3), partly offsetting the currency result on the translation of Group investments. For the 2019 financial year, profit before tax, excluding the effect of non-effective cash flow hedges would have been EUR 2.1 million lower (2018: EUR 3.6 million lower) if the corresponding functional currency had strengthened by 5% in comparison to the euro, with all other variables, in particular interest rates remaining constant. This would have been mainly as a result of currency exchange effects on translation of the result of the above-mentioned net investments in foreign operations denominated in US dollars. The total impact on the currency translation reserve would have been around EUR 46 million positive (2018: approximately EUR 49 million positive). A 5% weakening of the corresponding functional currency against the euro at year-end would have had the same but opposite effect, assuming that all other variables had remained constant.

ANNUAL REPORT 2019 – BOSKALIS A 9 -- BOSKALIS