Improved productivity sees rise in profitability
A drive to launch innovative high-performance, high-profit new products and a streamlined supply chain boosted total sales of Techtronic Industries (TTI) by 8.4 per cent to a record US$3.7 billion last year.
Gross profit of the Hong Kong-based global power equipment and floor-care product manufacturer was 32.6 per cent, compared with 32.2 per cent the previous year.
The gains contributed to the 30.6 per cent surge in earnings before interest and tax to US$218 million, with the margin improving 100 basis points to 5.9 per cent.
Lower interest and tax expenses further lifted profit attributable to shareholders 58.9 per cent to US$151 million. Earnings per share soared 58.3 per cent to 9.39 US cents.
'We have invested in state-of-the-art manufacturing facilities in Dongguan which has enhanced productivity. With heavy investment in research and development (R&D), we have introduced new products with higher profit margins which are innovative and help solve end-users' problems,' says Joseph Galli, CEO of TTI.
Investments in R&D amounted to US$69 million, about 1.9 per cent of turnover. Future R&D investment is likely to be between 2 and 2.5 per cent.
'This is crucial. We focus on the revolutionary cordless lithium-powered tools that have outperformed our competition. This technology has been integrated into all types of products,' he says.
The company has built a more efficient product development by co-locating the R&D centre and its manufacturing facilities.
'Our product development team works closely with the manufacturing division and have been able to bring new products to the market much faster than before, and twice as fast as our competition,' Galli says.
TTI's industrial power equipment is marketed under the Milwaukee brand, while tools targeting consumers and the do-it-yourself (DIY) market are under the Ryobi brand.
The company's brand platform encompasses all market segments. Sales of power equipment soared 11.6 per cent to US$2.7 billion and account for 72.6 per cent of TTI's total sales. Floor-care and appliances were up 0.7 per cent to US$1 billion, accounting for 27.4 per cent.
The brands for floor-care and appliances include Hoover, Dirt Devil and Vax.
Despite challenging economic conditions, businesses in the core markets, North America and Europe, registered sustainable growth. The group has made substantial sales expansion into such markets as Australia, central Europe and Latin America.
'We see vast potential in Asia and will approach the market carefully to protect the integrity and identity of our brands,' Galli says.
TTI's leadership position in innovation is secured with the launch of a series of revolutionary lithium ion cordless power tools which help enhance users' productivity significantly.
Power tools will become more compact and powerful and the more advanced lithium technology will further prolong the running time.
'In 2012, we will follow up with Milwaukee Fuel and take the Red Lithium technology to the next level,' he says.
A new line of sophisticated diagnostic instruments has fuelled market excitement. This includes the Milwaukee fluorescent lighting detector which improves the efficiency and accuracy in the work by maintenance technicians.
The do-it-yourself brand, Ryobi, platform is the only line of cordless power tools extending to outdoor equipment, such as lawn mowers. In keeping with its hyper-green brand identity, Ryobi lithium-powered outdoor equipment shuns petrol and incorporates eco-friendly technology that enables it to run more quietly with no emission compared to petrol-powered tools.
For floor-care products, TTI is re-engineering its product line and set to introduce products in lighter weight, but with more powerful suction and other highly coveted functions.
This will include a new generation of Hoover carpet washers and new Vax Air Motion vacuum cleaners, according to Galli.
'We spent the past three years working hard on improving the balance sheet, lowering costs and restructuring the company,' he says. 'The next three years will be exciting as we have all the new products and vast potential in the new markets.'