Annual Report 2008 Sustainable design & engineering - Grontmij

Notes to the consolidated financial statements
4. Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value.
Property, plant and equipment
The fair value of property, plant and equipment recognised in the course of a business combination is based on market value.
The market value of real estate is the value for which the asset on the valuation date can be sold in a businesslike, arm’s length transaction, as
estimated by a third party. The market value of other property, plant and equipment is based on market prices of comparable assets.
Intangible assets
Trade names
The fair value of trade names acquired in a business combination is based on the discounted estimated royalty payments that have been avoided
as a result of the trade name being owned. The determination of the fair value is based on reasonable assumptions and estimations of the
economic situation during the lifetime of the asset.
Order backlogs
The fair value of order backlogs acquired in a business combination is based on the future economic benefits associated with the order backlog
that are due to the Group. The determination of the fair value is based on reasonable assumptions and estimations of the economic situation
during the lifetime of the asset.
Customer relations
The fair value of customers relations acquired in a business combination is based on the sales that are attributable to customer relationships and
their associated attrition rates at the date of acquisition and the future economic benefits associated with the customer relationship that are due
to the Group. The determination of the fair value is based on reasonable assumptions and estimations of the economic situation during
the lifetime of the asset.
Receivables
The fair value of receivables, excluding amounts due from customers for contract work, is estimated at the present value of future cash flows;
these are where applicable discounted, using the market interest at the reporting date.
Derivative financial instruments
The fair value of currency exchange contracts is based on the quoted market price, when available. If this market price is not available, the fair
value is estimated by discounting the difference between the contractual and the actual future price for the remaining duration, based on a risk
free interest rate (Dutch state bonds).
Brokers’ quotes are used in determining the fair value of interest rate swaps. These quotes are tested for reasonableness by use of techniques
which are based on discounted cash flows on the basis of the terms and conditions of the contract, using the market interest rate for similar
instruments on the reporting date.
Non-derivative financial liabilities
The fair value of non-derivative financial liabilities is calculated on the basis of the present value of future redemptions and interest payments,
discounted at the market interest as per reporting date. For finance leases, the market interest on the reporting date is determined with reference
to similar lease contracts. Where applicable, further information about the method and the assumptions made in determining fair values is
disclosed in the note to that asset or liability.
5. Financial risk management
The Group has exposure to the following risks from its use of financial instruments:
o credit risk;
o liquidity risk;
o market risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for
measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements. The Executive Board has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The Group’s risk management policy is aimed at the long-term sustainable management of its business activities
and limiting or, where possible, appropriate hedging of the risks.
The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations. The Group’s Audit Committee oversees how management monitors compliance
with the Group’s risk management procedures.
86
GRONTMIJ | ANNUAL REPORT 2008