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VTech Holdings Ltd Annual Report 2008
6
MANAGEMENT DISCUSSION AND ANALYSIS
GROSS PROFIT/MARGIN
The gross pro t for the  nancial year 2008 was US$583.0 million,
an increase of US$43.0 million compared to the US$540.0 million
recorded in the previous  nancial year. Gross margin for the year
improved from 36.9% to 37.6%. With measures implemented to
enhance operational e ciency in the manufacturing process,
better product engineering and higher productivity, the Group
was able to improve the gross pro t margin in the  nancial
year 2008, although all businesses continued to su er from the
impact of rising labour costs in China, the appreciation of the
Renminbi and raw material cost increase.
OPERATING PROFIT/MARGIN
The operating pro t for the year ended 31st March 2008 was
US$228.9 million, an increase of US$34.9 million or 18.0% over
the previous  nancial year. The improvement mainly came from
an increase in gross pro t resulting from the overall growth in
revenue at the three core businesses and the improvement in
gross pro t margin. The operating pro t margin also improved
from 13.3% in the previous  nancial year to 14.7% in the  nancial
year 2008.
Selling and distribution costs increased by 4.1% from US$238.6
million in the previous  nancial year to US$248.5 million in the
nancial year 2008. The increase was mainly attributable to the
increased spending on advertising and promotional activities
at the ELP business. However, selling and distribution costs as a
percentage of Group revenue actually decreased from 16.3% in
the previous  nancial year to 16.0% in the  nancial year 2008,
owing to tight control over operating costs.
Administrative and other operating expenses decreased
from US$62.2 million in the previous  nancial year to US$54.3
million in the  nancial year 2008. An exchange gain of US$10.7
million was recorded under administrative and other operating
expenses in the  nancial year 2008 because of the appreciation
of the Euro, Sterling and the Canadian dollar against the US
dollar, as compared to a smaller exchange gain of US$3.1 million
recorded in the previous  nancial year. Excluding the e ect of
exchange di erences, the administrative and other operating
expenses slightly decreased by US$0.3 million compared to
the previous  nancial year. Administrative and other operating
expenses as a percentage of Group revenue, excluding the
e ect of exchange di erences, actually improved from 4.5% in
the previous  nancial year to 4.2% in the  nancial year 2008.
Research and development (R&D) activities are vital for the
long-term development of the Group. During the  nancial year
2008, the Group spent US$51.3 million on R&D activities, which
represented around 3% of total Group revenue.
Group R&D Expenditure in Last 5 Years
Pro t Attributable to Shareholders in Last 5 Years
Group EBITDA/Revenue and EBIT/Revenue in Last 5 Years