Ladies and gentlemen, thank you for standing by. Welcome to the Maytronics Ltd 2nd Quarter 2024 Results Conference Call. All participants are present in 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 21st, 2024 . With us on the line today are Mr. Sharon Goldenberg, CEO, and Mr. Meni Maimon, CFO, and Mr. Amir Ambarchi, Head of Investor Relations. Before I turn the call over to Mr. Sharon Goldenberg, I would like to remind everyone that forward-looking statements for the respective 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, would you like to begin?
Yes, thank you very much, and good morning to everyone. 2024, which started out with expectations for several interest rate cuts and macroeconomic relief, has turned out to be another year of high interest rates, with lower expectations for interest rate reduction. I will first try to explain the impacts of the macroeconomic environment that is the backdrop for the considerable changes taking place in the swimming pool market. The pool market, including the pool cleaners market, has been strongly impacted by the high interest rate environment, which has affected the volume and nature of demand by the distribution channel and pool owners alike. The fundamental change in build-up pattern in the distribution channel, which began in the second half of 2022, following the need to destock excess inventories that had accumulated as the world emerged from the pandemic, has intensified in the past year.
On the other hand... On the one hand, this trend is essentially tactical, the result of extreme weather that led to late start, starting pool season in Europe and North America for two years in a row, 2023 and 2024. However, we estimate that this is also the outcome of changes taking place in the pool market, resulting in the growth of the online channel at the expense of the more traditional professional channels. Two trends, which feed off each other, have led pool owners to become more and more comfortable with consuming their pool maintenance needs online and created growing preference for this channel. The first is the variety of value propositions, which is growing steadily across all product categories in the pool industry, and at lower prices compared to the product assortment and price levels in the traditional professional channels.
The second is the need to reduce the cost of purchases for pool maintenance as interest rates and inflation impact their share of wallet. These two trends are reflected in the growing number of products and growing volume of pool equipment and products bought online, from chemicals to pumps and filters. At the same time, the pool cleaner market has also undergone significant changes in the past few years. We are experiencing changes that on the one hand, creates stronger growth potential than before, and potential for the robotic pool cleaners market to become substantially bigger than in the past, based on pool owners' increasingly rapid conversion to the robotic solution. Alongside this meaningful potential, the level of competition is growing, and it is expressed in the growing number of players, price pressure, and lower ASPs. Growth of the online sales mix has several effects.
In the online channel, the competition has become increasingly intense in the past few years, with the entry of large number of Chinese players offering value propositions across a broad price range, pouring significant financial investment in digital marketing. The online sales cost structure is reflected in a higher variable OpEx mix, notably selling and marketing expenses, which involves commissions to marketplaces as well as digital marketing expenses. The strategic process undertaken by the company in 2023 identified these trends, and our work plan reflects courses of action designed to deal with the changing market conditions. In this respect, in 2024, we furthered numerous activities. We announced the launch of a new product line for the medium to low price range, which will be sold under separate brand, Nia, that delivers a unique value proposition to the end user.
The new product line includes a number of models that were planned for launch and sale in 2024 season. The goal of this initiative is to expand the company's value proposition and boost its competitive ability in the mid-to-low segment, a segment that continued to deliver high growth rates in 2024 , but unfortunately, the challenges of the Swords of Iron War led to a delay in the launch of most of the models. The outcome was negative impact on our plans to gain market share in this segment, and consequently, on our revenues in the period. Since the second half of 2023 , we have been actively pursuing market shares gains in online through ASCI in the other pool product segment.
As part of this effort, we work to expand ASCI's agreements with leading manufacturers in the pool industry to include the sale of a broader product portfolio on ASCI's platform. The move was successful and also led to about 30% growth in the company's business in this segment in the first half of the year. In 2024 , Maytronics launched a new robotic cleaner, Skimmi, that delivers a unique robotic solution for cleaning the water surface. The launch of Skimmi was also significantly delayed because of the challenges created by the war, which negatively affected the company's plans to gain market share in this segment, and as a result, its revenues in the period. In 2023 , the company began marketing the Liberty series, a cordless robot family for private pools. Following a successful launch in 2023 , the Liberty models met with solid demand in 2024 .
On the same subject, we are now in the advanced phases of developing more robots that will be launched in the next few years. During the year, we established a subsidiary to expand ASCI's business into the European market and to build online capabilities in this territory. Building the infrastructure, which mostly involved the receipt of regulatory approvals and sales approval from a large number of parties in numerous countries, has taken longer than expected, which has harmed our ability to make online sales in the territory according to our plans in 2024. We have now received most of the approvals and are working to complete the business infrastructure before the 2025 season. And finally, in 2024, we made significant progress in addressing the company's cost structure.
First of all, we defined a three-year goal of achieving 10%-15% reduction in direct robot production cost. In this area, our progress has been good. We achieved a reduction of 13.5% in direct labor cost in robot production by assimilating automation and improving the efficiency of material flow and work processes on the production lines. We also achieved savings of about 5% in procurement, which are expected to be increased to about 7% by the end of this year. During the second quarter, the company executed a cross-organizational process to tailor the structure and scope of OpEx and CapEx.
The first element of these savings are essentially human capital-related, which is expected to yield cash expenditures savings of about ILS 7.3 million in the second half of this year, and saving of about ILS 17.5 million in full year terms. In addition, prioritization and cost tailoring efforts for certain projects, IT programs, marketing, and others, are expected to yield cash expenditure savings in OpEx and CapEx of ILS 15 million. In addition to this, to these initiatives, we are working on go-to-market. We have made fundamental changes that are expected to deliver better margins at the beginning of 2025, based on business understanding reached and others, other moves. We are continuing to work hard in this arena, and we'll keep you up to speed regarding our progress.
I will now provide a little more detail about the trends in the industry and the territories, plus a review of the product, the competition, and talk a bit about the outlook. I will start with North America. Second quarter sales were $382 million, down 16% compared to last year. Looking at the set of parameters I described at the beginning of the conference, the effect of the interest rate, the weather, and the differences in the range of value propositions, all these led to further decline in inventory buildup in the distribution channel, and this was reflected in the company's B2B sales in the territory. In the online channel, the trend was very positive, but to our great disappointment and frustration, we didn't have the tool to cash in on it, due to the timing of the Nia launch.
In this channel, the automatic cleaner market, robots, and basic vacuum cleaners experienced strong growth. The mirror image is that both e-tailers and professional channels experience a decline in sales of alternative cleaners, and an indication shows a decline of over 20%. These trends support the assumption we have been sharing with you for some time regarding growth potential, based on pool owners' conversion to robotic solution at a faster pace than before. These trends converge, certainly given the current macroeconomic condition, to create a situation where the mid-to-low segment is outpacing the mid-to-high segment, based on the conversion rate to robotic cleaners. The company's online sales in North America reflects low single-digit volume growth and a decline in value sales due to the lower ASP, mostly because of the mid-2023 price adjustment.
Our ability to launch the Nia model successfully and meaningfully was very limited, also because of the war, and the result was that, in effect, Maytronics didn't benefit from the growth in the mid-to-low segment in 2024, which is very frustrating, because we foresaw the trend and took the right steps and actions, but that's how things stand. What we can say is that, first, we are encouraged by the results we have seen in Nia sales on Amazon in the short time that the models were available for sale. We ran a very successful pilot in a major pool supply chain. The feedback was very positive, and we believe that this will pave the way to an agreement, and we will be selling very nice quantities of Nia models beginning in 2025.
This is only one chain, but it is part of a significant initiative that was planned from the start to expand the value proposition of the Nia models into the professional channel, and we believe this will happen in a meaningful way as the 2024 season, 2025 season approaches. Dealers and other big brick-and-mortar chains see the potential in this segment. They understand that they can't stick with limited, expensive value proposition. They understand the quality of our value proposition with the Nia brand, and we believe they prefer to do business with a reputable company like Maytronics. So we are working hard to expand the value proposition offered by the Nia brand in both the professional channel, as I said, and online.
We will be there in 2025 season with broader product range, and we will work to gain significant market share. The competition in the mid-low segment is mainly against the Chinese, who continue to invest heavily in digital advertising. This creates a significant challenge in contending against them in the online channel, but we have the tools, and combined with the company's strong reputation in the market, in both the distribution channel and among end users, we have the ability to be a significant leader in this segment as well, where we haven't been present, and it is powerful catalyst in conversion to robotic technology and is drawing pool owners into the Maytronics ecosystem.
Although inventory levels are more among distributors and dealers at the end of Q2 are very low, we do not expect a significant change in the second half of the year, which means that the distribution channel will reach early buys for 2025 season with very low stocks. Neither do we expect substantial changes in consumer demand as the year progressed, in light of the upcoming election in the U.S., and the absence of economic indicators that support a change in consumption characteristics. Regarding Europe, quarterly sales were close to 177 million, down 21%. The European market remains more complex and challenging than the other territories.
The macroeconomic conditions that are leading to a sharper decline in new pool construction and a downturn in discretionary spending, combined with bad weather, led to a decline of 10%-30% in dealer demand, depending on the specific market. We are experiencing stronger competition by both traditional competitors and new competition from China. Launches of new products are increasing, with more aggressive pricing and diverse go-to-market strategies. From the aspect of the company's competitive capabilities overall, and to fully capitalize on the potential in the territory, we established ASCI Europe in the interest of leveraging the company's strong knowledge and capabilities in e-tail to this territory as well, where the online channel is less developed compared to the U.S. market, and we see it as significant growth driver forward.
Since the beginning of 2024 , we have been working vigorously on building the necessary in-business infrastructure for sales in different countries. Today, we have most of the needed approval for that, and we are working to complete the business infrastructure before the 2025 season. Looking ahead to the rest of the year, we expect that demand will remain soft, among other things, because of the bad weather that continued in July, which is the strongest month in the third quarter in terms of demand. We also expect that the conservative approach to inventory management among dealers will continue in the interest of continuing to reduce inventory to far below normal levels as 2025 approaches. And finally, Oceania, the one bright spot. In general, the second quarter is the quarter that closes the pool season.
Sales in the quarter rose by 12% and amounted to 27 million ILS. As a result of the strong season overall, inventory level normalized towards the second quarter, so in contrast to other territories, we do not expect headwinds as far as inventory normalization is concerned. While the Chinese players are persisting in their effort to penetrate the Australian market, we have not felt any substantial impact, thanks to our solid foothold in the market, strong loyalty to Maytronics among dealers, and the fact that the online channel in the territory is very small. We're continuing to develop the pool water management segment in Oceania. We launched a second version of Mineral Swim in the second quarter, a product that delivers an innovative, improved water sanitation experience to the consumer.
The market response was excellent, and the product will be part of our value proposition in the territory next season. In light of the general trend in demand in Australia, and the fact that the inventory correction in the territory is behind us, we expect that the growth trend will maintain. Considering the overall trend in the market and the results for the first half year, we are revising our outlook, and we estimate that in 2024, revenues will decline with a range of 5%-15%. The broad range remains mainly reflects the degree of uncertainty as regards the level of demand in the distribution channel. The gross margin is expected to be at the range of 39%-40%.
The difference between mid-range in our initial outlook, which we presented in the annual report for 2023, and mid-range in the current outlook, is about ILS 300 million, and I will walk you through the material differences. The overall impact of delays in realizing strategic initiatives in 2024, compared to the company's original plan, which are also the result of the war, is about ILS 85 million, namely, close to 30% of the difference between the forecasts. One of the basic assumptions are, in our initial outlook, was a return to volume growth in sales to the distribution channel, based on the inventory level we saw at the start of the 2024 season in Europe and North America.
But the growth trend in the online channel, on the account of professional channel, for all the reasons I mentioned, led to distributors to keep on destocking, as opposed to our early estimates. Inventory level among distributors and dealers are very low by all standards, and this build-up pattern, combined with a strong trend of trading down among pool owners, led to the impact of the robotic sales mix. We estimate that this set of parameters, which in fact fed off each other, created a significant difference that we place at about ILS 175 million. The trend intensified the impact on the fact that we didn't have new models, and the strategic core of the launch of this robot family, is the expansion of our value proposition and the enhancement of our competitive capabilities.
Lastly, as far as the weather is concerned, as we said in the prior quarter, the initial outlook was for a standard pool season in Europe and North America, a season that starts in mid-May. In effect, the weather only stabilized in late June, and in some of the markets in Europe, also in July, the weather wasn't good. We estimate that the gap arising from the timing of the start of the pool season and negative weather condition is about ILS 40 million. We believe that the constellation of measures applying view of the 2024 season, plus others that we are applying, place the company in a good position to leverage the significant potential represented by the market. The various delays harmed the 2024 results, but did not override the quality of the step taken.
We will reach the market in 2025 with a stronger position, with a better ability to exploit the market potential, and we believe that among... With the significant initiatives now being undertaken in the cost arena, these measures will be expressed in better margins. That is for me, and I'd like to end with few personal words. This is a special conference call, and it's the last one for Meni, who has been such a meaningful part of Maytronics's success for so many years. Meni has informed us of his wish to step down as Maytronics CFO, and I want to say him, and to all of you, that it was a real honor and a professional pleasure for me to work shoulder to shoulder with Meni for nine years.
Meni, for me, especially in the past three years, and for the company in the past sixteen years, you were an anchor of professionalism, commitment, and dedication. The financial organization you built and shaped in your character was, and will remain, a significant foundation for the company's success. On a personal note, I thank you for the opportunity to learn from you and for the friendship that grew between us along the way. I wish you all the best in the world as you embark on the next chapter on your journey. So practically, for the last time, I will let Meni take over now and review the financial results.
Thank you, Sharon, for the warm words.
Sure.
Hello, everyone. I will go over the main items in the financial statement. I will start with the revenues segment.
... revenues from sales of residential robotic pool cleaners were down 26% in the quarter and 21.8% in the half year. As Sharon said, trends in these segments were mainly affected by continuing destocking in the distribution channel, the result of the combination of the macroeconomic environment, the late starting season, and growth in the online channel share of sales. Revenues from sales of commercial robotic cleaners were down 9% in Q2, compared to the same quarter last year, when revenues grew very high by 53%. In H1, revenues in the public segment declined 16.5% compared to last year, when the segment grew by 61% in the H1 last year.
The high growth last year reflects strong demand and build-up by the distribution channel, following the recovery of the hotel and tourism industry as the world emerged from the pandemic. Looking at the segment over a longer term shows that the sales volume in this market are good overall. Certainly, if we consider the macroeconomic situation, which is also affecting demand in this segment. Safety products and related pool products segment grew 31%, mostly on the basis of online sales by ASCI, with more business collaboration. Gross profit in the second quarter was $247 million. The gross margin was 40.8%, down 130 basis points compared to the same period last year.
Looking at the gross margin in the segmental split, the margin in the private segment rose 40 basis points, mainly thanks to the realization of significant BOM reduction of 5%. The gross margin in the public segment rose one hundred and 30 basis points, mainly due to the increase in prices of models in the category. At the same time, the margin declined in the safety and related pool product segment, which is mostly due to the margin decline in other products segment at ASCI, and because of growth in the share of this segment, which has lower margin than the robot business. Combined with strong growth in other segments, the share of this segment increased to 25% of consolidated sales, compared to 16% last year.
Regarding the operating expenses, I will mainly refer to the quarter, but the trends in the first half are similar. R&D expenses on the P&L were down 12% in Q2. The decline in development cost is mostly attributed to development activity in the pool water monitoring control segment. Mainly because of focusing our development work in the segment. Development expenses in the segment were 1.4 million, compared to 3.8 last year. The company's total development expenses on the P&L in the first half were 24.3 million, a decline of 20%, among other things, due to higher R&D capitalization in the robot segments. Selling and marketing expenses were 124 million, similar to the same quarter last year.
Excluding ASCI's selling and marketing expenses, which are variable by nature, selling and marketing expenses were down 11%, and even before significant efficiency plan. Exchange rates in the period contributed another ILS 2.2 million in expenses in the quarter. G&A expenses were ILS 37.6 million, down ILS 2.9 million, which is 7.2%, compared to the same quarter last year. The decline is mainly due to lower wage and benefit costs, and also to lower IT expenses. Operating profit in the second quarter is ILS 73.3 million, down 43% compared to last year. The operating margin declined to 12.1% of sales.
As Sharon said, along with strategic initiatives to reduce direct robot production costs, where targets were set for reduction of 10%-15% within three years, and which we estimate will yield a reduction of 7% by the end of the year. Together with these strategic initiatives in the second quarter, the company launched a cross-company review of all OpEx and CapEx that were budgeted. This process of tailoring OpEx and the volume of investments is expressed in two ways. First, a reduction in wage costs, which will be reflected in H2 2024, in savings of ILS 7 million, along with savings in rent expenses. As we said, this move will save around 17% in terms of a full year.
Along with these initiatives adjustment that were made, we canceled and postponed a big project that were budgeted in IT, marketing, and other areas. This amount to saving of more than 15 million ILS in terms of cash flow from investing activities and expenses by the end of 2024. Net finance expenses in the second quarter were 18.7 million ILS, of which 13.6 million ILS were interest expenses, compared to interest expenses of 14.2 million ILS in the corresponding quarter. Interest expenses in the first half were 27 million ILS, compared to 25.5 million ILS in the same period last year. Gross bank debt at the end of June was 789 million ILS, compared to 795 million ILS at the end of June 2023.
In the quarter, outstanding credit of ILS 108 million, lower compared to the prior quarter. The effective tax rate in the first half is 20.6%, compared to 13.6% last year. Due to a change in the profit mix in the group, most of the change is due to high sales volume of inventory items in the subsidiary in North America. Net income in the first half is ILS 83 million, down 54%. In the quarter, we significantly improved cash flows from operating activities, which reached ILS 156 million, an increase of ILS 72 million, reflecting the reduction in inventory and better collection from receivables.
Since the beginning of the year, robot inventory, that includes finished goods and raw material inventory for robots, has been lowered by ILS 126 million, reflecting a reduction of 14% in the volume of finished goods inventory. This trend was partly offset by an increase in the balance of inventory of related pool products, which is mostly attributed to ASCI business in this segment. A decline of 22% in balance of trade receivables in H1, in light of revenues decline, together with an 8% improvement in average customer days in the first half, among other things due to the online sales mix, mainly in ASCI, in which respect there is no customer credit since the business is with end users. Average customer days were 74 days, compared to 77 days last year.
Cash flows from investing activity consumed by the company in the first half by 64 million ILS, compared to 48 million last year. Most of the increase attributed payment of a contingency liability of 12 million for the acquisition of a subsidiary. I will close with the board resolution regarding a payment of a dividend of 20 million shekel. And now, on a personal note, I want to let you know that I have informed the company of my wish to step down as CFO. My 14 years with the company as CFO were, for me, an incredible fascinating journey, and I had the good fortune to work in a company that is very special, a company that became a family to me.
This is not easy decision for me, but after many years of constant growth in which I was a partner to building the vision and strategies, I feel it is time to look for new personal challenges. I will be staying on till the end of October. I don't know yet where the road will take me, but I am really curious to find out. For all those years, I dedicated all of myself, and I believe that I played a part in the extraordinary journey from small niche company to market-leading global organization. I always want, and will want, the company to succeed. My door will always be open for consulting and chat, and Maytronics will always have a place in my heart. I wish to thank you, and now we will proceed to Q&A.
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. I repeat, if you have a question, please press star one. There are no questions at this time. Ms. Goldenberg, would you like to make your concluding statement?
Yes. Thank you. I would like to thank you for your participation. As always, Amir, Meni, and myself are at your disposal, of course, for anything you need, and I wish you all a peaceful day and an enjoyable summer. Thank you very much.
Thank you. This concludes the Maytronics Ltd.'s second quarter 2024 conference call. Thank you for your participation. You may go ahead and disconnect.