Manganese Bronze says taxi recall to hit cash flow
- 12 October 2012
- From the section Business
Manganese Bronze, maker of the London cab, has suspended sales of its taxis and recalled 400, warning of "a very detrimental impact" on its cash flows.
Its only current model, the TX4, suffered from a defective steering box.
"Until such time that a technical solution is developed to rectify the fault, the financial position of the Group remains unclear," the firm said.
The problem arose in a new design for the box sourced from an unnamed new supplier since February.
Trading in the company's shares has been suspended.
The problem, affecting the vehicle's power steering, was first picked up two weeks ago.
"We had two cases reported of peculiar steering characteristics," chief executive John Russell told the BBC.
He said that in neither incident was anyone actually put in danger or hurt, but "in extreme cases, it could affect the ability to steer the steering wheel. It became clear that we have a safety risk there."
He did not know how long it would take to fix the fault or what it would cost.
The company does continue to generate some cashflow from its other businesses, which include car parts and used cars.
The supplier was a Chinese firm introduced by Manganese's Chinese partner Geely.
Manganese and Geely signed a joint venture agreement in 2006 and own a factory in Shanghai that produces taxis for the international market.
Mr Russell conceded that it was possible the fault might also affect vehicles at the Shanghai plant - something they are currently investigating, although there has been no recall of vehicles from that plant yet.
The company is working with Geely to find a technical solution and to address Manganese's short-term cash needs.
The company currently has £11.4m in net debt from HSBC and Lloyds, as well as from Geely.
The company was already in some financial difficulty before the latest problem emerged.
Sales have been in decline - the Coventry-based firm sold 1,502 taxis in the UK last year, compared with 1,653 in 2010, a fall of 9.1%.
In January, Manganese Bronze had to issue a profit warning, saying that it had made no profit in 2011 and could fall short of expectations this year.
The group blamed the weak UK economy, uncertainty over the global economic outlook and a delay in fulfilling an order for 1,000 taxis from Azerbaijan.
For the first six months of 2012, Manganese Bronze recorded an operating loss of £3.1m on revenues of £34.3m.
Then in August, it discovered an accounting error had caused it to understate past losses by a total £4.25m.
The company's shares were last quoted on the stock exchange at 10 pence each, down from 35p a year ago.
Much of the company's shares are closely held: Geely owns 20%, while another quarter is owned by UK asset manager Toscafund.