An interview with the Chief Executive
“Despite the challenging end markets, our managers delivered on their strategic goals.”
“We make customer needs and industry trends, such as fuel economy and emissions, our top priority for product development.”
Was 2007 a tough year?
From an end market perspective, 2007 was a difficult year for Tomkins. We sell into the residential market and the automotive market in the US, both of which remained challenging. According to NAHB, housing starts in the US were at 1.4 million compared to 1.8 million in 2006 and 2.1 million in 2005. Automotive production in North America was down to 15.0 million units compared to 15.3 million units in 2006. Clearly this had an impact on some of our businesses, especially our Other Building Products group.
Looking forward, it is important to bear in mind that Tomkins today is a diversified group, both in terms of end market exposure and geography. Automotive OE in North America as a percentage of our sales has been declining and is now at approximately 10% of our sales and our exposure to the Detroit Three (‘D3’) is steadily coming down and now stands at approximately 7% of Group sales in North America and approximately 10% of Group sales worldwide. Residential sales in the US are approximately 10% of our Group sales.
The diversity of our Group, particularly as we grow in new parts of the world, gives us both strength and resilience. Our diversity enabled us to maintain a strong operating profit margin in 2007. Despite the challenging end markets, our managers delivered on their strategic goals. We saw some exciting contract wins in our Power Transmission business with companies like Chery and Hyundai. Our aftermarket business also saw good results on a global basis, with our Chinese water pump business now supplying a lot of NAPA’s requirements. Our Schrader Electronics business doubled sales in 2007 with good progress in entering the North American aftermarket with their Remote Tyre Pressure Monitoring System (‘RTPMS’) and won new awards internationally with companies like Mahindra & Mahindra and Mitsubishi.
Will 2008 be any easier?
We expect the first half of 2008 to remain challenging. CSM expects automotive production for the year to be around 14.4 million, which is below 2007. Given uncertainty in credit markets, the US residential market will continue to be challenging. NAHB is forecasting this market to be down by around 20% in 2008. We do not anticipate this market to recover until 2009.
Given the outlook for 2008, what do you plan to do?
We have been dealing with declining automotive production by the D3 for some time. Our strategy has been to diversify our automotive business, both in terms of clients and geography. Our sales to the D3 are decreasing as a percentage of our overall automotive sales so we are making good progress.
The residential market has been declining since September 2005, when it peaked, but took a radical downward turn in August 2006. Since then we have taken a number of self-help measures to mitigate the impact. We set the business managers tough targets on capital expenditure and working capital. We reduced headcount in the businesses affected but also across the board. We rationalised some of our manufacturing plants and increased low-cost country sourcing. We also accelerated the disposal of some non-core businesses.
I believe we can do more, which is why we have been working on the acceleration of our performance improvement initiatives for the last six months. This is a three-year improvement plan that all of our top managers are committed to. We will achieve this by implementing a number of initiatives across our businesses. They range from implementing pricing plans to rationalising a number of manufacturing facilities and off-shoring some central functions. We will also accelerate product sourcing from low-cost countries. Detailed plans for each business are in place and I am confident that by 2010 this initiative will give us the opportunity to capture up to US$100 million of annual performance improvements.
Is your stated strategy still relevant today?
Our strategy still stands and we have made good progress in growing our business through new product introductions, entering new geographic markets and by making bolt-on acquisitions. You can read more about each area in the COO reviews over the next few pages. We will continue to make bolt-on acquisitions, especially in the industrial space to build on the Gates platform. We have a strong balance sheet and it is our aim to keep it that way.
What has changed since your arrival in 2002?
Tomkins is a different company today. We are much more focused as an organisation. Our managers are incentivised to be entrepreneurs and lean manufacturing has become part of how we operate in all areas. The quality of our assets has significantly improved and we have made inroads both in terms of low-cost country manufacturing and sourcing. We have sold 18 non-core businesses since 2002 and now have two business groups, I&A and BP. Each of these groups has a specific focus on attractive technological areas: I&A focuses on fuel economy and emissions technology while BP focuses on green buildings. We make customer needs and industry trends, such as fuel economy and emissions, our top priority for product development. We are now ideally placed for strong growth and improved performance once our end markets recover.
|
|
 |