Vtech 2003 Annual Report Download - page 18

VTech Holdings Ltd
16
Review of Operations
Electronic Learning
Products
Financial year
2003 has been a
tough year for our
ELP business, as
our products
faced major challenges in the United
States. Although we have been able
to maintain our dominance in
Europe, where VTech remains a
leader in many categories, both
revenue and profitability of our ELP
business inevitably declined.
Edwin YING Lin Kwan
Chief Executive Officer,
Electronic Learning Products Business
Rebuilding
profitability
Revenue for the financial year 2003 fell by
16.4% to US$161.9 million, primarily as a
result of a decline in sales in the United
States.
The main factors attributable to the decline
in sales in the United States are set out
follows:
•The size of the ELA market has been
eroded due to the popularization of
personal computers. Children between
age of 6 and 11 are switching to PCs,
television games and hand-held games
for fun and education. Accordingly the
need for ELA products has reduced.
Historically ELA accounted for over 50%
of our revenue sources but for the
financial year 2003 it only accounted for
21.0% of our revenue.
•The rise of certain strong competitors in
the United States had threatened the
sales of VTech products, particularly in
the pre-school and infant categories.
These competitors are strong and gain
certain expansion momentum.
•In an effort to combat the threats of
competitors, in late 2001,VTech looked
into the development of certain
innovative and strategic product items,
namely the Voyager Adventure Systems,
Smarty’s Workshops and the XL Series,
which were headed by the product
development team located in
Connecticut, USA. Innovative ideas and
play concepts were put into the design
of the products and, as a result, they
were well received by the trade during
the preview at the New York Toy Fair in
early 2002. Significant sales orders flew
through from our key customers.In order
to capitalize the products’early success,
more than proportionate advertising
dollars were committed to promote and
market these products. Finally in August
2002,when these products were shipped
and put on the shelf of our customers,
the feedback from our consumers had
not been satisfactory. Inventories had
been built up at the warehouse of our
customers and the less than satisfactory
sell-through had caused some of our key
customers to cancel their orders.
Management has thoroughly studied
the lessons learned in this situation and
appropriate measures had been put in
place to avoid similar events from
recurring in the future.
The combination of the above factors had
led to a significant decrease in sales in the
US market, a reduction of 28.4% to US$60.4
million.