Lenovo : FY2019/20 Third Quarter Results Announcement

February 19, 2020 at 11:07 pm EST

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Lenovo Group Limited 聯想集團有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 992)

FY2019/20 THIRD QUARTER RESULTS ANNOUNCEMENT

QUARTERLY RESULTS

The board of directors (the "Board") of Lenovo Group Limited (the "Company") announces the unaudited results of the Company and its subsidiaries (the "Group") for the three and nine months ended December 31, 2019 together with comparative figures for the corresponding period of last year, as follows:

FINANCIAL HIGHLIGHTS

Record-highquarterly revenue and pre-tax profit achieved thanks to growth in PC and Smart Device (PCSD) business and improvement of Data Center Group (DCG) business
PCSD business set record pre-tax margin by leveraging the momentum of high-growth and premium hardware segments, and the software and services business; strong execution mitigated the persisting component shortages
Mobile Business Group (MBG) maintained positive PTI for the 5th consecutive quarter despite slower revenue momentum due to supply constraint
DCG business recorded double-digit YTY shipments growth; lower revenue growth caused by average selling price erosion reflecting lowered component prices
Software & Services revenue surpassed US$1 billion

	3 months ended	9 months ended	3 months ended	9 months ended	Year-on-year change
	December 31,	December 31,	December 31,	December 31,	3 months	9 months
	2019	2019	2018	2018	ended	ended
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	December 31	December 31
	US$ million	US$ million	US$ million	US$ million
Revenue	14,103	40,137	14,035	39,328	0%	2%
Gross profit	2,265	6,496	2,050	5,475	10%	19%
Gross profit margin	16.1%	16.2%	14.6%	13.9%	1.5 pts	2.3 pts
Operating expenses	(1,777)	(5,223)	(1,616)	(4,571)	10%	14%
Operating profit	488	1,273	434	904	12%	41%
Other non-operating expenses - net	(98)	(333)	(84)	(228)	16%	46%
Profit before taxation	390	940	350	676	11%	39%
Profit for the period	305	741	265	523	15%	42%
Profit attributable to equity
holders of the Company	258	623	233	478	11%	30%
Earnings per share attributable to
equity holders of the Company
Basic	US2.16 cents	US5.22 cents	US1.96 cents	US4.02 cents	US0.20 cents	US1.20 cents
Diluted	US2.07 cents	US5.01 cents	US1.92 cents	US4.01 cents	US0.15 cents	US1.00 cents

BUSINESS REVIEW AND OUTLOOK

Highlights

During the three months ended December 31, 2019, Lenovo (the Group) set new performance records on the back of strong operational excellence and strategy execution. The Group delivered the highest pre- tax profit in its history. Specifically, the PC and Smart Device (PCSD) business achieved record- breaking pre-tax margin, while Mobile Business Group (MBG) remained profitable. Data Center Group (DCG) continued to improve.

In addition to maintaining growth, the Group made steady progress in exploring and developing future growth opportunities. The 3S (Smart IoT, Smart Verticals, and Smart Infrastructure) strategy is accelerating the Group's Intelligent Transformation and is paving a new path towards delivering long- term sustainable growth. Strategic investments underlying the 3S strategy have led to strong double-digityear-on-year growth in the Group's Software and Services business. The invoiced revenue from Software and Services exceeded US$1 billion and contributed over 7 percent of the Group's revenue for the period under review, with the highest gross margin among all the Group's products.

Net cash generated from operating activities was US$538 million in Q3FY20, compared to US$1.2 billion in 1HFY20. The cash generated from operation was lower year-on-year due to higher inventory level on critical parts and less accounts receivable factoring.

Group Financial Performance

For the three months ended December 31, 2019, the Group delivered record revenues and grew its pre- tax profit by 11 percent year-on-year to US$390 million. Profit attributable to equity holders rose by 11 percent to US$258 million.

The Group's gross margin expanded by 1.5 percentage points year-on-year to 16.1 percent, thanks to the continued sales mix shift of PCSD into high growth and premium segments. The operating expense-to- revenue ratio increased by 1.1 percentage points to 12.6 percent due to rising investments in sales, marketing and promotion, as well as higher wages, salaries and long-term incentive awards. The Group expanded its pre-tax margin by 0.3 percentage points year-on-year to 2.8 percent, representing its highest profitability level since the acquisition of Motorola Mobility and IBM x86 server businesses in 2014.

Among the three business groups, the PCSD business remained the global market share leader, delivering industry-leading profitability. The DCG business saw strong double-digit growth in volume, although its quarterly revenue growth was constrained by average selling price (ASP) compression and lowered component cost. MBG remained profitable despite challenges on the supply side impacting sales of its popular new models.

Performance by Product Business Group

Intelligent Devices Group (IDG)

During the three months ended December 31, 2019, the revenue of Intelligent Devices Group (IDG) - consisting of the PCSD and MBG businesses - grew 0.5 percent year-on-year to an all-time high of US$12,502 million. Its pre-tax profit increased strongly by 17 percent year-on-year to reach US$687 million. Market share gain across the high-growth and premium PC segments was the primary catalyst for IDG's strong profit performance. This sales mix change made possible the record pre-tax profit margin of 5.5 percent achieved by IDG during the period under review.

Intelligent Devices Group - PC and Smart Device (PCSD) Business

During the period under review, the PCSD business was not only the largest PC brand in the world with a 24.8 percent market share but also the sector leader in terms of profitability. The PC business continued its growth trajectory with an all-time high revenue and shipments on a quarterly basis, despite severe shortages of a key component. The success of this business is rooted in its execution, which enabled a strategic shift towards high-growth and premium segments. PCSD enjoyed double-digit revenue and shipment growth across the Workstation, Thin and Light, Visual, and Gaming PC segments. The business overall reported a 3 percent year-on-year growth in revenue to US$11,074 million, representing 79 percent of the Group's total revenue, for the three months ended December 31, 2019.

These high-growth and premium segments now contribute over half of the business' top-line scale. Together with a higher attach rate for its highly profitable Software and Services offerings, PCSD further expanded its industry-leading profitability to set a record pre-tax margin of 6.2 percent in the three- month period under review, representing a year-on-year expansion of 0.7 percentage points. Its pre-tax profit increased 17 percent year-on-year to US$684 million.

Intelligent Devices Group - Mobile Business Group (MBG)

The Group's mobile business has continued its focused strategy to invest and develop in regions and/or countries where it has notable competitive advantages. Leveraging this focused strategy, the MBG business again delivered on its promise, marking its fifth profitable quarter in a row. The business made a moderate profit before taxation of US$3 million during the quarter under review.

Operations in its biggest core market, Latin America, remained robust and the region's pre-tax margin further expanded. However, the business' performance in other geographical markets faced challenges arising from shortage of components. Thus resulted a decline in the business' revenue by 17 percent to US$1,381 million for the three months ended December 31, 2019.

The MBG business continued to deliver innovative products including the recently announced foldable smartphone - the razr foldable. This product has earned positive customer reviews and will start contributing to the business' revenue as well as providing an opportunity to upsell and reenter the premium segment.

Data Center Group (DCG)

In fiscal quarter three, the DCG Group staged a notable improvement from a multiple-quarter setback with an 18 percent shipment growth year-on-year on products including servers, its traditional core business, and storage. Nevertheless its revenue growth remained constrained mainly due to the impact of lower commodity prices. The business grew 20 percent in revenue quarter by quarter to reach US$1,601 million for the period under review, contributing 11 percent of the Group's total revenue. While the year-on-year revenue growth is subdued in the period under review, it represented significant improvement from the 14 and 17 percent declines in the first two quarters of current fiscal year.

The business reported double-digityear-on-year growth for its non-hyperscale segment. The most notable success is seen in Data Center Infrastructure (DCI), Software Defined Infrastructure (SDI), storage, and Software and Services. The DCI business continued to grow year-on-year in fiscal quarter three as DCG in China seized the opportunity to broaden its sales coverage and product portfolio. Its storage revenue grew at a strong, double-digit rate during the period under review thanks to the NetApp Joint Venture and new product growth in entry- and mid-range flash arrays. SDI sales also increased at a strong double-digit rate year-on-year as its product performance helped win market share. The robust growth of Software and Services business was driven by an increasingly diversified portfolio and strength in selective regional markets such as China. For the hyperscale business, annual revenue comparison remained difficult for the period under review due to sharply lowered component prices severely eroding ASP. However, the price erosion will come to an anniversary after this quarter, implying easier base of comparison going forward.

Losses from DCG narrowed by US$8 million year-on-year to US$47 million for the period. The reduced losses were achieved despite investments into expanding product portfolio and pursuing growth opportunities in Telecom, Edge computing and Artificial Intelligence.

Outlook

Macro risk factors, especially the outbreak of the Novel coronavirus, could bring short-term volatility and challenges. The vast majority of the Group's factories in China have reopened and are operational on a limited basis, although its suppliers and even logistics services across the countries remained impacted. Nevertheless, given its extensive global footprint, the company is well positioned to address the supply challenges by leveraging its strength as a global company with worldwide manufacturing capabilities and supply chain efficiency. The Group's immediate priorities remain the welfare and health of its workforce, continuity of manufacturing and rebuilding capacity, working with its supply chain to drive recovery and assisting those working to contain the outbreak. The Group is leveraging the full strength of its global manufacturing and distribution networks to minimize any potential impact on its customers. Demand in China is expected to rebound after stabilization of the coronavirus outbreak, and new demand drivers could emerge to bode well for the businesses.

The Group will continue to target premium-to-market revenue growth and thereby industry-leading profitability in its PCSD business through further expansion in the high-growth and premium segments. Building capabilities to drive sales growth in software and services will also remain a key strategy focus. For its Mobile business, the Group will further strengthen its competitiveness in target markets to sustain profitable growth while extending its technology leadership.

The improvement of DCG business is at an early stage. The trend of data growth is expected to accelerate and fuel growth in sales for DCG business following the debut of more products and applications featuring new technologies including 5G. Lenovo will tap into this opportunity to drive continued revival of its hyperscale business and to forge its DCG business as a full stack industry leader through the introduction of solution capabilities and a reliable end-to-end product portfolio.

Moving forward, Lenovo will continue to drive growth in enterprise servers, Software Defined Infrastructure, storage, and services and software. For hyperscale business, the Group will leverage its differentiated in-house design and manufacturing capability to expand product coverage from the heritage server products to storage, and broaden its customer base to build a profitable business model in the future.

Strategic Highlights

The Group continues to execute its strategy to be the leader and enabler of Intelligent Transformation. Lenovo has the vision of bringing smarter technology to all - through Smart Infrastructure, Smart Verticals and Smart IoT. This 3S strategy, in parallel with its customer-centric positioning, has led to a higher Software and Services attach rate. During fiscal quarter three, the invoiced revenue from Software and Services grew at a strong double-digityear-on-year, not only contributing over 7 percent of the Group revenue but also carrying the highest margin profile among all of the Group's products. The Software and Services business is considered a strong, long-term growth catalyst.

Smart Infrastructure provides the computing, storage and networking power to support smart devices, which will more than double in number in 2020 from 2017 creating an enormous amount of data. Lenovo launched its next-generation data center solutions in SDI and expects it to remain a future growth catalyst. These new solutions, which include collaboration with several partners based on the ThinkAgile platform, have grown significantly during fiscal quarter three.

Smart Verticals combine big data generated by smart devices and the computing power of smart infrastructure in order to provide more insights and improve processes for customers. The Data Intelligence Business Group (DIBG) has expanded its footprint to win projects in the energy and manufacturing industry during fiscal quarter three. Its healthcare and education virtual reality solutions also gained strong momentum in driving revenue growth.

The Group will continue to invest in Smart IoT, consisting of a network of many touchpoints for the connected world we live in. Specifically, the Group's investments will accelerate in the area of edge computing, cloud, big data and artificial intelligence (AI) in vertical industries to deepen its strategic transformation and further accentuate its core competence. These investments aim to strengthen Lenovo's capability as a competitive end-to-end solution provider in the era of Intelligent Transformation.

FINANCIAL REVIEW

Results for the nine months ended December 31, 2019

	9 months	9 months
	ended	ended
	December 31,	December 31,	Year-on-year
	2019	2018	change
	(unaudited)	(unaudited)
	US$ million	US$ million
Revenue	40,137	39,328	2%
Gross profit	6,496	5,475	19%
Gross profit margin	16.2%	13.9%	2.3 pts
Operating expenses	(5,223)	(4,571)	14%
Operating profit	1,273	904	41%
Other non-operating expenses - net	(333)	(228)	46%
Profit before taxation	940	676	39%
Profit for the period	741	523	42%
Profit attributable to equity holders of the Company	623	478	30%
Earnings per share attributable to equity holders of
the Company
Basic	US5.22 cents	US4.02 cents	US1.20 cents
Diluted	US5.01 cents	US4.01 cents	US1.00 cents

For the nine months ended December 31, 2019, the Group achieved total sales of approximately US$40,137 million. Compared to the corresponding period of last year, profit attributable to equity holders for the period surged by US$145 million to approximately US$623 million. In the same reporting period, gross profit margin advanced by 2.3 percentage points from 13.9 percent, while basic and diluted earnings per share were US5.22 cents and US5.01 cents respectively, representing an increase of US1.20 cents and US1.00 cents.

Analysis of operating expenses by function for the nine months ended December 31, 2019 and 2018 is as follows:

	9 months	9 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Selling and distribution expenses	(2,357,394)	(2,011,118)
Administrative expenses	(1,804,407)	(1,615,724)
Research and development expenses	(988,575)	(895,056)
Other operating expenses - net	(72,681)	(49,229)

	(5,223,057)	(4,571,127)

Operating expenses for the period were 14 percent over that of the corresponding period of last year. Employee benefit costs increased by US$267 million mainly due to higher bonus and sales commission accruals, wages and salaries and long-term incentive awards. The Group also raised advertising and promotional expenses by US$171 million. Amortization of intangible assets increased by US$60 million with more investments in trademarks and trade names and internal use software. There was also a reduction in net gain on fair valuation of certain financial assets and a financial liability to US$36 million (2018/19: US$99 million). The overall increase was partially offset by the reduction in net foreign exchange loss to US$70 million (2018/19: US$92 million).

During the period, the Group adopted the new accounting standard, HKFRS 16, Leases. As a result, depreciation of right-of-use assets was reported and payments made under operating leases were no longer recorded as rental expenses unless under exemption. Please refer to Note 1 of the Financial Information for details on the adoption on HKFRS 16.

Key expenses by nature comprise:

	9 months	9 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Depreciation of property, plant and equipment and
amortization of prepaid lease payments	(118,292)	(130,900)
Depreciation of right-of-use assets	(64,565)	-
Amortization of intangible assets	(409,862)	(349,923)
Employee benefit costs, including	(2,823,892)	(2,557,229)
-long-term incentive awards	(192,675)	(155,643)
Rental expenses under operating leases	(8,504)	(88,939)
Net foreign exchange loss	(70,310)	(91,864)
Advertising and promotional expenses	(719,777)	(548,873)
Loss on disposal of property, plant and equipment	(1,348)	(3,124)
Fair value gain on financial assets at fair value through
profit or loss	49,435		99,137
Fair value loss on a financial liability at fair value
through profit or loss	(13,000)	-
Gain on disposal of subsidiaries	12,844		-
Gain on deemed disposal of a subsidiary	-		22,811
Dilution gain on interest in an associate	-		18,121
Gain on disposal of interest in an associate	3,922		-
Others	(1,059,708)	(940,344)

	(5,223,057)		(4,571,127)

Other non-operating expenses (net) for the nine months ended December 31, 2019 and 2018 comprise:

	9 months	9 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Finance income	37,843		17,475
Finance costs	(358,835)	(239,485)
Share of losses of associates and joint ventures	(11,107)	(5,886)

	(332,099)	(227,896)

Finance income mainly represents interest on bank deposits.

Finance costs for the period increased by 50 percent over that of the corresponding period of last year. The change is a combined effect of the increase in factoring costs of US$91 million, interest on convertible bonds of US$30 million, interest on contingent consideration and written put option liabilities of US$13 million and interest on lease liabilities of US$12 million, offset by the decrease in interest on notes of US$23 million.

Share of losses of associates and joint ventures represents operating losses arising from principal business activities of respective associates and joint ventures.

The Group adopts segments by business group as the reporting format. Segments by business group comprise Intelligent Devices Group ("IDG") and Data Center Group ("DCG"). Segment revenue and pre- tax income/(loss) for reportable segments are as follows:

	9 months ended	9 months ended
	December 31, 2019	December 31, 2018
	Revenue					Revenue
	from			Pre-tax	from	Pre-tax
	external			income/	external	income/
	customers			(loss)	customers	(loss)
	US$'000			US$'000	US$'000	US$'000
IDG	35,849,817	1,835,835		34,554,496	1,380,305
DCG	4,287,161	(149,716)	4,773,168	(178,051)

Segment total	40,136,978	1,686,119		39,327,664	1,202,254
Unallocated:


Headquarters and corporate (expenses)/income - net		(503,272)			(470,212)
Depreciation and amortization		(118,338)			(98,995)
Finance income		19,526				1,285
Finance costs		(176,453)			(91,510)
Share of losses of associates and joint ventures		(11,107)			(5,886)
Loss on disposal of property, plant and equipment		(726)			(817)
Fair value gain on financial assets at fair value
through profit or loss		49,435				99,137
Fair value loss on a financial liability at fair value
through profit or loss		(13,000)			-
Gain on deemed disposal of a subsidiary		-				22,811
Dilution gain on interest in an associate		-				18,121
Gain on disposal of interest in an associate		3,922				-
Dividend income		4,303				230

Consolidated profit before taxation		940,409				676,418

Headquarters and corporate (expenses)/income for the period comprise various expenses, after appropriate allocation to business groups, which are attributable to headquarters and corporate of US$503 million (2018/19: US$470 million) such as employee benefit costs, legal and professional fees, and research and technology expenses. Employee benefit costs rose by US$48 million due to an increase in headcount and the Group recorded central research and technology expenses of US$141 million which were not allocated to a business group (2018/19: US$53 million).

Moreover, the Group recognized fair value gain on bonus warrants of US$16 million during the period (2018/19: fair value loss of US$4 million), and certain one-time charges associated with the execution of previously announced resource actions at the corporate level. These one-time charges include the disposal of certain inventories of US$45 million (2018/19: US$77 million) caused by product portfolio simplification, and onerous lease contracts and claims of US$3 million (2018/19: US$26 million).

Third Quarter 2019/20 compared to Third Quarter 2018/19

	3 months	3 months
	ended	ended
	December 31,	December 31,	Year-on-year
	2019	2018	change
	(unaudited)	(unaudited)
	US$ million	US$ million
Revenue	14,103	14,035	0%
Gross profit	2,265	2,050	10%
Gross profit margin	16.1%	14.6%	1.5 pts
Operating expenses	(1,777)	(1,616)	10%
Operating profit	488	434	12%
Other non-operating expenses - net	(98)	(84)	16%
Profit before taxation	390	350	11%
Profit for the period	305	265	15%
Profit attributable to equity holders of the Company	258	233	11%
Earnings per share attributable to equity holders of
the Company
Basic	US2.16 cents	US1.96 cents	US0.20 cents
Diluted	US2.07 cents	US1.92 cents	US0.15 cents

For the three months ended December 31, 2019, the Group achieved total sales of approximately US$14,103 million. Compared to the corresponding period of last year, profit attributable to equity holders for the period surged by US$25 million to approximately US$258 million. In the same reporting period, gross profit margin advanced by 1.5 percentage points from 14.6 percent, while basic and diluted earnings per share were US2.16 cents and US2.07 cents respectively, representing an increase of US0.20 cents and US0.15 cents.

Further analyses of sales by segment are set out in Business Review and Outlook.

Analysis of operating expenses by function for the three months ended December 31, 2019 and 2018 is as follows:

	3 months	3 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Selling and distribution expenses	(816,261)	(702,175)
Administrative expenses	(609,157)	(615,590)
Research and development expenses	(341,232)	(272,820)
Other operating expenses - net	(9,863)	(24,686)

	(1,776,513)	(1,615,271)

Operating expenses for the period were 10 percent over that of the corresponding period of last year. Employee benefit costs increased by US$67 million mainly due to higher wages and salaries and long- term incentive awards. The Group also raised advertising and promotional expenses by US$57 million. Amortization of intangible assets increased by US$29 million with more investments in trademarks and trade names and internal use software. The overall increase was partially offset by net gain on fair valuation of certain financial assets and a financial liability of US$40 million (2018/19: loss of US$5 million). Currency fluctuations during the period presented a challenge to the Group resulting in a net exchange loss of US$22 million (2018/19: US$33 million).

Key expenses by nature comprise:

	3 months	3 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Depreciation of property, plant and equipment and
amortization of prepaid lease payments	(38,432)	(45,268)
Depreciation of right-of-use assets	(23,646)	-
Amortization of intangible assets	(150,290)	(121,378)
Employee benefit costs, including	(942,865)	(875,500)
- long-term incentive awards	(68,978)	(56,017)
Rental expenses under operating leases	(2,748)	(25,628)
Net foreign exchange loss	(21,859)	(32,544)
Advertising and promotional expenses	(247,555)	(190,256)
Loss on disposal of property, plant and equipment	(642)	(668)
Fair value gain/(loss) on financial assets at fair value
through profit or loss	49,543	(5,270)
Fair value loss on a financial liability at fair value
through profit or loss	(10,000)	-
Gain on deemed disposal of a subsidiary	-		22,811
Gain on disposal of interest in an associate	3,922		-
Others	(391,941)	(341,570)

	(1,776,513)	(1,615,271)

Other non-operating expenses (net) for the three months ended December 31, 2019 and 2018 comprise:

	3 months	3 months
	ended	ended
	December 31,	December 31,
	2019		2018
	US$'000	US$'000
Finance income	13,369			6,001
Finance costs	(107,595)		(85,905)
Share of losses of associates and joint ventures	(3,659)		(4,165)

	(97,885)		(84,069)

Finance income mainly represents interest on bank deposits.

Finance costs for the period increased by 25 percent as compared to the corresponding period of last year. The change is a combined effect of the increase in factoring costs of US$20 million, interest on convertible bonds of US$10 million and interest on lease liabilities of US$5 million, offset by the decrease in interest on notes of US$11 million.

Share of losses of associates and joint ventures represents operating losses arising from principal business activities of respective associates and joint ventures.

The Group adopts segments by business group as the reporting format. Segments by business group comprise IDG and DCG. Segment revenue and pre-tax income/(loss) for reportable segments are as follows:

	3 months ended	3 months ended
	December 31, 2019	December 31, 2018
	Revenue				Revenue
	from		Pre-tax	from		Pre-tax
	external		income/	external		income/
	customers		(loss)	customers		(loss)
	US$'000		US$'000	US$'000		US$'000
IDG	12,502,275	687,050	12,434,761	586,313
DCG	1,600,561	(46,546)	1,600,369	(54,594)

Segment total	14,102,836	640,504		14,035,130	531,719
Unallocated:


Headquarters and corporate (expenses)/income - net		(228,559)		(127,946)
Depreciation and amortization		(41,506)		(36,023)
Finance income		6,585		-
Finance costs		(28,369)		(30,718)
Share of losses of associates and joint ventures		(3,659)		(4,165)
Loss on disposal of property, plant and equipment		(146)		(150)
Fair value gain/(loss) on financial assets at fair value
through profit or loss		49,543			(5,270)
Fair value loss on a financial liability at fair value
through profit or loss		(10,000)		-
Gain on deemed disposal of a subsidiary		-			22,811
Gain on disposal of interest in an associate		3,922			-
Dividend income		1,913			67

Consolidated profit before taxation		390,228			350,325

Headquarters and corporate (expenses)/income for the period comprise various expenses, after appropriate allocation to business groups, which are attributable to headquarters and corporate of US$229 million (2018/19: US$128 million) such as employee benefit costs, legal and professional fees, and research and technology expenses. Employee benefit costs rose by US$26 million due to an increase in headcount. The Group recorded a net exchange loss of US$22 million (2018/19: US$16 million) and central research and technology expenses of US$56 million which were not allocated to a business group (2018/19: US$19 million).

Moreover, the Group did not recognize any fair value gain on bonus warrants during the period (2018/19: US$3 million). The Group recognized one-time charge associated with the execution of previously announced resource actions at the corporate level, representing the disposal of certain inventories of US$40 million (2018/19: US$30 million) caused by product portfolio simplification.

Capital Expenditure

The Group incurred capital expenditure of US$701 million (2018/19: US$468 million) during the nine months ended December 31, 2019, mainly for the acquisition of property, plant and equipment and additions in construction-in-progress and intangible assets.

Liquidity and Financial Resources

At December 31, 2019, total assets of the Group amounted to US$35,026 million (March 31, 2019: US$29,988 million), which were financed by equity attributable to owners of the Company of US$3,430 million (March 31, 2019: US$3,396 million), perpetual securities of US$1,007 million (March 31, 2019: US$994 million) and negative balance of other non-controlling interests (net of put option written on non-controlling interests) of US$142 million (March 31, 2019: US$293 million), and total liabilities of US$30,731 million (March 31, 2019: US$25,891 million). At December 31, 2019, the current ratio of the Group was 0.85 (March 31, 2019: 0.82).

At December 31, 2019, bank deposits and cash and cash equivalents totaled US$3,586 million (March 31, 2019: US$2,733 million) analyzed by major currency are as follows:

	December 31, 2019	March 31, 2019
	%	%
US dollar	41.1	41.1
Renminbi	32.5	32.0
Japanese Yen	7.9	6.8
Euro	3.8	5.4
Other currencies	14.7	14.7
Total	100.0	100.0

The Group adopts a conservative policy to invest the surplus cash generated from operations. At December 31, 2019, 87.5 (March 31, 2019: 78.6) percent of cash are bank deposits, and 12.5 (March 31, 2019: 21.4) percent are investments in liquid money market funds of investment grade.

Although the Group has consistently maintained a very liquid position, banking facilities have nevertheless been put in place to meet inter-quarter funding requirements and the Group has entered into factoring arrangements in the ordinary course of business.

The Group has the following banking facilities:

				Utilization amount at
Type	Date of agreement	Principal amount	Term	December 31, 2019	March 31, 2019
		US$ million		US$ million	US$ million
Loan facility	May 26, 2015	300	5 years	300	300
Revolving loan
facility	March 28, 2018	1,500	5 years	1,500	825

Notes, perpetual securities, convertible bonds and convertible preferred shares issued by the Group and outstanding as at December 31, 2019 are as follows:

				Interest /
		Principal		dividend rate
	Issue date	amount	Term	per annum	Due date	Use of proceeds
2020 Note	June 10, 2015	RMB4 billion	5 years	4.95%	June 2020	For general corporate
						purposes including working
						capital and acquisition
						activities
2022 Note	March 16, 2017	US$500 million	5 years	3.875%	March 2022	For repayment of the
Perpetual securities	March 16, 2017	US$850 million	N/A	5.375%	N/A	outstanding amount under
	April 6, 2017	US$150 million	N/A	5.375%	N/A	the promissory note issued
						to Google Inc. and general
						corporate purposes
2023 Note	March 29, 2018	US$750 million	5 years	4.75%	March 2023	For repayment of previous
						Note and general corporate
						purposes
Convertible bonds	January 24, 2019	US$675 million	5 years	3.375%	January 2024	For repayment of previous
						Note and general corporate
						purposes
Convertible	June 21, 2019	US$300 million	N/A	4%	N/A	For general corporate
preferred shares						funding and capital
						expenditure

The Group has also arranged other short-term credit facilities as follows:

	Total facilities amount at	Drawn down amount at
Credit facilities	December 31, 2019	March 31, 2019	December 31, 2019	March 31, 2019
	US$ million	US$ million	US$ million	US$ million
Trade lines	2,420	2,195	1,952	1,637
Short-term and revolving
money market facilities	935	701	301	56
Forward foreign exchange
contracts	9,429	9,525	9,429	9,525

Net debt position and gearing ratio of the Group as at December 31 and March 31, 2019 are as follows:

	December 31, 2019	March 31, 2019
	US$ million	US$ million
Bank deposits and cash and cash equivalents	3,586	2,733
Borrowings
- Short-term bank loans	2,090	1,167
- Notes	1,817	2,622
- Convertible bonds	603	591
- Convertible preferred shares	307	-
Net debt position	(1,231)	(1,647)
Total equity	4,295	4,097
Gearing ratio (Borrowings divided by total equity)	1.12	1.07

The Group is confident that all the facilities on hand can meet the funding requirements of the Group's operations and business development.

The Group adopts a consistent hedging policy for business transactions to reduce the risk of currency fluctuation arising from daily operations. At December 31, 2019, the Group had commitments in respect of outstanding forward foreign exchange contracts amounting to US$9,429 million (March 31, 2019: US$9,525 million). The Group's forward foreign exchange contracts are either used to hedge a percentage of future transactions which are highly probable, or used as fair value hedges for identified assets and liabilities.

Contingent Liabilities

The Group, in the ordinary course of its business, is involved in various claims, suits, investigations, and legal proceedings that arise from time to time. Although the Group does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on its financial position or results of operations, litigation is inherently unpredictable. Therefore, the Group could incur judgments or enter into settlements of claims that could adversely affect its operating results or cash flows in a particular period.

FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

		3 months ended	9 months ended	3 months ended	9 months ended
		December 31,	December 31,	December 31,	December 31,
		2019				2019	2018	2018
		(unaudited)	(unaudited)	(unaudited)	(unaudited)
	Note	US$'000	US$'000	US$'000	US$'000
Revenue	2	14,102,836				40,136,978	14,035,130	39,327,664
Cost of sales		(11,838,210)	(33,641,413)	(11,985,465)	(33,852,223)

Gross profit		2,264,626				6,495,565	2,049,665	5,475,441
Selling and distribution expenses		(816,261)	(2,357,394)	(702,175)	(2,011,118)
Administrative expenses		(609,157)	(1,804,407)	(615,590)	(1,615,724)
Research and development expenses		(341,232)	(988,575)	(272,820)	(895,056)
Other operating expenses - net		(9,863)	(72,681)	(24,686)	(49,229)

Operating profit	3	488,113				1,272,508	434,394	904,314
Finance income	4(a)	13,369				37,843	6,001	17,475
Finance costs	4(b)	(107,595)	(358,835)	(85,905)	(239,485)
Share of losses of associates and joint ventures		(3,659)	(11,107)	(4,165)	(5,886)

Profit before taxation		390,228			940,409	350,325	676,418
Taxation	5	(84,729)	(199,329)	(85,488)	(152,779)

Profit for the period		305,499				741,080	264,837	523,639
Profit attributable to:


Equity holders of the Company		258,117				622,538	232,771	478,218
Perpetual securities holders		13,440				40,320	13,440	40,320
Other non-controlling interests		33,942			78,222	18,626	5,101

		305,499				741,080	264,837	523,639
Earnings per share attributable to equity holders


of the Company
Basic	6(a)	US2.16 cents	US5.22 cents	US1.96 cents	US4.02 cents


Diluted	6(b)	US2.07 cents	US5.01 cents	US1.92 cents	US4.01 cents


Dividend						96,640			92,071

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	3 months ended	9 months ended	3 months ended	9 months ended
	December 31,	December 31,	December 31,	December 31,
	2019		2019		2018	2018
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	US$'000	US$'000	US$'000	US$'000
Profit for the period	305,499		741,080		264,837		523,639
Other comprehensive (loss)/income:
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit
obligations, net of taxes	(15,016)	(14,636)	(2,322)	(2,322)
Fair value change on financial assets at fair value
through other comprehensive income, net of taxes	1,474		(1,984)	(2,290)	(6,074)
Items that have been reclassified or may be
subsequently reclassified to profit or loss
Fair value change on cash flow hedges from foreign
exchange forward contracts, net of taxes
- Fair value (loss)/gain, net of taxes	(77,507)	20,104		35,330		259,488
- Reclassified to consolidated income statement	(11,741)	(76,629)	(65,755)	(237,210)
Currency translation differences	119,978		(120,541)	60,022		(490,951)

Other comprehensive income/(loss) for the period	17,188		(193,686)	24,985		(477,069)

Total comprehensive income for the period	322,687		547,394		289,822		46,570
Total comprehensive income attributable to:


Equity holders of the Company	276,209		426,044		257,756		1,149
Perpetual securities holders	13,440		40,320		13,440		40,320
Other non-controlling interests	33,038		81,030		18,626		5,101

	322,687		547,394		289,822		46,570

CONSOLIDATED BALANCE SHEET

		December 31, 2019		March 31, 2019
		(unaudited)		(audited)
	Note	US$'000		US$'000
Non-current assets
Property, plant and equipment		1,731,501	1,430,817
Prepaid lease payments		439,437	463,996
Construction-in-progress		284,594	232,097
Intangible assets		8,230,856	8,324,575
Interests in associates and joint ventures		63,746	79,061
Deferred income tax assets		2,040,620	1,862,902
Financial assets at fair value through profit or loss		487,674	449,363
Financial assets at fair value through other
comprehensive income		66,813	71,486
Other non-current assets		235,076	187,985

		13,580,317	13,102,282
Current assets
Inventories		3,998,396	3,434,660
Trade receivables	7(a)	9,159,206	6,661,484
Notes receivable		83,232	46,454
Derivative financial assets		25,248	70,972
Deposits, prepayments and other receivables	8	4,406,367	3,753,926
Income tax recoverable		187,580	185,643
Bank deposits		65,079	70,210
Cash and cash equivalents		3,520,919	2,662,854

		21,446,027	16,886,203

Total assets		35,026,344	29,988,485

CONSOLIDATED BALANCE SHEET (CONTINUED)

		December 31, 2019	March 31, 2019
		(unaudited)	(audited)
	Note	US$'000	US$'000
Share capital	12	3,185,923		3,185,923
Reserves		244,568		210,530

Equity attributable to owners of the Company		3,430,491		3,396,453
Perpetual securities		1,007,110		993,670
Other non-controlling interests		623,934		473,178
Put option written on non-controlling interests	10(b)	(766,238)	(766,238)

Total equity		4,295,297		4,097,063
Non-current liabilities
Borrowings	11	2,153,138		2,426,770
Warranty provision	9(b)	268,036		254,601
Deferred revenue		865,823		678,137
Retirement benefit obligations		435,561		434,246
Deferred income tax liabilities		355,037		359,679
Other non-current liabilities	10	1,419,999		1,247,646

		5,497,594		5,401,079
Current liabilities
Trade payables	7(b)	8,665,819		6,429,835
Notes payable		1,301,932		1,272,840
Derivative financial liabilities		85,609		74,426
Other payables and accruals	9(a)	10,567,858		8,942,336
Provisions	9(b)	758,720		738,688
Deferred revenue		832,194		780,951
Income tax payable		357,237		298,224
Borrowings	11	2,664,084		1,953,043

		25,233,453		20,490,343

Total liabilities		30,731,047		25,891,422

Total equity and liabilities		35,026,344		29,988,485

CONSOLIDATED CASH FLOW STATEMENT

			9 months ended	9 months ended
		December 31, 2019	December 31, 2018
			(unaudited)	(unaudited)
	Note		US$'000	US$'000
Cash flows from operating activities
Net cash generated from operations	14	2,432,768			2,370,597
Interest paid		(353,870)	(235,895)
Tax paid			(300,611)	(184,071)
Net cash generated from operating activities			1,778,287			1,950,631
Cash flows from investing activities
Purchase of property, plant and equipment		(178,068)	(158,500)
Sale of property, plant and equipment		12,291			114,366
Acquisition of subsidiaries, net of cash acquired		-			(104,198)
Disposal of subsidiaries, net of cash disposed		(18,155)	-
Deemed disposal of a subsidiary, net of cash disposed		-			(21,106)
Interest acquired in a joint venture		(1,616)	-
Payment for construction-in-progress		(305,674)	(192,091)
Payment for intangible assets		(217,070)	(117,739)
Purchase of financial assets at fair value through profit or
loss		(47,107)	(62,552)
Purchase of financial assets at fair value through other
comprehensive income		-			(3,802)
Loan to a joint venture		(72,603)	-
Net proceeds from sale of financial assets at fair value
through profit or loss		56,843			33,996
Net proceeds from sale of financial assets at fair value
through other comprehensive income		2,803			-
Decrease/(increase) in bank deposits		5,131			(24,325)
Dividends received		6,206			230
Interest received		37,843			17,475

Net cash used in investing activities		(719,176)	(518,246)
Cash flows from financing activities
Capital contribution from other non-controlling interests		61,696			33,521
Contribution to employee share trusts		(86,684)	(88,878)
Issue of convertible preferred shares		300,000			-
Repayment of a note		(786,244)	-
Principal elements of lease payments		(98,590)	-
Dividends paid		(431,148)	(404,350)
Dividends paid to other non-controlling interests		(4,620)	(4,758)
Distribution to perpetual securities holders		(26,880)	(26,880)
Proceeds from borrowings		3,046,800			4,378,800
Repayments of borrowings			(2,143,800)	(3,678,800)

Net cash (used in)/generated from financing activities			(169,470)	208,655

Increase in cash and cash equivalents		889,641			1,641,040
Effect of foreign exchange rate changes		(31,576)	(89,197)
Cash and cash equivalents at the beginning of the period		2,662,854			1,848,017
Cash and cash equivalents at the end of the period		3,520,919			3,399,860

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

						Attributable to equity holders of the Company
																					Put option
																					written on
			Investment				Share-based											Other non-		non-
			revaluation		Employee		compensation	Hedging		Exchange		Other		Retained	Perpetual	controlling		controlling
	Share capital		reserve		share trusts		reserve	reserve		reserve		reserve		earnings	securities	interests		interests	Total
	(unaudited)		(unaudited)		(unaudited)		(unaudited)	(unaudited)		(unaudited)		(unaudited)		(unaudited)	(unaudited)	(unaudited)		(unaudited)	(unaudited)
	US$'000		US$'000		US$'000		US$'000	US$'000		US$'000		US$'000		US$'000	US$'000	US$'000		US$'000	US$'000
At April 1, 2019	3,185,923	(36,095)	(140,209)	311,540		23,240	(1,371,932)	163,241	1,260,745		993,670		473,178	(766,238)	4,097,063
Profit for the period	-		-		-		-	-		-		-	622,538		40,320		78,222		-	741,080
Other comprehensive (loss)/income	-	(1,984)		-		-	(56,525)	(123,349)		-	(14,636)		-	2,808		-	(193,686)

Total comprehensive (loss)/income for the period	-	(1,984)		-		-	(56,525)	(123,349)		-	607,902		40,320		81,030		-	547,394
Transfer to statutory reserve	-		-		-		-	-		-	11,995	(11,995)		-	-		-	-
Transfer of gain on disposal of financial assets at fair value
through other comprehensive income to retained earnings	-	(1,696)		-		-	-		-		-	1,696		-	-		-	-
Vesting of shares under long-term incentive program	-		-	181,424	(242,631)	-		-		-		-	-	-		-	(61,207)
Deferred tax charge in relation to long-term incentive
program	-		-		-	(7,048)	-		-		-		-	-	-		-	(7,048)
Disposal of subsidiaries	-		-		-		-	-		-	(267)		-	-	-		-	(267)
Share-based compensation	-		-		-	192,675		-		-		-		-	-	-		-	192,675
Contribution to employee share trusts	-		-	(86,684)		-	-		-		-		-	-	-		-	(86,684)
Dividends paid	-		-		-		-	-		-		-	(431,148)		-	-		-	(431,148)
Capital contribution from other non-controlling interests	-		-		-		-	-		-		-		-	-	76,019		-	76,019
Change of ownership of subsidiaries without loss of control	-		-		-		-	-		-	1,673		-	-	(1,673)		-	-
Dividends paid to other non-controlling interests	-		-		-		-	-		-		-		-	-	(4,620)		-	(4,620)
Distribution to perpetual securities holders	-		-		-		-	-		-		-		-	(26,880)		-		-	(26,880)

At December 31, 2019	3,185,923	(39,775)		(45,469)	254,536		(33,285)	(1,495,281)	176,642	1,427,200		1,007,110		623,934	(766,238)		4,295,297


At April 1, 2018	3,185,923	(2,741)		(101,702)	231,857		(16,906)	(937,907)	71,449	1,088,647		993,670		246,598	(212,900)		4,545,988
Change in accounting policy	-	(17,376)			-		-	-		-		-	5,746		-	-		-	(11,630)

Restated total equity	3,185,923	(20,117)		(101,702)	231,857		(16,906)	(937,907)	71,449	1,094,393		993,670		246,598	(212,900)		4,534,358
Profit for the period	-		-		-		-	-		-		-	478,218		40,320		5,101		-	523,639
Other comprehensive (loss)/income	-	(6,074)			-		-	22,278	(490,951)		-	(2,322)		-	-		-	(477,069)

Total comprehensive (loss)/income for the period	-	(6,074)			-		-	22,278	(490,951)		-	475,896		40,320	5,101		-	46,570
Acquisition of subsidiaries	-		-		-		-	-		-		-		-	-	115,433		-	115,433
Vesting of shares under long-term incentive program	-		-	94,909	(105,694)		-		-		-		-	-	-		-	(10,785)
Deemed disposal of a subsidiary	-		-		-		-	-		-		-		-	-	(1,371)		-	(1,371)
Share-based compensation	-		-		-	155,643		-		-		-		-	-	-		-	155,643
Termination of put option written on non-controlling interests	-		-		-		-	-		-	11,913		-	-	-	212,900		224,813
Put option written on non-controlling interests	-		-		-		-	-		-		-		-	-	-	(703,341)		(703,341)
Contribution to employee share trusts	-		-	(88,878)		-	-		-		-		-	-	-		-	(88,878)
Dividends paid	-		-		-		-	-		-		-	(404,350)	-	-		-	(404,350)
Capital contribution from other non-controlling interests	-		-		-		-	-		-		-		-	-	33,521		-	33,521
Dividends paid to other non-controlling interests	-		-		-		-	-		-		-		-	-	(4,758)		-	(4,758)
Distribution to perpetual securities holders	-		-		-		-	-		-		-		-	(26,880)	-		-	(26,880)

At December 31, 2018	3,185,923	(26,191)		(95,671)	281,806		5,372	(1,428,858)	83,362	1,165,939		1,007,110		394,524	(703,341)		3,869,975

Notes

1 General information and basis of preparation

The financial information relating to the year ended March 31, 2019 included in the FY2019/20 third quarter results announcement as comparative information does not constitute the Company's statutory annual consolidated financial statements for that year but is derived from those financial statements. Further information relating to these statutory financial statements required to be disclosed in accordance with section 436 of the Hong Kong Companies Ordinance is as follows:

The Company has delivered the consolidated financial statements for the year ended March 31, 2019 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Hong Kong Companies Ordinance.

The Company's auditor has reported on those consolidated financial statements of the Group. The auditor's report was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report; and did not contain a statement under sections 406(2), 407(2) or (3) of the Hong Kong Companies Ordinance.

Basis of preparation

The financial information presented above and notes thereto are extracted from the Group's consolidated financial statements and presented in accordance with Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Board is responsible for the preparation of the Group's consolidated financial statements. The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards. The consolidated financial statements have been prepared under the historical cost convention except that certain financial assets and financial liabilities are stated at fair values.

The Group has adopted the following new standard, interpretation and amendments to existing standards that are mandatory for the year ending March 31, 2020 which the Group considers is appropriate and relevant to its operations:

HKFRS 16, Leases
HK (IFRIC) - Int 23, Uncertainty over income tax treatments
Amendments to HKFRS 9, Prepayment features with negative compensation
Amendments to HKAS 28, Long-term interests in associates and joint ventures
Amendments to HKAS 19, Plan amendment, curtailment or settlement
Annual improvements to HKFRS Standards 2015-2017 Cycle - various standards

Except for HKFRS 16, Leases, none of the developments have had a material effect on how the Group's results and financial position for the current or prior periods have been prepared or presented.

The Group has initially applied HKFRS 16 as from April 1, 2019. The Group has elected to use the simplified transition approach and therefore comparative information has not been restated and continues to be reported under HKAS 17, Leases. The reclassifications and the adjustments arising from the new leasing standard are recognized in the opening balance sheet on April 1, 2019.

HKFRS 16 requires almost all leases of lessees to be recognized on the balance sheet, as the distinction between operating and finance leases is removed. The accounting for lessors will not significantly change. Under the new leasing standard, the right to use the leased item and the obligation to pay rent are recognized as an asset and a financial liability respectively. The only exceptions are short-term and low-value leases. The standard affects primarily the accounting for operating leases of the Group.

Adjustments recognized on adoption on HKFRS 16

On adoption on HKFRS 16, the Group recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of HKAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee incremental borrowing rate as of April 1, 2019. Different lessee incremental borrowing rates were applied to the lease liabilities based on the geographical location, from 1% to 11%.

The following table reconciles the operating lease commitments as at March 31, 2019, as disclosed in Note 32(b) in the Group's 2018/19 Annual Report, to the opening balance for lease liabilities recognized as at April 1, 2019:

	April 1, 2019
		US$'000
Operating lease commitments at March 31, 2019	473,188
Discounted using the lessee incremental borrowing rate at April 1, 2019	(62,487)
Less: low-value leases recognized on a straight-line basis as expense	(1,357)

Lease liabilities recognized at April 1, 2019	409,344
Classified as:


Current lease liabilities	77,903
Non-current lease liabilities	331,441

	409,344

The associated right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the consolidated balance sheet as at March 31, 2019. As at December 31, 2019, the recognized right-of-use assets of the Group are solely related to properties and amounted to US$309,474,000 (April 1, 2019: US$320,174,000).

The Group presents right-of-use assets within "property, plant and equipment" and presents lease liabilities within "other payables and accruals" (for current portion) and "other non-current liabilities" (for non-current portion) in the consolidated balance sheet.

The change in accounting policy affected the following items in the consolidated balance sheet on April 1, 2019:

property, plant and equipment - increased by US$320,174,000
lease liabilities - increased by US$409,344,000
deferred rent liabilities - decreased by US$89,170,000

Segment assets and segment liabilities as at December 31, 2019 increased as a result of the change in accounting policy.

In applying HKFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
reliance on previous assessment on whether leases are onerous
the exclusion of initial direct costs for the measurement of the right-of-use asset at the dat e of initial application, and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group's leasing activities and how these are accounted for

Rental contracts of the Group are typically made for fixed periods of 1 to 9 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Until March 31, 2019, all leases of property, plant and equipment of the Group were operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From April 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives receivable
variable lease payment that are based on an index or a rate
amounts expected to be payable by the lessee under residual value guarantees
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Some property leases contain variable payment terms that are linked to sales generated from a store. There is a wide range of sales percentages applied. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established stores. Variable lease payments that depend on sales are recognized in profit or loss in the period in which the condition that triggers those payments occurs.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liabilities
any lease payments made at or before the commencement date less any lease incentives received
any initial direct costs, and
restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in the profit or loss account. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

New amendments to existing standards not yet effective

The following new amendments to existing standards, which are considered appropriate and relevant to the Group's operations, have been issued but are not effective for the year ending March 31, 2020 and have not been early adopted:

	Effective for annual periods
	beginning on or after
Amendments to HKFRS 3, Definition of a business	January 1, 2020
Amendments to HKAS 1 and HKAS 8, Definition of
material	January 1, 2020
Amendments to HKFRS 9, HKAS 39 and HKFRS 7, Interest
rate benchmark reform	January 1, 2020
Amendments to HKFRS 10 and HKAS 28, Consolidated
financial statements and investments in associates	Date to be determined

The Group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application. So far it has concluded that their adoption is unlikely to have a significant impact on the consolidated financial statements of the Group.

2 Segment information

Management has determined the operating segments based on the reports reviewed by the

Lenovo Executive Committee ("LEC"), the chief operating decision-maker, that are used to make strategic decisions.

The LEC assesses the performance of the operating segments based on a measure of pre-tax income/(loss). This measurement basis excludes the effects of non-recurring expenses such as restructuring costs from the operating segments. The measurement basis also excludes the effects of certain income and expenses such as fair value change of financial instruments and disposal gain/(loss) of fixed assets that are from activities driven by headquarters and centralized functions. Certain finance income and costs are not allocated to segments when these types of activities are driven by the central treasury function which manages the cash position of the Group.

Supplementary information on segment assets and liabilities presented below is primarily based on the business group of the entities or operations which carry the assets and liabilities, except for entities performing centralized functions for the Group the assets and liabilities of which are not allocated to any segment.

Segment revenue and pre-tax income/(loss) for reportable segments

			9 months ended		9 months ended
			December 31, 2019		December 31, 2018
			Revenue							Revenue
			from		Pre-tax			from	Pre-tax
			external		income/		external	income/
			customers		(loss)		customers	(loss)
			US$'000		US$'000		US$'000	US$'000
	IDG	35,849,817	1,835,835			34,554,496	1,380,305
	DCG	4,287,161	(149,716)	4,773,168	(178,051)

	Segment total	40,136,978	1,686,119			39,327,664	1,202,254


	Unallocated:
	Headquarters and corporate
	(expenses)/income - net			(503,272)							(470,212)
	Depreciation and amortization			(118,338)							(98,995)
	Finance income			19,526									1,285
	Finance costs			(176,453)							(91,510)
	Share of losses of associates and joint
	ventures			(11,107)							(5,886)
	Loss on disposal of property, plant and
	equipment			(726)							(817)
	Fair value gain on financial assets at fair
	value through profit or loss			49,435								99,137
	Fair value loss on a financial liability at
	fair value through profit or loss			(13,000)						-
	Gain on deemed disposal of a subsidiary	-								22,811
	Dilution gain on interest in an associate	-								18,121
	Gain on disposal of interest in an associate	3,922								-
	Dividend income			4,303								230

	Consolidated profit before taxation			940,409								676,418
(b)	Segment assets for reportable segments


						December 31, 2019		March 31, 2019
										US$'000				US$'000
	IDG			22,797,962				19,797,625
	DCG			5,214,283				4,094,194

	Segment assets for reportable segments			28,012,245				23,891,819
	Unallocated:
	Deferred income tax assets			2,040,620				1,862,902
	Financial assets at fair value through profit or loss						487,674				449,363
	Financial assets at fair value through other
	comprehensive income								66,813				71,486
	Derivative financial assets								25,248				70,972
	Interests in associates and joint ventures						63,746				79,061
	Bank deposits and cash and cash equivalents	3,585,998				2,733,064
	Unallocated deposits, prepayments and other
	receivables								202,285				166,874
	Income tax recoverable								187,580				185,643
	Other unallocated assets								354,135				477,301

	Total assets per consolidated balance sheet	35,026,344				29,988,485

Segment liabilities for reportable segments

	December 31, 2019		March 31, 2019
	US$'000		US$'000
IDG	22,321,610	19,045,230
DCG	2,009,259	1,456,268

Segment liabilities for reportable segments	24,330,869	20,501,498
Unallocated:
Deferred income tax liabilities	355,037	359,679
Derivative financial liabilities	85,609	74,426
Borrowings	4,817,222	4,379,813
Unallocated other payables and accruals	743,748	246,467
Unallocated provisions	-	1,336
Unallocated other non-current liabilities	41,325	29,979
Income tax payable	357,237	298,224

Total liabilities per consolidated balance sheet	30,731,047	25,891,422

Analysis of revenue by geography

		9 months ended	9 months ended
		December 31,	December 31,
	2019	2018
		US$'000	US$'000
China	8,854,350	9,929,812
AP	8,965,759	7,231,652
EMEA	9,478,596	9,567,406
AG	12,838,273	12,598,794

	40,136,978	39,327,664

Analysis of revenue by timing of revenue recognition

		9 months ended	9 months ended
		December 31,	December 31,
	2019	2018
		US$'000	US$'000
Point in time	39,177,055	38,589,717
Over time	959,923	737,947

	40,136,978	39,327,664

(f)	Other segment information
		IDG		DCG		Total
		2019		2018	2019		2018	2019	2018
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	For the nine months ended December 31
	Depreciation and amortization	408,696		340,321	176,234		155,226	584,930	495,547
	Finance income	15,863		16,088	2,454		102	18,317	16,190
	Finance costs	168,469		133,067	13,913		14,908	182,382	147,975
	Additions to non-current assets (Note)	612,731		703,115	208,929		71,779	821,660	774,894

Note: Excluding other non-current assets and including non-current assets acquired through acquisition of subsidiaries.

Included in segment assets for reportable segments are goodwill and trademarks and trade names with indefinite useful lives with an aggregate amount of US$6,167 million (March 31, 2019: US$6,211 million). The carrying amounts of goodwill and trademarks and trade names with indefinite useful lives are presented below:
At December 31, 2019

										Mature		Emerging
		China		AP	EMEA	AG	Market		Market		Total
	US$ million		US$ million	US$ million	US$ million	US$ million	US$ million		US$ million
Goodwill
- PCSD	1,025	691	219	318	-	-	2,253
- MBG	-	-		-		-	672	896	1,568
- DCG	479	159	89	350	-	-	1,077
Trademarks and trade names
- PCSD	209	59	104	67	-	-	439
- MBG	-	-		-		-	197	263	460
- DCG	162	54		31		123	-	-	370

At March 31, 2019

										Mature		Emerging
		China		AP	EMEA	AG	Market		Market		Total
	US$ million		US$ million	US$ million	US$ million	US$ million		US$ million		US$ million
Goodwill
- PCSD	1,051	679	221	320	-	-	2,271
- MBG	-	-		-		-	679	905	1,584
- DCG	490	158		88	351	-	-	1,087
Trademarks and trade names
- PCSD	209	59		104		67	-	-	439
- MBG	-	-		-		-	197	263	460
- DCG	162	54		31		123	-	-	370

The directors are of the view that there was no impairment of goodwill and trademarks and trade names based on impairment tests performed as at December 31, 2019 (March 31, 2019: Nil).

3 Operating profit

Operating profit is stated after charging/(crediting) the following:

	3 months ended	9 months ended	3 months ended	9 months ended
	December 31,	December 31,	December 31,	December 31,
	2019		2019		2018		2018
	US$'000	US$'000	US$'000	US$'000
Depreciation of property, plant and
equipment and amortization of prepaid
lease payments	69,983		207,884		75,248		219,504
Depreciation of right-of-use assets	26,083		75,128		-		-
Amortization of intangible assets	155,183		420,256		124,571		375,038
Employee benefit costs, including	1,108,987		3,271,969		1,015,040		2,961,493
- long-term incentive awards	68,978		192,675		56,017		155,643
Rental expenses under operating leases	3,396		11,435		30,109		101,883
Loss on disposal of property, plant and
equipment	642		1,348		668		3,124
Loss on disposal of intangible assets	50		1,066		694		694
Fair value (gain)/loss on financial assets
at fair value through profit or loss	(49,543)	(49,435)	5,270		(99,137)
Fair value loss on a financial liability at
fair value through profit or loss	10,000		13,000		-		-
Gain on disposal of subsidiaries	-		(12,844)	-		-
Gain on deemed disposal of a subsidiary	-		-		(22,811)	(22,811)
Dilution gain on interest in an associate	-		-		-		(18,121)
Gain on disposal of interest in an
associate	(3,922)	(3,922)	-		-

4	Finance income and costs
	(a)	Finance income
			3 months ended	9 months ended	3 months ended		9 months ended
			December 31,		December 31,	December 31,			December 31,
			2019		2019				2018	2018
			US$'000		US$'000	US$'000			US$'000
		Interest on bank deposits	11,694			31,463				4,527	15,279
		Interest on money market funds	1,675			6,380				1,474	2,196

			13,369			37,843				6,001	17,475
	(b)	Finance costs


			3 months ended		9 months ended	3 months ended		9 months ended
			December 31,		December 31,	December 31,			December 31,
			2019		2019			2018	2018
			US$'000		US$'000	US$'000			US$'000
		Interest on bank loans and
		overdrafts	20,321		67,933			23,760	70,644
		Interest on convertible bonds	9,898		29,618			-	-
		Interest on notes	21,785		68,993			32,464	92,262
		Interest on lease liabilities	4,534		12,496			-	-
		Factoring costs	44,202		158,353			24,623	67,250
		Interest on contingent
		consideration and written put
		option liabilities	6,636		19,900			4,355	7,379
		Others	219		1,542			703	1,950

			107,595		358,835			85,905	239,485

5 Taxation

The amount of taxation in the consolidated income statement represents:

	3 months ended	9 months ended	3 months ended	9 months ended
	December 31,	December 31,	December 31,	December 31,
	2019		2019		2018	2018
	US$'000	US$'000	US$'000	US$'000
Current tax
Hong Kong profits tax	26,351		57,335		8,995	17,760
Taxation outside Hong Kong	128,973		333,332		128,379	304,156
Deferred tax
Credit for the period	(70,595)	(191,338)	(51,886)	(169,137)

	84,729		199,329		85,488	152,779

Hong Kong profits tax has been provided for at the rate of 16.5% (2018/19: 16.5%) on the estimated assessable profit for the period. Taxation outside Hong Kong represents income and irrecoverable withholding taxes of subsidiaries operating in the Chinese Mainland and overseas, calculated at rates applicable in the respective jurisdictions.

6 Earnings per share

Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period after adjusting shares held by employee share trusts for the purposes of awarding shares to eligible employees under the long term incentive program.

	3 months ended	9 months ended	3 months ended	9 months ended
	December 31,	December 31,	December 31,	December 31,
	2019		2019		2018	2018
Weighted average number
of ordinary shares in issue	12,014,791,614		12,014,791,614		12,014,791,614	12,014,791,614
Adjustment for shares held
by employee share trusts	(57,160,242)	(90,663,388)	(116,286,458)	(121,645,000)
Weighted average number

of ordinary shares in issue
for calculation of basic
earnings per share	11,957,631,372		11,924,128,226		11,898,505,156	11,893,146,614


	US$'000	US$'000	US$'000	US$'000
Profit attributable to equity
holders of the Company	258,117		622,538		232,771	478,218

Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding due to the effect of all dilutive potential ordinary shares. The Company has three (2018/19: two) categories of dilutive potential ordinary shares, namely long-term incentive awards, bonus warrants and convertible bonds (2018/19: long-term incentive awards and bonus warrants). Long-term incentive awards were dilutive for the three months and nine months ended December 31, 2019 and 2018. Bonus warrants were dilutive for the three months and nine months ended December 31, 2019 and anti-dilutive for the three months and nine months ended December 31, 2018. Convertible bonds were dilutive for the three months and nine months ended December 31, 2019.

	3 months ended		9 months ended	3 months ended		9 months ended
	December 31,		December 31,	December 31,		December 31,
	2019	2019	2018	2018
Weighted average number of
ordinary shares in issue for
calculation of basic earnings	11,957,631,372	11,924,128,226	11,898,505,156	11,893,146,614
per share
Adjustment for long-term	193,424,497	283,411,890	253,804,385	38,371,004
incentive awards
Adjustment for bonus warrants	3,886,240	10,646,786	-	-
Adjustment for convertible	694,709,646	694,709,646	-	-
bonds
Weighted average number of

ordinary shares in issue for
calculation of diluted earnings	12,849,651,755	12,912,896,548	12,152,309,541	11,931,517,618
per share


	US$'000		US$'000	US$'000		US$'000
Profit attributable to equity
holders of the Company
used to determine basic	258,117	622,538		232,771	478,218
earnings per share
Adjustment for interest on	8,265	24,731		-	-
convertible bonds, net of tax
Profit attributable to equity

holders of the Company
used to determine diluted	266,382	647,269		232,771	478,218
earnings per share

The calculation of the diluted earnings per share amount is based on the profit attributable to ordinary equity holders of the Company, adjusted to reflect the impact from any dilutive potential ordinary shares, as appropriate. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

7 Ageing analysis

Customers are generally granted credit term ranging from 0 to 120 days. Ageing analysis of trade receivables of the Group at the balance sheet date, based on invoice date, is as follows:

	December 31, 2019	March 31, 2019
	US$'000	US$'000
0 - 30 days	6,237,230		4,560,771
31 - 60 days	1,880,846		1,332,471
61 - 90 days	612,601		430,207
Over 90 days	542,962		438,377

	9,273,639		6,761,826
Less: loss allowance	(114,433)	(100,342)

Trade receivables - net	9,159,206		6,661,484

Ageing analysis of trade payables of the Group at the balance sheet date, based on invoice date, is as follows:

	December 31, 2019	March 31, 2019
	US$'000		US$'000
0 - 30 days	5,218,182	4,279,000
31 - 60 days	2,076,885	1,046,525
61 - 90 days	932,475	757,718
Over 90 days	438,277	346,592

	8,665,819	6,429,835

8 Deposits, prepayments and other receivables

Details of deposits, prepayments and other receivables are as follows:

	December 31, 2019	March 31, 2019
	US$'000		US$'000
Deposits	15,427	14,632
Other receivables	3,132,513	2,587,439
Prepayments	1,258,427	1,151,855

	4,406,367	3,753,926

Other receivables mainly comprise amounts due from subcontractors for components sold in the ordinary course of business.

9	Provisions, other payables and accruals
	(a)	Details of other payables and accruals are as follows:
			December 31, 2019	March 31, 2019
			US$'000		US$'000
		Accruals	2,318,150	1,969,914
		Allowance for billing adjustments (i)	2,064,570	1,650,226
		Contingent consideration (Note 10(a))	116,824	-
		Other payables (ii)	6,068,314	5,322,196

			10,567,858	8,942,336

Notes:

1. Allowance for billing adjustments relates primarily to allowances for future volume discounts, price protection, rebates, and customer sales returns.
2. Majority of other payables are obligations to pay for finished goods that have been acquired in the ordinary course of business from subcontractors.
3. The carrying amounts of other payables and accruals approximate their fair values.
The components of provisions are as follows:

				Environmental
	Warranty		restoration		Restructuring	Total
	US$'000		US$'000		US$'000	US$'000
Year ended March 31, 2019
At the beginning of the year	1,081,218		8,919		54,053			1,144,190
Exchange adjustment	(37,163)	(274)	(1,991)	(39,428)
Provisions made	807,636		14,545		-			822,181
Amounts utilized	(875,413)	(14,403)	(36,576)	(926,392)
Acquisition of subsidiaries	-		24,510		-			24,510

	976,278		33,297		15,486			1,025,061
Long-term portion classified as
non-current liabilities	(254,601)	(31,772)	-			(286,373)

At the end of the year	721,677		1,525		15,486			738,688
Period ended December 31, 2019


At the beginning of the period	976,278		33,297		15,486		1,025,061
Exchange adjustment	(7,242)	655		(91)	(6,678)
Provisions made	643,494		14,673		-			658,167
Amounts utilized	(587,913)	(13,699)	(15,395)	(617,007)

	1,024,617		34,926		-			1,059,543
Long-term portion classified as non-
current liabilities	(268,036)	(32,787)	-			(300,823)

At the end of the period	756,581		2,139		-			758,720

The Group records its warranty liability at the time of sales based on estimated costs. Warranty claims are reasonably predictable based on historical failure rate information. The warranty accrual is reviewed quarterly to verify it properly reflects the outstanding obligation over the warranty period. Certain of these costs are reimbursable from the suppliers in accordance with the terms of relevant arrangements with them.

The Group records its environmental restoration provision at the time of sales based on estimated costs of environmentally-sound disposal of waste electrical and electronic equipment upon return from end-customers and with reference to the historical or projected future return rate. The environmental restoration provision is reviewed at least annually to assess its adequacy to meet the Group's obligation.

Restructuring costs provision mainly comprises lease termination obligations and employee termination payments, arising from a series of restructuring actions to reduce costs and enhance operational efficiency. The Group records its restructuring costs provision when it has a present legal or constructive obligation as a result of restructuring actions.

10 Other non-current liabilities

Details of other non-current liabilities are as follows:

	December 31, 2019		March 31, 2019
	US$'000		US$'000
Contingent consideration (a)	-	113,283
Deferred consideration (a)	25,072	25,072
Written put option liabilities (b)	802,020	783,505
Lease liabilities	345,242	-
Environmental restoration (Note 9(b))	32,787	31,772
Government incentives and grants received in advance (c)	49,667	50,087
Deferred rent liabilities	-	83,977
Others	165,211	159,950

	1,419,999	1,247,646

Pursuant to the completion of business combinations, the Group is required to pay in cash to the then respective sellers' contingent consideration with reference to certain performance indicators as written in the respective agreements with the sellers; and deferred consideration. Accordingly, current and non-current liabilities in respect of the fair value of contingent consideration and present value of deferred consideration have been recognized. The contingent consideration is subsequently re-measured at its fair values as a result of change in the expected performance at each balance sheet date, with any resulting gain or loss recognized in the consolidated income statement. Deferred consideration is subsequently carried at amortized cost.
During the period, the contingent consideration to Fujitsu Limited ("Fujitsu") has been reclassified to current liabilities as it will fall due in May 2020. As at December 31, 2019, the potential undiscounted amounts of future payments in respect of the contingent and deferred considerations that the Group could be required to make to the then respective sellers under such arrangements are as follows:

Joint venture with NEC Corporation	US$25 million
Fujitsu	JPY2.55 billion to JPY12.75 billion

(i) Pursuant to the joint venture agreement entered into between the Company and Fujitsu, the Company and Fujitsu are respectively granted call and put options which entitle the Company to purchase from Fujitsu and Development Bank of
1. Japan ("DBJ"), or Fujitsu and DBJ to sell to the Company, the 49% interest in Fujitsu Client Computing Limited and its subsidiary, Shimane Fujitsu Limited
  (together "FCCL"). Both options will be exercisable following the fifth anniversary of the date of completion. The exercise price for the call and put options will be determined based on the fair value of the 49% interest as of the day of exercising the option. FCCL will pay to its shareholders by way of dividends in their respective shareholding proportion in a range of FCCL's profits available for distribution under applicable law in respect of each financial year during the term of the joint venture agreement, after making transfers to reserves and provisions.
2. During the year ended March 31, 2019, Hefei Zhi Ju Sheng Bao Equity

Investment Co., Ltd ("ZJSB") acquired the 49% interest in a joint venture company ("JV Co") from Compal Electronics, Inc. The Company and ZJSB respectively own 51% and 49% of the interest in the JV Co. Pursuant to the option agreement entered into between a wholly owned subsidiary of the Group and Hefei Yuan Jia Start-up Investment LLP ("Yuan Jia"), which holds 99.31% interest in ZJSB, the Group and Yuan Jia are respectively granted call and put options which entitle the Group to purchase from Yuan Jia, or Yuan Jia to sell to the Group, the 99.31% interest in ZJSB. The call and put options will be exercisable at any time after August 31, 2022 and August 31, 2021 respectively. The exercise price for the call and put options will be determined in accordance with the joint venture agreement, and up to a maximum of RMB2,300 million (approximately US$330 million).

The financial liability that may become payable under the put option and dividend requirement is initially recognized at present value of redemption amount within other non-current liabilities with a corresponding charge directly to equity, as a put option written on non-controlling interest.

The put option liability shall be re-measured as a result of the change in the expected performance at each balance sheet date, with any resulting gain or loss recognized in the consolidated income statement. In the event that the put option lapses unexercised, the liability will be derecognized with a corresponding adjustment to equity.

Government incentives and grants received in advance by certain group companies included in other non-current liabilities are mainly related to research and development projects and construction of property, plant and equipment. These Group companies are obliged to fulfill certain conditions under the terms of the government incentives and grants. The government incentive and grants are credited to the income statement upon fulfillment of those conditions and on a straight line basis over the expected life of the related assets respectively.

11	Borrowings
		December 31, 2019	March 31, 2019
		US$'000		US$'000
	Current liabilities
	Short-term loans (i)	2,089,894	1,166,907
	Note (ii)	574,190	786,136

		2,664,084	1,953,043
	Non-current liabilities

	Notes (ii)	1,243,155	1,836,264
	Convertible bonds (iii)	602,983	590,506
	Convertible preferred shares (iv)	307,000	-

		2,153,138	2,426,770

		4,817,222	4,379,813

The majority of the short-term bank loans are denominated in United States dollars. As at December 31, 2019, the Group has total revolving and short-term loan facilities of US$2,735 million (March 31, 2019: US$2,501 million) which has been utilized to the extent of US$2,101 million (March 31, 2019: US$1,181 million).

(ii)			Interest rate		December 31, 2019	March 31, 2019
Issue date	Principal amount	Term	per annum	Due date		US$'000	US$'000
May 8, 2014	US$786 million	5 years	4.7%	May 2019	-	786,136
June 10, 2015	RMB4 billion	5 years	4.95%	June 2020	574,190	594,747
March 16, 2017	US$500 million	5 years	3.875%	March 2022	498,013	497,391
March 29, 2018	US$750 million	5 years	4.75%	March 2023	745,142	744,126

					1,817,345	2,622,400

On January 24, 2019, the Company completed the issuance of 5-Year US$675 million convertible bonds bearing annual interest at 3.375% due in January 2024 ("the Bonds") to third party professional investors ("the bondholders"). The bondholders have the right, at any time on or after 41 days after the date of issue up to the 10th day prior to the maturity date, to convert part or all of the outstanding principal amount of the Bonds into ordinary shares of the Company at a conversion price of HK$7.99 per share, subject to adjustments. The conversion price was adjusted to HK$7.62 per share effective on November 30, 2019.
The outstanding principal amount of the Bonds is repayable by the Company upon the maturity of the Bonds on January 24, 2024, if not previously redeemed, converted or purchased and cancelled. The proceeds would be used to repay previous notes and for general corporate purposes. Assuming full conversion of the Bonds at the adjusted conversion price of HK$7.62 per share, the Bonds will be convertible into 694,709,646 shares. The Group expects that it will be able to meet its redemption obligations based on the financial position of the Group.
The initial fair value of the liability portion of the bond was determined using a market interest rate for an equivalent non-convertible bond at the issue date. The liability is subsequently recognized on an amortized cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognized in shareholders' equity, net of income tax, and not subsequently remeasured.
On June 21, 2019, the Group completed the issuance of 2,054,791 convertible preferred shares through its wholly owned subsidiary, Lenovo Enterprise Technology Company
Limited ("LETCL").

The convertible preferred shares are convertible to 20% of the enlarged issued ordinary share capital of LETCL on an as-converted and fully-diluted basis. The holders of the convertible preferred shares will be entitled cash dividends of 4% per annum payable semi-annually on the original subscription price until December 31, 2023. Upon the occurrence of certain specified conditions, the holders of convertible preferred shares will have the right to require LETCL to redeem or the Company to purchase all of their convertible preferred shares at the predetermined consideration. Accordingly, the convertible preferred shares are classified as a financial liability.

The aggregated subscription price of convertible preferred shares is approximately US$300 million. The net proceeds from the issuance will be used by LETCL and its subsidiaries towards general corporate funding and capital expenditure of LETCL and its subsidiaries.

The Group expects that it will be able to meet its redemption obligations based on the financial position of the Group.

The exposure of all the borrowings of the Group to interest rate changes and the contractual repricing dates as at December 31, 2019 and March 31, 2019 are as follows:

	December 31, 2019		March 31, 2019
	US$'000		US$'000
Within 1 year	2,664,084	1,953,043
Over 1 to 3 years	498,013	1,092,138
Over 3 to 5 years	1,655,125	1,334,632

	4,817,222	4,379,813

12	Share capital
		December 31, 2019		March 31, 2019
		Number of		US$'000	Number of	US$'000
		Shares			shares
	Issued and fully paid:
	Voting ordinary shares:
	At the beginning and end of the
	period/year	12,014,791,614	3,185,923	12,014,791,614		3,185,923

13 Perpetual securities

In March 2017, the Group issued a total of US$850 million perpetual securities through its wholly owned subsidiary, Lenovo Perpetual Securities Limited ("the issuer"). The net proceeds amounted to approximately US$842 million. The securities are perpetual, non-callable in the first 5 years and entitle the holders to receive distributions at a distribution rate of 5.375% per annum in the first 5 years, floating thereafter and with a fixed step up margin, payable semi- annually in arrears, cumulative and compounding. As the perpetual securities do not contain any contractual obligation to pay cash or other financial assets pursuant to the terms and conditions of the issue; in accordance with HKAS 32, they are classified as equity and for accounting purpose regarded as part of non-controlling interests.

In April 2017, the Group issued an additional US$150 million perpetual securities under the same terms, which are fungible with and form a single series with the aforementioned US$850 million perpetual securities.

14 Reconciliation of profit before taxation to net cash generated from operations

	9 months ended	9 months ended
	December 31,	December 31,
	2019	2018
	US$'000	US$'000
Profit before taxation	940,409	676,418
Share of losses of associates and joint ventures	11,107	5,886
Finance income	(37,843)	(17,475)
Finance costs	358,835	239,486
Depreciation of property, plant and equipment and amortization
of prepaid lease payments	207,884	219,504
Depreciation of right-of-use assets	75,128	-
Amortization of intangible assets	420,256	375,038
Share-based compensation	192,675	155,643
Loss on disposal of property, plant and equipment	1,348	3,124
Loss on disposal of intangible assets	1,066	694
Gain on disposal of subsidiaries	(12,844)	-
Gain on deemed disposal of a subsidiary	-	(22,811)
Gain on disposal of interest in an associate	(3,922)	-
Dilution gain on interest in an associate	-	(18,121)
Fair value change on bonus warrants	(15,869)	3,541
Fair value change on financial instruments	16,252	6,259
Fair value change on financial assets at fair value through profit
or loss	(49,435)	(99,137)
Fair value change on a financial liability at fair value through
profit or loss	13,000	-
Dividend income	(6,206)	(230)
(Increase)/decrease in inventories	(577,613)	139,030
Increase in trade receivables, notes receivable, deposits,
prepayments and other receivables	(3,142,649)	(785,491)
Increase in trade payables, notes payable, provisions,
other payables and accruals	3,967,285	1,410,171
Effect of foreign exchange rate changes	73,904	79,068
			───────────

Net cash generated from operations	2,432,768	2,370,597

Reconciliation of financing liabilities

This section sets out an analysis of financing liabilities and the movements in financing liabilities for the period presented.

						December 31, 2019	March 31, 2019
Financing liabilities						US$'000			US$'000
Short-term loans - current				2,089,894		1,166,907
Note - current						574,190		786,136
Notes - non-current						1,243,155		1,836,264
Convertible bonds - non-current				602,983		590,506
Convertible preferred shares - non-current			307,000		-
Lease liabilities - current				87,347		-
Lease liabilities - non-current				345,242		-
						──────────────	───────────
							5,249,811		4,379,813
Short-term loans - variable interest rates			2,072,655		1,166,907
Short-term loans - fixed interest rates			17,239		-
Notes - fixed interest rates				1,817,345		2,622,400
Convertible bonds - fixed interest rates			602,983		590,506
Convertible preferred shares - fair value			307,000		-
Lease liabilities - fixed interest rates			432,589		-
						──────────────	───────────
							5,249,811		4,379,813
							Convertible
		Short-			Convertible	preferred		Lease
		term		Notes	bonds	shares	Lease	liabilities
		loans	Note	non-	non-	non-	liabilities	non-
		current	current	current	current	current	current	current		Total
		US$'000 US$'000	US$'000	US$'000	US$'000	US$'000	US$'000		US$'000
Financing liabilities as at
April 1, 2018	1,166,692		-	2,648,725	-	-	-	-	3,815,417
Proceeds from borrowings	5,700,215		-	-	-	-	-	-	5,700,215
Repayments of borrowings	(5,700,000)	-	-	-	-	-	-	(5,700,000)
Transfer	-		774,341	(774,341)	-	-	-	-	-
Issue of convertible bonds	-		-	-	675,000	-	-	-	675,000
Issuing cost of convertible
bonds	-		-	-	(10,107)	-	-	-	(10,107)
Foreign exchange
adjustments	-		-	(41,014)	-	-	-	-	(41,014)
Other non-cash movements	-		11,795	2,894	(74,387)	-	-	-	(59,698)
Financing liabilities as at

March 31, 2019	1,166,907		786,136	1,836,264	590,506	-	-	-	4,379,813
Financing liabilities as at
April 1, 2019	1,166,907		786,136	1,836,264	590,506	-	-	-	4,379,813
Change in accounting
policy	-		-	-	-	-	77,903	331,441	409,344
Proceeds from borrowings	3,046,800		-	-	-	-	-	-	3,046,800
Repayments of borrowings	(2,143,800)	(786,244)	-	-	-	-	-	(2,930,044)
Transfer	-		581,389	(581,389)	-	-	51,424	(51,424)	-
Issue of convertible
preferred shares	-		-	-	-	300,000	-	-	300,000
Principal elements of lease
payments	-		-	-	-	-	(98,590)	-	(98,590)
Foreign exchange
adjustments	-		(7,639)	(13,548)	-	-	-	-	(21,187)
Other non-cash movements	19,987		548	1,828	12,477	7,000	56,610	65,225	163,675

Financing liabilities as at
December 31, 2019	2,089,894		574,190	1,243,155	602,983	307,000	87,347	345,242	5,249,811

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the nine months ended December 31, 2019, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities, except that the respective trustee of the long-term incentive program and the employee share purchase plan of the Company purchased a total of 124,448,639 shares from the market for award to employees upon vesting. Details of these program and plan are set out in the 2019/20 interim report of the Company.

REVIEW BY AUDIT COMMITTEE

The Audit Committee of the Company has been established since 1999 with the responsibility to assist the Board in providing an independent review of the financial statements, risk management and internal control systems. It acts in accordance with its terms of reference which clearly deal with its membership, authority, duties and frequency of meetings. Currently, the Audit Committee is chaired by an independent non-executive director, Mr. Nicholas C. Allen, and comprises four members including Mr. Nicholas C. Allen and the other three independent non-executive directors, Mr. William Tudor Brown, Mr. Gordon Robert Halyburton Orr and Mr. Woo Chin Wan Raymond.

The Audit Committee of the Company has reviewed the unaudited financial results of the Group for the nine months ended December 31, 2019. It meets regularly with the management, the external auditor and the internal audit personnel to discuss the accounting principles and practices adopted by the Group and internal control and financial reporting matters.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

None of the directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not during the nine months ended December 31, 2019, in compliance with the code provisions of the Corporate Governance Code and Corporate Governance Report (the "CG Code") as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, with the exception that the roles of the chairman of the Board (the "Chairman") and the chief executive officer of the Company (the "CEO") have not been segregated as required by code provision A.2.1 of the CG Code.

The Board has reviewed the organization human resources planning of the Company and is of the opinion that it is appropriate and in the best interests of the Company at the present stage for Mr. Yang Yuanqing ("Mr. Yang") to continue to hold both the positions as it would help to maintain the continuity of the strategy execution and stability of the operations of the Company. The Board comprising a vast majority of independent non-executive directors meets regularly on a quarterly basis to review the operations of the Company led by Mr. Yang.

The Board also appointed Mr. William O. Grabe as the lead independent director (the "Lead Independent Director") with broad authority and responsibility. Among other responsibilities, the Lead Independent Director serves as Chair of the Nomination and Governance Committee meeting and/or Board meeting whenever the Committee and/or Board is considering (i) the combined roles of Chairman and CEO; and

assessment of the performance of Chairman and/or CEO. The Lead Independent Director also calls and chairs meeting(s) with all independent non-executive directors without management and executive director present at least once a year on such matters as are deemed appropriate. Accordingly, the Board believes that the current Board structure with combined roles of Chairman and CEO, the appointment of Lead Independent Director and a vast majority of independent non-executive directors provide an effective balance on power and authorizations between the Board and the management of the Company.

By Order of the Board

Yang Yuanqing

Chairman and

Chief Executive Officer

February 20, 2020

As at the date of this announcement, the executive director is Mr. Yang Yuanqing; the non-executive directors are Mr. Zhu Linan and Mr. Zhao John Huan; and the independent non-executive directors are Mr. Nicholas C. Allen, Mr. Nobuyuki Idei, Mr. William O. Grabe, Mr. William Tudor Brown, Mr. Yang Chih-Yuan Jerry, Mr. Gordon Robert Halyburton Orr and Mr. Woo Chin Wan Raymond.

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Lenovo Group Limited published this content on 20 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 February 2020 04:06:02 UTC

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