Winning any refit contract will inevitably at some point lead to a discussion about margins being used on some of the subcontractors. More commonly referred to under the term ‘mark-up’, the idea of what is a reasonable percentage to be added to a quote can quickly become a sticking point with the client. The argument that ‘the mark-up is money for you doing nothing’ is countered by the shipyard’s ‘the margin is needed to pay for our overheads’. But what exactly is a fair overhead mark-up?

If one assumes many companies will share similar overheads to their competitors, at least in a proportional way, on costs such as insurance, maintenance, sales and marketing, and finance and administration, then the remaining main pillars of overheads that will drive the margin of a shipyard will probably be health and safety, sustainability and investments.

There are very few serious shipyards in the world that are not increasing the proportion of their annual budget on health and safety, and I would strongly encourage any client to discuss this point in detail with any shipyard before even asking them to quote for your purpose.

The ICOMIA Superyacht Refit Group is currently working with yacht underwriters to try to develop a more objective and transparent way of assessing each shipyard’s health and safety, which will in turn hopefully allow some form of benchmarking on which to base our future investments. Almost certainly this will lead to an even higher level of investment in our health and safety, which will ultimately be integrated into a shipyard’s mark-up and, therefore, be passed on to the client.

Sustainability, particularly in the somewhat all-encompassing guise of ESG (Environmental, Social and Governance), is certainly an area where shipyards can make significant investments. Whether that’s in the form of better training for team members, improving working conditions or other social initiatives this also costs money even if it’s in the form of time.

Investing in the future is not just a strategic choice for businesses; it’s a necessity for survival and growth. This is particularly true for superyacht build and refit companies operating in a competitive and technologically advancing industry.

 Somewhat easier to assess are the investments in infrastructure such as solar panels, water-treatment systems or on-site waste recycling in order to improve a shipyard’s environmental footprint, which leads us nicely to the main point I wanted to address here … investment.

Investing in the future is not just a strategic choice for businesses; it’s a necessity for survival and growth. This is particularly true for superyacht build and refit companies operating in a competitive and technologically advancing industry. As Warren Buffett wisely stated, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” It’s fair to say that he has a good understanding of forward-thinking investments that yield long-term benefits.

Hard investments such as new ship-lifting facilities enhance operational capacity and efficiency as well as catering to larger vessels that are being launched. Green infrastructure investments are essential for our future, while soft investments such as integrated project-management software systems and digitalisation of paperwork, or opening a project-management training academy, streamline operations and improve service quality to our clients.

Understanding how much to invest in which category is the choice of a shipyard’s management team, and in our relatively small industry it would be hard to find an amount that would be considered as the norm. In the technology sector, companies often reinvest a significant portion of their revenues into research and development (R&D). For instance, leading tech firms may allocate more than 20 per cent of their annual revenues to R&D to maintain a competitive edge. In engineering industries, probably more closely relatable to our business, investment in capital expenditures commonly ranges from five to 15 per cent of revenue, reflecting the need for constantly advancing machinery and infrastructure.

Of course, yacht refit companies are also expected to be suitably attractive destinations that will keep all the crew happy during a refit, so as well as infrastructure for the works there’s also a service industry part providing amenities such as a gym, crew lounge areas and even pools, bars and restaurants. The list of potential investments is pretty much unlimited.

Ultimately, it will probably come down to an owner’s attitude to investment and development so perhaps next time you sit down with an owner and have five minutes to spare, ask them whether they want to pay the very minimum for a company that is short-term or has very limited investment.

Are you in it for the long term or do you not care what the future of our industry holds?

This article first appeared in The Superyacht Report – Refit Focus. With our open-source policy, it is available to all for a limited period by following this link, so read and download the latest issue and any of the previous issues in our library. Look out for the New Build issue coming in February!

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