Lenovo Group Limited (992) Earnings Call Transcript & Summary

Good morning, everyone. I'm Fiona Fung, BNP Paribas. On behalf of Lenovo Group Limited, welcome to today's ESG update conference call. As a global leader in the tech sector, Lenovo has been at the forefront in its commitment to build a sustainable planet, combat climate change, promote inclusion and close the digital divide. Lenovo is an early adopter of science-based targets. It's 2030 targets were validated by SBTi back in 2020, and it was the first PC and smartphone maker globally to establish a net zero target validated by SBTi. We would like to take this opportunity to update you on Lenovo's ESG strategies, initiatives and latest achievements and are deeply honored to have with us today company senior management and representatives from their ESG team. From the Treasury and IR side, we have Mr. Hugh Wu, Vice President and Treasurer; Ms. Jenny Lai, Vice President, Investor Relations; and Ms. Ser Mein Koh Ko, Executive Director of Treasury. We are also joined by Lenovo's ESG and Company Secretary teams. We have Ms. Laura Quatela, Senior Vice President, Chief Legal and Corporate Responsibility Officer; Ms. Mary Jacques, Executive Director, Global ESG and Regulatory Compliance; Mr. Calvin Crosslin, Vice President, Chief Diversity Officer and President of Lenovo Foundation; Ms. Tracy Lam, Company Secretary and Deputy General Counsel; and Mr. Dustin Deal, Director, Global Supply Chain Sustainability. We'll start today's call with a presentation from the company first and then open the floor to Q&A afterwards. With that, I'll pass the time to Hugh and his team. Thank you.

Thank you, Fiona. Good evening, and good morning. Thank you for joining our ESG update. We engage our stakeholders in one-on-one and other forums on a regular basis. But ESG is a critical part of our organization. It is ingrained into our operations and our corporate DNA. So we are pleased to have the opportunity to engage with you on ESG topics. For those who are not as familiar with Lenovo, let me start by giving you a quick summary. Lenovo is a global technology powerhouse serving millions of customers every day in more than 180 markets. Incorporated in Hong Kong with key operations centers in Beijing and North Carolina, our vision is to deliver smarter technology for all. As the world's largest PC company, we have built our success by further expanding into key growth areas, including server, storage, mobile solutions and services. Our manufacturing presence covers 9 countries, working with more than 2,000 suppliers in over 30 global manufacturing sites and 18 R&D locations that deliver over 120 million devices to our customers annually. Lenovo has a flexible, resilient global supply chain that was ranked #10 in Gartner's Top 25 global supply chains in 2024. And we made the commitment to invest additional USD 1 billion on AI technology over 3 years. As a leading global technology company, given the role we play in serving our communities, Lenovo is uniquely positioned to develop innovative solutions to reshape the way we and our customer conduct business, help preserve ecosystems on which our future depends and help solve sustainable development challenges. Lenovo is a global business and maintain a strong geographical balance with our revenue fairly diversified across Americas, China, APAC and EMEA. We offer clients a suite of products, services and solutions across our 3 business segments. The SSG is our new growth engine with high profitability spearheading our digital transformation. The group is spearheading digital transformation with secure offerings, including digital workspace, hybrid cloud and sustainability solutions. Remarkably, we have achieved a record sustainability revenue with high double-digit growth for fiscal year 2024. In fiscal quarter 4, we achieved a record sales and the 12th consecutive quarter of double-digit revenue growth and profit margin. The ISG provides hybrid AI infrastructure, empowering customers' intelligent transformation. We are one of the world's fastest-growing infrastructure solution providers, ranking #1 in top 500 HPC and Green500 HPC, #3 by worldwide storage and have achieved 48% year-on-year growth in storage services and software revenue in fiscal year 2024. Lastly, the IDG offers smart end user devices, including PC and smartphones to enable more seamless experiences for our customers. We maintained to be #1 in PC with leading profitability and the dominating 23% market share in fiscal year 2024. Premium mix in PC and smartphone are also growing. With PC remain important of our group business. We have grown the non-PC business steadily and it now represent over 42% of our combined revenues. Despite market challenges, our 3 business group set multiple performance records in growth this year. For further details about our divisions and their performance, please refer to our annual report and the results presentation in May this year. I will now pass it to Laura, our Senior Vice President and our Chief Legal and Corporate Responsibility Officer to give you an overview on Lenovo's ESG material topics and vision. Laura, please.

Thank you so much, Hugh. Good evening and good morning, everyone. Thank you for joining. We all know there's been increased attention paid to ESG or sustainability in recent years. But ESG is not a new phenomenon for Lenovo. We've been measuring and reporting our sustainability efforts for over 15 years. The increased awareness of these topics has, however, amplified the need for corporate transparency and reporting. As a company serving customers in more than 180 markets and in a diverse set of industries, with almost 70,000 employees, over 2,000 suppliers and over 30 manufacturing facilities across 9 countries, our sustainability efforts need to be managed in a comprehensive yet targeted and collaborative manner. For our ongoing engagement with different stakeholders, we've identified ESG-related material topics, which align with our significant environmental, social and governance impacts. This helps us set ESG goals, targets and disclosure practices. These material topics align with and contribute to the respective UN SDGs and provide us with the blueprint on how we can leverage smarter technology for all to achieve a more sustainable future. Lenovo has always been unwavering in our commitment to build a sustainable planet, promoting inclusion, closing the digital divide and being a responsible corporate citizen everywhere we do business. We've made noteworthy progress with ESG as an integral part of the company's strategy, innovation and operations. And this has been highly recognized by the market and by ESG rating providers. This year, our ESG activities reached important milestones, which contributed to Lenovo's maintaining an MSCI ESG rating of AAA and earning recognition from CDP as a leader in climate change and supplier engagement and also being in the top 3% of companies rated by EcoVadis. In addition, this past year, Lenovo supported raising the bar in the ESG area by joining a number of important initiatives, including the UNESCO global education initiative and endorsing the UNESCO ethical AI statement. On the environmental side, after becoming the first PC and smartphone maker to establish a net zero target validated by SBTi, we're proud to announce strong progress towards our climate change goals. We apply rigorous design principles to improve the sustainability performance of our products across their lifecycles. And our innovation has been recognized in many ways, including by being awarded Best Green Energy Product of the Year by CRN Sustainability Tech for our Neptune warm water cooled servers. Achieving our own emission reduction goals is only one part of our larger climate action strategy. Our scale, infrastructure and access also give us the opportunity to leverage our technology, products and solutions to support our customers and communities with their climate goals and empower them with more sustainable choices through services. We remain committed to giving back to communities around the world through our philanthropic initiatives focused on empowering underrepresented populations. In fiscal year '23-'24, Lenovo invested over $16 million in strategic partnerships with charities globally. One of my responsibilities include serving as Chief Responsibility Officer and leading our ESG function. Inherent to our bold and ambitious vision to deliver smarter technology for all is our ESG vision, how we turn our ESG commitment into action and hold ourselves accountable to drive impact for communities. Combating climate change is both a business and a moral imperative. We put sustainability at the core of our consideration throughout our entire value chain from design to manufacturing and from logistics to services. As I've mentioned, Lenovo was an early adopter of the science-based emissions reduction approach, receiving SBTi approval for our near-term emissions reduction target as early as 2020. After exceeding our 2020 emissions reduction goal 1 year ahead of target, in January of 2023, we further amplified our commitment to sustainability, committing to reduce absolute Scope 1, 2 and 3 greenhouse gas emissions by 90% by 2050 from a fiscal year 2018-'19 base year. And again, we became the first PC and smartphone maker to have our long-term net zero targets validated by SBTi. As a global technology leader, Lenovo has the capability and profound responsibility to champion diversity and inclusion, give back to our communities and close the digital divide. We've always pursued a path of diversity inclusion and promoted an inclusive culture for both the company's global workforce and our customer base. We also commit to respecting upholding of human rights across the organization, including incorporating these principles on our corporate strategies, practices and supplier requirements. And we have strong systems and programs in place to support the health and safety in our own operations as well as in our supply chain. I'll talk more about our governance structure on the next slide, but I want to highlight here that our ESG practices include a robust governance structure that is continually evaluated and developed to ensure we hold ourselves and our business partners globally to the highest standards of ethics and compliance. I now pass it to Mary to take you through our ESG approach.

Okay. Thank you, Laura. So as previously mentioned, to ensure the highest levels of accountability and transparency, our ESG governance structure comprises senior management of the company and our Board. The Board has the highest level of oversight for our ESG programs and our ESG reporting and Board members are updated on critical ESG risk areas and responses through regular briefings, which include a review of key ESG practices and the approval of the annual ESG report. Our ESG oversight is supported through various governance committees, including our ESG Executive Oversight Committee. And this is a group that's composed of members from various teams across the organization who come together to help us develop, manage and measure our ESG strategy and performance. Laura as our Chief Legal and Corporate Responsibility Officer, provides executive leadership for our ESG position and ensures that regular reports are made to the Lenovo Executive Committee, the Board and its committees and she also chairs the ESG Executive Oversight Committee. And this again is the group that is providing strategic direction and facilitating the coordination of ESG efforts across the company. We uphold the highest standards of ESG management and have formulated specific policies and strategies to support our risk mitigation, governance practices and strategic priorities, including recently, we released a new detailed climate change transition plan. So now I'm going to hand it over to Tracy, our Company Secretary and Deputy General Counsel, who will tell you more about our governance structure and practices. Tracy? Well, I can cover this. So just to go into a little bit more detail about our governance structures. We have a rigorous and effective governance structure and this allows us to advance our ESG initiatives and implement our policies throughout the business operations and integrate them in an effective and responsible manner. We believe that the strength of our Board stems from its members' independence and diversity and this diversity reflects the world in which we operate and serve. By leveraging our members' different backgrounds and experiences, we bring variety to our perspectives, and this helps foster better understanding of key issues. It allows us to tackle challenges from different angles. With the adoption of our Board diversity policy, a wide range of factors are considered when identifying candidates for appointment as directors of the company. These factors include, among others, the candidate's background, skills, experience, gender and age. Our Board and Board committees are well represented by independent members with 75% representation. As a good practice, we've appointed the lead independent director for more than 10 years, which the Hong Kong Stock Exchange has recently proposed the appointment of such lead independent directors in the new corporate governance code consultation that was published this month. Our Lead Independent Director has played an indispensable role in upholding Lenovo's high standards of corporate governance by fostering an open and transparent environment within the Board, advocating refreshment of Board by directors with diverse backgrounds, expertise and perspectives and ensuring a well-rounded and inclusive decision-making process. Among others, the role of Lead Independent Director include serving, among others -- the roles of lead independent director include Chairman of the Board and Nomination and Governance Committee. And considering the combined roles of Chairman, they help prepare a performance assessment of the Chairman and/or CEO in consultation with all other Board members and service a key role in the Board evaluation process. Now we currently have 2 members on our 12-member board, who are females, and we target 20% female representation on the Board by fiscal year '25-'26. We're proactively identifying suitable candidates towards this target and continue to ensure a diverse pool of members are represented in our Board and Board Committees. Okay. So now shifting gears to go back to climate change and climate action. I want to talk a little bit about where we are in terms of our emission performance and how we track compared to previous years. As a company, we've identified the Scope 3 greenhouse gas categories that are relevant and those that are not relevant to us. Of those categories that are relevant to our operations, downstream purchased goods and services and the use of sold products remain the largest contributors to our greenhouse gas footprint and these make up 43% and 47% of our Scope 3 emissions, respectively. As such, the focus of our climate action strategy will continue to address these 2 categories. The chart on the right shows Lenovo's absolute greenhouse gas emissions since fiscal year 2019-'20. And over the past few years, we've attempted to minimize our Scope 3 emissions through a combination of energy efficiency improvements, a shift to lower carbon modes of transport and improvement in our vehicle fuel efficiency. Last year, in fiscal year '23-'24, we achieved a stellar result of nearly 20% reduction in our Scope 3 emissions year-to-year, and our Scope 1 and 2 emissions have been reduced in a consistent manner. In the coming slides, I'll discuss our commitment to reduce absolute emissions and how we plan on tackling this. So the world leader in innovation and technology, we're setting an industry first and trying to lead by example in the sustainability area. As you've heard, we were the first PC and smartphone maker globally to establish SBTi validated targets for the long-term net zero scenario. And as such, we pledged to reduce our emissions footprint to align to join the global fight against climate change with specific ambitious, science-based targets for 2030 and 2050 that align to the 1.5-degree scenario. We plan to reduce our absolute greenhouse gas emissions for all Scopes 1, 2 and 3 by 90% by 2050. The remaining 10% will be neutralized through activities like carbon capture, reforestation and other means. This serves as the foundation for our decisive action to achieve net zero emissions across our entire value chain. Now I want to take a deeper dive into our near-term greenhouse gas emission targets that are for 2030. For our Scope 1 and 2 emissions, which represent emissions from our own operations, we're committed to reducing these emissions by 50% by 2030 from our baseline year of 2019. To achieve this target, we are undertaking energy efficiency initiatives like replacement and upgrading of existing systems and hardware to enable better energy use, deploying on-site renewable generation -- renewable energy generation capability and also procuring renewable energy commodities in the markets where we operate. To address the downstream Scope 3 emissions from use of sold products, we're committed to reduce on average 35% of our emissions per comparable product and we're doing this by introducing energy efficiency improvements and engaging our customers to help them utilize more renewable energy. For our downstream Scope 3 emissions from purchased goods and services, we commit to reducing the greenhouse gases by 66.5% per USD 1 million of gross profit by 2030, also from a 2019 baseline. This involves us working with our upstream value chain partners and helping embed climate change KPIs into the evaluation process of our upstream partners. Lastly, we're looking at the Scope 3 emissions arising from upstream transportation and distribution, and we've committed to reduce the per ton kilometer emissions of our transported product from our global logistics operations by 25% by 2030 from our 2019 baseline, and we're doing this by shifting to lower carbon modes of transport and optimizing our transport planning and utilization. So now I want to shift gears again and focus a little bit more on some additional internal KPIs that we've set regarding some of our other material ESG topics. So apart from those specific science-based targets that I just discussed, we're also committed to other targets that will further help us reduce our greenhouse gas emissions, including a commitment to obtain 90% of the electricity that we need for our global operations from renewable sources and to remove 1 million tons of greenhouse gas emissions from our supply chain. We also have specific targets around energy efficiency, including aiming to achieve a 50% improvement in energy efficiency for our desktops and server products and a 30% energy efficiency improvement in our notebook and Motorola products. In the area of circular economy, our targets include increasing the proportion of repairs that our customers can do on site at their location and also a focus on reducing the consumption of new parts and increasing the recycling rate for end-of-life products. At the same time, we're also committed to using more sustainable materials in our products. So now I'm going to hand it over to Calvin, who's our Vice President and Chief Diversity Officer as well as President of the Lenovo Foundation who's going to take us through the targets we have for our diversity and inclusion and philanthropic initiatives. Cal?

Thank you, Mary. So additional targets on the social side include targets designed to foster greater diversity inclusion, where we commit to by fiscal year 2025, 2026 global representation of women and historically underrepresented ethnic and racial groups in executive roles and ensure that 75% of our products will be vetted by inclusive design experts and targets designed to further empowerment of underrepresented populations where we commit to engage 25% of our employees in our charitable programs and target to impact 15 million lives and transform 1 million lives through our programs and partnerships by fiscal year 2025, '26. Back to you, Mary.

Thank you, Cal. So similarly, on the governance side, we recognize the importance of continuous improvement in our collective performance across the leadership of the company and we've set numerous targets to help us evaluate and advance the performance and effectiveness of this leadership. Everything from ESG oversight and governance to training and compliance programs covering ethics and privacy and other initiatives. So now I'm going to share with you some highlights of our ESG initiatives and achievements for fiscal year '23-'24, which exemplify our ESG commitment. So starting on the far left with environmental responsibility. As we've heard earlier, I'm really pleased to say that we're on track to achieve our 2030 emissions reduction targets, which are our near-term goals that are aligned with the science-based targets initiative. And we're also focused through our circular economy practices on the recycling and reuse of products from customers and we've achieved over 94,000 metric tons of product recycled or reused. This is equivalent to over 87 million ThinkPads in weight. We have been recognized as an EPEAT Climate+ Champion with over 400 products registered on the first day of Climate+ eligibility. And we've achieved a significant milestone in our packaging journey by implementing plastic-free primary packaging across all of our ThinkPad notebook product lines with the exception of the E-Series. On the social side, we've demonstrated our commitment to diversity and inclusion with an industry-leading 29% representation of women in technical roles. And on the employee volunteerism area, we've seen a remarkable 40% growth during this year or last year, the 2023, [ 1 month ] of service, and this was compared to the previous year. We also launched a new AI for social impact webinar series that helps us and our charitable partners promote digital inclusion. And finally, in the governance area, we uphold our principle of governing with integrity through our commitment to responsible and ethical AI practices, with proactive governance mechanisms in place and we have endorsed UNESCO's ethical AI statement after we established an internal responsible AI committee to help us ensure ethical AI deployment. We adhere to leading standards and frameworks for transparently reporting our sustainable impacts across our company. And we're well recognized for our supply chain excellence and have consistently ranked well in the Gartner Top 25 supply chain list, ranking #10 this year. In addition, our global supply chain's ESG digital platform is a new tool that aims to integrate end-to-end supply chain data to help create transparency at an organizational and product level around our environmental and social impacts. It also helps us create closed-loop ESG KPI management processes, monitor risks and enable seamless collaboration with both our upstream and downstream partners. In addition, since 2021, we've used the IPEs Blue EcoChain tool to help us track the environmental performance of our suppliers. We were recognized by IPE with the green supply chain Corporate Information Transparency Index and the Corporate Climate Action Transparency Index this year, ranking among the top 10 in the IT industry. These ESG highlights and achievements underscore our unwavering dedication to driving positive environmental and social impact as well as strong ethical governance. Our accomplishments as a responsible leader, great employer and corporate citizen are well recognized by respected organizations around the world. I want to share with you a few highlights of how we've been rated by external parties. On the climate front, we received an A rating for our CDP response for climate change and supplier engagement in 2023. And again, we were rated #10 in the Gartner top 25 supply chain ranking, which includes a heavy emphasis on ESG performance. From a more regional perspective, we were awarded the Gold Award for most sustainable companies and organizations by the Hong Kong Institute of Certified Public Accountants, and we received the highest possible rating of AA from the Hang Seng Corporate Sustainability Index. Our inaugural green bond issuance was included in the Bloomberg MSCI Green Bond and S&P Green Bond indices as standards of market best practices. We recognize that ESG ratings are an important factor in how we're viewed by investors and other stakeholders, and we're pleased to report that we've made meaningful progress across these ESG ratings. In December of 2022, MSCI upgraded our ESG rating one notch to AAA, which we maintained again in 2023. Not only have we achieved the highest possible score in the technology, hardware, storage and peripherals industry, but we're also among the top 11th percentile of companies in this universe. MSCI cited our latest improvement in score as being attributed to our improvement in corporate governance and ongoing leadership in managing our electronic waste as well as privacy and data security policies. Similarly, we rank well in the Sustainalytics risk rating. Sustainalytics continues to rate our exposure to material ESG issues as low with a score of 17.2. And our management of material ESG issues is rated as strong. We continue to perform well and in line with our peer group, rating 44 out of 123 in the same industry vertical. I'm now going to pass the mic over to Ser Mein, who is our Executive Director of Treasury to talk more about our Green Bond or Green Finance Framework in the green bond we did in 2022. Ser Mein?

Thank you, Mary. The green finance framework was established in July 2022 to support our green financing activities and to integrate sustainability into our financing program. The framework sets with the governance and processes for financing and refinancing eligible projects that brings positive contribution to the United Nations sustainable development goals. The framework is aligned with ICMA green bond principles, green loan principles among others and received a second-party opinion for Sustainalytics, which confirmed that the framework is credible and impactful. As a group, we review ESG-related capital expenditures and have identified 5 eligible green categories in our framework, including energy efficiency, renewable energy, green buildings, circular economy adapted products, production and processes and clean transportation. By fostering investments in eligible green projects, the framework support our transition through a low carbon and more resource efficient business operation. We at Lenovo believe that our sustainable investments embody our commitment to the longer-term sustainability of our business and communities in which we operate and support. We issued our inaugural USD 625 million 10-year senior unsecured green bond and our Green Finance Framework in July 2022. Proceeds from this issuance were fully deployed and allocated to eligible green projects in accordance with the framework by October 2022. 100% of the proceeds were allocated to refinancing of eligible projects most of which went towards refinancing of green buildings, the Beijing campus and the Shenzhen new headquarters, both of which received lead score certificates. The remainder of the proceeds were used to refinance of renewable energy projects like our solar energy project in the United States. We are excited to report that as a result of deploying these proceeds, the solar energy projects generated 3.24 megawatt hours of solar energy annually and avoided 920 million tons of CO2 equivalent of greenhouse gas emission annually. With this, it marks the end of our ESG update presentation. We will now open the floor for Q&A. Thank you.

[Operator Instructions] Our first question asks, what are Lenovo's social initiatives and investments.

It's Cal, I'll take that one. So our social investment focuses on STEM education and empowerment of diverse and underrepresented populations through charitable corporate contributions and partnerships. The company partners with charities, educational institutions and civic organization is to provide unrepresented populations with access to technology and STEM education, the use of Lenovo's technology and philanthropic resources to strategically respond to natural humanitarian disasters like COVID-19, share the company's smarter technology for all vision with communities around the world through employee volunteerism, offer internship programs specifically designed to attract students from traditionally underrepresented groups and invest approximately $16 million in strategic partnerships with charitable around the world. We also promote diversity inclusion in the workplace. The efforts have been recognized by achieving top score of 90% disability of the quality index and Best Workplaces for diversity inclusion in 2020, being included in the Bloomberg Gender-Equality Index and being included in Human Rights Campaign Foundations 2023, 2024 Corporate Quality Index for the 6th consecutive year by receiving a score of 90 out of 100.

Our next question asks is management or Board compensation tied to ESG achievements.

I'm Tracy, I'll take that question. Currently, compensation of the key management who are driving the operational performance and ESG initiatives of the group, including, but not limited to, our CEO and Chief Legal and Corporate Responsibility Officer is tied with the ESG achievements of which their individual KPIs on Lenovo's ESG achievements are considered during the review or assessment of their performance and determination of their compensation level and package every year by the compensation committee. As regard to KPIs for long-term incentive [ plans ] at the start of each year, the Board of Directors approves the long-term incentive plans and performance assessment objectives for the company and major business groups. Taking into account the company's strategic priorities, these performance objectives encompass not only financial indicators such as revenue and profit but also strategic goals such as technological innovation, the development of long-term competitiveness and corporate social responsibility. Currently, Lenovo does not include specific ESG measures in the LTI plan, but the Board has contemplated the inclusion of the CSI -- CSR matrix in determining the final incentive payout. I hope that answered the question.

Our next question asks in view of the rising global awareness on data and cybersecurity and increasing ask on responsible AI, does Lenovo have any strategy or approach to enhance the protection for its customers?

It's Laura. I'll address this question. Thanks for asking it. Lenovo does reinforced our commitment to responsible AI by upholding a series of key principles and guidelines which are set forth in our corporate AI policy. These include not using AI in ways that harm people or put them or their rights at risk, ensuring that our AI is fair, transparent, explainable and efficient, ensuring that there is proper human oversight throughout the life cycle of any AI system we use, protecting people's privacy at all stages of the AI life cycle and ensuring that our AI is developed and used in strict compliance with applicable laws and regulations. Lenovo was named a member of our leadership team, Doug Fisher, as our Chief Security and Artificial Intelligence Officer. In this role and working in partnership with my team, Doug is responsible for putting in place governance and oversight processes that ensure Lenovo's global operations and products sold worldwide featuring a wide array of artificial intelligence capabilities comply with as I mentioned, Lenovo's recently adopted global policy on responsible AI. In this policy as well as in the company's numerous commitments to voluntary standards of conduct regarding AI around the world. Lenovo has pledged to be a leader in a responsible and ethical deployment of artificial intelligence for the benefit of customers, partners, our employees and the global communities in which we operate. Thank you.

Our next question asks, how does Lenovo view the sustainability factors would impact on its financial performances in short to midterm? Will sustainability impact on Lenovo's investment direction? And what's your overall CapEx for achieving your ESG targets for the coming 3 years and in the long run?

Hi, this is Ser Mein. Let me take that question. I think there are 3 parts to your question. So I think, first of all, we believe the sustainability factors impact on financial performance is increasingly more connected. As a global company with sales presence in over 180 markets and manufacturing capacities in 9 countries, we recognize the tangible benefits of sustainability in driving cost savings, risk management, market differentiation, innovation and employee engagement. So by integrating sustainability in our business strategies and operations, we can enhance our financial performance, competitiveness and long-term value creation. And in terms of sustainability, being one of the factors we weigh in when we assess the viability of an investment project. So just recently, we announced a strategic collaboration with Alat, a subsidiary of PIF, a sovereign wealth fund of the Kingdom of Saudi Arabia. As part of that collaboration, Lenovo will issue a USD 2 billion zero coupon convertible bond to Alat. The net proceeds will be used to repay existing debt and general corporate and working capital purposes. Lenovo will also set up a regional Middle East and Africa headquarters in Riyadh and establish a new PC and server manufacturing facilities in KSA. KSA is entering a new era of clean energy and has a goal to produce 50% of electricity from renewables by 2030. In support of that goal, and Lenovo's own 2050 net zero goal, we will be able to contribute to this vision and at the same time, benefit from KSA's clean power and sustainable manufacturing initiatives to help reach our own targets. And lastly, the question on CapEx. Our CapEx spending in fiscal year '23-'24 was about USD 1.3 billion. We expect the CapEx spending in this fiscal year -- fiscal year '24-'25 to be around USD 1.4 billion to USD 1.6 billion. The ESG target is built within this target already. We expect the CapEx spending to be roughly in the same range in the near term. So I hope that answers the questions that you have raised.

Our next question asks Lenovo 2023 CDP rating for supplier engagement improved to A. Can you add some comments on the score change?

This is Mary. I can take that one. So as I mentioned when I was going through the presentation, our -- one of our biggest areas of emissions is Scope 3 purchased goods and services. So we recognize that having really strong supplier engagement is critical for us to be able to achieve our goals. We have a mature supplier engagement program that has been designed to help understand our suppliers' behavior and how to incentivize changes in their behavior. And we're really focused on engaging the top 100, 100 plus suppliers out of roughly our overall 350 suppliers for -- our Tier 1 product suppliers. And we're really focused on this roughly 100 number because those suppliers represent about 98% of our procurement spend. And so within this group, we're focused on engaging the suppliers to have, first and foremost, public greenhouse gas reduction goals with science-based targets as a best practice. And then we also recognize the value of strong management systems. And so we are promoting the adoption of ISO 50001 certifications, which is related to energy management systems. And then we also promote CDP reporting and scoring because we recognize that being able to report to CDP as a sign of maturity. And so that's very important. Another area of emphasis with our suppliers is to have third-party verification of their Scope 1 and 2 emissions and then also to have commitments to procure 100% renewable energy. So we measure our suppliers against these goals and other goals using a scorecard program. And then the results of that scorecard are an input into our procurement decisions. And what it does is it really helps us ensure that we're working with supply chain partners who are aligned with us, they're meeting our standards. And it helps us ensure that we have not just a responsible supply chain, but also a resilient supply chain. So we communicate to our suppliers that they're expected to show climate change improvements, improvements in their performance. And then we're constantly evaluating what our standards are, what our expectations are and raising our expectations to motivate them and to really support us and the world transition to a low carbon economy. So thanks for that question. I hope that helps to answer it.

Our Next question asks, could you please give us more detail on how Lenovo selects the supplier? And how does your company prevent the violation of human rights?

This is Dustin from Global Supply Chain Sustainability. I'll take that one. Well, it's a good question. It all starts with Lenovo suppliers being contractually required to sign our code of conduct, which is cover several areas of ESG, including human rights and of course labor. This code is publicly available on the website, Lenovo.com, and also embedded within our supplier contracts. In addition, we partner with the RBA, which is the Responsible Business Alliance and implement their code of conduct to govern our own operations as well as those of our suppliers. And this is a really comprehensive code that in terms of working conditions are safe, workers are respected and all of our operations are conducted actively. So what we require for our suppliers is also to conduct an annual self-assessment against these codes and conduct an RBA third-party validated audit every 24 months. And we use those audits to assess the performance of our suppliers and report this publicly in our annual ESG report. In addition to the supplier code of conduct, the RBA code of conduct, and the audit programs, we also have engaged with a third-party ESG platform called EcoVadis. And this is widely used in the industry and provides ESG scoring across environment, labor agreement rights, sustainable procurement and ethics. And we utilized these supplier scores to determine which areas our suppliers need to improve, and we help them implement corrective action plans as needed. We also have external industry engagement through responsible minerals initiative, responsible labor initiative. And we're also an active participant in the China smelter engagement team working group. And when you consider the number of programs that we have to address labor and human rights, it's important that we educate our suppliers as well. So we've developed annual training programs, both internally for our procurement teams and then externally for our suppliers. So it's clear to everyone what the expectations are for the fair treatment of workers. Thank you.

Our next question asks what is the identified salient human rights risk along your supply chain?

Okay. I'll take this one again. So what we've found through those audit programs, the main findings are related to excessive working hours and insufficient time off for employees, which is commonly found throughout the industry. And in order to help our suppliers and contractors correct this, we collect monthly working hours and time-off performance data from our outsourced manufacturers via an online tool. And if there's any instances of noncompliance regarding these working hours or time-off performance, we request an explanation from them, and we implement corrective action plans. So we also stressed the importance of adhering to working our compliance in our communications with those suppliers and also in the training sessions with the suppliers.

Our next question asks how much of your energy needs are through renewable sources? And how much of your packaging are through recycled materials?

This is Mary. I'll take that. So good question. I'll start with the renewable energy piece of it. So we are making good progress towards our 2025 goal to source 90% of the energy that we need for our own operations from renewable sources. We're doing that through a combination of really focusing on our own operations and our facilities and trying to make them as efficient as possible through new projects, whether it's lighting or HVAC updates. And then in addition to trying to take advantage of any opportunities to make our operations more efficient, then we next focus on opportunities to install renewable energy on-site. And last year, we actually had a really good year for adding additional capacity, and we actually grew our total capacity by about 40% to 50%. I think it was 48% compared to the previous fiscal year. So we now have over 25 megawatts of solar electric generation capacity on our own site. But then in addition to that, we do continue to purchase renewable energy credits to help not just for our own emissions reductions and our own renewable targets, but also to promote the market for renewable energy. And we do this through the purchase of instruments like renewable energy credits, RECs or I-RECs guarantees of origin and [ FCs ]. And so we do that around the world wherever we have operations. So in places like Brazil, China, India, Japan, Europe, Mexico, the U.S. So we're purchasing these commodities to support renewable energy procurement. So the second part of the question related to packaging, we've had a really strong focus on sustainable packaging for many years. And so initially, first and foremost, we always think about how we design the packaging and trying to minimize the amount of materials that are used because that helps from both a resource efficiency perspective, but also it allows us to transport more product in a smaller footprint. And then the next step is to look at the materials that we're using to make our products. And we've had a number of innovations in that space. Historically, we've used quite a bit of recycled content. But recently, our focus, and we've had a lot of success with this has been to transition away from the use of plastic. And in our notebook area across our ThinkPad notebook lines, we've been successful in eliminating plastic from our packaging 100% with the exception of the E-Series. And this includes everything. So the handle for the primary packaging. So the handle on the top of the carton is now made from fiber. All of the plastic that we use to protect the screens or protect different components has either been eliminated or has been substituted with fiber-based materials. So that's something that we're really focused on, and that's the transition away from plastic packaging. But we've also driven the use of other innovative materials like bio-based fibers, bamboo and sugarcane cushions and then even some ocean-bound plastic, which was used in some cushions for some of our systems as well. So I hope that answers the packaging question.

Our final question asks, given your SBTi validated near term as well as long-term targets, will Lenovo consider setting up a sustainability-linked financing framework and related issuance.

This is Ser Mein. Let me take that question. Lenovo is committed to our ESG target and our financing plans will take our ESG targets into consideration as well. Our plans for green sustainable bond or SLB issuance plan will be communicated with investors at the proper time. So thank you.

Thank you all for your questions. This concludes the Q&A session. I will now hand it over back to Hugh for closing remarks.

Thank you, Fiona. As a global technology powerhouse, we have a duty to leverage technology to improve the lives of people around the world while minimizing its impact on the planet. While we are on track to meet our near-term 2030 emissions reduction goals, Lenovo will continue to navigate new challenges and utilize the unprecedented opportunities available in the field of technology, as we power forward on our sustainability journey. With your support, we continue with our commitment and a service like transformation to work towards a more sustainable future for all. We are grateful for the opportunity to share with you all our commitment and ongoing progress made to drive our ESG forward in the company. This marks the end of our ESG update for today. Thank you all for your time and for your continued support. Thank you.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.