They've got a lot of experience writing off bad loans. This is a drop in the bucket.
I didn't say a heart attack.. LOL
Everything hinges on if AL can deliver the double digit growth forecast in Horizon 2027. They are the biggest brand in diving, that makes double digit growth more difficult. Look at their forecast for 2023 that says 30% growth and yet only having Q1 and 2 growth forecast of 7.5% in dive. Hmmm, well, let's see how that pans out. Dive industry indicates recessions early and lags them in recovery has been my observation in almost 3 decades in the game. That makes growth hard even when the larger economy is roaring back. What are the current and forecasted global economic indicators now? If you paid me to do a dive industry PESTEL right now, it would be thick enough to bind.
Especially with announced SKU reduction (been there before when at Mares, it had some good calls, some really bad, mostly filled the warehouse with odds and sods inventory that needed to be moved, and was at a steep discount eventually which ate on main line sales of SKU's that had margin). Maintaining market position means owning as much shelf space in the retailers as possible, that takes SKU's unless you want to see it replaced by other brands. Sometimes the margin and/or turns of some SKU's look really bad compared to your star SKU's and seem low hanging fruit to kill off. Then the retailers replace with another brand and that opens the competitors catalogue to them, which nibbles away at all your offerings sell thru. Then there are assumptions on stuff like colours. Say you sell a fin in 6 colours, 3 of the colours outsell the others by double digit factors.. so you kill the 3 slow seller colours expecting that the buy will shift to the 3 better selling anyhow. Then it doesn't and you are not just seeing the other brands fill the void but you lost 20-30% of the sales of that product while saving maybe 10% (that would be a high savings) by efficiencies of offering less colours.
Plus, some areas are decent revenue but super low margins like rental gear. It's easy to make the argument that it's too much work for the ROI. So, those products don't just help keep your production lines busy or buying strength with suppliers (important) but also serve a vital but hard to quantify marketing value. Big money types like Barings want stuff quantified, and in the dive industry quantifying the "big" stuff is near impossible (like actual industry size) let alone that a $$ amount on what each rental set sold is worth in marketing dollars. It doesn't help that not only is rental equipment among your lowest margin item, that is tied to your brand recognition, it also has to be the highest quality to survive that use not just to keep your return/warranty cost low but also how much than can impact your brand reputation among the dive pros that will be annoyed if your rental regs need full service attention every couple years (because most places don't actually follow any service schedule and fix when the broken pile is huge and they don't have enough working stuff to ignore said big pile). If they are dealing with that pile always, your brand is "crap" and let that continue for 5 years and your brand is gonna feel impact in all areas of business, not just rental market. A bean counter will argue to not chase it for good reasons, a sales guy will want to and engineers will be all over the place depending on if they like the challenge or not so much. Shipping dept hates it, because shipping to many places where diving is popular is really annoying.
Also, don't forget that as they reduce sku's, look at what if any brands to spin away or consolidate, they have distribution contracts (not talking dealers, who often have a dealer agreement with a distributer) all over the place and the AL distributers have a fairly large buy in and stocking requirement. having been in more than a few AL distributers offices and warehouses, I can say that as corporate does SKU reduction etc, it will lag at the distributer level. Lots of friction there. If Johnson Outdoors and HEAD aren't targeting (wine, dine and bribe) the AL distributers right now, they are fools (Ok, not the bribe part, follow business laws of where you operate, or have your office in a less legal oversight jurisdiction go and bribe them without you knowing about it)
Barings is gonna place alot on the plate of the AL boss, looking at them as an industry expert in the general category of sporting goods (and the amount of people in high jobs in diving with a ski background that leverage that to run dive companies is amazing.. like seriously. I have a theory on the "why" of that that will just piss them off, but basically can be summed up as coming from a place of privledge that can afford a good university education while spending enough time skiing to get good and known enough to move into that industry after graduation. Move up in a bigger industry and hit a ceiling, make a move into the smaller dive industry in a higher position because they managed bigger #'s in ski and flop around like a poddle thrown overboard but looking really good while doing it in the new much smaller industry that has a very different mentality and broader demographic (still good) consumer base. The word dilettante may even apply... In fairness however, some of them are awesome.. so time will tell I guess. But the current C level at AL is much more likely to feel comfortable doing a sales meeting at the chalet than on a live aboard.
In the early 70's some big name investment groups bought into diving, they got indigestion and by the late 80's they had pretty much all called it a day. Air Liquid an exception because history and AL and even Johnson who loved SP let it go away until Helen took it back, because of emotion (loves the SP brand, I like thinking I played a small part when I sold a bunch of Atomic regs to her.. a year later she bought SP, the company, again and replaced the couple dozen Atomic regs with SP regs). Huish are divers and passionate, not really numbers only investors as well, not even close. EVERY numbers based investment joint avoided diving after the lesson of the 70-80's until PADI sold then AL. The industry (except PADI) is weaker than it was then when it didn't work out, how is it gonna work out this time? On the gear side, retail and wholesale prices have never been lower in inflation adjusted dollar, margins are drastically lower than back then at wholesale and retail and the volume has not really budged in 20 years even with more divers getting certified (which is why PADI is ..well PADI) .
Honestly, I think AL can limp a decade more before anything radical happens, it could turn around but nothing in Horizon 2027 (nor my take on the dive industry tells me it will) it sounds like something i would write for an assignment when I did my MBA, not something that really understand the dive industry. I can't imagine that Barings will be interested in any risk in strategic direction or disruption, and IMHO, that is gonna have to happen for a brand to to grow in diving. They are just gonna have managers doing "I am gonna have to MBA the s&it out of this" (nod to Matt Damon and Martian) until they can pass the spud to another, and the spud will have a few more sprouts and soft spots all while this occurs
your mba boss. That of course is what M&A is all about. By the way, M&A is down in that that industry as well, take a gander at the latest Goldman Sachs quarterly. Given that is down, how many are gonna gamble on diving in this environment?
So.. that is my slightly longer reply to the question, I'm going to return to my sabbatical now.
Nice guy and well liked.
