Annual report 2019

128

CAPITAL MANAGEMENT The Board of Management’s policy is to maintain a strong capital base so as to maintain customer, investor, creditor and market confidence and to support the future development of the business. The Board of Management monitors the return on equity, which the Group defines as net operating income divided by total shareholders’ equity, excluding minority interests. The Board of Management also monitors the level of dividend to be paid to holders of ordinary shares. For the dividend policy, see the Shareholders Information in the Annual Report. The Board of Management seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the benefits of a sound capital position. The Group’s target is to achieve a long-term return on equity of at least 12%. In 2019 the return was 3.0% (2018: 15.7% negative, adjusted for after-tax extraordinary charges, including those within joint ventures, the return on equity for 2018 was 3.0% positive). The Group’s solvency calculated as the ratio of total liabilities (EUR 2,102 million, 2018: EUR 1,992 million) to Group equity (EUR 2,495 million; 2018: EUR 2,548 million) amounted to 0.84 (2018: 0.78) at the reporting date. OTHER FINANCIAL INSTRUMENTS By decision of the General Meeting of Shareholders held on 9 May 2001 the foundation Stichting Continuïteit KBW (the ‘Foundation’) was granted the right to acquire cumulative protective preference shares in Royal Boskalis Westminster N.V. for an amount equal to the nominal amount of the ordinary shares outstanding at the time of issue of the shares concerned, minus the nominal value of one ordinary share. This right qualifies as a derivative financial liability and is subject to the following important conditions. The cumulative protective preference shares shall only be issued to the Foundation against payment of at least one fourth of the nominal sum. Additional payments on cumulative protective preference shares shall only take place after Royal Boskalis Westminster N.V. will have called these payments. After the issue of cumulative protective preference shares to the Foundation, Royal Boskalis Westminster N.V. is obliged, if the Foundation so requires, to reverse the issue by buyback or by cancellation with repayment, at the discretion of Foundation. The dividend regarding the cumulative protective preference shares, if issued, is equal to the average of the Euribor interest, calculated for loans with a term of one year – pro rata the number of days to which such percentage applied – during the financial year for which the distribution is made, plus a maximum of four percentage points. The lastly mentioned increase shall be determined by the Board of Management, subject to the approval of the Supervisory Board. The interest and credit risk is limited. The fair value of the option right is zero. The option of issuing such cumulative protective preference shares was not exercised during the period under review. There were no changes in the Group’s approach to capital management during the year. Neither the Group nor any Group companies are subject to externally imposed capital requirements.

ANNUAL REPORT 2019 – BOSKALIS FINANCIAL STATEMENTS 2019 L 9 -- BOSKALIS FINANCIAL STATEMENTS 2019