Journey from PC to PC[+] 2012/13 Interim Report Lenovo Group Limited

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Stock Code: 992

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REDEFINING PC INNOVATION

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Lenovo, the Lenovo logo, ThinkPad, ThinkCentre, ThinkServer, IdeaPad, IdeaCentre, IdeaTab, Yoga, Twist,
and “For Those Who Do.” are trademarks of Lenovo in the United States, other countries, or both.
© 2012 Lenovo.
IdeaCentre A720
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PC[+] EVOLUTION ACROSS FOUR SCREENS

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CONSOLIDATED INCOME STATEMENT

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
(unaudited) (unaudited) (unaudited) (unaudited)
Note US$’000 US$’000 US$’000 US$’000
Revenue 2 8,672,601 16,682,297 7,786,386 13,706,302
Cost of sales (7,622,321) (14,673,134) (6,838,554) (12,019,973)
Gross profit 1,050,280 2,009,163 947,832 1,686,329
Other income/(loss) – net 3 269 (47) – –
Selling and distribution expenses (489,285) (935,186) (458,489) (808,035)
Administrative expenses (198,477) (392,161) (197,351) (371,067)
Research and development expenses (152,824) (288,265) (118,795) (196,316)
Other operating expense – net (4,332) (6,049) (7,108) (21,758)
Operating profit 4 205,631 387,455 166,089 289,153
Finance income 5(a) 10,365 21,995 10,206 19,138
Finance costs 5(b) (11,517) (19,641) (11,343) (19,539)
Share of losses of associates
and jointly controlled entities (654) (736) (90) (397)
Profit before taxation 203,825 389,073 164,862 288,355
Taxation 6 (40,938) (81,750) (20,191) (34,889)
Profit for the period 162,887 307,323 144,671 253,466
Profit attributable to:
Equity holders of the Company 162,047 303,414 143,919 252,715
Non-controlling interests 840 3,909 752 751
162,887 307,323 144,671 253,466
Earnings per share attributable to
equity holders of the Company
Basic 7(a) US 1.58 cents US 2.95 cents US 1.41 cents US 2.53 cents
Diluted 7(b) US 1.55 cents US 2.89 cents US 1.38 cents US 2.46 cents
Dividend 8 59,930 50,473
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2012/13 Interim Report Lenovo Group Limited

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
(unaudited) (unaudited) (unaudited) (unaudited)
US$’000 US$’000 US$’000 US$’000
Profit for the period 162,887 307,323 144,671 253,466
Other comprehensive (loss)/income:
Fair value change on available-for-sale financial assets,
net of taxes (1,507) (7,317) (35,000) (52,146)
Fair value change on cash flow hedges
– Interest rate swap contracts
Fair value loss, net of taxes – – (154) (699)
Reclassified to consolidated income statement – – 508 984
– Forward foreign exchange contracts
Fair value (loss)/gain, net of taxes (53,409) (36,017) 32,414 64,577
Reclassified to consolidated income statement 1,467 (16,515) 6,114 (17,606)
Actuarial loss from defined benefit pension plans,
net of taxes – (324) (318) (318)
Currency translation differences 24,229 (24,397) (31,224) (22,069)
(29,220) (84,570) (27,660) (27,277)
Total comprehensive income for the period 133,667 222,753 117,011 226,189
Total comprehensive income attributable to:
Equity holders of the Company 132,827 218,844 119,852 229,031
Non-controlling interests 840 3,909 (2,841) (2,842)
133,667 222,753 117,011 226,189
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2012/13 Interim Report Lenovo Group Limited

CONSOLIDATED BALANCE SHEET

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September 30, March 31,
2012 2012
(unaudited) (audited)
Note US$’000 US$’000
Non-current assets
Property, plant and equipment 9 398,562 392,474
Prepaid lease payments 32,456 13,552
Construction-in-progress 178,949 103,986
Intangible assets 9 3,085,554 3,091,205
Interests in associates and jointly controlled entities 3,080 3,410
Deferred income tax assets 9 349,265 332,493
Available-for-sale financial assets 68,748 71,946
Other non-current assets 37,070 31,282
4,153,684 4,040,348
Current assets
Inventories 1,539,765 1,218,494
Trade receivables 10(a) 2,880,241 2,354,909
Notes receivable 771,198 639,331
Derivative financial assets 39,932 62,883
Deposits, prepayments and other receivables 11 3,382,149 3,303,053
Income tax recoverable 70,004 70,406
Bank deposits 421,899 413,672
Cash and cash equivalents 3,453,405 3,757,652
12,558,593 11,820,400
Total assets 16,712,277 15,860,748
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2012/13 Interim Report Lenovo Group Limited

CONSOLIDATED BALANCE SHEET (continued)

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September 30, March 31,
2012 2012
(unaudited) (audited)
Note US$’000 US$’000
Share capital 14 32,969 33,131
Reserves 2,335,658 2,328,104
Equity attributable to owners of the Company 2,368,627 2,361,235
Non-controlling interests 15 237,643 86,734
–
Put option written on non-controlling interest 13(c) (212,900)
Total equity 2,393,370 2,447,969
Non-current liabilities
–
Bank borrowings 300,000
Warranty provision 12(a) 288,801 291,111
Deferred revenue 415,431 381,593
Retirement benefit obligations 211,481 204,818
Deferred income tax liabilities 88,917 83,594
Other non-current liabilities 13 936,975 641,986
2,241,605 1,603,102
Current liabilities
Trade payables 10(b) 4,103,311 4,050,272
Notes payable 91,237 127,315
Derivative financial liabilities 98,765 49,253
Provisions, accruals and other payables 12 7,312,076 7,074,196
Deferred revenue 363,318 310,159
Income tax payable 84,232 135,530
Bank borrowings 24,363 62,952
12,077,302 11,809,677
Total liabilities 14,318,907 13,412,779
Total equity and liabilities 16,712,277 15,860,748
Net current assets 481,291 10,723
Total assets less current liabilities 4,634,975 4,051,071
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6 2012/13 Interim Report Lenovo Group Limited

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CONDENSED CONSOLIDATED CASH FLOW STATEMENT

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6 months ended 6 months ended
September 30, September 30,
2012 2011
(unaudited) (unaudited)
US$’000 US$’000
Net cash (used in)/generated from operating activities (190,476) 1,546,374
Net cash used in investing activities (175,523) (270,721)
Net cash generated from/(used in) financing activities 68,953 (74,319)
(Decrease)/increase in cash and cash equivalents (297,046) 1,201,334
Effect of foreign exchange rate changes (7,201) 13,367
Cash and cash equivalents at the beginning of the period 3,757,652 2,954,498
Cash and cash equivalents at the end of the period 3,453,405 4,169,199
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2012/13 Interim Report Lenovo Group Limited

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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Attributable to equity holders of the Company
Put option
Share- written
Investment Share based Non- on non-
Share Share revaluation redemption Employee compensation Hedging Exchange Other Retained controlling controlling
capital premium reserve reserve share trusts reserve reserve reserve reserve earnings interests interest Total
(unaudited) (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 US$’000
At April 1, 2012 33,131 1,584,522 20,137 1,003 (27,858) 53,078 15,307 (48,248) 100,848 629,315 86,734 – 2,447,969
Profit for the period – – – – – – – – – 303,414 3,909 – 307,323
Other comprehensive loss – – (7,317) – – – (52,532) (24,397) – (324) – – (84,570)
Total comprehensive (loss)/income
for the period – – (7,317) – – – (52,532) (24,397) – 303,090 3,909 – 222,753
Contribution from non-controlling
interest (Note 15) – – – – – – – – – – 147,000 – 147,000
Put option written on non-
controlling interest (Note 13(c)) – – – – – – – – – – – (212,900) (212,900)
Transfer to statutory reserve – – – – – – – – 164 (164) – – –
Exercise of share options 23 2,154 – – – – – – – – – – 2,177
Dividend paid – – – – – – – – – (139,478) – – (139,478)
Repurchase of shares (185) (44,122) – 185 – – – – – – – – (44,122)
Vesting of shares under
long-term incentive program – – – – 16,463 (25,036) – – – – – – (8,573)
Share-based compensation – – – – – 38,579 – – – – – – 38,579
Contribution to employee
share trust – – – – (60,035) – – – – – – – (60,035)
At September 30, 2012 32,969 1,542,554 12,820 1,188 (71,430) 66,621 (37,225) (72,645) 101,012 792,763 237,643 (212,900) 2,393,370
At April 1, 2011 31,941 1,377,529 56,474 1,003 (76,110) 63,280 (18,583) (1,523) 58,236 342,474 179 – 1,834,900
Profit for the period – – – – – – – – – 252,715 751 – 253,466
Other comprehensive
(loss)/income – – (52,146) – – – 47,053 (18,273) – (318) (3,593) – (27,277)
Total comprehensive
(loss)/income for the period – – (52,146) – – – 47,053 (18,273) – 252,397 (2,842) – 226,189
Consideration for acquisition – – – – – – – – 36,555 – – – 36,555
Acquisition of subsidiaries – – – – – – – – – – 73,881 – 73,881
Transfer to statutory reserve – – – – – – – – 5,274 (5,274) – – –
Issue of ordinary shares 1,088 196,206 – – – – – – – – – – 197,294
Dividend paid – – – – – – – – – (65,021) – – (65,021)
Exercise of share options 54 6,098 – – – – – – – – – – 6,152
Vesting of shares under
long-term incentive program – – – – 11,364 (15,545) – – – – – – (4,181)
Share-based compensation – – – – – 34,512 – – – – – – 34,512
At September 30, 2011 33,083 1,579,833 4,328 1,003 (64,746) 82,247 28,470 (19,796) 100,065 524,576 71,218 – 2,340,281
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8 2012/13 Interim Report Lenovo Group Limited

Notes

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1 Basis of preparation

The Board is responsible for the preparation of the Group’s condensed interim financial statements. The condensed interim financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The condensed interim financial statements have been prepared under the historical cost convention except that certain financial assets and financial liabilities are stated at fair values. The condensed interim financial statements should be read in conjunction with the 2011/12 annual financial statements.

The Group has adopted the Amendments to HKFRS 7 “Financial instruments: Disclosures – Transfers to financial assets” that are mandatory for the year ending March 31, 2013 and considered appropriate and relevant to its operations. The adoption of this newly effective amendment does not result in substantial changes to the Group’s accounting policies or financial results.

The following new and revised standards and amendments to existing standards have been issued but are not effective for the year ending March 31, 2013 and have not been early adopted:

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Effective for
annual periods
beginning on
or after
HKAS 19 (2011), Employee benefits January 1, 2013
HKAS 27 (2011), Separate financial statements January 1, 2013
HKAS 28 (2011), Investments in associates and joint ventures January 1, 2013
HKFRS 9, Financial instruments January 1, 2015
HKFRS 10, Consolidated financial statements January 1, 2013
HKFRS 11, Joint arrangements January 1, 2013
HKFRS 12, Disclosure of interests in other entities January 1, 2013
HKFRS 13, Fair value measurement January 1, 2013
Amendments to HKAS 1 (Revised), Presentation of items of other comprehensive income July 1, 2012
Amendments to HKAS 32, Financial instruments:
Presentation – Offsetting financial assets and financial liabilities January 1, 2014
Amendments to HKFRS 7, Financial instruments:
Disclosures – Offsetting financial assets and financial liabilities January 1, 2013
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The Group is currently assessing the impact of the adoption of these new and revised standards and amendments to existing standards to the Group in future periods. So far, it has concluded that the adoption of the above does not have material impact on the Group’s financial statements.

2 Segment information

The Group announced a new organizational structure that became effective in April 2012 with the creation of new reporting business units based upon geographic efficiencies, cost savings and customer value, namely China, Asia-Pacific/ Latin America (“APLA”), Europe-Middle East-Africa (“EMEA”) and North America. The Group’s original market structure had achieved rapid business growth through the alignment of its strategic direction and business acquisition. The new geographical structure is created in recognition that the Group’s continued success depends on staying as close to its customers as possible, and will help ensuring the Group remains in the strongest position to execute its worldwide strategy going forward.

In addition to the adoption of the new structure, the Group reviewed the shared segment expenses and identified those costs that are more geographic oriented, and with effect from the current fiscal year, the cost allocation was changed from a flat rate basis with reference to revenue contribution to a combination of actual usage and revenue contribution basis. The new basis provides a better reflection of the segment operating results for management’s assessment of the business. The comparative segment information has been reclassified to conform to the presentation of the current organizational structure and allocation basis.

Management has determined the operating segments based on the reports reviewed by the Lenovo Executive Committee (the “LEC”), the chief operating decision-maker, that are used to make strategic decisions.

The LEC considers business from a geographical perspective. The Group has four geographical segments, China, APLA, EMEA and North America, which are also the Group’s reportable operating segments.

2012/13 Interim Report Lenovo Group Limited

Notes (continued)

2 Segment information (continued)

The LEC assesses the performance of the operating segments based on a measure of adjusted pre-tax income/(loss). This measurement basis excludes the effects of non-recurring expenditure such as restructuring costs from the operating segments. The measurement basis also excludes the effects of unrealized gains/(losses) on financial instruments. Certain interest income and expenditure are not allocated to segments, as this type of activity is 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 geographical location 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.

(a) Segment revenue and adjusted pre-tax income for reportable segments

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6 months ended 6 months ended
September 30, 2012 September 30, 2011
Revenue from Adjusted Revenue from Adjusted
external pre-tax external pre-tax
customers income customers income
US$’000 US$’000 US$’000 US$’000
China 7,342,287 332,929 6,011,091 302,602
APLA 3,549,739 15,424 2,866,805 3,695
EMEA 3,377,731 58,805 2,576,402 26,009
North America 2,412,540 90,458 2,252,004 90,445
Segment total 16,682,297 497,616 13,706,302 422,751
Unallocated:
Headquarters and corporate expenses (115,080) (139,828)
Restructuring costs (22) 800
Finance income 18,680 13,378
Finance costs (11,338) (8,349)
Net loss on disposal of an available-for-sale
financial asset (316) –
Dividend income from an available-for-sale
financial asset 269 –
Share of losses of associates and jointly
controlled entities (736) (397)
Consolidated profit before taxation 389,073 288,355
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10 2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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2 Segment information (continued)

(b) Segment assets for reportable segments

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September 30, March 31,
2012 2012
US$’000 US$’000
China 5,103,186 4,580,746
APLA 3,045,146 3,036,960
EMEA 2,149,064 2,096,253
North America 798,918 786,670
Segment assets for reportable segments 11,096,314 10,500,629
Unallocated:
Deferred income tax assets 349,265 332,493
Derivative financial assets 39,932 62,883
Available-for-sale financial assets 68,748 71,946
Interests in associates and jointly controlled entities 3,080 3,410
Unallocated bank deposits and cash and cash equivalents 2,079,289 2,291,250
Unallocated inventories 419,728 356,677
Unallocated deposits, prepayments and other receivables 2,474,322 2,130,468
Income tax recoverable 70,004 70,406
Other unallocated assets 111,595 40,586
Total assets per consolidated balance sheet 16,712,277 15,860,748
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(c) Segment liabilities for reportable segments

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September 30, March 31,
2012 2012
US$’000 US$’000
China 4,656,750 4,063,257
APLA 1,984,732 2,092,914
EMEA 1,229,079 1,284,035
North America 905,131 888,180
Segment liabilities for reportable segments 8,775,692 8,328,386
Unallocated:
Income tax payable 84,232 135,530
Deferred income tax liabilities 88,917 83,594
Derivative financial liabilities 98,765 49,253
–
Unallocated bank borrowings 300,000
Unallocated trade payables 2,465,464 2,588,493
Unallocated provisions, accruals and other payables 2,169,639 2,184,659
Unallocated other non-current liabilities 263,764 1,032
Other unallocated liabilities 72,434 41,832
Total liabilities per consolidated balance sheet 14,318,907 13,412,779
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2012/13 Interim Report Lenovo Group Limited

Notes (continued)

2 Segment information (continued)

(d) Analysis of revenue by significant categories

Revenue from external customers are mainly derived from the sale of personal computer products and services. Breakdown of revenue is as follows:

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6 months ended 6 months ended
September 30, September 30,
2012 2011
US$’000 US$’000
Sale of personal technology products and services
– desktop computer 5,334,265 4,679,412
– notebook computer 8,944,971 8,015,234
– mobile internet and digital home 1,305,011 496,742
– others 552,701 302,864
Sale of other goods and services 545,349 212,050
16,682,297 13,706,302
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(e) Other segment information

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China APLA EMEA North America Total
For the six months ended 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
September 30 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Depreciation and amortization 42,829 34,696 22,509 17,144 18,415 14,388 14,321 14,192 98,074 80,420
Finance income 1,512 1,366 1,357 3,045 437 1,180 9 169 3,315 5,760
Finance costs 292 – 2,909 2,181 3,244 7,277 1,858 1,732 8,303 11,190
Additions to non-current assets 35,069 25,383 17,531 7,029 4,163 2,418 6,878 3,317 63,641 38,147
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Other than financial instruments and deferred income tax assets; and excluding construction-in-progress pending allocation to segments

2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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2 Segment information (continued)

(f) Included in segment assets for reportable segments are goodwill and trademarks and trade names with indefinite useful lives with an aggregate amount of US$2,759 million (March 31, 2012: US$2,736 million). As explained in Note 2, the Group underwent an organizational structure change under which these intangible assets have been reallocated to the cash-generating units affected using a relative value approach in accordance with HKAS 36 “Impairment of Assets”. The carrying amounts of goodwill and trademarks and trade names with indefinite useful lives are presented below:

At September 30, 2012

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China APLA EMEA North America Total
US$ million US$ million US$ million US$ million US$ million
Goodwill 1,102 787 261 161 2,311
Trademarks and trade names 209 68 113 58 448
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At March 31, 2012

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Japan,
North West Australia,
China REM America Europe New Zealand Total
US$ million US$ million US$ million US$ million US$ million US$ million
Goodwill 1,101 167 160 242 611 2,281
Trademarks and trade names 209 64 58 110 14 455
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Includes Africa, Asia Pacific, Central/Eastern Europe, Hong Kong, India, Korea, Middle East, Pakistan, Russia, Taiwan, Turkey and Latin America.

The directors are of the view that there was no evidence of impairment of goodwill and trademarks and trade names as at September 30, 2012 (March 31, 2012: Nil).

3 Other income/(loss) – net

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
US$’000 US$’000 US$’000 US$’000
Net loss on disposal of an available-for-sale
financial asset – (316) – –
Dividend income from an available-for-sale
financial asset 269 269 – –
269 (47) – –
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2012/13 Interim Report Lenovo Group Limited

Notes (continued)

4 Operating profit

Operating profit is stated after charging the following:

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
US$’000 US$’000 US$’000 US$’000
Depreciation of property, plant and equipment and
amortization of prepaid lease payments 21,316 41,402 19,987 37,319
Amortization of intangible assets 29,226 56,672 22,871 43,101
Employee benefit costs, including 575,705 1,116,206 482,329 893,707
– long-term incentive awards 18,153 38,579 17,336 34,512
Rental expenses under operating leases 18,771 35,905 16,713 29,363
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5 Finance income and costs

(a) Finance income

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
US$’000 US$’000 US$’000 US$’000
Interest on bank deposits 8,224 17,767 8,317 16,476
Interest on money market funds 770 1,400 514 1,149
Others 1,371 2,828 1,375 1,513
10,365 21,995 10,206 19,138
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(b) Finance costs

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
US$’000 US$’000 US$’000 US$’000
Interest on bank loans and overdrafts 1,803 1,903 1,958 3,873
Factoring cost 4,451 8,436 6,083 10,773
Commitment fee 2,587 4,296 1,710 3,301
Interest on contingent considerations
and put option liability 2,590 4,701 1,458 1,458
Others 86 305 134 134
11,517 19,641 11,343 19,539
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2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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6 Taxation

The amount of taxation in the consolidated income statement represents:

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
US$’000 US$’000 US$’000 US$’000
Current taxation
Hong Kong profits tax 66 92 73 130
Taxation outside Hong Kong 59,181 82,692 59,863 88,528
Deferred tax (18,309) (1,034) (39,745) (53,769)
40,938 81,750 20,191 34,889
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Hong Kong profits tax has been provided for at the rate of 16.5% (2011/12: 16.5%) on the estimated assessable profits for the period. Taxation outside Hong Kong has been provided for at the applicable rates on the estimated assessable profits less estimated available tax losses.

7 Earnings per share

(a) 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 and consideration shares in respect of business combination activities.

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
Weighted average number of ordinary
shares in issue 10,286,234,161 10,311,432,585 10,337,054,046 10,153,012,430
Adjustment for shares held by employee
share trusts (105,524,295) (82,420,466) (146,737,685) (156,148,232)
Adjustment for consideration shares in
– –
respect of business combination activities 57,560,317 57,560,317
Weighted average number of ordinary shares
in issue for calculation of basic earnings
per share 10,238,270,183 10,286,572,436 10,190,316,361 9,996,864,198
US$’000 US$’000 US$’000 US$’000
Profit attributable to equity holders
of the Company 162,047 303,414 143,919 252,715
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Adjustments for the weighted average number of ordinary shares in issue are as follows:

The shares of the Company held by the employee share trusts are for the purposes of awarding shares to eligible employees under the long term incentive program.
57,560,317 shares of the Company, representing the consideration shares in respect of the acquisition of Medion AG (“Medion”) which serve as security for any potential damages and are to be issued to the seller as deferred consideration within an 18-month period after completion.

2012/13 Interim Report Lenovo Group Limited

Notes (continued)

7 Earnings per share (continued)

(b) 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 two categories of dilutive potential ordinary shares, namely share options and long-term incentive awards.

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3 months ended 6 months ended 3 months ended 6 months ended
September 30, September 30, September 30, September 30,
2012 2012 2011 2011
Weighted average number of ordinary
shares in issue for calculation of
basic earnings per share 10,238,270,183 10,286,572,436 10,190,316,361 9,996,864,198
Adjustments for share options and
long-term incentive awards 208,514,695 222,895,063 270,300,589 255,605,076
Weighted average number of ordinary shares
in issue for calculation of diluted earnings
per share 10,446,784,878 10,509,467,499 10,460,616,950 10,252,469,274
US$’000 US$’000 US$’000 US$’000
Profit attributable to equity holders
of the Company 162,047 303,414 143,919 252,715
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Adjustments for the dilutive potential ordinary shares are as follows:

For the share options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average periodic market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise in full of the share options.
For the long-term incentive awards, a calculation is performed to determine whether the long-term incentive awards are dilutive, and the number of shares that are deemed to be issued.

8 Dividend

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6 months ended 6 months ended
September 30, September 30,
2012 2011
US$’000 US$’000
Interim dividend, declared after period end – HK4.5 cents
(2011/12: HK3.8 cents) per ordinary share 59,930 50,473
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16 2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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9 Non-current assets

Analysis of the movements in major non-current assets is as follows:

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Property, plant Intangible Deferred income
and equipment assets tax assets
US$’000 US$’000 US$’000
Year ended March 31, 2012
At the beginning of the year 209,417 2,134,452 251,098
Exchange adjustment 149 15,363 (4,761)
Additions 101,238 22,354 –
–
Transfer from construction-in-progress 45,523 88,393
–
Disposals (7,816) (1,113)
–
Depreciation/amortization (77,442) (97,684)
Credited to consolidated income statement – – 76,465
– –
Credited to other comprehensive income 2,895
Acquisition of subsidiaries 121,405 929,440 7,069
At the end of the year 392,474 3,091,205 332,766
Six months ended September 30, 2012
At the beginning of the period 392,474 3,091,205 332,766
Exchange adjustment 2,414 7,967 3,125
Additions 34,777 20,896 –
–
Transfer from construction-in-progress 11,315 24,425
–
Disposals (1,399) (2,267)
–
Depreciation/amortization (41,019) (56,672)
Reclassifications to deferred income tax liabilities – – (89)
Credited to consolidated income statement – – 5,661
– –
Credited to other comprehensive income 8,428
At the end of the period 398,562 3,085,554 349,891
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2012/13 Interim Report Lenovo Group Limited

Notes (continued)

10 Ageing analysis

(a) Customers are generally granted credit terms 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:

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September 30, March 31,
2012 2012
US$’000 US$’000
0 – 30 days 1,852,379 1,504,488
31 – 60 days 707,028 642,754
61 – 90 days 194,008 112,871
Over 90 days 150,659 124,193
2,904,074 2,384,306
Less: provision for impairment (23,833) (29,397)
Trade receivables – net 2,880,241 2,354,909
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(b) Ageing analysis of trade payables of the Group at the balance sheet date, based on invoice date, is as follows:

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September 30, March 31,
2012 2012
US$’000 US$’000
0 – 30 days 2,776,170 2,543,626
31 – 60 days 1,003,961 1,025,131
61 – 90 days 164,343 307,223
Over 90 days 158,837 174,292
4,103,311 4,050,272
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11 Deposits, prepayments and other receivables

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

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September 30, March 31,
2012 2012
US$’000 US$’000
Deposits 1,225 884
Other receivables (a) 2,698,647 2,442,656
Prepayments (b) 682,277 859,513
3,382,149 3,303,053
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(a) Majority of other receivables are amounts due from subcontractors for part components sold in the ordinary course of business.
(b) The Group defers the cost of shipped products awaiting revenue recognition until the goods are delivered and revenue is recognized. In-transit product shipments to customers of US$194 million as at September 30, 2012 (March 31, 2012: US$392 million) are included in prepayments.

18 2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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12 Provisions, accruals and other payables

Details of provisions, accruals and other payables are as follows:

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September 30, March 31,
2012 2012
US$’000 US$’000
Provisions (a) 765,179 725,062
Accruals 1,213,660 1,146,665
Allowance for billing adjustments (b) 1,703,544 1,753,910
Other payables (c) 3,629,693 3,448,559
7,312,076 7,074,196
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(a) The components of provisions are as follows:

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Environmental
Warranty Restructuring restoration Total
US$’000 US$’000 US$’000 US$’000
Year ended March 31, 2012
At the beginning of the year 694,723 8,419 14,994 718,136
Exchange adjustment 8,835 (564) (1,699) 6,572
Provisions made 771,391 – 10,573 781,964
Amounts utilized (615,684) (4,761) (5,085) (625,530)
Unused amounts reversed (1,286) (2,861) (870) (5,017)
–
Acquisition of subsidiaries 155,885 68,039 223,924
1,013,864 233 85,952 1,100,049
Long-term portion classified as
non-current liabilities (291,111) – (83,876) (374,987)
At the end of the year 722,753 233 2,076 725,062
Six months ended September 30, 2012
At the beginning of the period 1,013,864 233 85,952 1,100,049
Exchange adjustment 1,158 (8) 3,611 4,761
Provisions made 414,034 31 17,210 431,275
Amounts utilized (373,497) (60) (9,825) (383,382)
Unused amounts reversed (7,390) (46) (1,276) (8,712)
1,048,169 150 95,672 1,143,991
Long-term portion classified as
non-current liabilities (288,801) – (90,011) (378,812)
At the end of the period 759,368 150 5,661 765,179
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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.

(b) Allowance for billing adjustments relates primarily to allowances for future volume discounts, price protection, rebates, and customer sales returns.

(c) Majority of other payables are obligations to pay for finished goods that have been acquired in the ordinary course of business from subcontractors.

2012/13 Interim Report Lenovo Group Limited

Notes (continued)

13 Other non-current liabilities

Details of other non-current liabilities are as follows:

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September 30, March 31,
2012 2012
US$’000 US$’000
Contingent considerations (a) 427,715 428,915
Guaranteed dividend to non-controlling shareholders of a subsidiary (b) 29,794 31,015
Environmental restoration (Note 12(a)) 90,011 83,876
–
Written put option liability (c) 213,957
Others 175,498 98,180
936,975 641,986
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(a) Pursuant to the business combinations of the joint venture with NEC (“NEC JV”) and Medion, the Group is required to pay in cash to the respective shareholders of NEC JV and Medion contingent consideration with reference to certain performance indicators. Accordingly, a non-current liability in respect of the present value of contingent considerations has been recognized. The contingent considerations shall be re-measured at their fair values resulting from the change in the expected performance at each balance sheet date, with any resulting gain or loss recognized in the consolidated income statement. The potential undiscounted amounts of all future payments that the Group could be required to make under the arrangements are between US$0 and US$325 million for NEC JV; and between EUR89 million and EUR372 million for Medion.

Subsequent to the balance sheet date, the Group entered into an agreement with Mr. Gerd Brachmann, the former shareholder of Medion, to complete the transfer of ownership interest under the business combination agreement between the Company and Medion. Accordingly, the contingent consideration of approximately US$149 million was derecognized in October, 2012.

(b) Following the acquisition of Medion, Lenovo Germany Holding GmbH (“Lenovo Germany”), an indirect wholly-owned subsidiary of the Company and the immediate holding company of Medion entered into a domination and profit and loss transfer agreement (the “Domination Agreement”) with Medion. Pursuant to the Domination Agreement, Lenovo Germany has guaranteed to the non-controlling shareholders of Medion an annual guaranteed pre-tax dividend for each fiscal year amounting to EUR0.82 per share. The Domination Agreement became effective on January 3, 2012 and is terminable by either Lenovo Germany or Medion after March 31, 2017. Accordingly, a non-current liability in respect of future guaranteed dividend has been recognized.
(c) Pursuant to the joint venture agreement entered into between the Company and Compal Electronics, Inc. (“Compal”) to establish a joint venture company (“JV Co”) to manufacture notebook computer products and related parts, the Company and Compal are respectively granted call and put options which entitle the Company to purchase from Compal and Compal to sell to the Company the 49% Compal’s interests in the JV Co. The call and put options will be exercisable at any time after October 1, 2019 and October 1, 2017 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 US$750 million.

The financial liability that may become payable under the put option is initially recognized at fair value within other noncurrent 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 at its fair value resulting from the change in the expected performance of the JV Co at each balance sheet date, with any resulting gain or loss recognized in the consolidated income statement. In the event that the put option expires unexercised, the liability will be derecognized with a corresponding adjustment to equity.

20 2012/13 Interim Report Lenovo Group Limited

Notes (continued)

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14 Share capital

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September 30, 2012 March 31, 2012
Number of Number of
shares HK$’000 shares HK$’000
Authorized:
Ordinary shares:
At the beginning and the end of the period/year 20,000,000,000 500,000 20,000,000,000 500,000
Number of Number of
shares US$’000 shares US$’000
Issued and fully paid:
Ordinary shares:
At the beginning of the period/year 10,335,612,596 33,131 9,965,161,897 31,941
Issue of shares – – 338,689,699 1,088
Exercise of share options 6,972,000 23 31,761,000 102
– –
Repurchase of shares (57,246,000) (185)
At the end of the period/year 10,285,338,596 32,969 10,335,612,596 33,131
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15 Non-controlling interests

Pursuant to the joint venture agreement as disclosed in Note 13(c), US$100 million in respect of the first phase capital contribution has been injected into the JV Co by the Company and Compal in accordance with their equity interests of 51% and 49% respectively. As of September 30, 2012, a receivable in relation to Compal’s pending second phase capital contribution of US$98 million was recognized within other receivables with a corresponding credit to non-controlling interests in equity. The second phase capital contribution was subsequently injected into the JV Co in October, 2012.

16 Commitments

(a) Commitments arising from business combination activities

(i) On July 31, 2012, the Company entered into a strategic partnership with EMC Corporation (“EMC”), which enhances the Company’s position in enterprise system business, including industry standard servers and networked storage solutions. The strategic partnership consists of three business components, namely server alliance, storage OEM/reseller relationship and formation of a joint venture company (“JV Co”) under a joint venture agreement (“JV Agreement”) with EMC to develop Network-Attached Storage (“NAS”) products.

Pursuant to the JV Agreement, the Company and EMC are respectively granted call and put options which entitle the Company to purchase from EMC and EMC to sell to the Company the 49% EMC’s interests in the JV Co. The call and put options will be exercisable at any time after December 31, 2015. The exercise price for the put and call options will be determined in accordance with the JV Agreement, is between US$39 million and US$59 million.

Total purchase consideration under the strategic partnership, including exercise price for the put and call options, would be approximately US$130 million.

(ii) Pursuant to the Agreement and Plan of Merger dated August 31, 2012, entered into between a subsidiary of the Group (the “Subsidiary”) and shareholders of Stoneware, Inc. (“Stoneware”), the Subsidiary will acquire 100% interest in Stoneware, at cash consideration of US$40 million and contingent consideration up to a maximum of US$50 million, which will be determined in accordance with certain conditions including future performance of Stoneware.
(iii) Pursuant to the Share Purchase Agreement dated September 5, 2012, entered into between a subsidiary of the Group (the “Subsidiary”) and shareholders of Digibrás Indústria do Brasil S.A., Digiboard Eletrônica da Amazônia Ltda., and Dual Mix Comércio de Eletrônicos Ltda., (collectively “CCE”), the Subsidiary will acquire 100% interest in CCE, at an initial consideration of BRL300 million which includes cash and the Company’s shares as consideration shares. The initial consideration is subject to an upward or downward adjustment, up to a maximum of BRL400 million and BRL300 million respectively, which are determined in accordance with certain future performance indicators of CCE.

2012/13 Interim Report Lenovo Group Limited

Notes (continued)

16 Commitments (continued)

(b) Capital commitments

Apart from the disclosure in Note 16 (a) above, at September 30, 2012, the Group had the following other capital commitments:

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September 30, March 31,
2012 2012
US$’000 US$’000
Contracted but not provided for:
– Property, plant and equipment 136,943 49,960
– IT consulting services – 2,992
136,943 52,952
Authorized but not contracted for:
– Property, plant and equipment 905,229 35,214
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17 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 other 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.

22 2012/13 Interim Report Lenovo Group Limited

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FINANCIAL REVIEW RESULTS

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2012 2011
For the six months ended September 30 US$’000 US$’000
Revenue 16,682,297 13,706,302
EBITDA (excluding restructuring costs and other loss – net) 524,177 403,286
Profit attributable to equity holders of the Company 303,414 252,715
Earnings per share (US cents)
– Basic 2.95 2.53
– Diluted 2.89 2.46
Dividend per ordinary share (HK cents)
– Interim dividend 4.5 3.8
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For the six months ended September 30, 2012, the Group achieved total sales of approximately US$16,682 million. Profit attributable to equity holders for the period was approximately US$303 million, representing an increase of US$51 million as compared with the corresponding period of last year. Gross profit margin for the period was 0.3 percentage point down from 12.3 percent reported in the corresponding period of last year. Basic earnings per share and diluted earnings per share were US2.95 cents and US2.89 cents, representing an increase of US0.42 cent and US0.43 cent respectively as compared with the corresponding period of last year.

The Group adopts geographical segments as the reporting format. Geographical segments comprise China, APLA, EMEA and North America. Analyses of sales by segment are set out in Business Review and Outlook below.

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2012 2011
Revenue Revenue
from external Adjusted pre-tax from external Adjusted pre-tax
customers income customers income
For the six months ended September 30 US$’000 US$’000 US$’000 US$’000
China 7,342,287 332,929 6,011,091 302,602
APLA 3,549,739 15,424 2,866,805 3,695
EMEA 3,377,731 58,805 2,576,402 26,009
North America 2,412,540 90,458 2,252,004 90,445
16,682,297 497,616 13,706,302 422,751
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For the six months ended September 30, 2012, overall operating expenses across the board increased when compared to the corresponding period of last year as the current period includes a full half-year results of NEC JV and Medion. Employee benefit costs increased by 25 percent as compared to the corresponding period of last year due to increased headcount and performance-driven incentive payments. Branding and promotional expenses increased by 8 percent as compared to the corresponding period of last year as a result of the new product launches.

Further analyses of income and expense by function for the six months ended September 30, 2012 are set out below:

Other income/(loss) – net

This represents the dividend income received from an available-for-sale financial asset and is offset by the net loss on disposal of an available-for-sale financial asset.

Selling and distribution expenses

Selling and distribution expenses for the period increased by 16 percent as compared to the corresponding period of last year. This is principally attributable to a US$26 million increase in promotional, branding and marketing activities and the increase in employee benefit costs.

2012/13 Interim Report Lenovo Group Limited

FINANCIAL REVIEW (continued)

RESULTS (continued)

Administrative expenses

Administrative expenses for the period increased by 6 percent as compared to the corresponding period of last year. This is mainly attributable to the increase in employee benefit costs and a US$13 million increase in depreciation and amortization expenses.

Research and development expenses

Research and development spending for the period increased by 47 percent as compared to the corresponding period of last year. The major part of the increase is attributable to the increase in employee benefit costs, and an increase in R&D supplies & laboratory expenses of US$28 million.

Other operating expense – net

Net other operating expense for the period decreased by US$16 million as compared to the corresponding period of last year. The net other operating expense for the period comprises a US$23 million net exchange loss, netted with subsidy income of US$43 million; and other miscellaneous expenses.

The net other operating expense in the corresponding period of last year represented mainly a one-off license fee of US$27 million, netted with a net exchange gain of US$7 million.

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2012 2011
For the six months ended September 30 US$’000 US$’000
Depreciation of property, plant and equipment and amortization of
prepaid lease payments 41,402 37,319
Amortization of intangible assets 56,672 43,101
Employee benefit costs, including 1,116,206 893,707
– long-term incentive awards 38,579 34,512
Rental expenses under operating leases 35,905 29,363
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FINANCIAL POSITION

The Group’s major balance sheet items are set out below:

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September 30, March 31,
Non-current assets (US$’000) 2012 2012
Property, plant and equipment 398,562 392,474
Prepaid lease payments 32,456 13,552
Construction-in-progress 178,949 103,986
Intangible assets 3,085,554 3,091,205
Interests in associates and jointly controlled entities 3,080 3,410
Deferred income tax assets 349,265 332,493
Available-for-sale financial assets 68,748 71,946
Other non-current assets 37,070 31,282
4,153,684 4,040,348
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Property, plant and equipment

Property, plant and equipment comprises mainly the Group’s freehold land and buildings, leasehold improvements and office equipment.

Prepaid lease payments

Prepaid lease payments increased by 139 percent is mainly due to the land use right in respect of the manufacturing site in China of US$19 million.

Construction-in-progress

Construction-in-progress comprises mainly the Group’s investments in the headquarters in Beijing, China, the manufacturing facilities in China and the information technology systems.

24 2012/13 Interim Report Lenovo Group Limited

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FINANCIAL REVIEW (continued)

FINANCIAL POSITION (continued)

Intangible assets

Intangible assets comprise goodwill and other intangible assets including trademarks and trade names, and internal use software.

Deferred income tax assets

Deferred income tax assets as at September 30, 2012 amounted to US$349 million, representing an increase of 5 percent over last year, which is mainly attributable to temporary differences in relation to provisions, accruals and deferred revenue arising in the normal course of business.

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September 30, March 31,
Current assets (US$’000) 2012 2012
Inventories 1,539,765 1,218,494
Trade receivables 2,880,241 2,354,909
Notes receivable 771,198 639,331
Derivative financial assets 39,932 62,883
Deposits, prepayments and other receivables 3,382,149 3,303,053
Income tax recoverable 70,004 70,406
Bank deposits 421,899 413,672
Cash and cash equivalents 3,453,405 3,757,652
12,558,593 11,820,400
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Inventories

Inventories of the Group increased by 26 percent, which is due to seasonal factor.

Trade receivables and Notes receivable

Trade receivables and notes receivable increased in line with the increase in activities during the period.

Deposits, prepayments and other receivables

Majority of other receivables of the Group are amounts due from subcontractors for part components sold in the ordinary course of business.

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September 30, March 31,
Non-current liabilities (US$’000) 2012 2012
–
Bank borrowings 300,000
Warranty provision 288,801 291,111
Deferred revenue 415,431 381,593
Retirement benefit obligations 211,481 204,818
Deferred income tax liabilities 88,917 83,594
Other non-current liabilities 936,975 641,986
2,241,605 1,603,102
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Bank borrowings

The Group drew down a bank loan of US$300 million during the period.

Warranty provision

The Group records warranty liabilities at the time of sale for the estimated costs that will be incurred under its basic limited warranty. The specific warranty terms and conditions vary depending upon the product and the country in which it was sold, but generally includes technical support, repair parts and labor associated with warranty repair and service actions. The period ranges from one to three years. The aggregate current and non-current amounts of warranty provision increased by 3 percent when compared with last year. The increase is attributable to the increase business activities of the period. The Group reevaluates its estimates on a quarterly basis to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

2012/13 Interim Report Lenovo Group Limited

FINANCIAL REVIEW (continued)

FINANCIAL POSITION (continued)

Retirement benefit obligations

The Group operates various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans.

Other non-current liabilities

Other non-current liabilities as at September 30, 2012 amounted to US$937 million, representing an increase of 46 percent, which is mainly attributable to the written put option liability in connection with the put option granted pursuant to the joint venture agreement entered into between the Group and Compal Electronics, Inc..

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----- Start of picture text -----

September 30, March 31,
Current liabilities (US$’000) 2012 2012
Trade payables 4,103,311 4,050,272
Notes payable 91,237 127,315
Derivative financial liabilities 98,765 49,253
Provisions, accruals and other payables 7,312,076 7,074,196
Deferred revenue 363,318 310,159
Income tax payable 84,232 135,530
Bank borrowings 24,363 62,952
12,077,302 11,809,677
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Trade payables and Notes payable

Trade payables and notes payable increased in line with the increase in activities during the period.

Provisions, accruals and other payables

Provisions comprise warranty liabilities (due within one year), restructuring and environmental restoration. Accruals also include the allowance for billing adjustments relates primarily to allowance for future volume discounts, price protection, rebates, and customer sales returns. Majority of other payables are obligations to pay for finished goods that have been acquired in the ordinary course of business from subcontractors.

CAPITAL EXPENDITURE

The Group incurred capital expenditure of US$185 million (2011/12: US$94 million) during the six months ended September 30, 2012, mainly for the acquisition of office equipment, completion of construction-in-progress and investments in the Group’s information technology systems.

LIQUIDITY AND FINANCIAL RESOURCES

At September 30, 2012, total assets of the Group amounted to US$16,712 million (March 31, 2012: US$15,861 million), which were financed by equity attributable to owners of the Company of US$2,369 million (March 31, 2012: US$2,361 million), noncontrolling interests (net of put option written on non-controlling interest) of US$24 million (March 31, 2012: US$87 million), and total liabilities of US$14,319 million (March 31, 2012: US$13,413 million). At September 30, 2012, the current ratio of the Group was 1.04 (March 31, 2012: 1.00).

The Group had a solid financial position. At September 30, 2012, bank deposits, cash and cash equivalents totaled US$3,875 million (March 31, 2012: US$4,171 million), of which 51.4 (March 31, 2012: 56.9) percent was denominated in US dollars, 38.5 (March 31, 2012: 27.6) percent in Renminbi, 3.1 (March 31, 2012: 7.7) percent in Euros, 2.7 (March 31, 2012: 3.5) percent in Japanese Yen, and 4.3 (March 31, 2012: 4.3) percent in other currencies.

The Group adopts a conservative policy to invest the surplus cash generated from operations. At September 30, 2012, 74.1 (March 31, 2012: 74.2) percent of cash are bank deposits, and 25.9 (March 31, 2012: 25.8) percent of cash 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 for contingency purposes.

26 2012/13 Interim Report Lenovo Group Limited

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FINANCIAL REVIEW (continued)

LIQUIDITY AND FINANCIAL RESOURCES (continued)

The Group has a 5-Year loan facility agreement with a bank of US$300 million entered into on July 17, 2009. During the period, the Group drew down the loan of US$300 million. At September 30, 2012, the facility was fully utilized (March 31, 2012: Nil).

In addition, the Group has another 5-Year loan facility agreement with syndicated banks for US$500 million entered into on February 2, 2011. The facility has not been utilized as at September 30, 2012 (March 31, 2012: Nil).

The Group has also arranged other short-term credit facilities. At September 30, 2012, the Group’s total available credit facilities amounted to US$7,035 million (March 31, 2012: US$6,642 million), of which US$372 million (March 31, 2012: US$362 million) was in trade lines, US$484 million (March 31, 2012: US$521 million) in short-term and revolving money market facilities and US$6,179 million (March 31, 2012: US$5,759 million) in forward foreign exchange contracts. At September 30, 2012, the amounts drawn down were US$177 million (March 31, 2012: US$220 million) in trade lines, US$5,580 million (March 31, 2012: US$4,720 million) being used for the forward foreign exchange contracts; and US$24 million (March 31, 2012: US$63 million) in short-term bank loans.

At September 30, 2012, the Group’s outstanding bank loans represented the term loan of US$300 million (March 31, 2012: Nil) and short-term bank loans of US$24 million (March 31, 2012: US$63 million). When compared with total equity of US$2,393 million (March 31, 2012: US$2,448 million), the Group’s gearing ratio was 0.14 (March 31, 2012: 0.03). The net cash position of the Group at September 30, 2012 is US$3,551 million (March 31, 2012: US$4,108 million).

The Group is confident that all the loan and other short-term credit 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 September 30, 2012, the Group had commitments in respect of outstanding forward foreign exchange contracts amounting to US$5,580 million (March 31, 2012: US$4,720 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.

2012/13 Interim Report Lenovo Group Limited

BUSINESS REVIEW AND OUTLOOK

During the six months ended September 30, 2012, Lenovo continued to outgrow the worldwide PC market through the solid execution of its “Protect and Attack” strategy, by protecting its leadership in China and its worldwide enterprise business while expanding its footprint in the consumer business and emerging markets outside China. Lenovo grew in spite of challenges in the worldwide PC market impacted by the weakening macro environment and product transition. The Group recorded a balanced and strong growth in all geographic, product and customer segments, in unit shipments, revenue and profit for the Group’s PC business. The Group recorded 17 percent year-on-year unit shipments growth during the interim period against the global PC market decline at 5 percent, according to preliminary industry estimates. Lenovo’s worldwide PC market share continued to increase in the past two quarters, reaching a historic high level of 15.6 percent in fiscal quarter two, maintaining as one of the top two worldwide PC vendors over the last two quarters, and narrowing the gap with the number one player to only 0.2 percentage point. Lenovo became worldwide number one consumer and notebook PC company in fiscal quarter two and remained as the largest PC company in emerging markets including China.

During the period under review, the Group had announced several corporate transactions to further drive future growth. The partnership with EMC announced in July is a solid first step in Lenovo’s aspiration to be a leading provider of servers with a suite of complementary storage products. These products are the backend enterprise IT Infrastructure that power the PC+ era and build on our leading position as a provider of PC to enterprise customers. The Group also announced its plan to expand into the high-growth Brazilian market by building a manufacturing plant as well as acquiring the fifth largest PC player, CCE. CCE is widely known as a leader in PC and consumer electronics in Brazil and represents a bold move into the PC+ market in Brazil and the global expansion of Lenovo’s PC+ strategy. Similarly, the acquisition of software firm Stoneware further enhances the Group’s cloud computing strategy, accelerating Lenovo’s capabilities for both commercial and consumer cloud offerings and further strengthening the Group’s PC+ strategy over time.

The Mobile Internet and Digital Home (MIDH) Group also showed good progress and growth momentum driven by the smartphone business. The strong performance in MIDH has bolstered the Group’s overall performance, providing balanced growth with the Group’s PC business. The Group’s smartphone recorded unit shipments more than 20 times higher year-on-year during the fiscal first half year, resulting in the number two ranking in China, according to preliminary industry estimates. The Group’s media tablet business also showed encouraging development by growing 166 percent year-on-year in unit shipments and remained as the number two player in China. In addition, Lenovo has also launched its Smart TV business in China, part of its “Four screens, One cloud” strategy, with an objective to offer a complete product portfolio to customers. The initial market response has been encouraging.

For the six months ended September 30, 2012, the Group’s sales increased by 22 percent year-on-year to US$16,682 million. Sales of the Group’s PC business were US$14,832 million, representing a year-on-year increase of 14 percent, while the sales of MIDH business, which was largely from smartphone sales in China, increased by 163 percent year-on-year to US$1,305 million. Gross profit increased by 19 percent year-on-year to US$2,009 million. Gross margin for the interim period declined slightly by 0.3 percentage point from the same period last year to 12.0 percent, due to the higher mix of consumer products. The Group has continued to invest in product innovation, branding, MIDH business and consumer business outside China, with an objective to drive long-term sustainable growth and better profitability in the future. As a result, operating expenses increased by 16 percent year-on-year to US$1,621 million but the expense-to-revenue ratio improved from 10.2 percent to 9.7 percent, as sales revenue has grown faster than expenses. The Group recorded profit before taxation at US$389 million and profit attributed to shareholders amounted to US$303 million, representing an increase of 35 percent and 20 percent year-on-year respectively.

Performance of Geographies

During the six months ended September 30, 2012, Lenovo achieved solid and balanced performance in all geographies where it has operations, mainly driven by the Group’s leading market position in China, rapid market share expansion in all geographies and balanced performance across product and customer segments.

China

China accounted for 44 percent of the Group’s total revenue. Driven by the solid execution of the Group’s strategy to become a leading PC+ company, it recorded balanced and strong growth for both its PC and MIDH businesses during the fiscal first half year.

28 2012/13 Interim Report Lenovo Group Limited

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BUSINESS REVIEW AND OUTLOOK (continued)

Lenovo’s strategy in protecting mature cities and attacking the high-growth emerging smaller cities and rural areas continued to perform well, enabling the Group’s PC business to continue to outperform in China and further extend its leadership through share gain. Lenovo’s PC unit shipments in China grew by 8 percent year-on-year, against market decline of 2 percent, according to preliminary industry estimates, maintaining a roughly 10-point premium to the market. As a result, the Group further extended its leadership in the China PC market by adding 3.1 percentage point in market share year-on-year to 34.4 percent, and the market share gap between Lenovo and its major competitors further widened during the interim period. The Group’s MIDH business in China posted strong unit shipments growth. The Group’s smartphone unit shipment grew more than 20 times from the same period last year, while its media tablets business also showed strong shipment growth at 1.4 times year-on-year. The Group continued to record strong revenue growth, up 22 percent, supported by the stellar MIDH performance that was up 163 percent year-on-year.

Operating profit increased by 10 percent to US$333 million and operating margin was 4.5 percent, decreasing by 0.5 percentage point year-on-year due to the increased investments in MIDH business. Operating margin for the China PC business was 6.2 percent, up 0.1 percentage point year-on-year, which demonstrated the Group’s solid position in China PC business.

Asia Pacific/Latin America (APLA)

APLA accounted for 21 percent of the Group’s total revenue. The Group has grown and outperformed in this region in the past two quarters. Lenovo’s unit shipments in APLA grew 26 percent year-on-year against a 7 percent decline for the overall market, according to preliminary industry estimates. In particular, unit shipments in India and ASEAN increased by 54 and 12 percent, respectively, from a year ago.

As a result, Lenovo achieved a record high market share in APLA of 11.5 percent, up 1.6 percentage point year-on-year with historical high market shares in Japan (27.2 percent) and ASEAN (9.4 percent) in fiscal quarter two.

Operating profit in APLA further improved to US$15 million during the interim period and operating margin was 0.4 percent, an increase of 0.3 percentage point year-on-year.

Europe-Middle East-Africa (EMEA)

EMEA accounted for 20 percent of the Group’s total revenue. Lenovo’s unit shipments in EMEA grew by 40 percent year-on-year, which was a 41-point premium to the market. Thus the Group’s market share increased by 2.8 percentage point from a year ago to 9.8 percent for the interim period, according to preliminary industry estimates. Strong unit shipments growth and share gains were recorded across all key regions such as RUCIS (+34.7 percent), EET (+64.2 percent) and MEA (+46.6 percent) year-on-year in fiscal quarter two. Lenovo became the number three PC company in EMEA regions with market share for the first time above 10 percent at 10.8 percent and the number one PC player in Germany, Russia and Demark in fiscal quarter two.

Operating profit in EMEA regions further improved to US$59 million during the interim period and operating margin was 1.7 percent, an increase of 0.7 percentage point year-on-year.

North America

North America accounted for 15 percent of the Group’s total revenue. Lenovo’s unit shipments in North America grew by 8 percent year-on-year, which was about 20-point premium to the market. Thus the Group’s market share increased by 1.5 percentage point from a year ago to 8.4 percent, according to preliminary industry estimates. Lenovo has also maintained as the number four PC Company in North America and the U.S. markets in fiscal quarter two.

Operating profit in North America remained stable at about US$90 million during the interim period and operating margin was 3.7 percent, a decrease of 0.3 percentage point year-on-year. The decrease was mainly attributable to an increased mix of small- and medium-sized enterprise and consumer business.

Performance of Product Groups

During the six months ended September 30, 2012, Lenovo recorded strong and balanced unit shipments growth in both commercial and consumer PCs. Lenovo’s commercial PC unit shipments grew 6 percent year-on-year and its market share in the worldwide commercial PC market share increased by 2.2 percentage point from a year ago to a record high 18.3 percent, according to preliminary industry estimates. Lenovo maintained the number one position in the worldwide commercial notebook PC segment in fiscal quarter two. During the interim period under review, the Think Product Group, which mainly targets commercial customers, announced the ThinkPad[®] X1 Carbon, the World’s first true business Ultrabook. The X1 Carbon exemplifies 20 years of ThinkPad[®] innovation and is for commercial customers that demand an extremely thin and light computing device with uncompromising performance.

2012/13 Interim Report Lenovo Group Limited

BUSINESS REVIEW AND OUTLOOK (continued)

Performance of Product Groups (continued)

Meanwhile, the Group’s consumer PC business also recorded strong shipment growth of 33 percent year-on-year and its market share in the worldwide consumer PC market was up by 3.5 percentage point to 12.7 percent from the corresponding period in the last fiscal year. Lenovo became number one in the global consumer PC segment in fiscal quarter two. The Idea Product Group, which primarily focuses on consumer and entry SMB products, announced a series of new and stylish notebooks – such as the IdeaPad[®] U310/U410 ultrabook designed for fashion-minded customers, who want a product that is lighter, yet powerful and productive. The Group also launched IdeaCentre[®] A720 AIO desktop PC, which provides customers with a unique experience of a 95-degree adjustable viewing angle and a 10-point touch screen in an optimized AIO.

Lenovo also achieved strong, balanced growth and market share gains for both notebook and desktop PCs during the interim period. Unit shipments for the Group’s notebook and desktop PCs grew by 18 percent and 15 percent year-on-year, respectively. Lenovo’s market share in the worldwide notebook PC market increased 2.9 percentage point from a year ago to 15.6 percent, while its worldwide desktop PC market share increased by 2.7 percentage point to 14.9 percent from the corresponding period last fiscal year, according to preliminary industry estimates. Lenovo became the largest company in the global notebook PC market and maintained its second largest desktop PC player in fiscal quarter two.

MIDH worldwide business accounted for 8 percent of the Group’s total sales and, as stated, Lenovo’s mobile handset business posted strong unit shipments growth during the interim period. This was driven by continued strong smartphone demand in China. Lenovo’s market share in China’s smartphone market increased 11.6 percentage point from a year ago to 13.0 percent. The new models launched during the interim period, including the 5-inch S880, the A520 and the entry level phone A366t, received good market response and provided strong drive in unit shipments. Overall unit shipments of smartphone thus grew more than 20 times year-on-year for the interim period. The Group continued its strong momentum in the media tablet business, with unit shipments growing 1.7 times year-on-year during the interim period. In addition, the Group has also launched its smart TV products and the initial market response for these new TV products was encouraging.

Future Prospect

Although worldwide PC demand largely remain challenging due to weakening economic conditions, Lenovo stays both optimistic about the future of the PC market and committed to innovation. The Group is confident it will continue to outgrow the worldwide PC market with balanced growth across the board and continued profitability improvement. The Group is fully committed to the PC industry and is on course to become the worldwide leader. The Group will continue its successful “Protect and Attack” strategy to drive strong and balanced growth, business scale expansion and profitability enhancement in PCs while also expanding its business across the four screens (PC, tablet, smartphone, Smart TV) of devices and into the ecosystem of cloud, services and other applications that make up the PC+ market.

In China, the world’s largest PC market, Lenovo will continue to expand its market leading position in the PC market, leveraging its strong leadership in the high growth emerging cities and its strong presence across different customer and product segments, while solidly executing its Protect and Attack strategy to evolve from a winning PC company to a winning PC+ company.

Outside China, the Group will continue to drive its strong growth momentum under its attack strategy with the aim of capturing market share and improving profitability as the Group expands its market share to double-digit shares in key regions. The Group will continue to focus on improving profitability by protecting its relationship business and attacking the growth opportunity in both consumer and SMB PC segments. The Group announced in September 2012 the acquisition of CCE in Brazil with an objective of accelerating its expansion into the high growth Brazilian market ahead of major events such as the World Cup and Olympics that likely will drive higher domestic PC demand. The Group also announced its partnership with EMC Corporation (EMC) in server and storage businesses. The global alliance with EMC is set to enhance Lenovo’s position in industry standard servers and networked storage solutions, thus broadening its product portfolio to enhance its service to its global commercial customers. This partnership, coupled with the acquisition of Stoneware, a cloud solution software company, will help Lenovo fully deliver on its PC+ strategy by giving the Group strong back-end capabilities in addition to the already strong position in devices.

The Group will continue its investment in building its core competencies, product innovation, branding and new PC+ segments, including mobile internet and digital home (MIDH), balancing expenses and revenues to drive long-term sustainable profit growth.

The Group will launch more new tablet/hybrid devices as well as new innovations in its product pipeline to capture market opportunities. Lenovo will also continue to invest in building a global brand that will become a strength that makes the Group more competitive in the consumer business, and improves its profitability over time.

Looking forward, given its strong financial position, the Group will continue to actively look for inorganic growth opportunities that would supplement its organic growth strategy and accelerate future expansion. Lenovo will build on its success by continuing to focus on scaling its growth and controlling costs, thereby enhancing its competitiveness to ensure future sustainable profit growth.

2012/13 Interim Report Lenovo Group Limited

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Human Resources

At September 30, 2012, the Group had a total of 29,807 employees.

The Group implements remuneration policy, bonus and long-term incentive schemes with reference to the performance of the Group and individual employees. The Group also provides benefits such as insurance, medical and retirement funds to employees to sustain competitiveness of the Group.

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES

(A) Share Option Scheme

At the Extraordinary General Meeting of the Company held on March 25, 2002, the shareholders of the Company approved the adoption of a new share option scheme (the “New Option Scheme”) and the termination of the old share option scheme. Pursuant to the terms of New Option Scheme, the New Option Scheme shall be valid and effective for a period of 10 years commencing on the adoption date and expiring on the tenth anniversary of the adoption date. Accordingly, the New Option Scheme had been expired on April 26, 2012, and no further options could thereafter be granted under the New Option Scheme. However, all remaining provisions will remain in full force and effect to govern the exercise of all the options granted under the New Option Scheme prior to its expiration.

Details of the movement of options of the Company for the six months ended September 30, 2012 were as follows:

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Options Options Options Options
held at exercised lapsed held at
Category of April 1, during during September 30, Exercise
participants 2012 the period the period 2012 price Grant date Exercise period
(HK$) (mm.dd.yyyy) (mm.dd.yyyy)
Continuous contract 6,462,000 1,000,000 – 5,462,000 2.435 10.10.2002 10.10.2002 to
employees 10.09.2012
20,326,000 918,000 – 19,408,000 2.245 04.26.2003 04.26.2003 to
04.25.2013
57,379,051 1,486,000 – 55,893,051 2.545 04.27.2004 04.27.2004 to
04.26.2014
Other participants 6,964,000 3,138,000 – 3,826,000 2.435 10.10.2002 10.10.2002 to
10.09.2012
1,530,000 430,000 – 1,100,000 2.245 04.26.2003 04.26.2003 to
04.25.2013
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Notes:

Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by continuous contract employees was HK$7.032.
Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by other participants was HK$6.626.
No options are granted and/or cancelled during the period.

2012/13 Interim Report Lenovo Group Limited

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES (continued)

(B) Long-Term Incentive Program

The Company operates a Long-Term Incentive Program (“LTI Program”) which was adopted by the Company on May 26, 2005. The purpose of the LTI Program is to attract, retain, reward and motivate executive and non-executive directors, senior management and selected top-performing employees of the Company and its subsidiaries.

Under the LTI Program, the Company maintains three types of equity-based compensation vehicles: (i) share appreciation rights, (ii) restricted share units, and (iii) performance-based share units. These vehicles are described in more detail below.

(i) Share Appreciation Rights (“SARs”)

SARs entitle the holder to receive the appreciation in value of the Company’s share price above a predetermined level. SARs are typically subject to a vesting schedule of up to four years.

(ii) Restricted Share Units (“RSUs”)

RSUs are equivalent to the value of one ordinary share of the Company. Once vested, RSUs are converted to an ordinary share, or its cash equivalent. RSUs are typically subject to a vesting schedule of up to four years. Dividends are typically not paid on RSUs.

(iii) Performance Based Share Units

The Company has three performance based share unit plans, namely, the 2005 Performance Share Unit (PSU) plan, the 2007 Performance RSU plan and the 2008 Performance RSU Plan. The 2005 PSU plan was discontinued in 2006; however, the Company continues to honor grants previously awarded. All outstanding awards were vested on May 1, 2008. The 2007 and 2008 Performance RSU plans have also been discontinued, previously awarded. All outstanding awards were vested by June 1, 2012.

The Company reserves the right to pay any awards under the LTI Program in cash or in ordinary shares at its discretion. The Company has created and funded a trust to pay shares to eligible recipients. In the case of SARs, awards are due after exercise by the recipient. In the case of RSUs, awards are due after the employee satisfies any vesting conditions.

The number of units that are awarded under the LTI Program is set and reviewed annually, reflecting competitive market positioning, market practices, especially those among Lenovo’s competitors, as well as the Company’s performance and each individual’s actual and expected contribution to the business. In certain circumstances, awards under the LTI Program may be made to support the attraction of new hires. Award levels and mix may vary by individual.

Details of the grant as well as all outstanding awards for executive and non-executive directors as of September 30, 2012 under the LTI program are presented below.

32 2012/13 Interim Report Lenovo Group Limited

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DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES (continued)

(B) Long-Term Incentive Program (continued)

The total number of awards of the members of the Board under the LTI Program as disclosed pursuant to Securities and Future Ordinance is set out below.

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Number of units
Cancelled/ Total
As at lapsed As at outstanding
Fiscal Effective April 1, Awarded Vested Exercised during the September 30, as at Vesting
Award Year of price 2012 during during during period 2012 September 30, period
Name type Award (HK$) (unvested) the period the period the period (Note 2) (unvested) 2012 (mm.dd.yyyy)
Mr Yang SAR 06/07 2.35 – – – – – – 13,385,665 06.01.2007 –
Yuanqing 06.01.2010
SAR 07/08 3.94 – – – – – – 6,002,009 06.01.2008 –
06.01.2011
SAR 08/09 5.88 984,964 – 984,964 – – – 3,939,855 06.01.2009 –
06.01.2012
SAR 09/10 3.17 11,400,000 – 5,700,000 – – 5,700,000 22,800,000 05.25,2010 –
05.25,2013
SAR 09/10 5.23 3,298,078 – – – – 3,298,078 6,596,156 02.08.2011 –
02.08.2014
SAR 10/11 4.92 8,272,664 – – – – 8,272,664 11,030,219 02.21.2012 –
02.21.2015
SAR 11/12 6.80 11,132,358 – – – – 11,132,358 11,132,358 02.13.2013 –
02.13.2016
RSU 08/09 5.88 262,657 – 262,657 – – – – 06.01.2009 –
06.01.2012
RSU 09/10 3.17 5,100,000 – 2,550,000 – – 2,550,000 2,550,000 05.25,2010 –
05.25,2013
RSU 09/10 5.23 2,473,559 – – – – 2,473,559 2,473,559 02.08.2011 –
02.08.2014
RSU 10/11 4.92 5,909,046 – – – – 5,909,046 5,909,046 02.21.2012 –
02.21.2015
RSU 11/12 6.80 6,679,415 – – – – 6,679,415 6,679,415 02.13.2013 –
02.13.2016
RSU 11/12 4.44 – 1,322,051 1,322,051 – – – – 06.02.2012
Mr. Zhu Linan SAR 08/09 5.88 – – – – – – 195,980 06.01.2009 –
06.01.2011
SAR 09/10 3.88 87,932 – 87,932 – – – 87,932 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,666 – – 215,334 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
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2012/13 Interim Report Lenovo Group Limited

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES (continued)

(B) Long-Term Incentive Program (continued)

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Number of units
Cancelled/ Total
As at lapsed As at outstanding
Fiscal Effective April 1, Awarded Vested Exercised during the September 30, as at Vesting
Award Year of price 2012 during during during period 2012 September 30, period
Name type Award (HK$) (unvested) the period the period the period (Note 2) (unvested) 2012 (mm.dd.yyyy)
Ms. Ma SAR 07/08 5.62 – – – – – – 693,130 06.01.2008 –
Xuezheng 06.01.2011
SAR 08/09 5.88 – – – – – – 195,980 06.01.2009 –
06.01.2011
SAR 09/10 3.88 87,932 – 87,932 – – – 175,864 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,667 – – 215,333 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
Dr. Wu Yibing SAR 09/10 3.88 87,932 – 87,932 – – – 263,796 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,667 – – 215,333 323,000 08.19.2012 –
08.20.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
Mr. Zhao John SAR 11/12 5.78 – 103,913 – – – 103,913 103,913 11.03.2012 –
Huan 11.03.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 11/12 5.78 – 49,482 – – – 49,482 49,482 11.03.2012 –
11.03.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
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2012/13 Interim Report Lenovo Group Limited

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DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES (continued)

(B) Long-Term Incentive Program (continued)

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Number of units
Cancelled/ Total
As at lapsed As at outstanding
Fiscal Effective April 1, Awarded Vested Exercised during the September 30, as at Vesting
Award Year of price 2012 during during during period 2012 September 30, period
Name type Award (HK$) (unvested) the period the period the period (Note 2) (unvested) 2012 (mm.dd.yyyy)
Mr. Ting Lee SAR 06/07 2.99 – – – – – – 390,000 06.01.2007 –
Sen 06.01.2009
SAR 07/08 3.94 – – – – – – 297,000 06.01.2008 –
06.01.2010
SAR 08/09 5.88 – – – – – – 195,980 06.01.2009 –
06.01.2011
SAR 09/10 3.88 87,932 – 87,932 – – – 263,796 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,667 – – 215,333 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
Dr. Tian SAR 07/08 5.14 – – – – – – 151,950 09.01.2008 –
Suning 09.01.2010
SAR 08/09 5.88 – – – – – – 195,980 06.01.2009 –
06.01.2011
SAR 09/10 3.88 87,932 – 87,932 – – – 263,796 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 107,667 – – – 323,000 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
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2012/13 Interim Report Lenovo Group Limited

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES (continued)

(B) Long-Term Incentive Program (continued)

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Number of units
Cancelled/ Total
As at lapsed As at outstanding
Fiscal Effective April 1, Awarded Vested Exercised during the September 30, as at Vesting
Award Year of price 2012 during during during period 2012 September 30, period
Name type Award (HK$) (unvested) the period the period the period (Note 2) (unvested) 2012 (mm.dd.yyyy)
Mr. Nicholas SAR 09/10 4.47 35,781 – – – – 35,781 107,343 11.30.2010 –
C. Allen 11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,667 – – 215,333 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 4.47 16,264 – – – – 16,264 16,264 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.19.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
Mr. Nobuyuki SAR 11/12 5.23 144,085 – 48,028 – – 96,057 144,085 09.28.2012 –
Idei 09.28.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 11/12 5.23 68,612 – 22,870 – – 45,742 45,742 09.28.2012 –
09.28.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
Mr. William SAR 06/07 2.99 – – – – – – 390,000 06.01.2007 –
O. Grabe 06.01.2009
SAR 07/08 3.94 – – – – – – 297,000 06.01.2008 –
06.01.2010
SAR 08/09 5.88 – – – – – – 195,980 06.01.2009 –
06.01.2011
SAR 09/10 3.88 87,932 – 87,932 – – – 263,796 08.07.2010 –
08.07.2012
SAR 09/10 4.47 12,721 – – – – 12,721 38,163 11.30.2010 –
11.30.2012
SAR 10/11 4.59 158,001 – 79,000 – – 79,001 237,001 08.20.2011 –
08.20.2013
SAR 11/12 4.56 323,000 – 107,667 – – 215,333 323,000 08.19.2012 –
08.19.2014
SAR 12/13 6.36 – 274,316 – – – 274,316 274,316 07.03.2013 –
07.03.2015
RSU 09/10 3.88 39,969 – 39,969 – – – – 08.07.2010 –
08.07.2012
RSU 09/10 4.47 5,783 – – – – 5,783 5,783 11.30.2010 –
11.30.2012
RSU 10/11 4.59 79,001 – 39,500 – – 39,501 39,501 08.20.2011 –
08.20.2013
RSU 11/12 4.56 153,810 – 51,270 – – 102,540 102,540 08.19.2012 –
08.20.2014
RSU 12/13 6.36 – 109,729 – – – 109,729 109,729 07.03.2013 –
07.03.2015
RSU 11/12 5.78 – 30,169 30,169 – – – – Note 1
(Deferral)
RSU 11/12 6.73 – 25,961 25,961 – – – – Note 1
(Deferral)
RSU 12/13 6.23 – 28,387 28,387 – – – – Note 1
(Deferral)
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Note 1: Proceeds in respect of quarterly deferral grants to be paid only at point of termination from the board of directors or unforeseen emergency.

Note 2: These units were nullified in accordance with the operation of the SAR plan rules.

2012/13 Interim Report Lenovo Group Limited

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DIRECTORS’ INTERESTS

As at September 30, 2012, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) as recorded in the register maintained by the Company under section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) in the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) were as follows:

Interests in the shares and underlying shares of the Company

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Capacity and number of shares/
underlying shares held
Approximate
Aggregate percentage of
Interests in shares/ Personal Family Corporate Long shareholding
Name of Director underlying shares interests interests interests position (Note 2)
–
Mr. Yang Yuanqing Ordinary shares 68,475,241 800,000,000 868,475,241
(Note 3)
Share awards 92,498,282 – – 92,498,282
960,973,523 9.3%
Mr. Zhu Linan Ordinary shares 4,802,362 – – 4,802,362
Share awards 1,413,945 – – 1,413,945
6,216,307 0.06%
–
Ms. Ma Xuezheng Ordinary shares 14,971,768 2,240,000 17,211,768
Share awards 2,195,007 – – 2,195,007
19,406,775 0.19%
– –
Dr. Wu Yibing Ordinary shares 265,092 265,092
Share awards 1,393,829 – – 1,393,829
1,658,921 0.02%
Mr. Zhao John Huan Ordinary shares – – – –
Share awards 537,440 – – 537,440
537,440 0.01%
– –
Mr. Ting Lee Sen Ordinary shares 531,872 531,872
Share awards 2,276,809 – – 2,276,809
2,808,681 0.03%
– –
Dr. Tian Suning Ordinary shares 392,651 392,651
Share awards 1,741,759 – – 1,741,759
2,134,410 0.02%
Mr. Nicholas C. Allen Ordinary shares 164,585 – – 164,585
Share awards 1,209,694 – – 1,209,694
1,374,279 0.01%
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2012/13 Interim Report Lenovo Group Limited

DIRECTORS’ INTERESTS (continued)

Interests in the shares and underlying shares of the Company (continued)

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Notes:

Share awards represent underlying shares convertible into ordinary shares. Details of share awards are set out under the section headed “Long-Term Incentive Program”.
The approximate percentage of interests is based on the aggregate nominal value of the shares/underlying shares comprising the interests held as a percentage of the aggregate nominal value of all the issued share capital of the Company of the same class immediately after the relevant event and as recorded in the register maintained under section 352 of the SFO.
The shares are held by Sureinvest Holdings Limited and Mr. Yang Yuanqing holds more than one-third of the issued share capital of Sureinvest Holdings Limited. Therefore, Mr. Yang is taken to have an interest in 800,000,000 shares under the SFO and such interest is also reported under the below section headed “Substantial Shareholders’ and Other Persons’ Interests”.

Save as disclosed above, as at September 30, 2012, none of the directors or chief executive of the Company or their associates had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register maintained by the Company under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

38 2012/13 Interim Report Lenovo Group Limited

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SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS

As at September 30, 2012, the following persons (other than the directors and chief executive of the Company as disclosed above) had an interests or short positions in the shares and/or underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO:

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Capacity and number of shares/
underlying shares held
Approximate
Aggregate percentage of
Long position/ Beneficial Corporate long and short interests
Name short position owner interests positions (Note 1)
Legend Holdings Limited Long position 2,667,636,724 802,919,317 3,470,556,041 33.60%
(Note 2)
Short position – 233,500,000 233,500,000 2.26%
(Note 2)
Right Lane Limited Long position 802,919,317 – 802,919,317 7.77%
Short position 233,500,000 – 233,500,000 2.26%
Sureinvest Holdings Limited Long position 800,000,000 – 800,000,000 7.75%
(Note 3)
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Direct transliteration of its Chinese company name

Notes:

The approximate percentage of interests is based on the aggregate nominal value of the shares/underlying shares comprising the interests held as a percentage of the aggregate nominal value of all the issued share capital of the Company of the same class immediately after the relevant event and as recorded in the register maintained under section 336 of the SFO.
These shares were held by Right Lane Limited, a direct wholly-owned subsidiary of Legend Holdings Limited.
Mr. Yang Yuanqing holds more than one-third of the issued share capital of Sureinvest Holdings Limited (“SHL”). Accordingly, Mr. Yang Yuanqing is deemed to have interests in those 800,000,000 shares of the Company’s issued share capital held by SHL under the SFO. This interest is also included as corporate interests of Mr. Yang Yuanqing in the above section headed “Directors’ Interests”.

Save as disclosed above, as at September 30, 2012, no other persons (other than the directors and chief executive of the Company, whose interests are set out in the above section headed “Directors’ Interests”) had any interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under section 336 of the SFO.

2012/13 Interim Report Lenovo Group Limited

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

During the six months ended September 30, 2012, the Company repurchased a total of 57,246,000 ordinary shares of HK$0.025 each in the capital of the Company at prices ranging from HK$5.54 to HK$6.49 per share on the Stock Exchange. Details of the repurchases of such ordinary shares were as follows:

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Aggregate
Month of Number of ordinary Highest price Lowest price consideration paid
repurchases shares repurchased paid per share paid per share (excluding expenses)
HK$ HK$ HK$
June 2012 8,010,000 6.49 6.24 51,131,740
July 2012 49,236,000 6.48 5.54 291,171,260
57,246,000 342,303,000
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All 57,246,000 ordinary shares repurchased were cancelled on delivery of the share certificates during the period and the issued share capital of the Company was accordingly diminished by the nominal value of the repurchased ordinary shares so cancelled. The premium paid on repurchase of such ordinary shares was charged against the share premium account of the Company.

During the six months ended September 30, 2012, the trustee of the long-term incentive program of the Company purchased 77,062,000 ordinary shares from the market for award to employees upon vesting. Details of the program are set out under section headed “Long-Term Incentive Program” in this Interim Report.

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s securities during the six months ended September 30, 2012.

FACILITY AGREEMENT WITH COVENANT ON CONTROLLING SHAREHOLDER

The Company entered into a facility agreement with a syndicate of banks on February 2, 2011 (the “Facility Agreement”) for a term loan facility of up to US$500 million (the “Facility”). The final maturity date of the Facility will fall on the date which is 60 months after February 2, 2011. The Facility Agreement includes, inter alia, terms to the effect that it will be an event of default if Legend Holdings Limited, the controlling shareholder of the Company: (i) is not or ceases to be the direct or indirect beneficial owner of 20% or more of the issued share capital of the Company; or (ii) is not or ceases to be the single largest shareholder in the Company.

INTERIM DIVIDEND

The Board has declared an interim dividend of HK4.5 cents (2011/12: HK3.8 cents) per ordinary share for the six months ended September 30, 2012, absorbing an aggregate amount of approximately HK$464.5 million (approximately US$59.9 million) (2011/12: approximately HK$392.2 million (approximately US$50.5 million)), to shareholders whose names appear on the Register of Members of ordinary shares of the Company on Friday, November 23, 2012. The interim dividend will be paid on Monday, December 3, 2012.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of ordinary shares of the Company will be closed on Friday, November 23, 2012, during which no transfer of ordinary shares will be effected. In order to qualify for the interim dividend, all completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Tricor Abacus Limited of 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Thursday, November 22, 2012. Shares of the Company will be traded ex-dividend as from Wednesday, November 21, 2012.

40 2012/13 Interim Report Lenovo Group Limited

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CHANGES IN DIRECTORS’ EMOLUMENTS AND INFORMATION

Pursuant to Rule 13. 51(B)1 of the Listing Rules, the changes in directors’ emoluments and information of the Company subsequent to the date of the 2011/12 Annual Report or the latest pertaining publication of the Company (whichever later) are set out below: Director Details of Changes Mr. Yang Yuanqing For the financial year ending March 31, 2013, the annual base salary of Mr. Yang Yuanqing is increased from US$1,083,000 to US$1,209,390 and the target bonus is increased from US$2,166,000 to US$2,418,780. Non-Executive Directors For the financial year ending March 31, 2013, the remuneration for a non-executive director is increased from US$260,000 to US$262,500, comprising cash director’s fees of US$82,500 and equity rights with a value of US$180,000. The Chairman of Audit Committee receives an additional cash of US$27,500 per annum. The Chairman of the Compensation Committee receives an additional cash of US$10,500 per annum. Mr. Nobuyuki Idei Mr. Idei ceased to be chairman of the Advisory Board of Sony Corporation in June 2012.

Save as disclosed above, there is no other information to be disclosed pursuant to Rule 13.51(B)1 of the Listing Rules.

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, internal control and risk management 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 three members including Mr. Allen, an independent non-executive director, Mr. Ting Lee Sen, and a non-executive director, Ms. Ma Xuezheng.

The Audit Committee of the Company has reviewed the unaudited interim results of the Group for the six months ended September 30, 2012. 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 six months ended September 30, 2012, in compliance with the code provisions of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing Rules save for the deviation under code provision A.2.1 as disclosed in the Corporate Governance Report of the 2011/12 Annual Report of the Company.

MODEL CODE

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules along with its guidance note to govern directors’ securities transactions. Having made specific enquiry of the directors of the Company, all the directors of the Company have confirmed their compliance with the required standard set out in the Model Code and the guidance note throughout the accounting period covered by this interim report.

The Company has also adopted its own Trading in Securities Policy applicable to designated senior management of the Company which is on terms no less exacting than the required standard as set out in the Model Code.

By Order of the Board Yang Yuanqing Chairman and Chief Executive Officer

November 8, 2012

2012/13 Interim Report Lenovo Group Limited

CORPORATE INFORMATION

Honorary Chairman

Mr. Liu Chuanzhi

Board of Directors

Chairman and executive director Mr. Yang Yuanqing

Non-executive directors

Mr. Zhu Linan Ms. Ma Xuezheng Dr. Wu Yibing Mr. Zhao John Huan

Independent non-executive directors

Mr. Ting Lee Sen Dr. Tian Suning Mr. Nicholas C. Allen

Mr. Nobuyuki Idei Mr. William O. Grabe

Chief Financial Officer

Mr. Wong Wai Ming

Company Secretary

Mr. Mok Chung Fu

Principal Bankers

Bank of China BNP Paribas China Merchants Bank Citibank, N.A.

The Hongkong and Shanghai Banking Corporation Limited Industrial and Commercial Bank of China Standard Chartered Bank (Hong Kong) Limited

Independent Auditor

PricewaterhouseCoopers Certified Public Accountants 22nd Floor, Prince’s Building Central, Hong Kong

Share Registrar

Tricor Abacus Limited 26th Floor, Tesbury Centre 28 Queen’s Road East, Hong Kong

American Depositary Receipts

(Depositary and Registrar) Citibank, N.A. 14th Floor, 388 Greenwich Street New York, NY 10013, USA

Registered Office

23rd Floor, Lincoln House, Taikoo Place 979 King’s Road, Quarry Bay, Hong Kong

Stock Codes

Hong Kong Stock Exchange: 992 American Depositary Receipts: LNVGY

Website

www.lenovo.com

42 2012/13 Interim Report Lenovo Group Limited

AI assistant

Yunkang Group Limited — Interim / Quarterly Report 2013

50524_rns_2012-11-21_f67efe48-2c2b-47c0-84aa-2f9e86fed935.pdf

REDEFINING PC INNOVATION

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEET (continued)

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Notes

1 Basis of preparation

2 Segment information

2 Segment information (continued)

(a) Segment revenue and adjusted pre-tax income for reportable segments

Notes (continued)

2 Segment information (continued)

(c) Segment liabilities for reportable segments

2 Segment information (continued)

(d) Analysis of revenue by significant categories

(e) Other segment information

2 Segment information (continued)

At September 30, 2012

3 Other income/(loss) – net

4 Operating profit

5 Finance income and costs

(b) Finance costs

6 Taxation

7 Earnings per share

(a) Basic

7 Earnings per share (continued)

(b) Diluted

8 Dividend

9 Non-current assets

10 Ageing analysis

11 Deposits, prepayments and other receivables

12 Provisions, accruals and other payables

13 Other non-current liabilities

Notes (continued)

14 Share capital

15 Non-controlling interests

16 Commitments

(a) Commitments arising from business combination activities

Notes (continued)

16 Commitments (continued)

(b) Capital commitments

17 Contingent liabilities

FINANCIAL REVIEW RESULTS

Other income/(loss) – net

Selling and distribution expenses

FINANCIAL REVIEW (continued)

RESULTS (continued)

Administrative expenses

Research and development expenses

Other operating expense – net

FINANCIAL POSITION

Property, plant and equipment

Prepaid lease payments

Construction-in-progress

FINANCIAL REVIEW (continued)

FINANCIAL POSITION (continued)

Intangible assets

Deferred income tax assets

Inventories

Trade receivables and Notes receivable

Deposits, prepayments and other receivables

Bank borrowings

Warranty provision

FINANCIAL REVIEW (continued)

FINANCIAL POSITION (continued)

Retirement benefit obligations

Other non-current liabilities

Trade payables and Notes payable

Provisions, accruals and other payables

CAPITAL EXPENDITURE

LIQUIDITY AND FINANCIAL RESOURCES

FINANCIAL REVIEW (continued)

LIQUIDITY AND FINANCIAL RESOURCES (continued)

BUSINESS REVIEW AND OUTLOOK

Performance of Geographies

Yunkang Group Limited Interim / Quarterly Report 2013