Form 17 Rule 8.05(1)(a) STATEMENT OF CLAIM No. VID of BILLABONG INTERNATIONAL LIMITED (ACN ) Respondent

Transcription

1 Form 17 Rule 8.05(1)(a) STATEMENT OF CLAIM No. VID of 2015 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION NEWSTART 123 PTY LTD (ACN ) Applicant and BILLABONG INTERNATIONAL LIMITED (ACN ) Respondent TABLE OF CONTENTS PARTIES... 3 APPLICATION OF SECTION 674(2) OF THE CORPORATIONS ACT TO BILLABONG... 4 BILLABONG S BUSINESS... 5 BILLABONG S FINANCIAL PERFORMANCE IN FY09 AND FY BILLABONG S ACQUISITIONS IN FY RELEVANT MARKET CONDITIONS... 8 CONTRAVENTIONS... 9 FY10 PRESENTATION... 9 FY10 AGM...10 DECEMBER 2010 ASX ANNOUNCEMENT H11 REPORT AND 1H11 PRESENTATION H11 CONFERENCE CALL FEBRUARY 2011 REPRESENTATIONS MARCH 2011 ANNOUNCEMENT MARCH 2011 PRE-RECORDED CALL MARCH 2011 REPRESENTATIONS...17 FY11 PRELIMINARY FINAL REPORT...19 FY11 CONFERENCE CALL AUGUST 2011 REPRESENTATIONS...21 FY11 ANNUAL REPORTS...23 Filed on behalf of Newstart 123 Pty Ltd, Applicant Prepared by Odette McDonald Law firm Slater and Gordon Limited Tel (03) Fax (03) odette.mcdonald@slatergordon.com.au Address for service Slater and Gordon Limited, 485 La Trobe Street, Melbourne VIC 3001

2 23 SEPTEMBER 2011 REPRESENTATIONS...23 CEO S ADDRESS TO 2011 AGM OCTOBER 2011 REPRESENTATIONS...26 PRICE QUERY...28 FINANCIAL PERFORMANCE IN 1H FINANCIAL PERFORMANCE IN FY BILLABONG S LIKELY 1H12 FINANCIAL RESULT H12 CONTINUOUS DISCLOSURE CONTRAVENTION...30 FY12 CONTINUOUS DISCLOSURE CONTRAVENTION...31 COMPLIANCE REPRESENTATION...32 FY12 FORECAST DOWNGRADE...35 LOSS AND DAMAGE...35 ANNEXURE A PARTICULARS OF THE APPLICANT S SHAREHOLDINGS IN BILLABONG DURING THE RELEVANT PERIOD...41 ANNEXURE B CHRONOLOGY OF BILLABONG S SHARE PRICE HISTORY DURING THE RELEVANT PERIOD...42 ANNEXURE C DEFINITIONS...50 NOTE AS TO TERMINOLOGY In this Statement of Claim, the following conventions are used in referring to financial results: (a) FY10, FY11, etc refer to the financial years ended 30 June 2010, 30 June 2011, etc; (b) (c) (d) 1H, 2H refer to the first and second half of the relevant financial year (1H10 being the six month period ended 31 December 2009, 2H10 being the six month period ended 30 June 2010, etc); 1Q, 2Q, 3Q and 4Q refer to the first, second, third and fourth quarters of the relevant financial year (1Q11 being the three month period ended 30 September 2010, 2Q11 being the three month period ended 31 December 2010, etc); and the defined terms have been summarised in Annexure C to this Statement of Claim. 2

3 PARTIES 1. Newstart 123 Pty Ltd (Applicant) commences this proceeding as a representative party pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) on his own behalf and on behalf of the Group Members. 2. At all material times the Applicant was a company incorporated under the Corporations Act 2001 (Cth) (Corporations Act). 3. At all material times the Applicant was the trustee of the Malone Family Superannuation Fund, and it sues in its capacity as trustee. 4. The Applicant and the persons whom it represents (Group Members) are persons who: 4.1. acquired an interest in (i) ordinary shares under the code BBG, or (ii) American Depositary Receipts trading under the codes BLLAF and BLLAY, (together, Securities) in the Respondent (Billabong) during the period from 18 February 2011 to immediately prior to the publication of the December 2011 Trading Update (as defined below) on 19 December 2011 inclusive (Relevant Period); 4.2. are not: of the Applicant s shareholdings are set out in Annexure A to this Statement of Claim. of the shareholdings of the Group Members will be provided following the trial of the common questions. (a) (b) (c) (d) (e) directors or officers, or a close associate (as defined by s 9 of the Corporations Act) of Billabong; or a related party (as defined by s 228 of the Corporations Act) of Billabong; or a related body corporate (as defined by s 50 of the Corporations Act) of Billabong; or an associated entity (as defined by s 50AAA of the Corporations Act) of Billabong; or a Justice, Registrar, District Registrar or Deputy District Registrar of the High Court of Australia or the Federal Court of Australia; and 3

4 4.3. are alleged to have suffered loss and damage by reason of the Contravening Conduct pleaded in this Statement of Claim. 5. Billabong is and at all material times was: 5.1. a company incorporated under the Corporations Act; 5.2. a corporation listed on a financial market operated by the Australian Securities Exchange (the ASX) and whose ordinary shares are ED securities for the purposes of s 111AE of the Corporations Act; 5.3. subject to and bound by the Listing Rules of the ASX (ASX Listing Rules); 5.4. a listed disclosing entity within the meaning of s 111AL(1) of the Corporations Act; and 5.5. a trading corporation within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). APPLICATION OF SECTION 674(2) OF THE CORPORATIONS ACT TO BILLABONG 6. At all material times the ASX was a market operator of a listing market, namely the ASX s financial market, in relation to Billabong for the purposes of s 674(1) of the Corporations Act. 7. At all material times Rule 3.1 of the ASX Listing Rules provided that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity s securities, the entity must, unless the exceptions in ASX Listing Rule 3.1A apply, immediately tell the ASX that information. 8. At all material times Rule of the ASX Listing Rules provided that an entity becomes aware of information if a director or executive officer has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity. 9. At all material times s 674(2) of the Corporations Act applied to Billabong by reason of: 9.1. the matters set out in paragraphs 6 to 8 above; and 9.2. ss 111AP(1) and/or 674(1) of the Corporations Act. 4

5 BILLABONG S BUSINESS 10. At all material times Billabong: carried on business as a designer, marketer, wholesaler and retailer of apparel and hardgoods for the global action sports and associated youth lifestyle sector; supplied, by wholesale and retail sales, apparel and hardgoods in more than 100 countries (classified by Billabong into 3 regions: Australasia, Europe and the Americas) (Billabong s Markets), under the following brands: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Billabong; Nixon; Vonzipper; Element; Tigerlily; Dakine; Xcel; Sector; Kustom; Honolua; Palmers; RVCA; Beachculture; and Amazon. (together, Billabong Family Brands). 11. At the end of FY09 Billabong operated 335 retail stores which stocked and sold Billabong Family Brands and/or other branded goods. Billabong s Shareholder Review for FY10 published on 24 September 2010 (FY10 Shareholder Review), p 22. 5

6 12. At the end of FY10 Billabong operated 380 retail stores, which stocked and sold Billabong Family Brands as well as other branded goods. FY10 Shareholder Review, p 22. BILLABONG S FINANCIAL PERFORMANCE IN FY09 and FY In respect of Billabong s FY09 financial results: according to Billabong s Shareholder Review for FY09 (FY09 Shareholder Review): (a) (b) (c) its reported sales revenue figure was $1.669 billion; its reported NPAT for FY09 was $152.8 million; its reported EBITDA for FY09 was $284.8 million; (d) its consolidated EBITDA margin for FY09 was 17.1%; of Billabong s reported sales revenue figure: (a) (b) approximately 21% related to retail sales; approximately 79% related to wholesale sales to third parties; Billabong s consolidated EBITDA margin was: (a) (b) approximately 10.2% for retail sales; approximately 18.8% for wholesale sales. FY09 Shareholder Review, pp 7-8, In respect of Billabong s FY10 financial results: According to Billabong s FY10 Shareholder Review: (a) (b) (c) its reported sales figure was $1.482 billion; its NPAT for FY10 was $146.0 million; its reported EBITDA for FY10 was $253.3 million; (d) its EBITDA margin for FY10 was 17.1% of Billabong s reported sales revenue figure: (a) approximately 24% related to retail sales; 6

7 (b) approximately 76% related to wholesale sales to third parties; Billabong s consolidated EBITDA margin was: (a) (b) approximately 10.9% for retail sales; approximately 23.1% for wholesale sales. FY10 Shareholder Review, pp 6, 8, 22. BILLABONG S ACQUISITIONS IN FY Prior to September 2010, at a time known to Billabong and presently unknown to the Applicant, Billabong developed a business strategy for transitioning from a predominantly wholesale business to a mixed wholesale/retail business, and for increasing Billabong s reliance on retail sales of Billabong Family Brands (Retail Strategy). The Retail Strategy is described in the following documents: (a) FY11 Preliminary Final Report, p 6 ( During the year the [Billabong] Group acquired several retail banners in North America and Australia. These acquisitions reflect the execution of various strategic moves to enhance the route to market for the [Billabong] Group s compelling brand portfolio ). (b) Billabong s Shareholder Review for FY11 published on 23 September 2011 (FY11 Shareholder Review), chairman s report, p 2 ( The [Billabong] Group s transition from a wholesale-focused business to an operation with more balanced exposure to wholesale and retail ). (c) The Analyst Day Briefing (ASX Announcement issued on 30 August 2010) included slides which refer to the retail strategy. 16. On or about 1 September 2010 Billabong acquired West 49 Inc, a Canadianbased board sports retailer which operated 138 stores in Canada. Billabong announcement to ASX dated 1 September 2010 entitled West 49 Update. 17. On or about 8 November 2010 Billabong acquired a portfolio of 38 retail stores from General Pants Group and associated parties, including Surf Dive n Ski stores, Jetty Surf stores and Billabong stores in Australia. 7

8 Billabong announcement to ASX dated 1 October 2010 entitled Billabong to Acquire Australian Retail Assets. Billabong announcement to ASX dated 8 November 2010 entitled Retail Acquisition Update. 18. On or about 26 November 2010 Billabong acquired a portfolio of 36 retail stores in the Rush Surf retail chain in Australia. FY10 Presentation, p 6. Billabong announcement to ASX dated 26 November 2010 entitled Rush Acquisition Update. 19. By 30 June 2011, Billabong operated 639 retail stores, an increase of 259 since 1 July 2010, comprising 324 new stores (either acquired or opened) less 65 store closures. FY11 Shareholder Review, p Prior to 19 August 2011, at a time known to Billabong and presently unknown to the Applicant, Billabong had also implemented internal initiatives as part of the Retail Strategy, including in relation to its IT systems, sales intelligence software, management processes, and greater investment in its online operations. FY11 Presentation, p 2. RELEVANT MARKET CONDITIONS 21. Further, throughout FY11 and extending into FY12: in Australia, there was a weak retail environment; the Australian dollar appreciated substantially against the United States dollar and the Euro; Europe suffered sovereign debt issues; there were a number of natural disasters in key regions in which Billabong operated, including floods in Queensland, earthquakes in New Zealand and an earthquake and subsequent tsunami in Japan; 8

9 21.5. there was unseasonably cool and wet weather during the summer for the east coast of Australia; the price of cotton had fallen steadily from a peak in March 2011; there was a highly promotional environment at both wholesale and retail level for sellers of apparel and hardgoods, associated with aggressive clearance of inventory; (together, Relevant Market Conditions). The matter described in subparagraph 21.1 above was described in Billabong s Full Financial Report for FY11 published on 23 September 2011 (FY11 Full Financial Report), p 3. The matter described in subparagraph 21.2 above was described in the FY11 Full Financial Report, p 3 and on p 21 of the FY11 Presentation. At the start of FY11, 1 AUD was worth USD 0.84; at the end of FY11, 1 AUD was worth USD The matter described in subparagraph 21.3 above was described in pp 2 (Chairman s Report) and 5 (CEO s Report) of the FY11 Shareholder Review. The matter described in subparagraph 21.4 above was described in the FY11 Full Financial Report, p 3. The matter described in subparagraph 21.5 above was described in the FY11 Shareholder Review, p 8. The matter described in subparagraph 21.6 above is inferred from the fact that cotton is a key production input for apparel sold by Billabong, and the references in several Billabong publications to the cotton price, eg the FY11 Presentation, at p 29, the FY11 Full Financial Report at p 5, and the transcript of the FY11 Conference Call at p 7. The matter described in subparagraph 21.7 above was described in pp 4 and 11 of the transcript of the FY11 Conference Call. Further particulars may be provided after discovery. CONTRAVENTIONS FY10 Presentation 22. On 20 August 2010, Billabong published and lodged with the ASX a document entitled Full Year Presentation 2009/10 (FY10 Presentation), in which it stated that: 9

10 22.1. NPAT in constant currency terms was expected to grow in the range of 2% to 8% compared with the FY10 result of $146 million; earnings guidance reflected a reasonably flat expected EBIT result, higher interest costs and a lower effective tax rate; Billabong viewed FY11 as a transitional year, with various strategic moves enhancing its route to market to deliver its target consumer the compelling branded portfolio offer that Billabong had developed over the past 10 years; as the anticipated global recovery gradually took hold, and given the FY10 AGM successful execution of various strategic and operational initiatives, Billabong expected to return, in the absence of further unforseen, exceptional circumstances, to more historic EPS growth rates in excess of 10% per annum in constant currency terms. FY10 Presentation, p On 26 October 2010, at its AGM, Billabong stated that: it retained its constant currency guidance of 2% to 8% growth in NPAT for FY11; its earnings guidance reflected a reasonably flat expected EBIT result after excluding $2.3 million in acquisition transaction costs, higher interest costs and a lower effective tax rate; its earnings guidance reflected the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $11.0 million post-tax, including the abovementioned $2.3 million which was not known at the time of the FY10 Presentation; offsetting these costs were expected one-off tax benefits of approximately $12.5 million. Billabong announcement to ASX dated 26 October 2010 entitled Annual General Meeting Update, p.5. 10

11 December 2010 ASX Announcement 24. Further, on 15 December 2010, Billabong announced a revision to its market guidance for FY11 in which it stated that: Billabong now anticipated that 1H11 NPAT would be 8% to 13% lower than 1H10 in constant currency terms; earnings guidance reflected an expected 1H11 EBIT result in constant currency terms of approximately 25% below 1H10, higher interest costs and a significantly lower effective tax rate; the FY11 earnings guidance reflected an expected EBIT result in constant currency terms of approximately 10% below prior year, higher interest costs and a significantly lower tax rate; earnings guidance reflected the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $9.0 million post-tax, offset by one-off tax benefits of approximately $9.5 million; Billabong now anticipated constant currency NPAT for FY11 to be flat compared to FY10 instead of the previously stated constant currency guidance of 2% to 8% growth. Billabong announcement to ASX dated 15 December 2010 entitled Trading Update, pp1, 2 (December 2010 ASX Announcement). 1H11 Report and 1H11 Presentation 25. On 18 February 2011, Billabong published and lodged with the ASX a document entitled Interim Financial Report 31 December 2010 (1H11 Report) and an investor presentation document entitled Half Year Results Presentation 2010/2011 (1H11 Presentation), in which it stated that: its reported global sales figure for 1H11 was $834.9 million; its reported EBITDA for 1H11 was $94.6 million; its reported NPAT for 1H11 was $57.2 million, representing a fall of 9.8% in constant currency terms compared with 1H10; its EBITDA margin for 1H11 was 11.3%; FY11 was a transition year for Billabong; 11

12 25.6. in line with its previous guidance provided on 15 December 2010 and in the absence of any unforeseen, exceptional circumstances impacting the global board sports market, it expected NPAT to be flat in constant currency terms for FY11 as compared to FY10; it expects to return to more historic EPS growth rates in excess of 10% per annum in constant currency terms. 1H11 Report, pp 3, 4. 1H11 Presentation, pp 1, 3, Of the reported global sales figure for 1H11: approximately 40% related to retail sales; approximately 60% related to wholesale sales to third parties. 1H11 Presentation, p 2. 1H11 Conference Call 27. On 18 February 2011, a conference call occurred between Derek O Neill (O Neill), the then chief executive officer of Billabong, Craig White (White), the then chief financial officer of Billabong, and a number of analysts (1H11 Conference Call). The 1H11 Conference Call was transcribed. 28. In the course of the 1H11 Conference Call: an analyst (Ben Gilbert, UBS) stated that Billabong s guidance for FY11 implied 10% or 15% plus constant currency EBIT growth for 2H11; O Neill failed to correct the statement by the analyst and further stated I think we ve got a relatively steady business into this second half. Transcript of 1H11 Conference Call, pp

13 18 February 2011 Representations 29. By reason of the matters set out in paragraphs 22 to 28 above, on 18 February 2011, Billabong represented that: it expected to return to more historic EPS growth rates in 2H11 and FY12 in excess of 10% per annum in constant currency terms; it expected 10% or 15% plus constant currency EBIT growth for 2H11, (individually or together, these are referred to as the 18 February 2011 Representations). The 18 February 2011 Representations were partly express and partly implied. In so far as they were express, they were partly in writing (in the December 2010 ASX Announcement, in the 1H11 Report and in the 1H11 Presentation) and partly oral (in the 1H11 Conference Call). In so far as they were implied, they were to be implied as a matter of law, including by s 769C of the Corporations Act; and/or by reason of the facts that they were made in company documents released to the market by means of the ASX company announcements platform and Billabong knew or ought to have known that investors and potential investors in its shares may rely upon the statements and forecasts in those documents in making decisions whether to acquire or retain shares in Billabong. 30. The 18 February 2011 Representations were made in relation to future matters, namely Billabong s EPS and EBIT for FY11 and beyond, and in that regard the Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 31. Further or alternatively, by reason of the matters set out in paragraphs 22 to 29 above, on 18 February 2011, Billabong represented that it had a genuine and reasonable basis for making each of the 18 February 2011 Representations (Genuine Basis for 18 February 2011 Statements Representation). The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 32. The 18 February 2011 Representations and the Genuine Basis for 18 February 2011 Statements Representation were: in relation to a financial product, namely Billabong s Securities; and 13

14 32.2. in trade or commerce. 33. At no time prior to 19 December 2011 did Billabong withdraw or qualify the 18 February 2011 Representations or the Genuine Basis for 18 February 2011 Statements Representation and accordingly they were continuing representations. 34. At the time of making the 18 February 2011 Representations and the Genuine Basis for 18 February 2011 Statements Representation, Billabong was or ought to have been aware: of the Relevant Market Conditions; that a substantial number of the retail stores which Billabong acquired as described in paragraphs 16 to 18 above were loss-making at the time of acquisition and would likely continue to operate at a loss; of the impact of the acquisitions described in paragraphs 16 to 18 above, which included: (a) (b) an increase in Billabong s fixed costs, including store rental and staff wages; an increase in the level of Billabong s inventory which was excess to requirements; that Billabong s EBITDA margins were in continual decline, particularly in Australasia; that in respect of the Billabong Family Brands, apart from the Nixon brand, there was a marked decline in EBITDA margins; that Billabong s net retail margins, when considered as a standalone business unit, were zero or slightly negative; that in order to achieve strong growth in EBITDA, Billabong would need to increase retail sales revenue dramatically; that by reason of the matters pleaded in subparagraphs 34.1 to 34.7, EBIT growth in excess of 10% per annum was unlikely to be achieved in 2H11 or FY12; and that Billabong s systems did not allow it to forecast accurately or at all its EBITDA for 2H11 or FY12. 14

15 (a) (b) (c) (d) (e) (f) (g) Billabong s awareness of the Relevant Market Conditions is to be inferred from its knowledge of its own past financial performance and performance of wholesale and retail sales of apparel and hardgoods in Billabong s Markets in FY11; Billabong s awareness of the matters set out in subparagraph 34.2 is to be inferred from (i) the statements in Billabong s ASX announcement on 17 February 2012 entitled Strategic Capital Structure Review Update, p 2, that Billabong was undertaking a review of its retail network with a view to closing stores performing below expectations, and it was expected that the number of store closures would fall somewhere in the range of 100 to 150 stores, and (ii) the statements in Billabong s Full Year Results Presentation for FY12 dated 27 August 2012, p 9, under the heading closure of underperforming stores, that as at 30 June 2012 Billabong had closed 58 stores, and it expected to close a total of approximately 140 stores by 30 June 2013; Billabong s awareness of the matters set out in subparagraph 34.3(a) is to be inferred from the fact that: (i) its selling, general and administrative expenses had been about $525.4 million in FY09 and about $469.8 million in FY10 but jumped to about $599 million in FY11; (ii) its employee benefits expenses had been about $248.5 million in FY09 and about $226.4 million in FY10 but jumped to about $282.9 million in FY11; (iii) its rental expenses relating to operating leases had been about $73 million in FY09 and about $72.7 million in FY10 but jumped to about $90 million in FY11; Billabong s awareness of the matters set out in subparagraph 34.3(b) is to be inferred from the statements made in the FY11 Presentation to the effect that (i) in relation to the West 49 acquisition, inventory was above expected levels (p 14), (ii) West 49, Surf Dive n Ski and Jetty Surf were carrying excess inventory (p 30), and (iii) there was some slight inventory overhang in Canada and the last pieces of winter in Australia (p 13); Billabong s awareness of the matters set out in subparagraph 34.4 is to be inferred from the fact that: (i) its reported EBITDA margin overall was 21.7% in FY08, 17.1% in FY09, 17.1% in FY10, and 11.4% in FY11; and (ii) its reported EBITDA margin for Australasia was 22.6% in FY09, 20.9% in FY10 and 11.0% in FY11; Billabong s awareness of the matters set out in subparagraph 34.5 is to be inferred from the statements in Billabong s ASX announcement on 17 February 2012 entitled Strategic Capital Structure Review Update, p 1, that Billabong would sell 51.5% of the Nixon brand which, for the 12 months ending 31 December 2011 had an EBITDA of US$50.6 million; Billabong s awareness of the matters set out in subparagraph 34.6 is to be inferred from the statement by the CFO, Craig 15

16 (h) (i) White, in a conference call with analysts on 27 August 2012, that on a pure standalone retail basis I think you d find that [retail margins] would be breakeven [or] slightly negative (transcript, p 19); Billabong s awareness of the matters set out in subparagraph 34.7 is to be inferred from the fact that (i) its total sales revenue for FY11 was about $1.68 billion, its total expenses (excluding impairments) for FY11 were about $1.57 billion, its reported EBITDA for FY11 was $191.9 million; (ii) in order to increase EBITDA by 10% (ie to $211 million), sales revenue in FY12 needed to increase by at least 10%, in the absence of a commensurate decrease in expenses; Billabong s awareness of the matters set out in subparagraphs 34.8 and 34.9 is to be inferred from (i) the fact that Billabong had lumpy earnings in that the December and June trading periods were particularly significant to the full year results, as stated in the CEO s Address to the 2011 AGM at p 5, (ii) the admissions by Billabong in its presentation entitled Unlocking Billabong Group s Value published to ASX on 27 August 2012 at p 30, that the Billabong Group had problematic integration, was not sufficiently customer centric, underinvested in retailing tools (eg IT systems), lacked a network plan and lacked scale retail expertise. Further particulars may be provided after discovery. 35. By reason of the matters set out in paragraph 34 above, Billabong did not have a reasonable basis for making any of the 18 February 2011 Representations or the Genuine Basis for 18 February 2011 Statements Representation. The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 36. By reason of the matters set out in paragraphs 34 and 35 above, the 18 February 2011 Representations and the Genuine Basis for 18 February 2011 Statements Representation were untrue. 37. By reason of the matters set out in paragraphs 29 to 36 above, Billabong engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of: s 1041H of the Corporations Act; and/or, s 12DA(1) of the ASIC Act. 16

17 16 March 2011 Announcement 38. Further or alternatively, on 16 March 2011, Billabong: made an announcement to the ASX which revised FY11 NPAT from flat compared to FY10 NPAT to 2% to 6% below FY10 NPAT in constant currency terms; attributed the downgrade in NPAT guidance to the earthquake and subsequent tsunami in Japan and the earthquake in New Zealand; said nothing further about Billabong s EBIT growth. ASX announcement dated 16 March 2011 (the 16 March 2011 Announcement). 16 March 2011 Pre-recorded Call 39. On 16 March 2011, Billabong released a pre-recorded call (the 16 March 2011 Pre-recorded Call) which stated that: the 16 March 2011 Announcement did not constitute a trading update in relation to Billabong s overall business; the performance of the balance of Billabong remained in line with the guidance provided by the company on 18 February March 2011 Representations 40. By reason of the matters set out in paragraphs 38 and 39 above, on 16 March 2011, Billabong repeated the 18 February 2011 Representations (individually or together, these are referred to as the 16 March 2011 Representations). The 16 March 2011 Representations were partly express and partly implied. In so far as they were express, they were partly in writing (in the December 2010 ASX Announcement, in the 1H11 Report and in the 1H11 Presentation and in the 16 March 2011 Announcement) and partly oral (in the 1H11 Conference Call and in the 16 March 2011 Pre-recorded Call). In so far as they were implied, they were to be implied as a matter of law, including by s 769C of the Corporations Act; and/or by reason of the facts that they were made in company documents released to the market by means of the ASX company announcements platform and Billabong knew or ought to have known that investors and potential investors in its Securities may rely upon the statements and forecasts 17

18 in those documents in making decisions whether to acquire or retain Securities in Billabong. 41. The 16 March 2011 Representations were made in relation to future matters, namely Billabong s EPS and EBIT for FY11 and beyond, and in that regard the Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 42. Further or alternatively, by reason of the matters set out in paragraphs 40 and 41 above, on 16 March 2011, Billabong represented that it had a genuine and reasonable basis for making each of the 16 March 2011 Representations (Genuine Basis for 16 March 2011 Statements Representation). The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 43. The 16 March 2011 Representations and the Genuine Basis for 16 March 2011 Statements Representation were: in relation to a financial product, namely Billabong s Securities; and in trade or commerce. 44. At no time prior to 19 December 2011 did Billabong withdraw or qualify the 16 March 2011 Representations or the Genuine Basis for 16 March 2011 Statements Representation and accordingly they were continuing representations. 45. At the time of making the 16 March 2011 Representations and the Genuine Basis for 16 March 2011 Statements Representation, Billabong was or ought to have been aware of the matters set out in paragraph 34 above as at 16 March The Applicant refers to and repeats the particulars to paragraph 34 above. Further particulars may be provided after discovery. 46. By reason of the matters set out in paragraph 45 above, Billabong did not have a reasonable basis for making any of the 16 March 2011 Representations or the Genuine Basis for 16 March 2011 Statements Representation. 18

19 The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 47. By reason of the matters set out in paragraphs 45 and 46 above, the 16 March 2011 Representations and the Genuine Basis for 16 March 2011 Statements Representation were untrue. 48. By reason of the matters set out in paragraphs 38 to 47 above, Billabong engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of: s 1041H of the Corporations Act; and/or s 12DA(1) of the ASIC Act. FY11 Preliminary Final Report 49. Further or alternatively, on 19 August 2011, Billabong published and lodged with the ASX a document entitled Financial Report 30 June 2011 (FY11 Preliminary Final Report) and an investor presentation document entitled Full Year Results Presentation 2010/2011 (FY11 Presentation), in which it stated that: as anticipated, there was an initial combined dilutive effect on margins of the recent acquisitions of retailers, and these margins were expected to increase as its strategy to lift the Billabong Family Brands share was realised over time (p 3, FY11 Preliminary Final Report); it anticipated strong underlying growth in EBITDA in FY12 as the benefits of vertical margins, cost rationalisation and synergies from acquired assets flowed through the business (p 6, Preliminary Final Report) during FY11 it acquired major retail assets in Australia and Canada to enhance its route to market, and as anticipated this led to strong revenue growth at dilutive initial margins, which was expected to increase as its strategy to lift the Billabong Family Brands share was realised over time (p 2, FY11 Presentation); the initiatives adopted during FY11, which was a transition year, had resulted in a fundamental realignment of its business between wholesale and retail (p 2, FY11 Presentation); 19

20 49.5. it anticipated strong underlying growth in EBITDA in FY12 as the benefits of vertical margins, cost rationalisation and synergies from acquired assets flowed through the business (p 3, FY11 Presentation); it expected in FY12 to deliver strong underlying growth in EBITDA and to show improvements in EBITDA margins in company-owned retail as vertical margins flowed through (p 19, FY11 Presentation); until there was more visibility of global trading conditions, and more particularly their effect on consumer spending patterns and hence the quantum of underlying growth in EBITDA, it will not offer EPS guidance (p 3, FY11 Presentation). FY11 Conference Call 50. Further, on 19 August 2011, a conference call occurred between O Neill, White and a number of analysts (FY11 Conference Call). The FY11 Conference Call was transcribed. 51. In the course of the FY11 Conference Call, O Neill on behalf of Billabong made express statements to the effect that: Billabong was now through its transition year (p 1); The vertical margin associated with the push deeper into retailing was now starting to come through, and that should be apparent when Billabong next reports to the market (p 2); Billabong would definitely begin to see the vertical margins flow through and that would put it in a reasonably good position over the next 12 months (p 10); he did not even want to imagine scenarios in FY12 where EBITDA growth (from FY11) could only be single digit or even negative, and that it would have to be really, really weak for it to be under double digit (p 15). 20

21 19 August 2011 Representations 52. By reason of the matters set out in paragraphs 49 to 51 above, on 19 August 2011, Billabong represented that: in FY12 it would experience strong underlying growth in EBITDA (FY12 Strong EBITDA Growth Representation); in FY12 there would be a double digit increase in its EBITDA compared with FY11 (FY12 Double Digit EBITDA Increase Representation); in FY12 it would experience improving EBITDA margins (FY12 Improving EBITDA Margins Representation); and in FY12 it would experience the benefits of the Retail Strategy, including vertical margin growth and cost reductions (FY12 Retail Strategy Representation); (individually or together, these are referred to as the 19 August 2011 Representations). The 19 August 2011 Representations were partly express and partly implied. In so far as they were express, they were partly in writing (in the FY11 Preliminary Final Report and the FY11 Presentation) and partly oral (in the FY11 Conference Call). In so far as they were implied, they were to be implied as a matter of law, including by s 769C of the Corporations Act; and/or by reason of the facts that they were made in company documents released to the market by means of the ASX company announcements platform and Billabong knew or ought to have known that investors and potential investors in its Securities may rely upon the statements and forecasts in those documents in making decisions whether to acquire or retain Securities in Billabong. 53. The 19 August 2011 Representations were made in relation to future matters, namely Billabong s EBITDA and margins for FY12, and in that regard the Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 54. Further or alternatively, by reason of the matters set out in paragraphs 52 and 53 above, on 19 August 2011, Billabong represented that it had a genuine and reasonable basis for making each of the 19 August

22 Representations (Genuine Basis for 19 August 2011 Statements Representation). The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 55. The 19 August 2011 Representations and the Genuine Basis for 19 August 2011 Statements Representation were: in relation to a financial product, namely Billabong s Securities; and in trade or commerce. 56. At no time prior to 19 December 2011 did Billabong withdraw or qualify the 19 August 2011 Representations or the Genuine Basis for 19 August 2011 Statements Representation and accordingly they were continuing representations. 57. At the time of making the 19 August 2011 Representations and the Genuine Basis for 19 August 2011 Statements Representation, Billabong was or ought to have been aware of: the matters set out in paragraph 34 above; and its FY11 financial results. 58. By reason of the matters set out in paragraph 57 above, Billabong did not have a reasonable basis for making any of the 19 August 2011 Representations or the Genuine Basis for 19 August 2011 Statements Representation. The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 59. By reason of the matters set out in paragraphs 57 and 58 above, the 19 August 2011 Representations and the Genuine Basis for 19 August 2011 Statements Representation were untrue. 60. By reason of the matters set out in paragraphs 52 to 59 above, Billabong engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of: 22

23 60.1. s 1041H of the Corporations Act; and/or s 12DA(1) of the ASIC Act. FY11 Annual Reports 61. Further or alternatively, on 23 September 2011, Billabong published its Annual Reports for FY11 (FY11 Annual Reports) in which it repeated the statements made in its FY11 Preliminary Final Report, as set out in paragraph 49 above. The Applicant refers to the Financial Overview at pages 6 7 of the FY11 Shareholder Review and the FY11 Full Financial Report (found after page 30 of the FY11 Shareholder Review) at pages 3 and September 2011 Representations 62. By reason of the matters set out in paragraph 61 above, on 23 September 2011, Billabong repeated the FY12 Strong EBITDA Growth Representation, the FY12 Improving EBITDA Margins Representation and the FY12 Retail Strategy Representation (individually or together, these are referred to as the 23 September 2011 Representations). The 23 September 2011 Representations were partly express and partly implied. In so far as they were express, they were constituted by the repetition of the FY12 Strong EBITDA Growth Representation, the FY12 Improving EBITDA Margins Representation and the FY12 Retail Strategy Representation in the FY11 Annual Reports. In so far as they were implied, they were to be implied as a matter of law, including by s 769C of the Corporations Act and s 12BB of the ASIC Act; and/or by reason of the facts that the FY12 Strong EBITDA Growth Representation, the FY12 Improving EBITDA Margins Representation and the FY12 Retail Strategy Representation were made in a company document released to the market by means of the ASX company announcements platform and Billabong knew or ought to have known that investors and potential investors in its Securities may rely upon the statements and forecasts in the document in making decisions whether to acquire or retain Securities in Billabong. 63. The 23 September 2011 Representations were made in relation to future matters, namely Billabong s EBITDA and margin for FY12, and in that regard the Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 23

24 64. Further or alternatively, by reason of the matters set out in paragraph 62 above, on 23 September 2011, Billabong represented that it had a genuine and reasonable basis for making each of the 23 September 2011 Representations (Genuine Basis for 23 September 2011 Statements Representation). The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 65. The 23 September 2011 Representations and the Genuine Basis for 23 September 2011 Statements Representation were: in relation to a financial product, namely Billabong s Securities; and in trade or commerce. 66. At no time until 19 December 2011 did Billabong withdraw or qualify the 23 September 2011 Representations or the Genuine Basis for 23 September 2011 Statements Representation and accordingly they were continuing representations. 67. At the time of making the 23 September 2011 Representations and the Genuine Basis for 23 September 2011 Statements Representation, Billabong was, or ought to have been, aware of: the matters set out in paragraph 57 above as at 23 September 2011; its EBITDA for July and August 2011; that cotton prices peaked in about March 2011 and had been falling thereafter. (a) (b) (c) As to subparagraph 67.1, the Applicant refers to and repeats the particulars to paragraph 34 above. As to subparagraph 67.2, Billabong s awareness, or the fact that it ought to have been aware, of its recent EBITDA figures is to be inferred from the references in the ASX announcement on 19 December 2011 titled Trading Update (December 2011 Trading Update) to the receipt of management accounts reflecting actual trading results for November and preliminary retail sales data for 11 December As to subparagraph 67.3, Billabong s awareness, or the fact that it ought to have been aware, of the movements in cotton prices is to be inferred from the fact that cotton is a key 24

25 production input for apparel sold by Billabong, and the references in several Billabong publications to the cotton price, eg the FY11 Presentation (p 29), the FY11 Full Financial Report at page 5, p 7 of the transcript of the FY11 Conference Call. Further particulars may be provided after discovery. 68. By reason of the matters set out in paragraph 67 above, Billabong did not have a reasonable basis for making the 23 September 2011 Representations or the Genuine Basis for 23 September 2011 Statements Representation. The Applicant refers to and rely on s 769C of the Corporations Act and s 12BB of the ASIC Act. 69. By reason of the matters set out in paragraphs 67 to 68 above, the 23 September 2011 Representations and the Genuine Basis for 23 September 2011 Representation were untrue. 70. By reason of the matters set out in paragraphs 62 to 69 above, Billabong engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of: s 1041H of the Corporations Act; and/or s 12DA(1) of the ASIC Act. CEO s Address to 2011 AGM 71. Further or alternatively, on 25 October 2011, the CEO of Billabong addressed the Annual General Meeting of Shareholders and a copy of his speech was published and lodged with the ASX on that day (CEO s Address to 2011 AGM), in which he made the following express statements: the business of Billabong and its group remained on track to deliver strong underlying EBITDA growth in constant currency terms in FY12 (p 4); the vertical margin contribution that Billabong and its group anticipated from the move deeper into retail was starting to become apparent (p 4); Billabong and its group anticipated strong underlying EBITDA growth in constant currency terms in FY12 (p 5). 25

26 Billabong announcement to ASX dated 25 October 2011 entitled 2011 Annual General Meeting Chairman & CEO Addresses. 25 October 2011 Representations 72. By reason of the matters set out in paragraph 71 above, on 25 October 2011, Billabong repeated the FY12 Strong EBITDA Growth Representation, the FY12 Improving EBITDA Margins Representation and the FY12 Retail Strategy Representation (individually or together, these are referred to as the 25 October 2011 Representations). The 25 October 2011 Representations was partly express and partly implied. In so far as they were express, they were in the CEO s Address to the 2011 AGM, which was both oral and in writing. In so far as they were implied, it they were to be implied as a matter of law, including by s 769C of the Corporations Act and s 12BB of the ASIC Act; and/or by reason of the facts that the 25 October 2011 Representations were made in formal addresses to shareholders by the CEO to the 2011 AGM, copies of which were released to the market by means of the ASX company announcements platform, and Billabong knew or ought to have known that investors and potential investors in its Securities may rely upon the statements and forecasts in those documents in making decisions whether to acquire or retain Securities in Billabong. 73. The 25 October 2011 Representations were made in relation to future matters, namely Billabong s EBITDA and margins for FY12, and in that regard the Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 74. Further or alternatively, by reason of the matters set out in paragraph 72 above, on 25 October 2011, Billabong represented that it had a genuine and reasonable basis for making each of the 25 October 2011 Representations (Genuine Basis for 25 October 2011 Statements Representation). The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 75. The 25 October 2011 Representations and the Genuine Basis for 25 October 2011 Statements Representation were made: 26

27 75.1. in relation to a financial product, namely Billabong s Securities; and in trade or commerce. 76. At no time until 19 December 2011 did Billabong withdraw or qualify the 25 October 2011 Representations or the Genuine Basis for 25 October 2011 Statements Representation and accordingly they were continuing representations. 77. At the time of making the 25 October 2011 Representations and the Genuine Basis for 25 October 2011 Statements Representation, Billabong was, or ought to have been, aware of: the matters set out at paragraph 67 above as at 25 October 2011; its financial results for 1Q12; that cotton prices had continued to fall since 23 September (a) (b) (c) As to subparagraph 77.1, the Applicant refers to and repeats the particulars to paragraph 34 above. As to subparagraph 77.2, Billabong s awareness, or the fact that it ought to have been aware, of its financial results for 1Q12 is to be inferred from the references in the December 2011 Trading Update to the receipt of management accounts reflecting actual trading results for November and preliminary retail sales data for 11 December As to subparagraph 77.3, Billabong s awareness, or the fact that it ought to have been aware, of the movements in cotton prices is to be inferred from the fact that cotton is a key production input for apparel sold by Billabong, and the references in several Billabong publications to the cotton price, eg the FY11 Presentation (p 29), the FY11 Full Financial Report at page 5, p 7 of the transcript of the FY11 Conference Call. Further particulars may be provided after discovery. 78. By reason of the matters set out in paragraph 77 above, Billabong did not have a reasonable basis for making the 25 October 2011 Representations or the Genuine Basis for 25 October 2011 Statements Representation. The Applicant refers to and relies on s 769C of the Corporations Act and s 12BB of the ASIC Act. 27

28 79. By reason of the matters set out in paragraphs 77 and 78 above, the 25 October 2011 Representations and the Genuine Basis for 25 October 2011 Statements Representation were false. 80. By reason of the matters set out in paragraphs 72 to 79 above, Billabong engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of: s 1041H of the Corporations Act; and/or s 12DA(1) of the ASIC Act. Price Query 81. On 24 November 2011, ASX Compliance Pty Ltd (a subsidiary of ASX) issued a letter to Billabong with the subject Price Query (Price Query), which noted that the price of Billabong s securities had decreased from a closing price of $4.32 on 21 November 2011 to an intra-day low on 24 November 2011 of $3.59 and requested Billabong answer questions relating to the price change and increase in volume of trading over that period. Billabong announcement dated 25 November 2011 entitled Response to ASX Query re Price at p On 25 November 2011, Billabong s company secretary issued an ASX announcement in response to the Price Query in which she made the following express statements: Billabong was not aware of any unannounced information concerning it that explains the recent trading in its securities; and Billabong referred to the Chairman and CEO Addresses at the Company's AGM on 25 October 2011 and announced to ASX, which remained valid as at the date of the announcement (25 November 2011). Billabong announcement dated 25 November 2011 entitled Response to ASX Query re Price at p 1. 28

29 Financial Performance in 1H During 1H12 Billabong s sales growth trend deteriorated significantly: in 1Q12 (the first 3 months of 1H12), sales increased by 24.7% (or 6.2% adjusted); in the first 4 months of 1H12, sales increased by 17.2% (or 2.8% adjusted); in the first 5 months of 1H12, sales increased by 11.7% (or 0.4% adjusted). December 2011 Trading Update, p In respect of Billabong s 1H12 financial results: its reported global sales figure for 1H12 was $847.2 million; its reported EBITDA for 1H12 was $74.1 million; its reported NPAT for 1H12 was $16.1 million; its EBITDA margin for 1H12 was 8.7% of its global sales figure for 1H12: (a) (b) approximately 48.8% related to retail sales; approximately 51% related to wholesale sales to third parties. 1H12 Presentation, pp 2, 3, 5, 18. Financial Performance in FY In respect of Billabong s FY12 financial results: according to Billabong s Annual Reports for FY12: (a) (b) (c) (d) its reported global sales figure for FY12 was $1.55 billion; its reported EBITDA for FY12 was $130.4 million; its adjusted EBITDA for FY12 was $120.6 million; its reported NPAT for FY12 was [a loss of] -$275.6 million; (e) its EBITDA margin for FY12 was 8.4%; (f) its reported EBITDA margin for FY12 was 7.8%; 29