The Company measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
> Level 1: Quoted market price (unadjusted) in an active
market for an identical instrument.
> Level 2: Valuation techniques based on observable inputs,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
> Level 3: Valuation techniques using significant
unobservable inputs. This category includes all instruments where
the valuation technique includes inputs not based on observable
data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The table below analyses financial instruments, measured at fair
value at the end of the reporting period, by the level in the fair
value hierarchy into which the fair value measurement is
categorised:
Level 1 Level 2 Level 3 Total
At 31 March 2014: GBP'000 GBP'000 GBP'000 GBP'000
Investments at fair value through profit or loss:
-Unlisted Equities - 1,968 9,800 11,768
- 1,968 9,800 11,768
At 31 March 2013: Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments at fair value through profit or loss:
-Unlisted Equities - - 32,800 32,800
- - 32,800 32,800
The following table shows a reconciliation from the beginning
balances to the ending balances for fair value measurements in
Level 3 of the fair value hierarchy of the Company:
Level 3
GBP'000 GBP'000
2014 2013
Opening balance 32,800 74,600
Disposal of investments (5,817) (29,863)
Total fair value gains or losses in profit or loss (15,215) (11,937)
Transfer to level 2 (1,968) -
Closing balance 9,800 32,800
Although the Company believes that its estimates of fair values
are appropriate, the use of different methodologies or assumptions
could lead to different measurements of fair value. Investments
classified with level 3 have significant unobservable inputs, as
they trade infrequently. As observable prices are not available for
these securities, the Company has used valuation techniques to
derive the fair value. Transfers between levels are deemed to take
place at the end of the year.
Level 3 investments have been valued in accordance with the
methodologies in Note 21.8. The value of the investments and the
fair value movements are disclosed in note 8.
Unrealised loss on fair value movements from revaluation of
level 3 investments still held at year end and recognised in the
Statement of Comprehensive Income amounted to GBP12.6 million
(2013: unrealised loss of GBP12.97 million).
Superstroy was valued using 100% EBITDA multiple with 25%
liquidity discount. Unistream was valued using 75% EBITDA multiple
and 25% revenue multiple basis and 30% liquidity discount and KFL
was valued based on an agreed sales price.
The average of the EBITDA multiple range observed when valuing
Superstroy was 7.8x. For Unistream the Revenue multiple observed
was 2.0x and for EBITDA was 7.4x.
Price sensitivity
The sensitivity analysis below has been determined based on the
exposure to equity price risks as at the reporting date.
At the reporting date, if the valuations had been 20% higher
while all other variables were held constant net profit would
increase by GBP2,353,600 (2013: GBP6,560,000) for the Company. This
sensitivity rate was determined by the Directors as reasonable
taking market conditions into account.
If the Revenue multiple weighting was increased by 10% the value
of Superstroy would become GBP2.6 million and Unistream's value
would become GBP9.1 million.
21.7 Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Company is exposed to interest rate risk as a result of the
cash and bank balances that are invested at floating interest
rates. The Company monitors its interest rate exposure regularly
and allocates its cash resources to an appropriate mix of floating
and fixed rate instruments of varying maturities.
The following table details the Company's exposure to interest
rate risk as at period end by the earlier of contractual maturities
or re-pricing:
At 31 March 2014: No Less than 1 months 1 to 2 2 to 5 Greater Total
contractual 1 month to 1 year years than 5
terms of years years
repayment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Non-interest bearing 11,768 - 3 - - - 11,771
Floating interest rate instruments 4,726 - - - - - 4,726
Fixed interest rate instruments - 4,410 - - - - 4,410
Total 16,494 4,410 3 - - - 20,907
Liabilities
Non-interest bearing - - (219) - - (219)
Total - - (219) - - - (219)
Net Exposure 16,494 4,410 (216) - - - 20,688
At 31 March 2013: No Less than 1 months 1 to 2 2 to 5 Greater Total
contractual 1 month to 1 year years than 5
terms of years years
repayment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Non-interest bearing 32,800 - 5,584 1,105 - - 39,489
Floating interest rate instruments 277 - - - - - 277
Fixed interest rate instruments - 22,857 - - - 22,857
Total 33,077 22,857 5,584 1,105 - - 62,623
Liabilities
Non-interest bearing - (456) (364) (611) - (1,431)
Total - (456) (364) (611) - - (1,431)
Net Exposure 33,077 22,401 5,220 494 - - 61,192
* The Company's fixed interest rate instruments represents cash
accounts placed on deposit. The Company does not account for any
fixed rate financial assets and liabilities at fair value through
profit or loss. Therefore a change in interest rates at the
reporting date would not affect profit or loss.
Sensitivity analysis
The sensitivity analysis below has been determined based on the
Company's exposure to interest rates for interest bearing assets
and liabilities at the reporting date and the stipulated change
taking place at the beginning of the financial year and held
constant throughout the reporting period in the case of instruments
that have floating rates.
If interest rates had been 50 basis points higher and all other
variables were held constant, the Company's net profit and equity
for the year ended 31 March 2014 would have increased by GBP23,634
(2013: GBP1,387).
If interest rates had been 50 basis points lower it would have
had the equal but opposite effect, on the basis that all other
variables remain the same.
21.8 Fair value measurement
Methodologies and assumptions used in valuing investments and
investments in subsidiaries:
1) Market Approach:
The market approach uses industry specific benchmarks as its
basis and indicates the market value of the shares of the company
based on a comparison of the subject company to other comparable
companies in similar lines of business that are publicly traded or
which are part of a public or private transaction.
The market comparable method indicates the market value of the
ordinary shares of a business by comparing it to publicly traded
companies in similar lines of business. The conditions and
prospects of companies in similar lines of business depend on
common factors such as overall demand for their products and
services. An analysis of the market multiples of companies engaged
in similar businesses yields insight into investor perceptions and,
therefore, the value of the subject company.
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