q1fy18/19 earnings announcement - lenovo · q1 17/18 q1 18/19 pc pcsd 191 418 0 50 100 150 200 250...

Q1FY18/19 Earnings Announcement

Aug 15, 2018 – New YorkAug 16, 2018 – Hong Kong

2018 Lenovo Internal. All rights reserved.

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.

2018 Lenovo Internal. All rights reserved. 2

Yuanqing YangChairman & CEO



Market and Profitability

Leadership in PCs

Build Mobile & Data Center into

New Profit & Growth Engines

Invest in SIoT+Cloud, and

Infrastructure+Cloud

New Phase of Growth• Revenue: $11.91 billion, up 19% year-on-year, second straight quarter saw

strong, double-digit growth

• Pre Tax Income: $113 million, up $182 million year-on-year

• Profitability improved across all businesses

• PTI Margin year-on-year improvement: PCSD +0.8pts, MBG +4.0pts, DCG +11pts

2018 Lenovo Internal. All rights reserved. 5Source: Internal Data

10012

11761

12939

10638

11913

Q1 FY1718 Q2 FY1718 Q3 FY1718 Q4 FY1718 Q1 FY1819

+19%

Revenue ($M)

-69

113

-100

-50

0

50

100

150

Q1 FY1718 Q1 FY1819

+$182M

Pre-Tax Income ($M)

8,752

9,954

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

Q1 FY17/18 Q1 FY18/19

New Intelligent Devices Group

• Revenue and profitability improved year-on-year, energized by synergies from shared platforms, resources

• Committed to driving convergence of Computing & Communication technologies to enable Smart IoT

2018 Lenovo Internal. All rights reserved. 6Source: Internal Data

+13.7%

IDG Revenue ($M)

6675

7998

7005

8308

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

9000

Q1 17/18 Q1 18/19

PC PCSD

191

418

0

50

100

150

200

250

300

350

400

450

Q1 FY17/18 Q1 FY18/19

Wave 1: PC + Tablet• Continued strong double-digit growth for the 2nd consecutive quarter, while

maintaining leading profitability of 5%

• #1 in PC+Tablet by IDC

• Fastest growing among the top-5 PC player, worldwide #1 in PC by Gartner

• PC Revenue grew 19.8% year-on-year

2018 Lenovo Internal. All rights reserved.Source: Internal Data, IDC, Gartner Press Release for 2Q 2018 PC Market, July 2018

+$227M

PCSD PTI ($M), Margin (%)

TOP 5 PC Players by Gartner

TOP 5 PC+Tablet Players by IDC

16.4%

3.0%

8.0%

13.0%

18.0%

1Q FY17/18 2Q FY17/18 3Q FY17/18 4Q FY17/18 1Q FY18/19Lenovo Apple HP Inc Dell Samsung

PCSD Revenue ($M)

+18.6%

+19.8%

4.2%

5%

PTI PTI Margin

7

Wave 1: PC + Tablet

• Will drive sustainable premium to market growth

• Sharpen customer engagement through direct routes to markets

• Invest in high-growth segments

• Strengthen focus on premium products


Wave 2: Mobile• Execution of the clear strategy improved business health

• Reduced operating expenses by $105 million year-on-year；On track to reduce the annual operating expense of Motorola business to below $1Bn

• Refined product portfolio; Successful launch of Moto G6, Moto E5

• Focused on selected markets(Latin America, Mature Markets, China/India)

• Investing in Innovation: Launched Moto Z3 - the first 5G upgradable phone, the 5G Mod scheduled to ship early 2019

2018 Lenovo Internal. All rights reserved.9

Source: Internal Data & IDC

1,810

1,000

0

400

800

1,200

1,600

2,000

FY2014/15 FY2018/19Estimate

Motorola Business Operating Expense ($M)

~ -$800M

-10

0

10

20

30

40

50

60

70

80

Q316/17

Q416/17

Q117/18

Q217/18

Q317/18

Q417/18

Q118/19

Lenovo Market

-20

0

20

40

60

80

100

Q2 17/18 Q3 17/18 Q4 17/18 Q1 18/19

Lenovo Market

Latin America Mobile

Volume YTY Growth (%)North America Mobile

Volume YTY Growth (%)

-12.7%

91.8%

-1.7%

23%

Wave 2: Data Center

• On track to become a sustainable, profitable growth engine; Revenue grew 67.8% year-on-year; Profitability improved 11 points year-on-year

• Hyperscale and Software Defined revenue grew by triple-digits year-on-year

• HPC: #1 supercomputer provider on TOP500 list, with 117 systems

10

971 976

1,225 1,223

1,629

-10.6%

-9.8% 16.7%

43.9%

67.8%

-15.0%

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

0200400600800

1,0001,2001,4001,6001,800

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Revenue Revenue YTY Growth

DCG Revenue ($M), Revenue YTY Growth (%)

Source: Internal Data

-14.9

-3.9

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

DCG PTI Margin (%)

+11 Pts #1 Vendor:

Lenovo with

117 entries

Wave 2: Data Center

• Further improve Hyperscale business model

• Strengthen the leadership in High Performance Computing & A.I.

• Grow storage and networking

• Drive service attach and revenue growth

• Expand into growing markets like NFV and Edge computing

11

• Shipping new Smart Devices in the U.S. with positive feedback

• Service and Software revenue reached $459 million

– Consumer smart IoT based services started delivering revenue

– Smart Office provided key wins

– Device-as-a-Service acquired large deals in Asia Pacific

– Providing vertical intelligent solutions

– Piloting commercial IoT based industry solutions

Wave 3: Smart IoT+Cloud, Infrastructure+Cloud


Lenovo Smart Display

Mirage Solo VR Headset Mirage VR Camera


13

Having turned the corner, Lenovo is accelerating with all cylinders fired up.


Revenue($M) & YTY Growth Rate(%) Operational PTI($M) & YTY Improvement($M)

Wong Wai MingChief Financial Officer



10,012

11,761

12,939

10,638

11,913

-0.4%

4.7%

6.3%

11.1%

19.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Revenue and YtY Change%

Revenue YtY change%

Income Statement Highlights

15

Q1 Highlights

Group achieved record high first FQ group

revenue; Q1FY19 grew 19% YTY, the 4th

consecutive quarter of YTY growth

Group Reported PTI improved $182M YTY,

representing consistent YTY improvement

for 3rd consecutive quarter

Expense to Revenue ratio declined YTY

from 13.7% to 12.2%

2

1

+182M

US$ Million

US$ Million

E/R % 13.7% 12.2%

3

1

2

3

13.6%13.7%

13.5%

14.5%

13.7%

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

13%

14%

15%

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Gross Margin and YTY pts Changes

Gross Margin GPM YTY pts

pts

(69)

35

150

37

113

(100)

(50)

-

50

100

150

200

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Pre-Tax Income


16

Cash and Working Capital

1,541

1,262

1,7471,932

2,689

0

500

1,000

1,500

2,000

2,500

3,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Bank Deposits and Cash

2,843 2,661 2,674

3,815

4,481

0

1,000

2,000

3,000

4,000

5,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Total Borrowings

1,3021,399

927

1,8831,792

0

500

1,000

1,500

2,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/28

Q4FY2017/18

Q1FY2018/19

Net Debt

US$ Million

US$ Million

US$ Million

US$ Million

-577

364

211

-753

336

-15 -14

-16-17

-8

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

-1,000

-800

-600

-400

-200

0

200

400

600

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Cash Activities

Net Cash generated from / (used in) operating activities

Cash Conversion Cycle

Days


9,84910,783

8,454 8,75210,458

11,327

9,0839,954

-8.8%-4.2%

6.8%

0.6%

6.2% 5.0%7.4%

13.7%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

Revenue and YTY Growth Rate


Intelligent Devices Business Group (IDG)

Q1 Highlights

1. Strong double-digit revenue growth driven by strong PC demand

2. PTI % improved YTY for 3 consecutive quarters, driven by PCSD maintaining its industry leading margin of 5% and MBG continued to improve its profitability as planned


249275

69

119 203

293242

321

2.52%2.55%

0.81%1.35%

1.94%

2.59% 2.67%3.20%

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%

050

100150200250300350

Pretax Income and Margin

Pre-tax Income Pretax Income Margin

US$ Million

US$ Million

17

1

2

1

2

7,005

8,3829,250

7,7418,308

0.2%

7.4% 7.6%

15.9%18.6%

0.0%

5.0%

10.0%

15.0%

20.0%

0

2,000

4,000

6,000

8,000

10,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19



IDG - PC & Smart Device Business Group (PCSD)

Q1 Highlights

1. PCSD delivered another strong quarter in double digit revenue growth driven by the consistent strategy of targeting high growth premium segments

1. Strong double-digit revenue growth for 2nd consecutive quarter, premium to market revenue growth of 13 pts YTY

2. Maintained industry leading PTI margin at 5.0%, driven by improved product mix and improved service attached rate

1. Device+ gained traction, paving ways for ecosystem expansion


291

376416

384418

4.2%

4.4%4.5%

5.0% 5.0%

3.8%

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

0

100

200

300

400

500

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19

Pretax Income and Margin

Pre-tax Income Pretax Income Margin

US$ Million

US$ Million

18

2

1

3

4

2

3


IDG - Mobile Business Group (MBG)

Q1 Highlights

1. Strong execution of turnaround strategy to improve profitability

2. LA & NA continued to show strong momentum; Repositioning in Emerging Markets while clearing inventory

3. Expense reduction is well executed; resulting in more efficient cost structure and improved PTI margin

4. Streamlined product portfolio to reduce complexity, focused on scale in the mainstream segments, i.e. Moto Z, G & E

-173 -164

-124-142

-97

-9.9%

-7.9%

-6.0%

-10.6%

-5.9%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

-200

-150

-100

-50

0Q1 FY2017/18 Q2 FY2017/18 Q3 FY2017/18 Q4 FY2017/18 Q1 FY2018/19

Pretax Loss and Margin

Pre-tax Loss - Reported Pre-tax Loss Margin - Reported

1,746 2,076 2,076

1,3421,646

2.3% 1.5%

-5.0%

-24.3%-5.7%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

0

500

1,000

1,500

2,000

2,500

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19



US$ Million

US$ Million

19

2

1

3

4

2

3

Q1 Highlights

1. The No.4 branded server vendor WW. Revenue grew 68% YTY, a record high driven by Hyperscale, HPC and SDI

2. 5 consecutive quarters of continuous QTQ PTI margin improvement

3. Stellar result is the culmination of right business model, product leadership, sales capabilities

Triple digit revenue growth in NA and the other 4 GEOs double digit, all region’s profitability improved


Data Center Business Group (DCG)

-144-131

-86-64

-63

-14.9%

-13.4%

-7.0%

-5.2% -3.9%

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

-150

-130

-110

-90

-70

-50

-30

-10

10Q1 FY2017/18 Q2 FY2017/18 Q3 FY2017/18 Q4 FY2017/18 Q1 FY2018/19

Pretax Loss and Margin

Pre-tax Loss - Reported Pre-tax Loss Margin - Reported

971 9761,225 1,223

1,629

-10.7% -9.8% 16.7%

43.9%

67.8%

-15.0%

0.0%

15.0%

30.0%

45.0%

60.0%

75.0%

0

500

1,000

1,500

2,000

Q1FY2017/18

Q2FY2017/18

Q3FY2017/18

Q4FY2017/18

Q1FY2018/19



US$ Million

US$ Million

20

2

1

3

1

2

Outlook


• IDG-PCSD: • Continue to drive premium to market revenue growth while maintain industry-leading

profitability

• IDG-MBG: • Continue to execute the strategy of reducing complexity, streamlining portfolio, drive a more

competitive cost structure, and continue to significantly reduce operational loss QTQ & YTY.• Focus on driving profitable growth from core markets such as in Latin America and North

America, strengthen presence in Mature Markets• Continue to invest in innovation, such as the new moto Z - the first 5G upgradable phone

• DCG: • Outgrow the market in Software Defined Infrastructure• Strengthen leadership position in High Performance Computing and AI• Invest in service, storage and networking to drive future growth• Continue to expect momentum in Hyperscale

• Wave 3 – Device +:• Continue to drive Wave 3 transformation, grow Software & Services revenue, step up in

customer engagement and accelerate SIoT + cloud & infrastructure + cloud expansion


Appendix

- Financial Highlights

- Summary : “PTI (As Reported) ” vs “PTI Before Non-Cash M&A

Related Accounting Charges and One-time Gain/Charge”

- Condensed Consolidated Income Statement- Condensed Consolidated Balance Sheet- Condensed Consolidated Cash Flow Statement


Financial Highlights

• Transformation efforts showing consistent and accelerated results improvement:

Group revenue of US$12B, up 19% YTY & PTI of US$113M, the 3rd consecutive quarter of YTY improvement

• First quarter of IDG: Synergy from shared platform and infrastructure to expand the ecosystem, delivered double-

digit revenue growth and profit improvement

PCSD strong revenue growth and PTI margin stays at 5% level

MBG loss-reduction on track with good momentum in core markets in Latin America and North America

• Data Center Group continued strong revenue YTY growth – the 3rd consecutive quarter of double-digit YTY growth

US$ Million Q1 FY2018/19 Q1 FY2017/18 Y/Y% Q4 FY2017/18 Q/Q%

Revenue 11,913 10,012 19% 10,638 12%

Gross Profit 1,632 1,365 20% 1,544 6%

Operating Expenses (1,452) (1,371) 6% (1,443) 1%

Operating Profit 180 (6) N/A 101 79%

Pre-tax Income 113 (69) N/A 37 206%

Profit attributable to Equity Holders 77 (72) N/A 33 136%

EPS (US cents) - Basic 0.65 (0.66) 0.28

Q1 FY2018/19 Q1 FY2017/18 Q4 FY2017/18

Gross margin 13.7% 13.6% 14.5%

E/R ratio 12.2% 13.7% 13.6%

Operating margin 1.5% -0.1% 0.9%

PTI margin 0.9% -0.7% 0.3%

Net margin attributable to Equity Holders 0.6% -0.7% 0.3%

Summary : “PTI (As Reported) ” vs “PTI Before Non-Cash M&A Related Accounting Charges

and One-time Gain/Charge”

Q1 FY18/19 Q1 FY17/18 Q4 FY17/18

Pre-tax Income (As-Reported) 113 -69 37

•Non-Cash M&A Related Accounting Charges 66 74 62

PTI Before Non-Cash M&A Related Accounting Charges 179 5 99

•One-time Restructuring Charge - - 39

PTI Before Non-Cash M&A Related Accounting Charges and One-

time Gain/Charge179 5 138

24


Condensed Consolidated Income Statement

US$ Million Q1 FY2018/19 Q1 FY2017/18

Revenue 11,913 10,012

Cost of sales (10,281) (8,647)

Gross profit 1,632 1,365

Selling and distribution expenses (655) (665)

Administrative expenses (485) (460)

Research and development expenses (310) (292)

Other operating (expense) / income - net (2) 46

Operating profit/(loss) 180 (6)

Finance income 5 9

Finance costs (71) (72)

Share of loss of associates and joint venture (1) -

Profit/(loss) before taxation 113 (69)

Taxation (28) 15

Profit/(loss) for the period 85 (54)

Profit /(loss) attributable to:

Equity holders of the company 77 (72)

Perpetual securities holders 13 13

Other non-controlling interests (5) 5

Earnings/(loss) per share (US cents)

- Basic 0.65 (0.66)

- Diluted 0.65 (0.66)


Condensed Consolidated Balance Sheet

US$ Million As at As at

Jun 30, 2018 Mar 31, 2018

Non-current assets 12,665 12,831

Property, plant and equipment 1,262 1,305

Intangible assets 8,427 8,514

Others 2,976 3,012

Current assets 18,646 15,663

Bank deposits and cash 2,689 1,932

Trade, notes and other receivables 11,451 9,687

Inventories 4,125 3,792

Others 381 252

Current liabilities 23,015 19,460

Borrowings 1,842 1,167

Trade, notes, other payables, accruals and provisions 18,623 16,471

Others 2,550 1,822

Net current liabilities (4,369) (3,797)

Non-current liabilities 3,958 4,488

Total equity 4,338 4,546


Condensed Consolidated Cash Flow Statement

US$ Million Q1 FY2018/19 Q1 FY2017/18 Q4 FY2017/18

Net cash generated from/(used in) operating activities 336 (577) (753)

Net cash used in investing activities (198) (744) (173)

Net cash generated from/(used in) financing activities 692 (67) 1,071

Increase/Decrease in cash and cash equivalents 831 (1,388) 145

Effect of foreign exchange rate changes (65) 20 43

Cash and cash equivalents at the beginning of the period 1,848 2,755 1,660

Cash and cash equivalents at the end of the period 2,613 1,387 1,848

q1fy18/19 earnings announcement - lenovo · q1 17/18 q1 18/19 pc pcsd 191 418 0 50 100 150 200 250...

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