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 rate			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 interest rate			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 US480,000 (2016: US$770,000) and would not affect the interest expense (2016: nil) resulting in an increase in net interest income of US$480,000 (2016: increase in net interest income of US$770,000).

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$480,000 (2016: US$770,000) and would not affect the interest expense in 2017 or 2016; resulting in an increase in interest income of US$480,000 (2016: US770,000). This assumes that all other variables, in particular foreign currency rates, remain constant.

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$’000	Carrying amount US$’000		Contractual cash flows US$’000		6 mths or less US$’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$’000	Carrying amount US$’000		Contractual cash flows US$’000		6 mths or less US$’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
As at December 31, 2016	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 December 31, 2017 US$’000		Carrying Value December 31, 2016 US$’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 US$'000			Level 2 US$'000			Total carrying amount US$'000			Fair Value US$'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.