Vtech 2006 Annual Report Download

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Table of contents

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    ... Limited are listed on both the Hong Kong and London stock exchanges (HKSE: 303; LSE: VTH). Ordinary shares are also available in the form of American Depository Receipts (ADRs) through the Bank of New York (ADR: VTKHY). 16 18 20 22 24 28 32 33 34 54 55 56 VTech Holdings Ltd Annual Report 2006...

  • Page 5
    ...growth at electronic learning products business • Outperformance by contract manufacturing services business • Turnaround in profitability of telecommunication products business with continuous growth in Europe • Well positioned for further growth For the year ended 31st March 2006 2005 Change...

  • Page 6
    ... year 2006 we continued this process, in particular focusing on making the supply chain more efficient, discontinuing unprofitable businesses, strengthening marketing and developing an entirely new range of cordless phones that is much more in tune with the needs of our customers and consumers...

  • Page 7
    ... in product design and technology adaptation to grow revenue and market share. V.FlashTM Home Edutainment System The record revenue achieved by the CMS business during the financial year 2006 reflects a second successive year of outperformance of the global electronic manufacturing services (EMS...

  • Page 8
    ... our suppliers, bankers, shareholders and other business partners for their support during the past 30 years, which has helped transform VTech into the Group it is today. Allan WONG Chi Yun Chairman Hong Kong, 21st June 2006 5.8GHz Cordless Answering System VTech Holdings Ltd Annual Report 2006...

  • Page 9
    ..., we have added V.Smile Baby and V.Flash, widening the target age range from 9 months to the pre-teen years. We are also selling an increasing array of accessories, ranging from simple travel bags to new interfaces that enhance the value of the current product platforms. The software library also...

  • Page 10
    ...the year improved from 32.2% to Group Revenue by Product Line % 2006 US$ million Telecommunication Products Electronic Learning Products Contract Manufacturing Services Total 49.4 37.5 13.1 100.0 594.7 451.7 158.2 1,204.6 Group Revenue by Region % 2006 US$ million North America Europe Asia...

  • Page 11
    ... on research and development activities, which represented around 3.3% of total Group revenue. Group EBITDA/Revenue and EBIT/Revenue in Last 5 Years % 15 12.9 EBITDA/Revenue 9.7 10 7.4 5.9 6.9 5 2.4 0 02 03 04 05 06 5.4 6.1 7.9 EBIT/Revenue 11.3 08 VTech Holdings Ltd Annual Report 2006

  • Page 12
    ... collection efforts. financial year 2006, the new manufacturing plant for the Group in Qingyuan city, the northern Guangdong province, started operation. This plant is specialized in supplying plastic products for our TEL business. Capital Commitments and Contingencies The Group expects to invest...

  • Page 13
    ... Products The TEL business returned to profitability in the financial year 2006, as a result of the successful implementation of the US rationalisation plan. The business also achieved continuous grow th in Europe. TEL Revenue by Region 2006 % US$ million North America Europe Others Asia...

  • Page 14
    ... dual mode, allow ing users to make and receive both fixed line and peer-to-peer VoIP calls. The new w indow box packaging design VTech DECT Cordless Phone w ith Colour LCD Display and SM S Function Tw o Handset Expandable Internet Phone System w ith Caller ID VT ech Holdings Ltd Annual Report...

  • Page 15
    ... Electronic Learning Products The ELP business achieved very good results in the financial year 2006, setting a new record revenue. ELP Revenue by Region 2006 % US$ million North America Europe Others Asia Pacific Total 48.2 47.6 2.2 2.0 100.0 217.7 214.8 10.0 9.2 451.7 The ELP business...

  • Page 16
    ...in an entertaining w ay. V.Smile Art Studio is another plug in accessory that develops children's artistic skills through an electronic draw ing and colouring board. In softw are, the V.Smile library w ill see 10 new Smartridges added to its lineup by the end of the calendar year 2006, such as Noddy...

  • Page 17
    ... V.Smile Baby Alongside V.Smile, the traditional ELPs, ranging from infant toys to electronic learning aids for older children, continue to sell w ell. The Group continues to invest in new product development in traditional range. During the toy fairs in 14 VTech Holdings Ltd Annual Report 2006

  • Page 18
    ... International Toy Fair. In addition to investing in the development of new products, the Group has devoted ever more attention to supporting its products and the VTech brand through effective marketing and promotion. The financial year 2006 saw an increasing array of w ell targeted TV, print...

  • Page 19
    ... in part reflects the positive state of the overall electronic manufacturing services (EM S) market w hich expanded by approximately 10% in the calendar year 2005. The rise in revenue w as, how ever, also driven by increased orders from existing customers in all segments, as w ell as new accounts...

  • Page 20
    ... the continued expansion of the business. CM S Revenue by Product Line 2006 % US$ million Professional Audio Equipment Pow er Supplies Others Home Appliances W ireless Products Total 29.9 28.9 17.3 16.1 7.8 100.0 47.3 45.8 27.4 25.4 12.3 158.2 VT ech Holdings Ltd Annual Report 2006 17

  • Page 21
    ..., slide presentations, annual and interim reports can be downloaded from the investor relations section. Shareholders and investors can also send queries to the Group directly using our online form. VTech and Our Employees The average number of employees for the financial year 2006 was 24,500...

  • Page 22
    ... Group's fifth year of participation. Supporting Community Engagement Programme VTech also encouraged community engagement programmes by making donations to The Asia Foundation's "Hong Kong Donor and Corporate Engagement Programme", which aims to build a more cohesive and caring Hong Kong community...

  • Page 23
    ... SEPTEMBER AUGUST APRIL 2005 Contract Manufacturing Services • VTech Communications Limited was presented "2004 Valued Supplier Award" by a customer in the field of medical equipment. AUGUST 2005 Electronic Learning Products • V.Smile Pocket was presented the "Top 10 Toy 2005 Award" by the...

  • Page 24
    ... International Toy Fair in Germany. MARCH 2006 Electronic Learning Products • VTech Electronics Canada Limited was presented the "Vendor of the Year" award by Toys "R" Us - Canada in recognition of its excellent customer service throughout the year. VTech Holdings Ltd Annual Report 2006...

  • Page 25
    ... Report VTech Holdings Limited is incorporated in Bermuda. The Company has its primary share listing on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") and London Stock Exchange plc. The primary corporate governance rules applicable to the Company is the Code on Corporate...

  • Page 26
    ... appropriate financial management expertise as required under the Listing Rules. The Audit Committee held two meetings during the year. It reviewed work done by internal and external auditors, the relevant fees and terms, reports from external auditors in relation to the interim and annual financial...

  • Page 27
    ..., aged 55, is Independent Nonexecutive Director since November 2001. Mr. TIEN is the Chairman and founder of the G2000 Group which starts its business back in 1979. Before starting up G2000, he worked with Macy's Department Store in New York, USA. Mr. TIEN is an active member in Hong Kong community...

  • Page 28
    ... 20 years sales and management experience in the industrial, retail, construction and mining industries in Asia, Europe and South Africa. He also has 9 years of experience in developing supply chain systems with leading corporations in North America including The Stanley Works, Inc. Mr. DELANY holds...

  • Page 29
    ... (Engineering & Administration) of Electronic Learning Products Business. He has more than 10 years in Mechanical Engineering Design of switches, TV and toys products, and 15 years in toys product development management. Mr. AU holds a Diploma in Production and Industrial Engineering from Hong Kong...

  • Page 30
    ...POON Yuen Fung Aged 36, Senior R&D Manager of VTech Communications Limited, is responsible for R&D and development engineering of Contract Manufacturing Services Business. Mr. POON holds a Bachelor degree of Engineering in Electronic Engineering from City Polytechnic of Hong Kong and a Master degree...

  • Page 31
    ... 2006. Reserves Movements in the reserves of the Group and the Company during the year are set out in note 18 to the financial statements. Principal Activity The principal activity of the Group is the design, manufacture and distribution of consumer electronics products. Donations During the year...

  • Page 32
    ...,000 share options were exercised, the weighted average closing prices of the shares of the Company immediately before the dates on which the options were exercised and at the dates of exercise were HK$13.67 per share and HK$13.58 per share respectively. VTech Holdings Ltd Annual Report 2006 29

  • Page 33
    ...the UK Listing Rules. Public Float Based on the information publicly available, the Company has maintained at least 25% of the total issued share capital of the Company to be held by the public at all times during the year ended 31st March 2006 and up to the date of this report. 30 VTech Holdings...

  • Page 34
    ... of providing incentives and rewards to eligible participants who contribute to the success of the Group's operations. Eligible participants of these share option schemes include executive directors and employees of the Company and its subsidiaries. VTech Holdings Ltd Annual Report 2006 31

  • Page 35
    ... Board and the disclosure requirements of the Hong Kong Companies Ordinance and the Bermuda Companies Act 1981. By Order of the Board Allan WONG Chi Yun Chairman Hong Kong, 21st June 2006 KPMG Certified Public Accountants Hong Kong, 21st June 2006 32 VTech Holdings Ltd Annual Report 2006

  • Page 36
    ....3 Approved and authorised for issue by the Board of Directors on 21st June 2006. 16.4 128.8 (42.3) 306.2 1.9 56.9 (18.1) 203.3 Allan WONG Chi Yun Director Albert LEE Wai Kuen Director The notes on pages 34 to 53 form part of these financial statements. VTech Holdings Ltd Annual Report 2006 33

  • Page 37
    ... by the Group except for the accounting policy changes for the adoption of International Financial Reporting Standard 2 - Share-based payment ("IFRS2"). In prior years, no amounts were recognised when employees (which term includes directors) were granted share options over shares in the company. If...

  • Page 38
    ... the date that control effectively ceases, and the share attributable to minority interests is deducted from or added to profit after taxation. Investments in subsidiaries are stated at cost less impairment losses (see note (K)) in the Company's balance sheet. VTech Holdings Ltd Annual Report 2006...

  • Page 39
    ... 1 year J Leases H Intangible Assets Intangible assets that are acquired by the Group are carried at cost less any accumulated amortisation and any impairment losses (see note (K)). Amortisation commences from the date when the developed product is available for use. Leases of property, plant...

  • Page 40
    ... when employees render a service that increases their entitlement to future compensated absences, measured as the additional amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. (ii) VTech Holdings Ltd Annual Report 2006 37

  • Page 41
    ... is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to revenue reserves). T Employee Benefits The Group operates a number of defined contribution retirement schemes throughout the world, including Hong Kong, and a defined benefit...

  • Page 42
    ... of services to third parties. The principal activity of the Group is the design, manufacture and distribution of consumer electronic products. The telecommunication and electronic products business is the principal business segment of the Group. Primary reporting format - business segments Year...

  • Page 43
    ... products. Europe - the operations are principally the distribution of telecommunication and electronic products. Asia Pacific - the Group is headquartered in the Hong Kong Special Administrative Region and the Group's principal manufacturing operations are located in mainland China. Revenue 2006...

  • Page 44
    ... 3 - - 2 - 1 3 0.9 0.5 0.1 - 1.5 0.9 2.6 0.1 - 3.6 During the years ended 31st March 2005 and 31st March 2006, there were no amounts paid to directors and senior executives above for compensation for loss of office and inducement for joining the Group. VTech Holdings Ltd Annual Report 2006 41

  • Page 45
    ...Weighted average number of ordinary shares at 31st March Effect of deemed issue of shares under the company's share option scheme for nil consideration Weighted average number of ordinary shares (diluted) at 31st March 234.4 225.6 2.5 3.3 236.9 228.9 42 VTech Holdings Ltd Annual Report 2006

  • Page 46
    ...in Hong Kong dollar or Euro which were revalued by independent valuers as at 31st March 2006 on an open market value basis. The carrying value of these properties in US dollar as at 31st March 2006 is changed due to the effect of changes in exchange rates. VTech Holdings Ltd Annual Report 2006 43

  • Page 47
    ... 2006 US$ million 2005 US$ million Net book value at 1st April Additions Transfer from tangible assets Amortisation Net book value at 31st March Leasehold land payments in respect of: Owner-occupied properties 8 2 1.8 0.6 1.4 (0.1) 3.7 3.7 1.8 - - - 1.8 1.8 44 VTech Holdings Ltd Annual Report...

  • Page 48
    ... days Total 90.7 41.4 17.0 13.8 162.9 73.2 53.9 21.3 13.9 162.3 The majority of the Group's sales are on letter of credit and on open credit with varying terms of 30 to 90 days. Certain open credit sales are covered by credit insurance or bank guarantees. VTech Holdings Ltd Annual Report 2006 45

  • Page 49
    ... million (2005: US$1.7 million) and US$0.2 million (2005: US$0.2 million) 2006 2005 The principal actuarial assumptions used for accounting purposes were: Discount rate Expected return on plan assets Future salary increases 4.5% 7.0% 5.0% 4.8% 7.0% 5.0% 46 VTech Holdings Ltd Annual Report 2006

  • Page 50
    ...made; and (iii) the par value of the shares. The closing price of the Company's shares traded on the Hong Kong Stock Exchange on 11th August 2005 was HK$19.50 per share, being the date immediately before the date on which the relevant options were granted. VTech Holdings Ltd Annual Report 2006 47

  • Page 51
    ... 3.5 years 5.5% HK$5.4 HK$19.3 HK$19.3 48.0% 3.9% 3.5 years 5.1% The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the one year immediately preceding the grant date. 48 VTech Holdings Ltd Annual Report 2006

  • Page 52
    ...&T Corp. granted the Company the exclusive right to use the AT&T brand for 10 years in connection with the manufacture and sale of wireline telephones and accessories in the United States and Canada. Pursuant to a Revised AT&T Brand Licence Agreement dated 24th January 2002, the subscription price...

  • Page 53
    .../(losses) at 31st March on open forward foreign exchange contracts which hedge anticipated future foreign currency sales and purchases will be transferred from the hedging reserve to the consolidated income 9.9 6.5 10.6 2.4 29.4 9.3 8.2 12.7 3.4 33.6 50 VTech Holdings Ltd Annual Report 2006

  • Page 54
    ... financial year ended 31st March 2006, certain wholly-owned subsidiaries of the Group (the "licensees") entered into certain licensing agreements with various third party licensors for the granting of certain rights to use the relevant cartoon characters into the Group's electronic learning products...

  • Page 55
    ... issued share capital Percentage of interest held by the Group Name of subsidiary Principal activity Incorporated and operating in Hong Kong: VTech Communications Limited Ordinary HK$1,000 Deferred HK$5,000,000 Ordinary HK$5,000,000 *100 Design, manufacture and sale of electronic equipment Design...

  • Page 56
    24 Related Party Transactions With effect from 1st April 2005, the Group renewed the lease of premises from Aldenham Company Limited ("Aldenham") for HK$250,000 per month, to provide housing for a director in accordance with the terms of his service contract for a term of 2 years expiring on 31st ...

  • Page 57
    ...assets Stocks Debtors ...years ended 31st March 2006...share (US cents) 959.8 13.9 (2.6) 11.3 (0.1) 11.2 5.0 866.5 58.3 (17.4) 40.9 (0.1) 40.8 18.1 915.2 49.9 (3.6) 46.3 - 46.3 20.5 1,022.0 63.7 (6.8) 56.9 - 56.9 25.2 1,204.6 140.1 (11.3) 128.8 - 128.8 54.9 54 VTech Holdings Ltd Annual Report 2006

  • Page 58
    ... Bank of New York 101 Barclay Street 22nd Floor-West New York N.Y. 10286 U.S.A. Remuneration Committee Michael TIEN Puk Sun (Chairman) Raymond CH'IEN Kuo Fung William FUNG Kwok Lun Company Secretary CHANG Yu Wai Qualified Accountant Shereen TONG Ka Hung VTech Holdings Ltd Annual Report 2006 55

  • Page 59
    Information for Shareholders Listings Shares of VTech Holdings Limited are listed on both The Stock Exchange of Hong Kong Limited and London Stock Exchange plc. Ordinary shares are also available in the form of American Depository Receipts through the Bank of New York. UK Branch Capita IRG plc ...

  • Page 60
    VTech Group of Companies Head Office VTech Holdings Limited 23rd Floor, Tai Ping Industrial Centre Block 1, 57 Ting Kok Road Tai Po, New Territories Hong Kong Tel : (852) 2680 1000 Fax : (852) 2680 1300 website: http://www.vtech.com email: [email protected] Japan VTech Electronics (Japan...

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