0175 Geely Automobile Holdings Limited Annual Report 2011

Annual Report 2011Geely Automobile Holdings LimitedManagement ReportCAPITAL STRUCTURE ANDTREASURY POLICIESThe Group funds its short-term working capital requirementmainly through its own operational cash flow, short-termbank loans from commercial banks in China and the creditfrom its suppliers. For its longer-term capital expendituresincluding product and technology development costs,investment in the construction, expansion and upgradingof production facilities, the Group’s strategy is to fundthese longer-term capital commitments by a combinationof its operational cash flow, shareholders’ loan from theits parent Geely Holding and fund raising exercises in thecapital market. As at 31 December 2011, the Group’sshareholders’ funds amounted to approximately RMB9.6billion (As at 31 December 2010: approximately RMB8.0billion). The Company issued around 16.7 million ordinaryshares upon exercise of share options during the year.EXPOSURE TO FOREIGN EXCHANGE RISKThe Group considers that fluctuations in exchange rate donot impose a significant risk to the Group since the Group’soperations are principally in the Mainland China and theGroup’s assets and liabilities are mainly denominated inRenminbi, the functional currency of the Group.LIQUIDITY AND FINANCIAL RESOURCESAs at 31 December 2011, the Group’s current ratio(current assets/current liabilities) was about 1.13 (As at 31December 2010: 1.33 (restated)) and the gearing ratio of theGroup was about 51.2% (As at 31 December 2010: 51.6%)which was calculated on the Group’s total borrowings tototal shareholders’ equity. As at 31 December 2011, thesubstantial increase in receivables (in particular, the notesreceivable) was mainly due to (a) the continual strongsales momentum for the Group’s models particularly in thefourth quarter of the current year (i.e. the traditional peakseasons for automobile industry) and the Group receivedhuge amount of notes receivable from its customers duringthat period; and (b) thanks to the relatively low interestenvironment and healthy net debt level, the Group did notopt to discount these notes receivable without recoursebut wait to hold them until maturity during most of thetimes in 2011. In addition, in order to secure an adequatesupply of automobile parts & components (in particular,steel, out-sourced engines and other high-end electronicparts & components) from the Group’s supply chain duringthe peak season in the fourth quarter of 2011, the Grouphad to prepay these inventories to its suppliers towardsthe end of 2011. Separately, the strong sales momentumfor the Group’s products also drove its dealers to pay inadvance in order to secure adequate inventories at theirsales premises at the year end. As at 31 December 2011,the receipts in advance from customers represented almost18% (As at 31 December 2010: 23%) of the total currentliabilities. Accordingly, the net effect of the above resultedin a decrease in current ratio at the end of year 2011 overthe previous year.Total borrowings (excluding trade and other payables) asat 31 December 2011 amounted to approximately RMB4.9billion (As at 31 December 2010: approximately RMB4.1billion) were mainly the Company’s convertible bonds andbank borrowings. For the Company’s convertible bonds,they are unsecured, interest-bearing and repayable on earlyredemption or maturity. For the bank borrowings, they aremostly secured, interest-bearing and repayable on maturity.The slight decrease in gearing ratio during the year wasmainly due to the increase in equity as a result of anotherrecord-high profit attained by the Group in the year of2011. Should other opportunities arise requiring additionalfunding, the Directors believe the Group is in a good positionto obtain such financing.EMPLOYEES’ REMUNERATION POLICYAs at 31 December 2011, the total number of employeesof the Group was about 17,288 (As at 31 December 2010:17,102). Employees’ remuneration packages are basedon individual experience and work profile. The packagesare reviewed annually by the management who takes intoaccount the overall performance of the working staff andmarket conditions. The Group also participates in theMandatory Provident Fund Scheme in Hong Kong andstate-managed retirement benefit scheme in the PRC. Inaddition, employees are eligible for share options under theshare option scheme adopted by the Company.16