Classification of financial instruments

12 Months Ended

Dec. 31, 2021

Text block [abstract]

Classification of financial instruments

14. Classification of financial instruments

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

follows:

			2021										2020
			Fair value						Amortised cost				Fair value						Amortised cost
All figures in £ millions	Notes		Fair value through other comprehensive income		Fair value through profit and loss		Fair value – hedging instrument		Financial assets		Total carrying value		Fair value through other comprehensive income		Fair value through profit and loss		Fair value – hedging instrument		Financial assets		Total carrying value
Investments in unlisted securities		15		113		—		—		—		113		138		—		—		—		138
Cash and cash equivalents		17		—		84		—		853		937		—		93		—		1,004		1,097
Derivative financial instruments		16		—		—		32		—		32		—		2		61		—		63
Trade receivables		22		—		—		—		854		854		—		—		—		803		803
Investment in finance lease receivable		22		—		—		—		115		115		—		—		—		130		130
Other receivable				—		87		—		—		87		—		96		—		—		96
Total financial assets				113		171		32		1,822		2,138		138		191		61		1,937		2,327

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 K-12 business and is included in current other receivables 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: 

			2021															2020
			Fair value						Amortised cost									Fair value						Amortised cost
All figures in £ millions	Notes		Fair value through profit and loss			Fair value – hedging instrument			Other financial liabilities			Total carrying value			Total market value			Fair value through profit and loss			Fair value – hedging instrument			Other financial liabilities			Total carrying value			Total market value
Derivative financial instruments		16		(12	)		(22	)		—			(34	)		(34	)		(30	)		(22	)		—			(52	)		(52	)
Trade payables		24		—			—			(351	)		(351	)		(351	)		—			—			(340	)		(340	)		(340	)
Bank loans and overdrafts		18		—			—			—			—			—			—			—			(3	)		(3	)		(3	)
Other borrowings due within one year		18		—			—			(155	)		(155	)		(155	)		—			—			(251	)		(251	)		(249	)
Borrowings due after more than one year		18		—			—			(1,245	)		(1,245	)		(1,276	)		—			—			(1,397	)		(1,397	)		(1,451	)
Total financial liabilities				(12	)		(22	)		(1,751	)		(1,785	)		(1,816	)		(30	)		(22	)		(1,991	)		(2,043	)		(2,095	)

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 £767m (2020: £965m) and money market funds of £84m (2020: £93m) included within cash and cash equivalents are classified as level 1. The Group’s derivative assets valued at £32m (2020: £63m) and derivative liabilities valued at £34m (2020: £52m) are classified as level 2. The Group’s investments in unlisted securities are valued at £113m (2020: £138m) and the other receivable is valued at £87m (2020: £96m); both are classified as level 3.

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

	2021									2020
All figures in £ millions	Other receivable			Investments in unlisted securities			Total			Total
At beginning of year		96			138			234			304
Exchange differences		1			1			2			(11	)
Acquisition of investments and other receivable		—			4			4			6
Disposal of investments and other payables		(16	)		(54	)		(70	)		(105	)
Fair value movements		6			24			30			40
At end of year		87			113			200			234

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.

On initial recognition, the fair value of the other receivable, which arose on the disposal of the US K-12 business, was determined using present value techniques whereby the expected value of future cash flows was discounted using a rate which is representative of the creditworthiness of the US K-12 business. During the year, the Group received £16m as a partial repayment, with the remaining amounts reclassified as a current asset. The receivable was repaid in January 2022 (see note 37).