Not Too Bad, But Not Too Good. And Generally Uninformative. Globe’s Annual Results

Globe is no more immune to economic conditions than any other company.  But what I’ve always liked about them is they seem to be in touch with reality and have a positive attitude about it.  They haven’t always been right (me neither) but they’re not slow to realize when something should change and in making it happen.  Their results for the year ended June 30, 2017 demonstrate that.

As usual, we don’t get very much useful information in their statutory report, and nothing by brand, but I’ll give you what I’ve got.

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The U.S. is Tough on Another Company: Globe’s Half Yearly Results

Globe published its results for the six months ended December 31st on February 21st and I missed it.  Better late than never I guess.

Happily for Globe, its largest market in Australasia was strong because revenues in Europe and North American (NA) were down pretty dramatically.  Total revenues fell 10.6% from $79.1 in the six months last year to $70.7 million Australian dollars in this year’s six months. (all dollar numbers are Australian).  Australasia revenue, representing 58.4% of total revenue, rose 15.5% from $35.7 to $41.3 million.

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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.

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Globe’s Half Year Results- Serious Improvement, But It’s Hard to Figure Out Just What They Did Better

This is going to be a short article. On February 23rd, Globe reported solid improvement for the half year ended December 31, 2015. But I don’t have much to tell you in terms of what they did better or how because it wasn’t in the public information. Let’s go with what we’ve got. The numbers are in Australian dollars.

Revenue rose 19.5% to $78.8 million from $66.0 million in last year’s six months (the prior calendar period- PCP). There’s no cost of goods sold provided as there would be in the U.S.

Okay, I think maybe I’ve figured it out with a little help from people who understand the presentation of Australian financial statements better than I do.

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Globe’s Results for the Year; Good, but What’s Going on in North America?

I’m kind of late writing about this, but Quiksilver inconveniently filed for bankruptcy right before I went on vacation and I was focused there. The headline is that Globe improved its performance. However, there isn’t much to analyze. Basically they tell us, “We did good and think we can do better.”

Hope so. Anyway, here’s a brief presentation and discussion of the numbers. Just to remind you, Globe is Australian and all the numbers are in Australian dollars.

Revenue rose 32.7% from $104 to $138 million for the years ended June 30 2014 and 2015. Revenue from all their brands rose. Globe was up 24% and Dwindle 34%. 4Front was up 36%. That’s their licensing and distribution business for Australia and New Zealand. The brands they manage are Stussy, Obey, Vision Streetwear, and Komono. Hardcore, “…the largest distributor of leading brand skateboard products, both owned and third party international brands, in Australia and New Zealand,” rose 39%. Its brands include Girl, Lakai, Thrasher, Chocolate, Flip and others you would recognize.

Finally FXD, which sells “carefully designed and styled work wear,” was up more than 100%. This brand, I recall, is pretty new and I imagine that growth is from a small base.

How did they accomplish this growth? “Past diversification strategies and brand investments driving growth.” Well, that certainly explains it. You can see why this might be a short article.

Revenue in the Australasia segment rose 32.6% from $37.7 to $50 million. Sales in Australia rose 30.5% from $34.9 to $45.5 million. Clearly, most of the segment’s growth was in Australia, which represented 91% of segment revenue.

All the divisions reported growth in the segment. “Improvement in performance [was] due to strategic diversification of brands, categories and new distribution channels.” Moan. Come on guys. Give me something at least a little specific to work with here so I can explain your good results to people.

North American revenue was up 26.3% from $39.2 to $49.5 million, with U.S. revenues up 16.4% from $20.8 to $24.2 million. Hmmm. Wait a minute. Those segment numbers are from note three, paragraph b of their filed report. But the slides they provided as part of their presentation says North American net sales grew by 14% as does the discussion of the results in the financial filing. I don’t know- 26.3% seems better than 14%.

Somebody at Globe help me out. Is the 14% constant currency maybe? Or have I lost the ability to read or work my calculator? Anyway, I’m giving you the numbers as reported in that footnote. The increases I calculated from the financial report is the same for the other two segments as what’s reported in the presentation, so I’m thoroughly confused.

European revenues rose 41.5% from $26.6 to $37.6 million.

The Australasia segment EBITDA rose from $3.34 to $5.65 million. The North American loss worsened from $1.03 to $1.67 million. Losses aren’t supposed to rise when revenues goes up 26.3%. Or even 14%. Wonder what’s going on there. Europe’s EBITDA was up from $3.60 to $6.97 million. That’s quite an increase.

Let’s move a little further down the income statement. Globe’s income statement doesn’t show a gross profit line. But in a note they do show something called “Cost of sales.” I’m going to use that (perhaps not correctly) as what we’d call cost of goods sold to calculate a gross margin. When I do that, I get 46.1% in 2015 compared to 46.4% in 2014.

Net income in 2014 was a loss of $12.3 million. In 2015, Globe reported a profit of $3.72 million. There are a couple of items you need to be aware of in evaluating these comparative results.

Last year, there was a $17.1 million charge for impairment of assets. In 2015, there was no such charge. Due, I think, at least partly to that charge there was tax benefit in 2014 of $3.3 million where 2015 shows a tax expense of 1.7 million. That’s a $5 million difference.

If we look at the pretax numbers and take out the impairment charge, you’ll see that Globe would have earned $1.45 million last year compared to $5.42 this year on a pretax basis.

The balance sheet is pretty solid with no borrowings or long term debt. Equity grew consistent with the net income. The current ratio is solid.

As I’ve already complained, we’re not getting a lot of specifics. Basically, after some tough years, Globe is running its business better. As they put it, “This revenue and profitability improvement was a consequence of the recent investments and diversification into new markets and brands and as such, growth came from multiple brands, product categories and geographic regions.”

As usual, I’m pretty sure there was no magic bullet. Just hard work, some difficult lessons, and management discipline. North America still seems to have some issues with the loss increasing even with a solid sales increase.

Globe’s Half Year; The Plan Seems to be Coming Together

Back in 2002, Globe bought Kubic Marketing, the holding company for World Industries and Dwindle. It turned out that their timing couldn’t have been worse in terms of the skateboarding industry cycle. Just about the time they dug their way out of that glitch, the Great Recession hit and had the same kind of impact on Globe it had on other industry companies.

But for the six months ended December 31, 2014, Globe reported sales that rose 28.4% from $51.4 in the prior calendar period (pcp) to $66 million Australian dollars (all figures in Australian dollars). Net income was up from $818,000 to $1.58 million. They even reinstituted a dividend of three cents a share. That speaks well of cash flow.

Those results occurred while they increased SG&A and employee benefit expense by $6.7 million. Most of the increase was in SG&A.

The Globe brand, we learn in an investors’ presentation, rose 27% worldwide. Dwindle Distribution was up 16%, 4Front Distribution 22% and Hardcore Distribution 26%. They also started a new work wear brand called FXD.

Globe owns or distributes 25 brands. I suggest you go to their investor website here and download the investor presentation dated February 27th, 2015 to see which brands are sold by which distribution company. If you’ve been around the skate business even a little, you’ll recognize most of them.

Note that not all brands are sold worldwide.

North American sales rose 12% from $18.4 to $21.3 million. But earnings before interest and taxes (EBIT) in North America declined from a loss of $360,000 to a loss of $1.832 million. Neither the financial report nor the investor’s presentation explains what exactly happened in North America. They do say in the presentation that, “Segment result impacted by lower scale, margin pressures and introduction of new brands.”

I guess I know that “margin pressures” means gross margins were lower. “Introduction of new brands” might mean they spend a bunch of money on getting new brands started- specifically Fallen and Zero. No clue what “Segment results impacted by lower scale” means, especially as sales were overall up 12%. Maybe there’s a transcript that goes with the presentation, but it’s not on the web site.

They note that Dwindle hard goods and Globe apparel were up, but don’t say how much. I’m wondering how much growth there was in North America if we take out Fallen and Zero.

I’m also wondering how much sales grew in constant currency. Even at December 31, the Australian dollar was weaker against the U.S. dollar than in the pcp. In the presentation, they warn us that they “…expect the strengthening US dollar to have an impact on margins in Australia and Europe.”

Things were better in Europe. Net sales grew by 59% from $11.9 to $18.6 million. EBIT rose from $1.1 to $3.5 million.

In Australasia, sales rose by 23% to $26.3 million from $21.4 million in the pcp. EBIT was up 17.8% from $2.78 to $3.28 million.

The segment EBITs do not include certain corporate expenses and unallocated, unrealized foreign exchange losses that totaled $2.5 million in the most recent six months and $1.66 million in the pcp.

The balance sheet improved as equity grew by around one-third to $40.6 million. Current ratio at 1.88 was down a bit from 2.03 a year ago, but that’s fine. Receivables, inventory and payables have risen significantly, but it seems in line with the revenue growth.

The presentation notes that they have no borrowings, which is technically correct. But they are using a non-recourse receivables financing facility in North America in the amount of $2.5 million, up from $1.8 million in the pcp. Since it’s nonrecourse, it’s not debt but there is a cost to using it.

While Globe still has some work to do in North America, the overall result shows good progress. I just wish there was some more information on specific brand performance.

Globe’s Results for the Year: Poor Bottom Line, But Operating Progress

While I was buried under Billabong’s annual report, Globe also filed theirs for the year ended June 30. Globes proprietary brands, in case you don’t remember, include Globe, Callaz, Dwindle, Enjoi, Blind, Almost, Cliché, Darkstar, Tensor, Speed Demons, Dusters, and FXD. Its licensed brands include Stussy and Vision Streetwear.

 
For the year, Globe’s revenues rose 24% from $84.1 million to $104 million (all numbers in Australian dollars). In spite of the sales gain, they reported a loss that more than doubled, rising from $6 to $12.3 million. However, the operating loss showed a much better result.
 
The cause of the bottom line loss was a $17.1 million noncash impairment charge by which they wrote down the value of the Globe brand on their balance sheet to $0.00. After tax, the charge was $12.8 million. Without this charge, Globe would have reported net income of $0.5 million compared to a loss of $5.2 million the previous year.
 
As regular readers know, I feel strongly both ways about these kinds of write downs. On the one hand, they are noncash, and there is a rigorous, required process you have to go through to determine the write down which doesn’t necessarily relate to actual brand value. That’s obviously true since they’ve written the Globe brand down to nothing, but it’s selling product and has value.
 
On the other hand, they’ve got to do it because the expected future cash flows from the brand aren’t as promising as they once thought they were. It’s not, therefore, something you can just ignore.
 
My ambivalence is apparently shared by Globe’s Board of Directors. They say, on the one hand, that the charge is not “…reflective of the directors’ long term view of the potential of the Globe brand.”
 
On the other hand, they say, “The impairment charge is largely a result of the significant changes that have impacted the action sports industry, and its key brands, over the past few years. This has been driven by a range of factors including difficult broader economic conditions, challenges for the Action Sports retail account base and the saturation of some of the more iconic action sports brands. As a result, the performance of the Globe brand has been affected and the market for buying and selling brands in the industry has declined. “
 
So if it’s worth more than nothing, it’s sure as hell not worth as much as it used to be. I wonder what the directors’ definition of “long term” is.
 
Ignoring the $17.1 million charge, Globe management tells us the company’s “…sales and profitability improvement came from multiple sources across the consolidated entity as a consequence of the investment and diversification into new markets and brands over recent years.” They’re right as far as I can tell.
 
The Australian segment revenues were up 42.3% from $26.6 to $37.9 million. That’s growth of $11.30 million. However, revenues in the country of Australia grew $12.1 million, so revenue in the rest of the segment declined.  The overall segment growth “…was driven by the 4-Front street wear division, due mainly to the introduction of Stussy, and the continued growth of F.X.D., the Group’s proprietary work-wear brand.”
 
Revenue in Europe rose 46.7% as “…the Globe brand continued to grow across all categories of footwear, apparel and skate hard goods…”
 
At $39.5 million, revenue in North America was basically the same as the previous year. “In North America, despite growth in skate hardgoods and Globe apparel, sales were down by 9% for the full year in constant currency, following last year’s restructure which resulted in certain operations being discontinued within the Dwindle division.”
 
However, revenue from the United States fell 15% from $24.5 to $20.8 million.
 
The EBITDA loss in North America improved from $3.1 million in 2013 to a loss of $1.03 million in 2014. Australia’s EBITDA improved from $1.4 to $3.3 million. In Europe, it rose from a loss of $7,000 last year to an EBITDA profit of $3.6 million this year. 
 
For the whole company, segment EBITDA improved from a loss of $1.8 million to a profit of $5.9 million. After corporate expenses, the overall company EBITDA improved from a loss of $4.7 million to a profit of $2.4 million.   
 
Globe’s operating improvement was also driven by an increase in the gross margin from 44.1% to 46.4%. Selling and administrative expenses rose from $26.4 to $28.5 million. As a percentage of revenue they declined from 31.3% to 27.5%. We get no discussion of either the gross margin or the specifics of the expenses.
 
The balance sheet has arguably weakened a bit, with the current ratio declining from 2.33 to 1.89. Total liabilities to equity rose from 0.51 to 0.91. Cash has increased, and growth in receivables and inventory of 18.5% and 23.8%, respectively, seem in line with sales growth. On the liability side, I would note that trade and other payables rose 47.7% from $13.5 to $20 million and there’s $1.5 in borrowing where there was none last year.
 
My sense is that there are some significant changes in revenue by brand going on at Globe. I can’t really get a handle on it from the very limited information in the filed report. Whatever’s going on, revenue and gross margin are both up nicely. The intangible write down killed the bottom line, and it looks like the U.S. market is a challenge (not just for Globe). But overall, there are some positive things happening, though profitability has to improve.

 

 

Globe’s Annual Results

Globe reported a loss for the year ended June 30 of $6 million compared to a profit of $62,000 in the prior calendar period (pcp). That’s in Australian dollars, as are all the numbers in this article. Total revenues rose 2% from $83 to $84.1 million. The Globe brand was up 10%, but Dwindle fell 15%. Cost of sales rose from $45 to $47 million, with the gross margin falling from 45.9% to 44.1%. 

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.

 

 

Globe’s Six Month Results; Sales Rise, Profit Falls

Globe filed its financial results for the six months ended December 31, 2012 on February 28th.  There’s not a lot of information, but I thought it was worth a brief look.

The headline is that sales rose 3.8% from $42.3 million to $43.9 million. Those numbers are in Australian Dollars as are all the numbers in this report. Net profit, however, fell from $761,000 to $148,000.
 
Revenues in the Australasia segment rose from $13.6 to $16.3 million, or by 19.9%. In North America, revenue was down from $21.4 to $19.6 million (8.4%). In Europe, there was an 8.5% growth in revenue from $7.6 to $8.3 million. Revenue growth everywhere but North America then, but North America is 44% of revenues.
 
EBITDA (earnings before interest, taxes, depreciation and amortization) rose handily in Australasia from $1.53 to $2.34 million, or 53%. North America EBITDA took it on the chin, falling from a positive $1.32 million to a loss of $284,000. In Europe, it fell 45% from $448,000 to $247,000. Total EBITDA fell from $1.5 million to $892,000 or by 41%. However, there’s a clarification you need to hear.
 
The report states, “The Segment Result (EBITDA) in the half year ended 31 December 2011 includes other income of $1.1m, of which $1.0m relates to the net proceeds from the settlement of a legal case during that half year.” They note that if you ignore that (though I’ve always had a hard time ignoring a million bucks) EBITDA really rose from $0.5 to $0.9 million “…driven by net sales growth and stabilizing growth margins.” I note they didn’t say improving gross margins.
 
They go on to say, “This increase in net sales is driven by the continued growth in Globe branded net sales across the world, as well as growth from new initiatives in Australia, including the streetwear division (4Front) and a new workwear brand that was launched during the half year, F.X.D.”
 
In the press release, CEO Matt Hill says, ““It is pleasing to deliver branded sales growth despite continued macro-economic uncertainty and the well-publicised challenges in our global retail account base. We anticipated these trends would persist, and strategically invested in the diversification of our brand and category mix to minimise the effect of those trends on the group. However, while these investments are starting to pay-off, we are not immune to the impact on our traditional, core business and continue to develop strategies to ensure our business as a whole remains relevant and buoyant.”
 
It sounds like the two new initiatives are generating sales in Australia only, and we don’t know how much. The comment about “continued growth in Globe branded net sales across the world seems to fly in the face of what I assume is a decline in North America, but it’s hard to tell. Their web site shows 12 brands, so maybe they are just referring to the Globe brand and not to Globe the company. Again, I can’t tell.
 
Here’s the link where you can see their report, the press release and some other documents as well.
 
Technically, I suppose you can argue that the balance sheet is a bit weaker, but not really enough to matter. Current ratio is down from 2.95 to 2.67 but is still very solid. Total debt to equity is up slightly from 0.37 to 0.45, but that’s not much of a change. The thing I tend to focus on is the negative $89.7 million number shown as retained profits/(losses) over the life of the corporation.
 
Cash generated by operating activities went from a negative $1.24 million in last year’s six months to a positive $173,000 for the six months ended December 31, 2012. That’s good to see. Basically, last year they got less from customers then they paid to suppliers and this year they turned that around.
 
Globe’s board has just three directors; Paul Isherwood, Peter Hill and Stephen Hill. Paul is the single outside director and, as of February 25th, owned 900,000 share of the company or 2.17%. Peter and Stephen Hill each own about 12.4 million shares, or 30% each. CEO Matt Hill, who is not on the board, owns 3.5 million shares, or 8.5%. The Hills are the founders of the company.
 
Globe had an unsolicited take-over offer from a company called Mariner. It also had to hold a special meeting as required by Australian law after at least 25% of shareholders voted down the company’s report on executive pay for two years running. That meeting was held February 13th.
 
As you can imagine, with people named Hill controlling almost 69% of the voting stock, the take-over offer was rejected, and the board of directors was not replaced. It appears there is some dissatisfaction with the company, and given the composition of the board of directors and its results, that’s hardly a surprise. If I were a shareholder, I’d certainly want a couple of additional outside directors on the board.
 
There are a lot of questions I’d love to ask about which brands are doing how well where. We don’t get that information but, to be fair, we don’t always get it from other companies either. I can imagine I see some improvement here if only because sales grew, but I am given pause by the lack of specificity in the comments and the small profit.

 

 

Globe’s Results for the Year

I’m kind of late getting this done. The June 30 fiscal year results were released at the end of August. But we only see Australian company results twice a year, so it still seems worthwhile. Happily for me, there’s not that much information in the report so it shouldn’t take long. The “Review of Operations” for the whole year is four short paragraphs- less than half a page. I guess not much happened.  You can see Globe’s whole report here.  It’s the fourth item down on the page. 

To summarize, Globe’s revenues fell 6.1% from $88.5 million to $83.1 million in the pcp (prior calendar period- the previous full year in this case. And all numbers are in Australian dollars). Earnings before interest, tax, depreciation and amortization (EBITDA) were down 41.3% from $2.93 million to $1.72 million. Net income fell 94% from $1.089 million to $62,000. However, those numbers include $1.0 million from settlement of a lawsuit. Without that, Globe’s EBITDA would have been $72,000 and it would have had a bottom line loss.
 
Australasia revenues were $25 million, up 4.3% from $24 million in the pcp. In North America, revenues of $41.8 million declined 15.2% from $49.3 million in the pcp. The press release refers to North American revenues being down “…in single digit percentage terms…” but I keep coming up with 15.2%. Maybe that’s a constant currency number, though it’s not clear.
 
Revenue from Europe rose 7.7% from $15 million to $16.2 million. In Australia (as opposed to the Australasia segment) we see revenues up 6.4% from $21.2 million to $22.5 million. With revenues up $1.0 million for the whole segment, we can see that all the growth in that segment came in Australia itself.
 
Revenues in the United States fell 17.1% from $31.6 million to $26.2 million. In other foreign countries (which I assume means everywhere but the U.S. and Australia) revenues were down 3.5% from $35.5 million to $34.3 million.
 
The sales decline was blamed mostly on the strength of the Australian dollars. We’re told they were basically flat in constant currency.
 
Globe doesn’t provide the gross profit number we’re use to see in the U.S. But there is a cost of sales figure, which I imagine is a reasonable proxy. If we use it to calculate a gross merchandise margin, we see it’s basically unchanged, falling just 0.1% over the year from 45.4% to 45.3%. But the press release says, “Reduced gross margins, which are largely responsible for this decline in profitability, resulted from a combination of sales mix, competitive market pressures and an increase in cost of goods.”
 
They don’t tell us exactly what the gross margin decline was, but it’s pretty clear that what we in the U.S. call ‘cost of goods sold” isn’t the same as “cost of sales” in Australia. Wish I spoke better Australian accounting. Yet you would think an “increase in the cost of goods” would show up in the “cost of sales” as a percentage of merchandise sales. I’ve got some Australian readers. Can one of you tell me the definition of “cost of sales” in Australia?
 
There’s no long term debt on the balance sheet, and the usual ratios are fine. Cash is at $10.2 million down from $12.3 million in the pcp. I would note a 2.2% increase in total receivables to $12.5 million. However, trade receivables rose 11.1% from $8.4 million to $9.4 million. Receivables were down in the Australasia segment even with the revenue increase. But in North America, where revenues fell 15.2%, receivables rose 37% from $2.8 million to $3.85 million. Yikes. That seems to imply something not specifically too good.
 
There was a 14.8% increase in inventory to $14.5 million. They note that there some footwear shipments that arrived in the first quarter of the current year that had been expected to arrive before June 30. Don’t know how big those shipments were, but obviously they would have pushed the year end up inventory up even further.
 
In general, you’d prefer to see receivables and inventory decline when sales decline. It would be interesting to see how much of the inventory growth was in units as opposed to being caused by the higher cost of goods they refer to.
 
The last balance sheet thing I’d mention, under “Other Financial Assets” is an amount of $1.35 million called “Investments in other entities (available for sale).” No big deal, but I wonder what it is because that’s what I do.
 
Well, there was a bit more information in the report than I thought on first read. But we don’t get any sense at all about what they might be planning to do to reverse some of the trends they highlight in the press release. And the sales decline in North America coupled with the increase in receivables is troubling. I guess, unfortunately, it will be six months before we find out how things have evolved. Make that four and a half months, as I’ll try to be more diligent in writing about it.