Hello, and welcome to the 31st Deutsche Bank Depositary Receipts Virtual Investor Conference, DB VIC. My name is Zafar Aziz from the DR Investor Relations Advisory Team at Deutsche Bank. I am pleased to announce that our next presentation will be from Viomi Technology. Before handing over to our presenter, some points to note. Please submit your questions in the questions box. No need to wait until the end of the presentation. All of today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I am very pleased to welcome our speaker from Viomi Technology.
Okay. Hello, everyone. Thank you for having us. My name is Claire, and welcome to Viomi Technology's business update session. Today, we have Mr. Sam Yang with us. Sam is the head of our capital and investment department. I will first share the updated financials as well as recent strategic development of the company, and Mr. Sam will join us for the Q&A session. Okay, let's go to the safe harbor statement slide. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Next slide.
During the first half of 2026, the phase-out of national subsidy policies for our core product categories led to a temporary contraction in market demand, coupled with a high base effect from the prior year. This resulted in a decline in the company's total revenue to CNY 740 million, down by around 50% year-over-year. Gross profit stood at CNY 178 million, representing 24%. We maintain a strong cash position with a cash and cash equivalents, restricted cash, short-term deposit, and short-term investments totaling around CNY 1.2 billion. Next slide. Okay, let's take a deeper look at our financial performance for the first half of 2026.
Our revenue consists of three business segments: home water systems, which is our core business segment, contributing CNY 473.4 million, or 64% of total revenue, and consumables for the water system products, which account for 18%, and the kitchen appliances and others, which make up for the remaining 18%. We believe that as the penetration rate of water purifier continues to rise, the share of the consumables revenue will steadily increase. Regarding our operating expenses, we maintain a disciplined cost control while continuing to invest in growth. Total operating expenses for the first half of 2026 were CNY 247 million as a percentage of revenue. Our general and administrative expenses decreased to 13% from 15% in the prior period. Meanwhile, reflecting our increased effort in overseas expansion and brand building, selling and marketing expenses rose to 14.8% of revenue, and R&D expenses remained relatively stable at 5.6% of revenue.
Next, an update on our commitment to returning capital shareholders. As our Founder and CEO, Mr. Xiaoping Chen, stated, our strategic actions and initiatives are designed to ensure the company's long-term sustainable growth and enhance shareholders' value. We are committed to growing together with our valued shareholders. In line with this commitment, on March 25, 2026, we declared a special cash dividend of $0.066 per ADS, which is equivalent to $0.022 per ordinary share, with an aggregated amount of $4.5 million. Regarding our share repurchase program, which was announced on October 24, 2025, we have authorized up to $20 million through December 31, 2027. As of September 30, 2026, we have already repurchased approximately 5.9 million ADSs for a total of approximately $8.8 million. This reflects our ongoing dedication to enhancing shareholder value. Next slide.
Over the past year or so, we have continuously enriched our smart water purification solutions and developed a differentiated technological pathway for natural mineral water. Our strength in product and technological innovation has been validated, and we have also made solid progress in expanding international market. Next slide. Viomi has dedicated to water purification industry for over a decade. Since our founding in 2014, when we partnered with Xiomi to launch the first smart water purifier and redefined industry, our renewed strategic refocus on water purification in 2024. We have built a solid moat in manufacturing, R&D, and innovation for home water purification. Today, as we entered our second decade of global water, Viomi is striving to become a provider of smarter and healthier water solution for users worldwide. Next slide. Our smart home water purification solutions include whole-home water filtration systems, under-sink RO products, and countertop products.
Currently, under-sink RO products account for the largest share of our revenue, and we are further diversifying our product portfolios to offer consumers in different countries and regions a wider range of product choices. Next slide. We are going to talk about AI technology. We are using AI technology to make water better, and we have an integrated AI chip architecture supporting 24/7 remote monitoring of water quality and usage by our proprietary app. We also adopted RFID technology for an anti-counterfeiting management system, building smarter sensor systems and smart faucets that provide real-time water analyze. These innovations, including timely filter replacement reminders, one-click reordering, and DIY replacement options, make smart water purification products a reliable, hassle-free, and affordable essential for daily life. Next slide. Our water purifier Gigafactory is located in Foshan, Guangdong, with 80% of core components manufactured in-house.
It features one of the industry's most integrated and highly automated production lines for water purifiers. Next slide. We have built strong vertically integrated supply chain capabilities that serve as a solid foundation for our global reach. By manufacturing core components in-house, ranging from RO membranes, smart pumps, and integrated systems by heating, refrigerating systems, we maintain strict quality control over quality and cost. Leveraging these capabilities, we tailor our product offerings to specific regional needs, focusing on under-sink RO and ice machine in U.S., under-sink RO with heating and mineralization in China, and under-sink RO with ice machine and sparkling water in EU, and desktop systems with ice machine functions in Southeast Asia. Next slide, please. We have built an omni-channel distribution network to power global market access, achieving deep international penetration and comprehensive domestic coverage through leading e-commerce platforms, new media channels, and offline channel.
Domestically, we partnered with major platforms like Jingdong, Tmall, and Pinduoduo, supported by nationwide service centers and dealer-owned Viomi offline stores. For our global expansion, we are rapidly accelerating our footprints across Southeast Asia. Following our successful entry into Malaysia, we have recently expanded into Singapore and the Philippines. Furthermore, we are on the verge of establishing mutual relationship in Indonesia and steadily reinforcing our position in the region while continuing to leverage strategic partners like Viomi and Haier to drive growth worldwide. Next slide. Through 2026, we have made rapid progress in international market expansion. We boosted brand visibility and sales by showcasing our product series at major events like the Canton Fair, Singapore Tech Show, and the Dallas Fest in Malaysia, while also ranking top on Amazon during Prime Day.
Moreover, we are accelerating our Southeast Asia expansion, having successfully entered into Philippine market and signed a well-known local TV host as our brand ambassador to strengthen our local presence. Next slide. Clean water drinking is a universal human demand, and water is simply a good business. The global home water purification market is entering a high-growth era, with penetration still uneven across countries. Demand looks very different depending on each market's stage of economic development, which is exactly where our opportunities lie. The U.S. is the largest market for the water purifier consumptions, at around $6.7 billion market size, while China remains largely under-penetrated and holds numerous potential. We focus on smart home filtration systems backed by an industry-leading technology platform and strong innovation capability. We combine ODM and OBM models to capture this broad, fragmented demand. The potential is significant. Next slide.
To conclude above sharing, we will pursue our global water vision with greater determination, targeting breakthroughs in the following key areas. First, for overseas markets, we will deepen our presence in core strategic markets such as North America and the Southeast Asia, while actively expanding into more countries and regions. Leveraging the agility of our water purifier Gigafactory, we will continue to launch new localized products, extending our brand influence into broader markets. Second, on the technology front, we will deepen our integrated AI technology across water purification scenarios, making technological innovation the core engine that enables Viomi to navigate market cycles and achieve sustained growth. Third, we will continue to strengthen collaborations with global strategic partners, fully leverage the scale effect of the water purifier Gigafactory to elevate both scale and efficiency.
Through this commitment, long-term approach, Viomi will continue to create value for global users and deliver sustainable returns to our shareholders. Thank you for listening, and we can go to the Q&A session now.
Hello, everyone. This is Sam, and I saw some questions, and this is the one. Where do you see your largest, greatest growth opportunities in the international market share gains in China, or expanded product offerings? Actually, if we see the kick-off, the growth of the water purifier globally, actually, you can see that China has a great potential. Also, we have the U.S. market, and also we have the Southeast Asia market. If we talk about the market share in China, I think this is a rapid growth market, and we think we can get more market shares in China. If we talk about the U.S. market, it is a huge opportunity. We just started the Amazon sales, and it goes very well, and we have three-digit growth, actually, compared to last year.
Also, we have a lot of opportunities in Southeast Asia, and recently, we just launched the product in Philippines. Before, we have it in Malaysia and Singapore, and we had good sales as well. If we talk about the product side, we have the water purifier, and we recently launched the coffee machines. Also, we have the ice machine, and it is going to come in more filters, actually. It will be more solutions for the customers to do. This is the one. The second question is about, can you explain the reason for the sales contraction and turnaround from the profit loss? Yeah, it is a good question. If we talk about the performance for the first half, we can see it is a short term. It is not going to last because the second half has already changed.
If we look back, the main reason for the sales, I think it is the subsidy. Last year, we had a very high base, and the subsidy comes out, and the sales boom up. This year, actually, we do not have the subsidy, so that is why there is a challenging market for the first half. Even we can see from that scenario, we can see the growth from our filter business because our filter consumables actually increased by 7% compared to last year. If we talk about the turnaround, I do believe that the subsidy is the main reason, but the cost we have not just have that managed that well at the same time. So, the expense is a bit of high and the sales went down. That is why we have the turnaround point.
But if we look at the second half, I think the China and even the global business, we can obviously see the challenge of the subsidy went out. So we do not have that subsidy issue anymore. Even for the international market, we can see the strong sales and it is coming. So, we believe that this recovering will benefit a lot. Let us turn to the third question. Can you introduce further for the progress of overseas market expansion, and how can we expect to contribute to the future scale? Yeah, it is a good question. This year, the overseas market will account a single-digit percentage of our total sales. Next year, we expect a leap forward, actually. We can see that in these areas. The first one is about the expansion of our geography. So we have Singapore, and we have Indonesia, and also we have Philippines.
That means we have more and more areas to cover geography, and it will generate more revenue actually. If we look at Europe, you can see that we have already launched Amazon, so it will generate more revenue for us. The third one is about North America, and we have the sales in Canada, and we are going to launch more products actually to offline channel. So it will provide the sales for us, and we can see the contribution that will be benefiting us in next year, actually. Next question is about after the phase-out of the government subsidy, what are the growth drivers actually for the scale are there? So, it is similar, but we can see that the biggest one is about our product line. Before, we just have the under-sink water purifier, and now we have the countertop.
Also, we already have launched the ice machines. So, this machine can produce the ice cube and the sphere ice. So, it is a big mix. Also, we have the filters. So, this will meet the various needs of the householder, and even the office. The second one is about the diversified models. Before, we have our own brand, and also we have some OEM, and recently we have some OEM business. So, it will come together to benefit us. If we talk about the overseas expansion, as I mentioned before, I will not repeat here again. Let us see if we have any questions. Yeah, there is one. Turkey was a good market, and could strategic partners help you enter more markets on retail or professional channels? Yes, sure.
Turkey, actually, we have some customers, and right now, what we are doing now is ODM business, and this is a very good business. We already have the customer there, and we are going to launch more and more products for the customer. There is another one. Viomi still increasing the R&D investment. Which innovation are you mostly excited to commercialize? Yeah. The R&D, actually, the expense for the R&D is quite stable. So, the biggest one of the R&D expense is the people. We have invested enough staffing on the R&D side, and also we have sufficient technology reserve for the future. For the coming, actually, next year, what we are trying to do is about to centralize our technology on the filtration. That is the coffee machine and also the countertop water purifier, and also the filters.
The next question is about, as China adjusts to lower subsidies, where do you see the best opportunity to win the market share? Very good question. For China, actually, there is no subsidy for most of the category, so that means there is an equal opportunity for the competitors. For us, we have the strong R&D capability, and also we have the Gigafactory. That means we can produce high-quality product with affordable cost. So, that will help us to get the market share more. What is the biggest advantage your Gigafactory gives you when you are competing with the overseas customers? Yeah. The Gigafactory, as I said, that we have the highest standard quality, and we have the sufficient capacity, and also we have affordable cost. So that is benefit us a lot. Also, we have a very good supply chain.
It's that we have the upstream, the supply chain, and we master most of the cost in our Gigafactory. That will help us to compete. I think this is the last question we can talk. What is the gross margin outlook, and given the mix shift and the competition from Viomi, Haier, and Midea? This year, for the first half, you can see our gross margin is a little bit down compared to last year, but we can see that it's recovering. If we looking out for second half and even the future, we can see a steady growth. It will benefit from our Gigafactory and also from the sales. We don't need to compete with the pricing in China, and even we have more and more better gross margin for the overseas sales. It comes from our international market.
That will benefit us a lot on the gross margin. I think that's all. Thank you.
Okay. Thank you all for the questions. For any further inquiries, please contact our IR team at ir@viomi.com. Thank you all for participating our session. Goodbye.