This morning, Billabong was placed in a trading halt before an investor call and announcements that include a plan to raise $225 million in equity and a strategic overhaul of the company’s business to reduce costs, redundancies, and respond to a weakening retail landscape, especially in Australia, Canada, and the US.
Just months after Billabong rejected an offer by TPG to purchase the company for $3.30 a share, Billabong is raising the AUD $225 million to combat its $325 million in debt by offering current shareholders the opportunity to purchase new shares at $1.02, 44% below the last trade of $1.83 before trading was suspended, a move that Australia’s Business Spectator called a “gesture to appease disgruntled shareholders.”
‘‘Today’s capital raising is a vital step forward for Billabong,’’ said CEO Launa Inman in a statement. ‘‘It not only further strengthens the balance sheet, but also assists in continuing to execute on previously announced initiatives and to execute on the transformation strategy.’’ Founder and Director Gordon Merchant says he will invest $30 million personally.
Following this release, made available solely to residents of Australia and New Zealand, Inman hosted a conference call outlining the conditions that had led to these steps and the company’s strategy to “rebuild Billabong into a global force in the next three years.”
The presentation was admittedly vague on details, which will be filled in when annual results are announced on August 24, when the company plans to announce a downward-revised EBITDA of between $130-135 million, down from earlier projections of just over $157 million. However, Inman explained that consumer confidence levels and demand in Europe, Australia, and Canada had led to significant reductions in demand and increases in discounting. While Inman added that online sales, which now account for approximately 4% of the company’s revenues, and sales in the US were strong, the company needs to make significant changes in how it operates.
The brand is continuing to eliminate redundancies and cut costs in an effort to right size the business. This plan began in February and Inman says Billabong is on track to close 140 stores by the end of FY 2013 with 58 completed this month. Inman said that much of this was necessary due to Billabong’s meteoric growth.
“This is not surprising given in the last three years we went from a 78% wholesale business to a 50% wholesale/retail split,” all while making acquistions that grew the companies store count from over 300 to over 600, according to Inman.
“We need to simplify our business to make it easier to manage and meet customer needs,” continued Inman, laying out a plan to reactivate the company’s brands. Billabong has assembled a team of internal and external advisers to review its businesses “to remove duplication and introduce simplicity.”
The review will examine all aspects of the business, its supply chain, processes, and working capital.
Inman stated that the goal is to reactivate the entire company and outlined the plan’s four major pillars: “focusing on brands, especially the Billabong brand (which accounts for half of the company’s revenues), improving the retail experience with a strong customer focus, grow the online offering, and driving the supply chain to match the brand and channel strategy.”
Billabong has brought on a special adviser to report on the Billabong brand as well as a global retail manager to maximize its investment in its retail network, with more details on this individual to be released next week.
“I am committed to taking a hard-headed approach to rebuilding the company,” said Inman, adding “there are no sacred cows as we look for ways to improve the business.”