v3.20.1

Financial risk management | 12 Months Ended
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Dec. 31, 2019
Financial risk management |
Financial risk management | 31. Financial risk management Financial risk factors Our financial risks are managed centrally. Our finance department coordinates the access to national and international financial markets and considers and manages continuously the financial risks concerning our activities. These relate to the financial markets risk, credit risk, liquidity risk and currency risk. There are no other important risks, such as interest rate risk on borrowings, because we have nearly no financial debt and have a strong cash and cash equivalents and current financial investments balance. We do not buy or trade financial instruments for speculative purposes. Categories of financial assets and liabilities:
|  | December 31,
|  | 2019 |  | 2018 |  | 2017
|  | (Euro, in thousands)
Financial assets held at fair value through profit or loss |  |  |  |  |  |  |  |  |
Equity instruments |  | € | 11,275 |  | € | 6,000 |  | € | 1,754
Current financial investments |  |  | 3,919,216 |  |  | — |  |  | —
Financial assets at amortised cost |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 1,861,616 |  |  | 1,290,796 |  |  | 1,151,211
Restricted cash (current and non-current) |  |  | 1,418 |  |  | 1,276 |  |  | 1,158
Trade and other receivables (excl prepayments) |  |  | 53,717 |  |  | 18,467 |  |  | 27,422
Total financial assets |  | € | 5,847,242 |  | € | 1,316,539 |  | € | 1,181,545
Financial liabilities held at fair value through profit or loss |  |  |  |  |  |  |  |  |
Current financial instruments |  | € | 6,198 |  | € | — |  | € | —
Financial liabilities at amortised cost |  |  |  |  |  |  |  |  |
Trade & other liabilities |  |  | 142,510 |  |  | 68,038 |  |  | 47,122
Other non-current liabilities |  |  | 6,914 |  |  | 1,502 |  |  | 1,597
Lease liabilities |  |  | 25,384 |  |  | — |  |  | 9
Total financial liabilities |  | € | 181,006 |  | € | 69,540 |  | € | 48,727
The carrying amounts of trade and other payables and trade and other receivables are considered to be the same as their fair values, due to their short-term nature. Financial assets held at fair value through profit or loss Financial assets held at fair value through profit or loss consisted of equity instruments of listed companies and current financial investments. We have no restrictions on the sale of these equity instruments and the assets are not pledged under any of our liabilities. These instruments are classified as financial assets held at fair value adjustment through profit or loss which qualify for level 1 fair value measurement based upon the closing price of the securities on Euronext at each reporting date. The market price of those shares might face fluctuations and might be affected by a variety of factors, such as the global economic situation, the business development of competitors, sector mergers and acquisitions; it is difficult to mitigate this risk. Current financial investments include a short-term bond fund and money market funds in EUR and USD, which all classify for level 1 fair value measurement. Liquidity risk Our current financial investments and cash and cash equivalents amounted to €5,780.8 million on December 31, 2019. Management forecasts our liquidity requirements to ensure that there is sufficient cash to meet operational needs. We have no credit lines. Such forecasting is based on realistic assumptions with regards to milestone and upfront payments to be received, taking into account our past track record, including the assumption that not all new projects that are being planned will be realized. All our current financial investments and cash and cash equivalents have only an insignificant liquidity risk as they are all convertible upon a maximum three month notice period and without incurring a significant penalty. Credit risk The term “credit risk” refers to the risk that counterparty will default on its contractual obligations resulting in financial loss. The trade receivables consist of a limited amount of creditworthy customers, many of which are large pharmaceutical companies, spread over different geographical areas. To limit the risk of financial losses, a policy of only dealing with creditworthy counterparties has been developed. We grant credit to our clients in the framework of our normal business activities. Usually, we require no pledge or other collateral to cover the amounts due. Management continuously evaluates the client portfolio for creditworthiness. All our receivables are considered collectable. We applied the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all receivables. To measure the expected credit losses, receivables have been grouped based on credit risk characteristics and the days past due. The provision for expected credit losses was not significant given that there have been no credit losses over the last three years and the high quality nature of our customers. Aging balance of receivables that are due, but that are still considered collectable:
|  | December 31,
|  | 2019 |  | 2018 |  | 2017
|  | (Euro, in thousands)
60 - 90 days |  | € | 87 |  | € | 236 |  | € | —
90 - 120 days |  |  | — |  |  | 12 |  |  | 1
more than 120 days |  | € | — |  | € | — |  | € | —
Our cash and cash equivalents are invested primarily in saving and deposit accounts. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted at the beginning of the term. Our current financial investments are also kept within different financial institutions and include short-term bond funds and money market funds with credit ratings ranging from AAA to A- at the beginning of the investment. All of these current financial investments are investments in a basket of funds so there is no individual credit risk involved. Interest rate risk The only variable interest-bearing financial instruments are cash and cash equivalents and current financial investments. Changes in interest rates may cause variations in interest income and expenses resulting from short term interest-bearing assets. Management does not expect the short term interest rates to decrease significantly in the immediate foreseeable future, which limits the interest exposure on our cash and cash equivalents and current financial investments. Effect of interest rate fluctuation A 100 basis point increase in interest rates at balance sheet date would have increased profit or loss, and equity, by approximately €57.8 million (2018: €12.9 million; 2017: €11.5 million); a 100 basis point decrease in interest rates would have decreased profit or loss, and equity, by approximately €57.8 million (2018: €12.9 million; 2017: €11.5 million). Foreign exchange risk We are exposed to foreign exchange risk arising from various currency exposures. Our principal functional currency is euro, but we receive payments from our collaboration partners Gilead and AbbVie in U.S. dollars and acquire some consumables and materials in U.S. dollars, Swiss Francs, GB Pounds and Croatian Kuna. To limit this risk, we attempt to align incoming and outgoing cash flows in currencies other than EUR. In addition, contracts closed by our different entities are mainly in the functional currencies of that entity, except for the collaboration agreements signed with Gilead and AbbVie for which payments are denominated in U.S. dollars. The exchange rate risk in case of a 10% change in the exchange rate amounts to:
|  | December 31,
|  | 2019 |  | 2018 |  | 2017
Net book value |  | (Euro, in thousands)
Increase in Euros - U.S. Dollars |  | € | (133,373) |  | € | (27,200) |  | € | (21,083)
Increase in Euros - GB Pounds |  |  | 113 |  |  | 100 |  |  | 122
Increase in Euros - CH Francs |  |  | 538 |  |  | 208 |  |  | 203
Increase in Euros - HR Kunas |  |  | 650 |  |  | 611 |  |  | (185)
Increase in U.S. Dollars - GB Pounds |  | € | (894) |  | € | (923) |  | € | (831)
The exchange rate risk on the U.S. dollar is primarily related to our cash and cash equivalents and current financial investments held in U.S dollars. Capital risk factors We manage our capital to safeguard that we will be able to continue as a going concern. At the same time, we want to ensure the return to our shareholders through the results from our research and development activities. Our capital structure consists of current financial investments, cash and cash equivalents, financial debt (we only have leasing debts as of December 31, 2019), and equity attributed to the holders of our equity instruments, such as capital, reserves and results carried forward, as mentioned in the consolidated statement of changes in equity. We manage our capital structure and make the necessary adjustments in the light of changes of economic circumstances, the risk characteristics of underlying assets and the projected cash needs of the current research and development activities. The adequacy of the capital structure will depend on many factors, including scientific progress in the research and development programs, the magnitude of those programs, the commitments to existing and new clinical CROs, the ability to establish new alliance or collaboration agreements, the capital expenditures, market developments and any future acquisition. Neither Galapagos NV nor any of its subsidiaries are subject to any externally imposed capital requirements, other than those imposed by generally applicable company law requirements.

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- Definition The disclosure of the entity's financial risk management practices and policies. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Name IAS -Number 1 -IssueDate 2019-01-01 -Paragraph 10 -Subparagraph e -URI http://eifrs.ifrs.org/eifrs/xifrs-link?type=IAS&num=1&code=ifrs-tx-2019-en-r&anchor=para_10_e&doctype=Standard -URIDate 2019-03-27 + Details
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