Princess Yachts announces £17.9m profit

[Deleted User YDKXO]

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

Yes, I could well imagine that the auditors might have baulked at Princess booking part or all of these contracts as sales turnover for the year in question, if that was the case, simply because without stage payments, no sales invoices would have been issued. That could well have lead to some lengthy and fraught discussions between the auditors and the Board. However, I always favour cock up over conspiracy; we were once similarly (that word again!) late filing our accounts in the past due to illness at our end and pregnancy at our accountants end

 

[MapisM]

My second post might have led you to think I am a cash is king merchant, which I'm not

Nope, that's neither what I meant nor what I thought. Not of yourself, anyway.
In fact, I would actually agree with your second post, if as I understand you implied that an "investor" these days would go (AOTBE) for the second business of your example rather than the first.
I was instead arguing against the (mostly) wrong reasons behind such sorry state of affairs - whose fault is not yours, of course.
But that was more a philosophical than an accounting consideration, since after many years spent on finance, accounting, B/S evaluations and so forth - none of which I'm missing one bit! - now I find these technicalities a bit boring.

Otoh, if I should throw in my 2c, purely based on the numbers discussed so far, I must say that I can't understand which sort of conclusions anyone could seriously draw from them.
My only caveat is that the IBI link only shows a "page not found" message on my pc, so I'm not sure of what I'm missing, if anything.
Btw, I also can't understand your objection to Deleted User on the profit-driven assets increase, which is something completely different from what, in my understanding, he meant (regardless of the "same/similar" semantic querelle...! ).

I mean, let's see. What do we have here?
a 10m cash decrease (jfm number);
a 10.6m total assets increase (Herald webpage, which I suppose is the number Deleted User was referring to, but happy to stand corrected from him if I misunderstood).
Now, leaving aside the Herald comment which seems to associate a company statement about the B/S "strength" with such increase, which is plain ridiculous, we are actually mixing apples, oranges, and God knows how many other fruits by comparing these two numbers, not to mention if we throw in also the 17.9m profit.

Trying to simplify, my understanding from what has been said so far is that the cash reduction was driven by an increase of inventory or credits (or both).
But that affects the B/S composition, not the P&L (hence the profit).
All we know of the P&L (Herald webpage) is that the turnover has been 10.5m lower than PY, and the profit "only" 0.5m lower.
The Herald hints that personnel costs reduction was the main factor behind this profitability improvement (in percentage), but doesn't give any figures.
And the other few numbers reported are not even worth mentioning, from a performance evaluation standpoint.

Bottom line, it's all well and good for debating in a forum whether Princess is a sound company or not.
But if I should advise, based on these numbers alone, anyone evaluating whether to invest in Princess their hard earned savings, well, I think that blowing them in one of their boats would be a safer bet...

 

[DavidJ]

Like, I think, many on this forum I am equally fascinated and mystified by the debate.
Just a question. Is profit by definition shared out between the shareholders or can it be ploughed back into the business (with agreement with the board I assume)

 

[petem]

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.

I find that statement interesting but not in the same way as you. My question would be, why would they NOT account for R&D as a (fixed term intangible?) asset on the balance sheet? Is it because they don't feel the need inflate their paper profits at present? Perhaps they are saving this trick for a rainy day. Incidentally, I'm not not a fan of recording R&D as an asset as I think it can cause problems if you need to write the asset off if the design turns out to be duff.

What do other builders do? Do Fairline / SS have their designs as assets on the balance sheet? If so, at what rate are they depreciated / written off?

 

[rafiki_]

I find that statement interesting but not in the same way as you. My question would be, why would they NOT account for R&D as a (fixed term intangible?) asset on the balance sheet? Is it because they don't feel the need inflate their paper profits at present? Perhaps they are saving this trick for a rainy day. Incidentally, I'm not not a fan of recording R&D as an asset as I think it can cause problems if you need to write the asset off if the design turns out to be duff.

What do other builders do? Do Fairline / SS have their designs as assets on the balance sheet? If so, at what rate are they depreciated / written off?

IPR has some value, but sometimes difficult to quantify. Forward PD is vital in a product driven business, but again difficult to value on the P&L, hence written off in the year. It is all down to the accounting policy of the Group. The auditors will be testing the accounts against the policy, and should also comment if they have any concerns.

 

[petem]

IPR has some value, but sometimes difficult to quantify. Forward PD is vital in a product driven business, but again difficult to value on the P&L, hence written off in the year. It is all down to the accounting policy of the Group. The auditors will be testing the accounts against the policy, and should also comment if they have any concerns.

When Princess say "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" I assume they are talking about the individual model design and the cost of making the moulds (not IPR). This should be easy to quantify and I would have thought that the depreciation would be over the predicted lifespan of the model.

 

[rafiki_]

When Princess say "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" I assume they are talking about the individual model design and the cost of making the moulds (not IPR). This should be easy to quantify and I would have thought that the depreciation would be over the predicted lifespan of the model.

Pete, I think we are in full agreement, I was just commenting on the audit process. It really all depends on their accounting standards, and how challenging it is to account for non tangibles.

 

[Nick_H]

When Princess say "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" I assume they are talking about the individual model design and the cost of making the moulds (not IPR). This should be easy to quantify and I would have thought that the depreciation would be over the predicted lifespan of the model.

Moulds would be classed as tooling rather than NPD, so you'd expect these to be depreciated over product life as you say.

NPD will be mostly people costs of designers and engineers, but will probably also cover modelling, prototyping, testing, CAD, FEA etc. and could even stretch to some marketing activity and a proportion of senior mgt costs.

 

[Deleted User YDKXO]

a 10m cash decrease (jfm number);
a 10.6m total assets increase (Herald webpage, which I suppose is the number Deleted User was referring to, but happy to stand corrected from him if I misunderstood).

Yup thats correct

 

[MapisM]

Moulds would be classed as tooling rather than NPD, so you'd expect these to be depreciated over product life as you say.

NPD will be mostly people costs of designers and engineers, but will probably also cover modelling, prototyping, testing, CAD, FEA etc. and could even stretch to some marketing activity and a proportion of senior mgt costs.

Correct, but aside from what was included in those NPD expenditures written off, pretending that this should "further adds to the robustness of the company's performance" made me smile a bit.
It doesn't take a top tax advisor to decide, in a fiscal year when a company has some sort of taxable income, that it's better to deduct rather than capitalize any sort of expense, as long as possible/allowed...!

 

[MapisM]

Yup thats correct

Ok, in this case not only those two numbers are NOT necessarily identical, but I can't think of another reason aside from sheer coincidence also for the similarity!

 

[MapisM]

Like, I think, many on this forum I am equally fascinated and mystified by the debate.
Just a question. Is profit by definition shared out between the shareholders or can it be ploughed back into the business (with agreement with the board I assume)

Definitely the latter.
Not only profit can be ploughed back (or "reinvested", just in case you might be interested also in the correct jargon... ), but that's actually rather the norm than the exception.
Btw, funnily enough, this is true for both traditional business owners/entrepreneurs, and modern financial investors, albeit for very different - arguably almost opposite - reasons:
The first, because they are interested in developing the company as much as possible with their own resources.
The latter, just because dividends distribution is an expensive way of taking money out of the company, since they are (normally) taxable, while capital gains aren't. Therefore, it's better for them to increase as much as possible the company value (or better said, make the company value APPEAR as high as possible, but now I'm sliding again into the philosophical side of it... ), in view of selling the company ASAP and enjoy the capital gain.

 

[Deleted User YDKXO]

The latter, just because dividends distribution is an expensive way of taking money out of the company, since they are (normally) taxable, while capital gains aren't. .

Capital gains are most certainly taxed in the UK albeit at a generally lower rate than income (which dividend would be classed as). Although there are a few potential ways of reducing tax on capital gains, it's very difficult or impossible to avoid it altogether in the UK

 

[MapisM]

Doh! I'm well aware that CGs are not treated equally in all countries, also within EU, but I would have sweared that in UK they were tax exempt. Did that change in the last years, or am I just plain wrong?
Regardless, that doesn't change a lot with regard to my previous comment, in practice: it's relatively easy to "relocate" abroad, wherever more convenient, the ownership of a company and the capital gains involved in its sale, vs. avoiding taxes on a plain vanilla dividends distribution.

 

[Deleted User YDKXO]

Doh! I'm well aware that CGs are not treated equally in all countries, also within EU, but I would have sweared that in UK they were tax exempt. Did that change in the last years, or am I just plain wrong?
Regardless, that doesn't change a lot with regard to my previous comment, in practice: it's relatively easy to "relocate" abroad, wherever more convenient, the ownership of a company and the capital gains involved in its sale, vs. avoiding taxes on a plain vanilla dividends distribution.

Capital Gains Tax (CGT) has been charged in the UK for many years; the rules have changed from time to time but the principle has remained the same. Yes it's possible to avoid paying UK CGT on a company sale by moving tax residency abroad although the UK HMRC has been making it more difficult in recent years to prove you have actually left the country

 

[Portofino]

Capital Gains Tax (CGT) has been charged in the UK for many years; the rules have changed from time to time but the principle has remained the same. Yes it's possible to avoid paying UK CGT on a company sale by moving tax residency abroad although the UK HMRC has been making it more difficult in recent years to prove you have actually left the country

Priny is owned by a French Co or french man ( PVT individual ) so any annual tax ( if any is due ) will be taxed at the Reg Office,s country or individuals dormicle where ever that is .?
Wealthy Folks in France have "moved out "

CGT via UK rules - if it was for sale probably would not apply ,unless it's still actually a UK Co ?

Where your main economic activity is - and your farthers and your place of birth -HMRC will use these to deterimine if an individual is a UK tax domicile .
It doesn,t really matter where you live these days -living abroad longer cut a great deal of ice.

Aside Uk tax regime is not that bad

Tax paid in one country can be offset against tax paid in others due to various double taxation treaties ,so you as an individual or poss a Co do not end up paying twice .

 

[DavidJ]

I

Definitely the latter.
Not only profit can be ploughed back (or "reinvested", just in case you might be interested also in the correct jargon... ), but that's actually rather the norm than the exception.
Btw, funnily enough, this is true for both traditional business owners/entrepreneurs, and modern financial investors, albeit for very different - arguably almost opposite - reasons:
The first, because they are interested in developing the company as much as possible with their own resources.
The latter, just because dividends distribution is an expensive way of taking money out of the company, since they are (normally) taxable, while capital gains aren't. Therefore, it's better for them to increase as much as possible the company value (or better said, make the company value APPEAR as high as possible, but now I'm sliding again into the philosophical side of it... ), in view of selling the company ASAP and enjoy the capital gain.

Thanks for your very clear reply. It sparks off many more questions (eg reserves?) but I'll hold back 'cos this is not the forum for a finance masterclass.
Cheers

 

[petem]

... I'll hold back 'cos this is not the forum for a finance masterclass.

Why not! As they say "every day is a school day".

 

[wakeup]

Priny is owned by a French Co or french man ( PVT individual ) so any annual tax ( if any is due ) will be taxed at the Reg Office,s country or individuals dormicle where ever that is .?

Wow, that is an incredibly simplistic and wrong statement about how UK tax works Portofino. I don't wish to engage with you on a UK CGT tax discussion but I do hope that no one is taking this discussion seriously. Arm chair boat engineering is one thing, but arm chair tax advice is a different ball game altogether. Princess will be liable under UK tax rules regardless of who owns it, the variable will be how much they pay depending upon a large number of factors and it could be that they pay no tax at all, but not because they are owned by a bloke with his registered office in France.

 

[Observer]

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

Would "M class yachts in build" really be classified as "long term assets"? Surely the equivalent of WIP so current assets?