Disclosure capital management

Disclosure capital management

Get the requirements for properly disclosing capital management procedures applied by your company to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used  standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.

Disclosure capital management guidance

Capital risk management

1. Capital is not defined in any of the IFRSs. Entities must describe what they manage as capital, based on the type of information that is provided internally to the key management personnel. It therefore depends on the individual entity as to whether capital includes interest-bearing debt or not.

If such debt is included, however, and the loan agreements include capital requirements such as financial covenants that must be satisfied, then these need to be disclosed under paragraph 135(d) of IAS 1 Presentation of Financial Statements. [IAS 1.134, IAS 1.135]

Dividends

Parent vs consolidated information

2. The dividends disclosed in this note are only those paid by the parent entity and do not include dividends paid by subsidiaries to non-controlling interests. IAS 1 requires disclosure of the dividends recognised as distribution to owners during the period (paragraph 107). The term ‘owners’ is generally used in IAS 1 in the context of owners of the parent entity (eg paragraphs 81B and IAS 1.106).

The focus of the financial statements is still on the parent entity shareholders and on that basis a disclosure of dividends per share is only relevant for the owners of the parent entity. This disclosure also correlates to the disclosure of the number of shares issued as required under paragraph 79 of IAS 1. Holders of non-controlling interests will receive their dividend information from the separate financial statements of the relevant subsidiaries.

Something else -   Disclosure requirements IFRS 4 and IFRS 17

Other potential disclosures

3. The following requirements are not illustrated here as they are not applicable to RePorting Co. Plc:

Issue not disclosed

Relevant disclosures or references

Cumulative preference dividends not recognised [IAS 1.137(b)]

-Disclose amount. Disclosure capital management

Dividends in the form of non-cash assets [IFRIC 17.15-17]

Various disclosures, see IFRIC 17 and the illustrative example below for details.

4. The following illustrative disclosure may be useful where relevant to an entity:

Non-cash dividends

Where an entity distributes non-cash assets to its owners, an explanation could read as follows:

In November 2020, XYZ Plc transferred all of the shares held in its subsidiary, ABC Limited, to its parent entity as a non-cash dividend. The dividend was measured at the fair value of the subsidiary (CU2,500,000). The difference between the fair value of the shares and their carrying amount (CU1,800,000) is presented in the statement of profit or loss as other income (CU700,000). [IFRIC 17.11, 14, 15, 16]

Example disclosure capital managementDisclosure capital management

13(a) Risk management Guidance 1

The group’s objectives when managing capital are to: [IAS 1.134, IAS 1.135, IAS 1.136]

  • safeguard the ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and
  • maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the group monitors capital on the basis of the following gearing ratio:

Something else -   Liabilities and assets for current tax

Net debt as per note 10(c)

divided by

Total ‘equity’ (as shown in the balance sheet, including non-controlling interests).

During 2020, the group’s strategy, which was unchanged from 2019, was to maintain a gearing ratio within 25% to 50% and a B credit rating. The credit rating was unchanged and the gearing ratios at 31 December 2020 and 31 December 2019 were as follows: [IAS 1.134, 135, 136]

(Amounts in CU’000)

2020

2019

Net debt

42,633

54,672

Total equity

157,391

115,999

Net debt to equity ratio

27%

47%

The net debt to equity ratio decreased from 47% to 27% as a result of the rights issue (see note 9(a)) and tighter monitoring of trade debtor payments, which has resulted in an increase of operating cash flows and cash held by the group at the end of the year. [IAS 1.135(c)]

(i) Loan covenants Guidance 1

Under the terms of the major borrowing facilities, the group is required to comply with the following financial covenants: [IAS 1.135(d)]Disclosure capital management

  • the gearing ratio must be not more than 50%, and
  • the ratio of net finance cost to EBITDA must be not more than 10%.

The group has complied with these covenants throughout the reporting period. As at 31 December 2020, the ratio of net finance cost to EBITDA was 8% (10% as at 31 December 2019).

13(b) Dividends Guidance 2 – 4

(Amounts in CU’000)

2020

2019

(i) Ordinary shares

Final dividend for the year ended 31 December 2019 of 21 cents (2017 – 10 cents) per fully paid share [IAS 1.107]

11,506

5,455

Final dividend for the year ended 31 December 2019 of 21 cents (2017 – 10 cents) per fully paid share [IAS 1.107]

11,310

5,476

(ii) 7% non-redeemable participating preference shares

Annual dividend of 7% (2019 – 7%) on the face value of the shares

107

107

Total dividends provided for or paid

22,923

11,038

Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 31 December 2020 and 2019 were as follows:

22,357

10,479

– Paid in cash Disclosure capital management

22,357

10,479

– Satisfied by issue of shares

566

559

22,923

11,038

(iii) Dividends not recognised at the end of the reporting period

In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 22 cents per fully paid ordinary share (2019 – 21 cents). The aggregate amount of the proposed dividend expected to be paid on 10 April 2021 out of retained earnings at 31 December 2020, but not recognised as a liability at year end, is

[IAS 1.137(a), IAS 10.12, Dates not mandatory]

Disclosure capital management Disclosure capital management

12,782

Disclosure capital management Disclosure capital management

11,507

Something else -   The ECL requirements

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Something else -   IFRS 9 Financial assets continued involvement at best

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