This 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.
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Australian sailor and boat-builder Mark Richards has been heeding the siren call of the ocean ever since he was six.
Richards retired after 10 years of professional yachting to establish Palm Beach Motor Yachts in 1995. |
Some clients approached me to build custom yachts for them – that’s how I started my boat-building business.
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.
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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 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 | ||||||||||||
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The union of both companies has proven to be mutually beneficial, Richards said.
The Group plans to launch the sumptuous Grand Banks 60, a line of high-performance yachts, in the fourth quarter of 2016. |
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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.
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- Mark Richards 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 |
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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. |
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.
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- Mark Richards 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 | ||
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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.
