VTech Announces 2005/06 Interim Results

    HONG KONG, Nov. 23 /Xinhua-PRNewswire-FirstCall/ -- 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 Ltd               Nick 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  VTech Holdings Ltd