SurfStitch warns of more rough seas

TROUBLED surfwear brand SurfStitch has managed to stem its half-year losses by $8.3 million and claims it has made progress in “stabilising” the business.

SurfStitch founders Lex Pedersen, left, and Justin Cameron. Picture: Toby Zerna

TROUBLED surfwear brand SurfStitch has managed to stem its half-year losses by $8.3 million and claims it has made progress in “stabilising and refocusing” the business.

SurfStitch posted a loss of $5.6 million in the six months to December 31, compared with a loss of $13.6 million in the same period in the previous year.

Revenue for the period was down 13.1 per cent to $106.3 million, which the group blamed on a stronger Australian dollar and a decline in sales in North America.

The company, which went through a tumultuous 2016 with massive losses, a share price wipe-out and the abrupt departure of co-founder Justin Cameron, has downgraded its full-year forecast to an underlying loss of $5 to $6.5 million, from $4 to $5 million.

“The teams in each of our businesses across the group have worked very hard to deliver on the immediate objectives which we set ourselves at the beginning of the financial year, to stabilise and refocus the business,” chief executive Mike Sonand said.

“It is pleasing to see that their commitment and efforts are paying off by delivering meaningful improvements in performance. The important thing is that we are building a solid foundation on which to operate our global business.

“We have made good progress in containing fixed and variable costs. We do also understand that to improve sales and margins we must appropriately resource the right areas of our business. That means prudently investing in both our business intelligence and data analytic capabilities, as well as building our vertical product team. These initiatives will drive future sales and margins and therefore profitability.”

SurfStitch is currently locked in a legal battle with surf technology group Coastalwatch and Three Crown Investments over disputed licensing deals which fell through last year, sparking a share price rout.

TCI and Coastalcoms launched legal action against SurfStitch in August, and TCI launched a separate legal action in November. SurfStitch has launched counterclaims against both actions, which it is “vigorously defending”.

“[It] is possible that further proceedings may be commenced,” the company said, warning that the potential liability and costs “cannot be accurately assessed at this time”.

In its defence of the legal action, SurfStitch accused Mr Cameron of abusing his duties. “Mr Cameron caused the company to enter into a contractual scheme with Coastalcoms and TCI, allegedly for the purpose of inflating the revenue and profit of SurfStitch for the first half of the 2016 financial year in a manner that contravened the provisions of the Corporations Act 2001,” the company said in a statement to the ASX.

“It is also alleged that, as a consequence of the alleged contractual scheme, an amount of $20.3 million was included as revenue in the company’s half-year financial report for fiscal 2016.”

Mr Cameron quickly hit out at the claims. “Mr Cameron strenuously denies SurfStitch’s allegations,” a statement to The Australian said.

“SurfStitch’s ASX release dated June 9, 2016 indicates the contracts in dispute took effect from 15 March 2016, which was after Mr Cameron left the company. SurfStitch’s own ASX release admits its allegations have not been proven or considered by the court.”

Originally published as SurfStitch warns of more rough seas