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How Lotus plans to stem losses of £71m in 2015

Published: 22 December 2014

The Lotus Group reported a £71.1 million loss for the 2014 financial year, according to documents recently filed at Companies House.

The Norfolk car maker, which is being restructured under new CEO Jean-Marc Gales, blamed the loss  in its annual report on ‘weak market conditions, fragile consumer confidence, increased competition and cost pressures.’

Although the ongoing losses in Hethel make for uncomfortable reading, the £71.1m pool of red ink in the year ending 31 March 2014 is less than half the £168m lost in the previous 12 months. The trajectory is upwards and Gales is confident the turnaround will reach an operational break-even point as soon as 2016.

‘It’s better than the year before but far from good,’ admitted Gales. ‘It was a substantial loss. But our goal is to make Lotus a company that is self-sustaining, with positive operational cash flow, that is my very precise target for next financial year, that starts 1 April 2015 and runs to March 2016.’

Why is Lotus losing so much money?

It’s pretty basic economics at play here: Lotus remains a minnow in global car production terms - it’s not selling enough cars, yet carries a high cost base. Sales rose 1% to just 1301 cars.

In an in-depth interview with Gales in the new January 2014 issue of CAR magazine, the new boss explained why he was cutting 300 members of staff from the Lotus workforce.

‘If you sell 1200 cars you can’t employ 1200 people,’ he told editor Phil McNamara. ‘As regrettable as it is, it had to be done to save the company.’

The health of Group Lotus in 2015

The company report filed this month reveal that the Lotus Cars wing actually saw revenues from car making rise by 1% to £69m in the last year.

What is more worrying is that Lotus Engineering - traditionally the cash cow at Hethel - saw revenues collapse by 43% in the financial year, down to £13m. The filing at Companies House blamed ‘an internal refocusing of engineering resources to strengthen Lotus product, including quality improvements.’

The numbers are looking better for the 2015 financial year, however. In the first eight months from April 2014, Lotus has sold 1448 cars - up 55% on the previous period. That's the best Lotus sales performance since the boom years of 2008. Hethel is confident it will sell 2000 by the end of March 2015.

Helping this increase is a growing dealer network; Lotus has added 19 new dealers in the past financial year, and plans to add a further 21 by April. That's more than a quarter more showrooms.

How to fix a problem like Lotus

Gales is planning to divert some of the expertise at Lotus Engineering to make Lotus’s own cars better. ‘The priority right now and for the time to come is our cars, we want them to be outstanding,’ he told CAR. ‘The best advertising for Lotus Engineering is the quality, handling and performance of the cars, and this is first priority.

‘Of course we still have quite a lot of work going on in our engineering business which we will honour - but I will run Lotus Engineering in the next two years in a more reactive way than an active way, so we are known for certain specialisation in test and validation, for active noise cancellation systems, active valvetrains.

’In those specialisations we will move on and first satisfy existing contracts and get new contracts, but we are not going to actively search for a lot more work. The priority right now, especially after the redundancies, is getting Lotus cars out on time, to spec and to cost.’

That mission starts with the new Evora range expected at the 2015 Geneva motor show. The range will be polished and improved, with better quality, new interiors, more accessible door sills and more. And - as we revealed last week - Lotus is even exploring a jacked-up Evora ‘Allroad’ style crossover.

The fightback starts here.

By Tim Pollard

Editorial director of CAR's digital publishing arm. Motoring news magnet

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