Vtech Holdings Limited · HKEX:303
Vtech — H1 FY2019 Earnings Presentation
35 slides from Vtech's earnings presentation, Nov 12, 2018
Slide 1: VTech Holdings Limited 2018/2019 Interim Results Announcement
VTech Holdings Limited 2018/2019 Interim Results Announcement 12 November 2018 1
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) 2018 2017 Change Revenue 1,003.5 1,039.7 -3.5% Gross Profit 296.5 335.4 -11.6% Gross Profit Margin % 29.5% 32.3% -2.8% pts Operating Profit 100.3 114.8 -12.6% Operating Profit Margin % 10.0% 11.0% -1.0% pts Profit Attributable
Slide 4: Revenue by Region
Revenue by Region For the six months ended 30 September (US$ million) 2018 % 2017 Change North America 470.1 46.8 499.7 -5.9% Europe 400.4 39.9 413.7 -3.2% Asia Pacific 112.1 11.2 100.6 11.4% Other Regions 20.9 2.1 25.7 -18.7% Total 1,003.5 100.0 1,039.7 -3.5% 4
Slide 5: Working Capital
Working Capital (US$ million) 30/09/18 31/03/18 30/09/17 Stocks 492.6 349.9 456.9 Stocks Turnover Days 138 days 102 days 128 days Trade Debtors 471.1 264.9 462.9 Trade Debtors Turnover Days 63 days 65 days 64 days 5
Slide 6: Liquidity Position
Liquidity Position (US$ million) 30/09/18 31/03/18 30/09/17 Deposits and Cash 74.3 254.4 91.3 Total Borrowings ‒ ‒ (1.6) Net Cash Position 74.3 254.4 89.7 6
Slide 7: Operations Review
vtech Operations Review >> > >> > INNOVATION BEYOND TECHNOLOGY 7
Slide 8: Costs
Costs • Gross profit margin decreased from 32.3% to 29.5% • Mainly due to product mix, higher materials prices, increase in direct labour costs and manufacturing overheads, which offset the positive impact of further productivity gains 8
Slide 9: US-China Trade Tensions
US-China Trade Tensions • During 1HFY2019, the US Government imposed three rounds of tariffs on Chinese imports amounting to US$250 billion of goods • Neither VTech’s ELPs nor TEL products included in list of items targeted • Tariffs affect some CMS customers who export to US from VTech facilities i
Slide 10: North America
North America Revenue by Product Line (US$ million) • Revenue fell by 5.9% to US$470.1 million, ELPs 46.8% of Group revenue 210.9 (+9.6%) • Lower sales of TEL products and CMS offset higher sales of ELPs • ELPs revenue rose by 9.6% to US$210.9 million Standalone and platform products grew, driven
Slide 11: North America (continued)
North America (continued) Standalone Products: • Sales increases of both VTech and LeapFrog branded products: VTech: Higher sales of infant and preschool products, Kidi line and Kidizoom Camera offset lower sales of Go! Go! Smart family of products LeapFrog: Strong growth reflected higher sales
Slide 12: North America (continued)
North America (continued) Platform Products: • Growth across both brands: VTech: Kidizoom Smartwatch DX2 and KidiBuzz saw higher sales; the new Explore and Write Activity Desk hit the market in August LeapFrog: Higher sales of both reading systems and children’s educational tablets, including th
Slide 13: North America (continued)
North America (continued) • TEL products revenue decreased by 21.2% to US$131.3 million • Lower sales of residential phones, commercial phones and other telecommunication products • Residential Phones: Lower sales due to continued contraction of fixed-line telephone market and loss of shelf space
Slide 14: North America (continued)
North America (continued) Commercial Phones and Other Telecommunication Products: • Higher sales of hotel phones and wireless monitoring systems unable to compensate for lower sales of baby monitors and VoIP phones Hotel phones: Sales rose as new projects won Wireless monitoring systems: Benefit
Slide 15: North America (continued)
North America (continued) • CMS revenue declined by 9.1% to US$127.9 million • Lower sales of solid-state lighting, communication products and professional audio equipment Solid-state lighting: Affected by customers’ less favourable business conditions Communication products: Further sales decli
Slide 16: North America (continued)
North America (continued) Professional audio: Lower orders as a major customer worked through excess inventory Industrial products: Sales increased owing to good orders for items including PCB assembly for industrial printers and note counting devices 16
Slide 17: Europe
Europe Revenue by Product Line (US$ million) • Revenue down by 3.2% to US$400.4 million, 39.9% of Group revenue ELPs 129.1 (-17.1%) • Lower sales of ELPs and TEL products offset sales increase at CMS • ELPs revenue declined by 17.1% to US$129.1 million UK sales stable but other markets decline on
Slide 18: Europe (continued)
Europe (continued) Standalone Products: • Sales declined overall • VTech sales lower • Good growth for LeapFrog, with higher sales in infant and preschool categories • Won numerous awards, especially for Myla the Magical Make-Up Unicorn and Toot-Toot Friends Kingdom Pirate Ship 18
Slide 19: Europe (continued)
Europe (continued) Platform Products: • Sales decreased VTech: Higher sales of KidiCom MAX offset by lower sales of Kidizoom Smartwatches and children’s educational tablets LeapFrog: Continued growth in LeapStart/MagiBook and introduction of LeapStart 3D in the UK offset decline in children’s ed
Slide 20: Europe (continued)
Europe (continued) • TEL products revenue decreased by 10.2% to US$62.4 million Sales declines in residential phones and other telecommunication products, while VoIP phones posted a slight growth • Residential Phones: Sales decreased as fixed-line telephone market continued to contract 20
Slide 21: Europe (continued)
Europe (continued) • Commercial Phones and Other Telecommunication Products: VoIP phones: Continued growth supported by positive reception for the new colour display VoIP phone under the Snom brand Baby monitors: Sales declined as a major customer reduced orders CAT-iq handsets: Lower sales on
Slide 22: Europe (continued)
Europe (continued) • CMS revenue rose by 10.8% to US$208.9 million • The increase mainly due to higher sales of hearables, professional audio equipment and communication products Hearables: Market share gains and new product launches by existing customers led to growth Professional audio: Order
Slide 23: Europe (continued)
Europe (continued) Communication products: Benefited from increased orders for Wi-Fi routers and VoIP phones Medical and health products: Sales negatively impacted by lower orders for hair removal products and hearing aids Industrial products: Sales held steady Switching mode power supplies:
Slide 24: Asia Pacific
Asia Pacific Revenue by Product Line (US$ million) • Revenue increased by 11.4% to US$112.1 ELPs million, 11.2% of Group revenue 40.7 (+16.3%) • ELPs revenue up 16.3% to US$40.7 million, led by growth in mainland China and Australia • TEL products revenue declined by 17.5% to US$17.9 million on lowe
Slide 25: Asia Pacific (continued)
Asia Pacific (continued) • Completed acquisition of manufacturing facility in Malaysia • Consideration of approx. US$19.9 million • Includes business manufacturing high performance audio equipment for DJs, producers and artists • Strengthens CMS’ position as a leading global manufacturer of professi
Slide 26: Other Regions
Other Regions Revenue by Product Line (US$ million) • Revenue declined by 18.7% to US$20.9 ELPs 9.2 million, 2.1% of Group revenue (-13.2%) • Lower sales of ELPs, TEL products and CMS • ELPs revenue down 13.2% to US$9.2 million, with sales lower in all three regions • TEL products revenue decreased
Slide 27: Outlook
vtech Outlook >> > >> > INNOVATION BEYOND TECHNOLOGY 27
Slide 28: Outlook - Overview
Outlook - Overview • Group revenue for FY2019 difficult to gauge • Full year CMS revenue to grow • TEL products revenue lower year-on-year • ELPs revenue hard to predict, as 2H sales may be affected by lingering effects of Toys“R”Us closure and logistics issues in continental Europe • US-China trade
Slide 29: Outlook: ELPs
Outlook ELPs • Revenue in FY2019 difficult to gauge, as challenges will carry over into 2H • North America: Lingering effect of Toys“R”Us closure may affect holiday sales • Europe: Sales in 2H will be higher than 1H, as logistics issues being resolved • Asia Pacific: Continued good performances from
Slide 30: Outlook: ELPs
Outlook ELPs • Positive longer term prospects Expansion into building sets category with interactive building sets LeapBuilders/ BlaBla Blocks Good reception of VTech and LeapFrog CY2019 new line-up of products Well-positioned for solid performance in FY2020 30
Slide 31: Outlook: TEL Products
Outlook TEL Products • Sales to pick up in 2H, but full year revenue projected to be lower • Full year sales of commercial phones and other telecommunication products to increase VoIP phones: Sales to grow in 2H over 1H on aggressive promotional programme and introduction of additional VoIP phone
Slide 32: Outlook: TEL Products
Outlook TEL Products Baby monitors: Resumption of growth on new product launches and increasing orders from a major customer CAT-iq handsets: Sales to pick up Headsets: Business to grow further on shipments of new models IADs: Sales in 2H to improve 32
Slide 33: Outlook: CMS
Outlook CMS • Will achieve growth for FY2019 • Sales will increase across the board: driven by higher sales of professional audio equipment, hearables, industrial products, home appliances as well as medical and health products • Existing customers expanding their businesses, new customers being add
Slide 34: Outlook: CMS
Outlook CMS • Further growth from IoT products • Sales contribution from manufacturing DJ equipment • Additional business from new customers demanding an alternative manufacturing site outside mainland China, in response to US-China trade tensions 34
Slide 35: Thank You
Thank You >> = >> > INNOVATION BEYOND TECHNOLOGY 5