Billabong brand worthless as losses triple

Australian surf brand posts mammoth $860 million loss as writedowns take toll

Billabong has said its 40-year-old surf brand is worthless after company losses tripled amid store closures, firings and a breach of debt terms. Photo: Bloomberg

Billabong has said its 40-year-old surf brand is worthless after company losses tripled amid store closures, firings and a breach of debt terms. Photo: Bloomberg

Tue, Aug 27, 2013, 14:02

Billabong has said its 40-year-old surf brand is worthless after company losses tripled amid store closures, firings and a breach of debt terms.

Full-year losses widened to Aus$860 million (€576 million)in the year ended June from a $276 million loss in the previous 12 months.

Founded by Gordon Merchant in 1973, Billabong helped sell Australian surfing culture worldwide and rose to a market value of $3.84 billion at its peak in 2007.

Earnings have plummeted in the last two years as competitors including Abercrombie and Fitch stole market share and Billabong took on debt to build a store network that it’s now shrinking.

“It probably isn’t cool any more for the youth of today to wear Billabong,” Todd Guyot, an analyst at Moelis and Co in Sydney, said.

“You can see how much the core business has deteriorated over the last few years. There’s still a massive challenge to get the business going right.”

The Gold Coast, Australia-based company has closed 158 stores, cancelled relationships with three-quarters of its suppliers, and is cutting 15 per cent of jobs in its European division.

The value of its 13 brands fell to $90 million at the end of June from $614 million in December 2011, and the Billabong label itself is worthless, the company said in its financial statements today.

About $37 million of group brand value was locked up in the DaKine outdoor clothing and backpack label which Billabong sold to Altamont last month.

Four other brands, including Element skateboards and Palmers surfboard accessories, were also written down to a zero valuation, according to the statements.

A 14 per cent fall in sales put revenue below the company’s operating costs and the company took a loan from Altamont Capital Partners to refinance its debt.

Billabong’s net tangible assets fell 86 per cent during the year to 11 Australian cents per share, it said today.

The company has agreed to a $294 million refinancing deal with a group led by Altamont Capital Partners and is studying a rival offer from a group including Oaktree Capital Management and Centerbridge Partners.

The Oaktree and Centerbridge proposal would save Billabong as much as $143 million in interest over five years, according to that group.

The prospect of refinancing and better business in recent weeks suggest the company is on the road to recovery, Peter Myers, acting chief executive officer, told an investor call after the results announcement.

It has “clearly been a tumultuous year,” he said.

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.

The business spent $23 million during the year on consulting and banking costs in relation to its takeover and refinancing proposals, greater than the value of its earnings before interest and tax.

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

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

Bloomberg