Annual Report 2012 - e-KONG Group Limited

e-KONG GROUP LIMITEDFinancial Review (continued)Capital Structure, Liquidity and FinancingDuring the year, the Group continued to have a healthy financial position and, as at 31 December 2012, the net assetsamounted to HK$213.5 million compared to HK$225.6 million as at 31 December 2011 or a net asset value per shareof HK$0.410 as at 31 December 2012 (2011: HK$0.433).Capital expenditures for the year amounted to HK$16.4 million mainly in respect of the development of a new serviceplatform, upgrading of switching facilities and acquisitions of network equipment in the US and Singapore.Cash and bank balances (excluding pledged bank deposits) amounted to HK$121.2 million as at 31 December 2012(2011: HK$121.9 million). As at 31 December 2012, HK$77.5 million (2011: Nil) was pledged as bank deposits tocollateralise a letter of credit issued to a bank in respect of a banking facility extended to a subsidiary. In addition, bankguarantees of HK$2.0 million (2011: HK$2.3 million) were issued to suppliers for operational requirements.As at 31 December 2012, total bank borrowings of the Group amounted to HK$85.7 million (2011: Nil), of whichHK$77.5 million is denominated in United States dollars (equivalent to US$10,000,000) and the proceeds thereof areintended for general working capital purposes. The loan bears interest at a floating rate and is payable quarterly. Theloan facility expires in August 2017, at which time the full amount outstanding is due and payable in United Statesdollars. The loan is collateralised by a bank letter of credit supported by the Company. The remaining balance of thebank borrowings of HK$8.2 million (2011: Nil) is denominated in Singapore dollars. The loan and interest at a floatingrate are repayable monthly in Singapore dollars over a period of three years. The loan, which was utilised for theacquisition of assets during 2012, is secured by the net assets of a subsidiary company.The Group’s liabilities under equipment lease financing decreased by 93.0% to HK$0.1 million as at 31 December 2012when compared to HK$0.9 million as at 31 December 2011.As at 31 December 2012, the Group’s gearing ratio, measured on the basis of total borrowings as a percentage of netassets was 40.2% (2011: 0.4%). The increase in the gearing ratio is due to the bank borrowings for the year.Foreign Exchange ExposureSince most of the Group’s assets and liabilities, revenue and payments are denominated in Hong Kong and United Statesdollars, the Group considers there are no significant exposures to foreign exchange fluctuations as long as the HongKong-United States dollar exchange rate remains pegged. The Group continues to closely monitor the Singapore-UnitedStates dollar exchange rate and, if cash contributions from the Singapore operations or borrowings in Singapore dollarsincrease in future, the Group will, whenever appropriate, take any necessary action to reduce such exchange risks. Inthis regard, as at 31 December 2012, no related currency hedges had yet been undertaken by the Group.Contingent Liabilities and CommitmentsA jointly-controlled entity is involved in certain legal actions and claims arising in the ordinary course of business, subjectto which certain representations, warranties and indemnities are provided by a subsidiary. Management believes that itis remote that the outcome of such litigation and claims will have a material effect on the Group’s financial position.Save as disclosed above, as at 31 December 2012, there were no material contingent liabilities or commitments.10Annual Report 2012