Vtech 2003 Annual Report Download - page 19

Annual Report 2003 17
Review of Operations
99
402.0
348.3
291.2
193.7
161.9
500
400
300
200
100
00 01 02 03
ELECTRONIC LEARNING PRODUCTS
REVENUE IN LAST 5 YEARS
US$ million
More creative
product
ideas
Streamlined
operations
In Europe, by contrast, VTech had been able
to sustain a comparable revenue level as
last year. Revenue in Europe for the financial
year 2003 stood at US$88.0 million,
representing a decline of 7.5% from last
year. In this market, VTech has a greater
competitive advantage by virtue of its well-
established distribution network and
expertise in developing products in many
different languages. Despite keen
competition in the key European markets,
VTech has been able to maintain a dominant
role in many ELP categories.
Profitability of the ELP business was
significantly affected by lower sales volume
in the United States. A disproportionate rise
in sales and marketing expenses in that
market, where major marketing campaigns
were launched in support of the brand
image and strategic new products, was
unable to generate expected results in sales
due to unsatisfactory execution, further
eroded the margin.
Outlook
In the financial year 2004, ELP will begin
aggressively to tackle the issues at the
business, especially as regards the US
market.
A three-year strategic plan has been devised
to restore the operation to its normal levels
of revenues and profitability, under the
direction of the new management of
seasoned VTech executives that was put in
place in late 2002.
The results of this initiative will not be
immediate and we therefore do not
anticipate any improvement in revenue in
the financial year 2004. However, the focus
will be on the rebuilding of ELP’s
profitability.We intend to improve the
profitability of the ELP operation through
a series of important measures, some of
which have already been started.These are:
•Reorganized and streamlined Hong
Kong, US and European operations in
order to bring the size of the structure
into proportion with the current scale
of business;
•Closed the R&D centre in Connecticut,
USA and consolidated the R&D activities
to the R&D centres in Hong Kong and
mainland China;
•Strategically allocate our advertising
dollars to ensure that maximum impact
will be generated with fewer resources,
e.g. trade advertising; and
•In the product development perspective,
we will focus on generating innovative
and creative product ideas and concepts.
Dedicated resources will be allocated to
our product design teams in Hong Kong
and mainland China.With up-to-date
market intelligence collected from our
distribution networks in major markets,
our product design professionals will be
able to generate product concepts and
ideas that are most appropriate to the
market and accepted by the consumers.
With profitability restored in the financial
year 2004, we will shift our main focuses to
driving sales, growing revenues and further
profitability growth in the financial year
2005 and beyond.We have begun to revamp
completely the product line and to explore
entirely new product categories.The core
of this longer-term growth strategy will be
to integrate our technology innovation,
product development and marketing
expertise in our product development
processes.This will ensure new products
are appropriate to the market and successful
with consumers.
We also intend to leverage our competitive
strength in developing products with
different languages to expand our business
geographically.We have begun to examine
opportunities in Latin America and other
emerging markets.We are also looking at
mainland China, which is clearly a market
of great potential in the longer term. During
the financial year 2004,we will have a range
of 16 different ELP products ready to test
the China market.These products cover our
three major categories, namely electronic
infant toys, electronic pre-school toys and
electronic learning aids.They are designed
to appeal to the children aged 6 months to
11 years old and will initially be sold in the
Pearl River Delta area in mainland China.