Tomkins to Focus On Engineering
13 July 1999
Tomkins to Focus On Engineering
Business Editors
LONDON--July 12, 1999--The Board of Tomkins PLC
, the international manufacturing company, announces that
after good progress in the development of its Industrial & Automotive
division it has taken the opportunity to review the future strategy
and shape of the group.
AUTOMOTIVE, CONSTRUCTION and INDUSTRIAL
Following the acquisition of The Gates Corporation in July 1996,
Tomkins bought Stant in May 1997, Schrader-Bridgeport in April 1998
and most recently ACD Tridon in June 1999. This combination of
businesses provides Tomkins with a strong platform from which to build
a global Industrial & Automotive components business. The Board has
determined that the opportunities presented by industrial
consolidation, the shift in design and engineering responsibility to
the component manufacturer and the requirement for a global presence
in product areas, require a tighter focus from the group. Tomkins
intends to concentrate its energies and resources on its automotive,
construction and industrial activities.
The Board has set in train the process for a demerger of Tomkins
European food manufacturing activities, which would take place,
subject to the resolution of technical issues and regulatory and
shareholder approvals, in the early part of the year 2000.
The strategy is designed to permit the engineering and food
business to focus their separate financial, management and other
resources on their respective businesses.
The European food businesses are now of a scale and stage in
their development where they can have an exciting future outside
Tomkins as an independent publicly listed group. Tomkins has created a
formidable Food Manufacturing division which generated operating
profit of (pound)165.4 million in the year to May 1, 1999 on sales of
(pound)1,965.1 million. The European food businesses have a strong
portfolio of well known brands in the UK including Hovis, Sharwood's
Bisto, Mr. Kipling, McDougalls and Robertson's. The Food Manufacturing
businesses have exploited the growth opportunities presented by the
changes in consumer lifestyle through investment in resources,
processes, technology, new product development and marketing.
The European food businesses have a strong management team led by
Paul Wilkinson who has headed the successful development of the
business for the last three years. This team will be strengthened by
the appointment of Ian Duncan as Chairman. In order to avoid a
conflict of interest during the separation of the food manufacturing
operations, Ian has left the Board of Tomkins, with effect from today,
but will continue at Tomkins during the demerger process. Ian has made
a huge contribution to the development of Tomkins since he first
joined as Financial Director. A demerger of the food interests
presents an excellent opportunity for him to utilize his leadership
skills to the full.
Having regard to the cash generation and investment requirements
of the food manufacturing activities, the Board would expect that the
major part of the group's debt would be included within these
businesses, thus strengthening financial capacity for the development
of Tomkins' non-food activities.
Tomkins has received approaches in the past for parts or all of
its food manufacturing activities. It will place itself in a position
to respond appropriately if such approaches are received going
forward, and to test them in the light of the Board's wish to maximize
shareholder value.
Tomkins will in any event be selling Red Wing, its US food
business which is managed separately from the European food
manufacturing activities. It will also continue to progress the
disposal of the Murray and Hayter businesses, which make up the
majority of Tomkins' Professional, Garden & Leisure Products division.
In addition to the Industrial & Automotive division, Tomkins will
also develop its presence in Construction Components which are high
return niche businesses, operating predominantly in the US.
This evolved structure will allow Tomkins to build leading
national and international component businesses capable of achieving
above average growth in automotive, construction and industrial
markets based on Tomkins' existing market positions and its core
competencies in:
-- the design and manufacture of components, modules, sub-systems
and systems for global OEM customers
-- the manufacture and distribution of components and product
packages for leading aftermarket distributors
-- the ability and strength to capitalize on industry consolidation
through organic growth and acquisitions
-- the know-how to pursue a lean enterprise philosophy geared to
continuous productivity improvements through customer driven
investment and development
In the year to May 1, 1999, the Industrial & Automotive
Engineering and Construction Components divisions generated operating
profit of (pound)307.0 million on turnover of (pound)2,803.6 million.
In order to expand its core businesses, Tomkins intends to pursue
growth opportunities through capital investment and targeted
acquisitions.
Strategy
Systems and Engineering Design
In the automotive market, Tomkins has already developed a strong
systems capability, particularly in power transmission and wiper
systems, and is in a good position to build on other areas of its
product range to similar effect. These areas include fuel caps,
pneumatic fluid control valves and fuel and vapor recovery. Tomkins
also has considerable potential to increase profitability and market
share through the increased development of modules and sub-systems
from its existing product range.
The industrial market, while more diverse, is undergoing a
similar transformation to system based design, although the concept is
less well advanced at this stage. Tomkins believes that its experience
in system development gained in the automotive industry will transfer
effectively to industrial opportunities. Hydraulic hose and connector
assemblies and power transmission drives are two areas offering
considerable potential.
Supply Base and Distribution Consolidation
Consolidation in the automotive component industry is well under
way internationally in response to OEM and distributor concentration.
Tomkins believes that it is well placed, given its strengths in power
transmission, hose and connectors, wiper systems and pneumatic and
fluid control products to take advantage of the pressure that this
consolidation is bringing to bear on component manufacturers. The
ability to build additional system capabilities through acquisition
and organic growth, will further enhance Tomkins' ability to gain
market share.
The consolidation trend is gaining momentum in other industrial
equipment markets served by Tomkins. These markets are likely to enter
a period of rapid concentration and Tomkins is determined to be at the
forefront of this consolidation process.
A number of Tomkins' businesses are experiencing increased demand
from consolidating distributors who are seeking a more complete
package of products. Tomkins is well placed to capitalize on this
aftermarket need with its broad range of products, sales and marketing
support and strong distribution networks.
Lean Enterprise Philosophy
The integration of the Stant, Trico and Schrader-Bridgeport
operations into Gates has progressed well, although scope still
remains for continuing reductions in their cost bases. The recent
acquisition of ACD Tridon offers increased opportunity for integration
and rationalization as well as introducing an integrated wiper systems
capability.
Tomkins' record of margin improvement in its construction
components businesses vividly demonstrates its ability to cut costs
whilst maintaining growth. Tomkins' management will maintain an
aggressive view on costs in both its existing and any acquired
businesses.
Growth Drivers
Capital and acquisition investment
Tomkins' capital and acquisition investment will be focused on:
-- the international expansion of businesses already commanding
significant national and international positions
-- the expansion and increased penetration, as the OEM supply base
consolidates, of existing system technology
-- the securing of further system capability based on existing
strong positions in module design and manufacture
Continued new product development
Tomkins has advanced technology centers in North America, Europe
and Asia strategically positioned to serve the global OEM customers.
In addition, there is a global network of product specialized
technology centers integrated with manufacturing facilities.
Low cost manufacturing
Tomkins invested a record (pound)166.2 million in its Automotive
& Industrial Engineering and Construction Components divisions, over
30% more than last year and well ahead of depreciation of (pound)80.9
million. This increase is a consequence of Tomkins' commitment to
improving the efficiency of its businesses and in response to the
market's dynamics.
Automotive and Industrial Components
Tomkins' Automotive & Industrial businesses, in the year to May
1, 1999, contributed (pound)165.3 million in operating profit on
(pound)1,700.9 million of turnover. The business is divided into a
number of product areas: power transmission products, which make up
approximately 40% of the division's turnover; hydraulics, wiper
systems; hose, clamps and thermostats; and valves and precision
engineered products. Power Transmission
Tomkins' power transmission business has strong positions in the
OEM and aftermarkets of the industrial and automotive sectors. Tomkins
believes it has a global market share of 30% in power transmission
with an increasing proportion of its sales to the automotive market in
system form. In the market place systems are a growing proportion of
sales and are an important factor in driving market share. Tomkins'
market share in Power Transmission and its status as the leading
global supplier, clearly place it in a strong position as
consolidation amongst the component manufacturers continues. The
group's after market position is similarly strong, with a market share
of approximately 45% in North America and good positions in Europe.
Tomkins believes that its strong product range will enable it to
increase further its market share, particularly in Europe and Asia, as
well as providing the template for the industrial market's inevitable
shift to system design.
Hydraulics
Tomkins believes that its significant hose and connector business
puts it in a strong position to build a system capability through
acquisition to match the anticipated demand from the industrial OEMs
in hydraulics. Plans by mobile equipment OEMs are reinforcing the
trend to transfer hydraulic system design to fully integrated
hydraulic suppliers.
Wiper Systems
The recent acquisition of ACD Tridon, combined with Trico, bought
in 1997, gives Tomkins the ability to design and manufacture the
complete wiper system and meet the integrated design and system
requirements of the OEMs. At present Tomkins has a good market share
in North America and a presence in Europe. It also has a joint venture
with a Japanese wiper system supplier. Further benefits will derive
from the combination of ACD Tridon's electronic expertise and Trico's
heavily invested technical resources. Tomkins believes it is well
placed to compete successfully as a full system supplier.
Valves and Precision Engineering
These products are likely to increase Tomkins' system capability
in the medium term. In particular products such as Onboard Vapor
Recovery (OVR) valves, fuel caps and fuel supply valves offer a route
into systems. Remote Tyre Pressure Monitoring Systems (RTPMS) are
another indication of how Tomkins is able to leverage its technical
resources and close relationship with customers to generate a flow of
new products.
Hose, Clamps and Thermostats
These products strengthen Tomkins' position with both OEMs and
aftermarket distributors. In addition there is potential to translate
significant market shares in North America into global positions
through acquisition or strategic alliance.
Construction Components
The construction components division, whilst more diverse in its
product range, is made up of a number of high return, niche businesses
operating predominantly in the US. The division includes Tomkins' Air
Distribution businesses (Air System Components, Lau, Ruskin), its
Fiberglass and Plastics businesses (Lasco Bathware and Lasco
Fittings), its Housing and Transportation businesses (Dexter Axle,
Philips Products and Lasco Composites) and its Material Handling
businesses (Dearborn and Mayfran). Air Distribution
The air distribution businesses are experiencing increased demand
from consolidating distributors and manufacturers, who are seeking a
more complete package of products. Tomkins is well placed in its
component businesses to meet this need and benefit from its leading US
market shares in a number of key product areas - Air System Components
- grilles, registers and dampers, Ruskin - industrial dampers, louvres
and sound control products. The industry consolidation already
underway increases the opportunities for adding to Tomkins' existing
product range.
Fiberglass and Plastics
Trading profit margins in this product area are amongst the
highest in the group and represent the achievement of low cost
production in a highly competitive environment. There are
opportunities to generate continuing improvement through both
acquisition and new product development. Lasco Bathware and Lasco
Fittings have strong positions in their respective markets which
provide a platform from which to offer a wider range of products as a
package.
Housing and Transportation
These businesses include Dexter Axle, Philips Products and Lasco
Composites. All three operations have strong niche positions in their
main US markets and are generating high returns.
FOOD MANUFACTURING
Background
The food business of Tomkins comprises RHM Europe, located
predominantly in the UK, together with some interests in Continental
Europe, and Red Wing in North America. These food businesses generated
operating profit of (pound)165.4 million in the year to May 1, 1999 on
sales of (pound)1,965.1 million, representing an operating margin of
8.4%. The food businesses are mainly those which comprised the Ranks
Hovis McDougall group, acquired in 1992. At the time of the
acquisition, the group was generating operating profit of
approximately (pound)80.5 million and operating margin of 5.3%.
RHM Europe
In order to meet the challenges of the competitive environment,
RHM Europe has recently reorganized its operations into eight business
streams. This reorganization improves the focus and accountability of
its management teams into defined areas of the food market, each
requiring common skills and competencies, further improves cost
effectiveness and enhances the speed of decision-making. These
business streams are supported by a small central services team which
encompasses essential functions including technology, health and
safety and human resources.
Flour milling
Rank Hovis, the major component of this division, is the largest
flour miller in the UK. A process of continuous improvement in the
milling operations has ensured reductions in unit costs. The headcount
has been reduced significantly since the business was acquired by
Tomkins.
Bread baking
British Bakeries is one of the largest bread bakers in the UK
operating 17 bakeries and employing over 7,000 people producing over
16 million loaves each week. Its major brands, which include Hovis,
Granary, Mothers Pride and Nimble, have been instrumental in the
company's development.
European frozen bakery
RHM Europe is the largest supplier to the UK frozen bake off
market, which is replacing the traditional methods of scratch baking
in local bakeries and the in-store bakeries of major supermarkets. RHM
Europe also produces frozen bake off from five plants in France. The
benefit of frozen bake off is that it allows retailers to reduce labor
costs and offer a much wider range of high quality breads thus
stimulating increased demand in an already fast growing market sector.
Cake
Manor Bakeries is the UK market leader in ambient cakes. The
company holds the first two brand positions in its market place, with
Mr. Kipling and Cadbury's cakes. The business also produces a
substantial volume under its third brand Lyons and customers'
own-label.
Branded groceries
Centura Foods has been created to combine the activities of Bisto
Foods, J A Sharwood and James Robertson, together with Grocery
Logistics, the distribution operation, under a single management team.
Centura has a portfolio of well-known, leading ambient grocery brands.
Partnerships
This fast growing core activity comprises those companies which
have formed partnerships with major customers, including Marks &
Spencer, McDonald's and Pizza Hut. RHM Europe supplies Marks & Spencer
with a range of pies, recipe dishes, celebration cakes and seasonal
products. A new (pound)41.5 million state-of-the-art plant, dedicated
to Marks & Spencer, is nearing completion in South Wales to enable RHM
Europe to grow its business with this important partner.
RHM Europe's Golden West business is the major supplier to
McDonald's UK restaurants and also their sole distributor of all
goods. Golden West's sales growth has mirrored McDonald's success.
RHM Europe now supplies over 1,000 Pizza Hut restaurants across
Europe, with manufacturing in the UK and France. The manufacturing
process was developed by RHM Europe and is exclusive to Pizza Hut. It
gives that company greater flexibility and lower operating costs at
its restaurants.
Food ingredients
This division combines the activities of RHM Europe's operations
supplying the food manufacturing industry with specialist food
ingredients. The product range extends across coating systems,
preserves, colors and bakery ingredients.
Food products
RHM Europe's food products division also manufactures
complementary products for the foodservice, frozen and Irish markets,
leveraging its brand portfolio into these channels.
Warburg Dillon Read is acting as financial adviser to Tomkins
Additional Inquiries:
Warburg Dillon Read - London
Heydar Kahnamouyipour, Managing Director
Philip Shelley, Associate Director
Tel: 011-44-171-567 8000
Certain statements contained or incorporated by reference herein
constitute or may constitute "forward-looking statements". Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Tomkins, or industry results, to be
materially different from those contemplated or projected, forecast,
estimated or budgeted in or expressed or implied by such
forward-looking statements. Such factors include, among others:
general economic and business conditions; industry trends; overseas
expansion; the loss of major customers or suppliers; the timing of
orders received from customers; cost and availability of raw
materials; changes in business strategy or development plans;
availability and quality of management; the availability, timing and
terms of future acquisitions; and availability, terms and deployment
of capital.