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

[Audio Gap] for the 6 month period ended June 30, 2026. Please be advised that this conference is being recorded today. Before we begin, I would like to draw your attention to our forward-looking statement on our presentation slide. Now let me introduce to you the key management of TTI with us today. They are Mr. Horst Pudwill, Executive Chairman; Mr. Frank Chen, our CFO; Mr. Steve Richmond, our CEO; and Mr. Tai Sisky, Group Deputy CFO. Without further ado, let me pass our time to our Executive Chairman for the opening remarks. Mr. Putwill, please.

Thank you for attending TTI's First Half 2026 Results Announcement. We delivered an outstanding first half with record revenue, gross profit, EBIT and net profit. I'm also proud to say we had a strong free cash flow, further strengthening our balance sheet and our net cash position. All of our core businesses delivered solid results with our flagship MILWAUKEE and RYOBI businesses yielding underlying growth of 8.2% in local currency. With our global businesses diversified operation on supply chain and the best team in the industry, we are well positioned to continue outperforming the market. We continue investing in areas that matter such as product development and R&D, allowing us confidentially maintain our leadership position. The strong first half we delivered is a result of our strength and dedication of our outstanding team. It is a strategic focus and operational excellence that allows us to continue delivering value to our customers and shareholders. I will now hand over the presentation to our group CFO, Frank Chan, who will talk you through the financials, followed by our group CEO, Steve Richmond; and Deputy CFO, Ty Stravinski, who will walk you through our operation.

Thank you, Mr. Chairman. We are pleased to report both record sales and profits for the first half of 2026. Our reported sales was at USD 8.3 billion, an increase of 5.9% or 4% in local currencies. MILWAUKEE and RYOBI combined delivered an underlying growth of 8.2% in local currencies, only being offset by the exit of HART and rationalization of our noncore business. MILWAUKEE grew 10.5% on an underlying basis in lower currencies after adjusting the planned timing impact of our ERP conversion. RYOBI grew 1.7% in local currencies. RYOBI power tools delivered strong results with sales up mid-single digit, only partially offset by a softer outdoor season. Our other 6.6 noncore business declined by 19.4% in local currencies due to the HART exit and continue streamlining our floor care and other consumer brands. We will have a more detailed sales growth by brand breakdown later. Gross profits increased by 12.6% to $3.6 billion with margins improved by 258 basis points to 42.9%. If we normalize the 2025 first half gross margin, adjusting the excess tariffs incurred during the peak level and the dilution effect by HART, our 2026 gross margins effectively increased by 163 basis points as compared to the 41.2% normalized margin in the first half of 2025. This exceptional 163 basis points improvements mainly attributed to the annualization of tariff mitigation effects, additional margin accretion across EMEA and Australia regions, favorable mix, strong MILWAUKEE performance, servicing the high-growth end markets and continued improvements in our noncore business. Our EBIT increased by 15.9% to $822 million, with margin improved by 86 basis points to 9.9%. We believe we are very well positioned to meet or exceed our internal target of 10% EBIT margin by 2027. We will also have a gross margin and EBIT margin work later in the presentation by ty. Net profit increased by 17.5% to $738 million. Net profit margin increased by 88 basis points due to the lower net finance cost and with effective tax rate remain comparable to that of last year. Earnings per share increased by 17.08% to $0.405 per share. The Board of Directors declared an interim dividend of HKD 1.50 per share, an increase of 20% over last year with a payout ratio of 47.8% and as compared to 46.9% first half 2025. During the period, we have changed our segment reporting from the business segments of power equipment and for care cleaning to professional and consumer as this reflects how management refill the structure and operations from end users and plant platform perspective. Professional segment, mainly through MILWAUKEE brand, delivered a sales of $5.9 billion in the first half of 2026, an increase of 9.7% in reported currencies, EBIT increased by 16% with margin improved 57 basis points to 10.5%. Sales of consumer segments through RYOBI, AEG, Wax, Hoover and other brands servicing the consumer channel decreased by 2.5% to $2.4 billion. The decline mainly due to the continued sales personalization of floor care and other consumer brands and HART exit, while RYOBI delivered a 1.7% growth in local currencies. EBIT, however, delivered a 15.8% increase with margins improved by 133 basis points to 8.5%. The improvement reflects the benefits of the HART exit and our focus on profitability across all consumer brands. SG&A increased by 17 basis points to 33% of sales, closely in line with the second half of 2025. This increase reflects our continued investment in new products, technology, service levels and write-off of intangibles related to the rationalization of underperforming categories. Strategic selling expenses represent 19.1% of sales, while R&D spend remained comparable to first half last year at 4.6%. We have, however, continued to leverage our sales growth and manged to reduce our nonstrategic and administrative expenses from 9.5% of sales last year to 9.3%. With a strong and healthy balance sheet and the over $1 billion operating free cash flows generated past part 3 consecutive years, we have been able to continue to reduce our net finance costs. Our net finance costs for the first half was $19.6 million, representing 0.23% of sales, a reduction of $8.2 million or 29.4%. Effective tax rates remain same as full year 2025 at 8%. We have continued to maintain that with our proactive and yet prudent tax strategy and plan, the current level of effective tax rate is very sustainable. Our balance sheet remains very healthy and strong with shareholders' equity at $7.4 billion, an increase of $791 million or 11.9% over that of same period last year. Net current assets increased by 25.8% to $3.87 billion. In this very dynamic and challenging macroeconomic environment, we will continue to prudently manage our balance sheet to invest and grow our business. Working capital as a percentage of sales was at 16.6%, 20 basis points improved when compared to the same period last year. Total inventory days decreased by 3 days to 100 days. Finished goods inventory reduced by 6 days while raw materials increased by 4 days and work-in-progress decreased by 1 day. Receivable days reduced by 5 days to 55 days, and payroll days also reduced to 94 days. Improving working capital efficiencies has always been our primary focus and we believe we can further improve it going forward. CapEx spend was at $92 million, comparable to that of last year. With capacity expansions planned in MENA and Mexico for the next 12 to 18 months' time. We continue to project that our CapEx spend to be broadly stable as a percentage of sales to in the coming years. In this current business environment, we focused very much in free cash flow generation. In the first half of 2026, we've delivered an operating free cash flow of $753 million, an increase of $285 million compared to same period last year. For the full year, our internal target is to deliver approximately USD 1.3 billion operating free cash flow, and we are very confident in achieving this target. When compared to first half 2025, our net cash position increased from $126 million to close to $1.1 billion in 2026, demonstrating our cash flow generating capabilities, prudent working capital and balance sheet management. We are confident that we will continue to be in a net cash position by end of 2026. In the first half of 2026, we've increased our cash balance by $281 million or 17.5% to close to $1.9 billion, while reduced our total borrowings by $659 million or 44.5%. The reduction in borrowings were mainly by paying down $418 million the more expensive floating rate working capital borrowings and $241 million longer tenor fixed rate debt matured during the period. Lower cost fixed rate debts now account for 80% of our total debt portfolio. We will continue to leverage our strong balance sheet for opportunities to increase our long-term fixed rate borrowings with the most cost-effective courses to support our long-term growth strategy going forward. With that, I would like to pass the presentation to our CEO, Mr. Steve Richmond.

Our journey at TTI has always been built on our 2 bookends of success, our people and our culture. We recruit, retain and invest in the best people around the world, and that is core to who we are every single day. Our users, our distribution partners and our shareholders have all seen firsthand a passion these people bring, how they drive solutions every single day, how they drive both the top line and the bottom line. That passion is exactly what delivered another record first half in 2026. Now what sets TTI apart is that we perform as 1 global team. Our operations, our new product development, our commercialization teams challenge each other constantly to define what great looks like and how we improve, how we get better every single day. And that 1 team philosophy is anchored by a senior leadership group that has been together for nearly 2 decades as well as the next generation of leaders that are coming up that have been together for over a decade. All of them together understand that they have to have candid dialogue and trust that come from those relationships that they have built and this is a genuine competitive advantage and a core part of our culture. As we look at the first half of 2026 and beyond, there are 3 areas I want to focus on: growth, profitability and execution. Let's start with growth. And EMEA, our teams dominate specific markets on both the consumer and the professional business. And the opportunity ahead is to extend that same donation into new markets. With RYOBI on the consumer front and MILWAUKEE on the professional front, in the first half, AVA delivered outstanding double-digit growth in MILWAUKEE. In Asia and Latin America, we are still at the beginning of our journey. On the MILWAUKEE side, we have moved from test and learn to an invest-and-grow approach, and for the first time, we now have that same runway opportunity for RYOBI, the #1 consumer brand in the world. And even in our most established markets, North America and Australia, we believe we are still in the early innings because our relentless focus is on expanding the market, launching new businesses and earning the right every day with our consumer and pro to grow. Now the second is profitability. I have never seen us more aligned as 1 team than we are right now. In the first half, we expanded gross margin to a record 42.9% and grew EBIT margin to a record 9.9%. All of this comes from disciplined portfolio choices, the mix benefit of our 2 dominant higher-margin brands and the annualization of our tariff mitigation work. But what excites me most is underneath those numbers, we are unlocking leverage and global alignment at a scale, coordinating across brands and regions and functions in a way that lets us drive down cost to reinvest in the business. We are also deliberate about where that margin comes from. In our consumer businesses, we are at the beginning of a journey on a radical approach to cost, reengineering our products that they are designed around what the end user, what that consumer actually needs, delivering the features that matter while taking cost out of everything that does not. And in MILWAUKEE, we still have significant room to capture value because of the productivity and safety our solutions bring to our end users every single day on the job. We put that together and this is why our confidence in reaching our 10% EBIT margin target by '27 has only grown. Third is execution, and this is clearly the hard part. Execution takes leadership and grid. It is where companies separate themselves. The first half of 2026 tested exactly that. Commodity pressures ramped up meaningfully, oil. And metals and the cost of freight, all moved against us. And managing that was generally a complex job for our operations team. They deliver protecting our margins while keeping our factories and our supply chain running. And that is the kind of disciplined execution that never makes a headline, but shows up an outstanding results. But execution is about offense as much as defense. We have to execute for the consumer, bringing the innovation they actually want. So we keep on growing the business. And we have to execute on expanding the highest growth professional end markets, like the vertical supporting data centers, energy, utilities and critical infrastructure, where demand for productivity and our safety solutions delivering is only accelerating. Doing both of these at once under real cost pressure is a hard, and it is exactly what our teams delivered in the first half. Our financial focus areas remain clear at TTI and are shared by every leader in the company. First of all, sales growth is a nonnegotiable. We are a growth company and a technology company that must grow. Our internal cadence is mid- to high single-digit growth for TTI overall. Double-digit for MILWAUKEE and single digit for RYOBI. On profitability, our internal plan is to reach a 10% EBIT margin in 2027. And after delivering 9.9% in the first half of 2026, our confidence in meeting or exceeding that target has only increased. And on cash, we are raising our internal free cash flow target for 2026 from over USD 1 billion to over USD 1.3 billion, and we're comfortable with sustaining similar levels of cash flow on a medium-term basis. Beginning this period, we have realigned our reporting into 2 segments: professional and consumer, which better reflects how we run the business every single day. Professional is led by MILWAUKEE, consumer is led by RYOBI. Together, these core brands now represent 93% of our sales and both delivered exactly what we expect of them in the first half of 2026. Let's start with MILWAUKEE. On an underlying basis, MILWAUKEE grew 10.5% in local currency, with double-digit growth in every region throughout the world. The Americas up 10.5% on an adjusted local currency basis, EMEA up 10.5% and the rest of the world up 9.9%. Now MILWAUKEE, as you know, is not a product company, it is a solution company, addressing roughly USD 160 billion market and delivering productivity and safety on the job every single day. Structural labor shortages across the trays we serve from mechanical and electrical and plumbing and transportation maintenance and utility keep increasing demand for exactly the solutions we build every day. In the first half, we brought breakthrough innovation to those trays. A few of them, the MAT Fuel Stryker, the world's first cordless hammers and the MX fuel electrofusion processor for gas utility work, all connected through ONE-KEY, the industry's largest IoT platform. MILWAUKEE is also dedicated to creating innovative solutions that help our users stay safe. Our new dipped gloves with wear defense protection expands our robust glove product offering, delivering the longest glove life while providing high dexterity for demanding applications. We are a solution company driving solutions and productivity on the job every single day. On the consumer side, RYOBI, the #1 consumer brand in the world, addressing roughly a USD 80 billion market, grew 1.7% in local currency to $1.9 billion. Our Power Tool business grew mid-single digits, while outdoor was roughly flat against a softer weather-affected season across EMEA and parts of the United States and the timing of seasonal load-ins. Our platform has never been stronger. We hold the largest installed base of users in the world across USB Lithium, 80-volt ONE+ and our 40-volt platform. And in the first half, we extended that lead with new technology, 80-volt ONE+ Edge [indiscernible] batteries an all-new line of the highest-performing 40-volt mowers and outdoor products and further expansion into cleaning and lifestyle and recreation with great examples of innovation such as our pull vacuum and our outstanding fan portfolio with the best distribution partners anywhere, the Home Depot in North America, Bunnings in Australia and New Zealand and our early expansion into Latin America, Asia, RYOBI keeps on growing, even against modest housing turnover. The other half of the portfolio is disciplined. Our noncore businesses now represent just 6.6% of global revenue. And we deliberately brought them down 19.4% in local currency versus last year. The largest piece is the planned exit of HART. About USD 156 million of our 2025 sales that will not repeat. And the balance is that continue revitalization of our floor care and our other consumer brands. While we are walking away from unprofitable revenue and rebuilding floor care the right way, applying what RYOBI in MILWAUKEE have taught the teams about us earning the right with the consumer, driving disruptive innovation, technology and best cost. These are hard decisions, but they are the right ones. Shrinking the noncore, precisely what lifted our consumer segment's EBIT margin 133 basis points to 8.5%, and freed us to invest more into the MILWAUKEE and RYOBI brand. Let me spend a couple of minutes in MILWAUKEE and the size of the opportunity in front of us. What you see on this slide is $150 billion plus global opportunity. Now I want to make clear about what that number is and what it is not. It is based on the trade verticals we serve today. The market segments, those trades working today and the regions we operate in today. It is not based on the future and the future is bright because we are going into markets more and more and more regions of the world, adding more businesses and even more verticals every single year. That opportunity is anchored in our core trades. Today, MILWAUKEE is building deep relationships across 10 key trade verticals mechatical and electrical and plumbing and remodeling and utility and transportation maintenance and general contracting, landscaping and tree care, energy and mining, a level of scale and focus that is simply unmatched by any other company in the industry. And this is not marketing, it starts with more than 1,600 highly skilled job site solutions team members embedded with the trade every single day, understanding the rapidly changing needs and developing solutions with them. Solutions, they not only trust, but specify and demand to drive productivity and safety and their work. This is what makes MILWAUKEE different. We are not a product company. We are a solution company, delivering productivity and safety on the job every single day. And that is why the pros trust us everywhere in the world. Today, that pipeline shows up as more than 17 distinct global businesses, each built for a specific [indiscernible] and led by subject matter experts who understand the problems those trades face. And because we solve the problems of today while anticipating the problems of tomorrow, we do not just enter markets, we create entirely new ones, which is exactly how we keep expanding, this $160 billion-plus opportunity well into the future. You saw that again in the first half of 2026 with over 200-plus breakthrough new products aimed squarely at these high-value trades. From our new dip gloves with wear defense protection to the M18 fuel Stryker, the world's first cordless hammers [indiscernible] for transportation maintenance and the MX fuel electrofusion processor for the gas utilities, all connected through ONE-KEY. This is the engine behind the a purposeful strategy. the deepest relationships with the trades in the industry and a runway to grow this opportunity for years to come. Steven shared this slide with you last time. and we are showing it to you again this time because it is simply that important. The key takeaway is where MILWAUKEE's demand is anchored and even more importantly, where the growth is today and where is it going. Let's start with technology and energy and manufacturing, which is 32% of our demand. This end market has taken off. The sector is growing at a 20% rate. This is data centers, high-tech manufacturing and power, water, gas and telecom utilities, all supported by heavy investment in AI, reindustrialization, grid monitorization and electrification. And consider this, the work required by mechanical and electrical and plumbing trades inside a single data center is roughly double the work of a traditional nonresidential construction site. In a market where skilled labor has never been more constrained, which is exactly why their trades partner with us on safety and productivity. Next is service and maintenance, our largest and most durable end market at 47% of demand, which tends to grow at a 10% rate. This is work that has been done regardless of the economic environment, residential and commercial services, transportation, maintenance and mining driven by aging homes, aging commercial buildings, aging industrial facilities and an aging vehicle fleet, all creating steady surge of retrofit repair and upgrade work. The rest of our business, home remodeling, new home construction and other nonresidential sells into a space that is essentially flat. Put it together and our 2 anchor end markets are about 80% of demand worldwide, which greatly overweights our exposure to the traditional residential construction and remodeling markets. That is the whole point of this chart. We are purposely entrenched in the fastest, largest and most resilient segments in the world. And it is why we remain so confident in MILWAUKEE's 10%-plus growth well into the future. Here, we are driving innovation specifically for the users that care about productivity and safety on the job every single day with 20% and 10% end markets. This is where we are focused on adding over 200 new products alone in the first half of 2026. Now I want to spend a moment on something that does not always get enough attention, our distribution partners because a great brand is only as strong as our partners who bring it to the world. What you see on this slide are the best distribution partners in the industry, all around the globe. And the message is simple, MILWAUKEE is the brand that distribution counts on [indiscernible]. We are intentionally selective about who sells MILWAUKEE, and we partner with the very best in every single market throughout the globe. From the Home Depot in North America, to the leading industrial and electrical and plumbing distribution partners across North America and Europe and Asia and Australia and Latin America, these are not vendor relationships, they are true partnerships built over many years, grew together and win together. And the reason these partnerships endure is that we deliver for our partners both sales and profitability. When MILWAUKEE is on the shelf, we bring demand with us. Our teams in the field create the pull-through. And we back our partners with a service and support that protects their margin and their reputation. We add value to their business, and they help us grow ours. This is what the best partnership in the industries looks like. That is the whole story of the slide. strong support for our core trades, delivered through the strongest distribution network in the world. It is a genuine competitive advantage, and it is one more reason we are so confident in where MILWAUKEE is headed in '26 and beyond. Now let me turn to RYOBI and the $80 billion plus global opportunity in front of the #1 consumer brand in the world. What this slide lays out is our do-it-yourself user strategy and the idea behind it is simple. We serve the DIY user across their entire life, not just one quarter of it, from light do-it-yourself first to having do-it-yourself first, transportation maintenance, lawn and garden lifestyle and recreation and cleaning, RYOBI is the brand that consumer routes for in their home, in their garage, in their yard and everywhere in between. The power of this strategy is our platform. We hold the largest installed base of consumer users in the world across USB Lithium, 18-volt ONE+ and 40-volt, for over 20 years, those platforms have been forward and backward compatible. So every toll user understands whatever product they have bought, it works with the batteries they already own. That confidence is what pulls the do-it-yourselfer deeper into the RYOBI system, adding to their collection year after year, and it is what lets us keep expanding into entirely new categories, most recently cleaning and lifestyle and recreation, reaching consumers of every type throughout the world. We combine that with the best distribution partners in the world, The Home Depot in North America and Bunnings across Australia and New Zealand, where our dominance is unmatched. Together with our top European retail partners, and we are still in the early innings. We are just beginning to expand RYOBI into Latin America and Asia, exactly the kind of runway that keeps this $80 billion-plus opportunity growing well into the future. You saw the strategy at work in the first half of 2026. RYOBI grew 1.7% in local currency to a USD 1.9 billion, led by mid-single-digit growth in power tools as we extended our lead with a new 18-volt ONE+ Edge Tablets batteries and an all-new line of the highest-performing 40-volt lowers and outdoor products and a growing lineup of cleaning, lifestyle and recreation products. From the most powerful misting fan as part of our leading portfolio of fans to our new pull vacuum, that is the RYOBI user strategy, serve the DIY consumer across every part of their life. Keep them on our platform, keep on giving them reasons to grow with us every day, everywhere in the world. RYOBI's growth strategy comes down to a single idea. It is owning the consumer, and we earn that position through 3 reinforcing engines. Number one, consumer innovation; number two, enabling technology; and number three, demand generation. They all work together to turn a first-time buyer into a lifelong RYOBI loyalist. Let's start with consumer innovation, bringing the products consumers actually want. In the first half of 2026 alone, that meant the new 18-volt ONE+ Edge batteries, and all new generation of the highest-performing 40-volt mowers and outdoor products and continued expansion into cleaning, lifestyle and recreation. We are constantly giving the consumer a reason to reach for RYOBI first. Underneath those products is our enabling technology. The batteries, the motors, the electronics that most users never see. Our new 18-volt ONE+ Edge tabless battery is the perfect example. It gives every ONE+ user an instant upgrade more power, more run time, while running cooler, charging faster and lasting longer. And it is fully compatible with a platform they already own. That technology developed and protected across USB lithium, 80-volts ONE+ and 40-volt is what makes owning the end user possible. The third engine is demand generation, getting those solutions in front of our consumers and pulling them into the system. That is where our distribution advantage comes in. The best partners in the world, The Home Depot and Bunnings and our top European retailers, and a growing digital and in-store present that builds awareness and drives trial across every one of our categories. Put the 3 engines together and you get the outcome at the center of this slide, owning the consumer and creating a RYOBI loyalist. We already hold a large installed base of consumer users in the world and millions of new users join every single year, adding to the RYOBI collection over time. That is the flywheel. The more we innovate, the more users we win, the more of the platform they are, the more loyal they become and the more durable RYOBI's growth becomes for years to come. Now let me turn it over to Ty and he is going to take you through all give you some color on the financials.

Thanks, Steve. I have the pleasure to be here today to provide more detail and clarity into the financials of the business. Let's start with sales growth by brand. And the main point on this slide is our 2 core brands. The combination of MILWAUKEE and RYOBI delivered underlying local currency growth of 8.2% in the first half. MILWAUKEE grew 10.5% on an underlying basis in local currency after adjusting for the 2025 timing impact of the MILWAUKEE Americas ERP system conversion. And RYOBI grew 1.7% in local currency to USD 1.9 billion, led by mid-single-digit growth in power tools with a softer weather-affected outdoor season across the globe. That 8.2% of core brand growth was then offset by the deliberate exit of the HART business and the continued rationalization of floor care and the other consumer brands, which together brought our noncore business now just 6.6% of global revenue, down 19.4% in local currency. Net of all of that, TTI delivered record first half revenue of USD 8.3 billion, up 5.9% on a reported basis and up 5.9% on an underlying basis in local currency. Now let me spend a moment on MILWAUKEE's sales momentum because I want everyone to understand the magnitude of what we are working towards. Our 10.5% underlying growth in the first half is right in line with our internal goal of low double-digit sales growth for MILWAUKEE. And that is a goal that we have been telling you you about and delivering against for a number of years. But here is the point I want to really land. Growing MILWAUKEE at low double digits now represents more than $1 billion of sales growth every single year based on our scale. And all of it is organic. None of it comes from acquisitions. This is no easy feat, and our team has done a phenomenal job delivering to these high expectations and making MILWAUKEE the #1 professional productivity solution provider in the industry. Now let's walk the gross margin for the first half, and I want to do this in 2 steps, start with the first half of 2025. On a reported basis, gross margin was 40.3%, but that was a number that was held down by 2 things worth normalizing out; one, the drag on gross margin from the HART business; and two, the excess tariffs we were absorbing at the time when we saw global tariffs peak at their highest in Q2 of 2025. Normalizing the first half of 2025 for both of these brings our comparable base to roughly 41.2%. From that normalized base of roughly 41.2%, the walk to our record 42.9% begins with 1 headwind in the period, higher commodity prices as oil, metals and freight all moved against us. We more than offset that through our 2026 activities annualizing our tariff mitigation actions, which include optimizing production, productivity gains and a strong supplier partnerships, margin accretion across EMEA and Australia, favorable mix towards our higher profitability core businesses, the strength of MILWAUKEE in the high-growth technology, energy and manufacturing end markets that Steve mentioned in his section and continued improvement in our noncore business. Net of the commodity headwind, those activities delivered 163 basis points of expansion to a record 42.9% gross margin or 258 basis points on a reported basis versus the first half of last year. Let me be clear. Our first half gross margin had no favorability for IEEPA tariff refunds as we did not receive any meaningful refunds and do not have any clarity on how much we will be receiving in the future. Let's now turn to the EBIT margin walk for the first half, and it follows the same logic. We started the first half of 2025 at 9.1% EBIT margin. From there, the 258 basis points of gross margin expansion I just walked you through was by far the biggest driver, partially offset by 173 basis points of higher SG&A as we deliberately invested in our new product development, field resources and commercialization activities along with some write-offs of intangibles tied to product categories we were rationalizing. Netted out, and we finished at a record 9.9% EBIT margin, up 86 basis points. And with 9.9% already in hand at the half, we are firmly on track towards our internal target of 10% EBIT margin in 2027 with further upside beyond. Let me close with cash because this is what ties it all together. We generated $753 million of free cash flow in the first half, up $285 million year-on-year and ended the period in a net cash position of $1.066 billion. That balance sheet strength gives us the confidence to raise our internal free cash flow target for 2026 from over USD 1 billion to over USD 1.3 billion. And we're putting that strength to work for shareholders. In June, we commenced our $500 million share buyback plan. And through the end of July, we've already repurchased USD 41.5 million of stock. Record first half sales, record growth and EBIT margins and record profit together with $753 million of free cash flow and the healthiest balance sheet in our history is exactly the combination that lets us keep investing in the business while increasing returns to our shareholders for years to come. With that, I'd like to hand back to the Chairman to close. Thank you.

As you can see from our presentation of our results, I'm extremely excited and confident about the remainder of the year and the future of our company. We thank you for your attendance today, and we express our deep appreciation for your continued support of the group.

[Operator Instructions] And your first question comes from the line of Tim Wojs from Baird.

Maybe just the first question, and I'm not sure who wants to take it, but with you guys doing 9.9% EBIT margins in the first half, what are the puts and takes to getting to that 10% EBIT margin in 2026 or a year earlier?

Yes, Tim, this is Ty. I think we're constantly looking at what the back half and modeling out what that looks like. As we spoke in the EBIT margin walk, we do have some commodity pressures that we're working to offset in the back half of the year as we look forward to that and trying to balance that out with the continuation of delivering the results. But we have extreme confidence in delivering it in 2027, and we're working towards -- yes, we're working towards delivering that and taking a look at what that means. And just note that any forecast that we do have and any projection that we're looking at right now doesn't bake in any tariff refunds or anything of that nature. So we could potentially see some of that in the back half, so...

Okay. Okay. And then just kind of stepping back on kind of the high-tech and data center and kind of large job site business. Could you just give us a little bit of an overview of like how embedded you guys are on these job sites? Because it's my understanding that you guys have a lot of people in the field that's hard to replicate, and you've obviously been investing in that market for a very long period of time. So if you could just kind of give us a little bit of flavor in terms of people out in the field, relationships and then how those job sites actually function from a tool demand standpoint?

Thanks for the question, Tim. This is Steve. No question. This has been part of our long-term journey, as you're well aware and many other people are. Let me just frame it this way. For 20 years plus, our strategy throughout the globe is to become those exclusive partners with the best mechanical and electrical contractors throughout the globe. As you're well aware and everybody is aware that, that is the biggest piece of the data center builds. And our relationships are from the top level of the owners of the companies and the trade associations, all the way to the people in the field and the safety directors as well as how we approach the builders or the companies themselves that are driving that demand. The other piece that ties to that is how myself and Shane and the entire MILWAUKEE team globally, Alex in Europe, Mike Brendle in Australia, Craig Baxter in Canada, David Butts but in Asia, every one of us is committed to be on those sites. So this is not about us showing up and visiting one site and one location and saying that we're trying to learn it. We have been in the sites from the conventional data centers to the AI data centers. We just finished trips in the past 6 months. We were in Milan. We were in Frankfurt. We've been in the Canadian market. I just finished Canada and Japan last week, all over the U.S. with our partners from the builders and the construction companies all the way to the largest mechanical and electrical companies throughout the globe. And each and every one of our job site solutions team that is responsible for those sites understands how to show productivity and safety on that job. So we have a deep relationship throughout that part of the business, and it just didn't start yesterday, as you're well aware.

We will now take our next question from Karen Li from JPMorgan.

Okay. Congratulations on the fantastic set of results. I'm really glad to see that TTI is back on track for growth and be. Stephen, you mentioned in the presentation that the technology, energy and manufacturing revenue growth, if I hear that correctly, is growing at over 20% rate. I believe this is mainly driven by AI PC-related revenue. Is it possible to share how much this revenue now sitting within this segment? Just to confirm, I think previously, we heard about half of this technology segment. And how is this going to accelerate in second half this year, more importantly, going into the next few years? So the reason why I'm asking is because we noticed Quanta Services, which I believe is one of the key partner for data center build-out, they have just a few days ago, upgrading their technology and low center revenue growth guidance to 220% to 240%. I believe this is for full year 2026. This has just been lifted from like 100% to 120% in first quarter. I believe there's a strong issue to TTI this part of revenue, but I definitely want to hear about this from you. Yes. This is the first question.

This is Shane Moll. Thank you for the question. So we're excited about the growth that's happening in that segment of the end market that we're deeply engaged with, as Steve noted, on a global basis. And we see roughly half of that segment of technology, energy and manufacturing is tied to work we're seeing in data centers, and that continues to be a robust part of our business, and we expect that to continue in the future.

Is it possible to probably just get some idea like what would be the related AI PC revenue like, say, like in 2030. We see Quantum Services, for example, is painting, I think, a big pie as big as, I think, USD 800-something billion for revenue 10 related to AI PC. How is it going to translate to TTI's revenue, particularly? I think Stephen mentioned again, MILWAUKEE is [indiscernible] is looking at USD 160 billion plus.

Well, based on where we see that end market today, that it's outpacing the growth of our total business at the current rate, and we expect that to continue in the future based on what we have line of sight to today. So we remain deeply engaged with the contractors that perform the work with the owners and the hyperscalers, and we're building partnerships and those partnerships continue to strengthen every single day. So this is all business that we continue to earn, as Steve noted, for a very long time with our partners and that end market demand remains very strong, and we expect that to continue as we move forward.

Got it. So I don't know whether I can ask one quick question. Does it count the 2 that I just asked Okay. This is possible. Can I probably just quickly check with Ty. Ty, I think you highlighted very well. We are really, I think, a strong free cash flow generating machine. The net cash balance at the end of last year, I believe, I think it's piling out to historical from context, very high level. We are stepping up on buyback, and we are actually raising the payout. But I think with this pace of free cash flow generation, we -- what we're going to do, I think, in the next few years.

So I think the question is around the capital allocation strategy, right, and what we're looking to do with the free cash flow. And I think our policy is what we've laid out in our previous earnings where we continue to see a strong, healthy balance sheet. We see strong cash generation from operations. We've -- we're executing the buyback that we're doing. We continue to increase the dividend payout in accordance to that. And then we're also making sure that we've got enough cash on the balance sheet as we look for any potential maybe acquisitions that we see out there that may be small in nature and fit within our businesses. And then we'll continue to keep looking as we -- in reevaluating the Board has agreed that we'll continue to assess the buyback in the future and take a look at how we continue to return the cash to shareholders.

[Operator Instructions] Your next question comes from Sky Hong from UBS.

First of all, congratulations, right? You guys never disappointed. Great job again. Can you hear me, right?

We sure can. Thank you.

Okay. I think, Steve, you mentioned, right, compared to traditional sort of non-infrastructure spending, right, AIBC sort of density is 2x, right? So for example, like for one like AIDC investment, total investment, what percentage will go for tool related related [indiscernible]?

Scott, maybe could you repeat the question? Are you asking what percentage of like a typical project, a typical data center project might be allocated to tools?

Yes. Correct me if I'm wrong. I think Steve mentioned AIDC to spending like 2x of traditional non-infrastructure spending, right? I think Steve mentioned that number, right?

That's correct. I think you need to think about this a little bit differently and that you can't look at the dollar spend of the billions to be able to put a data center up. What you can say is that the more complex from mega job sites and data center and infrastructure and utility, the more complex the build is where the type of worker that is required is more concerned about productivity and safety and getting that job done faster and more efficiently, what the end user wants at that point in time are tools that will enable them to be able to complete that task faster. And that's where we fit in. So if you talk about a drill driver and impact, there's a lot of great products out there. Yes, we think we have the best product in the world. But if you talk about a roll groover, if you talk about a cutter in a gripper, if you talk about our Bolt helmets, if you talk about our Made in America hand tools, if you go through the extensive array of products that we have that solve problems with those users, that is why we are the brand of choice on those difficult, challenging jobs where productivity and safety are very important.

I see. But do we have any like rough percentage of like for the AIDC total investment, what percentage, like are we talking about like below 1%, 0.5%, do we have any sense? Like do you guys have any like quantitative numbers?

No, we don't look at the percent of the cost of a data center build or a new fab build and look at the cost of tools, accessories, safety, hand tools and all of the other businesses we're in today and the potential businesses we're in the future.

Sky, I think the other thing you might just want to consider, too, is just the positive mix impact you get from the business that you're referring to. And certainly, some of the -- if you look at the gross margin expansion that we had in the first half of the year, one of the very key drivers of that was the outgrowth that we saw in our high-growth markets, which account for about 1/3 of the global MILWAUKEE business.

We will now take our next question from the line of Eric Lau from Citigroup.

Congratulations for the management for the excellent result. May I have just 2 questions regarding the margin and cost. We see the Ty have done a good job for the gross margin breakdown, actually by almost 250 basis points. However, we spun out the distribution cost also increased significantly around 190 basis points by almost 2% point on the sales. So I'm not sure the gross margin expansion at a large degree and then distribution cost increased also at a large degree. I'm not sure any change of the accounting policy for booking margin and also the distribution cost or actually impacted by the tariff.

Eric, I guess the question is, is that the -- in our EBIT margin walk, we really pointed to the annualization of the tariff mitigation efforts, that's net, right, of what we're seeing. So it's not just the one side of it, but it's actually a net impact there from that so...

No. I mean why the distribution cost increased significantly by almost 190 basis points?

Yes, the selling cost is in the distribution.

Right. But actually, distribution cost increased 17%, right, versus the sales growth only mid-single digit. Why is that?