Vtech 2002 Annual Report Download - page 12

VTech Holdings Ltd10
Review of Operations
understanding consumers
“It was a year of tremendous change at VTech Telecommunications as we fully integrated
the VTech and former Lucent operations and our dedicated team made dramatic and
sustainable improvements to our entire supply chain process. These developments
enabled us to improve significantly our balance sheet and return to profitability. During
the course of the year, we also completed the first stage of our transition from an
engineering driven company to one with much greater customer focus in all aspects
of our business operations.”
James C. KRALIK
Chief Executive Officer, VTech Telecommunications Ltd
*Source: AAT/NPD, Market Intelligence
†Source: Ministry of Information Industry, China
‡Source: www.ccidnet.com
Market Overview
While the global telecommunication products market has
suffered in the past two years, the fixed line market has
tended to follow its longer-term trends. In the most mature
market, the United States, the shift from corded to cordless
products has continued. The US cordless market reached
47 million units* in 2001, with newer generation 2.4GHz
models accounting for approximately 18%* of the total. The
market is driven partly by a switch from corded to cordless
and partly by technology, as cordless users adopt newer
models offering improved audio quality, range and enhanced
features.
In the developing world, the fixed line market continues to
expand rapidly as more lines are installed, particularly in
mainland China. In 2001, mainland China added 36 million
lines, a 25% increase over the previous year. Despite this,
mainland China has a fixed-line penetration rate of less than
25%, showing that considerable room still exists for growth†.
Within this overall market, the cordless market is relatively
undeveloped, representing approximately 10% of unit sales‡.
Performance Review
Unit volumes and turnover fell markedly during the year,
as VTech Telecommunications implemented its plan to cut
production of loss-making models and focus on higher
margin products. Although turnover decreased 18.7% to
US$670.0 million, our profits rebounded sharply from a
substantial loss in the 2001 financial year to a significant
operating profit in 2002.
The return to profitability also reflects the successful
integration of the former Lucent and VTech operations during
the second half of the year, resulting in substantially lower
write-offs and the emergence of the benefits 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 full
and final integration of our US call centers into one unit in
St. Louis, Missouri.
The profit rebound is further the result of our efforts to
improve our management of the entire supply chain process.
During the year, we instituted daily monitoring from
forecasting through ordering, production and shipping. The
success of this arduous operation reduced average inventory,
prototype developmentheart of the technologyproduct development
bringing cutting edge technology to consumers