News : February 2004

New Rover 75 and MG ZT

The Rover 75 received a nip/tuck, which has been met with criticism and praise in equal measure…

ON Friday, the 17th of January, a rather interesting advert appeared in a couple of the daily papers. The point of the advert was to publicise the upcoming three-year warranty/servicing package that MG Rover would be offering with selected models in the range. Nothing too interesting there, but the cars illustrated on the site included the facelifted versions of the Rover 75 and MG ZT!

If this was an official MGR product launch, then it would go down as the most low-profile one in automotive history. Checking the MG Rover press website, there was no sign at all of the new models, and following a call to the press office, it looked like the advert had been released after the original (early January) planned launch date.

However, for whatever reason, the new cars were pulled from their original launch dates (perhaps to wait for the Geneva motor show), but the advertising agency had not been been informed…

The single piece headlamp lenses ushered in a new look for the ZT, but the grille treatment was very familiar, having already been seen on the XPower SV and XPower ZT385.

Whatever, MG Rover launched the 75 the following Monday, with the ZT following a week later. Enthusiasts have greeted the new car favourably; many welcoming the fresher look as a good thing, although some quarters expressed disquiet at the way that the the new car now vaguely resembled such cars as the 2003 Honda Accord or Harris Mann-penned Subaru Impreza facelift…

Finance controversy rumbles on

Special investigation Accounts show ailing carmaker lost out as loans changed hands: MG Rover gains scant benefit from BMW’s £1bn largesse…

The Guardian February 7, 2004 by Ian Griffiths

BMW, the German luxury car group that wanted to close down MG Rover almost four years ago, has paid more than £1bn to the Phoenix consortium of west Midlands business executives which bought the loss-making company for £10 in May 2000, a Guardian investigation has found. The scale of the Germans’ largesse, which senior executives admit privately has effectively been written off, is at least double the £500m “dowry” of soft loans promised at the time of the takeover.

An analysis of the accounts and official filings underpinning the transaction suggest that MG Rover has not directly received all of the donated cash and assets which could have helped the ailing business return to profit. It has also been forced to make interest payments on loans to its parent company from BMW which were given interest-free. Those loans, repayable in 2049, amount to a total of £427m. On top of that BMW has subscribed for £212m of MG Rover equity. Accounts for BMW (UK) Holdings for the year ended December 2000 also identify a debt waiver relating to MG Rover of £399m. BMW also paid £102m for a single share in Powertrain, which makes engines and gearboxes for MG Rover, as part of the deal to transfer that business to Phoenix Venture Holdings, the master company run by John Towers, Nick Stephenson, Peter Beale, John Edwards and Kevin Howe in 2001.

The numbers involved may be much greater than previously imagined and so is the complexity of the corporate structure which now controls MG Rover. Analysis of the component companies that make up the MG Rover web suggests that not all of the cash earmarked to help the company stem its losses has reached the car manufacturer directly. This is perhaps the explanation for how the five men charged with transforming the fortunes of the ailing company have gained millions of pounds for their personal benefit from a business which remains stubbornly in the red.

The five directors of Phoenix Venture Holdings, MG Rover’s ultimate holding company, have already received financial rewards in excess of £30m, despite the fact the car company is not expected to break even until 2005 and ran up reported operating losses of £800m in the three years to December 2002.

The first crucial factor is that MG Rover is not owned directly by Phoenix Venture Holdings but by a company called Techtronic (2000) Limited. This is the vehicle owned by John Towers, Peter Beale, John Edwards and Nick Stephenson to effect the purchase of MG Rover from BMW. The same men are also directors of Phoenix Venture Holdings.

On December 18 2000, Techtronic (2000) was acquired by MG Rover Holdings, which changed its own name to Phoenix Venture Holdings on January 30 2002. Techtronic (2000) therefore remains MG Rover’s immediate parent even though it is in turn owned by Phoenix Venture Holdings.

Indeed, Techtronic (2000)’s accounts for the year ended December 31 2000 reveal that: “100% of the issued share capital of MG Rover Group (formerly Rover Group Limited) and its subsidiary companies was acquired on May 9 2000 for a consideration of £7,690,00.” That is a lot more than the £10 reported in the press at the time. The purchase price in the accounts represents the fees which were paid to advisers to the MG Rover deal. The deal brought £331m of net assets, including £112m in cash.

The Techtronic (2000) accounts also set out the cash implications of the acquisition. A note to the cash flow statement says: “The subsidiary acquired during the year contributed £90m to the group’s net operating cash flows, received £9.2m in respect of net returns on investment and servicing of finance, paid £4.4m in respect of taxation and spent £68.7m in respect of capital expenditure.” The mismatch between cash received from and capital spent at MG Rover tells its own story.

Techtronic (2000) is also the custodian of the interest-free loans from BMW. These loans get no mention in the MG Rover accounts but feature prominently in Techtronic (2000)’s accounts. A total of £427m was paid to the company in three tranches between 2000 and 2002.

Establishing how the BMW cash was allocated across the network of companies is harder to establish. An analysis of the amounts owing to and from Techtronic (2000) and MG Rover under headings which are classified as group undertakings and which fall due after more than one year (the loan note is not repayable until 2049) give a reasonable approxima tion for where the BMW cash has gone.

In 2000, Techtronic (2000) received £200m from BMW. Its financial year ended with it being owed £192m by a group undertaking. The same financial year ended with MG Rover owing £192m to a group undertaking.

In 2001, Techtronic (2000) received another £150m from BMW, making a total of £350m. Techtronic (2000) was owed £337m by a group undertaking and MG Rover owed £337m to a group undertaking.

In 2002, Techtronic (2000) received the final £77.4m tranche of the loan from BMW, bringing the total interest-free loan to £427.4m. By the end of 2002, MG Rover owed just £391.5m to a group undertaking. That represents a shortfall of £35.9m between the cash sent by BMW to Techtronic (2000) and the amount MG Rover owed its parent. And, while MG Rover is bogged down with heavy losses, the Techtronic (2000) accounts paint an altogether more healthy picture of its affairs.

In 2001 and 2002, the company stated in its accounts that it operates as a holding company, does not trade and has no direct sales. In 2001, Techtronic (2000) registered pre-tax profits of £123.3m. It was able to pay another £10m by way of a dividend to its parent, Phoenix Venture Holdings, to add to the £9.8m paid a year earlier. That profit was restated in Techtronic (2000)’s accounts for 2002. On the new basis, pre-tax profits in 2001 were £37.5m and £11.4m in 2002. But the company was still able to pay a further £18m to Phoenix Venture Holdings. That brought the dividend paid over three years to £37.8m.

Techtronic (2000)’s ability to pay dividends is helped by the fact that while its loan from BMW is interest-free the money it lends on to MG Rover is charged interest. Techtronic (2000)’s accounts reveal it has received £30m in interest payments from its subsidiaries in the three years to December 2002. The company says these payments are used to fund various Phoenix head office costs.

Phoenix Venture Holdings and its directors have always insisted that they have worked hard to support MG Rover and have rigorously defended themselves against any allegations of asset stripping. Indeed, the only asset that appears to have been transferred out of MG Rover’s accounts is freehold land worth £31.5m. The land was noted in MG Rover’s 2000 accounts but had dropped out by the following year. The MG Rover 2001 accounts show land and building with a net value of £51.1m were transferred from the company by way of an inter-group disposal. The Phoenix Venture Holdings accounts for 2001 note that it owned £35.9m of freehold land as at the end of December that year.

MG Rover has lost its freehold land and failed to bring its former finance arm back into the fold. Rover Financial Services, which looked after customer hire purchase and lease contracts, was retained by BMW after the deal to sell the car manufacturer. But in November 2001 it was sold back to Phoenix Venture Holdings. In a simultaneous transaction, the loan book run by Rover Financial Services was sold to a separate company, MGR Capital, owned 50-50 by HBOS and what is called the Phoenix Partnership. Four Phoenix Venture directors own shares in MGR Capital. Although MGR Capital is a very profitable business, those profits do not flow automatically back into MG Rover. However, in 2002 MG Rover did buy more than £60m of used cars from MGR Capital.

The accounts for MG Rover suggest it needs all the cash, profits and assets it can lay its hands on. At the end of December 2002, the last date for which accounts have been filed, MG Rover had liabilities exceeding assets by £243.3m. The loss before tax for that financial year was £69.8m. The company has pushed back its expected break-even date from 2002 to 2005.

There is no doubt that BMW would have closed down MG Rover if it had not found a buyer. The question is: have the new owners saved the company or merely deferred its day of reckoning?

January 2004 UK sales


Single month Year to date
2004 2003 Change 2004 2003 Change
Jan MG 2,061 1.04% 1,934 1.04% +6.57% 2,061 1.04% 1,934 1.04% +6.57%
Rover 3,914 1.98% 3,228 1.73% +21.25% 3,914 1.98% 3,228 1.73% +21.25%

The sales story in the UK is not a bad one at all; compared with an admittedly slow month last year, Rover has posted a useful improvement. Hopefully as the sales of CityRover build up, and the facelifted models come on stream, 2004 could result in some positive performances. The only question on the horizon remaining is when will the new 45 be launched, and will it be different enough from the current car to be seen as an all-new effort in the eyes of buyers?

Keith Adams

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