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Rise of electric vehicles casts shadow over British foundry

Rise of electric vehicles casts shadow over British foundry

Rise of electric vehicles casts shadow over British foundry
May 28
15:23 2017

Chamberlin, the Midlands engineer and iron castings company, talks about “difficult things, done well”. It makes components for cars, mine turbines, crash bars for emergency exits and specialist lighting for danger spots. Difficult yes, but nothing like as tough as keeping the business going for 127 years. It takes a kind of heroism for small industrial companies to weather the constant changes in the market and commodity cycles.

Chamberlin started in 1890 as a Walsall foundry casting money boxes, toffee hammers and decorative door stops. It floated on the stock market in 1946 and moved to Aim earlier this century.

It is still a titch with a market value of £12m and makes below £1m in operating profit. Its balance sheet is lumbered with a pension deficit of £5m and debts of £6.8m, which will rise to £8m in the next year or so. 

At times, survival means taking big risks and making hard decisions. Recently that has meant no dividends for investors and millions spent on fending off competition. 

This year Chamberlin closed its Leicester foundry that manufactures mid-size castings for agricultural vehicles because it could not hold its own against lower-cost producers elsewhere, says Kevin Nolan, chief executive of four years. “It was only just profitable and it wasn’t sustainable. We made as much as we could while we still had work,” he said. Now the work has run out. 

Chamberlin’s Scunthorpe foundry, which makes heavy castings, looks only a little less precarious. It is just about breaking even but its revenues fell 9 per cent in the year to March, the company said last week.

However, Mr Nolan has convinced backers that Walsall is where the future of Chamberlin lies and the group’s shares have risen from 105p in April to above 170p — levels not seen since 2012. 

The board’s strategy revolves around the growth in turbochargers that make car engines smaller and greener. Chamberlin’s Walsall foundry manufacturers about 3m small bearing housing castings for turbochargers a year. That is worth about a quarter of the group’s £32m in revenues. But within two years, Chamberlin will be selling 5m housing castings a year, says Mr Nolan. Better still, recently installed machinery will polish up and finish its basic iron casts, fattening margins and boosting revenues to close to £39m by 2019.

That said, competition is fierce and the group will never have more than a nano-share of the turbocharger market. Currently 40m cars are fitted with boosters a year. 

And then there is the threat of electric vehicles, even if it is a long way off. UBS reckons that electric and hybrid vehicles will not make up more than 14 per cent of the world’s car market for another decade. 

For Chamberlin’s sake, let us hope so. But even if the pundits are wrong, it is difficult for Chamberlin to do more than fight the battle at hand. 

Redx redux

Last week shares in biotech hopeful Redx Pharma were suspended at 32.5p from the Aim after Liverpool City Council called in the administrators. The council, which extended a £2m loan to the company until March, wants its money back.

What a long way Redx has fallen from its 85p Aim debut two years ago when investors — including veteran venture capitalist Jon Moulton — put a value of £55m on Redx in expectation of it developing drugs to tackle cancers and antibiotic-resistant bugs.

It is an old tale of cash calls and disappointment. The company raised £12m in March even as it said it was cutting back and refocusing on oncology and immunology. Now the administrators will have to hunt down the cash.

The half-year numbers — published shortly before the administrators arrived — make intriguing, if gloomy, reading. They showed Redx’s pre-tax losses had widened to £10m and that there was £5m in cash left. But there was also a cash outflow of £3.7m covering an equity swap. This derivative contract was linked to an agreement with Lanstead Capital to shell out up to £4m in cash over 18 months in return for shares. 

Perhaps the administrators can strike a deal with creditors. Perhaps investors will stump up the necessary. But even if Redx is rescued from insolvency, shareholders who have invested so much money will be well out of pocket. That does not bode well for future biotech hopefuls looking to the market for funding.

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