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Billabong shares battered by global market headwinds

BILLABONG shares were crunched 25 per cent when its full-year profit landed at the bottom end of guidance, with heavy selling of its stock further fuelled by the surfwear company scrapping its 2012 earnings forecast in the face of a lurching global economy and plummeting sharemarkets.

BILLABONG shares were crunched 25 per cent when its full-year profit landed at the bottom end of guidance, with heavy selling of its stock further fuelled by the surfwear company scrapping its 2012 earnings forecast in the face of a lurching global economy and plummeting sharemarkets.

The company also said the rapid and sustained appreciation of the Australian dollar against the US dollar and the euro delivered a negative punch to its earnings, dragging the result greatly lower.

Its forecast 12 months ago of generating earnings per share growth of 10 per cent in 2011-12 was consigned to the bin on the back of overall flat forward-order books across Australia, North America and Europe as consumers rein in their spending. A higher effective tax rate would also shrink profits.

Although Billabong expects financial benefits from cost-cutting and a string of acquisitions to feed into its 2011-12 pre-tax results, its bottom line profit would be squeezed by particularly poorer sales from its European operations due to that continent's teetering financial state.

"We saw a definite drop-off from the European consumer as soon as the latest round of the Greek debt crisis started [in May] - it started being a little bit more contagious to countries like Spain and even Italy," Billabong's chief executive, Derek O'Neill, said.

"The headlines every day and the six o'clock news bombarding you with that financial information ... At some point that feeds down into the consumer psyche."

Combined with the failure of a global economic recovery to take hold, and conditions actually deteriorating outside of North America and Asia, Billabong said it was now unable to offer any earnings per share guidance.

On a day when investors were already reeling from sharp falls on Wall Street and across European markets, the poor result and discarded earnings outlook triggered panic selling, with more than $330 million in value wiped from Billabong's market capitalisation by the close of trade yesterday. Shares in Billabong ended on their intraday low, closing down $1.35, or 26.1 per cent, at $3.82.

The company, which owns a portfolio of popular surf, diving, swimwear and footwear brands, posted an annual profit of $119.139 million in the year to June 30, down 18.4 per cent. Revenue was 13.5 per cent higher at $1.688 billion.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were down 16.2 per cent in constant currency terms, and down 24.3 per cent in reported terms.

The retailer declared a final dividend of 13? per share, 3.25? franked, down from 18? in 2009-10 and payable on October 21. Although Australasia and the Americas had strong sales for the year, Europe was weaker. For Australasia EBITDA almost halved to $55.22 million, the Americas were down 13 per cent and Europe down 22 per cent.


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