JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 4 March 2016. The article is republished with permission.

MarkRichardsMark Richards, CEO of Grand Banks Yachts.
(Photo: Company)

Australian sailor and boat-builder Mark Richards has been heeding the siren call of the ocean ever since he was six.

The Chief Executive Officer of SGX-listed luxury yacht manufacturer Grand Banks Yachts Ltd became a shipwright apprentice at 16, and embarked on a professional yachting career four years later.

Adopted by an English couple, Richards grew up in picturesque Palm Beach, situated at the end of Sydney’s long stretch of northern beaches.

“I started sailing when I was six, and I’ve loved boats my whole life,” said the eight-time champion skipper of the annual 628-mile Sydney to Hobart Yacht Race.

“Sailing and boating are in my veins,” he said.

LQM000066Some clients approached me to build custom yachts for them – that’s how I started my boat-building business.

- Mark Richards
CEO

Grand Banks Yachts

Richards retired after 10 years of professional yachting to establish Palm Beach Motor Yachts in 1995.

“Professional sailing was very demanding – I was in two different countries every month and had been dragging my family around the world for years.

"By then, the kids needed a proper school,” recalled Richards, who led Australia to victory in the 2003 Admiral’s Cup, and represented the country in two America’s Cup regattas.

“Some clients approached me to build custom yachts for them – that’s how I started my boat-building business.”

Palm Beach initially constructed bespoke yachts measuring 60 feet to 65 feet, mostly for customers in the United States. The specialist sailing yachts were meticulously designed and crafted with cutting-edge materials and a full suite of customisable options.

In 1999, Richards added powerboats to his repertoire with the launch of the Palm Beach 38 – dubbed the gentleman’s cruiser. He also set up a new factory in the suburbs of Berkeley Vale, about an hour north of Sydney.

Subsequent models helped Palm Beach clinch the Best New Power Boat award two years in a row in 2010 and 2011 at Newport International Boat Show.


Two Become One

In April 2014, the paths of Grand Banks and Palm Beach converged when the Singapore-listed company announced it would acquire its Australian peer for A$10 million in cash and equity.

“Grand Banks had been looking for quite a while to buy another company, and after being introduced to each other by a mutual contact at a boat show, we started a dialogue,” Richards recalled.

LQM oooo66

Palm Beach’s sales exploded through Grand Banks’ network, while Palm Beach was able to help improve Grand Banks’ construction techniques and introduce modern-day technologies, which they weren’t using before.


- Mark Richards
CEO

Grand Banks Yachts

The rest is history. Richards was appointed CEO of the enlarged Grand Banks Yachts group in August 2014.

Grand Banks has a legacy that dates back to 1956.

Its stunning yachts are constructed with beautiful, tight-grained Malaysian teak, sport a classical design, superb engineering and precise detailing.

They generally sell for around US$900,000 (S$1.3 million) to US$3.5 million (S$4.9 million).

The Group was listed on the Singapore Exchange in 1987 and upgraded to the Main Board in 1993. Between the 2005 and 2015 financial years, Grand Banks averaged annual revenues of S$64.7 million. It reported four consecutive annual losses between FY2010 and FY2013, returned to the black in FY2014 but swung into the red again in FY2015.

The Group, which was placed on the Singapore Exchange Watch List in December 2011 following three straight years of net losses, exited the Watch List in October 2014.

Since then, the tide has shifted.

Grand Banks swung to a net profit of S$1.59 million for the six months ended 31 December 2015, from a net loss of S$1.21 million in the previous period. It also has a healthy order backlog of S$31.9 million.

 

♦ Creative Cross-Pollination

The union of both companies has proven to be mutually beneficial, Richards said.

“Palm Beach’s sales exploded through Grand Banks’ network, while Palm Beach was able to help improve Grand Banks’ construction techniques and introduce modern-day technologies, which they weren’t using before.”

The Group’s boat-building capacity – with facilities in Australia fully occupied and those in Malaysia seeing improved utilisation rates – has now been aligned across both brands and locations. Cross-pollination of manufacturing techniques and materials sourcing has boosted efficiency and output.

In particular, Grand Banks benefited from Palm Beach’s more refined approach to hydrodynamics in the construction of hulls. This has resulted in smarter use of materials, increased strength and better weight distribution, which in turn has enhanced performance.

Its yachts were well-received in last November’s Fort Lauderdale International Boat Show – the world’s largest.

It shipped a new model, the compact yet luxurious Palm Beach 42, in the second quarter ended 31 December 2015, and debuted the elegant Grand Banks 44 Eastbay at the Miami International Boat Show in February. It will also participate in the Singapore Yacht Show on 7-10 April

Stock price  28c
52-week range 22.5c - 33c
Market cap S$54.4m
Price-book 1.3 x
Dividend yield -
Source: SGX StockFacts

The Group plans to launch the sumptuous Grand Banks 60, a line of high-performance yachts, in the fourth quarter of 2016.

“We need another six to 12 months to fully streamline production processes within the enlarged group and restructure the foundation to make it solid again,” said Richards.

“We’re revamping the business from every aspect. It’s important to set each stage in place before moving on to the next level.”

The Group will focus on organic growth – which has huge potential – in the immediate future.

“Grand Banks’ manufacturing facility offers exciting prospects, but we need to get the recipe right first. Palm Beach had the right recipe, but on a much smaller scale,” he added.



Turning the Titanic Around

One recent strategic initiative reaping huge rewards is the switch to a factory-direct sales model. This allows commissions traditionally lost to dealer sales networks to be reinvested to create better products, service and customer experiences.

“I took a lot of criticism for this decision because it’s so abnormal for our industry to do this,” said Richards. “But the figures you see today are generated from 80% of the impact of that move, and I am really happy about it.”

Commission rates in the boat building industry have been “pretty warped” for a long time. Dealers can make as much as 10%-20% in commissions, while builders – those who are doing well – only get 5%-6%, Richards explained.

Grand Banks has also hired a team of professional salespeople based throughout the US to build relationships with clients. Even so, these staffing expenses amount to a fraction of the cost of selling through a dealer network, he said.

LQM000066I took a lot of criticism for this decision because it’s so abnormal for our industry to do this. But the figures you see today are generated from 80% of the impact of that move, and I am really happy about it.

- Mark Richards
CEO

Grand Banks Yachts

“The world has changed. If you can do it yourself, why not do it yourself?”

But there are considerable challenges involved in running the business, Richards admitted.

“There’s a lot of responsibility involved in managing a listed company, but I’m enjoying it.

"There’re also many challenges in the production process – trying to turn the Titanic around by 180 degrees is no easy feat,” he said.

“Every day, we have to make decisions on the fly, and ensure we’re making the right ones to stay ahead.”

The Group is also diversifying its revenue streams with a brokerage business in the US, which helps owners who want new yachts to sell their existing boats. This sideline can be profitable, Richards added.

 

♦ Smoother Sailing Ahead

Meanwhile, the global luxury boat industry, which has been roiled by turbulence, appears to be steering into calmer waters. Australia is generating “great sales” but demand in Southeast Asia and Japan remains slow, partly due to fewer marina berths and relatively higher berthing rates.

Grand Banks AleutianGrand Banks Aleutian yacht series. (Photo: Company)
“Most people are not really big boaters in this part of the world,” Richards noted.

In comparison, luxury boating in the United States is massive.

“Most people underestimate how big the American market is, and there’s a lot of money in the luxury mid-size powerboats segment. Now, it’s taking off big time.”

US boat enthusiasts buy and sell their yachts every few years, but after the Global Financial Crisis struck, demand dried up.

“The American consumers have not bought or sold their boats for quite a few years, and they’re ready now. It’s amazing how many people can afford a two million-dollar boat these days,” Richards said.

After tackling the US market, which accounts for more than half of global sales, Grand Banks will focus on Europe. “If we do America well over the next 12 months, it will set us up to target the next part of the world – Europe – which hopefully will be up and running by then.”

And the Group is well-placed to ride the industry recovery.

“Grand Banks is one of the most iconic boat brands on the planet. Quality and reputation is everything in our industry, and we have both well and truly in hand. If we can create a beautiful, quality product, it will always sell,” he said.



Banking on Beauty

For Richards, the design process is intense and time-consuming, but totally satisfying.

“It’s all about building beautiful things. The ideas just happen – usually they come at 2am in the morning, so I sleep with a notepad next to me,” he said.

“I write them down during the night, and when I wake up the next morning, they’re all there. Eventually, these ideas become reality.”

Many Grand Banks clients are experienced boat owners who have many good ideas of their own. “We mix our ideas with their ideas, and things just evolve,” he added.

An eye for detail, balance and proportion is also essential. “A good understanding of the ocean is a big plus – you need to build something that is resilient in tough seas.”

Not surprisingly, Richards gravitates towards perfection and performance. He owns a Mach II Moth – a dinghy that skims over the water surface on hydrofoils – and drives an Audi R8.

LQM000066Most people underestimate how big the American market is, and there’s a lot of money in the luxury mid-size powerboats segment.

- Mark Richards
CEO

Grand Banks Yachts

“The Mach II Moth is such good fun – it’s a very cool little flying machine on water,” he said.

Outside of work, and apart from the occasional yacht race, Richards, who has two daughters aged 23 and 28, usually ends up far from the ocean, like skiing in Colorado.

“I’m always dragged away from the water by my family,” he said with a laugh.

Describing himself as “fussy”, Richards hopes to build his own boat one day.

“There’s a beautiful marina berth at home just waiting for it. I’ve no time now because I’m too busy building other people’s boats!”

A Grand Banks 50 could be a yacht he would construct for himself. “It has a very simple design, with little clutter – it’s beautiful, efficient, and performs well.”

With a flash of self-awareness, he admitted: “But I could well be my own worst customer.”

Perfection and beauty aside, Richards also values people.

“I was taught early in life that being good to people is important. If you treat people well, they will do anything for you. If they look after you, you must look after them,” he said.

“I cannot run this business by myself. The people who buy the boats, as well as those who design and build the boats – they are all key.”


Financial results

Year ended 30 June 
(S$ '000)
FY2016 FY2015 FY2014 FY2013
Revenue 58,667 39,190 40,349 35,253
Gross Profit 10,197 3,873 7,840 4,787
Pretax Profit / Loss 1,268 -4,538 1,042 -5,031
Net Profit / Loss 1,970 -4,799 1,033 -5,215

Quarter ended 31 March (S$ '000) 3QFY2017 3QFY2016 yoy chg
Revenue 13,192 17,257 -23.6%
Gross Profit 1,905 2,429 -21.6%
Profit / Loss from Operations -629 162 -488.3%
Net Profit / Loss -1,109 375 -395.7%

Source: Company data




Outlook & Risks
    • The Group now has a stronger foundation for growth, having improved its design and production processes, aligned the utilisation of its Australian and Malaysian facilities, revamped its sales and distribution model, and introduced new boat models. It will continue to integrate manufacturing techniques and other operations across its brands. Accelerated start for phase three of expansion plan to meet increased demand from new and existing customers
    • The Group will continue to develop new boat designs, extend its marketing efforts and streamline Group-wide internal efficiencies with a view to enhancing shareholder value.



Grand Banks Yachts Ltd

Grand Banks Yachts manufactures and sells luxury yachts to dealers and end customers worldwide. The company offers its yachts under the Heritage Series, Eastbay Series, and Aleutian Series names. It primarily sells its yachts in the United States, Europe, Australia, Singapore, and Japan.


For its 3rd quarter results for the period ended 31 March 2017, click here.

The company website is: www.grandbanks.com.

The ccompany's Stock Facts page is here.


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