Vtech Holdings Limited (303) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Today, VTech Holdings Limited is announcing its annual results for the financial year ended 31st of March 2021. This year, again, we are holding the presentation by live webcast from our head office in Hong Kong due to social distancing measures. Let me introduce the management here. Mr. King Pang, Executive Director and Group President; Mr. Allan Wong, Chairman and Group CEO of Retail 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 review the group's operations. Mr. Pang will then give the management outlook for the coming year. We will have a Q&A session after the presentation. 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 growth for the year-end 31st of March 2021 compared with the same period of the last year. As you see from the slide, the revenue of the group moves by 9.5% to USD 2,372.3 million. The increase in revenue was mainly driven by the higher sales in North America, Europe and Asia Pacific, which offset the decrease in revenue in other regions. The gross profit of the group rose by 9.5% to USD 726.6 million. As for the gross profit margin, it was 30.6%, same as the last financial year. The increase in material prices in the fourth quarter of the financial year, change in product mix, directly higher labor cost and rising freight charges offset the lower manufacturing overheads and the benefits from the further productivity gains. Our operating profit rose by 21.2% to USD 266.2 million, and our operating profit margin also improved from 10.1% to 11.2%. The increase in both operating profit and operating profit margin was mainly due to the improvement in gross profit, which offset the increase in total operating expenses. Operating profit for the year also include a fair value loss of USD 1.5 million on an investment in a company that designs and distributes integrated circuit products as compared with a fair value gain of USD 5.9 million in the same period of the last year. Government subsidies of USD 5.7 million received from various countries in response to COVID-19 were also recorded in the financial year 2021. Our profit attributable to shareholders rose by 21.1% to USD 230.9 million, and our net profit margin also increased from 8.8% to 9.7%. As a result, our basic earnings per share rose by 21% to USD 0.916, and our Board of Directors has proposed a final dividend of USD 0.74, bringing the total dividend per share to USD 0.91, an increase of 71.7% compared to the last financial year. Turning to the revenue by region. North America was the second largest market of the group, accounting for 41.9% of the group's revenue. Our sales in North America rose by 0.6% to USD 995.1 million. The increase in revenue was mainly due to the higher sales of our electronic learning products and telecom products, which offset the lower sales of our contract manufacturing services. As for the European market, it became the largest market of the growth for the financial year 2021, accounting for 45.8% of the group's revenue. Our sales to European market rose by 22.6% to USD 1,086 million. The increase in revenue was mainly due to the higher sales of our electronic learning products and contract manufacturing services, which offset the lower sales of our telecom products. In Asia Pacific region, the revenue of the group rose by 3.5% to USD 268.4 million. The increase in revenue was mainly 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 region reduced by 25.5% to USD 22.5 million. It was due to the decrease in sales of all our 3 product lines. Our stock balance as at 31st of March 2021 increased from USD 372.6 million to USD 414 million compared with the same period of the last year. Our stock turnover days increased slightly from 102 days to 103 days. The highest stock level was mainly due to the increased demand for the group's product in the first quarter of the financial year 2022 and the stock up of raw materials in view of the unstable supply for the group's products. Our trade debtors balance as at 31st of March 2021, increased from USD 221.5 million to USD 270.7 million. Our trade debtors turnover days, however, shorted from 63 days to 61 days. The higher trade debtors balance was mainly due to the increase in revenue in the fourth quarter of the financial year 2021 compared with the same period of the last year. Our financial position remains very strong. We were debt free, and our net cash balance as of 31st of March 2021 increased from USD 242.5 million to USD 343.8 million compared with the same period of the last year. The increase in net cash balance was mainly due to the increase in cash generated from operating activities, lower dividend payment and the favorable foreign exchange movement on the gross net assets as a result of the appreciation of the following currencies against U.S. dollar during the financial 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, ladies and gentlemen. I will now take you through the review of our operations beginning with costs. The group gross profit margin in fiscal year 2021 was 30.6%, remained unchanged year-on-year. The lower-than-expected gross profit margin was due to a marked increase in material prices in the last quarter of the fiscal year, change in product mix, rising in freight costs and higher direct labor costs. These increases offset lower manufacturing overheads and further improvement in productivity for the full fiscal year. The strategy to expand our manufacturing base took a strategic step forward during the year with the acquisition of a production facility for professional loudspeaker in Tecate of Mexico. The acquisition of QSC Mexican manufacturing facility was from the full internal resources and completed on April 1, 2021. It not only adds a new product category to retail content manufacturing service, but adapt the manufacturing base outside China -- outside Asia, helping the business to serve its customer better. I'll now turn to talk about the performance in each market. Group revenue in North America rose by 0.6% to USD 995.1 million in the fiscal year 2021. Higher sales of ELPs and telecommunication products offset lower CMS sales. North America became VTech's second largest market, accounting for 41.9% of the group revenue. ELPs revenue in North America increased by 8.8% to USD 536.9 million, with good growth in Canada. The overall market recorded growth and our sale to online retailer achieve a double-digit increase. We gained market share and strengthened our position as the #1 manufacturer of electronic learning toys from infancy through toddler and preschool in the U.S. In Canada, VTech strengthened its leadership further and remained the #1 supplier in infants, toddler and preschool category. Standalone products performed well, with the pandemic spurring demand for electronic learning toys as parent and children spend more time at home. Growth in standalone product came from higher sales of both the LeapFrog and VTech brands. The LeapFrog sales increase was especially robust. Preschool item offers educational value, including Learning Friends, 100 Words Book, 100 Animal Books and 2-in-1 LeapTop Touch, all achieved very good sell-through. With the Really Smart Handy Dandy Notebook selling particular well, The Blue's Clues & You! series of licensed products performed strongly. Sales of LeapBuilders, however, registered a decline. VTech standalone product benefit from rising sales of infants and toddler products, KidiZoom camera other Kidi line products and Go! Go! Smart family of products. These increases offset a decline in preschool products. Sales of platform products in North America decreased slightly. At Vtech, platform products saw sales decline as higher sales of Touch & Learn Activity Desk were insufficient to compensate for lower sales of KidiZoom Smartwatch and KidiBuzz. For LeapFrog, the platform product business posted an overall decline. Both the educational tablet and the Magic Adventures Globe saw sales increase, offsetting decline in interactive reading system RockIt Twist. Subscriptions to the LeapFrog Academy increased substantially during the fiscal year 2021. Telecommunication product revenue in North America saw a 10.9% rise to USD 270.5 million. The growth was driven by higher sales of residential phone, commercial phone and other telecommunication products. Sales to online retailer saw a strong increase. The residential phones market in North America, which have been on a downtrend, saw an uptick during the fiscal year 2021. Consumers want to replace and upgrade their fixed-line telephone and working from home became as norm. Both AT&T and VTech plan phones record a sales increase with super-long-range and Connect-to-Cell model performed especially well. In fiscal year 2021, VTech strengthened its leadership position in U.S. residential phones market. The best performer among commercial phones and other telecommunication products in North America were also products geared to staying at home. Baby monitors performed especially well, boosted by strong demand of new series or VTech High Definition Smart WiFi baby monitors. As a result, VTech's baby monitor strengthened its positioned as the #1 brand in the U.S. and Canada. Headsets and the CareLine range of residential phone also achieved higher sales. In contract, SMB phone, hotel phone and conference phone reported lower sales as they were all affected by the steep fall in business activity and travel. These decreases offset an increase in sales of VoIP phone. CMS revenue in North America fell by 25.5% to USD 187.7 million. All product category post lower sales. Demand for commercial professional audio product fell steeply as COVID-19 measures restricted large public gathering in venues such as church and concert hall. This was compounded by 1 major customer experiencing an over-inventory. These factors contribute to sales decrease in this segment, offsetting increase in demand for professional audio equipment for home use. Sales of industrial products declined on lower order for coin and note recognition machine. Solid-state lighting saw sales decline as project-based bidding activity fell sharply due to the pandemic. Medical and health products saw lower sales of hearing aids, as sales activity was significantly affected by the COVID-19 restrictions. Communication products recorded a sale decline as customer phased out their product range. Now moving to Europe. Group revenue in Europe rose by 22.6% to USD 1,086.3 million in the fiscal year 2021 as higher sales of ELPs and CMS offset lower revenue of telecommunication products. Europe was our largest market, accounting for 45.8% of the group revenues. ELP revenue in Europe increased by 5.4% to USD 351.2 million. Growth slowed down in the second half as lockdown in the region forced closure of store selling nonessential items. Geographically, sales increase in France, the U.K., Germany and the Netherlands. Spain experience a decline. In the calendar year 2020, VTech remained the #1 infant and toddler toy manufacturer in France, the U.K., Germany and the Benelux countries. In standalone products, both the VTech and LeapFrog brands achieved higher sales. For the VTech brand, growth was led by electronic learning aids, KidiZoom camera, other Kidi line product and Switch & Go Dinos. This offset decline in Toot-Toot family of products. Sales of infants, toddler and preschool products were largely stable during the fiscal year 2021. The little Go! Go! Cory Carson vehicles and playset were rolled out to the major European market in September 2020 under the name of Toot-Toot Cory Carson, which support the growth in stand-alone products. LeapFrog saw rising sales of infants, toddler and preschool products with strong sell-through of Learning Friends, 100 Word Books and 100 Animal Books. This offset the decline for the LeapBuilders which in Europe is called the Bla Bla Blocks. Platform products saw lower sales as growth of LeapFrog-branded products was insufficient to offset decline in VTech-branded products. For Leapfrog, the revenue increase was driven by higher sales of Magic Adventures Globe and interactive reading system, which offset decline in RockIt Twist and children educational tablets. At VTech, higher sales of Touch & Learn Activity Desk were unable to offset lower sales of children's educational tablets and the KidiCom Max. Sales of KidiZoom Smartwatch remained steady year-on-year. Revenue from telecommunication products in Europe fell by 2.8% to USD 109.3 million. Higher sales of commercial phones and other telecommunication products were insufficient to offset lower sales of residential phones. In Europe, we sell residential phone to major telephone company on an ODM basis. The sale decrease was still to lower order from an existing customer. Sales of commercial phone and other telecommunication products increased. Stay-at-home restriction benefited sales of CAT-iq headset, the CareLine range of residential phones, IADs and headsets, as consumers want to upgrade their communication device. As a result of order reduction of a major customer, baby monitors saw sales decline. The cancellation of trade show and the shutdown in business activities also resulted in a lower order for VoIP phone, conference phone and hotel phones. This was despite a gradual pickup in the second half and some business activity resumed. CMS revenue in Europe rose strongly by 42.1% to USD 625.8 million. Hearables, medical and health products, home appliance, communication products and automotive-related products saw higher sales, offsetting decline in professional audio equipment, IoT products and switching mode power supplies. With demand for headset boosted by need to work from home, hearables recorded the strongest growth. Orders for these product were also buoyed by customer moving production of its new version of true wireless headset to VTech from the competitors. The home appliance business benefited from higher order from existing customers. Sales of health and beauty products rise sharply under the pandemic, contributed revenue growth of the medical and health products. This offset the decline in order for hearing aids. Communication products saw higher orders of WiFi routers, sales of smart battery chargers for the automotive industries improved due to the good market response to a new product launch by the customer. In contrast, professional audio equipment posted lower sales, as growing demand for audio interface equipment for home use failed to offset lower order for audio mixers and amplifiers. Although sales of internet-connected thermostat and air conditioning control were stable, the pandemic slowed down the installation of smart meters in U.K. negatively affecting IoT products. Sales of switching mode power supplies were lower as a customer transferred production back in-house following a change in ownership. We now turn to Asia Pacific. Group revenue in this region grew by 3.5% to USD 268.4 million in the fiscal year 2021. Higher sales of telecommunication products and CMS offset lower revenue from ELPs, the Asia Pacific region representing 11.3% of the group revenue. Revenue from ELP in Asia Pacific decreased by 1.4% to USD 82 million. Growth in Australia was offset by lower sales in Mainland China. With demand for educational learning toys rising and children spend more time at home due to the pandemic, Australia saw a robust sales increase on strong sell-through of both VTech and Leapfrog branded products. In addition, effective channel management drove online to off-line sales higher, boosting growth in the country. In the calendar year 2020, VTech maintained its position as the #1 manufacturer in the infants and the toddler toys category in Australia. In Mainland China, sales were lower primarily due to a revenue decrease in offline channels. In Malaysia, the group recognized a first full year sales contribution from its flagship store on Lazada.com. Telecommunication product in Asia Pacific saw revenue increase by 13.6% to USD 31.7 million driven by higher sales in Australia, Japan and Hong Kong. In Australia, growth was mainly from the baby monitors. And Hong Kong saw higher sales of IADs. In Japan, order for residential phones increased at higher demand from an existing customer. CMS revenue in Asia Pacific grew by 4.3% to USD 154.7 million. Growth in professional audio equipment and communication products offset lower sales of medical and health products and home appliance. This came despite the production facility in Muar in Malaysia had to shut down for several weeks in April because of the government COVID-19 movement control order. Higher sales of professional audio equipment will mainly come from the increased sales of DJ equipment and the supplying of USB streaming microphone for our new online KOL customer. Sales of communication product rose on more order for marine radio as a new generation of product was launched. In contrast to this increase, medical and health product reported lower sales. This is because orders for diagnostic ultrasound system declined as hospitals shifted their budget to purchase COVID-19-related equipment. Sales of home appliance also decreased as a product reached the end of its product life cycle. Finally, group revenue in Other Region comprising Latin America, the Middle East and Africa, fell by 25.5% to USD 22.5 million in the fiscal year 2021. The decrease was due to lower sales at all the 3 business. Other Regions accounted for just 1% of the group revenue. ELP revenue in Other Regions decreased by 30.6% to USD 8.4 million. Higher sales in Africa were offset by lower sales in Middle East and Latin America. Telecommunication product revenue in Other Region was down by 16.9% to USD 13.8 million. The decline was due to sales decrease in Latin America, which offset increase in the Middle East and Africa. CMS revenue in Other Regions was USD 0.3 million in the fiscal year 2021 as compared to USD 1.5 million in the previous fiscal year. I will now hand over to King for the outlook.

Thank you, Andy. Good afternoon, ladies and gentlemen. I would like to start with some updates on sustainability, which we are now integrating into all aspects of our business operations. First, people. With the COVID-19 pandemic affecting lives around the globe, VTech's top priority has been and remains to protect the health and safety of our employees while going about our daily operations. This means strictly following local regulations and ensuring safe working environments at all our worldwide locations, in compliance with government and World Health Organization requirements and recommendations. VTech, together with our employees, has supported children and various local communities through making financial donations, providing free online learning contents as well as handing out gifts of educational toys, phones and baby monitors. With our eyes on the future, we set out our pledge last year to replace fossil-based plastics in all our ELPs with sustainable alternatives by 2030. Later this year, we will mark an important first step towards this goal with the launch of a number of eco-friendly ELPs made with plant-based or reclaimed plastics. The launch will also include the wooden toy line made with wood sourced from responsibly managed forests, certified by the Forest Stewardship Council. These innovations open a new phase of the group's contribution to building a better future for the children of today and tomorrow. Returning now to the more immediate future. First, revenue. The group's revenue for the financial year 2022 is hard to predict. As it currently stands, all our product lines have solid order book. However, the fluid situation in global material supply may impede our ability to meet this demand despite our best efforts. Currently, there is a worldwide shortage of electronic components especially in semiconductor and liquid crystal displays. The semiconductor foundries have been struggling to meet huge increases in demand. Not only are lead times much longer, order fulfillment has also been erratic. Despite our long-term relationships with suppliers and their full support, some of the group's confirmed component orders are not being fulfilled on time. This uncertainty in the supply chain could limit our ability to meet orders. Gross profit. Gross profit margin for financial year 2022 is expected to decline. Gross profit margin will be impacted by material price increases, elevated freight costs and an unfavorable renminbi exchange rate. We have taken steps to mitigate these adverse factors, including supply source diversification, product reengineering, shipment contract renegotiation and judicious implementation of price increases. For ELPs, our focus is on maintaining positive momentum through global new product launches, plus the drive to resume growth in Asia Pacific. On platform products, for the VTech brand, KidiZoom Smartwatch, KidiBuzz and Touch & Learn Activity Desk will have upgraded new versions. For the LeapFrog brand, the LeapStart reading system will be updated with new titles and a new look for the console. Stand-alone products. For the VTech brand, there will be additions to the core infant, toddler and preschool ranges. The KidiZoom Camera and Kidi lines will be expanded. A new line of easy-to-construct modular marble run electronic playsets called Marble Rush will be launched. The Go! Go! Cory Carson line will be updated with new models alongside new content launches on Netflix during the year. For the LeapFrog brand, The popular Blue's Clues & You! line will be expanded. The best-selling Learning Friends, 100 Words Book Series will welcome its newest addition, the 100 Words About Places I Go. These new product launches will be supplemented by the aforementioned eco-friendly toys, a new series of role play toys as well as a new TV learning game called LeapLand Adventures. In Asia Pacific, driven by renewed focus on e-commerce and channel management, sales growth in Mainland China is expected to resume. A slew of new products will be launched, notably a new line of Switch & Go Dinos based on the popular children animation series Mini Force. In Malaysia, to augment our Lazada flagship store, a second VTech official online store has been opened on Shopee. Opening of additional VTech official online stores is also in progress elsewhere in Southeast Asia. In telecommunication products, we aim to launch new products that cater for the continued demand for residential phones and other telecommunication products as well as a recovery in the commercial phones market. Sales of residential phones will benefit from a series of new products, notably a new premium work-from-home desktop cordless telephone with 5-inch color display slated for launch in the second quarter of the financial year 2022. In other telecommunication products, new WiFi 6 IADs will be launched in the first quarter. These IADs provide enhanced performance and support dual wide-area network connection through 4G LTE. Also slated for launch is a new smart WiFi baby monitor under the Leapfrog brand. It incorporates health monitoring features and an accompanying baby care app. In commercial offerings, a new range of Snom products targeting work from anywhere users will be launched in the second quarter, driving recovery for the business sector. Meanwhile, consolidations in the hospitality sector will provide sales impetus to a new series of handsets, propelling market share gains. Finally, CMS. As reported earlier, while seeing increased demands in most CMS product categories, our ability to meet these orders may be impacted by the critical global material supply situation. We have been and will continue to work closely with customers and suppliers to manage these issues. The new manufacturing facility in Tecate in Mexico will contribute to CMS revenue in the financial year 2022 through producing QSC-branded professional loud speakers. Utilization of the facility will rise gradually as new customers are added. We will continue to add production capacities at our facility in Muar, Malaysia, as more existing customers adopt the strategy of maintaining dual manufacturing sites. Thank you. This completes our presentation. We look forward to answering your questions in the Q&A session.

Thank you, King. That concludes our presentation. The first question comes from [ Paul Simons ] of [ Pivot ].

Congratulations on the results. I just have 2 brief questions. I note that the acquisition of the facility in Mexico completed after the end of the financial year. So could you give us an idea of how much of the cash on the balance sheet would have been used to complete that? And then assuming it wasn't $100 million, the cash is now fairly elevated, and it's mainly due to reducing the dividend last year, which I understand. But given you've now had 2 very strong sets of results since, at what point do you think that the amount of cash on the balance sheet is now too high?

Thank you. Thank you, Paul, for asking this question. I think we are -- the cash required for our Mexico acquisition is not high. We decided not to disclose the amount at this point in time because of -- the amount is not very significant. So on your second question, yes, we do reduce our dividends last year because of the uncertainty, because of the COVID situation. But of course, as you can see from our results, it turns out that our results, despite the COVID situation has been quite good. So -- and our cash at this point in time is over $300 million. As you can see, we have upgraded our dividend payout ratio to 99% -- over 99%. So as we have said in our past that anything -- when we -- our net cash had reached a point of over $300 million, we will distribute all our profits back to shareholders. So this is what we did this year.

I understand, but the -- I guess, the excess that was put under the balance sheet last year will just stay there if you don't go above 100% or do something as an alternative. Then the cash won't fall unless you make significant acquisitions, I guess. Do you have others in mind?

The situation in the coming year is still quite uncertain because of the COVID situation still -- is still not over yet. So I think it's too early for us to think that there's no challenges ahead. And on top of that, the component situation is quite uncertain. The shortage is actually the most severe that we have ever seen on the last 20, 30 years. And not only that the supply of semiconductor is short and also prices escalate. So these are all the uncertainties facing us. So I think we would like to see another year, another year to see if the COVID situation is really completely over and our component situation is not affecting -- adversely affecting us that much before we would decide what to do with our extra cash.

The next questions come from [ Tian Gan ].

Sure. Could you just give some color on the acquisition that you did in Mexico a month ago? Both on the price you paid and your reasoning behind acquiring this loud speaker manufacturer. That will be much appreciated.

Thank you. I'll let Andy answer this question.

The acquisition, in fact, is acquiring manufacturing facility for professional loud speaker from one of our major customers, QSC. The factory is located in Tecate, Mexico, which is around 20 minutes drive from the border of U.S. The acquisition consists of mainly the acquiring of the fixed asset and also the manufacturing team as well as the annual business of around USD 8 million to USD 10 million. The size of the factory is not so big. The size is around 3,000 square meters. Currently, its main product is the wooden electronic loudspeakers. We consider the acquisition is our first step to expand our global footprint outside Asia. And in the long run, we are planning to expand the activity in the factory more than the professional loudspeaker. For example, we may consider to expand in manufacturing setup, including the EMS business.

Yes. Sorry. One more, if that's okay.

Please go ahead.

Yes. On your sustainable products, I'd be interested to know kind of what kind of sort of market research you conducted before kind of looking into the launch of recycled plastics and things like that. And going forward, how much impact do you expect these products to have in your sales?

The sustainable ELPs, they are essentially sold to all our markets around the world. And they have been extremely well received. We cannot make enough of them. Obviously, during the first year, the contribution is actually not very big. And we are working on expanding the line. But I'm sure you'd appreciate that there are limitations on how much reclaimed plastic material that are safe that we can get to use. So there are some limitations. I cannot give you a quantitative number, but we definitely would be expanding the lines as well as the wooden toys in the years to come. And in addition to doing very good business, they are very good for PR.

The next question comes from Timothy Lee of CLSA.

Congrats for the results. So 2 questions. One is about the current environment. As you mentioned that there are some distortion in terms of mature supply so that makes our revenue forecast unpredictable. May I just get a sense which of the [ 3 sectors ] do you see the more impact from this kind of material shortage? And In terms of the ELP -- sorry, the TEL segment, in particular, we saw quite good uptick in sales in fiscal '21 because of the demand for the VoIP upgrade of the telephone systems by the residents. What do you see about the momentum going forward? Is this like already end, I mean, that kind of transition. It is still -- the momentum continues or it is already the end of that kind of upgrade process? So just want to get a sense about the orders and sales. And the second question is about new acquisition in Mexico. Is this already -- I think it is already under operation, right? So may I know about the profitability of this new plant? It is profitable? And how about comparing it on profitability with China or Malaysia? That's all my questions.

[indiscernible]

So for the first question regarding the distortion of the supply of the raw materials expense of the IC, LCD, the electronic components. I can tell you that it affects all our 3 business units or our 3 product lines mainly because almost all our products, no matter it's telecom products, electronic learning products and contract manufacturing services products, they also need -- we also need to have electronic components. So in effect, all our fleet product lines. So regarding the solid order book, we cannot share with you that, as mentioned in the outline -- the outlook of the group by Mr. King Pang. The solid book is very good right now, but for all the 3 business units. But the point is we have received orders, but we are also struggling whether we have sufficient components to meet those demand. It's not just talking about the shortage, but it's also talking about the rising material prices. So that's why in our outlook, we -- even though by now, as of today, we see the order book for the 3 product lines is pretty good, and they are very solid. But we don't feel very comfortable whether we can meet all the demand and because of the global shortage in components, especially those electronic-related components. So that's why we are still very conservative regarding our outlook in the coming financial year.

Maybe I can answer your second question regarding the residential phones market. As you can see from our results, the telecommunication division has gone back to a growth path after several years of decline primarily because the residential phone market has actually declined less -- is still declining but declining less due to the work-from-home environments that people are buying more residential phones for them to work in their homes. And then coupled with our gain in market share that you can see that our residential phone sales has actually gone up last year. Now as to the market going forward, we still believe that the residential phone market is a structural decline, although it may decline less because -- again, because of the lockdown and the work-from-home situation. And we will continue to gain market share. So whether we will continue to grow sales in this segment, we will see. We are not -- even if we -- we would definitely be performing better than the market. As your -- what is your third question?

Yes. The last question was about the Mexico plant that you just acquired. How about the profitability of this plant? It is making profit or loss making? And how about comparing with China or Malaysia?

Maybe Andy can answer that.

I think it's still early to talk about the profitability in the newly acquired facility in Mexico. But at least based on what we can figure out based on those figure on hand, the profitability in the Mexican facility should be quite okay. But when you're talking about the comparison between China, Mexico and Malaysia, I would say the cost in China and Malaysia are more than the same, but that in Mexico will be a little bit higher.

Is there any more questions?

That is all for me.

For the audience, is there any further questions? The next question comes from [ Louis King ].