2QFY20/21 Earnings Announcement - Investor RelationsIntelligent Transformation: Strong Progress...

2020 Lenovo Internal. All rights reserved.

2QFY20/21 Earnings AnnouncementNov 3, 2020

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.

2020 Lenovo Internal. All rights reserved. 2


Yuanqing YangChairman & CEO

Nov 3, 2020

Group Performance: Record Results• Record Revenue, Pre-Tax Income, Net Income§ Revenue: $14.5B, up 7.4% YOY; all core businesses delivered growth first time in 6 quarters§ Pre-Tax Income: $470M, up 51.7% YOY§ Net Income: $310M, up 53.4% YOY

• Lenovo given Strong Investment-Grade rating by top-three credit rating agencies

4

310

470

Q2 1920 Q2 2021

+51.7%

PTI* ($M)Revenue ($B)

Q2 1920 Q2 2021

+7.4%

13.5 14.5

202

310

Q2 1920 Q2 2021

+53.4%

Net Income ($M)

*PTI: Pre-Tax Income Source: Internal Data2020 Lenovo Internal. All rights reserved.

IDG PCSD*: Leading the Growth• Revenue up 7.6% YOY, new record• PTI up 18.2% YOY, new record• PTI margin maintained record 6.3%, up

0.6 points YOY• PC returned to #1 with 23.6% share• Focus on high-growth, premium

segments continued to drive strong growth

* IDG: Intelligent Devices Group; PCSD: PC & Smart Devices

612723

Q2 1920 Q2 2021

5.7 6.3

Q2 1920 Q2 2021

10.711.5

Q2 1920 Q2 2021

+7.6% +18.2%+0.6pt

Visuals

Thin & Light

Q2 1920 Q2 2021

ChromebookQ2 1920 Q2 2021

Q2 1920 Q2 2021

PC Segment Volume Growth YOY (%)

PCSD Revenue ($B) PCSD PTI ($M) PCSD Margin (%)

+124.7%

+13.5%

+48.7%

Gaming

Q2 1920 Q2 2021

+57.6%

Source: IDC and Internal Data 5

IDG Mobile: Resumed Growth• Revenue resumed YoY growth,

improved 39% quarter-to-quarter• Solidifying Latin America, North America,

while driving fast growth in Europe and Asia Pacific

• Launched razr 5G foldable and Legion Gaming phone, both well received

Q2 1920 Q2 2021

1510

Mobile Revenue YTY, QTQ ($M)

1519

10931519

Q1 2021 Q2 2021

+0.6% +39%

Legion Gaming PhoneMotorola razr 5GSource: Internal Data 6

• Revenue grew 11.1%, profitability up 0.7pts YOY

• Cloud Service Provider*§ Continued strong revenue growth, up 34.1%

YOY§ Major motherboard and system design win with

top cloud service provider§ Expanded Data Center Factory in Monterrey,

Mexico

Data Center: Continued Growth

DCG Revenue ($M), PTI Margin (%)

DCG CSP* Revenue Growth YOY (%)

Q2 1920 Q2 2021Q2 1920 Q2 2021

13311478

Q2 1920 Q2 2021

+11.1%

+0.7pts

+34.1%

* Cloud Service Provider (CSP): previously hyperscale.

Source: Internal Data 7

• Enterprise/SMB1

§ Outgrew the market§ Double-digit growth in SDI2, Software, Storage

and Services• Partnership with SAP§ Lenovo TruScale IaaS3 + SAP HANA Enterprise

Cloud§ Secure data on premise with pay-as-you-go

consumption model

Data Center: Continued Growth

DCG Segment Revenue Growth YOY (%)SDI2 Software

Storage Services

Q2 1920 Q2 2021 Q2 1920 Q2 2021

Q2 1920 Q2 2021Q2 1920 Q2 2021

+22% +47%

+15% +11%

1 Enterprise/SMB (ENT/SMB): previously non-hyperscale2 SDI: Software Defined Infrastructure3 IaaS: Infrastructure-as-a-Service

Source: IDC and Internal Data 8

Intelligent Transformation: Strong Progress• Smart IoT revenue1 grew 36% YOY• Smart Infrastructure revenue grew 21% YOY• Smart Verticals revenue1 grew 72% YOY

• Software & Services revenue1 to new record of over $1.2B, up 39% YOY, 8.5% of group revenue§ Attached Service up 25% YOY

§ Managed Service up 91% YOY, DaaS2 grew triple-digits

§ Solutions up 68% YOY

• E-commerce grew 41.8% YOY

9

Q2 1920 Q2 2021 Q2 1920 Q2 2021 Q2 1920 Q2 2021

Intelligent Transformation Revenue YOY (%)

Smart IoT Smart Infrastructure Smart Vertical

+36% +21% +72%

Software & Services Revenue YOY (%)

Q2 1920 Q2 2021

+39%

1 Invoiced Revenue 2 Total contract value

Source: Internal Data 9

The New Normal

PC Market to~300M in 2020

One DevicePer Family

One DevicePer Person

From To


0

50

100

150

200

250

300

2017 2018 2019 2020

CY Q1 CY Q2 CY Q3 CY Q4

Source: IDC 10

Transforming to Thrive in the“New Normal”



Wong Wai MingChief Financial Officer

Nov 3, 2020

Financial Highlights

All-time high revenue and positive YTY revenue growth across three Business Groups; strong growth trajectory on Software and Services

Gross margin improved 0.2pts QTQ thanks to strong high-growth/premium segment sales, improvement of segment profitability, and rising services/software contribution; COVID-led freight costs resulted in a moderate YTY decline

E to R ratio reduced by 1.2 percentage points YTY to 11.6%, leveraging disciplined expense control

2

1


13,52214,103

10,579

13,348

14,519

8000

12000

16000

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Revenue

Revenue

+7% YTYUS$ Million

12Q HIGHLIGHTS

2

3

2,1832,265

1,861

2,041

2,253

16.1% 16.1%

17.6%

15.3% 15.5%

10.0%

13.0%

16.0%

19.0%

1,200

1,500

1,800

2,100

2,400

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Gross Profit and Margin

Gross Profit Gross Margin

US$ Million

1,741 1,7771,695

1,605

1,688

12.9%

12.6%

16.0%

12.0%

11.6%

10.0%

12.0%

14.0%

16.0%

18.0%

1,200

1,500

1,800

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Operating Expenses and E/R Ratio

Operating expenses E to R ratio

US$ Million3

14

202

258

43

213

310

1.5% 1.8%

0.4%

1.6%

2.1%

0.0%

1.0%

2.0%

3.0%

0

50

100

150

200

250

300

350

Q2FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY20/21

Profit attributable to equity holders Margin of profit attributable to equity holders

Financial Performance


2Q HIGHLIGHTS

1

US$ Million

+53% YTY

Business groups’ pre-tax profit reached a new milestone with 15% YTY growth on record-breaking PCSD profit and DCG’s improved profitability

Record-high net profit* with a 53% YTY growth

1

2

2

US$ Million

569641

390

561

654

0

100

200

300

400

500

600

700

800

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Business groups’ total pre-tax income

Segment total PTI

+15% YTY

* Net profit: Profit attributable to equity holders of the Company

Profit attributable to equity holders and margin rate

1,413 1,231 1,243 1,281

1,094

500

700

900

1,100

1,300

1,500

Q2 FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY2020/21

Net Debt

Net Debt

16

Cash and Working Capital

Inventory days improved sequentially thanks to robust demand; YTY increase on strategic buy-ahead actions

Net debt reduced by US$319 million YTY, driven by strong operating cashflow of US$1.1 billion

Successful completion of first 144A US$1 billion 10-year debt, whose proceeds will be used to retire a portion of outstanding perpetual securities and unsecured notes, reducing our financing costs and extending the debt tenure. Continued Financing cost reduction of US$45 million or 33% YTY.

2

1


3,817 3,998

4,947 5,127 5,242

3234

53

45 43

25

30

35

40

45

50

55

60

2,000

3,000

4,000

5,000

6,000

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Inventory and Days of Inventory*

Inventory Days of Inventory

US$ Million

*Days of Inventory is calculated based on three months average.

US$ Million

Day 1 2Q HIGHLIGHTS

3

Reduced by US$319

Million YTY

10,65611,074

8,499

10,60311,462

5,000

7,000

9,000

11,000

13,000

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Revenue

Revenue

1

PC & Smart Device Business Group (PCSD)


612 684 525 670723

5.7%

6.2% 6.2% 6.3% 6.3%

4.5%

5.0%

5.5%

6.0%

6.5%

200

400

600

800

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Pre-tax Income and Margin

Pre-tax Income Pretax Income Margin

2US$ Million

US$ Million

17

1. Record-breaking revenue and pre-tax profit despite supply constraints

2. Revenue up 8% YTY on structural changes in PC demand including e-learning, WFH, play-from-home and e-Commerce

3. Continuing share gain trajectory in high-growth and premium segments: double-digit revenue growth on Thin & Light, Gaming PC, e-Commerce, and software/services

4. Sustaining PTI margin at record high of 6.3% due to improved segment profitability amid growing high-margin sales contribution and scaling benefits

1

2Q HIGHLIGHTS

2

1

1

+8% YTY

83

-60-50

-22

0.5% 0.2%

-7.2%-4.5%

-1.5%

-40%

-30%

-20%

-10%

0%

10%

-70-60-50-40-30-20-10

010

Pre tax Income/Loss Pre Tax Income/Loss Margin

Q2 FY20/21Q3 FY19/20Q2 FY19/20 Q4 FY19/20 Q1 FY20/21

1,5101,381

824

1,093

1,519

300

500

700

900

1,100

1,300

1,500

Q2FY2019/20

Q3FY2019/20

Q4FY2019/20

Q1FY2020/21

Q2FY2020/21

Revenue

Revenue

+1% YTY


Mobile Business Group (MBG)

1. Strong rebound in revenue, up 39% QTQ and 1% YTY, due to recovery of market demand, increase of average selling prices and improved product portfolio

2. Expansion of product portfolio in premium and flagship segments, as well as broader carrier ranging

1. Pre-tax losses further narrowed by US$28mn QTQ and turned cashflow positive* although higher freight costs still impacted YTY comparison; clear path to drive profitable growth

US$ Million

18

1

1

2Q HIGHLIGHTS

22

1

Pre-tax Income/Loss and MarginUS$ Million

* pre-tax profit before amortization charge as related to Motorola acquisition


Data Center Business Group (DCG)

-52-47

-76

-58

-47-3.9%

-2.9%

-6.2%

-3.6%-3.2%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

-80

-70

-60

-50

-40

-30

-20

-10

0Q2 FY2019/20 Q3 FY2019/20 Q4 FY2019/20 Q1 FY2020/21 Q2 FY2020/21

Pre-tax Loss and Margin

Pre-tax Loss Pre-tax Loss Margin

US$ Million

US$ Million

19

1 2Q HIGHLIGHTS

2

- 200

400

600 800

1,000

1,200 1,400

1,600 1,800

Q2FY19/20 Q3FY19/20 Q4FY19/20 Q1FY20/21 Q2FY20/21

Revenue

Cloud Service Provider Enterprise and SMB

1,601

1,2131,4781,331

1,612

1. Cloud Service Provider (CSP) revenue up 34% YTY on demand for cloud infrastructure and market share gain

2. Long-term outlook for CSP business improving on a richer mix of solutions and design wins leveraging in-house design and manufacturing

3. Enterprise & SMB outperformed sluggish market with 2% YTY revenue decline; double-digit growth of Software and Services, Storage, and Software Defined Infrastructure (SDI)

4. Continued improvement of operational results by US$11 million QTQ and US$4 million YTY; business aims to scale up and drive profitability

1

2

1

1

+11% YTY

Deferred revenue up 26% YTY, adding to revenue and cash flow stability, and predictability

Software and Services

ü Attached Services +25% YTYü Managed Services incl. DaaS +91% YTYü Complex Solutions +68% YTY

Services and Software revenue* up 39% YTY to US$1.2 billon; contributing 8.5% of Group Revenue

-

500

1,000

1,500

2,000

Q2FY19/20 Q3FY19/20 Q4FY19/20 Q1FY20/21 Q2FY20/21LT Deferred revenue ST Deferred revenue

1,698 1,684

1,9581,820

1.554

2Q HIGHLIGHTS

883 1,009

1,230

-

200

400

600

800

1,000

1,200

1,400

Q2FY19/20 Q1FY20/21 Q2FY20/21

+39% YTY

US$ Million

US$ Million

Deferred Revenue+26% YTY

Lenovo & SAP partnership to provide on-premises managed infrastructure with cloud-like flexibility and financial agility to drive growth in TruScale services

*Invoiced revenue2020 Lenovo Internal. All rights reserved.

Software and Services revenue

20

Outlook Statement

21

• PCSD: Drive premium to market growth and sales in high-growth/premium segments. Increase supply to meet strong demand. • Mobile: Protect position in stronghold markets and drive profitable growth in all markets.• Services and software: Supercharge solution and services growth.

IDG: Drive growth with strong profitability; accelerate services and software

• Enterprise and SMB: Grow high-margin services attach rate, upsell premier services and expand SDI solutions. Develop vertical solutions and new levels of automation to drive a paradigm shift with its edge-to-cloud solutions.

• Cloud Service Provider: Gain market share by leveraging our unique strengths in global supply chain and worldwide reach. Portfolio expansion to new platforms. Grow in-house design and manufacturing capabilities.

DCG: Drive premium to market growth while improving profitability

• Full range of product offerings to drive hyper-growth in Software and Services, solutions and e-commerce.• Explore and improve smart vertical solutions across smart education, smart city, and smart healthcare.

Intelligent Transformation: Grow Smart IoT, Smart Infrastructure and Smart Vertical growth while leading customer-centric transformation

Group Mission: Leader and Enabler of Intelligent Transformation

Appendix


- Financial Summary - Condensed Consolidated Income Statement- Condensed Consolidated Balance Sheet- Condensed Consolidated Cash Flow Statement

Financial Summary

23

US$ Million Q2 FY2020/21 Q2 FY2019/20 Y/Y% 1H FY20/21 Y/Y%

Revenue 14,519 13,522 7% 27,867 7%

Gross profit 2,253 2,183 3% 4,294 1%

Operation expense (1,688) (1,741) (3%) (3,294) (4%)

Operating profit 565 442 28% 1,000 28%

Other non-operating expenses (95) (132) (29%) (198) (15%)

Pre-tax income 470 310 52% 802 46%

Taxation (120) (66) 82% (206) 80%

Profit for the period 350 244 43% 596 37%

Non-controlling interests (40) (42) (5%) (73) 3%

Profit attributable to equity holders 310 202 53% 523 44%

EPS (US cents)

-Basic 2.59 1.69 0.90 4.39 1.33

-Diluted 2.48 1.62 0.86 4.24 1.30

Dividend per share (HK cents) 6.60 6.30 6.60

Q2 FY2020/21 Q2 FY2019/20 1H FY20/21 1H FY19/20

Gross margin 15.5% 16.1% 15.4% 16.3%

E/R ratio 11.6% 12.9% 11.8% 13.2%

Operating margin 3.9% 3.3% 3.6% 3.0%

PTI margin 3.2% 2.3% 2.9% 2.1%

Net margin 2.1% 1.5% 1.9% 1.4%

* Net margin: Profit margin attributable to equity holders of the Company

Condensed Consolidated Income Statement

24

US$ Million Q2 FY2020/21 Q2 FY2019/20

Revenue 14,519 13,522

Cost of sales (12,266) (11,339)

Gross profit 2,253 2,183

Selling and distribution expenses (726) (778)

Administrative expenses (643) (585)

Research and development expenses (307) (318)

Other operating expense – net (12) (60)

Operating profit 565 442

Finance income 9 10

Finance costs (92) (136)

Share of loss of associated companies and joint ventures (12) (6)

Profit before taxation 470 310

Taxation (120) (66)

Profit for the period 350 244

Profit attributable to equity holders of the Company 310 202

Perpetual securities holders 14 14

Other non-controlling interests 26 28

Per share data

Dividend per share (HK cents) 6.60 6.30.

Earnings per share (US cents) – Basic 2.59 1.69

Earnings per share (US cents) – Diluted 2.48 1.62

Condensed Consolidated Balance Sheet

25

US$ Million As at Sep 30, 2020 As at Jun 30, 2020

Non-current assets 13,779 13,447

Property, plant and equipment 1,439 1,388

Intangible assets 7,980 7,992

Others 4,360 4,067

Current assets 21,305 20,048

Bank deposits and cash 3,753 3,546

Trade, notes and other receivables 12,024 11,128

Inventories 5,242 5,127

Others 286 247

Current liabilities 24,575 23,374

Borrowings 2,303 2,289

Trade, notes, other payables, accruals and provisions 20,939 19,903

Others 1,333 1,182

Net current (liabilities) (3,270) (3,326)

Non-current liabilities 6,052 5,891

Total equity 4,457 4,230

Condensed Consolidated Cash Flow Statement

26

US$ Million Q2 FY2020/21 Q2 FY2019/20 Q1 FY2020/21

Net cash generated from operating activities 771 1,382 317

Net cash used in investing activities (214) (200) (285)

Net cash used in financing activities (388) (524) (91)

Increase/(decrease) in cash and cash equivalents 169 658 (59)

Effect of foreign exchange rate changes 34 (64) 4

Cash and cash equivalents at the beginning of the period 3,496 2,717 3,551

Cash and cash equivalents at the end of the period 3,699 3,311 3,496

2QFY20/21 Earnings Announcement - Investor RelationsIntelligent Transformation: Strong Progress...

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