Lenovo Group Limited · HKEX:992
Lenovo — Q3 2023 Earnings Presentation
34 slides from Lenovo's earnings presentation, Feb 18, 2023
Slide 1: Q3FY23 Earnings Announcement
Q3FY23 Earnings Announcement February 17, 2023 2023 Lenovo Internal. All rights reserved.
Slide 2: Forward-Looking Statement
Forward-Looking Statement This presentation contains “forward-looking statements”, which are statements that refer to the expectations and plans for the future and include, without limitation, statements regarding Lenovo’s future results of operations, financial condition or business prospects as we
Slide 3: Yuanqing Yang, Chairman & CEO
Yuanqing Yang Chairman & CEO February 17, 2023 2023 Lenovo Internal. All rights reserved.
Slide 4: Group: Diversified Growth Engines & Operational Excellence Offsetting Headwinds
Group: Diversified Growth Engines & Operational Excellence Offsetting Headwinds • Challenges persisted in the market • Maintained solid profitability • Strong growth of diversified engines • Non-PC businesses 41% mix of total revenue • PC kept leadership • Operational excellence ensured resilience •
Slide 5: Group Opportunities
Group: Opportunities Diversified Growth Engines & Operational Excellence Continued acceleration of Offsetting Headwinds Digital/Intelligent transformations: • Total IT spending back to moderate growth in mid-long term • Sustainable customers’ need for: • Smart devices/IoT • ICT infrastructure • Solu
Slide 6: Group Performance
Group: Performance Diversified Growth Engines Group Net Income ($M) & Operational Excellence 640 -32% 1.2 Offsetting Headwinds 600 500 437 1 0.8 400 • Net income $437 million, declined 300 0.6 0.4 32% YTY 200 100 0.2 • Revenue $15.3 billion, declined 0 Q3 21/22 Q4 21/22 Q1 22/23 Q2 22/23 Q3 22/23 0
Slide 7: Group Performance: SSG, ISG, cash position
Group: Performance Diversified Growth Engines SSG Revenue ($M) ISG Revenue ($M) & Operational Excellence +23% +48% Offsetting Headwinds 2,855 1,836 1,929 • New diversified growth engines saw 1,498 high double-digit revenue growth YTY • SSG1: up 23% YTY • ISG2: up 48% YTY Q3 21/22 Q3 22/23 Q3 21/22 Q
Slide 8: Group Sustainable growth
Group: Sustainable growth Diversified Growth Engines & Operational Excellence ⚫ Continue investment in R&D around Offsetting Headwinds New IT architecture ⚫ Drive internal digital & intelligent transformation ⚫ Accelerate ESG efforts ⚫ Strengthen One Lenovo sales platform 2022 Lenovo Internal. All r
Slide 9: SSG Opportunities
SSG Opportunities Solutions & Services Group: Record Revenue, Trillion-dollar IT services market to High Margin remain strong in mid-long term • Strong growth in Managed Services • Hybrid infrastructure solutions essential • Spending on vertical solutions & services remain growth Lenovo’s strategic
Slide 10: SSG Performance
SSG Performance Solutions & Services Group: SSG Operating Profit ($M) SSG Revenue ($M) Record Revenue, & Margin (%) +23% 1,836 High Margin +12% 370 1,498 350 332 0.29 0.27 • Operating margin 20.2%, 22.2% 0.25 0.23 20.2% Operating profit up 12% YTY 0.21 0.19 • Revenue up 23% YTY 0.17 250 0.15 Q3 21/2
Slide 11: SSG Sustainable growth
SSG Sustainable growth Solutions & Services Group: Record Revenue, • Invest in building scalable and repeatable High Margin horizontal and vertical solutions with Lenovo IPs • Enrich digital workplace solutions • Strengthen hybrid cloud portfolio • Expand sustainability offerings 2022 Lenovo Interna
Slide 12: ISG Opportunities
ISG Opportunities Infrastructure Solutions Group: Record Revenue, ICT Infrastructure upgrade continues Record Profit By 2025: • Server to reach $135 billion • Edge infrastructure to reach $37 billion • Storage to reach $35 billion Lenovo’s strategic intent: Comprehensive infrastructure solutions pro
Slide 13: ISG Performance
ISG Performance Infrastructure Solutions Group: ISG Operating Profit ($M) & ISG Revenue ($M) Record Revenue, Margin (%) +156% +48% 2,855 Record Profit 50 0.05 45 43 40 0.04 35 1,929 • Record operating profit $43 million, 30 0.03 25 20 17 1.5% 0.02 YTY improvement for 7 straight 15 10 0.01 quarters 5
Slide 14: ISG Sustainable growth
ISG Sustainable growth Infrastructure Solutions Group: Record Revenue, • Enhance comprehensive infrastructure Record Profit portfolio • Invest in innovations, particularly in A.I. empowered edge computing & hybrid cloud • Balance scale & profitability 2022 Lenovo Internal. All rights reserved. 2023
Slide 15: IDG Opportunities
IDG Opportunities Intelligent Devices Group: Solid Profitability, Digitalization & Hybrid work model bring growth opportunities Expansion into Growth • PC: shipment to stabilize at higher Areas than pre-pandemic level in 2H 2023 • Smart spaces solutions steadily grow Lenovo’s strategic intent: • Inv
Slide 16: IDG Performance
IDG Performance Intelligent Devices Group: IDG Operating Profit ($M) IDG Revenue ($M) Solid Profitability, & Margin (%) 17,610 Expansion into Growth 1400 1200 1,352 10.0% 9.0% 11,586 Areas 1000 800 848 8.0% 7.0% 7.7% • Maintained industry leading 600 400 7.3% 6.0% profitability, operating margin 7.3
Slide 17: IDG Sustainable growth
IDG Sustainable growth Intelligent Devices Group: Solid Profitability, • Reduce expense, improve efficiency to Expansion into Growth ensure business healthiness Areas • Invest in innovation: premier PC, adjacent devices & accessories, software & ecosystem • Drive the evolution from smart devices to
Slide 18: Strong Execution of Strategy Transcend the Cycle
Strong Execution of Strategy Transcend the Cycle • Diversified growth engines • Operational resilience • Healthy liquidity • Innovation investment in New IT 2022 Lenovo Internal. All rights reserved. 18
Slide 19: Wong Wai Ming, Chief Financial Officer
Wong Wai Ming Chief Financial Officer February 17, 2023 2023 Lenovo Internal. All rights reserved. *all figures in the following slides are in million US$ unless otherwise stated
Slide 20: Stable Earnings; On-going Transformation
Stable Earnings; Performance On-going Revenue Net Income2 and Net Margin 3.2% Transformation 3.0% 3.2% 2.9% -24% YTY 1,100 2.5% 2.0% 900 -32% YTY 20,127 0.0% • Record gross margin and 16,694 16,956 17,090 15,267 700 640 516 541 -2.0% 437 -4.0% operating margin in Q3 despite persistent 500 412 -6.0%
Slide 21: Strong Working Capital Management
Strong Working Performance Capital Management Cash and Borrowings Net Cash 1,085 6,000 5,567 5,019 • Our cash balance exceeded $5 billion 5,000 3,756 3,930 3,788 4,000 602 581 at the end of the quarter, up 34% year- 3,000 394 on-year 2,000 1,000 81 • Net cash reached $581mn and grew by - Q3 21/22 Q4
Slide 22: SSG Performance
SSG Performance Solutions & Services Group Revenue Deferred Revenue +23% YTY • Record revenue, up 23%YTY. Operating 2,500 +8% YTY 2,997 2,000 1,836 profit up 12% YTY to $370mn. 1,498 1,396 1,456 1,721 2,900 2,918 1,500 2,862 • Profitability remained high across three 1,000 2,777 service segments; op
Slide 23: ISG Performance
ISG Performance Infrastructure Solutions Group Revenue • Consistently outperforming the market +48% YTY with new milestones: 2,855 • Record revenue and operating profit 3,000 2,614 2,500 2,086 • 3rd consecutive quarters of revenue 1,929 2,000 1,409 1,500 and profit records; 1,000 • 3rd and 7th conse
Slide 24: IDG Performance
IDG Performance Intelligent Devices Group1 Revenue • IDG revenue decreased 34% YTY amid a -34% YTY tough market with operating profit margin 20,000 18,000 17,610 at 7.3% thanks to operational excellence 16,000 14,000 14,696 14,274 13,716 11,586 and disciplined expense control 12,000 10,000 8,000 • N
Slide 25: Continued R&D Investment to Drive Innovation
Performance Continued R&D Investment to Drive 1,500 R&D Expenses and Ratio to Revenue 3.8% 4.0% Innovation 1,300 1,100 2.7% 3.4% 3.0% 3.3% 3.5% 3.0% • R&D spending grew 5% YTY to support 900 +5% YTY 2.5% 700 549 576 556 579 2.0% future investments. Total operating 500 511 1.5% expenses dropped 23% Y
Slide 26: ESG Achievements
ESG Achievements First group of 139 Leader in both CDP Muse 2022 Silver companies with Climate Change Award for reduction in validated1 net-zero and Water Security packaging2 by 35% Environmental targets with ‘A-’ ranking through AI SC.ESG Awards3 On track to exceed KPI 62,605 beneficiaries of comme
Slide 27: Outlook
Outlook Group Mission is to Lead and Enable Intelligent Transformation Improve net income margin in the medium-term; Drive R&D to turbocharge innovation; Increase brand premium; Mitigate short-term challenges amid macro uncertainties; Leverage IT spending on Digital Transformation SSG: Serve as a Ne
Slide 28: Supplemental Financial Materials
Supplemental Financial Materials - Financial Summary - Condensed Consolidated Income Statement - Condensed Consolidated Balance Sheet - Condensed Consolidated Cash Flow Statement - Supplemental Non-HKFRS Measures 2023 Lenovo Internal. All rights reserved. 28
Slide 29: Financial Summary
Financial Summary US$ Million Q3 21/22 Q3 22/23 Y/Y% Revenue 20,127 15,267 -24% Gross profit 3,355 2,612 -22% Operating expenses (2,423) (1,862) -23% Operating profit 932 750 -20% Operating profit (non-HKFRS) 920 729 -21% Other non-operating income/(expenses), net (77) (145) 88% Profit before taxati
Slide 30: Condensed Consolidated Income Statement
Condensed Consolidated Income Statement US$ Million Q3 21/22 Q3 22/23 Revenue 20,127 15,267 Cost of sales (16,772) (12,655) Gross profit 3,355 2,612 Selling and distribution expenses (1,012) (871) Administrative expenses (730) (480) Research and development expenses (549) (579) Other operating incom
Slide 31: Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet US$ Million As of Dec 31, 2021 As of Dec 31, 2022 Current assets 30,483 26,131 Bank deposits and cash 3,829 5,081 Trade, notes and other receivables 17,847 13,222 Inventories 8,442 7,502 Others 365 326 Non-current assets 15,164 15,617 Property, plant and equipmen
Slide 32: Condensed Consolidated Cash Flow Statement
Condensed Consolidated Cash Flow Statement US$ Million Q3 21/22 Q3 22/23 Net cash generated from operating activities 606 74 Net cash used in investing activities (389) (407) Net cash used in financing activities (110) (301) Increase/(decrease) in cash and cash equivalents 107 (634) Effect of foreig
Slide 33: Supplemental Non-HKFRS Measures
Supplemental Non-HKFRS Measures US$ Million Q3 21/22 Q3 22/23 Profit before Profit for the Profit Profit before Profit for the Profit Operating profit taxation period attributable to Operating profit taxation period attributable to equity holders equity holders As reported 932 855 682 640 750 605 48
Slide 34: Smarter technology for all, thanks
Smarter technology thanks. Lenovo