BILLABONG has posted the worst earnings report in its 40-year history with the bottom-line result plunging $859.5 million into the red over 2013.
The result shook investors this morning as they dumped shares in the action-wear group, pushing them down as much as 16 per cent to 47.5c before they recovered to climb above 50c in lunch-time trading.
The shares are trading well above Billabong’s latest tangible net asset backing per security which has slumped to 11c from 76c a year ago.
The full-year earnings result gives little to excite investors other than reports of an underlying improvement in pre-tax profits from the company’s US and Australasian divisions – but only after adjustments for the loss of the Nixon business are taken into account.
While the Australian retail environment had remained tough in the second half, a Billabong spokesman tells Gold Coast Business News that conditions have shown signs of improvement in the first half of 2014.
In the 2013 financial year, revenue from continuing operations is down 6.8 per cent to $1.34 billion.
Billabong’s full-year loss has been driven by $867.2 million in writedowns of its brands and goodwill, including a writedown of its investment in Nixon.
The latest result has been burdened by almost $200 million in impairments over the second half, adding to those that pushed Billabong to a half-year loss of $536.6 million reported earlier this year.
The stricken surfwear icon, which remains in the sights of two private-equity financiers, has sufficient liquidity to push ahead with its turnaround strategy, according to chairman Ian Pollard who has described the takeover controversy surrounding the group as a “distraction” that has impacted staff morale.
“Financial stability is critical to Billabong,” Pollard says in the notes attached to the earnings results.
“Liquidity has been secured and we are within weeks of finalising our long-term funding arrangements.
“Our shareholders, our staff and our various business partners can be confident that we have a strong future following the most challenging period in the company’s history.”
Among the initiatives Billabong has undertaken to effect its business turnaround is the closure of 158 retail stores, the advancement of negotiations to sell Canadian retail chain West 49, a 15 per cent cut in staffing in its European operations and a 75 per cent scale-back of its supplier network.
“We are nearing the end of a long process that has caused distraction, impacted on staff morale and has been very costly,” Pollard says.
“The company looks forward to refocusing, reinvigorating its brands and rebuilding the business on a solid, long-term financial footing.”
Billabong secured a $325 million refinancing deal from former suitor Altamont Capital Partners in July this year.
The deal was modified last week to eliminate an onerous break fee payable to Altamont and a condition that could have seen Billabong pay as much as 35 per cent interest on a note issue should shareholders fail to approve the deal.
But the modifications have since paved the way for a new refinancing package to be put to the Billabong board by Centerbridge Partners and Oaktree Capital.
The company briefly addresses the latest refinancing proposal in the notes accompanying the profit results today by saying it will “consider any proposal in accordance with its obligations and responsibilities to shareholders”.
Pollard, in a briefing to analysts, says the current arrangement with Altamont has “already delivered important value to shareholders”.
He says Altamont and its anointed incoming CEO Scott Olivet worked on the proposal for the previous eight months, giving further weight to suggestions that Olivet will only work with Altamont as a partner rather than Centerbridge.
The Altamont refinancing deal has yet to go to shareholders for approval.
But as Centrebridge continues to tout its refinancing proposal as superior to Altamont’s, the issue continues to create an air of uncertainty for Billabong.
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