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.