BILLABONG INTERNAtional limited abn 17 084 923 946 FULL FINANCIAL REPORT SHAREHOLDER REVIEW 2013/2014 CORPORATE DIRECTORY PRINCIPAL AND AUDITORS REGISTERED OFFICE PRICEWATERHOUSECOOPERS 1 BILLABONG PLACE, Riverside Centre BURLEIGH HEADS QLD 4220 123 Eagle Street AUSTRALIA Brisbane QLD 4000 TELEPHONE: +61 7 5589 9899 FACSIMILE: +61 7 5589 9800 SOLICITORS ALLENS LINKLATERS: POSTAL ADDRESS Level 28, Deutsche Bank Place PO BOX 283 Corner of Hunter & Phillip Streets BURLEIGH HEADS QLD 4220 Sydney NSW 2000 AUSTRALIA CLAYTON UTZ: Level 28 Riparian Plaza INTERNET 71 Eagle Street CORPORATE: www.billabongbiz.com Brisbane QLD 4000 MARKETING: www.billabong.com MINTER ELLISON: 165 Varsity Parade SHARE REGISTRY Varsity Lakes QLD 4227 COMPUTERSHARE INVESTOR SER- VICES PTY LIMITED STOCK EXCHANGE LISTING GPO Box 2975 Billabong International Limited shares MELBOURNE VIC 3001 are listed on the Australian Securities Telephone Australia: 1300 850 505 Exchange (ASX). The home branch is Telephone International: +61 3 9415 4000 Sydney. Facsimile: +61 3 9473 2500 Email: [email protected] Ticker: BBG. CONTENTS CHairman’S REPORT 02 CEO REPORT 04 COMPANY OVERVIEW 06 BRAND REVIEWS 08 RETAIL 14 FULL FINANCIAL REPORT 17 1 CHAIRMAN’S REPORT In the 2013/14 financial year, three linked sequences of events reset Billabong’s After six years as a Director, Tony Froggatt also retired from the Board as did course after a long period of uncertainty, and together provide the foundations Collette Paull, a Board member since the Billabong float in 2000. for the long term success of the Company. I wish to thank Tony for his contribution, particularly as the Company navigated The first event was the recapitalisation agreement with cornerstone investors change and uncertainty, and to acknowledge the service of Collette, not Centerbridge and Oaktree announced in September 2013 that led to the rights only as a Director but also as one of Billabong’s founding employees and issue and share placement in early 2014, collectively resolving the ownership of most passionate advocates. the Company, underpinning the balance sheet and substantially reducing our net debt. Joining the Board last September were Jason Mozingo and Matt Wilson. Both are based in the US, one of our largest and most important markets. The second was the appointment of Neil Fiske as our CEO in September 2013 and the subsequent internal and external appointments to complete his team of Jason is a Senior Managing Director at Centerbridge Partners and leads the direct reports. firm’s retail and consumer investment efforts. The third was Neil’s announcement in December 2013 of his seven-part turnaround Matt is a Managing Director at Oaktree Capital Management and leads their strategy and the subsequent progress in its implementation. retail and consumer investing efforts, including investments in the apparel, retail, consumer products, food, beverage and restaurant sectors. There is now clarity of purpose across Billabong globally as we take on the con- siderable challenge of rebuilding the business to support our world-class brands. Along with fellow Directors Gordon Merchant, Sally Pitkin, Howard Mowlem, Neil Fiske and myself, we now have in place a Board that brings together an In this, my second report to shareholders, I have detailed these developments, as appropriate mix of brand, apparel, retail and financial expertise; together with they are the foundations for the long-term success of Billabong. an international outlook. I am delighted with the way the new Board has come together in a short period of time and is working together very constructively RECAPITALISATION OF THE COMPANY and with unity of purpose. At our Annual General Meeting in December 2013, I detailed to shareholders the transactional process the Company had stepped through to underpin its A sound FINANCIAL BASE financial stability and therefore its future. This included the sale of DaKine to the Following shareholder approval in January 2014, the Company conducted an Altamont Consortium and the Board’s decision to recommend to shareholders A$50 million rights issue. the Centerbridge and Oaktree consortium’s (C/O or C/O consortium) unconditional refinancing proposal over that of Altamont. Under the offer, eligible shareholders were invited to participate, pro-rata to their existing holdings, by subscribing for three new Billabong ordinary Among the key rationale for this recommendation was that: shares for every eight existing Billabong ordinary shares at a price of A$0.28 per new share. This price compared favourably to A$0.41 per share for the • The debt component of the C/O proposal provided longer term funding placement to the C/O Consortium. over six years, lower interest rates and greater flexibility. • The equity component of the proposal ensured that all shareholders were The offer attracted strong demand, with eligible institutional shareholders invested in the same class of equity, and that the business had the financial electing to take up approximately 95% of the new shares available to them and flexibility it required with lower overall risk of future financial constraints. eligible retail shareholders 77%, with the shortfall being taken up in subsequent • Importantly, the proposal provided an opportunity for existing shareholders book builds. to acquire shares at 28 cents through a rights issue, compared with the 41 cent price for the placement to C/O. This rights offer, along with the placement to the C/O Consortium and its long • Finally the agreement with the C/O consortium brought to us a CEO in term refinancing package, provided the Group a significantly restructured and Neil Fiske who had proven brand, retail and turnaround experience. solid balance sheet and the financial headroom to undertake the strategic turnaround. Announced to the market and shareholders on 19 September 2013, and subsequently approved by shareholders, the recapitalisation agreement brought Pleasingly the successful rights offer provided our existing shareholders, including our stability to Billabong for the first time in well over a year. retail shareholders, an opportunity to participate in that turnaround. A new strategy and business simplification. It was also the launch point for a period of significant change and renewal across the Group, including at Board level. At our Annual General Meeting in December, little more than 12 weeks after he commenced, CEO Neil Fiske detailed his seven-part turnaround strategy. BOARD CHANGES Following the agreement with C/O, Altamont nominees Jesse Rogers and Neil provides more detail on this strategy in his CEO Report but it is appropriate Keoni Schwartz stood down from the Board. I wish to acknowledge the con- that I provide an overview as to its impact to date across the Group. structive and professional manner in which they and Altamont conducted all their interactions with the Group. In the first week of his appointment, I travelled with Neil and our CFO Peter Myers to our operations in the United States, Europe and Australia. 2 For Peter and I, who along with the rest of the Board and management team brand” strategy, especially where we lack scale. had been totally focused on securing the Company’s future since we arrived at Billabong less than a year earlier, it was also our first opportunity to travel to and These transactions have been managed in a constructive manner that has seen meet with the team in the US and Europe. us retain wholesale relationships with the respective business’ new owners. In those first meetings Neil articulated to our employees a path ahead, a case for OUTLOOK AND DIVIDEND change and a commitment to our brands’ core values. In putting together my first Chairman’s report in September 2013, I was, for the first time in many months, in a position to tell our shareholders who our cornerstone The brand founders of Billabong, RVCA, Element and Von Zipper have all investors and CEO would be, how our balance sheet would be repaired, the steps committed to stay with the Company and endorsed Neil’s strategy. Former needed to achieve that and how it paved the way for a new strategic direction. surfing world champion Joel Parkinson also re-signed to Billabong along with highly regarded teen surfer Jack Robinson, who chose Billabong over Writing 12 months on, the Group is, through these developments, in a far, far offers from our competitors. stronger position. Within a few months of the public announcement of the seven-part strategy in Yet as noted earlier, the need for change remains and the scale of the challenge December 2013, Neil had put in place a new global organisational structure and before us is substantial. Collectively, our Asia-Pacific and European operations executive team to align with the new “brand led” strategy. continue to perform broadly in line with our expectations, however we continue to face major issues in the Americas. In this important market, we are making This has meant a significant change for the organisation, moving away from the sound progress with Billabong and RVCA, but continue to address the effects regionally dominant structure that had been in place at Billabong for many years of a number of legacy issues following the Group’s period of uncertainty, as well and that had inhibited both the development of global strategies for our brands as macroeconomic challenges in key market segments such as Canada. and structural efficiencies for the business. Across the Group, all the changes that have taken place and the restructuring There has been significant and necessary structural and personnel change but and strategic initiatives that will continue for some time yet, will take time to flow throughout that process there has remained a continued focus on our customers through to the financial results. and their needs. But let’s be clear – Billabong has to change and there remains considerable change ahead if we are to restore the fortunes of this company.