Lenovo 2016 Annual Report Download - page 18

16 Lenovo Group Limited 2015/16 Annual Report
MANAGEMENT’S DISCUSSION & ANALYSIS
BUSINESS REVIEW
During the fiscal year ended March 31, 2016,
Lenovo continued to drive its core PC business
while integrating two major acquisitions – Motorola
Mobility and System X – to build future growth
engines. The macro-economy and global markets
remained challenging, the Group took prompt
decisive actions to accelerate the transformation
across the company, 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.
During the fiscal year ended March 31, 2016, Lenovo continued to drive its core PC business while
integrating two major acquisitions – Motorola Mobility and System X – to build future growth engines. The
macro-economy and global markets remained challenging during the period under review, with currency
fluctuations in emerging markets being especially challenging. These factors affected overall demand,
especially consumer, which led to a continued decline in the PC and tablet markets and slower growth of
the worldwide smartphone market.
In view of the fast changing market environment and competition, the Group took prompt decisive
actions to accelerate the transformation across the company by executing a series of business
realignment and restructuring actions in the fiscal quarter two. The execution of this plan enables the
Group to focus resources, sharpen its business model and efficiently capitalize on the most attractive
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 decreased by 3 percent year-on-year to
US$44,912 million, due to currency fluctuation and the slower PC demand, while the Group was building
up the quality of its smartphone business. Excluding currency impacts, the revenue would have increased
3 percent year-on-year. Revenue of the PC Group was US$29,646 million, representing a year-on-year
decline of 11 percent. Revenue of the Mobile business increased 7 percent year-on-year to US$9,779
million, and revenue of Enterprise business increased 73 percent year-on-year to US$4,553 million. The
Group completed the acquisitions of System X and Motorola Mobility on October 1 and October 30, 2014
respectively in last fiscal year. Meanwhile, revenue of other goods and services was US$934 million.
The Group’s gross profit for the fiscal year ended March 31, 2016 was US$6,624 million, a decrease of 1
percent year-on-year largely due to the revenue decline, while gross margin increased 0.4 percentage
point year-on-year to 14.8 percent. Operating expenses increased by 20 percent year-on-year to US$6,686
million, and the expenses-to-revenue ratio was 14.9 percent. The increase was mainly due to restructuring
costs and one-time charges recorded in this fiscal quarter two, and the non-cash M&A accounting
charges totaling US$330 million booked in the fiscal year which included intangible asset amortization of
two acquired businesses, namely Motorola Mobility and System X, and imputed interest expense of the