Vtech Holdings Limited (303) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to our webcast. Today, VTech Holdings Limited is announcing its annual results for the year ended 31st of March 2022. 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 and cost environments; next, Mr. Leung will review the group results in North America and Europe; Mr. Pang will then continue to share the rest of the segment results and give the management outlook for the coming year. We will finish our presentation with a Q&A session. May I now invite Ms. Tong to open today's presentation. Ms. Tong, please?

Thank you, Grace. Good afternoon, ladies and gentlemen, and as well as online. First of all, I would like to share with you the financial highlights of the group for the year ended 31st of March 2022 compared with the same period of the last year. As you will see from the slide, the revenue of the growth be diluted slightly by 0.1% to USD 2,370.5 million. The slight decrease in revenue was due to the reduction in environment in Europe, Asia Pacific and other regions, which offset the higher sales in North America. The gross profit of the group reduced by 7.9% to USD 669.1 million, and our gross profit margin also reduced from 30.6% to 28.2%. The reduction in gross profit and gross profit margin was mainly due to the drastic increase in freight cost, labor cost and manufacturing overhead, as well as the increase in medical prices. These were partially offset by a change in product mix. Our operating profit reduced by 23.4% to USD 203.8 million and our operating profit margin also reduced from 11.2% to 8.6%. The reduction in operating profit and operating profit margin was mainly due to the decline in gross profit and gross profit margin. Operating profit for the year also include the government subsidies of USD 0.5 million in response to COVID-19, as compared with an amount of USD 5.7 million in the last financial year. Our profit attributable to shareholders reduced by 25.2% to USD 172.7 million, and our net profit margin also reduced from 9.7% to 7.3%. As a result, our basic earnings per share reduced by 25.2% to USD 0.685. And our Board of Directors has proposed a final dividend of USD 0.51, bringing the total dividend per share for the year to USD 0.68, a decrease of 25.3% compared with the last financial year. Turning to the revenue by region. North America was the largest market of the group, accounting for 45.1% of the group's revenue. Our sales in North America rose by 7.4% to USD 1,068.5 million. It was mainly due to the highest of all our 3 product lines. Our sales to European market reduced by 5.6% to USD 1,025.1 million. It was mainly due to the lower sales of our telecom products and contract manufacturing services, which offset the higher sales of our electronic learning products. In Asia Pacific region, the revenue of the group reduced by 5% to USD 255 million. The decrease in revenue was due to the decline in sales of our telecom products and contract manufacturing services, which offset the higher sales of our electronic learning products. Other regions include Latin America, Middle East and Africa. The group's revenue in other regions reduced by 2.7% to USD 21.9 million. It was mainly due to the decrease in sales of our telecom products and contract manufacturing services, which offset the higher sales of our electronic learning products. Our stock balance as of 31st of March 2022 increased from USD 414 million to USD 553.3 million compared with the same period of the last year. Our stock turnover days also increased from 103 days to 131 days. The higher stock level was mainly due to the stock-up of raw materials in view of the unstable supply, well as the increased demand for the group's product in the first quarter of the financial year 2023. We had also arranged early production of the group's products in order to better utilize the group's production capacities and for the in-shipment to our overseas warehouse, so as to mitigate the risk of further capacity constraints in the peak season of the financial year 2023. Our trade debtors balance as of 31st of March 2022 increased from USD 270.7 million to USD 325.4 million. Our trade debtors turnover days increased slightly from 61 days to 65 days. The higher trade debtors balance was mainly due to the increase in revenue in the fourth quarter of the financial year 2022 compared with the same period of the last year. Our financial positions remain very strong. We are debt free, and our net cash balance as of 31st of March 2022 was USD 195.8 million, a decrease of 43% compared with the same period last year of USD 343.8 million. The reduction in net cash balance was mainly due to the decline in EBITDA, increase in working capital investment, as well as the higher dividend payment compared with the last financial year. As I mentioned earlier, the group's gross profit margin in the financial year 2022 was 28.2% as compared with a gross profit margin of 30.6% in the last financial year. The decline in gross profit margin was mainly due to the unprecedented increase in freight cost arising from the container shortages globally. Direct labor cost and manufacturing overhead were also higher than the last financial year, which were mainly due to the appreciation of renminbi, as well as the unstable supply of materials impacting productivity. The increase in material prices, especially in electronic components and plastics, also contributed to the decline in gross profit margin. These pressures were partially offset by a change in product mix. Nevertheless, improvement was seen in the second half of the financial year as the group raised prices for these products. Freight cost also declined slightly after the peak shipping season, while the supply of semiconductors remained tight. The operating and finance for the group's businesses was extremely challenging in the financial year 2022. There was continued disruption in the global supply chain, leading to material shortages, significant cost increase as well as shipment delays. Our productivity was also impacted by this instability, which resulted in more overtime payments and just higher labor costs. On the sales side, while demand for the group's products was strong, some orders could not be fulfilled properly owing to the shortages of materials supply and shipment delays, which led to late availability of the group's products and low channel inventory. In response to these challenges, we then moved swiftly to implement measures to mitigate these negative impacts which began to take effect in the second half of the financial year 2022. With our close and long-standing relationship with suppliers, it enable us to secure a more stable supply of critical components. We had also reengineered our products to lower the cost and accommodate alternative parts, source alternatives shipping carriers to secure containers and increase the stock of critical components. In addition, we had started production earlier to allow a longer time for shipment and transportation of our products to our customers and raised product prices, thereby passing through some of the cost pressures to the consumers. As a result, we managed to achieve stable revenue for the full financial year 2022. As for the profitability, it improved in the second half as compared with the first 6 months of 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, and good afternoon to all of you. Thank you very much for joining us today. I will now cover the operational review of North America and Europe, starting with North America. Group revenue in North America increased by 7.4% to USD 1,068.5 million in the financial year 2022. Both ELP, telecom products and CMS report higher sales during the period. North America was the largest market of VTech, are accounting for 45.1% of the group revenue. ELP revenue in North America ramped up by 3.5% to USD 555.6 million. Higher sales in the U.S. offset a decline in Canadian market, where the transition to a new third-party logistics vendor resulted in logistics easing. This ended up with a reduction in shipment of VTech and LeapFrog products. During the period, the group maintained its position as the #1 manufacturer of electronic learning toys from infancy to toddler and preschool in the U.S. In Canada, despite the logistics issues, we have remained the #1 supplier in the infants, toddler and preschool toys categories. The growth in ELPs came from higher sales of VTech and LeapFrog stand-alone products. At VTech, the sale increase came primarily from 3 product categories: infants, toddler and preschool products. The increases were driven by higher sales of new products, including Sort & Recycle Ride-On Truck. KidiZoom Camera again performed well, with especially good results from KidiZoom PrintCam and KidiZoom Creator Cam. Switch & Go Dinos achieved growth as a result of new product launches. The introduction of Marble Rush also added incremental revenue. Those increases offset declines in Kidi line and Go! Go! Smart family of product, as well as Go! Go! Cory Carson vehicles and playsets. LeapFrog saw growth in infants and toddler products. The rollout of the new LeapLand Adventures TV video game also contributed to the sales growth. This success offset a decline in preschool products as sales of licensed product fell. Platform products reported sales decline as higher sales of LeapFrog branded products were insufficient to offset lower sales of VTech branded products. LeapFrog benefited from growth in Magic Adventures Globe and interactive reading systems. And the content of Magic Adventures Globe was expanded. LeapReader was also refreshed with new hardware. This compensated for a decline in sales of children's educational tablets that was mainly due to the semiconductor shortages, which also led to a slowdown in new LeapFrog Academy additions. VTech platform product trended lower due to sales declines for KidiZoom Smartwatches and KidiBuzz. Shipments of the new products, namely KidiBuzz 3 and KidiZoom Smartwatch DX3, was held up by semiconductor shortages and shipment delays. Low channel inventory also led to lower sales. This offset for the Touch & Learn Activity Desk, to which a new model was added at the financial year 2022. Telecom products revenue in North America went up by 1.6% to USD 274.9 million. The increase came as a gain for commercial phones and other telecom products offset lower sales of residential phones. Sales to online channel continues to see good increases. Sales of commercial phones and other telecommunication products increased as physical activity returned to normal following the relaxation of COVID-19 restrictions. Well-received new product purchase by the market also drove growth. Baby monitors, headsets, Snom brand SIP phones and hotel phones all achieved higher sales. The growth in baby monitors were driven by additional placement in key retailers, expanded online sales and new product launches. As a result, VTech strengthened its position as the largest baby modular manufacturer in U.S. and Canada. During the financial year 2022, the first LeapFrog branded baby monitor featuring a baby care app was launched to a positive market reception. Headsets was benefited by the increased order from an existing customer. The Snom brand SIP phone gained market share due to astable supply of product. Sales of hotel phone recovered as a result of lifting of COVID-19 restriction. The launch of model with a new retro design further supported growth. Although the residential phones market returned to its downtrend, VTech maintained its leadership position in the U.S. residential phones market. CMS revenue in North America increased by 26.8% to USD 238 million, with growth in most product categories. Business activity resumed as social distant measure eased. There was also a full year sales contribution from the operation in Tecate, Mexico, following the completion of the acquisition in April 2021. Professional audio equipment benefited from higher sales to a customer that had acquired a new business. The relaxation of social distancing measure lifted the sales of professional audio equipment used in concert halls, lecture theaters and churches. Sales of solid-state lighting grew as tenders and project-based activity resumed. Industrial products also benefited from the resumption of this activity. We started getting more order for printed circuit board assembly for coin and note-recognition machines. Medical and health products saw sales increase as orders for hearing aids improved. Sales of communication products growth has increased the order for real IP phones for commercial use following the successful launch of product by a customer. Now let's turn to Europe. Group revenue in Europe declined by 5.6% to USD 1,025.1 million in fiscal year 2022 as higher sales of ELPs were offset by lower sales of telecommunication products and CMS. Europe were the group's second largest market, representing 43.2% of group revenue. ELP revenue in Europe increased by 6.8% to USD 375.1 million, with sales picking up in the second half as new products arrive on the shelf and channel inventory improved. Stand-alone products saw higher sales for the full fiscal year, but platform products posted a decline due to material shortages. Geographically, sales increased in France, Germany, Spain and the Netherlands, while the U.K. recorded a sales decline. In calendar year 2021, we have maintained the #1 infant, toddler toys manufacturer in France, the U.K., Germany and the Benelux countries. During the period, VTech retained the #1 positon in Spain. In standalone products, both VTech and LeapFrog branded product register growth. For the VTech brand, sales of infant, toddler and preschool products, the KidiZoom Camera ranges, Kidi line product, Switch & Go Dinos and electronic learning aids were all higher. Growth in the region was amended by the successful launch of the new Marble Rush line. These increases offset decline in Toot-Toot family of products and Toot-Toot Cory Carson vehicles and playsets. The LeapFrog brand saw growth in infant, toddler and preschool products, amended by the launch of the LeapLand Adventures. Platform products saw lower sales of both VTech and LeapFrog products. Material shortages and logistic problems resulted in late availability of certain new products and low channel inventory. This included a new generation of interactive reading system LeapStart or MagiBook this quarter in Europe, KidiCom Advance 3.0, Magic Adventures Globe, KidiCom MAX and children's educational tablets. These declines offset gain for Touch & Learn Activity Desk. Sales of KidiZoom Smartwatches were stable. Revenue from telecommunication products in Europe fell by 14.2% to USD 93.8 million. Lower sales of residential phones and other telecommunication products offset higher sales of commercial phones. In Europe, the group residential phones are sold mainly on an ODM basis. These products were affected by the shortage of semiconductor, which resulted in the deferral of shipment and a reduction in sales. In a notable development, however, the group's successful launch is VTech branded DECT phone on a major e-tailer in the U.K. in March 2022, paving the way for the increasing penetration of its own branded phones product in European market. Sales of other telecommunication product decreased as the semiconductor shortages negatively impacted the production of baby monitors, CAT-iq handsets, CareLine Residential phones and integrated access devices, all of which saw sales decline. Despite the reduction in sales, VTech branded baby monitor strengthens their position in the U.K. with the successful introduction of a new product lineup. This further expanded the group market presence in Europe. Commercial phone benefited from the resumption of the business activity and leisure travel as COVID-19 restrictions eased across the region. As a result, we saw rising sales of Snom-branded SIP phone and a recovery in sales of hotel phones. CMS revenue in Europe fell by 11.1% to USD 556.2 million. Hearables recorded lower sales due to material shortages and reduced orders for mobile headsets. Driven by higher orders for audio mixers, sales of professional audio equipment increased. IoT product growth in smart meter installation resumed in the U.K. following the relaxation of the social distancing measures in the country. Sales of interconnected thermostat and air conditioning control increased as demands recover. Growth in medical and health products was driven by increased order of hearing aids, while sales of health and beauty products were stable. Home appliance sales increased slightly, supported by the increasing order for smart electric vehicle chargers. Automotive-related product reported growth. In contrast, sales of communications products were down due to lower order for WiFi routers. During the year, the group added a new customer in the category of smart energy management system. I will now turn over to King for remaining region and outlook.

Thank you, Andy. Good afternoon, ladies and gentlemen. I will continue our operations review of Asia Pacific. Group revenue in Asia Pacific decreased by 5% to USD 255 million in the financial year 2022. Lower sales of telecommunication products and CMS offset growth in ELPs. Asia Pacific represented 10.8% of group revenue. ELPs revenue in Asia Pacific increased by 2.3% to USD 83.9 million. Growth in Australia and Japan offset lower sales in Mainland China. In the second half of the financial year, lockdowns eased and retail stores reopened in Australia, driving sales growth. For the calendar year 2021, we maintained our position in Australia as the #1 manufacturer for infant and toddler toys. Growth in Japan came from rising sales to a major toy retailer, as well as good sell-through of a jointly developed smartwatch that features popular Japanese IP characters. In Mainland China, sales in both online and off-line channels decreased. Despite these setbacks, we did achieve successes for the new range of Switch & Go Dinos based on the popular animated series Mini Force, as well as the Magic Adventures Globe, which features enhanced contents for the China market. Revenue for telecommunication products in Asia Pacific decreased by 12.6% to USD 27.7 million. Higher sales in Australia were offset by lower sales in Japan and Hong Kong. In Australia, growth was led by higher sales of baby monitors. This compensated for sales decline in residential phones. In Japan, sales decreased owing to a shortage of semiconductors for an existing customer of residential phones. Sales in Hong Kong trended lower. Orders for integrated access devices dropped despite the launch of a new home gateway that supports WiFi 6 and features a changeable faceplate. CMS revenue in Asia Pacific declined by 7.3% to USD 143.4 million. Lower sales of professional audio equipment offset growth in medical and health products and communication products. Following a movement control order ordered by the Malaysian government to curb the spread of COVID-19, the group's Malaysian facilities were closed for a total of 75 days during the financial year 2022. This resulted in lower sales of DJ equipment, in turn driving the decline in the professional audio equipment category. Furthermore, overinventory at a customer resulted in lower orders for USB streaming microphones for online key opinion leaders. In contrast, sales growth for medical and health products. Orders increased for diagnostic ultrasound systems as hospitals rebalanced budgets away from COVID-19-related equipment purchases. As business activities recovered, higher demands were seen for hearables. Sales of communication products grew. This was driven by higher orders from marine radios that followed the launch of a new generation of products by the customer. Other Regions. Other regions comprises Latin America, the Middle East and Africa. Group revenue in Other Regions fell by 2.7% to USD 21.9 million in the financial year 2022. The decrease came as lower sales of telecommunication products and CMS offset growth in ELPs. Other Regions accounted for 0.9% of group revenue. ELPs revenue in Other Regions increased by 29.8% to USD 10.9 million. Higher sales in Latin America offset declines in the Middle East and Africa. Telecommunication products revenue in Other Regions fell by 21% to USD 10.9 million. The decline was attributable to sales decreases in Latin America and the Middle East, offsetting growth in Africa. CMS revenue in Other Regions was USD 0.1 million as compared to USD 0.3 million in the previous financial year. Before we get into the outlook for the financial year 2023, I'd like to talk briefly about sustainability. Throughout our 46 years of excellence in technological innovation, we have maintained our strong commitment to building a sustainable future to improve the lives of people and for future generations. Our efforts include sustainable designs for products and packaging, climate change initiatives and provision for a safe and inclusive workplace for our employees, as well as ethical sourcing practices throughout our supply chain. Despite the ongoing challenges brought by the COVID-19 pandemic, VTech continues to make progress towards a circular economy. Last year, we introduced our first range of green ELPs that utilize plant-based plastic, reclaimed plastic and FSC-certified wood. Later this year, we will launch 2 new plush ELPs with fabric utilizing recycled PET bottles, as well as additional eco-friendly toys with plant-based plastic and FSC-certified wood. Next, our outlook for the financial year 2023. Foremost, let's recognize that significant uncertainty lies ahead for our financial year 2023. On the demand side, heightened inflation in both the U.S. and Europe may lead to a slowdown in consumer spending. The recent increased spread of COVID-19 in Mainland China and the subsequent lockdowns will negatively impact domestic consumption. On the cost side, material prices remain elevated. And this is especially true for plastic materials, which has been stoked by the oil price surge following the war in Ukraine. Supply of semiconductors and other critical components remains tight. Lockdowns in Mainland China have also exacerbated global supply chain disruptions. Finally, despite some improvement in container availability, freight cost is expected to rise further. Despite all these uncertainties, we are cautiously optimistic of achieving overall top line growth in the financial year 2023. Direct impact of the war in Ukraine to group revenue will be minimal. Our sales with Ukraine and Russia represented a mere 0.2% in the financial year 2022. Gross profit margin, meanwhile, is expected to be largely stable year-on-year. Among the anticipated headwinds are freight cost, material price as well as critical component shortages. The group is prepared to confront these challenges. We have increased our material inventory to meet the strong orders on hand. By advancing production and shipment schedules, we will also ensure new products can reach customers on time, minimizing channel inventories. ELP revenue is focused to post modest growth in the financial year 2023. This will be driven by strong product offerings, on-time delivery of products, improved channel inventory as well as strong advertising and promotion campaigns. Infant, toddler and preschool products will continue its positive momentum with a strong portfolio of core learning and licensed products. Our expanded new 2022 spring offerings have already hit retailer shelves with good initial sell-through. This will be followed by strong autumn launches, including, notably, the Magic Adventures Microscope. Through its custom BBC videos and images, the microscope stimulates and enables the exploration of interesting facts related to flowers, insects, the human body and more. Subscription to LeapFrog Academy is expected to return to growth as the supply of LeapFrog tablets improves and it is augmented by content targeting older age groups. In Mainland China, however, sales are expected to decrease as lockdowns in major cities are negatively impacting both offline and online channels. Telecommunication products is expected to achieve higher revenue. This will be driven by increased sales of commercial phones and other telecommunication products, augmented by the recovery of VTech branded residential phones in the U.S. and expansions in Europe. The continued good momentum of commercial phones and other telecommunication products will be fueled by a wide array of new products. The baby monitors category will be strengthened by the expansion of the LeapFrog range and a series of VTech branded baby monitors with artificial intelligence, AI detection features. In commercial phones, the DRH series of advanced Snom SIP headsets, along with a new range of the multi-cell SIP DECT mobility system, will be rolled out globally. A work-from-anywhere series with Bluetooth conference speaker, audio recording function and a professional headset will be launched in the third quarter of the financial year 2023. VTech hospitality phones will be revamped with a new series that features a contemporary design. CMS is also expected to return to growth, supported by a strong order book, benefiting from global economy recoveries and a very sizable backlog of orders. Most product categories are forecast to grow. The exception will be hearables. It is expected to decline further on lower demand for mobile headsets. With its complete product line entering through production, significant business contribution to the financial year 2023 is expected from the new smart energy management systems. Further growth is expected from the NPI center in Shenzhen, while the Mexican facility we revamp -- will ramp up production and begin to build up its EMS capability. As ongoing material shortages may constrain VTech's ability to meet all orders on time, the group is working closely with customers and suppliers to secure a high level of mutual support during critical conditions. Thank you. This completes our presentation. We are now glad to answer your questions.

[Operator Instructions] The first question comes from Eric from Citigroup.

So firstly, about the tariff. If U.S. remove order tariff, can you remind us how does this benefit to your company? And what percentage of your tariff fee versus the sales in FY '22? That's #1 question. And then my second question is I found all the 3 segments, you expect a positive growth for FY '23. But if you rank them, how do you rank them and why you have conviction, a higher conviction for the strongest growth segment?

Maybe answer your question, Eric. Thank you for your question. As far as the tariff is concerned, the existing tariff affect us directly and indirectly, directly affecting our own products related only to a small segment of products telephone segments. So it's not a huge impact as far as our own product is concerned, the product if the tariff is removed. However, it does affect a lot of our CMS customers. Although the CMS customers increase in tariffs doesn't affect us because we sell mostly on FOB basis. So we are not responsible for the tariff. But nonetheless, it would affect indirectly. Possibly, they are priced to their end users that may in turn affect, to some extent, the sales. So the removing the tariff will certainly benefit overall our sales, but possibly not to a huge extent. The second question is, yes, we are confident that all 3 of our business units will grow. As to your question why we are so confident, I think the incoming orders at this point, the forecast and also the new product introduction in our 2 businesses through ELPs and the telephone units already show there are growth. And the growth is, although not huge, but I think there's enough margin that we are safe to say that it can achieve growth. I think the same applies to CMS and that's, of course, the -- our business unit heads can actually add in on this if they want to add any other colors to this.

We do have strong orders. But we all know that the economy is kind of flaky right now. So there's a lot of uncertainty, which is really what underlies our outlooks.

Eric, is that good?

Can I have a follow-up question? In the past, for the CMS segment, you always expect to double the sales in 3 years, i.e., over 20% a year. So what kind of the growth rate you expect for CMS? I mean single digit or double digit for FY '23?

I will let Andy answer this question.

If we say we are good. Yes. For the fiscal year '23, we project high single-digit growth for CMS. The major reason for the growth is, first, we -- one of our key major product categories, the professional audio, they will be more benefited from the removal of the social distant restriction. It is one of the major reasons. And the second reason is that we still maintain a pretty high backlog order along the -- our customer orders. So that's the reason why we expect that we will have high single-digit growth in the fiscal year '23.

The second question comes from [ Luth Kim of CCIS ].

First of all, thank you and congratulations to strong results. Three questions. One is the eco-products in parts, how is the market acceptance? What is the price difference to traditional products? And now with the increase in plastic prices, how do you expect this price difference to develop? The second question is, generally, do you expect to be able to fulfill all your orders or do you still see a risk of not fulfilling the orders on hand? And thirdly, on Leapfrog. From your announcement, I understand that there has not been growth or maybe even decline in LeapFrog Academy. So by how much is this -- how much percentage has been the decline? And could you give us an idea of the number of subscribers?

Lots of favorite in your question. To tell you the truth, I actually have not looked at it lately, okay? We are still in 6 figures. Okay, last year, you asked what is the 6 figures, my answer was it was the higher 6-figure compared to the previous financial year. I'm afraid this year, my answer is going to have to be on lower 6-figure compared to fiscal 2022, okay? And let me add some color to why we are quite confident that we'll be able to grow subscribers this year. The reason, the main reason why LFA subscriber declined in fiscal 2022 is the fact that we have not been able to ship all the different academy tablets that the market had demand for, okay? And the tablet is, by far, the most effective vehicle for us to recruit LFA subscribers, okay? And I'm glad, fingers crossed, that we believe that we have the major IC component supply issue that had plagued us last year behind us. As far as I know, we can ship as many tablets as the market can absorb this year. So we are very, very dedicated and we have strong campaigns to drive as much -- as many tablets that we can sell as possible this year. And this will be followed by, hopefully, a surge in LFA subscribership. I believe your second question is why we are confident in being able to -- or do we expect to be able to fulfill all our orders. As I reported in our outlook, we believe that we are a lot better prepared, okay? We have, as you can see from our inventory, we have taken a higher material and component inventory in preparation. We have also advanced the manufacturing of a lot of our products. A great deal of them have already been shipped across the ocean to our destination countries. And in fact, the retailers, they have also learned. They are also taking their inventory 1 to 2 months earlier compared to last year, okay? So all this added together, we're guardedly optimistic. Your third question is on eco-friendly products. With, I believe, maybe one possible exception, they all sold fabulously well. Okay? We have a recycled truck, and that one sells especially well. And because we want to make a name on our eco products and because we want to encourage children to be -- to have the recognition of sustainability, so we have actually not marked up these products by a great deal despite, as you correctly pointed out, using these sustainable materials, our cost is a lot higher. And we have, together with our other products, suitably adjusted the price of these products up, but not by a huge amount. And we expect our second year sales to continue to be fabulous.