Does British boat building have a future?

[Bouba]

I don't think it is - there is widespread agreement.

I also thought the same and there’s not many times that happens on here.

You are both wrong…there is much disagreement

 

[jfm]

There’s a important small distinction that needs making .

Princess thus far hasn’t run out of cash , shortfalls have been injected sure but the directors have not been starring down the barrel of court appearances or / and disqualification.

The FL lads have called in the administrators probably and hopefully for them at the right time to avoid said court room and disqualification, to deal with there lack of cash to continue on there own .

Agreed that's a distinction. But the distinction lies in the fact that Princess has a rescuer for now while Fairline doesn't. There is no meaningful distinction between the predicaments of the two businesses (and I said businesses there, not companies).

Re pension risk .
There are strict rules and regulations pension providers have to obey where they invest members funds . It’s split into various risk groups .
Only a tiny % of the P fund will be invested in KPS of which a tiny % is in Prinny which will be venture capital seed money that finds its way indirectly, used for the current Priny caper .
Some others both in KPS and every fund generally will be winners , some will be duffers and eventually churned .

Prinys current cash gobbling ability will be priced into the totally of it’s tiny % of a % of the fund , by the fund managers, risk spread etc .
It it wasn’t Prinny this tiny % of a % would be in something else equally risky .

So there no need for anyone ( not you btw ) to go on a guilt trip reading about pensioners eating “ tongue “.

Those dots and there’s a lot just don’t connect up to link Princess predicament with pensions .

If you're somewhat replying to my post #77 I don't disagree with you that a pension funds massively diversify their investments. But my post #77 was looking at the opposite end of the telescope: standing in the shoes of Princess management you're owned something like say 60% by pensioners, so your shareholder base (as a category) is hugely not diversified and is hugely concentrated in one category, pension funds. We aren't disagreeing - we are just looking into different ends of the same telescope.

By the way my only point in #77 was about what success means. I was saying that the value destroyed by Princess management was not "success" in my book, and I added that the pain bearers were mostly pension funds.

The fact that the pension funds are well diversified doesn't (imho) relieve managers of companies from caring about that pain. You could say a company's managers have the same duties to shareholders whoever the shareholders are, but it feels (to me) more poignant that the shareholders are pensioners rather than say a bunch of billionaires holding the Princess investment with eyes wide open and not too bothered about the goings-on.

 

[DAW]

There’s a important small distinction that needs making .

Princess thus far hasn’t run out of cash , shortfalls have been injected sure but the directors have not been starring down the barrel of court appearances or / and disqualification.

The FL lads have called in the administrators probably and hopefully for them at the right time to avoid said court room and disqualification, to deal with there lack of cash to continue on there own .

Re pension risk .
There are strict rules and regulations pension providers have to obey where they invest members funds . It’s split into various risk groups .
Only a tiny % of the P fund will be invested in KPS of which a tiny % is in Prinny which will be venture capital seed money that finds its way indirectly, used for the current Priny caper .
Some others both in KPS and every fund generally will be winners , some will be duffers and eventually churned .

Prinys current cash gobbling ability will be priced into the totally of it’s tiny % of a % of the fund , by the fund managers, risk spread etc .
It it wasn’t Prinny this tiny % of a % would be in something else equally risky .

So there no need for anyone ( not you btw ) to go on a guilt trip reading about pensioners eating “ tongue “.

Those dots and there’s a lot just don’t connect up to link Princess predicament with pensions .

From my perspective, it is not OK for professional managers to develop, manufacture, launch and sell products at a loss using someone else's money to finance their activities and then call it a success. It's even less OK for them to continue to do this over many years when the evidence suggests their strategy isn't delivering the expected returns. While there have been changes in CEOs, the majority of the senior management teams in both Sunseeker and Princess seem to have remained largely intact through a succession of ownership changes and they must bear some collective responsibility for the lack of progress and destruction in shareholder value that has occurred. The fact that a private equity owner or institutional investor diversifies their risk across multiple investments does not in any way justify or mitigate poor performance or failure to deliver on the part of the management team.

In the latter stages of my career, I was involved in a successful leveraged buyout of a large international manufacturing business backed by one of the big US private equity funds (much bigger than KPS). I remember being asked prior to investment what we as the senior leadership team would do differently after the LBO to accelerate sales growth and drive sustainable improvements in profit margins and free cash flow, with a view to deleveraging as quickly as possible and achieving a successful exit within a 4-6 year time horizon. They were laser focused on their objectives ... to generate sustainable free cash flow from operating activities as a route to deleveraging and value creation. To ensure we were similarly focused and properly motivated, we were asked to co-invest alongside them ... with our own hard cash, not the usual free share options which most PE funds dole out like confetti. I can tell you from experience that it helps to concentrate your mind on whether you have the right strategy for maximising shareholder value when you're using your own money and not that of some faceless owner who doesn't seem to care about accumulating losses.

 

[DavidJ]

One of the problems with most manufacturing businesses is the way profitablity is measured per product.
Cost is material labour and overhead
Overhead is usually proportioned out using labour content which gives a misleading cost because of its focus on manufacturing labour.
Overhead comes also from R&D, marketing, sales, IT, HR, manufacturing management, purchasing etc etc
Often in these groups a disproportionate amount of time is spent on certain product channels but overhead is apportioned against manufacturing labour.
The result is that often the (easy) day to day product profitability is hidden against the (sexier) up market products which are (possibly) sucking the business dry in overhead.
I’m not an accountant but a retired consultant in Business Process Reengineering
I think it applies to Fairline/Princess and others.
Maybe just maybe the smaller/medium boats in your range are giving you a better return than you thought.
Just my gripe!

 

[PowerYachtBlog]

A parochial view.
In Ye olden days boats were bought by those who actually enjoyed being out on the water and a boat however small or grand required the spending more of time than money. For those affluent enough, a bespoke Twin Screw Motor Yacht would be custom built to order.
Sometime in the 1970s with the growing prosperity of the nation, Fairline and Princess spotted a gap in a very staid and traditional home market that just might attract the growing numbers of folks looking for something a little more modern and up to date.

Technically speaking that market was filled by Fairey, Tremlett, and probably Broom inland. Fairey was quite successful in building hot moulded boats,
Anyways those wer the big three up till the seventies.

The FrPrSs came into the plate because the above transitioned to fiberglass late (exception to Broom), and Fairey which never did GRP.
But till the early eighties Broom was bigger to Fairline/Princess/Sunseeker.

 

[jfm]

One of the problems with most manufacturing businesses is the way profitablity is measured per product.
Cost is material labour and overhead
Overhead is usually proportioned out using labour content which gives a misleading cost because of its focus on manufacturing labour.
Overhead comes also from R&D, marketing, sales, IT, HR, manufacturing management, purchasing etc etc
Often in these groups a disproportionate amount of time is spent on certain product channels but overhead is apportioned against manufacturing labour.
The result is that often the (easy) day to day product profitability is hidden against the (sexier) up market products which are (possibly) sucking the business dry in overhead.
I’m not an accountant but a retired consultant in Business Process Reengineering
I think it applies to Fairline/Princess
Maybe just maybe the smaller/medium boats in your range are giving you a better return than you thought.
Just my gripe!

That feels very 1970's

 

[DAW]

One of the problems with most businesses is the way profitablity is measured per product.
Cost is material labour and overhead
Overhead is usually proportioned out using labour content which gives a misleading cost at the end of the day because of its focus on manufacturing labour.
Overhead comes also from R&D marketing, sales, IT, HR, manufacturing management, purchasing etc etc
Often in these groups a disproportionate amount of time is spent on certain product channels but overhead is apportioned against manufacturing labour.
The result is that often the (easy) day to day product profitability is hidden against the (sexier) up market products which are (possibly) sucking the business dry.
I’m not an accountant but a retired consultant in Business Process Reengineering
I think it applies to Fairline/Princess
Just my gripe!

I am an accountant ... or at least I was in the dim and distant past

You're talking about the difference between "Total Absorption Costing" and "Activity Based Costing" ... and it is very 1970s .

Under TAC overheads are aggregated and absorbed into product cost based on some fairly arbitrary measures like units of production, machine running hours or labour hours. Even today, most businesses still use this approach because it's easy to implement. They then try to justify to themselves that it's accurate enough, but the reality is that ABC is in many cases a far better approach. Under ABC you work out the actual overhead or cost consumed by activity and then incorporate that into your product cost based on the number of times each activity is completed to deliver a final product. The two methods can give completely different results, which is why businesses sometimes misunderstand the relative profitability of their products.

In your example, TAC would spread the cost of R&D, marketing.etc. over the whole product range based on how long each product takes to produce. Whereas, ABC would allocate a heavier cost burden to the newer or more complex products where the development time and sales and marketing effort is more focussed. Typically, you understate the profitability of the bread and butter products and overstate the profitability of the sexy new products.

 

[DavidJ]

That feels very 1970's

Indeed but sadly still prevalent in many manufacturing businesses.
I like @DAW explanation and conclusion

 

[jfm]

Indeed but sadly still prevalent in many manufacturing businesses.
I like @DAW explanation and conclusion

Prevalent in some perhaps. Not used by smart investors or analysts and I'm pretty confident not used seriously by Princess's current or previous owners (KPS and L Catterton).

You can do TAC or ABC of course, so long as you keep in mind that the results are garbage and you should not steer the ship by them

DAW and I are in agreement about the 1970's

 

[MapisM]

The designs and brands are ok and have customer appeal, so if you radically change the production to make a positive margin in every boat, there is a future.

Fine, but you also said in one of your post that when you evaluated the possibility to take over Princess, it only took you one hour to draw the conclusion that "the upside even if we did a great job wasn't worth the effort and risk".
And that, together with all your other comments (including the hint that those who didn't reach the same conclusion were dumb!), make me think that for your "so..." statement above, it would be appropriate to rewrite it as a type 3 conditional sentence, if you see what I mean...

 

[jfm]

I was saying there is a future, by implication under a new management team who can and want to make the necessary changes. But that doesn't mean I want to invest in that.

Something happening and me or any particular person wanting to invest in it are two different things. As I said, the upside even if a great job was done on turning the company round would not imho justify the effort and investment risk.

I agree that a type 3 conditional sentence (that's getting very technical ) would describe it better but I don't think I was too far adrift in what I wrote

 

[DAW]

Prevalent in some perhaps. Not used by smart investors or analysts and I'm pretty confident not used seriously by Princess's current or previous owners (KPS and L Catterton).

You can do TAC or ABC of course, so long as you keep in mind that the results are garbage and you should not steer the ship by them

DAW and I are in agreement about the 1970's

I wasn't implying that TAC and ABC are obsolete, just that they were used in their purest form many decades ago when ERP systems and financial reporting systems were much less capable than they are today

In the modern world, organisations with the scale of Sunseeker and Princess should be using a sophisticated approach with a range of different costing methods to guide their decision-making (including process costing, job costing, variable costing, marginal costing, etc. ... all depending on the particular application). They should be absorbing indirect overheads using an activity based approach and rigorously comparing standard costs (what they expect should happen) with actual costs (what actually happens) in real time using data obtained through automated shop floor data collection systems and then investigating and addressing material variances.

If the above seems like gobbledygook that's why large businesses need a good CFO and spend a lot on IT. It's also why so many successful businesses have a CEO with an operations/technical or finance background. CEOs who grew up in the sales and marketing function and don't operate in close partnership with a strong CFO are not usually renowned for their financial success

Based on my real world experience, private equity owners tend to focus heavily on EBITDA as a proxy for free cash flow, and are rightly very suspicious of management teams that look to boost profits by capitalising R&D costs carrying them forward into future periods, or absorb overheads into unfinished projects without clearly demonstrating their future profitability. At the end of the day what matters most is net cash generation, the ability to service and pay down debt and return on capital employed.

 

[Portofino]

Wonder how each management team ( the decision makers ) of all three yards have ended up where they are now ?
In particular FL .
Surely bit like the premier league or any other business sector each team , there are only three here must look over there shoulders or have a “ coffee “ with there competitors….keep a watchful eye , be chomping at the bit at boat shows to roam around a new modal have ears and eyes everywhere ?
Someone farts in Plymouth and they smell it in Poole + Oundle .

So it begs the Q why are they continuing to rinse and repeat well established mistakes of the previous lot on there team and the other two out there .

Similarly NOT notice how the French , Italians and Germans ( Hanse ? ) manage to turn a profit and not wonder how ? Mimicking them would be a start .

Alternatively just imagine if each had a slight proportionate inc in sales .
Say S/Skr another 15 units of which 5 were over £15 M , Prinny another 20 mixed bag of sizes and FL a additional say 10 around ave £2 M / unit .

Would that be enough cash flow to make a difference, keep all three out of the news ?
No s/Skr lay off , Prinny in the black with surplus cash to repay investors , FL carrying on quietly building nice Mancini inspired boats .

Perhaps with Prinny that’s what it is it needs a critical mass of bulk sales to further dilute all this accountant speak of “ gobbledegook” …I suspect despite the wooden mock ups etc ie the overhead ness of the place the basic issue is lack of volume re sales .
That’s what each team thinks will eventually happen they will sell enough to get themselves out of the current predicament (s) .

The wooden mock up idea is to get it right in a way a CAD screen shot can’t , so potential buyers will be hit with a high of “ this works better for me than [ insert competitors] the other boat I ve just been on ?Q Henry

^ Leading to extra vol sales …..as said once that critical number is reached and maintained they are away in the black .

But as I said way earlier the demographic have shifted away from boat ownership for the “ guy who’s done well “ with a few £M to spend . They are cash rich , time poor and want more experience other than boating repetitively every WE and hol + they want min travel hassle .

So the markets actually shrinking away and these three are trying to expand it , need to volume sales to stay afloat .

The only way assuming they have maxed out in there normal markets eg the U.K. , med USA , etc is to explore new emerging mkts whereby the demographic they have lost is emerging and wants to get into boating ie 20-30 yrs behind the current “ westernised “ mkts . Chase up Nigeria, Dubai ( gulf states ) Mexico ( drug money proceeds ) etc .

Or in a “ can’t beat em join em “ adopt a low cost high vol, low cost boat business strategy like Pardo , or the big French
25-50 ft . Range .

 

[petem]

Wonder how each management team ( the decision makers ) of all three yards have ended up where they are now ?
In particular FL .
Surely bit like the premier league or any other business sector each team , there are only three here must look over there shoulders or have a “ coffee “ with there competitors….keep a watchful eye , be chomping at the bit at boat shows to roam around a new modal have ears and eyes everywhere ?
Someone farts in Plymouth and they smell it in Poole + Oundle .

So it begs the Q why are they continuing to rinse and repeat well established mistakes of the previous lot on there team and the other two out there .

Similarly NOT notice how the French , Italians and Germans ( Hanse ? ) manage to turn a profit and not wonder how ? Mimicking them would be a start .

Alternatively just imagine if each had a slight proportionate inc in sales .
Say S/Skr another 15 units of which 5 were over £15 M , Prinny another 20 mixed bag of sizes and FL a additional say 10 around ave £2 M / unit .

Would that be enough cash flow to make a difference, keep all three out of the news ?
No s/Skr lay off , Prinny in the black with surplus cash to repay investors , FL carrying on quietly building nice Mancini inspired boats .

Perhaps with Prinny that’s what it is it needs a critical mass of bulk sales to further dilute all this accountant speak of “ gobbledegook” …I suspect despite the wooden mock ups etc ie the overhead ness of the place the basic issue is lack of volume re sales .
That’s what each team thinks will eventually happen they will sell enough to get themselves out of the current predicament (s) .

The wooden mock up idea is to get it right in a way a CAD screen shot can’t , so potential buyers will be hit with a high of “ this works better for me than [ insert competitors] the other boat I ve just been on ?Q Henry

^ Leading to extra vol sales …..as said once that critical number is reached and maintained they are away in the black .

But as I said way earlier the demographic have shifted away from boat ownership for the “ guy who’s done well “ with a few £M to spend . They are cash rich , time poor and want more experience other than boating repetitively every WE and hol + they want min travel hassle .

So the markets actually shrinking away and these three are trying to expand it , need to volume sales to stay afloat .

The only way assuming they have maxed out in there normal markets eg the U.K. , med USA , etc is to explore new emerging mkts whereby the demographic they have lost is emerging and wants to get into boating ie 20-30 yrs behind the current “ westernised “ mkts . Chase up Nigeria, Dubai ( gulf states ) Mexico ( drug money proceeds ) etc .

Or in a “ can’t beat em join em “ adopt a low cost high vol, low cost boat business strategy like Pardo , or the big French
25-50 ft . Range .

The directors of all loss making businesses will always have a list of plans and ideas that will make their businesses profitable again. Some of them might make the difference but it really needs the major changes that @jfm and others have alluded to before. And the new owners and directors of such businesses will always think that they can do a better job than the previous lot.

And there's always an excuse as to why there was no money made in the previous year, be that Brexit, Covid, high interest rates, or the latest one "supply chain delays".

I'm sure Sir John Harvey-Jones would've had something to say about these predicaments!

 

[DAW]

Wonder how each management team ( the decision makers ) of all three yards have ended up where they are now ?
In particular FL .
Surely bit like the premier league or any other business sector each team , there are only three here must look over there shoulders or have a “ coffee “ with there competitors….keep a watchful eye , be chomping at the bit at boat shows to roam around a new modal have ears and eyes everywhere ?
Someone farts in Plymouth and they smell it in Poole + Oundle .

So it begs the Q why are they continuing to rinse and repeat well established mistakes of the previous lot on there team and the other two out there .

Similarly NOT notice how the French , Italians and Germans ( Hanse ? ) manage to turn a profit and not wonder how ? Mimicking them would be a start .

Alternatively just imagine if each had a slight proportionate inc in sales .
Say S/Skr another 15 units of which 5 were over £15 M , Prinny another 20 mixed bag of sizes and FL a additional say 10 around ave £2 M / unit .

Would that be enough cash flow to make a difference, keep all three out of the news ?
No s/Skr lay off , Prinny in the black with surplus cash to repay investors , FL carrying on quietly building nice Mancini inspired boats .

Perhaps with Prinny that’s what it is it needs a critical mass of bulk sales to further dilute all this accountant speak of “ gobbledegook” …I suspect despite the wooden mock ups etc ie the overhead ness of the place the basic issue is lack of volume re sales .
That’s what each team thinks will eventually happen they will sell enough to get themselves out of the current predicament (s) .

The wooden mock up idea is to get it right in a way a CAD screen shot can’t , so potential buyers will be hit with a high of “ this works better for me than [ insert competitors] the other boat I ve just been on ?Q Henry

^ Leading to extra vol sales …..as said once that critical number is reached and maintained they are away in the black .

But as I said way earlier the demographic have shifted away from boat ownership for the “ guy who’s done well “ with a few £M to spend . They are cash rich , time poor and want more experience other than boating repetitively every WE and hol + they want min travel hassle .

So the markets actually shrinking away and these three are trying to expand it , need to volume sales to stay afloat .

The only way assuming they have maxed out in there normal markets eg the U.K. , med USA , etc is to explore new emerging mkts whereby the demographic they have lost is emerging and wants to get into boating ie 20-30 yrs behind the current “ westernised “ mkts . Chase up Nigeria, Dubai ( gulf states ) Mexico ( drug money proceeds ) etc .

Or in a “ can’t beat em join em “ adopt a low cost high vol, low cost boat business strategy like Pardo , or the big French
25-50 ft . Range .

Unfortunately, I have to disagree with a lot of this

As mentioned in one of my earlier posts, UK manufacturing tends to be a reluctant follower rather than a visionary leader when it comes to implementation of technology and adoption of modern working practices, so its not a surprise to me that the three UK builders have followed similar paths to arrive at largely the same place and are all behind their more profitable European rivals.

The relentless pursuit of additional volume in the belief that this is the solution to a bloated cost structure and inefficient production methods is another common failing of delusional management teams. Both Sunseeker and Princess are altready producing more boats that they have ever produced in their history and are achieving comparable (and in some cases higher) volumes than their direct rivals at competitive prices. Growing volume usually (but I accept not always) results in more indirect overhead (sales, marketing, administration, working capital) and the need for costly investment in capital equipment, expansion of facilities and hiring of more direct employees. It doesn't address the underlying problem if your gross margin on existing products is not high enough and you have too many people (both direct and indirect) not fully occupied and delivering appropriate value. It's like being on a treadmill ... you run faster and faster but don't seem to go anywhere. At some point you have to step off and try something else.

Then back to the final point in my post above ... If you put someone with a sales, marketing or product development background in charge of a business ... as Sunseeker and Princess have both done over the years ... they will always be inclined to believe that the route out of a difficult situation is to make the product better, more appealing to the customer, to penetrate new markets, to extend the product range, to increase market share and to sell more. Sometimes, you need to accept the product is good enough (often more than good enough), the market is what it is and your share will not materially change in the short term because if you try to expand the competitors will react from a position of strength, and instead look internally and recognises that the answer is you need to produce what you are producing today but more efficiently and with less cost.

 

[benjenbav]

The Princess business looks like a sausage machine where you push large amounts of cash in one end and get smaller amounts of cash out the other end.

The core product is good and they don’t have difficulty selling it.

I’d guess that successive generations of management have been seduced by the idea that bigger units mean bigger margins (or less negative margins) and that this has driven them to where they are now where there’s no scope to simply increase the unit price - because they will then be more expensive than competitors whose products are seen as more attractive at that price point.

I would imagine they’ve carried out endless internal analysis of where costs should be attributed. And perhaps always concluded that the really dramatic cost areas are essential and unchangeable.

Perhaps KPS thought that the business was fundamentally good but undervalued and simply needed an injection of cash. I wonder if they’re discretely looking for an exit now?

The big issue for Princess must be to change how they make a desirable product. Any casual observer of Aquaholic’s factory tour could see buildings stacked with inventory, an underengaged workforce building bespoke solutions to one-off problems, vast tracts of unproductive real estate etc.

How to solve this? Pretty much ‘start over’ but keep the idea that the core product is good.

 

[petem]

How to solve this? Pretty much ‘start over’ but keep the idea that the core product is good.

Fairline "started over" 8 years ago with a couple of factory units, minimal staff and no debt and still weren't even able to make a success of it!

 

[benjenbav]

Fairline "started over" 8 years ago with a couple of factory units, minimal staff and no debt and still weren't even able to make a success of it!

I’d bet that Princess would need about 10x the cash that KPS already injected to build profitable processes and factories. Long term project. Would need to find management that even knew what profit could look like; not just doing the same thing and hoping for a different outcome or rearranging the deckchairs on the Titanic.

Did F/L have much capital invested 8 years ago? My impression was that it was all done on a bit of a shoestring.

 

[MapisM]

Fairline "started over" 8 years ago with a couple of factory units, minimal staff and no debt and still weren't even able to make a success of it!

Nail & head springs to mind.
Hence my suggestion to consider the possible routes for success which are being debated as a past condition which never materialized, and whose chance is now lost, simply because the clock can't spin backward.
This is just in case my previous reference to "type 3 conditional sentence" was too cryptic, as I guessed when jfm called it "very technical".
Apologies for that, I used it just because it's a rather commonly used idiom in my mother tongue language!

 

[SC35]

In 100 years time, I often wonder what our descendants will think of us and our activities.
I think children will fall about laughing when they see the loo roll holder in the museum.
And the fact that we kept digging up the roads because all the utilities were underneath them.

But also ... that "hand made" was seen to be a good thing.
Why is there a benefit to the end consumer in a human being doing something that could be automated?

It's a balance: car manufacturers have spent a lot of time figuring out which tasks are better done by a machine (e.g. panel stamping, body assembly, welding, paint dipping) and those that are better done by humans (e.g. wiggling things into place, connecting things).

Maybe future boat builders will leverage automation more, especially in the early stages of the process.