Techtronic Industries Company Ltd.

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Techtronic Industries Company Ltd.

Unit B-F 24/F CDW Building, 388 Castle Peak Road, Tsuen Wan
New Territories
Hong Kong
Telephone: +852 2402 6888
Fax: +852 2413 5971
Web site: http://www.tti.com.hk

Public Company
Incorporated:
1985
Employees: 21,000
Sales: $2.10 billion (2004)
Stock Exchanges: Hong Kong
Ticker Symbol: TTNDY
NAIC: 333991 Power-Driven Hand Tool Manufacturing; 334413 Semiconductor and Related Device Manufacturing; 334515 Instrument Manufacturing for Measuring and Testing Electricity and Electrical Signals; 335129 Other Lighting Equipment Manufacturing; 335211 Electric Houseware and Fan Manufacturing

Techtronic Industries Company Ltd. is one of the world's leading manufacturers of corded and cordless power hand tools as well as a leading manufacturer of vacuum cleaners and other floor care products. Based in Hong Kong, and initially an original equipment manufacturer (OEM) behind such brands as Craftsman, RIDGID (for Home Depot), Bissell, and Dirt Devil, Techtronic has made a drive into the branded arena at the beginning of the 21st century. Since the late 1990s, Techtronic has acquired a number of major brand names, including Ryobi (excluding Japan); Vax, the U.K. and Australian vacuum cleaner leader; Homelite, in the United States, a maker of lawn and garden tools and equipment; and Royal Appliances Mfg. Co., also in the United States, a leading maker of vacuum cleaners and floor care products. In January 2005, Techtronic completed its acquisition of Atlas Copco's tool division, adding the Milwaukee Electric Tool Corporation, in the United States, and Germany's AEG Power Tools, as well as the DreBo brand of carbide drill bits. These acquisitions have not only given the company a global brand portfolio, they also have enabled the company to establish a manufacturing presence worldwide. Techtronic Industries is listed on the Hong Kong Stock Exchange and is led by founder and Chairman Horst Pudwill. In 2004, the company's sales topped $2.1 billion.

Cordless Niche in the 1980s

Techtronic Industries was founded in Hong Kong in 1985 by German native Horst Pudwiller in order to produce rechargeable battery packs for use in hand tools and other appliances. Pudwiller, who previously had been an executive with Volkswagen, teamed up with Hong Kong businessman Roy Chung, and began producing for the OEM market from a factory in Hong Kong. Pudwiller served as company chairman and CEO, and Chung became Techtronic's managing director.

Although cordless hand tools had by then become popular among professionals, they remained out of reach for the ordinary consumer. Techtronic recognized the potential for entering this niche, and designed a line of cordless tools specifically for the consumer market. By 1986, the company had secured its first major client, Sears, which commissioned the company to begin production of a new line of Craftsman-branded cordless power tools. That same year, Techtronic entered the vacuum cleaner market as well, supplying cordless vacuum and hand-held vacuum cleaners for the Bissell brand. Sales of these products were launched by 1987.

Techtronic's timing was rightthat year witnessed the start of a large-scale Do-It-Yourself (DIY) boom in the United States. The company initially planned for production of only 200,000 tools; by the end of 1987, sales had soared past one million. This success, and promises of continuing growth in the DIY market, encouraged Techtronic to expand its production capacity. For this, the company turned to mainland China, becoming one of the first from outside China to establish manufacturing facilities on the mainland. In 1988, Techtronic's new facility opened in Dongguan. Over the next decade, Techtronic added two more manufacturing plants in China.

To prepare for stronger growth in the 1990s, Techtronic went public in 1990, listing on the Hong Kong Stock Exchange. The offering allowed Techtronic to begin an effort at diversification. The company chose the field of healthcare appliances, and in 1991 paid $36 million for 51 percent of Gimelli Productions AG. Based in Switzerland, Gimelli specialized in the OEM production of dental and healthcare appliances for a range of clients, including Bausch & Lomb, Philips, and AEG. At the time of its acquisition, Gimelli was operating at a loss. Following the purchase, however, Techtronic shifted a large part of Gimelli's production to its Hong Kong and China facilities, helping to reduce manufacturing costs. By 1992, Gimelli had become profitable.

In that year, Techtronic spotted its next diversification opportunity, paying $67 million to acquire a 76 percent stake in Solar Wide. This company specialized in the OEM production of solar-powered appliances, such as lighting and alarm systems and measurement and monitoring devices, as well as consumer electronics products. The addition of Solar Wide, together with Gimelli, helped Techtronic reduce its reliance on the U.S. market to some extent.

In another attempt at diversification, Techtronic bought the manufacturing and distribution rights for the Jetstream oven from American Harvest. Terms of the agreement gave Techtronic worldwide rights, excluding the U.S. and South Korean markets. Yet this business, as well as the company's healthcare and solar power operations, remained small in comparison with Tech-tronic's core power tools and vacuum cleaner operations. By 1994, Techtronic's sales had topped HKD 1 billion. Power tools accounted for some 63 percent of this total, and floor care added another 17 percent to sales.

Floor care took on still greater weight with the company following the launch of the Superbroom in 1996. This product, a handheld, broom-shaped vacuum cleaner, became a huge success. By the end of 1997, the Superbroom had helped propel the group's sales past HKD 2.36 billion.

Branded Strategy for the 2000s

The growing success of the company's power tools and floor care appliances led Techtronic to refocus around these operations in 1998. By then, as well, the company had shifted nearly all of its production to its three mainland China plants. In 1998, the company expanded its production capacity again, opening a new production facility in Indonesia. Also in 1998, the company launched a new type of cutter, featuring a revolving blade magazine. To support sales of this new tool in its core U.S. market, the company acquired a 20 percent stake in distributor Nack that year.

The late 1990s witnessed a sea-change in the global manufacturing market, as more and more manufacturers shut down their local production facilities and turned to predominantly Asian-based third-party contract manufacturers. Yet, as the new century neared, Techtronic took the opposite approach. In 1999, the company introduced an ambitious new strategythat of re-creating itself as a brand-name producer.

Techtronic's first brand acquisition came that year, when it acquired Vax, a leading producer of vacuum cleaners and floor care products for the U.K., Australian, New Zealand, and Indian markets. Vax had been founded in 1977 in Worcestershire, England, and launched its first product, a machine that combined wet and dry vacuuming with a carpet washing function. At first, the Vax machine was sold door-to-door, but by the early 1980s, the company had begun distributing through the United Kingdom's retail network as well. By 1988, Vax had launched distribution in the Australia and New Zealand markets; in 1998, Vax formed a joint venture with Videocon International, launching its floor care products in India as well. Paying $8 million for Vax, Techtronic then began introducing the brand into new markets.

The acquisition that put Techtronic on the global power tools brand map came in 2000, when the company acquired Ryobi US and exclusive manufacturing and distribution rights for the Ryobi brand in the North American markets. Ryobi had been founded in 1943 in Japan as Ryobi Seisakusho, and began as a manufacturer of metal die-cast products. In the 1950s, Ryobi had added plastic die-cast production, and then began diversifying its production through the 1960s, entering areas such as the production of offset printing presses. In 1972, Ryobi created its power tool division, which grew into a Japanese market leader, before becoming a major global power tool brand.

Techtronic paid Ryobi's Japanese parent $95 million for its U.S. subsidiary. In 2001, Techtronic returned to Ryobi, buying up its European operations for $6.8 million. The following year, the company paid Ryobi another $3 million to take over its business in Australia and New Zealand. By mid-decade, Techtronic had succeeded in acquiring global control of the Ryobi brand, excluding the Japanese market. The acquisition of Ryobi helped Techtronic gain another major client, when in 2002 it signed an exclusive distribution deal with Home Depot for the Ryobi brand. That agreement placed Home Depot as the company's leading client, ahead of Sears.

Company Perspectives:

Operating philosophy

People with passion. We care passionately about everything we do, our products, our service, our customer relationships.

Solutions through innovation. Innovation can solve the most challenging problems. Customers and partners regard TTI as the industry leader for technical innovation.

A culture that worships quality. For TTI, compromise is unacceptable. We invest heavily in cutting edge technology and the most capable employees.

Highly responsive. Rapidly translating market data into strategic intelligence gives us a competitive edge. Consistently we are first to market with innovative products.

Adding value. TTI is dedicated to building value and growth for our shareholders and customers. We do this by continuously improving our core competencies and increasing the scale of our operations.

By then, Techtronic had gained two new brands for its growing stable. In November 2001, the company acquired John Deere's Homelite brand of garden and lawn care tools and equipment, paying $24 million. Homelite had been founded in Port Chester, New York, in 1921 as the Home Electric Lighting Company, originally to develop gas-powered electric generators. Homelite began producing gardening tools, including powered pumps and blowers in the 1920s, then added its first chain saw in 1946. Over the next decade, the company introduced a variety of other products, including hedge trimmers, string trimmers, and other handheld powered gardening and lawn care products.

Global Leadership in the New Century

Techtronic next expanded its floor care business, when it reached an agreement at the end of 2002 to acquire the Royal Appliances Mfg. Co. for $105.5 million. The Royal brand had been introduced in 1905 by Cleveland, Ohio-based P.A. Geier Company. Royal's major innovation came in 1937, when it introduced the Royal Prince, the world's first handheld vacuum cleaner. The company's spirit of innovation continued into the 1980s, especially with the highly successful launch of its Dirt Devil Hand Vac in 1984. That product quickly became the company's flagship. The Royal acquisition was completed in April 2003.

Soon after, Techtronic solidified its position in the North American power tools market with the creation of a joint venture with Emerson Professional Tools to launch the RIDGID brand of professional grade power tools. The joint venture, which launched production in October 2003, also helped strengthen Techtronic's relationship with Home Depot, which became the major retail distributor of the RIDGID line.

Techtronic continued building on its brand success as it approached mid-decade. In 2004, the company added to its Ryobi branded range when it acquired the North American rights to Ryobi's outdoor power equipment products line.

At the beginning of 2005, Techtronic's latest acquisition placed it among the world leaders in the power tools segment. In January of that year, Techtronic agreed to pay $626 million to acquire the Power Tools division of Sweden's Atlas Copco. That purchase gave Techtronic control of two major brands, Milwaukee, based in the United States and founded in 1924, and AEG, based in Germany and one of Europe's leading power tool brands. The purchase also gave the company control of DeBro, a manufacturer of carbide drill bits. Techtronic had succeeded in reinventing itself as one of the world's leading branded power tools manufacturers for the new century.

Principal Subsidiaries

A & M Electric Tools GmbH (Germany); DreBo GmbH (Germany); Gimelli Laboratories Co. Ltd.; Homelite Asia (Dongguan) Co. Ltd. (China); Homelite Consumer Products, Inc. (U.S.A.); Homelite Far East Co. Ltd.; Milwaukee Electric Tool Corporation (U.S.A.); OWT Industries, Inc. (U.S.A.); Royal Appliance International GmBH (Germany); Royal Appliance Mfg. Co. (U.S.A.); Ryobi Technologies (New Zealand) Ltd.; Ryobi Technologies (UK) Ltd.; Ryobi Technologies Australia Pty Ltd.; Ryobi Technologies Canada, Inc.; Ryobi Technologies France S.A.S.; Ryobi Technologies GmbH (Germany); Solar Wide Industrial Ltd.; Techtronic Appliances (Hong Kong) Ltd.; Techtronic Appliances Assembly Factory 1 (China); Techtronic Appliances Assembly Factory 2 (China); Techtronic Industries (Taiwan) Co. Ltd.; Techtronic Industries Assembly Factory (China); Techtronic Industries Co. Ltd.; Techtronic Industries North America, Inc. (U.S.A.); Vax Appliances (Australia) Pty Ltd.; Vax Ltd. (U.K.).

Principal Competitors

Wurth Group; Danaher Corporation; Black and Decker Corporation; Cooper Industries Ltd.; Beijing Tiantan Furniture Co.; Stanley Works; Husqvarna AB; Electrolux Construction Products Inc. Target Div.; Snap-On Inc.; Pentair Inc.; Scintilla AG; Makita Corporation; Alba PLC.

Key Dates:

1985:
Horst Pudwill and Roy Chung found Techtronic in Hong Kong in order to produce cordless appliances based on rechargeable batteries.
1986:
The company receives a major original equipment manufacturer (OEM) contract for the Craftsman line from Sears Roebuck and begins supplying vacuum cleaners for the Bissell brand.
1990:
The company goes public on the Hong Kong Stock Exchange.
1991:
Gimelli, an OEM producer of dental and healthcare appliances, is applied.
1992:
Solar Wide, producer of solar-powered appliances, is acquired.
1999:
The company adopts a branded strategy, acquiring Vax floor care products.
2000:
The company acquires the Ryobi US power tools business, and then adds Ryobi operations in Europe and Australia.
2001:
Homelite lawn and garden equipment is acquired from John Deere.
2002:
Home Depot becomes the exclusive North American distributor for the Ryobi brand.
2003:
The company acquires Royal Appliances; the RIDGID professional power tools joint venture is formed.
2004:
The company acquires the Ryobi outdoor equipment business in North America.
2005:
The company acquires the Atlas Copco Power Tools division, including the Milwaukee and AEG brands.

Further Reading

"Atlas Copco Completes Sale," Australasian Business Intelligence, March 15, 2005.

Beatty, Gerry, "Royal Agrees to Be Acquired in Order to Focus on Floor Care," HFN The Weekly Newspaper for the Home Furnishing Network, December 23, 2002, p. 3.

"HJ Techtronic to Buy Swedish Power Tools Company," Australasian Business Intelligence, October 12, 2004.

"Horst J. Pudwill, Chairman, Techtronic Industries, Hong Kong," Business Week, June 9, 2003, p. 44.

Leahy, Joe, "Techtronic Branding Breaks New Ground for HK," Financial Times, November 26, 2001, p. 18.

"Power Play," Australasian Business Intelligence, July 24, 2002.

"Ryobi's Parent Company Buying Milwaukee Electric," Do-It-Yourself Retailing, October 2004, p. 19.

"Ryobi Technologies Expands South Carolina Facility Operation," Outdoor Power Equipment, March 2002, p. 12.

"Techtronic Gears Up on Ryobi," South China Morning Post, June 2, 2000.

"Techtronic in Demand," South China Morning Post, April 10, 2001.

Tomasulo, Kay, "TTI Buys Atlas Copco Brands Acquisition Includes Milwaukee, AEG, and Drebo," Tools of the Trade, November-December 2004, p. 17.

M.L. Cohen

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