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114
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management continued
(b) Counterparty risk continued
The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances, store cash
and cash in transit:
Credit rating of counterparty³
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A
£m
A-
£m
BBB+
£m
Total
£m
Short-term investments1–––3.539.957.4––100.8
Derivative assets2– – – 21.5 21.8 52.1 46.9 – 142.3
At 28 March 2015 –––25.061.7109.546.9–243.1
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A
£m
A-
£m
BBB+
£m
Total
£m
Short-term investments1–––25.160.663.5––149.2
Derivative assets2–––42.633.323.4–18.2117.5
At 2 April 2016 – – – 67.7 93.9 86.9 – 18.2 266.7
1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks & Spencer General Insurance. Excludes cash
at hand and in transit £98.4m (last year £105.1m).
2. Excludes the embedded derivative within the lease host contract.
3. Stand ard & Poor's equ iv alent rating shown as referen ce to the majo ri ty cred it ratin g of the counterp ar ty from either Stan da rd & Poor's, Moody's or Fitch where applicable.
The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity.
The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £114m (last year £129m), other receivables
£63m (last year £110m), cash and cash equivalents £248m (last year £206m) and derivatives £146m (last year £194m).
(c) Foreign currency risk
Transactional foreign currency exposures arise from both the export of goods from the UK to overseas subsidiaries, and from the import
of materials and goods directly sourced from overseas suppliers.
Group treasury hedges these exposures principally using forward foreign exchange contracts progressively covering up to 100% out to
18 months. Where appropriate, hedge cover can be taken out for longer than 18 months, with Board approval. The Group is primarily
exposed to foreign exchange risk in rel ation to sterling against movements in US dollar and euro.
As at the balance sheet date the gross notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to
£1,640m (last year £1,591m) with a weighted average maturity date of fi ve months (last year seven months). The Group designates the
foreign exchange forwards in a cash fl ow hedge against variability in foreign currency cash fl ows arising from the recognition of inventory
and the subsequent settlement of the related trade payable.
Gains and losses in equity on forward foreign exchange contracts as at 2 April 2016 will be released to the income statement at various dates
over the following 15 months (last year 16 months) from the balance sheet date.
The Group also holds a number of cross currency swaps to re-designate its fi xed rate US doll ar debt to fi xed rate sterling debt. These are
reported as cash fl ow hedges.
The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the balance
sheet date €nil (last year €144m) of currency debt and HK$1,245m (last year HK$1,398m) of derivatives were hedging overseas net assets.
The Group also hedges foreign currency intercompany loans where these exist. Forward foreign exchange contracts in relation to the
hedging of the Group’s foreign currency intercompany loans are designated as held for trading with fair value movements being recognised
in the income statement. The corresponding fair value movement of the intercompany loan balance results in an overall £nil impact on the
income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £289m (last year £412m).
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s fi nancial
liabilities excluding short-term payables and the liability to the Marks & Spencer UK Pension Scheme is set out below:
2016 2015
Fixed rate
£m
Floating rate
£m
Total
£m
Fixed rate
£m
Floating rate
£m
Total
£m
Currency
Sterling 1,343.7 716.7 2,060.4 1,315.4 568.2 1,883.6
Euro 6.2 0.8 7.0 5.8 105.6 111.4
Other 0.1 4.7 4.8 – 30.3 30.3
1,350.0 722.2 2,072.2 1,321.2 704.1 2,025.3
The fl oating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one and six
months.
As at the balance sheet date and excluding fi nance leases, the fi xed rate sterling borrowings are at an average rate of 5.3% (last year 5.3%)
and the weighted average time for which the rate is fi xed is seven years (last year eight years).