UK: Independent Daikin distributor Space Airconditioning saw its turnover fall by nearly two-thirds in just 10 years following the formation of Daikin UK, the administrator has revealed.
The report into Space’s collapse last November, with debts of £3.5m, documents the negative effects on the company of increased competition, the vagaries of a fluctuating construction market and MD Neil Afram’s attempts to save the company.
Formed in 1980, as one of the “big five” UK Daikin distributors, Space Airconditioning helped carve out a huge UK market for Daikin and its, at the time, revolutionary VRV technology. In 2003, with UK sales representing around 20% of Daikin Europe’ turnover, the Ostend-based supplier sought to absorb its UK distributors. At the time, Space Air with a turnover of over £28m was the only distributor to retain its independence.
At first the company appeared to benefit from its independence, but a downturn in the construction market saw turnover fall from £29m in 2007 to £25m in 2008. This was a precursor to further falls due to increased competition which saw turnover fall to just £11m in the last full year’s management accounts in 2015.
Profitability had become a problem from 2012 and was exacerbated by significant overheads, with annual rent and rates, alone, on its 50,000ft² offices and warehouse in Guildford costing £700,000 a year.
Founder and MD Neil Afram sought to prop up the company with a personally-guaranteed loan of around £400,000, but the decision which would come back to haunt him was the change made to the financing of stock purchases from Daikin.
Just weeks before the UK’s European referendum vote, and in an effort to benefit from the favourable exchange rates experienced during 2014, 2015 and the first half of 2016, the decision was taken to switch from purchasing Daikin stock in pounds to euros. The consequence of the Brexit vote brought exceptional exchange rate movements, resulting in significant increases in the cost of stock and a significant increase in exchange rate losses.
Concerned at the continuing viability of the business, Neil Afram entered into negotiations with Daikin with a view to the manufacturer purchasing the business. Based on Daikin’s confirmed interest, Lloyds Bank Commercial Finance continued to provide facilities to the company during the months of negotiations. However, on November 7, 2016, and despite being owed over £1.4m, Daikin advised that it was no longer interested in purchasing the company and ceased all negotiations.
Four days later, the Cooling Post first reported that Space Airconditioning had ceased to trade. Matthew Wild and Terence Jackson of Guildford-based RSM Restructuring were appointed joint administrators on November 18.
Last week, its was announced that Neil Afram had formed a new company, Space Air Ltd, as a distributor of LG air conditioning equipment.