BILLABONG INTERNATIONAL LIMITED

Billabong International Limited

Billabong International Limited

Introduction

During the year the principal continuing activities of the consolidated entity consisted of the wholesaling and retailing of surf, skate and snow apparel and accessories, and the licensing of the Billabong Group trade marks to specified regions of the world. Profit after tax for the year ended 30 June 2002 of $61.1 million was up 45% on the prior year. All international regions showed strong growth at improved margins. Second half growth of 55% reflected an outstanding year in Europe and Australia and the consolidation of US activities in the second half. Earnings before Interest, Tax: Depreciation and Amortization (EBITDA) grew 42% to $106.9 million while the EBlTDA margin improved to 21.8% of sales - up from 19.8% the previous year. Return on Equity grew to 1 1.2% from 8.2% and Net Operating Cash flow improved 42% to $47.3 million.

Discuss the way in which Billabong International Limited has demonstrated its social and environmental accountability.

Cost control was strong with improvements in margins growing by 42% off a revenue growth of approximately 30%. These margin improvements were delivered at market competitive price points through an internal focus on costs and the containment of discounts. The recently developed Japanese and Brazilian businesses have beaten internal expectations. The strategic acquisitions of Element and Von Zipper were both profitable and offer future growth opportunities at good margins. Net operating cash flow for the year was $47.3 million, being 42% higher than the prior year's net operating cash flow of $33.2 million, Capital expenditure for the 2002 financial year was in line with expectations, taking account of the absorption of the company's Brazilian business, and the substantial growth experienced in most markets. For the 2003 financial year, the company expects capital expenditure to represent approximately 3.5% of sales revenue. Capital expenditure for the coming year includes the expansion of European warehousing facilities at a cost of approximately $5 million, which should provide warehousing capacity for that business for the medium term.

The outlook for 2003 is for continued growth at solid margins. Continuing robust revenue growth in Europe and the Americas, with more moderate growth in Australia as the company internationalizes and profit generation shifts offshore. In America, current business conditions are encouraging with strength in most categories. Girl swears remains the standout growth

Category, while menswear shows renewed momentum. The company's order book is at record levels: and in season repeat ratios are pleasing. In Europe, the business will deliver further growth in the coming year. Billabong Europe will focus on consolidating market share in snow wear after disappointing snowfalls in 2001 I and on growth opportunities within existing markets and emerging markets such as Italy and Germany. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

The consolidated entity is not subject to significant environmental regulation in ...