Today, Vtech Holdings Limited is announcing its annual results for the financial year ended 31st of March 2023. Let me introduce our management. Mr. King Pang, Executive Director and Group President; Mr. Allan Wong, Chairman and Group CEO Mr. Andy Leung, Executive Director and CEO of Contract Manufacturing Services; and [ Mr. Hung Tong ], Group Chief Financial Officer.
First of all, Ms. Tong will present the group financial performance. Next, Mr. Leung will talk about the group's operations and performance in North America and Europe.
Mr. Pang will then continue to share the rest of the segment results and give the management outlook for this financial year. We will finish our presentation with a Q&A session. Now may I invite Ms. Tong to open today presentations. Ms. Tong, please?
Thank you, Grace. Good afternoon, ladies and gentlemen, and all be online. First of all, I'd like to share with you the financial highlights of the group. For the year-end 31st of March 2023 compared with the same period of the last year. As you see from the slide, the revenue of the group will be used by 5.4% to USD 2,241.7 million.
The decrease in value was mainly due to the decline in revenue in North America and Europe, which offset the higher sales in Asia Pacific and other regions. Our gross product reduced by 5.3% to USD 63.7 million.
Our gross profit margin, however, improved slightly from 28.2% to 28.3%. The increase in gross profit margin was mainly due to the increase in selling prices, lower cost of materials, freight charges -- labor cost and manufacturing overhead. These offset the negative impact of the lower group's revenue, depreciation of the major foreign currencies against U.S. dollar, change in product mix as well as the increase in [indiscernible].
Our operating profit reduced by 11.4% to USD 118.5 million, and our operating profit margin also was used from 8.6% to 8.1%. The reduction in operating profit and operating profit margin was mainly due to the decline in gross profit as well as the increase in advertising and promotion costs for our electronic learning products and telecom products as a percentage of the group's revenue.
Our profit attributable to shareholders reduced by 13.6% to USD 149.2 million, and our net profit margin also reduced from 7.3% to 6.7%. As a result, our basic earnings per share will be used by 30.7% to USD 59.10, and our Board of Directors has proposed a final dividend of USD 0.42 playing the total dividend per share for the year to USD 0.59, a decrease of 40.2% compared with the last financial year.
Turning to the revenue by region. North America remains the largest market of the group, accounting for 43.9% of the group's revenue. Our sales in North America reduced by 7.8% to USD 984.8 million. It was mainly due to the lower sales of our electronic learning products and telecom products, which offset the higher sales of our contract manufacturing services.
Our sales to European market reduced by 10.5% to USD 917 million. It was mainly due to the lower sales of our electronic line of products and contract value funding services, which offset the higher sales of our telecom products. In Asia Pacific region, the revenue will grow rose by 23.8% to USD 315.8 million. The increase in revenue was due to the increase in sales of our telecom products and contract manufacturing services, which offset the lower sales of our electronic learning products.
Other regions include Latin America, Middle East and Africa. The gross revenue in other regions rose by 10% to USD 24.1 million. It was mainly due to the increase in sales of our telecom products, which offset the lower sales of our electronic learning products and contract manufacturing services.
Our stock balance as of 31st of March 2023 was USD 475.5 million, reduced by 40.1% compared with the same period of the last year. Our stock turnover days also reduced from 131 days to 128 days. The lowest stock level was mainly due to the decrease in raw materials as the supply constraint had eased compared with the same period of the last year.
Our trade debtor's balance as of 31st of March 2023, reduced from USD 325.4 million to USD 277.2 million compared with the last financial year. Our trade debt [indiscernible] days also reduced from 65 days with 9 days. The lower trade date balance was mainly due to the decrease in revenue in the fourth quarter of the financial year 2023 compared with the same period of the last year.
Our financial positions remain very strong we about debt free, and our net cash balance as of 31st of March 2023 was USD 198.5 million, an increase of 1.4% compared with the same period of the last year. That's all of my presentation. I will now invite Mr. Andy Leung to share with you our operations review. Mr. Leung, please.
Thank you, Shereen. Good afternoon, everyone. We will begin with the review of operations by looking at costs. The gross profit margin in the financial year 2023 was 28.3% as compared with 28.2% in the previous financial years. The slight increase was mainly due to the lower cost of materials, freight charges combined with an increase in selling prices.
Direct labor costs and manufacturing overheads were also lower. However, these gains were offset by the negative impact of the lower revenue, the depreciation of the major currency against U.S. dollars, an increase in inventory provisions and the change in product mix. .
Turning now to the operational review at each region. Revenue in North America decreased by 7.8% to USD 964.8 million, as lower sales of ELPs and telecom product offset an increase at CMS. North America remained our largest market, accounting for 43.9% of the group revenue. ELP revenue in North America declined by 15.2% to USD 471.1 million with sales decreases in the U.S. and Canada.
Both stand-alone and platform products registered lower sales with decline in Vtech and default plants. Despite the challenges we have retained its leadership in electronic learning toys from infancy full toddler to Preschool in the U.S.
In Canada, we remain the #1 supplier in the infants, toddler and preschool toys category. In the standalone product at Vtech, Marble Rush and Kidi product reported higher sales. But this were insufficient to offset lower sales of infants, toddler and preschool products, KidiZoom cameras, Switch & Go Dinos and Go! Go! Smart family of products.
At LeapFrog, we saw revenue grow from LeapLand Adventures and eco-friendly toys. The successful overall -- Adventure microscope also contributed additional revenue. However, this gain were offset by lower sales of infants, toddler and preschool products. Sales in retail and platform product declined. Despite this, KidiZoom Smartwatch topped the new electronics super [indiscernible] in the U.S. and Canada in the calendar year 2022.
Subscription revenue from LeapFrog Academy also declined. Telecom product revenue in North America fell by 12.7% to USD 239.9 million. The decrease resulted from lower sales of residential phones, commercial phones and other telecom products. This was despite a further decrease in sales from online channels. Sales of residential phones fell at the U.S. residential phones market continues to contract and shipments were affected by the tight supply of semiconductors, commercial phones saw lower sales of multi-line phones, [indiscernible] and SIP phones.
Productional multiline was affected by tight semiconductor supply. A major customer for headset reduces order during the period. Sales of SIP phones decreased because of delayed product launch. This declines offset growth in hotel phones. Sales of other telecom products decreased mainly on decline in baby monitors and CareLine products.
CMS revenue in North America increased by 14.9% to USD 273.5 million. Higher sales of professional audio equipment and industrial product offset a decline for solid-state lighting. Professional equipment benefited from the rebound after pandemic. We saw increased demand for power amplifiers and our speakers.
The global industrial products were driven by more order for [indiscernible] and no recognition machine. Sales of solid-state lighting purchased a decline as a major customer reduced orders. Sales of medical and health products remained stable. In the financial year of 2023, we acquired a new customer in IoT products and professional audio equipment.
Revenue in Europe fell by 10.5% to USD 917 million. The decrease was due to lower sales of ELPs and CMS, which offset higher sales of telecom products. Europe was the group's second largest market, representing 40.9% of group revenue.
ELP revenue in Europe decreased by 12% to USD 330.1 million with declines for both stand-alone and platform products. Sales in the calendar year 2022, we remain the #1 infants and toddler manufacturer in France, U.K., Germany, Spain and the Benelux countries. In standalone products, Vtech recorded higher sales of Marble Rush, Electronic Learning and eco-friendly toys. However, these were insufficient to compensate for the lower sales of infants, toddler and preschool product, KidiZoom cameras, the Kidi lines and the Toot-Toot family of products.
And therefore, sales posted a slight increase as growth in eco-friendly toys and LeapLand Adventure offset decline in infants, toddler and preschool products. The launch of Magic Adventure microscope at the incremental business. For Platform products, the decline in retail was mainly due to the lower sales of children educational tablets. KidiZoom Smartwatches, KidiCom range and touch and learn activity tests.
For LeapFrog , higher sales of Magic Adventures Globe were insufficient to offset lower sales of interactive meeting system. Revenue from telecom product in Europe rose by 2.8% to USD 96.4 million. Sales of residential phones increased as Vtech branded phone continues to grow in U.K. and Germany. During the period, several ODM customer increased orders. Other telecom products also achieved a sales increase.
The group was able to meet demand for CAT-iq headset at the supply of semiconductor improved. This offset lower sales of baby monitors, CareLines, products and IADs. Sales of commercial phones fell. Higher sales in hotel phones as new design were well received by the market. Sales of SIP phones and headsets were impacted by the economic slowdown in the region. CMS revenue in Europe declined by 11.8% to USD 490.5 million. Lower orders of hearable and communication products offset gains in the other categories.
Sales of hearables declined because order for a customer both asset decreased and demand for commercial headset returned to normal after pandemic. Sales of communication products decreased as order for Wi-Fi router no longer benefited from upgrading. Professional audio equipment grew on a recovery in demand for audio mixer. IoT products saw higher sales of smart meters installation resumed in the U.K. The demand for intellect connected thermostat and air conditioning control improved.
Medical and health product saw sales in hearing aid increase, offsetting a decline in hair removal products. Sales of home appliance remains stable. The power supply category saw a growth from smart energy storage system. I will now turn things over to King.
Thank you, Andy. Good afternoon, ladies and gentlemen. Looking now at Asia Pacific. Revenue in this region rose by 23.8% to USD 315.8 million. Higher sales of telecommunication products and CMS offset lower sales from ELPs. The Asia Pacific region represented 14.1% of group revenue.
Revenue from ELP in Asia Pacific decreased by 5.4% to USD 79.4 million. Growth in Japan was unable to offset lower sales in Mainland China. Sales in Australia held steady. Sales growth in Japan was driven by increase in shipments to a major toy retailer. Good sell-through of jointly developed smartwatches featuring popular Japanese characters added to the impetus.
In Australia, despite tough market conditions, Vtech maintained its position and widen the lead as the #1 manufacturer in the infant and total toys category for calendar year 2022. In Mainland China, higher online sales were insufficient to offset declines in off-line channels. Telecommunication products revenue in Asia Pacific increased by 2.5% to USD 28.4 million. Higher sales in Japan offset lower sales in Australia and Hong Kong. Sales growth in Japan was driven by higher orders of CareLine products from an existing customer.
In Australia, sales of residential phones declined as the market shrank. Sales of baby monitors were impeded by semiconductor shortages. Lower orders of IADs were seen in Hong Kong. CMS revenue in Asia Pacific rose by 45% to USD 208 million. Sales of professional audio equipment medical and health products and communication products were higher. Professional audio equipment enjoyed a rebound in DJ equipment. Our Malaysian facilities have now returned to full production.
In medical and health products, orders for diagnostic ultrasound systems increased. In communication products, orders from marine radio increased. Other regions, sales grew by 10% to USD 24.1 million. Other regions accounted for 1.1% of group revenue. Higher sales of telecommunication products offset declines for ELPs and CMS. ELPs revenue in other regions decreased by 3.7% to USD 10.5 million. Higher sales in the Middle East were insufficient to offset declines in Latin America and Africa. Telecommunication products revenue in other regions rose by 24.8% to USD 13.6 million. Sales increases in Latin America and the Middle East offset a decline in Africa. CMS revenue in other regions was immaterial.
Before sharing our outlook, I would like to outline the key steps we are taking to reorganize our operations for ELPs and telecommunication products. Our goal is to create a stronger, leaner and more efficient organization that is expeditious in bringing our products in depth in responding to changes. The U.S. ELP business is undergoing a structural reorganization, with a new leadership team, fewer management layers and downsized operations.
Productivity increase for our products is driven through enhanced segmentation and portfolio management as well as through expanded license [ punishes] . Product planning and marketing strengthened. We've targeted advertising and promotional spend, enhanced marketing communications as well as leveraging the VTech and LeapFrog brands effectively. We are rebuilding the e-commerce team to ramp up sales on online channels. We are also implementing measures to raise supply chain efficiency.
To create a leaner and more efficient telecommunication products business, we are streamlining its R&D function in Mainland China, tightening management, accelerating new product launches. We are also revitalizing our go-to-market strategy for commercial phones with dedicated teams to refocus telecommunication service providers and value-added retailers.
Now looking forward, the macroeconomic outlook for the financial year 2024 is uncertain. Challenges inflicted by persistent inflation and high interest rates in the U.S. and Europe look set to continue. Consumers remain price-sensitive and hesitant on discretionary spending. Our customers are exercising caution in managing inventories and placing orders. In light of this, we are targeting revenue to be flat year-on-year. Profitability on the other hand, is forecast to recover. Costs are trending lower. Margins will be further boosted by the aforementioned actions taken in the ELPs and telecommunication products businesses.
A bit more color on cost. Cost trends for the financial year 2024 appear favorable. Cost of materials is expected to decrease as supply has eased.
Direct labor costs are no longer on the rise in Mainland China with ample supply of labor. Manufacturing overheads are expected to improve. Free costs have returned to prepandemic levels. The only notable exception to the above is domestic transportation costs. They are expected to remain high in the U.S. and Europe.
The ELPs business is striving to achieve growth in the financial year 2024. Sales of North America and Europe are expected to recover, and our business is expanding its geographic reach. Growth will be driven by the introduction of exciting new products across all categories.
Our new sales office in Italy has started operation. It will provide incremental sales in Europe starting the financial year. In Asia Pacific, a strong sales recovery is anticipated in Mainland China. Growth is also expected in Australia.
Uncertain market conditions notwithstanding, higher sales is projected for telecommunication products. Sales of commercial phones are expected to increase. growth comes from the Snom D8 series of SIP desktops, the multi-cell SIP DECT mobility system and they work from anywhere series. Sales of the hospitality category are also expected to rise.
For residential phones, growth in Europe is expected to offset sales decline in the U.S. where the market continues to contract. Other communication -- other telecommunication products will benefit from a recovery in baby monitors. CMS revenue is forecast to be stable as customers scramble with economic uncertainties. Largely stable sales are expected for professional audio equipment, industrial products as well as medical and health products.
Growth is forecast for smart energy storage systems and smart home control systems, where customers are launching new products. Sales of hearables are expected to stabilize after 2 years of decline. Work to complete the implementation of Industry 4.0 in our manufacturing facilities in Mainland China will continue. Our Mexican facility is on track to offer full turnkey CMS capability by December. Thank you. This completes our presentation. We will now open the floor for questions.
The first question comes from our online -- on-site audience. Yes Mr. [ Lusky ] .
Regarding the reorganization in the U.S. Is this something you have already implemented? Or is it going to happen this financial year? And a follow-up question, what is the U.S. dollar amount you want to save in cost in this reorganization? .
Okay. Let me answer your first question. The reorganization already happened. So we have basically -- we organized the U.S. operation. We have hired a new President for our U.S. ELP operation, and we made a number of changes to the organization, refocusing on product marketing and also e-commerce. As to the savings, May I ask Shereen to give you some answers?
Okay. Well, as mentioned in our presentations, the [indiscernible] organizations mainly to strengthen our productivity as well as our product marketing strategies. That means after those kind of organizations in ELP and telecom, we expect that the revenue will go. And at the same time, our product will be more efficient in terms of go-to-market. So in terms of the -- all our money regarding the savings, we haven't -- we can't tell you regarding the absolute amounts that we could save, but we expect that there were some savings in terms of percentage of sales because of those kind of this business improvement for both product lines, including ELP and telecom. And the U.S. market is our major markets. So we expect there were some savings in terms of dollar [ demand ], but we can tell you how much, yes. But at least the revenue will we improve the revenue, especially for those kind of signal to marketing strategy will be strengthened and improved.
You say reduce management layers, downsized operations. So how many people are there less?
So in the users, actually, we have already do the downsizing for our ELP U.S. office. Well, it's talking about more than 10% of the head count reduction for the U.S. office .
A number of people -- I don't know how many people you have employed.
In the U.S. So in terms of number of people, you talk about 20 for ELP.
Okay. To telecoms, you expect rising sales. Is this now the start of the hockey stick? .
Well, I wouldn't put it as a hockey stick, but I hope this will be the year that we can start seeing the turnaround of the telecom. As you know, in the past, the majority of sales comes from residential phones and residential phone is going through a structural decline.
And the idea is for our new businesses, including the enterprise businesses, to increase to the point that it will offset the decline of the residential segment. And we hope that this year, we will reach that transition point that the new businesses growth in enterprise telephone, in baby monitors and other new businesses will offset the decline of residential phones.
And one question to LeapFrog Academy. Are there any attempts to boost the business by detaching the service from toys, i.e., that you propose your service to other use infants who don't need to buy a box?
Now LFA is being sold separate from the toys. You don't need a toy to be able to use LFA, if I understood your question. No, you don't need a toy. You can just go to leapfrog.com/ academy and sign up.
So are there any attempts to boost this business?
Yes.
So what are you doing?
We are -- like you heard earlier, we are boosting the efficiency of our marketing spend. And we are having some dedicated people. We have a dedicated budget. We do expect we'll be turning the LFA business around. And it's also helped. The reason why we are seeing 2 consecutive years of drops in LFA is actually a reflection of drops in the sales of hardware. That used to be the best recruitment tool.
Okay, although you don't need the LeapFrog -- the LeapPad Academy to be able to use LFA, okay, but the tablet itself is actually the best subscriber recruitment tool because it comes -- it depends on the amount of promotion. It comes with between 3 to 4 months of free subscription. And once a kid starts using the LFA they will get hooked on it, and parents can see the value. Okay. So this year, we're also expecting better sales of the tablet itself.
So if you don't need the toy, when you have declining revenue, this means that there are more people dropping out, let's say, the higher age group than come in from new toys.
I'll tell you, sure, if I have not looked at the age group. But of course, as the child uses the product, the child grows, okay? But the product actually -- LFA is good between 2 to 5 years. And there are curricular for the child go from year to year. So at any time, they would be churns at one end, and there will be new subscribers coming in. .
So do you cater for children aged 6, 7, 8?
Not yet.
[Operator Instructions] The next question is from Paul Simons.
Could you give us some background to the individual who's taken over as President in North America? And let us know whether the policy that they're putting in place was one that they designed or something that you had decided before they were hired.
Thank you. Yes. Thank you, Paul, for your question. The person replacing the President in the U.S. is an internal transfer. -- internal transfer, he is the person who used to be taking care of our Australian business. who actually has done a great job in growing our Australia business from almost very low level to a very respectable figure.
So he has -- this person has demonstrated he has the know-how and the drive to restructure and change the business. So we have identified this person internally, and we have worked with him in formulating the strategy going forward. So we have high hope in the reorganization in achieving the type of growth that we have mentioned earlier.
The next question from Eric Lau of Citi. Eric.
Can I have a couple of questions? A, you mentioned the increase in inventory provision. So how much is it? Which -- you mentioned hit gross margin. And the second is we see a very impressive CMS, especially for Asia operation actually surged 45%. Can you remind us now who are the major comps? And then how -- what kind of competitive advantage compared with our China competitor? Because I suppose a lot of China electronic companies, they have an engineered dividend, right? Yes. So let me go for these 2 questions first.
Shereen.
So for the increase in inventory provisions in FY 2023 compared with the last one, and so dollar market to out USD 15 million is because we -- under our existing stock provision policies, we make the stock position based on the ageing. But those kind of inventory actually are active items. But since last year, we have stepped up quite a lot of business supports any because of the protections of the shortage supply in raw materials as well as the containers.
So at the end of the year, you will see that our inventory actually was lower than the same period of the last year because we have managed to reduce the FG, the finished goods. So -- but our existing inventory provision policies, we still make more inventory provision just because of ageing. It's not because of the active items that we can't sell.
Yet the major reason for the significant growth in Asia Pacific are coming from the product category of medical equipment and also the professional audio. For the medical equipment, the major product, as we know, is the ultrasound system. And these products benefited from the higher market demand after the pandemic. For the professional audio, the product is mainly generated from the DJ equipment, and the DJ equipment is being manufactured in our Malaysian facility. And last year, we have around 6-week factory shutdown in Malaysia due to the MCO policy over there. So this year, all these have been fully recovered. Regarding your second question about CMS, can you repeat the question?
I mean what kind of your competitive advantage for CMS compared with the Chinese rivals?
I think, first of all, we more or less compete with different market segment. We are more focused on those medium-sized and also the customer from the North America and Europe. And for those contract manufacturer in China, I believe the major customer focus is those companies from China. And regarding the business strategy, why sometimes we have performed a bit better than the market because we have the major strategies, we are customer focused. It does mean we will take care of customer very well. Okay.
So may I have 2 more questions regarding the extra -- the reorganization. Do you expect any one-off compensation for FY '24? And the second one is -- I show you have domestic facilities from December 2023. So why you build the factory there? What's the difference compared with the existing one Malaysian plant for CMS?
Let me answer your first question and Andy the second question. The competition was already in last year's fiscal year's expense. So this year, we don't expect any. The second question, Andy.
Yes, sir. There's several reasons for us to sell a factory in Mexico. You're talking about Mexico, right?
Yes. Mexico, yes.
Yes. The first reason is because of the tension between China and U.S., the impact is not only just tariffs. The impact is that people thinking that having product back in China is risky. So that's why we -- in case for those customers who have concern of product made in China, we will offer them contingency plan to either Malaysia or in Mexico.
And since we already have a factory in Malaysia, and why we still need to do -- open a factory in Mexico, that's also related with the concern that created during the pandemic. If you can still remember, during the pandemic, the container and also the port situation has created excessive freight costs and also extend the shipping time.
And for this reason, a lot of my customers is reconsidering the strategy of remote manufacturing site. In other words, they are looking for closer to the market. If we can offer them a manufacturing side, that's closer to the market, that will be a bit more appreciated for them. So the manufacturing side in Mexico will be dedicated for producing product to customers from the United States.
Okay. Thank you, Andy. We complete our presentation here because that's all we have the time for. Thank you for joining us today. Thank you very much.
