Marks and Spencer 2012 Annual Report Download - page 102

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Financial statements Marks and Spencer Group plc Annual report and financial statements 2012 100
Notes to the financial statements continued
21 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 5.8%
(last year 5.9%) and the weighted average time for which the rate is fixed is nine years (last year nine years).
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to 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 £2,037.2m (last year £2,037.2m) representing the public bond
issues and finance leases, amounting to 90% (last year 81%) of the Group’s gross borrowings.
The effective interest rates at the balance sheet date were as follows:
2012
%
2011
%
Committed and uncommitted borrowings 0.5 –
Medium-term notes 5.8 5.9
Finance leases 4.5 4.6
Derivative financial instruments
2012 2011
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Current
Options – held for trading 53.6 (53.6) 14.4 (14.4)
Forward foreign exchange contracts – cash flow hedges 13.3 (5.1) 2.8 (29.9)
– held for trading 0.1 (1.3) 1.2 (2.4)
– net investment hedges – (0.5) – (2.7)
Interest rate swaps – held for trading – – – (1.3)
67.0 (60.5) 18.4 (50.7)
Non-current
Cross currency swaps – cash flow hedges – (26.5) – (37.5)
Forward foreign exchange contracts – cash flow hedges 0.1 (0.7) 0.7 –
Interest rate swaps – fair value hedge 24.0 – 0.8 –
Embedded derivative (see note 5) 20.1 – 20.3 –
44.2 (27.2) 21.8 (37.5)
The amounts reported as options held for trading in derivatives 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. The Group holds
a number of interest rate swaps to re-designate its sterling fixed debt to floating debt. These are reported as fair value hedges.
The Group also holds a number of cross currency swaps to re-designate its fixed rate US dollar debt to fixed rate sterling debt.
These are reported as cash flow hedges.