Vtech 2009 Annual Report Download - page 5

VTech Holdings Ltd Annual Report 2009 3
OPERATIONS
Revenue at the telecommunication
products (TEL) business for the year
declined by 9.8% over the financial
year 2008 to US$620.7 million.
In North America, still the largest
market for our TEL business, revenue
declined as consumer demand
was weak. Retailers also reduced
inventory in view of the slowing
economy. Despite the decrease in
sales, VTech continued to be the
largest supplier in the US cordless
phone market, and we expanded
our market share further during the
financial year.
In Europe, we continued to work on
an Original Design Manufacturing
(ODM) basis with major fixed line
telephone operators and well-known
brand names. The European market
was more stable than that in North
America, and we managed not only
to gain market share, but also to
increase revenue. The sole supplier
agreement we signed in September
2008 with Deutsche Telekom AG
(Deutsche Telekom) helped us to
increase our presence in Germany.
Revenue at the electronic learning
products (ELP) business dropped by
7.9% over the financial year 2008 to
US$566.9 million. The ELP business
initially saw rising sales in the first
half, but sales quickly turned
negative owing to the rapidly
deteriorating market conditions.
In Europe, sales declined more as
the European business was further
affected by the steep depreciation of
the Euro and Sterling against the US
dollar. In response to the worsening
market environment, we moved
aggressively to step up price
promotions to stimulate sales and
reduce inventory.
Despite a slowing second half, revenue
at the contract manufacturing services
(CMS) business managed to increase
by 5.0% over the previous financial
year to another record of US$260.6
million. This was a considerably
better performance than the global
Electronic Manufacturing Services
(EMS) industry, which has been badly
affected by the global slump in
manufacturing.
Our superior performance was due
to higher sales to existing customers,
as some of them outsourced more
production to VTech in search of
lower costs. We also continued to
gain new customers, who were
attracted by our growing reputation.
SENIOR MANAGEMENT CHANGE
Our Group Chief Operating Officer,
Mr. Edwin YING Lin Kwan, retired
on 1st January 2009. I would like to
express my sincere gratitude to him
for his valuable contributions to
the Group. Following his retirement,
Mr. Andy LEUNG Hon Kwong,
Chief Executive Officer of our CMS
business, was appointed as Executive
Director.
In addition, Dr. PANG King Fai, our
Group Chief Technology Officer, was
promoted to Group President on
1st January 2009. He continues to hold
the position of Executive Director.
OUTLOOK
There seems little doubt that
consumer sentiment will remain
weak throughout most of the
calendar year 2009. The International
Monetary Fund estimates that global
GDP will contract by 1.3% for the
year, and the decline is likely to be
even more severe in many of our
key markets.
Top line growth will therefore be very
difficult to achieve in the financial
year 2010, even though economies
may recover and we anticipate
increasing market shares for our TEL
business. We are, however, cautiously
optimistic that profitability will
improve, as the Euro, Sterling and
Renminbi show stability. We are
also benefiting from the fall in raw
material prices and labour costs,
which will ease cost pressure.
To drive growth for the Group, we will
continue to pursue our strategy based
on product innovation, gains in
market share, geographic expansion
and operational excellence.
We are cautiously optimistic
that profitability will improve, as
the Euro, Sterling and Renminbi
show stability. We are also
benefiting from the fall in raw
material prices and labour costs,
which will ease cost pressure.
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