Marks and Spencer 2012 Annual Report Download - page 101

Financial statements Marks and Spencer Group plc Annual report and financial statements 2012 99
Overview Strategic review Financial review Governance Financial statements and other information
21 Financial instruments 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 counterparty4
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A-
£m
A³
£m Total
Short-term investments¹ 193.1 17.0 54.3 19.1 79.1 – – 362.6
Derivative assets² – 0.2 0.5 – 4.0 – 0.8 5.5
At 2 April 2011 193.1 17.2 54.8 19.1 83.1 – 0.8 368.1
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A-
£m
A³
£m Total
Short-term investments¹ 198.5 – 2.0 42.8 27.1 20.0 – 290.4
Derivative assets² – – 1.9 9.8 – 18.2 7.6 37.5
At 31 March 2012 198.5 – 3.9 52.6 27.1 38.2 7.6 327.9
1 Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks & Spencer plc and M.S. General Insurance LP.
2 Excludes derivative asset option which is embedded within the £250m puttable callable reset medium-term notes due 2037 and the embedded derivative within the lease host contract.
3 Exposure to a counterparty approved as an exception to treasury policy.
4 Standard & Poor’s equivalent rating shown as reference to the lowest credit rating of the counterparty from either Standard & Poor’s or Moody’s.
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 £115m (last year £98m), other
receivables £58m (last year £61m), cash and cash equivalents £196m (last year £470m) and derivatives £111m (last year £40m).
(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 longer than 18 months, with Board approval. The Group is
primarily exposed to foreign exchange risk in relation to sterling against movements in US dollar and euro.
Forward foreign exchange contracts in relation to the Group’s forecast currency requirements are designated as cash flow
hedges with fair value movements recognised directly in comprehensive income. To the extent that these hedges cover actual
currency payables or receivables, then associated fair value movements previously recognised in comprehensive income are
recorded in the income statement in conjunction with the corresponding asset or liability. As at the balance sheet date the gross
notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to £1,221m (last year £1,062m) with
a weighted average maturity date of seven months (last year six months).
Gains and losses in equity on forward foreign exchange contracts as at 31 March 2012 will be released to the income statement
at various dates over the following 15 months (last year 14 months) from the balance sheet date.
The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the
balance sheet date €242m (last year €201m) and HK$291m (last year HK$192m) of derivatives was 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 £187m (last year £175m).
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the
Group’s financial liabilities excluding short-term payables, the liability to the Marks & Spencer UK Pension Scheme and the
Marks and Spencer Czech Republic a.s. put option, is set out below:
2012 2011
Fixed rate
£m
Floating rate
£m
Total
£m
Fixed rate
£m
Floating rate
£m
Total
£m
Currency
Sterling 2,030.4 205.2 2,235.6 2,030.1 411.8 2,441.9
Euro 6.8 5.1 11.9 7.1 33.7 40.8
Hong Kong dollar ––– – – –
Other – 28.3 28.3 – 43.7 43.7
2,037.2 238.6 2,275.8 2,037.2 489.2 2,526.4