MARKET WATCH:News From Australia - Globe’s Half Year Result

Jeff Harbaugh

• March 17 2009
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Globe came out with its earnings release for the six months ended December 31st, 2008 on February 26th and nobody over here seemed to notice. Happily, I stumbled on it and thought my three faithful readers would want to know what’s up.

Income Statement

Globe, it’s fair to say, is no more immune to the recession than anybody else.  Here are their summary numbers in thousands of Australian dollars.  Remembers we’re working with Australian accounting here, which is a bit different from in the U.S., and there is not as much detail included in the report.

If exchange rates hadn’t moved, revenue would have been down by 11%.

Compared to the same six months period in 2007, employee expense rose 1.7% to $10 million.  Selling and administrative expenses were up 13.9% to $23.9 million.  The report doesn’t provide any specifics as to why these would have increased.  However, the accompanying press release described “…a range of cost reduction and expenditure curtailment initiatives…” the company is taking.

“The EBITDA loss for the half includes $6.3 million of non-recurring expenses due to the restructuring that has occurred.”   That amount includes $2.1 million of onetime restructuring costs, $2.0 in severance expense “…and contract events which have since been removed from the business.”  The remaining $2.2 million represents cost reductions in marketing, product development, and property costs.
Part of the expense increase, in other words, was the cost of making the reductions.  Headcount was reduced by 23%.

They don’t expect any improvement in revenues for the rest of their financial year, but believe their cost reduction programs will result in an “…improvement in financial performance in the second half of this financial year.”

Globe divides their business into three segments; Australasia, North America, and Europe. The table below shows earnings by segment before interest and taxes for the six months ended Dec. 31, 2007 and 2008.  It’s in thousands of Australian dollars again.

Balance Sheet

I’ve retrieved the December 31, 2007 balance sheet so we can compare two balance sheets at the same date. On that basis, current assets are down from $57 to $50 million.  The way the composition has changed is interesting.

Cash and equivalents (money in the bank, more or less) fell from $20.6 to $8.3 million over 12 months.  Receivables were down 2.75% from $23 to $22.4 million. Inventory actually rose 28% to $17.2 million.

There’s no explanation for why. All other things being equal, I might have expected some decline with the soft sales (Inventories were $15.3 million on the June 30, 2008 balance sheet).  As with other companies, I expect this is just a measure of how we were all surprised by the speed of the economic deterioration last fall.

Total assets have fallen from $110 to $79 million. That included a $21 million noncash charge for writing down intangible assets that occurred between January and June of 2008.

Current liabilities have grown 63% over 12 months from $11.5 to $18.8 million. The key components were an increase in trade and other payables from $10.2 to $12.6 million and an increase in borrowings from $69,000 to $3.9 million.  As a result, the current ratio has fallen from 4.95 to a still strong 2.68.

Noncurrent liabilities fell slightly and total liabilities rose 42% to $23.1 million.

Total equity is down 40.4% from $94.2 to $56.2 million. Total liabilities to equity rose from 0.17 to 0.41.
There’s also a note that Globe has replaced a $5.1 million line of credit with a receivables factoring facility in North America. They are also in the process of replacing a $10.0 million facility in Australia with a $3 million receivables financing facility.  As they put it, “The $10.0 million facility was in excess of the requirements of the business, particularly in light of the rising costs of financing.”

Like many companies, Globe is finding bankers not quite as easy going and anxious to push money at you as they were a year or two ago.

It wasn’t a good six months for Globe, but it feels like they are taking the steps they need to take to deal with it.

Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.