BILLABONG SLUMPS ON PROFIT FEARS AND BID FLOP

Written on the 2 July 2013

BILLABONG SLUMPS ON PROFIT FEARS AND BID FLOP

BILLABONG shares plunged again today, crashing almost 60 per cent as they resumed trading after a month’s suspension on news that no firm takeover offer is on the table for the struggling Gold Coast surfwear group.

The shares hit a low of 19c, down from their previous close of 45.5c, as Billabong also spooked investors with another profit downgrade.

The latest downgrade – the fourth for CEO Launa Inman since she took control of Billabong in May last year - wipes as much as $18 million from earnings forecasts made just four months ago.

The downgrade comes on the back of weak trading conditions in Australia and Europe.

Billabong says its takeover negotiations with both the Paul Naude-led Sycamore Partners consortium and the rival Altamont Capital Partners and VF Corporation Consortium have concluded with no firm offer placed on the table.

However, Billabong says it has entered talks with both parties over potential refinancing plans that also involve potential asset sales.

Details of which assets are on the chopping block have not been disclosed but Billabong has revealed it is considering the sale of Canadian retail chain West 49 which it acquired in 2010.

Under the proposals, it is understood Billabong’s existing syndicated debt facilities would be wiped out completely.

But it is unclear whether the refinancing proposals would see either Sycamore or Altamont emerge with a significant shareholding in Billabong.

“The refinancing is intended to provide the company with a comprehensive solution and an appropriate capital structure, allowing it to continue its reform agenda,” says Billabong chairman Ian Pollard.

“It’s our intention to conclude these discussions as soon as practically possible while aggressively reducing costs across our global operations.”

Billabong says none of the competing parties has been given exclusivity and that there is no guarantee that a refinancing proposal will be accepted by the company.

However, the company’s decimated share price has made the alternative - a capital raising - an uphill battle for Billabong as its shares languish at record lows.

Meanwhile, Billabong has says tough conditions in Australia and Europe, along with higher costs associated with its SurfStitch online venture in Europe have sliced up to $18 million off its pre-tax profit projections this financial year.

In February, Billabong had forecast earnings before interest, depreciation and amortisation (EBITDA) of between $74 million and $85 million.

Today, it has revised its EBITDA forecast to as low as $67 million, with an upper range of $74 million.

Billabong says Australian sales are down 5.4 per cent compared to last year, although it says conditions have improved in the US which is “slightly ahead of plan”.

Gross profit in Australia is down 2.3 per cent on the previous corresponding period, while its European division has been hit by a $4 million blowout in start-up costs for SurfStitch Europe.

Billabong’s shares recovered some lost ground in late morning trade, rising to about 25c, with more than 25 million shares changing hands.


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