Business review: Flex-Tek
Tedd SmithPresidentFlex-Tek provides engineered components that heat and move fluids for the aerospace, medical, industrial, construction and domestic markets. Our flexible hosing and rigid tubing is deployed on commercial aircraft as well as in motorsport for fuel and hydraulic applications. In the home our technology can be found in domestic equipment including vacuum cleaners and HVAC systems support. Employees2,400 Principal operating regionsFlex-Tek conducts a majority of business in the US but also has manufacturing in the UK, France, Malaysia, India, China and Mexico. CustomersFlex-Tek serves mainly domestic appliance manufacturers nd the US construction industry. Its large customers include Whirlpool, rane, Pratt & Whitney, Carrier, Boeing, Electrolux, Respironics, GE erospace, Airbus, Panasonic, Hoover and Dyson. Contribution to 2008 Group sales#9% Contribution to 2008 Group headline operating profit#+6% CompetitorsSmiths Tubular Systems Aerospace competitors include Parker-Hannifin and Eaton as well as outsourced capacity from its key customers. Flexible Solutions competes globally with a number of smaller privately owned businesses which manufacture specialty hoses. Heat Solutions domestic appliance and specialty heating element competitors include Emerson, Watlow and Chromalox. Whilst the construction related products competitors are comprised of Hitachi, Atco, Omega-Flex, Hart & Cooley and Goodman. #Based on revised operating structure for 2008/09 (see Segment information) +Percentage relates to headline operating profit before corporate costs.
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Markets
Flex-Tek designs and manufactures engineered components which heat and move fluids and gases for aerospace, consumer products and construction applications. Its products include proprietary hose and tubing technology, engineered thermal systems and heating elements.
Flex-Tek manufactures specialised high-performance tubing for the civil and military aerospace industry and supplies most major aircraft and engine manufacturers. Flex-Tek's customers also include leading domestic appliance manufacturers and the US construction industry. In addition, it supports specialised original equipment manufacturers (OEMs) with a wide range of solutions for equipment used to treat sleep disorders, semi-conductor manufacture, and temperature control in extrusion and large commercial heating and ventilation.
Demand is normally a function of overall economic growth, the air transport market, and the strength of the US construction industry.
Flex-Tek goes to market via three distinct technology areas:
Smiths Tubular Systems Aerospace
Meeting the aircraft industry’s need for rigid and flexible hydraulic and fuel hose, STS Aerospace delivers high performance airframe fluid management systems that are also deployed in the world of motorsport.
Flexible Solutions
Focusing on flexible hose assemblies for a range of domestic appliance manufacturers, the Flexible Solutions group makes both high and low pressure hose assemblies for OEMs. It also supplies ducting for purposes ranging from chemical transfer to grain handling.
Heat Solutions
Comprising specialised heating elements and thermal systems, HVAC ducting and gas delivery tubing, the Heat Solutions group's products serve customers that manufacture tumble dryers, HVAC equipment and specialized OEM customers described above. Ducting and gas delivery tubing is largely supplied to the construction industry via distributors.
Performance
Flex-Tek experienced declines in sales and profit as a result of the recession in the US residential construction markets and household appliances market. However, these declines were offset in part by the strong growth in sales of components and services to the aerospace market and by the benefit from the acquisition of Fast Heat in January.
Smiths Tubular Systems Aerospace delivered strong growth in sales and profit. This technology group benefited from the high demand for fluid distribution components and services for commercial and military aircraft. For example, Flex-Tek secured an $18m contract for the provision of flexible and rigid fuel and hydraulic hoses on the Boeing 787 Dreamliner. Through a combination of price rises to offset raw material cost increases and a focus on cost management, we were able to improve margins.
Flexible Solutions experienced declines in sales and profit as a result of continued pressure in the household appliance and general industrial sectors. The domestic appliance market has fallen by some 6% over the past year while the general industrial market is tied to GDP.
The Heat Solutions group supplies heating components for tumble dryers and HVAC ducting and related equipment to the US construction market, primarily to the residential sector. The recession in the US construction market saw a 30% decline year-on-year in building permits and a 28% fall in housing starts. Similarly, the US electric dryer appliance market declined by around 6%. Against this background, sales and profit fell – although the impact on profit was partly mitigated through careful cost management. At the beginning of the year, the group completed a reorganisation and consolidation of manufacturing in Tennessee which has cut costs and improved customer service.
Business developments
In January 2008, to extend Flex-Tek's range of specialty heating solutions, Smiths acquired Fast Heat for $18m. Now integrated into the Heat Solutions group, this business manufactures heating elements and controls used for plastic injection moulding and packaging equipment employed in the manufacture of medical products and semi-conductors.
Flex-Tek is broadening its global footprint particularly in Asia, where its existing plant in Malaysia continues to expand. Over the past year it has added new manufacturing facilities in Bangalore, India, the Clark Freeport Zone, Philippines, and Changzhou China. The facilities in India and Philippines are aimed at better serving its aerospace customers, following increased demand due to the growth of air traffic in Asia. The facility in Changzhou is focused on the growing HVAC and household appliance market in China.
As part of the Group restructuring, Flex-Tek has also announced a programme to reorganise its operations to drive efficiency improvements. The programme will cost £5m in total and once complete will deliver annualised savings of £7m.
Outlook
Flex-Tek is facing continued uncertainty in the US residential construction and household appliance markets. It will continue to rationalise its portfolio of sites and reduce costs in order to deliver future value when these markets improve. The growth opportunities in aerospace and developing markets will also be a focus.
In the competitive world of motorsport, Flex-Tek's advanced technology is helping the winning teams to achieve optimal performance. Flex-Tek's highly specialised tubing, which provides fuel to engines and hydraulic control for landing gear and reverse engine thrusters on aircraft including the Boeing 787 Dreamliner, is also deployed on the winning cars in high performance motorsport.
Our highly engineered components - manufactured at our facility in Laconia, New Hampshire, USA, and Paris, France - are designed for fuel and braking in these very demanding applications and are used by the major F1 and NASCAR teams.