An increase in profit as a result of a decrease in operating expenses and an increase in gross margins
The results of VTech Holdings Limited (HKSE: 303) for the six months ended 30 September 2023 were released today, and the company reported an increase in profit for the period.
In spite of a slight decline in revenue in the first half of the financial year 2024, VTech reported an increase in profit as operating expenses decreased and gross profit margin improved. A particularly impressive performance was shown by VTech Holdings Limited's contract manufacturing services (CMS), which achieved record revenue during the first half," said Mr. Allan Wong, Chairman and CEO of VTech Holdings Limited.
The results and dividends for the quarter
In the six months ended 30 September 2023, the group's revenues decreased by 2.1% to US$1,140.9 million, compared to US$1,164.8 million in the corresponding period last year. Lower sales in North America, Europe, and Other Regions were offset by higher sales in Asia Pacific.
During the period under review, the Company's net profit attributable to shareholders rose by 14.1% to US$93.6 million. The growth in profits was mainly attributable to lower operating expenses as selling and distribution costs declined, along with modest improvements in gross profit margins.
As of the end of the previous financial year, basic earnings per share increased by 13.8% to US37.0 cents, compared to US32.5 cents in the same time period of the previous financial year.
In accordance with the Board of Directors' decision, the company has declared an interim dividend of US17.00 cents per ordinary share, unchanged from the dividend declared in the first half of the financial year 2023.
The costs involved
It has been reported that the gross profit margin of the Group was 28.5% in the first six months of the financial year 2024, compared to 28.3% in the same period of the previous financial year.
It was due to a reduction in freight costs and inventory provisions that the improvement was achieved.  There was also a decline in direct labour costs and manufacturing overheads, a result of the depreciation of the Renminbi against the US dollar, a rise in automation, and a reduction in the number of workers in the factories. There are two negative factors that have been offset by these gains. In spite of lower materials prices, the cost of materials as a percentage of Group revenue increased as a result of a change in the composition of products. It is also important to note that the depreciation of most currencies against the US dollar during this period also had a negative impact on
It is also important to note that the depreciation of most currencies against the US dollar during this period also had a negative impact on
Results by Segment
The North American continent
During the first six months of the financial year 2024, the Group's revenue in North America declined by 7.7%, reaching US$489.4 million, despite a higher sales of CMS offset by lower sales of electronic learning products (ELPs) and telecommunication products (TELs). VTech's largest market remains North America, accounting for 42.9% of the Group's revenue.
In North America, the revenue of ELPs declined by 21 percent from last year.To US$208, an increase of 8%.The number of people in the country is four million. There was a significant decline in sales as a result of lower sell-through rates. Moreover, the unfavourable year-on-year comparison is also due to the advancement of some customer shipments during the comparable period of last year in order to compensate for logistics delays that occurred in the previous year. We are pleased to announce that through the first nine months of the calendar year 2023, the Group maintained its position as the number one manufacturer of electronic learning toys for infants, toddlers, and preschoolers in the US and Canada[1].
We are pleased to announce that through the first nine months of the calendar year 2023, the Group maintained its position as the number one manufacturer of electronic learning toys for infants, toddlers, and preschoolers in the US and Canada[1].
Both the VTech and LeapFrog brands saw a decline in sales of standalone products and platform products. Across all standalone products offered by VTech, growth in the Go! Go! Smart family of products, Switch & Go® Dinos, and Kidi line of products was not sufficient to offset the declines in infant, toddler, and preschool products, the KidiZoom® range, Marble Rush®, and eco-friendly toys.. Despite higher sales of eco-friendly toys at LeapFrog, lower sales of infant, toddler and preschool products, such as the LeapLand AdventuresTM and Magic AdventuresTM Microscope, were offset by higher sales of eco-friendly toys
Despite higher sales of eco-friendly toys at LeapFrog, lower sales of infant, toddler and preschool products, such as the LeapLand AdventuresTM and Magic AdventuresTM Microscope, were offset by higher sales of eco-friendly toys
In platform products, decreased sales of KidiZoom Smartwatches, Touch & Learn Activity DeskTM, and KidiBuzzTM resulted in a decrease in the overall sales of VTech platform products. The sales of LeapFrog platform products also declined, as those of children's educational tablets, interactive reading systems, as well as Magic Adventures Globe all decreased, and subscription revenue for LeapFrog AcademyTM was also lower.
During the period of time, a large number of innovative new products were launched in order to strengthen the standalone product ranges of VTech.. We saw a number of additions to the core learning products in the baby, infant, toddler and preschool categories this year. We introduced four new products in the baby category, including Storytime with SunnyTM and Style & Glam On UnicornTM, which provide children with a range of learning activities. These include the 6-in-1 Tunnel of FunTM, the Snuggle & Discover Baby WhaleTM, the Prop & Play Tummy Time PillowTM and the 2-in-1 Roll & Discover Roller DrumTM.. Among the many new features introduced with the revamped Go! Go! Smart range, are new playsets and vehicles, as well as new products featuring CoComelon, one of the most popular licensed characters.. A number of new dinosaur models have been added to the Switch & Go Dinos line, as well as more eggs that are capable of hatching into different dinosaurs
A number of new dinosaur models have been added to the Switch & Go Dinos line, as well as more eggs that are capable of hatching into different dinosaurs
LeapFrog's award-winning Magic Adventures line is building on its success with the launch of Magic Adventures Telescope, a new addition to the Magic Adventures line. It is equipped with 110-times zoom and more than 100 interactive videos and images, courtesy of NASA, that allow children to develop their STEAM skills (science, technology, engineering, the arts and mathematics) and make discoveries about the universe through its interactive features.. With new role-play toys that introduce important early learning skills, LeapFrog's range of core learning products has been enhanced with new products, such as Build-a-Slice Pizza CartTM, Rainbow Tea for TwoTM, and Spin & Change Apple Shape SorterTM..  It has been announced that the range of eco-friendly toys has also expanded, with the addition of three new wooden toys that combine the learning technology of VTech with the best quality FSC-certified wood available
 It has been announced that the range of eco-friendly toys has also expanded, with the addition of three new wooden toys that combine the learning technology of VTech with the best quality FSC-certified wood available
A number of awards and recommendations were given to the Group's ELPs during the first half of the financial year 2024, as well as recommendations from industry experts in toy and parenting, as well as retailers and toy advisory boards in both the US and Canada.. Among the top toys on Walmart's "Top Toy List for the year 2023" in the US is the Drill & Learn WorkbenchTM by VTech, while Storytime with Sunny is included on Walmart Canada's "Top Toy List for the year 2023" by VTech.. As part of The Toy Insider's 2023 "Hot 20" list, Switch & Go 3-in-1 Rescue Rex and LeapFrog Touch & Learn Wooden Activity CubeTM made the list, while Magic Adventures Telescope made the list of "STEM 10".. The Marble Rush Tip & Swirl SetTM has been named to The Toy Association's "Summer Learning STEAM Toys" list for 2018
The Marble Rush Tip & Swirl SetTM has been named to The Toy Association's "Summer Learning STEAM Toys" list for 2018
In North America, revenue from the sale of telecommunication products fell by 16.1% to US$103.9 million, with declines in revenue from residential phones, commercial phones, and other telecommunication products.
There was a decline in residential phone sales as a result of the continuing contraction of the market. Additionally, the Group's sales of AT&T branded phones decreased due to the reduction of shelf space at one major retailer in the US. During the period, the Group maintained its leadership position in the residential phone market in the US[2].
In the commercial phone market, the growth in sales of Snom branded SIP phones (Session Initiation Protocol) and hotel phones was not enough to offset declines in sales of headsets and multi-line analogue phones.. The hotel phone market in the US continued its recovery after the pandemic, resulting in an increase in sales of hotel phones.  In the last few months, the demand for SIP phones has increased significantly as a result of the Group revitalising its go-to-market strategy for these products. It should be noted that headset sales were negatively affected by reduced orders from a customer, whereas multi-line analogue phone sales decreased due to the transition to a new generation of devices
It should be noted that headset sales were negatively affected by reduced orders from a customer, whereas multi-line analogue phone sales decreased due to the transition to a new generation of devices
As for other telecommunications products, sales of the Group's popular range of baby monitors held steady despite the fact that consumers were becoming more aware of price differences. It must be noted, however, that the decrease in sales of CareLine® residential phones and IADs (integrated access devices) resulted in an overall decline in sales of other telecommunications products.. With the release of the V-Care VC2105 Smart Baby Monitor in September 2023, VTech achieved an important milestone in the development of its baby monitors.. Featuring real-time sleep analytics and real-time alerts, the over-the-crib Wi-Fi video monitor works by utilizing unique AI (artificial intelligence) capabilities to provide parents with the ability to watch over their baby at home on a 5-inch HD display or remotely on their smartphone from anywhere in the world
 Featuring real-time sleep analytics and real-time alerts, the over-the-crib Wi-Fi video monitor works by utilizing unique AI (artificial intelligence) capabilities to provide parents with the ability to watch over their baby at home on a 5-inch HD display or remotely on their smartphone from anywhere in the world
This Group was able to maintain its number one position in the baby monitor market in the US and Canada during the first six months of the financial year 2024[3]. In the same period, LeapFrog's LF2936FHD Baby Monitor was chosen as "Touch Screen Monitor Product of the Year" in the "2023 Baby Innovation Awards".
VTech's revenue for its CMS product line in North America increased by 26.4% to US$177.1 million as a result of improved materials supply, which enabled the company to clear a backlog of orders from clients. In contrast, declines in industrial products, solid-state lighting, and communication products were offset by growth in professional audio equipment and internet of things (IoT) products. Therefore, VTech is regarded as the leading contract manufacturer for professional audio equipment in the world for the calendar year 2022[4].
In the professional audio equipment category, sales of power amplifiers, professional loudspeakers, and wireless microphones saw a spike in sales. As well as the boost from the improved supply of materials, the success of a new product launch by a customer also contributed to the growth of the company. There was an acquisition of a new customer in the field of smart home control systems in the field of IoT, with sales starting to contribute to the company's income during the period in question.. As a result of overstocking by customers, industrial products sales were down. There was a decline in solid-state lighting sales as a result of softening market demand. A decline in the sale of communication products was also observed, as the products of the customers reached the end of their useful lives
A decline in the sale of communication products was also observed, as the products of the customers reached the end of their useful lives
In the course of this period, VTech CMS received a "20 Years Partnership Award" from a US customer in the category of industrial products, as well.
The European Union
During the first six months of the fiscal year 2024, Group revenue in Europe decreased by 0.4% to US$456.7 million. The higher sales from CMS were not enough to offset the lower sales of ELPs and TEL products, which led to VTech's second largest market, accounting for 41.1% of the Group's revenue.
In Europe, ELP's revenue fell by eight percent from the previous year.As a result, US$146 has increased by 2%.There are two million people in the world. Similarly to North America, the decline was mainly attributed to lower shipments to customers of both standalone and platform products, following an increase in shipments in the same period last year, following the improvement in shipments in the previous year's corresponding period, as shown below.. The decline in sales can also be attributed to weaker sell-through and the depreciation of the euro and sterling against the US dollar during the period.. There was a decrease in sales in France, the UK, Spain and the Netherlands, offsetting a rise in sales in Germany.. In the first nine months of the calendar year 2023, VTech was able to remain the world's number one toy manufacturer for infants and toddlers in France, the UK, Germany and the Benelux countries. In addition, the Group has also regained its position as the largest producer of infant and toddler toys in Spain[5].
In addition, the Group has also regained its position as the largest producer of infant and toddler toys in Spain[5].
There was a decline in sales for both VTech and LeapFrog products in the standalone category. The higher sales of preschool products, electronic learning aids, Marble Rush, and eco-friendly products for VTech were offset in part by lower sales of infant and toddler products, KidiZoom cameras, and the Kidi line of products.. LeapFrog has seen an increase in sales through the launch of Magic Adventures Microscope and eco-friendly toys, while the launch of Magic Adventures Telescope has contributed to the growth of the company. The gains in these categories were, however, offset by declines in products for infants, toddlers, and preschoolers, as well as the LeapLand Adventures line.
The gains in these categories were, however, offset by declines in products for infants, toddlers, and preschoolers, as well as the LeapLand Adventures line.
In platform products, the VTech and LeapFrog brands both experienced a decline. At VTech, the decrease was mainly due to lower sales of KidiZoom Smartwatches, educational tablets for children, and the KidiCom® line of products. Compared to last year, Touch & Learn Activity Desk sales held steady, while LeapFrog's sales decreased as a result of lower sales of its interactive reading system and Magic Adventures Globe.
As a result of VTech's success in the first six months of the financial year 2024, VTech received the prestigious "Trophée de l'innovation (Innovation Trophy) 2002-2023" from a key customer in France. In addition, four of the VTech ELPs were awarded with "Grand Prix du Jouet 2023" awards by France's La Revue du Jouet journal. It was awarded to KissKiss, Mon toutou bisous (Kosy the Kissing Puppy) in the category for "Best Interactive Plush Toy" as well as Switch & Go Combo – Trio, le mega T-Rex SOS 3 en 1 (3-in-1 Rescue Rex) in the category for "Best Transformable Vehicle," KidiSecrets Mon casier MagicLocker in the category for "Best Electronic Game", and Genius XL – Télescope Vidéo Interactif (Magic Adventures Telescope) in the category for "Best Scientific Toy"
It was awarded to KissKiss, Mon toutou bisous (Kosy the Kissing Puppy) in the category for "Best Interactive Plush Toy" as well as Switch & Go Combo – Trio, le mega T-Rex SOS 3 en 1 (3-in-1 Rescue Rex) in the category for "Best Transformable Vehicle," KidiSecrets Mon casier MagicLocker in the category for "Best Electronic Game", and Genius XL – Télescope Vidéo Interactif (Magic Adventures Telescope) in the category for "Best Scientific Toy"
Compared to last year, revenue from TEL products in Europe decreased by 5.6% to US$43.7 million. The decline was widespread across residential phones, commercial phones, and other telecommunication products.
The Group's residential phone sales increased as the Group expanded into France and Italy and also increased sales in the UK and Germany as a result of the Group's expansion into France and Italy. However, this growth was offset by lower shipments to ODM (original design manufacturing) customers, which were experiencing over-inventory during this time period.
Commercial phone sales declined mainly as a result of lower sales of hotel phones and headsets, which account for the majority of the decline. The sales of Snom branded SIP phones remained stable throughout the year. It has been our experience that the more advanced D8 SIP desksets have been well-received by the market due to their HD LCD (liquid crystal) display, stylish aesthetics and superior quality, regardless of their higher price point.. During this time, the D7 series, which is positioned as a value product, has been further expanded to meet the needs of the market.. This has resulted in Snom now being able to offer a comprehensive range of SIP products, ranging from entry-level models to premium-level models
This has resulted in Snom now being able to offer a comprehensive range of SIP products, ranging from entry-level models to premium-level models
Despite a gradual return to pre-pandemic levels of travel, hotel phone sales declined, due to tough competition that made growth challenging, despite a recovery in the market as travel gradually recovered. In continental Europe, the distribution of hotel phones, however, has been strengthened by the addition of Snom Technology GmbH (Snom) as a distribution channel. The sales of headsets declined as an ODM customer reduced their orders.
As for other telecommunication products, the growth in baby monitors was insufficient to make up for the drop in CareLine residential phones, the CAT-iq (Cordless Advanced Technology-internet and quality) handsets and the IADs.
In this period, the Group was able to gain a lot of recognition in the UK both for its baby monitors and sleep trainers. As part of the "UKMUMS.tv Pre-school and Baby Awards 2023", the VTech brand won awards for both of its baby monitors, the RM7766HD and the VM5463, as well as the BC8313 V-HushTM Pro Soothing Sleep Trainer. LeapFrog also won UKMUMS.tv awards for its LF920HD and LF2936FHD baby monitors while the LF815HD and LF1911 baby monitors, respectively, won silver and gold in the "Dadsnet Product Awards 2023.
In Europe, CMS revenue increased by 5.3% to $278.8 million, primarily due to an improvement in the supply of raw materials. In spite of declining sales of hearables, Internet of Things products, and automotive products, higher sales of professional audio equipment, smart energy storage systems, communication products, and medical and health products compensated for the decline in sales of home appliances.
There was a rise in the demand for audio mixers in professional audio equipment as the market continued to recover, offsetting a decline in the demand for home audio interfaces. It is evident that smart energy storage systems have benefited from production ramping up as materials supply has improved, while communication products have benefited from the launch of new Wi-Fi routers by the customer. As business activities continued to accelerate following the end of the pandemic, the growth in medical and health products was driven by higher sales of hearing aids.. Due to the return to pre-pandemic levels of market demand, sales of hearables have declined. There was a decrease in sales of internet-connected products during the quarter, as the smart meter customer returned to a more normal sales pattern following earlier market share gains, while internet-connected thermostats and air-conditioning controls did not show any major changes.. As a result of increased competition and a delayed launch of the product, sales of automotive products decreased in response to the loss of market share for EV (electric vehicle) chargers. VTech CMS is delighted to announce that the Group has gained a new customer from the category of professional audio equipment in the form of USB streaming microphones for the professional gaming market. Both the hardware and software were developed by the company in-house.
VTech CMS is delighted to announce that the Group has gained a new customer from the category of professional audio equipment in the form of USB streaming microphones for the professional gaming market. Both the hardware and software were developed by the company in-house.
There was a period during which VTech CMS was named "Supplier of the Year" by an IoT product customer in Germany and won an "Outstanding Supplier Award" from a professional audio customer in the United Kingdom during the period.
The Asia-Pacific region
It has been reported that Group revenue in Asia Pacific increased by 12.7% to US$171.5 million in the first six months of the financial year 2024 as higher sales of CMS products offset lower sales of ELPs and TEL products. The region accounted for 15.0% of Group revenue overall.
There was a 16 percent decrease in revenue from ELPs in Asia Pacific from last year.There is a 5% increase to US$35.There was an increase in sales in mainland China, which was offset by a decline in Australia and Japan, which amounted to $0 million. There was an increase in sales across both online and offline channels in mainland China. A major reason for this was the resumption of activities following the lifting of restrictions imposed by COVID. A recovery in sales of core learning products as a result of this resulted in growth for the company. The Magic Adventures Microscope was shortlisted for the Innovation Design Awards at the 2023 CBME (Children Baby Maternity Expo) in June of this year.. As a result of declining sales in Australia, both VTech and LeapFrog brands reported declines in sales. It was largely due to a weakening economy as a result of higher inflation and interest rates combined with a weakening economy. VTech remained the number one toy manufacturer in the infant and toddler toy category[6] in the country during the first nine months of the calendar year 2023. As a result of a lower sell-through rate for the jointly developed smartwatches and a decrease in sales to a major toy retailer in Japan, sales have declined
As a result of a lower sell-through rate for the jointly developed smartwatches and a decrease in sales to a major toy retailer in Japan, sales have declined
As a result, the revenue from TEL products in Asia Pacific decreased by 16 percent.There will be a 5% increase to US$11 per share.As a result of lower sales in Japan and Hong Kong, higher sales in Australia offset lower sales in Japan and Hong Kong. Due to over-inventory, an ODM client in Japan reduced orders for residential phones, resulting in a decline in sales. In Hong Kong, the lower sales of IADs and residential phones resulted in a decrease in the overall sales of the company. A decline in residential phone sales in Australia, however, was offset by continued growth in baby monitor sales. It has been announced that the Group's baby monitors have won two "Bounty Baby Awards 2023" in August.. In the "Best Baby Monitor" category, the VTech BM775HD Baby Monitor was named the "Bronze Winner", whereas LeapFrog's LF925HD Baby Monitor was named one of the five Editors' Top Picks.
In the "Best Baby Monitor" category, the VTech BM775HD Baby Monitor was named the "Bronze Winner", whereas LeapFrog's LF925HD Baby Monitor was named one of the five Editors' Top Picks.
In Asia Pacific, CMS revenue increased by 29.6% to US$124.9 million, primarily due to growth in professional audio equipment, offset by a decline in communication products. Sales of medical and health products were stable in the region.
As a result of improved materials supply, the sale of professional audio equipment boomed as DJ equipment orders soared. Furthermore, VTech also benefited from increased market share and more new product launches from customers. Medical and health products, on the other hand, saw stable orders for diagnostic ultrasound systems. In the case of communication products, there was a significant decrease in orders for marine radios as a result of the loss of market share from a customer due to increased competition.
Regions other than North America
During the first six months of the financial year 2024, Group revenue in Other Regions, which include Latin America, the Middle East and Africa, decreased by 3.4% to US$11.3 million. There was a decrease in the Group revenue because of higher sales of ELPs offset by lower sales of TEL products. Other Regions accounted for 1.0% of the Group's revenue in the first half.
During the quarter, ELP's revenue in Other Regions increased by 3.1% to US$6.6 million. Higher sales in Latin America and the Middle East offset lower sales in Africa as a result.
The revenue from the TEL products in Other Regions decreased by 11.3% to US$4.7 million, as a result of lower sales in Latin America and the Middle East, which offset the growth in Africa, resulting in the decline.
The revenue of CMS in Other Regions in the first six months of the financial year 2024 has been insignificant.
The outlook
Markets around the world are feeling the effects of the wars in Ukraine and the Middle East, as well as the uncertainty in the global economy. There is volatility in energy costs, while interest rates are forecast to remain high in the US and Europe for a long time to come. As a result, consumers are spending less and businesses are investing less as a result. A strong US dollar continues to put pressure on retailers in markets outside of the US. I would like to point out that despite the pressure on raw materials and critical components supplies in recent months, together with freight costs, the situation has significantly improved.
I would like to point out that despite the pressure on raw materials and critical components supplies in recent months, together with freight costs, the situation has significantly improved.

Source prnewswire