Basic HTML Version
Escher Group Holdings plc
Annual report 2011
34
for the year ended 31 December 2011
Notes to the consolidated financial statements
continued
3. Financial risk management
continued
Financial risk factors continued
(d) Fair value hierarchy
IFRS 7 requires disclosure of fair value measurements by level based on the following fair value measurement hierarchy:
—— quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
—— 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) (level 2); and
—— inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The table below shows, for the Group’s financial assets and liabilities that are recognised and subsequently measured
at fair value, their classification within a three-level fair value hierarchy.
Level 1
comprises financial assets and liabilities valued using quoted market prices in active markets at the balance sheet date.
An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on
an ongoing basis. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market
transactions on an arm’s length basis.
Level 2
comprises financial assets and liabilities valued using techniques based significantly on observable market data.
These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specific estimates.
Level 3
comprises financial assets and liabilities valued using techniques where the impact of the non-observable market data
is significant in determining the fair value of the instrument. Non-observable market data is not readily available in an active
market due to market illiquidity or complexity of the product. These inputs are generally determined based on observable
inputs of a similar nature, historic observations on the level of the input or analytical techniques.
Group
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
Derivative financial instruments
31 December 2011
—
56
—
56
31 December 2010
—
178
—
178
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on available
yield curves.
(e) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Group monitors
capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital.
To achieve the aim of an optimal capital structure, on 8 August 2011, the company raised US$25 million in new equity from
institutional investors from its Initial Public Offering on AIM of the London Stock Exchange. These funds were used to pay down
US$5.6 million of the debenture and renegotiate the balance at a significantly lower interest rate. The funds were also used
to partially repay US$10.8 million off the Irish Bank Resolution Corporation facility thereby reducing the bank debt significantly
at 31 December 2011.
Additionally, on 5 January 2012, the Group undertook a refinancing with Bank of Ireland where existing bank loans and debentures
were repaid and new debt was raised with Bank of Ireland. This new financing put in place a US$9.7 million term loan facility and
a revolving twelve-month facility for US$1.8 million. The term loan is amortising being fully repayable by 2015. On 31 January 2012,
the first capital repayment of US$1.4 million was paid.
The capital structure of the Group consists of borrowings as set out above and equity comprising issued capital, reserves and
retained earnings. Borrowings comprise bank loans and a debenture from a shareholder (see note 24). The capital structure
includes a significant level of borrowings. The borrowing arrangements include certain financial covenants customary for debt
of this magnitude.