Judgements, estimates, assumptions and uncertainties

The preparation of financial statements requires management to make judgements, assumptions and estimates which affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The actual results may differ from these estimates. Estimates and related assumptions are continually reviewed. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in future periods if affected by the revision.

The Group considers climate-related matters in estimates and assumptions, where appropriate. This assessment includes a wide range of possible impacts on the Group due to both physical and transition risks. Even though the Group believes its business model and products will still be viable after the transition to a low-carbon economy, climate-related matters increase the uncertainty in estimates and assumptions underpinning several items in the financial statements. Even though climate-related risks might not currently have a significant impact on measurement, the Group is closely monitoring relevant changes and developments, such as new climate-related legislation.

The most significant accounting policies in presenting the financial position and which require estimates and assumptions are those applying to the valuation of:

• Intangible fixed assets

• Tangible fixed assets

• Deferred tax assets

• Work in progress

• Provisions

• Uncertain tax positions

At each reporting date the Group assesses whether there is objective evidence that an asset or group of assets may be impaired. If any such indication exists, the value in use is calculated with the discounted future cash flows which are derived from cash flow projections included in, management approved, projections for a period of 5 years. These are extrapolated for the later years and discounted against the estimated discount rate. The cash flow projections contain various assumptions and estimates of future expectations. The value in use is sensitive for the used discount rate and expected future cash flows.

As regards to work in progress, the Group has substantial contracts in progress and in its order book which, by their nature, are potentially high risk due to their size, complexity, and (long) duration. These projects are accounted for using best estimates of the degree to which project revenue is achievable (allowing for contract variations), and of the expected project expenses. Because of their size, complexity and (long) duration, projects may also have a relatively large impact on the company’s result. Project revenue, project expenses and hence the result made on projects at the time of completion may differ substantially from current estimates, amongst others as a consequence of negotiations with clients.

Offsetting

Assets and liabilities are only offset in the financial statements if and to the extent that:

• An enforceable legal right exists to offset the assets and liabilities and settle them simultaneously; and

• The firm intention is to settle the assets and liabilities on a net basis or simultaneously.

Financial instruments

Financial instruments include both primary financial instruments, such as receivables, payables and derivative financial instruments. All purchases and sales of financial assets made according to standard market conventions are recognised as at the transaction date, being the date on which the Group enters into a binding agreement. For the accounting policies applicable to primary financial instruments, please refer to the relevant individual balance sheet items. For the valuation and recognition of derivatives, please refer to the section ‘Derivatives and hedge accounting’.

Intangible fixed assets

Intangible fixed assets are recognised in the balance sheet if:

• It is probable that the future economic benefits that are attributable to the asset will accrue to the Group; and

• The costs of the asset can be reliably measured.

Cost relating to intangible fixed assets not meeting the criteria for capitalisation are recognised directly in the profit and loss account.

Goodwill is capitalised net of accumulated amortisation and, if applicable, impairment. Goodwill is amortised on a straight-line base on its expected useful economic life subject to a maximum of 5 years.

Development costs are capitalised if they satisfy the technical, commercial and financial feasibility criteria set for them. A legal reserve equivalent to the carrying amount is recognised. Development costs are amortised on a straight-line basis over the expected useful economic life of the asset as stated in the notes to the consolidated balance sheet.

The useful economic life and the amortisation method are reviewed at each financial year-end. The residual value of intangible fixed assets is considered nil.

Tangible fixed assets

Tangible fixed assets are stated at the lower of cost and net realisable value, less straight-line depreciation and/or impairments of tangible fixed assets based on their expected useful economic lives as stated in the notes to the consolidated balance sheet. The depreciation on investments starts when the asset is available for intended use. Retired tangible fixed assets are carried at the carrying amount or their net realisable value, whichever is lower. A tangible fixed asset is derecognised upon sale or when no further economic benefits are expected from its continued use. The gain or losses arising on the disposal is taken to the profit and loss account. Costs for major maintenance are recognised by means of a maintenance provision.

Financial fixed assets

Participating interests over whose financial and operating policies significant influence is exercised, even when less than 20% is held, are stated at the proportional share of their net asset value determined in accordance with the accounting policies of the Group. Participating interests over whose financial and operational policies no significant influence is exercised are carried at cost less any impairment. Dividend is designated as income and recognised under share in results of participating interests. Long-term receivables and cash at bank which is not expected to be at the Group’s free disposal within 12 months are stated at amortised cost.

Deferred tax assets and liabilities

A deferred tax liability is recognised for all taxable temporary differences between the valuation for tax and financial reporting purposes. A deferred tax asset is recognised for all deductible temporary differences between the valuation for tax and financial reporting purposes, and carryforward losses, to the extent that it is probable that future taxable profit will be available for set-off. The non-current and current deferred tax assets are recognised under financial assets. The deferred tax liabilities are recognised under provisions. Deferred tax assets and liabilities are carried on the basis of the tax consequences of the realisation or settlement of assets, provisions, liabilities or accruals and deferred income as planned by the Group at the balance sheet date. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are carried at non-discounted value.

Stock

Raw materials and consumables are stated at the lower of cost and net realisable value. Van Oord applies the first-in/ first-out system.

Receivables

Receivables are initially measured at fair value plus transaction costs and subsequently stated at amortised cost, net of provisions for doubtful debts where necessary.

Cash at bank and in hand

Cash at bank and in hand includes cash in hand, bank balances, notes and cheques and are carried at face value.

It also includes deposits if these are effectively at the Group’s free disposal, even if interest income may be lost. Cash at bank and in hand not expected to be at the Group’s free disposal for longer than 12 months is classified under other financial fixed assets.

Provisions

Provisions are stated at the nominal value of the expenditures expected to be required to settle the liabilities or losses. Provisions are discounted if the effect of discounting is material. If some or all of the expenditures required to settle a provision are likely to be reimbursed by a third party at the time when the provision is settled, the reimbursement is separately recognised as an asset. A provision is recognised in the balance sheet if:

• a present obligation (legal or constructive) has arisen as a result of a past event;

• the amount can be estimated reliably; and

• settlement of the liability is likely to result in an outflow of resources.

Short-term and long-term interest-bearing liabilities

Short-term and long-term interest-bearing liabilities are initially carried at fair value including transaction costs and subsequently stated at amortised cost.

Work in progress

Work in progress relates to contracts with third parties and is stated at cost, plus attributed profit, minus the realisable value of work completed.

Cost comprises of direct project costs (such as the costs of staff directly involved in the project, costs of materials, subcontractor fees and charges for equipment), expenses attributable to general project activities and the project, and other costs contractually allocable to the client.

Profit is accounted for on the basis of the technical progress of the work once this profit can be estimated reliably. The realisable value of work completed comprises the total work in progress, instalments charged, and work completed but not yet invoiced. A provision for expected losses is deducted from the balance of work in progress.

The net amount for each contract is recognised as a current asset or a current liability where the balance of the construction contract is positive or negative, respectively.

Other liabilities

Other liabilities are initially carried at fair value including transaction costs and subsequently stated at amortised cost.

Pensions

The principal pension plan is carried out by pension fund PGB and is a collective defined contribution plan based on an average pay plan and a target pension age of 68. Based on this collective defined contribution plan Van Oord will allocate a fixed contribution annually. The accrued pension entitlements are not assured and the decision on the level of indexation percentage is based on the coverage ratio of the pension fund and is taken by the Board of the PGB pension fund. The coverage ratio at year-end 2025 is 123.9% (116.7%). The guiding principle is that annual pension charges are equal to the pension contributions payable to the pension administrator. A liability is recognised insofar the contribution payable to the pension administrator has not been paid at the balance sheet date.

Derivatives and hedge accounting

The Group uses financial instruments (‘derivatives’), such as forward currency contracts to hedge against risks associated with fluctuations in currencies. The Group carries these instruments at cost and applies cost price hedge accounting. Hedge relationships have been documented and are pre-reviewed for expected effectiveness. Effectiveness is reviewed on a regular basis. If the critical elements of the derivative and the hedged item are not the same, a certain degree of ineffectiveness is assumed, and a quantitative ineffectiveness measurement is required. If that measurement reveals that the cumulative negative change in fair value of the hedging instrument is higher in absolute terms than the opposite change in fair value of the hedged item, then ineffectiveness exists, which will be directly recognised in the profit and loss account as a loss.

Net revenue

General

Net revenue represents the value of the work carried out in the financial year plus the profit on work completed in the year. Amounts received by the Group for its own account (as principal) shall be recognised as revenue. Amounts received by the Group for third parties (as an agent) shall not be recognised as revenue.

Performance obligations

Revenue is recognised per separate performance obligation, albeit that most often the contracts contain only one performance obligation. The nature of significant performance obligations and the method of allocating revenue to reporting periods, including the method of determining the extent of completion is described below. These performance obligations are the most significant ones; however, performance obligations are identified on a contract basis and can therefore differ from the below mentioned significant ones.

In general, the following performance obligations are distinguished:

• Construction, for which revenue is recognised based on the percentage of completion method; and

• Maintenance, for which revenue is recognised based on the percentage of completion method.

For balance of plant contracts, generally the following performance obligations are distinguished:

• Procurement, for which revenue is recognised based on the transfer of titles; and

• Execution/installation, for which revenue is recognised based on the percentage of completion method.

Percentage of completion method

If the outcome of a construction contract can be reliably estimated, project income and costs from the contract are recognised in the profit and loss account as revenue respectively costs pro rata to the extent of the work performed at the balance sheet date. The percentage of completion is generally determined based on the contract costs incurred in proportion to the estimated total contract costs. If the outcome of a construction contract cannot be estimated reliably, revenue is recognised in the profit and loss account only to the extent of contract costs incurred that probably will be recoverable. The contract costs are recognised as an expense in the profit and loss account in the period in which they are incurred.

Transfer of titles

When procured goods are legally transferred to the client, the related revenue is recognised.

Transaction price

Revenue is recognised over time when the customer simultaneously receives and consumes the benefits provided through the Group's performance or when the Group creates or enhances an asset that the customer controls, for the amount to which the Group expects to be entitled in exchange for the transfer of promised goods or services. If there are multiple performance obligations in a contract, the total transaction price is allocated to the performance obligations in proportion to the value of the performance obligations.
Revenue recognised is based on contract considerations, including fixed prices and variable prices as well as indexation of raw materials and other costs, possible claims, incentives or liquidated damages. If there is a right to variable remuneration, such as incentive agreements, this is taken into account to the extent that it is highly unlikely that it will be reversed at a later date.

Contract modification

An amendment to a contract is accounted for based on the following:

• An addition of promised goods or services which are distinguishable from those transferred on or before the date of the amendment, the amendment is accounted for as a termination of the existing contract and the creation of a new contract.

• If the remaining goods or services are indistinguishable and therefore part of a single performance obligation that is partially satisfied at the time of the amendment, the amendment is accounted for as an amendment to the existing contract. The effect of the modification on the transaction price and on the measurement of the progress towards fulfilment of the performance obligation is recognised as an adjustment to the cumulative revenue at the time of the modification.

Costs

Costs are determined in accordance with the accounting policies set out above and are allocated to the financial year to which they relate.

The determination of contract costs incurred in proportion to the estimated total contract costs, includes project costs consisting of payroll costs, materials, costs of subcontracted work, costs of local representatives, rental charges and maintenance costs for the equipment used and other project costs.

The Group makes significant estimates and judgements for the projects that depend on the nature of specific project circumstances.

Employee benefits

Employee benefits and social charges are charged to the profit and loss account in the period in which the employee services are rendered.

Interest income and expenses

Interest is allocated to successive financial reporting periods in proportion to the outstanding principal. Premiums and discounts are treated as annual interest charges so that the effective interest rate, together with the interest payable on the loan, is recognised in the profit and loss account, with the amortised (net) cost of the liabilities being recognised in the balance sheet. Period interest expenses and related expenses are recognised in the year in which they fall due.

Income taxes

Income taxes comprise current and deferred taxes. The Group has determined the global minimum topup tax, which is required to pay under Pillar Two, is an income tax and as such is also reported under income taxes. Income taxes are calculated on the basis of the result disclosed in the profit and loss account, taking into account current tax facilities and deferred tax assets and liabilities. Together with its Dutch Group companies, Van Oord N.V. constitutes a fiscal unity in the Netherlands. Taxes within this fiscal unity are settled based on the reported financial results of the respective entities. Tax assets and liabilities are netted if the general conditions for netting are met.

Share in results of participating interests

The share in results of participating interests consists of the share of the Group in the results of these participating interests.

Cash flow statement

The cash flow statement is prepared in accordance with the indirect method. The liquidities included in the cash flow statement comprise of cash at bank and in hand. Cash flows in foreign currencies are translated at an average exchange rate. Transactions where no cash is exchanged are not included in the cash flow. Interest received and paid, including the interest component of finance lease payments, and income tax received/paid are included under cash flows from operating activities. The purchase of Group companies and proceeds from the sale of Group companies are included under cash flow from investing activities, insofar as payment in cash has been made, net of cash held by the Group companies in question. Dividend paid is presented as cash flow from financing activities.