SurfStitch slide to $155 million loss
SurfStitch's annus horribulus continued this morning after the company announced a $154.7 million loss in 2016. The news is the latest in a litany of torment for SurfStitch, who just last year were considered the world's largest surf company, at least on paper.
The huge loss includes a major write-down of stock, goodwill, and other assets. Just over 12 months ago SurfStitch bought STAB, Magic Seaweed, and Garage Entertainment, paying a combined $35 million. They then bought Surf Hardware International (SHI), manufacturers of FCS and Gorilla, for $23.7 million.
The plan was to create original content and leverage it across their media assets - STAB and Magic Seaweed - to boost sales of clothes and hardgoods.
That plan was not only ambitious but now appears ill-considered.
SurfStitch have revalued Garage Entertainment at just $1.2 million, $13.8 million down from what they paid. They've also revalued STAB and MSW, and plan to sell SHI which they bought just last December.
Three months ago SurfStitch alluded to coming legal action with a then-unknown third party over a licensing agreement. Today's annual report reveals that the company is Coastalwatch who, among other arrangements, were to receive $8 million for a link on their website.
The owners of Coastalwatch (and Surfing World), Three Crown Investments, have begun legal proceedings against SurfStitch in the Queensland District and Supreme Courts.
Similarly, the law firm Gadens are considering launching a class action against Surfstitch on behalf of shareholders. Gadens said it has been approached by “more than 100” investors “representing millions of shares” to be involved in a potential $500 million class action. News on the class action is imminent.
SurfStitch's woes are also being felt on the office floor with their North American work force reduced by more than 65 per cent and the UK by 25 per cent. They're also reducing the number of brands available for sale.
SurfStitch CEO Mike Sonand, who is their third CEO this year, said, "The results are clearly very disappointing."
SurfStitch shares dropped to $0.11 when markets opened this morning. This time last year they were $1.82, reaching a peak of $2.09 before the web unravelled.
Comments
"Were to receive $8 million for a link on their website"
Linking from what to where and valued how??
Now, I know that you lot don't want to be seen to be dancing on the ill fortune of your competition, but could you explain this in more detail or post a link to the article / information about this arrangement?
From the 2016 Financial Report (made available this morning):
“In 2H FY16, the content licences were varied ... two ten year agreements were added to the 3CM Transaction whereby ... Coastalwatch would provide a link on its website to SurfStitch Group’s Australian website for a fee of $8 million”, and “Coastalcoms would give SurfStitch access to its software, ‘Environmental Data Management System’ for a fee of US$9.7 million”
So, $8 million for a link on Coastalwatch to SurfStitch.
8 mil for a link on Coastalwatch?
Tell 'em they're dreamin'.
:)
What station does this gravy train stop next?
Whoa.
A few seconds looking at the barren wasteland that is the comments sections of their content pages would suggest that it's not a website that has particularly high engagement with it's visitors. I'm sure the page views are material but I'd think the stats beyond that would be telling.
If that's the quality of the deals that surfstich were making, their financial performance is no surprise
So what you're saying is that they did it for the clicks when they should have done it for the chicks?
Seems like the owners needed a few lessons from UG: the school of hard pecs.
Doesn't this statement also from the 2016 Financial report suggest some sort of round robin of payments ?
"In Summary, the 3CM transaction would be paid for as follows:
- at least $20 million would be paid from Coastalwatch, TCI and Coastalcoms to Surfstich Group over a period of ten years; and
- US$9.7 million plus $10.5 million would be paid from Surfstich Group to Coastalwatch, TCI and Coastalcoms over a period of ten years."
So a wash.
Yeah, it's complicated, but, yes ... see my further comment below.
Jeezus. SurfStitch would have to be the Alan Bond of the surfing world.
Yeah, except aren't they just following in the footsteps of Quik, Rip, Bong. This is not only typical of the surf industry, but commercial enterprise generally.
The idea that you could be good at something, really good, and or get in first or best dressed, and enjoy your status in the market, is replaced by corporate advisers, generally accountants and marketers, who tell them they have to get big or get out, and then this happens.
Pretty much all the banks, Rio Tinto, BHP, Fortescue, nearly every big company in Australia has been brought to its knees by 'corporate advice' at some stage over the last 30 years. Corporate Australia, and plenty of international businesses have been caught out the same way. The list of failures is long.
Textbook example of an initially clever business model getting sucked into the high growth take over the world mindset, egged on by Insto shareholders and ego/greed.
What's the ownership / management link between Coastalwatch and Coastalcoms?
Partners but ostensibly the same owners. The hardware used for CW's surfcams are also used for Coastalcom's shoreline monitoring etc, though Coastalcoms also supply other services.
Hmmm, yep, been doing some digging. More to this than what you've reported so far. Further detail in my comment below.
If the gronks at Coastalwatch were looking at $8M then surely Swellnet would be valued in the trillions ?
and share price has halved today to 12 cents .......went to the corporate website to have a look and heaps of gloss and pretty pictures of blondes.....so far away from the ongoing disaster in their business
Crew, there is WAY more to this than Surfstitch paying $8m for a link on coastalwatch's website.
As Parole Board has noted above, there was in effect a round robin transaction.
From the Directors Report filed with the ASX:
"During FY16, entities within SurfStitch Group entered into a series of agreements with Coastalwatch Pty Ltd (“Coastalwatch”), Three Crowns Investments Pty Ltd
(“TCI”) and Coastalcoms Pty Ltd (“Coastalcoms”) (the “3CM Transaction”).
In 1H FY16:
• the content of SurfStitch Group’s media assets was licensed to Coastalwatch for a licence fee of approximately $20.3 million, receivable by the Group in April 2016;
• TCI gave SurfStitch Group branding rights to certain of TCI’s apps for a term of ten years for a fee of $2 million, payable in February 2016 by SurfStitch Group to TCI, plus TCI acquired rights to advertise and distribute its brands on SurfStitch Group’s platforms (for 15% of the recommended retail price plus additional fees) for a period of ten years.
In 2H FY16:
• the content licences were varied so that the $20.3 million receivable became payable in ten equal instalments to be paid annually; and
• the term of the app branding rights was reduced to two years, although not the advertising or distribution rights of TCI, plus an additional fee for premium content of $0.5 million became payable by SurfStitch Group to TCI.
In addition, two ten year agreements were added to the 3CM Transaction whereby:
• Coastalwatch would provide a link on its website to SurfStitch Group’s Australian website for a fee of $8 million payable in ten equal instalments to be paid annually; and
• Coastalcoms would give SurfStitch Holdings Pty Ltd access to its software, 'Environmental Data Management System’ for a fee of US$9.7 million payable in ten equal instalments to be paid annually (the “Software Licensing Agreement”).
In summary, the 3CM Transaction would be paid for as follows:
• at least $20 million would be paid from Coastalwatch, TCI and Coastalcoms to
SurfStitch Group over a period of ten years; and
• US$9.7 million plus $10.5 million would be paid from SurfStitch Group to Coastalwatch, TCI and Coastalcoms over a period of ten years.
Since May 2016, SurfStitch Group has been carrying out an in-depth review of the 3CM Transaction. The findings of this review contributed to the ASX Announcement made on 9 June 2016 and the termination of the Software Licensing Agreement in July 2016. Proceedings were commenced by TCI and Coastalcoms in August 2016 in the Queensland District and Supreme Courts against entities within SurfStitch Group in respect of the 3CM Transaction and it is possible that further proceedings may be commenced. SurfStitch Group entities will vigorously
defend these proceedings. The aggregate potential liability and costs in respect of the proceedings cannot be accurately assessed at this time.Contingencies in respect of legal proceeding are disclosed in note 26 to the financial statements. "
Sorry, Swellnet, Stu and co ... but I can't help but think your journalism on this one is bit skewed toward sticking it to ya competitors. You haven't really quoted or reported the full facts in this article.
For anyone interested in the full story here's a link to the documents lodged with the ASX: http://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode...
Huh? You don't think I would've been 'sticking it to our competitors' if I'd listed all of the items you've mentioned above?
C'mon stu, your one snippet from all of that was:
"... among other arrangements, were to receive $8 million for a link on their website."
Hmmm, yes, that is true. But, not the full picture is it? By leaving out:
"...In summary, the 3CM Transaction would be paid for as follows:
• at least $20 million would be paid from Coastalwatch, TCI and Coastalcoms to
SurfStitch Group over a period of ten years; and
• US$9.7 million plus $10.5 million would be paid from SurfStitch Group to Coastalwatch, TCI and Coastalcoms over a period of ten years."
You have made the financial side sound like Surfstitch were forking out $8m, when in fact the whole deal is actually profit impact neutral.
I'm just putting the full facts on the boards. Everyone can form their own opinion. :)
Sorry mate, wholeheartedly disagree. This was a 500 word article summarising missteps as reported in todays report. In large part those mistakes were the overvaluing of assets and services, as evidenced by today's revalues. The whole arrangement appeared 'generous', and I'm not the only one bringing attention to it, there's a slew of articles and forum threads devoted to the exorbitant sums paid by SS. With that in mind the CW link would fit the same pattern - hence it gets a mention.
8 Mil for a link on a website, &$@* me. They cry poor and expect us photog's to shoot for "exposure". Let them all tumble from their high perches I say. LET THEM FALL!
FYI, not really "sticking it to the competitors" as SS didn't buy the forecasting part of the MSW business, only the online content and sales. Ben F is still putting out reports, I guess the question is if the platform they are presented on will change given the threat to SS's platform.
Yeah, not sure about that, all three MSW directors were terminated in May last year and replaced by Justin Cameron (SS founder). They may still work for MSW but they don't own it. Same deal with Met Central, another company owned by MSW.
That's the way I see it. Unless I'm missing something...?
At the current share price, I believe SS is valued at. $30mill.
Is that a fair estimate value of its various entities ?
The model of mergers and acquisitions and corporate floats across the business landscape is so often strategically flawed that it can only be intentional in many cases. Long grinds to build markets and sell quality services and product are too much like hard work.
Pump and dump is king.
- Make money on the pump
- load up the business on debt to fund the pump
- suck out money in huge salaries and share bonuses while the honeymoon lasts
-exist before the dump
- short on the way down if you can
-leave honest employees and shareholders not in the "club" wondering what the hell just happened and wondering how the grand strategy went wrong
The model is becoming so pervasive that it is hollowing out economies around the world and creating fictional growth and lots of pain to come.
Once you add to this sheer over confidence and optimism through MBA types with limited genuine business acumen, the business landscape is pretty fragile these days.
Crikey, I check Magic Seaweed every now and then for a free surf report but BOM has that covered. How it could be worth more than $100,000 or so or be a vehicle to generate big revenues is beyond me.
Perhaps I need to learn how to short stocks.
SurfStitch have just announced the resignation of their CFO and Company Secretary, Karen Birner.
Interesting developments today. Coastalwatch - who's parent company is suing SurfStitch for $12 million - have just made a bid to buy 100% of SurfStitch, for $55m (20c per share).
This offer is up slightly from the recent 30-day average of 19c, but down a lot from the IPO listing of $1 in November 2014, and the share price peak of $2.13 last November following SS's string of acquisitions.
Also interesting to note that since SurfStitch's last price crash (in August), Crown Financial - who own Coastalwatch - have been buying up shares in SS and now own 10.4% of the company.
AFR have a short summary of things here: http://www.afr.com/business/retail/coastalwatch-lobs-55m-takeover-offer-...
Do they still own FCS or have they off loaded it? I'm seeing way more boards around in Futures these days
Re: Surf Hardware - from today's press release: "The sale process is well advanced and the Company is considering a number of proposals and alternative options for that business."
So Ben, will CW take over ? If they are offering 20c then they will pay more. The legal case is actually hampering their bid, I suggest. Better off using the legal fee to offer a better bid and also get the directors onside to sell.
Pretty radical developments over the last few days.
In summary:
1) Following SurfStitch's rejection of CW's $55m offer (to buy the entire business, but with some strict conditions), CW sent an 'open letter' to SurfStitch, which they also sent to the media. As reported in the AFR:
http://www.afr.com/business/retail/surfstitch-shares-halted-as-suitor-st...
2) As a result, SurfStitch went into a trading halt on Tuesday, allowing it time to respond to CW's letter (parts of which made it to the Courier Mail).
http://www.couriermail.com.au/business/predator-crown-financial-seeks-an...
3) SurfStitch then uploaded a twelve page response to the ASX this morning (just prior to the trading halt being lifted), addressing CW's communication. Their response also included a copy of CW's initial proposal to SS, and then the 'public' letter sent to SS and the media. It's fascinating reading:
http://www.asx.com.au/asxpdf/20161110/pdf/43csj92n593v9m.pdf
Of most interest was the following:
"The Company notes that ASIC has commenced an investigation into Company's disclosures in connection with Contested Contracts".
With SurfStitch's AGM scheduled for next week, I imagine it's going to be an interesting couple of weeks ahead.
Not to be a lazy bones or anything but this stuff is definitely not my forte. What does this mean in layman terms?
Hard to tell, corporate biz is out of my forte too. Sounds like a big headache for SS right now though.
Nick, it means CoastalW is trying to buy a bargain. It has 10% of the shares and offered 20 cents to buy it. There is also legal action between CoastalW and surfS. CW are using pretty tough business tactics to get SS.
Gary hopes that the accountants at CW are better with numbers than the people that performed the "statistical analysis" in the article below on said website. Gary has copied out the offending commentary below the link.
http://www.coastalwatch.com/surfing/20704/this-is-what-you-think-about-t...
QUESTION - Would you consider buying a personal shark deterrent?
66% YES
34% NO
*It’s very telling in this response, the correlation between the number of people who said yes in this question and how many answered from NSW (also 66%)
Quite the analysis. Clearly, Shark Shield's business model is flawed, given their location in WA. I hope they've got access to market insight like this.
Fascinating article in the AFR this morning: "SurfStitch suitor denies seeking revenge over failed deals".
http://www.afr.com/business/retail/surfstitch-suitor-denies-seeking-reve...
Why offer 20 cents when you can buy on market @ 11 cents?
Another day, another open letter from Crown to SurfStitch before tomorrow's AGM.
As per the AFR:
"Online retailer SurfStitch is bracing for a showdown with spurned suitor Crown Financial, which has fired off a list of more than 30 questions ahead of the annual meeting on Wednesday.
Crown, part of the Sundell family's Three Crowns Investments group, has sent an open letter to the SurfStitch board, shareholders and media outlets, demanding more detail about the retailer's financial position, inventory levels, brand rationalisation program, asset writedowns and risk management.
Some of the questions relate to about $28 million in writedowns on non-retail assets acquired in the year after SurfStitch's initial public offer.
"We together with other shareholders look forward to hearing your responses to these questions at the AGM and we reserve the right to raise these and other relevant matters from the floor at the AGM if no satisfactory response is provided," wrote Crown Financial managing director Kim Sundell."
http://www.afr.com/business/retail/surfstitch-braces-for-showdown-with-s...
The SurfStitch AGM is on today, and although there are no media summaries yet, the Chairman and CEOs address has been uploaded to the ASX. It makes for some sobering reading.
http://www.asx.com.au/asxpdf/20161116/pdf/43cy7rcknzmzpc.pdf
Saw that this morning Ben, doesnt look good for SS, Found the following that sort of sums up alot of the above articals in simple terms,
http://www.couriermail.com.au/business/surfstitch-cash-levels-face-decli...
From the AFR: "Surfstitch chairman Sam Weiss has indicated the company is investigating starting legal action against its former CEO Justin Cameron."
http://www.afr.com/business/retail/surfstitch-shareholders-lash-out-at-f...
Did anyone from Swellnet attend the AGM?
No. You've gotta be a SurfStitch shareholder to attend.
sorry ben but that is not correct, anyone can attend
AGM notes do not show when they expect to see some sunshine. They are battling. And on two fronts. CW is going in for the kill it seems.
Wow.. the AFR updated their most recent article last night - they've found Justin Cameron!
This is quite incredulous:
SurfStitch co-founder Justin Cameron says he is keeping a "watching brief" and may attempt to privatise the online retailer if the right opportunity arises.
"I, like all shareholders, am greatly disappointed and frustrated with the position the company finds itself in," Mr Cameron told The Australian Financial Review after shareholders lashed out at their former CEO at the annual meeting in Manly on Wednesday.
"I'm still a significant shareholder in the company," he said. "Today I continue to maintain a watching brief on the business and opportunities that may present themselves."
Mr Cameron rejected criticism from shareholders, who have largely blamed him for the company's woes, and reiterated that he resigned in March because of a conflict of interest regarding a potential private equity-backed privatisation.
http://www.afr.com/business/retail/surfstitch-shareholders-lash-out-at-former-ceo-20161113-gso4y6
More from the AFR:
"Mr Cameron says he hasn't gone rogue and hasn't disappeared in a puff of smoke, as one disappointed shareholder suggested at the company's annual meeting in Sydney this week.
"I never disappeared off the planet. I've been here in Sydney and travelling, so I've been available at all times,"' Mr Cameron told AFR Weekend in his first interview since resigning abruptly in March. "How have I gone rogue?"
The 40-year-old former banker says he is not to blame for the company's woes, pointing the finger instead at current management, and rejects claims he overpaid for media and content assets."
http://www.afr.com/business/retail/surfstitch-cofounder-justin-cameron-i...
More big news, as per the linked ASX press release.
SurfStitch co-founder Lex Pederson and Surfdome founder Justin Stone (both Executive Directors) have retired from the Board.
So too have Jane Huxley and Stephen Goddard. Lex and Justin will however "continue in their executive positions".
In their search for new board members, SurfStitch have appointed Harry Hodge - the Founder, CEO, Director and Chairman of Quiksilver Europe (until 2005), also currently a Director of Surfing NSW.
http://www.asx.com.au/asxpdf/20161206/pdf/43dht9k6sryj90.pdf
Harry Hodge , now he'll be able to fix surf stitch !
Now sharkboy has lost the sharkhugging debate, he's moved on to giving financial advice! Beware investors, beware.
yeah I hugged a couple of whites , they voted for Trump or Hanson , but OK I agree kill the fucken lot of them , fuck the whites !
as for investors , are they white?
So i saw in paper surfstich is doing a director rebuild or whatever you call it but are forecasting more losses due to legal cases etc, just wondering aloud if this would be agood time to but shares in surfstich haha?
Well, it may be. Why, because the party that the legal battle with is - CoastalW. And they (CW) want to buy SS. CW are circling like a shark - classic business battle.