Vtech 2007 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... manufacturing services. Founded in 1976, the Group'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. With headquarters in the Hong Kong Special...

  • Page 3
    ... cents 80 80.0 EARNINGS PER SHARE IN LAST 5 YEARS US cents 80 70 76.6 1,200 866.5 915.2 60 60 50 54.9 900 40 600 20 10.0 3.5 0 03 04 05 06 07 0 03 04 05 06 07 13.0 32.0 40 30 20 10 0 03 04 05 06 07 18.1 20.5 25.2 300 VTech Holdings Ltd Annual Report 2007 1

  • Page 4
    ... two years of rationalisation 128.8 (2007 vs 2006) 42.0% VTech Holdings Ltd Annual Report 2007 120 at its US operations, the telecommunication products (TEL) business regained its leadership position 80 56.9 40 40.8 46.3 in the US cordless phone market. A rebound in sales in this market led...

  • Page 5
    ... based product and eight new titles were added in the calendar year 2006. V.Smile Baby, targeting children between the ages of nine months and three years old, was added to the range. It appeared on the shelves in the first half of the financial year and sales have been encouraging. V.Flash, aimed...

  • Page 6
    ... of the Whiz Kid Learning Systemâ„¢ will enable VTech to capture a position in the reading market. The V.Smile range will continue to evolve and an enhanced V.Smile console will be on the shelves in the United States in August 2007, featuring a sing-along microphone and a writing joystick. It will...

  • Page 7
    ...-stop shop EMS service to small and medium sized customers continued to be successful, and the business achieved significant growth in revenue of 47.3% over the previous GROUP REVENUE BY PRODUCT LINE % 2007 US$ million Telecommunication Products Electronic Learning Products Contract Manufacturing...

  • Page 8
    ... activities at the ELP business. Royalty payments to licensors for the use of popular cartoon characters for certain ELPs and V.Smile Smartridges also increased, which was in line with increased sales of the V.Smile product range. However, selling and distribution costs as a percentage of Group...

  • Page 9
    ... with the corresponding period of the previous financial year. CAPITAL EXPENDITURE For the year ended 31st March 2007, the Group invested US$37.2 million in the construction of factory buildings, purchases of plant and machinery, equipment, computer systems and other tangible assets. All of these...

  • Page 10
    ... products, together with enhanced supply chain and channel management resulted in market share gains in North America. The new 5.8GHz cordless phones, together with the AT&T 2.4GHz products using proprietary technology developed in-house, were well-received by 8 VTech Holdings Ltd Annual Report...

  • Page 11
    ... Cordless Telecommunications (DECT) 6.0 system. Featuring a uniquely thin, compact form factor, these phones deliver a superior level of interferencefree clarity, quality, security and range in a cutting-edge design. Building on its tradition of pioneering technology, VTech rounded out its Internet...

  • Page 12
    ... VTech maintained its leadership position in its principal markets. In the financial year 2007, the V.Smile range entered its third year of sales. Sales of the basic console and software met management expectations. In the calendar year 2006, eight new titles 10 VTech Holdings Ltd Annual Report...

  • Page 13
    ... the toy fairs in early 2007. The Whiz Kid Learning Systemâ„¢ (Whiz Kid), a new platform based product that can be connected to the computer, was introduced to capture the reading market. Whiz Kid lets children aged from three to six years enjoy interactive reading and learning activities wherever...

  • Page 14
    .... The business accounted for 15.9% of Group revenue, up from 13.1% in the previous financial year. The business once again outperformed the global Electronic Manufacturing Services (EMS) industry, which grew by some 13.5%* during the calendar year 2006. Although some new customers were acquired...

  • Page 15
    ...output (ppm), improved to within a range of 250 - 750 ppm. The business received four awards from its customers in the field of professional audio equipment, communications products and medical products during the financial year 2007, in recognition of its outstanding service and the high level of...

  • Page 16
    ... quarterly newsletter outlines the latest products and marketing initiatives by the Group's businesses. Up-to-date information on the Group's development, financial data and stock information are available at the corporate website www.vtech.com. All key information can be downloaded. • Returns...

  • Page 17
    ... legislation or guidelines, such as RoHS in Europe and Energy Star in the United States, using recyclable materials where possible. Consumers are also encouraged to recycle their products and to dispose of them in an environmentally appropriate manner. VTech Holdings Ltd Annual Report 2007 15

  • Page 18
    ... customer in the field of professional audio equipment in appreciation of its outstanding service and support throughout the year. JUNE 2006 Electronic Learning Products • V.Smile Baby and TV Learning Station were named the "Best New Infant Toy of the Year 2006" and the "Best New Educational Toy...

  • Page 19
    ...'s business. DECEMBER 2006 Contract Manufacturing Services • VTech Communications Limited was given a "Valued Supplier Award 2006" by a medical product customer for VTech's contributions over the years. Electronic Learning Products • V.Smile TV Learning System was named "Pre-School ELA Toy of...

  • Page 20
    ... Governance Report CORPORATE GOVERNANCE PRACTICES 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...

  • Page 21
    ... and ethics in our dealings with customers, business partners, shareholders, employees, and the business communities. Every employee is provided a copy of the Code of Conduct and they are required to confirm compliance with the Code in writing each year. VTech Holdings Ltd Annual Report 2007 19

  • Page 22
    ... degree of Business Administration by Hong Kong University of Science and Technology. Dr. FUNG is also a nonexecutive director of Convenience Retail Asia Limited, Integrated Distribution Services Group Limited, and an independent non-executive director of HSBC Holdings plc., CLP Holdings Limited and...

  • Page 23
    ... Stanley Works, Inc. Mr. DELANY holds a Bachelor Degree in Marketing and Financial Management from the University of South Africa and Damlein College. Gordon CHOW, aged 51, President of VTech Telecommunications Canada Limited, is responsible for the Telecommunication Products Business in Canada. He...

  • Page 24
    ... Hong Kong. AU Ip Sing, aged 47, Senior Manager of Product Development Department (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 toy product development management...

  • Page 25
    ... TONG joined the Group in 1994 and has held management positions in a number of areas including internal audit and financial control of the Group. She holds an MBA degree from Manchester Business School, UK, a Master of Science degree in Information Systems from Hong Kong Polytechnic University and...

  • Page 26
    ...2007. RESERVES Movements in the reserves of the Group and the Company during the year are set out in note 17 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 27
    ... stated above represent long position. Note 2: Note 3: Note 4: Note 5: (2) Share Options of the Company Number of share options held as at as at 1st April 2006 31st March 2007 Name of director Date of grant Exercise price Exercisable period (Note) Allan WONG Chi Yun 12th August 2005 HK...

  • Page 28
    ... in relation to the Group's business to which the Company or its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Save as disclosed above, as at 31st March 2007...

  • Page 29
    ... shares in issue as at that date. PURCHASE, SALE OR REDEMPTION OF LISTED SHARES The Company has not redeemed any of its shares during the year. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's shares during the year. VTech Holdings Ltd Annual Report 2007...

  • Page 30
    ... Company Limited ("Aldenham") as landlord for the lease of the premises situated at Bowen Road, Hong Kong for 2 years commencing 1st April 2005 and expiring on 31st March 2007 at a monthly rental of HK$250,000 for the purpose of providing housing to Mr. Allan WONG Chi Yun ("Mr. WONG"), a director...

  • Page 31
    ...accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 20th June 2007 VTech Holdings Ltd Annual Report 2007 29

  • Page 32
    ... authorised for issue by the Board of Directors on 20th June 2007. 9.5 16.4 17 17 182.9 (155.3) 343.3 128.8 (42.3) 306.2 Allan WONG Chi Yun Director Edwin YING Lin Kwan Director The notes on pages 31 to 52 form part of these financial statements. 30 VTech Holdings Ltd Annual Report 2007

  • Page 33
    ... statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Bermuda Companies Act 1981. The accounting policies described...

  • Page 34
    .... 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. 32 VTech Holdings Ltd Annual Report 2007

  • Page 35
    .... Property, plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease less accumulated depreciation and impairment losses VTech Holdings Ltd Annual Report 2007 33

  • Page 36
    ... as they arise. N Stocks The Group recognises the estimated liability on expected return claims with respect to products sold. This provision is calculated based on past experience of the level of repairs and returns. The Group provides for expenses related to closure of business locations and...

  • Page 37
    ... to the market price of the Company's shares. The equity amount is recognised in the capital reserve until either the option 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...

  • Page 38
    ... as a liability at the balance sheet date. X Segment Reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment...

  • Page 39
    ... products. Europe - the operations are principally the sale and 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...

  • Page 40
    Notes to the Financial Statements 1 SEGMENT INFORMATION (continued) Secondary reporting format - geographical segments (continued) Year ended 31st March 2007 North America US$ million Asia Pacific US$ million Europe US$ million Others US$ million Total US$ million i Revenue Operating pro...

  • Page 41
    ...were exercised during the year ended 31st March 2006. The exercise price was HK$10.2 per share and the weighted average closing price of the shares of the Company at the dates on which the options were exercised was HK$13.58 per share. The director's fee paid to each of executive directors was US$20...

  • Page 42
    ... the employee share option scheme. 2007 million 2006 million Current tax - Hong Kong - Overseas Under-provision in respect of prior years - Overseas Deferred tax - Origination and reversal of temporary differences 14.9 3.9 10.5 1.4 0.1 0.5 9 (0.3) 18.6 (1.1) 11.3 Weighted average number of...

  • Page 43
    ...82.4 2.8 - 2.8 334.1 14.7 348.8 Note (a): Property revaluation - The amount included valuation of land and buildings denominated in Hong Kong dollars or Euros which were revalued by independent valuers as at 31st March 2006 on an open market value basis. VTech Holdings Ltd Annual Report 2007 41

  • Page 44
    ...-term leasehold buildings US$ million Total US$ million Cost or valuation At 1st April 2005 Transfer between categories Revaluation Effect of changes in exchange rate At 31st March 2006 and 1st April 2006 Transfer between categories Effect of changes in exchange rate At 31st March 2007 Accumulated...

  • Page 45
    8 LEASEHOLD LAND PAYMENTS Note 2007 US$ million 2006 US$ million Net book value at 1st April Additions Transfer from tangible assets Amortisation Effect of changes in exchange rate Net book value at 31st March Leasehold land payments in respect of: Owner-occupied properties 7 2 3.7 - - (0.1) 0.1 ...

  • Page 46
    ..., based on past experience of the level of repairs and returns. 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. 44 VTech Holdings Ltd Annual Report 2007

  • Page 47
    ... Group during the year were calculated based on advice from Watson Wyatt Hong Kong Limited ("Watson Wyatt"), independent actuaries and consultants. The Scheme is valued annually. The latest actuarial valuation was completed by Watson Wyatt as at 31st March 2007 using the projected unit credit method...

  • Page 48
    ...) and the issue of a circular. The offer of a grant of options may be accepted within 30 days from the date of offer, upon payment of a non-refundable sum of HK$1.0 by the grantee. The 2001 Scheme has a life of 10 years and will expire on 9th August 2011. 46 VTech Holdings Ltd Annual Report 2007

  • Page 49
    ... share prices over the one year immediately preceding the grant date. Warrants An aggregate of 3,000,000 warrants have been exercised during the financial year ended 31st March 2006 and no warrants were outstanding as at 31st March 2006 and 31st March 2007. VTech Holdings Ltd Annual Report 2007...

  • Page 50
    ... includes a profit of US$192.6 million (2006: US$78.9 million) which has been dealt with in the financial statements of the Company. Reserves of the Company available for distribution to shareholders amounted to US$164.3 million (2006: US$127.0 million). 48 VTech Holdings Ltd Annual Report 2007

  • Page 51
    ...ows are affected by the change in market interest rates in relation to its interestbearing loans. The Group uses interest rate swaps as cash ï¬,ow hedges of future interest payments to convert certain borrowings from ï¬,oating rates to fixed rates. 19 COMMITMENTS 2007 US$ million 2006 US$ million...

  • Page 52
    ... party licensors for the granting of certain rights to use the relevant cartoon characters into the Group's electronic learning products. Under these licensing agreements, the licensees are required to make royalty payments to the licensors, calculated as a percentage of net sales of the relevant...

  • Page 53
    ... activity Incorporated and operating in Hong Kong: VTech Communications Limited Ordinary HK$1,000 Deferred HK$5,000,000 VTech Electronics Limited Ordinary HK$ 5,000,000 *100 *100 Design, manufacture and sale of electronic equipment Design, manufacture and distribution of electronic products VTech...

  • Page 54
    ...to the Financial Statements 23 MATERIAL RELATED PARTY TRANSACTIONS During the year, the Group leased 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...

  • Page 55
    ...fit attributable to shareholders Earnings per share (US cents) 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 1,463.8 201.5 (18.6) 182.9 - 182.9 76.6 VTech Holdings Ltd Annual Report 2007 53

  • Page 56
    ... Yun (Chairman and Group Chief Executive Officer) Edwin YING Lin Kwan PANG King Fai REGISTERED OFFICE Clarendon House Church Street Hamilton HM11 Bermuda PRINCIPAL OFFICE 23rd Floor, Tai Ping Industrial Centre Block 1, 57 Ting Kok Road Tai Po New Territories Hong Kong Independent Non-Executive...

  • Page 57
    ... Bank of New York Investor Services P.O. Box 11258 Church Street Station New York NY 10286-1258 U.S.A. Tel: 1-888-269-2377 (US domestic toll free) (1) 212-815-3700 (International) Email: [email protected] STOCK CODES The Stock Exchange of Hong Kong Limited London Stock Exchange Plc American...

  • Page 58
    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) ...

  • Page 59
    ... Hong Kong Investor Services Limited, 46th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong. If there is a discrepancy between the Chinese translation and the English version of this report and accounts, the English version shall prevail. 183 46 VTech Holdings Ltd Annual Report 2007...

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