Notes to the consolidated financial statements

1. General information

Royal BAM Group nv (‘the Company’ or ‘BAM’), its subsidiaries (together, ‘the Group’) and the Group’s participations in joint operations and investments in associates and joint ventures offers its clients a substantial package of products and services in the sectors Construction and property, Civil engineering and Public Private Partnerships (‘PPP’). The Group is mainly active in the Netherlands, Belgium, the United Kingdom, Ireland and Germany. The Group is also involved in specialist construction and civil engineering projects in niche markets worldwide.

The Company is a public limited company, which is listed on Euronext Amsterdam, with its registered seat and head office in Bunnik, the Netherlands.

On 17 February 2021, the Executive Board and the Supervisory Board authorised the financial statements for issue. The financial statements as presented in this report are subject to the adoption by the Annual General Meeting on 14 April 2021.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code, as far as applicable.

The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to make judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets and liabilities, income and expense, including the current market and Covid-19 conditions.

The basis for these estimates remain unchanged compared to those described in the 2019 financial statements (with the exception of the change in judgment as per 30 June 2020 regarding the subordinated loans (and commitments thereto) of BAM PPP as explained in note 37), provided that the estimation uncertainty is inherently increased due to the impact of the Covid-19 pandemic.

This has especially effect on the estimates made regarding the valuation of goodwill, deferred tax assets, projects, land and building rights and property development and the going concern assumption (including expected compliance with financial covenants). Actual results may differ from these estimates. The other significant judgements made by management remained the same as those that were applied to the consolidated financial statements for the year ended 31 December 2019. Further information and considerations with regard to areas of significant judgments and estimates have been disclosed below and in note 4.

2.1.1 Partnership extension BAM and PGGM

In 2011, BAM formed via BAM PPP Concessies bv (BAM PPP) a joint venture with PGGM, BAM PPP PGGM Infrastructure Coöperatie ua, to jointly target PPP project opportunities in BAM’s home markets. In 2020, BAM decided to extend the partnership between BAM PPP and PGGM with the aim to continue their strong track record and explore opportunities to extend their partnership outside BAM’s European home markets to benefit from growth in the global PPP market. A first step in the partnership extension was effected in June 2020 when BAM transferred its share in 21 projects that are currently within the BAM PPP-PGGM joint venture (from 20 per cent to 10 per cent). This provides BAM with the opportunity to realise value from the current BAM PPP investment portfolio. See note 17 and 37.3.

As a second step, on 23 December 2020, BAM has transferred 50 per cent of the shares of BAM PPP to PGGM. BAM PPP was previously fully owned by BAM and fully incorporated in the consolidated financial statement. Due to the loss of control of BAM PPP, all the assets and liabilities of the former subsidiary BAM PPP are derecognised from the consolidated statement of financial position as per 31 December 2020. The retained interest of 50 per cent in BAM PPP, which is qualified as a joint venture from BAM’s perspective, has been recognised at its fair value as per 31 December 2020. See note 11.2.

As BAM PPP was reported as a separate operating segment and therefore a major business line, the results of BAM PPP are reported as discontinued operations in the consolidated income statement. In the consolidated income statement for 2020 and 2019, the results of these discontinued operations have been presented on a separate line ‘Result for the year from discontinued operations’. The 2019 consolidated income statements has been adjusted for comparative purposes. The gain on the transfer of the shares to PGGM and on remeasurement of the retained interest forms part of this result. See note 37 for further details.

2.1.2 Assessment on Covid-19

On 11 March 2020, the World Health Organisation officially declared Covid-19, the disease caused by novel coronavirus, a global pandemic. Covid-19, as well as the measures introduced to slow the spread of the virus, have since had a significant impact on the global economy and the markets the Group operates in. The Group was highly affected by the pandemic mainly in the first half of the year as our operational performance was reduced. Therefore, BAM’s financial performance in the first half of the year was considerably impacted by these extraordinary circumstances. However, in the further course of 2020 the operational performance improved significantly to nearly pre Covid-19 levels. In response to the pandemic the Company rigorously cut non-essential capital expenditures, reduced company costs and cash positions show a positive trend (including withdrawal of the revolving credit facility of €400 million). The positive trend reflects governmental support schemes, mainly VAT, as well as careful cash management while fully respecting payment term commitments to the supply chain. Although, our operational performance recovered nearly fully, and the impact on our supply chains and customers seem currently limited, the company continues to closely monitor the developments of this pandemic and to assess risks for its financial results, positions and cash flows and implementing appropriate actions promptly when deemed necessary.

Category Assessment Notes
Liquidity and risk management The Group has identified a broad range of mitigating actions to preserve liquidity.These measures include, among others, cost and capex reductions for nonessential expenditures, governmental furlough schemes, rigid focus on working capital management and governmental measures to delay tax payments on VAT and wages for a total amount of €234 million. Also the revolving credit facility for an amount of €400 million was fully drawn in 2020 as a precautionary measure. See 2.1.3. 15, 25
Goodwill Deteriorating market conditions (including Covid-19) resulted in the Company performing a goodwill impairment test in the first half year of 2020. The key assumptions of the goodwill impairment tests included revenue growth rates, profit before tax and the discount rates used for discounting the expected cash flows. All key assumptions were updated to reflect the Company’s best estimates. The outcome of this test revealed an impairment of €60 million, which has been recognised in the profit or loss as per 30 June 2020. The Company also prepared an impairment test at year end with updated key assumptions to reflect the current situation. The outcome of this goodwill impairment test did not result in any further impairment of goodwill. 9, 28
Other non-financial assets Other non-financial assets comprising of property plant and equipment, intangible assets (excluding goodwill) and right-of-use assets, have been assessed for indicators of impairment. The Company has not identified any impairment indicators as a result of Covid-19. 7, 8, 9
Inventories The Company has prepared an assessment in 2020 which revealed an impairment of €13 million related to certain property developments and land/buildings. The Company has not further identified a material change to the write-down of inventories to net realizable value, compared to 2019 in respect of Covid-19. 13, 28
Trade and other receivables The Company has assessed the impact of Covid-19 on any expected credit losses related to trade and other receivables. The Company did not identify a material increase in the expected credit losses as a result of Covid-19. 14
Financial covenants Considering the waiver, which was obtained for 30 June 2020 from its revolving credit facility lenders on 7 August 2020, BAM complies with all financial covenant requirements as per 31 December 2020. The Group has further assessed the impact of Covid-19 on its current and forecast performance against its financial covenant metrics. The Group performed a sensitivity analysis on the covenant requirements for the next 12 months all with satisfactory outcome. See 2.1.3. 19
Pensions Covid-19 could have affected interest rates and investment performance. The Company performed an analysis to identify any impact of Covid-19 on the valuation of the net defined benefit liability. The outcome of this analysis did not result in a material impact on the valuation of the net defined benefit liability. 22
Deferred Tax Assets The Group has considered the impact of Covid-19 in the estimates used for the valuation of the deferred tax assets. In 2020, the reduced expected forecasted results led to re-measurement of the recognized deferred tax assets related to tax losses carried forward in the Netherlands and Germany. 24
Government grants In 2020, the Group made use of the temporary deferral of tax payment (value added tax and wage tax) granted by certain tax authorities which totally amount to approximately €234 million. Certain governmental (furlough) schemes were used in connection with Covid-19 for a total amount of approximately €12 million, which is fully reflected in wages and salaries. An amount of €10 million in respect of the United Kingdom (€8 million) and Ireland (€2 million) has been received and is deducted from wages and salaries. The remainder of €2 million is reflected as a reduction of the wages and salaries as part of the employee benefit expenses, given the fact that grants in Belgium were directly paid to employees. See note 41. 25, 26, 41

2.1.3 Assessment on going concern assumption

In 2020, BAM was faced with extraordinary circumstances caused by Covid-19 that amongst other led to BAM’s precautionary measure to fully draw the revolving credit facility for €400 million. In addition, BAM’s performance was affected by continued losses at BAM International, the Cologne metro settlement (Waidmarkt) and to a lesser extent by the underperformance of the German construction and Dutch civil engineering business. These developments resulted in higher interest costs and impacted BAM’s operational performance, which gave rise to the fact that the recourse leverage ratio and the recourse interest cover ratio were below the threshold as per 30 June 2020. As a consequence, the Group requested and obtained a waiver. See note 19.

Although BAM’s financial performance recovered in the further course of 2020, given aforementioned developments, BAM made a detailed assessment of the company’s ability to continue as a going concern. The going concern assessment takes amongst others the operating plan 2021 (not expecting any further closings of sites due to Covid-19), developments of BAM’s orderbook, compliance with all financial covenants requirements, cash projections and/or the ability to fulfil the short term liabilities towards the supply chain into account. In performing this assessment, BAM considered factors that could indicate the presence of material uncertainties that might cast significant doubt upon the company’s ability to continue as a going concern. Factors considered included: operating results and/or major losses on projects, the maturity of the convertible bonds in 2021, potential further restrictions on Covid-19, uncertainties regarding Brexit and a potential economic downturn. BAM responded decisively and promptly by taking measures to ensure business continuity, significantly reduce cost and capital expenditure to protect liquidity and profitability. Liquidity, also supported by governmental schemes on payment holiday on VAT- and wage taxes (amounting to €234 million) and the fully drawn revolving credit facility of €400 million, is around €1.8 billion at 31 December 2020 (see note 15). Based on the current cash-flow projections and the extent to which the cash is available for free disposal, this is sufficient to cover cash requirements in the upcoming year (up to and including February 2022).

BAM has ‘stress tested’ its going concern assessment, taking into account abovementioned factors on an individual basis, and considered all available information about the future such as result forecasts and cash flow projections, at least twelve months after the date of these financial statements (up to and including February 2022). The Company performed sensitivity analyses on the financial covenant requirements, all with satisfactory outcome as its outcome demonstrates sufficient headroom for all of its covenant requirements. BAM in its judgement concluded that given the outcome of the going concern assessment and sensitivity analyses performed, it is appropriate to prepare the financial statements on the basis of going concern and despite the factors and uncertainties described above, there are no material uncertainties that may cast significant doubt on the company’s ability to continue as a going concern in the year subsequent to the date of these financial statements. Given the continuing uncertainty related to the impact of Covid-19, BAM closely monitors the developments regarding Covid-19 and analyses risks for its financial results, position and cash flows and implementing further mitigating actions when deemed necessary.

2.1.4 Changes in accounting policies and disclosures

(a) Application of new and revised standards
The group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. The Group has not yet early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Amendment to IFRS 3, ‘Business combinations – Definition of a business’
The narrow-scope amendments clarify how to determine whether an acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements for a business; remove the assessment of whether market participants are capable of replacing any missing elements; add guidance to help entities assess whether an acquired process is substantive; narrow the definitions of a business and of outputs; and introduce an optional fair value concentration test. This amendment did not have a material impact on the consolidated financial statements of the Group.

Amendments to IFRS 7 and IFRS 9 ‘Interest Rate Benchmark Reform’ The amendments to IFRS 9 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments have no material impact on the consolidated financial statements of the Group.

Amendments to IAS 1 and IAS 8 ‘Definition of Material’
The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Group.

(b) New standards and interpretations in issue but not yet effective
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2020 and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group.

Amendments to IFRS 16 ‘Covid-19 Related Rent Concessions’
On 28 May 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. Although the Group has received rental concessions in some contracts, this amendment has no impact on the consolidated financial statements of the Group as it has chosen not to apply and does not plan to adopt the practical expedient.

Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. The current accounting policies are not expected to deviate significantly from the amendments to IAS 37 but a further detailed assessment of the impact of the amendments is required.

Classification of liabilities as current or non-current - Amendments to IAS 1
The amendments clarify:

  • What is meant by a right to defer settlement
  • That a right to defer must exist at the end of the reporting period
  • That classification is unaffected by the likelihood that an entity will exercise its deferral right
  • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification

Companies are required to apply the amendments for annual periods beginning on or after 1 January 2023, with early application permitted. A further detailed assessment of the impact of the amendments is required.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

2.2 Consolidation

(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurement are recognised in the income statement.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9 either in the income statement or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

(b) Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of a business
When the Group ceases to have control in a business, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in the income statement. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that business are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the profit or loss.

(d) Associates
Associates are all entities over which the Group has significant influence but not control, accompanying a shareholding of between 20 and 50 per cent of the voting rights or based on the representation on the board of directors. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition.

The Group’s investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to the income statement, where appropriate.

The Group’s share of post-acquisition profit or loss is recognised in the income statement and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the income statement.

Profits and losses resulting from transactions between the Group and its associate are recognised in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. When necessary amounts reported by associates have been adjusted to conform with the Group’s accounting policies.

(e) Joint arrangements
Investments in joint arrangements are classified as either joint ventures or joint operations depending on the contractual rights and obligations. Joint ventures are joint arrangements whereby the Group and other parties that have joint control of the arrangement have rights to the net assets of the joint venture. The parties to the arrangement have agreed contractually that control is shared and decisions regarding relevant activities require unanimous consent of the parties which have joint control of the joint venture.

Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Joint operations are joint arrangements whereby the Group and other parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the joint operation. The Group recognises its share in the joint operations’ individual revenues and expenses, assets and liabilities and includes it on a line-by-line basis with corresponding items in the Group’s financial statements.

2.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Board. The Executive Board considers the business from a sector perspective and identifies Construction and Property, Civil engineering and PPP as operating segments. As further explained below, as per 31 December 2020, PPP is classified as a discontinued operation.

2.4 Foreign currency translation

(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in ‘euro’ (€), which is the Group’s presentation currency.

(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within ‘exchange rate differences’.

(c) Group companies
The results and financial position of the group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  • assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheet;
  • income and expenses for each income statement are translated at average exchange rates; and
  • all resulting exchange rate differences are recognised separately in equity in ‘other comprehensive income’.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange rate differences arising are recognised in ‘other comprehensive income’.

(d) Exchange rates
The following exchange rates of the euro against the pound sterling (£) have been used in the preparation of these financial statements:

   2020 2019
Closing exchange rate    
Pound sterling  0.90171  0.85332
     
Average exchange rate    
Pound sterling  0.88703  0.87758

2.5 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition or construction of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Other costs are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Land improvements  10%-25%
Buildings  2%-10%
Equipment and installations   10%-25%
IT equipment  10%-25%
Furniture and fixtures  10%-25%

The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other operating expenses’ in the income statement.

2.6 Right-of-use assets

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment testing. The estimated useful life of the leased assets are as follows:

Land and buildings  1 to 99 years
Cars  1 to 10 years
Equipment  1 to 11 years
IT equipment  1 to 10 years
Other  1 to 10 years

The majority of the lease contracts in land and builings has a useful life up to 40 years.
The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption that are considered of low value (i.e., below €5,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

For several leases, the Group has renewal/extension options. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy). The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. See note 4.

2.7 Intangible assets

(a) Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the amount of the non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in business combinations is allocated, at acquisition date, to the cashgenerating units (CGUs) or groups of CGUs expected to benefit from that business combination. Each unit to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(b) Non-integrated software
Non-integrated software is stated at cost less accumulated amortisation and impairment losses. Amortisation on non-integrated software is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives (between four and ten years). The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.

(c) Other
Other intangible assets relate to market positions ( including brand names) and development cost and are stated at cost less accumulated amortisation and impairment losses.

Research cost are expensed as incurred. Development cost on an individual project are recognised as an intangible asset when the following can be demonstrated:

  • technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
  • its intention to complete and its ability and intention to use or sell the asset;
  • how the asset will generate future economic benefits;
  • the availability of resources to complete the asset;
  • the ability to measure reliably the expenditure during development.

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. Additional recognition of cost of development may apply when development continues. It is amortised over the period of expected future benefit. Amortisation is recorded in depreciation and amortisation charges. During the period of development, the asset is tested for impairment annually.

Amortisation on other intangible assets is calculated over their estimated useful lives (generally between two and ten years). The assets’ useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.

2.8 Impairment of non-financial assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (CGUs). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

2.9 Assets and liabilities held for sale and discontinued operations

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. For this to be the case the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. Non-current assets (or disposal groups) classified as held for sale are measured at the lower of the asset’s carrying amount and the fair value less costs to sell. Depreciation or amortisation of an asset ceases when it is classified as held for sale. Equity accounting ceases for an investment in a joint venture or associate when it is classified as held for sale.

A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale, and represents a separate major line of business or geographical area of operations or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations. Results from discontinued operations that are clearly identifiable as part of the component disposed of and that will not be recognised subsequent to the disposal are presented separately as a single amount in the income statement. Results from discontinued operations are reclassified for prior periods and presented in the financial statements so that the results and cash flows from discontinued operations relate to all operations that have been discontinued as of the balance sheet date for the latest period presented.

2.10 Financial assets

2.10.1 Classification

Management determines the classification of its financial assets at initial recognition. The classification depends on the purpose for which the financial assets were acquired or issued. In principle, the financial assets are held in a business model whose objective is to collect contractual cash flows over the lifetime of the instrument. The Group’s financial assets comprise ‘PPP receivables’, ‘other financial assets’, ‘derivate financial instruments’, ‘(trade) receivables – net’, ‘contract assets’, ‘contract receivables’ and ‘cash and cash equivalents’ in the balance sheet.

The Group classifies its financial assets in the classes ‘debt instruments at amortized costs’, ‘financial assets at fair value through profit and loss’ and ‘derivative financial instruments’ (note 2.13). debt instruments at amortised costs are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the end of the reporting period which are classified as non-current assets. Debt instruments that do not meet Solely Payments of Principal and Interest (SPPI) criterion (for which the test is performed at instrument level) are classified at other financial assets at fair value through profit or loss.

2.10.2 Recognition and measurement

Regular purchases and sales of financial assets are recognised on the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement, which also applicable for net changes in fair value after initial recognition. Trade receivables that do not contain a significant financing component are initially measured at the transaction price determined under IFRS 15. (See note 2.26 for revenue recognition).
Debt instruments, other than those initially measured in accordance with IFRS 15, are subsequently carried at amortised cost using the effective interest method and are subject to impairment. The Group measures debt instruments at amortised cost if both of the following conditions are met:

  • the debt instruments is held with the objective to hold financial assets in order to collect contractual cash flows;
  • the contractual terms of the debt instruments give rise on specified dates to cash flows that are solely payments of principal and Interest on the principal amount outstanding.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

2.11 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

2.12 Impairment of financial assets

If the credit risk on a financial asset, not held at fair value through profit or loss, has not increased significantly since initial recognition, the loss allowance for that financial instrument is the 12-month expected credit losses (ECL). If the credit risk on a financial asset has significantly changed since initial recognition the loss allowance equals the lifetime expected credit losses. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Indications of increase in credit risk for financial assets are if a debtor or a group of debtors:

  • experience significant financial difficulty;
  • are in default or delinquency in interest or principal payments;
  • have increased probability of default;
  • other observable data resulting in increased credit risk.

For all financial assets, not held at fair value through profit or loss, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, taking into account the value of collateral, if any. The carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables, contract assets and contract receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the income statement.

2.13 Derivative financial instruments and hedging activities

Derivatives are only used for economic hedging purposes and not as speculative investments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and if so, the nature of the item being hedged.

The Group designates the derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk of the unrecognised Group’s commitment. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

  • there is ‘an economic relationship’ between the hedged item and the hedging instrument;
  • the effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship;
  • the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

The fair values of the derivative financial instruments used for hedging purposes are disclosed in note 21. Movements on the hedging reserve in other comprehensive income are shown in note 17. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months.

The effective portion of changes in the fair value of cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within ‘finance income/expense’.

Amounts accumulated in equity are reclassified to the income statement in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘finance income/expense’. The gain or loss relating to the effective portion of forward foreign exchange contracts is recognised in profit or loss within ‘operating result’.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within ‘finance income/expense’.

2.14 Inventories

Land, building rights and property developments are recorded at the lower of cost and net realisable value. The Group capitalises interest on finance raised to facilitate the development of specific projects once development commences and until practical completion, based on the total actual finance cost incurred on the borrowings during the period. When properties are acquired for future redevelopment, interest on borrowings is recognised in the income statement until redevelopment commences. Raw materials and finished goods are stated at the lower of cost and net realisable value. Cost is determined using the ‘first-in, first-out (FIFO) method’. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.15 Construction contracts

The Group defines a construction contract as a contract specifically negotiated for the construction of an asset. On the balance sheet, the Group reports the net contract position for each (construction) contract as either an contract asset or a contract liability. A contract asset is recognised when the Group has a right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. A contract receivable is an amount to be billed for which payment is only a matter of passage of time. A contract liability is recognised when the Group has an obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. A provision for onerous contracts is recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

For further guidelines regarding construction contracts see paragraph 2.26 revenue recognition under (a).

2.16 Trade and other receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables, other than those measured in accordance to IFRS 15, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any expected credit loss.

2.17 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within ‘borrowings’ in current liabilities.

2.18 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds. When share capital is repurchased in order to prevent dilution as a result of the share-based compensation plan, the consideration paid, including directly attributable costs, net of tax, is deducted from equity. Repurchased shares (treasury shares) are presented as a deduction from total equity. When treasury shares are sold or re-issued subsequently, any amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

2.19 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.20 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method (in case not attributable to property development projects).

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

The subordinated convertible bonds are separated into liability and equity components based on the terms of the contract. On issuance of the subordinated convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible instrument. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity (after tax). The carrying amount of the conversion option is not remeasured in subsequent years.

Transaction costs are deducted from equity, net of associated income tax. Transaction costs are apportioned between the liability and equity components of the subordinated convertible bonds, based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. 

2.21 Lease liabilities

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable, non-lease components related to the leased asset, variable lease payments that depend on an index or a rate, and amounts expected to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the profit and loss.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date, if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

The Group has applied judgement to determine the lease term, which significantly affects the amount of right-of-use assets and lease liabilities recognised. See note 4 and note 20 Lease liabilities.

The Group:

  • has not separated non-lease components from lease components and instead each lease component and any associated non-lease components are accounted for as a single lease component. Variable lease payments such as petrol for cars or variable maintenance fees for buildings are excluded from the measurement of the lease liability;
  • used a single discount rate to a portfolio of leases with reasonably similar characteristics. The Group determined incremental borrowing rates that are currency specific and vary with the length of the contract. The Group has used a more high-level method to determine the incremental borrowing rate. The Group has assessed the impact of the incremental borrowing rate determined using this method on the value of the lease liabities using a sensitivity analysis. Based upon this analysis, the Group concludes that the impact of using this method to determine the incremental borrowing rate has no material impact on the value of the lease liabilities.

Lease Modifications
A lease modification is a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease - e.g. adding or terminating the right to use one or more underlying assets. Lease modifications are accounted for either as separate leases or not separate leases.

The Group accounts for lease modifications as separate lease if both:

  • the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
  • the consideration for the lease increases by an amount equivalent to the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Group shall remeasure the lease liability using a revised discount rate. The adjustment to the lease liability is accounted for against the right of use asset with no profit and loss impact, with the exception of decreases in scope of the lease. In this case, a gain or loss to reflect the partial or full termination is recognized.

Sale and leaseback transactions
A sale and leaseback transaction comprises two separate transactions:

  • the sale of an asset previously held by the selling entity; and
  • an agreement to lease the same asset, usually from the purchasing entity.

The Group applies the requirements for determining when a performance obligation is satisfied in IFRS 15 to determine whether the transfer of an asset is accounted for as a sale. When the transfer of the asset satisfies the requirements of IFRS 15, the Group, as a seller-lessee measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, the Group recognizes only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.

2.22 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income respectively directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.23 Employee benefits

(a) Pension obligations
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited in other comprehensive income in the period in which they arise.

Current service costs of defined benefit plans are recognised immediately in the income statement, as part of ‘employee benefit expenses’, and reflect the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements.

Past-service costs are recognised immediately in the income statement. Interest expenses are included in the ‘employee benefit expenses’.

For defined contribution plans, the Group pays contributions to administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised reduction in the future payments is available.

(b) Other employment obligations
Other employment obligations comprise jubilee benefits, retirement gifts, temporary leaves and similar arrangements and have a non-current nature. These obligations are stated at present value.

(c) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

2.24 Share-based payments

(a) Performance Share Plan
The Group operates an equity-settled share-based compensation plan.

The fair value of the employee services received in exchange for the grant of the shares is recognised as cost with a corresponding credit entry of equity. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. The total amount to be expensed is determined by reference to the fair value of the shares granted:

  • including a market performance condition based on the Company’s share price;
  • excluding the impact of any service and non-market performance vesting conditions; and
  • including the impact of any non-vesting conditions.

At the end of each reporting period, the Group revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement within ‘personnel expenses’, with a corresponding adjustment to equity.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

These shares contain a dividend right, to which the same conditions apply as to the performance shares and are re-invested.

(b) Phantom Share Plan
The Group used to operate a cash-settled share-based compensation plan, for which the last payment occurred in May 2019.

2.25 Provisions

Provisions for warranties, restructuring costs, rental guarantees, associates and joint ventures and onerous contracts are recognised when: (a) the Group has a present legal or constructive obligation as a result of past events; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) the amount has been reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Restructuring provisions are recognised when a detailed formal plan has been approved, and the restructuring has either commenced or has been announced publicly. Restructuring provisions comprise lease termination penalties and employee termination payments. Future operating losses are not recognised.

If the Group’s share in losses exceeds the carrying amount of the investment (including separately presented goodwill and other uninsured receivables), further losses will not be recognised, unless the Group has provided securities to the associate or joint venture, committed to liabilities or payment on behalf of the associate and joint venture. In that case, the excess will be provided for.

2.26 Revenue recognition

(a) Construction contracts
IFRS 15 follows a 5-step approach to recognise for revenue, which is set out below. Certain specific topics have been included or referred to the applicable note. The core principle of IFRS 15 is a 5-step model to distinguish each distinct performance obligation within a contract that the Group has with its customer and to recognise revenue on the level of the performance obligations, reflecting the consideration that the Group expects to be entitled for, in exchange for those goods or services. The following five steps are identified within IFRS 15:

  • step 1 ‘Identify the contract with the client’: Agreement between two or more parties that creates enforceable rights and obligations (not necessarily written);
  • step 2 ‘Identify the performance obligations’: A promise in a contract with a customer to transfer a good or service to the customer;
  • step 3 ‘Determine the transaction price’: The transaction price is the amount of consideration to which an entity expects to be entitled for in exchange for transferring promised goods or services to a client;
  • step 4 ‘Allocate the transaction price’: The objective of allocating the transaction price is for the Group to allocate the transaction price to each performance obligation;
  • step 5 ‘Recognise revenue’: the Group recognises revenue when (or as) the Group satisfies a performance obligation by transferring a promised good or service (that is an asset) to a client.

Step 1 ‘Identify the contract with the client’
IFRS 15.9 requires that five criteria must be met before an entity accounts for a contract with a client. Once an arrangement has met the criteria, the Group does not assess the criteria again unless there are indicators of significant changes in the facts or circumstances.

The achievement of the preferred bid status is not considered as a contract. As from the achievement of the preferred bid status, costs will be capitalised as an asset if enforceability of right to payment exists. This mainly concerns costs to fulfil the contract. See note 14 for further details.

Multiple contracts are combined and accounted for as a single contract when the economics of the individual contracts cannot be understood without reference to the arrangement as a whole. Indicators that such a combination is required are:

(a) the contracts are negotiated as a package with a single commercial objective;
(b) the amount of consideration to be paid in one contract depends on the price or the performance of the other contract;
(c) the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.

A change to an existing contract for a project of the Group is a modification. A contract modification could change the scope of the contract, the price of the contract, or both. A contract modification exists when the Group and the customer approve the modification either in writing, orally, or implied by customary business practices, making the modification enforceable. In accordance with IFRS 15 the Group uses three methods to account for a contract modification:

(a) as a separate contract when the modification promises distinct goods (according to IFRS 15.27) or services and the price reflects the stand alone selling price;
(b) as a cumulative catch-up adjustment when the modification does not add distinct goods or services and is part of the same performance obligation. For the Group, as common within the construction sector, modifications mainly relate to variation orders which do not result in additional distinct goods and services and have to be accounted for as cumulative catch-up adjustment. This is the most common method within the Group given the nature of the modifications; or
(c) as a prospective adjustment when the considerations from the distinct goods or services do not reflect their standalone selling prices.

Step 2 ‘Identify the performance obligations’
The purpose of this step is to identify all promised goods or services that are included in the contract. Examples of performance obligations are the construction of a building, the delivery of an apartment, the maintenance of a road and so on. At contract inception, the Group assesses the goods or services promised to a customer, and identifies each promise as either:

(a) a good or service (or a bundle of goods or services) that is distinct; or
(b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. Promises in a contract can be explicit, or implicit if they create a valid expectation that the Group will provide a good or service based on the Group’s customary business practices, published policies or specific statements.

Building and maintenance contracts are usually considered as separate performance obligations because these promises are separately identifiable and the customer can benefit from these promises on their own. Design and build contracts are usually accounted for as one performance obligation because of not meeting criterion IFRS 15.27 (b) The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. These promises usually represent a combined output for the customer (the construction) for which the design is the input. However if the purpose of the contract is to deliver a separate design after which the client is also able to contract another construction company, the design is considered to be separately identifiable.

When assets are built at clearly different (unconnected) locations these are generally considered to qualify as separate performance obligations.

Performance obligations with the same characteristics can be bundled into portfolios if the entity reasonably expects that the effects on the financial statements of applying IFRS 15 to the portfolio would not differ materially from applying the standard to all performance obligations individually (for example: apartments).

Onerous contracts:
IFRS 15 does not include specific guidance about the accounting for project losses. For the accounting of provisions for onerous contracts, IFRS 15 refers to the guidance relating to provisions in IAS 37. Based on IAS 37, a provision for an onerous contract has to be accounted for on the level of the contract as a whole. This is not necessarily the same as if evaluated on project level, because a contract may include more performance obligations.

The provision for onerous construction contracts only relates to the future loss on the performance to be delivered under the contract. In determining a provision for an onerous contract, the inclusion of variable considerations in the expected economic benefits is based on the same principles as included in step 3 hereafter, including the application of the highly probable constraint for the expected revenue. The provision for onerous contracts is presented separately in the balance sheet.

Step 3 ‘Determine the transaction price’
The purpose of this step is to determine the transaction price of the performance obligations promised in the contract. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount, a variable consideration or a combination of both.

If the consideration promised includes a variable amount such as an unpriced variation order, a claim, an incentive or a penalty, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. IFRS 15 provides two methods for estimating variable considerations: the sum of probability-weighted amounts in a range of possible consideration amounts or the most likely amount a range of possible consideration amounts. On the level of each performance obligation has to be decided which approach best predicts the amount of the consideration to which the Group will be entitled.

The Group includes a variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved (called the ‘constraint’).

The Group is often exposed to uncertainties related to variable considerations such as variation orders and contract claims to customers. The measurement of variation orders and claims requires knowledge and judgement by the Group. Based on IFRS 15, the Group interprets variation orders and contract claims as contract modifications for which the consideration is variable.

For the accounting of unpriced variation orders and claims the following elements are assessed:
(a) determine whether the rights and obligations of the parties to the contract that are created or changed by the variation order or contract claim are enforceable;
(b) estimate the change to the transaction price for the variation order or contract claim;
(c) apply the guidance relating the constraint of the estimate of variable considerations (meaning that it is highly probable that no significant reversal of revenue will occur);
(d) determine whether the variation order or contract claim should be accounted for on a prospective basis or a cumulative catch-up basis.

For considering the effects of constraining estimates of variable considerations, the Group makes a distinction between claims and variation orders. Variation orders are changes that are clearly instructed by the client creating enforceable rights to payment but for which the price change is not yet determined. Claims however relate to events for which the Group considers to have enforceable rights to a compensation from the client but these are not yet approved by the client. The uncertainty relating to claims is usually higher, because of the absence of an instruction of the client for a change. As a result the risk of a significant reversal of revenue relating to claims is considered to be higher and it might be more difficult to prove that a claim amount meets the IFRS 15 ‘highly probable’ criterion.See note 4 b) for the related criteria.

Other variable considerations might include bonuses and penalties, for which penalties are considered to be negative variable considerations. The same method as described above needs to be applied, including assessing the constraint.

When determining the transaction price, the Group adjusts the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract. As a practical expedient the Group does not account for a financing component if the entity expects at contract inception that the period between the delivery of goods or services and the payment is one year or less.

Step 4 ‘Allocate the transaction price’
The objective when allocating the transaction price is to allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

To meet the allocation objective, the Group allocates the total transaction price agreed in the contract (or combination of contracts) as determined in step 3 to the performance obligations identified in step 2. This allocation is based on the relative stand-alone selling price (SSP) of the individual performance obligations.

To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, the Group determines the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.

The estimation method of IFRS 15 that best reflects the stand-alone selling price for design, construction and maintenance projects is the expected cost plus margin approach. This approach requires to forecast its expected costs of satisfying the performance obligation and then add an appropriate margin for that type of project or service. Costs included in the estimation should be consistent with those costs the Group would usually consider in setting standalone selling prices. Both direct and indirect costs are considered. The Group substantiates for example the average margin on bids for similar projects/services on a stand-alone basis (not in combination with other performance obligations).

Step 5 ‘Recognise revenue’
The purpose of this step is to determine the amount of revenue to be recognised in a certain period.

The Group recognises revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. For each performance obligation identified in the contract, the Group determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. Control refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from the asset.

Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The Group needs to determine, at contract inception, whether control of a good or service transfers to a customer over time or at a point in time. Revenue is recognised over time if any of the following three criteria are met:

(a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs;
(b) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced;
(c) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

In general, the Group is building on the land of the customer or improving an asset of the customer, which results in creating an asset that the customer controls as the asset is created. This leads to recognising revenue over time. The Group uses the ‘percentage-of-completion method’ to determine the appropriate amount to recognise in a given period for a performance obligation. The stage of completion is measured by reference to the contract costs of fulfilling the performance obligation incurred up to the end of the reporting period as a percentage of total expected fulfilment costs under the contract, which is an input measure according to IFRS 15.

Costs incurred in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. Payment terms might differ from client to client and country to country, however the Group’s standard payment term states 60 days. When applying a method for measuring progress, the Group excludes the measure of progress of any goods or services for which the entity has not transferred control to a customer. Examples of costs which have to be excluded from the progress measurement, include uninstalled materials, capitalised cost and costs of inefficiencies.

Uninstalled materials:
If a customer contributes goods or services (for example, materials, equipment or labour) to facilitate the Groups’ fulfilment of the contract, the Group assesses whether it obtains control of those contributed goods or services. If so, the Group accounts for the contributed goods or services as non-cash consideration received from the customer. This is however rare, since control usually is not transferred to the Group and stays with the customer.

Capitalised cost:
The capitalised contract cost include cost to obtain the contract, cost to fulfil the contract and set-up cost. The Group recognises capitalised contract cost from the costs incurred to fulfil a contract (for example set-up or mobilisation costs) only if those costs meet all of the following criteria:

  • the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved);
  • the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and;
  • the costs are expected to be recovered (project result should be sufficient to cover the capitalised contract costs).

Capitalised contract costs shall be amortized over the lifetime of the contract.

Costs of inefficiencies:
The Group does not recognise revenue for costs incurred that are attributable to significant inefficiencies in the Group’s performance that were not reflected in the price of the contract since these costs do not contribute to any benefits for the customer. This includes costs of unexpected amounts of wasted materials, labour or other resources that were incurred to satisfy the performance obligation.

Not all cost overruns compared to the project budget relate to inefficiencies. Cost overruns that for example relate to price increases, design changes (regardless whether compensated by the client), inaccuracies in the project budget are not inefficiencies. These expenses still contribute to value to the customer and making progress in the delivery of the project. Inefficiency costs relate to wasted items or work performed, which do not reflect any progress in the satisfaction of the performance obligation nor value to the customer. The costs incurred related to significant inefficiencies are directly charged to the income statement. Consequently, significant inefficiency costs are excluded from the measurement of the stage of completion.

(b) Property development
Sale of property development are recognised in respect of contracts exchanged during the year, provided that no material conditions remain outstanding on the balance sheet date and all conditions are fully satisfied by the date on which the contract is signed.

Further the accounting policies for property development are the same as mentioned under (a).

(c) Service concession arrangements and other
Under the terms of IFRIC 12 ‘Service concession arrangements’ comprise construction and/or upgrade activities, as well as operating and maintenance activities. Both activities recognise revenue in conformity with IFRS 15. The consideration (concession payments) received is allocated between construction/upgrade activities and operating/maintenance services according to the relative Stand-alone selling prices of the individual performance obligations.

The financial assets relating to service concession arrangements (‘PPP receivables’) are subsequently measured at amortised cost. Interest is calculated using the effective interest method and is recognised in the income statement as ‘finance income’. Sales of services are recognised when a performance obligations is satisfied. Usually, revenues from services are recognised over time by reference to the stage of completion on the basis of the actual service costs realised respective to the total expected service costs under the contract.

Other revenue includes, among other items, rental income and (sub)lease of property, plant and/or equipment. When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income on operating leases is recognised over the term of the lease on a straight-line basis.

2.27 Finance income and expenses

Finance income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument and continues unwinding the discount as interest income. Finance income on impaired loan and receivables is recognised using the original effective interest rate.
Finance expenses comprise interest expenses on borrowings, deposits, cash positions, lease liabilities, finance lease expenses, gains and losses relating to hedging instruments and other financial expenses. Interest expenses on borrowings and lease liabilities are recognised in the income statement using the effective interest method.

2.28 Government grants

Government grants are not recognised until there is a reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be reviewed.

Government grants that are receivable as a compensation for expenses or losses already incurred are recognised in the income statement in the period in which they become receivable. The Group presents such government grants as a reduction to the related expenses in the income statement.

2.29 Adjusted items

Adjusted items as presented in these financial statements in amongst other the segment analysis (see note 5) is based on BAM’s definition of adjusted result before tax and relate to impairment charges, restructuring costs and pension one-offs.

2.30 Statement of cash flows

The statement of cash flows is prepared using the indirect method. The net cash position in the statement of cash flows consists of cash and cash equivalents, net of bank overdrafts.

Cash flows in foreign exchange currencies are converted using the average exchange rate. Exchange rate differences on the net cash position are separately presented in the statement of cash flows. Payments in connection with interest and income tax are included in the cash flow from operation activities.

Cash flows in connection with PPP receivables are included in the cash flow from operating activities. Paid dividend is included in cash flow from financing activities. The purchase price of acquisitions of subsidiaries are included in the cash flow from investing activities as far as payments have taken place. Cash and cash equivalents in the subsidiaries are deducted from the purchase price. Cash flows from PPP’s are presented under cash flow from operating activities since these projects are part of regular construction and recurring maintenance revenue for BAM’s business lines and include concessions for roads, rail, education, health care and government buildings.

In the statement of cash flows the interest paid related to leases is presented as part of the cash flow from operating activities, while the repayments are presented as part of the cash flows from financing activities. Non-cash transactions are not included in the statement of cash flows.

3. Financial risk management

3.1 Financial risk factors

The Group’s activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. Risk is inherent to any business venture and the risk to which the Group is exposed is not unusual or different from what is considered acceptable in the industry. The Group’s risk management system is designed to identify and manage threats and opportunities. Effective risk management enables BAM to capitalise on opportunities in a carefully controlled environment. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to limit potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Financial risk management is carried out by Group treasury under policies approved by the Executive Board, which has the overall responsibility for risk management in the Group and the Enterprise Risk Management Framework. Group treasury identifies, evaluates and hedges financial risks in close collaboration with the group companies. The Executive Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity.

(a) Market risk

(i) Foreign exchange risk
A substantial part of the Group’s activities takes place in the United Kingdom and, to a limited extent, in other non-euro countries. The Group’s results and shareholders’ equity are therefore affected by foreign exchange rates. Generally, the Group is active in these non-euro countries through local subsidiaries. The exchange risk is therefore limited, because transactions are denominated largely in the functional currencies of the subsidiaries. The associated translation risk is not hedged. Due to the decrease of the exchange rate of the pound sterling in 2020 , the reported revenue, results, equity and closing order book for the UK companies decreased. Based on the value per end of 2020 of the Group’s UK subsidiaries, an increase or decrease of 10 per cent of the exchange rate of the pound sterling, will have an effect on the Group’s equity of approximately €37 million.

A limited number of group companies are active in markets where contracts are denominated in a different currency than their functional currency. Group policy is that costs and revenues from these projects are mainly expressed in the same currency, thus limiting foreign exchange risks. The Group hedges the residual exchange risk on a project-by-project basis, using forward exchange contracts. This involves hedging of unconditional project related exchange risks in excess of €1 million as soon as these occur. The Group reports these hedges by means of cash flow hedge accounting. Additional exchange risks in the tender stage and arising from contractual amendments are assessed on a case-by-case basis.

Procedures have been established for proper recording of hedge transactions. Systems are in place to ensure the regular performance and analysis of the requisite hedge effectiveness measurements for hedge accounting.

(ii) Interest rate risk
The Group’s interest rate risk is associated with interest-bearing receivables and cash and cash equivalents, on the one hand and interest-bearing borrowings, on the other. If the interest is variable, it presents the Group with a cash flow interest rate risk. If the interest rate is fixed, there is a fair value interest rate risk.

The Group mitigates the cash flow interest rate risk to the extent possible through the use of interest rate swaps, under which interest liabilities based on a variable rate are converted into fixed rates. The Group does not use interest rate swaps under which fixed-rate interest liabilities are converted into variable rates in order to hedge the fair value interest rate risk.

The analysis of the cash flow interest rate risk takes into account cash and cash equivalents, the debt position and the usual fluctuations in the Group’s working capital requirements, and lease liabilities are excluded. Under Group policy, cash flow interest rate risks with regard to longterm borrowings are largely hedged by interest swaps. As a result of the small non-hedge component of these borrowings in combination with negative interest on part of the Groups credit positions, the Group is not entirely insensitive to movements in interest rates. At year-end 2020, 20 per cent (2019: 63 per cent) of the interest on the Group’s debt position was fixed. The part not covered consists almost entirely of property financing.

If the interest rates (Euribor and Libor) had been an average of 100 basis points higher or lower during 2020, the Group’s net result after tax (assuming that all other variables remained equal) would have been approximately €1.1 million higher or approximately €2.0 million lower (2019: approximately €0.4 million higher or approximately €0.7 million lower). If the interest rates (Euribor and Libor) had been 100 basis points higher or lower as per 31 December 2020, the Group’s cash flow hedge reserves in Group equity (assuming that all other variables remained equal) would have been approximately €1.7 million higher or approximately €1.7 million lower (2019: approximately €2.1 million higher or approximately €2.1 million lower).

As of 1 January 2022, Euribor and Libor will no longer be available and will be replaced by a new reference rate published by the European Central Bank: the Euro Short-Term Rate (€STR). Although there has not been any significant developments in the market so far, the Group is investigating the expected impact.

(iii) Price risk
The price risk run by the Group relates to the procurement of land and materials and subcontracting of work and consists of the difference between the market price at the point of tendering or offering on a contract and the market price at the time of actual performance. The Group’s policy is to agree a price indexation reimbursement clause with the client at the point of tendering or offering on major projects. The Group also endeavours to manage the price risk by using framework contracts, suppliers’ quotations and high-value sources of information. If the Group is awarded a project and no price indexation reimbursement clause is agreed with the client, the costs of land and materials, as well as the costs for subcontractors, are frequently fixed at an early stage by establishing prices and conditions in advance with the main suppliers and subcontractors.

While it is impossible to exclude the impact of price fluctuations altogether, the Group takes the view that its current policy reflects the optimum economic balance between decisiveness and predictability. The Group occasionally uses financial instruments to hedge the (residual) price risks.

(b) Credit risk
The Group has credit risks with regard to financial assets including ‘non-current receivables’, ‘derivative financial instruments’, ‘trade receivables – net’, ‘contract assets’, ‘contract receivables’, ’other receivables’ and ‘cash and cash equivalents’. Regarding the above mentioned financial assets, the Group assessed the credit risk and concluded that no material ECL provision is deemed necessary.

‘PPP receivables’ and a substantial part of the ‘trade receivables – net’ consist of contracts with governments or government bodies. Therefore, credit risk inherent in these contracts is limited. Furthermore, a significant part of ‘trade receivables – net’ is based on contracts involving prepayments or payments proportionate to progress of the work, which limits the credit risks, in principle, to the balances outstanding.

The credit risk arising from ‘trade receivables – net’, ‘contract assets’ and ‘contract receivables’ is monitored by the relevant subsidiaries. Clients’ creditworthiness is analysed in advance and then monitored during the performance of the project. This involves taking account of the client’s financial position, previous collaborations and other factors. Group policy is designed to mitigate these credit risks through the use of various instruments, including retaining ownership until payment has been received, prepayments and the use of bank guarantees. The credit risk of the portfolio is further mitigated by broad spectrum of clients.

The Group’s ‘cash and cash equivalents’ are held in various banks. The Group limits the associated credit risk as a result of the Group’s policy to work only with respectable banks and financial institutions. This involves ‘cash and cash equivalents’ in excess of €10 million being held at banks and financial institutions with a minimum rating of ‘A’. The Group’s policy aims to limit any concentration of credit risks involving ‘cash and cash equivalents’.

The carrying amounts of the financial assets exposed to a credit risk are as follows:

  Notes  2020 2019
Non-current assets      
PPP receivables 10  11,177  73,653
Non-current receivables 12  68,114  108,176
       
Current assets      
Trade receivables – net 14  625,788  683,979
Contract assets 14   450,357  503,694
Contract receivables 14  155,068  217,521
Other receivables 14  138,271  82,887
PPP receivables 10,14 -  4,938
Other financial assets 12  570  596
Derivative financial instruments 21  650  704
Cash and cash equivalents 15  1,789,292  854,023
     3,239,287  2,530,171

Non-current receivables predominantly concern loans granted to property and joint ventures. These loans are in general not past due at the balance sheet date. Triggering events for impairments are identified based on the financial position of these associates and joint ventures, which also include the value of the underlying property development positions. For a part of these loans property developments positions are held as securities generally subordinated to the providers of the external financing. Impairments, if applicable, are included in ‘non-current receivables’ and ‘trade receivables – net’ (notes 12 and 14). None of the other assets were overdue at year-end 2020 or subject to impairment. The maximum credit risk relating to financial instruments equals the carrying amount of the financial instrument.

The Group has entered into certain parental and financial guarantees, which are included in note 34.2. No significant expected credit loss provision has been recognized regarding financial guarantees.

(c) Liquidity risk
Liquidity risks may occur if the procurement and performance of new projects stagnate and less payments (and prepayments) are received, or if investments in land or property development would have a significant effect on the available financing resources and/or operational cash flows.

The size of individual transactions can cause relatively large short-term fluctuations in the liquidity position. The Group has sufficient credit and current account facilities to manage these fluctuations. Credit facilities generally contain covenant obligations.

Partly to manage liquidity risks, subsidiaries prepare monthly detailed cash flow projections for the ensuing twelve months. The analysis of the liquidity risk takes into account the amount of cash and cash equivalents, credit facilities and the usual fluctuations in the Group’s working capital requirements. This provides the Group with sufficient opportunities to use its available liquidities and credit facilities as flexible as possible and to indicate any shortfalls in a timely manner. See further 2.1.3.

The first possible expected contractual cash outflows from financial liabilities and derivative financial instruments as at the end of the year and settled on a net basis, consist of (contractual) repayments and (estimated) interest payments.

The composition of the expected contractual cash flows is as follows:

  Carrying amount  Contractual cash flows    1 – 5 years  > 5 years
2020          
Subordinated convertible bonds  118,670  122,202  122,202  - -
Syndicated credit facility  400,000   435,000  11,000  424,000  -
Non-recourse PPP loans  2,950  3,281  360   1,383  1,538
Non-recourse property financing   70,686   72,108   64,825   4,781  2,502
Other non-recourse financing  3,877   4,242   1,663   2,579  -
Recourse property financing  38,013   39,197   22,487   13,909  2,801
Lease liabilities  293,973  303,983  87,142  168,680  48,161
Derivatives (forward exchange contracts)  114  200   19  181  -
Other current liabilities  905,401  905,401  905,401
   1,833,684  1,885,614  1,215,099  615,513  55,002
           
2019          
Subordinated convertible bonds  120,451  131,563   4,375   127,188  -
Non-recourse PPP loans  42,620  47,009  4,674  20,107  22,228
Non-recourse property financing  53,807  55,597   40,367  12,031   3,199
Other non-recourse financing  4,442  4,935   1,334   2,801  800
Recourse property financing  48,361  49,860   33,099  14,892   1,869
Other recourse financing  1,845  1,910   1,910  -  -
Lease liabilities  311,591  326,675  90,400  180,474  55,801
           
Derivatives (forward exchange contracts)  242  711   797  (79) (7)
Derivatives (interest rate swaps)  9,567  11,102  1,910   6,553  2,639
Other current liabilities  836,758  836,758   836,758  - -
   1,429,684  1,466,120  1,015,624  363,967  86,529


The expected cash outflows are offset by the cash inflows from operations and (re-)financing. In addition, the Group has committed syndicated and bilateral credit facilities of €400 million (2019: €400 million) respectively €138 million (2019: € 138 million) in bilateral credit facilities and €25 million intraday facilities (2019: €25 million) available. The revolving credit facility was fully drawn in 2020 (2019: nil).

3.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group’s aim is for a financing structure that ensures continuing operations and minimises cost of equity. For this, flexibility and access to the financial markets are important conditions. As usual within the industry, the Group monitors its financing structure using a capital ratio, among other factors. Capital ratio is calculated as the capital base divided by total assets. The Group’s capital base consists of equity attributable to the shareholders of the Company and the subordinated instruments (notes 18 and 19). At year-end 2020, the capital ratio was 13.4 per cent (2019: 16.5 per cent). For the strategic objectives regarding the capital ratio, see chapter 3.1 Financial performance of the Executive Board Report.

Under the terms of our borrowings facilities the group is required to comply with financial covenants. For information on these financial covenants see note 19 and 2.1.3.

3.3 Financial instruments by categories

The Group has three categories of financial instruments. A significant number of these are inherent to the Group’s business activities and are presented in various balance sheet items. The following summary indicates the values for which financial instruments are included for each relevant balance sheet item:

    Financial instruments  
  Notes Receivables Financial liabilities Hedging Non-financial instruments Total
             
2020            
PPP receivables 10  11,177  -  - -  11,177
Other financial assets 1 12   69,490  -  - -  69,490

Derivative financial instruments 21   - -   650  -  650
Trade and other receivables 14   734,249  -  -   761,066  1,495,315
Cash and cash equivalents 15    1,789,292  -  -  -  1,789,292
             
Borrowings 19 -  634,551  - -  634,551
Lease liabilities 20   -  293,973  - -  293,973
Derivative financial instruments 21   -  -   764  -  764
Trade and other payables 25  -  905,401  -   2,139,011  3,044,412
     2,604,208  1,833,925  1,414  2,900,077  7,339,624
             
2019            
PPP receivables 10  73,653  -  - -  73,653
Other financial assets 1 12   109,653  -  -  -   109,653
Derivative financial instruments 21   - -   704  -  704
Trade and other receivables 14   813,024  - -  799,025   1,612,049
Cash and cash equivalents 15  854,023  -  - -   854,023
             
Borrowings 19   -  271,526 - -   271,526
Lease liabilities 20   -  311,591  - -  311,591
Derivative financial instruments 21  -  -  10,513  -  10,513
Trade and other payables 25  -   836,759  -   2,045,710   2,882,469
     1,850,353  1,419,876  11,217  2,844,735  6,126,181
             

1. The other financial assets consist of several types of financial assets. See note 12 for the specification of receivables based on fair value through profit or loss, receivables based on amortised cost and other.

All financial instruments are valued at amortised cost, with the exception of a part of the other financial assets (note 12) and the derivative financial instruments (note 21), not designated in hedge accounting relationship, which are valued at fair value through profit or loss.

3.4 Fair value estimation

The fair value of financial instruments not quoted in an active market is measured using valuation techniques. The Group uses various techniques and makes assumptions based on market conditions on balance sheet date. The valuation also includes (changes in) the credit risk of the counter party and the credit risk of the Group in conformity with IFRS 13. One of these techniques is the calculation of the net present value of the expected cash flows (discounted cash flow projections). The fair value of the interest rate swaps is calculated as the net present value of the expected future cash flows. The fair value of the forward exchange contracts is measured based on the ‘forward’ currency exchange rates on balance sheet date. In addition, valuations from banks are requested for interest rate swaps.

Financial instruments valued at fair value consist of interest rate swaps, foreign exchange contracts and a portion of the other financial assets. In line with the current accounting policies the derivatives are classified as level 2. It is assumed that the nominal value (less estimated adjustments) of ‘borrowings’ (current part), ‘trade and other receivables’ and ‘trade and other payables’ approximate to their fair value.

3.5 Offsetting financial assets and liabilities

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

A master netting agreement is applicable to a part of ‘cash and cash equivalents’. At 31 December 2020 a positive balance of €1,304 million has been offset against a negative balance of nil (2019: positive balance of €446 million offset against a negative balance of €0.1 million).

4. Critical accounting judgements and key sources of estimation uncertainties

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances and the curent market and Covid-19 conditions. The basis for these estimates remain unchanged compared to those described in the 2019 financial statements, provided that the estimation uncertainty has inherently increased due to the impact of the Covid-19 pandemic. This has especially effect on the estimates made regarding the valuation of goodwill, deferred tax assets, projects, land and building rights and property development. Actual results may differ from these estimates.

The critical judgements including those involving estimation assumptions concerning the future that the Group has made in the process of applying the accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements are addressed below. Given the impact and gravity of Covid-19 it is noted that that the estimation uncertainty has inherently increased due to the pandemic. This could especially have effect on the estimates made regarding the valuation of goodwill, deferred tax assets, contract revenue and costs, land and building rights and property development. Actual results may differ from these estimates. See 2.1.2.

(a) Contract revenue and costs
The group recognizes revenue from construction contracts over time as it performs its obligations. For each performance obligation satisfied over time, the Group recognises revenue over time by measuring the progress towards full satisfaction of that performance obligation. The objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity’s performance obligation). The Group applies an input method to measure progress. At the end of each reporting period, the Group remeasures its progress towards complete satisfaction of a performance obligation satisfied over time. As work is performed on the assets being constructed they are controlled by the customer and have no alternative use to the Group, with the Group having a right to payment for performance to date.

When the progress towards completion can be measured reliably, contract revenue and costs are recognised over the period of the contract, usually by reference to the stage of completion using the ‘percentage-of- completion method’, to determine the appropriate amount to recognise in a given period. The Group measures the progress of the satisfaction of a performance obligation based on total cost incurred divided by total expected costs, which is an input measure according to IFRS 15. When it is probable that total contract costs will exceed total contract revenue, the realised loss based on the ‘percentage-of-completion method’ is recognised as an expense immediately, while the future expected loss is included in a provision for onerous contracts. In determining the stage of completion the Group has efficient, coordinated systems for cost estimating, forecasting and revenue and costs reporting. The system also requires a consistent judgment (forecast) of the final outcome of the project, including variance analyses of divergences compared with earlier assessment dates. Estimates are an inherent part of this assessment and actual future outcome may deviate from the estimated outcome, specifically for major and complex construction contracts. However, historical experience has also shown that estimates are, on the whole, sufficiently reliable. Estimates and judgements are made relating to a number of factors when assessing construction contracts. These primarily include the programme of work throughout the contract period, assessment of future costs after considering changes in the scope of work, maintenance and defect liabilities and performance bonuses and penalties. See paragraph 2.26 for further explanation regarding the recognition of revenue for construction contracts.

(b) Unpriced variation orders
Variation orders are changes that are clearly instructed by the client. The group assesses that variable considerations involving unpriced variation orders are highly probably when it has a probability of at least 75% , that a significant reversal in the amount of cumulative revenue will not occur once the uncertainty related to the variable consideration is subsequently resolved. The group recognizes variable considerations in unpriced variation orders in the following circumstances:

Variation orders that have clear evidence available that the amounts meets the highly probable criterion are usually in (but not limited to) the following circumstances:

  • The instruction or approval is documented. Amounts are expected to be based on costs or costs plus regular margin or contract rates
  • Amounts covered by customer payments
  • Amounts covered by documented settlement offers from the customer

Variation orders where the highly probably criterion is based on judgement are present in the following circumstances:

  • Changes are without documented instruction of the client but the variation order is substantiated by other evidence such as advanced stage of negotiations. In some cases, the form of the contract entitles the Group to additional remuneration in case the work changes or additional work is required.
  • Additional project cost, on top off direct cost from variation orders (e.g. delays or redesign / adjustments)

When variable considerations are constrained, the Group tries to resolve these with the customer first, otherwise with the help of third parties.

(c) Claims receivable
In the normal course of business the Group recognises contract assets in connection with claims for (partly) satisfied performance obligations due from the principal and/or insurance claims as reimbursement for certain loss events on projects. Claims for satisfied performance obligations are part of the variable considerations under IFRS 15. Project related claims on principals are recognised when it is highly probable that no significant reversal in the cumulative revenue recognised regarding to the claim, will occur. The Group considers both the likelihood and the magnitude of a possible revenue reversal. Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:

  • the amount of consideration is highly susceptible to factors outside the entity’s influence. Those factors may include the judgement or actions of third parties like the court or an arbitration committee or weather conditions;
  • the uncertainty about the amount of consideration is not expected to be resolved for a long period of time;
  • the entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value;
  • the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances;
  • the contract has a large number and broad range of possible consideration amounts.

Insurance claims can be recognised only if it is virtually certain that the amount recognised will be reimbursed. See paragraph 2.26 for further explanation regarding the recognition of variable considerations.

(d) Income tax
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made.

Deferred tax assets are recognised for tax losses carry-forwards, temporary differences and tax credits to the extent that the realisation of the related tax benefit through future taxable profits is probable. Estimates are an inherent part of this process and they may differ from the actual future outcome. Additional information is disclosed in note 24.

(e) Pension obligations
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds (AA) that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 22.

(f) Impairment of land and building rights and property development The valuation of land and building rights and property development is based on the outcome of the related calculations of the land’s net realisable value. These calculations are based on assumptions relating to the future market developments, decisions of governmental bodies, interest rates and future cost and price increases. In most cases the Group uses external valuations (by rotation) to benchmark the net realisable value. Partly because estimates relate to projects with a duration varying from one year to more than thirty years, significant changes in these assumptions might result in an impairment. See note 13.

(g) Impairment of goodwill
Goodwill is tested annually for impairment. The recoverable amounts of cash-generating units have been determined based on value-inuse calculations. These calculations are determined using discounted cash flow projections and require estimates in connection with the future development of revenues, profit before tax margins and the determination of appropriate discount rates. An impairment loss is recognised if the carrying amount of an asset of CGU exceeds its recoverable amount. See note 9.

(h) Determining the lease term
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g. changes in business strategy).

The Group included the renewal period as part of the lease term for leases when the renewal is reasonably certain to be exercised. Furthermore, the periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised.

Leases regarding land and buildings mainly include office spaces and are leased for longer periods of time (10-25 years). Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The length of the period when certainty can be achieved, differs and is dependent on the contract negotiations with the lessor and the required office space. Usually, the Group is able to be reasonably certain if an option is exercised around two years before the lease term ends.

The renewal options for leases of cars are not included as part of the lease term because the Group typically leases cars for not more than six years and, hence, is not exercising any renewal options. These cars are used both by office as project management employees.

Lease terms for equipment and installation may vary and are generally connected to the execution of projects or to housing in the offices buildings. The other leases are insignificant to the total leased asset portfolio. See note 20. Lease liabilities for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.

5 Segment information

The segment information reported to the Executive Board is measured in a manner consistent with the financial statements. The segment information includes PPP, despite that it is presented as discontinued operations in the consolidated income statement, since PPP was monitored as a separate operating segment during the year. Additional information has been provided in respect of the activities of BAM International, part of the segments Construction and Property and Civil Engineering.

Revenue and results Construction and Property Civil engineering PPP (1) Other including eliminations (2) Total
           
2020          
Construction contracts  2,997,375  2,999,301  250  -  5,996,926
Property development  588,727  -  -  -   588,727
Service concession arrangements and other   148,938   22,046  52,482   324   223,790
Revenue from external customers  3,735,040   3,021,347  52,732   324  6,809,443
Sector revenue   22,768  17,634  -   (40,402) -
Revenue  3,757,808   3,038,981  52,732  (40,078)  6,809,443
Discontinued operations  -  -  (52,732)  -   52,732)
Sector revenue related to PPP  - - -   11,460   11,460
Revenue continued operations   3,757,808   3,038,981  -  (28,618)  6,768,171
           
Operating result   (129,332)   (45,610)  144,556 (4)   (46,390)  (76,776)
Finance result  5,562  (2,046)  8,486  (19,130)  (7,128)
Result before tax   (123,770)   (47,656)  153,042  (65,520)  (83,904)
Adjusted items (3)  (34,833)   (38,403)  -  (45,000)  (118,236)
Adjusted result before tax   (88,937)   (9,253)  153,042  (20,520)  34,332
           

 

2019          
Construction contracts  3,410,001   2,947,509  - -  6,357,510
Property development   644,721  -  -  -   644,721
Service concession arrangements and other   138,293   23,061   45,136   368   206,858
Revenue from external customers  4,193,015   2,970,570   45,136   368   7,209,089
Sector revenue  32,876  41,648  -  (74,524)  -
Revenue  4,225,891  3,012,218  45,136  (74,156)  7,209,089
Discontinued operations  - -  (45,136)  -  (45,136)
Sector revenue related to PPP  - - -   12,007  12,007
Revenue continued operations  4,225,891  3,012,218  -   (62,149)   7,175,960
           
Operating result   36,396   (7,620)   17,715   5,840  52,331
Finance result  (26)  (2,344)  (9,513  (8,856)  (1,713)
Result before tax   36,370   (9,964)  27,228 (3,016)   50,618
Adjusted items (3)   (9,916)  (13,564)  -  -   (23,480)
Adjusted result before tax   46,286  3,600  27,228  (3,016)   74,098
           

1 BAM PPP (PPP) is classified as a discontinued operation as of 31 December 2020. See note 37.3. The total result before tax amounts to €84 million negative (2019: €51 million), which consists of result from continuing operations €237 million negative (2019: €23 million) and discontinued operations (PPP) of €153 million (2019: €27 million).
2 Including non-operating segments.
3 For further explanation see note 28. 4 Including the gain on the transfer of 50 per cent of the shares of BAM PPP. See 2.1.1 and note 37.3.

As per 31 December 2020 BAM PPP is classified as a discontinued operation. The following table illustrates the reconciliation of the results of BAM PPP to the consolidated income statement:

  Note  
Result for the year from discontinued operations (consolidated income statement)    149,655
Tax effect included in the result for the year from discontinued operations 37.3  3,387
 (consolidated income statement)    
Result for the year from discontinued operations (segmented information)    153,042

In 2020, BAM received proceeds from a governmental institution to cease the asphalt production at a certain location. The production of asphalt was actually ceased by the end of 2020 and will no longer generate any economic benefit in future. BAM fulfilled its contractual obligations and recognised the proceeds in the income statement, together with the cost for reinstating the production site and the loss on derecognition of the underlying assets. In 2020, BAM and Heijmans nv (Heijmans) decided to combine their know-how, expertise and investments in the field of asphalt production in a newly formed joint venture, AsfaltNu cv. The joint venture, representing a new asphalt company, is equally owned by BAM and Heijmans. As a consequence, both BAM and Heijmans made an equal contribution in kind of their business (e.g. mainly asphalt plants) in this newly formed joint venture against a total fair value of €34 million as per 31 December 2020. The fair value of the joint venture amounts to €17 million as per 31 December 2020. See note 11.2. The corresponding carrying amount of the business contributed was €11 million. The total net gain of both transactions amounts amounts to €34 million and is included in the operating result in the consolidated income statement.

The operating results comprises impairment charges on goodwill of €21 million and €22 million relating to Construction and Property and Civil Engineering segment respectively. Both amounts are included in other. A goodwill impairment of €17 million form part of the operating result of Construction and Property and a goodwill charge of €1 million is included in Civil Engineering. In 2019, there were no impairment charges on goodwill. See note 9. Further, the operating result of Civil Engineering contains an amount of €0.6 million of impairment charges on property, plant and equipment (2019: nil). Total restructuring costs, as included in the respective segment disclosures, amount to €45 million of which €21 million (2019: €2 million) relate to construction and property, €22 million (2019: €3 million) relate to civil engineering and €2 million to other (2019: nil).

Balance sheet disclosures Construction and Property Civil engineering PPP (1) Other including eliminations (2) Total
           
2020          
Assets 2,418,541  2,251,314  -  298,415  4,968,270
Investments 113,712   87,766  116,776  (62,011)  256,243
Total assets 2,532,253  2,339,080  116,776  236,404  5,224,513
           
Liabilities   2,228,687   1,954,271  -   456,834  4,639,792
Group equity  303,566  384,809  116,776  (220,430)  584,721
Total equity and liabilities  2,532,253  2,339,080  116,776  236,404  5,224,513
           
2019          
Assets  2,427,912  2,030,700  197,372  (250,873)  4,405,111
Investments  113,774  61,857  13,975  (54,543)  135,063
Total assets  2,541,686  2,092,557  211,347   (305,416)  4,540,174
           
Liabilities  2,227,201  1,596,854  127,022  (44,817)  3,906,260
Group equity  314,485  495,703   84,325  (260,599)  633,914
Total equity and liabilities  2,541,686  2,092,557  211,347  (305,416)  4,540,174

1 As per 31 December 2020, BAM PPP has been qualified as a joint venture and recognised at its fair value of €117 million at initial recognition. See note 11.
2 Including non-operating segments

Other disclosures Construction and Property Civil engineering PPP (1) Other including eliminations (2) Total
2020          
Additions to property, plant and equipment, right-of-use assets and intangible assets  39,653  72,008  200   27,431   139,292
Depreciation and amortisation charges  44,887  90,103  306   24,009  159,305
Share of result of investments accounted for at equity method 17,216  (24,955)  11,547  1   3,809
           
Average number of FTE (3) 8,076   10,299   100   356   18,831
Number of FTE at year-end 7,765  9,806  -   395   17,966
           
2019          
Additions to property, plant and equipment and intangible assets 55,277   129,521   466   19,918  205,182
Depreciation and amortisation charges  46,827   90,873  316  21,525  159,561
Share of result of investments accounted for at equity method (13,461)   21,877  8,880  -  17,296
           
Average number of FTE (3) 8,053  10,981   97   302  19,433
Number of FTE at year-end  8,237  10,861   98  321  19,517

1 BAM PPP is classified as a discontinued operation as of 31 December 2020. See note 37.3.
2 Including non-operating segments.
3 Fulltime equivalent.

The revenue, result before tax and adjusted result before tax of BAM International bv as included in the revenue and results can be explained as follows:

BAM International bv

Construction and Property Civil engineering PPP Other including eliminations  Total
           
2020          
Revenue  62,733  89,981 - -  152,714
Result before tax  (89,277)  (33,832) - -  (123,109)
Adjusted result before tax  (89,277)  (21,034) - -  (110,311)
           
2019          
Revenue  123,734  128,121 - -  251,855
Result before tax  (21,384)  (17,707) - -  (39,091)
Adjusted result before tax  (21,384)  (17,207) - -  (38,591)

The restructuring costs of €12,798 thousand (2019: €500 thousand) have been excluded from the adjusted result before tax.

Revenues from external customers by country, based on the location of the projects Construction and Property Civil engineering PPP Other including eliminations  Total
           
2020          
Netherlands   1,570,535  1,305,694  10,951  (26,053)  2,861,127
United Kingdom  894,226  985,278  21,812  (9,065)   1,892,251
Belgium  322,242   164,814  2,586  (2,311)  487,331
Germany  392,679  269,927  7,837   (2,649)   667,794
Ireland  425,853  33,240  9,546  -  468,639
Other countries  152,273  280,028  - -   432,301
   3,757,808  3,038,981  52,732  (40,078)  6,809,443
           
2019          
Netherlands  1,590,449  1,296,391   7,154  (39,436)  2,854,558
United Kingdom    1,060,485   945,640  19,588  (9,245)   2,016,468
Belgium   445,018  222,737  9,813  (22,663)  654,905
Germany  406,903  291,448  5,524  (2,811)  701,064
Ireland  406,903  24,750   3,057  -  571,232
Other countries   543,425  231,252  -  (1)   410,862
   4,225,891  3,012,218  45,136  (74,156)  7,209,089

1 BAM PPP is classified as a discontinued operation as of 31 December 2020. See note 37.3.
2 Including non-operating segments.

Revenues from the individual countries included in ‘other countries’ are not material.

Total assets and capital expenditures in connection with property, plant and equipment and intangible assets by country are stated below:

Total assets (1) 2020 2019
     
Netherlands   1,737,785  1,544,596
United Kingdom  1,156,455  1,078,964
Belgium  655,251  697,428
Germany  736,760  614,493
Ireland  322,518  310,127
Other countries  168,237  450,788
Other including eliminations  447,507  (156,222)
Total assets  5,224,513  4,540,174
     
Addition (2)    
Netherlands  82,091  109,518
United Kingdom  19,355  29,171
Belgium  12,135  23,793
Germany  14,901  23,144
Ireland  2,924  8,208
Other countries  7,886  11,348
Total assets  139,292  205,182

1 Geographical allocations based on the location of the assets.
2 Gross investments in tangible and intangible assets based on geographical location.

6. Projects

Construction contracts and property development
A major part of the Group’s activities concerns construction contracts and property development which are reflected in various balance sheet items. An overview of the balance sheet items attributable to construction contracts and property development is stated below:

  Construction contracts Property development Total
       
2020      
Land and building rights    257,283  257,283
Property development  -  246,262  246,262
Amounts due from customers  330,548  11,616  342,164
Project assets  330,548  515,161  845,709
       
Non-recourse property financing  -  (70.686)  (70,686)
Recourse property financing  -  (38.013)  (38,013)
Amounts due to customers  (729,600)  (82,751)  (812,351)
Provision for onerous contracts  (158,844)  -  (158,844)
Project liabilities   (888,444)  (191,450)  (1,079,894)
       
As at 31 December  (557,896)  323,711  (234,185)
       
2019      
Land and building rights  -  319,434  319,434
Property development  -  211,644  211,644
Capitalised contract cost  744  -  744
Amounts due from customers   368,829  15,901  384,730
Project assets  369,573  546,979  916,552
       
Non-recourse property financing  -  (53,807)  (53,807)
Recourse property financing  -  (48,361)  (48,361)
Amounts due to customers  (518,536)  (107,761)  (626,297)
Provision for onerous contracts  (118,837)  -  (118,837)
Project liabilities  (637,373)  (209,929)  (847,302)
       
As at 31 December  (267,800)  337,050  69,250

The breakdown of the balance sheet items ‘amounts due from customers’ and ‘amounts due to customers’ is as follows:

  Construction contracts Property development Total
       
2020      
Revenue  13,066,566  77,143  13,143,709
Progress billings  (12,736,017)  (65,528)  (12,801,545)
Amounts due from customers   330,549  11,615  342,164
       
Revenue  11,110,460  1,478,494  12,588,954
Progress billings  (11,840,060)  (1,561,245)  (13,401,305)
Amounts due to customers  (729,600)  (82,751)  (812,351)
       
2019      
Revenue  14,258,045  106,543  14,364,588
Progress billings  (13,889,216)  (90,642)  (13,979,858)
Amounts due from customers  368,829  15,901  384,730
       
Revenue  10,616,494  1,125,814  11,742,308
Progress billings  (11,135,030)  (1,233,575)  (12,368,605)
Amounts due to customers  (518,536)  (107,761)  (626,297)
       

As at 31 December 2020 advance payments (as included in amounts due to customers) which refers to amounts received for which work has not yet been started, in connection with construction contracts and property development amount to €160 million (2019: €193 million) respectively €2 million (2019: nil).

PPP
Following the transfer of 50 per cent of the shares of BAM PPP (see 2.1.1) in December 2020, all the PPP receivables and (non)-recourse PPP loans relating to BAM PPP, have been derecognised as per 31 December 2020. Therefore the balance sheet items attributable to PPP projects which solely relate to the Group (outside BAM PPP) are shown in the table below as at 31 December 2020. As per 31 December 2019, the balance sheet items did not change.

An overview of the balance sheet items attributable to PPP projects is stated below:

  Non-current Current Total
2020      
PPP receivables  11,177 -  11,177
(Non-)recourse PPP loans  (2,646)  (304)  (2,950)
   8,531  (304)  8,227
Net assets and liabilities - - -
As at 31 December  8,531  (304)  8,227
       
2019      
PPP receivables  73,653  4,938  78,591
(Non-)recourse PPP loans  (38,772)  (3,849)  (42,621)
   34,881  1,089  35,970
Net assets and liabilities  (5,852)  8,217  2,365
As at 31 December  29,029  9,306  38,335

Other revenue disclosures
The consideration received that was included in the project contract liability balance at the beginning of the period, has been fully recognised as revenue in the current year. Within the construction business, regular installments will take place but within the Group never leading to significant pre-financing longer than a year.

The revenue recognised from performance obligations satisfied in previous periods amounts to €34 million (2019: €54 million). Performance obligations could be satisfied once the technical completion is final and control has been fully transferred to the client. It is common however to finalise the last pricing discussions regarding variable considerations, including claims, after control has been transferred. Due to the higher threshold to value variable considerations, claims that are settled for a higher amount than valued, might lead to revenue from previously satisfied performance obligations.

Projects within the construction business often run for a period longer than one year, or might transfer from one calendar year to the other. The revenue expected related to unsatisfied performance obligations (running or won projects) are as follows:

(x € million)

  2020 2019
Up to 1 year  6,010  5,733
2 to 5 years  7,750  6,926
   13,760  12,659
Over 5 years  2,134  1,583
Total  15,894  14,242
     

The Group has not used the practical expedient to exclude performance obligations in contracts with an original expected duration of one year or less. These are included in the above mentioned time buckets.

7. Property, plant and equipment

  Land and buildings Plant and equipment Construction in progress Other assets  Total
As at 1 January 2019          
Cost  185,744  575,275  9,172  141,733  911,924
Accumulated depreciation and impairments  (82,961)  (431,340)  (2)  (108,014)  (622,317)
   102,783  143,935  9,170  33,719  289,607
           
Finance leases reclassified to right-of-use assets          
Cost  -  (54,289)  -  (3,857)  (58,146)
Accumulated depreciation and impairments  -   28,160  -   223   28,383
As at 1 January 2019 (after adjustment)  102,783  117,806  9,170  30,085  259,844
           
Additions  6,540  42,412  5,958  27,439  82,349
Disposals  (8,150)  (4,191)  (1,161)  (1,124)  (14,626)
Reclassifications  1,339  3,042  (4,528)  2,757  2,610
Depreciation charges   (7,501)   (28,056)  -  (18,460)  (54,017)
Exchange rate differences  236  557  14  177  984
   95,247  131,570  9,453  40,874  277,144
           
As at 31 December 2019          
Cost  180,147  526,955  9,453  159,034  875,589
Accumulated depreciation and impairments  (84,900)  (395,385)  -  (118,160)  (598,445)
   95,247  31,570  9,453  40,874  277,144
           
Additions  7,475  30,159  10,445  10,576  58,655
Disposals  (9,958)  (6,126)   1,993  (674)  (14,765)
Reclassifications 650  (8,551)  (2,518)  (2,029)  (12,448)
Impairment charges  -  (411)   (175)  -   (586)
Depreciation charges  (7,278)   (29,021)  (13)   (17,698)   (54,010)
Exchange rate differences  (237)  (485)  (17)   (183)  (922)
   85,899  117,135  19,168  30,866  253,068
           
As at 31 December 2020          
Cost  171,524  475,577  19,343  154,086  820,530
Accumulated depreciation and impairments  (85,625)  (358,442)   (175)  (123,220)  (567,462)
   85,899  117,135  19,168  30,866  253,068

Asset construction in progress mainly comprises plant and equipment. Land and buildings and plant and equipment are not pledged as a security for borrowings.

The reclassification of €13 million comprise an amount of €12 million that relates to the contribution of asphalt production related assets to the newly formed joint venture AsphaltNU c.v.. See note 5.

The impairment charges of €0.6 million mainly relates to obsolete equipment.

Depreciation charges include an amount of €6 (2019: €6) relating to BAM PPP which is reported as discontinued operations in the consolidated income statement.

8. Right-of-use assets

  Land and buildings Equipment and installation IT equipment  Cars Other Total
As at 1 January 2019  114,207  45,306  1,516  133,175  451  294,655
             
Additions  44,573   19,495  67  53,605  319  118,059
Disposals  (215)  (230)  -  (1,787) -  (2,232)
Depreciation charges  (28,261)  (19,680)   (588)  (50,895)  (232)  (99,656)
Exchange rate differences  763  381  20   192  9  1,365
   16,860  (34)  (501)  1,115 96  17,536
             
As at 31 December 2019  131,067   45,272  1,015  134,290  547  312,191
             
Additions  24,201  13,494  48  40,232  434  78,409
Disposals  - - -  (465)  -  (465)
Depreciation charges  (30,170)   (14,853)  (510)  (53,166)  (518)  (99,217)
Remeasurements  1,240  1,558  30  3,371  (768)  5,431
Reclassifications  (993)  (219)  (6)   (435)  782  (871)
Exchange rate differences   (1,427)  (336)  (25)   (320)  (15)  (2,123)
   (7,150)  (356)  (463)  (10,782)  (85)  (18,836)
             
As at 31 December 2020  123,917  44,916  552  123,508  462  293,355

Depreciation charges include an amount of €300 (2019: €330) relating to BAM PPP which is reported as discontinued operations in the consolidated income statement.

See note 20 for the corresponding lease liabilities.

9. Intangible assets

  Goodwill Non- integrated software Other Total
As at 1 January 2019        
Cost  670,451  40,514  22,092  733,057
Accumulated amortisation and impairments  (297,682)   (20,014)  (7,373)  (325,069)
   372,769  20,500  14,719  407,988
         
Additions -  4,714  60  4,774
Disposals  -  -  1 1
Reclassifications  -  (1,054)  (2,772)  (3,826)
Impairment charges  -  -  (10,337)  (10,337)
Amortisation charges  -  (5,089)  (799)  (5,888)
Exchange rate differences  7,229  -   140   7,369
   379,998  19,071  1,012  400,081
         
As at 31 December 2019        
Cost  678,069  39,799  16,017  733,885
Accumulated amortisation and impairments  (298,071)   (20,728)  (15,005)  (333,804)
   379,998  19,071  1,012  400,081
         
Additions -  2,164  64  2,228
Acquisition of subsidiaries   7,141  -   9   7,150
Disposals  (530)  (1)  (531)
Impairment charges  (60,776)  (158)  -  (60,934)
Amortisation charges  (5,921)  (156)  (6,077)
Exchange rate differences   (7,447)   (2)   (1)  (7,450)
   318,916  14,624  927  334,467
         
As at 31 December 2020        
Cost  677,363  40,270  9,750  727,383
Accumulated amortisation and impairments  (358,447)  (25,646)  (8,823)  (392,916)
   318,916  14,624  927  334,467
         

Goodwill acquired in business combinations is allocated, at acquisition date, to the cash-generating units (CGUs) or groups of CGUs expected to benefit from that business combination. The carrying amount of total goodwill is €319 million (2019: €380 million).

In 2020, BAM acquired an additional number of shares in a preconstruction entity up to 75 per cent of total shares, and obtained control. Previously the entity was qualified as an associate. The investment, which is currently a subsidiary, contributes to BAM’s local strategy to enlarge its footprint in the residential market. Consequently, BAM has fully consolidated the numbers of the entity in the consolidated financial statement. From the date of acquisition. The contribution of this entity to revenue and profit before tax from continuing operations for 2020 was not material (also no material contriution if it had been acquired as of the start of the year 2020. The goodwill of €7 million represents the difference between the consideration and the carrying amount of the net assets acquired. The Group performed a purchase price allocation which has not been fully finalised yet and the outcome shall be further reflected in 2021, once this exercise has been completed. This might give rise to certain changes in the amount of goodwill reported as per 31 December 2020, as the identifiable net assets assumed in this business combination will be measured at their fair value, based on the final outcome of this purchase price allocation.

The Group undertook an additional impairment review as per 30 June 2020 of key assumptions in estimating values in use of certain underlying CGUs to which goodwill is allocated. The review considered the impact of the Covid-19 pandemic on overall macroeconomic outlook, the Group’s market segments and projected discount and growth rates as at the reporting date. While these model inputs, including forward-looking information, were revised overall, valuation methodology remained consistent with prior periods. Following these circumstances and the downturn in future expected cashflows as per 30 June 2020, the Company fully impaired the (remaining) goodwill of BAM International (Civil engineering) of €22 million, BAM Germany (Construction and Property) of €12 million and BAM Contractors nv (Belgium) (Civil engineering) of €17 million and partly impaired the goodwill of Kairos nv (Belgium) (Construction and Property) for the amount of €9 million to €7 million. For the latter CGU no headroom remained as per 30 June 2020 the recoverable amount equals the remaining carrying amount. See also note 28.

The remaining decrease of goodwill of €7 million fully relates to the change in exchange rate of the pound sterling.

CGUs to which goodwill has been allocated are tested for impairment annually or more frequently if there are indications that a particular CGU might be impaired. The recoverable amount of each CGU was determined based on value-in-use calculations. Value-in-use was determined using discounted cash flow projections that cover a period of five years and are based on the financial plans approved by management. The key assumptions for the value-in-use calculations are those regarding discount rate (WACC), revenue growth rate and profit before tax margin. The discount rate has been determined including the effects of IFRS 16, consistent with the other parameters of the impairment test, as this provided the most reliable manner of determining an appropriate discount rate using available market data.

The used base WACC to determine the value in use (recoverable amount) of goodwill is 7.6 per cent (31 December 2019: 7.9 per cent). Only for 2020 the impact of IFRS16 has been included in the WACC. The WACC, revenue growth rate and profit before tax margin form crucial underlying assumptions for calculating the recoverable amount of each CGU. If and when these underlying assumptions would change in future, this could have significant impact on the CGU’s recoverable amount (based on value in use), which might give rise that the recoverable amount becomes lower than the carrying amount of the CGU to which goodwill is allocated.

Goodwill relates to 7 CGUs, of which BAM Construct UK €59 million (2019: €63 million) and BAM Nuttall €71 million (2019: €76 million) are deemed significant in comparison with the Group’s total carrying amount of goodwill. For each of these CGUs the key assumptions used in the value-in-use calculations are as follows:

   BAM Construct UK  BAM Nuttall
  2020 2019 2020 2019
         
Discount rate (post-tax)   8.3%  7.9%  8.3%  7.9%
Growth rate:        
 - In forecast period (average)  4.4%  0.5%  3.3%  
 - Beyond forecast period  0.0%  0.0%   0.0% 0.0%
 Profit before tax margin:        
 - In forecast period (average)  2.6%  2.2%  2.1%  2.3%
 - Beyond forecast period  3.1%  2.4%  2.6%  2.4%
         

Growth rate used to estimate future performance in the forecast period is the average annual growth rate based on past performance and management’s expectations of BAM’s market development referenced to external sources of information, in which limited impact on Covid-19 has been taken in to account considering the current circumstances. The change in growth rate compared to 2019 in BAM Construct UK is due to a relatively low revenue base in 2020. BAM Nuttall shows a higher growth rate compared to 2019, due to additional projects which will materialise beyond 2020. The profit before tax margin in the forecast period is the average margin as a percentage of revenue based on past performance and the expected recovery to a normalised margin deemed achievable by management in the concerning market segment. The recoverable amounts for BAM Construct UK and BAM Nuttall exceed the carrying amounts of these CGUs with significant headroom.

The sensitivity analysis indicated that if the growth rate is reduced by 50 basis points, the profit before tax margin is reduced by 50 basis points or the discount rate is raised by 50 basis points in the forecast period, all changes taken in isolation, the recoverable amounts of the other CGUs would still be in excess of the carrying amounts with sufficient and reasonable headroom. Except for BAM’s CGUs BAM Contractors Ltd. and Kairos nv (representing a goodwill amount of €55 million) that have limited headroom a partial impairment of goodwill may arise. If the profit before tax margin is reduced by 50 basis points used in the value-in-use calculation for these CGUs at 31 December 2020, the Group would have recognised an additional impairment of EUR 29 million. If the discount used in determining the value-in-use for these CGUs had been 50 basis points higher, the Group would have recognised an additional impairment against goodwill of EUR 8 million. If the growth rate would have reduced by 50 basis points, the Group would have recognised an additional impairments against goodwill of EUR 6 million. 

10. PPP receivables

  Note 2020 2019
As at 1 January    78,591  89,647
Receivables issued    19,042  21,770
Finance income    5,095  5,490
Reclassifications    (57,583)  (14,252)
Progress billings    (30,506)  (27,611)
Exchange rate differences    (3,462)  3,547
As 31 December    11,177  78,591
       
    2020 2019
       
Non-current    11,177  73,653
Current 14 -  4,938
     11,177  78,591
       

The decrease in receivables in 2020 is mainly related to the derecognition of the PPP receivables following the transfer of 50 per cent of BAM PPP to PGGM. See 2.1.1. The remaining PPP receivables as per 31 December 2020, relates to PPP receivables of the Group (outside BAM PPP).

The average duration of the remaining receivables is 25 years (2019: 12 years). Approximately €9 million of the non-current part has a duration of more than five years (2019: €47 million).

The average interest rate on PPP receivables is 2 per cent (2019: 7 per cent). At year-end 2020, the fair value of the non-current part is considered to equal the carrying amount.

11. Investments in associates and joint ventures

In 2020, due to the transfer of 50 per cent of the shares of BAM PPP to PGGM all assets and liabilities are derecognized of the former subsidiary from the consolidated statement of financial position per 31 December 2020. See 2.1.1. As a consequence, the associate Infraspeed (Holdings) bv (10.54 per cent) and joint venture BAM PPP PGGM Infrastructure Coöperatie ua (50 per cent), directly owned by BAM PPP, have been derecognized as well. Only the comparative figures of the net assets sheet have been presented. The share in net result of these investments form part of discontinued operations (see note 37.3). The retained interest of 50 per cent by the Group in the former subsidiary BAM PPP has been qualified as a joint venture and recognised at its fair value of €117 million at initial recognition as per 31 December 2020, and shall be accounted for subsequently according to the equity method. See note 11.2. The amounts recognised in the balance sheet are as follows:

  2020 2019
     
Associates  14,100  26,343
Joint ventures  242,143  108,720
As at 31 December  256,243  135,063

 

11.1 Investment in associates

Set out below are the associates of the Group that are individually material to the Group as per 31 December 2020 or the comparing period (31 December 2019).

Nature of investment in associate in 2020 and 2019:

  Principal activity

Country of incorporation % Interest

      2020 2019
Infraspeed (Holdings) bv Exploitation of rail infrastructure Netherlands  0%  10.54%
         

Set out below is the summarised financial information for the associate that was material to the Group in 2019, including reconciliation to the carrying amount of the Group’s share in the associate, as recognised in the consolidated financial statements. This information reflects the amounts presented in the financial statements of this associate adjusted for differences in the Group’s accounting policies and the associate only for 2019.

  Infraspeed (Holdings) bv  
   2020 2019
     
Current assets  -  61,902
Non-current assets -  721,507
Current liabilities  -  (20,175)
Non-current liabilities  -  (728,405)
Net assets  -  34,829
Share in equity -  10.54%
Carrying amount -  3,671
     

Reconciliation with net result of the Group’s share in associates, as recognised in the consolidated financial statements, is as follows:

  2020 2019
Share in net result associates that are not individually material to the Group  1,172  1,836

Reconciliation with the carrying amount of the Group’s share in associates, as recognised in the consolidated financial statements, is as follows: 

   2020 2019
Share in equity associate that is material to the Group  -  3,671
Share in equity associates that are not individually material to the Group   14,100  22,655
   14,100  26,326
Recognised as provision for associates  -  17
   14,100  26,343

Dividend received from associates amounts to €3.6 million in 2020 (2019: €1.9 million). Cash and cash equivalents of a number of associates are subject to restrictions. These restrictions mainly concern the priority of loan repayments over dividend distribution.

11.2 Investment in joint ventures

Set out below are the joint ventures of the Group that are individually material to the Group as per 31 December 2020 or the comparing period (31 December 2019).

Nature of investment in the joint ventures in 2020 and 2019:

  Principal activity Country of incorporation % Share 

      2020 2019
BAM PPP PGGM Infrastructure Coöperatie ua Asset management Netherlands - 50.00%
BAM PPP Concessies bv Asset management Netherlands 50.00% -
AsfaltNu cv Asphalt production Netherlands 50.00% -
         

Set out below is the summarised financial information for the joint ventures that are individually material to the Group, including reconciliation to the carrying amount of the Group’s share in the joint ventures, as recognised in the consolidated financial statements. This information reflects the amounts presented in the financial statements of the joint ventures. adjusted for differences in the Group’s accounting policies and the joint ventures.

  2020 2019
BAM PPP PGGM Infrastructure Coöperatie ua    
     
Current assets  -  152,329
Non-current assets -  2,002,158
Current liabilities -  (367,836)
Non-current liabilities -  (2,131,628)
Net assets -  (344,977)
     
Of which:    
Cash and cash equivalents -  109,772
Current financial liabilities -  (51,277)
Non-current financial liabilities -  (1,711,680)
     
Net assets  -  (344,977)
Share in profit rights -  10% /20%
Carrying amount  -  (45,161)
Negative cash flow hedge reserve not recognised    25,805
     (19,356)

Following the transfer of 50 per cent of the shares of BAM PPP to PGGM , the remaining interest of 50 per cent by BAM in BAM PPP is qualified as a joint venture and initially recognised at its fair value of €117 million (see note 11 above). The amounts have been adjusted to reflect fair value adjustments made at the time of acquisition. The amounts recognised in the balance sheet are as follows:

  2020
BAM PPP Concessies bv  
   
Current assets  52,367
Non-current assets  264,842
Current liabilities  (31,905)
Non-current liabilities  (51,752)
Net assets  233,552
   
Of which:  
Cash and cash equivalents  28,254
Current financial liabilities  (4,035)
Non-current financial liabilities  (31,327)
   
Net assets  233,552
Share in profit rights  50%
Carrying amount  116,776

On 27 November 2020, BAM and Heijmans announced the merger of their asphalt plants as per 31 December 2020. BAM contributed several asphalt plants and one central laboratory into the newly formed 50:50 joint venture AsfaltNu cv. AsfaltNu produces asphalt for both BAM and Heijmans, but also for third parties in the asphalt market. As a result of the transaction, BAM will treat the 50 per cent share in the joint venture as an equity method investment. The amounts have been adjusted to reflect fair value adjustments for differences in accounting policies and application of the equity method:

  2020
AsfaltNu cv  
   
Current assets  3,377
Non-current assets  40,107
Current liabilities  (9,200)
Net assets  34,284
   
Of which:  
Cash and cash equivalents  3,377
   
Net assets  34,284
Share in profit rights  50%
Carrying amount  17,142

Set out below are the aggregate information of joint ventures including those that are not individually material to the Group.

   2020 2019
Share in net result property development joint ventures that are not material to the Group  14,676  17,989
Share in net result other joint ventures that are not individually material to the Group  (23,588)  (11,411)
   (8,912)  6,578
     
Share in equity BAM PPP PGGM joint venture -  (19,356)
Share in equity BAM PPP joint venture  116,776 -
Share in equity AsfaltNu joint venture  17,142 -
Share in equity property development joint ventures that are not individually material to the Group  54,848  71,920
Share in equity other joint ventures that are not individually material to the Group -  (103,519)
   188,766  (50,955)
Recognised as provision for joint ventures  39,440  77,449
Recognised as impairment of non-current receivables  13,937  82,227
   242,143  108,721


On 3 March 2009, during the construction of a section of the Cologne metro system, several adjacent buildings, including the building of the City Archives of the City of Cologne, collapsed. Wayss & Freytag Ingenieurbau is a one-third partner in the consortium carrying out this project but was not directly involved in the work performed at the site of the accident. On 29 June 2020, the City of Cologne, Cologne Public Transport (KVB) and the joint venture (‘Arge’) that constructed a section of Cologne’s North/South metro line have reached an agreement to settle all outstanding claims with regard to this project, including damages caused by the collapse of the building of the City archives in 2009. Under the agreement, each joint venture partner has paid the City of Cologne €200 million, after which the parties will dismiss further claims against each other. A substantial part of Wayss & Freytag Ingenieurbau’s share is covered by insurance payments of €181 million fully received in 2020. The Group has recognised a total charge of €36 million, included in the Share of result of investments in associates and joint ventures, for the non-insured contribution of the settlement and for its share of cost for the completion of the project.

In 2020 the Group’s share in the net result of joint ventures included an impairment charge amounting to €1.9 million (2019: reversal €2.7 million).

Revenue of property development joint ventures amounts to €134 million (2019: €101 million) and property development recognised in the balance sheet amounts to €212 million (2019: €204 million) of which an amount of €85 million (2019: €91 million) externally financed (share of the Group).

Dividend received from joint ventures amounts to €16.2 million in 2020 (2019: €24.9 million).

The financial years of many joint ventures run from 1 December up to and including 30 November to ensure timely inclusion of the financial information in the Group’s financial statements.

12. Other financial assets

   Note Receivables valued on fair value through profit or loss Receivables valued at amortised cost   Other Total
           
As at 1 January 2019   45,925  54,554   1,474  101,953
Additions    -  18 18
Loans granted    11,901  23,318 -  35,219
Loan repayments    (13,670)  (1,014) -  (14,684)
Disposals    -  -  (15)  (15)
Reclassifications    -  (12,645)  -  (12,645)
Exchange rate differences    -  403  -  403
      44,156  64,616  1,477  110,249
Of which current:    (300)  (296)    (596)
As at 31 December 2019    43,856   64,320  1,477  109,653
           
Loans granted    10,919  25,276  -  36,195
Loan repayments    (7,071)  (4,495)  -  (11,566)
Disposals    -  -  (221)  (221)
Reclassifications    -  (64,057)  120  (63,937)
Exchange rate differences    -  (660)  -  (660)
     48,004  20,680  1,376   70,060
Of which current:    (300)  (270)  (570)
As at 31 December 2020    47,704  20,410   1,376  69,490 
           

Reclassifications mainly relate to the derecognition of all assets and liabilities of BAM PPP following the transfer of 50 per cent of the shares to PGGM. See 2.1.1 and note 11.2.

Category ‘Other’ mainly comprises shares in (unlisted) investments over which the Group has no significant influence.

The fair value of non-current receivables at year-end 2020 amounts to €69 million (2019: €130 million). The effective interest rate is 0.4 per cent (2019: 5.5 per cent).

13. Inventories

  2020 2019
Land and building rights  257,283  319,434
Property development  246,262  211,644
   503,545  531,078
Raw materials  13,573  14,275
Finished products  519  556
   517,637  545,909

Land and building rights are to be presented as current on the balance sheet within the ordinary course of business, however by its nature, the realisation will be non-current. The majority of the investments in property development is considered to be current by nature.

The impairments during 2020 relating to the property portfolio are as follows:

  Note  2020  2019
Impairment charges    16,760  20,816
Reversal of impairment charges    (5,439)  (9,975)
  27  11,321  10,841
       

The impairment and reversals in 2020 for the net amount of €11 million relates to several property developments in the Netherlands, that form part of the construction and property operating segment, which have been reported at their net realisable value.

Property development includes the following completed and unsold property:

  2020 2019
Unsold and finished property Number/m2 Carrying amount Number/m2 Carrying amount
         
Commercial property - rented  33,717  37,092  17,494  26,060
Commercial property - unrented  13,329  17,854  24,859  36,868
     54,946    62,928
         

Other inventories (raw materials and finished products) were not subject to write-down in 2020 nor 2019.

14. Trade and other receivables

 

  Notes  2020 2019
Trade receivables    644,416  694,716
Less: Provision for impairment of receivables    (18,628)  (10,737)
Trade receivables - net    625,788  683,979
       
Amounts due from customers 6  342,164  384,730
Capitalised contract cost 6 -  744
Retentions    108,193  118,220
Contract assets    450,357  503,694
       
Amounts to be invoiced work completed    30,600  43,647
Amounts to be invoiced work in progress    124,468   173,874
Contract receivables    155,068  217,521
       
Amounts due from related parties 38  39,750  21,396
PPP receivables 10 -  4,938
Other financial assets    568  606
Other receivables    138,271  82,887
Prepayments    85,513  97,028
     1,495,315  1,612,049

 

Trade and other receivables are due within one year, except for approximately €7 million (2019: €10 million). The fair value of this non-current part is approximately €7 million (2019: approximately €10 million) using an effective interest rate of 0.5 per cent negative (2019: 0.4 per cent negative).

The concentration of credit risk with respect to trade receivables is limited, as the Group’s customer base is large and geographically spread. As at 31 December 2020 a part of the trade receivables amounting to €88 million (2019: €100 million) is past due over one year but partly impaired. These overdue receivables relate to a number of customers, predominantly in the public sector outside the Netherlands where a limited default risk exists. The duration to reach final agreement, including legal proceedings, on invoiced variation orders and claims with these customers remains long. Trade receivables are shown net of impairment losses which amount to €19 million (2019: €11 million) arising mainly from identified doubtful receivables from customers. Trade receivables were impaired taking into account the historical credit loss experience, adjusted forward looking factors of the debtors and the economic environment. See paragraph 2.12 regarding expected credit losses. Impairments of trade and other receivables in 2020 mainly related to disputed balances and final negotiations on these balances with the principal. No significant credit losses were identified.

The change in contract assets is due to normal activity in the construction business. Other changes as mentioned in IFRS 15 (paragraph 118) are not relevant.

Retentions relate to amounts retained by customers on progress billings. In the United Kingdom and Ireland in particular, it is common practice to retain a previously agreed percentage until completion of the project.

Amounts to be invoiced work completed and in progress represent the gross amounts expected to be collected for contract work performed to date but awaiting confirmation from customer before actual billing.

The ageing analysis of these trade receivables is as follows:

  2020 2019
  Trade
receivables
Provision for impairment

Trade
receivables

Provision for impairment
         
Not past due  457,664  (967)  455,526  (1,330)
Up to 3 months  68,279  (245)  101,847  (1,063)
3 to 6 months  8,773  (373)  19,841  (4,387)
6 to 12 months  21,272  (1,949)  17,026  (221)
1 to 2 years  19,932  (6,368)  10,110  (794)
Over 2 years  68,496  (8,726)  90,366  (2,942)
   644,416  (18,628)  694,716  (10,737)
         
Less: Provision for impairment of receivables  (18,628)    (10,737)  
Trade receivables - net  625,788    683,979  

Apart from trade receivables none of the other assets were subject to impairment.

Movements in the provision for impairment of trade receivables are as follows:

  2020 2019
 As at 1 January  10,737  10,797
 Provision for impairment  23,995  8,916
 Release  (4,128)  (2.245)
 Receivables written off during the year as uncollectable  (10,930)  (6,799)
 Reclassifications  (986)  8
 Exchange rate differences  (60)  60
 As at 31 December  18,628  10,737
     

As of 31 December 2020, trade receivables of €19 million (31 December 2019: €11 million) were impaired and provided for, with a limited impact of Covid-19. The individually impaired trade receivables mainly relate to customers where limited default risk is in place. It was assessed that a portion of the receivables is expected to be recovered. The provision in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount considered irrecoverable is written off directly against the provision. Provision for impairment of receivables in 2020 mainly relate to disputed balances and final negotiations on these balances with the principal, which were significantly higher compared to last year. No significant credit losses were identified.

The creation and release of provisions for impaired receivables have been included in ‘Other operating expenses’ in the income statement.

15. Cash and cash equivalents

  2020 2019
Cash at bank and in hand  1,783,639  842,426
Short-term bank deposits  5,653  11,597
Cash and cash equivalents (excluding bank overdrafts)  1,789,292  854,023
     

Cash and cash equivalents include the Group’s share in cash of joint operations as part of the conditions in project specific funding agreements and amount to €306 million (2019: €226 million) respectively €0 million (2019: €9 million). Other cash and cash equivalents are at the free disposal of the Group.

The average effective interest on short-term bank deposits is 3.7 per cent (2019: 5.4 per cent). The deposits have an average remaining term to maturity of approximately 8 days (2019: approximately 21 days).

For the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash at bank and in hand and short-term bank deposits, net of bank overdrafts. Cash and cash equivalents at the end of the reporting period as reported in the consolidated statement of cash flows is reconciled to the related items in the consolidated statement of financial position as follows:

  2020 2019
Cash and cash equivalents  1,789,292  854,023
Bank overdrafts  (355)  -
Net cash position  1,788,937  854,023
     

 

16. Share capital and premium

  Number of ordinary shares Number of treasury shares

Number of ordinary shares
in issue

Ordinary shares

Share
premium

Total
As at 1 January 2019  278,779,019  5,483,002  273,296,017  27,879  811,432  839,311
Repurchase of ordinary shares -  4,482,030  (4,482,030 - - -
Awarded LTI shares - - - - - -
Dividends  628,430  (3,853,600)  4,482,030  62  (62) -
As at 31 December 2019  279,407,449  6,111,432  273,296,017  27,941  811,370  839,311
Repurchase of ordinary shares - - - - - -
Awarded LTI shares - - - - - -
Dividends - - - - - -
As at 31 December 2020  279,407,449  6,111,432  273,296,017  27,941  811,370  839,311
             
             

16.1 General

At year-end 2020, the authorised capital of the Group was 400 million ordinary shares (2019: 400 million) and 600 million preference shares (2019: 600 million), all with a nominal value of €0.10 per share (2019: €0.10 per share). All issued shares have been paid in full (only ordinary shares).

The Company granted Stichting Aandelenbeheer BAM Groep (‘the Foundation’) a call option to acquire class B cumulative preference shares in the Company’s share capital on 17 May 1993. This option was granted up to such an amount as the Foundation might require, subject to a maximum of a nominal amount that would result in the total nominal amount of class B cumulative preference shares in issue and not held by the Company equalling no more than ninety-nine point nine per cent (99.9 per cent) of the nominal amount of the issued share capital in the form of shares other than class B cumulative preference shares and not held by the Company at the time of exercising of the right referred to above. The Executive Committee of the Foundation has the exclusive right to determine whether or not to exercise this right to acquire class B cumulative preference shares. Additional information has been disclosed in section Other information.

16.2 Ordinary shares

To prevent dilution as a result of the (equity-settled) share-based compensation plan introduced in 2015, the Company’s own shares were repurchased as follows:

  Repurchased shares

Price
(in €)

Total consideration (x €1,000)
       
4 December 2015  302,488  5,10  1,543
5 December 2015  302,487  5,11  1,546
28 April 2016  588,170  4,27  2,512
28 April 2017  345,000  5,17  1,784
2 May 2017  173,940  5,23  909
26 April 2018  87,356  3,88  339

In 2019 the number of issued ordinary shares increased by 628,430 due to dividend payment in shares. To prevent dilution all these shares were then repurchased. See note 33.

In 2020 no shares have been bought back for the share-based compensation plan.

17. Reserves 

   Hedging  Translation  Development
cost
 Total
As at 1 January 2019  (64,189)  (111,577)  10,800  (164,966)
         
Cash flow hedges        
 - Fair value movement of forward foreign exchange contracts  (814) - -  (814)
 - Fair value movement of interest rate swaps  (38,719) - -  (38,719)
 - Tax on fair value movement  8,788 - -  8,788
         
Legal reserve for development cost        
  - Reclassification - - (10,800) (10,800)
         
Exchange rate differences -  22,864  -  22,864
   (30,745)  22,864  (10,800)  (18,681)
As at 31 December 2019   (94,934)   (88,713)  -  (183,647)
         
Reclassification to the income statement due to divestment        
 - Fair value of forward foreign exchange contracts - - - -
 - Fair value of interest rate swaps  8,887 - -  8,887
 - Tax on fair value of cash flow hedge  (2,411) - -   (2,411)
         
Cash flow hedges        
- Fair value movement of forward foreign exchange contracts   (54)  - -  (54)
- Fair value movement of interest rate swaps   71,876  - -  71,876
- Tax on fair value movement  (15,505)  - -  (15,505)
         
Exchange rate differences  -  (15,256)  -  (15,256)
   62,793  (15,256) -  47,537
         
Reclassification to profit or loss        
- Fair value of interest rate swaps   31,786  -  -   31,786
- Exchange rate differences    4,659  -   4,659
   94,579  (10,597)  -  83,982
As at 31 December 2020   (355)   (99,310)  -   (99,665)
         

The legal reserves consist of hedging reserves and translation reserve.

The reclassification in 2019 of the legal reserve amounts to €10.8 million and relates to amortisation and impairment of the patented Gravity Based Foundations for the offshore wind power sector. See note 9. The negative movement in the translation reserve in 2020 is linked to the decrease in the value of the pound sterling.

During 2020 and previous to the transfer of 50 per cent of the shares to PGGM, the group reassessed its accounting for subordinated loans granted (and commitments thereto) to PPP projects in joint ventures, the majority of which are granted through the joint venture between BAM PPP and PGGM. The Group concluded that subordinated loans (and commitments thereto) provided to PPP projects in ‘investments in associates or joint ventures’, should no longer be considered to form part of the net investment for the purpose of applying the equity method of accounting. This change has been accounted for prospectively and as a result, the cash flow hedge reserves recognised in equity changed by an amount of €86 million positive. The development of the interest rate had a negative effect of €33 million on the valuation of interest rate hedges in 2020. BAM transferred also 10 per cent of its tracking rights to PGGM in 2020, and €10 million (negative) was reclassified to the profit or loss. The impact of alll aforementioned developments and transaction totally amounted to €63 million. Lastly, upon the transfer of 50 per cent of the shares to PGGM, as per 23 December 2020, the remaining amount of the cash flow hedge reserve under the reclassifications of EUR 32 million (negative) and part of the exchange rate differences of €5 million (negative) were reclassified from equity to profit or loss. See note 37.3.

18. Capital base

  2020 2019
Equity attributable to the shareholders of the Company  583,443  628,444
Subordinated convertible bonds  118,670  120,451
   702,113  748,895
     

The subordinated convertible bonds will be redeemed at their principal amount on or around 13 June 2021, see note 19.4.

    Changes from financing cash flows Other changes  
   As at 1 January 2020 Proceeds from borrowings Repayments of borrowings Effective interest method Transfers to/ from joint ventures Disposals Exchange rate differences As at 31 December 2020
Non-recourse PPP loans  42,620  950  (4,095) - -  (34,424)  (2,101)  2,950
Non-recourse property financing  53,807  31,244  (13,865) -  (500) - -  70,686
Recourse PPP loans - -  - - - - - -
Recourse property financing  53,807  2,253  (12,601) - - - -  38,013
                 
Subordinated convertible bonds  120,451 -  (4,768)  2,987 - - -  118,670
Syndicated credit facility -  400,000 - - - - -  400,000
Other non-recourse financing  4,442  1,460  (1,486) - -  (539) -  3,877
Other recourse financing  1,845  -  (1,845) - - - - -
Bank overdrafts -  355 - - - - -  355
   271,526  436,262  (38,660)  2,987  (500)  (34,963)  (2,101)  634,551
                 

 

    Changes from financing cash flows Other changes  
   As at 1 January 2019 Proceeds from borrowings Repayments of borrowings Effective interest method Transfers to/ from joint ventures Disposals Exchange rate differences As at 31 December 2019
Non-recourse PPP loans  43,468  2,395   (5,467) - - -   2,224  42,620
Non-recourse property financing  79,227  32,419   (57,839) -  - - -  53,807
Recourse PPP loans  13,984 -  - -  (13,984) - - -
Recourse property financing  53,447  18,545   (23,631) - - - -  48,361
                 
Subordinated convertible bonds  117,637 -  -  2,814 - - -  120,451
Other non-recourse financing  4,469  2,806   (2,833) - - - -  4,442
Other recourse financing  5,550  -   (3,705) - - - - 1,845
Bank overdrafts -  - - - - - -  -
   317,782  56,165   (93,475)  2,814   (13,984) -   2,224  634,551
                 

19.1 Non-recourse PPP loans

In 2020, non-recourse PPP loans, relating to PPP projects in the United Kingdom, were derecognised as a result of the transfer by BAM of 50 per cent of the shares of BAM PPP to PGGM. This has been reflected in the disposals in the table 2020 above. See 2.1.1 and note 37.3.

The remaining non-recourse PPP loans relate to real estate projects in the Netherlands. Of the non-current part, €1.4 million has a term to maturity of more than five years (2019: €2.4 million). The average term to maturity of the PPP loans is 11 years (2019: 1 year). The average interest rate on PPP loans is 2.0 per cent (2019: 4.0 per cent). Interest margins of these loans depend on market fluctuations during the term of these loans.

19.2 Non-recourse property financing

These loans are contracted to finance land for property development and ongoing property development projects. The average term of non-recourse property financing is approximately 0.8 years (2019: approximately 1.7 years).

Interest on these loans is based on Euribor/EONIA plus a margin. Interest margins of these loans do not depend on market fluctuations during the term of these loans. For several property financing loans, the interest is (partially) fixed. The balance of these financing loans is nil (2019: €0.8 million).

The carrying amount of the related assets is approximately €164 million at year-end 2020 (2019: approximately €155 million). The assets are pledged as a security for lenders. These loans will be payable on demand if the agreed qualitative and quantitative conditions relating to interest and capital repayments, among other things, are not met.

19.3 Recourse property financing

Recourse property financing is contracted to finance land and building rights and property development. The average term of recourse property financing is approximately 1.7 years (2019: approximately 1.7 years). Interest on these loans is based on Euribor/EONIA plus a margin. Interest margins of these loans do not depend on market fluctuations during the term of these loans. For several property financing loans, the interest is (partially) fixed. The balance of these financing loans is €2 million (2019: €2 million).

Recourse property financing relates directly to the accompanying assets, that constitute a security for lenders. The carrying amount of the accompanying assets amounts to approximately €73 million at year-end 2020 (2019: approximately €135 million). Additional securities exist in the form of a guarantee provided by the Group, in some cases supplemented by a bank guarantee. These loans will be repayable on demand if the agreed qualitative and quantitative conditions relating to interest and capital repayments, among other things, are not met.

19.4 Subordinated convertible bonds

In June 2016, the Group placed €125 million subordinated unsecured convertible bonds. The bonds have an annual coupon of 3.50 per cent, an initial conversion premium of 32.5 per cent and are convertible into ordinary shares of Royal BAM Group nv with a nominal value of €0.10 each. The coupon is payable semi-annually in arrear in equal instalments on 13 June and 13 December. The Bonds were issued at 100 per cent of their principal amount and, unless previously redeemed, converted or purchased and cancelled, the bonds will be redeemed at their principal amount on or around 13 June 2021. The Company is evaluating alternatives for refinancing the subordinated unsecured convertible bonds.

In 2020, the Group managed to buy back bonds with a notional value of €4.9 million in the open market. As per 31 December 2020, the subordinated convertible bonds amounting to €119 million form part of the short term borrowings.

Upon exercise of their conversion rights, holders will receive shares at the then prevailing conversion price. At 31 December 2020 the conversion price remains at €4.8334 (31 December 2019: €4.8334). The Group has the option to call all but not some of the outstanding bonds at their principal amount plus accrued but unpaid interest since 28 June 2019, if the value of the shares underlying a bond exceeds €130,000 for a specified period of time. The bonds are trading on the Open Market (Freiverkehr) segment of the Frankfurt Stock Exchange.

All payment obligations to the bondholders are subordinated to the payment obligations towards our senior debt holders until the redemption date of 13 June 2021.

At 31 December 2020 the fair value of the liability component of the subordinated convertible bonds amounts to €120 million (31 December 2019: €124 million). The fair value is estimated by discounting future cash flows using a market rate for an equivalent non-convertible instrument.

More details of the subordinated convertible bonds are published on the website.

The reconciliation of the subordinated convertible bonds to the consolidated statement of financial position and the consolidated statement of changes in equity is as follows:

    Allocated to:
  Face
value
Liability component Equity component
Gross proceeds  125,000  114,253  10,747
Transaction costs (1)  (3,233)  (2,955)  (278)
Net proceeds  121,767  111,298  10,469
Tax effect equity component   -  (2,617)
Effective interest method    1,193
As at 31 December 2016    112,491  7,852
Effective interest method    2,496 -
As at 31 December 2017    114,987  7,852
Effective interest method    2,650 -
As at 31 December 2018    117,637 -
Effective interest method    2,814 -
As at 31 December 2019    120,451  7,852
Repurchase 2020    (4,768) -
Effective interest method    2,987 -
As at 31 December 2020    118,670  7,852

¹ Transaction costs include fees and commissions paid to advisors, bankers and lawyers.

19.5 Committed syndicated credit facility

In November 2016 the Group renewed its committed revolving credit facility agreement for an amount of €400 million. The facility agreement was extended with one year in 2018 and has a remaining term to maturity of 2.3 years and runs until 31 March 2023. On 24 April 2020, the committed revolving credit facility was extended with one year to 31 March 2024, whereas from 1 April 2023 the committed amount is €360 million.

The facility can be used for general corporate purposes, including the usual working capital financing. As a result of this flexible use, the level of draw-downs fluctuates throughout the year.

In March 2020, the Group fully drew the facility as a precautionary measure to address the extraordinary circumstances faced due to Covid-19. Variable interest rates apply to the draw-downs on this facility with a margin between 150 and 275 basis points. As at 31 December 2020 the margin was 175 basis points (2019: 150 basis points). At year-end 2020, the facility was fully drawn (year-end 2019: not used). The revolving credit facility has been presented as a non-current liability as per 31 December 2020 given the contractual rights to repay the facility the latest at the end of the extended period of the revolving credit facility.

19.6 Other financing

Other loans relate to financing of property, plant and equipment.

19.7 Bank overdrafts

Besides the non-current committed syndicated credit facility (note 19.5), the Group holds €138 million (2019: €138 million) in bilateral credit facilities and €25 million (2019: €25 million) intraday facilities. At year-end 2020 as well as 2019 the bilateral credit facilities and the intraday facilities were not utilised.

19.8 Covenants

With regard to the various finance arrangements, the Group is bound by terms and conditions, both qualitative and quantitative and including financial ratios, in line with the industry’s practice.

Following the finance arrangement of the €400 million Revolving Credit Facility (RCF), the financial covenant calculation should be based on financial figures which are in line with the International Financial Reporting Standards (IFRS) as applicable on the closing date (i.e. 29 November 2016). Under the documentation it is also agreed that changes in the IFRS standards after the closing date, can be reversed for covenant calculation purposes, often referred to as ‘frozen GAAP’.

Since the closing date of the RCF, IFRS 15 and 16 came into force. Initially BAM calculated the covenants on a frozen GAAP basis, but during 2019 BAM agreed with the lenders to update the financial documentation for both standards. The Group agreed to continue to reverse the initial IFRS 15 impact on transition date, however to be phased out to nil in six quarters starting from the third quarter of 2019 onwards. With regard to IFRS 16, it has been agreed to leave all leases out of scope for covenant testing.

Terms and conditions for project financing, being (non-) recourse PPP loans, (non-) recourse property financing loans, are directly linked to the respective projects. A relevant ratio in property financing arrangements is the loan to value, i.e. the ratio between the financing arrangement and the value of the project. In PPP loans and recourse property financing arrangements the debt service cover ratio is applicable. This ratio relates the interest and repayment obligations to the project cash flow. No early payments were made in 2020 as a result of not adhering to the financing conditions of project related financing.

Terms and conditions for the committed syndicated credit facility are based on the Group as a whole, excluding non-recourse elements. The ratios for this financing arrangement (all recourse) are the leverage ratio, the interest cover, the solvency ratio and the guarantor covers.

In March 2020, the Group fully drew the credit facility for €400 million as a precautionary measure to Covid-19. On 7 August 2020, BAM obtained a waiver from its lenders for the recourse leverage and recourse interest cover. The waiver is applicable with retrospective effect as of 30 June 2020 and applies for four quarters up to the period ending 31 March 2021. The waiver is accompanied with two temporary financial requirements applicable for four quarters as of 30 June 2020:

- Consolidated net recourse borrowings: ≤ €0); and
- Recourse EBITDA (based on the last four quarters): ≥ -€25 million).

The Group has paid a waiver fee of 25 basis points. The margin increases by 25 basis points for these four quarters as long as Recourse EBITDA is not less than zero. If Recourse EBITDA is below zero the original margin grid is applicable and then the margin shall be 2.75 per cent per annum. Considering the waiver, the Group complied with all ratios in 2020. See also note 2.1.3.

An increased recourse leverage ratio of a maximum of 2.75 is permitted under the terms and conditions and applies to the second and third quarters of the year. The capital base in our financial covenants (as part of the solvency ratio) is adjusted for the hedging reserve and remeasurements of post-employments benefits, among other things. The set requirements and realisation of the recourse ratios described above, can be explained as follows:

  Calculation Requirement 2020 2019
Temporary requirements:        
Recourse EBITDA   ≥ -25 million  79 million  
Recourse borrowings   ≤ 0 million  (1.3) billion  
         
Leverage ratio Net borrowings/EBITDA  ≤ 2.50  N/A  (6.35)
Interest cover EBITDA/net interest expense  ≥ 4.00  N/A  9.56
Solvency ratio Capital base/total assets  ≥ 15%  20.3%  28.5%
Guarantor covers EBITDA share of guarantors  ≥ 60%  107.8%  120%
  Assets share of guarantors  ≥ 70%  78.3%  90%
         

19.9 Other information

The Group’s subordinated convertible bonds, classified as borrowings under the current liabilities are part of the capital base. Repayment obligations are subordinated to not subordinated obligations.

The non-recourse PPP loans relate directly to the associated receivables from government bodies. Therefore, the interest rates are influenced marginally by market adjustments applying to companies. The terms of property loans are relatively short, as a consequence of which interest margins are in line with the markets. Therefore, the carrying amounts of these loans do not differ significantly from their fair values.

The effective interest rates (including hedging instruments) are as follows:

  2020 2019
   Euro  Pound sterling  Euro  Pound sterling
         
Subordinated convertible bonds  6.1% -  6.1% -
Committed syndicated credit facility  2.2% - - -
Non-recourse PPP loans  2.0% - -  6.4%
Non-recourse property financing  3.0% -  2.6% -
Recourse PPP loans - -  - -
Recourse property financing  2.8% -  3.0% -
Other non-recourse financing  4.3% -  4.1% -
Other recourse financing - -  3.5% -

The Group contracted interest rate swaps to mitigate the exposure of borrowings to interest rate fluctuations and contractual changes in interest rates.

The Group’s unhedged position is as follows:

  Up to 1 year 1 to 5 years Over 5 years Total

         
Total borrowings 205,643

 422,295

 6,613  634,551
Fixed interest rates  (120,823)  (4,782)  (185)  (125,790)
As at 31 December 2020 84,820 471,513  6,428 508,761
         
Total borrowings  77,847  167,146  26,533  271,526
Fixed interest rates  (6,038)  (122,987)  (733)  (129,758)
Hedged with interest rate swaps  (3,848)  (15,577)  (20,800)  (40,225)
As at 31 December 2019  67,961  28,582  5,000  101,543
         

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

  2020 2019
Euro  634,551  231,301
Pound sterling -  40,225
   634,551  271,526

 

20. Lease liabilities

The Group leases various land and buildings, equipment and installations, IT equipment, cars and other items from third parties under non-cancellable lease agreements. The lease agreements vary in duration, termination clauses and renewal options. The average incremental borrowing rate applied is 2.0 per cent as per 31 December 2020 (2019: 2.1 per cent).

See note 8. Right-of-use assets for the corresponding right-of-use assets.

Set out below are the carrying amounts of lease liabilities and the movements during the period:

  2020 2019
As at 1 January 311,591  295,931
Additions  78,525  113,538
Accretion of interest*  6,506  6,689
Payments* (104,446) (105,092)
Remeasurements  5,480 -
Reclassifications  (1,468) -
Exchange rate difference  (2,215)  525
As at 31 December  293,973  311,591
Current  86,528  90,226
Non-current  207,445  221,365
As at 31 December  293,973  311,591

* See consolidated statement of cash flows

Accretion of interest includes an amount of €0.02 million (2019: €0.02 million) relating to BAM PPP which is reported as discontinued operations in the consolidated income statement.

The undiscounted future lease payments as included in the lease liabilities, presented in time buckets, are as follows:

  2020 2019
     
Up to 1 year  87,142  90,400
1 to 5 years  168,680  180,474
Over 5 years  48,161  55,801
   303,983  326,675

In addition to the identified lease liabilities above, an amount of €30 million of lease commitments exist regarding the short-term leases (2019: €37 million). Given the applied practical expedient, these leases have not been included in the lease liabilities and are therefore not stated in the table above.

The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised (see note 4).

Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term:

   Within five years  More than five years  Total

2020:      
Potential cash options not included in the leaseterm:      
- Extension options, if the options are exercised  15,487  50,464  65,951
- Termination options, if the options are not exercised  1,063 -  1,063
       
2019:      
Potential cash options not included in the leaseterm:      
- Extension options, if the options are exercised 9,844  46,776  56,620
- Termination options, if the options are not exercised 1,792  296  2,088
       

Expenses
The following are the amounts recognised in profit or loss:

  Note 2020 2019
Depreciation expense of right-of-use assets 8  98,918  99,326
Interest expense on lease liabilities 30  6,487  6,670
Impairment of right of use assets   -  62
Rent expenses – short term leases    45,641  59,513
Rent expenses – leases of low-value assets    1,745  1,813
Rent expenses – variable lease payments    13,147  17,169
Total    165,938  184,553

The group has lease contracts for cars that contains variable payments related to fuel and insurance.

Cash flows
Amounts recognised in the consolidated statement of cash flows:

  2020 2019
Payments  (104,446)  (105,092)
Interest  6,506  6,689
Repayments of principal portion of lease liabilities  (97,940)  (98,403)

The Group also had non-cash additions to right-of-use assets and lease liabilities of €78.5 million in 2020 (2019: €113.5 million). The future cash outflows relating to leases that have not yet commenced are disclosed in note 35.

21. Derivative financial instruments

  2020    2019
   Assets  Liabilities Fair value   Assets  Liabilities Fair value
Interest rate swaps  - - - -   9,567  (9,567)
Forward exchange contracts  650   764  (114)   704  946  (242)
   650  764  (114)  704  10,513  (9,809)
Of which current:  650  536  114  704  772  (68)

21.1 Interest rate swaps

At year-end 2020, no interest rate swaps are outstanding to hedge the interest rate risk on the (non-) recourse PPP loans with a variable interest rate due to the deconsolidation of BAM PPP. Total borrowings amount to €929 million (2019: €583 million), of which an amount of €508 million (2019: €142 million) carries a variable interest rate. Of the borrowings with a variable interest rate an amount of €nil (2019: €40 million) is hedged by interest rate swaps. All interest rate swaps are classified as hedge instruments. The fair value of the outstanding interest rate swaps amounts to €nil (2019: €10 million negative).

At year-end 2020, all derivative financial instruments of the Group provide an effective compensation for movements in cash flows from the hedged positions. Therefore, the movements in 2020 are accounted for in other comprehensive income. The change in fair value of outstanding derivative financial instruments which do not provide an effective compensation are accounted for in the income statement within ‘finance income/expense’.

The composition of the expected contractual cash flows is disclosed in note 3.1 to the consolidated financial statements.

21.2 Forward foreign exchange contracts

The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2020 were €62 million (2019: €241 million). The fair value amounts to €0.1 million negative (2019: €0.2 million negative). The terms to maturity of these contracts are up to a maximum of one year for the amount of €54 million (2019: €238 million), between one and two years for the amount of €8.0 million (2019: €2.3 million) and between two to four years nil (2019: €0.2 million).

The average forward rates of the foreign exchange contracts outstanding are:

   2020 2019
EURGBP  0.9159  0.8513
EURUSD  1.2261   1.1271
EURAED  4.4684  4.0940
EURAUD  1.7812  1.6203
EURNOK  10.3808  10.1619
EURCAD  1.5682  1.4675
EURSEK  10.4049 -
     

22. Employee benefits

  2020 2019
     
Defined benefit asset  55,107  68,929
     
Defined benefit liability  85,701  98,081
Other employee benefits obligations  28,031  30,139
   113,732  128,220

The Group operates defined contribution plans in the Netherlands, United Kingdom, Belgium, Germany and Ireland under broadly similar regulatory frameworks. The legacy defined benefit pension plans in all countries are closed for new entrants. The pension risks in the plans have decreased.

A further description of the post-employment benefit plans per country is as follows:

The Netherlands
In the Netherlands, the Group makes contributions to defined benefit schemes as well as defined contribution schemes.

The pension schemes in the Netherlands are subject to the regulations as stipulated in the Pension Act. Due to the Pension Act the pension plans need to be fully funded and need to be operated outside the Company through a separate legal entity. Several multi- employer funds and insurers operate the various pension plans. The Group has no additional responsibilities for the governance of these schemes.

The basic pension for every employee is covered by multi-employer funds in which also other companies participate based on legal obligations. These funds have an indexed average salary scheme and are therefore defined benefit schemes. Specifically, these are the industry pension funds for construction, metal & technology and railways. As these funds are not equipped to provide the required information on the Group’s proportionate share of pension liabilities and plan assets, the defined benefit plans are accounted for as defined contribution plans. The Group is obliged to pay the predetermined premium for these plans. The Group may not reclaim any excess payment and is not obliged to make up any deficit, except by way of the adjustment of future premiums. The part exceeding the basic pension amount (top-up part), which is not covered by multi-employer funds, is carried out by external parties and relates to defined contribution schemes.

At year-end 2020, the (twelve-month average) coverage rate of the industry pension fund for construction is 106 per cent (2019: 112 per cent). The industry pension fund for metal & technology has a (twelve-month average) coverage rate of 91 per cent at year-end 2020 (2019: 98 per cent). The (twelve-month average) coverage rate of the industry pension fund for railways is 102 per cent (2019: 108 per cent).

With effect from 2006, the defined benefit scheme is closed for new entrants. The build-up of future pension entitlements for these employees is covered by the multi-employer funds or external insurance companies. Defined benefit schemes are closed for future accumulation and index-linked to the industry pension fund for Construction. Future build-up is solely possible for the top-up pension scheme of BAM, is terminated in 2020; it is financed by the employer based on a percentage of the pensionable salaries of the employees.

In the context of accountability for the Group’s pension policy (to be) implemented, with regard to, inter alia, supplements and investment performance, the Group has established an accountability committee, with representation from the Central Works Council (CWC) and the Socio-Economic Committee of the BAM pensioners association (SEC).

United Kingdom
In the United Kingdom, the Group makes contributions to defined benefit plans as well as defined contribution plans. The Group is responsible for making supplementary contributions to recover the historical financing deficits. The plan for supplementary contributions was last revised after the most recent actuarial valuations of the funds in March 2016 and led to supplementary contributions in 2020 to the amount of approximately €4 million (2019: approximately €7 million). During 2019, the Group revalued the scheme’s assets and pension obligations with the support of the actuary experts. This revaluation led to an actuarial loss of €35 million, mainly caused by the buy-in insurance policy, decrease of discount rate and change in demographic assumptions. The loss is partly offset by €6 million tax impact. The Group recognises a net defined benefit asset because it is entitled to a return of surplus at the end of the plans’ lifes.

The Group replaced the closed defined benefit pension schemes with defined contribution schemes, which are executed by an outside insurance company. Following the closure of future accumulation in defined benefit pension schemes in 2010, employees who participated in these schemes were invited to participate in the defined contribution schemes.

In addition, several defined benefit schemes are accounted for as defined contribution schemes due to the fact that external parties administering them are not able to provide the required information. These schemes have limited numbers of members. The Group is obliged to pay the predetermined premium for these plans. The Group may not reclaim any excess payment and is not obliged to make up any deficit, except by way of the adjustment of future premiums. The Group did not make any material contributions in 2020 nor 2019.

Belgium
In Belgium, the Group makes contributions to a relatively small defined benefit scheme that is executed by an external insurance company. The Group has also made arrangements for employees to participate in a defined contribution scheme. Belgian defined contribution plans are subject to the Law of 28 April 2003 on occupational pensions, due to changes in the law in December 2015 defined contribution should be classified and accounted for as defined benefit plans under IAS 19 ‘Employee Benefits’.

Germany
In Germany, the Group operates one defined benefit pension scheme financed by the employer. The Group closed two schemes to new participants and since 2006, the Group operates a defined contribution scheme, into which employees have the opportunity to contribute on an individual basis.

Ireland
The Group has a defined benefit scheme in Ireland, executed by a company pension fund. The multi-employer pension scheme was fully converted from a defined benefit scheme to a defined contribution scheme with effect from 1 January 2006 for new entrants. The Group is responsible for making supplementary contributions to recover the historical financing deficits. The plan for supplementary contributions was last revised after the most recent actuarial valuations of the funds in 2017. This has led to a yearly supplementary contribution of approximately €2 million (2019: €2 million).

Movements in the defined benefit pension plans over the year is as follows:

   Netherlands  United Kingdom  Belgium  Germany  Ireland Total
As at 31 December 2020            
Defined benefit liability  17,145 -  3,295  53,989  11,272  85,701
Defined benefit asset -  55,107 - - -  55,107
   17,145  55,107  3,295  53,989  11,272   30,594
Present value of obligation            
As at 1 January 2020  414,737  1,024,186  27,521  74,662  106,187  1,647,293
Service cost  1,096  (1,215)  1,468  12  2,087  3,448
Interest expense  3,663  19,892  176  734  1,467  25,932
Remeasurements  16,733  130,963  1,114  198  (1,704)  147,304
Plan participants contributions - -  444 -  352  796
Benefit payments  (14,440)  (50,460)  (1,411)  (4,374)  (3,095)  (73,780)
Changes and plan amendments - - - - - -
Settlements  (12,021) - - - -  (12,021)
Disposals - -  (366) - -  (366)
Exchange rate differences -  (56,591) - - -  (56,591)
As at 31 December 2020   409,768  1,066,775  28,946   71,232  105,294  1,682,015
Fair value of plan assets            
As at 1 January 2020  401,045  1,093,114  24,232  17,254  82,495  1,618,140
Interest income  3,575  21,283  161  169  1,164  26,352
Remeasurements  11,244  116,304  833  379  9,048  137,808
Employer contributions  4,110  4,212  1,796  3,815  4,058  17,991
Plan participants contributions - -  444 -  352  796
Benefit payments  (14,440)  (50,460)  (1,411)  (4,374)  (3,095)  (73,780)
Administration cost  (890)  (2,449)  (38) - -  (3,377)
Settlements  (12,021) - - - -  (12,021)
Disposals - - (366) - - (366)
Exchange rate differences -  (60,122) - - -  (60,122)
As at 31 December 2020  392,623  1,121,882  25,651  17,243  94,022  1,651,421
             
Present value of obligation   409,768   1,066,775   28,946   71,232   105,294   1,682,015
Fair value of plan assets   392,623  1,121,882  25,651  17,243   94,022  1,651,421
             
As at 31 December 2020  17,145  (55,107)  3,295  53,989  11,272  30,594
             
Amounts recognised in the income statement            
Service cost  1,096  (1,215)  1,468  12  2,087  3,448
Net interest expense  88  (1,391)  15  565  303  (420)
Changes and plan amendments and settlements - - - - - -
Administration cost  890  2,449  38 - -   3,377
   2,074  (158)  1,521  577  2,390  6,404
Amounts recognised in other comprehensive income            
Remeasurements:            
- Return on plan assets, excluding interest income  (11,244)   (116,303)  (832)  (379)  (9,048)  (137,806)
- (Gain)/loss from change in demographic assumptions  (7,907)  (573) - - -  (8,480)
- (Gain)/loss from change in financial assumptions 29,102  134,347  122 -  1,965  165,536
- Experience (gains)/losses  (4,462)  (2,811)  992  198  (3,669)  (9,752)
   5,489  14,660  282  (181)  (10,752)  9,498
Income tax   (1,372)  (6,597)  (307)  (625)  1,343  (7,558)
Remeasurement net of tax  4,117  8,063  (25)  (806)  (9,409)  1,940
As at 31 December 2019            
Defined benefit liability  13,692  -  3,289  57,408  23,692   98,081
Defined benefit asset  -   (68,929) - - -  68,929 
   13,692  (68,929)  3,289  57,408  23,692  29,152
Present value of obligation            
As at 1 January 2019   376,746   874,653  25,321  70,528  95,371  1,442,619
Service cost  832  66  1,361  17  1,853  4,129
Interest expense  6,631  25,060  442  1,232  1,996  35,361
Remeasurements  47,171  108,120   1,366  7,220  16,268  180,145
Plan participants contributions - -  596 -  386  982
Benefit payments  (12,643)  (34,628)  (1,338)  (4,335)  (9,687)  (62,631)
Changes and plan amendments - - - - - -
Settlements  (4,000) -  (53) - -  (4,053)
Disposals - -  (174) - -  (174)
Exchange rate differences   50,915  - - -  50,915
As at 31 December 2019  414,737  1,024,186  27,521  74,662  106,187  1,647,293
Fair value of plan assets            
As at 1 January 2019   357,996  985,872  985,872   17,691   77,794  1,462,098
Interest income  6,346  28,402  418  305  1,654  37,125
Remeasurements  41,318  51,463  338  71  8,354  101,544
Employer contributions  12,358  7,664  1,735  3,517  3,994  29,268
Plan participants contributions - -  596 -  386  982
Benefit payments  (12,643)  (34,628)  (1,338)  (4,335)  (9,687)  (62,631)
Administration cost  (330)  (1,353)  (34) 5 -  (1,712)
Settlements  (4,000) -  (53) - -  (4,053)
Disposals - -  (175) - -  (175)
Exchange rate differences -  55,694 - - -  55,694
As at 31 December 2019  401,045  1,093,114  24,232  17,254  82,495  1,618,140
             
Present value of obligation  414,737  1,024,186  27,521  74,662  106,187  1,647,293
Fair value of plan assets  401,045  1,093,114  24,232  17,254  82,495  1,618,140
As at 31 December 2019  13,692  (68,929)  3,289  57,408  23,692  29,152
Amounts recognised in the income statement            
Service cost  832  66  1,361  17  1,853  4,129
Net interest expense  285  (3,342)  24  927  342  (1,764)
Changes and plan amendments and settlements - - - - - -
Administration cost  330  1,353 34  (5) -  1,712
   1,447  (1,923)  1,419  939  2,195  4,077
Amounts recognised in other comprehensive income            
Remeasurements:            
- Return on plan assets, excluding interest income  (41,318)  (51,463)  (339)  (71)  (8,354)  (101,545)
- (Gain)/loss from change in demographic assumptions -  10,608  (1,371)  3,110 -  12,347
- (Gain)/loss from change in financial assumptions  43,709  99,277  2,255  3,852  16,132  165,225
- Experience (gains)/losses  3,462  (1,764)  482  258  136  2,574
   5,853  56,657  1,028  7,149  7,914  78,601
Income tax  (1,463)  (10,098)  (263)  2,338  (990)  (10,476)
Remeasurement net of tax  4,390  46,559  765  9,487  6,924  68,125

The average duration of the defined benefit obligations per country were as follows:

  Netherlands United Kingdom Belgium Germany Ireland
2020          
Average duration (in years) 16 20 17 12 22
2019          
Average duration (in years) 17 20 17 11 22

The significant actuarial assumptions per country were as follows:

  Netherlands United Kingdom Belgium Germany Ireland
2020          
Discount rate  0.4%  1.4% 0.6%  1.0%  1.3%
Salary growth rate  0-1.7%  0-3.6%  1.7%  1.5% -
Pension growth rate  0-1.2%  2.1-2.9% -  1.5%  0-1.3%
2019          
Discount rate 0.9%  2.1%  0.6%  1.0%  1.4%
Salary growth rate  0-1.7%  0-3.6%  1.8%  1.5% -
Pension growth rate  0-1.4%  2.2-3.0% -  1.5%   0-1.3%

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country.

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

  • If the discount rate is 0.5 per cent higher (lower), the pension liability will decrease by approximately €148 million (increase by approximately €173 million).
  • If the expected salary increase is 0.5 per cent higher (lower), the pension liability will increase by approximately €2 million (decrease by approximately €2 million).
  • if the expected indexation is 0.5 per cent higher (lower), the pension liability will increase by approximately €85 million (decrease by approximately €73 million).
  • If the life expectancy increases (decreases) by 1 year, the pension liability will increase by approximately €78 million (decrease by approximately €77 million).

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the statement of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

Plan assets are comprised as follows:

   Netherlands  United Kingdom Belgium Germany Ireland Total
2020            
Equity instruments (quoted) -  123,021 - -  33,523  156,544
Debt instruments (quoted) -  856,389 - -  47,938  904,327
Property (quoted) -  18,402 - -  3,375  21,777
Qualifying insurance policies (unquoted)  392,623  102,327  25,651  17,243  470  538,314
Cash and cash equivalents -  21,743 - -  8,716  30,459
   392,623  1,121,882  25,651  17,243  94,022  1,651,421
2019            
Equity instruments (quoted) -  119,973      46,465  166,438
Debt instruments (quoted) -  802,088      31,544  833,632
Property (quoted)  401,045  17,148      3,630  20,778
Qualifying insurance policies (unquoted) 401,045  99,784  24,232  17,254  521  542,836 
Cash and cash equivalents -  54,121      335  54,456
   401,045  1,093,114  24,232  17,254  82,495  1,618,140

Plan assets do not include the Company’s ordinary shares. The Group applies IAS 19.115 for the valuation of the plan assets in connection with the insured contracts.

Through its defined benefit pension plans the Group is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit.

Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.

Salary growth
The plan liabilities are calculated based on future salaries of the plan participants, so increases in future salaries will result in an increase in the plan liabilities.

Pension growth
The majority of the plan liabilities are calculated based on future pension increases, so these increases will result in an increase in the plan liabilities.

Life expectancy
The majority of the plan liabilities are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plan liabilities. With regard to the funded plans, the Group ensures that the investment positions are managed within an asset-liability matching (‘ALM’) framework that has been developed to achieve long-term investments that are in line with the obligations under the pension schemes. Within this framework, the Group’s ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The Group monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The Group has not changed the processes used to manage its risks from previous periods. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

Employer contributions to post-employment benefit plans for the year ending 31 December 2021 are expected to be slightly lower than 2020 by €3 million to €4 million, due to less contributions in the Netherlands and United Kindom.

23. Provisions

   Warranty  Restructuring  Claims / legal obligations  Associates and joint ventures  Onerous contracts  Other  Total
As at 1 January 2020  32,025  7,775  28,675  77,466  118,837  10,239  275,017
Charged/(credited) to the income statement:              
- Additional provisions  16,457  44,878  8,530  7,381  104,287  13,190  194,723
- Release  (812)  (202)  (2,582) -  (21,136)  (21)  (24,753)
Used during the year  (11,566)  (8,831)  (3,852)  (1,325)  (39,735)  (2,402)  (67,711)
Reclassifications  71  (3,464) -  (43,949)  (913)  1,456  (46,799)
Transfer to liabilities held for sale - -  (897) -  (1,732) -  (2,629)
Exchange rate differences -  (2) -  (133)   (764)  (12)  (911)
As at 31 December 2020  36,175  40,154  29,874  39,440  158,844  22,450  326,937

Provisions are classified in the balance sheet as follows:

  2020 2019
Non-current  133,268  163,363
Current  193,669  11,654
   326,937  275,017

The provision for warranty concerns the best estimate of the expenditure required to settle complaints and deficiencies that become apparent after the delivery of projects and that fall within the warranty period. In reaching its best estimate, the Group takes into account the risks and uncertainties that surround the underlying events which are assessed periodically. Approximately 47 per cent of the provision is current in nature (2019: approximately 69 per cent).

The provision for restructuring concerns the best estimate of the expenditure associated with reorganisation plans already initiated. This provision has significantly increased due the major restructuring programme, announced in September 2020, of which costs nearly fully relate to headcount reductions. Further, due to the wind down of activities in BAM International a number of employees have been made redundant in 2020. Total restructuring costs related to the major restructuring programme as well as the wind down of BAM International amount to approximately €45 million for which the majority is expected to be settled in 2021. Approximately 99 per cent of the provision is current in nature (2019: approximately 69 per cent). The estimated staff restructuring costs to be incurred are recognised under ‘personnel expenses’ for an amount of €41 million (2019: €3 million). Other direct costs attributable to the restructuring are recognised under ‘other operating expenses’. The reclassifications under restructuring comprise amounts reclassified to other liabilities.

Claims and legal obligations mainly relate to legal cases of closed projects. These are related to active and at-risk cases. The uncertainties related to this provision are linked to the duration and the extent of the amount to be incurred. Approximately 64 per cent of the provision is current in nature (2019: 57 per cent).

The provision for associates and joint ventures arise from the legal or constructive obligation in connection with structured entities for property development projects (associates and joint ventures). An amount of €39.4 million (2019: €77.5 million) is attributable to joint ventures and €0.0 million (2019: €0.0 million) to associates. Reclassifications of Associates and joint ventures mainly relate to the derecognition of all assets and liabilities of BAM PPP following the transfer of 50 per cent of the shares to PGGM. See 2.1.1 and note 11.2.

A provision for onerous contracts is related to projects for which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits. Appr. 63 per cent of the provision is current in nature (2019: appr. 58 per cent). See note 2.26 step 2.

Other provisions relate to various individual immaterial amounts and nature, such as decommissioning obligations and minor disputes. Approximately 79 per cent of the provision is current in nature (2019: approximately 59 per cent). The additional provisions of Other include an amount of €10 million that relates to a subsidiary that has been classified as held for sale as per 31 December 2020. See note 37.2. The provisions in the transfer to liabilities held for sale of €3 million relate to this subsidiary.

The non-current part of the provisions has been discounted at an interest rate in the range of approximately 0 to 3 per cent (2019: approximately 0 to 3 per cent).

24. Deferred tax assets and liabilities

  2020 2019
Deferred tax assets  106,182  136,468
Deferred tax liabilities  (13,623)  (18,495)
Deferred tax assets (net)  92,559  117,973

The gross movement on the deferred income tax assets and liabilities is as follows:

  2020 2019
As at 1 January  117,973  125,835
Income statement charge/(credit)  (43,053)  (22,048)
Tax charge/(credit) relating to components of other comprehensive income  6,056  9,376
Changes in enacted tax rates  7,420  5,570
Acquired/disposed in business combination  4,161 -
Other / reclass  (698)  135
Exchange rate differences  700  (895)
As at 31 December  92,559  117,973

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

  Provisions Tax losses Derivatives Employee benefit obligations Other Total
Deferred tax assets            
             
As at 1 January 2019  4,940  138,583  1,719  14,010  22,230  181,482
(Charged)/credited to the income statement  826  (31,184)  (1)  (2,995)  1,572  (31,782)
(Charged)/credited to other comprehensive income  (394)  (57)  298  (250)  (403)
Changes in enacted tax rates  134  7,234 -  (25)  581  7,924
Reclassifications -  205 - -  (12)  93
Exchange rate differences  57  44  88 -  64  253
As at 31 December 2019  5,957  114,488  1,749  11,288  24,185  157,667
             
(Charged)/credited to the income statement  6,704  (40,052)  1,627  1,087  (4,341)  (34,975)
             
(Charged)/credited to other comprehensive income - -  (1,502)  2,033 -  531
Changes in enacted tax rates -  9,003 - -  450  9,453
Reclassifications - -  (1,661) -  (698)  (2,359)
Exchange rate differences  (65) -  (89 -  (116)  (270)
As at 31 December 2020  12,596  83,439  124  14,408  19,480  130,047

 

  Construction contracts Accelerated tax depreciation Derivatives  Employee benefit assets Other Total
Deferred tax liabilities            
             
As at 1 January 2019  24,104  7,849  139  18,903  4,652  55,647
Charged/(credited) to the income statement  (13,835)  (186) -  1,752  2,535  (9,734)
Charged/(credited) to other comprehensive income -  (277)  (127)  (10,178)  803  (9,779)
Changes in enacted tax rates  1,116  14 -  1,226  9  2,365
Reclassifications  13  (13) - -  47  47
Exchange rate differences -  312 -  835 1  1,148
As at 31 December 2019  11,398  7,699 12  12,538  8,047  39,694
             
Charged/(credited) to the income statement  6,718  (664)    2,103  (80)  8,077
Charged/(credited) to other comprehensive income        (5,525)    (5,525)
Changes in enacted tax rates    30    2,003    2,033
Reclassifications    (5,822)        (5,822)
Exchange rate differences    (319)    (650)    (969)
As at 31 December 2020  18,116  924  12  10,469  7,967  37,488
             

Deferred tax assets in a country are recognised only to the extent that it is probable that future taxable profits in that country are available against which the deductible temporary differences, available tax credits and available tax losses carry-forwards can be utilised. The assessment as to whether an entity will have sufficient taxable profits in the future is a matter requiring careful judgement based on the facts and circumstances available. Although the profit forecast shows that sufficient profit should be available in coming years to recognize a deferred tax asset for compensating losses, we performed further analysis of all positive and negative evidence to substantiate the position taken. The nature of the convincing evidence did not change significantly compared to 31 December 2019, except for the future taxable profits. The Group’s actual results for the year, and the forecasted taxable profits for the years 2021 through 2026 have been seriously affected by underperformance of the German construction, BAM International and Dutch Civil engineering business, the decision to wind down BAM International and the fact that BAM’s interest in BAM PPP was reduced to 50%. Also, the Group has considered the impact of Covid-19 in the estimates used for the valuation of the deferred tax assets. As a consequence, deferred tax assets for net operating losses were impaired for an amount of €69 million, of which €44.2 million relate to the Netherlands and € 20.6 million to Germany. The remaining carrying amount (after impairment and recognition of net operating losses) of the deferred tax asset is €92.6 million as at 31 December 2020.

Netherlands
Tax losses available to the fiscal unity in the Netherlands for carry-forward losses at year-end 2020 amount to approximately €636 million (2019: €1 billion). These unused tax losses relate to the years 2012 up to and including 2017 and result to a large extent from identifiable causes, which are unlikely to recur, including significant impairments on properties and significant restructuring costs during these years. The legal term within which these losses may be offset against future profits is nine or six years.

Based on estimates and timing of future taxable profits within the fiscal unity in the Netherlands for the upcoming six years, approximately €256 million (2019: €470 million) of these losses are recognised. Management estimates of forecasted taxable profits in the Netherlands are based on financial budgets approved by management, extrapolated using growth rates for revenue and profit before tax margins that take into account external market data and benchmark information and taking into account past performance. Growth rates for revenue and profit before tax margins are in line with the Group’s mid- and long-term expectations. Subsequently these forecasts have been reduced to meet the recognition criteria under IFRS in respect of deferred tax assets. No specific tax planning opportunities have been taken into account. The measurement of the deferred tax asset is especially sensitive to the risk of expiry of tax loss carry forwards, for which therefore appropriate discounts have been used. In December 2019 the Dutch tax plan 2020 was approved by the Dutch Senate increasing the corporate income tax rate to 25 per cent in 2020 and decreasing to 21.7 per cent in 2021 and future years. The impact of the tax rate decrease has been reflected in the value of the deferred tax assets in the 2019 annual report.

In December 2020, the Dutch Senate accepted the Dutch tax plan 2021 which makes the tax plan substantially enacted under IFRS. In the Dutch tax plan 2021 the future reduction of the income tax rate to 21.7% will not be further implemented and the income tax rate will remain at 25%. This resulted in an increase in deferred tax asset relating to operating losses by €8 million.

Not substantially enacted is the proposed change in tax loss carry forward rules which should be effective as from 2022. Tax losses can be used unlimited in time (before this, tax losses could only be used in the following six or nine years). However, annual use of tax losses is limited to 50 per cent of the taxable profit wherein the first €1 million taxable profit is fully compensable (previously, the total profit in a year could be offset by tax losses). Enactment of the new tax rules is expected in 2021. Since the new legislation in the Netherlands has not been fully enacted as per 31 December 2020, the possible effects hereof have not been accounted for as per 31 December 2020. When using the estimates and forecast period as applied in the valuation as per 31 December 2020 an impairment of €28 million regarding the deferred tax assets would occur. When substantially enacted in 2021 the actual impact will be further analysed.

Germany
Tax losses to a minimum of €677 million (2019: €600 million) are expected to remain available for the companies in Germany, which can be offset against future taxable profits. Based on estimates of the level and timing of future taxable profits per operating company and per fiscal unity, approximately €6 million (2019: €15 million) of these losses are recognized. The legal term within which these losses may be offset against future profits is indefinite. Management estimates of forecasted taxable profits in Germany are based on financial budgets approved by management, extrapolated using estimated growth rates that are considered to be in line with the Group’s mid- and long-term expectations, taking into account past performance.

25. Trade and other payables

  Notes 2020 2019
       
Trade payables 6  898,623  835,624
Amounts due to customers (contract liabilities) 38  812,351  626,297
Amounts due to related parties    133,292  126,067
Social security and other taxes    371,155  147,495
Pension premiums    9,183  9,972
Amounts due for work completed    167,066  178,049
Amounts due for work in progress    461,216  616,598
Other financial liabilities    6,778  1,134
Other liabilities    97,436  67,264
Accrued expenses and deferred income    270,913  273,969
     3,228,013  2,882,469

In response to Covid-19, the Group made use of the temporary deferral of tax payments (value added tax and wage tax) granted by certain tax authorities for a total nominal amount of €234 million, of which is mainly related to the Netherlands and partly to the United Kingdom. An amount of €50 million has been included in the social security and other taxes and the long term part amounting to €184 million, which is to be settled after 2021 up to 2024, forms part of the social security and other taxes in the non-current liabilities in the consolidated statement of financial position.

The increase in amounts due to customers (contract liabilities) mainly relates to some large prepayments on certain contracts.

The amounts due for work completed and for work in progress relate to suppliers of the Group for contract work performed.

26. Employee benefit expenses

  Notes 2020 2019
Wages and salaries    1,152,018  1,119,970
Social security costs    170,301  170,828
Pension costs - defined contribution plans    89,923  84,693
Pension costs - defined benefit plans 22  6,404  4,107
Other post-employment benefits    (477)  904
     1,418,169  1,380,502

Employee benefit expenses include restructuring costs and other termination benefits of €41 million (2019: €3.0 million) of which €35 million is included in wages and salaries, €4 million in social security costs and €1 million in pension costs and other post-employment benefits. See further note 28.

Certain governmental (furlough) schemes were used in connection with Covid-19 for a total amount of approximately €12 million, which is fully reflected in wages and salaries. An amount of €10 million in respect of the United Kingdom (€8 million) and Ireland (€2 million) has been received and is deducted from wages and salaries. The remainder of €2 million is reflected as a reduction of the wages and salaries as part of the employee benefit expenses, given the fact that grants in Belgium were directly paid to employees. See note 41.

At year-end 2020, the Group had 17,966 employees in FTE (2019: 19,419, excluding 98 in discontinued operations). The average number of employees in FTE amounted to 18,731 (2019: 19,336, excluding discontinued operations), of which 10,185 in other countries than the Netherlands (2019: 10,966).

27. Impairment charges

  Notes 2020 2019
       
Intangible assets 9  60,934  10,337
Property, plant and equipment 7  586 -
Inventories 13  11,321  10,841
Impairment charges    72,841  21,178
Share of impairment charges in investments 11  1,900  (2,655)
     74,741  18,523

Deteriorating market conditions (including Covid-19) gave rise to further assess future performance of the Group. Poor performance of certain underlying CGUs (to which goodwill is allocated) led to an impairment loss of goodwill of €61 million. See note 9.

In 2020 and 2019, the net impairment charges in connection with inventories are related to property developments in the Netherlands.

28. Adjusted items

The following items have been adjusted on the result before tax and relate to impairment charges, restructuring costs and pension one-offs as detailed below:

  Notes 2020 2019
       
Impairment charges 27  74,741  18,523
Restructuring costs 23  44,676  4,957
Pension one-off 22  (1,181) -
     118,236  23,480

Impairment charges
Impairment charges mainly relate to impairment of goodwill in 2020. Also certain property development has been impaired for the net amount of €11 million which have been reported at their net realisable value.

Restructuring costs
Restructuring costs relate to the major restructuring programme, announced in September 2020. Further, due to the wind down of activities in BAM International a number of employees have been made redundant in 2020. Total restructuring costs related to the major restructuring programme as well as the wind down of BAM International amount to approximately €45 million (2019: €5 million) of which €41 million (2019: €3 million) is included in employee benefit expenses and €4 million (2019: €2 million) is included in other operating expenses.

Pension one-off
The pension one-off relates to the UK Civil release of pension liability due to a change of indexation of future salary increases, which had a positive effect of €1.2 million.

29. Audit fees

The total fees for the audit of the consolidated financial statements 2020 are listed below. The fees stated below for the audit of the financial statements are based on the total fees for the audit of the financial statements, regardless of whether the procedures were already performed in the financial year.

Expenses for services provided by the Company’s current independent auditor, Ernst & Young Accountants LLP (EY) and its foreign member firms to the Group are specified as follows:

  2020 2019
  EY Netherland EY foreign member firms  Total  EY Netherland EY foreign member firms  Total
             
Audit fees  4,053  2,181  6,234  4,099  2,173  6,272
Audit-related fees  90  109  199  93  36  129
Tax fees - - - - - -
Other non-audit fees - - - - - -
       6,433      6,401

30. Finance income and expense

  2020 2019
Finance income    
 - Interest income - cash at banks  1,251  1,819
 - Interest income - other financial assets  1,117  389
 - Other finance income  5,873  2,713
   8,242  4,921
Finance expense    
 - Subordinated convertible bonds  7,365  7,189
 - Committed syndicated credit facility  6,126  185
 - Bank fees - committed syndicated credit facility  1,411  2,708
 - Non-recourse property financing  2,230  1,618
 - Other non-recourse financing  198  185
 - Interest expense - bank overdrafts and deposits  2,378  125
 - Interest expense on lease liabilties  6,487  6,483
 - Recourse property financing  622  1,196
 - Other recourse financing  2,981  1,434
 - Interest expense - other liabilities  50  87
   29,849  21,210
Less: capitalised interest on the Group’s own projects  (5,993)  (5,063)
   23,856  16,147
Net finance result  (15,614)  (11,226)

An overview of the applicable effective interest rates on borrowings are disclosed in note 19 to the consolidated financial statements. The Group encounters various negative interest rates on deposits.

31. Income tax

  2020 2019
Current tax (533)  20,226
Deferred tax 35,633  16,489
   35,100  36.715

Income tax on the Group’s result before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

  2020 2019
Result before tax  (236,947)  23,389
     
Tax calculated at Dutch tax rate  (59,237)  5,848
Tax effects of:    
 - Tax rates in other countries  20,833  892
 - Non deductible goodwill impairment  15,000 -
 - Income not subject to tax -  37
 - Remeasurement of deferred tax – changes in enacted tax rates  (7,420)  (5,570)
 - Tax filings and previously unrecognised temporary differences -  5,056
 -Previously unrecognised tax losses  (920)  (9,709)
 - Tax losses no(t) (longer) recognised  69,061  36,657
 - Results of investments and other participations, net of tax  (1,566)  (3,491)
 - Other including expenses not deductible for tax purposes  (651)  6,995
Tax charge/(gain)  35,100  36,715
     
Effective tax rate  -14.8%  76,4%

The weighted average tax rate applicable was 16.2 per cent (2019: 25.9 per cent). The difference with the effective tax rate is attributable to a different spread of results over the countries.

In 2020 the tax burden was influenced by tax losses which are not recognised (anymore), non-deductible goodwill impairment, nontaxable participation related results and the increase of the corporate tax rates in the Netherlands.

On balance the corporate income tax rate effect in the Netherlands and UK has an positive impact on the deferred tax positions of the group for €7.4 million, of which €9.4 million relates to losses and credits within the Dutch fiscal unity. An amount of €69 million of the tax charge relates to the derecognition of deferred tax assets, of which €44.2.million relates to the impairment of tax losses of the Dutch fiscal unity. Furthermore, the lower than expected performance of the German construction and property unit led to a derecognition of deferred tax assets of in total €20.6 million.

Next to that the goodwill impairment reported is not deductible for taxes, negatively impacting the effective tax rate by € 15 million.

For information about the income tax expenses in respect of discontinued operations see note 37.3.

32. Earnings per share

  2020 2019
Weighted average number of ordinary shares in issue (x 1,000)  273,296  273,496
     
Net result attributable to shareholders  (122,184)  11,846
Basic earnings per share (in €)  (0.45)  0.04
     
Net result from continuing operations attributable to shareholders  (271,760)  (13,310)
Basic earnings per share from continuing operations (in €)  (1.00)  (0.05)
     
Net result from discontinued operations attributable to shareholders  149,577  25,156
Basic earnings per share from discontinued operations (in €)  0.55  0.09

Allowing for dilution, the earnings per share are as follows:

  2020 2019
Diluted weighted average number of ordinary shares in issue (x 1,000)  299,124  299,039
     
Net result attributable to shareholders (diluted)  (116,659)  17,238
Diluted earnings per share (in €)  (0.45)  0.04
     
Net result from continuing operations attributable to shareholders (diluted)  (266,236)  (7,918)
Diluted earnings from continuing operations per share (in €)  (1.00)  (0.05)
     
Net result from discontinued operations attributable to shareholders (diluted)  149,577  25,156
Diluted earnings from discontinued operations per share (in €)  0.55  0.09
     

In 2020 and 2019, the potential ordinary shares are antidilutive because their conversion to ordinary shares would decrease the loss per share from continuing operations. Therefore in both years, no conversion is assumed and the diluted earnings per share are equal to the basic earnings per share.

33. Dividends per share and proposed appropriation of result

The net result for 2020, amounting to a loss of €122.4 million, has been accounted for in shareholders’ equity.

The Company proposed to declare a dividend over the financial year 2019 of 2 eurocents in cash per ordinary share or in shares, at the option of the shareholders with repurchase of shares to offset dilution. This proposed dividend was further withdrawn in 2020.

Over 2020, no dividend is proposed to be declared in light of Covid-19 circumstance which severely affected the group’s performance.

The dividends paid to shareholders of ordinary shares in 2019 were €38.3 million, €19.5 million in cash (€0.14 per share) and €18.8 million in shares (€0.14 per share), these shares were repurchased in 2019 for €16.9 million.

34. Contingencies

34.1 Legal proceedings

In the normal course of business the Group is involved in legal proceedings predominantly concerning litigation in connection with (completed) construction contracts. The legal proceedings, whether pending, threatened or unasserted, if decided adversely or settled, may have a material impact on the Group’s financial position, operational result or cash flows. The Group may enter into discussions regarding settlement of these and other proceedings and may enter into settlement agreements, if it believes settlement is in the best interests of the Company’s shareholders. In accordance with current accounting policies, the Group has recognised provisions with respect to these proceedings, where appropriate, which are reflected on its balance sheet.

On 3 March 2009, during the construction of a section of the Cologne metro system, several adjacent buildings, including the building of the City Archives of the City of Cologne, collapsed. In 2020, the City of Cologne, Cologne Public Transport and the joint venture (‘Arge’) reached an agreement to settle all outstanding claims in regards to this project. See note 11.2.

34.2 Guarantees

Bonds and Guarantees are provided in the ordinary course of business to our clients, either by the Company (parental guarantees), by banks (bank guarantees), or by surety companies (surety bonds), securing due performance of the obligations under the contracts by the subsidiaries of the Company.

It is not expected that any material risks will arise from these securities. These securities are limited in amount and can only be called upon in case of (proven) default.

The parent company guarantees issued amount to €186 million (2019: €178 million). Guarantees issued by banks and surety companies amount to €2 billion (2019: €2 billion). Guarantee facilities amount to €2.9 billion (2019: €3.2 billion).

35. Commitments

35.1 Purchase commitments

Capital expenditure contracted for at the end of the reporting period but not yet incurred and conditional contractual obligations to purchase land for property development activities is as follows:

  2020 2019
Property, plant and equipment  2,733  6,288
Land  154,047  203,291
   156,780  209,579

The conditional nature of the contractual obligations to purchase land relate to, among other items, the amendment of development plans, the acquirement of planning permissions and the actual completion of property development projects.

35.2 Lease commitments

The future undiscounted lease payments regarding lease commitments are included in note 20. Lease liabilities.

The Group has various lease contracts that have not yet commenced as at 31 December 2020. The future undiscounted lease payments for these non-cancellable lease contracts are €1.7 million within one year, €4.9 million within five years and €0.2 million thereafter (2019: €3.3 million within one year, €12.4 million within five years and €1.2 million thereafter).

The Group has variable lease payments amounting to €34.5 million which are not recognised in lease liabilities, but are recognised as expense in profit and loss. The expected future costs related to these variable lease payments are €11.9 million within one year, €21.3 million within five years and €1.3 million thereafter. Variable leases mainly relate to fuel costs which is based on usage (2019: €14.4 million within one year, €36.8 million within five years and €2.9 million thereafter). The variability of these costs depend on the number of vehicles driven, their actual usage and any changes in rates.

36. Brexit

On 31 December 2020, the transition period for the United Kingdom (U.K.) to withdraw from the European Union (EU), otherwise known as “Brexit,” officially came to an end. The U.K. formally left the EU on 31 January 2020, but entered a transition process that ended on 31 December 2020. The EU-UK Trade and Cooperation Agreement was agreed to on 24 December 2020 and signed on 30 December 2020. The Trade and Cooperation Agreement has three main pillars: trade, cooperation, and governance that took effect on 1 January 2021. BAM has performed an financial impact analysis on the impact of this new agreement from a contract, supply chain, trade tariffs and customs, regulation and people perspective. BAM concluded that no major impact of Brexit is to be expected so far but continues to closely monitor the effects of Brexit.

37. Assets held for sale and discontinued operations

37.1 Assets held for sale inventories

  2020 2019
Inventories  7,819  8,516
Assets classified as held for sale  7,819  8,516
     

At year-end 2020 and 2019, the assets classified as held for sale relate to inventories compromising of one remaining property development position in the East part of the Netherlands, which are not yet transferred. Part of the inventories have been sold in 2020. The remaining carrying amount which represents the fair value is based on the sale price agreed upon. The unanticipated delay in the planned sale was caused by circumstances beyond the control of the company (i.e Covid-19, new regulations regarding nitrogen emissions and dependency on external parties). BAM closely monitors the progress of the planned sale and still considers it is highly probable that the property development position will be sold within one year.

37.2 Assets held for sale BAM Swiss AG

In 2020, BAM decided to analyse the possibilities for divesting its subsidiary BAM Swiss AG in Switzerland. Late 2020, BAM had several discussions and negotiations with certain interested parties. BAM considers that, given the stage of the negotiations, it is probable that the entity will be sold in 2021. Accordingly, all its assets and liabilities are classified as held for sale in the consolidated statement of financial position as at 31 December 2020. Early February 2021, BAM agreed on a non-binding basis the key terms of a transaction with a certain party. Under these terms, BAM aims to pay a net amount of approximately €12 million to transfer all shares to the buyer. Since the carrying amount of the non-current assets is limited and the transaction would result in a loss on sale, BAM recognised a provision of approximately €10 million, via the other operating expenses, in the financial statement of financial position.

At 31 December 2020 the assets and liabilities relating to BAM Swiss AG classified as held for sale are as follows:

   31 December 2020
Trade and other receivables  13,187
Cash and cash equivalents  6,231
Assets classified as held for sale  19,418
   
Trade and other payables  18,138
Current provisions  2,629
Liabilities classified as held for sale  20,768

37.3 Discontinued operations of BAM PPP

As a first step in the partnership extension between PGGM and BAM PPP (see 2.1.1) the Group transferred 10 per cent of its invested capital (share capital and subordinated loans invested through the joint venture) in 21 projects to PGGM, reducing BAM’s interest in these projects from 20 per cent to 10 per cent. The cash consideration associated with this transaction amounted to €39 million, resulting in a net profit of €14 million which forms part of revenue. The impact on total equity was €24 million and includes an amount of €10 million negative of cash flow hedge reserves, that were reclassified to the income statement. See also note 17.

On 23 November 2020, the Group and PGGM publicly announced to further extent their PPP partnership by transferring 50 per cent of the common shares of BAM PPP, until then a wholly owned subsidiary, to PGGM Infrastructure Fund. The transaction was completed on 23 December 2020. As a consequence, BAM lost control of this subsidiary and derecognized all the assets and liabilities of BAM PPP from the statement of financial position. The retained interest in BAM PPP, which is qualified as a joint venture for BAM, has been recognised at its fair value and amounts to €117 million as at 31 December 2020. See note 11.2. The results of BAM PPP are reported as discontinued operation and are presented separately in the consolidated income statement. The 2019 consolidated income statement has been adjusted for comparative purposes.

The sales price for the transfer of the shares comprises a cash consideration, received in 2020, of €110 million that includes €5 million as a reimbursement for 50 per cent of the initial capitalization of the joint venture of €10 million. A working capital adjustment, which forms part of the sales price but settled in 2021, is included in other receivables and amounts to €5 million. In addition, the parties agreed to a Contingent Consideration of up to €25 million for the years 2021-2025. The contingent consideration will become payable if and when the secured equity commitments will exceed a certain threshold over a period of five years with a cap of €5 million for each and every year. Given the assumed threshold along with the past level of secured equity, the fair value of the contingent consideration is estimated at €2 million and forms part of the long term receivables as at 31 December 2020. The fair value of the contingent consideration shall be reassessed at each reporting date.

The total sales price, therefore, amounts to €117 million and has been considered as an appropriate approximation of the fair value of the joint venture at initial recognition as per 31 December 2020.

Lastly, the group shall receive a further amount of circa €2 million from the joint venture in 2021 that mainly relates to an excess of cash above the initial capitalization of €10 million that was agreed upon by both parties. This amount shall be distributed in 2021 and forms part of the gain of this transaction. The net asset value of BAM PPP, of which cash and cash equivalents of €28 million, upon the transfer of the shares amounts to €81 million.

The gain on this transaction, before the reclassification of reserves on cash flow hedging and exchange rate differences, amounts to €155 million. Fifty per cent of this gain accounts for a ‘fair value step up’ on the remaining interest in the former subsidiary from its carrying amount to fair value. This step up shall systematically be allocated as costs to the future Group’s share of the profit and losses of the entity. The reserves involved are reclassified to the profit or loss for the amount €32 million (negative) and €5 million (negative) respectively and are attributed to the transaction resulting in a total gain of this transaction of €118 million. There is no income tax on this gain.

The result for the year from discontinued operations can be detailed as follows:

  2020 2019
Revenue  52,732  52,732
Operating result*  26,389  17,715
Finance result  8,486  9,513
Result before tax  34,875  27,228
Tax benefit/(expense)  (3,387)  (1,935)
Total  31,488  25,293
Gain on the transaction*  118,167 -
Result for the year from discontinued operations  149,655  25,293
Non-controlling interest  (78)  (137)
Net result for the year from discontinued operations attributable to the shareholders of the Company  149,577  25,156
     

*Forms part of the total operating result in the disclosure on operating segments. The total result before tax of the discontinued operations amounts to €153,042 thousand and comprises the result before tax of €34,875 thousand and the gain on the transaction of €118,167 thousand. In 2020 the operating result from discontinued operations amounts to €144,556 thousand that comprises €26,389 thousand plus €118,167 thousand. See note 5.

The other comprehensive income includes cash flow hedges and cash flow hedges of investments in joint ventures for a total amount of €95 million positive (2019: €30 million negative), which is disclosed below. The exchange rate differences amounts to €3 million positive (2019: €2 million positive). During 2020 and previous to the transfer of 50 per cent of the shares to PGGM, the group reassessed its accounting for subordinated loans granted (and commitments thereto) to PPP projects in joint ventures, the majority of which are granted through the joint venture between BAM PPP and PGGM. The Group concluded that subordinated loans (and commitments thereto) provided to PPP projects in ‘investments in associates or joint ventures’, should no longer be considered to form part of the net investment for the purpose of applying the equity method of accounting. This change in judgement has been accounted for prospectively and as a result, the cash flow hedge reserves recognised in equity changed by an amount of €86 million positive. The development of the interest rate had a negative effect of €33 million on the valuation of interest rate hedges in 2020. BAM transferred also 10 per cent of its tracking rights to PGGM in 2020, and €10 million (negative) was reclassified to the profit or loss. Lastly, upon the transfer of 50 per cent of the shares to PGGM, effectively as per 31 December 2020, the remaining amount of the cash flow hedge reserve of €32 million (negative) is reclassified from equity to profit or loss. Therefore, the total fair value movement of cashflow hedges totally amounts to €95 million (positive). Also, the movement in exchange rate differences of BAM PPP amounts to €3 million (positive).

Total comprehensive income from discontinued operations amounts to €248 million, comprising of the net result from discontinued operations of €150 million and other comprehensive income of €98 million.

The net cash flows incurred by BAM PPP (excluding the cash consideration), are as follows:

  2020 2019
Operating  7,037  30,163
Investing  54,682  (7,215)
Financing  (99,825)  (23,539)
Net cash (outflow) / inflow  (38,106)  (591)

The total cash consideration received in 2020 amounts to €110 million. The total proceeds from sale of discontinued operations amounts to €82 million after deduction of the cash and cash equivalents held by BAM PPP of €28 million. See also the consolidated statement of cash flows.

As per 31 December 2020, the following assets and liabilities are derecognized: current assets of €52 million, non-current assets of €113 million, current liabilities of €32 million and non-current liabilities of €52 million.

Earnings per share:

  2020 2019
Basic, profit/(loss) for the year from discontinued operations  0.55  0.09
Diluted, profit/(loss) for the year from discontinued operations  0.55  0.09
     

38. Related parties

The Group identifies subsidiaries, associates, joint arrangements, third parties executing the Group’s defined benefit pension plans and key management as related parties. Transactions with related parties are conducted at arm’s length, on terms comparable to those for transactions with third parties.

The following transactions were carried out with related parties:

38.1 Sales and purchase of goods and services

A major part of the Group’s activities is carried out in joint arrangements. These activities include the assignment and/or financing of land as well as carrying out construction contracts.

The Group carried out transactions with associates and joint arrangements related to the sale of goods and services for €369.4 million (2019: €410.1 million) and related to the purchase of goods and services for €6.8 million (2019: €11.2 million).

The 2020 year-end balance of short term receivables amounts to €39.8 million (2019: €21.4 million) and the short term liabilities amounts to €133.3 million (2019: €126.1 million). In 2020, short term receivables by BAM PPP for the amount of €2 million, were derecognised as a result of the transfer by BAM of 50 per cent of the shares of BAM PPP to PGGM.

38.2 Loans to related parties

At year-end 2020, the Group granted loans to related parties (mainly relating to associates and joint ventures) for the amount of €64 million (2019: €89 million). These transactions were made on normal commercial terms and conditions, except that for a number of loans there are no fixed terms for the repayment of loans between the parties. Interests for these loans are at arm’s length. Loans to related parties are included in ‘Other financial assets’ in the statement of financial position.

In 2020, loans granted by BAM PPP for the amount of €34 million, were derecognised as a result of the transfer by BAM of 50 per cent of the shares of BAM PPP to PGGM.

38.3 Key management compensation

Key management includes members of the Executive Board and the Supervisory Board.

Executive Board

The compensation paid or payable to the Executive Board for services is shown below:

  2020
   Fixed
remuneration

 Short-term
incentive
 Post
employment
benefits
 Other
benefits

 Long-term
incentive
 Total


R.J.M. Joosten (1)  222  75  51 - 5  353
L.F. den Houter  608  212  221 -  82  1,123
R.P. van Wingerden (2)  292  112  65  704  (27)  1,146
   1,122  399  337  704  60  2,622

 

  2019
   Fixed
remuneration

 Short-term
incentive
 Post
employment
benefits
 Other
benefits

 Long-term
incentive
 Total


R.P. van Wingerden (2)  700  230  154 - 28  1,112
L.F. den Houter  486  159  30 -  58  733
E.J. Bax (3)  81  -  17  -  (46)  52
   1,267  389  201  -  40  1,897


1 Mr Joosten was appointed as Chairman of the Executive Board with effect from 1 September 2020.
2 Mr Van Wingerden was not nominated for a next term as CEO on the General Meeting of 15 April 2020, the management services agreement ended per 1 June 2020.
3 Mr Bax has stepped down from the Executive Board with effect from 1 March 2019.

The short-term incentive (‘STI’) is part of the remuneration package of the Executive Board and is based on financial objectives (70 per cent) and non-financial objectives (30 per cent). At the beginning of each financial year, the Supervisory Board determines the financial and non-financial STI objectives, their relative weighting and the performance incentive zones (i.e. threshold, at target and excellent performance levels). Payout gradually increases with performance, starting with a payout of 35 per cent of the fixed annual remuneration at threshold performance, 55 per cent at target performance and potentially going up to 75 per cent when performance is excellent. Below threshold there will be zero payout. The Supervisory Board determined the payout for 2020 at 32.3 per cent (2019: 32.8 per cent).

Post-employment benefits relate to the pension costs of the defined benefit plans recognized in the income statement and, if no pension arrangements were made, paid contributions for personal pension arrangements. Cost of defined benefit plans are determined on the basis of the individual pension obligations. Interest results and return on plan assets are not allocated on an individual basis. Certain components of the post-employment benefits are conditional and paid if employment continues until the retirement age.

The actual and necessarily incurred costs in the performance of the duties for the Group are reimbursed.

The long-term incentive relates to the Performance Share Plan. Additional information is disclosed in note 39.

No share options have been awarded to the members of the Executive Board. No loans or advances have been granted to the members of the Executive Board. Per 31 December 2020, Mr Joosten held 0 BAM shares and Mr Den Houter held 25,000 privately acquired BAM shares.

Supervisory Board

The compensation paid or payable to the Supervisory Board for services is shown below:

  2020 2019
H.Th.E.M. Rottinghuis, Chairman  48 -
G. Boon, Vice-Chairman 59 63
B. Elfring 20 -
D. Koopmans 23 -
C.M.C. Mahieu 54 60
M.P. Sheffield 164 68
H. Valentin 59 68
H.L.J. Noy, former Chairman 46 80
K.S. Wester, former Vice-Chairman - 18
R. Provoost, former member -  8
  473  365

The actual and necessarily incurred costs in the performance of the duties for the Group are reimbursed.

No share options have been awarded to the members of the Supervisory Board. Per 31 December 2020, Mr Boon held 80,000 privately acquired BAM shares and Mrs Valentin held 30,000 privately acquired BAM shares. The other active members of the Supervisory Board do not hold any shares in the Company nor have loans or advances been granted as per 31 December 2020.

38.4 Other related parties

The Group has regular transactions with third parties executing the Group’s defined benefit pension plans as disclosed in note 22. The Group has not entered into any material transaction with other related parties.

39. Share-based payments

In 2020, BAM’s long-term incentive plan consisted of a conditional share-based incentive plan called Performance Share Plan. Under the Performance Share Plan, each year performance shares are conditionally awarded subject to performance over a vesting period of three financial years. The number of awarded performance shares is calculated by dividing the award value (expressed as a percentage of fixed remuneration) by the average closing price of the BAM share on Euronext Amsterdam on the five days after the General Meeting in the year of award.

Performance is based on two financial objectives, being relative total shareholder return (TSR) and return on capital employed (ROCE) and one non-financial objective, being sustainability. TSR is defined as the share price increase, including dividends and measured over a three year period based on the three month average share price before the start and the end of the three year performance period. The relative position within the peer group determines the vesting percentage. The TSR peer group comprises of Balfour Beatty, Boskalis, Eiffage, Heijmans, Hochtief, NCC, Skanska, Strabag, Vinci, PORR (and BAM). At the beginning of each financial year, based upon a proposal from the Remuneration Committee, the Supervisory Board determines the performance incentive zones (i.e. threshold, at target and excellent performance levels) for ROCE and sustainability.

After the three year performance period, the Supervisory Board will assess the extent to which the performance objectives have been achieved. This results in a vesting percentage for each of the three performance objectives, each determining one third of the vesting of the conditionally awarded performance shares. For excellent performance, the number of performance shares that vests may amount to a maximum of 150 per cent of the ‘at target’ number of performance shares. This percentage may be reduced to 50 per cent (on a sliding scale) for threshold performance and to 0 below that. The TSR objective will also operate as a ‘circuit breaker’ for the vesting linked to the other two performance objectives: in case BAM ranks at the bottom two places of the TSR peer group, the other two objectives will not result in vesting regardless of the performance.

The value of the performance shares – as the combined result of the number of performance shares that will vest and the share price at the moment of vesting – that will become unconditional to a participant will at vesting never exceed two and a half times the award value in order to avoid inappropriate payouts.

The three-year vesting period will be followed by a two-year lock-up period. In addition, there is a minimum share ownership requirement. Executive Board members are not allowed to divest any shareholding until the two-year lock-up period has lapsed and the minimum share ownership requirements are met, with the exception of any sale of shares during the lock-up period required to meet any tax obligations and social security premiums (including any other duties and levies) as a consequence of the vesting.

The tables below indicate the percentage of conditional shares that could vest in connection with the pre-determined performance conditions:

At the end of each reporting period, BAM revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions (financial and non-financial) and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

In principle, conditionally awarded shares are forfeited if the participant is no longer employed by the company, however upon termination of employment due to retirement, disability or death the participant (or his or her heirs) reserves the right on the pro rata number of conditionally awarded shares to become unconditionally pursuant to the same vesting conditions as described above (pro rata means the number of full months that the participant was engaged by the Company during the performance period divided by 36 months). For the performance shares, the most recent performance results will be applied to calculate the number of vested shares.

The status of the Performance Share Plan (in number of shares) during 2020 for the members of the Executive Board and for all other participants is shown below:

   As at
1 January
2020
 Awarded


 Vested
(including
dividend)
 Forfeited


 As at 31 December
2020
 R.J.M. Joosten -  285,734 -    285,734
 R.P. van Wingerden  332,047 - -  192,309  139,738
 L.F. den Houter  68,393  367,371 -    435,764
 Other participants  1,133,672  1,683,088 -  688,789  2,127,971
   1,534,112  2,336,193 -  881,098  2,989,208
           

The fair value per share of the 2020 award, for the participants, in connection with the TSR performance part amounted to €0.12 per share and is determined using a Monte Carlo simulation model. For the other financial and non-financial performance part, the fair value equals the share price at the date of award, corrected for the expected value of the possibility of achieving the ‘circuit breaker’. As participants receive dividend compensation the dividend yield on the awards equals nil.

For the Performance Share Plan 2017 the ‘circuit breaker’ was applicable, leading to the full plan of 375,773 (remaining) shares to be forfeited as at the vesting date 27 April 2020.The most important assumptions used in the valuations of the fair values were as follows:

  2020
Share price at award date (in €)  1.41
Risk-free interest rate (in %)  (0.61)
Volatility (in %)  39.34

Expected volatility has been determined based on historical volatilities for a period of five years.

In 2020, an amount of €34,000 was charged (2019: €48,000 released) to the income statement arising from the Performance Share Plan.

40. Joint operations

A part of the Group’s activities is carried out in joint arrangements and classified as joint operations. This applies to all activities and all countries in which the Group operates. These arrangements remain in place until a project is finished. In practice, the duration of the majority of the joint operations is limited to a period of between 1 and 4 years, with the exception of joint operations in connection with land and building rights held for strategic purposes.

Based on assessment of balance sheet total, revenue and result, none of the joint operations is material to the Group. The Group’s share of the revenue of these joint operations amounts to approximately €1.0 billion in 2020 (2019: approximately €1.0 billion), which represents approximately 15 per cent of the Group’s revenue (2019: 14 per cent).

The Group’s share of the balance sheets of joint operations is indicated below:

  2020
(in € million) Construction and Property Civil
engineering
Total

Assets      
 - Non-current assets 0.0  4.2  4.2
 - Current assets  369.8  510.7  880.5
   369.8  514.9  884.7
       
Liabilities      
 - Non-current liabilities  19.8  0.3  20.1
 - Current liabilities  344.2  523.5  867.7
   364.0  523.8  887.8
       
Net balance  5.8  (8.9)  (3.1)
       

 

  2019
(in € million) Construction and Property Civil
engineering
Total

Assets      
 - Non-current assets  0.2   21.4   21.6
 - Current assets   339.1   586.3  925.4
    339.3   607.7   947.0
       
Liabilities      
 - Non-current liabilities   25.7   3.0   28.7
 - Current liabilities   318.4   588.9   907.3
    344.1   591.9   936.0
       
Net balance   (4.8)  15.8  11.0
       

The group has capital commitments under joint operations amount to €14 million (2019: €8 million). Guarantees issued by banks and surety companies amount to €29 million (2019: €31 million). Transfers of funds and/or other assets are made in consultation with the partners of the joint operations.

41. Government grants

Government grants received in 2020 amount to €13 million (2019: €6 million), of wich an amount of €10 million (2019: nil) is related to Covid-19, €2 million (2019: €4 million) is related to R&D and €1 million (2019: €2 million) to education.

In response to Covid-19, the company has made use of certain (furlough) schemes made available by governmental institutions. In United Kingdom and Ireland grants amounting to €10 million were received by BAM. In Belgium Covid-19 support amounting to €2 million was directly paid to employees. There are no significant unfulfilled conditions or other contingencies related to government grants received. See note 26. No further government grants have been received in respect of Covid-19.

The group made use of temporary deferral tax payments (value added tax and wage tax) granted by certain tax authorities, for the total of €234 million. The majority is related to The Netherlands and partly United Kingdom. See note 25.

42. Research and development

Research and development costs, which predominantly relate to projects, are considered to be part of contract costs.

Other research and development costs, in the amount of approximately €0.2 million (2019: approximately €0.2 million), are recognised in the income statement.

43. Events after the reporting period

No material events after the reporting period have occurred.

 

 

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