Revenue Growth and Performance - Revenue increased by 9% quarter-on-quarter to $15.7 billion, marking the first year-on-year growth in the past year and a half[4][6] - Intelligent Devices Group revenue grew by 7% year-on-year and quarter-on-quarter, with a leading profitability of 7.4%[4] - Solutions and Services Group achieved a record revenue of over $2 billion, with a strong operating margin of 20.4%[4] - Infrastructure Solutions Group revenue increased by 24% quarter-on-quarter, with losses narrowing to $38 million[4] - Non-PC business accounted for 42% of total revenue across all business groups, reflecting successful diversification[6] - The company's service-led transformation achieved a milestone with the Solutions and Services Group contributing 12% and 32% to total revenue and profit, respectively[8] - The Intelligent Devices Group saw a 7% YoY increase in revenue and operating profit, with a global market share of 24% in PCs and 27% in commercial PCs[9] - Non-PC sales accounted for 21% of the Intelligent Devices Group's revenue, growing over 4 percentage points YoY, driven by strong smartphone sales in North America, EMEA, and Asia[10] - The Infrastructure Solutions Group recorded a 24% QoQ revenue growth for the second consecutive quarter, with storage, services, and software combined revenue exceeding $1 billion for the first time[11] - The Solutions and Services Group achieved record revenue of $2 billion and operating profit of $412 million, with a strong operating margin of 20.4%[12] - EMEA market revenue grew 20% YoY, driven by a rebound in PC demand and strong smartphone performance in certain countries[13] - APAC (excluding China) revenue increased 7% YoY, supported by a strong recovery in commercial PC sales, particularly in Japan[13] - Americas revenue grew slightly by 1% YoY, with strong performance in gaming laptops and premium smartphones offset by a decline in the Infrastructure Solutions Group[13] - China revenue declined 10% YoY, but the decline narrowed significantly compared to the previous quarter, with a double-digit growth in the Solutions and Services Group[14] - Revenue for the nine months ended December 31, 2023, was $43.031 billion, a 13% decrease year-over-year[18] - Total revenue for the nine months ended December 31, 2023, was $43.03 billion, a decrease from $49.31 billion in the same period last year[24] - Total sales for the three months ended December 31, 2023, were approximately $15.72 billion, a 3% increase from $15.27 billion in the same period last year[25] - Revenue for the nine months ended December 31, 2023, was $49.312 billion, with a gross profit of $8.358 billion[45] - Revenue from the Intelligent Devices Business Group was $34.14 billion, down from $39.58 billion in the previous year[58] - Revenue from the Infrastructure Solutions Business Group was $6.39 billion, compared to $7.56 billion in 2022[58] - Revenue from the Solutions and Services Business Group increased to $5.65 billion from $5.01 billion in 2022[58] - Revenue from China decreased to $9.91 billion from $12.42 billion in 2022[58] - Revenue from the Americas was $14.84 billion, down from $16.80 billion in 2022[58] - Revenue recognized at a point in time was $40.82 billion, compared to $47.45 billion in 2022[59] Profitability and Margins - Net income attributable to equity holders grew by 35% quarter-on-quarter, but decreased by 23% year-on-year due to a high base effect[4][6] - The company's net profit for the quarter was $337 million, down 23% YoY but up 35% QoQ, with the Intelligent Devices Group's profit margin increasing by 5 basis points to 7.4%[8] - Gross profit margin increased by 0.2 percentage points to 17.1% for the nine months ended December 31, 2023[18] - Net profit attributable to equity holders decreased by $731 million to $763 million for the nine months ended December 31, 2023[18] - Basic and diluted earnings per share were 6.38 cents and 6.09 cents, respectively, a decrease of 6.19 cents and 5.59 cents year-over-year[18] - Net profit attributable to equity holders for the three months ended December 31, 2023, was $337 million, down from $437 million year-over-year[25] - Gross margin for the three months ended December 31, 2023, decreased to 16.5%, down 0.6 percentage points from 17.1% in the same period last year[25] - Basic and diluted earnings per share for the three months ended December 31, 2023, were $0.0281 and $0.0264, respectively, down from $0.0365 and $0.0344 in the same period last year[25] - Net profit for the three months ending December 31, 2023, was $376.813 million, a decrease from $481.943 million in the same period last year[46] - Net profit attributable to equity holders for the nine months ended December 31, 2023, was $1.494 billion[45] - Basic earnings per share for the nine months ended December 31, 2023, was 12.57 cents[45] - Operating profit for the nine months ended December 31, 2023, was $2.378 billion[45] - The company's pre-tax profit for the nine months ended December 31, 2023, was $1,056,789 thousand, a decrease from $2,005,566 thousand for the same period in 2022[95] Financial Expenses and Debt Management - Financial expenses were reduced by $16 million quarter-on-quarter and $10 million year-on-year through prudent debt management[7] - Financial expenses increased by 22% year-over-year, primarily due to a $144 million increase in factoring costs, partially offset by a $23 million decrease in bank loan and overdraft interest and a $7 million decrease in convertible bond interest[21] - Financial expenses decreased by 6% year-over-year, primarily due to a $6 million reduction in convertible bond interest and a $9 million reduction in note interest, partially offset by a $9 million increase in factoring costs[27] - The company has a revolving loan facility of $2 billion issued on July 4, 2022, with a 5-year term[39] - Trade credit facilities available as of December 31, 2023, amounted to $3.872 billion, with $2.026 billion utilized[40] - The company's outstanding notes and convertible bonds as of December 31, 2023, include $965 million in 2025 notes with a 5.875% interest rate[41] - Net debt position as of December 31, 2023, was $88 million, compared to a net cash position of $366 million as of March 31, 2023[42] - The company's forward foreign exchange contracts outstanding as of December 31, 2023, totaled $10.373 billion[43] - The company's financial expenses for the nine months ended December 31, 2023, were $562,256 thousand, an increase from $460,046 thousand for the same period in 2022[95] - Total financing liabilities decreased from $4,359.35 million as of March 31, 2023, to $4,002.85 million as of December 31, 2023, reflecting a reduction of $356.5 million[96] - Short-term loans decreased from $57.03 million to $46.39 million, a reduction of $10.64 million[96] - Convertible bonds (current) significantly decreased from $214.58 million to $10.71 million, a reduction of $203.87 million[96] - Lease liabilities (current) decreased from $123.72 million to $119.02 million, a reduction of $4.7 million[96] R&D and Innovation - R&D investment as a percentage of revenue is expected to reach its highest level in the 2023/24 fiscal year[4][7] - The company showcased over 40 new AI devices and solutions at CES 2024, advancing its "AI for All" vision[15] - The company is focusing on AI innovation in devices, expanding from hardware to components and software, including AI Core chips and AI Now solutions[15] - The Infrastructure Solutions Group is leveraging hybrid AI trends, with a diversified and balanced participation in public and private clouds[16] - The company is expanding its service business, particularly its TruScale as-a-service portfolio, to address hybrid work, multi-cloud management, and cybersecurity challenges[17] ESG and Sustainability - The company was recognized as an EPEAT Climate+™ Champion for integrating climate considerations into over 400 products[7] - The company is committed to achieving net-zero emissions by 2050 and integrating innovative ESG features like carbon offset services into its service business[17] Awards and Recognition - The company won 105 product awards at CES 2024, including 61 awards for the ThinkBook Plus Gen 5 Hybrid[7] Operational Efficiency and Cost Management - Operating expenses decreased by 2% year-over-year, with reductions in advertising and promotional expenses by $54 million and R&D-related lab testing, services, and supply expenses by $52 million[20] - Operating expenses increased by 7% year-over-year, with an additional $26 million spent on advertising and promotional activities for new product launches and special events[26] - Strategic investment fair value gains amounted to $25 million, compared to $74 million in the previous year, reflecting changes in the value of the investment portfolio[26] - Net trade receivables impairment provision was $12 million, compared to a reversal of $13 million in the previous year, indicating a reassessment of bad debts[26] - Net foreign exchange loss was $15 million, compared to $1 million in the previous year, due to currency fluctuations[26] Cash Flow and Liquidity - Operating cash flow decreased to $1,467.7 million from $2,557.0 million in the previous year, a decline of 42.6%[49] - Net cash used in investing activities was $1,033.1 million, compared to $1,601.0 million in the prior year, a decrease of 35.5%[49] - Net cash used in financing activities was $1,181.6 million, a significant shift from net cash generated of $315.4 million in the previous year[49] - Cash and cash equivalents decreased by $747.0 million, compared to an increase of $1,271.4 million in the prior year[49] - Interest paid increased to $548.3 million from $406.3 million, a rise of 34.9%[49] - Taxes paid increased to $396.5 million from $262.9 million, a rise of 50.7%[49] - Proceeds from issuance of convertible bonds were $6,728.4 million, compared to $9,768.1 million in the previous year[49] - Repayment of borrowings was $6,740.3 million, compared to $9,750.9 million in the prior year[49] - Cash and cash equivalents at the end of the period were $3,466.2 million, down from $5,018.9 million in the previous year[49] - Exchange rate impact on cash and cash equivalents was a loss of $36.9 million, compared to a loss of $182.7 million in the prior year[49] - The company's operating cash flow for the nine months ended December 31, 2023, was $2,412,502 thousand, compared to $3,226,210 thousand for the same period in 2022[95] Acquisitions and Investments - The company completed the acquisition of Lenovo Leasing Co., Ltd. for approximately $124 million on July 7, 2023[98] - The company acquired certain assets and assumed certain liabilities from FCNT Corporation for approximately $14 million on September 29, 2023, to accelerate smartphone business growth in Japan[98] - Lenovo Leasing and FCNT businesses contributed $20 million and $8 million respectively to the group's revenue for the nine months ended December 31, 2023[99] - Lenovo Leasing contributed $0.8 million in pre-tax profit, while FCNT business incurred a pre-tax loss of $4.5 million for the nine months ended December 31, 2023[99] - The goodwill from business combinations was calculated at $18.2 million, with Lenovo Leasing contributing $9.613 million and FCNT contributing $8.587 million[99] - The total identifiable net assets acquired were valued at $119.262 million, with Lenovo Leasing at $113.934 million and FCNT at $5.328 million[99] - The group incurred $2 million in acquisition-related costs, recorded in administrative expenses and operating cash flows[100] - The company purchased 291,517,600 shares for employee incentive plans during the nine months ended December 31, 2023[101] Corporate Governance and Compliance - The audit committee reviewed the unaudited financial results for the nine months ended December 31, 2023, and regularly meets with management and auditors[102] - The company complied with the Corporate Governance Code except for the separation of the Chairman and CEO roles, which was deemed appropriate for strategic continuity[103] - The board appointed William O. Grabe as the Lead Independent Director to oversee governance matters and ensure checks and balances[103] - The board structure includes a majority of independent non-executive directors, with quarterly meetings to review operations[103] Financial Statements and Reporting - The financial statements for the fiscal year ending March 31, 2023, were submitted to the Companies Registry and received an unqualified audit opinion[51] - The company adopted Hong Kong Accounting Standard 12 (Amendment) related to deferred taxes on assets and liabilities arising from single transactions, effective from April 1, 2023, which narrowed the scope of initial recognition exemptions[52] - Deferred tax assets related to lease liabilities were reclassified, resulting in an impact of $70,336 thousand as of March 31, 2022, and $55,473 thousand as of March 31, 2023[54] - The company's deferred tax assets were $2,601,667 thousand as of April 1, 2022, and $2,537,367 thousand as of April 1, 2023, after reclassification adjustments[54] - Exchange adjustments and deferred tax asset impacts from the consolidated income statement for the year ended March 31, 2023, included a $287,000 exchange loss and $14,576,000 reclassified from deferred tax liabilities[54] - The company is evaluating the impact of new interpretations and revised standards, including Hong Kong Interpretation 5 (2020) and amendments to HKAS 1, which will be effective from January 1, 2024[56] - The company concluded that the adoption of these new standards and interpretations will not have a material impact on its consolidated financial statements[56] Segment Performance - The company's operating segments are determined based on the reporting reviewed by the Lenovo Executive Committee (LEC), including the Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group[57] - The LEC evaluates segment performance based on operating profit/loss, excluding non-cash acquisition-related accounting expenses and non-recurring items such as restructuring costs[57] - Operating profit for the Intelligent Devices Business Group was $2.41 billion, down from $2.94 billion in 2022[58] - The Infrastructure Solutions Business Group reported an operating loss of $151.59 million, compared to a profit of $90.59 million in 2022[58] Assets and Liabilities - Total assets as of December 31, 2023, were $39.504 billion, up from $38.920 billion as of March 31, 2023[47] - Current assets as of December 31, 2023, were $23.228 billion, slightly higher than $22.941 billion as of March 31, 2023[47] - Total equity as of December 31, 2023, was $6.113 billion, compared to $6.047 billion as of March 31, 2023[48] - Non-current liabilities as of December 31, 2023, were $6.691 billion, down from $6.780 billion as of March 31, 2023[48] - Current liabilities as of December 31, 2023, were $26.701 billion, up from $26.093 billion as of March 31, 2023[48] - Trade receivables and bills as of December 31, 2023, were $6.219 billion, down from $6.372 billion as of March 31, 2023[47] - Cash and cash equivalents as of December 31, 2023, were $3.466 billion, down from $4.250 billion as of March 31, 2023[47] - Total liabilities as of December 31, 2023, were $33.391 billion, up from $32.873 billion as of March 31, 2023[48] - Inventory as of December 31, 2023, totaled $6,218,910 thousand, a decrease from $6,371,858 thousand as of March 31, 2023[74] - Trade receivables and bills receivable as of December 31, 2023, amounted to $8,944,694 thousand, up from $7,940,378 thousand as of March 31, 2023[75] - Overdue trade receivables net of impairment allowance as of December 31, 2023, were $908,974 thousand, compared to $888,758 thousand as of March 31, 2023[77] - Trade payables and bills payable as of December 31, 2023, totaled $10,258,486 thousand, an increase from $9,772,934 thousand as of March 31, 2023[79] - Other receivables, including deposits and prepayments, amounted to $4,143,353 thousand as of December 31, 2023, up from $3,945,153 thousand as of March 31, 2023[81] - Other payables and accrued expenses as of December 31, 2023, were $13,368,766 thousand, compared to $12,932,781 thousand as of March 31, 2023[82] -

Lenovo Group Ltd (HKG: 0992) is in focus this morning after teaming up with Anaconda Inc on accelerating artificial intelligence deployment.Details of Lenovo-Anaconda partnershipCopy link to sectionThe deal will integrate enterprise strengths of Anaconda in “open-source leadership, security, and reliability” into Lenovo’s ThinkStation and ThinkPad. Both companies are convinced that working together will enable data scientists to develop and deploy artificial intelligence solutions with “first class hardware ...

Financial Performance - Revenue for the three months ended September 30, 2023, was $14,409.8 million, compared to $17,089.5 million for the same period in 2022, representing a decrease of approximately 15.6%[6] - Gross profit for the six months ended September 30, 2023, was $4,773.7 million, down from $5,745.5 million in the same period of 2022, indicating a decline of about 16.9%[6] - Operating profit for the three months ended September 30, 2023, was $514.0 million, a decrease from $850.9 million in the same period of 2022, reflecting a decline of approximately 39.5%[6] - Net profit attributable to equity holders for the three months ended September 30, 2023, was $249.2 million, down from $541.2 million in the same period of 2022, representing a decrease of about 54.0%[6] - The company reported a basic earnings per share of 2.09 cents for the three months ended September 30, 2023, compared to 4.54 cents for the same period in 2022, a decline of approximately 54.0%[6] - The total comprehensive income for the three months ended September 30, 2023, was $234.8 million, compared to $284.9 million for the same period in 2022, indicating a decrease of about 17.6%[7] - Revenue for the six months ended September 30, 2023, was $27,309.7 million, a decrease of 20% compared to $34,045.2 million for the same period in 2022[21] - The net profit attributable to equity holders for the same period was approximately $425.77 million, down from $1.06 billion, representing a decline of 60.3%[74] - Operating profit for the same period was $1,498,005 thousand, down from $2,233,567 thousand, representing a decline of approximately 33%[80] Assets and Liabilities - Total assets as of September 30, 2023, increased to $39,256.65 million from $38,920.06 million as of March 31, 2023, reflecting a growth of approximately 0.86%[8] - Non-current assets decreased to $15,847.48 million from $15,979.20 million, a decline of about 0.82%[8] - Current assets rose to $23,409.18 million, up from $22,940.85 million, indicating an increase of approximately 2.04%[8] - Total liabilities increased to $33,678.17 million from $32,873.04 million, representing a rise of approximately 2.45%[9] - Shareholder equity decreased to $5,127.19 million from $5,587.59 million, a decline of about 8.23%[9] - The company reported a significant increase in trade payables, which rose to $10,872.34 million from $9,772.93 million, an increase of approximately 11.23%[9] Cash Flow and Investments - Cash and cash equivalents decreased to $3,736.98 million from $4,250.09 million, a reduction of about 12.06%[10] - Net cash generated from operating activities for the six months ended September 30, 2023, was $1,103.55 million, down from $2,482.99 million for the same period in 2022, a decline of approximately 55.66%[10] - Cash used in investing activities totaled $668.74 million, compared to $1,193.79 million in the previous year, showing a decrease of about 44.00%[11] - Financing activities resulted in a net cash outflow of $858.25 million, contrasting with a net inflow of $616.84 million in the prior year[11] Business Segments Performance - For the six months ended September 30, 2023, the Smart Devices Business Group generated revenue of $21,775,171 thousand, with an operating profit of $1,496,550 thousand[20] - The Infrastructure Solutions Business Group reported an operating loss of $113,855 thousand, with revenue of $4,700,436 thousand for the six months ended September 30, 2022[20] - The Solutions Services Business Group achieved revenue of $3,631,308 thousand and an operating profit of $744,511 thousand for the six months ended September 30, 2023[20] - The group reported a net financial income of $77,055 thousand for the six months ended September 30, 2023[20] Sustainability and Innovation - The company continues to focus on sustainability initiatives, including a factory in Hungary that utilizes innovative technologies to address climate change and aims for net-zero emissions[4] - The collaboration with UNC Blue Sky Innovations aims to enhance AI applications in addressing significant human challenges through innovative technologies[3] - The company is committed to reducing emissions in line with the latest climate science, emphasizing the importance of sustainable development in its operations[4] - The company plans to invest a total of $1 billion over the next three years to expand its artificial intelligence capabilities[125] - The company is committed to achieving net-zero emissions by 2050 and will expand its sustainability initiatives, integrating innovative ESG features into its service offerings[127] Employee and Compensation - The workforce as of September 30, 2023, consists of approximately 71,090 employees, with competitive compensation and benefits to attract and retain talent[128] - The company continues to implement a long-term incentive plan to attract and retain high-performing employees, linking rewards to shareholder interests[129] - The long-term incentive plan allows for the granting of share appreciation rights and restricted share units without a specific limit on the maximum number of units awarded to each participant[132] Corporate Governance - The company’s audit committee reviewed the unaudited interim results for the six months ending September 30, 2023, ensuring compliance with accounting standards and internal controls[149] - The company has complied with the corporate governance code during the six months ending September 30, 2023, with the roles of Chairman and CEO not separated[150] - The company confirmed that all directors complied with the securities trading policy during the six months ending September 30, 2023[151] - The company’s board consists of a majority of independent non-executive directors, ensuring effective checks and balances between the board and management[150]

Smarter technology for all Q2 FY24 Earnings Announcement Nov 16, 2023 2023 Lenovo Internal. All rights reserved. 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 well as other statements based on projections, estimates and assumptions. In some cases, these statem ...

Lenovo Group Limited (OTCPK:LNVGY) Q2 2024 Earnings Conference Call November 16, 2023 2:00 AM ET Company Participants Jenny Lai - Vice President of Investor Relations Yang Yuanqing - Chairman and Chief Executive Officer Wai Ming Wong - Executive Vice President and Chief Financial Officer Ken Wong - Executive Vice President and President of Solutions and Services Group Kirk Skaugen - Executive Vice President and President of Infrastructure Solutions Group Luca Rossi - Executive Vice President and President o ...

Financial Performance - Lenovo Group reported a significant 12% quarter-on-quarter sales growth in Q2, exceeding the average growth rate of 9% over the past decade[4]. - For the first half of the fiscal year, revenue decreased by 20% year-on-year, while profit attributable to equity holders fell by 60% to $426 million[4][5]. - The group's revenue for the second quarter increased by 12% quarter-on-quarter, surpassing the 9% ten-year average, although year-on-year sales decreased by 20% to $27 billion[8]. - The group recorded a gross profit margin of 17.5%, setting a new record for the first half of the fiscal year[9]. - The group’s total revenue for the six months ended September 30, 2023, was approximately $27.31 billion, a decrease of 20% compared to $34.05 billion for the same period last year[18]. - The group’s net profit attributable to equity holders decreased by $631 million to approximately $426 million, representing a 60% decline year-over-year[18]. - The operating profit for the six months ended September 30, 2023, was $1.50 billion, compared to $2.23 billion for the same period in 2022, representing a decrease of approximately 33%[24]. - The company reported a net profit of $289 million for the three months ended September 30, 2023, down 48% from $554 million in the same period last year[25]. - The company reported a pre-tax profit of $585.746 million for the six months ending September 30, 2023, compared to $1.400 billion for the same period in 2022[95]. Segment Performance - The Solutions and Services Group saw a 14% increase in revenue and a 7% rise in operating profit year-on-year, marking a record performance for the group[4]. - The Intelligent Devices Group maintained its leadership in the global PC market, with an operating profit margin of 7.4% in Q2, close to historical highs[4]. - The Infrastructure Solutions Group experienced a 17% decline in revenue, resulting in an operating loss of $114 million, primarily due to reduced IT spending across the industry[4]. - The smart devices segment's revenue and operating profit decreased by 22% and 28% year-on-year, respectively, primarily due to inventory clearance[10]. - The Infrastructure Solutions Group's revenue decreased by 17% year-over-year, but showed a quarterly growth of 5% in the second fiscal quarter[11]. - The Solutions Services Group achieved revenue of $3.6 billion, a year-over-year increase of 14%, with operating profit rising by 7% to $745 million[12]. Cash Flow and Expenses - Cash conversion cycle improved by one day to negative four days in Q2, with inventory levels decreasing by over $2 billion year-on-year[4]. - The group successfully reduced expenses by $248 million year-on-year through effective cost-saving measures[9]. - Operating expenses decreased by 6% year-over-year, with significant reductions in advertising and promotional expenses by $80 million and R&D-related costs by $63 million[20]. - The company reported a net cash generated from operating activities for the six months ending September 30, 2023, was $1.812 billion, down from $2.896 billion in the previous year[95]. Investments and Acquisitions - The group plans to invest a total of $1 billion over the next three years to expand its AI capabilities, benefiting from growth opportunities in AI[15]. - The company completed the acquisition of Lenovo Financial Leasing Co., Ltd. for approximately $124 million on July 7, 2023, and the acquisition contributed $9 million in revenue and $200,000 in pre-tax profit for the six months ended September 30, 2023[99][100]. - The company acquired certain assets and assumed liabilities from FCNT Corporation for approximately $14 million on September 29, 2023, aimed at accelerating growth in the smartphone business in Japan[99]. Market Position and Strategy - The group ranked third in the global storage market, improving its position by five places compared to last year[11]. - The company will introduce new AI-embedded services in digital workplaces and hybrid cloud solutions to meet the growing demand from enterprise customers[16]. - The PC business is expected to see steady growth in Q4 2023, with the global PC market potentially returning to pre-pandemic levels in the short term[15]. Sustainability and Corporate Governance - The group aims to achieve net-zero emissions by 2050 and plans to expand its sustainability initiatives, integrating innovative ESG features into its service offerings[18]. - The company is committed to high standards of corporate responsibility and aims to mitigate environmental impacts while helping clients achieve their ESG goals[18]. - The board believes that having Yang Yuanqing serve as both Chairman and CEO is appropriate for maintaining strategic continuity and operational stability[104]. Financial Position - As of September 30, 2023, total assets were $39.257 billion, an increase from $38.920 billion as of March 31, 2023, while total liabilities rose to $33.678 billion from $32.873 billion[37]. - The company's cash and cash equivalents totaled $3.799 billion as of September 30, 2023, down from $4.321 billion at the end of the previous quarter[38]. - The company maintained a net debt position of $(133) million as of September 30, 2023, compared to a net cash position of $366 million at the end of the previous quarter[41]. - The company had outstanding forward foreign exchange contracts totaling $110.65 billion as of September 30, 2023, compared to $93.84 billion at the end of the previous quarter, used for hedging purposes[42].

Lenovo Group Limited (OTCPK:LNVGY) Q1 2024 Earnings Conference Call August 17, 2023 3:00 AM ET Company Participants Jenny Lai - Vice President of Investor Relations Yang Yuanqing - Chairman and Chief Executive Officer Wai Ming Wong - Executive Vice President and Chief Financial Officer Luca Rossi - Executive Vice President and President of Intelligent Devices Group Kirk Skaugen - Executive Vice President and President of Infrastructure Solutions Group Ken Wong - Executive Vice President and President of Sol ...

[0 -> 5] Relations at Lenovo. Thanks everyone for joining us. Before we start, let me introduce our [5 -> 11] management team joining the call today. Mr. Yang Yuanqing, Lenovo's Chairman and CEO. [12 -> 18] Mr. Wang Yiming, Group CFO. Mr. Ken Wong, President of Solutions and Services Group. [19 -> 25] Mr. Chris Galgen, President of Infrastructure Solutions Group. Mr. Luca Rossi, President [25 -> 31] of Intelligent Devices Group. We will begin with Ernie's presentations and shortly after that, [31 -> 36] we ...

[0 -> 5] Relations at Lenovo. Thanks everyone for joining us. Before we start, let me introduce our [5 -> 11] management team joining the call today. Mr. Yang Yuanqing, Lenovo's Chairman and CEO. [12 -> 18] Mr. Wang Yiming, Group CFO. Mr. Ken Wong, President of Solutions and Services Group. [19 -> 25] Mr. Chris Galgen, President of Infrastructure Solutions Group. Mr. Luca Rossi, President [25 -> 31] of Intelligent Devices Group. We will begin with Ernie's presentations and shortly after that, [31 -> 36] we ...

Financial Performance - Lenovo Group reported a revenue of $12.9 billion for the quarter ending June 30, 2023, a decrease of 24% year-over-year[5]. - The gross profit was $2.25 billion, with a gross margin of 17.5%, marking a 0.6 percentage point increase from the previous year[5]. - Operating profit fell by 50% to $390 million, while net profit attributable to equity holders decreased by 66% to $177 million[5]. - The smart devices business group's revenue decreased by 28% year-over-year, with operating profit declining 39% to $650 million[8]. - The infrastructure solutions business group's revenue fell by 8% year-over-year to $1.9 billion, resulting in a segment operating loss of $60 million[9]. - The solutions services business group reported revenue of $1.7 billion, an 18% year-over-year increase, with operating profit rising 10% to $361 million[11]. - The group recorded a net profit attributable to equity holders of approximately $177 million, a decrease of $339 million compared to $516 million in the previous year[15]. - For the three months ended June 30, 2023, total revenue was $13,887.6 million, a decrease from $17,815.8 million in the same period of 2022, representing a decline of approximately 22%[21]. - The company reported a total comprehensive loss of $5,428 thousand for the period, compared to a total comprehensive income of $139,837 thousand in the previous year[35]. - For the three months ended June 30, 2023, the net profit attributable to equity holders was $176,526,000, a decrease of 65.8% compared to $515,707,000 for the same period in 2022[54]. Cost Management and Expenses - Operating expenses were reduced by 11% year-over-year, contributing to a net cash balance increase of 15% to $454 million[4]. - Research and development expenses increased from 3.0% to 3.5% of revenue, with an additional investment of $1 billion planned to enhance core capabilities[4]. - Operating expenses decreased by 11% year-over-year, with significant reductions in advertising and promotional expenses by $6 million and R&D-related costs by $4.5 million[17]. - Employee benefits costs increased to $1,102.3 million for the three months ended June 30, 2023, compared to $1,088.5 million in the same period of 2022, reflecting a rise of approximately 1.3%[21]. - Financial expenses increased by 97% year-over-year, primarily due to an increase in factoring costs of $88 million and note interest of $11 million[21]. Regional Performance - Revenue in the Americas decreased by 21%, with the smart devices business group experiencing a double-digit decline[12]. - The Asia-Pacific region (excluding China) saw a revenue decline of 17%, with the infrastructure solutions business group facing weak demand[12]. - Revenue in China dropped by 29%, primarily due to a slowdown in demand for personal computers and infrastructure business[12]. - Revenue from the Asia Pacific region was $2,230,213 thousand, down from $2,672,806 thousand, while revenue from the Americas decreased to $4,770,544 thousand from $6,002,915 thousand, indicating regional challenges[45]. Cash Flow and Liquidity - The cash conversion cycle improved by 24 days, now at negative 11 days, indicating better working capital management[6]. - Cash and cash equivalents totaled $4.423 billion as of June 30, 2023, an increase from $4.321 billion as of March 31, 2023, representing a growth of approximately 2.4%[31]. - The group maintained a net cash position of $454 million as of June 30, 2023, compared to $366 million as of March 31, 2023, indicating an increase of about 24.1%[31]. - The net cash generated from operating activities for the three months ended June 30, 2023, was $649,761 thousand, an increase of 63.0% compared to $398,718 thousand for the same period in 2022[38]. - The total cash and cash equivalents at the end of the period increased to $4,354,802 thousand, up from $3,788,089 thousand year-over-year, representing a growth of 15.0%[38]. Strategic Initiatives and Investments - The company aims to save $850 million through cost structure optimization while continuing to invest in technology and service differentiation[6]. - The infrastructure solutions business group plans to invest an additional $1 billion over the next three years to expand its product portfolio and support AI solutions[9]. - The company aims to achieve net-zero emissions by 2050 and plans to enhance its sustainability initiatives, integrating innovative ESG features into its service offerings[14]. - The company received multiple accolades for its ESG performance, including an upgrade to AAA rating by MSCI and recognition in the Gartner Global Supply Chain Top 25[6]. Governance and Compliance - The audit committee reviewed the unaudited financial performance for the three months ended June 30, 2023, ensuring compliance with accounting standards and internal controls[80]. - The company confirmed compliance with the corporate governance code, with no known violations during the reporting period[81]. - The board of directors consists mainly of independent non-executive directors, ensuring effective checks and balances between the board and management[81]. - The company appointed William O. Grabe as the chief independent director, enhancing governance and oversight responsibilities[81]. Market Position - Lenovo maintained its leadership position in the global PC market, despite a 28% year-over-year revenue decline in the smart devices group due to inventory clearance[4]. - The personal computer business is expected to see steady growth in the second half of 2023, with a potential recovery in year-over-year performance as the global PC market returns to pre-pandemic levels[13].