TWO weeks after reporting another significant loss, embattled surfwear group Billabong (ASX: BBG) has been dealt a new blow with news that lawyers are working on a class action against the company.
Listed law firm Slater & Gordon says it is preparing the class action on behalf of “hundreds” of Australian and international investors.
The action is targeting Billabong’s profit forecast made in August 2011 for the 2012 financial year when Billabong said it would achieve strong earnings growth, says Slater & Gordon.
“A few months later, the board of the company withdrew that guidance and revealed that its earnings would suffer a substantial fall,” the law firm says.
“As a result, Billabong’s share price dropped by more than 50 per cent in the days following.”
At the time Billabong was under the stewardship of Derek O’Neill.
O’Neill was dumped as CEO in May 2012, replaced by Launa Inman who was appointed by the board as a consultant to the company three months earlier.
Inman handed down a $275.6 million loss in August that year after recording $336.1 million in writedowns.
The bottom-line losses have continued ever since for Billabong which has been subject to multiple restructures, takeover bids and refinancing proposals since then.
In FY13, Billabong posted the worst earnings report in its 40-year history with the bottom-line result plunging $859.5 million into the red.
Last month, the company’s new CEO Neil Fiske reported another loss, this time a $126.3 million deficit for the latest December half.
Slater & Gordon is laying the preliminary groundwork for a class action, calling on shareholders affected to contact its Melbourne office.
The firm’s senior associate Odette McDonald tells Gold Coast Business News that claims have yet to be lodged and that at this stage no directors have been named.
“The claim hasn’t been issued in court at this stage,” McDonald says.
“The claim is against the company itself.
“Our clients allege that Billabong misrepresented the assumptions on which the FY12 earnings growth guidance was based.
“The company stated that achieving guidance depended on internal initiatives, such as achieving synergies between its newly-acquired retail outlets, and increasing the proportion of total revenue from Billabong product.
“However, it is alleged that, in reality, Billabong’s growth guidance required an extraordinary lift in overall sales revenue during an extremely challenging retail environment.
“Our clients allege that Billabong’s internal initiatives had no viable chance of substantially increasing profit margins, contrary to what the company had conditioned investors for.
“They further allege that, had the market been informed of the true dependencies underpinning the earnings forecast, it would have disregarded the guidance as unrealistic, and this would have been reflected in Billabong’s share price.
"To ensure confidence in our markets, investors must be able to rely on companies accurately and immediately disclosing price-sensitive information.”
“Based on our investigations to date, we believe that Billabong has a case to answer.”
In a statement to the ASX, Billabong says it has not been contacted by Slater & Gordon and has not been served with court documents.
However, it says it will “vigorously defend” the claims detailed by the law firm in media reports.
In the meantime, Billabong says it will continue to focus on its turnaround strategy and the “important operational and structural changes” needed to drive this strategy.
The Slater & Gordon lawsuit is being backed by Comprehensive Legal Funding, which has previously financed actions by the firm against Centro, Sigma Pharmaceuticals, Nufarm and GPT Group.
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