Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. Basis of preparation and accounting policiesopen

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Stock Exchange”).

2. Significant accounting policiesopen

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments which are measured at fair value.

The accounting policies and method of computations used in the condensed consolidated financial statements for the six months ended June 30, 2012 are the same as those followed in the preparation of the Group’s annual financial statements for the year ended December 31, 2011.

In the current interim period, the Group has applied for the first time, certain amendments to Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are mandatory effective for the current interim period.

The application of the above amendments to HKFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.

3. Segment informationopen

The following is an analysis of the Group’s revenue and results by reportable and operating segments for the period under review:

For the period ended June 30, 2012

Power
Equipment
USD’000
Floor Care
and Appliances
USD’000
Eliminations
USD’000
Consolidated
USD’000
Turnover
External sales 1,407,426 447,367 1,854,793
Inter-segment sales 6,960 457 (7,417)
Total segment turnover 1,414,386 447,824 (7,417) 1,854,793

For the period ended June 30, 2011

Power
Equipment
USD’000
Floor Care
and Appliances
USD’000
Eliminations
USD’000
Consolidated
USD’000
Turnover
External sales 1,294,529 489,380 1,783,909
Inter-segment sales 10,710 1,811 (12,521)
Total segment turnover 1,305,239 491,191 (12,521) 1,783,909

Inter-segment sales are charged at prevailing market rates.

Six months period ended June 30
2012 2011
Power
Equipment
USD’000
Floor
Care and
Appliances
USD’000
Consolidated
USD’000
Power
Equipment
USD’000
Floor
Care and
Appliances
USD’000
Consolidated
USD’000
Segment results 114,801 15,982 130,783 89,803 27,462 117,265
Finance costs (26,483) (29,298)
Share of results of associates (273)
Profit before taxation 104,300 87,694
Taxation charge (7,916) (7,024)
Profit for the period 96,384 80,670

Segment profit represents the profit earned by each segment without allocation of share of results of associates and finance costs. This is the measure reported to the Group’s Chief Executive Officer, the chief operating decision maker (“CODM”) of the Group, for the purpose of resource allocation and performance assessment.

The following is an analysis of the Group’s assets by reportable and operating segments reported to the CODM of the Group:

June 30
2012
USD’000
December 31
2011
USD’000
Power Equipment 2,292,598 2,175,535
Floor Care and Appliances 625,972 619,405
2,918,570 2,794,940
4. Taxation chargeopen
Six months period ended June 30
2012
USD’000
2011
USD’000
Current tax:
Hong Kong 569 700
Overseas Tax 6,219 12,679
Deferred Tax 1,128 (6,355)
7,916 7,024

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profits for the period.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

5. Profit for the periodopen
Six months period ended June 30
2012
USD’000
2011
USD’000
Profit for the period has been arrived at after charging (crediting):
Depreciation and amortisation of property, plant and equipment 36,172 34,866
Amortisation of lease prepayments 163 159
Amortisation of intangible assets 24,773 20,237
Total depreciation and amortisation 61,108 55,262
Exchange loss (gain) 4,942 (10,082)
Staff costs 263,391 250,747
Fair value loss on held-for-trading investments 1,228 762
6. Dividendsopen

A dividend of HK7.75 cents (approximately US1.00 cent) per share (2011: HK6.25 cents (approximately US0.80 cent) per share) was paid to shareholders as the final dividend for 2011 on July 6, 2012.

The Directors have determined that an interim dividend of HK6.75 cents (approximately US0.87 cent) per share (2011: HK5.00 cents (approximately US0.64 cent) per share) should be paid to the shareholders of the Company whose names appear in the Register of Members on September 14, 2012.

7. Earnings per shareopen

The calculation of the basic and diluted earnings per share attributable to the ordinary shareholders of the Company is based on the following data:

Six months period ended June 30
2012
USD’000
2011
USD’000
Earnings for the purpose of basic earnings per share:
Profit for the period attributable to owners of the Company 96,362 80,259
Effect of dilutive potential ordinary shares:
Effective interest on convertible bonds (net of tax) 4,457 7,772
Earnings for the purpose of diluted earnings per share 100,819 88,031
Weighted average number of ordinary shares for the purpose of basic earnings per share 1,694,876,782 1,606,738,752
Effect of dilutive potential ordinary shares:
Share options 5,430,285 6,617,803
Convertible bonds 129,688,975 223,557,000
Weighted average number of ordinary shares for the purpose of diluted earnings per share 1,829,996,042 1,836,913,555

The computation of diluted earnings per share for the six months ended June 30, 2012 and June 30, 2011 does not assume the exercise of the Company’s outstanding share options if the exercise price of these options is higher than the average market price for the Company’s shares.

8. Additions to property, plant and equipment/intangible assetsopen

During the period, the Group spent approximately USD37 million (for the six months ended June 30, 2011: USD44 million) and USD45 million (for the six months ended June 30, 2011: USD23 million) on the acquisition of property, plant and equipment and intangible assets respectively.

9. Trade and other receivables/Bills receivableopen

The Group has a policy of allowing credit periods ranging from 60 days to 120 days. The aging analysis of trade receivables based on the invoice date is as follows:

June 30
2012
USD’000
December 31
2011
USD’000
0 to 60 days 612,456 569,695
61 to 120 days 24,937 17,145
121 days or above 21,267 19,806
Total trade receivables 658,660 606,646
Other receivables 67,950 66,811
726,610 673,457

All the Group’s bills receivable at June 30, 2012 are due within 120 days.

10. Trade and other payables/Bills payableopen

The aging analysis of trade payables based on the invoice date is as follows:

June 30
2012
USD’000
December 31
2011
USD’000
0 to 60 days 324,459 259,435
61 to 120 days 112,124 93,376
121 days or above 11,530 7,048
Total trade payables 448,113 359,859
Other payables 256,493 259,004
704,606 618,863

All the Group’s bills payable at June 30, 2012 are due within 120 days.

11. Unsecured borrowingsopen

During the period, the Group obtained new bank borrowings in the amount of USD353 million (2011: USD161 million) which are London Interbank Offered Rate, Euro Interbank Offered Rate or Hong Kong best lending rates based. The Group repaid the existing bank borrowings in the amount of USD332 million (2011: USD336 million).

12. Convertible bondsopen

In 2009, the Group issued two tranches of 5-year 8.5% coupon convertible bonds with an aggregate principal amount of USD150,000,000 (“Convertible Bonds 2014″). Unless previously redeemed, converted or purchased and cancelled, the Convertible Bonds 2014 will be redeemed at their principal amount on the maturity date on April 30, 2014.

At the option of the Convertible Bonds 2014′s holders, on April 30, 2012, the holders could redeem Convertible Bond 2014 at the principal amount plus accrued interest to the date of redemption. Accordingly, the Convertible Bonds 2014 were classified as current liabilities as of December 31, 2011.

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

During the period, all the Convertible Bonds 2014 were converted into 223,557,689 shares of the Company at HKD5.20 per share.

13. Share capitalopen
Number of shares Share capital
June 30
2012
December 31
2011
June 30
2012
December 31
2011
  USD’000 USD’000
Ordinary shares of HKD0.10 each
Authorised 2,400,000,000 2,400,000,000 30,769 30,769
Issued and fully paid:
At the beginning of the period 1,601,564,252 1,606,625,752 20,533 20,598
Issue of shares upon exercise of share options 395,000 455,000 5 6
Repurchase of shares (3,330,000) (5,516,500) (43) (71)
Conversion of convertible bonds 223,557,689 2,877
At the end of the period 1,822,186,941 1,601,564,252 23,372 20,533

During the period, the Company repurchased its own shares through the Stock Exchange as follows:

  No. of ordinary
shares at
HKD0.10 each
Price per share Aggregate
consideration
paid
Highest Lowest
Month of repurchase   HKD HKD USD’000
January 2012 200,000 8.01 7.93 205
May 2012 1,980,000 9.85 8.59 2,316
June 2012 1,150,000 9.40 8.75 1,349
3,330,000 3,870

The repurchased shares were cancelled and accordingly the issued share capital of the Company was reduced by the nominal value of these shares. An amount equivalent to the par value of the shares cancelled of USD43,000 was transferred to the capital redemption reserve. The consideration paid on the repurchase of the shares of approximately USD3,870,000 was charged to retained profits.

14. Contingent liabilitiesopen
June 30
2012
USD’000
December 31
2011
USD’000
Guarantees given to banks in respect of credit facilities utilised by associates 11,013 10,858
15. Capital commitmentsopen
June 30
2012
USD’000
December 31
2011
USD’000
Capital expenditure in respect of the purchase of property, plant and equipment:
Contracted for but not provided 17,684 15,484
Authorised but not contracted for 1,447 287
16. Event after the reporting periodopen

On August 3, 2012, the Company has entered into an USD146,000,000 medium term loan with final maturity in 2016. The loan will be applied to refinance loans due.