Globe’s recent profit release confirmed a 28% recovery in profits despite flat sales revenue in the six months to December. As usual, Globe was quiet on details, making it hard for outsiders to glean the underlying trends in each region and brand.

After a flat year last year, sales in Australia were down 7% in the six months to December to $38.3m, however EBITDA rose 2% to $5.2m, driven by higher gross profit margins. The North American operation seems to have recovered from poor hardware sales this time last year, posting a 19% increase in sales to A$20.1m (it is not clear if last year’s acquisition of Salty Crew helped here). Globe restructured its US business last year, removing costs in response to lower hardware sales, and things seem to have stabilised. The operation returned to profits briefly in the second half of FY2017, however slipped back into a mild loss of A$1.1m in the recent trading period. European sales rose 1% to A$11.8m, with the division posting a marginal profit of $0.1m.

Globe’s overall gross profit margin rose from 46% to 48%, which CEO Matt Hill attributes to favourable “brand mix, customer mix, sourcing improvements, and foreign exchange impacts”.

Chief Executive Officer Matt Hill said, “The results for the half year reflect the significant effort in finding, developing and investing in new brands and categories across our business. And, at the same time, rightsizing the investment in our traditional business while remaining committed to those brands and categories. It is the ability to continually make these changes which makes this a dynamic and exciting business, with great opportunities for future growth.”

The company has been run aggressively for cash in the past 18 months, with total gross operating cash flows of $15.2m versus EBITDA of $10.3m. Globe has been winding down inventory, which has created a $5m working capital benefit back to shareholders. Hence the company was able to pay 40% higher dividends despite profits not necessarily growing at the same rate. Globe’s balance sheet remains very healthy, with no debt and cash on hand of $13.6m.

On 4th of March Stephen Hill made an off-market purchase of 35,956 shares valued at $44,358.92 taking the elder Hill brothers shares to a total of 12,561,562 Clearly the Hill Brothers believe in the business strategy. Retailing and property billionaire Solomon Lew is among shareholders benefiting from a lift in dividends at Globe in which he’s held a 5.9 per cent stake for 13 years. Mr. Lew’s corporate vehicle Poly Town Pty Ltd is the fourth largest shareholder at Globe.

Globe is unlike most listed companies. To quote the CEO Matt Hill in the 2017 annual report “we are essentially a family run business”. The Brothers Hill own over 68% of the company, and comprise two of the three board members, notwithstanding the global push by proxy advisors to beef up boards with non-executive directors. With this level of control, it’s understandable that the company is tight on detail – why make it easier for competitors to look under your financial skirt?

About the Author; Ed Prendergast is a finance analyst with Pengana Capital. The Pengana Capital Group is a diversified funds management group specialising in listed equities. Founded in 2003 and headquartered in Sydney, with offices in Melbourne and Singapore, Pengana currently manages over AUD$3 billion across a range of international and Australian equity strategies.  Ed Prendergast was twice ranked the top small companies’ broking analyst in Australia by BRW magazine.