Vtech 2001 Annual Report Download - page 7

VTech Holdings Ltd Annual Report 2001
5
The financial year 2001 was undoubtedly the
most difficult VTech has faced since we
began operations in 1976. A combination of
factors, in particular, the problems associated with
the newly acquired consumer telephone business of
Lucent, led to some major operating losses and write-
offs. This in turn triggered a broad restructuring of
the entire group, leading to further charges against
our earnings and resulting in the profit warning and
restructuring announcement that was issued in March
2001. At the same time, a number of unfavourable
external factors affected us during the year. These
included the weak Euro and shortages of
components leading to delivery delays which affected
the Group’s ability to meet orders, both of which led
to lost sales. Market conditions for electronic learning
products also deteriorated.
A contributing factor to our poor results has been
our expansion. For many years, we have been
aggressively growing our businesses and we
successfully built VTech into a company with over
US$1 billion in annual sales in the financial year 2000
while this growth was achieved through investing in
new businesses and focusing on growing market
share. At times, this was done at the expense of
margin. The restructuring we launched earlier this year
is aimed at refocusing on our core competencies,
driving for maximum operational efficiencies and
slashing unnecessary overhead. In doing so, we are
committed to rebuilding value, regaining the
confidence of the investment community and
ensuring a return to strong bottom-line growth in the
years ahead.
Results
Group turnover for the year rose by US$289.0 million,
mainly attributable to sales from the acquired Lucent
consumer telephone operation. However, the
profitability and working capital of the Group were
adversely affected and constrained by the poor
performance and unfavourable business conditions of
the Lucent operations. As a result the Group has
reported a net loss of US$215.0 million for the year,
including the one-off costs of the restructuring and
asset write-downs. The board has not recommended
a final dividend.
Restructuring
We launched a restructuring plan in March 2001 that
involved laying off 4,500 people or 16% of our total
employee force worldwide, winding down and
restructuring non-performing business units and
consolidating operations to improve efficiency. The
details of our seven point plan are given later in this
report. To enable the plan to be executed swiftly and
with minimum legacy issues, we have appointed a
new Chief Operating Officer to take charge of the
whole process.
Because the losses incurred through the restructuring
process were large, we have worked closely with our
bankers to ensure their continued support. I am
pleased to report that all of our bankers are firmly
supporting our plan.
Already, the majority of the restructuring has been
completed, with the remainder to be finished in the
coming months. These actions will enable the Group
to save over US$30.0 million a year and make VTech
a much leaner and nimbler group, that will react more
quickly to changes in market conditions.
Rebuilding
VTech Holdings Ltd Annual Report 2001
Value
Letter to Shareholders