VTech Announces 2006/2007 Interim Results

Profit Boosted by Higher Revenue and Operational Improvement

Nov 22, 2006, 00:00 ET from VTech Holdings Ltd

    HONG KONG, Nov. 22 /Xinhua-PRNewswire-FirstCall/ --
     -- Group revenue increased by 27.1% to US$713.8 million
     -- Profit attributable to shareholders rose by 42.1% to US$65.8 million
     -- Increased interim dividend of US9.0 cents per ordinary share
     -- Special 30th anniversary dividend of US30.0 cents per ordinary share
     -- Rebound in US market for telecommunication products business
     -- Broad based growth at the electronic learning products business
     -- Rapid expansion at the contract manufacturing services business
     VTech Holdings Ltd (HKSE: 303; LSE: VTH; ADR: VTKHY) today announced
 its interim results for the six months ended 30th September 2006, showing a
 solid increase in revenue and profit. Group revenue increased by 27.1% over
 the same period of the financial year 2006 to US$713.8 million. Despite
 higher raw material prices and labour costs having a negative impact on the
 Group's gross margin, profit attributable to shareholders rose by 42.1% to
 US$65.8 million. Earnings per share increased by 37.3% to US27.6 cents,
 compared to US20.1 cents in the corresponding period last year.
     In view of the continued growth in profitability and the Group's solid
 financial position, the Board of Director has declared an increased interim
 dividend of US9.0 cents per ordinary share, together with a special
 dividend of US30.0 cents per ordinary share to commemorate VTech's 30th
     "VTech posted a solid increase in both revenue and profit for the first
 half of the financial year 2007," said Mr. Allan Wong, Chairman and Group
 CEO of VTech Holdings Ltd. "The drivers were a strong increase in revenue
 at the contract manufacturing services (CMS) business, continued
 across-the-board growth at the electronic learning products (ELP) business,
 and a rebound in the US market for the telecommunication products (TEL)
 business, following the successful restructuring of the past two years."
     Rebound in the US for TEL
     Revenue at the TEL business rose 21.0% over the same period last year
 to US$359.3 million. During the period, the business accounted for 50.3% of
 Group revenue.
     Revenue in North America increased by 38.2% to US$289.9 million. The
 growth was mainly driven by strong sales of 5.8GHz cordless phones. The
 recovery in the US operations of the business that began in the financial
 year 2006 has thus continued on track in the first half of the financial
 year 2007. It follows a comprehensive restructuring programme launched two
 years ago, designed to improve the competitiveness of the US business
 through better product design and enhanced supply chain management.
     The resulting range of new products, which began appearing on the
 shelves in the first quarter of the financial year 2007, has been well
 received by retailers and achieved good sell-through to end users. In
 consequence, shelf space has increased, sales volumes have risen and the
 Group has increased its share of the US cordless phone market, where VTech
 is now in the leadership position.
     In Europe, however, the market has been weaker than expected and this
 has resulted in excess inventory in the market, a situation affecting all
 suppliers. As a result, although VTech was able to gain new customers and
 maintain its market share during the period, our TEL sales to the region
 declined 23.1% over the same period last year to US$60.5 million, following
 several years of robust growth. As part of our longer term expansion plans
 for the region, the business started to ship Voice over Internet Protocol
 (VoIP) phones to European customers in September 2006.
     Broad Based Growth at ELPs
     The ELP business performed well in the past two years on the back of
 the outstanding performance of the V.Smile range and increasing efforts in
 marketing and promotion. During the first half of the financial year 2007,
 revenue at the ELP business increased by 15.1% to US$223.2 million,
 representing 31.3% of Group revenue.
     Growth was driven by increasing sales of all product ranges and the
 successful launch of the V.Smile(TM) Baby Infant Development System
 (V.Smile Baby). The basic V.Smile console is now in its third year and
 sales were in line with management expectations. Sales of software
 continued to rise and by the end of the calendar year 2006, 10 new titles
 will have been added to the library, with additional Spanish language
 versions. The ratio of cartridges to consoles also increased.
     The range has been extended through the introduction of not only
 V.Smile Baby, aimed at children from nine months to three years old, but
 also V.Flash, which targets pre-teenagers. Sales of V.Smile Baby have been
 particularly encouraging, confirming the Group's thesis that V.Smile is a
 product platform that can be developed long into the future. In September,
 V.Smile Baby was named to the Toys "R" Us 2006 "Hot Toy" list, while in
 October, V.Flash was named one of the Top 12 Toys of Christmas and Holiday
 2006 by Wal-Mart.
     The traditional ELPs also sold well and a number of new products were
 launched, including Nitro Vision and SmartVille, a new line of interactive
 animal character play sets for toddlers. Pink Nitro Notebook was included
 in the Toys "R" Us "Fabulous 15 The Best of the Holiday Season" list.
     Geographically, revenue from North America rose by 9.9% to US$101.9
 million as the business continued to gain shelf space. In Europe, revenue
 grew by 14.8% to US$101.7 million and VTech maintained its dominant
 position in the region. Revenue from Asia Pacific and other regions such as
 Mexico also recorded a continued growth.
     Rapid Expansion of CMS
     The CMS business achieved an 85.7% increase in revenue to US$131.3
 million. As a result, the business accounted for 18.4% of Group revenue and
 its performance once again far exceeded that of the global Electronic
 Manufacturing Services industry, which grew by some 14%* during the first
 half of the calendar year 2006.
     * Source: Manufacturing Market Insider -- Oct 2006 issue
     The growth in revenue came across the board, but was primarily
 supported by strong demand from existing customers in the areas of
 switching mode power supplies and professional audio equipment, as they
 attracted significantly more business.
     VTech competed strongly on both price and service. Despite the surge in
 production volumes and effective cost controls, service levels remained
 high. In the first half of the financial year 2007, the business was given
 a "Partner of the Year 2006" award by a professional audio equipment
 customer, in recognition of VTech's outstanding service and level of
 support given to the company's business development.
     Europe remained the leading source of revenue for the CMS business,
 representing 51.1% of the total CMS revenue, followed by North America at
 33.8% and Asia Pacific at 15.0%.
     Cautiously Optimistic Outlook
     Growth in our businesses appears set to continue in the second half of
 the financial year. This is, however, dependent on the economic situation
 in the United States.
     The Group also remains mindful of factors that could affect
 profitability. The Renminbi looks set to rise further, as do wage levels in
 southern China, our manufacturing base. High raw materials and components
 prices remain a factor, although they are now stablising. Hence, throughout
 its businesses, in addition to seeking higher revenue, the Group will work
 further to mitigate the cost pressure through improving manufacturing
 efficiency, better cost control and economies of scale during the second
 half of the financial year.
     The improvement in the TEL business in the United States is expected to
 continue. VTech is gaining more shelf space and the sell through data thus
 far suggests continued growth. The new range of products for the calendar
 year 2007, which includes "next generation" cordless phones, has been
 unveiled to retail customers and was favourably received. In Europe,
 however, the market is likely to remain soft and sales growth is not
 expected in the second half of this financial year.
     The ELP business is expected to perform well in the second half.
 V.Flash came onto the shelves in September and is expected to contribute to
 incremental sales growth. New print and TV based advertising campaigns have
 been started in the second half and will support the sales push for all
 products during the holiday season. The Group plans to introduce a second
 generation V.Smile console in the second half of calendar year 2007.
     The factors that boosted revenue at the CMS business during the first
 half of the financial year remain in place and hence continued growth is
 expected in the second half. At the same time, the business is revitalising
 its sales office in Japan, a market of much untapped potential for the
     To cope with the growth in demand for its CMS services, the Group will
 add a new factory building at its existing Liaobu plant, increasing the
 size of the CMS manufacturing facilities by 50%. The facility is scheduled
 to open in April 2007.
     "We are cautiously optimistic that the growth in our businesses will
 continue, and that each of our businesses is well placed to take advantage
 of market opportunities," said Mr. Wong.
     About VTech
     VTech is 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, 22nd November 2006 (HK time), the video
 archive of the 2006/2007 interim results announcement can be accessed
 through VTech's homepage www.vtech.com in the "Webcasting and Presentation"
 section under "Investor Relations".
     This release is issued by VTech Holdings Ltd through GolinHarris.
     For further information, please contact:
     Grace Pang
      VTech Holdings Ltd
      Office: +852-2680-1000
      Fax:    +852-2680-1788
      Email : grace_pang@vtech.com
     VTech representative in HK
      Nick Bradbury, GolinHarris
      Office: +852-2522-6475
      Fax:    +852-2810-4780
      Email : nick.bradbury@golinharris.com
      Kennes Young, GolinHarris
      Office: +852-2522-6475
      Fax:    +852-2810-4780
      Email:  kennes.young@golinharris.com
     VTech representative in the US
      John Columbus, GolinHarris
      Office: +1-212-373-6037
      Fax:    +1-212-373-6001
      Email:  jcolumbus@golinharris.com

SOURCE VTech Holdings Ltd