Flex-Tek
|
2009 |
2008 |
Reported |
Underlying |
Sales |
111 |
100 |
12% |
(11)% |
Headline operating profit |
11 |
11 |
3% |
(17)% |
Headline operating margin |
9.7% |
10.6% |
|
|
Statutory operating profit |
9 |
11 |
|
|
On a reported basis, Flex-Tek’s sales increased 12%, or £11m, driven by currency translation (£22m) and the acquisition of Fast Heat (£2m). Excluding currency translation and acquisitions, underlying sales fell by 11%. This reflects the impact of the recession on 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. Underlying headline profit declined by 17% and margins fell by 90 basis points.
Smiths Tubular Systems Aerospace delivered continued growth in sales and profit. This technology group benefited from the strong demand for fluid distribution components and services for commercial and military aircraft. The group has also benefited from production efficiency gains and, through a focus on careful cost control, has been able to improve margins.
Flexible Solutions provides flexible hose assemblies to domestic appliance manufacturers and ducting for the industrial market for a range of purposes from chemical transfer to grain handling. This group has 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 seen significant declines over the past year while the general industrial markets remain challenging.
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 has prompted a 36% fall in housing starts. Similarly, the US electric dryer appliance market has seen further declines. Against this background, sales fell although at a lower rate than the market, indicating that we have successfully gained share in a challenging trading environment. In addition, a focus on production efficiency, cost management and tactical pricing has helped to preserve margins.
Flex-Tek’s new facilities in Asia continue to grow. We have expanded the range of products delivered from our Changshu, China facility to include gas delivery tubing and are in the process of gaining FAA approval for our Aerospace tubing overhaul and repair facility in the Clark Freeport Zone, Philippines. Our Aerospace tubing facility in Bangalore, India should be well positioned to benefit from recent announcements by the Indian government regarding increased defence spending.
Given the challenges in the end markets, Flex-Tek has also identified opportunities to rationalise its manufacturing portfolio to drive efficiency improvements. The programme is part of the wider Group restructuring and is expected to cost £5m in total and, once complete, deliver annualised savings of £7m. In the period to date, Flex-Tek has announced the closures of a factory near Glasgow, Scotland, and of a heating element facility in Elmhurst, Illinois. Savings to date total £2m. The restructuring programme will make Flex-Tek a stronger business and better positioned for a recovery in the US housing and appliance markets – when that occurs.
Outlook
Flex-Tek is facing continued uncertainty in the US residential construction, household appliance and industrial markets. It will 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.