VTech Announces 2007/2008 Interim Results

Solid Profit Growth Driven by Gross Margin Improvement and Exchange Gains

Nov 14, 2007, 00:00 ET from VTech Holdings Ltd

    HONG KONG, Nov. 14 /Xinhua-PRNewswire-FirstCall/ --
     -- Group revenue increased by 2.8% to US$734.1 million
     -- Profit attributable to shareholders rose by 31.5% to US$86.5 million
     -- Net profit margin expanded 2.6% points to 11.8% despite cost pressures
     -- Increased interim dividend of US12.0 cents per ordinary share
     VTech Holdings Ltd (HKEx: 303; LSE: VTH; ADR: VTKHY) today announced
 its interim results for the six months ended 30th September 2007, showing a
 solid increase in net profit. Group revenue increased by 2.8% over the same
 period of the financial year 2007 to US$734.1 million. Profit attributable
 to shareholders rose by 31.5% to US$86.5 million as the Group successfully
 countered cost pressures and improved margins. Earnings per share increased
 by 30.4% to US36.0 cents, compared to US27.6 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 Directors has declared an increased
 interim dividend of US12.0 cents per ordinary share.
     "VTech had a satisfactory performance in the first half of the
 financial year 2008, with solid growth in net profit," said Mr. Allan Wong,
 Chairman and Group CEO of VTech Holdings Ltd. "The Group achieved increased
 revenue from its telecommunication products (TEL) and electronic learning
 products (ELP) businesses in Europe, and improved net margins further,
 despite continued cost pressures."
     Higher Margin
     The Group's net margin improved from 9.2% to 11.8% in the first half of
 the financial year 2008, despite pressure from rising labour costs and the
 appreciation of the Renminbi. The improvement was mainly due to exchange
 gains and higher gross profit margin, as VTech was able to offset the cost
 increases through increased efficiency in its manufacturing process and
 better product engineering. Success in these areas led gross profit margin
 to improve by 1.8 percentage points to 33.7%.
     Strong Growth in Europe and Emerging Markets at TEL
     Revenue at the TEL business declined slightly by 0.9% to US$356.1
 million. During the period, the business accounted for 48.5% of Group
     The North American market was weaker than expected, with revenue
 declining by 12.5% to US$253.6 million, as the US cordless phone market
 slowed in the face of declining housing starts and fewer promotions by
 retailers. However, VTech's branded business in North America continued to
 gain market share as consumers responded well to new products, especially
 the DECT 6.0 range, with the DECT 6032 model named by Good Housekeeping
 magazine as its number one cordless phone.
     Good growth was also seen from a new range of 5.8GHz products, and the
 VTech ia5824 5.8GHz phone was the only cordless phone to receive a Consumer
 Report "Best Buy" rating this year. It is a good example of how VTech is
 using its engineering know-how to enhance product quality, reduce cost and
 benefit consumers.
     Outside North America, where the Group pursues an Original Design
 Manufacturing (ODM) strategy, revenue rebounded markedly. In Europe,
 revenue increased by 43.3% to US$86.7 million as the market recovered from
 excess inventory. In Asia Pacific and other regions outside North America
 and Europe, revenue surged by 118.8% and 68.5% to US$3.5 million and
 US$12.3 million respectively. This impressive growth was due to VTech's
 success in opening up new markets, as well as expanding its presence in
 existing markets through partnerships with major importers.
     Continued Growth at ELP
     The ELP business continued to perform well, with revenue increasing
 17.4% to US$262.1 million, equivalent to 35.7% of Group revenue. Growth was
 mainly driven by traditional ELPs as the Group continued to benefit from
 increased shelf space. The new Whiz Kid PC Learning System also contributed
 to the increase.
     Sales of the entire V.Smile range - comprising V.Smile, V.Smile Pocket,
 V.Smile Baby, V.Flash, cartridges and accessories - were in line with
 management expectations. The basic V.Smile console, now in its fourth year,
 has been upgraded by the addition of a sing-along microphone and a writing
 joystick, and new titles were introduced to the V.Smile Smartridge library.
 The enhanced V.Smile received Creative Child's Toy of the Year Award in the
 educational play for babies and toddlers category, as well as the National
 Parenting Center's "2007 Seal of Approval".
     Geographically, Europe recorded a higher sales growth, with revenue
 increasing by 20.9% to US$123.0 million as VTech maintained its dominant
 position. In North America, revenue rose by 18.3% to US$120.5 million.
     Consolidation for CMS
     Following several years of exceptional growth, the contract
 manufacturing services (CMS) business saw revenue decline by 11.7% to
 US$115.9 million, representing 15.8% of Group revenue. The decrease in
 revenue reflects a very strong first half in the previous financial year.
 Europe remained the leading source of revenue, representing 45.9% of the
 total CMS revenue, followed by North America at 39.8% and Asia Pacific at
     Global economic growth has moderated somewhat, prompting customers to
 slow orders and reduce inventory. However, the Group signed new customers
 and continued to develop its Japan operations, bringing on stream a
 dedicated facility and furthering negotiations with a number of potential
 Japanese customers. The business also pushed ahead with projects to raise
 productivity and position for future growth. The new CMS manufacturing
 facility began operations in September, increasing capacity by some 50%,
 and a six sigma project designed to improve operational efficiency was
     VTech's ability to serve customers well again earned a service award
 from an important customer for helping the company launch its new product.
     Toy Safety
     Toy safety has attracted considerable attention this year, with the
 products of a number of suppliers involved in safety recalls. VTech, which
 manufactures the majority of its ELPs in-house, is able to maintain strict
 control over product quality and the Group has not been subject to any
 product recalls. Since the recalls, however, VTech has conducted a
 comprehensive review of quality control procedures and stepped up the
 frequency of testing, from raw materials to finished products. It was able
 to achieve this without materially raising costs or delaying shipments.
     VTech will continue its strategy of emphasizing in-house manufacturing.
 Through rigorous testing and strict controls, the Group will ensure that
 all VTech's products comply with the highest global safety standards.
     The recent problems in the global credit markets, high oil prices, the
 downturn in the US housing market and the slow growth of US consumer
 spending are already reflected in weaker point of sales data at both the
 TEL and ELP businesses in the United States. We anticipate lower sales in
 the United States for the upcoming holiday season, as compared to last
     The Group nonetheless expects continued sales growth in Europe during
 the second half of the financial year and hence should achieve modest
 overall growth in both Group revenue and profit for the full year.
     The TEL business is expected to achieve a sales increase for the full
 year, with growth driven by strong demands in Canada, Europe, Asia Pacific
 and emerging markets. In North America, to strengthen its leadership
 position further, VTech will introduce more products with innovative
 designs, based on the popular DECT 6.0 range, and new technology, as it
 starts to ship the internet-enabled infoPhone(TM) to its first customer, a
 major US service provider.
     Growth at the ELP business should continue, allowing it to achieve
 revenue increase for the full year. The 2008 product line-up has already
 been previewed to the trade, with an encouraging response. Europe is
 expected to perform well, while prospects in the United States will very
 much depend on the overall economy.
     The CMS business is also forecast to achieve growth for the full year,
 as according to orders already secured, sales appear set to pick up in the
 second half.
     "VTech has a solid foundation for growth, with a market leading
 position and innovative products, combined with cost effective and
 efficient operations," said Mr. Wong. "We will continue to build on this
 foundation, growing our businesses through product innovation, expansion of
 market share, developing emerging markets and pursuing new opportunities
 within our core businesses."
     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, 14th November 2007 (HK time), the video
 archive of the 2007/2008 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 Holdings Ltd
      Tel:   +852-2680-1000
      Fax:   +852-2680-1788
      Email: grace_pang@vtech.com
      VTech representatives in Hong Kong
      Nick Bradbury, GolinHarris
      Tel:   +852-2522-6475
      Fax:   +852-2810-4780
      Email: nick.bradbury@golinharris.com
      Kennes Young, GolinHarris
      Tel:   +852-2522-6475
      Fax:   +852-2810-4780
      Email: kennes.young@golinharris.com
      VTech representative in the US
      Meredith Klein, GolinHarris
      Tel:   +1-212-373-6022
      Fax:   +1-212-373-6001
      Email: mklein@golinharris.com

SOURCE VTech Holdings Ltd