Father Christmas on the brink of bankruptcy

Supplying toys for the world’s children, keeping a North Pole factory warm and feeding and housing a workforce of elves and reindeer doesn’t come cheap. We reveal the cost of being Father Christmas.

Christmas is "at risk of being cancelled" after a major financial hole was uncovered at Father Christmas’ firm Red Coat Holdings, putting its annual present distribution service at serious risk.

One of the world’s largest family-fun businesses, Red Coat Holdings is a not-for-profit organisation responsible for the annual distribution of toys to the world’s children.

And now an extra £1 billion funding gap has been shown by accounts obtained by XLN Telecom and shared with Yahoo! Finance – with soaring prices for raw materials and heating costs unable to be met by cutbacks.

Worse, the news comes after Red Coat Holdings’ cash reserves were effectively wiped out by a loss of £1.95 billion in 2011, putting the future of the operation at risk.

Rudolf – global head of distribution at Red Coat Holdings – expressed concerns that the organisation might not be able to meet its annual commitment to the 526 million children that celebrate Christmas globally.

“If we can’t rein in costs or find additional sources of funding by the December 25 deadline, there’s a real risk we will miss our delivery targets,” he wrote in a briefing note attached to the accounts.

Father Christmas' workshop, the North Pole


Rising costs
Wood, metals and other raw materials for toys set Red Coat Holdings back £2.2 billion in 2012 as prices spiked, the accounts show.

The organisation has consistently rejected calls to either outsource production or move away from traditional methods and materials to cheaper plastic-based, toy production.

This has left it heavily exposed to movements in commodity prices and the market has not been kind.

Copper prices are up 6.6% on December 2011 while Zinc prices on the London Metal Exchange have risen 5.4% over the same period – key materials for the brass components of many of the company’s leading product lines.

Tin prices are up 15% on the same period last year and lumber prices have soared 27% over the past 12 months.

Volatile energy prices also saw gas and electricity bills rise 18% to £121 million and £90 million respectively.

“Turmoil in the energy markets following the Arab Spring and its subsequent fallout impacted heavily on Red Coat Holdings ability to budget effectively in terms of natural gas and oil prices,” the accounts read.
 
There was some relief as food prices fell – with the UN Global Food Price Index dropping 3% over the last year – but with food prices still double what they were 10 years ago costs remained stubbornly high. Reindeer feed alone have set Red Coat Holdings back almost £5 million so far in 2012.

The cost of being Father Christmas


Cost in 2012

Notes

Raw Materials for presents

£2,182,900,000

An average of £4.15 is spent on materials for each present

Wrapping Paper

£252,480,000

Based on 4800cm of paper needed per present

Ribbons & Bows

£220,920,000

2 metres of ribbon and one bow are used on each present

Elf salaries

£9,131,944.44

There are 1,000 elves working year-round at the North Pole

Gas

£121,000,000

Gas price rises have hurt Red Coat Holdings' finances

Electricity

£90,000,000

Electricity bills have also risen considerably

Pension Contributions

£3,200,000

There are 400 retired elves drawing pensions

Boot Polish

£87

Father Christmas still takes pride in a well-polished pair of boots.


Data taken from accounts obtained by XLN Telecom

Staff cutbacks
Production is already at the limit, with the company’s 1,000-strong workforce required to work six eight-hour shifts a week, 50 weeks a year, to maintain output levels as the global population rises.

However, to compensate for rising material costs, Red Coat Holdings has reined in some of its industry-leading staff benefits.

Elf health insurance, pensions (previously pegged at 80% of final salary, rising in line with inflation) and on-site confectionery and cocoa access have all been restricted to try and limit losses.

This led to widespread staff discontent, with nearly 3,500 working hours lost to industrial action in early November alone.

Offers from Wonka Inc. for some of the top elf toy designers swiftly followed, sources have learnt.

Red Coat Holdings Ltd is one of the major employers in the North Pole.

Times are tough at Red Coat Holdings


Hope that Christmas can be saved
The organisation, still owned and operated by the Claus family and headed by iconic CEO Father Christmas, is not taking the risk lightly.

Proposed revisions to the Naughty-Nice calibration metrics were rejected at a board meeting.

Instead, operation Get Ready, Ignore Negativity, Christmas Happens has been launched – looking into every revenue source possible and seeing staff forgo bonuses and work unpaid overtime to meet deadlines.

There is also hope that the discovery of extensive oil and gas reserves at the North Pole could be used to both bring down power costs and supplement subsidise toy production in years to come.

“We’re doing our best to address the funding shortfall,” a spokeswoman told Yahoo! Finance.

“Ongoing copyright infringement lawsuits against major toy manufacturers look like they could bear fruit and we’re taking a hard line in re-negotiating image rights licences to improve near-term cashflow.”