MG Rover cuts losses to £111m but profits still two years away

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MG Rover warned yesterday that it did not expect to make a profit until 2005 after reporting a loss of £111m last year on its principal car-building operations.

Kevin Howe, MG Rover's chief executive, said the Longbridge-based car maker would not reach "true profitability" until it launched a new medium-sized model to replace the Rover 25 and 45 ranges. The target date for that had been 2004 but the termination of MG Rover's partnership with China Brilliance and the collapse of one of its key engineering contractors, the sports car maker TWR, have delayed the new model by a year.

MG Rover's parent company Phoenix Venture Holdings - the consortium of the Midlands businessman that bought the car maker from BMW for a symbolic £10 three years ago - reported a halving in losses last year from £187m to £95m. The £111m loss at MG Rover compared with a £175m deficit in 2001 and was offset by profits from the group's parts and Powertrain engine divisions and property sales.

The loss at MG Rover would have been £11m higher had it not been for payments to the company from China Brilliance before their joint venture arrangements collapsed.

Net cash in the business increased from £301m at the end of 2001 to £315m in December, 2002. However, MG Rover's cash position is likely to deteriorate this year because payments to the group from the £500m dowry it received from BMW ended in May last year with the final tranche of £77m.

Mr Howe said he expected the group to cut its losses further in the current year. Sales volumes this year are expected to be slightly above the 148,500 achieved in 2002 - a year in which the strength of sterling against the euro led to a one-third drop in exports to Europe. However, sales will be boosted by MG Rover's new small car, the CityRover, which is being built by Tata of India and is due to go on sale in the UK very shortly. MG Rover hopes to sell 35,000-40,000 of the cars next year.

MG Rover said it was talking to Tata "with a view to expanding collaboration on a wide range of commercial opportunities". However, the prospects of the company concluding a deal with Poland to build the 25 and 45 under licence in a former car plant in Warsaw appear to be receding.