Annual Report 2019

085 Transport International Holdings Limited 2019 Annual Report Financial Review Net Cash Flow For 2019, there was a net increase of HK$316.9 million (2018: a net decrease of HK$975.8 million) in cash and cash equivalents. The sources are set out below: 2019 2018 HK$ million HK$ million Net cash generated from/(used in): • Operating activities 1,439.7 1,726.6 • Investing activities (941.5) (2,736.0) • Financing activities (181.3) 33.6 Net cash inflow/(outflow) 316.9 (975.8) The main components of the net cash inflow of HK$316.9 million (2018: net cash outflow of HK$975.8 million) included: (i) net cash generated from operating activities of the franchised public bus operations of HK$1,367.1 million (2018: HK$1,472.5 million); (ii) payment of capital expenditure of HK$1,248.3 million (2018: HK$1,874.6 million); (iii) decrease of HK$183.0 million (2018: increase of HK$949.6 million) in bank deposits with original maturities of over three months; (iv) increase of HK$75 million in bank loans (2018: increase of HK$270.0 million); and (v) payment of dividends of HK$261.2 million (2018: HK$236.4 million). Details of the Group’s cash flow movement for the year ended 31 December 2019 are set out in the consolidated cash flow statement on pages 146 and 147 of this Annual Report. Treasury Risk Management The Group’s activities are exposed to various financial risks, including foreign currency, interest rate, fuel price, credit and liquidity risks. The Group’s exposure to these risks as well as its risk management policies and practices are described below: Foreign Currency Risk The Group is exposed to foreign currency risk primarily through purchases of new buses and motor vehicle components from overseas, investments in debt securities and deposits placed at banks that are denominated in a foreign currency. The currencies giving rise to this risk are primarily British Pounds Sterling (GBP) and United States dollars (USD). In respect of its exposure in GBP used for bus purchases, the Group’s treasury team will enter into forward foreign exchange contracts in a strategic manner when appropriate. In 2019, the Group hedged approximately 94% (2018: 96%) of its estimated foreign currency exposure in respect of highly probable forecast purchases denominated in GBP. The Group did not have any outstanding GBP forward contracts (2018: GBP10.1 million) as at 31 December 2019. Interest Rate Risk The Group closely monitors the market conditions and devises suitable strategies to manage its exposure to interest rate risk. Different techniques and instruments, including natural hedges achieved by spreading loans over different rollover periods and maturity dates, and derivative financial instruments such as interest rate swaps will be considered as and when appropriate. As at 31 December 2019, all of the Group’s borrowings were denominated in Hong Kong dollars and on a floating interest rate basis. The Group regularly reviews its strategy on interest rate risk management in the light of the prevailing market condition. The Group’s major subsidiary, KMB, has been assigned an “A” credit rating with stable outlook by Standard & Poor’s since 14 January 2002. The credit rating agency viewed KMB as an integrated economic entity of Transport International Holdings Limited. Accordingly, the rating of KMB also reflects the Group’s credit profile.