Annual report 2019

127

The average rate of the USD forward contracts as per 31 December 2019 is USD 1.142 (31 December 2018: USD 1.198).

The Board of Management has established a currency risk management policy stipulating, amongst other things, approved currency risk management instruments, based on items such as the amount of expected foreign currency cash flows and the period of these cash flows related to Group currency risk thresholds. In the event of changes to a project timeline and related foreign currency cash flows, the Group evaluates the circumstances to ensure compliance with its risk management objectives and assesses whether a rollover of its position or an adjustment to the hedge is applicable. The economic relationship between the hedged risk and the assigned derivative is determined by their critical terms. In general the Group uses the same underlying volume and currency of the hedged risk for the derivative, which results in a 1:1 hedge ratio. Limited ineffectiveness occurs in these hedge relationships due to changes in the timing of the hedged transactions. The remaining time to maturity of these derivatives is directly linked to the remaining time to duration of the related underlying contracts in the order book.

Cash flows from forward currency buying and selling can be rolled forward at the settlement date if they differ from the underlying cash flows.

The results on cash flow hedges recognized in Group equity are as follows:

2018

2019

Hedging reserve as at 1 January

5,466

- 11,192

Movement in fair value of cash flow hedges recognized in Group equity

- 12,971

- 1,437

Recycled to the Consolidated Statement of Profit or Loss (raw materials, consumables, services and subcontracted work) Total directly recognized in Group Equity (Consolidated Statement of Other Comprehensive Income, in the item Movement in fair value of cash flows hedges)

- 7,445

5,185

- 20,416

3,748 - 531 3,217

Taxation

3,931

Directly charged to hedging reserve (net of taxes)

- 16,485

Change in fair value of cash flow hedges from joint ventures and associates, after taxation

- 173

- 11,501 18,955

Reclassification of hedge reserve to Statement of Profit or Loss

-

- 173

7,454

Balance of hedging reserve as at 31 December

- 11,192

- 521

Any spot elements of the hedges that are separated from the forward element and basic spread elements are included separately in the hedging reserve. At 31 December 2019 the cost of hedging was EUR 5.4 million negative (2018: EUR 6.2 million positive). During 2019, a decrease of EUR 12.0 million transcends a release of EUR 0.3 million (2018: EUR 7.4 million and a release of EUR 1.2 million respectively). The results on non-effective cash flow hedges are presented within the costs of raw materials, consumables, services and subcontracted work and amount to EUR 0.4 million positive in 2019 (2018: EUR 2.1 million negative).

The changes in fair values used to assess the effectiveness of the hedge relationships are as follows:

Derivatives

Hedged risk

2018

2018

2019

2019

USD

- 18,251 - 9,270

17,256

1,271 1,212

- 2,740

Other, including fuel hedges

8,869

- 354

Netting of financial instruments The Group does not net financial instruments in its statement of financial position.

ANNUAL REPORT 2019 – BOSKALIS A 19 -- BOSKALIS