Crystal Balls...

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Cyclicality in the marine industry is still the norm. Isn't it? Phil Draper wonders whether things have changed.

FEBRUARY 2004

Ask anyone that has been in this industry for a decade or three about what the future holds for this business and they’ll tell you that ours is a cyclical industry and that what goes up must come down. They will recall the peaks in the ’60s and the ‘70s and the boom and bust of the ‘80s. And based upon that evidence, they go on to tell you that the next big downturn is therefore imminent.
But is it? Senior management at Groupe Bénéteau recently admitted to adjusting its long-term strategy to cope with the possibility of sustained growth through until 2010!
Regardless of whether they’re building sailboats or motorboats, a handful of players have got bigger and bigger since the mid-‘90s. Indeed in terms of turnover their scale today is far in excess of the previous industry peak in Europe around ‘90/91. Although volumes across the board are probably no higher, and in some areas they will actually be less, it is the average sizes that have really skyrocketed.
Indeed a few real ‘now and then’ comparisons with the past peak are illuminating. For example, just look at the top four UK powerboat builders. Take Princess Yachts International, then Marine Projects. Back in 1990 it was building 550 Princess motorboats and 450 assorted sailing yachts, Moodys and Sigmas. Its turnover was around £65 million and its establishment was around 1,500. Today it is doing considerably less in terms of units, probably 300 Princesses and only 40 Moodys. But its turnover is around £115 million and the workforce is just 1,150. That means it is now building a third fewer boats with a third of the staff, but it is managing twice the turnover. Regardless of inflation, things have improved considerably. And it clearly registers the way average sizes have shot up.
Take Fairline. In 1990 it did around 500 boats with 520 people and managed a turnover of £30 million. Now it is doing 300 boats with almost 1,000 people and managing a turnover of £85 million. So that is getting on for half the unit volumes, but double the number of people and treble the turnover.
Sunseeker is the biggest UK player now. In 1990 it was doing 430 boats a year with 480 people and managing sales of £31 million. Now it is doing just under 300 boats a year with 1,400 people and sales of £141 million and a forecast of £150 million for this financial year to the end of July. So it is doing a third less units with 1,000 more people. And the turnover is over four times higher.

“Quite a few of these giant corporations have been making serious money... So should a serious downturn come, the big guys are unlikely to be caught out like many were in the early ‘90s.” 

If we look at the big Italian companies — Azimut-Benetti and the Ferretti Group — we see massive growth in terms of units, people and turnover. Azimut now has a turnover of around €450 million and it is shooting for €500 million. Ferretti is not far behind with sales of €385 million and a €480 million target. Both Azimut and Ferretti were one brand operations 12 or 13 years or so ago.
Take Groupe Bénéteau. That has also seen huge growth. Back in 1990 much of what is now Groupe Beneteau was actually two large competing companies Bénéteau and Jeanneau. Bénéteau was doing around FFr700 million sales with 1,500 people and Jeanneau was much the same. So, say, between them they were employing 3,000 people and building 5,000 boats, less than 2,500 of which were sailboats. Today Groupe Bénéteau is Europe’s largest boatbuilder with a workforce of around 4,300 people, a unit output in the region of 12,000, over 4,000 of which were sailboats, and with sales of €637 million. So that is 1.5 times the people, but three times the output and three times the turnover…
Similarly Bavaria has come up in a decade from almost nothing. It now produces 3,000 boats — 2,500 sailboats, all of which are well over 9m, and 500 powerboats bigger than 7.5m. Turnover is now approaching €250 million. And it does all this with less than 600 people.
And it is not just as if these guys have sacrificed margin to win business. Quite a few of these giant corporations have been making serious money. For instance, Bénéteau had something like €127 million in the bank as of the end of August ‘03. And around the same time Azimut had something like €95 million on deposit too…
Moreover, should a serious downturn come, the big guys are unlikely to be caught out like many were in the early ‘90s. Most have funded all their growth from cash and so they can just turn down the wick as required when that cycle comes round again.
Personally my crystal ball no longer points to a big crash — more gentle dip than breaking wave.

© Phil Draper