£'s €'s and what happens next....

[2013PrincessV39]

Hi All,

Me and my Deck Hand were discussing a rather interesting prospect earlier today, however with not so much in the way of expertise in this subject (if anyone actually is...) I'd like to ask what team MOBO thinks about the following;

With Pounds and Euro exchange parity as real but not absolute posssiblity, and with the current rate making those of us with overseas property's count our margins, how will this affect the British yards.

On the one hand there are people who just went from not being able to afford a 1.5 million euro yacht to now only having to shell out a third of that.

MY OWN feeling is that one big yard, PMY, have inflated and overshot their prices in their smaller sized range to the point that they may price themselves out of a good profit taking next year or beyond in this category, and yet the other big yard, SS, have cut into the aforementioned company's smaller market with a superbly priced flybridge that will certainly steal some custom with its newer technology and approach.

The frustration I feel is that the bigger PMY yachts are actually great value for money above 60ft, and that is the point at which so much money is involved that the decision between the two leading brands is more to do with taste and different speaking issues.

In other words, barring the price drop that I believe will become a possibility, are we headed for cheaper 50ft flys or more expensive ones?

Aaaaaaaaaaannnnnddddd....... GO!

 

[Portofino]

Would have thought and it playing out right now ( Cannes ) a mini boom for them ,more so SS due to a wider exposure in more markets in particular the US .
Weak £ makes then appear cheaper , better VFM easier for Jonny foreigner to afford .
How ever in theory the important components like engines , at first glance the one reading this with an O level in economics will tell scream they will cost more , and because most component s are imported- -the big 2 will suffer.

Nope --- More sales growth will give more confidance to the owners ,and prospective buyers.Buy some stuff @ SS could easy relieve you of £25 M ++ or your currency eqivilent .
Those paying in € say and $ ,what will happen is this some of that currency will be held back in that domain to pay local suppliers .This will help mitigate the volatility of currency movements ,
Of course the UK workforce and suppliers will need sterling but not all of the ticket price will be brought back .
Depending on the actual ratio of sterling sales (uk ) and € /$ -and how much is held in euroland /US -some uk suppliers might start to worry , as SS may think about switching a supplier to a market where they generate loads of either € or $ ?
So that would be the fall out -eventually 1-2y down the line -some local UK suppliers would lose out as .
The Resin -agian in theory imported but SS are in a better position with a Chianese owner Wanda group .
I suspect some fancy accounting via the "group" or other buisness synergy should kinda mitigate that chestnut .
Priny being EU owned -well French ,with a weaker exposure in the US to the $ market and limited access to Chianese raw materials will suffer the most.There may well be a blip in French € sales ,but only a blip as the economy in France is on its arse and in the Med esp Cote dAzur they are up agianst some mighty opersition coming out of Italy .
Ferretti group products another Chianese owned and $ generating builder being just one example .

So for me the fall in the £ = boom time sales wise for SS and initially a better year for Priny ,until lack of $ market where loads of components come from start to choke it .

 

[PowerYachtBlog]

Portofino there is important difference between Sunseeker and Ferretti Group Chinese operations.

Sunseeker Chinese owner owns 93% of company and full control.
Chinese own 76% of Ferretti Group and control decisions is in voting power. Also Piero Ferrari from the Ferrari car family and his F Investments owner bought 13% of the company this year.

People always compare the two companies but it is a different structure.

China Sunseeker wanted to move production of sub seventy feet boats in China a couple years ago, something which was stopped due to Britain being interestingly competitive in the last three years and an interesting finance hub. It will be interesting to see if the China building theory will return again at Sunseeker.

Edited

 

[Portofino]

OP asking about the falling £ effect ?
Yes both SS and Ferretti have in comon huge potential synergy with majority Chianese share holders , other businesses?

Can,t see a handbag or bottle of brandy helping Priny -no dought Henry will put forward a good conection

It's the ability to generate cash in the market where you pay your suppliers which will mitigate against any currency fluctuations .

Ferretti are in € zone .

Theycan German MTU and MAN engines with € from strong Eu sales, or any component from Euroland.

Moving to sales
How ever Sterling new boat buyers will find there products cost x% more ----in theory if they have to convert £
I say in theory ,because at first pass direct £ to € seems expensive .Things are not allways what they seem ---- Many potential Uk new boat Ferreti customers have also assets in Euroland - so may as well pay for it in € -since it's in the Med anyhow .
But if you can only to pay in £ then ---SS and Priny --will have to do -
Swings n roundabouts

 

[NGM]

Would have thought and it playing out right now ( Cannes ) a mini boom for them ,more so SS due to a wider exposure in more markets in particular the US .
Weak £ makes then appear cheaper , better VFM easier for Jonny foreigner to afford .
How ever in theory the important components like engines , at first glance the one reading this with an O level in economics will tell scream they will cost more , and because most component s are imported- -the big 2 will suffer.

Nope --- More sales growth will give more confidance to the owners ,and prospective buyers.Buy some stuff @ SS could easy relieve you of £25 M ++ or your currency eqivilent .
Those paying in € say and $ ,what will happen is this some of that currency will be held back in that domain to pay local suppliers .This will help mitigate the volatility of currency movements ,
Of course the UK workforce and suppliers will need sterling but not all of the ticket price will be brought back .
Depending on the actual ratio of sterling sales (uk ) and € /$ -and how much is held in euroland /US -some uk suppliers might start to worry , as SS may think about switching a supplier to a market where they generate loads of either € or $ ?
So that would be the fall out -eventually 1-2y down the line -some local UK suppliers would lose out as .
The Resin -agian in theory imported but SS are in a better position with a Chianese owner Wanda group .
I suspect some fancy accounting via the "group" or other buisness synergy should kinda mitigate that chestnut .
Priny being EU owned -well French ,with a weaker exposure in the US to the $ market and limited access to Chianese raw materials will suffer the most.There may well be a blip in French € sales ,but only a blip as the economy in France is on its arse and in the Med esp Cote dAzur they are up agianst some mighty opersition coming out of Italy .
Ferretti group products another Chianese owned and $ generating builder being just one example .

So for me the fall in the £ = boom time sales wise for SS and initially a better year for Priny ,until lack of $ market where loads of components come from start to choke it .

Not sure I agree with this ....

Overall, those UK builders with a decent overseas sales reach will benefit, due to local currency price depreciation, via a pick-up in sales.
However, their margins will be squeezed - due to higher costs on any imported component or service - regardless of which currency they receive payment for the final boat.
Regardless of that it's unlikely they receive many payments in local currency - the boat's are listed in GBP at UK factory prices and payment is made in GBP (of course any sales team would help you with the FX transaction in the unlikely event you didn't have a more cost efficient provider).
So overall it's good news for them, but production costs are likely to rise somewhat.

 

[jfm]

Portofino there is important difference between Sunseeker and Ferretti Group Chinese operations.

Sunseeker Chinese owner owns 93% of company and full control.
Ferretti Group owns 76% of company and control is in voting power. Also Piero Ferrari from the Ferrari car family and his F Investments owner bought 13% of the company this year.

People always compare the two companies but it is a different structure. Very different I add.

That's just completely wrong. I'll eat my hat if you've read the shareholders agreements but even if there weren't any s/h agreements it would be wrong.

 

[PowerYachtBlog]

That's just completely wrong. I'll eat my hat if you've read the shareholders agreements but even if there weren't any s/h agreements it would be wrong.

Yep it is. Correction I meant the Chinese owned 76% of FG, but company control is in voting power.

 

[henryf]

Can,t see a handbag or bottle of brandy helping Priny -no dought Henry will put forward a good conection

I've always thought that Princess could make more of the LVMH connections particularly in markets such as Asia.

Having said that and I will bow to JFM's superior knowledge here, I think Princess are part of the LVMH investment group rather than the luxury goods house.

Henry

 

[jfm]

I've always thought that Princess could make more of the LVMH connections particularly in markets such as Asia.

Having said that and I will bow to JFM's superior knowledge here, I think Princess are part of the LVMH investment group rather than the luxury goods house.

Henry

PYB's analysis of how companies are controlled is page 1 of a Janet and John book and bears no relationship to the real world and modern capital markets. Princess's equity is owned by a collective investment fund called L Capital. The fund is managed by L Catterton, a firm formed by the merger of Catterton and L, L being LVMH's fund manager subsidiary. Princess isn't part of LVMH (whether "investment group" or "luxury goods house") in the normal sense of the phrase "part of". LVMH owns about 40% of the equity of L Catterton the fund manager, which is different from owning 40% (or any other percentage) of the investments held by the fund (Princess being one such investment). Furthermore, LVMH appears to be the back seat partner: after the merger to create L Catteron, LVMH's folks went to do other things in LVMH leaving Catterton's team to run the fund management business and therefore leaving them in charge of Princess (well, in charge so much as you can be, when you have such a bank debt to EBITDA ratio...). L Capital has made plenty of successful investments, but unfortunately Princess isn't one of them and has turned into a bit of a train crash (qv, bjb) from point of view of its equity investors. In a while (months rather than years) I expect you'll see reports of LBO debt on Princess's balance sheet in quite a large amount, and the yachting press might not understand it well. The debt isn't new but for structural reasons has not been consolidated thus far.

 

[henryf]

So I was sort of a tiny bit right then ?

Sounds like when the announcement is made We need to offer to buy Princess having already lined up a buyer and pocket something nice from the production line for our troubles.

I do love it when you talk all corporate financial structures JFM, it's so sexy

I'm still struggling to understand how BHS was bought for a pound, people seem to have made millions and no one has gone to prison. They've even had a day out in parliament where I bet they got lunch & afternoon tea.

I am truly in the wrong game.


Henry

 

[PowerYachtBlog]

PYB's analysis of how companies are controlled is page 1 of a Janet and John book and bears no relationship to the real world and modern capital markets.

Sure I agree with that. I am sure that if the Chinese who owns 76% of Ferretti starts to knock that he wants something he will get it, considering he owns such a big chunk of FG.
Again this is a simple to say how modern and old World always moved. When money talks they say the bull walks....
But anyways this is not an economic forum, and I was being very simple about it.
And the structures of all three companies mentioned is very different, and I was pointing out to Portofino that Chinese owned FG is different to Chinese owned Sunseeker as he made them to be very similar.

 

[MapisM]

(well, in charge so much as you can be, when you have such a bank debt to EBITDA ratio...)

Spot on. This is the key reason why I've been saying since the last millennium that LBOs are a cancer of capitalism.
Whenever a privately owned and operated company is sold to a P/E fund, what happens is that a company which used to be run by someone (quite often its founder) who knows intimately all the business ins and outs, rather sooner than later it's run IN THEORY by someone (the new shareholders) who typically understand very little of the very same business, and IN PRACTICE by someone (the banks) who understand nothing at all.
Eventually, what happens is that FG is what it is now - in sharp contrast, for instance, with AziBen group.

 

[jfm]

Spot on. This is the key reason why I've been saying since the last millennium that LBOs are a cancer of capitalism.
Whenever a privately owned and operated company is sold to a P/E fund, what happens is that a company which used to be run by someone (quite often its founder) who knows intimately all the business ins and outs, rather sooner than later it's run IN THEORY by someone (the new shareholders) who typically understand very little of the very same business, and IN PRACTICE by someone (the banks) who understand nothing at all.
Eventually, what happens is that FG is what it is now - in sharp contrast, for instance, with AziBen group.

Hmmm, not so sure. Yes to some extent, and yes there are cases where that has happened a lot, but in general the PE firms and the banks back the existing management team and only make the big/strategic decisions, which as owners of the capital they should. To pick an obvious example, Bernie E has unquestionably run formula 1 for the last ten years despite PE ownership

Banks only run things when the business is in distress; until then they stay well away. Similarly, PE owners get more involved when the business underperforms because there is not much point if it is performing well

 

[MapisM]

Well, yeah, when the figures allow for an easy and quick exit strategy with a solid IRR, everybody's happy of course - including the management team, which is usually involved (been there, done that).
But even in this "best case", from a macroeconomic standpoint I don't think the result is any better than it would have been with a more traditional way of investing and managing a business.
FG has had its glory days, but we all know how it compares to AzBen by now.
...and there's plenty of other examples, of course.

But we are way OTT now, and I'm guilty as charged for it - my apologies to the OP!