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2016. The Board of Management has defined a policy to control foreign currency risk based on the
hedging of material transactions in foreign currencies by Group companies other than the functional
currency. The policy is that these Group companies hedge their currency risks, if material, resulting from
operational transactions in currencies other than their functional currency. This is mainly relevant for Group
companies involved in dredging or offshore 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 dollars, pounds sterling and currencies which are pegged to the US dollar.
Consequently, the reported financial results and cash flows of the respective operations are exposed to
foreign currency risk. The exchange rate of the US dollar and the euro are most relevant in this respect. The
Board of Management has defined a policy to mitigate foreign risks by hedging the foreign currency
exposure of operational activities, in most cases through forward currency contracts.
The Group uses derivative financial instruments only to hedge related transactions, mainly from future cash
flows from contracted projects. The Group applies hedge accounting for its cash flow hedges.
Exposure to currency risk
The Group’s currency risk management policy was maintained in 2016 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:
Average rate
Spot rate as at 31 December
Euro
2016
2015
2016
2015
US Dollar
1.102
1.112
1.055
1.086
Singapore Dollar
1.526
1.527
1.524
1.541
Currency translation risk
Currency translation risk arises mainly from the net asset position of subsidiaries, associated companies and
joint ventures, whose functional currency is different than the presentation currency of the Group.
Investments are viewed from a long-term perspective. Currency risks associated with investments in these
affiliated companies are not hedged, under the assumption that currency fluctuations and interest
and inflation developments balance out in the long run. Items in the statements 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 asset positions of the main subsidiaries, associated companies and joint
ventures in functional currencies other than the euro were as follows:
31 DECEMBER
Euro
2016
2015
US dollar
1,058,871
1,947,880
Singapore dollar
157,255
206,439
1,216,126
2,154,319
For the 2016 financial year, profit before tax, excluding the effect of non-effective cash flow hedges would
have been EUR 26.5 million lower (2015: EUR 12.4 million higher) if the corresponding functional
currency had strengthened by 5% in comparison to the euro with all other variables, in particular interest
rates, held constant. This would have been mainly as a result of currency exchange effects on translation of
the result of the above-mentioned affiliates denominated in US dollars. The total impact on the currency
translation reserve would have amounted to about EUR 66 million positive (2015: approximately
EUR 102 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 remained constant.
114
ANNUAL REPORT 2016 – BOSKALIS
FINANCIAL STATEMENTS 2016