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NEVER
STA N D I N G
STILL
Lenovo Group Limited | 2014/15 Annual Report
Stock Code 992

Table of contents

  • Page 1
    Lenovo Group Limited | 2014/15 Annual Report Stock Code 992 NEVER STANDING STILL

  • Page 2
    ABOUT LENOVO Lenovo (HKSE: 992) (ADR: LNVGY) is a $46 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 ...

  • Page 3
    CONTENTS 4 8 FINANCIAL HIGHLIGHTS CHAIRMAN AND CEO STATEMENT 12 LENOVO MANAGEMENT TEAM 16 MANAGEMENT'S DISCUSSION AND ANALYSIS 43 CORPORATE GOVERNANCE REPORT 84 AUDIT COMMITTEE REPORT 91 COMPENSATION COMMITTEE REPORT 102 CORPORATE SOCIAL RESPONSIBILITY REPORT 122 DIRECTORS' REPORT 139 INDEPENDENT ...

  • Page 4
    NEW JOURNEY. NEW EXPERIENCE.

  • Page 5
    Yoga 3 Pro

  • Page 6
    ... 2.5 Pre-tax income Pre-tax income margin (%) Profit attributable to equity holders of the Company EPS - basic (US cents) EPS - diluted (US cents) Interim dividend per share (HK cents) Final dividend per share (HK cents) 2 Total dividend per share (HK cents) Cash and Working Capital Bank deposits...

  • Page 7
    ... to Equity Holders of the Company for the year ended March 31 (US$ million) 1,715 1,365 1,067 821 603 273 473 635 817 829 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Notes: 1 Excluding restructuring charges and other income, net. 2014/15 Annual Report Lenovo Group Limited 5

  • Page 8
    FINANCIAL HIGHLIGHTS NEW HORIZON. NEW VISION. 6 Lenovo Group Limited 2014/15 Annual Report

  • Page 9
    Moto 360 2014/15 Annual Report Lenovo Group Limited 7

  • Page 10
    .... 8 Lenovo Group Limited 2014/15 Annual Report Throughout our history, Lenovo has succeeded by combining a clear focus on meeting our short-term commitments with a clear understanding of the changes and investments needed to ensure our long-term success. No fiscal year better illustrates Lenovo...

  • Page 11
    ... technology event, and 20 awards at the 2015 Mobile World Congress, the top mobile technology event. Our record performance is the result of our proven formula for success: • A clear strategy that balances delivering strong short-term results with reaching long-term objectives: We protect our core...

  • Page 12
    ...as our new ShenQi business in China, to reach customers online. No matter the route used to reach customers, our hybrid manufacturing model gives us a key competitive advantage by giving us additional flexibility to meet customers' needs. Operational excellence continues to be a core Lenovo strength...

  • Page 13
    ... the future. I am confident that all the great innovations and results we've accomplished already will be eclipsed by the even more remarkable achievements in Lenovo's future. Thank you. Yang Yuanqing Chairman and Chief Executive Officer Vibe band 2014/15 Annual Report Lenovo Group Limited 11

  • Page 14
    ... President and President of Mobile Business Group GERRY P. SMITH Executive Vice President and Chief Operating Officer of PC and Enterprise Business Groups HE ZHIQIANG Senior Vice President and President of Ecosystem and Cloud Services Business Group 12 Lenovo Group Limited 2014/15 Annual Report

  • Page 15
    WONG WAI MING Executive Vice President and Chief Financial Officer PETER D. HORTENSIUS Senior Vice President and Chief Technology Officer QIAO JIAN Senior Vice President, Human Resources 2014/15 Annual Report Lenovo Group Limited 13

  • Page 16
    FINANCIAL HIGHLIGHTS System x3950 X6 14 Lenovo Group Limited 2014/15 Annual Report

  • Page 17
    NEW THINKING. NEW INSPIRATION. FL E X 20 2014/15 Annual Report Lenovo Group Limited 15

  • Page 18
    ... X. The Group has broadened its device business from PC to include mobile and enterprise business. All these businesses delivered strong performance and contributed to the Group's record performance during the year under review. ThinkPad X1 Carbon 16 Lenovo Group Limited 2014/15 Annual Report

  • Page 19
    ... under review, Lenovo continued to strengthen its leading position in the PC industry with record shipments and continuous growth in revenue, share and profit. The Group's mobile business together with Motorola delivered record shipments and built a more globally balanced business. The Group's Think...

  • Page 20
    ... market through solid execution of its strategy to reach record-high market share across all geographic, product and customer segments. In December 2014, Lenovo achieved an important milestone with ThinkPad products reaching 100 million units sold. The Group's commercial PC unit shipments increased...

  • Page 21
    ...year-on-year. Revenue from ecosystem, cloud services and other products such as consumer electronic businesses acquired in previous acquisitions decreased 3 percent to US$1,180 million, representing approximately 2 percent of the Group's total revenue. 2014/15 Annual Report Lenovo Group Limited 19

  • Page 22
    MANAGEMENT'S DISCUSSION & ANALYSIS PERFORMANCE OF GEOGRAPHIES Lenovo achieved solid and balanced performance in all geographies where it has operations - China, Americas, Asia Pacific, and Europe-Middle East-Africa - as well as across product and customer segments. Revenue by Geography (%) 100% ...

  • Page 23
    Americas (AG) Americas accounted for 26 percent of the Group's total revenue driven by growth across all products. Lenovo's PC unit shipments in AG grew by 4 percent year-on-year, an 8-point premium to the market, driven by strong growth in consumer businesses. The Group's market share increased by ...

  • Page 24
    ...to grow the enterprise business in the region. Profit before taxation in EMEA regions increased by 119 percent to US$411 million during the fiscal year under review with operating margin improved by 1.2 percentage points year-on-year to 3.2 percent. Lenovo PC Share in 4 GEOs (%) 35.1 PRC +1.5pts 36...

  • Page 25
    ...profitability in the core PC business, while diversifying by attacking in the faster growing Mobile and Enterprise businesses. The Group has diversified its geographic sources of revenue and profit to reduce its dependency on any single country or region. 2014/15 Annual Report Lenovo Group Limited...

  • Page 26
    ... before completion of the acquisition. Post-acquisition stabilization support, reviews and issue resolution procedures have been established. The Group has good track record in and experience of integrating acquisitions of both large and small targets. 24 Lenovo Group Limited 2014/15 Annual Report

  • Page 27
    ...events • Unfavorable changes in business, political or economic factors. The occurrence of any of the above in our own or our suppliers' manufacturing activities and logistic hubs could result in significant losses and harm our revenue, profitability and adversely affect our competitive position...

  • Page 28
    ... products, solutions, and services while meeting customer requirements. Stakeholders Lenovo actively manages its relationships with employees, customers, suppliers, investors, regulators, members of the communities in which we operate, and other stakeholders whose actions can affect the company...

  • Page 29
    ... emissions. Minimize packaging material consumption while driving the use of environmentally sustainable materials. Ensure customer access to convenient, reliable and compliant product take back programs. Packaging Product end-of-life management 2014/15 Annual Report Lenovo Group Limited 27

  • Page 30
    ...number 3 positions in both Enterprise Servers and smartphones, in 2014/15. These historic deals clearly establish Lenovo as a global technology leader with the right growth engines for future success: a balanced portfolio, a clear strategy, innovative products and services, and a diverse global team...

  • Page 31
    ... and CEO Lenovo's long-standing traditions of Commitment and Ownership, Innovation and Entrepreneurial Leadership are at the center of the talent and culture integration efforts. These pillars provide a clear guiding focus to drive the company's future success. 2014/15 Annual Report Lenovo Group...

  • Page 32
    ... Yang, Chairman and CEO Employee Performance and Compensation To drive a strong ownership and commitment culture, Lenovo follows a rigorous pay for performance approach at all levels of our professional workforce. This approach includes annual and goal setting and review, group calibration of...

  • Page 33
    ... environment, our offices and our products. You'll start to see this more energetic attitude across everything we do as we continue our journey to becoming one of the world's leading, most respected and most recognized personal technology companies. 2014/15 Annual Report Lenovo Group Limited 31

  • Page 34
    ... M&A related accounting charges 1,714,829 1,138,727 996,475 1,365,061 1,014,195 817,228 Dividend per ordinary share (HK cents) - Interim dividend - Proposed final dividend * Excluding restructuring charges and other income, net 6.0 20.5 6.0 18.0 32 Lenovo Group Limited 2014/15 Annual Report

  • Page 35
    ... with last year. The Group adopts geographical segments as the reporting format. Geographical segments comprise China, AP, EMEA and AG. Analyses of revenue by segment are set out in Business Review and Outlook below. 2015 Adjusted Revenue from pre-tax income external customers US$'000 US$'000 14...

  • Page 36
    ... income arising from principal business activities of respective associates and joint ventures. 2014 US$'000 33,893 (80,974) 9,221 (37,860) For the year ended March 31 Finance income Finance costs Share of profits of associates and joint ventures 34 Lenovo Group Limited 2014/15 Annual Report

  • Page 37
    ... mainly the Group's investments in the headquarters in Beijing, China, the manufacturing facilities and staff quarters in China and the information technology systems. Intangible assets Intangible assets comprise goodwill and other intangible assets including trademarks and trade names, and internal...

  • Page 38
    .... Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair values. 2014 2,701,015 3,171,354 447,325 61,184 3,000,826 65,715 94,985 3,858,144 13,400,548 36 Lenovo Group Limited 2014/15 Annual Report

  • Page 39
    ... be used for general corporate purposes including working capital, and to fund any acquisition activities. Warranty provision The Group records warranty liabilities at the time of sale for the estimated costs that will be incurred under its basic limited warranty. The specific warranty terms and...

  • Page 40
    ... restorations. The amounts arising from the business combination activities of Motorola and System X contributed to an increase of US$373 million as at March 31, 2015. 2014 4,751,345 108,559 58,462 6,658,254 852,154 410,330 177,741 445,477 13,462,322 38 Lenovo Group Limited 2014/15 Annual Report

  • Page 41
    ... short-term, as at March 31, 2015 (2014: Nil). On May 8, 2014, the Group completed the issuance of 5-Year US$1.5 billion notes bearing annual interest at 4.7% due in May 2019. The proceeds would be used for general corporate purposes including working capital, and to fund any acquisition activities...

  • Page 42
    ..., bonus and long-term incentive schemes with reference to the performance of the Group and individual employees. The Group also provides benefits such as insurance, medical and retirement funds to employees to sustain competitiveness of the Group. 40 Lenovo Group Limited 2014/15 Annual Report

  • Page 43
    ... "Device + Service" user experience Innovation Leadership Customer-driven product & services innovation | Global branding | New markets | Premium products | Security & privacy leadership Operational Excellence Global-local business model | In-house manufacturing | Vertical integration...

  • Page 44
    ... and System X are on track to deliver their targets. The Group will continue to invest in building its core competencies, product innovation, and end-to-end efficiency enhancing its competitiveness to ensure future sustainable profit growth. B50 Touch 42 Lenovo Group Limited 2014/15 Annual Report

  • Page 45
    ... with Shareholders • Shareholders' Rights • Shareholding Structure Effectiveness Board's Responsibilities and Delegation Board Process Board Activities Board Committees Board and Board Committees' Effectiveness Review Information for Investors 2014/15 Annual Report Lenovo Group Limited 43

  • Page 46
    ...' ability to assess the performance, financial position and prospects of the Company. The quarterly financial results were also prepared using the accounting standards consistent with the policies applied to the interim and annual financial results. 44 Lenovo Group Limited 2014/15 Annual Report

  • Page 47
    ... Executive Officer More details, Pages 84 to 90 More details, Pages 91 to 101 More details, Page 48 Internal Audit Lenovo Executive Committee* Senior Management * a management committee comprising the CEO and certain members of the senior management 2014/15 Annual Report Lenovo Group Limited...

  • Page 48
    ... director Non-executive directors Independent non-executive directors Male Female Age Group Areas of Experience 100% 73% 55% 46% 18% 27% 27% 45-55 56-65 over 65 Global operations Accounting/Internal controls Equity investment/Financial IT industry 46 Lenovo Group Limited 2014/15 Annual...

  • Page 49
    ... that disclose the names of directors of the Company. Mr. Zhu Linan and Mr. Zhao John Huan, non-executive directors of the Company, also serve on the board of directors of Legend Holdings Corporation, which company held approximately 30.60% of the total number of shares in issue of the Company as at...

  • Page 50
    ... • formulates and recommends the strategy of the Group to the Board • executes the strategy agreed by the Board • makes and implements operational decisions and managing the business day-to-day • leads the business and the management team 48 Lenovo Group Limited 2014/15 Annual Report

  • Page 51
    ... independent non-executive director • In the ordinary course of the Board succession process FY2015/16 and ongoing FY2015/16 and ongoing Objective 2 Objective 3 Report annually against the objectives and other initiatives taking place within the Company which promote diversity Report annually on...

  • Page 52
    ... Company for a term of three years. Their terms of appointment shall be subject to retirement from office by rotation and re-election at the annual general meeting in accordance with the Articles of Association. below 5 years 5-10 years over 10 years 50 Lenovo Group Limited 2014/15 Annual Report

  • Page 53
    ...3.13 of the Listing Rules. On May 20, 2015, the Nomination and Governance Committee conducted an annual review of the independence of all independent non-executive directors of the Company for the year ended March 31, 2015. Having taken into account the factors as set out in rule 3.13 of the Listing...

  • Page 54
    ... operative company policy to govern securities transactions by directors and designated senior management of the Company. All directors of the Company have confirmed, after specific enquiry, their compliance with the required standard during the year. 52 Lenovo Group Limited 2014/15 Annual Report

  • Page 55
    ... induction program covering: (i) a directors' induction handbook; (ii) a briefing training by external lawyer; (iii) a visit to Lenovo manufacturing plant in Wuhan to enhance his understanding of the businesses and operations of the Group. 2014/15 Annual Report Lenovo Group Limited FOLLOWING...

  • Page 56
    ...set out below: Site Visit The Board had the opportunity to meet with senior management of Lenovo Mobile Business Group and to visit Lenovo Wuhan Experience Center and the manufacturing plant in Wuhan. These arrangements provided the Board a better understanding of the latest technology and products...

  • Page 57
    ... affairs at the National Security Council and the principal advisor to President Obama on Asia, was a guest speaker of an in-house seminar on the current status of China-US diplomatic and trade relations Regulatory Updates The directors are updated on a continuing basis by the Company Secretary on...

  • Page 58
    ... is responsible for facilitating the Board process, as well as communications among Board members with shareholders and management. During the year, the Company Secretary undertook appropriate professional training to update his skills and knowledge. 56 Lenovo Group Limited 2014/15 Annual Report

  • Page 59
    ... auditor approval of the Group's financial statements recommending or declaring a dividend succession planning and appointment to the Board reviewing the performance of the Board and its committees other significant operational and financial matters 2014/15 Annual Report Lenovo Group Limited 57

  • Page 60
    ... at approximately quarterly intervals • To review financial performance, strategy and operations Regular Board Meeting Meeting dates are set 2 years in advance • To facilitate maximum attendance Other Board Meeting • To consider ad hoc matters 58 Lenovo Group Limited 2014/15 Annual Report

  • Page 61
    ... management planning, directors are invited to attend Lenovo's Global Leadership Team event and participate in small group discussions with relevant senior management. • Separate executive sessions were arranged for (i) the Chairman to meet with non-executive directors in the absence of management...

  • Page 62
    ... review • Board diversity and succession planning Corporate Governance, Social Responsibility, Diversity and Talent Financial Performance • Chief Financial Officer report • Financial results • Forecasts and budgets • Treasury items 60 Lenovo Group Limited 2014/15 Annual Report

  • Page 63
    ...Amendments to various agreements entered into with NEC Corporation or its subsidiaries • Amendments to the delegation of authority policy of the Company • Discussion on new businesses • Discussion on Board and Board committees' evaluation results 2014/15 Annual Report Lenovo Group Limited 61

  • Page 64
    ... Committee. The terms of reference of Audit Committee, Compensation Committee, and Nomination and Governance Committee reference those set out in the CG Code prevailing from time to time. BOARD OF DIRECTORS Chairman and Executive Director Mr. Yang Yuanqing (CEO) Non-executive Directors Mr. Zhu...

  • Page 65
    ... to the Board on succession planning for directors and CEO; • Assessment of the performance of the Chairman and/or CEO and making proposals to the Compensation Committee; • Monitoring corporate governance issues and developments to ensure that the Company is in line with the international best...

  • Page 66
    ...and making recommendation to the Compensation Committee. • Reviewed the arrangement of same person acting as Chairman and CEO. • Reviewed and discussed succession planning for the position of directors and review potential candidates for this role. 64 Lenovo Group Limited 2014/15 Annual Report

  • Page 67
    ... concluded that overall the Committee was effective in carrying out its duties. Details of the Board and Board Committees' review process can be found under "Board and Board Committees' Effectiveness Review" as set out in this report on pages 67 to 68. 2014/15 Annual Report Lenovo Group Limited 65

  • Page 68
    ... by only human resources management to review the organization human resources planning of the Company while the other was without the presence of management to discuss other Board matters. To enhance the corporate governance practices, the Lead Independent Director held executive session with...

  • Page 69
    ... took place between November 2014 and February 2015. MONITOR AND FOLLOW-UP MEETINGS • Monitoring the progress of the implementation or action taken semi-annually • Reporting back to the Board on the progress by Nomination and Governance Committee 2014/15 Annual Report Lenovo Group Limited 67

  • Page 70
    ... our succession planning, insights into high potential individuals. • Communication with senior management - Continue to encourage greater interaction between Board members and senior management to benefit from their experience. Lenovo's Global Leadership Team Event 68 Lenovo Group Limited 2014...

  • Page 71
    ... unauthorized use or disposition; • Ensure maintenance of proper accounting records for the provision of reliable financial information for internal use or for publication; and • Ensure compliance with the relevant legislation and regulations. 2014/15 Annual Report Lenovo Group Limited 69

  • Page 72
    ... of our business entities. The policies address legal, regulatory, and operational topics, including, for example, intellectual property, data privacy, employee health and safety, delegation of authority, information security, and business continuity. 70 Lenovo Group Limited 2014/15 Annual Report

  • Page 73
    ... concerns to management is also required to make our internal control system successful. Lenovo's corporate policy on reporting unlawful or inappropriate conduct makes it clear that all reports will be kept anonymous and confidential to the extent possible. Most importantly, if employees seek advice...

  • Page 74
    ...has included in the Code a strict prohibition on the unauthorized use of non-public or inside information; (iv) has established a Continuous Disclosures Policy and implemented guidelines for monitoring, reporting and disseminating inside information to our shareholders, investors, analysts and media...

  • Page 75
    ... of concern which may affect the shareholders. The Board is satisfied that the Company has fully complied with the code provisions on internal controls as set forth in the CG Code. Enterprise Risk Management At Lenovo, risk is defined as a potential action, event or circumstance that could impact...

  • Page 76
    ...or payable to PwC for audit and non-audit services for the financial year ended March 31, 2015 and the comparative figures for the financial year ended March 31, 2014 are as follows: 2015 US$mn Audit Non-audit Total 7.4 1.9 9.3 2014 US$mn 4.5 0.7 5.2 74 Lenovo Group Limited 2014/15 Annual Report

  • Page 77
    ... to regular one-on-one investor meetings, the senior management team also participated in the following investor conferences held by major international investment banks to maintain active communications with institutional investors around the world. 2014/15 Annual Report Lenovo Group Limited 75

  • Page 78
    ...CLSA Investor's Forum 2014 Morgan Stanley Asia Pacific Summit J.P. Morgan Global TMT Conference Daiwa Investment Conference Barclays Asia TMT Conference Bank of America Merrill Lynch "Taiwan, Technology & Beyond" Conference Credit Suisse Asian Investment Conference Location Hong Kong Beijing Taipei...

  • Page 79
    ... Seng Corporate Sustainability Index, Global Compact 100 and FTSE China 50 Index.The investor relations team will continue to endeavor to do the best in providing award-winning investor relations services. Key Shareholders Information Listing Information Lenovo Group Limited's shares are listed...

  • Page 80
    ... meeting for shareholders and media to communicate directly with Chairman and senior management. The Company also arranged a product display at the annual general meeting venue to update shareholders on the latest products strategy of the Company. 78 Lenovo Group Limited 2014/15 Annual Report

  • Page 81
    ... to attend and participate in the Company's 2015 annual general meeting. Details of the proposed resolutions for the 2015 annual general meeting are set out in the circular which will be dispatched to the Company's shareholders with this annual report. 2014/15 Annual Report Lenovo Group Limited 79

  • Page 82
    ... meeting or general meeting, including proposing a person other than a retiring director for election as a director are set out in the Corporate Governance section of the Company's website. Shareholders may send their enquiries requiring the Board's attention to the Company at the registered address...

  • Page 83
    ...) by the relevant holder or group of holders as recorded in the registers maintained under the SFO. (ii) The approximate percentage of shareholding is calculated on the basis of 11,108,654,724 Shares of the Company in issue as of March 31, 2015. 2014/15 Annual Report Lenovo Group Limited 81

  • Page 84
    CORPORATE GOVERNANCE REPORT INFORMATION FOR INVESTORS Ordinary Shares (as of 31 March 2015) Listing Stock code Board lot size Ordinary shares outstanding as of March 31, 2015 Free float Market capitalization as of March 31, 2015 Hong Kong Stock Exchange 992 2,000 shares 11,108,654,724 shares 6,320 ...

  • Page 85
    ... to hear suggestions and comments from shareholders and investors. For enquiries from institutional investors and securities analysts please contact [email protected]. Note: 1 Subject to Shareholders' approval at the forthcoming annual general meeting. 2014/15 Annual Report Lenovo Group Limited 83

  • Page 86
    ...the board of directors (the "Board") of Lenovo Group Limited (the "Company") has been established since 1999 and as at the date of this annual report, is comprised of four members, all of whom including the Audit Committee chairman are independent non-executive directors. The members who held office...

  • Page 87
    ...Kong Exchanges and Clearing Limited. • The Audit Committee meets with external auditor, Chief Financial Officer, General Counsel, and management of the finance and internal audit functions of the Company at least four times a year at quarterly intervals and is provided with sufficient resources to...

  • Page 88
    ... issues Review of external audit: • scope of the audit work • significant audit points Review of follow-up items: • minutes of previous meeting • reports on actions taken or status of follow-up items arose from previous meetings 86 Lenovo Group Limited 2014/15 Annual Report STANDING...

  • Page 89
    ... Group's goodwill and (d) the accounting provisions and treatments for warranty provision, indirect tax receivables, inventories and employees benefits plans; • Reviewed worldwide accounting and finance business transformation organization of the Group; 2014/15 Annual Report Lenovo Group Limited...

  • Page 90
    ...of resources, staff qualification and experience, training programmes and budget of the Group's internal audit, accounting and financial reporting function) operating in the Group and reviewed the corrective actions taken by the management; • Reviewed the control issues of Group level significance...

  • Page 91
    ... Committee reviewed and recommended to the Board the approval of the audited financial statements of the Group for the year ended March 31, 2015 together with the related annual results announcement and this annual report incorporating the directors' report and corporate governance report. INTERNAL...

  • Page 92
    ... of the economic conditions on the Group. • To focus on the integration of the Group's control processes into new acquisitions. Members of the Audit Committee Mr. Nicholas C. Allen (Chairman) Mr. Ting Lee Sen Ms. Ma Xuezheng Mr. William Tudor Brown 90 Lenovo Group Limited 2014/15 Annual Report

  • Page 93
    ... Reviewed the holding power and share ownership positions of both executives and Non-executive Directors Reviewed degree of alignment between CEO pay and performance Analysed Lenovo performance versus peer companies on a range of relevant financial metrics 2014/15 Annual Report Lenovo Group Limited...

  • Page 94
    ...performance. The compensation structure of Lenovo's Chairman/CEO and senior management consists of base salaries, allowances, performance-based bonuses, LTI, retirement benefits, and benefits-in-kind. These components and their mix are described below. 92 Lenovo Group Limited 2014/15 Annual Report

  • Page 95
    ... including LTI that were awarded in June 2014. Chairman/CEO Pay Mix Senior Management Pay Mix (Average) 7% 16% 28% 65% 40% 44% Base Performance Bonus LTI Base Performance Bonus LTI Fixed Compensation Fixed compensation includes base salary, allowances and benefits-in-kind (e.g. medical...

  • Page 96
    ... Scheme are set out on pages 130 to 131 of the Directors' Report. Retirement Benefits The Company operates a number of retirement schemes for its employees, including executive directors and senior management. These schemes are reviewed regularly and are intended to deliver benefit levels that are...

  • Page 97
    ...financial statements. SAR and RSU awards outstanding for Non-executive Directors as of March 31, 2015 under this scheme are presented in the "Long-Term Incentive Schemes" section of this report. Fiscal Year 2014-15 Chairman/CEO and Senior Management Review Fixed Compensation As a part of its annual...

  • Page 98
    ... REPORT Performance Bonus Chairman/CEO and senior management's fiscal year 2014/15 performance bonus payouts were approved in the May 2015 Committee meeting. Final bonus payouts for Chairman/CEO and senior management were determined based on overall pre-tax income, total revenue, smart phone...

  • Page 99
    ... Program. These awards were granted in June of 2014. Emoluments of Directors for FY2014/15 and Five Highest Paid Individuals Details of the emoluments of Directors and the five highest paid individuals are set out in note 11 to the financial statements. 2014/15 Annual Report Lenovo Group Limited...

  • Page 100
    ... and/or cancelled under the New Option Scheme during the year. (3) The accounting policy adopted for the New Option Scheme is set out in the note 2(x)(iv) to the financial statements. Other details are set out in note 29(b) to the financial statements. 98 Lenovo Group Limited 2014/15 Annual Report

  • Page 101
    ... - 08.19.2014 07.03.2013 - 07.03.2015 08.16.2014 - 08.16.2016 08.15.2015 - 08.15.2017 08.19.2012 - 08.19.2014 07.03.2013 - 07.03.2015 08.16.2014 - 08.16.2016 08.15.2015 - 08.15.2017 Mr. Zhu Linan Mr. Zhao John Huan Mr. Ting Lee Sen Dr. Tian Suning 2014/15 Annual Report Lenovo Group Limited 99

  • Page 102
    ... RSU RSU Note 1: Note 2: Proceeds in respect of quarterly deferral grants to be paid only at point of termination from the board of directors or unforeseen emergency. These units were nullified in accordance with the operation of the SAR plan rules. 100 Lenovo Group Limited 2014/15 Annual Report

  • Page 103
    ... "Board and Board Committees' Evaluation" as set out in the Corporate Governance Report on pages 67 to 68. Members of the Compensation Committee Ms. Ma Xuezheng (Chairman) Mr. Ting Lee Sen Mr. William Tudor Brown Mr. William O. Grabe Mr. Zhu Linan 2014/15 Annual Report Lenovo Group Limited 101

  • Page 104
    ... Lenovo as we work to maintain our leadership in the PC industry and expand our position in the Enterprise and Mobile areas. Despite a difficult worldwide PC market over the past several years, in FY 2014/15 Lenovo achieved record revenue and record profits. The company also reached a number...

  • Page 105
    ... June 2014, the Lenovo Information Products Company (LIPC) Shenzhen location received its fourth consecutive "Work Safety Management Outstanding Contribution Unit" award from the Futian District, Shenzhen, China. Lenovo's United States Fulfillment Center (USFC) in Whitsett, North Carolina, received...

  • Page 106
    ...basis. Employees are directed to report to their managers or other company resources, including Human Resources, the Ethics and Compliance Office, Internal Audit, Corporate Security, or the Legal Department, any information pertaining to: • Fraud by or against Lenovo • Unethical business conduct...

  • Page 107
    ... certified to meet requirements of the national Work Safety Standardization law. Lastly, we continue to monitor the performance of our key worldwide contract manufacturing locations to ensure a high level of regulatory compliance and standard of care. 2014/15 Annual Report Lenovo Group Limited 105

  • Page 108
    ... to the overall business strategy of Lenovo and is therefore a key ingredient to profitability. Employees have an opportunity to leverage their experiences and knowledge to grow their careers. We are uniquely positioned to help our company successfully maneuver this new global reality because...

  • Page 109
    ..., use, service, and recycling. This enables Lenovo to have deep insight into opportunities to minimize risk and cost, as well as identifying new opportunities for enhancing and increasing product quality and safety to meet the preferences of our customers. Corporate strategies, policies and...

  • Page 110
    ... integration and alignment of new employees, partnerships, acquisitions, business units and facilities into the Lenovo Global Environmental Management System. During this major growth period we maintained focus on the key commitments of our Environmental Policy: working to ensure compliance, acting...

  • Page 111
    ... the number and types of products offered by Lenovo and the number of countries in which we offer them. At the same time, the year brought new regulatory and voluntary compliance commitments. Lenovo's compliance organization is supported by a global network of internal environmental focal points and...

  • Page 112
    ... energy efficiency, Lenovo's Global Energy Management teams continue to work to identify and implement energy reduction, renewable energy and carbon offset opportunities that provide the most cost-effective path to meeting our targets. In May 2014, Lenovo's Board of Directors and Executive Committee...

  • Page 113
    ...in China, Lenovo is leading its advocacy efforts in China Energy and Carbon Standard and policy in the IT products field, and is active in the following energy efficiency and carbon-related workgroups, associations, and initiatives: China PCF (PCR) Standard Working Group, China Energy Label Standard...

  • Page 114
    ... CDP China Report launch event in Beijing in October 2014 where Lenovo received a Sustainability Leadership Model Enterprise Award. Lenovo's efforts in addressing climate change have been featured in several reports: • Global Corporate Use of Carbon Pricing - Disclosures to Investors - Sep 2014...

  • Page 115
    ... in our annual Sustainability Report available at http://www.lenovo.com/sustainability. Lenovo's Environmentally Conscious Products program focused in FY 2014/15 on the following key areas: • Product Materials, including the use of post-consumer recycled content • Product Energy, including...

  • Page 116
    ... percent of all server platforms2 • Approximately 97 percent of all monitors1,3 1 2 3 Product platforms include Think and Lenovo product lines. For pre-configured systems. Note: Only one monitor of the 29 Lenovo sells is not ENERGY STAR qualified. 114 Lenovo Group Limited 2014/15 Annual Report

  • Page 117
    ... activities. Approximately 77 percent of Lenovo procurement spend is from suppliers who are EICC members, and many of the suppliers also have formal certifications for Occupational Health & Safety (OHS 18001) and Social Accountability (SA8000) standards. 2014/15 Annual Report Lenovo Group Limited...

  • Page 118
    ...at least every 24 months with EICC approved auditors • Provide Lenovo the audit reports and provide accompanying corrective action plans • Require that their primary suppliers also comply with the Code and receive EICC audits as well • Have active and continual improvement programs to quantify...

  • Page 119
    ... key contract manufacturing locations are required to have Lenovo-specific Business Continuity Plans and robust Pandemic Response Plans to further mitigate risk and support employee well-being. Validation checks are also completed on a periodic basis. 2014/15 Annual Report Lenovo Group Limited 117

  • Page 120
    ..., Lenovo announced a partnership with the United Services Organization (USO) and became the laptop technology partner of the newest USO Warrior and Family Center located on base at Walter Reed National Military Medical Center in Bethesda, Maryland. 118 Lenovo Group Limited 2014/15 Annual Report

  • Page 121
    ..., the laptops have also been used for university research and to assist in tertiary education applications. Lenovo's technology contribution establishes a starting point for future education opportunities, giving the girls career options that they otherwise would have lacked due to poor information...

  • Page 122
    .... Lenovo's regional offices have established extensive relationships with their local communities and regional nongovernmental organizations. These regional offices support education, the environment and social causes unique to their communities. 120 Lenovo Group Limited 2014/15 Annual Report

  • Page 123
    122 DIRECTORS' REPORT 139 INDEPENDENT AUDITOR'S REPORT 140 CONSOLIDATED INCOME STATEMENT 141 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 142 CONSOLIDATED BALANCE SHEETS 144 CONSOLIDATED CASH FLOW STATEMENT 145 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 146 NOTES TO THE FINANCIAL STATEMENTS 211 ...

  • Page 124
    ... report and the company balance sheet in note 30(a) to the financial statements respectively. The consolidated cash flows of the Group for the year are set out in the statement on page 144 of this annual report. An interim dividend of HK6.0 cents (2014: HK6.0 cents) per share, amounting to a total...

  • Page 125
    ... listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") on May 9, 2014. The net proceed of US$1,488,979,933 from the Notes will be used to fund any acquisition activities, working capital and other general corporate purposes of the Company. Subject to the terms thereof, the Notes...

  • Page 126
    ... Institute (now Xidian University) in China and has substantial experience in corporate management. Mr. Liu is the chairman of the board of Legend Holdings Corporation, a company holding substantial interests in the issued shares of the Company. 124 Lenovo Group Limited 2014/15 Annual Report

  • Page 127
    ...chief executive officer of AsiaInfo-Linkage, Inc. (formerly listed on NASDAQ) of which he is now a board member. Dr. Tian holds a Ph.D. in natural resource management from Texas Tech University and a M.S. degree in ecology from Chinese Academy of Sciences. 2014/15 Annual Report Lenovo Group Limited...

  • Page 128
    ... an executive advisory company. Until retiring in June 2005, for more than a decade, Mr. Idei held a wide variety of leadership positions at Sony Corporation (Tokyo Stock Exchange, Osaka Securities Exchange, NYSE and London Stock Exchange listed), including chairman and group chief executive officer...

  • Page 129
    ... Lenovo's global enterprise business in server and related products. Dr. Hortensius also led the business team that negotiated the IBM x86 server acquisition. Prior to the Think Business Group president role, he served as president of the Product Group where he managed both the company's commercial...

  • Page 130
    ... experience in human resources, strategy, marketing and branding. She holds a bachelor's degree in management science from Fudan University and holds an EMBA from the China Europe International Business School. Mr. Gerry P. Smith, 51, joined the Group in August, 2006 and is currently the Executive...

  • Page 131
    DIRECTORS' REPORT DIRECTORS' INTERESTS As at March 31, 2015, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and ...

  • Page 132
    ... to the Company and the Stock Exchange pursuant to the Model Code. DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES Share Option Scheme At an extraordinary general meeting of the Company held on March 25, 2002, the shareholders of the Company approved the adoption of a new share option scheme...

  • Page 133
    ... 31, 2015 was the Company or a specified undertaking of the Company a party to any arrangements to enable the directors of the Company to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate. 2014/15 Annual Report Lenovo Group Limited 131

  • Page 134
    ...-time employees who were employed by IBM prior to being hired by the Company and who were members of the IBM Personal Pension Plan ("PPP") with non-contributory defined benefit pension benefits via the Lenovo Pension Plan. The plan is frozen to new entrants. 132 Lenovo Group Limited 2014/15 Annual...

  • Page 135
    ... sacrifice. The plan is partially funded by Company and employee contributions to an insured support fund with DBV-Winterthur up to the maximum tax-deductible limits. In line with standard practice in Germany, the remainder is unfunded (book reserve). 2014/15 Annual Report Lenovo Group Limited 133

  • Page 136
    ...are dependent on employee paying no less than 3% of salary to the same fund. Prior employees of IBM receive Company contributions varying from 6.7% to 30% of eligible compensation depending on their service and the prior IBM plan they participated in. 134 Lenovo Group Limited 2014/15 Annual Report

  • Page 137
    ... relevant shareholders' agreement and certain agreements governing the existing continuing connected transactions to reflect the extension of the term of the joint venture beyond 5 years. Details are set out in the announcement dated October 7, 2014. 2014/15 Annual Report Lenovo Group Limited 135

  • Page 138
    ... annual cap(Note 2): Transitional Services Agreement Date: Parties: Services provided/received: May 30, 2011 The Company and NEC Services to be provided by NEC Group to JVCo Group and vice versa including business infrastructure related services, development & production services, sales related...

  • Page 139
    ... 1/4/2013 1/4/2014 1/4/2015 1/4/2016 - - - - 31/3/2014: 31/3/2015: 31/3/2016: 1/7/2016: JPY79 JPY79 JPY79 JPY20 million million million million (US$774,200) (US$774,200) (US$774,200) (US$196,000) Term: Annual cap(Note 1): Revised annual cap(Note 2): 2014/15 Annual Report Lenovo Group Limited 137

  • Page 140
    ... at the date of this report, there is sufficient public float of more than 25% of the Company's total number of issued shares as required under the Listing Rules. On behalf of the Board Yang Yuanqing Chairman and Chief Executive Officer May 21, 2015 138 Lenovo Group Limited 2014/15 Annual Report

  • Page 141
    ... for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance. PricewaterhouseCoopers Certified Public Accountants Hong Kong, May 21, 2015 2014/15 Annual Report Lenovo Group Limited 139

  • Page 142
    ... Non-controlling interests 5 828,715 7,888 836,603 817,228 242 817,470 Earnings per share attributable to equity holders of the Company Basic Diluted Dividends 12(a) 12(b) 13 US7.77 cents US7.69 cents 379,646 US7.88 cents US7.78 cents 321,875 140 Lenovo Group Limited 2014/15 Annual Report

  • Page 143
    ... available-for-sale financial assets, net of taxes Investment revaluation reserve reclassified to consolidated income statement on disposal of an available-for-sale financial asset Fair value change on cash flow hedges, net of taxes - Forward foreign exchange contracts Fair value gain/(loss), net of...

  • Page 144
    ... March 31, 2015 2015 US$'000 2014 US$'000 Note Non-current assets Property, plant and equipment Prepaid lease payments Construction-in-progress Intangible assets Interests in associates and joint ventures Deferred income tax assets Available-for-sale financial assets Other non-current assets 14 15...

  • Page 145
    CONSOLIDATED BALANCE SHEET At March 31, 2015 Note Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Put option written on non-controlling interest Total equity Non-current liabilities Borrowings Warranty provision Deferred revenue Retirement benefit ...

  • Page 146
    ... a joint venture Payment for construction-in-progress Payment for intangible assets Purchase of available-for-sale financial assets Net proceeds from disposal of an available-for-sale financial asset Decrease in bank deposits Dividends received Interest received Net cash used in investing activities...

  • Page 147
    ...1, 2014 Profit for the year Other comprehensive income/(loss) Total comprehensive income/ (loss) for the year Acquisition of businesses Transfer to statutory reserve Issue of ordinary shares Exercise of share options Vesting of shares under long-term incentive program Deferred tax credit in relation...

  • Page 148
    ... TO THE FINANCIAL STATEMENTS 1 GENERAL INFORMATION AND BASIS OF PREPARATION Lenovo Group Limited (the "Company") and its subsidiaries (together, the "Group") develop, manufacture and market reliable, high-quality, secure and easy-to-use technology products and services. Its product lines include...

  • Page 149
    ... year end date for statutory reporting purposes, their financial statements for the years ended March 31, 2014 and 2015 have been used for the preparation of the Group's consolidated financial statements. (ii) Business combinations The Group applies the acquisition method to account for business...

  • Page 150
    ... related assets or liabilities. This may mean that amounts previously recognized as other comprehensive income/expense are reclassified to the consolidated income statement. (v) Separate financial statements Investments in subsidiaries in the Company's balance sheet are accounted for at cost less...

  • Page 151
    ..., their financial statements for the years ended March 31, 2014 and 2015 have been used for the preparation of the Group's consolidated financial statements. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating...

  • Page 152
    ...annual rates used for this purpose are: Plant and machinery Tooling equipment Other machinery Furniture and fixtures Office equipment Motor vehicles 50% 14 - 20% 20 - 25% 20 - 33% 20% The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date...

  • Page 153
    ... straight-line method over their estimated useful lives. The estimated useful lives for customer relationships at the balance sheet date are not more than 15 years. (iv) Internal use software Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring...

  • Page 154
    ...the income statement in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of other income when the Group's right to receive payments is established. 152 Lenovo Group Limited 2014/15 Annual Report

  • Page 155
    ...'s credit rating), the reversal of the previously recognized impairment loss is recognized in the income statement. (ii) Assets classified as available-for-sale The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets...

  • Page 156
    ...management's judgment. The fee income earned is recognized on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the consolidated income statement within "Other operating expense". 154 Lenovo Group Limited 2014/15 Annual Report

  • Page 157
    ... such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (r) Trade and other payables Trade payables are obligations to pay for part components or services that have been...

  • Page 158
    ... enacted at the balance sheet date in the countries where the Company and its subsidiaries, joint ventures and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject...

  • Page 159
    ... an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date...

  • Page 160
    ... to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in...

  • Page 161
    ... is recognized as a liability in the Group's and Company's financial statements in the period in which the dividends are approved by the Company's shareholders in case of final dividend and by the Company's directors in case of interim dividend. 2014/15 Annual Report Lenovo Group Limited 159

  • Page 162
    ... dollar, translated using the spot rate at the balance sheet date. Differences resulting from the translation of the financial statements of foreign operations into the Group's presentation currency are excluded. 2015 United States dollar US$'000 Trade and other receivables Bank deposits and cash...

  • Page 163
    .... For banks and other financial institutions, the Group controls its credit risk through monitoring their credit rating and setting approved counterparty credit limits that are regularly reviewed. The Group has no significant concentration of customer credit risk. The Group has a credit policy in...

  • Page 164
    ...FINANCIAL STATEMENTS 3 FINANCIAL RISK MANAGEMENT (continued) (a) Financial risk factors (continued) (iv) Liquidity risk (continued) Repayable on demand or 3 months or less US$'000 At March 31, 2015 Borrowings Trade...- - - - - 5,471,560 (5,520,274) 162 Lenovo Group Limited 2014/15 Annual Report

  • Page 165
    ...March 31, 2015 and 2014 are as follows: 2015 US$ million Bank deposits and cash and cash equivalents Less: total borrowings Net (debt)/cash position Total equity Gearing ratio 3,026 (3,054) (28) 4,106 0.74 2014 US$ million 3,953 (455) 3,498 3,025 0.15 2014/15 Annual Report Lenovo Group Limited 163

  • Page 166
    ...) The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency...

  • Page 167
    ... FINANCIAL STATEMENTS 3 FINANCIAL RISK MANAGEMENT (continued) (d) Fair value estimation (continued) The movements in the financial assets and liabilities included in Level 3 fair value hierarchy for the years ended March 31, 2015 and 2014 are as follows: Available-for-sale financial assets 2015...

  • Page 168
    ...rebates, marketing development funds. The Group considers various factors, including a review of specific transactions, historical experience, market and economic conditions and channel inventory level when calculating these provisions and allowances. 166 Lenovo Group Limited 2014/15 Annual Report

  • Page 169
    ... in the balance sheet until revenue is recognized. The estimates of days-in-transit are reviewed semi-annually. (e) Retirement benefits Pension and other post-retirement benefit costs and obligations are dependent on various assumptions. The Group's major assumptions primarily relate to discount...

  • Page 170
    ... adjusted pre-tax income for reportable segments 2015 Revenue from external customers US$'000 China AP EMEA AG Segment total Unallocated: Headquarters and corporate expenses Restructuring costs Finance income Finance costs Net gain on disposal of available-for-sale financial assets Dividend income...

  • Page 171
    ... external customers are mainly derived from the sale of personal technology products and services. Breakdown of revenue by business group is as follows: 2015 US$'000 PC Business Group Mobile Business Group Enterprise Business Group Others 33,346,120 9,142,211 2,627,408 1,179,854 46,295,593 2014 US...

  • Page 172
    ... Dividend income from an available-for-sale financial asset 1,185 305 1,490 2014 US$'000 21,880 547 22,427 7 OPERATING PROFIT Operating profit is stated after charging/(crediting) the following: 2015 US$'000 Depreciation of property, plant and equipment and amortization of prepaid lease payments...

  • Page 173
    .... The tax (credit)/charge relating to components of other comprehensive income is as follows: 2015 Tax (credit)/ charge US$'000 - 2014 Before tax US$'000 Fair value change on available-for-sale financial assets Investment revaluation reserve reclassified to consolidated income statement on disposal...

  • Page 174
    ... the management of the affairs of the Company and its subsidiaries. The remuneration of each director and the chief executive who is also a director, for the years ended March 31, 2015 and 2014 is set out below: 2015 Retirement payments and employer's contribution to pension schemes US$'000 Name of...

  • Page 175
    ... STATEMENTS 11 EMOLUMENTS OF DIRECTORS AND HIGHEST PAID INDIVIDUALS (continued) (a) Directors' and senior management's emoluments (continued) 2014 Retirement payments and employer's contribution to pension schemes US$'000 Name of Director Fees US$'000 Salaries US$'000 Discretionary bonuses...

  • Page 176
    ...2015 US$'000 Basic salaries, allowances, and other benefits-in-kind Discretionary bonuses Retirement payments and employer's contribution to pension schemes Long-term incentive awards Others 4,093 10,865 625 10,630 575 26,788 The emoluments fell within the following bands: Number of individuals 2015...

  • Page 177
    ... 2015 US$'000 Interim dividend of HK6.0 cents (2014: HK6.0 cents) per ordinary share, paid on December 1, 2014 Proposed final dividend - HK20.5 cents (2014: HK18.0 cents) per ordinary share 2014 US$'000 85,978 293,668 379,646 80,426 241,449 321,875 2014/15 Annual Report Lenovo Group Limited...

  • Page 178
    ... 41,243 27,221 14,022 286,520 198,713 87,807 5,760 2,783 2,977 1,061,157 581,380 479,777 Leasehold improvements US$'000 Plant and machinery US$'000 Furniture and fixtures US$'000 Office equipment US$'000 Motor vehicles US$'000 Total US$'000 176 Lenovo Group Limited 2014/15 Annual Report

  • Page 179
    ...71,470) (5,198) (1,219) 351,934 During the year, the Group has capitalised borrowing costs amounting to US$4.5 million (2014: nil) on qualifying assets. Borrowing costs were capitalized at the weighted average rate of its general borrowings of 3.28%. 2014/15 Annual Report Lenovo Group Limited 177

  • Page 180
    ...2014: US$91,312,000) and US$57,348,000 (2014: US$27,588,000) are included in the 'cost of sales', 'selling and distribution expenses', 'administrative expenses' and 'research and development expenses' in the consolidated income statement respectively. 178 Lenovo Group Limited 2014/15 Annual Report

  • Page 181
    ... (2014: 1.30) percentage point lower than management's estimates, the AG's remaining headroom would be removed. (c) At March 31, 2015, included in the patent and technology is a construction-in-progress balance of US$24,452,000 (2014: US$58,880,000). 2014/15 Annual Report Lenovo Group Limited 179

  • Page 182
    ... registered name. The following sets out the aggregate amount of the Group's share of associates and joint ventures: 2015 US$'000 Share of losses of associates Share of profits of joint ventures (2,148) 19,203 17,055 2014 US$'000 (679) 9,900 9,221 180 Lenovo Group Limited 2014/15 Annual Report

  • Page 183
    ...statement US$'000 Availablefor-sale financial assets US$'000 Loans and receivables US$'000 Assets At March 31, 2015 Available-for-sale financial assets Derivative financial assets Trade receivables Notes receivable Deposits and other receivables Bank... 2014/15 Annual Report Lenovo Group Limited 181

  • Page 184
    ...: Recoverable within 12 months Recoverable after 12 months 327,817 202,230 530,047 Deferred income tax liabilities: Recoverable after 12 months Net deferred income tax assets (200,730) 329,317 (142,881) 246,449 324,837 64,493 389,330 2014 US$'000 182 Lenovo Group Limited 2014/15 Annual Report

  • Page 185
    ... 80,686 1,012 82,044 9,693 539,732 Deferred income tax assets are recognized for deductible temporary differences and tax losses carried forward to the extent that realization of the related tax benefit through the future taxable profits is probable. 2014/15 Annual Report Lenovo Group Limited 183

  • Page 186
    ...: 2015 US$'000 Expiring in - 2015 - 2016 - 2017 - 2018 - 2019 - 2020 - 2021 - 2022 - 2023 - 2024 - - 26,874 202,272 71,536 36,261 9,816 48,977 13,556 5,549 414,841 20,832 1,900 33,309 10,704 294,209 9,786 8,548 125,812 802 - 505,902 2014 US$'000 184 Lenovo Group Limited 2014/15 Annual Report

  • Page 187
    ...000 4,273 333 (12) - - Accelerated tax depreciation US$'000 748 (18) 23,864 - - Others US$'000 4,729 33 (247) (2,999) - Total US$'000 118,429 2,296 28,187 (2,999) 216 21 AVAILABLE-FOR-SALE FINANCIAL ASSETS 2015 US$'000 At the beginning of the year Exchange adjustment Fair value change recognized...

  • Page 188
    ... work-in-progress Finished goods Service parts 1,387,082 1,212,009 396,298 2,995,389 2014 US$'000 1,222,589 1,263,341 215,085 2,701,015 23 RECEIVABLES (a) Customers are generally granted credit term ranging from 0 to 120 days. Ageing analysis of trade receivables of the Group at the balance sheet...

  • Page 189
    ... 218,299 321,447 4,662,411 (b) (c) Notes payable of the Group are mainly repayable within three months. The carrying amounts of trade payables and notes payable approximate their fair value. 2014 US$'000 2,761,170 1,217,547 586,145 186,483 4,751,345 2014/15 Annual Report Lenovo Group Limited 187

  • Page 190
    ... and electronic equipment upon return from end-customers and with reference to the historical or projected future return rate. The environmental restoration provision is reviewed at least annually to assess its adequacy to meet the Group's obligation. 188 Lenovo Group Limited 2014/15 Annual Report

  • Page 191
    ...million as at March 31, 2015. On May 8, 2014, the Group completed the issuance of 5-Year US$1.5 billion notes bearing annual interest at 4.7% due in May 2019. The proceeds would be used for general corporate purposes including working capital, and to fund any acquisition. (iii) The exposure of all...

  • Page 192
    ... company of Medion entered into a domination and profit and loss transfer agreement (the "Domination Agreement") with Medion on October 25, 2011. Pursuant to the Domination Agreement, Lenovo Germany has guaranteed to the non-controlling shareholders of Medion an annual guaranteed pre-tax dividend...

  • Page 193
    ... share capital, par value, share premium, and share redemption reserve, in respect of the share capital of Hong Kong companies. As a result, the amounts of share premium and share redemption reserve of the Company were transferred to the share capital. 2014/15 Annual Report Lenovo Group Limited...

  • Page 194
    NOTES TO THE FINANCIAL STATEMENTS 29 SHARE CAPITAL (continued) (a) Long-term incentive program A performance-related long-term incentive program was approved on May 26, 2005 for the purpose of rewarding and motivating directors, executives and top-performing employees of the Company and its ...

  • Page 195
    ... value per ordinary share at exercise date HK$ 8.80-9.48 Number of share options exercised Exercise date (MM.DD.YYYY) 04.01.2014 to 04.25.2014 Exercise price HK$ 2.545 Gross proceeds received HK$ 2,982,740 2,982,740 US$385,000 1,172,000 1,172,000 2014/15 Annual Report Lenovo Group Limited 193

  • Page 196
    ...at the balance sheet date are as follows: 2015 Number of outstanding share options 2014 Number of outstanding share options Exercise period (MM.DD.YYYY) New Option Scheme 04.27.2004 to 04.26.2014 Exercise price HK$ 2.545 - - 31,487,601 31,487,601 194 Lenovo Group Limited 2014/15 Annual Report

  • Page 197
    ...STATEMENTS 30 BALANCE SHEET AND MOVEMENT OF RESERVES OF THE COMPANY (a) Balance sheet of the Company At March 31 2015 US$'000 Non-current assets Property, plant and equipment Construction-in-progress Intangible assets Interest in an associate Investments in subsidiaries Available-for-sale financial...

  • Page 198
    ... US$'000 At April 1, 2014 Profit for the year Other comprehensive loss Total comprehensive (loss)/income for the year Acquisition of businesses Vesting of shares under long-term incentive program Share-based compensation Dividends paid At March 31, 2015 At April 1, 2013 Profit for the year Exercise...

  • Page 199
    ...related party transactions in the normal course of business during the year: 2015 US$'000 2014 US$'000 (IGRS Engineering Lab Limited) (an associate) - Purchase of goods - 2,508 (Shanghai Shiyun Network Technology Limited) (a joint venture) - Purchase of goods Note: The English name of each company...

  • Page 200
    ... ventures Finance income Finance costs Depreciation of property, plant and equipment and amortization of prepaid lease payments Amortization of intangible assets and share-based compensation Loss/(gain) on disposal of property, plant and equipment Net gain on disposal of available-for-sale financial...

  • Page 201
    ... of unfunded obligations Liability in the balance sheet Representing: Pension benefits obligation Pension plan assets 377,228 - 377,228 142,482 - 142,482 574,901 (284,229) 290,672 86,556 377,228 2014 US$'000 389,172 (266,875) 122,297 20,185 142,482 2014/15 Annual Report Lenovo Group Limited 199

  • Page 202
    NOTES TO THE FINANCIAL STATEMENTS 35 RETIREMENT BENEFIT OBLIGATIONS (continued) (a) Pension benefits (continued) The principal actuarial assumptions used are as follows: 2015 Discount rate Future salary increases Future pension increases Life expectancy for male aged 60 Life expectancy for female ...

  • Page 203
    ...-employment benefits (pension and medical) Plan assets of the Group comprise: 2015 Unquoted US$'000 2014 Unquoted US$'000 Quoted US$'000 Pension plan Equity instruments Information technology Energy Manufacturing Others 556 284 530 7,518 8,888 Debt instruments Government Corporate bonds (investment...

  • Page 204
    ... assets of the Group: Pension 2015 US$'000 Opening fair value Exchange adjustment Interest income Remeasurements: Return on plan assets excluding interest income Experience gain/(loss) Contributions by the employer Contributions by plan participants Benefits paid Acquisition of businesses Closing...

  • Page 205
    ... of the Group: Pension 2015 US$'000 Opening defined benefit obligation Exchange adjustment Current service cost Past service cost Interest cost Remeasurements: Loss from change in demographic assumptions Loss/(gain) from changes in financial assumptions Experience loss/(gain) Contributions by plan...

  • Page 206
    ...) (c) Additional information on post-employment benefits (pension and medical) (continued) The amounts recognized in the consolidated income statement are as follows: Pension 2015 US$'000 Current service cost Past service cost Interest cost Interest income Curtailment losses Total expense recognized...

  • Page 207
    ...prepare a set of financial information in conformity with the Group's accounting policies. Accordingly, disclosure of the revenue and profit/loss before taxation of both newly acquired businesses for the full year from April 1, 2014 has not been made. 2014/15 Annual Report Lenovo Group Limited 205

  • Page 208
    ...name Issued and fully paid up capital Percentage of issued capital held 2015 2014 Principal activities Held directly: Chinese Mainland (Lenovo (Beijing) Limited)1 (wholly foreign-owned enterprise) HK$175,481,300 100% 100% Manufacturing and distribution of IT products and provision of IT services...

  • Page 209
    ...,837,000 100% 100% Distribution of IT products Lenovo HK Services Limited Hong Kong HK$1 100% 100% Provision of business planning, management, global supply chain, finance, and administration support services Lenovo (Hong Kong) Limited Hong Kong HK$74,256,023 100% 100% Distribution of...

  • Page 210
    ... Chinese Mainland (Lenovo Mobile Communication Technology Ltd.)1 (Chinese-foreign equity joint venture) RMB187,500,000 100% 100% Manufacturing and distribution of IT products and provision of IT services Chinese Mainland (Lenovo Mobile Communication Software (Wuhan) Limited)1 (wholly foreign...

  • Page 211
    ...of issued capital held 2015 2014 100% 100% Company name Principal activities Lenovo (Sweden) AB Sweden SEK200,000 Distribution of IT products Chinese Mainland (Lenovo Systems Technology Company Limited)1 (wholly foreign-owned enterprise) USD41,100,000 100% - Manufacturing and Distribution...

  • Page 212
    ...registered name. Medion AG is a publicly traded German stock corporation listed on the Frankfurt am Main stock exchange. (iii) (iv) 38 APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors on May 21, 2015. 210 Lenovo Group Limited 2014/15 Annual Report

  • Page 213
    ...-YEAR FINANCIAL SUMMARY CONDENSED CONSOLIDATED INCOME STATEMENT 2015 US$'000 Revenue Profit before taxation Taxation Profit for the year Profit/(loss) attributable to: Equity holders of the Company Non-controlling interests 828,715 7,888 836,603 Earnings per share attributable to equity holders of...

  • Page 214
    ... Ming COMPANY SECRETARY Mr. Mok Chung Fu, Eric STOCK CODES Hong Kong Stock Exchange: American Depositary Receipts: 992 LNVGY REGISTERED OFFICE 23rd Floor, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong WEBSITE www.lenovo.com 212 Lenovo Group Limited 2014/15 Annual Report

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    www.lenovo.com This report is printed on environmentally friendly paper manufactured from elemental chlorine-free pulp Printed on chemistry free plate system and soy ink