HP 2015 Annual Report Download - page 73

Table of Contents
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operating expenses as a percentage of net revenue. Gross margin increased due primarily to service delivery efficiencies and improving profit performance in
underperforming contracts. The decrease in operating expenses as a percentage of net revenue was primarily driven by lower field selling costs, which was
due to favorable currency impacts and our sales transformation initiatives.
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ES net revenue decreased 6.9% (decreased 6.8% on a constant currency basis) in fiscal 2014. Performance in ES remained challenged by the impact of
several large contracts winding down and lower public sector spending in EMEA, particularly in the United Kingdom, and several other countries in EMEA.
The net revenue decrease in ES was due primarily to revenue runoff in key accounts, weak growth in new and existing accounts, particularly in EMEA, and
contractual price declines. These effects were partially offset by net revenue growth in our SES portfolio, which includes information management and
analytics, security and cloud services. Net revenue in Infrastructure Technology Outsourcing ("ITO") decreased by 8% in fiscal 2014 due to revenue runoff in
key accounts, weak growth in new and existing accounts, particularly in EMEA, and contractual price declines in ongoing contracts partially offset by
growth in cloud and security revenue and favorable currency impacts. Net revenue in ABS decreased by 5% in fiscal 2014, due to revenue runoff in a key
account, weak growth in new and existing accounts, particularly in EMEA, and unfavorable currency impacts, partially offset by growth in information
management and analytics and cloud revenue.
ES earnings from operations as a percentage of net revenue increased 0.7 percentage points in fiscal 2014. The increase in operating margin was due to
an increase in gross margin, partially offset by an increase in operating expenses as a percentage of net revenue. Gross margin increased due primarily to our
continued focus on service delivery efficiencies, improving profit performance in under-performing contracts and labor savings as a result of restructuring,
partially offset by unfavorable impacts from revenue runoff in key accounts and weak growth in new and existing accounts. The increase in operating
expenses as a percentage of net revenue was primarily driven by the size of the revenue decline and higher administrative expenses and field selling costs.
The increase in administrative expenses was due to the prior-year period containing higher bad debt recoveries and insurance recoveries. The increase in
selling costs was the result of expanding the sales force coverage as we transition from a reactive sales model to a more proactive approach.
Software
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Software net revenue decreased 6.6% (decreased 2.7% on a constant currency basis) in fiscal 2015. Revenue growth in Software is being challenged by
the overall market shift to SaaS solutions and related go-to-market sales execution challenges. Additionally, these challenges are impacting growth in
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     
   
Net revenue $ 3,458 $ 3,701 $ 3,789
Earnings from operations $ 760 $ 828 $ 848
Earnings from operations as a % of net revenue 22.0% 22.4% 22.4%
Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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