Financial restructuring moves led to a large loss for Billabong International in the fiscal year until the end of June, and the Australian company's board is now rethinking a rescue package approved in July, yet again considering yet again an alternative takeover offer.
The net loss reached 859.5 million Australian dollars (€597.4m-$788.3m), predominantly due to extraordinary non-cash items worth A$867.2 million (€602.7m-$795.3m). They included A$604.3 million (€420.0m-$554.2m) of non-cash impairment for goodwill, brands and other intangibles, and A$129.6 million (€90.1m-$118.8m) relating to a non-cash writedown of the group's investment in Nixon. The value of the Billabong brand was brought down to zero.
The turnover of the group, which comprises the Billabong brand along with brands such as Element and Von Zipper and many retail operations, dropped to AS$1,340.6 million (€236.7m-$312.3m) for the fiscal year, which was a decline of 13.5 percent in reported terms and 12.6 percent in constant currencies. Excluding Nixon's results from the start of July 2011 until April 16, 2012, the sales decline amounted to 6.8 percent in reported terms and 5.9 percent in constant currencies.
Currency-neutral sales slid by 5.7 percent in the Americas, down to A$636.8 million (€442.6m-$584.0m), while they were off by 6.6 percent in Australasia to A$471.8 million (€327.9m-$432.7m) and by 10.4 percent in Europe, which was a drop of 16.5 percent to A$232.1 million (€161.3m-$212.8m) in reported terms.
The Billabong group's adjusted Ebitda shrank by AS$14.3 million to AS$72.6 million (€50.5m-$66.6m) – and that was before significant items and excluding Nixon. However, the company pointed out that its adjusted Ebitda was positive in the Americas and Australasia. In reported terms, Billabong suffered an operating loss of AS$1.9 million (€1.3m-$1.7m) for the year, compared with Ebitda of AS$133 million for the previous fiscal year.
As for Europe, the group pointed to the dire economic situation and store closures there. Ebitda in the region amounted to an operating loss of A$25.1 million (€17.4m-$23.0m), more than twice the A$11.7 million loss suffered for the previous fiscal year. The group managed overhead reductions of A$9.3 million (€6.5m-$8.5m) but it was affected by start-up losses of A$7.6 million (€5.3m-$7.0m) for Surfstitch. Adjusted Ebitda was also negative at just A$0.1 million (€0.07m-$0.09m), compared with operating profit of A$19.4 million for the previous year.
Meanwhile, the company's prospects in terms of financing and equity remain unclear, after Australia's Takeover Panel demanded adjustments in the refinancing deal obtained by Billabong in July. As previously reported, this agreement involved a bridge loan of US$294 million by Altamont Capital Partners, a U.S. private equity group; and GSO Capital Partners, an arm of the Blackstone Group. It was accompanied by an asset-based revolving credit of US$160 million (€111.2m-$146.7m) with GE Capital and the sale of Dakine to Altamont. Altamont also wanted to bring in Scott Olivet, former chief executive of Oakley, to take over as chief executive at Billabong. The second leg of the deal involved a financial restructuring that would enable the investors around Altamont to swap debt against equity.
But Centerbridge Partners and Oaktree Capital, which got involved in the kerfuffle when they started buying up Billabong's debt earlier this year, argued that some of the terms of this deal were coercive and meant to deter competing bids. Among the disputed terms was a breakup fee of US$65 million as well as a 35 percent interest rate on a US$40 million convertible note if shareholders did not approve converting that note into preferred shares. A rival bidder would also have had to repay the entire US$294 million with an extra 10 percent of the principal and interest if the company were acquired by another investor within two years.
The Takeover Panel found that some of these terms were unacceptable, which led Billabong and the group around Altamont to come up with a revised deal. Among the adjusted terms, the breakup fee was lowered to US$6 million and interest costs were slashed.
The changes paved the way for Centerbridge and Oaktree to issue their own refinancing proposal on Aug. 23. It involves a senior secured term loan of A$325 million (€225.9m-$298.1m) as well as an equity placement of A$135 million (€93.8m-$123.8m) to Centerbridge and Oaktree; and a rights issue of A$32.5 million (€22.6m-$29.8m) available to all existing shareholders, of which the proceeds would be used to pay down the above debt to a balance of A$157.5 million (€109.4m-$144.4m).
The Sydney Morning Herald described the move as a presumed attempt to derail a shareholder vote in October about the recapitalization plan put forward by Altamont. The newspaper indicated that Coastal Capital held a stake of 5 percent in Billabong and that it was thought to be supporting Centerbridge's and Oaktree's offer. While two years of haggling over the embattled board sports company have done little to lift its battered share price, the shares did rise on the news of Coastal's intervention.
Billabong's board said it was considering the new refinancing offer by Centerbridge and Oaktree as well as the notice by Coastal Capital, adding that this notice should not cause any delay or deferral of Billabong's process to complete its long-term financing. In the meantime, the company's chief financial officer,
Peter Myers, is still acting chief executive, following the departure of Launa Inman in early August. It was reported in Australia that several more executives had left the board sports company, particularly Von Zipper's vice-president, Vince De La Pena, and the brand's founder and director of design and merchandising, Rob Riese.
Paul Naude, the former Billabong manager for the Americas who had made an unsuccessful bid for the company, has resigned as a director of the group.
As part of their discussion of the company's calamitous figures, Billabong's managers said that the sale of Dakine had been completed and that they wanted to wrap up the refinancing process rapidly to focus on rebuilding the group in the next two years. Its efforts have already included moves to sell its West 49 retail chain in Canada, a process that was described as advanced; a 15 percent reduction in the European staff, which is ongoing; a reorganization of the wholesale business in Australasia; and restructuring of operations in South Africa and South America. Sales to close-out channels are to be reduced, particularly in the U.S.
