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Fair value estimation

12 Months Ended

Dec. 31, 2023

C6. Fair value estimation

All financial instruments held at fair value are classified by reference to the source of inputs used to derive the fair value. The following hierarchy is used:

Level 1 — unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 — inputs other than quoted prices that are observable for the asset or liability, either directly as prices or indirectly through modelling based on prices; and

Level 3 — inputs for the asset or liability that are not based on observable market data.

Financial instrument	Hierarchy level	Valuation method
Financial assets traded in active markets	1	Current bid price
Financial liabilities traded in active markets	1	Current ask price
Listed bonds	1	Quoted market prices
Money market funds	1	Quoted market prices
Interest rate/currency swaps	2	Discounted cash flow based on market swap rates
Forward foreign exchange contracts	2	Forward exchange market rates
Borrowings not traded in active markets (term loans and uncommitted facilities)	2	Nominal value
Money market deposits	2	Nominal value
Trade payables and receivables	2	Nominal value less estimated credit adjustments
Contingent consideration (including put option liability)	3	Discounted cash flow using weighted average cost of capital


	Fair value	Fair value	Fair value	Fair value
	assets	liabilities	assets	liabilities
	2023	2023	2022	2022
	£m	£m	£m	£m
Interest rate swaps (level 2):
– non-hedge	—	(1)	—	—
– net investment hedge	37	(27)	15	(120)
– cash flow hedge	24	(11)	36	(2)
Foreign exchange swaps (level 2):
– non-hedge	1	—	—	—
	62	(39)	51	(122)
Analysed as follows:
Current portion	5	(23)	—	—
Non-current portion	57	(16)	51	(122)
Derivative financial instruments	62	(39)	51	(122)
Contingent consideration (including put option liability) (level 3)	—	(76)	—	(70)
Analysed as follows:
Current portion	—	(36)	—	(32)
Non-current portion	—	(40)	—	(38)
Other payables	—	(76)	—	(70)

Certain interest rate swaps have been bifurcated to manage different foreign exchange risks. The interest rate swaps are shown on the balance sheet as net derivative assets £71m (2022: £21m) and net derivative liabilities £48m (2022: £92m).

The effective nominal value of foreign exchange swaps is £27m asset (2022: £17m liability) and foreign exchange forwards is £nil (2022: £nil).

Given the volume of acquisitions and the variety of inputs to the valuation of contingent consideration (depending on each transaction), there are not considered to be any changes in input that would have a material impact on the contingent consideration liability.


	Contingent	Contingent
	consideration	consideration
	2023	2022
	£m	£m
At 1 January	70	75
Exchange differences	(3)	(2)
Acquisitions	41	18
Payments	(28)	(24)
Revaluation of put option through equity	(4)	3
At 31 December	76	70

Fair value is equal to carrying value for all other trade and other payables.

The table below analyses the Group’s undiscounted cash flows on borrowings and derivative financial instruments that will be settled on a gross basis, into relevant maturity groupings based on the remaining period to the contractual maturity date at the balance sheet date.


	Less than	Between	More than
	1 year	1 and 5 years	5 years	Total
	£m	£m	£m	£m
At 31 December 2023
Non-derivative financial instruments
Borrowings	(1,209)	(2,601)	(1,003)	(4,812)
	(1,209)	(2,601)	(1,003)	(4,812)
Derivative financial instruments
Cross-currency interest rate swaps:
– outflow	(454)	(1,707)	—	(2,162)
– inflow	400	1,703	—	2,103
Interest rate swaps:
– outflow	(21)	—	—	(21)
– inflow	31	—	—	31
Foreign exchange swaps:
– outflow	(140)	—	—	(140)
– inflow	140	—	—	140
	(44)	(4)	—	(49)
Net outflow	(1,253)	(2,605)	(1,003)	(4,861)
At 31 December 2022
Non-derivative financial instruments
Borrowings	(1,425)	(3,003)	(1,057)	(5,486)
	(1,425)	(3,003)	(1,057)	(5,486)
Derivative financial instruments
Cross-currency interest rate swaps:
– outflow	(64)	(1,369)	(549)	(1,982)
– inflow	20	1,264	534	1,818
Interest rate swaps:
– outflow	(1)	(3)	—	(4)
– inflow	10	9	—	19
Foreign exchange swaps:
– outflow	(15)	—	—	(15)
– inflow	15	—	—	15
	(35)	(99)	(15)	(149)
Net outflow	(1,460)	(3,102)	(1,072)	(5,635)