It’s been a big year for Billabong, and the company’s executive team sat down to discuss the details with analysts during its annual conference call on August 20. If you missed the call, don’t worry—you read all about it right here.
Also, if you’re interested in reading the company’s 126-page annual report, CLICK HERE to download it. If not, here’s the quick version.
Billabong’s Net Profit after tax (NPAT) for fiscal year ended June 30, 2010 was $148 million. When translated into Australian dollars, the reported NPAT was down 4.5% compared with the year prior when including the prior year’s $7.4 million impairment charge expense, or down 8.9% when excluding this cost.
Earnings per share (EPS) for the year of 58.3 cents was down 15.8% from the year prior, which Billabong says is due to the lower reported NPAT result and increase in the weighted average number of shares on issue following the capital raising conducted by the company in May 2009.
In constant currency, total group sales were flat and down 11.2% in reported terms with the year prior. Something the company says reflects the negative impact of foreign exchange when translating the results into ASD.
Gross margins, however, improved to 54.4% compared to 53.2% last year, which Billabong attributes to a decrease in promotional retail in the U.S.
EBITA for the year was down approximately 1% in constant currency terms, or 11.1% in reported terms to $253.3. According to the company there was a significant improvement across all regions for the second half of the year, and EBITA increased 9% in constant currency terms following a 9.5% drop in the first half. EBITA margins were steady at 17.1%.
By region, sales in the U.S. were down 1.2% in constant currency terms or 14.8% in reported terms to $712.6 million. In Europe, sales were $344 million, up 5.2% in constant currency terms, but down 11.3% in reported terms. In Australiasia, sales of $425.7 million reflect a decrease of 1.9% in constant currency terms compared to the year prior, or 4.2% in reported terms.
Billabong says it expects NPAT will grow in somewhere in the range of 2–8% in constant currency terms in fiscal year 2010-11 co,pared to the year prior. It believes the Americas market is improving and will continue to do so, Europe will see continued strength, but expects business in Australia to be challenging. Billabong also said it expects 2010-11 to be a transition year, which will lead the company towards EPS growth rates of 10% in constant currency terms over the years to come.
Presentation by Derek O’Neill
Billabong International’s Chief Executive Officer
A solid second half performance in a challenging global consumer and business
environment carried Billabong International Limited to a net profit after tax (NPAT) of
$146.0 million for the financial year ended 30 June 2010. The result is up 8.1% in
constant currency terms compared with the 2008-09 year (the prior year). Excluding
the after tax impact of an impairment charge expense of $7.4 million in the prior year,
NPAT for the year ended 30 June 2010 increased 3.1% in constant currency terms
compared with the prior year. After adding back one-off post-tax acquisition
transaction costs of $2.7 million, which under new accounting standard requirements
now have to be expensed and cannot be capitalised, constant currency NPAT growth
lifts to 5.0% compared with the prior year excluding the prior year impairment charge.
In reported terms, NPAT was down 4.5% compared with the prior year when
including the prior year’s impairment charge or down 8.9% when excluding this
impairment charge. Reported NPAT was adversely impacted by the unfavourable
effect of the continued appreciation of the AUD against the Group’s 16 functional
currencies, in particular against the USD and the Euro, relative to the prior year.
Earnings per share of 58.3 cents was down 15.8%, principally reflecting the lower
reported NPAT result and the increase in the weighted average number of shares on
issue following the prior year’s capital raising.
Directors declared a final ordinary dividend of 18.0 cents per share, franked to 50%.
This takes the full year dividend to 36.0 cents per share, representing a full year EPS
payout ratio of approximately 62%.
Total Group sales of $1.48 billion was flat in constant currency terms and down
11.2% in reported terms compared with the prior year, again reflecting the negative
impact of foreign exchange movements when translating the result into Australian
Gross margins strengthened to 54.4% from 53.2% in the prior year, reflecting a less
promotional retail environment, primarily in the USA.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) of
$253.3 million was down 0.9% in constant currency terms and down 11.1% in
reported terms compared with the prior year. There was significant improvement
across all regions in the second half, with EBITDA lifting 9.0% in constant currency
terms following a 9.5% first-half decline. EBITDA margins for the full year remained
steady at 17.1%.
Profit before tax, which was down 3.9% in the first half, lifted 24.6% in the second
half to finish the year up 8.9% in constant currency terms.
Cashflow from operations was up 6.6% on the prior year, driven by lower finance
cost payments. Overall the Group delivered a stronger cash flow result compared
with the prior year as demonstrated by net cash receipts from customers and
payments to third parties representing 100% of EBITDA compared with 91% for the
Working capital at $422.4 million represents 28.3% as a percentage of the prior 12
months sales stated at year-end exchange rates, being in line with the prior year.
All reported regional results were adversely impacted by foreign exchange
translation. In addition, EBITDA margins have been affected by the allocation of
global overhead costs (which include corporate overhead, international advertising
and promotion costs, central sourcing costs and foreign exchange movements) and
the allocation of these costs to each segment. The increase in global overhead costs
compared with the prior year is primarily attributable to foreign exchange movements
and a change in the accounting standards which require transaction costs
attributable to acquisitions to be expensed rather than capitalised as has historically
been the treatment.
European sales of $344.0 million were up 5.2% in constant currency terms, but down
11.3% in reported terms. European EBITDA of $69.8 million was up 5.1% in constant
currency terms, but down 15.2% in reported terms, while EBITDA margins of 20.3%
eased from 21.2% in the prior year. Excluding the allocation of global overhead
costs, EBITDA margins were slightly higher at 23.4% compared to 23.3% in the prior
Sales of $712.6 million in the Americas were down 1.2% in constant currency terms,
or down 14.8% in reported terms. EBITDA of $92.3 million was up 5.4% in constant
currency terms, but down 7.6% in reported terms. EBITDA margins in the Americas
improved, lifting in the second half to finish the year at 13.0% from 11.9% in the prior
year. Excluding the allocation of global overhead costs, the improvement in EBITDA
margins was stronger at 16.0% compared to 14.0% in the prior year.
Australasian sales of $425.7 million were down 1.9% in constant currency terms, or
down 4.2% in reported terms. Australasian EBITDA of $89.2 million was down 10.3%
in constant currency terms, or down 11.2% in reported terms, principally due to weak
trading results in Japan, New Zealand and South Africa. EBITDA margins in
Australasia were 20.9%, down from 22.6% in the prior year, due to the changing
regional mix and the aforementioned weak trading results in Japan, New Zealand
and South Africa. Excluding the allocation of global overhead costs, EBITDA margins
were slightly lower at 24.0% compared to 24.7% in the prior year.
Revenue from company-owned retail operations contributed approximately 24% of
the Group’s global sales, with the number of doors lifting to 380 (from 335 in the prior
year). Retail EBITDA margins improved to 10.9%, from 10.2% in the prior year,
despite the dilutionary impact of new store openings which were yet to achieve full
performance as evidenced by EBITDA margins for stores opened two years or longer
which improved to 14.6% (from 11.8% in the prior year).
The ongoing evolution of the global action sports industry has been accelerated by
the impact of the global financial crisis, which precipitated dramatic changes to the
global business and consumer environment. Evidence of this accelerated evolution
can be seen in the analysis by reporting segment below. The Billabong Group has
proactively responded to these changes by focusing on and executing long term
strategies to maximise future profitable growth opportunities for shareholders. Further
commentary regarding these strategies is contained in the Summary and Outlook
section of this presentation.
Sales in the Americas increased 3.2% in constant currency terms in the second half,
taking the full-year total to $712.6 million (down 1.2% from $721.6 million in the prior
year). EBITDA in the second half increased 11.6% in constant currency terms, which
was significantly ahead of sales and demonstrated operational improvements and
reduced promotional activity at retail, lifting the full-year EBITDA to $92.3 million (up
5.4% from $87.6 million in the prior year). Strengthening EBITDA margins in the
second half increased the full-year EBITDA margins to 13.0%, from 11.9% in the
prior year. In reported terms, sales declined 14.8% (from $836.8 million in the prior
year) and reported EBITDA was down 7.6%, on improved EBITDA margins, with both
reflecting the adverse translation impact of the continued strength of the Australian
dollar against the US dollar. Gross margins in the Americas lifted for the year.
The influential US market showed steady improvement through the year, although
progress was not uniform across the country. Some retailers returned to positive
same store sales growth in the latter part of the second half as the hangover from the
global financial crisis slowly eased, while tight credit conditions continued to
challenge some of the smaller specialty retail account base. Company-owned retail
banners all showed good EBITDA margin improvement, in particular Quiet Flight
where margins almost doubled to be in the mid teens. Overall, there was a shift
towards more normalised ordering patterns as the wholesale account base started to
reduce its reliance on price and value-based offers in favour of well merchandised
and historically proven product. Online sales through the acquired Swell business
grew strongly and, coupled with the existing online businesses of Nixon, VonZipper
and Sector 9, the Group is well positioned to service this emerging market.
Nixon was a standout performer in the region, achieving solid double-digit sales
growth, while DaKine also performed very well although there was an impact from
the transfer of sales to Europe following the conversion of distributor sales into
directly-controlled operations. Tigerlily continued to generate good interest in its push
into the US market, while the licensing of the Plan B skate brand midway through the
second half added further depth to the portfolio. Specialist wetsuit manufacturer Xcel
performed well in its market niche, while Honolua and Kustom both had good growth.
Both the Billabong and Element brands were adversely impacted by a continued
deterioration in sales to mall-based account Pacific Sunwear. Overall, Group sales to
Pacific Sunwear declined 40%. While Pacific Sunwear now only accounts for
approximately 6% of the Group’s North American sales, the retailer did start to
demonstrate a renewed interest in working with third party heritage brands and this
may prove to be a positive for the overall business. Excluding sales to Pacific
Sunwear, the Group’s North American sales increased in constant currency terms.
Product categories that showed strength included stretch boardshorts, tank tops,
woven shirts and outerwear for men. In women’s, fashion forward styles performed
particularly well and continued to distinguish branded apparel from that offered by
vertical price-point operators.
In general, the east coast outperformed the west coast, which experienced a slow
start to summer due to unseasonably cold weather. Retailers around the Gulf states
were also impacted by the protracted efforts to contain a major offshore oil spill and
the resultant erosion in visitor numbers to the region.
South America continued to perform very well, with Group sales lifting 10.6% in
constant currency terms on improved EBITDA margins. Brazil delivered a solid
performance, Peru improved and Chile’s early promise was affected by a devastating
earthquake which had a significant impact on business in the territory.
Within the Group’s company-owned store network, sales in North America were up
9.2% in constant currency terms. The stores showed a good recovery through the
year, with positive same store sales returning in several months in the second half.
The Group’s company-owned retail door count in the Americas remained unchanged
at 111, with 11 doors closed and 11 doors opened through the year. On 30 June
2010 the Group announced a bid for West 49, the Group’s largest retail account in
Canada. If successful, the acquisition will add 138 doors in the region and introduce
further retail management experience into the Group. The acquisition remains
subject to a vote of West 49 shareholders, subsequent court approvals and
customary closing conditions.
The Group anticipates that the modest improvements in trading conditions in the US
in the final quarter of the 2009-10 financial year will continue into the 2010-11
financial year. An ongoing focus on overhead costs and a less promotional retail
environment are expected to lead to continued improvement in EBITDA margins
within the Group’s wholesale business. A modest lift in revenues, tight cost controls
and the ongoing management of under-performing doors is also expected to lead to
further improvements in retail EBITDA margins. Forward orders for the Billabong
brand are up on the prior year following good performances in both the men’s and
girl’s businesses. While street skate hardware has been soft, the Element brand has
been performing well and continues to gain market share. Nixon, Sector 9 and
VonZipper are performing strongly and DaKine, which experienced production and
shipping delays out of China towards the end of the financial year, is indenting well.
The recent addition of the RVCA brand is also expected to make a strong
contribution to the region. The Group’s own retail store performance was promising in
July, with positive same store sales across multiple banners.
Sales in Europe lifted 7.6% in constant currency terms in the second half, taking full
year sales to $344.0 million, an increase of 5.2% over the prior year. EBITDA was up
13.9% in the second half in constant currency terms, lifting full-year EBITDA to $69.8
million (up 5.1% from $66.4 million in the prior year). EBITDA margins improved
slightly in the second half, taking the full-year EBITDA margins to 20.3% from 21.2%
in the prior year. In reported terms, sales were down 11.3% (from $388.0 million in
the prior year) reflecting the adverse translation impact of the continued strength of
the Australian dollar against the Euro. Reported EBITDA was down 15.2% (from
$82.4 million in the prior year). Gross margins in Europe remained steady.
The Group performed strongly in the second half in Europe, driven by DaKine,
despite capacity constraints and shipping delays out of China and the general
economic uncertainty created by the European region’s sovereign debt issues. There
was double-digit sales growth in Central Europe, with Germany showing strong
momentum across all brands and good growth recorded in smaller territories such as
Austria and Belgium. Sales in France were also up. The southern European market
was impacted by the effects of the regional economic slowdown, with Italy and Spain
showing double-digit sales declines. The United Kingdom was challenging in the
latter part of the year, with a general decrease in store traffic across the core
distribution channel. Scandinavia and the Eastern Countries, while showing some
signs of recovery in the later part of the financial year, experienced slight sales
At a brand level, Nixon, Xcel and Element each experienced good growth, while the
conversion of some of DaKine’s European distributor business into direct-sales
operations in the second half contributed to a strong performance for the brand. In
the absence of the direct sales for DaKine, overall sales growth for the Group would
have been slightly negative in Europe. Sales of the Billabong brand were the most
impacted in the region, with double-digit falls in the markets of Spain and Italy, but
good growth in Central Europe. Nixon and Xcel performed strongly in all European
territories off a low base. Element experienced strong sales throughout Europe,
although its growth was tempered by the challenging economic conditions in Italy and
Key products through the period included the Group’s technical range of snowboard
outerwear and wetsuits, which showed double-digit sales growth and reflected the
increased number of active boardsport participants in Europe. Erratic weather
patterns across Europe resulted in a late start for both summer and winter and this
impacted boardshort sales. The t-shirt category continued to show good momentum
and accessories performed strongly, particularly the backpack segment, while the
girl’s market remained challenging.
Company-owned retail operations in Europe delivered a strong performance. In
constant currency terms, total sales were up 18.2%, with positive same-store sales
achieved in most months. The number of company-owned doors lifted to 103, from
81 in the prior year, with 28 doors opened and six closed in the period. The new
doors included the opening of 14 branded shop-in-shop concepts in Spain, while the
integration of the local distributor in the Czech Republic included a six door retail
business. New openings in the UK under the Two Seasons banner performed well.
Overall, there were improved performances across the Group’s retail operations in
The Group continues to perform well in Europe and this is expected to see the
business maintain its strong growth profile in the region. Changes are being
introduced throughout the business to allow it to support greater speed to market and
therefore accommodate the needs of the growing company-owned retail base. The
Billabong brand is experiencing the greatest competition, much of it supported by
brands offering significant promotional opportunities to the boardsports account base.
Element is performing very well, capturing the urban skate trends that are emerging
in southern Europe, while Nixon, DaKine and VonZipper are each showing strong
reorders. The RVCA brand, which has very low presence but increasingly strong
demand in Europe, will be transitioned from a licensee operation to direct sales from
Sales in Australasia were down 1.9% in constant currency terms or 4.2% in reported
terms to $425.7 million (down from $444.3 million in the prior year). After being down
14.0% in the first half, EBITDA recovered in the second half to finish 10.3% lower
across the full year in constant currency terms or 11.2% in reported terms to $89.2
million (down from $100.4 million in the prior year). The continued change in regional
mix within the Australasian region, combined with weak trading results in Japan, New
Zealand and South Africa, saw EBITDA margins drop to 20.9% from 22.6% in the
prior year, while gross margins remained steady.
On a regional level, sales in Australia were marginally higher across the full financial
year but there was a sharp deterioration in trading conditions in the final quarter. This
reflected a general consumer slowdown post the cycling of the Federal Government’s
fiscal stimulus of the prior year. Continued weak trading conditions, coupled with a
retail and consumer focus on merchandise relevant to the soccer World Cup, led to a
double-digit sales decline in South Africa. Elsewhere in the region, Group sales in
Japan lifted in the second half to finish in line with the prior year in constant currency
terms, while New Zealand remained challenging and ended the year down in the mid
single-digit range. The Group’s Asian businesses continued to develop, with good
initial results from direct operations established in Korea and Thailand. A distributor
was also appointed in Taiwan through the period and this led to the opening of a
retail door in Taipai just after the close of the period.
Eyewear brand VonZipper and Tigerlily experienced solid sales growth in
Australasia, while DaKine, Xcel and Sector 9 had very strong growth off a lower
base. Element experienced a slight decline in sales, as did the Billabong brand as
sales slowed in the final three months of the year in Australia, in particular. Despite
the retail contraction in the second half, overall inventory levels continued to improve
and are expected to further benefit from a move towards more global styles, reduced
range sizes and the introduction of a new global product lifecycle management
Company-owned retail operations in Australasia recorded sales growth of 5.9% in
constant currency terms. The number of Company-owned retail stores lifted to 166
(from 143 in the prior year), with 13 doors closed and 36 opened. The majority of new
doors were opened in Australia, where the door count lifted to 41 (from 29 in the prior
year). Company-owned retail in Australia performed strongly in the first half but sales
declined in the double-digit range in the second half, with locations relying on tourism
being most heavily impacted. A new Tigerlily store concept was introduced at
locations including Chadstone, Melbourne Central and Warringah Mall in Sydney and
all performed very well. A new IT system was introduced into the Group’s Australian
retail operations and is expected to be progressively rolled out into New Zealand and
Asia. Since the close of the financial year, the Group also entered a joint venture with
the two door Surfection retail business in Sydney. Surfection will continue to be run
by its principal, Chris Athas, and he will drive a planned expansion of the banner.
Additionally, the Group today announced a conditional agreement to acquire the 36-
door Rush Surf chain, primarily based in regional Queensland. Other planned store
openings include a Billabong concept store in the Sydney CBD and a 500 square
metre multi-branded store on premises adjoining Billabong’s head office on the Gold
Coast. In online retailing, the acquisition of an interest in Surfstitch, Australia’s
premier online retailer for the boardsports community, is performing well and is
helping the Group satisfy the growing demand for direct-to-consumer sales.
The sharp consumer slowdown evident in Australia in the final three months of the
financial year created caution within the Group’s wholesale account base and this
has been reflected in declines in the range of 20% for summer and hi-summer
forward orders, which is also expected to lead to a soft winter order book. It is
anticipated many retailers will be short on inventory and will have to chase product in
season. The Australian business is expected to benefit from the distribution of the
licensed footwear brands DVS and Lakai, the extraction of synergies from the
addition of acquired retail banners and the purchase of the RVCA brand. The
addition of RVCA is generating excellent interest at retail and significant investment
will be made into the brand to ensure it realises its long term potential. Business in
New Zealand, while still soft, is showing signs of improvement and the Group
recorded positive same store sales in the month of July 2010. South Africa remains a
challenging market, while business continues to develop in south-east Asia. The
Group has reached agreement to establish a new joint venture in China in
preparation for the Billabong brand’s entry into the market. Initial entry is through a
series of shop-in-shop concepts, the first of which have opened in the southern China
provinces of Shenzen and Guangzhou.
Summary and Outlook
Billabong International Limited has historically demonstrated its willingness to evolve
and adapt its business model to accommodate the changing competitive environment
and broader economic landscape. In recent times, the Group has been exposed to
extreme swings in foreign exchange rates, regional economic shocks and related
consumer slowdowns, discounting from competitors and supply chain pricing
The Billabong Group’s response to these challenges has been to progressively build
its brand portfolio and retail expertise over the past 10 years. The global consumer
slowdown of the past 18 months, combined with the growth of vertical private label
products and increased margin demands from larger retailers in particular, has
highlighted the need to accelerate these changes, particularly at a retail level in order
to protect and preserve the Group’s route to market.
This dynamic has resulted in various proactive strategies being focused on and
executed by the Group, including:
- Fast-tracking growth of the Group’s direct-to-consumer model through both
bricks and mortar retail and online retail, including:
o the acquisition of the West 49 retail business in Canada (which
remains subject to approvals), conditional agreement to acquire the
Rush Surf chain in Australia, the acquisition of a number of smaller
heritage retailers including Becker Surf and Sport in the US, Bay
Action in Australia and, through a joint venture, Surfection in Australia;
o the acquisition of swell.com and an interest in surfstitch.com online
o the opening of greenfield retail stores.
These initiatives afford further ability to provide the end consumer with access
to the Group’s compelling brand portfolio and, while they are expected to
contribute only marginally to the Group’s 2010-11 financial results, they
reinforce the foundations on which the future growth of the business will be
built. In revenue terms, the retail acquisitions are expected to lift the
company-owned retail contribution to Group sales to approximately 35% in
2010-11, while positive contributions to EBITDA margins are expected to flow
from the 2011-12 financial year onwards as the stores lift their percentage of
company-owned brands, while maintaining support of compelling third-party
brands in a multi-brand retail environment.
- Extension of the Group’s already strong brand portfolio with the acquisition of
the dynamic RVCA brand. RVCA is widely viewed as one of the most exciting
brands to emerge from within the boardsports sector and its growth
opportunities, both within the boardsports market and as a brand that bridges
the gap into the wider street and youth market, are considerable.
- Implementation of a new global product lifecycle management system to
better manage and leverage the global product design, sampling and
- Ongoing adjustments to overhead costs throughout the business to better
reflect the changing dynamic and balance between wholesale and retail
- Formation of new media partnerships and strategic alliances to capitalise on
the growing use of social media and the convergence of the internet and
television. By way of example, these included an association with Fuel TV
8 which facilitated the live broadcast of major events on television in countries
including Australia, Brazil, Portugal and Germany and packaged feeds into
countries including the USA.
- Renegotiation of the Group’s Syndicated Revolving Multi-Currency Facility to
increase the total facility balance from US$483.5 million to US$790.0 million.
The renegotiation of this facility provides the Group with improved tenor,
lower borrowing margins compared to those available when the Group rolledover
a portion of the facility on 11 August 2009, the capacity to fund the forecast requirements of the Group over the four year business plan period, while retaining conservative headroom available under the facility over this period.
While the Group has been proactive in executing the above strategies, there remain
a number of constants – including a commitment to brand authenticity and integrity,
the preservation of the specialty retail account base and a set of rigorous financial
metrics that serve as guiding principles for the business. These metrics include the
aspiration to achieve and maintain strong wholesale and retail EBITDA margins,
ongoing improvements to pre-tax return on capital employed relative to the Group’s
pre-tax cost of capital, conservative gearing and the maintenance of appropriate
financing headroom. Commitment to each of these is expected to drive strong
business performance over time for the benefit of shareholders.
Looking ahead, in the absence of any further unforeseen, exceptional circumstances
impacting the global boardsports market, the Group is providing a range within which
it expects to perform in the 2010-11 financial year. At this time, NPAT in constant
currency terms is expected to grow in the range of 2% to 8% compared with the prior
year as an improving outlook in the Americas and continued strength in Europe is
offset by a challenging market in the key territory of Australia. This earnings
guidance, which reflects a reasonably flat expected EBIT result, higher interest costs
and a lower effective tax rate, is expressed as a range due to continued volatility in
the global markets in which the Group operates, in particular the Australian consumer
The Company views the 2010-11 financial year as a transition year, with various
strategic moves enhancing its route to market to deliver its target consumer the
compelling branded portfolio offer that the Company has developed over the past 10
Thereafter, as the anticipated global recovery gradually takes hold, and given the
successful execution of various strategic and operational initiatives, the Group
expects to return, in the absence of further unforeseen, exceptional circumstances, to
more historic EPS growth rates in excess of 10% per annum in constant currency
Presentation by Craig White
Billabong International’s Chief Financial Officer
The following commentary should be read in conjunction with the attached tables.
Table 1: Consolidated Results
- As previously stated, net profit after tax (NPAT) for the year ended 30 June 2010
was $146.0 million, an increase of 8.1% in constant currency terms (a decrease
of 4.5% in reported terms) compared with the 2008-09 year (the prior year).
Excluding the after tax impact of an impairment charge expense of $7.4 million in
the prior year, NPAT for the year ended 30 June 2010 increased 3.1% in constant
currency terms (decreased 8.9% in reported terms) compared with the prior year.
After adding back one-off post-tax acquisition transaction costs of $2.7 million,
which under new accounting standard requirements now have to be expensed
and cannot be capitalised, constant currency NPAT growth lifts to 5.0%
compared with the prior year excluding the prior year impairment charge.
Reported NPAT was adversely impacted in particular by the unfavourable effect
of the appreciation of the AUD against the USD and the Euro relative to the prior
year, generally softer trading conditions at a consumer level, especially in North
America, Japan, New Zealand and South Africa, offset in part by overhead
reductions across the business.
The components of this result include:
- Group sales revenue of $1,482.3 million, excluding third party royalties, was
in line with the prior year in constant currency terms (down 11.2% in reported
- Consolidated gross margins strengthened to 54.4% compared with the prior
year’s 53.2%, reflecting improved gross margins in North America in a less
- Group EBITDA of $253.3 million represented a decrease of 0.9% in constant
currency terms (a decrease of 11.1% in reported terms) compared with the
prior year principally reflecting the unfavourable impact of the appreciation of
the AUD against the USD and the Euro relative to the prior year and the
generally soft trading environment.
- The consolidated EBITDA margin of 17.1% was in line with the prior year.
- In addition to the specific factors discussed by reporting segment in the
CEO’s presentation, EBITDA margins have been affected by the allocation of
global overhead costs (which include corporate overhead, international
advertising and promotion costs, central sourcing costs and foreign exchange
movements) and the allocation of these costs to each segment. The increase
in global overhead costs compared with the prior year is primarily attributable
to foreign exchange movements and a change in the accounting standards
which require transaction costs attributable to acquisitions to be expensed
rather than capitalised as has historically been the treatment.
- Earnings per share was 58.3 cents, a decrease of 15.8% over the prior year (69.2
cents). This reduction principally reflects the lower reported NPAT result, which
was adversely impacted by the appreciation of the AUD as noted above, and an
increase in the weighted average number of shares on issue following the prior
year’s capital raising.
- Return on average equity was 12.2% (2009: 15.5%).
Table 2: Depreciation, Amortisation, Impairment Charge, Net Interest Expense
and Tax Expense
- Depreciation and amortisation expense decrease of 6.7% in reported terms
(increase of 5.8% in constant currency terms) was principally driven by both
acquisitions and retail store expansion.
- There is no impairment charge expense in the year ended 30 June 2010 however
in the prior year, as a result of the impairment review of retail store assets, certain
assets were written down to their recoverable amount, being their value-in-use.
For the prior year, this resulted in a pre-tax impairment charge in respect of retail
stores which amounted to $9.5 million (constant currency $8.3 million).
- The decrease in net interest expense of 52.7% in reported terms (45.9% in
constant currency terms) compared with the prior year was principally driven by a
reduction in borrowings as a result of the repayment of debt from the proceeds
received from the capital raising announced in May 2009, together with several
initiatives which have been implemented to improve treasury management
efficiency across the Group.
- The income tax expense for the year ended 30 June 2010 is $57.9 million (2009:
$53.2 million), an effective rate of tax of 28.5% (2008: 25.8%). The higher
effective tax rate reflects the impact of several one-off tax adjustments included in
the prior year. Adjusting for these one-off tax adjustments, the effective tax rate
in the prior year would have been approximately 28.0%.
- In addition to the bilateral Advanced Pricing Agreement the Group has in place
with both the Australian Tax Office and the United States Internal Revenue
Service, on 2 July 2009 a unilateral Advanced Pricing Agreement was entered
into with the French Taxation Authority in France in relation to the royalty rate
used by GSM (Europe) Pty Ltd for the right to use certain Group brands and
trademarks. This agreement will cover the period 1 July 2006 to 30 June 2011
and provides certainty for the Group in respect of royalties being paid in
accordance with French transfer pricing rules and regulations.
Table 3: Balance Sheet
- Working capital at $422.4 million represents 28.3% as a percentage of the prior
twelve months’ sales stated at year end exchange rates, being in line with the
- The doubtful debts provision at $21.5 million is considered to be conservative and
should be sufficient to meet the Group’s requirements.
- Net debt decreased 3.7% to $216.7 million over the prior year.
- The Group has a conservative gearing ratio (net debt to net debt plus equity) of
15.1% (16.0% in the prior year).
- Interest cover remains strong at 12.6 times (2009: 7.1 times).
- On 4 August 2010, the Group renegotiated its Syndicated Revolving Multi-
Currency Facility which included:
o an increase in the total facility balance from US$483.5 million to US$790.0
million to be split equally between the two tranches under the facility;
o an extension to 1 July 2013 of the three year tranche of the facility, to
remain a three year facility; and
o an extension to 1 July 2014 of the three year tranche of the facility, to
become a four year facility.
The renegotiation of this facility provides the Group with improved tenor, lower
borrowing margins compared to those available when the Group rolled-over a
portion of the facility on 11 August 2009, the capacity to fund the forecast
requirements of the Group over the four year business plan period, while
retaining conservative headroom available under the facility over this period.
- The Dividend Reinvestment Plan (“DRP”) was approved by the Directors on 21
August 2008. For the final dividend to be paid on 22 October 2010, the DRP is
optional and offers ordinary shareholders the opportunity to acquire fully paid
ordinary shares which rank equally with all other shares issued, without
transaction costs, at the prevailing market value. A shareholder can elect to
participate in or terminate their involvement in the DRP in respect of the 2010
final dividend at any time prior to the record date of 24 September 2010. The
DRP in relation to the 2010 final dividend will not be underwritten. The terms of
the DRP may be varied for future dividends beyond the final dividend for the year
ended 30 June 2010.
- The unfranked portion of the final ordinary dividend to be paid on 22 October
2010 is declared to be conduit foreign income. Australian dividend withholding
tax is not payable by non-resident shareholders on the unfranked portion of the
dividend sourced from conduit foreign income.
Table 4: Cash Flow Statement
- Cash flow from operations of $187.2 million represents a 6.6% increase over the
prior year driven by lower finance cost payments. Net cash receipts of $252.1
million are slightly lower than the prior year reflecting the lower reported EBITDA
result. Overall the Group delivered a stronger cash flow result compared with the
prior year as demonstrated by net cash receipts from customers and payments to
third parties representing 100% of EBITDA compared with 91% for the prior year.
- Cash outflow from investing activities of $105.8 million was in accordance with
expectations and includes the acquisition of the United States based online
boardsports retailer swell.com as announced on 24 November 2009, the
acquisition of an interest in the Australian based online boardsports retailer
surfstitch.com as announced on 23 December 2009, the second instalment
payment for the DaKine acquisition and investment in owned retail globally.
The following tables should be read in conjunction with the presentation by
Billabong’s Chief Executive Officer and presentation by Billabong’s Chief
Financial Officer as set out in the Full Year Results Summary.
Depreciation, Amortisation, Impairment Charge, Net Interest Expense and Tax Expense
Cash Flow Statement
SEGMENT & BRAND RESULTS
Note: Segment Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) excludes
inter-company royalties and sourcing fees and includes an allocation of global overhead costs
(which include corporate overhead, international advertising and promotion costs, central
sourcing costs and foreign exchange movements). Consistent with prior reporting periods
global overhead costs have been allocated to each segment based on each segment’s sales
as a proportion of Group sales.
2010 FX Impacts
- The current policy of hedging purchases, but not profit translation, remains unchanged.
- The short term impact of currency movements on the 2010 full-year result (profit translation) is
1 cent increase in the average monthly rate for the AUD against the
USD = decrease NPAT by 0.3%
EURO = decrease NPAT by 0.7%