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Review of Operations
VTech Holdings Ltd Annual Report 2005 17
The business received two
customer awards in the financial
year 2005 in recognition of its
quality service.
The CMS business delivered encouraging results in the
financial year 2005, achieving record revenue and
higher profit. Revenue increased by 32.0% over the
financial year 2004 to US$128.4 million, accounting for
12.6% of Group revenue, compared to 10.6% in the
financial year 2004. The percentage increase in
revenue was markedly higher than the growth of the
global EMS industry. This performance reflects VTech's
success in delivering exceptional service to its core
focus of small and medium sized customers.
Strong Demand from Existing
Customers
The rise in revenue was driven by strong
demand from existing custom ers, led by
the well established power supply and
professional audio equipm ent segm ents,
which together accounted for over 60% of
the total CMS revenue. A new customer
in the industrial printing sector also
contributed to the revenue growth.
Encouraging Results from R&D
Investment
VTech's investment in offering a
comprehensive R&D service to customers
also began to show results, helping to
drive the outperformance of the CMS
business. In the financial year 2005, the
R&D centre in Shenzhen came into full
operation. As a result, the business not
only helps customers improve product
design from a cost and quality perceptive,
but also takes initial concepts from first
design through to full production. During
the financial year 2005, approximately 15%
of CMS revenue was derived from business
having an R&D element.
Geographically, Europe continued to be
the largest market of the CMS business,
accounting for 49.2% of the total CMS
revenue, followed by the United States at
27.7% and Japan at 17.2%.
Good Overheads Control
During the financial year 2005, the
business was able to achieve a higher
profit, despite a slight decline in gross
margins due to changes in product mix
and pricing pressure from customers. This
was mainly because of the success in
controlling fixed overheads in spite of
higher volumes. Raw materials costs
during the period w ere little changed over
the previous financial year.
RoHS Compliance
VTech is committed to supporting
environmental initiatives. To comply with
the Directive 2002/95/EC on RoHS, which
will becom e mandatory in the European
Union in July 2006, the CMS business had
started as early as 2003 to improve its
manufacturing process. In mid-2004,
teams were established to work with
major customers on com ponent selection,
to enable the business to speed up the
process of com pliance.
Currently, the business is working with
four of the top five customers and it
targets to achieve full compliance in the
first quarter of the calendar year 2006,
ahead of the industry.
CMS Revenue by Region
CMS Revenue by Product Line