Boskalis Annual Report 2020
The Board of Management has defined a policy to control foreign currency risk based on the hedging by Group companies of material transactions in foreign currencies other than the functional currency. The policy is that these Group companies hedge any material currency risks resulting from operational transactions in currencies other than their functional currency. This is mainly relevant for Group companies involved in dredging or offshore energy 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 dollar, Pound Sterling and other currencies pegged to the US dollar. The Group only uses derivative financial instruments to hedge underlying business transactions, mainly future cash flows from contracted projects. In most cases forward currency contracts are used to hedge (foreign) currency cash flows other than the functional currency. Also, cash / bank overdraft balances are sometimes used to hedge currency exposures from future cash flows. The same currency and quantity are designated to the hedge, resulting in a one-on-one relationship and in principle in a hedge ratio of one. The Group tests the economic relationship of the hedges periodically. Exposure to currency risk The Group’s currency risk management policy was maintained in 2020 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:
Spot rate as at 31 December
1.121 0.876 1.527
1.123 0.847 1.509
1.146 0.885 1.574
1.224 0.895 1.617
Pound Sterling Singapore Dollar
Currency translation risk 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:
711,374 95,554 75,256 882,184
547,311 121,823 28,004 697,138
Pound Sterling Singapore dollar
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 265 million as at 31 December 2020), for its remaining duration, as a hedge for some of its USD net investments in foreign operations. Consequently, the currency profit of EUR 24 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 2020 financial year, profit before tax, excluding the effect of non-effective cash flow hedges would have been EUR 1.1 million lower (2019: EUR 2.1 million lower) 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 37 million positive (2019: approximately EUR 46 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.
ANNUAL REPORT 2020 – BOSKALIS ANNUAL REPORT 2020 -- BOSKALIS
Made with FlippingBook Publishing Software