SINGAPORE (Dec 2): During a recent visit to Grand Banks Yachts’ yard at Pasir Gudang, Johor, its shareholders were delighted to see that the 55,000 sq m factory was running at almost full capacity. During their last site visit on Nov 23, 2017, there was a lot of unused space. This time, the only empty spaces were carefully planned pathways. GBY currently operates at almost full capacity, building 30 to 35 boats annually.
The better performance did not come about by accident. “We have pretty much completely rebuilt the company, [in] every aspect of the business, from management, production and finance to product,” CEO Mark Richards tells The Edge Singapore in an interview.
“It has been a massive transformation, bringing this 60-year-old company to a totally different direction in the past five years,” says Richards, who was appointed to this role in August 2014 after GBY acquired his boat-building business Palm Beach Motor Yachts for A$10 million.
Originally a bespoke boat manufacturer, Palm Beach now designs, builds and markets a full range of award-winning yachts at its factory in Berkeley Vale, 100km north of Sydney, Australia.
Righting a sinking ship
Despite having the Genting group as its single largest shareholder, GBY was in the red for five consecutive years until Richards was hired to turn the company around. He ended up acquiring a 6% stake in the boat maker and taking over the wheel. Within the first year of his “captaincy”, GBY was removed from the Singapore Exchange watch-list, where it had been for four years.
GBY’s share price is unchanged since August 2014, closing at 26.5 cents on Nov 27. At this level, the shares are trading at 12.7 times historical earnings and valued at $48.8 million. As at Sept 30, 2019, GBY had a book value of 31.05 cents per share, up from 29.91 cents on June 30, 2019. The stock is typically thinly traded and there is no sell-side analyst coverage.
When Richards first joined GBY, the Pasir Gudang yard was in a terrible state. Much of the space was dirty and used to store dead stock. The roof leaked when it rained, and when the weather was hot, it would get very stuffy in the sheds.
An exercise was undertaken to give the yard a facelift. In a short time, it was expanded to about 55,000 sq m and there are plans to further increase the factory space by another 27,000 sq m. Robots were introduced to help automate some of the production and the entire space was redesigned to maximise production efficiency.
To be sure, GBY’s earnings for the fourth quarter ended June 30, 2019 was not very impressive, falling 97.5% to $0.1 million, from $4.8 million in 4QFY2018. This was mainly due to a 139.4% y-o-y surge in cost of sales to $22.7 million, which caused gross profit to contract 44.9% to $2.9 million. Revenue was 73.1% higher at $25.7 million compared with $14.8 million a year ago. It also failed to declare dividends for FY2019; it had paid out 0.5 cent in FY2018.
However, 1QFY2020 is a markedly different picture. For this period, the company reported earnings of $1.7 million, from $1.1 million in 1QFY2019. This came on the back of a 20.5% increase in revenue to $26.0 million from $21.6 million.
With $52.8 million of orders on hand, the company is now operating at near capacity and will likely remain so for the next 1 1/2 years. Richards says in addition to fulfilling these orders, the company is also looking at how it can upgrade future models.
Currently, a yacht can take between eight and 18 months to build. From the site visit, it appeared that many parts of the vessel have to be built by hand. While some of the process is automated, customisation makes it unfeasible for the entire boat to be built using robots.
To meet the higher number of orders, GBY will be increasing its manpower hours to 1.8 million hours per year from 1.1 million hours currently. Richards says he intends to introduce shift work, hire more people and allow them to clock overtime hours. He also has plans to use more robots, which will increase work efficiency.
At the helm
While yachts have a niche appeal, there is plenty of competition in the market. GBY says its biggest advantage is that it offers the greatest latitude for customisation, enabling customers to enjoy the building process as much as the end product. Customisation options include colour and materials for furnishings and fixtures. “We specialise in customisation, big time. We probably have the most customised boats in our sector of the marketplace globally. That appeals to a lot of our customers, which I think helps [increase] sales,” says Richards.
In a sense, GBY’s key competitive advantage is Richards himself, who is involved in all aspects of the business, especially at the main manufacturing yard in Pasir Gudang. He oversees everything from design to production.
“I’ve been designing boats since I was 12 and it’s obviously [in] my genes. I’m very fortunate that I get to utilise those qualities [given by] God within GBY. The concept of every GBY product you see is done by me.”
Richards is also an accomplished yachtsman. His sailing record includes two world championships and the yearly Rolex Sydney-Hobart Yacht Race, which he has won nine times as skipper of Wild Oats XI. He has also participated in and won several regattas. Richards says this experience has helped shape who he is as CEO.
“Being the skipper of a racing yacht is like running a business. It’s all about team capabilities and team cohesion… There’s only one captain on a yacht and that captain has to make all the decisions at the right time, analyse the situation as it arises and deal with it. And in that sense, sailing is not much different from running a business, really,” he explains.
Fishing for customers
Richards believes in the quality of his products. What GBY needs now is a solid marketing strategy, and that will be its focus going forward. A more aggressive marketing strategy will increase its order book significantly and, in turn, boost its bottom line, he adds.
“We’re very lucky that our customers are all wealthy, which is obviously a bonus. We do not have a huge yard; we build only 30 to 35 boats a year. So, we are only a tiny proportion of the market,” says Richards.
Apart from attracting new customers, GBY hopes to build customer loyalty and have existing customers purchase again from the company when they want to upgrade. To do this, it actively participates in boat shows, where it introduces new models. In April, GBY unveiled its new Palm Beach GT50 to Asian buyers at the Singapore Yacht Show. The vessel made its international debut in September 2018 at the Newport International Boat Show. From these shows, the group has received up to three orders for the GT50.
The company takes part in boat shows all over the world. Participation in each one can cost it about $250,000. “That is a necessary evil, and the key for us to improve the way we’re doing our marketing,” says Richards.
He adds that GBY is also looking into spending more on advertising on the right media platforms. “It’s all about being present in the buyer’s world.” On a q-o-q basis, selling and marketing expenses have increased from $1.7 million in 4QYF2019 to $2.3 million in 1QFY2020.
