Vtech 2002 Annual Report Download - page 8

VTech Holdings Ltd6
which through close involvement with customers at early design
stages shortens the development cycle and reduces outturn cost.
Strengthened Management Team
Changes in personnel, management and the Board have been a
significant feature of the developments that have taken place at
VTech and that are laying the foundations for a new company. I wish
to extend my heartfelt thanks to everyone at the Group for their co-
operation during this period.
During the financial year 2002, we reduced total headcount by about
27.4%, making us a much leaner organization with a higher level of
efficiency. As importantly, we have added highly experienced talent
to senior management. In June 2002, I announced the appointment
of Mr. Paddy LAW as the CEO of the Group. Mr. LAW has been with
VTech for over 11 years and has been the CFO and COO of the Group.
He has been a key person in the restructuring process from which
VTech is now emerging, and as CEO, will continue 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 ELP
businesses, with particular expertise in marketing and customer
relationship management gained in the United States, are
spearheading a comprehensive review of the way VTech approaches
its business.
In November 2001, I appointed Mr. Albert LEE as the Deputy
Chairman, a newly created position. Mr. LEE has assisted me in
driving the strategy for product development and China market.
At the same time, I announced the appointment of four new
directors to the Board: Dr. Raymond CH’IEN, Executive Chairman of
chinadotcom corporation as well as Chairman of its subsidiary,
hongkong.com corporation; Dr. William FUNG, Group Managing
Director of Li & Fung Ltd; Mr. Michael TIEN, Chairman of the G2000
Group and Chairman of Kowloon-Canton Railway Corporation; and
Mr. Patrick WANG, Chairman and Chief Executive of the Johnson
Electric Group. They were brought in to increase the number of
independent non-executive directors and give a fresh perspective on
our operations and markets. They cover areas of particular relevance
to VTech, including technology, marketing, manufacturing, sourcing,
logistics and distribution. Six existing directors stepped down,
having given much to the Group and continue to serve in
key management roles.
Improved Prospects
In a fundamental sense, VTech is back on track, with a healthier
balance sheet and a return to profitability.
The restructuring provisions we have taken this year should be the
last we will need to make in respect of our restructuring in the wake
of the Lucent acquisition. In June 2002, VTech reached a mutually
satisfactory settlement with Lucent Technologies Inc. (“Lucent”)
relating to a dispute arising from the acquisition by the Group of
Lucent’s Wired Consumer Products Business in 2000. Under the terms
of the settlement, Lucent has agreed to adjust the purchase price of
the acquisition downward by US$50.0 million, such amount to be
fully settled in cash by 3rd July 2002.
Demand for our core business areas remains positive and will be met
in our 2003 financial year by a new range of AT&T branded premium
phones and a completely redesigned range of ELPs. Their immediate
appeal and positive research from market testing have gained an
exceptional level of acceptance among customers. We have also
increased the capacity of our CMS facilities in response to the
growing demand from our customers. Although component prices
may rise as demand in the technology sector picks up, we continue
to redesign products and processes to reduce dependence on more
expensive components, as well as to cement relationships with key
suppliers.
We see opportunities to grow in a number of markets. Acceptance of
our products in Europe is high, yet the penetration of our cordless
phones is very low when compared to the United States. We are now
seeing steady growth in original design manufacturing (ODM)
business. Mainland China is a region of long-term potential where
the cordless phone market is largely in its infancy. I have established
a management team to examine the best way to approach these
markets and we are exploring partnerships that would provide us
with powerful distribution channels.
In this regard, VTech was able in February 2002 to agree to amended
terms for its brand license agreement with AT&T. The revised
agreement adds Europe and Greater China to the regions where we
can use the AT&T brand in connection with the manufacture and sale
Letter to Shareholders
Albert LEE Group Deputy Chairman
VTech Holdings Ltd
James C. KRALIK Chief Executive Officer
VTech Telecommunications Ltd
Dennis W. PERRY Chief Executive Officer
VTech Electronics Ltd
Andy LEUNG Chief Executive Officer
VTech Communications Ltd
management team from left to right