q1fy17/18 earnings announcement - lenovostatic.lenovo.com/ww/lenovo/pdf/lenovo...

2017 Lenovo Internal. All rights reserved.

Aug 17, 2017 – New York Aug 18, 2017 – Hong Kong

Q1FY17/18 Earnings Announcement

2

Forward Looking Statement

This presentation contains “forward-looking statements” which are statements that refer to expectations and plans for

the future and include, without limitation, statements regarding Lenovo’s future results of operations, financial condition

or business prospects as well as other statements based on projections, estimates and assumptions. In some cases,

these statements can be identified by terms such as "expect," "intend," "plan," "believe," "estimate," "may," "will,"

"should" and comparable words (including the negative of such words). These forward-looking statements, reflect the

current expectations and plans of the directors and management of Lenovo, which may not materialize or may change.

Many risks, uncertainties and other factors, some of which are unpredictable and beyond Lenovo’s control, could affect

the matters discussed in these forward-looking statements. These factors include, without limitation, economic and

business conditions globally and in the countries where we operate, Lenovo’s ability to predict and respond quickly to

market developments, consumer demand, pricing trends and competition; changes in applicable laws and regulations

(including applicable tax and tariff rates). Any variance from the expectations or plans on which these forward-looking

statements are based could cause Lenovo’s actual results or actions to differ materially from those expressed or

implied in these statements. These forward-looking statements are not guarantees of future performance and you are

cautioned not to place undue reliance on these statements. Lenovo undertakes no obligation to update any forward-

looking statements in this presentation, whether as a result of new information or any subsequent change, development

or event. All forward-looking statements in this presentation are qualified by reference to this paragraph.


Yuanqing Yang Chairman & CEO


4

Maintain PC Profitability

to Fuel New Businesses Build MBG & DCG

into New Growth Engines

Invest in “Device + Cloud”

and “Infrastructure +

Cloud” Powered by A.I.

5 2017 Lenovo. All rights reserved.

Stable performance as we build new growth engines

5 Source: Internal Data

• Revenue stabilized: $10 billion, flat year-on-year

• Operational PTI* improved $110 million quarter-to-quarter

• Entering new phase of growth

Quarterly Revenue ($ Millions)

10056 11231

12169

9579 10012

0

5000

10000

15000

Q1 16/17 Q2 16/17 Q3 16/17 Q4 16/17 Q1 17/18

*Operational PTI: Reported Pre-Tax Income excl. non-cash

M&A charges and one-time property disposal gain

6

480

490

500

510

520

530

540

550

Q1 16/17 Q2 16/17 Q3 16/17 Q4 16/17 Q1 17/18

2017 Lenovo. All rights reserved.

Solid execution shows progress

1st wave: PC business winning defensive battle – Prioritized profitability, improved ASP by 7% year-on-year

– Revenue was stable year-on-year

– Maintained industry leading profit margin of 4.2%.

Source: Internal Data

Lenovo PC ASP ($)

+7%


2nd wave: Mobile business on track to breakeven in 2nd half of the year – Built competitiveness in brand, products, channels, and organization

– Strong progress in Latin America, Western Europe, North America

– Revenue year-on-year outgrew the market; PTI margin improved by 2.2 pts

Source: IDC & internal Data

+49.9pts

5188

3318

LA

685

289

W Europe

+144.2pts

CA

(K units)

Vol. YTY

Q1 16/17Q1 17/18

Smartphone Performance

Q1 16/17 Q1 17/18


+4.5pts +1.5pts Share YTY

Mkt prem.

56.4% 136.7%

8

2nd wave: Data center business gains good momentum – Right organization, expert leadership, dedicated salesforce and talents in place

– Launched most comprehensive product line in Lenovo history

– Positive growth year-on-year in largest markets: North America and EMEA

– Invest in hyperscale business model, network & storage attach and new tech.

– Will start contributing profit in two years

#1 CUSTOMER SATISFACTION

#1 RELIABILITY

#1 PERFORMANCE



Source: TBR, ITIC, and industry benchmarks


3rd wave: “Device+Cloud” and “Infra.+Cloud” made good progress – Lenovo Tech World Shanghai: shared vision of intelligent transformation,

showcased latest innovation, and received positive feedback

Solid execution shows progress Solid execution shows progress 3rd wave: “Device+Cloud” and “Infra.+Cloud” shows good progress

– Lenovo Tech World at Shanghai:

– Shared vision of intelligent transformation

– Showcased latest innovation

10

Deeper customer centric transformation

Lenovo ID registered users

225 Million, up 50% year-on-year

Monthly Active Users

90 Million

Repurchase Revenue

Up 12% quarter-to-quarter

Non-device revenue

$400 Million


Looking forward


•Approaching the turning point

•As the new profit engines gain speed, results will follow


Wong Wai Ming Chief Financial Officer


13

Q1 FY2017/18 Highlights

US$ Million Q1 FY2017/18 Q1 FY2016/17 Q4 FY2016/17

Revenue 10,012 10,056 9,579

Gross Profit 1,365 1,534 1,368

Operating Expenses (1,371) (1,289) (1,294)

Operational PTI 5 152 (105)

Add: Property Disposal Gain - 129 218

Less: Restructuring Charge - - (24)

Less: Non-cash M&A Related Accounting

Charges (74) (75) (74)

Pre-tax (Loss)/Income (As Reported) (69) 206 15

• Revenue stabilized at US$10 billion despite market challenges • Operational PTI improvement of US$110 million QTQ thanks to improvement from DCG and MBG • DCG: Rev up +14% QTQ resulted in PTI margin improvement QTQ • MBG: Revenue continued to grow YTY for 2nd consecutive quarter with profitability improvement • PCSD: Maintained industry-leading profitability

Financial Snap Shot

14 2017 Lenovo Internal. All rights reserved.

Cash and Working Capital

Q4 15/16 Q1 16/17 Q2 16/17 Q3 16/17 Q4 16/17 Q1 17/18

Days receivable 45 38 36 36 40 37

Days inventory 34 29 27 26 32 32

Days payable 79 67 68 75 94 84

Cash conversion cycle 0 0 -5 -13 -22 -15

-40-20

020406080

100120


Bank deposits and cash 1,541 2,064 2,951

Total Borrowings 2,843 3,231 3,037

Net (Debt)/Cash Reserves (1,302) (1,167) (86)

Net cash (used in)/

generated from operating activities (577) 8 (26)


PC & Smart Device Business Group (PCSD)

Overview

• Revenue up 0.2% YTY and 4.8% QTQ with ASP improvement

• Remained a leading player in PC+Tablet, share gain in AP and EMEA

• Double digit growth in gaming segment

• PTI at 4.2% down YTY due to component cost increase

Highlights

• Focused on product mix and ASP performance to mitigate the component cost increase

• Strong EMEA revenue growth with margin expansion thanks to solid performance in Western Europe

• Balanced between profit and growth in NA


Revenue 7,005 6,992 6,682

Pre-tax Income 291 370 288

Pre-tax Income Margin (%) 4.2% 5.3% 4.3%


Mobile Business Group (MBG)

Overview

• Revenue grew 2nd consecutive quarter YTY

• Strong sales momentum in LA and Western Europe

• Strong shipment for mainstream Moto models (Moto C, E and G) and achieved over 3 million units within 12 months of Moto Z

• Better product mix in ROW drove overall PTI margin improvement both QTQ & YTY, despite component cost pressure; Losses narrowed in China

Highlights

• Strong new Moto product launch in India; continue to invest in channel expansion

• Strong momentum in Western Europe with improved ASP and profitability sequentially driven by better product mix

• Strong momentum in LA (Shipment:+56% YTY; mkt share: 14.2% up 4.5pts); marketing investment in new product launches

• Balanced the growth and profitability in the rest of Emerging Markets

* Included non-cash M&A-related accounting charges, such as intangible asset amortization, imputed interest expense of promissory notes and others


Revenue 1,746 1,706 1,772

Pre-tax Loss Operational (129) (163) (177)

Reported* (173) (206) (220)

Pre-tax Income Margin (%) Operational (7.4)% (9.6)% (10.0)%

Reported* (9.9)% (12.1)% (12.4)%


Data Center Business Group (DCG) Overview

• Transformation on track

• Signs of stabilization: Revenue +14% QTQ; driven by growth returning in NA & EMEA while PTI margin improved QTQ

• Continued strong performance in Global Account & HPC

• Continued component cost increase impacted overall margin

Highlights

• Installed the largest supercomputer in the world on next generation Intel platform at Barcelona supercomputer center

• Launched the largest product portfolio in its history with comprehensive offerings to address a wider range of market opportunities

• Continued to transition its business model to balance between growth and profitability

• On-going transformation with investments in channel and sales capabilities

* Included non-cash M&A-related accounting charges, such as intangible asset amortization, imputed interest expense of promissory notes and others


Revenue 971 1,087 850

Pre-tax Loss Operational (114) (31) (110)

Reported* (144) (64) (141)

Pre-tax Income Margin (%) Operational (11.7)% (2.9)% (13.0)%

Reported* (14.9)% (5.9)% (16.6)%

Appendix

- Financial Summary

- Condensed Consolidated Income Statement

- Condensed Consolidated Balance Sheet

- Condensed Consolidated Cash Flow Statement

- Q1FY18 Performance by Geography

19

Financial Summary US$ Million Q1 FY2017/18 Q1 FY2016/17 Y/Y% Q4 FY2016/17 Q/Q%

Revenue 10,012 10,056 (0%) 9,579 5%

Gross Profit 1,365 1,534 (11%) 1,368 (0%)

Operating Expenses (1,371) (1,289) 6% (1,294) 6%

Operating (Loss)/ Profit (6) 245 N/A 74 N/A

Other Non-Operating Expenses (63) (39) 60% (59) 8%

Pre-tax (Loss)/Income (69) 206 N/A 15 N/A

Taxation 15 (38) N/A 89 (83%)

(Loss)/Profit for the period (54) 168 N/A 104 N/A

Non-controlling interests (18) 5 N/A 3 N/A

(Loss)/Profit attributable to Equity Holders (72) 173 N/A 107 N/A

EPS (US cents)

- Basic (0.66) 1.57 NA 0.97 NA

- Diluted (0.66) 1.56 NA 0.97 NA

Q1 FY2017/18 Q1 FY2016/17 Q4 FY2016/17

Gross margin 13.6% 15.3% 14.3%

E/R ratio 13.7% 12.8% 13.5%

Operating margin -0.1% 2.4% 0.8%

PTI margin -0.7% 2.0% 0.2%

Net margin attributable to Equity Holders -0.7% 1.7% 1.1%

20

Condensed Consolidated Income Statement US$ Million Q1 FY2017/18 Q1 FY2016/17

Revenue 10,012 10,056

Cost of sales (8,647) (8,522)

Gross profit 1,365 1,534

Selling and distribution expenses (665) (589)

Administrative expenses (460) (458)

Research and development expenses (292) (356)

Other operating income - net 46 114

Operating (loss)/profit (6) 245

Finance income 9 6

Finance costs (72) (55)

Share of profit of associated companies and joint ventures - 10

Profit/(loss) before taxation (69) 206

Taxation 15 (38)

(Loss)/Profit for the period (54) 168

(Loss)/Profit attributable to:

Equity holders of the company (72) 173

Perpetual securities holders 13 -

Other non-controlling interests 5 (5)

(Loss)/Earnings per share (US cents)

- Basic (0.66) 1.57

- Diluted (0.66) 1.56

21

Condensed Consolidated Balance Sheet

US$ Million As at As at

Jun 30, 2017 Mar 31, 2017

Non-current assets 12,477 12,318

Property, plant and equipment 1,273 1,236

Intangible assets 8,317 8,349

Others 2,887 2,733

Current assets 14,150 14,868

Bank deposits and cash 1,541 2,951

Trade, notes and other receivables 9,182 8,870

Inventories 3,178 2,794

Others 249 253

Current liabilities 18,053 18,334

Borrowings 264 70

Trade, notes, other payables, accruals and provisions 16,072 17,364

Others 1,717 900

Net current liabilities 3,903 3,466

Non-current liabilities 4,396 4,757

Total equity 4,178 4,095

22

Condensed Consolidated Cash Flow Statement


Net cash (used in)/generated from operating activities (577) 8 (26)

Net cash (used in)/generated from investing activities (744) 34 (1,091)

Net cash (used in)/generated from financing activities (67) (41) 1,319

(Decrease)/Increase in cash and cash equivalents (1,388) 1 202

Effect of foreign exchange rate changes 20 (22) 30

Cash and cash equivalents at the beginning of the period 2,755 1,927 2,523

Cash and cash equivalents at the end of the period 1,387 1,906 2,755

23

China • PCSD: Focus on product mix and ASP performance to mitigate the

component cost increases • Mobile: Continue to build more efficient foundation

• Data Center: Continue to transition its business model to balance between growth and profitability

AP • PCSD: Gained share in a weak traditional PC market • Mobile: Strong new Moto product launch in India; continue to invest

in channel expansion • Data Center: On-going transformation with investments in channel

and sales capabilities

EMEA • PCSD: Strong revenue growth with margin expansion thanks to solid

performance from Western Europe • Mobile: Better product mix driving higher ASP and profitability

sequentially thanks to strong momentum in Western Europe • Data Center: Revenue growth turned positive showing transformation

efforts working; continue to invest in channel and sales capabilities

AG (Americas) • PCSD: Balance between profit and growth in NA • Mobile: Strong momentum in LA (Shipment:+56% YTY; mkt share:

14.2% up 4.5pts); marketing investment in new product launches • Data Center: Revenue growth turned positive showing transformation

efforts working; continue to invest in channel and sales capabilities

Q1FY18 Performance by Geography

Revenue Segment Pretax Income/ (Loss) Segment Pretax Income Margin US$ Million US$ Million (%)

Q1

FY18 Y/Y Q/Q

Q1

FY18

Q1

FY17

Q4

FY17

Q1

FY18

Q1

FY17

Q4

FY17

China 2,515 (339) 234 83 138 64 3.3% 4.8% 2.8%

AP 1,573 (107) (160) (42) 17 (43) (2.6)% 1.0% (2.5)%

EMEA 2,703 236 79 (41) (49) (120) (1.5)% (2.0)% (4.6)%

AG 3,221 166 280 41 38 60 1.3% 1.3% 2.0%

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