Trading Statement

RNS Number : 2632E

Optare PLC

17 December 2009

 



Optare plc

("Optare" or the "Company")

Trading Update

Optare, the specialist bus & coach manufacturer, is pleased to provide the following trading update: 

Order Book and Market conditions

The Board is pleased to report that order intake in Q4 has been better than Q3 and the Company's order book has increased from £8.8m per our interim statement to £11.7m, providing a positive start for 2010. In addition the recently announced successful tenders under the Government's Green Bus Fund are expected to deliver over £12m of new orders for Optare's zero emission and hybrid buses. The Board expects the majority of these orders to be placed in 2010. 

As highlighted in the Company's interim statement released on 21 September 2009, market demand fell through Q3 to, what the Board anticipated to be, the trough of the UK market in Q4.  There continues to be a lack of visibility regarding medium term demand although the general feeling in the industry is that the relatively weak demand is expected to remain through 2010.  The main drivers for this weakness are the impact of rail franchises on the major groups and the lack of availability of finance for smaller operators.  Competition for the reduced volume of bus orders for major operators has also been particularly intense. Optare has worked hard to resist the downward pressure on pricing and margins and has preferred to rapidly downsize manufacturing capacity and reduce its breakeven point, rather than pursue loss-making contracts. However, as a result of this, turnover for the year to 31 December 2009 has been impacted.

Operations and cost reduction activity

Vigorous actions have been taken to further reduce the break-even point of the business to align manufacturing capacity more closely to current market demand. Head-count reduction has been made, from a peak of 913 full-time equivalents in February 2009 to 474 today, with a one off restructuring charge incurred in achieving this. Successful negotiations with trade unions has facilitated short-time working at the Company's Blackburn and Leeds plants.  Short-time working ensures retention of the key skills of Optare's experienced employees, and gives the Company the ability to rapidly increase output when demand increases. Significant progress has also been made reducing material costs through investment in tooling and transition to lower cost supplies. Investments in IT and Optare's partnership with after-market logistics provider, Multipart, have also helped reduce fixed costs across the business. 

Product development

Since the share placing in September this year, rapid progress has been made completing product developments. By not progressing to the next stage of the design and development of a future New Bus for London, resources have been fully dedicated to accelerate core product developments.  A range of demonstration vehicles has been built including dual-fuel, zero-emission and left-hand drive models for the export markets. The Optare Olympus, which will be the first double-decker built on Optare's own chassis, is progressing well and is ready for market launch in March 2010. Optare has also been successful as part of the 'Flybus' consortium with Ricardo, Allison and Torotrak in gaining funding to develop a new more cost effective mechanical hybrid system for the bus industry. Testing of Optare's new driver's console to aid fuel efficient driving of buses will now be completed before the year end and will be an available option for new buses and the retrofit market from the start of 2010. The opportunity has also been taken to invest in the Company's capability to satisfy the growing refurbishment market. This is a counter-cyclical business, with many operators now preferring to refurbish and also upgrade existing buses to low carbon technology rather than buy new buses in the current market conditions.

Net debt and financing

Following the placing of September 2009 the Board successfully renewed the Company's banking facilities and renegotiated more appropriate covenant levels. As stated above, investment has been made in product development and processes including completion of demonstration buses and marketing those vehicles at shows in the UK and Europe as well as reducing business breakeven point. Through "Optare Direct" success has been achieved supporting a number of sales in the current market. However, in a limited number of cases extended credit terms have been required to assist long-term customers to purchase buses.  In addition, with reduced volumes in the sector, pressure has been felt from an increasing number of financially weak suppliers to reduce credit terms, which in some cases it has been possible to move supply while also achieving reducing costs. Additional funds raised during the placing have also been used to support additional restructuring costs of £1.5m to further reduce the business break-even point.  Net debt is currently £8.2m, which the Board anticipate will be reduced by sale of the Rotherham site which is currently being marketed for sale. 

Strategic partnership

The Board is in active discussions with potential strategic partners. The Board strongly believes that entering into such a partnership will be a key part of Optare's strategy to realise the full potential of the business by benefiting from joint sales activity, new distribution channels, low cost sourcing and potential technology sharing.

Outlook 

The actions taken to further reduce the Company's break-even point has placed Optare in a strong position to benefit from a recovery in market conditions, which the Board does not expect to occur  before  the second half of next year. The Company has received an increased level of export enquiries to support sales outside the UK in 2010.

Jim Sumner, CEO,  after his first six months at Optare commented, "We have acted vigourously to bring our break-even point in line with declining market demand and also made significant progress on new 'Low carbon' product developments for UK and export markets as part of the turnaround plan. Both these strategies will position the business very strongly when market demand recovers and we are looking to the future with confidence."

For further information, please contact:  

Jim Sumner, CEO, Optare plc

Mike Dunn, CFO, Optare plc                 [phone]  

Camilla Hume, Cenkos Securities plc           [phone]  

 

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