Vtech 2007 Annual Report Download - page 6

Letter to Shareholders
VTech Holdings Ltd
Annual Report 2007
4
OUTLOOK
The succession of good results achieved
in recent years testifi es to VTech’s ability
to develop sound business strategies and
execute them well. I believe we have
developed a solid foundation for future
expansion. Despite the uncertainties
of the US economy, a probable further
appreciation of the Renminbi, as well
as a continued rise in labour costs
and components prices, we expect to
achieve a similar level of profi tability as
in the fi nancial year 2007.
The rise in our production volume has
begun to put pressure on capacity and
to ease capacity constraints and realise
further economies of scale, the Group
is adding manufacturing facilities. In the
second quarter of the fi nancial
year 2008, a new factory building for
the CMS business will open, increasing
its capacity by some 50%. We also
intend to build a second factory at
Qingyuan, to serve the growing needs
of the ELP business.
We expect the positive momentum
at the TEL business to carry into the
fi nancial year 2008. Growth, however,
will primarily come from Europe as the
market continues to recover from the
excess inventory. The North American
business will be hard pressed to repeat
the similar growth recorded in the
fi nancial year 2007, as the business has
already rebounded from a sales decline
and regained its leadership position in
the market.
Despite this, our new models with
innovative designs and new technology
will support profi table growth in North
America. Through designs such as the
DECT 6.0 models, we are successfully
creating new product categories for
retail customers, while technologies
such as the infoPhone™ will enable
us to explore new distribution channel
such as service providers.
To add new avenues of growth, the
TEL business will develop the small
and home offi ce market. Changing
demographics, new work practices and
technologies have made this a growth
area, one that we have not so far
addressed as a distinct segment.
Building on its strong position in Europe
and increasing market share in North
America, the ELP business is expected
to continue to grow. The addition of
the Whiz Kid Learning System™ will
enable VTech to capture a position
in the reading market. The V.Smile
range will continue to evolve and an
enhanced V.Smile console will be on
the shelves in the United States in
August 2007, featuring a sing-along
microphone and a writing joystick. It will
be joined by a new version of V.Smile
Pocket that features a microphone for
new games. The new version is also
smaller, lighter and hence easier for
children to carry. Eight new titles will be
launched in the calendar year 2007 as
we expand the library of cartridges.
Growth at the CMS business is
expected to moderate as existing
customers mature and newer customers
only gradually build up orders.
Nonetheless, we are confi dent of once
again outperforming the EMS market,
which is forecast to grow in the high
single digits in the calendar year 2007.
We will continue to improve the service
we offer to all customers and have set
up a new task force to examine any
cost savings that can be passed on.
Japan, a market of great potential
for the CMS business, will be a focus
for new business development. A
dedicated Japanese client team has
been set up, and we will reopen
our sales offi ce there in June 2007.
Separate facilities are being set up
specifi cally for Japanese clients,
covering manufacturing, engineering
and quality control.
APPRECIATION
I would like to thank my fellow
directors and all staff for their efforts,
which helped to make our 30th
anniversary a banner year.
Although we see challenges ahead, we
are taking action to address specifi c
issues, and with the global economy
still expanding at a reasonable pace,
I am confi dent that VTech is well
positioned to achieve further growth
in the fi nancial year 2008 and deliver
good returns for shareholders in the
years ahead.
Allan WONG Chi Yun
Chairman
Hong Kong, 20th June 2007
03VtechLettertoShareholders(44 2007/7/511:38:50PM