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HKSE : 303
Annual Report 2014

Table of contents

  • Page 1
    HKSE : 303 Annual Report 2014

  • Page 2
    ... 14 20 22 26 29 33 35 39 40 43 67 68 Products and Services Overview Year in Review Sustainability Investor Relations Corporate Governance Report Directors and Senior Management Report of the Directors Independent Auditor's Report Consolidated Financial Statements Notes to the Financial Statements...

  • Page 3
    ... in R&D centres in Canada, Germany, Hong Kong and China. This network allows VTech to stay abreast of the latest technology and market trends throughout the world, while maintaining a highly competitive cost structure. The Group invests significantly in R&D and launches numerous new products each...

  • Page 4
    ... 14 10 11 12 13 14 10 * 11 Restated 12 13 14 0 Gross profit (US$ million) Gross profit margin (%) Profit attributable to shareholders of the Company (US$ million) Net profit margin (%) 2 VTech Holdings Limited Annual Report 2014

  • Page 5
    ... the dividend paid in the financial year 2013. 1 2 Source: NPD Group, Retail Tracking Service Source: NPD Group, Retail Tracking Service. Ranking based on total retail sales of Storio for the combined market of France, the UK, Germany, Spain and Italy VTech Holdings Limited Annual Report 2014 3

  • Page 6
    .... Sales of commercial phones and other telecommunication products continued to rise. Among these, baby monitors and the cordless business phone system, SynJ®, were the best performers. VTech also started shipping ErisStation™, its first conference phone with wireless microphones, to customers in...

  • Page 7
    ...its reach to other markets including Taiwan, Malaysia and Korea. In Other Regions, the Group aims to grow sales in Latin America and the Middle East. Operational Excellence underpins VTech's success. As costs in China are set to rise further, operational efficiency is becoming increasingly important...

  • Page 8
    ..., the Group plans to add a new CMS factory building. This will raise manufacturing capacity by 25% once it enters operation in the middle of the calendar year 2015. Regarding costs, material prices are expected to hold broadly steady, although labour costs and manufacturing overheads in China will...

  • Page 9
    ... to revenue was 13.6%, same as the last financial year. Total operating expenses were US$408.2 million, an increase of 9.2% over the last financial year. Correspondingly, total operating expenses as a percentage of Group revenue rose from 20.2% to 21.5%. VTech Holdings Limited Annual Report 2014 7

  • Page 10
    ... cents per share, which is estimated to be US$160.6 million. 2014 US cents Dividend per share Interim Final* Total 16.0 64.0 80.0 2013 US cents 16.0 64.0 80.0 80 60 40 20 0 10 11 12 13 14 * Final dividend proposed after the balance sheet date 8 VTech Holdings Limited Annual Report 2014

  • Page 11
    ... management's effort to improve stock management. As at 31 March 2014 and 2013 All figures are in US$ million unless stated otherwise 2014 265.9 14.3% 87 days 2013 276.9 13.9% 90 days Stocks Average stocks as a percentage of Group revenue Turnover days VTech Holdings Limited Annual Report 2014...

  • Page 12
    ... will be financed from internal resources. As of the financial year end date, the Group had no material contingencies. Capital Expenditure For the year ended 31 March 2014, the Group invested US$30.1 million in the purchase of tangible assets 10 VTech Holdings Limited Annual Report 2014

  • Page 13
    .... Hotel phones also saw growth, with VTech expanding its customer base to an increasing number of the world's leading hotel chains. CareLineâ„¢ is VTech's home safety telephone system designed for seniors. This product line achieved increased sales and received many favourable online reviews during...

  • Page 14
    ... supplies and medical and health products. Professional audio equipment delivered robust growth, as the Group benefited from new product launches by existing customers. More orders from new accounts in Germany also buoyed sales. Wireless headsets posted decent growth, as VTech gained market share...

  • Page 15
    ... 2014. Revenue from TEL products in the region grew by 8.7% to US$41.1 million, mainly due to higher sales in Australia, China and Japan. In Australia, sales rose as VTech increased its share of the cordless phone market. The Group also started selling baby monitors to Australian customers, adding...

  • Page 16
    Products and Services Overview ELECTRONIC LEARNING PRODUCTS VTech's strategy for ELPs is to apply the latest proven technology to innovative educational toys that help kids learn and develop through fun and smart play. These key figures testify to the success of the Group's strategy No.1 No.1 ...

  • Page 17
    ...Go Dinos and its Turbo Line 3-8 years PLATFORM PRODUCTS Hardware Software Apps InnoTab Children's Educational Tablets 1-9 years Cartridges Accessories Kidizoom Smart Watch 4+ years MobiGo 2 Handheld Gaming System 3-8 years Gel Skins, Cases, Headphones... VTech Holdings Limited Annual Report 2014...

  • Page 18
    ...'s cordless phones continue to be the number one choice for consumers worldwide. A few facts and figures No.1 cordless phones manufacturer globally TEL Products Revenue in Last 5 Years US$ million 800 40 million 80 countries handsets shipped in FY2014 selling VTech TEL products As % of Group...

  • Page 19
    ... Hotel Phone Cordless Headset OTHER TELECOMMUNICATION PRODUCTS Safe&Sound® Baby Monitor Video and audio baby monitor Connected Home Device Integrated Access Device A 3-in-1 device combining VDSL modem, wireless router and CAT-iq cordless handset CareLine Senior phone VTech Holdings Limited...

  • Page 20
    ... Region All figures are in US$ unless stated otherwise 251.7 194.0 million million (+7.1% year-on-year) Europe 1.2 46.5 million million (+6.5% year-on-year) (+71.4% year-on-year) North America Other Regions (+9.4% year-on-year) Asia Pacific 18 VTech Holdings Limited Annual Report 2014

  • Page 21
    MAIN PRODUCT CATEGORIES Professional Audio Equipment Wireless Products Switching Mode Power Supplies Solid-State Lighting MANUFACTURING EXCELLENCE VTech Holdings Limited Annual Report 2014 19

  • Page 22
    ... January 2014, VTech introduced ErisStation, its first conference phone with wireless microphones, to the European markets. VTech Electronics North America, L.L.C. was named "Vendor of the Year" by Toys"R"Us in the US for the third year in a row. No. 1 in Infant Toys Category VTech was the number...

  • Page 23
    ...innovative electronic learning toys for children that are fun and educational. Best Supplier VTech Communications Limited received the "Best Supplier" award from customers in wireless products and professional audio equipment. Storio - No. 1 Children's Educational Tablet in Europe "Caring Company...

  • Page 24
    ... Consumer Insights, LLC and Retail Tracking Service of NPD Group. Ranking based on 2012 and 2013 total estimated annual retail sales in the combined toy categories of infant electronic learning and preschool electronic learning Source: MZA Ltd, 2014 22 VTech Holdings Limited Annual Report 2014

  • Page 25
    ... the wellbeing of our customers and also benefit the society generally. Our baby monitors help to reduce the stress of parenting, our home safety telephone system helps senior citizens to live independently, and our DECT cordless phones with low radiation and less power consumption features compared...

  • Page 26
    .... Our environmental policy is reviewed annually to ensure that it is relevant and up to date. Workplace Quality VTech continually strives to provide a supportive, pleasant and healthy workplace for our staff, and to foster a caring community in our working environment. We care for our employees and...

  • Page 27
    ... to actively manage our supplier base to mitigate our corporate risks, ensure continuity of production, maintain quality supply and align the suppliers with VTech's core requirements. These include the examination of their labour practices, health and safety systems, environmental management and...

  • Page 28
    ...40 (28 May 2013) and the lowest closing price was HK$86.80 (18 February 2014). VTech's share price has shown significant appreciation over the past ten years. The only exception was 2008 - 2009, when the stock price fell sharply in line with the universal sell-off in equity markets during the global...

  • Page 29
    ... information about the Company. During the financial year 2014, management held meetings with investors in Hong Kong, organised site visits to the Group's manufacturing facilities in China and participated in investment conferences. The Group also hosted roadshows in Singapore, Japan and the UK...

  • Page 30
    ... Communications Department 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 1788 Email: [email protected] Website www.vtech.com/investors/stock-info 28 VTech Holdings Limited Annual Report 2014

  • Page 31
    ...Governance Report Corporate Governance Practices VTech Holdings Limited is incorporated in Bermuda and has its shares listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). The corporate governance rules applicable to the Company are the Corporate Governance Code (the "Code") set...

  • Page 32
    ... Chief Financial Officer and the external auditor. Work performed by the Audit Committee during the financial year included, but not limited to, reviewing the following: - audited Group financial statements and reports for the year ended 31 March 2013; 30 VTech Holdings Limited Annual Report 2014

  • Page 33
    ... systems, and sustainability strategy, policies and improvement activities. The Risk Management and Sustainability Committee has developed a framework for the management and control of risks in the Group. Risks are being more formally identified and recorded in the Risk Register for key operations...

  • Page 34
    [email protected], by post addressed to the Company's principal office address, to the Investor Relations contact on the Company's website or through the Company's share registrar. Other Control and Management Code of Conduct The Company's policy on code of conduct is also an important part of the Group...

  • Page 35
    ... the School of Business of The University of Hong Kong. He is a court and council member of The University of Hong Kong and a court member of the City University of Hong Kong. Mr. WONG also serves on the boards of a number of nongovernmental organisations. VTech Holdings Limited Annual Report 2014...

  • Page 36
    ..., sales and management in the toy industry, he held various positions in Kenner-Parker, Spear's Games, Ideal Toys and Majorette. He holds a Bachelor degree in Law from the University of Paris and an MBA degree from L' ESSEC, a French business school. 34 VTech Holdings Limited Annual Report 2014

  • Page 37
    ... as Directors at the 2014 AGM. Brief biographical details of Directors and senior management are set out on pages 33 to 34 of this Annual Report. Principal Activity The principal activity of the Group is design, manufacture and distribution of consumer electronic products. Group Results and...

  • Page 38
    ... owned by Mr. Michael TIEN Puk Sun and his spouse. (4) All the interests stated above represented long positions. (5) The approximate percentage of shareholding is calculated based on 250,872,133 shares of the Company in issue as at 31 March 2014. 36 VTech Holdings Limited Annual Report 2014

  • Page 39
    ... or short positions in the shares and underlying shares of the Company which fell to be disclosed to the Company under Part XV of the SFO or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO. VTech Holdings Limited Annual Report 2014 37

  • Page 40
    ... the 2014 AGM. On behalf of the Board Securities Purchase Arrangements At the 2013 AGM, shareholders renewed the approval of a general mandate authorising the Directors to effect repurchases of the Company's own shares up to a limit of 10% of the shares in issue as at that date. Purchase, Sale or...

  • Page 41
    ... and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 22 May 2014 VTech Holdings Limited Annual Report 2014 39

  • Page 42
    ... PANG King Fai Director The notes and principal accounting policies on pages 43 to 66 form part of these financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in note 5. 40 VTech Holdings Limited Annual Report 2014

  • Page 43
    ... (0.9) (190.3) (182.8) (2.7) (2.9) 176.5 173.6 Allan WONG Chi Yun PANG King Fai Director Director Cash and cash equivalents at 31 March 12 187.9 The notes and principal accounting policies on pages 43 to 66 form part of these financial statements. VTech Holdings Limited Annual Report 2014 41

  • Page 44
    ... - - - (6.6) (6.6 4.2) - - - 4.7 - 4.7 208.0 (160.5) (40.1) - - - - 391.5 (4.3) (2.3) 6.7 4.7 (1.3) 3.5 206.8 (160.5) (40.1) 4.7 - (1.0) 1.4 575.6 The notes and principal accounting policies on pages 43 to 66 form part of these financial statements. 42 VTech Holdings Limited Annual Report 2014

  • Page 45
    ... Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules"). The IASB has issued a number of new IFRSs and amendments to IFRSs that are first effective for the current accounting period of the Group and the Company. Of these, the following developments...

  • Page 46
    ...that the requirements are applicable to the Group, the Group has provided those disclosures in notes 7 and 18. The Group has not applied any new standard, amendment or interpretation that is not yet effective for the current accounting period (note 23). 44 VTech Holdings Limited Annual Report 2014

  • Page 47
    ... sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue is stated net of sales taxes, returns, rebates and discounts, after eliminating sales within the Group. Revenue from the provision of services is recognised when the services...

  • Page 48
    ... respective period of the leases. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which the termination takes place. 46 VTech Holdings Limited Annual Report 2014

  • Page 49
    ... affect neither accounting nor taxable profit (provided that they are not part of a business combination). VTech Holdings Limited Annual Report 2014 47 P Trade and Other Creditors Trade and other creditors are initially recognised at fair value and thereafter stated at amortised cost unless the...

  • Page 50
    ... period on high quality corporate bonds that have maturity dates approximating the terms of the Group's obligations. 48 VTech Holdings Limited Annual Report 2014 T Share held for Share Purchase Scheme Where the VTech Share Purchase Scheme Trust purchases shares of the Company from the market, the...

  • Page 51
    ...or class of customers, the methods used to distribute the products or provide the services, and the nature of the regularity environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. Y Related Parties (a) A person, or a close...

  • Page 52
    ... located in North America, Europe, Asia Pacific and elsewhere are set out in the table below. Each of the above reportable segments primarily derive their revenue from the sale of telecommunication products, electronic learning products and products from contract manufacturing services to customers...

  • Page 53
    ... Patrick WANG Shui Chung WONG Kai Man (v) - - - Discretionary bonuses US$ million 2.1 0.7 0.8 Share-based payments (vii) US$ million - - - 2013 Total US$ million 3.1 1.2 1.3 - - - - - - 1.9 - - - - - - 3.6 - - - - - - 0.1 - - - - - - 5.6 VTech Holdings Limited Annual Report 2014 51

  • Page 54
    ...from 30 June 2012. (vii) Share-based payments represent the fair value of share options granted to the Directors which were charged to the consolidated income statement in accordance with the accounting policy set out in Note (S). 4 Taxation Note Current tax - Hong Kong - Overseas Over-provision in...

  • Page 55
    ... Appraisal & Consulting Limited who is an associate member of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued. The freehold land and buildings held by the Group for own use was revalued as at 31 March 2014 on a market value basis by...

  • Page 56
    ...The fair value of properties held for own use is determined using market comparison approach by reference to recent sales price and rental of comparable properties on a price per square foot basis using market data which is publicly available. • • 54 VTech Holdings Limited Annual Report 2014

  • Page 57
    ... against which the assets can be utilised is not considered to be probable at 31 March 2014. Raw materials Work in progress Finished goods Stocks carried at net realisable value at 31 March 2014 amounted to US$8.2 million (2013: US$5.8 million). VTech Holdings Limited Annual Report 2014 55

  • Page 58
    ... debtors are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade debtors directly. 13 Creditors and Accruals The Group The Company 2014 2013 2014 2013 Note US$ million US$ million US...

  • Page 59
    ... analysis of trade creditors by transaction date is as follows: 2014 US$ million 56.5 33.4 34.8 16.1 140.8 2013 US$ million 68.3 35.1 47.5 25.3 176.2 (b) Defined benefit scheme For the defined benefit scheme (the "Scheme") operated for Hong Kong employees, contributions made by the Group during the...

  • Page 60
    ...the 2011 Scheme, the Directors are authorised, at any time during the 10 years from the date of adoption of the 2011 Scheme, to grant options to employees and officers of any member of the Group to subscribe for shares of the Company at prices to be determined by the Directors in accordance with the...

  • Page 61
    ... price at the date of grant HK$40.1 Exercise price HK$41.07 Expected volatility 43.33% Annual risk-free interest rate 1.88% Expected average life of options 3.5 years Expected dividend yield (Note 3) 10.3% Exercisable period 23 April 2011 to 22 April 2013 VTech Holdings Limited Annual Report 2014...

  • Page 62
    ... can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain...

  • Page 63
    ... The application of share premium account is governed by the Companies Act 1981 of Bermuda. The properties revaluation reserve has been set up and is dealt with in accordance with the accounting policies adopted for land and buildings in note (H). VTech Holdings Limited Annual Report 2014 61

  • Page 64
    ... of credit risk. The Group's five largest customers, in aggregate accounted for approximately 34.0% of the Group's revenue during the year. The Group manages these risks by monitoring credit ratings and limiting the aggregate risk to any individual counterparty. In addition, credit risk is mitigated...

  • Page 65
    ... foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. All financial instruments are carried at amounts not materially different from their fair values as at 31 March 2013 and 31 March 2014. • • VTech Holdings Limited Annual Report 2014 63

  • Page 66
    ... expiring in 2030 and 2034 have a non-cancellable period of first ten years. The leases expiring in 2020 and 2031 are not cancellable. The operating lease commitments above include total commitments over the non-cancellable period of the lease terms. 64 VTech Holdings Limited Annual Report 2014

  • Page 67
    ...: VTech Telecommunications (Australia) Pty Limited Incorporated/established and operating in Canada: VTech Technologies Canada Ltd. Incorporated/established and operating in France: VTech Electronics Europe S.A.S. Incorporated/established and operating in Germany: VTech Electronics Europe GmbH VTech...

  • Page 68
    ... which operates in Hong Kong, particulars of which are as follows: Structured entity VTech Share Purchase Scheme Trust Principal activities Purchase, administering and holding shares of the Company for the Share Purchase Scheme for the benefit of eligible VTech employees (note 16(c)) 24 Accounting...

  • Page 69
    ... change in accounting policy are disclosed in note B to the financial statements. Figures for the year ended 31 March 2012 and prior years have not been restated as it would involve delay and expenses out of proportion to the benefits of shareholders. VTech Holdings Limited Annual Report 2014 67

  • Page 70
    ...Accountants Remuneration Committee Michael TIEN Puk Sun (Chairman) William FUNG Kwok Lun WONG Kai Man Risk Management and Sustainability Committee Allan WONG Chi Yun (Chairman) PANG King Fai Andy LEUNG Hon Kwong WONG Kai Man Company Secretary CHANG Yu Wai 68 VTech Holdings Limited Annual Report...

  • Page 71
    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: www.vtech.com Email: [email protected] France VTech Electronics Europe S.A.S....

  • Page 72
    (Incorporated in Bermuda with limited liability) 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 Email: [email protected] www.vtech.com