Financial Analysis of Billabong International Limited 2015

This assignment provides a detailed financial analysis of Billabong International Limited for the year 2015. It covers their contingencies, provisions, leased items, non-current assets, and more. The analysis is based on the company's financial reports and notes to account.

l
Billabong
International
Limited
2018

1
By student name
Professor
Date: 20 May, 2018.
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Executive Assessment:
In this assignment we shall discuss about the financial statements of Billabong International
limited. This company was setup by Gordon and Rena Merchant, in the Gold Coast, Queensland,
Australia, 1973. This company is actually a retailer of clothes, which also makes accessories, for example
stakeboard, backpacks, watch, etc. It was firstly traded on the ASX on 11th August, 2000. In the year
2009, the company took participation in order to celebrate Q150, where Billabong International Limited
was rewarded as the one among the icons in Q150 of Queensland, for its performance as an icon for
“Innovation and Invention”. We shall have a detailed analysis of the financial reports and the notes to
account of this company herewith.
We have also taken into account the original data and figures, from the annual reports of this
company so that we can relate and have a proper understanding in case of real life scenario.
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Contents
Introduction...........…………………………………………………………………..........……………………………..4
Analysis.......................……………….......................................................................................5
Conclusion.......................………………...................................................................................8
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Introduction:
This company is actually a retailer of clothes, which also makes accessories, for example
stakeboard, backpacks, watch, etc. It was firstly traded on the ASX on 11th August, 2000. By September,
2013, Element and Von Zipper are the 2 highlighted and popular brands that is bought by Billabong
International Limited. In the year 2009, the company took part to celebrate Q150, where Billabong
International Limited was rewarded as the one among the icons in Q150 of Queensland, for its
performance as an icon for “Innovation and Invention”. The sponsorship of Billabong is for teams of
riders, in separate subcultures, that depict a role like that of an ambassador for both the brand and
associated lifestyle. In the starting phase Gordon Merchant use to create board shorts at his house, and
thereafter use to sell them to local surf shops (Chron, 2017). The local surf’s the quality of shorts that
these are durable, which was because of 3 times stitching. Soon he got to know his company need to
expand in order to succeed, hence Billabong initiated sponsoring contests, that increased the public
contiousness of his products, and thereafter the company started expanding. In the 1980’s it was a time
that the shorts of Billabong were present across Australia. By the end of June 2013, the brands of
Billabong worth AUD90 million and in the morning of 27/08/2013, it was observed that the sales of
company of AUD1.34 billion, globally , came down with 13.5%. It came back to its profitability by 2015. It
was the first instance, that the company gained the profitability since 2011, and a different structure of
the company is on the way to attain growth (Eisemann, et al., 2017).
On 16/02/2012, there was a halt in investment of the shares of Billabong, due to the reports of a
AUD778 million takeover offer. However, in 2016 December, the chief executive named Matthew Perrin
was held guilty of fraud by a judiciary in the District court of Brisbane, where he was accused and
sentenced to prison in 2017, January.
The detailed analysis of the requirements of this assignment has been done herewith. We have studied
the financial reports of Billabong International Limited for the financial year 2015.
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Analysis:
 The details of Contingencies & Provisions recorded or disclosed by the company and
their recognition criteria and measurement issues associated wit these are as follows:
1.Contingencies:
Guarantees:
 Under the deed of cross guarantees, the Bliiabong Internation Limited, GSM (Europe)
Pty Ltd., GSM (Operations) Pty Ltd., Pineapple Trademark Pty Ltd., BBG Asia Pty Ltd
previously known as GSM (Central Sourcing) Pty Ltd., Amazon (New Zealand) Pty Ltd.,
GSM Trading (South Africa) Pty Ltd, etc. each of these company provide guarantee in
terms of debt to the other company, hence these companies are the members of cross
guarantee deed (Ghofiqi, 2018).
 Billabong International Limited further grants guarantees to different subsidiary in the
group for obilgations on rent and deferred payment of RCVA.
2.Contingent Consideration:
Considering the latest forcast of board approval, the consideration which is deferred, that relates to
acquiring of RCVA, is being taken into consideration in the final reports.
3.Letters of Credit:
The entire letter of credit is a part of the normal course of business. It relates to both the trade letters as
well as stand by letters. The former being used for buying inventory, while the latter being used for
beneficiaries that includes leases and insurance.
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Provisions:
Onerous lease and restructuring provisions:
The group recognised few stores that were incurring loss or below performing stores in the portfolio and
closed or with the intention to shut down these store by terminating early or to trade the stores to
expiry. A provision has been created for the negotiation and settlement costs of termination of lease
beforehand, or even incurring lowest costs which are not avoidable while trading the stores towards
expiration of lease (Iggers, 2018).
 Leased items that are recorded or disclosed by the Billabong International limited are as
follows:
Leases:
Being a lessee, where the Group has substantial risks and rewards of entitlement, with the lease of plant
and equipment, property, etc, are finance lease. The finance lease is capilatised at the time of
origination of lease, at the fair value, net of charges, of the property being leased. These are mentioned
under other short-term and long term payables. Every single payment of lease, is assigned among the
liability and the financial cost.
The leases in which a substantial amount of risks an benefits are not transferred to the Group being
lessee, are classified as Operating lease. The payments done with respect to operating leases, are
entered under income statement on a straight-line basis over the lease term.
4.Lease Commitments:
Operating lease : The Group leases many retail stores, units and warehouses with the non-cancellable
lease. These leases have different terms, escalation clause, and rights of renewing. At the time of
renewing, the terms are negotiated again. In some cases, terminating before of operating lease is
possible only after negotiation done with the landlord by paying an settlement figure.
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Finance Lease: The Group provides on lease various plant and equipment with a carrying value of $8.1
million (Wang, et al., 2018).
5.
Commitments in relation to finance leases are
payable as follows:
2015($’000) 2014 ($’000)
In one year 1765 2300
I year > 5 year 3081 4814
< 5 years ----- -----
Minimum Lease Payments 4846 7114
Future finance charges (359) (486)
Total lease liability recorded as a liability 4487 6628
Lease Liabilities:
Current 1634 2171
Non Current 2853 4457
4487 6628
The PV of liabilities of finance lease are:
In one year 1634 2171
I year > 5 year 2853 4457
< 5 years ------ ------
Minimum Lease Payments 4487 6628
6.A hypothetical situation in which the company needs to reclassify a lease is in which the previously the
company had not taken the ownsership of the asset , so that was acting as operating lease but there
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may be a situation in which at the end the company takes the asset so that might be then reclassified as
financial lease.
 Non-Current Assets:
The assets which are not held for short term, but held for long term, are known as Non-Current Asset.
The examples are, Receivable, Property, Plant & Equipment, land & building, furniture fixtures, etc. We
shall discuss over here, about the Furniture, fiitings and quipments and their status (Gray, 2018). The
detailed valuation method for this non-current asset is being listed herewith for better, accurate and
clear understanding:
Year ended 30.06.2015 Furniture, fittings &
equipments ($’000)
Opening 55320
Additions 21243
Disposal (1216)
Disposing discontinued Operations (2428)
Depreciation (20820)
Impairment Charge (3040)
Exchange Difference 3072
Closing 52131
At 30.06.2015
Cost 272245
Accumulated Depreciation
Impairment 220114
Net book amount 52131
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7.When reviewing the impairment of furniture, fiiting, equipements, few assets that relates to
the retail stores owned by the Group, have been written down to the recoverable value which is their
value-in-use. This was analysed in reference to the best judgement and estimate of management of the
risk adjusted earnings of future performance, of each unit with the span of left maturity of lease term.
8.A non current asset might be property plant and equipment and its valuation should be done
as per the relevant accounting standard based on the fair value of the property of the company. These
are long term assets that are used for a longer time hence in their case the fair value comes into picture
which might keep changing from time to time, thus these needs to be valued as per the relevant
accounting standards and policies.
Conclusion:
Therefore, we have critically analysed the financial report of Billabong International Limited and
have discussed all of the requirements as per the assignment. The major classification of provisions,
contingencies, non-current assets, fixed assets, their impact, representation, life, terms of leases,
guarantees, letter of credit, along with other factor have been explained . We have also incorporated
the actual figures/data of financial assets, so that it is easier to correlate with the actual financial
statement, in order to have a better, accurate and clear understanding (Anon., 2017). Overall analysis
has been made by taking proper research and adopting the same for the betterment of the company.
Important matters have been commented on and proper conclusion has been reached.
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References
Anon., 2017. Explaining auditors’ propensity to issue going-concern opinions in Australia after the global
financial crisis. Accunting and Finance, pp. Carson,E;Fargher,N;Zhang,Y;.
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
[Accessed 07 december 2017].
Eisemann, T., Parker, G. & Alstyne, M., 2017. STRATEGIES FOR TWO SIDED MARKETS. [Online].
Ghofiqi, M., 2018. FORMATION OF VIEWS AND INTERESTS TO THE ACCOUNTANTS PROFESSION IN
MASTER OF ACCOUNTING STUDENTS OF JEMBER UNIVERSITY FORCE OF 2016 USING STRUCTURATION
THEORY ANALYSIS. THE 3RD INTERNATIONAL CONFERENCE ON ECONOMICS, BUSINESS, AND
ACCOUNTING STUDIES.
Gray, D., 2018. 'Extraordinary turnaround': Big miners pushing ASX towards 10-year high. The Sydney
Morning Herald.
Iggers, J., 2018. Good News, Bad News: Journalism Ethics And The Public Interest. s.l.:s.n.
Wang, Z., Chiu, Y., li, Y. & Hsiao, L., 2018. Performance appraisal for the operation and management of
listed and OTC Taiwanese companies with DEA benchmarking models.
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