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Financial instruments - fair values and risk management
12 Months Ended
Dec. 31, 2021
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 a large part are generating revenues. To avoid default, the Company may request prepayment for new business.

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, 2021

 

    

    

    

    

    

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

 

13,968

 

3,999

 

1,013

 

2,056

 

6,900

Europe

 

11,486

 

10,771

 

351

 

259

 

105

Latin America

 

683

 

531

 

23

 

72

 

57

North America

 

3,787

 

2,562

 

79

 

203

 

943

Asia Pacific

 

130

 

115

 

9

 

6

 

(1)

Total

 

30,054

 

17,978

 

1,475

 

2,596

 

8,004

Expected credit loss rate

 

19

%  

0.9

%  

7.7

%  

11.7

%  

64.1

%

Expected credit loss

 

5,717

 

167

114

 

304

 

5,132

As of December 31, 2020

 

    

    

    

    

    

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

 

10,515

 

3,338

 

486

 

385

 

6,306

Europe

 

20,017

 

19,193

 

706

 

113

 

5

Latin America

 

387

 

313

 

24

 

13

 

37

North America

 

2,870

 

1,205

 

994

 

262

 

409

Asia Pacific

 

178

 

136

 

18

 

24

 

Total

 

33,967

 

24,185

 

2,228

 

797

 

6,757

Expected credit loss rate

 

14.0

%  

1.6

%  

3.1

%  

7.7

%  

63.0

%

Expected credit loss

 

4,768

 

382

 

70

 

61

 

4,255

Overdue trade receivables from the Middle East region mainly relate to major customers from the diagnostics segment. The trade receivables due from the top 10 diagnostics customers in the MENA region as of December 31, 2021 represent over 80% of total overdue balances for this region. These customers are mainly government hospitals administered by the Ministry of Health in the respective countries as well as distributors and, based on our past experience, these customers normally require a longer period to settle outstanding trade receivables. The average turnover period from these customers are 278 days. Therefore, a higher country specific loss rate has been used for the MENA region.

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

in EUR k

2021

2020

As of January 1

 

4,768

 

2,355

Provision for expected credit losses

 

956

 

3,879

Derecognition of trade receivables

(7)

(1,466)

As of December 31

 

5,717

 

4,768

The addition to the allowance for expected credit losses includes an amount of EUR 949k which was included in the impairment of financial assets in the profit and loss account. In 2021, trade receivables of EUR 7k (2020: EUR 1,466k) were outstanding for more than 365 days and were derecognized.

Cash and cash equivalents

As of December 31, 2021, the Group held cash and cash equivalents of EUR 17,818k (2020: EUR 48,156k). This total, therefore, also represents the maximum default risk with regard to these assets. The cash and cash equivalents are deposited principally with financial institutions with investment grade credit ratings.

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 of December 31, 2021, 30.7% of the Group’s interest-bearing liabilities mature in less than one year (2020: 25.0%) based on the carrying value of borrowings reflected in the financial statements. As of December 31, 2021, the expected cash inflows from trade and other receivables within two months amounts to EUR 6,418k (2020: EUR 14,857k), which would be EUR 4,834k lower than the amount of trade payables due as of then.

The Company completed the IPO in November 2019. In July 2020, the Company completed a follow-on public offering of 3,500,000 common shares of the Company, consisting of 2,000,000 common shares offered by the Company and 1,500,000 common shares offered by selling shareholders at a price to the public of USD 14.00 per common share (i.e. EUR 12.71 per share). Aggregate offering proceeds, net of underwriting discounts, commissions and transaction costs, were EUR 22 million to the Company. As of December 31, 2021, the Group had cash and cash equivalent of EUR 17,818k (2020: EUR 48,156k). The cash and cash equivalents are deposited principally with financial institutions with investment grade credit ratings.

In addition to the cash and cash equivalent available as of December 31, 2021, the Group also has access to other sources of funding. As of December 31, 2021, the Group has secured credit lines totaling EUR 3,500k. These bear interest of 3.75% - 4.75% (2020: EUR 3,500k; 3.75% - 4.75%). EUR 3,310k were utilized as of December 31, 2021 (2020: EUR 1,538k).

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, 2021

Carrying

Less than

2 to 12

1 to 5

than

in EUR k

amount

Total

2 months

months

years

 

5 years

Bank overdrafts

 

3,310

 

3,310

 

3,310

Secured bank loans

 

505

 

505

 

105

400

Lease liabilities

 

18,997

 

22,050

 

716

3,403

9,038

8,893

Trade payables

 

11,252

 

11,252

 

11,252

 

34,064

 

37,117

 

15,383

 

3,803

 

9,038

 

8,893

Contractually agreed cash flows

    

    

    

    

    

    

More

Dec 31, 2020

Carrying

Less than

2 to 12

1 to 5

than

in EUR k

amount

Total

2 months

months

years

 

5 years

Bank overdrafts

1,538

 

1,538

 

1,538

Secured bank loans

 

968

 

997

 

5

584

408

Other bank loans

387

394

394

Lease liabilities

 

21,205

 

24,897

 

716

3,580

9,861

10,740

Trade payables

 

31,736

 

31,525

 

31,011

514

 

55,834

 

59,351

 

33,270

 

5,072

 

10,269

 

10,740

Reconciliation of liabilities arising from financing activities

    

    

    

Non-cash changes

Changes in

in EUR k

Jan 1, 2021

Cash flows

Additions

maturity and FX

Dec 31, 2021

Non-current financial liabilities

18,078

(401)

865

(2,954)

15,588

Non-current portion of secured bank loans

 

401

 

(401)

 

Non-current lease liabilities

 

17,677

 

865

(2,954)

 

15,588

Current financial liabilities

 

6,020

 

(2,802)

 

1,438

 

2,567

 

7,223

Current portion of secured bank loans

 

567

 

(62)

 

505

Bank loans

387

(387)

Bank overdrafts

1,538

1,505

267

3,310

Current lease liabilities

 

3,528

 

(4,245)

1,171

2,954

 

3,408

Total

 

24,098

 

(3,203)

 

2,303

 

(387)

 

22,811

Non-cash changes

    

    

    

    

Changes in

    

in EUR k

Jan 1, 2020

Cash flows

Additions

maturity

Dec 31, 2020

Non-current financial liabilities

 

19,647

(1,993)

2,029

(1,605)

18,078

Non-current portion of secured bank loans

968

 

(567)

 

401

Municipal loans

 

610

(610)

Non-current lease liabilities

 

18,069

 

(1,383)

2,029

(1,038)

 

17,677

Current financial liabilities

 

7,323

 

(5,520)

 

2,663

 

1,554

 

6,020

Current portion of secured bank loans

 

802

 

(865)

63

567

 

567

Bank loans

438

(51)

387

Bank overdrafts

2,636

(1,208)

110

1,538

Municipal loans

250

(250)

Current lease liabilities

 

3,635

 

(3,635)

2,490

1,038

 

3,528

Total

 

26,970

 

(7,513)

 

4,692

 

(51)

 

24,098

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 of December 31, 2021 and 2020.

Dec 31, 2021

in EUR k

    

USD

    

INR

    

AED

Trade receivables

2,604

8

Trade payables and other liabilities

 

(2,394)

(4)

Net exposure

 

210

 

4

 

Dec 31, 2020

in EUR k

USD

INR

AED

Trade receivables

    

1,224

18

Trade payables and other liabilities

 

(3,631)

(55)

(17)

Net exposure

 

(2,407)

 

(37)

 

(17)

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.