Billabong’s $500 million dumper

Billabong's $500 million dumper

Surfwear maker takes writedowns of $567 million

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published February 22, 2013 10:20 am AEDT

Surfwear maker, Billabong International (ASX: BBG) has reported a $537 million loss for the six months to December 2012, after including impairment charges, and other writedowns of $567 million.

Billabong wrote down the value of its investment in Nixon by $107 million, and took a $428 million impairment on goodwill and brands. The company has now written off around $1 billion from intangible assets over the past 12 months – mainly the result of a string of overvalued acquisitions.

Excluding significant items, net profit for the half year halved from $38 million in 2011 to $19 million in 2012. Profit was hit by falling earnings in Europe and the Americas, primarily as a result of store closures and weak trading conditions in Europe.

Having previously guided to full year earnings before interest, tax, depreciation and amortisation (EBITDA) of between $85 to $92 million, Billabong has now revised that forecast down to between $74 to $85 million, before significant items.

Like Fairfax Media Holdings (ASX: FXJ), APN News & Media Limited (ASX: APN), and Seven West Media (ASX: SWM), Billabong has been forced to restructure its business. The company has been closing unprofitable stores, cutting the number of its suppliers and improving its e-commerce platforms and infrastructure, as it faces increasing competition from online only retailers.

Foolish takeaway

Despite having two takeover offers on the table at $1.10 per share, investors have punished Billabong over today's results, with shares falling more than 4% to less than 90 cents at lunch time. The takeover overs are expected to finalised next month, but given recent disappointing results, it appears they are less likely to go ahead.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Billabong and Fairfax.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.