VTech posts profit growth

Firm's net profit up by 33 per cent despite challenging environment.
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The firm has reported its financial results for the six months ended September 30th 2009, with profit up by 33 per cent to $91.5 million. Net margin for the period expanded by 3.5 percentage points, from 8.8 per cent to 12.3 per cent.

Despite the rise in profit, sales for the period were down by 5.2 per cent overall to $738 million

The increased margin reflects lower material costs and higher operational efficiency, including an ability to engineer products for lower costs.

Sales of electronic learning products (ELPs) declined by 25.1 per cent to $103.6 million in North America. This was as expected by the company as it had placed more emphasis on value in its 2009 product offerings and delayed the launch of a major new platform product in view of the weak economy.

Poor consumer sentiment resulted in pressure on more expensive products, leading to lower average selling prices and consequently lower revenue. On the other hand, standalone products, led by the infant category, performed well.

Two major new line-ups were launched. Jungle Gym, which combines electronic learning, fun and physical activities, has been well-received in the market. The Bugsby Reading System, which uses pen touch technology, has performed in line with expectation so far.

Overall revenue from Europe declined by 24.4 per cent to $225.6 million. Sales in all sections of the business were lower, as demand weakened in the face of the contraction of the European economies. Europe accounted for 30.5 per cent of group revenue.

ELP sales to Europe decreased by 26.1 per cent to $95.4 million as declining consumer spending and lower average selling prices depressed revenue. Led by the Kidizoom camera, boxed products again fared better than platform products.

Asia Pacific outperformed VTech's other markets, as revenue rose across the board by 35.8 per cent to $42.5 million, accounting for 5.8 per cent of group revenue. ELPs also sold well, with an 18.4 per cent increase in sales to $10.3 million.

Allan Wong, chairman and group CEO of VTech Holdings said: "The first half of the financial year 2010 has been challenging for VTech, given the poor economic conditions in major markets around the world. Although revenue declined, lower material costs and higher productivity contributed to improved gross margin.

"In addition, better foreign exchange risk management, together with our proven ability to control costs, enabled us to increase both profit attributable to shareholders and the dividend."

For the next six months, VTech expects consumer sentiment to remain subdued as unemployment in its major markets is high. Consequently, the group reiterates the position outlined in the last annual results announcement, that top line growth will not be easy to achieve in the current financial year.

The group expects, and has planned for a challenging 2009 holiday season for its ELPs, especially in North America and Europe. A rich line-up of new products for 2010, led by new platforms, has been previewed with key retail customers in the United States. Uniform enthusiastic receptions have been received from the customers.

Wong added: "VTech is a company with market leadership position, a strong balance sheet and a highly efficient operation. Despite the challenging environment, we continue to post solid results. We will continue to focus on product innovation and geographic expansion in pursuit of growth, while managing costs and risks to enhance profitability. VTech is well positioned to take advantage of the recovery in the global economy."

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