future prospects - Lenovo

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2009/10 Annual Report Lenovo Group Limited 14 MANAGEMENT’S DISCUSSION & ANALYSIS BUSINESS REVIEW During the 2009/10 fiscal year, worldwide PC shipments showed improvement in growth from the beginning of the year with momentum gaining pace towards the year-end, benefiting from an improved macro economic environment aided by worldwide government stimulus spending. The consumer PC market continued to show strong growth while commercial PC demand remained relatively weak as enterprises remained conservative and deferred IT spending. The China market recovered earlier and quicker than most of the markets, with momentum continuing towards the year-end, due largely to strong performance in consumer segment. Lenovo outperformed the worldwide PC market in each of the last four quarters, and recorded the fastest growth rates among the key competitors in the last two quarters of the fiscal year. Lenovo’s strong performance was a result of its leadership position in China where it has outperformed the market consistently in each of the last four quarters, together with its continued expansion in transactional business and emerging markets. The Group recorded approximately 28.2 percent year-on-year growth in unit shipments during the year, and reached the historic high of 8.8 percent market share for the fiscal year. In the fiscal year ended March 31, 2010, the Group’s sales increased by approximately 11.4 percent yearon-year to US$16,605 million, as its growth in unit shipments was offset by industry-wide product mix shift to lower price points, aggressive competition and increased component costs. Gross profit (excluding the restructuring costs and one-off items) decreased 2.4 percent year-on-year, amounting to US$1,790 million, while gross margin declined from 12.3 percent in last year to 10.8 percent. In January 2009, Lenovo announced a global resource restructuring plan aimed at reducing costs and enhancing operational efficiency. The plan is on track to generate expected savings. The Group also delivered
strong expense reductions during the year, totaling US$224 million, driving the expense-to-revenue ratio (excluding the restructuring costs and one-off items) to a historic low of 9.6 percent, continuing the trend of year-on-year improvement for the last four quarters. The Group reported an operating profit (excluding the restructuring and one-off items) of US$204 million for the year, increase by 750 percent year-to-year. Including a net gain of US$82 million from the disposal of some investments and restructuring costs and oneoff items totaling US$68 million, of which including approximately US$20 million redundancy costs incurred in fiscal quarter four, Lenovo’s profit attributable to equity holders amounted to US$129 million for the year, recovering from the loss of US$226 million in the year before. The Group’s strong performance during the last four quarters was the result of clarifying its strategic priorities at the beginning of the fiscal year. The “Protect and Attack” strategy is aimed at protecting its core businesses in China and global commercial business, while at the same time, attacking the “PROTECT and ATTACK” Strategy Think/ Rel hyper-growth areas in global transactional business in emerging markets. Lenovo also reorganized its business by merging operations into two geographies, namely Mature Markets and Emerging Markets. And, to further ensure faster and stronger end-to-end management, two product groups were created: the Think Product Group mainly targets at commercial customers, and the Idea Product Group mainly targets at consumer customers. Lenovo also took major steps to strengthen its business model, became faster and more efficient, and put the building blocks in place to extend its transactional model globally, while simplifying its relationship business to make it more productive in focusing on the key accounts. The Group reacquired Lenovo Mobile in November 2009 as part of its strategy to establish a leadership position in the China mobile internet market during its early development phase. The purchase of Lenovo Mobile was approved by shareholders in January 2010, resulting in the inclusion of two months of Lenovo Protect Attack China • Expand leadership position • Improve profitability • Return to profitability • Maintain/Grow share TM WW Emerging Market Effective business model • Drive speed and efficiency Lean cost structure Innovation leadership • Premium Think • Creative Idea • Go global & gain share • Use Idea & Think • Invest & move to profitability • Focus on TM & SMB/consumer • Primary leverage of idea portfolio • Leverage China infrastructure in TM & EM • Meet the par with competition in Rel • New businesses • Innovation efficiency 2009/10 Annual Report Lenovo Group Limited 15
Page 1 and 2: THE FUTURE IS HERE 2009/10 Annual R
Page 3 and 4: INSIDE BACK COVER CONTENTS 02 FINAN
Page 5 and 6: Sales Analysis by Market for the ye
Page 7 and 8: Our business model is fast, fl exib
Page 9 and 10: More importantly, it is because of
Page 11 and 12: • Innovation: Lenovo will continu
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Page 15: We focus every day on meeting our c
Page 19 and 20: year, while rebounding in the secon
Page 21 and 22: Lenovo’s showcase in CES 2010 ene
Page 23 and 24: economy during the year, with a 4 p
Page 25 and 26: 2010 2009 Sales Adjusted Sales Adju
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2009/10 Annual Report Lenovo Group
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Connected transactions (continued)
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INDEPENDENT AUDITOR’S REPORT Inde
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CONSOLIDATED STATEMENT OF COMPREHEN
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2010 2009 2008 Note US$’000 US$
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CONSOLIDATED CASH FLOW STATEMENT Fo
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NOTES TO THE FINANCIAL STATEMENTS 1
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1 Basis of preparation (continued)
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2 Significant accounting policies (
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3 Financial risk management (contin
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4 Critical accounting estimates and
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5 Segment information (continued) (
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6 Other income - net 2010 2009 US$
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10 Employee benefit costs (continue
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11 Emoluments of directors and high
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14 Property, plant and equipment (a
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15 Prepaid lease payments Group 201
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17 Intangible assets (continued) (b
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33 Commitments (continued) (b) Comm
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36 Retirement benefit obligations G
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36 Retirement benefit obligations (
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36 Retirement benefit obligations (
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WWW.LENOVO.COM This report is print
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