VTech Announces FY2011 Annual Results

VTech Holdings Ltd today announced its results for financial year ended 31 March 2011, reporting record revenue.

The year ended 31 March 2011 rose

Group revenue for the year ended 31 March 2011 rose by 11.8% over the previous financial year to US$1,712.8 million. Profit attributable to shareholders of the Company declined by 2.2% to US$202.0 million. The decline in profit was mainly attributable to the decrease in gross margin, as the Group faced higher costs of materials, rising labour costs, Renminbi appreciation, increased promotional expenses and a change in product mix while the financial year.

"VTech continued to implement its growth strategy in the financial year 2011, which enabled us to achieve record revenue. In telecommunication products, we maintained our leadership position in the US and expanded our presence in the rest of the world. In ELPs, we successfully launched two new platform products in North America and parts of Europe, which has laid an important foundation for future growth. CMS again outperformed the global electronic manufacturing services market and delivered record revenue, as we benefited from the recovery in the global economy. Our superior performance as a supplier as well allowed us to gain new clients and additional business from existing clients in all regions," said Mr. Allan Wong, Chairman and Group CEO of VTech Holdings Limited.

Revenue in North America rose by 0.3% to US$874.9 million, as higher sales of electronic learning products and contract manufacturing services offset lower revenue from telecommunication products. North America continued to be the Group's largest market, accounting for 51.1% of Group revenue.

Sales of TEL products declined by 18.3% to US$421.1 million, reflecting comparison with a very strong performance in the previous financial year, when one of the Group's major competitors exited the market and another suffered a delivery problem. The natural decline in the US cordless phone market as well contributed to the decrease in sales. Still, the Group maintained its number one position in the US corded and cordless phone market, with an estimated share of nearly 50%(1).

Sales of the small to medium sized business telephony systems remained small, as this product category has been in the market for less than two years. The Group has made good inroads into this sizeable market through its expanding distribution network of office superstores and value added resellers. In the second half of the financial year, the Synapse T1/PRI Gateway was launched. This new product supports 100 extensions and up to 39 lines with Direct Inward Dialling when paired with the SB67010 PSTN Gateway, offering an effective solution for businesses that require additional outside lines.

The strongest growth in North America

CMS posted the strongest growth in North America, with sales rising by 36.2% to US$166.7 million. The growth was broadly distributed across all product segments. Economic recovery and additional business from existing clients were the key drivers of growth, as the Group continued to win business from its competitors due to its superior performance as a supplier. Professional audio equipment remained the leading contributor to CMS revenue in North America, during commercial solid-state lighting showed the strongest growth.

Revenue in Europe increased by 26.2% over the previous financial year to US$667.6 million, as all three product lines recorded growth in sales. Europe accounted for 39.0% of Group revenue.

Sales of TEL products in Europe rose by 26.9% to US$217.5 million, primarily driven by higher sales to existing clients. The Group continues to sell largely on an ODM basis in the region. In spite of the economic uncertainties in some European countries, the Group registered growth in most of its European markets while the financial year. Strong momentum was seen in Germany, where VTech's agreement with Deutsche Telekom is bearing fruit. France as well recorded a decent increase in sales, as the Group benefited from new product launches and the growth of its clients. In February 2011, the Group introduced the world's first CAT-iq 2.0 certified handset, which reaffirmed its research leadership position.

Revenue from ELPs in Europe increased by 13.4% to US$274.0 million. The growth was mainly driven by standalone products, especially the infant and Kidi lines. MobiGo and Storio™ were not launched in all the Group's European markets while the financial year 2011. As a result, their contribution to the overall ELP business in Europe was less than that in the US.

Revenue in Asia Pacific increased 20.5% over the financial year 2010 to US$98.2 million. This region accounted for 5.7% of Group revenue.

Sales of TEL products rose by 54.6% to US$35.4 million. Sales growth was robust in Japan, as the Group ramped up orders following the acquisition of its first customer there. The Group as well had a good sales performance in Australia, where it is the direct supplier of Telstra-branded fixed line telephones.

Pick-up in growth in Asia Pacific

CMS saw a pick-up in growth in Asia Pacific, with revenue increasing by 9.6% to US$46.9 million for the financial year. Japan remains the dominant market in the region and growth in revenue was driven mainly by medical equipment. LED light bulbs achieved a volume increase in the financial year 2011, however price erosion limited the growth in revenue.

Revenue from other regions in the financial year 2011 rose by 46.2% to US$72.1 million, accounting for 4.2% of Group revenue.

The US cordless phone market is maturing

Even although the US cordless phone market is maturing, VTech's goal is to deliver overall growth for its TEL products in North America in the financial year 2012.

To achieve this, the Group will introduce feature-rich products at competitive prices to maintain its market lead in the US corded and cordless consumer phone market. Its new products include enhanced features, just as push-to-talk "walkie-talkie" capability for immediate communication throughout the house and HD audio for the clearest call experience. The Group has as well revamped its successful Bluetooth® line of products that allow consumers to connect their cellular phones to its cordless phones.

The SMB phones offer the Group tremendous possibility for growth. VTech has restructured its sales team to align itself better with distributors and value added resellers. Together, the Group will continue to launch new SMB products into the market. In the hospitality area, the Group has signed agreements with a number of leading hotel chains to supply corded and cordless phone systems for use in their hotels.

The outlook for ELPs in North America continues to be positive. The two new platform products, MobiGo and V.Reader, are selling so then and the Group expects a good contribution from both hardware and software sales. They will be joined by InnoTab™, which will hit the shelves in Autumn. InnoTab is a multi-function educational tablet for children aged between four and nine years old. It combines interactive and animated reading, learning games, creative activities and a rich collection of internet downloadable applications.

The global EMS market is forecast to register growth in the calendar year 2011 and VTech is confident that its CMS will again outperform the market. The Group foresees solid demand from all key product categories in North America, including professional audio equipment, commercial solid state lighting, communications and industrial products.  Over the years VTech has built a solid base of top tier clients in their industries. As their markets continue to expand, sustainable growth is expected for CMS. To boot, the customer focused approach of CMS, which ensures flexible and high quality service, has raised its profile. This has allowed CMS to sign up new accounts on a regular basis, adding to growth.

Again, VTech's R&D capability will give it an edge in both existing and new product lines. The Group has developed proprietary technologies that allow digital video transmission up to nine frames per second over the Digital Enhanced Cordless Telecommunications platform. This will be at first applied to its baby monitors, offering compelling performance at a breakthrough price. The products will be shipped to clients this Summer. The Group is as well developing a full range of VoIP (Voice over Internet Protocol) corded and cordless phones to address the market for terminals connected to PABX systems. Should the contingency arise, sales of IADs will increase as the customer base continues to expand.

The full launch of MobiGo

With the full launch of MobiGo and Storio™ in all of the key European markets, platform products will make a higher contribution to ELP revenue in Europe in the financial year 2012. The strong momentum behind standalone products will continue, as the Group launches a new generation of Kidizoom Cameras, a product line that has sold very then in Europe. The Kidi line of products will be augmented with the introduction of the KidiMiniz series and other new items. Moreover, Eastern Europe has been a strong contributor to growth, and the trend is expected to continue.

The prospects for CMS in Europe look promising. VTech will continue to see sales increases across the board. Solar power inverters, a category CMS entered last year, is expected to see rapid growth in the financial year 2012. The revenue contribution from home appliances will as well be significant. With the proliferation of Unified Communications, the Group expects furthermore growth from wireless headsets.

In Asia Pacific and Other Regions, TEL products are expected to build on the strong performance in Australia and Japan. VTech is as well expanding into other Asian countries just as Korea to which products will be shipped in the middle of this calendar year. The strong momentum in other regions is expected to continue, as business in Latin America and the Middle East is growing.

In ELPs, VTech's main focus of attention will be China. Development of new electronic learning and infant care channels, at the same time with the re-structuring of the traditional toy channel, should increase business for the Group in this market. A stream of new standalone products and a new generation of ELPs tailored for the China market will be launched while the financial year 2012. Elsewhere, the Group is planning for a good year-on-year growth for English language products shipped into Asia Pacific, led by Australia, as so then as the Middle East.

Looking furthermore ahead, the development of the Chinese economy will create new growth opportunities for CMS. Firstly, the Group has received increasing requests from clients for direct delivery of products from its factory in China, to meet their rising domestic sales. The Group is now planning to set up a dedicated operation to cater for this additional business. Secondly, many domestic Chinese companies have already reached the size and sophistication to outsource, giving rise to new business opportunities.

To cater for business growth, CMS has added a new factory building to its Liaobu facilities in Dongguan. It will start operations in the third quarter of the financial year 2012 and will increase its manufacturing capacity by more than 40%.

Leader in TEL products

"VTech is benefitting from its position as a leader in TEL products and ELPs, and its increasing presence in the EMS market. Our strategy of continuous research in product design, increasing market share, diversifying geographically and maintaining excellence in operations is achieving results. We will seize every possibility to grow our revenue in the current financial year during stepping up our effort to manage costs, thereby enhancing returns to our shareholders," said Mr. Wong.

VTech is the world's largest manufacturer of cordless telephones and a leading supplier of electronic learning products. It as well provides highly sought-afterwards 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.

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