VTech sees sales trending higher after posting record US$2bn annual revenue

VTech Holdings, the world’s largest supplier of electronic learning products and cordless telephones, is looking to drive up sales in its current financial year after posting record revenue in the year ended March 31.

On Tuesday, the company reported a 12 per cent increase in fiscal year revenue to US$2.1 billion, up from US$1.8 billion a year ago, on the back of increased sales in North America, Europe and the Asia-Pacific.

Net profit, however, dipped 1.3 per cent to US$179 million from US$181.4 million.

“The fall in profit was mainly due to the one-off costs associated with the acquisition and integration of LeapFrog,” VTech chairman and chief executive Allan Wong Chi-yun said in a regulatory filing on Tuesday.

That included the professional and legal costs associated with the investigation conducted by Britain’s Competition and Markets Authority. It approved the US$71.2 million acquisition of LeapFrog in January, following a probe that started in April last year.

The regulator described VTech and LeapFrog as the two leading suppliers of learning toys as well as children’s tablets and electronic content in Britain.

That data breach had compromised 4.8 million parent accounts and 6.4 million related children’s profiles on VTech’s Learning Lodge app store customer database and Kid Connect servers.

Also affected were 235,708 parent and 227,705 children accounts at the company’s Planet VTech online games platform.

VTech’s share price advanced 0.27 per cent to reach a two-year high of HK$111 ahead of its financial results announcement. It was the stock’s highest close since it reached HK$112.8 on March 26, 2015.

Daiwa Capital Markets analyst John Choi had recently predicted “a strong rebound year for VTech” in its financial year to the end of March.

“Its integration of LeapFrog is in line with our expectations,” Choi said.

North America remained VTech’s largest market, accounting for 48.9 per cent or just over US$1 billion of its total revenue in the past fiscal year, bolstered by the sales contribution of Leapfrog.

Wong projected further growth in its electronic learning products business, driven by the expanded VTech baby, infant, toddler and preschool lines, as well as the launch of more learning toys under the LeapFrog brand.

Higher sales are also forecast for VTech’s cordless telephones and other telecommunications products, following the company’s acquisition of German telephone maker Snom Technology for US$15.1 million in November.

While cost of materials are expected to be higher and headwinds in foreign exchange movement will continue, “direct labour costs and manufacturing overhead as a percentage of group revenue are forecast to decrease slightly”, Wong said.

In addition, Wong projected VTech’s contract manufacturing services business to rise “on the back of increasing orders from existing customers in professional audio ... industrial products, solid-state lighting as well as medical and health products”.