Air filter manufacturer AAF has reported a significant drop in revenue as it pivots towards higher-margin aftermarket sales, citing poor global economic conditions and the rise of alternative energy sources.
Financial Performance
The Cramlington-based company, a subsidiary of Japanese multinational Daikin Industries Ltd, saw turnover slump from £34.5 million to £21.7 million in the year ending March 2025. Operating profit also fell, from £2.8 million to £1.5 million.
However, the company's profit margin rose from 36.1% to 48%, partly due to revaluation of foreign exchange contracts and a renewed focus on shorter-term projects. Directors explained that the previous year's revenues were inflated by a large, long-term project, while the current year reflects a shift towards aftermarket work.
Strategic Shift
AAF specialises in gas turbine filters for the energy sector, along with aftermarket products and emission control equipment. The company now aims to concentrate on more profitable aftermarket sales, which it believes will drive greater profitability and faster growth.
Research and development spending remained robust at £1.19 million, down from £1.37 million, with new products contributing to revenue and profits. The firm also plans to continue investing in new facilities for product development and testing.
Director's Statement
Director Ian Creasey said: "AAF Limited will continue to concentrate on the most profitable areas of business and drive the benefits of new products whilst maintaining strict cost control and establishing further efficiencies in project execution. Resources are focussed on the growing and more profitable aftermarket aspects of the business."
He added that the company has seen continued profitability and enjoys support from its parent company, Daikin Industries, in working toward long-term goals. Initiatives to enhance the working environment, training, and staff communication have also been implemented.
Investor Activity
Last week, activist investor Elliott Investment Management disclosed a stake in Daikin, aiming to improve performance and valuation. Elliott stated there was an opportunity to address undervaluation by expanding margins, improving shareholder returns, and reviewing non-core businesses.
