Leading Australian surfwear and equipment manufacturer Billabong said on Friday it has set up its own operation in Brazil which is likely to lose money in the short term before riding into profit next year.

Chief executive Matthew Perrin said GSM Brazil has taken over a previous licence in the South American country and also taken on the majority of the former licensee's employees.

He added that the Brazilian market could be larger for his company than the Japanese one by 2007, but added he expects to lose money on the Brazilian operation in the period to June 30 before posting a profit in 2003.

Billabong is currently pursuing a strategy of taking control of former licensed markets in order to have more control the direction and image of its brand in the international marketplace.