Acquisitions dent Techtronic's profit
Toh Han Shih
Toolmaker sees margins squeezed by finance costs but remains optimistic despite further hits from rising rates
Acquisition costs hurt Techtronic Industries' net profit margin last year, and rising interest rates are expected to squeeze the power toolmaker's results this year.
'Our acquisitions incurred administrative expenses that affected our net profit, which included an US$8 million non-recurring charge,' said chief financial officer Frank Chan Chi-chung.
He was referring to Techtronic's US$713 million purchase of two tool-making companies - Milwaukee Electric Tool Corp and Atlas Copco Electric Tools - from Swedish conglomerate Atlas Copco in late 2004.
'We incurred higher finance costs, rising from $150 million in 2004 to $353 million last year, due to additional borrowings arising from our acquisitions. Our effective tax rate increased from 10 per cent to 13 per cent as a result,' he added.
Net profit margin shrank to 4.6 per cent from 5.7 per cent in 2004. Although net profit rose 10 per cent to $1.01 billion last year, turnover grew at a faster 37.1 per cent to $22.35 billion.
Earnings per share rose 6.1 per cent to 73.53 cents, below the mean forecast of 83.1 cents by 16 analysts including BNP Paribas Peregrine.
Techtronic's net profit and turnover last year fell short of BNP Paribas Peregrine's projections of $1.26 billion and $22.62 billion, respectively.
Mr Chan said most of the one-time acquisition costs had been taken care of and should not impact results this year.
The company's gearing rose from 31.1 per cent in 2004 to 68.3 per cent, but the company aimed to reduce the ratio to about 35 per cent this year, he said.
Techtronic's unsecured borrowings due more than one year later tripled to $4.22 billion, from $1.44 billion in 2004.
Finance costs remained a challenge this year, warned Mr Chan. 'Interest rates are still going up, that will have a negative impact on profits.'
Techtronic chairman Horst Pudwill said: 'We have a positive outlook for this year. The growth drivers will be new power tool products and expanded business channels resulting from our acquisitions.'
The company's share price dropped 1.76 per cent to $13.90 yesterday. It plunged from $17.50 on January 20 to $14 on February 2 amid suspicion of selective disclosure.
On January 27, Techtronic announced that the Hong Kong stock exchange was looking into matters related to the company's disclosure of potentially price-sensitive information by the company. On February 2, media reported that the Securities and Futures Commission was investigating whether some analysts improperly used price-sensitive data selectively disclosed by Techtronic in research reports.
At yesterday's press conference, Mr Pudwill said: 'We can't influence what analysts write. We will improve disclosure and corporate governance all the time.'
Despite Techtronic's high gearing, Mr Pudwill did not rule out an acquisition this year, as long as it was cheaper than US$1 billion, but gave no further details.