Holiday Inn 2014 Annual Report Download - page 143

23. Fair value measurement continued
The fair value of quoted equity shares and the bonds is based on their quoted market price.
Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of
the reporting period and interest rates from observable swap curves. As the Group’s derivatives are not cash collaterised, a valuation
adjustment is made for credit risk, being counterparty risks in respect of derivative assets and own credit risks in respect of derivative
liabilities. At 31 December 2013, the interest rates used to fair value the currency swaps ranged from 1.4% to 2.5%, depending on the
currency and the term of the derivative contract.
Finance lease obligations relate to the lease of the InterContinental Boston and are fair valued by discounting the future cash flows
payable under the loan, which are fixed, at a risk adjusted long-term interest rate. The interest rate used to discount the cash flows
at 31 December 2014 was 7.4% (2013 8.4%).
Unquoted equity shares are fair valued using the International Private Equity and Venture Capital Valuation Guidelines either by applying
an average price-earnings (P/E) ratio for a competitor group to the earnings generated by the investment or by reference to share of net
assets if the investment is currently loss-making or a recent property valuation is available. The average P/E ratio for the year was 24.0
and anon-marketability factor of 30% is applied. A 10% increase in the average P/E ratio would result in a $3m increase (2013 $5m) in the
fair value of the investments and a 10% decrease in the average P/E ratio would result in a $3m decrease (2013 $5m) in the fair value of
the investments. A 10% increase in net assets would result in a $7m increase (2013 $5m) in the fair value of the investments and a 10%
decrease in net assets would result in a $7m decrease (2013 $5m) in the fair value of the investments.
The following table reconciles the movements in the fair values of investments classified as Level 3 during the year:
2014
$m
2013
$m
At 1 January 127 94
Additions 58
Repaid (8) –
Valuation gains recognised in other comprehensive income 725
Exchange and other adjustments (3) –
At 31 December 128 127
24. Net debt
2014
$m
2013
(restated1)
$m
Cash and cash equivalents 162 248
Loans and other borrowings – current (126) (130)
– non-current (1,569) (1,269)
Derivatives hedging debt values (note 22) –(2)
Net debt (1,533) (1,153)
Movement in net debt
Net decrease in cash and cash equivalents, net of overdrafts (70) (58)
Add back cash flows in respect of other components of net debt:
(Increase)/decrease in other borrowings (382) 1
Close-out of currency swaps (4) –
Increase in net debt arising from cash flows (456) (57)
Non-cash movements:
Finance lease obligations (3) (3)
Exchange and other adjustments 79 (19)
Increase in net debt (380) (79)
Net debt at beginning of the year (1,153) (1,074)
Net debt at end of the year (1,533) (1,153)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
In 2013, net debt included the exchange element of the fair value of currency swaps that fixed the value of the Group’s £250m 6% bonds
at $415m. Anequal and opposite exchange adjustment on the retranslation of the £250m 6% bonds was included in non-current loans
and otherborrowings. The currency swaps were closed out in 2014 (see note 22).
STRATEGIC REPORT GOVERNANCE
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
141