TTI Group, a leading manufacturer of power tools and equipment, has reported strong financial results for the first half of 2024. The company saw significant growth in sales, with a notable 11.2% increase in its MILWAUKEE business and mid-single-digit growth in the RYOBI Outdoor division. TTI Group's gross profit rose by $219 million to $2.92 billion, and net profit surged by 15.7% to $550 million.
The firm also successfully reduced its net debt by $889 million and announced an increased interim dividend. The earnings call underscored TTI Group's confidence in maintaining market dominance and delivering continued outstanding results.
Key Takeaways
- TTI Group's sales and profits have seen considerable growth in the first half of 2024.
- MILWAUKEE business grew by 11.2%, while RYOBI's Outdoor division experienced mid-single-digit growth.
- Gross profit increased to $2.92 billion, with a margin increase to 39.9%.
- Net profit rose by 15.7% to $550 million, and net debt was reduced by $889 million.
- An interim dividend of HKD 0.108 per share was declared, up 13.7% from the previous year.
- The company attributes its success to strong leadership, innovation, efficient operations, and robust supply chain and sales team performance.
Company Outlook
- TTI Group aims to maintain best-in-class service levels to ensure product availability and drive sales.
- Plans are in place to reduce inventory days from 104 to below 100 by optimizing the global manufacturing footprint.
- TTI Group is confident in its ability to continue dominating the market and delivering outstanding results.
Bearish Highlights
- The company acknowledged sluggish segments in the consumer business such as hard, rigid, or flex but did not provide specific turnaround plans.
- There is no specific long-term target for gross margin, but the company is committed to continuous improvement.
Bullish Highlights
- RYOBI is recognized as the number one consumer and cordless brand globally, thanks to product development and a strong partnership with Home Depot (NYSE:HD).
- MILWAUKEE has achieved high market share in Europe and is the brand of choice for professional end users.
- The company is investing in new categories and verticals, expanding its addressable market opportunity.
- TTI Group is well-positioned to capitalize on hypergrowth segments within the industry.
Misses
- Financial details on market share or revenue contributions from different end markets were not provided.
Q&A highlights
- TTI Group addressed its strategies for combating potential tariffs and competition, emphasizing supply chain flexibility and global manufacturing capabilities.
- The company discussed plans to drive profitability in the value pro segment, which currently makes up less than 20% of the RYOBI business.
- Management expressed confidence in the company's agility to adapt to macroeconomic or political changes.
TTI Group's earnings call highlighted a strong performance in the first half of 2024, with sales growth driven by its MILWAUKEE and RYOBI brands. The company's success is attributed to its emphasis on innovation, efficient operations, and a robust supply chain. TTI Group remains bullish on its future prospects, with strategies in place to enhance service levels, optimize its manufacturing footprint, and expand into new market segments. Despite facing potential challenges from tariffs and competition, the company is confident in its ability to adapt and continue its growth trajectory.
InvestingPro Insights
TTI Group's robust financial performance in the first half of 2024 is mirrored by several key metrics and insights from InvestingPro. The company's growth and profitability are highlighted by a Gross Profit Margin of 39.81% for the last twelve months as of Q2 2024, showcasing the efficiency of its operations. Additionally, TTI Group's ability to maintain a competitive edge in the market is supported by a Revenue Growth of 8.12% during the same period, indicating the company's successful expansion and customer acquisition strategies.
InvestingPro Tips for TTI Group reveal that the company not only has a perfect Piotroski Score of 9, reflecting high-quality business operations, but also that it has been a prominent player in the Machinery industry. This status is further bolstered by the company's impressive track record of maintaining dividend payments for 34 consecutive years, providing investors with a reliable income stream. For those interested in deeper insights, InvestingPro offers additional tips on TTI Group, which can be found at https://www.investing.com/pro/TTNDY.
InvestingPro Data for TTI Group further underscores the company's financial health, with a Market Cap of 22.97 billion USD and a P/E Ratio of 21.23, indicating investor confidence in its earnings potential. The company's commitment to returning value to shareholders is also evident from its Dividend Yield of 2.98%, a testament to its financial stability and shareholder-friendly policies.
In conclusion, TTI Group's strong financial results are backed by solid fundamentals and a positive outlook as per InvestingPro metrics and tips. These insights provide investors with a comprehensive understanding of the company's financial health and market position.
Full transcript - Techtronic Industries Ltd ADR (OTC:TTNDY) Q2 2024:
Horst Pudwill: Good morning, ladies and gentlemen. Thank you for coming. Thank you, our Board of Directors here and most of our senior management from the U.S. and Europe and overseas. Thank you. It gives me a great pleasure to welcome all of you to TTI's Group's 2024 first half results announcement. I would like to start by introducing Steve Richman and is present on the recent promotion to TTI's Group CEO, Steven. Welcome aboard. We had an outstanding first half with sales outperforming the market on delivering double-digit profit and growth. Our group Vice Chairman, Mr. Stephan Pudwill, will continue with our opening remark, but let me tell you one thing. We don't care what's out there. We only care about our shareholder, our investor to deliver with best results. And we don't care what happened competition up or down, which has not happened in this case or down. But our first focal point are our investors. Thank you very much, Stephan. I hand you over.
Stephan Pudwill: Thank you, Chairman. And I'd like to thank all of you for attending today and for your continued support. With EBIT up 11.8%, net profit up over 15%, record first half free cash flow of over $500 million, we're off to a great start to the year. Now we delivered exceptional revenue growth and we continued with very strong market share gains. But at the foundation of our success is great people. And we have spent years assembling what we believe is the greatest team of people in the industry. And it is this team what sets TTI apart from the competition. So with us today, we have, as our Chairman commented, Steven Richman, our new CEO. We also have Shane Moll with us, who is our President of MILWAUKEE. He was here at the most recent results presentation. But we also have Alex Duarte, who's our Senior Group President of EMEA, which is our European business and the region. So the team has done an exceptional job, and I'm so excited to have them here today, and I'm going to pass the floor over to Steven and then Frank as well, who's going to give you some highlights on the financials. And I hope you enjoy the presentation.
Frank Chan: Okay. Thank you, Mr. Chairman, and Stephan. As Chairman and Stephan mentioned, we've delivered strong first half results with our sales increased by 6.3% to USD 7.3 billion as compared to last -- same period last year. Our MILWAUKEE business continued to extend our leadership position as the global #1 professional tools brand and delivered an 11.2% sales growth in local currencies. RYOBI also outperformed the market and delivered mid-single-digit sales growth led by Outdoor division's strong performance. Gross profit increased by USD 219 million to USD 2.92 billion, with margin increased by 67 basis points to 39.9%. The improvements were on favorable sales mix of margin-accretive MILWAUKEE business, aftermarket battery sales, introduction of innovative products, category expansions and our focus in improving productivity and efficiencies at all manufacturing locations, and stringent cost controls. As gross margin increased by 67 basis points and SG&A increased by only 24 basis points, our EBIT increased by 11.8% to $626 million with EBIT margin improved by 42 basis points to 8.6%. With the increase in EBIT and the reduction of net finance costs, while our effective tax rate has been comparable to that of last year, net profit increased by 15.7% to $550 million, with margins improved by 60 basis points to 7.5%. Earnings per share increased by 15.8% to USD 0.3012 per share. The Board declared an interim dividend of HKD 0.108 per share, an increase of 13.7% over last year, representing a payout ratio of 46.3% comparable to the payout ratio of the full year 2023. We've continued our strategic investments in new product development, technology, commercialization and geographic expansion. SG&A as a percentage to sales increased by 24 basis points to 31.5% as compared to same period last year, mainly due to the 54 basis points increase in R&D spend from 3.5% of sales to 4.1%. We have, however, been able to leverage down our selling expenses from 17.3% of sales to 17%, an improvement of 24 basis points. Administrative expenses also 6 basis points lower than that of last year as we rigorously controlled our spend. Our focus over the past 12 months was to reduce our net finance costs, and we've been able to deliver this target. Net finance costs reduced by 34% to $32 million. We project that we will be able to further improve this cost for the full year by paying down high-cost debt from the free cash flow generated from operations and utilization of our current facilities in the most cost-effective manner. Effective tax rate was at 7.3% as compared to 6.9% reported last year. We have a very strong tax team and been very proactive mitigating all the challenges in this everchanging global tax environment. We believe the current level of effective tax rate is very sustainable midterm. Our balance sheet continued to be very healthy and strong. Shareholders' equity was at USD 6.25 billion, an increase of $559 million or 9.8% as compared to first half last year. Our current assets was lower as a result of our strategy to reduce inventory over the past 12 months. Our current liabilities, however, also reduced by $755 million during the period. Net current assets as a result increased by $253 million or 10% versus first half 2023. To improve working capital efficiencies has always been our primary focus. Working capital as a percentage to sales improved by 409 basis points to 18.7% as compared to 22.7% reported last year. Total inventory reduced by $554 million, an improvement of 24 days to 104 days. Finished goods was 20 days lower at 81 days and raw materials 3 days lower at 19 days. Trade receivables was at 60 days, 6 days higher than same period last year, while payables was at 96 days. The days mainly reflected the timing of sales and procurements. We do not anticipate any collection issues, and we'll continue to leverage our volume and financial strength for the best trade terms with our suppliers. As our infrastructure and capacity expansion projects to support our future growth be mostly completed, CapEx for the period was at $100 million, 52.3% less than the $210 million last year. Our key target this first half was to continue to deliver positive free cash flow after we generated close to $1.3 billion in 2023. With very disciplined working capital management, higher EBIT and lower CapEx, we delivered record first half free cash flows of $508 million, an increase of $207 million when compared to first half 2023. We are well positioned to continue to deliver strong free cash flows in the coming years. Gearing, as a result, improved to 9.2% as compared to 25.7% first half last year or 17.1% in 2023. We expect gearing can be further improved by end of the year. We have continued to manage the cost efficiencies of our borrowings and been paying down high-cost debt over the past 12 months. When compared to first half 2023, our total gross debt reduced by $1.15 billion or 39%. And our total net debt reduced by $889 million, a decrease of approximately 61%. After paying down the debt, high cost short-term floating rate borrowings now account for 52% of our total debt, a reduction of $884 million or 48.7%. We will continue to effectively manage our portfolio to deliver most efficient structure to support our growth and to further reduce our net finance cost to improve our profits. And now I would like to pass the floor to our CEO, Mr. Steven Richman.
Steven Richman: Thank you, Frank. Let me kick this off with what Frank and Horst and Stephane stated, we had an outstanding first half of the year. Based on where competition is, where the markets are, it doesn't matter. Over 6.3% growth overall in the first half of the year, led by our cordless domination with the best consumer brand and the best professional brand anywhere in the globe. Now RYOBI had an outstanding first half, mid-single-digit growth. With a relentless focus on our consumer and driving innovation, it continues to flourish as a brand and products. And we'll spend more time talking about RYOBI today. On the MILWAUKEE front, we continue to win. And why do we win? Disruptive innovation. We drive productivity and safety. We're a solution brand to the professional contractors throughout the globe. The end result of that is 11% plus growth in the first half of the year. As our consumer brand and our #1 professional brand, both continue to dominate with outstanding first half results. Now we've been on a journey over the past 16 years. That journey has showed continued success. As you heard from Frank, our sales, our EBIT, our profit, they all continue to flourish and grow. And we've done that in face of whatever market conditions we face. Whatever competitor we have to deal with on a global basis, we continue to drive this kind of success. Now the end result of all of that is our profit is still growing faster than our sales, outstanding results in the first half. Gross margin. We've had a history of gross margin increases year after year after year. And the first half of this year is the same situation. Now why? How do we do it? Frank mentioned how. It starts with #1, the MILWAUKEE brand. Now the MILWAUKEE brand continues to outpace the rest of the TTI business and everything that we do with MILWAUKEE, it's accretive from a gross margin perspective versus the rest of our business. That's number one. Number two, we're an innovation company, a new product company. That combination delivers outstanding results, and those results are not only demand, it's on top of demand. It drives gross margin improvement, and that success continues year after year and in the first half of this year. And number three, we don't give enough credit to our operations team throughout the globe. They're relentless in driving productivity in our factories and driving cost out and doing the things necessary for gross margin improvement, not only today, but they've done it every single year, and we're confident in the future. Unbelievable performance from a gross margin perspective. Now a lot of questions about inventory. As Frank stated, we brought our finished goods inventory back to pre-COVID levels. Outstanding results by our supply chain team and our sales teams throughout the globe to be able to accomplish that. And it doesn't matter what market conditions we face, but we must understand that, that 104 days, why is that so important? It's because our customers, our distribution partners count on us. They believe and understand that they have to service the consumer and the professional end user. And to do that, we have to deliver a service level that is best-in-class so they have confidence in our brands. They understand that if they buy our product, they're going to have availability and they're going to be able to drive their sales, top line and also their bottom line. And we've done it consistently as a best-in-class formula. Now that doesn't mean we aren't reaching for below the 104 days. We believe we have a path to get below 100. And that path is because our global manufacturing footprint, we're going to take those raw materials and drive that to every location to optimize that throughout the globe. And that will deliver this inventory plan for the future and below 104 days. Now let me switch gears after those great results. Outstanding top line, outstanding bottom line, incredible cash, how does it all occur? Why are we confident from Horst and Stephan and Frank and the rest of the leadership team that this will continue. As Stephan said, it's really our foundation. And our foundation that delivers these results are twofold. Number one, it's people. Number two, it's culture. These are the bookends of our success. And we believe and have shown that if we have the right people, recruit, retain and invest in the right people throughout the globe, then we will be able to deliver the kind of results that we have year after year after year. From the cultural viewpoint, we understand that a culture needs to continue to evolve, and we've done that. At the same time, that combination of people and culture, we have to have the culture that attracts talent. We want to be the brand of TTI where individuals throughout the globe say I want to work for that company. And that's what we have done. And that's a core part of our culture. The last aspect of our culture, which is critical for our short-and our long-term success is understanding that there's regional differences. The globe is big. The culture can't be identical in Europe or in the U.S. or in Asia. It needs to understand that we have to have slight differences. And we've adopted that as part of our cultural mantra throughout the company. So we have people and culture as the foundation. All that ties together to the best leaders that any company has with experience that understands the market, experience that understands the consumer and the professional, understands the distribution partners, how to manufacture, how to drive supply chain. And our leadership team that we can spend the entire afternoon talking about gets it. Now the other core part of our leadership team is the bench rate underneath them. It's not just about them. They coach and they mentor, and they develop high potentials and high performers in every area of the company, which is why we have the ability to be able to grow and succeed on an annual basis. It's that leadership team that does that. So let me touch base a little on the leaders and frame this up a little bit. We have an unbelievable leadership group. You're going to hear from 2 of them today. That leadership group understands in this aspect, the global sales and commercialization aspect of our business, years of experience understanding the consumer, the pro and our distribution partners. They get it, and that drives top line and bottom line sales in every region throughout the world. We have other groups of leaders and those groups of leaders own the businesses, the brands, MILWAUKEE and RYOBI and HOOVER and the rest. And on top of that, we have the operational leaders, people that understand how to manufacture, how to drive new product development, how to drive supply chain, all aspects of the business in a significant way. And those leaders with the amount of experience they have within TTI and outside TTI make up hundreds and thousands of years of experience. And remember, the first group and this group, we've been together for years. This is not 1 year or 2 years. This is 15 and 17 years driving the success of TTI. And the last piece that drives it together is our financial leadership. Now why is that so important? They partner with the operations teams, the supply chain teams, the sales teams, the regional differences. And that partnership lets everybody understand where we're winning or where we're losing, where do we need to focus to be able to win in a bigger way, and those financial leaders are critical to our success. So the message we want to give overall is that we have an outstanding leadership group. We have an incredible bench strength to be able to win. And we have the people and culture throughout the organization to keep TTI growing and delivering outstanding results. Now let me switch gears a little bit. Let's talk about global manufacturing. There was a time that we did not have a global manufacturing footprint. Today we do and we are well positioned within TTI with great operational leaders. No matter what economic situation occurs, what macroeconomics there are, what regional trends occur, we have the ability to manufacture and deliver product to our key customers and our consumers and our professionals anywhere in the globe in face of whatever market conditions that we may have. So now let me switch gears and talk about our 2 brands. And I'll talk about the macro of what the brand strategy is and why we believe we can win day in, day out. Let's start with the RYOBI. Now all of you know RYOBI is the #1 consumer brand in the globe, #1. #1 cordless brand in the globe. Why do we win with RYOBI? Unbelievable amount of product development and an array of product to service the consumer and the value pro. No question about it. With that, we also have 3 platforms, 3 cordless platforms. The 18-volt platform has been forward and backward compatible for over 25 years. We have consumers that started 25 years ago by RYOBI cordless that still buy it today. And we launched new products and new batteries, they adopt it immediately. A key to our success every single day. Now when we talk about the DIY focus in RYOBI, it's because our people throughout the globe. From our salespeople to our product development people have a relentless focus on that consumer. They understand what the consumer needs every single day, and they understand where the opportunities are, and that's what's most important. Let's think about this for a second. There's inside the house. There's outside the house with lawn and garden. There is in the backyard and then there's lifestyle. And there's all the things you can do with RYOBI cordless 18-volt platform that's the most entrenched platform in the globe in the consumer space for over 25-plus years. That's a competitive advantage. That's why we are winning in the consumer space, combined with our new product introduction, and a value and performance focus. Now there isn't only the DIY side and the consumer side, there's also the value pro. The Value Pro is a big opportunity. Now why is that value pro such a big opportunity? Because throughout the globe, especially in the Americas and in Australia and parts of EMEA, there is a pro that says, I want great product. But I understand that I can only afford a certain amount of dollars. But I want to have a product array, a cordless product array that will allow me to do all the work that I need to get done. And RYOBI and RYOBI HP (NYSE:HPQ) allows that user, that consumer, that value pro to deliver on that expectation every single day, if that's in residential construction and remodeling, in maintenance, in many different aspects of the business. And that's why the RYOBI brand continues to flourish with a value pro. Now how do we tie it all together? It's distribution. When Horst first started the relationship with the Home Depot, it went from a small relationship to the most complicated and comprehensive partnership that we have. And that Home Depot relationship is one of the reasons RYOBI continues to flourish throughout the Americas. It's not thinking about today, it's thinking about the future. Bunnings had same kind of relationship, that same kind of partnership. How do we grow together? How do we deliver to that consumer? And then Alex, in the EMEA, we have multiple distribution points throughout the European sector to deliver the right product to the consumer overall. And the message is clear here. RYOBI is winning. It's winning because of value. It's winning because of innovation. It's winning because our partnerships with distribution and, of course, all the people that spend every day and every night with a RYOBI brand at TTI. Now let me switch gears and spend a couple of minutes on MILWAUKEE. First half outstanding, 11% growth. Once again, as you heard from Horst and Stephan and Frank, we don't care where the market is. We don't care what the competition results are. Yes, they're down. Our viewpoint is clear, is if we focus on the user, if we drive productivity and safety, if we are a solution company, we continue to win, and that's where that first half is. Now the growth in MILWAUKEE isn't just about the first half. It's the continued growth that we have had year after year after year. And that success has been based on the strategy that was created over 16 years ago. And that strategy is still the same today. It's the understanding of our user. And you're going to hear both Alex and Shane talk about this. It's the understanding of that user from the time they wake up in the morning to the time they go to bed at night, understanding what they do, what their pain points are. Becoming the brand of choice as a solution company, driving productivity and safety on the job is who MILWAUKEE is today, and it's why our users embrace the brand. Then when we talk about the opportunity, today we have over $100 billion opportunity in our core verticals. Now those core verticals seems simplistic. From the outside, it looks like anybody can do it. You're going to focus on those users, you're going to deliver some products, and that will be success. But it's a lot more complicated than that. And that gives us a competitive advantage. Each one of those segments, each one of those verticals has sub-verticals. And our teams throughout the globe understand those sub-verticals. They understand the pain points with every sub vertical. They understand what causes the issues for that user. And remember, these are high paid users that want productivity and they want to be safe on the job site. And our teams do an amazing job of delivering the right product and the right sales and service engagement focus on job sites and distribution partners throughout the globe. Now it just doesn't stop there with MILWAUKEE. Why are we so confident? Because in the future, we're going to attack more verticals that we aren't in today. Here's a few of them. It's not all of them, it's a few of them. And when we dedicate the company, the new product development resources, the manufacturing resources, and all of our job site solution and sales teams to target them, we add on larger market opportunities for the future. Now there's the verticals and there is how do we service them. As you know, when we first started servicing them, we had products like drills and fastening tools. We had some Sawzalls. We had a few products to be able to offer to them. Today, under Shane's domain, we have a plethora of cordless products, in an M12 platform, an M18 platform and MX platform, servicing all of their needs in every user, every vertical segment along the way. But it doesn't stop there. We have continued to add more and more categories, segments of business, so that those users that are so difficult to serve, that worry about productivity every single day, we provide them the opportunity because we are the total solution company. But it doesn't stop here either. The opportunity is for us as we have every single year to add more category segments on to delight that pro. So they're solidified with the MILWAUKEE brand and then our job site solutions team and our sales team and our commercialization teams tie that all in a knot. And at senior levels, we drive that level of engagement to own the user day in, day out. It doesn't stop just there. We have to have world-class distribution partners. We talked about it with RYOBI. It's the same on the MILWAUKEE front. Everywhere in the globe, the best distribution, the best partners, the MILWAUKEE brand has. Now why is that so important? We have our jobsite solutions team throughout the globe calling on these users. We have our sales team engaged with the distribution partners. We have our commercialization teams thinking about how do we win. And then we have our distribution partners, these world-class distribution partners that believe in MILWAUKEE because it drives their top line growth, because of the innovation, because of the solutions we provide. So they partner with us. They go out to the job sites and sell MILWAUKEE and push MILWAUKEE throughout the globe. All of this ties together to a win, a win for our distribution partners and a win for MILWAUKEE and a win for all of our users in the globe as we are the solution company driving productivity and safety every single day. So we have great results, unbelievable results as Frank and Stephan and Horst said for the front half. We have the leadership team and leaders throughout the company and the culture to continue to win and flourish. And our viewpoint overall is that in the MILWAUKEE side of the business and our other businesses, we will continue to dominate no matter what market conditions that we see. So on the MILWAUKEE front, let me turn this over to Alex now and Alex is going to take you through how we've taken the European market from nothing, absolutely nothing, to dominance in the cordless arena and to become the brand of choice. Alex?
Alex Duarte: Thank you, Steven. Good morning, ladies and gentlemen. We have experienced outstanding growth with MILWAUKEE over the last 15 years, delivering a compound annual growth rate of 23% in a market that grew at best, mid-single digits during that same period. As a result, we have captured high levels of market share, particularly in our core cordless business, which is our focus. MILWAUKEE has become the aspirational brand for professional end users across Europe. And today, I would like to explain why we are winning in the marketplace, but most importantly, why we feel so confident we can maintain this growth momentum for many years to come. Well, first of all, we benefit from our global MILWAUKEE new product development machine, delivering disruptive innovation to our target user groups. And that innovation translates into high levels of productivity and safety on the job site for professional end users that rely on our tools on a daily basis: the electricians, the plumbers, the mechanics, the general contractors and many more user verticals that Steve covered earlier. In our industry, the best product wins and that's why we invest more in R&D than all of our competitors. We understand the benefits of new product innovation. Another key aspect of our strategy is the fact that we serve these professional end users exclusively through a network of approved industrial customers that provide a superior level of service to our end users while selling our premium MILWAUKEE solutions. And like our competitors that sell indiscriminately across multiple channels, mass marketing their products and devaluing their brands. In addition, our premium positioning allows us to heavily invest on our job site solutions program where our teams work on a daily basis with end users on job sites across Europe to advise them on MILWAUKEE solutions to enhance their productivity and safety. And every time we convert these end users to MILWAUKEE, we are driving incremental business to these exclusive distribution partners. In turn, these same customers reward us for our loyalty and unmatched support with incremental listings and increased business, driving our growth. And this business model is a major differentiator for MILWAUKEE in Europe and a key reason for our success. And our success is driven by a winning team, a team that has been meticulously assembled across every market of our vast region over the last 16 years, a team of highly driven, highly passionate and highly competent individuals that leave the MILWAUKEE culture that Steve talked about on a daily basis, ranging from individuals with 25-plus years of industry experience like myself, to hundreds of new recruits that join us in the field through our graduate program. But they all have one thing in common. They all fit the MILWAUKEE DNA. EMEA is an incredibly complex region. Every country is different. Therefore, replicating such a winning team across our vast region would be very difficult for any competitor. But despite our success over the last 15 years, we believe we still have a lot to accomplish. We believe we still have a lot of opportunity to capture. A great example of that is our cordless market share. We have exponentially grown our cordless business over the last 15 years. Today, it is a very sizable business. We are a key player. And yet we've only achieved cordless market share leadership in less than 10 markets across our vast region. This is why we feel so confident we can continue to deliver double-digit growth even in our core cordless business, especially as we keep pushing the boundaries of cordless applications through our disruptive innovation and converting end users from corded, petrol and pneumatic products to our cordless solutions. But today, MILWAUKEE is much, much more than a power tool manufacturer. We've evolved to become a solutions provider to the core user groups that we serve. We've entered hand tools, a very large market complementary to power tools. We've entered storage with our PACKOUT global phenomenon. We've expanded into outdoor power equipment where we are leveraging our superior cordless technology to accelerate the conversion of end users from old petrol products to our new cordless solutions. And we've also entered personal protective equipment, which is a massive market, larger than power tools. And as we enter all these new businesses, we apply the same product development methodology that we use in our core power tool business, delivering disruptive innovation to our core user groups with dedicated resources. And to size this opportunity, as we enter these new businesses, we expand our addressable market opportunity from our heritage $10 billion market in power tools to now over $50 billion in EMEA alone, given the large size of these markets that we've entered. That is one more reason why we feel so confident we can continue to deliver double-digit growth in the foreseeable future. And last but not least, our premium positioning allows us to deliver superior levels of gross margin, providing us with an almost unlimited ability to invest for growth. A great example of that is our Job Site Solutions team that I just talked to you about. We have exponentially increased the size of our team over the last years. Today, we have hundreds and hundreds of colleagues out there on job sites across Europe on a daily basis converting end users to the MILWAUKEE brand. And the sheer size and scale of that team today would make it very difficult, if not impossible, for our competitors to be able to replicate it, especially given their lower levels of gross margin. And for all these reasons, even as we celebrate 100 years of MILWAUKEE globally this year, we truly believe we are just getting started. I'll now hand you over to Shane Moll. Thank you very much.
Shane Moll: Thank you, Alex. So as MILWAUKEE celebrates our 100th anniversary, we are confident about where we're heading in the future as we continue to deliver unique safety and productivity solutions deep within our core trades unlike anyone in the industry. MILWAUKEE continues to expand into new categories and support new verticals as we expand our geographic presence to continue to deliver double-digit sales growth and gross margin expansion as we move forward. Today, I will share with you how MILWAUKEE is unique in delivering safety and productivity solutions to the trades unlike anyone in the industry. And I will share with you how we are layering disruptive technology and innovative design to deliver the most compelling systems in the world. And I will share with you how we are uniquely positioned to take advantage of the hypergrowth segments that are reshaping construction and maintenance throughout the entire world. But first, let's talk about why safety and productivity is so important. Our core trades view their employees as their #1 asset, and their safety and productivity is critical. We all know that the best people separate good companies from great companies. But in the construction trades, the #1 constraint to project completion is labor. So with that, that is why MILWAUKEE's commitment is to focus on delivering safety and productivity solutions deep within the core trades unlike anyone in the industry. This is not a marketing catch phrase that we share on a quarterly basis or twice a year. This is a core element of our strategy, and why we have been so successful. You can see that commitment and the partnerships that we've developed with the laborer who completes the work, with the trade organizations that employ the laborer, and the contractors that employ the laborer, with the training facilities that are training the laborer for the future. It's a partnership and commitment that we've invested in for well over a decade, and continues to make us unique. You can see it in the product solutions that we deliver throughout our business, like our BOLT Type 2 Helmets that not only deliver superior protection, but also greatly reduce the risk of traumatic brain injuries on job sites throughout the world. And you can see it in the unique solutions in the power tool business, such as our M18 FUEL Overhead Rotary Hammer, which is a new-to-world solution, which leverages internal expertise and biomechanical research and design where we collect objective data points on muscle fatigue analysis and motion tracking and posture analysis to deliver a new-to-world solution that not only enhances productivity, but greatly reduces the risk of repetitive injuries from overhead drilling and concrete, an application that is performed by thousands of trades people throughout the world. You'll see that MILWAUKEE remains unique in keeping the assets of our #1 contractors throughout the world safe and productive every single day. But in order for us to continue to deliver safety and productivity solutions, we need to continue to invest in breakthrough cordless technology. Through consistent and bold investments in the work of our talented people, MILWAUKEE has been at the vanguard of introducing breakthrough cordless technology, from the introduction of the first high-powered brushless motor technology to the introduction of ONE-KEY, what is today the industry's largest IoT-connected platform, to the introduction of the first tools, leveraging machine learning and artificial intelligence. MILWAUKEE has built a cumulative foundation of new technology to deliver MILWAUKEE intelligence. MILWAUKEE is leading today in lithium-ion cell design and battery pack development and motor design and manufacturing. We're leading and leveraging breakthrough sensors and electronics. We're leading in delivering productivity and charging technology and connectivity on job sites throughout the world. We're connecting our physical solutions with our digital solutions by leveraging internal software development. And we are years ahead of the competition in leveraging artificial intelligence and machine learning in the development of solutions to solve the toughest problems on job sites throughout the world. MILWAUKEE is delivering solutions which is leveraging information to create a seamless user experience to enable users to perform applications more safely, more quickly, and more accurately. But this is just the beginning because MILWAUKEE will continue to invest and leverage digitization and advanced capability to deliver the most intelligent solutions in the world. You could see the examples of this in the sophisticated solutions that we deliver throughout our business. MILWAUKEE has been partnering for over a decade with a leading semiconductor manufacturers throughout the world to advance our capability. You see that in the solutions that we deliver throughout our business. If you open up a MILWAUKEE tool, you will see accelerometers that protect the users from inadvertent kick back on the job site. You will see power electronics, which enable us to leverage the full capability of our cordless technology. You will see data encryption that protects our data, but also enables us to use it more effectively. And you will see connectivity that unlocks value to trades on job sites throughout the world. MILWAUKEE is the leader in layering new technology to deliver the most disruptive solutions in the world. Let's talk about one example. One example is the recent introduction of the next generation of M18 FUEL technology. M18 set the standard for performance with a relentless investment in new technology and today is a leading 18V cordless system in the world. But today, M18 is rapidly expanding beyond our current 280 unique solutions on that interface to continue to advance in compatible breakthrough cordless technology. At the foundation of this new technology is the introduction of a REDLITHIUM FORGE battery packs. Last year, we had a tremendous success with the introduction of our 6 amp power REDLITHIUM FORGE battery pack. This year, we're following that up with the introduction of 2 exceptional new battery packs, the 8 amp power and 12 amp power REDLITHIUM FORGE battery packs. These battery packs deliver 50% more power, 50%, than the previous generation, unlocking massive amount of capability to enable us to convert new categories even faster. But in order to take advantage of this tremendous performance of the battery packs, we needed to redesign our entire platform technology. So we introduced our new POWERSTATE brushless motors that leverage the industry's first segmented brushless motor technology. It has never been leveraged in the industry before. This is providing us the most capable and most powerful battery pack that's ever been introduced in a handheld product. In addition, we're redesigning our electronics from the ground up with new hardware and software that enables us to have full communication between the battery pack, the tool, and the charger, in addition to providing more efficiency and more capability to enable users to push the tools longer and farther than ever before. This has all culminated in our ability to deliver 10x the capability out of the M18 system than we delivered from a system in 2007. While our competitors are asking users to switch voltage platforms in order to get increased capability, MILWAUKEE is investing in compatible cordless technology that enables our existing system users to get greater capability without vacating our system. We're building a moat around our business and strengthening our network effect by adding increased capability. And you will see more of that as we invest and leverage this technology across M12, MX FUEL, and M18 as we look to accelerate our growth and convert more categories even faster. So let's talk about where our contractors put this technology to work. Through our relentless investment in technology and our partnership with the trades in the field, MILWAUKEE is leading in the hypergrowth segments that are reshaping construction and maintenance throughout the world. From data centers and mega projects to infrastructure and renewable energy, MILWAUKEE authors the broadest range of solutions in addition to the partnerships that we've established with over 1,500 dedicated resources in the field working with the trades to execute these complex projects. One example is our entrenchment and mega projects. Mega projects are large complex projects that are typically valued over USD 1 billion, and they take years to develop and complete. MILWAUKEE's core trades represent a majority of the labor hours required to complete these projects. MILWAUKEE continues to offer the broadest array of solutions. And with our job site solutions team, we are engaged with these projects before they even begin, displaying how our safety and productivity solutions are unlike anybody in the industry as we take advantage of this massive growth opportunity. Another opportunity that we've been partnering for years is the data construction, data maintenance, and the power grid required to support the growth. Today, there's over 8,000 data centers throughout the world. But with strong artificial intelligence deployment and healthy cloud demand, there is a development pipeline to double data center capacity globally. In addition, the existing data centers need to be upgraded with new cooling capability, a new electrical work in order to adopt the new technology. With a strong surging demand in addition to slowing energy efficiency gains, the power grid required to support the data centers alone is expected to double by 2030, double. Double. In the U.S. alone, there's tens of billions of dollars of investment that will be required by the U.S. utilities in order to support the growth of data centers alone. And Alex is happy to know that in Europe, with the oldest infrastructure in the world, massive investment will be required. So that's where MILWAUKEE comes in, with the broadest array of solutions and productivity solutions that service the core trades that support data center construction and maintenance, in addition to the partnerships that we've developed and the solutions to support the power utility contractor to not only build out the power requirements to support data centers, but to support the longer term megatrend of the revitalization of the utility grid throughout the world. There is nobody positioned better than MILWAUKEE to take advantage of these hypergrowth segments of the world. And we're not even talking about renewable energy generation and electrification. We are positioned to take advantage of all of these long-term megatrends throughout the world. So we talked a lot about how MILWAUKEE continues to develop unique solutions deep within our core trades. And we do this with all of our core trades. A couple of examples I want to share with you is, one is the general contractor. For those of you who don't know what a general contractor is, they're responsible for the completion of project from the very beginning to the very end. They typically employ -- directly they employ laborer in the areas of concrete, carpentry, and structural steel. But as the market continues to evolve, a large amount of general contractors are employing laborer in the areas of mechanical, electrical, and plumbing work, all core trades that MILWAUKEE has been developing solutions for, for well over a decade. But MILWAUKEE, regardless of the trades that these groups hire, our focus remains on keeping them productive and safe. An example is the introduction of the new M18 FUEL Duplex Nailer, which leverages M18 FUEL technology and proprietary fastener design to complete the application they're doing today to support concrete form work 7x faster while also greatly reducing the risk of repetitive injuries that are happening on job sites throughout the world. In addition, MILWAUKEE continues to deliver solutions deeper within the mechanical trade. Mechanical contractors are responsible for the heating, cooling -- that's why it feels so nice in here -- refrigeration, and piping systems on projects. And MILWAUKEE has developed partnerships with the mechanical trade for well over a decade. Unfortunately, mechanical trades are relying on very antiquated and strenuous manual tools in order to complete applications like roll grooving. MILWAUKEE saw the opportunity to innovate. And we leveraged our capability in breakthrough sensors and mechanical design to deliver a product called M18 FUEL RINGER Roll Grover, which brings intelligent automation to the job site. The user simply selects the material size, the material type, pushes a button and it automates the application. This not only provides advanced productivity and safety, but also eliminates the growing strenuous work that the trades have to deal with on a daily basis. I think you will agree that MILWAUKEE is better positioned than anyone in the industry to continue to deliver safety and productivity solutions to our core trades throughout the world. We discussed how -- in this environment, how safety is so critical and how protecting the laborer is so utterly important as that is a scarce resource throughout the world. MILWAUKEE continues to lead by layering disruptive new technology and innovative design to deliver the most compelling and capable systems in the world. In addition, MILWAUKEE is better positioned than anyone in the industry to take advantage of the hypergrowth segments that are reshaping construction and maintenance throughout the world. But I think you've heard the tone so far that we're just getting started because we're only just beginning. We continue to invest in new categories, we continue to support new trade verticals, and we continue to position ourselves for new growth as we expand our geographic reach because one thing that I can assure you that MILWAUKEE is just getting started. Thank you.
Steven Richman: Okay. I believe you all understand from the whole group up here and the rest of TTI that confidence level that we have in the business, the leadership, our approach to the business overall. We'd like to open it up now to Q&A.
A - Ross Gilardi: Good afternoon. So if you would just wait for the microphone and state your name and firm before asking your question. Please just limit it to one question to give as many people an opportunity. Thanks. Eric, first question?
Unidentified Analyst: Congratulations for the management again for good result. So I think most people -- most investors are concerned about the second half outlook given the macro change rate in the U.S., job creation slowdown, PMI slowed down. But how -- give us more confidence about the second half outlook in terms of the order momentum, continue the aggressive strategy for new product launch, or you have to set back for cost control or slow down the new product launch, slow down the investment. What do you think for the second half?
Steven Richman: Let's cover MILWAUKEE first. From a MILWAUKEE standpoint, not only in the U.S. but throughout the globe, as you heard from Shane and Alex, our focus is on multiple verticals. The big projects throughout the globe are where we live every single day, and those contractors that still are having difficulty finding people to do work are there. And that gives us confidence that even though for the past year plus residential has slowed down and downtown commercial construction has slowed down, these other projects and other verticals continue to flourish, and they're not stopping at all from the MILWAUKEE standpoint. On the consumer front, clearly we have taken share. We've expanded to product categories like cleaning and like lifestyle to be able to continue to build the brand and continue the kind of focus that we have. And no matter what market conditions exist, we've continued to win not only in the Americas but throughout the globe.
Ross Gilardi: Okay. Karen, next question?
Karen Li: This is Karen Li from JPMorgan (NYSE:JPM). So my question is regarding competition. I heard we don't really care about competition, but we do still like to get some idea, particularly I think 2 things here. First, Stanley Black & Decker, at their most recent briefing, they talked about they're going to grow sales at 2x to 3x of GDP. Is that because overall power tool demand is bending or is Stanley Black & Decker gaining market share? How do we look at that? So that's the first question. Second, we heard that Makita is actually retreating from the U.S. Can we comment about that too?
Steven Richman: The first question, #1, as you can tell, we view ourselves as a solution company, and that based on what that user needs that they have driving productivity and safety. Shane, do you want to talk about why that's so different than our competitor in terms of Stanley Black & Decker?
Shane Moll: Yes. I think it's a different approach. I can't comment on how they view themselves taking market share. I think the numbers speak for themselves with respect to our growth in terms of what we've been able to accomplish. But if you look around the room, the approach that we take in terms of driving broad solutions deep within our core trades and how we approach the core trades gives us confidence, not only from a product development perspective that we've -- we're not in the beginning stages of this. We're very mature in some of the verticals that we serve, that we're able to pivot resources in the field commercially to make sure that we're taking advantage of the biggest opportunities out there. But our perspective is that we continue to take more share than anybody in the industry. But more importantly, if you look at some of the solutions that I mentioned this morning, we're creating market unlike anybody in the industry. We're developing new-to-world solutions that never existed before. So for us, when we talk about taking market share, it's a great bullet point to discuss. But when you're disrupting and creating new solutions that never existed before and you are creating market, that's why we're so confident with the growth as we move forward. And we're really focused on how do we solve the problems that are approaching the trades. Because it's the truth, labor is a scarce resource. So whatever we could do to make them more productive and safe is where we're going to win. And I think as Alex shared the numbers in Europe, the numbers speak for themselves. And we'll continue to create market and create -- increase the size of the price as we move forward. I missed the question on Makita. I apologize.
Steven Richman: The second question on Makita is, in North America, their numbers were trenching in the marketplace, it really goes back to the strategy that I talked about and Alex talked about and Shane talked about, which is that relentless focus on the user has created a groundswell of demand where we're the brand of choice for productivity and safety and solutions overall. Their approach to the market has been very, very different. And that approach has put them in a position where they could no longer win. And I think that has led to their path that they have taken this year.
Ross Gilardi: Jacqueline?
Jacqueline Du: Hi, I'm Jacqueline Du from Goldman Sachs (NYSE:GS). It's our pleasure to meet the whole management team. Well, I'm particularly interested in Milwaukee and especially the 3 end markets: data center, power grids and the renewables. So I just want to get a sense, what's the revenue contribution from those 3 end markets roughly? And what's the contribution to incremental growth? And in terms of your upcoming solutions in the pipeline, how significant you are looking at those 3 end markets? And also, let's say, if the solution is specifically dedicated to data center application, is this transferable or it can be applicable to other end markets? So that's the question.
Steven Richman: Let me cover it at a macro, and then I'll turn it over to Shane. At a macro level, these aren't new opportunities for us. So we've been involved in data centers with mechanical and electrical alternative energy for multiple years, all of those for 10 years plus. And the users that do the work, we've become partners with them, which started over 16 years ago down that path. So what you're seeing is the continuation of the journey. With specificity, we don't talk about the size of each one of those pieces and how we're expanding it with our competitors. What we will tell you is they're vast, they're growing, and we believe and our users tell us that we dominate them today in every single sector. Shane, do you have anything to add there? Alex?
Shane Moll: Yes. I think in the area of data centers and solar as an example, as Steve spoke about, a lot of the trades that we're delivering solution towards may have been working on a commercial job site or another industrial sector prior to moving to data centers and the labor shifted. So with that, a majority of the applications are leveraging the solutions that we already deliver today in terms of cutting wire, terminating wire. Where it's different -- and we take a different approach -- is where we'll develop unique solutions for data center, such as an M12 torque wrench that provides a specific torque rating on a lug that's used in data centers. Or in a solar site, they're still pulling wire, they're still cutting wire and terminating wire, but they need a specific tool with the ability to drive a specific torque range on a fastener for a utility scale solar project where we'll have a broad array of solutions and develop very unique specific application solutions for that segment of work to differentiate us from our competitors. And I think that's as evidenced in a lot of the categories that we went through. And if you have hours of time, I sure love to sit down and show you. But we have a lot of examples where we just -- we dive deeper to understand the problems that they need to solve. And that's why we're investing heavily in areas like our internal development -- product development, leveraging artificial intelligence, and machine learning. This is not a splash. Let's just talk about it because it's cool to talk about it. We were working on machine learning before any of you entered anything in the ChatGPT. We've been working on machine learning for over 6 years. So we leverage that capability because the problems that the trades were asking us to solve in solar and data centers require that capability. So hopefully I answered your question, but that's where I think we're unique is that we leverage a lot of our solutions and they are applicable to different segments. But where we differentiate is have very specific solutions that make us unique and make our platform --
Steven Richman: And let me add one piece to what Shane expressed. Now you're a contractor, you're an electrical contractor and you work on data centers. MILWAUKEE comes up with a solution that is unique that helps drive productivity and safety. So what does that mean to them? That means it's more efficient for them to be 100% in the MILWAUKEE platform between M12 and M18, that it means to just buy that one product, we get all of those other products along with it. And that's been our strategy from day one for the past 16 years. It applies to safety. It applies to storage. It applies to power tool accessories. And it clearly applies to our systems of M12, M18 and MX as well.
Ross Gilardi: Way in the back, John Choi?
John Choi: I'm John Choi from Daiwa Capital Markets. Congratulations on the great set of results. I got two questions. First is on the gross profit margins. This, obviously, first half, we had a pretty strong gross profit margins, achieving close to 40%. So looking ahead, as we are kind of positioning ourselves as a solution provider, does that mean that we have more meaningful upside in terms of profitability? That's my first question. Second question is about your supply chain footprint. I understand with the geopolitical risk going on here and there, as we have been diversified significantly over the past 8 years since 2016, how do we see ourselves combating any potential tariffs or how we're positioning ourselves versus competition?
Steven Richman: Great. Frank, do you want to cover the gross profit?
Frank Chan: Yes. Or maybe you can go first.
Steven Richman: So overall, when -- as I stated, there's 3 facets to what we are doing to continue the gross margin increase overall. Number one, it's MILWAUKEE's outpacing the rest of the TTI business and it's accretive. Number two, we're still, as you heard from Shane and from Alex, a new product machine delivering that disruptive innovation and those products are accretive, not only in the MILWAUKEE front, but also in the RYOBI front and our other consumer businesses. So we clearly have confidence from those. And the last is productivity inside our facilities and factories. And all of that ties together why we are confident about the overall increase.
Frank Chan: And I think the gross margin will not stop at 40%. We will continue to improve our gross margin. But having said that, we will continue to reinvest back into technology, in innovations and like that's how we see it.
Steven Richman: And that investment, as you heard today, is absolutely critical for the brands that we have built year after year. The second piece of the global manufacturing footprint. At one point in time, all of our manufacturing or the majority of the manufacturing was in one location. Over the past years, as we had the first macroeconomic and political issue, we expanded that footprint to multiple countries throughout the globe. Today, we've done it in a way where we have manufacturing in the U.S., in Mexico, in Vietnam, in the PRC, and the European sector. And it's given us that flexibility with our supply base, also brought to those locations to have the ability to adapt to any macro political situation that may occur.
Ross Gilardi: Okay. We have time for, I think, 2 more and then we'll wrap it up. Johnson?
Johnson Wan: Johnson Wan from Jefferies. Thank you, Steve, for showing the slide on value pro. So I'm quite interested on the value pro segment that you highlighted. So how big is the value pro segment as a percentage of the overall RYOBI business? And in the first half, did it grow faster than the 6% for RYOBI or was it a little bit slower? And if we compare the price points of similar products of value pro drill versus a MILWAUKEE drill, how much cheaper is that similar type of drill? And then as a follow-up on the consumer business, RYOBI was great, but there are also other segments -- hard, rigid or flex -- that kind of drag the overall consumer business so that the overall first half growth was actually negative. How are we tackling those businesses that are quite sluggish? Are we going to see a turnaround?
Steven Richman: So let's cover your first one about the value pro. There is no question when interest rates are low and residential is booming, the value pro increases. No question about it. So consequently, when we talk about the value pro today, it's less than it was during boom periods of residential construction, remodeling, downtown commercial structure, and those areas today. So it's less than 20% today, but we also see that when interest rates come down that that part of the business continues to boom in a significant way. The great news is in the RYOBI brand, the overall consumer pieces you have seen with all the areas of consumer from lifestyle to outdoor to inside the home continues to be very, very strong overall. Our -- as you asked about the rest of our business and the what about the rest of the business in terms of not delivering the same type of results as the RYOBI business, in many of those businesses and overall, we're clearly looking at how do we drive profitability. There's challenging times with different distribution partners out there today based on what they are seeing, and consequently driving profitability and figuring out approaches in 2025 to be able to continue to grow those businesses with the distribution partners through innovation is clearly part of our mantra that we're putting in place for next year's cycle.
Ross Gilardi: Okay. We have one last -- time for one last question. In the middle there, from CLSA?
Sau Chan: This is Sau Chan from CLSA. The first question regarding supply chain. So obviously, we're in an excellent year. If anything happens in November [indiscernible] the 60% tariffs from China. What is the flexibility internally for you to switch around the production capacities? That's the first question.
Steven Richman: Yes, we have -- as I stated, our global manufacturing footprint and our supply chain footprint on our brands allows us to have the flexibility to manufacture in multiple locations throughout the globe today. We're a very, very different company regarding the foundation that was set many years ago versus where we were 20 years ago as a business. So we are prepared and have the agility to adapt to any of those situations that may occur.
Sau Chan: Second follow-up question. I'm not going to try and ask Horst about gross margin expansion. But just do you internally have a target or long-term target in terms of gross margin? This is going to be the number, if I can make it, I'll be super happy.
Horst Pudwill: No, we don't. But we will continue to --
Sau Chan: Go up to 100%?
Horst Pudwill: We will continue to reinvest in making sure that our gross margin continues to improve. So we saw the chart, we've been increasing that for 16 consecutive years. So, there's no reason why we should stop here.
Ross Gilardi: Okay. Very good. Why don't we wrap up the q-and-a session. I think I'm going to hand it back over to Chairman Pudwill for some closing remarks. Thank you.
Horst Pudwill: Thank you. I hope you all enjoyed the presentation. We have an exceptional senior management team, some of whom you met today, and a portfolio iconic global brands that we have a second to none. In short, we are extremely well positioned to continue our strong momentum in 2024, no clouds on the sky, and 2024 will be another strong year and beyond. I was assured by you. I would like to thank all of you for your ongoing support and confident in our company, and I'm looking forward to seeing you all at our full year result announcement end of February, beginning of March. Thank you very much for attending.
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