Techtronic Industries, the maker of AEG and Ryobi power tools, said operating profit fell 19 per cent due to higher selling, distribution and advertising expenses following an acquisition early last year. Operating profit decreased to HK$868 million for the year to December from HK$1.07 billion in 2006 while sales rose 13.5 per cent to HK$24.78 billion. Net earnings, including an exceptional loss of HK$743 million for restructuring, dropped 88 per cent to HK$125 million. According to Thomson Financial, full-year sales should have surged 15.3 per cent to HK$25.17 billion while net profit was expected to drop 55.6 per cent to HK$475.9 million. Techtronic chief executive Joseph Galli remained upbeat about the future despite the higher expenses eating into the bottom line. 'Despite rising labour costs due to yuan appreciation, we maintained our gross margin at 31.5 per cent last year from 31.6 per cent a year earlier by launching new products,' Mr Galli said. 'We aim to boost our gross margin to 34 per cent by 2011.' The company's sales, distribution and advertising expenses increased 37.5 per cent to HK$3.78 billion after it acquired the Hoover Floor Care operations of Whirlpool Corp for HK$831 million in January last year. Parts of Hoover's operations have been relocated to Texas, Mexico and China. Mr Galli said the company had about half of its capacity located in the mainland, with the rest in the Czech Republic, Germany, Mexico and the United States. 'We prefer to build new factories overseas to save on transportation costs,' said Mr Galli. 'We do not want to put all our eggs in one basket on the mainland, which has high inflation and increasing labour costs.' In July, the Dongguan, Guangdong-based company will consolidate its 14 factories in the city into three main manufacturing centres to improve efficiency. 'As the US economy is slowing down, the proportion of our sales in the US will probably decline slightly this year,' said Mr Galli. 'We will focus more on Australia, Latin America, Canada and Europe.' The company proposed a final dividend of 1.5 HK cents, compared with 12.6 HK cents in the previous year. Shares in Techtronic rose 3.6 per cent to close at HK$7.78 yesterday.