30. Financial assets and liabilities

(a) Financial assets revalued through OCI

Listed investments includes investments held in the UK to secure certain unfunded pension arrangements (note 34(b)).

(b) Other financial assets and liabilities

(i) Summary

1 Derivatives used for hedging are in documented hedge accounting relationships.

2 Derivative financial liabilities are valued at fair value through profit or loss (FVPL).

Amounts recognised in the Group income statement in connection with the Group’s hedging instruments are disclosed in note 15. There is no material difference between the fair values and the book values stated above.

Financial assets held at amortised cost principally comprise amounts due following the disposal of businesses and include accrued interest. Other financial assets at fair value through profit or loss comprise convertible loan notes purchased when acquiring interests in associates or trade investments.

(iii) Offsetting derivative financial assets and liabilities held with the same counterparty

There are no amounts offset within the assets and liabilities reported in the Group balance sheet.

(c) Hedge accounting

(i) Fair value and cash flow hedges

We use interest rate swaps to hedge the interest rate risk arising on fixed rate borrowings, and cross-currency swaps to hedge the currency and interest rate risk arising on foreign currency fixed rate borrowings. Our risk management strategy for interest rate risk and currency risk is outlined in note 7.

We determine the existence of an economic relationship between the hedging instruments and hedged items by comparing the currency, reference interest rates, duration, repricing and maturity dates and the notional amounts of the hedging instruments to those of the hedged items.

We have established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of interest rate swaps and cross-currency swaps is identical to the hedged risk components.

The main sources of ineffectiveness in the hedge accounting relationships arise from:

• The application of different interest rate curves to discount the cash flows of the hedged item and those of the hedging instrument.
• Differences in timing of cash flows of the hedged item and hedging instrument.
• The different impact of the counterparties’ credit risk on the fair value movements of the hedging instrument compared to the hedged item.

(ii) Analysis of hedging instruments

The Group held the following instruments to hedge exposures to changes in foreign currency and interest rates.

(d) Impact of hedging instruments

Interest rate and cross-currency swaps are reported within Other financial assets and Other financial liabilities in the Group balance sheet.

(e) Impact of hedged items

The hedging reserve at 31 March 2022 includes US$4m (2021: US$2m) in respect of the cash flow hedge. Borrowings are reported within Borrowings in the Group balance sheet.

(f) Impact of hedge ineffectiveness

Hedge ineffectiveness is reported within Net finance costs in the Group income statement.

(g) Analysis by valuation method for put options and items measured at fair value

The analysis by level is a requirement of IFRS 13 and the definitions are summarised here for completeness:

• assets and liabilities whose valuations are based on unadjusted quoted prices in active markets for identical assets and liabilities are classified as Level 1
• assets and liabilities which are not traded in an active market, and whose valuations are derived from available market data that is observable for the asset or liability, are classified as Level 2; and
• assets and liabilities whose valuations are derived from inputs not based on observable market data are classified as Level 3.

Level 3 items principally comprise minority shareholdings in unlisted businesses, trade investments, contingent consideration and put options associated with corporate transactions.

Unlisted equity investments, initially measured at cost, are revalued where sufficient indicators are identified that a change in the fair value has occurred. The inputs to any subsequent valuations are based on a combination of observable evidence from external transactions in the investee’s equity and estimated discounted cash flows that will arise from the investment. Valuations of material contingent consideration, and put options associated with corporate transactions, are based on Monte Carlo simulations using the most recent management expectations of relevant business performance, reflecting the different contractual arrangements in place.

There would be no material effect on the amounts stated from any reasonably possible change in such inputs at 31 March 2022. During the year ended 31 March 2022 a Level 3 investment has been reclassified to Level 1. Further details are provided in note 30(h). There were no transfers between levels during the prior year.

(h) Analysis of movements in Level 3 financial assets/(liabilities)

1 Additions to put options in the year ended 31 March 2022 included US$13m in respect of the acquisition of Servicios de Información Avanzada Comercial Y Financiera S.A. (Sinacofi Buró), and in the year ended 31 March 2021 comprised US$201m in respect of the acquisition of the Risk Management division of AFS, and US$7m for the acquisition of Brain Soluções de Tecnologia Digital Ltda.

2 Additions to contingent consideration comprised US$46m (2021: US$33m) in respect of acquisitions.

3 Our investment in Grab Holdings Limited has been reclassified as a Level 1 investment following Nasdaq listing.

4 Movements in the present value of expected future payments for put options are unrealised and are recognised in financing fair value remeasurements in the Group income statement.