Segment Results

North America
CMS posted the strongest growth in North America. Sales rose by 66.2% during the first half to US$81.1 million, despite the relatively weak economy. Professional audio equipment was a major growth driver. Customers are giving us additional business as a result of our high quality products and excellent services. We continued to see growth in commercial solid-state lighting, an emerging business area.

Europe
For CMS, our sales in Europe were up by 48.2% to US$79.0 million when compared with the first half of the previous financial year. Professional audio equipment was again very strong, with increased orders from existing customers. We also benefited from a new product launch with one of our wireless products customers. Furthermore, we saw solid growth in home appliances and switching mode power supplies.

Asia Pacific
CMS achieved modest growth in Asia Pacific in the first half, where Japan remained the dominant market. Revenue from the region increased by 4.1% to US$25.1 million, driven by medical equipment and LED light bulbs.

Outlook

We face an environment that is unusually uncertain, which makes forecasting for the second half of the financial year difficult. In most of our major markets, unemployment remains high, governments are cutting budgets and consumer sentiment is subdued. Nonetheless, we are cautiously optimistic of achieving revenue growth in the second half, as we expect good momentum in CMS to continue. Profitability, however, will be under pressure as rising costs will further affect margins.

We are taking very active measures to counteract cost increases. To reduce the reliance on labour, our production processes are being automated at a faster pace. We have also intensified our product design efforts to optimise material and manufacturing costs.

We will continue to exercise tight control over operating costs to rein in further increases in freight and marketing expenses. Overall, our economies of scale will ensure we remain cost competitive in this challenging operating environment, positioning VTech well for market share gains.

North America and Europe
CMS should continue to outperform the global EMS market and achieve growth in North America and Europe. Professional audio equipment and commercial solid state lighting will lead the way in North America, as in the first half. In Europe, on top of the already strong power supplies business, further growth will be driven by two new product areas, electric vehicle chargers and solar power inverters.

Asia Pacific and Other Regions
At CMS, we will continue to step up efforts to open up the Japanese market, as the strength of the Japanese yen may induce more medium sized companies to seek outsourcing with a greater sense of urgency. This could offer considerable potential for VTech to acquire new orders and new customers.