Sunday, 8 November 2015

A pitch that appears more fantasy than reality


Recently 92 major snowsports businesses, including K2, The North Face, Rossignol, and Clif Bar, wrote a joint letter to the US President. It was timed to coincide with his speech to UN Climate Change Convention in Paris. It was
a plea for help.

Yesterday a new pitch was published on Crowdcube - The Faction Collective.

FC make skis and some associated items. They are at the trend end of the industry - free formers who seem to have forgotten the real purpose of business - to make a profit. That's clearly far too naff.

Reading their accounts, from the HQ in Switzerland, you would be forgiven for confusing this company with another one; not the one portrayed on Crowdcube.

Selling in over 300 stores worldwide, the company has only managed sales of £600,000 and £800,000 in the last two years. You do the math. With costs of £1.55m and £2.15m respectively the losses are off piste. The 2013/14 costs included a handsome sum of £101,000 for 'exchange differences' - that's a whopping 12.5% of t/o. The Crowdcube pitch says they have an CFO but he must be out product testing.

It is worth checking out (always!) the Crowdcube version of the founders credentials. They have a habit of missing important details out. Mr Hoye is an entrepreneur. Entrepreneurs sometimes fail - it's in the nature of the business. We like them to own up to it. A failure leaving banks and creditors owing several tens of millions of pounds only a few years ago is pertinent information we feel. So do check out Hoye's Latitude Holdings Group Ltd followed by Latitude Digital Marketing Holdings Ltd. This is well worth a view - especially the comments bearing in mind LDM Ltd closed a year and half later! http://www.insiders-view.co.uk/latitude-seo-goes-bust/00683 

This is one the comments -

Alex(Hoye)

You clearly have been reading this Blog, care to comment on the text taken from Brand Republic?
“As reported in the August 2008 edition of New Media Agencies Financial Intelligence, Hoye co-founded Go-Industry in 1999 and, using €51 million raised from US venture capital sources, embarked on a massive acquisition spree that included the well-known UK industrial auctioneer Henry Butcher.
By 2004 Go-Industry was generating annual revenues of €50 million and on 5 January 2006 it was admitted to AIM by means of a reverse takeover. At that time Go-Industry had run up losses of €56 million and had borrowings approaching €10 million. Then, on 26 June that year, a brief announcement said that Hoye had resigned.
One week later the board signed off the accounts for 2005 showing a further loss of €11 million, of which over €4 million arose from stock write-downs and €4.6 million related to exceptional items including bad debts.”
http://community.brandrepublic.com/blogs/bobwillott/archive/2010/01/13/latitude-gone-west.aspx#comments

Recorded GPM for FC is 10% but in the Crowdcube version, this year it will be 19% and by 2018/19 this will have reached a very impressive 45%. This is
achieved through improved manufacturing costs and direct marketing - apparently.

Luckily the Swiss have better accounting procedures than we do, so it is possible to see just where Faction spend all their money. In a business model where there are more half pipes than chairs in the board room, it is hardly surprising that a vast chunk of the spend is on 'riders under contract' or what might be better described as staff outings. It certainly is not what you would call a tight ship.

On the plus side, the brand has established itself, albeit as a bit, niche player in the market. It has managed to raise £7.5m in capital and has some very chunky investors - all of whom ski Faction so maybe they are the 'riders under contract'!

Otherways, the market iis forecast to have miniscule growth over he next 4 years and with snow predictions dire, this could well end up being negative. There are already major players and a plethora of niche ones, both in the ski and accessories market.

As the Swiss Accountants point out, the company has made unsecured loans to its US and Canadian subsidies, for which no provision has been made and they are only a 'going concern' on the say so of the Directors. What's more they have a short term loan of £1.3m due to be repaid in 3 months time.

Given the obvious market conditions, this is one high risk investment. We are puzzled as to why so many big hitters have invested at what the pitch states are the same terms as you and me. More tea anyone?

ps - be aware that of the £366k currently invested (09/11/15) - two investors put in £100k and £150k. Sometimes this is a ruse to get pitches into over funding when these large amounts then are withdrawn  - allowing the pitch to still be over its original target and therefore complete. Just saying.

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