| Financial Instruments | (29) Financial Instruments (a) Below is a breakdown of the financial instruments by nature, category and fair value. The Group does not provide details of the fair value of certain financial instruments as their carrying amount is very similar to their fair value because of its short term. Thousands of Euros 31/12/2022 Carrying amount Fair Value Financial assets Financial Financial Other at amortised Financial assets assets at FV liabilities at financial costs at FVTPL through OCI Hedges amortised costs liabilities Total Level 1 Level 2 Level 3 Total Non-current financial assets — 7 11,533 — — — 11,540 7 — 11,533 11,540 Derivative instruments — — — 39,659 — — 39,659 — 39,659 — 39,659 Trade receivables — — 236,076 — — — 236,076 — 236,076 — 236,076 Financial assets measured at fair value — 7 247,609 39,659 — — 287,275 Non-current financial assets 582,175 — — — — — 582,175 Other current financial assets 31,034 — — — — — 31,034 Trade and other receivables 445,793 — — — — — 445,793 Cash and cash equivalents 547,979 — — — — — 547,979 Financial assets not measured at fair value 1,606,981 — — — — — 1,606,981 Derivatives instruments — (4,736) — — — (4,736) — (4,736) — (4,736) Financial liabilities measured at fair value — (4,736) — — — — (4,736) Senior Unsecured & Secured Notes — — — — (4,572,720) — (4,572,720) (4,122,656) — — (4,122,656) Promissory Notes — — — — (118,940) — (118,940) Senior secured debt — — — — (3,227,926) — (3,227,926) — (3,286,662) — (3,286,662) Other bank loans — — — — (813,595) — (813,595) Lease liabilities — — — — (1,016,944) — (1,016,944) Other financial liabilities — — — — (1,001,387) — (1,001,387) Other non-current debts — — — — — (15) (15) Trade and other payables — — — — (846,648) — (846,648) Other current liabilities — — — — — (241,487) (241,487) Financial liabilities not measured at fair value — — — — (11,598,160) (241,502) (11,839,662) 1,606,981 (4,729) 247,609 39,659 (11,598,160) (241,502) (9,950,142) Thousands of Euros 31/12/2021 Carrying amount Fair Value Financial assets Financial Financial Financial Other at amortised assests at assets at FV liabilities at financial costs FVTPL through OCI Hedges amortised costs liabilities Total Level 1 Level 2 Level 3 Total Non-current financial assets — 7 2,031 — — — 2,038 7 — 2,031 2,038 Derivative instruments — — — 5,306 — — 5,306 — 5,306 — 5,306 Trade receivables — — 216,433 — — — 216,433 — 216,433 — 216,433 Financial assets measured at fair value — 7 218,464 5,306 — — 223,777 — Non-current financial assets 358,161 — — — — — 358,161 Other current financial assets 2,026,469 — — — — — 2,026,469 Trade and other receivables 270,827 — — — — — 270,827 Cash and cash equivalents 655,493 — — — — — 655,493 Financial assets not measured at fair value 3,310,950 — — — — — 3,310,950 Derivatives instruments — (875) — — — (875) — (875) — (875) Financial liabilities measured at fair value — (875) — — — — (875) Senior Unsecured & Secured Notes — — — — (4,626,919) — (4,626,919) (4,697,328) — — (4,697,328) Promissory Notes — — — — (116,610) — (116,610) Senior secured debt — — — — (3,061,078) — (3,061,078) — (3,262,901) — (3,262,901) Other bank loans — — — — (645,975) — (645,975) Lease liabilities — — — — (873,724) — (873,724) Other financial liabilities — — — — (882,060) — (882,060) Other non-current debts — — — — — (333) (333) Trade and other payables — — — — (780,826) — (780,826) Other current liabilities — — — — — (219,272) (219,272) Financial liabilities not measured at fair value — — — — (10,987,192) (219,605) (11,206,797) 3,310,950 (868) 218,464 5,306 (10,987,192) (219,605) (7,672,945) (b) Measurement of fair value In order to determine the fair value of financial assets or liabilities, the Group uses the following hierarchy based on the relevance of the variables used: ● Level 1: estimations based on quoted prices of the instrument. ● Level 2: estimations based on significant observable variables coming directly from the market. ● Level 3: estimations based on valuation techniques other than observable variables in the market, mainly discounted cash flows. (c) Financial risk management This item provides information on the Group’s exposure to risk associated with the use of financial instruments, the Group’s objectives and procedures to measure and mitigate this risk, and the Group’s capital management strategy. The Group is exposed to the following risks: ● Credit risk ● Liquidity risk ● Market risk: includes interest rate risk, currency risk and other price risks. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, define appropriate risk limits and controls and to control risks and comply with limits. Risk management policies and procedures are reviewed regularly so that they reflect changes in market conditions and the Group’s activities. The Group’s management procedures and rules are designed to create a strict and constructive control environment in which all employees understand their duties and obligations. The Group’s Audit Committee supervises how management controls compliance with the Group’s risk management procedures and policies and reviews whether the risk management policy is suitable considering the risks to which the Group is exposed. This committee is assisted by Internal Audit which acts as supervisor. Internal Audit performs regular and ad hoc reviews of the risk management controls and procedures and reports its findings to the Audit Committee. (i) Credit risk Credit risk is the risk to which the Group is exposed in the event that a customer or counterparty to a financial instrument fails to discharge a contractual obligation, and mainly results from trade receivables and the Group’s investments in financial assets. Trade receivables The Group does not predict any significant insolvency risks as a result of delays in receiving payment from some European countries due to their current economic situation. The main risk in these countries is that of late payments, which is mitigated through the possibility of claiming interest as foreseen by prevailing legislation. No significant bad debt or late payment issues have been detected for sales to private entities. The Group recognizes impairment based on its best estimate of the expected losses on trade and other receivables. The main impairment losses recognized are due to specific losses relating to individually identified risks. At year end, these impairment losses are immaterial. Concentration of credit risk For trade receivables the Group uses the simplified approach, estimating lifetime expected credit losses, while for all other financial assets the Group uses the general approach for calculating expected credit losses. In both cases, due to the customers’ credit rating, as well as the internal classification systems currently in place for new customers and considering that collection periods are mostly under 30 days, there is no significant impact for the Group. Exposure to credit risk The carrying amount of financial assets represents the maximum exposure to credit risk. At 31 December 2022 and 2021 the maximum level of exposure to credit risk is as follows: Thousands of Euros Carrying amount Reference 31/12/2022 31/12/2021 Non-current financial assets Nota 11 620,745 362,267 Other current financial assets Nota 11 43,663 2,029,707 Contractual assets Nota 13 35,154 1,939 Trade receivables Nota 14 608,688 432,197 Other receivables Nota 14 29,083 17,224 Cash and cash equivalents Nota 15 547,979 655,493 1,885,312 3,498,827 The maximum level of exposure to risk associated with receivables and contractual assets at 31 December 2022 and 2021, by geographical area, is as follows. Thousands of Euros Carrying amount 31/12/2022 31/12/2021 Spain 53,145 62,108 EU countries 69,003 40,897 United States of America 139,721 110,624 Other European countries 16,030 25,163 Other regions 395,026 212,568 672,925 451,360 Impairment losses A breakdown of the trade and other receivables and contractual assets net of the impairment losses by ageing at 31 December 2022 is as follows: Thousands of Euros Total net third Total gross carrying party trade ECL Rate amount Provision receivables Not matured 0.19 % 550,131 (48) 550,083 Past due 0-30 days 0.19 % 44,779 (425) 44,354 Past due 31-60 days 0.62 % 16,000 (163) 15,837 Past due 61-90 days 2.03 % 6,029 (133) 5,896 Past due 91-180 days 3.01 % 17,407 (295) 17,112 Past due 181-365 days 8.52 % 10,747 (187) 10,560 More than one year 100.00 % 9,994 (9,994) — — Customers with objective evidence of impairment 21,046 (21,046) — 676,133 (32,291) 643,842 A breakdown of the trade and other receivables and contractual assets net of the impairment losses by ageing as of 31 December 2021 is as follows: Thousands of Euros Total net third Total gross carrying party trade ECL Rate amount Provision receivables Not matured 0.19 % 364,538 (445) 364,093 Past due 0-30 days 0.19 % 32,623 (51) 32,572 Past due 31-60 days 0.62 % 14,144 (79) 14,065 Past due 61-90 days 2.03 % 6,556 (133) 6,423 Past due 91-180 days 3.01 % 11,000 (311) 10,689 Past due 181-365 days 8.52 % 6,543 (249) 6,294 More than one year 100.00 % 3,911 (3,911) — Customers with objective evidence of impairment 18,830 (18,830) — 458,145 (24,009) 434,136 Unimpaired receivables that are past due mainly relate to public entities. Movement in the bad debt provision was as follows: Thousands of Euros 31/12/2022 31/12/2021 31/12/2020 Opening balance 24,009 22,985 22,291 Net charges for the year 14,074 6,471 2,436 Net cancellations for the year (6,949) (6,269) (124) Transfers 53 — (29) Translation differences 1,104 822 (1,589) Closing balance 32,291 24,009 22,985 (ii) Liquidity risk Liquidity risk is the risk that the Group cannot meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure where possible, that it always has sufficient liquidity to settle its obligations at the maturity date, both in normal conditions and in times of tension, to avoid incurring unacceptable losses or tarnishing the Group’s reputation. The Group manages liquidity risk on a prudent basis, based on availability of cash and sufficient committed unused long-term credit facilities, enabling the Group to implement its business plans and carry out operations using stable and secure sources of financing. At 31 December 2022 the Group has total cash and cash equivalents of Euros 547,979 thousand (Euros 655,493 thousand at 31 December 2021). The Group also has approximately Euros 987,340 thousand in unused credit facilities (Euros 621,989 thousand at 31 December 2021), including Euros 937,559 thousand on the revolving credit facility (Euros 534,429 thousand at 31 December 2021). The Group is able to provide sufficient liquidity to fund its current obligations based on cash flows from operations combined with cash balances and availability of unused credit lines, and it is committed to maintaining elevated and adequate levels of liquidity through internally generated cash flows, and a decrease in dividend payments in the medium term. Additionally, currently the Group does not generate significant cash in any country that might have restrictions on the repatriation of funds. As in previous years, the Group continues with its quarterly program for optimization of working capital, which is mainly based on contracts to sell receivables without recourse. The main contractual obligations existing at the end of the fiscal year comprise mainly long-term financial debt obligations with capital repayments and interest payments (see note 20). Details of the contractual maturity dates of financial liabilities including committed interest calculated using interest rate forward curves are as follows: Thousands of Euros Carrying amount at Contractual 6 months 6 - 12 1-2 2 - 5 More than Carrying amount Reference 31/12/22 flows or less months years years 5 years Financial liabilities Bank loans Note 20 4,041,522 5,193,051 527,770 148,914 488,105 4,028,262 — Other financial liabilities Note 20 1,001,387 1,685,824 169,278 18,656 124,822 441,933 931,135 Bonds and other marketable securities Note 20 4,691,659 5,468,068 190,453 75,951 147,903 5,053,761 — Lease liabilities Note 20 1,016,944 1,016,944 51,088 51,268 57,695 218,384 638,509 Payable to suppliers Note 21 731,918 731,918 731,675 243 — — — Other current liabilities Note 22 14,261 14,262 11,364 2,898 — — — Financial derivatives Note 29 (d) 4,736 4,736 733 — 12 3,991 — Total 11,502,427 14,114,803 1,682,361 297,930 818,537 9,746,331 1,569,644 Thousands of Euros Carrying amount at Contractual 6 months 6 - 12 1-2 2 - 5 More than Carrying amount Reference 31/12/21 flows or less months years years 5 years Financial liabilities Bank loans Note 20 3,707,053 4,309,621 476,397 78,524 102,070 3,641,777 10,853 Other financial liabilities Note 20 882,060 1,294,873 41,934 1,300 164,718 448,161 638,760 Bonds and other marketable securities Note 20 4,743,529 5,663,320 2,215,138 170,572 48,538 3,145,255 83,817 Lease liabilities Note 20 873,724 873,723 24,640 23,927 47,595 184,032 593,529 Payable to suppliers Note 21 628,992 628,992 622,091 6,901 — — — Other current liabilities Note 22 43,562 43,562 42,387 1,175 — — — Financial derivatives Note 29 (d) 875 875 875 — — — — Total 10,879,795 12,814,966 3,423,462 282,399 362,921 7,419,225 1,326,959 (iii) Currency risk The Group operates internationally and is therefore exposed to currency risk when operating with foreign currencies, especially with regard to the US Dollar. Currency risk is associated with future commercial transactions, recognized assets and liabilities, and net investments in foreign operations. The Group holds significant investments in foreign operations, the net assets of which are exposed to currency risk. The conversion risk affecting net assets of the Group’s foreign operations in US Dollars is mitigated primarily through borrowings in this foreign currency. The Group’s main exposure to currency risk is with regard to the US Dollar, which is used in a significant percentage of transactions in foreign functional currencies. The financing obtained in Euros represents 60% of the total debt of the Group and amounts to Euros 5,563 million at 31 December 2022 (69% and Euros 5,962 million at 31 December 2021). As mentioned in note 20, part of the US dollar debt of the Group is covered by a currency swap to hedge the exposure to the associated currency risk. The Group applies the cost of hedging method. This method enables the Group to exclude the currency basis spread from the designated hedging instrument and, subject to certain requirements, changes in their fair value attributable to this component are recognized in other comprehensive income. Details of the Group’s exposure to currency risk is as follows: Thousands of Euros 31/12/2022 Euros (*) US Dollars (**) Trade receivables 2,116 58,331 Receivables from Group companies 132,645 11,542 Loans to Group companies 4,548,142 33 Cash and cash equivalents 11,154 1,989 Trade payables (17,297) (20,870) Payables to Group companies (77,367) (29,277) Loans from Group companies (4,414,879) — Bank loans (31,875) — Balance sheet exposure 152,639 21,748 (*) Balances in Euros in subsidiaries with US Dollars functional currency (**) Balances in US Dollars in subsidiaries with Euros functional currency Thousands of Euros 31/12/2021 Euros (*) US Dollars (**) Trade receivables 2,023 14,800 Receivables from Group companies 141,285 7,101 Loans to Group companies 464,789 21 Cash and cash equivalents 25,766 82 Trade payables (27,098) (23,349) Payables to Group companies (62,930) (6,480) Loans from Group companies (11,495) (3) Bank loans (372,500) — Balance sheet exposure 159,840 (7,828) (*) Balances in Euros in subsidiaries with US Dollars functional currency (**) Balances in US Dollars in subsidiaries with Euros functional currency The most significant exchange rates applied at 2022 and 2021 year ends are as follows: Closing exchange rate Euros 31/12/2022 31/12/2021 US Dollars 1.0666 1.1326 A sensitivity analysis for foreign exchange fluctuations is as follows: Had the US Dollar strengthened by 10% against the Euro at 31 December 2022, equity would have increased by Euros 892,806 thousand (Euros 812,285 thousand at 31 December 2021) and profit due to foreign exchange differences would have increased by Euros 17,439 thousand (increase of Euros 15,201 thousand at 31 December 2021). This analysis assumes that all other variables are held constant, especially that interest rates remain constant. A 10% weakening of the US Dollar against the Euro at 31 December 2022 and 2021 would have had the opposite effect for the amounts shown above, all other variables being held constant. The Group uses hedge accounting to partially hedge the currency risk exposure (See note 29 (d)). (iv) Interest rate risk The Group’s interest rate risks arise from current and non-current borrowings. Borrowings at variable interest rates expose the Group to cash flow interest rate risks. Fixed-rate borrowings expose the Group to fair value interest rate risk. The objective of the management of interest rate risk is to achieve a balance in the structure of the debt, keeping part of the external resources issued at a fixed rate and covering part of the variable rate debt through hedges. A significant part of the financing obtained accrues interest at fixed rates, representing 63% of the total debt of the Group at 31 December 2022 (58% at 31 December 2021). It mainly includes corporate senior notes, European Investment Bank loans, as well as the agreement with GIC (Sovereign Fund of Singapore) (see note 20). Variable-rate debt represents 37% of the total debt at 31 December 2022 (42% at 31 December 2021) and includes mainly the senior secured debt (see note 20 (b)). To date, the profile of interest on interest-bearing financial instruments is as follows: Thousands of Euros 31/12/2022 31/12/2021 Fixed-interest financial instruments Financial liabilities (5,835,492) (4,878,087) (5,835,492) (4,878,087) Variable-interest financial instruments Financial liabilities (3,486,460) (3,296,025) (3,486,460) (3,296,025) (9,321,952) (8,174,112) Had the interest rate been 100 basis points higher at 31 December 2022, the interest expense would have increased by Euros 34,688 thousand (Euros 35,449 thousand at 31 December 2021). As the Group does not have any hedging derivatives in place, the net effect on cash interest payments would have increased by the same amount. (v) Market price risk Price risk affecting raw materials is mitigated by the vertical integration of the hemoderivatives business in a highly concentrated sector. (d) Financial derivatives At 31 December 2022 and 2021 the Group has recognized the following derivatives: Thousands of Euros Notional Notional amount at amount at Value at Value at Financial derivatives Currency 31/12/2022 31/12/2021 31/12/22 31/12/21 Maturity Cross currency interest rate swap US Dollar 500,000,000 500,000,000 35,296 5,306 15/10/2024 Cross currency interest rate swap US Dollar 205,000,000 — 3,216 — 15/10/2024 Foreign exchange rate forward Swiss Franc 5,500,000 — 71 — 28/02/2023 Foreign exchange rate forward Canadian dollar 4,416,667 — 165 — 2023 and 2024 Foreign exchange rate forward Pound Sterling 27,100,000 — 805 — 2023 Foreign exchange rate forward US Dollar 23,720,000 — 104 — 2023 Embedded derivative Euro 160,000,000 — 2 — 2024 Total assets (note 11) 39,659 5,306 Cross currency interest rate swap US Dollar 205,000,000 — (3,990) — 15/10/2024 Foreign exchange rate forward Canadian dollar — 51,000,000 — (875) 25/07/2022 Foreign exchange rate forward US Dollar 60,000,000 — (594) — 30/01/2023 Foreign exchange rate forward Canadian dollar 8,000,001 — (145) — 2024 and 2025 Foreign exchange rate forward US Dollar 15,300,000 — (6) — 2023 Embedded derivative Euro 65,000,000 — (1) — 2024 Total liabilities (note 20) (4,736) (875) (i) Hedging derivative financial instruments On 5 October 2021, the Group subscribed three cross currency interest-rate swaps with an aggregate value of US Dollars 500 million to hedge part of the Euro equivalent value of the US Dollar unsecured notes issued in October 2021. It is a fixed-to-fixed USD/EUR cross currency swap with the following characteristics: - The Group receives a loan of Euros 431.6 million at a nominal interest rate of 3.78%. - The Group grants a US Dollars 500 million loan at a nominal interest rate of 4.75%. On 28 June 2022, the Group subscribed one cross currency interest-rate swap of US Dollars 205 million to hedge the remaining part of the Euro equivalent value of the US Dollar unsecured notes issued in October 2021. It is a fixed-to-fixed USD/EUR cross currency swap with the following characteristics: - The Group receives a Euros 194 million loan at a nominal interest rate of 3.1046%. - The Group grants a US Dollars 205 million loan at a nominal interest rate of 4.75%. The derivative complies with the criteria required for hedge accounting. See further details in notes 4 (i). The movement in derivative financial instruments is as follows: Thousands of Euros 31/12/2022 31/12/2021 Initial balance 4,431 — Business combination (1,255) — Changes in fair value recognized in equity (4,757) 3,130 Transfer to profit or loss 12,552 1,895 Transfer to profit or loss - translation differences 32,954 3 Tax effect 6,170 — Collections / Payments (15,172) (597) Ending balance 34,923 4,431 (ii) Derivative financial instruments at fair value through profit and loss The Group has subscribed various foreign exchange forwards to partially hedge the foreign currency value of intercompany loan. Since the Group chooses not to apply hedge accounting criteria, gains or losses resulting from changes in the fair value of derivatives are taken directly to “Change in fair value of financial instruments” in the consolidated statement of profit and loss. At 31 December 2022, the Group has recognized a net finance cost of Euros 2,407 thousand (Euros 280 thousand of net finance cost at 31 December 2021). (e) Capital management The directors’ policy is to maintain a solid capital base in order to ensure investor, creditor and market confidence and sustain future business development. The board of directors defines and proposes the level of dividends paid to shareholders. The capital structure is periodically reviewed through the preparation of strategic plans focused mainly on a sequential improvement of EBITDA (Earnings before interests, tax, amortization and depreciation), generation of operating cash and discipline in the allocation of capital; with the objective and commitment to reduce the leverage ratio. In accordance with the senior secured debt contract, the Group is subject to compliance with some covenants. At 31 December 2022 and 2021, the Group complies with the covenants in the contract. The credit rating of the Group is as follows: September 2022 December 2021 September 2021 Moody’s Investors Corporate rating B1 B1 Senior secured debt Ba3 Ba3 Senior Unsecured debt B3 B3 Perspective Negative Negative Standard & Poor’s Corporate rating B+ BB- Senior secured debt BB- BB Senior Unsecured debt B- B Perspective Stable Negative Fitch Ratings Corporate rating BB- BB- Senior secured debt BB+ BB+ Senior Unsecured debt B+ B+ Perspective Stable Stable The Parent held Class B treasury stock equivalent to 1.33% of its capital at 31 December 2022 (1.31% at 31 December 2021). |
