Boskalis Annual Report 2018

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3.4 FINANCIAL INSTRUMENTS

are recognized as finance income and finance expenses and otherwise in the related items within operating result. The purchase or sale of financial instruments is generally recorded at transaction rate. Derivatives are stated at fair value; attributable transaction costs are recognized in the Statement of Profit or Loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described. 3.4.3 NET INVESTMENT HEDGING Foreign currency differences on loans and other borrowings that are assigned to net investment hedging of group companies that have a functional currency other than the euro are treated similarly to cash flow hedges. These translation differences are recognized in other comprehensive income and are accumulated in the currency translation reserve. A possible ineffective portion is included in the profit or loss. When the relevant group company is disposed or sold the accompanying portion in the accumulated Currency Translation Reserve is reclassified to profit or loss. 3.5 IMPAIRMENT At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If an indication of impairment exists, then the recoverable amount of the asset is estimated. Goodwill and intangible assets with an indefinite useful life are tested annually for impairment. The recoverable amount of an asset or cash-generating unit (or group of units) is the higher of its value in use and its fair value less cost of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a pre- tax discount rate that reflects the current market assessments, the time value of money and the risks specific to the asset or the cash-generating unit. An impairment charge is recognized when the carrying amount of an asset or the cash generating unit to which it belongs exceeds its recoverable amount. Impairment charges are recognized in the statement of profit or loss. Impairment charges recognized in respect of a cash generating unit are allocated first to reduce the carrying amount of any goodwill allocated to that cash-generating unit and, if applicable, subsequently to reduce the carrying amounts of the other assets of that cash-generating unit on a pro rata basis. An impairment charge on goodwill is not reversed. For other assets an impairment charge is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment charge had been recognized. For unbilled revenue and financial assets measured at amortized cost the Group recognizes a loss allowance based on the expected loss on unbilled revenue and on receivables. The Group assesses unbilled revenue, the aging of the receivables and specific information to establish a provision

3.4.1 CLASSIFICATION OF FINANCIAL INSTRUMENTS The classification of financial assets is based on the nature and purpose of the financial asset in relation to the Group’s business activities. Financial assets, amongst other trade receivables, that arise from the Group’s business operations are held to receive the contractual cash flows. These assets are measured at amortized costs less any allowance for impairment of financial instruments. Except for derivatives, financial liabilities are measured at amortized cost. Derivatives are measured at fair value with measurement changes through profit or loss, with the exception of hedges (derivatives assigned to a hedged position) for which fair value changes are included in the cash flow hedge reserve. The Group uses derivatives to mitigate risks and assigns them to hedged positions. 3.4.2 DERIVATIVES AND CASH FLOW HEDGING It is the policy of the Group to use cash flow hedges to cover all operational currency risks, which mainly relate to future cash flows from contracts which are denominated in currencies other than the relevant functional currency, if it is highly probable that such cash flows will be realized. Fuel price risks and interest rate risks relating to future cash flows can be hedged from time to time using specific derivatives. Hedge accounting is applied to the majority of cash flow hedges as follows. On initial designation of the hedge the Group documents the relationship between the hedging instrument(s) and hedged item(s), including amongst other the risk management objectives, hedge strategy and the methods that will be used to assess the effectiveness of the hedge. The Group makes an assessment, both at the inception of the hedge relationship and on an ongoing basis, of the economic relationship between the hedging instruments and the underlying risk. For a cash flow hedge of a forecast transaction, the transaction should be deemed highly probable to occur and present an exposure to cash flow variations that could ultimately affect reported net income. including results realized on the ‘rolling forward’ of existing hedges as a result of differences between the duration of the hedges concerned and the underlying cash flows – will be directly added or charged to the hedging reserve in Group equity, taking into account the applicable taxation. If a cash flow hedge expires, is closed or settled, or if the hedge relationship with the underlying cash flows can no longer be considered effective, the accumulated result will continue to be recognized in Group equity as long as the underlying cash flow is still expected to take place. If and when the underlying cash flow actually takes place, the accumulated result is included directly in the Statement of Profit or Loss. Movements in the market value of cash flow hedges to which no hedge accounting is applied (ineffective cash flow hedges and the ineffective portion of effective cash flow hedges) are included in the Statement of Profit or Loss for the reporting period. Results from settled cash flow hedges and movements in the market value of ineffective cash flow hedges insofar these relate to non-current receivables, loans and other borrowings The application of hedge accounting means that movements in the market value of cash flow hedges not yet settled –

ANNUAL REPORT 2018 – BOSKALIS AN L REPORT 2018 -- BOSKALIS