33. Financial instruments and fair value information

This note provides an overview of the Group’s financial instruments, including derivative financial instruments, and their categorisation under IFRS. Further details about the different types of financial assets and financial liabilities are provided throughout these consolidated financial statements. This note also contains information about the fair value of the Group’s financial instruments and some general accounting policies covering more than one type of financial assets and liabilities.

Categories of financial instruments and fair value information

The following tables present the carrying amounts of the Group’s different categories of financial assets and liabilities as of 31 December 2022 and 31 December 2021. They also present the respective levels in the fair value hierarchy for financial assets and liabilities measured at fair value.

Fair value of financial assets and liabilities at amortised cost

The carrying amount of the financial assets and liabilities that are not measured at fair value is a reasonable approximation of fair value. Excluding transaction costs and an original issue discount (for one loan), this is also the case for the Euro and US Dollar term loans and the SSD. The fair value of the notes was €973 million as of 31 December 2022 (€1,035 million as of 31 December 2021).

Fair value of trade receivables to be sold under securitisation and factoring programmes

Trade receivables that will be sold under the Group’s securitisation and factoring programmes are categorised as measured at fair value through profit or loss. They are sold shortly after being recognised by the Group and the amount initially recognised for these trade receivables is representative of their fair value.

Fair value of derivatives

The following tables show the types of derivatives the Group had as of 31 December 2022 and 31 December 2021, and their presentation in the statement of financial position. The derivatives have been entered into as part of the Group’s strategy to mitigate operational risks (commodity and foreign currency derivatives) and to mitigate financing risks (interest rate swap).

The Group measures derivative assets and liabilities at fair value. The fair value is calculated based on valuation models commonly used in the market. These include consideration of credit risk, where applicable, and discount the estimated future cash flows based on the terms and maturity of each contract, using forward interest rates extracted from observable yield curves and market forward exchange rates at the reporting date. The derivatives are categorised as level 2 fair value measurements in the fair value hierarchy as the measurements of fair value are based on significant observable market data, either directly (ie. as prices) or indirectly (ie. derived from prices). Changes in fair value are recognised in profit or loss as the Group generally does not apply hedge accounting under IFRS 9. As an exception to this policy, the Group applied cash flow hedge accounting in two instances in the year ended 31 December 2022. See note 27 for information about the accounting for the deal-contingent derivatives that the Group entered into in relation to the acquisitions of Scholle IPN and Evergreen Asia in 2022.

Fair value of contingent consideration

The Group’s liability for contingent consideration relates to the acquisition of Scholle IPN on 1 June 2022 and depends on Scholle IPN outperforming the top end of the Group’s mid-term revenue growth guidance of 4–6% per year for the years ending 31 December 2023, 2024 and 2025. The maximum amount payable is $300 million ($100 million per year). For further details, refer to note 27.

As significant unobservable inputs are used in the assessment of the fair value of the contingent consideration, it is categorised as a level 3 fair value measurement in the fair value hierarchy. The fair value has been assessed using a Monte Carlo simulation, under which the simulated contingent consideration payments (for each of the three payment streams) have been discounted to present value at a corresponding risk-free rate.

The fair value of the US Dollar contingent consideration has increased from €38.6 million as of the acquisition date to €113.2 million as of 31 December 2022. The unrealised loss of €74.6 million (including an unrealised foreign currency exchange loss of €0.6 million) is presented as part of other expenses, where the foreign exchange component is presented separately (see notes 8 and 9). The increase in fair value is mainly due to revised revenue projections.

The fair value of the contingent consideration of €113.2 million as of 31 December 2022 would increase by approximately €10 million if the revenue growth rates increased by 1.0 percentage point (decrease by approximately €11 million if the revenue growth rates decreased by 1.0 percentage point), and increase by approximately €5 million if the discount rates decreased by 1.0 percentage point (decrease by approximately €5 million if the discount rates increased by 1.0 percentage point).