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Lenovo Group Limited | 2015/16 Annual Report
DIFFERENT
FOR THE
SAKE OF
BEING
BETTER
Stock Code 992

Table of contents

  • Page 1
    Lenovo Group Limited | 2015/16 Annual Report Stock Code 992 DIFFERENT FOR THE SAKE OF BEING BETTER

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

  • Page 3
    ... CHAIRMAN AND CEO STATEMENT LENOVO MANAGEMENT TEAM MANAGEMENT'S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE REPORT AUDIT COMMITTEE REPORT COMPENSATION COMMITTEE REPORT CORPORATE SOCIAL RESPONSIBILITY REPORT DIRECTORS' REPORT INDEPENDENT AUDITOR'S REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED...

  • Page 4

  • Page 5
    WHEN PROGRESS NEVER ENDS, THERE IS NO BEST, ONL Y BETTER ThinkPad X1 Tablet

  • Page 6
    ... Pre-tax (loss)/income Pre-tax (loss)/income margin (%) (Loss)/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 2016 uS$ million 2015 US$ million Year-on-year Change 44...

  • Page 7
    ... Profit/(loss) attributable to equity Holders of the Company for the year ended March 31 (US$ million) 1,715 817 1,365 1,067 821 838 473 635 829 (128) 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Note: 1 Excluding "other income - net". 2015/16 Annual Report Lenovo Group Limited...

  • Page 8
    YOGA 900s WE TAKE THE NORM...& TWIST IT

  • Page 9

  • Page 10
    ... of 21 % as we continued to win and deliver strong profitability in our core PC business. • Record market share in our tablet business: We sold almost 11 million units and outgrew the market for the year, strengthening our #3 position in the world. 8 Lenovo Group Limited 2015/16 Annual Report

  • Page 11
    ... Tech World show in Beijing, attracting worldwide attention for our breakthrough products. In addition, Lenovo won 66 awards at the Consumer Electronics Show, the world's largest and most prestigious technology event, and 23 awards at the 2016 Mobile World Congress, the top mobile technology show...

  • Page 12
    ...-term success are still based on the same formula for success that has fueled our growth from a $16 billion company in 2008 to a nearly $50 billion company today: a clear strategy, innovative products, operational excellence, and a diverse global team. 10 Lenovo Group Limited 2015/16 Annual Report

  • Page 13
    ... positioned to seize the tremendous opportunity in front of us. I am confident in our strategy and in our team, and that Lenovo will be stronger than ever in the years ahead. Thank you. Moto 360 Sport Yang Yuanqing Chairman and Chief Executive Officer 2015/16 Annual Report Lenovo Group Limited...

  • Page 14
    ...Executive Officer GianfRanCo LanCi Corporate President and Chief Operating Officer Qiao Jian Senior Vice President, Human Resources ayMaR de LenCQueSainG Senior Vice President Co-President of the Mobile Business Group and Chairman & President of Motorola 12 Lenovo Group Limited 2015/16 Annual...

  • Page 15
    ... Senior Vice President President of Lenovo Capital & Incubator Group, acting Chief Technology Officer GeRRy P. SMitH Executive Vice President and President of the Data Center Group WonG Wai MinG Executive Vice President and Chief Financial Officer 2015/16 Annual Report Lenovo Group Limited 13

  • Page 16
    INSPIRA TION CAN COME FROM ANYTHING & ANYONE ThinkPad X1 Carbon

  • Page 17

  • Page 18
    ... market opportunities in mobile, PC and enterprise. Progress of these actions has been on track as planned and started showing results in the second half of the fiscal year with more efficient cost structure, amidst market challenges. For the fiscal year ended March 31, 2016, the Group revenue...

  • Page 19
    ... and product transition of the Group's smartphone business. The decisive actions the Group took in fiscal quarter two to realign the business has started to show benefits in the second half of the fiscal year, and the Group's cost structure in the second half was enhanced with profitability improved...

  • Page 20
    MANAGEMENT'S DISCUSSION & ANALYSIS PeRfoRManCe of PRoduCtS BuSineSS GRouPS During the fiscal year ended March 31, 2016, Lenovo continued to build a more balanced product portfolio to drive growth. Revenue by Business Group (%) 10% (6%) 22% (20%) 66% (72%) 2% (2%) Mobile Enterprise PC Others PC...

  • Page 21
    ...year to 66 million due to declines in China and North America. Lenovo's market share in the worldwide smartphone market decreased by 1.1 percentage points year-on-year to 4.6 percent. For the fiscal year ended March 31, 2016, the total revenue from Mobile business increased 7 percent year-on-year to...

  • Page 22
    ... revenue growth for the Group in the fiscal quarter four. ecosystem and Cloud Services Business Group (eCS) and others The Group continued to build a solid foundation for its ecosystem business during the period under review, with an objective to create a better user experience for Lenovo's product...

  • Page 23
    ... in AP. Profit before taxation was US$89 million and pre-tax margin was 1.2 percent, versus 4.6 percent last year, mainly due to the inclusion of full-year Motorola Mobility business, contraction in Japan PC market and impact from currency fluctuation. 2015/16 Annual Report Lenovo Group Limited 21

  • Page 24
    ... or smaller significance. The size, complexity and spread of the business and the continually changing environment in which the Group operates also mean that the list cannot be an exhaustive list of all significant risks that could affect the Group. 22 Lenovo Group Limited 2015/16 Annual Report

  • Page 25
    ... reviews of competition and market trends. Maintain a competitive position through commitments to innovate and build a broad product portfolio and grow brand name to differentiate the Group and gain market recognition. Execution of clear strategy to protect and drive profitability in the core...

  • Page 26
    ... in a loss of revenue and increased cost. It is subject to law and regulation in countries where it operates relating to the collection, use, and security of customer, consumer and employee data. Its need to conduct normal business activities and to collect, use and retain personal data pursuant...

  • Page 27
    ... to suppliers by contract terms to minimize risk and obtain indemnification from suppliers. M o n i to r, d eve l o p a n d exe c u te l i t i g at i o n settlement strategy. Use patent portfolio if appropriate to decrease potential damages. • • • 2015/16 Annual Report Lenovo Group Limited...

  • Page 28
    ... in competitive reward, benefit and compensation strategies. Further invest in employee and leadership development programs to build employee engagement, accelerate the internal movement of top talent, and ensure strength of the leadership pipeline. 26 Lenovo Group Limited 2015/16 Annual Report

  • Page 29
    ... as environmental incidents, catastrophic weather conditions, and supply chain disruptions, among others. Annually, each business unit is required to identify risks, assess their impacts on Lenovo's strategy execution and develop risk mitigation plans. 2015/16 Annual Report Lenovo Group Limited 27

  • Page 30
    ... opportunity fy 2016/17 objectives Packaging Minimize packaging material consumption while driving the use of environmentally sustainable materials Product end of life management Ensure customer access to convenient, reliable and compliant product take back programs. Product energy consumption...

  • Page 31
    ... 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 it operates, and other stakeholders whose actions can affect the company...

  • Page 32
    ... of the business." - Yuanqing Yang, Chairman and CEO talent Management and Succession Planning Lenovo's annual Organizational and Human Resource Planning (OHRP) process is critical for ensuring that the right structure and talent is in place to deliver on the company's strategy now and in the future...

  • Page 33
    ... new logo and a brand mantra: never Stand Still. Lenovo officially unveiled its new brand identity at the inaugural Lenovo Tech World in Beijing. In the year since then, Lenovo has rolled out its new brand's look and feel in everything from marketing to events to retail sites to offices and products...

  • Page 34
    ... one-time charges (1.16) (1.16) 837,692 2,090,577 7.77 7.69 1,714,829 1,882,589 976,034 974,739 1,138,727 996,475 Dividend per ordinary share (HK cents) - Interim dividend - Proposed final dividend 6.0 20.5 6.0 20.5 * Excluding "other income - net" 32 Lenovo Group Limited 2015/16 Annual Report

  • Page 35
    ... Group adopts geographical segments as the reporting format. Geographical segments comprise China, AP, EMEA and AG. Analyses of sales by segment are set out in Business Review section. For the year ended March 31 China AP EMEA AG 2016 Revenue adjusted from external pre-tax customers income/(loss...

  • Page 36
    ... March 31, 2016 and 2015 comprise: For the year ended March 31 Finance income Finance costs Share of (losses)/profits of associates and joint ventures 2016 uS$'000 32,816 (236,751) (11,095) (215,030) 2015 US$'000 30,902 (185,504) 17,055 (137,547) 34 Lenovo Group Limited 2015/16 Annual Report

  • Page 37
    ... joint ventures. finanCiaL PoSition The Group's major balance sheet items are set out below: 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...

  • Page 38
    ... are decreased by 11 percent mainly attributable to the Group's effort in working capital management and one-time write off of smartphone inventories in relation to realignment of key elements under Mobile Business Group. trade receivables and notes receivable Trade receivables and notes receivable...

  • Page 39
    ... for general corporate purposes including working capital. 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 conditions vary depending upon the product and the...

  • Page 40
    ...efficiency. Borrowings Borrowings (classified as current) amounted to US$746 million as at March 31, 2016, representing a decrease of 36 percent, which is mainly attributable to the net repayment of revolving loans and short term loans during the year. 38 Lenovo Group Limited 2015/16 Annual Report

  • Page 41
    ...June 10, 2015, the Group completed the issuance of 5-Year RMB4 billion notes bearing annual interest at 4.95% due in June 2020. The proceeds would be used for general corporate purposes including working capital, and to fund any acquisition activities. 2015/16 Annual Report Lenovo Group Limited 39

  • 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 2015/16 Annual Report

  • Page 43
    ... term. The Group is seeing the benefits of its strategic actions. The efficient organization structure, coupled with the competitive cost structure across all of its businesses, together with its solid execution, positions the Group well to drive its growth even in the current challenging market...

  • Page 44
    ... market opportunity. At the meantime, the Group has actions in place to enhance the sales team to accelerate the business in North America, and will increase its investments in its China-specific portfolio built upon global tech platform to win in PRC. 42 Lenovo Group Limited 2015/16 Annual Report

  • Page 45
    ...proven execution capabilities, to lead the Group on its ongoing journey towards building a respected global tech leadership position in every business the Group enters and to drive profitable growth that, in turn, creates better value for shareholders. 2015/16 Annual Report Lenovo Group Limited 43

  • Page 46

  • Page 47
    Moto X Force WE BREAK CONVENTION TO MAKE IT SHA T TERPROOF

  • Page 48
    ... Board Committees' Effectiveness Review aCCountaBiLity and audit How the Company fulfils its oversight responsibilities Financial Reporting Risk Management and Internal Control External Auditor inveStoR ReLationS How we maintains relations with our investors Communications with Investors Market...

  • Page 49
    ...Securities on The Stock Exchange of Hong Kong Limited (the "Stock exchange") (the "Listing Rules"), and where appropriate, met the recommended best practices in the CG Code, with the exception that the roles of the chairman of the Board (the "Chairman") and the chief executive officer of the Company...

  • Page 50
    ... Governance Committee More details, Pages 69 to 72 Chief executive officer More details, Page 49 internal audit Lenovo executive Committee* Senior Management * a management committee comprising the CEO and certain members of the senior management 48 Lenovo Group Limited 2015/16 Annual Report

  • Page 51
    ... offiCeR Mr. yang yuanqing formulates and recommends the strategy of the Group to the Board executes the strategy agreed by the Board makes and implements operational decisions and manages the business day-to-day leads the business and the management team 2015/16 Annual Report Lenovo Group Limited...

  • Page 52
    ... Non-executive directors Independent non-executive directors Male Female aGe GRouP aReaS of eXPeRienCe 100% 27% 18% 55% 27% 55% 73% 45-55 56-65 over 65 Global operations Accounting/Internal controls Equity investment/Financial IT industry 50 Lenovo Group Limited 2015/16 Annual Report

  • Page 53
    ..., or accounting or related financial management expertise, as required under the Listing Rules. Relationship among directors 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...

  • Page 54
    ...the right balance of the composition of the Board and works towards understanding and managing some of the challenges we face in the global information technology sector, particularly in internet, mobile, software and clouds areas FY2016/17 and ongoing 52 Lenovo Group Limited 2015/16 Annual Report

  • Page 55
    ...the Board appointed Mr. Gordon Robert Halyburton Orr ("Mr. Gordon orr") as a non-executive director of the Company with effect from September 18, 2015 and Mr. Gordon Orr will be subject to election by shareholders at the forthcoming annual general meeting. 2015/16 Annual Report Lenovo Group Limited...

  • Page 56
    ... and Governance Committee, the Board may invite an independent non-executive director to serve for an additional three-year term extending up to a total of twelve years subject to re-election at any subsequent annual general meeting of the Company. 54 Lenovo Group Limited 2015/16 Annual Report

  • Page 57
    ... confirm with the Company his/her independence having regard to the criteria under rule 3.13 of the Listing Rules annually Nomination and Governance Committee will assess and review the independence of independent non-executive directors annually • 2015/16 Annual Report Lenovo Group Limited 55

  • Page 58
    ... connected with the director is material. • • • All potential conflicts of interest will be recorded, which are reviewed on an annual basis by the Nomination and Governance Committee to ensure that the procedures are working effectively. 56 Lenovo Group Limited 2015/16 Annual Report

  • Page 59
    ... required standard during the year. The Company has also adopted its own trading in securities policy applicable to designated senior management of the Company which is on terms no less exacting than the required standard as set out in the Model Code. 2015/16 Annual Report Lenovo Group Limited 57

  • Page 60
    ... of the operations of the Group and its development to ensure that the director keeps abreast of new laws, regulations or developments in business that are relevant to the roles as a director of the Company on appointment following appointment 58 Lenovo Group Limited 2015/16 Annual Report

  • Page 61
    ... Company arranged directors to attend the Global Leadership Team ("GLt") annual meeting in Raleigh. The GLT meeting presented an excellent opportunity for Lenovo's leaders to work together, share ideas, identify challenges and, most importantly, develop solutions. 2015/16 Annual Report Lenovo Group...

  • Page 62
    ... Tech World 2015 , Fortune Global Forum, Consumer Electronics Show and Mobile World Congress in Beijing, San Francisco, Las Vegas and Barcelona respectively. During the visits, directors were given the best product reviews, product demos and displays that showcase the technologies of the Company and...

  • Page 63
    ...review. The Board considers the aforementioned training attended and/or participated in by the directors, and the continuing legal updates provided to the directors, as adequate to enhance the directors' skills and knowledge to carry out their duties as directors. 2015/16 Annual Report Lenovo Group...

  • Page 64
    ... N/A N/A Notes: (1) Mr. Gordon Orr was appointed as a non-executive director of the Company with effect from September 18, 2015. (2) Mr. Ting Lee Sen retired as an independent non-executive director of the Company with effect from July 2, 2015. 62 Lenovo Group Limited 2015/16 Annual Report

  • Page 65
    ... Company's needs. A list of senior management and their biographies are set out on pages 143 to 144 of this annual report. Key Matters Reserved to the Board Group strategy and management formulation of the Group's strategy and long term objectives approval of changes to capital structure approval...

  • Page 66
    CORPORATE GOVERNANCE REPORT Board Process The Board recognises the importance of providing timely and appropriate information to directors so as to enable them to make informed decisions and to perform their duties and responsibilities effectively. Regular Board Meeting Meeting dates are set 2 ...

  • Page 67
    ...2, 2014. The Company has arranged appropriate insurance to cover the liabilities of the directors arising from corporate activities. The insurance coverage is reviewed on an annual basis. Communication with senior management indemnification and insurance 2015/16 Annual Report Lenovo Group Limited...

  • Page 68
    ... Board and Board Committees' effectiveness review Board diversity and succession planning GoveRnanCe, SoCiaL ReSPonSiBiLity, diveRSity and taLent finanCiaL PeRfoRManCe Chief Financial Officer report Financial results Budget Treasury items 66 Lenovo Group Limited 2015/16 Annual Report

  • Page 69
    ... the year Amendments to the terms of reference of Audit Committee Appointment of Mr. Gordon Orr as a non-executive director Continuing connected transactions with Compal Electronics, Inc. Discussion on Board and Board committees' evaluation results 2015/16 Annual Report Lenovo Group Limited 67

  • Page 70
    ..., succession planning, and developing the corporate governance principles and policy and responsible for the assessment of the performance of the Chairman of the Board and / or the CEO and the independence of independent non-executive directors 68 Lenovo Group Limited 2015/16 Annual Report

  • Page 71
    ... the Board of the Company as at the date of this annual report is comprised of three members, a majority of whom are independent non-executive directors of the Company. The members who held office during the year and up to the date of this annual report are: Chairman Mr. Yang Yuanqing Chairman, CEO...

  • Page 72
    ... 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 practices; reviewing...

  • Page 73
    ... of the Chairman and CEO for the fiscal year 2014/15 and making recommendation to the Compensation Committee. Reviewed the arrangement of same person acting as Chairman and CEO. • • Assessment of the performance of the Chairman and CEO • • 2015/16 Annual Report Lenovo Group Limited 71

  • Page 74
    ... review concluded that overall the Committee was effective in carrying out its duties. Details of the Board and Board Committees' review can be found under "Board and Board Committees' Effectiveness Review" as set out in this report on pages 74 to 76. 72 Lenovo Group Limited 2015/16 Annual Report

  • Page 75
    ... For corporate governance reasons, Mr. Yang Yuanqing was required to excuse himself from the agenda item relating to assessment of the performance of the Chairman and CEO of the Nomination and Governance Committee meeting to avoid conflict of interest. 2015/16 Annual Report Lenovo Group Limited 73

  • Page 76
    ... management roles. During the year, the Board and the Nomination and Governance Committee have discussed and reviewed Board composition and succession planning to ensure that the successors for key roles are identified and their performance are also assessed. 74 Lenovo Group Limited 2015/16 Annual...

  • Page 77
    ... aPPRoaCH Conducted by completing a comprehensive questionnaire 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 2015/16 Annual Report Lenovo Group Limited...

  • Page 78
    ... conducted a review of each director seeking re-election. The sufficient biographical and other information on those directors seeking re-election are provided in the annual report and the circular to enable shareholders to make an informed decision. 76 Lenovo Group Limited 2015/16 Annual Report

  • Page 79
    ... the Group on going concern basis while the external auditor's responsibilities to shareholders are set out in the Independent Auditor's Report on page 158 of this annual report. The current practices of the Company on the timeline for publication of financial results and the related reports are set...

  • Page 80
    ... REPORT Board • Has overall responsibility for the Lenovo's risk management and internal control system. Oversees the actions of management and monitors the overall effectiveness of the risk management system and internal audit function. Oversees and reviews processes and controls for strategic...

  • Page 81
    ... against 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. • 2015/16 Annual Report Lenovo Group Limited 79

  • Page 82
    ... the Company's 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. 80 Lenovo Group Limited 2015/16 Annual...

  • Page 83
    ... of action plans to address these key risks. Management also assesses business risks when formulating corporate strategies, and tracks and reports on the implementation of strategic initiatives, business plans, budgets and financial results regularly to the Board. Additionally, as part of Lenovo...

  • Page 84
    ... of Internal Audit reports directly to the Audit Committee on all audit matters and to the Chief Financial Officer on administrative matters. The Head of Internal Audit is authorized to communicate directly with the Chairman of the Board, the Audit Committee Chair and other Board members as deemed...

  • Page 85
    ...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 Lenovo's ERM framework is effected by the Board and management team, and is applied in strategy setting and across...

  • Page 86
    ... amount of risk the Company is willing to undertake in the pursuit of its strategic and business objectives. Where necessary, ERM employs risk transfer strategies through insurance management. ERM also initiates risk projects to improve risk awareness. 84 Lenovo Group Limited 2015/16 Annual Report

  • Page 87
    ... figures for the financial year ended March 31, 2015 are as follows: nature of services Audit services Non-audit services - Tax - IT - Advisory - Other services total 2016 uS$mn 7.0 2015 uS$mn 7.4 2.0 1.3 0.8 1.2 12.3 0.8 0.3 0.4 0.4 9.3 2015/16 Annual Report Lenovo Group Limited 85

  • Page 88
    ... management team presented and communicated with investors and analysts on the Company's strategy and development. Lenovo tech World event On 28 May 2015, the Company hosted global equity analysts and investors to the Company's inaugural Lenovo Tech World event. It was the Company's first strategic...

  • Page 89
    ... help the investor community better understand the company's strategy, the Company also cooperated with different securities houses in organizing trips to the Company's brand experience center and manufacturing plants in Beijing and Wuhan of China. Lenovo's Brand Experience Center Lenovo's Beijing...

  • Page 90
    ...-on-One Conference Daiwa Investment Conference Bank of America Merrill Lynch "Taiwan, Technology & Beyond" Conference Location Beijing Beijing Taipei Hong Kong New York Taipei Hong Kong Hong Kong San Francisco Singapore Hong Kong New York Tokyo Taipei 88 Lenovo Group Limited 2015/16 Annual Report

  • Page 91
    Market Recognitions The Company's continuous effort in investor relations has been well-recognized by the investment community. Lenovo topped the institutional investor Magazine's ranking of 2015 all-asia executive team, by being awarded in all eight categories of the Technology/Hardware sector the ...

  • Page 92
    ... of "annual Reports - Print: electronic Manufacturing" in Galaxy awards 2015, and Honors Winner of "Citation for design" in HKMa Best annual Reports award 2015. index Recognition Lenovo is currently a constituent stock of the following indices: Main Board of Hang Seng index MSCi China free index...

  • Page 93
    ... for analysts and media briefings Publication of financial reports, announcements, circulars and press releases Shareholders' meetings investment community communications such as roadshow, site visits and annual analyst roundtable Company's website 2015/16 Annual Report Lenovo Group Limited...

  • Page 94
    ... at the annual general meeting venue to update shareholders on the latest products strategy of the Company. 2015 Annual General Meeting The annual general meeting of the Company held on July 2, 2015 (the "2015 annual General Meeting") was attended by, among others, the CEO, Chief Financial Officer...

  • Page 95
    ...this meeting. The poll was conducted by Tricor Abacus Limited, the Company's share registrar, as scrutineer and the details of poll voting results were posted on the Company's website (www.lenovo.com/hk/ publication) and HKEx's website (www.hkex.com.hk) on July 2, 2015. 2015/16 Annual Report Lenovo...

  • Page 96
    ... under the Articles of Association. During the year under review, there are no changes in the Articles of Association. An up to date consolidated version of the Articles of Association is available on the Company's website and the HKEx's website. 94 Lenovo Group Limited 2015/16 Annual Report

  • Page 97
    ...05% 0.05% 99.88% 100.00% Remarks: (i) A board lot size comprises 2,000 Shares. (ii) According to the addresses registered/shown on the register of members of the Company. (iii) 70.90% of all the issued Shares were held through HKSCC Nominees Limited. 2015/16 Annual Report Lenovo Group Limited 95

  • Page 98
    ... StRuCtuRe as of March 31, 2016 31.00% 6.05% 0.19% 62.76% Legend Holdings Corporation Mr. Yang Yuanqing Other directors Public Remarks: (i) The approximate percentage of shareholding is calculated based on the aggregate long positions held in the total number of shares in issue of the Company...

  • Page 99
    ... 2015/16. The highest closing price for the Share was HK$13.86 per share on May 11, 2015 and the lowest was HK$6.03 per share on March 29, 2016. ordinary Shares (as of 31 March 2016) Listing Stock code Board lot size Ordinary shares outstanding as of March 31, 2016 Free float Market capitalization...

  • Page 100
    ...is eager to hear suggestions and comments from shareholders and investors. For enquiries from institutional investors and equity analysts please contact [email protected]. Note: 1 Subject to shareholders' approval at the forthcoming annual general meeting. 98 Lenovo Group Limited 2015/16 Annual Report

  • Page 101
    ... 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 three members, all of whom including the Audit Committee chairman are independent non-executive directors. The members who held office...

  • Page 102
    ... raise. In addition to standing agenda items, the Audit Committee may also request to discuss on particular "deep-dive" topics. The chairman will report back to the Board after each of the Audit Committee meeting on its decisions or recommendations. 100 Lenovo Group Limited 2015/16 Annual Report

  • Page 103
    ... aCtivitieS duRinG fy 2015 / 16 The work of the Audit Committee follows an agreed annual work plan and principally falls under three main areas: financial reporting; risk management and internal control; the oversight of external audit and the management of the Company's relationship with PwC. The...

  • Page 104
    ... financial results of the Company and its subsidiaries (collectively, the "Group") for the year ended March 31, 2015 together with the related annual results announcement and the annual report incorporating the directors' report and corporate governance report after discussion with the management...

  • Page 105
    ... 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 enterprise risk management of the Group including the risk management status, risk registration and the action plans for the...

  • Page 106
    ... the Board the approval of the audited financial statements of the Group for the year ended March 31, 2016 together with the related annual results announcement and this annual report incorporating the directors' report and corporate governance report. RevieW of RiSK ManaGeMent and inteRnaL ContRoL...

  • Page 107
    ... To stay focused on financial accounting and reporting, audit quality, risk management and internal controls. To remain vigilant on the impacts 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...

  • Page 108
    ...") of the board of directors (the "Board") of Lenovo Group Limited (the "Company") as of the date of this annual report is comprised of four members, all of whom are non-executive directors of the Company (the "non-executive directors") and majority of whom including the Committee chairman are...

  • Page 109
    ...of executive director and management to discuss matters relating to any issues and any other matters such persons would like to raise. The chairman will report back to the Board after each of the Committee meeting on its decisions or recommendations. 2015/16 Annual Report Lenovo Group Limited 107

  • Page 110
    ... for senior management Reviewed and approved the FY2014/15 bonus and FY2015/16 compensation for Chairman and CEO; Reviewed the Non-executive Directors' compensation; Reviewed and approved the new executive LTI plan; Reviewed and approved the employee share purchase plan; Reviewed and approved...

  • Page 111
    ... reflects average FY2015/16 emoluments including LTI that were awarded in June 2015. CHaiRMan/Ceo Pay MiX SenioR ManaGeMent Pay MiX (average) 21% 43% 8% 34% 58% 36% Fixed Compensation Performance Bonus LTI Fixed Compensation Performance Bonus LTI 2015/16 Annual Report Lenovo Group Limited...

  • Page 112
    ...the LTI Program may be made to support the attraction of new hires. Award levels and mix may vary by individual, role, and level. Retirement Benefits The Company operates a number of retirement schemes for its employees, including executive directors and senior management. These schemes are reviewed...

  • Page 113
    ... regularly reviews the Company's compensation programs to ensure alignment with its stated objectives as well as competitiveness in the talent market. Typically, reviews for base salary, performance bonus, and LTI awards are conducted on a yearly basis. Non-executive Directors' fees are reviewed for...

  • Page 114
    ... financial statements. SAR and RSU awards outstanding for Non-executive Directors as of March 31, 2016 under this scheme are presented in the "Long-Term Incentive Scheme" section of this report. fiscal year 2015-16 Chairman/Ceo and Senior Management Review Fixed Compensation As a part of its annual...

  • Page 115
    ...of directors and the five highest paid individuals are set out in note 11 to the financial statements. fiscal year 2015-16 employees Review Fixed Compensation Each year management conducts a market review to ensure fixed compensation changes are aligned and competitive with market trends. The review...

  • Page 116
    ... REPORT LonG-teRM inCentive SCHeMe The Company implemented the LTI Program to attract, retain, reward and motivate Executive and Non-executive Directors, senior management and selected top-performing employees of the Company and its subsidiaries. The movements in the share awards of the Executive...

  • Page 117
    ... 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 nulified in accordance with the operation of the SAR plan rules. 2015/16 Annual Report Lenovo Group Limited 115

  • Page 118
    ...found under "Board and Board Committees' Effectiveness Review" as set out in the Corporate Governance Report on pages 74 to 76. Members of the Compensation Committee Ms. Ma Xuezheng (Chairman) Mr. William Tudor Brown Mr. William O. Grabe Mr. Zhu Linan 116 Lenovo Group Limited 2015/16 Annual Report

  • Page 119
    ... and support its long-term prospects for profitability. Lenovo's Key Sustainability Commitments include: Ethics and Compliance Product Quality and Customer Safety Employee Health and Welfare Diversity The Environment Global Supply Chain Social Investments 2015/16 Annual Report Lenovo Group Limited...

  • Page 120
    ... is headed by Lenovo's Chief Ethics and Compliance Officer. An integral part of its ethics and compliance program is Lenovo's Code of Conduct that applies to all employees worldwide. In FY 2015/16 Lenovo issued an updated version that reflects the consolidation of Lenovo's Code of Conduct with that...

  • Page 121
    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 Violation of ...

  • Page 122
    ... its commitment to creating and maintaining a workplace that provides for the health and safety of all employees at every location in which it does business. It has committed to continuously improving its processes and controls as its company grows. 120 Lenovo Group Limited 2015/16 Annual Report

  • Page 123
    ...standard of care. Lenovo receives a number of annual awards for environmental products and services. In particular, it is proud of the occupational health and safety performance recognition that it has received at local and national government levels. 2015/16 Annual Report Lenovo Group Limited 121

  • Page 124
    ... June 2015, Lenovo Morrisville, NC headquarters received its tenth consecutive "Gold Award," while Lenovo Enterprise Business Group in Morrisville collected its first "Gold Award" from the North Carolina Department of Labor for low incident rates reported in 2014. In June 2015, Lenovo Beijing was...

  • Page 125
    ... of Lenovo employees, thus investing in its workforce and the future. Lenovo also sees mutual value in promoting diversity in its business relationships. To read more about its Supplier Diversity program, please see the Global Supply Chain section. 2015/16 Annual Report Lenovo Group Limited 123

  • Page 126
    ... suppliers comply with the Electronics Industry Code of Conduct (EICC) and verify this compliance through third-party audits. In FY2015/16, Lenovo's Global Supply Chain Sustainability team led efforts to integrate the acquired IBM System X and Motorola Mobility supply chain sustainability programs...

  • Page 127
    ... Sciences on the "Cleaning Production Program" that will take place in all locations in Beijing during 2016 and will focus on identifying energy savings opportunities and eliminating waste generated in its manufacturing and assembly operations. 2015/16 Annual Report Lenovo Group Limited 125

  • Page 128
    ... Europe (see pictures); • • Lenovo supported the Phase 1 portion of the Stephen Ranch wind project in Texas, USA Lenovo supported small and micro hydro plant projects in southwest China Lenovo supported wind projects in Fujian province, China 126 Lenovo Group Limited 2015/16 Annual Report

  • Page 129
    ... of investors and customers and achieved a disclosure score of 100 (out of 100) and performance of band B for its efforts in addressing climate change; and Lenovo received a Corporate Sustainability Award at the CDP China Report launch event in Beijing in November, 2015. • 2015/16 Annual Report...

  • Page 130
    ... shipments. Lenovo's Global Logistics team proactively drives ocean transport consolidation opportunities to reduce the number of containers shipped out of China manufacturing sites with the goal of reducing carbon emissions. Lenovo worked the use carriers established a product transportation carbon...

  • Page 131
    ... quantitative reduction goals for suppliers in FY 2015/16. For water usage and waste generation, it has established baselines on quantities and public reduction goals. Lenovo continually strives to reduce the environmental impact of its products. Lenovo's corporate-wide environmental standards and...

  • Page 132
    ... succeeding generations, leading to a decrease in their carbon emissions. PRoduCt tyPiCaL eneRGy ConSuMPtion 30 25 Avg. kWhr/year 20 15 10 5 0 ThinkPad T420 ThinkPad T450 Lenovo's ThinkPad T450 is 21.8% more energy efficient than the ThinkPad T420. 130 Lenovo Group Limited 2015/16 Annual Report

  • Page 133
    ...and social responsibility criteria. Lenovo's supply chain organization implements its own set of programs in support of corporate-wide sustainability initiatives. These include efforts to proactively address concerns about labor, environmental impacts, greenhouse gases, water usage, waste generation...

  • Page 134
    ... Advantage Disclosure of Information Intellectual Property Fair Business, Advertising & Competition 6) Protection of Identity 7) Responsible Sourcing of Minerals 8) Privacy sustainable solutions 1) Company Commitment 2) Management Accountability and Responsibility 3) Legal and Customer Requirements...

  • Page 135
    ...supply chain, conduct outreach and drive them toward certification Report publicly the results of its efforts in its annual Conflict Minerals Report Supplier contracts to ensure flow of these requirements through the supply chain Public Conflict Minerals Reporting 2015/16 Annual Report Lenovo Group...

  • Page 136
    ... support employee well-being. Validation checks are also completed on a periodic basis. Lenovo plans to continue optimizing its logistics programs and working closely with its partners to ship products in the most environmentally responsible manner. 134 Lenovo Group Limited 2015/16 Annual Report

  • Page 137
    ... to share its success with those around it. Its investments focus on three corporate giving programs: the Next Generation Hope Fund, Global Disaster Assistance, and Community Outreach, Collaborations and Partnerships. Lenovo's Next Generation Hope Fund supports social investment programs targeting...

  • Page 138
    .... As an example, in FY 2015/16, Lenovo North America supported the donation of employee volunteer time totaling more than 17,000 hours. Motorola employees contributed 320 hours of service to local communities during the March 2016 Day of Service. 136 Lenovo Group Limited 2015/16 Annual Report

  • Page 139
    ... 165 243 DIRECTORS' REPORT INDEPENDENT AUDITOR'S REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET CONSOLIDATED CASH FLOW STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS FIVE-YEAR FINANCIAL SUMMARY

  • Page 140
    ... "Chairman and CEO Statement", "Management's Discussion and Analysis" and "Corporate Social Responsibility Report" sections of this annual report. These discussions form part of this directors' report. ReSuLtS and aPPRoPRiationS The results of the Group for the year are set out in the consolidated...

  • Page 141
    ... 20% 39% None of the directors of the Company, their close associates or any shareholder (which to the knowledge of the directors own more than 5% of the number of issued shares of the Company) had an interest in the major suppliers noted above. 2015/16 Annual Report Lenovo Group Limited 139

  • Page 142
    ...) in China in 1967 and has substantial experiences in corporate management. Mr. Liu is the chairman of the board and executive director of Legend Holdings Corporation (HKSE listed), a company holding substantial interests in the issued shares of the Company. 140 Lenovo Group Limited 2015/16 Annual...

  • Page 143
    ... currently an executive director and executive vice president and member of executive committee of Legend Holdings Corporation (HKSE listed), a company having substantial interests in the issued shares of the Company and the chairman and president of Hony Capital Limited. Besides, he currently holds...

  • Page 144
    ... 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. He was also the chairman of Sony's advisory board from June 2005 to June 2012. Mr. Idei currently serves on...

  • Page 145
    ... of IBM's PC Division. Ms. Qiao has extensive 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. 2015/16 Annual Report Lenovo Group Limited...

  • Page 146
    ... and up to the date of this report. The Company has also taken out and maintained directors' and officers' liability insurance throughout the year, which provides appropriate cover for certain legal actions brought against its directors and officers. 144 Lenovo Group Limited 2015/16 Annual Report

  • Page 147
    ... percentage of interests (Note 2) name of director Mr. Yang Yuanqing interests in shares/ underlying shares Ordinary shares Share awards Personal interests 69,171,606 82,550,121 family interests - - Corporate interests 602,804,000 (Note 3) - 2015/16 Annual Report Lenovo Group Limited 145

  • Page 148
    ... 31, 2016 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. 146 Lenovo Group Limited 2015/16 Annual Report

  • Page 149
    ... are set out in the above section headed "Directors' Interests") had any interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under section 336 of the SFO. 2015/16 Annual Report Lenovo Group Limited 147

  • Page 150
    ... excess of US Internal Revenue Service limitations for tax-qualified plans, is unfunded. Pension benefits are calculated using a five year average final pay formula that determines benefits based on a participant's salary and years of service, including prior service with IBM. The benefit is reduced...

  • Page 151
    ... Discount rate: Future salary increases: Future pension increases: 1.00% Age-group based 2.00% • The plans were 18% funded at the actuarial valuation date. There was a net liability of EUROS 181,806,936 under this plan at the actuarial valuation date. 2015/16 Annual Report Lenovo Group Limited...

  • Page 152
    ... options. Company matching contributions, are directed to participant accounts and fluctuate based on changes in the stock prices of the underlying investment portfolio. United Kingdom ("UK") - Lenovo Stakeholders Plan UK regular, full-time, part-time and fixed term Lenovo contract employees are...

  • Page 153
    ... 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. 2015/16 Annual Report Lenovo Group Limited 151

  • Page 154
    ... NEC Group to JVCo Group and vice versa including business infrastructure related services, development & production services, sales related services, maintenance & support services, real estate services and information technology services. For a period of five years commencing from the Closing Date...

  • Page 155
    ... (US$10,744,800) Services provided/received: Term: Annual cap(Note 1): NESIC Agreement Date: Parties: August 18, 2003 NEC Networks & System Integration Corporation ("NESIC"), an associate of NEC, and NECP (whose rights and obligations were transferred to NECPC, a member of the JVCo Group, on and...

  • Page 156
    ... April 1, 2016. The Company will comply with the reporting, annual review and announcements requirements under Chapter 14A of the Listing Rules when JVCo ceases to be an "insignificant subsidiary" of the Company. Revised Term: Annual cap(Note 1): 154 Lenovo Group Limited 2015/16 Annual Report

  • Page 157
    ... subject to annual review and reporting requirements. Details of the Existing CCT Agreements are set out below: OEM Components Purchase Agreement Date: Parties: June 20, 2006 Lenovo (Singapore) Pte. Ltd., a wholly-owned subsidiary of the Company and Compal The Group shall supply certain components...

  • Page 158
    DIRECTORS' REPORT ContinuinG ConneCted tRanSaCtionS System Purchase Agreement Date: Parties: January 19, 2006 Lenovo (Singapore) Pte. Ltd. (assigned to Lenovo PC HK Limited pursuant to an assignment and novation agreement) and Compal The Compal Group shall supply to the Group: (i) certain products, ...

  • Page 159
    ... 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 26, 2016 2015/16 Annual Report Lenovo Group Limited 157

  • Page 160
    ... auditor's Report to the Members of Lenovo Group Limited (incorporated in Hong Kong with limited liability) We have audited the consolidated financial statements of Lenovo Group Limited (the "Company") and its subsidiaries set out on pages 159 to 242, which comprise the consolidated balance sheet as...

  • Page 161
    ...,276 (144,575) (128,146) (16,429) (144,575) 828,715 7,888 836,603 (Loss)/earnings per share attributable to equity holders of the Company Basic Diluted Dividends 12(a) 12(b) 13 uS(1.16) cents uS(1.16) cents 379,316 US7.77 cents US7.69 cents 379,646 2015/16 Annual Report Lenovo Group Limited 159

  • Page 162
    ... to profit or loss Fair value change on available-for-sale financial assets, net of taxes Investment revaluation reserve reclassified to consolidated income statement on disposal of available-for-sale financial assets Fair value change on cash flow hedges from foreign exchange forward contracts, net...

  • Page 163
    CONSOLIDATED BALANCE SHEET At March 31, 2016 Note 2016 uS$'000 2015 US$'000 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...

  • Page 164
    CONSOLIDATED BALANCE SHEET At March 31, 2016 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 165
    ... a joint venture Payment for construction-in-progress Payment for intangible assets Purchase of available-for-sale financial assets Net proceeds from disposal of available-for-sale financial assets Decrease in bank deposits Dividends received Interest received Net cash used in investing activities...

  • Page 166
    ... Issue of ordinary shares Exercise of share options Vesting of shares under long-term incentive program Deferred tax credit in relation to long-term incentive program Share-based compensation Contribution to employee share trusts Dividends paid At March 31, 2015 At April 1, 2015 Loss for the year...

  • Page 167
    ... 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 168
    ... the acquiree over the net identifiable assets acquired and liabilities assumed (Note 2(g)(i)). If it is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statement. 166 Lenovo Group Limited 2015/16 Annual Report

  • Page 169
    ... 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 170
    ... their financial year end date for statutory reporting purposes, their financial statements for the years ended March 31, 2015 and 2016 have been used for the preparation of the Group's consolidated financial statements. Joint operation Joint operations arise where the investors have rights to the...

  • Page 171
    ...the Group's ownership interest in an associate or a joint venture that do not result in the Group losing influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to the consolidated income statement. 2015/16 Annual Report Lenovo Group Limited 169

  • Page 172
    ..., less any accumulated impairment losses. Historical cost comprises all direct and indirect costs of acquisition or construction or installation of buildings, plant and machinery or internal use software as well as interest expenses and exchange differences on the related funds borrowed during the...

  • Page 173
    ...future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software are available; and the expenditure attributable to the software during its development can be reliably measured. - 2015/16 Annual Report Lenovo Group Limited 171

  • Page 174
    ... non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless mature or management intends to dispose of them within 12 months of the balance sheet date. 172 Lenovo Group Limited 2015/16 Annual Report

  • Page 175
    ...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. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized...

  • Page 176
    ... credit rating), the reversal of the previously recognized impairment loss is recognized in the income statement. (continued) (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...

  • Page 177
    ... proportion of production overheads. For trading products, cost represents invoiced value on purchases, less purchase returns and discounts. Net realizable value is determined on the basis of anticipated sales proceeds less estimated selling expenses. 2015/16 Annual Report Lenovo Group Limited 175

  • Page 178
    ... in current liabilities on the balance sheet. (p) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company...

  • Page 179
    ... costs that will be incurred under its basic limited warranty. The specific warranty terms and conditions vary depending upon the product and the country in which it was sold, but generally includes technical support, repair parts and labor associated with warranty repair and service actions...

  • Page 180
    ..., warranty costs, engineering charges, storage and warehousing costs, and contribute to bringing inventories to their present location and condition. Non-base manufacturing costs enter into the calculation of gross margin but are not inventoriable costs. 178 Lenovo Group Limited 2015/16 Annual...

  • Page 181
    ... 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 182
    ... grants relating to property, plant and equipment are included in other non-current liabilities as deferred government grants and are credited to the consolidated income statement on a straight-line basis over the expected lives of the related assets. 180 Lenovo Group Limited 2015/16 Annual Report

  • Page 183
    ... 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. 2015/16 Annual Report Lenovo Group Limited 181

  • Page 184
    ... 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. 2016 united States dollar uS$'000 Trade and other receivables Bank deposits and cash...

  • Page 185
    ... with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts, At the balance sheet date, the Group held money market funds of US$153,159,000 (2015: US$744,233,000) (Note 24). 2015/16 Annual Report Lenovo Group Limited 183

  • Page 186
    ...: Forward foreign exchange contracts Derivatives settled in gross: Forward foreign exchange contracts - outflow - inflow At March 31, 2015 Borrowings Trade, notes and other payables and accruals Contingent considerations Deferred considerations Guaranteed dividend to non-controlling shareholders of...

  • Page 187
    ... analysis (continued) HKFRS 7 "Financial instruments: Disclosures" requires the disclosure of a sensitivity analysis for market risks that show the effects of a hypothetical change in the relevant market risk variable to which the Group is exposed to at the balance sheet date on profit or loss...

  • Page 188
    ... quoted forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. - - 186 Lenovo Group Limited 2015/16 Annual...

  • Page 189
    ... ManaGeMent (d) fair value estimation (continued) (continued) The following table presents the assets and liabilities that are measured at fair value at March 31, 2016 and 2015. 2016 Level 1 uS$'000 Assets Available-for-sale financial assets Listed equity investments Unlisted equity investments...

  • Page 190
    ... possible change in key assumptions used in the sensitivity analysis would not result in any significant potential financial impact. Sensitivity analysis in respect of contingent considerations and written put option liability is disclosed in Note 28. 188 Lenovo Group Limited 2015/16 Annual Report

  • Page 191
    ... existence of taxable temporary differences, group relief, tax planning strategies and the periods in which estimated tax losses can be utilized. The carrying amount of deferred income tax assets and related financial models and budgets are reviewed at each balance sheet date and to the extent that...

  • Page 192
    ... of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The Group has used discounted cash flow analyses for various available-for-sale financial assets that are not traded in active markets. 190 Lenovo Group Limited 2015/16 Annual Report

  • Page 193
    ... on the reports reviewed by the LEC, the chief operating decision-maker, that are used to make strategic decisions. The LEC considers business from a geographical perspective. The Group has four geographical segments, China, Asia Pacific ("AP"), Europe-Middle East-Africa ("EMEA") and Americas ("AG...

  • Page 194
    ...-for-sale financial asset Share of (losses)/profits of associates and joint ventures Consolidated (loss)/profit before taxation (167,760) (596,195) 28,114 (188,823) (449,142) - 14,825 (129,096) 1,653 1,185 532 305 (11,095) 17,055 (276,851) 970,967 192 Lenovo Group Limited 2015/16 Annual...

  • Page 195
    ... assets Total assets per consolidated balance sheet 1,000,572 27,021 139,572 40,439 898,577 755,799 1,355,219 140,237 - 299,982 24,933,389 526,801 184,534 73,400 45,719 1,259,658 1,131,779 1,508,524 136,857 6,002,031 299,572 27,396,510 2015/16 Annual Report Lenovo Group Limited 193

  • Page 196
    ...are mainly derived from the sale of personal technology products and services. Breakdown of revenue by business group is as follows: 2016 uS$'000 PC Business Group ("PCG") Mobile Business Group ("MBG") Enterprise Business Group ("EBG") Others 29,646,265 9,779,323 4,553,374 933,135 44,912,097 2015 US...

  • Page 197
    ...954,002,000 (2015: US$8,660,309,000) respectively. 6 otHeR inCoMe - net 2016 uS$'000 Net gain on disposal of available-for-sale financial assets Dividend income from an available-for-sale financial asset 1,653 532 2,185 2015 US$'000 1,185 305 1,490 2015/16 Annual Report Lenovo Group Limited 195

  • Page 198
    ... TO THE FINANCIAL STATEMENTS 7 oPeRatinG (LoSS)/PRofit Operating (loss)/profit is stated after charging/(crediting) the following: 2016 uS$'000 Depreciation of property, plant and equipment and amortization of prepaid lease payments Amortization of intangible assets Employee benefit costs (Note 10...

  • Page 199
    ... uS$'000 Interest on bank deposits Interest on money market funds Others 30,623 2,184 9 32,816 2015 US$'000 28,793 2,092 17 30,902 (b) finance costs 2016 uS$'000 Interest on bank loans and overdrafts Interest on long term notes Interest on promissory note Factoring costs Commitment fee Interest on...

  • Page 200
    ... to consolidated income statement on disposal of available-for-sale financial assets Fair value change on cash flow hedges Remeasurements of post-employment benefit obligations (Note 35) Currency translation differences Other comprehensive (loss)/income Current tax Deferred tax (Note 20) tax credit...

  • Page 201
    ... employees. The assets of those defined contribution schemes are held separately from those of the Group in independently administered funds. The Group also contributes to certain defined benefit pension schemes, details of which are set out in Note 35. 2015/16 Annual Report Lenovo Group Limited...

  • Page 202
    ... connection with 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, 2016 and 2015 is set out below: 2016 Retirement payments and employer's contribution Housing to pension...

  • Page 203
    ... ended March 31, 2016 and 2015 represent the amounts in connection with the performance bonuses for the two years ended March 31, 2015 and 2014 respectively. (ii) Details of the long-term incentive program of the Company are set out in Note 29(a). The fair value of the employee services received in...

  • Page 204
    ... (2015: one) director whose emoluments are reflected in the analysis presented above. The emoluments of the remaining four (2015: four) individuals during the year are as follows: 2016 uS$'000 Basic salaries, allowances, and other benefits-in-kind Discretionary bonuses (note i) Retirement payments...

  • Page 205
    ... long-term incentive awards are dilutive, and the number of shares that are deemed to be issued. - There is no adjustment to (loss)/profit attributable to equity holders of the Company used for the calculation of diluted (loss)/earnings per share. 2015/16 Annual Report Lenovo Group Limited 203

  • Page 206
    ...2016 uS$'000 2015 US$'000 Interim dividend of HK6.0 cents (2015: HK6.0 cents) per ordinary share, paid on December 7, 2015 Proposed final dividend - HK20.5 cents (2015: HK20.5 cents) per ordinary share 85,996 293,320 379,316 85,978 293,668 379,646 204 Lenovo Group Limited 2015/16 Annual Report

  • Page 207
    ...PRoPeRty, PLant and eQuiPMent freehold Leasehold land and buildings improvements uS$'000 uS$'000 At April 1, 2014 Cost Accumulated depreciation and impairment losses Net book amount Year ended March 31, 2015...,235 279,332 3,374 4,235 774,404 1,443,313 2015/16 Annual Report Lenovo Group Limited 205

  • Page 208
    ...,590 During the year, the Group had capitalised borrowing costs amounting to US$8.4 million (2015: US$4.5 million) on qualifying assets. Borrowing costs were capitalized at the weighted average rate of its general borrowings of 3.81% (2015: 3.28%). 206 Lenovo Group Limited 2015/16 Annual Report

  • Page 209
    ...$'000 trademarks and trade names (note (b)) US$'000 Patent and technology (note (c)) US$'000 internal use software US$'000 Customer relationships US$'000 total US$'000 At April 1, 2014 Cost Accumulated amortization and impairment losses Net book amount Year ended March 31, 2015 Opening net book...

  • Page 210
    ... related to the future cash flow of the CGU extrapolated using constant projection of cash flows beyond the five-year period. The estimated growth rates adopted do not exceed the long-term average growth rates for the businesses in which the CGU operates. 208 Lenovo Group Limited 2015/16 Annual...

  • Page 211
    ... compound annual growth rate of AG's MBG been 5.3 percentage point lower than management's estimates, its remaining headroom would be removed. (c) At March 31, 2016, patent and technology of US$33,069,000 is under development (2015: US$24,452,000). 2015/16 Annual Report Lenovo Group Limited 209

  • Page 212
    .... The following sets out the aggregate amount of the Group's share of associates and joint ventures: 2016 uS$'000 Share of losses of associates Share of (losses)/profits of joint ventures (5,168) (5,927) (11,095) 2015 US$'000 (2,148) 19,203 17,055 210 Lenovo Group Limited 2015/16 Annual Report

  • Page 213
    ...assets at fair value through income Loans and statement receivables US$'000 US$'000 availablefor-sale financial assets US$'000 derivatives used for hedging US$'000 total US$'000 Assets At March 31, 2016 Available-for-sale financial assets Derivative financial assets Other non-current assets Trade...

  • Page 214
    ...fair value through income statement US$'000 derivatives used for hedging US$'000 total US$'000 Liabilities At March 31, 2016 Trade payables Notes payable Derivative financial liabilities Other payables and accruals Borrowings Deferred considerations and guaranteed dividend under other non-current...

  • Page 215
    ...credited to share-based compensation reserve At the end of the year 276,978 (4,610) 503,008 7,364 - (4,847) 777,893 2015 US$'000 (222,679) 777,893 (249,823) 276,978 326,715 200,086 526,801 2015 US$'000 246,449 (4,814) 85,487 (3,451) (56,386) 9,693 276,978 2015/16 Annual Report Lenovo Group Limited...

  • Page 216
    ...,714 - 12,131 (4,847) 1,039,192 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. 214 Lenovo Group Limited 2015/16 Annual Report

  • Page 217
    ...which, tax losses of US$1,394,002,000 (2015: US$1,311,799,000) can be carried forward indefinitely. The remaining balances of tax losses will expire as follows: 2016 uS$'000 Expiring in - 2016 - ...,299 (23,204) - 156,010 (23) - 3,301 (356) (6,278) - 2015/16 Annual Report Lenovo Group Limited 215

  • Page 218
    ...and work-in-progress Finished goods Service parts 869,203 1,266,334 501,780 2,637,317 2015 US$'000 1,377,491 1,199,024 377,910 2,954,425 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 219
    ... maximum exposure to credit risk at the balance sheet date is the fair value of each class of receivable mentioned above. The Group's receivables in the amount of US$2 million (2015: US$54 million) are held as collateral for short-term loans obtained. 2015/16 Annual Report Lenovo Group Limited 217

  • Page 220
    ... to credit risk Effective annual interest rates 2,079,216 0%-14.25% 2,110,990 744,233 2,855,223 3,026,362 3,026,362 0%-11.60% 100,828 70,311 171,139 2015 US$'000 25 PayaBLeS (a) Aging analysis of trade payables of the Group at the balance sheet date, based on invoice date, is as follows: 2016 uS...

  • Page 221
    ..., price protection, rebates, and customer sales returns. Majority of other payables are obligations to pay for finished goods that have been acquired in the ordinary course of business from subcontractors. The carrying amounts of other payables and accruals approximate their fair values. 2015 US...

  • Page 222
    ... return rate. The environmental restoration provision is reviewed at least annually to assess its adequacy to meet the Group's obligation. Restructuring costs provision mainly comprises lease termination obligations and employee termination payments, arising from a series of restructuring actions...

  • Page 223
    ..., all the borrowings are unsecured and the effective annual interest rates at March 31, 2016 are as follows: united States dollar 2016 2015 other currencies 2016 2015 Term loan Short-term loans 2.43% 0%-3.63% 1.73% 0%-3.00% n/a n/a N/A 0%-15.17% 2015/16 Annual Report Lenovo Group Limited 221

  • Page 224
    ...March 31, 2017. Accordingly, a non-current liability in respect of future guaranteed dividend has been recognized. The corresponding amount stated at its discounted value on the date of acquisition of Medion was charged to retained earnings in equity. 222 Lenovo Group Limited 2015/16 Annual Report

  • Page 225
    ... Participants to work towards enhancing the value of the Company and its shares by aligning their interests with those of the shareholders of the Company. The Company also approved a share-based compensation package for non-executive directors. 2015/16 Annual Report Lenovo Group Limited 223

  • Page 226
    ... (2015: 4.75 years), and a risk-free interest rate of 0.56 percent (2015: 0.64 percent). The remaining vesting periods of the awards under the long-term incentive program as at March 31, 2016 ranged from 0.08 to 3.92 years (2015: 0.08 to 3.92 years). 224 Lenovo Group Limited 2015/16 Annual Report

  • Page 227
    ... ordinary share at exercise date HK$ (ii) exercise date (MM.DD.YYYY) exercise price HK$ number of share options exercised Gross proceeds received HK$ 04.01.2014 to 04.25.2014 2.545 8.80-9.48 1,172,000 1,172,000 2,982,740 2,982,740 uS$385,000 2015/16 Annual Report Lenovo Group Limited 225

  • Page 228
    ... years ended March 31, 2016 and 2015 are as follows: 2016 number of share options lapsed 2015 Number of share options lapsed exercise period (MM.DD.YYYY) exercise price HK$ New Option Scheme 04.27.2004 to 04.26.2014 2.545 - - 30,315,601 30,315,601 226 Lenovo Group Limited 2015/16 Annual Report

  • Page 229
    ... 830,504 3,520,386 2,392 - 13,720 1,887 8,207,523 58,064 8,283,586 3,049 296 141,325 1,887 8,100,648 31,801 8,279,006 2015 US$'000 On behalf of the Board yang yuanqing Chairman and Chief Executive Officer Ma Xuezheng Director 2015/16 Annual Report Lenovo Group Limited 227

  • Page 230
    ...April 1, 2015 Loss for the year Other comprehensive loss Total comprehensive loss for the year Vesting of shares under long-term incentive program Share-based compensation Dividends paid At March 31, 2016 At April 1, 2014 Profit for the year Other comprehensive loss Total comprehensive (loss)/income...

  • Page 231
    ...Shiyun Network Technology Limited) (an associate) - Purchase of goods Note: The English name of each company is a direct translation of its Chinese registered name. 751 4,522 (b) Key management compensation Details on key management compensation are set out in Note 11. 32 CoMMitMentS (a) Capital...

  • Page 232
    ...oPeRationS 2016 uS$'000 (Loss)/profit before taxation Share of losses/(profits) of associates and joint ventures Finance income Finance costs Depreciation of property, plant and equipment and amortization of prepaid lease payments Amortization of intangible assets Share-based compensation Impairment...

  • Page 233
    ... interest rates, the Group's largest pension liabilities are now in Germany. The Group continues to maintain significant pension liabilities in Japan, where a cash balance benefit is provided for substantially all employees. In the United States, the defined benefit plan is closed to new entrants...

  • Page 234
    NOTES TO THE FINANCIAL STATEMENTS 35 RetiReMent Benefit oBLiGationS (a) Pension benefits The amounts recognized in the consolidated balance sheet are determined as follows: 2016 uS$'000 Present value of funded obligations Fair value of plan assets Deficit of funded plans Present value of unfunded ...

  • Page 235
    ... determined as follows: 2016 uS$'000 Present value of funded obligations Fair value of plan assets 26,494 (4,189) 22,305 Present value of unfunded obligations Liability in the balance sheet 1,437 23,742 2015 US$'000 26,545 (5,333) 21,212 1,342 22,554 2015/16 Annual Report Lenovo Group Limited 233

  • Page 236
    ... THE FINANCIAL STATEMENTS 35 RetiReMent Benefit oBLiGationS Plan assets of the Group comprise: 2016 Quoted uS$'000 Pension plan Equity instruments Information technology Energy Manufacturing Others 1,933 358 3,805 4,771 10,867 Debt instruments Government Corporate bonds (investment grade) Corporate...

  • Page 237
    ...include any of the Company's ordinary shares or US real estate occupied by the Group (2015: nil). Reconciliation of fair value of plan assets of the Group: Pension 2016 uS$'000 Opening fair value Exchange adjustment Interest income Remeasurements: Experience (loss)/gain Contributions by the employer...

  • Page 238
    ... Group: Pension 2016 uS$'000 Opening defined benefit obligation Exchange adjustment Current service cost Past service cost Interest cost Remeasurements: (Gain)/loss from change in demographic assumptions Loss/(gain) from changes in financial assumptions Experience loss/(gain) Contributions by plan...

  • Page 239
    ... in the reported value of goodwill. The changes mainly represent finalization of future billing adjustments, deferred tax adjustments, provisions and recovery of impaired trade receivables at the respective acquisition dates. The comparative consolidated balance sheet as at March 31, 2015 has been...

  • Page 240
    ... issued and fully paid up capital Company name Percentage of issued capital held 2016 2015 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...

  • Page 241
    ... Lenovo Enterprise Solutions Ltd. Japan JPY50,000,000 100% 100% Distribution of IT products Lenovo (France) SAS France EUR1,837,000 100% 100% Distribution of IT products Lenovo HK Services Limited Hong Kong HK$1 100% 100% Provision of business planning, management, global supply chain...

  • Page 242
    ... capital held 2016 2015 Principal activities Chinese Mainland (Lenovo Mobile Communication Technology Ltd.)1 (foreign-investment enterprise wholly-owned entity) RMB187,500,000 100% 100% Manufacturing and distribution of IT products and provision of IT services Chinese Mainland (Lenovo Mobile...

  • Page 243
    ... of issued capital held 2016 2015 Principal activities Chinese Mainland (Lenovo Systems Technology Company Limited)1 ( )) (limited liability company (wholly-owned entity)) RMB263,407,660 100% 100% Manufacturing and distribution of IT products Lenovo Technology (United Kingdom) Limited United...

  • Page 244
    ...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 26, 2016. 242 Lenovo Group Limited 2015/16 Annual Report

  • Page 245
    ...556) 631,592 472,992 2,424 475,416 (Loss)/earnings per share attributable to equity holders of the Company Basic (US cents) Diluted (US cents) (1.16) (1.16) 7.77 7.69 7.88 7.78 6.16 6.07 4.67 4.57 CondenSed ConSoLidated BaLanCe SHeet 2016 uS$'000 Non-current assets Current assets Total assets Non...

  • Page 246
    ... 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 244 Lenovo Group Limited 2015/16 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