20/04/2009
NEWS STORY
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We have all wondered how different things would be if certain drivers or owners weren't involved with their respective teams. Would Schumacher have been as successful in a McLaren? Would McLaren have survived without the support of Mercedes? These questions are all historical speculation of course but Pitpass' business editor Chris Sylt is on hand to answer a very real current question: what would happen if Vijay Mallya and his Dutch business partner Michiel Mol stopped supporting Force India. The result isn't pretty.
Writing in the Sunday Express, Sylt reveals that in Force India's latest accounts, the team's auditor Grant Thornton says that "the continued support of the group's parent, Orange India Holdings Sarl is necessary if the business is to continue as a going concern." Mallya and Mol own Orange India and Force India is proving to be a huge drain on their finances.
The team filed its accounts around ten days ago - six months after the deadline. There's not much good news in them. In the year-ending December 2007 Force India's after-tax loss plummeted 40% to £12.5m as its revenues reversed by 22% to £29m. It is a staggeringly-small sum which works out at around a quarter of the revenues of F1's biggest teams such as McLaren and Renault.
The level of funding shows in the results as the team has finished last in the championships for the past two years. It was acquired by Mallya and Mol in October 2007 and the accounts say that the financial results "reflect a period of transition following acquisition." They also make a lofty prediction of success saying that the team has "a clear ambition for podium finishes before the proposed Indian Grand Prix in 2011."
The FIA's cost-cutting measures should help the team become more competitive but it doesn't look like they have had any effect yet since so far this season Force India has once again taken its place at the bottom of the standings. How long Mallya and Mol will be prepared to fuel this kind of performance remains to be seen.
Force India's accounts were signed off on the 3rd April 2009 and they say that "Orange India Holdings Sarl has confirmed that it will provide the company with sufficient funds to enable the company to meet its liabilities as they fall due for a period of at least 12 months from the date of signature of these financial statements." However, the auditor sounds a word of caution.
Orange India is an offshore company located in Luxembourg and Grant Thornton says that "the lack of publicly available information about that entity gives rise to a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern." The team doesn't have enough reserves to keep it going for long without funding from its owners.
Force India has just £509,000 cash in the bank and in 2007 its liabilities exceeded its total assets by £47,032,000. It also has net debt of £49.5m which is mainly comprised of a £48m loan from Orange India. Buying the team cost Orange India $124m but it has left its owners with a shareholders' deficit of £47,032,000, down from £34,536,000 in 2006.
The shareholders aren't the only ones to have felt the thin end of the wedge though. Force India's employee numbers increased by 16 to 254 in 2007 but their total pay went down by 21% to £9,016,000. Given the cost cuts coming into force in F1, it could be a sign of things to come.