VTech Announces 2010/2011 Interim Results

By Vtech Holdings Limited, PRNE
Tuesday, November 16, 2010

Solid performance despite challenging environment

HONG KONG, November 17, 2010 -

    -- Group revenue increased by 10.3% to US$813.9 million
    -- Profit attributable to shareholders of the Company rose 2.3% to
       US$93.6 million
    -- Strong balance sheet, with net cash of US$181.1 million
    -- Interim dividend of US16.0 cents per ordinary share, same as the first
       half of the last financial year

VTech Holdings Ltd (HKEx: 303; ADR: VTKHY) today announced its results
for the six months ended 30 September 2010, reporting growth in revenue and
profit despite a challenging environment.

    (Logo: photos.prnewswire.com/prnh/20090615/HKM004 )
    (Logo: www.newscom.com/cgi-bin/prnh/20090615/HKM004 )

Group revenue for the period increased by 10.3% to US$813.9 million.
Growth was driven by Europe, Asia Pacific and other regions. During the
period, all product lines achieved sales increases in Europe. VTech was also
able to make further inroads with its TEL products and CMS in Asia Pacific
and other regions, where the Group is actively expanding.

Profit attributable to shareholders of the Company rose 2.3% to US$93.6
. Net profit margin fell from 12.4% to 11.5% owing to change in
product mix, higher cost of materials, rising labour costs and Renminbi

Basic earnings per share increased from US$37.2 cents in the first half
of the financial year 2010 to US$37.8 cents. The Board of Directors has
declared an interim dividend of US$16.0 cents per ordinary share, which was
the same as the dividend paid in the corresponding period last year.

"VTech turned in a solid performance in the first half of the financial
year 2011. Despite economic uncertainty and rising costs, both revenue and
profit increased," said Mr. Allan Wong, Chairman and Group CEO of VTech
Holdings Limited. "Sales were especially strong in Europe, where all product
lines saw increases. In North America, our electronic learning products
(ELPs) are seeing the benefit of the new platform products we have
introduced, while contract manufacturing services (CMS) were boosted by
continued gains in professional audio equipment. In Asia Pacific, we doubled
sales of our telecommunication (TEL) products."

Rising costs posed a major challenge to the Group in the first half of
the financial year 2011. Minimum wage in China has increased by a
double-digit rate since the middle of the year, while the Renminbi has
recently begun to strengthen against the US dollar. Price increases for
plastics and other raw materials have led to higher overall cost of
materials. Meanwhile, freight costs rose sharply during the period.
Furthermore, the launch of new ELPs has necessitated higher spending on
advertising and promotion. All these factors have resulted in pressure on

North America

Revenue in North America decreased by 4.6% to US$421.6 million in the
first half of the financial year 2011. The decline was mainly due to lower
sales of TEL products, which offset the growth in ELPs and CMS. North America
remains the largest market for the Group, accounting for 51.8% of Group

During the period, sales of TEL products declined by 23.4% to US$221.8
. This partly reflects comparison with a very strong first half in the
last financial year, when one of VTech's major competitors exited the market,
and another suffered a delivery problem. Poor consumer sentiment also
contributed to lower sales of the Group's cordless telephones. Nevertheless,
VTech maintains the number one position in the US corded and cordless phone

Since September 2009, the Group has started to introduce small to medium
sized business (SMB) telephony systems in the US market. They are being sold
through office superstores and value added resellers. The number of SMB
partners is steadily increasing, although the sales contribution in this
first half has been small.

ELP sales in North America increased by 14.6% to US$118.7 million in the
first half, with growth driven by the launch of new platform and standalone
products. The two new platform products, V.Reader and MobiGo, have been on
retail shelves since June 2010. V.Reader is the world's first interactive
e-reading system for children aged between three and seven years. MobiGo is a
handheld educational gaming system with touch control for children aged
between three and eight years. Retail performance to-date for both products
has been good.

Standalone products continued to sell well. As VTech introduced new items
to the market and expanded shelf space for infant and pre-school products,
there has been healthy growth in these categories. The new line of infant
bath toys has been selling especially well.

CMS posted the strongest growth in North America. Sales rose by 66.2%
during the first half to US$81.1 million, despite the relatively weak
economy. Professional audio equipment was a major growth driver. Customers
are giving VTech additional business as a result of its high quality products
and excellent services. There has been continued growth in commercial
solid-state lighting, an emerging business area.


Revenue in Europe was boosted by gains in all three product lines. Sales
increased by 32.4% over the first half of the previous financial year to
US$298.6 million. Europe accounted for 36.7% of Group revenue.

Sales of the Group's TEL products in Europe grew by 44.9% to US$111.4
in the first half, primarily due to restocking by customers and gains
in market share. Despite the uncertainty of the European economy, sales
growth in the UK, France and Germany was particularly strong, with
correspondingly good sell-through. Since February 2010, VTech has been
shipping integrated access devices to customers and sales are steadily

ELP sales in Europe increased by 13.4% to US$108.2 million in the first
half. Growth was driven mainly by standalone products. As MobiGo only started
to hit retail shelves in late August, while V.Reader (which is called Storio
in Europe) is only launched in the UK this financial year, their
contributions to sales in this period have been limited.

Despite weakness in the economy, the UK proved to be the strongest
performing market. The Kidizoom range remained especially popular. The
Kidizoom VideoCam was selected as one of the twelve "Dream Toys" for
Christmas by the UK's Toy Retailers Association. In contrast, sales in France
and Germany started slow during the period.

For CMS, the sales in Europe were up by 48.2% to US$79.0 million when
compared with the first half of the previous financial year. Professional
audio equipment was again very strong, with increased orders from existing
customers. VTech also benefited from a new product launch with one of the
wireless products customers. Furthermore, there was also solid growth in home
appliances and switching mode power supplies.

Asia Pacific

Revenue in Asia Pacific rose 20.2% as compared with the first half of the
previous financial year, to US$51.1 million. This market accounted for 6.3%
of Group revenue.

Sales of TEL products increased by 100.0% during this period, to US$16.2
. This was partly driven by sales increases in Australia, where we
signed a licensing agreement with Telstra in June 2009. VTech is now the
direct supplier of Telstra branded fixed line telephones. The Group also
successfully expanded its TEL products into the Japanese market, with the
acquisition of the first customer.

Sales of ELPs in Asia Pacific declined by 4.9% to US$9.8 million in the
first half. During the period, retailers in some countries sought to work
through their inventory, resulting in lower orders. In China, VTech's first
ELP designed specifically for the market was launched in September. It is a
curriculum based pen-reading system with downloadable textbook content. The
product has been well received. As the Group is currently building up the
distribution channels, sales to-date have been very limited.

CMS achieved modest growth in Asia Pacific in the first half, where Japan
remained the dominant market. Revenue from the region increased by 4.1% to
US$25.1 million, driven by medical equipment and LED light bulbs.

Other Regions

Revenue from other regions in the first half of the financial year 2011
increased by 51.6% to US$42.6 million. This accounted for 5.2% of Group
revenue. The increase was attributable to strong growth in TEL products, as
the Group sold more to the Middle East and Latin America.


The Group faces an environment that is unusually uncertain, which makes
forecasting for the second half of the financial year difficult. In most of
the Group's major markets, unemployment remains high, governments are cutting
budgets and consumer sentiment is subdued. Nonetheless, management is
cautiously optimistic of achieving revenue growth in the second half, as we
expect good momentum in ELPs and CMS to continue. Profitability, however,
will be under pressure as rising costs will further affect margins.

The Group is taking very active measures to counteract cost increases. To
reduce the reliance on labour, production processes are being automated at a
faster pace. In addition, product design efforts have been intensified to
optimise material and manufacturing costs.

To mitigate the impact of Renminbi appreciation and to capture the huge
potential of the Chinese market, the Group is stepping up its efforts to
increase sales in China, a strategy that provides a natural currency hedge.
As mentioned earlier, our first ELP tailored for the China market has been
launched during the first half of this financial year.

The Group will continue to exercise tight control over operating costs to
rein in further increases in freight and marketing expenses. Overall, VTech's
economies of scale will ensure the Group to remain cost competitive in this
challenging operating environment, positioning VTech well for market share

North America and Europe

The performance of TEL products in North America is expected to improve
in the second half, as a new category of products, hotel phones, starts to
contribute. The existing line-up of SMB phones will be expanded with new
products that offer enhanced features, while more value added resellers will
be added to the network to drive sales.

In Europe, TEL products are expected to continue to perform, as the Group
has seen good sell-through with customers in the major European markets. The
Group aims to widen its market leadership through further product innovation.
VTech is among the first companies to introduce products using CAT-iq 2.0
technology, an enhancement to DECT that allows cordless phones to be used for
VoIP and other Internet-based services such as streaming audio and video.

For ELPs in North America, the solid momentum of the new platform and
standalone products is expected to continue. In the US, both MobiGo and
V.Reader have been featured in major retailer holiday catalogues. V.Reader
has just been selected as one of the "Top Toys" this holiday season by
Walmart. However, the US economy is still highly uncertain, and retailers are
maintaining very low inventories. Furthermore, competition among platform
products is unusually intense this year. The Group is keeping a watchful eye
and working diligently to ensure good sell-through in the upcoming holiday

In Europe, the Group's ELP sales in the UK are expected to remain strong,
as the market is responding well to the products recently introduced. France
is expected to pick up following a sluggish first half, and modest growth is
expected from a low base in Spain and the Benelux countries.

CMS should continue to outperform the global EMS market and achieve
growth in North America and Europe. Professional audio equipment and
commercial solid state lighting will lead the way in North America, as in the
first half. In Europe, on top of the already strong power supplies business,
further growth will be driven by two new product areas, electric vehicle
chargers and solar power inverters.

Asia Pacific and Other Regions

In Asia Pacific and other regions, TEL products should perform well as
the Group enjoys good momentum in many of these markets. Expansion in China
in the final quarter of this financial year will add to revenue in the next
financial year.

For ELPs, as retailers in these regions work through their inventory,
growth is expected to resume in the second half. Sales to China should
benefit from the expanded distribution channels, as well as the launch of
dedicated products.

At CMS, the Group will continue to step up efforts to open up the
Japanese market, as the strength of the Japanese yen may induce more medium
sized companies to seek outsourcing with a greater sense of urgency. This
could offer considerable potential for VTech to acquire new orders and new

"The past six months have not been easy for VTech. Margins contracted
owing to rising costs. We faced fierce competition for our ELPs and declining
sales of TEL products in the US market. It appears likely that costs will
rise further for the remainder of the financial year, making improvement in
margins challenging. Furthermore, the present volatility in exchange rates
between currencies is expected to continue. Despite this, VTech is in very
good shape. Our excellent R&D, strong balance sheet, market leadership
position and efficient operations continue to position us strongly to deliver
better returns to shareholders going forward," said Mr. Wong.

About VTech

VTech is the world's largest manufacturer of cordless telephones and a
leading supplier of electronic learning products. It also provides highly
sought-after contract manufacturing services. Founded in 1976, the Group's
mission is to be the most cost effective designer and manufacturer of
innovative, high quality consumer electronics products and to distribute them
to markets worldwide in the most efficient manner.

    Note: Starting from 22:00, 17 November 2010 (HK time), the video archive
          of the 2010/2011 interim results announcement can be accessed
          through VTech's homepage www.vtech.com in the "Webcasts"
          section under "Investors".

    For further information, please contact:

    VTech Holdings Limited
     Grace Pang
     Tel: +852-2680-1000
     Fax: +852-2680-1788
     Email: grace_pang@vtech.com

    VTech representative in Hong Kong
     Gloria Chiu, GolinHarris
     Tel: +852-2501-7970
     Fax: +852-2810-4780
     Email: gloria.chiu@golinharris.com

    VTech representative in the US
     Meredith Klein, GolinHarris
     Tel: +1-212-373 6022
     Fax: +1-212-373-6001
     Email: mklein@golinharris.com

Grace Pang of VTech Holdings Ltd, tel +852-2680-1000, fax +852-2680-1788, grace_pang at vtech.com; or VTech representatives in HK, Gloria Chiu of GolinHarris, tel +852-2501-7970, fax, +852-2810-4780, gloria.chiu at golinharris.com; or VTech representative in the US, Meredith Klein of GolinHarris, tel +1-732-859-3789, fax +1-212-373-6001, mklein at golinharris.com

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