Hurricane
Well-Known Member
Well at the moment, IMO Raymarine seem to be doing a good job at keeping up with the technology. Lots of new kit coming out.
Looks like Raymarine are about to fold
- Thread starter JoeQ
- Start date
Well at the moment, IMO Raymarine seem to be doing a good job at keeping up with the technology. Lots of new kit coming out.
lw395
Well-Known Member
Some very fair comment in the above, but my reading of the numbers on the LSE website page suggests that servicing the debt is only a small part of the problem, although one that will get worse as punitive interest rates are applied to an increasingly risky debt.
Even without the debt, a fall in sales wiped out most of the profitability. The kit is fairly cheap to make, but the design and development costs are fixed regardless of numbers sold.
I understand that a lot of cost cutting has happened, but would not know if its enough to turn the corner as a business, even without the debt.
My personal view of electronics businesses is that the only thing of value is the order book.
It may be a case that the market shrinks and the weakest loses.
Best wishes and good luck to the (remaining and ex-) design staff.
benjenbav
Well-Known Member
There is at least one situation in which the company can fail from the pov of a user and that is if the buyer is Garmin which might well just junk the kit and put the technology into incompatible units. + yes, I have seen that Garmin is reportedly no longer intereseted btw.
kcrane
Well-Known Member
What counts as being "too soft" with suppliers, or indeed, as a supplier, what is it like to get a "free ride"?
lw395
Well-Known Member
Apples Oranges and Lemons
Shares in marine equipment supplier Raymarine (LSE: RAY.L - news) slumped because Garmin (NASDAQ: GRMN - news) decided not to bid for the whole company. The announcement was made after the market closed on Friday. Garmin will instead buy the operating subsidiary. Due diligence is being carried out.
Thats from Yahoo so not bulletproof.
Shares in marine equipment supplier Raymarine (LSE: RAY.L - news) slumped because Garmin (NASDAQ: GRMN - news) decided not to bid for the whole company. The announcement was made after the market closed on Friday. Garmin will instead buy the operating subsidiary. Due diligence is being carried out.
Thats from Yahoo so not bulletproof.
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Deleted User YDKXO
Guest
Yes, I chuckled at that one too. I think a 'free ride' means paying the supplier in full for what the supplier provided in accordance with the payment terms agreed by both parties. Yup, doesn't seem like a 'free ride' to me, just ethical business but, in the world of high finance and big business, suppliers are pond life to be squashed whenever needs must
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Deleted User YDKXO
Guest
Mmm, I think the creative accounting occured a bit earlier when some hot shot banker submitted his fee note for facilitating the buy out
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Deleted User YDKXO
Guest
Educate me a bit here. I've never really understood why Ebitda is bandied about so much as a measure of how a business has performed. In my simple business world, interest, tax, depreciation and amortisation are just as much a cost of running a business as buying paper clips and toilet rolls. I can see Ebitda might (I say might not should) give an investor an idea of the cash generating potential of a business but surely you can't compare businesses using Ebitda alone (as seems to be done very often). Two busineses might have similar Ebitdas but one might be operating with a much larger asset value than the other or require loans to finance a much higher working capital requirement in which case one is inherently less profitable than the other
So, in the case of Raymarine, Ebitda does not tell you the full story because it doesn't tell you about the structure of the business. For example, are expensive machine tools required to manufacture the product in which case depreciation (and, possibly, interest) is a very real factor in the company's financial performance. Does the company have to buy materials from larger stronger suppliers demanding payment on delivery and does the company have to hold large stocks to satisfy customer expectations in terms of delivery or does it grant it's dealers favourable payment terms to enable them to hold stocks of their products. All of these things affect working capital and thus the interest a company may have to fund. So, my point is that maybe Raymarine is saddled with huge unnecessary debt that it didn't need for running it's business or maybe the debt is a reflection of what the company does need. Either way, Ebitda doesn't shed on light on the true nature of the business.
As for whether Raymarine will continue to operate as a stand alone UK company is very debatable. The brand may have a small value but let's face it, if the same products were built in China and branded Furuno or Simrad, we'd still buy them and say how wonderful they were. It's equally possible that the company is bought by a competitor, closed down and any technical advances that Raymarine had incorporated into the competitor's products or is simply bought by a competitor to take it out of the market. Whichever, if I was a Raymarine employee, I'd be v worried at the moment
jfm
Well-Known Member
Mike, it's a forum and I have to use shorthand. It isn't fair (though it'd always get you a job as a Daily Mail reporter if construction gear became unpopular!) to say "end the free ride" means "unethically screw your suppliers". Sure, there is some unethical screwing of suppliers that happens but I'm not advocating that. Fact is, some suppliers have cheap cost of capital and will accept a sliver of price adjustment for an extra 30 days credit - done that one often, and it's perfectly fair if done ethically. Likewise a big department store I worked on had a team of buyers who had pre-agreed with suppliers to cut prices (based on Far East sourcing, not screwing them over, btw) not by the 5% they could have got but by 1.7% each year for the next 3 years, cos they only needed a cut of 1.7% to make their bonus targets. Under new ownership the full 5% was taken right away, and the bonus system redsigned. Everyone happy. This stuff really happens when cash focussed management are put in, and it aint rocket science
lw395
Well-Known Member
I can't see that suppliers are really getting a free ride, in fact they are carrying a serious risk of not getting paid.
As a freelance electronics design engineer I have taken this risk in the past myself, luckily it paid off, but given the choice of another customer I might not have taken the risk. I was lucky that the 4 month delay in getting paid for my work did not stop me paying my mortgage etc.
Most suppliers will be taking steps to limit their exposure. Unfortunately it's a painful process all round.
As a freelance electronics design engineer I have taken this risk in the past myself, luckily it paid off, but given the choice of another customer I might not have taken the risk. I was lucky that the 4 month delay in getting paid for my work did not stop me paying my mortgage etc.
Most suppliers will be taking steps to limit their exposure. Unfortunately it's a painful process all round.
jfm
Well-Known Member
Mike, I generally agree all that. ebitda doesn't tell the whole story and you are perfectly correct in saying 2 businesses having identical ebitda may have different working capital requirements for the reasons you say
The benefit of looking at ebitda is that it separates the business from the finance of the business. All intelligent commentators now see the sense in that (though they didn't, especially at journo level, for a while and so people persisted with inherently defective p/e ratios for years). It's important to make this separation, and with respect paying interest isn't the same as paying for toilet rolls and paper clips. The former is part of how you finance the business and the latter is part of the business whether you own it or not, and those two things are best examined separately
It's especially important to separate the business and the finance in a near bankruptcy like Raym plc, becuase whatever happens next will involve leaving the finance behind. There is no instrinsic need for a buyer of Raym to inherit Raym's need to pay interest so it is nonsense for any buyer to look at its profitabilty after existing interest costs. The only sensible way too look at it is by stripping out the interest expense from Raym's numbers, which is (partly) what ebitda does, and of course factor in the new interest cost of new debt needed to buy it.
Alas the public markets dont work like that. Anyone wanting to invest in Raym can only buy shares in a combination of (a) Raym the electronics maker; plus (b) another company with £90m of debt. Hence the penny share price
Going back to your case of 2 businesses with identical ebitda but one has a heavy working capital requirement, there is still some inherently fair logic. Let's say both businesses make £10m ebitda and the market multiple is 8. One business is Caffe Nero style coffee shops, with £10m of negative working capital becuase customers pay for coffee 3 weeks before the business pays wages, coffee, rent. The price for selling/buying that business is £90m. The other business is Raymarine which needs £20m of w/cap becuase it has heavy R+D, manuf, distrib cost etc before customers buy the gear. That's worth £60m. Likewise if one business was a consultancy with no capex and the other needed a £50m machine every 5 years then you'd value them differently. But capex is usually dealt with as part of the financing, just as is workin cap, and that's much purer analysis than measuring the company's cash flow by just believing the depreciation figure in the accounts. All of which proves you're correct in saying ebitda isn't the whole story, far from it.
There are zillions of books written on this (many quite dull!) and I'm merely scratching a surface here obviously
MapisM
Well-Known Member
Moving the discussion on with new points?
Wait, 'twas your reply that started, by your own admission, a "massive thread drift", wasn't it?
Backpedalling?
Not one iota, why should I? I can't see anywhere in your reply a sensible proof that mine was an "incorrect allegation". You just seemed to suppose that what I said can't happen because "Private businesses with LBO debt are run for cash, and all the creative accounting in the world doesn't alter cash". Hah! You should bring MUCH better arguments to make me backpedal on this subject.
The only case where I agree that I didn't answer your question is when you asked for examples involving LBO companies in private ownership.
Unfortunately, the most accurate examples which I could give you are the ones where I got personally involved, and I prefer to (actually must) refrain from commenting on them on a webpage. Btw - and here I'm also referrring to your reply to Deleted User - in these cases I even saw personnel costs (is that business related enough?) moved below the EBITDA, with one of the big 4 audit firms signing the package.
Anyway, if you really want some examples, I'm sure that you don't need my support to throw some keywords like LBO, disaster, bankrupcy and so on into Google, and see what happen...
benjenbav
Well-Known Member
You can say that again, jfm. When I was working on IPO's as a junior lawyer in the late 80s everyone worshipped the p/e ratio despite the fact that anyone who'd done economics 101 could see it was utter folly to value businesses purely in this way.
Gwylan
Well-Known Member
Wake up guys - this is a market! If they were such a great deal then the stock would not be at this price.
The package is flawed and without a big and painful sort out then it will stay flawed. Do not have any idea what the flaw is, but 1,6p stock price speaks for itself.
The package is flawed and without a big and painful sort out then it will stay flawed. Do not have any idea what the flaw is, but 1,6p stock price speaks for itself.
JoeQ
Well-Known Member
This is the announcement that was made by the BoD on Friday after close, so what happens if this "single party" loses interest and the bank calls in administrators?
"18 December 2009
RAYMARINE PLC ("RAYMARINE" OR THE "COMPANY")
The board of Raymarine (the "Board") announces that it is entering into exclusive discussions with a single party over the possible sale of the business and assets of Raymarine and that it is no longer in discussions with Garmin Ltd. It is envisaged that the proposed transaction will be structured by means of a sale of Raymarine Holdings Limited, a wholly-owned subsidiary of Raymarine, and that, subject to certain limitations, the whole of Raymarine's bank debt will be repaid on closing. Raymarine's other creditors (including employees and suppliers) will continue to be paid in the normal course. Further to the Company's announcements of 12 June 2009 and 17 August 2009 and its interim management statement on 19 November 2009, it is not anticipated that there will be any value remaining for ordinary shareholders."
"18 December 2009
RAYMARINE PLC ("RAYMARINE" OR THE "COMPANY")
The board of Raymarine (the "Board") announces that it is entering into exclusive discussions with a single party over the possible sale of the business and assets of Raymarine and that it is no longer in discussions with Garmin Ltd. It is envisaged that the proposed transaction will be structured by means of a sale of Raymarine Holdings Limited, a wholly-owned subsidiary of Raymarine, and that, subject to certain limitations, the whole of Raymarine's bank debt will be repaid on closing. Raymarine's other creditors (including employees and suppliers) will continue to be paid in the normal course. Further to the Company's announcements of 12 June 2009 and 17 August 2009 and its interim management statement on 19 November 2009, it is not anticipated that there will be any value remaining for ordinary shareholders."
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Deleted User YDKXO
Guest
Wow, I think I'll start a business in your ethical business world. In the real world, customers split their suppliers into 3 categories, let's call them A, B and C. Type A suppliers are those whom the customer relies upon and any problems with the supply from Type A suppliers will have a significant negative impact on the customer's business so Type A suppliers are paid on time and in full. Type B suppliers are those suppliers with whom the customer wishes to maintain a business relationship but any break in supply from Type B suppliers is not considered to have a major impact on the customer's business. Payments to Type B businesses are habitually delayed and queried but generally are settled in the end. Type C businesses are not considered essential to the customer's business and all payments will be delayed, queried and if possible not made at all, the hope being that a Type C supplier goes under before a payment has to be made.
You think this is cynical? Too right but I know 2 companies in my own industry who operate this system, one of whom is a subsidiary of a listed co. and I'm quite sure many other major companies operate a similar system, officially or unofficially. In my experience, very few major companies treat the whole of their supplier base fairly, hence my chuckle at your free ride comment
jfm
Well-Known Member
Wait, 'twas your reply that started, by your own admission, a "massive thread drift", wasn't it?
Not sure I follow. It's no big deal, but I was merely making the point that Raym's debt and the Raym buiness are separate things, in the context of whether the Ray business will continue with the plc being underwater with its debt. Twas then your good self that then turned down the side road of "they're not that separate because debt changes management behaviour, creative accounting, screw the suppliers, vicious circle"
Mapis you said "management [of indebted companies] develops an attitude to focus on showing nice quarterly figures, rather than on customer needs and strategic business development. And this can and often does create a deadly vicious circle, where the business is not properly managed, thus worsening the financial situation, thus concentrating further on creative accounting, and so forth. Unfortunately, we've seen it happening so often in LBOed companies"
Protest as much as you like but your allegation that LBOed companies are generally guilty of those sins remains incorrect . Sure there will be exceptions and special cases, but in general there is no incentive or logic for such businesses to do creative accounting etc. As a private business, and especially with debt, cash matters and creative accounting/quarterlies don't. Creative accounting in an LBOed business would be absurd - it's privately owned and what's the point lying to yourself? Likewise, creative accounting doesn't pay back debt; only cash does. Indeed, the only sector of the market where the behaviours you mention have been found commonly is in the quoted companies sector, where of course ownership and management are very separate, and management have an incentive to "creatively account". And it occurs regardless of whether the company has debt - having or not having debt makes no difference to the occurence or not of those behaviours that you mention. This is all self evident, hardly needs any proof.
Sorry if I'm completely missing your point (!) but I just dont understand why you responded "Hah! You should bring MUCH better arguments...", to my "Private businesses with LBO debt are run for cash, and all the creative accounting in the world doesn't alter cash" :-S
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MapisM
Well-Known Member
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...
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Deleted User YDKXO
Guest
Nah, creative accounting goes on in both public and private co's. In public co's, creative accounting is used to inflate accounting profit to maintain the share price but in private co's, it's the exact opposite ie to reduce taxable profit to conserve cash. Private co's can do all sorts of creative accounting including maximising depreciation and allowances, writing down stock to an artificially low value, delaying sales invoices into the following financial year, taking stock purchases as purchases against sales etc etc. In fact, I would say that in private co's the oppurtunities for creative accounting are far greater than public co's as the auditors don't owe a duty of care to millions of shareholders. In Raymarine's case, I guess they wouldn't bother because of the huge interest payments but I'm quite sure it goes on in other LBO co's
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Deleted User YDKXO
Guest
Thanks, jfm, accept all that. You hear some executives after 1 week at Henley Management College talk of nothing else but Ebitda as if it were a magic number for valuing companies but it never seemed entirely logical to me