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Tuesday29 July 2014

Foster's posts massive pre-tax loss

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Foster & Partners has posted a huge pre-tax loss after racking up interest repayments of nearly £40 million.

Latest accounts from the group business showed borrowing stood at £327 million resulting in the massive interest repayments.

This meant an underlying operating profit of £25 million – up £366,000 on the previous year’s figure – was turned into a pre-tax loss of £15 million compared to a £16 million pre-tax loss the previous year.

The firm’s net loss was up 2% to £19 million in the year to April 2010 while turnover slipped 13% to just over £134 million with more than 90% of the group’s revenue now derived from outside the UK.

The results also showed that the six directors of the business shared wages of close to £5 million, up 5.5% on last time. The salary of the highest-paid director, believed to be Foster himself, was up 5% to £1.8 million.

The group business decided against paying a dividend but the shareholders of group subsidiary, Foster & Partners Limited, also shared a dividend of £6.3 million.

Much of the debt has resulted from the decision in May 2007 to sell 40% of the business to private equity group 3i but despite the figures, Foster put a brave face on the results.

“We have navigated through a difficult year, with excellent results, both in terms of creative achievements and financial success,” he said.

“The challenge of tough times is arguably the only true test of the resilience of any practice and its organisational model.”

The number of people employed at the business stood at 936, down a quarter on the number it was employing in 2009. The number of architects at the business was 740, a fall of 25% on the 990 it had on its books a year ago.

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Readers' comments (12)

  • Foster knows when to sell up. Just like the man from Foxton´s.

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  • Any sign (ever) of that profit share those millionaire directors talked about?

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  • If I went to my Practice bankers and put a proposal to borrow 2.5 times my annual turnover, or 13 times my annual profit, to them they would still be laughing at me this time next year! Oh how the other half live!!

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  • I cannot understand how making a pre tax loss of 16 million this year and 15 million last year, and firing a quarter of your firm translates into a financial success. But I guess that is why I am an Architect and not a Banker.

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  • @Tony - you might to be conflating the idea of a one year post-tax loss with insolvency? I doubt by any definition F&P are insolvent on the back of this loss. Whilst I haven't seen the numbers I would expect the net assets to be still fairly sizable, and although sometimes frowned upon, you can obviously pay dividends even in a loss-making year out of retained earnings. How right / ethical that is in corporate terms, is another question.

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  • The comment above is a response to an earlier comment that was removed

  • Why such heavy borrowing? Seems a sure fire way to cripple a profitable company.
    Why does an architectural practice need to borrow 327 million quid?

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  • Another way of looking at it is that the debt is nearly a third of a million for every employee... That sounds an untenable situation to me...

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  • did they have to fund the buyout of a competitor? If so I didn't hear about it. What on earth have they used all this money for?

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  • Foster's operates as a business which involves risk in the form of profit or loss and its employees are the backbone in keeping the company afloat through sheer hard work and talent. The banks on the other hand are quite content to charge interest payments of more than £40m per annum without any effort or engaging in any form conventional trade. Not only does this constitute a form of enslavement but realistically how is it possible to repay £321m whilst operating as a loss making business?

    The Ford motor company should serve as a good example that successful growth and profitability can by attained with total independence of any financial institution as it was back in the 1930's.

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  • London, your point against the banks is misguided, they lend money to the business and charge interest as they are taking a risk. The risk to the bank is that the company will go bust and not be able to repay, hence interest charges are onerous.
    Banks don't just knock on the door, give you the money and make you pay, Foster would have gone to the banks first and asked for the loans.
    It might be that the buyout was funded by loans, similar to Man Utd and Liverpools current predicament.
    Bad business sense really and show how easy it is to for management to destroy their own company.

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