Industry Leading Year

TTI delivered another solid year in 2018 with record sales and profits. For 2018, we reported a 15.8% revenue increase over 2017 to US$7.02 billion, the ninth consecutive year of record revenues. Every geographic region generated exceptional growth powered by a stream of exciting new cordless products. Our flagship Power Equipment business, representing 85.6% of total sales, grew 17.0% to US$6.0 billion with operating profit up 16.9% to US$598 million. The Milwaukee Tool business maintained its outstanding growth rate delivering a revenue increase of 28.2%, while the RYOBI business generated double-digit growth. The Floor Care and Appliance business grew 9.3% and showed meaningful improvement throughout the year. TTI is focused on transforming our industry through innovative cordless technology and remains dedicated to the core principles of powerful brands, innovative products, exceptional people, and operational excellence.

Strong Financial Performance

Gross margin continued to improve from 36.7% in 2017 to 37.2% in 2018 driven by new product, mix, volume and productivity. We maintained our relentless focus on driving efficiencies throughout our operations while offsetting commodity inflation. Our EBIT increased 17.0% to US$607 million, with the EBIT margin improving by 10 basis points to 8.7%. Shareholders’ profits rose 17.4% to US$552 million, with earnings per share increasing 17.5% over 2017 to US30.16 cents. Through our highly disciplined working capital management we again delivered a net cash position.

The Board is recommending a final dividend of HK50.00 cents (approximately US6.44 cents) per share. Together, with the interim dividend of HK38.00 cents (approximately US4.89 cents) per share, this will result in a full-year dividend of HK88.00 cents (approximately US11.33 cents) per share, against HK67.50 cents (approximately US8.69 cents) per share in 2017, an increase of 30.4%.

Reshaping Cordless Performance

TTI continues on its path to growth by being on the technology forefront with a superior lithium battery cordless product portfolio. We see cordless as the future of power equipment and floor care products with a transition that is expanding at a rapid rate. TTI has strategically committed significant resources in R&D to develop innovative products that redefine how individuals conduct work at home and on the jobsite. We continue to enter new markets and verticals as our technology advancements create opportunities previously unimagined. We are launching cutting edge innovation that delivers better performance, outstanding ergonomics, improved productivity and increased jobsite safety.

Our powerful product development capabilities and deep technical cordless expertise in lithium battery technology, high performance brushless motors, and system electronics are showcasing our industry leadership. Leveraging our exceptional brands and overarching battery platforms, we are producing a growing network effect and attracting users with our cordless innovations at a swift pace. TTI is changing the cordless landscape by investing in the technology that is building our future.

Operational Excellence

An important element of our strategic approach to continuous operational improvement is our diversified global manufacturing network. With multiple manufacturing operations in Europe, Asia, and the United States and our supply chain, we have focused manufacturing capabilities that harness cost efficiencies with the flexibility to handle our high level of growth while adapting to an ever changing market. TTI has made significant investments in the expansion of our distribution, manufacturing and R&D capabilities in North America and added a new manufacturing complex in Vietnam to support the rapid growth. Continuing our productivity trend, global headcount for the entire Group increased 5.7%, well below the 15.8% revenue increase. Additionally, ongoing investments in automation, supply chain, and productivity improvements continue to drive higher quality at better cost while promoting environmental, social and governance requirements. We remain committed to delivering world class on-time fill rates with superior quality products while maintaining best cost.

Exciting Future

We are confident that our above market organic growth will continue into the future. Our significant investments in R&D and new product development teams have driven a pipeline of disruptive, innovative products that are fundamentally changing the way our users work at home and on the jobsite.

We have an intense focus on our strategic initiatives and the connected management disciplines that drive their execution. Our financial rigor is another key element to our success. Additionally, our obsession with world class organizational development is a central theme in our success. Our ongoing commitment to the successful Leadership Development Program ensures TTI will have a strong pool of talent in the years ahead. A commitment to sustainability is an essential part of our broader responsibility to our employees, customers, investors, suppliers, communities, business and partners. We are dedicated to stringent governance practices and to reducing our impact on the environment.

On behalf of the Board, I would like to express my sincere gratitude to our shareholders, loyal customers and the entire TTI team for their energy, devotion, hard work, and on-going commitment. I am convinced that our bold strategy, customer focus, and business momentum will make 2019 another outstanding year.

Driving Strategic Growth Opportunities

TTI is at the forefront, driving the move to cordless products around the world. We have been investing in battery, motor and electronics technologies to capture the leadership position across multiple cordless platforms. TTI’s powerful brands offer the go-to-products for consumers and professionals with new-to-world innovations that are dramatically disrupting existing markets while also creating new opportunities in a growing number of vertical disciplines. Our tremendous technology improvements in power, run time, and durability are now delivering cordless innovation that will tackle heavy duty infrastructure projects. TTI is uniquely positioned at the vanguard of this seismic shift to cordless and the endless opportunities generated.

We have generated outstanding momentum at Milwaukee Tool, through a dedicated focus on delivering technically advanced cordless tools, lighting, accessories, storage and hand tools to the professional tradesmen. Our strategy is different from competitors. We are transforming the global market for professional power tools and equipment from traditional power sources to revolutionary lithium powered cordless. Milwaukee Tool has the broadest line of professional tools, powered by our M18 and M12 battery platforms, loaded with advanced technology which deliver unmatched performance, jobsite safety and productivity. Our new range of high-technology FUEL tools are aimed at trade professionals such as the commercial plumber, commercial electrician and datacom electrician in vertical industries from industrial construction, maintenance, infrastructure projects and well beyond. With the current product offering Milwaukee Tool has massive opportunity in new verticals and geographically, but we will not stop as our new product roadmap and technology advancements will bring even more growth potential.

We are transforming the DIY market with our ongoing stream of innovative RYOBI ONE+ products which feeds the world’s largest cordless DIY system with an overarching platform in batteries that goes from power tools to outdoor products. The RYOBI ONE+ battery system is compatible to previous generations of RYOBI tools, an unmatched capability that has been rewarding the RYOBI ONE+ user for years. We see our broad platform and significant market penetration as an opportunity to continue introducing product innovations and expanding the network. As an example of cordless penetration, RYOBI in outdoor products which is a growing success as we pioneer the shift, the revolution, from gas powered lawn gear to lithium-ion cordless. Our high performance, easy to use and environmentally friendly cordless lawn mowers are driving demand towards our RYOBI ONE+ and RYOBI 40V battery systems.

We have a winning strategy for the Floor Care business which is propelled forward with the cordless technology of TTI and our unique position in the carpet washing category, all marketed by our iconic brands like HOOVER and VAX. We are well on the way to developing our cordless range that creates tremendous value for the user. The new ONEPWR platform is a detachable and interchangeable lithium battery system that powers a number of innovative cleaners from high performance uprights, stick vacs and other fantastic cleaning products. The product opportunities for the HOOVER ONEPWR platform are exciting, positioning the business for further growth.

New Product Powerhouse

At our foundation is a high-speed product development system that is central to our growth. Launching new products at TTI is a strategic and rigorous process that ensures high quality, game changing technology and innovative products. We have built a powerful, streamlined, fast paced, and comprehensive product development process. TTI has a number of brand-focused innovation centers in key markets dedicated to research, design, engineering technologies, and developing new products. Across our brands and innovation centers we drive product development through our process to bring to market a broad range of breakthrough, value-enhancing products. We are producing a continuous stream of new products that excite end-users, overwhelm the competition, and change the respective industries.

Bold, Targeted Geographic Expansion

TTI is successfully building a global presence beyond our strong foundation in the US, expanding into new countries in which we are under-represented with a very thoughtful, risk managed strategy. Once we enter a market, we go boldly to establish our leadership. Today we have a network of vibrant marketing companies in dozens of key geographies, allowing us to further harvest the benefit of our industry leading cordless platforms. Our teams in Canada, Australia and New Zealand, Western Europe and Eastern Europe, are delivering significant results. We are investing in selective targets in Asia, such as South Korea and Malaysia, and Latin America, which are gaining momentum and delivering the cordless benefits of safety and productivity to users in these markets.

Exceptional Team

The TTI business leaders around the world represent a level of talent our industry has never seen. We firmly believe our leaders are not only the best, but with their incredible passion, industry knowledge and relentless drive to succeed, the organization is positioned for even better performance. The TTI team is a real differentiator for the company and has become an unassailable competitive advantage. With such an array of focused, motivated and outstanding people, TTI will continue to outperform the competition and change our industries. The leadership team is the fuel behind our success at every level of the organization.

The TTI culture of entrepreneurship and creativity motivates people to achieve their goals and reach their potential quickly. We provide a focused, strategic roadmap, strong financial backing, clear leadership direction and a high-energy environment that allows our employees to learn, contribute and grow. In addition, we take our global responsibilities as a company seriously by taking a strong position on all ESG requirements. Our goal is to always lead by example by going above and beyond what is expected. We enforce strict standards of behavior and integrity throughout our organization and the complete supply chain. We are proud to provide powerful leadership in these areas.

Leadership Development Program (LDP)

TTI has a deep bench of exceptional leaders to support our business goals. We have been investing in campus recruiting and hiring into our thriving LDP top level, high-potential college graduates from over 75 campuses around the world for more than ten years. As this investment has been going on year after year we have established a pipeline for superstars that are populating our sales, marketing, engineering, purchasing, supply-chain, manufacturing and finance disciplines throughout the company around the world. We feel strongly that our recruiting, hiring, mentoring and organizational development process are absolute TTI core strengths. Through a highly selective process which identifies high-potential candidates, we are planning to hire over 780 college graduates from top universities in 2019. We are committed to our extremely effective LDP and the development of our future leaders. We now have twelve vice president level executives that started as college graduates in our LDP program. This number will continue increasing as more and more of our talented LDPs progress quickly into meaningful leadership roles.

We Are Just Getting Started

I am extremely proud with what we have achieved. Our outstanding performance leads the industry. Our strategy and execution continue to deliver impressive results. We have great customers around the world and excellent momentum with them. The strategic investments in our new product system, R&D, product teams and supply chains are delivering break-through innovations and generating a cycle of improving gross margins. With our iconic brands and unwavering commitment to creating cordless leadership through innovation, we have established a powerful platform with vast potential. The unprecedented momentum we have generated at TTI mirrors the powerful future that lies ahead.

I would like to thank our visionary Chairman, Horst Pudwill, for his tremendous mentorship, support, and guidance throughout our record breaking 2018 year. It is his bold vision, leadership and relentless drive that best defines our extraordinary culture. He motivates us to continue to achieve spectacular, record breaking results. We share the cordless vision for an incredible TTI future.