Q1FY18/19 Earnings Announcement - Lenovo · Q1 17/18 Q1 18/19 PC PCSD 191 418 0 50 100 150 200 250...
Transcript of 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
2018 Lenovo Internal. All rights reserved.
Aug 15, 2018 – New YorkAug 16, 2018 – Hong Kong
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
2018 Lenovo Internal. All rights reserved. 8
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 $459 million
– Consumer smart IoT based services started delivering revenue
– Smart Office provided key wins
– Device-as-a-Service acquired large deals in Asia Pacific
– Providing vertical intelligent solutions
– Piloting commercial IoT based industry solutions
Wave 3: Smart IoT+Cloud, Infrastructure+Cloud
2018 Lenovo Internal. All rights reserved. 12
Lenovo Smart Display
Mirage Solo VR Headset Mirage VR Camera
Source: Internal Data
13
Having turned the corner, Lenovo is accelerating with all cylinders fired up.
Source: Internal Data
Revenue($M) & YTY Growth Rate(%) Operational PTI($M) & YTY Improvement($M)
Wong Wai MingChief Financial Officer
2018 Lenovo Internal. All rights reserved.
Aug 15, 2018 – New YorkAug 16, 2018 – Hong Kong
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
2018 Lenovo Internal. All rights reserved.
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
2018 Lenovo Internal. All rights reserved.
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
Revenue Revenue YTY Growth
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
2018 Lenovo Internal. All rights reserved.
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
Revenue and YTY Growth Rate
Revenue Revenue YTY Growth
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
2018 Lenovo Internal. All rights reserved.
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
2018 Lenovo Internal. All rights reserved.
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
Revenue and YTY Growth Rate
Revenue Revenue YTY Growth
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
2018 Lenovo Internal. All rights reserved.
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
Revenue and YTY Growth Rate
Revenue Revenue YTY Growth
US$ Million
US$ Million
20
2
1
3
1
2
Outlook
2018 Lenovo Internal. All rights reserved. 21
• 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
2018 Lenovo Internal. All rights reserved. 22
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
2018 Lenovo Internal. All rights reserved. 23
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
2018 Lenovo Internal. All rights reserved. 25
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)
2018 Lenovo Internal. All rights reserved. 26
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
2018 Lenovo Internal. All rights reserved. 27
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