VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC DIRECTORS’ REPORT AND THE AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015 COMPANY NUMBER: 426220
VESPUCCI STRUCTURED FINANCIAL PRODUCTS
PLC
DIRECTORS’ REPORT AND THE AUDITED FINANCIAL
STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
COMPANY NUMBER: 426220
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
TABLE OF CONTENTS PAGE
COMPANY INFORMATION 1
DIRECTORS’ REPORT 2-6
STATEMENT OF DIRECTORS’ RESPONSIBILITIES 7
INDEPENDENT AUDITOR’S REPORT 8-9
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 10
STATEMENT OF FINANCIAL POSITION 11
STATEMENT OF CHANGES IN EQUITY 12
STATEMENT OF CASH FLOWS 13
NOTES TO THE FINANCIAL STATEMENTS 14-44
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
1
COMPANY INFORMATION
DIRECTORS John Fitzpatrick (Irish) (Independent non-executive)
Michael Boyce (Irish) (Independent non-executive)
Christiaan Sterckx (Belgian) (Non-executive)
Koenraad Van de Borne (Belgian) (Non-executive)
SECRETARY The Bank of New York Mellon (Ireland) Limited
4th
Floor, Hanover Building
Windmill Lane
Dublin 2
REGISTERED OFFICE 4th
Floor, Hanover Building
Windmill Lane
Dublin 2
SOLICITORS McCann Fitzgerald
Riverside One
Sir John Rogerson’s Quay
Dublin 2
PRINCIPAL PAYING AGENT, REGISTRAR, The Bank of New York Mellon
TRANSFER AGENT AND CALCULATION One Canada Square
AGENT London E14 5AL
England
NOTE TRUSTEE BNY Corporate Trustee Services Limited
One Canada Square
London E14 5AL
England
BANK AND CUSTODIAN KBC Bank NV
Havenlaan 2
B-1080 Brussels
Belgium
INDEPENDENT AUDITOR Deloitte
Deloitte & Touche House
Chartered Accountants & Statutory Audit Firm
Earlsfort Terrace
Dublin 2
PORTFOLIO MANAGER KBC Asset Management NV
Havenlaan 6
B-1080 Brussels
Belgium
PORTFOLIO ADMINISTRATOR KBC Asset Management NV
Havenlaan 6
B-1080 Brussels
Belgium
CORPORATE ACCOUNTING KBC Bank Ireland Plc
ADMINISTRATOR Sandwith Street
Dublin 2
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
2
DIRECTORS’ REPORT for the financial year ended 30 April 2015
The directors present their report and the audited financial statements for the year.
PRINCIPAL ACTIVITY
Vespucci Structured Financial Products Plc (the "Company"), an Irish registered Company, was incorporated on
11 September 2006.
The principal activity of the Company is the investment in bonds, commercial papers and time deposits.
The Company has established a €40,000,000,000 Programme to issue notes. Notes issued under this Programme
will be issued in Series and the terms and conditions of the notes of each Series will be set out in a Term Sheet for
such Series. All of the notes issued by the Company are held by KBC Life Assurance companies, Capital Protected
Funds and Arcade Finance Plc, which have KBC Asset Management NV acting as portfolio manager. The
noteholders have the right to early redeem notes until the final maturity date by providing an exercise notice to the
paying agent.
All of the short duration noteholders share all of the risks of investments in the short duration portfolio on a pro-rata
basis. All of the long duration noteholders share all of the risks of investments in the long duration portfolio on a
pro-rata basis.
BUSINESS REVIEW AND KEY PERFORMANCE INDICATORS
The directors consider the following to be the main financial key performance indicators of the Company:
• the Company made a profit of €750 (2014: profit of €750)
• there were no credit events that affected the Company during the current and prior years.
• the net gain (realised and movement in unrealised) from financial assets designated at fair value through
profit or loss amounted to €21,146,239 (2014: net loss of €3,981,729)
• the net loss (realised and movement in unrealised) from financial liabilities designated at fair value through
profit or loss amounted to €24,777,232 (2014: net gain of €2,588,318)
• Interest income from investments amounted to €11,641,230 (2014: €7,505,753)
• Interest expense from notes issued amounted to €2,927,648 (2014:€2,697,848)
• the Company’s total indebtedness was €609,652,650 (2014: €314,567,789)
• Net investment purchases amounted to €262,677,096 (2014: €568,691)
• Net note redemptions amounted to €242,678,730 (2014: €1,019,179)
• The internal credit rating of the notes issued by the short duration and long duration portfolio at financial
year end was A+ and AA- respectively (2014: A and A+ respectively)
• The short duration portfolio is overinvested by 1.51% (2014: 3.39%) and the long duration portfolio is
overinvested by 5.17% (4.40%) at financial year end.
There was a significant increase in the level of investments held by and the notes issued by the Company during the
financial year. The Total Return Swap (“TRS”) assets on the Protective Bond Portfolio (“PROBO”) companies all
fully matured by early 2015. The Capital Protected Funds that invest into this Company also invested into the
PROBO companies. On the maturity of the TRS assets the notes issued by the PROBO companies were all fully
redeemed. The Capital Protected Funds then invested a certain amount of these redemption proceeds into this
Company which enabled the Company to purchase additional investments.
During the financial year, the €40,000,000,000 Programme was amended. Further tranches were issued for series of
notes already in issue and the maturity dates for all notes in issue were changed to the year 2040. No series of notes
in issue were fully redeemed and no new series were issued.
Due to the nature of the Company, the directors consider there to be no main non-financial key performance
indicators.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
3
DIRECTORS’ REPORT (continued) for the financial year ended 30 April 2015
BUSINESS REVIEW AND KEY PERFORMANCE INDICATORS (continued)
The Company had the following series available for issue at year end:
Short Duration portfolio:
EUR 117,886,000 Series N°2006-1 Floating Rate Secured Senior Notes due 2040
EUR 37,500,000 Series N°2006-3 Floating Rate Secured Senior Notes due 2040
EUR 55,000,000 Series N°2006-4 Floating Rate Secured Senior Notes due 2040
EUR 34,510,000 Series N°2006-5 Floating Rate Secured Senior Notes due 2040
EUR 65,000,000 Series N°2007-6 Floating Rate Secured Senior Notes due 2040
USD 47,730,000 Series N°2007-7 Floating Rate Secured Senior Notes due 2040
CZK 202,050,000 Series N°2007-8 Floating Rate Secured Senior Notes due 2040
PLN 7,020,000 Series N°2007-10 Floating Rate Secured Senior Notes due 2040
CZK 35,800,000 Series N°2007-14 Floating Rate Secured Senior Notes due 2040
CZK 647,550,000 Series N°2007-15 Floating Rate Secured Senior Notes due 2040
PLN 11,365,000 Series N°2007-16 Floating Rate Secured Senior Notes due 2040
HUF 80,500,000 Series N°2007-17 Floating Rate Secured Senior Notes due 2040
USD 5,958,000 Series N°2007-19 Floating Rate Secured Senior Notes due 2040
EUR 5,517,000 Series N°2008-20 Floating Rate Secured Senior Notes due 2040
Long Duration portfolio:
EUR 90,000,000 Series N°2008-21 Floating Rate Secured Senior Notes due 2040
EUR 100,000,000 Series N°2008-22 Floating Rate Secured Senior Notes due 2040
EUR 75,000,000 Series N°2008-23 Floating Rate Secured Senior Notes due 2040
USD 187,500,000 Series N°2008-24 Floating Rate Secured Senior Notes due 2040
EUR 75,000,000 Series N°2008-25 Floating Rate Secured Senior Notes due 2040
EUR 75,000,000 Series N°2008-26 Floating Rate Secured Senior Notes due 2040
CZK 750,000,000 Series N°2008-27 Floating Rate Secured Senior Notes due 2040
The directors believe the Company is a going concern for the following reasons:
• The portfolios are actively managed by KBC Asset Management NV and the directors intend that the
present level of activity will be sustained for the foreseeable future; and
• The Company is a limited recourse vehicle and therefore all risks and rewards of ownership are borne by
the noteholders.
FUTURE DEVELOPMENTS
The investment held and the notes issued by the Company could change over the year. The Company is one of
sixteen companies that are known as the “Child SPVs”. The number of “Child” SPV’s will be expanded from sixteen
to eighteen in the course of 2016. This will be done to provide more flexibility to the Capital Protected funds in
respect to the concentration rules set by the UCITS directive.
RESULTS AND DIVIDENDS
The results for the financial year are shown on page 10. On 11 May 2015, the Company paid a dividend of €1,000
(2014: €1,000). The directors have proposed a dividend distribution of €750. €750 of the profit after tax has been
transferred to reserves (2013: €750).
CHANGES IN DIRECTORS, SECRETARY AND REGISTERED OFFICE
There were no changes in directors, secretary or registered office during the year.
DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES
The directors or the Company secretary had no beneficial interest in the share capital of the Company at the date of
appointment, at the beginning of the year or at the end of the year.
RISK FACTORS
The principal risks and uncertainties facing the Company are set out in Note 18 to the financial statements.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
4
DIRECTORS’ REPORT (continued) for the financial year ended 30 April 2015
BUSINESS REVIEW AND KEY PERFORMANCE INDICATORS (continued)
ACCOUNTING RECORDS
The directors are responsible for ensuring that adequate accounting records, as outlined in Section 281 to 285 of the
Companies Act 2014, are kept by the Company. The directors have ensured that this has been complied with by
outsourcing this function to a specialised provider of such services.
The books and accounting records are maintained at KBC Bank Ireland Plc, Sandwith Street, Dublin 2.
SUBSEQUENT EVENTS
On 11 May 2015, the Company paid a dividend of €750. The directors proposed a dividend of €750 on 28 August
2015.
POLITICAL DONATIONS The company did not make any political donations during the financial year.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
5
DIRECTORS’ REPORT (continued) for the financial year ended 30 April 2015
ANNUAL CORPORATE GOVERNANCE STATEMENT
The Company is subject to and complies with Irish Statute comprising the Companies Act 2014 and the Listing rules
of the Irish Stock Exchange. The Company does not apply additional requirements in addition to those required by
the above. Each of the service providers engaged by the Company is subject to their own corporate governance
requirements.
Financial Reporting Process
The Board of Directors (“the Board”) is responsible for establishing and maintaining adequate internal control and
risk management systems of the Company in relation to the financial reporting process. The Board is also
responsible for the review of half yearly and annual financial statements. Such systems are designed to manage
rather than eliminate the risk of failure to achieve the Company’s financial reporting objectives and can only provide
reasonable and not absolute assurance against material misstatement or loss.
The Board has established processes regarding internal control and risk management systems to ensure its effective
oversight of the financial reporting process. These include appointing KBC Asset Management NV as Portfolio
Administrator and Manager and KBC Bank Ireland Plc as Corporate Accounting Administrator. The Corporate
Accounting Administrator is contractually obliged to maintain proper books and records. To that end, the Corporate
Accounting Administrator performs reconciliations of its records to those of the Trustee, Custodian and the Portfolio
Administrator. The Corporate Accounting Administrator is also contractually obliged to prepare for review and
approval by the Board, the annual report including financial statements intended to give a true and fair view.
The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time
the Board also examines and evaluates the Corporate Accounting Administrator’s financial reporting routines and
monitors and evaluates the external auditors’ performance, qualifications and independence. The Corporate
Accounting Administrator has operating responsibility for internal control in relation to the financial reporting
process and reports to the Board.
Risk Assessment
The Board is responsible for assessing the risk of irregularities whether caused by fraud or error in financial
reporting and ensuring the processes are in place for timely identification of internal and external matters with a
potential effect on financial reporting. The Board has also put in place processes to identify changes in accounting
rules and recommendations and to ensure that these changes are accurately reflected in the Company’s financial
statements. In respect of the financial reporting process, KBC Bank Ireland Plc has in place appropriate practices to
ensure that:
- its financial reporting is accurate and complies with the financial reporting frameworks; and
- systems are in place to achieve high standards of compliance with regulatory requirements.
Control Activity
The Portfolio and Corporate Accounting Administrator are obliged to design and maintain control structures to
manage the risks which the Board judges to be significant for internal control over financial reporting. These control
structures include appropriate division of responsibilities and specific control activities aimed at detecting or
preventing the risk of significant deficiencies in financial reporting for every significant account in the financial
statements and the related notes in the Company’s annual report.
Monitoring
The Board ensures that appropriate measures are taken to consider and address the shortcomings identified and
measures recommended by the independent auditors.
Given the contractual obligations on the Portfolio and Corporate Accounting Administrator, the Board has concluded
that there is currently no need for the Company to have a separate internal audit function.
Capital Structure
No person has a significant direct or indirect holding of securities in the Company except BNY Corporate Trustee
Services Limited. No person has any special rights of control over the Company’s share capital. BNY Corporate
Trustee Services Limited holds 39,994 shares in the Company but has no direct or indirect control of the Company.
There are no restrictions on voting rights.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
6
DIRECTORS’ REPORT (continued) for the financial year ended 30 April 2015
ANNUAL CORPORATE GOVERNANCE STATEMENT (continued)
Appointment and replacement of directors and amendments to the Articles of Association
With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association
and Irish Statute comprising the Companies Act 2014. The Articles of Association themselves may be amended by
special resolution of the shareholders.
Powers of Directors
The Board is responsible for managing the business affairs of the Company in accordance with the Articles of
Association. The directors may delegate certain functions to other parties, subject to supervision and direction by the
Board. The Board has delegated the day to day administration of the Company to the Portfolio Administrator.
Audit committee
Statutory audits in Ireland are regulated by the European Communities (Statutory audits) (Directive 2006/43/EC)
Regulations 2010. According to the regulations, if the sole business of the Irish company relates to the issuing of
asset-backed securities, the company is exempt from the requirement to establish an audit committee (under
Regulation 91 (9) (d) of the Regulations). The Company is a debt issuing vehicle incorporated in Ireland and in this
respect has availed of the exemption for establishing an audit committee.
INDEPENDENT AUDITOR
Deloitte, Chartered Accountants & Statutory Audit Firm have signified their willingness to continue in office in
accordance with Section 383(2) of the Companies Act 2014.
John Fitzpatrick Michael Boyce
Director Director
Date: 28 August 2015
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
7
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Directors’ responsibilities for the preparation of the annual report and financial statements
The directors’ are responsible for preparing the directors’ report and the financial statements in accordance with the
Companies Act 2014 and the applicable regulations.
Irish company law requires the directors to prepare financial statements for each financial year. Under the law, the
directors have elected to prepare the financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union. Under company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position
of the company as at the financial year end date and of the profit or loss of the company for the financial year and
otherwise comply with the Companies Act 2014.
In preparing those financial statements, the directors are required to:
• select suitable accounting policies for the financial statements and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether the financial statements have been prepared in accordance with the applicable accounting
standards, identify those standards, and note the effect and the reasons for any material departure from those
standards; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for ensuring that the company keeps or causes to be kept adequate accounting records
which correctly explain and record the transactions of the company, enable at any time the assets, liabilities,
financial position and profit or loss of the company to be determined with reasonable accuracy, enable them to
ensure that the financial statements and directors’ report comply with the Companies Act 2014 and the Listing Rules
of the Irish Stock Exchange and enable the financial statements to be audited.
They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Responsibility statement
Each of the directors confirm to the best of their knowledge:
• the financial statements, prepared in accordance with International Financial Reporting Standards as issued
by the IASB and as adopted by the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• the management report which is incorporated into the directors’ report includes a fair review of the
development and performance of the business and the position of the Company, together with a description
of the principal risks and uncertainties they face.
On behalf of the board
John Fitzpatrick Michael Boyce
Director Director
Date: 28 August 2015
8
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
We have audited the financial statements of Vespucci Structured Financial Products Plc for the financial year ended
30 April 2015 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Shareholder’s Equity, the Statement of Cash Flows and the related notes 1 to 23. The
relevant financial reporting framework that has been applied in their preparation is the Companies Act 2014 and
International Financial Reporting Standards (IFRS) as adopted by the European Union.
This report is made solely to the company’s members, as a body, in accordance with Section 391 of the Companies
Act 2014. Our audit work has been undertaken so that we might state to the company’s members those matters we
are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company and the company’s members as a body,
for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view and otherwise comply with the
Companies Act 2014. Our responsibility is to audit and express an opinion on the financial statements in accordance
with the Companies Act 2014 and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of whether the accounting policies are appropriate to the company’s circumstances
and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates
made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial
and non-financial information in the Directors’ report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
• give a true and fair view of the assets, liabilities and financial position of the company as at 30 April 2015
and of the result for the financial year then ended; and
• have been properly prepared in accordance with the relevant financial reporting framework and, in
particular, with the requirements of the Companies Act 2014..
Continued on next page/
9
/Continued from previous page
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
Matters on which we are required to report by the Companies Acts 2014
• We have obtained all the information and explanations which we consider necessary for the purposes of our
audit.
• In our opinion the accounting records of the company were sufficient to permit the financial statements to be
readily and properly audited.
• The financial statements are in agreement with the accounting records.
• In our opinion the information given in the directors’ report is consistent with the financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you
if, in our opinion, the disclosures of directors’ remuneration and transactions specified by law are not made.
Other Matters
SI 83 of 2010 ‘European Communities(Directive 2006/46/EC (Amendment)Regulations 2010 has been revoked by
the Companies Act 2014 without replacing Regulation 5 of those Regulations with an equivalent section in the Act.
Consequently, we are unable to report under the requirements of section 1373(7) of the Companies Act 2014.
Had Regulation 5 of SI 83 of 2010 replaced section 1373(7) of the Companies Act, 2014, there would be no
additional matters to report. The information required to be included in the corporate governance statement by
section 1373 of the Companies Act 2014 is referenced in the Directors’ Report and we have reported on the
consistency of the information included in the Directors’ Report with the financial statements above.
Brian O’Callaghan
For and on behalf of Deloitte
Chartered Accountants and Statutory Audit Firm
Dublin
28 August 2015
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
10
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the financial year ended 30 April 2015
Notes Year ended
30/04/2015
€
Year ended
30/04/2014
€
Interest income on financial assets designated at fair value
through profit or loss
5 11,641,230 7,505,753
Interest expense on financial liabilities designated at fair
value through profit or loss
6 (2,927,648) (2,697,848)
Realised gain on financial assets designated at fair value
through profit or loss
5,463,472 408,418
Realised loss on financial liabilities designated at fair value
through profit or loss
(4,106,147) (2,647,777)
Movement in unrealised loss/gain on financial assets
designated at fair value through profit or loss
15,682,767 (4,390,147)
Movement in unrealised gain/loss on financial liabilities
designated at fair value through profit or loss
(20,671,085) 5,236,095
Net expense from derivatives held for trading 7 (4,966,042) (2,598,837)
Net bond lending fee income 8 116,316 4,046
Net foreign exchange gain/(loss) 294,867 (424,189)
Net investment income 527,730 395,514
Other income 9 9,146 10,392
Other expenses 10 (535,876) (404,906)
Profit from ordinary activities before taxation 1,000 1,000
Taxation 11 (250) (250)
Profit and total comprehensive income for the year 750 750
The accompanying notes to the financial statements from page 14 to 44 form an integral part of the financial
statements.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
11
STATEMENT OF FINANCIAL POSITION
as at 30 April 2015
Notes
As at
30/04/2015
€
As at
30/04/2014
€
Assets
Non-current assets
Financial assets designated at fair value through profit or loss 12 526,140,038 258,140,047
Derivatives held for trading 13 3,543,394 387,469
Current assets
Cash and cash equivalents 14 5,354,401 1,947,919
Amounts receivable from broker 4,701,256 25,601
Interest receivable on investments 6,753,932 2,910,011
Bond lending fee income receivable 20,587 6,584
Financial assets designated at fair value through profit or loss 12 63,155,788 50,975,286
Derivatives held for trading 13 25,285 217,153
Total assets 609,694,681 314,610,070
Liabilities
Current liabilities
Amounts payable to broker 4,756,525 3,645,707
Interest payable on notes issued 495,469 435,055
Expense accruals 15,299 18,957
Taxation payable 250 -
Financial liabilities designated at fair value through profit or loss 15 - 55,187,635
Derivatives held for trading 13 1,158,768 320,832
Non-current liabilities
Financial liabilities designated at fair value through profit or loss 15 561,139,774 238,551,663
Derivatives held for trading 13 42,086,565 16,407,940
Total liabilities 609,652,650 314,567,789
Equity
Called up share capital 16 40,000 40,000
Profit and loss account 2,031 2,281
Total equity 42,031 42,281
Total liabilities and equity 609,694,681 314,610,070
The accompanying notes to the financial statements from page 14 to 44 form an integral part of the financial
statements.
On behalf of the board
John Fitzpatrick Michael Boyce
Director Director
Date: 28 August 2015
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
12
STATEMENT OF CHANGES IN EQUITY
for the financial year ended 30 April 2015
Notes Share
capital
€
Profit and
loss account
€
Total
equity
€
Balance as at 30 April 2013 40,000 2,531 42,531
Total comprehensive income for the year
Result for the year - 750 750
Other comprehensive income - - -
- 750 750
Dividend paid during the year - (1000) (1000)
Balance as at 30 April 2014 40,000 2,281 42,281
Total comprehensive income for the year
Result for the year - 750 750
Other comprehensive income - - -
- 750 750
Dividend paid during the year - (1,000) (1,000)
Balance as at 30 April 2015 16 40,000 2,031 42,031
The accompanying notes to the financial statements from page 14 to 44 form an integral part of the financial
statements.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
13
STATEMENT OF CASH FLOWS
for the financial year ended 30 April 2015
Notes Year ended
30/04/2015
€
Year ended
30/04/2014
€
Cash flows from operating activities
Interest received on investments 7,797,309 7,345,474
Interest paid on notes issued (2,867,234) (2,623,162)
Derivative receipts 37,240,250 15,984,244
Derivative payments (18,631,509) (19,007,422)
Bond lending fee receipt 103,837 4,406
Bond lending fee expense (9,506) (2,798)
Other income 9,386 10,094
Other expenses (531,552) (409,123)
Cash generated from operating activities 23,110,981 1,301,713
Taxes paid - (250)
Net cash generated from operating activities 23,110,981 1,301,463
Cash flows from investing activities
Investment purchases (601,354,323) (377,480,600)
Investment paydowns and disposals 338,677,227 376,911,909
Net cash used in investing activities (262,677,096) (568,691)
Cash flows from financing activities
Proceeds from note issuance 458,426,981 284,387,452
Redemption and repurchase of notes (215,748,251) (283,368,273)
Dividend paid (1,000) (1,000)
Net cash from financing activities 242,677,730 1,018,179
Net increase in cash and cash equivalents 3,111,615 1,750,951
Cash and cash equivalents at beginning of the year 1,947,919 621,157
Effect of exchange rate changes on cash and cash equivalents 294,867 (424,189)
Cash and cash equivalents at end of the year 14 5,354,401 1,947,919
The accompanying notes to the financial statements from page 14 to 44 form an integral part of the financial
statements.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
14
NOTES TO THE FINANCIAL STATEMENTS
1. General Information
Vespucci Structured Financial Products Plc (the “Company”), an Irish registered Company was incorporated on
11 September 2006 to issue notes. The cash proceeds are used to invest in commercial papers, bonds and time
deposits.
2. Basis of Preparation
(a) Statement of compliance
The financial statements have been prepared for the financial year ended (“Year Ended”) 30 April 2015, in
accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and
the Companies Acts 2014 and the Listing Rules issued by the Irish Stock Exchange.
(b) New standards and interpretations adopted
The accounting policies adopted are consistent with those of the previous financial year.
There were no IFRS updates adopted by the Company during the accounting period beginning 1 May 2014.
(c) New standards and interpretations not yet adopted
The IFRSs applied by the Company in the preparation of these financial statements are those effective for
accounting periods beginning on or before 1 May 2014. A number of new standards, amendments to standards
and interpretations in issue are not yet effective for accounting periods beginning on or before 1 May 2014, and
the Company has not early adopted them.
None of these will have any effect on the financial statements of the Company apart from IFRS 9 “Financial
Instruments”.
IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into three classifications – amortised
cost, fair value and fair value through other comprehensive income. A financial asset would be measured at
amortised cost if it is held within a business model whose objective is to hold assets in order to collect
contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal outstanding. A financial asset would be measured at fair
value through other comprehensive income if it is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets, and the asset’s contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding. If an asset meets both of these conditions it is required to be measured at fair value through other
comprehensive income unless, on initial recognition, it is designated at fair value through profit or loss to
address an accounting mismatch. All other financial assets would be measured at fair value. The standard
eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables.
With regard to the measurement of financial liabilities designated at fair value through profit or loss, IFRS 9
requires that the amount of change in the fair value of the financial liability that is attributable to changes in the
credit/counterparty risk of that liability is presented in other comprehensive income, unless the recognition of
the effects of changes in the liability’s credit/counterparty risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s
credit/counterparty risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of
the change in the fair value of the financial liability designated at fair value through profit or loss is presented in
profit or loss.
For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable
election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the
investment in other comprehensive income. No amount recognised in other comprehensive income would ever
be reclassified to profit or loss. However, dividends on such investments are recognised in profit or loss, rather
than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment.
Investments in equity instruments in respect of which an entity does not elect to present fair value changes in
other comprehensive income would be measured at fair value with changes in fair value recognised in profit or
loss.
The standard requires that derivatives embedded in contracts with a host that is a financial asset within the
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
15
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Basis of Preparation (continued)
(c) New standards and interpretations not yet adopted (continued)
scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to
whether it should be measured at amortised cost or fair value.
The requirements under IFRS 9 for impairment and hedge accounting are not likely to affect the Company.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted
once the standard is endorsed by the European Union. The Company does not plan to adopt this standard early.
The Company is currently assessing the impact of adopting IFRS 9; however, the impact of adoption depends
on the assets held by the Company at the date of adoption, so therefore it is not practical to quantify the effect.
(d) Basis of measurement
The financial statements have been prepared on the historical cost basis except for certain financial assets and
financial liabilities designated at fair value through profit or loss and derivatives held for trading which are also
measured at fair value.
(e) Functional and presentation currency
These financial statements are presented in Euro which is the Company’s functional currency. The functional
currency is the currency of the primary economic environment in which the entity operates. The Company has
issued notes primarily in Euro and the directors of the Company believe that Euro most faithfully represents the
economic effects of the underlying transactions, events and conditions. Transactions in foreign currencies are
translated at the foreign currency exchange rate ruling at the date of transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to the functional currency at the foreign currency closing
exchange rate ruling at the statement of financial position date. Foreign currency exchange differences arising on
translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are
recognised in the statement of profit or loss and other comprehensive income. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value are translated to the functional
currency at the foreign currency exchange rates ruling at the dates that the values were determined.
(f) Use of estimates and judgements The preparation of the financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that may affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values of assets and liabilities that are not readily
apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future periods if the revision affects current and future
periods.
A key area of estimation for this Company would be in the determination of fair values for financial assets,
derivatives and financial liabilities for which there is no observable market price. The valuation techniques used
and the accounting judgments applied when determining the fair value of financial assets and liabilities for
which there is no observable market price is described in the significant accounting policy Note 3(f) “Financial
instruments: Fair Value Measurement Principles”.
IFRS 13 “Fair Value Measurement” establishes a fair value hierarchy that prioritises the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). The three levels of the fair value hierarchy are as follows:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices), including inputs from
markets that are not considered to be active;
• Level 3 – Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs).
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
16
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Basis of Preparation (continued)
(f) Use of estimates and judgements (continued)
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market
participants use to make valuation decisions, including assumptions about risk. Inputs may include price
information, volatility statistics, specific and broad credit data, liquidity statistics and other factors. A financial
instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement. However, the determination of what constitutes “observable” requires significant
judgement by the Company. The Company considers observable data to be that market data which is readily
available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by independent
sources that are actively involved in the relevant market. The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the financial instrument and does not necessarily
correspond to the Company’s perceived risk inherent in such financial instruments. The fair value hierarchy is
set out in Note 18(h) “Financial instruments, principal risks and uncertainties: Fair values”.
3. Significant accounting policies
(a) Interest income and expense
Interest income is accounted for on a coupon rate basis. Due to the limited recourse nature of the notes issued,
the Company is only required to pay the interest if it has collected sufficient funds to cover the amount due after
having retained a reserved profit of €1,000 per annum for the Company.
(b) Net bond lending fee income The net bond lending fee income includes the fee for providing the bond lending service, income from the re-
investment of the cash collateral, custodian bond lending expenses, bond lending agent fee and rebate of income
from the re-investment of the cash collateral. Fee income and expenses are accounted for on an accruals basis.
(c) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is
based on taxable profit for the period as calculated in accordance with Irish Tax Laws. Taxable profit differs
from profit before tax as reported in the statement of profit or loss and other comprehensive income because it
excludes items of income or expense that are not taxable or deductible. The Company’s liability for current tax
is calculated using tax rates that have been enacted or substantively enacted at the statement of financial
position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profits, and is accounted for using the statement of financial position method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised.
(d) Net expense from derivatives
The net expense from derivatives includes the fair value movements, settlement receipts and settlement
payments for derivatives.
(e) Cash and cash equivalents Cash and cash equivalents includes cash held with banks which are subject to insignificant risk of changes in
their values and are used by the Company in the management of its short term commitments.
(f) Financial instruments Classification
A financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is
classified as held-for-trading or designated at fair value through profit or loss.
The Company has designated its investments held and notes issued at fair value through profit or loss on the
basis that they form part of a group of financial assets and financial liabilities which is managed, and the
performance of which is evaluated, on a fair value basis in accordance with a documented investment strategy
and information about these financial assets and financial liabilities is provided internally on a fair value basis
to the entity’s key management personnel.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
17
NOTES TO THE FINANCIAL STATEMENTS (continued)
(f) Financial instruments (continued) Classification (continued)
The Company has classified the cross currency swaps, interest rate swaps and currency forward contracts which
it has entered into as derivatives held for trading.
These derivatives have not been formally designated into a hedging relationship and as such changes in their
fair value are recognised in the statement of profit or loss and other comprehensive income.
Measurement
Financial instruments are recognised initially at fair value. Transaction costs on financial assets and financial
liabilities at fair value through profit or loss are expensed immediately.
Subsequent to initial recognition, all instruments classified at fair value through profit or loss, are measured at
fair value with changes in their fair value recognised in the statement of profit or loss and other comprehensive
income.
Fair Value Measurement Principles
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date in the principal market or, in its absence, the
most advantageous market.
The determination of fair values of financial assets, financial liabilities and derivatives for the Company is
based on a combination of quoted prices in active markets and valuation models, which are developed from
recognised valuation models. Some or all of the inputs into these models may not be market observable, and are
derived from market prices or rates or are estimated based on assumptions. Due to the limited recourse nature of
the notes issued, the determination of fair values of financial liabilities is based on a valuation model which will
include the fair value of financial assets and derivatives held for trading and the carrying value of cash and cash
equivalents, interest receivable, interest payable, other assets and other liabilities. The fair value of the notes
issued falls within Level 3 of the fair value hierarchy.
The fair value for commercial papers and time deposits is based on a discounted cash flow model which uses
market interest rates as an input. The fair value for commercial papers and time deposits falls within Level 2 of
the fair value hierarchy as the inputs are market observable. The fair value for bonds is based on quoted bid
market prices. The fair value of bonds based on quoted bid prices falls within Level 1 on the fair value
hierarchy. If quoted prices are not available for bonds the fair value is based on a model which uses credit
default spreads or analogue bond spreads as an input. The fair value of bonds based on a model which uses
credit default spreads or analogue bond spreads as an input falls within Level 2 on the fair value hierarchy as
the inputs are market observable.
The fair values of cross currency swaps and interest rate swaps are based on net present values of future cash
flows within the swap contracts. Valuation models are used to value swaps which use market interest and
foreign exchange rates to obtain a fair value for cross currency swaps and market interest rates for interest rate
swaps. The fair value of cross currency swaps and interest rate swaps falls within Level 2 on the fair value
hierarchy as the inputs are market observable. The fair value of currency forward contracts is based on net
present values of future cash within the contract. A valuation model is used to value currency forward contracts
which uses spot exchange rates to obtain a fair value. The fair value of currency forward contracts falls within
Level 2 on the fair value hierarchy as the inputs are market observable.
Recognition
The Company initially recognises all financial assets and liabilities on the trade date at which the Company
becomes a party to the contractual provisions of the instruments. From trade date, any gains or losses arising
from changes in fair value of the financial assets or financial liabilities are recorded in the statement of profit or
loss and other comprehensive income.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
18
NOTES TO THE FINANCIAL STATEMENTS (continued)
(f) Financial instruments (continued)
Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained by the Company is recognised as a separate asset or
liability. The Company derecognises a financial liability when its contractual obligations are discharged,
cancelled or expired.
Offsetting
Financial assets and liabilities are offset and the net amount presented in the statement of financial position
when, and only when, the Company has a legal right to set off the amounts and intends either to settle on a net
basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net
basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar
transactions.
(g) Bond lending Bonds lent by the Company are not derecognised in the statement of financial position as the Company still
has the right to the cash flows from the bonds lent and the Company still retains the risk and rewards of
ownership of the bonds lent.
(h) Segment Reporting
An operating segment is a component of the Company:
• that engages in business activities from which it may earn revenues and incur expenses (including
revenues and expenses relating to transactions with other components of the same entity);
• whose operating results are regularly reviewed by the Company’s chief operating decision maker to
make decisions about resources to be allocated to the segment and assess its performance; and
• for which discrete financial information is available.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker is the person or group that allocates resources to
and assesses the performance of the operating segments of a company.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
19
NOTES TO THE FINANCIAL STATEMENTS (continued)
4. Financial assets and liabilities
The following table details the categories of financial assets and liabilities held by the Company at the reporting
date:
Fair value
As at 30/04/15
Carrying value
As at 30/04/15
Fair value
As at 30/04/14
Carrying value
As at 30/04/14
€ € € €
Assets
Financial assets designated at fair
value through profit or loss
Investments at fair value 589,295,826 589,295,826 309,115,333 309,115,333
Derivatives held for trading 3,568,679 3,568,679 604,622 604,622
Other assets 16,830,176 16,830,176 4,890,115 4,890,115
Total assets 609,694,681 609,694,681 314,610,070 314,610,070
Liabilities
Financial liabilities designated at
fair value through profit or loss
Notes issued at fair value (561,139,774) (561,139,774) (293,739,298) (293,739,298)
Derivatives held for trading (43,245,333) (43,245,333) (16,728,772) (16,728,772)
Other liabilities (5,267,543) (5,267,543) (4,099,719) (4,099,719)
Total liabilities (609,652,650) (609,652,650) (314,567,789) (314,567,789)
Other assets as presented above represent cash and cash equivalents, interest receivable on investments,
amounts receivable from broker and bond lending fee income receivable as detailed in the statement of
financial position.
Other liabilities as presented above represent expense accruals, taxation payable, interest payable on notes
issued and amounts payable to broker as detailed in the statement of financial position.
5. Interest income on financial assets designated at fair value
through profit or loss
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Interest income on investments 11,641,230 7,505,753
6. Interest expense on financial liabilities designated at fair value
through profit or loss
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Interest expense on notes issued 2,927,648 2,697,848
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
20
NOTES TO THE FINANCIAL STATEMENTS (continued)
7. Net expense from derivatives held for trading Year ended
30/04/2015
€
Year ended
30/04/2014
€
Settled derivative receipts 37,215,106 15,537,973
Unsettled derivative receipts 206,619 25,144
Settled derivative payments (18,628,644) (18,998,869)
Unsettled derivative payments (206,619) (2,865)
Fair value movement on derivatives held for trading (23,552,504) 839,780
(4,966,042) (2,598,837)
8. Net bond lending fee income
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Fee income for providing bond lending service 7,633 2,525
Income from re-investment of collateral 110,206 8,465
Rebate of income from re-investment of collateral 20,450 (5,939)
Custodian bond lending fee expense (1,230) (247)
Agent bond lending fee expense (20,743) (758)
116,316 4,046
9. Other income
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Settled interest income from cash and cash equivalents 8,928 9,935
Unsettled interest income from cash and cash equivalents 218 457
9,146 10,392
10. Other expenses
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Portfolio management fees 383,388 289,203
Legal fees 12,036 15,633
Auditors’ fees 13,530 11,685
Directors’ fees (for services as role of director) 3,000 3,000
Tax compliance fees 3,167 3,255
Custody fees 41,250 32,373
Other expenses 79,505 49,757
535,876 404,906
Fees charged by the Company’s auditors, in respect of the financial year, (excluding VAT) were as follows:
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Audit of financial statements 11,000 9,500
Other assurance services - -
Tax advisory services 2,575 2,646
Non-audit services - -
13,575 12,146
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
21
NOTES TO THE FINANCIAL STATEMENTS (continued)
11. Taxation
The Company is subject to Irish Corporation tax at the Irish Corporation tax rate that applies to income other
than trading income. The effective tax rate is 25% in accordance with Section 110 of the Taxes Consolidation
Act 1997.
Year ended
30/04/2015
Year ended
30/04/2014 € €
Corporation tax charge 250 250
Factors affecting tax charge for the year has been calculated as follows:
Profit on ordinary activities before tax 1,000 1,000
Current tax at 25% 250 250
The Company will continue to be taxed in accordance with Section 110 of the Taxes Consolidation Act 1997.
12. Financial assets designated at fair value through profit or loss As at
30/04/2015
As at
30/04/2014 € €
Financial assets with a maturity greater than 1 year
Investments in EUR Bonds 413,859,066 203,966,489
Investments in USD Bonds 107,491,515 49,397,414
Investments in CZK Bonds 2,528,303 2,506,599
Investment in EUR time deposits 2,261,154 2,269,545
526,140,038 258,140,047
Financial assets with a maturity within 1 year
Investments in EUR Bonds 37,373,807 6,430,970
Investments in USD Bonds 1,374,504 8,334,444
Investments in EUR Commercial Papers 19,590,324 26,230,484
Investments in USD Commercial Papers 4,456,955 8,136,903
Investments in PLN Time Deposits 333,830 1,809,963
Investments in HUF Time Deposits 26,368 32,522
63,155,788 50,975,286
Total financial assets designated at fair value through profit or loss 589,295,826 309,115,333
The Company has pledged €11,285,746 (2014: €1,916,387) of its short duration investments and €29,896,172
(2014: €15,637,641) of its long duration investments as collateral for derivative contracts. The Company has
lent €70,635,738 (2014: €871,923) of its short duration bonds and €167,739,120 (2014: €18,759,984) of it long
duration bonds under a securities lending agreement. Société Générale S.A. was appointed as the agent to lend
bonds as advised by KBC Asset Management NV on behalf of the Company to an approved list of
counterparties under the terms of a securities lending agreement. Bonds may only be lent to counterparties
against the transfer of eligible collateral. This collateral is then re-invested to earn a return. The eligible
collateral types and re-investment parameters are set out in Note 18(g) “Financial instruments, principal risks
and uncertainties: Collateral”. Société Générale S.A. may lend securities for an indefinite period of time to
counterparties, however they may be recalled by the Company at any time by giving notice, at the latest by
close of business day on each of the relevant markets so as to enable bonds (or equivalent) to be delivered
according to the normal settlement cycles applicable in such markets. As soon as the bonds are returned to the
Company the collateral is repaid to the counterparty.
The Company invests into a large diverse portfolio of investments with a mixture of floating and fixed rate
bonds, fixed rate commercial papers and fixed rate time deposits. The breakdown of the interest risk profile is
provided in Note 18(d) (ii) “Financial instruments, principal risks and uncertainties: Market risk: Interest rate
risk”. The credit quality of the investments held is set out in Note 18(a) “Financial instruments, principal risks
and uncertainties: Credit/counterparty risk”. The geographical concentrations and industrial sector
concentrations of the investments held are set out in Note 18(b) “Financial instruments, principal risks and
uncertainties: Concentration risk”.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
22
NOTES TO THE FINANCIAL STATEMENTS (continued)
12. Financial assets designated at fair value through profit or loss (continued)
As at
30/04/2015
As at
30/04/2014
€ €
Opening balance 309,115,333 323,780,350
Settled purchases of investments 597,711,481 362,585,779
Unsettled purchases of investments 4,494,420 3,642,842
Settled sales of investments (338,677,227) (376,911,909)
Unsettled sales of investments (4,494,420) -
Realised gain on investments 5,463,472 408,418
Movement in unrealised loss/gain on investments 15,682,767 (4,390,147)
Closing balance 589,295,826 309,115,333
13. Derivatives held for trading
Derivatives with a maturity greater than 1 year
As at
30/04/2015
€
As at
30/04/2014
€
Derivative assets
Cross currency swaps 3,462,357 127,994
Interest rate swaps 81,037 259,475
3,543,394 387,469
Derivative liabilities
Cross currency swaps (7,365,588) (5,143,541)
Interest rate swaps (34,720,977) (11,264,399)
(42,086,565) (16,407,940)
Derivatives with a maturity within 1 year
Derivative assets
Cross currency swaps 18,812 -
Interest rate swaps 5,142 215,773
Currency forwards 1,331 1,380
25,285 217,153
Derivative liabilities
Cross currency swaps (598,672) (192,494)
Interest rate swaps (560,096) (124,099)
Currency forwards - (4,239)
(1,158,768) (320,832)
Currency analysis
As at
30/04/2015
€
As at
30/04/2014
€
Cross currency swaps
EUR (1,644,561) (5,155,316)
USD (2,838,530) (52,725)
CZK - -
Interest rate swaps
EUR (31,247,256) (9,248,441)
USD (3,838,031) (1,527,833)
CZK (109,607) (136,976)
Currency forwards
CZK 1,331 (2,859)
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
23
NOTES TO THE FINANCIAL STATEMENTS (continued)
14. Cash and cash equivalents As at
30/04/2015
As at
30/04/2014
€ €
Cash held with KBC Bank NV 5,354,401 1,947,919
Cash is held in KBC Bank NV current accounts which have no special terms and conditions. Cash is available
on demand.
As at
30/04/2015
As at
30/04/2014 Currency analysis € €
EUR 2,955,097 326,585
USD 768,497 86,458
CZK 1,603,947 1,525,574
HUF 3,313 5,988
PLN 23,547 3,314
15. Financial liabilities designated at fair value through profit or loss
As at
30/04/2015
As at
30/04/2014
Short Duration € €
Financial liabilities with a maturity less than 1 year
CLASS COUPON
EUR Notes issued 6 month EURIBOR less 0.07% - 46,503,377
CZK Notes issued 6 month PRIBOR less 0.27% - 3,872,070
USD Notes issued 6 month USD LIBOR plus 0.23% - 3,548,575
PLN Notes issued 6 month WIBOR less 0.92% - 1,263,613
- 55,187,635
Financial liabilities with a maturity greater than 1 year
CLASS COUPON
EUR Notes issued 6 month EURIBOR less 0.07% 152,116,906 -
CZK Notes issued 6 month PRIBOR less 0.27% 14,874,906 9,063,811
USD Notes issued 6 month USD LIBOR plus 0.23% 22,220,503 3,052,065
HUF Notes issued 6 month BUBOR less 0.15% 26,743 28,073
PLN Notes issued 6 month WIBOR less 0.92% 1,309,340 3,243,693
190,548,398 15,387,642
Long Duration
Financial liabilities with a maturity greater than 1 year
CLASS COUPON
EUR Notes issued 6 month EURIBOR plus 0.15% 223,835,830 141,280,192
USD Notes issued 6 month USD LIBOR plus 0.49% 17,112,652 64,006,246
CZK Notes issued 6 month PRIBOR plus 0.08% 129,642,894 17,877,583
370,591,376 223,164,021
561,139,774 293,739,298
In addition to the floating rate coupon, the notes issued also carry a return in the form of a profit participating
“excess spread”. Due to this profit participating excess spread, the notes effectively receive a pro-rata share of all
realised income and gains in excess of a reserved profit amount net of other expenses. The Company is entitled to
retain a reserved profit of €1,000 per annum. All of the notes issued by the Company are held by KBC Life
Assurance companies, Capital Protected Funds and Arcade Finance Plc, which have KBC Asset Management NV
acting as portfolio manager. All notes issued are listed on the Irish Stock Exchange and are limited recourse. The
noteholders have the right to early redeem notes until the final maturity date by providing an exercise notice to the
paying agent.
All of the short duration noteholders share all of the risks of investments in the short duration portfolio on a pro-rata
basis. All of the long duration noteholders share all of the risks of investments in the long duration portfolio on a
pro-rata basis.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
24
NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Financial liabilities designated at fair value through profit or loss (continued)
The maturity profile of the notes issued is as follows:
Short Duration
As at
30/04/2015
As at
30/04/2014
EUR Notes issued € €
Maturing on 10/01/2040 (2014: Maturing on 10/01/2015) 33,483,529 7,617,773
Maturing on 10/02/2040 (2014: Maturing on 10/02/2015) 2,533,402 2,417,295
Maturing on 23/03/2040 (2014: Maturing on 23/09/2014) 42,047,793 3,225,640
Maturing on 23/04/2040 (2014: Maturing on 23/10/2014) 17,407,373 3,754,989
Maturing on 10/05/2040 (2014: Maturing on 10/11/2014) 35,677,301 15,123,406
Maturing on 22/06/2040 (2014: Maturing on 23/12/2014) 20,967,508 14,364,274
152,116,906 46,503,377
CZK Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/07/2015) 9,588,447 8,694,538
Maturing on 23/03/2040 (2014: Maturing on 23/03/2015) 4,887,652 3,872,070
Maturing on 10/05/2040 (2014: Maturing on 10/05/2015) 398,807 369,273
14,874,906 12,935,881
USD Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/01/2015) 19,931,601 3,548,575
Maturing on 23/03/2040 (2014: Maturing on 23/09/2015) 2,288,902 3,052,065
22,220,503 6,600,640
HUF Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/07/2015) 26,743 28,073
PLN Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/07/2015) 1,043,875 3,243,693
Maturing on 23/03/2040 (2014: Maturing on 23/03/2015) 265,465 1,263,613
1,309,340 4,507,306
Long Duration
EUR Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/01/2017) 42,586,449 38,766,597
Maturing on 23/03/2040 (2014: Maturing on 23/03/2017) 54,774,565 33,755,320
Maturing on 23/04/2040 (2014: Maturing on 21/10/2016) 39,759,334 24,427,719
Maturing on 10/05/2040 (2014: Maturing on 10/05/2017) 43,898,782 18,070,231
Maturing on 22/06/2040 (2014: Maturing on 23/06/2017) 42,816,700 26,260,325
223,835,830 141,280,192
CSK Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/01/2017) 17,112,652 17,877,583
USD Notes issued
Maturing on 10/01/2040 (2014: Maturing on 10/01/2017) 129,642,894 64,006,246
A summary maturity analysis of the notes issued is as follows: As at
30/04/2015
As at
30/04/2014
Amounts falling due € €
Within one year - 55,187,635
1 – 2 years - 15,387,642
2 – 5 years - 223,164,021
Greater than 5 years 561,139,774 -
561,139,774 293,739,298
During the financial year, the maturity dates on all notes issued by the Company both under the long duration and
short duration portfolios were amended to dates in 2040.
The notes issued are designated as financial liabilities at fair value through profit or loss. The fair value
movement on financial liabilities is due to a combination of market and credit/counterparty risk factors but
information regarding the split is not available.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
25
NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Called Up Share Capital
As at
30/04/2015
As at
30/04/2014
€ €
Authorised
40,000 ordinary shares at €1 each 40,000 40,000
Issued and fully paid up
40,000 ordinary shares at €1 each 40,000 40,000
The holders of shares have the right to receive notice of, attend and vote at general meetings of the Company.
The holder of each share has the right to one vote. Upon winding up, if net assets are insufficient to repay the
whole paid up share capital, then the net assets will be distributed in proportion to the shares held by a
shareholder. Upon winding up, if net assets are in excess of the whole paid up share capital, then the excess will
also be distributed in proportion to the shares held by a shareholder. The holders of shares are entitled to receive
dividends when they are declared according to the proportion of shares held.
17. Segment analysis The Company has one reportable segment. The reportable segment involves the repacking of investments on
behalf of investors, which are bought from the market and subsequently securitised to avail of potential market
opportunities and risk-return asymmetries. KBC Asset Management NV has been appointed as portfolio
manager to the Company. At the start date of the Company KBC Asset Management NV entered into a
portfolio management agreement with the Company. Under this portfolio management agreement KBC Asset
Management NV decides on how the resources of the Company are allocated in line with the strict terms and
eligibility criteria as set out in the Company’s Prospectus and assesses the performance of the investments held
by the Company. The Prospectus was agreed upon by the directors at the start date of the Company and the
directors have approved all subsequent updates to the Prospectus. The directors review the performance of the
Company and KBC Asset Management NV report to the directors on a quarterly basis. KBC Asset
Management NV is deemed to be the chief operating decision maker as it decides on how the resources of the
Company are allocated as well as assessing the performance of the investments held. The following is the
information reviewed by KBC Asset Management NV in deciding how resources are allocated and assessing
the performance of the investments held:
• Credit quality of investments held – the credit quality of investments held are reviewed on a monthly
basis by KBC Asset Management NV. The breakdown of the credit ratings of the investments held by
the Company is set out in Note 18(a) “Financial instruments, principal risks and uncertainties:
Credit/counterparty risk”. The KBC Asset Management NV Risk department also rate the notes issued
by the Company. This rating is based on the weighted average credit rating of the investments held by
the Company. At 30 April 2015, the credit rating assigned to the short duration notes and long duration
notes issued by the Company by the KBC Asset Management Risk department was A+ and AA-
respectively (2014: A and A+ respectively).
• Liquidity and Asset Liability Management (“ALM”) ratios – the liquidity and ALM ratios of the
Company are reviewed on a monthly basis. The ALM ratio is reviewed to see if the Company is
underinvested and whether the maturity/liquidity breakdown of the investments held is sufficient to
meet the obligations to repay the notes. The liquidity breakdown is set out in Note 18(c) “Financial
instruments, principal risks and uncertainties: Liquidity risk”. At 30 April 2015 the Company’s short
duration portfolio is deemed to be overinvested by 1.51% (2014: 3.39%) and the long duration
portfolio is deemed to be overinvested by 5.17% (2014: 4.40%). The level of note
redemptions/subscriptions are also reviewed as this is a key driver in whether the Company has to sell
investments or whether it can buy investments as note redemptions will primarily have to be funded
through investment disposals. The net note subscriptions for the financial year ended 30 April 2015
are set out in the cash flow from financing activities in the statement of cash flows.
• Country and industry exposure – the exposure the Company has to countries and industries is reviewed
by KBC Asset Management NV on a monthly basis. The level of exposure to countries and industries
is decided upon by the KBC Asset Management NV Allocation Committee. The country and industrial
exposure limits set by the KBC Asset Management NV Allocations Committee is a driver in what
investments are purchased and sold. The industrial sector and country breakdown of investments held
at 30 April 2015 is set out in Note 18(b) “Financial instruments, principal risks and uncertainties:
Concentration risk”.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
26
NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Segment analysis (continued)
• Market prices and market price fluctuations – daily market price fluctuations on all investments held
are reviewed by relevant KBC Asset Management NV front office staff. The market value of
investments is also a key driver in what investments are purchased and sold and the movement in
market value is a key performance indicator reviewed by the KBC Asset Management NV front office
staff assigned to the Company. The market value as at 30 April 2015 for investments held is set out in
Note 12 “Financial assets designated at fair value through profit or loss”. The movement in market
value for the financial year ended 30 April 2015 (“movement in unrealised gain/loss on investments”)
is also set out in Note 12 “Financial assets designated at fair value through profit or loss”.
The Company earns interest income from its portfolio of investments which includes bonds, commercial papers
and time deposits. The breakdown of interest income for the year is as follows:
Year ended
30/04/2015
€
Year ended
30/04/2014
€
Interest income from bonds 11,477,622 7,273,445
Interest income from commercial papers 108,445 131,922
Interest income from time deposits 55,163 100,386
11,641,230 7,505,753
The country breakdown of interest income for the year is as follows:
Year ended
30/04/2015
€
Year ended
30/04/2014
€
United States of America 2,440,198 922,183
France 1,509,272 721,801
United Kingdom 1,460,236 1,551,719
The Netherlands 1,056,217 1,112,250
Belgium 936,869 775,245
Sweden 628,726 265,923
Austria 508,170 242,974
Australia 506,933 382,859
Switzerland 438,723 54,933
Italy 355,267 279,836
Canada 318,554 -
Poland 298,008 120,938
Spain 276,857 237,313
Norway 191,149 95,844
Germany 179,254 130,197
Denmark 143,293 150,439
Japan 129,036 116,331
Ireland 81,292 213,025
Rest of Europe 183,176 91,341
Rest of World - 40,602
11,641,230 7,505,753
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
27
NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Segment analysis (continued)
The country breakdown of non-current investments and non-current derivatives held at year end is as follows:
As at
30/04/2015
€
As at
30/04/2014
€
Non-current investments
United States of America 107,417,489 42,188,002
France 93,815,107 38,623,979
The Netherlands 53,861,541 30,130,995
Belgium 42,216,726 20,803,723
United Kingdom 41,050,792 36,534,738
Austria 33,565,385 13,659,351
Sweden 33,371,569 11,309,804
Australia 31,022,110 9,679,693
Finland 17,441,749 -
Canada 13,882,458 6,683,035
Switzerland 11,954,159 5,218,918
Norway 10,004,192 2,431,213
Poland 8,446,700 2,557,210
Italy 5,768,650 9,175,700
Germany 5,336,291 1,080,190
Japan 4,559,859 3,753,669
Slovakia 4,482,752 -
Denmark 3,030,160 6,620,967
Spain 2,388,260 6,445,325
Czech Republic 1,496,885 1,518,985
Ireland 725,221 9,416,413
Rest of Europe 301,983 308,137
526,140,038 258,140,047
Non-current derivatives
Belgium (38,543,171) (16,020,471)
(38,543,171) (16,020,471)
Due to the diversity of the portfolio of investments held no interest income earned from an individual
investment exceeds 10% of total interest income for the financial year ended 30 April 2015.
18. Financial instruments, principal risks and uncertainties
The principal risks and uncertainties of the business relate to credit/counterparty risk, concentration risk,
liquidity risk, market risk and operational risk.
(a) Credit/counterparty risk
Credit/counterparty risk is the risk of financial loss to the Company if a counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Company’s portfolio of investments and
derivatives. All the short duration noteholders share all of the risks and rewards of the investments in the short
duration portfolio on a pro-rata basis and all the long duration noteholders share the risks and rewards of the
investments in the long duration portfolio on a pro-rata basis.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
28
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(a) Credit/counterparty risk (continued)
The maximum gross exposure to credit/counterparty risk at the statement of financial position date was:
As at
30/04/2015
As at
30/04/2014
Short Duration € €
Financial assets designated at fair value through profit or loss 201,408,356 70,213,159
Derivatives held for trading 382,721 147,717
Cash and cash equivalents 1,960,860 1,288,166
Fee income receivable 5,839 -
Interest receivable on investments 2,124,408 394,288
Amounts receivable from broker 206,707 175
206,088,891 72,043,505
As at
30/04/2015
As at
30/04/2014
Long Duration € €
Financial assets designated at fair value through profit or loss 387,887,470 238,902,174
Derivatives held for trading 3,185,958 456,905
Cash and cash equivalents 3,393,541 659,753
Fee income receivable 14,748 6,584
Interest receivable on investments 4,629,524 2,515,723
Amounts receivable from broker 4,494,549 25,426
403,605,790 242,566,565
No financial asset is past due. The Company’s net exposure to credit/counterparty risk is minimal as the notes
issued by it are limited recourse. Consequently, any loss suffered on the assets held will reduce the amount
which the Company is required to pay to the noteholders and therefore does not result in a loss to the Company.
Management have outsourced the responsibility of monitoring credit/counterparty risk to KBC Asset
Management NV.
KBC Asset Management NV’s Risk department monitors the credit/counterparty risk for the Company by
monitoring external credit ratings for the investments held by the Company on a monthly basis. The following
are the minimum credit ratings for investments held by the Company, which the KBC Asset Management NV’s
Risk department monitors during its review:
• The minimum short term credit rating is at least A-1 from Standard & Poor’s or an equivalent short
term credit rating from Moody’s or Fitch. If a short term security is not rated by any of these credit
rating agencies, it must have a short term credit/counterparty risk profile equivalent to, or better than,
in the opinion of the KBC Asset Management NV’s Risk department, a short term credit rating of A-1
from Standard & Poor’s.
• The minimum longer term credit rating is at least A- from Standard & Poor’s or an equivalent long
term credit rating from Moody’s or Fitch. If a long term security is not rated by any of these credit
rating agencies, it must have a long term credit/counterparty risk profile equivalent to, or better than, in
the opinion of the KBC Asset Management NV’s Risk department, a long term credit rating of A- from
Standard & Poor’s.
• There are certain specified securities in the Company’s prospectus that may be invested into even if
they fall outside the above credit ratings. There is a maximum notional amount that can be invested
into these specified securities.
The following is the breakdown of the credit ratings for the financial assets designated at fair value through
profit or loss held by the Company as at 30 April 2015. The financial assets are assigned either a long term or
short term credit rating based on their original maturity at the date of purchase:
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
29
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(a) Credit/counterparty risk (continued)
Short Duration
Rating Rating agency
As at
30/04/2015
As at
30/04/2014
Long term % %
AAA Standard & Poor’s 0.30 -
AA+ Standard & Poor’s 5.76 3.34
AA Standard & Poor’s 8.92 24.14
AA- Standard & Poor’s 9.31 4.44
A+ Standard & Poor’s 6.85 6.42
A Standard & Poor’s 29.83 12.18
A- Standard & Poor’s 16.81 2.51
BBB+ Standard & Poor’s 0.66 -
Aa2 Moody’s 1.19 -
Aa3 Moody’s 1.31 2.90
A2 Moody’s 5.27 -
Baa2 Moody’s - 5.53
Ba1 Moody’s 2.49 -
AA- Fitch 0.60 -
A Fitch 0.68 -
89.98 61.46
Short term
A-1+ Standard & Poor’s 1.44 17.94
A-1 Standard & Poor’s 5.09 19.11
A-2 Standard & Poor’s 1.24 -
F1 Fitch 2.25 1.49
10.02 38.54
Long Duration
Long term
AAA Standard & Poor’s 2.57 0.64
AA+ Standard & Poor’s 6.83 6.45
AA Standard & Poor’s 5.44 5.15
AA- Standard & Poor’s 12.00 16.17
A+ Standard & Poor’s 6.01 9.30
A Standard & Poor’s 28.26 13.93
A- Standard & Poor’s 14.36 11.31
Aaa Moody’s 4.78 3.59
Aa1 Moody’s 6.37 6.36
Aa2 Moody’s 1.49 1.49
Aa3 Moody’s 4.63 3.53
A1 Moody’s - 3.36
A2 Moody’s 1.80 2.78
A3 Moody’s 0.38 0.22
Baa1 Moody’s 1.36 2.48
Baa3 Moody’s 1.74 1.14
Ba1 Moody’s - 4.97
Aaa Fitch 0.34 0.54
AA Fitch 0.55 2.12
A- Fitch - 0.64
98.91 96.17
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
30
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(a) Credit/counterparty risk (continued)
Long Duration (continued)
Rating Rating agency
As at
30/04/2015
As at
30/04/2014
Short term % %
A-1+ Standard & Poor’s - 2.07
A-1 Standard & Poor’s 1.09 0.59
F1+ Fitch - 1.17
1.09 3.83
As at 30 April 2015, one bond had a Standard & Poor’s rating of BBB+, one bond had a Moody’s rating of
Baa1, two bonds had a Moody’s rating of Baa3 and one bond had a Moody’s rating of Ba1. At the date these
bonds were purchased they met the minimum credit rating. The holding of these investments was approved by
the KBC Asset Management NV Allocation Committee. All other holdings meet the minimum rating
requirements. KBC Bank NV is the swap counterparty for all derivatives held for trading. All cash balances are
also held with KBC Bank NV. KBC Bank NV had an “A-1” (30 April 2014: “A-1”) short term rating and an
“A” (30 April 2014: “A”) long term credit rating from Standard & Poor’s as at 30 April 2015. All collateral
cash balances and money market funds investments obtained and re-invested under the bond lending agreement
are held with Société Générale S.A.. Société Générale S.A. had an “A-1” (30 April 2014: “A-1”) short term
rating and an “A” (30 April 2014: “A”) long term credit rating from Standard & Poor’s as at 30 April 2015. The
credit risk under the bond lending agreement is with Société Générale S.A. due to the indemnity that Société
Générale S.A. has given to the Company. If the counterparty defaults and does not return the bonds lent and if
the proceeds from the re-invested collateral (collateral cash balances and money market funds) is not sufficient
or there is no collateral available, the purchase of replacement securities to the bonds lent shall be made at the
expense of Société Générale S.A..
KBC Asset Management NV’s Risk department monitors the credit/counterparty risk for the derivatives entered
into by the Company. Derivative counterparties are required to be eligible financial institutions. Eligible
financial institutions are defined as any financial institution subject to prudential rules applicable to financial
institutions having their registered offices in the European Economic Area, or equivalent prudential rules. KBC
Bank NV is deemed to be an eligible financial institution throughout 2015 and 2014. The Company has entered
into an ISDA Master Agreement and Credit Support Annex with KBC Bank NV. All derivatives entered into
the Company have to be fully collateralised. The Company’s portfolio manager in KBC Asset Management NV
calculates collateral requirements and appropriate collateral postings are made on a fortnightly basis. The
collateral postings are monitored by KBC Asset Management NV risk department. The main forms of collateral
are cash and government bonds. If the derivative counterparty defaults then the Company can take possession of
the collateral.
(b) Concentration risk
The Company’s financial assets designated at fair value through profit or loss were concentrated in the
following industrial sector types and geographical locations:
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
31
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(b) Concentration risk (continued)
Industry As at
30/04/2015
As at
30/04/2014
Short Duration % %
Banking and financial services 88.28 91.44
Government 8.84 5.79
Telecommunications 2.64 -
Electric utilities 0.24 0.72
Multi-utilities - 2.05
100.00 100.00
Long Duration
Banking and financial services 63.65 67.26
Government 23.03 19.37
Energy equipment and services 2.92 -
Gas utilities 1.68 -
Telecommunications 1.36 2.48
Real estate 1.36 2.18
Beverages 1.11 -
IT services 1.10 1.73
Automobiles 1.05 1.90
Computers and peripherals 0.84 0.69
Electric utilities 0.78 0.30
Food products 0.59 -
Pharmaceuticals 0.53 0.71
Other - 3.38
100.00 100.00
Country As at
30/04/2015
As at
30/04/2014
Short Duration % %
United States of America 20.53 28.26
France 12.85 3.76
The Netherlands 9.81 5.17
Sweden 8.16 4.61
Australia 7.83 0.31
United Kingdom 7.55 3.96
Belgium 4.13 5.53
Germany 3.13 18.40
Finland 3.10 -
Norway 2.82 -
Japan 2.71 14.89
Austria 2.59 2.45
Switzerland 2.51 -
Ireland 2.48 -
Poland 2.27 -
Italy 1.76 4.26
Luxemburg 1.61 1.49
Canada 1.49 -
Denmark 1.48 6.48
Spain 1.19 -
Other - 0.43
100.00 100.00
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
32
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(b) Concentration risk (continued)
As at
30/04/2015
As at
30/04/2014
Long Duration % %
France 19.03 16.79
United States of America 17.08 9.35
United Kingdom 9.97 14.26
The Netherlands 9.69 11.09
Belgium 8.83 9.53
Austria 7.31 5.72
Sweden 5.50 4.21
Australia 3.93 4.05
Canada 3.58 2.80
Switzerland 3.08 2.18
Finland 2.89 -
Poland 2.17 -
Norway 1.69 1.02
Italy 1.49 3.84
Germany 1.38 2.52
Slovakia 1.16 -
Denmark 0.64 2.01
Czech Republic 0.39 -
Ireland 0.19 6.20
Spain - 2.70
Other - 1.73
100.00 100.00
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company hedges liquidity risk through the issuance of notes with similar maturity dates as the investments to
be acquired with the issuance proceeds and with corresponding payment dates on the notes issued to the
investments held. It also hedges liquidity risk by investing a significant percentage of the issuance proceeds into
short term liquid investments. Management have outsourced the responsibility of monitoring liquidity risk to
KBC Asset Management NV.
As at 30 April 2015
Carrying
amount
€
Gross
contractual cash
flows
€
Less than one
year
€
Greater than
one year
€
Financial assets designated at fair
value through profit or loss 589,295,826 551,198,850 62,685,919 488,512,931
Derivatives held for trading 3,568,679 3,568,679 25,285 3,543,394
Cash and cash equivalents 5,354,401 5,354,401 5,354,401 -
Interest receivable on investments 6,753,932 181,433,000 21,905,964 159,527,036
Bond lending fee income receivable 20,587 20,587 20,587 -
Amounts receivable from broker 4,701,256 4,701,256 4,701,256 -
609,694,681 746,276,773 94,693,412 651,583,361
Financial liabilities designated at fair
value through profit or loss (561,139,774) (523,042,799) - (523,042,799)
Derivatives held for trading (43,245,333) (43,245,333) (1,158,768) (42,086,565)
Interest payable on notes issued (495,469) (175,174,536) (15,647,500) (159,527,036)
Expense accruals (15,299) (15,299) (15,299) -
Taxation payable (250) (250) (250) -
Amounts payable to broker (4,756,525) (4,756,525) (4,756,525) -
(609,652,650) (746,234,742) (21,578,342) (724,656,400)
(42,031) (42,031) 73,115,070 (73,073,039)
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
33
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(c) Liquidity risk (continued)
As at 30 April 2014
Carrying
amount
€
Gross
contractual cash
flows
€
Less than one
year
€
Greater than
one year
€
Financial assets designated at fair
value through profit or loss 309,115,333 295,767,796 51,003,824 244,763,972
Derivatives held for trading 604,622 604,622 217,153 387,469
Cash and cash equivalents 1,947,919 1,947,919 1,947,919 -
Interest receivable on investments 2,910,011 145,492,258 10,214,482 135,277,776
Bond lending fee income receivable 6,584 6,584 6,584 -
Amounts receivable from broker 25,601 25,601 25,601 -
314,610,070 443,844,780 63,415,563 380,429,217
Financial liabilities designated at fair
value through profit or loss (293,739,298) (280,391,761) (54,407,020) (225,984,741)
Derivatives held for trading (16,728,772) (16,728,772) (320,832) (16,407,940)
Interest payable on notes issued (435,055) (143,017,302) (7,739,524) (135,277,778)
Expense accruals (18,957) (18,957) (18,957) -
Amounts payable to broker (3,645,707) (3,645,707) (3,645,707) -
(314,567,789) (443,802,499) (66,132,040) (377,670,459)
42,281 42,281 (2,716,477) 2,758,758
(d) Market risk
Market risk represents the potential for both losses and gains and includes currency risk, interest rate risk and
other price risk. Management have outsourced the responsibility of monitoring market risk to KBC Asset
Management NV.
(i) Currency risk
The Company is exposed to exchange rate movements between EUR, its functional currency, and certain
foreign currencies, namely Czech Koruna (CZK), US Dollar (USD), Hungarian Forint (HUF) and Polish Zloty
(PLN). The Company’s financial statements are denominated in EUR while the investments purchased by the
Company can be denominated in other currencies.
Changes in rates of exchange may have an effect on the value of or the income from these investments. The
Company manages currency risk by issuing notes in currencies other than EUR and through entering into cross
currency swaps.
The Company used the following exchange rates to retranslate balances denominated in foreign currencies at
the statement of financial position date:
As at
30/04/2015
As at
30/04/2014
€ €
USD 1.1206 1.3866
GBP 0.7292 0.8212
CZK 27.4290 27.4675
HUF 303.2050 307.3200
PLN 4.0442 4.1978
Details of the foreign currency investments held by and notes issued by the Company are shown below along
with the foreign currency swaps entered into to mitigate currency risk on investments acquired in different
currencies to the notes issued.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
34
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(d) Market risk (continued)
(i) Currency risk (continued)
As at 30 April 2015
CZK
€
USD
€
HUF
€
PLN
€
Total
€
Investments held (at
nominal amounts)
- Short duration - 28,278,078 26,385 333,811 28,638,274
- Long duration 2,460,899 80,679,131 - - 83,140,030
2,460,899 108,957,209 26,385 333,811 111,778,304
Cash and cash
equivalents
- Short duration 1,014,997 137,574 3,313 23,547 1,179,431
- Long duration 588,950 630,923 - - 1,219,873
1,603,947 768,497 3,313 23,547 2,399,304
Notes issued (at nominal
amounts)
- Short duration (14,683,364) (21,934,764) (26,385) (1,291,974) (37,936,487)
- Long duration (16,181,778) (122,598,724) - - (138,780,502)
(30,865,142) (144,533,488) (26,385) (1,291,974) (176,716,989)
(26,800,296) (34,807,782) 3,313 (934,616) (62,539,381)
As at 30 April 2014
CZK
€
USD
€
HUF
€
PLN
€
Total
€
Investments held (at
nominal amounts)
- Short duration - 13,955,501 32,539 1,810,472 15,798,512
- Long duration 2,457,450 49,695,287 - - 52,152,737
2,457,450 63,650,788 32,539 1,810,472 67,951,249
Cash and cash
equivalents
- Short duration 1,089,210 37,199 5,988 3,314 1,135,711
- Long duration 436,364 49,259 - - 485,623
1,525,574 86,458 5,988 3,314 1,621,334
Notes issued (at nominal
amounts)
- Short duration (12,751,434) (6,507,519) (27,658) (4,443,994) (23,730,605)
- Long duration (16,950,942) (60,690,202) - - (77,641,144)
(29,702,376) (67,197,721) (27,658) (4,443,994) (101,371,749)
(25,719,352) (3,460,475) 10,869 (2,630,208) (31,799,166)
The cross currency swaps entered into to mitigate currency risk on investments acquired in different currencies
to the notes issued are as follows:
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
35
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(d) Market risk (continued)
(i) Currency risk (continued)
As at 30 April 2015
CZK
€
USD
€
PLN
€
Total
€
Swaps (at nominal amounts)
- Short duration (12,625,000) 5,345,223 (1,000,000) (8,279,777)
- Long duration (11,778,101) (37,749,653) - (49,527,754)
Forwards (at nominal amounts)
- Short duration (1,898,671) - - (1,898,671)
(26,301,772) (32,404,430) (1,000,000) (59,706,202)
As at 30 April 2014
CZK
€
USD
€
PLN
€
Total
€
Swaps (at nominal amounts)
- Short duration (8,205,000) 7,212,145 (2,895,000) (3,887,855)
- Long duration (12,762,550) (17,655,929) - (30,418,479)
Forwards (at nominal amounts)
- Short duration (4,245,866) - - (4,245,866)
- Long duration (249,957) - - (249,957)
(25,463,373) (10,443,784) (2,895,000) (38,802,157)
(ii) Interest rate risk
The Company is exposed to changes in its cost of financing arising from movements in the EURIBOR, USD
LIBOR, PRIBOR, BUBOR and WIBOR rates which respectively form the basis of the interest payments on the
EUR, USD, CZK, HUF and PLN notes issued by it. Increase in these rates increase the cost of funding. Due to
the limited recourse nature of the notes issued, the Company is only required to pay the interest if it has
collected sufficient funds to cover the amount due after having retained a profit of €1,000 per annum for the
Company. As such the Company has no net exposure to interest rate risk.
The Company issues notes and enters into swaps to hedge interest rate risk.
The interest rate risk profile of the Company’s financial assets and liabilities designated at fair value was as follows:
As at 30 April 2015
Maturity less than
1 year
Maturity greater
than 1 year
Financial assets designated at fair value through profit or loss € €
Floating rate
- Short duration 5,001,754 17,685,850
- Long duration - 22,043,234
5,001,754 39,729,084
Fixed rate
- Short duration 53,956,602 124,764,150
- Long duration 4,197,432 361,646,804
58,154,034 486,410,954
63,155,788 526,140,038
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
36
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(d) Market risk (continued)
(ii) Interest rate risk
As at 30 April 2014
(iii) Other price risk
Price risk is the risk that the value of financial instruments will fluctuate as a result of changes in the market
prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all
instruments traded in the market. The financial assets designated at fair value through profit or loss held by the
Company, as disclosed in Note 12 “Financial assets designated at fair value through profit or loss”, are exposed
to price risk but the Company has no net exposure to price risk due to the fact that the notes issued by it are
limited recourse to the investments acquired with the issuance proceeds. Consequently, any price gains or losses
on the investments held are exactly offset by corresponding gains or losses on the notes issued with no loss to
the Company. There are no differences in the exposure to price risk between individual series of notes issued by
the Company.
As at 30 April 2015 (continued)
Maturity less than
1 year
Maturity greater
than 1 year
Financial liabilities designated at fair value through profit or loss € €
Floating rate
- Short duration - (190,548,398)
- Long duration - (370,591,376)
- (561,139,774)
Derivatives held for trading
- Short duration (1,134,814) (9,340,900)
- Long duration - (29,202,271)
(1,136,145) (38,543,171)
Financial assets designated at fair value through profit or loss
Floating rate
- Short duration 2,992,200 16,946,260
- Long duration 5,391,832 10,789,034
8,384,032 27,735,294
Fixed rate
- Short duration 30,500,157 19,774,542
- Long duration 12,091,097 210,630,211
42,591,254 230,404,753
50,975,286 258,140,047
Financial liabilities designated at fair value through profit or loss
Floating rate
- Short duration (55,187,635) (15,387,641)
- Long duration - (223,164,022)
(55,187,635) (238,551,663)
Derivatives held for trading
- Short duration (163,498) (1,024,408)
- Long duration 62,678 (14,996,063)
(100,820) (16,020,471)
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
37
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(d) Market risk (continued)
(iii) Other price risk (continued)
Each series of note is exposed to a pro-rata share of the gains or losses on the investments held. KBC Asset
Management NV, the Company’s portfolio manager monitors market price fluctuations on the investments held
by the Company on a daily basis. Market price fluctuations are one of the key drivers in the investment
allocations made by the portfolio manager. Market prices are obtained from independent price sources. KBC
Asset Management NV also monitors the Company’s exposures to countries and industries. The limiting of
exposures to various countries and industries is a key method of managing price risk. The Company’s exposure
to countries and industries is set out in Note 18(b) “Financial instruments, principal risks and uncertainties:
Concentration risk”. Another key method is that the Company can only hold investments with a minimum
credit rating. The credit rating breakdown of investments held is set out in Note 18(a) “Financial instruments,
principal risks and uncertainties: Credit/counterparty risk”. The Company also manages price risk by investing
in a diverse portfolio of investments. The Company may not hold 10% of investments in the same issuer and is
limited to an aggregate investment of 40% in individual issuers of greater than 5% of investments held.
(e) Sensitivity analysis
(i) Currency risk
The Company purchases investments in multiple currencies. These investment purchases are funded through the
issuance of notes in either the same currency as the investment purchased or in a different currency to the
investments acquired with currency risk being hedged through the use of swap agreements. Any gains or losses
in terms of currency movements on the investments are offset by corresponding movements on the related notes
issued or swap agreements entered into.
The Company’s sensitivity to a movement in each applicable currency exchange rate is set out below (prior to
the impact of derivative movements). The rates used in the sensitivity analysis per currency are as follows:
2015 2014
USD 16% 17%
CZK 11% 12%
HUF 16% 16%
PLN 17% 18%
GBP 15% 16%
As at 30 April 2015 CZK
€
USD
€
HUF
€
PLN
€
Investments held (at nominal amounts)
- Short duration - 3,900,425 3,639 48,503
- Long duration 243,873 11,128,156 - -
243,873 15,028,581 3,639 48,503
Cash and cash equivalents
- Short duration 100,585 18,976 457 3,421
- Long duration 58,364 87,024 - -
158,949 106,000 457 3,421
Notes issued (at nominal amounts)
- Short duration 1,455,108 3,025,485 3,639 187,723
- Long duration 1,603,600 16,910,169 - -
3,058,708 19,935,654 3,639 187,723
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
38
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(e) Sensitivity analysis (continued)
(i) Currency risk (continued)
As at 30 April 2014 CZK
€
USD
€
HUF
€
PLN
€
Investments held (at nominal amounts)
- Short duration - 2,027,722 4,488 276,174
- Long duration 263,298 7,220,683 - -
263,298 9,248,405 4,488 276,174
Cash and cash equivalents
- Short duration 116,701 5,405 826 506
- Long duration 46,753 7,157 - -
163,454 12,562 826 506
Notes issued (at nominal amounts)
- Short duration 1,366,225 945,537 3,815 677,897
- Long duration 1,816,172 8,818,235 - -
3,182,397 9,763,772 3,815 677,897
(ii) Interest rate risk
Due to the limited recourse nature of the notes issued the Company is only required to pay the interest if it has
collected sufficient funds to cover the amount due after having retained a reserved profit of €1,000 per annum
for the Company. As such the Company has no net exposure to interest rate risk.
The Company’s sensitivity to an increase and decrease in interest rates is set out below. The rates used in the
sensitivity analysis are as follows:
2015 2014
EUR 3% 3% USD 2% 2% CZK 2% 2% PLN 4% 4%
The Company does not monitor HUF due to the low level of notes issued in this currency.
As at
31/04/2015
As at
31/04/2014
Short Duration € €
EUR interest payable on notes issued +/- 1,140 +/-1,368
USD interest payable on notes issued +/- 747 +/-160
CZK interest payable on notes issued +/- 99 +/-135
PLN interest payable on notes issued +/- 158 +/-804
Long Duration
EUR interest payable on notes issued +/- 5,010 +/-5,113
USD interest payable on notes issued +/- 4,622 +/-3,098
CZK interest payable on notes issued +/- 259 +/-580
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
39
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(e) Sensitivity analysis (continued)
(iii) Other price risk
The financial assets of the Company are subject to market fluctuations and the risks inherent in all investments.
Any change in the fair value of the investments will be offset by a corresponding change in the fair value of the
notes. The Company’s sensitivity to a 5% increase and decrease in market prices is as follows:
As at
31/04/2015
As at
31/04/2014 Short Duration € €
Movement in fair value of bonds held for 5% change in market prices +/- 9,059,916 +/- 2,157,589
Movement in fair value of commercial papers held for 5% change in
market prices
+/- 992,492 +/- 1,260,945
Movement in fair value of time deposits held for 5% change in market
prices
+/- 18,010 +/- 92,124
Long Duration
Movement in fair value of bonds held for 5% change in market prices +/- 19,071,444 +/- 11,374,207
Movement in fair value of commercial papers held for 5% change in
market prices
+/- 209,872 +/- 457,424
Movement in fair value of time deposits held for 5% change in market
prices
+/- 113,058 +/- 113,477
(f) Operational risk exposure
The Company has appointed KBC Asset Management NV as portfolio manager and administrator, KBC Bank
NV as custodian and KBC Bank (Ireland) Plc as Corporate Accounting Administrator. The successful operation
of this Company is therefore reliant on KBC Group NV companies.
(g) Collateral
The total financial assets of the Company are charged to BNY Corporate Trustee Services Limited (the
“Trustee”) as follows:
As at
31/04/2015
As at
31/04/2014
Financial assets designated at fair value through profit or loss € €
- Short duration 201,408,356 70,213,159
- Long duration 387,887,470 238,902,174
589,295,826 309,115,333
Cash and cash equivalents
- Short duration 1,960,860 1,288,166
- Long duration 3,393,541 659,753
5,354,401 1,947,919
The assets are charged by way of first fixed security. The Trustee is required once the first fixed security
becomes enforceable and the net proceeds are realised to apply the proceeds to clear the following ranked
obligations on a pro rata basis:
• receivership costs;
• general administrative costs;
• interest to noteholders;
• repayment of principal to noteholders;
• any amounts payable to a swap counterparty; and
• the balance of proceeds (if any) to the Company.
The first fixed security is only enforceable on the occurrence of a continuing general event of default as
described in the Company’s Master Trust Deed.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
40
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(g) Collateral (continued)
On such event the Trustee may at its discretion, or shall, if so requested in writing by the noteholders of at least
one-fifth of the notes then outstanding or, if so directed by an Extraordinary Resolution of such noteholders,
enforce the first fixed security. The following events are deemed to be general events of default:
• The Company defaults in the payment of any redemption amount or defaults for a period of 14 days
or more in the payment of any sum other than redemption amounts due to noteholders;
• The Company fails to perform or observe any of its obligations under the note term sheets or Trust
Deed and such failure continues for a period of 30 days;
• The Company is deemed to be unable to pay its debts as and when they fall due;
• The Company is subject to any order made by any competent court or any resolution passed for the
winding-up or dissolution of the company or subject to any insolvency, bankruptcy, compulsory
liquidation, examination, controlled management procedures or suspension of payments.
The terms and conditions for the first fixed security are set out in the Company’s €40,000,000,000 Base
Prospectus and Master Trust Deed and are usual and customary for note issuers.
The Company has pledged €11,285,746 (2014: €1,916,387) of its short duration investments and €29,896,172
(2014: €15,637,641) of its long duration investments as collateral for derivative contracts. Eligible investments
that can be pledged as collateral are euro denominated negotiable debt obligations issued by the governments of
Austria, Belgium (including Flanders), Finland, France (including Caisse d’Amortissement de la Dette
Sociale), Germany (including KfW Bankendgruppe), Italy, Luxembourg, the Netherlands, Czech Republic,
Poland and the European Union provided that:
• the lower of the long term credit rating assigned to these investments is at least BBB+ under Standard
& Poor’s, Baa1 under Moody’s or BBB+ under Fitch; and
• valuations for the investments can be obtained on a daily basis from the valuation agent.
The Company commenced bond lending in February 2014. Société Générale S.A. was appointed as the agent to
lend bonds to an approved list of counterparties under the terms of a securities lending agreement. Bonds may
only be lent to counterparties against the transfer of eligible collateral. Eligible collateral is cash in USD or
EUR with a margin of 100.20% for any bonds lent with a remaining maturity less than 5 years and 101% for
any bonds lent with a remaining maturity over 5 years. This collateral is then re-invested by the Company to
earn a return. The following are the re-investment parameters under the securities lending agreement:
• Time deposits and cash accounts with credit institutions with their registered office in the EEA, at least
an A1/P rating and approved beforehand by KBC Asset Management. Each of the credit institutions
can hold maximum 20% of the collateral. Collateral delivered by a financial institution cannot be
invested into an account or time deposit at the same financial institution.
• Maximum 100% in short money market funds provided that:
- no money market fund accounts for more than 20% of the value of the collateral and;
- the money market funds are approved by KBC Asset Management
• Maximum 60% in government bonds, provided that:
- rating at least AA- (Bloomberg Composite) and;
- maximum remaining lifetime of 9 months and;
- only government bonds of EU countries (excluding Luxembourg), the USA, Canada, Australia
and Norway are eligible and;
- maximum 20% of the Company’s market value of the assets under management in any single
sovereign issuer
• the re-invested collateral is to be in the same currency as the collateral originally received from the
securities lending counterparty.
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
41
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(g) Collateral (continued)
The following is the breakdown of the bond lending and the collateral held by Société Générale S.A. on behalf
of the Company:
As at
30/04/2015
As at
30/04/2014
€ €
Short duration
Bonds lent 70,635,738 871,923
Unsettled bond lending transaction - -
Cash collateral (150,627) -
Money market funds (72,283,596) -
(1,798,485) 871,923
Long duration
Bonds lent 167,739,120 18,759,984
Unsettled bond lending transaction (10,787,680) -
Cash collateral (224,532) (121,016)
Money market funds (159,298,259) (19,555,617)
(2,571,351) (916,649)
The cash collateral and money market funds are charged to BNY Corporate Trustee Services Limited. If the
Company fails to return the collateral to the bond lending counterparties once the counterparty has returned the
bonds lent the amounts due between the Company and the counterparty are offset. This in effect means that the
counterparty will retain the bonds and will either pay over additional funds to the Company if the bonds are
worth more than the collateral retained or the Company will be obligated to pay additional funds to the
Counterparty if the bonds are worth less than the collateral retained by the Company.
(h) Fair values
The accounting policies regarding the fair value hierarchy are set out in Note 2(f) “Use of estimates and
judgements” and Note 3(f) “Financial instruments: Fair Value Measurement Principles”.
The following table analyses within the fair value hierarchy the Company’s financial assets and liabilities
measured at fair value at 30 April 2014:
As at 30 April 2015
Level 1
€
Level 2
€
Level 3
€
Total balance
€
Financial assets designated at fair value
through profit or loss
Bonds 546,261,219 16,365,976 - 562,627,195
Commercial Papers - 24,047,278 - 24,047,278
Time Deposits - 2,621,353 - 2,621,353
550,868,329 43,034,607 - 589,295,826
Derivatives held for trading
Cross currency swaps - (4,483,092) - (4,483,092)
Interest rate swaps - (35,194,893) - (35,194,893)
Currency forwards - 1,331 - 1,331
- (39,676,654) - (39,676,654)
Financial liabilities designated at fair value
through profit or loss
Notes issued - - (561,139,774) (561,139,774)
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
42
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(h) Fair values (continued)
As at 30 April 2014
Level 1
€
Level 2
€
Level 3
€
Total balance
€
Financial assets designated at fair value
through profit or loss
Bonds 253,366,046 17,269,870 - 270,635,916
Commercial Papers - 34,367,387 - 34,367,387
Time Deposits - 4,112,030 - 4,112,030
253,366,046 55,749,287 - 309,115,333
Derivatives held for trading
Cross currency swaps - (5,208,041) - (5,208,041)
Interest rate swaps - (10,913,250) - (10,913,250)
Currency forwards - (2,859) - (2,859)
- (16,124,150) - (16,124,150)
Financial liabilities designated at fair value
through profit or loss
Notes issued - - (293,739,298) (293,739,298)
There were no transfers between levels during the year.
A reconciliation of all movements in the fair value of financial liabilities categorised within Level 3 is presented
below:
Level 3
Notes issued
30/04/2015
Level 3
Notes issued
30/04/2014
€ €
Opening balance 293,739,298 295,308,437
Redemption of notes issued (215,748,251) (283,368,273)
Unsettled redemptions of notes (55,486) -
Issuance of notes issued 458,426,981 284,387,452
Loss/(gain) on notes issued 24,777,232 (2,588,318)
Closing balance 561,139,774 293,739,298
The inputs into the model used to determine the fair value of the notes issued which fall under Level 3 of the
fair value hierarchy are set out in Note 3(f) “Financial Instruments: Fair Value Measurement Principles”.
No sensitivity analysis for the impact of changes in these inputs is disclosed as:
• It is not practical to do so due to the diverse portfolio of the underlying investments and derivatives
held by the Company;
• The Company has no net exposure to changes in fair valuation movements due to the limited recourse
nature of the notes issued by the Company.
The financial assets and liabilities carried at amortised cost are short term financial assets and financial
liabilities whose carrying amounts approximate fair value.
The following table sets out the fair values of financial assets and liabilities not measured at fair value and
analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised:
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
43
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(h) Fair values (continued)
As at 30 April 2015
Level 1
€
Level 2
€
Level 3
€
Total balance
€
Financial assets at amortised cost
Cash and cash equivalents - 5,354,401 - 5354,401
Amounts receivable from broker - 4,701,256 - 4,701,256
Interest receivable on investments - 6,753,932 - 6,753,932
Bond fee income receivable - 20,587 - 20,587
- 16,830,176 - 16,830,176
Financial liabilities at amortised cost
Amounts payable to broker - (4,756,525) - (4,756,525)
Interest payable on notes issued - (495,469) - (495,469)
Expense accruals - - (15,299) (15,299)
- - (250) (250)
- (5,251,994) (15,549) (5,267,543)
As at 30 April 2014
Level 1
€
Level 2
€
Level 3
€
Total balance
€
Financial assets at amortised cost
Cash and cash equivalents - 1,947,919 - 1,947,919
Amounts receivable from broker - 25,601 - 25,601
Interest receivable on investments - 2,910,011 - 2,910,011
Bond fee income receivable - 6,584 - 6,584
- 4,890,115 - 4,890,115
Financial liabilities at amortised cost
Amounts payable to broker - (3,645,707) - (3,645,707)
Interest payable on notes issued - (435,055) - (435,055)
Expense accruals - - (18,957) (18,957)
- (4,080,762) (18,957) (4,099,719)
(i) Offsetting financial assets and financial liabilities
The Company has entered into an ISDA Master Agreement and Credit Support Annex with KBC Bank NV.
The ISDA Master Agreement creates a right of set-off of recognised amounts that is enforceable on event of
default, insolvency or bankruptcy of the Company or KBC Bank NV. All derivatives entered into by the
Company have to be fully collateralised on a net basis. The Company’s portfolio manager in KBC Asset
Management NV calculates collateral requirements and appropriate collateral postings are made on a fortnightly
basis. Such collateral is subject to the standard industry terms of ISDA Master Agreements and Credit Support
Annex. This means that securities received/given can be pledged or sold during the term of the transaction but
have to be returned on maturity of the transaction. The terms also give each counterparty the right to terminate
the related transactions on the counterparty’s failure to post collateral.
There are no offsets of derivative financial assets and liabilities presented in the statement of financial position.
The following table sets out the derivative financial assets and liabilities that are subject to an enforceable
master netting arrangement and similar agreement by way of the ISDA Master Agreement and Credit Support
Annex with KBC Bank NV.
Derivatives held for trading
As at
30/04/2015
€
As at
30/04/2014
€
Gross amount of financial assets 3,568,679 604,622
Gross amount of financial liabilities (43,245,333) (16,728,772)
Net derivatives held for trading liability (39,676,654) (16,124,150)
Bonds pledged as collateral 41,181,918 17,554,028
Net derivative exposure 1,505,264 1,429,878
VESPUCCI STRUCTURED FINANCIAL PRODUCTS PLC
DIRECTORS’ REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 APRIL 2015
44
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Financial instruments, principal risks and uncertainties (continued)
(i) Offsetting financial assets and financial liabilities
The Company is engaged in bond lending under the terms of a securities lending agreement. Bonds may only
be lent to counterparties against the transfer of eligible collateral. Details of this are set out in Note 18 (g)
“Financial instruments, principal risks and uncertainties: Collateral”.
19. Related party transactions
All of the notes issued by the Company for the current and prior financial year are held by KBC Life Assurance
companies, Capital Protected Funds and Arcade Finance Plc which have KBC Asset Management NV acting as
portfolio manager. All interest expense for the current and prior financial year was paid to these companies. The
directors of the Company are also directors of Arcade Finance Plc.
The Bank of New York Mellon (Ireland) Limited, the Company secretary, earned fees of €1,813 (2014: €1,813)
for the financial year, €453 (201: €453) of which was payable as at 30 April 2015.
Koenraad Van de Borne is a director of KBC Fund Management Limited a 100% subsidiary of the Company’s
portfolio manager and administrator. Christiaan Sterckx is a director of KBC Asset Management NV. KBC
Asset Management NV earned fees of €383,388 (2014: €289,203) and €13,500 (2014: €13,500) respectively for
its role as portfolio manager and administrator. Portfolio management fees and administrator fees payable as at
30 April 2015 was €Nil (2014: €Nil) and €Nil (2014: €Nil) respectively.
Christiaan Sterckx and Koenraad Van de Borne did not earn fees for their roles as directors. John Fitzpatrick
and Michael Boyce each receive €1,500 per year for their roles as independent directors. Directors’ fees prepaid
as at 30 April 2015 were €Nil (2014: €Nil).
20. Ownership of the Company 39,994 of the issued shares are held in trust by BNY Corporate Trustee Services Limited. In addition, as of
30 April 2015, Mr. Patrick Joseph Duffy, Ms. Arlene Allen, Mr. Paul Murphy, Ms. Siobhan Burke, Mr.
Anthony Grace and Mr. Michael Devane hold one share each as the “Share Trustees” under the terms of
declarations of trust for BNY Corporate Trustee Services Limited. The Board of Directors have considered the
issue as to who is the controlling party of the Company. It has determined that the control of the day-to-day
activities of the Company rests with the Board.
21. Dividends
On 11 May 2015, the Company paid a dividend of €750 (€0.01875 per ordinary share). The directors proposed
a dividend of €750 on 28 August 2015.
22. Subsequent events On 11 May 2015, the Company paid a dividend of €750 as proposed on 27 August 2014. The directors
proposed a dividend of €750 on 28 August 2015.
23. Approval of financial statements
The financial statements were approved by the board of directors on 28 August 2015.