Ladies and gentlemen, thank you for standing by. Welcome to the Maytronics Ltd. Q2 2023 Results Conference Call. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded August 16th, 2023. With us online today are Mr. Sharon Goldenberg, CEO, and Mr. Meni Maymon, CFO. Before I turn the call over to Mr. Sharon Goldenberg, I would like to remind everyone that forward-looking statements for the respected company's business, financial condition, and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated.
Such forward-looking statements include, but are not limited to, product demand pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies, as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. Mr. Goldenberg, please go ahead.
Thank you. Good morning to you all, and thank you for joining us today. I'll start with a short summary of the 2nd quarter and 1st half, and Meni will present the financial results. Then I will talk about the trends in the major territories and give you an update regarding our outlook. Maytronics has delivered its highest revenue for the 1st half and 2nd quarter since the company was established. To be honest, despite the challenges foreseen at the beginning of the year, our expectations were even higher. This achievement is the result of an uncompromising work by everyone in the company, in the face of tough challenges across a wide range of factors, some of which we didn't expect. 2023 in the pool industry is evolving as a unique year, impacted by several main factors.
In terms of B2B, the first factor is the famous inventory correction process. This process, which began in the second half of 2022, is reflected in a need by distributors and dealers to destock surplus inventories of all pool equipment, particularly in a number of categories that accumulated during 2022. The second B2B-related factor is a substantial change in the purchasing and inventory buildup patterns by the distribution channel. As distributors and dealers cope with high interest rates and are aiming for tighter, more conservative, conservative working capital management, they are shifting to smaller and more frequent orders. With respect to pool owners, the inflationary environment and high interest rates are taking their toll on consumer spending. Pool owners are more price sensitive and show greater tendency to trade down, as well as a decline in demand for new pool construction.
As far as the weather is concerned, the 2023 season in the Northern Hemisphere is evolving as highly irregular. Weather has been extreme since the start of the year, especially in the United States, where rainy weather persisted into June in the Sun Belt states. Fires in Canada caused extraordinary smoke and haze in the Northeastern US, and floods were experienced in California. In Europe as well, the weather was not in our favor, and in fact, in both North America and Europe, the weather kind of stabilized to a hot, sunny, and clear one, only in late June, the beginning of July. The bottom line is that the pool season in North America and Europe started very late this year. In this challenging environment, the company achieved 29% growth in the Q2 and 10% growth in the first half of 2023.
For reference, even with the exclusion of the effects of the ECCXI consolidation, we delivered a low double- single-digit decline compared to a 20%-30% decline in revenues among other manufacturers in the industry. Alongside the challenges posed by the demand from the distribution channel, we have managed to successfully grow in the online channel in the US. This reflects ongoing demand by pool owner for the company's product, the strength of the Dolphin brand, and the company's strong marketing and operational capabilities in the e-commerce arena. In the past few years, Maytronics developed extensive marketing capabilities by building specific teams and deploying technological IT systems, and this year, thanks also to the integration of ECCXI's operational capabilities, we succeeded in leveraging the capability set we built to drive solid growth in the online channel.
The acquisition of ECCXI, which is active in online B2C sales in North America, boost our strength in the market, and under the Maytronics umbrella, ECCXI continues to perform exceptionally, exceptionally well. The commercial market has been on a path of recovery for several quarters now. The end of the pandemic and the return of tourism have generated growing demand for the company's product in this segment, and in the Q2, we achieved growth of more than 53% and 61% in the first 6 months. As we said in the past, when results were less favorable because of COVID, we have the widest range of robots in the industry in this segment, and once demand is back, we will be ready and be able to realize the potential, and we are happy that this is indeed the case.
In terms of margins, our gross margin improved, thanks to three main factors, which I will present according to the intensity of their impact. The first is the ability to sell at a higher average selling price, thanks to the realization of price increases, as well as focus on the mix of sales channels. The effective increase in selling price is the result of price increases at the end of the first half last year, plus the increase for the 2023 season, not including early buy discounts and those throughout the year. The second factor is the implementation and advancement of projects to optimize BOM costs, as well as raw material procurement. At every point in time, we have efficiency enhancement projects in the pipeline, and looking ahead, I can definitely name the Liberty family we launched this year as an example.
Far, its contribution to the gross margin has in fact been negative. Every launch has a, a cost structure that demands and allows for a reduction later on, and we are working on efficiency enhancement, this product line as well. Also, as I've mentioned before, we are gradually increasing the introduction of automation to our production lines. The execution of every project of this kind contributes to improving the company's operation efficiency and saves manpower. Finally, the devaluation of the shekel against the euro and dollar has had a favorable effect on the gross margin, which was partly offset by the fact that some of our operational expenses are currency-pegged. The main negative impact on the gross margin, which to a certain extent offset the positive effects, as I mentioned, is a decline in manufacturing volumes, which Meni will talk about more.
To sum up, I would like to share that in the first half, we began the process of formulating a sustainability strategy for Maytronics. As a leader in the field, in its field, and a company whose products contribute to the environment, we believe it is our obligation to take all our sustainability activities and put them together in a formal strategy. We plan to complete the strategy before we publish our 2023 annual report and to include a sustainability chapter in the report. I will now pass the mic to Meni for a review of the financial results, and then I will go into more detail about trends in the major territories and our outlook. Meni, go ahead.
Thank you, Sharon. Hi, everyone. I will review the main items in the financial statements and present the highlights. Revenues in the first half of 2023, which reflect most of the company's business in the pool season in Europe and North America, were up 10%. Excluding the consolidation of ECCXI, revenues were down by a moderate 3.9%. Revenues in the Q2 were up 28.8%. Excluding the consolidation, there was a modest decline of 1.2%. The Q2 is a strong quarter for ECCXI due to seasonality. The difference in revenues with the ECCXI consolidation and without the consolidation, is mainly due to the consolidation of sales of other products, and another hand in the sale of products.
The robotic cleaners for residential pools grew 17% in the Q2 as a result of the ECCXI's first-time consolidation. In the first six months of 2023, the segment's revenues remained unchanged, in this period, again, this is due to the first-time consolidation of ECCXI. These results are relative to very strong comparative numbers in the first half of 2022, when the company delivered 24% growth, reflect the changes presented by inventory correction in the professional distribution channel, along with the strong performance in online direct sales to end users. Revenues from sales of commercial robotic cleaner rose 53% in the quarter and 61% in the first half year.
The public pool segment is experiencing growth in demand now that tourism and the hotel industry are recovering from the pandemic, and also thanks to the improvement in the company's ability to supply the demand. Revenues from sales of safety products and other products grew strongly, mainly thanks to the incremental sales following ECCXI's consolidation. On the other hand, sales of covers and alarms declined somewhat due to the drop in the pool construction in Europe. In terms of a geographic sales mix in the quarter, North America sales were $456 million, up 73%, and up 9% without ECCXI consolidation. Sales in Europe totaled $225 million, down 14%. In Oceania, the sales were $24 million, unchanged compared to the same quarter last year.
Sales in the rest of the world grew 26% in the Q2, and amounted to ILS 24.7 million, mainly thanks to the sales of a commercial segment in China. Gross profit in the Q2 was ILS 307 million. The gross margin was 42.1%, an increase of 102, and 80 basis points. In the first half of 2023, the gross margin rose 280 basis points. The higher gross margin is the result of 1 is a increase in the average selling price following the realization of price increases. The 2 is a certain decline in raw material costs and shipping rates. And 3 is a favorable foreign currency effect.
These positive effects were somewhat offset by a decline in production volumes, raising the direct cost of producing a robotic cleaning. From the launch of the Liberty line, due to the fact that each this launch is carried out in the cost structure, it requires a reduction in cost later on. Regarding the operating expenses, I will talk mainly about the quarter, but the trend are similar in the first half. R&D expenses on the income statement rose 16% in the Q2. Most of the increase is attributed to a reduced capitalization of robot development costs in light of the investment in Liberty line. More of these expenses are classified to profit and loss.
Development costs in the pool water monitoring, control, and treatment segment were ILS 3.8 million, similar to the level in the Q2 last year. The company's total development costs, which include the capitalization of development costs, recorded in the cash flow from the investing activities, were down 14% compared to the parallel quarter. Selling and marketing expenses were ILS 124.5 million in the quarter, up 137%. The consolidation of ECCXI contributed ILS 59 million. Due to the increase in ECCXI sale and its cost structure, which includes a variable cost for a commission to websites and transportation costs, at a rate of about 20% of ECCXI sales.
Excluding the consolidation, selling and marketing expenses rose 26% because of an increase in marketing campaigns, as part of marketing effort to drive sales up. and of course, the currency effect in the period increased by ILS 3.7 million. G&A expenses were up ILS 5.6 million. Most of the increase is attributed to ECCXI's consolidation, which added ILS 3 million in expenses, plus a foreign currency effect of ILS 1.1 million. Operating profit was ILS 128.6 million, down almost by 1% compared to the same quarter last year. The operating margin declined to 17.6% of sales, compared to 22.9% last year. This is mainly due to the structure of ECCXI's operating expenses in the consolidation for the first time.
Without ECCXI consolidation, the operating profit rate is 21.1%. In the first half, operating profit was ILS 245 million, down by 9.9%. Net finance expenses were ILS 17.3 million in the Q2, and ILS 35.7 million in the first six months. Interest rate hikes and an increase in the debt level led to interest expenses of ILS 14 million in the Q2, and ILS 25 million in the first half. It should be noted that in light of the collection from customers towards the end of the Q2, the company reduced its short-term credit by approximately ILS 150 million.
The effective tax rate decreased to 13.6% in the first half, compared to 16.9 last year. This is mainly as a result of a change in the profit mix in the group. In the Q2, we improved our cash flows from operating activities, which were positive ILS 270 million in the Q2, an increase of ILS 131 million, and that reflect the reduction in inventory and a better collection from receivables. The operating cash flow improved in the first half as well, and was ILS 84.3 million, sorry, positive cash flow, compared to ILS 81.9 million consumed by the company last year, and the total improvement is ILS 166 million.
Maytronics continues to adjust its inventory volumes to the volume of demand and its production capacity, and the Maytronics working to reduce inventory levels. In the Q2, inventory decreased by ILS 122 million, compared to end of March 2023. Today, the receivables declined by ILS 35 million, in spite of the increase in the quarterly revenues, due to the collection from customers and because the incremental sales by Axie are made directly to the end user. Average customer days in the Q2 were 63, compared to 78 days last year. Cash flow from investing activities consumed by the company were ILS 48.1 million, compared to ILS 51.7 million in the same period last year. In the first six months of 2023, the company invested mainly in buildings at the company's site.
On the other hand, intangible assets decreased, as I explained, earlier when I talked about the R&D item. Finally, the board of the directors approved, yesterday, a dividend, distribution of ILS 50 million in September. That's it. Sharon, please go ahead.
Thank you, Meni. I'll now talk about the major regions. Q2 sales in North America were ILS 456 million, up 73% in shekels and 62% in dollar terms. Excluding the effects of the ECCXI acquisition, growth in the quarter was 9%. The results for the Q2 and first half of 2023 reflects the trend of inventory correction in the distribution channel, a decline in consumer spending, and a very late start to the pool season due to the unusual and unstable weather. Although it is still early to sum up the year, several points stand out in the first half, which we estimate will be among the factors of influence later on in the year.
I will start with the series of effects I talked about, mainly the weather, which led to the relative decline in the in-store traffic, and as a result, to a slowdown in the pace of inventory reduction in this channel. This phenomenon is balanced by a positive trend in the online channel, at least as far as the robotic pool cleaner market is concerned. We continue to experience good demand by pool owners for Maytronics robots, which is reflected in good growth in the online channel. We made broader and successful use of digital campaigns in general, especially online, and the success in this territory was achieved, thanks to the hard work of the team in Maytronics, North America.
Another point I want to emphasize is that the late start to the season resulted in a volume loss of replenishment order cycles, those in-season repeat orders from dealers and distributors that happen in a normal season. Next is competition, which increased in 2023, both by the traditional players in the industry, Fluidra and BWT, and the Chinese players. In terms of inventory correction by dealers and distributors, there is a softening trend in replenishment orders for Maytronics robots with an intensity we didn't expect, although the robots sell well in stores and their inventory level are low. As I mentioned at the beginning of the call, there is a certain end-user bias in favor of lower prices in view of economic constraints, because of the high inflation and interest rates.
Here again, this is balanced by the sustained trend of demand for automated connectivity-enabled product, and our robots with IoT connectivity are demonstrating the strongest growth. Finally, I want to mention the very strong demand in the commercial segment, which has generated strong growth in North America. ECCXI grew very nicely, considering the challenges of the season. ECCXI's integration is proceeding according to plan, and we are focusing on margin improvement by realizing synergies, leveraging the ECCXI platform to broaden the product range overall, and harnessing Maytronics's strong digital marketing capabilities. We believe that this is the way to drive ongoing significant growth in the region and to capitalize on the high potential offered by e-commerce. I will now turn to Europe. Sales in Europe were ILS 225 million, down 14% in ILS and 22% in EUR terms.
The European consumer is typically more conservative, even when macroeconomic conditions are good. The high inflation and interest rate environment, coupled with the regional impacts of the continuing war in Ukraine, are reflected in the consumption level and consumer confidence. This year, these have been accompanied by various government decisions and regulatory requirements that have affected the swimming pool industry. As an example, prohibition of the use of water heaters in Germany and on the installation of above-ground pools in France because of the droughts. All of these led to a situation where demand in Europe is more challenging than in other territories, especially in Northern Europe, which is experiencing a sharp decline in new pool construction and private consumption. Demand in Southern Europe is relatively stable, with moderate decline compared to last year.
In Europe, inventory correction in the pool industry, in general, is comparatively more significant, with relatively high inventory levels in the above-ground pool segment. In Europe, like North America, the weather was unstable, with cold, rainy days persisting into June. As we have said before, in Europe, we are more affected by the decline in new pool construction, which has negatively impacted the demand for our automatic pool covers, alarms, and other pool equipment sold by the German subsidiary, and naturally, this affects us in the Q2 and first half. Competition in Europe has become more intense, both by traditional players and existing and new Chinese players. Last but not least, I want to mention the strong demand in the public market following the return of tourism, which was reflected in high double-digit growth.
I will end with an update of the outlook for the remainder of 2023 and the updated guidance. Alongside the challenges posed by the demand in the distribution channel, the results for the first half of 2023 reflected sustained end-user demand for the company's product, the strength of the Dolphin brand, and the company's strong e-commerce capabilities, thanks, among other things, to the acquisition of ECCXI. At the same time, the market characteristics I mentioned, mainly the nature of inventory buildup in the distribution channel and the very late start to the pool season in the Northern Hemisphere, impacted the results for the first half and are expected to be expressed in the timing of purchases during the second half, including early buy distribution purchases for 2024 season. We expect that some of these purchases will be shifted to the first half of 2024.
This change is expected to affect business volume in the second half of 2023 in relation to the company's initial plans, and accordingly, and in light of the results for the first six months, the company has revised its revenue forecast and estimates revenue growth within a range of 5%-13%. That's it from us. We'll be happy to answer your questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to decline from the polling process, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. If there are any additional If there are any questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for your questions. There are no no questions at this time. Mr. Goldenberg, would you like to make your concluding statement?
Yeah, thank you. Thank you for joining us. Just to say that the market environment today is extremely volatile. Microeconomic conditions are such that have not, we have not experienced for many, many years. The weather was not at its best, saying the least, but we remain optimistic, continue, and continue to see significant growth potential for the company in the years ahead. Thank you very much again for joining us today, and have a great and restful summer.
Thank you. This concludes Maytronics Ltd. Q2 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.