AEON Credit Service Asia : Unaudited Results for the Nine Months Ended 30th November 2019

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

AEON CREDIT SERVICE (ASIA) COMPANY LIMITED

AEON 信貸財務（亞洲）有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 900)

UNAUDITED RESULTS FOR THE NINE MONTHS ENDED 30TH NOVEMBER 2019

The board (the "Board") of directors (the "Directors") of AEON Credit Service (Asia) Company Limited (the "Company") are pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the "Group") for the nine months ended 30th November 2019, together with comparative figures of the previous period as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the nine months ended 30th November 2019

		1.3.2019 to	1.3.2018 to
		30.11.2019		30.11.2018
		(Unaudited)	(Unaudited)
	Notes	HK$'000	HK$'000
Revenue	2	974,565		979,911
Interest income		842,604		850,060
Interest expense		(53,451)	(63,057)
Net interest income		789,153		787,003
Fees and commissions		74,200		68,145
Handling and late charges		57,761		61,706
Other income	4	2,169		2,868
Other gains and losses	5	(7,988)	(660)
Operating income		915,295		919,062
Operating expenses	6	(424,147)	(407,226)
Operating profit before impairment losses and		491,148
impairment allowances			511,836
Impairment losses and impairment allowances		(188,987)	(152,158)
Recoveries of advances and receivables written-off		34,015		37,566
Share of results of an associate		454		1,488
Profit before tax		336,630		398,732
Income tax expense		(57,766)	(65,245)
Profit for the period		278,864		333,487
Profit for the period attributable to:
	278,864
Owners of the Company			333,487
Earnings per share - Basic		66.59 HK cents	79.64 HK cents

- 1 -

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the nine months ended 30th November 2019

	1.3.2019 to	1.3.2018 to
	30.11.2019		30.11.2018
	(Unaudited)	(Unaudited)
	HK$'000	HK$'000
Profit for the period	278,864		333,487
Other comprehensive income (expense)
Item that will not be reclassified to profit or loss:
Fair value loss on equity instruments at fair value	(21,309)
through other comprehensive income	(1,349)
Items that may be reclassified subsequently to profit or loss:
Exchange difference arising from translation of	(12,534)
foreign operations	(25,338)
Net adjustment on cash flow hedges	1,804		27,327
Other comprehensive (expense) income for the period	(32,039)	640
Total comprehensive income for the period	246,825		334,127
Total comprehensive income for the period attributable to:
246,825
Owners of the Company		334,127

- 2 -

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30th November 2019

		30.11.2019		28.2.2019
		(Unaudited)	(Audited)
	Notes	HK$'000	HK$'000
Non-current assets		111,425
Property, plant and equipment			70,365
Right-of-use assets		101,135		-
Investment in an associate		15,081		15,449
Equity instruments at fair value through		97,277
other comprehensive income			118,701
Advances and receivables	7	771,672		862,105
Prepayments, deposits and other debtors		22,935		60,040
Derivative financial instruments	11	8,228		15,469
Deferred tax assets		9,281		16,698
Restricted deposits		38,000		38,000
		1,175,034		1,196,827
Current assets
	3,825,879
Advances and receivables	7		4,021,782
Prepayments, deposits and other debtors		59,504		47,456
Amounts due from fellow subsidiaries		-	160
Amount due from immediate holding company		445		283
Amount due from an associate		38		39
Derivative financial instruments	11	539		17
Restricted deposits		-	381,466
Time deposits		157,561		152,536
Fiduciary bank balances		-	35
Bank balances and cash		707,913		380,083
		4,751,879		4,983,857
Current liabilities
	214,715
Creditors and accruals			255,943
Contract liabilities		15,187		9,486
Amounts due to fellow subsidiaries		30,360		42,920
Amount due to intermediate holding company		168		-
Amount due to ultimate holding company		45		28
Amount due to an associate		1,582		2,027
Bank borrowings	10	250,000		325,000
Collateralised debt obligation	12	805,400		701,600
Lease liabilities		38,511		-
Derivative financial instruments	11	756		11,069
Tax liabilities		64,532		33,515
		1,421,256		1,381,588
Net current assets		3,330,623		3,602,269
Total assets less current liabilities		4,505,657		4,799,096
- 3 -

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

At 30th November 2019

		30.11.2019		28.2.2019
		(Unaudited)	(Audited)
	Notes	HK$'000	HK$'000
Capital and reserves		269,477
Share capital			269,477
Reserves		2,983,737		2,921,170
Total equity		3,253,214	3,190,647
Non-current liabilities
	1,110,512
Bank borrowings	10		1,056,483
Collateralised debt obligation	12	69,100		548,400
Lease liabilities		64,284		-
Derivative financial instruments	11	8,547		3,566
		1,252,443		1,608,449
		4,505,657		4,799,096

- 4 -

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the nine months ended 30th November 2019

			Investment
	Share		revaluation	Hedging	Translation	Accumulated
	capital		reserve	reserve	reserve			profits	Total
	HK$'000		HK$'000	HK$'000	HK$'000			HK$'000	HK$'000
At 1st March 2018 (Audited)	269,477	63,175		(19,529)	2,296	2,592,081		2,907,500
Profit for the period	-		-	-	-	333,487		333,487
Fair value loss on equity
instruments at fair value through
other comprehensive income	-	(1,349)	-	-			-	(1,349)
Exchange difference arising from
translation of foreign operations	-		-	-	(25,338)			-	(25,338)
Net adjustment on cash flow hedges	-		-	27,327	-			-	27,327
Total comprehensive (expense) income
for the period	-	(1,349)	27,327		(25,338)	333,487		334,127
Final dividend paid for the year from
1.3.2017 to 28.2.2018	-		-	-	-	(92,128)	(92,128)
Interim dividend paid for the year from
1.3.2018 to 28.2.2019	-		-		-		-	(92,128)	(92,128)
	-		(1,349)	27,327		(25,338)	149,231		149,871
At 30th November 2018 (Unaudited)	269,477		61,826		7,798	(23,042)	2,741,312		3,057,371
At 1st March 2019 (Audited)	269,477		93,040		(3,738)	(13,213)	2,845,079		3,190,645
Profit for the period	-		-	-	-	278,864		278,864
Fair value loss on equity
instruments at fair value through
other comprehensive income	-	(21,309)	-	-			-	(21,309)
Exchange difference arising from
translation of foreign operations	-		-	-	(12,534)			-	(12,534)
Net adjustment on cash flow hedges	-		-	1,804	-			-	1,804
Total comprehensive (expense) income
for the period	-	(21,309)	1,804	(12,534)	278,864		246,825
Investment revaluation reserve
reclassified to accumulated
profits upon disposal of
equity instruments at
fair value through other
comprehensive income	-	1,723		-	-	(1,723)	-
Final dividend paid for the year from
1.3.2018 to 28.2.2019	-		-	-	-	(92,128)	(92,128)
Interim dividend paid for the year from
1.3.2019 to 29.2.2020	-		-		-	-	(92,128)	(92,128)
	-		(19,586)	1,804	(12,534)	92,885		62,569
At 30th November 2019 (Unaudited)	269,477	73,454		(1,934)	(25,747)	2,937,964		3,253,214

- 5 -

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the nine months ended 30th November 2019

	1.3.2019 to	1.3.2018 to
	30.11.2019		30.11.2018
	(Unaudited)	(Unaudited)
	HK$'000	HK$'000
Net cash from operating activities	609,840		495,904
Dividends received	929		781
Proceeds on disposal of equity instruments at	114
fair value through other comprehensive income		-
Proceeds on disposal of property, plant and equipment	35		-
Purchase of property, plant and equipment	(10,277)	(3,210)
Deposits paid for acquisition of property,	(22,237)
plant and equipment	(23,889)
Placement of time deposits with maturity of	(80,433)
more than three months	(2,472)
Release of time deposits with maturity of	33,071
more than three months		-
Net cash used in investing activities	(78,798)	(28,790)
Placement of restricted deposits	(727,929)	(1,654,725)
Withdrawal of restricted deposits	1,109,396		1,314,272
Repayment of lease liabilities	(42,856)	-
Dividends paid	(184,256)	(184,256)
New bank loans raised	309,601		-
Repayment of bank loans	(700,500)	(245,000)
Net cash used in financing activities	(236,544)	(769,709)
Net increase (decrease) in cash and cash equivalents	294,498		(302,595)
Effect of changes in exchange rate	(5,829)	(7,072)
Cash and cash equivalents at beginning of the period	478,556		721,762
Cash and cash equivalents at end of the period	767,225		412,095
Being:	59,312
Time deposits with maturity of three months or less		88,552
Bank balances and cash	707,913		323,543
	767,225		412,095

- 6 -

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended 30th November 2019

1. BASIS OF PREPARATION
   The condensed consolidated 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 as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.
   The financial information relating to the year ended 28th February 2019 that is included in these condensed consolidated financial statements as comparative information does not constitute the Company's statutory annual consolidated financial statements for that year but is derived from those financial statements. Further information relating to these statutory financial statements is as follows:
   The Company has delivered the financial statements for the year ended 28th February 2019 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance.
   The Company's auditor has reported on those financial statements. The auditor's report was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report; and did not contain a statement under sections 406(2), 407(2) or (3) of the Companies Ordinance.
   The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values, as appropriate.
   Other than changes in accounting policies resulting from the application of new and amendments to Hong Kong Financial Reporting Standards ("HKFRSs"), the accounting policies and methods of computation used in the condensed consolidated financial statements for the nine months ended 30th November 2019 are the same as those followed in the preparation of the Group's annual financial statements for the year ended 28th February 2019.
2. REVENUE

	1.3.2019 to		1.3.2018 to
	30.11.2019	30.11.2018
	(Unaudited)		(Unaudited)
	HK$'000		HK$'000
Interest income	842,604	850,060
Fees and commissions
Credit cards	51,225	49,538
Insurance	22,975	18,607
Handling and late charges	57,761	61,706
	974,565	979,911

- 7 -

3. SEGMENT INFORMATION

Services from which operating and reportable segments derive their revenues

The Group's operating and reportable segments are as follows:

Credit cards	- Provide credit card services to individuals and card payment processing
		services to merchants
Personal loans	-	Provide personal loan financing to individuals
Insurance	-	Provide insurance brokerage and agency services

Segment revenue and results

The following is an analysis of the Group's revenue and results by operating and reportable segments:

1.3.2019 to 30.11.2019 (Unaudited)
	Credit	Personal
	cards	loans		Insurance	Consolidated
	HK$'000	HK$'000		HK$'000	HK$'000
REVENUE	741,460		210,077	23,028	974,565
RESULT
Segment results	263,950		61,930	11,120	337,000
Unallocated operating income							2,576
Unallocated expenses							(3,400)
Share of results of an associate							454
Profit before tax							336,630
1.3.2018 to 30.11.2018 (Unaudited)
	Credit	Personal
	cards	loans		Insurance	Consolidated
	HK$'000	HK$'000		HK$'000	HK$'000
REVENUE	730,435	230,758	18,718	979,911
RESULT
Segment results	300,011	89,730	8,267	398,008
Unallocated operating income							2,728
Unallocated expenses							(3,492)
Share of results of an associate							1,488
Profit before tax							398,732

- 8 -

3. SEGMENT INFORMATION (Continued) Geographical information

The following is an analysis of the Group's revenue and results by geographical segments:

1.3.2019 to 30.11.2019 (Unaudited)

			People's
			Republic of
	Hong Kong		China	Consolidated
	HK$'000		HK$'000	HK$'000
REVENUE	964,373	10,192	974,565
RESULT
Segment results	349,619	(12,619)	337,000
Unallocated operating income					2,576
Unallocated expenses					(3,400)
Share of results of an associate					454
Profit before tax					336,630
1.3.2018 to 30.11.2018 (Unaudited)
			People's
			Republic of
	Hong Kong		China	Consolidated
	HK$'000		HK$'000	HK$'000
REVENUE	950,608	29,303	979,911
RESULT
Segment results	408,672	(10,664)	398,008
Unallocated operating income					2,728
Unallocated expenses					(3,492)
Share of results of an associate					1,488
Profit before tax					398,732

- 9 -

4. OTHER INCOME

		1.3.2019 to	1.3.2018 to
		30.11.2019		30.11.2018
		(Unaudited)	(Unaudited)
		HK$'000	HK$'000
	Dividends received from financial instruments
	Listed equity securities	781		781
	Unlisted equity securities	148		-
	Others	1,240		2,087
		2,169		2,868
5.	OTHER GAINS AND LOSSES
		1.3.2019 to	1.3.2018 to
		30.11.2019		30.11.2018
		(Unaudited)	(Unaudited)
		HK$'000	HK$'000
	Exchange gain (loss)
	Exchange gain on hedging instrument released from
	cash flow hedge reserve	3,426		300
	Exchange loss on a bank loan	(3,426)	(300)
	Other exchange losses, net	(176)	(198)
	Hedge ineffectiveness on cash flow hedges	(48)	(98)
	Losses on disposal of property, plant and equipment	(697)	(364)
	Losses on lease modification	(7,067)	-
		(7,988)	(660)
6.	OPERATING EXPENSES
		1.3.2019 to	1.3.2018 to
		30.11.2019		30.11.2018
		(Unaudited)	(Unaudited)
		HK$'000	HK$'000
	Depreciation on property, plant and equipment	26,980		28,875
	Depreciation on right-of-use assets	35,262		-
	Operating lease rentals in respect of rented premises,
	advertising space and equipment	12,501		53,349
	General administrative expenses	123,473		123,594
	Marketing and promotion expenses	57,563		41,163
	Other operating expenses	50,024		43,156
	Staff costs including Directors' emoluments	118,344		117,089
		424,147		407,226

- 10 -

7. ADVANCES AND RECEIVABLES

		30.11.2019		28.2.2019
		(Unaudited)	(Audited)
		HK$'000	HK$'000
	Credit card receivables	3,690,633		3,842,292
	Personal loan receivables	1,081,363		1,197,248
		4,771,996		5,039,540
	Accrued interest and other receivables	85,263		87,840
	Gross advances and receivables	4,857,259		5,127,380
	Impairment allowances (Note 8)	(259,708)	(243,493)
		4,597,551		4,883,887
	Current portion included under current assets	(3,825,879)	(4,021,782)
	Amount due after one year	771,672		862,105
8.	IMPAIRMENT ALLOWANCES
		30.11.2019		28.2.2019
		(Unaudited)	(Audited)
		HK$'000	HK$'000
	Analysis by products as:
	Credit card receivables	146,160		127,790
	Personal loan receivables	107,764		110,058
	Accrued interest and other receivables	5,784		5,645
		259,708		243,493

- 11 -

8. IMPAIRMENT ALLOWANCES (Continued)

An analysis of movements in impairment allowances during each of the two periods ended 30th November

2019 and 30th November 2018 are set out as below:

		Stage 1	Stage 2	Stage 3	Total
		HK$'000	HK$'000	HK$'000	HK$'000
At 1st March 2019	107,811		48,575		87,107	243,493
Net (repayment) addition in
advances and receivables	(1,579)	81		(13,029)	(14,527)
Transfer to 12 months
Expected Credit Loss (Stage 1)		147,030		(140,693)	(6,337)	-
Transfer to lifetime
Expected Credit Loss not credit
impaired (Stage 2)		(14,171)	21,022		(6,851)	-
Transfer to lifetime
Expected Credit Loss credit
impaired (Stage 3)		(698)	(69,826)	70,524		-
Total transfer between stages	132,161		(189,497)	57,336		-
Impact on period-end expected credit
loss of expenses transferred between
stages during the period	(132,133)	187,310		116,932		172,109
Movements due to changes in credit risk	-	-	32,577		32,577
Amounts written-off as uncollectable	-	-	(173,280)	(173,280)
Exchange realignment	(83)	(67)	(514)	(664)
At 30th November 2019	106,177		46,402		107,129	259,708
		Stage 1	Stage 2	Stage 3	Total
		HK$'000	HK$'000	HK$'000	HK$'000
At 1st March 2018	115,555		51,856		110,623	278,034
Net addition (repayment) in
advances and receivables	1,482		(8,177)	(12,681)	(19,376)
Transfer to 12 months
Expected Credit Loss (Stage 1)		145,928		(140,886)	(5,042)	-
Transfer to lifetime
Expected Credit Loss not credit
impaired (Stage 2)		(11,455)	17,773		(6,318)	-
Transfer to lifetime
Expected Credit Loss credit
impaired (Stage 3)		(887)	(67,770)	68,657	-
Total transfer between stages	133,586		(190,883)	57,297	-
Impact on period-end expected credit
loss of expenses transferred between
stages during the period	(140,762)	194,254		84,389	137,881
Movements due to changes in credit risk	-	-	33,653	33,653
Amounts written-off as uncollectable	-	-	(184,259)	(184,259)
Exchange realignment	(357)	(282)	(468)	(1,107)
At 30th November 2018	109,504		46,768		88,554	244,826

- 12 -

9. OVERDUE ADVANCES AND RECEIVABLES

Set out below is an analysis of gross balance of advances and receivables (excluding impairment allowances) which is overdue for more than 1 month:

	30.11.2019		28.2.2019
	(Unaudited)			(Audited)
	HK$'000	%*		HK$'000	%*
Overdue 1 month but less than 2 months	109,654			2.3	93,505		1.8
Overdue 2 months but less than 3 months	56,477			1.2	51,409		1.0
Overdue 3 months but less than 4 months	25,989			0.5	25,744		0.5
Overdue 4 months or above	66,367			1.4	50,290		1.0
	258,487			5.4	220,948		4.3

*	Percentage of gross advances and receivables
10. BANK BORROWINGS
		30.11.2019		28.2.2019
		(Unaudited)	(Audited)
		HK$'000	HK$'000
Bank loans, unsecured	1,360,512		1,381,483
Carrying amount repayable (Note)
	Within one year	250,000		325,000
	Within a period of more than one year but not exceeding two years	650,700		370,000
	Within a period of more than two years but not exceeding five years	459,812		656,483
	Within a period of more than five years	-	30,000
		1,360,512		1,381,483
Amount repayable within one year included under current liabilities	(250,000)	(325,000)
Amount repayable after one year	1,110,512		1,056,483

Note: The amounts due are based on scheduled repayment dates set out in the loan agreements.

- 13 -

11. DERIVATIVE FINANCIAL INSTRUMENTS

	30.11.2019		28.2.2019
	(Unaudited)	(Audited)
	Assets	Liabilities	Assets	Liabilities
	HK$'000	HK$'000	HK$'000	HK$'000
Interest rate swaps	1,225		5,152		2,164		14,635
Cross-currency interest rate swap	7,542		4,151		13,322		-
	8,767		9,303		15,486		14,635
Current portion	(539)	(756)	(17)		(11,069)
Non-current portion	8,228		8,547		15,469		3,566

All derivative financial instruments entered into by the Group that remain outstanding at 30th November 2019 and 28th February 2019 are for hedging purposes. The classification of current/non-current for derivative financial instruments is in accordance with the maturity dates of the corresponding bank borrowings and collateralised debt obligation, the designated hedged items.

12. COLLATERALISED DEBT OBLIGATION
	30.11.2019		28.2.2019
	(Unaudited)	(Audited)
	HK$'000	HK$'000
Tranche A	362,250		550,000
Tranche B	362,250		550,000
Tranche C	150,000		150,000
	874,500		1,250,000
Amount repayable within one year included under current liabilities	(805,400)	(701,600)
Amount repayable after one year	69,100		548,400

13. PLEDGE OF ASSETS

At 30th November 2019, the collateralised debt obligation was secured by credit card receivables and restricted deposits of HK$1,547,227,000 and HK$38,000,000 respectively (28th February 2019: HK$1,675,261,000 and HK$419,466,000).

- 14 -

MANAGEMENT DISCUSSION AND ANALYSIS

Business Review

The ongoing US-China trade war, protracted social unrest in Hong Kong and related economic uncertainties had adversely affected inbound tourism and domestic consumption. Credit environment was noticeably affected in the third quarter.

Against this backdrop, the Group's credit purchase sales in the first nine months still managed to achieve a growth of 1.4% against the same period in its previous financial year. Throughout this current period, the Group continued to deploy the strategies of enhancing card benefits and utilizing new technologies to deliver premium customer service experience, including the introduction of new mobile app functions such as online personal loans and more convenient cash advance transfer through the Faster Payment System.

The acquiring phase of the new card and loan system project was completed with new terminals being installed for selected merchants to provide flexible payment solution to their customers.

Financial Review

For the nine months ended 30th November 2019, profit before tax was HK$336.6 million, a decrease of HK$62.1 million when compared with the previous period, due to increase in marketing and promotion expenses, and increase in impairment losses and impairment allowances. After deducting income tax expense of HK$57.8 million, the Group recorded a decrease in profit of 16.4%, with profit after tax reducing from HK$333.5 million in the previous period to HK$278.9 million in the current period. Earnings per share decreased from 79.64 HK cents to 66.59 HK cents for the reporting period.

Net debt to equity ratio was 0.5 and 0.7 at 30th November 2019 and 28th February 2019 respectively, while total equity to total assets ratio was 54.9% and 51.6% at 30th November 2019 and 28th February 2019 respectively.

Net asset value per share at 30th November 2019 was HK$7.8, as compared with the net asset value per share (after final dividend) of HK$7.4 at 28th February 2019.

Profit or Loss Analysis

Revenue

Revenue for the period was HK$974.6 million, a slight decrease of 0.5% or HK$5.3 million when compared with HK$979.9 million in the previous period.

- 15 -

MANAGEMENT DISCUSSION AND ANALYSIS (Continued)

Profit or Loss Analysis (Continued)

Net interest income

Through the launch of different card promotion programs, card credit purchase sales for the period recorded an increase when compared with the previous period. However, with the suspension of our ATM service for five months due to ATM skimming fraud, card cash advance sales for the period recorded a decrease of 16.4% when compared with the previous period. Notwithstanding the resizing of the portfolio with greater emphasis on higher yield products, the Group recorded a slight decrease in interest income of 0.9% or HK$7.5 million, from HK$850.1 million in the previous financial period to HK$842.6 million in the reporting period.

The Group's average funding cost was 2.8% in the reporting period. With a reduction in bank borrowings, the Group's interest expense recorded a decrease of 15.2% or HK$9.6 million, from HK$63.1 million in the previous period to HK$53.5 million in the reporting period.

Consequently, net interest income of the Group in the current period was HK$789.2 million, representing an increase of HK$2.2 million when compared with the corresponding period in 2018/19.

Operating income

Following the increase in credit card sales, there was an increase in fees and commissions from the credit card business of 3.4% or HK$1.7 million to HK$51.2 million in the current period. With the launch of new insurance products, fees and commissions from the insurance business recorded an increase of HK$4.4 million to HK$23.0 million in the current period. The Group recorded an overall increase of HK$6.1 million in fees and commissions from HK$68.1 million in the first nine months of 2018/19 to HK$74.2 million in the current period. Following the drop in card cash advance sales, there was a decrease in handling and late charges of HK$3.9 million in the reporting period.

With the early termination of lease/licence agreements for our ATMs, the Group incurred losses of HK$7.1 million on lease modification, resulting in the increase in other losses to HK$8.0 million in the reporting period.

Operating income of the Group for the first nine months of 2019/20 recorded a decrease of HK$3.8 million from HK$919.1 million in 2018/19 to HK$915.3 million in the reporting period.

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MANAGEMENT DISCUSSION AND ANALYSIS (Continued)

Profit or Loss Analysis (Continued)

Operating expenses

During the period under review, the Group had incurred more marketing and promotion expenses to stimulate customers' spending using our credit cards and for brand building, resulting in an increase of HK$16.4 million when compared with the previous period.

With the launch of different digitalization projects and the discontinuance service of certain ATMs, there was an increase in system running costs and related removal costs, resulting in an increase in other operating expenses in the first nine months by HK$6.9 million when compared with the previous reporting period.

Overall operating expenses recorded an increase of HK$16.9 million from HK$407.2 million in the previous period to HK$424.1 million in the current period. Cost-to-income ratio increased from 44.3% in the previous period to 46.3% in the current period.

At the operating level before impairment losses and impairment allowances, the Group recorded an operating profit of HK$491.1 million for the nine months ended 30th November 2019, representing a decrease of 4.0% from HK$511.8 million in the previous period.

Impairment losses and impairment allowance

The unstable economic outlook and social unrest affected the quality of the Group's credit portfolio since the beginning of second quarter this year. There was an increase of HK$36.8 million in impairment losses and impairment allowances from HK$152.2 million in the first nine months of 2018/19 to HK$189.0 million in the first nine months of 2019/20. Precautionary measures had been taken in the third quarter to prevent the potential deterioration in asset quality.

Statement of Financial Position Analysis

The Group's total equity at 30th November 2019 was HK$3,253.2 million, representing a growth of 2.0% or HK$62.6 million when compared with the balance of HK$3,190.6 million at 28th February 2019.

Total assets at 30th November 2019 were HK$5,926.9 million, representing a decrease of 4.1% or HK$253.8 million when compared with total assets of HK$6,180.7 million at 28th February 2019.

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MANAGEMENT DISCUSSION AND ANALYSIS (Continued)

Segment Information

In the first nine months of 2019/20, with an increase in credit purchase sales and increase in the yield on card cash advance portfolio, revenue from credit card operations in 2019/20 increased by 1.5% or HK$11.0 million from HK$730.4 million in 2018/19 to HK$741.5 million in 2019/20. However, due to the increase in marketing and promotion expenses to increase sales and deteriorating credit quality, the segment results for the period recorded

• decrease of HK$36.1 million from HK$300.0 million in 2018/19 to HK$264.0 million in 2019/20.

For personal loans, in view of market situation, the Group had tightened up on credit assessment, resulting in the slowdown in sales and reduction in the personal loan receivables balance. Consequently, revenue from personal loan operations in 2019/20 decreased by 9.0% or HK$20.7 million from HK$230.8 million in 2018/19 to HK$210.1 million in the reporting period. The segment results for the period recorded a decrease of HK$27.8 million from HK$89.7 million in 2018/19 to HK$61.9 million in 2019/20.

In relation to financial information by geographical locations, revenue from Hong Kong operations recorded an increase of 1.4% or HK$13.8 million, from HK$950.6 million in 2018/19 to HK$964.4 million in 2019/20, attributable to the increase in credit card sales and revolving credit card balance. However, due to the increase in spending on advertising and deterioration of credit quality, the segment results recorded a drop of 14.5% or HK$59.1 million, from HK$408.7 million in 2018/19 to HK$349.6 million in 2019/20.

For China operations, the three microfinance subsidiaries continued to underperform. Sales in these subsidiaries continued to decrease in the reporting period, resulting in the decrease in revenue of HK$19.1 million, from HK$29.3 million in 2018/19 to HK$10.2 million in 2019/20. Despite their efforts to control costs and improve the quality of their assets, the loss in the period increased by HK$2.0 million to HK$12.6 million from HK$10.7 million in 2018/19.

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MANAGEMENT DISCUSSION AND ANALYSIS (Continued)

Prospects

Unemployment rate revealed an increasing trend in the third quarter. As the tensions stemming from the US-China trade war and the current social unrest in Hong Kong has not yet been fully resolved, the economy will inevitably deteriorate. The Group will closely monitor the development and take additional precautionary measures against higher credit risk as may be considered necessary, especially on the continued increase in unemployment rate, which may accelerate the deterioration of credit quality in the fourth quarter.

As AEON Micro Finance (Shenyang) Co., Ltd. had been suffering losses since its incorporation, upon considering its small scale of operations, the Group could not foresee any prospect of its business sustainability. The Board therefore decided to commence voluntary liquidation on this micro-finance subsidiary. The Group will continue to monitor and assess the business prospects of the other two micro-finance subsidiaries, and seek new business opportunities in the consumer finance area.

Please note that the quarterly results of the Group presented herein have not been audited or reviewed by the Company's auditors. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

By order of the Board

HIDEO TANAKA

Managing Director

Hong Kong, 30th December 2019

As at the date of this announcement, the Board comprises Mr. Hideo Tanaka (Managing Director), Mr. Lai Yuk Kwong (Deputy Managing Director), Ms. Koh Yik Kung and Mr. Tony Fung as Executive Directors; Mr. Masaaki Mangetsu (Chairman) as Non-executive Director; and Mr. Lee Ching Ming, Adrian, Mr. Wong Hin Wing and Mr. Kenji Hayashi as Independent Non-executive Directors.

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