Ironbridge Capital

On 4th September 2006, Ironbridge completed the acquisition of a significant stake in Riviera from GIC Special Investments. Riviera is Australia's largest manufacturer and retailer of luxury motor yachts, making and selling around 350 boats each year.

Neil Broekhuizen, Managing Partner of Ironbridge, lead an MBO of Riviera in 2002 on behalf of Gresham Private Equity and has been on the Board since that date, latterly as an independent director. Neil has played an active role in assisting executive management form and execute a strategy to drive growth globally.

Riviera has indeed grown strongly since 2002 but has had a number of issues as it transforms itself from a family business to a global player in the luxury motor yacht market. These have impacted profitability in the last two years, giving Ironbridge an opportunity to buy in to Riviera at a reasonable valuation given continuing good growth prospects.

Ironbridge will work alongside other shareholders and the executive management team to drive returns from a well structured five year strategy.

"Neil Broekhuizen has worked actively with our team over the past four years and we look forward to continuing with his and his team's assistance over the forthcoming exciting stage in the company's development."

- Wes Moxey, CEO

Riviera has grown strongly over the last 15 years, recording turnover of $325 million last year.

Riviera boats are made in Australia and sold both domestically and globally, with the US being the most significant export market. Riviera built its reputation and brand on the back of structural integrity, design innovation, superior finish, rough water performance, strong resale value, value for money and high quality manufacturing.

Riviera is dominant in its home market through its strong brand, modern manufacturing facility and an owned retail network, R Marine, spanning Australia and New Zealand. Riviera also has established operations in the US with a distribution and service facility in Florida and in Europe where it has a distribution centre in Genoa, Italy.

The R Marine retail network is also now the exclusive distributor and retailer of Princess Yachts, the UK luxury boat brand. This recent development will compliment the Riviera range and add to the profitability of R Marine.

Continued global growth in both the number of high net worth individuals and their assets is providing good market conditions for all luxury goods companies, particularly those combining leisure and lifestyle such as luxury yachts. Ironbridge expects Riviera to benefit from these trends.

Riviera designs and manufacturers large, luxury motor yachts in three separate ranges: Flybridge Convertible; Sports Yacht; and Sports Cruisers. Boats range from 33' to 60' long and prices start at around $350,000 and rise to over $2,300,000 for the 60' Flybridge Convertible.

Riviera's factory at Coomera, on the Gold Coast, is the largest boat-building facility in the Southern Hemisphere, employing over 1,000 people directly and approximately 300 indirectly though dedicated contractors. All aspects of boat construction are undertaken here from design, interiors, fibreglass, carpentry, upholstery, electronics and engineering.

New Product Development is a key part of the business and Riviera is introducing 3 to 4 new models per annum. It is able to do this through sophisticated 3D modelling, 5 Axis cutting and maximising the use of common parts and components. At Coomera, a significant part of the site is dedicated solely to NPD.

R Marine, Riviera's retail network owns 11 of the 14 dealerships in Australasia. Riviera's facility at Stuart in Florida, USA services 14 independent dealers and Riviera's base in Genoa looks after the dealers in Europe and the Middle East and is actively pursing opportunities in Russia. The rapidly growing Asian region is serviced from Australia and includes a 9 outlet Chinese dealer, based in Shanghai.

The management team is led by Wes Moxey who has worked in the business for over 20 years and has been the CEO since the MBO in 2002.

Since then Riviera has undergone a number of management changes and additions, some of whom have been successful and others not. Today we are satisfied that most key roles have good people in them although one or two more changes will be made. Nevertheless Riviera now has the best and most experienced management that it has ever had and the existing team are confident that they can deliver the growth the shareholders require.

Riviera has grown enormously since 2002, not so much in the number of boats produced, but in the average size of each vessel. Whereas the core of the range was in the 30'/40' range then, it is now firmly in the 45'/55' bracket. As the boats become larger, quality and finish become more important and hence complicate manufacturing. Riviera has also bought out a number of its subcontractors where earnings enhancement was possible (such as Riviera Electronics and Décor).

With this growth came difficulties. Turnover continued to grow at double digits but profits peaked in 2004 and declined in 2005 and 2006 as manufacturing margins fell and overheads increased. Overhead increases in areas of compliance, accounting, OH&S, design integrity and business processes have been necessary but a lack of good systems and a shortage of quality, trained labour has made the situation worse than necessary, particularly in indirect manufacturing costs.

Moving into this financial year Riviera is beginning to get to grips with its systems and margins and better control and management will lead to greater efficiencies and better margins.

Sales also weakened in late 2005 as markets tightened in the US and Australia. In the US this was a combination of higher interest rates and the cyclones in the Southern States. In Australia greater competition from imports wasn't countered effectively by an ageing sales force within the dealerships. The creation of R Marine, sales training and new recruits at all levels have reversed the Australian decline and domestic sales are now strong for the remainder of the financial year.

The initiatives in place to solve Riviera's problems and strong growth fundamentals attracted Ironbridge to the investment in Riviera:

Leading market position in Australia and New Zealand, with a sound international dealer network in key markets such as the USA, Europe and Asia;

Global demand for luxury goods continues with new markets in Asia, Eastern Europe and the Middle East adding to the US, Europe and Australia;

Expansion of dealer network into new areas. Riviera was demand constrained until 2005 so stopped appointing new dealers. This has been reversed.

Largest marine retail network within Australia and New Zealand has secured Pricess distribution rights which will increase earnings;

New product development has a strong pipeline with many new luxury yachts due for launch over the short to medium term.

"Riviera already holds the dominant domestic market position and maintains strong growth opportunities through its global dealer network. We believe we can add value by working with all stakeholders to continue with Riviera's exceptional growth and increase margins to create a world leader in its industry."

- Neil Broekhuizen, Managing Partner, Ironbridge Capital