The future of historic British motor marque Lotus has been called into question after the company made a £167.8m net loss in 2013 writes Christian Sylt in the Daily Telegraph.
The Norfolk-based manufacturer is an official partner of the eponymous Formula One team but it does not own a stake in it. Being a partner is not the only connection between the two as Proton, the Malaysian company which owns Group Lotus, is understood to have given the team a £35m loan in 2012 so the health of the manufacturer could have consequences for F1.
There is a long-standing joke in the motor industry that Lotus stands for 'Lots Of Trouble Usually Serious' and that couldn't be a better description of its financial predicament.
In the year to 31 March 2013 its car sales crashed by 40% to just 1,177. Engineering revenue reversed 37.5% to £22m giving Lotus total turnover of £89.9m whilst costs accelerated 4.6% to £250.6m. It left the company with a shareholders' deficit of £111.4m and led to it breaking its banking agreements.
During the year Lotus secured a £270m bank loan and one of its key conditions was that the company had to maintain positive shareholders' funds. Breaching this forced the management of Proton into negotiation with its bankers and the lead lender agreed to waive the condition until 31 March 2014.
Proton is planning to re-finance Lotus' debt to smooth the road ahead but its deputy chief executive Lukman bin Ibrahim says that until this has been completed, "there is a material uncertainty which may cast significant doubt over the group and the company's ability to continue to operate as a going concern."
He adds that 2013 "was a challenging year for the group. Whilst it continued its plans for the development of new exciting future products, the performance of the group was restricted by the continuing weak market conditions, fragile consumer confidence, increased competition and cost pressures leading to increased operational cost."
The finances of the Lotus F1 team have also been going downhill and in the year to 31 December 2012 alone it made a £56.8m net loss. However, ironically, the car company isn't paying the team, it is being paid by it.
Despite being named after Group Lotus the team has never been owned by the British marque and instead its majority shareholder is private equity firm Genii Capital. In 2011 it was revealed that Group Lotus had an option to buy a 50% stake in the team but this didn't last for long.
In April 2012 Genii's founding partner Gerard Lopez announced that the "option was taken over by us. There was one, but we have taken it over now." Crucially, he added that "the sponsorship agreement and the obligations of Lotus have been terminated... We are happy to carry the Lotus name as we believe it is a good name for F1."
Group Lotus seems to have got an extremely good deal as last year its logo was displayed prominently on the rear wing and nose of the F1 cars. It is still even listed on the team's website as being an 'Official Team Partner'.
Although Group Lotus' sponsorship of the team was terminated, Proton entered into a new agreement with it. In March 2012 it was revealed that Proton had given the team an estimated £35m loan which is secured on "all plant, machinery, show cars, computers, office and other equipment... and... Whiteways Technical Centre [Lotus F1's headquarters]."
So, to recap, Group Lotus got logos on the cars and status as an official partner whilst the team lost the space on the cars, lost the revenue under the sponsorship agreement and also has to pay back a loan to the manufacturer's owner. It still wasn't anywhere near enough to propel the car company into profit.
In 2013 it laid off 201 staff and burned through £2.6m of its cash reserves leaving it with £15m. Some of the most badly hit were its suppliers which include tool manufacturers, haulage firms and raw material providers. Last year the company's creditors were paid an average of 155 days late up from 154 in 2012.
Despite its financial predicament, the car company has been investing in the future and last year its research and development costs came to £96.2m which alone was more than its entire revenue.
"Lotus Cars will focus on maximising sales of its current Evora, Exige and Elise offerings which will be further enhanced by future variants," says bin Ibrahim adding that "the substantial investment needed to implement the strategies will impact the financial position of the group in the short term but once the transformation has taken shape, the group will be on a much stronger footing operationally and financially." Time will tell whether that happens.