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Management Discussion
and Analysis
8
GROSS PROFIT/MARGIN
The gross profit for financial year 2004 was US$281.3 million, a decrease of US$7.7 million compared to the same in the previous financial year. Gross
margin for the year fell from 33.4% to 30.7%. The reasons for the decrease in gross margin were mainly due to the change in sale mix and on-going price
erosion of the Group’s products.
OPERATING PROFIT
The operating profit for the year ended 31st March 2004 was US$49.5 million, a
decrease of US$10.0 million over the previous financial year. If we excluded the gain on
settlement of a lawsuit of US$34.0 million which was included in the operating profit in
the previous financial year, the operating profit in financial year 2004 increased by
US$24.0 million, or 94.1%. This improvement came from strong control of selling and
distribution costs, administrative and other operating expenses. These expenses
decreased from US$232.5 million in financial year 2003 to US$198.6 million in financial
year 2004. During the financial year 2004, the appreciation of Euros and other
currencies against US dollars gave rise to a net exchange gain of US$5.0 million,
compared to the net exchange gain of US$2.2 million in the previous financial year.
Research and development activities are vital for the long-term development of the
Group. During the financial year 2004, the Group spent US$33.2 million on research
and development activities, which represented 3.6% of total Group revenue.
R&D Expenditure on Core Businesses in Last 5 Years
US$ million
35.2
00 01 02 03
0
10
20
30
04
40
50
28.9
33.2
60
54.1
31.0
TAXATION
The Group settled its dispute with the Hong Kong Inland Revenue Department (“HKIRD”) regarding offshore income claims. The final settlement resulted
in a write back of overprovision for taxation relating to prior years of US$3.3 million.
NET PROFIT AND DIVIDENDS
The profit attributable to shareholders for the year ended 31st
March 2004 was US$46.3 million, an increase of US$5.5 million
as compared to the previous financial year. If we excluded the
gain on settlement of a lawsuit of US$34.0 million in the
previous financial year and the effects of taxation arising from
the dispute with HKIRD in both financial years 2003 and 2004,
the profit attributable to shareholders in financial year 2004 rose by more than
1.4 times. For the financial year 2004, the ratio of EBIT and EBITDA to revenue
was 5.4% and 7.4% respectively.
Earnings per share for the year ended 31st March 2004 were US20.5 cents as
compared to US18.1 cents in the previous financial year. During the year, the
Group declared and paid an interim dividend of US3.0 cents per share, which
aggregated to US$6.8 million. The directors have proposed a final dividend of
US7.0 cents per share, which will be aggregated to US$15.8 million. Total dividend for the year amounted to US10.0 cents per share, representing
an increase of US6.5 cents or 1.8 times from the previous year.
Profit/(Loss) Attributable to Shareholders in Last 5 Years
US$ million
0
(40)
(80)
(120)
(160)
(200)
40
80
(215.0)
01
11.2
02
40.8
03
46.3
04
44.8
00
%
00 01 02 03 04
5.4
(15)
7.4
(10)
(5)
0
5
10
15
(15.0)
2.4
6.9
4.4
7.8
(11.6)
5.9
9.7
EBITDA/Revenue in Last 5 Years EBIT/Revenue in Last 5 Years
VTech Holdings Ltd Annual Report 2004