Written on the 16 November 2016 by Nick Nichols

ONLINE surf and action-wear retailer SurfStitch (ASX:SRF) kicked off its annual general meeting on the defensive this morning as chairman Sam Weiss fended off a series of questions raised by potential suitor and major shareholder Kim Sundell's Crown Financial group.

Weiss told shareholders at the Sydney meeting that Sundell had submitted 19 questions to the board ahead of the meeting on a wide range of topics including Sundell's legal action against SurfStitch in relation to an alleged breach of contract by the company earlier this year.

ASIC has already revealed it is investigating company disclosures around the contracts between SurfStitch and Sundell's companies Three Crowns Investments Pty Ltd and Coastalcoms Pty Ltd.

Weiss says many of the questions cannot be appropriately addressed at the AGM, particularly in light of Sundell's legal actions.

"It is not appropriate for these questions to be addressed outside of the ongoing legal proceedings nor is it in the best interests of the company to address such questions from an active litigant," he says.

"Many (of the questions) have been adequately answered by the company's periodic and continuous disclosures to the market or have been specifically addressed in the company's recent public response to Mr Sundell's last public letter to the board.

"Several of the questions require disclosure of financial, strategic and management information at a granular level. This information has not previously been made available and will not be provided in this instance."

The Gold Coast-based SurfStitch, which has suffered a wipeout year through profit downgrades, the loss of co-founder and former CEO Justin Cameron, and a $154.7 million loss in FY16, has been the target of a number of unsolicited takeover offers in recent months.

Among them was a $55 million bid by Sundell, which the SurfStitch board has dismissed as not worth consideration.

SurfStitch CEO Mike Sonand, who has the difficult task of getting the company back on track, describes the company's performance in FY16 as 'unacceptable and disappointing'.

"The past year has not been an easy one for our group," he says.

"Several projects and transactions were undertaken in FY16 to deliver on an ambitious accelerated strategy, aimed at transforming the business structure and platform into a digital ecosystem.

Projects of this magnitude require significant investment of funds and management time, but were set against high buying and revenue plans that targeted triple digit profit growth."

Those ambitious growth plans have left the company with excess inventory that the company is now aggressively discounting.

While SurfStitch has already announced plans to sell its Surf Hardware International business, Sonand has not ruled out selling other assets.

"The group's media assets, comprising Garage, STAB and Magicseaweed, are leaders in their respective fields and provide significant strategic support, relevance and credibility to the group's retail business and vice versa,"  says Sonand.

"They also broaden our understanding of, and engagement with, our youth lifestyle customer base.

"These businesses will work to gain traction and popularity within their own space, and generate income in their own right, while group retail management focuses on how those relationships can translate, and convert their competency, into retail sales on our retail platforms.

"We do not believe it is necessary to own the media businesses to gain the sort of benefits they bring to our content strategy and so whilst we remain committed to our investment in these assets, we are open minded and flexible as to their future ownership."

SurfStitch has previously indicated it will likely post another bottom-line loss in FY17. The company says its outlook remains unchanged.

Author: Nick Nichols





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