Vtech 2002 Annual Report Download

Download and view the complete annual report

Please find the complete 2002 Vtech annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 71

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71

Table of contents

  • Page 1

  • Page 2

  • Page 3
    ...after contract manufacturing services. In addition to the well-known VTech brand, the Group has the rights to use the AT&T brand on certain telecommunication products. Founded in 1976, VTech's sales reached US$959.8 million in the financial year 2002. The Group's high frequency cordless phones enjoy...

  • Page 4
    2 VTech Holdings Ltd

  • Page 5
    Financial Highlights Annual Report 2002 3

  • Page 6
    Letter to Shareholders dear shareholders Allan WONG Chairman a 4 t our interim results announcement, I was able to report that after the major challenges of the 2001 financial year, VTech had been able, through an aggressive restructuring, to return to a small but significant profit. I am ...

  • Page 7
    ... manufacturing with a new customer-centric approach that stresses the integral importance to our operations in supply chain management, market research, customer service, branding and marketing. margin products. VTech's share of the US fixed-line telephone market remained dominant. In January 2002...

  • Page 8
    ... to drive bottom line growth through profit improvement programs and improving supply chain management. In turn, I as Chairman can devote more time to product development and our strategy for China, which are the Group's future growth drivers. New CEOs of both the telecommunication products and...

  • Page 9
    .... The use of brand to drive sales, customer loyalty and margins is part of a much more radical reorientation of VTech that is now underway. We have built economies of scale in R&D and manufacturing. We have also, in the past two years, squeezed costs out of our operation to the point where we are...

  • Page 10
    Review of Operations telecommunication products new technology "Wow...VTech's new 5.8GHz phone is a real cool product that sure exceeds my expectation." Smith Porter IT professional 8 VTech Holdings Ltd

  • Page 11
    ... products is a history of the new replacing the old. VTech's continuing ability to remain at the forefront of this evolution was demonstrated by the announcement of the launch of the world's first 5. 8GHz cordless phone at CES in January 2002. Combining R&D excellence with extensive market research...

  • Page 12
    ... of the combined operations. During the course of the year our sales support, accounting, and information technology functions were consolidated in our Beaverton, Oregon office while our distribution and returns processing were consolidated in San Antonio, Texas. At the same time, we completed the...

  • Page 13
    ... of sales, we created specific teams to manage each key account, ensuring a much higher level of customer service. We intend to reorganize our logistics to align the execution of orders with that of our customers' needs. This will cut costs, improve reliability and help cement retailer relationships...

  • Page 14
    Review of Operations electronic learning products new ideas "My daughter loves all the VTech toys we bought for her. We have had hours of fun playing together." Carman Bradbury Teacher 12 VTech Holdings Ltd

  • Page 15
    ... Africa, Asia and Australia. Throughout the adventure, children learn interesting facts about animals and geography as they touch and play more than 30 activities and games that teach spelling, vocabulary, mathematics and logic. No other company could have designed Voyager. VTech's engineers in Hong...

  • Page 16
    ... 2002/2003 product line is the first step in this new direction." Dennis W. PERRY Chief Executive Officer, VTech Electronics Ltd Market Overview The electronic learning market is in some ways limited only by the imagination of the companies that serve it and in the past three years, new competition...

  • Page 17
    ..., the XL Series caters to children aged 5-11 years old. It uses powerful handheld and notebook devices with a sleek design to teach children key skills needed at school, while at the same time offering music and animation creativity. The devices also allow them to play games, which can be played...

  • Page 18
    Review of Operations contract manufacturing services new approach "The cost savings to customers who utilize the NPI program could be as high as 10% to 15%" Andy LEUNG Chief Executive Officer VTech Communications Ltd 16 VTech Holdings Ltd

  • Page 19
    ... a major challenge for contract manufacturers. VTech's contract manufacturing services business (CMS) rose to this challenge at the same time the Group mandated that all business units restructure their operations to become more customer-oriented. In 2001, we introduced the "New Product Introduction...

  • Page 20
    ... Officer, VTech Communications Ltd Market Overview Contract manufacturing is an established trend. The rise of mainland China as an unrivalled manufacturing base, the ability to build extended supply chains and pressures on companies to reduce time to market, are changing the way companies operate...

  • Page 21
    ... prices as world demand picks up. These developments, together with a continued improvement to our internal supply chains and the NPI program, will help us to achieve our goal of steady top line and bottom line growth, through expanding and diversifying our customer base. Annual Report 2002 19

  • Page 22
    ... to MBA/MSc programs. Investor Relations Website For all investors, the corporate website www.vtech.com provides up-to-date investor information, including press releases, stock exchange announcements and "pdf" versions of the annual and interim reports. VTech and the Community VTech products and...

  • Page 23
    ... Teacher Association (PTA) for the 2002-2003 school year. VTech will work with National PTA to create the first-ever "XLence Awards" program and share information about resources that assist members in making decisions for educational products for children. National PTA is the largest volunteer...

  • Page 24
    ... the Hong Kong Toy Design Competition 2001 Alphabert and Sprocket - The Ready to Read RobotsTM was named "Best Toys of the Season" by Family Life magazine First Steps PlusTM, Math LabTM, Old McDonald's Puzzle PalsTM and Me-Mo-MoTM were given "Oppenheim Toy Portfolio 2002 Gold Seal Award" 22 VTech...

  • Page 25
    ... territorial rights to sell AT&T-branded wireline telephone products and accessories in Europe, Mexico, Central and South America The VTech 2431 2.4GHz cordless phone was given the "Seal of Approval - Best Overall" award by Good Housekeeping magazine March 2002 Dennis W. PERRY, CEO of our ELP...

  • Page 26
    ... Group's strategy to focus on higher margin products in the telecommunication products business and strong competition in electronic learning products business. The gross profit margin for the year improved from 24.1% to 30.1%. The operating result before restructuring and impairment charges for the...

  • Page 27
    ... electronics manufacturing service company for two years and was a manager of a computer chess game manufacturing company for three years. Mr. LEE holds a Bachelor of Science degree in electrical engineering from the University of Calgary. Paddy LAW Wai Leung, aged 41, Group Chief Executive Officer...

  • Page 28
    ..., Europe, Asia and South Africa including five years experience developing supply chain systems in leading companies in the USA. He holds a Bachelor Degree in Marketing and Financial Management from the University of South Africa & Damlein College. Electronic Learning Products Dennis W. PERRY, aged...

  • Page 29
    ... Chief Executive Officer of Contract Manufacturing Services since April 2002 after serving as General Manager for nine years. Before joining VTech in 1988, Mr. LEUNG had six years of experience in electronic products manufacturing. He holds a Bachelor of Science degree in electrical engineering from...

  • Page 30
    ...$0.05 each of the Company were placed to Mr. James C. KRALIK, an independent third party on that date, at a price of HK$2.075 per share (being the closing price of the shares of the Company on The Stock Exchange of Hong Kong Limited on 26th September 2001). The placing was completed in October 2001...

  • Page 31
    ... interests maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance of Hong Kong and the records of notification made to the UK Listing Authority pursuant to Paragraphs 16.13 to 16.17 of the Listing Rules of the Financial Services Authority in the United...

  • Page 32
    ...Limited HSBC Nominees (Hong Kong) Limited There were no contracts of significance with corporate substantial shareholders during the year under review. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the whole or any substantial part of the business of the Company...

  • Page 33
    ... The Stock Exchange of Hong Kong Limited (the "Listing Rules") and Chapter 11 of the Listing Rules of the Financial Services Authority in the United Kingdom (as the case may be) as set out below: On 26th March 2002, VTech Electronics Holdings Limited ("VTE"), a wholly-owned subsidiary of the Company...

  • Page 34
    ...accordance with International Accounting Standards and have been properly prepared in accordance with the Bermuda Companies Act and the disclosure requirements of the Hong Kong Companies Ordinance. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 26th June 2002 32 VTech Holdings Ltd

  • Page 35
    ... of changes in accounting polices as a result of adopting IAS 39 and IAS 40 have been reflected in note 21 to the financial statements. The principal accounting policies on pages 36 to 40 and the notes on pages 41 to 65 form an integral part of these consolidated financial statements. Annual Report...

  • Page 36
    ... Reserves 20 21 11.3 78.1 89.4 0.8 90.2 Shareholders' funds Minority interest The principal accounting policies on pages 36 to 40 and the notes on pages 41 to 65 form an integral part of these consolidated financial statements. Allan WONG Chi Yun Director Paddy LAW Wai Leung Director 34...

  • Page 37
    ... year Analysis of the balance of cash and cash equivalents Cash at bank and deposits Bank overdrafts 63.3 (0.2) 63.1 56.2 (2.8) 53.4 The principal accounting policies on pages 36 to 40 and the notes on pages 41 to 65 form an integral part of these consolidated financial statements. Annual Report...

  • Page 38
    ... in note 21 to the financial statements. Further information is disclosed in the accounting policies on tangible assets, investment properties and financial instruments. The Company is incorporated in Bermuda. In view of the international nature of the Group's operations, the amounts shown in the...

  • Page 39
    .... In the intervening years the directors review the carrying value and adjustment is made where there has been a material change. The valuations are on an open market value basis and are incorporated in the annual financial statements. Increases in valuation are credited to the revaluation reserve...

  • Page 40
    .... Construction in progress is not depreciated until such time as the assets are completed and put into operational use. L LEASES Leases of property, plant and equipment that substantially transfer to the Group all the benefits and risks of ownership of assets, other than legal title, are accounted...

  • Page 41
    ... scheme in Hong Kong. The assets of all schemes are held separately from those of the Company and its subsidiaries. Contributions to the defined contribution schemes are at various funding rates that are in accordance with the local practice and regulations. For long-term employee benefits, pension...

  • Page 42
    ... Accounting Policies U FINANCIAL INSTRUMENTS The Group's activities expose it to financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts and interest rate swaps contracts to hedge certain exposures. The use of financial...

  • Page 43
    ... format - business segments Year ended 31st March 2002 Telecommunication and electronic products US$ million e-Business related services US$ million Unallocated US$ million Total US$ million i Segment turnover Segment result Unallocated corporate expenses Operating profit Net finance costs Share...

  • Page 44
    ... reporting format - business segments (continued) Year ended 31st March 2001 Telecommunication and electronic products US$ million e-Business related services US$ million Unallocated US$ million Total US$ million i Segment turnover Segment result Unallocated corporate expenses Operating loss...

  • Page 45
    ... areas: USA and Mexico - the operations are principally the distribution of telecommunication and electronic consumer products. Europe - the operations are principally the distribution of electronic consumer products. Asia Pacific - the Group is headquartered in the Hong Kong Special Administrative...

  • Page 46
    ...Business related services and additional provision for the reorganization costs of the information appliances business. Note 2002 US$ million 2001 US$ million Severance payments Impairment of intangible assets Impairment of tangible assets and assets held for sale Write-down of discontinued stocks...

  • Page 47
    ...US$ million 2001 US$ million Current tax - Hong Kong - Overseas 1.7 0.4 0.5 - 2.6 0.9 0.7 - 0.2 1.8 Underprovision in prior years - Overseas Deferred tax Tax on profits has been calculated at the rates of taxation prevailing in the countries in which the Group operates. Annual Report 2002 45

  • Page 48
    ...the year after adjusting for the weighted average number of ordinary shares deemed to be issued at no consideration if all outstanding share options and warrants had been exercised at 31st March 2002. No ordinary shares are deemed to be issued at no consideration during the year. 46 VTech Holdings...

  • Page 49
    ... March 2002 amounted to US$2.3 million (2001: US$7.0 million). The impairment charges for land and buildings, and machinery and equipment, relating to the restructuring plan launched in March 2001, are included in the amount as disclosed in note 3 to the financial statements. Annual Report 2002 47

  • Page 50
    ... were last revalued during 2001 by Chung, Chan & Associates (Hong Kong), independent professional valuers, on an open market value basis. The directors have reviewed the carrying value of freehold land and buildings and long-term leasehold buildings, as at 31st March 2002. 48 VTech Holdings Ltd

  • Page 51
    ... that realization of the related tax benefit through future taxable profits is probable. Deferred tax asset of US$80.3 million (2001: US$61.1 million) arising from unused tax losses of US$255.4 million (2001: US$218.3 million) has not been recognized at the end of the year. 49 Annual Report 2002

  • Page 52
    ... as at 31st March 2001. 13. STOCKS 2002 US$ million 2001 US$ million Raw materials Work in progress Finished goods 18.0 1.8 74.6 94.4 40.7 6.4 140.4 187.5 Analysis by product category: Telecommunication and electronic products e-Business related services 94.4 - 94.4 187.5 - 187.5 At 31st...

  • Page 53
    ...date is as follows: 0-30 days US$ million 31-60 days US$ million 61-90 days US$ million Over 90 days US$ million Total US$ million Balance at 31st March 2002 Balance at 31st March 2001 75.3 81.3 31.6 75.4 8.6 25.2 13.4 13.4 128.9 195.3 The majority of the Group's sales are on letter of credit...

  • Page 54
    ... at an average floating rate of 5.8% (2001: 6.9%), after taking into account of interest rate swaps. Secured bank loans at an average fixed interest rate of 8.7% in 2001 EURO Secured bank loans at an average fixed interest rate of 6.7% (2001: 6.7%) Hong Kong Dollars and French Francs Unsecured...

  • Page 55
    ... during the year were calculated based on advice from Watson Wyatt Hong Kong Limited ("Watson Wyatt"), independent actuaries and consultants. The Scheme is valued annually. The latest actuarial valuation was completed by Watson Wyatt as at 31st March 2002 using the projected unit credit method. For...

  • Page 56
    ... reversed Charged to income statement Utilized during the year At 31st March 2002 35.2 27.1 (10.3) 16.8 (19.0) 33.0 30.3 9.2 (0.5) 8.7 (34.4) 4.6 0.8 1.2 (0.1) 1.1 (0.4) 1.5 66.3 37.5 (10.9) 26.6 (53.8) 39.1 Defective goods returns The Group undertakes to repair or replace items that fail...

  • Page 57
    ... be less than the greater of (i) 80% of the average of the official closing price of the shares on the London Stock Exchange plc and The Stock Exchange of Hong Kong Limited for the 5 trading days immediately preceding the relevant offer date and (ii) the nominal value of the shares. The terms of the...

  • Page 58
    ... the Company's shares traded on The Stock Exchange of Hong Kong Limited on 25th February 2002 (being the day immediately before the date on which options were granted or deemed to be granted) was HK$9.70. The directors are of the view that value of options granted during the year depends on a number...

  • Page 59
    ... and AT&T pursuant to which AT&T granted the Company the exclusive right to use the AT&T brand for 10 years in connection with the manufacture and sale of wireless telephones and accessories in the United States and Canada, the Company granted AT&T warrants carrying rights to subscribe for 3,000...

  • Page 60
    ...Financial Statements 21. RESERVES Group Note 2002 US$ million 2001 US$ million Company 2002... dividend Placing of shares...sale Carried forward (11.0) 1.2 (9.8) 11.2 - 2.7 0.1 4.2 230.1 1.2 231.3 (215.0) (26.9) 0.8 - (9.8) 35.3 - 35.3 1.3 - - - 36.6 209.8 - 209.8 (147.6) (26.9) - - 35.3 58 VTech...

  • Page 61
    ... contracts are matched with anticipated future cash flows in foreign currencies, primarily from sales. Interest rate risk The Group's income and operating cash flows are affected by the change in market interest rates in relation to its interest-bearing loans. The Group uses interest rate swaps...

  • Page 62
    ... contracts at 31st March 2002 was US$40.0 million (2001: US$40.0 million). At 31st March 2002, the fixed interest rate relating to interest rate swaps varied from 6.7% to 7.0% (2001: 6.7% to 7.0%). Fair values The fair values of the Group's financial assets and liabilities, before taking account...

  • Page 63
    ... The future aggregate minimum lease payments under non-cancelable operating leases are as follows: Land and buildings In one year or less Between one and two years Between two and five years In more than five years Restated 10.9 7.3 12.4 5.9 36.5 10.4 9.1 15.9 8.7 44.1 Annual Report 2002 61

  • Page 64
    ...People's Republic of China ("PRC") to lease factory premises in Houjie, Dongguan comprising several factory buildings. There are totally four separate leases which expire in 2003, 2004, 2022 and 2029 respectively. The lease expiring in 2029 has a non-cancelable period of eight years which expires in...

  • Page 65
    ... Limited (formerly known as VTech Computers Systems Limited) Ordinary HK$3,300,000 *100 Provision of IT training courses and online education services and the sale of consumer electronic products VTech Electronics Limited HK$ 5,000,000 *100 Design, manufacture and distribution of electronic products...

  • Page 66
    ...,100 *100 Sale of telecommunication products # HomeRelay Communication, Inc. Incorporated and operating in Canada: VTech Electronics Canada Limited Class A C$5,000 Class B C$195,000 Incorporated and operating in the Netherlands: VTech Electronics Europe B.V. (formerly VTech Electronics Netherlands...

  • Page 67
    ...the United Kingdom: # VTech Electronics Europe plc (formerly VTech Electronics (UK) plc) Incorporated in the British Virgin Islands and operating in the People's Republic of China: Asian Luck Limited US$1 *100 Manufacture of electronic & telecommunication products * # Indirectly held by subsidiaries...

  • Page 68
    ... attributable to discontinued operations: 14.9 - - - - (ii) Depreciation on moulds for new products that ultimately go into production for the years ended 31st March 1998 to 31st March 2000 has now been reclassified and included within cost of sales instead of within research and development...

  • Page 69
    VTech in the Last Five Years Note 1998 US$ million Consolidated statement of net assets as at 31st March 1999 2000 2001 US$ million US$ million US$ million 2002...89.4 Current assets Stocks Assets held for sale Debtors and prepayments Taxation... Long-... 21.2 26.5 - - - Annual Report 2002 67

  • Page 70
    ... Michael TIEN Puk Sun Patrick WANG Shui Chung Principal Registrars Butterfield Corporate Services Limited Rosebank Centre, 11 Bermudiana Road P.O. Box HM1540, Hamilton HM FX Bermuda Board of Management Paddy LAW Wai Leung James C. KRALIK Dennis W. PERRY Andy LEUNG Hon Kwong Alan TSO Yan Wing Edwin...

  • Page 71
    ... 9 1657 4400 Fax : (34) 9 1661 4914 Sedgwick Richardson / Roman Financial Press Limited A Chinese translation of the annual report may be obtained on request from Computershare Hong Kong Investor Services Limited, Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong. 183 17...