Mi6861 5453o 2005 7 6

User Manual: mi6861

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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.

Mission

technology

cost effective

communicate

>> enjoy life

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.

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).

Contents

Message from

Deputy Chairman

Corporate Profile

Letter to Shareholders

VTech Holdings Ltd Annual Report 2005 01

Review of Operations

Corporate Affairs

Year in Review

Directors and Senior

Management

Consolidated

Financial Statements

Report of the

Independent Auditors

Notes to the

Financial Statements

VTech in the

Last Five Years

Corporate Information

Corporate Governance

Management Discussion

and Analysis

Report of the Directors

Information for

Shareholders

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

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

Allan WONG Chi Yun

Chairman

02 VTech Holdings Ltd Annual Report 2005

Letter to Shareholders

VTech Holdings Ltd Annual Report 2005 03

mi6861 5.8GHz cordless phone

cents. This has allowed the Board of

Directors to propose a higher final

dividend of US12.0 cents, giving a total

dividend for the year of US13.0 cents per

ordinary share, compared to US10.0 cents

for the financial year 2004, representing an

increase of 30.0%.

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. Over-

optimistic 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.

In contrast with the telecommunication

products business, the ELP business has

proven its successful turnaround with a

strong rebound in both revenue and

profitability. The V.Smile TV Learning

System was enthusiastically received by

retailers and consumers, garnering

numerous top awards, and is enabling us

to strengthen further our position in

Europe while rebuilding sales in the

United States.

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

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

gaining a new customer in the industrial

printing sector. The business is also

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.

Letter to Shareholders

VTech Holdings Ltd Annual Report 2005

Touch TabletTM

New Manufacturing Facilities

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.

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.

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

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

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.

Letter to Shareholders

Write & Learn ArtboardTM

telecommunication products business to

be improved in the financial year 2006.

Revenue, however, is expected to suffer in

the short term and will not return to a

growth path until the financial year 2007,

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

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

costs will rise as a result of RoHS. The CMS

business will work to maintain margins

through strict cost control and working

closely with material suppliers.

Finally, I would like to thank my fellow

directors and senior management, as well

as all VTech employees for their

commitment to ensuring continued

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

VTech Holdings Ltd Annual Report 2005 05

VoIP 5.8GHz cordless phone

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.

VTech saw that television was one of the most influential media in

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

provide a smart alternative through engaging educational game-

play with popular characters — turning game time into brain time!

The result was V.Smile.

This was conceived not just as a piece of hardware, but a platform

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

offers popular titles to keep kids engaged without the violence that

other video games portray.

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

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-

clear interface anytime, anywhere. At home, V.Smile Pocket can

even be connected to a television for videogaming on the

big screen.

But VTech is not just about V.Smile. The Group continues to

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.

06 VTech Holdings Ltd Annual Report 2005

Albert LEE Wai Kuen

Deputy Chairman

Management Discussion and Analysis

VTech Holdings Ltd Annual Report 2005 07

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

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

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.

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.

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.

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

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

Group Revenue by Product Line

Group Revenue by Region

Management Discussion and Analysis

VTech Holdings Ltd Annual Report 2005

Gross Profit/Margin

The gross profit for the financial year 2005 was US$328.8 million, an

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 non-

recurring 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.

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

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

Group spent US$38.5 million on research and development

activities, which represented around 3.8% of total Group revenue.

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.

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

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 non-

recurring 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.

Management Discussion and Analysis

VTech Holdings Ltd Annual Report 2005 09

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.

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

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.

As of the financial year end date, the Group had no material

contingencies.

Employees

As at 31st March 2005, the Group had approximately 22,700

employees, an increase of 15.2% from 19,700 in the previous

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.

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.

Working Capital

The stock balance as at 31st March 2005 increased by 29.2% over

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

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

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.

Review of Operations

Telecommunication Products

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.

A Year of

VTech Holdings Ltd Annual Report 2005

Outperformance

Rationalisation

xcellence

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

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.

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

operations and tighten cost control

globally.

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.

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.

VTech is supplying products to the leading

fixed-line telephone operators on an

Original Design Manufacturing (ODM)

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 Holdings Ltd Annual Report 2005

Telecommunication Products

Revenue by Region

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.

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.

VTech Holdings Ltd Annual Report 2005 13

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

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

North American market rebounded sharply

by more than 3 times or 328.1% to

US$108.3 million, accounting for 38.5% of

total ELP revenue, compared to 19.4% of

total ELP revenue in the financial year

2004. Revenue from the European market

also showed a robust increase of 60.3% to

US$160.0 million, accounting for 56.9% of

total ELP revenue.

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

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.

The response to V.Smile from both the

trade and consumers has been

overwhelmingly positive, making it a "star"

in the ELP market worldwide. Not only

have the consoles sold in greater volumes

than our initial forecasts, but the ratio

of Smartridges to consoles has also

been higher.

V.Smile won more than 20 awards globally

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

"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

attractive software, which is educational,

fun, highly interactive and animated.

The system provides the same fun

videogaming experience for pre-school

children as that enjoyed by older children,

while parents are assured of content that

is neither violent nor inappropriate in

other ways.

ELP Revenue by Region

Alongside the stunning success of

V.Smile, the traditional product

lines recorded respectable growth

in revenue in both North America

and Europe.

Review of Operations

V.Smile Pocket, the handheld version of V.Smile

VTech Holdings Ltd Annual Report 2005

Review of Operations

VTech Holdings Ltd Annual Report 2005 15

Master Minds

- Ages 6 to 7 or 8

2004 Titles

Learnin’ Wheels

Mickey Mouse

2005 Titles

Aladdin

Batman

Cinderella

Spider-Man II

SpongeBob Squarepants

Zayzoo

Early Learners

- Ages 3 to 5

2004 Titles

Alphabet Park

Care Bears

The Lion King

Winnie the Pooh

2005 Titles

Barney

Bob the Builder

Blue’s Clues

Elmo’s World

The Wiggles

Thomas & Friends

Junior Thinkers

- Ages 4 to 6

2004 Titles

Little Red Riding Hood

Scooby-Doo

Spider-Man & Friends

The Little Mermaid

2005 Titles

Dora the Explorer

Finding Nemo

Sesame Street

Toy Story 2

Art Studio

V.Smile Smartridge Library

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.

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.

Review of Operations

A Year of

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.

Contract Manufacturing

Services

VTech Holdings Ltd Annual Report 2005

Outperformance

Rationalisation

xcellence

Review of Operations

VTech Holdings Ltd Annual Report 2005 17

The business received two

customer awards in the financial

year 2005 in recognition of its

quality service.

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

contributed to the revenue growth.

Encouraging Results from R&D

Investment

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. 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

having an R&D element.

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%.

Good Overheads Control

During the financial year 2005, the

business was able to achieve a higher

profit, despite a slight decline in gross

margins due to changes in product mix

and pricing pressure from customers. This

was mainly because of the success in

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

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

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.

CMS Revenue by Region

CMS Revenue by Product Line

Corporate Affairs

Investor Relations

The Group is committed to a proactive

investor relations and communications

programme, and makes every effort to

ensure fair disclosure, non-selective

dissemination of material information and

clear, comprehensive reporting of

performance and business activities in a

timely manner.

Investor Briefings

During the financial year 2005, VTech

held over 30 one-on-one meetings with

investors to keep them abreast of the

latest company developments. In addition,

the Group organised site visits to its

advanced manufacturing facilities in

mainland China.

Quarterly Newsletter

The Group’s quarterly newsletter continues

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.

e-Corporate Culture Building

Programme

To help foster a strong and consistent

culture within the Group, in August 2004

VTech launched its annual worldwide

e-Corporate Culture Building programme.

The theme of “making a difference”

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.

Staff in training class

Visit to VTech's manufacturing facilities in

Dougguan

VTech Holdings Ltd Annual Report 2005

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.

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

enthusiasm of its employees and takes

care to maintain a motivated workforce.

Open Communications

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.

Corporate Affairs

Employment Policy

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

opportunities at work and avoid

discrimination on the grounds of age, sex,

status, disability or any other non-job

related factor.

Fun at Work

Fun social events designed to build team

spirit and stimulate creative thinking also

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.

Code of Conduct

VTech has adopted a Code of Conduct

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

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.

Summer Internships in Hong Kong

and the United States

VTech has provided summer internships

for students at universities and colleges of

education in Hong Kong, giving them the

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.

Hospital Donations in France

In June 2004, VTech ran a tremendously

successful email community relations

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.

Tsunami Relief in Hong Kong

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.

VTech staff joined the football tournament

organised by KPMG

VTech donated 100,000 Euros worth of

products and point-of-sale materials to

various public hospitals in France

VTech Holdings Ltd Annual Report 2005 19

Summer internship programme was carried

out in Hong Kong and the United States

Year in Review

Electronic Learning Products

V.Smile received the “Seal of Approval”

from the National Parenting Centre in

the United States.

Me-Mo-Mo was given the

“Gold” award in technology

and innovation at the 16th

Guangzhou International

Toys and Gifts Fair in

mainland China.

Electronic Learning Products

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.

Electronic Learning Products

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.

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.

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).

Telecommunication Products

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.

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.

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”.

Contract Manufacturing Services

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.

The business designed and launched a new

product called “Aged Care Phone System” for

a European customer.

Electronic Learning Products

V.Smile was named the “Ultimate Toy”

in the Educational and Learning category

by the Toy Wishes magazine in the

United States.

VTech Holdings Ltd Annual Report 2005

Year in Review

Contract Manufacturing Services

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.

Electronic Learning Products

V.Smile received the

2004 National Parenting

Publications Award (NAPPA)

in the United States.

Electronic Learning Products

Play and Learn Fun Fair was awarded

“Toy of the Year” in the September issue

of American Baby magazine.

Corporate

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.

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

V.Smile was awarded the “Electronic

Learning Toy of the Year” by The Toy

Retailers Association at the London Toy Fair.

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.

Electronic Learning Products

V.Smile and V.Smile Pocket were presented

the “Toy Innovations Award 2005 - Learning

Category” at the Nuremberg International

Toy Fair in Germany.

V.Smile was awarded the “Best Overall Toy

of the Year” and the “Best Educational Toy of

the Year” by the

Toy Industry Association

(TIA), bringing the total

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.

Contract Manufacturing Services

The business designed and launched a

bluetooth communication product for a

Japanese customer.

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

22 VTech Holdings Ltd Annual Report 2005

VTech is committed to maintaining a strong system of corporate

governance so that all business activities and decision-making

can be properly regulated. The Stock Exchange of Hong Kong

Limited (the “Hong Kong Stock Exchange”) has promulgated a

new Code on Corporate Governance Practices (the “Code”)

which came into effect in January 2005. The Company has

already put in place corporate governance practices to meet all

the provisions of the Code except for the combined role of

Chairman and Chief Executive Officer. The Company has also

complied with, to a certain extent, the recommended best

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

(other than the Chairman) under the existing Company’s Bye-

laws. At the forthcoming annual general meeting, the directors

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

provisions of the Code.

Board of Directors For the year ended 31st March 2005,

the Board of Directors (the “Board”) comprised two executive

directors and four independent non-executive directors. The

independent non-executive directors are high calibre executives

with diversified industry expertise and bring a wide range of

skills and experience to the Group. They bring independent

judgement on issues of strategy, performance, risk and people

through their contribution at board meetings. The Board

considers that four non-executive directors, more than one third

of the Board, are independent in character and judgement and

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.

Each of the independent non-executive directors has made an

annual confirmation of independence pursuant to Rule 3.13 of

the Listing Rules.

The Board’s focus is on the formulation of business strategy and

policy, and on control. Matters reserved for the Board are those

affecting the Company’s overall strategic policies, finances and

shareholders. These include: financial statements, dividend

policy, the annual operating budgets, major investments and

board memberships.

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.

The Directors acknowledge their responsibility for preparing the

financial statements of the Group that give a true and fair view

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:

• Selected suitable accounting policies and applied them

consistently;

• Made judgements and estimates that are prudent and

reasonable; and have prepared the accounts on a going

concern basis.

The Directors are responsible for keeping proper accounting

records, for safeguarding the assets of the Group and for taking

reasonable steps for the prevention and detection of fraud and

other irregularities.

The following paragraphs describe the key governance

structures operating in the Group under the overall direction of

the Board.

Corporate Governance

VTech Holdings Ltd Annual Report 2005

Board of Management For the year ended 31st March

2005, the Board of Management has been delegated the

authority by the Board of Directors to be responsible for the

management of all business activities of the Group. Its members

are appointed by the Board from time to time and comprises

executive directors and senior management executives.

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

the accounting period covered by the Annual Report. After

specific enquiry, all directors of the Company confirmed that

they have complied with the required standard of dealings set

out therein.

Audit Committee The Audit Committee comprising three

independent non-executive directors, has been established to

assist the Board in fulfilling its oversight responsibilities for

financial reporting, risk management and evaluation of internal

controls and auditing processes. It also ensures that the Group

complies with all applicable laws and regulations. Terms of

reference of the Audit Committee which have been adopted by

the Audit Committee are posted on the Company’s website.

Mr. Raymond CH’IEN Kuo Fung, being a member of the Audit

Committee, has the appropriate financial management

expertise. The Audit Committee meets at least twice a year to

receive reports from external auditors, reviews the interim and

annual financial statements, and receives regular reports from

the internal audit functions. The meetings deal with the matters

of significance arising from the work conducted since the

previous meeting and are attended by the Chairman, Chief

Compliance Officer, Group Chief Financial Officer and external

auditors.

Risk Management Committee The Board has the

overall responsibility for internal control, including risk

management, and sets appropriate policies having regard to the

objectives of the Group. Executive directors and management

has the responsibility for the identification, evaluation and

management of financial and non-financial risks and for the

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 Group maintains controls to safeguard the Group’s assets

and ensure that transactions are executed in accordance with

management’s authorisation. The information systems in place

are designed to ensure that the financial report is reliable.

Remuneration Committee The Remuneration

Committee comprises three independent non-executive

directors. It is responsible for reviewing and recommending all

elements of the executive directors and senior management

remuneration. The remuneration for the non-executive directors

is determined by the Board. Terms of reference of the

Remuneration Committee which have been adopted by the

Remuneration Committee are posted on the Company’s

website.

Bye-laws of the Company At the annual general

meeting held on 13th August 2004, the shareholders had

passed a special resolution to amend the Company’s Bye-laws

to reflect the amendments to Appendix 3 to the Listing Rules

which came into effect on 31st March 2004. The Company has

instituted changes to implement the retirement by rotation for

all Directors at least once every three years (including those

appointed for a specific term) by proposing to amend its Bye-

laws in the forthcoming annual general meeting in accordance

with the Code.

Directors and Senior Management

24 VTech Holdings Ltd Annual Report 2005

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, China-

Hongkong 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 Non-

executive 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

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.

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 non-

executive 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

VTech Holdings Ltd Annual Report 2005

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.

Directors and Senior Management

26 VTech Holdings Ltd Annual Report 2005

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,

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.

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.

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.

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.

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.

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

VTech Holdings Ltd Annual Report 2005

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.

Report of the Directors

28 VTech Holdings Ltd Annual Report 2005

The directors have pleasure to present their report and the

audited financial statements of the Group for the year ended

31st March 2005.

Principal Activity The principal activity of the Group is the

design, manufacture and distribution of consumer electronics

products.

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.

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

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.

Donations During the year, the Group made charitable and

other donations in aggregate of US$203,000.

Directors The Board of the Company during the year and up

to 22nd June 2005 comprised:

Mr. Allan WONG Chi Yun (Chairman and Group Chief

Executive Officer)

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)

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.

VTech Holdings Ltd Annual Report 2005

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

Approximate

Equity derivatives percentage of

Name of director Number of shares (share options) Total shareholding

Personal Family Other

interest interest interest

Allan WONG Chi Yun 10,674,393 3,968,683 74,101,153 2,000,000 90,744,229 40.2%

(Note 1)

Albert LEE Wai Kuen 799,332 — — 3,250,000 4,049,332 1.8%

Raymond CH’IEN Kuo Fung ——————

William FUNG Kwok Lun 1,041,630 — — — 1,041,630 0.5%

Michael TIEN Puk Sun — — 1,123,000 — 1,123,000 0.5%

(Note 2)

Patrick WANG Shui Chung ——————

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

Number of share options held

as at as at

Exercise Exercisable period 1st April 31st March

Name of director Date of grant price (Note 1) 2004 2005

Allan WONG Chi Yun 26th February 2002 HK$10.20 11th March 2005 to 2,000,000 2,000,000

10th March 2007 (Note 2)

Albert LEE Wai Kuen 26th February 2002 HK$10.20 5th March 2005 to 1,750,000 1,750,000

4th March 2007 (Note 3)

Albert LEE Wai Kuen 19th November 2004 HK$11.03 22nd November 2007 to — 1,500,000

21st November 2009 (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.

Report of the Directors

30 VTech Holdings Ltd Annual Report 2005

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

Approximate

Number of percentage of

Name of shareholder Capacity shares held shareholding

Trustcorp Limited Interest of controlled corporation 74,101,153 32.8%

(Note 4) (Notes 1 & 3)

Honorex Limited Beneficial owner 1,416,325 29.7%

(Notes 1 & 3)

Interest of controlled corporation 65,496,225

(Notes 1 & 3)

Conquer Rex Limited Beneficial owner 65,496,225 29.0%

(Notes 1 & 3)

Value Partners Limited Investment manager 31,148,000 13.8%

(Notes 2 & 3)

CHEAH Cheng Hye Interest of controlled corporation 31,148,000 13.8%

(Notes 2 & 3)

Twin Success Pacific Limited Beneficial owner 7,188,603 3.2%

(Notes 1 & 3)

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.

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:

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

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.

VTech Holdings Ltd Annual Report 2005

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.

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.

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.

Share Option Scheme The Company operates share

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.

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.

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:

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.

Annual General Meeting The following special business

will be proposed at the annual general meeting to be held on

12th August 2005:

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;

Report of the Directors Report of the

Independent Auditors

32 VTech Holdings Ltd Annual Report 2005

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

Allan WONG Chi Yun

Chairman

Hong Kong, 22nd June 2005

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.

KPMG

Certified Public Accountants

Hong Kong, 22nd June 2005

Consolidated Financial Statements

VTech Holdings Ltd Annual Report 2005

Consolidated Income Statement

For the year ended 31st March 2005

2005 2004

Note US$ million US$ million

Revenue 11,022.0 915.2

Cost of sales (693.2) (633.9)

Gross profit 328.8 281.3

Selling and distribution costs (182.6) (150.7)

Administrative and other

operating expenses (51.7) (47.9)

Research and development

expenses (38.5) (33.2)

Net receipts from

an indemnification claim 3 6.7 —

Operating profit 1&2 62.7 49.5

Net finance income 5 1.0 0.4

Share of results of associates ——

Profit from ordinary activities

before taxation 63.7 49.9

Taxation 6 (6.8) (3.6)

Profit attributable to

shareholders 20 56.9 46.3

Interim dividend 72.3 6.8

Final dividend 727.3 15.8

Earnings per share (US cents) 8

— Basic 25.2 20.5

— Diluted 24.9 20.5

Consolidated Statement of Changes in

Shareholders’ Funds

For the year ended 31st March 2005

2005 2004

Note US$ million US$ million

Shareholders’ funds at 1st April 162.6 127.5

Exercise of share options 20 0.1 —

Realisation of hedging reserve 20 3.1 3.6

Fair value losses on hedging

during the year 20 (3.1) (3.6)

Exchange translation differences 20 1.8 0.1

Net gains and losses not

recognised in the income

statement 1.9 0.1

Profit attributable to shareholders 20 56.9 46.3

Dividends approved and

paid during the year 20 (18.1) (11.3)

Shareholders’ funds at 31st March 203.3 162.6

The notes on pages 34 to 53 form part of these financial statements.

Consolidated Balance Sheet

As at 31st March 2005

2005 2004

Note US$ million US$ million

Non-current assets

Tangible assets 9 52.6 48.7

Leasehold land payments 10 1.8 1.8

Deferred tax assets 11 2.6 3.7

Investments 12 0.2 0.2

57.2 54.4

Current assets

Stocks 13 124.2 96.1

Assets held for sale —8.0

Debtors and prepayments 14 175.7 153.9

Taxation recoverable 2.4 4.6

Cash and cash equivalents 123.9 105.2

426.2 367.8

Current liabilities

Creditors and accruals 15 (231.3) (200.3)

Provisions 16 (41.2) (40.7)

Borrowings 18 (0.1) (0.6)

Taxation payable (6.7) (14.4)

(279.3) (256.0)

Net current assets 146.9 111.8

Total assets less current liabilities 204.1 166.2

Non-current liabilities

Borrowings 18 (0.1) (2.0)

Deferred tax liabilities 11 (0.7) (1.6)

(0.8) (3.6)

Net assets 203.3 162.6

Capital and reserves

Share capital 19 11.3 11.3

Reserves 20 192.0 151.3

Shareholders’ funds 203.3 162.6

Approved and authorised for issue by the Board of Directors on

22nd June 2005.

Allan WONG Chi Yun Albert LEE Wai Kuen

Director Director

34 VTech Holdings Ltd Annual Report 2005

Notes to the Financial

Statements

Consolidated Financial

Statements

Consolidated Cash Flow Statement

For the year ended 31st March 2005

2005 2004

Note US$ million US$ million

Operating activities

Operating profit 62.7 49.5

Depreciation charges 2 18.2 17.9

Amortisation of leasehold land

payments 2 —0.1

Loss on disposal of tangible assets 2 —1.9

Gain on disposal of subsidiaries 2 (1.0) (1.1)

Gain on disposal of assets held

for sale 2 (0.8) —

Increase in stocks (28.1) (12.1)

Increase in debtors and

prepayments (21.8) (14.0)

Increase in creditors and accruals 31.0 28.9

Increase in provisions 0.5 —

Cash generated from operations 60.7 71.1

Interest received 1.3 0.7

Interest paid (0.3) (0.3)

Taxes paid (12.1) (6.3)

Net cash generated from

operating activities 49.6 65.2

Investing activities

Proceeds from disposal of

tangible assets 0.3 1.3

Proceeds from disposal of

assets held for sale 8.8 —

Proceeds from disposal of

subsidiaries 1.0 1.1

Purchase of tangible assets 9 (21.5) (19.5)

Net cash used in investing

activities (11.4) (17.1)

Financing activities

Net repayment of borrowings (2.4) (0.1)

Dividends paid 7 (18.1) (11.3)

Dividend paid to minority

shareholder —(0.8)

Net cash used in financing

activities (20.5) (12.2)

Effect of exchange rate changes 1.0 (1.1)

Increase in cash and cash

equivalents 18.7 34.8

Cash and cash equivalents at

beginning of the year 105.2 70.4

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

The notes on pages 34 to 53 form part of these financial statements.

Principal Accounting Policies

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.

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:

(i) 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

VTech Holdings Ltd Annual Report 2005

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 inter-

company 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.

Notes to the Financial Statements

36 VTech Holdings Ltd Annual Report 2005

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.

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

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

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

VTech Holdings Ltd Annual Report 2005

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 Trade and other creditors

are stated at their cost.

Notes to the Financial Statements

38 VTech Holdings Ltd Annual Report 2005

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.

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

VTech Holdings Ltd Annual Report 2005

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.

Notes to the Financial Statements

40 VTech Holdings Ltd Annual Report 2005

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

Year ended 31st March 2005

Telecommunication

and electronic Other

products activities Total

US$ million US$ million US$ million

i Segment revenue 1,020.3 1.7 1,022.0

Segment result 62.4 0.9 63.3

Unallocated corporate

expenses (0.6)

Operating profit 62.7

Net finance income 1.0

Profit from ordinary

activities before

taxation 63.7

Taxation (6.8)

Profit attributable to

shareholders 56.9

ii Segment assets 390.8 1.2 392.0

Associates —0.1 0.1

Unallocated assets 91.3

Total assets 483.4

Segment liabilities 261.2 1.6 262.8

Unallocated liabilities 17.3

Total liabilities 280.1

iii Capital expenditure,

depreciation and

other non-cash revenue

Capital expenditure 21.1 0.4 21.5

Depreciation 17.5 0.7 18.2

Other non-cash revenue (0.7) —(0.7)

The Group evaluates the performance and allocates resources to

its operating segments. There are no sales or transactions

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

Telecommunication

and electronic Other

products activities Total

US$ million US$ million US$ million

i Segment revenue 913.0 2.2 915.2

Segment result 55.6 0.2 55.8

Unallocated corporate

expenses (6.3)

Operating profit 49.5

Net finance income 0.4

Profit from ordinary

activities before

taxation 49.9

Taxation (3.6)

Profit attributable to

shareholders 46.3

ii Segment assets 335.6 1.3 336.9

Associates —0.1 0.1

Unallocated assets 85.2

Total assets 422.2

Segment liabilities 234.8 1.5 236.3

Unallocated liabilities 23.3

Total liabilities 259.6

iii Capital expenditure,

depreciation and

other non-cash expenses

Capital expenditure 19.1 0.4 19.5

Depreciation 17.2 0.7 17.9

Amortisation of leasehold

land payments —0.1 0.1

Other non-cash expenses 5.1 —5.1

Notes to the Financial Statements

VTech Holdings Ltd Annual Report 2005

1 Segment Information (continued)

Secondary reporting format — geographical

segments 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.

Operating Operating

Revenue Revenue profit/(loss) profit/(loss)

2005 2004 2005 2004

US$ million US$ million US$ million US$ million

North America 621.1 681.8 19.7 43.7

Europe 336.0 200.3 33.2 8.4

Asia Pacific 45.9 23.4 5.2 (5.8)

Others 19.0 9.7 4.6 3.2

1,022.0 915.2 62.7 49.5

-Capital Capital Total Total

expenditure expenditure assets assets

2005 2004 2005 2004

US$ million US$ million US$ million US$ million

North America 0.7 2.5 131.3 142.1

Europe 0.3 0.3 67.2 54.1

Asia Pacific 20.5 16.7 284.1 216.8

Others ——0.8 9.2

21.5 19.5 483.4 422.2

2 Operating Profit

The operating profit is arrived at after charging/(crediting) the

following:

2005 2004

Note US$ million US$ million

Staff related costs

— salaries and wages 103.9 95.5

— pension costs: defined

contribution schemes 17 1.9 1.7

— pension costs: defined

benefit scheme 17 1.2 1.5

— severance payments 2.3 2.3

Depreciation charges 9

— owned assets 18.1 17.8

— leased assets 0.1 0.1

Amortisation of leasehold land

payments 10 —0.1

Loss on disposal of tangible

assets —1.9

Gain on disposal of subsidiaries (1.0) (1.1)

Gain on disposal of assets

held for sale (0.8) —

Auditors’ remuneration 0.6 0.5

Operating leases

— land and buildings 9.9 11.2

— others 2.9 1.7

Provision for stock obsolescence (0.7) 6.9

Provision for doubtful debts —(1.8)

Royalties 19.0 12.3

Exchange gain (6.4) (8.6)

Forward contracts: fair value

losses on cash flow hedges

transferred from hedging

reserve 20 3.1 3.6

3 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.

Notes to the Financial Statements

42 VTech Holdings Ltd Annual Report 2005

4 Directors’ and Senior Executives’

Emoluments

Directors’ emoluments

2005 2004

US$ million US$ million

The emoluments of the directors

of the Company are as follows:

Fees 0.1 0.1

Salaries, allowances and benefits in kind 1.4 1.8

Bonuses 3.0 2.7

Contribution to retirement benefit

schemes 0.1 0.1

Deemed profit on share option exercise ——

Inducement for joining the Group ——

Compensation for loss of office ——

4.6 4.7

The table below shows the number of directors whose

emoluments were within the bands stated:

2005 2004

Number of Number of

directors directors

US$

0 – 64,000 44

896,001 – 960,000 —1

1,344,001 – 1,408,000 1—

1,536,001 – 1,600,000 —1

2,112,001 – 2,176,000 —1

3,136,001 – 3,200,000 1—

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:

2005 2004

US$ million US$ million

Salaries, allowances and benefits in kind 0.9 0.8

Bonuses 2.6 1.1

Contribution to retirement benefit

schemes 0.1 —

Deemed profit on share option exercise ——

Inducement for joining the Group ——

Compensation for loss of office ——

3.6 1.9

The emoluments fell within the following bands:

2005 2004

Individuals Individuals

US$

576,001 – 640,000 —1

640,001 – 704,000 2—

1,216,001 – 1,280,000 —1

2,176,001 – 2,240,000 1—

5 Net Finance Income

2005 2004

US$ million US$ million

Interest expenses on bank loans and

overdrafts which are:

— Wholly repayable within five years (0.2) (0.2)

— Not wholly repayable within

five years (0.1) (0.1)

Interest income 1.3 0.7

1.0 0.4

6 Taxation

2005 2004

US$ million US$ million

Current tax

— Hong Kong 5.5 4.7

— Overseas 1.6 1.4

Overprovision in respect of prior years

— Hong Kong (0.4) (3.5)

— Overseas (0.1) —

Deferred tax

— Origination and reversal of

temporary differences 0.2 1.0

6.8 3.6

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 17.5 17.5

Difference in overseas income tax rates —0.2

Non-temporary differences (7.1) (4.3)

Tax losses not recognised 4.1 1.0

Overprovision in prior years (0.8) (6.9)

Others (3.0) (0.3)

Effective income tax rate 10.7 7.2

Notes to the Financial Statements

VTech Holdings Ltd Annual Report 2005

7 Dividends

2005 2004

Note US$ million 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.

8 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.

9 Tangible Assets

Computers,

motor vehicles,

furniture and

Moulds, fixtures and

Land and machinery leasehold Construction

buildings and equipment improvements in progress Total

US$ million US$ million US$ million US$ million US$ million

Cost or valuation

At 1st April 2004 37.8 184.8 58.6 3.0 284.2

Additions —10.3 8.8 2.4 21.5

Disposals —(12.5) (2.0) —(14.5)

Transfer between categories ——3.0 (3.0) —

Effect of changes in exchange rate 0.6 1.2 0.6 —2.4

At 31st March 2005 38.4 183.8 69.0 2.4 293.6

Accumulated depreciation

At 1st April 2004 18.0 167.1 50.4 —235.5

Charge for the year 1.1 10.3 6.8 —18.2

Disposals —(12.2) (2.0) —(14.2)

Effect of changes in exchange rate —1.1 0.4 —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 25.0 183.8 69.0 2.4 280.2

At professional valuation — 2003 (note (c)) 13.4 ———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.

Notes to the Financial Statements

44 VTech Holdings Ltd Annual Report 2005

9 Tangible Assets (continued)

Land and buildings comprise:

Freehold land and

buildings and Short-term

long-term leasehold leasehold

buildings buildings Total

US$ million US$ million US$ million

Cost or valuation

At 1st April 2004 12.8 25.0 37.8

Effect of changes in

exchange rate 0.6 —0.6

At 31st March 2005 13.4 25.0 38.4

Accumulated depreciation

At 1st April 2004 1.2 16.8 18.0

Charge for the year 0.4 0.7 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

Cost or valuation of

tangible assets is

analysed as follows:

At cost —25.0 25.0

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 10.9 —10.9

Short-term leasehold buildings —7.5 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 6.1 —6.1

10 Leasehold Land Payments

2005 2004

Note US$ million US$ million

Net book value at 1st April 1.8 2.7

Disposals —(0.8)

Amortisation 2 —(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 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 31st March

2003 statement 2004 statement 2005

US$ million US$ million US$ million US$ million US$ million

Deferred tax assets

Provisions 0.1 (0.1) —0.4 0.4

Tax losses carried

forward 1.0 1.3 2.3 (0.2) 2.1

Other deductible

temporary differences 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

Notes to the Financial Statements

VTech Holdings Ltd Annual Report 2005

11 Deferred Tax (continued)

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 2004

US$ million US$ million

Deferred tax assets 2.6 3.7

Deferred tax liabilities (0.7) (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 Investments

2005 2004

US$ million US$ million

i) Associates

Share of net tangible assets 0.1 0.1

ii) Other investments

Unlisted investments, at cost 0.1 0.1

0.2 0.2

13 Stocks

2005 2004

US$ million US$ million

Telecommunication and

electronic products

Raw materials 33.2 27.1

Work in progress 11.4 8.9

Finished goods 79.6 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).

14 Debtors and Prepayments

2005 2004

Note US$ million US$ million

Trade debtors (Net of provision

for doubtful debts of

US$3.7 million

(2004: US$3.9 million)) 162.3 137.6

Other debtors and prepayments 11.7 14.7

Pension assets 17 1.7 1.6

175.7 153.9

An aging analysis of net trade debtors by transaction date is

as follows:

2005 2004

US$ million US$ million

0-30 days 73.2 80.8

31-60 days 53.9 34.0

61-90 days 21.3 14.5

>90 days 13.9 8.3

Total 162.3 137.6

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.

15 Creditors and Accruals

2005 2004

US$ million US$ million

Trade creditors 98.2 93.0

Other creditors and accruals 133.1 107.3

231.3 200.3

An aging analysis of trade creditors by transaction date is

as follows:

2005 2004

US$ million US$ million

0-30 days 45.2 45.6

31-60 days 23.5 23.6

61-90 days 18.1 14.3

>90 days 11.4 9.5

Total 98.2 93.0

Notes to the Financial Statements

46 VTech Holdings Ltd Annual Report 2005

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 36.0

Effect of changes in exchange rate 0.2

Additional provisions 29.7

Unused amounts reversed (4.1)

Charged to income statement 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.

For the defined benefit scheme, the amounts recognised in the

balance sheet are as follows:

2005 2004

Note US$ million US$ million

Fair value of the Scheme assets 12.0 11.3

Present value of funded defined

benefit obligations (13.4) (12.3)

Unrecognised actuarial gains 3.1 2.6

Assets recognised in the

balance sheet 14 1.7 1.6

The amounts recognised

in the income statement are

as follows:

Current service cost 1.3 1.3

Interest cost 0.6 0.6

Expected return on plan assets (0.8) (0.6)

Net actuarial losses recognised

in the year 0.1 0.2

Expenses recognised in the

income statement* 21.2 1.5

The actual return on plan assets

was as follows:

Expected return on plan assets 0.8 0.6

Actuarial gains on plan assets 0.1 2.6

Actual return on plan assets 0.9 3.2

Movement in the assets recognised

in the balance sheet:

At 1st April 1.6 1.8

Expenses recognised in the income

statement* (1.2) (1.5)

Contributions paid 1.3 1.3

At 31st March 1.7 1.6

2005 2004

The principal actuarial assumptions

used for accounting purposes

were:

Discount rate 4.8% 5.0%

Expected return on plan assets 7.0% 7.0%

Future salary increases 5.0% 5.0%

Notes to the Financial Statements

VTech Holdings Ltd Annual Report 2005

18 Borrowings

2005 2004

US$ million US$ million

Bank loans and finance lease

obligations

Repayable by instalments, any one

of which is due for repayment after

five years:

Secured bank loans —1.0

Repayable by instalments, all of which

are due for repayment within

five years:

Secured bank loans 0.1 1.4

Obligations under finance leases

(Note) 0.1 0.2

0.2 1.6

Less: amounts due within one year

included under current liabilities:

Secured bank loans —(0.5)

Obligations under finance leases

(Note) (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 —0.4

Between two and five years 0.1 0.6

In more than five years —1.0

0.1 2.0

Note: 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:

2005 2004

US$ million US$ million

Euro

Secured bank loans at an average

fixed interest rate of 5.1%

(2004: 5.4%) 0.1 2.4

19 Share Capital, Share Options and Warrants

Share Capital

2005 2004

US$ million US$ million

Authorised

Ordinary shares:

400,000,000 (2004 : 400,000,000)

of US$0.05 each 20.0 20.0

2005 2005 2004 2004

No of shares US$ million No of shares US$ million

Issued and fully paid

Ordinary shares of

US$0.05 each:

Balance as at 1st April 225,527,133 11.3 225,527,133 11.3

Exercise of share options

(Note 1) 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.

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.

Notes to the Financial Statements

48 VTech Holdings Ltd Annual Report 2005

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 non-

refundable sum of HK$1.0 by the grantee. The 2001 Scheme has

a life of 10 years and will expire on 9th August 2011.

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:

Number of Number of Number of

share options share options share options

Balance in granted exercised lapsed Balance in

Exercise issue at during during during issue at

Date of grant price Exercisable period 1st April 2004 the year the year the year 31st March 2005

(Note 1) (Note 2) (Note 6)

26th February 2002 to HK$10.2 26th February 2005 to 14,360,000 ——(4,715,000) 9,645,000

26th March 2002 25th March 2007

10th July 2002 to HK$8.71 10th July 2005 to 1,340,000 ——(580,000) 760,000

8th August 2002 7th August 2007

20th April 2004 to HK$15.0 20th April 2007 to —2,670,000 —(535,000) 2,135,000

19th May 2004 19th May 2009 (Note 3)

19th November 2004 HK$11.03 22nd November 2007 to —1,500,000 ——1,500,000

21st November 2009 (Note 4)

23rd March 2005 to HK$11.41 23rd March 2008 to —1,480,000 ——1,480,000

22nd April 2005 22nd March 2010 (Note 5)

15,700,000 5,650,000 —(5,830,000) 15,520,000

Notes to the Financial Statements

VTech Holdings Ltd Annual Report 2005

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

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.

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.

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.

Notes to the Financial Statements

50 VTech Holdings Ltd Annual Report 2005

20 Reserves

Group Company

2005 2004 2005 2004

Note US$ million US$ million US$ million US$ million

Share premium 74.4 74.3 74.4 74.3

Other properties

revaluation reserve 6.1 6.1 ——

Revenue reserve 116.4 77.6 90.4 41.3

Exchange reserve (4.9 ) (6.7 ) (1.2 ) (1.2 )

Hedging reserve ————

192.0 151.3 163.6 114.4

An analysis of

movements in reserves

is set out below:

Share premium

Brought forward 74.3 74.3 74.3 74.3

Exercise of share options 0.1 —0.1 —

Carried forward 74.4 74.3 74.4 74.3

Other properties

revaluation reserve

Brought forward 6.1 6.8 ——

Disposal of properties

previously revalued —(0.7 ) ——

Carried forward 6.1 6.1 ——

Revenue reserve

Brought forward 77.6 41.9 41.3 46.3

Profit attributable

to shareholders 56.9 46.3 67.2 6.3

Final dividend in respect

of the previous year 7 (15.8 ) (4.5 ) (15.8 ) (4.5 )

Interim dividend in

respect of

the current year 7 (2.3 ) (6.8 ) (2.3 ) (6.8 )

Disposal of properties

previously revalued —0.7 ——

Carried forward 116.4 77.6 90.4 41.3

Exchange reserve

Brought forward (6.7 ) (6.8 ) (1.2 ) (1.2 )

Exchange translation

differences 1.8 0.1 ——

Carried forward (4.9 ) (6.7 ) (1.2 ) (1.2 )

Hedging reserve

Brought forward ————

Transfer to income

statement 2 3.1 3.6 ——

Fair value losses on

hedging during

the year (3.1 ) (3.6 ) ——

Carried forward ————

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.

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.

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.

The Group manages these risks by monitoring credit ratings and

limiting the aggregate risk to any individual counterparty.

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

VTech Holdings Ltd Annual Report 2005

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 Commitments

2005 2004

US$ million US$ million

(i) Capital commitments for property,

plant and equipment

Authorised but not contracted for 45.1 25.0

Contracted but not provided for 2.9 7.6

48.0 32.6

(ii) 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 9.3 6.5

Between one and two years 8.2 6.4

Between two and five years 12.7 8.2

In more than five years 3.4 3.7

33.6 24.8

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.

Notes to the Financial Statements

52 VTech Holdings Ltd Annual Report 2005

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.

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

2005 2004

Note US$ million US$ million

Non-current assets

Subsidiaries 170.2 102.6

Current assets

Amounts due from subsidiaries (i) 332.8 326.6

Taxation recoverable 0.2 0.2

Cash and cash equivalents 0.1 0.1

333.1 326.9

Current liabilities

Amounts due to subsidiaries (i) (326.6) (302.0)

Creditors and accruals (1.8) (1.8)

(328.4) (303.8)

Net assets 174.9 125.7

Capital and reserves

Share capital 19 11.3 11.3

Reserves 20 163.6 114.4

Shareholders’ funds 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

VTech Holdings Ltd Annual Report 2005

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:

Percentage of

Fully paid issued interest held by

Name of subsidiary share capital the Group Principal activity

Incorporated and operating

in Hong Kong:

VTech Communications Ordinary HK$1,000 *100 Design, manufacture

Limited Deferred HK$5,000,000 and sale of

electronic

equipment

VTech Electronics Limited Ordinary HK$5,000,000 *100 Design, manufacture

and distribution of

electronic products

VTech Telecommunications Ordinary HK$1,000 *100 Design, manufacture

Limited Deferred HK$5,000,000 and distribution of

telecommunication

products

Perseus Investments Limited Ordinary HK$1,000 100 Property holding

Deferred HK$1,000

Valentia Investment Limited Ordinary HK$1,000 100 Property holding

Deferred HK$1,000

Incorporated and operating

in Canada:

VTech Telecommunications Class A C$5,000 *100 Sale of

Canada Limited Class B C$195,000 *100 telecommunication

products

Incorporated and operating

in France:

VTech Electronics Europe EURO 2,067,310 *100 Sale of electronic

S.A.S. products

Incorporated and operating

in Germany:

VTech Electronics Europe EURO 2,600,000 *100 Sale of electronic

GmbH products

Incorporated and operating

in the Netherlands:

VTech Electronics Europe B.V. EURO 18,100 *100 Sale of electronic

products

Percentage of

Fully paid issued interest held by

Name of subsidiary share capital the Group Principal activity

Incorporated and operating

in Spain:

VTech Electronics Europe, S.L. EURO 500,000 *100 Sale of electronic

products

Incorporated and operating

in the United Kingdom:

VTech Electronics Europe plc GBP 500,000 *100 Sale of electronic

products

Incorporated and operating

in the United States:

VTech Electronics US$22,212,997 *100 Sale of electronic

North America, L.L.C. 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

* Indirectly held by subsidiary companies

26 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.

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.

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.

VTech in the Last Five Years

54 VTech Holdings Ltd Annual Report 2005

Consolidated statement of net assets as at 31st March

2001 2002 2003 2004 2005

Note US$ million US$ million US$ million US$ million US$ million

Non-current assets

Tangible assets (i) 95.9 58.0 48.0 48.7 52.6

Leasehold land payments (ii) 7.0 3.1 2.7 1.8 1.8

Other non-current assets 4.5 4.7 4.1 3.9 2.8

107.4 65.8 54.8 54.4 57.2

Current assets

Stocks 187.5 94.4 84.0 96.1 124.2

Debtors and prepayments 255.6 165.3 139.9 153.9 175.7

Cash and cash equivalents 56.2 63.3 70.4 105.2 123.9

Other current assets 34.0 27.5 9.5 12.6 2.4

533.3 350.5 303.8 367.8 426.2

Current liabilities (iii) (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 (136.9) (65.2) (2.2) (2.0) (0.1)

Deferred tax liabilities (1.3) (1.2) (0.8) (1.6) (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

(i) Tangible assets have been adjusted in

accordance with IAS 40 by the following

amounts: (6.9) ————

(ii) 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 ————

Consolidated income statement for the years ended 31st March

2001 2002 2003 2004 2005

Note US$ million US$ million US$ million US$ million US$ million

Revenue 1,334.9 959.8 866.5 915.2 1,022.0

Profit/(loss) from ordinary activities

before taxation (iv) (213.1) 13.9 58.3 49.9 63.7

Taxation (1.8) (2.6) (17.4) (3.6) (6.8)

Profit/(loss) from ordinary activities

after taxation (214.9) 11.3 40.9 46.3 56.9

Minority interest (0.1) (0.1) (0.1) ——

Profit/(loss) attributable to shareholders (215.0) 11.2 40.8 46.3 56.9

Earnings/(loss) per share (US cents) (96.7) 5.0 18.1 20.5 25.2

(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.

Corporate Information

VTech Holdings Ltd Annual Report 2005

Board of Directors

Executive Directors

Allan WONG Chi Yun

Chairman and Group Chief Executive Officer

Albert LEE Wai Kuen

Deputy Chairman

Independent Non-Executive Directors

Raymond CH’IEN Kuo Fung

William FUNG Kwok Lun

Michael TIEN Puk Sun

Patrick WANG Shui Chung

Board of Management

Allan WONG Chi Yun

Albert LEE Wai Kuen

Andy LEUNG Hon Kwong

Kent WONG Wah Shun

Audit Committee

Raymond CH’IEN Kuo Fung

William FUNG Kwok Lun

Michael TIEN Puk Sun

Remuneration Committee

Raymond CH’IEN Kuo Fung

William FUNG Kwok Lun

Michael TIEN Puk Sun

Company Secretary

CHANG Yu Wai

Qualified Accountant

Shereen TONG Ka Hung

Registered Office

Clarendon House

Church Street

Hamilton HM11

Bermuda

Principal Office

23rd Floor, Tai Ping Industrial Centre

Block 1, 57 Ting Kok Road

Tai Po

New Territories

Hong Kong

Principal Bankers

The Hongkong and Shanghai Banking

Corporation Limited

Hang Seng Bank Limited

Standard Chartered Bank

Auditors

KPMG

Certified Public Accountants

Hong Kong

American Depositary Receipts

The Bank of New York

101 Barclay Street

22nd Floor-West

New York

N.Y. 10286

U.S.A.

Information for Shareholders

56 VTech Holdings Ltd Annual Report 2005

Listings

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

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 November 2005

Results Announcement

Share Registrars

Principal Butterfield Fund Services

(Bermuda) Limited

Rosebank Centre

11 Bermudiana Road

Pembroke

Bermuda

Tel: (441) 299 3954

Fax: (441) 295 6759

Email: funds@bntb.bm

Hong Kong Branch 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

UK Branch 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

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

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

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

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

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 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

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

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

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

enjoy life

technology

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.

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