Vtech Holdings Stock

Good afternoon, ladies and gentlemen, and welcome to all our viewers online. Today, VTech Holdings Limited is announcing its results for the 6 months ended 30th of September 2025. Let me introduce our management. Mr. King Pang, Executive Director and Group President; Mr. Allan Wong, Chairman and Group CEO of VTech Holdings; Mr. Andy Leung, Executive Director and CEO of Contract Manufacturing Services; and Ms. Shereen Tong, Group Chief Financial Officer.

First of all, Ms. Tong will present the group financial performance. Next, Mr. Leung will talk about our costs and review the group operations in North America and Europe. Mr. Pang will then cover the rest of the segment results and give management outlook for the rest of the financial year. And then we will finish our presentation with a Q&A session.

Now may I invite Ms. Tong to open today's presentation. Ms. Tong, please?

Thank you, Grace. Good afternoon, ladies and gentlemen, and all viewers online. First of all, I would like to share with you the financial highlights of the group for the 6 months ended 30th of September 2025 compared with the same period of the last year. As you see from the slide, the revenue of the group reduced by 9% to USD 991.1 million. It was mainly due to the decrease in revenue in all regions. The gross profit of the group reduced by 8.1% to USD 315.8 million. Our gross profit margin, however, improved from 31.5% to 31.9%.

The increase in gross profit margin was mainly due to the lower cost of materials, favorable change in product mix, increase in selling prices, stronger European currency against U.S. dollar as well as the lower freight charges compared with the same period of the last year. This offset the additional tariffs imposed on the products imported into the U.S. and the higher direct labor costs, driven by the increase in minimum wages in China and Malaysia during the period. Our operating profit reduced by 10.8% to USD 92.9 million, and our operating profit margin also reduced from 9.6% to 9.4%. The decrease in operating profit and operating profit margin was mainly due to the lower gross profit as well as the higher operating expenses as a percentage of the group's revenue compared with the same period of the last year.

Our profit attributable to shareholders of the company reduced by 14.5% to USD 74.7 million, and our net profit margin also reduced from 8% to 7.5%. The lower net profit and net profit margin was mainly due to the lower operating profit and operating profit margin as well as the higher group effective tax rate arising for the implementation of BEPS Pillar 2 income tax rules with minimum level tax rate at 15% in each of the jurisdictions where the group operates. As a result, our basic earnings per share reduced by 14.7% to USD 0.295 and our Board of Directors has declared an interim dividend of USD 0.17, same as the last financial year.

Turning to the revenue by region. Our sales in North America reduced by 12.1% to USD 398.3 million. The decline in revenue was due to the lower sales of our electronic learning products and telecom products, which offset the higher sales of our contract manufacturing services.

Europe was the largest market of the group, accounting for 43.3% of the group's revenue. Our sales to European market reduced by 7.2% to USD 429 million. It was mainly due to the lower sales of our contract manufacturing services, which offset the higher sales of our electronic learning products and telecom products.

In Asia Pacific region, the revenue of the group reduced by 5.6% to USD 150.4 million. It was due to the lower sales of all our 3 product lines.

Other regions include Latin America, Middle East and Africa. The gross revenue in Other region reduced by 11.3% to USD 13.4 million. The decrease in sales in Other regions was due to the lower sales of our telecom products, which offset the higher sales of our electronic learning products.

Our stock balance as of 30th of September 2025, increased from USD 425.2 million to USD 451.17 million compared with the same period of the last year. Our stock turnover days also increased from 129 days to 138 days. The highest stock level was mainly to cater for the higher demand of the group's product in the second half of the financial year and the seasonality of most of the group's business. Our trade debtors balance as of 30th September 2025 reduced from USD 481.9 million to USD 429 million and our trade debtors turnover days also reduced from 63 days to 60 days compared with the same period of the last year.

Our financial positions remain very strong. We were debt free. Our net cash balance as of 30th of September 2025 was USD 147.9 million, a decrease of 1.5% as compared with the same period last year of USD 150.2 million. That's all of my presentation.

I will now invite Mr. Andy Leung to share with you our operation review. Mr. Leung, please.

Thank you, Shereen, and welcome to all of you joining us today. As usual, we will begin with cost. The group gross profit margin in the first 6 months of the financial year 2026 was 31.9%, an improvement over the 31.5% recorded in the same period of last financial year. This was mainly attributable to the lower cost of material as material prices decreased during the period. A more favorable product mix increase in product price, stronger European currency against U.S. dollar and the lower freight charges also contributed to the higher margins. These gains were partially offset by the higher tariffs and direct labor costs.

We now turn to the review of our operations in each region. We begin with North America where group revenue decreased by 12.1% to USD 398.3 million. Higher sales of CMS were offset by decline in ELP and telecom products. North America was our second largest market, accounting for 40.2% of the group revenue. ELP revenue in the region fell by 25.4% to USD 167 million. This was mainly attributable to changes in U.S. tariff policies. In April this year, the U.S. announced substantial tariff increases on Chinese import before reducing them on 12 May 2025. In response, we put shipment on hold to the U.S. for several weeks.

Prices will also raise for products sold to the U.S. market, while retailer delayed their store set for the autumn season. They negatively impact both orders and in-store sales during the first half of the financial year 2026.

Meanwhile, sales in Canada also posted a decline. Nonetheless, in the first 9 months of the calendar year 2025, VTech maintained its leadership in electronic learning toys from infants through toddler to preschool in the U.S. and Canada. In stand-alone products, sales declined mainly because of the lower shipment to the U.S. core learning product category and key products all posted sales decreases for both the VTech and LeapFrog brands.

Platform products also saw a sale decline. Those of LeapFrog rose driven by continuous growth of Magic Adventures Group and the launch of a brand new product, the award winning LeapMove. There was also a contribution from LeapStart Reading Buddies. Subscriptions to LeapFrog Academy were stable. Sales of retail brand declined largely due to lower sales of Kidizoom Smartwatch and Touch & Learn Activity Desk.

Telecom product revenue in North America fell by 8% to USD 84.8 million. Sales of residential phone declined as the market continues to contract. During the first 6 months of the financial year 2026, VTech remained the #1 cordless phone brand in the U.S. market. Sales of commercial phones were down, higher sales of hotel phones and SIP phones were unable to offset lower sales of multi-line analog phones and headsets. Growth in hotel phones category was boosted by increasing sales of next gen product line. Strong brand SIP phone also recorded higher sales offsetting a decline in order from a customer.

Multiline analog phones posted sales declines at the product reached the end of their life cycle. The transfer of production by customer to the group Gigaset facility in Germany resulted in a lower sales of headsets.

Other telecommunication products reported an increase. However, as higher sales of baby monitors and IoT products offset a decline in CareLine residential phones. Baby monitors saw sales rise as a result of increasing sales at the major e-tailer, while IoT product posted higher sales of thermostat for hotel channels. In contrast, CareLine residential phones experienced lower demand.

During the first 6 months of the financial year 2026, VTech maintained its position as the #1 baby monitor plan in the U.S. and Canada. CMS revenue in North America rose by 6.9% to USD 146.5 million. Growth was led by professional audio equipment as customers work through their excess inventory and new customers were added, especially with rebounded order was seen in professional live speakers.

Industrial products also posted growth order for PCBA for vending machine grew as [indiscernible] began to demand a return to office-based working. Those IoT products also increased. This was driven by rising order for smart basketball host game console, which have been well received by consumers and are now being sold by major retailers.

This was despite lower sales of smart water leakage detectors as the customer experience over inventory. Sales of solid-state lighting is stable. In addition, if [indiscernible] VTech has maintained its position at the world #1 contract manufacturer of professional audio equipment in the calendar year 2024.

Turning now to Europe. Group revenue in the region decreased by 7.2% to USD 429 million in the first 6 months of the financial year 2026, as higher sales of ELP and telecommunication products were offset by lower sales -- lower CMS sales. Europe remains our largest market, accounting for 43.3% of the group revenue. ELP revenue in Europe increased by 5.5% to USD 144.6 million, with higher sales of both stand-alone and platform products. The growth was driven by new product launches and the strengthening of European currency against the U.S. dollar. Sales were higher in France, Spain and Netherlands, offsetting decline in the U.K. and Germany.

In the first 9 months of the calendar year 2025, VTech remained the #1 infant and toddler toy manufacturer in France, the U.K., Germany, Spain, the Netherlands and Belgium. In stand-alone products, LeapFrog sales were higher, while VTech sales were stable. Growth for LeapFrog was mainly driven by infants and the Magic Adventure products. This offset declines in the preschool category while sales of eco-friendly toys held steady.

VTech saw sales increase in preschool products, electronic learning aids and the Kidi line, but this were insufficient to compensate for the decline of infants and toddler products, KidiZoom camera, Switch & Go Dino, Marble Rush and eco-friendly toys.

In platform products, higher sales of LeapFrog brand offset lower VTech brand sales. Growth in LeapFrog product came largely from the newly launched LeapMove and LeapStart Reading Buddies as well as higher sales of Magic Adventure Globe.

VTech saw sales of KidiZoom Smartwatches, children educational tablet and then Activity Desk declined, while those of KidiCom were stable.

Revenue from telecom products in Europe increased by 24.5% to USD 105.2 million. Sales of residential phones, commercial phones and smartphones increased, while those of other telecommunication products remained steady. In residential phones, growth were mainly driven by increasing sales of Gigaset products.

The Comfort 550 and A690 models continues to sell well as their industrial design and feature set mid-market leads. Sales performed especially well in Germany, France and Italy. We also started selling Gigaset residential phone in Eastern Europe. As a result, Gigaset increased its market share and retained its #1 position in the phone market in Europe.

To broaden the brand residential phone portfolio, we have developed a new entry-level phone models, which began hitting the shelf in the major European country in September. Sales of commercial phones and smartphone also increased, driven primarily by higher order from a customer and rising sales of strong branded SIP phones, which benefited from the introduction of DX Series.

Sales of Gigaset multi-cell DECT system were stable, while Gigaset smartphone registered growth. Sales of other telecommunication products in Europe held steady during the period. Higher sales of CAT-iq headset offset lower sales of baby monitors. The growth in CAT-iq headset was driven by higher orders from a customer.

Sales of baby monitor declined, mainly because of lower sales of the U.K. market.

CMS revenue in Europe decreased by 25.5% to USD 179.2 million mainly because of lower sales of hearables. The hearable customer faced keen competition and market demand has dropped substantially since the end of COVID pandemic.

Sales of medical and health products trend lower as demand for hearing aid returned to normal after joint growth in the period financial year while therefore, hair removal products held steady. Home appliance sales were lower, driven by fewer order for PCBA for washing machine. IoT products were affected by lower order for smart meters and internet-connected thermostat and air conditioning controls.

Sales of smart energy storage system declines at order reduced following the removal of subsidies by the Swedish government. By contrast, sales of communication products rose as order for Wi-Fi router increased following new launches and a reduction in customer inventory. Orders for automotive products also increased as we capture additional EV chargers business from the competitors. Sales of professional equipment, meanwhile, remain stable.

I would now turn it over to King. Thank you.

Thank you, Andy. Good afternoon, ladies and gentlemen. In Asia Pacific, group revenue fell 5.6% to USD 150 million, representing 15.2% of overall group revenue. All 3 product lines declined. ELP's revenue decreased 5.6% to USD 33.4 million. Sales in Australia were flat. LeapFrog grew, but VTech declined. During the first 9 months of 2025, VTech remained the #1 learning toy brand for infants through toddlers and preschool in Australia. In China, sales dropped mainly due to lower orders from a major customer.

Telecommunication products revenue fell 8.2% to USD 8.9 million. This is driven by lower baby monitor sales in Australia. Sales in Japan were stable.

CMS revenue declined 5.4% to USD 108 million. Sales increase in professional audio equipment were insufficient to offset decreases in medical and health products as well as communication products. In professional audio equipment, sales increased as a major customer pulled orders forward amid tariff uncertainties. In medical and health products, sales declined as customers for diagnostic ultrasound systems lost market share. In communication products, sales on marine radios fail as Japanese customer further moved production in-house to capitalize on their weak currency.

Other regions saw revenue down 11.3% to USD 13.4 million, representing 1.3% of overall group revenue. ELP rose 5.3% to USD 8 million with higher sales in Latin America and Africa. Telecommunication products fell 28% to USD 5.4 million. Sales dropped in Latin America, the Middle East and Africa. CMS revenue in this region was immaterial.

Next, we turn to our outlook. Global business conditions remain challenging. Settled with geopolitical tensions, tariff uncertainty and fragile consumer confidence, customers are cautious in placing orders. As a result, full financial year group revenue is still forecast to decline. Nevertheless, second half sales are expected to improve over first half led by ELPs and telecommunication products. Full financial year gross margin is expected to stay stable. ELP's revenue is forecast to improve in the second half supported by a rebound in the U.S. and continued growth in Europe.

Full year sales, however, are still expected to be lower than last year. Our holiday products have already been shipped to the U.S. New launches, including LeapMove, LeapStart Reading Buddies and Explore and Write Deluxe Activity Desk are on shelves, backed by strong marketing.

In Europe, momentum is expected to continue in the second half. In Asia, China is forecast to improve in the second half. Australia is projected to remain stable. Telecommunication products is on track for full year growth. Drivers include residential phones, commercial phones and smartphones in Europe as well as other telecommunication products in the U.S.

In residential phone, new entry-level Gigaset phones are now available in key European markets. In commercial phones and smartphones, new products and higher orders from customer drive growth. Sales of non-SIP phones are forecast to remain stable. In other telecommunication products, AI-enabled baby monitors will launch in the U.S. in the fourth quarter.

CMS revenue is forecast to decrease for the full financial year. Many product categories are expected to remain in decline in the second half. We are expanding our manufacturing capacity in Malaysia. A new building is being added at the existing [ Moore ] site to be completed mid 2027. At the same time, we are also exploring ODM opportunities.

This concludes our presentation. We're now glad to answer your questions.

[Operator Instructions] The first question comes from CTEK Security.

I'm going to raise about 2 questions. The first one is about the new electronic learning products. We observed [indiscernible] products and some new products have launched in the third quarter in 2025 and it's happy to see that the growth came largely from these new products. And I want to ask how do you see the growth prospects of this new offering going forward? Is there a potential for them to become a larger core products? Also are there any flagship new products launch pipeline to share in the future? It's the first question.

And the second question is also about electronic learning products. I go on to ask could future products potentially integrate with AI? And are there any strategic development goals or visions for the AI electronic leaning product development? And what stage is the development of AI currently in? And are there any progress updates to share?

Okay. I will ask Mr. King Pang to answer your questions.

Thank you, Mr. [ Liu ], for your questions. If I have picked up accurately, your first question is about the new ELP products launched this year. And we are reporting that they're driving growth and your question was whether we expect them to drive even higher growth in the future? And the answer is yes, okay? Most of these new products, they are what we call platform products. The LeapMove, for example, normally, we launched the first year with the hardware and as much content as we can, okay? And then in subsequent years, we will refine, improve the hardware and then keep pumping our contents, okay?

And in our history, with these kind of products, once we have a successful launch, it will have several years of good sales and especially good content sales. Let's hope LeapMove is in such category. Whether there are other new products every year, we launched many new products, okay? I'm not privy to-- I'm not liberty to specify exactly how many, but we are talking about close to, if not exceeding 100 new products, okay? So we will definitely continue to launch new products and some of them are major products like LeapMove, okay? And normally, our new products, they will be -- the first time we announced them would be at the major toy shows. So I'm sure Grace and our PR and corporate marketing colleagues will share with our investors as soon as information is available. But yes, we have a slew of new products that are waiting to be launched next year, okay?

The second question is about AI. Continuing on my point, okay, it's too early for me to say whether we are learning or not launching new AI products with AI next year, okay? Hopefully, in a few months, we can tell you about it. But what I can assure our investors is that we have been working on using AI to develop products, writing calls, doing creative design as well as products that have AI features in them, okay? And then we have products like this in our development lab and some of them have actually reached the stage of maturity that they can actually be launched. Like I said, I'm not liberated to say whether we have already the -- we are already in the process of launching one and how many are we launching? But hopefully, in a few months, we can share with you more about it.

Then the next question comes from [ Luz Kim of CCIS ].

Two questions. One, toys in the U.S. To what extent can you recover lost sales in the second half? Do you see any gain in momentum? The second question is phones in Europe. From my memory, turnover is still below say, the half of the annual Gigaset sales historically. To what extent we see further sales growth in phones in Europe in the second half and maybe you could comment on the integration of Gigaset and the raising of synergies where we stand?

Toys in U.S., like we have reported when the first round of "additional tariffs" came, there was actually a period of several weeks that we shipped almost none or very, very little products. So that's what drove the rather substantial drop in first half sales, okay? In fact, is that retailers in the U.S., they've also pushed. They have actually delayed the store set. Normally, store sets happen in July and August. And this year, stores are actually set in late September, okay? But our products are there, like we have reported, okay? And they are now on shelves, and we are seeing products likely move -- having very good momentum. We're very good week-by-week sell-through growth.

So we have very, very big expectations for the coming several weeks, 5 or maybe 6 weeks. And whether we are going to be able to recoup all the low sales. I am not liberty to say, but we have reported that overall in ELPs, we're still expecting full year financial sales lower than last year. So have I answered all your questions related to ELPs?

Yes. Just phones now, phones in Europe.

Yes. Let me answer this, [ Luz ]. You rightly pointed out, you don't see a lot of growth from the first half, particularly when you pointed out that the first half of last year of Gigaset is basically a start-up sales. And then for this year, we have the advantage of having -- consolidating a kind of normal sales. But as we have said in our Chairman's statement, one of the most important products we will be launching will be the opening price point product that we will go on the shelf in September that has been already on the shelf and that will drive sales for the second half, particularly on Europe, phones.

So you will see that the second half of phones will see a bigger growth as compared to the same period last year, okay? And also, you also mentioned that how is the consolidation going on. I think the consolidation between Gigaset and VTech is doing extremely well. In particular, the business phone, commercial phone section, we have signed quite a number of new contracts. That would show up in terms of sales, again, starting in the second half. So that would be our biggest potential going forward.

Our next question come from [indiscernible].

So I have 3 questions. The first question is, can you elaborate a bit on how you're dealing with the shift to Malaysia, like the update on Malaysia production? And question number 2 is, can you quantify the tariff impact? Like how much -- what is the rate that you are paying now? How much is the impact of your overall? And the third question is the current peak season cycle, how is it -- how is the company doing during the peak season?

Okay. Maybe I will answer the questions if other directors have any supplement, please chip on. Our shift to Malaysia is doing well. Following the announcement of the Trump tariff in April, we have already in the process of moving some of the production of not only the telecommunication products, but also the ELP products to Malaysia. Of course, as you all know that during April, when the tariff has gone up to astronomical level, we have stopped shipment to the U.S. from China. And that basically, we have outlined that in our Chairman statement that this is one of the reasons why we have lost sales in the first half.

The Malaysian plant is up and running, okay? For our -- both BTT and also the ELP division. Of course, I also have to mention that the CMS has been operating in Malaysia for the last 5 years doing extremely well and has been increasing production and is also in the process of building a new facility that would eventually increase production even more. So we are in the best position now in case if there's anything happened to China, although at this point in time, the tariff of most of our product going to U.S. from China is 20%. After Trump met with Xi a few weeks ago. Of course, we all know that -- I don't know how long it will last or will it or Trump may change it overnight in short notice. So nobody knows. But we are in the best position that in case anything happens to China, we can quickly relocate our manufacturing from China to Malaysia in short notice. And that is the advantage that we are a fully integrated, self-contained manufacturer.

So your second question is regarding the tariff impact. Now this -- I give you a general concept of what the tariff looks like because in April, the tariff was up to 145%, and that is where we stopped our shipments to the U.S. altogether. And the tariff has since then been reduced to 30% from 135 for our products -- for most of our products. And then subsequently, at some point earlier, Trump announced that he will increase it to 100%, again, after eventually reducing it back to 20% after meeting with Xi. So at this point in time, most of our products, particularly also the toy product going from China to the U.S. is 20%, which is very similar to what Malaysia is having. Malaysia's product going to U.S. is 19%. Maybe I don't know whether Shereen have anything to add on this?

So regarding tariff impact, we also increased our price to offset part of the tariff impact. So in the P&L, we reflect -- as we mentioned, the gross profit margins, even though we have an improvement in gross profit margins, but there's still some negative impacts on our tariff. But at the same time, we also increased the price for our products sold to the U.S. already.

Yes. Your third question is how sales going on during the peak selling season. We are watching it closely on a day-to-day basis on the POS sales. So far, as King had mentioned earlier, the ELP sales is looking good. And then the telephone sales because we introduced an OPP products. In September, we are also expecting higher sales coming from the telecommunication products. So we are looking up the peak selling season should be so far, touch wood, we should be doing fine.

The next question comes from [indiscernible].

[indiscernible] Here, I have 2 questions. The first one. Is the tariff impact gone? And how is the progress of our overseas capacity construction? And the second question is how to forecast the dividend payout ratio in the future?

So as Mr. Wong has mentioned, and then you all know that right now, the tariff rate in China, imports to U.S. is 20%, and then Malaysia is 19%, just 1% delta. So we still have factories in Malaysia, especially from our contract manufacturing services, but we will still keep our Malaysia factories for toys and for telecom as a backup because we don't know what will happen in the next, say, 12 months or beyond the next 12 months. So we have this kind of a backup plan as our production capacity next to our China factory.

So as for our dividend payout ratios, so we keep the interim dividend, USD 0.17, same as last year. As for the full year, we still need to announce the full year result before we determine how much is the dividend payment. But based on our historical, say, dividend payout ratio is talking about around 98% or 99%, our dividend payout ratio for the full year. But for the interim, we just keep the U.S. cents as last year USD 0.17.

The next question comes from [indiscernible].

What guidance can you give us on CapEx spend for financial year '26 and financial year '27? And second question, how would you describe your M&A appetite post Gigaset? And are you making any changes to your sourcing and evaluation process for acquisitions?

CapEx, maybe Shereen can answer this.

Okay. So in the first half of this fiscal year, our capital expenditure is USD 17 million and our full year forecast CapEx for this fiscal year is talking about say, USD 42 million, including the land building and the leasehold improvement especially for our Malaysia factories for our contract manufacturing services.

Okay. Your second question is, if I hear correctly, it's about M&A opportunities? Is that right?

Ethan said, yes, M&A opportunities.

We are always looking for good M&A opportunities. We like what we did with Gigaset last year. So anything that would add to our product breadth, technology and also additional distribution channel, we will be interested. So we will constantly be looking for good deals.

The next question comes from [ Cherry ].

Just a question with regard to margins and hopefully, restoration of profitability. Obviously, you've now -- and you've always had for quite a long time in Malaysia versus China production facilities. But ultimately, there's got to be a little bit of duplication at the moment to allow for that agility that you are putting in place. So just wanted to find out whether structurally now margins are likely to be lower based on the fact that you're going to be running parallel lines in China and Malaysia.

Yes. I think it's a good question. At this point in time, when the tariff in Malaysia going to the U.S. is almost the same. China is 20%, and then Malaysia is 19%. And then Malaysia generally has a little lower productivity compared to what we have in China. The comparison is usually generalized to be about 6% difference in terms of cost of manufacturing. So for products going to the U.S. at this point in time because of the same tariff generally between -- so we will be making most products out of China going to the U.S. Of course, for Europe, where there's no tariff situation, everything will be manufactured in China. For CMS, maybe I will ask Andy Leung to say a few words on the Malaysian manufacturing and the cost difference between Malaysia and China.

Yes. For the case of CMS, we acquired a factory in Malaysia from Pioneer in 2018. And as a result of the geopolitical conflict and U.S. tariffs, we have been in the expansion mode in the past few years. We are expecting the global trend of supply chain diversification will be continued. For this reason, project of further expansion of the facility was started. Regarding the cost of running between China and Malaysia, I would say the cost is getting level -- the cost difference is getting level. And the -- if we are -- if you are -- we really want to tell a figure about the cost difference, I would say the overall cost in Malaysia is around 5% higher than that in Malaysia.

And in fact, the cost of running is not the major difference between China and Malaysia. The major difference is the productivity between the 2 areas as China has a better skillful labor and experienced management team. So the production efficiency is a lot better [indiscernible] in China. And after running the factory in Malaysia for a few years, we can see slightly gradual improvement in the productivity over there.

Okay. So your second point about whether there's any margin impact between having a Malaysian plant and China plant, I would say, is minimal. The impact is minimal.

We have Charlie again from [indiscernible].

Can you help me give some color what is the capacity of Malaysia as opposed to China's plant? How different is the capacities?

Okay. Okay, I think we can generally look at the Malaysian plant is fully operational. It will -- we will be about 25% to 30% of our total group capacity. So that's the general concept.

The next question comes from Eric Lau from Citi.

So actually, I'm in Shanghai, and I joined the call late, probably, I'm not sure some of the question has been covered already. Say, for the Gigaset sales, how much was it for the first half period. And number 2 is, I'm quite surprised, Asia, Europe, actually the sales decline more than mid-single digit, even though low tariff impact, right? And then even though I add back to Gigaset sales to Europe, actually probably the underlying European business dropped even more than North America. I'm not sure if this is the case.

So may I know why the Europe is so bad, right, over the first half -- and then you mentioned the second half, actually, the sales full year still declined, but second half could be better. But say, for the second half, actually, should we expect the actual dollars should be higher than the first half? Because actually, usually, the second half sales should be lower than the first half because of the seasonality. But for this year, should we expect the second half sales should be higher than the first half?

Yes. Maybe Shereen can answer this.

So we -- as explained in our, say, presentations regarding why in Europe, the whole group revenue is dropped by around 7.2% is mainly because of the decline in revenue in contract manufacturing services. For our telecommunications product in Europe, actually, it increased by around 24.5%, including Gigaset. So as for our toys divisions, our sales in Europe also increased by around say 5.5%. So actually, after the acquisitions of the Gigaset, in the first half of the year, the Gigaset's revenue actually contribute the growth of our telecom division, especially in Europe.

So can I have an idea what was the Gigaset sales during the first half?

So normally, we will not disclose this kind of segment into telecom of Gigaset, VTech and AT&T. But I can tell you that you can see for Europe, our telecom division's revenue increased by around 25% -- 24.5% is mainly driven by Gigaset. And of course, our business run also increased in revenue in Europe using [indiscernible].

And also actually virtually all of the Gigaset business actually in Europe, right?

Mainly in Europe. They have some small sales in other regions, but the majority of the sales is in Europe.

And can I project the second half sales actually should be higher than first half, right, for the FY '26?

You mean the whole group, right?

Yes, yes.

Yes, yes. As what we have explained in the outlook, we also expect in the second half, our revenue will be higher than first half, mainly driven by the sales growth for our telecom and toy and ERP divisions. But for contract manufacturing services, we expect that the decline will continue.

Okay. So my follow-up question is, you said actually 20% tariff on China which include -- I know toys no Section 301 tariff. But how about the telecom product also has no Section 301 tariff, right?

So for toys -- well, before 10th of November, the tariff from China for the tariff -- from tariff products imported to the U.S. is 30%. But only after, say, 10th of November, we reduced to 20% for toys. And then for telecom product, most of our telecom product tariff is 30% and then [indiscernible] reduced to 20%. But some of our telecom products, we have around say 7.5% higher than the normal, say, 20% tariff. For those kind of products, we have also moved to Malaysia factory already.

Our last question comes from [indiscernible].

Regarding your -- the euro exposure of the group, to what extent does VTech now produce phones that are sold outside of Europe, in Germany by Gigaset? And how is this affecting the euro exposure of the group? Historically, you're long euros.

Yes, Luis, we have -- after we acquired the Gigaset factory last year, we are starting to produce Gigaset branded cornerstone in Europe, and they have been doing it for years. And these are mainly limited to the middle and middle-high type of products, and they are doing it very well. The cost difference between producing in Europe and China is very similar. It's very similar. So because of the automation they have in the factory. They also produce mobile phones, smartphones in the factory. And also, we are starting to produce other products as well, other products in the factory.

So some commercial phones that some of our customers wanted to be produced in Germany for security reasons. So we -- those are also produced in Germany. So in other words, the Gigaset factory is working out very well.

As you produce phones or products in Germany and sell it to the U.S. or to Asia, you're reducing the euro exposure of the group. VTech used to be long in euros because of the toy business. And now with the integration of Gigaset, I would expect that this euro exposure will shrink. Is this correct? If so, by how much?

Correct. In fact, we have more euro exposure, but we are still net income of euros too because of the -- is much larger, the ELP sales is much larger than the expense we have in Gigaset.

And so Gigaset exports, even, let's say, 2, 3 years out, will not compensate the euro exports out of China?

It's too far out. I don't foresee that happening. China will still be our largest manufacturing site unless there are other factors affecting that. But in the absence of any geopolitical uncertainty, we will still produce a bulk of our products in China, which is, at this point in time, is still the most efficient manufacturing site.

Thank you very much. That's all we have the time for today. Thank you for joining us today. Thank you very much.