Princess Yachts announces £17.9m profit

[MapisM]

Have to disagree with that entirely at least for SMEs.

Apologies M if what I'm saying looks like I'm pretending to know your own thoughts better than yourself, but I don't think you are actually disagreeing with what I'm saying.
Your point on cash relevance is perfectly correct and understandable, but you are talking of a constraint you have to deal with, rather than a real strategic goal.
And the fact that profit can be somewhat twisted (which I can agree with), that's yet again a sort of goalpost shifting, 'innit?

 

[ari]

I'm no Warren Buffet, but I was surprised to read in that PR statement that: "All expenditure on new product development is written off in the year in which it is incurred and further adds to the robustness of the company's performance". Nice and conservative of course but open to interpretation as a company which is relatively content to knock out product rather than to invest in major r&d.

Given the amount of new models Princess seem to launch each year I think it would be hard to see tham as a company not investing in major R&D.

 

[Deleted User YDKXO]

It is interesting to examine why they ended up with £10m less cash though

Could be for any number of reasons but it is reported that Net Assets are up by a similar £10m so could be down to a property purchase or possibly an extension of credit terms to their dealers (are Debtors up?) to make it easier for them to stock boats. Just guessing really
The late filing is a bit of an odd one for an established co like Princess. It often indicates disagreement between the directors and the auditors over how the accounts are presented. Yes boat building, like a lot of manufacturing industries is a tough business these days

 

[pan]

This argument is entirely academic, if a company shows a profit then any sensible person would look at where that profit resides, cash is easy to see, but if it lies in stock then will be it be converted into cash within a reasonable time-frame, if it lies in debtors then you would have to examine whether there are good prospects for that to be paid, again in a reasonable time-frame.
I would want to be certain that the stock valuation is realistic in current trading pattern or that the debtors are solid & no prospect of default (overseas debtors!) Although I would question as to why the company needs to divert profits into these 2 areas if sales are robust, it may be they need to do this to generate sales, that would be worrying. In which case "cash is king" is the simple answer.

 

[Deleted User YDKXO]

if sales are robust, it may be they need to do this to generate sales, that would be worrying. In which case "cash is king" is the simple answer.

Yup thats the point. If a company is effectively having to fund it's dealers to promote sales then that is a major change in the business plan not to mention ratcheting up the risk within the company due to the possibility of non payment by the dealer. In itself it may be the correct strategy though if for example the aim is to damage a direct competitor by grabbing market share, something which Princess does seem to be doing when you look at the rapid decline in Fairline sales

 

[pan]

Princess does seem to have been aggressive in sales this last year, perhaps they see increasing market share rather than overall market growth, as the way forward, of course in the Uk Fairline are the obvious competitors to take on, they don't have as strong a brand image & international presence as say Sunseeker, nor the financial backing. Part exchanges to drive new sales is a likely method to use, especially if there are the capital reserves to fund it, maybe that is where the profit has gone!

 

[Deleted User YDKXO]

Princess does seem to have been aggressive in sales this last year, perhaps they see increasing market share rather than overall market growth, as the way forward, of course in the Uk Fairline are the obvious competitors to take on, they don't have as strong a brand image & international presence as say Sunseeker, nor the financial backing. Part exchanges to drive new sales is a likely method to use, especially if there are the capital reserves to fund it, maybe that is where the profit has gone!

You can certainly do much more damage to a competitor in a recession than you can in a boom, providing of course that you have deeper pockets than they have

 

[Nick_H]

This argument is entirely academic, if a company shows a profit then any sensible person would look at where that profit resides, cash is easy to see, but if it lies in stock then will be it be converted into cash within a reasonable time-frame, if it lies in debtors then you would have to examine whether there are good prospects for that to be paid, again in a reasonable time-frame.
I would want to be certain that the stock valuation is realistic in current trading pattern or that the debtors are solid & no prospect of default (overseas debtors!) Although I would question as to why the company needs to divert profits into these 2 areas if sales are robust, it may be they need to do this to generate sales, that would be worrying. In which case "cash is king" is the simple answer.

You've described part of the process the auditors go through before signing off accounts, and seem to be suggesting you don't trust them? You're entitled to whatever opinion you want, but do you have any evidence that the auditors are blind and stupid?

 

[Andy Bav]

This argument is entirely academic, if a company shows a profit then any sensible person would look at where that profit resides, cash is easy to see, but if it lies in stock then will be it be converted into cash within a reasonable time-frame, if it lies in debtors then you would have to examine whether there are good prospects for that to be paid, again in a reasonable time-frame.
I would want to be certain that the stock valuation is realistic in current trading pattern or that the debtors are solid & no prospect of default (overseas debtors!) Although I would question as to why the company needs to divert profits into these 2 areas if sales are robust, it may be they need to do this to generate sales, that would be worrying. In which case "cash is king" is the simple answer.

I know of one company that signed a lucrative (profitable) contract to supply 2 high value capital goods and they offered to finance it for their client from their own balance sheet. This items in question had a build time of nearly 2 years...

First half results showed debt increasing, but offset by increases in inventory and debtors. Nutters then decided to take down the twin towers.... I was then involved with a restructuring of said company.

I can't say much more for obvious reasons, but they ran out of cash as that business was only a small part of group revenues - but it sucked the life out of the whole group.

The politics were heavy, but the principal of running out of cash simple ie it was tied up in stock (half finished) and debtors... Who went into Chapter 11 to add to the fun....

 

[pan]

You've described part of the process the auditors go through before signing off accounts, and seem to be suggesting you don't trust them? You're entitled to whatever opinion you want, but do you have any evidence that the auditors are blind and stupid?

Tesco....??

 

[Nick_H]

Tesco....??

... and what, it's contagious?

 

[Deleted User YDKXO]

You've described part of the process the auditors go through before signing off accounts, and seem to be suggesting you don't trust them? You're entitled to whatever opinion you want, but do you have any evidence that the auditors are blind and stupid?

Bit harsh, Nick. I think pan is only describing what we'd all do when assessing a company ie look through the audited accounts for changes and trends which tell you more how a company is actualy doing than the bald figures in the audited accounts ever do. I'm sure that Princess is doing just fine anyway and is probably the UK boatbuilder that has weathered the global recession the best out of all of them and besides that it has the resources of LVMH behind it

 

[pan]

... and what, it's contagious?

Looks like I have touched a nerve, not intended. However the thread moved into a discussion of the Princess accounts, I do not suggest Princess auditors are either blind & stupid, but alluded, because the profit was not in cash, then it resides elsewhere within the company, auditors are not always able to evaluate the actual market value of stock, as that depends on the market conditions at the time of sale, only the numbers & value at that point in time (2013), yes they can examine debtors, but they cannot be certain all those will all pay.

Don't misunderstand me, I do not suggest that anything is wrong with Princess accounting, only pointing out the vulnerabilities in relying entirely on a baseline profit figure, cash does not depreciate nor disappear.

 

[prof pat pending]

Didn't they lay a load of people off recently?

Edit~http://www.plymouthherald.co.uk/Wor...ek-Christmas/story-25738466-detail/story.html

 

[jfm]

I'd go for the first every time. Most businesses can't generate cash beyond the short term without making profit, and it's not feasible that a fairly mature manufacturing business would make £18m profit every year without fairly soon generating cash.

I've been offline and there are lots of posts following my comments, and I don't have time to reply to all Yours is a good place to start though Nick!
Actually I don't think we're disagreeing. My first post above basically said always look behind reported profit to get the backstory, and cash is a good place to look. That's all. You're right that profit must turn into cash some day soonish if it's real profit ( in a businessman's sense not IFRS reporting sense), and so if it is indeed real profit then you'd go for the first as you say. What I'm saying though is look at other things ( incl cash) to get the backstory behind reported profit, to make sure it is real profit, before choosing the first. In other words don't just look blinkered-lu at reported profit as journals do. I think therefore we're violently agreeing

 

[jfm]

Could be for any number of reasons but it is reported that Net Assets are up by a similar £10m ...

hang on Mike. There is nothing "similar" about the 2 things. They're absolutely identical, to the precise penny. If a business makes X profit and pays no dividend and receives no fresh capital injection ( as here, on both counts) then it's net assets have increased by PRECISELY X. That's just how a balance sheet balances. (You can debate which of net assets and profit is the chicken and which the egg but that's detail)

 

[jfm]

Could be for any number of reasons but it is reported that Net Assets are up by a similar £10m so could be down to a property purchase or possibly an extension of credit terms to their dealers (are Debtors up?) to make it easier for them to stock boats. Just guessing really

Theres no need to guess much. It's mostly in the accounts and summarised in my first post. They have an all new asset called long term assets so in broad terms the cash has been spent " buying" that asset. Probably big M class yachts in build, with strangely little stage payments from customers.

That is quite an interesting observation, seriously. The lack of stage payments I mean. As total guesswork, but not stupid guessing, this could be what delayed the accounts because it is a big step change from the company's previous financial position

 

[jfm]

Funny you should say that J, because your question epitomizes very nicely the fact that we are living in a world where we don't have REAL "business owners" anymore, meant as proper entrepreneurs, but rather "investors", which is actually an elegant term for "bean counters with fat wallets".
It's pretty obvious that the first would go for the profit, and the latter for the cash.
Sad, 'innit?

My first point is my real message and I never said cash is king". My second post might have led you to think I am a cash is king merchant, which I'm not, but I'm guilty as charged on not being a bit clearer in my second post! Anyway, all I meant was that IMHO it's good to check the backstory behind reported profit, and cash is a useful source of clues. If the backstory is good then profit is what matters. Cash is nice too of course but good quality profit is the real number because of course it ultimately can turn into cash anyway

What we have here is a reported profit but a major cash spend, and indicators that make one think the cash might have been spent on building big boats that customers are not stage-paying for. Plus the 3 month filing lateness. That's all worth bearing in mind and is an interesting set of observations IMHO. If you were evaluating the health of a company with these facts, you would for sure look behind reported profit. That's all, and sorry if I was clumsy earlier in making that point

 

[Nick_H]

Looks like I have touched a nerve, not intended. However the thread moved into a discussion of the Princess accounts, I do not suggest Princess auditors are either blind & stupid, but alluded, because the profit was not in cash, then it resides elsewhere within the company, auditors are not always able to evaluate the actual market value of stock, as that depends on the market conditions at the time of sale, only the numbers & value at that point in time (2013), yes they can examine debtors, but they cannot be certain all those will all pay.

Don't misunderstand me, I do not suggest that anything is wrong with Princess accounting, only pointing out the vulnerabilities in relying entirely on a baseline profit figure, cash does not depreciate nor disappear.

If my post was a bit harsh then apologies, I didn't intend it to be, but you seemed to suggest that Princess would misrepresent, and the auditors would fail to spot, some of the most basic stuff like underproviding for bad debts or overvaluing stock. I don't think they would, it's bread and butter auditing, and in an ongoing business Princess would just be creating problems for themselves later when the debt or stock gets written off. Nevertheless, we were talking from the viewpoint of a theoretical investor, and I guess in that case there would be no harm in sense checking the basics, and of course it may give the investor the opportunity to force down the price.

 

[Deleted User YDKXO]

hang on Mike. There is nothing "similar" about the 2 things. They're absolutely identical, to the precise penny. If a business makes X profit and pays no dividend and receives no fresh capital injection ( as here, on both counts) then it's net assets have increased by PRECISELY X. That's just how a balance sheet balances. (You can debate which of net assets and profit is the chicken and which the egg but that's detail)

Yes jfm, of course you are right and I'll go straight to pedants corner then with my dunce's hat on for making the mistake of using the word 'similar' instead of 'same'.