Credit risk
Credit risk is the risk of financial loss to the Group if a customer or other counterparty is unable or unwilling to meet its contractual obligations. This risk occurs primarily in our receivables from customers, both before and after billing.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, have less of an influence on credit risk. The large number of customers is a major reason for the absence of concentration of credit risk.
A credit policy has been established under which important new customers are analysed individually for creditworthiness before the standard payment and delivery terms and conditions are offered by the Group’s entities. The major part of the Group’s customers has been transacting with the Group for over four years, and losses have occurred infrequently.
The Group does not require collateral in respect of trade and other receivables.
The Group establishes an allowance for doubtful debts that represents its estimate of incurred losses in respect of trade receivables on individually significant exposures.
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Financial Statements – Grontmij Annual Report 2014
The carrying amount of the financial assets represents the maximum credit risk. The maximum exposure to credit risk at the reporting date is as follows:
In thousands of € Note 31 December 2014 31 December 2013
Loans and receivables 11 1,330 5,982
Investments held to maturity 11 8,581 8,170
Amounts due from customers for work in progress 14 89,946 128,046
Trade and other receivables 13 123,992 157,684
Cash and cash equivalents 15 36,441 45,962
Financial assets in continued operations 260,290 345,844
Financial assets included in assets held for sale 5 45,099 -
305,389 345,844
The maximum exposure to credit risk at the reporting date (by geographic region):
In thousands of € 31 December 2014 31 December 2013
The Netherlands 52,461 53,607 France - 50,724 Denmark 37,307 51,011 Sweden 17,202 21,787 UK 14,946 15,960 Belgium 51,343 59,730 Germany 41,141 37,050 Other markets 16,066 12,952
Non-core activities and other 12,673 15,909
Unallocated 17,151 27,115
Exposure to credit risk included in continued operations 260,290 345,844
Exposure to credit risk included in assets held for sale 45,099 -
305,389 345,844
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s principal sources of liquidity consist of cash flows from operations, cash and cash equivalents and available credit facilities
The Group’s liquidity needs are affected by many factors, some of which are based on normal ongoing business operations while others relate to both economic and engineering sector uncertainties . As our cash requirements fluctuate based on the timing and extent of these factors, the Group seeks to ensure that its sources of liquidity will be sufficient to meet its liquidity requirements throughout every phase of the business cycle.
Although our cash requirements fluctuate we believe that cash generated from operations, together with the liquidity provided by existing cash balances and our credit facilities are adequate to meet our requirements. We intend to return cash to our shareholders in the form of dividend payments, subject to our actual and anticipated liquidity requirements. We refer to the Dividend policy on page 16 of the annual report.
The goal is to maintain a strong capital base so as to maintain investor, principal, creditor and market confidence and to sustain future development of the business.
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Financial Statements – Grontmij Annual Report 2014
The Group’s policy is to provide financial guarantees for subsidiaries and joint arrangements when deemed necessary.
The following are the contractual maturities of the financial liabilities; including estimated interest payments:
In thousands of € Note 31 December 2014
Carrying amount
Contractual cash flows
1 year or less 2-5 years More than 5 years Non-derivative financial liabilities
Bank loans (secured/unsecured) 20 52,902 -56,319 -18,534 -34,913 -2,872
Convertible cumulative finance prefence shares 20 19,767 - - - -
Other loans (secured/unsecured) 20 188 -188 - - -188
Finance lease liabilities 20 4,033 -8,799 -424 -1,428 -6,947
Trade and other payables 22 208,948 -208,948 -208,948 - -
Bank overdraft 15 831 -831 -831 - -
286,668 -275,085 -228,737 -36,341 -10,007
Non-derivative financial liabilities included in
liabilities held for sale 29,428 -29,011 -29,011 - -
316,097 -304,096 -257,748 -36,341 -10,007 Derivative financial liabilities
Interest rate swaps used for hedging 6,266 -6,270 -3,226 -3,045 -
6,266 -6,270 -3,226 -3,045 -
In thousands of € Note 31 December 2013
Carrying amount
Contractual cash flows
1 year or less 2-5 years More than 5 years Non-derivative financial liabilities
Bank loans (secured/unsecured) 20 79,587 -88,856 -19,407 -66,358 -3,091
Other loans (secured/unsecured) 20 122 -122 - -122 -
Finance lease liabilities 20 534 -584 -206 -378 -
Trade and other payables 22 170,410 -170,410 -170,410 - -
Bank overdraft 15 19,802 -19,802 -19,802 - -
270,455 -279,774 -209,825 -66,858 -3,091 Derivative financial liabilities
Interest rate swaps used for hedging 7,221 -7,259 -3,034 -4,225 -
7,221 -7,259 -3,034 -4,225 -
Currency risk
Currency risk is the risk that fluctuations in foreign currencies adversely affect the Group’s results. The Group’s sensitivity to changes in foreign currency exchange rates is relatively limited. A major part of both the Group’s income and expenses is denominated in Euros. Moreover, those Grontmij operating companies with a different functional currency (China, Denmark, Poland, Sweden, Turkey and the UK) mainly have local operations and exposure to foreign-exchange currency risk is limited.
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Financial Statements – Grontmij Annual Report 2014
The Group’s exposure to foreign currency risk based on the denominated carrying amounts is as
follows:
In thousands of € 31 December 2014 31 December 2013
DKK SEK GBP PLN DKK SEK GBP PLN
Trade and other receivables 170,617 96,174 6,976 12,341 237,406 149,930 6,837 8,529
Bank loans (secured/unsecured) -25,686 - - - -27,301 - - -
Financial lease liabilities - -3,124 - - - -4,138 - -
Trade and other payables -190,747 -104,983 -7,266 -9,039 -197,557 -145,448 -7,573 -8,846
Total exposure -45,816 -11,933 -290 3,302 12,548 344 -736 -317
Exchange rates applied:
Average rate Reporting date spot rate
2014 2013 2014 2013 DKK 0.13411 0.13403 0.13430 0.13400 GBP 1.24071 1.17770 1.28700 1.20430 PLN 0.23874 0.23817 0.23290 0.24030 SEK 0.10988 0.11558 0.10600 0.11290 Sensitivity analysis
A 5 % weakening of the euro against the following currencies at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis as last year.
In thousands of € 2014 2013
Equity Profit or loss Equity Profit or loss
DKK 1,098 86 1,302 239
GBP 1,601 77 1,431 187
PLN 406 25 393 20
SEK 947 120 885 87
A 5 % strengthening of the euro against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remained constant.
Interest rate risk
This is the risk that interest-rate fluctuations will adversely affect our results.
When appropriate the Group uses interest-rate swaps to hedge interest-rate risk exposure arising from corporate financing activities. Interest rate swaps are measured at fair value, with changes in fair values booked through profit or loss unless the derivative is designated and effective as hedge of future cash flows, in which case changes are recorded in equity.
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Financial Statements – Grontmij Annual Report 2014
At the reporting date the interest rate profile of the Group’s interest bearing financial instruments is
as follows:
Carrying amount, in thousands of € 31 December 2014 31 December 2013
Fixed rate instruments
Financial assets 8,254 9,665
Financial liabilities -23,162 -4,126
-14,908 5,539 Variable rate instruments
Financial assets* 1,324 5,562
Financial liabilities -53,728 -76,117
-52,404 -70,555 * The cash and cash equivalents are not included although they are sometimes interest bearing, depending on local banking arrangements.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. There is an interest rate swap (floating to fixed) in place for a notional amount of € 140 million, with a fixed interest rate of 2.21%. Currently hedge accounting is applied for € 50 million of the notional amount of € 140 million. The accumulated positive/negative effects stemming from the future cash flows of the interest rate swaps are, dependent on the level of effectiveness, partially recognised into equity and in the income statement. The interest rate swaps are in place until November 2016.
In thousands of € Profit or loss Equity
100 bp increase 100 bp decrease 100 bp increase 100 bp decrease 31 December 2014
Variable rate instruments -524 524 - -
Interest rate swap 1,830 -1,822 1,015 -1,015
Cash flow sensitivity (net) 1,306 -1,298 1,015 -1,015
31 December 2013
Variable rate instruments -706 706 - -
Interest rate swap 2,186 -1,925 2,118 -2,117
Cash flow sensitivity (net) 1,480 -1,219 2,118 -2,117
Fair value measurements of financial assets and financial liabilities Interest rate swap
The Group has an interest rate swap measured at fair value. The interest rate swap is settled on a quarterly basis. The fair value as at 31 December 2014 amounts to € -6,266,000 (2013:
€ -7,221,000). Fair value is the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation technique used is the discounted cash flow method. The future cash flows are estimated based on forward interest rates from observable yield curves at the end of the reporting period and contract interest rates, discounted at a rate that reflects the credit risk of various counterparties. Convertible cumulative finance preference share
Due to the issuance of the Cumprefs Grontmij (‘Cumprefs’) recognised a new financial instrument category, i.e. financial liabilities designated as at fair value through profit or loss. The fair value of the Cumprefs consists of the number of ordinary shares the Cumprefs (including accrued dividend) would convert into if conversion would take place at the reporting date, times the closing price (or issue price if the closing price is lower than the issue price) of Grontmij’s ordinary shares at the reporting date. The fair value of the Cumprefs recognised under loans and borrowings is
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Financial Statements – Grontmij Annual Report 2014
€ 19,767,000. This fair value is equal to the Cumpref issuance receipts and the accrued dividend as the shares trade below the issue price at 31 December 2014. We refer also to note 20.
Other assets and liabilities
The estimated fair values as at 31 December 2014 of other financial assets and liabilities
approximate their carrying amount because of the short-term nature of these instruments amongst others cash and cash equivalents and trade payables or because of the fact that any recoverability loss is reflected in an impairment loss (trade receivable). Level 3 of the fair value hierarchy was used for measuring these fair values.