Vtech 2005 Annual Report Download - page 5

Letter to Shareholders
VTech Holdings Ltd Annual Report 2005 03
mi6861 5.8GHz cordless phone
cents. This has allowed the Board of
Directors to propose a higher final
dividend of US12.0 cents, giving a total
dividend for the year of US13.0 cents per
ordinary share, compared to US10.0 cents
for the financial year 2004, representing an
increase of 30.0%.
Operations
The financial year 2005 was challenging for
our telecommunication products business,
as our products were not as competitive as
other major players in the US market on
both product design and price, which
resulted in lower sales that undermined a
strong performance in Europe. Over-
optimistic sales projections for the US
market led to higher overheads and
operating costs, resulting in operational
inefficiency, which further impacted
profitability of the business.
To rectify the problem in the United States,
management of the business was changed
while operations began the process of
streamlining and rationalisation. Greater
emphasis has been put on understanding
retailer expectations to ensure product
design and features correspond to
consumer preferences. Through our
efforts, the situation at the US operations
was successfully brought under control in
the second half of the financial year 2005.
In January 2005, the Group took an
industry lead in responding to
technological developments in the US
cordless phone market by launching its
first Voice over Internet Protocol (VoIP)
5.8GHz cordless phone with Vonage, and
its first VoIP 2.4GHz cordless phone w ith
Skype. The Group is now developing an
entirely new range of more cost effective
products that meet retailer expectations
and consumer requirements, which will be
introduced in early 2006.
In contrast with the telecommunication
products business, the ELP business has
proven its successful turnaround with a
strong rebound in both revenue and
profitability. The V.Smile TV Learning
System was enthusiastically received by
retailers and consum ers, garnering
numerous top awards, and is enabling us
to strengthen further our position in
Europe while rebuilding sales in the
United States.
The attraction of this new product
platform, which in February 2005 was
joined by the handheld model V.Smile
Pocket, is greatly enhanced by highly
interactive software using licensed
children's characters, which now comprise
a library of 27 titles. In support of V.Smile,
VTech has also committed more
prom otional dollars than in the past,
making this product fully competitive from
a m arketing perspective.
Despite the im portance of V.Sm ile, w hich
we see as a key grow th platform, our
traditional product lines also perform ed
well during the financial year 2005. The
Group is committed to maintaining a
broad ELP range, focusing on the growing
infant and pre-school segments.
The CMS business remains a steady
contributor to the Group revenue and
profit. In the financial year 2005, the
business achieved record revenue and
higher profit, and its revenue growth was
much stronger than the global Electronic
Manufacturing Services (EMS) industry.
This outperformance testifies not only to
our ability to deliver quality products,
flexible and reliable service, but also to our
success in maintaining margins w hile
passing on savings to customers. The
investment in R&D has paid off, with R&D
related services increasingly driving sales,
while the business has seen success in
gaining a new customer in the industrial
printing sector. The business is also
moving towards com pliance with the
Restriction of the use of certain Hazardous
Substances in electrical and electronic
equipm ent (RoHS), a European Union
environm ental directive that takes effect in
July 2006.
Management Changes
During the financial year 2005, I assumed
the role of CEO of the telecommunication
products business follow ing the departure
of Mr. James C. Kralik. In December 2004,
Mr. Edw in Ying, former CEO of the ELP
business, made the decision to resign and
subsequently Mr. Albert Lee, our Deputy
Chairman took up the role.