Billabong Posts A$860 Million Loss as Brand Deemed Worthless

Billabong Posts A$860 Million Loss as Brand Deemed Worthless

Billabong International Ltd. (BBG), the Australian surfwear company whose shares fell by more than half over the past year, posted a loss more than three times its market value and said its core brand was worthless. The loss was A$860 million ($776 million) in the year ended June, compared with a loss of A$276 million in the previous 12 months, the Gold Coast, Australia-based company said in a statement today. Billabong was expected to lose A$547 million, according to the average of four analyst estimates compiled by Bloomberg.The surfwear company, founded by Gordon Merchant in 1973, has agreed to a $294 million refinancing deal with a group led by Altamont Capital Partners, after breaching terms on its debt, firing employees and shuttering stores amid a sales slump. Its brands, worth A$614 million at the end of 2011, were worth A$90 million at the end of June and the Billabong brand itself is worthless, the company said today.

The company has been experiencing “continued difficult trading conditions, particularly in Europe,” Michael Simotas, an analyst at Deutsche Bank AG in Sydney, wrote in a note to clients Aug. 7. In Billabong’s home market, “consumer sentiment continued to weaken and warm weather weighed on winter apparel sales,” he wrote.

The stock closed at 56.5 Australian cents in Sydney trading yesterday, extending its decline this year to 32 percent. The S&P/ASX 200 index has gained 10 percent.

Europe Losses

Losses in its European division meant the company’s business costs ran higher than its sales revenue, with the company losing A$1.9 million before interest, tax, depreciation and amortization.

Discounting one-time items, ebitda was A$73 million over the full year, beating the A$70 million average of eight analyst estimates and at the top end of a A$67 million to A$74 million range Billabong forecast June 4.

Billabong on Aug. 23 said its board is considering a revised debt refinancing proposal from Oaktree Capital Management LP and Centerbridge Partners LP two days after the company said it had agreed to a sweetened offer from the rival Altamont group.

The company has been been fielding takeover or refinancing proposals for all but five weeks of the time since Launa Inman took over as chief executive officer in May 2012. Inman stepped down this month and the company appointed Peter Myers as acting CEO until discussions about former Oakley Inc. chairman Scott Olivet assuming the role are finalized.

‘Staff Morale’

“We are nearing the end of a long process that has caused distraction, impacted on staff morale and has been very costly,” Chairman Ian Pollard said in a statement. “We have a strong future following the most challenging period in the company’s history.”

Net debt rose 28 percent to A$207 million over the course of the year and operating income excluding one-time items dropped 51 percent to A$22 million, enough to cover Billabong’s interest payments just 1.7 times.

The Oaktree and Centerbridge proposal would save Billabong as much as A$143 million in interest over five years, according to the group. The distressed debt funds had bought some of the company’s syndicated loans before the Altamont group’s deal was announced July 16.

Billabong’s market value peaked at A$3.84 billion in June 2007 before falling to as little as A$62 million June 24 amid uncertainty about its future after ending takeover talks with Sycamore Partners LP.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

Last updated: August 27, 2013 9:15 am

Australia’s Billabong brand deemed worthless

By Paul J Davies in Hong Kong

Billabong has posted annual results showing that its core brand is now worthless as losses more than trebled, closing off a horrible year for the Australian surfwear group.

Massive impairment charges and writedowns totalling almost A$870m saw Billabong report a full-year loss of A$859.5m, sending its shares down as much as 16 per cent in Tuesday morning trading. That compared with a loss of A$275.6m for the previous year.

Even before the impairments on goodwill, the value of brands and other intangibles, profits were hit by weak trading and store closures. Adjusted profit from the normal operation of the business was just A$7.7m, down 77.1 per cent from the previous year on sales that were down 13.5 per cent to A$1.34bn.

The struggling company has been the subject of a string of takeover and refinancing proposals since early 2012. Dealing with these has cost it A$23m in banking and consultancy fees.

Ian Pollard, chairman, said on Tuesday that the company was “within weeks” of finalising long term financing after a long battle between potential and current investors and lenders. Last week, Billabong signed an exclusive agreement with a consortium led by private equity group Altamont Capital.

“We are nearing the end of a long process that has caused distraction, impacted on staff morale and has been very costly,” said Mr Pollard. “The company looks forward to refocusing, reinvigorating its brands and rebuilding the business on a solid, long-term financial footing.”

Billabong said that long periods of negotiations and repeated rounds of due diligence with different parties had restricted its operations and its ability to enact many parts of its turnround plan during the year.

The company replaced its chief executive of little more than a year, Launa Inman, in July. Over the past 12 months it has seen four directors depart, and another has announced his retirement.

The poor performance of the business has meant a big decline in the value of a number of its brands and retail businesses.

Billabong, Element, Palmers, Beachculture and New Zealand surf retailer Amazon have all had their brand value written down to zero, while the carrying values of goodwill for the company’s retail operations in Australia, North America and Europe have also been cut to zero.

The group’s core Billabong brand saw its value written down by A$252m this year, following a A$182m reduction in 2012. It accounted for most of the A$293m in brand value writedowns this year, leaving the group’s stock of brands worth a total of just A$90m.

Shares in Billabong closed down 5.3 per cent at 53.5 Australian cents on Tuesday