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Financial risk management
 12 Months Ended
Dec. 31, 2022
Financial instruments and risk management  
Financial risk management

29 Financial risk management

Overview

The Group has exposure to the following risks, related to financial instruments:

 
▪
Credit risk
     
 
▪
Liquidity risk
 
 
 
 
▪
Market risk
 
  This Note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing such risks, as well as the Group’s management of its capital. Further quantitative disclosures are included throughout the Financial Statements.
   
  In order to manage these risks and as described hereunder, the group executes from time to time transactions of derivative financial instruments.
   
  The CFO has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Company’s Board of Directors has appointed the Audit Committee to deal with, among other issues, certain financial reporting aspects of the Group’s activities and monitoring the Group’s hedging policies. The Company’s Chief Executive Officer also appointed an Investment Committee to monitor the Company’s investing activities and compliance with its investment policy. The Investment Committee, chaired by the Company’s Chief Executive Officer, provides periodical updates to the Company’s Audit Committee and Board of Directors on its activities.
(a) Financial risk
(1) Credit risk

Trade and other receivables

The Group’s exposure to credit risk is influenced by the individual characteristics of each significant customer. The demographics of the Group’s customer base, including the default risk of the industry and country, in which customers operate, has also an influence on credit risk.

The income of the Group is derived from cargo shipping and related services in different countries worldwide. The exposure to a concentration of credit risk with respect to trade receivables is limited due to the relatively large number of customers, wide geographic spread and the ability in some cases to auction the contents of the container, the value of which is most likely to be greater than the customer’s debt for the services provided with respect to such container.

The Group has established a credit policy under which each new credit customer is analyzed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes financial analysis from external sources. Credit limits are established for each customer, representing its maximum outstanding balance, available upon approval by the relevant level of authorization. These limits are reviewed periodically, at least once a year. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a cash basis.

Most of the Group’s customers have been transacting with the Group for a few years and losses have occurred infrequently. Trade and other receivables relate mainly to the Group’s wholesale customers. Customers that are graded as “high risk” are placed on a restricted customer list and future sales are made on a cash basis, unless otherwise approved by the credit committee.

In some cases, based on their robustness, customers are requested to provide guarantees.

Provisions for doubtful debts are made to reflect the expected credit losses related to debts whose collection is doubtful per management's estimation (see also Note 23(b)).

Investments

During the second half of 2021, the Company adopted a new investment policy in respect of its cash reserves, mainly comprised of investments in time deposits, fixed income instruments and liquidity funds, all of which denominated in US dollar, aiming to achieve diversification, while maintaining conservative credit risk, liquidity and capital preservation. According to such policy, the Company invests in Investment-Grade rated debt instruments, based on leading credit rating agencies. As of December 31, 2022, the weighted average duration of the Company’s investments in debt instruments was 2.2 years. The Company’s investment committee meets, at least on a quarterly basis, to review the performance of the portfolio managers, discuss market trends and investment outlook, while ensuring compliance with the Company’s investment policy.

Exposure to credit risk

Cash and cash equivalents and bank deposits – Deposits and cash balances at banks are primarily held at banks with a credit rating of at least BBB+.

Other investment instruments – carrying amount by credit rating:

   
2022
  
   
US $ in millions
  
AA- to AAA
    
986.9
  
A- to A+
    
295.6
  
BBB- to BBB+
    
248.7
  
Total Outstanding
    
1,531.2
  

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Trade receivables

 

The carrying amount of financial assets represents the maximum credit exposure.

 

As at December 31, 2022 credit to customers in the amount of approximately US$ 232.3 million is guaranteed by credit insurance.

(2) Liquidity risk

 

The Group monitors its level of cash and highly marketable investments to ensure sufficient liquidity to meet its obligations and expected needs, considering the Group’s short-term and long-term plans and forecasts.

 

The following are the contractual maturities of financial liabilities, including estimated interest payments:

?

         
December 31, 2022
  
         
Carrying
    
Contractual
                      
More than
  
         
amount
    
cash flows
    
0-1 years
    
1-2 years
    
2-5 years
    
5 years
  
   
Note
    
US $ in millions
  
Non-derivative financial liabilities
                                          
Long-term loans and other liabilities
  
12(a)
 
    
119.4
      
141.4
      
50.0
      
20.1
      
37.7
      
33.6
  
Lease liabilities
  
7(b)
 
    
4,159.5
      
4,770.7
      
1,654.6
      
1,429.3
      
1,536.5
      
150.3
  
Short-term borrowings
  
12(a)
 
    
53.0
      
53.0
      
53.0
                          
Trade and other payables
  
14
      
583.9
      
583.9
      
583.9
                          
           
4,915.8
      
5,549.0
      
2,341.5
      
1,449.4
      
1,574.2
      
183.9
  

   

         
December 31, 2021
  
         
Carrying
    
Contractual
                      
More than
  
         
amount
    
cash flows
    
0-1 years
    
1-2 years
    
2-5 years
    
5 years
  
   
Note
    
US $ in millions
  
Non-derivative financial liabilities
                                          
Long-term loans and other liabilities
  
12(a)
 
    
142.9
      
167.0
      
27.9
      
42.0
      
97.1
        
Lease liabilities
  
7
      
3,071.7
      
3,436.5
      
1,022.7
      
912.6
      
1,267.1
      
234.1
  
Short-term borrowings
  
12(a)
 
    
106.5
      
106.9
      
106.9
                          
Trade and other payables
  
14
      
534.4
      
534.4
      
534.4
                          
           
3,855.5
      
4,244.8
      
1,691.9
      
954.6
      
1,364.2
      
234.1
  
 
(3) Market risk
(i)  Currency risk

The Group is exposed to currency risk on purchases, receivables and payables where they are denominated in a currency other than the United States dollar.

The Group’s exposure to foreign currency risk was as follows based on notional amounts:

   
December 31, 2022
  
   
US$
    
NIS
    
Others
  
   
US $ in millions
    
US $ in millions
    
US $ in millions
  
Non-current assets
                  
Other receivables
    
110.9
            
1.2
  
Other non-current investments
    
1,370.5
      
1.2
      
1.5
  
                         
Current assets
                        
Other current investments
    
2,221.7
      
0.1
      
11.2
  
Trade and other receivables
    
693.7
      
0.8
      
92.0
  
Cash and cash equivalents
    
930.0
      
11.7
      
80.4
  
                         
Non-current liabilities
                        
Loans and other liabilities
    
(89.0
)
            
(3.0
)
Lease liabilities
    
(2,749.0
)
    
(9.7
)
    
(20.0
)
                         
Current liabilities
                        
Short term borrowings and current maturities
    
(95.4
)
            
(0.7
)
Lease liabilities
    
(1,366.0
)
    
(7.9
)
    
(6.9
)
Trade and other payables
    
(418.5
)
    
(100.8
)
    
(64.6
)
                         
     
608.9
      
(104.6
)
    
91.1
  

?

  
   
December 31, 2021
  
   
US$
    
NIS
    
Others
  
   
US $ in millions
    
US $ in millions
    
US $ in millions
  
Non-current assets
                  
Other receivables
    
106.4
            
0.8
  
Other non-current investments
    
165.8
      
1.3
      
2.1
  
                         
Current assets
                        
Other current investments
    
2,136.4
              
8.0
  
Trade and other receivables
    
1,112.8
      
2.2
      
92.4
  
Cash and cash equivalents
    
1,460.6
      
22.1
      
60.6
  
                         
Non-current liabilities
                        
Loans and other liabilities
    
(119.1
)
            
(1.8
)
Lease liabilities
    
(2,148.6
)
    
(7.4
)
    
(22.7
)
                         
Current liabilities
                        
Short term borrowings and current maturities
    
(130.1
)
            
(0.6
)
Lease liabilities
    
(880.0
)
    
(6.3
)
    
(6.7
)
Trade and other payables
    
(428.9
)
    
(50.6
)
    
(55.1
)
                         
     
1,275.3
      
(38.7
)
    
77.0
  

Sensitivity analysis

A 10% appreciation of the United States dollar against NIS at December 31 would have increased / (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.The analysis has been performed on the same basis for 2022 and 2021.

 

   
Profit or loss
  
   
US $ in millions
  
December 31,2022
    
10.5
  
December 31,2021
    
3.3
  

A 10% devaluation of the United States dollar against the NIS on December 31 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. 

(ii) Interest rate risk

The Group prepares a summary of its exposure to interest rate risk on a periodic basis.

At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was:?

   
Carrying amount
  
   
2022
    
2021
  
   
US $ in millions
    
US $ in millions
  
Fixed rate instruments
            
Financial assets
    
4,620.1
      
3,852.9
  
Financial liabilities (mostly lease liabilities)
    
(4,257.9
)
    
(3,285.7
)
     
362.2
      
567.2
  
                 
Variable rate instruments
                
Financial liabilities
    
(73.9
)
    
(35.4
)
     
(73.9
)
    
(35.4
)

?

Fair value sensitivity analysis for fixed rate instruments

Fixed rate instruments accounted by the group at fair value through profit or loss are in immaterial amounts.

An increase (decrease) of 1% in the interest rate of fixed rate instruments accounted by the group at fair value through other comprehensive income would have result with an approximate decrease (increase) in equity of US$ 24 million, net of tax.

Cash flow sensitivity analysis for variable rate instruments

A 10% change in variable interest rates at the reporting date would not have significant influence over the Company’s equity and profit or loss (assuming that all other variables, in particular foreign currency rates, remain constant).

(b) Fair value
(1) Financial instruments not measured at fair value

The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, trade and other receivables, bank deposits and other financial assets at amortized cost, trade and other payables and loans and other liabilities, reflect reasonable approximation of their fair value.

(2) Financial instruments measured at fair value

When measuring the fair value of an asset or a liability, the Company uses market observable data to the extent applicable. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

■ Level 1:    quoted prices (unadjusted) in active markets for identical instruments.
■ Level 2:    inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
■ Level 3:    inputs that are not based on observable market data (unobservable inputs).
   
December 31,
  
   
2022
  
   
Investments in
sovereign bonds at fair value through other
comprehensive income
    
Investments in
corporate bonds at fair  value through other
comprehensive income
    
Investments in equity
instruments at fair value through other
comprehensive income
    
Investments in equity
instruments at fair
value through profit and loss
    
Derivative instrument
  
   
US $ in millions
  
Level 1 financial instruments carried at fair value
                              
Other investments:
                              
Current
    
153.7
      
59.0
      
2.3
              
Non-current
    
739.8
      
578.7
      
39.9
              
     
893.5
      
637.7
      
42.2
              
                                     
Level 3 financial instruments carried at fair value
                                    
Non-current other investments
                            
11.2
        
Non-current loans and other liabilities
                                    
(13.7
)
                             
11.2
      
(13.7
)
                                         
     
893.5
      
637.7
      
42.2
      
11.2
      
(13.7
)
 
   
December 31,
  
   
2021
  
   
Investments in
sovereign bonds at fair value through other
comprehensive income
    
Investments in
corporate bonds at fair value through other
comprehensive income
    
Investments in equity
instruments at fair value through other
comprehensive income
    
Investments in equity
instruments at fair value through profit and loss
  
   
US $ in millions
  
                         
Level 1 financial instruments carried at fair value
                        
Other investments:
                        
Current
    
2.0
      
16.3
      
2.0
          
Non-Current
    
35.5
      
127.4
                  
     
37.5
      
143.7
      
2.0
          
                                 
Level 3 financial instruments carried at fair value
                                
Other investments:
                                
Non-Current
                            
2.3
  
     
37.5
      
143.7
      
2.0
      
2.3