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
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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
01
02
06
07
10
18
20
22
24
28
32
33
34
54
55
56
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
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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
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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.
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Letter to Shareholders
VTech Holdings Ltd Annual Report 2005
04
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.
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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
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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
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Management Discussion and Analysis
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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
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Management Discussion and Analysis
VTech Holdings Ltd Annual Report 2005
08
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.
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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.
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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
10
Outperformance
E
Rationalisation
xcellence
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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.
11
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
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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
12
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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
![](asset-10.png)
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
14
![](asset-11.png)
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.
![](asset-12.png)
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
16
Outperformance
E
Rationalisation
xcellence
![](asset-13.png)
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
![](asset-14.png)
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
18
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.
![](asset-15.png)
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
![](asset-16.png)
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
20
![](asset-17.png)
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
US
Toy Industry Association
(TIA), bringing the total
US
V.Smile awards
to 21.
V.Smile Pocket, a
handheld educational
video game system,
was unveiled at
international toy fairs in
Germany and the
United States.
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
23
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.
![](asset-1a.png)
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
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Directors and Senior Management
25
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.
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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
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Directors and Senior Management
27
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
register of members of the Company as at the close of business
on 12th August 2005 subject to the approval of the
shareholders of the Company at the forthcoming annual
general meeting.
The final dividend will be paid in United States dollars save that
those shareholders with a registered address in Hong Kong will
receive the equivalent amount in Hong Kong dollars and those
registered in the United Kingdom will receive the equivalent
amount in Sterling both calculated at the rates of exchange as
quoted to the Company by The Hongkong and Shanghai
Banking Corporation Limited at its mid rate of exchange
prevailing on 19th August 2005.
Commentary on Performance A commentary on the
performance of the Group is included in the review of
operations set out on pages 10 to 17.
Group Financial Summary A summary of the results
and of the assets and liabilities of the Group for the last five
financial years is set out on page 54.
Tangible Assets Details of the movements in tangible
assets are shown in note 9 to the financial statements.
Share Capital, Share Options and Warrants Details
of the movements in share capital, share options and warrants
of the Company during the year are set out in note 19 to the
financial statements.
Reserves Movements in the reserves of the Group and
the Company during the year are set out in note 20 to the
financial statements.
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.
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29
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.
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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.
31
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;
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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
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Consolidated Financial Statements
33
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
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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
35
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
37
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
39
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.
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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
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Notes to the Financial Statements
41
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$6.7 million, after deducting incidental
expenses, were received by the Group pursuant to this
settlement and were credited to the consolidated income
statement during the year ended 31st March 2005.
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Notes to the Financial Statements
42 VTech Holdings Ltd Annual Report 2005
4 Directors’ and Senior Executives’
Emoluments
Directors’ emoluments
2005 2004
US$ 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—
67
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—
32
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
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Notes to the Financial Statements
43
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.
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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
![](asset-2f.png)
Notes to the Financial Statements
45
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
![](asset-30.png)
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%
![](asset-31.png)
Notes to the Financial Statements
47
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.
![](asset-32.png)
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
49
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$20.0 per share and the average of the
closing price of the shares of the Company as quoted on The
Stock Exchange of Hong Kong Limited for the five (5) dealing
days immediately preceding 15th July 2002) and the expiration
date of these warrants was amended to 12th December 2011.
No warrants have been exercised since the date of grant.
![](asset-34.png)
Notes to the Financial Statements
50 VTech Holdings Ltd Annual Report 2005
20 Reserves
Group Company
2005 2004 2005 2004
Note US$ 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.
![](asset-35.png)
Notes to the Financial Statements
51
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.
![](asset-36.png)
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.
![](asset-37.png)
Notes to the Financial Statements
53
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$250,000 per
month, to provide housing for a director in accordance with the
terms of his service contract for a term of 2 years expiring on
31st March 2005. When the lease was entered into, Aldenham
was 50% owned by the director’s spouse and 50% owned by a
trust, the beneficiaries of which were the director and his family
members. Subsequently, Aldenham became a wholly indirect
subsidiary of a trust in which the family members of the director
are beneficiaries.
On 6th April 2005, subsequent to the balance sheet date, the
Group renewed the lease with same principal terms for another
2 years commencing 1st April 2005 and expiring on
31st March 2007.
In the normal course of business and on normal commercial
terms, the Group undertake certain transactions with its
associates. None of these transactions was material to the
Group’s results.
![](asset-38.png)
VTech in the Last Five Years
54 VTech Holdings Ltd Annual Report 2005
Consolidated statement of net assets as at 31st March
2001 2002 2003 2004 2005
Note US$ 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
55
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.
![](asset-3a.png)
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
Designed by The Graphis Co. Ltd/ Printed by Roman Financial Press Ltd
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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