Marks and Spencer 2007 Annual Report Download - page 83

Download and view the complete annual report

Please find page 83 of the 2007 Marks and Spencer annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

21 BORROWINGS AND OTHER FINANCIAL LIABILITIES continued
Interest rate analysis
The effective interest rates at the balance sheet date were as follows:
2007 2006
%%
Committed/uncommitted borrowings 4.8 –
Medium term notes 5.9 5.7
Securitised loan notes –6.3
Non-equity B shares –3.5
Finance leases 4.4 4.4
Finance leases
The minimum lease payments under finance leases fall due as follows:
2007 2006
£m £m
Not later than one year 7.1 4.8
Later than one year but not more than five 19.5 9.8
More than five years 196.0 197.7
222.6 212.3
Future finance charges on finance leases (161.0) (162.1)
PPrreesseenntt vvaalluuee ooff lleeaassee oobblliiggaattiioonnss61.6 50.2
It is the Group’s policy to lease certain of its properties and equipment under finance leases. The average lease term for equipment
is five years and 125 years for property. Interest rates are fixed at the contract rate. All leases are on a fixed repayment basis and
no arrangements have been entered into for contingent payments. The Group’s obligations under finance leases are secured by the
lessors’ charges over the leased assets.
22 PARTNERSHIP LIABILITY TO THE MARKS & SPENCER UK PENSION SCHEME
The partnership liability to the Marks & Spencer UK Pension Scheme of £496.9m (last year £nil) relates to the amortising liability
in respect of the obligations of the Marks and Spencer Scottish Limited Partnership to the Marks & Spencer UK Pension Scheme.
The Group has agreed a plan with the Pension Scheme Trustee to address the majority of the deficit by transferring properties with a
current market value of £1.1bn into a partnership established by the Group. A limited interest in this partnership was contributed to
the Pension Scheme on 13 March 2007. The Group retains control over these properties, including the flexibility to substitute
alternative properties. The properties held in the partnership have been leased back to Marks and Spencer plc. The pension scheme
is entitled to a distribution from the profits of the partnership of £50m per annum for 15 years from July 2008. The Group has the
right to buy out the Trustee’s partnership interest at any point for an amount equal to the net present value of the remaining annual
distributions due to the pension scheme.
Each year the obligation will reduce as payments are made to the pension scheme by the partnership and an interest charge will be
taken to the income statement representing the unwinding of the discounted obligation at an implied interest rate of 5.32%. The fair
value of this liability was £495.3m (last year £nil).
23 FINANCIAL INSTRUMENTS
Treasury Policy and Financial Risk Management
The Group operates a centralised Group Treasury function to manage the Group’s funding requirements and financial risks in line
with the Board approved treasury policies and procedures, and their delegated authorities.
The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as
trade debtors and trade creditors, that arise directly from its operations. The main purpose of these financial instruments is to raise
finance for the Group’s operations.
Group Treasury also enters into derivative transactions, principally interest rate and currency swaps and forward currency contracts.
The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s operations and financing.
It remains the Group’s policy not to hold or issue financial instruments for trading purposes, except where financial constraints
necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not
engage in speculative trading.
The principal financial risks faced by the Group are liquidity/funding, interest rate, foreign currency and counterparty risks. The
policies and strategies for managing these risks are summarised as follows:
wwwwww..mmaarrkkssaannddssppeenncceerr..ccoomm//aannnnuuaallrreeppoorrtt22000077MARKS AND SPENCER GROUP PLC 8811
Executive Team Your Board Financial
Review Governance Financials
Shareholder
Information