8.9.1
Net debt

8.9.1.1 Borrowings

Borrowings can be specified as follows:

Other borrowings

In December 2016 Accell Group entered into a financing agreement for its Lapierre Experience Centre, which is a secured loan (mortgage) of € 1.6 million as per 31 December 2019. Furthermore Accell Group has maintained its Turkish revolving credit facilities since 2017, which qualify as carve-out and permitted financial indebtedness in the Group financing agreement (€ 10.1 million).

Borrowings under Group financing agreement

In 2017, Accell Group entered into a financing agreement with a syndicate of six banks for the financing of the group. The banks participating in the syndicate are ABN AMRO Bank, BNP Paribas, Deutsche Bank, HSBC, ING Bank and Rabobank. The financing is unsecured and at 31 December 2019 consisted of € 75 million in term loans (after a voluntary repayment of € 25 million in the first quarter of 2019) and a revolving credit facility of € 275 million (working capital financing), of which € 100 million in seasonal facility from December to July, for an initial period of five years. An optional (uncommitted) accordion facility for the sum of € 150 million forms part of the existing financing agreement.

At the start of 2019 Accell Group exercised the second extension option extending the financing agreement by another 12 months to March 2024. The initial extension option was exercised in 2018.

Terms and conditions

The terms and conditions of the Group financing agreement are as follows:

The financial ratios in the financing agreement are:

• Term loan leverage ratio;
• Solvency ratio.

In addition, a 'borrowing reference' applies, which is a dynamic limit on working capital financing.

Accell Group complied with the terms and conditions of the financial ratios at 31 December 2019, at 31 December 2018 as well as for all interim test dates.

Term loan leverage ratio

The term loan leverage is determined by dividing the designated outstanding loans under the financing agreement by normalized EBITDA. The term loan leverage ratio may not exceed 2.5 (tested on a quarterly basis over the previous twelve months).

The 'designated loans outstanding under the financing agreement' include the outstanding amounts under the € 75 million term loan (including Schuldschein) and the working capital financing insofar as used for the acquisition of companies (excluding acquired working capital). The latter is permitted with the approval of the bank syndicate.

EBITDA is the result from operating activities (EBIT) plus the amount of the amortization and depreciations on assets and the share in the result of non-consolidated participating interests. Normalized EBITDA is, with respect to a certain period, the EBITDA in that period adjusted for:

• EBITDA of acquired companies during the relevant period for the part of that period prior to the time of acquisition;
• EBITDA attributable to a group company (or any part of Accell Group) sold during the relevant period for the part prior to the date of sale;
• On the instructions of Accell Group, exceptional costs incurred in the relevant period including reorganization costs, impairment losses on fixed assets or costs associated with the sale of assets related to discontinued operations.

Solvency ratio

The solvency ratio is determined by net assets divided by balance sheet total, both adjusted for intangible assets and related deferred taxes. Solvency ratio may not be less than or equal to 25% (tested on a half-yearly basis over the previous twelve months).

Borrowing reference

The borrowing reference states that the net debt, after deduction of the outstanding amounts under the € 75 million term loan (including Schuldschein) and the working capital financing used for approved acquisitions, may not exceed the lowest of:

a. The sum of:
i. The highest of 50% of the carrying amount of the qualifying inventories minus the total trade creditors of Accell Group and zero; and
ii. 65% of the carrying amount of the qualifying trade debtors;
b. The revolving credit facility made available under the financing agreement.

Reconciliation of movements of borrowings to cash flows arising from financing activities 2019

Reconciliation of movements of borrowings to cash flows arising from financing activities 2018

Accounting policy

Borrowings are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these borrowings are measured at amortized cost using the effective interest method. Revolving credit facilities, bank overdrafts and cash and cash equivalents are initially recognized at fair value and subsequently at amortized cost.

8.9.1.2 Bank overdrafts, cash and cash equivalents

Accell Group's centralized cash management, including foreign exchange management, is executed with cash pools, cash and bank overdrafts. Term loans and revolving credit facilities are held for financing purposes. The centralized cash management aims to optimize the cash allocation within Accell Group, where excess cash in one entity is made to use in another entity.

Cash pools are an important element of cash management. The cash pools are made available by banks that participate in the syndicate that provides the group financing. The cash pools consist of a large number of bank accounts with fluctuating balances per account. On a monthly basis, different bank accounts form the credit balance (gross) and debit balance (gross) per cash pool. The net balance of a single cash pool, if overdrawn, reduces the available amount from the revolving credit facility, has the same conditions as the revolving credit facility and is repayable on demand. As a result, cash pools are of a hybrid nature; on the one hand they are a cash management tool and on the other hand they have a bridging nature at specific times.

In addition to the cash pools Accell Group has other regular bank accounts and bank overdrafts at its disposal. However, these accounts only represent a limited part of the net cash balance. One part of the bank accounts and bank overdrafts are with banks from the syndicate that provide the group financing; the other part is with local banks for specific purposes.

8.9.1.3 Lease liabilities

The corresponding right-of-use assets are disclosed in note 6.10.2.

The cash flows from the following items are not included in the lease liabilities at 31 December:

The following costs related to leases are included in the income statement:

Accounting estimates and judgements

Accell Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.
The lease term includes periods covered by an option to extend or to terminate early if Accell Group is reasonably certain to exercise that option. 
The incremental borrowing rate is determined each quarter based on current market interest rates per lease term and lease currency adjusted for Accell Group's annual budgeted loan spread, because all Accell Group financing is coordinated centrally.

Accounting policy

A right-of-use asset and a lease liability are recognized at the lease commencement date. The lease liability is initially measured at the present value of the lease payments that have not been paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, Accell Group’s incremental borrowing rate. Generally, the incremental borrowing rate (‘IBR’) is used as the discount rate.  Subsequently, the lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from among other things a change in an index or rate, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or if the carrying amount of the right-of-use asset is reduced to zero an impairment loss is recognized in profit or loss.