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VTech Holdings Ltd Annual Report 2001
7
Letter to Shareholders
Strong Growth in Contract
Manufacturing Services
A bright spot in our businesses has been our contract
manufacturing services and multimedia
communication products, both of which recorded
strong sales growth. To streamline these operations,
they were merged in January 2001.
Other Businesses
Our newer businesses, including the mobile phone
R&D centre in Aylesbury, UK that we acquired in
September 2000, remained cost-centres, rather than
revenue generators during the financial year. As part
of the restructuring process, we will close this
operation. This should save the Group over US$10.0
million a year. In light of this decision, we have also
fully written-off the cost of this acquisition in the
financial year 2001. To promote synergies among the
Group’s other business units, the PDA (personal digital
assistants) and IA (information appliances) businesses
are being merged into the consumer telephone
business unit, further reducing R&D, manufacturing
and sales costs.
During the year, the Group invested in a number of
e-business initiatives. Those that are not performing
will either be closed down or restructured.
Appreciation
In this difficult year, my particular thanks on behalf of
the board of directors are extended to all our
employees. Their hard work and continued loyalty to
the Group despite the rationalization has ensured that
our operations have continued smoothly during the
restructuring process.
Outlook
With predicted economic uncertainties hanging over
the US, our major market, it would be inappropriate
to be over-optimistic for the financial year 2002. We
expect the US market to remain soft for the remainder
of the year, especially for our ELPs, since a number
of major retailers are reducing their inventory exposure
in view of the current economic uncertainty. Equally,
while our restructuring is proceeding as planned, many
of the benefits will not produce tangible financial gain
for several months.
Nevertheless, we expect our business to improve.
The costs of our various restructuring steps were
largely all taken in the financial year 2001. The
US$110.4 million of restructuring and impairment
charges that affected our bottom line will thus not
recur in the financial year 2002. The closure of the
Mexico factories and the elimination of the US
operations acquired from Lucent will reduce Group
operating costs substantially. The current state of
the market also leads us to believe that the
component shortages that have affected sales and
margin at our business units will not be a factor in
the financial year 2002.
In addition, the rapidly improving cost structure of all
our operations should increase the Group’s
competitiveness. In the longer term, the creation of a
more marketing oriented VTech, coupled with our
proven core competencies in product innovation and
technology, will allow us to recapture lost market share
in the ELP business.
Without question VTech is going through a very
challenging period. However, I am confident that
we are learning from our past misfortunes and will
emerge from these tough times stronger than before,
more focus on building shareholder value.
Allan WONG Chi Yun
Chairman
Hong Kong, 27th June 2001