McLaren to cease sponsoring Autosport BRDC Award - McLaren Life
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post #1 of 14 Old 01-10-2019, 08:45 PM Thread Starter
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McLaren to cease sponsoring Autosport BRDC Award

For the last 30 years, McLaren have been the primary sponsor and operator of what has been called the McLaren Autosport BRDC Award. The program was initiated by McLaren in 1989. In this week's issue, Autosport magazine announced that McLaren will no longer be involved.

The purpose of the award was to identify and promote the most promising young racing drivers in Britain. The candidates in each year's final round would be tested in a range of different racing cars, including a fairly recent Formula One car.
Previous winners of the award included David Coulthard, Oliver Gavin, Dario Franchitti, Gary Paffett, Anthony Davidson, Paul di Resta, George Russell and Lando Norris. Non-winning finalists included Richard Westbrook, Justin Wilson, Dan Wheldon, Susie Stoddart, Mike Conway, Nick Tandy and Alexander Albon. Quite a list!

The magazine and the BRDC will continue the award, which will be operated by an undisclosed party (one would guess another UK-based F1 team).

The reason for McLaren's departure was not disclosed. I don't know how much it would have cost them annually to operate the thing, but it must have been in the hundreds of thousands, not millions.
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post #2 of 14 Old 01-10-2019, 10:08 PM
 
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The reason for McLaren's departure was not disclosed. I don't know how much it would have cost them annually to operate the thing, but it must have been in the hundreds of thousands, not millions.
I'm guessing you haven't analyzed Mclaren financial statements... cash position didn't look too healthy 09/30/2018.
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post #3 of 14 Old 01-10-2019, 10:22 PM Thread Starter
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I'm guessing you haven't analyzed Mclaren financial statements... cash position didn't look too healthy 09/30/2018.
As far as I know, McLaren's most recent published financial statement was as of 30 June 2108, at which time they had cash of 69,998,000. Is that what you mean?

Eta: Ah, okay, I see that they have filed a more recent interim report, showing cash of only 6,433,000. However at the same time their current receivables have grown by more than 60,000,000, which suggests that there is a timing difference rather than a more serious problem.

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post #4 of 14 Old 01-10-2019, 10:25 PM
 
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As far as I know, McLaren's most recent published financial statement was as of 30 June 2108, at which time they had cash of 69,998,000. Is that what you mean?
6 million pounds cash on hand 09/30/2018
96 million pound loss 09/30/2018

https://s3-eu-west-1.amazonaws.com/1...ort_Q32018.pdf
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post #5 of 14 Old 01-10-2019, 11:11 PM Thread Starter
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6 million pounds cash on hand 09/30/2018
96 million pound loss 09/30/2018

https://s3-eu-west-1.amazonaws.com/1...ort_Q32018.pdf
I think you mean negative cash flow, not loss. For the nine months, gross profit increased by 59m. The main factors in increased cash outflows were interest expense and capital investments.
Anyhow, we all know that the company has undergone a partial financial restructuring, to accommodate the loss of Honda subsidies to Racing, the buyout of Ron, and the increase in investment in such things as the forthcoming carbon-fibre fabrication facility.
The annual cost of the McLaren award program would have been relative peanuts. It would be interesting to know whether McLaren's involvement was canned only as a money-saving measure or because, after 30 years, McLaren thought that they had gotten out of it as much as they could and that they had done their bit to help up-and-coming British racing drivers.
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post #6 of 14 Old 01-10-2019, 11:28 PM
 
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I think you mean negative cash flow, not loss. For the nine months, gross profit increased by 59m. The main factors in increased cash outflows were interest expense and capital investments.
Anyhow, we all know that the company has undergone a partial financial restructuring, to accommodate the loss of Honda subsidies to Racing, the buyout of Ron, and the increase in investment in such things as the forthcoming carbon-fibre fabrication facility.
The annual cost of the McLaren award program would have been relative peanuts. It would be interesting to know whether McLaren's involvement was canned only as a money-saving measure or because, after 30 years, McLaren thought that they had gotten out of it as much as they could and that they had done their bit to help up-and-coming British racing drivers.
Page 9 it shows a loss of $96 million pounds for the nine month period ended 09/30/2018. A big part of the loss is amortization and I believe that will continue for a few more years.

I agree with you that it is relative peanuts but Mclaren isn't a cash rich company. Even though their recent press release shows that that they increased sales by more then 44% in 2018 vs 2017, they still felt the need to air freight Sennas in the last few days around the globe so that they could include that in their sales numbers (air freight was comp'd as customers didn't request air freight). They were willing to eat the air freight cost to recognize the profits from the Sennas in order to reduce losses in 2018. Their sales reflect cars built and delivered to dealers and not to the end customers (they recognize a sale when it gets to the intended country or to the dealer. It doesn't matter if it is sold/unsold to a customer).

The cash from sale isn't received until many months later (I believe most dealers have 6 months from delivery to them to pay for the car).
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post #7 of 14 Old 01-11-2019, 02:54 AM Thread Starter
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Page 9 it shows a loss of $96 million pounds for the nine month period ended 09/30/2018. A big part of the loss is amortization and I believe that will continue for a few more years.

I agree with you that it is relative peanuts but Mclaren isn't a cash rich company. Even though their recent press release shows that that they increased sales by more then 44% in 2018 vs 2017, they still felt the need to air freight Sennas in the last few days around the globe so that they could include that in their sales numbers (air freight was comp'd as customers didn't request air freight). They were willing to eat the air freight cost to recognize the profits from the Sennas in order to reduce losses in 2018. Their sales reflect cars built and delivered to dealers and not to the end customers (they recognize a sale when it gets to the intended country or to the dealer. It doesn't matter if it is sold/unsold to a customer).

The cash from sale isn't received until many months later (I believe most dealers have 6 months from delivery to them to pay for the car).
I said in I think 2011 that however much capital they started with, they should have started with twice as much. However, one would hope that, having turned down seven future years' worth of Honda money in 2017, they were serious when they said that the shareholders were prepared to provide whatever additional funding would be needed.
In the notes to the statement (p8) they link the increase of 48m in amortisation to the growth in volumes and the shift in mix from Sports to Super and Ultimate Series. To what do you reckon they are referring? Are they implying that the life cycle, or total volumes, of the Sports Series will be shorter/lower than expected, and thus the fixed costs of developing those cars are being written off sooner?

Re payments from dealers, in the UK the factory will not ship a customer car to the dealer until the customer has paid in full. If it then turns out that they made a mistake in the spec, the customer is screwed.
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post #8 of 14 Old 01-11-2019, 04:26 AM
 
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The automotive turnover doubled. So the amortization doubled.
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post #9 of 14 Old 01-11-2019, 06:57 AM Thread Starter
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The automotive turnover doubled. So the amortization doubled.
Hmmm. Would it be that straightforward?

According to the Notes (p14), the amortisation hit came almost entirely from "New production development costs". Are they saying that those fixed costs are being expensed on a per-unit basis, rather than on a per-year basis? I'm not sure why it would be automatically proportional to revenue, as there would be no guarantee beforehand that revenue would cover the fixed costs of development. And if production numbers (except of a limited edition item) ended up exceeding expectations, after a while you would run out of sunk expense to amortise.

I think the only way that could work (consistent with their explanation) would be if - for example - they had spent a huge amount developing the Senna, and they were expensing the fixed costs for its development over the brief period when it will be sold and revenues from it received. For the Senna specifically, however, the revenue received by 30 September 2018 would have been just a fraction of the total revenue expected for the project.

Perhaps they had a reason to write off the entire development cost of that product at the start of its production, rather than as the revenue for it was received, and that was what they meant by ascribing the big increase in amortisation to the changes in volume and product mix. I'm not questioning their accounting practices, but rather how they describe them.
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post #10 of 14 Old 01-11-2019, 07:11 AM
 
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Yes It is not clear. But if the amortization is a payment for licensing then it could be related to unit sales.
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post #11 of 14 Old 01-11-2019, 04:21 PM
 
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In the notes to the statement (p8) they link the increase of 48m in amortisation to the growth in volumes and the shift in mix from Sports to Super and Ultimate Series. To what do you reckon they are referring? Are they implying that the life cycle, or total volumes, of the Sports Series will be shorter/lower than expected, and thus the fixed costs of developing those cars are being written off sooner?

Re payments from dealers, in the UK the factory will not ship a customer car to the dealer until the customer has paid in full. If it then turns out that they made a mistake in the spec, the customer is screwed.
I think they are being a literal liberal with their accounting policy. it seems that the amortization is being recognized in the financial statements per car built and not straight line over a few years. It's a little trickery because if they put it as part of cost of sales (adding it to the cost of each car being produced) then perhaps the gross margin per car might even be negative (which would alarm people that they are losing $$$ on each car produced).

The annual financial statements give much more clarity in the notes to financial statements (ie., how they recognize revenue (once the cars hit the intended country, who is considered customer (dealers NOT the person actually buying the car, etc.).

The alarming thing about the cash position whether it is 06/30/2018 or 09/30/2018 is that it reflects deposits for speedtail, senna gtr and approximately 375 undelivered/not made yet Senna's as of 09/30/2018.

That's a whole lot of cash from customers that have been spent in other ways for cars that haven't been built yet. (sort of why I think they are being tight in cash expenditures)
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post #12 of 14 Old 01-11-2019, 04:38 PM Thread Starter
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I think they are being a literal liberal with their accounting policy. it seems that the amortization is being recognized in the financial statements per car built and not straight line over a few years. It's a little trickery because if they put it as part of cost of sales (adding it to the cost of each car being produced) then perhaps the gross margin per car might even be negative (which would alarm people that they are losing $$$ on each car produced).

The annual financial statements give much more clarity in the notes to financial statements (ie., how they recognize revenue (once the cars hit the intended country, who is considered customer (dealers NOT the person actually buying the car, etc.).

The alarming thing about the cash position whether it is 06/30/2018 or 09/30/2018 is that it reflects deposits for speedtail, senna gtr and approximately 375 undelivered/not made yet Senna's as of 09/30/2018.

That's a whole lot of cash from customers that have been spent in other ways for cars that haven't been built yet. (sort of why I think they are being tight in cash expenditures)
Yes, I agree with your points. One reassuring thing is that they didn't need to build their own carbon-fibre fabrication facility but chose to do so for its long-term advantages. At the time that they committed to it, they should have had a pretty good sense of projected cash flow over the next few years, and AFAIK their sales since then have, if anything, been better than expected.
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post #13 of 14 Old 01-11-2019, 05:16 PM
 
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Hmmm. Would it be that straightforward?

According to the Notes (p14), the amortisation hit came almost entirely from "New production development costs". Are they saying that those fixed costs are being expensed on a per-unit basis, rather than on a per-year basis? I'm not sure why it would be automatically proportional to revenue, as there would be no guarantee beforehand that revenue would cover the fixed costs of development. And if production numbers (except of a limited edition item) ended up exceeding expectations, after a while you would run out of sunk expense to amortise.

I think the only way that could work (consistent with their explanation) would be if - for example - they had spent a huge amount developing the Senna, and they were expensing the fixed costs for its development over the brief period when it will be sold and revenues from it received. For the Senna specifically, however, the revenue received by 30 September 2018 would have been just a fraction of the total revenue expected for the project.

Perhaps they had a reason to write off the entire development cost of that product at the start of its production, rather than as the revenue for it was received, and that was what they meant by ascribing the big increase in amortisation to the changes in volume and product mix. I'm not questioning their accounting practices, but rather how they describe them.
"New production development costs" = this will for most parts not be the Speedtail or any 600LT or 720LT anymore but the entry level hybrid drive train and updated chassis for the 570s replacement ... this thing likely cost far more in development than some at cost produced hypercar with salvaged and upgraded P1 tech for the drivetrain plus some innovative cf tech ... there is probably some other Speedtail costs still in the statement but I guess most of the expensive stuff was already done in 2017

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post #14 of 14 Old 01-11-2019, 08:56 PM Thread Starter
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"New production development costs" = this will for most parts not be the Speedtail or any 600LT or 720LT anymore but the entry level hybrid drive train and updated chassis for the 570s replacement ... this thing likely cost far more in development than some at cost produced hypercar with salvaged and upgraded P1 tech for the drivetrain plus some innovative cf tech ... there is probably some other Speedtail costs still in the statement but I guess most of the expensive stuff was already done in 2017
That could be, although I would expect normally for amortisation to be accounted for according to the length of time over which the expenditure was expected to bear fruit: hence the etymology of the term. If as you say the costs were for development of products that won't be brought to market until some future date, it is not obvious why the long-term investment in development costs would be expensed now.
In some jurisdictions, rules for business taxes allow accelerated depreciation so that the reduction in taxes owed by the business can be enjoyed sooner. In the case of McLaren, however, they wouldn't have owed tax anyhow, so that wouldn't have been a consideration.
What they may be doing, I guess, is bringing forward as many expenses as possible to today, when they are privately owned, in order to improve their numbers in the future when they may be looking for a flotation or trade sale of the company.

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