VTech Announces FY2006 Annual Results

Record profit and higher dividend

-- Group revenue increased by 17.9% to US$1,204.6 million -- Profit

attributable to shareholders sets a new record of US$128.8 million -- Final

dividend of US26.0 cents per share, total dividend per share for the year

up 146.2% -- Strong all-round growth at electronic learning products

business -- Outperformance by contract manufacturing services business --

Turnaround in profitability at telecommunication products business with

continuous growth in Europe -- Well positioned for further growth

Jun 21, 2006, 01:00 ET from VTech Holdings Ltd

    HONG KONG, June 21 /Xinhua-PRNewswire-FirstCall/ -- VTech Holdings Ltd
 (SEHK: 303; London SE: VTH; ADR: VTKHY) today announced its results for the
 year ended 31 March 2006, reporting the highest profit in its nearly 30
 years of operations.
     Revenue for the Group increased by 17.9% over the financial year 2005
 to US$1,204.6 million. Profit attributable to shareholders increased by
 126.4% to US$128.8 million. Earnings per share increased by 117.9% to
 US54.9 cents. In light of the continued increase in profitability, together
 with the Group's very strong balance sheet, the Board of Directors has
 proposed a final dividend of US26.0 cents, giving a total dividend for the
 year of US32.0 cents per ordinary share, as compared to US13.0 cents for
 the financial year 2005, representing an increase of 146.2%.
     ''I am pleased to report that the Group has delivered remarkable
 results in the financial year 2006. Indeed, profit attributable to
 shareholders was the highest we have achieved in our nearly 30 years of
 operations. This superb achievement was supported by the record
 performances of our Electronic Learning Products (ELP) and Contract
 Manufacturing Services (CMS) businesses. Our success in turning around the
 profitability at the Telecommunication Products (TEL) business also
 contributed to the excellent performance,'' said Mr. Allan Wong, Chairman
 and Group CEO of VTech Holdings Limited.
     Turnaround in Profitability at TEL
     During the financial year 2006, the TEL business continued to execute
 its plan to rationalise its US operations. As a result of the successful
 implementation, the business returned to profitability, although revenue
 declined slightly by 2.9% over the financial year 2005 to US$594.7 million.
 For the financial year 2006, the business accounted for 49.4% of Group
 revenue, as compared to 59.9% in the previous financial year.
     Revenue in North America fell by 14.3% to US$407.3 million, accounting
 for 68.5% of the total TEL revenue. The fall in revenue was due to the
 planned reduction in sales by management as the business streamlined its
 product line and exited unprofitable businesses.
     Profitability of the US business was, however, turned around as the
 Group continued to re-engineer all its processes to enhance efficiency.
 While re-engineering the operations, a dedicated effort was made to develop
 a revamped product line much more in tune with the needs of US customers
 and consumers. This entirely new product line-up has gradually been
 appearing on the shelves since April 2006.
     In Europe, the business achieved continuous growth. Revenue from the
 region rose by 49.4% to US$168.5 million, as the Group leveraged its
 relationships with its ODM customers, who are major fixed line telephone
 operators and leading brand names. The business also made good progress in
 entering in new markets such as Scandinavia and Eastern Europe. In the
 financial year 2006, the European business accounted for 28.3% of the total
 TEL revenue.
     Strong All-Round Growth at ELP
     The ELP business achieved a record performance in the financial year
 2006. Revenue increased by 60.7% over the financial year 2005 to US$451.7
 million, setting a new record. The expanding V.Smile range continued to
 show strong momentum while the traditional ELP also posted solid growth.
 During the financial year, the ELP business accounted for 37.5% of Group
     The revenue increase was apparent in all markets. Revenue from North
 America rose by 101.0% to US$217.7 million, while that from Europe
 increased by 34.3% to US$214.8 million. The growth was attributable to the
 continuous strong momentum of the V.Smile range, which was supported by
 effective and well targeted marketing and sales promotions, ranging from TV
 commercials to promotional campaigns in partnership with retailers.
     In the financial year 2006, the V.Smile range benefited from its first
 full year of sales and its second year in the market. Higher console sales
 together with the introduction of V.Smile Pocket, the handheld version of
 V.Smile in 2005, led to a greater installed base and generated higher
 software sales during the financial year.
     VTech is committed to ensuring the longevity of the V.Smile range.
 During the financial year 2006, significant developments were undertaken in
 software, accessories and platforms. 10 new Smartridges were added to the
 software library, which will grow to 33 titles in all by the end of the
 calendar year 2006. More accessories such as Art Studio and Jammin' Gym
 Class were developed to enhance the value of the current platforms.
 Furthermore, the launch of V.Smile Baby and V.Flash are widening the target
 age range of V.Smile platform from nine months to the pre-teens years.
 These products are part of the Group's strategy to sustain the growth
 momentum of V.Smile.
     Although V.Smile has undoubtedly been the centre of attention since its
 launch, the Group is also committed to enhancing its range of traditional
 ELPs, which still accounted for a significant part of the total ELP
 revenue. In early 2006, over 30 new products in the traditional range were
 unveiled. As educational toys remains a growing segment in the US toys
 market, these traditional products give VTech further opportunities to
 leverage its strengths in product design and technology adaptation to grow
 revenue and market share.
     Record Revenue at CMS
     The CMS business again delivered good results in the financial year
 2006, with a second record year of revenue, which rose by 23.2% over the
 financial year 2005 to US$158.2 million, representing 13.1% of Group
 revenue, up from 12.6% in the previous financial year.
     The solid performance in part reflects the positive state of the
 overall electronic manufacturing services (EMS) market, which expanded by
 approximately 10% in the calendar year 2005. The rise in revenue was,
 however, also driven by increased orders from existing customers in all
 segments, as well as new accounts, including those for LED lighting systems
 and handheld wireless audio-visual devices for use on site at sports
     Europe continued to be the largest market of the CMS business,
 accounting for 47.1% of the total CMS revenue, followed by the United
 States at 29.5% and Asia Pacific at 23.4%. By product category, switching
 mode power supplies and professional audio equipment accounted for 28.9%
 and 29.9% of the total CMS revenue respectively, followed by home
 appliances at 16.1% and wireless products at 7.8%.
     The business has retained its focus on small and medium sized customers
 to which it provides a highly flexible and reliable service that runs from
 product design to full production. During the financial year 2006, the
 business was successful in improving its cost structure, enabling it to
 maintain stable margins. A new organisational structure was also introduced
 with the aim of tightening customer relationships.
     The remarkable results of VTech in the financial year 2006 reflect the
 Group's success in executing its strategies well.
     Looking ahead, in its TEL business, having restored profitability, the
 Group is targeting higher revenue. Growth in Europe is expected to continue
 as the Group gains market share by leveraging its core competences in
 manufacturing and technology. In the second half of the calendar year 2006,
 the Group will start to deliver VoIP cordless phones to its ODM customers
 in Europe, establishing a position in a market of a longer term potential.
     In the United States, the Group is regaining shelf space with the
 revamped product lines. The new product line-up shows a marked improvement
 in industrial design and cost, which enables it to meet customers'
 expectations and consumers' needs better. A series of next-generation
 cordless phones will be launched in spring 2007, enabling the Group to
 continue to build its presence in the VoIP cordless telephony market.
     For the ELP business, growth is expected to continue by building on the
 Group's leadership position in Europe and the growing presence in North
 America. The Group will strengthen its leadership position in the
 educational video game category by investing in R&D to ensure a robust
 pipeline of product innovations. Products will continue to be supported by
 well executed advertising, PR, trade promotion and point of sales displays.
 At the same time, the Group will ensure the expansion is well managed and
 that costs are kept under control.
     The global EMS industry is forecast to remain on an uptrend and the CMS
 business is expected to grow with the industry. The Group is taking great
 care to manage growth at this business, devoting considerable effort to
 maintaining the exceptional levels of quality and service which are
 fundamental to its success. The R&D service offered to CMS customers is
 expected to drive further growth for the business.
     This overall optimistic outlook is tempered with caution as rising
 interest rates may affect the global economy and dampen consumer
 confidence. Furthermore, VTech's success in the ELP and CMS businesses,
 together with the growth of the TEL business in Europe, is likely to invite
 more competition. The Group will therefore need to ensure that strategies
 are executed well.
     All of the Group's businesses did well in countering the pressure of
 rising production costs in the financial year 2006. High oil prices
 resulted in high prices for plastics, an important raw material for the
 Group. Labour costs increased in southern China, the Group's manufacturing
 base, following the raising of the minimum wage and the appreciation of the
 Renminbi against the US dollar.
     It is likely that these trends will continue and hence impose further
 cost pressures on the Group during the financial year 2007, as witnessed by
 recent rises in component prices. The Group will therefore need to make
 further progress in cost control in order to achieve sustainable growth.
     In this regard, the new plant at Qingyuan, mainland China, is expected
 to deliver cost savings over time. The facility commenced operations in
 November 2005 and it will allow the Group to transfer certain operations,
 particularly the labour and electricity intensive plastics production, to
 this lower cost environment.
     ''Our results for the financial year 2006 reflect the Group's success
 in executing its strategies well. Going forward, we will continue to focus
 on our core businesses, identify opportunities in our chosen market
 segments and execute our strategies carefully. I believe the Group is in
 very good shape and well poised for further growth in the financial year
 2007, with all initiatives on track,'' said Mr. Wong.
     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
     Note: Starting from 21:30, 21 June 2006 (HK time), the video archive of
 the annual results announcement can be accessed through VTech's homepage
 www.vtech.com in the ''Webcasting and Presentation'' section under
 ''Investor Relations''.
     For further information, please contact:
     VTech Holdings Ltd
      Grace Pang
      Tel:   +852-2680-1703
      Fax:   +852-2662-7434
      Email: grace_pang@vtech.com
     VTech representative in HK
      Nick Bradbury (GolinHarris)
      Tel:   +852-2501-7910
      Fax:   +852-2810-4780
      Email: nick.bradbury@golinharris.com
     Madison Wai (GolinHarris)
      Tel:   +852-2501-7903
      Fax:   +852-2810-4780
      Email: madison.wai@golinharris.com
     VTech representative in the US
      Barbara Shrager (GolinHarris)
      Tel:   +1-212-373-6025
      Fax:   +1-212-373-6001
      Email: bshrager@golinharris.com

SOURCE VTech Holdings Ltd