0175 Geely Automobile Holdings Limited Annual Report 2011

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Annual Report 2011Geely Automobile Holdings LimitedNOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 201135. Connected and Related Party Transactions (Continued)(c)Pledge of assetsAt 31 December 2011, certain prepaid land lease payments and property, plant and equipment with carryingamounts of RMB210,836,000 (2010: RMB194,475,000) and RMB131,635,000 (2010: RMB526,912,000)respectively, have been pledged to secure banking facilities granted to the Company’s ultimate holdingcompany and such pledge of assets is subject to the guarantee provided by the Group amounting toRMB493,600,000 (2010: RMB420,000,000). During the year, the maximum guarantee provided by theGroup was determined to be RMB493,600,000 (2010: RMB420,000,000).36. Capital Risk ManagementThe Group manages its capital to ensure that entities in the Group will be able to continue as a going concernwhile maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’soverall strategy remains unchanged from the prior year.The capital structure of the Group consists of debt (which includes borrowings and convertible bonds) and equityattributable to equity holders of the Company, comprising issued share capital and reserves.Gearing ratioThe Group’s Board of Directors reviews the capital structure on a regular basis. As part of this review, the Boardof Directors considers the cost of capital and the risks associated with each class of capital. The Group doesnot have a specific target gearing ratio determined as the proportion of debt to equity but closely monitors thefluctuations of the gearing ratio.The gearing ratio at the balance sheet date was as follows:2011 2010RMB’000RMB’000Debt (i) 4,901,325 4,141,993Equity (ii) 9,582,200 8,021,882Debt to equity ratio 51% 52%(i)(ii)Debt comprising borrowings and convertible bonds as detailed in notes 26 and 24 to the consolidatedfinancial statements respectively.Equity includes all capital and reserves attributable to equity holders of the Company.117
Annual Report 2011Geely Automobile Holdings LimitedNOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 201137. Financial Risk Management Objectives and PoliciesExposure to market risk (including interest rate risk and currency risk), credit and liquidity risks arises in the normalcourse of the Group’s business. Market risk exposures are measured using sensitivity analysis. There has been nochange to the Group’s exposure to market risks or the manner in which it manages and measures the risk.These risks are limited by the Group’s financial management policies and practices described below.Credit riskThe Group’s credit risk is primarily attributable to trade receivables. Management has a credit policy in place andthe exposures to these credit risks are monitored on an ongoing basis.In respect of trade and other receivables, credit evaluations are performed on customers requiring credit over acertain amount. These evaluations focus on the customer’s past history of making payments when due and currentability to pay, and take into account information specific to the customer as well as pertaining to the economicand business environment in which the customer operates. Normally, the Group does not obtain collateral fromcustomers. In addition, most of the debtors have good credit quality as set out in note 21(a) to the consolidatedfinancial statements.The maximum exposure to credit risk without taking account of any collateral held is represented by the carryingamount of each financial asset, excluding financial assets at fair value through profit or loss, in the balance sheetafter deducting any impairment allowance (also disclosed under the below liquidity table). In addition, as set outin note 35(c) to the consolidated financial statements, certain of the Group’s assets have been pledged and theGroup also provided guarantee to secure banking facilities granted to the Company’s ultimate holding company. Thedirectors consider the Company’s ultimate holding company has sufficient financial strength and the probability ofdefault is low. The Group does not provide any other guarantees which would expose the Group to credit risk.Bank balances and cash of the Group have been deposited into established banks in countries that the Groupoperates.Equity and debt price riskThe Group is exposed to the equity price changes arising from the equity and debt securities classified asavailable-for-sale financial assets.The Group’s listed investment is listed overseas. Decisions to buy or sell securities are based on the Group’sliquidity needs. Listed investments held in the available-for-sale portfolio have been chosen based on their longerterm growth potential and are monitored regularly for performance against expectations.The Group’s unquoted investments are held for long term strategic purposes. Their performance is assessed atleast twice a year against performance of similar listed entities, based on the limited information available to theGroup, together with an assessment of their relevance to the Group’s long term strategic plans.Liquidity riskIndividual operating entities within the Group are responsible for their own cash management, including short terminvestment of cash surpluses and the raising of loans to cover expected cash demands. The Group’s policy is toregularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintainssufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet itsliquidity requirements in the short and longer term.The following table details the remaining contractual maturities at the balance sheet date of the Group’s financialassets and financial liabilities, which are based on contractual undiscounted cash flows including interest and thecontractual maturities.118
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0175 Geely Automobile Holdings Limited Annual Report 2011

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