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Financial statements Marks and Spencer Group plc Annual report and financial statements 2012 98
Notes to the financial statements continued
21 Financial instruments continued
Financial risk management
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 on the following pages:
(a) Liquidity/funding risk
The risk that the Group could be unable to settle or meet its obligations at a reasonable price as they fall due;
–The Group’s funding strategy ensures 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.
At year end, the Group had a committed syndicated bank revolving credit facility of £1.325bn set to mature on 29 September
2016. This facility contains only one financial covenant being the ratio of earnings before interest, tax, depreciation, amortisation
and rents payable; to interest plus rents payable. The covenant is measured semi-annually. The Group also has a number of
undrawn uncommitted facilities available to it. At year end, these amounted to £105m (last year £105m), all of which are due to
be reviewed within a year. At the balance sheet date a sterling equivalent of £nil (last year £nil) was drawn under the committed
facilities and £nil (last year £nil) was drawn under the uncommitted facilities.
In addition to the existing borrowings, the Group has a euro medium-term note programme of £3bn, of which £1.6bn (last year
£1.6bn) was in issuance as at the balance sheet date.
The 6.375% £308m bond was repaid in November 2011 and a new 6.125% £300m bond was subsequently issued under the
programme in December 2011 maturing in 2021.
The contractual maturity of the Group’s non-derivative financial liabilities and derivatives is as follows:
Bank loans
and
overdrafts
£m
Syndicated
bank facility
£m
Medium-term
notes
£m
Finance
lease
liabilities
£m
Total
£m
Derivative
assets
£m
Derivative
liabilities
£m
Total
£m
Timing of cash flows
Within one year (274.8) – (439.9) (16.0) (730.7) 1,389.3 (1,418.6) (29.3)
Between one and two years (14.3) – (380.1) (11.7) (406.1) 96.5 (92.7) 3.8
Between two and five years – – (650.9) (15.8) (666.7) 100.7 (103.7) (3.0)
More than five years – – (1,992.8) (195.8) (2,188.6) 830.2 (883.4) (53.2)
(289.1) – (3,463.7) (239.3) (3,992.1) 2,416.7 (2,498.4) (81.7)
Effect of discounting and foreign exchange – – 1,304.7 161.0 1,465.7
At 2 April 2011 (289.1) – (2,159.0) (78.3) (2,526.4)
Timing of cash flows
Within one year (38.4) – (398.5) (11.8) (448.7) 1,540.1 (1,529.4) 10.7
Between one and two years (0.3) – (517.1) (8.8) (526.2) 163.6 (161.9) 1.7
Between two and five years – – (283.8) (9.2) (293.0) 110.5 (103.3) 7.2
More than five years – – (2,310.9) (192.1) (2,503.0) 804.6 (841.8) (37.2)
(38.7) – (3,510.3) (221.9) (3,770.9) 2,618.8 (2,636.4) (17.6)
Effect of discounting and foreign exchange – – 1,338.7 156.4 1,495.1
At 31 March 2012 (38.7) – (2,171.6) (65.5) (2,275.8)
This table does not include trade and other payables (see note 19) due to the low associated liquidity risk and the partnership
liability to the Marks & Spencer UK Pension Scheme (see note 12).
The present value of finance lease liabilities is as follows:
2012
£m
2011
£m
Within one year (8.7) (12.4)
Later than one year and not later than five years (8.7) (17.3)
Later than five years (48.1) (48.6)
Total (65.5) (78.3)
(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through default or non-performance by financial institutions.
Exposures are managed through Group treasury policy which limits the value that can be placed with each approved
counterparty to minimise the risk of loss. The counterparties are limited to the approved institutions with secure long-term credit
ratings A+/A1 or better, assigned by Moody’s and Standard & Poor’s respectively, unless approved by exception by the CFO.
Limits are reviewed regularly by senior management. The credit risk of these financial instruments is estimated as the fair value of
the assets resulting from the contracts.