As we know, the currency exchange rate is very important for any company that wants to do business internationally. And the Billabong Australian company is no exception. In fact, the company has been hit hard by the falling value of the Australian dollar.
So what exactly happened?
Well, back in 2012, the company had to close down its US operations due to the high costs associated with the strong US dollar. Then, in 2015, it was forced to sell off its iconic surf brands—Quiksilver and Roxy—for a fraction of their previous value because they were simply too expensive to produce.
Now, with the Australian dollar worth less than 70 US cents, the company is in real trouble. In its most recent financial results, Billabong reported a loss of AUD$132 million.
So what does the future hold for the company?
Well, it’s hard to say. The falling value of the Australian dollar is certainly not helping matters. But at the same time, the company is taking steps to cut costs and streamline its operations. Only time will tell if these measures are enough to keep Billabong afloat.
Billabong, an Australian company that creates surf apparel ranging from wet suites and board shorts to T-shirts and watches. Though the majority of their sales (80%) come incredibly from outside Australia, about half of all overseas revenue comes from the United States alone.
Therefore, a crucial element to Billabong’s success is a strong U.S dollar in relation to the Australian dollar; otherwise, they have to wait for profits to slowly funnel in as was the case during 2008-2009 when the Australian dollar rapidly weakened..
Currency gains can help a company increase their profits and Billabong was counting on this. However, things did not go as planned. Instead of the dollar weakening further, it actually strengthened against the Australian dollar. This put Billabong in a difficult position because they had to sell their products for less than what it cost them to produce them. In order to offset some of their losses, they started selling off some of their assets and closed down some stores.
Despite these measures, Billabong still reported a loss for the 2009-2010 fiscal year and things have been tough for them ever since. The company is currently trying to restructure and get back on track, but it will be an uphill battle. Currency fluctuations are always a risk for companies that do a lot of business overseas, and it’s something that Billabong has learned the hard way.
Due to the rise in Australian exports and the sale of U.S. dollars, the Australian dollar strengthened dramatically, eliminating any price advantage Billabong had. A one-cent movement in the U.S./Australian dollar exchange rate translates to a 0.6 percent change in profit for Billabong. The value of the Australian dollar increased by 10% in 2009, according to Billabong’s predictions for a 10% drop in profits.
The company had to close some of its stores and factories. The CEO of Billabong, Derek O’Neill, said that “the company was prepared to weather the tough times” but in May 2012 he announced his resignation. In 2013 Billabong sold its minority share in its US subsidiary for $325 million. The new CEO, Neil Fiske, has embarked on a turnaround strategy which includes reducing the number of stores, cutting costs and selling off non-core businesses. In 2016 the company was delisted from the Australian Stock Exchange after it was taken over by a consortium of investors.
Despite all these troubles Billabong is still one of the most recognizable brands in the world and is especially popular in Australia, Europe and the United States.
Billabong relied exclusively on the foreign exchange market, with about half of its annual sales coming from there. When the U.S. dollar rises against the Australian dollar, it makes their goods more costly in the United States. When product prices fall, revenue and profit rise for Billabong.
However, in 2011 the Australian dollar was at its peak, which caused Billabong’s product to become expensive in U.S. and company’s sales started to decrease. The market trend has been slowly changing and it seems that the United States is getting stronger, so if this market trend continues, Billabong should start selling more of its products in Australia and look for other markets to expand their business. Currency risk is always present and companies have to be aware of it when they are doing business internationally.
– Currency: Currency is defined as anything that is used as a medium of exchange.
– Exchange rate: The rate at which one currency will be exchanged for another.
– Company: A commercial business organization. In this case, Billabong is an Australian company.
Every penny move in the US/Australian dollar exchange rate is responsible for a 0.6 percent increase in earnings, according to the company’s CEO. Australian dollar rises in value when compared to exchanged U.S. dollars, causing Billabong products’ prices to rise as well, resulting in lower sales and then profit.
For the 2015-2016 fiscal year, Billabong has hedged 65 percent of its product at an Australian dollar rate of 77 US cents.
The company plans to close some stores and reduce the number of products it sells in order to improve its profit margins. It also plans to focus on selling more expensive items.
Billabong is an Australian company that designs, manufactures, and markets clothing and accessories. The company was founded in 1973 by Gordon and Rena Merchant and is headquartered in Burleigh Heads, Queensland. Billabong is a public company listed on the Australian Securities Exchange (ASX: BBG). As of 2016, the company had a market capitalization of A$883 million.
In February 2012, Billabong received a takeover offer from two private equity firms, TPG Capital and Bain Capital, valued at A$850 million. The takeover offer was rejected by the Billabong board of directors.
In February 2013, Billabong announced it had entered into a binding agreement to sell its DaKine business to Westgate Manufacturing Corporation for US$70 million. The sale was completed in April 2013.
In January 2014, Billabong announced it had reached an agreement to sell its EleVen brand to Bluestar Alliance for US$13 million. The sale was completed in March 2014.
In August 2014, Billabong announced it had agreed to sell its RVCA brand to Affliction Clothing for US$80 million. The sale was completed in October 2014.
In November 2015, Billabong announced it was in talks with Altamont Capital Partners and Centerbridge Partners about a possible takeover bid. In February 2016, Billabong received a revised takeover offer from Altamont and Centerbridge valued at A$693 million. The takeover offer was accepted by the Billabong board of directors in March 2016. The acquisition was completed in April 2016.
As of 2016, Billabong operated two brands: Billabong and RVCA. The company also had licenses for the following brands: Element, Von Zipper, Xcel, Kustom, Palmers Surf, Tigerlily, Honolua Surf Co., and View Action Sports.
Billabong products are sold in more than 100 countries through a network of company-owned stores, concession stores, and independent retailers. The company has more than 1,400 employees.
In 2015-2016, Billabong reported revenue of A$846 million and net loss of A$275 million. The company’s operating cash flow was negative A$148 million for the fiscal year.