Marks and Spencer 2008 Annual Report Download - page 84

82 MARKS AND SPENCER GROUP PLC
Notes to the financial statements
continued
21 Borrowings and other financial liabilities continued
Financial liabilities
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s
financial liabilities is as set out below excluding short-term payables and the COMS a.s. put option:
2008 2007
Fixed Floating Fixed Floating
rate rate Total rate rate Total
£m £m £m £m £m £m
Currency
Sterling 2,665.9 673.0 3,338.9 1,735.8 289.7 2,025.5
Euro – 192.5 192.5 – 159.5 159.5
Hong Kong dollar – 6.9 6.9 – 7.4 7.4
2,665.9 872.4 3,538.3 1,735.8 456.6 2,192.4
The floating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between
one and three months. As at the balance sheet date and excluding finance leases but including the partnership liability, the fixed
rate sterling borrowings are at an average rate of 6.0% (last year 5.8%) and the weighted average time for which the rate is fixed
is 10 years (last year 8.5 years).
Interest rate analysis
The effective interest rates at the balance sheet date were as follows:
2008 2007
%%
Committed and uncommitted borrowings 5.5 4.8
Medium term notes 6.2 5.9
Finance leases 5.0 4.4
Partnership liability to the Marks & Spencer UK Pension Scheme 5.7 5.3
22 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:
A Liquidity/funding risk
The Group’s funding strategy is to ensure a mix of funding sources offering flexibility and cost effectiveness to match the
requirements of the Group. Operating subsidiaries are financed by a combination of retained profits, bank borrowings,
medium term notes and committed syndicated bank facilities. In addition to the existing borrowings, the Group has a Euro
Medium Term Note programme of £3bn, of which £1.5bn (last year £1.2bn) was in issuance as at the balance sheet date.
Short-term borrowings are backed by a £1.2bn five-year committed syndicated bank facility, of which £615.0m (last year
£296.9m) was drawn down at the balance sheet date. In addition the Group entered into a £400m credit agreement set
to expire on 13 February 2009 with an option to term out for a further year.