East Putney House
Company Perspectives:
Tomkins is committed to enhancing shareholder value through increasing the economic value of its businesses by concentrating in product and geographic markets in its chosen sectors where the businesses have sustainable competitive advantage, and which offer prospects for profitable growth.
Tomkins plc is a multinational engineering and manufacturing group, overseeing three major business groups: Air Systems Components, Engineered and Construction Products, and Industrial and Automotive Engineering. After aggressively expanding during the 1980s and throughout the 1990s, Tomkins has been paring back operations in order to focus on its core operations. Leaving its "guns and buns" nickname behind--the firm sold gun maker Smith & Wesson and its food manufacturing operations--Tomkins intends to increase shareholder value and return to profitability through its restructuring efforts. Longtime CEO Gregory Hutchings resigned his post in 2000 amid controversy related to company finances.
Tomkins traces its history to the 1925 founding of the F.H. Tomkins Buckle Company Ltd., a manufacturer of buckles and fasteners operating from England's West Midlands. The firm entered the public arena in 1956, listing on the London Stock Exchange. Buckles and fasteners largely remained the company's focus until 1983, when Tomkins underwent a dramatic metamorphosis and emerged as an international conglomerate.
Expansion Under the Leadership of Hutchings: 1980s
The company's sudden change in direction was largely due to the vision of one man, Gregory Hutchings, who in 1983 acquired a 22.9 percent stake in Tomkins. Becoming chief executive of Tomkins in January 1984, Hutchings assembled a management team and set about transforming the company through an aggressive acquisition strategy aimed primarily at companies based in the United Kingdom and the United States. In quick but carefully phased succession, Tomkins acquired Ferraris Piston Service (1984), Hayters, a manufacturer of garden tools (1984), Pegler-Hattersley, a maker of taps, valves, plumbing fittings, and heating control systems (1986), Smith & Wesson, the well-known gun manufacturers (1987), and Murray Ohio, a lawnmower and bicycle company (1988).
During this time, Tomkins was creating and solidifying its careful and conservative approach to business, "control" being the company's watchword. Implicit in Tomkins' success as a conglomerate was its unwavering belief that any business, no matter what its end product, would respond to the basic business tenets to which Tomkins subscribed: stringent financial control fortified by tough and realistic budgetary planning; efficient, waste-reducing management procedures; and judicious use of capital as and when dictated by the needs of the business.
The company's acquisition policy also emphasized selectivity. Tomkins favored what it termed "low-risk" technology businesses--those that produced and/or distributed products not subject to rapid technological change or frequent development and improvement. Moreover, the company was reluctant to purchase any concern that would hinder the conglomerate's earnings even temporarily; new acquisitions were chosen with the expectation that they would contribute to the firm's profits in their first year. Finally, Tomkins' policy was to fully integrate one acquisition into the company as a whole before moving on to the next. Consequently, Tomkins made only eight major acquisitions between 1983 and 1993.
Each of the companies acquired by Tomkins was afforded considerable autonomy in regards to its management and operations, provided that the company conform to the parent company's strict financial regime. Subsidiaries were expected to strive to become the lowest-priced and most efficient supplier in their particular market. In turn, Tomkins was willing to provide capital for new plants and equipment, product development, management training, advertising campaigns, or whatever was regarded as necessary to achieving that goal.
Seeking to build an empire whose broad base ensures continued profitability even if one sector of the company should suffer a setback, Tomkins also sought to achieve geographical balance among its enterprises. The company's ideal ratio was to have 40 percent of its business based in the United Kingdom, 40 percent in the United States, and 20 percent elsewhere.
Hutchings' strategies proved phenomenally successful. In 1983, Tomkins, wholly reliant on the fastener business, controlled seven companies, employed a work force of 400, and made a pre-tax profit of £1.6 million, mostly in the United Kingdom. In 1994, however, the company boasted 73 companies, supported 45,000 employees, and enjoyed a pre-tax profit of over £257 million garnered from businesses operating in the United Kingdom, North America, Europe, and Australia, with no one product accounting for a disproportionate amount of Tomkins' profits.
In 1994, the company's business fell roughly into five categories: fluid controls; services to industry; professional, garden, and leisure products; industrial products; and Rank Hovis McDougall, a food manufacturer acquired by Tomkins in 1992. The fluid controls business comprised the manufacture and international distribution of water, heating, ventilating, and air conditioning valves, taps, radiators, and plumbing fittings. Tomkins' firms in this category, based in the United Kingdom, the United States, and Canada, included Ruskin, Air System Components, Pegler, and Guest & Chrimes.
The services to industry category, a more varied group, included Totectors, a U.K. supplier of safety footwear; the automotive components distributor Ferraris Piston Service; the Belgian valve and pipeline equipment firms Prometal and Dutch UBEL; as well as U.S. manufacturers of conveyor and material handling systems such as Mayfran and Dearborn Fabricating & Engineering. The services to industry category also included distribution of an array of high specification valves, the supply of fasteners to clients in the United Kingdom and Europe, the provision of spring steel and heat treatment, and the printing of business forms.
The highest-profile business in Tomkins line of professional, garden, and leisure products was the U.S.-based Smith & Wesson, the largest producer of handguns in the world. Another U.S. firm, Murray Ohio, manufactured high-quality lawnmowers and bicycles. Also included in this category was the original Tomkins--F.H. Tomkins Buckle Company--which continued to supply a variety of buckles for both the U.K. and foreign markets.
Tomkins' industrial products were largely low-risk technology products such as plastic and fiberglass moldings, doors, windows, wheels, axles, rubber components, coated textiles, control instrumentation, metal pressings, precision turned parts, industrial disc brakes, clutches, and flexible couplings. Lasco Bathware, Philips Products, manufacturer of aluminum doors and windows for recreational vehicles and manufactured housing, Dexter Axle, Northern Rubber, and Premier Screw were among the Tomkins companies in the industrial products line.
The Rank Hovis McDougall Purchase
Rank Hovis McDougall (RHM), a substantial and controversial acquisition of 1992, made and distributed bread and a range of private-label and other brand-name food products for consumers and for catering and food manufacturing markets in the United Kingdom, Europe, and the United States. Among RHM's well-known brand names were Hovis, Mothers Pride, Mr. Kipling and Cadbury's cakes, Bisto, and Paxo.
Tomkins frequently came under fire for its eclectic acquisition strategy, and never more so than in 1992, when the company bought bread maker and distributor Rank Hovis McDougall. Although it was no surprise that the company should make a bid for a large U.K. concern--at the time only 17 percent of its profits were coming from the United Kingdom, an undesirable ratio to Tomkins--this move "from guns to buns," as the city's pundits delighted in terming it, was viewed by financial analysts and stockbrokers as inexplicable, unwise, and potentially disastrous. To diversify so drastically from Tomkins' usual business was considered a risk, but to diversify into the volatile and oversaturated bread market was regarded as foolhardy.
At the time of the purchase, RHM was in second place in the British baking market, holding approximately 33 percent in comparison to the 36 percent controlled by Associated British Foods, with the remaining market share divided among smaller, independent bakeries. Moreover, although consumption of bread had dropped, production had not, leading to ruthless price wars in the market. In 1989, RHM had pulled a profit of £69 million from milling and baking; by 1992 that figure had dwindled to £20 million. Many analysts saw further cause for alarm in that with this acquisition Tomkins charged the cost to its balance sheet rather than following its usual strategy of writing off the cost in the profit-and-loss account. Stock market doubts were fueled by Tomkins' reluctance to discuss the purchase. Although the company's policy was to keep its own council about a new acquisition until its first full year, no news in this case was seen as bad news, and Tomkins' share price dropped. Even The Financial Times, a fairly conservative journal, remarked that it was indeed "perplexing" that Tomkins should invest good money into a "seeming quagmire."
Undeterred, Tomkins set out to prove the analysts wrong, instituting a £90 million program of restructuring and rationalization. The company cut RHM bakery capacity by ten percent and well over 2,000 jobs, all without diminishing RHM's market share. Tomkins then instituted an ambitious marketing campaign to reinforce an already-high brand recognition for the new subsidiary's bakery and other food items. Over 300 new food products were developed, including specialty items such as sun-dried tomato bread. Responding to fads popular among children at the time, the bakery also began producing "dinosaur bread" in 1993.
When Tomkins finally lifted its veil of secrecy in 1994, it revealed that while the bakery business remained troubled, it had performed very creditably in the food industry as a whole, better, in fact, than had been expected. Moreover, Tomkins as a whole boasted a 50 percent rise in profits. Nevertheless, the damage to Tomkins' reputation through its purchase of RHM purchase seemed to linger. Financial analysts remained skeptical and wary of Tomkins, and, in 1994, the company's share price had not returned to its pre-RHM high.
Continued Expansion
Some analysts attributed this problem to the fact that Tomkins was out of financial fashion. In the mid-1990s, not only was the food industry regarded as unpromising, but the concept of conglomerates was falling out of favor. "We keep on scoring goals," remarked Hutchings, "but still end up bottom of the league." According to the Guardian, however, such an experience was "nothing new for Mr. Hutchings, who has had difficulty in the past persuading skeptical investors that he knows what he is doing, is capable of doing it and will go on to do even more."
Nevertheless, Tomkins continued to seek new acquisitions, purchasing the Outdoor Products and Dynamark Plastics businesses of the Canadian Noma Industries in 1994. Tomkins intended Outdoor Products, which made and distributed lawnmowers and snowblowers, to enhance Murray Ohio's range of garden equipment as well as to help balance seasonal sales by offering a product used in the winter months. Dynamark Plastics, an injection molder, was integrated into the company's industrial products sector.
Fortified by a strong cash base, the company appeared set to continue its aggressive but selective acquisition policy. Despite faltering share prices and broker confidence, Tomkins entered the mid-1990s with a record of consistently growing profits every year since 1983, even during the worst of the recession. As Hutchings told Kirstie Hamilton: "There is really no difference between food and lawnmowers. It is about innovation, imagination, attacking costs and introducing new products."
Expansion continued in 1995, with the purchase of Gates Rubber Company based in Denver, Colorado. Gates, the leading manufacturer of rubber belts and hoses, was acquired in a $1.16 billion deal that gave Tomkins an even broader reach in the global market. In turn, the Gates family received a 15.7 percent stake in Tomkins. Profits in 1996 rose to $500 million, an increase of seven percent over the previous year. As such, Hutchings continued planning expansion with a keen interest in global growth in regions including India and China.
Changes in Business Operations
In 1997, Tomkins purchased Stant Manufacturing Inc., an automotive component manufacturer whose products included windshield wipers marketed under the Trico brand name. The firm also purchased Golden West Foods Ltd., a supplier to fast food chain McDonald's, to bolster its presence in the food services industry. That year, Tomkins secured substantial operating profits and began to buy back shares--a move that signaled a change in the company's strategy. Hutchings stated in a 1997 Milling & Baking News article, "We have to adapt to market conditions. We are in a bull market and it is harder to get a decent pay-back on a large acquisition, and harder to justify carrying a large amount of cash on the balance sheet."
Along with the repurchase efforts, another significant change in Tomkins' business style emerged in 1999. Since the mid-1990s, conglomerate-type businesses as whole had continued to fall out of favor throughout the United Kingdom, and Tomkins finally gave in to industry and shareholder pressure and began to change its operating structure. That year, the firm announced that it was going to streamline operations and focus solely on its core units in the automotive, construction, and industrial industries. As such, plans were set in motion to divest the firm's food businesses and garden-related units.
Tomkins entered the new millennium amidst radical change. In 2000, it sold its non-core units and continued to buy back shares. Hutchings, who had been at the helm of Tomkins for 17 years, resigned in October of that year after board members questioned his financial past with the company. According the Wall Street Journal, investors "hoped that Hutchings' resignation would speed up the company's restructuring efforts."
The disposal on non-core assets continued into 2001. The firm sold its Totectors Ltd. unit and put certain assets of its Gates business up for sale. The company also sold its Smith & Wesson business to Saf-T-Hammer Corp. for $15 million. Tomkins tried to buy back the Gates family interest in the firm as well. Board members eyed the family's partial ownership as a potential threat to restructuring efforts. The company's attempts to purchase the shares however, remained fruitless.
While the American economy was faltering, Tomkins' management remained cautiously optimistic about future gains--a large portion of its business was conducted in North American markets. In fact, over 90 percent of sales from its Engineered & Construction Products segment stemmed from operations in that region. Nevertheless, the company continued to strive to position its newly restructured business segments as leaders in their respective industries. Whether or not Tomkins' efforts would pay off in the future, however, remained to be seen.
Principal Subsidiaries: Air System Components (U.S.); Hart & Cooley (U.S.); Lau (U.S.); Penn Ventilation (U.S.); Ruskin (U.S.); Ruskin Air Management Ltd.; Aquatic Industries Inc. (U.S.); Cobra Investments Ltd. (South Africa); Dearborn Mid-West Conveyor Company (U.S.); Dexter Axle (U.S.); Hattersley Newman Hender Ltd.; Lasco Bathware (U.S.); Lasco Composites (U.S.); Lasco Fittings (U.S.); Mayfran America (U.S.); Mayfran Europe (Netherlands); Milliken Valves Company Inc. (U.S.); Pegler Ltd.; Philips Products (U.S.); Sunvic Controls Ltd.; Fedco (U.S.);
Gates GmbH (Germany); Gates Argentina SA; Gates Australia Ltd.; Gates do Brasil Industria e Comercio Ltda; Gates Canada; Gates Europe NV (Belgium.); Gates Formed-Fibre Products Inc. (U.S.); Gates India; Gates Korea; Gates Nitta Belt Company Ltd. (China); Gates Polska (Poland); The Gates Rubber Co. (U.S.); Gates Ltd. (Scotland); Gates Vulca SA (Spain); GNAPCO Pte Ltd. (Singapore); Ideal (U.S.); The Northern Rubber Co. Ltd.; Plews/Edelmann (U.S.); Schrader-Bridgeport International Inc. (U.S.); Standard-Thomson Corp. (U.S.); Stant Manufacturing Inc. (U.S.); Trico Ltd.; Unitta Company Ltd. (Japan).
Principal Divisions: Industrial & Automotive Engineering; Air Systems Components; Engineered & Construction Products.
Principal Competitors: Continental AG; Tenneco Automotive Inc.; United Technologies Corp.
Comment about this article, ask questions, or add new information about this topic: