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 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 19 February 2019 the Executive 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 17 April 2019.

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 exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

2.1.1 Changes in accounting policies and disclosures

(a) Application of new and revised standards
IFRS 2, ‘Share-based Payment, addresses the classification and measurement of Share-based Payment Transactions. The amendments address three main areas:

  • the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction;
  • the classification of a share-based payment transaction with net settlement features for withholding tax obligations
  • accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled.

These amendments do not lead to significant changes for the Group, given the fact that:

  • the Group does not have any ongoing vesting conditions of a cash-settled share-based payment transaction
  • the share-based payment transactions do not contain net settlement features;
  • no changes in the terms and conditions of a share-based payment transaction have occurred, which would change its classification from cash-settled to equity-settled. All share-based payment plans with a running vesting period are equity settled.

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. The impact of IFRS 9 can be summarised as follows:

  • all financial instruments are held to collect and the Group has not applied for the fair value option. As a result of this, for all financial instruments that meet the Solely Payments of Principal and Interest (SPPI) criterion, the accounting remains at amortised cost;
  • part of the non-current receivables (previously included in the other financial assets (carrying amount 2017: €91.9 million) do not meet the SPPI criterion; as a result, these are accounted for at fair value through profit and loss (note 11 Financial assets at fair value though profit or loss). Based on the assessment made, the difference between the fair value and amortised cost of the non-current receivables involved is not material. Note 11 has been adjusted to show a split between receivables based on fair value through profit or loss and receivabled based on amortised cost. The comparative figures have been reclassified.
  • the application of the expected credit loss (ECL) approach on assessment of impairment of debt instruments (including contract assets and contract receivables) did not result in a material impact, where under IAS 39 Financial Instruments an incurred loss model was applied;
  • the foreign exchange and interest hedges comply with IFRS 9.

Since the overall impact of IFRS 9 is not material, the comparative figures have not been restated for IFRS 9 and no additional disclosures have been included except for the adjustments made in note 11.

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18, ‘Revenue’ and IAS 11, ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018. The Group has adopted this standard at the date of initial application. See note 2.24 Revenue recognition for the relevant accounting policies.

The Group used the retrospective method for implementation, which means that the financial statements of 2018 contain comparative figures over 2017 based on IFRS 15. For comparison reasons also the impact on the opening balance 2017 has been established.

At the date of publication of the financial statements 2017, certain areas of attention were still outstanding. These specific areas of attention and discussions at IFRIC contained the following topics:

  • Variable considerations will only be recognised to the extent that it is highly probable that no significant reversal of revenue will occur. The valuation threshold therefore increased from ‘more likely than not’ to ‘highly probable’. This means that certain valuations of claims, variation orders, bonuses and penalties, which were previously correctly valued under the probable criterium under IAS 11, do not qualify in full for recognition under IFRS 15. This has a negative effect on equity upon transition and a negative impact on the comparative revenue and result figures of 2017, as shown in the overall impact below. The overall contract profitability is not affected, as BAM expects corresponding revenues, and therefore results, will be recognised in future periods. The IFRS 15 impact is in particular a matter of timing.
  • IFRIC has released an exposure draft in December 2018, with proposed amendments to IAS 37 regarding the measurement of provisions for onerous contracts, as the specific guidance under IAS 11 no longer applies. Previously two options are allowed: using incremental cost or indirect cost. In the exposure draft only the direct contract cost method has been proposed, being ‘the costs that relate directly to the contract’. The Group can therefore continue to follow the current method of of using direct contract cost regarding the measurement of provisions for onerous contracts, which means that the revenue and contract cost as estimated in applying IFRS15 are also used as a basis for determining whether a contract is onerous. This assessment is made for the contract as a whole, whereby the interaction between loss making performance obligations and profitable performance obligations within one contract has led to a limited impact.
  • In general the activities of the Group qualify for recognition of revenue over time in line with current accounting.
  • Bid fees in respect of won PPP-projects are no longer recognised upfront, but during the construction phase of the project. This has a limited impact on equity upon transition and result of the comparative figures 2017, as shown in the overall impact below.
  • During 2018 the discussion whether land and buildings need to be classified as separate performance obligations has been concluded by IFRIC, which states multiple performance obligations apply. Although such separation may affect the accounting for individual transactions, it does currently not have a material effect on the Group. Therefore no adjustments have been made.

Significant inefficiencies
The Group does not recognise revenue for costs incurred that are attributable to significant inefficiencies in the entity’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. Identification of inefficiencies leads to an adjustment in revenue and, in case of loss making projects, a reclassification between project result and provisions for onerous contracts. No result impact has been identified during the Groups conversion to IFRS 15.

Reclassification of onerous contracts
Under the previous standard, the Group reported the net contract position for each contract as either an asset or a liability. A contract represented an asset where cost incurred plus recognised profits (less recognised losses) exceed progress billings; a contract represents a liability where the progress billings exceed cost incurred plus recognised profits (less recognised losses). Provisions for onerous contracts were included within the net contract position. Under IFRS 15 the provisions for onerous contracts are reclassified from the net contract position to a separate provision for onerous contracts. These provisions show the amount of the onerous contract result which relates to future obligations to be fulfilled under the contract. This amount is determined based on the progress of the performance obligation identified in the contract.

Input measures for revenue recognition
Based on IFRS 15, only one measurement method for recognising revenue over time may be used for similar contracts with similar circumstances throughout the Group: either input based or output based and applied consistently. Under the previous standard both methods were applied. Almost all entities within the Group already used the input method, meaning the revenue is based on the entity’s efforts or inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. One Group company used the output method, for which the impact is shown under the impact Other with no impact on the comprehensive income statement.

Practical expedients
For consistency reasons, a few practical expedients have been applied during the conversion of the Group to IFRS 15. This may have resulted in a slightly higher transition impact than if practical expedients would have been applied, for example because the Group has not used hindsight for the valuation of variable considerations. The Group has assessed the valuation with the knowledge available at the reporting date with the application of the highly probable threshold, meaning the variable considerations have been valued at a later moment in time when the highly probable threshold has been reached.

The following table summarises the impact of adopting IFRS 15 on the Group’s consolidated statement of financial position as at 1 January 2017 for each of the line items affected. Line items that were not affected by the changes have not been separately shown. The tables show adjustments of revenue from variable considerations, the impact of recognising bid fees during the construction phase, a reclassification for onerous contracts to provisions and other impacts. The amounts are shown in € millions.

Impact on the consolidated statement of financial position: 

Balance sheet (extract)

1 January
2017

Variable
considerations

PPP bid fees

Provisions

Other

1 January
2017
Restated

 

 

 

 

 

 

 

Deferred tax assets

248,8

6,1

1,6

-

-

256,6

Trade and other receivables

1,934,5

(92,7)

-

23,5

2,8

1,868,1

Income tax receivable

6,2

(1,3)

-

-

-

5,0

Other assets

2,622,5

-

-

-

-

2,622,5

 





Total assets

4,812,1

(87,9)

1,6

23,5

2,8

4,752,1

 





Group equity

839,3

(104,9)

(4,9)

-

-

729,6

Provisions

141,9

17,0

-

68,0

-

226,9

Trade and other payables

3,004,4

-

6,5

(44,5)

2,8

2,969,2

Other liabilities

826,5

-

-

-

-

826,5

 





Total equity and liabilities

4,812,1

(87,9)

1,6

23,5

2,8

4,752,1

 





The following tables summarise the impact of adopting IFRS 15 on the Group’s consolidated statement of financial position as at 31 December 2017 and its consolidated income statement for the year then ended for each of the line items affected. Line items that were not affected by the changes have not been separately shown. There was no material impact on the Group’s statement of cash flows for the year ended 31 December 2017. The tables show adjustments of revenue from variable considerations, the impact of recognising bid fees during the construction phase, a reclassification for onerous contracts to provisions and other impacts. The amounts are shown in € millions.

Balance sheet (extract)

31 December
2017

Variable
considerations

PPP bid fees

Provisions

Other

31 December
2017
Restated

 

 

 

 

 

 

 

Deferred tax assets

218,0

15,4

1,6

-

-

235,0

Trade and other receivables

1,845,4

(114,1)

-

26,2

(12,8)

1,744,7

Income tax receivable

6,5

1,1

-

-

-

7,5

Other assets

2,501,3

-

-

-

-

2,501,3

 





Total assets

4,571,2

(97,6)

1,6

26,2

(12,8)

4,488,6

 





Group equity

857,8

(126,1)

(4,8)

-

-

726,8

Provisions

113,9

17,4

-

92,2

-

223,5

Trade and other payables

2,917,2

11,2

6,4

(66,0)

(12,8)

2,856,0

Income tax payable

17,6

(0,1)

-

-

-

17,5

Other liabilities

664,7

-

-

-

-

664,7

 





Total equity and liabilities

4,571,2

(97,6)

1,6

26,2

(12,8)

4,488,6

 





Impact on the consolidated income statement 2017:

 

Full year
2017

Variable
considerations

PPP
bid fees

Other

Full year
2017
Restated

 

 

 

 

 

 

Revenue

6,603,7

(51,9)

-

(16,7)

6,535,1

Operating expenses

(6,575,1)

13,5

0,1

(16,7)

(6,544,8)

 




Operating result

28,6

(38,4)

0,1

-

(9,4)

 

 

 

 

 

 

Result before tax

58,3

(38,4)

0,1

-

20,0

 

 

 

 

 

 

Income tax

(44,9)

12,1

(0,0)

-

(32,9)

 




Net result for the year

13,4

(26,4)

0,0

-

(12,9)

 




The changes to the accounting policies following IFRS 15 have been adjusted in the respective notes.

IAS 40,’Transfers of Investment Property’, has been amended. The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. These amendments do not have any impact on the Group’s consolidated financial statements.

Classification of German Argen and presentation of share in result of investments
During 2018, further discussions regarding the classification of the German Joint Arrangements (Arbeitsgemeinschaften: ‘Argen’) have  taken place. Multiple interpretations regarding the classification of the Argen either as Joint Operation or Joint Venture exist. Until 31 December 2018, the Argen were classified as Joint Operations. As from 31 December 2018, on a prospective basis, the Group will classify the Argen as Joint Ventures to fully align with interpretations from German Audit Profession. This regards a change in accounting policy.

This presentation change per 31 December 2018 results in a decrease of Property, Plant and Equipment (note 7) with €2 million, Trade  and other receivables (note 13) with €22 million, Trade and other payables (note 23) with €121 million and Cash and cash equivalents (note 14) with €16 million, offset by an increase of investment in joint ventures of €5 million (note 10.2) and amounts due to related parties of €85 million (note 23). Furthermore, in the consolidated statement of cash flows, the change in Cash and cash equivalents with respect to this presentation change is separately presented. Based on the limited impact, no changes have been made in the consolidated income statement, nor have the comparative figures been adjusted. This means that the revenue and costs from these Argen remain, as in previous years, to be included in the consolidated income statement for 2017 and 2018 on a gross basis (2018: €117 million revenue; 2017: €78 million revenue). As from 1 January 2019, the revenue and costs from the German Argen will be included on a net basis in the result from joint ventures.

Furthermore, while reviewing policies regarding Joint Arrangements, the Group has decided to present the results from share of investments (including impairments) in the Operating result as from 2018 given the similar nature of the activities of the investments concerned with the activities of the Group. Furthermore, this presentation is more aligned to practices adopted by competitors, and better aligns with internal management reporting. As such, this presentation provides more relevant information to the users of the financial statements. This only entails a reclassification in the consolidated income statement (2018: €35.8 million, 2017:  €20.1 million) and has no impact on the valuation of the investments in associates and joint ventures and the results from the share of investments. The comparative figures have been adjusted.

The Group has applied the amendments for the first time for their annual reporting period commencing 1 January 2018 in connection with the ‘Annual Improvements to IFRSs – 2014-2016 Cycle’. The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

There are no other IFRSs or IFRIC amendments as per 1 January 2018 that have a material impact on 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 2019 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, except the following set out below:

IFRS 16, ‘Leases’ was issued by the IASB on 13 January 2016 and replaces IAS 17 ‘Leases’, IFRIC 4 ‘Determining whether an Arrangement contains a Lease’, SIC-15 ‘Operating Lease Incentives’ and SIC-27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. Under existing rules, lessees generally account for lease transactions either off-balance if the lease is classified as operating lease or on balance if the lease is classified as finance lease. IFRS 16 requires lessees to recognise nearly all leases on balance which will reflect their right to use an asset for a period of time and the associated liability to pay rentals. The lessee will recognise a liability reflecting the lease payments (‘lease liability’) and an asset reflecting the right to use the underlying asset during the lease term (‘right-of-use asset’). Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessees also need to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessors continue to classify leases as operating or finance, making IFRS 16 approach to lessor accounting, substantially unchanged from its predecessor, IAS 17.

As disclosed in note 33.2, the Group has several operating lease contracts for buildings, equipment and company cars for which the accounting will change from off balance to on balance, with the exception of certain low-value or short-term leases. Changes may occur due to the present value approach and the timeframe for which the leases need to be taken into account for.

Transition method
This standard applies to annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. Transition options to apply are either a full retrospective approach or a modified retrospective approach. The Group decided to implement this standard on the required date using the modified retrospective approach option 2. This means that the right-of-use-asset will be equal to the lease liability.

The Group applied the practical expedient not to reassess whether a contract is, or contains, a lease at the date of initial application. The Group will use the IFRS 16 definition of a lease only to contracts entered into (or changed) on or after the date of initial application.

Key accounting choices
The Group has chosen to use the following exemptions proposed by the standard:

  • non-lease components: non-lease components are not separated 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;
  • short term exemption: leases shorter than 1 year are excluded from on-balance sheet recognition;
  • low-value exemption: leases of assets with a fair value less than €5.000 / £4.000 are excluded from on-balance sheet recognition;
  • discount rate: the incremental borrowing rate will be used. When the rate is included in the contract this implicit rate will be used otherwise the incremental borrowing rate as periodically provided by the Group will be used.

Expected IFRS 16 impact
The group (as lessee) has a large number of lease contracts that are currently accounted for as operating leases under IAS 17. The Group has performed an IFRS 16 contract analysis on all existing lease contracts as per 30 September 2018 and calculated the IFRS 16 impact as per that date to give insight in the expected impact from IFRS 16. During 2018, processes have been redesigned, an accounting tool to account for IFRS 16 has been implemented and staff has been trained in the application of IFRS 16.

During the first quarter of 2019 the Group will continue to update the lease data for the fourth quarter of 2018, thus calculating the final impact on the opening balance of 2019. The identified leases mainly relate to offices, company cars and equipment. The Group is currently in the process of evaluating if all leases have been identified, assessing whether renewal options are applicable, validating the accuracy of the calculations in the lease accounting tool and gathering all data needed to determine the IFRS 16 impact on the 2019 opening balance.

The impact upon transition to IFRS 16 regarding lease contracts, is expected to be the following based on our contract analysis as per 30 September 2018:

  • Assets and liabilities are expected to increase by an amount close to the net present value of future lease payments, which is expected to be in the range of €275 million to €325 million. The increase compared to the lease commitments of €235 million is mainly due to the effect of including renewal options in the calculations of the lease assets and liabilities.
  • Total impact on the retained earnings is expected to be nil as a result of applying the modified retrospective transition approach option 2.
  • As the lease payments are presented as depreciation and finance cost instead of operating expenses, operating result is expected to increase with approximately €5 million and finance expense is expected to increase with approximately the same amount.
  • As the lease payments (excluding interest) will no longer be considered as operating cash flows but as financing cash flows, the operating cash flows reported in the consolidated cash flow statement as of 2019 will be positively affected, while the financing cash flows will be negatively affected.

Since the above estimate reflects the lease data as per 30 September 2018, the final impact on the opening balance of 2019 can differ, due to new and expiring leases, as well as the completion of the detailed impact analysis as described above. However, the Group considers the expected impact as per 30 September 2018 as a reasonable representation of the expected impact on the opening balance 2019.

Calculation of bank covenants are not influenced by the adoption of IFRS 16 due to the application of the agreed upon ‘frozen’ IFRS.

Amendments to IAS 19, ‘Employee benefits’ address the accounting when a plan amendment, curtailment or settlement occurs during a period. The amendments specify that current service cost and net interest for the remainder of the annual reporting period after a plan amendment, curtailment or settlement are determined based on updated actuarial assumptions. The amendments clarify how the accounting for a plan amendment, curtailment or settlement affects applying the asset ceiling requirements. The amendments should be applied prospectively to plan amendments, curtailments or settlements that occur on or after 1 January 2019, with earlier application permitted. The amendments will only change the method for future impact when amendments to plans apply.

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 subsidiaries
When the Group ceases to have control 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 entity 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.

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’, except when deferred in other comprehensive income as qualifying cash flow hedges.

(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:

 

2018

2017

Closing exchange rate

 

 

Pound sterling

0.90025

0.88763

 

 

 

Average exchange rate

 

 

Pound sterling

0.88692

0.87420

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 2.7).

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 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 cash- generating 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 4 and 10 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, the management of acquired subsidiaries 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. The assets’ useful lives are reviewed and adjusted if appropriate, at the end of each reporting period.

2.7 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.

2.8 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 and cash flows 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.

2.9 Financial assets

2.9.1 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’, ‘ (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 2.12). debt instruments at amortized 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.

2.9.2 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 or for which the Group has applied the practical expedient are initially measured at the transaction price determined under IFRS 15. (See note 2.24 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 toto 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.

2.10 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.

2.11 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.

2.12 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 (‘cash flow hedge’) 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 19. Movements on the hedging reserve in other comprehensive income are shown in note 16. 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’.

2.13 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.

2.14 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 recognized 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 recognized 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 recognized 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 2.24 revenue recognition under (a).

2.15 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.

2.16 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.

2.17 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.

2.18 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.

2.19 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.

2.20 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.

2.21 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 as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a 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.

2.22 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 operates a cash-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 liabilities for the period until the date on which the Executive Board members are unconditionally entitled to payment. The valuation of the liability is re-assessed on every reporting date and on the settlement date. Any changes in the fair value of the liability are recognised in the income statement within ‘personnel expenses’.

Phantom shares become unconditional three years after the date of grant, while the percentage of phantom shares that become unconditional depends on the market performance condition based on the Company’s share price.

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

Upon vesting date, unconditional phantom shares are locked up for another two years. Cash distribution takes place at the end of the lock-up period.

2.23 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.

2.24 Revenue recognition

(a) Construction contracts
As per 1 January 2018, the Group has implemented IFRS 15 regarding revenue recognition. 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 standard replaces IAS 18, ‘Revenue’ and IAS 11, ‘Construction contracts’ and related interpretations.

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 5 steps are identified within IFRS 15:

  • Step 1 ‘Identify the contract with the customer’: Agreement between two or more parties that creates enforceable rights & 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 customer.
  • 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 customer.

Step 1 ‘Identify the contract with the customer’
IFRS 15.9 requires that five criteria must be met before an entity accounts for a contract with a customer. 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 13 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;
(c) or 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 in the context of the Group 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. Please refer to 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 fulfillment 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. A contract liability is recognised until the points are redeemed or expired.

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 recognized 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 under an operating lease 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.

2.25 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, finance lease expenses, gains and losses relating to hedging instruments and other financial expenses. Interest expenses on borrowings and finance lease expenses are recognised in the income statement using the effective interest method.

2.26 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The Group leases certain property, plant and/or equipment. Leases of property, plant and/or equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in ‘borrowings’. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and/or equipment acquired under finance leases is depreciated over the shorter of the usefull life of the asset and the lease term.

2.27 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.

2.28 Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. These are material items of income and expense that have been shown separately due to the significance of their nature or amount.

2.29 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 operations. Cash flows in connection with PPP receivables are included in the cash flow from operating activities. Paid dividend is included in cash flows 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.

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 expose it 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 translation effect the decrease of exchange rate of the pound sterling in 2018 has on Group level reduced the reported revenue, results, equity and closing order book for the UK companies. Based on the value per end of 2018 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 €40 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. In addition, alternatives are being studied and hedges are being considered. Under Group policy, cash flow interest rate risks with regard to long-term borrowings (mainly PPP loans) are largely hedged by interest swaps. As a result, the Group is not entirely insensitive to movements in interest rates. At year-end 2018, 71 per cent (2017: 82 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 2018, the Group’s net result after tax (assuming that all other variables remained equal) would have been approximately €0.1 million higher or approximately €0.8 million higher (2017: approximately €0.5 million higher or approximately €0.6 million higher). If the interest rates (Euribor and Libor) had been 100 basis points higher or lower during 2018, the Group’s cash flow hedge reserves in Group equity (assuming that all other variables remained equal) would have been approximately €2.4 million higher or approximately €2.4 million lower (2017: approximately €10 million higher or approximately €10 million lower).

(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 customer 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 customer, the costs of land and materials, as well as the costs for subcontractors, are 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 ‘PPP receivables’, ‘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 ECL provision is de 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 ‘PPP receivables’, ‘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

2018

2017

 

 

 

 

Non-current assets

 

 

 

PPP receivables

9

85,298

240,687

Non-current receivables

11

99,858

89,982

Derivative financial instruments

19

1

464

 

 

 

 

Current assets

 

 

 

Trade receivables – net

13

858,946

796,590

Contract assets

13

595,684

442,148

Contract receivables

13

284,135

312,555

Other receivables

13

82,212

53,170

PPP receivables

9,13

4,348

8,411

Other financial assets

11

621

1,726

Derivative financial instruments

19

641

1,058

Cash and cash equivalents

14

743,674

695,779

   

 

 

2,755,418

2,642,570

   

Non-current receivables predominantly concern loans granted to property and PPP associates 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 are included in ‘non-current receivables’ and ‘trade receivables – net’ (notes 11 and 13). None of the other assets were overdue at year-end 2018 or subject to impairment; the expected credit loss minus the value of the collateral resulted in an amount of nil. The maximum credit risk relating to financial instruments equals the carrying amount of the financial instrument concerned.

(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.

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.

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 year

1 – 5 years

> 5 years

2018

 

 

 

 

 

Subordinated convertible bonds

117,637

135,938

4,375

131,563

-

Non-recourse PPP loans

43,467

48,661

5,843

18,278

24,540

Non-recourse property financing

79,227

82,032

23,892

58,140

-

Other non-recourse financing

4,469

4,865

2,460

1,325

1,080

Recourse PPP loans

13,984

15,176

973

14,203

-

Recourse property financing

53,447

55,448

24,316

31,132

-

Other recourse financing

5,550

5,758

3,849

1,909

-

Finance lease liabilities

24,995

26,571

7,428

18,402

741

Derivatives (forward exchange contracts)

(370)

(2,728)

(2,728)

-

-

Derivatives (interest rate swaps)

9,691

10,305

1,975

5,100

3,230

Other current liabilities

981,671

981,671

981,671

-

-

 




 

1,333,768

1,363,697

1,054,054

280,052

29,591

 




2017

 

 

 

 

 

Subordinated convertible bonds

114,987

140,313

4,375

135,938

-

Non-recourse PPP loans

189,965

215,537

12,014

47,680

155,843

Non-recourse property financing

68,942

72,109

19,385

52,724

-

Other non-recourse financing

5,916

6,431

1,755

3,401

1,275

Recourse PPP loans

29,454

30,016

16,435

13,581

-

Recourse property financing

75,288

77,346

58,631

18,715

-

Other recourse financing

5,550

5,920

170

5,750

-

Finance lease liabilities

12,988

14,360

3,604

10,112

644

Derivatives (forward exchange contracts)

(1,389)

(482)

(452)

(30)

-

Derivatives (interest rate swaps)

14,952

14,910

3,643

8,834

2,433

Other current liabilities

849,330

849,330

849,330

-

-

 




 

1,365,984

1,425,790

968,890

296,705

160,195

 




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 (2017: €400 million) respectively €163 million (2017: €163 million) available.

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 17 and 18). At year-end 2018, the capital ratio was 18.5 per cent (2017: 18.6 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 18.

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 other 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

             

2018

 

 

 

 

 

 

PPP receivables

9

85,298

-

-

-

85,298

Other financial assets 1

11

101,332

-

-

-

101,332

Derivative financial instruments

19

-

-

642

-

642

Trade and other receivables

13

980,011

-

-

992,029

1,972,040

Cash and cash equivalents

14

743,674

-

-

-

743,674

 

 

 

 

 

 

 

Borrowings

18

-

342,777

-

-

342,777

Derivative financial instruments

19

-

-

9,963

-

9,963

Trade and other payables

23

-

981,671

-

2,099,464

3,081,135

   




 

 

1,910,315

1,324,448

10,605

3,091,493

6,336,861

   




2017

 

 

 

 

 

 

PPP receivables

9

240,687

-

-

-

240,687

Other financial assets

11

91,903

-

-

-

91,903

Derivative financial instruments

19

-

-

1,522

-

1,522

Trade and other receivables

13

915,473

-

-

829,182

1,744,655

Cash and cash equivalents

14

695,779

-

-

-

695,779

 

 

 

 

 

 

 

Borrowings

18

-

503,090

-

-

503,090

Derivative financial instruments

19

-

-

15,085

-

15,085

Trade and other payables

23

-

849,330

-

2,006,692

2,856,022

   




 

 

1,943,842

1,352,420

16,607

2,835,874

6,148,743

   




1 The other financial assets consist of several types of financial assets. See note 11 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 11) and the derivative financial instruments (note 19), 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 only interest rate swaps and foreign exchange contracts. 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 2018 a positive balance of €404 million has been offset against a negative balance of nil (2017: positive balance of €263 million offset against a negative balance of nil).

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.

The critical judgements including those involving estimations 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.

(a) Contract revenue and costs
When the outcome of a construction contract can be estimated reliably, the contract revenue is highly probable and the contract will be profitable, 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. 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. When the outcome of a construction contract cannot be estimated reliably, for instance in the early stages of a contract, but it is expected that the cost incurred in satisfying the performance obligation under the contract will be recovered, then revenue will be recognised to the extent of the cost incurred, until the outcome of a contract can be reliably measured.

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. See paragraph 2.24 for further explanation regarding the recognition of revenue for construction contracts.

(b) 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 2.24 for further explanation regarding the recognition of variable considerations.

(c) 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 22.

(d) 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 20.

(e) 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.

(f) Impairment of goodwill
Goodwill is tested annually for impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use 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.

5. Segment information

The segment information reported to the Executive Board is measured in a manner consistent with the financial statements.

Revenue and results

Construction
and Property

Civil
engineering

PPP

Eliminations 1

Total

 

 

 

 

 

 

2018

 

 

 

 

 

Construction contracts

3,336,044

3,134,424

-

-

6,470,468

Property development

541,326

-

-

-

541,326

Service concession arrangements and other

132,989

27,608

34,676

684

195,957

 




Revenue from external customers

4,010,359

3,162,032

34,676

684

7,207,751

Sector revenue

32,967

60,594

-

(93,561)

-

 




Revenue

4,043,326

3,222,626

34,676

(92,877)

7,207,751

         

Operating result

77,133

14,753

11,323

2,005

105,214

Finance result

3,163

269

8,907

(3,012)

9,327

 




Result before tax

80,296

15,022

20,230

(1,007)

114,541

Exceptional items 2

(34,391)

(4,288)

-

-

(38,679)

 




Adjusted result before tax

114,687

19,310

20,230

(1,007)

153,220

 




2017 Restated*

 

 

 

 

 

Construction contracts

2,973,432

2,822,649

114,204

-

5,910,285

Property development

450,634

-

-

-

450,634

Service concession arrangements and other

107,263

44,816

20,935

1,159

174,173

 




Revenue from external customers

3,531,329

2,867,465

135,139

1,159

6,535,092

Sector revenue

165,017

39,314

-

(204,331)

-

 




Revenue

3,696,346

2,906,779

135,139

(203,172)

6,535,092

         

Operating result

70,357

(60,018)

5,012

(4,947)

10,404

Finance result

(4,104)

545

13,996

(875)

9,562

 




Result before tax

66,253

(59,473)

19,008

(5,822)

19,966

Exceptional items 2

(2,616)

(869)

-

(1,445)

(4,930)

 




Adjusted result before tax

68,869

(58,604)

19,008

(4,377)

24,896

 




* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.
1 Including non-operating segments.
2 For further explanation see note 26.

 

Balance sheet disclosures

Construction
and Property

Civil
engineering

PPP

Other including
eliminations 1

Total

 

 

 

 

 

 

2018

 

 

 

 

 

Assets

2,591,504

1,976,254

211,642

(310,972)

4,468,428

Investments

90,966

65,994

10,523

(57,928)

109,555

 




Total assets

2,682,470

2,042,248

222,165

(368,900

4,577,983

         

Liabilities

2,400,521

1,519,757

116,580

(193,763)

3,843,095

Group equity

281,949

522,491

105,584

(175,136)

734,888

 




Total equity and liabilities

2,682,470

2,042,248

222,164

(368,899)

4,577,983

         

2017 Restated*

 

 

 

 

 

Assets

2,449,595

1,964,702

380,199

(401,522)

4,392,974

Investments

76,419

31,205

12,628

(24,658)

95,594

 




Total assets

2,526,014

1,995,907

392,827

(426,180)

4,488,568

         

Liabilities

2,322,071

1,531,100

285,013

(376,428)

3,761,756

Group equity

203,943

464,807

107,814

(49,752)

726,812

 




Total equity and liabilities

2,526,014

1,995,907

392,827

(426,180)

4,488,568

         

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.
¹ Including non-operating segments.

 

Other disclosures

Construction
and Property

Civil
engineering

PPP

Other including
eliminations1

Total

 

 

 

 

 

 

2018

 

 

 

 

 

Additions to property, plant and equipment
and intangible assets

24,625

54,766

19

17,432

96,843

Depreciation and amortisation charges

15,476

43,801

21

10,478

69,776

Share of result of investments in operating result

24,219

2,644

8,962

-

35,825

           

Average number of FTE 2

9,262

10,535

95

264

20,156

Number of FTE at year-end

9,300

10,510

99

285

20,194

           

2017

 

 

 

 

 

Additions to property, plant and equipment and intangible assets

17,418

64,834

7

23,666

105,925

Depreciation and amortisation charges

15,458

35,720

6

8,364

59,548

Share of result of investments in operating result

12,988

1,495

7,141

(1,500)

20,124

 

 

 

 

 

 

Average number of FTE 2

9,392

10,003

90

235

19,720

Number of FTE at year-end

9,422

10,085

90

240

19,837

1 Including non-operating segments.
² Fulltime equivalent.

Revenues from external customers by country, based on the location of the projects

Construction
and Property

Civil
engineering

PPP

Other including
eliminations 1

Total

 

 

 

 

 

 

2018

 

 

 

 

 

Netherlands

1,391,385

1,340,840

11,543

(31,870)

2,711,898

United Kingdom

1,070,272

921,136

16,638

(9,809)

1,998,237

Belgium

503,115

240,442

969

(41,841)

702,685

Germany

414,644

401,451

5,170

(1,547)

819,718

Ireland

434,337

46,937

356

(7,689)

473,941

Other countries

229,573

271,820

-

(122)

501,272

 




 

4,043,326

3,222,626

34,676

(92,878)

7,207,751

         

2017 Restated*

 

 

 

 

 

Netherlands

1,235,506

1,116,054

12,665

(60,951)

2,303,274

United Kingdom

1,089,723

823,163

13,837

(8,374)

1,918,349

Belgium

435,650

267,634

-

(27,547)

675,737

Germany

413,817

369,637

6,960

(1,022)

789,392

Ireland

351,911

62,260

101,677

(105,171)

410,677

Other countries

169,739

268,031

-

(107)

437,663

 




 

3,696,346

2,906,779

135,139

(203,172)

6,535,092

         

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.
1 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

2018

2017
Restated*

 

 

 

Netherlands

1,605,223

1,695,234

United Kingdom

1,011,640

898,772

Belgium

681,282

634,742

Germany

622,804

583,271

Ireland

323,809

297,381

Other countries

502,709

632,111

Other including eliminations

(169,484)

(252,943)

 

Total assets

4,577,983

4,488,568

 

Investments ²

2018

2017

     

Netherlands

51,508

65,880

United Kingdom

8,170

12,125

Belgium

16,019

10,193

Germany

9,598

13,990

Ireland

7,475

2,232

Other countries

4,073

1,505

 

Total assets

96,843

105,925

 

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.
¹ Geographical allocations based on the location of the assets.
² Gross invesments 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

2018

 

 

 

Land and building rights

-

353,586

353,586

Property development

-

210,029

210,029

Capitalised contract cost

(159)

-

(159)

Amounts due from customers

464,607

14,521

479,128

 


Project assets

464,448

578,136

1,042,584

 

 

 

 

Non-recourse property financing

-

(79,227)

(79,227)

Recourse property financing

-

(53,447)

(53,447)

Amounts due to customers

(559,194)

(95,018)

(654,212)

Provision for onerous contracts

(135,899)

-

(135,899)

 


Project liabilities

(695,093)

(227,692)

(922,785)

 


As at 31 December

(230.645)

350,444

119,799

 


2017 Restated*

 

 

 

Land and building rights

-

415,504

415,504

Property development

-

175,014

175,014

Capitalised contract cost

-

-

-

Amounts due from customers

326,380

7,349

333,729

 


Project assets

326,380

597,867

924,247

 

 

 

 

Non-recourse property financing

-

(68,942)

(68,942)

Recourse property financing

-

(75,288)

(75,288)

Amounts due to customers

(643,562)

(75,629)

(719,191)

Provision for onerous contracts

(109,593)

-

(109,593)

Project liabilities

(753,155)

(219,859)

(973,014)

 


As at 31 December

(426,775)

378,008

(48,767)

 


* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

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

 

 

Construction

contracts

Property

development

Total

 

 

 

 

2018

 

 

 

Revenue

13,079,542

159,510

13,239,052

Progress billings

(12,614,935)

(144,989)

(12,759,924)

 


Amounts due from customers

464,607

14,521

479,128

 


Revenue

10,610,165

681,030

11,291,195

Progress billings

(11,169,359)

(776,048)

(11,945,408)

 


Amounts due to customers

(559,194)

(95,018)

(654,212)

 


2017 Restated*

 

 

 

Revenue

11,625,526

69,769

11,695,295

Progress billings

(11,299,146)

(62,420)

(11,361,566)

 


Amounts due from customers

326,380

7,349

333,729

 


Revenue

11,073,398

498,017

11,571,415

Progress billings

(11,716,960)

(573,646)

(12,290,606)

 


Amounts due to customers

(643,562)

(75,629)

(719,191)

 


* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

As at 31 December 2018 advance payments (as included in amounts due to customers) in connection with construction contracts and property development amount to €172 million (2017: €213 million) respectively €0 million (2017: €3 million).

PPP
The joint venture BAM PPP PGGM Infrastructure Coöperatie U.A. (‘joint venture BAM PPP/PGGM’) invests in PPP markets for social and transport infrastructure in the Netherlands, Belgium, the United Kingdom, Ireland, Germany and Switzerland. BAM PPP continues to be fully responsible for issuing new project tenders, rendering services with regard to asset management for the joint venture and representing the joint venture in transactions. PGGM provides the majority of capital required for existing projects.

An overview of the balance sheet items attributable to PPP projects (excluding joint ventures) is stated below: 

 

Non-current

Current

Total

 

 

 

 

2018

 

 

 

PPP receivables

85,298

4,348

89,647

(Non-)recourse PPP loans

(52,437)

(5,014)

(57,451)

 


Amounts due from customers

32,861

(666)

32,196

Net assets and liabilities

(5,817)

8,176

2,359

 


As at 31 December

27,044

7,510

34,555

 


2017

 

 

 

PPP receivables

240,687

8,411

249,100

(Non-)recourse PPP loans

(193,707)

(25,712)

(219,419)

 


Amounts due from customers

46,980

(17,301)

29,681

Net assets and liabilities

(6,164)

12,190

6,026

 


As at 31 December

40,816

(5,111)

35,707

 


Other revenue disclosures
The revenue recognised that was included in the project contract liability balance at the beginning of the period, has been fully recognised 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. Except for PPP projects, however these are disclosed in the finance assets.

The revenue recognised from performance obligations satisfied in previous periods amounts to €75 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, of which claims, after the 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 might 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 €1 million)

2018

2017

 

 

 

Up to 1 year

5,850

5,697

2 to 5 years

6,842

5,940

 

 

12,692

11,636

Over 5 years

1,924

1,806

 

Total

14,616

13,442

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

The Group entered in an agreement with a client to realise a project, in joint arrangement with partners. The Group’s expected share in the contract revenue of the joint arrangement will be in the range of €150 to €200 million. As a consequence of changes in laws and regulations and a large number of variable considerations assigned by the client and other stakeholders, a large number of changes to the design have arisen, that are beyond the influence and the contractual responsibility of the joint arrangement. The joint arrangement and the client entered into negotiations, but did not reach an agreement yet. As a consequence, it is impossible to make a reliable estimate of the ultimate scope of the performance obligation but BAM expects to recover the costs incurred in satisfying the performance obligation. Therefore, in accordance with IFRS15.45, only revenue is accounted for in the 2018 financial statements of the Group, equal to its share in the cost incurred of the project. Taking into account the uncertainty of the outcome of the negotiations with the client, actual outcome can deviate significantly.

 

7. Property, plant and equipment

 

Land and
buildings

Plant and
equipment

Construction
in progress

Other assets

Total

 

 

 

 

 

 

As at 1 January 2017

 

 

 

 

 

Cost

193,604

573,197

9,938

124,610

901,349

Accumulated depreciation and impairments

(102,989)

(434,125)

-

(94,062)

(631,176)

 




 

90,615

139,072

9,938

30,548

270,173

 




Additions

17,334

44,160

9,318

11,600

82,412

Acquisition of subsidiaries

-

-

-

-

-

Disposals

(2,967)

(6,213)

(349)

(2,223)

(11,752)

Reclassifications

(1,317)

8,579

(8,174)

(563)

(1,475)

Impairment charges

-

-

-

-

-

Depreciation charges

(6,947)

(35,615)

(440)

(12,040)

(55,042)

Exchange rate differences

(128)

(2,221)

(4)

(89)

(2,442)

 




 

96,590

147,762

10,289

27,233

281,874

           

As at 31 December 2017

 

 

 

 

 

Cost

193,821

574,191

10,731

126,021

904,764

Accumulated depreciation and impairments

(97,231)

(426,429)

(442)

(98,788)

(622,890)

 




 

96,590

147,762

10,289

27,233

281,874

 




Additions

13,501

42,720

8,068

18,849

83,138

Acquisition of subsidiaries

-

-

-

-

-

Disposals

(3,836)

(6,936)

(18)

(124)

(10,914)

Reclassifications

3,111

1,533

(9,164)

3,996

(524)

Impairment charges

-

-

-

-

-

Depreciation charges

(6,984)

(40,994)

-

(15,794)

(63,772)

Exchange rate differences

401

(150)

(5)

(441)

(195)

 




 

102,783

143,935

9,170

33,719

289,607

 

 

 

 

 

 

As at 31 December 2018

 

 

 

 

 

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

 





Asset construction in progress mainly comprises plant and equipment. Property, plant and equipment is not pledged as a security for borrowings, except for leased assets under finance lease agreements. 

Property, plant and equipment includes the following carrying amounts where the Group is a lessee under a finance lease:

 

2018

2017

 

 

 

Land and buildings

-

-

Property, plant and equipment

26,129

17,796

Other assets

3,634

3

 

 

29,763

17,799

 


8. Intangible assets 

 

Goodwill

Non-
integrated
software

Other

Total

 

 

 

 

 

As at 1 January 2017

 

 

 

 

Cost

678,186

24,114

7,301

709,601

Accumulated amortisation and impairments

(298,801)

(15,965)

(4,843)

(319,609)

 



 

379,385

8,149

2,458

389,992

 



Additions

-

10,115

13,398

23,513

Disposals

-

(60)

-

(60)

Impairment charges

(372)

-

(331)

(703)

Amortisation charges

-

(3,904)

(602)

(4,506)

Exchange rate differences

(4,382)

(43)

(93)

(4,518)

 



 

374,631

14,257

14,830

403,718

 

 

 

 

 

As at 31 December 2017

 

 

 

 

Cost

672,414

32,656

20,342

725,412

Accumulated amortisation and impairments

(297,783)

(18,399)

(5,512)

(321,694)

 



 

374,631

14,257

14,830

403,718

 



Additions

-

10,687

3,018

13,705

Disposals

-

(401)

(1)

(402)

Reclassifications

-

92

(1,183)

(1,091)

Impairment charges

-

-

-

-

Amortisation charges

-

(4,135)

(1,869)

(6,004)

Exchange rate differences

(1,862)

-

(76)

(1,938)

 



 

372,769

20,500

14,719

407,988

 

 

 

 

 

As at 31 December 2018

 

 

 

 

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

 



The category others consist for € 10.8 million (2017: €12 million) of development cost, capitalised in 2017 for the patented Gravity Based Foundations for offshore wind power.

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 €373 million (2017: €375 million).

The decrease of goodwill fully relates to the exchange rate effect. The change in exchange rate of the pound sterling compared to the prior year had a downward effect of €1.9 million.

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, revenue growth rate and profit before tax margin. 

Goodwill relates to 15 CGUs, of which BAM Construct UK (€61 million) and BAM Nuttall (€73 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


 

2018

2017

2018

2017

 

 

 

 

 

Discount rate (post-tax)

8.3%

7.9%

8.3%

7.9%

Growth rate:

 

 

 

 

- In forecast period (average)

2.5%

4.3%

1.6%

2.1%

- Beyond forecast period

1.1%

1.5%

1.1%

1.5%

Profit before tax margin:

 

 

 

 

- In forecast period (average)

2.9%

2.9%

3.3%

3.0%

- Beyond forecast period

3.0%

3.1%

3.5%

3.5%

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. 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.

For BAM Construct UK, the recoverable amount calculated based on value in use exceeded the carrying amount by approximately €418 million (2017: €585 million).

For BAM Nuttall, the recoverable amount calculated based on value in use exceeded the carrying amount by approximately €198 million (2017: €270 million).

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 one CGU BAM International, representing a goodwill amount of €22 million, with a limited headroom.

 

9. PPP receivables

 

 

2018

2017

 

 

 

 

As at 1 January

 

249,098

358,732

Receivables issued

 

16,774

127,161

Finance income

 

5,446

20,357

Disposals

 

(154,683)

(149,718)

Progress billings

 

(26,047)

(104,982)

Exchange rate differences

 

(941)

(2,452)

   

As 31 December

 

89,647

249,098

   

  


 

Note

2018

2017

 

 

 

 

Non-current

 

85,298

240,687

Current

13

4.348

8,411

   

 

 

89,647

249,098

   

The decrease in receivables is mainly related to the divestment of one project to the joint venture BAM PPP/PGGM. 

The average duration of PPP receivables is 15 years (2017: 21 years). Approximately €65 million of the non-current part has a duration of more than five years (2017: €195 million).

The interest rates on PPP receivables are virtually the same as the interest rates (after hedging) of the related non-recourse PPP loans. The contractual interest percentages are fixed for the entire duration. The average interest rate on PPP receivables is 7.4 per cent (2017: 5.6 per cent). At year-end 2018, the fair value of the non-current part is approximately €95 million (2017: approximately €256 million). The fair value of the non-current part is based on the value of the hedge of the corresponding loan.

There are no renewal and/or termination options, the assets will flow to the Grantor at the end of the concession period. PPP receivables are pledged as a security for the corresponding (non-)recourse PPP loans included under ‘borrowings’.

 

10. Investments

The amounts recognised in the balance sheet are as follows:

 

2018

2017

 

 

 

Associates

26,661

25,645

Joint ventures

82,894

69,949

 

As at 31 December

109,555

95,594

 

10.1 Investment in associates

Set out below is the associate of the Group as at 31 December 2018 that is individually material to the Group.

Nature of investment in associate in 2018 and 2017: 

 

Principal activity


Country of incorporation


% Interest


 

 

 

2018

2017

 

 

 

 

 

Infraspeed (Holdings) bv

Exploitation of rail infrastructure

Netherlands

10.54%

10.54%

Set out below is the summarised financial information for the associate that is material to the Group, 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.

 

 Infraspeed (Holdings) bv


 

2018

2017

 

 

 

Current assets

66,249

105,778

Non-current assets

759,193

796,156

Current liabilities

(22,909)

(25,534)

Non-current liabilities

(775,949)

(817,871)

 

Net assets

26,584

58,529

     

Revenue

25,109

45,691

Net result

9,317

9,208

Share in result

982

971

 

     

Net assets

26,584

58,529

Share in equity

10.54%

10.54%

 

Carrying amount

2,802

6,169

 

Infraspeed (Holdings) bv is classified as an associate based on significant influence by the Group through board membership.

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

 

2018

2017

 

 

 

Share in net result associate that is material to the Group

982

971

Share in net result associates that are not individually material to the Group

7,986

5,435

 

 

8,968

6,406

 

In 2018 the Group’s share in the net result of associates included an impairment charge amounting to €0.0 million (2017:  €0.2 million).

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

 

2018

2017

 

 

 

Share in equity associate that is material to the Group

2,802

6,169

Share in equity associates that are not individually material to the Group

22,847

6,386

 

 

25,649

12,555

Recognised as provision for associates

105

379

Recognised as impairment of non-current receivables

907

12,711

 

 

26,661

25,645

 

The associates not individually material to the Group mainly comprise the Group’s share in structured entities for property development projects.

Dividend received from associates amounts to €11.6 million in 2018 (2017: €7.8 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.

10.2 Investment in joint ventures 

Set out below is the joint venture of the Group as at 31 December 2018 that is individually material to the Group.
Nature of investment in the joint venture in 2018 and 2017: 

 

Principal activity


Country of incorporation


       % Share 


 

 

 

2018

2017

 

 

 

 

 

BAM PPP PGGM Infrastructure Coöperatie U.A.

Asset management

Netherlands

50.00%

50.00%

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

 

BAM PPP PGGM Infrastructure Coöperatie U.A.

2018

2017

 

 

 

Current assets

151,132

139,123

Non-current assets

1,580,874

1,916,019

Current liabilities

(356,311)

(326,462)

Non-current liabilities

(1,653,549)

(2,010,566)

 

Net assets

(277,854)

(281,886)

 

Of which:

 

 

Cash and cash equivalents

104,377

99,354

Current financial liabilities

(53,079)

(56,878)

Non-current financial liabilities

(1,666,297)

(1,973,117)

 

 

 

Revenue

59,016

47,232

Net result

13,032

12,406

Other comprehensive income

3,179

21,905

 

 

 

Of which:

 

 

Finance income

125,205

117,177

Finance expense

(114,410)

(104,132)

Income tax

(3,700)

(2,440)

 

 

 

Net result

13,032

12,406

Share in profit rights

10% /20%

10% /20%

 

Share in net result

2,618

2,165

 

Net assets

(277,854)

(281,886)

Share in profit rights

10% /20%

10% /20%

 

Carrying amount

(38,478)

(39,794)

Negative cash flow hedge reserve not recognised

17,532

18,840

 

 

(20,946)

(20,954)

 

The Group’s share in the joint venture BAM PPP/PGGM is based on its share in the members’ capital. Contractually, the Group predominantly has a 20 per cent share in profit rights. The Group has a 10 per cent share in profit rights within two joint ventures, resulting in a carrying amount of €17 million negative. In addition, the Group bears the risks in the operational phase until completion of the projects which are acquired by the joint venture.

If the Group’s share in losses exceeds the carrying amount of the joint venture, further losses will not be recognised, unless the Group has a legal or constructive obligation. In 2018 €1 million reversal (2017: €1 million reversal) was not recognised.
At year-end 2018 unrecognised losses amounted to €18 million (2017: €19 million). 

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

 

2018

2017

 

 

 

Share in net result joint venture BAM/PGGM

2,618

2,165

Share in net result property development joint ventures that are not material to the Group

18,584

7,579

Share in net result other joint ventures that are not individually material to the Group

5,655

3,974

 

 

26,857

13,718

 

In 2018 the Group’s share in the net result of joint ventures included an impairment charge amounting to €3.1 million (2017: €0.0 million).

 

 

 

 

 

Share in equity joint venture BAM/PGGM

(20,946)

(20,954)

Share in equity property development joint ventures that are not material to the Group

45,336

36,547

Share in equity other joint ventures that are not individually material to the Group

(51,746)

(53,936)

 

 

(27,356)

(38,343)

Recognised as provision for joint ventures

23,962

24,118

Recognised as impairment of non-current receivables

86,288

84,174

 

 

82,894

69,949

 

Revenue of property development joint ventures amounts to €101 million (2017: €73 million) and property development recognised in the balance sheet amounts to €130 million (2017: €116 million) of which an amount of €45 million (2017: €36 million) externally financed (share of the Group).

Dividend received from joint ventures amounts to €23.3 million in 2018 (2017: €15.3 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.

11. Other financial assets

As of the implementation of IFRS 9, the other financial assets are reclassified between financial assets at fair value through profit or loss or based on amortised cost. The comparative figures have not been adjusted.

 

Note

Receivables
based on fair
value through
profit or loss

Receivables
based on
amortised
cost

Other

Total

 

 

 

 

 

 

As at 1 January 2017

 

-

90,858

1,906

92,764

Additions

 

-

-

16

16

Loans granted

 

-

23,206

-

23,206

Loan repayments

 

-

(14,699)

-

(14,699)

Impairment charges

25

-

(356)

-

(356)

Reversal of impairment charges

25

-

203

-

203

Net result for the year

 

-

-

175

175

Dividend received

 

-

-

(175)

(175)

Reclassifications

 

-

(7,451)

(1)

(7,452)

Exchange rate differences

 

-

(53)

-

(53)

   



 

 

-

91,708

1,921

93,629

Of which current:

 

-

(1,726)

-

(1,726)

   



As at 31 December 2017

 

-

89,982

1,921

91,903

   



Reclassified to financial assets at fair value through profit or loss

 

48,452

(48,452)

-

-

Additions

 

-

-

82

82

Loans granted

 

11,496

13,937

-

25,433

Loan repayments

 

(11,448)

(2,209)

-

(13,657)

Disposals

 

-

-

(457)

(457)

Reversal of impairment charges

25

-

-

-

-

Fair value changes

 

1,292

-

-

1,292

Net result for the year

 

-

-

(42)

(42)

Dividend received

 

-

-

(30)

(30)

Reclassifications

 

(3,867)

(351)

-

(4,218)

Exchange rate differences

 

-

(79)

-

(79)

   



 

 

45,925

54,554

1,474

101,953

Of which current:

 

(300)

(321)

-

(621)

   



As at 31 December 2018

 

45,625

54,233

1,474

101,332

   



The fair value of non-current receivables at year-end 2018 amounts to €128 million (2017: €109 million for total other financial assets in 2017). The effective interest rate is 5.0 per cent (2017: 4.3 per cent).

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

12. Inventories

 

2018

2017

 

 

 

Land and building rights

353,586

415,504

Property development

210,029

175,014

 

 

563,615

590,518

Raw materials

13,306

14,519

Finished products

1,070

1,694

 

 

577,991

606,731

 

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 2018 relating to the property portfolio are as follows: 

 

Note

2018

2017

 

 

 

 

Impairment charges

 

22,341

8,366

Reversal of impairment charges

 

(421)

(4,643)

   

 

25

21,920

3,723

   

The net amount of impairments and reversals of €21.9 million relates to property developments in the Netherlands. Impairments reflected mainly the lower valuation of Dutch regional property adjacent to the development of a large wind mill park which was reduced to the value of farmer’s land. The reversal of impairments relates to Land and buildings rights in the Netherlands based on renewed taxation.

Property development includes the following completed and unsold property:

 

2018


 

2017 


Unsold and finished property

Number/m²

Carrying

amount

 

Number/m²

Carrying

amount

 

 

 

 

 

 

Houses ¹

-

-

 

7

1,602

Commercial property - rented

8,873

10,242

 

13,083

13,718

Commercial property - unrented

11,031

8,302

 

13,862

12,007

   
   

 

 

18,544

 

 

27,327

   
   

¹ 2017: of which no houses rented in anticipation of sale.

The decrease in carrying amount in 2018 mainly relates to the impairments of Dutch property developments.

Other inventories were not subject to write-down in 2018 nor 2017.

13. Trade and other receivables

 

Notes

2018

2017
Restated*

Trade receivables

 

869,743

808,574

Less: Provision for impairment of receivables

 

(10,797)

(11,984)

   

Trade receivables - net

 

858,946

796,590

 

 

 

 

Amounts due from customers

6

479,128

333,729

Capitalised contract cost

6

159

-

Retentions

 

116,397

108,419

   

Contract assets

 

595,684

442,148

 

 

 

 

Amounts to be invoiced work completed

 

81,915

93,755

Amounts to be invoiced work in progress

 

202,220

218,800

   

Contract receivables

 

284,135

312,555

 

 

 

 

Amounts due from related parties

36

30,699

10,859

PPP receivables

9

4,348

8,411

Other financial assets

 

619

2,054

Other receivables

 

82,212

53,170

Prepayments

 

115,397

118,868

   

 

 

1,972,040

1,744,655

   

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

Trade and other receivables are due within one year, except for approximately €25 million (2017: €10 million). The fair value of this non-current part is approximately €25 million (2017: approximately €10 million) using an effective interest rate of 0.19 per cent (2017: 0.15 per cent).

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 2018 a part of the trade receivables amounting to €123 million (2017: €146 million) is past due over one year but partly impaired. These overdue payments 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. With some customers final agreement was reached in 2018 leading to decreased trade receivables that were past due over two years. Management assessed that the provision for impairment, taking all facts and circumstances into account, is sufficient.

The significant 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.

With regard to the capitalised contract cost, as at 31 December 2018, no cost to obtain the contract or set-up cost are applicable. This is caused due to the timing of financial close compared to the moment a project has reached preferred bidder stage. This timing difference is insignificant and, together with The Group’s applied threshold, no cost to obtain the contract or set-up cost had to be capitalised. The amount shown as capitalised contract cost regards fully cost to fulfil the contract. No impairments have taken place. The total amortisation for the year 2018 amounts to nil (2017: nil).

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.

The ageing analysis of these trade receivables is as follows: 

 

2018


 

2017


 

Trade
receivables

Provision for
impairment

 

Trade
receivables

Provision for
impairment

 

 

 

 

 

 

Not past due

544,871

(327)

 

481,263

(90)

Up to 3 months

137,656

(2,684)

 

107,185

(954)

3 to 6 months

26,574

(320)

 

22,902

(831)

6 to 12 months

37,826

(1,729)

 

51,090

(1,247)

1 to 2 years

35,414

(1,513)

 

44,073

(631)

Over 2 years

87,402

(4,224)

 

102,061

(8,231)

 

 

 

869,743

(10,797)

 

808,574

(11,984)

 

 

 

 

 

 

Less: Provision for impairment of receivables

(10,797)

 

 

(11,984)

 

 
   
 

Trade receivables - net

858,946

 

 

796,590

 
 
   
 

 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:

 

2018

2017

 

 

 

As at 1 January

11,984

28,563

Provision for impairment

5,028

11,583

Release

(2,473)

(9,928)

Receivables written off during the year as uncollectable

(3,030)

(18,214)

Disposals

-

30

Reclassifications

(697)

-

Exchange rate differences

(15)

(50)

 

As at 31 December

10,797

11,984

 

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

 

14. Cash and cash equivalents

 

2018

2017

 

 

 

Cash at bank and in hand

738,232

692,344

Short-term bank deposits

5,442

3,435

 

Cash and cash equivalents (excluding bank overdrafts)

743,674

695,779

 

Cash and cash equivalents include the Group’s share in cash of joint operations and in PPP entities as part of the conditions in project specific funding agreements and amount to €173 million (2017: €217 million) respectively €7 million (2017: €16 million). Other cash and cash equivalents are at the free disposal of the Group. 

The average effective interest on short-term bank deposits is 4.5 per cent (2017: 3.5 per cent). The deposits have an average remaining term to maturity of approximately 10 days (2017: approximately 14 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:

 

2018

2017

 

 

 

Cash and cash equivalents

743,674

695,779

Bank overdrafts

-

-

 

Net cash position

743,674

695,779

 

 

15. 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 2017

271,814,728

1,193,145

270,621,583

 

27,181

812,130

839,311

Repurchased shares

-

518,940

(518,940)

 

-

-

-

Dividends

3,110,691

-

3,110,691

 

312

(312)

-

 


 


As at 31 December 2017

274,925,419

1,712,085

273,213,334

 

27,493

811,818

839,311

 


 


Repurchase of ordinary shares

-

3,940,956

(3,940,956)

 

-

-

-

Awarded LTI shares

-

(170,039)

170,039

 

-

-

-

Dividends

3,853,600

-

3,853,600

 

386

(386)

-

 


 


As at 31 December 2018

278,779,019

5,483,002

273,296,017

 

27,879

811,432

839,311

 


 



15.1 General

At year-end 2018, the authorised capital of the Group was 400 million ordinary shares (2017: 400 million) and 600 million preference shares (2017: 600 million), all with a nominal value of €0.10 per share (2017: €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.

 15.2 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:  

 

Note

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

15.1

345,000

5,17

1,784

2 May 2017

15.1

173,940

5,23

909

26 April 2018

15.1

87,356

3,88

339

In 2018, the number of issued ordinary shares increased by 3,853,600 due to dividend payment in shares. To prevent dilution all these shares were then repurchased.

16. Reserves

 

Hedging

Translation

Development
cost

Total

 

 

 

 

 

Restated as at 1 January 2017*

(77,153)

(93,099)

-

(170,252)

Reclassification to the income statement due to divestment

 

 

 

 

- Fair value of forward foreign exchange contracts

-

-

-

-

- Fair value of interest rate swaps

34

-

-

34

- Tax on fair value of cash flow hedge

(9)

-

-

(9)

 

 

 

 

 

Cash flow hedges

 

 

 

 

- Fair value movement of forward foreign exchange contracts

8,932

-

-

8,932

- Fair value movement of interest rate swaps

16,020

-

-

16,020

- Tax on fair value movement

(7,472)

-

-

(7,472)

 

 

 

 

 

Legal reserve for development cost

 

 

 

 

- Investments

-

-

12,000

12,000

 



Exchange rate differences

-

(12,068)

-

(12,068)

 

17,505

(12,068)

12,000

17,437

 



Restated as at 31 December 2017*

(59,648)

(105,167)

12,000

(152,815)

 



Reclassification to the income statement due to divestment

 

 

 

 

Fair value of forward foreign exchange contracts

 

 

 

 

- Fair value of interest rate swaps

2,279

-

-

2,279

- Tax on fair value of cash flow hedge

(285)

-

-

(285)

 

 

 

 

 

Cash flow hedges

 

 

 

 

- Fair value movement of forward foreign exchange contracts

(1,876)

-

-

(1,876)

- Fair value movement of interest rate swaps

(5,548)

-

-

(5,548)

- Tax on fair value movement

889

-

-

889

 

 

 

 

 

Legal reserve for development cost

 

 

 

 

- Investments

-

-

-

-

- Amortisation

-

-

(1,200)

(1,200)

 

 

 

 

 

Exchange rate differences

-

(6,410)

-

(6,410)

 



 

(4,541)

(6,410)

(1,200)

(12,151)

 



As at 31 December 2018

(64,189)

(111,577)

10,800

(164,966)

 



* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

The legal reserves consists of hedging reserves, translation reserve and a reserve for the capitalisation of development cost.

The negative movement in the hedge reserve in 2018 of €4.5 million was predominantly caused by the fact that the long-term interest in 2018 was lower than in 2017.

The hedging reserve will in due course be subsequently reclassified to the income statement. Based on the remaining duration of the derivative financial instruments, reclassification will take place between 1 and 30 years. An amount of €52 million (2017: €48 million) in the hedging reserve relates to joint ventures.

The legal reserve for the capitalisation of development cost amounts €11 million (2017: €12 million) and relates to the investments in the patented Gravity Based Foundations for the offshore wind power sector.

The negative movement in the translation reserve in 2018 and 2017 is linked to the decrease in the value of the pound sterling.

17. Capital base

 

2018

2017
Restated*

     

Equity attributable to the shareholders of the Company

729,031

721,256

Subordinated convertible bonds

117,637

114,987

 

 

846,668

836,243

 

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

18. Borrowings

 

 

 

Changes from financing
cash flows


 

Other changes


 

 

 


As at

1 January

2018


 

Proceeds

from

borrowings


Repayments

of borrowings


 

Effective

interest

method


New finance

leases


Transfers to/

from joint

ventures


Other

movements


Exchange

rate

differences


 

As at

31 December

2018


 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse PPP loans

189,965

 

1,409

(4,370)

 

-

-

(142,928)

-

(608)

 

43,468

Non-recourse property financing

68,942

 

27,179

(18,891)

 

-

-

1,997

-

-

 

79,227

Recourse PPP loans

29,454

 

-

(16,064)

 

594

-

-

-

-

 

13,984

Recourse property financing

75,288

 

12,558

(35,399)

 

-

-

1,000

-

-

 

53,447

Subordinated convertible bonds

114,987

 

-

-

 

2,650

-

-

-

-

 

117,637

Finance lease liabilities

12,988

 

-

(4,581)

 

-

16,635

-

-

(47)

 

24,995

Other non-recourse financing

5,916

 

-

(1,447)

 

-

-

-

-

-

 

4,469

Other recourse financing

5,550

 

-

-

 

-

-

-

-

-

 

5,550

Bank overdrafts

-

 

-

-

 

-

-

-

-

-

 

-

 
 

 




 

 

503,090

 

41,146

(80,752)

 

3,244

16,635

(139,931)

-

(655)

 

342,777

 
 

 




 

  

 

 

 

Changes from financing
cash flows


 

Other changes


 

 

 


As at

1 January

2017


 

Proceeds

from

borrowings


Repayments

of borrowings


 

Effective

interest

method


New finance

leases


Transfers to/

from joint

ventures


Other

movements


Exchange

rate

differences


 

As at

31 December

2017


 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse PPP loans

274,348

 

109,095

(62,747)

 

963

-

(130,036)

-

(1,658)

 

189,965

Non-recourse property financing

85,678

 

64,106

(83,250)

 

-

-

2,408

-

-

 

68,942

Recourse PPP loans

50,103

 

-

(20,943)

 

294

-

-

-

-

 

29,454

Recourse property financing

68,745

 

2,029

(12,121)

 

-

-

16,635

-

-

 

75,288

Subordinated convertible bonds

112,491

 

-

 

 

2,496

-

-

-

-

 

114,987

Finance lease liabilities

6,807

 

-

(3,260)

 

-

9,479

-

-

(38)

 

12,988

Other non-recourse financing

7,922

 

-

(2,006)

 

-

-

-

-

-

 

5,916

Other recourse financing

5,550

 

-

-

 

-

-

-

-

-

 

5,550

Bank overdrafts

2

 

-

-

 

-

-

-

(2)

-

 

-

 



 




 

 

611,646

 

175,230

(184,327)

 

3,753

9,479

(110,993)

(2)

(1,696)

 

503,090

 
 

 




 

18.1 Non-recourse PPP loans

These relate to PPP projects in the United Kingdom. Of the non-current part, €23 million has a term to maturity of more than five years (2017: €142 million). The average term to maturity of the PPP loans is 10 years (2017: 21 years).

The decrease of PPP Loans is mainly related to the divestment of one project to the joint venture BAM PPP/PGGM.

The interest rate risk on the non-recourse PPP loans is hedged by interest rate swaps. The average interest rate on PPP loans is 4.2 per cent (2017: 4.3 per cent). Interest margins of these loans do not depend on market fluctuations during the term of these loans.

The related PPP receivables amount to €67 million in total (2017: €227 million) and represent a security for lenders. These loans will be payable on demand if the agreed qualitative and quantitative conditions regarding interest coverage, solvency, among other things, are not met.

18.2 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 1.4 years (2017: approximately 1.6 years). 

Interest on these loans is based on Euribor 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 principal sum of these financing loans is €34 million (2017: €54 million).

The carrying amount of the related assets is approximately €164 million at year-end 2018 (2017: approximately €160 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.

18.3 Recourse PPP loans 

Equity bridge loans relating to PPP contracts are recognised under recourse PPP loans. The interest rate risk on the recourse PPP loans is hedged by interest rate swaps.

Recourse PPP loans relate directly to the accompanying assets, but also have an additional security in the form of a guarantee provided by the Group, in several cases supplemented by a bank guarantee. The average term to maturity of the recourse PPP loans is approximately 3.1 years (2017: approximately 0.7 years). 

18.4 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 1.2 years (2017: approximately 0.9 years). Interest on these loans is based on Euribor 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 principal sum of these financing loans is €6 million (2017: €7 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 €105 million at year-end 2018 (2017: approximately €125 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.

18.5 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. Upon exercise of their conversion rights, holders will receive shares at the then prevailing conversion price. At 31 December 2018 the conversion price is €4.9997 (31 December 2017: €5.1291). The Group will have the option to call all but not some of the outstanding bonds at their principal amount plus accrued but unpaid interest from 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.

At 31 December 2018 the fair value of the liability component of the subordinated convertible bonds amounts to €115 million (31 December 2017: €122 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

7,852

   

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

18.6 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 4.3 years and runs until 31 March 2023.

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. At year-end 2018, the Group did not use the facility (year-end 2017: not used). 

As at 30 June 2018 the Group did not use the facility (30 June 2017: not used). Variable interest rates apply to the draw-downs on this facility with a margin between 150 and 275 basis points. As at 31 December 2018 the margin was 150 basis points (2017: 150 basis points).

18.7 Finance lease liabilities

Finance lease liabilities mainly consist of financing arrangements for buildings and equipment. The maturity of the finance lease liabilities is as follows: 

 

2018

2017

     

Up to 1 year

7,428

3,604

1 to 5 years

18,402

10,112

Over 5 years

741

644

 

 

26,571

14,360

Future finance charges on financial leases

(1,575)

(1,372)

 

Present value of finance lease liabilities

24,995

12,988

 


The present value of the finance lease liabilities is as follows:

 

2018

2017

     

1 to 5 years

17,529

9,135

Over 5 years

721

586

 

 

18,250

9,721

Up to 1 year

6,745

3,267

 

 

24,995

12,988

 


18.8 Other financing

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

18.9 Bank overdrafts 

In addition to the non-current committed syndicated credit facility (note 18.6), the Group holds €163 million in bilateral credit facilities (2017: €163 million). At year-end 2018 as well as 2017 these facilities were not utilised.

18.10 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.

According to the finance arrangements, the covenant calculation should be based on the International Financial Reporting Standards as of December 31, 2015 (frozen IFRS). The implementation of IFRS 15 results in a more prudent accounting of BAM’s project results and therefore IFRS 15 will have a prudent approach towards the covenant ratio’s. BAM reverses the impact IFRS 15 has on equity as of at transition date in compliance to the covenant’s frozen IFRS. BAM does not revert the negative impacts IFRS 15 has on the results from transition date going forward, until IFRS 15 and 16 standards are incorporated in the ratio’s, following a prudent approach towards the covenant ratio’s.

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 2018 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. The Group complied with all ratios in 2018.

The set requirements and realisation of the recourse ratios described above, can be explained as follows: 

 

Calculation

Requirement

2018

2017

         

Leverage ratio

Net borrowings/EBITDA

≤ 2.50

(2.70)

(4.82)

Interest cover

EBITDA/net interest expense

≥ 4.00

27.48

8.35

Solvency ratio

Capital base/total assets

≥ 15%

27.0%

29.6%

Guarantor covers

EBITDA share of guarantors

≥ 60%

75%

80%

 

Assets share of guarantors

≥ 70%

88%

91%

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.

18.11 Other information

The Group’s subordinated convertible bonds 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: 

 

2018


 

2017


 

Euro

Pound sterling

 

Euro

Pound sterling

 

 

 

 

 

 

Subordinated convertible bonds

6.1%

-

 

6.1%

-

Committed syndicated credit facility

1.6%

-

 

1.6%

-

Non-recourse PPP loans

-

6.8%

 

3.7%

6.8%

Non-recourse property financing

2.8%

-

 

3.5%

-

Recourse PPP loans

2.8%

-

 

2.0%

-

Recourse property financing

3.2%

-

 

2.4%

-

Finance lease liabilities

4.1%

-

 

4.1%

-

Other non-recourse financing

3.4%

-

 

3.3%

-

Other recourse financing

3.1%

-

 

3.1%

-


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

62,758

255,736

24,282

342,776

Fixed interest rates

(16,763)

(182,760)

(1,741)

(201,264)

Hedged with interest rate swaps

(4,962)

(15,586)

(22,541)

(43,089)

 



As at 31 December 2018

41,033

57,390

-

98,423

 



Total borrowings

104,944

253,895

144,251

503,090

Fixed interest rates

(9,217)

(180,770)

(59,836)

(249,823)

Hedged with interest rate swaps

(25,799)

(53,627)

(84,415)

(163,841)

 



As at 31 December 2017

69,928

19,498

-

89,426 

 




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

 

2018

2017

 

 

 

Euro

296,375

452,623

Pound sterling

46,401

50,467

 

 

342,776

503,090

 

 

19. Derivative financial instruments

 

2018

 

2017

 

Assets

Liabilities

Fair value

 

Assets

Liabilities

Fair value

 

 

 

 

 

 

 

 

Interest rate swaps

-

9,691

(9,691)

 

-

14,952

(14,952)

Forward exchange contracts

642

272

370

 

1,522

133

1,389

 


 


 

642

9,963

(9,321)

 

1,522

15,085

(13,563)

 


 


Of which current:

641

272

369

 

1,058

133

925

19.1 Interest rate swaps

At year-end 2018, interest rate swaps are outstanding to hedge the interest rate risk on the (non-) recourse PPP loans with a variable interest rate. Total borrowings amount to €343 million (2017: €503 million), of which an amount of €141 million (2017: €253 million) carries a variable interest rate. Of the borrowings with a variable interest rate an amount of €43 million (2017: €164 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 €10 million negative (2017: €15 million negative). At year-end 2018 all interest rate swaps have a duration that exceeds one year. The maximum duration of the derivative financial instruments is 13 years.
The fixed interest rates of these swaps vary from 1.5 per cent to 6.3 per cent at year-end 2018 (2017: between 1.5 per cent and 6.3 per cent). The variable interest rates of the corresponding loans are based on Euribor or Libor plus a margin.

At year-end 2018, all derivative financial instruments of the Group provide an effective compensation for movements in cash flows from the hedged positions. Therefore, the movements in 2018 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.

19.2 Forward foreign exchange contracts

The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2018 were €53 million (2017: €194 million). The fair value amounts to €0.4 million positive (2017: €1 million positive).

The terms to maturity of these contracts are up to a maximum of 1 year for the amount of €53 million (2017: €187 million), between 1 and 2 years for the amount of nil (2017: €7 million) and between 2 to 4 years nil (2017: nil).

The average forward rates of the FX contracts outstanding are: 

 

2018 

2017

EURGBP

0.8940

0.8871

EURUSD

1.1774

1.1857

EURAED

4.1868

4.0247

EURCHF

1.1300

-

EURDKK

7.4640

-

EURSGD

-

1.5946

 

20. Employee benefits

 

2018

2017

 

 

 

Defined benefit asset

111,219

75,020

 

Defined benefit liability

91,740

92,411

Other employee benefits obligations

28,210

26,101

 

 

119,950

118,512

 


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 been 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 2018, the (twelve-month average) coverage rate of the industry pension fund for construction is 118 per cent (2017: 115 per cent). The industry pension fund for metal & technology has a coverage rate of 102 per cent at year-end 2018 (2017: 100 per cent).
The coverage rate of the industry pension fund for railways is 115 per cent (2017: 113 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, which terminates 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 Associations (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 2018 to the amount of approximately €10 million (2017: approximately €10 million). 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 2018 nor 2017.

Following the recent High Court judgement in the Lloyds case, overall pension benefits in the United Kingdom are equalised to eliminate inequalities between male and female participants in Guaranteed Minimum Pensions (“GMPs”). This equalization affects all contracted-out pension schemes with benefits earned between 17 May 1990 and 5 April 1997 and will mean higher benefits for some members and therefore higher overall costs. Under IAS 19/FRS 101, the additional liability is immediately recognized in 2018 as a plan amendment. The additional liability for the Group amounts to €11.1 million.

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 €1 million (2017: €3 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 2018

 

 

 

 

 

 

Defined benefit liability

18,750

-

2,576

52,837

15,577

91,740

Defined benefit asset

-

111,219

-

-

-

111,219

 





 

18,750

(111,219)

2,576

52,837

17,577

(19,479)

 





Present value of obligation

 

 

 

 

 

 

As at 1 January 2018

428,788

989,194

25,115

72,961

97,138

1,613,196

Service cost

891

76

1,518

126

2,056

4,667

Interest expense

7,166

24,549

342

1,206

2,001

35,264

Remeasurements

(8,726)

(86,012)

(361)

422

(2,161)

(96,838)

Plan participants contributions

-

-

597

-

405

1,002

Benefit payments

(12,209)

(51,886)

(1,657)

(4,187)

(4,068)

(74,007)

Changes and plan amendments

-

11,092

-

-

-

11,092

Settlements

(39,164)

-

(169)

-

-

(39,333)

Disposals

-

-

(64)

-

-

(64)

Exchange rate differences

-

(12,359)

-

-

-

(12,359)

 





As at 31 December 2018

376,746

874,653

25,321

70,528

95,371

1,442,619

 





Fair value of plan assets

 

 

 

 

 

 

As at 1 January 2018

411,402

1,064,215

21,427

18,862

79,900

1,595,806

Interest income

6,952

26,581

308

309

1,681

35,831

Remeasurements

(18,242)

(49,087)

540

(65)

(4,124)

(70,978)

Employer contributions

9,637

11,841

1,797

2,772

4,000

30,047

Plan participants contributions

-

-

597

-

405

1,002

Benefit payments

(12,209)

(51,886)

(1,657)

(4,187)

(4,068)

(74,007)

Administration cost

(380)

(1,820)

(38)

-

-

(2,238)

Settlements

(39,164)

-

(169)

-

-

(39,333)

Disposals

-

-

(61)

-

-

(61)

Exchange rate differences

-

(13,972)

1

-

-

(13,971)

 





As at 31 December 2018

357,996

985,872

22,745

17,691

77,794

1,462,098

 





Present value of obligation

376,746

874,653

25,321

70,528

95,371

1,442,619

Fair value of plan assets

357,996

985,872

22,745

17,691

77,794

1,462,098

 





As at 31 December 2018

18,750

(111,219)

2,576

52,837

17,577

(19,479)

 





Amounts recognised in the income statement

 

 

 

 

 

 

Service cost

891

76

1,518

126

2,056

4,667

Net interest expense

214

(2,032)

34

897

320

(567)

Changes and plan amendments and settlements

-

11,092

-

-

-

11,092

Administration cost

380

1,820

38

-

-

2,238

 





 

1,485

10,956

1,590

1,023

2,376

17,430

 





Amounts recognised in other comprehensive income

 

 

 

 

 

 

Remeasurements:

 

 

 

 

 

 

- Return on plan assets, excluding interest income

18,242

49,087

(542)

65

4,124

70,976

- (Gain)/loss from change in demographic assumptions

(3,235)

(38,506)

-

980

 

(40,761)

- (Gain)/loss from change in financial assumptions

(985)

(53,924)

(1,145)

(814)

(3,533)

(60,401)

- Experience (gains)/losses

(4,506)

6,418

784

256

1,372

4,324

 





 

9,516

(36,926)

(902)

487

1,963

(25,862)

 





Income tax

(2,379)

6,278

322

(87)

(245)

3,889

 





Remeasurement net of tax

7,137

(30,648)

(580)

400

1,718

(21,973)

 





 

 

Netherlands

United
Kingdom

Belgium

Germany

Ireland

Total

As at 31 December 2017

 

 

 

 

 

 

Defined benefit liability

17,386

-

3,688

54,099

17,238

92,411

Defined benefit asset

-

75,020

-

-

-

75,020

 





 

17,386

(75,020)

3,688

54,099

17,238

17,391

 





Present value of obligation

 

 

 

 

 

 

As at 1 January 2017

434,513

1,015,303

20,363

78,576

108,243

1,656,998

Service cost

969

65

1,361

187

2,539

5,121

Interest expense

7,281

26,686

287

1,071

1,954

37,279

Remeasurements

(1,555)

36,517

4,121

(2,626)

(4,987)

31,470

Plan participants contributions

-

-

567

-

445

1,012

Benefit payments

(12,420)

(56,997)

(1,535)

(4,247)

(3,128)

(78,327)

Changes and plan amendments

-

-

-

-

-

-

Settlements

-

-

-

-

(7,928)

(7,928)

Disposals

-

-

(49)

-

-

(49)

Exchange rate differences

-

(32,380)

-

-

-

(32,380)

 





As at 31 December 2017

428,788

989,194

25,115

72,961

97,138

1,613,196

 





Fair value of plan assets

 

 

 

 

 

 

As at 1 January 2017

411,231

1,073,984

16,965

19,413

83,924

1,605,517

Interest income

6,953

28,451

249

274

1,531

37,458

Remeasurements

(535)

44,022

3,725

462

1,159

48,833

Employer contributions

6,678

10,797

1,719

2,960

3,897

26,051

Plan participants contributions

-

-

567

-

445

1,012

Benefit payments

(12,420)

(56,997)

(1,535)

(4,247)

(3,128)

(78,327)

Administration cost

(505)

(1,517)

(40)

-

-

(2,062)

Settlements

-

-

-

-

(7,928)

(7,928)

Disposals

-

-

(223)

-

-

(223)

Exchange rate differences

-

(34,525)

-

-

-

(34,525)

 





As at 31 December 2017

411,402

1,064,215

21,427

18,862

79,900

1,595,806

 





Present value of obligation

428,788

989,194

25,115

72,961

97,138

1,613,196

Fair value of plan assets

411,402

1,064,215

21,427

18,862

79,900

1,595,806

 





As at 31 December 2017

17,386

(75,020)

3,688

54,099

17,238

17,391

 





Amounts recognised in the income statement

 

 

 

 

 

 

Service cost

969

65

1,361

187

2,539

5,121

Net interest expense

328

(1,765)

38

797

423

(179)

Changes and plan amendments and settlements

-

-

-

-

-

-

Administration cost

505

1,517

40

-

-

2,062

 





 

1,802

(183)

1,439

984

2,962

7,004

 





Amounts recognised in other comprehensive income

 

 

 

 

 

 

Remeasurements:

 

 

 

 

 

 

- Return on plan assets, excluding interest income

535

(44,022)

(3,727)

(462)

(1,159)

(48,835)

- (Gain)/loss from change in demographic assumptions

(4,256)

-

188

-

-

(4,068)

- (Gain)/loss from change in financial assumptions

2,701

30,922

145

(2,694)

(3,772)

27,302

- Experience (gains)/losses

-

5,595

3,788

68

(1,215)

8,236

 





 

(1,020)

(7,505)

394

(3,088)

(6,146)

(17,365)

 





Income tax

255

1,303

(113)

640

768

2,853

 





Remeasurement net of tax

(765)

(6202)

281

(2,448)

(5,378)

(14,512)

 






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

 

Netherlands

United
Kingdom

Belgium

Germany

Ireland

2018

 

 

 

 

 

Average duration (in years)

16

19

16

11

23

           

2017

 

 

 

 

 

Average duration (in years)

16

21

17

13

23

The significant actuarial assumptions per country were as follows: 

 

Netherlands

United
Kingdom

Belgium

Germany

Ireland

 

 

 

 

 

 

2018

 

 

 

 

 

Discount rate

1.8%

2.8-2.9%

1.8%

1.8%

2.2%

Salary growth rate

0-1.9%

0-3.6%

1.9%

1.5%

-

Pension growth rate

0-1.8%

2.2-3.3%

-

1.5%

0-1.4%

 

 

 

 

 

 

2017

 

 

 

 

 

Discount rate

1.7%

2.5-2.6%

1.45%

1.7%

2.1%

Salary growth rate

0-1.9%

0-3.6%

1.80%

1.5%

-

Pension growth rate

0-1.7%

2.2-3.3%

-

1.5%

0-1.6%

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 €116 million (increase by approximately €138 million).
  • If the expected salary increase is 0.5 per cent higher (lower), the pension liability will increase by approximately €3 million (decrease by approximately €4 million).
  • If the expected indexation is 0.5 per cent higher (lower), the pension liability will increase by approximately €67 million (decrease by approximately €61 million).
  • If the life expectancy increases (decreases) by 1 year, the pension liability will increase by approximately €53 million (decrease by approximately €59 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

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

Equity instruments (quoted)

-

104,289

-

-

41,897

146,186

Debt instruments (quoted)

-

739,518

-

-

31,906

771,424

Property (quoted)

-

16,885

-

-

3,447

20,332

Qualifying insurance policies (unquoted)

357,996

-

22,745

17,691

499

398,931

Cash and cash equivalents

-

125,180

-

-

45

125,225

 




 

 

357,996

985,872

22,745

17,691

77,794

1,462,098

           

2017

 

 

 

 

 

 

Equity instruments (quoted)

-

252,367

-

-

44,188

296,555

Debt instruments (quoted)

-

649,436

-

-

31,008

680,444

Property (quoted)

-

44,554

-

-

3,436

47,990

Qualifying insurance policies (unquoted)

411,402

-

21,427

18,862

552

452,243

Cash and cash equivalents

-

117,858

-

-

716

118,574

 





 

411,402

1,064,215

21,427

18,862

79,900

1,595,806

           


Plan assets do not include the Company’s ordinary shares. The Group applies IAS 19.104 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 2019 are expected to be slightly lower than 2018 due to less deficit contributions in the UK.

21. Provisions  

 

Warranty

Restructuring

Rental

guarantees

Associates and

joint ventures

Onerous

contracts

Other

Total

 

 

 

 

 

 

 

 

Restated as at 1 January 2018*

59,940

15,403

289

24,497

109,593

13,749

223,471

Charged/(credited) to the
income statement:

 

 

 

 

 

 

 

- Additional provisions

16,945

5,029

-

4,545

44,600

6,138

77,257

- Release

(3,466)

(1,192)

-

-

(4,864)

(5,331)

(14,853)

Used during the year

(12,403)

(10,951)

(49)

(4,975)

(13,384)

(6,407)

(48,169)

Reclassifications

(29,359)

-

-

-

-

29,359

-

Changes in discounted value

-

-

-

-

-

(7)

(7)

Exchange rate differences

-

-

-

-

(46)

(13)

(59)

 






As at 31 December 2018

31,657

8,289

240

24,067

135,899

37,488

237,640

 







Provisions are classified in the balance sheet as follows:  

 

2018

2017
Restated*

 

 

 

Non-current

141,803

128,622

Current

95,837

94,849

 

 

237,640

223,471

 

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

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 44 per cent of the provision is current in nature (2017: approximately 49 per cent).

The provision for restructuring concerns the best estimate of the expenditure associated with reorganisation plans already initiated. Approximately 71 per cent of the provision is current in nature (2017: approximately 93 per cent). The estimated staff restructuring costs to be incurred are recognised under ‘personnel expenses’. Other direct costs attributable to the restructuring, including lease termination, are recognised under ‘other operating expenses’. 

The provision for rental guarantees consists of commitments arising from rental guarantees issued to third parties. Approximately 67 per cent of the provision is current in nature (2017: 56 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) and the development of the hedging reserves in PPP joint ventures. An amount of €0.1 million (2017: €0.4 million) relates to associates and €24.0 million (2017: €24.1 million) to joint ventures.

The contract asset or contract liability does not include any provisions for future project losses. Approximately 51 per cent of the provision is current in nature (2017: approximately 43 per cent).

Other provisions mainly include continuing rental commitments resulting from (temporarily) unused premises. Amounts provided for the liquidation of the old project development activities, claims and legal obligations in Germany are also included. Approximately 17 per cent of the provision is current in nature (2017: approximately 34 per cent).

The non-current part of the provisions has been discounted at an interest rate of approximately 3 per cent (2017: approximately 3 per cent). 

22. Deferred tax assets and liabilities 

 

2018

2017
Restated*

Deferred tax assets:

 

 

- To be recovered after more than twelve months

141,649

216,801

 

- To be recovered within twelve months

23,908

18,222

 

165,557

235,023

Deferred tax liabilities:

 

 

- To be recovered after more than twelve months

38,261

26,967

- To be recovered within twelve months

1,461

1,095

 

 

39,722

28,062

     

Deferred tax liabilities (net)

(125,835)

(206,961)

 

 

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

 

2018

2017
Restated*

 

 

 

As at 1 January

(206,961)

(230,310)

Income statement charge/(credit)

52,310

18,378

Tax charge/(credit) relating to components of other comprehensive income

3,905

5,493

Disposal of subsidiary

-

-

Changes in enacted tax rates

28,173

(305)

Reclassifications

(2,958)

-

Exchange rate differences

(304)

(217)

 

As at 31 December

(125,835)

(206,961)

 

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Restated as at 1 January 2017

5,248

227,536

4,449

17,724

22,328

277,285

(Charged)/credited to the income statement

3,587

(21,928)

216

(1,370)

1,915

(17,580)

(Charged)/credited to other comprehensive income

(120)

-

(1,722)

(1,548)

(12)

(3,402)

Changes in enacted tax rates

-

(227)

-

(167)

(13)

(407)

Reclassifications

-

-

(454)

(684)

(375)

(1,513)

Exchange rate differences

(80)

-

(74)

(12)

(201)

(367)

 





Restated as at 31 December 2017

8,635

205,381

2,415

13,943

23,642

254,016

 





(Charged)/credited to the income statement

(3,729)

(42,635)

(1)

(2,401)

1,371

(47,395)

(Charged)/credited to other comprehensive income

25

(159)

(152)

2,493

-

2,207

Changes in enacted tax rates

21

(26,971)

-

(29)

(2,811)

(29,790)

Reclassifications

-

2,969

(520)

4

45

2,498

Exchange rate differences

(12)

(2)

(23)

-

(17)

(54)

 





As at 31 December 2018

4,940

138,583

1,719

14,010

22,230

181,482

 





 

 

 

 

Construction

contracts

Accelerated

tax

depreciation

Derivatives

Employee

benefit

assets

Other

Total

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2017

16,791

10,696

107

10,670

8,710

46,974

Charged/(credited) to the income statement

2,262

(635)

-

2,086

(2,915)

798

Charged/(credited) to other comprehensive income

-

-

786

1,305

-

2,091

Changes in enacted tax rates

(112)

(352)

-

(247)

(1)

(712)

Reclassifications

-

(375)

(454)

(684)

-

(1,513)

Exchange rate differences

-

(208)

-

(376)

-

(584)

 





As at 31 December 2017

18,941

9,126

439

12,754

5,794

47,054

 





Charged/(credited) to the income statement

6,492

(404)

-

(31)

(1,142)

4,915

Charged/(credited) to other comprehensive income

-

(298)

28

6,382

-

6,112

Changes in enacted tax rates

(1,329)

(360)

-

72

-

(1,617)

Reclassifications

-

(132)

(328)

-

-

(460)

Exchange rate differences

-

(83)

-

(274)

-

(357)

 





As at 31 December 2018

24,104

7,849

139

18,903

4,652

55,647

 





Deferred income 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 temporary differences and available tax losses carry-forwards can be utilised.

Tax losses available to the fiscal unity in the Netherlands for carry-forward at year-end 2018 amount to approximately €1 billion (2017: €1 billion). These unused tax losses relate to the years 2010 up to and including 2017 and result to a large extent from identifiable causes, which are unlikely to recur, including a loss relating to the liquidation of old property development activities in Germany, significant impairments on properties and restructuring costs during these years. The legal term within which these losses may be offset against future profits is nine years.

In December 2018 the Dutch tax plan 2019 was approved by the Dutch Senate reducing the corporate income tax rate to 22.55 per cent in 2020 and to 20.5 per cent in 2021. In total this has caused a decrease of the deferred tax asset related to the Dutch fiscal unity tax losses of €26 million. 

Based on estimates and timing of future taxable profits within the fiscal unity in the Netherlands for the upcoming eight years, approximately €490 million (2017: €770 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.

The lower than expected result in 2018 in the Netherlands for the business line Civil engineering and the non-cash impairment on property positions caused an impairment of the deferred tax assets of €9 million, because losses incurred in 2009 can no longer be fully offset by profits. The aforementioned underperformance in 2018 and in earlier years necessitates  a more prudent forecast of taxable profits to meet the recognition criteria under IFRS. This leads to a further impairment of €37 million.

Tax losses to a minimum of €600 million (2017: €600 million) are expected to remain available for the companies in Germany, which can be offset against future taxable profits in Germany. Based on estimates of the level and timing of future taxable profits per operating company and per fiscal unity, approximately €48 million (2017: €32 million) of these losses are recognised. 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.

 

23. Trade and other payables 

 

Notes

2018

2017
Restated*

 

 

 

 

Trade payables

 

980,342

847,697

Amounts due to customers (contract liabilities)

6

654,212

719,191

Amounts due to related parties

36

125,542

30,511

Social security and other taxes

 

157,586

132,828

Pension premiums

 

10,617

14,223

Amounts due for work completed

 

160,766

161,827

Amounts due for work in progress

 

661,976

579,181

Other financial liabilities

 

1,329

1,633

Other liabilities

 

92,518

105,511

Accrued expenses and deferred income

 

236,247

263,420

   

 

 

3,081,135

2,856,022

   

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2

24. Employee benefit expenses 

 

Note

2018

2017

 

 

 

 

Wages and salaries

 

1,075,233

1,032,695

Social security costs

 

165,883

157,782

Pension costs - defined contribution plans

 

79,834

76,591

Pension costs - defined benefit plans

20

17,430

7,004

Other post-employment benefits

 

(61)

(458)

   

 

 

1,338,319

1,273,614

   


Wages and salaries include restructuring costs and other termination benefits of €3.8 million (2017: €0.2 million).

At year-end 2018, the Group had 20,194 employees in FTE (2017: 19,837). The average number of employees in FTE amounted to 20,156 (2017: 19,720), of which 12,186 in other countries than the Netherlands (2017: 12,072).

 

25. Impairment charges 

 

Notes

2018

2017

       

Intangible assets

8

-

703

Other financial assets

11

(1,292)

153

Inventories

12

21,920

3,723

   

Impairment charges

 

20,628

4,579

Share of impairment charges in investments

10

3,122

193

   

 

 

23,750

4,772

   

Other financial assets for 2018 relate to fair value changes. 

In 2018, the net impairment charges in connection with inventories are fully related to land and building rights in the Netherlands. Impairments reflected mainly the lower valuation of Dutch regional property adjacent to the development of a large wind mill park which is now reduced to the value of farmer’s land.

26. Exceptional items 

Items that are material either because of their size or their nature, or that are non-recurring are considered as exceptional and are presented within the line items to which they best relate.

An analysis of the amount presented as exceptional items in these financial statements is given below:

 

Notes

2018

2017

 

 

 

 

Impairment charges

25

23,750

4,772

Restructuring costs

24

3,837

158

Pension one-off

20

11,092

-

   

 

 

38,679

4,930

   


Pension one-off in 2018 relates to the equalisation of Guaranteed Minimum Pensions for men and women in the United Kingdom.

27. Audit fees 

The total fees for the audit of the consolidated financial statements 2018 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:

 

2018


 

2017


 

EY

Netherlands

EY foreign
member firms

Total

 

EY

Netherlands

EY foreign
member firms

Total

 

 

 

 

 

 

 

 

Audit fees

4,279

2,234

6,513

 

3,551

2,690

6,241

Audit-related fees

52

9

61

 

39

5

44

Tax fees

-

-

-

 

-

26

26

Other non-audit fees

-

-

-

 

-

55

55

     
     

 

 

 

6,574

 

 

 

6,366

     
     


The increase in the audit fee 2018 compared to 2017 relates to additional audit procedures on the application of new accounting standards such as IFRS 15 and IFRS 16.

28. Finance income and expense

 

 

2018

2017

Finance income

 

 

- Interest income - cash at banks

1,175

1,008

- Interest income - other financial assets

2,579

2,158

- Interest income - PPP receivables

5,446

20,357

- Other finance income

12,021

6,479

 

 

21,221

30,002

     

Finance expense

 

 

- Subordinated convertible bonds

7,025

6,871

- Committed syndicated credit facility

328

16

- Bank fees - committed syndicated credit facility

2,611

2,708

- Non-recourse PPP loans

3,155

11,165

- Non-recourse property financing

2,185

3,127

- Other non-recourse financing

153

169

- Interest expense - bank overdrafts

253

145

- Finance lease liabilities

556

433

- Recourse property financing

1,222

1,765

- Recourse PPP loans

-

916

- Other recourse financing

1,592

1,697

- Interest expense - other liabilities

848

137

- Fair value result interest rate swaps

-

561

- Fair value result - forward exchange contracts

-

305

 

 

19,928

30,015

Less: capitalised interest on the Group’s own projects

(8,034)

(9,575)

 

 

11,894

20,440

 

Net finance result

9,327

9,562

 


Included in the finance expense is an amount of €1.8 million (2017: €3 million) relating to interest rate swaps that was reclassified from equity to the income statement. An overview of the applicable weighted average interest rates is disclosed in note 18 to the consolidated financial statements.

  

29. Income tax

 

2018

2017
Restated*

 

 

 

Current tax

9,642

14,818

Deferred tax

80,483

18,073

 

 

90,125

32,891

 


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:

 

2018

2017

Restated*

 

 

 

Result before tax

114,540

19,965

     

Tax calculated at Dutch tax rate

28,633

4,993

Tax effects of:

 

 

- Tax rates in other countries

(10,592)

(1,815)

- Income not subject to tax

(1,638)

(743)

- Remeasurement of deferred tax – changes in enacted tax rates

27,973

(125)

- Tax filings and previously unrecognised temporary differences

(5,108)

(5,064)

- Previously unrecognised tax losses

(5,718)

(4,494)

- Tax losses no(t) (longer) recognised

55,797

42,390

- Results of investments and other participations, net of tax

(5,334)

(2,702)

- Other including expenses not deductible for tax purposes

6,112

451

 

Tax charge/(gain)

90,125

32,891

 

Effective tax rate

78.7%

164.7%

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2. 

The weighted average tax rate applicable was 15.8 per cent (2017: 15.9 per cent). The difference is attributable to a different spread of results over the countries 

In December 2018 the Dutch corporate income tax rate was reduced to 22.55 per cent applicable as of 1 January 2020 and will be reduced to 20.5 per cent as of 1 January 2021.

In 2018 the tax charge was influenced predominantly by the reduction of the corporate tax rates in the Netherlands and by tax losses which are not recognised (anymore), as well as the recognition of tax losses that were previously unrecognised.

The corporate income tax rate effect related to the losses within the Dutch fiscal unity reduced the deferred tax asset by €26 million.  An amount of €46 million of the tax charge relates to the impairment of previously valued tax losses of the fiscal unity in the Netherlands.

 

30. Earnings per share

 

 

2018

2017

Restated*

 

 

 

Weighted average number of ordinary shares in issue (x 1,000)

273,491

272,215

 

 

 

Net result attributable to shareholders

23,773

(13,790)

Basic earnings per share (in €)

0.09

(0.05)

 

 

 

Net result from continuing operations attributable to shareholders

23,773

(13,790)

Basic earnings per share from continuing operations (in €)

0.09

(0.05)

 

 

 

Net result from discontinued operations attributable to shareholders

-

-

Basic earnings per share from discontinued operations (in €)

-

-

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

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

 

2018

2017

Restated*

 

 

 

Diluted weighted average number of ordinary shares in issue (x 1,000)

298,269

296,428

 

 

 

Net result attributable to shareholders (diluted)

29,042

(8,637)

Diluted earnings per share (in €)

0.09

(0.05)

 

 

 

Net result from continuing operations attributable to shareholders (diluted)

29,042

(8,637)

Diluted earnings from continuing operations per share (in €)

0.09

(0.05)

 

 

 

Net result from discontinued operations attributable to shareholders (diluted)

-

-

Diluted earnings from discontinued operations per share (in €)

-

-

* The comparative figures, where applicable, have been restated for IFRS 15. See note 2.

In 2018 the calculation of the diluted earnings per share stated €0.10 (2017: (€0.03)) however due to IAS 33, no anti-dilutive effect is allowed. So in both years diluted earnings per share are equal to the basic earnings per share.

31. Dividends per share and proposed appropriation of result

The net result for 2018, amounting to €23.8 million, has been accounted for in shareholders’ equity.

The Company proposes to declare a dividend over the financial year 2018 of 14 eurocents in cash per ordinary share or in shares, at the option of the shareholders with repurchase of shares to offset dilution (2017: 10 eurocents). Based on the number of ordinary shares outstanding at year-end 2018, a maximum of €38.3 million will be distributed as dividend on the ordinary shares. As yet, the dividend proposal has not been deducted from retained earnings under equity.

The dividends paid to shareholders of ordinary shares in 2018 were €27.3 million, €11.4 million in cash (€0.10 per share) and €15.9 million in shares (€0.10 per share), these shares are repurchased in 2018 for €15.2 million. In 2017 dividends paid to shareholders of ordinary shares were €24.4 million, €7.5 million in cash (€0.09 per share) and €16.9 million in shares (€0.09 per share).

32. Contingencies 

32.1 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. An example of a major legal proceeding is given below.

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. Two persons were killed as a result of this accident. 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. The customer has instituted a judicial inquiry (known as a Beweisverfahren) before the district court (the Landgericht in Cologne). As part of these proceedings, a number of specialists are investigating the cause of the accident. Only when their investigation is complete will it be possible to determine if and to what extent the consortium might be held responsible for the accident. In a criminal law suit against 5 individuals, none of them an employee of Wayss & Freytag, the German court has found one of those individuals guilty. The others were acquitted. The damage to property is considerable and the parties involved have claimed under several different insurance policies.

32.2 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 €160 million (2017: €169 million). Guarantees issued by banks and surety companies amount to €1,868 million (2017: €1,735 million). Guarantee facilities amount to €3.2 billion (2017: €2.9 billion).

33. Commitments

33.1 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:  

 

2018

2017

 

 

 

Property, plant and equipment

5,290

1,865

Land

177,090

214,241

 

 

182,380

216,106

 

 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.

 33.2 Lease commitments

The Group leases various office buildings, equipment and company cars from third parties under non-cancellable operating lease agreements. The lease agreements vary in duration, escalation clauses and renewable options. In 2018 the costs associated with operating leases amount to €72 million (2017: €59 million).

The future aggregate minimum lease payments are as follows:

 

2018

2017

 

 

 

Up to 1 year

73,091

71,520

1 to 5 years

140,370

141,130

Over 5 years

21,607

24,368

 

 

235,068

237,018

 

The future aggregate minimum lease income is as follows:

 

2018

2017

 

 

 

Up to 1 year

 

86

1 to 5 years

-

-

Over 5 years

-

-

 

 

-

86

 

 

34. Business combinations

No material acquisitions have taken place in 2018 nor 2017.

35. Assets held for sale and discontinued operations 

 

2018

2017

 

 

 

Inventories

8,516

8,516

 

Assets held for sale

8,516

8,516

 

 

Liabilities held for sale

-

-

 

At year-end 2018 and 2017, the assets held for sale related to inventories compromising of one remaining property development position in the Northeast part of the Netherlands, which are not yet transferred.

During 2018 the Group transferred one operational project (2017: one project), to the joint venture BAM PPP/PGGM and received several one-offs relating to previously transferred projects. After deduction of costs,  the joint venture BAM PPP/PGGM realised a net result of €4.4 million (2017: €0.9 million), of which €2.6 million for the transferred project. The total consideration amounts to €21.8 million, of which €18.7 million in cash. The Group retained a 20 per cent share of its original share in these projects.

The Group had no discontinued operations in 2018 nor 2017.

36. 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: 

36.1 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 €435.6 million (2017: €312.0 million) and related to the purchase of goods and services for €27.8 million (2017: €31.1 million). 

The 2018 year-end balance of receivables arising from aforementioned transactions amounts to €30.7 million (2017: €10.9 million) and the liabilities to €125.5 million (2017: €30.5 million).

36.2 Loans to related parties

At year-end 2018, the Group granted loans to related parties (mainly relating to associates and joint ventures) for the amount of €68 million (2017: €70 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. 

36.3 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: 

 

2018


 

Fixed
remuneration

Short-term
incentive

Post-
employment
benefits

Other
benefits

Long-term
incentive

Total

 

 

 

 

 

 

 

R.P. van Wingerden ¹

686

343

151

-

(41)

1,139

L.F. den Houter 2

203

101

10

-

-

314

E.J. Bax ³

486

243

101

-

(77)

753

T. Menssen 4,5

243

50

28

491

(105)

707

 





 

1,618

737

290

491

(223)

2,913

             

 

2017


 

Fixed
remuneration

Short-term
incentive

Post-
employment
benefits

Other
benefits

Long-term
incentive

Total

 

 

 

 

 

 

 

R.P. van Wingerden ¹

684

214

183

3

177

1,261

T. Menssen

484

152

49

3

85

773

E.J. Bax ³

484

152

93

3

111

843

 





 

1,652

518

325

9

373

2,877

1 Appointed as Chairman of the Executive Board with effect from 1 October 2014, reappointed as Chairman 20 April 2016.
2 Appointed as a member of the Executive Board with effect from 1 August 2018.
3 Appointed as a member of the Executive Board with effect from 1 May 2014.
4 Mrs Menssen has stepped down from the Executive Board with effect from 1 July 2018.
5 Mrs Menssen has received a severance payment of €486 thousand and €5 thousand for legal fees, which are included in the other benefits.

The short-term incentive is part of the remuneration package of the Executive Board with a target payout of 55 per cent and a maximum of 75 per cent. The STI is based on financial criteria (70 per cent) and non-financial performance targets (30 per cent). Performance incentive zones are defined for each of the targets. Payout gradually increases with performance, starting with a payout of 35 per cent of the fixed remuneration at threshold performance and potentially going up to 75 per cent of the fixed remuneration payout at maximum performance per individual target. Performance below the threshold will result in zero payout. The Supervisory Board sets the performance ranges (i.e. threshold, at target and maximum performance levels) and corresponding payout levels. The Supervisory Board determined the payout for 2018 at 50 per cent (2017: 31 per cent). 

Post-employment benefits relate to the pension costs of the defined benefit plans recognised 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. 

As from mid-2017, the expense allowance policy has been changed into reimbursement of business expenses, instead of receiving a fixed expense allowance.

The long-term incentive relates to the Performance Share Plan and Phantom Share Plan. Additional information is disclosed in note 37.

No share options have been granted to the members of the Executive Board. The members of the Executive Board do not hold any shares in the Company, except for the conditionally granted and vested shares under the Performance Share Plan, nor have loans or advances been granted.

Supervisory Board

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

 

2018

2017

 

 

 

H.L.J. Noy, Chairman

80

69

K.S. Wester, Vice-Chairman

62

58

G. Boon

60

42

C.M.C. Mahieu

60

56

M.P. Sheffield

69

24

H. Valentin

68

44

P.A.F.W. Elverding, former Chairman

-

18

H. Scheffers, former Vice-Chairman

-

17

J.P. Hansen, former member

-

14

 

 

399

342

 


As from mid 2017 actual and necessarily incurred costs in the performance of the duties for the Group are reimbursed, instead of receiving a fixed expense allowance.

No share options have been granted to the members of the Supervisory Board. The members of the Supervisory Board do not hold any shares in the Company nor have loans or advances been granted.

Other related parties

The Group has not entered into any material transaction with other related parties.

37. Share-based payments

In 2018, BAM’s long-term incentive plan consisted of a conditional share-based compensation plan called Performance Share Plan. This equity-settled plan replaced the cash-settled Phantom Share Plan effective from 2011 through 2014 and is applicable for members of the Executive Board and selected positions below the Executive Board (‘Participants’) whereas the Phantom Share Plan solely included members of the Executive Board. In principle, the content of the plan rules will not be altered during the term of the plans.

37.1 Performance Share Plan

Under the Performance Share Plan the number of performance shares granted is calculated by dividing the award value (expressed as a percentage of fixed remuneration) by the average share price based on the five trading days after the Annual General Meeting (‘AGM’).

The shares are granted on the sixth trading day following the day of the AGM and vest subject to the achievement of pre-determined performance conditions during a three-year period and provided that the participant is still employed by BAM. Participants 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 to finance tax (and other levies) payable at the date of vesting. The value at the date of vesting of the Performance Share Plan is capped at 2.5 times the award value.

The number of shares that will ultimately vest depends on BAM’s performance compared to ten other listed companies in Europe, measured over a three-year period using total shareholder return (‘TSR’), which is the sum of share price growth and dividends paid. The peer group on balance sheet date consists of Balfour Beatty, Boskalis, Eiffage, Heijmans, Hochtief, NCC, Skanska, Strabag, Vinci and VolkerWessels. TSR is complemented with an additional financial target and a non-financial target. On top, the TSR measure will function as a ‘circuit breaker’ for the vesting part linked to the other two criteria. When BAM ranks at the bottom two places of the TSR peer group, the other parts will not payout regardless of the performance in this area.

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

TSR

 

ROCE

 

Sustainability

Ranking


Vesting


 

Score


Vesting


 

Score


Vesting


 

 

 

 

 

 

 

 

1

150%

 

Above maximum

150%

 

Above maximum

150%

2

125%

 

Maximum

150%

 

Maximum

150%

3

100%

 

Target

100%

 

Target

100%

4

75%

 

Threshold

50%

 

Threshold

50%

5

50%

 

Below threshold

0%

 

Below threshold

0%

6

25%

 

 

 

 

 

 

7

0%

 

 

 

 

 

 

8

0%

 

 

 

 

 

 

9

0%

 

 

 

 

 

 

10

0%

 

 

 

 

 

 

11

0%

 

 

 

 

 

 


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.

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 granted 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 2018 for the members of the Executive Board and for all other participants is shown below:

 

 

As at
1 January
2018

Granted

Vested
(including
dividend)

Forfeited

As at
31 December
2018

 

 

 

 

 

 

R.P. van Wingerden

321,681

122,469

59,939

54,380

329,832

E.J. Bax

199,744

74,369

38,947

35,334

199,833

T. Menssen

199,744

-

38,947

92,603

68,195

Other participants*

911,456

423,451

163,907

198,617

972,382

 




 

1,632,625

620,289

301,739

380,934

1,570,242

 




* The opening balance of the performance share plan has been sligthly adjusted upwards with 5,900 shares for the other participants due to a difference in termination of employment.

The fair value per share of the 2018 grant, for the Participants, in connection with the TSR performance part amounted to €2.72 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 grant, 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.

The Performance Share Plan 2015 has vested and dividend shares have been added to the vested shares according to the plan rules. The remaining awarded shares of 273,756, after a vesting percentage of 50% and dividend (13,991 shares) have been included in the forfeited shares. For the Performance Share Plan 2016 the ‘circuit breaker’ was applicable, leading to the full plan of 556,101 shares to be forfeited as at the vesting date 28 April 2019 and has therefore not yet been included in the table above.

The lock-up period for the 2015 Performance Share Plan for Mrs Menssen ended per 1 July 2018, in line with the applicable plan rules. The conditional shares for Mrs Menssen under the long-term incentive plan 2016 and 2017 are forfeited.

The most important assumptions used in the valuations of the fair values were as follows:

 

2018

 

 

Share price at grant date (in €)

3.89

Risk-free interest rate (in %)

(0.03)

Volatility (in %)

44.66

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

In 2018, an amount of €95 thousand was released (2017: €818 charged) to the income statement arising from the Performance Share Plan. The release is caused by revising the booked costs for the Performance Share Plan of 2016 due to not meeting the TSR target for the plan. Forfeiture of these shares will take place as at 28 April 2019, being the vesting date of the performance share plan.

37.2 Phantom Share Plan

Under the Phantom Share Plan the number of performance shares granted is calculated by dividing the award value (expressed as a percentage of fixed remuneration) by the average share price based on the five trading days after the AGM.

The shares were granted on the sixth trading day following the day of the AGM and vest subject to the achievement of pre-determined performance conditions during a three-year period and provided that the participant is still employed by BAM.

The number of shares that will ultimately vest depends on BAM’s performance compared to five other listed construction companies in Europe, measured over a three-year period using TSR, which is the sum of share price growth and dividends paid. The peer group on balance sheet date consists of Balfour Beatty, Ballast Nedam (until delisting), Bilfinger, Heijmans and Skanska. Vested phantom shares are not paid out to participants until the two year lock-up period has lapsed. The maximum cash distribution to the Participants at
the date of payout of the Phantom Share Plan is capped at 1.5 times the fixed remuneration of the Participant.

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

TSR Performance

Vesting

 

 

< 0

0%

0 – 5

35%

5 – 10

45%

10 – 15

55%

15 – 20

65%

20 – 25

75%

25 – 30

85%

≥ 30

100%


Upon termination of employment due to retirement, death or in the event of a restructuring or divestment, the granted shares will be reduced for a pro rata part reflecting the period between the date of termination of employment and the vesting date. 

The status of the Phantom Share Plan (in number of shares) during 2018 for the individual Executive Board members is as follows:

 

As at
1 January
2018

Stock
dividend

Payout

As at
31 December
2018

 

 

 

 

 

R.P. van Wingerden

133,042

1,485

71,678

62,847

E.J. Bax

61,362

1,485

-

62,847

T. Menssen

133,042

1,485

134,527

-

 



 

327,446

4,455

206,205

125,696

 



During 2018 the Phantom Share Plan 2013 has been paid out. The value has been based on the average share price of BAM on the 5 trading days before the end of the blocking period as per 3 May 2018 (€3.958) and on the number of vested shares three years after the award against the vesting percentage of 45 per cent. The finalisation of the 2013 grant (end of lock-up period 3 May 2018) has resulted in a payout of €343 thousand for the current and retired Executive Board members. In addition, 18,654 shares are allocated to retired Executive Board members at year-end 2018.

In addition to the payout of the 2013 Phantom Share plan, the 2014 Phantom Share plan has been paid out for Mrs Menssen during 2018 because she stepped down as Executive Board Member, resulting in a payment of €102 thousand. The value has been based on the average share price of BAM on the five trading days before the end of the management services agreement per 1 July 2018 (€3.619) and on the number of vested shares three years after the award against the vesting percentage of 45%. The number of (vested) shares at the payout date include dividend up until the payout date.

The lock-up period for 2014 Phantom Share will end at 1 May 2019. This is the most recent and final Phantom Share Plan.

The most important assumptions used in the valuations of the fair values were as follows:

 

2018

2017

 

 

 

Risk-free interest rate (in %)

(0.83)

(0.66)

Volatility (in %)

32.61

30.84

Assumed dividend yield (in %)

-

2.00

In 2018, an amount of €82 thousand was released (2017: €36 thousand charged) to the income statement arising from the Phantom Share Plan. 

As at 31 December 208, the liability amounts to €245 thousand (2017: €681 thousand).

38. 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, except for OpenIJ EPC V.O.F. in which the construction of sea lock IJmuiden is carried out.  BAM’s share in the result of OpenIJ EPC V.O.F. amounts to a loss of €32 million (2017: €75 million loss).

The Group’s share of the revenue of these joint operations amounts to approximately €1.4 billion in 2018 (2017: approximately €1.3 billion), which represents approximately 19 per cent of the Group’s revenue (2017: 20 per cent).

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

(in € million)

2018

 

Construction
and Property

Civil
engineering

Total

 

 

 

 

Assets

 

 

 

- Non-current assets

0.2

33.4

33.6

- Current assets

385.5

608.0

993.6

 


 

385.7

641.4

1,027.2

Liabilities

 

 

 

- Non-current liabilities

30.5

17.7

48.2

- Current liabilities

361.9

676.2

1,038.2

 


 

392.6

693.6

1,086.3

 


Net balance

(6.6)

(52.5)

(59.1)

 


 

(in € million)

2017

 

Construction
and Property

Civil
engineering

Total

 

 

 

 

Assets

 

 

 

- Non-current assets

-

41.2

41.2

- Current assets

347.6

468.4

816.0

 


 

347.6

509.6

857.2

Liabilities

 

 

 

- Non-current liabilities

40.0

3.7

43.6

- Current liabilities

342.7

516.4

859.1

 


 

382.7

520.1

902.7

       

Net balance

(35.1)

(10.5)

(45.5)

 


The Group has no contingencies or capital commitments under joint operations. Transfers of funds and/or other assets are made in consultation with the partners of the joint operations.

As from 31 December 2018, on a prospective basis, the Group will classify the Argen as Joint Ventures to fully align with interpretations from German Audit Profession. See 2.1.1. Changes in accounting policies and disclosures.

39. Service concession arrangements

The Group operates various service concession arrangements, both in the accommodation and infrastructure areas. These activities comprise the construction, exploitation, maintenance and divestment of (a part of) concession arrangements structured through separate legal entities and are principally carried out by BAM PPP independently and/or in collaboration with third parties.

The Group has a stake in the following concession arrangements: 

 

Interest

Classification

Category

Country

Operational

As from

Concession period

(in years)

Accommodations

 

 

 

 

 

 

 

East Ayrshire Hospital

100%

Group company

Health

United Kingdom

Yes

2000

25

Wharfedale Hospital

75%

Group company

Health

United Kingdom

Yes

2004

30

Derby Police

100%

Group company

Justice

United Kingdom

Yes

2000

30

Cheshire Police

100%

Group company

Justice

United Kingdom

Yes

2003

30

Peacehaven Schools

100%

Group company

Education

United Kingdom

Yes

2001

25

Bromsgrove Schools

20%

Joint venture

Education

United Kingdom

Yes

2008

30

Solihull Schools

20%

Joint venture

Education

United Kingdom

Yes

2010

25

West Dunbartonshire Schools

20%

Joint venture

Education

United Kingdom

Yes

2010

30

Somerset Schools

17.8%

Joint venture

Education

United Kingdom

Yes

2012

25

Camden Schools

18%

Joint venture

Education

United Kingdom

Yes

2012

25

Irish Schools Bundle 3

20%

Joint venture

Education

Ireland

Yes

2014

25

Irish Schools Bundle 4

20%

Joint venture

Education

Ireland

Yes

2016

25

Irish Courts Bundle

20%

Joint venture

Justice

Ireland

Yes

2017

25

Gent Universiteit

20%

Joint venture

Education

Belgium

Yes

2011

33

Beveren Prison

20%

Joint venture

Justice

Belgium

Yes

2013

25

Dendermonde Prison

100%

Group company

Justice

Belgium

No

2016

25

Schiphol

20%

Joint venture

Justice

Netherlands

Yes

2012

25

High Court

20%

Joint venture

Justice

Netherlands

Yes

2015

30

Ministry VROM

20%

Joint venture

Other

Netherlands

Yes

2017

25

Potsdam

100%

Group company

Other

Germany

Yes

2012

30

Bremervoerde Prison

20%

Joint venture

Justice

Germany

Yes

2013

25

University Hospital Schleswig-Holstein

50%

Joint venture

Health

Germany

No

2015

29

Burgdorf Prison

17.6%

Joint venture

Justice

Switzerland

Yes

2012

25

 

 

 

 

 

 

 

 

Infrastructure

 

 

 

 

 

 

 

Dundalk By-pass

6.7%

Joint venture

Motorway

Ireland

Yes

2005

28

Waterford By-pass

33.3%

Joint venture

Motorway

Ireland

Yes

2009

30

Portlaoise

33.3%

Joint venture

Motorway

Ireland

Yes

2010

30

N11/N7

20%

Joint venture

Motorway

Ireland

Yes

2015

25

M11

50%

Joint venture

Motorway

Ireland

No

2019

25

N25

50%

Joint venture

Motorway

Ireland

No

2019

25

A59

14%

Joint venture

Motorway

Netherlands

Yes

2005

15

N31

66.7%

Joint venture

Motorway

Netherlands

Yes

2007

15

A12

20%

Joint venture

Motorway

Netherlands

Yes

2012

20

N33

20%

Joint venture

Motorway

Netherlands

Yes

2014

20

Infraspeed HSL

10.5%

Associate

Railway

Netherlands

Yes

2006

25

Lock IJmuiden

50%

Joint venture

Lock

Netherlands

No

2022

26

Afsluitdijk

46%

Joint venture

Dike

Netherlands

No

2022

25

A8

5%

Joint venture

Motorway

Germany

Yes

2010

30

A9

50%

Joint venture

Motorway

Germany

Yes

2014

17

A94

33.3%

Joint venture

Motorway

Germany

No

2019

26

A10/A24

70%

Joint venture

Motorway

Germany

No

2023

25

Liefkenshoektunnel

10%

Joint venture

Railway

Belgium

Yes

2013

38

Brabo II

80.1%

Joint venture

Tramway

Belgium

No

2019

25

The Group is also involved in (accommodation and infrastructure) concession arrangements and energy service companies through other group companies.

 The Group’s equity investment in PPP projects amount to €75 million (2017: €68 million). 

The Group has approximately €40 million (2017: €31 million) of obligations for capital contributions (after deduction of the PGGM share) in projects which have been awarded to the joint venture BAM PPP/PGGM. Construction revenue to be realised in connection with PPP projects amounts to approximately €0.8 billion (2017: approximately €0.7 billion). 

A further description of the Group’s concession arrangements is as follows:

Accommodation

The accommodation concession arrangements relate to schools, police stations, hospitals, sport complexes, a penitentiary institution and a laboratory building. These arrangements are located in the United Kingdom, Ireland, Germany, Belgium, the Netherlands and Switzerland. The concession payments are contractually agreed and are linked to the availability of the accommodation. The actual usage of the accommodation does not affect the amount of the concession payments. Most arrangements include maintenance and facility management services.

During the concession periods, payments are based on the availability of the related accommodation and the maintenance and facility management services. The majority of the concession arrangements are subject to indexation. The part of the concession payment that relates to the services will be evaluated every five years in general, using a benchmark. There may consequently be a limited settlement with the principal as a result. However, the volatility of the revenue and result is limited.

Infrastructure

The infrastructure concession arrangements relate to motorways in Ireland, the Netherlands and Germany, a railway tunnel in Belgium, a railway line in the Netherlands and a coastal defence scheme in the United Kingdom. The concession arrangements started between 2005 up to and including 2015, for periods varying from 15 to 38 years. 

The majority of the concession payments are contractually agreed and are linked to the availability of the related infrastructure. This availability is evaluated based on the contractually agreed upon criteria. These criteria cover the intensity of usage, temporary closures and maintenance. There may consequently be (temporarily) adjustments to the concession payments with the principal as a result. However, the volatility of the revenue and result is limited.

For three motorways in Ireland and one in Germany, concession payments are directly linked to the traffic volume (toll collection) and revenue and result are consequently volatile to some extent.

40. Government grants

Government grants received in 2018, predominantly relating to education, amount to €2.6 million (2017: €3.9 million). 

41. 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 (2017: approximately €0.1 million), are recognised in the income statement.

42. Events after the reporting period

No material events after the reporting period have occurred.

Name

Company