Billabong Posts Record Net Loss on Brand Writedowns
Billabong International Ltd. (BBG), the surf-wear company for which Bain & Co. alumni are studying rival bids, posted a record loss on A$567 million ($583 million) of charges as it wrote off most of the value of its main brand.
The loss was A$537 million in the six months ended Dec. 31 compared with net income of A$16.1 million a year earlier, the Gold Coast, Australia-based company said in a statement today. The stock fell 5.5 percent to 86 cents, compared to the A$1.10 a share the buyout groups said they may bid.
Billabong will post 80 percent of its assets and 85 percent of its earnings as security to its lenders after brand and goodwill writedowns put it in breach of terms on its debt, it said. Earnings before interest, tax, depreciation and amortization in Europe fell 78 percent and full-year group profit will be as much as 20 percent below previous forecasts.
“Ebitda is unraveling faster than the company can control,” Sondal Bensan, an analyst at BT Investment Management Ltd. (BTT) in Sydney, said by e-mail. “Chance of a bid at A$1.10 diminishes by the day.”
Altamont Capital Partners and VF Corp. are considering a bid for the company at A$1.10 a share as a rival group of Sycamore Partners Management and Billabong Americas head Paul Naude mull an offer at the same price. The A$527 million value of the offers is less than the value of today’s writedowns.
Billabong became a takeover target last year as it sold inventory below cost to clear shelf space, paid penalties to break store leases early, cut the value of its brands and posted its first annual loss since a 2000 listing.
At today’s closing price, the stock is trading at 22 percent less than the offers. The stock lost 90 percent of its value during 2011 and 2012, making it the worst performer on the S&P/ASX 200 index. (AS51)
Three other private equity approaches for the company have been rejected or scrapped over the past year.
The due diligence process on the current bids is expected to conclude next month, the company said today. Jesse Rogers, who co-founded Altamont, and Stefan Kaluzny at Sycamore both previously worked at Bain & Co., the consulting firm formerly led by Mitt Romney.
First-half sales fell 8.1 percent from a year earlier to A$702 million, driven by a 17 percent slump in Europe and a 5.3 percent drop in the Americas, excluding the effect of currency movements.
“If anyone within or outside of Billabong still believes we don’t have to radically change the way we run this business, today’s half-year results end that illusion,” Chief Executive Officer Launa Inman told an investor call today. The result in Europe “is not only disappointing, it is unacceptable,” she said.
A measure of consumer confidence in Billabong’s home market returned just two positive readings in the half and the country’s central bank has cut interest rates to a half-century low in an attempt to stimulate the economy.
The Billabong brand, which VF Corp. (VFC) says is its “primary interest” in any takeover, was written down to A$30 million at the end of December, down 88 percent from A$252 million six months earlier.
“Brand Billabong has, as you know, been problematic,” Inman said today. Orders for the label in the current half were up in the U.S., flat or slightly down in Canada, and down in Europe and Australia, Inman said.
The writedown to that brand drove the A$428 million impairment of goodwill and brands. There was also a A$107 million writedown of its investment in the Nixon watches and accessories business, the company said. Billabong sold about half of Nixon to buyout firm Trilantic Capital Partners for A$285 million last February.
“The pressure’s building on the company,” Daniel Broeren, a Sydney-based analyst at CIMB Group Holdings Bhd. (CIMB), said before the announcement. “The trading that a lot of multibrand retailers experienced in December wasn’t positive.”
Earnings before interest, tax, depreciation, amortization and one-time items in the full year will be A$74 million to A$85 million, below a range of A$85 million to A$92 million forecast Dec. 19.
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