Japanese-owned manufacturer shifts strategy to higher-margin aftermarket sales
Air filter maker AAF is targeting higher margin work amid poor global economic conditions and the rise of alternative energy sources.
The Cramlington-based firm, part of Japanese multinational Daikin Industries Ltd, specialises in gas turbine filters used in the energy sector. It also offers aftermarket products and services as well as equipment for controlling emissions.
New accounts show the company, which employs about 127 people at its facility off South Nelson Industrial Estate, saw turnover slump from £34.5m to £21.7m in the year to the end of March 2025. Operating profit fell from £2.8m to £1.5m.
Bosses said the decline stemmed from a large, long-term project that inflated 2024 revenues compared with 2025, when the firm focused on shorter-term aftermarket projects. That area is now the target amid poor global economic conditions impacting key gas turbine markets. The new direction promises greater profitability and faster growth.
Directors pointed to growth in profit margin from 36.1% to 48%, partly as a result of revaluing foreign exchange contracts, but also thanks to renewed focus on short-term projects. Research and development spending fell from £1.37m to £1.19m, with resulting new products contributing to revenue and profits.
The firm will continue to invest in new facilities for developing and testing products. Investment in the latest engineering and design technology is needed to maintain its strong market position.
Writing in the accounts, 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 focused on the growing and more profitable aftermarket aspects of the business.
“As a result, AAF Limited has seen a continuation of profitability in the current year and continues to enjoy the support of ultimate parent company, Daikin Industries Limited, in working toward its long-term goals.
“The company has undertaken various initiatives during the year to enhance the working environment and employment conditions and to maximise its relationship with staff through increased internal communication, training and development and new processes, to ensure that it continues to attract the best employees.”
Last week activist investor Elliott Investment Management said it took a stake in AAF owner Daikin, wanting to work with the firm to improve its performance and valuation. The conglomerate’s track record of long-term growth suggested it was undervalued.
Elliott said there was an opportunity to “address the root causes of this undervaluation by announcing concrete measures to expand margins, improve shareholder returns and review its portfolio of non-core businesses.”