23. Financial Instruments and Financial Risk Management (Group and RTÉ)

(a) Overview of financial risk management

(i) Risk environment

The Group has exposure to the financial risks relating to credit, liquidity, foreign exchange, interest rate and operational risk.

The Board of RTÉ has overall responsibility for the establishment and oversight of the Group’s risk-management framework and has approved policies for the main areas of financial risk faced by the Group. Group Treasury is responsible for managing all treasury activities, in accordance with the treasury policies, including cash management, interest rate risk, liquidity risk, foreign exchange risk and counterparty credit risk.

The majority of RTÉ’s business is transacted in Ireland. Consequently, operating and investing cash flows are substantially denominated in euro. Foreign currency exposures arise primarily from payments for acquired programmes in US dollar and sterling. RTÉ’s policy is to have the majority of its committed principal foreign currency exposures commercially hedged at the beginning of each financial year by entering into US dollar and sterling forward contracts. All foreign currency forward contracts have a maturity date of less than 16 months from the 31 December 2020. These foreign currency forward contracts are not specifically designated into hedge relationships from an accounting perspective, but are nevertheless valid economic hedges.

Financial instruments are derecognised on settlement or sale.

(ii) Financial instruments classification

All financial assets and liabilities, excluding provisions and employee-related liabilities, are financial instruments carried at amortised cost, with the exception of the derivative assets/(liabilities), which are categorised as follows:

	Derivative financial instruments at fair value through Income Statement		Derivative financial instruments with hedging relationship		Assets/(liabilities) held at amortised cost		Total
GROUP	2020	2019	2020	2019	2020	2019	2020	2019
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
Non-Current Financial Assets
Financial assets	-	-	-	-	582	346	582	346
Total Non-Current Financial Assets	-	-	-	-	582	346	582	346
Current Financial Assets
Trade and other receivables	-	-	-	-	45,077	40,515	45,077	40,515
Liquid investments	-	-	-	-	10,000	29,000	10,000	29,000
Cash and cash equivalents	-	-	-	-	77,165	40,149	77,165	40,149
Derivative financial instruments	3	326	-	-	-	-	3	326
Total Current Financial Assets	3	326	-	-	132,242	109,664	132,245	109,990
Total Financial Assets	3	326	-	-	132,824	110,010	132,827	110,336
Non-Current Financial Liabilities
Interest-bearing loans and borrowings	-	-	-	-	(65,000)	(60,000)	(65,000)	(60,000)
Employee benefits	-	-	-	-	(8,852)	(11,557)	(8,852)	(11,557)
Capital grants	-	-	-	-	(4,408)	(4,518)	(4,408)	(4,518)
Lease Liability	-	-	-	-	(1,972)	(2,688)	(1,972)	(2,688)
Trade and other payables	-	-	-	-	(4,560)	(2,533)	(4,560)	(2,533)
Derivative financial instruments	(79)	(10)	-	-	-	-	(79)	(10)
Total Non-Current Financial Liabilities	(79)	(10)	-	-	(84,792)	(81,296)	(84,871)	(81,306)
Current Financial Liabilities
Trade and other payables	-	-	-	-	(77,038)	(85,230)	(77,038)	(85,230)
Interest-bearing loans and borrowings	-	-	-	-	-	-	-	-
Employee benefits	-	-	-	-	(20,473)	(10,655)	(20,473)	(10,655)
Capital grants	-	-	-	-	(403)	(3,386)	(403)	(3,386)
Lease Liability	-	-	-	-	(467)	(436)	(467)	(436)
Derivative financial instruments	(341)	-	-	-	-	-	(341)	-
Total Current Financial Liabilities	(341)	-	-	-	(98,381)	(99,707)	(98,722)	(99,707)
Total Financial Liabilities	(420)	(10)	-	-	(183,173)	(181,003)	(183,593)	(181,013)

	Derivative financial instruments at fair value through Income Statement		Derivative financial instruments with hedging relationship		Assets/(liabilities) held at amortised cost		Total
RTÉ	2020	2019	2020	2019	2020	2019	2020	2019
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
Current Financial Assets
Trade and other receivables	-	-	-	-	39,227	33,674	39,227	33,674
Liquid investments	-	-	-	-	10,000	29,000	10,000	29,000
Cash and cash equivalents	-	-	-	-	64,487	33,194	64,487	33,194
Derivative financial instruments	3	326	-	-	-	-	3	326
Total Current Financial Assets	3	326	-	-	113,714	95,868	113,717	96,194
Total Financial Assets	3	326	-	-	113,714	95,868	113,717	96,194
Non-Current Financial Liabilities
Interest-bearing loans and borrowings	-	-	-	-	(10,000)	(5,000)	(10,000)	(5,000)
Employee benefits	-	-	-	-	(8,679)	(11,413)	(8,679)	(11,413)
Lease Liability	-	-	-	-	(657)	(1,146)	(657)	(1,146)
Trade and other payables	-	-	-	-	(4,560)	(2,533)	(4,560)	(2,533)
Derivative financial instruments	(79)	(10)	-	-	-	-	(79)	(10)
Total Non-Current Financial Liabilities	(79)	(10)	-	-	(23,896)	(20,092)	(23,975)	(20,102)
Current Financial Liabilities
Trade and other payables	-	-	-	-	(257,695)	(261,200)	(257,695)	(261,200)
Interest-bearing loans and borrowings	-	-	-	-	-	-	-	-
Employee benefits	-	-	-	-	(20,404)	(10,613)	(20,404)	(10,613)
Lease Liability	-	-	-	-	(241)	(214)	(241)	(214)
Derivative financial instruments	(341)	-	-	-	-	-	(341)	-
Total Current Financial Liabilities	(341)	-	-	-	(278,340)	(272,027)	(278,681)	(272,027)
Total Financial Liabilities	(420)	(10)	-	-	(302,236)	(292,119)	(302,656)	(292,129)

The foreign exchange forward contracts are financial instruments measured at fair value through the surplus or deficit.

(b) Credit risk

Overview

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

		Group carrying amount		RTÉ carrying amount
	Notes	2020	2019	2020	2019
		€’000	€’000	€’000	€’000
Trade receivables	12	45,038	40,252	39,189	33,410
Liquid investments	13	10,000	29,000	10,000	29,000
Cash and cash equivalents	14	77,165	40,149	64,487	33,194
Derivative financial instruments		3	326	3	326
		132,206	109,727	113,679	95,930

The Group has detailed procedures for monitoring and managing the credit risk related to its financial assets as outlined below.

Treasury-related credit risk

The Group is exposed to credit risk from the counterparties with whom it holds its bank accounts and transacts with in the financial markets. Liquid investments, cash and cash equivalents, and derivative financial instruments are all held by financial counterparties which have a minimum credit rating of BBB+ under the Standard & Poor’s rating.

Liquid investments and cash and cash equivalents are primarily funds invested with Irish financial institutions with limits on amounts held with individual banks or institutions at any one time. Derivative financial instruments are held with Irish and UK financial institutions and the Group has not experienced any losses due to failure of such counterparties to deliver on their obligations.

Customer credit risk

The Group has credit insurance and sets credit limits for all customers. Given the nature of the advertising and other markets within which RTÉ operates, RTÉ had significant exposures to individual advertising agencies and other customers throughout the year. RTÉ’s policy is to assign limits to the aggregate amount of exposure to each individual customer. These exposures and the related limits are subject to ongoing review and monitoring.

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

	Group carrying amount		RTÉ carrying amount
	2020	2019	2020	2019
	€’000	€’000	€’000	€’000
Ireland	43,357	38,120	37,728	32,022
United Kingdom	1,587	2,062	1,458	1,280
Other regions	94	70	3	108
Trade Receivables	45,038	40,252	39,189	33,410

The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:

	Group carrying amount		RTÉ carrying amount
	2020	2019	2020	2019
	€’000	€’000	€’000	€’000
Non-agency debtors	10,381	13,526	5,803	7,975
Other debtors – agency	34,657	26,726	33,386	25,435
Trade Receivables	45,038	40,252	39,189	33,410

An agency debtor represents an advertising agent or agency, being a person, firm or company, which selects or books advertising space on behalf of the advertiser.

The Group’s most significant debtor, an Irish company, accounts for €5.03 million (11%) of the trade receivables carrying amount at 31 December 2020 (2019: €3.7 million).

The ageing of trade receivables at the reporting date was:

		Group			RTÉ
	Gross	Impairment	Net	Gross	Impairment	Net
	2020	2020	2020	2020	2020	2020
	€’000	€’000	€’000	€’000	€’000	€’000
Not past due	19,119	-	19,119	17,794	-	17,794
Past due 0–30 days	21,125	(258)	20,867	17,555	(33)	17,522
Past due 31–120 days	4,783	(440)	4,343	3,758	(392)	3,366
Greater than 120 days	1,262	(553)	709	880	(373)	507
	46,289	(1,251)	45,038	39,987	(798)	39,189

		Group			RTÉ
	Gross	Impairment	Net	Gross	Impairment	Net
	2019	2019	2019	2019	2019	2019
	€’000	€’000	€’000	€’000	€’000	€’000
Not past due	20,719	-	20,719	17,278	-	17,278
Past due 0–30 days	16,750	(531)	16,219	13,591	(288)	13,303
Past due 31–120 days	2,780	(329)	2,451	2,352	(227)	2,125
Greater than 120 days	1,254	(391)	863	986	(282)	704
	41,503	(1,251)	40,252	34,207	(797)	33,410

The movement in the allowance for impairment in respect of trade receivables during the year was:

	Group		RTÉ
	2020	2019	2020	2019
	€’000	€’000	€’000	€’000
Balance at 1 January	1,251	1,435	798	842
(Released)/provided during the year	-	(40)	-	100
Bad debts written off in the year	-	(144)	-	(144)
Balance at 31 December	1,251	1,251	798	798

No credit exposure is perceived in relation to prepayments.

(c) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. RTÉ’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its financial liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The following tables set out the contractual maturities of financial liabilities, including interest payments associated with borrowings and the undiscounted net cash flows attributable to derivative financial instruments.

The following are the contractual maturities of financial liabilities:

31-Dec-20	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years	More than 5 years
Group	€’000	€’000	€’000	€’000	€’000	€’000
Interest-bearing loans and borrowings	65,000	68,538	782	2,265	22,952	42,539
Derivative financial instruments	420	420	341	79	-	-
Trade and other payables	81,598	81,598	77,038	4,560	-	-
Employee benefits	29,325	29,345	20,473	2,648	2,839	3,385
	176,343	179,901	98,634	9,552	25,791	45,924

31-Dec-19	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years	More than 5 years
Group	€’000	€’000	€’000	€’000	€’000	€’000
Interest-bearing loans and borrowings	60,000	63,924	702	692	14,480	48,050
Derivative financial instruments	10	10	-	10	-	-
Trade and other payables	87,763	87,763	85,230	2,533	-	-
Employee benefits	22,212	22,303	10,655	7,803	1,040	2,805
	169,985	174,000	96,587	11,038	15,520	50,855

The following are the contractual maturities of financial liabilities (excluding inter-company liabilities):

31-Dec-20	Carrying amount	Contractual cash flows	Within 1 year	1-2 years	2-5 years	More than 5 years
RTÉ	€’000	€’000	€’000	€’000	€’000	€’000
Interest-bearing loans and borrowings	10,000	10,595	157	1,652	8,786	-
Derivative financial instruments	420	420	341	79	-	-
Trade and other payables	262,255	262,255	257,695	4,560	-	-
Employee benefits	29,083	29,099	20,404	2,639	2,817	3,239
	301,758	302,369	278,597	8,929	11,603	3,239

31-Dec-19	Carrying amount	Contractual cash flows	Within 1 year	1-2 years	2-5 years	More than 5 years
RTÉ	€’000	€’000	€’000	€’000	€’000	€’000
Interest-bearing loans and borrowings	5,000	5,359	79	78	5,202	-
Derivative financial instruments	10	10	-	10	-	-
Trade and other payables	263,733	263,733	261,200	2,533	-	-
Employee benefits	22,026	22,113	10,613	7,794	1,013	2,693
	290,769	291,215	271,892	10,415	6,215	2,693

As disclosed in note 15, the Group has a term loan and revolving credit facility with Bank of Ireland and a project loan and term loan club facility with Barclays Bank PLC and Bank of Ireland. Both of these facilities have loan covenants which, if breached in the future, may require the Group, or company, to repay the loans earlier than indicated in the above tables. The interest payments in the tables above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change. Except for the interest-bearing loans and borrowings, it is not expected that the cash flows included in the maturity analysis above could occur significantly earlier or at significantly different amounts.

At 31 December 2020, RTÉ had an undrawn overdraft facility of €10 million in place and an undrawn term loan of €5 million and an undrawn revolving credit facility of €10 million.

(d) Currency risk

The functional currency of all Group entities is euro. Due to the nature of certain aspects of its business, in particular acquired television programmes and rights from overseas, RTÉ is exposed to the effects of fluctuations in foreign currency exchange rates. The currencies that give rise to this risk are US dollar and sterling.

The Group and RTÉ primarily use foreign currency forward contracts to economically hedge its currency risk. Changes in the fair value of foreign currency forward contracts are recognised in the Income Statement. At 31 December 2020, the fair value of the associated derivative asset was €3,000 and derivative liability was €341,000 (2019: asset of €326,000).

The Group and RTÉ hedge a minimum of 60% of its budgeted foreign currency exposure in respect of acquired television programmes and rights from overseas.

The Group and Company did not have any material foreign currency denominated monetary assets at 31 December 2020 or 2019.

RTÉ had no financial liabilities denominated in foreign currencies except for those outlined in the following tables.

Breakdown of trade payables by currency

	2020	2019
	€’000	€’000
Group
Euro	4,950	6,390
GBP	80	116
USD	126	34
Other	34	27
	5,190	6,567

Breakdown of trade payables by currency

	2020	2019
	€’000	€’000
RTÉ
Euro	4,075	6,064
GBP	67	115
USD	126	34
Other	34	26
	4,302	6,239

The following significant exchange rates applied during the year:

	Average rate		Reporting date spot rate
	2020	2019	2020	2019
EUR €1 = USD $	1.1422	1.1195	1.2271	1.1234
EUR €1 = GBP £	0.8897	0.8778	0.8990	0.8508

In managing currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Foreign currency forward purchase contracts are used by the Group to reduce volatility arising from these foreign currency exposures. As a result, the Group mitigates significant risk of movements in foreign exchange rates.

Group

A plus or minus change of 10% in relevant foreign currency exchange rates, based on outstanding foreign currency-denominated financial liabilities at 31 December 2020, would impact the Group’s Income Statement positively or negatively by up to €26,721 (31 December 2019: €19,515).

RTÉ

A plus or minus change of 10% in relevant foreign currency exchange rates, based on outstanding foreign currency-denominated financial liabilities at 31 December 2020, would impact RTÉ’s Income Statement positively or negatively by up to €25,215 (31 December 2019: €19,371).

(e) Interest rate risk

At 31 December 2020, the Group had total borrowings of €65.0 million (2019: €60.0 million).

On 6 December 2019, RTÉ entered into a new facility agreement with Bank of Ireland (BOI) amounting to €20 million for working capital purposes. The agreement includes a €10 million revolving credit facility which was undrawn as at 31 December 2020 and a term loan facility of €10 million which was fully drawn as at 31 December 2020.

On 1 February 2019, the Group entered into a project loan facility agreement, through its subsidiary 2rn, with Barclays Bank Ireland PLC and Bank of Ireland amounting to €60 million in aggregate, of which €55 million was drawn at 31 December 2020.

A 1% movement in the interest rate would have a positive or negative effect of €0.9 million on the Income Statement.

At the reporting date, the interest rate profile of RTÉ’s interest-bearing financial assets was:

	Carrying amount
Group	2020	2019
	€’000	€’000
Fixed Rate Instruments
Financial assets	38,000	29,000
Variable Rate Instruments
Financial assets	49,165	40,149

	Carrying amount
RTÉ	2020	2019
	€’000	€’000
Fixed Rate Instruments
Financial assets	38,000	29,000
Variable Rate Instruments
Financial assets	36,487	33,194

A 1% movement in the interest rate on RTÉ’s interest-bearing financial assets would have a positive or negative effect on the Income Statement of €0.7 million (net of tax).

(f) Fair values

The following table shows the fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Group 1	Carrying amount 2020 €’million	Fair value level 2 2020 €’million	Carrying amount 2019 €’million	Fair value level 2 2019 €’million
Financial assets measured at fair value
Forward exchange contracts	-	-	0.3	0.3
Financial liabilities measured at fair value
Forward exchange contracts	0.4	0.4	-	-
Financial liabilities not measured at fair value
Interest-bearing loans and borrowings	65.0	65.0	60.0	60.0

RTÉ 1	Carrying amount 2020 €’million	Fair value level 2 2020 €’million	Carrying amount 2019 €’million	Fair value level 2 2019 €’million
Financial assets measured at fair value
Forward exchange contracts	-	-	0.3	0.3
Financial liabilities measured at fair value
Forward exchange contracts	0.4	0.4	-	-
Financial liabilities not measured at fair value
Interest-bearing loans and borrowings	10.0	10.0	5.0	5.0

1 The Group and RTÉ have not disclosed the fair values for financial instruments such as trade receivables, payables and employee benefits as their carrying amounts disclosed on page 138 and 139 are a reasonable approximation of fair values.

The fair value of derivative financial instruments was based on the fair value hierarchy. The fair value for foreign exchange forward contracts and the interest rate swap were calculated using the following valuation method:

Level 2: inputs, other than unadjusted quoted prices in active markets for identical assets and liabilities, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

The Level 2 valuation method and instruments valued using the method has not changed during this or the previous reporting period. There has been no transfer between levels in the fair value hierarchy.

The following tables show the valuation techniques used in measuring Level 2 fair values, as well as the significant unobservable inputs used.

Financial instruments measured at fair value

Type	Valuation technique	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurement
Derivative financial instruments	Market comparison technique: the fair values are based on quotes for similar contracts traded in an active market.	Not applicable	Not applicable

Financial instruments not measured at fair value

Type	Valuation technique	Significant unobservable inputs
Interest-bearing loans and borrowings	Discounted cash flows based on borrower quoted interest rates.	Not applicable

(g) Derivative financial instruments

The contractual cash flows associated with the derivative financial instruments are outlined below:

31-Dec-20	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years
	€’000	€’000	€’000	€’000	€’000
Group
Net derivative liabilities
Foreign exchange forward contracts (outflows)	(417)	(417)	(338)	(79)	-

31-Dec-20	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years
	€’000	€’000	€’000	€’000	€’000
RTÉ
Net derivative liabilities
Foreign exchange forward contracts (outflows)	(417)	(417)	(338)	(79)	-

31-Dec-19	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years
	€’000	€’000	€’000	€’000	€’000
Group
Net derivative assets
Foreign exchange forward contracts (outflows)	316	316	326	(10)	-

31-Dec-19	Carrying amount	Contractual cash flows	Within 1 year	1–2 years	2–5 years
	€’000	€’000	€’000	€’000	€’000
RTÉ
Net derivative assets
Foreign exchange forward contracts (outflows)	316	316	326	(10)	-

Any gains or losses arising from changes in the fair value of foreign exchange forward contracts are taken directly to the Income Statement.

At 31 December 2020, the Group had total borrowings of €65.0 million (2019: €60.0 million). The Group entered an interest rate swap on a €40 million facility to fix the variable rate on the 2014 borrowings until maturity in June 2019. At the inception of the hedge, the Group formally designated the hedge relationship. In 2019, the facility was re-financed and the hedge became ineffective.