Mi6861 5453o 2005 7 6
User Manual: mi6861
Open the PDF directly: View PDF .
Page Count: 60
Download | |
Open PDF In Browser | View PDF |
,46230 +1/-. 7251 WV][_ Oeb\`d^h Ri\VY` T`d^ Pd\jhig`Yb M]dig]> Lbe[a B EG V`d^ Qea UeY\> VY` Te> S]l V]gg`ieg`]h> Oed^ Qed^ V]bI >technology enjoy life Mission VTech’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. cost effective communicate Corporate Profile 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. Contents With headquarters in the Hong Kong Special Administrative Region and state-of-the-art manufacturing facilities in mainland China, VTech currently has a presence in 10 countries and approximately 22,700 employees, including around 880 R&D professionals in R&D centres in Canada, Hong Kong SAR and mainland China. This network allows VTech to stay abreast of the latest technology and market trends throughout the world, while maintaining a highly competitive cost structure. The Group invested US$38.5 million in R&D in the financial year 2005 and launches numerous new products each year. VTech sells its products via a strong brand platform supported by an extensive distribution network of leading retailers in North America, Europe and Asia. Apart from the well-known VTech brand, the Group has the rights to use the AT&T brand in connection with the manufacture and sale of its wireline telephones and accessories. In addition, VTech has license agreements with Disney, Warner Brothers, Marvel, Nickelodeon, Sesame Street, HIT Entertainment and Joester Loria - American Greetings that allow it to use well-known children’s characters in the cartridges for its popular V.Smile product range. Shares of VTech Holdings Limited are listed on both the Hong Kong and London stock exchanges (SEHK: 303; London SE: VTH). Ordinary shares are also available in the form of American Depository Receipts (ADRs) through the Bank of New York (ADR: VTKHY). 01 Corporate Profile 02 Letter to Shareholders 06 Message from Deputy Chairman 07 Management Discussion and Analysis 10 Review of Operations 18 Corporate Affairs 20 Year in Review 22 Corporate Governance 24 Directors and Senior Management 28 Report of the Directors 32 Report of the Independent Auditors 33 Consolidated Financial Statements 34 Notes to the Financial Statements 54 VTech in the Last Five Years 55 Corporate Information 56 Information for Shareholders VTech Holdings Ltd Annual Report 2005 01 Letter to Shareholders >> I am pleased to report that the full year results for the financial year 2005 were better than we expected when we announced our half year results in November 2004. >> Dear Shareholders, I am pleased to report that the full year results for the financial year 2005 were better than we expected when we announced our half year results in November 2004. The Group's Electronic Allan WONG Chi Yun Chairman Learning Products (ELP) and Contract Manufacturing Services (CMS) businesses achieved better than expected growth for the full year, helping to offset an unsatisfactory performance from our telecommunication products business in the United States. Through management efforts, the difficult situation of the telecommunication products business in the United States was brought under control and, following a series of rationalisation measures, its US operations are becoming more effective and efficient. Results Revenue for the Group increased by 11.7% over the financial year 2004 to US$1,022.0 million and profit attributable to shareholders, including US$6.7 million non-recurring income arising from settlement of an indemnification claim, increased by 22.9% to US$56.9 million. Earnings per share rose 22.9% to US25.2 02 VTech Holdings Ltd Annual Report 2005 Letter to Shareholders cents. This has allowed the Board of Directors to propose a higher final In contrast with the telecommunication products business, the ELP business has dividend of US12.0 cents, giving a total dividend for the year of US13.0 cents per ordinary share, compared to US10.0 cents proven its successful turnaround with a strong rebound in both revenue and profitability. The V.Smile TV Learning for the financial year 2004, representing an increase of 30.0%. System was enthusiastically received by retailers and consumers, garnering numerous top awards, and is enabling us Operations The financial year 2005 was challenging for our telecommunication products business, as our products were not as competitive as other major players in the US market on both product design and price, which resulted in lower sales that undermined a strong performance in Europe. Overoptimistic sales projections for the US market led to higher overheads and operating costs, resulting in operational inefficiency, which further impacted profitability of the business. To rectify the problem in the United States, management of the business was changed while operations began the process of streamlining and rationalisation. Greater emphasis has been put on understanding retailer expectations to ensure product design and features correspond to consumer preferences. Through our efforts, the situation at the US operations was successfully brought under control in the second half of the financial year 2005. In January 2005, the Group took an industry lead in responding to technological developments in the US cordless phone market by launching its first Voice over Internet Protocol (VoIP) 5.8GHz cordless phone with Vonage, and its first VoIP 2.4GHz cordless phone with Skype. The Group is now developing an entirely new range of more cost effective products that meet retailer expectations and consumer requirements, which will be introduced in early 2006. to strengthen further our position in Europe while rebuilding sales in the United States. gaining a new customer in the industrial printing sector. The business is also The attraction of this new product platform, which in February 2005 was joined by the handheld model V.Smile Pocket, is greatly enhanced by highly interactive software using licensed children's characters, which now comprise a library of 27 titles. In support of V.Smile, VTech has also committed more promotional dollars than in the past, making this product fully competitive from a marketing perspective. Despite the importance of V.Smile, which we see as a key growth platform, our traditional product lines also performed well during the financial year 2005. The Group is committed to maintaining a moving towards compliance with the Restriction of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS), a European Union environmental directive that takes effect in July 2006. Management Changes During the financial year 2005, I assumed the role of CEO of the telecommunication products business following the departure of Mr. James C. Kralik. In December 2004, Mr. Edwin Ying, former CEO of the ELP business, made the decision to resign and subsequently Mr. Albert Lee, our Deputy Chairman took up the role. broad ELP range, focusing on the growing infant and pre-school segments. The CMS business remains a steady contributor to the Group revenue and profit. In the financial year 2005, the business achieved record revenue and higher profit, and its revenue growth was much stronger than the global Electronic Manufacturing Services (EMS) industry. This outperformance testifies not only to our ability to deliver quality products, flexible and reliable service, but also to our success in maintaining margins while passing on savings to customers. The investment in R&D has paid off, with R&D related services increasingly driving sales, while the business has seen success in mi6861 5.8GHz cordless phone VTech Holdings Ltd Annual Report 2005 03 Letter to Shareholders Outlook - Cautiously Optimistic VTech'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. We remain optimistic about the outlook of the financial year 2006, but this is tempered with caution in view of a number of factors. Touch TabletTM The US economy appears to be on a reasonably firm footing, but rising short term interest rates and stubbornly high oil prices may at some point dampen consumer spending. The Group also faces New Manufacturing Facilities VTech'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. We remain optimistic about the outlook of the financial year 2006, but this is tempered with caution in view of a number of factors. 04 Manufacturing facilities in mainland China have been increasingly migrating inland to be closer to untapped labour pools, which ultimately reduces operational costs. During the financial year 2005, the Group decided to establish its third manufacturing plant in Qingyuan city in the northern part of Guangdong province. The new 49,000 square metre facility will initially be used for supplying the plastics needs of our telecommunication products business. The plant is expected to start operations in the fourth quarter of the calendar year 2005. Although VTech has currently not been affected by the tight supply of labour and electric power in the Pearl River Delta, where its manufacturing facilities are located, the Qingyuan facility offers the ability to relocate some processes to an area of lower cost if required. VTech Holdings Ltd Annual Report 2005 potential challenges from rising resin prices and from RoHS compliance, which will increase the cost of manufacturing for products shipping to Europe and Japan. In addition, a potential upward revaluation of the RMB would increase our operating costs, while a weakening of the Euro and Sterling may also affect our results, although forward foreign exchange contracts are used to hedge certain exposures. Nonetheless, the Group's three core businesses are well placed for the future, albeit with fundamentally different challenges and opportunities. The telecommunication products business is now on much more stable footing, with a lower cost structure and a pipeline of more competitive products under development. We will continue to leverage our dual brand strategy, using both the AT&T and VTech brands to develop products for different market segments. Following the re-engineering measures, we expect the profitability of the Letter to Shareholders telecommunication products business to be improved in the financial year 2006. costs will rise as a result of RoHS. The CMS business will work to maintain margins Revenue, however, is expected to suffer in the short term and will not return to a growth path until the financial year 2007, through strict cost control and working closely with material suppliers. when the revamped products hit the shelves in the US market in early 2006. This is despite further expansion in Europe, which will support sales. We expect the strong momentum for the ELP business to continue in the financial year 2006. We will develop and expand the V.Smile product range, which provides a good platform for future growth. Although competing products are beginning to appear, we believe we have a head start in product awareness and that V.Smile offers the superior interactivity and software choice which will allow it to remain the market leader. We will invest further in R&D to increase the number and variety of Smartridges, and continue to negotiate license agreements to expand our portfolio of children's characters. We will also continue to invest in our traditional product lines and to support all our products with the promotional dollars Finally, I would like to thank my fellow directors and senior management, as well as all VTech employees for their commitment to ensuring continued Write & Learn ArtboardTM improvement for the Group. My appreciation also goes out to our shareholders, bankers and business partners for their invaluable support. Looking ahead, I believe VTech has an improved cost structure, enhanced product ranges and the right management to allow the Group to capitalise on its core competencies to achieve continued progress, and bring solid long-term returns to shareholders. Allan WONG Chi Yun Chairman Hong Kong, 22nd June 2005 required to make them compelling from a marketing perspective. The global EMS industry is still in an uptrend and is expected to deliver further growth in the financial year 2006. VTech's CMS business is well positioned to take advantage of this favourable situation to deliver top and bottom line growth, given its stable customer base and efficient operations. The programme to meet RoHS requirements will continue to be a major focus and new market segments will be developed. Input costs are forecast to remain stable, although manufacturing VoIP 5.8GHz cordless phone VTech Holdings Ltd Annual Report 2005 05 Message from Deputy Chairman The financial year 2005 was a remarkable year for our ELP business. V.Smile has had a successful first year, demonstrating VTech’s ability to spot a gap in the market and create a product to meet a consumer need that others had failed to identify. offers popular titles to keep kids engaged without the violence that other video games portray. VTech saw that television was one of the most influential media in Following the TV based version, VTech turned to capture the opportunities in handheld version - and in February 2005 announced the launch of V.Smile Pocket. So VTech now has a children’s lives, with almost 80 percent watching at least one hour of TV a day, according to Media Awareness Network 2003. So VTech set out to design a product that could tap into that time and portable educational game system for children aged 5 and older that delivers videogaming fun on the go or at home. Its high resolution (320 x 240) colour LCD screen gives kids a sharp, crystal- provide a smart alternative through engaging educational gameplay with popular characters — turning game time into brain time! The result was V.Smile. clear interface anytime, anywhere. At home, V.Smile Pocket can even be connected to a television for videogaming on the big screen. This was conceived not just as a piece of hardware, but a platform But VTech is not just about V.Smile. The Group continues to for an increasing range of software. V.Smile “Smartridges” are specifically designed for children aged 3 and up and promote learning concepts key to their educational development. V.Smile introduce new electronic learning products in infant, pre-school and electronic learning aid categories. Write and Learn Series is one of the new product lines that launched in February 2005. It leverages VTech’s unique writing recognition technology, providing children with fun toys to encourage fundamental handwriting skills. VTech will continue to develop innovative, age-appropriate electronic learning products for children from birth through to the pre-teens. The calendar year 2004 product line is proof of this innovation and adaptability to market trends. VTech aims to expand licensed product lines, innovate in new categories, and find new ways to provide meaningful learning products to children in entertaining formats. Albert LEE Wai Kuen Deputy Chairman 06 VTech Holdings Ltd Annual Report 2005 Management Discussion and Analysis Highlights >> >> >> >> >> >> Group revenue increased by 11.7% to US$1,022.0 million Profit attributable to shareholders* increased by 22.9% to US$56.9 million Final dividend of US12.0 cents per ordinary share, total dividend for the year up 30.0% Strong rebound in electronic learning products business Outperformance by contract manufacturing services business Unsatisfactory results of telecommunication products business in the United States >> Rationalisation of the telecommunication products business contributing to more efficient operations * including US$6.7 million non-recurring income arising from settlement of an indemnification claim Revenue For the year ended 31st March 2005, the Group reported a revenue of US$1,022.0 million, representing a growth of US$106.8 million or 11.7% over the previous financial year. In contrast to the severe strong demand from existing customers and its ability to offer comprehensive R&D services to customers. The rise in revenue was mainly driven by the power supply and professional audio equipment segments. challenges faced by the telecommunication products business in the US market, the ELP business recorded substantial growth with a 115.1% year on year increase in revenue to US$281.1 million. The The Group's revenue continues to derive from the three core businesses as follows: 59.9% from telecommunication products, 27.5% from ELP and 12.6% from CMS. growth was attributable to the success of its revamped product lines, in particular the exceptionally strong demand for the new V.Smile TV Learning System. Group Revenue by Product Line North America continues to be the largest market for the Group. Revenue from this market accounted for 60.8% of the Group revenue for the financial year 2005. Europe and Asia Pacific accounted for 32.9% and 4.5% respectively. The revenue from the telecommunication products business declined by 10.9% to US$612.5 million due to underperformance in the US market, although the situation was partly alleviated by Group Revenue by Region further progress in its development of the European market, where sales increased by 102.2% over the previous financial year. For the CMS business, revenue increased by 32.0% over the previous financial year, reaching US$128.4 million as a result of VTech Holdings Ltd Annual Report 2005 07 Management Discussion and Analysis Gross Profit/Margin The gross profit for the financial year 2005 was US$328.8 million, an Group spent US$38.5 million on research and development activities, which represented around 3.8% of total Group revenue. increase of US$47.5 million compared to the US$281.3 million gross profit recorded in the previous financial year. Gross margin for the year improved from 30.7% to 32.2%. The increase in gross margin was due to the change in sales mix, the success of the V. Smile TV Learning System and management effort in controlling overheads. Operating Profit The operating profit for the year ended 31st March 2005 was US$62.7 million, an increase of US$13.2 million over the previous financial year. Current year's operating profit included nonrecurring income arising from settlement of an indemnification claim amounted to US$6.7 million. Excluding such income, the operating profit increased by US$6.5 million, or 13.1%. This improvement mainly came from improved gross profit and gross margin. Net Profit and Dividends The profit attributable to shareholders for the year ended 31st March 2005 was US$56.9 million, an increase of US$10.6 million as compared to the previous financial year. There were nonrecurring receipts of US$6.7 million arising from settlement of an indemnification claim during the financial year 2005. The ratio of EBIT and EBITDA to revenue was 6.1% and 7.9% respectively. Selling and distribution costs increased by 21.2% from US$150.7 million in the previous financial year to US$182.6 million in the financial year 2005, owing to increased spending on advertising and promotional activities to foster sales of new products, as well as an increase in royalty payments to licensors for the use of popular cartoon characters for certain ELPs and V. Smile Smartridges. Distribution costs also increased in response to the increased volume of products sold. Administrative and other operating expenses increased from US$47.9 million in the previous financial year to US$51.7 million in the financial year 2005, representing an increase of 7.9%. These expenses included additional expenditure related to the implementation of a new global enterprise resources planning system to enhance supply chain and management processes. Nevertheless, the amount of administrative and other operating expenses as percentage of Group revenue slightly decreased from 5.2% in the previous financial year to 5.1% in the financial year 2005. During the financial year 2005, the appreciation of the Euro, Sterling, Canadian dollar and other currencies against the US dollar gave rise to a net exchange gain of US$3.3 million, compared to a net exchange gain of US$5.0 million in the previous financial year. In the first half of the financial year 2005, the Group disposed of its Mexican factory and entities that were acquired in 2000, as part of Lucent's Wired Consumer Phones Business. The Group realised a Basic earnings per share for the year ended 31st March 2005 was US25.2 cents as compared to US20.5 cents in the previous financial year. During the year, the Group declared and paid an interim dividend of US1.0 cent per share, which aggregated to US$2.3 million. The Board of Directors has proposed a final dividend of US12.0 cents per share, which will aggregate to US$27.3 million. Total dividend for the year amounts to US13.0 cents per share, representing an increase of US3.0 cents per share or 30.0% from the previous year. Liquidity and Financial Resources The shareholders' funds as at 31st March 2005 were US$203.3 million, a 25.0% increase from US$162.6 million reported for the financial year 2004. The net assets per share increased by 25.0% from US72.1 cents to US90.1 cents. gain of US$1.8 million from these transactions. Research and development activities are vital for the long-term development of the Group. During the financial year 2005, the 08 VTech Holdings Ltd Annual Report 2005 As at 31st March 2005, the net cash increased to US$123.7 million, up 20.6% from US$102.6 million at the previous year-end. The Group is substantively debt-free, except for certain interest bearing liabilities amounting to US$0.2 million, of which US$0.1 million is Management Discussion and Analysis repayable within one year and US$0.1 million is repayable within five years. The Group's borrowings are denominated in Euro and United States dollar and are on a fixed-rate basis. An amount of US$0.1 million of the total gross interest bearing liabilities is secured against equipment. Capital Expenditure For the year ended 31st March 2005, the Group invested US$21.5 million in plant, machinery, equipment, computer systems and other tangible assets. All of these capital expenditures were financed from internal resources. Capital Commitments and Contingencies In the previous financial year, the Group had committed to the implementation of a new global enterprise resources planning system to enhance the supply chain management. Most of the investment was incurred during the financial year 2005 and was financed from internal resources. Treasury Policies The objective of the Group's treasury policies is to manage its exposure to fluctuation in foreign currency exchange rates arising from the Group's global operations. It is our policy not to engage in speculative activities. Forward foreign exchange contracts are used to hedge certain exposures. The Group expects to invest approximately US$48 million on capital expenditure in the financial year 2006. During the financial year 2005, the Group decided to establish a new manufacturing plant in Qingyuan city in the northern part of Guangdong province. The plant is expected to start operation in the fourth quarter of the calendar Working Capital year 2005 and the capital investment for the new plant in the financial year 2006 is estimated at approximately US$22 million. It will be financed from internal resources. The stock balance as at 31st March 2005 increased by 29.2% over As of the financial year end date, the Group had no material the balance at 31st March 2004 to US$124.2 million. The turnover days increased from 69 days to 78 days. The increase in stock level was primarily to cater for the increased demand for ELPs and contingencies. V. Smile in the first quarter of the financial year 2006. The stock balance in relation to other businesses remained at a similar level to the previous financial year. The trade debtors balance as at As at 31st March 2005, the Group had approximately 22,700 employees, an increase of 15.2% from 19,700 in the previous 31st March 2005 was US$162.3 million, an increase of 18.0% as compared to that reported for the previous financial year. The turnover days increased from 60 days in the previous financial year to 65 days in the financial year 2005. The increase in trade debtors was mainly due to an increase in sales at the ELP business in the fourth quarter of the financial year 2005 compared to the same period of the previous financial year, despite a decrease in sales at the telecommunication products business for the same period. Employees financial year. Employee costs for the year ended 31st March 2005 were approximately US$107 million, as compared to US$99 million in the financial year 2004. The increase in the number of employees was mainly in response to the sales increase at the ELP and CMS businesses. The Group has established an incentive bonus scheme and a share option scheme for its employees, in which the benefits are determined based on the performance of the Group and individual employees. VTech Holdings Ltd Annual Report 2005 09 Review of Operations Telecommunication Products >> A Year of Rationalisation xcellence E VTech continued to make progress in developing the European markets, where revenue rose strongly by 102.2% over the financial year 2004 to US$112.8 million. Outperformance 10 VTech Holdings Ltd Annual Report 2005 Review of Operations The financial year 2005 was a challenging year for the telecommunication products business. Revenue fell by 10.9% to US$612.5 million due to the unsatisfactory performance in the US market, which outstanding results in the European market were unable to offset. Profitability of the business was substantially affected by the underperformance in the United States. In the financial year 2005, the business accounted for 59.9% of Group revenue, compared to 75.1% in the financial year 2004. Unsatisfactory Results in the United States operations and tighten cost control globally. In North America, revenue declined by 23.6% to US$475.3 million, accounting for 77.6% of the total telecommunication products revenue, compared to 90.5% in the financial year 2004. The decrease in revenue was mainly the result of lower sales in the United States, as our phones failed to compete on both product design and price. Over-optimistic sales projections also led to higher overheads and operating costs, resulting in operational inefficiency which further impacted profitability. More specifically, overheads were reduced to bring them in line with the level of sales. Product management, marketing communications and channel marketing functions in the US sales offices began a process of integration to strengthen communication, thereby improving product offerings and marketing. Product design and development began to be consolidated to Hong Kong to shorten the product development cycle. Greater emphasis has been put on understanding retailer expectations to ensure product design and features correspond to consumer preferences. A revamped product line is being developed and will be introduced in early 2006. Comprehensive Measures to Rectify the Problems Management moved swiftly to identify and address the problems, so that the situation was successfully brought under control in the second half of the financial year 2005. In November 2004, Mr. Allan Wong, Chairman and Group CEO assumed the role of CEO of the telecommunication products business, following the departure of the former CEO, Mr. James C. Kralik. A comprehensive and broad-based improvement programme was put in place to re-engineer all processes worldwide, with the aim of managing the brands better, strengthening channel marketing, forecasting demand more accurately, rationalising product design and development and raising productivity. The business also moved to streamline Strong Performance in Europe Despite the challenges in the United States, VTech continued to make progress in developing the European markets, where revenue rose strongly by 102.2% over the financial year 2004 to US$112.8 million. Europe, in the financial year 2005, accounted for 18.4% of the total telecommunication products revenue, compared to 8.1% in the financial year 2004. Telecommunication Products Revenue by Region basis. The European business is benefiting from the increasing opening of the markets. VTech will adopt the same strategy to pursue opportunities in markets outside Europe and North America. VoIP Products - Tapping Longer Term Potential In addition to geographical diversification, the business has been developing a range of products for the VoIP market, which is beginning to grow rapidly. In January 2005, VTech announced the launch of the first VoIP 5.8GHz cordless phone with Vonage, North America's leading broadband phone service provider and the first VoIP 2.4GHz cordless phone with Skype, the leading free Internet telephony service provider worldwide. We expect these products to start delivering a meaningful contribution to the business in the financial year 2007. VTech is supplying products to the leading fixed-line telephone operators on an Original Design Manufacturing (ODM) VTech Holdings Ltd Annual Report 2005 11 Review of Operations Electronic Learning Products >> A Year of The V.Smile TV Learning System is a dynamic video game platform for children aged 3-7. The response to V.Smile from both the trade and consumers has been overwhelmingly positive, making it a "star" in the ELP market worldwide. 12 VTech Holdings Ltd Annual Report 2005 Review of Operations The ELP business recorded a strong performance in the financial year 2005. Revenue rose significantly by approximately 1.2 times or 115.1% to US$281.1 million following the well-executed roll out of the award-winning V.Smile TV Learning System. Supported by effective and efficient operations, profitability rebounded sharply. During the financial year 2005, the ELP business accounted for 27.5% of Group revenue, compared to 14.3% in the financial year 2004. Successfully Rebuilding US Sales The successful launch of V.Smile has allowed the business to rebuild sales and regain lost shelf space gradually in the US market, while further strengthening its leadership position in Europe. In the financial year 2005, revenue from the ELP Revenue by Region into a television together with interchangeable software cartridges. The product hit the shelves in August 2004 with a total of 10 "Smartridges", including popular children's characters from four licensors: Disney, Marvel, Joester Loria Group - American Greetings and Warner Brothers. "Toy Innovations Award 2005 - Learning Category" at the Nuremberg International Toy Fair. These are recognised as the top industry awards worldwide. The success of V.Smile reflects its well thought-through product design and North American market rebounded sharply by more than 3 times or 328.1% to US$108.3 million, accounting for 38.5% of The response to V.Smile from both the trade and consumers has been overwhelmingly positive, making it a "star" total ELP revenue, compared to 19.4% of total ELP revenue in the financial year 2004. Revenue from the European market in the ELP market worldwide. Not only have the consoles sold in greater volumes than our initial forecasts, but the ratio also showed a robust increase of 60.3% to US$160.0 million, accounting for 56.9% of total ELP revenue. of Smartridges to consoles has also been higher. videogaming experience for pre-school children as that enjoyed by older children, while parents are assured of content that V.Smile won more than 20 awards globally is neither violent nor inappropriate in other ways. Successful Start for V.Smile The V.Smile TV Learning System is a dynamic video game platform for children aged 3-7, comprising a console that plugs attractive software, which is educational, fun, highly interactive and animated. The system provides the same fun during the financial year 2005, including the "Best Educational Toy of the Year" and the "Best Overall Toy of the Year" from the US Toy Industry Association; as well as the V.Smile won top industry awards in FY2005 United States • Best Overall Toy of the Year • Best Educational Toy of the Year Germany • Toy Innovations Award 2005 - Learning Category United Kingdom • Electronic Learning Toy of the Year VTech Holdings Ltd Annual Report 2005 13 Review of Operations Alongside the stunning success of V.Smile, the traditional product lines recorded respectable growth in revenue in both North America and Europe. V.Smile Pocket, the handheld version of V.Smile 14 VTech Holdings Ltd Annual Report 2005 Review of Operations Well-executed television, public relations and point-of-sale campaigns were also key factors in the success as they effectively conveyed the excitement, learning benefits and features to children, parents, other potential purchasers and influencers. Trade confidence in VTech was enhanced, providing a good foundation for future growth. Support from the licensors in both software development and marketing was also crucial to the outperformance. In February 2005, the business announced the launch of the handheld version, V.Smile Pocket, using the same Smartridges. VTech also introduced 17 new Smartridges that included popular children's characters from existing and new licensors, namely HIT Entertainment, Nickelodeon and Sesame Street, adding further avenues of growth to this product platform. Growth in Traditional Product Lines Alongside the stunning success of V.Smile, the traditional product lines recorded respectable growth in revenue in both North America and Europe. In the financial year 2005, the Group continued to invest in strengthening the traditional product lines with a focus on the growing infant and pre-school categories. VTech remains committed to providing a broad portfolio of ELPs to consumers that combine learning and fun in new and exciting ways. V.Smile Smartridge Library Early Learners - Ages 3 to 5 Junior Thinkers - Ages 4 to 6 Master Minds - Ages 6 to 7 or 8 2004 Titles Alphabet Park Care Bears The Lion King Winnie the Pooh 2004 Titles Little Red Riding Hood Scooby-Doo Spider-Man & Friends The Little Mermaid 2004 Titles Learnin’ Wheels Mickey Mouse 2005 Titles Barney Bob the Builder Blue’s Clues Elmo’s World The Wiggles Thomas & Friends 2005 Titles Dora the Explorer Finding Nemo Sesame Street Toy Story 2 Art Studio 2005 Titles Aladdin Batman Cinderella Spider-Man II SpongeBob Squarepants Zayzoo Effective Cost Control In addition to the sales increase, effective cost control contributed to the substantial rise in profitability for the ELP business. In particular, the Group faced the pressure of higher resin prices, which was mitigated by the adoption of multiple cavity moulding that enhanced operational efficiency. Development of New Markets During the financial year 2005, progress was made in developing new markets such as Scandinavia, where initial sales were small but encouraging. The China market remains under development and progress has been relatively slow due to its fragmented nature, different cultural attitudes towards education and comparatively low average income levels. VTech Holdings Ltd Annual Report 2005 15 Review of Operations Contract Manufacturing Rationalisation Services xcellence E >> A Year of Outperformance VTech's investment in offering a comprehensive R&D service to customers also began to show results, helping to drive the outperformance of the CMS business. 16 VTech Holdings Ltd Annual Report 2005 Review of Operations The CMS business delivered encouraging results in the financial year 2005, achieving record revenue and higher profit. Revenue increased by 32.0% over the financial year 2004 to US$128.4 million, accounting for 12.6% of Group revenue, compared to 10.6% in the financial year 2004. The percentage increase in revenue was markedly higher than the growth of the global EMS industry. This performance reflects VTech's success in delivering exceptional service to its core focus of small and medium sized customers. Strong Demand from Existing Customers The rise in revenue was driven by strong demand from existing customers, led by the well established power supply and professional audio equipment segments, which together accounted for over 60% of the total CMS revenue. A new customer in the industrial printing sector also Geographically, Europe continued to be the largest market of the CMS business, accounting for 49.2% of the total CMS revenue, followed by the United States at 27.7% and Japan at 17.2%. contributed to the revenue growth. Encouraging Results from R&D Investment margins due to changes in product mix and pricing pressure from customers. This was mainly because of the success in comprehensive R&D service to customers also began to show results, helping to drive the outperformance of the CMS business. In the financial year 2005, the R&D centre in Shenzhen came into full operation. As a result, the business not only helps customers improve product design from a cost and quality perceptive, but also takes initial concepts from first design through to full production. During the financial year 2005, approximately 15% of CMS revenue was derived from business CMS Revenue by Product Line Good Overheads Control During the financial year 2005, the business was able to achieve a higher profit, despite a slight decline in gross VTech's investment in offering a CMS Revenue by Region controlling fixed overheads in spite of higher volumes. Raw materials costs during the period were little changed over the previous financial year. RoHS Compliance VTech is committed to supporting environmental initiatives. To comply with manufacturing process. In mid-2004, teams were established to work with major customers on component selection, to enable the business to speed up the process of compliance. Currently, the business is working with four of the top five customers and it targets to achieve full compliance in the first quarter of the calendar year 2006, ahead of the industry. the Directive 2002/95/EC on RoHS, which will become mandatory in the European Union in July 2006, the CMS business had started as early as 2003 to improve its having an R&D element. The business received two customer awards in the financial year 2005 in recognition of its quality service. VTech Holdings Ltd Annual Report 2005 17 Corporate Affairs Investor Relations Quarterly Newsletter The Group is committed to a proactive investor relations and communications The Group’s quarterly newsletter continues programme, and makes every effort to ensure fair disclosure, non-selective dissemination of material information and to keep investors informed of the latest developments at VTech. Through the intranet, the global on-line quarterly newsletter keeps staff informed of key developments within the Group. The Suggestion Box, which provides another channel for feedback and information, was widely used. clear, comprehensive reporting of performance and business activities in a timely manner. e-Corporate Culture Building Investor Briefings To help foster a strong and consistent culture within the Group, in August 2004 During the financial year 2005, VTech held over 30 one-on-one meetings with investors to keep them abreast of the VTech launched its annual worldwide e-Corporate Culture Building programme. The theme of “making a difference” latest company developments. In addition, the Group organised site visits to its advanced manufacturing facilities in mainland China. Programme Investor Relations Website For both institutional and retail investors, the corporate website www.vtech.com provides up-to-date information on the Group’s financial and business developments, including press releases, stock exchange announcements, slide presentations and annual and interim reports. Employee Relations VTech benefits from the loyalty and Visit to VTech's manufacturing facilities in Dougguan enthusiasm of its employees and takes care to maintain a motivated workforce. Open Communications highlighted the benefits that can be found in going beyond set ways of doing things to achieve results. In all, more than 200 employees participated by logging on to the special web page. Training As a global organisation with a worldwide market reach, multiple language skills are increasingly important to the workings of the Group and during the financial year we arranged courses in both English and Putonghua to address this need. Computer software and presentation skills training were also welcomed by employees seeking to upgrade their skills. Results Announcement Webcast VTech webcasts its key financial announcements, allowing investors not able to be present to watch the event, accompanied by the detailed slide presentations. Open communications are critical to sound employee relations and VTech has sought to use the latest technology to expand the scope of its dialogue with employees at all levels. VTech’s intranet enables efficient communication between the worldwide offices, offering information on Group developments, guidelines and policy. Staff in training class 18 VTech Holdings Ltd Annual Report 2005 Corporate Affairs Fun at Work Code of Conduct Hospital Donations in France Fun social events designed to build team spirit and stimulate creative thinking also VTech has adopted a Code of Conduct In June 2004, VTech ran a tremendously successful email community relations enhanced employee motivation. During the financial year 2005, the Group organised a number of tours, including a one-day boat trip in Hong Kong and a three-day tour to Macau and mainland China over the Easter holiday. Overseas offices also held a variety of events, including Christmas parties and family picnics, while the plant in mainland China staged anniversary parties, as well as soccer and bridge competitions. applicable to all employees, with the aim of promoting integrity in the conduct of the Group’s business since October 2002. The Code sets out VTech’s business ethics and principles, covering issues such as conflict of interest, occupational health and safety, and environmental protection. All employees are required to sign statements confirming compliance with the Code. VTech and the Community campaign in France. Emails were sent to our contact database encouraging consumers to visit www.vtechfrance.com and donate 1 Euro worth of toys to children in hospitals for each click. Consumers participated enthusiastically and the Group reached its target of 100,000 Euros within three weeks. VTech donated the 100,000 Euros worth of products and point-of-sale materials to various public hospitals in France. VTech creates prosperity through the employment it provides to approximately 23,000 people from all walks of life in the United States, Europe and Asia. VTech also supports community initiatives in the markets where it operates that enhance people’s lives such as improved access to education and lend support for individuals in genuine need. VTech staff joined the football tournament organised by KPMG Summer Internships in Hong Kong and the United States VTech donated 100,000 Euros worth of products and point-of-sale materials to various public hospitals in France Employment Policy VTech has provided summer internships for students at universities and colleges of education in Hong Kong, giving them the Tsunami Relief in Hong Kong VTech’s policy is to employ, retain, promote, terminate and treat all employees on the basis of merit, qualifications and competence. The Group creates a favourable work environment in which all employees can enjoy equal opportunity to gain real-life experience of the world of work. During the financial year 2005, the internship programme was carried out in Hong Kong and the United States. opportunities at work and avoid discrimination on the grounds of age, sex, status, disability or any other non-job VTech organised a variety of fund-raising activities following the tsunami that devastated parts of South East Asia in late 2004. During the financial year 2005, the Group made donations to the Red Cross, while staff members made donations to the Red Cross, UNICEF and World Vision. related factor. Summer internship programme was carried out in Hong Kong and the United States VTech Holdings Ltd Annual Report 2005 19 Year in Review Electronic Learning Products Electronic Learning Products Telecommunication Products V.Smile received the “Seal of Approval” from the National Parenting Centre in the United States. V.Smile was given the “Grand Prix du Jouet” (Toy of the Year) award in the electronic toys category in France and the “Comenius Medal” from the Association for Education and Information in Germany. VTech Telecommunication Ltd was awarded a plaque of recognition by Deutsche Telekom for surpassing the “one million mark” in supplying the company with DECT phones. Me-Mo-Mo was given the “Gold” award in technology and innovation at the 16th Guangzhou International Toys and Gifts Fair in mainland China. Telecommunication Products VTech Telecommunications Canada Ltd received “The Most Improved Supplier of the Year” award from the Basics Convey Office Products in recognition of its outstanding customer support. Electronic Learning Products The V.Smile launch campaign was successfully held in New York, Dallas and Chicago, laying the foundation for strong reception of the product. VTech announced a partnership with Beijing San Chen Blue Cat Toy Co., Ltd to co-develop the Chinese electronic learning products market under the “Blue Cat • VTech” brand. VTech Communications, Inc won the “2003 LIMA International Licensing Excellence Award for Best Corporate Brand Licensee of the Year” for its AT&T branded telephone product line. This award was presented by the International Licensing Industry Merchandisers’ Association (LIMA). Electronic Learning Products Contract Manufacturing Services Electronic Learning Products Time magazine released its “coolest inventions” guide for 2004, and V.Smile was one of the only five toys featured in the “Tech Buyer’s Guide”. The business launched a programme called “Implementation of Restriction of Hazardous Substances directive in VTech”, with the target to convert all customer products compliant with the RoHS directive by the first quarter of the calendar year 2006. V.Smile was named the “Ultimate Toy” in the Educational and Learning category by the Toy Wishes magazine in the United States. Electronic Learning Products The business designed and launched a new product called “Aged Care Phone System” for a European customer. 20 VTech Holdings Ltd Annual Report 2005 Year in Review Contract Manufacturing Services Electronic Learning Products Corporate VTech Communications Ltd was recognised by Bromcom Computer Plc for the continued delivery of reliable and quality products over the past five years. The business also received a Supplier Excellence Award 2003 from Soundcraft. Play and Learn Fun Fair was awarded “Toy of the Year” in the September issue of American Baby magazine. VTech Chairman and Group CEO, Mr. Allan Wong, was presented the prestigious “Industrialist of the Year Award 2004” by the Federation of Hong Kong Industries to recognise his significant contributions to the industry and the community. Electronic Learning Products V.Smile was the winner in the Dutch Toy of the Year Election 2004. V.Smile was named one of the 2004 “Hot Dozen” Hottest Holiday Products by the Toy Wishes magazine in the United States. Electronic Learning Products V.Smile received the 2004 National Parenting Publications Award (NAPPA) in the United States. VTech (China) Trading Ltd was given the “Outstanding Toy Enterprise in China” award by the China Toy Association in recognition of its achievements and contributions to the toy industry. Electronic Learning Products Electronic Learning Products Contract Manufacturing Services V.Smile was awarded the “Electronic Learning Toy of the Year” by The Toy Retailers Association at the London Toy Fair. V.Smile and V.Smile Pocket were presented the “Toy Innovations Award 2005 - Learning Category” at the Nuremberg International Toy Fair in Germany. The business designed and launched a bluetooth communication product for a Japanese customer. Telecommunication Products VTech participated in the 2005 Consumer Electronics Show (CES) in Las Vegas, introducing 23 new cordless phones to customers, including the first-ever fully integrated VoIP broadband phones. V.Smile was awarded the “Best Overall Toy of the Year” and the “Best Educational Toy of the Year” by the US Toy Industry Association (TIA), bringing the total US V.Smile awards to 21. V.Smile Pocket, a handheld educational video game system, was unveiled at international toy fairs in Germany and the United States. Electronic Learning Products VTech was given “2004 Vendor of the Year Award” by Toys “R” Us. Telecommunication Products VTech Telecommunication Ltd received the “2004 Outstanding Quality Manufacturer of the Year” award from RadioShack. VTech Holdings Ltd Annual Report 2005 21 Corporate Governance VTech is committed to maintaining a strong system of corporate Each of the independent non-executive directors has made an governance so that all business activities and decision-making annual confirmation of independence pursuant to Rule 3.13 of can be properly regulated. The Stock Exchange of Hong Kong the Listing Rules. Limited (the “Hong Kong Stock Exchange”) has promulgated a new Code on Corporate Governance Practices (the “Code”) The Board’s focus is on the formulation of business strategy and which came into effect in January 2005. The Company has policy, and on control. Matters reserved for the Board are those already put in place corporate governance practices to meet all affecting the Company’s overall strategic policies, finances and the provisions of the Code except for the combined role of shareholders. These include: financial statements, dividend Chairman and Chief Executive Officer. The Company has also policy, the annual operating budgets, major investments and complied with, to a certain extent, the recommended best board memberships. practices in the Code. Throughout the year ended 31st March 2005, the Company complied with the Code of Best Practice as set out in Appendix 14 of The Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules") except for the appointment of non-executive directors for a specific term despite the one-third rotational provision Four board meetings at approximately quarterly interval are scheduled for 2005/2006 with other meetings as necessary. All Directors have access to the advice and services of the Company Secretary and independent professional advice may be taken by the Directors as required. (other than the Chairman) under the existing Company’s Bye- The Directors acknowledge their responsibility for preparing the laws. At the forthcoming annual general meeting, the directors financial statements of the Group that give a true and fair view proposed a special resolution to amend the existing Bye-laws of the Company so that every director is subject to retirement by rotation at least once every three years in compliance with the of the state of affairs of the Group and of the results and cash flow for the period. In preparing the financial statements for the year ended 31st March 2005, the Directors have: provisions of the Code. Board of Directors For the year ended 31st March 2005, • consistently; the Board of Directors (the “Board”) comprised two executive directors and four independent non-executive directors. The Selected suitable accounting policies and applied them • Made judgements and estimates that are prudent and independent non-executive directors are high calibre executives reasonable; and have prepared the accounts on a going with diversified industry expertise and bring a wide range of concern basis. skills and experience to the Group. They bring independent judgement on issues of strategy, performance, risk and people The Directors are responsible for keeping proper accounting through their contribution at board meetings. The Board records, for safeguarding the assets of the Group and for taking considers that four non-executive directors, more than one third reasonable steps for the prevention and detection of fraud and of the Board, are independent in character and judgement and other irregularities. they also meet the independence criteria set out in Rule 3.13 of the Listing Rules. All non-executive directors are required to submit themselves for re-election at least every three years. Biographical details of all directors are set out on page 24. 22 VTech Holdings Ltd Annual Report 2005 The following paragraphs describe the key governance structures operating in the Group under the overall direction of the Board. Corporate Governance Board of Management For the year ended 31st March Risk Management Committee The Board has the 2005, the Board of Management has been delegated the overall responsibility for internal control, including risk authority by the Board of Directors to be responsible for the management, and sets appropriate policies having regard to the management of all business activities of the Group. Its members objectives of the Group. Executive directors and management are appointed by the Board from time to time and comprises has the responsibility for the identification, evaluation and executive directors and senior management executives. management of financial and non-financial risks and for the Model Codes for Securities Transactions The Company has adopted the Model Codes as set out in Appendix 10 of the Listing Rules and Appendix to Chapter 16 of the Listing Rules of the Financial Services Authority in the United Kingdom (the “UK Listing Rules”) regarding securities transactions by directors and senior management in relation to implementation and maintenance of control systems across the Group in accordance with Group policies. The Risk Management Committee, comprising the executive directors, assists the Audit Committee in reviewing and assessing the number and seriousness of findings raised by the Internal Audit Department and also the corrective actions taken by the relevant departments. the accounting period covered by the Annual Report. After specific enquiry, all directors of the Company confirmed that The Group maintains controls to safeguard the Group’s assets they have complied with the required standard of dealings set and ensure that transactions are executed in accordance with out therein. management’s authorisation. The information systems in place Audit Committee The Audit Committee comprising three are designed to ensure that the financial report is reliable. independent non-executive directors, has been established to Remuneration Committee The Remuneration assist the Board in fulfilling its oversight responsibilities for Committee comprises three independent non-executive financial reporting, risk management and evaluation of internal directors. It is responsible for reviewing and recommending all controls and auditing processes. It also ensures that the Group elements of the executive directors and senior management complies with all applicable laws and regulations. Terms of remuneration. The remuneration for the non-executive directors reference of the Audit Committee which have been adopted by is determined by the Board. Terms of reference of the the Audit Committee are posted on the Company’s website. Remuneration Committee which have been adopted by the Remuneration Committee are posted on the Company’s Mr. Raymond CH’IEN Kuo Fung, being a member of the Audit website. Committee, has the appropriate financial management expertise. The Audit Committee meets at least twice a year to Bye-laws of the Company At the annual general receive reports from external auditors, reviews the interim and meeting held on 13th August 2004, the shareholders had annual financial statements, and receives regular reports from passed a special resolution to amend the Company’s Bye-laws the internal audit functions. The meetings deal with the matters to reflect the amendments to Appendix 3 to the Listing Rules of significance arising from the work conducted since the which came into effect on 31st March 2004. The Company has previous meeting and are attended by the Chairman, Chief instituted changes to implement the retirement by rotation for Compliance Officer, Group Chief Financial Officer and external all Directors at least once every three years (including those auditors. appointed for a specific term) by proposing to amend its Byelaws in the forthcoming annual general meeting in accordance with the Code. VTech Holdings Ltd Annual Report 2005 23 Directors and Senior Management Profile of Directors Allan WONG Chi Yun, JP, aged 54, Chairman and Group Chief Executive Officer, co-founded the Group in 1976. Dr. WONG holds a Bachelor of Science degree in Electrical Engineering from the University of Hong Kong, a Master of Science degree in Electrical and Computer Engineering from the University of Wisconsin and an honourary degree of Doctor of Technology from the Hong Kong Polytechnic University. Dr. WONG is the Chairman of the Hong Kong Applied Science and Technology Research Institute and an ex-officio member of the Steering Committee on Innovation and Technology. He is also a council member of the University of Hong Kong, an independent non-executive director of the Bank of East Asia Limited, ChinaHongkong Photo Products Holdings Limited and Li & Fung Limited. Albert LEE Wai Kuen, aged 54, Deputy Chairman, joined the Group in 1984 and became a director in the same year. Before joining the Group, he ran his own electronics manufacturing service company for two years and was a manager of a computer chess game manufacturing company for three years. Mr. LEE holds a Bachelor of Science degree in Electrical Engineering from the University of Calgary. Raymond CH’IEN Kuo Fung, GBS, CBE, JP, aged 53, is Independent Nonexecutive Director since November 2001. Dr. CH’IEN is the Executive Chairman and CEO of CDC Corporation as well as Chairman of its subsidiary, China.com Inc. He is also the Chairman of MTR Corporation Limited. Dr. CH’IEN serves on the boards of HSBC Holdings plc, the Hongkong and Shanghai Banking 24 Corporation Limited, Inchcape plc, Convenience Retail Asia Limited and The Wharf (Holdings) Limited. In public service, Dr. CH’IEN is the Chairman of the Advisory Committee on Corruption of the Independent Commission Against Corruption and the Chairman of the Hong Kong/European Union Business Cooperation Committee and is a Hong Kong member of the APEC Business Advisory Council. He received a doctoral degree in Economics from the University of Pennsylvania, USA in 1978. He was appointed a Justice of the Peace in 1993 and a Commander in the Most Excellent Order of the British Empire in 1994 and awarded the Gold Bauhinia Star Medal in 1999. William FUNG Kwok Lun, OBE, JP, aged 56, is Independent Non-executive Director since November 2001. Dr. FUNG is the Group Managing Director of Li & Fung Limited and has held key positions in major trade associations. He is past Chairman of the Hong Kong General Chamber of Commerce, the Hong Kong Exporters’ Association and the Hong Kong Committee for the Pacific Economic Cooperation Council. He currently serves as a member of the Economic and Employment Council of the Hong Kong SAR. Dr. FUNG holds a Bachelor of Science in Engineering from Princeton University, and an MBA degree from the Harvard Graduate School of Business. He has been awarded an Honourary Doctorate degree of Business Administration by the Hong Kong University of Science and Technology. Dr. FUNG is also a non-executive director of Convenience Retail Asia Limited, Integrated Distribution Services Group Limited, HSBC Holdings plc, CDC Corporation and CLP Group Holdings Limited. VTech Holdings Ltd Annual Report 2005 Michael TIEN Puk Sun, BBS, JP, aged 54, is Independent Non-executive Director since November 2001. Mr. TIEN is the Chairman and founder of the G2000 Group which starts its business back in 1979. Before starting up G2000, he worked with Macy’s Department Store in New York, USA. Mr. TIEN is an active member in Hong Kong community affairs, holding posts like the Chairman of the Standing Committee on Language Education and Research; the Chairman of the Employee Retraining Board and a member of the Education Commission. Mr. TIEN was appointed as the Chairman of Kowloon-Canton Railway Corporation in December 2001. Patrick WANG Shui Chung, JP, aged 54, is Independent Non-executive Director since November 2001. Dr. WANG received an Honourary Doctorate of Engineering from Purdue University in Indiana, USA in May 2004. He earned both his BSc and MSc degrees in Electrical Engineering from Purdue University in 1972. Dr. WANG is a member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority. He is currently the Chairman and Chief Executive Officer of Johnson Electric Holdings Limited and also a nonexecutive director of The Hongkong and Shanghai Banking Corporation Limited and Tristate Holdings Limited. Profile of Senior Management Telecommunication Products Kent WONG Wah Shun, aged 42, Chief Operating Officer of Telecommunication Products Business, is responsible for overall business operations including manufacturing operations, product management and Directors and Senior Management development. Mr. WONG joined VTech in 1989 and over the years has held management positions in a number of areas including business development, engineering, operations and quality assurance. Mr. WONG holds a Master degree in Engineering, a Master degree in Engineering Management and an MBA degree. Mr. WONG is a Chartered Engineer, holding a Membership of Institute of Electrical Engineer, and Fellowship of Chartered Management Institute, UK. Nicholas P. DELANY, aged 53, Senior Vice President, is responsible for the Telecommunication Products Business in US specifically sales, customer support, business intelligence processes, supply chain, logistics and IT. Prior to joining VTech in 2000, Mr. DELANY had over 20 years sales and management experience in the industrial, retail, construction and mining industries in Asia, Europe and South Africa. He also has seven years of experience in developing supply chain systems with leading corporations in North America including The Stanley Works, Inc. Mr. DELANY holds a Bachelor degree in Marketing and Financial Management from the University of South Africa & Damlein College. Gary TAM Wai Keung, aged 41, Vice President and General Manager of International Sales and Market Development, is responsible for the development of the Telecommunication Products Business sales and marketing activities in Europe, South America and other international markets outside of North America. He is also responsible for ODM (Original Design Manufacturing) business activities worldwide. Mr. TAM joined VTech in 1986 and he held management positions in a number of areas including operations, and sales and marketing. He holds a Bachelor degree in Electronics from Chinese University of Hong Kong and an MBA degree from Strathclyde Business School, UK. Gordon CHOW, aged 49, President of VTech Telecommunications Canada Limited, is responsible for the Telecommunication Products Business in Canada. He established the Canadian operations in 1986. Mr. CHOW holds a Bachelor of Commerce degree from the University of British Columbia and is a member of the Institute of Chartered Accountants of British Columbia. He is a member of the Board of Governors of Crofton House School in Vancouver. Mr. CHOW has served as a member of the President’s Advancement Council of British Columbia Institute of Technology and a director of the BCIT Foundation. He was also a member of the Royal Roads University — MBA Advisory Board and a director of the Canadian Toy Association. Gary ROGALSKI, aged 42, Vice President of Engineering, is responsible for the Telecommunication Products Business research and development activities in Vancouver, Canada. He leads a team based in Vancouver that develop 5.8GHz digital telephony products as well as other voice and data transmission technologies. Mr. ROGALSKI joined VTech in 1988 and has 20 years of engineering research and development experience in the telecommunications industry. He holds a Diploma in Telecommunications from British Columbia Institute of Technology. Stanley M. HARTSTEIN, aged 48, Vice President of Business Development, is responsible for the development of new business activities including the establishment of strategic relationships with leading VoIP service providers and identification of innovative VoIP hardware solutions. He further coordinates the Telecommunication Products Business day to day relationship with AT&T Corp. and manages VTech’s US legal activity and Be Connected subsidiary. Mr. HARTSTEIN has over 23 years experience in the consumer electronics industry. Prior to joining VTech in 2000, he held a number of management positions at Sony Corp., AT&T Corp. and Lucent Technologies Inc. Mr. HARTSTEIN holds a Bachelor degree in Accounting from the State University of New York. Paulina AU King Lun, aged 35, Divisional Financial Controller, is responsible for financial and accounting control of the Telecommunication Products Business. Ms. AU has over 11 years of experience in professional accounting and finance and prior to joining VTech in 2000, she worked with PricewaterhouseCoopers as an audit manager. Ms. AU holds a Bachelor degree in Accountancy from City University of Hong Kong and a Master degree in Applied Finance from Macquarie University, Australia. She is a Fellow Member of Association of Chartered Certified Accountants and an Associate Member of Hong Kong Institute of Certified Public Accountants. Electronic Learning Products William TO, aged 49, President of VTech Electronics North America, L.L.C., joined the Group in 1983. Mr. TO is responsible for the Group’s Electronic Learning Products Business in the United States of America and Canada. He holds a Master degree in Business Administration from the University of Chicago. VTech Holdings Ltd Annual Report 2005 25 Directors and Senior Management Andrew DICKSON, aged 44, Chief Executive Officer of Northern Europe operation of Electronic Learning Products Business, joined the Group in November 2001. Mr. DICKSON is responsible for the Group’s electronic learning products business in the United Kingdom and Scandinavia. With over 16 years of experience in sales and marketing of consumer durable products and operational management experience in marketing, finance and logistical functions, he had been the United Kingdom Managing Director of IDTUK (Oregon Scientific UK Limited) previous to that was Sales Director with Texas Instruments Incorporated. Mr. DICKSON graduated from Royal College of Music and attended Insead International School of Management. Gilles SAUTIER, aged 49, Chief Executive Officer of operations in Southern Europe, Luxembourg and Netherlands of Electronic Learning Products Business, joined the Group in November 2000 and is responsible for the Group’s electronic learning products business in France, Belgium, Luxembourg, Netherlands, Spain, Portugal, Greece and Turkey. With over 25 years of experience in marketing, sales and management in the toys industry, he held various positions in Kenner-Parker, Spear’s Games, Ideal Toys and Majorette. He holds a Bachelor degree in Law from Paris University and a Master degree in Business Administration from L’ESSEC, a French business school. Mr. SAUTIER is a member of the Board of the French Toy Federation. Josef LUKAS, aged 49, Managing Director of Central Europe operation of Electronic Learning Products Business, joined the group in March 2001 and is responsible for the Group’s electronic learning products business in Germany, 26 Austria and Switzerland. With over 22 years of experience in retailing and branded consumer goods industry, he had been the Managing Director of Binney and Smith for Germany and Austria. He holds a Bachelor degree in Business from the University of Munich. He has more than 10 years in Mechanical Engineering Design of switches, TV and toys products, and 15 years in toys product development management. Mr. AU holds a Diploma in Production and Industrial Engineering from Hong Kong Polytechnics. Davis CHAN Hon Hung, aged 41, Factory Manager — Toy Division of Electronic Learning Products Business. Mr. CHAN joined the Group in 1999. He holds a Higher Certificate in Mechanical Engineering. Mr. CHAN has 20 years of experience in toys industry. Prior to joining VTech, he held a senior position in an OEM toys company. Rowena SO Lin Ying, aged 50, Divisional Financial Controller of Electronic Learning Products Business, is responsible for financial reporting and control of the business. Ms. SO joined VTech in 1986. She holds an MBA from the University of Lincolnshire and Humberside. She has over 18 years of managerial experience in finance and accounting in the company, previously holding the position of Chief Accountant of the Division. LEUNG Chun Kwan, aged 39, Factory Manager — Plastic Division & Material Control Division of Electronic Learning Products Business. Mr. LEUNG joined the Group in 1998 and transferred to the division in December 2000. He had 8 years experience in telecommunication products manufacturing before joining the Group. Mr. LEUNG holds a Bachelor of Science degree in Electronics Engineering and a Master of Philosophy degree in Electronics Engineering from City University of Hong Kong. He is a member of the Institute of Electrical Engineers and a Chartered Engineer of the Engineering Council, UK. Vincent YUEN Chi Ming, aged 45, Senior Manager of Product Development Department (Product Design/ Administration) of Electronic Learning Products Business. Mr. YUEN joined VTech in 1984. He holds a Bachelor degree in Electrical Engineering from Chinese University of Hong Kong. AU Ip Sing, aged 45, Senior Manager of Product Development Department (Engineering/Administration) of Electronic Learning Products Business. VTech Holdings Ltd Annual Report 2005 Contract Manufacturing Services Andy LEUNG Hon Kwong, aged 46, Chief Executive Officer of Contract Manufacturing Services Business since April 2002 after serving as General Manager for 9 years. He joined VTech in 1988. Mr. LEUNG has over 20 years of experience in the EMS industry. He holds a Bachelor of Science degree in Electrical Engineering from the University of Newcastle Upon Tyne in the United Kingdom and he holds an MBA degree from Oklahoma City University in the United States. Michael HO Ho Leung, aged 41, General Manager of VTech (Qingyuan) Plastic & Electronics Co., Ltd. Dr. HO received his PhD degree in Mechanical Engineering from University of Manchester Institute of Science and Technology (“UMIST”), UK. From UMIST he also received his BEng degree in Mechanical Engineering with first class honors. He has been working in product development area for 20 years and his Directors and Senior Management service in VTech can be traced back to 1985. He was the Mechanical Design Manager during 1992–93 for VTech’s telecommunication products. Just before joining VTech again, he served 7 years in an Audio & AV ODM company as the Head of Engineering Division producing mainly for Aiwa, Sony, JVC, SanDisk and other major US and European importers. Alex CHOI Lap Hung, aged 42, Vice President of Business Development of VTech Communications Limited, is responsible for the development of contract manufacturing services business worldwide and the project management team. Before joining the Group in November 2002, Mr. CHOI worked in another couples of EMS companies for 16 years in various perspective, including marketing, project management and quality assurance. He holds a Master of Engineering degree of Manufacturing Systems Engineering from Warwick University, United Kingdom. Kent CHEUNG King Fai, aged 43, Operation Manager of VTech Communications Limited. Mr. CHEUNG joined VTech in 1989. He holds a Diploma in Management Studies. Mr. CHEUNG has more than 22 years of experience in the electronics industry. Prior to joining VTech, he held a senior position in various electronic companies. Albert YUNG Kam Kit, aged 48, Senior System Manager of VTech Communications Limited, is responsible for quality management of the contract manufacturing services. Before joining VTech in 2000, Mr. YUNG had 18 years of experience in electronic manufacturing. He holds a Bachelor of Science degree in Electrical Engineering from the University of Hong Kong. POON Yuen Fung, aged 35, Senior R&D and Engineering Manager of VTech Communications Limited, is responsible for R&D and development engineering of contract manufacturing services. Mr. POON holds a Bachelor degree of Engineering in Electronic Engineering from City Polytechnic of Hong Kong and a Master degree of Science in Electronic Engineering from City University of Hong Kong. He also holds an MBA degree from University of Durham, UK. Mr. POON has more than 12 years of experience in electronic engineering development and project management, mainly on the wireless and telecommunication products area. Before joining CMS in 2002, Mr. POON had worked for VTech Telecommunications Limited for cordless phone development for seven years from 1994 to 2001. Rolf D. SEICHTER, aged 61, President of VTech Telecom, L.L.C., is responsible for the overseas Contract Manufacturing business development and marketing. Mr. SEICHTER joined VTech in 1999, left in 2001 and re-joined in 2004. Prior to joining VTech, he held senior management positions with several large sized high-tech corporations in Europe and the United States. He is well familiar with high-tech applications such as telecommunications, industry, automation and consumer markets. He holds a Master of Science degree in RF Electronics from Gauss University, Berlin, Germany. Corporate Services PANG King Fai, aged 49, Group Chief Technology Officer, joined the Group in February 2004. Dr. PANG is responsible for establishing and maintaining a group-wide infrastructure in order to enhance VTech’s capability for product development and introduction. Prior to joining VTech, he held various senior management positions at LSI Logic Corp. in the United States. He has also held senior engineering positions at Trident Microsystems, Inc. and Hewlett Packard Company. Dr. PANG holds BSc (Eng) from the University of Hong Kong, MPhil from London University, and PhD (EE) from Stanford University. CHANG Yu Wai, aged 45, Company Secretary and Chief Compliance Officer. Joined the Group in June 2000 after spending 8 years with one of the leading international accounting firms in Hong Kong. He has over 15 years of experience in professional accounting and auditing. He holds a Bachelor of Science degree in Mathematics and Management Sciences from the University of Manchester Institute of Science and Technology. Mr. CHANG is a member of the Institute of Chartered Accountants in England and Wales. Shereen TONG Ka Hung, aged 36, Group Chief Financial Officer, is responsible for the Group accounting and tax, treasury and financial as well as information technology and human resources management functions. She joined the Group in 1994 and has held management positions in a number of areas including internal audit and financial control of the Group. She holds an MBA degree from Manchester Business School, UK, a Master of Science degree in Information Systems from Hong Kong Polytechnic University, a Bachelor of Laws degree from Manchester Metropolitan University, UK. She is an Associate Member of Chartered Institute of Bankers, Chartered Institute of Management Accountants and a Fellow Member of Hong Kong Institute of Certified Public Accountants. VTech Holdings Ltd Annual Report 2005 27 Report of the Directors The directors have pleasure to present their report and the audited financial statements of the Group for the year ended 31st March 2005. Donations During the year, the Group made charitable and other donations in aggregate of US$203,000. Principal Activity The principal activity of the Group is the Directors The Board of the Company during the year and up to 22nd June 2005 comprised: design, manufacture and distribution of consumer electronics products. Mr. Allan WONG Chi Yun (Chairman and Group Chief Executive Officer) Group Results and Dividends The results of the Group for the year ended 31st March 2005 are set out in the consolidated income statement on page 33. Mr. Albert LEE Wai Kuen (Deputy Chairman) Mr. Raymond CH’IEN Kuo Fung (Independent Non-executive Director) Mr. William FUNG Kwok Lun (Independent Non-executive Director) Mr. Michael TIEN Puk Sun (Independent Non-executive Director) Mr. Patrick WANG Shui Chung (Independent Non-executive Director) An interim dividend of US1.0 cent (2004: US3.0 cents) per ordinary share was paid to shareholders on 4th January 2005. The directors have recommended the payment of a final dividend of US12.0 cents (2004: US7.0 cents) per ordinary share payable on 30th August 2005 to shareholders in respect of the year ended 31st March 2005 whose names appear on the register of members of the Company as at the close of business on 12th August 2005 subject to the approval of the shareholders of the Company at the forthcoming annual general meeting. The final dividend will be paid in United States dollars save that those shareholders with a registered address in Hong Kong will receive the equivalent amount in Hong Kong dollars and those registered in the United Kingdom will receive the equivalent amount in Sterling both calculated at the rates of exchange as quoted to the Company by The Hongkong and Shanghai Banking Corporation Limited at its mid rate of exchange prevailing on 19th August 2005. Commentary on Performance A commentary on the performance of the Group is included in the review of operations set out on pages 10 to 17. Group Financial Summary A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on page 54. Tangible Assets Details of the movements in tangible assets are shown in note 9 to the financial statements. Share Capital, Share Options and Warrants Details of the movements in share capital, share options and warrants of the Company during the year are set out in note 19 to the financial statements. Reserves Movements in the reserves of the Group and the Company during the year are set out in note 20 to the financial statements. 28 VTech Holdings Ltd Annual Report 2005 Mr. Michael TIEN Puk Sun and Mr. Patrick WANG Shui Chung shall retire from the Board in accordance with Bye-law 112 of the Bye-laws of the Company, and being eligible, shall offer themselves for re-election as directors of the Company at the forthcoming annual general meeting. The Company received confirmation of independence in respect of the year ended 31st March 2005 from each of the independent non-executive directors pursuant to Rule 3.13 of the Listing Rules. Brief biographical details of directors and senior management are set out on pages 24 to 27. Directors’ Service Contracts None of the directors has a service contract with any company in the Group which is not determinable by the Group within one year without payment of compensation, other than statutory compensation. The director’s service contract entered into between the Company and Mr. Allan WONG Chi Yun in 1999 has no expiry date, but can be terminated by the giving of 2 months’ prior notice, and is exempt from the shareholders’ approval requirement under Rule 13.68 of the Listing Rules. Report of the Directors Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures As at 31st March 2005, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company as recorded in the register maintained by the Company pursuant to Section 352 of the Securities and Futures Ordinance (the “SFO”) and according to the record of notification made to the UK Listing Authority pursuant to Paragraphs 16.13 to 16.17 of the UK Listing Rules were as follows: (1) Interests in the Company Name of director Number of shares Equity derivatives (share options) Total Approximate percentage of shareholding Personal interest Family interest Other interest Allan WONG Chi Yun 10,674,393 3,968,683 74,101,153 (Note 1) 2,000,000 90,744,229 40.2% Albert LEE Wai Kuen 799,332 — — 3,250,000 4,049,332 1.8% — — — — — — 1,041,630 — — — 1,041,630 0.5% Michael TIEN Puk Sun — — 1,123,000 (Note 2) — 1,123,000 0.5% Patrick WANG Shui Chung — — — — — — Raymond CH’IEN Kuo Fung William FUNG Kwok Lun Note 1: The shares were held as to 1,416,325 directly by Honorex Limited (“Honorex”), as to 65,496,225 directly by Conquer Rex Limited (“Conquer Rex”) and as to 7,188,603 directly by Twin Success Pacific Limited (“Twin Success”). Conquer Rex is a wholly-owned subsidiary of Honorex. Each of Conquer Rex, Honorex and Twin Success is a wholly-owned subsidiary of Trustcorp Limited as the trustee of The Wong Chung Man 1984 Trust, a discretionary trust in which Mr. Allan WONG Chi Yun (“Mr. WONG”), a director of the Company, is the founder. Trustcorp Limited was therefore deemed to have an aggregate indirect interest in 74,101,153 shares. Honorex was also deemed to have an indirect interest in the 65,496,225 shares. Note 2: The shares were registered in the name of Romsley International Limited which is a wholly owned subsidiary of J.P. Morgan Trust Company (Bahamas) Limited as trustee of The Joy Plus Trust. The Joy Plus Trust is a discretionary trust in which Mr. Michael TIEN Puk Sun is the founder. Note 3: All the interests stated above represent long position. (2) Share options of the Company Exercise price Exercisable period (Note 1) Number of share options held as at as at 1st April 31st March 2004 2005 Name of director Date of grant Allan WONG Chi Yun 26th February 2002 HK$10.20 11th March 2005 to 10th March 2007 2,000,000 2,000,000 (Note 2) Albert LEE Wai Kuen 26th February 2002 HK$10.20 5th March 2005 to 4th March 2007 1,750,000 1,750,000 (Note 3) Albert LEE Wai Kuen 19th November 2004 HK$11.03 22nd November 2007 to 21st November 2009 — 1,500,000 (Note 4) Note 1: As one of the conditions of grant, the grantee concerned agreed with the Company that the options granted shall not be exercisable within the period of 36 months from the date on which such options were accepted and shall not be exercisable after 60 months from the date on which such options were accepted. Note 2: 1,000,000 share options were exercised on 21st April 2005, the closing price of the shares of the Company immediately before the date on which the options were exercised was HK$10.95 per share. Note 3: 750,000 share options were exercised on 4th April 2005, the closing price of the shares of the Company immediately before the date on which the options were exercised was HK$11.10 per share. Note 4: The closing price of the shares immediately before the date on which the options were granted was HK$10.70 per share. VTech Holdings Ltd Annual Report 2005 29 Report of the Directors Save as disclosed above, as at 31st March 2005, none of the directors and chief executive of the Company has any interest or short position in shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be recorded in the register kept by the Company pursuant to Part XV of the SFO or pursuant to the Model Codes for Securities Transactions by Directors of Listed Issuers containing in the Listing Rules or which were required to be notified to the UK Listing Authority pursuant to Paragraphs 16.13 to 16.17 of the UK Listing Rules. Directors’ Interests in Contracts Save for the lease described under the paragraph headed “Connected Transaction”, no contracts of significance in relation to the Group’s business to which the Company or its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Substantial Shareholdings As at 31st March 2005, according to the register maintained by the Company under Section 336 of the SFO and the record of notification made to the UK Listing Authority pursuant to Paragraphs 9.11 to 9.14 of the UK Listing Rules and in so far as is known to the Company, the parties, (other than the directors and chief executive of the Company), who held 3% or more equity interest in the issued share capital of the Company, together with the amount of each of such parties’ interests were as follows: Name of shareholder Capacity Trustcorp Limited (Note 4) Interest of controlled corporation (Notes 1 & 3) Honorex Limited Beneficial owner (Notes 1 & 3) Number of shares held Approximate percentage of shareholding 74,101,153 32.8% 1,416,325 29.7% Interest of controlled corporation (Notes 1 & 3) 65,496,225 Conquer Rex Limited Beneficial owner (Notes 1 & 3) 65,496,225 29.0% Value Partners Limited Investment manager (Notes 2 & 3) 31,148,000 13.8% CHEAH Cheng Hye Interest of controlled corporation (Notes 2 & 3) 31,148,000 13.8% Twin Success Pacific Limited Beneficial owner (Notes 1 & 3) 7,188,603 3.2% Note 1: The shares were held as to 1,416,325 directly by Honorex Limited (“Honorex”), as to 65,496,225 directly by Conquer Rex Limited (“Conquer Rex”) and as to 7,188,603 directly by Twin Success Pacific Limited (“Twin Success”). Conquer Rex is a wholly-owned subsidiary of Honorex. Each of Conquer Rex, Honorex and Twin Success is a wholly-owned subsidiary of Trustcorp Limited as the trustee of The Wong Chung Man 1984 Trust, a discretionary trust of which Mr. Allan WONG Chi Yun (“Mr. WONG”), a director of the Company, is the founder. Trustcorp Limited was therefore deemed to have an aggregate indirect interest in 74,101,153 shares. Honorex was also deemed to have an indirect interest in the 65,496,225 shares. Mr. WONG’s founder interests in the 74,101,153 shares of the Company has also been disclosed under the section headed “directors’ interests and short positions in shares, underlying shares and debentures” above. Note 2: Mr. CHEAH Cheng Hye is deemed to be interested in such shares through its 31.82% interest in Value Partners Limited. Note 3: All the interest stated above represent long position. Note 4: Trustcorp Limited has been appointed as the trustee of The Wong Chung Man 1984 Trust in place of Newcourt Trustees Limited effecting on 7th June 2004. Save as disclosed above, the Company has not been notified by any person (other than the directors or chief executive of the Company) who had interests or short positions in the shares, underlying shares and debentures of the Company as at 31st March 2005 which were required to be disclosed to the Company under Part XV of the SFO, or which were recorded in the register required to be kept by Company under Section 336 of the SFO or which were 30 VTech Holdings Ltd Annual Report 2005 required to be notified to the UK Listing Authority pursuant to Paragraphs 9.11 to 9.14 of the UK Listing Rules. Based on the information publicly available, the Company has maintained at least 25% of the total issued share capital of the Company to be held by the public at all times during the year ended 31st March 2005 and up to the date of this report. Report of the Directors Management Contracts No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year. Securities Purchase Arrangements At the annual general meeting held on 13th August 2004, shareholders renewed the approval of a general mandate authorising the directors to effect repurchases of the Company’s own shares up to a limit of 10% of the shares in issue as at that date. Purchase, Sale or Redemption of Listed Shares The Company has not redeemed any of its shares during the year. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company’s shares during the year. Major Customers and Suppliers For the year ended 31st March 2005, the aggregate amount of purchases attributable to the Group’s five largest suppliers represented less than 30% of the Group’s total value of purchases. The Group’s largest customer accounted for approximately 9.2% of the Group revenue and the Group’s five largest customers in aggregate accounted for approximately 32.5% of the Group revenue during the year. HomeRelay Communications, Inc. (“HomeRelay”), a subsidiary of the Company, located and established under the laws of the United States of America, adopted a stock option plan in August 2000 (the “HomeRelay Plan”). Under the HomeRelay Plan, HomeRelay may grant up to 10% of HomeRelay’s common stock and a committee designated by the board of directors of HomeRelay may fix the terms and vesting of the options which in no event shall exceed 10 years. All outstanding stock options of HomeRelay Plan lapsed on 10th September 2003 as a result of the termination of employment of the relevant grantees under the HomeRelay Plan. Details of the 2001 Scheme and the HomeRelay Plan are set out in note 19 to the financial statements. Connected Transaction As announced on 6th April 2005, the Company has entered into a transaction which constituted a continuing connected transaction of the Company under Rule 14A.34 of the Listing Rules and Chapter 11 of the UK Listing Rules as set out below: Pre-Emptive Rights There is no provision for pre-emptive rights under the Bye-laws of the Company and there are no statutory restrictions against such rights under the laws of Bermuda in which the Company is incorporated. On 6th April 2005, the Company as tenant entered into a lease (the “Lease”) with Aldenham Company Limited (“Aldenham”) as landlord for the lease of the premises situated at Bowen Road, Hong Kong for 2 years commencing 1st April 2005 and expiring on 31st March 2007 at a monthly rental of HK$250,000 for the purpose of providing housing to Mr. Allan WONG Chi Yun (“Mr. WONG”), a director, chief executive and a substantial shareholder of the Company. Aldenham is a wholly indirect subsidiary of a trust in which the family members of Mr. WONG are beneficiaries. Aldenham is therefore a connected person of the Company as ascribed by the Listing Rules and the Lease constituted a continuing connected transaction under the Listing Rules. Share Option Scheme The Company operates share Annual General Meeting The following special business option scheme for the purposes of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of these share option schemes include executive directors and employees of the Company and its subsidiaries. will be proposed at the annual general meeting to be held on 12th August 2005: None of the directors, their associates or any shareholder (who, to the knowledge of the directors, owns more than 5% of the Company’s share capital) had an interest in the customers and the suppliers noted above. On 10th August 2001, the Company adopted a share option scheme (the “2001 Scheme”) under which the directors may, at their discretion, at any time during the 10 years from the date of adoption of the 2001 Scheme, invite employees of the Company and any subsidiaries of the Group, including executive directors (but excluding non-executive directors) to take up shares of the Company in accordance with the terms of the 2001 Scheme. 1. the grant to the directors of the Company of a general mandate to repurchase shares representing up to 10% of the issued share capital of the Company as at the date of the annual general meeting; 2. the grant to the directors of the Company of a general mandate to allot, issue and otherwise deal with shares representing up to 10% of the issued share capital of the Company as at the date of the annual general meeting; VTech Holdings Ltd Annual Report 2005 31 Report of the Directors 3. the grant to the directors of a general authority to allot, issue and otherwise deal with shares of the aggregate amount of the shares repurchased under the repurchase mandate and; 4. amendments to the Bye-laws of the Company. The Directors believe that an authority given to the Directors to allot and issue shares and to repurchase shares would give the Company additional flexibility that would be beneficial. As for the repurchase mandate, the Directors would only make a repurchase in circumstances where they consider it to be in the best interests of the Company and in circumstances where they consider that the shares can be repurchased on favourable terms. The Hong Kong Stock Exchange has recently amended the Listing Rules for the purpose of implementing the Code on Corporate Governance Practices (the “Code”). In the Listing Rules, the Code replaces the Code of Best Practice in Appendix 14 of the Listing Rules. Pursuant to Paragraph A.4.2 of the Code, every director should be subject to retirement by rotation at least once every three years. The existing Bye-laws of the Company does not comply with the said Paragraph A.4.2 of the Code and the Directors therefore propose the Special Resolution as set out in the notice of the annual general meeting to amend the existing Bye-laws of the Company. Auditors In February 2003, PricewaterhouseCoopers resigned as auditors of the Company and KPMG were appointed as the auditors of the Company to fill the casual vacancy caused by the resignation of PricewaterhouseCoopers. The financial statements have been audited by KPMG, who retire and, being eligible, offer themselves for re-appointment at the forthcoming annual general meeting of the Company. A resolution for the re-appointment of KPMG as auditors of the Company will be proposed at the forthcoming annual general meeting of the Company. By Order of the Board Report of the Independent Auditors To the Shareholders of VTech Holdings Limited (Incorporated in Bermuda with limited liability) We have audited the consolidated financial statements of VTech Holdings Limited (“the Company”) and its subsidiaries (“the Group”) set out on pages 33 to 53 which have been prepared in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. Respective Responsibilities of Directors and Auditors These consolidated financial statements are the responsibility of the Group’s directors who are required to prepare financial statements which give a true and fair view. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made solely to the shareholders, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Basis of Opinion We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion the consolidated financial statements give a true and fair view of the financial position of the Company and of the Group as of 31st March 2005 and of the Group’s profit and cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board and the disclosure requirements of the Hong Kong Companies Ordinance and the Bermuda Companies Act 1981. Allan WONG Chi Yun Chairman KPMG Certified Public Accountants Hong Kong, 22nd June 2005 Hong Kong, 22nd June 2005 32 VTech Holdings Ltd Annual Report 2005 Consolidated Financial Statements Consolidated Income Statement Consolidated Balance Sheet For the year ended 31st March 2005 As at 31st March 2005 Note Revenue Cost of sales 1 Gross profit Selling and distribution costs Administrative and other operating expenses Research and development expenses Net receipts from an indemnification claim Operating profit Net finance income Share of results of associates 2005 US$ million 2004 US$ million 1,022.0 (693.2) 915.2 (633.9) 328.8 281.3 (182.6) (150.7) (51.7) (47.9) (38.5) (33.2) 3 6.7 — 1&2 5 62.7 1.0 — 49.5 0.4 — Profit from ordinary activities before taxation Taxation 6 63.7 (6.8) 49.9 (3.6) Profit attributable to shareholders 20 56.9 46.3 Interim dividend Final dividend 7 7 2.3 27.3 6.8 15.8 Earnings per share (US cents) — Basic — Diluted 8 25.2 24.9 20.5 20.5 2005 US$ million 2004 US$ million 52.6 1.8 2.6 0.2 48.7 1.8 3.7 0.2 57.2 54.4 124.2 — 175.7 2.4 123.9 96.1 8.0 153.9 4.6 105.2 426.2 367.8 (231.3) (41.2) (0.1) (6.7) (200.3) (40.7) (0.6) (14.4) (279.3) (256.0) Net current assets 146.9 111.8 Total assets less current liabilities 204.1 166.2 Note Non-current assets Tangible assets Leasehold land payments Deferred tax assets Investments 9 10 11 12 Current assets Stocks Assets held for sale Debtors and prepayments Taxation recoverable Cash and cash equivalents 13 14 Current liabilities Creditors and accruals Provisions Borrowings Taxation payable 15 16 18 Non-current liabilities Consolidated Statement of Changes in Shareholders’ Funds Borrowings Deferred tax liabilities 18 11 (0.1) (0.7) (2.0) (1.6) (0.8) (3.6) For the year ended 31st March 2005 Note Shareholders’ funds at 1st April Exercise of share options Realisation of hedging reserve Fair value losses on hedging during the year Exchange translation differences 2005 US$ million 2004 US$ million 162.6 127.5 20 20 0.1 3.1 — 3.6 20 20 (3.1) 1.8 (3.6) 0.1 1.9 0.1 Net gains and losses not recognised in the income statement Profit attributable to shareholders 20 Dividends approved and paid during the year 20 56.9 46.3 (18.1) (11.3) Shareholders’ funds at 31st March 203.3 162.6 Net assets Capital and reserves Share capital Reserves Shareholders’ funds 19 20 203.3 162.6 11.3 192.0 11.3 151.3 203.3 162.6 Approved and authorised for issue by the Board of Directors on 22nd June 2005. Allan WONG Chi Yun Director Albert LEE Wai Kuen Director The notes on pages 34 to 53 form part of these financial statements. VTech Holdings Ltd Annual Report 2005 33 Consolidated Financial Statements Notes to the Financial Statements Principal Accounting Policies Consolidated Cash Flow Statement For the year ended 31st March 2005 2005 US$ million 2004 US$ million 2 62.7 18.2 49.5 17.9 2 2 2 — — (1.0) 0.1 1.9 (1.1) 2 (0.8) (28.1) — (12.1) (21.8) 31.0 0.5 (14.0) 28.9 — 60.7 1.3 (0.3) (12.1) 71.1 0.7 (0.3) (6.3) 49.6 65.2 0.3 1.3 8.8 — Note Operating activities Operating profit Depreciation charges Amortisation of leasehold land payments Loss on disposal of tangible assets Gain on disposal of subsidiaries Gain on disposal of assets held for sale Increase in stocks Increase in debtors and prepayments Increase in creditors and accruals Increase in provisions Cash generated from operations Interest received Interest paid Taxes paid Net cash generated from operating activities Investing activities Proceeds from disposal of tangible assets Proceeds from disposal of assets held for sale Proceeds from disposal of subsidiaries Purchase of tangible assets 9 Net cash used in investing activities Financing activities Net repayment of borrowings Dividends paid Dividend paid to minority shareholder Net cash used in financing activities 7 1.0 (21.5) 1.1 (19.5) (11.4) (17.1) (2.4) (18.1) (0.1) (11.3) — (0.8) A Principal Activities, Organisation and Basis of Preparation The Group’s principal activities and separable segments are set out in note 1 to the financial statements. The Company was incorporated in Bermuda. In view of the international nature of the Group’s operations, the financial statements are presented in United States dollars, rounded to the nearest million. The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board. IFRS includes International Accounting Standards (“IAS”) and related Interpretations. These financial statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Bermuda Companies Act 1981. These financial statements are prepared on a historical cost basis as modified by the revaluation of certain properties. The accounting policies described in note (B) to note (V) have been consistently applied by the Group. The International Accounting Standards Board has issued a number of new and revised IFRS and IAS (“new IFRS”), which are effective for accounting periods beginning on or after 1st January 2005. The Group has not early adopted these new IFRS in the financial statements for the year ended 31st March 2005. Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year 18.7 34.8 The Group has made a preliminary assessment of the impact of these new IFRS and has so far concluded that the adoption of IFRS2 “Share-based payments” will have an impact on its consolidated financial statements as set out below: 105.2 70.4 (i) Cash and cash equivalents at end of the year 123.9 105.2 Analysis of the balance of cash and cash equivalents Cash at bank and deposits 123.9 105.2 Effect of exchange rate changes (20.5) (12.2) 1.0 (1.1) The notes on pages 34 to 53 form part of these financial statements. 34 VTech Holdings Ltd Annual Report 2005 At present, when the Group grants employees options to acquire shares of the Company at nil consideration, no employee benefit cost or obligation is recognised at the date of grant. When the options are exercised, equity is increased by the amount of the proceeds received. Notes to the Financial Statements Principal Accounting Policies (continued) A Principal Activities, Organisation and Basis of Preparation (continued) (ii) IFRS2 requires the Group to recognise the share-based payment transaction, from the date of the grant until the vesting date. The measurement of the share-based payment transaction (e.g. grant of the share options) is based on the fair value of the equity instruments measured at grant date, where IFRS2 requires a valuation model to be applied. For the accounting periods beginning 1st April 2005, the Group will adopt the requirements of IFRS2 and will take advantage of the transitional provisions of IFRS2. The preliminary assessment indicates that the adoption of IFRS2 and other new IFRS would not have a significant impact on its financial position as at 31st March 2005 and its results of operations for the year then ended. The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates. B Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries together with the Group’s share of the results and retained post acquisition reserves of its associates under the equity method of accounting drawn up for the year ended 31st March. All significant inter-company balances and transactions and any unrealised gains arising from intercompany transactions are eliminated on consolidation. Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases, and the share attributable to minority interests is deducted from or added to profit after taxation. Investments in subsidiaries are stated at cost less impairment losses (see note (I)) in the Company’s balance sheet. Associates are those entities, not being subsidiaries, in which the Group exercises significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates under the equity method, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of that associate. Investments in associates are stated at cost less impairment losses (see note (I)) in the company’s balance sheet. C Foreign Currencies Transactions denominated in foreign currencies are translated into United States dollars at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into United States dollars at the rates of exchange ruling at the balance sheet date. Income statements of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and balance sheets are translated at the exchange rates ruling at the balance sheet date. Net exchange differences arising from the translation of the financial statements of subsidiaries and associates expressed in foreign currencies are taken directly to exchange reserve. All other exchange differences are dealt with in the income statement. D Revenue Recognition Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue is stated net of sales taxes and discounts, after eliminating sales within the Group. Revenue from the provision of services is recognised when the services are rendered. Interest income is recognised on a time-apportioned basis that takes into account the effective yield on the asset. Dividend income is recognised when the Group’s right to receive payment is established. VTech Holdings Ltd Annual Report 2005 35 Notes to the Financial Statements Principal Accounting Policies (continued) E Research and Development Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised only if the product or process is clearly defined, technically and commercially feasible, the attributable expenditure is separately identifiable and the Group has sufficient resources and the intention to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads which are directly attributable to development activities. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses (see note (I)). Development expenditure that does not meet the above criteria is recognised as an expense in the period in which it is incurred. in respect of previous revaluations is transferred from revaluation reserve to revenue reserve. All other tangible assets are stated at cost less accumulated depreciation and impairment losses (see note (I)). Gains or losses arising from the retirement or disposal of tangible assets are determined as the difference between the estimated net disposal proceeds and the carrying amount of the assets and are recognised in the income statement on the date of retirement or disposal. Depreciation is calculated to write off the cost or revalued amount of assets on a straight-line basis over their estimated useful lives which are as follows: Long-term leasehold buildings Lease term Freehold buildings, short-term 10 to 30 years or lease term, if shorter leasehold buildings and leasehold improvements Machinery and equipment 3 to 5 years Computers, motor vehicles, furniture 3 to 7 years and fixtures Amortisation is calculated to write off capitalised development costs on a straight-line basis over their estimated useful lives, commencing from the date when the products are put into commercial production. F Intangible Assets Intangible assets that are acquired by the Group are carried at cost less any accumulated amortisation and any impairment losses (see note (I)). Amortisation commences from the date when the developed product is available for use. G Tangible Assets and Depreciation Land and buildings are stated at cost or valuation performed by professional valuers every three years less amounts provided for depreciation except in the case of freehold land which is not depreciated. In the intervening years the directors review the carrying value and adjustment is made where there has been a material change. The valuations are on an open market value basis and are incorporated in the financial statements. Increases in valuation are credited to the revaluation reserve; decreases are first set off against increases on earlier valuations in respect of the same assets and thereafter are charged to the consolidated income statement. Upon the disposal of a revalued property, the relevant portion of the realised revaluation reserve 36 VTech Holdings Ltd Annual Report 2005 Moulds 1 year H Leases Leases of property, plant and equipment in terms of which that the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease less accumulated depreciation and impairment losses (see note (I)). Finance charges are charged to the income statement in proportion of the capital balances outstanding. Leases of assets under which all the benefits and risks of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Leasehold land payments are up-front payments to acquire long-term leasehold interests in land. These payments are stated at cost and are amortised on a straight-line basis over the respective period of the leases. Notes to the Financial Statements Principal Accounting Policies (continued) H Leases (continued) When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which the termination takes place. I Impairment of Assets The carrying amounts of the Group’s assets including property, plant and equipment and other non-current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discounted rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. J Construction in Progress Construction in progress represents machinery and equipment under construction and pending installation and is stated at cost less impairment losses (see note (I)). Cost comprises the purchase costs of equipment and the related installation costs. Construction in progress is transferred to machinery and equipment when the asset is substantially ready for its intended use and depreciation will be provided at the appropriate rates in accordance with the depreciation policies specified in note (G). No depreciation is provided in respect of construction in progress. K Other Investments Other investments held by the Group are stated at fair value, with any resultant gain or loss being recognised in the income statement. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is recognised to the income statement as they arise. L Stocks and Assets Held for Sale (i) Stocks are stated at the lower of cost and net realisable value. Cost is calculated on the weighted average or the first-in-first-out basis, and comprises materials, direct labour and an appropriate share of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less estimates of costs of completion and selling expenses. (ii) Assets held for sale are stated at anticipated realisable value. M Trade Debtors Trade debtors are carried at anticipated realisable value. An allowance is made for doubtful debts based upon the evaluation of the recoverability of these outstanding amounts at the balance sheet date. Bad debts are written off in the income statement during the year in which they are identified. N Cash and Cash Equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, demand deposits with banks and other financial institutions, short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and which have a maturity of three months or less at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents. For the purpose of the balance sheet, cash and cash equivalents are cash on hand, deposits with banks and other financial institutions, which are not restricted in its use. Bank overdrafts are included in borrowings in current liabilities. O Trade and Other Creditors are stated at their cost. Trade and other creditors VTech Holdings Ltd Annual Report 2005 37 Notes to the Financial Statements Principal Accounting Policies (continued) P Provisions A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of past events, and it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The Group recognises the estimated liability on expected return claims with respect to products sold. This provision is calculated based on past experience of the level of repairs and returns. The Group provides for expenses related to closure of business locations and reorganisations of the Group’s operations which are subject to detailed formal plans that are under implementation or have been communicated to those affected by the plans. The Group recognises the expected costs of accumulating compensated absences when employees render a service that increases their entitlement to future compensated absences, measured as the additional amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. Q Income Tax Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purpose. Deferred tax is calculated on the basis of the enacted tax rates that are expected to apply in the period when the asset is being realised or the liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Provision for withholding tax which could arise on the remittance of earnings retained overseas is only made where there is a current intention to remit such earnings. 38 VTech Holdings Ltd Annual Report 2005 R Employee Benefits The Group operates a number of defined contribution retirement schemes throughout the world, including Hong Kong, and a defined benefit retirement scheme in Hong Kong. The assets of all schemes are held separately from those of the Company and its subsidiaries. (i) Defined contribution plans Contributions to the defined contribution schemes are at various funding rates that are in accordance with the local practice and regulations. Contributions relating to the defined contribution schemes are charged to the income statement as incurred. (ii) Defined benefit plans For long-term employee benefits, pension costs arising under the defined benefit scheme are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of the plan every year. Plan assets are measured at fair value. Pension obligations are measured as the present value of the estimated future cash flows of benefits derived from employee past service, with reference to market yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability. All actuarial gains and losses are spread forward over the average remaining service lives of employees. The net assets or liabilities resulting from the valuation of the plan are recognised in the Group’s balance sheet. (iii) Equity and equity related compensation benefits The Company has a number of share option schemes which may grant options to certain employees of the Company and subsidiaries of the Group. No compensation cost of the obligation is recognised at the date of the grant. The option exercise prices are set out in note 19 on the financial statements. When the options are exercised, shareholders’ funds is increased by the amount of the proceeds received. Notes to the Financial Statements Principal Accounting Policies (continued) S Financial Instruments The Group’s activities expose it to financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts and interest rate swap contracts to hedge certain exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives. Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently are remeasured at their fair value. The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged. On the date a derivative contract is entered into, the Group designates certain derivatives as either a hedge of the fair value of a recognised asset or liability (fair value hedge), a hedge of a forecasted transaction or of a firm commitment (cash flow hedge), or a hedge of a net investment in a foreign entity. Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the consolidated income statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in the hedging reserve. Where the forecasted transaction or firm commitment results in the recognition of an asset or of a liability, the gains and losses previously deferred in hedging reserve are transferred from hedging reserve and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in hedging reserve are transferred to the consolidated income statement and classified as revenue or expense in the same periods during which the hedged firm commitment or forecasted transaction affects the consolidated income statement. If certain derivative transactions, while providing effective economic hedges under the Group’s policies, do not qualify for hedge accounting under the specific rules in IAS 39, “Financial Instruments: Recognition and Measurement”, changes in the fair value of these derivative instruments are recognised immediately in the consolidated income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss existing in the hedging reserve at that time remains in the hedging reserve and is recognised, when the committed or forecasted transaction ultimately is recognised in the consolidated income statement. However, if a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in the hedging reserve is immediately transferred to the consolidated income statement. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as risk management objective and strategy for undertaking various hedge transactions. T Borrowings Borrowings are recognised as the proceeds are received, net of transaction costs incurred. U Dividends Dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date. V Segment Reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. VTech Holdings Ltd Annual Report 2005 39 Notes to the Financial Statements 1 Segment Information Revenue represents turnover of the Group derived from the amounts received and receivable for sale of goods and rendering of services to third parties. The principal activity of the Group is the design, manufacture and distribution of consumer electronics products. The telecommunication and electronic products business is the principal business segment of the Group. Primary reporting format — business segments between the business segments. Corporate administrative costs and assets are not allocated to the operating segments. Segment assets consist primarily of tangible assets, stocks, receivables and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation. Capital expenditure comprises additions to moulds, machinery and equipment, and other assets. Primary reporting format — business segments Year ended 31st March 2004 Year ended 31st March 2005 Telecommunication Telecommunication and electronic Other products activities Total US$ million US$ million US$ million i Segment revenue Segment result Unallocated corporate expenses 1,020.3 1.7 1,022.0 62.4 0.9 63.3 62.7 1.0 Profit attributable to shareholders 56.9 Profit attributable to shareholders 390.8 — 1.2 0.1 Segment liabilities Unallocated liabilities 261.2 1.6 Total liabilities Capital expenditure, depreciation and other non-cash revenue Capital expenditure Depreciation Other non-cash revenue 392.0 0.1 91.3 Total assets 262.8 17.3 Segment liabilities Unallocated liabilities 0.4 0.7 — 21.5 18.2 (0.7) The Group evaluates the performance and allocates resources to its operating segments. There are no sales or transactions 40 VTech Holdings Ltd Annual Report 2005 US$ million US$ million 913.0 2.2 915.2 55.6 0.2 55.8 (6.3) 46.3 335.6 — 1.3 0.1 Capital expenditure, depreciation and other non-cash expenses Capital expenditure Depreciation Amortisation of leasehold land payments Other non-cash expenses 336.9 0.1 85.2 422.2 234.8 1.5 236.3 23.3 259.6 Total liabilities iii 21.1 17.5 (0.7) Segment assets Associates Unallocated assets 483.4 280.1 Total US$ million 49.9 (3.6) 63.7 (6.8) Segment assets Associates Unallocated assets activities 49.5 0.4 Profit from ordinary activities before taxation Taxation ii Other products Operating profit Net finance income Profit from ordinary activities before taxation Taxation Total assets iii Segment revenue Segment result Unallocated corporate expenses (0.6) Operating profit Net finance income ii i and electronic 19.1 17.2 0.4 0.7 19.5 17.9 — 5.1 0.1 — 0.1 5.1 Notes to the Financial Statements 1 Segment Information (continued) 2 The operating profit is arrived at after charging/(crediting) the following: Secondary reporting format — geographical segments Operating Profit Although the Group’s business segments are managed on a worldwide basis, they principally operate in the following geographical areas: North America — the operations are principally the distribution of telecommunication and electronic products. Europe — the operations are principally the distribution of telecommunication and electronic products. Asia Pacific — the Group is headquartered in the Hong Kong Special Administrative Region and the Group’s principal manufacturing operations are located in mainland China. North America Europe Asia Pacific Others Operating profit/(loss) 2004 US$ million Revenue 2005 US$ million Revenue 2004 US$ million Operating profit/(loss) 2005 US$ million 621.1 336.0 45.9 19.0 681.8 200.3 23.4 9.7 19.7 33.2 5.2 4.6 43.7 8.4 (5.8) 3.2 1,022.0 915.2 62.7 49.5 Staff related costs — salaries and wages — pension costs: defined contribution schemes — pension costs: defined benefit scheme — severance payments Depreciation charges — owned assets — leased assets Amortisation of leasehold land payments Loss on disposal of tangible assets Gain on disposal of subsidiaries Gain on disposal of assets held for sale Auditors’ remuneration Operating leases — land and buildings — others Provision for stock obsolescence Provision for doubtful debts Royalties Exchange gain Forward contracts: fair value losses on cash flow hedges transferred from hedging reserve 3 - North America Europe Asia Pacific Others 2005 US$ million 2004 US$ million 103.9 95.5 17 1.9 1.7 17 1.2 2.3 1.5 2.3 18.1 0.1 17.8 0.1 — 0.1 — (1.0) 1.9 (1.1) (0.8) 0.6 — 0.5 9.9 2.9 (0.7) — 19.0 (6.4) 11.2 1.7 6.9 (1.8) 12.3 (8.6) 3.1 3.6 Note Capital expenditure 2005 US$ million Capital expenditure 2004 US$ million Total assets 2005 US$ million Total assets 2004 US$ million 0.7 0.3 20.5 — 2.5 0.3 16.7 — 131.3 67.2 284.1 0.8 142.1 54.1 216.8 9.2 21.5 19.5 483.4 422.2 9 10 20 Net Receipts from an Indemnification Claim In September 2004, the Group and Lucent Technologies Inc. (“Lucent”) agreed to settle a claim made by the Group relating to certain indemnifications previously provided by Lucent and Lucent Technologies Consumer Products, L.P. in connection with the acquisition by the Group of certain assets and liabilities of Lucent’s Wired Consumer Products Business in 2000. Net receipts of US$6.7 million, after deducting incidental expenses, were received by the Group pursuant to this settlement and were credited to the consolidated income statement during the year ended 31st March 2005. VTech Holdings Ltd Annual Report 2005 41 Notes to the Financial Statements 4 Directors’ and Senior Executives’ Emoluments The emoluments fell within the following bands: Directors’ emoluments 2005 US$ million 2004 US$ million 0.1 1.4 3.0 0.1 1.8 2.7 0.1 — — — 0.1 — — — 4.6 4.7 The emoluments of the directors of the Company are as follows: Fees Salaries, allowances and benefits in kind Bonuses Contribution to retirement benefit schemes Deemed profit on share option exercise Inducement for joining the Group Compensation for loss of office The table below shows the number of directors whose emoluments were within the bands stated: US$ 0 – 64,000 896,001 – 960,000 1,344,001 – 1,408,000 1,536,001 – 1,600,000 2,112,001 – 2,176,000 3,136,001 – 3,200,000 2005 Number of directors 2004 Number of directors 4 — 1 — — 1 4 1 — 1 1 — 6 7 Emoluments of independent non-executive directors included above amounted to US$60,000 (2004: US$60,000), being wholly in the form of directors’ fees. Senior executives’ emoluments The directors’ emoluments set out above exclude 3 senior executives (2004: 2) whose emoluments were among the five highest earning employees of the Group. Details of the emoluments in aggregate for these executives are set out below: Salaries, allowances and benefits in kind Bonuses Contribution to retirement benefit schemes Deemed profit on share option exercise Inducement for joining the Group Compensation for loss of office 42 2005 US$ million 2004 US$ million 0.9 2.6 0.8 1.1 0.1 — — — 3.6 US$ 576,001 – 640,000 640,001 – 704,000 1,216,001 – 1,280,000 2,176,001 – 2,240,000 5 2004 Individuals — 2 — 1 1 — 1 — 3 2 2005 US$ million 2004 US$ million Net Finance Income Interest expenses on bank loans and overdrafts which are: — Wholly repayable within five years — Not wholly repayable within five years Interest income 6 2005 Individuals (0.2) (0.2) (0.1) 1.3 (0.1) 0.7 1.0 0.4 2005 US$ million 2004 US$ million 5.5 1.6 4.7 1.4 (0.4) (0.1) (3.5) — 0.2 1.0 6.8 3.6 Taxation Current tax — Hong Kong — Overseas Overprovision in respect of prior years — Hong Kong — Overseas Deferred tax — Origination and reversal of temporary differences Tax on profits has been calculated at the rates of taxation prevailing in the countries in which the Group operates. The consolidated effective income tax rate for the year ended 31st March 2005 was 10.7% (2004: 7.2%). The effective income tax rate is reconciled to the statutory domestic income tax rate as follow: 2005 % 2004 % — — — — Statutory domestic income tax rate Difference in overseas income tax rates Non-temporary differences Tax losses not recognised Overprovision in prior years Others 17.5 — (7.1) 4.1 (0.8) (3.0) 17.5 0.2 (4.3) 1.0 (6.9) (0.3) 1.9 Effective income tax rate 10.7 7.2 VTech Holdings Ltd Annual Report 2005 Notes to the Financial Statements 7 Dividends 8 Note 2005 US$ million 2004 US$ million Interim dividend of US1.0 cent (2004: US3.0 cents) per share declared and paid 20 2.3 6.8 Final dividend of US12.0 cents (2004: US7.0 cents) per share proposed after the balance sheet date 20 27.3 15.8 The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date. 9 Earnings Per Share The calculations of basic and diluted earnings per share are based on the Group’s profit attributable to shareholders of US$56.9 million (2004: US$46.3 million). The basic earnings per share is based on the weighted average of 225.6 million (2004: 225.5 million) ordinary shares in issue during the year. The diluted earnings per share is based on 228.9 million (2004: 226.0 million) ordinary shares which is the weighted average number of ordinary shares in issue during the year after adjusting for the number of dilutive potential ordinary shares arising from the outstanding warrants and under the employee share option scheme. Tangible Assets Land and buildings US$ million Moulds, machinery and equipment US$ million Computers, motor vehicles, furniture and fixtures and leasehold improvements US$ million Construction in progress US$ million Total US$ million Cost or valuation At 1st April 2004 Additions Disposals Transfer between categories Effect of changes in exchange rate 37.8 — — — 0.6 184.8 10.3 (12.5 ) — 1.2 58.6 8.8 (2.0) 3.0 0.6 3.0 2.4 — (3.0) — 284.2 21.5 (14.5) — 2.4 At 31st March 2005 38.4 183.8 69.0 2.4 293.6 Accumulated depreciation At 1st April 2004 Charge for the year Disposals Effect of changes in exchange rate 18.0 1.1 — — 167.1 10.3 (12.2 ) 1.1 50.4 6.8 (2.0) 0.4 — — — — 235.5 18.2 (14.2) 1.5 At 31st March 2005 19.1 166.3 55.6 — 241.0 Net book value at 31st March 2005 19.3 17.5 13.4 2.4 52.6 Net book value at 31st March 2004 19.8 17.7 8.2 3.0 48.7 Cost or valuation of tangible assets is analysed as follows: At cost At professional valuation — 2003 (note (c)) 25.0 13.4 183.8 — 69.0 — 2.4 — 280.2 13.4 38.4 183.8 69.0 2.4 293.6 (a) Leased machinery and equipment The Group leases machinery and equipment under finance lease arrangement. At the end of the lease the Group has the option to purchase the equipment at a beneficial price. At 31st March 2005, the net book value of tangible assets held under finance leases amounted to US$0.1 million (2004: US$0.2 million). (b) Security The net book value of tangible assets pledged as security for borrowings at 31st March 2005 amounted to US$0.1 million (2004: US$ 2.6 million). (c) Property revaluation The amount included valuation of land and buildings denominated in Hong Kong dollar or Euro which were revalued by independent valuers as at 31st March 2003 on an open market value basis. The carrying value of these properties in US dollar as at 31st March 2005 is changed due to the effect of changes in exchange rates. VTech Holdings Ltd Annual Report 2005 43 Notes to the Financial Statements 9 Tangible Assets (continued) 10 Leasehold Land Payments Land and buildings comprise: Freehold land and buildings and long-term leasehold buildings US$ million Cost or valuation At 1st April 2004 Effect of changes in exchange rate Note Short-term leasehold buildings US$ million Total US$ million 12.8 25.0 37.8 0.6 — 0.6 13.4 25.0 38.4 Accumulated depreciation At 1st April 2004 Charge for the year 1.2 0.4 16.8 0.7 18.0 1.1 At 31st March 2005 1.6 17.5 19.1 Net book value at 31st March 2005 11.8 7.5 19.3 Net book value at 31st March 2004 11.6 8.2 19.8 — 25.0 25.0 At 31st March 2005 Cost or valuation of tangible assets is analysed as follows: At cost At professional valuation — 2003 (note (c)) 13.4 — 13.4 13.4 25.0 38.4 Net book value of land and buildings comprises: Hong Kong Long-term leasehold buildings (not less than 50 years) 0.9 — 0.9 Overseas Freehold land and buildings Short-term leasehold buildings 10.9 — — 7.5 10.9 7.5 10.9 7.5 18.4 Net book value of revalued land and buildings had the assets been carried at cost less accumulated depreciation 44 6.1 — Net book value at 1st April Disposals Amortisation 2005 2004 US$ million US$ million 1.8 — — 2.7 (0.8) (0.1) Net book value at 31st March 1.8 1.8 Leasehold land payments in respect of: Owner-occupied properties 1.8 1.8 11 2 Deferred Tax The deferred tax assets and liabilities and the deferred tax account movements for the years ended 31st March 2004 and 31st March 2005 are attributable to the following items: 31st March Credited 2004 Credited /(charged) and /(charged) 1st April to income 1st April to income 2003 statement 2004 statement 2005 US$ million US$ million US$ million US$ million US$ million Deferred tax assets Provisions Tax losses carried forward Other deductible temporary differences 31st March 0.1 (0.1 ) — 0.4 0.4 1.0 1.3 2.3 (0.2 ) 2.1 2.8 (1.4 ) 1.4 0.3 1.7 3.9 (0.2 ) 3.7 0.5 4.2 Deferred tax liabilities Accelerated tax depreciation (0.8 ) (0.8 ) (1.6 ) (0.7 ) (2.3 ) Net deferred tax assets 3.1 (1.0 ) 2.1 (0.2 ) 1.9 6.1 VTech Holdings Ltd Annual Report 2005 Notes to the Financial Statements 11 Deferred Tax (continued) 14 Deferred tax assets and liabilities are offset when the taxes relate to the same fiscal authority. The following amounts are shown in the consolidated balance sheet: 2005 US$ million Deferred tax assets Deferred tax liabilities 2004 US$ million 2.6 (0.7) 3.7 (1.6) 1.9 2.1 Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through future taxable profits is probable. Deferred tax assets of US$57.9 million (2004: US$47.6 million) arising from unused tax losses of US$173.4 million (2004: US$145.0 million) have not been recognised at the end of the year. 12 i) ii) 13 Investments Note Trade debtors (Net of provision for doubtful debts of US$3.7 million (2004: US$3.9 million)) Other debtors and prepayments Pension assets 17 2004 US$ million Associates Share of net tangible assets 0.1 0.1 Other investments Unlisted investments, at cost 0.1 0.1 0.2 0.2 Stocks 0-30 days 31-60 days 61-90 days >90 days 15 162.3 11.7 1.7 137.6 14.7 1.6 175.7 153.9 2005 US$ million 2004 US$ million 73.2 53.9 21.3 13.9 80.8 34.0 14.5 8.3 162.3 137.6 Creditors and Accruals 2004 US$ million Telecommunication and electronic products 2004 US$ million The majority of the Group’s sales are on letter of credit and on open credit with varying terms of 30 to 90 days. Certain open credit sales are covered by credit insurance or bank guarantees. Trade creditors Other creditors and accruals 2005 US$ million 2005 US$ million An aging analysis of net trade debtors by transaction date is as follows: Total 2005 US$ million Raw materials Work in progress Finished goods Debtors and Prepayments 2005 US$ million 2004 US$ million 98.2 133.1 93.0 107.3 231.3 200.3 An aging analysis of trade creditors by transaction date is as follows: 33.2 11.4 79.6 27.1 8.9 60.1 124.2 96.1 Stocks carried at net realisable value at 31st March 2005 amounted to US$33.9 million (2004: US$25.4 million). 2005 US$ million 2004 US$ million 0-30 days 31-60 days 61-90 days >90 days 45.2 23.5 18.1 11.4 45.6 23.6 14.3 9.5 Total 98.2 93.0 VTech Holdings Ltd Annual Report 2005 45 Notes to the Financial Statements 16 Provisions At 31st March 2005, provisions of US$41.2 million (2004: US$40.7 million) includes provisions for defective goods returns of US$37.2 million (2004: US$36.0 million). Defective goods returns US$ million At 1st April 2004 Effect of changes in exchange rate 36.0 0.2 Additional provisions Unused amounts reversed Charged to income statement 29.7 (4.1) 25.6 Utilised during the year (24.6) At 31st March 2005 37.2 The Group undertakes to repair or replace items that fail to perform satisfactorily in accordance with the terms of the sale. A provision is recognised for expected return claims, which included cost of repairing or replacing defective goods, loss of margin and cost of materials scrapped, based on past experience of the level of repairs and returns. 17 Pension Schemes The Group operated a defined benefit scheme and a defined contribution scheme in Hong Kong. The defined contribution scheme operated in Hong Kong complied with the requirements under the Mandatory Provident Fund (“MPF”) Ordinance. For the defined contribution schemes operated for overseas employees and Hong Kong employees under the MPF Ordinance, the retirement benefit costs expensed in the income statement amounted to US$1.7 million (2004: US$1.5 million) and US$0.2 million (2004: US$0.2 million) respectively. For the defined benefit scheme (“the Scheme”) operated for Hong Kong employees, contributions made by the Group during the year were calculated based on advice from Watson Wyatt Hong Kong Limited (“Watson Wyatt”), independent actuaries and consultants. The Scheme is valued annually. The latest actuarial valuation was completed by Watson Wyatt as at 31st March 2005 using the projected unit credit method. 46 VTech Holdings Ltd Annual Report 2005 For the defined benefit scheme, the amounts recognised in the balance sheet are as follows: 2005 2004 US$ million US$ million 12.0 11.3 (13.4) 3.1 (12.3) 2.6 1.7 1.6 1.3 0.6 (0.8) 1.3 0.6 (0.6) 0.1 0.2 1.2 1.5 The actual return on plan assets was as follows: Expected return on plan assets Actuarial gains on plan assets 0.8 0.1 0.6 2.6 Actual return on plan assets 0.9 3.2 1.6 1.8 (1.2) 1.3 (1.5) 1.3 1.7 1.6 2005 2004 4.8% 7.0% 5.0% 5.0% 7.0% 5.0% Note Fair value of the Scheme assets Present value of funded defined benefit obligations Unrecognised actuarial gains Assets recognised in the balance sheet 14 The amounts recognised in the income statement are as follows: Current service cost Interest cost Expected return on plan assets Net actuarial losses recognised in the year Expenses recognised in the income statement* Movement in the assets recognised in the balance sheet: At 1st April Expenses recognised in the income statement* Contributions paid At 31st March The principal actuarial assumptions used for accounting purposes were: Discount rate Expected return on plan assets Future salary increases 2 Notes to the Financial Statements 18 Borrowings 19 Share Capital, Share Options and Warrants Share Capital 2005 US$ million 2004 US$ million Bank loans and finance lease obligations 2005 US$ million 2004 US$ million 20.0 20.0 Authorised Repayable by instalments, any one of which is due for repayment after five years: Secured bank loans Ordinary shares: 400,000,000 (2004 : 400,000,000) of US$0.05 each 1.0 — Repayable by instalments, all of which are due for repayment within five years: Secured bank loans Obligations under finance leases (Note) 2005 2005 No of shares US$ million 0.1 1.4 0.1 0.2 0.2 1.6 Less: amounts due within one year included under current liabilities: Secured bank loans Obligations under finance leases (Note) — (0.5) (0.1) (0.1) (0.1) (0.6) 0.1 2.0 Bank loans and finance lease obligations are repayable as follows: Between one and two years Between two and five years In more than five years Note: Issued and fully paid Ordinary shares of US$0.05 each: Balance as at 1st April Exercise of share options (Note 1) 225,527,133 11.3 225,527,133 11.3 100,000 — — — Balance as at 31st March 225,627,133 11.3 225,527,133 11.3 Note 1: In April 2004, 100,000 ordinary shares were issued upon the exercise of 100,000 share options undertaken in March 2004 at the exercise price of HK$10.20 per share. The average closing price of the Company’s shares traded on the Hong Kong Stock Exchange for the five business days immediately before the date of which options were exercised, was HK$13.58 per share. Note 2: As at 22nd June 2005, the issued and fully paid share capital of the Company was increased to 227,494,133 ordinary shares upon the exercise of 1,867,000 share options since April 2005 at the exercise price of HK$10.20 per share. — 0.1 — 0.4 0.6 1.0 0.1 2.0 The amounts are net of future finance charges of less than US$0.1 million (2004: US$ 0.1 million). Details of the bank loans and overdrafts are as follows: Euro Secured bank loans at an average fixed interest rate of 5.1% (2004: 5.4%) 2004 2004 No of shares US$ million 2005 US$ million 2004 US$ million 0.1 2.4 Share Options (i) The 2001 Scheme Pursuant to the share option scheme adopted on 10th August 2001 (the “2001 Scheme”), the directors are authorised, at any time during the 10 years from the date of approval of the 2001 Scheme, to grant options to certain employees of the Company or subsidiaries of the Group, including executive directors (but excluding non-executive directors) to subscribe for shares in the Company at prices to be determined by the directors in accordance with the terms of the 2001 Scheme. VTech Holdings Ltd Annual Report 2005 47 Notes to the Financial Statements 19 Share Capital, Share Options and Warrants (continued) Share Options (continued) (i) The 2001 Scheme (continued) Pursuant to the Chapter 17 of the Listing Rules, the Company can issue options so that number of shares that may be issued upon exercise of all options to be granted under the schemes does not in aggregate exceed 10% of the relevant class of shares in issue from time to time. The Company may renew this limit at any time, subject to shareholders’ approval and the issue of a circular. The Company may also seek separate shareholders’ approval for granting options beyond the 10% limit to eligible employees specifically identified by the Company, subject to shareholders’ approval and the issue of a circular. The Company can issue options so that shares to be issued upon exercise of all outstanding options does not exceed 30% of the relevant class of shares in issue from time to time. The maximum entitlement for any one eligible employee is that the total number of shares issued and to be issued upon exercise of options granted and to be granted in any 12-month period up to the date of the last grant does not exceed 1% of the relevant class of shares in issue. The Company can grant further options in excess of this limit, subject to shareholders’ approval (with that eligible employee and his associates abstaining from voting) and the issue of a circular. The offer of a grant of options may be accepted within 30 days from the date of offer, upon payment of a nonrefundable sum of HK$1.0 by the grantee. The 2001 Scheme has a life of 10 years and will expire on 9th August 2011. Date of grant (Note 1) 26th February 2002 to 26th March 2002 10th July 2002 to 8th August 2002 20th April 2004 to 19th May 2004 19th November 2004 23rd March 2005 to 22nd April 2005 Exercise price HK$10.2 HK$8.71 HK$15.0 HK$11.03 HK$11.41 Exercisable period (Note 2) 26th February 2005 to 25th March 2007 10th July 2005 to 7th August 2007 20th April 2007 to 19th May 2009 22nd November 2007 to 21st November 2009 23rd March 2008 to 22nd March 2010 Pursuant to the Listing Rules, the subscription price payable for each share under the 2001 Scheme shall be at least the highest of (i) the closing price of the shares as stated in the daily quotation sheets of the Hong Kong Stock Exchange on the date on which an offer is made, which must be a business day; and (ii) the average closing price of the shares as stated in the daily quotation sheets of the Hong Kong Stock Exchange for the five business days immediately preceding the date on which an offer is made; and (iii) the par value of the shares. The closing price of the Company’s shares traded on the Hong Kong Stock Exchange respectively on 19th April 2004 was HK$14.95 per share, on 18th November 2004 was HK$10.70 per share and on 22nd March 2005 was HK$11.50 per share, all being the dates immediately before the dates on which the relevant options were granted. The directors are of the view that value of options granted during the period depends on a number of variables which are either difficult to ascertain or can only be ascertained subject to a number of theoretical basis of speculative assumptions. Accordingly, the directors believe that any calculation of the value of options will not be meaningful and may be misleading to shareholders. As at 31st March 2005, the number of shares issuable under the options granted pursuant to the 2001 Scheme was 15,520,000, which represented approximately 6.9% of the then issued share capital of the Company. The movements in the number of share options under the 2001 Scheme during the year were as follows: Balance in issue at 1st April 2004 Number of share options granted during the year Number of share options exercised during the year 14,360,000 — — (4,715,000) 9,645,000 1,340,000 — — (580,000) 760,000 — 2,670,000 (Note 3) 1,500,000 (Note 4) 1,480,000 (Note 5) — (535,000) 2,135,000 — — 15,700,000 48 VTech Holdings Ltd Annual Report 2005 5,650,000 Number of share options lapsed during the year (Note 6) Balance in issue at 31st March 2005 — — 1,500,000 — — 1,480,000 — (5,830,000) 15,520,000 Notes to the Financial Statements 19 Share Capital, Share Options and Warrants (continued) Share Options (continued) Note 1: Due to the large number of employees participating in the 2001 Scheme, the relevant information can only be shown within a reasonable range in this Annual Report. For options granted to employees, the options were granted during the underlying periods for acceptance of such options by the employees concerned. Note 2: As one of the conditions of grant, the employees concerned agreed with the Company that the options shall not be exercisable within the period of 36 months from the date on which such options were deemed to be granted and accepted and shall not be exercisable after 60 months from the date on which such options were deemed to be granted and accepted. However, options shall be automatically vested to the grantees when the grantees reach 60 years of age. Note 3: On 20th April 2004, the Company granted 2,670,000 options to certain employees of the Company and its subsidiaries pursuant to the 2001 Scheme to subscribe for an aggregate of 2,670,000 ordinary shares of the Company at a price of HK$15.00 per ordinary share. The closing price of the Company’s shares traded on the Hong Kong Stock Exchange on 19th April 2004, being the date immediately before the date on which options were granted during the period, was HK$14.95 per share. Note 4: On 19th November 2004, the Company granted 1,500,000 options to an employee of the Company and its subsidiaries pursuant to the 2001 Scheme to subscribe for 1,500,000 ordinary shares of the Company at a price of HK$11.03 per ordinary share. The closing price of the Company’s shares traded on the Hong Kong Stock Exchange on 18th November 2004, being the date immediately before the date on which options were granted during the period, was HK$10.70 per share. Note 5: On 23rd March 2005, the Company granted 1,480,000 options to certain employees of the Company and its subsidiaries pursuant to the 2001 Scheme to subscribe for an aggregate of 1,480,000 ordinary shares of the Company at a price of HK$11.41 per ordinary share. The closing price of the Company’s shares traded on the Hong Kong Stock Exchange on 22nd March 2005, being the date immediately before the date on which options were granted during the period, was HK$11.50 per share. Note 6: No options were cancelled during the year. Note 7: As at 22nd June 2005, an aggregate of 1,867,000 share options were exercised at the exercise price of HK$10.20 per share since April 2005. The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$11.16 per share. (ii) HomeRelay Plan Pursuant to the stock option plan adopted by a subsidiary, HomeRelay Communications, Inc. (“HomeRelay”) in August 2000 (the “HomeRelay Plan”), the directors of HomeRelay may grant options to the employees of HomeRelay up to 10% of HomeRelay’s common stock in issue from time to time. Prior to 10th September 2003, the number of common stock issuable under the stock options granted pursuant to the HomeRelay Plan was 705,475, which represented approximately Warrants Pursuant to a warrant instrument dated 19th January 2000 of the Company, the Company granted AT&T warrants (the “AT&T Warrants”) carrying rights to subscribe for 3,000,000 ordinary shares in the Company at a subscription price of HK$20.0 per share on or before 18th January 2012 as part of the consideration of a trademark licence agreement between the Company and AT&T Corp. whereby AT&T Corp. granted the Company the exclusive right to use the AT&T brand for 10 years in connection with the manufacture and sale of wireline telephones and accessories in the United States and Canada. 9.5% of the then issued stock capital of HomeRelay. All outstanding options lapsed since 10th September 2003 as a result of the termination of employment of the relevant grantees under the HomeRelay Plan. HomeRelay is now dormant. Pursuant to a Revised AT&T Brand Licence Agreement dated 24th January 2002, the subscription price of the AT&T Warrants was revised to HK$8.43 per share (being the lower of the initial subscription price of HK$20.0 per share and the average of the closing price of the shares of the Company as quoted on The Stock Exchange of Hong Kong Limited for the five (5) dealing days immediately preceding 15th July 2002) and the expiration date of these warrants was amended to 12th December 2011. No warrants have been exercised since the date of grant. VTech Holdings Ltd Annual Report 2005 49 Notes to the Financial Statements 20 Reserves Group Note Share premium Other properties revaluation reserve Revenue reserve Exchange reserve Hedging reserve The consolidated profit attributable to shareholders includes a profit of US$67.2 million (2004: US$6.3 million) which has been dealt with in the financial statements of the Company. Company 2005 US$ million 2004 US$ million 2005 US$ million 2004 US$ million 74.4 74.3 74.4 74.3 6.1 116.4 (4.9 ) — 6.1 77.6 (6.7 ) — — 90.4 (1.2 ) — — 41.3 (1.2 ) — Reserves of the Company available for distribution to shareholders amounted to US$90.4 million (2004:US$41.3 million). 21 Financial Instruments The Group enters into foreign exchange contracts and interest rate swaps to hedge certain exposures on fluctuations of foreign currency exchange rates and interest rates respectively. The Group does not use derivative financial instruments for speculative purposes. 192.0 151.3 163.6 114.4 Share premium Brought forward Exercise of share options 74.3 0.1 74.3 — 74.3 0.1 74.3 — Carried forward 74.4 74.3 74.4 74.3 Other properties revaluation reserve Brought forward Disposal of properties previously revalued 6.1 6.8 — — — (0.7 ) — — Carried forward 6.1 6.1 — — 77.6 41.9 41.3 46.3 56.9 46.3 67.2 6.3 7 (15.8 ) (4.5 ) (15.8 ) (4.5 ) Credit risk Financial assets which potentially subject the Group to credit risk consist principally of cash, short-term deposits and trade debtors. The Group’s cash equivalents and short-term deposits are placed with major financial institutions. Trade debtors are presented net of the allowance for doubtful debts. Credit risk with respect to trade debtors is limited due to the large number of customers comprising the Group’s customer base and their dispersion across different industries and geographical areas. Accordingly, the Group has no significant concentration of credit risk. In addition, credit risks are mitigated by the use of insurance plans. 7 (2.3 ) (6.8 ) (2.3 ) (6.8 ) The Group manages these risks by monitoring credit ratings and limiting the aggregate risk to any individual counterparty. — 0.7 — — 116.4 77.6 90.4 41.3 (6.7 ) (6.8 ) (1.2 ) (1.2 ) 1.8 0.1 — — (4.9 ) (6.7 ) (1.2 ) (1.2 ) — — — — 3.1 3.6 — — (3.1 ) (3.6 ) — — — — — — An analysis of movements in reserves is set out below: Revenue reserve Brought forward Profit attributable to shareholders Final dividend in respect of the previous year Interim dividend in respect of the current year Disposal of properties previously revalued Carried forward Exchange reserve Brought forward Exchange translation differences Carried forward Hedging reserve Brought forward Transfer to income statement Fair value losses on hedging during the year Carried forward 50 2 VTech Holdings Ltd Annual Report 2005 Foreign exchange risk The Group enters into foreign exchange contracts in order to manage its exposure to fluctuations in foreign currency exchange rates on specific transactions. Foreign exchange contracts are matched with anticipated future cash flows in foreign currencies, primarily from sales. Interest rate risk The Group’s income and operating cash flows are affected by the change in market interest rates in relation to its interest-bearing loans. The Group uses interest rate swaps as cash flow hedges of future interest payments to convert certain borrowings from floating rates to fixed rates. Notes to the Financial Statements 21 Financial Instruments (continued) Fair values The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. Derivative financial instruments Forward foreign exchange contracts and interest rate swaps contracts were designated as cash flow hedges and remeasured to fair values. Forward foreign exchange contracts The net fair value gains/(losses) at 31st March on open forward foreign exchange contracts which hedge anticipated future foreign currency sales and purchases will be transferred from the hedging reserve to the consolidated income statement when the forecasted sales and purchases occur, at various dates between 1 month to 6 months from the balance sheet date. Details of the movements of fair value gains/(losses) arising from forward foreign exchange contracts entered by the Group are set out in note 20 on the financial statements. At 31st March 2005, there were no outstanding forward foreign exchange contracts (2004: nil). The Group does not anticipate any material adverse effect on its financial position resulting from its involvement in these financial instruments, nor does it anticipate non-performance by any of its counterparties. Interest rate swaps At 31st March 2005, there were no outstanding interest rate swaps (2004: nil). Fair values The fair value of trade debtors, bank balances, trade creditors and accruals and bank overdrafts approximate their carrying amounts due to the short-term maturities of these assets and liabilities. The fair value of term loans and obligations under finance leases is estimated using the expected future payments discounted at market interest rates. The weighted average effective interest rate on short term bank deposits was 2.6% (2004: 1.1%) and these deposits have an average maturity of 1 day. 22 (i) Commitments 2004 US$ million 45.1 2.9 25.0 7.6 48.0 32.6 9.3 8.2 12.7 3.4 6.5 6.4 8.2 3.7 33.6 24.8 Capital commitments for property, plant and equipment Authorised but not contracted for Contracted but not provided for (ii) 2005 US$ million Operating lease commitments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Land and buildings In one year or less Between one and two years Between two and five years In more than five years The Group has entered into agreements with an independent third party in the PRC to lease factory premises in Houjie, Dongguan comprising several factory buildings. There are totally two separate leases which expire in 2022 and 2029 respectively. The lease expiring in 2029 has a non-cancellable period of eight years which expires in 2007. At the end of this non-cancellable period, the lease can only be cancelled on six months’ notice with a penalty equivalent to three months’ rentals. All other buildings have lease terms which can be cancelled upon three to six months’ notice with penalties equivalent to three to twelve months’ rentals. The operating lease commitments above include total commitments over the non-cancellable period of the lease terms. In January 1996, the Group entered into an agreement with an independent third party in the PRC whereby the PRC party constructed in phases and leases to the Group a production facility in Liaobu, Dongguan. Under a fifty year lease agreement, the Group rented the first and second phases of the facility for non-cancellable periods of six and eight years after completion respectively. The Group also had an option to purchase each phase of the production facility at any time within four and a half years after the completion of each phase. VTech Holdings Ltd Annual Report 2005 51 Notes to the Financial Statements 22 Commitments (continued) The first phase became fully operational in April 1998 and the completed production facility of the second phase became operational in October 2001. The operating lease commitments above include total commitments over the non-cancellable period of the lease terms. The operating lease commitments in respect of the agreements with the above independent third party in the PRC reflect total commitments over the non-cancellable period of the lease terms. Under a Brand License Agreement expiring 31st March 2010, a wholly-owned subsidiary of the Group is required to make royalty payments to AT&T Corp., calculated as a percentage of net sales of the relevant categories of products, subject to certain minimum aggregate royalty payments. The percentage of net sales payable varies over time and between products. There is no maximum royalty payment. The aggregate minimum royalty payments as at 31st March 2005 amounted to US$68.9 million (2004: US$80.4 million), whereas the annual minimum royalty payment varies throughout the agreement period between US$12.6 million and US$15.6 million. The subsidiary can renew the agreement for two additional five year terms provided certain performance requirements are achieved. During the financial year ended 31st March 2005, certain wholly-owned subsidiaries of the Group (the “licensees”) entered into certain licensing agreements with various third party licensors for the granting of certain rights to use the relevant cartoon characters into the Group’s electronic learning products. Under these licensing agreements, the licensees are required to make royalty payments to the licensors, calculated as a percentage of net sales of the relevant character licensed products, subject to certain minimum aggregate royalty payments. The percentage of royalty payable varies over time and between licensed characters. There is no maximum royalty payment. The aggregate minimum royalty payments as at 31st March 2005 amount to US$3.0 million (2004: US$3.5 million), of which US$1.7 million, US$1.1 million and US$0.2 million are payable in the financial years ended 31st March 2006, 2007 and 2008 respectively. 52 VTech Holdings Ltd Annual Report 2005 23 Contingent Liabilities The directors have been advised that certain accusations of infringements of patents, trademarks and tradenames have been lodged against the Company and its subsidiaries. In the opinion of the legal counsels, it is too early to evaluate the likelihood of an unfavourable result. The directors are of the opinion that even if the accusations are found to be valid, there will be no material adverse effect on the financial position of the Group. Various group companies are involved in litigation arising in the ordinary course of their respective businesses. Having reviewed outstanding claims and taking into account legal advices received, the directors are of the opinion that even if the claims are found to be valid, there will be no material adverse effect on the financial position of the Group. 24 Balance Sheet of the Company as at 31st March Note Non-current assets Subsidiaries Current assets Amounts due from subsidiaries Taxation recoverable Cash and cash equivalents Current liabilities Amounts due to subsidiaries Creditors and accruals (i) (i) Net assets Capital and reserves Share capital Reserves Shareholders’ funds 19 20 2005 US$ million 2004 US$ million 170.2 102.6 332.8 0.2 0.1 326.6 0.2 0.1 333.1 326.9 (326.6) (1.8) (302.0) (1.8) (328.4) (303.8) 174.9 125.7 11.3 163.6 11.3 114.4 174.9 125.7 (i) The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment. Notes to the Financial Statements 25 Principal Subsidiaries Details of the Company’s interests in those subsidiaries which materially affect the results or assets of the Group as at 31st March 2005 are set out below: Name of subsidiary Name of subsidiary Fully paid issued share capital Principal activity Incorporated and operating in Hong Kong: Ordinary HK$1,000 Deferred HK$5,000,000 *100 Design, manufacture and sale of electronic equipment VTech Electronics Limited Ordinary HK$5,000,000 *100 Design, manufacture and distribution of electronic products VTech Telecommunications Limited Ordinary HK$1,000 Deferred HK$5,000,000 *100 Design, manufacture and distribution of telecommunication products *100 Sale of electronic products GBP 500,000 *100 Sale of electronic products VTech Electronics North America, L.L.C. US$22,212,997 *100 Sale of electronic products VTech Communications, Inc. US$300,000 *100 Sale of telecommunication products VTech Innovation L.P. US$110,000,056 *100 Sale of telecommunication products Incorporated and operating in the United Kingdom: Incorporated and operating in the United States: Perseus Investments Limited Ordinary HK$1,000 Deferred HK$1,000 100 Property holding * Valentia Investment Limited Ordinary HK$1,000 Deferred HK$1,000 100 Property holding 26 Incorporated and operating in Canada: VTech Telecommunications Canada Limited Class A C$5,000 Class B C$195,000 *100 Sale of *100 telecommunication products EURO 2,067,310 *100 Sale of electronic products Incorporated and operating in France: VTech Electronics Europe S.A.S. Incorporated and operating in Germany: VTech Electronics Europe GmbH Indirectly held by subsidiary companies Related Party Transactions With effect from 1st April 2003, the Group leases premises from Aldenham Company Limited (“Aldenham”) for HK$250,000 per month, to provide housing for a director in accordance with the terms of his service contract for a term of 2 years expiring on 31st March 2005. When the lease was entered into, Aldenham was 50% owned by the director’s spouse and 50% owned by a trust, the beneficiaries of which were the director and his family members. Subsequently, Aldenham became a wholly indirect subsidiary of a trust in which the family members of the director are beneficiaries. EURO 2,600,000 *100 Sale of electronic products On 6th April 2005, subsequent to the balance sheet date, the Group renewed the lease with same principal terms for another 2 years commencing 1st April 2005 and expiring on 31st March 2007. EURO 18,100 *100 Sale of electronic products In the normal course of business and on normal commercial terms, the Group undertake certain transactions with its associates. None of these transactions was material to the Group’s results. Incorporated and operating in the Netherlands: VTech Electronics Europe B.V. Principal activity EURO 500,000 VTech Electronics Europe plc VTech Communications Limited Percentage of interest held by the Group Incorporated and operating in Spain: VTech Electronics Europe, S.L. Percentage of interest held by the Group Fully paid issued share capital VTech Holdings Ltd Annual Report 2005 53 VTech in the Last Five Years Consolidated statement of net assets as at 31st March Note Non-current assets Tangible assets Leasehold land payments Other non-current assets (i) (ii) Current assets Stocks Debtors and prepayments Cash and cash equivalents Other current assets Current liabilities (iii) 2001 US$ million 2002 US$ million 2003 US$ million 2004 US$ million 2005 US$ million 95.9 7.0 4.5 58.0 3.1 4.7 48.0 2.7 4.1 48.7 1.8 3.9 52.6 1.8 2.8 107.4 65.8 54.8 54.4 57.2 187.5 255.6 56.2 34.0 94.4 165.3 63.3 27.5 84.0 139.9 70.4 9.5 96.1 153.9 105.2 12.6 124.2 175.7 123.9 2.4 533.3 350.5 303.8 367.8 426.2 (421.4) (259.7) (227.3) (256.0) (279.3) Net current assets 111.9 90.8 76.5 111.8 146.9 Total assets less current liabilities 219.3 156.6 131.3 166.2 204.1 Non-current liabilities Borrowings Deferred tax liabilities (136.9) (1.3) (65.2) (1.2 ) (2.2) (0.8) (2.0) (1.6) (0.1) (0.7) (138.2) (66.4) (3.0) (3.6) (0.8) Minority interest (0.9) (0.8 ) (0.8) — — Net assets/shareholders’ funds 80.2 89.4 127.5 162.6 203.3 (6.9) — — — — Leasehold land payments have been adjusted in accordance with IAS 40 by the following amounts: 7.0 — — — — (iii) Current liabilities have been adjusted to reflect the fair value of the derivative financial instruments in accordance with IAS 39: 0.3 — — — — (i) (ii) Tangible assets have been adjusted in accordance with IAS 40 by the following amounts: Consolidated income statement for the years ended 31st March Note Revenue Profit/(loss) from ordinary activities before taxation Taxation (iv) 2001 US$ million 2002 US$ million 2003 US$ million 2004 US$ million 2005 US$ million 1,334.9 959.8 866.5 915.2 1,022.0 (213.1) (1.8) 13.9 (2.6 ) 58.3 (17.4) 49.9 (3.6) 63.7 (6.8) Profit/(loss) from ordinary activities after taxation Minority interest (214.9) (0.1) 11.3 (0.1 ) 40.9 (0.1) 46.3 — 56.9 — Profit/(loss) attributable to shareholders (215.0) 11.2 40.8 46.3 56.9 (96.7) 5.0 18.1 20.5 25.2 Earnings/(loss) per share (US cents) (iv) Loss from ordinary activities before taxation for the year ended 31st March 2001 included US$110.4 million of restructuring and impairment charges in respect of the Group’s restructuring plan launched in March 2001. Details of the plan has been provided in the Annual Report 2001. 54 VTech Holdings Ltd Annual Report 2005 Corporate Information Board of Directors Registered Office Executive Directors Clarendon House Allan WONG Chi Yun Chairman and Group Chief Executive Officer Church Street Hamilton HM11 Albert LEE Wai Kuen Deputy Chairman Bermuda Independent Non-Executive Directors Raymond CH’IEN Kuo Fung Principal Office William FUNG Kwok Lun 23rd Floor, Tai Ping Industrial Centre Michael TIEN Puk Sun Block 1, 57 Ting Kok Road Patrick WANG Shui Chung Tai Po New Territories Board of Management Hong Kong Allan WONG Chi Yun Albert LEE Wai Kuen Principal Bankers Andy LEUNG Hon Kwong The Hongkong and Shanghai Banking Kent WONG Wah Shun Corporation Limited Hang Seng Bank Limited Audit Committee Standard Chartered Bank Raymond CH’IEN Kuo Fung William FUNG Kwok Lun Auditors Michael TIEN Puk Sun KPMG Certified Public Accountants Remuneration Committee Hong Kong Raymond CH’IEN Kuo Fung William FUNG Kwok Lun American Depositary Receipts Michael TIEN Puk Sun The Bank of New York 101 Barclay Street Company Secretary 22nd Floor-West CHANG Yu Wai New York N.Y. 10286 Qualified Accountant U.S.A. Shereen TONG Ka Hung VTech Holdings Ltd Annual Report 2005 55 Information for Shareholders Listings UK Branch Shares of VTech Holdings Limited are listed on both The Stock Exchange of Hong Kong Limited and London Stock Exchange Plc. Ordinary shares are also available in the form of American Depository Receipts through the Bank of New York. Stock Codes The Stock Exchange of Hong Kong Limited 303 London Stock Exchange Plc VTH American Depository Receipts VTKHY Capita IRG Plc Bourne House 34 Beckenham Road Kent BR3 4TU DX91750 Beckenham West United Kingdom Tel: (44) 20 8639 2157 Fax: (44) 20 8639 2342 Email: ssd@capitaregistrars.com Share Information Financial Calendar Closure of Register of Members 8th-12th August 2005 (both dates inclusive) 2005 Annual General Meeting 12th August 2005 Payment of Final Dividends 30th August 2005 2005/2006 Interim Results Announcement November 2005 Board Lot: 1,000 Issued Shares as at 31st March 2005: 225,627,133 Dividends Dividends per share for the year ended 31st March 2005 — Interim US1.0 cent per ordinary share — Final US12.0 cents per ordinary share Share Registrars Principal Hong Kong Branch 56 Butterfield Fund Services (Bermuda) Limited Rosebank Centre 11 Bermudiana Road Pembroke Bermuda Tel: (441) 299 3954 Fax: (441) 295 6759 Email: funds@bntb.bm Computershare Hong Kong Investor Services Limited 46th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong Tel: (852) 2862 8628 Fax: (852) 2865 0990 Email: hkinfo@computershare.com.hk VTech Holdings Ltd Annual Report 2005 Investor Relations Contact Corporate Communications Department 23rd Floor, Tai Ping Industrial Centre, Block 1 57 Ting Kok Road Tai Po New Territories Hong Kong Tel: (852) 2680 1000 Fax: (852) 2680 1788 Email: investor_relations@vtech.com Website www.vtech.com www.irasia.com/listco/hk/vtech VTech Group of Companies >> technology Head Office VTech Holdings Ltd. 23rd Floor, Tai Ping Industrial Centre Block 1, 57 Ting Kok Road Tai Po, New Territories Hong Kong Tel: (852) 2680 1000 Fax: (852) 2680 1300 website: http://www.vtech.com email: investor_relations@vtech.com Regional Offices VTech Telecommunications Germany - Branch of VTech Europe B.V. Am Dorfplatz 2 24109 Melsdorf Tel: (49) 4340 499 190 Fax: (49) 4340 404 9960 Japan VTech Electronics (Japan) Inc. Villa Heights Akasaka Shin-Sakamachi 8-7-10-107 Akasaka Minato-Ku Tokyo 107-0052 Tel: (81) 3 3479 4523 Fax: (81) 3 3479 4533 Canada VTech Telecommunications Canada Ltd. Suite 200, 7671 Alderbridge Way Richmond, BC, V6X 1Z9 Tel: (1) 604 273 5131 Fax: (1) 604 273 1425 website: http://www.vtechcanada.com email: helpdeskcanada@vtech.ca VTech Electronics Canada Ltd. Suite 103, 5407 Eglinton Ave. West Etobicoke Ontario, M9C 5K6 Tel: (1) 416 621 7722 Fax: (1) 416 621 0838 website: http://www.vtechcanada.com France VTech Electronics Europe S.A.S. 2-6, rue du chateau déau Boite Postale 55 78362 Montesson Cedex Tel: (33) 1 30 09 88 00 Fax: (33) 1 30 09 87 80 website: http://www.vtechfrance.com email: vtech_conseil@vtech.com Germany Designed by The Graphis Co. Ltd/ Printed by Roman Financial Press Ltd VTech Electronics Europe GmbH Martinstrasse 5 70794 Filderstadt Tel: (49) 711 709 740 Fax: (49) 711 709 7449 website: http://www.vtech.de email: info@vtech.de VTech Communications Japan Ltd. Okumura Building 3-14, Kanda Ogawamachi Chiyoda-Ku, Tokyo 101-0052 Fax: (852) 2667 7175 website: http://www.vtechcms.com email: hotline_oem@vtech.com Netherlands VTech Electronics Europe B.V. Copernicusstraat 7 6003 DE Weert Industrial Estate Kampershoek Tel: (31) 495 459110 Fax: (31) 495 459114 website: http://www.vtechnl.com email: vtechbenelux@vtech.com Spain VTech Electronics Europe, S.L. Avda. de Aragon 336 c/v Yecora Oficina1, (Pol. Las Mercedes) 28022 Madrid Tel: (34) 91 312 0770 Fax: (34) 91 747 0638 website: http://www.vtech.es email: informacion@vtech.com VTech Electronics Europe plc Napier Court Abingdon Science Park Abingdon, Oxon, OX14 3YT Tel: (44) 1235 555545 Fax: (44) 1235 546804 website: http://www.vtechuk.com email: marketing@vtech.com United States VTech Electronics North America, L.L.C. 1155 West Dundee, Suite 130 Arlington Heights IL 60004-1454 Tel: (1) 847 400 3600 Fax: (1) 847 400 3601 website: http://www.vtechkids.com email: vtechkids@vtechkids.com VTech Communications, Inc. 9590 S.W. Gemini Drive Suite 120, Beaverton OR 97008 Tel: (1) 503 596 1200 Fax: (1) 503 644 9887 website: http://www.vtechphones.com email: inquire@vtechphones.com VTech (OEM), Inc. 12280 Saratoga-Sunnyvale Road Suite 106, Saratoga CA 95070-3065 Tel: (1) 408 252 8550 Fax: (1) 408 252 8555 website: http://www.vtechoem.com email: information@vtechoem.com VTech Telecom, L.L.C. 545 Concord Avenue, Suite 12 Cambridge, MA 02138 Tel: (1) 617 576 3300 Fax: (1) 617 576 7753 website: http://www.vtechcms.com email: cms-info@vtech-cms.com United Kingdom VTech Communications Ltd. 9, Manor Courtyard Hughenden Avenue High Wycombe Buckinghamshire HP13 5RE Tel: (44) 1494 522 500 Fax: (44) 1494 522 001 website: http://www.vtecheurope.com A Chinese translation of the annual report may be obtained on request from Computershare Hong Kong Investor Services Limited, 46th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong. !"#$%&'()*+,-./01 NUP !" QS !"#$%&'()*+,- enjoy life ,46230 +1/-. 7251 WV][_ Oeb\`d^h Ri\ VY` T`d^ Pd\jhig`Yb M]dig]> Lbe[a B EG V`d^ Qea UeY\> VY` Te> S]l V]gg`ieg`]h> Oed^ Qed^ V]bI
Source Exif Data:File Type : PDF File Type Extension : pdf MIME Type : application/pdf PDF Version : 1.4 Linearized : No Create Date : 2005:07:02 20:19:12Z Modify Date : 2005:07:04 16:09:59+08:00 Page Count : 60 Creation Date : 2005:07:02 20:19:12Z Producer : Acrobat Distiller 4.0 for Macintosh Mod Date : 2005:07:04 16:09:59+08:00 Metadata Date : 2005:07:04 16:09:59+08:00EXIF Metadata provided by EXIF.tools