Nufarm Limited – Annual report – 31 July 2018
31. Financial risk management and financial instruments (extract 1)
Liquidity risk (extract)
Debt facilities (extract)
On 23 August 2011, Nufarm executed a group trade receivables securitisation facility. The facility provides funding that aligns with the working capital cycle of the company. The facility limit varies on a monthly basis to reflect the cyclical nature of the trade receivables being used to secure funding under the program. The monthly facility limit is set at $375 million for five months of the financial year, $300 million for three months of the financial year, $275 million for one month of the financial year and $175 million for three months of the financial year (31 July 2017: facility limit is set at $300 million for four months of the financial year, $375 million for three months of the financial year, and at $225 million for five months of the financial year).
31. Financial risk management and financial instruments (extract 2)
Liquidity risk (extract)
The liquidity of the group is influenced by the terms suppliers extend in respect of purchases of goods and services. The determination of terms provided by suppliers is influenced by a variety of factors including supplier’s liquidity. Suppliers may engage financial institutions to facilitate the receipt of payments for goods and services from the group, which are often referred to as supplier financing arrangements. The group is aware that trade payables of $327.123 million at 31 July 2018 (2017: $255.838 million) are to be settled via such arrangements in future periods. In the event suppliers or financial institutions cease such arrangements the liquidity of the group’s suppliers may be affected. If suppliers subsequently seek to reduce terms on the group’s purchases of goods and services in the future, the group’s liquidity will be affected. Details of the group’s trade and other payables are disclosed in note 24.
To support the liquidity of the group and reduce the credit risk relating to specific customers, trade receivables held by the group are sold to third parties. The sales (or factoring) of receivables to third parties is primarily done on a non-recourse basis, and the group incurs a financing expense at the time of the sale. The group derecognises trade receivables where the terms of the sale allows for derecognition. At 31 July 2018 the group estimates $74.644 million (2017: $49.312 million) of derecognised trade receivables were being held by third parties. For clarity, the group trade receivables securitisation facility, noted above, has terms which does not allow the group to derecognise these trade receivables.