CEO of global power tool and floorcare manufacturer Techtronic Industries Group, Joe Galli, presented the company's results for the first half of FY2017 recently.
Following is a transcript of his presentation, edited for the sake of clarity.
It is a pleasure to share with you record breaking results once again. Sales in local currency were actually up over 8% for the first six months. That reflects our ongoing guidance of growing strongly at a single digit. The Milwaukee growth engine was up again, over 20%.
Our power tool equipment segment demonstrated outstanding growth and momentum. In the first half it was up 12.5%. I will share more detail with you in a moment about that. There are some fantastic highlights that made up that extraordinary level of growth.
Floor care down 12%. That number obfuscates a bit the momentum and the progress we are making in floor care. First of all we exited our shredder business which we were in last year. That was a significant business that we dropped completely.
Secondly, the floor care cordless stick-vac market, stick-vac business for TTI in a number of different brands was actually up over 50% in the first half. So our cordless floorcare focus area is growing like crazy. Of course the corded, the traditional legacy business, which was a big part of our floor care business in the past, is down sharply, and will continue to decline.
The good news is that our cordless growth will overwhelm that. We have a bright future in our floor care business as you will see in the coming years.
We were very excited about our first-half performance in gross margin. We were up another 50 basis points this year, which continues an extraordinary trend. Really it is a record-breaking trend. Our EBIT is up 15% on sales growth of 7.3%. That is after currency. This shows outstanding leverage.
We actually maintained SG&A at a flat level, although we are investing like crazy in research and development on new products, which you will see in a moment, we still were able to generate excellent leverage. EBIT growth up over 15% is something we were excited about.
Gross margin as we pointed out was up 50 basis points over last year first-half. This is encouraging. But when you look back for a moment on what we have been sharing with you for the past nine years, we have actually increased our gross margin as a percentage of sales over nine consecutive years from the 31.5% starting point in 2008, to this year's 36.6%.
This is a track record that we are proud of. I can assure you that this trend will continue over the next five years. We have so much high-margin, accretive new product on the way that we believe we can continue to drive gross margin to higher and higher levels, which will generate increased EBIT percentages as we go forward.
One of the basic productivity measurements we always use, is sales growth versus headcount, once again we grew sales 8% in change, while headcount grew by 2.7%. So, with all the investments we are making in geographic expansion, around the globe, with all the money, and all the heads we are pouring into research and development, and product management, to generate this kind of productivity and leverage in headcount is encouraging. I am very pleased with our team's disciplined performance in controlling these expenses.
We were able to grow our power equipment business in all regions. Actually, when North America has the slowest level of growth, you know that our geographic expansion efforts are gaining great traction. I was really excited about how our
European team performed in the first half. And, of course, rest of world means Australia, New Zealand and South Korea, and those numbers are exciting as well.
And then, when you shift gears and look at only Milwaukee, Milwaukee was once again up over 20% in the first half of 2017. That 20% is an exciting number on a small base, but when you have a significant base, which we now do in Milwaukee, 20% is not so easy to generate. And yet we are committed to a 20% growth level on Milwaukee this year, the next five years.
I don't think we have even scratched the surface yet in terms of the long-term potential of this vast cordless, industrial market that we are developing with our technology and our new products.
You know, the geographic performance of Milwaukee is also a highlight. Again, North America up almost 20%. I was really proud of our European team. The European theatre is a tough environment. And yet throughout Western Europe, actually Eastern Europe, including Poland and Hungary, Czech Republic, Slovenia, Bulgaria, Romania, etc., these Eastern European countries are really selling Milwaukee like crazy.
And of course once again, rest of world means Australia New Zealand and South Korea, where we are growing at rates that are unprecedented. It is very exciting where this is all going to lead.
Now in the first half, our largest competitor actually reported impressive results, in fact our largest competitor announced that their organic growth for the last six months of 2017 for their tool and storage business, which is comparable to our power equipment business, they were up 7.1% in the first half. And we were impressed with that. That shows good performance.
Certainly our competitor trumpeted that as an outstanding performance. Except that, we were up 12.5%. Of course, Milwaukee is up 21.5%, but if you take Milwaukee out, our DIY brand was up 10.4%. That is organic growth.
Even the tactical AEG brand was up almost 10%. So, while our competitor is doing well, you can see that there is nobody taking any market share from TTI. And I can tell you that there will be nothing but a continuation of this kind of trend, over the next five years with the new product flow that we have on the way.
There is one other interesting thing. You know, a lot of investors have asked me about a new, flexible voltage launched by our largest competitor. I have been answering these questions for nine months. And it is interesting, that since our competitor launched this flexible voltage cordless system, our growth rate in Milwaukee cordless and Ryobi cordless have increased.
So, while our competitor are doing great with their program, I'm sure, we are doing even better than we were before they launched. So, I think it is obvious that there is going to be no slowdown in Milwaukee, or Ryobi cordless growth, based on competitive actions.
This is an example of our strategy at TTI. We don't worry about what our competition is doing. We don't worry about macro economic issues beyond our control. Or political issues that are brewing in various parts the world. What we worry about, is things that we can control.
New product development, hiring outstanding people, motivating our team, having a disciplined strategy that we focus on relentlessly. We have a geographic expansion program, that is not based on headlines, on geographic regions, but very specific countries, specific attacks in markets, where, like in South Korea, or like in Australia, we have focused and attacked with our strategy and we have achieved great results.
So, our competitors are doing a fine job, and we respect them. But we don't react to them, and I can assure you that we intend at TTI to, of course outperform our competitors for many, many years to come.
Let me show you why I feel so confident. First of all the Ryobi brand, the Ryobi brand has become the most common brand in the world for DIY tools. This is an amazing statement. You know there was a brand called Black & Decker, it is a company I worked at for 19 years. It was number one in the world, for 80 years. For Ryobi to overtake the former leader, and to become the number one DIY brand in the world, is pretty special. The interesting thing is that not only are we number one, but we are outgrowing any other DIY brand in the world, and it is because of this amazing flow of cordless products.
It is really the same strategy at Milwaukee and Ryobi. Ryobi One+ is now the number one brand of cordless tools in the world, and although we have over 100 One+ tools already, we are about to launch more in the next six months than at any former period in our company's history. So we have a new mitre saw, for Ryobi One+, that is the first ever cordless DIY mitre saw that performs like a corded tool.
We have a new brushless motor cordless angle grinder, same technology as we use with Milwaukee. We were able to adapt it at the right price point for our Ryobi family, and with brushless of course you get more power, less weight. This thing will actually outperform a corded version of the same tool. Same with the brushless motor cordless Ryobi circular saw, this is a cordless circular saw that is lighter than corded, and will actually cut faster and more accurately than the corded DIY saws with which we compete.
Then we have the metal shears, brand-new category, and then we have the pin nailer, brand-new category, then we have our second drain cleaning product. This drain cleaning is a technology that we have pioneered, in Milwaukee. The Ryobi team not wanting to be outdone, also wanted to have a DIY version of drain cleaning. The first one that we launched last year sold so well, that now we have a step-up drain cleaner in our DIY line.
This is a Ryobi cordless bolt cutter. Yes, a bolt cutter instead of using a manual bolt cutter you can now buy one of these devices. You can cut chains, you can cut rebar, and for the burglar, of course, it is a perfect choice. Now we don't have a lot of control of these things! We just make the products.
This is a fascinating product. This is a cooling cooler. So in warm climates we have a Ryobi cooler. You pack it with ice, your favourite beverage. And when you fire this up, it actually is an air-conditioner for the jobsite. So believe me, the contractor loves to stand in front of the cooler, not to only to enjoy the beverage now, but also to enjoy the cool breeze that comes from this unique cordless device.
On to outdoor. So one of the things that people tend to miss about the Ryobi program, is that we have the only overarching platform of cordless, to serve the global DIY market. Not only do we have all of these fabulous power tools you see on the wall [of the conference room], we also have outdoor power equipment that works off the same 18-volt battery as our power tools, and this gives us a unique way to bring people into our system.
When you walk into a Home Depot, no matter if you buy a drill, or a string trimmer or a chainsaw, doesn't matter, we serve that DIYer with the same Ryobi One+ battery. This is one of the reasons why we have been so wildly successful with this program.
In the outdoor business alone, we are rolling out the six new products in the second half of this year, and for 2018. This will give us 30 different outdoor products in the One+ system. So, 30 outdoor products in the One+ system, which now gives us over 130, total Ryobi products that all work off that same battery. The same battery that we had 15 years ago when we launched One+, which gives us a backward-compatible system that is unique around the world and is gaining traction like crazy.
In addition we have pioneered high performance cordless outdoor products. So in some applications, if you have a large yard, let's say in Australia, or Canada, or the US, you might require more runtime and therefore more power. That is why we developed the 40 volt platform of Ryobi outdoor.
This platform has actually taken off so well, that we are going to launch all these new products next year to feed that 40 volt platform, which will give us something like 30 products in just the 40 volt system, just for outdoor. One of the most exciting developments at Ryobi and TTI over the past six months has been the category of cordless mowing.
Not only have we pioneered the first ever DIY level, value-priced cordless riding mower - it costs USD2499 - we sold completely out of these last year. We intend to grow, we will probably triple our sales on this device next year, and we are just getting started adapting our unique technology to applications like this riding mower. So this is exciting, this is the flagship of the Ryobi brand.
However what may be the most exciting development over the past six months is the unbelievable stampede that is going on from petrol mowers, which have been around for a long time, to the Ryobi cordless mowers system. If you think about it, as exciting as cordless is in power tools, when you switch someone from a cord to cordless, it is, there is an even more obvious benefit to switching from petrol outdoor products, to a cordless product.
So, for example, a petrol mower has a pull cord that you have to pull, which is a challenging and frustrating process just to start the product. Then you have the issue of the fumes, because this is a petrol-burning engine. The fumes, of course, are not great for the environment, or that great for the user either. Of course with cordless, there are no fumes. Then you have heat, the petrol engine gets very hot, there is no heat in cordless. Then you have the noise.
Our cordless mowers are one third the decibel level that you have with petrol mowers. Then you have the annual trip to the lawnmower shop to have these tuned up, replace the spark plugs, clean the carburettor. You have none of that with cordless. And don't forget, the petrol supplied by people such as Exxon, we don't get any of that revenue. But on the cordless mower, we sell the batteries. So the aftermarket we have for the power source, is a revenue stream that most investors have not yet even thought about.
We were able to sell four times more mowers than our original forecast last year. I should say rather for the first half of this year. Four times more. Now you say, well, wait a minute, maybe the base was small. The base was not too small. But wait until you see what the base is next year.
This may well be the fastest growing new business area in all of TTI over the next five years. That is because the market for global petrol mowers is vast, and our competitors have not focused on this category in the way that we have. So I think you will see exciting things in the future here.
We were also able to develop a very exciting floorcare product in our Ryobi line. Floorcare at TTI is not just Hoover and Vax, we also in Milwaukee and Ryobi will sell floorcare products. This is a good example, this is a cordless pole-vac in the Ryobi system, that is going to be sold globally, and that will be a very significant contributor to the power tool business, although it really is floorcare.
That is one reason why we are so excited about floorcare, because the technology works in a lot of places. Here is another example, this is a cordless wet dry vac, using the 18-volt One+ battery system. This is more powerful, it has better suction than a corded wet dry vac. And it is cordless, there is no cord so there is no electrocution risk, and there is unbelievable convenience and benefit here with cordless.
Okay, so let's shift gears and talk about Milwaukee. You see from the three-dimensional display in our triumphant arch over here that we are very excited about the momentum that Milwaukee has. Yeah, we grew 22% in the first half, however I think that investors continue to underestimate the long-term potential of Milwaukee. We have just begun here, we are just getting started, in converting the global industrial market to cordless. We are leading the charge, our competitors are also doing a good job, a rising tide will lift all boats, but I can assure you we are committed to being the global leader in industrial cordless, Milwaukee will be number one, as we implement our strategy.
We have so much new product on the way, that I cannot begin to get through it today, though I will try to give you some highlights of what we are launching over the next six months.
First of all we have two platforms in Milwaukee. We have 18-volt, and we have subcompact 12-volt. I have been in the power tool business since 1980, and the most important launch in the history of our industry, is Milwaukee Fuel. The reason is, this is a revolutionary platform, with a unique battery, a unique motor, and unique onboard electronics. The electronics are the key to everything in cordless. We are so far ahead here that we believe we are still three years ahead of our competitor in terms of Milwaukee Fuel.
So the Milwaukee Fuel range is set to expand a lot. This year and over the next six months we will roll out a whole new family of impact wrenches. These are heavy duty, heavy torque wrenches for driving lag bolts for infrastructure, bridge construction, tunnels etc.
There is also a version for the automotive market. Every auto dealership in the world, every auto repair shop in the world will shift from pneumatic to cordless - in our opinion - in some degree, and we will lead that charge. This is our family of impact wrenches, that's only impact wrenches. No one anywhere in the world has this kind of range of cordless impact drivers, and that is one of many, many categories.
We have in addition a brand-new 7 1/4 inch dual bevel mitre saw. Last March we shared with you our new 10-inch mitre saw, full-size. But to be honest cordless means lighter, more compact, easier to carry, easier to use. This 7 1/4 inch saw does something like 75% of the cuts you would do with the full-size mitre yet it weighs a lot less, the blade costs one third as much to replace, and it just works great. In addition we have a new hacksaw, a new full-size hacksaw utilising Fuel technology.
This is another breakthrough product it is called a mud mixer. What is a mud mixer? That is American slang for a device that mixes concrete, paint, epoxy, and various other compounds that you use on a jobsite. You use it in new construction, and what is the common theme of new construction?
There is no power, so having to operate one of these things corded is a real nuisance, because you need a generator and a long extension cord. That is over now, with the Milwaukee cordless mud mixer. And we have the same torque, the same power and torque with our cordless tool as traditional mud mixers had with the cord.
Again we have a heatgun, this is a first ever cordless heat gun. This is a heat gun, it uses no butane, no dangerous gas cartridges. It is strictly lithium technology that we have created. It works like a normal AC heat gun. There are tons of applications for heat guns on jobsites. And in automotive. The full-size 18-volt line of Milwaukee cordless is the broadest in the world, it is growing like crazy.
Okay, subcompact, 12-volt. We have pioneered finally full power 12-volt ratchets. These are for use in the automotive industry, and for other mechanical hand tool applications. So we are converting people here from traditional mechanics handtools, such as sockets and wrenches, to a cordless ratchet.
Today, in automotive, people either use handtools, or they used pneumatic, which is loud, noisy, needs maintenance and so forth. Ours is quiet, and actually has more torque than pneumatic tools. So this is a stapler, a brand-new cordless stapler. It is used for installation of carpet, or insulation, or other fabrics that you attach to wood. Here is a new soldiering iron, a soldiering iron that heats up enough with our 12-volt technology that it can replace a corded soldiering iron. Brand-new technology.
So it is interesting, our competitors talk about changing the market, in cordless, and leadership in cordless, and yet the fastest growing market for cordless is subcompact, the whole idea of cordless, just like your iPhone is smaller than payphone or a landline, the whole idea of cordless is smaller and lighter and more compact, more convenient, less unwieldy.
That is what subcompact gives us. We have the broadest line, we have over 80 subcompact tools. No one in our industry is even close to being this committed to the fastest growing segment of cordless which is subcompact.
But this keeps going. Let us talk about some new businesses that TTI is going to enter with our Milwaukee industrial brand. This is the drain cleaning market. Now I mentioned in Ryobi that we have DIY drain cleaners, but for the plumber, for the commercial plumber, or for the residential plumber, clogged drains are nasty business, right?
We are going to give the plumber a safe, as in you don't get electrocuted, safe and fast way to deal with these unpleasant challenges that come up at various times in restrooms around the world. This is an air snake, so that instead of firing a cable through the drain to unclog it, this actually builds up enough pressure to blow air, blast air through the drains and unclog them, without the unpleasantness of having to feed a cable through the system. Now however there are times when you do need a cable, we will have the first ever cordless cable drive drain cleaners, this is a drain snake that is cordless, and it will outperform a corded version of that drain cleaner.
Here is something that is called a switchpack, this is really cool. If you need 50 feet of cable to clean the drain, you can attach one drum to the switchpack and you can perform the application. If you need 150 feet, you can plug three of those drums together and you end up with a 150 foot cable.
Fired from a cordless delivery vehicle, first-ever, so you can now deal with drains that are longer than you can imagine. This is the full family of drain cleaning products in Milwaukee, so this is a category we have never been in, we are famous with plumbers, this is one of the key applications of any plumber, and we have gone from never being in this, to global leader in the cordless versions of drain cleaning.
So, the new businesses keep going. Another new business that we have shared with you is lighting. Lighting has become an immense opportunity for Milwaukee cordless. Why? Think about any construction site ever, a construction site needs light, whether you're working in the evening, or whether you are in a building that doesn't have light and power.
Cordless lighting is a vast opportunity. So we are going to bring some more products to market here. Here is a good example. This is a we call this a Radius light, so you fired it up, and it gets very bright on the jobsite, that is working off of our batteries, but this particular light can also be activated from your iPhone. So this is our One-Key system, so from 200 feet away you can turn on 10 of those, with the iPhone. So if you are the foreman at a job site, you can control when the lights go on and off.
In addition, that particular light also charges your battery. So if you can utilise the light and you can also put two batteries in and charge them so that you can use them later in your power tools. We think many users will also enjoy that application. Here's another cool light, this is an under-hood light for the automotive market. If you are repairing your car, let's face it, if you are in a garage even if the garage is well lit, under the hood, it is not very well lit. Now we provide the user with a cordless way, to work under the hood of the vehicle, and repair the car.
Here is a shot of the current lighting line, this will be our lighting program by the fourth quarter 2017. Once again, that slide is going to change a lot over the next three years, we have so many lighting ideas that it will blow your mind. Remember, selling lights, this is like selling a power tool without a motor, which means the gross margin here is highly accretive, and it means that the same battery operates in these lights, but we see it as a very very exciting new business area.
Okay another new area is personal lighting. We have had so many requests from end-users for lighting, that, say, a coalminer would use, or a contractor would use, or even DIYers, farm use, etc. There are thousands of applications for what we call personal lighting. We intend to have the Milwaukee brand become a leader in the space. This is what we're launching, in just our opening salvo. This is just our first step here. However it is quite exciting.
Okay. Now let's shift gears. Of course power tool accessories matter a lot to us, we have engineered a line of what we call carbide-tipped Torch blades. Torch is a sub-brand. So the Torch blade with its unique carbide tooth technology will out-cut existing reciprocating saw blades.
Torch cuts metal, with we also have a version of these blades that we call Ax, that is for cutting wood. In both cases we outperform anything in the market. The sales of high-priced, high-end blades are running right now about double what we had forecast. The margins are excellent. So we're very excited about our power tool accessory businesses, and this is a good example of that.
Okay, brand-new business for TTI. This is something that we have never been in. It is called storage. We have competitors that classify storage as something so important that they actually name the entire business segment "storage". So, we intend to participate aggressively in the storage arena.
This system is called "Packout", we rolled this out last month. This Packout is a revolutionary interlocking system, that is indestructible, it is convenient because you can interlock hundreds of different of storage devices eventually into the system, and you will be able to attach radios and lights and fans also to things.
We think we are going to sell so many tools to our users, that they are going to want to store our tools in our storage solutions. And this is a good example that. Do not underestimate the long-term impact of storage.
Every single user we sell to, has to store their tools. They either store them permanently, in a garage or workshop, or remotely in jobsites, or in vans, and they need wheeled storage solutions, much like your wheeled luggage through the airport. The reaction to this program has been just incredible.
Okay, another new area. We promised you, what, four years ago we said we would build a billion-dollar global handtools business. We had never been in handtools. Our largest competitor feasts on this category, because the margins are inherently higher, there are lower distribution and transportation costs, people don't return handtools so there is zero returns at the retail level, and we need to be there.
But we never said we are going to handle business with "me too", commodity boring traditional products. Every single handtool that we launch is designed to be innovative, a leading postion, priced at a premium, but it is designed to outperform our competition.
This is a great example. We just rolled out 29 new screwdrivers. These have ergonomic grips, and better business-end tips. You might not have thought that we could reinvent the screwdriver, but we did. I'm very proud of our team, and this program and we believe this is going to sell like crazy.
Another example, tape measures. We've been in this category now for three years. We are going to roll out 16 new tape measures over the next six months. 16 new tape measures. We have features here, and durability, that are unsurpassed in the handtool industry. This is a picture here of our hand tool range as of October. Four years ago that picture would've had nothing on it. Take a good look at it, because while there is a lot of stuff on it, believe me, a year from now it will be a very crowded slide and we will need two slides again.
Let me make another comment now about the floorcare space. So floorcare is obviously an area that is going through transition. Are we pleased with the revenue results, with the profit results from floorcare? Of course not, in the first half. But there is no alarm here, we are participating in, and we intend actually to drive the stampede, the revolution from corded to cordless. You have to remember when you look at our results, that floorcare is not just Hoover, Vax, Oreck and Dirt Devil, it is also Milwaukee and Ryobi.
In fact, these floor care products used to clean the surfaces of job sites and DIY areas and even around the home, these floorcare products in every single case are smash successes in our cordless family.
Because we have so many people in our cordless systems, in both Ryobi and Milwaukee, that we have a presold line of floor care. So anytime that we roll anything out in these two battery platforms there are legions of loyal customers that will buy our floorcare, because they have the battery.
And that means yes, they won't buy Dyson, won't buy Shark or any of the other competitors. In many cases they will go right to the power tool brand, which are really no longer power tool brands, these are broad power equipment brands, including cleaning devices for floors.
To read the rest of this article, please download edition 3-10 of Hi News:
HI News Vol.3 No.10: TTI results presentation by Joe Galli