Profit Boosted by Higher Revenue and Operational Improvement
HONG KONG, Nov. 22 /Xinhua-PRNewswire/ --
-- 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 anniversary.
"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
business.
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
