VTech Releases 2018/2019 Interim Results

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CMS revenue in North America declined by 9.1% to US$127.9 million. This was mainly due to lower sales of solid-state lighting, communication products and professional audio equipment. Solid-state lighting was affected by less favourable business conditions at the Group's customers, while communication products registered a further sales decline as a client's product line reached the end of its life cycle. Professional audio equipment saw a reduction in orders from a major customer as it worked through excess inventory. In contrast to the declines, sales of industrial products increased owing to good orders for items including printed circuit board assembly for industrial printers and note counting devices.



Group revenue in Europe decreased by 3.2% to US$400.4 million in the first six months of the financial year 2019, as lower sales of ELPs and TEL products offset an increase at CMS. Europe remained VTech's second largest market, accounting for 39.9% of Group revenue.

ELPs revenue in Europe declined by 17.1% to US$129.1 million, with lower sales of both standalone and platform products. Geographically, sales in the UK were stable despite the closure of Toys"R"Us in the country, while France, Germany, the Netherlands and Spain all recorded sales decreases. During the period, the Group engaged a new third-party logistics vendor for continental Europe who relocated to a new warehouse. The transition resulted in reduced shipment of VTech branded products in the region, significantly impacting sales. LeapFrog branded products were unaffected, as these are marketed primarily in the UK. In the first nine months of the calendar year 2018 VTech maintained its position as the number one infant and toddler toy manufacturer in France, the UK and Germany(3).

Standalone products saw lower sales in Europe in the first six months. Sales of VTech standalone products were lower. However, good growth was achieved in LeapFrog standalone products, as new product introductions drove sales higher in the infant and preschool categories.

Platform product sales in Europe decreased during the period. Among VTech platform products, higher sales of KidiCom MAX were offset by lower sales of Kidizoom Smartwatches and children's educational tablets. Sales of LeapFrog platform products posted growth, however, as continued growth in LeapStart/MagiBook(4) and the introduction of LeapStart 3D in the UK offset a decline in children's educational tablets.

During the first six months of the financial year 2019, VTech ELPs won numerous awards in Europe. In the UK, Argos listed Myla the Magical Make-Up Unicorn in its "Top Toys for Christmas 2018". In France, VTech won three "Grand Prix du Jouet" awards from La Revue du Jouet magazine, for Toot-Toot Friends™ Kingdom Pirate Ship, Myla the Magical Make-Up Unicorn and Little Love® Léa découvre le pot. In Spain, Toot-Toot Friends Kingdom Pirate Ship was named "Best Toy 2018" from the Spanish Association of Toy Manufacturers.

Revenue from TEL products in Europe decreased by 10.2% to US$62.4 million in the first six months of the financial year 2019. Residential phones and other telecommunication products saw sales declines, while VoIP phones posted a slight growth.

Sales of residential phones were lower as the fixed line telephone market continued to contract.

In commercial phones and other telecommunication products, VoIP phones saw continued growth, supported by a positive reception from customers for the new colour display VoIP phone under the Snom brand. Sales of baby monitors declined, however, as orders from a major customer reduced. Another customer's project delays led to lower sales of CAT-iq (Cordless Advanced Technology – internet and quality) handsets. IADs (Integrated Access Devices) sales also registered declines due to a reduction in orders by a telephone company customer.

CMS revenue in Europe rose by 10.8% to US$208.9 million. The increase was mainly due to higher sales of hearables, professional audio equipment and communication products. This offset lower sales of medical and health products, while sales of industrial products and switching mode power supplies held steady. In hearables, market share gains and new product launches by the Group's existing customers led to growth. Orders for professional audio equipment increased as customers launched new products that were well-received by the market. Communication products benefited from increased orders for Wi-Fi routers and VoIP phones. Medical and health products, however, were negatively impacted by lower orders for hair removal devices and hearing aids.



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