Looks like Raymarine are about to fold

[lw395]

My reading of the data is that things went wrong 2 years ago when a lot of borrowing was done, and this year these borrowings have become current rather than future liability.

But the borrowings are not so vast in relation to turnover, the problem is a massive drop in operating profit. Presumably caused by fixed costs and a drop in sales.
The interest on the debt would be no big deal if they were still making half the profit of 2 years ago?

The LBO is not really the point, that is farther back in history.

Of course I have no numerical information for the second half of this year.

How little we know about the shares we buy!

I've not done even a week at management college, but as an engineer I see ebitda as 'earnings before being got at by accountants', a useful indicator of profit, but not the whole story.
To have the whole story you need to understand the company and its market.

 

[David_Jersey]

also because I'm not sure the other posters have any further interest in this debate

I found it interesting

 

[MapisM]

I found it interesting

Glad to hear that.
But don't expect me to explain how creative accounting can generate cash, anyway!...

...also because I forgot to mention that this is just a temporary effect, obviously.
Alas, in LBO world these contingency measures can translate into real money for someone.

 

[jfm]

I guess you are, at least to some extent, but I must admit that I didn't (couldn't) make it 100% clear, either.
In short - also because I'm not sure the other posters have any further interest in this debate:
1) re. private vs. quoted LBOed companies, there is actually also an intermediate category (sort of) where companies are still privately owned but the size is big enough to create a great deal of separation between the management and the investors. And this in spite of the fact that the higher management is usually involved in the LBO.
2) in any case, even in smaller owned & managed companies, it's not just a matter of "lying to yourself", because the banks are a counterpart in any case. Lying to them can mean reducing the financing costs, or even avoiding a default.
3) believe it or not, creative accounting can even pay back debt, to some extent. But don't ask, if I tell you more I must kill you...

Thanks Mapis. Just briefly becuase we've done this to death
1. Happy to agree to differ. I only work on the very largest LBOs (I mean, my workload is a selection of the 10 largest LBOs in Europe each year, and never <€1-2bn enterprise value) and fwiw I do not agree this intermediate category exists. When a PE fund has a €1bn equity investment in a single LBO (which has only happened a few times ever in the history of European LBOs) you can be sure they are VERY close to management. Zero separation
2. I agree this and I thought about it in one of my posts above but decided not to mention it. But here, while I'm not saying lying is ok, it is a bit caveat emptor. I mean, the banks are free to negotiate their information rights and covenant tests at the time they make the loan, and if later it turns out that this allows management to manipulate numbers or present them a certain way or find some other "loophole"to escape full capture by the covenants, that's tough luck for the banks. They've made their bed and can lie in it. I dont consider this creative accointing. Rather I think it is management skillfully using, to their own (and equity investors') advantage, any loopholes that the bank was daft enough to not see. "Caveat lender", I mean! But back to our debate - this involves management correctly "working" the covenant documents, and it is not "creative accounting" or the "vicious circle" you originally accused LBOed companies generally of doing
3. I can guess some of what you might mean but I'm only guessing. We can leave this one. No need to kill me You must be talking unusual stuff, not mainstream practice in LBO companies.

I don't think you have proved your original contention that LBOed companies are guilty generally of creative accounting and the "vicious circle" you described, and I still don't think that contention is correct. (3 is but clutching at a straw!)

 

[EME]

A Thread Drift I hadn't expected on here!

Haven't looked at Raymarine Accounts let alone analysed BS movements/financing over the years but there is no reason to believe prima facie that Raymarine business fundamentals are unsound solely based upon it's share price. Debt ( leveraged or otherwise) and poor financial management can put good companies 'in trouble' ... cue the sharks if the company is perceived as 'good'! The banks will want it to continue !

As with any 'purchaser' LBOs have to be based upon doing 'something' better than the existing corporate management. At the end of the day that has to be that company's operating and financial capabilities, no? Even if the company is to be 'cash-raped' it still has to be capable of generating cash ...

Nothing new in 'Creative Accounting' in private or public companies of all sizes. Only when that creativity becomes misleading and potentially fraudulent should it be of concern.

Nothing new in capitalising wages/salaries for 'assets' - real and imagined!

Fraudulent Accounting and Creative Accounting are not the same thing, shame they increasingly are seen as synonymous.

Yes, post-Enron and 'the banking crisis' creative accounting has become increasingly associated with the re-classification of structured debt (e.g. the repurchase thereof and taking 'profits') .... but not the sole domain of LBOs ( CitibanK? ... anyone know what Barclays have been up to?) and, in the cases of the banks, apparently 'acceptable' accounting treatment.

EBITDA? .... Afraid I'm so old that Cash Generation and Funds Flow are still my mantras with the unpicking thereof if necessary ... and not just what has been done also what 'should' have been/be done/achieved.

Merry Xmas All !!!

 

[Whitelighter]

I suppose some people may have had a punt

Anyone buying when this thread started at 1.6p would have made 140% if they had sold yesterday at the close price of 2.25p

I guess its this sort of thing that pays the bankers bonus

 

[jfm]

Anyone buying when this thread started at 1.6p would have made 140% if they had sold yesterday at the close price of 2.25p

I guess its this sort of thing that pays the bankers bonus

Nah. So few will be interested in making a market in those shares that I bet the spread is more than a penny. And if you try to buy or sell any sized chunk of those shares the price will move by more than a penny. No bonus to be made on Raym shares alas! (Also, 40pc not 140pc I think)

 

[rivonia]

Raymarine will crash/go under of that there is no doubt.... Garmin is better equipment.


The shares go up because of a very heavy punt and then... down again.


The banks want there money BACK and so LIQUIDISATION. Some Korean co. or Chinese co. will buy parts of the stock as it is divided.


Watch this space

Peter

 

[MapisM]

Thanks Mapis. Just briefly becuase we've done this to death
1. Happy to agree to differ. I only work on the very largest LBOs (I mean, my workload is a selection of the 10 largest LBOs in Europe each year, and never <€1-2bn enterprise value) and fwiw I do not agree this intermediate category exists. When a PE fund has a €1bn equity investment in a single LBO (which has only happened a few times ever in the history of European LBOs) you can be sure they are VERY close to management. Zero separation
2. I agree this and I thought about it in one of my posts above but decided not to mention it. But here, while I'm not saying lying is ok, it is a bit caveat emptor. I mean, the banks are free to negotiate their information rights and covenant tests at the time they make the loan, and if later it turns out that this allows management to manipulate numbers or present them a certain way or find some other "loophole"to escape full capture by the covenants, that's tough luck for the banks. They've made their bed and can lie in it. I dont consider this creative accointing. Rather I think it is management skillfully using, to their own (and equity investors') advantage, any loopholes that the bank was daft enough to not see. "Caveat lender", I mean! But back to our debate - this involves management correctly "working" the covenant documents, and it is not "creative accounting" or the "vicious circle" you originally accused LBOed companies generally of doing
3. I can guess some of what you might mean but I'm only guessing. We can leave this one. No need to kill me You must be talking unusual stuff, not mainstream practice in LBO companies.

I don't think you have proved your original contention that LBOed companies are guilty generally of creative accounting and the "vicious circle" you described, and I still don't think that contention is correct. (3 is but clutching at a straw!)

Thanks to you J, interesting reading.
And I’m not sure it’s been done to death, either. There’s actually a lot more that could be said on this subject. Besides, considering that Manzoni became a famous writer with just “25 readers”, since we got at least David’s attention I guess that we can’t complain...

Starting from your last point, actually my original contention was about management of LBOed companies tending to focus on financials rather than on customer needs and strategic business development, and I simply added that to the other (appropriate) concerns expressed by Hurricane. Creative accounting and vicious circle were just mentioned as further consequences, not meant to hit any nerve – though that’s what I eventually did, as I understand.
Now, I don’t know if I proved anything, but rest assured that I neither was nor am one single bit worried about it.
There’s one thing which is self evident, though, and it’s that I’m not grasping at straws. You proved that with your own reply, in fact: If I were, how could you guess what I meant?

Going further backwards along your comments, I don’t think that, for instance, the example I previously made (personnel costs classified as NOE) could be defined as “skillful using ... loopholes that the bank was daft enough to not see” . Though I agree that it ain’t creative accounting either. Indeed the good old term “fraud” is more appropriate.

And re.the first point, my experience says that PE guys aren’t close to the management at all, they just pretend to be. Sometimes, they’re actually in open conflict, and frequently the conflict is just hidden but it’s clearly there. Almost invariably, they have no clue about what’s really happening in “their” companies, businesswise. And rightly so, from the perspective of someone who’s thinking about the exit strategy even before entering in any kind of business.

Anyway, I’m sure that digging further into a philosophical debate on PE and LBOs would lead us nowhere.
I remember to have crossed swords on this topic with Matt already, along the lines of “visionaries or locusts”. ‘Twas maybe a couple of years ago, just a week before he lost his boat, iirc. He seemed genuinely convinced that in our times Henry Ford would have been a PE specialist, rather than a car maker. How funny is that, considering that Ford is the guy who said that a business which makes nothing but money is a poor business?
But with yourself it’s different, because I know that you’re too clever and knowledgeable on these matters to be unaware of the many PE/LBO – driven distortions, when compared to other sound, growth oriented business practices.
Alas, at the same time, I perfectly understand the reasons why you’ll never agree with what I’m saying in an open forum, so that’s it as far as I’m concerned.

Otoh, my invitation of last summer remains obviously valid for next season.
I would gladly debate with you, during a proper Italian dinner, another thing or three on this subject, with some examples. One of which btw is related to a company where iirc you’ve been involved. An almost 6Bn€ transaction, whose shares are currently quoting around 0.1% of their initial value. Yup, not a typo: a 99.9% reduction. Which has nothing at all to see with your involvment, of course, but just as a hint... And there are also other examples with non listed companies, of course.

My last thought on this topic has to go to Raym people, to whom I can only repeat what I said in my first post: best of luck to all of you guys, I sincerely hope that things won’t develop as rivonia predicts, or in other similar ways, even if I'm afraid that he could as well be sadly right.