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1、Lenovo Group Limited|2022/23 Annual R This report is printed on environmentally friendly paper manufactured from elemental chlorine-free pulp.Printed on chemistry free plate system and soy ink.Lenovo Group Limited 2022/23 Annual ReportHKD COUNTER STOCK CODE 992RMB COUNTER STOCK CODE 8099248121660118
2、40192287288Financial highlightsChairman&CEO statementLenovo management teamManagements discussion&analysisCorporate governance reportAudit committee reportCompensation committee reportDirectors reportIndependent auditors reportConsolidated income statementConsolidated statement
3、 of comprehensive incomeConsolidated balance sheetConsolidated cash flow statementConsolidated statement of changes in equityNotes to the financial statementsFive-year financial summaryCorporate informationAbout LenovoLenovo is a US$62 billion revenue global technology powerhouse,ranked#171 in the F
4、ortune Global 500,employing 77,000 people around the world,and serving millions of customers every day in 180 markets.Focused on a bold vision to deliver smarter technology for all,Lenovo has built on its success as the worlds largest PC company by further expanding into growth areas that fuel the a
5、dvancement of New IT technologies(client,edge,cloud,network,and intelligence)including server,storage,mobile,software,solutions,and services.This transformation together with Lenovos world-changing innovation is building a more inclusive,trustworthy,and smarter future for everyone,everywhere.To find
6、 out more visit https:/,and read about the latest news via our StoryHub.Table of contentToyotaTo run their 3D CAD applications,Toyotas design engineers were reliant on high-performance workstations installed at the companys offices-limiting their ability to work from home or collaborate with other d
7、epartments.By switching to a virtual desktop infrastructure(VDI)that runs the applications on a GPU-enabled hyperconverged infrastructure based on Lenovo ThinkAgile HX3320 appliances and Nutanix Cloud Platform,Toyota enabled its designers to work from anywhere,boosting productivity and enabling the
8、company to respond quickly and effectively when the coronavirus pandemic hit.“The merit of HCI is that we can build an environment in a very short period of time,and the pandemic truly demonstrated that.Lenovo made significant efforts to procure and deliver the hardware quickly,which was really help
9、ful.”Mr.Masanobu TakahisaDX Promotion Division,ToyotaSolution components hardwareHardware Lenovo ThinkAgile HX3520Software Nutanix Cloud PlatformSmarter accelerates remote working.Scan for full published storyLenovo Group Limited 2022/23 Annual Report 4Financial highlightsFor the year ended March 31
10、2023US$million2022US$millionYear-on-yearChangeGroup ResultsRevenue61,94771,618(14)%Gross profit10,50112,049(13)%Gross profit margin(%)17.016.80.2 ptsOperating expenses(7,832)(8,968)(13)%Expense-to-revenue ratio(%)12.612.50.1 ptsEBITDA4,3584,714(8)%Pre-tax income2,1362,768(23)%Pre-tax income margin(%
11、)3.43.9(0.5)ptsProfit attributable to equity holders of the Company1,6082,030(21)%EPS basic(US cents)13.5017.45(3.95)EPS diluted(US cents)12.7415.77(3.03)Interim dividend per share(HK cents)88Final dividend per share(HK cents)13030Total dividend per share(HK cents)3838Cash and Working CapitalBank de
12、posits and cash and cash equivalents4,3214,0237%Total borrowings(3,955)(3,421)16%Net cash366602(236)Cash conversion cycle(days)(2)10(12)Note:1 Subject to shareholders approval at the forthcoming annual general meeting.Lenovo Group Limited 2022/23 Annual Report 5EBITDAfor the year ended March 31(US$m
13、illion)Profit Attributable to Equity Holders of the Companyfor the year ended March 31(US$million)Revenue Analysis by Business Group*for the year ended March 31 Revenue Analysis by Geographyfor the year ended March 31 20222202320222202324%17%25%34%26%16%26%32%*Revenue before el
14、iminations75%83%10%7%202220222023202315%10%China AP EMEA AG IDG ISG SSG5972,1912,0304,7141,1783,5326652,6671,6084,358Smarter turns science fiction into reality.UNC Blue Sky InnovationsAs more and more companies line up to occupy digital spaces in the emerging metaverse,Blue Sky Innovations,a North C
15、arolina-based tech incubator,is striving to keep digital spaces,and digital faces,accessible and cost effective.Blue Sky faces the challenges that come with their ambitious goals with the help of Lenovo technology,and the resources at the Lenovo AI Innovations Lab.Volumetric capture is a video captu
16、re technique that records a three-dimensional space and is typically accomplished with a large and expensive rig comprised of many different cameras capturing the subject at all different angles.These separate feeds are then reassembled into a single digital object typically through powerful compute
17、rs.This technology is used across industries from filmmaking to video game development,but with the advent of the metaverse,volumetric capture has many interesting new applications.Blue Sky,in keeping with their human centered philosophy,sought ways to make this process more accessible and cost effe
18、ctive.With exciting steps already being made in the field of volumetric capture,members of both Blue Sky,and Lenovo teams expressed excitement about the possibilities opened up by the collaboration,and by the limitless applications of AI in solving humanitys greatest challenges.“Our innovation lab a
19、nd Lenovo share a common mission.We need to have really smart technology,and we need to make it available to everyone.Lenovo gets that!”Steven KingChief Innovation Officer,UNC Blue Sky InnovationsScan for full published storyChairman&CEO statementOur hard work over the past three years has elevated
20、Lenovo to a new height not only in revenue,profitability and cash position,but also in our strategic direction.As we close the fiscal year,its time to reflect upon the numerous challenges that Lenovo and the entire ICT companies have been managing,and the solid execution results and strategic breakt
21、hroughs we have delivered despite the tough market and all the uncertainties in the macro context.Broadly speaking,global businesses were operating in a high inflation,high interest rate environment with exchange rate fluctuation and geopolitical tensions.For our industry,the past fiscal year also m
22、arked a turning point from a fast expansion period to a post-pandemic,post hypergrowth era.It was a test not only for a companys operational resilience to navigate a challenging time,but also for its strategic foresights to emerge out of this period stronger than ever,ready to win for the future.Del
23、ivering Solid Results with Diversified Engines and Operational ExcellenceId like to report that Lenovo delivered the most solid results we could reasonably hope for amid the ICT industry contraction phase in the past fiscal year.Despite the broad market decline,we maintained a strong net margin comp
24、arable with the previous year and remain committed to doubling it in the medium term.This is a remarkable achievement.Our operational excellence keeps purchasing cost low with our global scale,ensures high productivity through inhouse manufacturing,turns inventory into cash fast through strong chann
25、el partnerships,and keeps a high efficiency of the entire company through strong expense management.Our diversified engines in solutions,services and infrastructure demonstrated strong momentum and achieved hypergrowth in the past fiscal year.They not only helped offset the PC market decline,but als
26、o told a stellar growth story in themselves.Solutions and Services Group(SSG)continued to deliver double-digit growth with over 20%operating margin.Infrastructure Solutions Group(ISG)grew over 30%year on year at significant premium to market.As a result,we have dramatically increased the percentage
27、of non-PC business in our revenue mix,which marks an important milestone in our transformation from a device or hardware company to a solution and service company.And in PC market,the consumer demand for smart devices has been accelerating over the last three years,leading to channel overstock and t
28、hen inventory correction.As a result,the PC shipments of the entire industry,including Lenovo,declined year on year,especially during the second half of the fiscal year.But Lenovo still outperformed the PC market in shipment and maintained our leadership position and industry leading profitability.W
29、e believe the PC shipment has nearly bottomed by now,based on the activation number which reflects the real demand,as well as the channel inventory level,which has almost returned to the pre-pandemic level.From this point,the PC market is about to resume its year-on-year growth,as early as the secon
30、d half of 2023.And Lenovo is ready to capture that growth from a position of strengths.Lenovo Group Limited 2022/23 Annual Report 9Chairman&CEO statementEnhancing Competitiveness to Capture Future OpportunitiesAs we enter the post-pandemic,post hypergrowth phase of our industry cycle,I believe our h
31、ard work over the past three years has elevated Lenovo to a new height not only in revenue,profitability and cash position,but also in our strategic direction.Going forward,we will continue to focus on the following areas.First,we will accelerate our journey from a device or hardware company to a so
32、lution and service company.It all starts with providing total solutions to customers to solve industry specific pain points.And in this process,we will leverage our TruScale brand to boost Lenovos presence in the highly promising aaS market.Meanwhile,we will build more horizontal solutions including
33、 digital workplace,edge/AI,hybrid cloud,TruScale and sustainability solutions and embed them into vertical industries.Ultimately,these efforts will help steadily increase the percentage of solutions and services in our overall revenue mix.Second,we will keep driving our investment in New IT.Lenovo h
34、as been the first one in the industry to define our vision of New IT,the technology architecture that includes client devices,edge computing,cloud computing,network and artificial intelligence.It differentiates from traditional IT which features on-prem data center and applications.Going forward,we
35、are committed to doubling our R&D investment around New IT in medium term.Today,one in every five of Lenovo employees works in R&D or innovation,and we continue to bring innovative technology,products and solutions to the market,including rollable PC,Yoga Book 9i,ThinkPhone,ThinkReality VRX,extreme
36、performance ThinkStation,new generation ThinkSystem,ThinkAgile,ThinkEdge,as well as smart space solutions such as ThinkSmart One,all launched last year,and many more in our pipeline.Third,we will continue to leverage and optimize our unique“Global Sourcing,Local Delivery”model.Globally,we have acces
37、s to advantageous resources,attract talent and build partnerships.And locally,we stay agile and flexible to serve customers needs.In supply chain,our global scale helps us secure key components.In manufacturing,we have our own factories to ensure capacity and uninterrupted supplies.In marketing,we u
38、se a“Global Might Local Fight”approach to build Lenovos global brand equity while generating local influence and demand in key markets.This is a strong core competency that Lenovo has built over years and will continue to make a big difference in the future.Lenovo Group Limited 2022/23 Annual Report
39、 10And finally,we will maximize the advantages of One Lenovo.Today,customers need not just products but total solutions.Lenovo has all the pieces,including devices,infrastructure,solutions and services to serve their needs.And we will continue to leverage our existing platform and processes,build on
40、 our existing core competencies to grow adjacent business.The capabilities weve built with our core business are now the best soil that nurtures our new,diversified growth businesses.As One Lenovo,we are sharing the same vision,executing the same strategy,operating on the same platform,and building
41、the same culture,in every business,every region,and every team.Building a Smarter Future for AllOur solid results and clear strategic directions have prepared us well to navigate the current market headwinds,a challenging economy and numerous macro uncertainties.I firmly believe in the long-term opp
42、ortunities driven by global digital and intelligent transformation.It is our strategic foresights and operational resilience that will help us transcend the industry cycle more smoothly than competition.Beyond business success,our ultimate goal is to use technology to help solve humanitys greatest c
43、hallenges.We have made important progress including having our net-zero target by 2050 validated by Science Based Target initiative(SBTi).Its our commitment that everything we do must serve the purpose of making life better,work more productive,society more equitable and inclusive,and our planet mor
44、e sustainable.To that end,lets make the new fiscal year a new chapter in our journey of building a smarter future for all.Yuanqing YangChairman&CEOLenovoLenovo Group Limited 2022/23 Annual Report 11Lenovo management teamYang YuanqingChairman and Chief Executive OfficerGao LanSenior Vice President,Hu
45、man ResourcesKirk SkaugenExecutive Vice Presidentand President of the Infrastructure Solutions GroupYong RuiSenior Vice President and Chief Technology OfficerGeorge HeSenior Vice President and President of Lenovo Capital and Incubator GroupLiu Jun Executive Vice President and President of the China
46、GeographyLenovo Group Limited 2022/23 Annual Report 12Luca RossiExecutive Vice President and President of the Intelligent Devices GroupLaura G.QuatelaSenior Vice President andChief Legal and Corporate Responsibility OfficerMatthew ZielinskiExecutive Vice President and President of the International
47、Sales OrganizationChe Min(Jammi)TuSenior Vice President and Group Operations OfficerWong Wai MingExecutive Vice President and Chief Financial OfficerKen WongExecutive Vice Presidentand President of the Solutions&Services GroupQiao Jian Senior Vice President and Chief Strategy Officer and Chief Marke
48、ting OfficerLenovo Group Limited 2022/23 Annual Report 13Smarter puts need for speed in software development.Siemens digital industriesSiemens is a global technology company and a leader in factory automation,with 45 million automation systems installed around the world.To test its 10 million lines
49、of code faster and accelerate software development cycles,Siemens deployed a hyperconverged infrastructure solution based on Lenovo ThinkAgile VX Series,speeding up overall product development by 33%with some of the 60,000 test cases running 50%faster.With low storage latency under 1 ms and parallel
50、 software build processes,Siemens has achieved 3x faster development cycles.“We have substantially increased the productivity of our software development and testing teams,by about 33%.And by clearly documenting our solution architecture and the decision-making process,we can share our insights with
51、 other departments to help increase performance and standardization across the company.”Ronny hopfHead of Production Machine Automation Development House Chemnitz,Siemens Digital IndustriesHardware Lenovo ThinkAgile VX Certified Nodes Lenovo ThinkSystem SR650 and SR630 servers Lenovo ThinkSystem DE2
52、000H Hybrid Storage ArraySoftware VMware HCI Kit Advanced VMware Sphere Enterprise Plus VMware vSAN Advanced,Veeam Backup 8 ReplicationServices Lenovo Premier Support Lenovo Professional ServicesLenovo Group Limited 2022/23 Annual Report 14Smarter puts need for speed in software development.Scan for
53、 full published storyManagementsdiscussion&analysisBusiness review and outlookHighlightsDuring the fiscal year ended March 31,2023,Lenovos(the Group)structural growth engines,including its Infrastructure Solutions Group(ISG),and Solutions and Services Group(SSG),set multiple performance records,than
54、ks to its resilient and well-executed transformation strategy.The ISG segment delivered significant profit improvement,building on high-end applications,including Artificial Intelligence,and portfolio expansion in high-margin products.SSG spearheaded the Groups Service-led Transformation by expandin
55、g its value-added solutions for its broad client base.The growth engines combined revenue and operating profit increased by 31 percent and 24 percent,respectively.Intelligent Devices Group(IDG)remained a strong sector leader,not only in market share,but also in profitability despite a 21 percent set
56、back in revenue due to sector-wide pressures ranging from excessive channel inventory and conservative customer spending to exchange rate fluctuations.On one hand,non-PC businesses grew 7 percent and made up nearly 40 percent of the combined revenue of the three business groups,7 percentage points h
57、igher year-on-year.On the other hand,persistent macro headwinds weighted on PC operations and led to a 14 percent decline,to US$61.9 billion,in Group revenue,within which,currency conversion alone resulted in a negative impact of 5 percent.Profit attributable to equity holders declined by 21 percent
58、,to US$1.6 billion,or down 10 percent excluding a one-time restructuring and other charges.The decline of non-HKFRS(non-Hong Kong Financial Reporting Standards)net income was smaller at 13 percent.Managements decisive actions throughout the year further streamlined its operating expense structure,ma
59、intaining a high level of agility and resilience,and better transcending the cycle.The Group made one-time restructuring and other charges of US$249 million,among various other actions,to deliver annual run-rate group expense savings of about US$850 million.In spite of macro headwinds,additional inv
60、estments were made to upgrade and differentiate the Groups technology and services,which are vital to ensuring long-term success of its growth engines,business transformation,and ESG initiatives;R&D(Research&Development)spend increased 6 percent year-on-year.With prudent working capital management,t
61、he Group improved its cash conversion cycle by 12 days to negative 2 days year-on-year.Inventory reduced steadily,with year-end balance shrinking over US$1.9 billion.The Group was recognized for its ESG performance with numerous accolades,including a Gold award for Sustainable Companies and Organiza
62、tions at the Best Corporate Governance and ESG Awards.MSCI upgraded the companys ESG rating to AAA while EcoVadis recognized the Groups excellence in sustainable procurement with an Outstanding Program Leadership Award.The Group was the first in the PC and smartphone sectors to have its 2050 net-zer
63、o greenhouse gas emissions target validated by the Science Based Targets initiative.The Group made significant effort to facilitate gender equality and was listed in Bloombergs Gender-Equality Index.Lenovo was also featured as a leader in climate change and water security by CDP.Lenovo Group Limited
64、 2022/23 Annual Report 16Revenue by business group*(%)*revenue before eliminations15%(10%)75%(83%)IDG ISG SSGGroup Financial PerformanceNotwithstanding market challenges,improving profitability remains the Groups medium-term priority.Profitability,including gross margin and operating margin,reached
65、an 18-year high on strengths of ISG and SSG,which helped mitigate the impact on profitability from smaller scale PC operations.Group operating margin remained robust as ISG and SSG built on their momentum in capturing market share,allowing the two business segments to deliver record-breaking revenue
66、s,at growth rates of 37 and 22 percent year-on-year respectively.The resilient global Digital Transformation cycle,coupled with New IT demand and the Groups investment in innovation,including its ESG initiatives,played a critical role in achieving these milestones.While bolstering non-PC business gr
67、owth,persistent macro challenges and pressure to clear excess channel inventory led to a 24 percent year-on-year decline in IDG segment profit.Despite healthy growth in Group operating margin,net margin decreased by 23 basis points year-on-year as the company continued to face various macro challeng
68、es,including but not limited to rising finance costs.Lenovo Group Limited 2022/23 Annual Report 1710%(7%)Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 18Performance by Business GroupIntelligent Devices Group(IDG)Revenue of IDG,consisting of the PC,tablet,smartphone,and o
69、ther smart device businesses,declined 21 percent year-on-year but remained markedly higher than FY2019/20 pre-COVID levels.Operating profit for the fiscal year under review declined by 24 percent.Despite the significant revenue decline,segment profit margin of 7.3 percent was down 31 basis points ye
70、ar-on-year,and remained significantly above pre-COVID levels owing to operational excellence and a favorable mix shift to enable higher margin sales.During the year under review,excess channel inventory intensified business challenges amid falling sell-in demand and currency headwinds.Sell-in activi
71、ty was compromised by channel inventory clearance.Nevertheless,Group sell-out data,or actual sales to end users,suggested a more moderate decline in end demand and,simultaneously,greater gain in market share.The Groups PC business remained number one by market share even as it made significant progr
72、ess on reducing channel inventory towards the end of the year.IDG made great progress in seizing growth opportunities beyond PC products.Non-PC sales made up 19 percent of IDGs revenue,up 0.4 percentage points year-on-year.Our smartphone revenue declined from overall market demand weakness.Neverthel
73、ess,it outperformed in multiple markets such as EMEA and AP by a notable margin.Smartphone business has also remained profitable for three consecutive years with an increasing 5G mix.IDG also ramped up its efforts in developing scenario-based solutions,including Smart Collaboration,Smart Office and
74、Smart Home,which delivered double-digit growth year-on-year.The essence of IDGs long-term growth strategy lies in investing in innovations,and developing strong products and new solutions,while further levelling up operational excellence to benefit from future recovery.Investments in innovation have
75、 yielded positive results and revenues from its accessories business,as well as its Smart Collaboration and visual stand-alone solutions.Infrastructure Solutions Group(ISG)During the year under review,ISG revenue grew by 37 percent to a record US$9.8 billion,marking the third consecutive record-sett
76、ing year and positioning ISG as one of the worlds fastest-growing infrastructure solution providers.Operating profit surged to a new high of US$98 million.Growth was supported by an enriched product portfolio and design-in projects,as well as customer acquisitions and industry partnerships.Such achi
77、evement was built on years of investment in creating a full-stack portfolio with broad customer coverage and a unique,fully integrated ODM+(Original Design and Manufacturing)business model,which drives significant progress in new product areas.By product,revenue of server and software set records,wi
78、th year-on-year growth between 25 to 30 percent.Storage revenue more than tripled while ThinkEdge,the Groups state-of-art edge product,sales increased more than 1.7 times year-on-year.ISGs market share,by revenue,in the global storage market nearly doubled year-on-year in 2022,according to third par
79、ty statistics.ISG is also capturing emerging opportunities in Artificial Intelligence(AI)Powered server and Edge,as well as hybrid cloud.While AI server shipments remain small,its high average selling price bodes well for overall revenue increase.In 2022,ISGs global server market share by revenue cl
80、imbed 1 spot from the previous year.Eyeing the strong growth potential in Edge computing,ISG expanded its Edge offerings,which includes the industrys most GPU-rich purpose-built Edge design.Well-supported by these strategic initiatives,both Cloud Service Provider(CSP)and Enterprise&Small-and-medium
81、Business(ESMB)revenues grew at strong double-digit rates to record levels.Solutions and Services Group(SSG)Customers increasingly looked for end-to-end solutions across hardware,software and services,as well as subscription-based,well-supported pay-as-you-go models.SSGs continued focus on the“New IT
82、”segment within the trillion-dollar market delivered strong financial results,demonstrating the Groups commitment to its Service-led Transformation.Revenue and operating profit grew 22 percent and 16 percent year-on-year to US$6.7 billion and US$1.4 billion respectively.SSGs operating margin of 20.9
83、 percent topped all business groups.Deferred Revenue rose 2 percent year-on-year to a high of US$3.0 billion.In August 2022,the Group strengthened its service capabilities and expanded SSGs footprint through the acquisition of Lenovo PCCW Solutions Limited(formerly known as PCCW Lenovo Technology So
84、lutions Limited)SSGs solid performance was underlined by strengths in its three business segments.Managed Services capitalized on surging demand for as-a-service solutions,with revenue growing 67 percent year-on-year.Project&Solution Services revenue rose 13 percent year-on-year on buoyant demand fo
85、r vertical solutions.Along with a record penetration rate,Attached and Support Services revenue increased 14 percent year-on-year.Lenovo Group Limited 2022/23 Annual Report 19Geographic PerformanceLenovo is a global business operating in over 180 markets.In Americas,the Group experienced a 9 percent
86、 year-on-year decrease in sales.ISG revenue nearly doubled year-on-year,driven by a ramp-up in new orders and an enriched product portfolio.ISGs strong performance and SSGs moderate growth in the region partially offset IDGs weakness in the PC sector as it faced headwinds from inflation,weaker econo
87、mic activity and channel inventory reductions.In Asia Pacific(excluding China),Group revenue decreased by 10 percent.SSG,including its subsidiary,LPS(Lenovo PCCW Solutions),reported robust revenue growth,driven by key project wins.ISG also reported double-digit growth in the region,attributable to s
88、trengths in both the CSP and ESMB segments.IDGs revenue fell with continued PC channel inventory digestion as well as currency depreciation against the US dollar for most of the year.Revenue in China declined 19 percent year-on-year,affected by the countrys COVID containment measures in the first ha
89、lf of the fiscal year and sluggish economic growth.The business segments,including PC and infrastructure businesses,experienced declining market demand.Nevertheless,SSG delivered strong revenue growth,driven by as-a-Service and vertical solutions.The Europe-Middle East-Africa(EMEA)market reported a
90、revenue decline of 16 percent year-on-year.The regions weakness mainly stemmed from IDGs operation as it faced macro headwinds,channel inventory reduction and persistent geopolitical conflicts.Both ISG and SSG reported double-digit growth on strong share gains.OutlookPrevailing global macro uncertai
91、nties and external challenges could extend well into future periods.The strengthening US dollar exacerbated the conversion impact as the majority of Group revenue is denominated in non-US dollar currencies.During the fiscal year under review,currency conversion alone created a negative impact of 5 p
92、ercent on its top line.Rising interest rates also led to a year-on-year increase of 69 percent on the Groups net financing cost.The Group took swift actions to optimize its expense structure and mitigate these external pressures in order to continue pursuing its medium-term goal of doubling net marg
93、in.Meanwhile,there is also a clear shift in IT spending mix,empowering Digitalization,which will create strategic opportunities in Digital,Cloud Infrastructure and Service-led Transformations.These catalysts,coupled with the Groups investments in innovation and its global footprint,are key to expand
94、ing its operating margin and maintaining largely flat net margins year-on-year.The Group will continue to invest in innovation,and high-value added products and components,while fostering the development of“New IT”architecture within the“Client-Edge-Cloud-Network-Intelligence”framework.The Group unv
95、eiled a solid product and solution lineup at the Consumer Electronics Show(CES)in January 2023 as well as at other technology events globally.The group won a total of 129 awards for various products at CES alone.On a product level,Yoga Book 9i won a total of 50 awards in the year,a record for any si
96、ngle product.Infrastructure saw an expansion to its end-to-end edge portfolio,which included the new ThinkEdge SE10 edge client device,capable of capturing analog and digital data at the far edge.At the same time,Lenovo Open Cloud Automation 2.6 and XClarity edge-to-cloud orchestration were announce
97、d.The Group also partnered with a leading semiconductor supplier on vehicle computing,a space where the company can leverage its capabilities in large-scale,standardized,and complex computing systems.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 20The PC market might sta
98、bilize sooner than many expected in 2023,and at the same time,IDG will continue to drive efficiency in its lean operations,maintain healthy cash generation,and invest in innovation.IDG will lead the global race in device innovation by enhancing features for hybrid working,gaming,entertainment and ES
99、G designs.Scenario-based solutions,including Smart Collaboration and Smart Home Devices,continue to grow at a stable pace.Meanwhile,the total available market of the global PC sector may regress to pre-COVID levels in the short-term but could remain at a level structurally higher than the pre-pandem
100、ic period in the long-term with the growing popularity of a digital life centered around the PC.The commercial upgrade cycle and the trend of premiumization will help IDG drive premium-to-market growth.Its smartphone business will focus on portfolio expansion and differentiation to take advantage of
101、 accelerated 5G adoption.IDG will further invest to score wins in non-PC areas,including fast-growing accessories and work collaboration solutions.The Group strives to reinforce its number one position in the PC sector,with leading profitability,and accelerate growth in non-PC and adjacent areas thr
102、ough innovation.ISG has built industry-leading end-to-end infrastructure solutions and expanded to full-stack offerings including server,storage,and software.The ESMB segment will also capitalize on growth opportunities in AI Powered Edge,hybrid cloud,High Performance Computing,and solutions for the
103、 Telco/communication sectors.For the CSP segment,ISG has a unique ODM+business model to address the growing demand for vertically integrated supply chains.The business will continue to diversify its customer base and capture new accounts through design-wins across technology platforms.The approach w
104、ill achieve an optimal balance between general purpose and customized offerings,while ensuring the appropriate scale and an efficient cost structure to enable revenue growth and profitability expansion.For SSG,global interest rate hikes and economic uncertainties have led to more cautious spending a
105、nd a prolonged deal conversion cycle in the near-term.However,mega trends of digital transformation,infrastructure upgrades with strong demand for hybrid cloud,as well as remote work and collaboration will continue to drive IT spending in the long run.The IT talent shortage in most enterprises will
106、translate into additional demand for outsourced services,presenting an opportunity for professional consulting,deployment,and managed services.Enterprise users will also have greater incentives to explore Asset Recovery Services to monetize and recoup the value of their end-of-life assets.SSG will c
107、ontinue to broaden its service offerings,which includes digital workplace,hybrid cloud and sustainability services,while protecting its core business with product-related services,as well as strengthening channel tools and cooperation with business partners.Given its strong growth outlook,SSG will f
108、urther enhance its financial contribution to the Group.Strategic HighlightsThe Group continues to be the leader and enabler of Intelligent Transformation,helping clients navigate a more complex world with its vision of bringing smarter technology to all.Strong innovation,which goes hand-in-hand with
109、 the pursuit of profitability growth,will further elevate its competitiveness in next-generation product design and solutions.Leveraging its Services business as a structural growth engine,the Group will strengthen its end-to-end service solutions,in particular,its TruScale as-a-Service portfolio,to
110、 address customer pain points in hybrid work,multi-cloud management,as well as cybersecurity.As a responsible corporate,the Group prides itself on setting high standards and making every effort to mitigate environmental impact as the business advances towards its goal of net zero emissions by 2050.T
111、o capitalize on growing ESG awareness,management will broaden its sustainability initiatives to incorporate innovative ESG features,such as a CO2 offset service,into the Groups services to help customers meet their ESG goals.Lenovo Group Limited 2022/23 Annual Report 21Corporate strategy highlightsG
112、uided by the mission to be the leader and enabler of intelligent transformation,Lenovo Group has been firmly driving“3S”strategy(Smart IoT,Smart Infrastructure,Smart Verticals)by implementing“Service-led Transformation”and“Tech-powered Innovation”.In the past year,we have achieved critical transform
113、ation milestone despite of challenging macro environment,and delivered solid performance thanks to our strategic foresight and operational excellence.FY2022/23 was a challenging year for ICT market,and unfavorable macro environment have touted market confidence throughout the year,especially for dev
114、ice market.However,our strategic foresight guided us to build solutions,services,and infrastructure into our diversified growth engines,and helped us capture the growth opportunities of digital and intelligent transformation.As a result,our Non-PC business enjoyed strong growth and reached record 40
115、%of group revenue in second half of year,which marked an important milestone.We also took proactive actions to manage the challenges and build critical capabilities to win in futureWe have achieved great success In Smart Verticals.SSG has delivered high growth with high margin,and established our pr
116、esence to compete in“as a Service”market with our TruScale brand and on-demand services.Smart infrastructure continues benefiting from the ICT infrastructure upgrade and increasing demand for computing power.ISG has been a high growth engine with consecutive profitability,thanks to strong competitiv
117、eness of our ODM+model and operational excellence.Smart IOT has become critical to address customers shifting need from device to space.IDG has not only maintained PC#1 market position,but also delivered strong performance for non-PC smart devices and smart space solutions.Looking ahead,we believe t
118、here are still opportunities to capture despite that macro challenges will persist in near term.Mega trends of Digital transformation and Infrastructure upgrade will continue driving IT spending.We are confident that our well-designed strategy and operational excellence will help us transcend the cy
119、cle.Human resourcesBy the end of FY2022/23,the Group had a headcount of approximately 77,000 worldwide.The Group implements remuneration policy,bonus,employee share purchase plan and long-term incentive scheme with reference to the performance of the Group and individual employees.The Group also pro
120、vides benefits such as insurance,medical and retirement funds to employees to sustain competitiveness of the Group.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 22Material risks of the GroupThe following are key risks that the Group considers to be of great significance
121、to the Group as it stands today.They have the potential to affect the Groups business adversely and materially.For each risk there is a description of the possible risk impact on the Group should it occur,and the mitigation plan to manage the risk.The Group also faces risk and uncertainties in commo
122、n with other businesses.These have not been set out as key risks below.This list is likely to change over time as different risks take on larger or smaller significance.The size,complexity and spread of the business and the continually changing environment in which the Group operates also mean that
123、the list cannot be an exhaustive list of all significant risks that may affect the Group.Risk DescriptionKey Risk MitigationsStrategic RisksCompetitionThe Group operates in a highly competitive industry which faces rapid changes in market trends,customer and consumer preferences and constantly evolv
124、ing technological advances in hardware performance,software features,services,and other tech offerings.It faces aggressive product and price competition from new entrants and existing competitors.Customer EngagementIn this competitive environment,brand recognition and awareness and good customer exp
125、eriences are important success factors to the Group.Failure to engage and resonate with customers may adversely affect the Groups results through loss of customer loyalty or damaged brand reputation from bad publicity.InnovationTechnology is advancing at a fast pace with constant improvement in prod
126、uct offerings and the creation of new technology disruptors.Failure to innovate and respond effectively to changes in market trends or customer and consumer preferences through timely launches of new products,or through competitive prices,could harm the Groups competitive position.Business Transform
127、ationAs the scale and breadth of its business and operations expand,the Group faces risks associated with implementing its strategic initiatives.Sub-optimal allocation of resources in areas like innovation,marketing and services delivery may result in the inability to meet the desired strategic outc
128、omes,such as to effectively counter competitive pressures.The Group actively monitors its competitive environment and market trends.It maintains its competitive position through commitments to innovate and build a broad product and services portfolio,grow its brand name,and drive customer-experience
129、 transformations to differentiate the Group and gain market share and recognition.The Groups Service-led Transformation supports the long term 3S strategy(Smart IoT,Smart Infrastructure and Smart Verticals)to protect and drive profitability in the business.It is focused on its mission to be the lead
130、er and enabler of Intelligent Transformation.The Groups strategic planning process incorporates prioritization and focus on strategic objectives to guide effective and efficient allocation of resources required to execute plans.Lenovo Group Limited 2022/23 Annual Report 23Risk DescriptionKey Risk Mi
131、tigationsStrategic RisksMergers and Acquisitions(M&A)As part of the Groups business transformation and long-term growth strategy,it may acquire or make investments in companies and businesses or enter into strategic alliances and joint ventures.The Group faces external risks such as an uncertain eco
132、nomic outlook,as a result of higher inflation,rising interest rates,volatile capital markets,geopolitical and regulatory uncertainty,and other challenges associated with potential acquisitions.The Group adopts a cautious and conservative approach and drives a rigorous due diligence process to ensure
133、 assets are appropriately valued and approved in accordance with the M&A approval process.Post-acquisition reviews are conducted periodically to monitor the performance of these investments.See“Notes to the financial statements”(page 222 and pages 240 to 241)and“Key audit matters”(page 180)The Group
134、s due diligence process may fail to identify significant issues,resulting in overly optimistic financial forecasts and valuation.It may also not fully realize all of the anticipated synergies/benefits of its acquisitions,which may result in lower than expected revenue,and earnings,or an impairment o
135、f goodwill or intangible assets.Complex External Global ConditionsThe Group operates globally and,as such,its results may be impacted by global and regional changes in macro-economic,geopolitical,and social conditions,regulatory environments,natural catastrophic events,public health issues,etc.Adver
136、se economic conditions may result in postponements of or decreases in spending and investment,affecting the Groups sales.When combined with other external conditions like geopolitical or regulatory environments,multifaceted challenges may arise in many areas of its business,such as M&A(see aforesaid
137、 discussion on“Mergers and Acquisitions”),or supply chain management(see discussion on“Supply Chain Management).These external factors are beyond its control and may affect the ability or ease of doing business with customers and/or suppliers,increasing the cost of operations and uncertainty of its
138、financial performance.The Group has diversified its geographic sources of revenue and profit to reduce its dependency on any single country or region.It vigilantly monitors its external environment,including geo-political developments,and adapts its strategies to address shifting dynamics in the reg
139、ions and countries in which it operates.It conducts sensitivity and scenario analysis to position the Group for a better outcome.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 24Risk DescriptionKey Risk MitigationsLegal,Regulatory&Compliance RiskThe Group operates globall
140、y and must comply with the regulatory and legal requirements of the jurisdictions where it conducts business.These include,but are not limited to laws on Anti-Bribery and Corruption Import/Export Practices Privacy and Data Protection Competitive Practices Environmental,Social and Governance(ESG)The
141、regulatory and legal compliance environment is complex and constantly changing.New or changes in regulations may affect the ability or ease of doing business with customers and/or suppliers,thereby increasing the cost of operations.Non-compliance by the Group may result in financial penalties,loss o
142、f reputation and/or the inability to continue all or part of its operations in the affected jurisdictions.The Groups legal related risks are assessed on a periodic basis.Examples of risks evaluated include:The risk that representatives of the Group,including its employees or agents,intentionally or
143、inadvertently bribe a government official or other third parties in violation of applicable anti-bribery and corruption laws and regulations.The Group actively manages risks associated with conducting business in a complex regulatory environment.The Legal department,in partnership with various stake
144、holders within the Group,effectively manage and oversee implementation of the control framework relating to the mitigation of these risks,Examples include:Development and maintenance of our robust ethics and compliance culture through its sound policies,procedures,and training to personnel on Lenovo
145、s Code of Conduct(“Code”)Implementation of the Groups Whistleblowing and Investigations Policy outlining the process by which concerns,and potential misconduct are raised,reviewed,and investigated Effective contract management of the Groups business relations Robust privacy,security,and data protect
146、ion policies,processes,and training to responsibly collect,process,use,retain,sharing,transfer,and safeguard proprietary,confidential,and personal data of Lenovo,its customers,and employees.Continuous monitoring of changes in the legal and regulatory environment to ensure compliance with applicable
147、laws and regulations.Lenovo Group Limited 2022/23 Annual Report 25Risk DescriptionKey Risk MitigationsLegal,Regulatory&Compliance Risk The risk that employee behavior inconsistent with Code of Conduct could lead to conflicts of interest,embezzlement,or other fraud causing excessive cost,reputational
148、 harm,or compliance issues.The risk that there are violations by the Group or its agents of trade laws,or of U.S.,Chinese or other country trade restrictions.The risk that there are instances of non-compliant collection,processing,use,retention,sharing,cross-border transfer,and protection of proprie
149、tary,confidential,and personal(customer,supplier,employee),user or device-identifiable data,leading to violations of applicable privacy,security,and data protection laws and regulations.The risk that the company will enter a joint venture or merger&acquisition that may substantially lessen competiti
150、on.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 26Risk DescriptionKey Risk MitigationsOperational RisksSupply Chain ManagementThe Groups supply chain is highly complex,involving a broad base of suppliers and various manufacturing sites around the world(both Group and th
151、ird party owned).Its ongoing success is dependent on the smooth running of all aspects of its operations,including but not limited to demand forecasting,manufacturing resources planning,order fulfilment,and inventory management.Geographically,the supply chain spans many countries,but there may be su
152、pply or production concentration in certain locations,countries,or regions within a country.The Group also has multiple tiers of suppliers.Given the Groups wide range of products,some products may be reliant on a few component suppliers.The disruption of the supply of any of its products,component p
153、arts,systems or services may affect product availability and customer satisfaction.Potential disruption may be caused by many factors.These factors include damage to its own or its suppliers manufacturing facilities or logistics hubs from catastrophic events,natural disasters,a pandemic or other loc
154、al or global health issue,a suppliers financial failure,unfavorable business,political or economic factors,cyber-attack,etc.Substantial recovery expenditure or prolonged recovery time could be required.If the Group is unable to source alternative supplies during the period of shortage at favorable p
155、ricing,its revenues,profitability,and competitive position may be adversely affected.The Group actively manages risks inherent to its complex supply chain.It utilizes cost and operational analysis to understand potential impacts.On-going efforts are made to optimize its efficiency.It manages concent
156、ration risks through broad supplier sourcing(i.e.,limiting sole/single sources),and diversification of its production footprint globally.The Group builds physical resilience into its own manufacturing locations by investing in risk engineered improvements on an on-going basis,especially in key locat
157、ions.It conducts disaster recovery planning to minimize impact of regional catastrophes or natural disasters and ensures business continuity plans are in place.Lenovo Group Limited 2022/23 Annual Report 27Risk DescriptionKey Risk MitigationsOperational RisksThe Groups complex supply chain may also r
158、esult in exposure to hidden and uncontrollable risks typically driven by Environmental,Social and Governance(ESG)factors,such as natural resource depletion,human rights abuses,or labor practices.For example,the legal and regulatory standards of certain countries in which its indirect suppliers opera
159、te may be less robust and therefore not sufficient to meet the regulatory standards of other countries which it sells to.Non-compliance by any supplier,whether direct or indirect,may harm the Groups reputation and supply chain operations,or cause the loss of license to operate.With ESG becoming more
160、 of a customer differentiator in their purchasing decisions,the Group may also lose customers who look closely at their suppliers compliance to codes of conduct,environmental impact,and responsible sourcing of materials.The Group is committed to ESG across its end-to-end supply chain process.It has
161、systems in place,supported by contractual requirements,to help ensure that suppliers comply with all applicable labor,environmental,health and safety,and ethics standards.The Group works with the electronics industry on supply chain issues through its Responsible Business Alliance(RBA)membership.It
162、also encourages the RBA standard to be used across multiple tiers of its suppliers and maintain compliance through independent audits.Since FY2021/22,the Group has further enhanced the companys supply chain due diligence practices with the deployment of EcoVadis ESG Risk Management Platform which ha
163、s been integrated into Lenovos supplier management practices.This integration will support year-on-year improvements by assessing suppliers,identifying risks,recommending improvements,and providing progress reports.Product QualityThe Group offers products and services that are complex.Failure to mai
164、ntain an effective quality management system,including within the Groups research&development activities,its manufacturing facilities,and its supply chain,may have a material adverse effect on its business and operations,brand image and customer loyalty.Addressing quality issues can be expensive and
165、 may result in product recalls,production interruption,additional warranty,repair,replacement,and other costs and adversely affect the Groups financial results.The Group may also face product liability claims from its customers or distributors if the use of its products results in bodily injury,prop
166、erty damage or other loss,regardless of whether it is at fault.It may have to spend significant resources and time to defend itself in product liability legal proceedings.Successful assertion of product liability claims may require it to pay significant monetary damages.The Group is continuously wor
167、king towards improving its processes and procedures.Its Quality Management System,(QMS)routinely passes both internal and external audits and complies with ISO 9001:2015.This enables the Groups operations to run more efficiently,increase customer satisfaction and communicate to potential customers t
168、hat it has robust quality processes.Its Environmental Management System(EMS)complies with ISO 14001:2015 and certified to be suitable,adequate,and effective in support of its products,site locations and supply chain operations.The Group is both ISO 9001 and ISO 14001 certified by DEKRA outside of Ch
169、ina and in China by the Electronics Standardization Institute(CESI).It is committed to maintaining certifications for QMS and EMS to ensure it meets customer,investor,and employee Environment,Social and Governance(ESG)responsibilities.Managements discussion&analysis Lenovo Group Limited 2022/23 Annu
170、al Report 28Risk DescriptionKey Risk MitigationsOperational RisksIntellectual Property(IP)The Group could suffer if it does not develop and protect its own intellectual property or its suppliers are not able to develop or protect desirable technology or obtain any necessary technology licenses.The r
171、isks include:Higher business cost as a result of increased licensing demands from patent holders;Loss or diminished value of intellectual property as an asset,as a result of legal findings of unenforceability and challenges to title or ownership;Higher legal costs to defend against claims of intelle
172、ctual property infringement and potential settlement or damages;Product design-around costs and negative impacts to customer or supplier relationships;Risk of interruption of the Groups ability to ship products due to injunctions or exclusion orders in particular countries resulting from adverse jud
173、gments in IP infringement cases filed against the Group;Reputational harm if found to infringe a third partys valid patents.The Group takes appropriate legal measures to protect its know-how and trade secrets,apply for and enforce patents,and register and protect trademarks and copyrights.The Group
174、licenses IP as appropriate and monitors the continued validity and value to the Group.It also obtains IP indemnification from,or otherwise transfer responsibility for IP coverage to,its suppliers.The Group develops,executes and monitors an IP litigation defense strategy.It continues to develop and u
175、se Lenovo patent portfolio,if appropriate,to decrease potential costs.The Group also collaborates with other technology/product companies to lobby for reform of the patent system that reduces costs.Lenovo Group Limited 2022/23 Annual Report 29Risk DescriptionKey Risk MitigationsOperational RisksInfo
176、rmation,Product&Cyber SecurityThe Group may be impacted negatively if it sustains cyber-attacks,data security breaches or similar incidents that lead to exposure,loss of data or misuse of proprietary and confidential data,disruption in its operations or damage to its reputation.The Group manages and
177、 stores various types of proprietary and confidential information,including sensitive categories relating to its operations and its customers and employees.In addition,the Groups cloud computing business routinely processes,stores,and transmits substantial amounts of data for its customers,including
178、 sensitive customer proprietary and personally identifiable information.The Group may be subject to attack from hackers and other malicious software programs that attempt to penetrate its networks and exploit security vulnerabilities in its systems or products.Hardware,operating system software,prod
179、uct software and applications that the Group produces or procures from third parties may contain“bugs”or similar threats that may unexpectedly interfere with the operation of the system or may present unidentified security risks.The Group may be required to notify regulators of security incidents or
180、 vulnerabilities found in its products.Breaches of the Groups security measures and misappropriation of sensitive proprietary and confidential data about the Group and its customers and employees,if not effectively managed in a timely manner,may lead to loss of customer confidence,negative impact to
181、 reputation,disruption in business operations,exposure to potential litigation and liability and result in a loss of revenue and increased cost.The Group will continue to invest in the following:(a)Development and maintenance of a robust cybersecurity risk governance and compliance program along wit
182、h a security culture program through sound policies,robust incident response plans and processes,and business continuity programs as well as training of its employees around vital data security and data protection practices.(b)Enhancements to cybersecurity controls and information security,product s
183、ecurity and privacy awareness through a continuous risk evaluation and improvement process.(c)Compliance with mandatory privacy and security standards and protocols imposed by law,regulation,industry standards,or contractual obligations.(d)Policies and processes to ensure hardware,operating system s
184、oftware,product software and applications that the Group produces or procures from third parties protects and uses customer data responsibly.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 30Risk DescriptionKey Risk MitigationsOperational RisksThe Group is subject to laws
185、and regulations in countries where it operates relating to the collection,use,cross-border transfer,and security of customer,supply chain and employee data.The Group needs to conduct normal business activities which includes the collection,use,cross-border transfer,and retention of personal or other
186、 data pursuant to these activities.The Group may be required to notify individuals or regulators of a data security breach.An increasing number of customers are inquiring about the industry standards that the Group complies with.These pertain to whether the Groups security controls are in place,oper
187、ating effectively and are in compliance with regulatory and industry standards.The Groups inability to demonstrate compliance with such standards may adversely affect the Groups ability to participate in a bid.Human Capital ManagementThe Group may face disruption in labor market and intense competit
188、ion for skilled and experienced workers due to fast-changing market dynamics and an increasingly diversified business landscape.For ongoing success,and to support growth through the Groups“3S”strategy,it must continue to attract,develop,retain and motivate high-performing and diverse talent across t
189、he enterprise while ensuring smooth transitions throughout the ongoing business transformation.The Group is committed to talent diversity and inclusion.In a highly competitive labor market,the Group may face challenges in implementing its initiatives to expand diversity outreach efforts to engage ta
190、lents.This may adversely affect the Groups competitive position,employer brand and regulatory compliance.The Group continuously enhances its employer brand in alignment with its intelligent transformation to attract talent with the requisite new skills and experience.It has a corporate wide workforc
191、e planning process to help the Group meet business demands and achieve strategic goals.It continuously invests in talent and leadership development programs to build talent capability and accelerate the internal movement of top talent,ensuring the strength of the leadership pipeline.The Group also c
192、ontinuously reviews and updates its compensation strategies to ensure that its compensation and benefits programs are performance driven,competitive,and flexible to support an increasingly diverse business landscape and employee population.The Group proactively incorporate diversity and inclusion in
193、itiatives such as hiring and promoting women,people of color and people with disabilities,and pay equity audits.It continues to develop the Groups equal employment opportunity programs,policies,and procedures.Lenovo Group Limited 2022/23 Annual Report 31Risk DescriptionKey Risk MitigationsFinancial
194、RisksAs the Group operates globally,significant,or prolonged economic instability or financial market deterioration may materially and adversely impact the Groups financial condition.The Group is exposed to a variety of financial risks,such as foreign currency risk,cash flow risk,credit risk and liq
195、uidity risks.The Group has put in place a financial risk management program that seeks to minimize the potential adverse impact of the financial markets on the Groups financial performance.For more analysis,see“Notes to the financial statements”(pages 213 to 221)Cash&Liquidity,Credit ManagementAdver
196、se economic conditions or other external conditions may impede customers ability to continue paying for goods and services.The Group may experience lower revenue resulting in less cash flow,along with delayed or default in receivables collection.Trade credit insurance capacity may be reduced or with
197、drawn as insurers actively manage their risk exposures.This may result in an increase in the Groups uninsured losses.Volatility in the financial markets may cause reduction in funding opportunities.The Group closely monitors market developments,reviews collection performance,and bolsters collection
198、capabilities.It also has formal credit policies designed to appropriately manage credit risk.It proactively works with broker and credit insurers to maintain credit insurance coverage to weather adverse economic conditions.The Group also closely monitors the financial market environment and funding
199、opportunities.Tax ManagementDue to the international nature of its business,the Group faces continuous changes in local and international tax rules and regulations.There may be ambiguity in how such rules and regulations should be applied to its operations.Changes in tax rules and regulations may al
200、so affect the Groups tax position and the value of tax assets and liabilities carried in the balance sheet.The Group carefully monitors both business developments and the global tax environment to make sure rules and regulations are applied appropriately and risks are mitigated where possible.See“No
201、tes to the financial statements”(pages 222 to 223)and“Key audit matters”(page 181)The value of deferred tax assets depends principally on the business generating sufficient taxable profits to utilise these tax benefits.It may be necessary for some of the deferred tax assets to be reduced with corres
202、ponding charges to the income statement if there is significant adverse change in the projected taxable profits of the business.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 32EnvironmentLenovos programs in this area are based on a foundation of our commitment to strong
203、environmental stewardship and continued compliance.This includes compliance with regulatory requirements and voluntary standards established by associations and the standards organizations to which Lenovo subscribes.Lenovos Environmental Affairs Policy is the cornerstone for compliance across global
204、 operations,employees,and contractors performing work on behalf of Lenovo.This policy forms the foundation for Lenovos ISO 14001:2015 certified Environmental Management System(EMS),which includes processes for evaluating legal and voluntary requirements and ensuring compliance across Lenovos global
205、design,development,and manufacturing operations.It is Lenovos goal to leverage our EMS to help address and mitigate some of the most significant environmental challenges facing us as a global organization.Other benefits of the EMS include monitoring our progress on previously identified material con
206、cerns and more quickly spotting emerging issues.In addition to this corporate-level risk management program,individual business groups such as the Global Supply Chain Organization execute risk management processes that feed into the corporate level programs and related disclosures.Lenovos locations
207、included in the EMS scope are audited internally as well as externally by certification bodies.Our EMS focus areas include:Climate change mitigation programs Environmentally conscious products program and its focus on the energy efficiency and design for environment principles Environmentally prefer
208、red materials programs to drive the use of recycled,recyclable,and renewable materials in our products and packaging and support a transition to a circular economy Environmentally sound operations at our manufacturing facilities Global supply chain environmental programsThrough Lenovos ISO 14001:201
209、5 EMS program,we conduct a Significant Environmental Aspect(SEA)evaluation at least annually.This process evaluates the significant or material environmental aspects while identifying risks and opportunities that may impact the business or operations.To manage the SEAs,we establish relevant environm
210、ental objectives and targets with Key Performance Indicators addressing site operations,products,and global supply chain functions.The objectives and targets are monitored and measured for progress semi-annually as part of Lenovos ISO 14001:2015 Environmental Management System.Lenovos performance ag
211、ainst the FY2022/23 environmental objectives and targets will be published on our website.Climate changeGovernanceAt Lenovo,we recognize that climate change is a serious threat and as such,we address it at the highest levels of our organization.At least annually the Board of Directors is briefed on
212、climate strategy and progress towards our climate change mitigation goals.Lenovos Chief Legal and Corporate Responsibility Officer provides executive leadership for Lenovos Environmental,Social and Governance(ESG)position,including climate change programs.In addition,the ESG Executive Oversight Comm
213、ittee(EOC)provides strategic direction and facilitates the coordination of ESG efforts across Lenovo,including the companys climate change strategy.The ESG EOC is comprised of senior management from across the business and functional areas and is chartered to promote a culture that encourages strong
214、 ESG performance,including compliance and leadership activities.Lenovo Group Limited 2022/23 Annual Report 33StrategyLenovo identified physical as well as transition climate-related risks and opportunities that can impact our business strategy and financial planning.These include,for example,regulat
215、ions,technology,reputation,consumer behavior,or extreme weather events.To start understanding how our identified physical and transition risks and opportunities could impact our overall business,Lenovo performed exploratory climate-related scenario analysis by using the GeSI-CDP Scenario Analysis To
216、olkit which is based on the Task Force on Climate-related Financial Disclosures requirements and guidance on scenario analysis.The results helped to identify gaps,including financial implications and the involvement of cross-function teams.Lenovos Climate and Energy Policy forms the foundation of ou
217、r climate change strategy that focuses on five key areas where we can demonstrate influence in driving emissions reductions and support for a global transition to a low-carbon economy:internal operations energy suppliers and their operational emissions supply chain customers government,non-profit or
218、ganizations,and the public in support of the transition to a low-carbon economyRisk ManagementClimate change risks and opportunities are identified and evaluated as part of the scope of two main processes within Lenovos business management system.These include our global risk registration process as
219、 part of our Enterprise Risk Management(ERM)and the annual Significant Environmental Aspect(SEA)evaluation.Additionally,Lenovo considers climate change as part of the ESG reporting materiality assessment.These processes help us to identify climate-related risks and significant climate-related opport
220、unities.Metrics and TargetsWe established near-term science-based emissions reduction targets,which were validated by the Science Based Targets initiative(SBTi)in June 2020 and again in January 2023.Our scope 1 and 2 emissions reduction targets are consistent with limiting warming to 1.5C,the most a
221、mbitious goal of the Paris Agreement,and our scope 3 emissions reduction targets meet ambitious criteria in accordance with the Science Based Targets initiative(SBTi)methodology and are in line with current best practices.We annually disclose our scope 1,2,and 3 emissions and progress towards our em
222、ission reduction targets in our ESG Report.Our long-term emissions reduction targets have been validated against SBTis Corporate Net-Zero Standard,and Lenovo is committed to achieving net-zero greenhouse gas emissions by 2050.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report
223、 34Lenovo has been committed to reducing its greenhouse gas emissions for more than a decade,and is committed to following climate science,standardizing our measurements,and seeking ongoing validation for our targets and progress.Lenovo has been deliberate about not making a net-zero claim until one
224、 could be aligned with a global scientific standard.Lenovo supported the development of a standard aligned with the latest climate science and was selected to road test the Science Based Targets initiative(SBTi)Net-Zero Standard before it was launched in October 2021.Lenovo also performed an initial
225、 financial and feasibility study to size the next steps to support a path to net-zero by 2050.In March 2022,Lenovo signed the SBTi Commitment Letter pledging to set net-zero targets,including a long-term science-based target.Lenovo has responded to the SBTis urgent call for corporate climate action
226、by committing to align with 1.5C and net-zero through the Business Ambition for 1.5C campaign and we became part of the United Nations Framework Convention on Climate Change(UNFCCC)Race to Zero campaign.In January 2023,Lenovo announced its commitment to achieving net-zero greenhouse gas emissions by
227、 2050 after validation of emissions reduction targets by SBTi.For more information about our identification process and assessment of climate-related risks and opportunities,metrics,and actions to address climate change,please read our response to the CDP Climate Change questionnaire available at .L
228、enovo recognizes the increasing demand for transparency with climate-related risks and opportunities.Investors and other stakeholders are focused on corporate disclosures regarding the physical,liability,and transition risks associated with climate change and related financial impacts.Lenovos annual
229、 ESG Report complies with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited(the“Stock Exchange”),references the Global Reporting Initiative(GRI)Standards,and addresses the needs of many Lenovo stakeholders.Although some of these requirements broadly correspond
230、with the recommendations of the Financial Stability Boards Task Force on Climate-related Financial Disclosures(TCFD)under the recent proposals,Lenovo is striving to formulate accurate and meaningful climate-related financial disclosures in line with TCFD framework to meet Hong Kong Stock Exchange di
231、sclosure requirements by 2025.Compliance with environmental laws and regulationsLenovo actively engages with a wide variety of stakeholders to safeguard compliance with applicable laws and regulations where our products are marketed and sold.The Global ESG and Regulatory Compliance(GESG&RC)Organizat
232、ion supports a culture of compliance by Process for establishing,monitoring,and maintaining environmental complianceInputsContracted consultanciesFPs communicate changes and provide training where neededInputsRegional,country and Business Unit FPs monitor their areas of responsibility and provide in
233、put to GESG&RCInputsIndustry/trade seminars&publications,regulatory tracking services,etc.Standards,specs,&procedures reviewed and updated as required by change and/or annually at a minimumLocation Environmental FPs monitor emerging issuesFPs update documents&communicate identified requirements to i
234、mpacted organizationsOrganizations integrate requirements into operational procedures.FPs assure permitting requirements metGESG&RC and network of Geo FPs monitor emerging issuesGESG&RC updates global specifications&communicates identified requirements to impacted organizationsOrganizations integrat
235、e requirements into product specifications,new product designs and Business Unit operational requirementsProductLocationInputsInformation on changes to activities,products&requirements from Environmental FPsLenovo Group Limited 2022/23 Annual Report 35working with a global network of focal points(FP
236、)in the geographies,development organizations,and key functional areas,as well as with external partners.We use reliable and established processes that conform with the latest applicable laws and regulations and ensure overall effectiveness.The diagram above details the process for ensuring environm
237、ental compliance for our products and practices.Lenovo and its business partners obtain the environmental and regulatory certifications that are required to legally sell its products where they are marketed and sold.Lenovo relies on internal and external subject matter experts,third-party labs,inter
238、nal tools and processes to evaluate and confirm product compliance before shipment.Areas of review include but are not limited to,electromagnetic compatibility(EMC),environmental,safety,technology and trade controls,and wireless.Ethics and compliance with relevant laws and regulationsLenovo is commi
239、tted to conducting business legally,ethically,and with integrity.Lenovos Code of Conduct(“Code”)mandates compliance with applicable laws in markets where it conducts business.Its policies strongly support ethical and responsible business practices,which include areas such as anti-bribery and corrupt
240、ion,data privacy,and intellectual property.Our Ethics and Compliance Office(ECO)oversees the ethics and compliance function across the organization and strives to promote a culture that is committed to implementing these values.The ECO works in partnership with business units across the globe to pro
241、mote legal and ethical operations.The ECO is committed to raising awareness about the importance of ethical and compliant business practices to Lenovo and serves a critical role in providing employees with the information,resources,and training they need to make informed ethical decisions.The ECO ov
242、ersees Lenovos Code,which establishes clear expectations for employee compliance with Lenovos policies related to lawful and ethical business conduct.Lenovos Code reflects our culture of trust and integrity and holds employees accountable for their behavior and helps employees determine when and whe
243、re to seek advice.Lenovos Code,policies,and related awareness and training materials are provided on the intranet and through periodic communications.The ECO is supported by the following committees:Board Committees The Audit committee is annually briefed by the ECO on matters including the adequacy
244、 of resources for ESG reporting The Nomination and governance committee oversees the corporate policies and practices about governance and compliance with legal and regulatory requirementsOther Committees The Executive Ethics Committee provides executive-level oversight and guidance to the ECO The I
245、nvestigation Oversight Committee works closely with the ECO to oversee the Companys internal investigation process The Regional Ethics and Compliance Committee provides the ECO with global support,perspective and insightBusiness practicesLenovos Code mandates compliance with applicable laws in marke
246、ts where we conduct business.Our policies strongly support ethical and responsible business practices,including but not limited to:Anti-bribery and corruptionLenovo has zero tolerance for bribery and corruption.Lenovo complies with the anti-bribery and corruption laws of the countries in which we co
247、nduct business.Lenovos Global Anti-Bribery and Corruption Policy and along with our Global Gift,Entertainment,Corporate Hospitality and Travel Policy reinforce provisions in the Code and provide additional guidance regarding compliance with global anti-bribery and corruption laws and regulations.The
248、 policies stress that Lenovo will not directly or indirectly solicit,offer,promise,authorize,provide,or accept anything of value to any person,including government officials,to influence action,inaction or to secure an improper advantage as defined by applicable laws.Anti-competitive practices and f
249、air competitionLenovo competes for business ethically and lawfully.Lenovos Code and policy on anti-competitive practices and fair competition forbid employees from engaging in anti-competitive practices,such as entering into an agreement or discussion that would result in setting prices,limiting the
250、 availability of goods or services on the market,or agreeing to boycott a customer or supplier.Intellectual propertyLenovo values intellectual property as it innovates for the future.Lenovo expects employees to protect intellectual property and to respect the intellectual property rights of other co
251、mpanies and individuals.Lenovo secures its intellectual property by using patents,copyrights,trademarks,confidential information,related contract rights,and other applicable forms of legal protection.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 36Trade complianceLenovo
252、is committed to complying with all applicable international trade laws to protect Lenovos ability to import and export its products without limitation.Lenovo complies with Customs and Import Controls,Export Controls,Economic Sanctions,and Anti-boycott provisions implemented by government authorities
253、 in the locations it does business.Privacy&data protectionLenovo recognizes the great importance of privacy to individuals everywhere customers,website visitors,product users,employees everyone.The responsible use and protection of personal and other information under Lenovos care is a core value.To
254、 ensure adherence to Lenovos privacy and data protection policies,principles,and processes,Lenovo maintains a global Privacy&Data Protection Program led by the Legal Department and a cross-functional Privacy Working Group comprised of key partners drawn from Information Security,Product Security,Pro
255、duct Development,Marketing,E-Commerce,Service and Repair,Human Resources,and other groups.Key elements of Lenovos approach to responsibly using and protecting information of concern include:Monitoring privacy and data protection regulatory trends,advising senior leadership,and improving Lenovos priv
256、acy and data protection practices Harmonizing global privacy and data protection requirements into a corporate-wide set of guiding privacy principles intended to drive how Lenovo handles personal,device and certain other identifiable information,including developing and updating Lenovo privacy polic
257、ies and procedures Providing contractual support to ensure that risks associated with any dataflows are covered by appropriate contractual terms;includes assisting the Lenovo Legal Center of Excellence(COE)in its efforts to apply contract templates and improve privacy and security-focused contract e
258、xhibits Providing early input to product development teams by incorporating privacy checkpoints into formal product development plans,including privacy impact assessments,and conducting pre-launch privacy compliance reviews of products,software,websites,marketing programs,internal systems,and vendor
259、 relationships Publishing transparent website and product privacy statements that describe Lenovos data practices and choices for users Responding to requests from individuals to access,review,correct,amend,or delete their personal information Coordinating Lenovos response to law enforcement and oth
260、er government requests for personally identifiable data Developing and delivering privacy-focused training programs and working closely with the Chief Security Office(CSO),Corporate Infrastructure Security Office(CISO),and product security teams to timely identify and respond to information incident
261、s Maintaining an internal Global Privacy&Data Protection Program website for the Lenovo Community that serves as a resource containing policies,training,news,analysis,and additional guidance on a host of privacy and data protection areas of concern Raising questions or concernsLenovo is committed to
262、 fostering a speak up culture,where employees,contractors,and business partners are encouraged to speak up on anything that appears unethical,illegal,or suspicious.Lenovo has established clear processes and various reporting channels for raising questions or reporting concerns.Employees are encourag
263、ed to raise concerns to their managers,Human Resources,the ECO,Internal Audit,or the Legal Department about any potential issues including,but not limited to,those known about or suspected:Fraud by or against the Company Bribery or Corruption Unethical business conduct Violation of legal or regulato
264、ry requirements Substantial and specific danger to health and safety Violation of the Companys corporate policies and guidelines,particularly the Code of ConductLenovo also provides formal,confidential ways to report concerns,ask questions,or request guidance in person,by email,or through the Lenovo
265、Line,a confidential reporting system that is accessible 24 hours a day,seven days a week by the secure website or toll-free telephone with translators available.Where allowed by law,employees may report concerns about business practices anonymously.Lenovo takes all allegations and concerns seriously
266、.Lenovo maintains a Whistleblowing and Investigations Policy outlining the process by which concerns can be raised,are reviewed,and are investigated.Lenovo also has an oversight body,the Investigations Oversight Committee,to ensure concerns raised are appropriately investigated and addressed.Lenovo
267、Group Limited 2022/23 Annual Report 37Stakeholder engagementLenovo actively manages its relationships with customers,employees,suppliers,investors,regulators,members of the communities in which it operates,and other stakeholders who may be impacted by the organizations performance and whose actions
268、can affect the organizations value.Direct and indirect stakeholder engagement is conducted through regular business practices or through interactions that target key stakeholders.Lenovo also engages with stakeholders through targeted campaigns that support our social investment objectives that inclu
269、de but are not limited to:Love on Global Month of Service:September 2022 marked Lenovos sixth annual Love on Global Month of Service,engaging employees in 73 offices around the world to make a positive impact in their communities.Projects aligned to Lenovo Foundations mission to empower underreprese
270、nted populations with access to technology and STEM education.Despite the ongoing Covid-19 pandemic,the employee volunteer event grew by number of volunteers,hours volunteered,and beneficiaries in 2022.Lenovo Foundation TransforME grant round:the Foundations FY2022/23 grant round helped to address t
271、he technology skills gap by providing a total of US$1 million to organizations working to train adults in skills like data analytics,software development,and IT support.The grant rounds focus area contributed to Lenovo philanthropys goal to transform 1 million lives by 2025 through technology owners
272、hip and skills training.In addition to these and other formal stakeholder interactions,we collaborate with industry associations on an ad-hoc basis as needed.The external perspectives provide opportunities to adopt best practices and knowledge that may help to assess our commitments and progress in
273、key ESG-related areas.With operations and supply chains that extend around the world,we are uniquely positioned to support the global collective impact of business by aligning our practices to a sustainable and inclusive future.Since 2009,Lenovo has continued its role as a signatory supporter to the
274、 United Nations Global Compact(UNGC),a globally recognized platform that provides a blueprint for businesses that want to achieve a more sustainable future for all.As a business participant in the UNGC,we embrace the inspiration to demonstrate continuous improvements by aligning our operations and p
275、ractices with the ten principles of the UNGC.The principles promote a value system that supports the fundamental responsibilities in the areas of human rights,labor,environment,and anti-corruption in the markets where we operate.As we strive to integrate these values and principles wherever we condu
276、ct business,we are also making meaningful contributions to people and the planet and setting the stage for long-term success.This dedication begins at the top with the support and endorsement of our Chairman and CEO,Mr.Yang Yuanqing.Lenovo is proud to be recognized by professionals and prominent pro
277、grams worldwide as we demonstrate leadership in corporate ESG practices.The information below contains a selection of Lenovos FY2022/23 ESG achievements.A detailed review of Lenovos FY2022/23 ESG performance is published in our ESG Report.InvestorsEmployeesCustomersSupplyChainLocalCommunitiesAdvocac
278、yGroupsBoard ofDirectorsRegulators/LegislatorsIndustryAssociationsStakeholder engagement is facilitated in several ways,including:Direct customer interaction via market surveys and focus groups Employee surveys and focused training Supplier audits,conferences,and quarterly business reviews Regular w
279、ebinars and meetings with industry trade groups on regulatory and other issues Community partnerships in Lenovos priority markets Social media,StoryHub,press release,webcast Responding to investors,analysts,and non-governmental organization(NGO)surveys and inquiriesManagements discussion&analysis Le
280、novo Group Limited 2022/23 Annual Report 38Key ESG recognitions and accomplishmentsEnvironmentalLenovo ranked among BCGs Top 50 Innovative Companies for second year in a row.In 2022,for the first time,the question revolved specifically around the importance of climate and sustainability(C&S)in innov
281、ation and Lenovo ranked 24th,up one place from 2021.Lenovo was recognized at the leadership level(A-)from CDP for its efforts in climate change,water security,and supplier engagement.CDP(formerly known as the Carbon Disclosure Project)assesses companies on the comprehensiveness of climate and water
282、disclosures,awareness and management of environmental risks,and demonstration of best practices associated with environmental leadership,such as setting ambitious and meaningful targets.Lenovo maintained its highest-ever rating and the best overall industry score for the IT industry in the 2022 Hang
283、 Seng Corporate Sustainability Index,receiving an AA+rating for the second year in a row.SocialLenovo was included in the 2023 Bloomberg Gender-Equality Index,a framework that applies an internationally standardized approach to measure performance in female leadership,gender pay parity and inclusive
284、 culture,and distinguishes companies supporting gender equality through policy development,representation,and transparency.As a member of the United Nations Global Compact,Lenovo committed to the UN Womens Empowerment Principles in 2022.Lenovo was recognized as a top-scoring company(90%)and“Best Wor
285、kplace for Disability Inclusion”in the 2022 Disability Equality Index.The index recognizes companies for demonstrating leading disability inclusion practices and committing to an inclusive culture.These factors are validated through visible support from company leadership,accessible workplace and em
286、ployment practices,community engagement initiatives,and supplier diversity programs.In 2022,Lenovo worked with Workplace Pride to advance LGBTQ+inclusion through two initiatives.The first was signing the Declaration of Amsterdam in May 2022,confirming its commitment to fostering an inclusive workpla
287、ce for its LGBTQ+employees.Then,Lenovo worked with Workplace Pride to benchmark their efforts,and was subsequently recognized as the most improved company on their LGBTQ+inclusion index.For the sixth consecutive year,Lenovo was included in the Human Rights Campaign(HRC)Foundations 2023 Corporate Equ
288、ality Index,while receiving a score of 100 and the distinction of“Best Place to Work for LGBTQ+Equality”.The index is the premier benchmarking survey on corporate policies and practices for LGBTQ workplace equality in the United States.Lenovo Group Limited 2022/23 Annual Report 39GovernanceLenovo wa
289、s awarded gold and named one of Hong Kongs most sustainable companies by The Hong Kong Institute of Certified Public Accountants(HKICPA)s 2022 Best Corporate Governance and ESG Awards.This is the tenth consecutive year Lenovo has received awards from the HKICPA.In July 2022 Lenovo successfully compl
290、eted inaugural offering of US$625 million green bond as part of a US$1.25 billion dual-tranche Rule 144A/Regulation S bond offering.Lenovos green bond was included in the Bloomberg MSCI Green Bond Index,one of the most important global benchmarks for institutional ESG funds.In 2022,Lenovo received a
291、 rating of AAA(on a scale of AAA-CCC)in the MSCI ESG Ratings assessment.DISCLAIMER STATEMENTTHE USE BY LENOVO OF ANY MSCI ESG RESEARCH LLC OR ITS AFFILIATES(“MSCI”)DATA,AND THE USE OF MSCI LOGOS,TRADEMARKS,SERVICE MARKS OR INDEX NAMES HEREIN,DO NOT CONSTITUTE A SPONSORSHIP,ENDORSEMENT,RECOMMENDATION
292、,OR PROMOTION OF LENOVO BY MSCI.MSCI SERVICES AND DATA ARE THE PROPERTY OF MSCI OR ITS INFORMATION PROVIDERS,AND ARE PROVIDED AS-IS AND WITHOUT WARRANTY.MSCI NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 40Organizat
293、ional development,talent and cultureWe are LenovoThe“We Are Lenovo”cultural values of Serving our Customers,Innovation,Entrepreneurship,and Teamwork with Integrity&Trust are the heart of Lenovos talent management practices.“.I hope that by living out each culture value in our daily work,as One Lenov
294、o,we will create more value for our customers and make the world a smarter place for everyone.”Yuanqing Yang(June,2020)Employment performance and compensationLenovo continues to leverage its performance management and compensation programs to reinforce a strong commitment to excellence in achievemen
295、ts and customer experience.This approach includes annual goal setting and review,the calibration of individual ratings across organizations to ensure a fair assessment,and the recognition of individual and team performance.The Lenovo Compensation Philosophy emphasizes our focus on competitive pay fo
296、r performance that reflect the unique status of the local market where employees are based and supports flexibility in the design of business specific programs within a consistent One Lenovo Compensation framework.Organizational&talent management“Integrity,Learning Ability,Persistence and Ambition a
297、re not only the fundamental for success in career development,but also the compulsory talent requirement in Lenovo.Only if you have these four elements you can grow up into big tree!”Yuanqing Yang Lenovo uses Tree model to vividly describe our talent concept.The sky above the growing big tree symbol
298、izes lofty ambitions;the Leaves represent learning ability,continuously acquiring new knowledge and mastering new skills;the Trunk represents persistence,tenacity and perseverance;the Root represents fundamental of human being integrity.Lenovos long-term organization and talent strategy remains stea
299、dily focused on hiring and engaging world-class talent,building global organization and talent capabilities,and fostering an inclusive environment where people can thrive at their full potential.Training&developmentWe have enhanced our management and leadership development program to provide support
300、 for managers during their leadership progression at Lenovo by offering specific training experiences,for example Executive Director Accelerator Program(EDAP),Executive Presence Workshop(EPW),Director Leadership Enhancement Program(DLEP),Manager Leadership Enhancement Program(MLEP),Women Leadership
301、Development Program(WLDP)etc at key points in their careers.Instructor-led professional development courses and forums are made available throughout the year for all employees,in addition to rich online learning resources provided on demand via our global learning management system GrowLenovo.Course
302、s focusing on intelligent transformation are available on GrowLenovo for employees to learn anytime anywhere.Besides formal training,Lenovos 70-20-10 approach to employee development recognizes that employees learn through three distinct types of experiences:on-the-job training and assignments(70%),
303、developmental coaching,reverse coaching and mentoring relationships(20%),and coursework and training(10%).Lenovo also places a high priority on executive leaders development,bringing senior leaders together once a year to share best practices,learn from external experts and drive strategic alignment
304、 across the enterprise through Global Leadership Team(GLT)and Lenovo Executive Accelerator Program(LEAP).Lenovo Group Limited 2022/23 Annual Report 41Financial HighlightsResultsFor the year ended March 312023US$0002022US$000Revenue61,946,85471,618,216Gross profit10,501,09212,048,975Gross profit marg
305、in17.0%16.8%Operating expenses(7,832,269)(8,968,406)Operating profit2,668,8233,080,569Other non-operating income/(expenses)net(532,836)(312,838)Profit before taxation2,135,9872,767,731Profit for the year1,680,8312,145,332Profit attributable to equity holders of the Company1,607,7222,029,818Earnings
306、per share attributable to equity holders of the Company (US cents)Basic13.5017.45 Diluted12.7415.77EBITDA4,357,6304,713,854Non-HKFRS operating profit2,942,3173,196,613Non-HKFRS profit before taxation 2,422,4082,895,136Non-HKFRS profit for the year 1,925,1892,231,472Non-HKFRS profit attributable to e
307、quity holders of the Company1,878,3472,163,965Dividend per ordinary share(HK cents)Interim dividend88 Proposed final dividend3030Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 42For the year ended March 31,2023,the Group achieved total sales of approximately US$61,947 mil
308、lion.When compared to last year,profit attributable to equity holders for the year decreased by US$422 million to approximately US$1,608 million,gross profit margin rose 0.2 percentage points to 17 percent.While basic and diluted earnings per share were US13.50 cents and US12.74 cents respectively,r
309、epresenting a decrease of US3.95 cents and US3.03 cents.Further analyses of sales by segment are set out in Business Review and Outlook.Analysis of operating expenses by function for the years ended March 31,2023 and 2022 is as follows:2023US$0002022US$000Selling and distribution expenses(3,285,126)
310、(3,746,290)Administrative expenses(2,311,771)(2,944,234)Research and development expenses(2,195,329)(2,073,461)Other operating income/(expenses)net(40,043)(204,421)(7,832,269)(8,968,406)Operating expenses for the year decreased by 13 percent as compared with last year.Employee benefit costs decrease
311、d by US$613 million mainly due to decrease in performance-based bonus and sales commissions,partly offset by recognition of severance and related costs.The Group announced resource actions and incurred severance and related costs of US$209 million to further enhance efficiency and competitiveness in
312、 view of industrial challenges.Advertising and promotional expenses reduced by US$285 million due to expense optimization.During the year,the Group recorded fair value gain from strategic investments amounted to US$203 million(2022:US$135 million),reflecting the change in value of the Groups portfol
313、io.Net exchange loss decreased by US$39 million resulting from currency fluctuations.Lenovo Group Limited 2022/23 Annual Report 43Key expenses by nature comprise:2023US$0002022US$000Depreciation of property,plant and equipment(198,415)(174,298)Depreciation of right-of-use assets(131,697)(122,485)Amo
314、rtization of intangible assets,excluding internal use software(477,100)(469,727)Impairment of intangible assets(895)(31,434)Impairment of property,plant and equipment(10,189)Employee benefit costs,including(4,249,368)(4,862,484)long-term incentive awards(336,128)(368,921)severance and related costs(
315、208,546)Rental expenses(9,407)(15,257)Net foreign exchange loss(118,024)(156,981)Advertising and promotional expenses(845,827)(1,131,244)Legal,professional and consulting expenses(315,197)(211,906)Information technology expenses,including(385,020)(364,440)amortization of internal use software(212,15
316、7)(197,807)Increase in loss allowance of trade receivables(122,832)(90,311)Unused amounts of loss allowance of trade receivables reversed101,226101,273Research and development related laboratory testing,services and supplies(378,083)(540,716)Loss on disposal of property,plant and equipment(6,195)(2,
317、265)Loss on disposal of intangible assets(442)(8,399)Loss on disposal of construction-in-progress(1,138)Fair value gain on financial assets at fair value through profit or loss203,395135,075Fair value loss on a financial liability at fair value through profit or loss(3,209)(12,618)Gain on disposal o
318、f subsidiaries32,303Dilution gain on interest in associates2,146Gain on disposal of interest in associates1,293Others(897,480)(1,032,303)(7,832,269)(8,968,406)Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 44Other non-operating income/(expenses)net for the years ended Mar
319、ch 31,2023 and 2022 comprise:2023US$0002022US$000Finance income141,66756,458Finance costs(657,704)(362,384)Share of losses of associates and joint ventures(16,799)(6,912)(532,836)(312,838)Finance income mainly represents interest on bank deposits.Finance costs for the year increased by 81 percent as
320、 compared with last year due to increase in market interest rate and issuance of notes and convertible bonds during the year.The increase is mainly attributable to the increase in factoring cost of US$239 million,interest on bank loans and overdrafts of US$26 million and interest on notes of US$34 m
321、illion.Share of losses of associates and joint ventures primarily represents operating losses arising from principal business activities of respective associates and joint ventures.Lenovo Group Limited 2022/23 Annual Report 45The Group adopts segments by business group as the reporting format.Segmen
322、ts by business group comprise Intelligent Devices Group(“IDG”),Infrastructure Solutions Group(“ISG”)and Solutions and Services Group(“SSG”).Revenue and operating profit for reportable segments are as follows:20232022RevenueUS$000Operating profitUS$000RevenueUS$000Operating profitUS$000IDG49,371,4473
323、,598,41562,310,4104,737,823ISG9,755,59698,0847,140,0556,703SSG6,663,3971,391,7525,441,5281,195,386Total65,790,4405,088,25174,891,9935,939,912Eliminations(3,843,586)(1,208,064)(3,273,777)(1,001,478)61,946,8543,880,18771,618,2164,938,434Unallocated:Headquarters and corporate income/(expenses)net(1,087
324、,716)(1,506,022)Restructuring costs(208,546)Depreciation and amortization(548,852)(648,775)Impairment of intangible assets(31,434)Finance income100,21434,504Finance costs(154,532)(171,751)Share of losses of associates and joint ventures(20,888)(6,912)(Loss)/gain on disposal of property,plant and equ
325、ipment(721)914Fair value gain on financial assets at fair value through profit or loss174,077135,075Fair value loss on a financial liability at fair value through profit or loss(3,209)(12,618)Gain on disposal of subsidiaries32,303Dilution gain on interest in associates2,146Gain on disposal of intere
326、st in an associate1,190Dividend income2,6374,013Consolidated profit before taxation2,135,9872,767,731Headquarters and corporate income/(expenses)net for the year comprise various expenses,after appropriate allocation to business groups,of US$1,088 million(2022:US$1,506 million)such as employee benef
327、it costs,legal,professional and consulting expenses,and research and technology expenses.The drop is primarily in relation to the decrease in employee benefit costs as a result of decreased performance-based bonus and long-term incentive awards and decrease in net foreign exchange loss as compared w
328、ith last year.Managements discussion&analysis Lenovo Group Limited 2022/23 Annual Report 46Use of non-HKFRS measureTo supplement Lenovos consolidated financial statements prepared and presented in accordance with Hong Kong Financial Reporting Standards(“HKFRS”),we utilize non-HKFRS adjusted profit a
329、s an additional financial measure.We define adjusted profit as profit for the year by excluding(i)net fair value changes on financial assets at fair value through profit or loss,(ii)amortization of intangible assets resulting from mergers and acquisitions,(iii)mergers and acquisitions related charge
330、s,and(iv)restructuring and other charges,and the corresponding income tax effects,if any.More specifically,management excludes each of those items mentioned above for the following reasons:Lenovo recognizes fair value gains or losses from its strategic investments.The change in fair value included r
331、evaluation gains or losses on new investment rounds on unlisted holdings and mark-to-market gains or losses on listed holdings.Lenovo excludes this item for the purposes of calculating the non-HKFRS measure to facilitate a more meaningful evaluation of Lenovos current operating performance and compa
332、risons to operating performance in other periods.Lenovo incurs charges relating to the amortization of intangible assets resulting from mergers and acquisitions.Those charges are included in Lenovos net profit prepared under HKFRS.Such charges are significantly impacted by the timing and magnitude o
333、f Lenovos acquisitions and any related impairment charges.Consequently,Lenovo excludes these charges for the purposes of calculating the non-HKFRS measure to facilitate a more meaningful evaluation of Lenovos current operating performance and comparisons to operating performance in other periods.Lenovo incurs cost related to its mergers and acquisitions,which it would not have otherwise incurred a