It's been a horrid few years for shareholders in surfwear company Billabong International Limited (ASX: BBG), with the share price declining by over 90% in the past five years and at times the company looking like it wouldn't survive. An upcoming vote on 30 January to approve the issue of equity to a consortium of financial backers is seen as the final step in securing the long-term financing requirements of the company, and properly setting it on a path to improved operating performance.
1) Business stabilising
In financial-year (FY) 2013 the company showed signs of stabilising. Based on management's 'adjusted' figures, earnings before interest, tax, depreciation, amortisation and impairment (Adjusted EDITDAI) in the Australasia and Americas regions improved slightly on FY 2012 when discontinued operations are excluded. The European region however experienced a heavy fall in profitability.
The sale of the Nixon and DaKine brands has helped to restore some stability to the balance sheet through the lowering of debt and the significant write-offs and impairments taken have hopefully finished. A similar strategy of asset sales and streamlining was undertaken a few years ago at fellow wholesaler and retailer Pacific Brands Limited (ASX: PBG).
2) Backtracking on retail store expansion
Under previous management Billabong embarked on a move from wholesaler to retailer. This resulted in the number of retail stores globally swelling to 677 by December 2011. Since then a strategy to rationalise and exit underperforming stores has commenced. As at 30 June 2013, retail store numbers were down to 562.
3) Private equity in the box seat
Since June 2012 Billabong has received numerous conditional and non-binding bids from interested parties along with a number of separate refinancing proposals.
Through this series of engagements with interested parties Billabong ultimately entered into a binding agreement with Centerbridge and Oaktree (C/O Consortium) to recapitalise the company. This has led to a proposal being put to shareholders at an upcoming general meeting, should the motions be approved then it is expected that the C/O Consortium will own approximately 40% of Billabong. Interestingly, Oaktree also manoeuvred itself into a favourable position prior during the recent float of Nine Entertainment Co Holdings Ltd (ASX: NEC).
Foolish takeaway
Shareholders shouldn't expect dividends any time soon. Once the refinancing and recapitalisation of the company is complete however, the business should be standing on more solid ground. With revenues of around $1.3 billion and ownership of some well-recognised brands, Billabong's future may indeed be better than its immediate past.
