26	Financial instruments risk

Risk management objectives and policies

Grupo TMM is exposed to various risks in relation to financial instruments. The Company’s financial assets and liabilities by category are summarized in Note 14. The main types of risks are market risk, credit risk and liquidity risk.

The Company’s risk management is coordinated at its headquarters, in close cooperation with the board of directors, and focuses on actively securing short to medium-term cash flows by minimizing the exposure to volatile financial markets.

The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risk to which the Company is exposed are described below:

Market risk

Currency risk

The monetary position for Grupo TMM may be materially affected by variances in the exchange rate between the US dollar and the Mexican peso due to the Company’s significant operations in Mexico. The Company does not cover this exposure. Grupo TMM minimizes its exposure effects in foreign currency by contracting financial debt in Mexican pesos.

Grupo TMM also faces transactional currency exposure. This exposure derives from sales and acquisitions made in currencies other than Mexican pesos, Grupo TMM’s functional currency. As of December 31, 2020 and 2019, approximately 55% and 45% of Grupo TMM’s sales are denominated in US dollars, respectively while approximately 20% and 25% of the costs and expenses for both years are denominated in US dollars.

As of December 31, 2020 and 2019, the Company held monetary assets and liabilities denominated in foreign currencies other than the Mexican peso, translated at the corresponding interbank exchange rate as related to the Mexican peso, as follows:

	2020						2019
	US dollar			Other currencies			US dollar			Other currencies
Assets	$	309,657		$	932		$	547,320		$	1,093
Liabilities		(480,253	)		(1,372	)		(1,042,661	)		(1,641	)
	$	(170,596	)	$	(440	)	$	(495,341	)	$	(548	)

As of December 31, 2020 and 2019, the exchange rate was Ps19.9352 and Ps18.8727 6 per US dollar, respectively.

Sensitivity analysis

The following table shows for the years ended December 31, 2020 and 2019, the sensitivity in profit or loss related to the financial assets and liabilities of Grupo TMM and the exchange rate; United States dollar (USD) / peso ‘considering that the rest of the conditions remain the same’, assumes a change of +/- 11.64% for 2020 and +/- 22.10% for 2019 in the peso / USD exchange rate.

This percentage was determined based on the volatility of the average exchange rate market over the past 12 months. The sensitivity analysis is based on financial instruments in foreign currency held by Grupo TMM on the reporting date.

If the peso had strengthened or weakened against the USD by 11.64% for 2020 and 22.10% for 2019, this would have had the following impact on the monetary position:

	2020						2019
	11.64% Increase in the exchange rate			11.64% Decrease in the exchange rate			22.10% Increase in the exchange rate			22.10% Decrease in the exchange rate
Assets in US dollars	$	36,030		$	(36,030	)	$	120,944		$	(120,944	)
Assets in other currencies		108			(108	)		242			(242	)
Liabilities in US dollars		(55,880	)		55,880			(230,401	)		230,401
Liabilities in other currencies		(160	)		160			(363	)		363
	$	(19,902	)	$	19,902		$	(109,578	)	$	109,578

The exposure to exchange rates varies during each year, depending on the volume of overseas operations or in foreign currency; however, the above analysis is considered representative of Grupo TMM’s exposure to currency risk.

Interest rate risks

Grupo TMM’s exposure to the risk of changes in market interest rates is related principally to the long-term debt obligations of Grupo TMM at a variable interest rate.

Grupo TMM’s policy is to obtain fixed rated instruments on its loans and, when a loan has a variable interest rate, the Company’s policy is to obtain all needed derivative financial instruments in order to fix this rate. At December 31, 2020 and 2019, the Company has $129.8 and $50.2 million pesos of debt contracted on fixed and variable rates, respectively. At December 31, 2020 and 2019, the debt contracted on fixed and variable rates was $103.0 and $159.1 million pesos, respectively.

Sensitivity analysis

The following table illustrates the sensitivity in profit or loss at December 31, 2020 and 2019 to a reasonably possible change in the interest rates of +/- 8.24% and +/- 7.05%, respectively. These changes are considered to be reasonably possible based on the current market conditions.

The calculations are based on a variance in the average market interest rate for each period and the financial instruments on the reporting date that are sensitive to variances in the interest rates. The rest of the variables remain constant.

	2020					2019
	+8.24% Variance			-8.24% Variance		+7.05% Variance			-7.05% Variance
Profit or loss for the year	$	(1,140	)	$	1,140	$	(1,698	)	$	1,698

The impact shown in the above sensitivity is considered the same both in the results of profit or loss and in stockholders’ equity.

Concentration of risk

For the year ended December 31, 2020, the Company obtained revenues from TMM DM (related party), Celanse Operations Mexico and Helmsley Management, representing 14%, 13% and 7%, respectively. None of the remaining customers represent more than 4% of its total revenues. For the year ended December 31, 2019, the Company obtained revenues from TMM DM (related party), Helmsley Management and Celanese Operations Mexico, representing 17%, 11%, and 7%, respectively. None of the remaining customers represents more than 4% of the total revenues.

Credit risk

Credit risk is managed on a group basis, based on the credit risk management policies and procedures of Company.

Credit risk with respect to cash balances maintained in banks and sight deposits is managed through diversification of bank deposits that are only made with high credited financial institutions. For other receivables, other than trade accounts receivable and contractual assets, the balances are considered immaterial and whose risk of default is null.

The Company continuously monitors the creditworthiness of customers, based on its experience and customer profiles defined by Management. The Company’s policy is to deal only with creditworthy counterparties. Credit terms range between 30 and 90 days. Credit terms negotiated with customers are subject to an internal approval process that considers the experience and profile of the customer. Current credit risk is managed by a periodic review of the accounts receivable aging analysis, together with credit limits per customer.

Trade accounts receivable consist of a large number of customers in various industries and geographical areas.

Guarantees (collateral)

The Company does not maintain any guarantee on its trade accounts receivable. In addition, the Company does not have guarantees related to other financial assets (i.e., other receivables, cash and cash equivalents held in banks).

Trade accounts receivable

Grupo TMM applies the IFRS 9 simplified model of recognizing lifetime expected credit losses for all trade receivables as these items do not have a significant financing component.

In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers.

Expected credit loss rates are based on the sales payment profile over the last 48 months prior to December 2020 and 2019, respectively, as well as the corresponding historical credit losses during that period. Historical rates are adjusted to reflect current and future macroeconomic factors that affect the customer’s ability to liquidate the unpaid balance.

Trade receivables are written off (i.e. derecognized) when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with the Company on alternative payment arrangement amongst other is considered indicators of no reasonable expectation of recovery. However, industry and client’s practices could generate balances with more than 180 days of aging, for which conclusion is that those balances will be collected.

Pursuant to the foregoing, the expected credit loss for trade accounts receivable as of December 31, 2020 and 2019 was determined as follows:

	Trade accounts receivable days in arrears
	Current			More than 30 days			More than 60 days			More than 90 days			Total
As of December 31, 2020
Expected credit loss rate		0.0	%		0.0	%		0.0	%		32.7	%		-
Gross carrying value	$	77,030		$	5,875		$	4,290		$	64,841		$	152,036
Expected credit losses during the lifetime											21,218			21,218

As of December 31, 2019
Expected credit loss rate		0.0	%		0.0	%		2.3	%		27.4	%		-
Gross carrying value	$	214,850		$	18,398		$	7,976		$	51,748		$	292,972
Expected credit losses during the lifetime								185			14,200			14,385

Liquidity risk

The goal of Grupo TMM is to maintain a balance between the continuity of loans and flexibility through the use of bank loans and securitizations. As of December 31, 2020, and 2019, only 35% and 24%, respectively, of Grupo TMM’s financial liabilities are due within the next 12 months.

As of December 31, 2020, and 2019, the financial liabilities of Grupo TMM have contractual maturities (including interest payments as applicable) are summarized as follows:

	Current				Non-Current
	In 6 months		6 to 12 Months		1 to 4 years		More than 4 Years
At December 31, 2020
Trade payables	$	228,959	$	-	$	-	$	-
Accounts payable and accrued expenses		-		525,108		23,522		-
Leasing liabilities		29,465		28,780		193,811		103,457
Financial debt		52,125		76,960		48,227		5,417
	$	310,549	$	630,848	$	265,560	$	108,874

	Current				Non-Current
	In 6 months		6 to 12 Months		1 to 4 years		More than 4 Years
At December 31, 2019
Trade payables	$	-	$	262,159	$	-	$	-
Accounts payable and accrued expenses		-		499,529		46,742		-
Leasing liabilities		34,908		25,670		130,238		396,543
Financial debt		55,139		84,050		113,288		5,449
	$	90,047	$	871,408	$	290,268	$	401,992

The above amounts reflect the contractual cash flows without discount, which may differ from the values registered in the liabilities on the reporting date.