Logitech 2005 Annual Report Download - page 6

TO OUR SHAREHOLDERS
Daniel Borel Guerrino De Luca
Chairman of the Board President and Chief Executive Offi cer
Fiscal Year 2005 was Logitech’s seventh consecutive year of double-digit
growth. We exceeded our ambitious fi nancial targets, and at the same
time we invested signifi cantly for future growth.
Our sales growth accelerated, and revenue reached $1.48 billion
(a 17 percent increase over FY 2004). Operating income was up
by 18 percent to $172 million, generating the highest operating
margin in the Company’s history.
In spite of pressure in material and fuel costs, which challenged
our manufacturing and logistics efforts, our gross margin improved
to 34 percent, compared to 32.2 percent a year earlier, a testament
to the strength of our business proposition and execution.
In addition to investing in the business, we used the continued strong
cash fl ow from operations to repurchase Logitech shares. This year,
the Company purchased 2,775,000 shares, for 168 million Swiss francs
(approximately $135 million), and we plan to continue buying back
shares in FY 2006.
As we said, FY 2005 was a year of signifi cant investments in infrastructure,
R&D, and marketing, to set the foundation for our future growth.
Construction is nearly completed on a new and larger production facility
in Suzhou, China, expected to be fully operational by summer 2005.
An essential part of the Company, our long-established manufacturing
operations in Suzhou produce approximately half of our products. We
also invested in information technology that will scale appropriately as
the Company grows. This ongoing investment is intended to simplify,
standardize and automate business processes.
To support the development of a broader portfolio of innovative products,
we expanded our R&D staff, including the addition of nearly 200
engineers. We hired more sales people to take advantage of opportunities
in China, Eastern Europe and the U.S. We also invested to strengthen
our brand, and to enhance our in-store presence through improved
merchandising and packaging.
The signifi cant growth of our retail sales (up 27 percent over last year,
with 58 million Logitech-branded products sold) was a key highlight
for the year. While retail sales in Asia Pacifi c were essentially fl at, we are
encouraged by the investments we have made in this area, which
position Logitech to take better advantage of the growth opportunities
in the region.
Our best performance came from our two largest retail regions, the
Americas and Europe. In both, our sales growth was higher than 30 percent.
We strengthened our market leadership in several of our product busi-
nesses. We expanded distribution, stepped up sales operations in new
markets (Eastern Europe, Latin America), and broadened the reach of
our brand by entering new product categories.
This year’s OEM sales declined, following last year’s exceptional sales to
Sony of products for PlayStation®2. However, in our core OEM business,
sales of mice, especially cordless models, were very healthy.
The record number of new products Logitech launched this year
included a balance of award-winning innovation leaders, competitive
mid-range products and high-volume value products. We redefi ned
the competitive landscape in our mouse business with an exceptional
set of cordless mice: the world’s fi rst mouse to use laser technology for
high-resolution tracking, an elegantly designed mouse for notebooks,
and a mouse that controls digital media. In addition, we introduced
a high-performance mouse designed for gamers, reinvigorating the PC
gaming category.
Fueled by the worldwide popularity of video instant messaging,
we continued to see record sales of webcams, and this year we sold
our 25 millionth webcam. In interactive entertainment, Logitech
had an exceptional year, selling 1.9 million cordless controllers for
the PlayStation 2 and the Xbox® gaming consoles.
Following the acquisition of the Harmony remote control business
in May 2004, Logitech successfully integrated the business into the
Company. Harmony sales in North America steadily increased, with
the Harmony remote now the U.S. market leader in its category.
Most recently, we expanded our line of personal peripherals to mobile
entertainment platforms, such as the PSP™ handheld entertainment
system, the iPod®, and other MP3 players. We’re leveraging our expertise
in audio and design to offer the very best in music headphones, speakers
and other must-haves for these platforms.
Beyond investing in the development and marketing of leading personal
peripherals, Logitech is investing in our most important asset—people.
Our 6900 employees are the heart of Logitech, and we are proud of
their continued passion, hard work, inventiveness and dedication. We
recently initiated a broad leadership-development program to prepare
the Company’s future leaders. We also are proud to be able to count
on an executive team whose breadth, strong skills and experience are
a source of confi dence in our future.
The breadth of Logitech’s product portfolio provides the Company with
multiple growth drivers and increased resilience. Even as we broaden
our portfolio to support new platforms, our mission remains consistent:
to provide personal peripherals that make the digital experience more
personal. Our strategy is to compete in areas where we have or can
achieve market leadership—and where we can use our scale advantage.
We look toward the future with optimism. Logitech is at the crossroads
of key trends in the digital revolution that present tremendous oppor-
tunity: cordless, IP communications, mobile entertainment and the new
digital living room. Yet, we are mindful that delivering continuous
growth is a challenge, and that we must redouble our efforts to sustain
the current pace of our growth. The key to this is innovation—it keeps
us ahead of our competitors, it helps maintain stability in pricing and
margins, and it is what drives and motivates us.
Our future success also depends on those who have been instrumental
in building Logitech into the company it is today. Consumers around
the world have used our products and told their friends. Their loyalty
toward the Logitech brand is what we strive for. Equally important are
our partners. We are fortunate to have established strong relationships
with leading distribution and retail partners, technology suppliers and
platform companies—and we will continue to cultivate them.
Logitech also greatly benefi ts from the wisdom and perspective of our
Board of Directors. We value each of their contributions, and wish to
acknowledge Michael Moone, who is retiring from the Board after three
years of service. We thank him for his contribution to our success.
Finally, we wish to thank our shareholders, for your ongoing support
as we continue to build Logitech.
Daniel Borel Guerrino De Luca
Chairman of the Board President and Chief Executive Offi cer