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UK withdrawal from the EU: Effect on BF


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Well, the bulk of the article may seem to be attributing BF’s current financial woes to Brexit uncertainty, but there is quite a lot of discussion in the other thread about the various factors that lie behind BF’s current financial fragility, and that it is is easy for the company to blame Brexit as a cover for all the other stuff they’d rather not talk about!    Someone also observed that this “Bretagne 2” project has already been on the drawing board for over a decade, so this latest postponement is not really anything new!  There was then quite a bit about FSG and Honfleur in the thread, so the Bretagne 2 stuff may be several pages back.  I’ll try and post a link to it.

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BF aren’t really, either Jonno.  They just know that they can get away with passing that off in the current political climate and media narratives, and it sounds better than our ships are falling apar

That’s a new level of low to call the most versatile ship BF has.

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Working out the fx impact on BF from the post- referendum fall of the pound is pretty straightforward. Net takings in sterling x whatever rates they have hedged at before vs after.

That takes away any noise from factors which affect actual underlying GBP income and I'm sure is a calculation they will have done.

Edited by hhvferry
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Well, I don’t want to re-hash the discussions we’ve already had, but I will be very interested to see whether the financial problems this year are primarily due to declining income or a surge in costs.

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Really hope Brittany Ferries have got their long term finances and viability under control and I trust they have. Also just hope all those people put off going across the Channel because of Brexit will think about returning. I doubt a normal or perhaps more British like private sector ferry model would have the patience and belief to "hang in" there like Brittany are currently doing. They also had financial concerns in the mid to late 90s and they successfully turned their fortunes around so there is history which shows they will turn back to profitability. Plus they also have low debt which is all good for the balance sheet. As I've said before if Brittany Ferries weren't there I'd doubt anyone else would fill the gap in provision of services to the extent BF currently do.

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I wonder how many routes BF could get away with running for the tourist sector , that is routes that require a hotel service on the ferry, you would suspect the ones to go would be  Le Havre and Cherbourg which could be freight only and Roscoff could close entirely without too much of a hit on the BF books.

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18 hours ago, Gareth said:

Well, I don’t want to re-hash the discussions we’ve already had, but I will be very interested to see whether the financial problems this year are primarily due to declining income or a surge in costs.

I agree, their ongoing fleet renewal and route expansion despite all of the negativity spouting from BF towers has been discussed over and over so too has their historic decision not to re invest in their tonnage.

Having ports closed for days on end due to strike action will be having a far worse effect on them than the exchange rate. BF have been dealing with it's fluctuation for decades which has been in the 0.80 - 0.90 range for 12 years now.

I also question their desire to replace Normandie with Honfleur and it's propulsion system designed to appease public relations when a new MGO or true LNG burning Bretagne was the clear priority.

Is this public outburst of financial woe a pre-curser to a take over or partnership?

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5 minutes ago, neilcvx said:

I wonder how many routes BF could get away with running for the tourist sector , that is routes that require a hotel service on the ferry, you would suspect the ones to go would be  Le Havre and Cherbourg which could be freight only and Roscoff could close entirely without too much of a hit on the BF books.

Not strictly true Neil, Cherbourg served from both Poole and Portsmouth is BF's 2nd busiest passenger route. Roscoff consistently carries in excess of 350,000 pax a year so would really be better serviced with a passenger ferry.

 

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6 minutes ago, jonno said:

Is this public outburst of financial woe a pre-curser to a take over or partnership?

You could well be right Jonno..It would have to be a complete take over, as any new owner would want to flag out the ships, reduce the huge overheads and replace the very high cost French labour. As I recall LD lines did that on the PiP Le Havre route but brought in British officers who were Numast members. That union and the French CGT had a co operation agreement which stymied them from industrial action. DFDS have mixed crews operating into Dieppe etc. Can`t see anyone wanting to partner a high cost operation..Yes I know its high quality but accountants don`t care about that.

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3 minutes ago, Paully said:

You could well be right Jonno..It would have to be a complete take over, as any new owner would want to flag out the ships, reduce the huge overheads and replace the very high cost French labour. As I recall LD lines did that on the PiP Le Havre route but brought in British officers who were Numast members. That union and the French CGT had a co operation agreement which stymied them from industrial action. DFDS have mixed crews operating into Dieppe etc. Can`t see anyone wanting to partner a high cost operation..Yes I know its high quality but accountants don`t care about that.

To be honest Paully that's really just me thinking out loud the BF Group aren't really a private company in that sense, you could say that 75% of it is nationalised. It's the banks & the region which won't fund Bretagne II not the shipping company and if we keep packing into the 31 year old ferry to the tune of over 350,000 a year why would they? Bretagne earns them lots of money, if you like it's their longest domestic route with cabin and passage costs reflecting this not to mention the onboard spend.

Again, thinking out loud, it may well be that within the hallowed corridors of St Malo & Roscoff the decision has been made to replace Bretagne with Pont Aven and lose one Spanish and the Cork sailing altogether and the ground is being prepared for the flack they'll receive. (oh wait, everything will be fine, there's the Vigo sailing!)

Transmanche at Dieppe. DFDS operate the tonnage but it's owned by Seine - Maritime. When the subsidy ends DFDS will run a mile quicker than Steve Cram in Oslo... and I'll give you three guesses on who I have a feeling will take over there.

I used to get the feeling that due to their other far more lucrative shipping operations Louis Dreyfus Armateurs didn't really take passenger ferries seriously. 

 

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1 hour ago, jonno said:

To be honest Paully that's really just me thinking out loud the BF Group aren't really a private company in that sense, you could say that 75% of it is nationalised. It's the banks & the region which won't fund Bretagne II not the shipping company and if we keep packing into the 31 year old ferry to the tune of over 350,000 a year why would they? Bretagne earns them lots of money, if you like it's their longest domestic route with cabin and passage costs reflecting this not to mention the onboard spend.

Again, thinking out loud, it may well be that within the hallowed corridors of St Malo & Roscoff the decision has been made to replace Bretagne with Pont Aven and lose one Spanish and the Cork sailing altogether and the ground is being prepared for the flack they'll receive. (oh wait, everything will be fine, there's the Vigo sailing!)

Transmanche at Dieppe. DFDS operate the tonnage but it's owned by Seine - Maritime. When the subsidy ends DFDS will run a mile quicker than Steve Cram in Oslo... and I'll give you three guesses on who I have a feeling will take over there.

I used to get the feeling that due to their other far more lucrative shipping operations Louis Dreyfus Armateurs didn't really take passenger ferries seriously. 

 

From what I understand about Brittany Ferries it is based on a cooperative model, ultimately owned by Breton farmers and hence definitely not a candidate to be taken over by a private sector company. This structure is probably is why the company believes more in investing for the long term.

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They've not been owned by farmers since 1986 plus both Roscoff -Plymouth & Cherbourg-Poole will remain open unless it's financial suicide due to the ministries of commerce who own the tonnage.

It's part of the deal they made with BAI to save them from bankruptcy.

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1 hour ago, jonno said:

They've not been owned by farmers since 1986 plus both Roscoff -Plymouth & Cherbourg-Poole will remain open unless it's financial suicide due to the ministries of commerce who own the tonnage.

It's part of the deal they made with BAI to save them from bankruptcy.

It says here as of Sep 2019, still owned by a Breton agricultural cooperative.

Screenshot_20200218-210412_Chrome.jpg

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Between 1996 & 1998 there was EU investigation as the French Government gave BAI financial support, i:e state aid. It took the EU 3 years to find in favour of the shipping company.

If they were a private company the EU commission's investigation would not have allowed the financial aid as their law prohibits a member state from doing so.

There is a letter from 1999 titled "May 1997 Agreement between the state and BAI" which is also accompanied by documents "1997-1999 restructuring plan" themselves dated October 1996 & March 1997.

There is also another document titled "Aid in favour of the Bretagne Angleterre Irlande shipping company". The direct recipient of the restructuring aid was BAI. BAI and it's partners have also received other state subsidies.

Why was the state aid allowed?

The SPC's are sociétés d'économie whose majority shareholders are the local authorities whose objective is linked to the public interest and their jurisdiction... They run public services and there main objective is regional development and general economic interests and they hold the main influence in the boardroom.

In 1982 BAI was bankrupt and were on the verge of discontinuing their routes. The local authorities set up three SPC's in order to purchase ships for BAI to maintain services - SABEMEN. SENACAL & SENAMANCHE, these were created in 1982, '85 & '91. BAI's partnership with these SPC's gives them access to the public purse but also contractually binds them to the conditions laid down by the local authorities, namely to provide maritime transport services of at least a certain frequency from specific ports, namely Roscoff & Cherbourg. They must also submit their results and provide forecasts to the local authority SPC's. The local authorities are also influential BAI board members.

The SPC's have the power to guide BAI's strategic decisions since it is the local authority SPC's who decide on the acquisition and sale of the ships BAI operate for them. The operating conditions, general condition and capital increases needed to maintain the SPC ships must also be met by BAI.

BAI or Brittany Ferries are responsible for the operating and marketing structure only.

The local authority SPC's also own and control the debt... and is a major component of why the EU allowed the funding.

Now we get onto the EIG's, the economic interest groups, these are made up of French financial institutions and they either offer borrowing to the SPC's or fund the ships themselves. lease them to the SPC's who in turn sub charter them to BAI.

EIG's financed Bretagne, Barfleur and Normandie & 50% of Pont Aven. These are leased to the relevant SPC's who as said sub charter them to BAI. The local Breton authority SPC funded Armorique under a new title, MSM & Cotenin were funded by an SPC, the latter by a collaboration which began the life of SOMACOT.

I can carry on and give you a full breakdown of the sub charters, amortisation etc.

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12 hours ago, jonno said:

Between 1996 & 1998 there was EU investigation as the French Government gave BAI financial support, i:e state aid. It took the EU 3 years to find in favour of the shipping company.

If they were a private company the EU commission's investigation would not have allowed the financial aid as their law prohibits a member state from doing so.

There is a letter from 1999 titled "May 1997 Agreement between the state and BAI" which is also accompanied by documents "1997-1999 restructuring plan" themselves dated October 1996 & March 1997.

There is also another document titled "Aid in favour of the Bretagne Angleterre Irlande shipping company". The direct recipient of the restructuring aid was BAI. BAI and it's partners have also received other state subsidies.

Why was the state aid allowed?

The SPC's are sociétés d'économie whose majority shareholders are the local authorities whose objective is linked to the public interest and their jurisdiction... They run public services and there main objective is regional development and general economic interests and they hold the main influence in the boardroom.

In 1982 BAI was bankrupt and were on the verge of discontinuing their routes. The local authorities set up three SPC's in order to purchase ships for BAI to maintain services - SABEMEN. SENACAL & SENAMANCHE, these were created in 1982, '85 & '91. BAI's partnership with these SPC's gives them access to the public purse but also contractually binds them to the conditions laid down by the local authorities, namely to provide maritime transport services of at least a certain frequency from specific ports, namely Roscoff & Cherbourg. They must also submit their results and provide forecasts to the local authority SPC's. The local authorities are also influential BAI board members.

The SPC's have the power to guide BAI's strategic decisions since it is the local authority SPC's who decide on the acquisition and sale of the ships BAI operate for them. The operating conditions, general condition and capital increases needed to maintain the SPC ships must also be met by BAI.

BAI or Brittany Ferries are responsible for the operating and marketing structure only.

The local authority SPC's also own and control the debt... and is a major component of why the EU allowed the funding.

Now we get onto the EIG's, the economic interest groups, these are made up of French financial institutions and they either offer borrowing to the SPC's or fund the ships themselves. lease them to the SPC's who in turn sub charter them to BAI.

EIG's financed Bretagne, Barfleur and Normandie & 50% of Pont Aven. These are leased to the relevant SPC's who as said sub charter them to BAI. The local Breton authority SPC funded Armorique under a new title, MSM & Cotenin were funded by an SPC, the latter by a collaboration which began the life of SOMACOT.

I can carry on and give you a full breakdown of the sub charters, amortisation etc.

Very informative and comprehensive explanation here, Jonno. I'm guessing that with this ownership structure BF is still safe from takeover or being sold on to a private equity or financial investment outfit?

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1 hour ago, Nick Hyde said:

Very informative and comprehensive explanation here, Jonno. I'm guessing that with this ownership structure BF is still safe from takeover or being sold on to a private equity or financial investment outfit?

I doubt any other carrier would want to even attempt to unravel the legal contractual agreements.

What I have observed is that since 2016 the fleet renewal investment figure has slowly risen. When Honfleur was announced the number stood at €400m it's now €550m now add on the rail freight and it's more like €580m. We then need to factor in the return and major refit of Cotentin together with PA's new engine and ancillaries, this will probably increase it closer to €600m.

Now look at the losses due to the port strikes, the ongoing SOMANOR charter costs for Etretat due to Honfleur's delay, BAI's need to charter another vessel in Kerry and their 25% of Condor...

It's no surprise that currently the banks won't build or fund an SPC for either a Bretagne or Pont Aven replacement.

 

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I don't think they have even tried to get banks to talk funding for the Bretagne 2 project since the Pegasis project fell apart due to delays in getting government backing for the environmentally friendly projects, and the lack of build slots at St Nazaire. They will seek funding when the time and circumstances are right, UK/EU future relationship clear, currency settling down, general market confidence?

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I think most would agree that a rate around 1.25€ to the pound is "par". Since mid 2016 we have been well below that, and much further below the pre referendum 1.40+.

The order book at St Nazaire has got longer... BF want a prestige made in France project. The Breton farmers at the heart of this can be jolly "têtus".

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1 hour ago, colin said:

I think most would agree that a rate around 1.25€ to the pound is "par". Since mid 2016 we have been well below that, and much further below the pre referendum 1.40+.

Don't you remember when they were talking about parity, then it went up to 1.40 and people started to think that was normal.

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1 hour ago, Solo said:

Don't you remember when they were talking about parity, then it went up to 1.40 and people started to think that was normal.

It was before the financial crash in 2008. Been trying to patch things up ever since. The optimism that the UK would remain in the EU fuelled the rise, then realism hit...

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It's currently at £1.19 when Pont Aven loomed large is was £1.24. You can bemoan the pound, the euro and political landscape as much as is liked. The reality is that at a worse exchange rate than what we have currently either the EIG's or SPC's were more than happy to find €550m for four ships.

You can't have it both ways. Are Stena moaning about the exchange rate, DFDS, I.F or P&O? No they're not, just like BF they're expanding and they all use both currencies aboard their U.K. ships.

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BF aren’t really, either Jonno.  They just know that they can get away with passing that off in the current political climate and media narratives, and it sounds better than our ships are falling apart, our dockers are aways on strike, we spent a fortune on an unnecessary rebranding exercise, we’re paying an arm and a leg for a duff company with duff boats and a duff reputation, we’re pouring money down the drain to prop up a shipyard on the brink of bankruptcy, and we messed our customers around so much by meddling with the sailing times that all the money we received from the government has been spent on compensating them.

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