Boskalis_Annual_Report_2016

ANNUAL REPORT 2016 – BOSKALIS 53

number of different ways. Where possible, contracts include fuel price variation clauses. Also, contracts are sometimes based on fuel being supplied by the client. In other cases, where the fuel price presents a substantial risk, exposure can be hedged by means of financial instruments, such as forward contracts or fixed fuel supply contracts. DERIVATIVES Financial derivatives are only used to hedge underlying currency risks, fuel cost risks or other risks where there is a physical underlying transaction. There is, however, a risk of losses arising from the unwinding or settlement of such financial derivatives due to cancellation of a contract or substantial reduction in the scope of a contract. COMPLIANCE WITH LEGISLATION AND REGULATIONS As an international dredging and marine contracting and services expert Boskalis is active in numerous countries, and therefore has to deal with a wide range of diverse legislation and regulations. Some of the activities are managed by Boskalis local management, but in many countries intermediaries and/or local representatives are used in securing and executing projects. This combination of factors results in a heightened risk that relevant (local) legislation and regulations may not be fully complied with. Events of non-compliance can result in regulatory investigations, litigations and/or sanctions. These risks are as much as possible mitigated by the company’s internal risk management and control systems, which are set out below. In addition, the company has a General Code of Business Conduct and a Supplier Code of Conduct, which are reviewed and evaluated regularly. Intermediaries and/or local representatives are also contractually bound to comply with our codes of conduct. Entering into contracts with local intermediaries and/or representatives is subject to clearly defined procedures. Furthermore, Boskalis has a whistleblower policy in place and a counselor to whom employees can report any suspected misconduct. PROPERTY DAMAGE AND THIRD-PARTY LIABILITIES Boskalis has taken out a broad package of insurances to cover against risks with respect to damage to its properties as well as third-party properties and potential other third-party liabilities. The above is an overview of what we currently consider to be the most important strategic, operational, financial and other risks we face in pursuing our business objectives. The overview is not exhaustive. There may be other risks which we currently do not consider to be significant, but which may manifest themselves as such. INTERNAL RISK MANAGEMENT AND CONTROL SYSTEMS The internal risk management and control systems of Boskalis are based on the principles of effective management control at various levels in the organization and are tailored to the day-to-day working environment in which the company operates worldwide. One of the main foundations for risk control is the internal culture OTHER RISKS

of the company, which is characterized by a high degree of transparency regarding the timely identification, evaluation and reporting of risks and a remuneration system that is geared to avoiding potentially perverse incentives. Given the hands-on nature of the company and the short lines of communication, there are three important factors in assessing and evaluating our internal risk management and control systems: 1. In the daily operations, the operational risk management and control is largely supported by an extensive framework of quality assurance rules, procedures and systems, in particular regarding the acquisition and execution of contracts. These include guidelines for responsibilities, powers and risk control. The adequacy of this framework is reviewed regularly, also considering the increasing diversity of the contracting and project activities the company performs in accordance with its strategy. In addition to audits by external certification agencies, Boskalis also performs regular internal audits under the auspices of the SHE-Q department. SHE-Q is discussed at the quarterly meetings between the Board of Management and the management of the business units, with the management of the SHE-Q department also being present. 2. The daily management of the organization is based on short lines of communication and command. Speed, know-how and decisiveness are of the essence, both in the tendering phase and in project execution. Daily management is hands-on. 3. The progress and development of the operating results and the financial position of individual projects and business units and the company as a whole, as well as the operational and financial risks, are monitored by means of structured periodical reporting, analysis of the financial results and performance reviews at Board of Management and senior management levels. FINANCIAL REPORTING STRUCTURE Financial reporting at Boskalis is structured within a tight framework of budgeting, reporting and forecasting. A distinction is made between reports for internal and external use. External reporting at group level consists of an annual report, including financial statements audited by the external auditor, as well as a half-year report, containing summarized financial information, both consolidated and segmented. The external reports are based on the internal financial reporting, in accordance with EU-IFRS. Internal financial reporting consists of extensive consolidated quarterly reports in which current developments are compared to the quarterly (cumulative) budgets and previous forecasts. In addition, each quarter we reiterate or update our forecast for the annual results, including the cash flow and balance sheet positions at the end of the financial year. The quarterly budgets are part of the annual group budget, which is prepared every year by the Board of Management and approved by the Supervisory Board. Internal financial reporting has a layered structure – in accordance with the internal allocation of management responsibilities – with consolidation taking place at successive levels, starting with the projects, through the business units and divisions, and resulting in consolidated group reports. The financial and operating results RISKS WITH REGARD TO FINANCIAL REPORTING