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Currency management

General  
In the management of currency risks Stork aims to limit the effect on the group result of exchange-rate fluctuations. However in the long term structural changes, especially in the value of the US dollar relative to the euro, and changes in the difference between the US and European interest rates, will influence the consolidated result. Stork uses two policies to manage the currency risks: the Aerospace currency policy and the Stork N.V. currency policy for the other Stork activities. 

Aerospace currency management
The Aerospace currency policy expresses how Stork addresses the currency risks of the major Aerospace programmes. The currency risks are material because of the size of the transactions and the long terms of the contracts. The currency risks relate mainly to the exposure to the US dollar. Of the currency future contracts entered into by Stork, 93% relate to the Aerospace currency policy. 

Of the total expected cash flow of contracts entered into in the period 2006  2031, amounting to  1,030 million, 70% was hedged at the end of 2005. At the end of 2005 Stork hedged 100% of the expected cash flows up to the end of 2009. The currency risks are managed and hedged on a portfolio basis. Only foreign exchange contracts were used in 2005 for the external hedging of currency risks. For this purpose Stork has substantial credit facilities with seven banks for forex transactions with terms from 5 to 15 years. 

Cashflow hedge accounting is applied for the revaluation of the financial hedging instruments. 

Stork N.V. currency management 
The Stork N.V. currency policy includes the procedures, regulations and authorisations relating to other currency risks. All results of this policy are recognised directly in the income statement. Currency risks at the start of contracts under which the sales volume will generate a certain cash flow are centrally hedged. Operating companies have no open foreign currency positions in relation to these contracts. Through a coherent infrastructure and strict procedures Stork strives to minimise the effect of exchange-rate fluctuations. Use was made in 2005 of exchange-rate risk insurances and currency future contracts for external hedging of currency risks. 

Hedging
The financial instruments entered into with banks are entered into directly by Stork. At 31 December 2005 a total of 766 million in currency contracts (2004: 709 million) was centrally hedged for operating companies in relation to export contracts and 141 million (2004: 104 million) in relation to import contracts. At end-2005 Stork held a derivatives portfolio consisting entirely of currency future contracts. The average term of the derivatives portfolio is 2 years and 3 months (in 2004: 2 years and 4 months). Currency risks relating to future revenues for which no commercial contracts have been concluded are in principle not hedged. The currency risk on the net investment in foreign activities is where possible and relevant minimised by financing in local currencies. Residual amounts are not hedged. 

Exposure analysis
A decline of 10% in the spot price of the US dollar and related currencies relative to the euro would have had an expected negative effect of approximately 3% on the result before tax of Stork for 2005. This calculation takes into account the currency future contracts entered into with banks.