Good afternoon, ladies and gentlemen. Welcome to our webcast. Today, VTech Holdings Limited is announcing its results for the six months ended 30th of September 2022. Let me introduce our management here. Mr. King Pang, Executive Director and Group President. Mr. Allan Wong, Chairman and Group CEO. Mr. Andy Leung, Executive Director and CEO of Contract Manufacturing Services. And Ms. Shereen Tong, Group Chief Financial Officer. First of all, Ms. Tong will present the group's financial performance. Next, Mr. Leung will talk about the group 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 the coming year. We will finish our presentation with a Q&A session. May I now invite Ms. Tong to open today's presentation. 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 six months ended 30 of September 2022, compared with the same period of last year. As you see from the slide, the revenue of the group rose by 4.5% to $1,164.8 million. The increase in revenue was mainly due to the higher sales in North America and Asia Pacific, which offset the lower sales in Europe and other regions. The gross profit of the group rose by 8% to $329.4 million, and our gross profit margin also increased from 27.4% to 28.3%.
The improvement in gross profit and gross profit margin was mainly due to the increase in selling prices and the lower cost of materials, while the direct labor cost and manufacturing overhead benefited from the productivity gains during the period. These offset the negative impact of the depreciations of major foreign currencies against U.S. dollar, as well as the increase in inventory provisions arising from the early production and shipment of the group's products to our overseas warehouses in order to mitigate the higher freight cost and the risk of vessel capacity constraints during the peak season of the financial year 2023. Our operating profit rose by 9% to $99 million, and our operating profit margin also increased from 8.1% to 8.5%.
The improvement in operating profit and operating profit margin was mainly due to the increase in gross profit and gross profit margin, which offset the higher total operating expenses arising from the increased spending on advertising and promotion activities. Operating profit for the first half of the current financial year also include government subsidies of $2 million in response to COVID-19, as compared with an amount of $0.2 million in the same period of the last year. Our profit attributable to shareholders rose by 6.6% to $82 million, and our net profit margin also increased from 6.9% to 7%. As a result, our basic earnings per share rose by 6.6% to $32.5 cents, and our board of directors has declared an interim dividend of 17 U.S. cents, same as the last financial year. Turning to the revenue by region.
North America remained the largest market of the group, accounting for 45.5% of the group's revenue. Our sales in North America rose by 6.5% to $530.5 million. The increase in revenue was mainly due to the higher sales of our electronic learning products and Contract Manufacturing Services, which offset the lower sales of our telecom products. Our sales to European market reduced by 3.2% to 417.4 million. It was mainly due to the lower sales of our telecom products and Contract Manufacturing Services, which offset the higher sales of our electronic learning products. In Asia Pacific region, the revenue of the group rose by 27.9% to $152.2 million. The increase in revenue was due to the higher sales of all our three product lines. Other regions include Latin America, Middle East, and Africa.
The group's revenue in other region reduced by 3.3% to $11.7 million. The decrease in sales in other regions was mainly due to the lower sales of our telecom products and Contract Manufacturing Services, which offset the higher sales of our electronic learning products. Our stock balance as at 30 of September 2022, was $517 million, increased by 3% compared with the last financial year-end date of $553.3 million. Our stock turnover days also increased from 131 days to 140 days. The highest stock level was mainly due to the early production and the stock up of the group's products at our overseas warehouses, in view of the risk of vessel capacity constraints during the peak season of the financial year 2023.
As compared with the same period of the last year, our stock balance, however, reduced from $599.4 million to $517 million, and the stock turnover days also reduced from 141 days to 140 days. The lower stock level was mainly due to the decrease in raw materials as the supply constraints had eased compared with the same period of the last year. Our trade debtors balance as of 30th of September 2022, reduced from $507.9 million to $487.4 million compared with the same period of the last year. Our trade debt has turned over days. Also, we deal from 66 days to 62 days.
As at 30th of September 2022, we had a net cash balance of $10.1 million, including deposit and cash of $103.3 million and bank borrowing of $93.2 million, a decrease of $50.7 million compared with a net cash balance of $25.8 million as of the same period of the last financial year. The decrease in net cash balance compared with the same period of the last year, was mainly due to the lower opening cash balance and the unfavorable foreign currency exchange movement on the group net assets as a result of the decrease based on our foreign currencies against USD during the period.
These offset the lower dividend payment and the increase in net cash generated from operating activities compared with the same period of the last year. Nevertheless, our financial positions remain strong, and we have adequate liquidity to meet the current and future working capital requirements. That's all of my presentation. I will now invite Mr. Andy Leung to share with you our outlook operation review. Mr. Leung, please.
Thank you, Shereen. Good afternoon, everyone. I will take you through the review of our operations. We begin with costs. The group 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 a result of increase in selling prices and lower cost of material. At the same time, both the direct labor costs and manufacturing overheads were benefited from the productivity gains during the period. This offset the negative impact of the depreciation of the major currencies against the USD, as well as an increase in inventory provisions. This arose from early production and shipment of the group products to our overseas warehouses in order to mitigate higher freight costs and resolve vessel capacity constraints during the peak season.
Just a quick highlight about the mounting tension between mainland China and the U.S. On October 7 this year, the U.S. Department of Commerce published a number of new technology restrictions on mainland China, limiting its access to certain semiconductors and chip-making equipments. There's no impact on the group businesses from these measures. Neither the group products nor the equipment used in production is affected. VTech has nonetheless embarked on a strategy, rationalizing its manufacturing base in order to raise our competitiveness and position for further growth. The implementation of this strategy began in August 2018 with the acquisition of our 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 2020 and Tecate in 2021.
The facility in Tecate, which manufacture professional loudspeaker and other electronic product for customer in North America, is now contributing revenue to our CMS business. As VTech expands its production base further, our manufacturing footprint will become increasingly global. Looking now at our performance by regions. Group revenue in North America increased by 6.5% to $530.5 million in the first six months of the fiscal year 2023. Higher sales of ELPs and CMS offset lower sales of telecommunication products. North America remained our largest market, accounting for 45.5% of the group revenues. ELPs revenue in North America grew by 4.5% to $266.5 million, with a particularly strong increase in Canada. The growth was driven by higher sales of standalone products as we strengthened our core learning product offerings.
It also reflects the group's success in delivering product on time and improving channel inventory through adjusting production and shipment schedules to avoid logistic delays. During the first nine months of the calendar year 2022, the group maintained its leadership position as the number one manufacturer of electronic learning toys from infancy through toddler and preschool in the U.S. In Canada, VTech strengthened its position as the number one manufacturer in the infant, toddler, and preschool toys category. Standalone products saw sales growth for both VTech and LeapFrog branded products. For VTech, preschool products, Kidizoom cameras, the Kidi line of products, Switch & Go Dinos, and Marble Rush all post higher sales. VTech new series of learning watches featuring favorite children characters, including PAW Patrol, Bluey, Spidey, sold especially well. These gains offset declines in infants and toddlers product, as well as the Go! Go! Smart family of products.
At LeapFrog, growth was driven by higher sales of infants and toddler products, LeapLand Adventures, eco-friendly toys, which offset a decline for preschool products. The launch of Magic Adventures Microscope and a new licensed version of LeapLand Adventures added to growth. Platform products saw sales decline, mainly due to lower sales of VTech products. For the VTech brand, sales of Kidizoom smart watches were higher as material supply improved. However, this was insufficient to offset lower sales of Touch & Learn Activity Desk. Sales of KidiBuzz held steady. LeapFrog sales increased slightly during the period. The interactive reading system and Magic Adventures Globe benefited from increased distribution and expanded content. Sales of children educational tablets, however, posted a decline. This led to a slight fall in subscriptions to LeapFrog Academy. Telecommunication product revenue in North America fell by 5.6% to $123.9 million.
Commercial phone, residential phones report sales declines, offsetting growth in other telecommunication products. The decline in commercial phones resulted from lower sales of analog commercial phones, headsets, and SIP phones. The tight supply of semiconductor led to reduced shipment of analog commercial phones. Sales of headsets decreased as a major customer reduced its orders. SIP phones experienced a sales declines due to a delayed product launch. These declines offset growth in hotel phones. Sales of hotel phones were higher as the group maintained a stable supply of products. A new series with revised design was launched that enjoyed good market reception. Sales of residential phones were lower. The U.S. residential phones market has continued to decline, and shipments were constrained by the tight supply of semiconductors. Despite this, the group regained distribution in a key retailer and strengthened its leadership position in the U.S. residential phone market during the period.
Our telecommunication products, which combine baby monitors, CareLine residential phones, and IADs, posted a sales increase. Baby monitors saw higher sales on increased placement in major U.S. retailers, while the new VTech and LeapFrog ranges were well received by the market. CareLine residential phone growth due to higher sales of VTech-branded product and a customer's products. IADs benefited from increased order from an existing customer. During the period, the group strengthened its number one position in the baby monitors market in the U.S. and Canada. CMS revenue in North America increased by 25.5% to $140.1 million. Growth was mainly driven by professional audio equipment and industrial products as business activities had continued to recover following the easing of social distancing measure and the improvement in component shortages. Sales of professional audio equipment grew from increased demand for power amplifier and loudspeakers.
The growth for industrial products was driven by more orders for electronic locks and printed circuit board assembly for coin and note recognition machine. In contrast, sales of solid-state lighting declined as a major customer reduced orders. Sales of medical and health product remained stable. Group revenue in Europe decreased by 3.2% to $470.4 million in the first 6 months of the financial year 2023. Higher sales of ELPs were insufficient to offset lower sales of telecommunication products and CMS. Europe remained VTech's second-largest market, accounting for 40.4% of the group revenue. ELP revenue in Europe rose by 5.4% to $159.3 million. The increase came despite the depreciation of the euro and sterling against the U.S. dollar during the period. Sales of standalone product growth offsetting declines in platform products.
Among the group key markets, France, Germany, the Netherlands, and Spain, posted sales increases, compensating for a decline in the U.K. In the first 9 months of the calendar year 2022, VTech remained the number one infant and toddler toys manufacturer in France, the U.K., Germany, and the Benelux countries. In standalone products, both VTech and LeapFrog brand products reported sales increases. For VTech, preschool products, electronic learning aids, Kidizoom cameras, the Kidi line of product, Marble Rush, and Eco Friendly toys saw growth, offsetting decline in the Toot-Toot family of products. Sales of infant and toddler product as well as Switch & Go Dinos, held steady. For LeapFrog, preschool product and LeapLand Adventures posted sales increases. The launch of Magic Adventures Microscope and the new licensed version of LeapLand Adventures added to growth. This offsets sales decline in the brand infant and toddler products.
Both VTech and LeapFrog platform products saw lower sales. The decline for the VTech brand was mainly attributable to lower sales of children's educational tablets, Kidizoom smart watches and Touch & Learn Activity Desks. This offsets growth in KidiCom range of products. At LeapFrog, the higher sales of Magic Adventures Globe were offset by lower sales of interactive reading system. Revenue from telecommunication product in Europe decreased by 2.9% to $46.3 million U.S. dollar. Commercial phones and other telecommunication products saw sales declines, offsetting growth in residential phones. Commercial phone and other telecommunication product were affected by the economic slowdown in the region, which impacted sales of Snom brand SIP phones and hotel phones. Sales of pay-as-you-live[uncertain] residential phones were affected by the tight supply of semiconductors. CAT-iq headsets saw a sales decline due to reduced orders from customer.
By contrast, our award-winning range of baby monitors saw sales increase on the back of channel expansion and the new product launches, including the introduction of LeapFrog brand baby monitor in Germany. The growth in residential phones in Europe was driven by increased orders from existing ODM customer and the launch of VTech brand product. With the group increasing its penetration in the U.K. and successfully expanding in the German market. CMS revenue in Europe decreased by 7.7% to $264.8 million U.S. dollar. The growth from professional audio equipment, IoT products, and smart energy storage system failed to offset lower sales of hearables, medical and health product, and communication products. Sales of hearable declines as the demand for commercial headset began to slow down when the pandemic receded. End market demand for customer Bluetooth headset decreased due to keen competition.
In medical and health product, growth from hearing aids failed to offset the decline in hair removal products, which were negatively affected by the tight supply of critical components. Sales of communication product decreased as the upgrading Wi-Fi router that had occurred during the pandemic ended, compounded by the lack of critical component that limited VTech's ability to fulfill orders. In contrast, sales of professional audio equipment increased, driven by higher order for audio interface products and a recovery in demand for audio mixer following the pandemic.
IoT products saw sales increases from smart meters, interconnected thermostats, and air conditioning controls, as market demand rose in response to soaring energy prices. Despite growth being constrained by the lack of critical component, sales of smart energy storage system also trended higher. Sales of home appliance, meanwhile, remained stable during the period. I will now turn over to King for the remaining regions and outlook.
Thank you, Andy. Good afternoon, ladies and gentlemen. Group revenue in Asia Pacific increased by 27.9% to $152.2 million in the first half of financial year 2023. Growth is reported by all three product lines. This region accounted for 13.1% of group's revenue. Revenue from ELPs rose by 6.9% to $41.9 million. Higher sales in Australia and Japan offset lower sales in mainland China. Sales of both VTech and LeapFrog products reported good growth in Australia, where during the first nine months of calendar year 2022, VTech strengthened its position as the number one manufacturer in the infant and toddler toys category. In Japan, sales growth was driven by the launch and good sell-through of a smartwatch that features the popular Sumikko Gurashi characters. It was jointly developed with a Japanese partner. Expanded listings with a major toy retailer was also a key growth factor.
In mainland China, despite the successful launch of the Marble Rush line and the strong sell-through of the Magic Adventures Globe, higher online sales were insufficient to compensate for lower sales at offline channels. Revenue from telecommunication products increased by 4.5% to $13.9 million. Higher sales in Japan, Hong Kong, and India offset lower sales in Australia. In Japan, sales growth was driven by strong shipment of CareLine residential phones with a customer. Sales increases in Hong Kong and India were attributable to IADs and residential phones, respectively. In Australia, sales of residential phones dropped as the market continued to shrink, while sales of baby monitors declined due to semiconductor shortage. CMS revenue in Asia Pacific increased by 45% to $96.4 million. Good sales performance was reported across all major product categories.
Professional audio equipment was buoyed by higher sales of DJ equipment, which, as pandemic restrictions eased, benefited from improvements on market demand and component supply. This offset lower orders on USB streaming microphones for online KOLs. Medical and health products recorded higher sales. Orders for diagnostic ultrasound systems picked up as hospitals rebalanced their budgets away from COVID-19 related equipment. Orders also increased for hearing aids following improvements on material supply. Sales growth for communication products was driven by marine radio, which benefited from a product redesign that resolved component supply issues. Other regions comprises Latin America, the Middle East, and Africa. Revenue fell by 3.3% to $11.7 million in first half of financial year 2023, accounting for 1% of group revenue. The drop was due to lower sales of telecommunication products and CMS. ELP's revenue in other regions increased by 10.3% to $6.4 million.
Higher sales in Latin America and Africa offset lower sales in Middle East. Telecommunication products revenue in other regions decreased by 14.5% to $5.3 million. Lower sales in Latin America and Africa offset an increase in the Middle East. CMS revenue for this region was immaterial during this period. We next share outlook of the group. The operating environment for the second half of the financial year 2023 is volatile and complex. Contrary to earlier belief that it would be transitory, inflation has reached multi-decade highs and is proving stubbornly persistent. Rapid and drastic interest rate hikes have ensued, and rates are yet to show signs of peaking in the near term. Economic outlooks around the world have deteriorated sharply. Consumers are reducing discretionary purchases and are turning highly price-sensitive. On the demand side, retailers are working hard to reduce their high levels of inventory while delaying orders.
Outside the U.S., the strong U.S. dollar is exerting additional pressure on retailers and consumers. On the supply side, availability of some critical components remain tight. Logistics costs, while stabilizing, are still higher overall compared with last year. In light of this drastic operating environment changes, we are revising our full-year outlook. Group revenue is now expected to decline year-on-year, and gross profit margin is expected to be stable. The group has intensified its focus on inventory management and cost control. We will, nevertheless, beef up advertising and promotion to drive sales through. We will also continue to invest in new product development and geographic expansion for future growth. ELP's revenue, previously forecast for modest year-on-year growth, is now expected to decline for the full year. In North America and Europe, retailers are tightening inventory control and are cautious on order placement.
To ensure good sell-through, especially in the upcoming holiday season, we have put in place well-planned advertising and promotional campaigns. Good momentum is expected, nevertheless, to continue in a number of key markets, notably Canada, Australia, Germany, Spain, and the Benelux countries. Sales in mainland China are expected to improve in the second half, but overall sales for the full year are forecast to decline. Our outlook for telecommunication products has also been lowered versus the previous forecast. Full-year revenue is now projected to decrease year-on-year, with improved sales expected in the second half. New baby monitor models with artificial intelligence features and a revamped line of hotel phones with contemporary design will continue our good momentum in these two product categories. Sales of commercial phones are expected to recover as new products hit retailer shelves.
They include the Snom D8 series of SIP desk sets, the multi-cell SIP DECT mobility system, and the work from anywhere series. Sales of residential phones are forecast to pick up in the second half. Improvements in component supply will enable further market share increase in North America. Market share gains in Europe will be driven by distribution expansion of its own branded products. CMS revenue is now projected to be stable year-on-year. Sales in the second half are expected to slow as the supply of some critical components remains tight. Economic uncertainty is also causing customers to pare back inventory. Full-year sales of hearables are expected to decline sharply owing to lower demand for commercial and mobile handsets. These notwithstanding, full-year growth is forecast across most major categories.
Contributions from smart energy storage systems will become significant as the full product line enters production. The facility in Mexico is ramping up to meet strong demand. At the same time, the CMS business is planning further rationalization of its production base to meet customer requirements. Additionally, further process improvements are being implemented to raise productivity. Thank you. This completes our presentation. We now look forward to answering your questions.
Thank you, King. We will now begin the Q&A session. Please click raise hand if you wish to ask a question.
The first question come from Eric Lau of Citi. Eric, please go ahead.
Hi. Good afternoon, management. Congratulations for pretty good result despite very tough macro. May I have just a couple of questions. The first one is, can you comment about the implication of your company for over inventory issue in the channel? I mean, U.S., Europe. That's number one. Number two, just the simple question about the bank loan, why you increase the bank loan around $90 million. Number three is, can you remind us what was the FX impact for the first half result, given the stronger U.S. dollar. Like, what would be the adjusted revenue growth with a neutral currency basis and given the weaker euro and weaker renminbi, how was the impact to the first half result? Thank you.
Yeah. I'll pass the question to Shereen Tong.
From the inventory, as I have mentioned in the presentation, our inventory compared with the same period of last year, actually has reduced by around, say, $29 million. For our channel inventories, meaning our retailers in U.S. and Europe, they also have some, say, stock up in the inventory because at the beginning of the year, they foresee there may be some vessel capacity constraints due to different shipping carriers. Right now what we are doing is we have already, say, increased the spending on advertising and promotion activities so that for the channel inventory in our retailers, especially in U.S. and Europe, we expect that their channel inventory will be resumed to a normal situation, especially half of the holiday season.
As for our own inventory, as I mentioned earlier, we have a pretty conservative inventory provision policy, meaning that we base on our aging and we have increased the inventory provisions by around $7 million in the first half compared with the same period of the last year. Even though a majority of the inventory on hand in our warehouse are active items. As for your second questions regarding the bank loan. The reasons why we have deposit in cash of $103 million, and then at the same time we have a bank borrowing of around $93 million, is mainly because most of the cash that we have on hand as of the interim year-end date is mainly because most of the cash are in euro and pound sterling that we have received.
But at the same time we have arranged FX contract to hedge them. But the contract date is around by the end of the year. So if we early exercise those FX contract, our exchange rate will be pretty low compared with the contract rate. So that's why we keep the foreign currencies cash deposit at the interim year-end date rather than convert them into U.S. dollar. So that's why we have a huge deposit in cash. At the same time, we also have a U.S. dollar bank borrowing. But the net cash balance is still around, say, $10.1 million as at the interim year-end day. Regarding your third question about the FX impact, as I mentioned earlier, we have already hedged most of our foreign currency, especially EUR, GBP against U.S. dollar at the beginning of the financial year.
But compared with the same period of the last year, EUR and GBP actually has depreciated a lot against U.S. dollar. So we really have a significant impact on our revenue and net profit, especially for our European sales, for our toys business, because most of our toy business in Europe, we receive local currency in EUR and GBP. But since we have already hedged most of our foreign currency exposure at the beginning of this financial year, so that means the impact has been mitigated. But when compared with the same period of the last year, the depreciation actually has hit our top line and bottom line in the first half of this financial year.
Thank you. May I have a follow-up question? Say, your guidance is expectation of revenue to decline year-over-year. So second half revenue will drop evidently. So, in this case, because of what? Because of the order visibility deterioration or U.S.-Europe market? Because of the recession issue or because of energy cost surge in Europe? Can we get more color about your guidance change? Thank you.
Yeah. Thank you, Eric, for the question. I think to answer your question, in May when we announced our final result, we were still a little more optimistic on the outlook of the second half of the year. However, the economy have actually deteriorated quite quickly in the back of very quick rise in interest rate. And at the same time, as Shereen has mentioned, the channel inventory is high, leading to the order status because of higher channel inventories leading to reduced order because of that. So all of these added together. So we have changed our outlook to a slightly decline for the full year because of the weak economy, the uncertainty in the interest rate, the weak sell-through that is being anticipated because of higher channel inventory, and also the uncertainty in the interest rate that translate to a weaker purchasing power.
I see. Thank you. No more question.
Any more question?
Hello, this is Louis speaking. Can I have a question?
Yes, Louis, please.
Yes. Hello. With regards to toys, could you give us an idea, ballpark, about the decline in revenue you were expecting?
Yeah. Thank you, Louis. Can I pass the question to King to answer this?
Louis, I am sure you know that we do not give specific quantities. Apart from saying that, as you can see, we are forecasting a switch from growth to decline from the first half to the second half. What can we say?
Well-
For the full year.
Yeah.
Let's say, are we talking about low single-digit decline? Mid single digit? Double-digit decline?
It's not double digit.
Okay. Thank you. One other question, if I may. A long time ago, when VTech acquired Snom, I remember the Chairman saying he saw the writing on the wall for the proliferation of IT-based telephony, say, the decline of the classical Cisco model. Until now, I don't see the corresponding surge in revenue from the commercial phones. Has this scenario not matured, not developed? What is going on in the commercial phone market?
Yes, Louis. Thank you for this question. When we acquired Snom 5 years ago, we were of the opinion that a closed system for enterprise telephony, like Cisco and some of the other telephone supplier, will eventually move to a cloud-based open architecture. The move is, as we have predicted, happened. Although Cisco has also responded to this by purchasing a cloud-based operation, a cloud-based platform. Cisco is also operating a cloud base, although the cloud base is a pseudo cloud base, but is more like a closed system. The market is moving still at this point to the cloud-based system. I think why we are not seeing the growth is because of our product launches, unfortunately, are not catching up fast enough to the market. There are other competitor, other player in the market. For example, Yealink, they are growing rapidly to capture this market.
We have since then revamped our product line on Snom. The D8 series, as you can see on our presentation, is the new series of commercial phone that we are launching this year. That should put us in a very competitive landscape to capture this market. At the same time, we are also launching our M500 multi-cell system that we will be able to capture the market. As of today, our product range are ready. I think you will see higher growth from this commercial phone sector from VTech. The overall sector is growing. Unfortunately, VTech, because of our product from Snom, it takes time to revamp the product to become competitive.
Okay. Thank you.
Thank you. Our next question come from Steven. Steven, please go ahead.
Yes. Thank you. Thanks for the presentation. When you were talking about your downgrade for the second half with reference to contract manufacturing, you are implying part of the reason for the downgrade was shortages of parts. Is this a deteriorating problem? Which parts would you say are in particularly short supply at the moment?
Thank you. Can I pass it to Andy to answer this question?
Yes. Although the supply situation of the overall component globally have been improved. However, there are still a lot of our product from our customer that they are affected by the component shortages of critical component. Almost all each of the customer of CMS have been affected. For this reason, even though we have a significant number of backlog order from the customer, we may not able to fulfill the requirement because of the component shortages. I can say the supply situation has been improved a little bit, especially for the critical component. But the supply situation is still very tight.
Great. You couldn't get to say which area is particularly difficult?
Yes. Particular in the area of those critical component for the professional audio and also for those component that related with the electric vehicle and also the IoT type of product.
Okay. Thanks very much.
Good. Our next questions come from Shitai. Shitai, please go ahead. Shitai, you are on mute.
Hello. Good afternoon.
Yes, it is okay right now.
All right. Okay. I got a few questions. Firstly, on the ELP. I think probably a year ago or so, you mentioned, basically, we are losing some market shares in North America, I think probably to Mattel. How is the situation lately? Also, in the slide, you talk about the decline in sales in tablets or platform products that resulted in the reduction in the sign-up offer for LeapFrog Academy. Is that mostly a competition's reason, or is it because the overall market is changing, due to reopening and all this?
Yeah.
Thanks.
Yeah. I'll pass the questions to King. Thank you.
Our share situation with Mattel this year is similar, maybe a little bit, quote-unquote, worse than last year, but the change is not significant. The second question pertains to LFA?
Yeah, LFA.
No, we don't think the Obviously, compared to the beginning of lockdown, in the U.S., school children have already been returning. They're all in school already, taking physical tuition in class. So, compared with that one-time peak, it certainly has come down. Compared to normal times, it hasn't dropped. For us, it's a more local condition. Our best subscriber acquisition is through our LeapFrog tablets. Unfortunately, our tablet first was plagued by not being able to get one critical CPU component. So we weren't able to ship when we had lots and lots of orders. The market, the parents and the children, they're all looking for tablets for their small kids. Now, we do not have the component supply issue anymore. The market has turned a little bit sour, especially for the high-price products.
You know that the tablet, the selling price, depending on whether you are promotion or not, is anywhere between $105 to $135. It is a big-ticket item. I think most parents are waiting for Christmas for the purchase. I would say, this is the singular most permanent reason for our drop in LFA registration. That said, the decrease is actually quite insignificant in my opinion compared to the decrease in our hardware sales.
All right. It is not so much of a competition for the hardware? Right.
It is not competition for online-
Okay
preschool learning. The problem that we have encountered for a variety and very different reasons in selling through the tablet.
All right. On ELP production review-wise, it appears that you mentioned a few times today alone that about a couple of products where you partners with some, how do I put it? Brands or some characters in Japan and in U.S., Peppa Pig and all this, and it seems to be doing quite well. The question is, while we don't own any major IPs in this front, those partnerships seems to be very helpful, but what are the costs to these partnerships? What are the drawbacks? Is there a lot more that you could do on this front?
No, we are beefing up in incorporating IPs in our products. IPs sell, especially for preschool and for toddler products. The cost, obviously, there is always the risk that we put our stake on a particular IP and that IP goes nowhere. It's not like it has never happened before. Other than that, it's a royalty. It's a royalty on a per unit basis that we pay to the licensor. Also, typically, there is a minimum guarantee for a year or for 2 years that regardless of the earned royalty, that we have the guarantee to the licensor. These are by and large, all the costs.
All right. Another question is on your supply chain logistics side. You talk about overall logistics cost is still higher. At the same time, we are seeing the container shipping rates basically drop off by, say, 70%, 60% at least. Probably still going down the freight rate. Are you going to see in the second half in terms of the reduction in freight cost?
Shereen.
Okay. For the logistic cost, as you have mentioned, actually, when we compare the first half compared with the same period of last year, is higher than the same period of last year. Right now, just right after the peak season, we are also seeing that the logistical is much lower right now, and it's really trending down. It will help us in the second half of the financial year because most of the shipping carriers also foresee that they can't charge us too much, especially after the peak season. So it will help our second half regarding logistic cost, but not in the first half.
Shitai?
I will leave the last question for Daniel.
Oh, yes.
Due to the time constraint. Daniel, your time for the last question.
Oh, okay. That's a lot of pressure. Thanks. Just curious, given your expertise in the various segments, I would have thought that something like a VR, AR headset or something like that could be a product that you could make quite well. Is there anything within that space that you're looking at or working on, or is that an area that you're not focused on?
He certainly loved to. We have, first of all, we were talking about ELPs. Obviously, one can find lots of applications for telecommunication products in our CMS division or product line. We will also be taking on contract manufacturing, ODM or OEM jobs for VR and AR. But if we talk about ELP specifically, first of all, we have prototypes of some gadgets that we have tested and are testing in our R&D labs. Okay.
We have to be very cautious about it, because our ELP is predominantly sold to children of ages below 5 or 6 year old. So the experience has to be appropriate and the content is also quite unique, which means that in addition to developing the hardware itself, which is already a huge undertaking, development of content, one would argue, is even a bigger undertaking. We are keeping our eyes open. We have played within our labs, but we do not have any near-term plans to productize a VR, AR hea dset.
Okay.
For children.
Just if I could, on a last question, a quick one. I noticed, I think back in June, you made a standard announcement like other companies do, that you have the ability to buy back up to 10% of your shares. You are obviously very generous with your dividends. I wonder how you think about buybacks in the context of vis-a-vis, would these replace dividends or would they be in addition to dividends? I have noticed you have not bought anything back yet despite trading decade low multiples. I just wonder, should we expect buybacks in the near term? Are you waiting for even lower prices?
Yes, I think this has been a question that was posted to us for the last 10 years since we always generated a lot of cash in our company. Our company philosophy is we generally believe in returning the cash to the shareholders, rather than we buy back shares. Because I think the shareholders have the freedom to do whatever they want once they got the dividends. I think that has been the company policy for the last over 10 years. We go for basically distribute all the earnings back to shareholders and let the shareholders decide what to do with the dividends. They can either buy back company shares if they feel the price is right, or they can do something else. This has been the general company policy for many years.
Okay. I am afraid that is all we have the time for. This concludes today's webcast. Thank you for your participation. Thank you very much.
Thank you.
Thank you.
Thank you.
Thank you.