Classification of financial instruments

12 Months Ended

Dec. 31, 2019

14. Classification of financial instruments

The accounting classification of each class of the Group’s financial assets, and their carrying values, is as follows:


			2019										2018
			Fair value						Amortised cost				Fair value						Amortised cost
All figures in £ millions	Notes		FVOCI		FVTPL		Fair value – hedging instrument		Financial assets		Total carrying value		FVOCI		FVTPL		Fair value – hedging instrument		Financial assets		Total carrying value
Investments in unlisted securities		15		122		—		—		—		122		93		—		—		—		93
Cash and cash equivalents		17		—		—		—		437		437		—		—		—		568		568
Derivative financial instruments		16		—		6		48		—		54		—		4		64		—		68
Trade receivables		22		—		—		—		918		918		—		—		—		904		904
Other receivable				—		182		—		—		182		—		—		—		—		—
Trade receivables – within assets classified as held for sale				—		—		—		—		—		—		—		—		49		49

Total financial assets				122		188		48		1,355		1,713		93		4		64		1,521		1,682

The carrying value of the Group’s financial assets is equal to, or approximately equal to, the market value. The other receivable relates to the receivable which arose on the disposal of the US K12 Courseware business and is included in other receivables,

non-current

and current, in note 22.

The accounting classification of each class of the Group’s financial liabilities, together with their carrying values and market values, is as follows:


			2019															2018
			Fair value						Amortised cost									Fair value					Amortised cost
All figures in £ millions	Notes		FVTPL			Fair value – hedging instrument			Other financial liabilities			Total carrying value			Total market value			FVTPL		Fair value – hedging instrument			Other financial liabilities			Total carrying value			Total market value
Derivative financial instruments		16		(7	)		(32	)		—			(39	)		(39	)		—		(59	)		—			(59	)		(59	)
Trade payables		24		—			—			(358	)		(358	)		(358	)		—		—			(311	)		(311	)		(311	)
Trade payables – within liabilities classified as held for sale				—			—			—			—			—			—		—			(22	)		(22	)		(22	)
Bank loans and overdrafts		18		—			—			(3	)		(3	)		(3	)		—		—			(43	)		(43	)		(43	)
Other borrowings due within one year		18		—			—			(89	)		(89	)		(89	)		—		—			(3	)		(3	)		(3	)
Borrowings due after more than one year		18		—			—			(1,572	)		(1,572	)		(1,574	)		—		—			(674	)		(674	)		(663	)

Total financial liabilities				(7	)		(32	)		(2,022	)		(2,061	)		(2,063	)		—		(59	)		(1,053	)		(1,112	)		(1,101	)

The market value of leases has been stated at book value.

Fair value measurement

As shown above, the Group’s derivative assets and liabilities, unlisted securities and marketable securities are held at fair value. Financial instruments that are measured subsequently to initial recognition at fair value are grouped into levels 1 to 3, based on the degree to which the fair value is observable, as follows:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 fair value measurements are those derived from inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group’s bonds valued at £595m (2018: £661m) are classified as level 1. The Group’s derivative assets valued at £54m (2018: £68m) and derivative liabilities valued at £39m (2018: £59m) are classified as level 2. The Group’s investments in unlisted securities are valued at £122m (2018: £93m) and holding in other receivable is valued at £182m (2018: £nil); both are classified as level 3.

The following table analyses the movements in level 3 fair value remeasurements:


	2019								2018
All figures in £ millions	Other receivable		Investments in unlisted securities			Total			Investments in unlisted securities
At beginning of year		—		93			93			77
Exchange differences		1		(3	)		(2	)		4
Acquisition of investments and other receivable		181		12			193			13
Fair value movements		—		20			20			7
Disposal of investments		—		—			—			(8	)

At end of year		182		122			304			93

The fair value of the investments in unlisted securities is determined by reference to the financial performance of the underlying asset, recent funding rounds and amounts realised on the sale of similar assets.

The fair value of the other receivable, which arose on the disposal of the US K12 Courseware business, is determined using present value techniques whereby the expected value of future cash flows is discounted using a rate which is representative of the creditworthiness of the US K12 Courseware business. The key inputs used in the present value calculations are forecast sales, discount rate and the expected date of a subsequent sale of the US K12 Courseware business. If the forecast sales used in the calculations were increased/ decreased by 5%, the value of the receivable would increase/decrease by approximately £20m. If the discount rate used in the calculations of 3.25% was increased/decreased by 1%, the value of the receivable would decrease/increase by approximately £5m. The calculations are not materially sensitive to reasonable changes in the expected date of a subsequent sale of the K12 business.