2011 - Li & Fung Limited

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NOTES TO THE ACCOUNTS (CONTINUED) 36 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) MARKET RISK (CONTINUED) (iii) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets except for available-for-sale debt security, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises mainly from US dollar denominated bank borrowings and the US dollar denominated long-term notes issued. Bank borrowings at variable rates expose the group to cash flow interest rate risk. The available-for-sale debt security issued at a fixed interest rate exposes the Group to fair value interest rate risk. The Group’s policy is to maintain a diversified mix of variable and fixed rate borrowings based on prevailing market conditions. At 31 December 2011, if the variable interest rates on the bank borrowings had been 0.1% higher/lower with all other variables held constant, profit for the year and equity would have been approximately US$2,368,000 (2010: US$1,233,000) lower/higher, mainly as a result of higher/lower interest expenses on floating rate borrowings. If the prevailing market interest rate on the available-for-sale debt security had been 0.1% higher/lower with all other variables held constant, the Group’s profit would have been increased or decreased by approximately US$213,000 (2010: US$244,000). (b) CREDIT RISK Credit risk mainly arises from trade and other receivables as well as cash and bank balances of the Group. Most of the Group’s cash and bank balances are held in major global financial institutions. The Group has stringent policies in place to manage its credit risk with trade and other receivables, which include but are not limited to the measures set out below: (i) A significant portion of business is secured by back-to-back payment arrangements or covered by letters of credit, customers’ standby letters of credit, bank guarantees or credit insurance; (ii) Certain trade receivable balances on open account term are factored to external financial institutions without recourse; (iii) The Group’s credit control team makes an assessment of each individual customer and vendor and determines the credit limits based on, among other factors, their trading and settlement history as well as their respective financial background. The Group’s five largest customers, in aggregate, account for less than 30% of the Group’s business. Transactions with these customers are entered into within the credit limits designated by the Group. Except for trade receivables of US$26,827,000 (2010: US$19,488,000) and other receivables of US$27,087,000 (2010: US$25,756,000) were impaired and fully provided, none of the other financial assets including available-for-sale debt security (Note 17), due from related companies (Note 19) and other receivables and deposits (Note 21) impaired as there is no recent history of default of the counterparties. The maximum exposure of these other financial assets to credit risk at the reporting date is their carrying amounts. (c) LIQUIDITY RISK Prudent liquidity risk management implies maintaining sufficient cash on hand and the availability of funding through an adequate amount of committed credit facilities from the Group’s bankers. 144 LI & FUNG LIMITED | ANNUAL REPORT 2011
36 FINANCIAL RISK MANAGEMENT (CONTINUED) NOTES TO THE ACCOUNTS (CONTINUED) (c) LIQUIDITY RISK (CONTINUED) Management monitors rolling forecasts of the Group’s liquidity reserves (comprises undrawn borrowing facilities and cash and cash equivalents (Note 22)) on the basis of expected cash flow. The table below analyzes the liquidity impact of the Group’s long-term liabilities (including annual coupons payable for the long-term notes) into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. These amounts will not reconcile to the amounts disclosed on the balance sheet and in Note 27 for long-term liabilities. Less than Between Between Over 1 year 1 and 2 years 2 and 5 years 5 years US$’000 US$’000 US$’000 US$’000 The Group At 31 December 2011 Bank loans – 49,000 56,489 – Balance of purchase consideration payable for acquisitions 334,651 417,924 975,010 284,365 Long-term notes – unsecured 66,875 66,875 200,625 1,482,188 License royalty payable 58,651 67,566 87,191 24,613 Financial guarantee contract 750 – – – At 31 December 2010 – Restated Bank loans – 47,591 55,855 – Balance of purchase consideration payable for acquisitions 261,069 201,676 615,451 109,636 Long-term notes – unsecured 66,875 66,875 200,625 1,482,188 License royalty payable 7,843 54,862 99,593 46,510 Financial guarantee contract 750 – – – At 1 January 2010 – Restated Balance of purchase consideration payable for acquisitions 155,404 105,578 150,465 45,940 Long-term notes – unsecured 27,500 27,500 82,500 582,500 License royalty payable 35,831 17,509 13,304 – Financial guarantee contract 750 – – – The Company At 31 December 2011 Long-term notes – unsecured 66,875 66,875 200,625 1,482,188 Financial guarantee contract 3,530,247 – – – At 31 December 2010 – Restated Long-term notes – unsecured 66,875 66,875 200,625 1,482,188 Financial guarantee contract 2,780,778 – – – At 1 January 2010 – Restated Long-term notes – unsecured 27,500 27,500 82,500 582,500 Financial guarantee contract 2,780,778 – – – LI & FUNG LIMITED | ANNUAL REPORT 2011 145
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LI & FUNG LIMITED (Incorporated in
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CORPORATE INFORMATION NON-EXECUTIVE
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THE AMERICAS Guatemala City Lima Ma
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CHAIRMAN’S STATEMENT Victor Fung
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CHAIRMAN’S STATEMENT (CONTINUED)
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CONSUMER NEEDS THE SUPPLY CHAIN CON
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MANAGEMENT DISCUSSION & ANALYSIS Wi
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MANAGEMENT DISCUSSION & ANALYSIS (C
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CORPORATE GOVERNANCE The Board of D
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CORPORATE GOVERNANCE (CONTINUED) In
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CORPORATE GOVERNANCE (CONTINUED) LI
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CORPORATE GOVERNANCE (CONTINUED) RI
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CORPORATE GOVERNANCE (CONTINUED) CO
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CORPORATE GOVERNANCE (CONTINUED) As
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CORPORATE GOVERNANCE (CONTINUED) Th
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CORPORATE GOVERNANCE (CONTINUED) CO
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SUSTAINABILITY OVERVIEW In 2011, we
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SUSTAINABILITY (CONTINUED) A summar
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SUSTAINABILITY (CONTINUED) WELL-BEI
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DIRECTORS AND SENIOR MANAGEMENT DIR
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DIRECTORS AND SENIOR MANAGEMENT (CO
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DIRECTORS AND SENIOR MANAGEMENT (CO
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REPORT OF THE DIRECTORS The directo
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Number of Share Options REPORT OF T
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SUBSIDIARIES Details of the Company
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DIRECTORS The directors during the
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REPORT OF THE DIRECTORS (CONTINUED)
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REPORT OF THE DIRECTORS (CONTINUED)
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OPINION INDEPENDENT AUDITOR’S REP
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CONSOLIDATED PROFIT AND LOSS ACCOUN
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CONSOLIDATED BALANCE SHEET As at 31
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BALANCE SHEET As at 31 December 201
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CONSOLIDATED STATEMENT OF CHANGES I
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NOTES TO THE ACCOUNTS 1 BASIS OF PR
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NOTES TO THE ACCOUNTS (CONTINUED) 1
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2 CRITICAL ACCOUNTING ESTIMATES AND
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Page 141 and 142: 31 BUSINESS COMBINATIONS (CONTINUED
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Page 151 and 152: 41 PRINCIPAL SUBSIDIARIES AND ASSOC
Page 164: LIFUNG TOWER 888 Cheung Sha Wan Roa
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2011 - Li & Fung Limited

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