Boskalis_Annual Report_2017

ANNUAL REPORT 2017 – BOSKALIS 55

incurred, then the choice can be made to convert the LOF into a contract based on a daily hire fee, thus limiting the fnancial risks. Contracts for salvaging sunken vessels (wrecks) are usually carried out on a lump sum basis. The contracting and execution of such projects, which in many cases do involve a tendering procedure, are subject to the customary procedures for contracting and execution activities applicable within the company. Some of the equipment within the Offshore Energy division, as well as in some of the strategic joint ventures, is chartered out for relatively short periods (spot markets), mainly subject to standard conditions. The challenging conditions in the oil and gas sectors have reduced the volume of work under long-term contracts and resulted in an increased share of the spot market activities. Although the operational risks involved in such activities are generally relatively limited, they do result in increased utilization and pricing risk, which we aim to mitigate through adequate capacity and strict cost control management. ENVIRONMENTAL AND SOCIAL RISKS To gain insight into the relevance and importance of environmental and social topics, Boskalis engages with its stakeholders and regularly conducts a materiality analysis. The outcome of this engagement is reflected in our CSR report in a materiality matrix. The nature of most of our activities implies that we have an impact on society and the environment. In most cases this impact will be positive, for example when we are involved in creating infrastructure, making land safer or facilitating the transition to renewable energy sources such as offshore wind. However, a potential negative impact during the execution of projects cannot be ruled out. Environmental risks include the impact on biodiversity in vulnerable ecosystems and the emissions produced by our vessels. Boskalis has developed the innovative Building with Nature program and has an in-house engineering department to address ecological aspects from the early tender stage through to monitoring during execution. CO 2 emissions are measured and reported and Boskalis is seeking means by which it can reduce its emissions footprint. Social risks include the impact of projects on local communities. The extent to which our activities have a social impact is highly dependent on the type and/or location of a project. Where relevant, we implement a social impact program and work with our clients to mitigate the impact and where possible make a positive contribution to communities affected by our activities. ICT RISKS Like most companies, Boskalis is faced with an increase in ICT security risks and more sophisticated levels of computer crime. Successful cyberattacks can result in signifcant costs as well as other negative consequences, such as loss of revenue, reputational damage, remediation costs and other liabilities to stakeholders. Furthermore, enhanced protection measures place additional fnancial and operational burdens on the business. To help mitigate these risks Boskalis has developed information security policies and practices based on the international Code of Practice for Information Security Management. During the year under review we continued the monitoring of suspicious activity on our

ICT infrastructure and new initiatives were taken to enhance awareness of information security risks among our staff and prompt an appropriate response to any unusual activity.

LOCAL WORKING CONDITIONS RISKS Local management on projects and operations must have a proper understanding of the local (working) conditions. The scale of local operations is often too small to warrant a full-fledged organization, including extensive support services and staff departments. This is addressed through regular visits by responsible managers and employees from the relevant business units and support from central staff departments at head offce as well as by involving (local) external advisors. POLITICAL AND CREDIT RISKS These include risks related to unrest or disruption due to political developments and violence, and the risk of non-payment by clients. Boskalis operates strict acceptance, credit and hedging policies with respect to political and payment risks. Other than in the case of very strong, creditworthy clients with an undisputed credit history, all substantial credit risks are normally covered by means of credit insurance, bank guarantees and/or advance payments. Revenues and earnings are only recognized in the accounts where there is suffcient certainty that they will be realized. LIQUIDITY AND FUNDING RISKS As is customary for a contractor, Boskalis also has signifcant obligations outstanding in the form of guarantees from banks and insurance companies, mainly in favor of clients. Given that the availability of suffcient credit and bank guarantee facilities is essential to the continuity of the business, Boskalis’ funding policy is aimed at maintaining a strong fnancial position. Solid balance sheet ratios and the use of diversifed sources of funding provide for ample capacity to absorb liquidity risks and the constant creation of adequate borrowing capacity and guarantee facilities. The company has ample credit and bank guarantee facilities at its disposal and operates well within the agreed covenants under its fnancing agreements. CURRENCY RISKS The functional currency of Boskalis is the euro. Several business units, especially in Heavy Marine Transport, as well as several substantial strategic joint ventures (Smit Lamnalco, Keppel Smit Towage, Asian Lift, Saam Smit Towage) use other functional currencies. The most important of these is the US dollar, followed by the Singapore dollar. The revenues and expenses of these entities are largely or entirely based on these non-euro currencies. Our holdings in these entities are viewed from a long-term perspective. Exchange rate risks related to these entities are not hedged as it is assumed that currency fluctuations and developments in interest rates and inflation will offset each other in the long term. FINANCIAL RISKS