Brompton, the UK’s biggest bicycle maker, has suffered a sharp fall in profits after inflation and supply chain risks reversed the fortunes of one of the country’s most notable corporate success stories during the pandemic.
The west London-based producer of folding bikes reported late on Thursday that the rising cost of parts and labour was weighing on margins, adding it would struggle to offset this with higher prices in a cost of living crisis.
Brompton has also warned of increasing costs due to Russia’s invasion of Ukraine, as well as plans to diversify its supply chain in Asia in the face of geopolitical tensions surrounding Taiwan, which has long been a key supplier of parts to the bike industry.
The red flags from Brompton are the latest sign of the troubles facing European industry. Last month, trade group Make UK reported that investment in British manufacturing was set to fall for the first time in nearly two years as its members cut spending.
But inflationary and supply chain shocks have had a particularly stark impact on Brompton, which only recently cashed in on rising sales thanks to a cycling boom during Covid-19 lockdowns.
The group said that revenues had continued to rise during the 12 months to March 2022, with the number of bikes sold increasing more than a third to 93,460. But this was more than offset by a 49 per cent increase in costs to £99.6mn, slashing pre-tax profits by almost a quarter to £7.3mn.
Pressure on Brompton has continued in the months since, as the Ukraine conflict drives up the cost of metals. Brompton announced the landmark launch of the UK’s first titanium fold-up bicycle only weeks before the war began between the countries, which are both suppliers of the lightweight metal.
“That restriction in supply out of Russia and Ukraine means that more people are going to China, the price of titanium is going up. So yes, that is a risk,” chief executive Will Butler-Adams told the Financial Times in December, as the company founded in 1976 prepared to announce the production of its millionth bicycle.
“You combine the raw material cost and the labour cost, I’ve never seen that in my career. It is extraordinary,” he said, adding that Brompton plans to offer staff a “cost-of-living [pay] rise” in March that will be higher than last year’s 5 per cent. “We are prepared to take it on the chin for another 18 months and if nothing has stabilised we will then have to put price rises in to try and recover some of that profitability.”
Separately, geopolitical tensions in Asia have raised questions about Brompton’s reliance on Taiwan, where up to 40 per cent of its supply base has been located. In August, the visit of then US House Speaker Nancy Pelosi to the island prompted China to launch unprecedented military exercises around Taiwan.
Butler-Adams said Brompton was diversifying its supply chain in the region, although he added this was part of a broad strategy and the group would continue to source from these countries while diversifying across Asia.
Source: Economy - ft.com
