Vtech 2012 Annual Report Download - page 4

Letter to Shareholders
2VTech Holdings Ltd Annual Report 2012
Dear Shareholders,
I am pleased to report that in our 35th anniversary year, VTech
delivered record revenue for the second straight year amid
macro-economic uncertainties.
Results and Dividend
Group revenue for the year ended 31 March 2012 increased
by 4.2% over the previous financial year to US$1,784.5 million.
This was mainly due to higher revenue in North America and
Europe, as both Electronic Learning Products (ELPs) and Contract
Manufacturing Services (CMS) recorded growth in these two
regions. Profit attributable to shareholders of the Company
declined by 5.0% to US$191.9 million. The decrease in profit was
mainly attributable to higher input costs as well as lower revenue
from Telecommunication (TEL) products. Basic earnings per share
consequently decreased by 5.5% to US77.0 cents, compared to
US81.5 cents in the financial year 2011.
The Board has proposed a final dividend of US60.0 cents per
ordinary share. Together with the interim dividend of US16.0 cents
per ordinary share, this gives a total dividend for the year of
US76.0 cents per ordinary share. It represents a decrease of 2.6%
over the previous financial year.
Operations
In the financial year 2012, rising input costs posed the biggest
challenge to the Group. Raw material prices increased substantially,
compounded by rising labour costs and Renminbi appreciation
in China. To cope with this, we have raised prices, stepped up cost
reduction and improved efficiency through increased automation
and product optimisation. Although we were unable to offset the
entire cost pressure during the year, we managed to mitigate it to
a great extent. This will improve the Group’s ability to achieve
future growth.
Segment Results
North America remains the largest market of the Group. In the
financial year 2012, we achieved higher sales in ELPs and CMS in
this region, offsetting slightly lower revenue from TEL products.
Sales of small to medium sized business (SMB) phones increased
and compensated for part of the sales decline in residential
phones. Hotel phones began to contribute to the top line
following the first shipment in the second half of the financial year.
ELP revenue in North America was higher and sales via online
retailers showed strong growth. Higher sales were attributable to
the successful launch of the new platform product, InnoTab®, while
sales of standalone products were essentially flat. CMS revenue
saw good growth in North America, driven by higher sales of
professional audio equipment and internet phones for office use.
In Europe, revenue from TEL products was lower, as customers
delayed orders in the second half. However, this was more than
compensated by higher sales of ELPs and CMS. Both platform and
standalone products delivered solid results for ELPs. In the platform
area, InnoTab was launched in the UK, while Storio® and MobiGo®
were rolled out in the other European markets. CMS saw higher
sales, led by wireless headsets and professional audio equipment.
Revenue in Asia Pacific and other regions declined overall, mainly
due to lower sales of TEL products. Our ELP sales in China grew
strongly, albeit from a low base. CMS revenue in Asia Pacific was
broadly flat, as higher sales of medical and wireless products
were offset by significantly lower orders for LED light bulbs, as our
Japanese customer faced very keen competition.
Outlook
Although the macro-economic environment remains challenging,
we are seeing a slow but continuous recovery in the US. In Europe,
consumer demand is affected by austerity measures and the
economic uncertainty.
Despite all these challenges, we are planning for overall top line
growth in the financial year 2013. Sales of our TEL products will
rebound, driven by additional placement in retail channels in
the US, increasing sales of SMB and hotel phones and restocking
in Europe. ELPs are expected to grow, led by the launch of
new platform and standalone products. CMS will continue to
outperform the global electronic manufacturing services (EMS)
industry and expand further.
With the anticipated growth in our top line, we are cautiously
optimistic that profitability will improve. Lower prices of raw
materials are beginning to feed into margin. Profitability will also
be supported by the efficiency enhancement measures that we
pushed hard in the last financial year, including higher automation
and product design optimisation. However, we expect the labour
cost in China will continue to rise. As always, we will continue to
manage our expenses very tightly.
We foresee a rebound for our TEL products in the financial year
2013. As the world’s number one manufacturer of cordless
phones1, our strong design capabilities, economies of scale and
brand reputation will further strengthen our leadership position.
In North America, we expect the good momentum of SMB and
hotel phones to continue. In the first half of the financial year 2013,
we plan to launch a new micro business phone system that will
add further impetus. Sales of our residential phones are expected
to recover, as we gain market share via new product line ups. These
include a new Connect to Cell™ system with high definition voice
quality, user-friendly cell phone registration as well as smartphone
1 The Global Telecommunications Market Report 2011 Edition published by MZA Ltd