Disclosure Financial risk management

Disclosure Financial risk management

Disclosure financial risk management provides the guidance on the need for disclosure of the management policies, procedures and measurement practices in place at the operations within the reporting entity’s group of companies and an actual example of disclosures for financial risk management.

Disclosure Financial risk management guidance

Classes of financial instruments

Where IFRS 7 requires disclosures by class of financial instrument, the entity shall group its financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The classes are determined by the entity and are therefore distinct from the categories of financial instruments specified in IFRS 9. Disclosure Financial risk management

As a minimum, the entity should distinguish between financial instruments measured at amortised cost and those measured at fair value, and treat as separate class any financial instruments outside the scope of IFRS 9. The entity shall provide sufficient information to permit reconciliation to the line items presented in the balance sheet. Guidance on classes of financial instruments and the level of required disclosures is provided in Appendix B to IFRS 7. [IFRS 7.6, IFRS 7.B1-B3]

Level of detail and selection of assumptions – information through the eyes of management

The disclosures in relation to the financial risk management of an entity should reflect the information provided Disclosure Financial risk managementinternally to key management personnel. As such, the disclosures that will be provided by an entity, their level of detail and the underlying assumptions used will vary greatly from entity to entity.

The disclosures in these illustrative financial statements are only one example of the kind of information that may be disclosed and you should consider carefully what may be appropriate in your individual circumstances. [IFRS 7.34(a)]

Derivative financial instruments

Classification as current or non-current

The classification of financial instruments as held for trading under IFRS 9 does not mean that they must necessarily be presented as current in the balance sheet. Rather, the requirements of paragraph 66 of IAS 1 should be applied in determining classification.

This means that financial assets, including portions of financial assets expected to be realised within 12 months of the balance sheet date, should only be presented as current assets if realisation within 12 months is expected. Otherwise they should be classified as non-current. [IAS1.BC38I, IAS1.BC38J, IAS1.66, IAS1.69]

Similar to financial assets, where a portion of a financial liability is expected to be settled within 12 months of the balance sheet date, or settlement cannot be deferred for at least 12 months of the balance sheet date, that portion should be presented as a current liability; the remainder should be presented as a non-current liability.

The treatment of hedging derivatives will be similar. This suggests that hedging derivatives should be split into current and non-current portions. However, as an alternative, the full fair value of hedging derivatives could be classified as current if the hedge relationships are for less than 12 months, and as non-current if those relationships are for more than 12 months.

Disclosing how hedge ineffectiveness was determined for the current period

IFRS 7 requires the disclosure of the change in the fair value of the hedging instrument and the hedged item used as the basis for recognising hedge ineffectiveness for the period. For cash flow hedging relationships that span multiple reporting periods, the ineffectiveness for the period is calculated as the difference between the cumulative ineffectiveness as at reporting date (based on the ‘lesser of’ the cumulative change in the fair value of the hedging instrument and the hedged item), and the cumulative ineffectiveness reported in prior periods.

It might therefore be useful to disclose additional information such as the cumulative amounts recognised as ineffectiveness in prior periods as well as the impact of the ‘lesser-of assessment’ (if applicable) to illustrate how the ineffectiveness for the current reporting period was calculated. [IFRS 7.24A(c), IFRS 7.24B(b)(i), IFRS 7.BC35LL]

Market risk

Foreign currency risk

Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional currency in which they are measured. Translation-related risks are therefore not included in the assessment of the entity’s exposure to currency risks. Translation exposures arise from financial and non-financial items held by an entity (for example, a subsidiary) with a functional currency different from the group’s presentation currency.

However, foreign currency-denominated inter-company receivables and payables which do not form part of a net investment in a foreign operation would be included in the sensitivity analysis for foreign currency risks; this is because, even though the balances eliminate in the consolidated balance sheet, the effect on profit or loss of their revaluation under IAS 21 is not fully eliminated. [IFRS 7.B23]

For the purpose of IFRS 7, currency risk does also not arise from financial instruments that are non-monetary items. RePort Co. Plc has therefore excluded its US dollar-denominated equity securities from the analysis of foreign Disclosure Financial risk managementexchange risk. The foreign currency exposure arising from investing in non-monetary financial instruments is reflected in the other price risk disclosures as part of the fair value gains and losses.

Interest rate risk – fixed rate borrowings

Sensitivity to changes in interest rates is normally only relevant to financial assets or financial liabilities bearing floating interest rates. However, sensitivity will also be relevant to fixed rate financial assets and financial liabilities which are remeasured to fair value.

Interest rate benchmark reform

Our fact pattern assumes that RePort Co. Plc will not be affected by the interest rate benchmark reforms. However, entities with significant hedging relationships will need to explain the changes to their accounting policies and provide the new disclosures arising from the adoption of the amendments made to IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures.

This includes entities that have exposure to interest rates where (i) the interest rates are dependent on interbank offered rates (IBORs), and (ii) these IBORs are subject to interest rate benchmark reforms. Appendix E shows the hedge accounting disclosures an entity would have to add if it has a hedge relationship that is impacted by IBOR reform, for example a loan with an interest rate based on 3-month GBP LIBOR and a floating-to-fixed rate interest rate swap that is referenced to GBP LIBOR.

Credit risk

The impairment rules in IFRS 9 also apply to contract assets. A contract asset is the entity’s right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entity’s right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as financial assets that are within the scope of IFRS 9. [IFRS 15.107, IFRS 15.108]

Liquidity risk

Maturity analysis

All financial liabilities must be included in the maturity analysis. The analysis should generally be based on contractual maturities. However, for derivative financial liabilities the standard provides entities with a choice to base the maturity grouping on expected rather than contractual maturities, provided the contractual maturities are not essential for an understanding of the timing of the cash flows.

This could be the case for derivative contracts that are held for trading. For contracts such as interest rate swaps in a cash flow hedge of a variable rate financial asset or liability and for all loan commitments, the remaining contractual maturities will be essential for an understanding of the timing of the Disclosure Financial risk managementcash flows. These contracts must therefore be grouped based on their contractual maturities. [IFRS 7.B11B]

The amounts disclosed should be the amounts expected to be paid in future periods, determined by reference to the conditions existing at the end of the reporting period. However, IFRS 7 does not specify whether current or forward rates should be used.

For floating rate financial liabilities and foreign currency-denominated instruments, the use of forward interest rates and forward foreign exchange rates might be conceptually preferable, but the use of a spot rate at the end of the period is also acceptable. Whichever approach is adopted (that is, current/spot rate or forward rate at the reporting date), it should be applied consistently. [IFRS 7.39, IFRS 7.B11D]

The specific time buckets presented are not mandated by the standard but are based on what is reported internally to the key management personnel. For financial guarantee contracts, the maximum amount of the guarantee must be allocated to the earliest period in which the guarantee could be called. As the amounts included in the maturity tables are the contractual undiscounted cash flows, including principal and interest payments, these amounts will not reconcile to the amounts disclosed in the balance sheet.

This is in particular as far as borrowings or derivative financial instruments are concerned. Entities can choose to add a column with the carrying amounts which ties into the balance sheet and a reconciling column if they so wish, but this is not mandatory. [IFRS 7.B11C(c)]

Financing arrangements

Committed borrowing facilities are a major element of liquidity management. Entities should therefore consider providing information about their undrawn facilities. IAS 7 Statement of Cash Flows also recommends disclosure of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities. [IAS 7.50(a), IFRS 7.39(c)]

Terms and conditions of financial instruments

Entities shall disclose sufficient information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance and the nature and extent of risks arising from these financial instruments. However, the intention of IFRS 7 was to decrease the potentially voluminous disclosures that were required by IAS 32 and replace them with shorter but more meaningful information. [IFRS 7.7, IFRS 7.31]

Under normal circumstances entities will therefore no longer need to disclose the significant terms and conditions for each of their major borrowings. Nevertheless, if an entity has a borrowing or other financial instrument with unusual terms and conditions, some information should be provided to enable users to assess the nature and extent of risks associated with these instruments.

The non-mandatory Practice Statement Making Materiality Judgements discusses the circumstances under which covenants may need to be disclosed, see paragraphs 81-83.

Other potential disclosures

General financial risk management disclosures

Issue not disclosed

Relevant disclosures or references

Collateral held by the entity which can be sold or re-pledged [IFRS 7.15] Disclosure Financial risk management Disclosure Financial risk management

Disclose the fair value of the collateral held, the fair value of collateral sold or re-pledged and whether it must be returned, and the terms and

Quantitative data is unrepresentative of the entity’s risk exposure [IFRS 7.35, IFRS 7.42]

Provide further information as necessary.

Financial guarantee contract (maturity table) [IFRS 7.39(a), IFRS 7.B10(c), IFRS 7.B11C(c)] Disclosure Financial risk management Disclosure Financial risk management

This must be included in the maturity table in the earliest time bucket in which it can be called. The existence of such contracts will also need to be discussed in the context of the credit risk disclosures.

Hedge accounting disclosures

Issue not disclosed

Relevant disclosures or references

The entity has designated a specific risk component of an asset in a hedge relationship (e.g. the movement in crude oil price of a barrel of crude oil) [IFRS 7.22C] Disclosure Financial risk management Disclosure Financial risk management

Provide information about how the entity has determined the risk component that is designated as the hedged item and how this component relates to the item in its entirety. See paragraph 19 below for a disclosure example.

The entity frequently resets hedging relationships (dynamic hedging) [IFRS 7.23C]

Provide the additional disclosures required by paragraph 23C of IFRS 7.

The entity has designated fair value hedges [IFRS 7.24B, 24C]

Provide the disclosures required by paragraphs 24B(a) and 24C(a) of IFRS 7.

The entity designated forecast future transactions in hedge relationships which are no longer expected to occur

[IFRS 7.23F, IFRS 7.24C(b)(iv), IFRS 7.24C(b)(v)]

Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Provide the information required by paragraph 23F of IFRS 7.

The entity would also need to disclose:

  • any amount reclassified from the cash flow hedge reserve and/or costs of hedging reserve into profit or loss as a reclassification adjustment, differentiating between amounts reclassified due to future transactions no longer being expected to occur and amounts that have been transferred because the hedged item has affected profit or loss, and
  • the line item in the statement of comprehensive income containing the reclassification adjustment.

Designate net positions in hedge relationships

[IFRS 7.24C(b)(vi)]

Disclose the hedging gains or losses recognised in a separate line item in the statement of comprehensive income.

The entity has a credit derivative to manage the credit risk of a financial instrument and has designated the financial instrument, or a proportion of it, as measured at FVPL

[IFRS 7.24G-30]

Provide the information required by paragraphs 24G to 30 of IFRS 7. Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Cessation of hedging relationships during the year

[IFRS 7.24B(b)(iii)]

Disclose the balances remaining in the cash flow hedge reserve and the foreign currency translation reserve for any hedge relationships which have been terminated.

There are new sources of hedge ineffectiveness emerging in the hedge relationship that are not already disclosed in note 12(a) [IFRS 7.23E]

Disclose the new sources of hedge ineffectiveness by risk category and explain the nature of the ineffectiveness.

The entity believes that the volume of hedge relationships at the end of the reporting period is unrepresentative of normal volumes during the period

Disclose that fact and the reason why the entity believes the volumes are unrepresentative.

Impairment disclosures

Issue not disclosed

Relevant disclosures or references

The entity has adopted the general expected credit loss model for material financial assets, eg in relation to customer loans [IFRS 7. 35F-35M]

Provide the disclosures required by paragraphs 35F – 35M of IFRS 7, see illustration in paragraph 19 below.

The entity has financial assets which are subject to the impairment requirements of IFRS 9 and which have had modifications to their contractual cash flows [IFRS 7.35F(f), IFRS 7.35I(b), IFRS 7.35J]

Provide the disclosures required by paragraphs 35F(f), 35I(b) and 35J of IFRS 7. Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

The entity has purchased or originated financial assets which are credit impaired [IFRS 7.35H(c), IFRS 7.35I(a)]

Disclose the information required by paragraphs 35H(c) and 35I of IFRS 7.

The entity has received collateral or other credit enhancements in relation to its financial assets [IFRS 7.35K]

Explain the effect of the collateral and other credit enhancements on the amounts arising from expected credit losses by disclosing the information set out in paragraph 35K of IFRS 7.

Financial assets written off during the period but still subject to enforcement activity [IFRS 7.35L]

Disclose contractual amount outstanding

The entity has financial assets that are within the scope of IFRS 7 but which are not subject to the impairment requirements of IFRS 9 [IFRS 7.36]

Disclose the amount that best represent the maximum exposure to credit risk and describe any collateral held as security and other credit enhancements and their financial effect.

The entity believes that the credit risk disclosures are not sufficient to meet the objective of paragraph 35B of IFRS 7 [IFRS 7.35E]

Provide additional disclosures relevant to the users of the financial statements.

The following disclosure examples may be useful where relevant to an entity: [IAS 1.117]

Accounting policy for fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in profit or loss within other gains/(losses). [IFRS 9.6.5.8]

Something else -   Discontinuation hedge accounting

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.

Designation of a specific risk component of an asset in a hedge relationship

The company purchases fuel for use in its manufacturing process. The fuel supplier charges the company for fuel delivered based on a formula which includes the spot price of Brent Crude oil at the delivery date. The future purchases of fuel are subject to market price risk, which the company hedges using Brent Crude oil futures, with critical terms matching the terms of the forecast purchase. [IFRS 7.22C]

Brent Crude oil is a separately identifiable component of the forecast purchase as it is explicitly specified in the supply contract price. As there is a market for Brent Crude oil futures, the exposure is considered to be reliably measurable.

Accordingly, the Brent Crude oil futures are designated as cash flow hedges of the forecast purchases of fuel.

Historically, the Brent Crude oil component has accounted for 80% of the cost of fuel supplied.

Credit risk disclosures – customer loans, general expected credit loss model applied

The company considers the probability of default upon initial recognition of an asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. [IFRS 7.35F(a)] To assess whether there is a significant increase in credit risk, the company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. Especially the following indicators are incorporated: [IFRS 9.B5.5.17]

  • internal credit rating
  • external credit rating (as far as available)
  • actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the borrower’s ability to meet its obligations
  • actual or expected significant changes in the operating results of the borrower
  • significant increases in credit risk on other financial instruments of the same borrower
  • significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements
  • significant changes in the expected performance and behaviour of the borrower, including changes in the payment status of borrowers in the group and changes in the operating results of the borrower.

Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model.

Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment.

A default on a financial asset is when the counterparty fails to make contractual payments within 60 days of when they fall due. [IFRS 7.35F(b)]

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the company. The company categorises a loan or receivable for write off when a debtor fails to make contractual payments more than 120 days past due.

Where loans or receivables have been written off, the company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss. [IFRS 7.35F(e)]

(i) Loans to customers

The company uses three categories for loans which reflect their credit risk and how the loan loss provision is determined for each of those categories. These internal credit risk ratings are aligned to external credit rating companies, such as Standard and Poor, Moody’s and Fitch. [IFRS 7.35F(a)]

A summary of the assumptions underpinning the company’s expected credit loss model is as follows

Table – IFRS 7.35F(b),(d)-(e), IFRS 7.35G(a)

Category

Description of category

Basis for recognition of expected credit loss provision

Performing

Disclosure Financial risk management

Disclosure Financial risk management

Loans whose credit risk is in line with original expectations Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

12 month expected losses. Where the expected lifetime of an asset is less than 12 months, expected losses are measured at its expected lifetime (stage 1).

Underperforming

Loans for which a significant increase in credit risk has occurred compared to original expectations; a significant increase in credit risk is presumed if interest and/or principal repayments are 30 days past due (see above in more detail)

Lifetime expected losses (stage 2).

Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Non-performing (credit impaired)

Interest and/or principal repayments are 60 days past due or it becomes probable a customer will enter bankruptcy

Lifetime expected losses (stage 3).

Write-off

Interest and/or principal repayments are 120 days past due and there is no reasonable expectation of recovery

Asset is written off.

Interest-bearing loans are provided to small business customers to assist them with new business start-up costs as part of the company’s ongoing support for local entrepreneurs. The company does not require the small business customers to pledge collateral as security against the loan.

Over the term of the loans, the company accounts for its credit risk by appropriately providing for expected credit losses on a timely basis. In calculating the expected credit loss rates, the company considers historical loss rates for each category of customers, and adjusts for forward-looking macroeconomic data. The company provides for credit losses against loans to customers as follows: [IFRS 7.35G(b)]

Table – IFRS 7.35G(a), IFRS 7.35M

Company internal credit rating as at 31 December 2020 **

External credit rating *

Expected credit loss rate

Gross carrying amount (stage 1)

Gross carrying amount (stage 2)

Gross carrying amount (stage 3)

High Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

AAA

0.9%

45,776

123

AA

1.3%

31,668

80

A

2.2%

14,117

221

Moderate Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

BBB

7.3%

679

325

BB

10.0%

140

223

B

12.2%

67

54

Low Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

CCC

14.0%

44

252

CC

18.0%

13

134

C

30.0%

78

Credit impaired

D

50.0%

20

* or equivalent internal rating [IFRS 7.35M]

** Information for the comparative period would also need to be provided as per IAS 1 paragraph 38.

No significant changes to estimation techniques or assumptions were made during the reporting period. [IFRS 7.35G(c)]

The loss allowance for loans to customers as at 31 December 2019 and 31 December 2020 reconciles to the opening loss allowance for that provision as follows: [IFRS 7.35H]

Amounts in CU’000

Performing

Under-performing

Non-performing

Total

Opening loss allowance as at 1 January 2019 [IAS 1.38]

666

12

162

840

Individual financial assets transferred to under-performing (lifetime expected credit losses) * [IFRS 7.35H(b)(i)]

-xx

xx

xx

Individual financial assets transferred to non-performing (credit-impaired financial assets) [IFRS 7.35H(b)(ii)]

-x

x

x

New financial assets originated or purchased [IFRS 7.35I(a)]

xxx

xxx

Write-offs [IFRS 7.35I(c)]

-xx

-xx

Recoveries [IFRS 7.35I(c)]

-x

-x

-x

-x

Change in risk parameters **

xx

xx

Other changes

xx

xx

xx

xx

Loss allowance as at 31 December 2019

721

82

192

995

Individual financial assets transferred to under-performing (lifetime expected credit losses) * [IFRS 7.35H(b)(i)]

-25

33

8

Individual financial assets transferred to non-performing (credit-impaired financial assets) [IFRS 7.35H(b)(ii)]

-2

2

New financial assets originated or purchased [IFRS 7.35I(a)]

367

367

Write-offs [IFRS 7.35I(c)]

-109

-109

Recoveries [IFRS 7.35I(c)]

-14

-5

-12

-31

Change in risk parameters **

53

53

Other changes

6

5

5

16

Loss allowance as at 31 December 2020

1,108

113

78

1,299

* The increase in the loss allowance of 8 is due to moving assets being measured at 12-month expected credit losses to lifetime expected credit losses.

** The increase in the loss allowance is due to an increase in the probability of default (PD) used to calculate the 12-month expected credit loss for the performing loans. [IFRS 7.35I(d)]

Loans with a contractual amount of CU60,000 written off during the period are still subject to enforcement activity. [IFRS 7.35L]

The gross carrying amount of loan receivables, and thus the maximum exposure to loss, is as follows: [IFRS 7.35K(a)]

Amounts in CU’000 Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

at 31 December 2020

at 31 December 2019

Performing Disclosure Financial risk management

91,560

xxx

Underperforming Disclosure Financial risk management

1,421

xxx

Non-performing

499

xxx

Loans written off

20

xxx

Total gross loan receivables

93,500

xxx

Less: Loan loss allowance

-1,299

xxx

Less: Write-off

-10

xxx

Loan receivables net of expected credit losses

92,191

xxx

Disclosure Financial risk management example

12. Financial risk management

This note explains the group’s exposure to financial risks and how these risks could affect the group’s future financial performance. Current year profit and loss information has been included where relevant to add further context.

Table – IFRS 7.21A(a), IFRS 7.21C, IFRS 7.31, IFRS 7.32, IFRS 7.33

Risk

Exposure arising from

Measurement

Management

Market risk – foreign exchange

Future commercial transactions

Recognised financial assets and liabilities not denominated in Neverland currency units (CU)

Cash flow forecasting

Sensitivity analysis

Foreign currency forwards and foreign currency options

Market risk – interest rate

Long-term borrowings at variable rates

Sensitivity analysis

Interest rate swaps

Market risk – security prices

Investments in equity securities

Sensitivity analysis

Portfolio diversification

Credit risk

Cash and cash equivalents, trade receivables, derivative financial instruments, debt investments and contract assets

Aging analysis

Credit ratings

Diversification of bank deposits, credit limits and letters of credit

Investment guidelines for debt investments

Liquidity risk

Borrowings and other liabilities

Rolling cash flow forecasts

Availability of committed credit lines and borrowing facilities

The group’s risk management is predominantly controlled by a central treasury department (group treasury) under policies approved by the board of directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the group’s operating units. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. [IFRS 7.33(b)]

Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item. This will effectively result in recognising interest expense at a fixed interest rate for the hedged floating rate loans and inventory at the fixed foreign currency rate for the hedged purchases. [IFRS 7.21A(c)]

12(a) Derivatives

The group has the following derivative financial instruments in the following line items in the balance sheet: [IFRS 7.24A(b)]

Table – IAS 1.77, IFRS 7.24A(a),(b)

Amounts in CU’000

2020

2019

Current assets

Foreign currency options – cash flow hedges ((b)(i))

1,709

1,320

Interest rate swaps – cash flow hedges ((b)(ii))

145

97

Total current derivative financial instrument assets

1,854

1,417

Non-current assets

Interest rate swaps – cash flow hedges ((b)(ii))

308

712

Total non-current derivative financial instrument assets

308

712

Current liabilities

Foreign currency forwards – held for trading ((b)(i))

610

621

Foreign currency forwards – cash flow hedges ((b)(i))

766

777

Total current derivative financial instrument liabilities

1,376

1,398

(i) Classification of derivatives

Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period. [IAS 1.66, IAS 1.68]

The group’s accounting policy for its cash flow hedges is set out in note 25(p). Further information about the derivatives used by the group is provided in note 12(b) below.

(ii) Fair value measurement

For information about the methods and assumptions used in determining the fair value of derivatives refer to note 7(h).

(iii) Hedging reserves

The group’s hedging reserves disclosed in note 9(c) relate to the following hedging instruments: [IFRS 7.24E(a), IFRS 7.24F]

Cash flow hedge reserve

Cost of hedging reserve *

Intrinsic value of options

Spot component of currency forwards

Interest rate swaps

Total hedge reserves

Opening balance 1 January 2019

-25

109

-287

-203

Add: Change in fair value of hedging instrument recognised in OCI

1,353

-935

1,005

1,423

Add: Costs of hedging deferred and recognised in OCI

73

73

Less: Reclassified to the cost of inventory – not included in OCI

36

-339

642

339

Less: reclassified from OCI to profit or loss

-195

-195

Less: Deferred tax

-33

-304

88

-243

-492

Closing balance 31 December 2019

51

819

-492

567

945

Add: Change in fair value of hedging instrument recognised in OCI

746

-218

-202

326

Add: Costs of hedging deferred and recognised in OCI

-88

-88

Less: Reclassified to the cost of inventory – not included in OCI

-73

-159

188

-44

Less: reclassified from OCI to profit or loss

-155

-155

Less: Deferred tax

48

-176

9

107

-12

Closing balance 31 December 2020

-62

1,230

-513

317

972

* The amount deferred in the costs of hedging reserve includes CU34,000 in respect of time value of options and CU28,000 in respect of forward points (2019 – CU54,000 in respect of forward [IFRS 7.22B(c)]

There were no reclassifications from the cash flow hedge reserve to profit or loss during the period in relation to the foreign currency forwards and options. [IFRS 7.24C(b)(iv)]

(iv) Amounts recognised in profit or loss

In addition to the amounts disclosed in the reconciliation of hedging reserves above, the following amounts were recognised in profit or loss in relation to derivatives:

Amounts in CU’000

2020

2019

Net gain/(loss) on foreign currency forwards not qualifying as hedges included in other gains/(losses) [IFRS 7.20(a)(i)]

11

-621

Hedge ineffectiveness of foreign currency forwards – amount recognised in other gains/(losses) [IFRS 7.24C(b)(ii),(iii)]

4

2

Hedge effectiveness

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments, to ensure that an economic relationship exists between the hedged item and hedging instrument. [IFRS 7.22B(b)]

For hedges of foreign currency purchases, the group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. The group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the group uses the hypothetical derivative method to assess effectiveness.

Something else -   IFRS 7 Best accounting for Treasury shares

In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of Neverland or the derivative counterparty. [IFRS 7.23D]

The group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. The group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swaps. As all critical terms matched during the year, there is an economic relationship. [IFRS 7.22B(b)]

Hedge ineffectiveness for interest rate swaps is assessed using the same principles as for hedges of foreign currency purchases. It may occur due to:

  • the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan, and
  • differences in critical terms between the interest rate swaps and loans. [IFRS 7.22B(c), IFRS 7.23D]

Hedge ineffectiveness in relation to the interest rate swaps was negligible for 2020 and 2019. [IFRS 7.24C(b)(ii)]

12(b) Market risk

IFRS 7.33 Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

(i) Foreign exchange risk

IFRS 7.21C Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Exposure

The group’s exposure to foreign currency risk at the end of the reporting period, expressed in Neverland currency units, was as follows: [IFRS 7.31, IFRS 7.34(c), IFRS 7.22A(c)]

Amounts in ‘000

31/12/20

31/12/19

USD

EUR

RMB

USD

EUR

RMB

Trade receivables

5,150

2,025

4,130

945

Bank loans

-18,765

-1,509

-8,250

Trade payables

-4,250

-5,130

Disclosure Financial risk management

Foreign currency forwards

Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

– buy foreign currency (cash flow hedges)

11,519

10,613

– buy foreign currency (held for trading)

12,073

11,422

Foreign currency options

10,000

8,000

The aggregate net foreign exchange gains/losses recognised in profit or loss were: [IAS 21.52(a)]

Amounts in CU’000

2020

2019

Net foreign exchange gain/(loss) included in other gains/(losses) [IAS 21.52(a)]

518

-259

Exchange losses on foreign currency borrowing included in finance costs [IAS 23.6(e)]

-1,122

-810

Total net foreign exchange (losses) recognised in profit before income tax for the period [IAS 21.52(a)]

-604

-1,069

Instruments used by the group

The group operates internationally and is exposed to foreign exchange risk, primarily the US dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the functional currency of the relevant group entity.

The risk is measured through a forecast of highly probable US dollar expenditures. The risk is hedged with the objective of minimising the volatility of the Neverland currency cost of highly probable forecast inventory purchases. [IFRS 7.33(b), IFRS 7.22A(a)]

The group treasury’s risk management policy is to hedge between 65% and 80% of forecast US dollar cash flows for inventory purchases up to one quarter in advance, subject to a review of the cost of implementing each hedge. For the year ended 31 December 2020, approximately 80% of inventory purchases were hedged in respect of foreign currency risk.

At 31 December 2020, 90% of forecasted US dollar inventory purchases during the first quarter of 2021 qualified as ‘highly probable’ forecast transactions for hedge accounting purposes (for 2019, approximately 85% of inventory purchases were hedged and 93% of the purchases qualified as ‘highly probable’ as at 31 December 2019). [IFRS 7.22A(b),(c)]

The US dollar-denominated bank loans are expected to be repaid with receipts from US dollar-denominated sales. The foreign currency exposure of these loans has therefore not been hedged.

The group uses a combination of foreign currency options and foreign currency forwards to hedge its exposure to foreign currency risk. Under the group’s policy, the critical terms of the forwards and options must align with the hedged items. [IFRS 7.22B(a)]

The group only designates the spot component of foreign currency forwards in hedge relationships. The spot component is determined with reference to relevant spot market exchange rates. The differential between the contracted forward rate and the spot market exchange rate is defined as the forward points. It is discounted, where material. [IFRS 9.6.5.16]

The intrinsic value of foreign currency options is determined with reference to the relevant spot market exchange rate. The differential between the contracted strike rate and the discounted spot market exchange rate is defined as the time value. It is discounted, where material. [IFRS 9.6.5.16]

The changes in the forward element of the foreign currency forwards and the time value of the options that relate to hedged items are deferred in the costs of hedging reserve. [IAS 1.117, IFRS 7.21]

The group also entered into foreign currency forwards in relation to projected purchases for the next 12 months that do not qualify as ‘highly probable’ forecast transactions and hence do not satisfy the requirements for hedge accounting (economic hedges). The foreign currency forwards are subject to the same risk management policies as all other derivative contracts. However, they are accounted for as held for trading, with gains (losses) recognised in profit or loss. [IFRS 7.7, IFRS 7.21]

Hedge of net investment in foreign entity

In 2020, RePort Co. Plc has entered into a bank loan amounting to CU1,699,000 which is denominated in Chinese renminbi (RMB) and which was taken out to fund an additional equity investment in the Chinese subsidiary. The forward rate of the loan has been designated as a hedge of the net investment in this subsidiary. There was no ineffectiveness to be recorded from net investments in foreign entity hedges. [IFRS 7.22A]

Effects of hedge accounting on the financial position and performance

The effects of the foreign currency-related hedging instruments on the group’s financial position and performance are as follows:

Amounts in CU’000

2020

2019

Foreign currency options [IFRS 7.24A(b)]

Carrying amount (current asset) [IFRS 7.24A(a)]

1,709

1,320

Notional amount [IFRS 7.24A(d)]

10,000

8,000

Maturity date [IFRS 7.23B(a)]

January 21 – March 21

January 20 – March 20

Hedge ratio * [IFRS 7.22B(c)]

1 : 1

1 : 1

Change in intrinsic value of outstanding hedging instruments since inception of the hedge [IFRS 7.24A(c)]

596

1,353

Change in value of hedged item used to determine hedge ineffectiveness [IFRS 7.24B(b)(i)]

-596

-1,353

Weighted average strike rate for outstanding hedging instruments [IFRS 7.23B(b)]

USD0.9612:CU1

USD0.8543:CU1

Foreign currency forwards [IFRS 7.24A(b)]

Carrying amount (current liability) [IFRS 7.24A(a)]

-766

-777

Notional amount [IFRS 7.24A(d)]

11,519

10,612

Maturity date [IFRS 7.23B(a)]

January 21 – March 21

January 20 – March 20

Hedge ratio * [IFRS 7.22B(c)]

1 : 1

1 : 1

Change in discounted spot value of outstanding hedging instruments since inception of the hedge [IFRS 7.24A(c)]

-218

-935

Change in value of hedged item used to determine hedge ineffectiveness [IFRS 7.24B(b)(i)]

222

937

Weighted average hedged rate for outstanding hedging instruments (including forward points) [IFRS 7.23B(b)]

USD0.9612:CU1

USD0.9428:CU1

Net investment in foreign operation [IFRS 7.24A(b)]

Carrying amount (non-current borrowings) [IFRS 7.24A(a)]

-1,509

Currency carrying amount [IFRS 7.24A(d)]

RMB 6,946,000

Hedge ratio [IFRS 7.22B(c)]

1 : 1

Change in carrying amount of bank loan as a result of foreign currency movements since 1 January, recognised in OCI – see note 9(c) [IFRS 7.24A(c)]

190

Change in value of hedged item used to determine hedge effectiveness [IFRS 7.24B(b)(i)]

-190

Weighted average hedged rate for the year (including forward points) [IFRS 7.23B(b)]

RMB5.932:CU1

* The foreign currency forwards and options are denominated in the same currency as the highly probable future inventory purchases (US$), therefore the hedge ratio is 1:1. [IFRS 7.22B(c)]

Sensitivity

As shown in the table on page 123 above, the group is primarily exposed to changes in US/CU exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US dollar-denominated financial instruments and the impact on other components of equity arises from foreign forward exchange contracts designated as cash flow hedges. [IFRS 7.40(a),(b),(c)]

Amounts in CU’000 Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Impact on profit after tax

Impact on other components of equity

Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

2020

2019

2020

2019

US/CU exchange rate – increase 9% (2019 – 10%)

-1,494

-1,004

-806

-743

US/CU exchange rate – decrease 9% (2019 – 10%)

1,223

822

660

608

Increase/decrease 9% (2019-10%) and holding all other variables constant

Profit is more sensitive to movements in the Neverland currency unit/US dollar exchange rates in 2020 than 2019 because of the increased amount of US dollar denominated borrowings. Equity is more sensitive to movements in the Neverland currency unit/US dollar exchange rates in 2020 than 2019 because of the increased amount of foreign currency forwards. The group’s exposure to other foreign exchange movements is not material.

(ii) Cash flow and fair value interest rate risk IFRS 7.21C

The group’s main interest rate risk arises from long-term borrowings with variable rates, which expose the group to cash flow interest rate risk. Group policy is to maintain at least 50% of its borrowings at fixed rate, using floating-to-fixed interest rate swaps to achieve this when necessary.

Generally, the group enters into long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the group borrowed at fixed rates directly. During 2020 and 2019, the group’s borrowings at variable rate were mainly denominated in Neverland currency units and US dollars. [IFRS 7.22A(a),(b), IFRS 7.33(a),(b)]

The group’s borrowings and receivables are carried at amortised cost. The borrowings are periodically contractually repriced (see below) and to that extent are also exposed to the risk of future changes in market interest rates.

The exposure of the group’s borrowings to interest rate changes and the contractual re-pricing dates of the borrowings at the end of the reporting period are as follows: [IFRS 7.22A(c), IFRS 7.34(a)]

Amounts in CU’000

2020

Share

2019

Share

Variable rate borrowings

54,689

56%

50,150

59%

Fixed rate borrowings – repricing or maturity dates:

Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

– Less than 1 year

4,735

5%

3,895

5%

– 1 – 5 years

26,626

27%

19,550

23%

– Over 5 years

11,465

12%

11,000

13%

97,515

100%

84,595

100%

An analysis by maturities is provided in note 12(d) below. The percentage of total loans shows the proportion of loans that are currently at variable rates in relation to the total amount of borrowings.

Instruments used by the group

Swaps currently in place cover approximately 18% (2019 – 17%) of the variable loan principal outstanding. The fixed interest rates of the swaps range between 7.8% and 8.3% (2019 – 9.0% and 9.6%), and the variable rates of the loans are between 0.5% and 1.0% above the 90 day bank bill rate which, at the end of the reporting period, was 8.2% (2019 – 9.4%). [IFRS 7.22B(a), IFRS 7.23B]

The swap contracts require settlement of net interest receivable or payable every 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. [IFRS 7.22B(a)]

Effects of hedge accounting on the financial position and performance

The effects of the interest rate swaps on the group’s financial position and performance are as follows:

Amounts in CU’000

2020

2019

Interest rate swaps [IFRS 7.24A(b)]

ying amount (current and non-current asset) [IFRS 7.24A(a)]

453

809

Notional amount [IFRS 7.24A(d)]

10,010

8,440

Maturity date [IFRS 7.23B(a)]

2020

2019

Hedge ratio [IFRS 7.22B(c)]

1 : 1

1 : 1

Change in fair value of outstanding hedging instruments since 1 January [IFRS 7.24A(c)]

-202

1,005

Change in value of hedged item used to determine hedge effectiveness [IFRS 7.24B(b)(i)]

202

1,005

Weighted average hedged rate for the year [IFRS 7.23B(b)]

8.1%

9.3%

Sensitivity

Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents as a result of changes in interest rates. Other components of equity change as a result of an increase/decrease in the fair value of the cash flow hedges of borrowings and the fair value of debt investments at fair value through other comprehensive income. [IFRS 7.40(a)]

Amounts in CU’000 Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management Disclosure Financial risk management

Impact on profit after tax

Impact on other components of equity

2020

2019

2020

2019

Interest rates – increase by 70 basis points (2019 – 60 bps)

138

-18

-90

-16

Interest rates – decrease by 100 basis points (2019 – 80 bps)

-127

96

129

22

Increase/decrease bps holding all other variables constant

(iii) Price risk [IFRS 7.21C]

Exposure

The group’s exposure to equity securities price risk arises from investments held by the group and classified in the balance sheet either as at fair value through other comprehensive income (FVOCI) (note 7(c)) or at fair value through profit or loss (FVPL) (note 7(d)). [IFRS 7.33(a)]

To manage its price risk arising from investments in equity securities, the group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the group. [IFRS 7.33(b)]

The majority of the group’s equity investments are publicly traded and are included either in the Neverland Stock Exchange 200 Index or the NYSE International 100 Index.

Sensitivity

The table below summarises the impact of increases/decreases of these two indexes on the group’s equity and post-tax profit for the period. The analysis is based on the assumption that the equity indexes had increased by 9% and 7% respectively or decreased by 6% and 5%, with all other variables held constant, and that all of the group’s equity instruments moved in line with the indexes. [IFRS 7.40(a),(b)]

Amounts in CU’000

Impact on profit after tax

Impact on other components of equity

2020

2019

2020

2019

Neverland Stock Exchange 200 – increase 9% (2019 – 7.5%)

385

361

284

266

NYSE International 100 – increase 7% (2019 – 6.5%)

254

184

Neverland Stock Exchange 200 – decrease 6% (2019 – 4%)

-257

-193

-189

-177

NYSE International 100 – decrease 5% (2019 – 3.5%)

-182

-99

Post-tax profit for the period would increase/decrease as a result of gains/losses on equity securities classified as at FVPL. Other components of equity would increase/decrease as a result of gains/losses on equity securities classified as at FVOCI.

Amounts recognised in profit or loss and other comprehensive income

The amounts recognised in profit or loss and other comprehensive income in relation to the various investments held by the group are disclosed in note 7.

12(c) Credit risk

Credit risk arises from cash and cash equivalents, contractual cash flows of debt investments carried at amortised cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVPL), favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. [IFRS 7.33(a),(b)]

(i) Risk management IFRS 7.35B

Credit risk is managed on a group basis. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

Something else -   Light Sweet Crude Oil commodity swap

If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The compliance with credit limits by wholesale customers is regularly monitored by line management. [IFRS 7.34(c)]

Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions.

For derivative financial instruments, management has established limits so that, at any time, less than 10% of the fair value of favourable contracts outstanding are with any individual counterparty.

The group’s investments in debt instruments are considered to be low risk investments. The credit ratings of the investments are monitored for credit deterioration.

(ii) Security

For some trade receivables the group may obtain security in the form of guarantees, deeds of undertaking or letters of credit which can be called upon if the counterparty is in default under the terms of the agreement. [IFRS 7.15(b), IFRS 7.36(a),(b)]

(iii) Impairment of financial assets

The group has four types of financial assets that are subject to the expected credit loss model:

  • trade receivables for sales of inventory and from the provision of consulting services
  • contract assets relating to IT consulting contracts
  • debt investments carried at amortised cost, and
  • debt investments carried at FVOCI.

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

Trade receivables and contract assets

The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. [IAS 1.117, IFRS 7.21, IFRS 9.5.5.15]

To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts.

The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. IFRS7(35F)(c)

The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2020 or 1 January 2020 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

The group has identified the GDP and the unemployment rate of the countries in which it sells its goods and services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. [IFRS 7.35G]

On that basis, the loss allowance as at 31 December 2020 and 31 December 2019 was determined as follows for both trade receivables and contract assets:

Amounts in CU’000, unless in %,

31 December 2020

Current

More than 30 days past due

More than 600 days past due

More than 120 days past due

Total

Gross carrying amount – trade receivables

13,627

1,428

893

360

16,308

Gross carrying amount – contract assets

1,547

1,547

Total receivables, assets at risk

15,174

1,428

893

360

17,855

Loss allowance

273

71

143

187

674

Expected loss rate (loss allowance/ total receivables, assets at risk)

1.8%

5.0%

16.0%

52.0%

Amounts in CU’000, unless in %,

31 December 2019

Current

More than 30 days past due

More than 600 days past due

More than 120 days past due

Total

Gross carrying amount – trade receivables

6,815

975

480

300

8,570

Gross carrying amount – contract assets

2,597

2,597

Total receivables, assets at risk

9,412

975

480

300

11,167

Loss allowance

132

49

67

138

386

Expected loss rate (loss allowance/ total receivables, assets at risk)

1.4%

5.0%

14.0%

46.0%

The loss allowances for trade receivables and contract assets as at 31 December reconcile to the opening loss allowances as follows: [IFRS 7.35H(b)(iii)]

Amounts in CU’000

Contract assets

Trade receivables

2020

2019

2020

2019

Loss allowance at 1 January

36

30

350

115

Increase in loan loss allowance recognised in profit or loss during the year

6

846

635

Receivables written off during the year as uncollectible

-530

-345

Unused amount reversed

-8

-20

-55

Loss allowance at 31 December

28

36

646

350

Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 120 days past due. [IFRS 7.35F(e)]

Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

Debt investments

All of the entity’s debt investments at amortised cost and FVOCI are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months’ expected losses. Management consider ‘low credit risk’ for listed bonds to be an investment grade credit rating with at least one major rating agency.

Other instruments are considered to be low credit risk where they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term. [IFRS 7.35F(a)(i)]

Other financial assets at amortised cost

Other financial assets at amortised cost include debenture assets, zero coupon bonds and listed corporate bonds, loans to related parties and key management personnel, and other receivables.

The loss allowance for other financial assets at amortised cost as at 31 December reconciles to the opening loss allowance as follows: [IAS1.117)]

Amounts in CU’000

IFRS 7.35H(a)

Related parties

Key management personnel

Debentures and bonds

Other receivables

Total

Opening loss allowance as at 1 January 2019

1

4

2

7

Increase in the allowance recognised in profit or loss during the period IFRS 7.20(a)(vi)

2

1

3

3

9

Closing loss allowance as at 31 December 2019

2

2

7

5

16

Increase in the allowance recognised in profit or loss during the period IFRS 7.20(a)(vi)

2

1

17

3

23

Closing loss allowance as at 31 December 2020

4

3

24

8

39

Debt investments at fair value through other comprehensive income

Debt investments at fair value through other comprehensive income (FVOCI) include listed and unlisted debt securities. The loss allowance for debt investments at FVOCI is recognised in profit or loss and reduces the fair value loss otherwise recognised in OCI. [IAS 1.117, IFRS 9.5.5.2]

The loss allowance for debt investments at FVOCI as at 31 December reconciles to the opening loss allowance as follows: [IFRS 7.35H(a), IFRS 7.16A]

Amounts in CU’000

2020

Loss allowance as at 1 January and 31 December 2019

Increase in loan loss allowance recognised in profit or loss during the year [IFRS 7.20(a)(viii)]

8

Closing loss allowance as at 31 December 2020

8

(iv) Significant estimates and judgements

Impairment of financial assets

The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the group’s past history and existing market conditions, as well as forward-looking estimates at the end of each reporting period. Details of the key assumptions and inputs used are disclosed in the tables above. [IFRS 9.5.5.17, IAS 1.125]

(v) Net impairment losses on financial and contract assets recognised in profit or loss

During the year, the following gains/(losses) were recognised in profit or loss in relation to impaired financial assets: (possible voluntary disclosure)

Amounts in CU’000

2020

2019

Impairment losses

– movement in loss allowance for trade receivables and contract assets

-846

-641

Impairment losses on other financial assets

-23

-9

Reversal of previous impairment losses

28

55

Impairment losses on financial assets at amortised cost [IFRS 7.20(a)(vi)]

-841

-595

Impairment losses on financial assets at FVOCI [IFRS 7.20(a)(viii)]

-8

Net impairment losses on financial and contract assets [IAS 1.82(ba)]

-849

-595

Of the above impairment losses, CU739,000 (2019 – CU607,000) relate to receivables arising from contracts with customers (see note 3). [IFRS 15.113(b)]

(vi) Financial assets at fair value through profit or loss

The entity is also exposed to credit risk in relation to debt investments that are measured at fair value through profit or loss. The maximum exposure at the end of the reporting period is the carrying amount of these investments (CU2,390,000; 2019 – nil). [IFRS 7.36]

12(d) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. At the end of the reporting period the group held deposits at call of CU44,657,000 (2019 – CU24,093,000) that are expected to readily generate cash inflows for managing liquidity risk.

Due to the dynamic nature of the underlying businesses, group treasury maintains flexibility in funding by maintaining availability under committed credit lines. [IFRS 7.33(a),(b), IFRS 7.39(c), IFRS 7.B11E]

Management monitors rolling forecasts of the group’s liquidity reserve (comprising the undrawn borrowing facilities below) and cash and cash equivalents (note 7(e)) on the basis of expected cash flows. This is generally carried out at local level in the operating companies of the group, in accordance with practice and limits set by the group. These limits vary by location to take into account the liquidity of the market in which the entity operates.

In addition, the group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. [IFRS 7.34(a)]

(i) Financing arrangements

The group had access to the following undrawn borrowing facilities at the end of the reporting period: [IFRS 7.7, IFRS 7.34(a), IAS 7.50(a)]

Amounts in CU’000

2020

2019

Floating rate

– Expiring within one year (bank overdraft and bill facility)

12,400

10,620

– Expiring beyond one year (bank loans)

9,470

8,100

21,870

18,720

The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. The unsecured bill acceptance facility may be drawn at any time and is subject to annual review. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time in either Neverland currency units or US dollars and have an average maturity of 6.5 years (2019 – 6.9 years). [IFRS 7.7, IFRS 7.39(c), IAS 7.50(a)]

(ii) Maturities of financial liabilities

The tables below analyse the group’s financial liabilities into relevant maturity groupings based on their contractual maturities for: all non-derivative financial liabilities, and net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows. [IFRS 7.39(a),(b), IFRS 7.B11B]

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. For interest rate swaps, the cash flows have been estimated using forward interest rates applicable at the end of the reporting period. [IFRS 7.B11D]

The group’s trading portfolio of derivative instruments with a negative fair value has been included at their fair value of CU610,000 (2019 – CU621,000) within the ‘less than 6 months’ time bucket. This is because the contractual maturities are not essential for an understanding of the timing of the cash flows. These contracts are managed on a net fair value basis, rather than by maturity date. [IFRS 7.39(a), IFRS 7.B11B]

Contractual maturities of financial liabilities

Amounts in CU’000

Less than 6 months

6 – 12 months

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

Total contrac-tual cash flows

Carrying amount (assets)/ liabilities

At 31 December 2020

Non-derivatives

Trade payables

13,700

13,700

13,700

Borrowings

4,439

4,639

9,310

46,195

40,121

104,704

97,515

Lease liabilities

1,455

1,456

2,911

5,337

2,340

13,499

11,501

Total non-deriva-tives

19,594

6,095

12,221

51,532

42,461

131,903

122,716

Derivatives

Trading derivatives

610

610

610

Gross settled (foreign currency forwards – cash flow hedges)

(inflow)

-17,182

-13,994

-31,176

outflow

17,521

14,498

32,019

766

949

504

1,453

1,376

Contractual maturities of financial liabilities

Amounts in CU’000

Less than 6 months

6 – 12 months

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

Total contrac-tual cash flows

Carrying amount (assets)/ liabilities

At 31 December 2019

Non-derivatives

Trade payables

10,281

10,281

10,281

Borrowings

4,513

4,118

9,820

44,476

30,235

93,162

84,595

Lease liabilities

1,174

1,174

2,415

6,845

2,017

13,625

11,921

Total non-derivatives

15,968

5,292

12,235

51,321

32,252

117,068

106,167

Derivatives

Trading derivatives

621

621

621

Gross settled (foreign currency forwards – cash flow hedges)

(inflow)

-11,724

-6,560

-18,284

outflow

11,885

7,228

19,113

777

782

668

1,450

1,398

Of the CU46.195m disclosed in the 2020 borrowings time band ‘between 2 and 5 years’, the group is considering early repayment of CU5,000,000 in the first quarter of the 2021 financial year (2019 – nil). [IFRS 7.B10A(a)]

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Something else -   Discontinuation hedge accounting

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