Debt Investors

M&S Group’s funding strategy is to ensure 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, finance leases and committed bank facilities.

The objective is to ensure that the Group has appropriate funds to manage its financial obligations and to achieve its business objectives. In addition it is to ensure that the Group has a reasonable level of funding diversity in terms of investors and maturity.

Bank Facilities

The Group has a committed syndicated bank revolving credit facility of £1.1bn set to mature on 15 April 2023.

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 Group also has a number of undrawn uncommitted facilities available to it.

Maturity	Type	Facility Total
April 2023	Syndicated revolving credit facility	£1.1bn

Treasury Policies

The Group operates a centralised Group treasury function to manage the Group’s funding requirements and financial risks in line with the Board approved treasury policies and procedures, and their delegated authorities.

Treasury policy and financial risk management

The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade debtors and trade creditors, that arise directly from its operations.

The main purpose of these financial instruments is to raise finance for the Group’s operations. Group treasury also enters into derivative transactions, principally interest rate and currency swaps and forward currency contracts. The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s operations and financing.

It remains the Group’s policy not to hold or issue financial instruments for trading purposes, except where financial 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.

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 as follows:

Liquidity/funding risk

The Group’s funding strategy is to ensure 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, finance leases and committed syndicated bank facilities.

Interest rate risk

The Group is exposed to interest rate risk in relation to the sterling, US$, 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.

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 hedge 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 in relation to sterling against movements in US$ 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 equity. To the extent that these hedges cover actual currency payables or receivables then associated fair value movements previously recognised in equity are recorded in the income statement in conjunction with the corresponding asset or liability. The Group does not use derivatives to hedge balance sheet and profit and loss translation exposures. However, the translation exposures arising on overseas net assets are hedged with foreign currency debt. 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.

Counterparty risk

Counterparty risk exists where the Group can suffer financial loss through default or non-performance by financial institutions. Exposures are managed through the 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 of A-/A3 or better assigned by Moody’s and Standard & Poor’s respectively. 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.

The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity. The Group does not have any material exposures to concentrations of credit risk with any one counterparty.

Outstanding Debt

Marks and Spencer has issued Medium Term Notes (MTN) as follows:

Maturity Date	Issued Amount	Coupon	Interest Paid	Date	Minimum Denominations
2019¹	£400m	6.125%	Annually	2nd December	£50,000 and increments of £1,000
2021¹	£300m	6.125%	Annually	6th December	£100,000 and increments of £1,000
2023¹	£300m	3.000%	Annually	8th December	£100,000 and increments of £1,000
2025¹	£400m	4.750%	Annually	12th June	£100,000 and increments of £1,000
2027¹	£250m	3.250%	Annually	10^th July	£100,000 and increments of £1,000
2037²	US$300m	7.125%	Semi-annually	1st June / 1st December	$100,000 and increments of $1,000

1 These notes are issued under Marks and Spencer plc’s £3bn European Medium Term Note Programme and all pay interest annually.

2 Issued under rule 144A of the U.S. Securities Act. This note has been swapped back into sterling proceeds and pay fixed sterling rates of 7.280%. These cross currency swaps have been designated as cash flow hedges in relation to the US$ notes.

EURO MTN PROGRAMME