As flagged in the half year results, significant and exceptional items have resulted in costs of A$336.1 million ($349.1mm), net of the gain on sale of Nixon of A$201.4 million ($209.2mm), of which 99 percent is non-cash.
Excluding the impact of significant and exceptional items Adjusted1 Net Profit After Tax (NPAT) was A$33.5 million ($34.8mm) on reported global sales revenue of A$1.55 billion ($1.6bn). Revenue was down 7.9 percent in reported Australian dollar (AUD) terms (down 5.0 percent in constant currency terms) compared to the prior corresponding period (pcp), including online sales growth of approximately 50 percent.
CEO Launa Inman said: “At an underlying trading level, the Group remains profitable. As previously flagged to the market, the Group’s results have been adversely impacted by various significant and exceptional items. In recording the various significant and exceptional costs and charges, the Group has endeavoured to adopt a conservative position. The Group is well on track in implementing the initiatives outlined in the previously announced Strategic Capital Structure Review and will continue to implement a number of new strategic initiatives announced today as part of Billabong’s Transformation Strategy. These initiatives will target both cost savings and revenue growth.”
Adjusted1 Earnings Before Interest, Tax, Depreciation, Amortisation and Impairment (EBITDA) of A$120.6 million ($125.3mm) was down 40.9 percent in reported AUD terms (39.4 percent in constant currency terms) and within the guidance range. The continued appreciation of the AUD against the Group’s operating currencies, in particular the Euro and USD, adversely affected reported consolidated results, specifically by A$51.8 million ($53.8mm) in respect of sales revenue, A$5.0 million (5.2mm) in respect of EBITDA and A$3.3 million ($3.4mm) in respect of NPAT.
While the Group’s profit and loss results have been adversely impacted by the abovementioned significant and exceptional items, the Group is pleased to report a significant reduction in working capital, both in dollar terms as well as a percentage of sales. In addition, the Group has achieved a strong improvement in cash flow from operating activities and a reduction in net debt, primarily from proceeds received from the partial sale of Nixon and equity capital raising in June.
Specifically:
- Working capital as reported reduced:
o 39.7 percent to A$284.1 million from A$471.2 million in the pcp; and
o to 19.7 percent of sales from 27.8 percent in the pcp.
- Net cash flow from operating activities increased by 224.2 percent to A$78.9 million, from A$24.3 million in the pcp.
- Net debt reduced to A$160.9 million or A$94.2 million when adjusting for the net proceeds of the retail entitlement offer.
Billabong has made good progress on the initiatives announced in February 2012 as part of its Strategic Capital Structure Review, including the partial sale of Nixon, the closure of underperforming stores and its cost reduction program.
Specifically:
- US$285m in proceeds from the partial sale of Nixon
- 58 non-performing stores closed as at 30 June 2012, with a further 82 non-performing stores identified for closure in FY13, expected to realise incremental EBITDA in FY13 of approximately A$6 million (approximately A$8 million on an annualised basis)
- Cost savings of approximately A$30 million per annum expected to be realised in FY13 from cost reduction initiatives undertaken in FY12
These, together with the Transformation Strategy announced today, are expected to return the Group to growth and to significantly strengthen the company’s financial position.
Transformation Strategy
Billabong today announces its Transformation Strategy which provides a clear pathway to unlocking the inherent value within the Billabong Group. Over the next four years, the Transformation Strategy aims to return the Group to positive sales growth and is targeted to deliver EBITDA greater than 2.5x FY12 pro-forma EBITDA of A$84.0 million, excluding 100 percent of Nixon and significant and exceptional items. Specifically, Billabong will achieve these objectives by focusing on the following key strategic priorities:
- Simplifying its business
- Leveraging Brand Billabong
- Leveraging other key brands
- Realising the strategic potential of retail
- Continuing to expand Billabong’s global e-commerce platform
- Globalising and integrating the supply chain
More details of the transformation strategy are available here.
Outlook and dividend
The Group expects the current challenging trading conditions to continue during FY13. Assuming no further deterioration in these conditions, FY13 EBITDA is currently expected to be in the range of A$100 million to A$110 million in constant currency terms. This compares to pro-forma FY12 EBITDA of A$84.0 million, excluding 100 percent of Nixon and significant and exceptional items.
This result is expected to be driven by:
- The benefits from the previously announced Strategic Capital Structure Review;
- The additional benefits realised under the Transformation Strategy announced today; and
- Recognition of Billabong's share of after tax Nixon associate profits.
The Board has not declared a final dividend in respect of FY12 and does not expect to pay an interim dividend in respect of 1H FY13. The dividend policy will be reviewed thereafter.
Billabong Business website.
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