O'Neill tenure in doubt amid sales drought

BILLABONG last night moved to quash rumours that its board would soon dump the chief executive, Derek O'Neill, amid growing concern among major investors over the surfwear company's performance.

BILLABONG last night moved to quash rumours that its board would soon dump the chief executive, Derek O'Neill, amid growing concern among major investors over the surfwear company's performance.

Sources close to the company said last night they expected Mr O'Neill, who has been with the iconic Australian surfwear company for more than 20 years, to be removed as CEO in the face of declining sales and rising debt.

Billabong's chairman, Ted Kunkel, said last night: "I categorically deny the suggestion."

A soaring Australian dollar and slumping retail sales in the key markets of Europe and the US have compounded Billabong's woes.

These factors have severely affected the company's share price, and in particular the wealth of founder and major shareholder Gordon Merchant. Mr Merchant started Billabong at the kitchen table of his Gold Coast home 40 years ago.

The company's shares, which reached a high of $13.17 a share in 2008, closed yesterday at $1.845. Mr Merchant, who owns more than 13 per cent of Billabong, has been forced to watch his fortune slump from more than $900 million in 2007 to less than $300 million.

In the past six months, his shares have fallen in value by more than $135 million.

Sources said Mr Merchant had been a long-term supporter of Mr ONeill, who was appointed CEO in 2003 after a decade in senior roles with the company, but now believes that recent troubles call for change at the top.

There has also been speculation since Christmas that Mr Merchant would move to regain day-to-day control of the company.

Since 2008, Billabong has increased the number of company-owned outlets from 380 to 639, in 60 countries. According to sources close to the board, it was Mr O'Neill who decided to move from a mere supplier of surfwear and fashion goods to a vertically integrated company with its own massive network of stores.

That strategy had the approval of the board and of Mr Merchant, who remains a director of the company.

An earnings downgrade just before Christmas resulted in the share price collapsing from $4 to $2.02, wiping more than $400 million from the company's value.

Billabong pointed to a rapidly deteriorating sales performance across all its markets as a reason for the downgrade.

Billabong is now one of the most shorted stocks on the Australian Securities Exchange. The company has not responded to published reports of rumours that it may breach its debt covenant.

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