Marks and Spencer 2010 Annual Report Download - page 109

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Directors’ report p01
Financial statements
Other information p117
To find out more, visit www.marksandspencer.com/annualreport2010 105
22 Financial instruments continued
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, the fixed rate sterling borrowings are at an average rate of 5.9% (last year 6.0%)
and the weighted average time for which the rate is fixed is ten years (last year nine years).
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to the sterling, US dollar, euro and Hong Kong dollar variable rate financial assets
and liabilities.
The Group’s policy is to use derivative contracts where necessary to maintain a mix of fixed and floating rate borrowings to manage this risk.
The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted for as fair value or cash flow
hedges as appropriate.
At the balance sheet date fixed rate borrowings amounted to £2,148.3m (last year £2,260.3m) representing the public bond issues and
finance leases, amounting to 76% (last year 71%) of the Group’s gross borrowings.
The effective interest rates at the balance sheet date were as follows:
2010
%
2009
%
Committed and uncommitted borrowings 0.6 4.0
Medium-term notes 5.9 6.2
Finance leases 4.7 4.8
Partnership liability to the Marks & Spencer UK Pension Scheme –5.7
Derivative financial instruments
2010 2009
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Current
Options – held for trading 14.3 (14.3) 27.0 (27.0)
Commodity swap – cash flow hedge – (2.1) – (16.7)
Forward foreign exchange contracts– cash flow hedges 30.1 (5.0) 59.9 (27.4)
– held for trading 3.7 (1.4) 5.7 (0.4)
Interest rate swaps – held for trading – (4.3) – (4.7)
48.1 (27.1) 92.6 (76.2)
Non-current
Commodity swap – cash flow hedge – – – (1.5)
Cross currency swaps – cash flow hedges 132.8 – 253.9 –
Forward foreign exchange contracts – cash flow hedges 0.1 – 0.1 (1.5)
132.9 – 254.0 (3.0)
At the balance sheet date, the Group held a number of cross currency swaps to redesignate its fixed rate US dollar debt to fixed rate sterling
debt. The attributes of these derivatives match the characteristics of the underlying debt hedged with rates of 7.034% (2017 bond) and
7.238% (2037 bond). The amounts reported as options held for trading in derivative assets and liabilities represent the fair value of the call
option with the puttable callable reset notes, mirrored by the fair value of the sold option to have this call assigned. During the year the Group
entered into a number of interest rate swaps to redesignate sterling fixed debt to floating debt. These swaps are accounted for as fair value
hedges. The ineffective portion recognised in the profit or loss that arises from fair value hedges amounts to a loss of £0.4m (last year £nil)
as the gain on the hedged item was £1.5m (last year £nil) and the loss on the hedging instrument was £1.9m (last year £nil). There was no
ineffectiveness on cash flow hedging or net investment hedging.