Rip Curl Financial Results

Thanks to an alert from a reader, and a follow-up with a journalist who wrote about their results, I was able to come up with a copy of Rip Curl’s financial statements for the year ended June 30. There’s no discussion of operations or breakdown of what’s selling and where like we’d have if they were a public company. But I’ll take what I can get and I thought you’d be interested in their year over year improvement. 

You may remember that the company was for sale earlier this year but was pulled from the market when management decided there was no prospect of getting an offer they considered acceptable.
The numbers, of course, are in Australian dollars.
Total revenue for the year fell 3.4% from $412.5 to $398.3 million. Revenue from the sale of goods was down 3.7% from $406.8 to $391.6 million. Some may ask how I can characterize that as part of an “improvement.” Obviously, it can’t go on forever or there will be no company left. But long term readers know that I think there are a lot of competitive and financial advantages in being focused on managing your distribution and generating operating margin dollars rather than just sales growth. To be clear, I’m not against sales growth, but it should not be your only engine of profit improvement. 
Below is a table from their report that shows some of their expenses during the past two years ended June 30 (in thousands of Australian dollars).  The first column is 2013 and the second 2012.

You can see that they reduced their employee, rental, and selling and marketing expenses in 2013 compared to 2012. They had to take a restructuring charge of $4.5 million last year to do it, but the result is an EBITDA that rose 42% from $26.2 to $37.2 million. Rip Curl’s pretax profit increased from $938,000 in 2012 to about $14 million in 2013.
Now, anybody can slash expenses and do better at the bottom line. For a while. I guess we won’t know until next year how this looks as a more cohesive strategy and whether there’s further pay off.
That’s partly because the restructuring is still going on. Of the $4.5 million provision they took in 2012, they used only $195,000 in that year. $2.7 million was utilized in 2013 and the rest is expected to be used in 2014 as they complete the restructuring. No further charges are anticipated. The restructuring costs were for “…employee termination benefits, exit costs in closing retail stores, write down of assets no longer required and consulting fees.” None paid to me unfortunately.
The balance sheet showed some improvement. The current ratio rose from 1.03 (way, way too low) to 1.93. There was a rise in cash from $10.7 to $14.9 million and a decline in receivables from $85.5 to $77.7 million, which you like to see when sales fall. Inventory went up just a bit from $85.4 to $86.7 million. Overall current assets were down about $3 million to $185 million.
The improvement in the current ratio is largely the result of some reclassification of debt. Loans and borrowings classified as current liabilities fell from $111.2 to $32.1 million. But non-current loans and borrowings rose from $3.2 to $32.1 million. So basically it looks like they pushed their payment schedule out, though total loans and borrowings did decline from $114.3 to $94.8 million.
Total liabilities fell by 12.9% from $198.8 to $173.2 million. The balance sheet improvement plus profit growth means that equity rose from $66.9 million to $86 million. Total debt to equity improved from 2.97 times to 2.01 times.
Rip Curl improved during the year, but it’s still a work in progress. We’ll see what happens next year. I’m getting tired of saying that about industry companies.