52 / 158
REPORT OF THE BOARD OF MANAGEMENT
ANNUAL REPORT 2016 – BOSKALIS
52
maintaining a solid financial position. Solid balance sheet ratios
and the use of diversified sources of funding provide for ample
capacity to absorb liquidity risks and the constant creation of
adequate borrowing capacity and guarantee facilities. The
company has ample credit and bank guarantee facilities at its
disposal and operates well within the agreed covenants under its
financing agreements.
CURRENCY RISKS
The functional currency of Boskalis is the euro. A number of business
units, especially in Heavy Marine Transport, as well as several
substantial strategic joint ventures (Smit Lamnalco, Keppel Smit
Towage, Asian Lift, Saam Smit Towage) use other functional
currencies. The most important of these is the US dollar, followed by
the Singapore dollar. Most of the revenues and expenses of these
entities are largely or entirely based on these non-euro currencies.
The holdings in these entities are viewed from a long-term
perspective. Exchange rate risks related to these entities are not
hedged as it is assumed that currency fluctuations and developments
in interest rates and inflation will offset each other in the long term.
A large proportion of the activities of the group companies that
have the euro as their functional currency are not contracted in
euros. This particularly applies to the group companies that are
involved in dredging and related projects. The costs of these entities,
however, are largely based on the euro. Generally, the net cash
flows in non-euro currencies within these entities are fully hedged
upfront, usually by means of forward exchange contracts. The US
dollar exchange rate in relation to the euro is particularly relevant
in this context. A large proportion of the projects are contracted in
US dollars or in currencies that are to a greater or lesser extent
linked to the US dollar.
Most of our major international competitors in the dredging industry
also have cost structures largely based on the euro. This implies that
exchange rate fluctuations have no major impact on our relative
competitive position. In several market segments, particularly in
Offshore Energy, there is competition from parties whose cost
structures are not based on the euro, meaning that the competitive
impact of currency fluctuations in these market segments is greater.
On balance, exchange rate fluctuations only have a limited impact
on the company’s competitive position in these activities.
TAX RISKS
Because of the (constantly changing) mix of project and operational
results in a large number of countries and entities, various kinds of
taxes, such as income tax, wage tax, VAT and import duties, are
assessed and then paid in various countries. Profits are attributed to
countries where value is created in accordance with national and
international rules and standards, which can be extremely complex.
Knowledge in this area along with related compliance and
application are embedded in procedures within the Fiscal Affairs
function. In cases where insufficient knowledge is available in-house,
external advisors are used.
INTEREST RATE RISKS
Our long-term financial liabilities are predominantly based on fixed
long-term interest rates, meaning that our exposure to interest rate
fluctuations on these is limited.
FUEL PRICE RISKS
In a substantial part of its activities, Boskalis is exposed to risks
arising from changes in fuel prices. Fuel costs are hedged in a
Road construction work in the Netherlands.