Globe’s Annual Results

Employee benefit expense rose from $14 to $15.4 million, or by 10%. Sales and administrative expense was up 11% from $23.7 to $26.4 million. The loss before tax was $6.9 million compared to a pretax profit of $702,000 the prior year. They had a tax benefit of $990,000 compared to a tax expense last year of $640,000.

 

EBITDA, they tell us, was a loss of $4.7 million. They don’t seem to have included last year’s EBITDA, but by my calculation, it was a loss of $389,000.

 

So it wasn’t a great year compared to last year. What happened? They tell us they had one time costs of $4.25 million. These were composed of:

 

 

The restructuring costs related mostly to North America. There was an inventory charge of $600,000 and a charge for reduction of riders and employees of $500,000.

 

Those of you read my rant on Billabong’s showing its results without a whole laundry list of “significant costs” as they called them to show try and show a better operating performance probably already know what I think of this. There are reasons to present proforma results, but what I see here are a whole bunch of expenses incurred “in the ordinary course of business” as the saying goes. I’ll bet this isn’t the first time Globe has had to increase its doubtful accounts provision, had a late product shipment, or had set up costs of a new brand. Might not be the last either.

 

Any company can give us a proforma income statement at any time for any reason, but it seems like it only happens when there are big numbers they want to highlight so we’ll ignore them, if that makes any sense.

 

Let’s take a look at Globe’s results by segment. In Australasia, revenues rose from $25 million to $26.6 million, but EBITDA fell from $2.15 to $1.42 million. Revenues in Australia were up from $22 to $22.8 million. North American revenues were down from $41.8 to $39.3 million in spite of 14% growth in Globe brand revenues due to the decline in Dwindle. Its EBITDA crashed from a positive $1.71 million to a loss of $3.18 million. Revenues in the United States fell from $26.2 to $24.5 million. European revenues rose from $16.2 to $18.1 million due mostly to the Globe brand. EBITDA in that segment fell from $973,000 to a loss of $7,000.

 

If the balance sheet has weakened a little, it’s still okay. The current ratio fell from 2.88 to 2.33, and total liabilities to equity rose from 0.39 to 0.51.   But the longer term trend is worrisome. Contributed capital of $144 million has been reduced by losses of $96 million to $39 million. The company’s operations used $2.4 million in cash compared to generating $282,000 in the pcp. Cash fell from $10.2 to $6.4 million. Trade receivables rose from $9.4 to $10 million even after taking a doubtful accounts provision of $1.7 million ($911,000 in the pcp). Of course, there was a small sales increase which might result in higher receivables.

 

Inventories also rose from $14.5 to $17.7 million after provisions for write downs of $902,000 and $1.78 million respectively. Some of the growth may be due to new brands they are licensing and distributing in Australia and New Zealand as well as to the new brands they have started.

 

The statutory annual report Globe files is pretty short, and we don’t really find out much about their issues and opportunities. Partly, of course, that’s because their CEO is Matt Hill and two of their three directors are Peter Hill and Stephen Hill. Of the 41,463,818 ordinary shares outstanding at June 30, people named Hill owned 28.4 million of those shares, or 68.5%. I remember when Globe went public I wrote that I admired the Hills for getting the deal done and wondered why others invested.

 

Globe’s problems are pretty clear. They are a small company in two industries that are very competitive right now; skateboarding and shoes. We’ll find out in six months if any of their strategic initiatives help them turn things around.