New products key to Techtronic’s future, says founder’s son
Techtronic Industries' shares have soared, and executive Stephan Pudwill is determined to keep the manufacturer's eye on innovative new products
In the 1,500 sq ft showroom at Techtronic Industries' headquarters in Tsuen Wan, Stephan Pudwill plays with the latest men's toys - cordless power tools such as hedge trimmers, mowers and chainsaws - and cleans the carpet with arguably the world's lightest vacuum cleaner.
President of strategic planning at the family business his father Horst, co-founded 29 years ago, Pudwill, flanked by the firm's finance chief and corporate spin doctors throughout the interview, repeatedly mentioned "new products" like a mantra.
Having amassed a portfolio of brands in the late 1990s and created new models and products in the 2000s, the power tool manufacturer is now betting its future on advancing the technology, pumping out new products and raising the level of automation so as to survive the changes in the industrial landscape in the Pearl River Delta (PRD), Pudwill said.
He said the firm spends about 2-2.5 per cent of its revenue annually, or about US$107 million last year, on research and development, with a focus on making its products cordless and increasing the performance of lithium-ion batteries.
"New products account for one-third of our revenue annually," he said. "We keep investing in our brands. It is critical to keep on the forefront of technology."
About US$1.4 billion of last year's US$4.3 billion revenue was derived from new products of various brands, including industrial power tool label Milwaukee, AEG, power tools and outdoor power equipment brand Ryobi, and floor care labels Hoover and Dirt Devil.
The products are widely sold by retail giant Home Depot in the United States.
Net profit at Techtronic, one of the largest power tool makers in Dongguan, an industrial hub in Guangdong province, leapt 24.5 per cent last year from 2012 to US$250 million.
Revenue jumped 11.6 per cent from a year earlier, while gross profit margin rose by 0.7 percentage point to 34.2 per cent.
The firm is one of the few surviving players in the PRD, the reputation of which as the factory of the world shows signs of rust amid protracted labour shortages, constantly rising wages, shifting industrial policy and an exodus of exporters from the mainland to lower-cost Southeast Asian countries.
The PRD is striving to move higher up the value chain with enhanced technology and more environmentally friendly products. For Techtronic, this means a greater use of automation at its production base, which employs about 8,000 migrant workers, down from about 11,000 in 2011.
"We are not a big fan of workers," Pudwill said.
"We constantly automate areas that can add value."
Despite relying largely on growth from innovation in its existing business, Techtronic is open to expanding via mergers and acquisitions, he said.
A case in point was the purchase last year of Oreck, a US-based manufacturer of vacuum cleaners, primarily for the hotel industry.
"We don't need to do M&As in order to expand the company, but it does not mean that we are not looking at any opportunities," Pudwill said.
Analysts at HSBC estimated Oreck would generate about US$80 million in revenue this year, compared with about US$30 million last year.
HSBC recently upgraded its net profit forecast for Techtronic to US$309 million this year from US$308 million and to US$369 million next year from US$366 million previously.
Identifying business opportunities that will complement the group's operations is a key responsibility of Pudwill, who stands to take over the firm from his father.
Pudwill, 37, joined the group 10 years ago and became an executive director in 2006. He had previously worked in product marketing and strategic planning at Mercedes-Benz in Germany.
At Techtronic, Pudwill said, "I work closely with [chief executive Joseph Galli] and my father and am actively involved in all areas."
He does not think his father, who is 69, will retire in the near future.
"Sometimes, I have different opinions with my father, which is healthy," Pudwill said. "It's important to have different opinions and think differently."
In the past year, Techtronic shares have soared 39.04 per cent to HK$25.50 yesterday and outperformed the benchmark Hang Seng Index by 38.72 per cent. The stock closed at an all-time high yesterday, up 3.23 per cent from Thursday, extending its bull run since the firm announced better-than-expected 2013 full-year financial results in March.
A recent Citi research report expected the stock will consolidate for a short while before hitting fresh highs later this year. Citi analyst Eric Lau set a target of HK$26 in April next year.