HONG KONG – VTech Holdings today reported fiscal first-half net profits fell 5.4% from last year to $88.5 million despite higher sales.

For the period ended Sept. 30, group revenue rose 5.4% year-over-year to $858.1 million on broad-based revenue growth in Europe and demand for electronics manufacturing services in North America.

However, higher materials and labor costs and currency appreciation felled profit growth. The company is responding by raising prices, it said.

“Although we managed to achieve top line growth for the period, rising costs continued to pose the biggest challenge," said Allan Wong, chairman and Group CEO. "Year-on-year, higher raw materials prices were compounded by further wage increases in China and Renminbi appreciation. These factors pressured gross margin and resulted in lower profit attributable to shareholders of the company for the period. In response, we have raised prices, as well as stepped up our cost
reduction and efficiency enhancement efforts.”

Overall revenue in North America rose 2.3% to $431.2 million. Higher EMS revenue (first-half sales reached $215.1 million) offset a slight drop in revenue from telecommunication and electronic
learning products. North America accounted for 50.2% of the company's revenue. At quarter's end, the company had $128.5 million in cash on hand.

Contract printed circuit assembly revenue in North America rose 17.9% during the first half to $95.6 million on demand for professional audio equipment and telecommunications and commercial solid state lighting products. In Europe, EMS revenue rose 22.2% year-over-year to $96.5 million. Asia Pacific revenue fell 6.7%, with EMS sales falling 8.4% to $23 million.

The company called the global economy "highly uncertain." "In the US, economic growth is likely to remain sluggish given the high level of unemployment. In Europe, the sovereign debt crisis in certain countries is already weakening consumer confidence. Nonetheless, the [company] remains cautiously optimistic of achieving top line growth in the second half. Moreover, there are signs that cost pressures are abating, and that margins could at least stabilise.

That's not stopping VTech from adding capacity, however. The company will bring online a new factory at its existing campus in Shenzhen this month. This new plant will increase EMS capacity by over 40%.

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