Williams floats out of the slow lane

The Formula One team hopes its Frankfurt listing will succeed, but insists it doesn't need the cash. Christian Sylt reports

The business landscape of Formula One has had almost as many twists and turns as its races.

Ten years ago, car manufacturers such as Renault and Toyota began investing in the sport by buying out independent teams. But as annual budgets escalated to $480m (£300m), the manufacturers couldn't justify their involvement and many fled the sport during the recent recession. This put pressure on independent owners yet again as they stepped in to save teams but then had to find enough money to cover their costs. Throughout this period, Oxfordshire-based Williams was one of the few teams to remain independent and it has come up with an old-fashioned solution to stay this way.

Up to 27.4 per cent of the shares in the team will be floated on the Frankfurt stock exchange on 2 March at an initial price in the range of ¤24 to ¤29 (£20 to £25) per share. The midpoint values the company at ¤265m and the listing is expected to raise ¤46.9m for its co-founder, Patrick Head, 64, who will be providing the bulk of the shares.

As the team's engineering director, Head has steered it to seven F1 drivers' titles with British superstars Nigel Mansell and Damon Hill at the wheel. However, Head intends to retire later this year and the float allows him to cash out. It could eventually do the same for the team's boss, Sir Frank Williams, 69, who founded it with Head in 1977 but who, as yet, has no intention of retiring.

Williams has stressed that since Head is providing the bulk of the shares to be sold, the proceeds will not be used by the team. Convincing investors that the team does not need the funds could be the biggest obstacle to a successful flotation.

Williams has a glittering track record but its winning ways have faded – this year the team is best known for its new Venezuelan driver, Pastor Maldonado. The last time the team won a race was in 2004 and since then it has had a rocky road off track. Its fortunes peaked in 2005 when the team posted a £29.5m after-tax profit on £83.7m of revenue, which was fuelled by severance payments from its former engine provider, BMW, and driver Jenson Button.

Things began to look bleak in 2006 when the team recorded a £27.7m after-tax loss as revenue fell 30.3 per cent. The loss of a major sponsorship from computer manufacturer HP was partly to blame for this, but the team's position was worsened by the lack of engines from BMW. It spent an estimated £10m buying in replacements from Cosworth leading to its cash in the bank falling from £20.8m to just £30,000. Williams took desperate measures to continue.

Williams and Head took pay cuts of £800,000 in 2006 when the company was at its financial nadir, and again the following year when net losses hit £21.4m. Adam Parr, the chief executive, plugged the gap with a loan from Barclays which trebled the team's net debt to £24.7m. It repaid £14.7m of this in 2008 as a boost in sponsorship from Icelandic conglomerate Baugur gave Williams a £9.2m after-tax profit. However, Baugur went bankrupt, sending the team's after-tax profit tumbling 50 per cent to £4.5m, which also meant Williams had made a net loss of £5.9m over the previous five years.

This kind of background is unlikely to encourage investors to buy shares in the team. However, it isn't unique to Williams. One reason there have been so few flotations of motorsport teams is that winning races is usually their primary aim, with profit a bonus at best. The quest for victory involves heavy investment and can often lead to losses which in turn reduce the company's value.

Investors want to hear that all efforts are focused on turning a profit. But if this means that Williams's on-track performance falters, the team will be less attractive to sponsors. Some diehard fans may still be attracted by the allure of owning part of such a team, but the signs are not good.

Following the news of the flotation earlier this month, a user on one F1-related website posted a question asking how shares could be acquired. The reaction was far from positive. "Don't waste your money," said one, with another adding "F1 is a very risky business. Williams as a company have been on the slide. How is that attractive for any investor? Its looking more like 'We really really need the money'."

These views could easily influence share-buying activity. One of the few motorsport flotations was that of the American series Cart. Although Cart is now part of the privately owned IndyCar series, it floated on the New York stock exchange in 1998. Its then chief executive, Andrew Craig, says: "We wanted to get these shares in the hands of our fans who would be holders rather than sellers but absolutely the opposite was the case. We found that when the stock went up, quite a lot the private investors flipped it while the institutional investors were the ones who held on." The attraction of owning a part of a motorsport team soon fades as the public "quickly realise that they are not really a team owner at all – they are still watching the race on TV," he says.

Shareholders who hold over 1 per cent of Williams's shares will get into a members' club which gives them access to hospitality in the F1 paddock and garages at races and tests. But 1 per cent will cost ¤2.7m, around the same as Williams's sponsor Reuters is paying annually. For their money, sponsors get one-on-one time with the drivers, paddock passes and space on the car so it may be a more attractive option for some wealthy fans although it would require multi-year commitment.

And if investors do believe the explanation for the flotation, they might still be put off buying the shares: the money won't go into development, but into one man's retirement pot. The use of the funds could be an issue, Craig says. "In any public offering, the first question that a portfolio manager will ask you is 'what are you going to do with the money?' You need to be able to demonstrate that you are going to take that capital and increase its value."

Williams may not be able to give a good answer.

News
Alan Bennett has criticised the “repellent” reality shows which dominate our screens
tvBut he does like Stewart Lee
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
tech
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Sport
David Moyes and Louis van Gaal
football
PROMOTED VIDEO
News
i100
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
Former Governor of Alaska Sarah Palin, left, with her daughter, Bristol
newsShe's 'proud' of eldest daughter, who 'punched host in the face'
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits