Embry The Group s signature brand, was accredited as The Best-Selling Lingerie Products in the Industry in China in 2009 for the fourteenth consecutiv

Transcription

1 Striving for EXCELLENCE Annual Report 2009 EMBRY HOLDINGS LIMITED

2 Embry The Group s signature brand, was accredited as The Best-Selling Lingerie Products in the Industry in China in 2009 for the fourteenth consecutive year. form,

3 The Charisma From Within

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10 SALES NETWORK Heilongjiang Inner Mongolia Autonomous Region Jilin Beijing Liaoning Xinjiang Uygur Autonomous Region Qinghai Gansu Shaanxi Shanxi Hebei Henan Tianjin Shandong Jiangsu Sichuan Chongqing Hubei Anhui Zhejiang Shanghai Yunnan Guizhou Guangxi Zhuang Autonomous Region Hunan Macau Guangdong Jiangxi Hong Kong Fujian Hainan OVER RETAIL OUTLETS 1,600 AN EXTENSIVE NETWORK CAPTURING GROWING OPPORTUNITIES IN CHINA The Group s sales points span the whole nation, with footprints in all major cities such as Beijing, Shanghai, Chongqing, Tianjin, Guangzhou, Hong Kong and Macau. Such an extensive network enables the Group to efficiently respond to customer needs and deepen its market penetration in China. As at 31 December 2009, the Group had a total of 1,680 retail outlets, comprising 1,534 concessionary counters and 146 retail shops in Mainland China, Hong Kong and Macau. 1,6801,

11 FINANCIAL HIGHLIGHTS BY BUSINESS ACTIVITIES BY LOCATIONS BY BRANDS BY PRODUCTS 10.4% 2.3% 8.5% 2.3% 5.7% 2.3% 4.8% 4.5% 2.3% 0.5% 9.0% % % 89.2% 56.6% 87.9% Concessionary 78.3% 79.3% counters Mainland China 89.2% 88.0% Embry Form 56.6% 60.2% Lingerie 87.9% 86.7% Retail stores 9.0% 8.8% Hong Kong 8.5% 9.3% Fandecie 35.4% 31.5% Sleepwear 4.8% 5.3% Wholesale 10.4% 9.2% Other 2.3% 2.7% Comfit 5.7% 5.6% Swimwear 4.5% 4.9% Original design 2.3% 2.7% manufacturer ( ODM ) ODM ODM products 2.3% 2.7% ODM products 2.3% 2.7% REVENUE GROSS PROFIT PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE COMPANY72.0 HK$000,000 HK$000,000 HK$000,000 1,200 1,100 1, CAGR 20.9% , , CAGR 22.9% * For the year ended December 31 For the year ended December 31 For the year ended December 31 * excluding the one-off gain of HK$42.0 million

12 Corporate MISSION Creating Value for All Generating Synergy Striving for Excellence

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15 Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands Butterfi eld Fulcrum Group (Cayman) Limited Butterfi eld House 68 Fot Street P.O. Box 705 George Town Grand Cayman Cayman Islands ipr

16 ,3538.7% , % 5, % 125, % 20%

17 ,983, %114,188, ,557 1,680

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20 ,176,100, % 58.6%114,200, %

21 COMFIT Q-Sexy 200 Q-Sexy 123 1,680 1,534146

22 ,800,000 Superbrands Hong Kong 6,900 6, ,200, ,100,000

23 ,176,100, ,300, % 1,026,900, % 19.7% 36.7% 122,000, % 1,049,500, % 22.6% 9.6% 99,500, % 665,400, % 416,200,000COMFIT 23.2% 67,000,000 1,033,600, % 22.5% 8.2% 11.8% 56,000,00053,000, % 4.5%

24 ,200, % 78.6% % 50.5% 9,300,0006,700, % 2,600, ,600, % 55.7%58.5% 19.3% 67,000,0005.7% 8.5% 125,100,0007.5% 10.6%12.0%

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26 % 24.3% 9,000,000600, %18.0% 114,200, % 7.4% % 289,000, ,500,000 4,000,000 4,000,000402,148, ,130,

27 ,638,000433,927,000 11,430 50%190,319,000216,271,000 21,100,000123,350

28 ,200,00055,300,

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31 % 8006, ,000 ACCA 2009

32 Armstrong University University of Strathclyde ACCAACCA TCL

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35 (A) %

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37 /9 9/9 1/1 2/2 9/9 9/9 9/9 3/3 1/1 2/2 9/9 3/3 1/1 2/2 9/9 3/3 1/1 2/2 100% 100% 100% 100%

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39 C (i) (ii) (iii) (iv) (v) (vi) (vii)

40 (viii) (ix) (x) (xi), 2,000, ,000 2,789,

41 (i), (ii) (iii), (iv), (v),

42 (ERP) C.2.2

43 ,176, , , , , ,709 95, , ,579 56,394 (53,521 ) (23,120 ) (20,723 ) (19,974 ) (10,717 ) 114,188 71, ,516 82,605 45, ,188 71, ,516 81,105 44,431 1,500 1, ,188 71, ,516 82,605 45,677

44 ,186,274 1,029, , , ,201 (192,037 ) (120,743 ) (95,018 ) (110,061) (107,835 ) (3,554 ) 994, , , , ,

45 (b) ,975,00028,159, ,975,000715,962,000 2,336,000 30% 5% 108(A) 3.13

46 % 8% 13

47 XV ,550, ,276, ,436, ,063, ,250, ,550, , ,386, , ,249, , , ,

48 Harmonious World Limited 1 ( Harmonious World ) Harmonious World 1 1. Harmonious World Fairmout Investments Limited Fairmout Investments 286,279,660 1,271,190 Harmonious World59.09% 40.91%Fairmout Investments 50% 50%

49 % 336 Harmonious World 286,279, FIL Limited Fidelity 28,729, International Limited Harmonious World % 14A (1) (2)

50 (3) 13(a)(i) (ii) (iii) 14A.37 (1) (2) (3) 14A (1) (2) (3) 38

51 INDEPENDENT AUDITORS REPORT To the shareholders of Embry Holdings Limited (Incorporated in the Cayman Islands with limited liability) We have audited the financial statements of Embry Holdings Limited set out on pages 78 to 169, which comprise the consolidated and company statements of financial position as at 31 December 2009, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. AUDITORS RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

52 77 Embry Holdings Limited Annual Report 2009 INDEPENDENT AUDITORS REPORT (CONTINUED) AUDITORS RESPONSIBILITY (continued) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2009 and of the Group s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Ernst & Young Certified Public Accountants 18th Floor Two International Finance Centre 8 Finance Street, Central Hong Kong, 31 March

53 CONSOLIDATED INCOME STATEMENT Year ended 31 December Notes HK$ 000 HK$ 000 REVENUE 5 1,176, ,342 Cost of sales (234,900 ) (208,321 ) Gross profit 941, ,021 Other income and gains 6 9,277 18,752 Selling and distribution expenses (654,627) (569,563) Administrative expenses (125,084) (116,385) Other expenses 7 (3,046) (2,720) Finance costs 8 (2) PROFIT BEFORE TAX 9 167,709 95,103 Income tax expense 12 (53,521 ) (23,120 ) PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE COMPANY ,188 71,983 EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY 16 Basic (HK cents) Diluted (HK cents) Details of the dividends are disclosed in note 15 to the financial statements. 15

54 79 Embry Holdings Limited Annual Report 2009 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December HK$ 000 HK$ 000 Profit for the year 114,188 71,983 Other comprehensive income: Exchange differences arising on translation of foreign operations 1,060 24,304 TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE COMPANY 115,248 96,287

55 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 December Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Property, plant and equipment , ,200 Investment property 18 32,000 30,000 Prepaid land lease payments 19 3,781 3,863 Deferred tax asset 29 2,609 3,361 Deposits , Total non-current assets 479, ,879 CURRENT ASSETS Inventories , ,342 Trade receivables 21 48,228 41,703 Prepayments, deposits and other receivables 22 23,546 24,735 Financial assets at fair value through profit or loss 23 23,014 Cash and cash equivalents , ,500 Total current assets 706, ,294 CURRENT LIABILITIES Trade and bills payables 26 36,823 33,021 Tax payable 17,996 11,425 Other payables and accruals 27 97,126 64,937 Total current liabilities 151, ,383 NET CURRENT ASSETS 554, ,911 TOTAL ASSETS LESS CURRENT LIABILITIES 1,034, ,790 NON-CURRENT LIABILITIES Deferred liabilities 28 4,155 4,838 Deferred tax liabilities 29 14,801 6,522 Other payables 27 21,136 Total non-current liabilities 40,092 11,360 Net assets 994, ,430

56 81 Embry Holdings Limited Annual Report 2009 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED) 31 December Notes HK$ 000 HK$ 000 EQUITY Equity attributable to owners of the Company Issued capital 30 4,021 4,011 Reserves 32(a) 990, ,419 Total equity 994, ,430 Cheng Man Tai Director Cheng Pik Ho Liza Director

57 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2009 Attributable to owners of the Company Enterprise expansion and Share Asset statutory Exchange Share Issued premium Contributed revaluation reserve fluctuation Goodwill option Retained Total Total capital account surplus reserve funds reserve reserve reserve profits reserves equity Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (note 32(a) ) (note 32(a) ) (note 32(a)) 32(a) 32(a) 32(a) At 1 January , , ,610 2,539 11,768 50,778 (3,168 ) 6, , , ,430 Profit for the year 114, , ,188 Exchange differences arising on translation of foreign operations 1,060 1,060 1,060 Total comprehensive income for the year 1, , , ,248 Issue of shares 30(b) 10 3,137 (1,456) 1,681 1,691 Equity-settled share option arrangements 31 4,987 4,987 4,987 Share options lapsed (23) final and special dividends declared and paid 15 (24,068) (24,068) (24,068) 2009 interim dividend 15 (12,051) (12,051) (12,051) Transfer from retained profits 3,409 (3,409) At 31 December , , ,610 2,539 15,177 51,838 (3,168 ) 10, , , ,237

58 83 Embry Holdings Limited Annual Report 2009 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED) Year ended 31 December 2009 Attributable to owners of the Company Enterprise expansion and Share Asset statutory Exchange Share Issued premium Contributed revaluation reserve fluctuation Goodwill option Retained Total Total capital account surplus reserve funds reserve reserve reserve profits reserves equity Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (note 32(a) ) (note 32(a) ) (note 32(a)) 32(a) 32(a) 32(a) At 1 January , , ,610 2,539 11,768 26,474 (3,168 ) 5, , , ,460 Profit for the year 71,983 71,983 71,983 Exchange differences arising on translation of foreign operations 24,304 24,304 24,304 Total comprehensive income for the year 24,304 71,983 96,287 96,287 Issue of shares 30(a) 8 2,337 (868) 1,469 1,477 Equity-settled share option arrangements 31 3,229 3,229 3,229 Share options lapsed (1,034) 1, final dividend declared and paid 15 (24,000) (24,000) (24,000) 2008 interim dividend 15 (8,023) (8,023) (8,023) At 31 December , , ,610 2,539 11,768 50,778 (3,168 ) 6, , , ,430

59 CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December Notes HK$ 000 HK$ 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 167,709 95,103 Adjustments for: Finance costs 8 2 Interest income 6 (2,635) (5,673) Depreciation 9 21,939 23,621 Amortisation of prepaid land lease payments Loss on disposal/write-off of items of property, plant and equipment Write-back of impairment allowance of trade receivables 9 (228) (730) Write-off of trade receivables Provision for obsolete inventories, net 9 18,817 9,234 Fair value gains on financial assets at fair value through profit or loss 9 (135) (283) Changes in fair value of an investment property 9 (2,000) 1,000 Equity-settled share option expenses 31 4,987 3, , ,596 Increase in inventories (4,031) (73,617) Increase in trade receivables (6,385) (10,029) Decrease/(increase) in prepayments, deposits and other receivables (7,766) Decrease/(increase) in financial assets at fair value through profit or loss 23,149 (22,731) Increase in trade and bills payables 3, Increase in other payables and accruals 33 53,325 31,205 Increase/(decrease) in deferred liabilities (683) 1,450 Cash generated from operations 279,293 45,287 Hong Kong profits tax refunded/(paid) 1,218 (2,525) Overseas tax paid (39,137) (12,145) Net cash flows from operating activities 241,374 30,617 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 2,758 9,244 Purchases of items of property, plant and equipment 17 (21,163) (59,220) Deposit paid for acquisition of a property in Shanghai 22 (216,271) Deposit paid for the land use rights in Shandong 22 (21,068) Proceeds from disposal of items of property, plant and equipment 195 Decrease in an amount due from a related company 13(b) 22,400 Decrease in non-pledged time deposits with original maturity of more than three months when acquired 25 11,364 88,636 Net cash flows from/(used in) investing activities (244,185) 61,060

60 85 Embry Holdings Limited Annual Report 2009 CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) Year ended 31 December Notes HK$ 000 HK$ 000 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 30 1,691 1,477 Dividends paid 15 (36,119) (32,023) Interest paid (2) Net cash flows used in financing activities (34,428 ) (30,548 ) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (37,239) 61,129 Cash and cash equivalents at beginning of year 325, ,247 Effect of foreign exchange rate changes, net 1,060 14,760 CASH AND CASH EQUIVALENTS AT END OF YEAR 288, ,136 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 288, ,585 Non-pledged time deposits with original maturity of less than three months when acquired 107,551 Non-pledged time deposits with original maturity of more than three months when acquired 11,364 Cash and cash equivalents as stated in the consolidated statement of financial position , ,500 Less: non-pledged time deposits with original maturity of more than three months when acquired 25 11,364 Cash and cash equivalents as stated in the consolidated statement of cash flows 288, ,136

61 STATEMENT OF FINANCIAL POSITION 31 December Notes HK$ 000 HK$ 000 NON-CURRENT ASSETS Interests in subsidiaries , ,732 CURRENT ASSETS Prepayments, deposits and other receivables Cash and cash equivalents ,848 53,276 Total current assets 106,000 53,424 CURRENT LIABILITIES Other payables and accruals 27 7,084 3,180 NET CURRENT ASSETS 98,916 50,244 Net assets 768, ,976 EQUITY Issued capital 30 4,021 4,011 Reserves 32(b) 764, ,965 Total equity 768, ,976 Cheng Man Tai Director Cheng Pik Ho Liza Director

62 87 Embry Holdings Limited Annual Report 2009 NOTES TO FINANCIAL STATEMENTS 31 December CORPORATE INFORMATION The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 29 August 2006 under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The registered office address of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, the Cayman Islands and the principal place of business of the Company is located at 7th Floor, Wyler Centre II, 200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong. The principal activity of the Company is investment holding. Details of the principal activities of the subsidiaries are set out in note 24 to the financial statements. There were no significant changes in the nature of the Group s principal activities during the year Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, the Cayman Islands The Company is a subsidiary of Harmonious World Limited ( Harmonious World ), a company incorporated in the British Virgin Islands (the BVI ), and is considered by the directors as the Company s ultimate holding company. Harmonious World Limited Harmonious World Harmonious World Harmonious World 2.1 BASIS OF PREPARATION These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the investment property and financial assets at fair value through profit or loss, which have been measured at fair value. These financial statements are presented in Hong Kong dollars and all amounts are rounded to the nearest thousand (HK$ 000) except where otherwise indicated. 2.1

63 December BASIS OF PREPARATION (continued) Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the Group ) for the year ended 31 December The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation CHANGES IN ACCOUNTING POLICY AND DISCLOSURES The Group has adopted the following new and revised HKFRSs for the first time for the current year s financial statements. 2.2 HKFRS 1 and HKAS 27 Amendments to HKFRS 1 Amendments First-time Adoption of HKFRSs and HKAS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment Vesting Conditions and Cancellations 2 2 HKFRS 7 Amendments Amendments to HKFRS 7 Financial Instruments: Disclosures Improving Disclosures about Financial Instruments 7 7 HKFRS 8 Operating Segments 8 HKAS 1 (Revised) Presentation of Financial Statements 1

64 89 Embry Holdings Limited Annual Report December CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued) HKAS 18 Amendment* Amendment to Appendix to HKAS 18 Revenue Determining Whether an Entity is Acting as a Principal or as an Agent * 18 HKAS 23 (Revised) Borrowing Costs 23 HKAS 32 and HKAS 1 Amendments to HKAS 32 Amendments Financial Instruments: Presentation and HKAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation HK(IFRIC)-Int 9 and Amendments to HK(IFRIC)-Int 9 HKAS 39 Amendments Reassessment of Embedded Derivatives and HKAS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives HK(IFRIC)-Int 13 Customer Loyalty Programmes 13 HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate 15 HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation 16 HK(IFRIC)-Int 18 Transfers of Assets from Customers (adopted from 1 July 2009) 18

65 December CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (continued) Improvements to HKFRSs Amendments to a number of (October 2008)** HKFRSs 2.2 ** * Included in Improvements to HKFRSs 2009 (as issued in May 2009). * 2009 ** The Group adopted all the improvements to HKFRSs issued in October 2008 except for the amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Plan to sell the controlling interest in a subsidiary, which is effective for annual periods beginning on or after 1 July ** 5 Other than as further explained below regarding the impact of HKAS 1 (Revised), the adoption of these new and revised HKFRSs has had no significant financial effect on these financial statements and there have been no significant changes to the accounting policies applied in these financial statements. 1 HKAS 1 (Revised) introduces changes in the presentation and disclosures of financial statements. The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, this standard introduces the statement of comprehensive income, with all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Group has elected to present two statements. 1

66 91 Embry Holdings Limited Annual Report December ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective for the accounting year ended 31 December 2009, in these financial statements. 2.3 HKFRS 1 (Revised) First-time Adoption of Hong Kong Financial Reporting Standards 1 HKFRS 1 Amendments Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards Additional Exemptions for First-time Adopters 1 1 HKFRS 1 Amendment Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters HKFRS 2 Amendments Amendments to HKFRS 2 Share-based Payment Group Cash-settled Share-based Payment Transactions 2 2 HKFRS 3 (Revised) Business Combinations 3 HKFRS 9 Financial Instruments 9 HKAS 24 (Revised) Related Party Disclosures 24 HKAS 27 (Revised) Consolidated and Separate Financial Statements 27 HKAS 32 Amendment Amendment to HKAS 32 Financial Instruments: Presentation Classification of Rights Issues 32 32

67 December ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued) HKAS 39 Amendment Amendment to HKAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items HK(IFRIC)-Int 14 Amendments to HK(IFRIC)-Int 14 Amendments Prepayments of a Minimum Funding Requirement HK(IFRIC)-Int 17 Distributions of Non-cash Assets to Owners 17 HK(IFRIC)-Int 19 Extinguishing Financial Liabilities with Equity Instruments 19 Amendments to Amendments to HKFRS 5 HKFRS 5 included Non-current Assets Held for in Improvements to Sale and Discontinued HKFRSs issued in Operations Plan to Sell October 2008 the Controlling Interest in a Subsidiary 5 5 HK Interpretation 4 Leases Determination of the (Revised in December Length of Lease Term in respect 2009) of Hong Kong Land Leases 4 Improvements to HKFRSs 2009 Amendments to a number of HKFRSs The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, the Group considers that these new and revised HKFRSs are unlikely to have a significant impact on the Group s results of operations and financial position.

68 93 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Subsidiaries A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. 2.4 The results of subsidiaries are included in the Company s income statement to the extent of dividends received and receivable. The Company s interests in subsidiaries are stated at cost less any impairment losses. Goodwill Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group s interest in the net fair value of the acquirees identifiable assets, and liabilities and contingent liabilities assumed as at the date of acquisition. Goodwill arising on the acquisition of subsidiaries is recognised in the consolidated statement of financial position as an asset. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative value of the operation disposed of and the portion of the cash-generating unit retained.

69 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill (continued) Goodwill previously eliminated against the consolidated reserves Goodwill arising on acquisitions before 1 January 2001 was eliminated against the consolidated goodwill reserve in the year of acquisition. The Group applied the transitional provisions of HKFRS 3 that permitted such goodwill to remain eliminated against the consolidated goodwill reserve and that required such goodwill not to be recognised in the consolidated income statement when the Group disposes of all or part of the business to which that goodwill relates or when a cash-generating unit to which the goodwill relates becomes impaired. Related parties A party is considered to be related to the Group if: (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (a) (i) (ii) (iii) (b) the party is an associate; (b) (c) the party is a jointly-controlled entity; (c) (d) the party is a member of the key management personnel of the Group or its holding company; (d) (e) the party is a close member of the family of any individual referred to in (a) or (d); (e) (a) (d) (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (f) (d) (e) (g) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group. (g)

70 95 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of non-financial assets other than goodwill Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets, the investment property and goodwill), the asset s recoverable amount is estimated. An asset s recoverable amount is the higher of the asset s or cash-generating unit s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. 2.4 An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

71 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. 2.4 The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation. Changes in the values of property, plant and equipment are dealt with as movements in the asset revaluation reserve. If the total of the reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves. Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Leasehold land and buildings Over the lease terms Leasehold improvements 4.5% to 20% Plant and machinery 10% to 20% Furniture, fixtures and office 10% to 20% equipment Motor vehicles 20% to 25% 4.5% 20% 10% 20% 10% 20% 20% 25%

72 97 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment and depreciation (continued) Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant assets. 2.4 Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment or investment properties when completed and ready for use. Investment property Investment property is an interest in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under Property, plant and equipment and depreciation up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as a revaluation in accordance with the policy stated under Property, plant and equipment and depreciation above.

73 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment property (continued) Gains or losses arising from changes in the fair value of an investment property are included in the income statement in the year in which they arise. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal. 2.4 Investments and other financial assets Initial recognition and measurement Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. 39 The Group s financial assets include cash and bank balances, trade and other receivables and quoted financial instruments.

74 99 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments and other financial assets (continued) Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with changes in fair value, recognised in the income statement. These net fair value changes do not include any dividends on these financial assets, which are recognised in accordance with the policy set out for Revenue recognition below The Group evaluates its financial assets at fair value through profit or loss (held for trading) to assess whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management s intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification from financial assets at fair value through profit or loss to loans and receivables, available-for-sale financial assets or held-tomaturity investments depends on the nature of the assets. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.

75 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments and other financial assets (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The loss arising from impairment is recognised in the income statement in finance costs. Fair value of financial instruments The fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models or other valuation models. 2.4 Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: the rights to receive cash flows from the asset have expired; the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. (a) (b)

76 101 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derecognition of financial assets (continued) When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangements, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. In that case, the Group also recognises an associated liability, the transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. 2.4

77 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assets (continued) Financial assets carried at amortised cost (continued) If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. 2.4 If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement. Financial liabilities Initial recognition and measurement Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. 39

78 103 Embry Holdings Limited Annual Report December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial liabilities (continued) Initial recognition and measurement (continued) All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group s financial liabilities include trade and other payables. 2.4 Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

79 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories Inventories are stated at the lower of cost and net realisable value after making due allowances for obsolete or slow moving items. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the estimated selling prices less any estimated costs to be incurred to completion and disposal. Leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the income statement on the straightline basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms. 2.4 Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms. Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the leasehold land and buildings as a finance lease in property, plant and equipment.