17/02/2010
NEWS STORY
After back-to-back years of losses F1 analysts expected Williams to part with a stake in the team and that day came in November last year when it was announced that 38 year-old Austrian Christian 'Toto' Wolff would take a minority holding in it. It was another step in getting Williams on the right track but as Pitpass' business editor Chris Sylt explains, it looks like it still has an uphill climb.
According to team principal Frank Williams the reason for selling was personal. "It's entirely for private motives," he said explaining that "it's time to take care of some other needs and pay a few bills - my mortgage, for example."
Williams added that "I have no intention of stopping my involvement in this company or of ceasing my Formula 1 activities... I cannot stress highly enough that Toto is a minority shareholder. The company is still under my control and I will not relinquish control of the business until I go completely."
Prior to the deal with Wolff the team was 70% owned by Frank with 30% in the hands of engineering chief Patrick Head. However, perhaps strangely, the precise details of Wolff's stake in the team have not been revealed. When Williams was asked whether he had sold more equity in the team than Head, he replied "the shareholding is of a certain ratio and the sale more or less follows that. I don't want to go into too many details because our new partner is a fairly conservative-minded businessman."
This seems strange because, unless the team's holding company moves offshore (which would in itself be an unusual move), the details of Wolff's share will be revealed when its next annual return is filed. Indeed, documents filed with the UK's Companies House have shed more light on the finances of Williams over the past few years than perhaps any other source.
Things began to look bleak in 2006 when the team recorded a whopping £27.7m loss after tax following a troublesome 12 months both on and off the track.
In a dramatic turnaround from 2005, when Williams made a £29.5m profit, turnover in 2006 was down by 30.6% to £58.1m. The team used its retained earnings from previous years to support its expenditure, with its cash in the bank dwindling from £20.8m to just £30,000.
Williams won 16 world championships in the 1980s and 1990s with drivers such as Nigel Mansell. However, the changing financial climate of F1 left what was once one of the best-sponsored teams struggling to match the pace of its rivals.
At the end of 2005, Williams lost both its engine supply deal with BMW and a major sponsorship from computer giant HP. With no replacements lined up, the team spent an estimated £10m buying in engines from Cosworth. It took desperate measures to get through this with Williams and Head taking an £800,000 pay cut.
Williams should have been able to follow it up with a banner year in 2007. True, the team lost Budweiser, Castrol and Mobilecast from its sponsorship roster but it gained Air Asia, Lenovo and AT&T as title partner. However, even this couldn't stop the flow of red ink as Williams' net loss hit £21.4m, an improvement of just £6.3m on the record deficit the previous year. The problem is that it simply didn't make enough money.
Revenues increased 14.6% to £66.9m but the team's costs spiralled beyond this and hit £88m. Williams plugged the gap with a lifeline from an unexpected source. Despite troubled bank Royal Bank of Scotland (RBS) being one of its sponsors, Williams took out a loan from its rival Barclays during 2007 which trebled the team's net debt to £24.7m.
Over these two years Williams burnt up losses of £50m and in October 2007 the team's communications manager Liam Clogger joked that he was happy to keep one journalist "on the Christmas card list if Williams can muster sufficient reserves in December to buy some of Oxfam's finest."
To cut costs, Williams and Head took an £800,000 pay cut for the second year running and the team also saved £1.4m by scrapping 14 jobs with the bulk coming from R&D and production. The team's cash in the bank decreased by 60% during the year with just £13,000 left at the end of 2007.
The accounts showed that the persistent losses had more than halved shareholder funds since 2006 to only £15m by the end of the following year. In an article printed on 13 October 2008 Sylt wrote that "theoretically this should make the team a ripe target for takeover." Although a majority stake did not change hands in the recent deal it was a sale which was a long time coming.
In 2008 Icelandic investment firm Baugur was tipped to buy into the team but instead increased sponsorship from its brands such as Hamleys. The economic crisis unravelled Baugur itself putting paid to both its alleged bid for Williams and its sponsorship of the team. Williams would have had every right to be disgruntled by this and so it was little surprise to read on 20 December last year that the team is demanding £10m in unpaid sponsorship from the collapsed Icelandic bank Glitnir following a guarantee made by the bank in 2008 to fulfil Hamleys' obligation after Baugur failed to pay up.
It didn't look like Williams would be on track for a good year financially in 2008. In April 2008 it announced that it had acquired a minority shareholding in Automotive Hybrid Power, a company which specialised in developing composite flywheels for use in energy recovery systems. This came at a cost of course but it looked like being a good investment for the future with KERS being introduced last year. With hindsight it doesn't seem such a wise move as the teams have agreed not to use KERS in 2010.
Williams' chief executive Adam Parr gave some reassurance when he said at the end of 2008 that "we're among the best equipped to handle the economic crisis." It was a bold boast given that only a short while before then McLaren boss Ron Dennis had said that he expected his team to lose a third of its revenue due to the downturn. That's a team which was world champion and is owned by a sovereign wealth fund and a billionaire. So how did Williams manage to stay on track? Part of the answer had nothing to do with its ability to raise sponsorship.
If anyone ever thinks that F1's chief executive Bernie Ecclestone favours the top teams then think again. In 2008 Ecclestone advanced Williams a share of a £14.5m prize pot after it committed to stay in the sport until 2012. A total of £130m had been set aside as an incentive for F1's teams to sign a new Concorde Agreement which they eventually did last summer.
However, although a Concorde Agreement had yet to be signed, Williams' chief executive Parr admitted to Sylt in January 2009 that the team had already received its share of the money from 2006 and 2007. "It's a prepayment," added Ecclestone explaining "they are entitled to some back-payments only due for payment when they sign the Concorde...we said to them we will pay you now."
Although he lacked a Concorde Agreement, Ecclestone had some security since Williams had signed a legally binding agreement to remain in F1 until 2012. Parr says that the bargain was struck in 2005 and given the state of the team's finances then it was well-timed.
The windfall from Ecclestone saved Williams from running into loss for a third year running and made its finances look much more attractive. It is perhaps unsurprising that Toto Wolff snapped up his stake in the team just over two months after auditor Grant Thornton signed off Williams' accounts to the end of November 2008.
Fuelled by the payment from Ecclestone and increased sponsorship from Baugur, Williams' turnover in 2008 accelerated 88% to £125.6m and the company turned its £21.4m pre-tax loss from 2007 into £9.2m pre-tax profit. Frank Williams said that the revenue boost was "driven largely by improving sponsorship income and increased revenue from the commercial rights holder of Formula One." Without it the team would most probably have raced into the red. Instead, it made a £17.6m operating profit but it wasn't able to put much of it away.
Williams used its profits to repay £14.7m of its loan from Barclays. With the debt paid down Williams was able to renew its loan facility to see it through this year. However, it made a £6.2m foreign exchange loss on borrowing, and also ran up a £9.3m overdraft, which led to its net debt rising £800,000 to £25.5m despite it paying down the previous loan.
The renewed loan facility itself gives Williams liquidity to enable it to meet its finance obligations. As Williams says, "following the recent renewal of its finance facilities the company fully expects to be able to meet its operating and financing commitments during the remaining term of the loan."
The loans and overdrafts are secured on all of the team's assets and in a bid to cut costs from the top, the highest-paid director, believed to be Frank Williams, took a pay cut for the third year running with his pay falling from £1m to £975,000.
Last year Williams finished seventh in the standings, compared to eighth in 2008, and this will translate into a little more prize money in 2010. However, its 2009 results may not be as sparkling as last year's. Not only has the team lacked another windfall from Ecclestone but it also had to repay £15.8m of its bank loans and overdrafts by the end of last year. To make matters worse, according to F1's industry monitor, Formula Money, its sponsorship revenues in 2009 are believed to have been 28% down on 2008.
Last year Williams is thought to have lost more sponsorship than any other team. The departures of Baugur, IT-firm Lenovo and Brazilian oil company Petrobras alone cost Williams an estimated £27m in sponsorship. It then suffered another shock when its biggest backer, RBS, announced that it too will be pulling out of F1 at the end of 2010. Last year, RBS signed a new three-year deal, which is believed to bring Williams £12m annually, but the bank was effectively forced to pull out once it fell into public hands. Replacing this kind of money in the current economic climate will presumably be no easy task but it could well make the difference between whether or not Williams returning to the top level of F1.
Although we will have to wait nearly a year for Williams' next set of accounts to find out exactly how it fared in 2009, an indication of its finances comes from Dun&Bradstreet. The business intelligence firm carried out an investigation in November last year into the creditworthiness of all the F1 teams and it showed that Williams was paying its bills 15 days late on average compared to 19 days late before the season began in March. Time will tell whether its bottom line and revenues have also accelerated.