Lenovo 2012 Annual Report Download - page 128

2011/12 Annual Report Lenovo Group Limited
126
NOTES TO THE FINANCIAL STATEMENTS
3 Financial risk management (continued)
(a) Financial risk factors (continued)
(ii) Cash flow interest rate risk
The Group’s substantial long-term borrowings are denominated in United States dollar. Borrowings denominated
in other currencies are insignificant. It is the Group’s policy to mitigate interest rate risk through the use of
appropriate interest rate hedging instruments. Generally, the Group manages its cash flow interest rate risk by
using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting
borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to
exchange, at specified intervals (primarily quarterly), the difference between fixed contract rates and floating-rate
interest amounts calculated by reference to the agreed notional amounts.
The Group operates a global channel financing program. The Group is exposed to fluctuation of interest rates of all
the currencies covered by the global channel financing program.
(iii) Credit risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including
outstanding receivables and committed transactions.
For banks and other financial institutions, the Group controls its credit risk through monitoring their credit rating
and setting approved counterparty credit limits that are regularly reviewed.
The Group has no significant concentration of customer credit risk. The Group has a credit policy in place and
exposures to these credit risks are monitored on an ongoing basis.
No credit limits were exceeded by any customers during the reporting period, and management does not expect
any losses from non-performance by these counterparties.
(iv) Liquidity risk
Cash flow forecasting of the Group is performed by Group Treasury. It monitors rolling forecasts of the Group’s
liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient
headroom on its undrawn committed borrowing facilities (Note 28) at all times so that the Group does not breach
borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into
consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio
targets and, if applicable external regulatory or legal requirements, for example, currency restrictions.
Surplus cash held by the operating entities over and above balances required for working capital management
are transferred to Group Treasury. Group Treasury invests surplus cash in interest bearing current accounts, time
deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or
sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts, At the balance
sheet date, the Group held money market funds of US$1,076,456,000 (2011: US$732,181,000) (Note 25).
The tables below analyze the Group’s and the Company’s non-derivative financial liabilities and derivative financial
liabilities into relevant maturity groupings based on the remaining periods at the balance sheet date to the
contractual maturity dates. Derivative financial liabilities are included in the analysis if their contractual maturities
are essential for an understanding of the timing of the cash flows. The amounts disclosed in the tables are the
contractual undiscounted cash outflows/(inflows).