Solid Lenovo 1st Quarter FY16-17 in Face of Industry & Currency Headwinds

DCG will deploy strategic investments in sales force capabilities, marketing, channel programs and portfolio partners to drive future growth opportunities, while improving its financial footing with better cost competitiveness and an increased attach rate of storage, networking, services and options.

Geographic Overview

In China, consolidated sales in the first fiscal quarter, declined 9.8 percent year-over-year to US$2.9 billion, accounting for 28.4 percent of the Company’s worldwide sales. Pre-tax profit margins were flat at 4.8 percent amidst softening PC demand. The mobile business is successfully shifting the portfolio to higher price bands and improving user experiences, while the successful launch of the ZUK Z2 model received good initial market feedback. China data center revenues grew at 14 percent year-over-year – a premium to the market – supported by growth from hyperscale and contributions from the new partnership approach.

In the Asia Pacific region, Lenovo achieved sales of US$1.7 billion, or 16.7 percent of Lenovo’s worldwide sales, while pre-tax profit margins were down 1.2 points to 1 percent, mainly due to contraction in the Japan PC market and the impact of currency fluctuation. The Asia Pacific business saw continued PC market share gains, up 0.4 points to reach 16.4 percent. The mobile business outgrew the market in key countries, including India and Indonesia, while the data center group continues to work on improving profitability. New leadership and business management systems in the data center business delivered stable revenues.

Lenovo in Europe, Middle East & Africa had consolidated sales in the first quarter of US$2.5 billion, a year-over-year decline of 7.3 percent driven by a mix of operational and macroeconomic challenges. EMEA accounted for 24.5 percent of Lenovo’s total worldwide sales. Pre-tax profit margin was negative 2 percent, a decrease of 3.5 points year-over-year. In PCs, the Company took action to improve channel inventory to address challenging conditions and return to future growth. Mobile saw traction over the previous quarter as a result of new products coming to market. The data center business remained challenging with a year-over-year revenue and margin decline.

In the Americas, Lenovo saw consolidated sales decline 6.6 percent year-over-year to approximately US$3 billion in the first quarter, driven by the product transition in the mobile business. This represented 30.4 percent of Lenovo’s total worldwide sales. PC market share was up 1.4 points year-over-year to 14.4 percent, driven by strong growth in North America and improvement in Latin America, especially Brazil. Mobile shipments declined in North America due to product transition, but stabilized in Latin America. The data center business worked on building the right sales model, while strong competition put pressure on the business.

* see IDC data 2Q 2016

About Lenovo

Lenovo (HKSE: 992) (ADR: LNVGY) is a $45 billion global Fortune 500 company and a leader in providing innovative consumer, commercial, and enterprise technology. Our portfolio of high-quality, secure products and services covers PCs (including the legendary Think and multimode YOGA brands), workstations, servers, storage, smart TVs and a family of mobile products like smartphones (including the Motorola brand), tablets and apps. Join us on LinkedIn, follow us on Facebook or Twitter ( @Lenovo) or visit us at www.lenovo.com.

LENOVO GROUP

FINANCIAL SUMMARY

For the fiscal quarter ended June 30, 2016

(in US$ millions, except per share data)

             
 


Q1

16/17

     
Q1

15/16

     


Y/Y

CHG

Revenue 10,056         10,716         -6 %
Gross profit 1,534         1,647         -7 %
Gross profit margin 15.3 %       15.4 %       -0.1pts
Operating expenses (1,289 )       (1,551 )       -17 %
Expenses-to-revenue ratio 12.8 %       14.5 %       -1.7pts
Operating profit 245         96         157 %
Other non-operating expenses (39 )       (44 )       -9 %
Pre-tax income 206         52         297 %
Taxation (38 )       50         N/A  
Profit for the period 168         102         65 %
Non-controlling interests 5         3         62 %
Profit attributable to equity holders 173         105         64 %
EPS (US cents)
Basic 1.57         0.95         0.62  
Diluted   1.56         0.94         0.62  




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