Fairline CEO looks to 2010
By IBI Magazine
Despite the poor 2008 results reported in today's IBI News, Fairline CEO Derek Carter remains relatively upbeat going into 2010, claiming that the company is on track to return a profit (albeit a marginal one) in 2009 with more growth and increased profitability for 2010.
"At the end of 2008 we wondered whether our cutbacks were going to be enough," Carter told IBI. "It has since transpired it was at the right level. During 2009 we have continued to produce with 1,000 people working full time and continue to build boats and sell boats through the distribution network."
Critically, reducing production in 2008/9 has helped the builder cut inventory levels. "They have come down significantly. We only have four boats over 60ft and only 10 over 50ft in worldwide stock, that's including at dealer level."
Dealer liquidity and dealer ability to commit forward monies to boats that will be produced in the coming year remains the major challenge facing boatbuilders worldwide, claims Carter: "This is not the fault of the dealerships. This is fundamentally a fact that many of the providers of wholesale finance have stepped out of the marketplace which has left the manufacturer and the retail customer to fill the gap."
In light of that challenge, Carter says the boatbuilder will look to under-produce in 2010 what it perceives retail market demand will be. "So we'll produce about five per cent more boats than we have in 2009, but we'll be much more profitable. Under-producing for the market will effectively mean that dealerships will get to a point where their stock levels are so low that there is no option but to draw money in from the retail sector — that will feed back in to an expectation that if I want a boat, I'm going to have to place a forward order. Prospective owners will have to commit with a deposit, which will in turn create that forward order position."
Under-supply of the market will also create scarcity, a fact that Carter predicts will drive up margins, effectively making discounting a thing of the past.
Carter says 2008 had been a "hell of a sharp readjustment (for the marine industry) but probably a necessary one", and that the objective for Fairline is to rebuild a sustainable order book for the future but one that is backed by deposit monies.
"Customers are emerging again. They've delayed their purchasing decisions by a year to a year and a half, not because they couldn't afford it, but because of confidence. They are reappearing now and are starting to place retail orders for the future."
Carter added that though the US remained "stubbornly soft" in terms of sales, a fact confirmed at the recent Ft Lauderdale boat show, sales in the eurozone and the UK had held up better than expected, while emerging markets such as Egypt, Saudi Arabia and Kuwait, the Far East, Brazil and Venezuela had been growing steadily. Russia and Australia were also picking up.
Carter added that product development investment would be accelerated in 2010. This year Fairline has launched a Squadron 65, and is about to launch a Targa 58. June next year will see the arrival of a new Squadron 41 and at the end of the year a Targa 50 and Squadron 50. Beyond 2010 a 70ft-plus Targa and Squadron are already on the drawing board.
Carter said that losses for 2008 would be followed by modest profit in 2009 and relatively substantial profits in 2010.
"Generally speaking we're back to where we were in 2005 at the time of the management buyout, with about £40m loan stock and bank debt. The business is fully invested for the next five years," he added. "Most importantly we haven't over-leveraged the business to get to this position. The leverage is at the same level to what it was in 2005, which, in this current private equity arena, is remarkable."
In July of this year Fairline completed a financial restructuring supported by its shareholders and lenders who wrote off £10m of the original loans and provided an additional £3.5m in equity investment. Furthermore the company's loan repayments have been differed until June 2011 and its banking covenants have been reset.
3i, the British venture capital group, remains the ultimate controlling company of Fairline Boats Ltd owning two-thirds of the company's equity. The management team and newly appointed chairman Alan Fletcher hold the remainder.
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