VTech Announces 2022|2023 Interim Results.

HONG KONG: Higher revenue and profit as materials supply and gross margin improved

Group revenue increased 4.5% to US$1,164.8 million

Gross profit margin rose from 27.4% to 28.3%

Profit attributable to shareholders of the Company increased 6.6% to US$82.0 million

Interim dividend of US17.0 cents per ordinary share, unchanged

Complex and volatile operating environment leading to revised full year outlook

Financial position remains strong

VTech Holdings Limited (HKSE: 303) today announced its results for the six months ended 30 September 2022, showing higher revenue and profit as materials supply and gross margin improved.

"VTech achieved a solid result in the first half of the financial year 2023, recording an increase in both revenue and profit. The growth in revenue came as the supply of materials improved, leading to better order fulfilment and resulting in higher sales in North America and Asia Pacific. Profitability was buoyed by an improvement in gross profit margin," said Mr. Allan Wong, Chairman and Group CEO of VTech Holdings Limited.

Results and Dividend

Group revenue for the six months ended 30 September 2022 rose by 4.5% to US$1,164.8 million, from US$1,114.8 million in the corresponding period last year. Higher sales in North America and Asia Pacific offset lower sales in Europe and Other Regions. The revenue growth was partially due to some shipments to major markets having been advanced in order to avoid logistics delays.

Profit attributable to shareholders of the Company increased by 6.6% to US$82.0 million. The growth in profit was mainly attributable to higher gross profit margin as cost of materials, direct labour costs and manufacturing overheads decreased as a percentage of Group revenue. The improvement in gross profit margin also reflected the positive impact of price increases during the period. The increase in profit came despite a depreciation of the major currencies against the US dollar, and a continued rise in freight and other costs.

Basic earnings per share increased by 6.6% to US32.5 cents, compared to US30.5 cents in the same period of the financial year 2022.

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 2022.

Costs

The Group's gross profit margin in the first six months of the financial year 2023 was 28.3%, as compared with 27.4% in the same period last year.

The increase in gross profit margin was mainly attributable to the increase in selling prices and lower cost of materials, while direct labour costs and manufacturing overheads benefited from the productivity gains during the period. These offset the negative impact of the depreciation of the major currencies against the US dollar, as well as an increase in inventory provisions. These arose from early production and shipment of the Group's products to its overseas warehouses in order to mitigate higher freight costs and the risk of vessel capacity constraints during the peak season.

US-China Tensions

Tensions between mainland China and the US have continued to mount. On 7 October this year, the US Department of Commerce published a raft of new technology restrictions on mainland China, limiting its access to certain semiconductors and chip-making equipment. There is no impact on the Group's businesses from these measures. Neither the Group's products nor the equipment used in production is affected.

Manufacturing Footprint

VTech has embarked on a strategy of rationalising its manufacturing base in order to raise its competitiveness and position for further growth. The implementation of this strategy began in August 2018 with the acquisition of its first manufacturing facilities in Malaysia, at a site in Muar. Since then, the Group has expanded its production in Malaysia and to Mexico, with the acquisition of two more manufacturing facilities, in Penang in 2020 and Tecate in 2021. The facility in Tecate, which manufactures professional loudspeakers and other electronic products for customers in North America, is now contributing revenue to contract manufacturing services (CMS). As VTech expands its production base further, its manufacturing footprint will become increasingly global.

Segment Results

North America

Group revenue in North America increased by 6.5% to US$530.5 million in the first six months of the financial year 2023. Higher sales of electronic learning products (ELPs) and CMS offset lower sales of telecommunication (TEL) products. North America remained VTech's largest market, accounting for 45.5% of Group revenue.

ELPs revenue in North America rose by 4.5% to US$266.5 million, with a particularly strong increase in Canada. The growth was driven by higher sales of standalone products, as VTech strengthened its core learning product offerings. It also reflects the Group's success in delivering products on time and improving channel inventory, through adjusting production and shipment schedules to avoid logistics delays.

During the first nine months of the calendar year 2022, the Group maintained its leadership as the number one manufacturer of electronic...