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LENOVO ANNOUNCES 2004/05 FIRST QUARTER RESULTS

   

(Hong Kong, August 11, 2004) - Lenovo Group Limited ("Lenovo") (stock code: 992) today announced its results for the quarter ended June 30, 2004.

For the first quarter of 2004/05 fiscal year, the Group achieved a turnover of approximately HK$5.878 billion, representing an increase of 10.0% as compared with the same period last year. Profit attributable to shareholders was approximately HK$337 million, up substantially by 21.1%. Overall gross margin was 15.7%, and net margin rose to 5.7%.

Yang Yuanqing, President and CEO of Lenovo, said, "This was the first quarter since we started implementing our new strategy. During the period, we have actively and effectively pursued a series of initiatives aiming at focusing on our core businesses, and building a more customer-oriented sales model and organisational structure. The new initiatives proceeded smoothly with business performance of the first fiscal quarter in line with management expectation. The Group's PC business performed steadily and mobile handset business achieved substantial growth. New approaches have been adopted with determination and helped develop the non-core businesses effectively. Benefited from the decisive implementation of the focused strategy, the Group achieved outstanding results in the past quarter."

The Group's new initiatives of focusing on core business and strategic new businesses have been on track. During the quarter, the Group's PC business maintained steady growth. Corporate IT business recorded 15.8% increase in turnover. The Group launched a series of new PC products, deploying a comprehensive strategic product mix. The new PC products included the "Qitian IV" and "Kaitian S" computer series targeting the government and education sectors and SMEs respectively, as well as four new models of notebook computers which showcased the Group's R&D expertise. Furthermore, in line with its customer segmentation strategy, the Group led the market in introducing the new consumer PC series "Yuanmeng" with highly attractive price-to-performance ratio targeting township market. This strategic move marked the Group's further penetration of the township market which has immense volume growth potentials.

The Group's strategic new business, mobile handset business, achieved outstanding performance and contributed profit during the quarter. Unit shipment of mobile handsets grew substantially by 145.9% over the same quarter last year. Gross margin surged continuously reaching 25.06%. Lenovo began to reap the fruit of its efforts in building its sales channels -- the "10,000-shop expansion project" -- over the past two years. In addition, the substantial increase in the shipment of self-developed models plus major marketing activities riding on sports related themes were also major factors contributing to the strong growth of the Group's handset sales.

Establishing a more customer-oriented sales models and organisational structure is another focal point of the Group's strategic initiatives. During the period, the Group completed the construction of a more customer-oriented market system. An extensive sales network with 18 sales regions and a total of 108 grids has already been built across the country and deeply penetrates into township areas. All these allow Lenovo to build stronger ties with customers and to efficiently respond to their needs. At the same time, the Group started to implement its integrated distribution strategy which combines retail, channel distribution and direct-to-customer models, allowing it to cover various customer groups comprehensively. Currently the Group's nationwide retail network comprises more than 4,000 retail shops. In addition, progress has been made in enhancing the capabilities of distribution channels in serving customers. The Group has also achieved mutual understanding with channels through effective communications of the Group's strategic initiatives, resulting in a better division of labor and complementary advantages. The Group's sales model targeting large clients as well as telesales model also seen considerable progress.

In addition to adopting new sales models, Lenovo also further enhanced its overall operational efficiency in the first quarter of the financial year and effectively controlled its operating expenses.

Yang concluded, "After implementing for a quarter, our new initiatives aiming at strengthening ties, winning and cultivating long term relationship with customers have initially proved that we have been moving in the right strategic direction. It also testified our determination in implementing the moves. In subsequent quarters, we will continue to push ahead with these new initiatives to foster the development of our integrated distribution model and step up the penetration of township market to realise our full competitive strengths."