KEY CONCEPTS AND QUESTIONS

BRISCOE GROUP LIMITED

The Briscoe Group's current Annual Report can be viewed here.

KC:   The Group is fortunate to have Briscoes Homeware as its flagship retail chain.  This business as been trading in New Zealand for over 150 years and is a household name in homewares.  This brand recognition has helped the Group through some tough economic times in the past.

KC:   The appointment of Rodney Duke in the 80's saved the company from imminent closure.  His purchase of 100% of company shares in 1990 was the second significant turning point for the company.  Under his ownership the Group had increased growth with the establishment of two new chains.  RA Duke has made the Group what it is today.

KC:   The Group has experienced strong growth over the last three years with Net Profit After Tax increased by 55% (2014 $33,575,000   2013 $30,468,000   2012 $27,529,000   2011 $21,612,000). This is contributed to a focused effort by the Executive Team in the following areas: Inventory Management, Cost Control, People Development, Tech Improvements, Promotional Planning, Operational Structure and Expansion of Online Store.

Q:   Unsure what value/understanding is gained by reporting Earnings Before Interest and Tax (EBIT).  I have not see that before.  However, I have only working in small to medium businesses.

KC:  EBIT on Rebel Sports up 22% from last year.  Is this the result of the excellent marketing strategy I have already brought to attention on my blog?  (link)  Is this a concerted push as part of the focus on promotional planning?

Q:   So far the Group has successfully managed to increase the revenue made via their online stores without detriment to their in-store shopping.  Can they continue to find this balance in an increasingly online world?

Q:  The fiscal year in New Zealand traditionally runs from 1 April to 31 March.  Yet Briscoe Group Ltd report for the year February to January.  And each of the five year's comparative statements noted on the current annual report have ended on different dates in Jan (31 Jan 2010, 30 Jan 2011, 29 Jan 2012, 27 Jan 2013, 26 Jan 2014).  Why do they do this?  Does this lack of consistency question the comparability of their figures?  Is this common Big Business practice as I have never come across this working in small to medium businesses before.  Even the Chairman's Review highlights the early cut of for the 2014 year and that is means that $12 million of expenses paid shortly after cut off were not reported.

KC:   Gross Profit Margin was down to 38.5% this year compared to 38.9% last year.  This was contributed to the unseasonably late start to winter sales which was a challenging start to the year.

KC:  This year the group has reclassified the cost of distributing goods from the central warehouse from Store Expenses and Administration Costs (Expense items) to Cost of Goods Sold (COGS items).  This brings their reporting method in line with other New Zealand retailers making their reports more comparable.  For the annual report they also reclassified the 2013 year to ensure fair comparison of this year. While this affected their Gross Profit Margin, changing it from 39.74% before reclassification to 38.5% after, there was no change to Net Profit.

Q:   I really do not understand share options nor hedging and other elements involved in the shares of a limited company.  This has made it difficult to understand some elements of its financial statements such as the split reporting on the Statement of Changes in Equity.

KC:   Briscoe Group Limited offers and Incentive & Profit Share Scheme to key members of the store and support management.  Since the introduction of this scheme, profits have continued to grow and everyone has received a bonus payment.  The financial result suggests there is real merit to this scheme.

KC:   Briscoe Homewares opened a new store this year but Living and Giving closed three and the continued viability of Living and Giving is still being assessed this coming year.

KC:   At first I did not understand why the Group would report Store Area (m2).  After further reading, I understand that floor space and optimising its use is critical in a retail environment.

Q:   I do not understand the distinction between "Group" and "Parent" on the financial statements.  From continued reading I assume that the "Parent" is the entity for the head office and "Group" relates to the three retail operations.  This assumption is supported by the lack of sales revenue in the "Parent" statements.  However, I still find it awkward to read the two separately and wish they have included a third column to total the figures, especially as they report them as one figure in the Chairman and Managing Directors reports.  The notes to the financial statements confirm my assumption.

KC:   The Group pays close attention to its Liquidity Risk and ensures it remains low with sufficient levels of liquid assets.  Current assets at the end of 2014 were $158,070,000 compared to $144,724,000 at the end of 2013.  The Group has identified the increase of inventory items in the lead up to Christmas is a risk for that particular quarter.  As a contingency, the Group has an, as yet untouched, $500,000 overdraft facility.

KC:  Credit Risk is also low as retail sales are generally instantaneous receipt of cash or credit card payments meaning less than 1% of reported sales gives rise to trade receivables.

KC:  The Group shows improvement on aged receivables compared to last year.  Receivables past due are down from $36,000 in 2013 to $18,000 this year.  Receivables impaired are down from $12,000 in 2013 to $2,000 this year.  This would be helping their cashflow and liquidity.

KC:  The Group has increased Trade and other payables this year compared to last year, however as noted in the Chairman's Report, a considerable payment to trade debtors was made five days after the financial year cut off.

KC:  Cash and Cash Equivalent of $84,762,000 (up $7,221,000 from 2013) and Total Assets of $215,384,000 (up $23,553,000 from 2013) put the Group in a great position for future acquisition as discussed previously on my blog (link).

KC:  Inventory adjustments are similar this year ($3,300,000) compared to last year ($3,237,000) but finished goods have increased from $67,810,000 last year to $72,612,000 this year.  This indicated good stock management, an area noted in the Chairman's Report of particular focus.  Evidently, their efforts are paying off.

Q:   I am unsure how to read and understand the detail analysis of Taxation.

KC:   The Group has committed significant money to store fit outs and projects with spending of $5,066,000 this year compared to $247,000 last year.  This expense has not adversely affected the Group's profit, in fact as discussed before, the layout of retail stores and maximisation of space is critical to retail operations and investing in store fit outs and projects could have contributed to increased profits this year.

In conclusion, I believe the Briscoe Group Limited is trading extremely well.  Gross Profit Margin is steady, Earnings Before Interest and Tax (EBIT) and Net Profit After Tax (NPAT) are both continuing to increase yearly (especially over the last three years),  Equity and Total Assets have increased this year and the Group is placed well to look into new acquisitions this year.  I believe strong brand recognition, a good balance between online operations and bricks-and-mortar stores, sound understanding of their risk periods with good practices in place to mitigate these and a focused leadership from the Directors and Executive team place the Group in a strong position and we can expect a similarly good result at the end of this financial year.