Surfstitch buys FCS

Stu Nettle
Swellnet Dispatch

2_25.jpgSurfstitch today announced they'd acquired Surf Hardware International (SHI), makers of FCS and other surfing hard goods. The acquisition comes after the online clothing company recently bought STAB, Magic Seaweed, and Garage Entertainment. They paid $23.7 million for SHI which takes the total of recent purchases of $50 million not including share options.

Each acquisition is part of Surfstitch's strategy to move from being a general brand aggregator into a content network with a retail business. In time each entity will fall under the 'SWELL.com' banner to provide continuity across the platforms.

Also, in today's announcement Surfstitch said they would soon open three 'SWELL' stores. Rather than signalling a shift back towards bricks and mortar, the shops better represent an expansion into new areas.

Surfstitch bought SHI from Macquarie Bank who'd unoffically had it for sale for many years. Macquarie bought majority shares in the company in 2002 when FCS had patent rights over the original fin system. This gave them a near-monopoly in the detachable fin field. When the patents expired many companies produced their own 'FCS compatible' fins and bases while SHI created FCS 2 with concomitant patent.

Though SHI lost market share once the original patents expired, FCS 2 proved popular and they remain the largest player in the ever-increasing fin market.

Comments

indo-dreaming's picture
indo-dreaming's picture
indo-dreaming commented Wednesday, 25 Nov 2015 at 7:25pm

I always find it weird that other big companies want to buy other big companies…if your that rich why do you want to be any richer? when is it enough?

Its like people that don't just own one restaurant they have a few, or a few surf shops or even worse the F%#Kin surf charters that don't stop at one and need a fleet, god even surf resorts are now not stopping at one and have a few.

I guess thats why I'm not rich i don't have that endless driver for more, more more.

Please Stunet give me an ignore button for Talking Turkey, Shatners Basoon, Dale Cooper, Factotum, Pupkin, and any new fake profile he decides to create.

maddogmorley's picture
maddogmorley's picture
maddogmorley commented Wednesday, 25 Nov 2015 at 7:34pm

The shareholders always want to be richer

tonybarber's picture
tonybarber's picture
tonybarber commented Wednesday, 25 Nov 2015 at 11:37pm

Don't you want to ride a bigger wave, better wave - it's the challenge.

walter-r-white's picture
walter-r-white's picture
walter-r-white commented Thursday, 26 Nov 2015 at 10:00am

When it comes to publicly listed companies, investors always want more. Not going forward is like going backwards, because some other company will be going forwards and you might as well move your $$ there.

Sadly, that's capitalism as we know it. F%#K sustainability, wastefulness, equality, human dignity, because apparently more, more, more is somehow better.

Don't take me too seriously.

Shelby's picture
Shelby's picture
Shelby commented Thursday, 26 Nov 2015 at 11:52am

i-d: I can understand why your not rich (a rather subjective term) but I'm surprised with your understanding of the world you can afford a computer and an internet connection (maybe your at the local library). For some people it's ambition or a dream, for some it's about greed, for well run companies it's about the opportunity to get an established company at a reasonable price to grow your own business. It's called capitalism, been around as that term since the 1750's, practiced in the vast majority of nations globally, get use to it.

indo-dreaming's picture
indo-dreaming's picture
indo-dreaming commented Thursday, 26 Nov 2015 at 1:59pm

(not sure who to reply too) Mmmm i don't see those comparisons as the same thing at all, i think there is a difference between ambition and having challengers and improving or experiencing new/better/different things .

And I understand why people do it, for more money, share holders etc

But I don't understand why people when they are so ridiculously rich or have a big successful company they need more. ( especially when its buying a big company rather than developing another)

For me knowing when enough is enough is just as important as drive and ambition.

A better metaphor kind of thing is say having desert after dinner.

It taste real good so yeah your often a little greedy and want a big slice of that sweet with cream on top, but as yummy as it is, there is no point having more than that one big slice with cream on top, because you can't appreciate anymore and it could even make you ill, so its also important to know when enough is enough.

Anyway that how i see it.

Please Stunet give me an ignore button for Talking Turkey, Shatners Basoon, Dale Cooper, Factotum, Pupkin, and any new fake profile he decides to create.

AndyM's picture
AndyM's picture
AndyM commented Thursday, 26 Nov 2015 at 4:33pm

Indo, you don't know and you never will because you're a slacker, an under-achiever and most likely a communist. Quite frankly you're not the sort of man I thought you were.

Shelby's picture
Shelby's picture
Shelby commented Thursday, 26 Nov 2015 at 4:37pm

i-d: Understand where your coming from in a personal sense, but in this case Surfstitch is a company listed on the ASX (with the two founders and private equity firm Janchor Partners as the three largest shareholders, but there would be many other shareholders) so investors, and potential investors (fund managers, superannuation funds, personal investors, etc.) will want the company to take opportunities to build the company when they can (i.e. growth at a reasonable price (GARP)).

Since listing about a year ago the share price has doubled, so at this stage, I'd suggest they currently have a strategy in place that investors appreciate and understand. The company is quite small with a market cap of A$500m and as yet hasn't paid a dividend, so I gather their strategy at this stage is growth by acquisition, utilising profits that could have been dividends to investors.

What I'm trying to say is your personal thoughts on personal wealth are valid, but so is the case of the Surfstitch board of directors and management team in delivering the strategy outlined to investors.

tonybarber's picture
tonybarber's picture
tonybarber commented Thursday, 26 Nov 2015 at 4:41pm

Rumours have it, is that Surfstich maybe more valuable than Billabong. Oh the world of mergers and acquisitions !!

Shelby's picture
Shelby's picture
Shelby commented Friday, 27 Nov 2015 at 10:36am

TB: Maybe one day, but not presently. Quick peek at the ASX this morning had the market capitalisation of Billabong International (BBG) at a$2.54b and SurfStitch Group (SRF) at A$488m.

walter-r-white's picture
walter-r-white's picture
walter-r-white commented Thursday, 26 Nov 2015 at 6:38pm

Anyone who calls endlessly pursuing more wealth as some sort of "challenge", or claims it is about the achievement etc and not about the money is full of sh#t. They'd be giving their excess wealth away, or committing themselves to challenging but philanthropic ambitions if they wanted a challenge for the sake of it. But many successful businessman aren't like that - they are just greedy pigs.

What I'm saying is unless you are pursuing something philanthropic, or giving your profits away to worthy causes, all this talk about challenging yourself blah blah is just a way of hiding behind a greed for money, or power, or status. And I don't see why it should be honoured. Some people have a lust for money, pure old fashioned greed. Some people want power or status, which is to say they have a need to feed a big ego, which leads to selfish behaviour.

We all seek a level of security and comfort in life and we all do that selfishly. Would anyone give up their job to make it available for someone else as a random act of kindness? No. Jobs are a means of survival.

But what I don't personal get (but I put down to a greed for money, power or status) is why people continue to seek wealth when they already have enough to live happily off for the rest of their lives and why they can ignore poverty and suffering all the while.

Don't take me too seriously.

wingnut2443's picture
wingnut2443's picture
wingnut2443 commented Thursday, 26 Nov 2015 at 5:34am

Why buy a new surfboard? Why upgrade, change fins? As TB says, why chase better or different waves? While in the corporate or business world it may seem like it is all about the money, truth is, the leaders in the business or company, CEO, Board of Directors, are in those jobs because they like doing something new or different, want a challenge or want something better. Sure, the money helps.

In fact, the strategy is usually always sold to stakeholders based on the money aspects, such as "economies of scale", "brand integration", "vertical integration", "better ROI", "shareholder value", etc... They're not exactly going to come out and say, "hey, we're bored and want a new challenge, so thought we'd give this a try"... I mean, FFS, would you employ a CEO that said that? Would you buy
Shares in the company if the Board of Directors annual report said that?

I always look for the underlying motivation when things like this are announced.

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

BobC's picture
BobC's picture
BobC commented Thursday, 26 Nov 2015 at 6:35am

Shapers fins are better anyway as they have a lot more thought into the design and easy to get. The old two tab system is heaps better, just ask Channel Islands.

blindboy's picture
blindboy's picture
blindboy commented Thursday, 26 Nov 2015 at 9:18am

.....until you hit something! The new system is much more robust.

thermalben's picture
thermalben's picture
thermalben commented Thursday, 26 Nov 2015 at 9:26am

Really? I'm still getting my boards done with old plugs where I can. Feedback (on the FCS II) has been mixed from what I've heard.

50young's picture
50young's picture
50young commented Thursday, 26 Nov 2015 at 9:30am

I agree Ben, my mate has lost 4 fins so far, FCS has replaced them every time but now he used the screws as well, which defeats the purpose. Much prefer the old system

oiley's picture
oiley's picture
oiley commented Thursday, 26 Nov 2015 at 9:35am

I lost a fin using one of the 'adaptor' plugs that makes FCS1 fins fit into FCS2.. but no problems with FCS2 so far..

Gary G's picture
Gary G's picture
Gary G commented Thursday, 26 Nov 2015 at 2:18pm

Gary rides futures

I’ve created a monster. Cause nobody wants to ride faceys no more, they want Gary; I’m chopped liver.

But if ya want Gary this is what I’ll give ya: a little creatine kiss from a hard licker

blindboy's picture
blindboy's picture
blindboy commented Thursday, 26 Nov 2015 at 5:12pm

thermalben wrote:

Really? I'm still getting my boards done with old plugs where I can. Feedback (on the FCS II) has been mixed from what I've heard.

The main problem with the old plugs was that the bond to the board could crack easily requiring the plug to be refitted. If you didn't pick this up, depending on the foam type, you could soak up a lot of water very quickly. My experience with fcs 11s is more limited but so far they seem better designed to avoid that issue. Also given the pressure necessary to get the fins into the box it seems unlikely that they would come out easily..........fcs1s in fcs11 boxes? Not a happy arrangement. I found it hard to get the positions precise.

blindboy's picture
blindboy's picture
blindboy commented Sunday, 6 Dec 2015 at 6:00pm

Ha ha I didn't even know you weren't supposed to use screws. If you can knock them in.......you can knock them out. Use screws!

blindboy's picture
blindboy's picture
blindboy commented Sunday, 6 Dec 2015 at 7:09pm

I was just putting some fcs11s into a new board and it came to me how ironic it that their new system is supposed to depend on friction to hold the fin in. The reason being that the founders of fcs, or Gorilla Grip as it was then, used to produce home made boards as teenagers. I had one shaped by Gary Mountford that had a fin box that was simply a slot constructed out of chop strand. The fins we used were made out of marine ply and we would jam them into the slot with a piece of chamois.......or cardboard if you didn't have any. It was cheap and easy to make a stack of fins and just stick another one in if it came out. So 45 years later the company they founded goes back to essentially the same idea.

velocityjohnno's picture
velocityjohnno's picture
velocityjohnno commented Monday, 7 Dec 2015 at 5:57pm

Has anyone had the 'peanut' fitting for FCS1 put in? I'm finding that more robust than the individual plugs.

surfer1971's picture
surfer1971's picture
surfer1971 commented Wednesday, 20 Jan 2016 at 11:07am

Surfstitch have just bought Maddogs in Byron Bay. They are apparently doing a swell shop. Thought this may be of interest to you. I wonder who will be shaping the Mark Richards boards now. For years they have been made by the guys at Maddogs. Will Surfstitch be making Maddog boards??? or will they just not be made.

stunet's picture
stunet's picture
stunet commented Wednesday, 20 Jan 2016 at 11:19am

Yeah, interesting. Cheers S1971. Lotta history in that building.

surfingbymyself's picture
surfingbymyself's picture
surfingbymyself commented Thursday, 26 Nov 2015 at 12:06pm

I'd rather the fin fail under impact than the plug pull out of the board.
Having said that, every single set of fcs style fins I've ever had has cracked around the top of the tabs. Disappointingly, that also now includes fcsII

sully1969's picture
sully1969's picture
sully1969 commented Thursday, 26 Nov 2015 at 7:41am

Fucking Greed , thats the fundamental problem with the world , look at woolies and coles they want to own eveything aswell ! buy a yacht and go surfing you idiots , i say surfstitch has help ruin the core part of the surf industry , your local surfshop and your local shaper are slowing dying away because of companies like this .
Shop at your local surf store and go see a local shaper and smell the resin and smell the wax behind the counter and for gods sake stop buying on line .

p-funk's picture
p-funk's picture
p-funk commented Thursday, 26 Nov 2015 at 9:17am

sully1969 wrote: Fucking Greed , thats the fundamental problem with the world , look at woolies and coles they want to own eveything aswell ! buy a yacht and go surfing you idiots , i say surfstitch has help ruin the core part of the surf industry , your local surfshop and your local shaper are slowing dying away because of companies like this .
Shop at your local surf store and go see a local shaper and smell the resin and smell the wax behind the counter and for gods sake stop buying on line .

Ha. But no.

Online is here to stay, and prosper even further. Bricks and mortar is dead.

memlasurf's picture
memlasurf's picture
memlasurf commented Thursday, 26 Nov 2015 at 2:12pm

Not convinced. I thought the same as you however person to person service and friendships are always going to be around. I now try to everything through my local unless it is specialised. Gets me out and about to chew the fat. I think the big anonymous shops are dying however the boutique are growing.

Shelby's picture
Shelby's picture
Shelby commented Thursday, 26 Nov 2015 at 4:51pm

Sully1969: Your thoughts seem a bit simplistic.

Surfstitch was only founded in 2007, I'd suggest that the local shaper and surf shop was feeling the pinch well before that (I do buy off local shapers, and as yet, never bought an overseas manufactured board).

Even a core part of the traditional surf industry, Billabong, bought a minority holding in 2009 and helped with their global expansion. Change is a constant, has been the case in surfing since, well, the late 60's.

Woolworths and Coles are under pressure from a range of new entries into the country, most notably Aldi and Costco and this will continue. Competition should bring out the best

Your local shaper and surf shop will survive if they are offering what the customer needs.

Buy a yacht and go surfing. Love to, if I had a yacht, a boating licence, no fear of sinking in the middle of nowhere, no mortgage, no wife and kids, no commitments, no time to post here...

tim foilat's picture
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tim foilat commented Thursday, 26 Nov 2015 at 5:26pm

Competition will bring out what ever behaviours, strategies or policies an agent has at their disposal to take on the competition. The outcomes to customers, suppliers or even to the competing businesses are not always the "best" outcomes

Shelby's picture
Shelby's picture
Shelby commented Friday, 27 Nov 2015 at 10:39am

TF: Valid point, that is certainly one aspect to competition.

udo's picture
udo's picture
udo commented Friday, 27 Nov 2015 at 2:55pm

Nothing to do with SurfStich.....Ben ...Midcoast surf have called it a day..closing the doors at xmas unable to compete with online and cheap import surfboards
Hope Rick and Mark get enough $ each to buy themselves a yacht .

thermalben's picture
thermalben's picture
thermalben commented Friday, 27 Nov 2015 at 3:00pm

Wow, sorry to hear the news. Never rode a Genesis board but had a few mates who had plenty of 'em over the years. I remember Rick Ford doing 'surf' lessons for half a dozen of us in Year 11 Sports (dunno how we scored that!). Rick and Mark been stalwarts of the industry for decades.

maddogmorley's picture
maddogmorley's picture
maddogmorley commented Friday, 27 Nov 2015 at 3:29pm

Oh no! They are the best ding repair guys in Adelaide!

Not to mention great guys who love a yarn....who's gonna shape my next Quad now :(

Bob's 2 Bob's's picture
Bob's 2 Bob's's picture
Bob's 2 Bob's commented Thursday, 26 Nov 2015 at 3:05pm

I have a question for the forum experts here...

Billabong used to own Surfstitch outright and sold it back recently??? Is that correct?

Why would their board do that when it now appears that Surfstitch is way more successful than what was the parent company and was clearly trending that way when Bbong sold them back?

Would this present the Billabong board as smart operators to their shareholders??

Please explain??

http://www.theage.com.au/business/retail/surfstitch-is-now-worth-more-th...

Freeload69

Shelby's picture
Shelby's picture
Shelby commented Thursday, 26 Nov 2015 at 4:57pm

B2B, Surfstitch was listed on the ASX in late December 2014. Without knowing the full workings of Billabong they either sold there share as part of the listing, kept it in the listed entity, or a combination of both (sold part, kept part). They may have use whatever equity they received for other purposes in the company (I'm assuming pay down debt).

ACB__'s picture
ACB__'s picture
ACB__ commented Thursday, 26 Nov 2015 at 4:51pm

Now I'm no international businessman but is FCS really only worth $23.7 million?

Given a set of fins roughly costs $100, That's only 23,700 sets of fins to be sold to make profit!

http://www.statisticbrain.com/surfing-statistics/ Says that there is 23 million surfers world wide!

Something doesn't quite add up....

rhys1983's picture
rhys1983's picture
rhys1983 commented Thursday, 26 Nov 2015 at 7:21pm

You don't make 100% profit on selling a product. They would have significant overheads. So out of every set out $100 fins they might make $20 (a total guess as an example).

I do agree it seems cheap but they might either have a bunch of liabilities that the new buyer is taking on or the business isn't hugely profitable which would, in both cases, reduce the price.

Shelby's picture
Shelby's picture
Shelby commented Friday, 27 Nov 2015 at 10:43am

ACB: The valuation of $23.7m would have been formulated based on the assets of the business, business plans, intellectual property, profit growth forecasts, etc.

udo's picture
udo's picture
udo commented Thursday, 26 Nov 2015 at 5:04pm

FCS value ,Bill Mcclausand might know ?

blindboy's picture
blindboy's picture
blindboy commented Thursday, 26 Nov 2015 at 6:48pm

......but given the history udo I wouldn't even be mentioning the subject!

udo's picture
udo's picture
udo commented Thursday, 26 Nov 2015 at 7:56pm

Interesting that Jake Patterson is still glass on fins only ?

Bob's 2 Bob's's picture
Bob's 2 Bob's's picture
Bob's 2 Bob's commented Thursday, 26 Nov 2015 at 8:17pm

Thanks for that analysis Shelby - I still find it incredibly ironic that company Billabong not long ago owned majority of Surfstitch - have now sold it and have been overtaken in value by the same. To me it reads of more like complete idiots at the helm of Bbong selling off an item that actually had a greater future than the flagship.

Freeload69

Shelby's picture
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Shelby commented Friday, 27 Nov 2015 at 10:54am

B2B: No worries. Actually a little more digging on this earlier I was not 100% correct in my last comment (I went from memory, never a good thing). The founders bought out Billabong on listing as well as Billabong's North Americas on-line site, Swell. I agree with you about the irony on Billabong selling out of what currently appears to be a company in a strong global growth phrase, but then again, I'm not in the board room at Billabong and don't have access to their company strategy (maybe focus on manufacture and not distribution?), but it has been well documented that the company has had troubles on a few fronts and there may have been pressure to sell their holdings at a good profit to pay down debt and/or use it to grow the care business. Your guess is as good as mine.

fartpaddler's picture
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fartpaddler commented Wednesday, 20 Jan 2016 at 5:13pm

haha gary g, always good for a chuckle.....

thermalben's picture
thermalben's picture
thermalben commented Thursday, 25 Feb 2016 at 3:16pm

Surfstitch shares have plunged today - from $1.79 to (currently) $1.08 - a 36% drop - after they "abandoned its full year profit guidance, citing heavy investments in digital content."
http://www.smh.com.au/business/retail/surfstitch-delivers-maiden-profit-...

$1.08 is a 52-week low, and is just 8c higher than the price investors paid through SurfStitch’s $83 million IPO in December 2014.

$1.08 also a major drop from their share price high of $2.09, just three months ago in late November (two days prior to the above article being written, which was just before they acquired Surf Hardware).

Interesting too that the share price dropped so much today, when they actually reported some good news:

"Surfstitch reported a modest statutory net profit of $368,000 from a $5.6 million loss in the year-earlier period."

A "$5.6 million loss in the year-earlier period"? Wow.

And this quote from the SMH article needs clarification:

"But proforma net profit soared to $5.7 million compared with $300,000, and proforma earnings before interest tax depreciation and amortisation rose almost five-fold to $13.9 million from $3 million as sales rose 40 per cent to $144.9 million."

"The proforma results assume that SurfStitch and several businesses acquired over the last two years, including Surfdome, SWELL, Magicseaweed and Stab, were part of the group as of July 2014."

Well, this last sentence is interesting. SurfStitch acquired Surfdome and Swell in November 2014.

They then acquired MSW and Stab in May 2015, Garage Entertainment in early November 2015 and Surf Hardware in late November 2015.

So none of these businesses "were part of the group as of July 2014". Unless they're referring to July 2014 as the start of the 14/15FY...?

thermalben's picture
thermalben's picture
thermalben commented Thursday, 25 Feb 2016 at 3:53pm

Wow, they just dropped below $1, to 99c. 

thermalben's picture
thermalben's picture
thermalben commented Monday, 29 Feb 2016 at 5:11pm

Jesus, how's these kinds of finance articles that pop up from time to time:

The Surfstitch share price is soaring: Here’s why

"It seems investors are finally cottoning on to the potential growth of Surfstitch, after shares were heavily sold off last week, despite reporting a decent interim financial result.

But the bargain hunters seem to have arrived – and they may have picked up an absolute bargain, given the potential growth Surfstitch is aiming for."

Funny thing is, the same bloke wrote the following on Friday after the share price tumbled:

Surfstitch Group Ltd share price smashed despite soaring revenues

"The surf is up for Surfstitch Group Ltd (ASX: SRF) after the company reported a monster wave of revenue growth for the first six months of the 2016 financial year – but the market hasn’t taken too kindly to the results, pushing the Surfstitch share price down more than 20% to $1.38.

Surfstitch’s share price might look very expensive at around $1.38. Whilst it is obviously a high risk (potentially high return) play, investors might want to make space in their portfolios for Surfstitch."

That was at $1.38. A few hours later it had dropped to 99c. 

Now's claiming Friday's good advice is still valid, even though the share price dropped 30% immediately after he published his first article, and is still 11% lower?

thermalben's picture
thermalben's picture
thermalben commented Thursday, 10 Mar 2016 at 11:00am

Wow. Breaking news:

"SurfStitch CEO Justin Cameron has resigned and is considering taking the company he co-founded eight years ago private in conjunction with private equity investors.

Surfstitch chairman Howard McDonald said on Thursday Mr Cameron had resigned from all positions with immediate effect and was considering a potential acquisition of the company.

Mr McDonald said Surfstitch had not yet received any formal or informal proposal from, nor had any discussions with, private equity in relation to a potential acquisition of the company.

"Furthermore, the company has not received any specific information from Mr Cameron in relation to what the possible terms and conditions may be of any potential acquisition proposal," he said."
http://www.smh.com.au/business/retail/surfstitch-ceo-resigns-mulls-priva...

thermalben's picture
thermalben's picture
thermalben commented Thursday, 10 Mar 2016 at 1:59pm

Lots of media converging on this story now. From the AFR:

"Cameron's position raises the obvious questions about his role in the company's decision to cut guidance weeks after raising equity, which in turn drove down the company's shares to the point where it is now an attractive takeover target

The whole thing smells bad, particularly the lack of transparency around why the company has made the decisions it has in recent weeks. The company, clearly caught on the hop by Cameron's actions, needs to give a better explanation beyond a six paragraph statement about what is going on."

http://www.afr.com/brand/chanticleer/surfstitch-boss-jumps-ship-to-join-...

thermalben's picture
thermalben's picture
thermalben commented Thursday, 10 Mar 2016 at 2:19pm

And this from the SMH:

"SurfStitch and the less than swell history of surfing stocks

Is there something about the mentality of Australian surfing entrepreneurs that makes them poorly suited to the stockmarket?

I don't have a good answer to that, but it does seem that it's a good idea to steer clear of surf stocks if you want to avoid a wipeout."

http://www.smh.com.au/business/retail/surfstitch-and-the-less-than-swell...

thermalben's picture
thermalben's picture
thermalben commented Thursday, 17 Mar 2016 at 10:41am

"SurfStitch has appointed Lex Pedersen and Justin Stone as joint chief executives, effective immediately, following the abrupt departure of Justin Cameron last week.

Mr Stone is currently managing director of the company's Europe unit, SurfStitch's largest geography by revenue, and founded Surfdome."

http://www.smh.com.au/business/retail/surfstitch-appoints-lex-pedersen-a...

thermalben's picture
thermalben's picture
thermalben commented Friday, 18 Mar 2016 at 10:28am

Interesting quote in The Australian this morning:

"Mr Cameron resigned during his fixed two-year period, and SurfStitch reminded the market yesterday it was reserving its “various rights”, presumably relating to any possible legal claims and clawback of remuneration payments to the departed chief executive."

http://www.theaustralian.com.au/business/companies/surfstitch-names-lex-...

thermalben's picture
thermalben's picture
thermalben commented Tuesday, 26 Apr 2016 at 12:20pm

After 'rebounding' to $1.40 in March (following Justin's resignation), SurfStitch's share price has slowly fallen, and just touched $1.10. That's only 10c higher than the initial IPO in December 2014 (and down from a peak of $2.13 in November, five months ago).

thermalben's picture
thermalben's picture
thermalben commented Tuesday, 26 Apr 2016 at 2:39pm

It's now at $1.01, that's down 13c or 12% today. Just 1c off the IPO listing.

thermalben's picture
thermalben's picture
thermalben commented Tuesday, 26 Apr 2016 at 5:54pm

SMH have a story out already.

"SurfStitch chairman Howard McDonald is under pressure to update investors on the likelihood of a takeover offer as shares in the online action sports retailer sink to record lows.

Mr McDonald agreed with shareholders that the timing of Mr Cameron's resignation was unfortunate, saying "the optics aren't good".

One investor suggested the company's actions amounted to a "classic pump and dump" and queried whether the corporate regulator should be inquiring into the circumstances behind the capital raising, the profit downgrade, Mr Cameron's resignation and talk of a privatisation bid."

http://www.smh.com.au/business/surfstitch-under-pressure-as-shares-sink-...

poo-man's picture
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poo-man commented Tuesday, 26 Apr 2016 at 6:41pm

This whole thing stinks. How can those guys sell shares at $2 each to raise more capital then promptly downgrade straight away? Surely they had a handle on how things were going! Is this company ever going to make a decent profit? From what I've read it seems unlikely.

poo-man

thermalben's picture
thermalben's picture
thermalben commented Friday, 29 Apr 2016 at 9:16pm

The Australian Financial Review is speculating that "UK fast fashion outfit ASOS and Chinese e-commerce giant Alibaba have looked at the company".

Wow, that would be an interesting turn of events if it occurred.

http://www.afr.com/brand/chanticleer/surfstitch-seeks-direction-after-ce...

thermalben's picture
thermalben's picture
thermalben commented Tuesday, 3 May 2016 at 9:58am

Wow.

"SurfStitch has issued its second profit warning in as many months as tough trading conditions across its key markets forced it to up its spending on advertising, which has crunched margins, while the shock resignation of its co-founder and CEO Justin Cameron in March has slowed down the pace of folding in its string of acquisitions, which will also hurt earnings.

And the highly anticipated takeover bid from the former CEO Mr Cameron, who quit suddenly to join forces with an unnamed private equity firm in March, is yet to materialise, with SurfStitch also announcing in a trading update that it had received to date no communication from its former boss or any private equity group.

Meanwhile, the loss of the SurfStitch founder and a downturn in trading conditions will leave its mark on the online surfing and sports apparel retailer.

The management turmoil at SurfStitch has impacted the company’s ability to implement its transformation program and integration of the companies acquired over the last 12 months, SurfStitch warned this morning, which combined has constricted the earnings benefits that were expected to be booked in the second half from its acquisition spree.

SurfStitch said taking these factors into account, and following a thorough appraisal of all SurfStitch businesses, the company anticipates that pro-forma EBITDA for fiscal 2016 will be between $2 million and $3m. This is against pro-forma EBITDA of $7.7m in 2015."

http://www.theaustralian.com.au/business/companies/surfstitch-issues-sec...

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thermalben commented Tuesday, 3 May 2016 at 10:01am

And from the SMH:

"Online action sports retailer Surfstitch has slashed full-year profit guidance, warning that earnings before interest tax depreciation and amortisation are expected to plunge at least 61 per cent to between $2 million and $3 million for the year ending June."

"Co-founder and joint chief executive Lex Pedersen said the benefits of Surfstitch's investment in digital content would not flow through to earnings until 2017 and beyond."

That's quite a different line to what they were pushing just six months ago.

http://www.smh.com.au/business/retail/surfstitch-earnings-forecast-to-fa...

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thermalben commented Tuesday, 3 May 2016 at 10:31am

And how's this from the Motley Fool:

"Multi-media content and swimwear seller Surfstitch Group Ltd (ASX: SRF) seems likely to plunge today, after a disappointing market update."

"The announcement is all the more shocking when compared to EBITDA of $7.7 million earned in the 2015 financial year, and company forecasts of  ‘growth of 100% +’ to EBITDA of between $15 million and $18 million in FY 2016."

"Investors hanging on for a private equity bid are likely to be disappointed as well, with today’s update virtually guaranteeing that any eventuating bid will be substantially lower. The timing of former Managing Director Justin Cameron’s departure – just over 6 weeks ago – is also beginning to look suspect."

But.. what has Motley Fool previously said about SurfStitch, in the wake of Justin's departure?

Just yesterday: "Investors who are comfortable with a higher level of risk-reward potential should consider Surfstitch at the current share price. I think patient investors could be well rewarded even if an offer does not eventuate as the longer term growth potential for Surfstitch remains quite attractive."

April 22nd: "Personally, I’ll be hanging onto my shares in the company for as long as I can."

March 21st: (article title "4 shares I think have explosive growth potential"): "While there is the possibility that an offer (private equity buy-out) doesn’t eventuate, Surfstitch is still likely to continue on its upward growth trajectory and this means it remains an attractive investment in any case."

March 17th: "Surfstitch forecast ‘strong double digit revenue growth is expected to continue with strong gross profit margins’ when it released it results on February 26, and there’s no reason to doubt the company. Whether or not a bid appears, Surfstitch looks to have an excellent future."

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thermalben commented Tuesday, 3 May 2016 at 10:33am

And... without any surprise, SurfStitch shares have plummeted to 47c at opening.

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belly commented Tuesday, 3 May 2016 at 12:08pm

as you've touched on previously Ben public ownership of surf companies doesn't appear to work and it could be a good topic for some surfing academic type to investigate further

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thermalben commented Tuesday, 3 May 2016 at 12:52pm

Are they really a surf company though? The word "surf" might be in their name, and they may carry some hardware lines, but otherwise they're an online retailer with 600 brands in their inventory list.

Off the top of my head I could probably list thirty or forty surf brands. Let's say there's a hundred surf brands in total - that's still only 16% of SurfStitch's catalogue. If you looked at the Iconic (or any other "non-surf" online retailer) you'll probably see a lot of the same surf brands there too.

But.. if your local surf shop started selling Bonds, Levis, Wrangler, Ben Sherman etc, I think you'd probably question whether it was a surf shop or not.

My point being: I don't think SurfStitch's recent woes are necessarily "surf" related.

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jesse commented Wednesday, 4 May 2016 at 7:53am

Pretty happy the leverage the "surf" image for profit though.

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thermalben commented Friday, 3 Jun 2016 at 1:35pm

New record low of 39c today. Still no news otherwise either.

wingnut2443's picture
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wingnut2443 commented Friday, 3 Jun 2016 at 5:59pm

Takeover anyone?

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Tuesday, 7 Jun 2016 at 12:10pm

"Surfstitch has halted trading in its shares ahead of an earnings update, its second in two months."

http://www.smh.com.au/business/retail/surfstitch-halts-shares-ahead-of-e...

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tonybarber commented Tuesday, 7 Jun 2016 at 12:23pm

I think Ben you may have pin pointed the problem - their online catalogue has only 16 percent of surf brands, yet it is trying to market to the 'surf' market. A classic retailing mistake. A murky one this one as the Former CEO is playing games. Probably does not say much about share advisors either.

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thermalben commented Wednesday, 8 Jun 2016 at 2:16am

Wow, wow, wow.

"Justin Cameron, the former chief executive of online surf wear retailer SurfStitch is keen to return to the company he co-founded eight years ago but has been rebuffed by the board.

Sources close to Mr Cameron said the former investment banker was seeking to repair the damage triggered by his sudden resignation in March to pursue a private equity backed privatisation and a subsequent profit warning.

Mr Cameron, 39, was still keen to privatise the company, the source said, but his original backers, believed to be US-based private equity firm TSG Consumer Partners, the owner of online retailer Backcountry.com, had walked away."

http://www.theage.com.au/business/retail/surfstitch-halts-shares-ahead-o...

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thermalben commented Thursday, 9 Jun 2016 at 9:25am

More incredible news with every passing day. From SurfStitch's press release to the ASX this morning (the reason for the trading halt):

SurfStitch "now advises that pro-forma EBITDA for FY2016 is likely to be a loss, in the range of $17.3 million to $18.3 million."

Wow, wow, wow.

Just six months ago they were still forecasting a $16-18 million EBITDA profit.

Four months ago they downgraded (in a roundabout way), saying they would not issue profit guidances any more.

Two months ago they downgraded again to $2-3 million profit.

And now another downgrade, this time they're forecasting a massive loss.

In other news, SurfStitch have hired a new CEO - Mike Sonard - who was CFO, COO and CEO for Globe between '02 and '06.

wingnut2443's picture
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wingnut2443 commented Thursday, 9 Jun 2016 at 9:44am

If ya gunna have a shit year, clean out the balance sheet! That way, all the losses hit at once and you can rebound with good results. Anyone remember this same situation with QANTAS a few years ago?

Hmmm, good time to buy.

So, ya back in Oz Ben?

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Thursday, 9 Jun 2016 at 10:15am

Not yet, thought I'd wait until the tail end of the East Coast's swell event completely fades away.

Why torment myself in person when I can simply switch off my iPad and ignore that this epic swell ever happened?

It'll all be nothing but a distant memory in a week or so.

Yeah, right.

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ljkarma commented Thursday, 9 Jun 2016 at 10:24am

28c and diving full on cleanup set and tombstoning

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thermalben commented Thursday, 9 Jun 2016 at 10:44am

25c and continuing to drop.

Wow.

Imagine if you'd bought in at $2 per share - just six months ago - as a part of the capital raising so they could buy Surf Hardware (FCS). They raised $50 million in this manner - 25 million shares - but the fifty mill is now only worth $6.25 million.

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Over60yrs commented Thursday, 9 Jun 2016 at 5:49pm

And they paid cash for all the companies they bought - FCS guys must be laughing with $23m in the bank less what they owed (they would be very pleased they didn't take the shares).

But these dire results may mean the Surfstitch companies will be looking at some lean years on the costs side.

I just wonder what happened to Cameron the CEO - some sort of 'breakdown' (it's very very strange and could be quite sad) ??

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thermalben commented Sunday, 12 Jun 2016 at 8:25am

Looks like a class action could be on the horizon.

Legal firm Gadens is "presently engaged in a preliminary investigation of the financial circumstances of the online sports and apparel company SurfStitch Group Ltd ACN 602 288 044 (ASX: SRF)."

"Gadens is particularly concerned to inquire about the initial float of SurfStitch in 2014 and the manner in which its affairs have been conducted since. There are issues about the sufficiency of the disclosure made by SurfStitch at the time of the float and thereafter concerning its extensive business and brand acquisition program and the affect that program would have on its share price."

"Gadens is also interested in whether SurfStitch complied with its continuous disclosure obligations and properly kept the market informed of matters affecting its share price or value."

http://www.gadens.com/News/Pages/SurfStitch-Group-Limited-%E2%80%93-Poss...

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thermalben commented Tuesday, 14 Jun 2016 at 5:51pm

The market didn't like the Class Action news - shares dropped another 16.4% today, closing at 28c.

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Wharfjunkie commented Tuesday, 14 Jun 2016 at 7:07pm

Is their anything significant about these events? Apart from the fact it's a surf retailer who has purchased Stab Mag, Magic Seaweed and FCS. Profits didn't meet expectations shareholders upset dump shares. Yet the share price plummeting doesn't reflect the value of the business Surfstitch may take a few hits will see how it pans out in a few years if they make a profit.

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thermalben commented Wednesday, 15 Jun 2016 at 8:32am

Wharfjunkie wrote: Is their anything significant about these events?
I'm no financial analyst, but everything I'm reading (from those who know a lot more than me) suggests this is a very big deal.
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Wharfjunkie commented Wednesday, 15 Jun 2016 at 9:39pm

Its a big deal if you own part of the company. But it may not be as bad as people think the online clothing and accessory store is the businesses bread and butter if that survives and is profitable the company will turn it around.

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poo-man commented Tuesday, 14 Jun 2016 at 9:02pm

I suppose if they can turn a profit before they run out of cash then all good but I'm struggling to see how that can happen now. They must be burning through their cash reserves and at some point they either need to stop the burn or raise more money from the market but given their track record so far is that even likely or possible? Wouldn't surprise me to see a takeover bid emerge but then again, is it even a viable business?

poo-man

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wingnut2443 commented Wednesday, 15 Jun 2016 at 9:02am

It's worth reading the full ASX announcement to understand the situation:

http://www.asx.com.au/asxpdf/20160609/pdf/437sk7p4f82k9q.pdf

"In 2H FY2016, the Company entered into a set of agreements with the same party effective 15 March 2016 for the provision of various services including access to software and hosting the SurfStitch online store, and which extended the payment terms of the perpetual licence agreement.

An in-depth review of the business has been undertaken including these subsequent
contracts. As a result of this review and recent information that has come to hand, the Company believes in substance an amendment to the original contract has occurred in 2H FY2016.

The effect of this is that $20.3 million of revenue will be reversed and reflected in the full year results.

Other than as set out above, there is no variation to the update relating to trading conditions in 2H FY2016 announced on 3 May 2016."

Sounds like someone fucked up in recording the $20m income in the first place.

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Wednesday, 15 Jun 2016 at 9:23am

Way too many strange things about that "transaction" though.

Essentially, the agreement was that SurfStitch had supposedly licensed content from MagicSeaweed, Stab and Garage Ent out to an unnamed third party, for $20.3 million.

The license was also 'perpetual' - meaning "indefinitely".

Now, putting aside the fact that they're not disclosing who the third party is (which is odd), this raises a few other questions. Swellnet's business is monetising online content - specifically, surf content, including third party licensing - so I understand the revenue streams extremely well.

And I can't fathom how anyone would value MSW/Stab/Garage content in the tens of millions - it's an unfathomable amount of money.

Although the license was perpetual, if you were to consider the costs over three years (a reasonable time frame) it still works out to $560K per month in content licensing fees. Or $19K per day. Just so this (unnamed) third party can reproduce some surf forecast data, and a few articles and videos on their own platform.

Seriously?

You also have to keep in mind that anyone purchasing this content feed (1) doesn't actually own it (i.e. the copyright remains with SurfStitch), and (2) will need to upsell it in some other way in order to make money themselves. So aside from the $20+ million in content fees, how much money is this third party spending on their website/staff/hosting/marketing?

But on top of that - SurfStitch's bold new business plan is essentially bolting on MSW, Stab and Garage content to their online store. I understand the premise - attract customers with the content, and then try to incentivise them to buy something while they're there.

But if all of SurfStitch's exclusive content can also be found elsewhere on another website - who've just paid $20+ million for it, and who would understandingably be marketing it heavily so as to justify their investment - then doesn't that reduce the chances that people will visit the SurfStitch ecosphere in the first place? And therefore diminish the chance that people will buy clothes from SurfStitch's online store?

It's all a bit odd.

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Over60yrs commented Wednesday, 15 Jun 2016 at 12:13pm

And who is this 'third party" and $20m in reversed revenue (so they booked income upfront which now appears to be nil) ?

And the ASX reference to "the Company believes in substance an amendment to the original contract has occurred in 2H FY2016. "

Is this where the ex CEO Cameron has gone off the rails hence his resignation ?

PS I was so close to buying some shares around $1.70 a while back.............with the stories of Billabong, Quicksilver and now Surfstitch you do wonder if surf related retail is doomed unless they are niche/local/hipster. Just go and buy your boardies at Kmart with the only reason to go into a surf shop is to upgrade your wetsuit (and hopefully get at the end of year sale).

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thermalben commented Wednesday, 15 Jun 2016 at 12:56pm

Over60yrs wrote: And who is this 'third party" and $20m in reversed revenue (so they booked income upfront which now appears to be nil)
That's a very good question.

The only other information offered is that SurfStitch "entered into a set of agreements with the same party .... for the provision of various services including access to software and hosting the SurfStitch online store".

So, this mysterious third party is a tech company who offers web hosting services? And who have "access to software"? (whatever that means)

Enterprise-level web hosting is a complex, expensive operation. If SurfStitch are migrating their massively expanded website (the merger of three online stores, plus MSW surf forecast data, Stab content and Garage Ent videos - all on the one website), then they can really only be dealing a highly specialised hosting provider.

But a web host provider who also is in the business of concurrently licensing unique surf content for $20 million?

I really don't know who that could be.

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wingnut2443 commented Wednesday, 15 Jun 2016 at 2:02pm

Quick whois search (http://who.is/whois/surfstitch.com) shows surfstitch.com linked with "CSC CORPORATE DOMAINS, INC.", with a search of that leading here:

https://www.cscglobal.com/service/csc/about

From their website, it seems they could fit the profile of such a company who could be "a web host provider who also is in the business of concurrently licensing unique surf content for $20 million"

???

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Wednesday, 15 Jun 2016 at 2:45pm

Nah I reckon they're just helping them with corporate filings, business (and domain) registrations etc.

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ljkarma commented Wednesday, 15 Jun 2016 at 12:24pm

thanks for explaining Ben. That deal never made sense and even more so what they paid for Stab etc.
Maybe the potential Class Action will dig into the real story. Must be some very nervous directors right now.

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wingnut2443 commented Wednesday, 15 Jun 2016 at 2:10pm

Just another thought too ... the ASX announcement wording is:

"The transaction related to the grant of a perpetual licence to a third party to use the Company’s content contained in its subsidiaries – SurfStitch, Garage Entertainment, Rolling Youth and MagicSeaweed."

... to a "third party"

It does not say an "arms length" third party. Inferred, but not stated.

So, 'what if' the perpetual licence was to a company or person involved in the whole merger / acquisition transactions with this same "third party" being the new "platform" owner on which all the website will operate, so, say a large corporate who has taken skin in the game to be part of this whole new conglomerate?

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Wednesday, 15 Jun 2016 at 2:46pm

Possibly, but this $20 million hit is causing them an awful lot of grief. Seems a lot of unneccesary pain for an in-house admin error.

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thermalben commented Wednesday, 15 Jun 2016 at 5:36pm

Down another 9% today, closing at 25.5c. Lots of speculation that the share price could hit the mid-high teens.

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wingnut2443 commented Thursday, 16 Jun 2016 at 7:28am

Perpetual Funds Management have sold just over 4.8 million shares reducing their investment (on behalf of several funds) to just over 23 million shares (8.4% of SRF)

http://www.asx.com.au/asxpdf/20160615/pdf/437xd2y6txbfnf.pdf

Looking at the details - they bought just over 900,000 shares back in early / mid May at around $0.53 (on behalf of their Income Fund) and sold 500,000 of them in early June at $0.34 for the same fund. A loss of $0.19 per share, or $95,000 on those 500,000.

Actually, back in early May they bought quite a few shares, 3,351,182 shares to be exact. See here:

http://www.asx.com.au/asxpdf/20160512/pdf/4376kq0yqq0lt9.pdf

The Perpetual Wholesale Smaller Company Fund holds just over 10.2 million shares, while the Perpetual Pure Microcap Pool Fund has just over 8.2 million. The managers of those funds must have some confidence Surfstitch will bounce back?

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Thursday, 16 Jun 2016 at 7:26am

Waiting for PE to step in and takeover the business, perhaps?

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wingnut2443 commented Thursday, 16 Jun 2016 at 7:32am

Looking at this announcement ( http://www.asx.com.au/asxpdf/20160505/pdf/4371l76202n3by.pdf ) they've been active in buying SRF stock for a while. They were probably one of the groups who got a private briefing (as noted in the Gadens class action press release) so have some knowledge of what is going on with the company as a whole.

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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thermalben commented Thursday, 16 Jun 2016 at 4:10pm

Today the ASX have issued their second "please explain" to SurfStitch in two months.

And this one is quite lengthy - fourteen questions in total (last time was just five questions)

"The ASX has questioned whether SurfStitch has complied with its continuous disclosure obligations, asking when it became aware of issues regarding the content contract and whether confidentiality had been breached."

http://www.smh.com.au/business/retail/surfstitch-collects-second-asx-spe...

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wingnut2443 commented Thursday, 16 Jun 2016 at 7:03pm

Hmmm, 14 questions, not really ... when you read the letter from the ASX to SRF it's a bit "if no then" type questions, so only half really apply.

SRF reply letter, and letter from the ASX to SRF here:

http://www.asx.com.au/asxpdf/20160616/pdf/437xq4hp37m3yt.pdf

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.

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wingnut2443 commented Saturday, 18 Jun 2016 at 10:00am

This $20m income reversal, relates to "content" ... I'm starting to think it is not the surf articles, features, etc. that's at the core of it, rather, the garage entertainment type content.

I've just had a read through the mid year presentation and there are some examples of what they have done to generate a return on created "content". It dawned on me, that the 'content' at the centre of the $20m income reversal is the type pf thing that COULD easily go onto another platform (i.e. netflix).

Presentation here: http://www.asx.com.au/asxpdf/20160225/pdf/435bf7hzn7wrbq.pdf

Hmmm ... ???

Surfboard Design and Construction Kook. Evidence is here: www.ffwsurfboards.com.au
*FFW - Few Fun Waves ... that's what it's all about for me.