Marks and Spencer 2015 Annual Report Download - page 117

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ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCE
GOVERNANCEFINANCIAL STATEMENTS
21 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management continued
(b) Counterparty risk 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 counterparty³
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A
£m
A-
£m
BBB+4
£m
Total
£m
Short-term investments1–––12.012.037.8––61.8
Derivative assets2–––7.60.511.75.56.631.9
At 29 March 2014 – – – 19.6 12.5 49.5 5.5 6.6 93.7
AAAm
£m
AAA
£m
AA
£m
AA-
£m
A+
£m
A
£m
A-
£m
BBB+
£m
Total
£m
Short-term investments1–––3.539.957.4––100.8
Derivative assets2– – – 21.5 21.8 52.1 46.9 – 142.3
At 28 March 2015 –––25.061.7109.546.9–243.1
1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks & Spencer General Insurance.
2. Excludes the embedded derivative within the lease host contract.
3. Stan d ard & Poor’s eq u ivale nt rating show n as ref e ren ce to the m ajor i t y cre dit rating of the counterpa r ty f ro m either Standard & Poor’s, Moody’s or Fitch where applicable.
4. E xposure to a counte r par ty ap p roved as an exce ptio n to Treasu ry po l icy.
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 £129m (last year £128m), other receivables
£110m (last year £136m), cash and cash equivalents £206m (last year £182m) and derivatives £194m (last year £54m).
(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 for 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.
As at the balance sheet date the gross notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to
£1,591m (last year £1,600m) 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 28 March 2015 will be released to the income statement at various
dates over the following 16 months (last year 16 months) from the balance sheet date.
The Group also holds a number of cross-currency swaps to re-designate its fi xed rate US doll ar debt to fi xed rate sterling debt. These are
reported as cash fl ow hedges.
The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the balance
sheet date €144m of currency debt (last year €162m of derivatives) and HK$1,398m (last year HK$698m) of derivatives were 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 £412m (last year £417m).