GLOBE INTERNATIONAL LIMITED — Call Transcript 2004

May 18, 2004

Attention ASX Company Announcements Platform Lodgement of Open Briefing

Globe International Limited 300 Lorimer Street Port Melbourne, VIC 3207

Date of lodgement: 19-May-2004

Title: Open Briefing. Globe International. CEO on Strategy

Record of interview:

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Globe International Limited recently reported a turnaround in earnings, with EBITDA of \$8.5 million in the first half ended December 2003 compared with a loss of \$10.4 million in the previous six-month period. Has the business continued to operate profitably in the current second half?

CEO Michael Sonand

Yes. When we released the first half result in February, we told our shareholders our sales and earnings for the second half of the year to June 2004 would exceed what we achieved in the first half. Nothing that's occurred since then has changed our view.

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How might Globe's sales and earnings be impacted if the Australian dollar continues its recent fall against the US dollar?

CEO Michael Sonand

We're a global business with a natural hedge on earnings so any move either way in the exchange rate benefits part of our organisation and detracts from others. The translation issue does affect the perception of growth in that changes in currencies can distort brand growth when earnings are translated. The reality is

that long-term brand growth is better viewed in the currency of the territory where the sale occurred.

The recent weakness in the US dollar has increased our margins over the last 12 to 18 months. However, to ensure we don't suffer adversely from movements in exchange rates, we have a conservative pricing and currency risk management policy that we strictly adhere to.

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There's a perception in the market that Globe's markets are fickle, its product life cycles short and its earnings volatile. How can you deliver consistent earnings with these operating parameters?

CEO Michael Sonand

Historically, this is a very stable business model. That perception grew out of the erratic results we had in the first two years of our life as a public company. Results during that period were adversely impacted by the distractions of the float and a poorly timed acquisition. The reality is that our business is over 20 years old and over most of our 20-year history we've delivered very consistent sales and earnings growth at good margins.

What we're doing now is focusing on our key competencies: brand-building, innovative marketing and producing great product. Focusing on those competencies will ensure we again deliver consistent sales and earnings performance and growth over time.

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Globe's first-half EBITDA turnaround reflected cost cuts rather than top-line growth, with annualised operational savings of over \$20 million realised. To what extent are your cost cuts sustainable and given investment in your brands is critical for generating growth, what ability do you have to lift the top line without increasing the cost base?

CEO Michael Sonand

We actioned cost cutting to regain profitability and to logically re-organise the business after the merger with Kubic. The structure of the business is sustainable and the overheads going forward will be similar to the pre-2003 template.

Although we've made permanent and locked-in changes to the cost base compared with a year ago, one of the things we didn't do is compromise our marketing spend on our brands, which we've maintained at least at our historical spend levels. Having stabilised the business, what the board and management team is now strongly focused on is long-term profitable sales growth. We believe that will drive long-term value creation for our shareholders, but it will require continued investment in our brands, and we're not resiling from that at all.

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Some of Australia's most successful action sports clothing and accessories companies have focussed on a single brand, unlike Globe which has multiple brands. Is the multi-brand model a sustainable one?

CEO Michael Sonand

None of our major competitors focuses on a single band. They all run multi brands and this is an increasing trend. Clearly investing in multi brands is more expensive than investing in a single brand but it allows future growth without dependence on a single brand. As we mature we'll gain more critical mass in each of our brands and they can become even more profitable than they are today.

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One of Globe's longer-term objectives is to increase its exposure to the surf market. What are the opportunities for Globe in this market given the company and its brands are so heavily identified with the skate market and culture?

CEO Michael Sonand

It's true we have a strong heritage in skate, but the reality is we've also developed a strong presence and credibility in the surf market as well. Expansion in surf, particularly in apparel, is a natural evolutionary step for our business. Our Globe and Gallaz footwear brands for example, are well established in the surf market in Australia and have much bigger sales through the surf distribution channel than the skate distribution channel. We have a very strong surf footwear team, including current and former world champions. And we recently launched our first surf film, Somewhere, Anywhere, Everywhere, to excellent reviews and enthusiastic audiences. We also established an office in Torquay at the beginning of the year to enable us to take the next step in expanding our surf presence. We're confident we'll be delivering a strong apparel range in the surf market in the coming seasons.

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What gives you confidence that Globe can successfully develop an apparel offering?

CEO Michael Sonand

We've been involved in apparel for over 20 years. It's a market we know well and have been successful in and now it's about focussing this competency on a brand directed at surf. In surf apparel, we've appointed some new people who not only have a strong surf heritage but also are very experienced in apparel design and delivery.

Over the last few years, Globe's main thrust in North America and Europe has been in expanding the skate and skate footwear business. Skate shoes are primarily a technical product, a performance driven product, which we've taken from zero market share in 1995 to being one of the better known skate/surf footwear brands in the marketplace. Having done that, we can now leverage overseas the undoubted heritage and lifestyle associations of the brand to access a broader apparel market.

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The success of many of Globe's brands appears to depend on maintaining their perception among consumers as cool or underground. What are the risks that wider sales or product expansion might undermine this perceived value?

CEO Michael Sonand

Through our multi-brand strategy we're less exposed to brand saturation. The market saturation point is many times higher than any of our current sales levels in most categories and markets so we can grow whilst still maintaining authenticity with our markets through the brands we have.

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The Kubic business, acquired in June 2002, remained in loss in the first half after being written down by \$52 million in June 2003. What value do you see in the Kubic brands? Do you foresee further write-downs associated with Kubic?

CEO Michael Sonand

There's a residual value on our balance sheet of around \$8 million relating to some of the Kubic brands and trademarks. We don't foresee any further write-downs. Indeed we're working hard to rebuild the value of the Kubic brands and we're achieving success. They're iconic brands in the skate industry, so it's a matter of refocusing and putting the right resources behind them. We now have a great team of riders who accurately reflect the values of each brand and we'll be making new rider appointments. This aspect of brand management had been neglected under the previous Kubic ownership. Certainly the rebuilding won't happen overnight, but we're making inroads and that's been reflected in a solid improvement in unit sales.

Whilst we're not able to revalue the brands on the balance sheet, there are certainly things we can do to improve the net cash flow generation of each of the Kubic brands. There's considerable upside in the Kubic brands' value based on leveraging them into apparel sales. This is our focus and it's where we've already made improvements.

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Overall, Globe's North American business appears to have stabilised, with a break-even result in the first half. What's your strategy for the North American business?

CEO Michael Sonand

Up until now, the primary generators of revenue in North America have been footwear, through the Globe business, and skate hardware, through the Kubic business. Those two product categories account for over 85 percent of our North American revenue. They're still very important to us and we'd expect them to continue to see top-line growth over time. But the key for us is to use the equity we have in those brands in North America and leverage that into relevant apparel offerings. That's where we see our strategic growth opportunities coming from.

We're moving to a model that includes more apparel and more surf business. This isn't a brand shift, more an emphasis on product and category development. This is the way forward for growth and stability in North America while we continue to develop our skate presence in the same core categories as in the past.

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A change in distribution arrangements impacted Globe's European operations in the first half, with sales down 24 percent. What was the rationale behind the change and the establishment of a European headquarters?

CEO Michael Sonand

The drop in sales was an accounting and a timing issue. It reflected a one-off deferral of revenue recognition when we moved to take better control of our inventory and product distribution by distributing product through a third-party owned warehouse in Europe rather than selling direct to distributors out of our manufacturers in Asia.

There's an enormous opportunity for us in Europe. There's a very strong skate culture and a growing surf presence in Europe as well, which suits us down to the ground. The main objective of our European office is to get close to the market. Having the right people there on the ground will allow us to understand the nuances of the different markets and better focus our marketing message so we can drive our top-line sales. This will also allow us to focus on apparel, which needs central logistical support to be competitive.

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What level of long-term earnings growth is achievable for Globe?

CEO Michael Sonand

Globe has a long history of strong growth and we have a stable of brands that can double sales without a major brand or marketing shift. The market in which we operate has high margins and we have the capability of achieving high sales growth without sacrificing EBITA margins.

My job is to achieve this growth in the shortest period of time and I know I've got a team around me capable of doing this.

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Thank you Michael.

For more information about Globe International, visit www.globecorporate.com or contact Chris Oldfield on 0419 309 303.