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Technology
leadership
Annual Report 2003 3
Letter to Shareholders
The Group revenue has declined by 9.7%
from last year. Although sales of AT&T and
VTech branded telecommunication
products grew considerably in the financial
year 2003, the increase was insufficient to
offset the loss of ODM (Original Design
Manufacturing) business in
telecommunication products. In 2002, one
of our largest ODM customers exited the
North America telephone market and hence
these ODM sales did not recur in financial
year 2003. Lower sales at our Electronic
Learning Products (ELP) business in the
United States was another major factor
contributing to the reduction in the Group
revenue.
Despite the decrease in the Group revenue
from US$959.8 million to US$866.5 million,
operating profit improved from US$23.0
million to US$59.5 million.Profit attributable
to shareholders stood at US$40.8 million,
which compared to last year's US$11.2
million.The 264.3% rise in profit attributable
to shareholders over previous year is
primarily due to the gain arising from the
settlement of our lawsuit against Lucent
Technologies Inc. (Lucent) of US$34.0
million, improved product mix in the sales
of AT&T and VTech branded
telecommunication products, enhancing
supply chain management and
manufacturing processes.The Group also
benefited from a reduction in financing
costs as it strengthens its liquidity position.
The results were, however, adversely
affected by the less than satisfactory
performance of our ELP business in the
United States.
The Group is currently in discussions with
the Hong Kong Inland Revenue Department
(IRD) regarding a dispute over the offshore
income claims made by certain subsidiaries
of the Group in prior years.Whilst
management considers that the subsidiaries
have grounds to support these claims, the
outcome of the dispute remains
undetermined.The directors consider it
prudent to establish a provision of US$11.0
million for the directors’ best estimate of
any liabilities which may arise on settlement
of this dispute, which has been charged to
the consolidated income statement for the
year ended 31st March 2003.
The continuous improvement in VTech’s
financial position has led the directors to
recommend a final dividend of US2.0 cents
per ordinary share which, together with the
interim dividend already paid, brings the
full-year dividend to US3.5 cents per
ordinary share.
Steady operational cash flow has given
further support to the Group’s improved
liquidity. As at 31st March 2003, the Group
had net cash of US$67.7 million, against a
net debt position of US$32.5 million at 31st
March 2002.Total interest bearing liabilities
had decreased from US$95.8 million as at
31st March 2002 to US$2.7 million.The gross
s
Customer-
centric
strategy
Improved
net profit