2009/2010 - The Industry Review and Preview - Rob Laughton, Aerco

Top industry executives set aside their holiday shopping when the Disti Blog questions landed on their desks so we can all learn about their views on just how bad it was in 2009 and whether there are any portents for fairer climes in 2010. I'll keep these on top of the posts right through the holiday until the New Year so you can dip in and out if you don't fancy reading them all in one go.

Rob Laughton, Managing Director, Aerco

 

Review 2009 for us. As awful as it looked or not as bad as painted?

In truth, 2009 has been a reasonable year for us.  Last year we achieved sales of £10.5m but we set a budget for 2009 of £10m expecting things to be tight.  In fact it looks like we will achieve sales of close to £10.5m and have grown our open order book by £1m.  Our gross margin is always under pressure and has been falling over the past five years although we are working very hard this year to increase it slightly to 32% from last year's 31%.  The company's net profit before tax is expected to be just over £0.5m, the same as last year.

How do you view prospects for 2010? Do you foresee any hurdles to the potential growth next year e.g. a double dip recession, lengtehing lead times.

Aerco is a distributor that concentrates on building franchised partnerships with component manufacturers and we have 35 franchises.  These partners are telling us that their business levels are down on last year, and that Aerco is performing better than many of their other distributors.  We also believe this to be the case, with the larger broad line distributors coming under the greatest downward pressure on levels of business.  These companies are seeking to maintain sales through acquisition.  Thus, Avnet acquired Abacus while on a smaller scale Acal are acquiring BFI Optilas.  The proportion of the total market for electrical and electronic components that is sold through distribution channels is gradually increasing and this, of course, is helpful.

What would make life easier in 2010?

 All of us involved in the distribution of electronic and electrical components are competing to service an industry (manufacturing capital equipment) that is in constant decline in the UK, so fallout of companies and margin pressure is inevitable.  This year the cash flow situation for many companies in the market, both distributors and their customers, is dire.  Company failures are growing alarmingly and good credit control is vital to maintaining profitability.  If you lose £25k that is due from a company that goes bust you have to add £100k to your sales just to stand still.

 Aerco has been protected to some degree by our significant presence among the defence and aerospace manufacturing companies.  These companies work on very long term contracts, and react more slowly to market contractions.  However, it is very clear that from 2010 and onwards they will be badly affected by UK Government budget restrictions no matter which political party is in government.  Any company supplying a business that relies on government funding is going to have real problems over the next few years.

What will make 2010 exciting for your company?

 So, looking forward to 2010, yes it will be exciting.  The strong companies will continue to slug it out in a market that continues to contract while the weak distributors, large or small, will fail.  We plan to continue to grow organically by winning market share, and are prepared and ready to grow through acquisition when the right opportunities arise.