Finding funds to finance growth is key if Pearl Motor Yachts is going to reach the crest of the wave.
Iain Smallridge thinks his Pearl Motor Yachts is poised for expansion. He wants to add new models, increase output and tackle new emerging global markets, particularly in Russia and the Far East. But to do so he needs to find a serious injection of funds.
The problem is that the 10-year-old, Stratford-upon-Avon based business has only this year, for the first time, turned a profit. Margins are low and competition from big name brands such as Sunseeker and Fairline intense.
“We need someone who can invest in the brand, in the future,” said Smallridge, a fully qualified yacht skipper who turned his hand to boat building after seeing the revenue potentials from chartering.
Having built a boat with backing from a colleague, Smallridge realised that there was a niche in the luxury boat market to produce a handful of high-spec yachts. Retailing at around £1m a go, these 50ft to 70ft motor yachts are for the seriously rich looking for something in which to swagger around the south of France.
But Pearl’s customers come from those looking for a less ostentatious yacht - with its cherrywood finishes and high attention to luxury and quality - than some of those produced by its rivals. Pearl customers, said Smallridge, are more likely to have made their money from property development or portfolio management than from being a playboy or premiership footballer.
To prove the point, Pearl has linked up in a marketing partnership with Bentley because both businesses, Smallridge said, see synergy in the target customer. “Ninety per cent of our owners also drive Bentleys.”
Pearl makes its own moulding for the hull and outsources and buys in most of the other components, from the engines (which propel the yachts up to around 35mph) to the drinks fridges, from upholstered saloons to shower units. “A lot of our joinery is done in Estonia,” he said. Pearl sells across Europe via a network of dealers.
Turnover this year is £6.5m from fewer than 10 boats. Next year the target is £8m and in 2010 £10m. But for Smallridge and his two majority co-owners, if Pearl is to start to see sustainable profitability it needs to increase output and so reduce the impact of high fixed costs.
“We would like to produce 50 boats a year,” he said. Adding a £2.5m, 75ft yacht (for which he already has four orders), a small 50ft boat aimed at the Sunseeker market and a limited edition boat later this year is part of the strategy. Targeting the new super rich in growing markets is another.
Smallridge, 39, a former motor vehicle technician, leads the sales and Pearl prides itself on a personal relationship with its few customers. “We have a close relationship and I often use their boats for promotional marketing,” he said.
That hand-holding is all part of the brand-building among a small and selective potential market seeking to splash out on a luxury yacht. Since sales inquiries are often initiated via the web, many would-be buyers no longer rely on boat shows to view the vessels. Smallridge-accompanied trips to the Med to view a boat are not uncommon. Pearl, though, is still exhibiting at this month’s Southampton Boat Show.
Sales, he said, are helped by a relatively high residual value. And with boat owners looking to trade up, the potential resale value is a prime consideration.
The prospects are good but with a pre-tax profit of just £50,000 after a decade of losses, Smallridge knows this is not a straightforward investment proposition. Any investor would be buying into the prospect of growth rather than benefitting from an established track record of profitability. “In the first decade we have established the brand and the products. We have started to make a profit,” he said.
“We are now ready to move on. We need to expand that product range and make bigger profit by lowering the proportion that goes in costs. But we are realistic. We are competing in a world market where there are some very good boat builders.”
The injection of funds will underwrite that expansion in capacity. It will also allow Pearl to employ a full-time finance director - boosting the three-strong management team - and move to larger production premises.
The new investor will get a slice of the Pearl equity and, with the other two shareholders – who, being boat enthusiasts, initially helped finance Smallridge’s venture - willing to be bought out, Smallridge is open to having the firm he founded owned in the large by someone else.
He has no figure in mind but the speed and scale of the growth will depend on the level of investment he can attract.
Staffing the expansion, though, could be an issue. Pearl employs a staff of 35 with a range of skills from experienced boat-builders to former exhaust shop fitters. A bonus scheme and on-the-job training means retention is improving. But in a region where unemployment is low, landlocked Warwickshire is not a prime source of Pearl-type talent.
Source: www.telegraph.co.uk
Related Links:
www.pearlmotoryachts.com