Lenovo Group (992) Q4 2013 earnings summary

Executive summary

• Record FY2013 results, with 14 consecutive quarters of YoY growth despite a declining global PC market; Q4 PC shipments were flat YoY while the market fell ~13%.

• Growth was balanced across geographies and products; PC market share exceeded 15.5%, while China smartphone volume more than doubled and the smartphone business was profitable for a second consecutive quarter.

Financial highlights

• Q4 revenue rose 4% YoY to ~$7.8B; PC sales rose 3% to ~$6.9B and mobile internet sales rose 74% to $736M.

• Q4 gross profit rose 20% YoY to ~$963M; gross margin expanded 1.5 points YoY to 12.3%.

• Q4 operating profit was $169M, up 67%; pre-tax income was $166M, up 63%; profit attributable to equity holders was $127M, up 90% YoY.

• FY revenue rose 15% to $33.9B; gross profit rose 18% to ~$4.1B, with gross margin at 12% versus 11.7%.

• FY pre-tax income reached a record $801M, up 38%; profit attributable to equity holders reached a record $635M, up 34%; basic EPS was 6.16 U.S. cents.

Outlook and guidance

• Targeting at least a one-point improvement in pre-tax income ratio over three years; management expects gradual profitability gains as newer businesses scale.

• Expect continued PC outperformance and operating-margin improvement; mobile internet growth, emerging-market smartphone expansion and tablet launches are expected to support growth.

• Tablet targets: reach notebook-level market share within two years and sell 10M units; smartphone sales target is 50M this year, versus nearly 30M last year.

• Aim to become a relevant global server and storage player within three years; the EMC relationship is on track to build server capabilities.