LENOVO GROUP(00992)2024-05-23 04:04Financial Performance - Full-year revenue decreased by 8% to $56.864 billion, with net profit attributable to equity holders down 37% to $1.011 billion[4][5] - Lenovo's full-year profit decreased by 37%, reflecting a downturn in the first half of the fiscal year, but the company achieved a significant turnaround in Q4 with a 118% year-over-year increase in profit to $248 million[8] - Total revenue for FY2024 was $56.864 billion, a decrease of 8% year-over-year, with net profit attributable to equity holders dropping to $1.011 billion, down 37% YoY[19] - Net profit for the year 2024 decreased to $1,102,312 thousand from $1,680,831 thousand in 2023, representing a decline of 34.4%[47] - Total comprehensive income for 2024 was $772,284 thousand, down from $1,068,351 thousand in 2023, a decrease of 27.7%[47] - Revenue for 2024 was $56.864 billion, with a gross profit of $9.803 billion and net profit attributable to shareholders of $1.011 billion[46] - Net profit for the year amounted to $1,102,312 thousand[51] - Total comprehensive income for the year was $772,284 thousand[51] - The company's profit before tax for 2024 was 1,365,454 thousand USD, compared to 2,135,987 thousand USD in 2023[91] Gross Margin and Profitability - Non-PC business contributed significantly, driving the full-year gross margin to a record high[4] - The company's gross margin reached a historical high for the third consecutive year, with R&D investment as a percentage of revenue also hitting a record high[8] - Gross margin improved by 0.2 percentage points to 17.2% in FY2024, despite a 7% decline in gross profit to $9.803 billion[19] - Gross profit margin increased by 0.6 percentage points to 17.6%, driven by higher-margin contributions from the Solutions and Services Business Group[26] - The company's gross margin reached a historical high for the third consecutive year, with R&D investment as a percentage of revenue also hitting a record high[8] Business Group Performance - Solutions and Services Group (SSG) profit grew by 11%, driven by high-value services like TruScale as-a-service[4] - Infrastructure Solutions Group (ISG) revenue declined by 9% year-over-year but achieved record sales in Q4[4] - Intelligent Devices Group (IDG) sales decreased by 10% year-over-year, but maintained strong market leadership in PCs and smartphones[4] - The Solutions and Services Group (SSG) saw a 11% year-over-year increase in segment profit, contributing 35% to the company's total segment profit[8] - The Intelligent Devices Group (IDG) maintained a strong segment profitability of 7.1%, with global market share increasing by 50 basis points[8] - In Q4, the SSG achieved a record high revenue of $1.8 billion, with segment profitability maintained at 21% and a 20% year-over-year increase in profit[10] - The IDG's operating profit in Q4 increased by 17% year-over-year, with revenue growth of 7% and an operating margin increase of 64 basis points to 7.4%[12] - Infrastructure Solutions Group's annual revenue reached $9 billion, a 9% decline from the previous fiscal year, driven by global IT budget shifts and AI deployment trends[13] - Infrastructure Solutions Group's Q4 revenue grew 15% YoY, setting a new record, with AI products contributing positively to growth[13] - Solutions and Services Group achieved record annual revenue and profit of $7.5 billion and $1.5 billion, respectively, with a 12% and 11% YoY growth[14] - Solutions and Services Group's operating margin remained strong at 21%, the highest among all business groups[14] - Managed services revenue grew 29% YoY, driven by a diversified service portfolio and multi-channel strategy[14] - The Smart Devices Business Group generated revenue of $44.599 billion, with an operating profit of $3.181 billion[24] - The Solutions and Services Business Group saw revenue grow to $7.472 billion, with an operating profit of $1.545 billion[24] - The Smart Devices Business Group reported revenue of $10.46 billion, with an operating profit of $772.9 million, up from $9.8 billion and $661 million respectively in the previous year[30] - The Infrastructure Solutions Business Group saw a revenue increase to $2.53 billion but recorded an operating loss of $96.7 million, compared to a profit of $7.5 million in the previous year[30] - The Solutions and Services Business Group generated revenue of $1.82 billion, with an operating profit of $388.9 million, up from $1.65 billion and $324.4 million respectively[30] - Smart Devices Business Group revenue decreased to $44.6 billion in 2024 from $49.37 billion in 2023, with operating profit also declining to $3.18 billion from $3.6 billion[58] - Infrastructure Solutions Business Group reported a loss of $248.26 million in 2024, compared to a profit of $98.08 million in 2023[58] - Total revenue for the company decreased to $56.86 billion in 2024 from $61.95 billion in 2023, with operating profit dropping to $3.16 billion from $3.88 billion[58] R&D and Innovation - R&D investment reached a record 3.6% of annual revenue[4] - The company's R&D expenses as a percentage of revenue reached 3.6%, with total annual R&D cash spending at $2.3 billion[9] - Lenovo launched industry-leading products such as the ThinkBook transparent screen concept notebook and new AI PCs designed to enhance device AI capabilities[12] - The company is investing in AI Core chips, Yoga Creator Zone, ThinkShield security solutions, and AI Now personal assistant to differentiate its AI PC offerings[16] - The company's R&D expenses for 2024 were $2.028 billion, a decrease from $2.195 billion in the previous year[46] - R&D-related laboratory testing, services, and supplies expenses increased to $116.3 million from $87.6 million year-over-year[28] Cash Flow and Liquidity - Cash conversion cycle improved to negative 4 days[4] - Lenovo's cash conversion cycle improved to negative 4 days, supported by a 12-day reduction in accounts receivable and inventory days[9] - The company's liquidity ratio was 0.87 as of March 31, 2024, compared to 0.88 in the previous year[37] - Net cash generated from operating activities in 2024 was $2,010,991 thousand, down from $2,801,402 thousand in 2023[50] - Net cash used in investing activities in 2024 was $1,283,450 thousand, compared to $1,915,020 thousand in 2023[50] - Cash and cash equivalents decreased to $3,559,831 thousand in 2024 from $4,250,085 thousand in 2023[50] - The net cash generated from operating activities in 2024 was 3,368,939 thousand USD, compared to 3,934,656 thousand USD in 2023[91] Dividends and Shareholder Returns - Proposed final dividend of 30.0 HK cents per share, unchanged from the previous year[6] - The company declared dividends of $601.140 million for 2024, an increase from $587.997 million in 2023[46] - Dividends for 2024 totaled $601.14 million, including an interim dividend of $124.32 million and a proposed final dividend of $476.82 million[70] Regional Performance - EMEA region revenue declined 5% YoY but showed early signs of recovery in Q4, driven by PC demand and smartphone market share growth[15] - Greater China revenue declined 15% YoY but rebounded in Q4, marking the first positive growth after seven consecutive quarters of decline[15] - Revenue from China decreased to $12.58 billion in 2024 from $14.86 billion in 2023, while revenue from the Americas also declined to $19.62 billion from $21.23 billion[58] AI and Future Growth - The company expects AI PCs to drive long-term recovery in the global PC market, with nearly 60% of PC shipments expected to feature AI capabilities by 2027[16] - Infrastructure Solutions Business Group focuses on high-growth and profitable areas, including high-value-added products like storage and software, aiming for differentiated technology solutions in hybrid AI, high-performance computing, storage, and edge devices[17] - The company expects double-digit revenue growth driven by strong total contract value growth in the Solutions and Services Business Group, supported by AI-embedded services in digital workplaces, hybrid cloud, and sustainability solutions[17] - AI workloads are expected to be more evenly distributed across on-premises data centers, private and hybrid clouds, and edge devices, driving demand for comprehensive infrastructure solutions[17] ESG and Sustainability - The company is advancing its ESG initiatives, integrating innovative features like carbon offset services and low-carbon transportation into its service offerings to support customer sustainability goals[18] - The company is leveraging its TruScale as-a-service portfolio to address customer pain points in hybrid work, multi-cloud management, and network security, supported by partnerships with leading business and channel partners[18] Operational Efficiency - Operating expenses remained flat at $7.797 billion, with $550 million spent on severance and related costs to enhance efficiency and competitiveness[21] - The company incurred $55 million in severance and related costs (2023: $209 million) and $40 million in asset impairment and write-offs to enhance efficiency and competitiveness[27] - Advertising and promotional expenses increased by $86 million due to new product launches and special events[27] - Strategic investment fair value gains amounted to $51 million (2023: $89 million), reflecting changes in the value of the investment portfolio[27] - The company recorded a net exchange gain of $4.6 million, compared to a net exchange loss of $12.2 million in the previous year[28] Financial Position and Liabilities - Total assets of the company as of March 31, 2024, were $38.751 billion, with equity attributable to shareholders at $5.583 billion and total liabilities at $32.670 billion[37] - Cash and cash equivalents totaled $3.626 billion as of March 31, 2024, with 90% held as bank deposits and 10% in investment-grade money market funds[38] - The company's outstanding notes and convertible bonds as of March 31, 2024, included $965 million in 2025 notes, $900 million in 2030 notes, and $675 million in 2029 convertible bonds[41] - The company's net cash position as of March 31, 2024, was $6 million, with a loan-to-equity ratio of 0.60[42] - The company's forward foreign exchange contracts amounted to $11.555 billion as of March 31, 2024, used to hedge against currency fluctuations[43] - Total assets decreased marginally to $38,750,954 thousand in 2024 from $38,920,057 thousand in 2023[48] - Total equity increased to $6,081,187 thousand in 2024 from $6,047,021 thousand in 2023[49] - Total liabilities decreased to $32,669,767 thousand in 2024 from $32,873,036 thousand in 2023[49] - Total financing liabilities decreased from $4,359.35 million in 2023 to $3,961.69 million in 2024, a reduction of approximately 9.1%[92] - Short-term loans decreased from $57.03 million in 2023 to $50.43 million in 2024, a reduction of 11.6%[92] - Notes (non-current) decreased from $3,146.15 million in 2023 to $3,012.64 million in 2024, a reduction of 4.2%[92] - Convertible bonds (non-current) increased from $537.03 million in 2023 to $556.59 million in 2024, an increase of 3.6%[92] - Lease liabilities (current) decreased from $123.72 million in 2023 to $101.58 million in 2024, a reduction of 17.9%[92] - Lease liabilities (non-current) decreased from $280.84 million in 2023 to $240.45 million in 2024, a reduction of 14.4%[92] Acquisitions and Investments - The company completed the acquisition of Lenovo Leasing Co., Ltd. for approximately $124 million in cash[94] - The company acquired certain assets and assumed certain liabilities from FCNT Co., Ltd. for approximately $14 million in cash[94] - Lenovo Leasing and FCNT businesses contributed $32 million and $23 million respectively to the group's revenue for the year ended March 31, 2024[95] - Lenovo Leasing contributed $2 million in pre-tax profit, while FCNT incurred a $12 million pre-tax loss for the year ended March 31, 2024[95] - The group's pro forma revenue increased from $56.864 billion to $56.874 billion, and pre-tax profit remained at $1.365 billion, assuming the acquisition of Lenovo Leasing occurred on April 1, 2023[95] - Net cash outflow for acquisitions decreased from $403.82 million in 2023 to $135.06 million in 2024, a reduction of 66.6%[93] Corporate Governance - The group's audit committee reviewed the audited annual results for the year ended March 31, 2024, and regularly meets with management, external auditors, and internal audit personnel[100] - The group complied with the Corporate Governance Code during the year ended March 31, 2024, except for the separation of the roles of Chairman and CEO[101] - William O. Grabe appointed as Lead Independent Director with responsibilities including chairing meetings on board structure and providing feedback to the Chairman and CEO[102] - Quarterly financial results are published to help shareholders assess the company's performance, financial condition, and prospects, using the same accounting standards as interim and annual financial statements[102] - The 2023/24 annual report will be published on the Hong Kong Stock Exchange website and the company's investor relations website, and will be sent to shareholders[103] - The current board structure includes a combined Chairman and CEO role, a Lead Independent Director, and a majority of independent non-executive directors to ensure effective checks and balances[102] Other Financial Metrics - The company recorded a $143 million gain from the remeasurement of written put option liabilities and a $153 million fair value gain from strategic investments[21] - Currency fluctuations resulted in a net foreign exchange loss of $74 million, compared to $118 million in the previous year[21] - The company recorded a $143.43 million gain from the remeasurement of put option liabilities[22] - Financial income from bank deposits increased to $148.13 million, up from $141.67 million in the previous year[22] - Financial expenses increased by 16% year-over-year, primarily due to a $147 million rise in factoring costs, partially offset by reductions in loan and overdraft interest[23] - The Infrastructure Solutions Business Group reported a loss of $248.26 million, compared to a profit of $98.08 million in the previous year[24] - Depreciation and amortization expenses decreased to $449.55 million from $548.85 million in the previous year[24] - The company's deferred tax assets as of March 31, 2022, were $2,531,331 thousand, with an additional $70,336 thousand reclassified from deferred tax liabilities related to lease liabilities[55] - As of April 1, 2022, the total deferred tax assets amounted to $2,601,667 thousand[55] - The deferred tax assets as of March 31, 2023, were $2,481,894 thousand, with $55,473 thousand reclassified from deferred tax liabilities related to lease liabilities[55] - As of April 1, 2023, the total deferred tax assets amounted to $2,537,367 thousand[55] - The company reported a foreign exchange loss of $287,000 and a deferred tax asset impact of $14,576,000 from the reclassification of deferred tax liabilities for the year ended March 31, 2023[55] - The company adopted the revised Hong Kong Accounting Standard 12, "Deferred Tax related to Assets and Liabilities arising from a Single Transaction," effective April 1, 2023, which narrowed the scope of initial recognition exemptions[53] - The company is evaluating the impact of new and revised standards, including HKFRS 17 "Insurance Contracts" and HKAS 1 amendments, which are expected to be effective from January 1, 2024[56] - The company's operating segments are determined based on the report reviewed by the Lenovo Executive Committee (LEC), which includes the Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group[57] - Revenue recognized at a point in time decreased to $53.88 billion in 2024 from $59.4 billion in 2023[59] - Depreciation and amortization expenses increased to $963.6 million in 2024 from $803.83 million in 2023[60] - Goodwill and indefinite-lived trademarks and trade names decreased to $6.17 billion in 2024 from $6.26 billion in 2023[61] - The Smart Devices Business Group's goodwill allocation was adjusted, with the PC and Smart Devices Business goodwill at $3.3 billion and Infrastructure Solutions Business at $1 billion in 2024[62] - The company's financial income decreased to $132.18 million in 2024 from $100.21 million in 2023, while financial expenses increased to $323.14 million from $154.53 million[58] - The company's total financial expenses for the Smart Devices Business Group increased to $293.5 million in 2024 from $349.2 million in 2023[60] - Operating profit for 2024 was impacted by depreciation of property, plant, and equipment amounting to $428.47 million, compared to $377.42 million in 2023[64] - Employee benefit costs increased to $5.57 billion in 2024 from $5.31 billion in 2023, with long