Are Beneteau in trouble?

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Or, more accurately, the Regional Government of Grand Saxony. German nationalised business methinks.

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Really? I thought that the Porsche share was privately held and now a controlling share? I understood that the German govt were trying at some length to prevent this happening.

I'm ready to be wrong...
 
Methinks you misunderstand what I am saying. The comparison with VW is just not valid. There is no "bright future" - that for boatbuilders is in the past. This is a period of structural change in the market.

To illustrate, when I joined my company at the end of 1977 it had experienced several years of growth and 1978 was its most profitable year. It was well established had an almost unique product that sold all around the world and was rich in cash. Great firm to join as Marketing man. Through 1978/9 it became clear that the world was changing. Legislation, changes in technology, aggresive competitors and a saturated market all had potential negative impacts. The then new owners ignored all this and I desparately ran around the world trying to hold sales and find new markets (there weren't any). It then became clear to me that the product was doomed in the long run at the kind of volumes achieved in the past. When I eventually opened the file marked "Future Plans" it contained the equivalent of doodlings on the back of an envelope. Worse stiil when I opened the file marked Plan B it was empty! So I proposed a Plan B to progressively shrink the company to fit within what I perceived was the future demand. Boss not used to Marketing men who are not full of s***t put me on the top of the redundancy list. Within a year of me leaving and them trying to operate at a level that was unsustainable, owner bailed out, sold the remains and new owner shrank it to about 20% of its former size. So I was a Marketing man after all - my estimate was nearly double the reality. Company struggled on under indulgent owners for 10 years, making a profit in only one year until it was finally put out of its misery.

The recession was not to blame - it merely shortened the decline period.

So you see why I have a sense of deja-vu. The Boatbuilding industry has rising costs, saturated markets, declining demand, over capacity and no new markets of any substance to grow into. I won't bore you with all the indicators that lead me to this conclusion, except one. On MOBO forum is a thread started by a survey of the number of popular MOBOs (Sunseeker, Princess etc) on the second hand market. I did this exercise for a client just 2 years ago and I was staggered that the new numbers were nearly twice as high as mine. And this is a sector that it is suggested is holding up. I also did the exercise on AWBs, and although I have not done it this year, observation suggests a similar pattern. Think through for yourself the implications for this for new boat sales.

So Beneteau have probably already ditched their Future Plan and started to implement their Plan B - remember they will have experienced a downturn in orders a year ago. I hope plan B does not include converting their cash pile into stock to "keep production going and people employed". Not only does that create problems in the staff car park, but it also depresses prices as we have seen from Ancasta's stock clearance.

Picking up on Stus point on Bavaria. I bet the Venture Capitalists only saw Future Plan and not Plan B - even if Bavaria had one. Venture capitalists only buy "bright futures". Previous owners were smart getting out at the top. Guess they may have an opportuniy of getting back in at the bottom without going through the pain of getting to the bottom. We have had a bit on the new owners' Plan B which seems to include switching to larger sizes and MOBOs. What planet are they on - frying pans and fires come to mind.

Do you think government is capable of picking winners in this climate, given their performance on a national scale? The role of government should be to facilitate the restructuring process where there are some good examples in the past where government action has been useful.

Other wise the solutions lie with the owners and managers. Tough job!
 
Trannie, an interesting analysis, and one with which I probably concur. But what is Plan B?

Assuming there is some smaller level of ongoing demand for new boats, does boatbuilding revert to
a) an order-led, fragmented, labour-intensive business, essentially building one-offs or short runsat high purchase prices, or
b) can all the computer-controlled mass-production kit that will hit the auction markets as volume businesses fail be put to use to produce smaller volumes in a low-overhead environment to keep new boat prices affordable for the average middle-income family/retirees or
c) is there a third way?

And a supplemental. Is now a good to time to buy new, because new boats will become - effectively - unaffordable/unobtainable before much longer?
 
Beneteau are probably for now reasonably safe as a credit counterparty, but you must look very carefully at whom your exposure is to - in this case it is Ancasta.

In my opinion in this econonomic climate the only prudent way forward is either to obtain credit insurance against the possibity of Ancasta becoming insolvent or else ask them to open their books to enable a credit review.
 
ship all the fab equipment to china/india and employ v cheap and expendable labour building a set number of hulls and internal structual fittings. As order come in ship them. Bolt all the bits on including engines etc to the hulls on the basis of firm orders back in france using your old facilities with a fraction of the labour force. Get some glossy mags to enthuse about the quality of the eastern labour... job done.

Or do what the surviving uk builders did focus on quirky niche products like expensive plastic gaffers or expensive high end small volume.
 
Ken, guess if I knew the answer, I would be working for one of the big builders - not working in China earning extra beer tokens to pay my marina bills next year (in Euros of course!)

Shrinking capacity is the obvious one. HR have reduced their workforce, but not probably capacity, because they have removed much of the hand work from their smaller boats. They are lucky in a way because they sell more directly to users and build to order, so they have anything up to two years to adjust.

On the other hand BenBavJenHans etc do build to order - but dealers' orders so they are one stage removed from the real demand. As Ashley says they bought boats in the summer, but despite SBS have been unable to shift some very popular models. Wonder what that says for their order book for next year!

Shrinking companies is not easy. Not only does it offend managers only used to growth, but it is not a linear process. Sure you can shave 10-20% off by short time working, holidays etc - just as the car manufacturers are doing. But major reductions require step changes. The example of my 1970s employer will illustrate. We had capacity for 23000 units on basic time working. Best year we sold 25000 - good overtime pay. The year before I left it was down to 20000 and only achieved through stuffing dealers full of stock. Real demand at consumer level was probably 17 - 18000. My forecast was for 13-14 thousand the following year as dealers would move old stock first and the overall market was declining. No way we could make a profit at that level. My Plan B was to shrink the capacity (complete with all the costs) to 13000 where we could be profitable - and work overtime if demand was higher.

Surprise surprise they kept capacity at around 20000 - and sold 13000! Big loss, panic sale of business, owner got his money back on the property.

I suspect that none of the AWB builders would be bold enough to bite the bullet - particularly not those who report to the bankers. From what I have seen of the automated factories thay have considerable duplication of facilities to cope with their volume and variety. First thing I would do is try and identify the core products with sustainable demand and configure a manufacturing facility around them. Shrink the overhead, cut out marginal markets and keep low profile. The beauty of CNC processes is that they can be geared up relatively easily and adapted to changes in the market.

Just as I am suspicious of GBs policy of spending out of recession, so I am sceptical of those who say they will "sell" their way through it. There are no significant new markets to replace the "dead" ones.

As to the revised shape of the industry, marginal manufacturers - won't say who they are but not difficult to guess will disappear. Some may rise again in another form. There is likely to be at least on merger/takeover with an overall reduced capacity and rationalised product range. Strong brands will survive but not necessarily in the same hands or on the same scale.

For the consumer choice will be more limited, real prices will be higher and demand lower. However choice will remain because there is a vast stock of less than 10 year old boats, often in excellent condition which buyers will trade to get their upsizing or downsizing.

Maybe I should paste this on the door of the heads and look at it in 5 years time!

And yes, this is a good time to buy if you have the cash - and I might even suggest borrowing (at fixed rate) when rates drop to 2%. However, I won't be as I am one of the hardest hit because I am now a saver and not a spender. However, I think my 8 year old Bavaria will see me out - and don't think I could live with an Ikea interior which seems to come as standard on AWBs now!
 
Interesting, but it will only fall back as far as the charter companies and sailing schools, who require a new fleet every 5 years or so, or else people get sniffy about paying the high price of holidays if they are not getting the premium product they thought they were buying into.
The equation then becomes one of how much those boats are worth at the trade in, and then adjusting holiday prices/businessmodel to suit.
There will always be a level of private buyer too, but at a reduced level.

The real question to be addressed here is the nuclear half life of all the MABs clogging up marina space. I see a time when you will not be allowed into marina with your old boat as it wont fit the social profile.
This didnt happen with wooden boats, as they took longer to build, were much more expensive relatively, and the lower value ones crumbled back into dust.

So, the future is disposal of MABs. If someone cracks that, the market will move on. It aint over yet.

The alternative future is to build more marinas, which would be a decent second avenue for boatbuilders. Bit like a house - buy the house, get a building plot free underneath it.

Benetaylor-Woodrow anyone?
 
The real crunch on downsizing comes on the proportion of variable to fixed costs, when the fixed costs are high then downsizing does little, your overall costs per unit go up so sales or profit fall even more. The other big gamble is how long will the pain last, if it is only 12 months as Dear Darling suggests then hanging in if you have the funds will pay off, but.....................

I think this thread does show just how nervous buyers are when it comes to big ticket items and perhaps there is room for a change in attitude here. There is a real need for consumer confidence to be at least maintained at it's current low levels and not allowed to fall further. The likes of Ancasta may well need to look at measures other than price to keep the punters trust, you can see from above the reaction to a simple price cut.
 
Don't think cheap labour is the answer. The automated factories have reduced labour times significantly. If you get a chance look at the Bavaria promotional video and see if you can spot the people doing manual tasks rather than sitting at computer terminals!

There is already a boatbuilding industry in China. I am currently sitting about 10 miles away from one of the main builders. They don't make mass boats, but 50ft plus short run semi custom boats where labour is a much bigger proportion of total cost. They are taking over from the Taiwanese yards. Particularly good at interiors and can build a custom Blue Water boat such as the Passport at a very competitive price.

Big barrier for having low value (relatively) boats built so far away from the markets is transport. Many components are already built here, but bits for Lewmar winches are high value, low bulk items with low transport costs. empty or even half empty hulls are low value, high bulk.
 
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The real question to be addressed here is the nuclear half life of all the MABs clogging up marina space. I see a time when you will not be allowed into marina with your old boat as it wont fit the social profile.

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Good point - well made
 
That is precisely what I am saying. Fixed costs (factory, marketing, management, design, etc) - is a large proportion of total cost and the most difficult to shrink. Gave a lecture on the very topic only last week to my students here.

Because it means you don't just get rid of factory workers (because there aren't many of them anyway) it means management has to get rid of some of themselves - company cars, expense accounts, pensions the lot, As well as reducing the size of the production facilities.

Failure to deal with this issue is one of the major reasons for the decline in manufacturing in the UK. Wish I had a penny (but better a euro) for the number of times I have heard "we cut the workforce (lazy bunch of B's they were anyway) and we still can't make a profit". Even when you point out that the result is fixed costs have risen from 30% of total cost to 50% as a result of their decision, they still don't get it.

Off the soap box now!
 
I get the impression that for some manufactureres the key fixed cost they need to deal with is debt service.

But of course if they fail to deal with customer confidence, no ammount of cost cutting is likely to save them. They must at least maintain their share of what market is left and if at all possible actiually grow market share.

Whilst I would agree that both French and German locla and central government are much more involved in industrial support support such as was practiced in the 70s and 80s is no longer legal in the EU as far as I am aware as it very clearly distorts the market.
 
Sticky fixed costs will become more flexible should deflation begin to set in which I think is likely - both raw material and labour related.

But re Britisn Industry - was the "downfall" not mainly due to poor management that eventually led to uncompetetive firms that in true honoured Darwinian form just died out?
 
Yes, Bavaria is very highly geared from the takeover, but debt servicing (as an amount) is not a big issue in these times of low interest rates. It is just generating the cash to make the interest payments. Boats sitting in the staff car park don't do that very easily. BTW I believe one of the Major French builders has a similar stock problem, but I don't know about its finances.

Interestingly I just received an email from my accountant telling me about the new government scheme where you can negotiate delayed payments of your overdue tax! Decisions normally within 10 minutes!

Who says darling Darling doesn't have a sense of (ironic)humour!
 
Exactly what I am saying - but it wasn't only failing firms that failed. Just mainly badly managed ones

To paraphrase Milt Freedman "Business failure is always and everywhere the fault of managers" (he was talking about inflation and government)
 
As a matter of interest have you looked at the debt covenants and indeed the maturity of Bavarias o/s debt?

I haven't but it is always worth bearing in mind that refinancing points - when the funding raised in the Goldilocks era either expires or a covenant is breached - can spell disaster!

I expect this will be an issue across the industry as a whole before long.
 
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Boats sitting in the staff car park don't do that very easily. BTW I believe one of the Major French builders has a similar stock problem, but I don't know about its finances.

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Which is what they all do - these boats are on their books as 'assets', so they appear financially sound. But till they are sold these boats are not going to pay any bills.
Once suppliers refuse credit...
 
To put it in context German Bunds are yielding 3% and 3.4% respectively. But corporate and other private credit spreads are still at amazing levels. E.g. high yield - and this includes a lot of private equity deals is currently in the order of 20%! Baa corporates are 9% and interestingly 8% is a reasonably good proxy for the private sector as a whole.

So rates are not that low for corporates. This is therefore not a 90's Japan scenario where many dead companies could remain dead, but still vertical, as a result of interest rates circa zero. Refinancing points for weaker credits can easily spell the end of even a pretty good firm.
 
have a couple of thoughts

"Picking up on Stus point on Bavaria. I bet the Venture Capitalists only saw Future Plan and not Plan B - even if Bavaria had one. Venture capitalists only buy "bright futures". Previous owners were smart getting out at the top. Guess they may have an opportuniy of getting back in at the bottom without going through the pain of getting to the bottom. We have had a bit on the new owners' Plan B which seems to include switching to larger sizes and MOBOs. What planet are they on - frying pans and fires come to mind."

Yep Venture Capitalists buy revenue streams; the old Bav owners did IMHO outwit them.

When the chips are down and there is massive over capacity as is now the case in boat building the smart money is on the business that reinvents itself to build something else - so the question is what could you make that’s in short supply from poly resin that’s the size of a boat that’s not a boat? mmmm I think I know.

Big business does this all the time because its not emotionally involved with its products - the advent of the digital music and solid state data storage didn’t herald the end of SONY, but they don’t make any tape machines anymore. Singer used to make sewing machines and cars they ended up making computers, The Lyons coffee shop produced but didn’t market an electronic office called LEO, Lyons Electronic Office so changing is possible but success isn’t assured.

Beny’s 1 year of finance available sounds and is impressive BUT no director worth his salt will let funds dwindle away if there is no end in sight to a downturn or a depression, in fact failure to use those funds to enhance the future of the business or its shareholders wealth will incur their wrath. The French Government will (probably) help them out if they change production to something other than leisure craft. (Their roots are in fishing boats – no exactly a growth industry either)

Time will tell. Markets all around the globe are becoming affected by the downturn. For example Employees in Saudi who work for global companies are on tenterhooks waiting to learn their fate as contracts are cancelled or delayed because of funding. American cars here at the moment are VERY cheap, a new car can be had for £3500 ish! Every shop has a sale – sales here are 70% off BTW. So even in an economy where school kids drive to school in Lambos (no not driven to school!!!) and diamond encrusted biros are the norm (I kid you not) never the less some are feeling the pinch.

What does it all mean – competition will be very intense in all markets, high volume producers will have the most challenging times but low volume producers who loose the order will probably go under.

IF you can afford to buy a new boat AND its what you want and IF you can buy it at 40% discount who cares if the maker goes bust and it has no warranty? 40% pays for a lot of rework! But then that’s if you view yourself as trade customer with trade deal.
 
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