Financial Analysis of Billabong International Limited

WORD LENGTH:2285DUE DATE: 27/05/2015DATE SUBMITTED: 27/05/2015

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FINANCIAL ANALYSIS OF BILLABONG INTERNATIONAL LIMITED

CONTENTS

HISTORY....................................................................................................................... 4

DESCRIPTION OF THE CORE BUSINESS OF THE COMPANY INCLUDING FULL DETAILS OF ITS OPERATING ACTIVITIES............................................ 4

SIGNIFICANT ISSUES EMERGING FROM THE DIRECTORS’ REPORT.......5

DISCUSSION ON THE CORPORATE GOVERNANCE STATEMENT...............6

RATIO ANALYSIS........................................................................................................ 8

CONCLUSION............................................................................................................... 14

REFERENCES................................................................................................................15

Company History

The Surfer and surfboard shaper Mr. Gordon merchant and his then partner Rena used to design the boards at home and cut them on kitchen table and used to sell to the local surf shops as a finished good in Gold Coast in 1973. The business boomed because of the superior functionality of the boardshots. They were durable because of triple stitching technique urbanized by Gordon.

The next step was to market the boards with the help of some local best surfers, the company even sponsored some of the events and held contests to promote itself. In 1980’s the company has held its place in Australia and was ready for the global expansion with an eye on the North American Market, where the brand again gained a success. The offshore market in other countries (New Zealand, Japan, South Africa) were license was granted, saw a rise in the sales of the boards, in late 1980’s a new beachhead was introduced in Europe.

In 1900’s the surf industry has grown and Billabong has diverse into other board sports markets like skate, snow and wake. In middle of 2000 the company has floated IPO and got listed on ASX in august that year. It also has e-retail including the websites www.swell.com and www.surfstitch.com

Core Business & Operating Activities

Billabong International Limited core business is marketing, distribution, wholesaling and retailing of apparels, accessories, eyewear, wetsuits and hard goods in the boardsports sector under the Billabong, Palmers Surf, Kustom, Element, Honolua Surf Company, Von Zipper, Nixon, Sector 9 Xcel, Tigerlily, and DaKine brands. Billabong product are licensed and distributed over 100 countries. The company’s brands are promoted by international athletes, junior athletes and professional events.

Billabong operating model is determined on ensuring each of the groups division has a very strong organization management capability and a day to day functioning autonomy overseen by divisional boards. Due to a major portion of operations being operated outside Australia, the company is exposed to foreign exchange fluctuation risk i.e. the risk that the company’s offshore earnings and assets fluctuate when reported in Australian Dollars. The Net loss after Tax has dropped to $233.7 million in 2014 to 859.5 million in 2013.The group has a turnaround strategy to improve its future performance by

• Building a strong merchant front end to the business,
• Building the company strong global brands.
• To build a global scale in Finance, Supply Chain, IT and Direct to customer platform
• To develop 12 month marketing calendar for each region
• Prioritise capital expenditure towards consumer facing and enabling projects

Significant Issues Emerging From the Directors’ Report

During the year the main on-going activities of the Group consisted of the wholesaling and selling of surf, skate, snow and sports attire, accessories and hardware, and the licensing of the company’s trademarks to stated regions of the world. No dividends were paid to the shareholders for the financial year 2014. The company has not announced a final ordinary dividend for the financial year 2014. The Dividend Reinvestment Plan was put off. During financial year the Group sold its share in the DaKine brand (sale completed 23 July 2013) and its Canadian retail chain West 49. Pre-tax important items for the year ended 30 June 2014 of $146.2 million includes $17.7 million of fair value adjustment of West 49 as held for sale during the year, $29.3 million impairment charges and $99.2 million of items impacting EBITDAI. For the years ended 30 June 2014 and 30 June 2013 these items together resulted in a total impairment charge of $29.3 million and $766.5 million respectively. The increase in net interest expense from $12.4 million to $34.2 million was mainly by the new financing measures that have been entered into during financial year 2014. On 21 August 2014 the Company declared the outcome of the strategic review of its multi-brand ecommerce business Surfstitch.com in Australia and Europe. The director addresses this risk by concentrating on new product development and brand structure to promote consumer loyalty and paying employees fairly. A change in material or interruption in the company’s product sourcing and distribution activities could have a negative impact on the Group brand image.

Discussion on the Corporate Governance Statement

Board of Directors are accountable to shareholders for the performance of the company and believes that a high standard of corporate governance strengthens the Company’s purpose in maximising the profits to shareholders. As a mandatory in the ASX Listing Rules, this statement sets out the scale to which the Company has acted in accordance with the “ASX Corporate Governance Principles and Recommendations” (2nd Edition) for the fiscal year ended June 30 2014. The Board of Directors consider that the group has complied with ASX Recommendations except for those explained below.

BOARD

Principle 1: Lay solid foundations for management and oversight

The Board of Directors are directly accountable to shareholders for the performance of the company both in long and short term. They set the vision and mission for each of the major business units.

PRINCIPLE 2: Structure the board to add value

The Board comprises of Executive and Non-Executive Directors, with a bulk of Non-Executive Directors. They ensure that their memberships represents a balance between Directors with an understanding and know -how of the Group and Directors with an outside view and the size of the Board are helpful to effective discussion and management.

ETHICS

PRINCIPLE 3: Promote ethical and responsible decision-making

The policy reflects Company’s values of truth, honesty, trust, teamwork, respect and a desire for brilliance in all the Company does.

DISCLOSURE

PRINCIPLE 4: Safeguard integrity in financial reporting

To safeguard the integrity and reliability of the Company's financial statements and all other information published by the Company.

PRINCIPLE 5 and 6: Make timely and balanced disclosure and respect the rights of shareholders

The Company has framed guidelines for timely disclosure of material information about the Company. It includes internal reporting events to ensure that any sensitive information is reported to the Company in a well-timed manner.

RISK MANAGEMENT

PRINCIPLE 7: Recognise and manage risk

To identify all important predictable risks associated with business in a timely and constant manner. Build mitigation plans for risk areas where the residual risk is greater than reasonable risk level

REMUNERATION

PRINCIPLE 8: Remunerate fairly and responsibly

Enabling the group to draw and keep hold of Executive and Non-Executive Directors who will create good value for shareholders and stakeholders. Incentive Executives and Directors having hold to the Group's overall plan and objectives, the performance of the Group and Executive and the general market atmosphere within Australia and any other locations where the Group has operations.

RATIO ANALYSIS

Liquidity Ratios

Liquidity ratios are used to gauge if the company is able to meet its short term debt obligations. These ratios assess the ability of a company to disburse off its short term liabilities.

1. Current ratio= Current Assets / Current Liabilities

The Current Ratio is better in 2014 as compared to last year and the company is a better position.

2. Acid-test (quick) ratio = Quick Asset/ Current Liabilities

The ratio in 2014 is better than 2013 and this shows the company is in a good position.

3. Receivables turnover = Net Credit Sales /Average Net Receivables

The ratio indicates how many time of the account receivables that collected in a year. And in 2014 is better that 2013.

4. Inventory turnover= Cost of Goods Sold / Average Inventory

This ratio is about the number of times that inventory sold or used in a given time, and it is good in 2014.

Profitability Ratios

Profitability ratios assess the profit of a company for a given period of time. Profitability is often used as the final test of management operating effectiveness.

5. Profit margin = Profit / Net Sales X 100

This ratio measures the profit and loss for the company, and the company got negative value in PM, but compared to 2013, 2014 became much better.

6. Cash return on sales = Net cash from operating activities / net sales

This ratio explains about how much profit an entity makes after paying the variable cost of production like wages, purchase.

7. Gross profit margin = Gross Profit / Net Sales

Compared to 2014, the company controlled the cost better in 2013, because the GPM is higher.

8. Expense ratio = Expenses (excluding tax) / Net sales X 100

9. Asset turnover = Net Sales / Average Total Assets

This ratio indicates how the company manages the asset efficiently at its disposal to promote sales. Based on the two ratios, it was good management in 2014.

10. Return on asset = Profit / Average Total Assets

ROA offers the explanation of the capital intensity in the company and in 2013 the company get more loss.

11. Return on equity = Profit / Average Total Equity

ROE shows how much the company earns comparing to the total amount of shareholder equity based on the balance sheet and in 2013 and 2014, ROE are negative, but it became better in 2014.

12. Earnings per share = Profit Availability to Ordinary Share Holder / Weighted Avg Number of Ordinary Shares Issued

13. Price-Earnings ratio = Market Price per Share/ Earnings Per Share

Price Earnings ratio helps the investor to decide whether to purchase shares of a particular group. It is calculated to estimate the appreciation in the market value of equity shares and higher value means, that market is more willing to pay more for the earnings of the company in future.

14. Payout ratio = Cash Dividends / Profit (Net)

In both years, the company didn’t pay any sort of dividends.

Gearing Ratios

Gearing ratio judges the ability of the company to survive over a long period of time.

15. Debt to total assets ratio = Total Liabilities / Total Assets

This ratio shows the proportion of the company’s debt to its total assets, the higher ratio they get and the higher risk they have. As can be seen between the two ratios, it is higher in 2014 compared to 2013.

16. Time interest earned = Profit before Income Taxes And Interest And Taxes Expenses / Interest Expenses

17. Cash debt coverage = Net Cash Flow Used by Operating Activities / Average Total Liabilities

Conclusion

From the above we can say that billabong bong is a well-established company in Australia, United States of America and Europe. From 2008 loss the group is showing loss, the reason is it has acquired few companies overseas. The group launched different products to improve its financial performance, but still it is running under on loss. Though the loss percentage has decreased from 2008 to 2014, it may improve in the next financial year. At this moment for short term investment it’s not good, but for long term investment we can invest in this group. The group will seek to reinforce its existing business and to find new growth opportunities.

Bibliography

(2014, August 28). Retrieved May 23, 2015, from Billabongbiz: http://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-reportsannual

(2015). Retrieved May 23, 2015, from Billabongbiz: http://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-history