For the year ended December 31, 2010

41. Financial Instrumentsopen

41.1 Categories of financial instruments


2010 2009

HK$’000 HK$’000
The Group  
Financial assets  
Fair value through profit or loss  
Held-for-trading investments 83,706 75,677
Derivative financial instruments  
Foreign currency forward contracts 80,580 18,485
Interest rate swap 3,428
Warrants 4,306

84,886 21,913
Available-for-sale investments 9,879 22,701
Loans and receivables (including cash and cash equivalents)  
Trade and other receivables 4,820,304 4,449,644
Bills receivable 303,222 267,752
Trade receivables from associates 296 13
Bank balances, deposits and cash 4,000,566 3,322,753
Amount due from associates 178,725 185,484

9,303,113 8,225,646
Financial liabilities  
Derivative financial instruments  
Foreign currency forward contracts 20,327 7,158
Interest rate swap 18,278

38,605 7,158
Other financial liabilities  
Trade and other payables 3,769,467 3,856,835
Bills payable 430,617 720,550
Trade payable to an associate 32,187 5,307
Obligations under finance leases 67,683 90,945
Discounted bills with recourse 3,206,539 2,566,158
Unsecured borrowings 6,453,819 5,600,490
Bank overdrafts 174,330 214,756
Convertible bonds 992,357 950,202

15,126,999 14,005,243
The Company  
Financial assets  
Fair value through profit or loss  
Held-for-trading investments 83,427 75,677
Derivative financial instruments  
Foreign currency forward contracts 42,405 10,470
Interest rate swap 3,428
Warrants 4,306

46,711 13,898
Available-for-sale investments 1,695 1,695
Loans and receivables (including cash and cash equivalents)  
Trade and other receivables 69,913 95,960
Bills receivables 82,840 60,693
Amounts due from associates 168,903 175,485
Bank balances, deposits and cash 1,341,014 977,356
Loans to/Amounts due from subsidiaries 10,967,121 10,091,723

12,629,791 11,401,217
Financial liabilities  
Derivative financial instruments  
Foreign currency forward contract 17,285
Interest rate swap 18,278

35,563
Other financial liabilities  
Trade and other payables 366,735 350,139
Bills payable 335,356 546,635
Trade payable to an associate 32,187 5,307
Amounts due to subsidiaries 1,186,742 2,929,946
Obligations under finance leases 308 972
Discounted bills with recourse 2,526,881 1,514,007
Unsecured borrowings 3,995,869 1,716,521
Convertible bonds 992,357 950,202

9,436,435 8,013,729

41.2 Financial Risk Management Objectives and Policies

The Group’s Corporate Treasury function provides risk management advice to the business units, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These financial risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Group seeks to minimise the effects of these risks by using derivative financial instruments or natural hedges to mitigate these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies is reviewed by the
internal auditors on a continuous basis. The Group does not enter into or trade derivative financial instruments for speculative purposes.

41.2.1 Foreign Currency Risk Management

Subsidiaries of the Group have foreign currency sales and purchases, which expose the Group to foreign currency risk. Approximately 24.6% (2009: 22.2%) of the Group’s sales are denominated in currencies other than the functional currency of the group entity making the sale, whilst almost 18.6% (2009: 14.2%) of costs are denominated in the group entity’s respective functional currency.

The carrying amounts of certain significant foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:


Liabilities
Assets

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
The Group  
 
Foreign Currency  
 
EURO 86,513 183,004 326,100 400,646

Liabilities
Assets

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
The Company  
 
Foreign Currency  
 
EURO 82,950 195,034 2,265,142 1,709,273
Note:
For group entities with their functional currency as the United States dollar, monetary assets and monetary liabilities denominated in Hong Kong dollars have no material foreign currency risk exposure as the Hong Kong dollar is pegged with the United States dollar.

Sensitivity analysis

The Group and the Company are mainly exposed to the effects of fluctuation in the EURO.

The following table details the Group’s sensitivity to a 5% increase and decrease in the United States dollar against the EURO without considering the foreign currency forward contracts entered at the end of the reporting period. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes outstanding foreign currency denominated monetary items and excludes the effect of any foreign currency forward contracts held at year end. A positive number below indicates an increase in pre-tax profit for the year where the United States dollars weakens 5% against the EURO.


The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Impact of EURO  
 
Profit for the year (i) 11,979 10,882 109,110 75,712
(i)
This is mainly attributable to the exposure outstanding on receivables and payables denominated in EURO at the year end.

41.2.2 Interest Rate Risk Management

The Group’s and the Company’s cash flow interest rate risk relates primarily to variable-rate borrowing (see Note 42 for details of these borrowings) and bank balances, deposits and cash. In relation to these floating-rate borrowings, the Group aims at keeping certain borrowings at fixed rates. In order to achieve this result, the Group may enter into interest rate swap contracts to hedge against part of its exposure to potential variability of cash flows arising from changes in floating rates (see Note 30 for details). The management continuously monitors interest rate fluctuations and will consider further hedging interest rate risk should the need arise.

The Group’s and the Company’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s and the Company’s cash flow interest rate risk is mainly concentrated on the fluctuation of LIBOR arising from the Group’s and the Company’s Hong Kong dollar denominated borrowings. In relation to interest bearing bank balances and deposits, the Group considers the interest rate risk is insignificance.

The Group’s fair value interest rate risk related primarily to its fixed-rate bank borrowings (see Note 42 for details of these borrowings) and convertible bonds (see Note 43 for details of these bonds).

During the year, the Group obtained new bank borrowings in the amount of HK$4,600 million (2009: HK$2,331 million) which are either LIBOR or Hong Kong best lending rates based. The proceeds were used for refinancing of the Group’s borrowings including the repayment of fixed interest rate notes of US$173,580,000, approximately HK$1,353,922,500, and other secured borrowings.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments. The analysis is prepared assuming the amount of liability outstanding at the end of the reporting period was outstanding for the whole year without considering the interest rate swaps entered at the end of the reporting period. A 50 basis point increase or decrease in HIBOR is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended December 31, 2010 would decrease/increase by HK$42,619,000 (2009: decrease/increase by HK$28,648,000). The Company’s profit for the year ended December 31, 2010 would decrease/increase by HK$32,789,000 (2009: decrease/increase by HK$16,153,000). This is mainly attributable to the Group’s and the Company’s exposure to interest rates on its variable-rate borrowings.

The Group’s and the Company’s sensitivity to interest rates has decreased during the current period mainly due to the decrease in variable rate debt instruments.

41.2.3 Other Price Risk

The Group and the Company are exposed to price risk through its held-for-trading investments and derivative financial instruments.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to price risks of equity investments held-for- trading measured at fair value at the reporting date.

If the prices of the respective equity instruments had been 10% higher/lower the post-tax profit for the year ended December 31, 2010 of the Group and the Company would increase/decrease by HK$8,371,000 (2009: HK$7,568,000) and HK$8,343,000 (2009: HK$7,568,000) as a result of the changes in fair value of held-for-trading investments.

No sensitivity analysis has been disclosed for exposure to the price risk for the warrants held by the Group and the Company as this would not have a material impact on post-tax profit for the year ended December 31, 2010 of the Group and the Company.

41.2.4 Credit Risk Management

As at December 31, 2010, the Group’s and the Company’s maximum exposure to credit risk which will cause a
financial loss to the Group and the Company due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group and the Company is arising from:

  • the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position; and
  • the amount of contingent liabilities in relation to financial guarantees issued by the Group and the Company as disclosed in Note 51.

In order to minimize the credit risk, the management has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group and the Company review the recoverable amount of each individual trade debt and debt investments at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s and the Company’s credit risk is significantly reduced.

The credit risk on liquid fund is limited because the counterparties are banks with good reputation.

The Group’s concentration of credit risk by geographical locations is mainly in North America, which 69.0% (2009:
64.9%) of the total trade receivables as at December 31, 2010.

The Group has concentration of credit risk at 26.4% (2009: 18.8%) and 48.6% (2009: 35.6%) of the total trade receivables was due from the Group’s largest customers and the five largest customers respectively.

41.2.5 Liquidity Risk Management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

As at December 31, 2010, the Group has available unutilised overdrafts and short and medium term bank loan facilities of approximately HK$363 million (2009: HK$353 million) and HK$5,191 million (2009: HK$4,687 million) respectively.

Liquidity tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities as well as non-derivative financial assets which are included in the maturity analysis. For non-derivative financial assets, the tables have been drawn up based on the contractual maturities of the undiscounted cash flow of the financial assets unless specified separately. For non-derivative financial liabilities, the tables reflect the undiscounted cash flow of financial liabilities based on the earliest date on which the Group can be required to pay. Specifically, bank borrowings with a repayment on demand clause are included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The table includes both interest and principal cash flows. To the extent that the interest flows are floating rate, the undiscounted amount is derived from the interest rate curve at the end of the reporting period. The inclusion of information on non-derivative financial assets is necessary in order to understand the Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis.

In addition, the following table details the Group’s liquidity analysis for its derivative financial instruments. The tables have been drawn up based on the undiscounted contractual net cash (inflows) and outflows on derivative instruments that settle on a net basis, and the undiscounted gross (inflows) and outflows on those derivatives that require gross settlement. When the amount payable is not fixed, the amount disclosed has been determined by reference to the foreign currency exchange rates prevailing at the end of the reporting period. The liquidity analysis for the Group’s derivative financial instruments are prepared based on the contractual maturities as the management consider that the contractual maturities are essential for an understanding of the timing of the cash flows of derivatives.


Weighted average effective interest rate Less than 1month/ on demand 1-3 months 4 months- 1 year 1-2 years 2+ years Total undiscounted cash flows Total carrying amount at December 31, 2010

% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
The Group







2010







Non-derivative financial assets







Held-for-trading investments (note)
83,706 83,706 83,706
Available-for-sale investments (note)
9,879 9,879 9,879
Trade and other receivables
3,386,573 322,220 1,111,511 4,820,304 4,820,304
Bills receivable
56,293 106,010 140,919 303,222 303,222
Trade receivables from associates
178 118 296 296
Bank balances, deposits and cash
0.11% – 0.44% 3,349,273 651,592 4,000,865 4,000,566
Amounts due from associates (note)
178,725 178,725 178,725

  6,885,902 1,079,822 1,252,548 178,725 9,396,997 9,396,698
Non-derivative financial liabilities                
Trade and other payables
(1,644,296) (870,362) (1,254,809) (3,769,467) (3,769,467)
Bills payable
(271,150) (145,713) (13,754) (430,617) (430,617)
Trade payable to an associate
(32,187) (32,187) (32,187)
Obligations under finance leases
7.59% (2,287) (4,574) (20,581) (15,143) (41,291) (83,876) (67,683)
Discounted bills with recourse
1.78% (1,318,406) (1,484,165) (413,204) (3,215,775) (3,206,539)
Variable rate borrowings
0.87% – 4.56% (831,860) (1,483,882) (278,723) (917,416) (1,757,360) (5,269,241) (5,142,843)
Fixed rate borrowings
6.70% – 7.44% (95,553) (427,092) (1,108,614) (1,631,259) (1,310,976)
Bank overdrafts
3.25% – 5.00% (174,330) (174,330) (174,330)
Financial guarantee contracts
(13,259) (17,501) (1,295) (41,099) (73,154)
Convertible bonds
15.57% (99,195) (99,195) (1,315,793) (1,514,183) (992,357)

  (4,287,775) (4,006,197) (2,177,114) (1,499,945) (4,223,058) (16,194,089) (15,126,999)
The Group                
2010                
Derivatives – net settlement                
Interest rate swap
(2,720) (7,686) (7,702) 2,296 (15,812) (18,278)
Foreign currency forward contracts
               
- RMB
(1,206) (645) (8,004) (9,855) (9,855)
- NZD
(41) (41) (41)

  (1,206) (3,406) (15,690) (7,702) 2,296 (25,708) (28,174)
Derivatives – gross settlement                
Foreign currency forward contracts
               
- inflow
               
- RMB
199,220 398,923 1,378,348 1,976,491 1,976,491
- GBP
77,758 139,963 104,972 322,693 322,693
- USD
31,628 290,620 610,922 933,170 933,170
- HKD
655,432 655,432 655,432

308,606 829,506 2,094,242 655,432 3,887,786 3,887,786
- outflow
               
- RMB
(195,022) (390,044) (1,365,154) (1,950,220) (1,950,220)
- GBP
(75,945) (136,019) (101,826) (313,790) (313,790)
- USD
(30,946) (278,512) (587,969) (897,427) (897,427)
- HKD
(656,200) (656,200) (656,200)

(301,913) (804,575) (2,054,949) (656,200) (3,817,637) (3,817,637)

  6,693 24,931 39,293 (768) 70,149 70,149

Weighted
average
effective
interest rate
Less than
1month/
on demand
1-3 months 4 months-
1 year
1-2 years 2+ years Total
undiscounted
cash flows
Total carrying
amount at
December 31,
2009

% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
The Group







2009







Non-derivative financial assets







Held-for-trading investments (note)
75,677 75,677 75,677
Available-for-sale investments (note)
22,701 22,701 22,701
Trade and other receivables
1,949,672 2,097,063 402,909 4,449,644 4,449,644
Bills receivable
43,822 143,830 80,100 267,752 267,752
Trade receivables from associates
13 13 13
Bank balances, deposits and cash
0.11% – 0.44% 2,713,464 611,726 3,325,190 3,322,753
Amount due from associates (note)
185,485 185,485 185,485


4,805,349 2,852,619 483,009 185,485 8,326,462 8,324,025
Non-derivative financial liabilities







Trade and other payables
(2,238,179) (1,165,990) (452,666) (3,856,835) (3,856,835)
Bills payable
(397,250) (323,300) (720,550) (720,550)
Trade payable to an associate
(5,307) (5,307) (5,307)
Obligations under finance leases
9.93% (2,376) (4,752) (21,384) (27,885) (63,846) (120,243) (90,945)
Discounted bills with recourse
2.40% (879,113) (1,162,453) (537,691) (2,579,257) (2,566,158)
Variable rate borrowings
0.70% – 4.06% (679,481) (869,801) (1,297,532) (127,295) (13,855) (2,987,964) (2,948,638)
Fixed rate borrowings
6.09% – 7.44% (377,072) (177,153) (2,865,541) (3,419,766) (2,651,852)
Bank overdrafts
3.25% – 5.00% (214,756) (214,756) (214,756)
Financial guarantee contracts
(24,905) (36,232) (61,137)
Convertible bonds
15.57% (98,940) (98,940) (1,411,350) (1,609,230) (950,202)


(4,411,155) (3,531,603) (2,810,190) (467,505) (4,354,592) (15,575,045) (14,005,243)
The Group







2009







Derivatives – net settlement







Interest rate swap
(2,764) (6,727) (3,847) 21,642 8,304 3,428
Foreign currency forward contracts








- RMB
497 9,973 10,470 10,470
- AUD
(1,990) (1,990) (1,990)

(4,257) 3,246 (3,847) 21,642 16,784 11,908
Derivatives – gross settlement







Foreign currency forward contracts








- inflow








- RMB
233,171 461,558 694,729 694,729
- GBP
108,560 120,192 228,752 228,752
- USD
54,111 12,453 66,564 66,564

395,842 594,203 990,045 990,045
- outflow








- RMB
(232,810) (465,619) (698,429) (698,429)
- GBP
(104,786) (116,336) (221,122) (221,122)
- USD
(55,079) (12,568) (67,647) (67,647)

(392,675) (594,523) (987,198) (987,198)

3,167 (320) 2,847 2,847

Weighted average effective interest rate
Less than 1month/ on demand
1-3 months
4 months- 1 year
1-2 years
2+ years
Total undiscounted cash flows
Total carrying amount at December 31, 2010

%
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
The Company
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
 
Non-derivative financial assets
 
 
 
 
 
 
 
 
Held-for-trading investments (note)
83,427
83,427
83,427
Available-for-sale investments (note)
1,695
1,695
1,695
Trade and other receivables
40,974
7,155
21,784
69,913
69,913
Bills receivable
320
820
81,700
82,840
82,840
Bank balances, deposits and cash
0.11% – 0.44%
1,341,014
1,341,014
1,341,014
Amounts due from associates (note)
168,903
168,903
168,903
Loan to/Amounts due from
 
 
 
 
 
 
 
 
subsidiaries (note)
7.875% – 10.15%
8,397,857
3,038,446
11,436,303
10,967,121

 
9,865,287
7,975
103,484
3,207,349
13,184,095
12,714,913
Non-derivative financial liabilities
 
 
 
 
 
 
 
 
Trade and other payables
(132,603)
(155,541)
(78,591)
(366,735)
(366,735)
Bills payable
(240,455)
(94,901)
(335,356)
(335,356)
Amounts due to subsidiaries
(410,564)
(127,856)
(648,322)
(1,186,742)
(1,186,742)
Amounts due to associates
(32,187)
(32,187)
(32,187)
Obligations under finance leases
1.89%
(26)
(52)
(236)
(314)
(308)
Discounted bills with recourse
1.78%
(1,078,310)
(1,117,792)
(338,049)
(2,534,151)
(2,526,881)
Unsecured borrowings
0.87% – 4.50%
(1,014,083)
(664,439)
(688,643)
(1,738,258)
(4,105,423)
(3,995,869)
Financial guarantee contracts
(1,064,868)
(961,460)
(89,327)
(284,220)
(1,080,478)
(3,480,353)
Convertible bonds
15.57%
(99,195)
(99,195)
(1,315,793)
(1,514,183)
(992,357)

 
(3,973,096)
(3,122,041)
(1,253,720)
(1,072,058)
(4,134,529)
(13,555,444)
(9,436,435)
The Company
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
 
Derivatives – net settlement
 
 
 
 
 
 
 
 
Interest rate swap
(2,720)
(7,686)
(7,702)
2,296
(15,812)
(18,278)
Foreign currency forward contracts
 
 
 
 
 
 
 
 
- RMB
(1,206)
(645)
(8,004)
(9,855)
(9,855)

(1,206)
(3,365)
(15,690)
(7,702)
2,296
(25,667)
(28,133)
Derivatives – gross settlement
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
 
 
 
 
 
 
 
- inflow
 
 
 
 
 
 
 
 
- USD
31,628
290,620
610,922
933,170
933,170
- HKD
655,432
655,432
655,432

31,628
290,620
610,922
655,432
1,588,602
1,588,602
- outflow
 
 
 
 
 
 
 
 
- USD
(30,946)
(278,512)
(587,969)
(897,427)
(897,427)
- HKD
(656,200)
(656,200)
(656,200)

(30,946)
(278,512)
(587,969)
(656,200)
(1,553,627)
(1,553,627)

 
682
12,108
22,953
(768)
34,975
34,975

Weighted
average
effective
interest
rate
Less than
1month/
on demand
1-3 months 4 months-
1 year
1-2 years 2+ years Total
undiscounted
cash flows
Total carrying
amount at
December 31,
2009

% HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
The Company







2009







Non-derivative financial assets







Held-for-trading investments (note)
75,677 75,677 75,677
Available-for-sale investments (note)
1,695 1,695 1,695
Trade and other receivables
30,946 30,031 34,983 95,960 95,960
Bills receivable
(124) 11,580 49,237 60,693 60,693
Bank balances, deposits and cash
0.11% – 0.44% 977,356 977,356 977,356
Amounts due from associates (note)
175,485 175,485 175,485
Loan to/Amounts due from








subsidiaries (note)
7.875% – 10.15% 8,176,720 2,284,084 10,460,804 10,091,723


9,260,575 41,611 84,220 1,695 2,459,569 11,847,670 11,478,589
Non-derivative financial liabilities







Trade and other payables
(111,502) (156,804) (79,119) (2,462) (252) (350,139) (350,139)
Bills payable
(356,337) (190,298) (546,635) (546,635)
Amounts due to subsidiaries
(1,488,460) (275,005) (1,166,481) (2,929,946) (2,929,946)
Amounts due to associates
(5,307) (5,307) (5,307)
Obligations under finance leases
3.86% (48) (96) (435) (431) (1,010) (972)
Discounted bills with recourse
2.40% (232,631) (937,385) (353,289) (1,523,305) (1,514,007)
Unsecured borrowings
0.70% – 4.06% (220,526) (839,741) (551,819) (119,170) (1,731,256) (1,716,521)
Financial guarantee contracts
(1,429,574) (283,184) (382,498) (247,102) (2,460,362) (4,802,720)
Convertible bonds
15.57% (98,940) (98,940) (1,411,350) (1,609,230) (950,202)


(3,839,078) (2,687,820) (2,632,581) (468,105) (3,871,964) (13,499,548) (8,013,729)
Derivatives – net settlement







Interest rate swaps
(2,764) (6,727) (3,847) 21,642 8,304 3,428
Foreign currency forward contracts
497 9,973 10,470 10,470


(2,267) 3,246 (3,847) 21,642 18,774 13,898

Note: Maturities are based on the management’s estimation of the expected realisation of these financial assets.

Bank loans with a repayment on demand clause are included in the “less than 1 month/ on demand” time band in the above maturity analysis. As at December 31, 2010, the aggregate undiscounted principal amounts of these bank loans amount to HK$466,800,000.Taking into account the Group’s financial position, the directors do not believe that it is probable that the banks will exercise their discretionary rights to demand immediate repayment. The directors believe that such bank loans will be repaid one year after the reporting date in accordance with the scheduled repayments dates set out in the loan agreements.

The amounts included above for financial guarantee contracts are the maximum amounts the Group and the Company could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of the reporting period, the Group and the Company considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses.

The amount included above for variable interest rate instruments for non-derivative financial liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

41.3 Fair Value

The fair value of financial assets and financial liabilities are determined as follows:

  • the fair value of foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching the maturities of the contract;
  • the fair value of the interest rate swap is measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from noted interest rate.
  • the fair value of the warrants is measured using the Black-Scholes option pricing model where the main assumptions include the volatility of the share price and the life of the warrants.
  • the fair value of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and
  • the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Other than the convertible bonds, the fair value of financial assets and financial liabilities carried at amortised costs approximate to their carrying amounts.

Fair value measurements recognised in the statement of financial position

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments that are measured subsequent to initial recognition at fair value:

  • Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
  • Level 2: fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or, liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
  • Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Total

HK$’000 HK$’000 HK$’000
The Group


2010      
Financial assets      
Foreign currency forward contracts 80,580 80,580
Warrants 4,306 4,306
Held-for-trading investments 83,706 83,706
Total 83,706 84,886 168,592
Financial liabilities      
Foreign currency forward contracts (20,327) (20,327)
Interest rate swap (18,278) (18,278)
Total 83,706 46,281 129,987
2009


Financial assets


Foreign currency forward contracts 18,485 18,485
Interest rate swap 3,428 3,428
Held-for-trading investments 75,677 75,677
Total 75,677 21,913 97,590
Financial liabilities


Foreign currency forward contracts (7,158) (7,158)
Total 75,677 14,755 90,432
The Company


2010


Financial assets


Foreign currency forward contracts 42,405 42,405
Warrants 4,306 4,306
Held-for-trading investments 83,427 83,427
Total 83,427 46,711 130,138
Financial liabilities


Foreign currency forward contracts (17,285) (17,285)
Interest rate swap (18,278) (18,278)
Total 83,427 11,148 94,575
2009


Financial assets


Foreign currency forward contracts 10,470 10,470
Interest rate swap 3,428 3,428
Held-for-trading investments 75,677 75,677
Total 75,677 13,898 89,575

42. Unsecured Borrowingsopen

The Group The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000

 


 
Trust receipt loans 190,210 459,991 124,827 333,947
Bank advance from factored trade receivables 558,604 547,744
Bank loans 4,394,029 1,940,903 3,871,042 1,382,574
Bank borrowings 5,142,843 2,948,638 3,995,869 1,716,521
Fixed interest rate notes (Note) 1,310,976 2,651,852
Total borrowings 6,453,819 5,600,490 3,995,869 1,716,521

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


The Group The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Fixed rate  
 
On demand or within one year 191,490
In more than one year but not more than two years 230,499
In more than two years but not more than five years 1,080,477 1,304,453
More than five years 1,155,909
Floating rate  
 
On demand or within one year 2,816,226 2,812,856 1,675,563 1,600,121
In more than one year but not more than two years 659,767 122,860 653,456 116,400
In more than two years but not more than five years 1,666,850 12,922 1,666,850

6,453,819 5,600,490 3,995,869 1,716,521
Less: Amount due within one year  
 
shown under current liabilities
(2,816,226) (3,004,346) (1,675,563) (1,600,121)
Amount due after one year 3,637,593 2,596,144 2,320,306 116,400

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


2010
2009
Effective interest rate:
 

Fixed-rate borrowings
6.70% to 7.44%
6.09% to 7.44%
Variable-rate borrowings
0.87% to 4.56%
0.70% to 4.06%

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


HK$’000
As at December 31, 2010
1,214,763
As at December 31, 2009
537,563
Note:

In 2003, the Group issued fixed interest rate notes, through its wholly-owned entity in the US, for an aggregate principal amount of US$145,000,000. The notes were issued in two fixed rate tranches, being US$120,000,000 for 10 years at 6.70% (2009: 6.70%) per annum and US$25,000,000 for 7 years at 6.09% (2009:
6.09%) per annum. The proceeds were used to refinance existing medium term debts and for general working capital purposes. During the year, the Group early repaid US$75,000,000 of first tranche and US$25,000,000 of second tranche.

In 2005, the Group issued additional fixed interest rate notes, through its wholly-owned entity in the US, for an aggregate principal amount of US$200,000,000. The notes were issued in two fixed rate tranches of US$150,000,000 for 10 years at 7.44% (2009: 7.44%) per annum and US$50,000,000 for 7 years at 7.17% (2009: 7.17%) per annum. The proceeds were used to finance the acquisition of subsidiaries. During the year, the Group early repaid US$54,250,000 of first tranche and US$20,000,000 of second tranche.

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

43. Convertible Bondsopen

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

The Group and The Company
2010 2009
HK$’000 HK$’000
Liability component at the beginning of the year 950,202 100,805
Effective interest expense 141,606 86,426
Issue of convertible bonds 910,544
Repayment / interest payment (99,451) (147,573)
Liability component at the end of the year 992,357 950,202

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%.

44. Share Capitalopen
2,010 2,009 2,010 2,009
Number of shares Number of shares HK$’000 HK$’000
Ordinary shares
Authorised:
Sharesof HK$0.10 each
2,400,000,000 2,400,000,000 240,000 240,000
Issued and fully paid:
At the beginning of the year
1,591,252,152 1,501,252,152 159,125 150,125
Issue of shares upon exercise of warrants
14,903,600 1,491
Issue of shares upon exercise of share options
470,000 47
Issue of shares by private placement
90,000,000 9,000
At the end of the year 1,606,625,752 1,591,252,152 160,663 159,125

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.

45. Reservesopen
Share Capital redemption reserve Convertible bonds equity reserve Warrant reserve Employee share-based compensation reserve Retained profits Total
premium HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
The Company
At January 1, 2009 2,898,646 436 2,285 42,389 3,030,871 5,974,627
Loss for the year and other comprehensive loss (37,651) (37,651)
Share issued at premium 596,700 596,700
Transaction costs attributable to issue of shares (15,933) (15,933)
Release of deferred tax liabilities on redemption
of convertible bonds
485 485
Transfer to retained profits upon redemption of
convertible bonds
(2,770) 2,770
Recognition of equity component of convertible
bonds/warrants
115,563 112,494 228,057
Transaction costs attributable to issue of convertible
bonds/warrants
(3,852) (3,750) (7,602)
Deferred tax liability on recognition of equity
components of convertible bonds
(42,810) (42,810)
Recognition of equity settled share-based payments 10,800 10,800
Lapse of share options (5,033) 5,033
Final dividend – 2008 (45,038) (45,038)
Interim dividend – 2009 (47,737) (47,737)
At December 31, 2009 3,479,413 436 68,901 108,744 48,156 2,908,248 6,613,898
Loss for the year and other comprehensive loss (94,551) (94,551)
Share issued at premium 4,027 (717) 3,310
Share issued at a premium on warrants exercised 103,517 (28,998) 74,519
Repurchase of warrants (79,746) (22,097) (101,843)
Recognition of equity settled share-based payments 17,190 17,190
Lapse of share options (6,528) 6,528
Final dividend – 2009 (72,277) (72,277)
Interim dividend – 2010 (60,231) (60,231)
At December 31, 2010 3,586,957 436 68,901 58,101 2,665,620 6,380,015

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).

46. Retirement Benefits Obligationsopen

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:

2,010
2,009
HK$’000
HK$’000
Pension plan obligations (Note i)
587,755
618,350
Post-retirement, medical and dental plan obligations (Note ii)
13,150
24,011
Life and medical insurance plan (Note ii)
16,769
15,787
Post-employment benefit plan obligations (Note iii)
85,004
73,694
Others
4,739
5,425
707,417
737,267
Note i:
Pension plan obligations
The pension plan obligations are provided in the German operations and includes a plan that pays retirement benefits on service and final pay. In general, the benefit plans were closed to new members at the end of 1995. Under the plan, the employees are entitled to retirement benefits varying between 10 and 20 per cent of final salary (based on the average of the last three years) on attainment of a retirement age of 65. The most recent actuarial valuations of the present value of the defined benefit obligation were carried out on November 2, 2010, by BDO Deutsche Warentreuhand Aktiengesellschaft, Germany.

Note ii:
Post-retirement, medical and dental plan obligations/ Life and medical insurance plan
Milwaukee Electric Tool Corporation, a subsidiary of the Group in the US, operates unfunded post-retirement, medical benefits, dental and life insurance plans. The most recent actuarial valuations of the present value of the obligations were carried out on November 2, 2010 by Willis North America, Inc.

Note iii:
Post-employment plan obligations

The pension plan obligations are provided by Hoover Inc. for members of IBEW (International Brotherhood of Electrical Workers) Local 1985 employed by Hoover. The most recent actuarial valuation of the present value of the obligations were carried out on December 31, 2010 by CBIZ Benefits & Insurance Services.

The main actuarial assumptions used were as follows:

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
Discount rate 5.00% 5.60% 3.75% 4.25% 2.50% 5.25% 5.06% 5.55%
Expected rate of salary increases 2.00% 2.00% N/A N/A N/A N/A N/A N/A
Expected return on plan assets N/A N/A N/A N/A N/A N/A 4.00% 4.00%
Future pension increases 2.00% 2.00% N/A N/A N/A N/A N/A N/A
Medical cost inflation (ultimate) N/A N/A 5.00% 5.00% 5.00% 5.00% N/A N/A

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:

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Current service cost and interest cost N/A N/A 10 20 32 45 N/A N/A

Accumulated post-employment
benefit obligation for medical costs

N/A N/A 254 476 1,290 864 N/A N/A

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

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Current service cost 4,435 4,212
Actuarial loss (gain) 12,721 36,054 (4,166) (1,167) 1,970 (16,713) 5,658 6,506
Expected return on plan assets 21 (18)
Curtailment gain
Interest cost 33,266 27,689 884 1,512 784 963 5,427 5,924
Past service cost (2,605)
50,422 67,955 (3,282) 345 2,754 (15,750) 11,106 9,807

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:

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Present value of funded obligations 103,072 102,932
Present value of plan assets (18,068) (29,238)
85,004 73,694
Present value of unfunded obligations 587,755 618,350 13,150 24,011 16,769 15,787
587,755 618,350 13,150 24,011 16,769 15,787 85,004 73,694

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

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At January 1 618,350 599,682 24,011 32,410 15,787 32,803 102,932 105,836
Exchange differences (43,729) 4,281 49 (73) 42 (180) 4,002 (269)
Current service cost 4,435 4,212
Actuarial loss (gain) 12,721 36,054 (4,166) (1,167) 1,970 (16,713) 5,658 6,506
Interest cost 33,266 27,689 884 1,512 784 963 5,427 5,924
Past service cost (2,605)
Benefit paid (37,288) (53,568) (7,628) (8,671) (1,814) (1,086) (14,947) (12,460)
At December 31 587,755 618,350 13,150 24,011 16,769 15,787 103,072 102,932

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

Pension Post-retirement medical, and Life & Medical Post-employment plan
plan dental plan Insurance plan benefit plan
2010 2009 2010 2009 2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At January 1 N/A N/A N/A N/A N/A N/A 29,238 10,652
Exchange differences N/A N/A N/A N/A N/A N/A 62 (52)
Returns from plan assets N/A N/A N/A N/A N/A N/A (21) 18
Contribution from employer N/A N/A N/A N/A N/A N/A 3,736 31,080
Benefit paid N/A N/A N/A N/A N/A N/A (14,947) (12,460)
At December 31 N/A N/A N/A N/A N/A N/A 18,068 29,238

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.

47. Deferred Tax Assets (Liabilities)open

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

Accelerated tax depreciation Warranty provision Convertible bonds equity reserve Employee related provision Tax losses Inventory provision and LIFO Others Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
The Group
At January 1, 2009 (27,021) 42,781 (485) 49,681 340,696 61,711 (250,373) 216,990
Currency realignment 198 649 434 6,565 1,466 1,767 11,079
Charge to equity (42,325) (42,325)
(Charge) credit to profit or loss (86,475) (7,932) 5,150 84,517 147,685 (106,455) (18,908) 17,582
At December 31, 2009 (113,298) 35,498 (37,660) 134,632 494,946 (43,278) (267,514) 203,326
Currency realignment (526) 402 549 (4,759) 131 2,378 (1,825)
(Charge) credit to profit or loss 37,070 (9,968) 6,955 (35,861) 9,114 32,500 117,232 157,042
Acquisition of subsidiaries/business (note 48) (2,982) (2,982)
At December 31, 2010 (76,754) 25,932 (30,705) 99,320 499,301 (10,647) (150,886) 355,561
Tax loss Accelerated tax depreciation Convertible bonds equity reserve Total
HK$’000 HK$’000 HK$’000 HK$’000
The Company
At January 1, 2009 (12,741) (485) (13,226)
Charge to equity (42,325) (42,325)
Credit to profit or loss 11,152 5,150 16,302
At December 31, 2009 (1,589) (37,660) (39,249)
(Charge) credit to profit or loss 15,701 (5,200) 6,955 17,456
At December 31, 2010 15,701 (6,789) (30,705) (21,793)
Note
Included in others are the deferred tax impact of the restructuring provision, intellectual properties and other temporary differences. The comparative amounts for the year ended December 31, 2009 have been reclassified to reflect a reclassification between the major deferred tax asset and liability categories for the year ended December 31, 2010.

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:

The Group The Company
2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000
Deferred tax assets 534,511 575,524
Deferred tax liabilities (178,950) (372,198) (21,793) (39,249)
355,561 203,326 (21,793) (39,249)

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.

48. Acquisition of subsidiaries / businessopen

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.

Fair value
HK$’000
Net Assets Acquired
Property, plant and equipment 1,343
Intangible assets 56,475
Inventories 4,230
Trade and other receivables, deposits and prepayments 10,178
Bank balances and cash 730
Trade and other payables (14,828)
Deferred tax liabilities (2,982)
55,146
Discount on acquisition taken to income (4,764)
Goodwill arising on acquisition of subsidiaries / business 71,744
Contingent consideration arrangement (13,380)
Cash consideration paid during the year 108,746
Net cash outflow arising on acquisition:
Cash consideration paid during the year 108,746
Bank balances and cash acquired (730)
Net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries 108,016

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.

49. Major Non-Cash Transactionsopen

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).

50. Lease Commitmentsopen

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:

The Group The Company
2010 2009 2010 2009
HK$’000 HK$’000 HK$’000 HK$’000
Within one year 172,439 181,303 7,968 6,290
In the second to fifth year inclusive 470,076 307,623 4,708
After five years 200,687 220,760
843,202 709,686 12,676 6,290

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.