High prices, low demand prove tough for Airea

The Ossett, West Yorkshire-based company yesterday reported a year of slumping sales and profits.

Sale for the year to the end of June fell 6.5 per cent to £28.9m from £30.9m a year earlier. It made pre-tax profits of £192,000, down from £427,000 a year earlier.

But the company said it is confident of progress this year and proposed a final dividend of 0.5p per share.

“We’re very pleased with the progress we’re making in these core parts of the business but we’re finding market conditions very difficult and that is combined with very high raw material price inflation,” said finance director Roger Salt.

“Overall, our raw material price inflation is running at towards 20 per cent.”

Wool prices have “gone through the roof”, with Airea also seeing hikes in synthetic fibre prices. Mr Salt added while most of its commodity prices are starting to ease off, Airea is still seeing some pressure from higher resin prices.

The company said “given the fragile nature of the market it has been a challenge to increase prices”.

Its residential business bore the brunt of tough markets, said Airea, with fragile consumer confidence and low housing activity dampening demand.

Strong deliveries to major retail refurbishments and public sector new build programmes helped its contract arm compensate for weak demand in general maintenance and refurbishment markets, it added.

“Airea operates in two of the most difficult market sectors,” it said.

“Hard-pressed consumers faced with higher direct and indirect taxation, soaring inflation, and job insecurity faced with stark choices to make in almost all areas of their everyday life are, not surprisingly, reluctant to spend money on high ticket items for the home.

“The construction sector generally remains in the doldrums, and Government-imposed public sector expenditure cuts are depressing some of our core, traditional contract markets.”

The company said it sees “another year of challenging trading conditions”. But Airea added its strengthening product portfolio, new channels to market and flexible manufacturing give it scope to exploit opportunities. The company ended June with £3m cash.

“Despite the pervasive sense of economic gloom we remain optimistic about the future,” said Airea.

The manufacturer added its sales into Poland are now well established, and it is looking to expand its strategy of direct sales to contractors and distributors in other eastern European markets. It makes about 14 per cent of sales internationally and aspires to reach 50 per cent.

“We are having to cast our net a bit wider now and are improving links with India and South Africa,” said Mr Salt.

He added Airea is also improving efficiency to cut costs, as well as considering substitute raw materials. “It’s more on improving yields than looking for reductions in manpower,” he said.

However, the company slimmed its workforce to about 260 by June, down from almost 300 a year earlier. Mr Salt said the tough market has also piled pressure on rivals, but does not expect a wave of administrations.

“There’s a bit more discipline to the market,” he said. “(But) I do not see huge administrations. I would expect that people are going to work on cutting their capacity.

“Managements that are still left in this industry are pretty adept at cost-cutting and getting businesses into shape.”

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