The Lotus Group has just revealed its latest accounts for 2009-2010 and while turnover has risen by 26 percent to $225 million, thanks to the sales of the new Evora model, the company posted losses of $18.2 million. This was better than the previous year when the company lost $28 million. The company is now embarked on a scheme to lift production from the current 2,700 cars a year to around 8,000 in the next five years. The company is hoping for $64 million in government loans, saying that the increased production will create 1,000 new jobs in the Norwich area and is threatening to move production out of Britain if the application is turned down.
Datuk Syed Zainal Abidin, the boss of Lotus’s parent company Proton, confirmed this week that the financing would be coming from bank loans and that talks were taking place with a number of banks, including the Commerce International Merchant Bankers Berhad (CIMB) for a $700 million loan, which will be needed to find the Lotus project.
“Group Lotus by itself cannot raise that kind of money and that is why Proton has to come in as the entire five-year turnaround exercise has to benefit the whole group,” Zainal said. “We hope to sign an agreement for the loan within the next month as we are in talks with several banks including our own banker CIMB. We are confident we can turn around Group Lotus as we have five new Lotus models that will start production by 2012.”
Zainal said that Group Lotus would need to sell at least 8,000 units of the five new models each year before it could show a profit.
The plans announced thus far have been greeted with scepticism in the automotive world – and in motorsport where Lotus is trying to make a big impression.
“It is a do-able plan,” Zainal said. “We have thought through this plan a hundred times and it is a challenge but realistic.”
Oops, forget to mention it, but Lotus Renault GP announced last night that former Lotus Racing reserve driver Fairuz Fauzy has been signed as Lotus Renault GP’s reserve driver in 2011. This is not likely to have any effect on performance as the 28-year-old Malaysian driver has yet to do anything that suggests that he has the pace necessary to be in F1.
I think they are mad. Where are they going to sell 8,000 new cars a year? the cars are not going to be especially innovative or different from most of the sports cars out there. Attempting to go from a small scale manufacturer to a fairly large scale, high end sports car manufacturer in 5 years, is too optimistic in my mind. It reminds me slightly of Mao and his Great Leap, driven on my increasingly drastic and insane 5 year plans!
A loan of $700m means that they will be leveraged to an insane extent – if their turnover is $225m, I dont know who is mad enough to stump up that money on what seems like a bit of a punt to me, but I really dont think they will get their money back. I wonder who will pick up the pieces when they crash and burn…
Henry,
Does the name Fernandes mean anything to you?
Bad News Alert!!
Foreign Company run by Foreign Person wants to build iconic British Brand and create British Jobs.
Ben G,
It is the British taxpayers’ money that I am worried about…
By the way, on a purely private note, why do I get the impression that you are named after a racehorse?
The new Lotus models will be sensational, and 8,000 sales a year is a realistic aim. To market them through F1 makes perfect sense, Renault will be a strong partner, and the investment in the production lines at Hethel is sufficient to make the production targets a reality.
Lotus is lining up the Esprit to debut in the forthcoming Bond movie (once MGM sorts itself out) and then Lotus’s will be flying off the shelves.
F-one,
Are you related to someone involved? It all sounds rather too positive for my taste. A little caution would be logical given the money involved.
Just to clarify Joe, is this the accounts of Group Lotus plc or those of Lotus Group International Ltd? (which is the immediate parent company of Group Lotus plc)
Both the above owed very substantial amounts to “Perusahaan Otomobil Nasional Berhad (PONSB) a fellow subsidiary of Proton Holdings Berhad” on the accounts published up to 31 March 2010 which were signed off back on 27 August 2010
rpaco,
I believe this is the Lotus Group International accounts
“The company is now embarked on a scheme to lift production from the current 2,700 cars a year to around 8,000 in the next five years.”
The only era in which this was any less than an overblown pipe dream was in the Maggie Thatcher “loads a money!” years. Even then, had production reached 8000pa for a few weeks the problem would still have been in selling them rather than making them.
It would be an ambitious plan if they were self funding it but it’s all externally funded with the majority coming from the Malay tax payer. Bahar certainly can sell business plans. Group Lotus are putting at least 10% of this money just into into sponsoring Renault. It’s all very Bizarre.
I think in 2008 at the peak roughly 2800 lamboughini were sold, 1st half 2010 600isch. Lets say lotus is 1/3 cheaper and therfore sells 3 times…still not 8000. There will be no bank willing to sponser other than ones with links to the goverment.
When Danny Boy arrived didn’t he say he already had the investment to make all his wet dreams happen? But now they’re scouting about for loans to cover it? Every new statement from him and Lotus seems to contradict what they said 3 months ago. Anyway, Lotus’ accounts don’t really matter – what matters is the state of Proton’s finances – and oops! They’re losing even more money!
In a way I like Behar. I mean, it’s pretty cool to blow billions of other people’s money trying to make sports cars and going racing. It’s just a pity that he’s such a tw*t and he’s going to bring Lotus down with him – not to mention slinging dirt at Fernandes and Lotus
This is absolutely crazy. I think the most telling sentence in the article is the one that says Lotus could not raise this kind of finance on its own. That sounds like a vey good reason not to give them the loan. They can’t afford it.
Even if they sold 8000 cars a year for the next 5 years starting now, ignoring interest charges that is an overhead cost of $17,500 per car.
Dany Bahar is behaving like the bankers who trashed long standing businesses and the economy. Quite why the Malaysians are prepared to back him is beyond me. Even if he was selling McLaren F1s at the prices they got when new his numbers wouldn’t make sense and nothing with a Lotus badge is going to sell for Ferrari money never mind McLaren.
Joe, I blame my Dad…
Those numbers are just comical. Annual sales of $225M with the introduction of a new model that got great reviews worldwide? That’s probably less than Ferrari’s catering budget for their F1 program. No bank would loan this company a dollar without Proton being on the paper, and the folks at Proton seem amazingly optomistic about this venture. Say what you will about Dany Bahar, but he must make a pretty good boardroom presentation.
This needs to be looked as what is certain and what is hoped for.
What is certain is that if they acquire $700m of funding, they will paying massive levels of interest (let alone reducing the capital) every year for the long-term.
What is also certain is that the Malaysian taxpayer is going to be very exposed, both through the fact that loss-making Proton will effectively be even more highly leveraged than it already is.
What is hoped for is that for that sum, Lotus can develop five new models (highly unlikely), develop new design and production facilities and actually sell 8,000 units each and every year.
With the amount of money that Group Lotus will also be haemorrhaging through being involved in virtually every form of racing currently available, that sum will reduce very, very quickly.
Tony Fernandes is just waiting in the wings…
Bahar says the all new Ferrariesque Lotus needs to sell 8,000 cars a year to break even. The old Ferrari only sell 6,500 so he would have to take all their business and add Lamborghini’s 1,500 annual sales.
Simple really.
F-one:
“Lotus is lining up the Esprit to debut in the forthcoming Bond movie (once MGM sorts itself out) and then Lotus’s will be flying off the shelves.”
Complete and utter rubbish.
You don’t “line up” a car for a Bond film by saying you would like to do so to the press. Ford paid a fortune for a couple of seconds in the last two films, for the Mondeo and Ka, with the main slot going to Aston Martin. There is zero chance that there will be a Lotus in the next film.
Mario:
“I think in 2008 at the peak roughly 2800 lamboughini were sold, 1st half 2010 600isch. Lets say lotus is 1/3 cheaper and therfore sells 3 times…”
The problem is that they are going to be trying to sell the Esprit, which looks like a cheap knockoff lamborghini, for the price of the real thing.
And the Esprit will have the engine from a Toyota Camry…
If you were doing a MR2 V6 conversion in your shed, that’s fantastic engine.
In a 60K Evora S, it’s a great but souless engine.
In a 100K+ supercar it is a joke.
On the other hand, the banks will be queuing up to offer loans, IF they are secured by the Malaysian taxpayer…
[...] A little dose of reality The Lotus Group has just revealed its latest accounts for 2009-2010 and while turnover has risen by 26 percent to $225 [...] [...]
I am very jealous of Bahar, I think he will enrich himself handsomely in the process. I wonder who their banker is, Gerhard Gribkowsky? lol ..
Meh.
I’m English and even *I* don’t own a Lotus (I have an MR2 Spyder as a toy). If I *was* going to spend $100K on an automotive toy it sure as shit wouldn’t be a Lotus, although I really enjoyed the Elise.
Hmmm F-one, personal opinions will vary, but have you looked at the spec sheet for the Evora? Not much there really… It looks already comprehensively beat by several existing cars (e.g. Porsche Cayman S – for quite a bit less money) and it has not even hit the road yet.
To launch five truly world-class cars with the type of infrastructure and funding Lotus has is more than a stretch. I think this is far too optimistic of a plan…
I see that lotus now (2010) owes a considerable amount of money.
…the company posted losses of $18.2 million. This was better than the previous year when the company lost $28 million…
Nothing new there.
http://c0000308.cdn2.cloudfiles.rackspacecloud.com/7203_000018__proActive_Issue_22.pdf
(Interview with then Group lotus CEO published in september 2007)
The board has been very patient with this company. They have now
signalled their confidence in the company’s future by refinancing the
company as of the end of March; that was another key objective I
had coming in – a restructured balance sheet. Some GBP61m of
accumulated debt that had accumulated in eight years was written
off.
Lotus is now effectively a stand-alone business and on a strong
financial base. That’s good for suppliers and good for engineering
clients – they know we’re going to be here in five, ten years time…
I suppose it was time to
A) sell (like General Motors) and admit defeat from a financial point of view,
B) Throw the everything including the kitchen sink at it.
So when is the investigation into TFs finances going to appear on this blog?
chris,
Why don’t you tell us?
Dear all
This $700 million loan hasn’t happened yet… hmm.
So, it MUST be in addition to the 770 mill Mr Bahar said that Lotus already HAS (in an article in a well respected British mainstream motoring publication). Or, maybe he has trouble with differentiating past, present and future tense in English…:-)
Then there’s $64 mill in “govt loans” (I take that to mean Her Majesty’s British one, yes?). Hasn’t the new Tory Govt gone on a bit of an austerity drive of late???
F-one, I do agree, the new Lotus’s (what is the plural of Lotus?) do look fantastic. However, an increase in sales of 200% in five years is a BIG ask. Not sure of any makers I can think of which have managed that. Maybe if they market intensively in China…??? (And, perhaps India and Russia)
But, basically, the story seems to change at least once a week, which seems curious, if production is locked in for 2012…….
It will be all a bit embarassing if Tony Fernandes ends up bailing them out, won’t it….
Cheers
MarkR
@Chris
I don’t see why I would be interested in TF’s finances. So far his team has been funded by shareholders private money. The 3 shareholders are TF, Kamarudin and Nasarudin. It isn’t borrowed commercial money. So as far as I’m concerned it’s 100% ok for them to spend their hard earned money however they wish!
For me the Lotus car maker is and always should be nothing more than a cottage industry, producing good quality but small number of sports cars at affordable prices. Trying to turn that cottage industry into a large scale production line business will end in tears and how anyone thinks borrowing that amount of money is a good idea is just beyond any sensible thinking person. A quick message for Mr Bahar. Take your head from the clouds and apply some common sense, if this was your own money would you invest it in this plan, if your answer is no and it should be, then you should not do this.
Joe – Those are the 04/09-03/10 accounts – New management started in late 09 so can have no effect on the previous business performance but this just illustrates that a change was needed or there would be no more Lotus.
Fail to see what you’re trying to achieve with this post other than illustrate that Lotus are doing the right thing in trying to save the company.
So did Bahar join the company in March 2010? I think you will find that he started on October 1 2009, which by my book is nearly half the year…
All the above comments are, frankly, very European. The world is changing and there are a lot of folk in the Far East who have plenty of money to burn, more and more by the day, who do not hold such old-school views. For example, how many people in Singapore/Shanghai can tell you about the idiosyncrasies of Norfolk? Not many, but they will tell you that between 2008 and 2010, the number of Chinese millionaires grew 34% to nearly half a million, some may fancy a Lotus.
I agree the whole plan is crazy, so crazy it might just work, especially if they leave Enstone to make a decent car and get Bond on board, it worked for BMW for a while.
Jakub,
Fair enough… What I fail to understand is why such people would want to buy a Lotus when they can buy a Ferrari, a Porsche or a Lamborghini, all of which are glossier brands.
Only 18 mil in the red, and they can afford an F1 team. My bank account is in the black, with no debts, and I still can’t avoid an F1 team, what am I doing wrong?
In all seriousness, Tony Fernandez must be loving seeing these results? When do we start making bets on how long it will be to the Malaysian government is begging Fernandez to take Lotus Group off their hands? 6 months, a year, two years?
Chris – how about we start with AirAsia (bought for RM1 from Malaysian Government in 2001).
Fast forward to its Q3 2010 Performance:
Revenue: RM998 (up 34% year on year)
Profit after Tax: RM327m
Load factor: 78%
It’s purely personal preference but if I wanted someone to back an F1 team I’d choose the guy who’s saved a loss making state owned company and created a business with a profit of £66m a quarter, over a business that needs to resort to its shareholder, (a loss making state owned company) in order to remain solvent.
Yes there are increasingly large numbers of people in Asia (and South America and Russia) who might potentially want to buy a Lotus if it is a good product and the brand is recognised and respected. None of these are impossible goals in principle. In practice it is a different matter.
Proton/Lotus are seeking to borrow money that they apparently can barely afford.
Notwithstanding the fact that this money is many hundreds of millions of dollars, this is a small budget to design, prototype, tool up for and manufacture no less than five brand new models which are to compete head to head with Ferrari (the best known brand in motoring) and Porsche (probably the highest quality brand in motoring). On a seperate website I reccommended someone visit their local Porsche dealer and examine the build quality, shut lines and inherent integrity of a run of the mill 911 or Cayman. Then compare that quality of design and build with that of an Elise or Evora in a Lotus showroom, and consider what Lotus have to do to reach the point where their products are genuinely competitive with Porsche on showroom appeal alone, let alone performance.
Meanwhile, it may be “European” or old fashioned, but typically pouring load and loads and loads (and loads) of money into an enterprise that is losing money generally speaking isn’t a wise idea. Don’t mistake vanity projects like the Arabs buying Manchester City football club for genuine business planning…!
Mario
That all depends on the elasticity/gradient of the demand curve. (Going back to my Philips Marketing 1 course of 30 years ago)
I remember a new UK Lambo importer telling me how he was going to sell thousands in the UK, up from the previous 150 or so, (or maybe it was just 50) never happened of course.
The great problem Lotus have is that they use glassfibre, which is the kiss of ultimate doom for a UK car manufacturer. causing inevitable financial failure, Marcos (several times) Jensen (twice), Lotus (twice before), Ginetta (once but revived) TVR (many times) Elva, Reliant (2 or 3 times), in fact I cannot think of one that has survived, apart from Caterham, but then their departure from the original Lotus7 design was never very successful.
Chris
When Tony has a UK registered limited company or plc then we can all download the accounts from http://wck2.companieshouse.gov.uk/ for a fee of £1 which I will do today for Lotus Group International Ltd.
Jakub
What you say may be true for a while if Bahar has not bankrupted Lotus first. I expect him to try selling the whole production line to China, for them to be made in the PRC. as per MG, or maybe in New Territories. However many monetary experts, pundits etc expect the PRC economy to go into decline this year after the last few years of spectacular growth. Also there is a looming protectionist trade war with the USA, not to mention the currency situation. ~The Baltic Dry Index is due to rise again which will push up PRC’s import costs.
Joe,
Indeed. Perhaps the marketing will focus on the ‘I want to stand out from the crowd’ lot. The tag line being, ‘Lotus – defy logic’.
@Jakub .. I doubt many chinese people will go for Lotus, first and foremost they care about the prestige of the name that their purchases buys them, and that means Ferrari Porsche etc..
The new Esprit in the next Bond film?
With that bit about British Government money I think Back to the Future might be more appropriate.;)
RobbieMeister,
Yes, it is true, government subsidies and Group Lotus are not a good combination. What was it that Lord Justice Murray said at the Belfast Crown Court. The DeLorean Affair was a “barefaced, outrageous and massive fraud” and mentioned that if Colin Chapman had still been alive he would have jailed him for 10 years. Yes, probably not a great indea for government money to be pour into Hethel…
Mario
That all depends on the elasticity/gradient of the demand curve. (Going back to my Philips Marketing 1 course of 30 years ago)
I remember a new UK Lambo importer telling me how he was going to sell thousands in the UK, up from the previous 150 or so, (or maybe it was just 50) never happened of course.
The great problem Lotus have is that they use glassfibre, which is the kiss of ultimate doom for a UK car manufacturer. causing inevitable financial failure, Marcos (several times) Jensen (twice), Lotus (twice before), Ginetta (once but revived) TVR (many times) Elva, Reliant (2 or 3 times), in fact I cannot think of one that has survived, apart from Caterham, but then their departure from the original Lotus7 design was never very successful.
Chris
When Tony has a UK registered limited company or plc then we can all download the accounts from http://wck2.companieshouse.gov.uk/ for a fee of £1 which I will do today for Lotus Group International Ltd.
Jakub
What you say may be true for a while if Bahar has not bankrupted Lotus first. I expect him to try selling the whole production line to China, for them to be made in the PRC. as per MG, or maybe in New Territories. However many monetary journalists, experts, pundits etc expect the PRC economy to go into decline this year after the last few years of spectacular growth. Also there is a looming protectionist trade war with the USA, not to mention the currency situation. ~The Baltic Dry Index is due to rise again which will push up PRC’s import costs. All these may affect the nouveau rich of PRC.
Don’t mean to distract from the lovely process of dissecting Lotus’s finances, but this post and these comments are a perfect illustration of why I love this blog and its readership. Great stuff from Joe and intelligent and interesting comments from a range of perspectives and backgrounds.
@mechadaniel: The Camry reference seems to be designed to belittle the engine Lotus have selected. In fact the 2GR-FE engine is a 3.5L all-aluminium 60° V6 producing 275hp in standard configuration, using 87 AKI fuel (about 91 RON). Toyota use it in numerous different models that you can find at http://en.wikipedia.org/wiki/Toyota_GR_engine#2GR-FE, including the Lexus ES 350, and a slightly different variant (with both port- and direct injection) in the IS 350 and GS 350. A further variant, with taller pistons for greater expansion ratio and very late closing intake valves, is used in the Lexus RX 450h and Toyota Highlander hybrids.
Using Toyota engines gets Lotus some pretty cheap and reliable powerplants, because they are used in so many other models. They’re also pretty efficient and kept up-to-date, a significant improvement on using a Rover K-series (which was dropped as it didn’t comply with Euro IV emissions). Lotus Cars talk about making their own engines but as yet haven’t installed anything into a production model.
@Allan: I’m looking at the Evora and Cayman spec sheets and honestly, if you compare like with like – i.e. normally-aspirated with normally-aspirated, supercharged with supercharged – the Evora looks to have the edge. The only question is over price: the normally-aspirated Lotus is a chunk more expensive than the equivalent Porsche (£47,500 vs £39,162), and there’s no published price for the Evora S yet.
I do think Lotus are wildly optimistic to think of reaching that production level, and are liable to over-reach.
Well I’ve just looked through the accounts and the only good thing I can see is that Bahar has raised the amount spent on R&D from 1.6% to 4.9% a level much more normal for a motor manufacturer. How they managed to develop the Tesla electric car on such a small budget is a mystery, but then it must stretch back over number of years, in 2008 the amount spent on R&D was even lower, and that included government grants applicable mainly due to the green (ish) merits of the Tesla electric roadster.
The loans and the interest paid are certainly ramping up at an alarming rate.
I still have a feeling that Tony will buy Lotus for £1, within 3-5 years. That is assuming Bahar does not pull a Pheonix 5 on them first.
@Mike, forget the Evora S, that will be priced close to a Carrera. The competition for the 276 hp base Evora (base price 48.5K UK pounds) is the 320 hp Cayman S (base price 47.K).
I think the Evora is a nice car, but it is in for a tough fight (and the next generation Cayman S is a little over a year away).
Lotus might be better served with a narrower focus, developing one or two really good cars, not over-reaching to do five. Unfortunately the Evora does not follow the the truly lightweight ethos and after the flush of newness wears off, I’m just not sure it will be up to the competition at that price point (factoring in quality especially).
8000!!!!
Just fell off me chair……………
It seems easier to con zillions out of banks than to get a £10000 loan for home improvments.
When looked at logically there is no way a reliable investor would look at this, unless of course the guarantor was a state. This is politically stupid because why would a state guanrantee a loan for a company in another country, unless part of deal is to move production to that state.
To me this boils down to Bahar wanting to show his past employers what a mistake they made to get rid of him, he just had to find people with a similar amount pride/ego to himself involved with a state owned company to stump up the cash.
The Lotus/Proton thing is just to ridiculous for words. How can these people be taken for a ride so easily.
I know Dany Bahar has said in the past that he is not a car man but you don’t need to have spent 30 years in the industry to know that it is impossible to make money by introducing 5 new models at the same time. Anyone who has ever spent any time in manufacturing knows the pain that tooling up for a new product can cause not to mention introducing all the extra inventory and part numbers into the system.
rpaco,
only a gripe with your comment on the Baltic Dry: the index dropped 90% in a blink, not so long ago, and right now it would have to gain 400% to match last year end’s peak. It would need to go up by tend fold to reach May – June ’08 highs. I remember looking at live shipping maps, and half the world’s tonnage was static. Wiped out some nice guys i met.
The massive drop was because, for the first time in recent history, both shipowners and customers tore up contracts, it was too frightening to maintain their hedges.
As i think you know, what shipowners do in less rich times, is shore up their fleet. Diminish supply, and pray the interest on the leases is less than the cost of insurance and oil cash costs, plus the smile price on their forwards.
Basically, the Baltic could go up a bit, without much harm.
– -
anyhow that’s my only, and rather technical, gripe. Your other points are good thinking.
That company is in the Bahamas by the way, but we both know that’s a bit of a joke, in terms of finding things out. One way to find things out is a bit of inferring accounting rules, e.g. tax offsets for big loans. But that is really difficult with a small company, which publishes next to nothing, and without a set of programmed, up to date rules.
I seriously need to play catch up with some of the lines i’ve taken lately, as there my yet be ways to find out a little bit more. I’ll have time soon. First, some domestic housekeeping.
yours,
– john k
Andy H,
about “conning” banks, my late business partner, in what i like to think was our first conversation, stated his ambition to be a Negative Millionaire. Punchline: “I’d get called by my first name”. That’s a much older joke, but got us friends anyway.
It’s such an odd thing, i think i even read a study on this, that people pay more attention to being tricked for a small amount, because when it’s a big amount they compensate for the obvious risk by saying “but it’s big, someone responsible must be in charge”. Or maybe big numbers are just a bit hard to comprehend.
The joke is always on us, who lend the banks free money, on call deposits. That’s the carry, when your salary goes in.
Who put the word “bank” in bankrupt?
Interesting fact about Italy, do not know if this is current, but it was not long ago: If you went bankrupt there, two younger generations would be disallowed from having bank accounts.
Interesting, how they switched the blame about, aint it? A man cannot go bankrupt until he is dead, because he can still scratch up something.
bit to serious, but thanks guys & gals for your comments,
– john k
All talks above are rubbish. fullstop
‘Zainal said that Group Lotus would need to sell at least 8,000 units of the five new models each year before it could show a profit.’
put British taxpayers money into this – Ha ha
how is Dany Bahar getting away with all of this bul…. – or is he being set up as a fall guy – as I think I have seen suggested before?