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VTech Announces 2005/06 Interim Results24 November 2005
VTech Holdings Ltd (SEHK: 303; London SE: VTH; ADR: VTKHY) today announced its interim results for the six months ended 30th September 2005, showing a strong increase in profit. Group revenue increased by 22.9% over the same period of the financial year 2005 to US$561.7 million. Profit attributable to shareholders surged by approximately 4.5 times or 444.7% to US$46.3 million. Earnings per share increased by more than four times or 428.9% to US20.1 cents, compared to US3.8 cents in the corresponding period last year. An increased interim dividend of US6.0 cents per ordinary share has been declared, against US1.0 cent per ordinary share in the first half of the financial year 2005. ''VTech continued to demonstrate significant improvement in operations with strong growth in profit and a double-digit percentage increase in revenue in the first half of the financial year 2006,'' said Mr. Allan Wong, Chairman and Group CEO of VTech Holdings Ltd. ''The performance reflects management's success in restoring profitability at the telecommunication products business, continuing momentum at the electronic learning products (ELP) business, particularly in our V.Smile product range, and further growth at the contract manufacturing services (CMS) business.'' Profit Recovery at Telecommunication Products Business The telecommunication products business achieved a marked progress in the first half of the financial year 2006. The business returned to profitability despite a 2.3% decline in revenue to US$297.0 million. The recovery in profit on the back of lower revenue reflects management's success in reducing the cost structure of the business. The decrease in revenue was mainly attributable to the planned reduction in sales to the North American market, as management streamlined the product lines and exited low margin business arrangements. As a result, revenue from the region dropped by 16.5% to US$209.8 million. Although the North American sales were reduced, the cost structure was greatly improved through a comprehensive re-engineering programme. A portion of the cost savings has been invested in strengthening product design. More effort has been put into understanding user demands and retailer expectations, to ensure that new products will be more in line with market demand. In Europe, the business benefited from the increasingly open market. Revenue grew by 95.8% over the first six months of the financial year 2005 to US$78.7 million. The growth was driven by increasing orders from existing customers, mainly the leading fixed-line telephone operators, and orders from new customers. Strong Performance at ELP Business The ELP business had an excellent six months, led by strong sales of the V.Smile product range. Revenue was more than doubled or up by 104.0% over the same period last year to US$194.0 million. This reflects a full six months' contribution from the V.Smile product range. Profitability of the business also rose substantially as a result of this factor. The V.Smile product range, including the V.Smile TV Learning System, its portable version V.Smile Pocket, cartridges and accessories contributed approximately 50% of the total ELP revenue in the first half of the financial year 2006. The ratio of cartridges to consoles also increased as compared to the same period last year. The performance demonstrates the competitive advantages of V.Smile as a first mover in the market, with a more varied portfolio of cartridges, superior features and economies of scale that allow attractive pricing. V.Smile Pocket has added a new avenue of growth to the V.Smile range and sales have met management expectations. The product was included in the Toys ''R'' Us ''Joy List'' and the ''Hot Dozen'' list from Toy Wishes Magazine, representing top choices for children in the upcoming holiday season in the United States. During the period, VTech's traditional ELPs also sold well and recorded a double-digit percentage growth in revenue. Among them is the Write & Learn Series, which uses proprietary writing recognition technology to encourage young children to acquire basic writing skills. Geographically, revenue from North America showed a robust increase of almost two times or 197.1% over the same period last year to US$92.7 million, as the business continued to regain lost shelf space. Further growth was recorded in Europe, where revenue grew by 57.9% to US$88.6 million as VTech maintained its leadership position in all major categories. The business also achieved positive developments in other markets such as Latin America and Scandinavia. Solid Growth at CMS Revenue at the CMS business increased by 21.9% over the first six months of last year to US$70.7 million, once again outperforming the global Electronic Manufacturing Services (EMS) industry and making a steady contribution to Group profit. The rise in revenue came across the board, largely from existing customers. It reflects VTech's ability to provide a high quality and cost-effective ''one-stop shop" service to small and medium sized enterprises (SMEs). Professional audio equipment and switching mode power supplies continued to be the major product categories, followed by home appliances and wireless products. Particularly strong growth of 58.8% was recorded in the Asia Pacific region driven by increasing orders from Japan in the areas of home appliances and medical equipment, while Europe remained the largest market for the business. New Manufacturing Facilities in Qingyuan The Group's new manufacturing facilities in Qingyuan city, in the northern part of Guangdong province in China, will begin operations in November 2005. This 49,000 square metre facility gives VTech access to a less expensive supply of labour and electricity. It will allow the Group gradually to bring the plastics production for the telecommunication products in house, and to achieve savings in the long run. Cautiously Optimistic Outlook VTech cautioned that any downturn in consumer sentiment in the United States could adversely affect the outlook for the second half, noting that retailers in the US market are now more cautious in their approach to inventory. In addition, the Group will need to continue to control costs in light of high energy prices, rising labour costs and the impact of RoHS, the European environmental directive that will become mandatory in July 2006. A further upward revaluation of the Renminbi would also increase operating costs. Nonetheless, VTech is well positioned. The rationalised cost structure of the telecommunication products business is supporting profitability. The business will benefit from the consolidation of the US cordless phone market as retailers seek to reduce the number of suppliers. The Group expects to expand further in Europe as the market opens further. The revamped product lines for the US market, however, will not be introduced until the early 2006 and hence will only have a modest impact on revenue during the current financial year. For the ELP business, point of sale data thus far suggest continued growth in Europe and the United States. The V.Smile product range is also expected to build on its first mover advantages. We expect that the revenue split between the first and the second half of the current financial year will return to a more even pattern. The CMS business is forecast to maintain healthy growth as the global EMS market expands, and will strive to achieve continued improvement in internal operations to offset cost pressures. ''VTech is moving forward to accomplish its mission of being the most cost-effective designer and manufacturer of innovative and high quality consumer electronics products,'' said Mr. Wong. ''We look forward to a solid second half and further progress in the years ahead.'' About VTech VTech is the one of the world's largest suppliers of corded and cordless telephones and a leading supplier of electronic learning products. It also provides highly sought-after contract 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. Note: Starting from 21:30, 23rd November 2005 (HK time), the video archive of the 2005/06 interim results announcement can be accessed through VTech's homepage http://www.vtech.com in the ''Webcasting and Presentation'' section under ''Investor Relations''. For further information, please contact: Grace Pang VTech representative in HK VTech Holdings LtdNick Bradbury, GolinHarris Tel: +852-2680-1000 Tel: +852-2522-6475 Fax: +852-2680-1788 Fax: +852-2810-4780 Email: grace_pang@vtech.com Email: nick.bradbury@golinharris.com VTech representative in the US Cassandra Hegarty, GolinHarris International Tel: +1-212-373-6029 Fax: +1-212-373-6001 Email: chegarty@golinharris.com
Source: PR Newswire
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