McLaren emergency funding hits a snag

[Moneyseeker]

McLaren cuts 1,200 jobs..

https://www.racefans.net/2020/05/26/...uding-f1-team/

[Richard C]

Originally Posted by wnut

I am not clear whether the high residual guarantee to the finance houses generates a further liability to McLaren or if it only nests with the buyer?
If McLaren have guaranteed the residual values with the finance companies, then there is a large liability that McLaren will have to pay out on the cars it has sold.

My take from that same video is that McLaren is on the hook for any delta on residual guarantee.

Originally Posted by Moneyseeker

McLaren cuts 1,200 jobs..

https://www.racefans.net/2020/05/26/...uding-f1-team/

Ouch. Based upon that article that is over 1/4 of their entire workforce. It is now clear why McLaren was at the front of trying to continue to push the cost cap even lower.

Richard

[Mike Harte]

Originally Posted by Richard Casto

Ouch. Based upon that article that is over 1/4 of their entire workforce. It is now clear why McLaren was at the front of trying to continue to push the cost cap even lower.

Richard

The BBC are reporting that only about 70 of the 1200 to lose their jobs will be from the F1 team. However, further job losses from the team are expected next year following the FIA mandated budget cuts. Something that will also be replicated by some/many of the other teams.

[Richard C]

Originally Posted by Mike Harte

The BBC are reporting that only about 70 of the 1200 to lose their jobs will be from the F1 team. However, further job losses from the team are expected next year following the FIA mandated budget cuts. Something that will also be replicated by some/many of the other teams.

Article above says same. I was thinking mostly about McLaren as a whole. Using the numbers above (4000 vs. 1200) that is 30%, but other sources are reporting 25% cut. Given it sounds like the 4K number is approximate and the 1200 is probably more accurate, I assume total employed is roughly 4800? Not sure where the discrepancy is when reported by different news agencies (total number or percentage cut).

Regardless, 25% or 30% that is a huge cut. Also, while they break out F1, I think McLaren group is three components. F1, Automotive and Electronics (McLaren Applied make the standard ECU for example)

The F1 side took a smaller percentage hit, so the remainder took a larger hit. I can imagine the Automotive side going bankrupt? With debtors being owners looking for their adjustment via residual guarantee? Would McLaren Automotive have had some type of insurance policy to cover a shortage on the residual or did they carry that risk fully?

Richard

[bella]

Originally Posted by Mike Harte

The BBC are reporting that only about 70 of the 1200 to lose their jobs will be from the F1 team. However, further job losses from the team are expected next year following the FIA mandated budget cuts. Something that will also be replicated by some/many of the other teams.

last time there were mass redundancies (the collapse of the 3 new teams) it had a knock on effect on other motorsport. not through more redundancies but suddenly it became difficult for up and coming staff to get work because ~f1 staff were around. imagine formula e might absorb some of the losses from the motorsport side, particularly if they're on the design side rather than the track side.

in f1 terms the 3 smaller teams going under was the kickstarter for several of the big teams to do "we'll have them so nobody else will" recruitment.

[Richard C]

Originally Posted by bella

in f1 terms the 3 smaller teams going under was the kickstarter for several of the big teams to do "we'll have them so nobody else will" recruitment.

Interesting point. One way to remain competitive is to deny your competition and prevent access to skilled staff, even at the risk of being overstaffed yourself. This it the benefits of deep pockets.

Richard

[Moneyseeker]

Interesting to see the news today when you look at the upbeat investors report -2019.

https://investors.mclaren.com/sites/...on-q3-2019.pdf

[mogwai]

Originally Posted by Moneyseeker

Interesting to see the news today when you look at the upbeat investors report -2019.

https://investors.mclaren.com/sites/...on-q3-2019.pdf

I think this is where glossy presentations hide the gory details. These may look pretty optimistic in language, but the devil is in the details.

First, these aren't official financials so it's fair to be suspect of them.

While the language is upbeat, look at net leverage and remember, EBITDA is a squishy number subject to so many assumptions. It's a yellow flag.

Also, notice that "racing" income improved by 20M from (85) to (65). 12.5 of that was from sale of heritage assets. Now, as racing fans, we can see the rationale in that, but as financially interested people, that illustrates using non-repeatable income to offset losses.

Also notice Net Cash Flows from Investing Activities got worse. Seems to highlight paying more in interest expense as well.

In fact, most telling is page 21. Look at free cash flow to firm...that's how much money they have left over to reinvest in the business at the end of the day. This is capital they can dump back into the business by either expanding capacity, improving efficiency, paying off debt...this is real money that shows real business value when a firm is running well. Guess what....it worse too. Temporarily, firms can issue debt or equity to fill the lack of Free Cash Flow to the Firm and in fact in low rate environments when a company is healthy many companies are doing just that. Many capital intensive companies have been doing that over the past month. McLaren appears to be attempting to pledge assets twice so they can issues debt to address liquidity concerns.

But now they get to hide behind COVID and Budget Cap to lay off ~30% of their workforce. Rest assured my friends, they are doing so because each of these things lay bare their horrible financial state caused by mismanagement. They are laying people off under the guise of COVID and cost caps, but to say this firm was bleeding money hand over fist would not be much of a leap. For those of you following the Aston Martin story, McLaren is NOT that much different except Aston was further along in their liquidity crises with fewer options than McLaren.

The one thing Aston Martin did right? They got someone with a vested interest in the sport to buy into them before the crisis hit...otherwise, my suspicions are they'd be taken out to the woodshed and shot if COVID had his this time last year.

What also appears to be the case is the Multalakat (spelling) isn't the sugar daddy that some people assumed and/or hoped. As a result, I suspect that they layoffs may portend further issues. Layoffs buy them time, but a firm that lumbering along like this needs a turnaround. Sometimes that turnaround means being segmented into profitable and unprofitable companies to third parties with more interest or more expertise in running them.

Sorry for the bit of a rant, but I loved McLaren as a racing team.

[Richard C]

Originally Posted by mogwai

Sorry for the bit of a rant, but I loved McLaren as a racing team.

Great post. All of it was interesting.

Richard

[Moneyseeker]

Agreed, great analysis, thanks.

[DiMaestro]

Originally Posted by mogwai

What also appears to be the case is the Multalakat (spelling) isn't the sugar daddy that some people assumed and/or hoped. As a result, I suspect that they layoffs may portend further issues. Layoffs buy them time, but a firm that lumbering along like this needs a turnaround. Sometimes that turnaround means being segmented into profitable and unprofitable companies to third parties with more interest or more expertise in running them.

I think you're spot on with Mumtalakat, they're a investment company supporting the interests of Bahrain. Bahrains top two exports are Refined Petroleum and Crude. That's 58.3% of their total exports. http://www.worldstopexports.com/bahr...op-10-exports/

With the enormous downturn of oil worldwide due to the pandemic, investing in McLaren may not be in their best interests at time.


Remember it wasn't too long ago that Crude was selling at a negative.

[rich07]

Originally Posted by mogwai

Sorry for the bit of a rant, but I loved McLaren as a racing team.

No need to apologise. That was really well written. And a fair amount of truth. In the automotive part they make good cars but the business isn’t doing well financially for a number of reasons. Covid isn’t the blame as these issues existed beforehand and the events of 2020 will just accelerate the fallout from these issues.

As we’ve just seen 1200 people are out of a job. That’s massive to lose 1/4 to a 1/3 of the workforce like that. If the company doesn’t make some much needed change in how it operates it’ll become the next Aston indeed.

[peebee2]

Originally Posted by DiMaestro

Remember it wasn't too long ago that Crude was selling at a negative.

Minor point, but the Bahrainis certainly weren’t.

[DiMaestro]

Originally Posted by peebee2

Minor point, but the Bahrainis certainly weren’t.

I can't speak for what or what the Bahrains did or did not sell. I can only speak for world wide markets.


On 4/20 they (the markets) actually went into the negatives.


Currently they are at ~32.50 which is about half of what they were at in April of 18. A peak in Oct of 18 gave it at 74.29.

And a side note for why I pay attention? I live in the state with the largest shale well oil production. I've seen it blitz our economy, and sadly have seen it tank our economy. I tend to pay attention to it, even if it doesn't have a direct impact on my life.

[peebee2]

Originally Posted by DiMaestro

I can't speak for what or what the Bahrains did or did not sell. I can only speak for world wide markets.


On 4/20 they (the markets) actually went into the negatives.

No, only one US market went negative. Every other world oil index remained positive.

And the one only went negative because of a lack of empty storage.

My point is that the Bahraini oil price never went anywhere near negative so while their oil revenues are down they certainly still exist.

[DiMaestro]

Originally Posted by peebee2

No, only one US market went negative. Every other world oil index remained positive.

And the one only went negative because of a lack of empty storage.

My point is that the Bahraini oil price never went anywhere near negative so while their oil revenues are down they certainly still exist.

I didn't know that - as I said, I'm fairly local when it comes to crude prices.

So just what did the Bahrains do with their oil? Store it? Sell it? Regardless if they didn't go negative they're still half of the value it was a year ago, right?


You can't just shut down a oil well on a whim and fire it up 2 weeks later. It's a gigantic expensive process on both ends. How did they accommodate that?

[Peter Mallett]

Oil was around $30 pbl for many years before a spike in 2018. In the US it led to a more efficient fracking system hence the Permian basin is one of the most productive worldwide. So this is not uncharted territory. What is causing difficulty is the lack of transportation which in turn is reducing requirement. Which is where the storage issues arise. Hence the use of super tankers, many of which are still moored of Singapore, as temp storage.

[peebee2]

No problem at all DiMaestro!

The Middle East was sold as futures months before.

The US storage was full due to lack of use during lockdown.

Hence the ships are coming with nowhere to put the stuff, which was going to cost the traders massive $$$.

Hence they would pay you to take it off their hands. The short-term negative price.

[DiMaestro]

Originally Posted by peebee2

No problem at all DiMaestro!

The Middle East was sold as futures months before.

The US storage was full due to lack of use during lockdown.

Hence the ships are coming with nowhere to put the stuff, which was going to cost the traders massive $$$.

Hence they would pay you to take it off their hands. The short-term negative price.

Thanks, as I said I'm rather parochial on oil.


How did that effect their income? I mean, if a country requires a certain percentage of income to operate efficiently - how did the lack of income effect them? I'd assume they have reserves for it, but do they have enough reserves to actually wait this out? I think it's going to be a lot longer than anyone believes to be honest. Bahrain is a wealthy country, but at what point does the devaluation of their wealth actually impact their citizens?

[peebee2]

It was the secondary traders who lost out there, not the producers.

The producers problem is that now they’re aren’t selling much into the future.

So they have to reduce supply to maintain prices.

They do have reserves and have long been diversifying for the day their black gold finally loses its shine and we treat them like **** again.

[DiMaestro]

Originally Posted by peebee2

It was the secondary traders who lost out there, not the producers.

The producers problem is that now they’re aren’t selling much into the future.

So they have to reduce supply to maintain prices.

They do have reserves and have long been diversifying for the day their black gold finally loses its shine and we treat them like **** again.

I guess that's why a large percentage of the wells in my state are being closed? Reducing 'supply'. I'm not talking about supply on hand. Bahrain, like ND is a producer. If you can't pull the oil out and move it, where do you store it? How do you market it? You can't.


You have to shut down wells. Shutting down wells isn't easy, nor is it cheap. It's a monstrous cost that may actually cause the wells to produce less when they reopen.


That's kind of my point. Bahrain can no longer depend on oil income. So, where is their income going to come from? Aluminum strips? Like 5% of their total export?

[MattWll]

I think it will help them stay afloat.

[mogwai]

The Williams saga came to a head as I originally suggested in the first post.

[Casper]

McLaren a bit short of cash and looking to sell equity in the F1 team

https://www.autosport.com/f1/news/15...in-its-f1-team

[S griffin]

I expected this kind of thing could happen. I said earlier that this might be their best hope to keep them going, so no surprises here. Hope they find a good investor in that case