Good afternoon, ladies and gentlemen, and welcome to all our viewers online. Today, VTech Holdings Limited is announcing its annual results for the fiscal year end, March 31, 2023. Let me introduce our management. King Pang, Executive Director and Group President. Allan Wong, Chairman and Group CEO. Andy Leung, Executive Director and CEO of Contract Manufacturing Services. And Shereen Tong, Group Chief Financial Officer. First of all, Ms. Tong will present the group financial performance. Next, Mr. Leung will talk about the group's operations and performance in North America and Europe. Mr. Pang will then continue to share the rest of the segment results and give the management outlook for this fiscal year. We will finish our presentation with a Q&A session. Now may I invite Ms. Tong to open today presentations. Ms. Tong, please.
Thank you, Grace. Good afternoon, ladies and gentlemen, and all viewers online. First of all, I would like to share with you the financial highlights of the group for the year end March 31, 2023, compared with the same period of the last year. As you see from the slide, the revenue of the group reduced by 5.4% to $2,241.7 million. The decrease in revenue was mainly due to the decline in revenue in North America and Europe, which offset the higher sales in Asia Pacific and other regions. Our gross profit reduced by 5.3% to $633.7 million. Our gross profit margin, however, improved slightly from 28.2% to 28.3%. The increase in gross profit margin was mainly due to the increase in selling prices, lower cost of materials, freight charges, direct labor cost, and manufacturing overhead.
These offset the negative impact of the lower gross revenue, depreciation of the major foreign currencies against U.S. dollar, change in product mix, as well as the increase in inventory provision. Our operating profit reduced by 11.4% to $180.5 million, and our operating profit margin also reduced from 8.6% to 8.1%. The reduction in operating profit and operating profit margin was mainly due to the decline in gross profit, as well as the increase in advertising and promotion cost for our electronic learning products and telecom products as percentage of the group's revenue. Our profit attributable to shareholders reduced by 13.6% to $149.2 million, and our net profit margin also reduced from 7.3% to 6.7%. As a result, our basic earning per share reduced by 13.7% to 59.1 U.S. cents.
Our board of directors has proposed a final dividend of 42 U.S. cents, bringing the total dividend per share for the year to 59 U.S. cents, a decrease of 30.2% compared with the last fiscal year. Turning to the revenue by region, North America remained the largest market of the group, accounting for 43.9% of the group's revenue. Our sales in North America reduced by 7.8% to $984.8 million. It was mainly due to the lower sales of our electronic learning products and telecom products, which offset the higher sales of our Contract Manufacturing Services. Our sales to European market reduced by 10.5% to $917 million. It was mainly due to the lower sales of our electronic learning products and Contract Manufacturing Services, which offset the higher sales of our telecom products. In Asia Pacific region, the revenue of the group rose by 23.8% to $315.8 million.
The increase in revenue was due to the increase in sales of our telecom products and Contract Manufacturing Services, which offset the lower sales of our Electronic Learning Products. Other regions include Latin America, Middle East, and Africa. The gross revenue in other regions rose by 10% to $24.1 million. It was mainly due to the increase in sales of our telecom products, which offset the lower sales of our Electronic Learning Products and Contract Manufacturing Services. Our stock balance as of March 31, 2023 was $475.5 million, reduced by 14.1% compared with the same period of the last year. Our stock turnover days also reduced from 131 days to 128 days. The lower stock level was mainly due to the decrease in raw materials as the supply constraint had eased compared with the same period of the last year.
Our trade debtors balance as of March 31, 2023 reduced from $325.4 million to $277.2 million compared with the last fiscal year. Our trade debtors turnover days also reduced from 65 days to 59 days. The lower trade debtors balance was mainly due to the decrease in revenue in the fourth quarter of the fiscal year 2023, compared with the same period of the last year. Our financial positions remain very strong. We were debt-free, and our net cash balance as of March 31, 2023 was $198.5 million, an increase of 1.4% compared with the same period of the last year. That is all of my presentation. I will now invite Mr. Andy Leung to share with you our operations review. Mr. Leung, please.
Thank you, Shereen. Good afternoon, everyone.
We will begin with the review of operation by looking at costs. The gross profit margin in the fiscal year 2023 was 28.3%, as compared with 28.2% in the previous fiscal years. The slight increase was mainly due to the lower cost of materials, freight charges, combined with an increase in selling prices. Direct labor costs and manufacturing overheads were also lower.
However, these gains were offset by the negative impact of the lower revenue, the depreciation of the major currency against U.S. dollar, an increase in inventory provision, and a change in product mix. Turning now to the operation review at each region. Revenue in North America decreased by 7.8% to $984.8 million, as lower sales of ELPs and telecom product offset an increase at CMS. North America remain our largest market, accounting for 43.9% of the group revenue.
ELP revenue in North America declined by 15.2% to $471.1 million, with sales decreases in the U.S. and Canada. Both standalone and platform product registered lower sales, with decline in VTech and LeapFrog brands. Despite the challenges, VTech retained its leadership in electronic learning toys from infancy through toddler to preschool in the U.S. In Canada, we remain the number one supplier in the infants, toddler, and preschool toys category. In the standalone product at VTech, Marble Rush and Kidi product reported higher sales.
These were insufficient to offset lower sales of infants, toddler, and preschool products, KidiZoom cameras, Switch & Go Dinos, and Go! Go! Smart family of products. At LeapFrog, we saw revenue growth from LeapLand Adventures and eco-friendly toys. The successful rollout of Magic Adventures Microscope also contributed additional revenue. However, these gains were offset by lower sales of infants, toddler, and preschool products.
Sales in VTech and LeapFrog platform product declined. Despite this, KidiZoom Smartwatch topped the youth electronics supercategory in the U.S. and Canada in the calendar year 2022. Subscription revenue from LeapFrog Academy also declined. Telecom product revenue in North America fell by 12.7% to $239.9 million. The decrease resulted from lower sales of residential phones, commercial phones, and other telecom products. This was despite a further decrease in sales from online channels.
Sales of residential phones fell as the U.S. residential phones market continues to contract, and shipment were affected by the tight supply of semiconductors. Commercial phones saw lower sales of multi-line phones, headsets, and SIP phones. Production of multi-line phone was affected by tight semiconductor supply. A major customer for headset reduced its order during the period. Sales of SIP phones decreased because of delayed product launch. These declines offset growth in hotel phones.
Sales of other telecom products decreased, mainly on decline in baby monitors and CareLine products. CMS revenue in North America increased by 14.9% to $273.5 million. Higher sales of professional audio equipment and industrial product offset a decline for solid-state lighting. Professional audio equipment benefited from the rebound after pandemic. We saw increased demand for power amplifiers and loudspeakers. The global industrial products were driven by more orders for printed circuit board assembly for coin and note recognition machine.
Sales of solid-state lighting registered a decline as a major customer reduced order. Sales of medical and health product remained stable. In the fiscal year 2023, we acquired new customer in IoT product and professional audio equipment. Revenue in Europe fell by 10.5% to $917 million. The decrease was due to lower sales of ELPs and CMS, which offset higher sales of telecom products.
Europe was the group's second-largest market, representing 40.9% of the group revenue. ELP revenue in Europe decreased by 12% to $330.1 million, with declines for both standalone and platform products. Sales in the calendar year 2022, we remained the number 1 infants and toddler manufacturer in France, U.K., Germany, Spain, and the Benelux countries. In standalone products, we then recorded higher sales of Marble Rush electronic learning aids and eco-friendly toys. However, these were insufficient to compensate for the lower sales of infants, toddler, and preschool product, KidiZoom camera, the Kitty Life, and the Toot-Toot family of products. At VTech, sales posted a slight increase as growth in eco-friendly toys and LeapLand Adventures offset decline in infants, toddler, and preschool products.
The launch of Magic Adventures Microscope added incremental business. For platform products, the decline in VTech was mainly due to the lower sales of children's educational tablets, Kidizoom smartwatches, the KidiCom range, and Touch & Learn Activity Desks. For VTech, higher sales of Magic Adventures Globe were insufficient to offset lower sales of interactive reading system. Revenue from telecom product in Europe rose by 2.8% to $96.4 million.
Sales of residential phones increased as VTech brand phone continues to grow in U.K. and Germany. During the period, several ODM customer increased orders. Other telecom products also achieved a sales increase. The group was able to meet demand for Kidi Audio Max headset as the supply of semiconductor improved. This offset lower sales of baby monitors, CareLine products, and IADs. Sales of commercial phones fell. Higher sales in hotel phones as new design were well-received by the market.
Sales of SIP phones and headsets were impacted by the economic slowdown in the region. CMS revenue in Europe declined by 11.8% to $490.5 million. Lower orders of hearable and communication product offset gain in the other categories. Sales of hearable declined because order for a customer Bluetooth headset decreased, and demand for commercial headset returned to normal after pandemic. Sales of communication product decreased as order for Wi-Fi router no longer benefited from upgrading.
Professional audio equipment grew on a recovery in demand for audio mixer. IoT products saw higher sales of smart meters as installation resumed in the U.K. The demand for internet-connected thermostat and air conditioning control improved. Medical and health product saw sales hearing aids increased, offsetting a decline in hair removal products. Sales of home appliance remained stable. The power supply category saw growth from smart energy storage system. I will now turn things over to King.
Thank you, Andy. Good afternoon, ladies and gentlemen. Looking now at Asia Pacific. Revenue in this region rose by 23.8% to $315.8 million. Higher sales of telecommunication products and CMS offset lower sales from ELPs. The Asia Pacific region represented 14.1% of group revenue. Revenue from ELPs in Asia Pacific decreased by 5.4% to $79.4 million.
Growth in Japan was unable to offset lower sales in mainland China. Sales in Australia held steady. Sales growth in Japan was driven by increase in shipments to a major toy retailer. Good sell-through of jointly developed smartwatches featuring popular Japanese characters added to the impetus. In Australia, despite tough market conditions, VTech maintained its position and widened its lead as the number one manufacturer in the infant and toddler toys category for calendar year 2022. In mainland China, higher online sales were insufficient to offset declines in offline channels.
Telecommunication products revenue in Asia Pacific increased by 2.5% to $28.4 million. Higher sales in Japan offset lower sales in Australia and Hong Kong. Sales growth in Japan was driven by higher orders of CareLine products from an existing customer. In Australia, sales of residential phones declined as the market shrank. Sales of baby monitors were impeded by semiconductor shortages. Lower orders of IADs were seen in Hong Kong. CMS revenue in Asia Pacific rose by 45% to $208 million.
Sales of professional audio equipment, medical and health products, and communication products were higher. Professional audio equipment enjoyed a rebound in DJ equipment. Our Malaysian facilities have now returned to full production. In medical and health products, orders for diagnostic ultrasound systems increased. In communication products, orders for marine radio increased. Other regions. Sales grew by 10% to $24.1 million.
Other regions accounted for 1.1% of group revenue. Higher sales of telecommunication products offset declines for ELPs and CMS. ELPs revenue in other regions decreased by 3.7% to $10.5 million. Higher sales in the Middle East were insufficient to offset declines in Latin America and Africa. Telecommunication products revenue in other regions rose by 24.8% to $13.6 million. Sales increases in Latin America and the Middle East offset a decline in Africa. CMS revenue in other regions was immaterial. Before sharing our outlook, I would like to outline the key steps we are taking to reorganize our operations for ELPs and telecommunication products. Our goal is to create a stronger, leaner, and more efficient organization that is expeditious in bringing our products and deft in responding to market changes.
The U.S. ELP business is undergoing a structural reorganization with a new leadership team, fewer management layers, and downsized operations. Productivity increase for our products is driven through enhanced segmentation and portfolio management, as well as through expanded license partnerships. Product planning and marketing are strengthened. We have targeted advertising and promotional spend, enhanced marketing communications, as well as leveraging the VTech and LeapFrog brands effectively.
We are rebuilding the e-commerce team to ramp up sales on online channels. We are also implementing measures to raise supply chain efficiency. To create a leaner and more efficient telecommunication products business, we are streamlining its R&D function in mainland China, tightening management, accelerating new product launches. We are also revitalizing our go-to-market strategy for commercial phones with dedicated teams to refocus telecommunication service providers and value-added retailers. Now looking forward. The macroeconomic outlook for FY 2024 is uncertain.
Challenges inflicted by persistent inflation and high interest rates in the U.S. and Europe look set to continue. Consumers remain price sensitive and hesitant on discretionary spendings. Our customers are exercising cautions in managing inventories and placing orders. In light of this, we are targeting revenue to be flat year-on-year. Profitability, on the other hand, is forecast to recover. Costs are trending lower.
Margins will be further boosted by the aforementioned actions taken in the ELPs and telecommunication products businesses. A bit more colors on cost. Cost trends for FY 2024 appear favorable. Cost of materials is expected to decrease as supply has eased. Direct labor costs are no longer on the rise in mainland China, with ample supply of labor. Manufacturing overheads are expected to improve. Freight costs have returned to pre-pandemic levels. The only notable exception to the above is domestic transportation costs.
They are expected to remain high in the U.S. and Europe. The ELP business is striving to achieve growth in the FY 2024. Sales of North America and Europe are expected to recover, and our business is extending its geographic reach. Growth will be driven by the introduction of exciting new products across all categories. Our new sales office in Italy has started operation.
It will provide incremental sales in Europe starting the fiscal year. In Asia Pacific, a strong sales recovery is anticipated in mainland China. Growth is also expected in Australia. Uncertain market conditions notwithstanding, higher sales is projected for telecommunication products. Sales of commercial phones are expected to increase. Growth comes from the Snom D8 series of SIP desktops. The multi-cell SIP DECT mobility system, and the work-from-anywhere series. Sales of the hospitality category are also expected to rise.
For residential phones, growth in Europe is expected to offset sales decline in the U.S. where the market continues to contract. Other telecommunication products will benefit from a recovery in baby monitors. CMS revenue is forecast to be stable as customers grapple with economic uncertainties. Largely stable sales are expected for professional audio equipment, industrial products, as well as medical and health products.
Growth is forecast for smart energy storage systems and smart home control systems, where customers are launching new products. Sales of hearables are expected to stabilize after two years of decline. Work to complete the implementation of Industry 4.0 in our manufacturing facilities in mainland China will continue. Our Mexican facility's on track to offer full turnkey CMS capability by December. Thank you. This completes our presentation. We will now open the floor for questions.
Thank you, King. We will begin our Q&A session. We will answer questions from the audience who are in the room with us first. As for the online participants, please click raise hand if you wish to ask a question. The first question come from our on-site audience. Mr. Louis.
Thank you. Regarding the reorganization in the U.S., is this something you have already implemented or is it going to happen this fiscal year? And a follow-up question, what is the U.S. dollar amount you want to save in cost in this reorganization?
Okay. Let me answer your first question. The reorganization already happened. We have basically reorganized the U.S. operation. We have hired a new president for our U.S. ELP operation, and we make a number of changes to the organization. We focusing on product marketing and also e-commerce. As to the savings, may I ask Shereen to give you some answers?
Okay. As mentioned in our presentations, the reorganization is mainly to strengthen our productivity as well as our product marketing strategies. That means after those kind of reorganization in ELP and telecom, we expect that the revenue will go up. At the same time, our product will be more efficient in terms of go-to market. In terms of the dollar money regarding the savings, we can't tell you regarding the absolute amounts that we could save, but we expect that there will some savings in terms of percentage of sales because of those kind of business improvement for both product lines, including ELP and telecom. The U.S. market is our major market. We expect there will some savings in terms of dollar amount, but we can't tell you how much. Yeah.
At least the revenue, we expect will improve the revenue, especially for those kind of, say, go-to marketing strategy will be strengthened and improved.
You say reduce management layers, downsize operation.
Yeah.
How many people are there less?
In the U.S., actually, we have already do the downsizing for our ELP U.S. office. Well, it's talking about more than 10% of the headcount reduction for the U.S. office.
Number of people, I don't know how many people you have employed in the U.S.
In terms of number of people, it's talk about 20 for ELP.
Okay. To telecoms, you expect rising sales. Is this now the start of the hockey stick?
Well, I wouldn't put it as a hockey stick, but I hope this will be the year that we can start seeing the turnaround of the telecom. As you know, in the past, the majority of sales comes from residential phones, and residential phone is going through a structural decline. The idea is for our new businesses, including enterprise businesses, to increased to the point that it will offset the decline of the residential segment. We hope that this year, we will reach that transition point, that the new businesses growth, in enterprise telephone, in baby monitors, and other new businesses will offset the decline of residential phones.
One question to LeapFrog Academy. Are there any attempts to boost the business by detaching the service from toys, that you propose your service to other youths and infants who don't need to buy a box?
Right now, LFA is being sold separate from the toys. You don't need a toy to be able to use LFA, if I understood your question.
You don't need.
No, you don't need a toy. You can just go to leapfrog.com/academy and sign up.
Are there any attempts to boost this business?
Yes.
What are you doing?
Like you heard earlier, we are boosting the efficiency of our marketing spend. We are having some dedicated people with a dedicated budget. We do not expect we will be turning the LFA business around. It is also helped. The reason why we are seeing two consecutive years of drops in LFA is actually a reflection of drops in the sales of hardware that used to be the best recruitment tool.
Although you do not need the LeapPad Academy to be able to use LFA, the tablet itself is actually the best subscriber recruitment tool because it comes, depends on the amount of promotion. It comes with between three to four months of free subscription. Once a kid starts using the LFA, they will get hooked on it, and parents can see the value. This year we are also expecting better sales of the tablet itself.
If you do not need the toy, then you have declining revenue. This means that there are more people dropping out, let us say at the higher age group, than come in from new toys.
To tell you the truth, I have not looked at the age group, but of course, as the child uses the product, the child grows. The product actually, LFA is good between two to five years. There are curricula for the child to go from year to year. At any time there will be churns at one end, and there will be new subscribers coming in.
Do you cater for children age six, seven, eight?
Not yet.
Thank you. The question from Mr. Louis. Anyone from the online viewers who wants to ask a question, please click the raise hand button. If there. Okay. The next question is from Paul Simons. Paul, please go ahead.
Hello there, everybody. Hi, Allan, Mr. Wong. Thanks for giving us the time today. Could you give us some background to the individual who has taken over as president in North America? Let us know whether the policy that they are putting in place was one that they designed or something that you had decided before they were hired. Thank you.
Thank you. Yeah, thank you, Paul, for your question. The person replacing the president in the U.S. is an internal transfer. Internal transfer. He is the person who used to be taking care of our Australian business.
Okay.
Who actually has done a great job in growing our Australian business from almost very low level to a very respectable figure. This person has demonstrated he has the know-how and the drive to restructure and change the business. We have identified this person internally, and we have worked with him in formulating the strategy going forward. We have high hope in the reorganization, in achieving the type of growth that we have mentioned earlier.
Are you good, Paul? Okay, yeah. The next question from Eric Lau of Citi. Eric, please go ahead.
Hi. Thank you, management, for the presentation. Can I have a couple of questions? You mentioned the increase in inventory provision. How much is it? Which you mentioned hit the gross margin. The second is, we see a very impressive CMS, especially for Asia operation, actually, surged 45%. Can you remind us now who are the major accounts? What kind of competitive advantage compared with our China competitor? Because suppose, a lot of China electronic companies, they have engineer dividend, right? Let me go for these two questions first. Thank you.
Shereen, you're up there.
Okay.
Yeah, Shereen.
For the increase in inventory provisions in FY 2023 compared with the last fiscal year, in dollar money is talk of $15.15 million. It is even because under our existing stock provision policies, we make stock provision based on the aging. Those kind of inventory actually are active items. Since last year, we have stocked up quite a lot of finished goods, mainly because of the predictions of the shortage supply in raw materials as well as the containers.
At the end of the year, you will see that our inventory actually was lower than the same period of the last year because we have managed to reduce the FG, the finished goods. Under our existing inventory provision policies, we still make more inventory provisions just because of the aging, but it is not because of the active items that we cannot sell.
Yes, the major reason for the significant growth in Asia Pacific are coming from the product category of medical equipment and also the professional audio. For the medical equipment, the major product, as we know, is the ultrasound system, and this product benefited from the higher market demand after the pandemic. For the professional audio, the product is mainly generated from the DJ equipment, and this DJ equipment is being manufactured in our Malaysian facility. Last year, we have around six week factory shutdown in Malaysia due to the MCO policy over there. This year, all this have been fully recovered. Regarding your second question about CMS, can you repeat the question?
I mean, what kind of your competitive advantage for CMS compared with Chinese rivals?
Oh, I think first of all, we more or less compete with different market segment. We are more focused on those medium-sized and also the customer from the North America and Europe. For those contract manufacturer in China, I believe their major customer focus is those company from China. Regarding the business strategy, why sometime we perform a bit better than the market, because the major strategy is we are customer-focused. That's mean, we will take care of customer very well.
Okay. Thank you. May I have two more question regarding the extra reorganization. Do you expect any one-off compensation for FY 2024? The second one is, I saw you have the Mexico facilities from December 2023. Why you build the factory there? What's difference compared with the existing one Malaysian plant for CMS? Thank you.
Let me answer your first question, and Andy, the second question. The compensation was already in last year's fiscal year's expense. This year, we don't expect any. Second question, Andy.
Yes. There's several reason for us to set up a factory in Mexico. You're talking about Mexico, right?
Yeah, Mexico. Yes.
Yes. The first reason is because of the tension between China and U.S. The impact is not only just tariffs. The impact is that people are thinking that having product made in China is risky. That is why we, in case for those customer who have concern of product made in China, we will offer them contingency plan to either Malaysia or in Mexico.
Since we already have a factory in Malaysia, then why we still need to open a factory in Mexico? That is also related with the concern that created during the pandemic. If you can still remember, during the pandemic, the container and also the port situation had created excessive freight cost and also extend the shipping time. For this reason, a lot of my customers is reconsidering the strategy of remote manufacturing site. In other words, they are looking for closer to the market. If we can offer them a manufacturing site that is closer to their market, that will be a bit more appreciate for them. The manufacturing site in Mexico will be dedicated for producing product to customer from the United States.
Okay. Thank you, Andy.
Sorry.
We complete our presentation here because that's all we have the time for. Thank you for joining us today. Thank you very much.