Lenovo Group Limited · HKEX:992
Lenovo — Q2 2023 Earnings Presentation
37 slides from Lenovo's earnings presentation, Nov 3, 2022
Slide 1: Q2FY23 Earnings Announcement
Q2FY23 Earnings Announcement November 3, 2022 2022 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 November 3, 2022 2022 Lenovo Internal. All rights reserved.
Slide 4: Group: Diversified Engines Driving Growth & Profitability
Group: Diversified Engines Driving Growth & Profitability • Multiple challenges and uncertainties persist in the macro context • Solid performance and improved profitability • Non-PC businesses become solid new growth engines, 37.4% mix of total revenue 2022 Lenovo Internal. All rights reserved. Sou
Slide 5: Group Opportunities: Digital/Intelligent transformations
Opportunities Group: Diversified Engines Driving Accelerated Digital/Intelligent Growth & Profitability transformations: • Digitalization and hybrid work model driving strong growth of global spending • Strong, sustainable customers’ need for: • Smart devices/IoT(module) • ICT infrastructure • Solut
Slide 6: Group Performance: Net Income and Revenue
Performance Group: Group Net Income ($M) Diversified Engines Driving +6% 1.2 Growth & Profitability 600 500 512 541 1 0.8 400 0.6 300 0.4 200 • Net income $541 million, up 6% 100 0.2 YTY; net margin up 0.3 points 0 Q2 21/22 Q3 21/22 Q4 21/22 Q1 22/23 Q2 22/23 0 YTY; both achieved 10th Group Revenue
Slide 7: Group Performance: SSG, ISG, PC and Non-PC, Cash
Performance Group: SSG Revenue ($M) ISG Revenue ($M) Diversified Engines Driving +33% +26% Growth & Profitability 2,614 1,721 1,968 1,363 • New diversified growth engines saw high double-digit revenue growth YTY Q2 21/22 Q2 22/23 Q2 21/22 Q2 22/23 • SSG1: up 26% YTY PC & Non-PC Group Cash Position (
Slide 8: Group: Sustainable growth
Sustainable growth Group: Diversified Engines Driving ⚫ Committed to doubling R&D Growth & Profitability investments in medium term， R&D expense up 15% YTY, headcount up 26% YTY ⚫ Accelerate ESG efforts ⚫ Strengthen One Lenovo platform 2022 Lenovo Internal. All rights reserved. Source: Internal 8
Slide 9: SSG Opportunities
Opportunities SSG Solutions & Services Group: Trillion-dollar IT services market Strong Growth, grows steadily Higher Profitability • Faster growth in DaaS and Managed Services • Spending on vertical solutions & services remain strong Lenovo’s strategic intent: Drive high growth in 3 high margin ser
Slide 10: SSG Performance
Performance SSG SSG Operating Profit ($M) SSG Revenue ($M) Solutions & Services Group: & Margin (%) +26% Strong Growth, +29% 1,721 1,363 Higher Profitability 350 250 285 368 0.29 0.27 0.25 150 21.4% 0.23 20.9% • Operating margin 21.4%, 0.21 0.19 50 0.17 operating profit up 29% YTY -50 Q2 21/22 Q3 21
Slide 11: SSG: Sustainable growth
Sustainable growth SSG Solutions & Services Group: • Build comprehensive horizontal Strong Growth, solutions for vertical industries Higher Profitability • Expand sustainability offerings • Lenovo PCCW Solutions achieving initial success on business synergy 2022 Lenovo Internal. All rights reserved.
Slide 12: ISG Opportunities
Opportunities ISG Infrastructure Solutions Group: ICT Infrastructure upgrade continues Record Revenue, By 2025: Record Profitability • Server to reach $134 billion • Edge infrastructure to reach $47 billion • Storage to reach $36 billion Lenovo’s strategic intent: Full-stack infrastructure provider
Slide 13: ISG Performance
ISG Performance Infrastructure Solutions Group: ISG Revenue ($M) ISG Operating Results ($M) Record Revenue, +33% & Margin (%) 2,614 36 Record Profitability 1,968 20 15 0.016 1.4% 0.011 10 • Revenue $2.6 billion, up 33% YTY 0.006 5 0 0.001 -0.3% • Operating profit $36 million, record -5 -0.004 -10 -6
Slide 14: ISG: Sustainable growth
Sustainable growth ISG Infrastructure Solutions Group: • End-to-end infrastructure solutions Record Revenue, provider Record Profitability • Enhance comprehensive portfolio • Invest in innovations, particularly in Edge & Services • Strengthen operational resilience • Balance scale & profitability 20
Slide 15: IDG Opportunities
Opportunities IDG Intelligent Devices Group: Hybrid work model brings growth Strong Profitability, opportunities Outperforming Competition • PC & tablet: market size stably remain higher than pre-pandemic level in long term • Scenario-based solutions steadily grow Lenovo’s strategic intent: • Invest
Slide 16: IDG Performance
IDG Performance Intelligent Devices Group: IDG Operating Profit ($M) IDG Revenue ($M) Strong Profitability, & Margin (%) 15,339 13,716 Outperforming Competition 1400 1200 1,165 1,020 10.0% 9.0% • Industry leading profitability at 7.4% 1000 800 8.0% 7.0% 7.6% • PC: 22.8% market share, enlarged 600 40
Slide 17: IDG: Sustainable growth
Sustainable growth IDG Intelligent Devices Group: Strong Profitability, • Invest in innovation from smart devices to smart spaces Outperforming Competition • Replicate PC success to grow business beyond PC and win in more markets 2022 Lenovo Internal. All rights reserved. 17
Slide 18: Stay Agile to the Changes, Ensure Ongoing Profitability
Stay Agile to the Changes, Ensure Ongoing Profitability Strategic Execution Ensure Profitability Continue to invest in Rebalance resources, drive for diversified growth engines efficiency and expense reduction 2022 Lenovo Internal. All rights reserved. 18
Slide 19: Best Positioned to Lead in Digital & Intelligent Transformation
Best Positioned to Lead in Digital & Intelligent Transformation with All Assets of New IT Architecture Client Edge-Cloud Intelligence -Network Smart Devices/IoT Smart Infrastructure Smart Vertical 2022 Lenovo Internal. All rights reserved. 19
Slide 20: Horizontal building blocks for vertical solutions
Horizontal building blocks for vertical solutions IoT Metaverse Edge Hybrid/multi-cloud A.I. solution solution solution solution solution 2022 Lenovo Internal. All rights reserved. 20
Slide 21: Fulfill commitment, Transcend the Cycle
Fulfill commitment, Transcend the Cycle • High-quality innovative portfolio • Strong hybrid manufacturing driven supply chain • Unique global/local principle & capability • Healthy liquidity 2022 Lenovo Internal. All rights reserved. 21
Slide 22: Wong Wai Ming, Chief Financial Officer
Wong Wai Ming Chief Financial Officer November 3, 2022 2022 Lenovo Internal. All rights reserved. *all figures in the following slides are in million US$ unless otherwise stated
Slide 23: Resilient Growth and Profitability
Resilient Growth and Performance Profitability Revenue 1,100 Net Income1 3.2% 3.0% 3.2% 3.5% -4% YTY 1,000 2.9% 3.0% • Group revenue down 4% YTY (up 3% 900 800 2.5% +6% YTY 2.5% 20,127 640 YTY in constant currency), robust 17,869 16,694 16,956 700 17,090 600 512 516 541 2.0% 1.5% performance in a ch
Slide 24: Strong Working Capital Management
Strong Working Performance Capital Management Cash and Cash Equivalents 10,000 8,728 8,442 Inventory 8,868 8,301 8,418 5,567 • Total cash reached $5.6 bn while net 3,756 3,930 3,788 8,000 6,000 3,647 cash position improved by $1.1bn YTY 4,000 to $1.1bn despite market headwinds 2,000 - • Cash convers
Slide 25: SSG Performance
SSG Performance Solutions & Services Group Revenue Deferred Revenue 2,500 +26% YTY +11% YTY 2,000 1,721 2,900 2,918 2,862 • Revenue grew 26% YTY; operating profit 1,500 1,363 1,498 1,396 1,456 2,777 at a record high and operating margin up 1,000 2,571 0.5pts YTY to 21.4% 500 • Deferred revenue balan
Slide 26: ISG Performance
ISG Performance Infrastructure Solutions Group Revenue • Multiple records set +33% YTY • Record revenue and operating 3,000 2,614 profit – revenue grew 33% YTY 2,500 1,968 1,929 2,086 2,000 while operating profit increased 1,409 1,500 $42mn YTY 1,000 • Record revenue in CSP – outgrew 500 market fore
Slide 27: IDG Performance
IDG Performance Intelligent Devices Group1 Revenue • Maintained #1 PC position while extending -11% YTY lead over competitors despite exacerbated 20,000 18,000 17,610 15,339 market headwinds 16,000 14,696 14,274 13,716 14,000 12,000 • Real market demand, as measured by 10,000 8,000 global PC activat
Slide 28: Improved R&D Spending to Drive Innovation and Margin Growth
Performance Improved R&D Spending to Drive R&D Expenses and Ratio to Revenue Innovation and Margin 1,500 1,300 3.4% 3.0% 3.3% 4.0% 3.5% Growth 1,100 900 2.7% 2.7% +15% YTY 3.0% 2.5% • R&D spending grew 15% YTY 700 549 576 511 556 2.0% 482 500 1.5% • Innovative effort, combined with 300 1.0% discipli
Slide 29: ESG Updates
ESG Updates Introduced certified Plastic-free packaging Committed to a vision of recycled metal in the for ThinkPad X1 & Z net-zero by 20501 covers of four series Environmental notebooks2 30,000 beneficiaries Launched the 2nd annual Established a partnership for our annual global TransforMe campaign
Slide 30: Outlook
Outlook Group Mission is to Lead and Enable Intelligent Transformation Improve net income margin in the medium-term; Drive R&D to turbocharge innovation; Increase brand premium; Mitigate short-term challenges amid macro uncertainties; Leverage IT spending on Digital Transformation SSG: Serve as a Ne
Slide 31: Supplemental Financial Materials
Supplemental Financial Materials - Financial Summary - Condensed Consolidated Income Statement - Condensed Consolidated Balance Sheet - Condensed Consolidated Cash Flow Statement - Supplemental Non-HKFRS Measures 2022 Lenovo Internal. All rights reserved. 31
Slide 32: Financial Summary
Financial Summary US$ Million Q2 21/22 Q2 22/23 Y/Y% Revenue 17,869 17,090 -4% Gross profit 3,006 2,877 -4% Operating expenses (2,189) (2,026) -7% Operating profit 817 851 4% Operating profit (non-HKFRS) 900 907 1% Other non-operating expenses (75) (141) 89% Profit before taxation 742 710 -4% Profit
Slide 33: Condensed Consolidated Income Statement
Condensed Consolidated Income Statement US$ Million Q2 21/22 Q2 22/23 Revenue 17,869 17,090 Cost of sales (14,863) (14,213) Gross profit 3,006 2,877 Selling and distribution expenses (924) (886) Administrative expenses (700) (546) Research and development expenses (482) (556) Other operating income/
Slide 34: Condensed Consolidated Balance Sheet
Condensed Consolidated Balance Sheet US$ Million As of Sept 30, 2021 As of Sept 30, 2022 Current assets 27,572 28,118 Bank deposits and cash 3,731 5,628 Trade, notes and other receivables 14,569 13,445 Inventories 8,728 8,418 Others 544 627 Non-current assets 15,003 15,175 Property, plant and equipm
Slide 35: Condensed Consolidated Cash Flow Statement
Condensed Consolidated Cash Flow Statement US$ Million Q2 21/22 Q2 22/23 Net cash generated from operating activities 1,561 2,084 Net cash used in investing activities (343) (806) Net cash generated from/(used) in financing activities (717) 625 Increase in cash and cash equivalents 501 1,903 Effect
Slide 36: Supplemental Non-HKFRS Measures
Supplemental Non-HKFRS Measures US$ Million Q2 21/22 Q2 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 817 742 557 512 851 710 55
Slide 37: Smarter technology for all, thanks
Smarter technology thanks. Lenovo