AES Engineering sees 32nd year of profit growth, but sales hit by currency movements

Chris Rea
Chris Rea
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AES ENGINEERING has reported its 32nd year of consecutive profit growth, but sales dipped as the Rotherham-based group felt the effect of adverse currency movements.

Sterling strengthened against the vast majority of the major and minor currencies of the 37 countries in which the manufacturer does business.

Through conversions, the group lost £2.7m on the South African rand, £1.7m on the US dollar, £498,000 on the Brazilian real and £666,000 on the Argentinian and Chilean pesos, by way of example.

The parent of AESSEAL said revenues fell 3.1 per cent to £142m in 2014. Stripping out the effects of exchange movements, it said like-for-like sales rose 2.7 per cent.

Chris Rea, the founder and managing director, told The Yorkshire Post: “Our business would be vastly smaller if we didn’t export. (Currency movements are) one of the risks but there’s lots of rewards.”

AES Engineering hedges its currency exposure so impact on profit is minimal. Earnings before interest, tax, depreciation and amortisation rose six per cent to £25.2m. The group paid out a dividend of £2.41m to shareholders.

Mr Rea is the majority shareholder, while private equity firm 3i has a significant minority in one of its longest-held investments.

Mr Rea is one of Yorkshire’s most successful entrepreneurs and has described himself as “very demanding”, most of all on himself.

He said: “Trading performance was anaemic. We failed to provide sufficiently compelling reasons for new customers to give us an opportunity.”

He admitted that he may have been distracted. Last summer, he took a significant stake in Surgical Innovations, the Leeds-based medical devices maker, and was appointed interim managing director in October.

AESSEAL is the world’s fourth largest designer and manufacturer of mechanical seals for industries including oil and gas, food, water, mining and pharmaceuticals. The group employs more than 1,650 people worldwide, including 680 in the UK and Ireland and more than 350 in Rotherham, home to the headquarters of its global technology centre.

Mr Rea said the group has seen a massive improvement in performance productivity following investment in new machinery.

It spent nearly £5m on capital investment last year, following an investment of more than £8m in 2013. Investments included three second-hand machine tools worth £2.4m, bought at a vastly reduced price from one of the major racing car manufacturers.

The group has also brought home some assembly operations from China to the UK over the last four years.

Mr Rea said that wages might be lower in low-cost countries, but the capital cost of equipment is the same and those countries fare less well on quality control and staff retention.

Following concerns about the impact of this on the brand and reputation of AESSEAL, he decided to move the operations to Derby.

In the annual accounts - filed yesterday - AES Engineering said it continued to strengthen its operations globally and in particular in the growth markets of the Middle East and South East Asia.

The group said that following heavy investment in product development it now has a complete range of mechanical seals and is able to compete on a level-playing field against its larger competitors.

Stephen Shaw, group engineering director, said: “Our investment in research and development over the last few years has put our product range at the forefront of mechanical sealing technology.”

Tenacity and grit

Chris Rea founded AESSEAL in 1979 when he bought a small business and through a mixture of tenacity, grit and clever hiring and investment decisions transformed it into a global player.

Speaking about his export philosophy in 2011, he said: “You go, you talk to people, you listen to people, they tell you what they want, you listen and if you can do it, you give them what they want.”