Gentlemen, welcome to Techtronic Industries 2023 interim results announcement analyst and investor webcast. In this interim results webcast, TTI will share the updated performance for the six month period into June 30th, 2023. After the presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Before we begin, I would like to draw your attention to our forward-looking statements on the presentation slide. 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. Mr. Joe Galli will walk us through the business overview and strategy, followed by the half-year financial results by Mr. Frank Chan.
Without further ado, let me pass the time to our chairman for the opening remark. Mr. Pudwill, please.
Thank you for attending TTI's 2023 interim result announcement analyst and investor webcast. I am pleased to announce that TTI delivered solid results for the first half of 2023, outpacing the market and sales performance and profit generation, while 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 advanced new products to drive our growth. I'm convinced we are well positioned to continue outperforming the market in the second half of 2023 and beyond. Joe Galli, our Group CEO, will now provide you with the business overview and strategy, and Frank Chan, our Group CFO, will provide you with the 2023 first half financial results.
I will now hand you over to Joe Galli and Frank Chan for the presentation. Thank you.
Thank you for joining us as we share with you our results from the first half of 2023, and also, and importantly, the focus that we now have in place, given the reality of a challenging economic environment, given the reality of, of, our retail partners having high levels of inventory, globally as we moved into 2023. We have stepped back and, you know, and I feel appropriately become more conservative as we manage our company through these times and become hyper-focused on the things that, that we, we think are most important now, and that includes inventory reduction, where we've made significant progress, as you've seen in our announcement.
That includes free cash flow, which is a critical part of our focus, now in this phase of our company's development, and SG&A control, which we, we have put a mechanism in place to dial down SG&A, consistent with the, whatever the, macroeconomic environment presents to us. We have made great progress in this, in this focus on being more prudent, more conservative, and accepting the fact that the economic environment is not as forgiving, therefore, we've got to manage in a more conservative way. At the same time, I'm very proud of our, 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. You know, we continue on with our commitment to outperform the market in good times and bad. That was certainly clear in the first half this year, where we significantly outperformed the market globally. We're very proud of that. We grew sales -2.2% in the first half, so we, we were down a little bit, actually, in local currency, down 1%. You know, 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. The year before, the first half of this company, we grew 52%. What we've done with, 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. And when you look at, at our 2.2 decline relative to the past, you, as you can see, we have held on to the position the leadership position that we've been fortunate enough to capture, and that's only gonna continue. I am so proud of our team as we focused on inventory reduction in the first half this year.
We were able to cut inventory $651 million versus the first half of 2022. This is a big step. This is not easy. 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. For us to cut $651 while we help retailers and distributors get down, their inventory levels down to a position they're targeting, was a significant feat for the company. 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, which does show a more conservative approach. You have to remember that we have invested aggressively over the past three years in, in new logistics capabilities, new manufacturing, campuses, and a lot of new products. We, we are amending that and adjusting that to, to be more consistent with the reality of the economic environment that we, we believe we're in, here in 2023. Our first now, one of, 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 the reality that we're in today. You know, we, we did this because of our aggressive inventory reduction, because of CapEx management, and, and, and because of the overall focus on cash flow that you'll see in the company today. Now, as you turn toward the P&L, what you see is with that slight decline in sales, gross margin was up slightly. SG&A was up, and I will explain that in a moment. EBIT was down 11.5%.
We did make $560 million of EBIT in the first half. We were down in EBIT versus last year, although we think this P&L clearly, clearly demonstrates that we outperformed the market that we serve. Why was gross margin up, given all the inventory reductions we made? You have to remember, inventory reduction, part of that was we shut down production, particularly in our consumer portfolio of businesses, where we saw the weakest demand and the greatest need for retailers to cut their inventory. We did cut production aggressively. Remember, our Milwaukee business has an accretive gross margin. Milwaukee did outgrow the rest of the company. 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?
On the Milwaukee side of the company, we did invest in geographic expansion, we invested in in-field marketing. We continued on our investment in Milwaukee new product development. Although we have, we have focused our product development in Milwaukee. We will spend less money here as a % of sales than we have until the economic environment opens back up. Right now, we're gonna be prudent and conservative in, in our investment in, in, in the Milwaukee business. At the same time, in our consumer group of businesses, consumer is Ryobi DIY, power tools, Ryobi outdoor, the HART business, the floor care business that we have around the world. That consumer group of businesses is, is an area where we did spend SG&A on, on promoting the sale of excess, obsolete, and unneeded inventory.
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 believed that it was appropriate for us to look at all the 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 years to come. We did scale back product development in the consumer group of businesses.
We didn't stop product development, but we're gonna become much more selective and focus only on the highest priority areas until we see a change in the DIY demand in the marketplace. 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. Our leadership position will be unchallenged, even with a slower flow of new products going forward. Of course, as I mentioned, overhead reduction in SG&A is important to us, and we have really been relentless in 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 when we came into the year, but the fact is, we are gonna, we are gonna manage this company based on a challenging economic environment so that we can deliver our financial targets no matter what the macro holds, and this is exactly the path that we're on. Now, let's turn toward the second half of 2023. We believe in the second half of 2023 that we, 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.
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, you know, 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. Free cash flow will be a highlight, as we are really laser-focused on cash flow in the second half this year. We're gonna generate a lot of cash, and for the year, that'll put us in a position where we believe we'll generate $900 million of free cash flow for 2023.
We continue to be focused, and we are continue to be pleased with the progress we're making in ESG. First of all, during the first half, we did sign the SBTI commitment, which validates our our confidence in achieving Scope 1 and 2 reductions in carbon emissions. We're committed to 60% carbon emission reduction by 2030. We signed a document. We will deliver this target. We're on the right track. We also feel confident about Scope 3 targets that we've set. This is a growing level of progress we're seeing throughout the company. Our traction is excellent. We're committed to this, and like, like all the targets we set in the company, we fully intend to meet or exceed the targets that we've set.
On the social front of ESG, we are, are really proud of the social progress that we've made. In the communities that we serve around the world, we, we, we, we feel like we're a key part of it, and, 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, we, 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, where a community needs help, we are incredibly fast at deploying resources that are highly trained to deal with these issues in, 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, that make us leaders in the, in the social element of ESG. Now, in governance, I really am grateful for the feedback that we've received from, 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, we encourage you to watch us in the months and years to come and see the progress we make in the, in the governance element of ESG. Okay, 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 it was a tough six-month period for this, for this group. The fact that the sales are down 15%, our inventory improvement was so strong is a, is a, 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, that 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. Look, we are fiercely committed to working closely with our, our retail and distributor partners in helping them achieve their goals, that means working with them in this inventory reduction effort while we reduce our inventories. 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.
We, however, intend to outperform the market here, like we, like we, we do in all of our businesses. You know, 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. 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 featherlight way of instead of the primitive Allen wrench that you get oftentimes for home assembly, now you have a sophisticated way to do it with in a faster, safer manner, which is important to us.
There's a number of other USB products, whether it's a super cool, lightweight magnifying, a lit-up magnifying glass for hobbyists or whether it's a glue gun. There are many products in this system already, 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've ever launched works with the current batteries today. We have over 300 products, can you imagine?
Over 300 products work off that same battery, and that, 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 40V platform. This is lawnmowers, and string trimmers, and hedge trimmers, and snowblowers, and tillers, blower vacs, and augers, and on and on and on.... You know, the world is still in the embryonic state, in the embryonic phase of converting from petrol-powered outdoor to high-performance cordless. We intend to lead that charge, and the 40V system is doing just that.
Now, Ryobi Cleaning is a new area that's, that's actually experiencing, even in this economic environment, experienced wonderful growth. We are launching the, the new Ryobi spot cleaner, which is an ideal product that allows us to address a, a, a very common household requirement, cleaning spots and spills, et cetera. We, in this case, we have exactly the same technology that we use in our Hoover system, which I'll show you in a minute, and we're excited about the prospect here. You have to remember with cleaning products, like a Ryobi Stick Vac, there's over 40% of all people in the U.S., Australia, New Zealand, Canada, over 40% of these DIYers and many DIYers in Europe already have a Ryobi ONE+ battery system in the household.
When people walk into a Home Depot, they're pre-sold on this particular vacuum cleaner versus, versus one of the other brands where the, where the batteries is imprisoned on board, on board the product. In fact, if you look at our, our next generation of Hoover products, what you see in is this is the Hoover ONEPWR system. What you see is a detachable battery system that unlike even the leader in global floor care, which the leader imprisons the battery on board their vacuum cleaner. When the battery goes bad, you have to, you have to throw away the entire product. With, with, with the Hoover system or the Ryobi system, you simply remove the battery.
If the battery needs replaced, you can, you can recycle the battery, buy, buy a new one, and, and you continue on with the host product. And, you know, as I mentioned, the, in the Hoover family, the technology we developed in Hoover, like with this spot cleaner, is something we can also cascade into our, our DIY Ryobi range. This gives us a lot of leverage and a lot of clout and a lot of way to leverage the investment we make. I'd say our product development, in floor care, is something we can, we can, again, cascade into the Ryobi line, and, and it gives us great leverage. Look, we believe the floor care business globally is, is making great progress. We're on track with the turnaround in the US.
There's no turnaround needed in Europe or Australia, where the business is flourishing and the, and the profit levels are high. We 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. If you look at how Milwaukee did globally, we were up 7% in North America, but 16% in Europe and 13% rest of world. Yes, we recognized through the half that the, that the economic climate that we're in is, is a tough, challenging environment, even for Milwaukee, although Milwaukee still grew nicely and there's still a lot of potential here.
Again, these, this, these results, we think we are outperforming all of our competitors in, in, and outperforming the market, and that's not gonna 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 a CAGR of 24%. 24% growth, and we've gone from small to very large Milwaukee base.
With that, given that large base, given the fact that the economic environment is challenging, you know, we feel the outlook for Milwaukee will be to grow between strong single-digit and low double-digit levels for the next three years, for this year and 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, rescon is soft, and although there's a lot of elements of, there are many, many verticals that have potential, we think this is the right outlook for us to run the business around it with Milwaukee.
Now, just to give you some color on, on the growth opportunities we have to get that 8% - 12%, 'cause 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, we are driving a revolution from dumb cordless or cordless products, don't have electronics on board, don't have the, the features that the smart cordless products have, and we, you know, we drive the smart cordless. We're the, we're the iPhone, we're the Apple of this industry, and, and there's a lot of upside there, and I'll show you how we're gonna catalyze that in a sec. Geographic expansion beckons there's a lot of potential outside the U.S. to grow Milwaukee.
We're on it, 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 gonna 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. There's still more new product here than our competitors will launch, and it'll help us as we move forward. Then I think something investors really need to understand is that we are growing the addressable market by growing the average selling price, so the ASP in the products that we sell, and I'll show you an example of that in a sec.
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 you kidding me? The, we're gonna need to figure out a way to, to have a, a, a bigger slide or have two slides to show all their products in, in the system. This is important because, 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. We are, we are going to catalyze the growth of Milwaukee Cordless with what we introduced yesterday, actually, in Milwaukee. We introduced a, a breakthrough level of, of battery technology. We, we will sub-brand this FORGE.
Again, we launched this just yesterday, 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. The problem with normal batteries is something we call impedance, which is really friction, and friction creates heat. With these, this technology that we're harvesting here allows us to do, is cut impedance down, is, is to eliminate the friction and heat, and we do it by utilizing the state-of-the-art cell technology that we've been able to pioneer in the company. These cells are cylindrical, sometimes they're puck, sometimes they're what we call tabless, and we have configured what we think are the, is, are the best, the best designs in battery cells.
We've, we've taken the, the firepower of the, of the state-of-the-art cells and designed that and, and choreographed that into redesigned batteries, which, which are more robust and allow our, our products to function beautifully in the most rigorous, demanding conditions that a professional user encounters. 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, for our large equipment products and, and, and our full-size battery power products. These FORGE batteries will charge, you could, with our new supercharging technology, which we're also launching. We have, we've launched chargers we call Super Chargers. You take a FORGE battery and a Super Charger, and you can get this battery charged, you get 80% of the power in 15 minutes.
This is a breakthrough in charge time. Can you imagine you're a professional user, you can, your battery is fully discharged, you can pop it in a charger, and in 15 minutes, have the power up to 80% level. This changes the game in hundreds of different professional applications, and, you know, we're the first, and we are way ahead of the industry here with this supercharging capability because of the FORGE technology, because of all the electronics that choreograph all this power flow and all this charging capability.
Anyhow, we just, just to summarize cordless, do not think that we're anywhere near saturating the market in cordless because we really still are just getting started here in pioneering this, this once-in-a-lifetime shift to cordless. Second thing I mentioned in terms of growing Milwaukee is geographic expansion. I'm just gonna fly through this. I'm incredibly excited about what we can do outside the US with Milwaukee, where our market share, as you go outside the US, our market share is generally lower than what we have in the US, so there's a lot of upside. Canada is a close market to the US. There's still lots of potential in Canada.
This red zone display that we, you can see here, this is actually Red Deer, Alberta, and this, this, this showcase display, it shows you what we can do when we work together, even in rural markets around the world, outside the US, and we can, we can create a dominant position. Okay, here's over in Europe, we are, we are very strong in Western Europe. This is an example of a new display in Belgium with a key distributor, and we're also strong in Central and Eastern Europe. In Slovakia, we rolled out this new distributor.
This is a great example of, of what we can do in Central Europe, where there's, you still have a lot of users in Central Europe using corded products and more, more primitive products and, and, you know, we think these markets are, are, are ready to convert to cordless, and we're excited about our leadership position in this place. Okay, now take a look at this particular display. This is a spectacular Milwaukee statement, and this is a display developed by a company called Sydney Tools in Australia. They do have 86 outlets throughout Australia. They are growing like crazy, and, and when you walk in the store, it just, it just, the statement it makes about Milwaukee is breathtaking. We, we, we love this kind of showcase display for Milwaukee.
We are beginning to open up parts of Latin America, Central Latin America, that, where we feel confident in the local economy. This is a good example. Here's a display in Mexico, where, where we are seeing significant growth. There's lots of upside here as we go forward. We, we have not attacked Latin America as a region historically. We will begin to look at this going forward if we are comfortable with the economic environment in a local country and the stability, et cetera. Okay, now, let's talk about what may be the biggest opportunity that people underestimate with Milwaukee. You're, you're thinking, how are we gonna grow between high single digit, low double digit, if the economy, economic environment is not forgiving?
Well, you know, just the infrastructure build-out, I'm not just talking the U.S., but globally, there's so much opportunity for infrastructure. Whether the government subsidizes these things or not, the infrastructure environment, you know, and this is roads, tunnels, airports, docks, rail stations, et cetera, there's so much potential here that we are really excited 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 the infrastructure, no matter what the infrastructure project might be. The impact wrenches, which drive large mechanical threaded fasteners or, or allow you to repair, repair various infrastructure projects.
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. 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 rail subway build-out that's happening around the world, or once a rail system is built, there's the whole repair opportunity. This product is called a railway impact wrench. Instead of having to bend down and get into uncomfortable positions, which are not good for safety and productivity, the rail wrench allows you to comfortably and rapidly install a rail system or repair it.
It's super powerful, and it works off, of course, the Milwaukee batteries, including FORGE. This is a unique TTI development. We've worked with our end users in China, where we got feedback that allowed us to develop this product, which is really being well received globally. Construction is not great in every part of the overall construction market. Commercial construction, of office buildings is, of course, very, very soft. res/con, it may be bottomed out, but still nowhere near where it was two years ago. It'll come back someday. You know, there's all kind of industrial construction, and there is a lot of projects underway, and we intend to shift our focus on the parts of construction that have the upside potential.
You'll see that here this year and in the years to come. The transportation maintenance arena is vast. Anything that moves, cars, trucks, planes, trains, automobiles, submarines, motorcycles, it doesn't matter. Anything that moves needs constant maintenance and repair, and we have come up with yet another revolutionary product for transportation. This is a box wrench that's super compact, so we have an extended reach ratchet with a super small business end, and this allows you to get into areas and do assembly, repair, maintenance, without the knuckle-busting manual wrenches that are in use today. In these tight areas, you need a compact design, and we've delivered it finally here with this new box wrench.
Now, renewable energy is, is a, as you, as you well know, is a massive, massive global growth opportunity for the company. When you talk about ESG, the fact that we are leaders in, in the installation, assembly, and maintenance of renewable energy initiatives, whether it's solar, hydro, wind, nuclear, whatever, whatever, you know, 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. It 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. By the way, this is a real statement about our commitment to ESG. You know, we, we are helping to install the products that will help carbon emissions come down, not just for us, but for, for the, for the planet, and we're excited about them. Okay, power utility, we all know that utility, power utility grids need constant repair. We, we have a lot of unique products here that are focused on helping this, this power utility, this lineman 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 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, and, and, you know, power tools are needed for this mining to support the mining activity and the maintenance, repair, and the communities, importantly, that surround mining startups. We're all over this, and we see a lot of potential here. The outdoor marketplace is virtually all petrol today.
We intend to move this market with Milwaukee and with Ryobi to battery-powered products, whether it's the landscaping sector or the arborists, as you see here in the photo, we, we are, we intend-- We will be the global leader in battery-powered outdoor for the pro and for the DIYer. Let's now talk about a new product and just a couple of highlights for you. We've entered into the professional electrician market, whether it's the residential electrician or the commercial electrician. We have pioneered a series of hand tools, wire cutters, wire strippers, insulated screwdrivers, fish tapes, which is this device that allows you to feed wire through conduit in a residential commercial application. 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 intend to be leaders in the electrician hand tool market. Of course, we're already leaders in the cordless power tool market, but there's a lot of hand tools in use here, too, and you'll see it in Milwaukee now in this space. Okay, look, let me, let me just step back for a second. People ask us all the time, how, why are you guys saying that the addressable market for TTI is so big? Here's one of the things people don't understand.
When you buy a corded drill, the leading professional grade corded drill, on your left here, it's. You can buy these for $69 today, still. If you, if, if you convert that end user who's using these corded drills and get that user to move over to cordless, you know, our latest FUEL version, and this is without FORGE, $299. The ASP, the, the increase in the market size, just with the shift of corded to cordless is, is significant. It's, the same is true when you move people from pneumatic, hydraulic, or petrol, and certainly from manual. When you go from a manual wrench to a cordless wrench, you go from $49 to $250.
Just remember, the ASP increases does represent a big part of the addressable market growth that we are creating for ourselves and for the marketplace. Storage is massive, and PACKOUT has got a cult-like following for storage in a workshop, for vehicular storage, for mobile storage. We're just getting started with helping people organize and store and transport their tool inventories and fleets, and this is a global phenomenon. One of the areas that really does help us support the ESG initiative in the company is the BOLT, the personal protective equipment featuring the BOLT system, which is, in terms of job site safety, we are so far ahead of the marketplace here, and it's something we're very proud of.
Bolt is, is a range of helmets that are, are significantly more safe than anything on the market today. We have over 21 different accessories that you clip on to Bolt. Whether you're in mining or, 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 and more comfortable. As time goes on, job site safety is gonna, gonna become more and more of a priority for governments around the world, and we intend to be leaders here in this space. It, and, you know, it's the right thing for us to do to enhance job site safety, and we're excited about where we are.
Look, we, 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 free cash flow. We are hyper-focused on reducing our structural overheads so that no matter what the economic environment presents to us, we will be able to deliver our financial targets. We are particularly excited that we're doing this without compromising our future, because we have a long-term strategic vision, and we are very much on track to deliver for years and years outstanding performance in terms of outperforming the market and financial gains. Listen, it's a race without a finish line.
We have a lot of things we can do better in the company. We, we are grateful for the feedback we receive from all, from our customers, from our people in the company, from, from our investors, from our board. We are, we are incredibly grateful for the feedback we get, you know, there is no finish line. This is. We will continue improving and getting better as the months and years to come. 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 $6.9 billion. Our Milwaukee business grew by 8.7% in local currency, while our consumer business were down low double digits, partly driven by our support of our customers' inventory reduction initiatives. Gross margin improved for the 15th consecutive half by 22 basis points to 39.3% when compared to first half last year. The improvement is due to a greater mix of higher-margin Milwaukee business, supplemented by the continued outperformance of our high-margin aftermarket battery business.
EBIT was at $560 million, a decline of 11.5% when compared to last year, mainly due to the reduction in our consumer business and inventory reduction initiatives, while we continued to invest in new product development, in-store support, and geographic expansion. All our strategic SG&A spend positioned us to continue to outperform the market in the second half and beyond. During the period under review, our net profit was at $476 million, down by 17.7% as compared to first half last year.
It's mainly due to the 10 interest rate increase since March 2022, a total of 5%, which, as a result, increased the net finance cost from $11.3 million first half last year to $49.2 million in 2023, an increase of close to $38 million. Earnings per share declined by 17.7% to $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 $301 million positive free cash flows, an improvement of $649 million as compared to first half last year.
We are well positioned to continue to generate strong free cash flows in the second half of the year to further improve our balance sheet, and also to mitigate the net finance cost increase. The board declared an interim dividend of HKD 0.95 per share, same as that of last year. The interim dividend represents a payout ratio of 44.7%, as compared to 38.8% same period last year. Our key performance metrics has always been EBIT and net profit increase must outperform sales growth. Over the 15 periods under review, we've managed to deliver this matric 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 $6.5 billion, down 1.7% or 0.5% in local currencies. Our consumer power equipment business declined at low double digits, 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 digits based on our investments and vast opportunities ahead of us. Operating profits of this division was at $560 million, declined by 13.3% as compared to that of last year. Floor care business was down 7.6% in local currencies to $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 $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%, 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 investment 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 % 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 spend 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, are confident that this level of effective tax rate is very sustainable going forward. Our balance sheet remains very healthy and strong, with shareholders' equities 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 plant 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 of June 30th, 2023, as compared to 40.5% first half last year, or 32.1% at the end of 2022. We will continue to execute our strategy and are on track to further improve the ratio by end of the year. Total net working capital as a percentage to sales was at 22.7% as compared to 23.3% last year. We've been very disciplined and focused managing our inventory, and be able to reduce our total inventory by $631 million, or 10 days, when compared to the same period last year.
finished goods level reduced it by $749 million or 14 days, and raw material and components increased it by $42 million or two days. We are confident that we can further improve the inventory level by end of the year. Trade receivable days was at 54 days, and payable days was at 99 days. The days 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 $210 million, representing 3% of sales as compared to 3.3% of sales same period last year. The spend includes investment 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 $150 million debt reduction, $217 million came from the higher cost floating rate debts, with an increase of $67 million lower costs fixed rate debts. Total net debt reduced it by $206 million, or 12.3%. Floating rate debts now account for 60% of our total debts, 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 rate, with much lower costs than the floating rate short-term debts.
We are continue to leverage our cash flow generating capabilities to deliver the most optimal, cost-effective structure to support our future long-term growth. Thank you.
Thank you very much. I would like to welcome you all to the question and answer session. In this Q&A, we are joined by Mr. Sean Dougherty, our Deputy CFO, Mr. Ross Gilardi, our Senior Vice President of Finance and Investor Relations, as well as our presentation speakers, Mr. Joe Galli and Mr. Frank Chan. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. 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, you know, the new growth is now referring to high single digit and low double digit in the next few years. You know, can you elaborate, you know, what are the factors that were considered when you are, you know, looking at this outlook? I know that you guys did discuss quite in detail, but want to know, is there any further consideration on the, you know, global macro conditions, as been factored in? Any color on that will be great.
Secondly, on the second half specifically, you know, still generally speaking, pro, demand is still very strong, and industry commentary still points to a better direction this second half. Could management, you know, share some color, especially from Milwaukee? Should we be seeing a better growth run rate in the second half, considering that mid-single digits are referred to early on for the entire group? You know, any comments on that will also be helpful. Thank you.
All right, John. I appreciate your questions, man. Look, yes, we've adjusted the growth rate of Milwaukee, what we projected to high single to low double digits. I mean, John, we always try to beat it in, in most all years that you've known us, we do beat it. But with the factors that went into that, look, there, there's, there are a couple of, of, verticals that have slowed down commercial construction, specifically, specifically, especially for office buildings. The res/cons kind of flattened out. And, you know, we're just -- You have to remember, our-- we've grown a compound annual growth rate, Ross, of 24% out in Milwaukee. 24%!
The base has become a lot bigger now for Milwaukee, and we are comfortable with growing a, you know, high single to low double. Hopefully, we'll beat it. But we're doing that on a very large base that, that dwarfs the levels that where we started back in 15 years ago, right? In terms of the second half, look, I mean, John, we grew 9% first half in Milwaukee. Will we... The second half, you know, we, we said we're gonna the company will grow mid-single digits. We're, we're very comfortable with that, that level. Milwaukee will be better than that, and I hope it's, I hope it's double digits. I think we can pull that off, but we'll serve the company, mid-single.
Don't, don't misinterpret any of the, any of this, commentary. We, we are not slowing down our, our, the pace in which we capture market share. If, if you look at the overall market, Ross, we have, we have dramatically outperformed our competitors. That's not going to stop. In fact, you know, two days ago, we, we just unveiled a new batch of brand-new products at our Milwaukee PR day. The reaction was, is spectacular with, with, with the influencers and with the press. I, I think, Joe, you should expect that to continue for the next decade, to be very strong in Milwaukee.
Okay. Thanks, John. Next caller?
Thank you. Your next question comes from Eric Lau at Citigroup. Please go ahead.
Hey, hi. Hey, hi, Joe. How are you? Can you hear me?
How are you?
Good, good.
Yeah.
Yeah, I, I, I think the whole result, you know, the key changes, you know, Milwaukee, you, you guide, kind of guide down, you know, the coming few years, guidance, you know, given, you know, the very good track record of over 20% in the past seven years. My point is, you know, over the past six months, you know, what, what kind of the key change? You, you mentioned that a couple of, what it called, slow down. Can you elaborate a bit? You know, why, why you say few years rather than, you know, a slowdown, say, near term, because of excessive inventory, blah, blah, blah.
You know, what kind of visibility or, you know, what you see, why, you know, you, you, you, you guide down, you know, for the coming few years? Thank you.
Okay, well, look, let's, let's, let's be clear. We, we intend to underpromise and overdeliver. We are being conservative in, in what we share about our future. We are, concurrently, we are investing like crazy in Milwaukee growth and in new products in general. You know, 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 you saw we focused aggressively on cash flow, on inventory reduction in the first half. We're controlling our SG&A, methodically, particularly in the consumer-facing businesses that we run. You know, I, I feel really good about where we have the company positioned. Look, if the macroeconomic environment heats up a lot, right? We, we'll grow more, a lot more.
We've demonstrated we know how to do that. If we, if we see any heightened demand, you know, we, we are, we are incredibly fast at pivoting and cranking things up, so. You know, I think it's, I think it's wise for us to be conservative, prudent, and manage and guide based on an economic environment that's, that's tough, challenging, and that's where we are.
Hey, hi, Joe. Can I have a follow-up question?
Sure.
Okay.
This is a tough question. Please ask. It's a tough question.
Okay, you bring, you know, a part of it, you know, for economic environment, say, for next year, 2024, when the channel, inventory become normalization.
Yeah.
Do you expect, you know, your revenue growth will go back to, say, single digit or double digit, you think?
Okay, look, we mentioned in the announcement. We believe we're near the end and the finish line in terms of this working with our retail distributor partners and getting their inventories down to the level that they're targeted. We're still not done, and I think the fact that we cut our inventory by a giant deal, that's, you know, $500-$600 million in the first. You know, we cut our inventory while working with retail partners to cut their inventory. I think that's an extraordinary achievement on our, on the part of the company. You know, look, I don't want to say that the inventory levels are down to normal. You know, we've around the world, we're very close to what our customers and retail partners have in terms of inventory.
You know, it's, it's a long process, and I don't think it's going to be finished until the end of this year. The good news is, you know, we have great visibility here and, you know, we can look forward next year to cranking up our factories again and building inventory to supply customers who, who will start ordering at higher levels. Thank you. 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. Just now you mentioned that, you're seeing better POS data in July.
Yeah.
I'm just wondering, what are you seeing in the markets right now in some of the other verticals other than commercial?
Yeah.
Also you mentioned just now about, you talked about, you'll, you're, you're seeing retailers finishing destocking, I think next year. I think Stanley Black & Decker talked about normalizing production by the fourth quarter this year. When will you guys normalize your production?
Well, I can tell you, it will have nothing to do with what any of our competitors do. You know, we have a much more advanced supply chain company. We have a world-class system for not only just-in-time inventory, but in terms of achieving the world's best cost and highest quality, I think the results that we deliver show that in a crystal clear way. Look, you know, it's hard. Right now, there's a, if you look at the businesses 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 at a very soft level. Why?
In 2020 and 2021, people were at home, trapped at home, and they, 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, are, have come back, and come back strong, rela- not so with the DIY products, but in outdoor products, really went through another challenging weather environment this year. When you look at the consumer businesses that we have, those, those are down and we're, we're projecting very conservative numbers there. We're going to keep inventories low and we'll excuse me, wait until we see some progress in terms of PLS and demand. You know, Jeff, there was a comment about July. July was a very encouraging month.
The first part of August is also encouraging, so we feel really good about where we are relative to our initial estimates and forecast. On Milwaukee, man, guys, there is so much upside. We have so much opportunity. You know, we shared in our recorded video, the infrastructure alone, the infrastructure arena alone, Ross, is vast, and it's so underestimated. You know, this is roads and bridges and tunnels and EV charging stations and airports and docks and, you know, plumbing, and all the power lines that need replaced. It goes on and on.
You know, don't forget the, the outdoor marketplace, the landscapers and arborists, these commercial landscapers, this is, this is largely a petrol market today, and companies that sell petrol or gas products are gonna see those, those products collapse in terms of sales. That's why I'm so excited that we have become laser focused on battery-powered outdoor, which is exactly where the market's gonna go. Now, in California, they're already outlawing gas products, and so you, you can't buy it. You can't buy a gas chain. Even if you want to, even if you want to harm the planet and buy a gas product, you can't even do it. That's, that's great news.
You know, the whole renewable sector, renewable energy, you, you can't believe the consumption level of tools on in solar solar installations, windmills, hydro. You know, we're gonna see power plants, super power plants. All these things consume power tools like mad, and that's pretty cool as well. You know, I can go on and on. You know, one of, one of the most explosive growth areas right now is mining. If you think about the conflict in Ukraine, you know, that means the mining that came out of that part of the world, that's all shifted. You know, I was just last week, I spent eight days all over Australia, and the mining in Australia is, like I said, it's exploding. It's booming.
Same in Canada, same in Western U.S., same in parts of Latin America. This mining. Mining is, you know, it's we, we sell tools for, under the ground mining, for surface mining, and importantly, the communities that mining creates. When you go in and put a mine in place, it, you know, you need workers, you need miners, and, and there, and there are communities that pop up, and there's all sorts of services that we supply as well. Look, I could, I could talk to you for two hours about the, the, the potential for Milwaukee growth. The fact is, the, you know, we, we, we did go through some inventory reduction, in, in the Milwaukee side of the business in the first half.
There's some of that still going on, but in that case, we're, we're clearly near the finish line in terms of that process, and there's a lot of upside. Yeah.
Okay, thanks, Justin. Next caller?
Thank you. Next question comes from Tim Wojs at Baird. Please go ahead.
Yeah. Hey, hey, everybody. Good morning.
Hey, Tim.
Uh.
Yeah, how are you?
I'm good. I'm good. So, so maybe just on, on the margins, is there a way to, to maybe frame the size of the promotion impact in consumer, as, as well as some of the severance items you talked about in SG&A? Just trying to think about, you know, what, what might kind of be one-time cost, because I think you guys kind of included, you know, all those types of things, you, you know, in your-
Okay.
Just trying to think about how that might be, and as we kind of think about the back half of the year and into next year, you know, if some of that stuff does kind of in fact fall off.
Okay. Tim, look, in the back half of the year, we're still going to. You have to remember, when you're in inventory reduction mode, the easiest to sell inventory costs you the least to sell it, right? Now we're down to a harder core level of inventory that we can, we plan to try to take out in the second half, which means that that SG&A line will still show that promotional support of re- inventory reduction. We know it's the right thing to do. It's non-recurring. It's, you know, this is a non-recurring, one-time activity, but we intend to get the inventories down, Frank, lower than, than. You know, I mean, look, we did a spectacular job of cutting inventory in the first half.
And we'll continue that momentum through the end of this year. Maybe longer term, our P&L will reflect leverage in SG&A, no question, even with all the investment in new products. You will see us lever down SG&A as time goes on. You know, we, we still have a, a industry-leading gross margin. In fact, we're so far ahead of our competitors in gross margin, it's, it's hard, hard to believe, and that, that is not gonna stop. And gross margin is under pressure when you cut inventory. Why? Because we, you know, we shut the factories down, so the ones that make consumer products.
Once we crank the factories back up, and that will happen, certainly we will start building outdoor, John, in the fourth quarter for next season, and then as we move into 2024. It is right now, it looks, 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. That's good news for gross margin, for the PNL, for the company.
Okay. Okay, good. I guess from a gross margin perspective, I mean, do you feel, You know, I know you target 50 basis points a year. I mean, do, do you think just given the production downtime, that that's gonna 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, as you look into next year?
Yeah, look, I mean, guys, there's been a lot of feedback we've received about our gross margin, and, and, you know, let's be very clear. We view gross margin as a key metric. Not the only dimension. We, we are growing this company away at, at, at above market rates, way above market rates. With the gross margin, it's, it's far higher than anyone else's. This year, the gross margin is not going up 50 basis points because of the inventory reduction. There, 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 an investment, good inventory don't build in the first place, but when you have too much and you sell it off, you have to discount that into gross margin.
The fact that we kept gross margin at 39 with all the inventory, you know, $651 million inventory reduction in Sean, that was a heroic effort on the part of our organization globally. Gross margin going forward, yes, we still have an internal plan to grow gross margin 50 basis points a year. That'll start next year. You know, do we -- one year it might be 37, the next year it might be 74, but it's going up and you can't stop it. You, and, and I'm sure you remember when we disclosed that we have this aftermarket of battery sales that is wildly accretive and, and that, that, that aftermarket is growing like crazy. Don't forget, Milwaukee, as a business unit, is highly accretive and is outgrowing the rest of the company.
Just the mix in batteries drive gross margin up as we go forward.
Okay, great.
Great.
Appreciate the time. Good luck on the rest of you guys.
Thank you. Yeah, appreciate it, Dan.
Your next question next question comes from Helen Tsang at HSBC. Please go ahead.
Hi, Joe. Hi, Frank. Hi, Sean.
Hi, Helen.
How are you doing?
Well, never better. How are you?
Not bad, not bad. A bit busy as a new mom, but still hanging in there. 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. When I was looking at the R&D, it is still growing up. Shall I expect it to be the ongoing trend? That's the first question for Milwaukee. Second, I want to follow up on the SG&A for Milwaukee. If you are talking about further the geographic expansion and commercialization activities, should I expect the SG&A for Milwaukee to further go up in the coming quarters?
The last question, if I may have for Milwaukee, is about the, well, percentage contribution coming from infrastructure and outdoor. Well, the other thing is, I noticed that you opened a hand tool, Milwaukee, so in, in Wisconsin, the factory. It's, 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 ship or? Because I, I think we mainly focus on power tools. Yeah. Thank you.
All right, let's see. Four questions. Okay, first, on the factory, real quick. The factory is strictly to produce in the US as commercial and residential electricians tools. We have an opportunity with our largest customer, Home 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 better, awesome products, and they're going to be made in the USA. That's important because electricians, most electricians, belong to a union, and they, they, they insist on made in the USA.
I, and I think it's pretty funny because there was an article in the Wall Street Journal that another company in our space tried to make, tried to make hand tools in the U.S. and they've given up and shut the thing down. We, we've had a flawless rollout with this new factory. You're welcome to come to visit anytime. It's pretty cool. It's hand tools, not power tools. Yeah.
Mm.
although we do make power tools as well. Okay, let's go back. Mil- the first question was Milwaukee, help me, Ross. R&D. R&D.
R&D.
Yeah. Sales last year were up 20 and change in Milwaukee. This year, sales are in first half, up nine, which means there's less sales. Which when you look at R&D as a %, you don't get the leverage. Look, as I mentioned, we are, we are being more conservative with Milwaukee, but not a lot more. We're being very conservative, ruthless on the consumer side of the business. The new product activity there, we're slowing down a lot. In Milwaukee, we have cut, say, the bottom 10% of projects we had underway. We've decided to delay those projects. Why? Because we think the economic environment is a little tough right now. You know, that's something we've been doing throughout the first half.
You know, you should expect, going forward, Milwaukee SG&A to lever down. Not in the second half this year. Not, I mean, it's not really going to lever the second half this year, but, but, but 2024 and beyond, the SG&A from Milwaukee and for the company in general, Ross, will lever down. You'll be pleased when you see that. Okay, we're end this. You had a third question. Yes.
Then about the infrastructure and outdoor.
Oh, infrastructure. Oh, my God! That is one of my new favorite topics. There is massive activity in infrastructure, and that's even before the government, the U.S. starts throwing, you know, trillions of dollars to support this. There's, there's, you know, look, we don't disclose the percentage, but let's just say the Milwaukee focus has, has shifted. You know, we're not focused on commercial office building construction because nobody's building it. We're, we're focused on all sorts of other areas, and infrastructure is the, the most massive opportunity we have. When you think infrastructure, think Milwaukee, because we own the space. We're very strong. We have, we have-...
Oh, worldwide, we have hundreds and hundreds of end user marketing specialists that work together with the contractors and the other workers, and the other companies that build infrastructure projects or maintain it. This is a vast, massive opportunity. You know, we'd be happy to share with us way more detail after this session on infrastructure, just so you can see just how much of room there really is for us to grow. Great. Thanks, Stella.
I understand. Thank you. Thank you so much. Yeah.
All right, next caller.
Thank you. Your next question comes from Terence Chang at Macquarie. Please, go ahead.
Hi, good evening, management. Can you hear me?
Terence, how are you?
I'm good. How are you, Joe?
Absolutely never better, man. When you have a team like we do-
Yeah.
We're in a great mood.
Well, I mean, I mean, first of all, I, I think the company did a really good job in lowering the inventory in a very challenging environment. I guess my question is on, where do you see your inventory levels to be at, at the end of the year? I guess, the second question is that well, we do see that, you had a PR day on, on, the Milwaukee, and definitely-
Yeah
A lot of this social media has been talking about it.
Yeah
... in terms of the contribution of these new products, are we kind of looking at further increase to say before, at around 30% - 40% to even higher levels? Maybe these two questions. Thank you.
Okay. Wait, the 34% what? That second question. What, what were you asking me, 30% - 40%?
New, new product sales contribution-
Okay, got it.
will it further go up?
All right. All right, 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. I, I, at this point, feel comfortable the inventory side will come in below $4.6 billion.
Yep.
You know, hopefully significantly more. You know, remember that, that the, the, the impact that it has, is gross margin is lower a little bit because we cut production, there's no absorption. Yes, we've cut inventories more. Next year -- Look, believe me, I, I think it's important to note, Stella, you know, we have spent the last five years building out a global manufacturing supply chain. We moved into Vietnam from -- we built that from scratch. We moved into Mexico. We have a number of facilities in the U.S. that we've either invested in or built from scratch. What that means is we haven't really spent time yet on just-in-time manufacturing. You know, we all know the, the methodology, right?
The Japanese forged a concept called teikei, which means you co-locate your suppliers around your manufacturing operation. So the idea is just-in-time inventory delivery in the factory, and then the factories. When we move production to places like Mexico and the US, we build products closer to the end market, so there's also an opportunity to take inventory out. So, you know, we are gonna be very much focused on inventory going forward, no matter what the growth level is of the company. I feel quite confident that we can manage that growth with less money tied up on an inventory in the first place. You will see the results of that as we go forward. Okay, second question. What's, remind me what's your second question?
The second question is on new, new, new version from new products.
All right. This week, it's true, we did have a PR event in Milwaukee, Wisconsin. It was a spectacular success. The social media, yeah, 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 FORGE battery technology that we unveiled is a revolution. It's, it's a big step forward in powering cordless products. We launched it not only tried an M18, but also an MX and a reaction. When you, when you use these products, you can't believe the power. You know, we see a trend in the market with competitors using 40 volt for, for, for, for core power tools, for, for full-sized power tools. We see a trend. They, they take voltage up, have more batteries, et cetera.
We don't have to do that because we have so much electronics, so much software on board our, our tools, that we, we think we can harvest ample power, stuff like in capabilities out of an 18 volt battery, especially with this FORGE technology and with the Super Chargers that we want. You know, I, I couldn't be more pleased and excited about the reactions we had this week when we rolled out our new product. Will the percentage of products go up? You know, probably the %. 30-40 is a range that you should expect us to continue the next five years. 30% - 40% revenue come from new products. You have to remember, we have launched a bewildering, massive amount of new products over the last decade.
A lot of the new products haven't done their research potentially yet. You know, as we open up new geographies, as we attack new verticals, as infrastructure really, really heats up, the products that we launched two years ago or three years ago, they're no longer new, but they're different. We're gonna grow them like crazy. There's we have hundreds of examples of that as well. Get ready, man, because the new product is a key part of the company, and the products we, we launched a couple of years ago are also a key part of the company. All right, great. Thank you, Terence. Next caller, please.
Thank you. Your next question comes from Sherif El-Sabbahy, from Bank of America. Please go ahead.
Hello?
Pardon me, Sherif, your line is live.
Hi, can you hear me now?
Yes. How are you?
Hi. Good morning. Doing well, thanks. How are you?
Awesome, man.
Home Depot has made a commitment to end all outdoor sales for power equipment by 2028. How is Techtronic positioned to help them do this?
Well, let me count the ways. You know, look, look, so, Home Depot, First of all, Home Depot is a brilliantly managed company. We are incredibly fortunate to have such a good partnership there. We don't sell Home Depot's competitors. Because of that, we have a different kind of a strategic relationship. You know, look, Home Depot had an investor day in New York City, I think maybe six weeks ago, and they made it, Billy Bassett, their Head of Merchandising, who's, you know, perhaps the best merchant in the United States, he's a brilliant guy. He, he focused on the opportunity Home Depot has in cordless products, power tools, cordless vacuum cleaners, cordless outdoor products, cordless...
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. I think we will feed that focus for Home Depot over the next decade. We, we are in it to win it. We I would say we're uniquely qualified to help Home Depot achieve their goals in cordless. Importantly, the other Home Depot messaging that you'll hear is that Home Depot is really going after the pro user. When Pro user, the, the, the most powerful and popular brand with the pro, by far, without even without a comparison, is Milwaukee. Home Depot has Milwaukee, their competitors don't. Man, Home Depot itself, a lot of Milwaukee is.
Even, even as the challenges of the first half, presented themselves to us, Milwaukee still was selling great with Home Depot and, and beyond. So yeah, we, we, we, we, we love Home Depot. We work very hard to help them achieve their goals. They are a, a demanding customer, and they're a fabulous customer, and, and we intend to grow like crazy with them in the months and years to come.
Thank you.
Thanks, Sharif. Next caller.
Your next question comes from Jacqueline Du at GS. Please go ahead.
Okay, I'll take the first question. The question is about the long-run sales growth guidance for Milwaukee. You mentioned that some of the verticals have slowed down, for example, office building, et cetera. Can I ask, can you give us a sense in terms of revenue contribution to Milwaukee from those end markets? And any comments on the sequential trend heading to the second half?
Okay. Well, you talked in very short term, look, the way we, we're already in August in the second half, right? July was a, an excellent month. The fact is, there, there are pockets of professional tool consumption that are soft or down from where-- build, office building construction in the U.S. and really globally is way off. rescon has actually bottomed out in our view. We see, we see signs of light, even though interest rates are high, we see signs of light for rescon, especially high-end rescon, with the, the target in the affluent market, where there's more tools consumed per house built.
On the flip side, the, you know, even with the interest rate environment we have, even, even with the economic challenges that we see globally, Milwaukee's virtually every other vertical is, is, is fantastic. Net. You know, it's infrastructure, transportation, anything that moves, cars, trucks, planes, trains, automobiles, submarines, anything that moves requires constant maintenance and repair. That's an area we've attacked that's flourishing for us. You look at the whole data comm, data installation arena, with the fiber optic cable, whatever, whatever it is, to support the internet, the U.S. is global. That's growing like crazy. We are leaders in that space with power tools and soon to be hand tools.
You know, every, every EV factory, every, every EV charging station, all the investment that's done in the semiconductors and, and job production, all these investments need buildings that we build and, and need assembly inside. I think one of the most exciting, Jacqueline, end user markets 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, are, are gonna grow and grow like crazy. We have a series of products that are uniquely designed to serve that renewable energy as-assembly and maintenance market, which, which we think is underestimated and vast. So, you know, look, I could go on and on.
Oh, let's, 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. You know, we are in the, we have a commanding leadership position globally with the professional landscaper and arborist market with Milwaukee, and we're the, we're the, we're the clear leader globally with the DIY outdoor market, with Ryobi. You know, we, we will harvest the benefit of this shift from gas to batteries here in the second half and really, over the next 10 years. It's, it's, it's so exciting, you can't believe it. It's, it's a vast opportunity. Look, you know, there's a lot, there's. Do not, do not think that we're running out of ideas to grow Milwaukee.
You have to remember, when we say we're guiding up high single-digits to low double-digits, when we say that, we're really saying that on top of a base that's grown 24% CAGR since 2010. The base is staggering, and we're still gonna grow way above the market. If the market gets better, we'll grow faster. You know, we always have the turtle plans to try to grow faster.... But we certainly have-- we've never had to onboard ideas in more ways to grow Milwaukee, that's for sure.
I remember-
Thank you, Jacqueline.
Yeah, I remember previously you were guiding mid-single digit growth for the full year, and now you're saying it's for the second half. If, if when we look at your first half revenue, if you maintain at that level, and considering the low base in second half last year, you should be growing around 10%. Just curious, what's the assumption?
Yeah.
For the different segments, for example, Milwaukee, DIY, outdoor.
Right.
Hand tools, et cetera, heading into the second half?
All right. Jacqueline, let's not forget what I mentioned earlier this evening or this morning.
Mm-hmm.
We are underpromising, we intend to overdeliver. That's, you know, 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 gonna do. That means that's, that's what we, we feel 100% confident. Now, the Milwaukee business will, will grow a much faster rate than that. We're if you look at our consumer businesses as a group, John, that we're projecting right now, and we'll get into that in a second. You know, 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 July and early August. You know, when have we not exceeded the expectations, John, in terms of growth for Milwaukee and the rest of the company? You know, we, for 16 years, we pretty much always do. Don't expect us to stop working hard to exceed those numbers. Okay, thanks. Thanks, Jacqueline. 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 tell you?
I'm good. Helen actually read this question, but I probably missed some of the answers. I have two questions regarding the overseas expansion. 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 partners? The second question is, what, what's the impact? Yeah, what's the impact on the SG&A in the near and long term?
Okay. The SG&A?
No, international growth.
Oh, oh, oh, okay. The rest of the world. Okay. Frank, look, we, we, we're spending a lot of time focusing on what we call geographic expansion. You know, we, we are. Central Europe is one of the fastest growing theaters of operation for us. You know, we just recently went into Romania, Bulgaria, Algeria, Slovakia, Slovenia, all these, all these markets, and they're growing like crazy. We are growing throughout the Asian theater, from Japan to Singapore, to Thailand, Malaysia, Taiwan, China, South Korea, and everything in between. These markets are... You know, Vietnam, is I visited 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, that we are focused on now and starting to build out our company. I, you know, we have this conundrum because we continue to say we are committed to growing outside the United States. The problem is, the Americas always seem to keep growing. You know, that's a high-priced problem. I think when we look at the next five years, there's clearly far more growth potential outside the US than in. Europe is the biggest growth opportunity we have, whether it's Western Europe, Central, Eastern Europe. With these other markets, they all contribute as well, and it all adds up.
You should expect us to be much more broadly distributed globally, and you should expect our growth rates outside the US to exceed what, the level of our growth in, in the US. That's for sure. Did you -- the second question was SG&A going forward? Was that your question?
Yes, SG&A impact in the near term and also long term. Thank you.
SG in the near term, as in the next second half, SG&A will be about where it was in the first half, roughly. Why? Remember what I said, you know, we've sold off and liquidated the easy inventory to move. I mean, believe me, it wasn't easy to cut $651 million inventory. What we have left that we intend to move is the harder core inventory that's gonna require more aggressive discounting and more SG&As before you move that inventory. You know, you will see that. Also, there were some of the costs associated with it. We really aggressively attacked structural overhead, whether it's headcount or other forms of overhead, especially in our consumer businesses.
There were severance and other one-time non-recurring charges there. You have to remember, everyone, you know, we don't take we don't book restructuring reserves. We self-fund our. If we have to remove headcount, Frank, we don't book a reserve and take ourselves off the hook. We self-fund it. We think that's a really important discipline in the company. So because of those things, SG&A, the second half will be like the first half, roughly, and we will start to leverage SG&A next year, there's no question. Right, Frank?
Understood. Thank you. Thanks.
Yes, our pleasure.
Okay.
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 PPI. Please feel free to reach out with any questions. Have a good night.
Thanks, everyone.
Yep, 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.