Livable cities 2021 Annual Report

4.9
9. Net debt and equity

This note provides information on the contractual terms and conditions of the outstanding interest-bearing loans, other borrowings and net debt components and equity.

9.1 Net debt

9.1.1 Borrowings

1) This is the interest rate at 31 December 2021. Each quarter the interest rate is determined based on the terms and conditions.

Other borrowings

In December 2016, Accell Group entered into a financing agreement for its Lapierre Experience Centre, which is a secured loan (mortgage) of € 1.3 million as at 31 December 2021 (2020: € 1.5 million). In April 2020, Lapierre borrowed € 5.0 million under the French COVID-19 relief programme for a tenor of one year which has been fully redeemed in 2021. In September 2020, Wiener Bike Parts borrowed € 1.0 million under a German sustainability programme for a tenor of four years at 31 December 2021 € 0.7 million (2020: € 0.9 million). In addition, since 2017 Accell Group has maintained its Turkish revolving credit facilities, which qualify as carve-out and permitted financial indebtedness in the Group financing agreement of € 8.9 million (2020: € 8.2 million).

Borrowings under Group financing agreement

In 2017, Accell Group entered into a financing agreement with a syndicate of six banks for the financing of the group. The banks participating in the syndicate are ABN AMRO Bank, BNP Paribas, Deutsche Bank, HSBC, ING Bank and Rabobank. The financing is unsecured and at 31 December 2021 consisted of € 125 million in term loans and a revolving credit facility ("RCF") of € 275 million (working capital financing). An optional (uncommitted) accordion facility for the remaining sum of € 100 million forms part of the existing financing agreement.

After Accell Group exercised the extension option in 2018 and 2019 the finance agreement expires in March 2024.

In March 2020, Accell Group increased the term loan facility by drawing € 50 million under the uncommitted accordion facility (increasing the term loan facility to € 125 million and reducing the accordion facility to € 100 million).

In June 2020, Accell Group entered into an amendment to the existing facilities agreement with its syndicate of banks. In addition, five syndicate banks provided Accell Group with an additional two-year amortizing term loan facility of € 115 million for the period from 30 June 2020 through 30 June 2022. The facility was drawn in June 2020 (€ 60 million) and in March 2021 (€ 55 million). This additional facility of € 115 million (“GO-C facility”) was for 80% backed by a Dutch state guarantee in favour of the banks under the so-called GO-C scheme. Furthermore, the existing seasonal revolving credit facility of € 100 million, normally available from 1 December each year till 15 July next year, was amended so that it would remain available during the entire calendar year 2020. 
In June 2021 (€ 23 million) and September 2021 (€ 23 million) contractual repayments were made under the GO-C facility and in December 2021 the remainder (€ 69 million) was fully repaid.

As a result, Accell went back to the pre-COVID 19 covenants and restrictions, such as on dividend payments, were lifted. Consistent with the change in seasonal patterns, Accell Group also reached agreement with its bank consortium to change its existing RCF arrangement from seasonal to full year availability for the term remaining.

In 2020 the margins on all existing facilities were increased by 30 bps; an extra increase of 10 bps applies to the seasonal RCF. The margins on all existing facilities were decreased by 30 bps as a result of the repayment of the GO-C facility in December 2021. 

According to the GO-C facility, no cash dividend distributions shall be made, unless: (i) the GO-C facility is repaid and cancelled and the original financial covenants that applied prior to June 2020 are complied with; or (ii) each member of the bank syndicate consents to the distribution, such consent not to be unreasonably withheld (it being understood that the withholding of such consent will be deemed to be unreasonable where the GO-C facility is not repaid but the original financial covenants that applied prior to June 2020 are complied with, and Accell Group provides evidence that it has sufficient liquidity to meet its payment obligations in respect of the GO-C facility after the distribution). 

All restrictions have been lifted as a result of the repayment of the GO-C facility in December 2021. Also the positive pledge has been released in January 2022 by the banking syndicate on receivables (including trade and intercompany receivables), inventory, IP, brand names, bank accounts, and other assets of Accell Group's Dutch and German subsidiaries as a result of the repayment of the GO-C facility.

Terms and conditions

Between January 2021 and 30 December 2021 following covenants were applicable::

1. The term loan (including the GO-C facility) leverage ratio has been waived for five consecutive quarters, starting 30 June 2020 and ending and including 30 June 2021; this ratio shall not exceed:
    • 4.64 in the 12-month period expiring 30 September 2021;
    • 3.11 in the 12-month period expiring 31 December 2021;
    • 2.50 in each 12-month periods expiring after 31 December 2021 (which was the original ratio).
 
2. The solvency ratio has been amended; this ratio shall be greater than:
    • 15.0% for the testing dates 30 June 2020 and 31 December 2020;
    • 16.2% for the testing date 30 June 2021;
    • 18.6% for the testing date 31 December 2021;
    • 25.0% for the testing dates after 31 December 2021 (which was the original ratio; testing takes place on a half-yearly basis over the previous twelve months on 30 June and 31 December).
 
3. The borrowing reference remains in place and is unchanged. The borrowing reference states that the net debt, after deduction of the outstanding amounts under the term loan (including Schuldschein and GO-C facility) and the working capital financing used for approved acquisitions, may not exceed the lowest of:
    a. The sum of:
        i. the highest of 50% of the carrying amount of the qualifying inventories minus the total trade creditors of Accell Group and zero; and
       ii. 65% of the carrying amount of the qualifying trade debtors;
    b. The revolving credit facility commitment made available under the financing agreement.

In addition, the following temporary covenants have been agreed upon:
 
1. Normalized EBITDA shall not be lower than:
    -/- € 30.0 million in the 12-month period expiring 30 June 2020;
    -/- € 58.9 million in the 12-month period expiring 30 September 2020;
    -/- € 70.6 million in the 12-month period expiring 31 December 2020;
    -/- € 51.4 million in the 12-month period expiring 31 March 2021;
    + € 5.6 million in the 12-month period expiring 30 June 2021.
 
2. The liquidity (cash and available, undrawn commitments) shall not be less than € 25 million during the period through 31 March 2022 and as long as any amount under the GO-C facility is outstanding is to be tested on a quarterly basis.

As a result of the repayment of the GO-C on 31 December 2021 Accell went back to its pre-COVID 19 covenants:

• The term loan leverage ratio: Outstandings/EBITDA in respect of any relevant period shall be equal to or less than 2.50:1;
• Solvency: solvency in respect of any relevant period ending on 30 June and 31 December of each financial year of the Company shall be greater than 25% ;
• Borrowing Reference: The Aggregate Outstandings as at the end of any financial quarter of the Company shall not exceed the Borrowing Reference as at the end of any such financial quarter.

Term loan leverage ratio
The term loan leverage is determined by dividing the designated outstanding loans under the financing agreement by normalized EBITDA. The 'designated loans outstanding under the financing agreement' include the outstanding amounts under the € 125 million term loan (including Schuldschein) and the working capital financing insofar as used for the acquisition of companies (excluding acquired working capital). The latter is permitted with the approval of the bank syndicate. The GO-C loan was included in the designated loans outstanding from June 2020 until full repayment took place in December 2021.

EBITDA
EBITDA is the result from operating activities (EBIT) plus the amount of the amortization and depreciations on assets and the share in the result of non-consolidated participating interests. Normalized EBITDA is, with respect to a certain period, the EBITDA in that period adjusted for:

• EBITDA of acquired companies during the relevant period for the part of that period prior to the time of acquisition;
• EBITDA attributable to a group company (or any part of Accell Group) sold during the relevant period for the part prior to the date of sale;
• any exceptional, one off, non-recurring and extraordinary items which represent gains or losses including those arising on: 
  • the restructuring of the activities of an entity and reversals of any provisions for the cost of restructuring;
  • disposals, revaluations, write downs or impairment of non-current assets or any reversal of any write down or impairment; and
  • disposals of assets associated with discontinued operations.

Solvency ratio
The solvency ratio is determined by net assets divided by balance sheet total, both adjusted for right-of-use assets, intangible assets and related deferred taxes. Solvency ratio may not be less than or equal to 25% (tested on a half-yearly basis over the previous twelve months).

Borrowing reference
The borrowing reference states that the net debt, after deduction of the outstanding amounts under the term loan (including Schuldschein), per 31 December 2021 € 125 million and the working capital financing used for approved acquisitions, may not exceed the lowest of:
    a. The sum of:
        i. the highest of 50% of the carrying amount of the qualifying inventories minus the total trade creditors of Accell Group and zero; and
       ii. 65% of the carrying amount of the qualifying trade debtors;
    b. The revolving credit facility commitment made available under the financing agreement.

Accell Group complied with the financial covenants in the group financing agreement as of 31 December 2021 and as of all earlier test dates.

Reconciliation of movements in borrowings to cash flows arising from financing activities 2021

Reconciliation of movements in borrowings to cash flows arising from financing activities 2020

Accounting policy

Borrowings are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these borrowings are measured at amortized cost using the effective interest method. Revolving credit facilities, bank overdrafts and cash and cash equivalents are initially recognized at fair value and subsequently at amortized cost.

9.1.2 Bank overdrafts, cash and cash equivalents

Accell Group's centralized cash management, including foreign exchange management, is executed using cash pools, cash and bank overdrafts. Term loans and revolving credit facilities are held for financing purposes. The centralized cash management aims to optimize the cash allocation within Accell Group, where excess cash in one entity is made available to be used in another entity.

Cash pools are an important element of cash management. The cash pools are made available by banks that participate in the syndicate that provides the group financing. The cash pools consist of a large number of bank accounts with fluctuating balances per account. On a monthly basis, different bank accounts form the (gross) credit balance and (gross) debit balance per cash pool. The net balance of a single cash pool, if overdrawn, reduces the available amount from the revolving credit facility, has the same conditions as the revolving credit facility. As a result, cash pools are of a hybrid nature; on the one hand they are a cash management tool and on the other hand they have a bridging nature at specific times.

In addition to the cash pools, Accell Group has other regular bank accounts and bank overdrafts at its disposal. However, these accounts only represent a limited part of the net cash balance. One part of the bank accounts and bank overdrafts are with banks from the syndicate that provide the group financing; the other part is with local banks for specific purposes.

9.1.3 Lease liabilities

The corresponding right-of-use assets are disclosed in note 10.2.

The cash flows from the following items are not included in the lease liabilities at 31 December:

The following costs related to leases are included in the consolidated income statement:

Accounting estimates and judgements

Accell Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The lease term includes periods covered by an option to extend or to terminate early if Accell Group is reasonably certain to exercise that option. The incremental borrowing rate is determined each quarter based on current market interest rates per lease term and lease currency adjusted for Accell Group's annual budgeted loan spread, because all Accell Group financing is coordinated centrally.

Accounting policy

A right-of-use asset and a lease liability are recognized at the lease commencement date. The lease liability is initially measured at the present value of the lease payments that have not been paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, Accell Group’s incremental borrowing rate. Generally, the incremental borrowing rate (IBR) is used as the discount rate. The lease liability is subsequently measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from among other things a change in an index or rate, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or if the carrying amount of the right-of-use asset is reduced to zero an impairment loss is recognized in profit or loss.

9.2 Equity

The consolidated equity is equal to the equity in the company financial statements. The notes and movement schedules of equity are included in the company financial statements (see note 19.4).

Capital management
There were no major changes in Accell Group's approach to capital management in the year under review. The Board of Management's policy is to maintain a strong capital base, to maintain investor, creditor and market confidence and to sustain the future development of the business. Management monitors the return on capital and the level of dividends to ordinary shareholders.

To achieve this overall objective, Accell Group’s capital management aims, among other things, to ensure that the company meets financial covenants attached to borrowings that define capital structure requirements. Accell Group complied with the financial covenants in the group financing agreement as of 31 December 2021 and as of all earlier test dates.

Accounting policy

Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity. Income tax relating to the transaction costs of an equity transaction are accounted for in accordance with IAS 12.

9.3 Net finance cost

The currency results increased in 2021 compared to 2020 mainly due to the depreciation of the Turkish Lira. In 2020 the currency results included a positive effect for the reclassification of the foreign currency translation reserve of € 1.3 million upon the liquidation of Accell North America. The policy on interest and currency risks is covered in note 13.

Accounting policy

Interest income or expenses are recognized as they accrue, using the effective interest method. Dividend income is recognized in profit or loss on the date that Accell Group’s right to receive payment is established.