Manganese Bronze issues profit warning

BLACK cab manufacturer Manganese Bronze (MBH) has warned shareholders it is unlikely to make a profit this year due to the unstable nature of the recovery and fluctuating sales of the iconic vehicle.

In a statement to today’s AGM the Coventry firm said a number of projects aimed at steering the company back to profitability were being implemented but these would take time to develop.

“The projects and initiatives to return the group to profitability are making good progress,” said the statement.

“These include UK assembly, restructured UK dealer network, Chinese supply of parts, TX4 international sales and new vehicles and services.”

However, it added: “The timing and full implementation of these, taken together with exceptional initial costs, mean the group is unlikely to be profitable in 2010.”

Looking ahead, the firm said it was confident its link with its Chinese partner, Geely would lead to improvements.

“The direct and indirect opportunities arising from our Chinese joint venture give the group confidence to endure what we believe will be a continuing difficult UK market in 2010,” added the statement.

A placing of shares with the Chinese company is likely to strengthen MBH’s capital base and allow the group to tap into the Asian market where major opportunities for growth exist.

MBH has endured a rollercoaster ride in the first four months of the year with sales of its iconic vehicle ebbing and flowing.

The firm said the fluctuating sales were evidence of the fragile nature of the recovery.

Sales in the UK at the end of March were 4% up on 2009 at 473 vehicles, compared with 455 vehicles in the same period last year.

However, by April the sales were down 6% at 553 vehicles, compared with 588 vehicles in the corresponding period last year.

It said trading in April had been particularly disappointing, probably due to cab drivers suffering lower earnings because of the disruption to travel caused by the volcanic ash cloud grounding all UK flights for six days.

This was in addition to the end of the Government’s scrappage scheme and the introduction of the new showroom tax which has added almost £350 to the cost of a new vehicle.

Overall vehicles sales for the four months to the end of April are down 10.9%, to 623 vehicles versus 699 vehicles in the comparable period last year.

“This performance is broadly in line with our expectations but the current level of weekly orders is lower than our expectations,” said the firm in the statement.

The weakness of Sterling continued to have a negative effect on earnings which in turn, has increased the cost of engines purchased from Italy.

However, it said this situation was improving, with earnings being positively impacted by a series of new initiatives.

These include the closure of the North American business, UK cost savings, a move to UK assembly only, a restructuring of the UK dealer network, the supply of parts from China and improving international sales of the TX4 cab.

In the first quarter, on a management accounts basis, the group generated earnings before interest, tax, depreciation and amortisation (EBITDA) of £0.3m, which compared with an equivalent loss of £0.6m in 2009.

In March, the group announced it would cease production and e-coating of body panels and chassis in Coventry during 2010.

A consultation on this is complete and will result in approximately 60 redundancies, the cost of which will be £0.8m. This will be incurred in the second half and recorded as an exceptional item.

In addition, the firm is also to write off TX4 tooling and presses with an exceptional impairment of £2.7m.

Once the manufacturing operation ceases, body kits and panels will be imported from China and assembled in Coventry.

The move is expected to save the group up to £4m a year.

Savings of £2m are likely from the restructuring of its dealership network.

It said other cost reduction strategies, such as sourcing Chinese-made parts, were progressing well and could lead to manufacturing costs being reduced by up to £2,000 per vehicle and £4m annually.

The group said its banking relationships remained good with total unutilised facilities of £2.7m as of the end of April.

The share placing with Geely will fund vehicle assembly, the future saloon car taxi (TXN), distribution activities and accelerate growth in the firm’s business plan.  

The placing will lead to a Geely becoming a majority shareholder in MBH, which the Coventry firm said was in the best long term interests of all shareholders.

A prototype of the TXN was shown by Geely at the Beijing Auto Show in April and received a positive reaction.   The vehicle is expected to be available for sale in China in 2012 and Geely has confirmed the saloon will be sold by Manganese Bronze in all territories outside of Asia.   
 
The company’s transfer to the Alternative Investment Market from June 14 is expected to be ratified at today’s meeting.