Vetoquinol Universal Registration Document 2019

Vetoquinol  Universal Registration Document 2019  Financial report   69 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 6 The Group’s investments consist of fixed-rate, gua- ranteed capital term deposits with major banks. On the basis of the 2019 financial statements, a 100 basis point increase in interest rates would have increased ear- nings by €651,000 (2018: €580,000 increase in earnings). 6.5.4.3 Liquidity risk management The Group’s cash – excluding bank overdrafts – stood at €83.6 million as of December 31, 2019 (2018: €117.6 million). Cash equivalents comprise fixed-rate term deposits with major retail banks amounting to €18.5 million (2018: €59.2 million). 2019 Group free cash flow before net cost of debt and tax amounted to €65.5 million, compared to €61.5 million in the previous year. In light of its financial position at December 31, 2019, the Group considers that it is not exposed to liquidity risk. As of December 31, 2019, the Group’s cash was largely sufficient to meet its financial liabilities due in less than one year. Net debt excluding IFRS 16 amounted to €83.1 million as of December 31, 2019, compared to €111.0 million as of December 31, 2018. Each Group subsidiary is responsible for collecting its own trade receivables and cash. The Group Finance Department provides ongoing reporting of the cash flow of subsidiaries, in order to establish the Group’s net cash positions as precisely as possible and maintain the Group’s ability to meet its financial commitments. 6.5.4.4 Credit risk management Credit risk is the risk of the Group incurring a financial loss in the event that a customer or counterparty to a financial instrument fails to comply with its contractual obligations. The only credit risk to which the Group is exposed is the risk arising from its trade receivables. In fact, with regard to investments, the Group limits its exposure to credit risk by investing only in secure, liquid instruments. Given the terms of the Group’s term deposits, management considers that there is no bank counterparty default risk. The Group’s exposure to credit risk is mainly influenced by the individual features of its customers. The Group currently sells its products in more than one hundred countries throughout the world via subsidiaries in 24 countries and a network of 100 distributors. In some regions, the occurrence of a concentration of wholesalers and/or central purchasing agencies could result in a revision of the Group’s margins following renegotiation of these contracts. However, this risk appears to be limited, as the Group is sufficiently large and diversified geographically and by product to be able to withstand such pressure. By way of illustration, the Group’s largest wholesale distributor accounted for 5.6% of consolidated revenues in 2019 (2018: 5.4%). Any customers who do not meet the Group’s solvency requirements may only enter into transactions on the condition that they settle their orders in advance. Sales of goods are subject to a retention of title clause that provides the Group with some security in the event of default. The Group does not require any specific secu- rity with regard to trade and other receivables. The carrying value of the Group’s financial assets represents its maximum exposure to credit risk; as of December 31, 2019 this amounted to €83.9 million (2018: €69.2 million). 6.5.5 Capital management The Group’s policy is to maintain a strong capital base in order to maintain the confidence of investors, credi- tors and the market and to support the future growth of its business. Assisted by senior management, the Board of Directors monitors the number and diversity of the Group’s shareholders, return on equity and the amount of dividends paid to holders of common stock. Occasionally, the Group purchases its own shares on the market. The timing of these purchases depends on pre- vailing market prices. These shares are primarily used in connection with stock option and bonus share programs. Decisions to buy and sell are made by the Chairman and/ or the CEO on a case by case basis. The Group has no defined share buyback program. Apart from these occa- sional practices, the Group has a liquidity contract (see Note 6.5.28). The Group did not change its capital management policy during the course of the year. 6.5.6 Information on judgments and estimates Management must exercise judgment and make esti- mates and assumptions that could affect the value of assets, liabilities, income and expenses and disclosures of the Company’s contingent assets and liabilities when preparing the financial statements. Estimates made and underlying assumptions adopted are based on past expe- rience and other factors deemed reasonable in light of current circumstances and forecasts. As a result, actual values may differ from estimated values. Estimates and assumptions made on the basis of infor- mation available at the balance sheet date primarily relate to: • trade receivable bad debt and year-end rebate provisions; • duration of product life cycles; • provisions for restructuring and environmental and liti- gation risks; • valuation of goodwill, intangible assets and property, plant and equipment acquired as well as their esti- mated useful life; • pension commitments.