Boskalis Annual Report 2018

120 ANNUAL REPORT 2018 – BOSKALIS FINANCIAL STATEMENTS 2018 A UAL REP RT 2018 -- BOSKALIS FINANCIAL STATEMENTS 2018 120 Currency translation risk Euro US dollar Pound Sterling Singapore dollar Euro Expected cash flows in US dollars Expected cash flows in Australian dollars Expected cash flows in Pounds Sterling Expected cash flows in Indian rupees Expected cash flows in Swedish kroners Expected cash flows in euros Expected cash flows in other currencies Expected cash flows Cash flow hedges Net position

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

2017

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

891,111 88,906 131,834

1,111,851

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 283.6 million as at 31 December 2018), for its remaining duration, as a hedge for some of its USD net investments in foreign operations. Consequently, the currency loss of EUR 13,6 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 2018 financial year, profit before tax, excluding the effect of non-effective cash flow hedges would have been EUR 3,6 million lower (2017: EUR 3.9 million higher) 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 49 million positive (2017: approximately EUR 55 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. Currency transaction risk, excluding interest-bearing financing The currency transaction risk for net investments in foreign operations resulting from future operational transactions in currencies other than their functional currency can be summarized as follows:

2018

2017

275,885 - 6,158 45,735 13,760 34,593 - 1,675 17,365 379,505

176,892 - 9,770 61,182 83,486 44,082 - 32,016 12,805 336,661

- 372,070

- 330,077

7,435

6,584

Sensitivity analysis Due to the fact that expected future cash flows in foreign currencies are hedged, the sensitivity of financial instruments, excluding interest-bearing financing, to foreign currency risk is limited for the Group. The Group is mainly funded by interest-bearing borrowings denominated in US dollars (see note 24 ‘Interest- bearing borrowings’). The US Private Placements expressed in US dollars are used to partly hedge the net investments in Dockwise and Fairmount, including the intercompany financing provided. Therefore and due in part to hedge accounting, the sensitivity in the profit or loss account is limited for financing in currencies other than the euro.