Boskalis_Annual_Report_2016

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2016. The Board of Management has defined a policy to control foreign currency risk based on the hedging of material transactions in foreign currencies by Group companies other than the functional currency. The policy is that these Group companies hedge their currency risks, if material, resulting from operational transactions in currencies other than their functional currency. This is mainly relevant for Group companies involved in dredging or offshore projects. The functional currency of a large part of the activities of Group companies is the euro. The expenses of these companies are mainly presented in euros and to a lesser extent in the local currency of the country in which the activities are undertaken. The Group contracts projects mainly in euro, US dollars, pounds sterling and currencies which are pegged to the US dollar. Consequently, the reported financial results and cash flows of the respective operations are exposed to foreign currency risk. The exchange rate of the US dollar and the euro are most relevant in this respect. The Board of Management has defined a policy to mitigate foreign risks by hedging the foreign currency exposure of operational activities, in most cases through forward currency contracts.

The Group uses derivative financial instruments only to hedge related transactions, mainly from future cash flows from contracted projects. The Group applies hedge accounting for its cash flow hedges.

Exposure to currency risk The Group’s currency risk management policy was maintained in 2016 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

2015

2015

2016

2016

Euro

US Dollar

1.112 1.527

1.086 1.541

1.102 1.526

1.055 1.524

Singapore Dollar

Currency translation risk Currency translation risk arises mainly from the net asset position of subsidiaries, associated companies and joint ventures, whose functional currency is different than the presentation currency of the Group. Investments are viewed from a long-term perspective. Currency risks associated with investments in these affiliated companies are not hedged, under the assumption that currency fluctuations and interest and inflation developments balance out in the long run. Items in the statements of profit or loss of these subsidiaries are translated at average exchange rates. Currency translation differences are charged or credited directly to equity.

Euro ANNUAL REPORT 2016 – BOSKALIS FINANCIAL STATEMENTS 2016 US dollar Singapore dollar

At the reporting date the net asset positions of the main subsidiaries, associated companies and joint ventures in functional currencies other than the euro were as follows:

31 DECEMBER

2015

2016

1,947,880

1,058,871

206,439

157,255

2,154,319

1,216,126

For the 2016 financial year, profit before tax, excluding the effect of non-effective cash flow hedges would have been EUR 26.5 million lower (2015: EUR 12.4 million higher) if the corresponding functional currency had strengthened by 5% in comparison to the euro with all other variables, in particular interest rates, held constant. This would have been mainly as a result of currency exchange effects on translation of the result of the above-mentioned affiliates denominated in US dollars. The total impact on the currency translation reserve would have amounted to about EUR 66 million positive (2015: approximately EUR 102 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 remained constant.