Harris Tweed - a rich man's industry
One of the great surprises whilst I was away was the absence of any comment over the Harris Tweed Hebrides accounts, which were finally completed. They were due to be at Companies House in August 2009, but didn't get signed off until June 2010.
That is usually a sign of financial problems, and allied with all the changes in the ranking agreements for the 4 Floating Charges, it didn't look good.
However, a review of the accounts shows a position that is not as bad as I feared, but underpins the sheer scale of capital investment required to open the mill and get it operational. I have no inside knowledge about the financial position, so I am using my experience to try to read all I can into the accounts.
Anyone who has tried to interpret a set of abbreviated accounts will know just how little information there can be, and how much can be obscured. Limited Liability Partnership accounts are even more obscure, if that is possible. Readers are advised to think of them as partnership accounts first and foremost, with some limited company presentational issues.
I've attached a set of the accounts, which show (on page 3) an apparent loss of £680k. I say apparent, as it is possible that some of the £1.7m in "Loans and other debts due to members" may also have affected the profit and loss account; but this is impossible to quantify. If I had to speculate, I would guess that perhaps £1m of the £1.7m was through the P&L, increasing the loss to £1.68m (the reason for that estimate is that security has been granted over only £709,000 of the members loans).
The Floating Charges are mainly to the Royal Bank for debt factoring, but the first charge was to Iain Taylor, who owns and funding the mill.
A start-up loss of £1.5m would not be unexpected, indeed I had expected to be nearer £2.5m to equip the building, and market and develop the business. [As an aside, I expected all the bad news to be thrown in and appear in the 2008 accounts, but I suspect that this might not be the case]
Stock at £500,000 would imply turnover of between £2-£3m (3 months stock in yarn and finished tweed). Debtors of £890,000 strongly suggests that the debt factoring has been grossed-up by the auditors - that is to say that the debtors include the full amounts owed by the customers to the debt factors, with a compensating and offsetting balance in creditors for the advances received from the factors, and potentially repayable.
On any reasonable basis, perhaps £400,000 in creditors would be due to the debt factors, with perhaps £600,000 in debtors being the amounts due by the ultimate customers. Implying perhaps £250,000 being promised from Mr Taylor, but unpaid at the year-end.
But look at the level of turnover. It is so wildly out of proportion to the publicity generated and the energy expended by the Board, and there seems not a huge amount of evidence that turnover has grown significantly since that point, and I doubt if it is past breakeven. Yet.
With Haggas liquidating some of the group companies for very good financial reasons, it is painfully obvious that the industry has shrunk fast with large and continuing overheads and fixed costs requiring a huge financial input and a large personal financial risk, before turnover can be ramped up to turn the companies from loss to profit.
That the industry has to rely exclusively on such goodwill from three very rich individuals for its survival is a measure of the continued failure of the industry and its supporters to deliver new market and recovered volumes.
We need to be grateful to these three investors, but as a community we also need to realise that it is built on very shaky foundations and is entirely dependent on the continued financial support of a very few; unless somehow the industry can be resurrected.
I know that the kids put a lot of work in the signs around the entrance to the Castle Grounds for the Festival, most of which were based around the theme of Harris Tweed, but it all struck me as all so desperate and backward looking, celebrating an industry that has been constantly in the doldrums since before the kids were born. And possibly since even before their parents were born.
It is no longer OUR industry, probably because WE let it drift into failure. Accept that; be grateful for the external investors and the drive of some local residents; and hope that THEY make a success of OUR lost heritage.
That is usually a sign of financial problems, and allied with all the changes in the ranking agreements for the 4 Floating Charges, it didn't look good.
However, a review of the accounts shows a position that is not as bad as I feared, but underpins the sheer scale of capital investment required to open the mill and get it operational. I have no inside knowledge about the financial position, so I am using my experience to try to read all I can into the accounts.
Anyone who has tried to interpret a set of abbreviated accounts will know just how little information there can be, and how much can be obscured. Limited Liability Partnership accounts are even more obscure, if that is possible. Readers are advised to think of them as partnership accounts first and foremost, with some limited company presentational issues.
I've attached a set of the accounts, which show (on page 3) an apparent loss of £680k. I say apparent, as it is possible that some of the £1.7m in "Loans and other debts due to members" may also have affected the profit and loss account; but this is impossible to quantify. If I had to speculate, I would guess that perhaps £1m of the £1.7m was through the P&L, increasing the loss to £1.68m (the reason for that estimate is that security has been granted over only £709,000 of the members loans).
The Floating Charges are mainly to the Royal Bank for debt factoring, but the first charge was to Iain Taylor, who owns and funding the mill.
A start-up loss of £1.5m would not be unexpected, indeed I had expected to be nearer £2.5m to equip the building, and market and develop the business. [As an aside, I expected all the bad news to be thrown in and appear in the 2008 accounts, but I suspect that this might not be the case]
Stock at £500,000 would imply turnover of between £2-£3m (3 months stock in yarn and finished tweed). Debtors of £890,000 strongly suggests that the debt factoring has been grossed-up by the auditors - that is to say that the debtors include the full amounts owed by the customers to the debt factors, with a compensating and offsetting balance in creditors for the advances received from the factors, and potentially repayable.
On any reasonable basis, perhaps £400,000 in creditors would be due to the debt factors, with perhaps £600,000 in debtors being the amounts due by the ultimate customers. Implying perhaps £250,000 being promised from Mr Taylor, but unpaid at the year-end.
But look at the level of turnover. It is so wildly out of proportion to the publicity generated and the energy expended by the Board, and there seems not a huge amount of evidence that turnover has grown significantly since that point, and I doubt if it is past breakeven. Yet.
With Haggas liquidating some of the group companies for very good financial reasons, it is painfully obvious that the industry has shrunk fast with large and continuing overheads and fixed costs requiring a huge financial input and a large personal financial risk, before turnover can be ramped up to turn the companies from loss to profit.
That the industry has to rely exclusively on such goodwill from three very rich individuals for its survival is a measure of the continued failure of the industry and its supporters to deliver new market and recovered volumes.
We need to be grateful to these three investors, but as a community we also need to realise that it is built on very shaky foundations and is entirely dependent on the continued financial support of a very few; unless somehow the industry can be resurrected.
I know that the kids put a lot of work in the signs around the entrance to the Castle Grounds for the Festival, most of which were based around the theme of Harris Tweed, but it all struck me as all so desperate and backward looking, celebrating an industry that has been constantly in the doldrums since before the kids were born. And possibly since even before their parents were born.
It is no longer OUR industry, probably because WE let it drift into failure. Accept that; be grateful for the external investors and the drive of some local residents; and hope that THEY make a success of OUR lost heritage.
6 comments:
Angus, your final paragraph hit the nail squarely on the head. We should be ashamed to have let this unique island industry go to pot like this.
“I have no inside knowledge about the financial position, so….”
maybe you should have gone no further?
Possibly the period of decline you talk about is a good thing and allowed new investment, management & marketing that will make the Industry stronger than ever.
Anon 9:18am
This is a company and industry which should be open to scrutiny particularly by a local professional who is trying to understand the accounts and the business positioning. What I read into this is that the industry is ruled by a few individuals who are prepared, for now, to invest vast sums of money without necessarily looking for a return on their investment. If you don't like comment and speculation then take the company private and don't list it with Companies House. In fact don't expect us as tax payers to the Comhairle to fund it and then you can do whatever you like... In the meantime, we will all continue to understand what the hell is going on and whether our tax dollars are being spent wisely.
Your final para sums up crofting too. Its dead.
Great news for all farmers, according to 6.59, you can all now retire(!)
Crofting isn't dead - as John Cleese would have said - it's merely resting. I'm only an incomer - but I see the incredible impact crofting has had upon lifestyle, settlement patterns and social co-operation here.
Outside of crofting areas, the holding of land is something that only really very rich people do, or agribusiness. Having a heritage where a small plot of land can be worked, where a community holds grazing lands in common, where fuel can be cut from the hillside is an incredible, resilient asset in uncertain times.
Like all other industries based on the land, crofting is changing and adapting. It might not provide a complete living, but I'm not sure it ever did provide more than susbsistence. What would you rather do - work your croft in the fresh air and have something to show for it at the end of the day or sit in a call centre at someone else's beck and call and earn a pittance there?
Crofting is unique and valuable, and I applaud anyone who chooses to continue it as part of a way to earn a living.
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