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CAPITAL AND FINANCIAL RISK MANAGEMENT
 12 Months Ended
Dec. 31, 2021
Disclosure of detailed information about financial instruments [abstract]  
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
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
  
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
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
  
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
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
     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
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
     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
December 31, 2021
US$’000
    
Carrying Value
December 31, 2020
US$’000
  
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
December 31, 2021
US$’000
    
Carrying Value
December 31, 2020
US$’000
  
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
December 31, 2021
US$’000
    
Carrying Value
December 31, 2020
US$’000
  
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.