Good afternoon, ladies and gentlemen. Today, VTech Holdings Limited is announcing its results for the six months end of 30th of September 2024. The presentation is conducted in a live webcast at our head office in Hong Kong. Here to present the results are Mr. King Pang, Executive Director and Group President, Mr. Allan Wong, Chairman and Group CEO of VTech Holdings, 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 financial performance. Next, Mr. Leung will reveal the group segment results. Mr. Pang will then give the management outlook for the second half of this financial year. We will finish our presentation with a Q&A session. Now, may I 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 end of 30th of September 2024, comparative with the same period of the last year. As we see from the slide, the revenue of the group reduced by 4.5% to $1,089.7 million . The decrease in revenue was due to the lower sales in North America, Europe, and Asia Pacific, which offset the higher sales in other region. The gross profit of the group rose by 5.5% to $343.5 million , and our gross profit margin also improved from 28.5% to 31.5%.
The increase in gross profit and gross profit margin was mainly due to the lower cost of materials arising from the decline in material prices and change in product mix, as well as the gross profit contributed by Gigaset after the acquisition of the assets on 5th of April 2024. These offset the higher direct labor cost, manufacturing overheads, and freight charges as percentages of the group's revenue. Our operating profit, however, reduced by 5.5% to $104.2 million , and our operating profit margin also reduced from 9.7% to 9.6%. The decrease in operating profit and operating profit margin was mainly due to the inclusion of the operation of Gigaset during the first half of the financial year, and the increased spending on advertising and promotional activities and electronic learning products and telecom products compared with the same period of the last year.
Our profit attributable to shareholders reduced by 6.6% to $87.4 million , and our net profit margin also reduced from 8.2% to 8%. As a result, our basic earning per share reduced by 6.5% to $0.346 , and our board of directors has declared an interim dividend of $0.17 , same as last financial year. Turning to the revenue by region, our sales in North America reduced by 7.4% to $453.1 million . The decrease in revenue was due to the lower sales of our telecom products and Contract Manufacturing Services, which offset the higher sales of our electronic learning products. Europe became the largest market of the group, accounting for 42.4% of the group's revenue. Our sales to European market reduced by 1.4% to $462.1 million .
The decrease in revenue was due to the lower sales of our electronic learning products and Contract Manufacturing Services, which offset the higher sales of our telecom products driven by Gigaset. In Asia Pacific region, the revenue of the group reduced by 7.1% to $159.4 million . It was due to the lower sales of our telecom products and Contract Manufacturing Services, which offset the higher sales of our electronic learning products. Other regions include Latin America, Middle East, and Africa. The group's revenue in other regions rose by 33.6% to $15.1 million . The increase in sales in other regions was due to the higher sales of our electronic learning products and our telecom products. Our stock balance as at 30th September 2024 reduced from $422 million to $425.2 million comparative with the same period of the last year.
Our stock turnover days, however, increased from 120 days to 129 days after the inclusion of the inventory for Gigaset comparative with the same period of the last year. Our trade debtors balance as at 30th September 2024 increased from $451.7 million to $481.9 million . Our trade debtors turnover days also increased slightly from 60 days to 63 days. Our financial positions remains very strong. We were debt-free and our net cash balance as at 30th September 2024 increased from $108.5 million to $150.2 million comparative with the same period of the last year. That's all of my presentation. I will now invite Mr. Andy Leung to share with you our operations review. Mr. Leung, please.
Thank you, Shereen, and once again, welcome all of you joining us today. We will talk about costs first. The group gross profit margin in the first six months of the financial year 2025 was 31.5% as compared with 28.5% in the same period last year. This was mainly due to the lower cost of material arising from the decline in material price and a change in product mix, as well as the gross profit contributed by Gigaset following the asset acquisition we completed on 5th April this year. This offset higher direct labor costs, manufacturing overheads, and freight charges. The increases in direct labor costs and manufacturing overhead as percentage of group revenue, were mainly due to an increase in production volume with an associated increase in factory workforce, as well as the inclusion of worker at the Gigaset factory in Germany.
This offset the positive impact of the depreciation of RMB against the USD and an improvement in productivities. The increase in freight charges was mainly due to higher container rate compared with the same period of last year. Before we move to the review operation, I would like to spend a little time to talk about the asset integration of Gigaset. In April, we completed the acquisition of Gigaset. The asset of Gigaset Communications. It was a global leader in communication technology based in Bocholt in Germany. Its operation in DECT cordless phones, business telephony solution for enterprise customers and Android-based smartphones are now managed and operated by the new VTech entity, Gigaset Technologies. Right after the acquisition, we took quick efficient action to integrate the asset into our global operation in the past few months.
The supply chains was restored and changes to procurement were instituted to lower costs. By September, production and product supply had returned to normal. We have also been re-establishing the sales force in all major European countries. Communications and interaction have been enhanced to speed up decision-making in launch of new products. To unlock synergy in the development of new products and their manufacture, VTech engineering teams are now working closely with the product development team in Germany to strengthen the product roadmap, reduce product costs, and accelerate new product introduction. I will now turn to our operation in each of the four region. We begin with North America. Group revenue in North America decreased by 7.4% to $453.1 million in the first six months of the financial year 2025. Higher sales of ELPs were offset by lower sales of telecommunication product and CMS.
North America became VTech's second-largest market, accounting for 41.6% of the group revenue. ELP revenue in North America increased by 7.4% to $223.8 million. The growth was driven by higher sales in both the U.S. and Canada. In the U.S., after contracting in the calendar year 2024, the toys market began to stabilize. The new leadership team further capitalized on the upturn with a successful revitalized sales and marketing strategy. Stand-alone products were the main growth driver with both the VTech and LeapFrog brands recording higher sales. As a result, VTech retained its leadership in electronic learning toys from infants through toddler to preschool in the U.S. and Canada in the first nine months of the calendar year 2024. In stand-alone products, VTech saw higher sales of infants, toddler, and preschool products, the Kidi line and electronic learning aids.
This offset declines for the Go! Go! Smart family of products, Switch & Go Dinos, Marble Rush, and eco-friendly toys. Sales of KidiZoom camera held steady. LeapFrog managed to achieve growth in infants, toddler, and preschool products, as well as eco-friendly toys. The Magic Adventures series also achieved higher sales as the successful rollout of Magic Adventures Binoculars contribute additional revenue. However, they were partially offset by lower sales of LeapLand Adventures. Platform products saw sales increase mainly driven by LeapFrog products. LeapFrog saw higher sales of educational tablet, interactive reading system, and Magic Adventures Globe. However, subscription to the LeapFrog Academy reported a decline. For VTech, sales of platform product held steady during the period. Sales of Touch & Learn Activity Desk saw an increase offsetting decline in KidiZoom Smartwatches and KidiBuzz.
Telecommunications product revenue in North America fell by 11.3% to $92.2 million, with declines in both the U.S. and Canada. This included a small sale contribution from Gigaset in the region. In residential phone, despite outperforming the market in North America and gaining further market share, sales were lower as the market continues to decline. During the first six months of the financial year 2025, VTech maintained its leadership position in the U.S. residential phones market. Commercial phones sales decreased despite growth in hotel phone and headsets. These were good sales of latest series of hotel phones. The new thermostat for the hotel channel make further progress in increasing market penetration. Sales of headsets growth as the customer increased order. They were, however, insufficient to offset lower sales of SIP phone as the customer reduced order. Sales of multi-line analog phones also posed a decline.
Sales of other telecommunication products also declined. Baby monitor saw sales decrease owing to keen competition. A reduction in order led to lower sales of CareLine residential phones. The sales of IAD remain stable. In the first half of financial year 2025, the group maintained its number one position in the baby monitor market in the U.S. and Canada. CMS revenue in North America decreased by 22.6% to $137.1 million during the period. In the first half of the last financial year, improved material supply cleared order backlogs, which boosted growth in professional audio equipment. By contrast, in the first six months of this financial year, end market demand was subdued, and many customer consequence faced over inventory. This resulted in fewer orders in many key product categories. In professional audio equipment, sales of power amplifier and audio mixer were down as end-user demand dropped.
Professional loudspeaker were affected by customer facing excess inventory. Sales of industrial product decreased, driven by lower orders for coin and note recognition machine. Solid-state lighting posted lower sales as project were cut back due to the uncertain economic condition. IoT product saw sales decline as the customer experienced a financial issue. Globally, VTech has maintained its position as the world number one contract manufacturer of professional audio equipment. I turn now to Europe. Group revenue in Europe decreased by 1.4% to $462.1 million in the first six months of the financial year 2025, as higher sales of telecommunication product were offset by lower sales of ELP and CMS. Europe became VTech's largest market, accounting for 42.4% of the group revenue. ELP revenue in Europe decreased by 6.3% to $137 million, with decline for both standalone and platform products.
The toys market in the major European countries continues to experience decline because of weak economic growth. High interest rate and accumulated impact of inflation have reduced disposable income, in turn causing retailer to exercise caution when placing orders. Furthermore, the strong U.S. dollar had continued to pressure retailers. Sales decreased in France, Germany, and the Benelux countries, offsetting growth in the U.K. and Spain. In the first nine months of the calendar year 2024, VTech remained the number one infants, toddler manufacturer in France, the U.K., Germany, Spain, and the Benelux countries. For standalone product, growth in the LeapFrog brand was offset by the sales decline of VTech products. At LeapFrog, infants and toddler products saw higher sales offsetting decreases in preschool products and LeapLand Adventures. The successful launch of Magic Adventures Binoculars in key European market added incremental revenue in the Magic Adventures series.
Sales of eco-friendly toys remain stable. At VTech, infant, toddler, and preschool product recorded higher sales. These gains, however, were insufficient to offset lower sales of the Go! Go! Smart family of product, KidiZoom camera, the Kidi line electronic learning aids, Switch & Go Dinos, Marble Rush, and eco-friendly toys. Platform product saw lower sales of both LeapFrog and VTech product. At VTech, sales of children educational tablet, KidiZoom Smartwatches, the KidiCom range of products, and Touch & Learn Activity Desks all declined. At LeapFrog, both Magic Adventures Globe and interactive reading system recorded sales decreases. Revenue from telecommunication product in Europe increased by 93.4% to $84.5 million. Sales of residential phones and commercial phones rose as Gigaset sales were consolidated into VTech. Despite market decline and lower shipment to ODM customer, sales of residential phone in Europe rose as a result of the consolidation of Gigaset revenue.
Sales of commercial phones also increased as Gigaset sales offset decline in Snom branded SIP phone and hotel phones. Weak economic condition in Europe and the consequent reduction in corporate spending affecting demand for SIP phone. Hotel phone were affected by financial constraint as a distributor. Sales of other telecommunication product decreased. Lastly, attributable to lower sales of CAT-iq headset and the CareLine residential phone, as ODM customer reduced order because of over-inventory. This offset higher sales of baby monitors as the group continues to make progress in major European countries. In the U.K., the group maintained its position as the number one baby monitor brand. CMS revenue in Europe decreased by 13.7% to $240.6 million against because of weak end market demand and excess inventory among customer. Sales of professional audio equipment, hearable, and smart energy storage system were all lower.
The decline in this category offset rising sales of medical and health product, IoT, and automotive products. In professional audio equipment, home audio interface product saw lower sales owing to delayed product launch and over-inventory as a customer. Hearable posted a decline as one customer product reached the end of its life cycle and another faced excess inventory. Smart energy storage system also report lower sales. The customer faced keen competition and was negatively impacted by the cancellation of installation subsidies by the Swedish government. Medical and health product growth as hearing aids and hair removal product report higher sales. In IoT products, order for internet-connected thermostats and air conditioning control increased as the customer successfully grew sales by selling directly to business. Growth in automotive product was driven by increased sales of car battery chargers. As VTech gained market share, sales of home appliance and communication product held steady.
In Asia Pacific, group revenue decreased by 7.1% to $159.4 million, representing 14.6% of group revenue. Growth in ELP was insufficient to compensate for the declines in telecommunication product and CMS. Revenue from ELP in Asia Pacific increased by 1.1% to $35.4 million, mainly due to higher sale in Australia and Mainland China. In Australia, growth mainly came from the VTech brand. Sale recovered as the local toy market stabilized despite continuous dull economic condition, owing to higher interest rate. Launches of new product were well supported by effective marketing activity, resulting in good sell-through at major retailers. Sales of VTech product in the country were largely stable. During the first nine months of the calendar year 2024, VTech maintained its position as the number one manufacturer of electronic learning toys from infants through toddler and preschool in the country.
In mainland China, both online and offline channels posted sales increase. VTech increased in-store marketing and merchandising, resulting in higher sales of the Core Learning product, Go! Go! Smart family of products, and Marble Rush. Telecommunications product revenue in Asia Pacific decreased by 16.4% to $9.7 million. This was attributable to lower sales of residential phone and other telecommunications product in Australia and Japan. This offset growth in commercial phones as the group increased its sales of SIP phones. CMS revenue in Asia Pacific fell by 8.5% to $114.3 million. This was due to lower sales of professional audio equipment, medical and health product, and communication products. Professional audio equipment posted lower sales as orders for DJ equipment declined. Medical and health product also saw sales decrease. Orders for diagnostic ultrasound system fell as the customer lost market share in mainland China.
In communication product, orders for marine radio fell as the depreciation of the Japanese yen saw a customer move production back in-house to Japan. Finally, group revenue in other regions, comprising Latin America, the Middle East, and Africa, rose by 33.6% to $15.1 million. Other regions accounted for 1.4% of group revenue. Both ELP and telecommunications product reported growth. ELP revenue in other regions increased by 15.2% to $7.6 million as higher sales in Latin America and the Middle East offset lower sales in Africa. Telecommunications product revenue in other regions grew by 59.6% to $7.5 million. The increase was attributable to sales growth in Latin America and the Middle East offsetting a decline in Africa. This also included a sales contribution from Gigaset. CMS revenue in other regions was immaterial in the first six months of the financial year 2025.
That concludes the review of our operation. I will now hand over to King for the outlook.
Thank you, Andy. Good afternoon, ladies and gentlemen. Looking forward, at the macro level, despite the reprieve in inflation, household disposable income for most markets remains tenuous, while geopolitical risks are still elevated. This is weighing on confidence in our markets. Businesses and consumers alike remain cautious on their spending. Despite this challenging environment, group revenue for the full financial year is forecast to increase. Growth drivers are expected to be ELPs in the U.S., as well as telecommunication products now augmented with Gigaset. Profitability is on track to improve for the full financial year, aided by favorable cost of materials as well as higher sales contributions from our branded businesses. ELP revenue is forecast to increase for the full financial year. This growth is expected to be driven mainly from the U.S., where the new leadership team is achieving good results.
Standalone products will continue to drive sales increase, especially in the preschool licensed category. In Europe, sales in our major markets are projected to pick up in the second half, driven by new products and their strong marketing campaigns. For Asia Pacific, growth in Australia and mainland China is expected to continue. Telecommunication products revenue is forecast to increase year-over-year. Higher sales are expected for residential phones and commercial phones. The integration of Gigaset is on track to complete by the end of this calendar year. With normal production and supply of Gigaset's products restored, sales are expected to improve in the second half. Our focus is now on growing Gigaset's commercial phones and residential phones. During the second half of this financial year, Gigaset's first desktop phones will be launched to complement its multi-cell system-based products.
This will complete Gigaset's comprehensive product lineup for professional users in offices, as well as in service and industrial environments. We also aim to increase our share of the residential phones market in Europe by broadening Gigaset's product offerings across price points. For other telecommunication products, sales of baby monitors are forecast to decrease for the full financial year 2025. Facing geopolitical uncertainties and the anemic global economy, CMS revenue is expected to decrease for the full financial year. This notwithstanding, sales in the second half are forecast to stabilize. As we expand our global manufacturing footprint, VTech CMS is well positioned to capture the growing demand for alternatives to mainland China supply sources. In Malaysia, the group is building a new warehouse to enable redeployment of some existing space for manufacturing. Upon completion, targeted first quarter calendar year 2025, CMS production capacity in Malaysia will increase by 30%.
Across the ocean, our facilities in Mexico are now fully operational and ready to fulfill U.S. customers' onshoring requirements. Thank you. This concludes our presentation. We are now happy to answer your questions.
Thank you, Mr. Pang. That concludes our presentation. We will now begin the Q&A session. If you wish to ask a question, please click the Raise Hand button, which is located inside the React button. The first question come from Eric Lau of Citi. Eric, please go ahead.
Hi. Thank you, management, for the presentation. May I have a couple of questions? Firstly, it's about what sales amount in a book from Gigaset for the first half. I'm surprised the telephony business in North America also dropped, even including Gigaset. For the telephony business, can you give us the breakdown between residential and commercial if excluding Gigaset? Can we have an idea of what sales changed for residential phone and commercial phone? That's the first question. Thank you.
Okay. Maybe I can answer this question. We normally don't disclose individual sales for certain business sectors. I can tell you that following our completion of acquisition of the assets in April, the first six months, of course, we have to rebuild the sales. So the sales is relatively small as compared to the normal months. I'm happy to report that by September, the sales for Gigaset is almost back to normal. October, it's even stronger. At the same time, we are already achieving in P&L parity in September. So we are expecting P&L to be positive in the following months. As to your second question, why the U.S.A. is still dropping with consolidation of Gigaset. The structure of the Gigaset sales are predominantly in Europe, and VTech is strong in U.S. And this is why the synergy between Gigaset and VTech is so complementary.
Because Gigaset in the U.S.A. sales is minimal. So VTech telephone sales, residential phone sales, will follow the normal structural decline of the market.
Oh, sorry. May I have a follow-up? Actually, what was the sales split between residential and commercial for the first half? Can you give us the idea, if excluding Gigaset, what changed for residential and commercial?
Yeah. I can only tell you that residential now accounts for less than half of our telephone sales. The rest are between the new businesses, business system, business phones together with baby monitors. The other products are more than half of telephone sales as a group. But we don't disclose individual regional sales.
Eric, is it good?
Okay. Sorry, one more. In terms of the sales decline, suppose residential still drop more than commercial, right? For the first half.
Yes. The residential in U.S. are following the decline of the market, which is a double-digit decline on a yearly basis. We are already dropping less than the market. That means we are gaining market share, in particular in the U.S. And we believe that with the consolidation of the Gigaset European residential phone sales, we will achieve a growth in sales for residential phone overall, worldwide.
I see. But commercial phone also drop, right? For the first half.
Correct.
Okay. My last question here is, what you think about the long-term growth for the commercial phone? Because we are using Zoom, right? You see a hybrid environment. Probably fixed line telephone may not be quite appropriate to work with this environment, right? For the workplace change. How you see the challenge in terms of the long-term goal? Or should we expect the commercial phone continue to decline going forward in the coming three to five years?
With the consolidation of Gigaset, our commercial phone, in particular, the multi-cell DECT will be stronger. Gigaset is a leader in the multi-cell commercial DECT area, which is a growing area. The desktop phones, because of our small market share, together with Gigaset in Europe, will grow as we gain market share. The U.S. again, because of our small market share, we will gain market share and we'll grow. Although the desktop SIP phone market is not growing, but together with the other products, like the multi-cell DECT phone, we will grow the commercial phone sector.
I see. Okay. Thank you. I follow the queue. Thank you.
Thank you. Our next question come from Sophia of PineBridge. Sophia, please go ahead.
Thank you. My first question is regarding the Gigaset. You say that in the first half of this year, we have seen some production adjustment. If we count to 2025 as a whole, do you see that Gigaset will see year-over-year decline, or it is able to be flat with slight growth? This is my first question. Thank you.
Our sales on a monthly basis are getting close to what Gigaset sales before our acquisition. As I said earlier, the first six months is the adjustment period as you acquire the assets. We have to restart all the manufacturing from nothing. The monthly sales are close to the pre-acquisition sales already. Although the full year will still be lower because the first six months is an adjustment, is a start-up period.
Sophia, is it good?
Thank you. A follow-up question regarding the margins, because Gigaset obviously is seeing some cost optimization. Do we expect the full year net profit to be like breakeven? Because I know that the first half is a little bit hard.
Yes. The gross margin for Gigaset products are actually higher than the VTech products. Then with higher sales, as we grow our monthly sales to almost the level of the pre-acquisition sales, we are expecting our full year to be our profit margin will be positive.
Thank you. Another question is regarding some segments that you are presenting. There seems that a lot of, I would say, a high inventory problem with the customers. Can we just give some future trend into the current destocking process? Are we seeing any significant improvement into the second half, or we have to wait for a little longer time? Thank you.
The high inventory is mainly with the CMS customers. Maybe I will ask Andy Leung to address this question.
Yeah. The high inventory situation at the customer side was mainly due to the weak end market demand. This also due to the customer, they are over-placing order in the previous financial year after the global supply of material had been improved. Starting from the second half, we start seeing the order is coming back. So it is our expectation that the order will be resuming gradually.
Sophia, we will move to another person, and then you follow the queue. Our next question comes from William from Chartwell Capital. William, your turn, please.
Hi. Hello, management. Thank you for the presentation. I have one question following up with the Gigaset and the VTech core brands. I see that the VTech engineering team is collaborating with the German team. I would like to know, do we actually have an expectation when we start to see some results from the collaboration between the German team and the VTech core team?
We are already seeing positive outcome coming from the engineering team between Gigaset and VTech. We have a lot of collaboration for the first six months with Gigaset people coming to China, the automation people coming to China, and also our engineers collaborating with the Gigaset team. The Gigaset has very strong hardware and software team, particularly the team in Poland, which is very strong in software, which complements VTech's team both in terms of residential phones and also commercial phones. To answer your question, yes, positive result is already coming out.
Okay. A very quick follow-up is, we talked about the multi-cell DECT commercial phone that we still have a relatively low market share in the U.S. Is there a timeline in terms of the new multi-cell DECT phone for commercial to be launched by VTech and Gigaset together in the U.S.?
It's already starting to launch, and we will see result on the second half of the year.
Okay. That's very good to know. I'll just get back to the queue first.
Any further question? Our next question also come from Eric from Citi. Eric, please go ahead.
Thank you. Sorry, probably we cannot mention about what Gigaset contribution in the first half, but can I just make the difference between the Europe telephone sales actually almost double, right? In the first half. The difference around EUR 40 million. Can I assume majority of the difference from Gigaset for the first half?
It's a good guess, but I cannot confirm.
Okay. The second is actually, we still make a loss, right, for the first half from Gigaset. If excluding Gigaset, can we assume the operating profit actually flat or up?
I cannot comment on this. You are right. I think Gigaset first half, because of the gearing up the sales from zero to now almost to the normal level, it takes time. Of course, the operating profit is negative for the first half because of the starting up and the overheads are there. But I can't comment on anything more than that at this point.
Right. Okay. Thank you. I follow the queue. Thank you.
Our next question come from Sophia from PineBridge. Sophia, your turn please.
Thank you for taking my question again. One question is that I noticed there is an IoT customer facing some financial issues. I am wondering, this is a single case. We are seeing customers are generally under very high financial pressure at this time, and maybe there will be some receivables that may not be get back by the company. Could that be a concern? Thank you.
Hi. The IoT customer that you are talking about is coming from America. It is a customer selling the home automation. Yes. In the second half of the last financial year, the customer fell into financial difficulty, and that end up with some overdue payment. Fortunately, all our shipment had been covered by credit insurance, so there shouldn't be any problem. Just like what you said, yes, this is just an isolated case. We don't have any other customer reporting similar situation. In fact, for that particular customer, the business has been acquired by a new investor, and we are expecting the business will be resumed very soon.
Sophia, is it good?
Yes. Thank you. Can I add one more question? I see that there is a Japanese customer who is moving to the in-house production versus the EMS. This is a single case as well. Anything that we should bear in mind that this could be a major trend going forward? Thank you.
This is another issue that out of our control. They make the decision to moving part of the production back to Japan, their own factory. It's mainly due to the unfavorable exchange rate of Japanese yen. As you can see, at the time when we prepare the quotation to them, the exchange rate is somewhere around $1 to JPY 140-something, but now the exchange rate is around JPY 100. It's purely a decision of their management. Fortunately, out of those customer from Japan, this is the only single case make that decision, especially when most of their product are selling into Japan.