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Funding uncertainty "may cast significant doubt" on Force India's future says auditor

NEWS STORY
09/11/2014

The future of Force India has been called into question by its auditors after it posted a 38.5m net loss last year according to an article in the Mail on Sunday by Christian Sylt.

F1 heads into today's Brazilian Grand Prix in crisis after Caterham and Marussia went into administration in October. On Friday Marussia's administrator FRP Advisory announced that the team had ceased trading and its 200 staff had been made redundant as a buyer could not be found. Caterham took the alternative approach of using crowdfunding to try and raise the 2.35m it needs to race at the season finale in Abu Dhabi later this month.

Their collapse was driven by the twin threats of the blockbuster budgets needed to fuel F1 teams and the sport's inequitable distribution of prize money which favours front-runners.

Force India currently lies in sixth place and was one of several teams which allegedly threatened to boycott last weekend's United States Grand Prix if talks didn't take place to stop more teams from going to the wall.

The boycott was rumoured in the Times newspaper but was never officially confirmed and has subsequently been denied by Force India's co-owner, Indian tycoon Vijay Mallya. The denial makes sense because if the team had sat the race out voluntarily then it is likely that its sponsors would have taken legal action for not getting the exposure that they paid for. In turn this could have caused the very collapse that the team has been fighting to prevent so the boycott theory seems fanciful at best.

Nevertheless, F1's boss Bernie Ecclestone hasn't ruled out further exits and said last weekend that the current tally of 18 cars "could go down to 14."

Although Mallya has a fortune estimated at 470m he has fallen on hard times as his Kingfisher airline has been grounded since 2012 due to debt defaults. He owns 42.5% of Force India with 15% in the hands of Dutch businessman Michiel Mol and the remainder held by Sahara, the conglomerate controlled by Subrata Roy who is currently in prison in India for contempt of court.

The trio's investment vehicle, Orange India Holdings, paid 17m to the team last year according to its accounts for the year-ending 31 December 2013. However, as can be seen from this page in the accounts, the team's auditor, John Corbishley of Grant Thornton, believes "there is no evidence available to us to confirm that Orange India Holdings Sarl will receive the continued support it needs from its shareholders and in turn that that continued support will therefore be available to Force India Formula One Team Limited. This material uncertainty may cast significant doubt about the company's ability to continue as a going concern."

F1 teams are in particular financial difficulty because, unlike most businesses, profit is not their hallmark of success. Instead, it is winning races which increases their prize money and raises the value of the team. They tend to spend almost all of their revenue in a bid for victory which leaves them with low profits and little money in the bank to rely on if sponsorship or prize money falls.

As F1 cars are designed the year before they race on track the accounts show how much Force India spent on its 2014 campaign. Its costs accelerated 8.7% to 90.7m which is around half the budget of last year's champions Red Bull Racing.

Two of Force India's biggest cost centres - spending on staff and research and development - both increased with each coming to 19.5m. It failed to boost the team's performance as it finished last year in the same spot it currently lies in the standings.

In contrast, Force India's revenue, which principally comprises prize money and payments from sponsors, reversed by 2.9m to 43.8m last year. The team's net loss widened by 5m on 2012 and it has driven the red ink to a total of 198.1m since Mallya invested in the business in late 2007.

His Swiss company Modall Securities is owed 8.3m by the team which was due to be repaid by the end of last year but the accounts reveal that an extension is currently being negotiated. Bank loans for an additional 10.8m, guaranteed by Mallya's company Watson limited and Sahara Adventure Sports, were due to be repaid by the end of last month putting further pressure on the team.

Its net current liabilities came to 49.1m whilst the shareholders' deficit nearly trebled to 33.8m. According to Corbishley, "these conditions indicate that the continued support of the company's parent, Orange India Holdings Sarl, supported by Watson Limited and Sahara Adventure Sports Limited, is necessary if the business is to continue as a going concern."

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1. Posted by Hondawho?, 10/11/2014 7:46

"Grant Thornton covering their ar*se by the sounds of it. Force India are either solvent or not. Stop whinging or get on with it. I suspect VJM cannot afford to carry on and is looking for an exit route. (Must be something to do with that hair cut!) This is a sport for leaders and racers, not so called "playboys"."

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