| DERIVATIVES AND FINANCIAL INSTRUMENTS | 28.
DERIVATIVES AND FINANCIAL INSTRUMENTS The Group uses a range of financial instruments (including cash, finance leases, receivables, payables and derivatives) to fund its operations. These instruments are used to manage the liquidity of the Group in a cost effective, low-risk manner. Working capital management is a key additional element in the effective management of overall liquidity. The Group does not trade in financial instruments or derivatives. The main risks arising from the utilization of these financial instruments are interest rate risk, liquidity risk and credit risk. Interest rate risk Effective and repricing analysis The following table sets out all interest-earning financial assets and interest bearing financial liabilities held by the Group at December 31, indicating their effective interest rates and the period in which they re-price:
As at December 31, 2017
Note
Effective interest
Total US$’000
6 mths or less US$’000
6 –12 mths US$’000
1-2 years US$’000
2-5 years US$’000
> 5 years US$’000
Cash and cash equivalents
18
1.4
%
23,564
23,564
—
—
—
—
Short-term investments
19
1.4
%
34,043
—
34,043
—
—
—
Finance lease receivable
17
4.0
%
1,185
267
233
333
352
—
Licence payments
22
3.0
%
(1,112
)
(1,112
)
—
—
—
—
Finance lease payable
25
4.6
%
(886
)
(176
)
(178
)
(364
)
(168
)
—
Exchangeable note
24
4.8
%
(92,955
)
—
—
—
—
(92,955
)
Total
(36,161
)
22,543
34,098
(31
)
184
(92,955
)
As at December 31, 2016
Note
Effective
Total US$’000
6 mths or less US$’000
6 –12 mths US$’000
1-2 years US$’000
2-5 years US$’000
> 5 years US$’000
Cash and cash equivalents
18
0.8
%
77,109
77,109
—
—
—
—
Finance lease receivable
17
4.1
%
1,330
289
253
392
396
—
Licence payments
22
3.0
%
(2,195
)
(1,112
)
(1,083
)
—
—
—
Finance lease payable
25
4.5
%
(1,005
)
(135
)
(138
)
(286
)
(446
)
—
Exchangeable note
24
4.8
%
(92,232
)
—
—
—
—
(92,232
)
Total
(16,993
)
76,151
(968
)
106
(50
)
(92,232
) In broad terms, a one-percentage point increase in interest rates would increase interest income by US480 480 Interest rate profile of financial assets / liabilities The interest rate profile of financial assets/liabilities of the Group was as follows:
December 31, 2017 US$‘000
December 31, 2016 US$‘000
Fixed rate instruments
Fixed rate financial liabilities (licence fees)
(1,112
)
(2,195
)
Fixed rate financial liabilities (exchangeable note)
(92,955
)
(92,232
)
Fixed rate financial liabilities (finance lease payables)
(886
)
(1,005
)
Financial assets (short-term deposits and short-term investments)
48,046
67,265
Financial assets (finance lease receivables)
1,185
1,330
Variable rate instruments
Financial assets (cash and short-term deposits)
9,561
9,844
(36,161
)
(16,993
) Financial assets comprise cash and cash equivalents and short-term investments as at December 31, 2017 and December 31, 2016 (see Note 18 and 19). Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial liabilities at fair value through profit and loss. Therefore a change in interest rates at December 31, 2017 would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would increase interest income by US$ 480 480 . There was no significant difference between the fair value and carrying value of the Group’s trade receivables and trade and other payables at December 31, 2017 and December, 31 2016 as all fell due within 6 months. Liquidity risk The Group’s operations are cash generating. Short-term flexibility is achieved through the management of the Group’s short-term deposits. The following are the contractual maturities of financial liabilities, including estimated interest payments:
As at December 31, 2017 US$’000
Carrying US$’000
Contractual US$’000
6 mths or US$’000
6 mths – 12 mths US$’000
1-2 years US$’000
2-5 years US$’000
>5 years US$’000
Financial liabilities
Trade & other payables
20,515
20,515
20,515
—
—
—
—
Exchangeable notes
92,955
115,000
—
—
—
—
115,000
Exchangeable note interest
1,150
126,500
2,300
2,300
4,600
13,800
103,500
114,620
262,015
22,815
2,300
4,600
13,800
218,500
As at December 31, 2016 US$’000
Carrying US$’000
Contractual US$’000
6 mths or US$’000
6 mths – 12 mths US$’000
1-2 years US$’000
2-5 years US$’000
>5 years US$’000
Financial liabilities
Trade & other payables
23,607
23,607
22,524
1,083
—
—
—
Exchangeable notes
92,232
115,000
—
—
—
—
115,000
Exchangeable note interest
1,150
131,100
2,300
2,300
4,600
13,800
108,100
116,989
269,707
24,824
3,383
4,600
13,800
223,100 Foreign exchange risk The majority of the Group’s activities are conducted in US Dollars. Foreign exchange risk arises from the fluctuating value of the Group’s Euro denominated expenses as a result of the movement in the exchange rate between the US Dollar and the Euro. Arising from this, where considered necessary, the Group pursues a treasury policy which periodically aims to sell US Dollars forward to match a portion of its uncovered Euro expenses at exchange rates lower than budgeted exchange rates. These forward contracts are primarily cashflow hedging instruments whose objective is to cover a portion of these Euro forecasted transactions. Forward contracts normally have maturities of less than one year after the balance sheet date. There were no forward contracts in place as at December 31, 2017. Foreign currency short term financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into US Dollars at the closing rate:
EUR
GBP
SEK
CAD
BRL
Other
As at December 31, 2017
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
Cash
235
443
5
2,107
443
16
Trade and other receivable
1,396
101
298
1,958
6
Trade and other payables
(1,936
)
(16
)
(239
)
(86
)
(2,235
)
—
Total exposure
(305
)
528
(234
)
2,319
166
22
As at December 31, 2016
EUR
GBP
SEK
CAD
BRL
Other
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
Cash
214
520
46
845
371
7
Trade and other receivable
852
157
68
414
1,103
—
Trade and other payables
(1,983
)
(29
)
(4,528
)
(85
)
(1,976
)
—
Total exposure
(917
)
648
(4,414
)
1,174
(502
)
7 The Group states its forward exchange contracts at fair value in the balance sheet. The Group classifies its forward exchange contracts as hedging forecasted transactions and thus accounts for them as cash flow hedges. There were no forward exchange contracts in place at December 31, 2017 or December 31, 2016. Sensitivity analysis A 10% strengthening of the US Dollar against the Euro at December 31, 2017 would have increased profit and other equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
Profit or loss US$’000
December 31, 2017
Euro
2,158
December 31, 2016
Euro
1,093 A 10% weakening of the US Dollar against the Euro at December 31, 2017 would have decreased profit and other equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
Profit or loss US$’000
December 31, 2017
Euro
(2,637
)
December 31, 2016
Euro
(1,336
) Credit Risk The Group has no significant concentrations of credit risk. Exposure to credit risk is monitored on an ongoing basis. The Group maintains specific provisions for potential credit losses. To date such losses have been within management’s expectations. Due to the large number of customers and the geographical dispersion of these customers, the Group has no significant concentrations of accounts receivable. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and deferred consideration, the Group’s exposure to credit risk arises from default of the counter-party, with a maximum exposure equal to the carrying amount of these instruments. The Group’s management considers that all of the above financial assets that are not impaired or past due for each of the 31 December reporting dates under review are of good credit quality. The Group maintains cash and cash equivalents and enters into forward contracts, when necessary, with various financial institutions. The Group performs regular and detailed evaluations of these financial institutions to assess their relative credit standing. The carrying amount reported in the balance sheet for cash and cash equivalents and forward contracts approximate their fair value. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk is as follows:
Carrying Value December 31, 2017 US$’000
Carrying Value December 31, 2016 US$’000
Third party trade receivables (Note 17)
17,242
18,340
Finance lease income receivable (Note 17)
1,185
1,330
Cash & cash equivalents (Note 18)
23,564
77,109
Short-term investments (Note 19)
34,043
—
76,034
96,779 The maximum exposure to credit risk for trade receivables and finance lease income receivable by geographic location is as follows:
Carrying Value
Carrying Value December 31, 2016 US$’000
United States
8,682
10,201
Euro-zone countries
1,789
1,645
United Kingdom
185
252
Other European countries
21
10
Other regions
7,750
7,562
18,427
19,670 The maximum exposure to credit risk for trade receivables and finance lease income receivable by type of customer is as follows:
Carrying Value December 31, 2017 US$’000
Carrying Value December 31, 2016 US$’000
End-user customers
8,200
11,882
Distributors
10,003
7,127
Non-governmental organisations
224
661
18,427
19,670 Due to the large number of customers and the geographical dispersion of these customers, the Group has no significant concentrations of accounts receivable. Impairment Losses The ageing of trade receivables at December 31, 2017 is as follows:
Gross
Impairment
Gross
Impairment
2017
2017
2016
2016
US$’000
US$’000
US$’000
US$’000
Not past due
10,770
—
12,275
—
Past due 0-30 days
3,190
31
2,741
8
Past due 31-120 days
1,906
50
1,807
67
Greater than 120 days
4,966
3,509
4,688
3,096
20,832
3,590
21,511
3,171 The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
2017
2016
2015
US$’000
US$’000
US$’000
Balance at January 1
3,171
2,812
2,205
Charged to costs and expenses
662
415
780
Amounts written off during the year
(243
)
(56
)
(173
)
Balance at December 31
3,590
3,171
2,812 The allowance for impairment in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the account owing is possible. At this point the amount is considered irrecoverable and is written off against the financial asset directly. Capital Management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors earnings per share as a measure of performance, which the Group defines as profit after tax divided by the weighted average number of shares in issue. Following the divestiture of the Coagulation product line in 2010, the Group eliminated all bank debt. In the past, the Group has funded acquisitions using both equity and long term debt depending on the size of the acquisition and the capital structure in place at the time of the acquisition. Although at December 31, 2017 the Group has no bank debt, it maintains a relationship with a number of lending banks and Trinity Biotech is listed on the NASDAQ which allows the Group to raise funds through equity financing where necessary. During 2015, the Group raised US$115,000,000 through the issuance of 30 year exchangeable senior notes which will mature on April 1, 2045, subject to earlier repurchase, redemption or exchange. The Board of Directors is authorised to purchase its own shares on the market on the following conditions;
•
the aggregate nominal value of the shares authorised to be acquired shall not exceed 10% of the aggregate nominal value of the issued share capital of the Company at the close of business on the date of the passing of the resolution:
•
the minimum price (exclusive of taxes and expenses) which may be paid for a share shall be the nominal value of that share:
•
the maximum price (exclusive of taxes and expenses) which may be paid for a share shall not be more than the average of the closing bid price on NASDAQ in respect of the ten business days immediately preceding the day on which the share is purchased. Fair Values The table below sets out the Group’s classification of each class of financial assets/liabilities, their fair values and under which valuation method they are valued:
Level 1
Level 2
Total carrying amount
Fair Value
Note
US$'000
US$'000
US$'000
US$'000
December 31, 2017
Loans and receivables
Trade receivables
17
17,242
—
17,242
17,242
Cash and cash equivalents
18
23,564
—
23,564
23,564
Short-term investments
19
34,043
—
34,043
34,043
Finance lease receivable
15,17
1,185
—
1,185
1,185
76,034
—
76,034
76,034
Liabilities at amortised cost
Exchangeable note
24
—
(92,955
)
(92,955
)
(92,955
)
Finance lease payable
25
(886
)
—
(886
)
(886
)
Trade and other payables (excluding deferred income)
22
(20,237
)
—
(20,237
)
(20,237
)
Provisions
23
(50
)
—
(50
)
(50
)
(21,173
)
(92,955
)
(114,128
)
(114,128
)
Fair value through profit and loss (FVPL)
Exchangeable note bond call option
24
—
360
360
360
Exchangeable note equity conversion option
24
—
(440
)
(440
)
(440
)
Exchangeable note bond put option
24
—
(1,790
)
(1,790
)
(1,790
)
—
(1,870
)
(1,870
)
(1,870
)
54,861
(94,825
)
(39,964
)
(39,964
) For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data
Note
Level 1
Level 2
Total
Fair Value US$'000
December 31, 2016
Loans and receivables
Trade receivables
17
18,340
—
18,340
18,340
Cash and cash equivalents
18
77,109
—
77,109
77,109
Finance lease receivable
15,17
1,330
—
1,330
1,330
96,779
—
96,779
96,779
Liabilities at amortised cost
Exchangeable note
24
—
(92,232
)
(92,232
)
(92,232
)
Finance lease payable
25
(1,005
)
—
(1,005
)
(1,005
)
Trade and other payables (excluding deferred income)
22
(24,533
)
—
(24,533
)
(24,533
)
Provisions
23
(75
)
—
(75
)
(75
)
(25,613
)
(92,232
)
(117,845
)
(117,845
)
Fair value through profit and loss (FVPL)
Exchangeable note bond call option
24
—
—
—
—
Exchangeable note equity conversion option
24
—
(3,970
)
(3,970
)
(3,970
)
Exchangeable note bond put option
24
—
(290
)
(290
)
(290
)
—
(4,260
)
(4,260
)
(4,260
)
71,166
(96,492
)
(25,326
)
(25,326
) The valuation techniques used for instruments categorised as level 2 are described below: The fair values of the options associated with the exchangeable notes are calculated in consultation with third-party valuation specialists due to the complexity of their nature. There are a number of inputs utilised in the valuation of the options, including share price, historical share price volatility, risk-free rate and the expected borrowing cost spread over the risk-free rate. |
