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.

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