Lending breach puts Billabong in deeper waters
The breach led its banks to seek a secured charge over most of the business.
Chief executive Launa Inman also declined to back her multi-year transformation plan's target - $239 million in earnings before interest, tax, depreciation and amortisation (EBITDA) by 2016.
"I'm not going to comment on that," Ms Inman told analysts on a conference call when asked if the target was still achievable.
The company confirmed that due diligence by its two suitors - which have made $1.10-a-share indicative offers for the company, valuing it at $527 million - is expected to conclude next month.
One team is led by Billabong executive Paul Naude and Sycamore Partners, the other by US retailer VF Corp and private equity group Altamont.
A $567 million write-down of Billabong's brands, goodwill and its investment in a joint venture, Nixon, was the main reason for the half-year loss. Underlying group EBITDA was up 13 per cent in constant-currency terms to $57 million for the six months to December 31. This was largely driven by cost cutting and store closures, and the company remains on track to close 160 stores by June this year.
Global sales revenue dropped 8 per cent to just under $700 million for the December half.
Ms Inman said the company was seeing positive signs emerging in several markets and was starting to reap the benefits of the transformation strategy.
While the performance of most of the group remained in line with expectations, Billabong said continuing woes in Europe, and the underperformance of its Nixon venture, led to full-year EBITDA guidance being reduced to between $74 million and $85 million, down from its previous guidance of $85 million to $92 million.
Ms Inman also said the Billabong brand itself "has not performed to the expectations we would have liked" for the Australian summer and European winter.
"EBITDA is unravelling faster than the company can control," an analyst at BT Investment Management, Sondal Bensan, told Bloomberg. "[The] chance of a bid at $1.10 diminishes by the day."
Billabong shares closed 5¢ lower on Friday at 86¢.
The company reported it was in breach of its debt covenants thanks to the $567 million of write-downs for the half-year. The situation
has since been remedied, but
at a price.
Billabong said it had agreed to move "as soon as practicable" to a secured banking arrangement with its financiers "whereby the company will grant security over the majority of its assets".
Billabong's new chief financial officer, Peter Myers, said talks with the banks had been "extremely constructive".
Frequently Asked Questions about this Article…
Billabong breached its debt covenants after reporting a heavy half‑year loss. The primary cause was a large $567 million write‑down of brands, goodwill and its investment in the Nixon joint venture, which led the company to report the loss that put it in covenant breach.
Yes. Following the breach, Billabong’s banks sought a secured charge over most of the business, and the company agreed to move to a secured banking arrangement whereby it will grant security over the majority of its assets. CFO Peter Myers said talks with the banks were "extremely constructive."
Global sales revenue fell 8% to just under $700 million for the December half, but underlying group EBITDA rose 13% in constant‑currency terms to $57 million for the six months to December 31, largely thanks to cost cuts and store closures. However, full‑year EBITDA guidance was downgraded to $74–$85 million from the prior $85–$92 million range.
Two suitors have made indicative offers of $1.10 per share, valuing Billabong at about $527 million. One group is led by Billabong executive Paul Naude with Sycamore Partners, and the other is led by US retailer VF Corp together with private equity group Altamont. Due diligence was expected to conclude next month.
No. CEO Launa Inman declined to back the prior multi‑year transformation target of $239 million in EBITDA by 2016, saying she would not comment on whether that target was still achievable, though she also noted the company was starting to see positive signs in several markets.
An analyst at BT Investment Management, Sondal Bensan, warned that "EBITDA is unravelling faster than the company can control," and said the chance of a bid at $1.10 per share was diminishing by the day, reflecting market concern about the company’s financial trajectory.
Billabong has been cutting costs and closing stores as part of its transformation. The company reported that underlying EBITDA gains were largely driven by cost cutting and store closures and that it remained on track to close 160 stores by June.
Investors reacted negatively: Billabong shares closed 5 cents lower on the day, finishing at 86 cents, after the downgrade, write‑downs and news of the covenant breach and secured banking arrangement.
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