New Products Key to Techtronic's Future

In the 1,500 square foot 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 public relations people 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, 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, leaped 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 0.7 percentage point to 34.2 per cent.

The firm is one of the few surviving players in the PRD (Pearl River Delta), 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 environment-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. Pudwill declined to reveal the acquisition price.

“We don’t need to do M&A’s in order to expand the company, but it does not mean that we are not looking at any opportunities,” he 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 torch 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.”

www.scmp.com     South China Morning Post

Horst Pudwill Emerges as U.S. Housing Recovery Boosts Techtronic Industries Exports

May 22 -- Horst Julius Pudwill, chairman of Hong Kong-based Techtronic Industries, has emerged as a new billionaire as shares of the power equipment supplier surged by more than 100% in the past year. With the bulk of its manufacturing facilities in southern China, the company delivered record revenues and profit in 2012, boosted by strong sales of power tools and floor care products in the U.S. and European markets.

Benefiting from a nascent recovery in the U.S. housing market and strong cost controls, Techtronic’s group sales increased 8.4% to $3.67 billion in 2012. Profit grew 32% to $201 million.  The share price has climbed 111% in the past twelve months. Pudwill, 69, who owns a bit more than 20% of the company, has seen his net worth jump to over $1 billion, Forbes calculates.

Pudwill first visited Hong Kong from Germany in the mid-1970s as a sales and marketing representative promoting Volkswagen vehicles. In 1985, along with business partner Roy Chung Chi-ping, he founded Techtronic Industries in Hong Kong, which had six employees and focused on producing rechargeable battery packs in hand tools. It later assembled tools for overseas brands. In the 1990s, it began buying up consumer brands. Today, the company has grown to be one of the world’s largest suppliers of cordless power tools and floor care appliances. It employs over 20,000 people worldwide.

In 2000, Techtronic purchased North American power tool operations previously owned by Japan-based Ryobi Limited. It acquired Milwaukee power tools along with AEG, from a Swedish group in 2005 for $626 million. In 2007, Techtronic bought the ailing Hoover brand from Whirlpool WHR -0.34% for $107 million, and turned around the money-losing business.

Pudwill retired as CEO in 2008 but remains chairman of the company.

Techtronic is best known for brands like Milwaukee Electric Tools, Homelite outdoor products, and Dirt Devil and Hoover vacuum cleaners. Consumers in Europe and Australia might be more familiar with its Ryobi and Vax brands. Some 74% of revenues come from the U.S. market and 20% from Europe.

Product demand in the US is benefiting from a recovery in housing and from the reconstruction efforts following Hurricane Sandy., J.P. Morgan Hong Kong analysts Leo Chik and Andrew Hsu said in a recently-released report.

Fueled by the housing market growth, Techtronic’s largest customer, Home Depot HD -1.44%, just reported higher-than-expected results for the first quarter of 2013, and raised its sales and profit outlook for the year. Similar to Home Depot, Techtronic has seen increased demand for tools and power generators after Hurricane Sandy.  Power tool sales in the U.S. grew 10% in the first half of 2012, the analysts said. Milwaukee, the primary professional brand for Techtronic, grew by 23.7% driven by strong demand from U.S. contractors for its new “Fuel” line of brushless motor products launched recently. In Europe, professional tool sales also grew double digits.

The analysts expect lower material costs and an appreciating Euro could help raise 2012 and 2013 EBIT (earnings before interest and tax) margins to a five-year high of 6.7%, rising to 9.7% by 2015 with increased sales growth. However, the key risks to its businesses are rising cost of production in China and a slower-than-expected recovery in US demand.

Headquartered in Hong Kong, Techtronic maintains manufacturing and research facilities in Asia and North America, as well as a customer servicing network in North America, Europe and Australasia.  But the bulk of its manufacturing is in southern Chinese city of Dongguan.

Pudwill holds a master’s degree in engineering and a general commercial degree. He is married to Barbara Pudwill. Their son Stephan Horst Pudwill, 37, joined Techtronics in 2004 and now serves as president of strategic planning.  Pudwill lives in Hong Kong and enjoys golf and tennis.

www.forbes.com     

Repair Help-Lines Are Important To Customer Service

October 21 -- These days, Americans are more inclined to patch up household products like vacuum cleaners, blenders and mowers rather than junking them.

This wave of frugality is increasing call volume to customer help lines, prompting some companies to boost their call-center staffing and offer more online tutorials on fixing and maintaining household machinery.

Kathleen Jones, a retired accountant in Wenonah, N.J., was one of the thousands of people who recently called the Glenwillow, Ohio, office of Techtronic Industries Co., the Hong Kong-based maker of Hoover and Dirt Devil vacuum cleaners. Ms. Jones was tempted to replace her 20-year-old vacuum after the old floor-brush attachment broke. But she found it would cost at least $300 for a similar new model. Instead, she ordered a replacement brush for $15.47.

"If I get another couple years out of it, that's pretty good," Ms. Jones says.

In many cases, "if you call us, we can fix it with you over the phone," says Dan Gregory, president of Techtronic's floor-care business in the Americas. Techtronic has seen about a 20% increase in U.S. help-line call volume each of the past two years. To handle more than 2,000 calls a day, the staff at the Ohio call center has almost tripled over the past two years to 65. The company also puts how-to-repair videos on its websites.

For both financial and marketing reasons, Techtronic wants customers to call when vacuums break down. To encourage them, it has begun putting a sticker on each product with the call-center phone number. "At that moment of frustration, it's right then that you either lose a customer or keep a customer," says Mr. Gregory.

Handy Help

Before undertaking a repair, consult the owner's manual. Consumers who are uncomfortable or unfamiliar with electric appliances or gas-powered engines should consider a professional repair service. Here is a sampling of useful phone numbers and websites:

Another risk: A customer who can't find a quick fix may return the vacuum to the store that sold it. The store may then give the customer a new machine, even if the old one wasn't really defective. Techtronic picks up the tab.

Other companies also report more interest in repairs. Briggs and Stratton Corp., which makes lawn mowers, pressure washers and back-up electricity generators, says do-it-yourself-repair calls and emails are the fastest-growing category at its "answer center." Overall call volume is up more than 60% from the level before the 2008-09 recession and totals several thousand per day during the peak summer season, says Dan Benischek, director of the call center. The number of call-center employees has risen to more than 60 in peak periods from 40 before the recession.

At Ariens Co., a maker of lawn mowers and blowers, sales of replacement parts now run at 12% to 13% of overall sales, up from 9% to 10% a few years ago. "Definitely consumers are extending the life cycle of products," says Daniel Ariens, president of the family owned company in Brillion, Wis. He has expanded his telephone tech-support team to nine people from five and persuaded three Ariens retirees to take calls at home during snowstorms, when lots of customers call in with blower problems.

At Techtronic's Ohio call center, employees deal with all kinds of cleaning crises.

"Hello, this is Heidi," Heidi Barchalk, a senior Techtronic help-line staffer, said on a recent afternoon as she picked up a call. Vivek Malik, the owner of four cellphone stores in southeastern Massachusetts, was having trouble with the Hoover Whisper Cyclonic vacuum used to clean one of the stores. A new belt hadn't done the trick.

After Ms. Barchalk prescribed a new part for the brush roller, Mr. Malik argued that Hoover should provide that for free because the vacuum was less than a year old. Ms. Barchalk said the warranty covered only residential use. Sturdier commercial vacuums should be used in stores, she advised.

"I can't believe this!" Mr. Malik barked. Ms. Barchalk offered to give him a 30% discount on the part, bringing the cost to $14.55 plus tax, and to rush the shipment.

Mr. Malik finally agreed. "We've already not vacuumed for three days, and the place is a disaster," he said. A week later, Mr. Malik said the Hoover worked with the new part, "so it's a happy ending."

Hundreds of vacuums line the aisles of the call center so employees can grab the relevant model if needed to explain something to a customer.

Sometimes it's only a matter of pushing a reset button, replacing a broken belt or cleaning a filter clogged by pet hair.

Another caller reported that her Hoover lacked suction. Ms. Barchalk asked the caller to remove the hose, hold it perpendicular to the ground and try dropping a quarter into the top end. The caller complied.

"Did it come out the other end?"

"No."

"That indicates the hose is clogged up," Ms. Barchalk said. She told the customer to use a broom handle to nudge debris out of the hose. After she hung up, Ms. Barchalk said, "We get that a lot."

Some vacuum crises are more difficult to resolve. The tough ones are escalated to a supervisor. If that doesn't suffice, the caller is referred to a local authorized repair shop. They don't offer advice on engine repairs, because that work is considered too dangerous for amateurs.

One woman called Techtronic to say her vacuum was "possessed," says Lisa Thomas, who manages the call center. Another had accidentally vacuumed up a beehive. "They were asking how to get the bees out," Ms. Thomas says. "We basically said, 'very carefully.' "

www.wsjonline.com

Powering Up - the Story of Roy Chung Chi-ping, Co-Founder of Tectronics

A drive for innovation and adventure are what helped make Techtronic Industries Company (0669) co-founder Roy Chung Chi-ping the successful industrialist he is today.

HONG KONG -- September 12 -- A drive for innovation and adventure are what helped make Techtronic Industries Company (0669) co-founder Roy Chung Chi-ping the successful industrialist he is today.

The accomplished and articulate non- executive director is also chairman of the Federation of Hong Kong Industries, representing the interests of 3,000 companies operating 60,000 factories in the mainland.

All the business training Chung, 59, received was hands-on, which is typical of his generation.

Coming to Hong Kong in 1967 after finishing secondary school in Macau, he started as a warehouse assistant at ITT Corporation. But his ambition drove him to take evening classes and he found himself promoted to manager of the US- based telecom.

That is where he met his future German business partner Horst Pudwill. After working at ITT for 10 years, Chung and Pudwill left to set up their own company.

And in 1985 was born Techtronic Industries, which now makes an array of power tools, outdoor power equipment, floor-care appliances, solar- powered lighting and electronic measuring tools.

"Neither of us was very knowledgable but Pudwill [now TTI group chairman] had traveled extensively, which is why he knows a bit of everything.

"Both of us knew, the only way we could be rich was by having our own business."

Despite the keen competition, Chung does not feel it is more difficult for youngsters these days to run a successful business.

"There are different kinds of success stories," he says.

"The new generation is smarter, they are better educated and have more opportunities. The post-80s and 90s generation should turn their sense of anxiety into a force of creativity."

To explain, Chung adds: "I was almost penniless after setting up the business. It was difficult to seek financing at our time, whereas young people now have incubator funds and venture capital.

"I always worried whether I would have enough money to pay my staff and buy raw material."

After 26 years of hard work, the company saw a record net profit of US$80 million (HK$624 million) and historic sales of US$1.8 billion in the first half of this year.

In addition to hard work, Chung attributes his success to right product selection. Techtronic, for instance, started out making rechargeable batteries and chargers.

"Although we saw the demand for personal computers at the time, we did not make them as we weren't familiar with them.

"With determination and guts, we expanded the business through acquisitions. We acquired a floor-care business in North America since we noticed there was only detergent for carpets at that time but nothing really to care for floorboards."

TTI acquired floor-care products manufacturer Hoover in 2006 from Whirlpool for US$235 million, and is now planning to sell the unit for US$900 million.

Leveraging existing advantages is also key to Chung's success.

"We have no competitive edge when it comes to branding, technology, and distribution. But we've been making good use of the potential in Hong Kong and the mainland to expand our business," he says.

"The mainland provides us the low- cost advantage. After acquiring Hoover, we shut its factory in Mexico and moved the production plant to Dongguan.

"Having our headquarters in Hong Kong, which has a sound legal system, allowed us to tap into the international market. And the acquisition provided us with an international sales network that we lacked before."

However, the mainland cost advantage is shrinking for manufacturers amid soaring inflation and yuan appreciation, with even reports of Hong Kong-invested Guangdong factories closing down. But an unfazed Chung says: "One should turn risk into opportunities, and turn challenge into motivation. One has to be optimistic!"

"Hong Kong manufacturers have been in the processing and assembly business for more than 30 years in Guangdong," he noted.

Such factory businesses were introduced in the early 80s when Beijing launched its Open Door Policy, hoping to attract foreign direct investment.

"Labor-intensive industry is unsustainable. Inflation is nationwide, you can't avoid it even if you move your factory out of Guangdong. One has to always be ready for changes and challenges.

"No one has ever had a completely smooth life. Even [Hutchison Whampoa chairman] Li Ka-shing faced challenges when he launched 3G telecom services."

Instead of fearing failure, Chung believes an entrepreneur should be adventurous.

"You can apply defensive strategy when playing football because the match will come to an end anyway. But you can't do that when you run a business since it never ends. If you remain conservative, you will be knocked out." But this is the attitude of some young people nowadays, says Chung.

"We're the first generation and we have no burden. Unlike us, the second generation is afraid of losses. They'd rather maintain status quo, that's why they're conservative."

Nevertheless, there are still exceptions.

And Chung cites sauce giant Lee Kum Kee as an example.

Founded in Zhuhai in 1888, the company has expanded its product range and business relentlessly and now sells Chinese and Asian-style sauces around the world.

Chung refers in particular to Lee Kum Kee's motto of "constant entrepreneurship."

"It's important to have an entrepreneurial spirit," he says.

But a leader must develop a good system that allows people to work efficiently and effortlessly.

"Some executives are busy answering phone calls during overseas trips. These people had better return and work in the office," he says.

As such, Chung, who stepped down as TTI vice-chairman to be a non- executive director in July, made his succession plans years ago.

"This was my plan so that I could concentrate on my role for the federation. If you can't really engage yourself in a role, you'd better not take it."

In addition to public duties, he has numerous hobbies. "I am an explorer," says Chung, who is also chairman of the executive committee of the charity and non-profit organization Outward Bound Trust of Hong Kong.

"I like traveling and hiking. I recently went to Africa to see the great migration of wildebeest. The animals can easily be trampled to death if they don't run fast enough."

Perhaps this bears an analogy to the business world in Chung's eyes.

The adventurer also likes joining the Oxfam Trailwalker run.

Says Chung: "I gain more confidence once I overcome a challenge."

www.thestandard.com.hk