Investor Presentaiton
HKAS 1.51(a)
HKAS 1.49
HKFRS 7.31-35
HKFRS 7.39(c)
HK Listco Ltd
Financial statements for the year ended 31 December 2023
(b) Liquidity risk 266, 267, 272
Individual operating entities within the group are responsible for their own cash management,
including the short term investment of cash surpluses, participation in supplier finance arrangements
with banks and the raising of loans to cover expected cash demands, subject to approval by the parent
company's board when the borrowings exceed certain predetermined levels of authority. The group's
policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to
ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and
adequate committed lines of funding from major financial institutions to meet its liquidity
requirements in the short and longer term.274
HKFRS 7.39 & B10A-11F
272
In respect of minimum quantitative disclosures concerning liquidity risk, paragraph 39 of HKFRS 7 requires disclosure of a
maturity analysis for financial liabilities and a description of how an entity manages the liquidity risk inherent in the
analysis. This maturity analysis should show the remaining contractual maturities for non-derivative liabilities and for those
derivative liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows. For
other derivatives, it appears that in accordance with paragraph 34(a), the maturity analysis should be based on the
information provided internally to key management personnel, even if this is based on expected cash flows and their
expected timing.
Similar to other disclosure requirements under HKFRS 7, the standard does not specify the format of the information
required, for example, the number of time bands to be used in the maturity analysis (although suggested time bands are
set out in paragraph B11 of HKFRS 7). Entities should use their judgement to determine what is appropriate in view of their
circumstances and with due regard to the information provided internally to key management personnel.
Paragraphs B11A to 11F of HKFRS 7 contain further specific requirements concerning how any maturity analysis of
contractual cash flows should be presented. In particular:
It is clear from paragraph B11D that any contractual cash flows to be disclosed in the analysis should be the gross (i.e.
undiscounted) cash flows. These contractual amounts will be different from the amounts recognised in the statement
of financial position if the amounts are not due within the short term or payable on demand, as the contractual cash
flows will include interest charges, if any, which are payable over the period until the principal is contractually
repayable as well as the gross amounts of any principal repayments. Paragraph B11C(a) further states that when a
counterparty can ask for payment at different dates, the liability should be included on the basis of the earliest date
on which the entity can contractually be required to pay. This means that the disclosure shows a "worst case
scenario" for the possible timing of these gross outflows.
It is clear from paragraph B11A that embedded derivatives (such as conversion options) should not be separated
from hybrid financial instruments when disclosing contractual maturities. Instead the contractual cash flows for the
instrument as a whole should be disclosed.
Where a variable amount is contractually payable, paragraph B11D requires that the amount disclosed in the
maturity analysis should be determined by reference to the conditions existing at the end of the reporting period.
For example, when interest charges are contractually determined by reference to a floating rate of interest, the
amount disclosed in the maturity analysis would be based on the level of the index at the end of the reporting
period.
Where the entity has issued a financial guarantee, paragraph B11C(c) states that the maximum amount that could be
payable under the guarantee should be allocated to the earliest period in which the guarantee could be called. This
disclosure is not dependent on whether it is probable that the entity will be required to make payments under the
contract.
However, HKFRS 7 does not include any specific guidance which deals with the question of how to analyse gross cash flows
arising under perpetual debt. In this regard, whilst the principal amount of the debt does not give rise to liquidity risk for
the entity (as the timing of repayment is neither contractually fixed nor under the control of the holder), any contractual
periodic payments of interest would generally give rise to liquidity risk and should be included in the maturity analysis in
the discrete time bands of, for example, "within one year" and "more than one year but less than two years" and so on.
However, as there is, by definition, no fixed end date to the stream of periodic interest payments on perpetual debt, the
gross cash flows to be included in the final non-discrete time band (being here defined as "more than five years") generally
cannot be properly determined. To deal with this issue where the effect is material, in our view, the entity should include a
footnote disclosure which highlights the existence of these gross payments to perpetuity and explains the extent to which
they have been dealt with in the analysis.
173
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