How is the company funding this £30m expansion given Fairline Yachts only emerged from receivership (previously Fairline Boats) in January 2016?
The 2017 accounts filed at Companies House show that the shareholders have strengthened the balance sheet, converting £25m loan capital to equity while continuing to fund the expansion with further loan capital.
I have now reviewed the plans for the Hythe site and it will take approximately £7m to fully develop, but we have phased spending steadily over the next five years. We expect to have 100 shop-floor workers on site by the end of quarter one in 2019, and will build 18–20 Targa 63s and Squadron 64s during that same year. This includes some of those built in Oundle, UK, in the first half of the year as we manage the transition.
What are your plans for Australia and Asia? How do you perceive the market in this region?
It’s an important territory for us. We’re working with our existing dealers and have also recently appointed dealers in Hong Kong, the Philippines and Singapore.
We have new boats en route to Australia and Asia over the next few months, including the last of the Squadron 65s (number 79), two Targa 53s and the second Squadron 64 to Chinese clients, together with the Targa 43s, 48s and Squadron 53s to Australia. By promoting these boats locally, our dealers will generate more sales.
What kind of customers are you trying to attract with these very different new models, the F//line 33 and the Squadron 64?
Fairline has built over 200 boats over 62 feet and the new Squadron 64 is a worthy addition to this family. The F//Line 33 is a different segment, it will bring a new day-boating customer to the brand. We are also expecting 40 percent will be sold to existing Fairline owners as a second boat to support their larger models.
One of the hardest things for any new CEO is the entrenched culture in a new company – what has it been like transitioning to Fairline and where is the brand heading?
It feels comfortable and familiar. There are strong comparisons with Oyster in terms of it being a well-established brand with decades of history.
We have loyal, repeat customers and a large percentage of sales come from existing clients trading up or sometimes down. There is a sense of family both on the water and in the yards, and a definite pride that comes from building quality boats.
At its core, the Fairline brand has always embodied timeless design, secure seakeeping and British craftsmanship. I’d like to see engineering excellence added to this list, ensuring that we embrace new technologies where appropriate and offer our clients further opportunities to personalise their new yacht.
Do you think Brexit will affect the UK boat-building industry significantly?
Brexit is causing business uncertainty for our clients and the dealer network, and impacting their customers’ willingness to place orders.
Most often, the end clients have multi-currency wealth and the decisions are therefore linked to exchange rates. The Norway or Canada options [two examples of agreements for almost tariff-free trade with EU countries] may make it easier for a UK client to use their boat in the Mediterranean as a non-VAT paid visitor, so it could have a positive impact.
Can you comment on the recent changes in CEOs at some of the major boat-building yards?
In other industries, it’s unusual for CEOs to do more than five years. The marine industry still has many hobby owners whose CEOs are employed almost vocationally. This is a structural weakness in the industry – irrational competition exists when you don’t have a level playing field or normal levels of what is expected for profitability.
The industry as a whole needs serious consolidation and a more efficient supply chain. The supply chain is consolidating – Dometic are one example, and Trend and Lippert are another – but the boat builders are not.
There have been several appointments from the luxury end of the car industry to the marine sector, which some feel implies there are crossovers to be learned from. I don’t share that view. The volumes are so different, the global brand strengths are so different, and while everyone needs a car, very few actually need a boat to live or work.
The current movements are what I see as the third phase post-recession: 2008–2011 was about flushing out the huge over-valuations of businesses prior to 2007 and dealing with a massive collapse in value, 2012–17 was about refinancing, recovery and flushing out a new target volume, suppliers and so on. We’re now in the third phase, where hopefully more serious, longer-term players can drive the essential consolidation.
What were the lessons learnt from your experience at Oyster Yachts, in particular your decisions regarding strategic direction?
When I joined Oyster, I inherited a business with £37m of debt, which was sold at the top of the market to private equity investors who expected to triple the business in five years. There was also a long-term commitment to build Oyster 100s and 125s in Turkey with a fully outsourced structure. This venture lost nearly £8m over five years.
At the entry level of 46 feet, the market was being aggressively challenged by the volume manufacturers. Competing with a quality product below 50 feet was getting harder and harder. Oyster was being squeezed into a market of around 15 boats with an entry level above £1m.
As many boat builders find, overhead and factory structures mean that there is a critical turnover volume, below which it’s not possible to be profitable. For Oyster, it was £50m – that’s why we were looking at expanding the custom-build work.
Applying that experience, the decisions taken to expand and invest in Fairline’s new Hythe site mean that we need to be at an £80–100m turnover plus. This is achievable in 2020.
For 2019, we’re setting out to be around £65–70m, building 100 boats of which we currently have 75 in the order book. The key lesson from Oyster was to manage any key subcontractors effectively so that a catastrophic sinking can’t happen (or dent sales by approximately 30 percent for the next two years).
You have been with the company since September 2018. What were your priorities for the first 100 days?
At the end of October I agreed to present my 60-day review to the board in December 2018, focusing on three parts of the business.
The investment in new models for production from 2020 onwards is different from the investment in boosting the Oundle operations and the start of new operations in Hythe.
I’m pleased to have identified that the core operations in Oundle are moving steadily in to profit and the other two parts will follow in due course. That gives a reassuring picture of the start of returns on investment and gives great encouragement to continue.
What is your strategic vision for Fairline over the longer term?
Fairline has built over 15,000 boats during its history and at peak was building nearly 300 per year. I believe the brand and the operational structure can get to approximately 100 boats in the core market of 40 to 60-foot boats, around 75 boats below 40 feet with the F//Line, and more than 25 a year of larger boats. This is the target for 2021 onwards.
Fairline certainly seems to have been rejuvenated, it must be rewarding achieving such positive outcomes across the business.
It’s a great opportunity to work with such astrong brand. We have the chance to pick up the best bits of the old Fairline Boats and create a new DNA with the Fairline Yachts brand. The Hythe site removes the critical obstacle of road haulage limitations and provides an opportunity to repeat the success we had with the Squadron 78, the last of which was delivered earlier this year.