VTech Holdings Limited · HKEX:303
VTech — H1 FY2020 Earnings Presentation
40 slides from VTech's earnings presentation, Nov 11, 2019
Slide 1: 2019/2020 Interim Results Announcement
VTech Holdings Limited 2019/2020 Interim Results Announcement 11 November 2019
Slide 2: Financial Review
vtech Financial Review >> > >> > INNOVATION BEYOND TECHNOLOGY 2
Slide 3: Financial Highlights
Financial Highlights For the six months ended 30 September (US$ million) 2019 2018 Change Revenue 1,124.1 1,003.5 +12.0% Gross Profit 344.8 296.5 +16.3% Gross Profit Margin % 30.7% 29.5% +1.2% pts Operating Profit 134.9 100.3 +34.5% Operating Profit Margin % 12.0% 10.0% +2.0% pts Profit Attributable
Slide 4: Revenue by Region
Revenue by Region For the six months ended 30 September (US$ million) 2019 % 2018 Change North America 521.9 46.4 470.1 +11.0% Europe 440.6 39.2 400.4 +10.0% Asia Pacific 141.9 12.6 112.1 +26.6% Other Regions 19.7 1.8 20.9 -5.7% Total 1,124.1 100.0 1,003.5 +12.0% 4
Slide 5: Working Capital
Working Capital (US$ million) 30/09/19 31/03/19 30/09/18 Stocks 457.3 369.9 492.6 Stocks Turnover Days 141 days 100 days 138 days Trade Debtors 489.9 263.0 471.1 Trade Debtors Turnover Days 62 days 65 days 63 days 5
Slide 6: Liquidity Position
Liquidity Position (US$ million) 30/09/19 31/03/19 30/09/18 Deposits and Cash 102.5 237.0 74.3 Total Borrowings ‒ ‒ ‒ Net Cash Position 102.5 237.0 74.3 6
Slide 7: Operations Review
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Slide 8: Costs
Costs • Gross profit margin rose from 29.5% to 30.7% • Lower materials prices • Direct labour costs and manufacturing overheads benefited from RMB depreciation • Further productivity improvements 8
Slide 9: US-China Trade Tensions
US-China Trade Tensions • Some CMS customers affected since List 3 tariffs introduced in September 2018 • VTech residential phones subject to List 4A tariffs, effective 1 September 2019 • List 4B implementation on 15 December 2019 would mean virtually all VTech products made in mainland China for th
Slide 10: US-China Trade Tensions
US-China Trade Tensions • To mitigate the impact, production of ELPs and TEL products accelerated • Majority of such products for the US market shipped before the tariffs came into effect • Most of the affected CMS customers transferring production to VTech’s facilities in Malaysia 10
Slide 11: North America
North America Revenue by Product Line (US$ million) • Revenue increased 11.0% to US$521.9 million, 46.4% of Group revenue ELPs 253.2 (+20.1%) • Higher ELPs and CMS sales offset lower TEL products revenue • ELPs revenue rose 20.1% to US$253.2 million Growth for both LeapFrog and VTech branded produ
Slide 12: North America (continued)
North America (continued) • Standalone Products: Higher sales of both LeapFrog and VTech branded products LeapFrog: Posted significant sales increase, buoyed by rising sales of infant, toddler and preschool products VTech: Growth led by higher sales of infant, toddler and preschool products 12
Slide 13: North America (continued)
North America (continued) • Platform Products: Higher sales driven by VTech platform products VTech: Increased sales of Kidizoom Smartwatch range and Touch & Learn Activity Desk Deluxe offset a decline in KidiBuzz LeapFrog: Lower sales on declines for children’s educational tablets, LeapStart
Slide 14: North America (continued)
North America (continued) • TEL products revenue decreased 4.3% to US$125.6 million, with lower sales in both categories • Residential Phones: Sales decline due to contraction of fixed-line telephone market Rate of sales decline slowed as VTech recouped some lost market share and became sole sup
Slide 15: North America (continued)
North America (continued) • Commercial Phones and Other Telecommunication Products: Lower sales of headset products, hotel phones and SMB phones offset growth in VoIP phones and conference phones, with sales of baby monitors stable VoIP phones: New series of Snom products gaining traction Head
Slide 16: North America (continued)
North America (continued) • CMS revenue up 11.9% to US$143.1 million • Higher sales of professional audio equipment, medical and health products and solid-state lighting offsetting lower sales of communication products, with sales of industrial products stable Professional audio: Customer’s order
Slide 17: North America (continued)
North America (continued) Medical and health products: Higher sales of hearing aids as customer transferred in-house production to VTech; shift from PCB assembly to manufacture of finished products Solid-state lighting: Benefited from addition of a new customer Communication products: Sales de
Slide 18: Europe
Europe Revenue by Product Line (US$ million) • Revenue up 10.0% to US$440.6 million, 39.2% of Group revenue ELPs 145.7 (+12.9%) • Higher sales of ELPs and CMS offset lower TEL products revenue • ELPs revenue up 12.9% to US$145.7 million Higher sales of standalone and platform products Resolution
Slide 19: Europe (continued)
Europe (continued) • Standalone Products: Growth in both brands VTech: Higher sales of infant, toddler and preschool products, Kidizoom Camera and Kidi line, offsetting declines in Toot-Toot family of products LeapFrog: Higher sales of infant, toddler and preschool products on new product laun
Slide 20: Europe (continued)
Europe (continued) • Platform Products: Sales increase for both brands VTech: Higher sales of Kidizoom Smartwatches, KidiCom MAX and Touch & Learn Activity Desk LeapFrog: Higher sales of LeapStart; launch of LeapStart Go and RockIt Twist 20
Slide 21: Europe (continued)
Europe (continued) • TEL products revenue decreased 8.2% to US$57.3 million Decline in residential phones offset growth of commercial phones and other telecommunication products • Residential Phones: Fixed-line telephone market contracts; existing customers reduced orders 21
Slide 22: Europe (continued)
Europe (continued) • Commercial Phones and Other Telecommunication Products: VoIP phones: Continue to grow steadily as new line of Snom products gains traction CAT-iq handsets: Sales boosted by new customer in Germany CareLine: Increasing orders from existing customers Baby monitors: Stable
Slide 23: Europe (continued)
Europe (continued) • CMS revenue grew 13.7% to US$237.6 million • Growth across the board Professional audio: Good market reception for customer’s products; new customer added; backlog of orders cleared for a customer Hearables: Good sell-through of customer’s products; new projects won 23
Slide 24: Europe (continued)
Europe (continued) IoT products: More orders for internet connected thermostats and AC controls; significant growth in smart meters for UK market, driven by rising installations Communication products: Production of network routers ramped up Medical and health products: Higher sales of hearing
Slide 25: Asia Pacific
Asia Pacific Revenue by Product Line (US$ million) • Revenue increased 26.6% to ELPs US$141.9 million, 12.6% of Group 44.6 (+9.6%) revenue • Higher sales of ELPs and CMS offset lower sales of TEL products • ELPs revenue up 9.6% to US$44.6 million, led by continued growth in mainland China and Austra
Slide 26: Asia Pacific (continued)
Asia Pacific (continued) • Mainland China: Further growth in KidiSchool line, targeting early education segment Increasing sales to maternity-infant-child specialty retailers and an e-commerce retailer • Australia: Several new customers added Further expansion of sales channels supported str
Slide 27: Asia Pacific (continued)
Asia Pacific (continued) • TEL products revenue declined 23.5% to US$13.7 million, as higher sales in Hong Kong insufficient to offset lower sales in Australia, Japan and Malaysia Hong Kong: Increased orders for IADs Australia: Lower sales of residential phones offsetting growth in baby monitors
Slide 28: Asia Pacific (continued)
Asia Pacific (continued) • CMS revenue up 56.3% to US$83.6 million • Sales of professional audio equipment and medical and health products continued to rise, offsetting decline in communication products Professional audio: Boosted by full six months contribution from DJ equipment business, against
Slide 29: Other Regions
Other Regions Revenue by Product Line (US$ million) • Revenue down 5.7% to US$19.7 million, ELPs 1.8% of Group revenue 9.1 (-1.1%) • ELPs and TEL products saw sales declines, CMS registered growth • ELPs revenue declined 1.1% to US$9.1 million. Higher sales in Middle East were offset by lower sales
Slide 30: Outlook
vtech Outlook >> > >> > INNOVATION BEYOND TECHNOLOGY 30
Slide 31: Outlook - Overview
Outlook - Overview Group revenue forecast to increase in FY2020 • Growth rate to moderate in 2H, as some 2H shipments to US customers brought forward to 1H to avoid tariffs • ELPs and CMS revenues expected to be higher for full year • TEL revenue for full year to be lower but rate of decline to mode
Slide 32: Outlook - Costs
Outlook - Costs Gross profit margin expected to improve • Materials prices expected to be lower • Labour costs and manufacturing overheads forecast to benefit from weaker RMB • Some negative impact expected from US trade tariffs and weak European currencies • In discussion with customers on measures
Slide 33: Outlook: Rationalisation of manufacturing base
Outlook Rationalisation of manufacturing base • Implementation began in August 2018 with the acquisition of the manufacturing facilities in Malaysia • Helping CMS customers to transfer production to Malaysia • Expansion in Malaysia will continue 33
Slide 34: Outlook: ELPs
Outlook ELPs • Full year revenue forecast to increase • New products will boost sales worldwide and strengthen market share • North America: Growth momentum continues, albeit at a more moderate pace • Europe: Business recovered from logistics issue, but market soft and some customers facing financia
Slide 35: Outlook: ELPs
Outlook ELPs • New animation series on Netflix, called Go! Go! Cory Carson • To complement VTech’s preschool learning toy business • Inspired by Go! Go! Smart Wheels • Premieres on 4 January 2020 • New products associated with the animation to launch in North America in Spring 2020, other markets in
Slide 36: Outlook: TEL products
Outlook TEL products • Full year revenue anticipated to decrease, but rate of decline expected to moderate year-on-year • Residential phones: Sales anticipated to decline, though VTech will continue to regain market share in North America • Commercial phones and other telecommunication products: Sal
Slide 37: Outlook: TEL products
Outlook TEL products • Accelerating new product development Super-long range residential phones New generation of SMB phones and hotel phones VoIP phones: Category to be enriched with wireless headsets, cordless handsets and wireless desksets HD video baby monitors with remote access functio
Slide 38: Outlook: CMS
Outlook CMS • On track to achieve full year growth • Hearables: Benefit from strong sell through and new product launches by a major customer; win more new projects • Professional audio: Rising sales to existing customers on good performance of their new products; new customers; continued growth in
Slide 39: Outlook: CMS
Outlook CMS • Medical and health: Rising orders of heading aids as VTech manufactures finished products • IoT products: Demand for smart meters encouraging • Industrial products: Stable 39
Slide 40: Thank You
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