Example Disclosure financial instruments

Example Disclosure financial instruments

The guidance for this example disclosure financial instruments is found here.

7 Financial assets and financial liabilities

This note provides information about the group’s financial instruments, including:

• an overview of all financial instruments held by the group
• specific information about each type of financial instrument
• accounting policies
• information about determining the fair value of the instruments, including judgements and estimation uncertainty involved.

The group holds the following financial instruments: [IFRS 7.8]

Amounts in CU’000	Notes	2020	2019
Financial assets
Financial assets at amortised cost
– Trade receivables	7(a)	15,662	8,220
– Other financial assets at amortised cost	7(b)	4,598	3,471
– Cash and cash equivalents	7(e)	55,083	30,299
Financial assets at fair value through other comprehensive income (FVOCI)	7(c)	6,782	7,148
Financial assets at fair value through profit or loss (FVPL)	7(d)	13,690	11,895
Derivative financial instruments
– Used for hedging	12(a)	2,162	2,129
		97,975	63,162
Example Disclosure financial instruments
Financial liabilities
Liabilities at amortised cost
– Trade and other payables1	7(f)	13,700	10,281
– Borrowings	7(g)	97,515	84,595
– Lease liabilities	8(b)	11,501	11,291
Derivative financial instruments
– Used for hedging	12(a)	766	777
– Held for trading at FVPL	12(a)	610	621
		124,092	107,565

The group’s exposure to various risks associated with the financial instruments is discussed in note 12. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. [IFRS 7.36(a), IFRS 7.31, IFRS 7.34(c)]

7(a) Trade receivables

Table based on – [IFRS 15.116(a), IAS 1.77]

Amounts in CU’000	31/12/20	31/12/19	01/01/19
Current assets	16,308	8,570	5,238
Loss allowance (see note 12 (c))	-646	-350	-115
	15,662	8,220	5,123

(i) Classification as trade receivables IAS 1.117

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. [IFRS 7.21, IFRS 9.5.1.3, IFRS 9.4.1.2, IFRS 9.5.4.1]

The group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the group’s impairment policies and the calculation of the loss allowance are provided in note 12(c).

(ii) Transferred receivables

The carrying amounts of the trade receivables include receivables which are subject to a factoring arrangement. Under this arrangement, the Reporting entity Manufacturing Limited has transferred the relevant receivables to the factor in exchange for cash and is prevented from selling or pledging the receivables. However, the Reporting entity Manufacturing Limited has retained late payment and credit risk. [IFRS 7.42D(a)-(c),(e), IFRS 9.B4.1.3]

The group therefore continues to recognise the transferred assets in their entirety in its balance sheet. The amount repayable under the factoring agreement is presented as secured borrowing. The group considers that the held to collect business model remains appropriate for these receivables and hence continues measuring them at amortised cost.

The relevant carrying amounts are as follows:

Amounts in CU’000	2020	2019
Transferred receivables	3,250	–
Associated secured borrowing (bank loans – see note 7(g) below)	3,100	–

(iii) Fair values of trade receivables

Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value. [IFRS 7.25, IFRS 7.29(a), IFRS 13.97, IFRS 13.93(b),(d)]

(iv) Impairment and risk exposure

Information about the impairment of trade receivables and the group’s exposure to credit risk and foreign currency risk can be found in note 12(b) and (c). [IFRS 7.31, IFRS 7.34(c)]

7(b) Other financial assets at amortised cost

(i) Classification of financial assets at amortised cost IAS 1.117

The group classifies its financial assets as at amortised cost only if both of the following criteria are met:

• the asset is held within a business model whose objective is to collect the contractual cash flows, and
• the contractual terms give rise to cash flows that are solely payments of principal and interest. [IFRS 9.4.1.2]

See note 25(o) for the remaining relevant accounting policies.

Financial assets at amortised cost include the following debt investments:

Table based on – IAS 1.77, IAS 1.78(b), IFRS 7.6]

Example Disclosure financial instruments	2020			2019
Amounts in CU’000	Current	Non-current	Total	Current	Non-current	Total
Loans to related parties (ii)	–	1,300	1,300	–	700	700
Loans to key management personnel (ii)	166	551	717	126	480	606
Debenture assets	–	750	750	–	750	750
Zero coupon bonds	–	460	460	–	425	425
Listed corporate bonds	–	94	94	–	90	90
Other receivables (ii)	939	375	1,314	716	200	916
	1,105	3,530	4,635	842	2,645	3,487
Less: loss allowance for debt investments at amortised cost (note 12(c))	-5	-34	-39	–	-16	-16
	1,100	3,496	4,596	842	2,629	3,471

(ii) Other receivables

These amounts generally arise from transactions outside the usual operating activities of the group. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained. The non-current other receivables are due and payable within three years from the end of the reporting period. [IFRS 7.7, IFRS 7.38]

Further information relating to loans to related parties and key management personnel is set out in note 20. [IAS 24.18]

(iii) Fair values of other financial assets at amortised cost

Fair value for the following investments was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy – see note 7(h) below for further information). [IFRS 7.25, IFRS 7.6]

Amounts in CU’000	2020	2019
Debenture assets	795	767
Zero coupon bonds	482	433
Listed corporate bonds	150	100

Due to the short-term nature of the other current receivables, their carrying amount is considered to be the same as their fair value. For the majority of the non-current receivables, the fair values are also not significantly different from their carrying amounts. An exception is the loans to key management personnel, which have a fair value of CU481,000 as at 31 December 2020, compared to a carrying amount of CU551,000 (2019: fair value of CU424,000 and carrying amount of CU480,000). [IFRS 7.25, IFRS 7.29(a), IFRS 13.97, IFRS 13.93(b),(d)]

The fair values were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk (see note 7(h) below).

(iv) Impairment and risk exposure

Note 12(c) sets out information about the impairment of financial assets and the group’s exposure to credit risk.

All of the financial assets at amortised cost are denominated in Neverland currency units. As a result, there is no exposure to foreign currency risk. There is also no exposure to price risk as the investments will be held to maturity. [IFRS 7.34]

7(c) Financial assets at fair value through other comprehensive income

(i) Classification of financial assets at fair value through other comprehensive income IAS 1.117

Financial assets at fair value through other comprehensive income (FVOCI) comprise:

• Equity securities which are not held for trading, and which the group has irrevocably elected at initial recognition to recognise in this category. These are strategic investments and the group considers this classification to be more relevant.
• Debt securities where the contractual cash flows are solely principal and interest and the objective of the group’s business model is achieved both by collecting contractual cash flows and selling financial assets. [IFRS 7.11A(b), IFRS 7.21, IFRS 9.4.1.4, IFRS 9.5.7.5, IFRS 9.4.1.2A]

(ii) Equity investments at fair value through other comprehensive income

Equity investments at FVOCI comprise the following individual investments: [IFRS 7.11A(a),(c)]

Amounts in CU’000	2020	2019
Non-current assets
Listed securities
– Hardwood Ltd	–	1,900
– Furniture Suppliers Plc	870	–
– Furniture Purchasers Inc	1,305	975
– Sleep Willow Plc	653	250
– Pine Oak Property Inc	1,286	1,001
	4,114	4,126
Unlisted securities
Softwood Ltd	690	1,072
Mahogany Ltd	460	550
	1,150	1,622
	5,264	5,748

On disposal of these equity investments, any related balance within the FVOCI reserve is reclassified to retained earnings. Note 25(o) sets out the remaining accounting policies. [IFRS 7.21, IFRS 9.B5.7.1]

(iii) Disposal of equity investments

Since 1 January 2020, the group has sold its shares in Hardwood Ltd as a result of a takeover offer for cash. The shares sold had a fair value of CU2,275,000, and the group realised a gain of CU646,000 which had already been included in OCI. This gain has been transferred to retained earnings, net of tax of CU194,000, see note 9(c). [IFRS 7.11B, IFRS 7.11A(e)]

In the previous financial period, the group sold its investment in Second Floor Ltd, as this investment no longer suited the group’s investment strategy. The shares sold had a fair value of CU2,143,000 at the time of the sale and the group realised a loss of CU548,000 which was transferred to retained earnings, net of tax of CU164,000. [IFRS 9.7.2.1]

(iv) Debt investments at fair value through other comprehensive income

Debt investments at FVOCI comprise the following investments in listed and unlisted bonds: [IAS 1.77]

Amounts in CU’000	2020	2019
Non-current assets
Listed bonds	728	650
Unlisted debt securities	790	750
	1,518	1,400

On disposal of these debt investments, any related balance within the FVOCI reserve is reclassified to other gains/(losses) within profit or loss. [IFRS 9.5.7.10]

The unlisted debt securities include CU250,000 (2019 – CU nil) of securities issued by entities that are controlled by the ultimate parent entity, Goat AG. [IAS 24.18]

(v) Amounts recognised in profit or loss and other comprehensive income

During the year, the following gains/(losses) were recognised in profit or loss and other comprehensive income:

Amounts in CU’000	2020	2019
Gains/(losses) recognised in other comprehensive income (see note 9(c))
– Related to equity investments [IFRS 7.20(a)(vii)]	632	-1,230
– Related to debt investments [IFRS 7.20(a)(viii)]	118	-228
	750	-1,458
Example Disclosure financial instruments Example Disclosure financial instruments
Dividends from equity investments held at FVOCI recognised in profit or loss in other income (see note 5(a)) [IFRS 7.11A(d)]
– Related to investments derecognised during the period	963	–
– Related to investments held at the end of the reporting period	642	800
	1,605	800

(vi) Non-current assets pledged as security

Refer to note 24 for information on non-current assets pledged as security by the group. [IFRS 7.14]

(vii) Fair value, impairment and risk exposure

Information about the methods and assumptions used in determining fair value is provided in note 7(h), and information about the loss allowance recognised on debt investments at FVOCI is provided in note 12(c). [IFRS 13.93]

All of the financial assets at FVOCI are denominated in Neverland currency units. For an analysis of the sensitivity of the assets to price and interest rate risk refer to note 12(b). [IFRS 7.34]

(viii) Significant estimates The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. For details of the key assumptions used and the impact of changes to these assumptions see note 7(h) below. [IFRS 13.91(a), IAS 1.125]

(ix) Significant judgements The directors have determined that they do not control a company called the Reporting entity Trustee Limited even though the Reporting entity Plc owns 100% of the issued capital of this entity. the Reporting entity Trustee Limited is the trustee of the the Reporting entity Employees’ Superannuation Fund. It is not a controlled entity of the Reporting entity Plc because the Reporting entity Plc is not exposed, and has no right, to variable returns from this entity and is not able to use its power over the entity to affect those returns. The investment has a fair value of CU2 (2019 – CU2) and is included in unlisted securities. [IFRS 12.7, IFRS 12.9(a), IAS 1.122]

7(d) Financial assets at fair value through profit or loss

(i) Classification of financial assets at fair value through profit or loss [IAS 1.117]

The group classifies the following financial assets at fair value through profit or loss (FVPL):

• debt investments that do not qualify for measurement at either amortised cost (see note 7(b) above) or FVOCI (note 7(c))
• equity investments that are held for trading, and
• equity investments for which the entity has not elected to recognise fair value gains and losses through OCI. [IFRS 9.4.1.2, IFRS 9.4.1.2A, IFRS 9.5.7.5]

Financial assets mandatorily measured at FVPL include the following:[IAS1.77, IFRS 7.6, IFRS 7.31]

Amounts in CU’000	2020	2019
Non-current assets
Unlisted preference shares	1,100	980
Contingent consideration (note 15(c))	1,290	–
	2,390	980
Example Disclosure financial instruments Example Disclosure financial instruments
Current assets
US listed equity securities	5,190	4,035
Neverland listed equity securities	6,110	6,880
	11,300	10,915
	13,690	11,895

See note 25(o) for the remaining relevant accounting policies.

(ii) Amounts recognised in profit or loss

During the year, the following gains/(losses) were recognised in profit or loss: [IFRS 7.20(a)(i)]

Amounts in CU’000	2020	2019
Fair value gains (losses) on equity investments at FVPL recognised in other gains/(losses) (see note 5(b))	835	-690
Fair value gains (losses) on debt instruments at FVPL recognised in other gains/(losses) (see note 5(b))	120	100
Fair value gain on contingent consideration recognised in profit from discontinued operations (see note 15(c))	90	–

(iii) Risk exposure and fair value measurements

Information about the group’s exposure to price risk is provided in note 12(b). For information about the methods and assumptions used in determining fair value refer to note 7(h) below. [IFRS 7.31, IFRS 13.93]

7(e) Cash and cash equivalents

Amounts in CU’000	2020	2019
Current assets
Cash at bank and in hand	750	600
Deposits at call	54,333	29,699
	55,083	30,299

(i) Reconciliation to cash flow statement

The above figures reconcile to the amount of cash shown in the statement of cash flows at the end of the financial year as follows: [IAS 7.45]

Amounts in CU’000	2020	2019
Balances as above	55,083	30,299
Bank overdrafts (see note 7(g) below)	-2,650	-2,250
Balances per statement of cash flows	52,433	28,049

(ii) Classification as cash equivalents

Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours’ notice with no loss of interest. See note 25(k) for the group’s other accounting policies on cash and cash equivalents. [IAS 7.46]

(iii) Restricted cash

The cash and cash equivalents disclosed above and in the statement of cash flows include CU7,314,000 which are held by the Reporting entity Overseas Ltd. These deposits are subject to regulatory restrictions and are therefore not available for general use by the other entities within the group. [IAS 7.48]

7(f) Trade and other payables

Amounts in CU’000	2020	2019
Current liabilities
Trade payables [IAS 1.77]	10,000	8,231
Payroll tax and other statutory liabilities	1,570	1,207
Refund liabilities (i) [IFRS 15.105]	490	235
Other payables [IAS 1.77]	3,700	2,050
	15,760	11,723

Trade payables are unsecured and are usually paid within 30 days of recognition.

The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. [IFRS 7.29(a), IFRS 13.97, IFRS 13.93(b),(d)]

(i) Refund liabilities [IAS1.117]

Where a customer has a right to return a product within a given period, the group recognises a refund liability for the amount of consideration received for which the entity does not expect to be entitled (CU221,000; 2019 – CU110,000). The group also recognises a right to the returned goods measured by reference to the former carrying amount of the goods (CU76,000 as at 31 December 2020 and CU38,000 as at 31 December 2019; see note 8(g)). The costs to recover the products are not material because the customers usually return them in a saleable condition. [IFRS 15.55, IFRS 15.B20-B27]

Refund liabilities are further recognised for volume discounts payable to wholesale customers (CU269,000; 2019 – CU125,000). Note 3(c) has further explanations about both types of refund liabilities.

7(g) Borrowings

Example Disclosure financial instruments	2020			2019
Amounts in CU’000	Current	Non-current	Total	Current	Non-current	Total
Secured [IAS 1.77]	2,650		2,650	2,250		2,250
Bank overdrafts	2,650		2,650	2,250		2,250
Bank loans (i)	4,250	37,535	41,785	2,865	45,500	48,365
Debentures (v)				2,000	2,000	4,000
Other loans	450	8,580	9,030	150	14,100	14,250
Total secured borrowings (i)	7,350	46,115	53,465	7,265	61,600	68,865
Example Disclosure financial instruments
Unsecured  [IAS 1.77]
Bills payable	1,050	–	1,050	730	–	730
Convertible notes (iii)	–	16,815	16,815	–	–	–
Redeemable preference shares (iv)	–	11,000	11,000	–	11,000	11,000
Loans from related parties *	–	15,185	15,185	–	4,000	4,000
Total unsecured borrowings	1,050	43,000	44,050	730	15,000	15,730
Total borrowings	8,400	89,115	97,515	7,995	76,600	84,595

* Further information relating to loans from related parties is set out in note 20.

(i) Secured liabilities and assets pledged as security

Of the bank loans, CU3,100,000 relate to transferred receivables (see note 7(a)(ii) above). The remaining bank loans and overdrafts are secured by first mortgages over the group’s freehold land and buildings, including those classified as investment properties. [IFRS 7.7, IFRS 7.14(b), IFRS 7.42D]

The debentures were secured by a floating charge over the assets of the Reporting entity Plc.

Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default.

The other loans are secured by a negative pledge that imposes certain covenants on the subsidiary that has received those loans. The negative pledge states that (subject to certain exceptions) the subsidiary will not provide any other security over its assets, and will ensure that the following financial ratios are met:

• debt will not, at any time, exceed 50% of total tangible assets, and
• borrowing costs will not exceed 50% of earnings before borrowing costs and taxation for each half-year period.

The carrying amounts of financial and non-financial assets pledged as security for current and non-current borrowings are disclosed in note 24. [IFRS 7.14(a)]

(ii) Compliance with loan covenants

The Reporting entity Plc has complied with the financial covenants of its borrowing facilities during the 2020 and 2019 reporting period, see note 13 for details. [IAS 1.135(d)]

(iii) Convertible notes

The Reporting entity Plc issued 1,500,000 7% convertible notes for CU20 milGoat on 23 January 2020. The notes are convertible into ordinary shares of the entity, at the option of the holder, or repayable on 23 January 2024. The conversion rate is 2 shares for each note held, which is based on the market price per share at the date of the issue of the notes (CU6.10), but subject to adjustments for reconstructions of equity. The convertible notes are presented in the balance sheet as follows: [IFRS 7.17, IAS 1.79(a)(vii)]

Amounts in CU’000	2020	2019
Face value of notes issued	20,000	–
Other equity securities – value of conversion rights (note 9(b))	-3,500	–
	16,500	–
Interest expense *	842	–
Interest paid	-527	–
Non-current liability	16,815	–

* Interest expense is calculated by applying the effective interest rate of 9.6% to the liability component.

The initial fair value of the liability portion of the bond was determined using a market interest rate for an equivalent non-convertible bond at the issue date. The liability is subsequently recognised on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognised in shareholders’ equity, net of income tax, and not subsequently remeasured. [IAS 32.17, IAS 32.18, IAS 32.28, IAS 32.29, IAS 32.AG31(a)]

(iv) Redeemable preference shares

The redeemable preference shares represent 5,000,000 fully paid 6% cumulative redeemable preference shares. The shares are redeemable at CU2.20 per share on 31 December 2027, or by the Reporting entity Plc at any time before that date. The shares are entitled to dividends at the rate of 6% per annum. If insufficient profits are available in a particular financial year, the dividends accumulate and are payable when sufficient profits are available. The shares participate in a winding up of the company only to the extent of CU2.20 per share. [IFRS 7.7, IAS 1.79(a)(v)]

Since the shares are mandatorily redeemable on a specified date, they are recognised as liabilities. [IAS 32.17, IAS 32.18]

(v) Repurchase of debentures

During the reporting period, the Reporting entity Plc repurchased the remaining outstanding debentures for a lump sum payment of CU1,605,000. The carrying amount of the debentures at the time of the payment was CU2,000,000 and costs incurred were CU40,000, resulting in a net gain on settlement of CU355,000 which is included in finance income in the statement of profit or loss. [IFRS 7.7, IFRS 9.3.3.3, IFRS 7.20(a)(v)]

(vi) Set-off of assets and liabilities

See note 23 below for information about the group’s offsetting arrangements.

(vii) Fair value

For the majority of the borrowings, the fair values are not materially different from their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Material differences are identified only for the following borrowings: [IFRS 7.25, IFRS 7.29(a)]

Amounts in CU’000	2020		2019
Example Disclosure financial instruments Example Disclosure financial instruments Example Disclosure financial instruments Example Disclosure financial instruments	Carrying amount	Fair value	Carrying amount	Fair value
Bank loans	41,320	40,456	47,900	48,950
Convertible notes	16,815	17,175	–	–
Redeemable preference shares	11,000	9,475	11,000	10,860

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy (see note 7(h)) due to the use of unobservable inputs, including own credit risk. [IFRS 13.97, IFRS 13.93(b),(d)]

(viii) Risk exposures

Details of the group’s exposure to risks arising from current and non-current borrowings are set out in note 12. [IFRS 7.31]

7(h) Recognised fair value measurements

(i) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standards.

An explanation of each level follows underneath the table.

Recurring fair value measurements at 31 December 2020
Amounts in CU’000	Notes	Level 1	Level 2	Level 3	Total
Financial assets
Financial assets at fair value through profit or loss (FVPL)	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
– US listed equity securities	7(d)	5,190	–	–	5,190
– Neverland listed equity securities	7(d)	6,110	–	–	6,110
– Preference shares – property sector	7(d)	–	1,100	–	1,100
– Other (contingent consideration)	7(d)	–	–	1,290	1,290
Hedging derivatives – interest rate swaps	12(a)	–	453	–	453
Hedging derivatives – foreign currency options	12(a)	–	1,709	–	1,709
Financial assets at fair value through other comprehensive income (FVOCI)	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
– Equity securities – property sector	7(c)	1,286	–	–	1,286
– Equity securities – retail sector	7(c)	2,828	–	–	2,828
– Equity securities – forestry sector	7(c)	–	–	1,150	1,150
– Debentures – property sector	7(c)	378	–	–	378
– Debentures – retail sector	7(c)	350	790	–	1,140
Total financial assets		14,142	4,052	2,440	22,634
Financial liabilities	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
Hedging derivatives – foreign currency forwards	12(a)	–	766	–	766
Trading derivatives	12(a)	–	275	335	610
Total financial liabilities		–	1,041	335	1,376

Recurring fair value measurements at 31 December 2019
Amounts in CU’000	Notes	Level 1	Level 2	Level 3	Total
Financial assets	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
Financial assets at fair value through profit or loss (FVPL)	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
– US listed equity securities	7(d)	4,035	–	–	4,035
– Neverland listed equity securities	7(d)	6,880	–	–	6,880
– Preference shares – property sector	7(d)	–	980	–	980
Hedging derivatives – interest rate swaps	12(a)	–	809	–	809
Hedging derivatives – foreign currency options	12(a)	–	1,320	–	1,320
Financial assets at fair value through other comprehensive income (FVOCI)	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
– Equity securities – property sector	7(c)	1,378	–	–	1,378
– Equity securities – retail sector	7(c)	2,748	–	–	2,748
– Equity securities – forestry sector	7(c)	–	–	1,622	1,622
– Debentures – property sector	7(c)	300	–	–	300
– Debentures – retail sector	7(c)	350	750	–	1,100
Total financial assets		15,691	3,859	1,622	21,172
Financial liabilities	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
Hedging derivatives – foreign currency forwards	12(a)	–	777	–	777
Trading derivatives	12(a)	–	621	–	621
Total financial liabilities	Example Disclosure financial instruments	–	1,398	–	1,398

There were no transfers between levels 1 and 2 for recurring fair value measurements during the year. For transfers into and out of level 3 measurements see (iii) below. [IFRS 13.93(c)]

The group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. [IFRS 13.95]

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. [IFRS 13.76, IFRS 13.91(a)]

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. [IFRS 13.81, IFRS 13.91(a)]

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. [IFRS 13.86]

(ii) Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments include:

• the use of quoted market prices or dealer quotes for similar instruments
• for interest rate swaps – the present value of the estimated future cash flows based on observable yield curves
• for foreign currency forwards – the present value of future cash flows based on the forward exchange rates at the balance sheet date
• for foreign currency options – option pricing models (eg Black-Scholes model), and
• for other financial instruments – discounted cash flow analysis. [IFRS 13.91(a), IFRS 13.93(d)]

All of the resulting fair value estimates are included in level 2, except for unlisted equity securities, a contingent consideration receivable and certain derivative contracts, where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk. [IFRS 13.93(b)]

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods ended 31 December 2020 and 31 December 2019: [IFRS 13.93(e)]

Amounts in CU’000	Unlisted equity securities	Contingent consideration	Trading derivatives at FVPL	Total
Opening balance 1 January 2019	1,322	–	–	1,322
Gains recognised in other comprehensive income	300	–	–	300
Closing balance 31 December 2019	1,622	–	–	1,622
Transfer from level 2	–	–	-365	-365
Acquisitions	–	1200	–	1,200
Disposals	-200	–	–	-200
(Losses) recognised in other comprehensive income	-272	–	–	-272
Gains recognised in discontinued operations *	–	90	–	90
Gains/(losses) recognised in other income *	–	–	30	30
Closing balance 31 December 2020	1,150	1290	-335	2,105
Example Disclosure financial instruments
* includes unrealised gains or (losses) recognised in profit or loss attributable to balances held at the end of the reporting period [IFRS 13.93(f)]	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments	Example Disclosure financial instruments
2020	–	90	15	105
2019	–	–	–	–

(iv) Transfers between levels 2 and 3

In 2020 the group transferred a hedging foreign currency forward from level 2 into level 3 as the counterparty for the derivative encountered significant financial difficulties. This resulted in a significant increase to the discount rate which is not based on observable inputs, as it reflects credit risk specific to the counterparty. Credit risk was not considered to be a significant input factor in previous years. [IFRS 13.93(d)]

(v) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements (see (ii) above for the valuation techniques adopted): [IFRS 13.93(d), IFRS 13.99]

Table based on [IFRS 13.91(a), IFRS 13.93(d),(h)(i),(ii), IFRS 13.99]

Reporting line	Fair value at		Level 3 inputs *	Range of inputs (probability-weighted average)		Relationship of unobservable inputs to fair value
	31/12/20	31/12/19		2020	2019
Unlisted equity securities	1,150	1,622	Earnings growth factor	2.5% – 3.5% (3%)	2% – 3% (2.7%)	2020: Increased earnings growth factor (+50 basis points (bps)) and lower discount rate (-100 bps) would increase FV by CU70,000; lower growth factor (-50 bps) and higher discount rate (+100 bps) would decrease FV by CU80,000. 2019: increasing/decrea-sing the growth factor and the discount rate by +/- 50bps and 100 bps respectively would change the FV by +CU55,000/-CU65,000
			Risk-adjusted discount rate	9% – 11% (10%)	9.5% – 11% (10.2%)
Trading derivatives	-335	-365	Credit default rate	25%	30%	A shift of the credit default rate by +/- 5% results in a change in FV of CU30,000 (2019: change in default rate by +/- 6% changed FV by CU33,000)
Contingent conside-ration	1,290	n/a	Risk-adjusted discount rate	14%	n/a	A change in the discount rate by 100 bps would increase/decrease the FV by CU40,000
			Expected cash inflows	CU2,150,000 – CU2,570,000 (CU2,360,000)	n/a	If expected cash flows were 10% higher or lower, the FV would increase/ decrease by CU35,000

* There were no significant inter-relationships between unobservable inputs that materially affect fair values. [IFRS 13.93(h)(i)]

IFRS 13.93(g)

(vi) Valuation processes

The finance department of the group includes a team that performs the valuations of non-property items required for financial reporting purposes, including level 3 fair values. This team reports directly to the chief financial officer (CFO) and the audit committee (AC). Discussions of valuation processes and results are held between the CFO, AC and the

valuation team at least once every six months, in line with the group’s half-yearly reporting periods.

The main level 3 inputs used by the group are derived and evaluated as follows:

• Discount rates for financial assets and financial liabilities are determined using a capital asset pricing model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset.
• Risk adjustments specific to the counterparties (including assumptions about credit default rates) are derived from credit risk gradings determined by the Reporting entity Plc’s internal credit risk management group.
• Earnings growth factors for unlisted equity securities are estimated based on market information for similar types of companies.
• Contingent consideration – expected cash inflows are estimated based on the terms of the sale contract (see note 15) and the entity’s knowledge of the business and how the current economic environment is likely to impact it.

Changes in level 2 and level 3 fair values are analysed at the end of each reporting period during the half-yearly valuation discussion between the CFO, AC and the valuation team. As part of this discussion the team presents a report that explains the reason for the fair value movements.