Vtech Holdings Limited · HKEX:303
Vtech — H1 FY2017 Earnings Presentation
35 slides from Vtech's earnings presentation, Nov 10, 2016
Slide 1: VTech Holdings Limited 2016/2017 Interim Results Announcement
VTech Holdings Limited 2016/2017 Interim Results Announcement 10 November 2016
Slide 2: Financial Review
vtech Financial Review >> > >> >INNOVATION BEYOND TECHNOLOGY 9
Slide 3: Financial Highlights
Financial Highlights For the six months ended 30 September (US$ million) 2016 2015 Change Revenue 982.9 928.1 5.9% Gross Profit 313.8 286.0 9.7% Gross Profit Margin % 31.9% 30.8% 1.1% pts Operating Profit 79.3 111.0 -28.6% Operating Profit Margin % 8.1% 12.0% -3.9% pts Profit Attributable to Shareho
Slide 4: Revenue by Region
Revenue by Region For the six months ended 30 September (US$ million) 2016 % 2015 Change North America 474.4 48.3 461.6 2.8% Europe 412.6 42.0 373.7 10.4% Asia Pacific 69.9 7.1 59.7 17.1% Other Regions 26.0 2.6 33.1 -21.5% Total 982.9 100.0 928.1 5.9% 4
Slide 5: Working Capital
Working Capital (US$ million) 30/09/16 31/03/16 30/09/15 Stocks 390.5 285.4 367.9 Stocks Turnover Days 110 days 93 days 115 days Trade Debtors 423.1 230.3 395.5 Trade Debtors Turnover Days 60 days 63 days 61 days 5
Slide 6: Liquidity Position
Liquidity Position (US$ million) 30/09/16 31/03/16 30/09/15 Deposits and Cash 104.4 273.0 104.9 Total Borrowings ‒ ‒ ‒ Net Cash Position 104.4 273.0 104.9 6
Slide 7: Operations Review
vtech Operations Review >> > >> >INNOVATION BEYOND TECHNOLOGY 7
Slide 8: Costs
Costs • Gross margin increased • Cost of materials as % of Group revenue was largely unchanged • Direct labour costs and manufacturing overhead declined as wages held steady and the Renminbi depreciated • Efficiency increased by reducing the workforce through automation and process improvement 8
Slide 9: North America
North America Revenue by Product Line (US$ million) • Revenue up 2.8% to US$474.4 million, ELPs 48.3% of Group revenue 187.6 (+26.2%) • Higher sales of ELPs offset lower sales of TEL products and CMS • ELPs revenue rose by 26.2% to US$187.6 million Sales of LeapFrog products consolidated Overall
Slide 10: North America (continued) - Standalone
North America (continued) • Standalone: Growth driven by core infant and toddler products Augmented by new Go! Go! Smart family launches, such as Go! Go! Smart Wheel Treasure Mountain Train Adventure playset and Go! Go! Smart Friends Enchanted Princess Palace 10
Slide 11: North America (continued) - Platform
North America (continued) • Platform: Growth driven by new product launches and the combined VTech and LeapFrog educational tablet offerings Touch & Learn Activity Desk Deluxe hit the US shelves in August 2016 New LeapStart interactive learning system Sales of Kidizoom Smartwatch declined 11
Slide 12: North America (continued)
North America (continued) • TEL products revenue decreased by 9.0% to US$182.1 million Growth in commercial phones and other telecommunication products offset by lower sales of residential phones • Residential: Impacted by decline of fixed-line market and some major retailers tightening inventor
Slide 13: North America (continued)
North America (continued) • Commercial and other telecommunication products: Baby monitors: Had the strongest performance, driven by new product launches, strong sell-through and increased product placements SIP phones: Sales increase as distribution channels expanded Hotel phones: Market shar
Slide 14: North America (continued)
North America (continued) • CMS revenue down 7.1% to US$104.7 million Lower sales of professional audio equipment and communication products offset higher sales of solid-state lighting and home appliances 14
Slide 15: North America (continued)
North America (continued) Professional audio: Excess inventory, project delay at a customer Communication products: Lower orders for a home security system from an existing customer Solid-state lighting: Sales contribution from a new customer. An existing customer transferred production of a n
Slide 16: Europe
Europe Revenue by Product Line (US$ million) • Revenue up 10.4% to US$412.6 million, 42.0% of Group revenue ELPs 144.5 (+11.8%) • Higher sales of ELPs and CMS offset a decline in TEL products • ELPs revenue up 11.8% to US$144.5 million Growth in all key markets, namely the UK, France, Germany, the
Slide 17: Europe (continued)
Europe (continued) • Standalone: Sales increase led by core infant, toddler and preschool products Higher sales of Kidizoom camera and Kidi line Sales of Toot-Toot family of products were stable Kidizoom Action Cam saw sales decline 17
Slide 18: Europe (continued)
Europe (continued) • Platform: Sales of children’s educational tablets increased with the addition of LeapFrog tablets and incremental sales from DigiGo Rolled out second generation of Kidizoom Smartwatch LeapStart hit UK shelves in July 2016 18
Slide 19: Europe (continued)
Europe (continued) • TEL products revenue decreased by 15.3% to US$63.0 million Lower sales of residential phones, commercial phones and other telecommunication products • Residential: Contraction of fixed-line telephone market Weak Euro reducing customers’ purchasing power 19
Slide 20: Europe (continued)
Europe (continued) • Commercial and other telecommunication products: CAT-iq handsets: lower sales as a key customer changed its sales and marketing strategy on product bundling SIP phones, baby monitors and IADs: Affected by delayed product launches by customers Started shipping fixed-line te
Slide 21: Europe (continued)
Europe (continued) • CMS revenue rose by 20.6% to US$205.1 million • Broad based growth offset slightly lower sales of home appliances and communication products Hearables: Significant growth due to successful launch of the world’s first wireless smart earphones by a new customer. Other customers’
Slide 22: Europe (continued)
Europe (continued) Switching mode power supplies: Temporary boost in sales despite the customer’s change of ownership Industrial products: Supported by higher sales of smart meters Medical and health products: Began shipping hearing aids products 22
Slide 23: Asia Pacific
Asia Pacific Revenue by Product Line (US$ million) • Revenue up 17.1% to US$69.9 million, 7.1% of Group revenue ELPs 24.4 (+17.9%) • Sales of all product lines rose • ELPs revenue up 17.9% to US$24.4 million, driven by sales increase in Australia and Korea, which offset declines in China and Japan •
Slide 24: Other Regions
Other Regions Revenue by Product Line (US$ million) • Revenue down 21.5% to US$26.0 million, 2.6% of Group revenue ELPs 9.4 (+6.8%) • Higher sales of ELPs insufficient to offset the declines in TEL products and CMS • Other Regions comprise Latin America, the Middle East and Africa • ELPs revenue up
Slide 25: Acquisition of Snom
vtech Acquisition of Snom >> > >> > INNOVATION BEYOND TECHNOLOGY 95
Slide 26: Acquisition of Snom
Acquisition of Snom Announced a binding definitive agreement for the acquisition of Germany’s Snom Technology AG on 21 October 2016 Consideration: Approx. US$15 million • Pioneer and a leading brand of professional and enterprise VoIP telephones • Main synergies: Hardware and software developm
Slide 27: Outlook
vtech Outlook >> > >> >INNOVATION BEYOND TECHNOLOGY 97
Slide 28: Outlook - Overview
Outlook - Overview • Good momentum in ELPs and CMS, sales of TEL products anticipated to pick up in 2H • Management expecting Group revenue to increase for the full year • Profitability expected to improve in 2H as Group revenue will be higher, while the majority of LeapFrog integration costs has be
Slide 29: Outlook - ELPs
Outlook ELPs • Revenue forecast to be higher year-on-year • Sales of both standalone and platform products expected to grow • Standalone: Positive trend of infant, toddler and preschool products will continue, supported by: Contributions from LeapFrog branded products Sales of Go! Go! Smart fami
Slide 30: Outlook - ELPs platform products
Outlook ELPs • Sales of platform products driven by: A broadened portfolio of VTech and LeapFrog branded products, including educational tablets VTech: Touch & Learn Activity Desk Deluxe; Kidizoom Smartwatch DX to launch in Europe; DigiGo LeapFrog: LeapStart expected to make good contribution,
Slide 31: Outlook - TEL products
Outlook TEL products • Sales expected to pick up in 2H, as growth in commercial phones and other telecommunication products accelerates: • Commercial phones Snom acquisition will boost sales worldwide SIP phones: Shipment of SIP terminals to a major Korean customer in 4QFY17 CAT-iq handsets: S
Slide 32: Outlook - TEL products
Outlook TEL products • Other telecommunication products Baby monitors: US sales will grow on increased product placements and new products. VTech branded baby monitors to be introduced to Eastern Europe. More units to be shipped to Western Europe Wireless monitoring system: Will benefit from the
Slide 33: Outlook - CMS
Outlook CMS • Good performance to continue, although growth in 2H expected to moderate slightly • Professional audio: Should stabilise as customer’s excess inventory issue resolved • Hearables: Positive trend to continue as customers’ products perform well • Industrial products: Benefit from the pol
Slide 34: Outlook - CMS
Outlook CMS • Medical and health equipment: Begin to manufacture entire ultrasound machines for a Japanese customer • Switching mode power supplies: Uncertainty because of change of customer ownership • New strategic business units to manage growth of hearing aids and medical and health products • C
Slide 35: Thank You
vtech Thank You >> > >> >INNOVATION BEYOND TECHNOLOGY 35