Marks and Spencer 2016 Annual Report Download - page 114

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112
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
20 BORROWINGS AND OTHER FINANCIAL LIABILITIES CONTINUED
Finance leases
The minimum lease payments under fi nance leases fall due as shown in the table on the following page. It is the Group’s policy to lease
certain properties and equipment under fi nance leases. The average lease term for equipment is fi ve years (last year six years) and 123 years
(last year 124 years) for property. Interest rates are fi xed at the contract rate. All leases are on a fi xed repayment basis and no arrangements
have been entered into for contingent payments. The Group’s obligations under fi nance leases are secured by the lessors’ charges over the
leased assets.
21 FINANCIAL INSTRUMENTS
Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and fi nancial risks in line with the Board
approved treasury policies and procedures, and their delegated authorities.
The Group’s fi nancial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade
receivables and trade payables that arise directly from its operations. The main purpose of these fi nancial instruments is to fi nance the
Group’s operations.
The Group treasury function also enters into derivative transactions, principally interest rate swaps, cross currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and foreign currency risks arising from the Group’s
operations and fi nancing.
It remains the Group’s policy not to hold or issue fi nancial instruments for trading purposes, except where fi nancial constraints
necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not
engage in speculative trading.
Financial risk management
The principal fi nancial risks faced by the Group are liquidity and 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 o ering su cient headroom, maturity and fl exibility and cost
e ectiveness to match the requirements of the Group.
> Marks and Spencer plc is fi nanced by a combination of retained profi ts, bank borrowings, medium-term notes and committed syndicated
bank facilities.
> Operating subsidiaries are fi nanced by a combination of retained profi ts, bank borrowings and intercompany loans.
During the fi nancial year, the Group renegotiated its committed syndicated bank revolving credit facility. The new facility of £1.1bn is set
to mature on 15 April 2021. This facility contains only one fi nancial 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 £100m (last year £100m), all of which are due to be reviewed
within a year. At the balance sheet date a sterling equivalent of £205m (last year £225m) was drawn under the committed facilities and £30m
(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 £1.1bn (last year £1.1bn) was in
issuance as at the balance sheet date.