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Letter to Shareholders
VTech Holdings Ltd Annual Report 2005
04
Touch TabletTM
New Manufacturing Facilities
Manufacturing facilities in mainland China
have been increasingly migrating inland to
be closer to untapped labour pools, which
ultimately reduces operational costs.
During the financial year 2005, the
Group decided to establish its third
manufacturing plant in Qingyuan city in
the northern part of Guangdong province.
The new 49,000 square metre facility will
initially be used for supplying the plastics
needs of our telecommunication products
business. The plant is expected to start
operations in the fourth quarter of the
calendar year 2005.
Although VTech has currently not been
affected by the tight supply of labour and
electric power in the Pearl River Delta,
where its manufacturing facilities are
located, the Qingyuan facility offers the
ability to relocate som e processes to an
area of lower cost if required.
Outlook - Cautiously Optimistic
VTech's mission is to be the most cost
effective designer and manufacturer of
innovative, high quality consumer
electronics products and to distribute
them to markets worldw ide in the m ost
efficient m anner. We remain optimistic
about the outlook of the financial year
2006, but this is tempered with caution in
view of a number of factors.
The US economy appears to be on a
reasonably firm footing, but rising short
term interest rates and stubbornly high oil
prices may at som e point dampen
consum er spending. The Group also faces
potential challenges from rising resin
prices and from RoHS compliance, which
will increase the cost of m anufacturing for
products shipping to Europe and Japan.
In addition, a potential upward revaluation
of the RMB would increase our operating
costs, while a weakening of the Euro
and Sterling may also affect our
results, although forward foreign
exchange contracts are used to hedge
certain exposures.
Nonetheless, the Group's three core
businesses are well placed for the future,
albeit with fundamentally different
challenges and opportunities. The
telecommunication products business is
now on much more stable footing, with a
lower cost structure and a pipeline of more
competitive products under development.
We will continue to leverage our dual
brand strategy, using both the AT&T and
VTech brands to develop products for
different market segments.
Follow ing the re-engineering measures,
we expect the profitability of the
VTech's mission is to be
the most cost effective
designer and
manufacturer of
innovative, high quality
consumer electronics
products and to
distribute them to
markets worldwide in the
most efficient manner.
We remain optimistic
about the outlook of the
financial year 2006, but
this is tempered with
caution in view of a
number of factors.