Q3FY20 combined PPT v1 - Lenovo · ,'* 3& 6pduw 'hylfh %xvlqhvv *urxs 3&6' 4 +ljkoljkwv 5hfrug 3&6'...

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Q3FY20 Earnings Announcement

2020 Lenovo Internal. All rights reserved.

Feb 20, 2020 – BeijingFeb 20, 2020 – Hong Kong

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

Yuanqing YangChairman & CEO



233

258

Q3 1819 Q3 1920

350

390

Q3 1819 Q3 1920

Strong Group Performance – Record Revenue, PTI*

• Revenue: $14.1B, an all-time record

• Pre-Tax Income: $390M, an all-time record, up 11% YOY

• Net income: $258M, up 10.9% YOYRevenue ($B)

Source: Internal Data

+11%

PTI ($M) Net Income ($M)

4

Q3 1819 Q3 1920

+0.5%

14 14.1

* PTI: Pre-tax Income

+10.9%


IDG PCSD* – Record Results

• Overcame severe supply shortage with operational excellence.

• Record breaking results:

Revenue: $11.1B

PTI: $684M, up 17.2% YOY

PTI margin: 6.2%, up 0.7 points YOY

Source: Internal Data

PCSD Revenue ($M)

5

584

684

Q3 1819 Q3 1920

+17.2%

PCSD PTI ($M)

5.46.2

Q3 1819 Q3 1920

+0.7 pts

* IDG: Intelligent Devices Group; PCSD: PC & Smart Devices

1072911074

Q3 1819 Q3 1920

+3.2%

PCSD PTI Margin (%)

IDG PC – Maintain Leading Position

• #1 in PC again outgrew the market with record shipments

• Outgrew market by double-digits across high-growth, premium categories

Source: Industry and Internal Data

Segment Volume Growth vs Market YOY (%)

Workstation

Market Lenovo

Thin & Light

0.8%

23.7%

Market Lenovo

21.6%

31.4%+10pts

+23pts

Market Lenovo

7.3%

49%

+42pts

3

6Market Lenovo

-10.8%

20.1%

+31pts

Gaming Visuals Chromebooks

Global PC Volume Growth YOY (%)

Q3 1819 Q4 1819 Q1 1920 Q2 1920 Q3 1920

Lenovo Mkt

7.0%

5.2%

Market Lenovo

18.8%

45.8%

+27pts

IDG PCSD Drive growth through innovation

7

ThinkPad X1 Fold

ThinkBook Plus

Lenovo 5G PC

TIME named ThinkPad X1 Fold 2019 Best Innovation

• Proven operational excellence

• Continuing innovation

• Outgrow the market and drive leading profitability

IDG PCSD - Outlook


ThinkPad X1 Foldable

IDG Mobile – Continued Profitability

• 5th consecutive profitable quarter

• Latin America: volume outgrew market by 18.9 points while improving profitability

Mobile PTI ($M)

Source: IDC and Internal Data

LA Volume Growth vs Market (%YOY)

Q3 1819 Q4 1819 Q1 1920 Q2 1920 Q3 1920

Lenovo Market

9

23%

4.1%

34

5

8

3

Q21819 Q3 1819 Q4 1819 Q1 1920 Q2 1920 Q3 1920

-49

• Strengthen profitability while driving growth in new markets

• Motorola razr Foldable well received; re-entry to premium segment

IDG Mobile - Outlook

10

Motorola razr Foldable

Data Center – Continued Improvement

• Profitability improvement continued

• Server volume up 18% YOY

• Non-hyperscale revenue grew 16% YOY

PRC Non-hyperscale revenue grew 46%

• Over 40% revenue growth in SDI* and Storage

Source: Internal data

* SDI: Software Defined Infrastructure

11Q3 1819 Q3 1920Q3 1819 Q3 1920

+41%+44%

StorageSDI, Storage Revenue Growth YOY(%)

DCG Rev. Growth YOY ($M)

Q3 1819 Q3 1920

1600 1601

Q3 1819 Q3 1920

PRC Non-Hyperscale Rev Growth YOY (%)

SDI

Q3 1819 Q3 1920

-47-55

+$8M

+46%

Q3 1819 Q3 1920

+16%

Non-Hyperscale Rev Growth YOY (%)

DCG PTI Growth($M)

• Resume revenue growth

• Hyperscale:

Expand in server + storage

Acquire new customers

• Non-Hyperscale:

Drive premium to market growth

Increase customer diversity

Accelerate and expand indirect channels

Data Center - Outlook


Intelligent Transformation –Continued Hypergrowth

• Smart IoT revenue quadrupled YOY

• Smart Infrastructure revenue, up 50%+ YOY

• Smart Vertical revenue doubled YOY

• Software & Services revenue* reached $1 Billion per quarter, up 41% YOY

Source: Internal Data 11

* Invoiced Revenue

11

1023

Q3 1819 Q4 1819 Q1 1920 Q2 1920 Q3 1920

Software & Service Revenue ($M)

+41%

13

14

Our core competence of geographical balance, operational excellence, and strategic execution gives us the ability to succeed in any circumstances.

Wong Wai MingChief Financial Officer



350

180

240

310

390

100

150

200

250

300

350

400

450

Q3FY2018/19

Q4FY2018/19

Q1FY2019/20

Q2FY2019/20

Q3FY2019/20

Pre-Tax Income

Financial Highlights

16

Q3 Highlights

All-time high revenue thanks to strong execution in PCSD business and improvement of DCG business; Software and Services revenue* up 41% YTY

Record profit: PTI up 11% YTY, driven by the highest PTI margin since acquisitions of Motorola Mobility and x86 server businesses

Robust gross profit margin, up 1.5pts YTY to 16.1%

2

1

US$ Million

3

1

2

3


14,035

11,710

12,512

13,52214,103

10,000

14,000

Q3FY2018/19

Q4FY2018/19

Q1FY2019/20

Q2FY2019/20

Q3FY2019/20

Revenue

Revenue

US$ Million

+US$40M

2,050

1,895

2,048

2,1832,265

14.6%

16.2%16.4%

16.1%16.1%

14.0%

15.0%

16.0%

17.0%

18.0%

1,500

1,700

1,900

2,100

2,300

2,500

Q3 FY2018/19 Q4 FY2018/19 Q1 FY2019/20 Q2 FY2019/20 Q3 FY2019/20

Gross Profit and Margin

Gross Profit Gross Margin

US$ Million

* Invoiced revenue.

17

Cash and Working Capital

1,548

-478

-142

1382

538

-700

-200

300

800

1,300

1,800


Operating Cashflow

1


3,792

3,4353,573

3,8173,998

35

38

3432

34

25

27

29

31

33

35

37

39

41

43

45

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Q3 FY2018/19 Q4 FY2018/19 Q1 FY2019/20 Q2FY2019/20 Q3FY2019/20

Inventory and Days of Inventory*

Inventory Days Inventory

US$ Million

US$ Million

*Days of Inventory is calculated in three months average.

Q3 Highlights

Operating cashflow and net debt position reflecting improvement in inventory and accounts payable management being offset by reduced AR factoring volume

Inventory days lowered by 1 day YTY; sequentially higher on inventory rebuild of strategic parts

2

1

US$ Million Day

3,5082,733 2,788

3,376 3,586

4,462 4,380 4,906 4,790 4,817

-954

-1,647 -2,118

-1,414 -1,231

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000


Net Cash (Debt)

Bank Deposit and Cash Total Debt Net Cash

1

12,435

10,45911,156

12,191 12,502

5,000

8,000

11,000

14,000


Revenue

Revenue

Intelligent Devices Business Group (IDG)*Q3 Highlights

1. All-time high revenue thanks to robust share gain in PCSD

2. New milestone set on pre-tax profit and margin thanks to sales mix improvement


586

463529

620687

4.7%

4.4%

4.7%

5.1%

5.5%

4.0%

5.0%

6.0%

0100200300400500600700800


Pretax Income and Margin

Pre-tax Income Pretax Income Margin

US$ Million

US$ Million

18

1

2

1

2

* IDG mainly consists of PC & Smart Device (PCSD) and Mobile Business Group (MBG) businesses.

10,729

8,892

9,631

10,65611,074

6,000

7,000

8,000

9,000

10,000

11,000

12,000


Revenue

Revenue

1

IDG - PC & Smart Device Business Group (PCSD)

Q3 Highlights

1. Record PCSD revenue despite severe shortage of a key component; reinforced global no. 1 position in PC market

2. Pre-tax profit up 17% YTY on further expansion of industry-leading profitability; pre-tax margin reaching a record 6.2%

3. More than half of PCSD revenue now coming from high-growth, premium-segments across Workstation, Thin & Light, and Gaming PC

4. New growth opportunity in high-margin Software and Services* with its revenue up strong double-digits YTY


584

458

524

612

684

5.4%5.2%

5.4%

5.7%

6.2%

4.5%

5.0%

5.5%

6.0%

6.5%

300

400

500

600

700

Q3FY2018/19

Q4FY2018/19

Q1FY2019/20

Q2FY2019/20

Q3FY2019/20


Pre-tax Income Pretax Income Margin

2US$ Million

US$ Million

19

2

1

3

4

* Invoiced revenue.


IDG - Mobile Business Group (MBG)

Q3 Highlights

1. Slower revenue momentum due to component supply constraint

2. Positive PTI for 5th consecutive quarter: margin expansion in strategically focused market e.g. Latin America offsetting weakness in other regional markets

3. Investing in innovation with successful launch of Motorola razr to re-enter premium segment

1,6691,545 1,503 1,510

1,381

0

500

1,000

1,500

2,000


Revenue

Revenue

US$ Million

20

2

1

US$ Million

3

2

34

5

8

30.2%

0.3% 0.3%

0.5%

0.2%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0

2

4

6

8

10

12

14



Pre-tax Income Pre-tax Income Margin

1

Q3 Highlights

1. Server shipments grew 18% YTY despite limited revenue growth; average selling price compression on the lingering impact of commodity price cut

2. Encouraging growth in enterprise server, software defined infrastructure, storage, and Software/Services

3. Expanding customer base and product to drive hyperscale growth

4. Pre-tax loss narrowed by $8 million YTY


Data Center Business Group (DCG)

-55 -53 -52 -52-47-3.4%

-4.2%-3.8% -3.9%

-2.9%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

-80

-60

-40

-20

0Q3 FY2018/19 Q4 FY2018/19 Q1 FY2019/20 Q2 FY2019/20 Q3 FY2019/20

Pretax Loss and Margin

Pre-tax Loss Pre-tax Loss Margin

4

1,600

1,2511,356 1,331

1,601

500

1,000

1,500

2,000


Revenue

Revenue

US$ Million

US$ Million

21

2

1

3

1

4

Outlook Statement


Group Mission is to be the Leader and Enabler of Intelligent Transformation

Near-term supply challenge from Novel coronavirus outbreak

IDG: Drive premium-to-market growth and industry-leading profitability

• PCSD: Target to maintain premium to market growth with industry-leading profitability; drive sales in high-growth and premium segments especially gaming

• Mobile: Strengthen profitability, drive growth in new markets, and accelerate innovation; popular Motorola razr providing an opportunity to re-enter the premium segment

• Smart IoT: Super charge growth in solution sales and services business

DCG: Resume growth while improving profitability

• Continue to drive growth in servers, software defined infrastructure, High Performance Computing, storage, software and services with increasing customer diversity and broader indirect channels.

• Hyperscale: Expand our business with existing customers and continue to acquire new customers, leveraging our differentiated in-house motherboard design and manufacturing; driving premium to market growth

3S Strategy: Accelerate Intelligent Transformation by bringing Smarter technology for all in the connected world; drive Smart IoT, Smart Infrastructure and Smart Vertical while leading customer-centric transformation

• Continue to exploring and improving smart vertical solutions in the promising verticals across smart education, smart city, and smart health care

Appendix

23

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


Financial Summary


US$ Million Q3 FY2019/20 Q3 FY2018/19 Y/Y%

Revenue 14,103 14,035 0%

Gross Profit 2,265 2,050 10% Operating Expenses (1,777) (1,616) 10%

Operating Profit 488 434 12% Other Non-Operating Expenses (98) (84) 16%

Pre-tax Income 390 350 11% Taxation (85) (85) (1%)

Profit for the period 305 265 15%Non-controlling interests (47) (32) 48%

Profit attributable to Equity Holders 258 233 11%

EPS (US cents) - Basic 2.16 1.96 0.20 - Diluted 2.07 1.92 0.15 Dividend per share (HK cents)

Q3 FY2019/20 Q3 FY2018/19Gross margin 16.1% 14.6%E/R ratio 12.6% 11.5%Operating margin 3.5% 3.1%PTI margin 2.8% 2.5%Net margin attributable to Equity Holders 1.8% 1.7%

25

Condensed Consolidated Income Statement


US$ Million Q3 FY2019/20 Q3 FY2018/19

Revenue 14,103 14,035

Cost of sales (11,838) (11,985)

Gross profit 2,265 2,050

Selling and distribution expenses (816) (702)

Administrative expenses (609) (616)

Research and development expenses (341) (273)

Other operating expense - net (11) (25)

Operating profit 488 434

Finance income 14 6

Finance costs (108) (86)

Share of loss of associated companies and joint ventures (4) (4)

Profit before taxation 390 350

Taxation (85) (85)

Profit for the period 305 265

Profit attributable to:

Equity holders of the company 258 233

Perpetual securities holders 13 13

Other non-controlling interests 34 19

Earnings per share (US cents)

- Basic 2.16 1.96

- Diluted 2.07 1.92

26

Condensed Consolidated Balance Sheet


US$ Million As at As at

Dec 31, 2019 Sep 30, 2019

Non-current assets 13,582 13,274

Property, plant and equipment 1,732 1,683

Intangible assets 8,231 8,197

Others 3,619 3,394

Current assets 21,445 20,116

Bank deposits and cash 3,586 3,376

Trade, notes and other receivables 13,649 12,625

Inventories 3,998 3,817 Others 212 298

Current liabilities 25,233 24,039

Borrowings 2,664 2,648

Trade, notes, other payables, accruals and provisions 21,294 20,255

Others 1,275 1,136

Net current liabilities (3,788) (3,923)

Non-current liabilities 5,498 5,336

Total equity 4,296 4,015

27

Condensed Consolidated Cash Flow Statement


US$ Million Q3 FY2019/20 Q3 FY2018/19 Q2 FY2019/20

Net cash generated from operating activities 538 1,548 1,382

Net cash used in investing activities (215) (217) (200)

Net cash used in financing activities (158) (165) (524)

Increase in cash and cash equivalents 165 1,166 658

Effect of foreign exchange rate changes 44 21 (63)

Cash and cash equivalents at the beginning of the period 3,312 2,213 2,717

Cash and cash equivalents at the end of the period 3,521 3,400 3,312

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