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Annual Report 2015
HKSE : 303

Table of contents

  • Page 1
    Annual Report 2015 HKSE : 303

  • Page 2
    ... in Canada, Germany, Hong Kong and China. This network allows VTech to stay abreast of the latest technology and market trends throughout the world, while maintaining a highly competitive cost structure. The Group invests significantly in R&D and launches numerous new products each year. VTech sells...

  • Page 3
    ... 15 11 12 13 14 15 11 * 12 13 14 15 Gross pro t (US$ million) Gross pro t margin (%) Restated Pro t attributable to shareholders of the Company (US$ million) Net pro t margin (%) VTech Holdings Limited Annual Report 2015 1

  • Page 4
    ... in China, labour costs and manufacturing overheads were also slightly 1 Source: NPD Group, Retail Tracking Service. Ranking based on total retail sales of InnoTab/Storio by unit for the combined market of France, the UK, Germany, Spain and Italy 2 VTech Holdings Limited Annual Report 2015

  • Page 5
    ... dolls, branded Little Love® in Europe and Baby Amaze™ in the US, which was first launched in the European markets in June 2014. Kidizoom Action Cam, the latest addition to VTech's range of cameras for children, will also be launched globally in the calendar year 2015. For core learning products...

  • Page 6
    ...Insights, LLC and NPD Group Retail Tracking Service. Ranking based on 2014 total estimated annual retail sales in the combined toy categories of infant electronic learning and preschool electronic learning Source: Manufacturing Market Insider, March 2015 4 VTech Holdings Limited Annual Report 2015

  • Page 7
    ..., sales of VTech residential phones are forecast to be stable as the Group is maintaining its leading position in North America and Europe, while growing its market share in Asia Pacific and Other Regions. Allan Wong Chi Yun Chairman Hong Kong, 19 May 2015 VTech Holdings Limited Annual Report 2015...

  • Page 8
    ...of baby monitor range $ â,¬ Global launch of Kidizoom Action Cam and Flipsies Launch of Baby Amaze in the US Line extension of Little Love in Europe Launch wireless monitoring devices based on the ULE standard Platform Products NEW TEL Products Roll out a new generation of Kidizoom Smartwatch...

  • Page 9
    ... efforts to extend our reach Latin America Develop selected markets Middle East Develop selected markets Australia Established sales office for ELPs Started selling VTech branded residential phones GEOGRAPHIC EXPANSION OPERATIONAL EXCELLENCE DRIVERS OPERATIONAL EXCELLENCE Crucial for raising...

  • Page 10
    ... the change in product mix and the weaker-than-expected performance of children's educational tablets, which resulted in the higherthan-anticipated trade allowances and increase in stock provisions. The labour costs and manufacturing overheads, however, were slightly lower as the Group continued to...

  • Page 11
    ... cents per share, which is estimated to be US$153.2 million. 2015 US cents Dividend per share Interim 17.0 61.0 78.0 16.0 64.0 80.0 Final* Total 2014 US cents 80 60 40 20 0 11 12 13 14 15 * Final dividend proposed after the balance sheet date VTech Holdings Limited Annual Report 2015 9

  • Page 12
    ... utilise the Group's production capacities. As at 31 March 2015 and 2014 All figures are in US$ million unless stated otherwise 2015 290.2 14.8% 96 days 2014 265.9 14.3% 87 days Stocks Average stocks as a percentage of Group revenue Turnover days 10 VTech Holdings Limited Annual Report 2015

  • Page 13
    ...the corresponding period of the previous financial year. The Group has tight management on credit exposure. The overdue balances greater than 30 days accounted for 1.4% of the gross trade debtors as of 31 March 2015. As at 31 March 2015 and 2014 All figures are in US$ million unless stated otherwise...

  • Page 14
    ... BY REGION NORTH AMERICA 47.8 % US$899.5 million (-5.4% year-on-year) EUROPE 43.2 % US$812.3 million (+2.6% year-on-year) ASIA PACIFIC 6.3 % US$117.6 million OTHER REGIONS +8.0% year-on-year 2.7 % US$50.4 million +6.1% year-on-year 12 VTech Holdings Limited Annual Report 2015

  • Page 15
    ... total retail sales in the combined toy categories of infant electronic learning, other infant toys and preschool electronic learning for the 12 months ending December 2014 Source: NPD Group, Retail Tracking Service Source: MarketWise Consumer Insights, LLC VTech Holdings Limited Annual Report 2015...

  • Page 16
    ... baby monitors increased as the Group introduced new video models, completing a full range of products for the market. Sales of residential phones were lower, mainly due to the decline of the fixed-line telephone market. Despite this, VTech maintained its market share as one of the leading cordless...

  • Page 17
    ... higher sales. For residential phones, VTech increased market share as a result of gaining more retail shelf space, while baby monitors were supported by the expansion of distribution channels in the country. Higher sales were achieved in Japan as a customer launched new models. The Group also...

  • Page 18
    ... toy in the US, Europe and China Toddler (1-3 years) My First Tablet A magic light-up learning tablet with virtual camera for little ones Preschool (3-6 years) Kidizoom Action Cam A new product in 2015 for kids to play with and capture their adventures 16 VTech Holdings Limited Annual Report...

  • Page 19
    ... experience Little Love/ Baby Amaze A line of interactive dolls that help children learn through role-play PLATFORM PRODUCTS Platform products consist of various devices for children, with cartridges and/or downloadable content to enrich play experience. World's first children's smartwatch with...

  • Page 20
    ...PRODUCTS Other telecommunication products cover a wide range of products that cater to various needs of home users, making life more comfortable. Wireless Monitoring System Smart home devices to hit the US market in the second half of the calendar year 2015 18 VTech Holdings Limited Annual Report...

  • Page 21
    ... phone system with cordless handsets and headsets Commercial Phones Other Product Categories Connected Home Device Integrated Access Device Safe&Sound Baby Monitor Strong sales growth globally CareLine A telephone system to help seniors stay connected VTech Holdings Limited Annual Report 2015...

  • Page 22
    ... comprehensive electronics design and product management services. The Group focuses on selected product segments. Below are the top four product categories for CMS: Professional P f i lA Audio di E Equipment i t Strong reputation and know-how Wireless i l P Products d Leveraging VTech's expertise...

  • Page 23
    ....7 million (+4.7% year-on-year) Switching Mode Power Supplies Highly efficient power supplies for telecommunication products Solid-state lid t t Li Lighting hti LED lighting for commercial and industrial use Manufacturing Know-how Flexible Services VTech Holdings Limited Annual Report 2015 21

  • Page 24
    ... Tracking Service. Ranking based on total retail sales in the combined toy categories of infant electronic learning, other infant toys and preschool electronic learning for the 12 months ending December 2014 Source: NPD Group, Retail Tracking Service 22 VTech Holdings Limited Annual Report 2015

  • Page 25
    ... of wireless monitoring solutions for the connected home at the 2015 International Consumer Electronics Show (CES). The product line received the "2015 CES Best of Innovation Award" in the category of Smart Home Tech from Tech Times magazine. 50 TOP SERVICE EXCELLENCE VTech Communications Limited...

  • Page 26
    ..., LLC and NPD Group Retail Tracking Service. Ranking based on 2014 total estimated annual retail sales in the combined toy categories of infant electronic learning and preschool electronic learning Source: MZA Ltd, 2015 Environmental, Social and Governance Reporting Guide set out in Appendix 27...

  • Page 27
    ... their careers in VTech Respect the labour and human rights of all our employees with clearly defined human resources management policies Provide a supportive, pleasant and healthy environment for our employees Sustainable Operating Practices Business Continuity Management - identify and mitigate...

  • Page 28
    ... and launch many eco-friendly products such as our Digital European Cordless Telecommunication (DECT) cordless phones with Blue Angel and Energy Star eco-labels, and our wireless monitoring system with ULE standard. High performance production chain 26 VTech Holdings Limited Annual Report 2015

  • Page 29
    ... new projects, and review project progress on workplace and employees related issues based on the feedbacks from our people. VTech promotes open communications at all levels of the company and we encourage employees to voice their opinions through various communication channels. All the information...

  • Page 30
    ...minimising the energy consumption arising from our daily operations. We also work closely with our suppliers and customers to reduce the carbon emissions through enhancing our environmentally friendly product designs and sustainable operating practices. 28 VTech Holdings Limited Annual Report 2015

  • Page 31
    ...the category of 42 km Corporation Team. VTech was also ranked the 8th in the most supportive group award of the Standard Chartered Hong Kong Marathon 2015, and the 3rd most committed organisation of the Hong Kong Streetathon 2015. Standard Chartered Hong Kong Marathon reunion dinner 2014 In FY2015...

  • Page 32
    Investor Relations INVESTOR RELATIONS VTech is committed to building long-term relationships with shareholders and investors. The Group frequently communicates with institutional and retail investors to ensure their thorough understanding of VTech's business strategies, operations and outlook. ...

  • Page 33
    ... Exchange of Hong Kong Limited with the highest net dividend yield. The full corporate governance report is set out on pages 33 to 37 of this Annual Report. Investor Communications All of the Group's investor communications activities are governed by a Shareholders Communication Policy, which is...

  • Page 34
    ... Corporate Marketing Department 23rd Floor, Tai Ping Industrial Centre, Block 1 57 Ting Kok Road Tai Po, New Territories Hong Kong Tel: (852) 2680 1000 Fax: (852) 2680 1788 Email: [email protected] Website www.vtech.com/investors/stock-info 32 VTech Holdings Limited Annual Report 2015

  • Page 35
    Corporate Governance Report Corporate Governance Practices VTech Holdings Limited is incorporated in Bermuda and has its shares listed on the Stock Exchange. The corporate governance rules applicable to the Company are the Corporate Governance Code (the "Code") set out in Appendix 14 to the Listing...

  • Page 36
    ... senior management. On the date of this Annual Report, the Audit Committee met to review the audited Group's consolidated financial statements and reports for the year ended 31 March 2015 in conjunction with the Company's external auditor and senior management before recommending them to the Board...

  • Page 37
    ... Kwok Lun Michael TIEN Puk Sun Patrick WANG Shui Chung WONG Kai Man Note: Training areas include information related to the Company or electronic manufacturing industry, laws, rules and regulations, accounting standards and business management. VTech Holdings Limited Annual Report 2015 35

  • Page 38
    ...this Annual Report. Other Control and Management Code of Conduct The Company's policy on code of conduct is also an important part of the Group's internal control process. Employees are required to strictly follow the code of conduct to ensure the Group operates to the highest standards of business...

  • Page 39
    ... the Board Shareholders may send their enquiries requiring the Board's attention to the Company Secretary at the Company's principal office address at 23rd Floor, Tai Ping Industrial Centre, Block 1, 57 Ting Kok Road, Tai Po, New Territories, Hong Kong. VTech Holdings Limited Annual Report 2015 37

  • Page 40
    ... an MBA degree from Harvard Business School. Mr. TIEN is the Chairman and founder of the G2000 Group which started its business back in 1979. Before starting up G2000, he worked with Macy's Department Store in New York, USA. Mr. TIEN is an active member in Hong Kong community affairs, he is the past...

  • Page 41
    ... in 1994 and has held management positions in a number of areas including internal audit and financial control of the Group. She holds an MBA degree from Manchester Business School, UK, Master of Science degree in Information Systems from The Hong Kong Polytechnic University and Bachelor of Laws...

  • Page 42
    ... with a registered address in Hong Kong will receive an equivalent amount in Hong Kong dollars which will be calculated at the rate of exchange as quoted to the Company by The Hongkong and Shanghai Banking Corporation Limited at its middle rate of exchange prevailing on 17 July 2015. Independent...

  • Page 43
    ...date of the Awarded Shares being transferred to the eligible French employees. On 19 May 2015 (the date of this Annual Report), the Company further amended and extended the Share Purchase Scheme such that the Company may furnish the trustee of the Share Purchase Scheme with cash to subscribe for new...

  • Page 44
    ... interests or short positions in the shares and underlying shares of the Company which fell to be disclosed to the Company under Part XV of the SFO or which were recorded in the register required to be kept by the Company under Section 336 of the SFO. 42 VTech Holdings Limited Annual Report 2015

  • Page 45
    ... the 2015 AGM. On behalf of the Board Securities Purchase Arrangements At the 2014 AGM, shareholders renewed the approval of a general mandate authorising the Directors to effect repurchases of the Company's own shares up to a limit of 10% of the shares in issue as at that date. Purchase, Sale or...

  • Page 46
    ... and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 19 May 2015 44 VTech Holdings Limited Annual Report 2015

  • Page 47
    ... PANG King Fai Director The notes and principal accounting policies on pages 48 to 70 form part of these financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in note 5. 45 VTech Holdings Limited Annual Report 2015

  • Page 48
    ... 4.7 (1.0) (200.6) (196.9) 7.5 14.3 173.6 187.9 Allan WONG Chi Yun Director PANG King Fai Director Cash and cash equivalents at 31 March 12 224.2 The notes and principal accounting policies on pages 48 to 70 form part of these financial statements. 46 VTech Holdings Limited Annual Report 2015

  • Page 49
    ... - - 9.4 9.4 5.2 - - - (0.6) (0.6) 197.5 (160.8) (42.7) - - 0.1 - - 392.0 5.0 4.4 (28.0) (0.6) (19.2) 178.9 (160.8) (42.7) 3.4 - - (1.7) 1.3 540.8 The notes and principal accounting policies on pages 48 to 70 form part of these financial statements. VTech Holdings Limited Annual Report 2015 47

  • Page 50
    ... use properties is inconsistent with the market practices adopted by companies in similar industries. On this basis, the Group has concluded that the "cost model" is a more appropriate accounting policy for these properties. In order to present the comparative information on a consistent basis, the...

  • Page 51
    ... to write off capitalised development costs on a straight-line basis over their estimated useful lives, commencing from the date when the products are put into commercial production. D Basis of Consolidation The consolidated financial statements include the financial statements of the Company and...

  • Page 52
    ... "fair value model" to "cost model" with effect from the accounting period from 1 April 2014. Details of the change in accounting policy are set out in note (B). (ii) Impairment of other assets The carrying amounts of the Group's assets including tangible assets, construction in progress, interest...

  • Page 53
    ... is recognised in accordance with the Group's policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income. VTech Holdings Limited Annual Report 2015 51

  • Page 54
    ...prior years is charged/credited to employee share-based compensation expense in the current year, with a corresponding adjustment to capital reserve. S Employee Benefits The Group operates a number of defined contribution retirement schemes throughout the world, including Hong Kong, and a defined...

  • Page 55
    ... they share a majority of these criteria. Y Related Parties (a) A person, or a close member of that person's family, is related to the Group if that person: (i) has control or joint control over the Group; (ii) has significant influence over the Group; or (iii) is a member of the key management...

  • Page 56
    ...Canada) Europe Asia Pacific Others, which covers sales of electronic products to the rest of the world For the purposes of assessing segment performance and allocating resources between segments, the Group's senior executive management monitors the results and assets attributable to each reportable...

  • Page 57
    ...benefit Share-based in kind bonuses schemes payments (iv) US$ million US$ million US$ million US$ million 0.9 0.5 0.5 2.0 1.5 1.7 0.1 - - - - - 2014 Total US$ million 3.0 2.0 2.2 - - - - - - - - - 1.9 - - - - 5.2 - - - - 0.1 - - - - - - - - - 7.2 VTech Holdings Limited Annual Report 2015 55

  • Page 58
    ...) per share proposed after the balance sheet date During the years ended 31 March 2014 and 31 March 2015, there were no amounts paid to Directors and individuals for compensation for loss of office and inducement for joining the Group. 17 42.7 40.1 Emoluments of senior management Other than...

  • Page 59
    ...Land and Leasehold buildings improvements US$ million US$ million Cost At 1 April 2013, as previously reported Effect of change in accounting policy (note B) At 1 April 2013, as restated Additions Disposals Effect of changes in exchange rates At 31 March 2014 and 1 April 2014, as restated Additions...

  • Page 60
    ...-occupied properties Note: (i) Included in leasehold land payments is the amount of US$3.0 million (2014: US$3.0 million) paid for the acquisition of certain sites in the PRC. 2015 US$ million 5.1 (0.1) 5.0 5.0 2014 US$ million 5.2 (0.1) 5.1 5.1 2 58 VTech Holdings Limited Annual Report 2015

  • Page 61
    ..., as restated At 1 April 2014, as previously reported Effect of change in accounting policy for tangible assets (note B) At 1 April 2014, as restated Credited to consolidated income statement (note 4) Credited to reserves At 31 March 2015 (4.5) 4.5 - - - - (4.1) 4.1 - - - - Unutilised tax losses US...

  • Page 62
    ...: 2015 2014 US$ million US$ million Raw materials Work in progress Finished goods 99.6 32.6 158.0 290.2 83.1 25.0 157.8 265.9 The majority of the Group's sales are on letter of credit and on open credit with varying terms of 30 to 90 days. Certain open credit sales are covered by credit insurance...

  • Page 63
    ...by the Group during the year were calculated based on advice from Towers Watson Hong Kong Limited ("Towers Watson"), independent actuaries and consultants. The Scheme is valued annually. The latest actuarial valuation was completed by Towers Watson as at 31 March 2015 using the projected unit credit...

  • Page 64
    ... 2.0 (3.3) (1.9) 0.7 2.4 (5.2) (3.2) The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take into account the correlations between the actuarial assumptions. 62 VTech Holdings Limited Annual Report 2015

  • Page 65
    ... the 2001 Scheme. Pursuant to the 2011 Scheme, the Directors are authorised, at any time during the 10 years from the date of adoption of the 2011 Scheme, to grant options to employees and officers of any member of the Group to subscribe for shares of the Company at prices to be determined by the...

  • Page 66
    ... annual general meeting of the Company from time to time) and hold such new shares in trust for the selected participants (not being connected persons of the Company) under the Share Purchase Scheme. During the year ended 31 March 2015, 130,200 shares (2014: 69,000 shares) were acquired on the Stock...

  • Page 67
    ... land and buildings. The Group has changed its accounting policy for own use properties from "fair value model" to "cost model" with effect from the accounting period from 1 April 2014. Details of the change in accounting policy are set out in note (B). VTech Holdings Limited Annual Report 2015 65

  • Page 68
    ... and geographical areas. Accordingly, the Group has no significant concentration of credit risk. The Group's five largest customers, in aggregate accounted for approximately 31.5% of the Group's revenue during the year. The Group manages these risks by monitoring credit ratings and limiting the...

  • Page 69
    ...determined using forward exchange market rates at the balance sheet date. All financial instruments are carried at amounts not materially different from their fair values as at 31 March 2014 and 31 March 2015. Financial instruments carried at fair value The Group's financial instruments are measured...

  • Page 70
    ... over time and between products. There is no maximum royalty payment. The annual minimum royalty payment is determined based on a percentage of the preceding year's earned royalty payment (calculated based on the preceding year's net sales payable). 68 VTech Holdings Limited Annual Report 2015

  • Page 71
    ... Limited VTech Electronics (Australia) Pty Limited Incorporated/established and operating in Canada: VTech Technologies Canada Ltd. Incorporated/established and operating in France: VTech Electronics Europe S.A.S. Incorporated/established and operating in Germany: VTech Electronics Europe GmbH VTech...

  • Page 72
    ... available for use. The Group reviews annually their estimated useful lives, based on factors that include asset utilisation, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. It is possible that...

  • Page 73
    ... change in accounting policy are disclosed in note B to the financial statements. Figures for the year ended 31 March 2013 and prior years have not been restated as it would involve delay and expenses out of proportion to the benefits of shareholders. VTech Holdings Limited Annual Report 2015 71

  • Page 74
    ... Office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal Office Independent Non-executive Directors William FUNG Kwok Lun Michael TIEN Puk Sun Patrick WANG Shui Chung WONG Kai Man 23rd Floor, Tai Ping Industrial Centre, Block 1 57 Ting Kok Road Tai Po, New Territories Hong Kong...

  • Page 75
    ... Group of Companies Head Office VTech Holdings Limited 23rd Floor, Tai Ping Industrial Centre Block 1, 57 Ting Kok Road Tai Po, New Territories Hong Kong Tel: (852) 2680 1000 Fax: (852) 2680 1300 Website: www.vtech.com Email: [email protected] VTech Telecommunications (Shenzhen) Limited...

  • Page 76
    (Incorporated in Bermuda with limited liability) 23rd Floor, Tai Ping Industrial Centre, Block 1 57 Ting Kok Road, Tai Po, New Territories, Hong Kong Tel: (852) 2680 1000 Fax: (852) 2680 1300 Email: [email protected] www.vtech.com