41.1 Categories of financial instruments

41.2 Financial Risk Management Objectives and Policies

The borrowings of the Group and the Company are repayable as follows:

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group’s borrowings are as follows:

The Group’s borrowings that are denominated in currencies other than the functional currencies of the relevant group entities are set out below:

The carrying amount of bank borrowings approximates their fair value as the weighted average interest rates approximate the contracted market rates.

The movement of the liability component of the convertible bonds for the year is set out below:

The fair value of the liability component on initial recognition of the convertible bonds at December 31, 2010, determined based on the present value of the estimated future cash outflows discounted at the prevailing market rate at the end of the reporting period date, was approximately HK$1,194,842,000 (2009: HK$1,073,083,000).

In 2004, the Group issued 5-year zero coupon convertible bonds at par, due in July, 2009 (the “Convertible Bonds 2009″), for an aggregate principal amount of US$140,000,000 (approximately HK$1,092,000,000). The Convertible Bonds 2009 are convertible, at the option of bondholders, into ordinary shares of HK$0.10 each of the Company at an initial conversion price of US$2.1247 per share, subject to anti-dilutive adjustment, at any time from August 7, 2006 to July 1, 2009.

The Convertible Bonds 2009 contain two components, a liability and an equity element. The equity element is presented in equity as “Convertible bonds equity reserve”. The effective interest rate of the liability component is 2.11%.

On July 8, 2007, the bondholders early redeemed part of the Convertible Bonds 2009 with a principal amount of US$127,850,000 (approximately HK$997,230,000) at 104.59%. The remaining Convertible Bonds were redeemed at 107.76% of the principal amount of US$12,150,000 on the maturity date of July 8, 2009.

In 2009, the Group issued two tranches of 5-year 8.5% coupon convertible bonds with an aggregate principal amount of
US$150,000,000 (approximately HK$1,170,000,000 (“Convertible Bonds 2014″)) and 55,888,500 detachable warrants (“Warrants
2012″). Unless previously redeemed, converted or purchased and cancelled, the Convertible Bonds 2014 will be redeemed at their principal amount on the maturity date at April 30, 2014. The Warrants 2012 are detachable from the Convertible Bonds 2014 (see Note 44 for details of the warrants).

The holders of the Convertible Bonds 2014 have the right to convert all or any portion of the Convertible Bonds 2014 into shares of the Company at an initial conversion price of HK$5.20 (to be converted to United States dollars at the fixed exchange rate of HK$7.75 = US$1.0) per share, subject to anti-dilutive adjustment, from October 30, 2010 to April 20, 2014 (“Conversion Rights”). The conversion will result in the Company issuing a fixed number of shares of the Company in settlement of a fixed amount of cash.

At the option of the Convertible Bond 2014′s holders, on April 30, 2012, the holders may redeem Convertible Bond 2014 at the principal amount plus accrued interest to the date of redemption. The embedded options are closely related to the liability component of Convertible Bond 2014 and hence not separately accounted for.

The fair value of the liability component on initial recognition was estimated at the issue date using an equivalent market interest rate for a similar bond without the Conversion Rights and Warrants 2012. The residual amount was assigned as the equity component, representing the estimated fair value of the Warrants 2012 with the remaining balance is allocated to the Conversion Rights and included in shareholders’ equity.

The weighted average effective interest rate of the Convertible Bonds 2014 is 15.57%.

Warrants 2012 are detachable from Convertible Bonds 2014. Each Warrants 2012 entitles its holder to convert a warrant at an exercise price of HK$5.10 for one ordinary share of the Company, at any time from April 30, 2010 to April 30, 2012.

During the year, holders of Warrants 2012, exercised 14,903,600 Warrants 2012 resulting in the issuance of 14,903,600 new shares of the Company.

During the year, the Group bought back 40,984,900 Warrants 2012 from the Warrant holders for a consideration of
HK$101,843,000.

At December 31, 2010, the Company has no warrants outstanding (2009: 55,888,500 Warrants 2012 to be exercised on or before
April 30, 2012).

Details of the share options are set out in Note 52.

As at December 31, 2010, the Company’s reserves available for distribution to shareholders comprised the retained profits of HK$2,665,620,000 (2009: HK$2,908,248,000).

Defined Contribution Plans:
The Company and its subsidiaries operating in Hong Kong have participated in the Mandatory Provident Fund Schemes (“MPF Schemes”) registered under the Mandatory Provident Fund Ordinance since December 2000.

The employees of the Group’s subsidiaries in the PRC are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The Group’s overseas subsidiaries operate a number of defined contribution schemes. Contributions to the defined contribution schemes applicable to each year are made at a certain percentage of the employees’ payroll.

Defined benefits Plans:
The Group operates several defined benefit plans for qualifying employees of its subsidiaries in Germany and the US, of which these plans cover substantially all remaining employees that are not covered by defined contribution plans. The major defined benefit
plans are as follows:

The main actuarial assumptions used were as follows:

The effect of an increase of one percentage point in the assumed medical cost inflation on current service cost and interest cost
accumulated post-employment benefit obligations are as follows:

Amounts recognised in profit or loss in respect of the plans are as follows:

The charge for the year has been included in staff costs.

The amount included in the consolidated statement of financial position arising from the Group’s obligation in respect of the plans is as follows:

Movements in the present value of the defined benefit obligations in the current year were as follows:

Movements in the fair value of the plan assets in the current year were as follows:

The plan assets of the post-employment benefit plan are cash in a Federated Money Market Fund with an expected return of 4% (2009: 4%).

The Group expects to make a contribution of HK$23,310,000 (2009: HK$31,040,000) to the defined benefit plans during the next financial year.

The following are the major deferred tax assets and liabilities recognised and movements thereon during the current and prior year:

For the purpose of presentation in the consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

At the end of the reporting period, the Group has unused tax losses of HK$3,211 million (2009: HK$2,476 million) available for the offset against future profits that may be carried forward indefinitely. No deferred tax asset has been recognised in respect of tax losses of HK$1,500 million (2009: HK$758 million) due to the unpredictability of future profit streams.

As at December 31, 2009, the Group recognised deferred tax assets in various tax jurisdictions, including the United States of America, Germany, the United Kingdom and New Zealand amounting to HK$486,303,000. The realisation of the deferred tax assets was based on tax planning opportunities available to the Group that will create taxable profit in which the unused tax losses or unused tax credits can be utilised in the future.

In January 2010, the Group acquired 100% equity interest of Coldfire Technology, LLC (“Coldfire”) for a cash consideration of approximately HK$30.7 million. Coldfire is engaged in commercial cryogenic processing and included in the Power Equipment segment.

In July 2010, the Group acquired certain assets, liabilities and business from Nutek, LLC (“Nutek”) for a total consideration of approximately HK$66.6 million, inclusive of a contingent consideration payable at fair value of HK$13.4 million at the date of acquisition determined based on a percentage on the gross profit of future products sold until 2014. The acquired business from Nutek is engaged in manufacturing and trading of cleaning and lubrication products and included in the Floor Care and Appliances segment.

In September 2010, the Group acquired 100% equity interest of Mobiltron Worldwide Trading (Shanghai) Co., Ltd. for a cash consideration of approximately HK$24.8 million. Mobiltron is engaged in trading of power tools in the PRC and included in the Power Equipment segment.

The goodwill arising on the acquisition of the subsidiaries is attributable to the anticipated profitability of the distribution of the
Group’s products in new markets and the anticipated future operating synergies from the combination.

Goodwill arising on the acquisition of the business of Nutek is expected to be deductible for tax purpose.

The acquisition of Coldfire was a bargain purchase and gave rise to a discount on acquisition of approximately HK$4.8 million and this amount had been included as other income.

Acquisition-related costs are insignificance and have been excluded from the consideration transferred and have been recognised as an expense in the current year.

The subsidiaries acquired contributed approximately HK$15,120,000 to the Group’s turnover, and approximately HK$2,113,000 gain to the Group’s profit before taxation for the period between the date of acquisition and the balance sheet date as at December 31, 2010.

The revenue and profit or loss of the combined entity for the current reporting period as though the acquisition date for the acquisitions that occurred during the year has been as of the beginning of the annual reporting period is not presented as it was impracticable to obtain various values in various acquirees’ operations prior to the acquisition.

During the year ended December 31, 2010, the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the finance leases of HK$2,272,000 (2009: HK$35,113,000).

At the end of the reporting period, the Group and the Company had outstanding commitments under non-cancellable operating leases, which fall due as follows:

Operating lease payments represent rentals payable by the Group and the Company for certain of its plant and machinery, motor vehicles, office properties and other assets. Leases are negotiated for a term ranging from 1 year to 10 years.