Annual Report 2020

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2020 145 The United Laboratories International Holdings Limited Annual Report 2020 40. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued) Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis (Continued) Fair value at 31 December Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable inputs Relationship of unobservable inputs to fair value 2020 2019 RMB’000 RMB’000 Financial assets Financial asset at FVTPL – unquoted equity investment 500 500 Level 3 Method of comparables is used to evaluate the market value of the unquoted equity investments by using price to book ratio of listed entities in similar industries. – discount for lack of marketability of 32% (2019: 30%), determined by reference to recent market research. – A significant increase in the discount for lack of marketability would result in a significant decrease in the fair value. Financial liabilities Foreign currency swap contracts classified as financial instruments accounted for as FVTPL in the consolidated statement of financial position Liabilities – 4,573 nil Level 2 Discounted cash flow Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contracted forward rates, discounted at a rate that reflects the credit risk of various counterparties. N/A N/A Embedded derivative components of the Convertible Bonds classified as financial instruments accounted for as FVTPL in the consolidated statement of financial position nil 297,471 Level 3 Binomial Pricing Model Binomial Pricing Model is employed in deriving the fair value of the Convertible Bonds. The value of the embedded derivatives component is the difference between the value of the Convertible Bonds and the fair value of the straight note, which is the present value of the contractually determined stream of future cash flows discounted at a rate that provided substantially the same cash flows, on the same terms, but without the derivatives component. The main inputs include term to maturity, dividend yield, risk- free rate, spot price as of the valuation date, exercise price and expected volatility of stock price. – dividend yield. – volatility of 40.81% is applied in the Convertible Bonds by reference to the Company’s historical volatility. – A significant increase in the dividend yield would result in a significant decrease in the fair value. – A slight increase in the volatility in share price would result in a significant increase in the change in fair value. The unrealised fair value loss of embedded derivatives components of the Convertible Bonds was RMB110,117,000 during the year ended 31 December 2019. The reconciliations of recurring fair value measurement of above liabilities at Level 3 fair value measurements are set out in Note 30. There is no transfer between the different levels of the fair value hierarchy for both years.