Vetoquinol - Universal Registration Document - 2021

CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements Vetoquinol Universal Registration Document 2020 Financial report 73 6 6.5.4.2 Interest rate risk management The Group’s general policy on interest rate risk is to globally manage its exposure through swaps. Pursuant to the provisions of IAS 39, whenever the conditions for hedge accounting are met, the Group applies the rele- vant procedures. When these conditions are not met, or if the amounts concerned are not material, as has been the case in recent years, derivatives are carried on the balance sheet at their fair value, and all changes in fair value are posted to income, in accordance with the pro- visions of IAS 39. The Group’s exposure to interest rate risk is not mate- rial and primarily concerns two balance sheet accounts: financial liabilities and cash. As of December 31, 2020, 11.7% of the Group’s finan- cial liabilities (including bank overdrafts) bore interest at a fixed rate (2019: 92.3%). Floating rate commitments amounted to €110.2 million as of December 31, 2020 (2019: €0.9 million). To finance part of the acquisition of Drontal and Profen- der, Vetoquinol signed a bank loan agreement in March 2020 for €110.0 million. This loan was released in July 2020 and is repayable on June 30, 2021. It is subject to the following financial covenant, which Vetoquinol has undertaken to comply with until its maturity: consolidated net debt to consolidated EBITDA must not exceed 1.5. The Group’s investments consist of fixed-rate, gua- ranteed capital term deposits with major banks. On the basis of the 2020 financial statements, a 100 basis point increase in interest rates would have decreased earnings by €25,000 (2019: €651,000 increase in earnings). 6.5.4.3 Liquidity risk management The Group’s cash – excluding bank overdrafts – stood at €129.3 million as of December 31, 2020 (2019: €83.6 million). Cash equivalents comprise fixed-rate term deposits with major retail banks amounting to €21.9 million (2019: €18.5 million). 2020 Group free cash flow before net cost of debt and tax amounted to €83.3 million, compared to €65.5 million in the previous year. In light of its financial position at December 31, 2020, the Group considers that it is not exposed to liquidity risk. As of December 31, 2020, the Group’s cash was sufficient to meet its financial liabilities due in less than one year. Net debt excluding IFRS 16 amounted to €17.0 million as of December 31, 2020, compared to €83.1 million as of December 31, 2019. 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 depo- sits, management considers that there will be 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 6.1% of consolidated revenues in 2020 (2019: 5.6%). 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, 2020 this amounted to €81.7 million (2019: €83.9 million).