| CAPITAL AND FINANCIAL RISK MANAGEMENT | 28.
CAPITAL AND FINANCIAL RISK MANAGEMENT Capital
Management
The
Group’s policy is to maintain a strong capital base 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. At
December 31, 2021 the Group has no bank loans, it maintains a relationship with a number of lending banks and Trinity Biotech is listed
on the NASDAQ, which allows the Group to potentially raise funds through equity financing. In 2015, the Group raised US$115
million through the issuance of 30-year
exchangeable senior notes. In 2018 the Group repurchased US$15.1
million of the exchangeable senior notes, leaving US$99.9
million outstanding. In January 2022, the Group successfully closed a US$81,250,000
senior secured term loan credit facility (the “Term Loan”) with Perceptive Advisors. Proceeds from the Term Loan, along with
existing cash and the issuance of 5.3
million American Depository Shares in the Company, were used to retire approximately US$99.7
million of the Exchangeable Notes. For more information, refer to Note 30, Post Balance Sheet Events. In
April 2022, the Company announced a US$45
million strategic investment and partnership with MiCo, a KOSDAQ-listed and Korea-based company. The investment consists of an equity
investment of approximately US$25.2
million and a seven-year, unsecured junior convertible note of US$20
million. For more information, refer to Note 30, Post Balance Sheet Events. Fair
Values The
table below sets out the Group’s classification of each class of financial assets/liabilities, their fair values and under which
valuation method they are valued:
Level
1
Level
2
Total carrying amount
Fair Value
Note
US$’000
US$’000
US$’000
US$’000
December
31, 2021
Loans
and receivables at amortised cost
Trade
receivables
18 13,290 - 13,290 13,290
Cash
and cash equivalents
19 25,910 - 25,910 25,910
Finance
lease receivable
16,
18 293 - 293 293
39,493 - 39,493 39,493
Liabilities
at amortised cost
Exchangeable
note¹
24 - (83,312
) (83,312
) (83,312
)
Lease
liabilities
25 (15,845
) - (15,845
) (15,845
)
Trade
and other payables (excluding deferred income)
22 (14,986
) - (14,986
) (14,986
)
Provisions
23 (50
) - (50
) (50
)
(30,881
) (83,312
) (114,193
) (114,193
)
Fair
value through profit and loss (FVPL)
Exchangeable
note bond call option
24 - - - -
Exchangeable
note equity conversion option
24 - - - -
- - - -
8,612 (83,312
) (74,700
) (74,700
)
¹
The maturity of the Exchangeable Notes is based on the contractual maturity date of April 1, 2045 and does not take into account the potential
exercise of put and call options in the next five years or the exchange agreements entered into with five exchangeable note holders in
December 2021.
For financial reporting purposes,
fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable
and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level
1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level
2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly Level
3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on
observable market data.
Level
1
Level
2
Total carrying amount
Fair Value
Note
US$’000
US$’000
US$’000
US$’000
December
31, 2020
Loans
and receivables at amortised cost
Trade
receivables
18 20,025 - 20,025 20,025
Cash
and cash equivalents
19 27,327 - 27,327 27,327
Finance
lease receivable
16,
18 506 - 506 506
47,858 - 47,858 47,858
Liabilities
at amortised cost
Exchangeable
note
24 - (82,664
) (82,664
) (82,664
)
Lease
liabilities
25 (18,741
) - (18,741
) (18,741
)
Trade
and other payables (excluding deferred income)
22 (19,890
) - (19,890
) (19,890
)
Provisions
23 (416
) - (416
) (416
)
(39,047
) (82,664
) (121,711
) (121,711
)
Fair
value through profit and loss (FVPL)
Exchangeable
note bond call option
24 - 150 150 150
Exchangeable
note equity conversion option
24 - (1,370
) (1,370
) (1,370
)
-
(1,220
)
(1,220
)
(1,220
)
8,811 (83,884
) (75,073
) (75,073
)
¹
The maturity of the Exchangeable Notes is based on the contractual maturity date of April 1, 2045 and does not take into account the potential
exercise of put and call options in the next five years or the exchange agreements entered into with five exchangeable note holders in
December 2021. 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.
Financial
Risk Management 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. 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, 2021
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$’000
Cash
and cash equivalents
19 0.01
% 25,910 25,910 - - - -
Lease
receivable
16,18 4.0
% 293 81 61 89 62 -
Exchangeable note¹
24 4.8
% (83,312
) - - - - (83,312
)
Other
borrowings
22 0
% (31
) - (31
) - - -
Lease payable on Right of Use assets
25 5.0
% (15,668
) (973
) (905
) (1,554
) (4,516
) (7,720 )
Lease payable on sale & leaseback transactions
25 5.0
% (177
) (51
) (51
) (75
) - -
Total (72,985
) 24,967 (926
) (1,540
) (4,454
) (91,032
) ¹ The maturity of the Exchangeable
Notes is based on the contractual maturity date of April 1, 2045 and does not take into account the potential exercise of put and call
options in the next five years or the exchange agreements entered into with five exchangeable note holders in December 2021.
As
at December 31, 2020
Note
Effective interest
Total US$’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
19 0.1
% 27,327 27,327 - - - -
Lease
receivable
16,18 4.0
% 506 120 95 142 149 -
Licence
payments
23 8.1
% (194
) (194
) - - - -
Exchangeable
note
24 4.8
% (82,664
) - - - - (82,664
)
Other
borrowings
22 0
% (31
) - - (31
) - -
Lease payable on Right of Use assets
25 5.0
% (18,461
) (1,022
) (1,032
) (1,914
) (4,856
) (9,637
)
Lease payable on sale & leaseback transactions
25 5.0
% (280
) (49
) (50
) (104
) (77
) -
Total (73,797
) 26,182 (987
) (1,907
) (4,784
) (92,301
) ¹ The maturity of the Exchangeable
Notes is based on the contractual maturity date of April 1, 2045 and does not take into account the potential exercise of put and call
options in the next five years or the exchange agreements entered into with five exchangeable note holders in December 2021. In
broad terms, a one-percentage point increase in interest rates would increase interest income by US$31,000
(2020: US$31,000)
and would not affect the interest expense (2020: nil) resulting in an increase in net interest income of US$31,000
(2020: increase in net interest income of US$31,000).
Interest
rate profile of financial assets / liabilities The
interest rate profile of financial assets/liabilities of the Group was as follows:
December
31, 2021 US$‘000
December
31, 2020 US$‘000
Fixed
rate instruments
Fixed
rate financial liabilities (licence fees) - (194
)
Fixed
rate financial liabilities (exchangeable note) (83,312
) (82,664
)
Fixed
rate financial liabilities (borrowings) (31
) (31
)
Fixed
rate financial liabilities (lease payables) (15,844
) (18,741
)
Financial
assets (short-term deposits and short-term investments) 3,121 3,118
Financial
assets (lease receivables) 293 506
(95,773
)
(98,006
) Financial
assets comprise cash and cash equivalents and short-term investments as at December 31, 2021 and December 31, 2020 (see Note 19 and 20). Fair
value sensitivity analysis for fixed rate instruments The
Group does not account for any fixed rate financial liabilities at fair value through profit and loss. Therefore, a change in interest
rates at December 31, 2021 would not affect profit or loss. There was no significant difference between the fair value and carrying value
of the Group’s trade receivables and trade and other payables at December 31, 2021 and December 31, 2020 as all fell due within
6 months.
Liquidity
risk The
Group’s operations were cash generating in the year to December 31, 2021. Short-term flexibility is achieved through the management
of the Group’s short-term deposits. The
following are the contractual maturities of financial liabilities, including estimated interest payments:
As
at December 31, 2021 US$’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$’000
Financial
liabilities
Trade
& other payables 15,127 15,127 15,127 - - - -
Lease
payable on Right of Use assets 15,668 15,668 973 905 1,554 4,516 7,720
Lease
payable on sale & leaseback transactions 177 177 51 51 75 - -
Other
borrowings 31 31 - 31 - - -
Exchangeable
notes ¹ 83,312 99,900 - - - - 99,900
Exchangeable
note interest 999 93,906 1,998 1,998 3,996 11,988 73,926
115,314
224,809
18,149
2,985
5,625
16,504
181,546 ¹
The maturity of the Exchangeable Notes is based on the contractual maturity date of April 1, 2045
and does not take into account the potential exercise of put and call options in the next five years or the exchange agreements entered
into with five exchangeable note holders in December 2021.
As
at December 31, 2020 US$’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$’000
Financial
liabilities
Trade
& other payables 24,335 24,335 24,335 - - - -
Lease
payable on Right of Use assets 18,461 18,461 1,022 1,032 1,914 4,856 9,637
Lease
payable on sale & leaseback transactions 280 280 49 50 104 77 -
Other
borrowings 31 31 - - 31 - -
Exchangeable
notes ¹ 82,664 99,900 - - - - 99,900
Exchangeable
note interest 999 97,902 1,998 1,998 3,996 11,988 77,922
126,770 240,909 27,404 3,080 6,045 16,921 187,459 ¹
The maturity of the Exchangeable Notes is based on the contractual maturity date of April 1, 2045 and does not take into account the potential
exercise of put and call options in the next five years.
Foreign
exchange risk The
majority of the Group’s activities are conducted in US Dollars. Foreign exchange risk arises from the fluctuating value of the Group’s
Euro denominated expenses as a result of the movement in the exchange rate between the US Dollar and the Euro. Arising from this, where
considered necessary, the Group pursues a treasury policy which periodically aims to sell US Dollars forward to match a portion of its
uncovered Euro expenses at exchange rates lower than budgeted exchange rates. These forward contracts are primarily cashflow hedging instruments
whose objective is to cover a portion of these Euro forecasted transactions. Forward contracts normally have maturities of less than one
year after the balance sheet date. There were no forward contracts in place as at December 31, 2021. Foreign
currency short term financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are
those reported to key management translated into US Dollars at the closing rate:
EUR
GBP
SEK
CAD
BRL
Other
As
at December 31, 2021
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
Cash 327 115 5 4,617 1,370 -
Trade
and other receivable 464 58 - 488 1,538 -
Trade
and other payables (2,456
) (28
) (11
) (166
) (629
) -
Total
exposure (1,665
) 145 (6
) 4,939 2,279 -
EUR
GBP
SEK
CAD
BRL
Other
As
at December 31, 2020
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
US$‘000
Cash 1,229 152 9 2,859 776 -
Trade
and other receivable 1,105 63 - 3,191 1,357 -
Trade
and other payables (2,821
) (57
) (1
) (449
) (529
) -
Total
exposure (487
) 158 8 5,601 1,604 - The
Group states its forward exchange contracts at fair value in the balance sheet. The Group classifies its forward exchange contracts as
hedging forecasted transactions and thus accounts for them as cash flow hedges. There were no forward exchange contracts in place at December
31, 2021 or December 31, 2020.
Sensitivity
analysis
A
10% strengthening of the US Dollar against the Euro at December 31, 2021 would have increased profit and other equity by the amounts shown
below. This analysis assumes that all other variables, in particular interest rates, remain constant.
Profit
or loss US$’000
December
31, 2021
Euro
780
December
31, 2020
Euro
541 A
10% weakening of the US Dollar against the Euro at December 31, 2021 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, 2021
Euro
(953
)
December
31, 2020
Euro
(661
) 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
Carrying
Value
Third
party trade receivables (Note 18) 13,290 20,025
Finance
lease income receivable (Note 18) 293 506
Cash
and cash equivalents (Note 19) 25,910 27,327
39,493
47,858 The
maximum exposure to credit risk for trade receivables and finance lease income receivable by geographic location is as follows:
Carrying
Value
Carrying
Value
United
States 5,822 10,730
Euro-zone
countries 1,072 1,360
United
Kingdom 118 98
Other
European countries - 13
Other
regions 6,571 8,330
13,583
20,531 The
maximum exposure to credit risk for trade receivables and finance lease income receivable by type of customer is as follows:
Carrying
Value
Carrying
Value
End-user
customers 6,923 11,812
Distributors 6,220 8,186
Non-governmental
organisations 440 533
13,583
20,531 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, 2021 is as follows:
Gross
Impairment
Expected
Credit Loss Rate
Gross
Impairment
Expected
Credit Loss Rate
2021
2021
2021
2020
2020
2020
US$’000
US$’000
%
US$’000
US$’000
%
Not
past due 8,461 - -
% 16,754 112 0.7
%
Past
due 0-30 days 2,423 1 0.1
% 1,829 222 12.1
%
Past
due 31-120 days 1,981 97 4.9
% 1,755 60 3.4
%
Greater
than 120 days 3,011 2,888 73.0
% 3,609 3,528 97.8
%
15,876 2,986 - 23,947 3,922 - The
movement in the allowance for impairment in respect of trade receivables during the year was as follows:
2021
2020
2019
US$’000
US$’000
US$’000
Balance
at January 1 3,922 5,443 4,202
Charged
to costs and expenses 76 166 1,276
Amounts
written off during the year (1,012
) (1,687
) (35
)
Balance
at December 31 2,986 3,922 5,443 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. |
