SBD Global/December 18, 2012/Finance

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  • Li-Ning Warns Of Substantial Losses, First-Half Profit Plunges By 85%

    Chinese sportswear company Li-Ning said in a statement that it "expects substantial losses this year," according to Li Woke of the CHINA DAILY. The company said that the losses "will be mainly due to the implementation of its sales channels revival plan, on which it plans to spend 1.4 to 1.8B yuan ($222M-285M) (CHINA DAILY, 12/17). BLOOMBERG's Wong & Chan reported Li-Ning's first-half profit plunged by 85% as "higher prices for materials, labor, rent and discounts for distributors hurt profit margins and the company shut some stores." Guotai Junan Securities Co. analyst Jerry Peng said, "Li-Ning’s annual loss will surely exceed analysts’ previous consensus estimates, but I believe the company is taking decisive measures to tackle the inventory problem at once." Analysts expect Li-Ning to "report a net loss of 120.8M ($19.4M) yuan this year." Li-Ning "dropped 3.9% to close at HK$4.70 ($0.6) in Hong Kong" trading Monday (BLOOMBERG, 12/17). In N.Y, Tom Orlik wrote the problem for Li-Ning is "massive overproduction in anticipation of demand that never arrived." That left retail channels "stuffed with unsold inventory, forcing discounted sales and making it more difficult to get new products to consumers." It tarnished Li-Ning's brand too, and "helped push China's sports fans into the arms of Nike and adidas." The hope is Li-Ning "can earn an edge over competitors by bringing fresh, new products to market and clearing out old stock without a fire sale that would further dent the brand." However, it is an expensive strategy that "will cost at least 3.6 times profit for the whole of last year" (WALL STREET JOURNAL, 12/17).

    FEELING THE HEAT: Li-Ning Monday announced a sponsorship deal with the NBA Miami Heat, effective immediately, giving the China-based brand the designation of official partner. The deal is part of a marketing program to support Heat G Dwyane Wade's new signature line of footwear and apparel. Aspects of the partnership include signage at AmericanAirlines Arena and other advertising assets on team properties, such as Heat.com and TV broadcasts on Sun Sports. Li-Ning products will be sold at the arena in '13 (Li-Ning).

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  • Billabong Has $555M Takeover Offer From U.S. Division Boss

    Australian surfwear brand Billabong "is set to release details of a A$527M ($555.8M) takeover offer from the boss of its U.S. division after news of the bid began to leak" Monday, according to Blair Speedy of THE AUSTRALIAN. Billabong "requested a trading halt on its stock after a number of reports claimed that Paul Naude, who last month stepped aside from his position as president of the Americas division to work on a buyout proposal, had made an offer of A$1.10 per share." Naude's non-binding offer "was being made in conjunction with N.Y.-based private equity firm Sycamore Partners, while Bank of America-Merrill Lynch would provide debt." News of the deal saw "Billabong shares surge" A$0.08 to hit a peak of A$1.015 Monday -- the retailer's biggest one-day gain since Naude's buyout plan was first flagged on Nov. 19 -- before the stock "was removed from trade" (THE AUSTRALIAN, 12/18).

    A LOW OFFER? In N.Y., Gillian Tan reported Commonwealth Bank of Australia analyst Jordan Rogers said that a "takeover proposal for Billabong International from a consortium including ex-director Naude and private equity firm Sycamore Partners looks low." The broker said that "a A$1.10-a-share offer represents an enterprise value to earnings before interest, tax, depreciation and amortisation, or EV/ebitda, multiple of 6.8 times fiscal '13 earnings." That is "well below comparable action sports transactions, which have been executed at multiples of around 12 times" (WALL STREET JOURNAL, 12/17). Also in N.Y., Tan reported the bid by Naude "follows a string of failed takeover offers for the Australian surfwear retailer." Billabong's "sales have fallen, fueling doubts about its brand's resonance with younger consumers." Billabong "has also been hit by weak consumer confidence around the world and a high Australian dollar that has weighed on revenue" (WSJ, 12/16).

    SHAREHOLDERS WAIT: In Sydney, Elizabeth Knight noted Billabong shareholders "have been left in no-mans land -- devoid of information that would enable them to make a choice on whether to follow the market rumours that an offer of A$1.10 for their stock is real or not" (SYDNEY MORNING HERALD, 12/17).

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