Techtronic Industries Company Limited (669) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Techtronic Industries 2023 Interim Results Announcement Analyst and Investor webcast. In this interim results webcast, TTI will share the updated performance for the 6-month period ended June 30, 2023. [Operator Instructions] Before we begin, I would like to draw your attention to our forward-looking statements on the presentation slide. Now let me introduce to you the key management of TTI with us today. They are Mr. Horst Pudwill, Group Chairman; Mr. Joe Galli, our CEO; Mr. Frank Chan, our CFO. Mr. Horst Pudwill, will first give us an opening remark, then Mr. Joe Galli will walk us through the business overview and strategy, followed by the half year financial results by Mr. Frank Chan. Without further ado, let me pass the time to our Chairman for the opening remark. Mr. Pudwill, please.

Thank you for attending TTI's 2023 Interim Result Announcement Analyst and Investor Webcast. I am pleased to announce that TTI delivered solid results for the first half of 2023, outpacing the market and sales performance and profit generation by further strengthening our balance sheet by reducing inventory and delivering outstanding free cash flow. Our first half performance reflects the focus we have on keeping to our strategy even at times of challenging macroeconomic conditions. We remain committed to our strategy of investing in better technology and advance new products to drive our growth. I'm convinced we are well positioned to continue outperforming the market in the second half of 2023 and beyond. Joe Galli, our Group CEO, will now provide you with the business overview and strategy; and Frank Chan, our Group CFO, will provide you with the 2023 first half financial results. I will now hand you over to Joe Galli and Frank Chan for the presentation. Thank you.

Thank you for joining us as we share with you our results from the first half of 2023 and also and importantly, the focus that we now have in place, given the reality of a challenging economic environment, given the reality of our retail partners having high levels of inventory globally as we moved into 2023. And we have stepped back and I feel appropriately become more conservative as we manage our company through these times and become hyper focused on the things that we think are most important now, and that includes inventory reduction, where we've made significant progress, as you've seen in our announcement, that includes free cash flow, which is a critical part of our focus now in this phase of our company's development; and SG&A control, which we have put a mechanism in place to dial down SG&A consistent with whatever the macroeconomic environment presents to us. And we have made great progress in this, focused on being more prudent, more conservative and accepting the fact that the economic environment is not as forgiving, therefore, we've got to manage in a more conservative way. At the same time, I'm very proud of our team because we did not compromise our long-term potential. We still have a robust new product development process in the company. We have scaled back some new product development, but we certainly have more new product on the way, and this is breakthrough new products than any of our competitors in the industry. And we continue on with our commitment to outperform the market in good times and bad, and that was certainly clear in the first half of this year where we significantly outperform the market globally, and we're very proud of that. We grew sales negative 2.2 in the first half, so we were down a little bit, actually in local currency, down 1%. But -- and look, we don't like not growing in sales. But when you look at how we performed over the last 5 years, it's really quite extraordinary. In fact, last year, we were up 10% in the first half. And so we went against a tough comp. But the year before the first half of this company, we grew 52%. So what we've done with our $6.9 billion in turnover in the first half is basically hold on to the massive growth in market share gains that we've been able to achieve over the last 5 years. And when you look at our 2.2 decline relative to the past, as you can see, we have held on to the leadership position that we've been fortunate enough to capture, and that's only going to continue. I am so proud of our team. As we focused on inventory reduction in the first half this year, we were able to cut inventory $651 million versus the first half of 2022. This is a big step and this is not easy. And you have to remember, we did this in concert with helping our retail partners reduce their inventory levels. It's not like we had an environment with retailers and distributors globally where they needed more inventory. So for us to cut 651 while we help retailers and distributors get down their inventory levels down to a position they're targeting was a significant feat for the company. And we're not done with inventory reduction, we will continue driving inventory down as we move into the second half. Now our CapEx spending also shows a more prudent, a more conservative approach to managing the company. We're still investing, for sure, but at a lower rate than we have over the last several years, in fact, CapEx came in at USD 210 million in the first half, that's 3% of sales -- declining sales, that's 3% of sales, which does show a more conservative approach. And you have to remember that we have invested aggressively over the past 3 years in new logistics capabilities, new manufacturing campuses and a lot of new products. So we are amending that and adjusting that to be more consistent with the reality of the economic environment that we believe we're in here in 2023. First, one of the true highlights in the first half this year is free cash flow. We generated $649 million more cash flow than 1 year ago. That's a massive step forward. It's an appropriate thing. We think focusing on cash is the right thing to do, given the reality that we're in today. And we did this because of our aggressive inventory reduction because of CapEx management and because of the overall focus on cash flow that you'll see in the company today. Now as you turn toward the P&L, what you see is with that slight decline in sales, gross margin was up slightly. SG&A was up, and I will explain that in a moment. EBIT was down 11.5%. We did make $560 million of EBIT in the first half. But we were down in EBITDA versus last year, although we think this P&L clearly demonstrates that we outperformed the market that we serve. Now why was gross margin up given all the inventory reductions we made? You have to remember, inventory reduction part of that was we shut down production, particularly in our consumer portfolio of businesses where we saw the weakest demand and the greatest need for retailers to cut their inventory. So we did cut production aggressively. But remember, our MILWAUKEE business has an accretive gross margin and MILWAUKEE did outgrow the rest of the company. So because of that, we're still able to see a slight improvement in gross margin for the first half this year. SG&A was up. Why? Because on the MILWAUKEE side of the company, we did invest in geographic expansion, we invested in in-field marketing. And we continued on our investment in MILWAUKEE, new product development. Although we have focused our product development in MILWAUKEE, and we will spend less money here as a percent of sales than we have until the economic environment opens back up. But right now, we're going to be prudent and conservative in our investment in the MILWAUKEE business. At the same time, in our consumer group of businesses, and consumer is RYOBI DIY, power tools RYOBI outdoor, the HART business, the Floorcare business that we have around the world. That consumer group of businesses is an area where we did spend SG&A on promoting the sale of excess obsolete and unneeded inventory. So inventory reduction in the consumer area was very successful, but we did use some SG&A to clean out some of this inventory. And of course, that's a nonrecurring SG&A investment in consumer. We also believe that it was appropriate for us to look at all this overhead we have in consumer and aggressively set us up for the future by cutting back structural and overhead, including headcount. The headcount element of that, of course, require severance, and we did book significant severance charges throughout the first half, which will lead to SG&A leverage and improvements, no matter what the economic environment is in the years to come. We did scale back product development in the consumer group of businesses. We didn't stop product development, but we're going to become much more selective and focused only on the highest priority areas until we see a change in the DIY demand in the marketplace. And we feel like we've done such a great job over the last 5 years, particularly the last 3, launching one new breakthrough product after another consumer, that we will be -- our leadership position will be unchallenged even with a slower flow of new products going forward. And of course, as I mentioned, overhead reduction in SG&A is important to us. And we have really been relentless and looking at all nonstrategic, nonessential, nice-to-do SG&A. These are not easy things to do. And it's not like we were bloated when we came into the year, but the fact is we are going to manage this company based on a challenging economic environment so that we can deliver our financial targets no matter what the macro holds. And this is exactly the path that we're on. Now let's turn towards the second half of 2023. We believe in the second half of '23 that we can and will deliver mid-single-digit growth for the company after an excellent July, where we saw strong demand, stronger POS, we feel confident about mid-single-digit growth for the second half of this year. And look, we always target higher levels than the outlook that we present. But right now, we're feeling really confident about that mid-single digit. Our EBIT will be up slightly in the second half. And that's a positive sign, although we have a lot of long-term potential to grow EBIT. For the second half of this year, it will be up slightly. And free cash flow will be a highlight as we are really laser-focused on cash flow in the second half of this year, we're going to generate a lot of cash. And for the year, that will put us in a position where we believe we'll generate $900 million of free cash flow for 2023. We continue to be focused and we are -- continue to be pleased with the progress we're making in ESG. First of all, during the first half, we did sign the SBTi commitment, which validates our confidence in achieving Scope 1 and 2 reductions in carbon emissions. We're committed to 60% carbon emission reduction by 2030. We signed a document, we will deliver this target. We're on the right track. We also feel confident about Scope 3 targets that we've set. This is a growing level of progress that we're seeing throughout the company. Our traction is excellent. We're committed to this. And like all the targets we set in the company, we fully intend to meet or exceed the targets that we've set. Now on the social front of ESG, we are really proud of the social progress that we've made in the communities that we serve around the world, we feel like we're a key part of it. And a couple of things we've done. I'm really excited about is, first of all, our disaster relief, hurricane relief initiative, which is a rapid response, a process that we do in concert with our retail and distributor partners globally. We think we're world-class. Whatever the natural disaster might be, and we wish there were none of these things, but when something kicks in where a community needs help, we are incredibly fast at deploying resources that are highly trained to deal with these issues in the communities that we serve. We also feel like part of our social responsibility is to continue to improve job site safety and job site productivity. And I'll show you the new products featuring our personal protective equipment that make us leaders in the social element of ESG. Now in governance, I really am grateful for the feedback that we've received from many of you over the past 6 months and over the past 3 years. We are -- at the Board level, at the management level, we are committed to continuing to improve TTI corporate governance so we can become the best possible company we can be. We have made great progress, and we still have a lot of opportunity to go to the next level. But again, thank you for your feedback. We appreciate it. And we encourage you to watch us in the months and years to come and see the progress we make in the governance element of ESG. Okay. So let me now shift gears and talk to you about highlights in our consumer group of businesses before we turn toward our Flagship MILWAUKEE business. The consumer businesses were down 15% in the first half. It was a tough 6-month period for this group. The fact that the sales were down 15%, our inventory improvement was so strong, is a credit to our team because this was not an easy thing to pull off. We do believe that our retail and distributor partners globally are still or reducing inventory levels, but we think that process of reducing inventory, we think that we're closer to the end than we are to the beginning of a very painful process, but it's a necessary process. And look, we are fiercely committed to working closely with our retail and distributor partners and helping them achieve their goals. And that means working with them in this inventory reduction effort, while we reduce our inventories. And as you see in our results, we've done a pretty good job here. Now we are -- we do realize that the DIY arena is soft today. And it's -- we think it will stay soft certainly through the second half of this year. We, however, intend to outperform the market here like we do in all of our businesses. And the good news is that RYOBI is now the -- it continues to be the global leader in cordless DIY, whether it's RYOBI power tools, RYOBI outdoor equipment, RYOBI cleaning products and other lifestyle products, the RYOBI ONE+ system is a massive driver for growth and market share gains in the future for DIY. If you look at RYOBI, we, last year, rolled out the USB lithium subcompact system. This is a really cool range of super compact products that work off this USB charging and allows us to access a whole new group of intermittent DIY'ers. It allows us to get into market with people with smaller homes or condos dwellers. And it allows you to -- it allows us to address the market for job -- for in-home assembly, whether you buy a bicycle or a fitness equipment or products for a baby, these products are ideal for in-home assembly. And there's a lot of things people buy that require assembly. Now you have a light way of -- instead of the primitive wrench that you get oftentimes for home assembly. Now you have a sophisticated way to do it with -- in a faster, safer manner, which is important to us. There's a number of other USB products, whether it's a super cool lightweight magnifying -- lit-up magnifying glass for hobbyists or whether it's a glue gun, and there are many products in the system already and the traction we've received globally with our retail partners here is outstanding. We -- now, the centerpiece of our RYOBI leadership position is RYOBI ONE+. This is a system has been around for decades. We still have reverse compatibility. So any RYOBI ONE+ product we ever launched works with the current batteries today. We have over 300 products, can you imagine, over 300 products work out that same battery. And that vast array of products is continuing to allow us to improve our leadership position. And our retail partners love this program and continue to support it like crazy. We also have, fortunately, been able to pioneer arrange the globe's leading range of DIY outdoor power equipment products with our [indiscernible] platform. And this is lawnmowers, string trimmers, hedge trimmers and snowblowers and tillers, blower vacs and augers and on and on and on. And the world is still in the embryonic state, the new embryonic phase of converting from petrol-powered outdoor to high-performance cordless. We intend to lead that charge in the [ 40V ] system is doing just that. Now RYOBI cleaning is a new area that's actually experiencing -- even in this economic environment, experienced wonderful growth. We are launching the new RYOBI spot cleaner, which is an ideal product that allows us to address a very common household requirement, cleaning spots and spills, et cetera. We -- in this case, we have exactly the same technology that we use in our Hoover system, which I'll show you in a minute. And we're excited about the prospect here. We have to remember with cleaning products, like a RYOBI stick back. There's over 40% of all people in the U.S., Australia, New Zealand, Canada, over 40% of these DIY'ers and many DIY'ers in Europe already have a RYOBI ONE+ battery system in the household. So when people walk into a Home Depot, they're presold on this particular vacuum cleaner versus one of the other brands where the battery is in present onboard the product. In fact, if you look at our next generation of Hoover products, what you see is this is the Hoover ONE power system. What you see is a detachable battery system that unlike even the leader in global floor care, which -- and the leader imprisons the battery onboard their [indiscernible]. So when the battery goes bad, you have to throw away the entire product. With the Hoover system or the RYOBI system, you simply -- and as I mentioned, in the Hoover family, the technology that we developed in Hoover like with this spot cleaner is something we can also cascade into our DIY RYOBI range. And so this gives us a lot of leverage in a lot of cloud and a lot of way to leverage the investment we make our product development in floor care is something we can, again, cascade into the RYOBI line and it gives us great leverage. So look, we are -- we believe the Floor care business globally is making great progress. We're on track with the turnaround in the U.S. There's no turnaround needed in Europe or Australia where the business is flourishing and the profit levels are high. So okay, now let's wrap up this session with our -- an overview of where we are with MILWAUKEE. MILWAUKEE grew in the first half, 9%; 9% in the environment we're in, we think is pretty impressive. We significantly outperformed the market. And if you look at how MILWAUKEE did globally, we were up 7% in North America, but 16% in Europe and 13% Rest of World. And yes, we recognize through the half that the economic climate that we're in is a tough, challenging environment even for MILWAUKEE, although MILWAUKEE still grew nicely and there's still a lot of potential here. But again, these results, we think we are outperforming all of our competitors in outperforming the market, and that's not going to stop. Now if you look back at MILWAUKEE from 2010 until 2022, we grew our compound annual growth rate. And it's -- when we look back, it's hard to believe, we grew a CAGR of 24%, 24% growth. And we've gone from small to very large MILWAUKEE base. So with that -- given that large base, given the fact that the economic environment is challenging, we do want to share that we feel the outlook for MILWAUKEE will be to grow between strong single-digit and low double-digit levels for the next 3 years, for this year and for the next 3 years up to 2026. These growth levels are above market, but do reflect the reality that interest rates are high, commercial construction is soft, rescon is soft. And although there's a lot of elements of -- there are many, many verticals that have potential, we think this is the right outlook for us to run the business around it with MILWAUKEE. Now just to give you some color on the growth opportunities we have to get that 8% to 12% because that's still an impressive level of growth. We think we are still pioneering a revolution between -- from traditional power source products, whether it's corded, pneumatic, hydraulic, petrol or manual into cordless. And even we are driving a revolution from dumb cordless or cordless products don't have electronics on board, don't have the features that the smart cordless products have. And we drive the smart cordless, we're the iPhone, we're the Apple of this industry, and there's a lot of upside there. And I'll show you how we're going to catalyze that in a second. Geographic expansion there's a lot of potential outside the U.S. to grow MILWAUKEE. We're on it, and we're seeing great traction. There are many verticals that we have just begun to tap into. Not all verticals are challenged by the economic environment, and we're going to focus on the areas that have the most potential, of course. We still have a new product MILWAUKEE that's been reduced a bit based on the reality of the economic environment, but there's still more new product here than our competitors will watch, and it will help us as we move forward. And then I think something investors really need to understand is we are growing the addressable market by growing the average selling price or the ASP in the products that we sell, and I'll show you an example of that in a second. Okay. Let's talk about cordless overall in MILWAUKEE. We are the #1 global pro cordless range of power tools. MILWAUKEE has, in our total fleet approx 425 cordless products, are you kidding me, we're going to need to figure out a way to have a bigger slide or have 2 slides to show all the products in the system. And this is important because the more products you offer in the battery platform, they're more compelling that platform is to a professional user who's deciding on what platform to choose. And we are going to catalyze the growth of MILWAUKEE cordless with what we introduced yesterday, actually in MILWAUKEE. We introduced a breakthrough level of battery technology, we will subbrand this Forge. Now -- and again, we launched this just yesterday, but let me just share with you in case you missed the announcement. Forge is the most powerful, longest running, easiest, fastest to charge battery in the marketplace today, by far. These -- the problem with normal batteries is something we call impedance, which is really friction, and friction creates heat. And with these -- with this technology that we're harvesting here allows us to do is cut impedance down, is to eliminate the friction and heat. And we do it by utilizing the state-of-the-art cell technology that we've been able to pioneer in the company. So these cells are cylindrical, sometimes they're pots, sometimes they're what we call [ tablets ]. And we have configured what we think are the best designs in battery cells. And we've taken the firepower of the state-of-the-art cells and designed that -- and choreographed that into redesigned batteries, which are more robust and allow our products to function beautifully in the most rigorous demanding conditions that a professional user encounters. And what's really exciting about Forge -- and by the way, these Forge batteries, we will have in our MX platform for our equipment -- for our large equipment products and our full-size battery powered products. These Forge batteries will charge with our new supercharging technology, which we're also launching. So we have -- we've launched chargers, we call superchargers. You take a Forge battery and a supercharger, and you can get this battery charged -- you get 80% of the power in 15 minutes. So this is a breakthrough in charge time. So can you imagine you're a professional user, you can -- your battery is fully discharged. You can pop it in a charger and in 15 minutes have the power up to 80% level. This changes the game on a -- in hundreds of different professional applications. And we're the first, and we are way ahead of the industry here with the supercharging capability because of the Forge technology, because of all the electronics, the choreograph all this power flow and all this charging capability. So -- okay. So anyhow, just to summarize, cordless, I do not think that we're anywhere near saturating the market in cordless because we're just -- we really still are just getting started here in pioneering this once-in-a-lifetime shift to cordless. Okay. Now second thing I mentioned in terms of growing MILWAUKEE is geographic expansion. And I'm just going to fly through this, but I'm incredibly excited about what we can do outside the U.S. with MILWAUKEE, where our market share, as you go outside the U.S., our market share is generally lower than what we have in the U.S. So there's a lot of upside. Now okay, Canada is a close market to the U.S., but there's still lots of potential Canada. This red zone display that you can see here, this is actually Red Deer, Alberta. And this showcase display. It shows you what we can do when we work together, even in rural markets around the world outside the U.S., and we can create a dominant position. Okay. Here's over in Europe. We are very strong in Western Europe. This is an example of a new display in Belgium with a key distributor. And we're also strong in Central and Eastern Europe, in Slovakia. We rolled out this new distributor. This is a great example of what we can do in Central Europe, where there's -- you still have a lot of users in Central Europe using corded products and more primitive products. And we think these markets are ready to convert to cordless, and we're excited about our leadership position in this place. Okay. Now take a look at this particular display. This is a spectacular MILWAUKEE statement. And this is a display developed by a company called Sydney Tools in Australia. They do have 86 outlets throughout Australia. They are growing like crazy. And when you walk in a store, it's just the statement it makes about MILWAUKEE is breathtaking. And we love this kind of showcase display for MILWAUKEE. We are beginning to open up parts of Latin America, Central and Latin America that -- where we feel confident in the local economy, and this is a good example. Here's a display in Mexico, where we are seeing significant growth and there's lots of upside here as we go forward. We have not attack Latin America as a region historically. And we will begin to look at this going forward if we are comfortable with the economic environment in a local country and the stability, et cetera. Okay. Now let's talk about what may be the biggest opportunity that people underestimate with MILWAUKEE. And so you're thinking how are we going to grow between high single digit, low double digit if the economy -- economic environment is not forgiving? Well, just the infrastructure build-out, and I'm not just talking to the U.S. but globally, there's so much opportunity for infrastructure. Whether the government subsidizes these things or not, the infrastructure environment -- and this is roads, tunnels, airports, docks, rail stations, et cetera. There's so much potential here that we are really set about where we're going. Now using the Forge battery technology with our brand-new third-generation high-torque impact wrench, this gives us a breakthrough product that will be one of the #1 and #2 products in the infrastructure no matter what the infrastructure project might be. So the impact wrenches, which drive large mechanical threaded fasteners or allow you to repair various infrastructure projects, this new -- with a Forge battery, there's more -- these are more powerful, lighter, they run cooler, they are smaller, more compact, there's more features on board and it goes on and on. And this will be a game-changing step forward in the infrastructure arena because of the technology that we brought to market. One of the areas that's really exciting is the rail subway build-out that's happening around the world or once a rail system is built, and there's the whole repair opportunity. So we -- this product is called a railway impact wrench and instead of having to then down and get into uncomfortable positions, which are not good for safety and productivity, the rail wrench allows you to comfortably and rapidly install rail system or repair it. And it's super powerful and it works off the, of course, the MILWAUKEE batteries, including Forge. This is a unique TTI development. We worked with our end users in China, where we got feedback that allowed us to develop this product, which is really being well received globally. Okay. So construction is not great in every part of the overall construction market. Commercial construction of office buildings is, of course, very, very soft. Rescon is -- it may be bottomed out but still nowhere near where it was 2 years ago. It will come back someday. But there's all kind of industrial construction, and there's a lot of projects underway, and we intend to shift our focus on the parts of construction that have the upside potential. You'll see that here this year and in the years to come. The transportation maintenance arena is vast. Anything that moves cars, trucks, planes, trains, automobiles, submarines, motorcycles -- it doesn't matter. Anything that moves needs constant maintenance and repair. And we have come up with yet another revolutionary product for transportation. This is a box wrench that's super compact. So we have an extended reach ratchet with a super small business in. And this allows you to get into areas and do assembly, repair, maintenance without the knuckle busting manual wrenches that are in use today. In these tight areas, you need a compact design and we've delivered it finally here with this new box wrench. Now renewable energy is, as you well know, is a massive, massive global growth opportunity for the company. And when you talk about ESG, the fact that we are leaders in the installation, assembly and maintenance of renewable energy initiatives, whether it's solar, hydro, wind, nuclear, whatever, we have the products that are ideal for this marketplace. In fact, for solar panel installation, we have this unique controlled torque impact wrench and this -- there's 2 applications, and one allows you to drive a threaded mechanical fastener when you're installing a solar panel. And it actually monitors and adjusts the torque to the precise level that you need without a second tool and a second application. This is a breakthrough when it comes to solar panel installation. And we have an outstanding team focused on this whole renewable energy sector, which is going to grow for decades and decades. And by the way, this is a real statement about our commitment to ESG. We are helping to install the products that will help carbon emissions come down, not just for us, but for the planet. And we're excited about them. Okay. Power utility. We all know that the utility, power utility grids need constant repair. We have a lot of unique products here that are focused on helping this power utility, this [indiscernible] achieve his job more safely and with more to productivity. One of the explosive growth verticals that we've seen over the last year is mining, whether it's surface mining, underground mining, mining is an area that's got massive potential. And if you just think of EVs, the materials that go in EVs need to be mined and power tools are needed for this mining to support the mining activity and the maintenance repair and the communities, importantly, that's around mining start-ups. So we're all over to this, and we see a lot of potential here. The outdoor marketplace is virtually all petrol today. We intend to move this market with MILWAUKEE and with RYOBI to battery-powered products, whether it's the landscaping sector or the arborist as you see here in the photo, we are -- we will be the global leader in battery-powered outdoor for the pro and for the DIY. Okay. So let's now talk about new product and just a couple of highlights for you. We have entered into the professional electrician market, whether it's the residential electrician or the commercial electrician. We have pioneered a series of hand tools, wire cutters, wire strippers, insulated screwdrivers, fish tapes, which is this device that allows you to feed wire through conduit in a residential commercial application. And we are working in concert with Home Depot. We have been very -- we have fortunately become a key vendor in this space, and we are going to build many of these products in the U.S. in the new factory that we've built out over the last 9 months. And we tend to be leaders in the electrician hand tool market. Of course, we're already leaders in the cordless power tool market, but there's a lot of hand tools and use here too. And you'll see it MILWAUKEE now in this space. Okay. So let me just step back for a second. People ask us all the time, why are you guys saying that the addressable market for TTI is so big? And here's one of the things people don't understand. When you buy a corded, the leading professional grade corded drill on your left here, it's 60 -- you can buy these for $69 today still. If you convert that end user who's using these corded drills and get that user to move over to cordless, our latest fuel version, and this is without cords $299. So the ASP, the increase in the market size just with the shift of corded to cordless is significant. And it's -- the same is true when you move people from pneumatic, hydraulic or petrol and certainly from manual. When you go from a manual wrench to a cordless wrench, you go from $49 to $250. So just remember, the ASP increases does represent a big part of the addressable market growth that we are creating for ourselves and for the marketplace. Okay. So look, storage is massive and packout has got a cult-like following for storage in a workshop for vehicle storage, for mobile storage. We're just getting started with helping people organize and store and transport their tool inventories and fleets, and this is a global phenomenon. One of the areas that really does help us support the ESG initiative in the company is the personal protective equipment featuring the Bolt system, which is in terms of job site safety, we are so far ahead of the marketplace here, and it's something we're very proud of. Now Bolt is a range of helmets that will -- are significantly more safe than anything in the market today. And we have over 21 different accessories that you clip on to Bolt. So whether you're in mining or power utility repair or submarine maintenance, we have a configuration of safety equipment, featuring Bolt that will allow you to be safer and more comfortable. And as time goes on, job site safety is going to become more and more of a priority for governments around the world, and we intend to be leaders here in this space. So -- and it's the right thing for us to do to enhance job site safety, and we're excited about where we are. So look, we feel like the first half this year reflects our transition from a more aggressive growth profile to a company that is stepping back. We recognize the economic environment is challenging. We have become hyper focused on cutting our inventory, controlling our CapEx and driving free cash flow. We are hyper focused on reducing our structural overhead, so that no matter what the economic environment presents to us, we will be able to deliver our financial targets. And we are particularly excited that we're doing this without compromising our future because we have a long-term strategic vision, and we are very much on track to deliver for years and years outstanding performance in terms of outperforming the market and financial gains. And listen, it's a race without a finish line. We have a lot of things we can do better in the company. We are grateful for the feedback we receive from our customers, from our people in the company, from our investors, from our Board. We are incredibly grateful for the feedback we get. And there is no finish line. This is -- we will continue improving and getting better as the months and years to come. So I look forward to the Q&A that's about to start. Thank you.

Thanks, Joe. For the first half 2023, the group delivered solid results outperforming the market in sales, inventory reduction and generated outstanding free cash flow. During the period under review, our sales declined by 2.2% or 1% in local currencies to USD 6.9 billion. Our MILWAUKEE business grew by 8.7% in local currency, while our Consumer business were down low double digits, partly driven by our support of our customers' inventory reduction initiatives. Gross margin improved for the 15th consecutive half by 22 basis points to 39.3% when compared to first half last year. The improvement is due to a greater mix of higher-margin MILWAUKEE business supplemented by the continued outperformance of our high-margin aftermarket battery business. EBIT was at USD 560 million, a decline of 11.5% when compared to last year, mainly due to the reduction in our consumer business and inventory reduction initiatives, while we continued to invest in new product development, in-store support and geographic expansion. All our strategic SG&A spend positioned us to continue to outperform the market in the second half and beyond. During the period under review, our net profit was at $476 million, down by 17.7% as compared to first half last year, is mainly due to the interest rate increase since March 2022, a total of 5%, which as a result, increased the net finance cost from USD 11.3 million first half last year to USD 49.2 million in 2023, an increase of close to USD 38 million. Earnings Per share declined by 17.7% to USD 0.26 per share. Our focus this year was to manage our working capital, CapEx spend and to generate free cash flow to further strengthen our balance sheet. During the first half of 2023, we have been able to deliver USD 301 million positive free cash flows, an improvement of USD 649 million as compared to first half last year. We are well positioned to continue to generate strong free cash flows in the second half of the year to further improve our balance sheet and also to mitigate the net finance cost increase. The Board declared an interim dividend of HKD 0.95 per share, same as that of last year. The interim dividend represents a payout ratio of 44.7% as compared to 38.8% same period last year. Our key performance metrics has always been EBIT and net profit increase must outperform sales growth. Over the 15 periods under review, we've managed to deliver this matrix with sales CAGR of 12%, while our EBIT and net profit delivered a compound annual growth rate of 17% and 21%, respectively. Power Equipment division, representing 93.8% of the group's revenue, delivered a sales of USD 6.5 billion, down 1.7% or 0.5% in local currencies. Our Consumer Power Equipment business declined at low double digit, but our Flagship MILWAUKEE, outpaced the market and delivered an 8.7% growth during the period. This business, we believe, is well positioned for sustained long-term growth of low double digit based on our investments and vast opportunities ahead of us. Operating profits of this division was at USD 560 million, declined by 13.3% as compared to that of last year. Floorcare business were down 7.6% in local currencies to USD 429 million, as we did not repeat the aggressive excess and obsolete sales taken first half last year. The division's operating profits of the first half this year delivered a USD 13 million improvement versus that of last year. We believe this division is now well positioned to grow and continue to improve profitability. Globally, we outperformed the market first half 2022. North America, accounting for 75.1% of the group's revenue, declined by 3.9%, but yet still very much outperformed the market. Europe delivered an outstanding growth of 10.1% in local currencies. Europe accounted for 16.7% of the group's revenue. Rest of the World, led by Australia and Asia, representing the balance 8.2% of the group's revenue, delivered a growth of 5.7% in local currencies. SG&A as a percentage to sales was at 31.2% as compared to 30.2% same period last year. The increase was mainly due to our continued investments in strategic spend, MILWAUKEE's commercialization activities, geographic expansion, selling and promotional activities in the consumer business to drive inventory reduction. All these investments will support our near-term growth and this percent to sales is expected to be level down going forward. Selling and distribution expenses increased by 2.9% to 17.3% of sales and compared to 16.4% last year. R&D spend increased by 5%, representing 3.6% of sales as compared to 3.3%. Nonstrategic administrative expenses reduced by 2.4% versus that of last year. As mentioned earlier, increase in finance costs mainly due to the rapid increase in interest rates during the past 18 months. Our key objective in 2023 is to generate free cash flows and pay down high cost debt. We expect net finance cost as a percentage to sales will improve for the full year 2023. Effective tax rate was at 6.9%, very comparable to that of last year's same period. We have long-term effective tax plans in place to proactively mitigate the ever-changing global tax environment and are confident that this level of effective tax rate is very sustainable going forward. Our balance sheet remains very healthy and strong with shareholder securities increased by $645 million or 12.8% when compared to the same period last year, standing at USD 5.7 billion. The reduction in current assets mainly due to our strategy to reduce inventory while the increase in noncurrent assets, largely due to an increase in plant property equipment and investments in new product developments. During our results presentation in March, we stated that one of our primary objectives is to improve our gearing in 2023. We have been able to deliver this target with a gearing level of 25.7% as of June 30, 2023, as compared to 40.5% first half last year or 32.1% at the end of 2022. We will continue to execute our strategy and are on track to further improve the ratio by end of the year. Total net working capital as a percentage to sales was at 22.7% as compared to 23.3% last year. We've been very disciplined and focused managing our inventory and be able to reduce our total inventory by USD 631 million or 10 days when compared to same period last year. Finished goods level reduced by USD 749 million or 14 days and raw material and components increased by USD 42 million or 2 days. We are confident that we can further improve the inventory level by end of the year. Trade receivable days was at 54 days and payable days was at 99 days. The days is mainly related to the timing of sales of procurement. Our receivables continue to be of highest quality, and we will continue to leverage our volume order visibility and financial strength for the best trade terms with our suppliers. CapEx for the period was at USD 210 million, representing 3% of sales as compared to 3.3% of sales same period last year. The spend includes investments in new product, productivity, automation and sustainability initiatives. When compared to the debt levels at the end of 2022, we've managed to reduce our total debt by 4.8%. Of the USD 150 million debt reduction, USD 217 million came from the higher cost floating rate debt with an increase of USD 67 million lower costs fixed rate debt. Total net debt reduced by USD 206 million or 12.3%. Floating rate debts now account for 60% of our total debt, which are mainly higher cost short-term borrowings, which will be further paid down by the free cash flow generated from operations. The 38% long-term debts are mostly fix rates with much lower costs than the boating rate short-term debt. We will continue to leverage our cash flow-generating capabilities to deliver the most optimal cost-effective structure to support our future long-term growth. Thank you.

Thank you very much. I would like to welcome you all to the question-and-answer session. In this Q&A, we are joined by Mr. Sean Dougherty, our Deputy CFO; Mr. Ross Gilardi, our Senior Vice President of Finance and Investor Relations, as well as our presentation speakers, Mr. Joe Galli and Mr. Frank Chan. [Operator Instructions] Our first question is from John Choi at Daiwa.

I have 2 questions here. First of all, on your MILWAUKEE outlook. I think the new growth you're now referring to high single digit and low double digit in the next few years. Can you elaborate what are the factors that were considered when you're looking at this outlook? I know that you guys did discuss quite in detail, but want to know, is there any further consideration on the global macro conditions has been factored in? So any color on that will be great. And secondly, on second half specifically, still, generally speaking, pro demand looks still very strong, but industry commentary still points to better direction in the second half. So could management share some color, especially from MILWAUKEE, should we be seeing a better growth run rate in the second half, considering that mid-single digit that you referred to early on for the entire group? And any comments on that will also be helpful.

All right. I appreciate your questions, John. So look, yes, we adjusted the growth rate of MILWAUKEE, you got, what we projected to high single to low double digits. I mean we always try to beat it in most all years that you've known us. We do beat. So what factors went into that, look, there are a couple of verticals that have slowed down commercial construction, specifically for office buildings [ remained ] quite flattened out. So -- and we're just -- you have to remember, our -- we've grown a compound annual growth rate of 24%, it is up, and a lot, 24%. So the base has become a lot bigger now for MILWAUKEE and we are comfortable with growing high single to low double digit. But we're doing that on a very large base that towards the levels that where we started back 15 years ago, right? So in terms of the second half, look, I mean, yes, we grew 9% first half in MILWAUKEE. Will we -- in the second half, we said we're going to -- company will grow mid-single digits. We're very comfortable with that level. And MILWAUKEE will be better than that, and I hope it's double digit. I think we can pull that off, but we'll certainly grow the company to mid-single. Don't misinterpret any of this commentary. We are not slowing down the pace in which we capture market share. If you look at the overall market, actually we have dramatically outperformed our competitors, and that's not going to stop. In fact, 2 days ago, we just unveiled a new batch of brand-new products at our MILWAUKEE PR Day and reaction was spectacular with the influencers and with press. So I think you should expect that to continue for the next decade will be very strong for MILWAUKEE.

Thanks, John. Next caller?

Your next question comes from Eric Lau, Citigroup.

Yes, I think the whole result key changes MILWAUKEE, you guide kind of guide down the coming 3 years' guidance, given the very good track record of over 20% in the past 7 years. But my point is over the past 6 months, what kind of the key change? You mentioned that a couple of, what you call, slowdown, can you elaborate a bit? And then why you say 3 years then a slowdown, say, near term because of excessive inventory, blah, blah, blah. What kind of visibility or what you see, why you guide down for the coming 3 years?

Okay. Well, look, let's be clear. We intend to under promise and over deliver. We are being conservative in what we share about our future. We are -- and currently, we are investing like crazy in MILWAUKEE growth and in new products in general. But look, the economic environment we're in today present some challenges. And we are cognizant of that and we are the managing company accordingly. That's why you saw we focus aggressively on cash flow or inventory reduction in the first half. We're controlling our SG&A methodically, particularly in consumers' best interest that we run. And I feel really good about where we have the company positioned. Look, if the macroeconomic environment heats up a lot, right, we will grow more a lot more. We've demonstrated we know how to do that. If we see any heightened demand, we are incredibly fast at pivoting and cranking things up. So I think it's wise for us to be conservative and prudent and manage and guide based on an economic environment, that's tough and that's where we are.

Joe, can I have a follow-up question?

Sure.

Okay. You bring a part of it for economic environment, say, for next year 2024, when the trend of inventory become normalized. Do you expect your revenue growth will go back to, say, single digit or double digit, you think?

Okay. So look, we mentioned in the announcement. So we believe we're near the end in the finish line in terms of this working with our retail distributor partners in bringing their inventories down to the level that they've targeted. We're still not done. And I think the fact that we cut our inventory by [Technical Difficulty] while working with retail partners in the inventory, I think that's an extraordinary achievement on the part of the company. But I -- look, I don't want to say that the inventory levels are down to normal. We -- around the world, we're very close to what our customers and retail partners have in terms of inventory. And it's a long process, and I don't think it's going to be finished at the end of this year. But the good news is we have great visibility here, and we can look forward next year to cranking up our factories again and building inventory to supply customers who will start ordering at higher levels.

Thanks Eric. Next caller?

Your next question comes from Justin Chan at CLSA.

So just now you mentioned that you're seeing better POS data in July. I'm just wondering what are you seeing in the markets right now in some of the other verticals other than commercial. And also, you mentioned just now about -- you talked about you're seeing retailer finishing destocking, I think, next year. I think Stanley Black & Decker talked about normalizing production by the fourth quarter this year. When will you guys normalize your production?

Well, I can tell you, we have nothing to do with any of our competitors do. We have a much more advanced [indiscernible] company, we have a world-class system for not only just inventory, but in terms of [ GD ] World's best cost center, highest quality, and I think the results that we deliver showed that good progress. Look, it's hard -- so right now, if you look at the businesses that we address, our addressable markets, the industrial construction professional market is very strong with a few exceptions and I will talk about that in a second. The consumer group of businesses is very soft. The DIY is right in a very soft level. Why? Because in 2021, people were at home, kept at home and there was a massive spurt in DIY activity, that slowed down last year and it's continued to be very slow this year. Now things -- continuous use products like vacuum cleaners fortunately have come back and come back strong, rather not so with the [indiscernible] and outdoor products really went through another challenging weather environment this year. So when you look at the consumer businesses that we have, those are down, and we're projecting very conservative numbers there, peak inventory is low, and we'll wait until see some progress in terms of [ PLS ] demand. Jus, I never just commented about July, July was a very encouraging month. [indiscernible] is also encouraging. So we feel really good about where we are relative to our initial estimates and forecasts. On MILWAUKEE, man, there is so much upside. We have so much opportunity. We shared in our recorded video, just the infrastructure alone, the infrastructure arena alone is vast, and it's so underestimated. And this is roads and bridges, tunnels and EV charging stations and airports and [ parks ] plumbing and all the power lines are going to be placed. It goes on and on. And then don't forget the outdoor marketplace, the landscapers and [ arbors ] These commercial landscapers, this is largely a petrol market today. And companies that sell petrol or gas products are going to see those products to collapse in terms of sale. That's why I'm so excited that we have become laser focused on battery powered output, which is exactly where the market will be going. Now in California, they're already out on gas products. And you can't buy gas, [indiscernible] buy a gas product. You can't. So that's great news. Now the whole renewable sector, renewable energy, you can't believe the consumption level of tools, in solar installations, wind mills, hydro, we're going to see a power plant, nuclear power plant. All these things, it gives you power tools right working there, and that's pretty cool as well. And I can go on and on. What is the most explosive, both areas are now is mining. If you think about the conflict in the Ukraine, that means -- the mining that came out of that part of the world, that's all shifted. So I was just -- last week, I spent 8 days all over Australia and the mining in Australia is like I said, it's exploding, it's booming. So same in Canada, same in Western U.S., same in parts of Latin America. So this mining -- in mining is -- we sell tools for under-the-ground mining, for surface mining and importantly the communities that mine creates. When you go in there and put mine in place, you need workers, you need miners and there are communities that pop up and there's all sorts of services that we supply to ourselves. So look, I can talk to you for 2 hours about the potential for MILWAUKEE growth. The fact is the -- we did go through some inventory reduction in the MILWAUKEE side of the business in the first half. There's some of that still going on with that. In that case, we're clearly nearing the finish line in terms of that process and there's a lot of upside. So, yes.

Okay. Thanks Justin. Next caller?

Next question comes from Tim Wojs at Baird.

So maybe just on the margins. Is there a way to maybe frame the size of the promotion impact in consumer as well as some of the severance items you talked about in SG&A and just trying to think about what might kind of be onetime cost? Because I think you guys kind of include all those types of things in your -- so just trying to think about how that might be as you kind of think about the back half of the year and into next year, some of that stuff, those kind of, in fact all off?

So okay, so Tim look, in back half of the year, we're still going to -- you have to remember, when you're in an inventory reduction mode, the easiest to sell inventory actually is least to sell, right? So now we're down to a harder core level of inventory that [ we plan to chart data ] in the second half, which means that SG&A line will still show that promotional support of inventory reduction. We know it's the right thing to do. It's nonrecurring. This is a nonrecurring onetime activity, but we intend that inventories are lower than -- I mean, look, we have done a spectacular job of [ credit ] inventory in the first half and we'll take that momentum through the end of this year. So yes -- but look, maybe longer term, our P&L will reflect leverage in SG&A [indiscernible] all the investment in new products. You will see us lever down SG&A as time goes on. And we still have an industry-leading gross margin. In fact, we're so far ahead of our competitive gross margin, it's hard to believe and that is not going to stop. And gross margin is under pressure when you cut inventory, why? Because we shut factories up [indiscernible] product. So once we get the factories back up, and that will happen, certainly, we will start building outdoor in the fourth quarter for next season and then as we move into 2024, it is right now it looks, based on all of our projections and all of our intelligence, it looks like we're going to be slamming a high year again in production and that's good news for gross margin and for the P&L and for the company.

And I guess from a gross margin perspective, I mean do you feel I know you target 50 basis points a year. I mean, do you think just given the production downtime, that's going to still expand but at a lower rate in the second half and then you can maybe get back to that kind of target as you look into next year?

Yes. Look, I mean, there's been a lot of feedback we've received about our gross margin. And let's be very clear. We view gross margin as a key metric, not the only key metric. We are growing this company away at above market rate market rates where the gross margin is quite higher than anyone else. This year, the gross margin is not going at 50 bps because of the inventory reduction and inventory reduction hits gross margin in 2 places, one, you lose [ absorption ] in factory. Number two, you have to discount to sell off inventory. And investors get [indiscernible]those efforts, when certainly you are having much than you sell off [indiscernible] gross margin. The fact that we kept gross margin of 39% with all the inventory [indiscernible] [ reduction in China was ] -- that was a heroic effort on a part of organization. But gross margin, going forward, yes, we still have an internal plan to grow gross margin to 50 bps a year, and that will start next year. Do we -- 1 year might be 37% and next year might be 74%. But it's going up and you can't stop it. And you -- I'm sure you remember when we disclosed that we have this aftermarket of battery sales that is wildly accretive and that aftermarket is growing like crazy. And don't forget MILWAUKEE as a business unit, it's highly accretive and is outgrowing the rest of the company. So just the mix in batteries drive gross margin up as we go forward.

Your next question comes from Helen Fang at HSBC.

So I was trying to have some questions as a follow-up of the MILWAUKEE. First of all, I think Joe just explained that the SKU you will be more -- well, basically less aggressive in pushing the new products. But when I was looking at the R&D, it is still growing up. So should I expect it to be the ongoing trend? That's the first question for MILWAUKEE. Second, I want to follow up on the SG&A from MILWAUKEE. If you are talking about further the geographic expansion and commercialization activities, should I expect SG&A from MILWAUKEE to further go up in the coming quarters? The last question, if I may, for MILWAUKEE is about the, well, percentage contribution coming from infrastructure and outdoor. Well -- and the other thing is I noticed that you opened a hand tool of MILWAUKEE, so in Wisconsin in the factory, it's a little bit -- well, it's very exciting, but I'm also a little bit confused. Is it going to be a new [ shift ] or -- because I think we're mainly focused on power tool. So yes.

All right, let's see 4 questions. Okay. First, on the factory or -- so the factory is strictly a produce in the U.S. at commercial and residential electricity tools. So we have an opportunity with our largest customer, Home Depot, who entered and attacked this important market. We think the market leader space is vulnerable, and we are rolling out remarkably better awesome products, and they're going to be made in the U.S.A., and that's important because the electricians, most of electricians belong to union and they had just [indiscernible] U.S. And I think it's pretty funny because there was an article on Wall Street Journal that another company in our space tried to make -- trying to make hand tools in the U.S. and they have given up and shut the thing down. We had a flawless rollout with this new factory. You're welcome to come and visit anytime on a prebook, on hand tools, not power tools. [indiscernible] So let's go back to the first question was MILWAUKEE around R&D. Yes. Sales last year were up $20 million and change in MILWAUKEE this year sales the first half of $9 million which means there's less sales [ which will build ] R&D as a percentage, you don't get the leverage. And look, as I mentioned, we are [indiscernible] MILWAUKEE, but not lot more. We're being very conservative, ruthless on the consumer side of businesses. The activity there, we're slowing down a lot. But in MILWAUKEE, we have -- say the 5-10% of projects were underway, we've decided to delay those projects, while we got to think the economic environment is a little tough right now. But that's something we were doing throughout the first half. So you should expect going forward, MILWAUKEE SG&A to lever down, not in the second half of this year, it's not really the leveraged in second half of the year, but 2024 and beyond, the SG&A from MILWAUKEE for the company in general across, we'll lever that and you'll be pleased when you see that. Okay. What did I miss? You had a third question?

And then about the infrastructure and outdoor.

Infrastructure, O my god. That is my new favorite topic. So there is massive activity in infrastructure. And that's even before the government in the U.S. started flowing trillions of dollars to support this. There's -- look, we don't disclose the percentage, but let's just say the MILWAUKEE focus has shifted. We're not focused on commercial obviously because [indiscernible] though we are looking at, so we're focused on also some other areas and infrastructure is the most massive opportunity we have. And when you see infrastructure, think about MILWAUKEE because we own this space, we're very strong. We have -- worldwide, we have hundreds and hundreds of end user marketing specialists that work together with the contactors and other workers and the other companies that those infrastructure projects are maintained. So this is a vast, massive opportunity. And we'd be happy to share more detail after this session on infrastructure, just so you can see just how much room there really is for us to grow.

Your next question comes from Terence Chang at Macquarie.

Can you hear me?

Terence. How are you?

Well, I mean, first of all, I think the company did a really good job in lowering the inventory in a very challenging environment. So I guess my question is on where do you see your inventory levels to be at the end of the year? And I guess, second question is that, well, we do see that you had a PR day on the MILWAUKEE and a lot of these social media has been talking about it. So in terms of the contribution of these new products, are we kind of looking at further increase to, say, before at around 30% to 40% to even higher levels? So maybe these 2 questions.

What was 34%, that second question. What were you asking me 30% to 40%?

New product sales contribution.

All right. So let's go to your first question first. Inventory. We have an internal plan and we're on track to lower inventory below the $4.6 billion when we finished in June. We have lot of traction throughout the company in reducing inventory itself. I, at this point, feel comfortable, the inventory level is coming below 4.6 and hopefully significantly more. And remember, definitely the impact of assets gross margin is lower a little bit because production has no absorption but yes, we've kept inventories more and next year, look, believe me -- I think it's important to note that we have spent the last 5 years building a global manufacturing supply chain. We moved into Vietnam, we build that from scratch. We moved into Mexico. We have a number of facilities in the U.S. that we've either invested in or built from scratch. What that means is we haven't really spent time yet on just-in-time manufacturing. So we all know the methodology right, the Japanese will [indiscernible]directly which means you co-locate your suppliers around your manufacturing operation and so the idea is just-in-time inventory delivery in the factory and then the factories, when we move production in places like we serve in the U.S., we built products closer to the end market. So there's also an opportunity to take inventory out. So we are going to be very much focused on inventory going forward, no matter what the growth level within this company, I feel quite confident that we can manage that growth with less money tied up on inventory at the first place. And you will see the results of that as we go forward. Okay. let's remind me what's your second question?

Second question is on news on new products.

All right. So this week, it's true. We did have a PR event in MILWAUKEE which was a spectacular success. Social media, yes, there's a lot of social media, 99% -- other than what our competitors might say on those media, everybody else loved what we showed. The FORGE battery technology that we unveiled is a revolution. It's a big step forward in power and cordless products. We launched it not only to charge M18 but also in MX and the reaction when you use these products, you can't believe the power. We see a trend in the market with competitors using 40 volt for [ full ] power tools -- for full-sized power tools, we see a trend if they take voltage up, have more batteries, et cetera. And so we don't have to do that because we had so much electronic on the software board on our tool that we think we can harvest ample power stuff like in capabilities out of an 18-volt battery especially with this FORGE technology and with the super charger that we are on. So I couldn't be more pleased and excited about the reaction we had this week when we unveiled our new products. So while the percentage of products go up, probably the percent 30 to 40 is a range that you should expect will continue in the next 5 years. So 30% is better [ probably ] to be applied. You have to remember, we have launched a bewildering massive number of new product over the last decade. A lot of the new product have been begun to reach their potential yet. And as we open up new geographies as we are attaching verticals as infrastructure really, really heats up, the products that we launched 2 years ago or 3 years ago, they're no longer new, but definitely we are going to grow them like crazy because [indiscernible] that as well. [indiscernible] a good product is key part of the company. And the products we launched a couple of years ago are also key part of company.

Your next question comes from [ Sharif El Sabahi ] from Bank of America.

So Home Depot has made a commitment to end all outdoor cash sales for power equipment by 2028, how is Techtronic positioned to help them do this?

Well, let me talk away look -- so if you -- Home Depot -- first of all, Home Depot is a brilliantly managed company. We are incredibly fortunate to have such a partnership there. We don't sell Home Depot to competitors because of that, we have a different kind of a strategic relationship. And look, the Home Depot had an Investor Day in New York City, I think maybe 6 weeks ago and Billy Bastek is their head of merchandise. Billy Bastek is best merchant in United States is growing that and he is focused on the opportunity Home Depot has in cordless products; power tool cordless, vacuum cleaners cordless, outdoor products cordless. And Home Depot is now propagating this notion of an overarching platform of cordless, it covers those areas, outdoor cleaning and power tools, merchandise all in one massive and high impact of split. And I think we will feed that focus around Depot over the next decade. So we are -- and we -- I would say we're uniquely called by the Home Depot to achieve their goals in cordless. And importantly, the other Home Depot magazine that you'll hear would say Home Depot is really going after the pro user. And when you -- pro user, the most powerful power tool brand [indiscernible] by far without even comparison with MILWAUKEE. And so Home Depot has MILWAUKEE to compare to themselves and Home Depot [indiscernible]. Even as the challenges of the first half present themselves to us, MILWAUKEE is still is selling great with Home Depot and beyond. So yes, we love Home Depot. We work very hard to help them achieve their goals. They are a demanding customer and they're a valued customer. And we intend to grow like crazy with them in the months and years to come.

Thanks, Sharif. Next caller?

Your next question comes from Jacqueline Du at GS.

I'm quite surprised to hear some of your revised guidance. First of all, you mentioned the reason that you have lowered the long-run sales growth guidance from MILWAUKEE because some of the verticals have slowed down, for example, office building, et cetera. So can I ask -- can you give us a sense in terms of revenue contribution to MILWAUKEE from those end markets? And any comments on the sequential trend head into the second half?

Okay. Well you're talking very short term, but look, the way we -- we're already in August and the second half, right? So July was an excellent one. But the fact is there are office or professional tool consumption that are soft or down from office building construction in the U.S. and really globally as well. [ Red sign ] [indiscernible] in our view. We see signs of like -- even though interest rates are high, we see signs of like more risk on especially high end for [indiscernible] with the targeting after the market where there's more tools consumed for us built anyhow. But on the flip side, the -- even with the interesting platform we have, even with the economic challenges that we see globally, MILWAUKEE, virtually every other vertical is intact -- it's infrastructure, transportation, anything that moves, cars, trucks, planes, trains, automobile, submarine, anything that moves requires constant maintenance and repair and that's an area we've attacked [ exploration ] for us. You look at the whole datacom data installation arena over the [indiscernible], whatever it is to support the Internet, you have to go, that is going like crazy. We are leaders in that space with power tools and soon to be hand tools. Every EV factory, every EV charging station, all the investors out in the semiconductors and any job production is -- all these investors need buildings that we build and [indiscernible]. I think one of the most exciting end user market is the renewable energy arena. So whether it's windmills or solar panels or hydro or nuclear or any other form of renewable, geothermal, all these renewable energy areas are going to grow and grow like crazy. And we have a series of products that are uniquely designed to serve that renewable energy assembly and maintenance market, which we think is underestimated in that. So look, I think going -- let's also not forget there is a once-in-a-generation [indiscernible] away from gas or petrol-powered outdoor equipment and over into battery equipment. And we are -- we have a commanding leadership position globally with the professional landscaper, arbors, [indiscernible] with MILWAUKEE and we're the clear leader globally with the DIY outdoor market with RYOBI. And we will harvest the benefit of this shift from gas to battery here in the second half and really over the next 10 years. It's so exciting. You can't believe, it's a vast opportunity. So look, there's a lot -- there's do not think that we're running out of ideas to grow MILWAUKEE. You have to remember, when we say we're guiding up a high single digits to low double digits. When we say that, we're really saying that on top of the base, it's grown 24% CAGR since 2010. So the base is staggering. And we're still going to grow way above the market. If the market gets fast, we'll grow faster. And we always have [indiscernible] to try to go faster. But we certainly have -- we've never had stuff on more ideas and more ways to go on MILWAUKEE.

And I remember -- and I remember previously, you were guiding mid-single-digit growth for the full year, and now you're saying is for the second half. But when we look at your first half revenue, if you have maintained at that level and considering the low base in second half last year, you should be growing around 10%. So just curious what is the assumption for the different segments. For example, MILWAUKEE, DIY, outdoor, [indiscernible], et cetera, heading to the second half?

All right. So let's not forget what I mentioned earlier this evening or this morning. We are under promising and we intend to over deliver. That's -- so we have projected a conservative mid-single-digit growth level in our outlook for second half. That doesn't mean which is always we are going to do. I mean that's what we feel a 100% confident. Now the MILWAUKEE business will grow at a much faster rate than that. And if you look at our consumer businesses as a group chart, we're projecting right now [indiscernible] segment. And that's -- I mean, I think that we want investors to count on us to meet or exceed any of these numbers that we share with you in the future, and we intend to do that. Look, I feel better about the second half now than I did 6 weeks ago but a lot after July and early August. And what have we not exceeded expectations to shine in terms of growth [indiscernible] industry for 16 years, we pretty much always do some. Don't expect us to stop working hard until we exceed those numbers.

Okay. Thanks, Jack. And I think we've got time for 1 more question.

Your next question comes from Frank Fan at Nomura.

Helen actually raised this question, but I probably need some of the answers. I have 2 questions regarding the overseas expansion. First one is, how do we plan to build the distribution channels in overseas. Do we plan to leverage our existing channel? Or do we plan to find more local partners? And the second question is what's the impact on the SG&A in the near and long term?

Okay. SG&A.

No, international growth.

Okay. Rest of the World, okay. So look, we're spending a lot of time focused on what we call geographic expansion. Central Europe is one of the fastest-growing areas of operation for us. We just recently went Romania, Bulgaria, Algeria, Slovakia, Slovenia, all these markets and they're growing like crazy. We are growing throughout the Asian from Japan, Singapore, Thailand with Taiwan, China, South Korea and everything in between. These markets are -- Vietnam is -- I visited last week and they're growing like crazy. So Asia is another area that we're focusing. We have moved into Latin America more aggressively. Mexico is growing aggressively, and there's other parts of Central America, the Caribbean and the northern part of South America that we are focused on now starting to build out marketing company. So I mean we have this conundrum because we continue to say we are committed to growing outside of the United States. The problem is the Americas always seem to keep growing and that's a [ high-credit ] problem. But I think when we look at the next 5 years, there's clearly far more growth potential outside the U.S. than in. Europe is the biggest growth option we have, whether it is Western Europe, Central Europe or Eastern Europe. With these other markets, they all contribute as well and it's all adds up. So you should expect us to be much more broadly distributed globally, and you should expect our growth rates outside the U.S. to exceed what the level of our growth in the U.S. That's for sure. Now the second question was SG&A going forward? Was that your question?

Yes, SG&A impact in the near term and also long term.

So in the near term, as in the next second half, SG&A will be about where it was in the first half roughly. Why? because -- remember what I said, we sold off and liquidated the easy inventory to move. I believe it wasn't easy to have $651 million inventory, but what we have left that we intend to move is the hard core inventory that's going to require more aggressive discounting and more SG&A support to move that inventory. So you will see that. Also, there were some of the costs associated with it. And so we really especially attacked structural overhead, whether takedown or other form of overhead as such in consumer businesses and there were severance to another onetime nonrecurring charges there. And you have to remember, everyone, we don't take restructuring of book, restructuring of reserves. We self fund our -- we have to remove headcount, right, we don't book the reserve and take ourselves up the book. We self-fund it. We think that's a really important discipline in the company. So because of those things, SG&A in the second half will be like the first half roughly, and we will start to leverage SG&A next year.

Okay. Well, I think we're about out of time. I'd like to thank everybody for participating in the call today. Thank you for your interest in TTI. Please feel free to reach out with any questions. Have a good night.

Thanks, everyone.

Yes. Thanks.

Thank you for your participation. And this concludes today's interim results announcement analyst and investor webcast. You may now disconnect your lines. Thank you.