Boskalis_Annual_Report_2016

ANNUAL REPORT 2016 – BOSKALIS 134 RISK

OUR AUDIT APPROACH

VALUATION FLOATING AND OTHER CONSTRUCTION EQUIPMENT (SEE NOTE 3.5, 3.7, 10 AND 16) Property, plant and equipment includes floating and other construction equipment amounting to EUR 2.5 billion as at 31 December 2016, which represents 45% of the balance sheet total. A deteriorating market outlook indicated the risk of impairment, specifically in certain market segments of the Offshore Energy division. Management performed impairment tests of their floating equipment. Their assessment of the valuation of floating and other construction equipment was significant to our audit because this process is complex and requires

In our audit approach we evaluated management’s assessment of impairment indications, tested management’s assumptions used in the value in use calculations and we assessed the historical accuracy of management’s estimates. We evaluated supporting external broker reports obtained by management to evaluate the fair value less cost of disposal, where applicable. We involved our valuation experts to assess the valuation model and to evaluate the discount rate used, performed sensitivity analyses where considered necessary, and assessed the consistency of valuation methodologies applied. Furthermore, we evaluated the adequacy of the company’s disclosures regarding the impairments of these property, plant and equipment. In our audit approach we evaluated the goodwill impairment testing model including the main assumptions used. This includes assessing the forecasted margins, working capital and investment levels and discount rate. The procedures performed include comparing assumptions to external data. Furthermore, we analysed sensitivities, compared the projected cash flows to budgets and management’s forecast and assessed the historical accuracy of management’s estimates. We included valuation experts in our team to assess the valuation models and parameters used and assist us with these procedures. We specifically focused on the sensitivities in the assumptions and calculations of the cash generating unit Offshore Energy, where the impairment loss was recognized. Furthermore, we evaluated the adequacy of the company’s disclosures regarding the impairments of goodwill. With respect to the first two transactions we have, amongst others, read the agreements, confirming the correct accounting treatment has been applied and appropriate disclosure has been made. For the acquisition of the offshore activities of VolkerWessels we evaluated the work of the management’s specialist used for the purchase price allocation. We also audited the identification and fair valuation of the assets and liabilities the group acquired. In doing so we have utilized valuation specialists to assist us. The transaction with KOTUG resulted in the derecognition of activities. We evaluated the work of the management’s specialist used for the company valuations. We also audited, amongst others, the valuation assumptions used by management in calculating the fair value of the consideration transferred. Furthermore, we evaluated the adequacy of the company’s disclosures regarding the acquisition and disposal. With respect to Fugro we have amongst others confirmed the correct accounting treatment and evaluated the adequacy of the company’s disclosures including the subsequent sale in the financial year 2017.

significant management judgments, such as of future market and economic conditions. Impairment charges of EUR 366.2 million were recognized in the profit and loss account of 2016.

VALUATION OF GOODWILL (SEE NOTE 3.5, 3.6, 10 AND 15) Goodwill amounts to EUR 0.3 billion as at 31 December 2016, which represents 5% of the balance sheet total. A deteriorating market outlook indicated the risk of impairment, specifically in certain market segments of the Offshore Energy division. Management’s annual goodwill impairment test is considered complex and requires significant management judgment with respect to future market and economic conditions, developments in revenue, margins, working capital levels and investments, which individually may have a material effect on the result of the calculation. Therefore it is significant to our audit. Impairment charges of EUR 382.3 million were recognized in the profit and loss account of 2016. ACCOUNTING FOR BUSINESS COMBINATIONS (SEE NOTE 3.2.5, 3.8 AND 5) During 2016 Boskalis acquired the offshore activities of VolkerWessels, including the remaining shares in the joint venture VBMS between VolkerWessels and Boskalis, thereby providing Boskalis control over VBMS. The acquisition is significant to our audit due to the impact on the financial statements and because of significant judgments and assumptions involved in the purchase price allocation. The increase in the goodwill recognized under intangibles related to this transaction amounted to EUR 154.9 million and a profit of EUR 39.8 million was recognized due to the step up of the existing interest in the joint venture. The company also completed the sale of its European harbor towage activities to KOTUG SMIT Towage, a joint venture company of the combined harbor towage activities of the partners in this area. The accounting treatment due to loss of control is largely based on management estimations about the fair value of the consideration transferred and the fair value of the identifiable assets acquired and liabilities assumed. This makes it significant to our audit. As part of the transaction a profit of EUR 34.0 million was recognized. In 2016 the Group reduced its participation in Fugro N.V. from 28.6% to 9.4%. The remaining investment was reclassified from associated company to an available-for-sale financial asset and is valued at the quoted price per year-end.