6 Highlights From Techtronic Industries Co Ltd’s Latest Earnings

Just over a year ago, I did a deep dive into Techtronic Industries Co. Ltd (“TTI”) (HKG:0669). The maker of power tools and accessories saw a resurgence in demand for its Do-It-Yourself (DIY) tools and outdoor products, as consumers were stuck at home due to the raging Covid-19 pandemic.  

Fast forward to today, TTI has announced that 2020 was as an outstanding year with exceptional revenue and profit growth. Here are 6 interesting facts about the group’s latest earnings that investors should know about.

1. Record sales and net profit

TTI reported sales of US$9.8 billion in 2020, representing a full-year organic sales growth of over US$2.1 billion or 28.0% from the previous financial year. In fact, second-half sales grew an exceptional 42.3%, outpacing the market. 

Meanwhile, net profit grew 30.2% from US$615 million in 2019 to US$801 million in 2020. 

The group believes that increased strategic investment in new product, manufacturing capacity, geographic expansion, and its in-field marketing initiatives were the driving factors behind its industry-leading extraordinary growth. 

What is even more remarkable is that TTI has managed to deliver 12 consecutive years of growth in sales, earnings before interest (EBIT) and net profit from 2009 to 2020, as shown in the chart below. 

(Source: 2020 earnings presentation)

2. Robust sales growth in all geographic regions 

TTI saw robust sales growth in all geographic regions. North America delivered growth of 29.5%, Europe, the Middle East and Africa (EMEA) grew 19.1% and the Rest of the World (ROW) grew 30.6%. North America remains TTI’s largest consumer market, contributing 77.1% of total sales in 2020.   

(Source: 2020 earnings presentation)

3. Healthy sales growth in both business divisions 

In fact, TTI also saw healthy sales growth in both its business divisions. 

Its Power Equipment business, representing 89.0% of total sales, grew 28.5% to US$8.7 billion.  Its MILWAUKEE Professional, the RYOBI DIY, and the RYOBI Outdoor businesses all delivered double-digit growth. 

Based on the group’s bold and aggressive investments, it believes that MILWAUKEE is the #1 global Professional Tool brand and RYOBI is not the #1 DIY Tool brand worldwide. 

Separately, TTI’s Floorcare business produced sales growth of 23.6% to US$1.1 billion. 

The above result reflects the group’s discipline efforts to transition its floorcare business from legacy products to strategic categories of cordless and carpet washing. In addition, TTI’s exit from underperforming geographies and expansion of in-house manufacturing also contributed to the strong performance.  

4. Gross margin improved to 38.3% 

The gross margin improved from 37.7% in 2019 to 38.3% in 2020. This gross margin was the result of new product introduction, product mix, category expansion, improvements in operational efficiency and supply chain productivity together with effective action plans to mitigate the global pandemic environment.   

In fact, TTI has successfully improved its gross margins every year from 2008 to 2020, for 12 consecutive years, as shown in the chart below.  

(Source: 2020 earnings presentation)

5. Strong financial position

TTI continued to maintain a strong financial position. As at 31 December 2020, the group’s cash and cash equivalents amounted to US$1.5 billion, an increase of 8.6% from US$1.4 billion in 2019.

It is interesting to note that the group’s disciplined cash management has resulted in a decreasing net gearing trend since 2008. The group’s net gearing, expressed as a percentage of total net borrowings (excluding bank advance from factored trade receivables which are without recourse in nature) to equity attributable to owners of the company, was at net cash in 2020. 

(Source: 2020 earnings presentation)

6. Final dividend of HK82.00 cents 

The directors have recommended a final dividend of HK82.00 cents (approximately US10.55 cents) per share for 2020. 

The final dividend, together with the interim dividend of HK53.00 cents (approximately US6.82 cents) per share makes a total dividend payment of HK135.00 cents (approximately US17.37 cents) per shares for 2020. 

The 2020 dividend payment of HK135.00 cents per share is an increase of 31.0% from the 2019 dividend payment of HK103.00 cents per share.  

Strategic capacity investments

In 2020, TTI made the bold decision to build out additional manufacturing capacity in support of its future growth, in spite of the economic uncertainties. The group invested in its world-class facility in China while expanding operations in Vietnam, Mexico, Europe, and across the United States. 

Construction is currently underway on new greenfield manufacturing sites in Wisconsin and South Carolina that will further increase the agility of its operations network. TTI’s expanding global manufacturing footprint will boost its ability to produce high-quality products with the flexibility to quickly react to changing geopolitical and environmental factors. 

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