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Financial Instruments, Financial Risks and Capital Management

12 Months Ended

Dec. 31, 2022

Financial Instruments, Financial Risks and Capital Management [Abstract]

Financial instruments, financial risks and capital management

Note 4 — Financial instruments, financial risks and capital management

(a)	Categories of financial instruments

The following table sets out the financial instruments as at the end of the reporting period:

		December 31, 2022				December 31, 2021
		EUR				EUR
Financial assets
Financial assets at amortized cost			383,890				151,384

Financial liabilities
Financial liabilities at amortized cost			896,422				414,575
Lease liabilities			307,410				373,107

(b)	Financial risk management policies and objectives

The Group’s overall risk management policy seeks to minimize potential adverse effects on financial performance of the Group. There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risk. The risks associated with these financial instruments and the policies to mitigate these risks are set out below.

(i)

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s credit risk is primarily attributable to its cash and cash equivalents and trade receivables and other receivables.

As at December 31, 2022, approximately 95% of the Group’s trade receivable arose from 2 customers, (2021: approximately 75% of the Group’s trade receivable arose from 3 customers). In order to minimize the credit risk, the management of the Group has delegated a team responsible for determination of credit limits and credit approvals.

Cash and cash equivalents are placed with credit-worthy financial institutions with high credit ratings assigned by international credit-rating agencies and therefore credit risk is limited. The Group has adopted procedures in extending credit terms to customers and monitoring its credit risk. Credit evaluations are performed on customers requiring credit over a certain amount. Before accepting any new customer, the Group carries out research on the credit risk of the new customer and assesses the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed when necessary.

Concentration of credit risk

Financial instruments, which potentially subject the Group to concentration of credit risk, consist primarily of cash deposits and accounts receivable. The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high-quality insured financial institutions. For the cash deposit in the traditional banks in Italy, cash balances in excess of the amount covered by the statutory Deposit Guarantee Scheme in Italy (i.e. EUR100,000) are at risk. For the cash deposit in non-traditional banks (i.e. Wise Europe SA), the whole amount of the cash deposit is at risk since it is not insured by the government.

As of December 31, 2022, and 2021, we had cash deposits in a non-traditional bank, Wise Europe SA, amounting to EUR292,658 and EUR0, respectively. These deposits are not insured by the local government. The Company performed a detailed credit risk assessment concerning the uninsured deposit made in Wise Europe SA and determined that the credit risk is low, based on the following factors: (i) Wise Europe SA safeguards its customers’ funds by holding them in a mix of cash in leading commercial banks and low-risk liquid assets, as required by its regulatory obligations; (ii) Wise Europe SA is authorized by the National Bank of Belgium (“NBB”), which ensures that the bank operates under the regulations and guidelines set by the NBB; and (iii) the Group has not experienced losses on these bank accounts and does not believe it is exposed to any significant credit risk with respect to these bank accounts.

The Group’s current credit risk grading framework comprises the following categories:

Category		Description		Basis of recognizing ECL
Low risk		The counterparty has a low risk of default and does not have any past-due amounts.		12-month ECL
Doubtful		There have been significant increases in credit risk since initial recognition through information developed internally or external resources.		Lifetime ECL—not credit-impaired
In default		There is evidence indicating the asset is credit-impaired.		Lifetime ECL—credit-impaired
Write-off		There is evidence indicating that the debtor is in severe financial difficulty and the Group has no realistic prospect of recovery.		Amount is written off

The table below details the credit quality of the Group’s financial assets as well as maximum exposure to credit risk by credit risk rating grades:

Financial assets at amortized cost		12-month or lifetime ECL		Gross carrying amount EUR				Loss allowance EUR				Net carrying amount EUR
2022
Trade receivables		Lifetime ECL – Not credit-impaired			31,660				-				31,660
Other receivables		12-month ECL			5,001				-				5,001
					36,661				-				36,661
2021
Trade receivables		Lifetime ECL – Not credit-impaired			120,363				-				120,363
Other receivables		12-month ECL			4,064				-				4,064
					124,427				-				124,427

(ii)

Interest rate risk management

Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group in the current reporting period and future years.

The Group’s primary interest rate relates to interest-bearing long-term borrowings. The interest rate and terms of repayment of bank loans are disclosed in note 11 of the consolidated financial statements.

The sensitivity analysis has been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used and represents management’s assessment of the reasonably possible change in interest rates.

As of December 31, 2022, it is estimated that a 50 basis point change in interest rates will affect the Group’s loss before tax by EUR110 (2021: profit before tax by EUR125).

(iii)

Liquidity risk management

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance its operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The following table details the Group’s contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

		Interest rate				On demand or within 1 year				Over 1 year				Total undiscounted cash flow				Total carrying amount
		%				EUR				EUR				EUR				EUR
December 31, 2022
Non-interest bearing			-				874,506				-				874,506				874,506
Fixed interest rate instruments			0.75				6,346				15,866				22,212				21,916
Lease liabilities			0.75 – 8.1				82,666				229,562				312,228				307,410

December 31, 2021
Non-interest bearing			-				389,573				-				389,573				389,573
Fixed interest rate instruments			0.75				3,267				22,212				25,479				25,000
Lease liabilities			0.75				80,054				300,212				380,266				373,107

(iv)

Fair value of financial assets and financial liabilities

The carrying amounts of financial assets and liabilities on the consolidated statements of financial position approximate their respective fair values due to the relatively short-term maturity of these consolidated financial instruments. The fair values of other classes of financial assets and liabilities are disclosed in the respective notes to consolidated financial statements.

(c)	Capital risk management policies and objectives

Management reviews the capital structure regularly to ensure that the Group will be able to continue as a going concern. The capital structure comprises only issued capital, reserves and retained earnings. As a part of this review, the management consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debts or the redemption of existing debts. The Group’s overall strategy remains unchanged.