VTech posts 12.9% net profit drop as rising costs weigh on margins
VTech reported a 12.9% fall in net profit to US$65 million for the six months to 30 September, citing higher material costs, freight charges and yuan appreciation. Revenue rose 5.6% to US$1.05 billion, driven by Europe and Asia Pacific, but North American sales fell 6%.
Hong Kong-based children's technology manufacturer VTech reported on Thursday that net profit for the six months ended 30 September fell 12.9 per cent to US$65 million (HK$510 million), dragged down by rising costs. The company maintained its interim dividend at 17 US cents per share.
Revenue rose 5.6 per cent to US$1.05 billion, as higher sales in Europe and Asia Pacific offset a decline in North America and other regions. Europe remained VTech's largest market, accounting for 47 per cent of sales, followed by North America at 36 per cent, the company said.
Sales in North America fell 6 per cent despite US-bound tariffs being lower than a year earlier. Allan Wong, chairman and chief executive, said the hit from higher material costs outweighed the tariff benefit, keeping product prices elevated. He added that the company had already strived to contain costs.
The drop in North American sales dragged gross profit margin down to 30.1 per cent from 31.9 per cent. Andy Leung, executive director and chief executive of Contract Manufacturing Services, attributed the margin squeeze to rising prices for materials, especially electronic components driven by strong demand from the artificial intelligence industry. He also cited higher oil prices due to the Middle East conflict, which pushed up plastics and freight costs, as well as yuan appreciation that raised direct labour costs and manufacturing overheads.
Looking ahead, King Pang, executive director and president, said VTech expected to achieve revenue growth for the full financial year 2027, supported by a more stable US tariff situation, positive sales momentum, and a pipeline of new telecommunication products being shipped and rolled out globally. However, he forecast that gross profit margin would decline year-on-year as material and freight costs were expected to remain high, with the contributing factors unchanged.