The profitability situation is disappointing. The net profit is $-275,649, a great drop from the last year and the first loss during the last five years. The profit from continuing operation is even worse, which is $-522,665.
However, the net profit margin is -19%, reflecting huge loss from the operation. Although the net profit is positive in other four years during the last five years, the net profit declined continuously and the average net margin of 1.12% is far below the industry average of 4.60% (Reuters, 2013). The possible reason here is the sales has experienced depression and the brand has gone downhill, as the sales figures in Figure 1 hold almost at a level line, indicating the growth rate is close to zero compared to the industry average of about 10% (Reuters, 2013), and the goodwill has been impaired by $343.0 million, which is the main cause of the loss for 2012.
According to the statement in Billabong’s 2012 Financial Report, “due to thedeterioration in trading conditions in the global retail sector, the Group has experienced significant declines in sales andprofitability across a number of regions and brands and as a result impairment charges were recognised.”(Billabong, 2013). The most severe brand and regions are its main brand Billabong, main sale regions Australia, South Africa and North America.
Measured by total liabilities divided by total assets, the debt ratio remains at 0.51. Though total asset decreases from $2,419,965 to $2,079,869, total liability decreases to a similar extent from $1,196,839 to $1,028,571.The assets are impaired mainly by the goodwill devaluation. The liabilities’ decline contribute to the repayment of the borrowings as well as the decrease of deferred payments as the future payment forecast is adjusted. What’s worth mentioning is that the provision has been raised for possible loss from early terminating or trading stores due to their underperformance, which pulls up the amount of liabilities and could account for the future liabilities increase.
The Debt to Equity ratio remains at 1.02, which is far lower than the industry average of 62.67(Reuters, 2013), indicating that Billabong has not good investment opportunity thus the leverage is low.
Needless to say, that the times-interest earned ration is dragged from 4.58 straight down to -16.57 due to the negative net profit, where interest expense increases from $24,762 to $29,080. The industry average reaches 13.65 high (Reuters, 2013). So, the financial strength is not so strong even though the debt ratio is low. The main reason here is still Billabong’s terrible profitability status.
Thereis no doubt that the EPS and P/E of Billabong decrease to a negative figure for 2012, although the 2011 EPS is 0.39, almost the same as the industry average of 0.3849 and P/E ratio in 2011 is 15.41 compared to the industry average of 16.61 (Reuters, 2013). The market expectation seems normal for 2011.
As it is difficult to analyse the future market expectation on the share based on the negative P/E and EPS, it is useful to compare share price, dividend and book value. The share price dropped from 6.01 to 1.08 during the financial year. P/B dropped from 1.52 to 0.32 compared to the industry average of 2.74 (Reuters, 2013). The book value per share decreases by $0.57. Dividend payment decreases from 86,140 to 40,670, which still makes sense though the distribution is highly linked to the operating performance. The holding of the share would result great loss regarding the capital gain, net profit distribution and claims on the company’s assets for the financial year. The future prospects are still bleak according to the analysis of the profitability. Therefore, the market does not have a good view on the investment of Billabong.