VTech Announces 2023/2024 Interim Results
- Profit attributable to shareholders increased by 14.1% to US$93.6 million
- Gross profit margin rose from 28.3% to 28.5%
- Basic earnings per share increased by 13.8% to US37.0 cents
- Group revenue decreased by 2.1% to US$1,140.9 million
- Group revenue in North America decreased by 7.7% to US$489.4 million
- Group revenue decreased
2.1% toUS $1,140.9 million - Gross profit margin rose from
28.3% to28.5% - Profit attributable to shareholders of the Company increased
14.1% toUS $93.6 million - Interim dividend of US17.0 cents per ordinary share, unchanged
- Uncertain economic environment leading to a more conservative full year outlook
- Financial position remains strong
VTech Holdings Limited (HKSE: 303) today announced its results for the six months ended 30 September 2023, reporting an increase in profit.
"VTech reported an increase in profit in the first half of the financial year 2024 despite a slight decline in revenue, as operating expenses decreased and gross profit margin improved. There was a particularly strong performance by the Group's contract manufacturing services (CMS), which achieved record first-half revenue," said Mr. Allan Wong, Chairman and Group CEO of VTech Holdings Limited.
Results and Dividend
Group revenue for the six months ended 30 September 2023 decreased by
Profit attributable to shareholders of the Company rose by
Basic earnings per share increased by
The Board of Directors has declared an interim dividend of US17.0 cents per ordinary share, unchanged from the dividend declared in the first half of the financial year 2023.
Costs
The Group's gross profit margin in the first six months of the financial year 2024 was
The improvement came as freight costs and inventory provisions fell. Direct labour costs and manufacturing overheads also declined, as a result of the depreciation of Renminbi against the US dollar, increased automation and a reduction in the factory workforce. These gains offset two negative factors. Cost of materials as a percentage of Group revenue rose despite lower materials prices, following a change in product mix. The depreciation of most currencies against the US dollar during the period also had a negative impact.
Segment Results
Group revenue in
ELPs revenue in
Sales of standalone and platform products decreased for both the VTech and LeapFrog brands. In standalone products, at VTech, growth in the Go! Go! Smart family of products, Switch & Go® Dinos and the Kidi line was insufficient to compensate for the declines in infant, toddler and preschool products, the KidiZoom® range, Marble Rush® and eco-friendly toys. At LeapFrog, higher sales of eco-friendly toys were offset by lower sales of infant, toddler and preschool products, LeapLand Adventures™ and Magic Adventures™ Microscope.
In platform products, lower sales of KidiZoom Smartwatches, Touch & Learn Activity Desk™ and KidiBuzz™ led to an overall decrease in sales of VTech platform products. Sales of LeapFrog platform products also declined, as those of children's educational tablets, interactive reading systems and Magic Adventures Globe all decreased. Subscription revenue from LeapFrog Academy™ was also lower.
Many innovative new products were launched during the period to strengthen the VTech standalone products ranges. Core learning products in the baby, infant, toddler and preschool categories saw a number of additions. The new Storytime with Sunny™ and Style & Glam On Unicorn™ bring a variety of learning activities to younger children, while introductions in the baby category included four new products, namely 6-in-1 Tunnel of Fun™, Snuggle & Discover Baby Whale™, Prop & Play Tummy Time Pillow™ and 2-in-1 Roll & Discover Roller Drum™. A completely revamped Go! Go! Smart range was introduced, offering new playsets and vehicles, as well as new products carrying the popular licensed character CoComelon. The Switch & Go Dinos line was boosted by new dinosaur models and more eggs that "hatch" into different dinosaurs.
At LeapFrog, the award-winning Magic Adventures line built on its success with the launch of Magic Adventures Telescope. Featuring 110-times zoom and more than 100 interactive videos and images, courtesy of NASA, it allows children to develop their STEAM (science, technology, engineering, the arts and mathematics) skills and make discoveries about the universe. LeapFrog's range of core learning products was strengthened with new role-play toys that introduce important early learning skills, including Build-a-Slice Pizza Cart™, Rainbow Tea for Two™ and Spin & Change Apple Shape Sorter™. The range of eco-friendly toys also expanded, with the addition of three new wooden toys that blend VTech learning technology with
During the first six months of the financial year 2024, the Group's ELPs again won numerous awards and recommendations from toy and parenting industry experts, key retailers and toy advisory boards in both the US and
TEL products revenue in
Sales of residential phones fell because the market contraction continued during the period. In addition, shelf space reduction at a major retailer in the US resulted in lower sales of AT&T branded phones. During the period, the Group maintained its leadership position in the residential phone market in the US[2].
In commercial phones, higher sales of hotel phones and Snom branded SIP (Session Initiation Protocol) phones were insufficient to offset declines for headsets and multi-line analogue phones. Sales of hotel phones rose as the market in the US continued its post-pandemic recovery. Demand for SIP phones increased after the Group successfully revitalised its go-to-market strategy for these products. Headsets, however, were affected by reduced orders from a customer, while sales of multi-line analogue phones decreased as the products made the transition to a new generation.
For other telecommunication products, sales of the Group's popular range of baby monitors held stable, although consumers were becoming more price sensitive. However, decreases in CareLine® residential phones and IADs (integrated access devices) resulted in an overall sales decline for other telecommunication products. VTech achieved an important breakthrough with the launch of the V-Care VC2105 Smart Baby Monitor in September 2023. Harnessing unique AI (artificial intelligence) capabilities, the over-the-crib Wi-Fi video monitor provides sleep analytics and real-time alerts, while allowing parents to watch over their baby at home on a 5-inch, HD (high-definition) display or remotely on their smartphone.
In the first six months of the financial year 2024, the Group maintained its number one position in the baby monitor market in the US and
CMS revenue in
Professional audio equipment saw higher sales of power amplifiers, professional loudspeakers and wireless microphones. In addition to the boost from the improved supply of materials, successful new product launches by a customer bolstered growth. In IoT products, a new customer was acquired in the field of smart home control systems, with sales starting to make a contribution during the period. Industrial products sales were down as customers faced over-inventory. Solid-state lighting sales declined as market demand softened. Sales of communication products also trended down, as the customer's products reached the end of their life cycle.
During the period, VTech CMS received a "20 Years Partnership Award" from a US customer in the industrial products category.
Group revenue in
ELPs revenue in
In standalone products, both VTech and LeapFrog products reported sales declines. For VTech, higher sales of preschool products, electronic learning aids, Marble Rush and eco-friendly products were offset by lower sales of infant and toddler products, KidiZoom cameras and the Kidi line. For LeapFrog, Magic Adventures Microscope and eco-friendly toys saw sales increases, while the launch of Magic Adventures Telescope added to growth. These gains, however, were offset by declines in infant, toddler and preschool products, as well as the LeapLand Adventures range.
In platform products, the VTech and LeapFrog brands both experienced a decline. The decrease at VTech was largely due to lower sales of KidiZoom Smartwatches, children's educational tablets and the KidiCom® range of products. Sales of Touch & Learn Activity Desk held stable. For LeapFrog, lower sales of interactive reading systems and Magic Adventures Globe resulted in the overall decrease.
In the first six months of the financial year 2024, VTech was given the prestigious "Trophée de l'innovation (Innovation Trophy) 2002-2023" by a key customer in
Revenue from TEL products in
In residential phones, sales of VTech branded phones grew as the Group expanded into
The decline in commercial phones was mainly due to lower sales of hotel phones and headsets. Sales of Snom branded SIP phones held stable. The more advanced D8 SIP desksets have been well-received by customers because of their HD LCD (liquid crystal) display, attractive aesthetics and superior quality, despite their higher price point. Meanwhile, the D7 series, which is positioned as a value product, was expanded further to meet market demand. As a result, the Snom brand now offers a complete range of SIP products from entry to premium level.
In contrast, sales of hotel phones declined, because keen competition made growth challenging despite a pick-up in the market as travel gradually returned to pre-pandemic levels. Distribution of hotel phones in the region was, however, strengthened by the addition of Snom Technology GmbH (Snom) as a distribution channel in continental
For other telecommunication products, growth in baby monitors was insufficient to compensate for a drop in CareLine residential phones, CAT-iq (Cordless Advanced Technology—internet and quality) handsets and IADs.
During the period, the Group's baby monitors and sleep trainers both gained recognition in the
CMS revenue in
Professional audio equipment saw growth in audio mixers as market demand continued to recover, offsetting a decline for home audio interface products. Smart energy storage systems benefited from production ramping up as materials supply improved, while communication products sales increased as the customer launched new Wi-Fi routers. Growth in medical and health products was driven by higher sales of hearing aids, as business activities continued to accelerate following the end of the pandemic. Sales of hearables declined as market demand returned to pre-pandemic levels. IoT products saw a decrease as the smart meters customer returned to a more normal sales pattern following earlier market share gains, while sales of internet connected thermostat and air-conditioning controls were little changed. Automotive products sales fell as the customer for EV (electric vehicle) chargers lost market share owing to increased competition and a delayed product launch. The Group added a new customer in the professional audio equipment category of USB streaming microphones for the professional gaming market, with hardware and software designed in-house by VTech CMS.
During the period, VTech CMS was named "Supplier of the Year" by an IoT product customer in
Group revenue in
Revenue from ELPs in
TEL products revenue in
CMS revenue in
Sales of professional audio equipment surged as orders for DJ equipment grew significantly owing to improved materials supply. VTech also benefited from market share gains and more new product launches by the customer. In medical and health products, orders of diagnostic ultrasound systems held stable. Lower communication products sales were the result of a customer losing market share due to increased competition, leading to a decrease in orders for marine radios.
Other Regions
Group revenue in Other Regions, comprising
ELPs revenue in Other Regions increased by
TEL products revenue in Other Regions declined by
CMS revenue in Other Regions was immaterial in the first six months of the financial year 2024.
Outlook
The wars in
In light of the less favourable economic environment, Group revenue for the full financial year is now expected to show a slight decline. Profitability, however, remains on track to show improvement for the full year, as materials prices and freight charges trend down year-on-year. To bolster profitability further, the Group will continue to exert strict control on inventory and operating expenses. Despite this, VTech will commit resources to advertising and promotions and exercise tight management to ensure good sell-through of products in the upcoming holiday seasons.
For ELPs, full year revenue is now expected to post a decline, even though second half sales will show improvement over the first half. Faced with higher living costs, price-sensitive consumers are delaying holiday season purchases in search of bargains. The ELPs business will, however, benefit from the re-organisation of the US operations that is now complete. The new leadership team that has been put in place will be able to monitor sell-through closely and react swiftly with appropriate advertising and promotions. This will maximise sales and ensure that VTech emerges from the holiday season with a healthy level of inventory.
As ever, an exciting array of new standalone and platform products will help drive sales, adding to the recent product launches already mentioned. Magic Adventures Telescope recently garnered one of the most prestigious consumer product awards, being named as one of Time magazine's "Best Inventions of 2023". The product has also been awarded "Best Toy of the Year 2023" by the Spanish Association of Toy Manufacturers and named one of the Belgian Toy Federation's "Toys and Games of the Year".
The second half will see introduction of the new KidiZoom Smartwatch MAX, the latest generation of this enduringly popular product range. It features a sleek and stylish design, with a landscape display that is the ideal fit for a child's wrist. Momentum will be further strengthened by the innovative Turbo Edge Riders™, a brand-new line of racing track sets that combines the excitement of car racing with creativity. Children can build and race through a stunt-filled course right out of the box and then expand it with repurposed shipping boxes and everyday objects to create even more epic courses.
Sales of TEL products are now forecast to be lower for the full financial year 2024. Residential phones sales in
CMS outperformed the global EMS (electronic manufacturing services) market in the first half and hence revenue for the full financial year is now expected to increase. Sales in the second half are, however, anticipated to slow down as the global economy is weakening. Customers are cautious about placing orders and are managing inventory tightly. Despite this, continued good performance is expected from professional audio equipment, hearing aids and smart energy storage systems. Orders from the new customer for smart home control systems will continue to ramp up.
"The rising geo-political uncertainties present significant challenges to global economic growth and hence to the sales outlook. VTech is in a strong position, however, with a solid balance sheet and reputable brands rooted in product innovation and operational excellence. We are therefore confident of successfully managing through these difficult times," said Mr Wong.
[1] Circana, Retail Tracking Service. Ranking based on total retail sales of VTech and LeapFrog products in the combined toy categories of early electronic learning, toddler figure and playset, walker, electronic entertainment (excluding tablets) and preschool electronic learning for the calendar year ended September 2023 [2] MarketWise Consumer Insights, LLC, April 2023 to September 2023 [3] Circana/Retail Tracking Service, US and [4] Music Trade Magazine, September 2023 [5] Circana, Retail Tracking Service, January 2023 – September 2023 [6] Circana, Retail Tracking Service, January 2023 – September 2023 |
About VTech
VTech is the global leader in electronic learning products from infancy through toddler and preschool and the largest manufacturer of residential phones in the US. It also provides highly sought-after contract manufacturing services. Since its establishment in 1976, VTech has been a pioneer in the electronic learning toy category. With advanced educational expertise and cutting-edge innovation, VTech products provide fun and learning to children around the world. Leveraging decades of success in cordless telephony, VTech's diverse collection of telecommunication products elevates both home and business users' experience through the latest in technology and design. As one of the world's leading electronic manufacturing service providers, VTech offers world-class, full turnkey services to customers in a number of product categories. The Group's mission is to integrate economic growth, environmental protection and social responsibility in its business strategies to design, manufacture and supply innovative and high quality products for the well-being of people and benefits of society, aiming to drive sustainable value for its stakeholders and the communities.
Note: Starting from 22:00, 15 November (HKT), the webcast of the results announcement can be accessed through VTech website via this link https://www.vtech.com/en/investors/financial-briefings/.
This release is issued by VTech Holdings Limited through Golin. For further information, please contact:
Grace Pang VTech representative in
VTech Holdings Limited Edmund Chan, Golin
(852) 2680-1000 (office) (852) 2501-7872 (office)
grace_pang@vtech.com (email) echan@golin.com (email)
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SOURCE VTech
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