Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Financial risk management

v3.24.1.1.u2
Financial risk management
 12 Months Ended
Dec. 31, 2023
Disclosure of nature and extent of risks arising from financial instruments [abstract]  
Financial risk management 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.
Risk Exposure arising from Measurement Management
Market risk – interest rate risk Long-term borrowings at variable rates Sensitivity analysis Economic hedge with an interest rate cap
Market risk – investments price risk Investments in equity securities Sensitivity analysis Monitoring quarterly valuation updates and forecasts of future cash flows
Market risk – commodities price risk Derivative liabilities Maturity profile and coverage Increase supply of renewable electricity via fixed price PPAs
Credit risk Cash and cash equivalents, trade receivables, derivative financial instruments and contract assets Aging analysis Doing business with creditworthy companies and a strict policy of cash collection.
Liquidity risk Borrowings and other liabilities Cash flow forecasts Availability of borrowing facilities.
The Group’s management oversees the management of these risks. The Group’s management is supported by the Finance department that advises on financial risks and the appropriate financial risk governance framework for the Group. The Group’s risk management is predominantly controlled by the Finance department under policies approved by the Executive Board. The Executive Board provides 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. Since the largest part of the Group’s assets, liabilities, and transactions are denominated in euro, the market risk of foreign exchange is considered not to be significant. There are no changes compared to the previous period.
Market risk
Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from a long-term borrowing with a variable rate, which exposes the Group to cash flow interest rate risk. The cash flow risk is mitigated through the usage of interest rate caps. During the years ended December 31, 2023 and 2022, the Group’s borrowings at a variable rate were denominated in euro.
The Group’s borrowings are carried at amortized cost.
As at December 31, 2023, approximately 0% of the Group’s borrowings are at a fixed rate of interest (December 31, 2022: 0%). An analysis by maturities is provided below in section "Maturities of financial liabilities" of this note.
Instruments used by the Group
The Group has two interest rate caps in place with a notional of €240,500 thousand (December 31, 2022: two interest rate cap with a notional of €181,486.5 thousand) which mature in December 2027 (December 31, 2022: in December 2027). As at December 31, 2023, the interest rate caps cover approximately 67% (December 31, 2022: 65%) of the variable loan principal outstanding. The notional of the derivative instruments is based on the principal of the debt and changes over time in order for the interest rate caps to mitigate at least 65% (2022: 65%) of the variable debt outstanding. According to the contract and as the loan is almost fully drawn, the notional of the interest rate cap will remain €240,500 thousand until the maturity of the agreement. Specifically, the strike price is linked to Euribor and was 3.43% at the end of 2023 (2022: 1.50%). The strike price will be 2.97% at the end of 2024, 2.64% at the end of 2025, 2.63% at the end of 2026 and 2.62% at the end of 2027. The remaining cash flow risk is accepted.
The interest rate caps require settlement of any interest receivable, if applicable, semiannually. The settlement dates coincide with the dates on which interest is payable on the renewed facility.
Sensitivity
The consolidated statement of profit or loss is sensitive to higher/lower interest expenses from borrowings as a result of changes in interest rates as the Group’s bank facilities have a variable interest rate. Equity is not impacted as no hedge accounting is applied. Additionally, an increase or decrease of the Euribor has an impact on the fair value of the Group’s
interest rate caps. The impact on the loss for the years ended December 31, 2023 and 2022 as a result of a change in interest rates is as follows:
(in €‘000) Impact on pre-tax loss
2023 2022
Interest rates – increase by 10 basis points*
 309  586 
Interest rates – decrease by 10 basis points*
 (346) (629)
*Keeping all other variables constant.
Global regulators and central banks have been driving international efforts to reform key benchmark interest rates. The market is therefore in transition to alternative risk-free reference rates. Although limited impact is expected on the Euribor, the Group monitors the implications of such a phase out and the market developments. The Group has no interest rate hedging relationships which are affected by the reform and does not expect any significant impact on existing contracts due to a change in the interest rates.
Investments price risk
Exposure
The Group’s exposure to equity securities price risk arises from investments held by the group and classified in the consolidated statement of financial position as at fair value through other comprehensive income (FVOCI) as detailed in Note 19. The price risk is mitigated by monitoring quarterly valuation updates and forecasts of future cash flows and aligning the business strategy accordingly.
Sensitivity
The table below summarizes the impact of increases/decreases of the price of equity securities acquired in 2022 on the group’s equity through OCI reserve for the period. The analysis is based on the assumption that the fair value of the equity securities held by the group has increased or decreased by 40%, with all other variables held constant.
(in €‘000) Impact on Group's equity
2023 2022
Fair Value – increase by 4,000 basis points
 6,623  12,556 
Fair Value – decrease by 4,000 basis points
 (6,623) (12,556)
Amounts recognized in other comprehensive income
The amounts recognized in other comprehensive income in relation to the investment in equity securities held by the group are disclosed in Note 19.
Commodities price risk
Exposure
The Group’s exposure to commodities price risk arises from fluctuations in the energy market prices. The Group concluded long-term fixed price PPAs for wind and solar energy, with the aim to cover at least 80% of the Group's electricity supply
with these agreements, in order to hedge against fluctuations in energy prices and secure a long-term and sustainable supply of renewable electricity. These agreements cover the period until the end of 2035.
During the year ended December 31, 2023 the Group has covered 52% of the total electricity consumption in the Netherlands and Germany with the supply from PPAs. The average market prices of renewable electricity were €96 and €95 per MWh in the Netherlands and Germany respectively.
Analysis
The table below summarizes the contractual electricity supply profile (P50) from all PPAs at Allego as at December 31, 2023, resulting in an average expected annual coverage of 25% of the total Group electricity supply till the end of 2035:
Contractual electricity production
(in GWh) Total Less
than 12
months		 1–5
years		 More
than 5
years
The Netherlands 2,419 142 1,000 1,277
Germany 880 5 361 514
Average expected coverage
 25% 77% 56% 17%
The Group is also exposed to the risk of the market prices being lower than the contractual prices, resulting in high electricity costs for the Group. In this case cost of electricity purchased under the PPAs could be passed on to EV customers.
Credit risk
The Group is exposed to credit risk from its operating activities (primarily trade receivables and contract assets) and from its financing activities, including deposits with banks.
Risk management
Credit risk is managed on a Group basis. The Group is doing business with creditworthy companies and has a strict policy of cash collection.
Customer credit risk is managed by the Finance department subject to the Group’s established policy, procedures and control relating to customer credit risk management. The credit quality of customers is assessed, taking into account its financial position, past experience and other factors. Outstanding customer receivables and contract assets are regularly monitored, and any major orders are generally covered by prepayments or other forms of credit insurance obtained from reputable banks and other financial institutions.
At December 31, 2023, the Group had 25 customers (December 31, 2022: 14) that owed the Group more than €470 thousand (December 31, 2022: €450 thousand) each and accounted for approximately 78% (December 31, 2022: 86%) of the total amount of trade receivables and contract assets. There were 2 customers (December 31, 2022: 3) with a balance greater than €4,700 thousand (December 31, 2022: €4,500 thousand) accounting for just over 32% (December 31, 2022: 49%) of the total amount of trade receivables and contract assets.
Impairment of financial assets
The Group has five types of financial assets that are subject to the expected credit loss (“ECL”) model:
•trade receivables;
•contract assets;
•pledged bank balances;
•security deposits;
•cash and cash equivalents.
While cash and cash equivalents, security deposits and pledged bank balances (refer to Note 22 and Note 19, respectively) are also subject to the impairment requirements of IFRS 9, no impairments were required to be recognized on these financial assets due to their definition of being subject to an insignificant risk of changes in value.
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets disclosed in Note 31.
The Group applies the IFRS 9 simplified approach to measuring ECLs which uses a lifetime expected loss allowance for all trade receivables and contract assets.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before December 31, 2023 and the corresponding historical credit losses experienced within this period. The Group has considered but not identified any forward-looking factors which require an adjustment of the historical loss rates based on expected changes in these factors.
On that basis, the loss allowance as at December 31, 2023 and December 31, 2022 was determined as follows for trade receivables and contract assets:
(in €‘000) Current 1 – 30
 days past
 due		 31 –60
 days past
 due		 61 –90
 days past
 due		 91+ days
 past due		 Total
As at December 31, 2022
Expected loss rate (in %) 0.00  % 0.00  % 0.00  % 0.00  % 0.00  %
Gross carrying amount – trade receivables 31,404  5,337  3,189  292  2,448  42,670 
Gross carrying amount – contract assets 1,512  —  —  —  —  1,512 
Loss allowance —  —  —  —  —  — 
As at December 31, 2023
Expected loss rate (in %) 0.00  % 0.00  % 0.00  % 0.00  % 0.00  %
Gross carrying amount – trade receivables 32,931  7,459  897  (5,280) 11,221  47,228 
Gross carrying amount – contract assets —  —  —  —  —  — 
Loss allowance —  —  —  —  —  — 
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 over 60 days past due.
For the loss allowances for trade receivables and contract assets for each period presented, refer to Note 20.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining availability under committed credit lines. The Group has been predominantly contracting customers of sound commercial standing and their payment behavior was generally good. Refer to Note 2.2 for details about the Group’s financial position and the going concern assumption applied in preparing the consolidated financial statements.
As disclosed in Note 19, the Group has pledged bank balances to secure the payment of interest and commitment fees to the Group’s external lenders and pledged bank balances in relation to bank guarantees issued to suppliers of the Group.
The main risk for the Group is not meeting the debt covenants or drawdown requirements described in Note 34. In this case, funding via the renewed facility would not be available. The Group monitors the liquidity risk on a weekly basis. Management monitors rolling forecasts of the Group’s cash and cash equivalents (Note 22) on the basis of expected cash flows. This is generally carried out at Group level, in accordance with practice and limits set by the Group. In addition, the Group’s liquidity management policy involves projecting cash flows 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. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.
Financing arrangements
The Group had access to the following undrawn borrowing facilities for each reporting period presented:
(in €‘000) December 31, 2023 December 31, 2022
Expiring beyond one year—renewed facility 8,390  120,790 
As indicated in Note 25, the Group has refinanced its old facility in December 2022. The renewed facility is available to be drawn if the drawdown covenants are met, in euros and has an average maturity of approximately 5 years (December 31, 2022: 5 years).
As at December 31, 2023, €8,390 thousand of the undrawn facilities relate to undrawn capital expenditures facility.
Maturities of financial liabilities
The table below analyzes the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities. The table includes both non-derivative and derivative financial liabilities.
The amounts disclosed in the table are the contractual undiscounted cash flows (including interest payments). Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
Contractual cash flows
(in €‘000) Carrying
amount of
liabilities		 Total Less
than 6
months		 6–12
months		 1–2
years		 2–5 years More
than 5
years
As at December 31, 2022
Borrowings 269,033  501,004  9,441  13,925  27,802  449,836  — 
Lease liabilities 51,324  71,097  4,546  4,828  8,891  18,916  33,916 
Trade and other payables 51,263  51,263  51,263  —  —  —  — 
Warrant liabilities 1,296  1,296  1,296  —  —  —  — 
Total 372,916  624,660  66,546  18,753  36,693  468,752  33,916 
As at December 31, 2023
Borrowings 350,722  479,082  27,198  13,039  22,529  416,316  — 
Lease liabilities 83,490  127,101  6,121  6,458  12,841  26,234  75,447 
Trade and other payables 74,213  74,213  74,213  —  —  —  — 
Warrant liabilities —  —  —  —  —  —  — 
Derivative liabilities 7,442  100,214  1,378  1,410  9,949  28,904  58,573 
Total 515,867  780,610  108,910  20,907  45,319  471,454  134,020