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Financial instruments-fair values and risk management
12 Months Ended
Dec. 31, 2019
Financial instruments-fair values and risk management  
Financial instruments-fair values and risk management

Financial instruments

21 Financial instruments-fair values and risk management

21.1Classifications and fair values

The carrying values of the Group’s financial assets and financial liabilities approximate their fair value.

21.2Financial risk management

The Group is exposed to the following risks from the use of financial instruments:

·

Credit risk

·

Liquidity risk

·

Currency risk

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.  The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions and foreign exchange transactions.

The carrying amount of the financial assets corresponds to the maximum default risk.

Trade receivables and contract assets

The Group utilizes a receivables management system that closely manages open items of major customers. The Group’s customers in the pharmaceutical segment are mainly pharmaceutical companies which are usually listed companies, or strongly financed by private equity funds. The Group’s customers in the diagnostics segment are mainly hospitals, labs and physicians, of which approximately 75% of the revenues from Diagnostics segment were generated from customers who have had business relationships with the Group at least since 2017. To avoid default, the Company may request prepayment for new business with physicians.

In addition to the macroeconomic situation generally, the development of international healthcare markets is a key economic factor in assessing the default risk related to trade receivables and contract assets. These markets are closely monitored by the Group.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by customers from different segment; customers from different geographical region and customer type). The calculation reflects the probability weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 15. The Group does not hold collateral as security and does not request letters of credit or other forms of credit insurance. The Group evaluates the concentration of risk with respect to trade receivables and contract assets and recorded credit losses reflecting the expected lifetime loss, based on different types of customers.

Considering the major exposure to the credit risk arising from the diagnostics segment, the Group focused its impairment analysis on the trade receivables due from customers in the diagnostic segment, in particular the MENA and Europe regions as they represent the majority of that segment’s revenue. In addition to applying the provision matrix, the Group performed an individual customer analysis on major debtors, with reference to the past history (such as sales and collection in the previous periods) and the assessment of their current financial condition and other relevant factors and evaluated if additional specific impairment losses would be necessary.

Set out below is the information regarding the credit risk exposure of the Group’s trade receivables and contract assets using a provision matrix

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

    

 

    

 

    

 

    

 

    

Past due by

 

 

 

Total Gross

 

 

 

Past due 1 -

 

Past due 31‑ 90

 

more than 90

 

in EUR k

 

amount

 

Not past due

 

30 days

 

days

 

days

 

Middle East

 

7,766

 

3,065

 

401

 

1,560

 

2,740

 

Europe

 

2,900

 

2,052

 

356

 

240

 

252

 

Latin America

 

604

 

415

 

81

 

74

 

34

 

North America

 

1,074

 

728

 

230

 

79

 

37

 

Asia Pacific

 

190

 

175

 

10

 

 —

 

 5

 

Total

 

12,534

 

6,435

 

1,078

 

1,953

 

3,068

 

Expected credit loss rate

 

13.0

%  

0.1

%  

0.5

%  

 2

%  

51.6

%

Expected credit loss

 

1,633

 

 6

 

 5

 

39

 

1,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

 

    

 

    

 

    

 

    

 

    

Past due by

 

 

 

Total Gross

 

 

 

Past due 1 -

 

Past due 31‑ 90

 

more than 90

 

in EUR k

 

amount

 

Not past due

 

30 days

 

days

 

days

 

Middle East

 

10,470

 

3,956

 

721

 

1,411

 

4,382

 

Europe

 

3,311

 

2,476

 

268

 

222

 

345

 

Latin America

 

811

 

611

 

53

 

42

 

105

 

North America

 

4,156

 

3,908

 

53

 

24

 

171

 

Asia Pacific

 

180

 

151

 

18

 

 9

 

 2

 

Total

 

18,928

 

11,102

 

1,113

 

1,708

 

5,005

 

Expected credit loss rate

 

12.3

%  

0.3

%  

1.0

%  

1.2

%  

45.4

%

Expected credit loss

 

2,335

 

31

 

11

 

21

 

2,272

 

 

Overdue trade receivables in MENA region mainly related to the major customers from diagnostics segment. The trade receivables due from top 10 diagnostics customers in MENA region as of December 31, 2019 represented over 85% of overdue balances for Middle East.  These customers are mainly government hospitals administered by Ministry of Health in the respective countries as well as distributors.  Based on our past experience, they normally require a longer period to settle the outstanding trade receivables. 

Set out below is the movement in the allowance for expected credit losses of trade receivables and contract assets:

 

 

 

 

 

in EUR k

 

2018

 

2019

As of January 1

 

841

 

1,633

Provision for expected credit losses (note 8.2)

 

792

 

752

Write-off

 

 —

 

(30)

As of December 31

 

1,633

 

2,355

 

Cash and cash equivalents

As of December 31, 2019, the Group held cash and cash equivalents of EUR 41,095k (2018: EUR 9,222k). This total, therefore, also represents the maximum default risk with regard to these assets. The cash and cash equivalents are deposited at banks or financial institutions that have a rating of BAA to AA.

Liquidity risk

The liquidity risk is the risk of the Group possibly not being in a position to meet its financial liabilities as contractually agreed by providing cash or other financial assets.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and lease contracts.

Managing liquidity within the Group is intended to ensure that - as far as possible - sufficient cash and cash equivalents are always available to meet payment obligations when these fall due, in both normal and challenging conditions, without incurring unacceptable losses or damaging the Group’s reputation.

The Group strives to maintain cash and cash equivalents at a level above that of the expected cash outflows for financial liabilities (apart from trade payables) during the next 60 days. As at December 31, 2019, approximately 27.2% of the Group’s interest-bearing liabilities is mature in less than one year (2018: 25.7%) based on the carrying value of borrowings reflected in the financial statements.  The increase in the ratio is due to repayment of non-current bank loans in 2019 upon the completion of sale and leaseback transaction.

The Company has recently completed the IPO in November 2019. As at December 31, 2019, the Group had cash and cash equivalent of EUR 41,095k (2018: EUR 9,222k), the Group assessed the concentration of risk and concluded it to be low.

In addition to the cash and cash equivalent available as of December 31, 2019, the Group also has access to other sources of funding, including the amount of expected cash inflows from trade and other receivables. As of December 31, 2019, the expected cash inflows from trade and other receivables within two months amounts to EUR 6,644k (2018: EUR 3,830k), which would be similar to the amount of trade payables due as of then. As at December 31, 2019, the Group has secured credit lines for totaling EUR 3,500k. These bear interest of 3.33% - 4.50% (2018: EUR 4,000k; 3.33% - 4.50%). EUR 2,636k were utilized as of December 31, 2019 (2018: EUR 1,915k).

The table below presents the remaining contractual terms of the financial liabilities on the reporting date, including estimated interest payments. The figures are undiscounted gross amounts, including estimated interest payments and interest on undrawn loan funds, but without showing the impact of offsetting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractually agreed cash flows

 

    

 

    

 

    

 

    

 

    

 

    

More

Dec 31, 2018

 

Carrying

 

 

 

Less than

 

2 to 12

 

1 to 5

 

than

in EUR k

 

amount

 

Total

 

2 months

 

months

 

years

 

5 years

Bank overdrafts

 

1,915

 

1,915

 

1,915

 

 —

 

 —

 

 —

Secured bank loans

 

13,842

 

15,985

 

236

 

1,965

 

5,808

 

7,976

Lease liabilities

 

3,062

 

3,234

 

239

 

1,196

 

1,799

 

 —

Municipal Loans

 

860

 

1,273

 

 —

 

 —

 

 —

 

1,273

Trade payables

 

5,429

 

5,429

 

3,920

 

1,509

 

 —

 

 —

 

 

25,108

 

27,836

 

6,310

 

4,670

 

7,607

 

9,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractually agreed cash flows

 

    

 

    

 

    

 

    

 

    

 

    

More

Dec 31, 2019

 

Carrying

 

 

 

Less than

 

2 to 12

 

1 to 5

 

than

in EUR k

 

amount

 

Total

 

2 months

 

months

 

years

 

5 years

Bank overdrafts

 

2,636

 

2,636

 

2,636

 

 —

 

 —

 

 —

Secured bank loans

 

1,770

 

1,866

 

12

 

848

 

1,006

 

 —

Lease liabilities

 

21,704

 

25,934

 

755

 

3,034

 

9,574

 

12,571

Municipal Loans

 

860

 

1,022

 

 —

 

327

 

695

 

 —

Trade payables

 

8,554

 

8,554

 

6,871

 

1,683

 

 —

 

 —

 

 

35,524

 

40,012

 

10,274

 

5,892

 

11,275

 

12,571

 

Reconciliation of liabilities arising from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash changes

 

 

 

    

 

    

 

    

 

    

Changes in

    

 

in EUR k

 

Jan 1,2018

 

Cash flows

 

Additions

 

maturity

 

Dec 31, 2018

Non-current financial liabilities

 

3,851

 

(1,373)

 

856

 

11,293

 

14,627

Non-current portion of secured bank loans

 

 —

 

 —

 

 —

 

12,055

 

12,055

Municipal loans

 

2,000

 

(1,140)

 

 —

 

 —

 

860

Non-current lease liabilities

 

1,851

 

(233)

 

856

 

(762)

 

1,712

Current financial liabilities

 

15,490

 

267

 

588

 

(11,293)

 

5,052

Current portion of secured bank loans

 

13,837

 

 5

 

 —

 

(12,055)

 

1,787

Bank overdrafts

 

 —

 

1,915

 

 —

 

 —

 

1,915

Current leases liabilities

 

1,653

 

(1,653)

 

588

 

762

 

1,350

Total

 

19,341

 

(1,106)

 

1,444

 

 —

 

19,679

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Non-cash changes

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

in EUR k

 

Jan 1, 2019

 

Cash flows

 

Additions

 

maturity

 

Dec 31, 2019

Non-current financial liabilities

 

14,627

 

(12,783)

 

18,910

 

(1,107)

 

19,647

Non-current portion of secured bank loans

 

12,055

 

(11,087)

 

 —

 

 —

 

968

Municipal loans

 

860

 

 —

 

 —

 

(250)

 

610

Non-current lease liabilities

 

1,712

 

(1,696)

 

18,910

 

(857)

 

18,069

Current financial liabilities

 

5,052

 

(1,614)

 

2,778

 

1,107

 

7,323

Current portion of secured bank loans

 

1,787

 

(985)

 

 —

 

 —

 

802

Bank overdrafts

 

1,915

 

721

 

 —

 

 —

 

2,636

Municipal loans

 

 —

 

 —

 

 —

 

250

 

250

Current leases liabilities

 

1,350

 

(1,350)

 

2,778

 

857

 

3,635

Total

 

19,679

 

(14,397)

 

21,688

 

 —

 

26,970

 

Currency risk

The Group is exposed to currency risk in cases where contracts are concluded in foreign currencies. The vast majority of goods delivered and services the Company provided, including those for international customers, are invoiced in euro.

The main functional currencies of group companies are the euro, USD, the Indian rupee and the Arab Emirates Dirham. The following table presents the net foreign currency exposure of the Group as at December 31, 2018 and 2019.

 

 

 

 

 

 

 

 

 

Dec 31, 2018

in EUR k

 

USD

 

INR

 

AED

Trade receivables

    

1,674

    

65

    

 4

Trade payables and other liabilities

 

(2,193)

 

(2)

 

(5)

Net exposure

 

(519)

 

63

 

(1)

 

 

 

 

 

 

 

 

 

 

Dec 31, 2019

in EUR k

    

USD

    

INR

    

AED

Trade receivables

 

4,275

 

36

 

(1)

Trade payables and other liabilities

 

(2,801)

 

(98)

 

(15)

Net exposure

 

1,474

 

(62)

 

(16)

 

Sensitivity analysis relating to changes in exchange rates:

Given the exposure to foreign currencies as presented above, the impact to the Group’s earnings before tax or equity from a 10% change in the US dollar exchange rate would not be material.