04/10/2013
NEWS STORY
It may seem like all the action today is on track in Korea as practice begins for this weekend's Grand Prix but, in fact, an even bigger battle is taking place in Northampton.
The location of the titanic tussle is Silverstone, the home of the British Grand Prix. However, today's clash won't be taking place on track. Instead, it will go ahead inside the striking Silverstone Wing building, which opened in 2011 and, at 11am will host the Annual General Meeting of the British Racing Drivers Club (BRDC). It may seem an unlikely place for a skirmish but an article in today's Daily Telegraph by Pitpass' business editor Christian Sylt reveals that fireworks are almost guaranteed.
The BRDC currently runs Silverstone but it won't stay like that for much longer. Back in August Sylt revealed that the BRDC had sold a lease on the track and, as Pitpass has reported the news attracted some disbelief. However, it was indeed accurate. Last month the BRDC's directors announced that they had agreed terms to sell a lease on Silverstone and had also leased 280 acres of land surrounding the circuit to MEPC, a property group owned by the BT pension fund.
The bombshell in Sylt's article is that a group of angry BRDC members has threatened to prevent the directors from being re-appointed at the AGM if they aren't happy with the details of the deals. There is good reason for their concern as Sylt's article reveals that the deals will see the BRDC making a £54.4m net loss. As Pitpass has pointed out in a separate news story, this is the largest loss ever made by a Formula One track so it is hardly surprising that the members are miffed.
Although the amount of income from the lease on Silverstone has not been disclosed, the BRDC's announcement stated that MEPC has paid it £32m. This will be used to pay off a £12.7m loan from Lloyds bank and £12.4m borrowed from Northamptonshire County Council. The BRDC took out the debt to fund construction of a new pit and paddock complex which includes the Wing. However, despite this investment, Silverstone was sold for less than its previously estimated value.
This was revealed in a letter, seen by Sylt, from BRDC chairman Stuart Rolt on 24 September. It was sent to members of the club and was accompanied by the BRDC's accounts to 31 December 2012. They show that interest payments on the debt rocketed to £2.7m from £1m the previous year. Revenue reversed 6% to £52.4m whilst the net loss accelerated from £4.5m in 2011 to £54.4m last year. This was fuelled by a £49.1m one-off charge which is directly connected to the two recent deals.
In his letter Rolt states that "including depreciation (a non cash item) there was an operating loss of £3.6m (2011: loss of £3.8m) before an exceptional item of £49.1m to reflect a reduction in the accounting value of our assets."
He adds that the value of the circuit "in our 2012 accounts (unlike previous years) reflects the offer made to acquire those assets rather than a future profit calculation." In a nutshell, the previous valuation of the circuit in the accounts had to be replaced with a precise one once the BRDC had received the offer and, according to the accounts, this led to a loss on paper of £28.7m.
Likewise, Rolt states that "we sold a long lease on our built out industrial estate and the development land outside the circuit to MEPC for £32m, paid in cash. The value we received for this is considerably less (by £20.4m) than the value ascribed to this land in our 2011 Balance Sheet."
Rolt says that the land and circuit have attracted prices which are lower than their previously estimated value because of "a significant change in what the market was prepared to pay for land with development potential... It also reflected what developers were prepared to risk paying in a depressed market for commercial property outside London."
However, he adds that "the sale of a long lease of our industrial estate and development land for £32m, as described above, has transformed our Balance Sheet from the year end position, allowing our borrowings to be paid off and moving us into a cash positive position." It has nevertheless caused uproar within the BRDC.
The loss in 2012 reduced the BRDC's shareholders' funds from £54.7m to £0.4m and has sparked the talk of revolt.
In August 2009 the members voted to give the BRDC directors the power to grant a lease of Silverstone and non-circuit land and the two deals have been done within the allowed timeframe. Accordingly, the members can not stop them going ahead so they have come up with another way of making their point.
Papers sent to BRDC members on 11 September show that there will be seven resolutions for members to vote on at today's AGM. They include crucial steps such as appointment of the company's auditors and re-election of directors.
The votes are set to be followed by a "commercial and investor review" but a group of members wrote to Rolt on Monday to say that it wants to "hear the details of the two deals BEFORE we vote on any resolutions, as if we are unhappy with them, we may not wish to support some of them, perhaps the appointment of auditors and directors."
The letter was sent by BRDC life member Bob Meacham who copied in Sylt along with 17 members including former F1 team boss Lord Hesketh.
Meacham outlines ten questions which he intends to ask including whether, as has been speculated, the new circuit lease-holder "comprises any current or recent employees of a BRDC owned company or any current or past BRDC directors." He also asks if the new circuit operating company "fails or is sold, will there be any commitment for the BRDC to pay the GP fees thereafter?" Here are the questions in full:
1) Who are the directors and shareholders of the new circuit operating company?
2) If Newco comprises any current or recent employees of a BRDC owned company or any current or past BRDC directors, please give full details.
3) If anyone mentioned in Q2 is to be involved in the management of Newco, please explain how it could be profitable as SCL has shown large trading losses in recent times.
4) If anyone mentioned in Q2 is to be employed by Newco, do their contracts with SCL or SEL permit that?
5) If Newco fails or is sold, will there be any commitment for the BRDC to pay the GP fees thereafter?
6) Please give us the full details of the lease to Newco.
7) Please give us details of the share sale agreement with Newco, including the value of the assets being passed to them.
8) What will be the nett asset value be for the BRDC immediately after the completion of both deals, land sale and circuit operation?
9) What is the forecasted P and L for the BRDC for the next financial year end?
10) Please explain how the sale of 225 acres of non circuit undeveloped land and 55 acres of developed land with a significant existing rental income is worth only just over £114,000 per acre, compared with a current value according to CBRE of £250,000 to £300,000 for industrial land generally. It seems unlikely that £35M would be required for infrastructure.
The letter concludes "whilst I'm sure the Board has followed the correct procedures in these deals as voted on by Members, we need to be assured that the spirit of those decisions has been implemented. We need to be convinced that both deals are in the best interests of the Club, and most importantly that they were the very best available. We need your unambiguous assurance that they are."
John Fitzpatrick, another BRDC member, says that "the members of the BRDC have only themselves to blame. They gave the Board carte blanche to do a deal without any reference back to them." He adds "one would have thought that this development land, located in the heart of the country, and with a name associated with a world renowned brand would have achieved a much higher price."
The price paid by MEPC per acre comes to roughly £114,000 and Adrian Willet, a director in the national land and development team at leading commercial property advisory firm CBRE, says that "the value of the land at Silverstone will depend very much on what permitted use has been granted under the 999-year lease, so it is too simplistic to say that the deal struck is below market norms. If conventional housing development could be built, values for consented land are currently circa £800,000 per net developable acre, with industrial land between £250,000 and £300,000 per acre. As always, the devil is in the detail, but on the face of it, this looks like a good strategic play by MEPC."
Three-time F1 champion Sir Jackie Stewart told Sylt that "I think [the BRDC] had their back to the wall to a large extent because they had to find that money as quickly as they could, and it took a fairly long time to get it this far, or the bank would have been calling it in." He adds "the point is that the Club is secure now."
Even former BRDC members have expressed their concerns. Harry Stiller, who was a member of the club for 43 years, says that BRDC grandees such as "the late Earl Howe, the late Honourable Gerald Lascelles, the late Innes Ireland and the late Ken Tyrrell will be turning in their graves."
Time will tell whether it gives the BRDC directors any sleepless nights.