2qfy20/21 earnings announcement - investor relationsintelligent transformation: strong progress...
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2020 Lenovo Internal. All rights reserved.
2QFY20/21 Earnings AnnouncementNov 3, 2020
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.
2020 Lenovo Internal. All rights reserved. 2
2020 Lenovo Internal. All rights reserved.
Yuanqing YangChairman & CEO
Nov 3, 2020
Group Performance: Record Results• Record Revenue, Pre-Tax Income, Net Income§ Revenue: $14.5B, up 7.4% YOY; all core businesses delivered growth first time in 6 quarters§ Pre-Tax Income: $470M, up 51.7% YOY§ Net Income: $310M, up 53.4% YOY
• Lenovo given Strong Investment-Grade rating by top-three credit rating agencies
4
310
470
Q2 1920 Q2 2021
+51.7%
PTI* ($M)Revenue ($B)
Q2 1920 Q2 2021
+7.4%
13.5 14.5
202
310
Q2 1920 Q2 2021
+53.4%
Net Income ($M)
*PTI: Pre-Tax Income Source: Internal Data2020 Lenovo Internal. All rights reserved.
IDG PCSD*: Leading the Growth• Revenue up 7.6% YOY, new record• PTI up 18.2% YOY, new record• PTI margin maintained record 6.3%, up
0.6 points YOY• PC returned to #1 with 23.6% share• Focus on high-growth, premium
segments continued to drive strong growth
* IDG: Intelligent Devices Group; PCSD: PC & Smart Devices
612723
Q2 1920 Q2 2021
5.7 6.3
Q2 1920 Q2 2021
10.711.5
Q2 1920 Q2 2021
+7.6% +18.2%+0.6pt
Visuals
Thin & Light
Q2 1920 Q2 2021
ChromebookQ2 1920 Q2 2021
Q2 1920 Q2 2021
PC Segment Volume Growth YOY (%)
PCSD Revenue ($B) PCSD PTI ($M) PCSD Margin (%)
+124.7%
+13.5%
+48.7%
Gaming
Q2 1920 Q2 2021
+57.6%
Source: IDC and Internal Data 5
IDG Mobile: Resumed Growth• Revenue resumed YoY growth,
improved 39% quarter-to-quarter• Solidifying Latin America, North America,
while driving fast growth in Europe and Asia Pacific
• Launched razr 5G foldable and Legion Gaming phone, both well received
Q2 1920 Q2 2021
1510
Mobile Revenue YTY, QTQ ($M)
1519
10931519
Q1 2021 Q2 2021
+0.6% +39%
Legion Gaming PhoneMotorola razr 5GSource: Internal Data 6
• Revenue grew 11.1%, profitability up 0.7pts YOY
• Cloud Service Provider*§ Continued strong revenue growth, up 34.1%
YOY§ Major motherboard and system design win with
top cloud service provider§ Expanded Data Center Factory in Monterrey,
Mexico
Data Center: Continued Growth
DCG Revenue ($M), PTI Margin (%)
DCG CSP* Revenue Growth YOY (%)
Q2 1920 Q2 2021Q2 1920 Q2 2021
13311478
Q2 1920 Q2 2021
+11.1%
+0.7pts
+34.1%
* Cloud Service Provider (CSP): previously hyperscale.
Source: Internal Data 7
• Enterprise/SMB1
§ Outgrew the market§ Double-digit growth in SDI2, Software, Storage
and Services• Partnership with SAP§ Lenovo TruScale IaaS3 + SAP HANA Enterprise
Cloud§ Secure data on premise with pay-as-you-go
consumption model
Data Center: Continued Growth
DCG Segment Revenue Growth YOY (%)SDI2 Software
Storage Services
Q2 1920 Q2 2021 Q2 1920 Q2 2021
Q2 1920 Q2 2021Q2 1920 Q2 2021
+22% +47%
+15% +11%
1 Enterprise/SMB (ENT/SMB): previously non-hyperscale2 SDI: Software Defined Infrastructure3 IaaS: Infrastructure-as-a-Service
Source: IDC and Internal Data 8
Intelligent Transformation: Strong Progress• Smart IoT revenue1 grew 36% YOY• Smart Infrastructure revenue grew 21% YOY• Smart Verticals revenue1 grew 72% YOY
• Software & Services revenue1 to new record of over $1.2B, up 39% YOY, 8.5% of group revenue§ Attached Service up 25% YOY
§ Managed Service up 91% YOY, DaaS2 grew triple-digits
§ Solutions up 68% YOY
• E-commerce grew 41.8% YOY
9
Q2 1920 Q2 2021 Q2 1920 Q2 2021 Q2 1920 Q2 2021
Intelligent Transformation Revenue YOY (%)
Smart IoT Smart Infrastructure Smart Vertical
+36% +21% +72%
Software & Services Revenue YOY (%)
Q2 1920 Q2 2021
+39%
1 Invoiced Revenue 2 Total contract value
Source: Internal Data 9
The New Normal
PC Market to~300M in 2020
One DevicePer Family
One DevicePer Person
From To
2020 Lenovo Internal. All rights reserved.
0
50
100
150
200
250
300
2017 2018 2019 2020
CY Q1 CY Q2 CY Q3 CY Q4
Source: IDC 10
112020 Lenovo Internal. All rights reserved. 11
Transforming to Thrive in the“New Normal”
2020 Lenovo Internal. All rights reserved. 12
2020 Lenovo Internal. All rights reserved.
Wong Wai MingChief Financial Officer
Nov 3, 2020
Financial Highlights
All-time high revenue and positive YTY revenue growth across three Business Groups; strong growth trajectory on Software and Services
Gross margin improved 0.2pts QTQ thanks to strong high-growth/premium segment sales, improvement of segment profitability, and rising services/software contribution; COVID-led freight costs resulted in a moderate YTY decline
E to R ratio reduced by 1.2 percentage points YTY to 11.6%, leveraging disciplined expense control
2
1
2020 Lenovo Internal. All rights reserved.
13,52214,103
10,579
13,348
14,519
8000
12000
16000
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Revenue
Revenue
+7% YTYUS$ Million
12Q HIGHLIGHTS
2
3
2,1832,265
1,861
2,041
2,253
16.1% 16.1%
17.6%
15.3% 15.5%
10.0%
13.0%
16.0%
19.0%
1,200
1,500
1,800
2,100
2,400
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Gross Profit and Margin
Gross Profit Gross Margin
US$ Million
1,741 1,7771,695
1,605
1,688
12.9%
12.6%
16.0%
12.0%
11.6%
10.0%
12.0%
14.0%
16.0%
18.0%
1,200
1,500
1,800
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Operating Expenses and E/R Ratio
Operating expenses E to R ratio
US$ Million3
14
202
258
43
213
310
1.5% 1.8%
0.4%
1.6%
2.1%
0.0%
1.0%
2.0%
3.0%
0
50
100
150
200
250
300
350
Q2FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY20/21
Profit attributable to equity holders Margin of profit attributable to equity holders
Financial Performance
2020 Lenovo Internal. All rights reserved. 15
2Q HIGHLIGHTS
1
US$ Million
+53% YTY
Business groups’ pre-tax profit reached a new milestone with 15% YTY growth on record-breaking PCSD profit and DCG’s improved profitability
Record-high net profit* with a 53% YTY growth
1
2
2
US$ Million
569641
390
561
654
0
100
200
300
400
500
600
700
800
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Business groups’ total pre-tax income
Segment total PTI
+15% YTY
* Net profit: Profit attributable to equity holders of the Company
Profit attributable to equity holders and margin rate
1,413 1,231 1,243 1,281
1,094
500
700
900
1,100
1,300
1,500
Q2 FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY2020/21
Net Debt
Net Debt
16
Cash and Working Capital
Inventory days improved sequentially thanks to robust demand; YTY increase on strategic buy-ahead actions
Net debt reduced by US$319 million YTY, driven by strong operating cashflow of US$1.1 billion
Successful completion of first 144A US$1 billion 10-year debt, whose proceeds will be used to retire a portion of outstanding perpetual securities and unsecured notes, reducing our financing costs and extending the debt tenure. Continued Financing cost reduction of US$45 million or 33% YTY.
2
1
162020 Lenovo Internal. All rights reserved.
3,817 3,998
4,947 5,127 5,242
3234
53
45 43
25
30
35
40
45
50
55
60
2,000
3,000
4,000
5,000
6,000
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Inventory and Days of Inventory*
Inventory Days of Inventory
US$ Million
*Days of Inventory is calculated based on three months average.
US$ Million
Day 1 2Q HIGHLIGHTS
3
Reduced by US$319
Million YTY
10,65611,074
8,499
10,60311,462
5,000
7,000
9,000
11,000
13,000
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Revenue
Revenue
1
PC & Smart Device Business Group (PCSD)
2020 Lenovo Internal. All rights reserved.
612 684 525 670723
5.7%
6.2% 6.2% 6.3% 6.3%
4.5%
5.0%
5.5%
6.0%
6.5%
200
400
600
800
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Pre-tax Income and Margin
Pre-tax Income Pretax Income Margin
2US$ Million
US$ Million
17
1. Record-breaking revenue and pre-tax profit despite supply constraints
2. Revenue up 8% YTY on structural changes in PC demand including e-learning, WFH, play-from-home and e-Commerce
3. Continuing share gain trajectory in high-growth and premium segments: double-digit revenue growth on Thin & Light, Gaming PC, e-Commerce, and software/services
4. Sustaining PTI margin at record high of 6.3% due to improved segment profitability amid growing high-margin sales contribution and scaling benefits
1
2Q HIGHLIGHTS
2
1
1
+8% YTY
83
-60-50
-22
0.5% 0.2%
-7.2%-4.5%
-1.5%
-40%
-30%
-20%
-10%
0%
10%
-70-60-50-40-30-20-10
010
Pre tax Income/Loss Pre Tax Income/Loss Margin
Q2 FY20/21Q3 FY19/20Q2 FY19/20 Q4 FY19/20 Q1 FY20/21
1,5101,381
824
1,093
1,519
300
500
700
900
1,100
1,300
1,500
Q2FY2019/20
Q3FY2019/20
Q4FY2019/20
Q1FY2020/21
Q2FY2020/21
Revenue
Revenue
+1% YTY
2020 Lenovo Internal. All rights reserved.
Mobile Business Group (MBG)
1. Strong rebound in revenue, up 39% QTQ and 1% YTY, due to recovery of market demand, increase of average selling prices and improved product portfolio
2. Expansion of product portfolio in premium and flagship segments, as well as broader carrier ranging
1. Pre-tax losses further narrowed by US$28mn QTQ and turned cashflow positive* although higher freight costs still impacted YTY comparison; clear path to drive profitable growth
US$ Million
18
1
1
2Q HIGHLIGHTS
22
1
Pre-tax Income/Loss and MarginUS$ Million
* pre-tax profit before amortization charge as related to Motorola acquisition
2020 Lenovo Internal. All rights reserved.
Data Center Business Group (DCG)
-52-47
-76
-58
-47-3.9%
-2.9%
-6.2%
-3.6%-3.2%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
-80
-70
-60
-50
-40
-30
-20
-10
0Q2 FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY2020/21
Pre-tax Loss and Margin
Pre-tax Loss Pre-tax Loss Margin
US$ Million
US$ Million
19
1 2Q HIGHLIGHTS
2
- 200
400
600 800
1,000
1,200 1,400
1,600 1,800
Q2FY19/20 Q3FY19/20 Q4FY19/20 Q1FY20/21 Q2FY20/21
Revenue
Cloud Service Provider Enterprise and SMB
1,601
1,2131,4781,331
1,612
1. Cloud Service Provider (CSP) revenue up 34% YTY on demand for cloud infrastructure and market share gain
2. Long-term outlook for CSP business improving on a richer mix of solutions and design wins leveraging in-house design and manufacturing
3. Enterprise & SMB outperformed sluggish market with 2% YTY revenue decline; double-digit growth of Software and Services, Storage, and Software Defined Infrastructure (SDI)
4. Continued improvement of operational results by US$11 million QTQ and US$4 million YTY; business aims to scale up and drive profitability
1
2
1
1
+11% YTY
Deferred revenue up 26% YTY, adding to revenue and cash flow stability, and predictability
Software and Services
ü Attached Services +25% YTYü Managed Services incl. DaaS +91% YTYü Complex Solutions +68% YTY
Services and Software revenue* up 39% YTY to US$1.2 billon; contributing 8.5% of Group Revenue
-
500
1,000
1,500
2,000
Q2FY19/20 Q3FY19/20 Q4FY19/20 Q1FY20/21 Q2FY20/21LT Deferred revenue ST Deferred revenue
1,698 1,684
1,9581,820
1.554
2Q HIGHLIGHTS
883 1,009
1,230
-
200
400
600
800
1,000
1,200
1,400
Q2FY19/20 Q1FY20/21 Q2FY20/21
+39% YTY
US$ Million
US$ Million
Deferred Revenue+26% YTY
Lenovo & SAP partnership to provide on-premises managed infrastructure with cloud-like flexibility and financial agility to drive growth in TruScale services
*Invoiced revenue2020 Lenovo Internal. All rights reserved.
Software and Services revenue
20
Outlook Statement
21
• PCSD: Drive premium to market growth and sales in high-growth/premium segments. Increase supply to meet strong demand. • Mobile: Protect position in stronghold markets and drive profitable growth in all markets.• Services and software: Supercharge solution and services growth.
IDG: Drive growth with strong profitability; accelerate services and software
• Enterprise and SMB: Grow high-margin services attach rate, upsell premier services and expand SDI solutions. Develop vertical solutions and new levels of automation to drive a paradigm shift with its edge-to-cloud solutions.
• Cloud Service Provider: Gain market share by leveraging our unique strengths in global supply chain and worldwide reach. Portfolio expansion to new platforms. Grow in-house design and manufacturing capabilities.
DCG: Drive premium to market growth while improving profitability
• Full range of product offerings to drive hyper-growth in Software and Services, solutions and e-commerce.• Explore and improve smart vertical solutions across smart education, smart city, and smart healthcare.
Intelligent Transformation: Grow Smart IoT, Smart Infrastructure and Smart Vertical growth while leading customer-centric transformation
Group Mission: Leader and Enabler of Intelligent Transformation
Appendix
222020 Lenovo Internal. All rights reserved.
- Financial Summary - Condensed Consolidated Income Statement- Condensed Consolidated Balance Sheet- Condensed Consolidated Cash Flow Statement
Financial Summary
23
US$ Million Q2 FY2020/21 Q2 FY2019/20 Y/Y% 1H FY20/21 Y/Y%
Revenue 14,519 13,522 7% 27,867 7%
Gross profit 2,253 2,183 3% 4,294 1%
Operation expense (1,688) (1,741) (3%) (3,294) (4%)
Operating profit 565 442 28% 1,000 28%
Other non-operating expenses (95) (132) (29%) (198) (15%)
Pre-tax income 470 310 52% 802 46%
Taxation (120) (66) 82% (206) 80%
Profit for the period 350 244 43% 596 37%
Non-controlling interests (40) (42) (5%) (73) 3%
Profit attributable to equity holders 310 202 53% 523 44%
EPS (US cents)
-Basic 2.59 1.69 0.90 4.39 1.33
-Diluted 2.48 1.62 0.86 4.24 1.30
Dividend per share (HK cents) 6.60 6.30 6.60
Q2 FY2020/21 Q2 FY2019/20 1H FY20/21 1H FY19/20
Gross margin 15.5% 16.1% 15.4% 16.3%
E/R ratio 11.6% 12.9% 11.8% 13.2%
Operating margin 3.9% 3.3% 3.6% 3.0%
PTI margin 3.2% 2.3% 2.9% 2.1%
Net margin 2.1% 1.5% 1.9% 1.4%
* Net margin: Profit margin attributable to equity holders of the Company
Condensed Consolidated Income Statement
24
US$ Million Q2 FY2020/21 Q2 FY2019/20
Revenue 14,519 13,522
Cost of sales (12,266) (11,339)
Gross profit 2,253 2,183
Selling and distribution expenses (726) (778)
Administrative expenses (643) (585)
Research and development expenses (307) (318)
Other operating expense – net (12) (60)
Operating profit 565 442
Finance income 9 10
Finance costs (92) (136)
Share of loss of associated companies and joint ventures (12) (6)
Profit before taxation 470 310
Taxation (120) (66)
Profit for the period 350 244
Profit attributable to equity holders of the Company 310 202
Perpetual securities holders 14 14
Other non-controlling interests 26 28
Per share data
Dividend per share (HK cents) 6.60 6.30.
Earnings per share (US cents) – Basic 2.59 1.69
Earnings per share (US cents) – Diluted 2.48 1.62
Condensed Consolidated Balance Sheet
25
US$ Million As at Sep 30, 2020 As at Jun 30, 2020
Non-current assets 13,779 13,447
Property, plant and equipment 1,439 1,388
Intangible assets 7,980 7,992
Others 4,360 4,067
Current assets 21,305 20,048
Bank deposits and cash 3,753 3,546
Trade, notes and other receivables 12,024 11,128
Inventories 5,242 5,127
Others 286 247
Current liabilities 24,575 23,374
Borrowings 2,303 2,289
Trade, notes, other payables, accruals and provisions 20,939 19,903
Others 1,333 1,182
Net current (liabilities) (3,270) (3,326)
Non-current liabilities 6,052 5,891
Total equity 4,457 4,230
Condensed Consolidated Cash Flow Statement
26
US$ Million Q2 FY2020/21 Q2 FY2019/20 Q1 FY2020/21
Net cash generated from operating activities 771 1,382 317
Net cash used in investing activities (214) (200) (285)
Net cash used in financing activities (388) (524) (91)
Increase/(decrease) in cash and cash equivalents 169 658 (59)
Effect of foreign exchange rate changes 34 (64) 4
Cash and cash equivalents at the beginning of the period 3,496 2,717 3,551
Cash and cash equivalents at the end of the period 3,699 3,311 3,496