Original title: Yang Yuanqing’s first response: R&D investment and other indicators LenovoFar beyond listing standards
Outsiders believed that Lenovo’s R&D investment accounted for less than the sci-tech innovation board listing requirements, so the listing was terminated. In fact, in terms of the amount of R&D investment, Lenovo has far exceeded the requirements for listing on the Science and Technology Innovation Board.
Lenovo once again reaped historic earnings.
On November 4, Lenovo Group (00992.HK) announced the results for the second fiscal quarter of the fiscal year 2021/22 ending September 30, 2021. According to the financial report, Lenovo Group’s turnover in the quarter reached 115.6 billion yuan, a year-on-year increase of 23%; net profit was 3.3 billion yuan, a year-on-year increase of 65%, setting a new record high and far exceeding Bloomberg’s consensus expectations of 3% and 13%.
In terms of business segments, Lenovo’s three core business groups have achieved quite good performance growth. Among them, the turnover of the SSG solution service business group reached RMB 8.82 billion, an increase of 30% year-on-year, and the operating profit increased by 32% year-on-year to RMB 1.8 billion. ISG Infrastructure Solutions Group’s turnover reached RMB 12.7 billion, a year-on-year increase of 34%, close to breakeven; IDG Smart Equipment Business Group’s turnover reached RMB 99.2 billion, a year-on-year increase of 21%, and operating profit reached RMB 7.54 billion, a year-on-year increase of 34%.
In addition, Lenovo Group’s net profit margin in the second quarter increased by 0.7%, which also means that its three-year doubling target is steadily underway. In addition, Lenovo’s operating cash flow doubled year-on-year in the second fiscal quarter to more than RMB 10 billion.
It is especially worth noting that Lenovo Group’s commitment to double R&D investment in three years is also continuing to fulfill. In the second fiscal quarter, the company’s R&D investment increased significantly by 57% year-on-year, and its R&D personnel increased by more than 50%.
At the performance exchange meeting after the release of the financial report, regarding the recent termination of Lenovo’s IPO on the Sci-tech Innovation Board, Lenovo Chairman and CEO Yang Yuanqing bluntly confessed to the 21st Century Business Herald reporter that there were rumors that “Lenovo did not meet the IPO standards of the Sci-tech Innovation Board”. Doesn’t exist at all”.
Increase R&D investment
It is understood that the conditions for listing on the Science and Technology Innovation Board involve revenue, R&D investment, and invention patents. At present, the requirement for R&D investment on the science and technology innovation board is that listed companies’ R&D investment in the past three years accounted for more than 15%, or the total R&D investment in the past three years has exceeded 60 million yuan, and 5 invention patents for main business income have been formed. above.
When Lenovo terminated its IPO on the Sci-tech Innovation Board, the outside world believed that Lenovo’s R&D investment accounted for less than the SSE IPO listing requirements, so the listing was terminated. But in fact, in terms of the amount of R&D investment, Lenovo has far exceeded the requirements for listing on the Science and Technology Innovation Board.
Yang Yuanqing pointed out that in the past three years, Lenovo’s annual R&D investment has continued to exceed 10 billion yuan, “this has greatly exceeded the R&D threshold related to the science and technology innovation board.” According to Lenovo’s IPO application data, Lenovo’s R&D investment in the last three fiscal years was 10.203 billion yuan, 11.517 billion yuan and 12.038 billion yuan, totaling more than 30 billion yuan. Public data shows that the annual R&D investment scale of more than 10 billion yuan is the highest among the currently listed and applied companies on the Science and Technology Innovation Board.
At the same time, as of March 31, 2021, Lenovo Group has a total of 21,658 authorized patents, which far exceeds the sci-tech innovation board listing requirements of “more than 5 invention patents for main business income”. In terms of R&D personnel, as of March 31, 2021, Lenovo Group has 10,216 R&D personnel, and R&D personnel account for 19.48% of the company’s total employees.
In addition, Yang Yuanqing reiterated that Lenovo will continue to make efforts in R&D growth, and is confident that it will achieve the promise of “doubling R&D investment in three years” made in August this year.
In this regard, Yang Yuanqing announced that on the basis of a R&D team with a scale of over 10,000, Lenovo Group will recruit 12,000 hard-core scientific and technological talents from the society and universities on a global scale in the next three years. The high-level innovation system helps Lenovo greatly enhance its scientific research and innovation development capabilities in core technologies in various fields of the “end-side-cloud-network-intelligence” new IT architecture.
Specifically, on the end side, Lenovo will increase the innovation of various types of smart terminals, strengthen independent R&D and innovation of key components in new technologies, new materials and new processes, and further enhance customer experience.
At the edge, Lenovo will build full-stack edge computing capabilities from the software and hardware levels. In the cloud, Lenovo will consolidate high-performance computing’s global leadership in architecture design and green water-cooling technology, and increase technical investment in hybrid cloud and multi-cloud management to empower customers in the full life cycle of their cloudification.
On the network side, Lenovo will build core capabilities with 5G and cloud-network convergence technology as the base, and focus on 5G cloud-based base stations, 5G core networks, and vehicle-road collaboration to create hardware, software and solutions.
In addition, in terms of intelligence, Lenovo will build a data collection and analysis platform, and continue to build an artificial intelligence platform through training, compression, deployment, reasoning and model updates. At the same time, it will empower the intelligent development of the industry, focus on smart cities, smart manufacturing, smart education, smart retail and other industries to provide a variety of solutions, and will increase investment in Lenovo’s smart service management platform to create a full-process, full-element digital and smart化服务.
“Lenovo once set up three labels when constructing the blueprint for the future, namely high-tech, internationalization and service-oriented. These three labels have always been on our development banner.” Yang Yuanqing emphasized to the 21st Century Business Herald reporter, “High-tech We will never forget this label, nor dare we forget it.”
In addition, before and after the termination of Lenovo’s IPO on the Science and Technology Innovation Board, there were considerable criticisms surrounding Lenovo’s debt ratio as high as 90%. According to the latest financial report, as of September 30 this year, Lenovo’s total assets in the second fiscal quarter were US$42.575 billion, total liabilities were US$38.436 billion, and the debt ratio was 90.28%.
Yang Yuanqing also responded for the first time. He pointed out that the IT industry is different from the real estate industry. Real estate is an asset-heavy industry with a long turnover cycle, while most of the IT industry is asset-light industry with a faster turnover cycle. Therefore, compared to the debt ratio, the IT industry places more emphasis on the cash cycle, that is, the accounting period incurred during the business process whether it is supplied by upstream suppliers or sold by downstream customers.
Yang Yuanqing pointed out that the liabilities arising from the account period are not interest-bearing liabilities for banks, but accounts payable to suppliers and customers. There is no interest and only regular payments are required. “70% of Lenovo’s liabilities are payables. “
According to reports, the IT industry pays more attention to the cash cycle, that is, the cash cycle cycle, which refers to the average time it takes for an enterprise to receive cash from when it is paid in its operations. Calculated according to the formula, that is, the amount of accounts receivable superimposed on the inventory, and then the accounts payable is subtracted. “(Cash cycle) is a single digit figure. Even when the supply chain is not tight, the cash cycle is even more negative.” Yang Yuanqing expressed confidence in this indicator of the enterprise.
The 21st Century Business Herald reporter noted that according to Lenovo’s second fiscal quarter report, as of September 30, Lenovo’s trade receivables, notes receivable, deposits, prepayments and other accounts receivable increased by US$1.246 billion. The increase in inventory was US$2.352 billion, and the increase in trade accounts, bills payable, provisions, other accounts payable and expenses payable was US$3.78 billion. Based on this calculation, Lenovo’s cash cycle in the second fiscal quarter was -182 million U.S. dollars.
In addition to the outstanding performance of the cash cycle, Lenovo’s debt ratio, which the outside world is paying attention to, its core focus is on Lenovo’s debt risk.
Yang Yuanqing pointed out that Lenovo’s figure has been compressed in terms of interest-bearing debt in the usual concept of the outside world. In October 2020, Lenovo received investment grade ratings from three major international credit rating agencies, namely Moody’s Baa3 rating/prospect stable, S&P BBB-rating/prospective stable, and Fitch BBB-rating/positive outlook. “This also means that Lenovo’s debt risk is already very low. Lenovo is currently turning short-term debt into long-term debt. By reducing interest rates, the company’s debt risk is almost zero.”
From the perspective of operating cash flow, Yang Yuanqing pointed out that Lenovo’s current cash flow situation is due to the acquisition of Motorola andIBMThe best time since the server. “At that time, large-scale acquisitions were actually a challenge to Lenovo’s cash flow. Now we continue to operate, through increased economies of scale and improved profitability, to make our debt situation continue to improve.”
The 21st Century Business Herald reporter noted that by the end of the second fiscal quarter, Lenovo’s deposits, cash and cash equivalents were US$3.731 billion, including loans including short-term loans, long-term loans, bills, convertible bonds and convertible preferred stocks. The total amount was 3.79 billion yuan, which also means that Lenovo’s net debt was only 60 million US dollars by the end of the second fiscal quarter.
In contrast, after acquiring Motorola for US$2.9 billion and IBM’s server business for US$2.3 billion in 2014, Lenovo’s net debt exceeded US$4 billion. In addition, Yang Yuanqing also revealed that Lenovo is confident of turning this number into a positive number this quarter.
Lenovo’s CFO Huang Weiming further stated that it is in the same industry as Lenovo.Apple、HP、SonyFor other companies, the average market debt ratio remains at 89%, which is basically the same as Lenovo’s debt ratio.
Huang Weiming also emphasized that the IT industry seldom uses debt ratios to evaluate companies. Lenovo’s operating cash flow in the past two years has reached 1.5 billion US dollars and 3.6 billion US dollars, which also reflects the company’s good cash flow capabilities. “From multiple dimensions, Lenovo’s financial status is very healthy.”
(Author: Yang Qingqing Editor: Zhang Weixian)