Billabong International : Half Year Results Media Release

• Consistent with the update to shareholders at the Annual General Meeting (AGM) on 22 November 2016, first half trading was behind the prior corresponding period (pcp). Total Group sales of $508.3 million were down 9.5% year-on-year, and down 7.6% on a constant currency (cc) basis. When the sale of the Sector 9 business is taken into account, revenue was down 5.8% cc.

• Gross margins flat overall; up in Americas, down in APAC.

• Cost of Doing Business (CODB) down 3.9% cc (excluding Sector 9).

• Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) adjusted for significant items was $29.3 million, down 21.1% as reported and 20.9% cc. EBITDA up 159% cc in Americas but weak retail conditions in Asia-Pacific and Europe weighed on the result.

• Net Loss After Tax of $16.1 million.

• Comparable inventory down 9.0% cc across the Group, driven by the Americas.

• Improved cash flow and better EBITDA conversion.

• Simplified portfolio with agreement to sell Tigerlily; proceeds to pay down debt.

• EBITDA guidance affirmed after adjusting for Tigerlily sale.

Billabong Chief Executive Officer Neil Fiske said, "This result is consistent with the update to shareholders at the Annual General Meeting in November, namely that the first half would be substantially down but that we would see a lift in the second half such

that we expect full year EBITDA will be ahead of the prior period on a comparable basis.

"With yesterday's announcement regarding the sale of Tigerlily, we're simplifying our portfolio and paying down debt. We're seeing a strong profit lift in the Americas and our key initiatives are set to deliver substantial margin improvements. On that basis we affirm our FY17 EBITDA guidance, adjusting for Tigerlily.

"There are three key aspects to the first half result that give us confidence going into the remainder of the year. First, there is a strong profit lift in the Americas as we enter its seasonally bigger second half. Gross margins in the region were up 170 basis points

overall year-on-year. Inventory was much improved, CODB was down and EBITDA more than doubled.

"Next, we are seeing forward gross margins improving in every region, as the benefits begin to flow from our global sourcing and concept to customer initiatives. Leaner inventories and the absence of any further currency pressures that have impacted recent results in Asia-Pacific and Europe also give us confidence.

"Lastly, we are getting costs out and simplifying our business. CODB was down nearly 4% on a comparable basis for the first half."

The sale of Tigerlily for $60 million announced on 23 February 2017 is consistent with the Group's strategy to simplify its portfolio. The business was initially acquired in 2007 for

$5.8 million.

AUD millions 1H17 1H16 Change Change cc

Revenue

508.3

561.9

‐9.5% ‐7.6%

EBITDA (excluding significant items)

29.3

37.2

‐21.1% ‐20.9%

Note: First half financials include Tigerlily trading

Total sales of $508.3 million were down 5.8% cc, taking the sale of Sector 9 into account.

Group EBITDA excluding significant items of $29.3 million was down 21.1% as reported and 20.9% cc.

Overall, gross margins were flat to the prior period.

A net statutory loss of $16.1 million was recorded compared with a loss of $1.6 million in the pcp. Restructuring and significant items after tax were $9.5 million higher in this half than the previous half, much of which was non-cash in the period.

Cash conversion for the half was materially better than the pcp. The net of receipts from customers, less payments to suppliers, nearly doubled from $22.8 million to $44.2 million.

1H17

(excluding Significant Items)

AUD millions

Revenue

This Yr Last Yr % Change (as

reported)

% Change (constant currency)

Americas 192.1 219.9 ‐12.7% ‐9.5%

Asia Pacific 231.3 243.9 ‐5.2% ‐6.7%

Europe 84.9 98.1 ‐13.4% ‐5.9%

Total 508.3 561.9 ‐9.5% ‐7.6%

EBITDA Pre Global Allocation

EBITDA Post Global Allocation

The local nature of retail markets was apparent in trading through the first half of the year, with differing sales patterns across the Group's three regions.

The standout result was in the Americas, where EBITDA before global allocations more than doubled to $10.3 million (up $6.2 million or 152%), with earnings momentum extending into the second half on the back of margin growth of 170 basis points and lower costs.

After a slow first quarter, sales and margins improved in the second quarter. Sales were down overall for the half, reflecting the effect of the sale of Sector 9, some store closures and a fall in orders from a large United States retailer which was in Chapter 11 for a part of the period. However, comparable direct-to-consumer revenue (including ecommerce and bricks and mortar stores) was up 5.8% cc to $57.9 million for the half. Revenue from ecommerce grew 22.7% in the half, driven by a 41.5% pcp gain from Brand Billabong in North America, and now accounts for 8.3% of total sales for the region.

Inventories and costs were tightly managed during the period, with comparable inventory down 11.1% cc.

The overall retail market in Asia-Pacific faced significant challenges in the first half; however, the Company continued to show share gains in the core specialty surf channel.

The Group's update at the AGM detailed the weakness in APAC sales to October and this flowed on to impact wholesale repeat orders in the second quarter. Retail trading improved in November and December with comparable store sales slightly positive in December although down 3.7% for the half. Amidst all of this, RVCA grew again with wholesale equivalent revenue (including sales to owned retail) up 14% cc.

Australian dollar fluctuations against the US dollar impacted gross margins by about 170 basis points, representing a $4 million increase in cost of goods compared to the pcp. A promotional retail environment also put pressure on margins. However, benefits from sourcing improvements are beginning to flow and as a result margins were down 130 basis points overall. The impact of the group's hedging program means that there will be no

year-on-year foreign exchange-related margin pressure in the second half.

Ecommerce grew 17.7% to $4.9 million for the half, accounting for 2.1% of total sales. When compared with the penetration being achieved in the Americas, this channel represents a considerable upside opportunity.

After a period of improvement in Europe, trading moderated in the first half following the late arrival of cooler weather and macro factors such as Brexit.

The European pattern of trading was the opposite of that in the Americas, with a solid first quarter followed by a softer second quarter due to weaker demand in winter-weight categories.

Comparable direct-to-consumer revenue was up 1.3% cc, with a slight dip in bricks and mortar sales being more than offset by a 44.4% increase in constant currency ecommerce revenue. Ecommerce now represents 4.6% of total sales for the region.

The Group provided an update on its global platform initiatives:

1. Global sourcing

   Global sourcing is starting to generate the gross margin expansion that underpins the Group's long run goal of a business with double digit EBITDA margins. While some of that benefit has flowed through in the first half and has helped offset currency headwinds, the gains should accelerate markedly in the second half and lift product margins across the globe.

2. Global logistics - "Pipeline"

The Pipeline initiative is on schedule, with cost savings at maturity to reach $10 million annually. The Group is in the process of shutting down its Canadian warehouse, and has established consolidation centres in the Far East which will allow product to be shipped directly to large customers, stores and distributor partners, bypassing the time and cost of regional warehousing for a significant portion of volume. Pilot testing of this direct ship model is underway.