Globe Reports Annual Results. How Was the Second Half of the Year?

Well, how nice to be reporting the results of an Australian company that’s making money.  Life was not as good for Globe in the second half of the year as in the first.  Still, it feels like they are doing most things right.

I suppose I should confess that they sent me a copy of their book called Unemployable, which is a history of the company.  It’s nearly 700 pages long and a large format book.  You would not want to drop it on your foot.  I read most of it.  Thank god it’s full of all those pretty pictures or I’d still be reading.

You come away with the sense that they never let their positive attitude get in the way of recognizing when things were changing, and moving quickly to fix any problem that might pop up (remember these are the guys who acquired Kubic, which owned World and Dwindle, at precisely the wrong moment).  They have always been in touch with reality and, at the end of the day, I think that’s served them well.

Revenue for the year increased 9.5% from $137.7 in the prior calendar period (pcp) to $150.8 million (all numbers in Australian dollars).

You know, if this was a U.S. company, I’d be able to compare the period they are reporting on with the same period in the prior year.  In the U.S. reporting is quarterly, so it’s easier.  Not easy.  When U.S. companies release their annual reports, the fourth quarter is included in a footnote in the back of the report, and there’s not much detail.  But the comparison to the same quarter the prior year can be made.

With these Australian reports, accomplishing the comparison is a bit of a challenge.  There’s nowhere they tell us how they did in the second half of the year compared to the second half of the year in the previous year.  But I’m always up for a challenge.

The first thing I discover is that the older reports aren’t on Globe’s web site.  I have to click through to the Australian stock exchange to find them.  There’s no report that provides the numbers for just the second half of last year (January 1 through June 30 2015).

But I’ve got the income statement numbers for the year ended June 30, 2015 and for the six months ended December 31, 2014 (the first half of the year ended June 30, 2015).  If we subtract from those December 31 numbers the June 30 numbers, we have how Globe did in the six months ended June 30, 2015.

Revenue for the six months ended June 30, 2015 was $71.5 million and they earned a net profit during that period of $2.14 million.  In the six month ended June 30, 2016, revenue was $72 million and the net profit was $1.84 million.  In the second half of Globe’s fiscal year then, revenue was essentially unchanged from a year ago and net profit fell by about 14% compared to the pcp.

You know, that was way too hard.  Just as an aside, I’ve now gone through Billabong’s, Surfstitch’s, and Globe’s financials over the last couple of weeks and in all three cases felt like there was information that was too hard to get, or things I couldn’t figure out, or some unnecessary complexity.  It’s not that this doesn’t exist in U.S. company filings.  And I certainly don’t fault Billabong, Surfstitch or Globe for following the Australian rules and using them to their advantage where possible (that’s what I’d do).

But I’ll be damned if I’d be comfortable making an investment decision in an Australian company based on their required public filings.

Having vented a bit, I’ll now return to the subject at hand- Globe’s results for the year ended June 30, 2016.  Revenue, we’ve seen, rose 9.5% but all that increase was in the first half of the year.  For the whole year, revenue in the Australasia segment rose 35.2% from $50.2 to $67.9 million.  North America went pretty much nowhere, falling slightly from $49.8 to $49.3 million.  Europe was down 10.6% from $37.6 to $33.6 million.

Looking at individual countries, Australia grew 35.8%, the United States was down by 10.8% and all other countries fell 0.8%.  So you can see the revenue increase as reported was all about Australia.  Globe’s report refers to growing “…at a slower rate than the high rates of the prior financial year amidst more difficult trading conditions, particularly in the Northern Hemisphere.”  They specifically mention lower hardgoods sales there.  They go on:

“The Australian Division in particular benefits from recent investments and diversification into new markets, with much of its sales growth coming from expansion into a more diverse apparel business. Both the North American and European Divisions were impacted by softer retail conditions, particularly for hardgoods, resulting in a reduction in local currency net sales in each region by 14% and 15% respectively.”

Globe has made some strategic diversifications in the last couple of years that seem to be working out for them.

If we use what they call “Cost of sales” as cost of goods sold, we can calculate a gross profit margin that fell from 46.1% to 44.3%.

EBITDA rose 8.4% from $6.2 to $6.75 million.  Europe fell from $7.0 to $4.2 million.  The North American EBITDA loss of $1.5 million was slightly improved from the pcp’s $1.7 million loss.  Australasia saved their bacon, with the EBITDA rising from $5.7 to $9.1 million.

Globe’s net income rose 27.5% from $3.72 to $4.74 million.

The balance sheet was fine last year, but has strengthened some.  I love seeing inventories down on rising sales.  Trade and other payables have also fallen from $29.0 to $22.0 million.  There is $5 million of borrowing where there was none last year.

For all my bitching and moaning about Australian financial reporting standards, Globe did fine if we look at the whole year.   The second half of the year, however, was much weaker than the first, and we’ll have to see how that carries over when they report on the current six months in early 2017.