Red Bubble Annual Report 2022

10. Financial risk management This note explains the Group’s financial risk management and how the exposure to these risks affects the Group’s future financial performance. The Group’s risk management framework is maintained by senior management through delegation from the Board of Directors. The Board oversees and monitors senior management’s implementation of the Group’s risk management framework. This is based on recommendations from the Audit and Risk Committee, where appropriate. The risk management framework includes policies and procedures approved by the Board and managed by internal legal counsel and the Finance function. Financial assets Notes 2022 $’000 2021 $’000 Cash and cash equivalents 9 89,133 98,686 Other receivables 10(b) 5,314 4,602 Security bonds 11 1,027 1,685 Total financial assets 95,474 104,973 Financial liabilities Notes 2022 $’000 2021 $’000 Fulfiller payables 15 24,203 22,500 Artist payables 15 15,928 12,673 Staff payables 15 4,238 1,602 Other payables 15 11,498 6,810 Lease liabilities 14 9,625 6,002 Total financial liabilities 65,492 49,587 The carrying value of the assets and liabilities (excluding lease liabilities) disclosed in the table equals or closely approximates their fair value. Refer to note 14 for more information on lease liabilities. (a) Market risk Foreign exchange risk The Group collects funds from customers in five currencies (USD, AUD, EUR, CAD and GBP) and maintains bank accounts in these currencies. The Group has liabilities to fulfillers, artists and other suppliers in these currencies. Where possible, the Group settles its liabilities in the native currency hence creating a partial natural hedge. Any surplus funds are converted into the required currencies’ operating accounts when management feels it is prudent to do so. The net exposure to foreign currency financial instruments (expressed in AUD) held by the Group, which are largely held by the US subsidiaries whose functional currency is USD and Redbubble Ltd whose functional currency is AUD, are as follows: Net exposure (asset/(liability) (expressed in $’AUD) GBP $’000 USD $’000 EUR $’000 CAD $’000 Total $’000 30 June 2022 15,794 11,036 16,613 5,103 48,546 30 June 2021 3,924 35,964 4,361 2,809 47,058 The aggregate net foreign exchange gains/(losses) recognised in profit or loss were: 2022 $’000 2021 $’000 Net foreign exchange loss included in other expenses (626) (3,092) Total net foreign exchange losses recognised in profit/(loss) before income tax for the year (626) (3,092) Notes to the Consolidated Financial Statements continued For the Year Ended 30 June 2022 Foreign Currency Sensitivity The following table demonstrates the sensitivity to a reasonably possible change in exchange rates with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. Effect on profit before tax (amounts shown in AUD) Year Change in FX rate GBP $’000 USD $’000 EUR $’000 CAD $’000 Total $’000 30 June 2022 + 10% 1,579 1,104 1,661 510 4,855 - 10% (1,579) (1,104) (1,661) (510) (4,855) 30 June 2021 + 10% 392 3,596 436 281 4,706 - 10% (392) (3,596) (436) (281) (4,706) (b) Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group faces primary credit risk from potential default on receivables by payment service providers. The Group receives payments of the balance due from two of the three service providers, every day, two to three days in arrears. The credit risk of balances held with the third party service provider is managed by regularly sweeping funds out of the provider accounts into a portfolio of managed banking facilities held with highly rated and regulated financial institutions. Cash and bank balances/other financial assets As at 30 June 2022, the Group holds $14.2 million (2021: $1.3 million) in bank deposits and other assets, that attract interest at normal rates. The Group’s bank accounts are predominantly non-interest bearing accounts. The other financial assets include certain other operational deposits over and above the deposits placed with banks as security. The banks with which securities are held are reputable financial institutions and hence, the credit risk is considered low. Other receivables The Group is not exposed to any significant credit risk on account of other receivables. The Group accepts payments either via credit card platforms, PayPal, Amazon Pay, Apple Pay or Buy Now Pay Later (BNPL) platforms. The other receivables balance as at 30 June 2022 represents amounts receivable from these payment service providers and other non-trade receivable balances. It is believed that the credit risk from collections from payment service providers is low. 2022 $’000 2021 $’000 Receivables from payment service providers 1,824 1,526 Other receivables 3,490 3,076 Total other receivables(1) 5,314 4,602 (1) None of the other receivables are impaired or past due date. The Group does not hold any collateral in relation to these receivables. The Group encounters credit card fraud typical of the industry in which it operates, representing less than 0.1% (2021: less than 0.1%) of marketplace revenue. 71 Redbubble – Annual Report 2022 70 Redbubble – Annual Report 2022