Page 3 - VTech Holdings Limited 2014/2015 Interim Report

Chairman’s Statement

I am pleased to announce that VTech delivered solid profit tablets in the education aisle. In other platform categories, the

growth in the first half of the financial year 2015. Profit handheld gaming console MobiGo® is reaching the end of its
attributable to shareholders of the Company grew by 7.5%, product life cycle.
despite revenue being broadly stable. The profit increase was

due to an enhanced gross margin, as the Group benefited from Continuing our history of product innovation, VTech has
lower cost of materials and an increase in the proportion of successfully harnessed the latest technology trend in
higher margin products in all three product lines.
smartwatches for adults and brought it to children with

the launch of Kidizoom Smartwatch. This is the world’s first
Results and Dividend
smartwatch for children with a built-in camera. It hit retailers’
shelves in the US in July 2014 and sales have been strong. It is
Group revenue for the six months ended 30 September 2014 recommended in numerous top toy lists, including Walmart’s

rose by 0.9% over the same period of the previous financial year “Chosen by Kids Top 20 Toy” list, Kmart’s “Fab 15” list of hot
to US$900.8 million. This was primarily due to higher revenue
holiday toys and Toy Insider’s “Top Tech 12” list.
in Europe and Asia Pacific, offsetting lower revenue in North

America and Other Regions.
Standalone products continued to perform well during the
period, led by core infant products and Go! Go! Smart Wheels®,
Profit attributable to shareholders of the Company increased the line of smart infant vehicles and playsets. The newly

by 7.5% to US$102.7 million. The rise in profit was mainly introduced Go! Go! Smart Wheels Ultimate Amazement Park
attributable to an improved gross margin. Basic earnings per playset was named one of the hottest holiday toys by US
share increased by 7.3% to US40.9 cents, compared to US38.1 retailers, securing listings that include Walmart’s “Chosen by Kids

cents in the corresponding period last year.
Top 20 Toy” and Target’s “Top Toy”. Go! Go! Smart AnimalsM, a
brand new extension of the successful Go! Go! Smart Wheels
The Board of Directors (the Board) has declared an interim line, reached US retailers’ shelves in August 2014. It also
dividend of US17.0 cents per ordinary share, representing an contributed to the growth of standalone products.

increase of 6.3% over the same period last year.
Revenue from telecommunication (TEL) products in North
Costs and Operations
America increased by 6.8% to US$215.3 million. The growth was

driven by higher sales of residential phones, commercial phones
Cost pressures eased slightly in the first half of the financial year and other telecommunication products.
2015. Cost of materials was lower due to falling component

prices. Labour costs and manufacturing overheads remained For residential phones, the Group continued to gain market
largely stable, as automation, process improvements and share in North America on the back of a declining market. In
product optimisation continued to generate efficiency gains. other telecommunication products, sales of baby monitors

This was despite the fact that wages in China continued to rise, grew strongly as the Group expanded distribution channels
although the Renminbi weakened slightly against the US dollar.
and launched new models. Among commercial phones, sales
of small-to-medium sized business (SMB) phones and hotel
Segment Results
phones increased. The new VTech branded SMB phones

include ErisStationM, a conference phone with four wireless
North America
microphones; ErisTerminalM, SIP (Session Initiation Protocol)
Group revenue in North America in the first six months of the based business phones; and ErisBusinessSystemM, a four-line

financial year was US$450.6 million, down 1.1% over the same business phone system. These products have been shipped to
period last year. This was mainly due to lower revenue from customers since April 2014 and have received positive feedback,
electronic learning products (ELPs) and contract manufacturing while adding incremental revenue.

services (CMS). Despite the sales decline, North America remains
the largest market for the Group, accounting for 50.0% of Group CMS revenue in North America was US$94.1 million, down 2.5%.
revenue.
The decline was primarily due to lower sales of professional

audio equipment, communication products and home
ELPs revenue in North America was US$141.2 million, a 10.5% appliances, offsetting higher sales of solid-state lighting.
decrease. The decline was attributable to lower sales of platform
products, which was only partially offset by higher sales of Sales of professional audio equipment were lower, as a customer

standalone products. Despite a challenging market, VTech completed the transfer of the manufacture of one product
became the number one manufacturer in the category of Infant family to its own facility that had excess capacity. Sales of
and Preschool Electronic Learning in the US1.
communication products and home appliances decreased, as

demand for customers’ products reduced. The sales decline was
The children’s tablet market in the US was difficult. Our fourth partially offset by higher sales of solid-state lighting, driven by
generation of children’s educational tablets, InnoTab® 3 PLUS more business from an existing customer and the ramping up of

and 3S PLUS, hit the shelves in August 2014. High channel orders by a new customer. During the period, the Group added
inventory and increasing competition led to heavy discounting a new customer in the medical and health area, generating
by retailers, resulting in price pressure and reduced shipments of
incremental business.

1 Source: NPD Group, Retail Tracking Service. Ranking based on total retail sales in the
combined toy categories of infant electronic learning, other infant toys and preschool
electronic learning between 29 December 2013 and 21 September 2014

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