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Business review: Flex-Tek

Flex-Tek is a global provider of engineered components that heat and move fluids and gases for the aerospace, medical, industrial, construction and domestic appliance markets.

Our flexible hosing, rigid tubing, and thermal systems are deployed on commercial and military aircraft for fuel and hydraulic applications and medical devices for patient care. They also improve the performance of domestic appliances such as clothes tumble dryers, vacuum cleaners and HVAC equipment.

 

Principal operating regions

Flex-Tek conducts most of its business in the US but also manufactures in France, Malaysia, India, China and Mexico.

Customers

We serve mainly aerospace engine and airframe manufacturers, domestic appliance manufacturers and the US construction industry. Large customers include Whirlpool, Electrolux, Trane, Carrier, Boeing, Airbus, Pratt & Whitney, GE Aerospace, and Respironics.

Competitors

Smiths Tubular Systems Aerospace’s 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. The construction-related products competitors comprise mainly Hitachi, Atco, Omega-Flex, Hart & Cooley and Goodman.

Suppliers

Flex-Tek sources key raw materials from world-class companies including electrical resistance wire from Sandvik, fibreglass insulation from Owens Corning, specialty plastic resins from DuPont and PolyOne, and stainless steel from Allegheny Ludlum. Each of these supply chain partners is chosen based on its ability to provide exceptional quality, service and value. No individual supplier represents more than 10% of total Flex-Tek purchased value.

Specialty medical heater

A specialty medical heater was developed and built by Tutco-Farnam for use in Computed Tomography (CT) scanners, widely used in advanced medical diagnostics. It was designed to address the problem of variable CT image quality caused by the wide range of temperatures within the scanner. By monitoring both the external temperature of the room and those within the scanner chamber itself, the heater helps stabilise them, so allowing consistent high-quality imaging. It is one of a range of thermal systems produced by Flex-Tek for medical-related use including: patient warming, nebulisers and blood analysis

Markets and trends

Flex-Tek designs and manufactures engineered components which heat and move fluids and gases for aerospace, consumer products and construction applications. Products include proprietary hose and tubing technology, engineered thermal systems and heating elements.

We manufacture specialised high-performance tubing for the civil and military aerospace industry and supply most major aircraft and engine manufacturers. Customers also include leading domestic appliance manufacturers and the US construction industry. In addition, Flex-Tek 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.

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. Demand for these products is linked to the worldwide air transport market and military spending.

Flexible Solutions

Focusing on flexible hose assemblies for a range of domestic appliance manufacturers, Flexible Solutions makes both high- and low- pressure hose assemblies for OEMs and distributors. Applications for the flexible hose and ducting products range from gasoline vapour recovery to post-operative patient warming. Business performance generally follows macroeconomic indicators such as US GDP and capital goods expenditures.

Heat Solutions

Comprising specialised heating elements and thermal systems, HVAC ducting and gas delivery tubing, Heat Solutions’ products serve customers that manufacture tumble dryers, HVAC equipment and specialised OEM customers described above. Ducting and gas delivery tubing is largely supplied to the construction industry via distributors. Demand is normally related to a mix of the strength of the US construction industry and worldwide household appliance expenditures.

Performance

On a reported basis, Flex-Tek's sales rose 8%, or £16m, driven by currency translation (£51m) and the acquisition of Fast Heat (£3m), offset by a fall in underlying sales of £38m, or 15%. This decline reflects the impact of the deep recession in the US residential construction markets as well as significantly softer demand in the household appliances and industrial goods markets.

Headline operating profit declined by 10%, or £2m, stemming from an £8m fall in underlying operating profit, partly offset by a £6m benefit from currency translation. As a result, margins narrowed by 190 basis points. The underlying decline in operating profit is caused mainly by lower volumes (£15m) and offset by £4m from the cost-saving initiatives.

Softer sales of components and services to civil aviation were balanced by steady demand in commercial and military markets, resulting in flat aerospace revenues versus the prior year. The group has also benefited from production efficiency gains and, through a focus on tight cost control, has been able to improve margins.

Heat Solutions underlying sales declined by 16% mainly due to lower sales of gas piping and HVAC ducting in the US construction market. The recession in the US market has prompted a 44% fall in housing starts in the year compared with the same period last year. Sales of heating elements to appliance manufacturers were slightly down but offset by full-year sales from the acquisition of Fast Heat, resulting in flat sales compared to the previous year. Against this background, sales fell at a lower rate than the market, indicating that we have successfully gained share in a challenging trading environment. In addition, a sharper focus on low-cost manufacturing and combined product marketing programmes have helped preserve margins.

Underlying sales of flexible hose assemblies from the Flexible Solutions division were down 23% resulting from softer demand in the US floorcare and general industrial markets.

Flex-Tek's new facilities in Asia continue to expand. We are in the process of widening the range of products delivered from our Changshu, China, facility to include high-pressure tubing for aerospace and industrial applications. Our Aerospace tubing plant in Bangalore, India, should be well positioned to benefit from recent announcements by the Indian government regarding increased defence spending.

FlexSure Solar Tubing

Recognising the rising demand for energy efficiency Flex-Tek has successfully adapted its manufacturing to produce freeze-protected tubing for use in solar water heating systems. FlexSure Solar Tubing, made of stainless steel, flexible and highly resilient in extreme weather, helps connect the supply and return lines between a solar thermal panel and hot water storage tank. A typical residential solar water-heating system reduces the need for conventional water heating by about two-thirds. It both cuts the cost of electricity or fossil fuel needed to heat the water and reduces the impact on the environment.

Business developments

The challenges in the housing and domestic appliance markets have prompted Flex-Tek to identify opportunities to rationalise its manufacturing portfolio and deliver efficiency improvements. The programme is part of the wider Group restructuring and is expected to deliver annualised savings of £9m. During the year, Flex-Tek has closed a factory near Glasgow, Scotland, and announced the closure of a heating element facility in Elmhurst, Illinois, which will complete by the end of the 2009 calendar year. As a result, savings to date total £4m.

Outlook

Flex-Tek faces continued uncertainty in the US residential construction, household appliance and industrial markets. It will continue to rationalise its portfolio of sites and reduce costs in order to deliver future value when these markets improve. The initiatives to date have made Flex-Tek a leaner business, which is strongly leveraged to a recovery in US housing – when that occurs. It will continue to seek growth opportunities in sectors outside residential construction and in developing markets.