Techtronic Industries Co Ltd
HKEX:669
Earnings Call Analysis
Q2-2023 Analysis
Techtronic Industries Co Ltd
Techtronic Industries has showcased resilience amidst a challenging economic climate, delivering a performance that, while subdued, underscores their strategic agility. The company reported a modest decline in sales, with a local currency sales decrease of 1%, marking a shift from the previous year's 10% increase. Nevertheless, this slight contraction is seen as maintaining great strides in market share growth achieved over the past five years, particularly after a robust 52% sales growth reported in the comparable period two years prior.
A significant reduction in inventory levels by $651 million from the first half of 2022 demonstrates Techtronic Industries' commitment to strengthening its balance sheet and enhancing liquidity. This reduction aligns with efforts to aid retailers and distributors in managing their stocks, a noteworthy accomplishment given the broader context of high inventory levels at retail partners as the year began. Concurrently, the company is celebrating a notable increase in free cash flow, boosting it by $649 million compared to the same period last year. These actions reflect a strategic pivot, tempering capital expenditures to 3% of sales or $210 million, revealing a more conservative investment approach in response to the current economic environment while continuing to fund crucial initiatives such as logistics improvements, manufacturing expansion, and product innovation.
Techtronic Industries achieved a slight uptick in gross margin despite the overall sales decline and aggressive production shutdowns in consumer-facing segments. This improvement was largely driven by the higher-margin Milwaukee business unit, which experienced growth that outpaced the rest of the company. On the other hand, operating profit (EBIT) saw an 11.5% decline year-over-year, landing at $560 million for the half. The company attributes this to necessary investments in geographic expansion, in-field marketing, and new product development in their Milwaukee segment, balanced against cost-cutting measures in consumer divisions, including measured scale backs in product innovation efforts and a reduction in structural overhead and staffing.
Despite facing headwinds, Techtronic Industries took decisive actions to prepare for a sustainable future. The firm restructured consumer business overheads, reducing personnel and incurring severance costs, which are expected to yield SG&A efficiencies moving forward. They have also strategically refocused product development investments, prioritizing high-impact projects and preparing to capitalize on changes in the DIY market trends when they arise.
Looking ahead, Techtronic Industries exudes confidence in its growth prospects for the latter half of 2023. Anchored by strong demand and point-of-sale trends observed in July, the management anticipates a return to mid-single-digit growth rates for the company. This projected resurgence is in line with their history of market outperformance and is a testament to the robust foundational strategies they have instituted amid a turbulent economic landscape.
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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 six months ended June 30, 2023.
After the presentation there will be a question-and-answer session. [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 results announcement 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, void 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 in 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 am 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.
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 product than any of our competitors in the industry.
We continue on with our commitment to outperform the market in good times and bad, and that was certainly clear in the first half this year, where we significantly outperformed the market globally, and we're very proud of that. We grew sales negative ‘22 in the first half, so we were down a little bit, actually in local currency down 1% and look we don't like not growing in sales, but when you look at how we performed over the last five 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 five years. When you look at our 2-2 decline relative to the past, as you can see, we have held on to the leadership position and 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 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 million 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 $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 three 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.
One of the true highlights of the first half this year is free cash flow. We generated $649 million more cash flow than one 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 a 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, and 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 EBIT 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 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 we have focused our product development. But right now we're going to be prudent and conservative in our investment in 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 non-recurring 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, requires 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 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 we're going to become much more selective and focus only on 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 five years, particularly the last three, launching one new breakthrough product after another consumer that we will be in 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 non-strategic, non-essential, nice to do SG&A. These are not easy things to do. And it's not like we were bloated before when we came into the year, but the fact is we are going to we are going to manage this company based on us 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 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 that's a positive sign, although we have a lot of long term potential to grow EBIT, but second half this year, it'll be up slightly. And free cash flow will be a highlight as we are really laser focused on cash flow in the second half this year. We're going to generate a lot of cash for the year, that'll put us in a position where we believe will 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 one and two reductions of 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 three targets that we've set. This is a growing level of progress 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 will intend to meter and see 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 many 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 six months and over the past three 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. That was a tough six-month period for this group. The fact that the sales are down 15% and 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 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 inventory. And as you see in our results, we've done a pretty good job here.
Now, we do realize that the DIY arena is soft today and we think it will stay soft certainly through the second half this year. However, I intend to outperform the market here like we do in all of our businesses. And the good news is that RYOBI 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 in 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 DIYers. It allows us to get into market with people with smaller homes or condo dwellers and it allows us to address the market for job, for in-home assembly. Whether you buy a bicycle or 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 feather light way of, instead of the primitive [Allen] wrench that you get oftentimes for a home assembly, now you have a sophisticated way to do it 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 a hobbyist 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. Now the centerpiece of our RYOBI leadership position is RYOBI One+.
This is a system that's 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 a range, the globe's leading range of DIY outdoor power equipment products with our 40 volt platform and this is lawn mowers and string trimmers and hedge trimmers and snow blowers and tillers, blower [vax] and augers and on and on and on and on and the world is still in the embryonic state, the near embryonic phase of converting from petrol powered outdoor to high performance cordless. We intend to lead that charge and the 40 volt system is doing just that.
Now RYOBI Cleaning is a new area that's actually experiencing even in this economic environment, experience 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 etc. We in this case we have the 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 Stickback. There's over 40% of all people in the U.S., Australia, New Zealand, Canada, over 40% of these DIYs and many DIYs in Europe already have a RYOBI One+ battery system in the household.
So when people walk into a Home Depot they're pre-sold on this particular vacuum cleaner versus one of the other brands where the battery is imprisoned on board 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 Floorcare which in the leader imprisons the battery on board the vacuum cleaner. So when the battery goes bad you have to throw away the entire product with the Hoover system or the RYOBI system. You simply remove the battery if the battery needs to be replaced. You can recycle the battery by a new one and you can continue on with the host product.
As I mentioned in the Hoover family the technology that we develop in Hoover like with this spot cleaner is something we can also cascade into our DIY RYOBI range. So this gives us a lot of leverage and a lot of clout and a lot of way to leverage the investment we make.
Our product development in Floorcare is something we can again cascade into the RYOBI line and gives us great leverage. So look we believe the Floorcare 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 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're outperforming all of our competitors in and outperforming the market and that's not going to stop.
Now if you look back at Milwaukee from 2010 till 2022 we grew our compound annual growth rate and it's when we look back it's hard to believe we grew CAGR of 24%; 24% growth and we've gone from small to a 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 are we feel the outlook for Milwaukee will be to grow between strong single digit and low double digit levels for the for the next three years for the for this year and for the for the next three years up to 2026.
These growth levels are above market but do reflect the reality that interest rates are high commercial construction is soft res content is soft and although there's a lot of elements of there are many many verticals that that have a 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 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 that 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 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 beckons 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 flow in 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'll help us as we move forward and then I think something investors really need to understand is that we are growing the addressable market by growing the average selling price for the ASP in the products that we sell.
And I'll show you an example in a second okay let's talk about cordless overall in Milwaukee we are the number one global pro cordless range of power tools Milwaukee has in our in our total fleet of products 445 cordless products are kidding me the we're going to need to figure out a way to have a bigger slide or have two slides to show all their products in the system and this is important because the more products you offer in a battery platform the more compelling that platform is to a professional user who's deciding on what platform to choose and we are we are going to catalyze the growth of Milwaukee cordless with what we introduced yesterday.
Actually in Milwaukee we introduced a breakthrough level of a battery technology we will subrand this forge now and again we launched this just yesterday but let me 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 the these technology that we're harvesting here allows us to do is cut impedance down is to eliminate the friction in 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 are pop sometimes they're what we call tabless and we have configured what we think are the are the best the best designs in battery cells and we've taken the firepower of the of the state-of-the-art cells and designed that in 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 supercharging technology which we're also launching.
So we have launched chargers, we call superchargers you take a forge battery in a supercharger and you can get this battery charged you get 80% of the power is charged you can pop it in a charger and in 15 minutes have the power up to 80% level this changes the game on and in hundreds of different professional applications and we're the first and we're we are way ahead of the industry here with this 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 we just to summarize cordless 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 us uh with Milwaukee where our market share as you go outside the us our market share is generally lower than what we know red zone display that we you can see here this is actually red deer Alberta and this showcases 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 the 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 quarter 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 the company called Sydney Tools in Australia. They do have 86 outlets throughout Australia. They are growing like crazy. And when you walk in the store, 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 Latin America, where we feel confident in the local economy. And this is a good example.
Here's the display in Mexico, where we're seeing significant growth. And there's lots of upside here as we go forward. We have not attacked 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, etc.
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 us, 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, etc. There's so much potential here that we really said 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 number one and number two products in infrastructure, no matter what infrastructure project might be. So the impact branches which drive large mechanical threaded fasteners or allow you to repair various infrastructure projects. This new with the forge battery, there's more, these are more powerful, lighter, they run cooler, they're smaller, more compact, there's more features on board. And it goes on and on. And this, this will be a game changing step forward in the infrastructure arena because of the technology that we've brought to market. One of the areas that's really exciting is the 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 bend down and get into uncomfortable positions, which, 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, of course, the Milwaukee batteries, including forge. This is a unique TTI development. We work 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, in every part of the overall construction market. Commercial construction of office buildings is of course, very, very soft. Rescon is, is, is it may be bottomed out, but still nowhere near where it was two years ago, it'll 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, that's super compact. So we even extended reach ratchet with it with a super small business end. And this allows you to get in to areas and do assembly repair maintenance without the knuckle busting manual wrenches that are in use today.
In these tight areas, you need, you need a compact design and we've delivered it finally here with this, with this new box wrench. Now, renewable energy is, is as you, 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, whatever, we have the products that are ideal for this, for this marketplace.
In fact, for solar panel installation, we have this unique controlled torque impact wrench. And this does two applications in 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, we have a outstanding team focused on this whole renewable energy sector, which, which is going to grow for for decades and decades. And, 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 utility power utility grids need constant repair. We have a lot of unique products here that are focused on helping this, this power utility, this windsman achieve his job safe, more safely and with more 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, 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 then power tools are needed for this mining to support the mining activity and to maintenance repair and the communities, importantly, that's around mining startups. So we're all over this and we, 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 [indiscernible] battery-powered products, whether it's the landscaping sector or the arborist, as you see in the photo, we are, we intend, 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, we have entered into the, 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 built out over the last nine months. And we tend to be leaders in the electrician hand tool market. Of course, we are already leaders in the cordless power market, but there's a lot of hand tools in use here too.
And you'll see it Milwaukee now in this space. Okay, so let me, let me just step back for a second. People ask us all the time, how, how, why are you guys saying that the addressable market for TTI is, is so big? And, and here's one of the things people don't understand. And when you buy a cordial, the leading professional grade cordless cordage drill on, on your left here, it's 60, you can buy these for $69 today. Still, if you, if you convert that end user, who's using these corded drills, and, and, and get that user to move over to cordless, our latest fuel version, and this is without forwards $299. So the ASP, the the increase in the market size, just with the shift of corded, the cordless is, is significant. And it's the same as 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, 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 pack out. It's 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, their tool inventories and pleats. And this is a global phenomenon. One of the, one of the areas that really does help us support the, the ESG initiative of the company is, is the BOLT, the personal protective equipment featuring the BOLT system, which is in terms of job site safety, we are, 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 are, that will are significantly more safe than anything in the market today. And we have over 21 different accessories that you clip onto BOLT. So whether you're in mining or power utility repair or submarine maintenance, there, there, we have a configuration of, of safety equipment featuring BOLT that will allow you to be safer, more comfortable. And as time goes on, job site safety is going to, 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 in it, 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, 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 a 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're very much on track to deliver for years and years outstanding performance in terms of our performing a 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 all, 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 of 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 US$6.9 billion. Our Milwaukee business grew by 8.7% in local currency while our consumer business were down low double digit, partly driven by our support of our customers' inventory reduction initiatives. Gross margin improved it for the 15 consecutive half by ‘22 basis points to 39.3% when compared to first half last year. The improvements due to a greater mix of higher margin Milwaukee business supplemented by the continued outperformance of a high margin after market battery business.
If it was at US$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 continue to invest in new product development, install support and geographic expansion.
All our strategic SG&A spent positioned us to continue to outperform the market in the second half and beyond. During the period under review, our net profit was at US$476 million down by 17.7% as compared to first half last year. It is mainly due to the 10 interest rates increase since March 2022, a total of 5%, which as a result increased the net finance cost from US$11.3 million first half last year to US$49.2 million in 2023, an increase of close to US$38 million.
Earnings per share declined by 17.7% to [US$0.26] per share. Our focus this year was to manage our working capital, CapEx spend and to generate free cash flows to further strengthen our balance sheet. During the first half of 2023, we have been able to deliver US$301 million positive free cash flows and improvements of US$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 matrix has always been EBIT and net profit increase must outperform sales growth. Over the 15 periods under review, we have 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 US$6.5 billion down 1.7% or 0.5% in local currencies. Our consumer power equipment business declined 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 US$560 million, declined by 13.3% as compared to that of last year.
Floorcare business was down 7.6% in local currencies to US$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 US$13 million improvements 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 percentage to sales is expected to be leveled 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 spent increased by 5%, representing 3.6% of sales as compared to 3.3%. Non-strategic 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 debts. We expect net finance costs 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 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 shoulder securities increased by $645 million or 12.8% when compared to same period last year standing at $5.7 billion. The reduction in current assets mainly due to our strategy to reduce inventory while the increase in non-current assets largely due to our increase in planned property equipment and investments in new product developments.
During our results presentations in March, we stated that one of our primary objective is to improve our gearing in 2023. We have been able to deliver this target with a gearing level of 25.7% as a 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 have been very disciplined and focused managing our inventory and be able to reduce our total inventory by US $651 million or 10 days when compared to same period last year. Finish goods level reduced by US $749 million or 14 days and raw material and components increased by US $42 million or two days. We are confident that we can further improve the inventory level by end of the year.
Trade residual days was at 54 days and payable days was at 99 days. The days mainly related to the timing of sales or procurements. 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 US $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, automations and sustainability initiatives.
When compared to the debt levels at the end of 2022, we've managed to reduce our total debts by 4.8%. Of the US $150 million that reduction, $217 million came from the higher cost floating rate debts with an increase of 67 million lower causes fixed rate debts. Total net debt reduced by [indiscernible] 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 fixed rates with much lower causes than the floating rate short-term debts. 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 Docherty, our Deputy CFO, Mr. Ross Jalardi, our Senior Vice President of Finance and Investor Relations, as well as our presentation speakers, Mr. Joe Galli and Mr. Frank Chan. [Operator Instructions] Thank you.
Our first question is from John Choi at Daiwa. Please go ahead.
Okay. Good evening and thank you for taking my question. I have two questions here. First of all, on your Milwaukee outlook, I think the new growth is 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 I want to know, is there any further consideration on the global macro conditions that has been factored in?
Any color on that will be great. Secondly, on the second half, specifically, generally speaking, pro-demand looks still very strong, but industry commentary still points to a better direction this second half. Could management share some color, especially from Milwaukee, should we be seeing a better growth runway in the second half, considering that mid-single digits are referred to early on for the entire growth? Any comments on that will also be helpful. Thank you.
All right, John. Appreciate your question, So look, yes, we adjusted the growth rate of Milwaukee, what we projected to high single to low double-digit. I mean, John, we always try to beat it in most all years that you've known us. We do beat it. So, when the factors went into that, look, there are a couple of verticals that have slowed down towards a construction specifically for office buildings. The red sky kind of clans out. So we're just going to, you have to remember, we've grown a compound annual growth rate across 24% in 2010 in Milwaukee. 24%.
So, the base has become a lot bigger now for Milwaukee, and we are comfortable with growing a high single to low double. I hope we will beat it. But we're doing that on a very large pace that works the levels that where we started back in 15 years ago. Right. So, in terms of the second half, look, I mean, John, we grew 9% first half in Milwaukee will, the second half, we said we're going to, the 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 a couple of digits. I think we can pull that off. But we'll sort of throw the company mid-single.
Don't misinterpret any of the, any of this commentary. We are not slowing down our, our, the pace in which we capture market share. If you look at the overall market, Ross, we have, we have dramatically outperformed market competitors, and that's not going to stop. In fact, two days ago, we just unveiled a new batch of brand new products that are Milwaukee PR day, and the reaction was spectacular with, with the influencers and with the press. So I think you should expect us to continue for the next decade to be very strong.
Thank you, John. Next call.
Thank you. Your next question comes from Eric Lau at Citi Group. Please go ahead.
Hey, hi, Joe. How are you? Can you hear me?
How are you?
Good, good. Yes, I think the whole result, the key change is, Milwaukee, you, you kind of guide down, the coming three years guidance, given, the record of over 20% in the past seven years. But my point is, over the past six months, what kind of the key change? You mentioned that a couple of vertical slow down, can you elaborate a bit? And then, why, why you say three years, rather than, a slow down, say the term because of excessive infantry, what kind of visibility or what you see, why you guide down, for the coming three years. Thank you.
Okay. Well, look, let's be clear. We, we intend to under-promise and over-deliver. We are being conservative in what we share about our future. We are concurrently, we are investing, like, crazy in Milwaukee growth and in new product in general. But look, the economic environment we're in today presents some challenges, and we are cognizant of that and we're managing the company accordingly. That's why we saw it, we focused aggressively, cash flow, inventory reduction in the first half, we're controlling our SG&A methodically, particularly any consumer batch of businesses that we run.
And I feel really good about where we have the company position. Look, if the macroeconomic environment heats up a lot, Frank, we will grow more, a lot more. We demonstrate if we know how to do that. If we, if we see any height in demand, we are incredibly fast at pivoting and cranking things up. So I think it's, why for us to be conservative, recruiting, and, and managing and, and guide based on an economic environment that's, that's top challenge. And that's where we are.
Hey, hi, Joe. Can I have a follow-up question?
Sure.
Okay.
[indiscernible] tough question.
You, okay. You bring, a part of it, for economic environment, say, for next year, 2024, when the channel inventory become normalization, do expect, your revenue growth will go back to, say, single digit or double digit, you think.
Okay. Look. We mentioned in the announcement, so we believe we're near the end and the finish line in terms of this working with our retail and distributed partners and getting their inventory down to the level that they're charging. We're still not done. And I think the fact that we cut our inventory by, John, we have this, 500, 600 million, we cut our inventory while working with retail partners cut their inventory. I think that's an extraordinary achievement on, on, on the part of the company. But I, 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 until the end of this year. But the good news is, we have fake 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.
Thank you Eric. Next caller.
Your next question comes from Justin Chan at CLSA. Please go ahead.
Hi, Joe. How's it going?
Great. How are you?
I'm doing great. So just now you mentioned that you're seeing better PLS data in July. I'm just wondering, what are you seeing markets right now in some of the other verticals other than commercial?
Yes.
I know you mentioned just now about, you talked about you're seeing retailer finishing these talking, I think, next year. I think Stanley Black and Decker talked about normalizing production by the fourth quarter this year. When will you guys normalize your production?
Yes, we will have nothing to do with what any of our competitors do. We've run out, we have a much more advanced, like as a company, we have a world-class system for not only just time inventory, but in terms of achieving the world's best cost and highest quality. And I think the results that we delivered showed that in a crystal code way. But it's hard. So right now, if you look at the businesses that we're, that we address, our addressable markets, the industrial construction professional market is very strong with a few exceptions, I can talk about that in a second.
The consumer group of businesses is very soft. DIY is right now in a very soft level. Why? Because in 2020-21, people were at home, trapped at home, and there was a massive splurge in DIY activity that slowed down last year and it's continuing to be very slow this year. Now, things, continuous use products like vacuum cleaners, fortunately, have come back and come back strong. Not so with the DIY products, but and outdoor products really went through another challenging weather environment this year.
So when you look at the consumer businesses that we have, those, those are down, and we're projecting very concerned numbers there, and we keep inventory slow, and we'll, excuse the way we see some progress in terms of DIY system.
I know there was a comment about July, July was a very encouraging month. And the first part of August is also encouraging. So we feel really good about where we are relative to our initial estimates. On Milwaukee, man, guys, there is so much upside. We have so much opportunity. We shared in our recorded video, just the infrastructure alone, the infrastructure arena alone, Ross is vast, and it's so underestimated. And this is roads and bridges and tunnels and ED chargers stations and airports and box and, plumbing and all the power lines in three places.
It goes on and on. And then, don't forget the outdoor marketplace, the landscapers and arborists, these commercial landscapers. This is largely a petrol market today. And companies that sell petrol gas products are going to see those, those products collapse in terms of sale. That's why I'm so excited that we have become labor ladies are focused on battery power out, which is exactly where the market is going to go.
In California, there are already outbound gas products. And you can't buy it. You can't buy a gas chain. So even if you want to, even if you want to harm the planet and buy a gas product, you can't even do it. So that's great news. The whole renewable sector, renewable energy, you can't believe the consumption level of tools in solar, solar installations, windmills, hydro we're going to see power plants, nuclear power plants.
All these things consume power tools like math and that's pretty cool as well. And I can go on and on. One of the most explosive boat there is right now is mining. If you think about the conflict in 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 eight days all over Australia and the mining in Australia is, like I said, it's exploding. So same again, the same question you had same in parts of Latin America.
So, so this mining and mining is, we tell tools for underground mining for surface mining. The important thing is the communities that mining creates. When you go in and put a mine in place, if you need workers, you need miners and there are communities that pop up and there's all sorts of services that we supply as well. So look, I can talk to you for two hours about the potential for Milwaukee growth. The fact is, 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. In that case, we're clearly a near to finish line in terms of that process. And there's a lot of upside. Yes.
Okay. Thanks, Justin. Next caller.
Thank you. Next question comes from Tim Wojs at Baird. Please go ahead.
Yes. Hey, everybody. Good morning.
Hey Tim. How are you doing?
I'm good. I'm good. So maybe just on the margins. Is there a way to maybe frame the size of the promotion impact and consumers as well as some of the separate items you talked about an SG&A and just trying to think about what might kind of be one time cost because I think you guys kind of include all those types of things in your think about how that might be. And as you kind of think about the back half of the year and it's the next year, some of that stuff, those kind of in fact fall off.
Okay. So Tim, look, in the back half of the year, we're still going to, you have to remember when you're an inventory reduction mode, the easiest to sell inventory classes, at least the south, right? So now we're down to a harder core level of inventory that we plan to take out in the second half, which means that that SG&A line will still show that promotional support of inventory reduction.
We know it's the right thing to do. It's non-recurring. This is one -- this is a non-recurring one time activity, but we intend to get the inventory out right. Lower than, I mean, look, we did a spectacular job of putting inventory in the first half, and we'll continue that momentum through the end of this year. So yes, but look, maybe longer term, our P&L will reflect leverage in SG&A, no question, even with all the investors on the new product, 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 competitors in 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 the factories down, so it's going to want to save consumers. So once we crank the factories back up, and that will happen, certainly we will start building outdoor, trying to import quarter for next season. And then as we move into 2024, it is right now, and folks, Frank, based on all of our projections and all of our intelligence, it looks like we're going to be slamming into high gear again in production. And that's good news for gross margin and for the P&L, for the company.
Okay. Good. 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, and look, I mean, guys, 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 rates, way above market rates. With the gross margin, it's far higher than anyone else's. This year, the gross margin is not going up 50 bits because of the inventory reduction. The inventory reduction hits gross margin. In two places, one, you lose absorption in a factory.
Number two, you have to discount to sell off inventory. In the best way to get inventory is don't build in our first place, but when you have too much and you sell off, you have to discount better gross margin. The fact that we kept gross margin at [39] with all the inventory, $651 million of inventory reduction, and that was, that was a really good one on a part of our organization. But gross margin going forward, yes, we still have an internal plan to grow gross margin 50 bits a year, and that'll start next year.
One year might be 37, next year might be 74, but it's going up, and you can't stop it. And I'm sure you remember when we disclosed that we have this aftermarket of battery sales that is wildly creative and that aftermarket is going like crazy. And don't forget Milwaukee as a business unit. It's highly accretive and is not growing the rest of the country. So just emission batteries drive gross margin up as we go forward.
Okay, great. Appreciate the time. Good luck on the rest of the year, guys.
Thank you. Yes. Appreciate it Tim.
Your next question comes next question comes from Helen Fang at HSBC, please go ahead.
Hi, Joe. Hi, Frank. Hi, Sean. How are you doing?
Well, never better. How are you?
Not bad, not bad. I've been busy as a new mom, but I'm still hanging in there. So I was trying to have some questions. Well, 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 from 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, has 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 from Milwaukee. So in Wisconsin, 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 mainly focus on power tools. So yes, thank you.
All right, let's take four questions. Okay, first on the factory real quick. So the factory is in the U.S. at commercial and residential electricians tools. So we have an opportunity with our largest customer zone depot to enter and attack this important market. We think the market leader in the space is vulnerable and we are rolling out a much, really better, awesome product.
And they're going to be made in the USA and that's important because electricians, most electricians will belong to a union and they insist on maybe USA. And I think it's pretty funny because it was an article in a Wall Street Journal that another company in our space tried to make hand tools in the U.S. and they've given up and shut the thing down. We've had a flawless roll out with this new factory.
You're welcome to come and visit any time, but it's hand tools, not power tools. And although we do make powerful sales as well. Okay, so let's go back.
So the first question was Milwaukee. R&D. Yes, sales last year were up 20 and change in Milwaukee this year sales in first half of nine, which means there's less sales. You don't get the leverage. And look, as I mentioned, we are being more conservative Milwaukee, but not a lot more. We're being very conservative, ruthless on the consumer side of businesses.
The new product activity there, we're slowing down a lot. But in Milwaukee, we have cut, say the bottom 10% of projects we had underway, we decided to delay those projects. Why? Because we think the economic environment is a little tough right now. But, that's something we've been doing throughout the first half.
So you should expect going forward, Milwaukee, SG&A, the lever down, not in the second half this year. It's not really going to level second half this year, but 2024 and beyond the SG&A from Milwaukee and for the company in general, Ross will lever down and you'll be pleased when you see that. You had a third question.
And then about the infrastructure and outdoor -- .
Infrastructure oh my god, that was one of my new favorite topics. So there is massive activity in infrastructure. And that's even before the government, the U.S. is going, trillions of dollars to support this. There's look, we don't disclose a percentage, but let's just say the Milwaukee focus has shifted. We're not focused on commercial office building construction because nobody's building it.
So we're focused on all sorts of other areas and infrastructure is the most massive opportunity we have. And when you think infrastructure, think of Milwaukee because we own this space. It's very strong. We have, we have worldwide, we have hundreds and hundreds of end user marketing specialists that work together with the contractors and any other workers, any other companies that build infrastructure projects are maintained. So this is, this is a vast, massive opportunity. And we have to share lots of more detail after the session on infrastructure, just so you can see just how much of them there really is for us to grow.
Understand. Thank you. Thank you so much. Yes.
Thank you. Your next question comes from Terence Chang at Macquarie. Please go ahead.
Hi, good evening management. Can you hear me?
Terrence, how are you?
I'm good. How are you, Joe?
I'm good. You're never better --.
Well, I mean, I mean, first of all, I think the company did a really good job in lowering the inventory in a really challenging environment. So I guess my question is on where do you see your infantry levels to be at the end of the year? And I guess the second question is that, we do see that you had a PR day on the Milwaukee and definitely a lot of this social media has been talking about it. So in terms of the contribution of these new products, are we kind of looking at a further increase to say before at around 30% to 40% to even higher levels? So maybe these two questions. Thank you.
Okay, wait, 34% what with that second question? [indiscernible].
New product sales contribution, will it further go up?
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 where we finished at the end of June. We have a lot of traction throughout the company in reducing inventory. So I at this point feel comfortable with the inventory channel coming below 4.6 and, hopefully significantly more. And remember that the impact that passes goes large in this lower a little bit because production is no absorption.
And next year, believe me, I think it's important to know. We have spent the last five years building out the global manufacturing supply chain. We moved into Vietnam when we built that from scratch, 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 that the methodology, right, that the Japanese forces a concept called Tourette's, which needs to 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 Mexico and the U.S., we build products closer to the end market.
So there's also an opportunity to take inventory out. So we are going to be very, very much focused on inventory going forward. No matter what the growth level is, this company, I feel quite popular that we can manage that growth, but with less money tied up on an inventory in the first place. And you will see the results of that as we go forward. Okay, second question, which reminds me of your second question.
The second question is on new products --
All right, so this week it’s true. We did have a PR event in Milwaukee, Wisconsin. It was a spectacular success. The social media, yes, there's, there's a lot of social media, 99%. Other than what our competitors might say on social media, everybody else loved what we showed. The forged battery technology that we unveiled is a revolution. It's a big step forward in powering cordless products.
We launched it not only in China in M18, but also in MX and the reaction. When you, when you use these products, you can't believe the power. We see a trend in the market, but competitors using 40 volt for core power tools for, for full size power tools. We see a trend. They take voltage up, have more batteries, et cetera. And so we don't have to do that because it's so much electronic, so much software aboard our, our tools. So we, we think we can harvest ample power stuff like in, in capabilities out of an 18 volt battery, especially with this forged technology and with the superchargers that we want.
So I couldn't be more pleased and excited about the reactions we had this week when we rolled out a new product. So when the percentage of products go up, probably the percent 30 to 40 years arranged that you should expect us to continue the next five years. So 30 to 40 percent revenue from a new product. You have to remember, we have launched a big wheel during massive number of amount of new product in the last decade. A lot of new products having begun to reach their potential yet. And as we open up new geographies, as we attack new verticals, as infrastructure really, really heats up. The products that we've launched two years ago, or three years ago, they're no longer new, but they're different countries.
We're going to have to run them like crazy. We have hundreds of examples of that as well. So get ready, man, because a new product is a key part of the company. And the products we launched a couple of years ago are also a key part of the company. All right, great. Thank you. Next caller, right.
Thank you. Your next question comes from [indiscernible] from Bank of America. Please go ahead.
Hello.
Pardon me, Sharif. Your line is live.
Hi. Can you hear me now?
Yes. How are you?
Hi. Good morning. Well, thanks. How are you?
Awesome, man.
So Home Depot has made a commitment to end all outdoor [gas] sales for power equipment by 2028. How is Tetronic Physicians to help them do this?
Well, let me count the ways. Look, so if you, Home Depot, first of all, Home Depot is a brilliantly dangerous company. We are incredibly fortunate to have such an important partnership there. We don't sell Home Depots competitors because we have a different kind of a strategic relationship. And look, Home Depot had an investor day in New York City, I think maybe six weeks ago. And they made Billy Bassett their head of merchandising, who's, perhaps the best merchant in the United States is a brilliant guy.
And he focused on the opportunity Home Depot has in cordless products, power tools, cordless vacuum cleaners, cordless outdoor products, cordless. And Home Depot is now propagating this notion of an overarching platform of cordless that covers those areas, outdoor cleaning and power tools, merchandise all in one, massive and high-impact display.
And I think we will feed that focus around Depot in the next decade. So we are in it as if, I would say we're unique because I'd like to help Home Depot achieve their goals in cordless. And importantly the other Home Depot magazine that you'll hear is there. Home Depot is really going after the pro-user. And when you, pro-user, the most powerful and popular brand with the pro, by far, without even, without a comparison, it's Milwaukee.
And so Home Depot has Milwaukee, their competitors don't. And man, Home Depot itself, a lot of Milwaukee is. Even as the challenges of the first half present themselves to us, Milwaukee 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 fabulous customer. And we intend to grow like crazy with them in a month and years to come.
Thank you.
Thanks, Sharif. Next caller?
Your next question comes from Jacqueline Du at GS. Please go ahead.
Hi, Joe Frank, Sean, Ross. Thank you for the time. I'm quite surprised to hear some of your revised guidances. First of all, you mentioned the reason that you have lowered the long run sales growth guidance from Milwaukee is 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 and markets and any comments on the sequential trend heading to the second half?
Okay. Well, you're talking very short term, but look, we're already in August in the second half. July was an excellent month. But the fact is, there are pockets of professional tool consumption that are soft or down from office building, construction in the U.S. and really globally is way off.
Redstone is actually bottomed out in our view. We see signs of life, even though it's a straight drive, we see signs of life for Redstone, especially high end Redstone. Where there's more tools consumed for house built anyhow. But on the flip side, even with the interesting environment we have, even with the economic challenges that we see globally, the walkies, virtually every other vertical is fantastic.
It's infrastructure, transportation, anything that moves, cars, trucks, plane, trains, automobiles, submarines, anything that moves requires constant maintenance and repair. And that's an area we've attacked is flourishing for us. You look at the whole data installation arena over the fiber off the table, whatever it is to support the internet, the U.S. and globally, that's growing 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 investments that are done in the semiconductors and cell production, all these investments mean buildings that we build and we have inside.
I think one of the most exciting jack on the 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 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 on, let's also not forget that there is a once in a generation stampede 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 landscape or an arborist market with Milwaukee. And we're the, we're the clear leader globally with the DIY outdoor market with Ryobi.
We will harness the benefit of the ship 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, do not think that there were running out of ideas to grow a lot. You have to remember when we say we're guiding up a high single digit to low single digit. When we say that, we're really saying that on top of the base, it's growing 24% TDR since 2010.
So the base is staggering. And we're still going to grow way above the market. If the market gets better, we'll grow faster. We always have a sort of plan to try to grow faster, but we certainly have, we've never had a lot more ideas and more ways to grow Milwaukee.
And I remember, yes, and I remember previously, you are guiding the single digit growth for the full year and now you're saying is for the second half. But if when we look at your first half revenue, if you maintained at that level, and considering the low base in second half last year, you should be growing around 10%. So just curious, what's the assumption for the different segments? For example, Milwaukee, DIY, outdoor, 10 tools, et cetera, heading to the second half?
All right, so Jacqueline, let's not forget what I mentioned earlier this evening for this morning, we are under promising and we intend to over deliver. So we have projected a conservative mid-single digit growth level in our outlook for second half. That doesn't mean that's all we're going to do. That means that's what we feel 100% confident.
Now, the Milwaukee business will grow a much faster rate than that. And if you look at our consumer businesses as a group, I know that we're projecting right now from the meet down in the second half. 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 for the future and we intend to do that. Look, I feel better about the second half now than I did six weeks ago by a lot after the line early on.
And when have we not exceeded expectations to shine in terms of growth for Milwaukee Press and companies? We're 16 years, pretty much always do. So don't expect us to stop working hard to see those numbers.
Okay, thanks, Jacqueline. And I think we got time for one more question.
Thank you. Your next question comes from Frank Fan at Nomura. Please go ahead.
Good morning, Joe. Thanks for taking my question.
Frank. Yes, sir. It's our pleasure. What can we do?
I'm good. Helen actually read this question, but I probably need some of the answers. I will have two questions regarding the overseas extension. The 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 partner. And the second question is, what's the impact? Yes, what's the impact on the SG&A in the near and long term?
Okay the SG&A international Growth. Okay, the rest of the world, Okay So, Frank, look, we're spending a lot of time focusing on what we call geographic expansion. We are central Europe. It's one of the fastest growing uses of operations for us. We just recently went into Romania, Bulgaria, Algeria, Slovakia, Slovenia, all these markets, and they're growing like crazy. We are growing throughout the Asia, from Japan, to Singapore, to Thailand, to Asia, Taiwan, China, South Korea, and everything in between.
These markets are, Vietnam is a visit last week, and we're growing like crazy there. So Asia is another area that we're building. 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 our new companies.
So I mean, we have this conundrum because we continue to say we are committed to growing outside the United States. The problem is the Americans always seem to keep growing. And that's a high-class problem. But I think when we look at the next five years, there's clearly far more growth potential outside the U.S. than in Europe is the biggest growth opportunity we have, whether it's Western Europe, Central Europe, Eastern Europe. With these other markets, they all contribute as well, and it 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 the level of our growth in the U.S. That's for sure. Now, to use the second question, is SG&A going forward? Was that your question?
Yes, SG&A impact in the near term and also the long term. Thank you.
So SG&A, in the near term, as in the next second half, SG&A will be about where it was in the first half of the week. Why? Because, remember what I said, we sold off and liquidated the easy inventory to move. It wasn't easy to cut $651 million inventory. But what we have left that we intend to move is the harder quarter 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. So we really aggressively attack structural overhead, whether it's head-down or other forms of overhead. It's also in our consumer businesses. And there were [sevens], another onetime, non-procure charges there. And you have to remember, everyone, we don't book restructuring reserves. We sell funds. If we have to remove head-down, we don't book a reserve and take ourselves up to hook. We sell fund it. We think that's a really important discipline in the company. So because of those things, SG&A is second half of the week, the first half roughly. And we will start to leverage SG&A next year. So there's no question. Right, Frank?
Honestly, thank you.
Yes, our pleasure.
Okay, well, I think we're about out of time. I'd like to thank everybody for participating in the call today. And 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. This concludes today's interim results announcement Analyst and Investor webcast, you may now disconnect your lines. Thank you.