FY20 Annual Results Announcement
Results announcement
Kathmandu Holdings Ltd
kathmanduholdings.com
Results for announcement to the market
Name of issuer Kathmandu Holdings Limited
Reporting Period 12 months to 31 July 2020
Previous Reporting Period 12 months to 31 July 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$801,524 48.7%
Total Revenue $801,524 48.7%
Net profit/(loss) from continuing
operations
$8,879 -84.6%
Total net profit/(loss) $8,145 -85.9%
Dividend
Amount per Quoted Equity
Security
No final dividend will be paid
Imputed amount per Quoted
Equity Security
Not Applicable
Record Date Not Applicable
Dividend Payment Date Not Applicable
Current period Prior comparable period
Net tangible assets per Quoted
Equity Security
$0.14 $0.25
A brief explanation of any of the
figures above necessary to
enable the figures to be
understood
The results are based on accounts which have been subject to audit.
Refer to accompanying audited financial statements and media release
for further information.
Authority for this announcement
Name of person
authorised to
make this announcement
Frances Blundell
Contact person for this
announcement
Frances Blundell
Contact phone number 0064 3 421 5397
Contact email address companysecretary@kathmandu.co.nz
Date of release through MAP
Wednesday, 23 September 2020
Audited financial statements accompany this announcement.
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Kathmandu Holdings Ltd
kathmanduholdings.com
1
23 September 2020
(All amounts in NZ$ unless otherwise stated)
Transformational year with Rip Curl acquisition, well positioned in response to COVID-19
Successful acquisition and integration of Rip Curl
Business growth constrained by lockdown-related store closures
Strong balance sheet with low net debt and healthy inventory position
Resilience of all the brands underpins sales recovery post-lockdown, and continued
acceleration of online sales
FY20 key highlights (vs FY19):
Acceleration in online sales, with group online sales up 63% to $106.4 million, now comprising
15.7% of direct to consumer (“DTC”) sales
1
- Rip Curl online sales up 52% to $25.5 million; 10.6% of DTC sales
- Kathmandu online sales up 67% to $80.9 million; 18.5% of DTC sales
Group sales up 48.7% to $801.5 million, including 9 months of Rip Curl
- COVID-19 impact estimated at c. $135 million of sales ($80 million retail and $55 million
wholesale)
Statutory NPAT of $8.9 million includes $18.0 million of one-off transaction costs, $4.6 million of
restructuring costs and a $2.6 million impact from the implementation of the IFRS 16 leasing
standard (in total $22.6 million impact net of tax)
Group Underlying EBITDA down 15.3% to $83.4 million (excluding the impact of IFRS 16 and
one-off transaction and abnormal costs)
Group Underlying NPAT down 44.5% to $31.5 million (excluding the impact of IFRS 16 and
one-off transaction and abnormal costs)
Operating cash flow up 50.9% to $93.1 million (adjusted for impacts of adopting IFRS 16)
$207 million capital raise provided balance sheet strength and optionality for future growth, with
closing net debt of $9.4 million
Kathmandu Holdings Limited (ASX/NZX: KMD) is pleased to announce its results for the twelve
months ended 31 July 2020 (FY20).
1
Sales from Rip Curl and Kathmandu retail stores and direct online sites and marketplaces. Both years include a full year of Rip Curl
sales for comparability, including $3.7 million Rip Curl online sales for the three months pre-acquisition in FY20.
Kathmandu Holdings Ltd
kathmanduholdings.com
2
Financial performance for the Group
Group
2
Statutory
3
Underlying
4
NZD $m FY20 FY20 FY19 Change %
Sales 801.5 801.5 538.9 48.7%
Gross Profit 467.0 467.0 332.5 40.5%
Operating Expenses (318.1) (383.7) (234.0) 63.9%
EBITDA 148.9 83.4 98.4 (15.3%)
EBIT 45.9 56.2 83.2 (32.5%)
Commenting on the FY20 results, Group CEO Xavier Simonet said: “It has been a transformational
year for us with the acquisition of Rip Curl and we are pleased with its integration into the Group
over the last nine months. Unfortunately the Group faced significant unexpected challenges with
COVID-19 restrictions and lockdowns. We took decisive action early to reduce costs, adjust the
operating structure of the business, and raised $207 million of equity. These initiatives have
resulted in a strong balance sheet and healthy inventory level, which position us well for the future.”
“Our omni-channel strategy and infrastructure capacity allowed us to rapidly scale up to meet the
surge in online demand from March. In addition, following the easing of lockdown restrictions, we
saw retail sales for Rip Curl and Kathmandu perform strongly in our core markets of Australasia,
Europe and California, as consumers trended towards outdoor and recreation activities. Both Rip
Curl and Kathmandu also enjoyed an exceptional post-lockdown winter sales performance in
Australia and New Zealand,” added Mr Simonet.
Rip Curl: acceleration in online sales and strong post-lockdown recovery
Pre IFRS 16
NZD $m Nov 19 to Jul 20
Sales 315.7
Gross Profit 178.5
Operating Expenses (166.8)
EBITDA (underlying) 11.7
EBIT (underlying) 4.2
COVID-19 had a significant impact on the business, with an estimated sales impact of c. $70 million.
Despite this, Rip Curl generated $34 million of cash and contributed $11.7 million to Group
underlying EBITDA during the initial nine months of ownership. FY21 will benefit from a full 12
months of ownership.
Total FY20 global sales were down 17.1% vs PCP (equivalent nine months of FY19). Wholesale
sales were most affected as lockdowns disrupted the sell-in period for the upcoming Northern
hemisphere Autumn/Winter season.
2
FY20 NZD/AUD conversion rate 0.939 (FY19: 0.949), FY20 NZD/GBP conversion rate 0.504 (FY19: 0.522), FY20 NZD/USD conversion
rate 0.636 (FY19 0.670).
3
FY20 Statutory results include the impact of IFRS 16 leases. For comparability the impact of IFRS 16 is excluded from Underlying
results.
4
In FY20, $11.6 million has been incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group
structure. Further one-off costs of $4.6 million have been incurred in relation to restructuring support office roles. FY19 Underlying profit
excludes abnormal income $1.1 million from a tax refund relating to the GST treatment of reward vouchers.
Kathmandu Holdings Ltd
kathmanduholdings.com
3
DTC same store sales growth was stronger post-lockdown
5
(+14.4%
6
) than pre-lockdown (+2.6%),
assisted by government economic stimulus, and increased opportunity for surfing while consumers
worked from home. Post-lockdown same store sales were +17.7%
6
in Australia and +20.6%
6
in
Europe as interest in surfing increased. Mainland USA same store sales also improved post-
lockdown (+12.3%
6
), however, due to travel restrictions, Hawaiian retail stores were down
significantly (-73.3%
6
).
Online sales growth underwent a step change. Online sales for FY20 were up 52% overall, and now
comprise 10.6% of DTC sales, with a strong runway for future growth.
Kathmandu: online sales accelerate, and strong post-lockdown winter sales performance
Pre IFRS 16
NZD $m FY20 FY19 Var %
Sales 426.4 472.3 (9.7%)
Gross Profit 265.1 306.1 (13.4%)
Operating Expenses (198.2) (216.5) (8.5%)
EBITDA (underlying) 66.9 89.6 (25.3%)
EBIT (underlying) 51.4 74.7 (31.3%)
Total FY20 sales in Australia were down 11.6% on a constant currency basis, with 117 stores closed
during the April-May lockdown period, while New Zealand total sales were down 7.2%, with 48
stores closed during lockdown period. The overall revenue impact of COVID-19 is estimated at c.
$50 million due to store closures and ongoing lockdowns. Same stores sales growth was stronger
post-lockdown (+6.9%
6
) than pre-lockdown (+1.2%).
Kathmandu’s gross margin was 2.6% below FY19, as a result of foreign currency, increased mix of
clearance sales and duration of promotions through the winter season. Operating expenses include
restructuring savings of $1.9 million in FY20, delivering annualised savings of c. $6.2 million.
Online sales were up 67% on a constant currency basis, and now comprise 18.5% of DTC sales
(FY19: 10.1%). This step change in online penetration and an increase in conversion rate was
driven by changes in consumer behaviour during COVID-19. Infrastructure and platform capacity
allowed the team to scale up to meet this record online demand.
Oboz: strong momentum with key customers despite COVID-19
Pre IFRS 16
USD $m FY20 FY19 Var %
Sales 37.8 44.6 (15.2%)
Gross Profit 15.0 17.7 (15.4%)
Operating Expenses (10.1) (9.7) 4.0%
EBITDA (underlying) 4.8 7.9 (39.1%)
EBIT (underlying) 4.6 7.8 (40.4%)
The revenue impact from COVID-19 is estimated at c. $15 million (c. US$10 million). Pre-COVID
sales for the 8 months to the end of March 2020 were +4.6% YOY, whilst COVID-19 impacted sales
from April to July 2020 were -52.8% YOY.
5
10 full weeks from 18 May to 26 July.
6
Adjusted to remove stores that were not able to open this year for a comparable week because of COVID 19 lockdowns.
Kathmandu Holdings Ltd
kathmanduholdings.com
4
Operating expenses increased pre-COVID-19 due to investments in improved distribution capability
and in strengthening the brand and product team. Expenses were carefully controlled from March in
response to COVID-19.
Oboz penetration and market share has been strong in key customer online trading sites during
COVID-19, including REI and Zappos. Oboz aims to launch a DTC online shop this financial year.
Outlook
COVID-19 has continued to impact some key markets during the first seven weeks of FY21, with
Melbourne, Auckland, Hawaii, Bali and airport store closures. However, given post-lockdown retail
store performance in FY20, demand is expected to return in these markets when stores reopen.
As a result of the COVID-19 disruption, the Group has experienced mixed same store sales
performance over the first seven weeks of FY21 (a non-indicative trading period).
Commenting on the outlook for the Group, Xavier Simonet said: “Despite the challenges posed by
COVID-19, the business remains strong financially and operationally. The balance sheet was
significantly strengthened by the recent equity raise, our brands are well-positioned to capitalise on
increased participation in outdoor, beach and surfing activities following the end of the lockdowns,
and our investment into omni-channel capabilities allows us to quickly respond to shifts in consumer
habits and strong growth in online demand.”
“Beyond the short-term impacts from lockdowns, our long-term strategy remains unchanged.
Product innovation, brand differentiation, a key focus on sustainability, and a step change in digital
transformation, will enable us to continue answering the needs of our customers and also inspiring
them.
“I want to thank our team members and crew worldwide for their outstanding resilience, flexibility
and commitment as we addressed the challenges of the global COVID-19 pandemic,” added Mr
Simonet.
Investor briefing
An investor call will be hosted by Xavier Simonet (Group CEO) and Chris Kinraid (Group CFO) at
8.30am AEST / 10:30am NZT today, Wednesday 23 September 2020. For those wishing to
participate, please dial one of the numbers below and provide the conference ID to the operator:
Australia Toll Free: 1800 558 698
Australia Local: +61 2 9007 3187
New Zealand Toll Free: 0800 453 055
United States: +1 855 881 1339
Conference ID: 10009441
This announcement has been authorised for release to ASX by the Board of Directors of Kathmandu
Holdings Limited.
- ENDS -
Kathmandu Holdings Ltd
kathmanduholdings.com
5
For further information, please contact:
Investors
Eric Kuret, Market Eye
P: +61 417 311 335
E: eric.kuret@marketeye.com.au
Media
Helen McCombie, Citadel-MAGNUS
P: + 61 2 8234 0103
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Kathmandu Holdings Limited
FINANCIAL STATEMENTS
31 July 2020
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
2
Introduction and Table of Contents
Directors’ Approval of Consolidated Financial Statements 3
Consolidated Statement of Comprehensive Income 4
Consolidated Statement of Changes in Equity 5
Consolidated Balance Sheet 6
Consolidated Statement of Cash Flows 7
Notes to the Consolidated Financial Statements 9
Section 1: Basis of Preparation 9
Section 2: Results for the Year 12
Section 3: Operating Assets and Liabilities 20
Section 4: Capital Structure and Financing Costs 33
Section 5: Group Structure 43
Section 6: Other Notes 48
Auditors’ Report 54
In this section ...
The consolidated financial statements have been presented in a style which attempts to make them
less complex and more relevant to shareholders. We have grouped the note disclosures into six
sections: ‘Basis of Preparation’, ‘Results for the Year’, ‘Operating Assets and Liabilities’, ‘Capital
Structure and Financing Costs’, ‘Group Structure’ and ‘Other Notes’. Each section sets out the
accounting policies applied in producing the relevant notes. The purpose of this format is to provide
readers with a clearer understanding of what drives financial performance of the Group. The aim of the
text boxes is to provide commentary on each section or note, in plain English.
Keeping it simple ...
Notes to the consolidated financial statements provide information required by accounting standards or
Listing Rules to explain a particular feature of the financial statements. The notes which follow will also
provide explanations and additional disclosures to assist readers’ understanding and interpretation of
the annual report and the financial statements.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
3
23 September 2020
23 September 2020
Directors’ Approval of Consolidated Financial Statements
For the Year Ended 31 July 2020
Authorisation for Issue
The Board of Directors authorised the issue of these Consolidated Financial Statements on 23 September 2020.
Approval by Directors
The Directors are pleased to present the Consolidated Financial Statements of Kathmandu Holdings Limited for the year
ended 31 July 2020 on pages 4 to 53.
David Kirk Date
Xavier Simonet Date
For and on behalf of the Board of Directors
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
4
Consolidated Statement of Comprehensive Income
For the Year Ended 31 July 2020
Section 2020 2019
NZ$’000 NZ$’000
Sales 2.2 801,524 538,855
Cost of sales (334,493) (206,362)
Gross profit 467,031 332,493
Other income 2.2 27,369 1,130
Selling expenses 2.2 (169,272) (160,581)
Administration and general expenses 2.2 (176,237) (73,477)
(318,140) (232,928)
Earnings before interest, tax, depreciation and
amortisation 148,891 99,565
Depreciation and amortisation 3.2-3.4
(103,027) (15,272)
Earnings before interest and tax 45,864 84,293
Finance income 449 37
Finance expenses (23,803) (2,952)
Finance costs - net 4.1.1 (23,354) (2,915)
Profit before income tax 22,510 81,378
Income tax expense 2.3 (13,631) (23,745)
Profit after income tax 8,879 57,633
Profit for the period attributable to:
Shareholders of the company 8,145 57,633
Non-controlling interest 734 -
Other comprehensive income/(expense) that may be recycled through profit or loss:
Movement in cash flow hedge reserve 4.3.2 (9,259) 620
Movement in foreign currency translation reserve 4.3.2 259 (3,297)
Movement in other reserves 4.3.2 (61) -
Other comprehensive expense for the year, net of tax (9,061) (2,677)
Total comprehensive income/(expense) for the year
attributable to shareholders (182) 54,956
Total comprehensive income/(expense) for the period attributable to:
Shareholders of the company (920) 54,956
Non-controlling interest 738 -
Basic earnings per share 2.4 1.7cps 16.0cps
Diluted earnings per share 2.4 1.6cps 15.9cps
Weighted average basic ordinary shares outstanding
(‘000) 2.4 493,347 359,600
Weighted average diluted ordinary shares outstanding
(‘000) 2.4 494,582 361,566
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
5
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2020
Share
Capital
Cash Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Share
Based
Payments
Reserve
Other
Reserves
Retained
Earnings
Non-
controlling
Interest
Total
Equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Balance as at 31 July 2018 249,882 3,498 (8,975) 2,760 - 173,356 - 420,521
Profit after tax
- - - - - 57,633 - 57,633
Other comprehensive income
- 620 (3,297) - - - - (2,677)
Dividends paid
- - - - - (33,883) - (33,883)
Issue of share capital
1,231 - - (1,231) - - - -
Share based payment expense
- - - 721 - - - 721
Lapsed share options
- - - (14) - 14 - -
Deferred tax on share-based
payment transactions
- - - (253) - - - (253)
Balance as at 31 July 2019 251,113 4,118 (12,272) 1,983 - 197,120 - 442,062
Profit after tax
- - - - - 8,145 734 8,879
Other comprehensive income
- (9,259) 255 - (61) - 4 (9,061)
Dividends paid
- - - - - (27,209) - (27,209)
Issue of share capital
375,267 - - (1,666) - - - 373,601
Share based payment expense
- - - 378 - - - 378
Deferred tax on share-based
payment transactions
- - - (87) - - - (87)
Non-controlling interest on
acquisition
- - - - - - 3,335 3,335
Disposal of non-controlling interest
- - - - - - (66) (66)
Transition to NZ IFRS 16
- - - - - (12,630) - (12,630)
Balance as at 31 July 2020 626,380 (5,141) (12,017) 608 (61) 165,426 4,007 779,202
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
6
Consolidated Balance Sheet
As at 31 July 2020
Section 2020 2019
NZ$’000 NZ$’000
ASSETS
Current assets
Cash and cash equivalents 3.1.2 231,885 6,230
Trade and other receivables 3.1.3 73,668 14,206
Inventories 3.1.1 228,793 122,773
Derivative financial instruments 4.2 53 4,964
Current tax asset 3,790 -
Total current assets 538,189 148,173
Non-current assets
Trade and other receivables 3.1.3 3,945 -
Property, plant and equipment 3.2 90,722 60,319
Intangible assets 3.3 682,578 386,061
Right-of-use assets 3.4.1 257,998 -
Total non-current assets 1,035,243 446,380
Total assets 1,573,432 594,553
LIABILITIES
Current liabilities
Trade and other payables 3.1.5 143,698 74,560
Interest bearing liabilities 4.1 - -
Derivative financial instruments 4.2 7,414 113
Current tax liabilities 8,060 6,458
Current lease liabilities 3.4.2 77,579 -
Total current liabilities 236,751 81,131
Non-current liabilities
Derivative financial instruments 4.2 - 9
Non-current trade and other payables 3.1.5 14,413 -
Interest bearing liabilities 4.1 241,270 25,500
Deferred tax 2.3 81,452 45,851
Non-current lease liabilities 3.4.2 220,344 -
Total non-current liabilities 557,479 71,360
Total liabilities 794,230 152,491
Net assets 779,202 442,062
EQUITY
Contributed equity - ordinary shares 4.3.1 626,380 251,113
Reserves 4.3.2 (16,611) (6,171)
Retained earnings 165,426 197,120
Non-controlling interest 4,007 -
Total equity 779,202 442,062
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
7
Consolidated Statement of Cash Flows
For the Year Ended 31 July 2020
Section 2020 2019
NZ$’000 NZ$’000
Cash flows from operating activities
Cash was provided from:
Receipts from customers 823,951 546,499
Government grants received 21,266 -
Interest received 449 621
Income tax received 1,379 207
847,045 547,327
Cash was applied to:
Payments to suppliers and employees
638,393 455,743
Income tax paid
16,897 26,673
Interest paid
21,960 3,237
677,250 485,653
Net cash inflow from operating activities
169,795 61,674
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment
61 1
Proceeds from sale of non-controlling interest
141 -
Proceeds from investment in other financial assets
- 22,321
202 22,322
Cash was applied to:
Purchase of property, plant and equipment 3.2
15,399 11,345
Purchase of intangibles 3.3
4,463 4,351
Acquisition of subsidiaries 5.1
376,121 22,321
395,983 38,017
Net cash (outflow) from investing activities
(395,781) (15,695)
Cash flows from financing activities
Cash was provided from:
Proceeds of loan advances
506,746 92,606
Proceeds from share issues
340,646 -
847,392 92,606
Cash was applied to:
Dividends paid
27,209 33,883
Repayment of loan advances
293,757 106,606
Repayment of lease liabilities
76,744 -
397,710 140,489
Net cash inflow / (outflow) from financing
activities
449,682 (47,883)
Net increase / (decrease) in cash and cash
equivalents held
223,696 (1,904)
Opening cash and cash equivalents
6,230 8,146
Effect of foreign exchange rates
1,959 (12)
Closing cash and cash equivalents 3.1.2
231,885 6,230
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
8
Reconciliation of net profit after taxation with cash inflow from operating activities
2020 2019
Section NZ$’000 NZ$’000
Profit after taxation
8,879 57,633
Movement in working capital:
(Increase) / decrease in trade and other receivables 24,027 (379)
(Increase) / decrease in inventories 20,305 (13,042)
Increase / (decrease) in trade and other payables 9,732 3,662
Increase / (decrease) in current tax liability 1,526 (3,260)
55,590 (13,019)
Add non-cash items:
Depreciation of property, plant and equipment 3.2 19,653 11,920
Amortisation of intangibles 3.3 7,539 3,352
Depreciation of right-of-use assets 3.4.1 75,835 -
Impairment of right-of-use assets 3.4.1 2,050 -
Foreign currency translation of working capital balances 215 (286)
Increase / (decrease) in deferred taxation (3,413) 539
Employee share based remuneration 6.3 378 721
Loss on sale of property, plant and equipment &
intangibles
3.2, 3.3 3,069 814
105,326 17,060
Cash inflow from operating activities
169,795 61,674
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
9
Notes to the Consolidated Financial Statements
Section 1: Basis of Preparation
1.1 General information
Kathmandu Holdings Limited (the Company) and its subsidiaries (together the Group) is a designer, marketer, retailer
and wholesaler of apparel, footwear and equipment for surfing and the outdoors. It operates in New Zealand, Australia,
North America, Europe, South East Asia and Brazil.
The Company is a limited liability company incorporated and domiciled in New Zealand. Kathmandu Holdings Limited is
a company registered under the Companies Act 1993 and is a FMC reporting entity under Part 7 of the Financial Markets
Conduct Act 2013. The address of its registered office is 223 Tuam Street, Central Christchurch, Christchurch.
The Company is listed on the NZX and ASX.
The consolidated financial statements of the Group have been prepared in accordance with the requirements of Part 7 of
the Financial Markets Conduct Act 2013 and the NZX Listing Rules.
These audited consolidated financial statements have been approved for issue by the Board of Directors on 23
September 2020.
1.2 Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with Generally Accepted Accounting
Practice. They comply with the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and
other applicable Financial Reporting Standards, as appropriate for for-profit entities. The consolidated financial
statements also comply with International Financial Reporting Standards (IFRS).
The consolidated financial statements are presented in New Zealand dollars, which is the Group’s presentation currency.
1.2.1 Basis of preparation
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below.
These policies have been consistently applied to all periods presented, unless otherwise stated.
Basis of consolidation
The consolidated financial statements reported are for the consolidated “Group” which is the economic entity comprising
Kathmandu Holdings Limited and its subsidiaries.
The Group is designated as a for-profit entity for financial reporting purposes.
Subsidiaries are consolidated from the date on which control is obtained to the date on which control is lost.
Non-controlling interests are measured at their proportionate share of the acquiree’s identified net assets at the
acquisition date. Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for
as equity transactions.
In preparing the consolidated financial statements, all material intra-group transactions, balances and unrealised gains
on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary,
amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies.
Historical cost convention
These consolidated financial statements have been prepared under the historical cost convention, as modified by the
revaluation of certain assets as identified in the specific accounting policies provided below.
Critical accounting estimates
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
In this section ...
This section sets out the Group’s accounting policies that relate to the consolidated financial statements
as a whole. Where an accounting policy is specific to one note, the policy is described in the note to
which it relates.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
10
Estimates and judgements are continually evaluated and are based on historical experience as adjusted for current
market conditions and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Further explanation as to estimates and assumptions made by the Group can be found in the following notes to the
consolidated financial statements:
Area of Estimation
Section
Business Combinations – purchase price allocation
5.1
Goodwill and Brand – assumptions underlying recoverable value
3.3
Inventory – estimates of obsolescence
3.1.1
Leases – judgment applied to lease term
3.4
Taxation – provision for tax payable
2.3
Foreign currency translation
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary
economy) that have a functional currency different from the presentation currency are translated into the presentation
currency as follows:
• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
•
Income and expenses for each statement of comprehensive income are translated at average exchange rates
(unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the rate on the dates of the
transactions); and
•
All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity.
Changes in accounting policies
Details about changes in accounting policies applied during the period are included in the following notes to the financial
statements:
Section
Operating segments
2.1
Earnings per share restatement
2.4
New standards and interpretations first applied in the period 6.8
1.3 Going Concern and the impact of COVID-19
On 11 March 2020 the World Health Organisation declared a global pandemic as a result of the outbreak and spread of
COVID-19. Global restrictions on movement, travel and gatherings resulted in significant footfall reduction and the
closure of our entire store network in late March with gradual reopening commencing in early May in most markets.
As a result, the Group took decisive action to manage its liquidity and profitability specifically:
• Reduced operating expenditure;
• Deferred non-essential capital projects;
• Suspended dividend payments;
• Raised capital; and
• Accessed government subsidies
In addition, the Group obtained support from its bank syndicate in the form of a waiver of the current covenant
measurements until 31 July 2021 measurement point.
In April 2020 the Group completed a successful $207 million equity raising to strengthen its balance sheet and liquidity
position in response to the COVID-19 pandemic. The capital raise, strong trading performance and cash generation in
key markets has reduced net debt to $9.4 million (excluding lease liabilities) at balance date. There remains continued
uncertainty over future economic conditions and further COVID-19 outbreaks however the Group has $377 million of
liquidity to manage this uncertainty.
Based on the additional capital secured, including an earlier reopening and a significantly stronger trading performance
above our COVID-19 forecasts made in April, the Board considers that compliance with financial covenants will continue
to be met for at least the next 12 months from approving these consolidated financial statements (refer note 4.1).
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
11
The ongoing uncertainties discussed, and other economic effects of the pandemic have been considered in the Group’s
key estimates and judgements as disclosed in the following notes:
• Intangible assets - the ability to achieve future forecasts and the consequential impacts on the carrying value of
goodwill and other finite life intangibles (refer note 3.3).
• Receivables - the ability of wholesale customers to pay (refer note 3.1.3)
• Leases – certain landlords have provided the Group with rent concessions (refer note 2.2)
Considering the above, the Board has reviewed the operating and cash flow forecasts for the three-year period to 2023.
The Board is satisfied based on their review of these financial forecasts that during the period to at least 12 months from
the approving of the consolidated financial statements there will be adequate cash flows generated from operating and
financing activities to meet the obligations of the Group.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
12
Section 2: Results for the Year
2.1 Segment information
An operating segment is a component of an entity that engages in business activities which earns revenue and incurs
expenses and where the chief decision maker reviews the operating results on a regular basis and makes decisions on
resource allocation.
Following the acquisition of Rip Curl Group Pty Limited in October 2019 the Group has three operating segments. These
operating segments have been determined based on the reports reviewed by the Group Chief Executive Officer and
Group Executive Management team.
Outdoor – including the Kathmandu and Oboz brands. This segment designs, markets, retails and wholesales apparel,
footwear and equipment for outdoor travel and adventure.
Surf – including the Rip Curl brand. This segment designs, manufactures, wholesales and retails surfing equipment and
apparel.
The Corporate segment represents group costs, holding companies and consolidation eliminations and constitutes other
business activities that do not fall within outdoor or surf segments.
31 July 2020 Outdoor Surf Corporate Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Sales from external customers 485,785 315,739 - 801,524
EBITDA 128,192 35,202 (14,503) 148,891
Depreciation and amortisation 63,291 35,804 3,932 103,027
EBIT 64,901 (602) (18,435) 45,864
Income tax expense 16,962 2,543 (5,874) 13,631
Total segment assets 750,026 388,222 435,184 1,573,432
Total assets includes:
Non-current assets 503,162 135,390 396,691 1,035,243
Additions to non-current assets 43,446 14,279 - 57,725
Total segment liabilities 309,539 243,655 241,036 794,230
31 July 2019 Outdoor Surf Corporate Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Sales from external customers 538,855 - - 538,855
EBITDA 102,542 - (2,977) 99,565
Depreciation and amortisation 15,088 - 184 15,272
EBIT 87,454 - (3,161) 84,293
Income tax expense 24,188 - (443) 23,745
Total segment assets 483,038 - 111,515 594,553
Total assets includes:
Non-current assets 337,441 - 108,939 446,380
Additions to non-current assets 15,696 - - 15,696
Total segment liabilities 152,006 - 485 152,491
In this section ...
This section focuses on the results and performance of the Group. On the following pages you will find
disclosures explaining the Group’s results for the year, segmental information, taxation and earnings per
share.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
13
EBITDA represents earnings before income taxes (a non-GAAP measure), excluding interest income, interest expense,
depreciation and amortisation, as reported in the financial statements. EBIT represents EBITDA less depreciation and
amortisation. EBITDA and EBIT are key measurement criteria on which operating segments are reviewed by the Group
Chief Executive Officer and Group Executive Management team.
Costs recharged between Group companies are calculated on an arms-length basis. The default basis of allocation is %
of revenue with other bases being used where appropriate.
Sales from external customers by geographical area
2020 2019
NZ$’000 NZ$’000
Australia 449,930 334,532
New Zealand 133,696 136,950
North America 131,244 63,840
UK & Europe 53,386 3,533
Asia 25,653 -
Rest of World 7,615 -
801,524 538,855
Non-current assets by geographical area
2020 2019
NZ$’000 NZ$’000
Australia 695,389 230,827
New Zealand 171,075 105,523
North America 143,618 110,024
UK & Europe 16,425 6
Asia 7,057 -
Rest of World 1,679 -
1,035,243 446,380
2.2 Profit before tax
Revenue recognition
The Group recognises revenue from the sale of footwear, clothing and equipment for surfing and the outdoors and brand
licencing arrangements. Revenue comprises the fair value of the consideration received or receivable for the sale of
goods and brand licences, excluding Goods and Services Tax and discounts, and after eliminating sales within the
Group.
Retail Sales
For sales of goods to retail customers, revenue is recognised when control of the goods has transferred, being at the
point the customer purchases the goods at a retail outlet. Payment of the transaction price is due immediately at the
point the customer purchases the goods.
Online Sales
For online sales, revenue is recognised when control of the goods has transferred to the customer, being at the point the
goods are delivered to the customer. Delivery occurs when the goods have been shipped to the customer’s specific
location. When the customer initially purchases the goods online, the transaction price received by the Group is
recognised as a contract liability until the goods have been delivered to the customer.
Wholesale Sales
For sales to the wholesale market, revenue is recognised when control of the goods has transferred, being when the
goods have been shipped to the wholesaler’s specific location (delivery). Following delivery, the wholesaler has full
discretion over the manner of distribution and price to sell the goods, has the primary responsibility when onselling the
goods and bears the risks of obsolescence and loss in relation to the goods. A receivable is recognised by the Group
when the goods are delivered to the wholesaler as this represents the point in time at which the right to consideration
becomes unconditional, as only the passage of time is required before payment is due.
Sales Returns
Under the Group’s standard contract terms, customers have a right of return within 30 days. At the point of sale, a refund
liability and a corresponding adjustment to revenue is recognised for those products expected to be returned. The Group
uses its accumulated historical experience to estimate the number of returns on a portfolio level using the expected value
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
14
method. It is considered highly probable that a significant reversal in the cumulative revenue recognised will not occur
given the consistent level of returns over previous years.
Royalty Revenue
Royalty revenue from brand license arrangements is recognised based on a right to access the license. Revenue is
recognised over the contract period based on a fixed amount or reliable estimate of sales made by a licensee.
2020 2019
NZ$’000 NZ$’000
Sale of goods 797,410 538,855
Royalty revenue 3,848 -
Commission revenue 266 -
801,524 538,855
Note 2.1 provides a breakdown of revenue by operating segment and geographical area.
Other Income
2020 2019
NZ$’000 NZ$’000
Government grants 26,781 -
GST refund - 1,107
Other 588 23
27,369 1,130
Government grants that compensate the Group for expenses incurred are recognised as revenue in the statement of
comprehensive income on a systematic basis in the same period in which the expenses are recognised. In the current
period Government grants relate to wage and other subsidies received in response to the impact of COVID-19.
Government grants of $5,615,016 relating to the current year are receivable at balance date and have been included in
other receivables and prepayments in Note 3.1.3
GST refund relates to a refund received resulting from the treatment of GST on reward vouchers.
Employee entitlements
2020 2019
NZ$’000 NZ$’000
Wages, salaries and other short term benefits 167,161 86,325
Post-employment benefits 8,629 4,989
Employee share based remuneration 378 721
176,168 92,035
Lease expense
The Group is a lessee. Refer to section 3.4 for further details around the group’s leases and lease accounting policies.
Lease amounts recognised in the consolidated statement of comprehensive income:
2020 2019
NZ$’000 NZ$’000
Rent expenses - 69,187
Short-term lease expense 3,872 -
Low-value lease expense 1,277 211
Variable lease expense 532 -
Lease outgoings 16,480 -
Depreciation right-of-use asset 75,835 -
Interest expense related to lease liabilities 8,855 -
Total 106,851 69,398
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
15
Some of the property leases in which the Group is the lessee contain variable lease payment terms that are linked to
sales generated from the leased stores. Variable payment terms are used to link rental payments to store cash flows and
reduce fixed cost.
Overall the variable payments constitute up to 0.5% of the Group's entire lease payments. The variable payments
depend on sales and consequently on the overall economic development over the next few years. Taking into account
the development of sales expected over the next 3 years, variable rent expenses are expected to continue to present a
similar proportion of store sales in future years.
The Group has adopted the practical expedient in paragraph 46A of NZ IFRS 16 and elected not to account for any rent
concessions granted as result of the COVID-19 pandemic as a lease modification. The amount recognised in profit or
loss due to changes in lease payments arising from such concessions was $5 million which has been recognised within
the selling, administration and general expenses in the consolidated statement of comprehensive income.
The total cash outflow for leases amounts to NZ$95,892,000 (2019 NZ$68,986,000).
2.3 Taxation
Accounting policies
Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of
comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly
in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Company and Company’s subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected
to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax
liability is not recognised if it arises from the initial recognition of goodwill. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply
when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by
the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to
settle the balances on a net basis.
Goods and Services Tax (GST)
The consolidated statement of comprehensive income and the consolidated statement of cash flows have been prepared
so that all components are stated exclusive of GST. All items in the consolidated balance sheet are stated net of GST,
with the exception of receivables and payables, which include GST invoiced.
Keeping it simple ...
This section lays out the tax accounting policies, the current and deferred tax charges or credits in the year
(which together make up the total tax charge or credit in the consolidated statement of comprehensive
income), a reconciliation of profit before tax to the tax charge and the movements in deferred tax assets
and liabilities. The Group is subject to income taxes in multiple jurisdictions. As result there is complexity
and judgement involved in determining the worldwide provision for income taxes.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
16
Taxation – Consolidated statement of comprehensive income
The total taxation charge in the consolidated statement of comprehensive income is analysed as follows:
2020 2019
NZ$’000 NZ$’000
Current income tax charge 17,049 23,206
Deferred income tax charge / (credit) (3,418) 539
Income tax charge reported in the consolidated statement of
comprehensive income
13,631 23,745
In order to understand how, in the consolidated statement of comprehensive income, a tax charge of $13,630,851 (2019:
$23,744,580) arises on profit before income tax of $22,509,690 (2019: $81,377,631), the taxation charge that would arise
at the standard rate of New Zealand corporate tax is reconciled to the actual tax charge as follows:
2020 2019
NZ$’000 NZ$’000
Profit before income tax 22,510 81,378
Income tax calculated at 28% 6,303 22,786
Adjustments to taxation:
Adjustments due to different rate in different jurisdictions (91) 741
Non-taxable income (1,015) (327)
Expenses not deductible for tax purposes 4,560 1,152
Tax legislation enacted for employee share schemes - (506)
Utilisation of tax losses by group companies (38) -
Tax expense transferred to foreign currency translation reserve (13) 2
Adjustments in respect of prior years 274 (130)
Tax losses not recognised 3,651 27
Income tax charge reported in the consolidated statement of
comprehensive income
13,631 23,745
Adjustments for prior periods primarily arise where an outcome is obtained on certain tax matters which differs from
expectations held when the related provision was made. Where the outcome is more favourable than the provision
made, the difference is released, lowering the current year tax charge. Where the outcome is less favourable than the
provision, an additional charge to the current year tax will occur.
The tax charge / (credit) relating to components of other comprehensive income is as follows:
2020 2019
NZ$’000 NZ$’000
Movement in cash flow hedge reserve before tax
(13,162) 13
Tax impact relating to cash flow hedge reserve
3,903 607
Movement in cash flow hedge reserve after tax
(9,259) 620
Foreign currency translation reserve before tax
259 (3,297)
Tax credit / (charge) relating to foreign currency translation
reserve
- -
Movement in foreign currency translation reserve after tax
259 (3,297)
Other reserves before tax
(61) -
Tax credit / (charge) relating to other reserves
- -
Movement in other reserves after tax
(61) -
Total other comprehensive income/(expense) before tax
(12,964) (3,284)
Total tax credit / (charge) on other comprehensive income
3,903 607
Total other comprehensive income/(expense) after tax
(9,061) (2,677)
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
17
Current tax
- -
Deferred tax
3,903 607
Total tax credit / (charge) on other comprehensive income
3,903 607
Taxation – Balance sheet
The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon
during the current and prior year:
Tax
depreciation
Employee
obligations Intangibles Leases
Other
temporary
differences Reserves Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2018
205 3,123 (54,923) - 6,965 (1,603) (46,233)
Recognised in the consolidated
statement of comprehensive
income
16 (523) 51 - (83) - (539)
Recognised in other
comprehensive income
- - - - - 607 607
Recognised directly in equity
- (253) - - - - (253)
Exchange differences
(2) (68) 868 - (231) - 567
As at 31 July 2019
219 2,279 (54,004) - 6,651 (996) (45,851)
Recognised in the consolidated
statement of comprehensive
income
(2,356) (695) 1,402 422 4,645 - 3,418
Recognised in other
comprehensive income
- - - - - 3,903 3,903
Recognised directly in equity
- (87) - - - - (87)
Deferred tax on transition to NZ
IFRS 16
- - - 10,813 - - 10,813
Deferred tax on business
combinations (Note 5.1)
4,053 1,963 (62,598) - 3,337 - (53,245)
Exchange differences
(33) 33 (687) 13 271 - (403)
As at 31 July 2020 1,883 3,493 (115,887) 11,248 14,904 2,907 (81,452)
The deferred tax balance relates to:
• Property, plant and equipment temporary differences arising on differences in accounting and tax depreciation
rates
• Employee benefit accruals
• Brands and customer relationships
• Unrealised foreign exchange gain/loss on intercompany loans
• Realised gain/loss on foreign exchange contracts not yet charged in the consolidated statement of
comprehensive income
• Lease accounting
• Inventory provisioning
• Temporary differences on the unrealised gain/loss in hedge reserve
• Employee share schemes
• Other temporary differences on miscellaneous items
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
18
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items;
2020 2019
NZ$’000 NZ$’000
Deductible temporary differences 2,060 -
Tax losses 18,370 3,609
20,430 3,609
The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been
recognised in respect of overseas subsidiaries where it is not yet probable that future taxable profit will be generated in
those territories to utilise these benefits.
Imputation credits
2020 2019
NZ$’000 NZ$’000
Imputation credits available for use in subsequent reporting
periods based on a tax rate of 28%
(6,743) 1,615
The above amounts represent the balance of the imputation account as at the end of July 2020, adjusted for:
• Imputation credits that will arise from the payment of the amount of the provision for income tax;
• Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
• Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Tax payments of $6,808,421 have been financed at year end which once transferred to the Inland Revenue Department
will result in a positive imputation balance.
The balance of Australian franking credits able to be used by the Group in subsequent periods as at 31 July 2020 is
A$2,691,472 (2019: A$6,513,756).
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
19
2.4 Earnings per share
2020
Restated
2019
’000 ’000
Weighted average number of basic ordinary shares in issue 493,347 359,600
Adjustment for:
- Share options / performance rights 1,235 1,966
494,582 361,566
The Group has restated the prior year basic and diluted EPS to reflect the impact of the implied bonus element on shares
issued during the year (Note 4.3.1).
In October 2019 shares were issued as result of an institutional and retail entitlement offer and share placement at an
issue price of NZ$2.55, representing a 14.4% discount to the NZ$2.98 volume weighted average price (ex-dividend) of
Kathmandu’s shares traded on the NZX for the last five trading days prior to 1 October 2019, and a 13.6% discount to
the theoretical ex-entitlement price of NZ$2.95.
In April 2020 shares were issued as result of an institutional and retail entitlement offer and share placement at an issue
price of NZ$0.50, representing a 51.0% discount to the NZ$1.02 NZX closing price on 30 March 2020, and a 30.6%
discount to the theoretical ex-entitlement price of NZ$0.72.
Keeping it simple ...
Earnings per share (‘EPS’) is the amount of post-tax profit attributable to each share.
Basic EPS is calculated by dividing the profit after tax attributable to equity holders of the Company of
NZ$8,144,784 (2019: NZ$57,633,052) by the weighted average number of ordinary shares in issue
during the year of 493,346,733 (2019: 359,600,086).
Diluted EPS reflects any commitments the Group has to issue shares in the future that would decrease
EPS. In 2020, these are in the form of share options / performance rights. To calculate the impact it is
assumed that all share options are exercised / performance rights taken, and therefore, adjusting the
weighted average number of shares.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
20
Section 3: Operating Assets and Liabilities
3.1 Working capital
3.1.1 Inventory
Accounting policies
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average cost
method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course
of business, less applicable variable selling expenses. Inventory is considered in transit when the risk and rewards of
ownership have transferred to the Group.
The Group assesses the likely residual value of inventory. Stock provisions are recognised for inventory which is
expected to sell for less than cost and also for the value of inventory likely to have been lost to the business through
shrinkage between the date of the last applicable stocktake and balance sheet date. In recognising the provision for
inventory, judgement has been applied by considering a range of factors including historical results, stock shrinkage
trends and product lifecycle.
Inventory is broken down into trading stock and goods in transit below:
2020 2019
NZ$’000 NZ$’000
Raw materials and consumables 2,528 -
Work in progress 2,397 -
Trading stock 209,958 105,161
Goods in transit 13,910 17,612
228,793 122,773
Inventory has been reviewed for obsolescence and a provision of $4,579,854 (2019: $294,742) has been made. The
acquired inventory obsolescence provision recognised on acquisition of the Rip Curl entities was $1,997,523.
3.1.2 Cash and cash equivalents
2020 2019
NZ$’000 NZ$’000
Cash on hand 482 192
Cash at bank 230,429 6,038
Short term investments convertible to cash 974 -
231,885 6,230
Keeping it simple ...
Working capital represents the assets and liabilities the Group generates through its trading activity. The
Group therefore defines working capital as inventory, cash, trade and other receivables, other financial
assets, trade and other payables and other financial liabilities.
In this section ...
This section shows the assets used to generate the Group’s trading performance and the liabilities
incurred as a result. Liabilities relating to the Group’s financing activities are addressed in Section 4.
Deferred tax assets and liabilities are shown in note 2.3.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
21
The carrying amount of the Group's cash and cash equivalents are denominated in the following currencies:
NZD 32,330 738
AUD 163,503 2,832
USD 22,275 2,238
EUR 6,108 116
THB 3,371 -
IDR 1,706 -
BRL 1,126 -
Other currencies 1,466 306
231,885 6,230
3.1.3 Trade and other receivables
Accounting policies
Trade and other receivables are recognised initially at the value of the invoice sent to the customer (fair value) and
subsequently at the amounts considered recoverable (amortised cost). The collectability of trade and other receivables is
reviewed on an on-going basis.
An allowance for lifetime expected credit losses is recognised for trade and other receivables based on the Group’s
historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an
assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of
money where appropriate. The expected credit loss is estimated as the difference between all contractual cash flows that
are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted
at the original effective interest rate.
2020 2019
NZ$’000 NZ$’000
Current
Trade receivables 62,143 9,734
Allowance for expected credit losses (10,329) (115)
Other receivables and prepayments 21,854 4,587
73,668 14,206
Non-current
Other debtors 3,945 -
3,945 -
The acquired allowance for expected credit losses recognised on acquisition of the Rip Curl entities was $5,638,857.
Other non-current debtors includes debtors on extended credit terms and security deposits paid in relation to store
leases.
The carrying amount of the Group’s trade and other receivables are denominated in the following currencies:
NZD 5,101 2,097
AUD 20,853 1,935
USD 22,466 9,326
EUR 13,258 -
GBP 1,650 140
CAD 2,326 708
BRL 2,991 -
THB 4,406 -
IDR 1,997 -
JPY 2,246 -
Other currencies 319 -
77,613 14,206
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
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3.1.4 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
Risk Exposure arising from Monitoring Management
Credit risk Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Credit ratings, aging
analysis and review
of exposure within
regular terms of
trade
Credit is given to customers following
obtaining credit rating information,
confirming references and setting
appropriate credit limits
Exposure to credit risk
The below balances are recorded at their carrying amount after any allowance for expected credit loss on these financial
instruments. The maximum exposure to credit risk at reporting date was (carrying amount):
2020 2019
NZ$’000 NZ$’000
Cash and cash equivalents 231,403 6,038
Trade receivables 51,814 9,619
Other receivables 12,866 1,741
Derivative financial instruments (7,361) 4,842
288,722 22,240
As at balance sheet date the carrying amount is also considered to approximate fair value for each of the financial
instruments.
The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings (if available) or to
historical information about counterparty default rates:
2020 2019
NZ$’000 NZ$’000
Cash and cash equivalents;
Standard & Poors - AA- 207,811 3,783
Standard & Poors - A+ 14,008 -
Standard & Poors - A 1,567 -
Standard & Poors - A- - 1,861
Standard & Poors - BBB+ 3,822 394
Standard & Poors - BBB- 1,790 -
Standard & Poors - BB 1,282 -
Standard & Poors - BB- 1,123 -
Total cash and cash equivalents 231,403 6,038
Trade and other receivables consist of a large number of customers spread across diverse geographical areas.
As at balance sheet date, trade and other receivables of NZ$27,495,000 (2019: NZ$848,000) were past due. A provision
of NZ$10,329,000 (2019: NZ$115,000) is held against these overdue amounts. Interest is charged on overdue debtors in
some instances.
The ageing analysis of these past due trade receivables is:
2020 2019
NZ$’000 NZ$’000
0 to 30 days 4,825 548
30 to 60 days 3,503 217
60 to 90 days 7,394 73
90 days and over 11,773 10
27,495 848
Due to COVID-19 credit terms have been extended for some customers which has impacted the aging analysis above.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
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3.1.5 Trade and other payables
Accounting policies
Trade payables, sundry creditors and accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. Trade and other payables are initially measured at fair value and subsequently measured at amortised
cost, using the effective interest method. The carrying value of trade payables is considered to approximate fair value as
amounts are unsecured and are usually paid by the 30th of the month following recognition.
Employee entitlements relates to benefits accruing to employees in respect of wages and salaries, annual leave, and
long service leave when it is probable that settlement will be required and they are capable of being measured reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal
values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee
benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future
cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.
2020 2019
NZ$’000 NZ$’000
Current
Trade payables 63,939 30,504
Employee entitlements 21,357 8,582
Sundry creditors and accruals 54,912 34,397
Other Provisions 3,490 1,077
143,698 74,560
Non-Current
Employee entitlements 3,069 -
Other Provisions 11,344 -
14,413 -
The carrying amount of the Group's trade and other payables are denominated in the following currencies:
2020 2019
NZ$’000 NZ$’000
NZD 19,351 11,227
AUD 83,997 40,475
USD 30,046 22,042
EUR 14,944 137
BRL 3,041 -
THB 3,523 -
IDR 2,052 -
Other currencies 1,156 679
158,110 74,560
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The warranties provision represents the present value of the estimated future outflow of economic benefits that will be
required under the Group’s obligations for warranties under local sale of goods legislation. The provision relates to
wetsuits, watches and footwear and is based on estimates made from historical warranty data associated with similar
products and services.
A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been announced publicly at balance date.
Lease restoration provision represents the present value of the estimated cost to restore leased properties to their
original condition upon expiry of the lease.
Other provisions relate to other miscellaneous amounts that meet the definition of a provision but do not fall into any of
the other categories.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
24
Warranties Restructuring
Lease
restoration Other Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Balance at 31 July 2018 - - 618 535 1,153
Additional provisions recognised - - 174 - 174
Provisions used during the year - - - (129) (129)
Provisions re-measured during the year - - (97) - (97)
Foreign exchange - - (24) - (24)
Balance at 31 July 2019 - - 671 406 1,077
As at 31 July 2019
Current - - 671 406 1,077
Non-current - - - - -
- - 671 406 1,077
Balance at 31 July 2019 - - 671 406 1,077
Provision recognised on acquisition
(Note 5.1)
1,168 2,541 5,453 - 9,162
Provisions recognised on adoption of NZ
IFRS 16
- - 4,686 - 4,686
Additional provisions recognised 478 1,367 633 364 2,842
Provisions used during the year (296) (2,303) (191) - (2,790)
Provisions re-measured during the year (14) - (325) - (339)
Foreign exchange 13 70 121 (8) 196
Balance at 31 July 2020 1,349 1,675 11,048 762 14,834
As at 31 July 2020
Current 1,349 1,675 193 273 3,490
Non-current - - 10,855 489 11,344
1,349 1,675 11,048 762 14,834
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
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3.2 Property, plant and equipment
Accounting policies
Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any
gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
The assets’ residual value and useful lives are reviewed and adjusted if appropriate at each balance sheet date.
Capital work in progress is not depreciated until available for use.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Depreciation
Depreciation of property, plant and equipment is calculated using straight line and diminishing value methods so as to
expense the cost of the assets over their useful lives. The rates are as follows:
Buildings & leasehold improvements 5 – 50 %
Office, plant and equipment 5 – 50 %
Furniture and fittings 10 – 50 %
Computer equipment 10 – 60 %
Impairment of assets
Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of
disposal and value in use.
Property, plant and equipment can be analysed as follows:
Land &
Buildings
Leasehold
improvement
Office, plant &
equipment
Furniture &
fittings
Computer
equipment Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Year ended 31 July 2019
Opening net book value - 29,949 12,332 19,101 2,132 63,514
Additions - 5,690 554 4,447 654 11,345
Disposals - (394) (7) (383) (18) (802)
Depreciation charge - (6,962) (930) (3,394) (634) (11,920)
Exchange differences - (776) (419) (597) (26) (1,818)
Closing net book value - 27,507 11,530 19,174 2,108 60,319
As at 31 July 2019
Cost - 67,974 17,936 41,726 9,633 137,269
Accumulated depreciation - (40,467) (6,406) (22,552) (7,525) (76,950)
Closing net book value - 27,507 11,530 19,174 2,108 60,319
Keeping it simple ...
The following section shows the physical assets used by the Group to operate the business, generating
revenues and profits. These assets include store and office fit-out, as well as equipment used in sales
and support activities.
Assets are recognised only when it is probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured reliably.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
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Land &
Buildings
Leasehold
improvement
Office, plant &
equipment
Furniture &
fittings
Computer
equipment Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Year ended 31 July 2020
Opening net book value - 27,507 11,530 19,174 2,108 60,319
Additions 15 6,478 3,108 5,059 739 15,399
Acquisition of businesses
(Note 5.1)
6,475 8,286 3,603 16,440 2,725 37,529
Disposals (305) (621) (474) (1,632) (96) (3,128)
Depreciation charge (370) (7,802) (2,581) (7,670) (1,230) (19,653)
Transfers between categories - - (289) 289 - -
Exchange differences (188) 182 199 123 (60) 256
Closing net book value 5,627 34,030 15,096 31,783 4,186 90,722
As at 31 July 2020
Cost 9,722 97,400 45,612 99,855 20,251 272,840
Accumulated depreciation (4,095) (63,370) (30,516) (68,072) (16,065) (182,118)
Closing net book value 5,627 34,030 15,096 31,783 4,186 90,722
Depreciation
2020 2019
NZ$’000 NZ$’000
Land & buildings 370 -
Leasehold improvement 7,802 6,962
Office, plant and equipment 2,581 930
Furniture and fittings 7,670 3,394
Computer equipment 1,230 634
Total property, plant & equipment depreciation 19,653 11,920
Depreciation expenditure is excluded from administration and general expenses in the consolidated statement of
comprehensive income.
Sale of property, plant and equipment
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
2020 2019
NZ$’000 NZ$’000
Loss on sale of property, plant and equipment 3,069 801
Capital commitments
Capital commitments contracted for at balance sheet date include property, plant and equipment of NZ$974,531 (2019:
NZ$1,877,276).
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
27
3.3 Intangible assets
Accounting policies
Goodwill
Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the cost of the acquisition over the
Group’s interest in the net fair value of the assets and liabilities of the acquiree. Separately recognised goodwill is tested
annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. It is
carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in
which the goodwill arose.
Brand
Acquired brands are carried at original cost based on independent valuation obtained at the date of acquisition. The
brand represents the price paid to acquire the rights to use the Kathmandu, Oboz or Rip Curl brand. The brand is not
amortised. Instead the brand is tested for impairment annually or more frequently if events or changes in circumstances
indicate that it might be impaired and is carried at cost less accumulated impairment losses.
Customer Relationship
Acquired customer relationships are carried at original cost based on independent valuation obtained at the date of
acquisition less accumulated amortisation. They are amortised on a straight line basis over a useful life of 5-10 years.
The estimated useful life and amortisation period is reviewed at the end of each annual reporting period.
Software costs
Software costs have a finite useful life. Software costs are capitalised and written off over the useful economic life.
Costs associated with developing or maintaining computer software programs are recognised as an expense when
incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by
the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as
intangible assets. Direct costs include the costs of software development employees.
Software is amortised using straight line and diminishing value methods at rates of 20-67%.
Other intangibles
Other intangibles relate to lease rights expenditure associated with acquiring existing lease agreements for stores where
there is an active market for key money. They are carried at original cost less accumulated impairment losses. Other
intangibles have an indefinite useful life and are tested annually for impairment.
Impairment
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Intangible assets that have an indefinite useful life, including goodwill, are not subject to amortisation
and are tested annually for impairment irrespective of whether any circumstances identifying a possible impairment have
been identified. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in
use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows e.g. cash generating units.
Keeping it simple ...
The following section shows the non-physical assets used by the Group to operate the business,
generating revenues and profits. These assets include brands, customer relationship, software
development and goodwill.
This section explains the accounting policies applied and the specific judgements and estimates made
by the Directors in arriving at the net book value of these assets.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
28
Intangible assets
Goodwill Brand
Customer
Relationship Software
Other
Intangibles Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Year ended 31 July 2019
Opening net book value
189,308 187,928 1,747 7,923 - 386,906
Additions
- - - 4,351 - 4,351
Disposals
- - - (13) - (13)
Amortisation
- - (184) (3,168) - (3,352)
Exchange differences
1,013 (2,847) 55 (52) - (1,831)
Closing net book value
190,321 185,081 1,618 9,041 - 386,061
As at 31 July 2019
Cost
191,592 185,081 1,868 33,206 - 411,747
Accumulated
amortisation/impairment
(1,271) - (250) (24,165) - (25,686)
Closing net book value
190,321 185,081 1,618 9,041 - 386,061
Year ended 31 July 2020
Opening net book value
190,321 185,081 1,618 9,041 - 386,061
Additions
- - - 4,463 - 4,463
Acquisition of businesses
(Note 5.1)
84,274 169,687 39,697 917 2,883 297,458
Disposals
- - - - - -
Amortisation
- - (3,932) (3,607) - (7,539)
Exchange differences
(193) 2,355 (101) 17 57 2,135
Closing net book value
274,402 357,123 37,282 10,831 2,940 682,578
As at 31 July 2020
Cost
275,673 357,123 41,495 58,943 4,552 737,786
Accumulated
amortisation/impairment
(1,271) - (4,213) (48,112) (1,612) (55,208)
Closing net book value
274,402 357,123 37,282 10,831 2,940 682,578
Sale of intangibles
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
2020 2019
NZ$’000 NZ$’000
Loss on sale of intangibles - 13
Impairment tests for goodwill and brand
The aggregate carrying amounts of goodwill and brand allocated to each unit for impairment testing are as follows:
Goodwill Brand
2020 2019 2020 2019
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Kathmandu New Zealand 45,484 45,484 51,000 51,000
Kathmandu Australia 76,496 75,564 99,140 96,034
Oboz 68,239 69,273 37,479 38,047
Rip Curl 84,183 - 169,504 -
274,402 190,321 357,123 185,081
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
29
For the purposes of goodwill and brand impairment testing, the Group operates as four groups of cash generating units,
Kathmandu New Zealand, Kathmandu Australia, Rip Curl and Oboz. The recoverable amount of each cash generating
unit has been determined based on the fair value less cost of disposal (FVLCOD). Five year projected cash flows are
used to determine the FVLCOD.
The discounted cash flow valuations were calculated using post tax cash flow projections based on financial budgets
prepared by management and approved by the Board for the year ended 31 July 2021. Cash flows beyond July 2021
have been extrapolated based on historical results and a return to pre COVID-19 levels of sales and EBITDA margin
over the near to medium term.
The Group engaged an external valuer to perform the valuation of the Rip Curl CGU as at 31 July 2020 using the post
tax cash flow projections presented to the Board for the year ending 31 July 2021 and the three year plan that
extrapolates cash flows based on historic results and a return to pre-COVID-19 levels of sales and EBITDA margin over
the near to medium term.
The key assumption used:
• The FVLCOD model assumes an economic downturn in the 2021 financial year and a return to more
normalised trading conditions previously experienced in 2022 and beyond. The Group believes the assumptions
used in cash flows reflect a combination of the Groups experience and uncertainty associated with COVID-19.
• While temporary store and market closures may impact short term results, these are not expected to impact the
long-term performance of each CGU. Several scenarios have been assessed where trading conditions do not
normalise until the 2024 financial year, in each scenario the fair value for the CGU exceeds the carrying value.
Other assumptions used:
Pre tax discount rate Terminal growth rate
2020 2019 2020 2019
Kathmandu New Zealand CGU 11.5% 11.2% 1.0% 1.0%
Kathmandu Australia CGU 11.4% 10.5% 1.0% 1.0%
Rip Curl CGU 13.2% - 1.5% -
Oboz CGU 11.8% 12.7% 1.0% 1.0%
The terminal growth rate assumption is based on a conservative estimate considering the current inflation targets and do
not exceed the historical long-term average growth rate for each CGU. Pre-tax discount rates are calculated based on a
market participant expected capital structure and cost of debt to derive a weighted average cost of capital.
We note that while the sensitivity of key assumptions provided above would not result in an impairment in each case, it is
possible that they could occur in a combination. Furthermore, the CGU with the lowest headroom is the Oboz CGU. Prior
to COVID-19 the Oboz CGU achieved year on year double digit revenue and EBITDA growth percentages. For
impairment testing purposes cash flows for FY21 are lower than those achieved in FY20 with an expected recovery in
FY22 to levels similar to FY19. Beyond FY22 it is assumed that historical growth percentages resume. Oboz revenue is
forecast to grow at an annual compound growth rate of approximately 15% through to the terminal year in FY25. Prior to
the impact of COVID-19 the CGU achieved an annual compound growth rate of 29% from FY17-FY19.
The calculations confirmed that there was no impairment of goodwill and brand during the year (2019: nil). The Board
believes that any reasonably possible change in the key assumptions used in the calculations would not cause the
carrying amount to exceed its recoverable amount.
The expected continued promotion and marketing of the Kathmandu, Oboz and Rip Curl brands supports the assumption
that the brand has an indefinite life.
Capital commitments
Capital commitments contracted for at balance sheet date include intangible assets of NZ$709,417 (2019: NZ$703,611).
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
30
3.4 Leases
Accounting policies
The Group assesses whether a contract is or contains a lease, at inception of a contract. The Group recognises a right-
of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for
short-term leases (defined as leases with a term of 12 months or less) and leases of low value assets. For these leases,
the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease
unless another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed.
Lease Liability
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its
incremental borrowing rate. The Group's incremental borrowing rate has been determined as the rate of interest that the
Group would have to pay to borrow over a similar term and with a similar security the funds necessary to obtain an asset
of a similar value to the right-of-use asset in a similar economic environment.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in-substance fixed payments), less any lease incentives; and
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset)
whenever;
• the lease term has changed in which case the lease liability is remeasured by discounting the revised lease
payments using a revised discount rate;
• the lease payments change due to changes in an index or rate or a change in expected payment under a
guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease
payments using the initial discount rate (unless the lease payments change is due to a change in a floating
interest rate, in which case a revised discount rate is used);
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case
the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
Right of Use Asset
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or
before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is
located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is
recognised and measured under NZ IAS 37. The costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset. The
depreciation starts at the commencement date.
The Group applies NZ IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts
for any identified impairment loss.
Keeping it simple ...
The following section shows the assets leased by the Group to operate the business, generating
revenues and profits. These assets include the lease of retail stores.
This section explains the accounting policies applied and the specific judgements and estimates made
by the Directors in arriving at the carrying value of these assets and the corresponding lease liability.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
31
Variable Rents
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the
right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that
triggers those payments occurs and are included in the selling expenses line in the consolidated statement of
comprehensive income.
Group as a lessee
The Group leases several assets including buildings and motor vehicles. Some of the existing lease arrangements have
right of renewal options for varying terms. Renewal options are included within the lease liability if they are within 2 years
and the Group is reasonably certain to take up the option. The average lease term including rights of renewal is 8 years.
3.4.1 Right-of-use assets
The movements in right of use assets for the year ended 31 July 2020 were as follows:
NZ$'000
Opening carrying amount 1 August 2019 -
Movements on transition 178,774
Additions 37,863
Right-of-use assets recognised on acquisition (Note 5.1) 117,296
Depreciation for the period (75,835)
Impairment of right-of-use assets (2,050)
Exchange differences 1,950
Closing carrying amount 31 July 2020 257,998
Cost 335,692
Accumulated depreciation and impairment (77,694)
Closing carrying amount 31 July 2020 257,998
3.4.2 Lease liabilities
Reconciliation of operating lease commitments to lease liabilities recognised on initial application;
NZ$'000
Operating lease commitment as at 31 July 2019 206,476
Above discounted using incremental borrowing rate as of 1 August 2019 193,682
Recognition exemption for short term leases (318)
Adjustments as result of different treatment of renewal options 28,281
Lease contracts committed to but not yet available for use (6,256)
Lease liabilities as at 1 August 2019 215,389
The weighted average incremental borrowing rate applied to lease liabilities recognised in the consolidated balance
sheet at 1 August 2019 is 3.05%.
The movements in lease liabilities for the year ended 31 July 2020 were as follows:
NZ$' 000
Opening lease liabilities 1 August 2019 -
Movements on transition 215,389
Additions 37,811
Lease liabilities recognised on acquisition (Note 5.1) 118,564
Interest expense related to lease liabilities 8,855
Repayment of lease liabilities (including interest) (85,545)
Exchange differences 2,849
Closing lease liabilities 31 July 2020 297,923
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
32
Lease liability maturity analysis
NZ$’000
Within one year
77,579
One to five years
172,340
Beyond five years
48,004
Total
297,923
Current
77,579
Non-current
220,344
Total
297,923
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
33
Section 4: Capital Structure and Financing Costs
4.1 Interest bearing liabilities
Accounting policies
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is
recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective
interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
The table below separates borrowings into current and non-current liabilities:
2020 2019
NZ$’000 NZ$’000
Current portion - -
Non-current portion 241,270 25,500
Total term loans 241,270 25,500
Group Facility Agreement
The Group has a multi-option syndicated facility agreement, with a term loan facility of A$220 million, a revolving cash
advances facility of NZ$58 million and A$37 million, a trade finance sub-facility of A$30 million and NZ$10 million, and
instruments sub-facility of A$20 million. All facilities are repayable in full on 30 November 2022.
Interest is payable based on the BKBM rate (NZD borrowings), the BBSY rate (AUD borrowings), or the applicable short
term rate for interest periods less than 30 days, plus a margin of up to 1.05%. The debt is secured by the assets of the
guaranteeing group in accordance with the Security Trust Deed dated 25 October 2019.
The covenants entered into by the Group require specified calculations of Group earnings (excluding one-off transaction
costs) before interest, tax, depreciation and amortisation (EBITDA) plus lease rental costs to exceed total fixed charges
(net interest expense and lease rental costs) at the end of each half during the financial year. Similarly EBITDA
(excluding one-off transaction costs) must be no less than a specified proportion of total net debt at the end of each six
month interim period. The calculations of these covenants are specified in the bank facility agreement of 25 October
2019. The Group has obtained a waiver from its banking syndicate of the current covenants until the 31 July 2021
measurement point.
The current interest rates, prior to hedging, on the term loans ranged between 1.00% - 1.25% (2019: 2.31% - 2.47%).
In this section ...
This section outlines how the Group manages its capital structure and related financing costs, including
its balance sheet liquidity and access to capital markets.
Capital structure is how a company finances its overall operations and growth by using different
sources of funds. The Directors determine and monitor the appropriate capital structure of the Group,
specifically how much is raised from shareholders (equity) and how much is borrowed from financial
institutions (debt) in order to finance the Group’s activities both now and in the future.
The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of
announcing results and do so in the context of its ability to continue as a going concern, to execute
strategy and to deliver its business plan.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
34
Paycheck Protection Program (PPP) loans
As part of the US government response to COVID-19 the Group’s US resident companies applied for a Paycheck
Protection Program (PPP) loans of $4,200,632 (US $2,814,423). The Group believes that these entities met the criteria
to qualify for the loans at the date of the application. The eligibility is subject to a possible audit by the federal
government at which time the entities may be deemed not to be eligible. In the event of an unfavourable outcome of the
forgiveness application the group would be required to repay the PPP loan as well as 1% interest on that loan from the
period it was received until the date it was repaid. The Group believes that the US resident entities meet the criteria to
qualify for the loan and future forgiveness.
The PPP loan was initially received as a loan and once various criteria are met the Group can apply for forgiveness of
that loan. Once forgiveness of the loan has been approved it will be recognised in the consolidated statement of
comprehensive income, until that time it is recognised as a loan.
Reconciliation of movement in term loans
NZ$’000
Balance 31 July 2019
25,500
Net cash flow movement
212,989
Foreign exchange movement
2,781
Balance 31 July 2020
241,270
2020 2019
NZ$’000 NZ$’000
The principal of interest bearing liabilities is:
Payable within 1 year - -
Payable 1 to 2 years 4,201 -
Payable 2 to 3 years 237,069 15,000
Payable 3 to 4 years - 10,500
241,270 25,500
4.1.1 Finance costs
2020 2019
NZ$’000 NZ$’000
Interest income (449) (37)
Interest expense on term debt 4,780 1,877
Interest on lease liabilities 8,855 -
Other finance costs 9,246 886
Net exchange loss/(gain) on foreign currency 922 189
23,354 2,915
Other finance costs relate to facility fees on banking arrangements and debt underwriting costs.
4.1.2 Cash flow and fair value interest rate risk
Interest rate risk is the risk that fluctuations in interest rates impact the Group’s financial performance.
Risk Exposure arising from Monitoring Management
Interest rate risk Interest bearing liabilities
at floating rates
Cash flow forecasting
Sensitivity analysis
Interest rate swaps
Refer to section 4.2 for notional principal amounts and valuations of interest rate swaps outstanding at balance sheet
date. A sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table
below.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
35
At the reporting date the interest rate profile of the Group's banking facilities was (carrying amount):
2020 2019
NZ$’000 NZ$’000
Total secured loans 241,270 25,500
less Principal covered by interest rate swaps (5,000) (23,263)
Net Principal subject to floating interest rates 236,270 2,237
Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. The cash flow hedge
loss on interest rate swaps at balance sheet date was NZ$54,106 (2019: NZ$111,252).
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.
A sensitivity of 1% (2019: 1%) has been selected for interest rate risk. The 1% is based on reasonably possible changes
over a financial year, using the observed range of historical data for the preceding five year period.
Amounts are shown net of income tax. All variables other than applicable interest rates are held constant. The impact on
equity is presented exclusive of the impact on retained earnings.
-1% +1%
31 July 2020
Carrying
amount
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Derivative financial instruments (asset) / liability
7,361 (50) 38 50 (37)
Financial assets
Cash 231,885 (1,670) - 1,670 -
(1,670) - 1,670 -
Financial liabilities
Borrowings 241,270 2,413 - (2,413) -
Lease liabilities 297,923 2,979 - (2,979) -
5,392 - (5,392) -
Total increase / (decrease)
3,672 38 (3,672) (37)
-1% +1%
31 July 2019
Carrying
amount
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Derivative financial instruments (asset) / liability
(4,842) (235) 154 235 (151)
Financial assets
Cash 6,230 (45) - 45 -
(45) - 45 -
Financial liabilities
Borrowings 25,500 255 - (255) -
255 - (255) -
Total increase / (decrease)
(25) 154 25 (151)
4.1.3 Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Risk Exposure arising from Monitoring Management
Liquidity risk Interest bearing and other
liabilities
Forecast and actual cash
flows
Active working capital
management and flexibility
in funding arrangements
The Group has borrowing facilities of NZD $398,818,966 / AUD $370,104,000 (2019: NZD $140,729,053 AUD
$132,060,000) and operates well within this facility. This includes short term bank overdraft requirements, and at balance
sheet date no bank accounts were in overdraft.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
36
Less than
1 year
Between
1 and 2
years
Between
2 and 5
years
Over
5 years
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Group 2020
Trade and other payables 109,643 - - -
Borrowings 3,007 7,197 238,060 -
112,650 7,197 238,060 -
Group 2019
Trade and other payables 62,075 - - -
Borrowings 600 599 25,751 -
62,675 599 25,751 -
The Group enters into forward exchange contracts to manage the risks associated with the purchase of foreign currency
denominated products.
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant
maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows. They are expected to occur and affect the
profit or loss at various dates between balance sheet dates and the following five years.
Less than
1 year
NZ$’000
Between
1 and 2
years
NZ$’000
Between
2 and 5
years
NZ$’000
At 31 July 2020
Forward foreign exchange contracts
- Inflow 179,857 - -
- Outflow (187,164) - -
Net Inflow / (Outflow)
(7,307) - -
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
(51) - -
At 31 July 2019
Forward foreign exchange contracts
- Inflow 118,968 - -
- Outflow (114,015) - -
Net Inflow / (Outflow)
4,953 - -
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
(46) 9 -
Keeping it simple ...
The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities
into relevant maturity groupings based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows, so will not always reconcile with the amounts disclosed on the balance sheet.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
37
4.2 Derivative financial instruments
Accounting policies
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-
measured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain
derivatives as hedges of highly probable forecast transactions (cash flow hedges).
At inception of the hedging relationship, the Group documents the economic relationship between hedging instruments
and hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset
changes in the cash flows of the hedged items. The Group also documents its risk management objectives and strategy
for undertaking its hedge transactions.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately
in the consolidated statement of comprehensive income.
Amounts accumulated in equity are recycled in the consolidated statement of comprehensive income in the periods when
the hedged item will affect profit or loss. However, when the forecast transaction that is hedged results in the recognition
of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in
equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or
liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in the consolidated statement of comprehensive income. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the consolidated statement of comprehensive income.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the consolidated statement of comprehensive income, except when deferred in other comprehensive
income. Translation differences on monetary financial assets and liabilities are reported as part of the fair value gain or
loss.
Keeping it simple ...
A derivative is a type of financial instrument typically used to manage risk. A derivative’s value
changes over time in response to underlying variables such as exchange rates or interest rates and is
entered into for a fixed period. A hedge is where a derivative is used to manage an underlying
exposure.
The Group is exposed to changes in interest rates on its borrowings and to changes in foreign
exchange rates on its foreign currency (largely USD) purchases. The Group uses derivatives to hedge
these underlying exposures.
Derivative financial instruments are initially included in the balance sheet at their fair value, either as
assets or liabilities, and are subsequently re-measured at fair value at each reporting date.
An interest rate swap is an instrument to exchange a fixed rate of interest for a floating rate, or vice
versa, or one type of floating rate for another.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
38
Derivative financial instruments
2020 2019
NZ$’000 NZ$’000
Foreign exchange contracts
Current asset 53 4,964
Current liability (7,360) (11)
Net foreign exchange contracts – cash flow hedge
(asset / (liability)) (7,307) 4,953
Interest rate swaps
Current liability (54) (102)
Non-current liability - (9)
Net interest rate swaps – cash flow hedge (asset /
(liability)) (54) (111)
Total derivative financial instruments (7,361) 4,842
The above table shows the Group’s financial derivative holdings at year end.
Interest rate swaps - cash flow hedge
Interest rate swaps are to exchange a floating rate of interest for a fixed rate of interest. The objective of the transaction
is to hedge the core floating rate borrowings of the business to minimise the impact of interest rate volatility within
acceptable levels of risk thereby limiting the volatility on the Group's financial results. The notional amount of interest rate
swaps at balance sheet date was NZ$5,000,000 (2019: NZ$23,263,048). The fixed interest rate is 1.32% (2019: range
from 1.32% and 2.63%). Refer section 4.1.3 for timing of contractual cash flows relating to interest rate swaps.
Foreign exchange contracts - cash flow hedge
The objective of these contracts is to hedge highly probable anticipated foreign currency purchases against currency
fluctuations. These contracts are timed to mature when import purchases are scheduled for payment. The notional
amount of foreign exchange contracts amount to US$114,460,000 NZ$179,802,938 (2019: US$79,350,000,
NZ$115,606,572).
No material hedge ineffectiveness for interest rate swaps or foreign exchange contracts exists as at balance sheet date
(2019: nil).
Refer to section 4.2.1 for a sensitivity analysis of foreign exchange risk associated with derivative financial instruments.
4.2.1 Foreign exchange risk
Foreign exchange risk is the risk that fluctuations in exchange rates will impact the Group’s financial performance. The
Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the NZD, USD and EUR.
Risk Exposure arising from Monitoring Management
Foreign exchange risk Foreign currency
purchases – over 90% of
purchases are in USD
Forecast purchases
Reviewing exchange rate
movements
USD foreign exchange
derivatives
The Group is exposed to currency risk on any cash remitted between entities in different jurisdictions. The Group does
not hedge for such remittances. Interest on borrowings is denominated in either New Zealand dollars or Australian
dollars and is paid for out of surplus operating cashflows generated in New Zealand or Australia.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
39
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to foreign exchange
risk.
A sensitivity of -10% / +10% (2019: -10% / +10%) for foreign exchange risk has been selected. While it is unlikely that an
equal movement of the New Zealand dollar would be observed against all currencies, an overall sensitivity of -10% /
+10% (2019: -10% / +10%) is reasonable given the exchange rate volatility observed on a historic basis for the preceding
five year period and market expectation for potential future movements.
Amounts are shown net of income tax. All variables other than applicable exchange rates are held constant. The impact
on equity is presented exclusive of the impact on retained earnings.
-10% +10%
31 July 2020
Carrying
amount
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Derivative financial instruments (asset) / liability
7,361 - (19,160)
- 15,676
Financial assets
Cash 231,885 15,964 - (13,062) -
Trade receivables and other receivables 64,680 (5,063) - 4,143 -
10,901 - (8,919) -
Financial liabilities
Trade and other payables 158,111 (11,101) - 9,082 -
Borrowings 241,270 19,302 - (15,792) -
8,201 - (6,710) -
Total increase / (decrease)
19,102 (19,160) (15,629) 15,676
-10% +10%
31 July 2019
Carrying
amount
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
Derivative financial instruments (asset) / liability
(4,842) - (13,339)
- 10,915
Financial assets
Cash 6,230 439 - (359) -
Trade receivables and other receivables 11,360 (806) - 706 -
(367) - 347 -
Financial liabilities
Trade and other payables 74,560 (5,067) - 4,145 -
Borrowings 25,500 - - - -
(5,067) - 4,145 -
Total increase / (decrease)
(5,434) (13,339) 4,492 10,915
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
40
4.3 Equity
Accounting policies
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised through equity following the approval by the Company’s directors.
4.3.1 Contributed equity - ordinary shares
2020 2019
NZ$’000 NZ$’000
Ordinary shares fully paid ($) 626,380 251,113
Balance at beginning of year 251,113 249,882
Issue of shares under Executive and Senior
Management Long Term Incentive Plan
1,666 1,231
Shares issued under share entitlement offers and
share placement
340,646 -
Shares issued as consideration on a business
combination (Note 5.1)
32,955 -
Balance at end of year 626,380 251,113
Number of issued shares
2020 2019
’000 ’000
Ordinary shares issued at beginning of the year 226,189 225,315
Shares issued under Executive and Senior
Management Long Term Incentive Plan
927 874
Shares issued under share entitlement offers and
share placement
470,612 -
Shares issued as consideration on a business
combination (Note 5.1)
11,273 -
Ordinary shares issued at end of the year 709,001 226,189
As at 31 July 2020 there were 709,001,384 ordinary issued shares in Kathmandu Holdings Limited and these are
classified as equity.
926,996 shares (2019: 873,712) were issued under the “Executive and Senior Management Long Term Incentive Plan
24 November 2010” during the year.
During the year 470,613,096 shares were issued in relation to a share placement and share entitlement offers. Total
capital raised of $351,510,652 is net of directly attributable share issue costs of $10,864,686.
All ordinary shares carry equal rights in respect of voting and the receipt of dividends. Ordinary shares do not have a par
value.
Refer to section 6.3 for Employee share-based remuneration plans.
Keeping it simple ...
This section explains material movements recorded in shareholders’ equity that are not explained
elsewhere in the financial statements. The movements in equity and the balance at 31 July 2020 are
presented in the consolidated statement of changes in equity.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
41
4.3.2 Reserves and retained earnings
Cash flow hedging reserve
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised
directly in other comprehensive income, as described in the accounting policy in section 4.2. The amounts are
recognised in profit or loss when the associated hedged transaction affects profit or loss.
Foreign currency translation reserve
The FCTR is used to record foreign currency translation differences arising on the translation of the Group entities results
and financial position. The amounts are accumulated in other comprehensive income and recognised in profit or loss
when the foreign operation is partially disposed of or sold.
Share based payments reserve
The share based payments reserve is used to recognise the fair value of share options and performance rights granted
but not exercised or lapsed. Amounts are transferred to share capital when vested options are exercised by the
employee or performance rights are vested.
Reserves
2020 2019
NZ$’000 NZ$’000
(i) Cash flow hedging reserve
Opening balance 4,118 3,498
Revaluation - gross (3,799) (9,772)
Deferred taxation on revaluation 2.3 3,903 607
Transfer to hedged asset (9,255) 9,579
Transfer to net profit - gross (108) 206
Closing balance (5,141) 4,118
(ii) Foreign currency translation reserve
Opening balance (12,272) (8,975)
Currency translation differences – Gross 255 (3,297)
Currency translation differences – Taxation 2.3 - -
Closing balance (12,017) (12,272)
(iii) Share based payments reserve
Opening balance
1,983 2,760
Current year amortisation
378 721
Deferred taxation on share options
2.3
(87) (253)
Transfer to Share Capital on vesting of shares to
Employees
(1,666) (1,231)
Share Options / Performance Rights lapsed
- (14)
Closing balance 608 1,983
(iv) Other Reserves
Opening balance - -
Current year expense recognised in other
comprehensive income (61) -
Deferred taxation on other comprehensive income 2.3 - -
Closing balance (61) -
Total Reserves (16,611) (6,171)
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
42
4.3.3 Dividends
2020 2019
NZ$’000 NZ$’000
Prior year final dividend paid 27,209 24,836
Current year interim dividend paid - 9,047
Dividends paid (NZ$0.12 per share (2019: NZ$0.15)) 27,209 33,883
4.3.4 Capital risk management
The Group’s capital includes contributed equity, reserves and retained earnings.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
43
Section 5: Group Structure
5.1 Acquisition of Rip Curl Group Pty Ltd
On 31 October 2019 Kathmandu Holdings Limited through its wholly-owned subsidiary Barrel Wave Holdings Pty Limited
acquired 100% of the equity interests in Rip Curl Group Pty Limited and its controlled entities based out of Australia. The
total purchase price was A$350,000,000. The non-controlling interest on acquisition relates to the interest acquired by
the Group in Rip Curl joint ventures in New Zealand, Thailand and Europe.
Rip Curl is a designer, wholesaler, manufacturer and retailer of surfing equipment and apparel, and has a global
presence across Australia, New Zealand, North America, Europe, South East Asia and Brazil. The acquisition creates a
global outdoor and action sports company anchored by two iconic Australian brands and provides the opportunity for
Kathmandu to considerably diversify its geographic footprint, channels to market and seasonality profile.
At the time the financial statements were authorised for issue, the Group had not yet finalised the purchase price
allocation for the acquisition of Rip Curl. Fair values of the assets and liabilities disclosed below are determined
provisionally as management is in process of reviewing the details of independent valuations. In segment information
(Note 2.1), management temporarily allocates related assets and liabilities of the acquired business in the "Surf"
segment. The Group expects to finalise the purchase price allocation in the next few months and will record any
allocation adjustments in next financial period.
Provisional Purchase Price Allocation
NZ$’000
Purchase price 377,562
Less net indebtedness adjustment (78,147)
Plus working capital settlement adjustments 23,437
Total net consideration 322,852
Carrying amounts of identifiable assets acquired and liabilities assumed;
Current assets
Cash and cash equivalents 29,142
Trade and other receivables (net) 83,361
Inventories (net) 124,675
Derivative financial instruments 990
Current tax asset 6,216
Non-current assets
Other receivables 4,496
Property, plant and equipment 37,529
Brand 169,687
Customer relationships 39,697
Other intangibles 3,800
Right-of-use assets 117,296
Current liabilities
Trade and other payables (78,006)
Current tax liability (2,224)
Current lease liabilities (33,167)
Keeping it simple ...
This section provides information about the entities that make up the Kathmandu Group and how they
affect the financial performance and position of the Group.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
44
Non-current liabilities
Non-current trade and other payables (7,571)
Non-current lease liabilities (8 5,397)
Interest bearing liabilities (115,366)
Deferred tax (53,245)
Less non-controlling interest acquired (3,335)
Net assets acquired 239,045
Goodwill on acquisition 84,274
Total net consideration 322,852
Less cash and cash equivalents acquired (29,142)
Less consideration paid as shares (32,955)
Plus indebtedness settled on acquisition 115,366
Net cash outflow on acquisition 376,121
Goodwill arising on acquisition
On completion of the purchase price allocation, goodwill may be recognised on the acquisition of Rip Curl because of the
established workforce and control premiums paid. This is not recognised separately from goodwill as the expected future
economic benefits arising cannot be reliably measured and they do not meet the definition of identifiable intangible
assets.
Acquisition costs
Acquisition related costs of $11,895,000 have been excluded from the consideration transferred and are included in
administration and general expenses in the statement of comprehensive income and in operating cash flows in the
statement of cash flows in the current year.
Impact of the acquisition on the results of the Group
Group revenue for the year includes $315,739,000 in respect of Rip Curl. Had the Rip Curl acquisition been effective
from 1 August 2019, the unaudited revenue of the Group would have been $922,635,000 and the unaudited profit for the
year would have been $14,910,000.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
45
5.2 Subsidiary companies
Subsidiaries are all entities over which the Group has control. Control is achieved when the Group:
• has power over the entity;
• is exposed to, or has rights to, variable returns from its involvement with the entity; and
• can use its power to affect returns.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group
loses control of the subsidiary.
The following entities comprise the significant trading and holding companies of the Group;
Companies
Parties to Deed of
Cross Guarantee
Country of
Incorporation
Holding
2020 2019
Parent entity:
Kathmandu Holdings Limited √ New Zealand - -
Subsidiaries:
Milford Group Holdings Limited √ New Zealand 100% 100%
Kathmandu Limited New Zealand 100% 100%
Kathmandu Pty Limited √ Australia 100% 100%
Kathmandu (U.K.) Limited United Kingdom 100% 100%
Kathmandu US Holdings LLC United States of America 100% 100%
Oboz Footwear LLC United States of America 100% 100%
Barrel Wave Holdings Pty Ltd √ Australia 100% -
Rip Curl Group Pty Ltd √ Australia 100% -
Rip Curl International Pty Ltd √ Australia 100% -
PT Jarosite Indonesia 100% -
Rip Curl Pty Ltd √ Australia 100% -
Onsmooth Thai Co Ltd Thailand 100% -
Rip Curl Investments Pty Ltd Australia 100% -
Blue Surf Pty Ltd Australia 100% -
RC Surf Pty Ltd Australia 100% -
Rip Curl Airport & Tourist Stores Pty Ltd Australia 100% -
JRRC Rundle Mall Pty Ltd Australia 100% -
Rip Curl (Thailand) Ltd Thailand 50% -
RC Airports Pty Ltd Australia 100% -
Ozmosis Pty Ltd √ Australia 100% -
RC Chermside Pty Ltd Australia 100% -
Bondi Rip Pty Ltd Australia 100% -
Rip Curl Japan Japan 100% -
Curl Retail No 1. Pty Ltd Australia 100% -
RC Surf Sydney Pty Ltd Australia 100% -
RC Surf South Pty Ltd Australia 100% -
RC Surf NZ Limited New Zealand 50% -
Rip Curl Finance Pty Ltd √ Australia 100% -
Rip Curl Europe S.A.S France 100% -
Rip Curl Spain S.A.U Spain 100% -
Rip Curl Suisse S.A.R.L Switzerland 100% -
Surf Odyssey S.A.R.L (70% share sold in July 2020) France 0% -
Rip Surf LDA Portugal 100% -
Rip Curl UK Ltd United Kingdom 100% -
Rip Curl Germany GMBH Germany 100% -
Rip Curl Italy SRL Italy 100% -
Rip Curl Nordic AB Sweden 100% -
Rip Curl Inc United States of America 100% -
Ultra Manufacturing Inc (in liquidation) Mexico 100% -
Rip Curl Canada Inc Canada 100% -
Rip Curl Brazil LTDA Brazil 100% -
All subsidiaries have a balance date of 31 July except for RC Surf NZ Limited which has a 31 March balance date.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
46
5.3 Deed of Cross Guarantee
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the Australian-incorporated wholly
owned subsidiaries listed in Note 5.2 as parties to the Deed of Cross Guarantee are relived from the Corporations Act
2001 requirements for preparation, audit and lodgement of financial reports and directors’ reports in Australia.
It is a condition of the ASIC Corporations Instrument that the Company and each of the subsidiaries listed enter a Deed
of Cross Guarantee. The effect of the Deed is that each party guarantees to each creditor of each other party payment in
full of any debt in the event of winding up of the other party under certain provisions of the Corporations Act 2001. If a
winding up occurs under other provisions of the Act, the guarantee will only apply if after six months after a resolution or
order winding up any creditor has not been paid in full.
A consolidated statement of comprehensive income and balance sheet, comprising the Company and controlled entities
which are parties to the Deed of Cross Guarantee, after eliminating all transactions between parties to the Deed of Cross
Guarantee, at 31 July 2020, are set out as follows:
Consolidated Statement of Comprehensive Income and Retained Earnings
for the year ended 31 July 2020
2020 2019
NZ$’000 NZ$’000
Sales 457,884 339,671
Expenses (425,853) (292,303)
Finance costs - net (16,234) (279)
Profit before income tax 15,797 47,089
Income tax expense (7,903) (14,141)
Profit after income tax 7,894 32,948
Other comprehensive income 2,036 (4,995)
Total comprehensive income for the year 9,930 27,953
Retained Earnings at beginning of the year (34,571) (33,650)
Profit for the year after income tax 7,894 32,948
Dividends paid (27,209) (33,883)
Lapsed share options - 14
Adoption of NZ IFRS 16 (6,855) -
Retained Earnings at the end of the year (60,741) (34,571)
Consolidated Balance Sheet
as at 31 July 2020
2020 2019
NZ$’000 NZ$’000
ASSETS
Current assets
Cash and cash equivalents 204,918 3,206
Trade and other receivables 23,748 2,160
Inventories 106,825 67,407
Derivative financial instruments 4 3,373
Current tax asset 3,490 2,344
Total current assets 338,985 78,490
Non-current assets
Trade and other receivables 78,460 38,277
Investments 349,911 175,183
Property, plant and equipment 53,010 41,389
Intangible assets 467,138 172,607
Right-of-use assets 156,400 -
Total non-current assets 1,104,919 427,456
Total assets 1,443,904 505,946
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
47
LIABILITIES
Current liabilities
Trade and other payables 78,316 46,790
Derivative financial instruments 5,364 36
Current tax liabilities 7,923 6,378
Current lease liabilities 56,245 -
Total current liabilities 147,848 53,204
Non-current liabilities
Non-current trade and other payables 7,726 -
Interest bearing liabilities 237,069 -
Loans with related parties 295,614 220,237
Deferred tax 65,651 21,044
Non-current lease liabilities 128,777 -
Total non-current liabilities 734,837 241,281
Total liabilities 882,685 294,485
Net assets
561,219 211,461
EQUITY
Contributed equity - ordinary shares 626,380 251,113
Reserves (4,420) (5,081)
Retained earnings (60,741) (34,571)
Total equity 561,219 211,461
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
48
Section 6: Other Notes
6.1 Related parties
All transactions with related parties were in the normal course of business and provided on commercial terms. No
amounts owed to related parties have been written off or forgiven during the period.
Key Management Personnel
2020 2019
NZ$’000 NZ$’000
Salaries 3,147 3,414
Other short-term employee benefits 55 457
Post-employment benefits 58 117
Employee performance rights 378 491
3,638 4,479
6.2 Fair values
The following methods and assumptions were used to estimate the fair values for each class of financial instrument:
Trade debtors, trade creditors and bank balances
The carrying value of these items is equivalent to their fair value.
Term liabilities
The fair value of the Group's term liabilities is estimated based on current market rates available to the Group for debt of
similar maturity. The fair value of term liabilities equates to their current carrying value.
Foreign exchange contracts and interest rate swaps
The fair value of these instruments is determined using valuation techniques (as they are not traded in an active market).
These valuation techniques maximise the use of observable market data where it is available and rely as little as
possible on entity specific estimates.
Specific valuation techniques used to value financial instruments include the fair value of interest rate swaps. These are
calculated at the present value of the estimated future cash flows, based on observable yield curves and the fair value of
forward foreign exchange contracts, as determined using forward exchange rates at the balance sheet date, with the
resulting value discounted back to present value.
These derivatives have all been determined to be within level 2 (for the purposes of NZ IFRS 13) of the fair value
hierarchy as all significant inputs required to ascertain the fair value of these derivatives are observable.
Guarantees and overdraft facilities
The fair value of these instruments is estimated on the basis that management do not expect settlement at face value to
arise. The carrying value and fair value of these instruments are approximately nil. All guarantees are payable on
demand.
6.3 Employee share-based remuneration
Accounting policy
Equity settled long term incentive plan
The Executive and Senior Management Long Term Incentive plan grants Group employee’s performance rights subject
to performance hurdles being met. The fair value of rights granted is recognised as an employee expense in the
consolidated statement of comprehensive income with a corresponding increase in the employee share-based payments
reserve. The fair value is measured at grant date and amortised over the vesting periods. The fair value of the rights
granted is measured using the Kathmandu Holdings Limited share price as at the grant date less the present value of the
dividends forecast to be paid prior to each vesting date. When performance rights vest, the amount in the share-based
payments reserve relating to those rights are transferred to share capital. When any vested performance rights lapse
upon employee termination, the amount in the share-based payments reserve relating to those rights is transferred to
retained earnings.
Executive and Senior Management Long Term Incentive Plan
On 20 November 2013, shareholders approved at the Annual General Meeting the continuation of an Employee Long
Term Incentive Plan (LTI) (previously established 24 November 2010) to grant performance rights to Executive Directors,
Senior Managers, Other Key Management Personnel and Wider Leadership Management.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
49
Executive Directors and Senior Managers
Performance rights granted to Executive Directors and Senior Managers are summarised below:
Grant Date Balance at
start of year
number
Granted
during the
year
number
Vested during
the year
number
Lapsed
during the
year
number
Balance at the
end of year
number
9 Jul 2020 - 597,731 - - 597,731
20 Dec 2018 261,388 - - - 261,388
20 Dec 2017 374,437 - - - 374,437
19 Dec 2016 375,810 - (375,810) - -
1,011,635 597,731 (375,810) - 1,233,556
The performance rights granted on 9 July 2020 are Long Term Incentive components only.
Long Term Incentive performance rights vest in equal tranches. In each tranche the rights are subject to a combination of
a relative Total Shareholder Return (TSR) hurdle and/or an EPS growth hurdle. The relative weighting and number of
tranches for each grant date are shown in the table below:
Grant Date Tranches EPS Weighting TSR Weighting
9 Jul 2020 1 0% 100%
20 Dec 2018 1 50% 50%
20 Dec 2017 1 50% 50%
The proportion of rights subject to the relative TSR hurdle is dependent on Kathmandu Holdings Limited’s TSR
performance relative to a defined comparable group of companies in New Zealand and Australia listed on either the ASX
or NZX. The percentage of TSR related rights vest according to the following performance criteria:
Kathmandu Holdings Limited relative TSR ranking % Vesting
Below the 50
th
percentile 0%
50
th
percentile 50%
51
st
– 74
th
percentile 50% + 2% for each percentile above the 50
th
75
th
percentile or above 100%
The TSR performance is calculated for the following performance periods:
Tranche 2020 2019
Tranche 1 36 months to 1 December 2022 36 months to 1 December 2021
The fair value of the TSR rights have been valued under a Monte Carlo simulation approach predicting Kathmandu
Holdings Limited’s TSR relative to the comparable group of companies at the respective vesting dates for each tranche.
The fair value of TSR rights, along with the assumptions used to simulate the future share prices using a random-walk
process are shown below:
2020 2019
Fair value of TSR rights $119,546 $205,190
Current price at grant date $1.14 $2.77
Risk free interest rate 0.34% 1.76%
Expected life (years) 3 3
Expected share volatility 69.5% 28.9%
The estimated fair value for each tranche of rights issued is amortised over the vesting period from the grant date.
The proportion of rights subject to the EPS growth hurdle is dependent on the compound average annual growth in
Kathmandu Holdings Limited’s EPS relative to the year ending 31 July 2020. The applicable performance periods are:
Tranche 2020 Performance Period 2019 Performance Period
Tranche 1 Not applicable FY21 EPS relative to FY18 EPS
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
50
The percentage of the 2019 EPS growth related rights scales according to the compound average annual EPS growth
achieved as follows:
EPS Growth 2019 % Rights
Vesting
< 7% 0%
>=7%, < 8% 50%
>=8%, < 9% 60%
>=9%, < 10% 70%
>=10%, < 11% 80%
>=11%, < 12% 90%
>=12% 100%
The fair value of the EPS rights have been assessed as the Kathmandu Holdings Limited share price as at the grant date
less the present value of the dividends forecast to be paid prior to each vesting date. The estimated fair value for each
tranche of options issued is amortised over the vesting period from the grant date.
Vesting of Long Term Incentive performance rights also require remaining in employment with the Company during the
performance period.
Other Key Management Personnel and Wider Leadership Management
Performance rights granted to Other Key Management Personnel and Wider Leadership Management are all Short Term
Incentives under the shareholder approved Employee Long Term Incentive Plan, and are summarised below:
Grant Date Balance at
start of year
number
Granted
during the
year
number
Vested during
the year
number
Lapsed
during the
year
number
Balance at the
end of year
number
20 Dec 2019 - 654,836 - - 654,836
11 Dec 2017 551,186 - (551,186) - -
Short Term Incentive performance rights vest:
• upon the Company achieving non-market performance hurdles; and
• the employee remaining in employment with the Company until the vesting date.
The performance period and vesting dates are summarised below:
2020 2019
Grant Date 20 Dec 2019 18 Dec 2018
Performance period (year ending) 31 Jul 2020 31 Jul 2019
Vesting Date – Other Key Management
Personnel and Wider Leadership Management
31 Jul 2021 31 Jul 2020
The fair value of the rights were assessed as the Kathmandu Holdings Limited share price as at the grant date less the
present value of the dividends forecast to be paid prior to the vesting date.
The non-market performance hurdles set for the year ending 31 July 2020 were not met and accordingly no expense has
been recognised in the consolidated statement of comprehensive income.
Expenses arising from equity settled share based payments transactions
2020 2019
NZ$’000 NZ$’000
Executive Director and Senior Managers 378 228
Key Management Personnel and Wider Leadership
Management
- 493
378 721
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
51
6.4 Contingent liabilities
There are no contingent liabilities in 2020 (2019: nil).
6.5 Contingent assets
There are no contingent assets in 2020 (2019: nil).
6.6 Events occurring after balance sheet date
There are no events after balance sheet date which materially affect the information within the consolidated financial
statements.
6.7 Supplementary information
Directors fees
2020 2019
NZ$’000 NZ$’000
Directors' fees 779 790
Directors fees for the Parent company were paid to the following:
• David Kirk (Chairman)
• John Harvey
• Philip Bowman
• Brent Scrimshaw
• Andrea Martens (appointed 1 August 2019)
• Sandra McPhee (retired 27 September 2019)
Audit fees
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and other network audit firms:
2020 2019
NZ$’000 NZ$’000
Audit services - PricewaterhouseCoopers
Group audit – PwC New Zealand 434 186
Acquired balance sheet – PwC New Zealand 85 -
UK Statutory audit – PwC UK 20 20
Half year review – PwC New Zealand 115 36
Total remuneration for PricewaterhouseCoopers audit services 654 242
Audit services – other audit firms 138 -
Non-audit services - PricewaterhouseCoopers
Taxation Services – PwC France 118 -
Revenue Certificates – PwC New Zealand 11 12
Banking compliance certificates – PwC New Zealand 3 3
Total remuneration for PricewaterhouseCoopers non-audit services 132 15
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
52
6.8 New accounting standards and interpretations
New standards and interpretations first applied in the period
New
Accounting
Standard
Effective
Date
Applicable to
the Group
Summary of Changes Group Impact
NZ IFRS 16
Leases
1 August 2019 Introduces a single lessee
accounting model requiring a
lessee to recognise assets
and liabilities for all leases
with a term of more than 12
months where they are not
considered low value. A right-
of-use asset is recognised
representing the right to use
the underlying leased asset
and a lease liability
representing the obligations
to make lease payments. As
a consequence, a lessee
recognises depreciation of the
right-of-use asset and interest
on the lease liability.
The Group has applied NZ IFRS 16 using a
modified retrospective transition method.
Comparative figures have not been restated and
the cumulative effect of initially applying IFRS 16
has been recognised as an opening retained
earnings adjustment.
NZ IFRS 16 changes how the Group accounts for
leases previously classified as operating leases
under NZ IAS 17, which were off-balance-sheet.
Applying NZ IFRS 16, for all leases (except as
noted below), the Group has:
a) recognised lease liabilities and right-of-use
assets in the consolidated balance sheet. Lease
liabilities have been initially measured at the
present value of the remaining lease payments,
discounted using the incremental borrowing rate
at 1 August 2019. Right-of-use assets have been
initially measured at carrying amount as if NZ
IFRS 16 had always applied since the lease
commencement date, using a discount rate based
on the incremental borrowing rate at 1 August
2019;
b) recognised depreciation of right-of-use assets
and interest on lease liabilities in the consolidated
statement of comprehensive income; and
c) separated the total amount of cash paid into a
principal portion (presented within financing
activities) and interest (presented within operating
activities) in the consolidated statement of cash
flows.
Lease incentives (eg rent free periods) are
recognised as part of the measurement of the
right-of-use assets and lease liabilities whereas
under NZ IAS 17 they resulted in the recognition
of a lease liability, amortised as a reduction of
rental expense on a straight-line basis.
Under NZ IFRS 16, right-of-use assets are tested
for impairment in accordance with NZ IAS 36
Impairment of Assets. This replaces the previous
requirement to recognise a provision for onerous
lease contracts.
For short-term leases (lease term of 12 months or
less) and leases of low-value assets (such as
office equipment), the Group has opted to
recognise a lease expense on a straight-line basis
as permitted by NZ IFRS 16. This expense is
presented within selling expenses and
administration and general expenses within the
consolidated statement of comprehensive income.
KATHMANDU HOLDINGS LIMITED – ANNUAL REPORT 2020
53
The Group has used the following practical
expedients on initial application of NZ IFRS 16;
- whether an existing contract is, or contains, a
lease has not been reassessed;
- applied a single discount rate to a portfolio of
leases with reasonably similar characteristics;
- relied on its assessment of whether leases are
onerous applying NZ IAS 37 Provisions,
Contingent Liabilities and Contingent Assets
immediately before 1 August 2019 as an
alternative to performing an impairment review;
- excluded initial direct costs from the
measurement of the right-of-use asset at 1 August
2019;
- used hindsight in determining the lease term if
the contract contains options to extend or
terminate the lease.
Standards, interpretations and amendments to published standards that are not yet effective
There are no standards or amendments published but not yet effective that are expected to have a significant impact on
the group.
PricewaterhouseCoopers
PwC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand
T: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz
54
Independent auditor’s report
To the shareholders of Kathmandu Holdings Limited
We have audited the consolidated financial statements which comprise:
• the consolidated balance sheet as at 31 July 2020;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated statement of cash flows for the year then ended; and
• the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Our opinion
In our opinion, the accompanying consolidated financial statements of Kathmandu Holdings Limited
(the Company), including its subsidiaries (the Group), present fairly, in all material respects, the
financial position of the Group as at 31 July 2020, its financial performance and its cash flows for the
year then ended in accordance with New Zealand Equivalents to International Financial Reporting
Standards (NZ IFRS) and International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
International Code of Ethics for Assurance Practitioners (including International Independence
Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards
Board and the International Code of Ethics for Professional Accountants (including International
Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of assurance compliance engagement in
respect of bank covenant compliance, agreed upon procedures for store turnover certificates and tax
advisory. The provision of these other services has not impaired our independence as auditor of the
Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the consolidated financial statements of the current year. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
PwC 55
Description of the key audit matter How our audit addressed the key audit
matter
Acquisition of Rip Curl Group
As disclosed in note 5.1 of the consolidated
financial statements, the Group acquired 100%
of the shares of Rip Curl Group Pty Limited
(Rip Curl), on 31 October 2019, for base
consideration of A$350m.
The purchase price included identifiable
tangible and intangible assets acquired and
liabilities assumed.
At the time the consolidated financial
statements were authorised for issue,
management had not yet completed the
purchase price allocation.
Management have completed a provisional
assessment of the fair value of the assets and
liabilities that were acquired. This process
included engaging a third party valuation
expert to assist in the process to identify and
determine the fair value of the intangible
assets. The full valuation process has not yet
been finalised and management’s expert has
not yet issued their final report. It is therefore
possible that changes in the acquisition
accounting may still occur.
Intangible assets have been identified in
relation to brand and customer relationships
provisionally held by Rip Curl at NZ$169.7m
and $39.7m respectively, in addition to the
provisional goodwill of $84.3m.
Our audit focused on this area because the
acquisition of Rip Curl was a major transaction
and significant judgements and assumptions
are involved in identifying and determining
fair value of the acquired assets and liabilities,
particularly the identified intangible assets.
In responding to the significant judgements
involved in identifying and valuing the
identifiable intangible assets we:
• obtained an understanding of the
acquisition by reading the sale and purchase
agreement, other relevant contractual
agreements and documents;
• confirmed the fair value of the consideration
paid to the sale and purchase agreement;
• obtained the provisional valuation
undertaken by management’s expert to
determine the purchase price allocations and
tested the mathematical accuracy of the
models;
• held discussions with Group management and
their valuation expert to obtain an
understanding of the business process
undertaken to identify and value of the assets
acquired and liabilities assumed;
• we engaged our own internal valuation
specialist to assess the appropriateness of
assets identified, evaluate the valuation
methodology and consider the key
judgements and assumptions as
provisionally determined by management
and management’s expert;
• considered whether the identification and
recognition of intangible assets was consistent
with the requirements of the accounting
standards; and
• considered whether the relevant disclosures
were appropriate.
PwC 56
Description of the key audit matter How our audit addressed the key audit
matter
Impairment testing over indefinite life
intangibles, including the impact of COVID-19
The risk that the Group’s indefinite life assets
may be materially impaired is considered a key
audit matter, due to the material nature of
these assets and the significant judgement
exercised by management to:
• assess the appropriate cash generating
units (CGU) to consider for testing;
• estimate the future results of the CGUs;
• include the impact of COVID-19, revenue
and margins;
• allocate shared costs to CGUs; and
• assess the discount rates and terminal
growth rates.
As disclosed in note 3.3, the Group assessed
the recoverable amount of each CGU as at 31
July 2020 using discounted cash flow
valuations on a fair value less cost of disposal
(FVLCD) basis.
For Kathmandu New Zealand, Australia and
Oboz management performed their own
calculation and engaged a third party valuation
expert to:
• provide expert advice on the appropriate
discount rate for each CGU;
• provide macro-economic analysis for each
CGU;
• provide advice on the appropriate valuation
multiples for alternative valuation cross
checks; and
• perform sensitivity analyses.
For Rip Curl, management engaged the third
party valuation expert to perform a full year-
end valuation.
Based on the testing performed for each CGU
the Group concluded that there was no
impairment of goodwill and brand as at 31 July
2020.
The key assumptions used in the impairment
testing has been disclosed in note 3.3.
Our audit procedures in assessing the
indefinite life intangible assets included the
following:
For all brands and goodwill we:
• obtained the calculations performed by
management and considered the assumptions
used in light of the current and forecast
outlook for the business;
• reviewed management’s assessment of CGUs
and compared this to our knowledge and
understanding of the Group’s operations and
reporting structure;
• engaged our auditor’s expert to
independently consider the
appropriateness of the discount and long-
term growth rates;
• assessed the reasonableness of management's
cash flow assumptions by considering
external market forecasts, historical
performance and other available information;
• considered the allocation of shared costs
to each CGU;
• performed look back tested on historical
accuracy of management forecasts; and
• performed sensitivity testing for each CGU.
For Rip Curl we also:
• used our auditor’s expert to review and
challenge the appropriateness of the
assumptions used by management expert’s in
the valuation of Rip Curl and assess the
appropriateness of the valuation methodology
employed by management’s expert.
We audited the disclosures in the financial
statements to ensure they are compliant with the
requirements of the relevant accounting
standards.
PwC 57
Description of the key audit matter How our audit addressed the key audit
matter
Inventory existence and valuation including
the impact of COVID-19
At 31 July 2020, the Group held inventories of
$228.8m. Inventory valuation and existence
was an audit focus area due to the number of
locations that the inventory was held at and the
judgement applied in the valuation of
inventory on hand.
As described in note 3.1.1 of the consolidated
financial statements, inventories are carried at
the lower of cost and net realisable value on a
weighted average basis.
The Group has systems and processes,
including a barcode inventory management
system, to accurately record inventory
movements.
Management perform full stocktakes at each
store twice a year, with annual full stocktakes
taking place at Rip Curl distribution centres.
Daily cycle counts are performed at the
Kathmandu New Zealand and Australian
distribution centres.
For Rip Curl US and Oboz management keep
stock at third party warehouses who provide
inventory management services.
We performed a number of audit procedures over
inventory existence and valuation at year end. We:
• observed the stocktake process at selected
store locations near period end and undertook
our own test counts;
• attended the year end distribution centre
count and performed independent test counts
for Rip Curl;
• observed the daily stocktake process at the
Christchurch and Melbourne Kathmandu
distribution centres near period end and
undertook our own test counts. We also tested
that the daily counts occurred by selecting a
sample of days at each location and inspected
the count records throughout the year;
• confirmed the level of inventory held at year
end directly with third party warehouses for
inventory in the United States;
• assessed the inventory shrinkage provision by
reviewing the level of inventory write downs
during the period. We tested the shrinkage
rate used to calculate the provision for each
store since the last stocktake by comparing it
to the actual shrinkage rate in prior periods;
• assessed store inventory counts performed
post year end to ensure the actual level of
shrinkage was consistent with the year end
provisioning;
• evaluated the assumptions made by
management, and particularly the key
assumption that current shrinkage levels are
consistent with historical levels, in assessing
inventory obsolescence provisions through an
analysis of inventory items by category and age
and the level of inventory write downs in these
categories during the period including the
potential impact of COVID-19; and
• tested that inventory on hand at the end of the
period was recorded at the lower of cost and
net realisable value by testing a sample of
inventory items to the most recent retail price
which includes the impact of COVID-19.
PwC 58
Description of the key audit matter How our audit addressed the key audit
matter
Adoption of the accounting standard NZ IFRS
16 Leases
The Group adopted NZ IFRS 16 Leases on 1
August 2019. The standard requires the
recognition of a right of use asset and lease
liability on the balance sheet for all leases.
Previously operating leases were not
recognised on the balance sheet. The adoption
of the standard has resulted in the recognition
of a right of use asset of $178.8m and a lease
liability of $206.5m.
As outlined in note 3.4 and 6.8, a number of
judgements and estimates have been made by
management in establishing these opening
values. These comprise of the:
● incremental borrowing rates at the time of
adoption;
● lease terms, including any rights of
renewals expected to be exercised;
● application of practical expedients in
respect of short term lease exemptions; and
● recognition of abatements received from
landlords.
This was considered an area of focus for our
audit due to the number of leases and the
significant judgements and estimates inherent
in the calculation.
We have performed the following audit
procedures in relation to the adoption of the new
accounting standard for leases. We:
● held discussions with management to
understand the implementation process
including the basis for key assumptions used
in the calculation of opening balances and
management's process;
● performed testing, on a sample basis, of the
accuracy of information included in the
calculations by comparing them to the terms
in the underlying lease contracts;
● tested completeness of the identified lease
contracts by checking that leased stores and
other major leased assets were included in the
calculation through reconciliation to the
audited lease commitments schedule at
1 August 2019;
● on a sample basis, recalculated the right of use
asset and lease liability for individual leases;
● reviewed assumptions used to determine the
lease term including rights of renewal and
assessed whether they were supported by past
practice and current business plans;
● reviewed the appropriateness of practical
expedients applied for exclusion of low value
and short term lease exemptions;
● on a sample basis, assessed the appropriate
treatment of rent abatements received from
landlords; and
● reviewed the appropriateness of disclosures in
the financial statements.
In relation to the incremental borrowing rates, we
engaged our auditor's valuation expert to assess
the appropriateness of the discount rates used.
PwC 59
Our audit approach
Overview
An audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement.
Overall Group materiality: $3.7m, which represents approximately 5% of
weighted average of last three years’ annualised profit before tax,
excluding the acquisition cost in relation to Rip Curl.
Given the volatility in profit before tax due to the impacts of COVID-19 we
chose a weighted average of the last three years’ annualised profit before
tax adjusted for the acquisition cost, as the appropriate benchmark for the
year ended 31 July 2020.
In order to appropriately reflect the current brand profile of the
Kathmandu Group, we have annualised the past financial performance by
incorporating Rip Curl Group’s audited profit before tax in our
calculation. This ensured the historical profits reflects the financial
performance of all brands within the Group.
Further, we have excluded the acquisition cost in relation to the
acquisition of Rip Curl which, due to its size, causes unusual fluctuation in
profit before tax due to its infrequent occurrence.
As reported above, we have four key audit matters, being:
• Acquisition of Rip Curl Group
• Impairment testing over indefinite life intangibles, including the
impact of COVID-19
• Inventory existence and valuation, including the impact of COVID-19
• Adoption of the accounting standard NZ IFRS 16 Leases
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out
above. These, together with qualitative considerations, helped us to determine the scope of our audit,
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the consolidated financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated financial
statements and our application of materiality. As in all of our audits, we also addressed the risk of
management override of internal controls including among other matters, consideration of whether
there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in which the Group operates.
The Group audit was conducted by a New Zealand based team, with support from component auditors
in France and Thailand.
PwC 60
Information other than the consolidated financial statements and auditor’s report
The Directors are responsible for the annual report. Prior to the date of our auditor’s report, we
received a first draft of the corporate governance section of the annual report, but we have not received
any of the other components of the annual report, which is expected to be made available to us at a
later date. Our opinion on the consolidated financial statements does not cover the other information
included in the annual report and we do not and will not express any form of assurance conclusion on
the other information.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed on the other information
that we obtained prior to the date of this auditor’s report, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard, except that not all other information was available to us at the date of our signing.
Responsibilities of the Directors for the consolidated financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements, as a whole, are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is
located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Leopino Foliaki.
For and on behalf of:
Chartered Accountants Christchurch
23 September 2020
---
KathmanduHoldings
FY20Results
Presentation
23 September2020
Tyler Wright
2 x WSL World Surfing Champion 2016, 2017
Well positioned inresponse to COVID-19
Prudent operational and capitalmanagement
•COVID-19 response was swift andstrong
•$207m capital raised to provide balance sheet strength,
and enable investment for the future, net debt of$9.4m
•Accelerated synergies across the Group with c. $15m
annualised costsavings
•Strong cash generating brands support future returns
2| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Long-term brandstrength
•Consumer trends towards outdoor and recreationactivities
•Retail sales performedstrongly once lockdownseased
•Online fulfilment and customer service capacity in place to
meet online shift in consumer preference
COVID-19 short-termimpact
Short-term businessimpact
•FY20 revenue impact estimated at c. $135m
(Retail c. $80m and Wholesale c. $55m)
•Full global retail store network closures during initial
lockdowns
•During July, Melbourne stores continued to trade, but with
impacted footfall due to a second wave
•Rip Curl wholesale sales most affected
•Reduced demand for Kathmandu and Rip Curl travel-related
products due to border restrictions
•Certain locations remain impacted, in particular Melbourne,
Hawaii, Bali, and airport stores
Immediateresponse
•Senior management and support office wage
reductions through lockdown period
•Rental negotiations are ongoing, with c. 70% of stores
settled with landlords, relationships remainstrong
•Inventory well controlled by deferringorders
•Non-essential capital projects delayed duringlockdowns
•Dividend suspended.No interim dividend paid, and no final
FY20 dividenddeclared
•Government wage subsidies were passed directly through to
team members
3| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Brand strengths more relevant than everbefore
•Iconic, inspirational,and
authenticbrand
•Renowned for high quality
technical surfingproducts
•Globaldistribution
•Diversified revenue streams
across both wholesale and retail
channels
•Strong cash contribution,$34m
for 9 months ofownership
•Leading outdoor brand in
Australasia
•Original, sustainable,engineered,
and adaptiveproducts
•Loyal customers with 2.2million
active Summit Clubmembers
•Omni channelcapability
•Proven track record oflong-term
sales and profitgrowth
•History of significantcash
generation
•Positionedforinternational
expansion(post COVID-19)
•Established and distinctive
American Montana-basedbrand
•Focused, efficient productrange
with significant expansion
potential
•Positive operating cashflow
•Efficient operatingstructure
•Direct to consumeronline
channel launchingFY21
4| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Brands with global reach
5| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Owned regions
Licensed regions
North AmericaRCKMDObozTotal
Owned stores30--30
Licensed stores10--10
Online sites11-2
Wholesale doors1,206-1,5002,706
Total GroupRCKMDObozTotal
Owned stores160165-325
Licensed stores196--196
JV stores22--22
Online sites64-10
Wholesale doors5,786281,7497,563
South AmericaRC
Owned stores3
Licensed stores90
Online sites1
Wholesale doors815
AU & NZRCKMDTotal
Owned stores105165270
Licensed stores19-19
JV stores2-2
Online sites224
Wholesale doors1,054-1,054
Africa/ Middle EastRC
Licensed stores21
AsiaRCObozTotal
Owned stores2-2
Licensed stores54-54
JV stores20-20
Online sites1-1
Wholesale doors565152717
Europe RCKMDObozTotal
Owned stores20--20
Licensed stores2--2
Online sites11-2
Wholesale doors2,14628972,271
RCRip Curl
KMDKathmandu
ObozOboz
Rapid acceleration in online sales
34.4
41.0
56.7
65.1
106.4
5.2%
5.8%
7.6%
8.8%
15.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
FY16FY17FY18FY19FY20
Group online sales up 63% to $106.4m
Online sales (NZD $m)
% of DTC sales
Omni channel strategy leverages brand strength
•Consumer preference moved towards online during lockdown. Capacity and capability to rapidly scale up to meet demand
•Kathmandu online sales growth during COVID-19 from April to July +96% above last year, delivering a step change in online penetration from 10.1% of DTC
sales in FY19 to 18.5% of DTC sales in FY20
•Rip Curl online sales growth during COVID-19 from April to July +115% above last year, delivering a step change in online penetration from 6.5% of DTC
sales in FY19 to 10.6% of DTC sales in FY20
Online sales
(NZD $m)
Growth year
on year
% of DTC
sales
25.552%10.6%
80.967%18.5%
6| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
1.Direct to consumer (“DTC”) sales include all sales from Rip Curl and Kathmandu retail stores and direct online sites and marketplaces
2.All years include both Kathmandu and Rip Curl online and total DTC sales for comparability over time. FY20 also includes a full financial year of Rip Curl sales for comparability, including $3.7m online sales for the three months pre-acquisition
3.Rounding differences may arise in totals, both $ and %
Group
Financials
7| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Profit results reflect COVID-19 impact
1.FY20 Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results. Refer to Appendix 1 for a reconciliation of Statutory to Underlying results
2.FY20 NZD/AUD conversion rate 0.939 (FY19: 0.949), FY20 NZD/GBP conversion rate 0.504 (FY19: 0.522), FY20 NZD/USD conversion rate0.636 (FY19 0.670)
3.In FY20, $11.6m has been incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group structure. Further one-off costsof $4.6m have been incurred in relation to restructuring support office roles.
Refer to Appendix 1 for a reconciliation of Statutory to Underlying results
4.FY19 Underlying profit excludes abnormal income $1.1m from a tax refund relating to the GST treatment of reward vouchers ($0.8m after tax). Refer to Appendix 1 for a reconciliation of Statutory to Underlying results
5.Rounding differences may arise in totals, both $ and %
•FY20 result includes 9 months of Rip Curl
•Government wage assistance (globally) contributed a net benefit to
operating expenses of c. $16m
•Operating expenses include restructuring savings of $4.7m in FY20,
delivering annual savings of c. $15m, as support office synergies
start to be realised
•Statutory depreciation includes $75.8m depreciation of IFRS 16 right
of use assets
GROUP
Statutory
*1
Underlying
*3,4
NZD $m
*2
FY20FY20FY19Var %
SALES801.5801.5538.948.7%
GROSS PROFIT467.0467.0332.540.5%
Gross margin58.3%58.3%61.7%
OPERATING EXPENSES(318.1)(383.7)(234.0)63.9%
% of Sales39.7%47.9%43.4%
EBITDA148.983.498.4(15.3%)
EBITDA margin %18.6%10.4%18.3%
EBIT45.956.283.2(32.5%)
EBIT margin %5.7%7.0%15.4%
NPAT8.931.556.8(44.5%)
8| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Strong cash generating brands
•Positive impact from working capital management -inventory well
controlled by deferring orders
•Non-essential capital projects delayedduring lockdowns
•Dividend suspended. No interim dividend paid, and no final FY20
dividend declared
•Increase in net interest paid and increase in borrowings due to
the Rip Curl acquisition
1.Adjusted for impacts of adopting IFRS 16
2.Includes debt underwrite costs of $6.3m in relation to theRip Curl acquisition
3.Rounding differences may arise in totals, both $ and %
9| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Cash Flow (NZD $m)
FY20
FY19
NPAT
8.9
57.6
Change in working capital
55.6
(13.0)
Non-cash items
28.6
17.1
Adjusted operating cash flow
*1
93.1
61.7
Key Line Items:
Net interest paid (including facility fees)
*2
(12.7)
(2.6)
Income taxes paid
(15.5)
(26.5)
Capital expenditure
(19.8)
(15.7)
Dividends paid
(27.2)
(33.9)
Balance sheet well positioned
•Inventory well placed in uncertain demand environment, with low Kathmandu
clearance stock levels
•Current liabilities elevated by rent accruals c. $15m pending final agreements with
landlords on rent abatements
1.FY20 key ratios calculated using 12 month rolling P&L measures, including a full 12 months of Rip Curl P&L results, and excluding transaction costs. FY19 key ratios as reported for Kathmandu last year
2.Net Debt / EBITDA
3.Net Debt / (Net Debt + Equity)
4.EBIT/(Net Debt + Equity)
5.(EBITDA + Rent)/(Rent + Net Finance Costs excl. FX)
6.COGS / Average Inventories YOY
7.Rounding differences may arise in totals, both $ and %
10| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Balance Sheet (NZD $m) as at 31 JulyFY20FY19
Inventories228.8 122.8
Property, plant and equipment90.7 60.3
Right of Use Asset (IFRS 16)258.0 -
Intangible assets682.6 386.1
Other assets81.5 19.2
Total assets (excl. cash)1,341.6 588.4
Net interest bearing liabilities and cash(9.4) (19.3)
Lease Liability (IFRS 16)(297.9) -
Other non-current liabilities(95.9) (45.9)
Current liabilities(159.2) (81.1)
Total liabilities (net of cash)(562.4) (146.3)
Net assets779.2 442.1
Key Ratios
*1
FY20FY19
Leverage Ratio
*2
0.10x0.20x
Net Debt to Equity
*3
1.2%4.2%
ROIC
*4
8.2%18.3%
Fixed Charge Cover
*5
1.70x2.35x
Stock Turns
*6
1.68x1.82x
Net debt reduced by capital raise and strong cash flows
17.0
31.4
79.2
19.3
273.2
73.2
9.4
4.9%
6.9%
16.5%
4.2%
32.0%
8.6%
1.2%
-2.0%
3.0%
8.0%
13.0%
18.0%
23.0%
28.0%
33.0%
0.0
50.0
100.0
150.0
200.0
250.0
300.0
Jan 18Jul 18Jan 19Jul 19Jan 20
(actual)
Jan 20
(adj.)*1
Jul 20
Net Debt
Net Debt
Net Debt to Equity
•Net Debt of $9.4m at year-end
•Cash generation in 2H FY20 $63.8m despite lockdowns
•Significant headroom to current facility of c. $380m
•Net Debt and leverage ratio reduced in April 2020 supported by:
•$207m capital raise
•Cost savings and structural cost reductions implemented during
lockdown period
•Temporary dividend suspension
•All debt facility covenants complied with despite COVID-19. Waivers remain
in place for FY21
•Ongoing review of appropriate facility structure and waiver requirements
within syndicate
•Reinstatement of dividends anticipated in FY21, dependant on trading and
covenant positioning
11| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
1.Pro forma post 1 April 2020 equity raise
12| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Mick Fanning
3 x WSL World Surfing Champion
Diversified channels and geographies
•COVID-19 revenue impact estimated at c. $70m due to the continued
impact on wholesale accounts and retail trade globally
•Sales 17.1% below the comparable nine month period last year
•Lockdowns also disrupted the wholesale sell-in period for the upcoming
Northern hemisphere Autumn/Winter season. Order books for subsequent
seasons are improving
•Operating expenses include restructuring savings of $2.8m in FY20,
delivering annualised savings of c. $8.8m
•Rip Curl cashgeneration of $34m in the nine months of ownership despite
the impacts of COVID-19
•Additional COVID-19 debtor and inventory provisions c. $7m are included in
operating expenses
1.Rounding differences may arise in totals, both $ and %
13| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Rip Curl Sales Mix (last 12 months)
Rip Curl Gross Profit $ Mix (last 12 months)
RIP CURL (NZD $m)
Pre IFRS 16
Nine months since acquisition
Nov 19 to Jul 20
SALES315.7
GROSS PROFIT178.5
Gross margin56.5%
OPERATING EXPENSES(166.8)
% of Sales52.8%
EBITDA (underlying)11.7
EBITDA margin %3.7%
EBIT (underlying)4.2
EBIT margin %1.3%
Retail
stores
50%
Online
6%
Wholesale
43%
Other
1%
BY
CHANNEL
AU & NZ
48%
North
America
23%
Europe
16%
Rest of
World
13%
BY
REGION
Retail
stores
55%
Online
8%
Wholesale
36%
Other
1%
BY
CHANNEL
AU & NZ
50%
North
America
21%
Europe
15%
Rest of
World
14%
BY
REGION
Strong European summer and Australian winter for retail channels
•Strong sales performances in the post-lockdown period assisted by government wage assistance stimulus, and increased opportunityfor surfing while
consumers worked from home
•Solid demand during and since lockdown for technical surf products in particular
•Australia same store sales post-lockdown +17.7% adjusted
*1
•European summer saw record wetsuit sales as interest in surfing increased: same store sales post-lockdown +20.6% adjusted
*1
•Hawaii travel restrictions (14 day quarantine) significantly impacted North America same store sales post-lockdown:
•Mainland USA retail stores post-lockdown +12.3% adjusted
*1
•Hawaii retail stores post-lockdown -73.3% adjusted
*1
•Tourist and airport locations remain significantly impacted
1.Adjusted same store sales removes stores that were not able to open this year for a comparable week because of COVID-19 lockdowns. For example, 10 airport stores remained closed due to travel restrictions
2.Same store sales are measured at constant currency. FY20 same store sales are for the 38 full weeks of ownership ended 26 July 2020
3.Rounding differences may arise in totals, both $ and %
Direct to consumer same store sales growth was stronger post-lockdown +14.4%
*1
than pre-lockdown +2.6%
Pre-lockdown
4 November 2019 to
8 March 2020
During lockdown
9 March to
17 May 2020
Post-lockdown
18 May to
26 July 2020
FY20
38 full weeks
of ownership
Same store sales
(SSS%)
+2.6%-59.5%
+14.4% adjusted for closures
*1
+4.8% not adjusted
+5.3% adjusted for closures
*1
-10.4% not adjusted
14| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Accelerating growth in online sales
5.2
7.7
11.4
16.7
25.5
2.2%
3.0%
4.3%
6.5%
10.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
FY16FY17FY18FY19FY20
Full Year
Online sales up 52% to $25.5m
Online sales (NZD $m)
% of DTC sales
15| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
•Online sales growth pre-COVID-19 from August to March +12.9%
above last year
•Online sales growth during COVID-19 from April to July +115%
above last year, delivering a step change in online penetration from
6.5% of DTC sales in FY19 to 10.6% of DTC sales in FY20
•Online sales 4yr CAGR +48.6%
1.FY20 includes a full financial year of Rip Curl sales for comparability, including $3.7m online sales
for the three months pre-acquisition
2.Rounding differences may arise in totals, both $ and %
Technical excellence and innovation in core surf categories
Mirage 3-2-ONE
Won the highly sought after Boardshort of the
Year award at the recent SBIA Surf and
Boardsports Industry Association Awards
Playa Blanca Collection
Unique in house designed artwork contributed
to the Swimwear and Womens Brand of the
Year at the recent SBIA Surf and Boardsports
Industry Association Awards
E-Bomb E7
Breakthrough in high stretch neoprene
developed in conjunction with World Champion
Surfers Mick Fanning, Tyler Wright, and Gabe
Medina
16| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Reinforcing brand through social media
E-Bomb E7
135 posts across Facebook, Instagram, Twitter
and YouTube generated 6.4m views and 112k
comments, likes or shares
Rip Curl Women take on Hawaii
To showcase their pure awesomeness!
284k views on Rip Curl’s YouTube channel, bolstering our
Instagram following to 257k for ripcurl_women
17| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
18| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Performance reflects COVID-19 impact
1.Rounding differences may arise in totals, both $ and %
•COVID-19 revenue impact estimated at c. $50m due to full retail
network store closures in April, and Melbourne lockdown restrictions in
July
•Gross margin impacted by higher input costs as a result of foreign
currency, increased mix of clearancesales, and promotional activity
through the winter season
•Operating expensesinclude restructuring savings of $1.9m in FY20,
delivering annualised savings of c. $6.2m
19| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Kathmandu Sales Mix FY20
Kathmandu Gross Profit $ Mix FY20
KATHMANDUPre IFRS 16
NZD $mFY20FY19Var %
SALES426.4472.3(9.7%)
GROSS PROFIT265.1306.1(13.4%)
Gross margin62.2%64.8%
OPERATING EXPENSES(198.2)(216.5)(8.5%)
% of Sales46.5%45.8%
EBITDA (underlying)66.989.6(25.3%)
EBITDA margin %15.7%19.0%
EBIT (underlying)51.474.7(31.3%)
EBIT margin %12.0%15.8%
Retail
stores
81%
Online
19%
BY
CHANNEL
Retail
stores
82%
Online
18%
BY
CHANNEL
Strong same store sales after lockdown
1.Adjusted same store sales removes stores that were not able to open this year for a comparable week because of COVID-19 lockdowns
2.Same store sales are measured at constant currency.
3.FY20 same store sales are for the 52 full weeks ended 26 July 2020
4.Rounding differences may arise in totals, both $ and %
Direct to consumer same store sales growth was stronger post-lockdown +6.9%
*1
than pre-lockdown +1.2%
Pre-lockdown
29 July 2019 to
8 March 2020
During lockdown
9 March to
17 May 2020
Post-lockdown
18 May to
26 July 2020
FY20
Same store sales
(SSS%)
+1.2%-53.1%
+6.9% adjusted for closures
*1
+6.5% notadjusted
+5.0% adjusted for closures
*1
-8.5% not adjusted
•Total FY20 sales by market (at constant exch. rates):
•Australia -11.6%, with all 117 stores closed during lockdown period
•New Zealand -7.2%, with all 48 stores closed during lockdown period
•Strong demand since lockdown for core warmth and leisure apparel products
•Reduced demand for travel-related products. Travel product groups contributed $17.5m to the sales shortfall YOY
20| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Accelerating growth in online sales
29.2
33.3
45.3
48.4
80.9
6.9%
7.5%
9.4%
10.1%
18.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
FY16FY17FY18FY19FY20
Online sales up 67% to $80.9m
Online sales (NZD $m)
% of DTC sales
Omni channel strategy leverages brand strength
•Consumer preference moved towards online during lockdown.
Infrastructure and platform capacity allowed the team to scale up to meet
record online demand
•Online sales growth pre-COVID-19 from August to March +30% above
last year
•Online sales growth during COVID-19 from April to July +96% above last
year, delivering a step change in online penetration from 10.1% of DTC
sales in FY19 to 18.5% of DTC sales in FY20
•Conversion rate tracked above last year, and spiked during COVID-19.
Same day UBER delivery was introduced to selected areas
•Online sales 4yr CAGR +29.0%
21| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
1.Rounding differences may arise in totals, both $ and %
Personalisation driving strong customer loyalty and engagement
Active and engaged Summit Club members
•2.2 million active Summit Club members, 4yr CAGR +8.1%
•Represent over 70% of total Kathmandu sales
•Summit Club members spend 27% more per transaction than non-members
•Net promoter score 72 across all customer groups
Driving personalisation and benefits
•Learning the preferences of each customer enables personalisation of the
customer relationship
•Personalisation builds a relationship, which in turn drives loyalty
•Personalised marketing automation programme for Summit Club members
has grown +39% on last year
22| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Brand relevance strengthened with agile and effective digital marketing
Increasing brand relevance and engagement
•Due to COVID-19, switched to a local adventure focus and launched “Adventure Near, Not Far”
encouraging the safe return to local travel
•Launched a Sustainability virtual Q&A series, educating customers on how to live more sustainably in
their everyday lives
•307,600 video views across social media channels
23| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Innovative products and sustainable technology
Making our best even better
Longline and synthetic versions of our most popular insulation styles
Better for the oceans
Made with Durable Bionic® DPX®, a unique, ground-breaking fabric
containing polyester made from recovered plastic ocean waste
24| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
25| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Strong momentum with key customers despite COVID-19
1.Rounding differences may arise in totals, both $ and %
•COVID-19 impacted revenue in 2H FY20:
•COVID-19 revenue impact estimated at c. $15m (USD c. $10m)
•Pre-COVID-19 sales for 8 months to end of Mar 2020 +4.6% YOY
•COVID-19 impacted sales Apr 2020 to Jul 2020 -52.8% YOY
•Oboz penetration and market share has been strong in key customer online
trading sites during COVID-19 (REI and Zappos). Sales to online wholesale
customers grew in FY20 despite COVID-19
•Operating expenses increased pre-COVID-19 due to new investments in:
•Improved distribution capability
•Strengthening the brand and product team
•Operating expenses were carefully controlled from Mar 2020 onwards in
response to COVID-19
•DTC online trading site to be launched this financial year
26| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
OBOZPre IFRS 16
USD $mFY20FY19Var %
SALES37.844.6(15.2%)
GROSS PROFIT15.017.7(15.4%)
Gross margin39.6%39.6%
OPERATING EXPENSES(10.1)(9.7)4.0%
% of Sales26.8%21.8%
EBITDA (underlying)4.87.9(39.1%)
EBITDA margin %12.8%17.8%
EBIT (underlying)4.67.8(40.4%)
EBIT margin %12.3%17.4%
Successful range expansion and enhanced digital marketing
Product highlights:
•Fast and Light: Arete collection achieved impressive
sell-in and exposure
•Wherever and Whenever: Sypescollection exclusively
launched with Kathmandu and REI, a top 5 pre-season
style
•Winter: Bridger insulated contributed to the best ever
winter for insulated footwear
•Community: Launched first-ever cause-benefitting
footwear line to benefit Yellowstone Forever
Brand and marketing highlights:
•36% growth in social media audience
•New “Truist” influencer programme implemented
•True to the Trail podcast launched
•New online training portal for retailer education
•New community engagements within Bozeman
including insole support for COVID-19 front line workers
True to the Trail™ brand offering supplemented with
products targeting younger, more diverse, and more
active customers
27| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
28| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Growth strategy and
key priorities for FY21
28| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
29| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Sustainability highlights
1
st
1
S
T
S
O
L
A
R
P
A
N
E
L
S
T
O
R
E
I
N
A
U
S
T
R
A
L
I
A
1
S
T
S
O
L
A
R
P
A
N
E
L
S
T
O
R
E
I
N
A
U
S
T
R
A
L
I
A
BOTTLES WORTH OF FRESH WATER
SAVED BY MOVING TO SOLUTION
M
40
PLASTIC BOTTLES
RECYCLED THROUGH
OUR REPREVE PRODUCT
30
M+
OBTAINED THE
RAINBOW TICK
CERTIFICATION IN
NEW ZEALAND FOR
EMBRACING DIVERSITY
& INCLUSION
100%
COTTON
SUSTAINABLE
I
N
O
U
R
R
A
N
G
E
OF RIP CURL
PLANET DAY
ANNIVERSARY
20YEAR
TH
FSC
CERTIFIED
RECYCLED PAPER
SWING TAGS ON
PRODUCTS
30%
RECYCLED PLASTIC
IN OUR POLYBAGS
SCORED A B+ IN THE
ETHICAL FASHION REPORT
TWO YEARS RUNNING
B+
COLLABORATED WITH KATHMANDU ON
DEVELOPING OUR SUSTAINABILITY JOURNEY
3.3
MILLION
TREES PLANTED SINCE
THE COMPANY STARTED
LAUNCHED THE SYPES AND BOZEMAN
COLLECTIONS MADE WITH RECYCLED
MATERIALS AND ALGAE
41%
IMPROVED GENDER DIVERSITY
IN OUR TEAM NOW WITH
FEMALE
REPRESENTATION
Group strategy
We are a global outdoor, lifestyle and sports company underpinned by iconic brands,
technical products and afocus onsustainability
Build a portfolio of brandsthat:
•Provide diversification in
geography, channel to market,
product category and
seasonality
•Meet the global year round
needs of customers in the
outdoor, sport and lifestyle
categories
Diversifythe
Business
Leverage the
Portfolio
•Maintain relentless focus on
core customers by delivering
solutions to their needs
•Bring to market technical,
differentiated and sustainable
products
•Create global brands
•Accelerate expansion of the
direct to consumer business
•Enhance customer loyalty
Grow Each
Brand
Promote Our
Values
•Sustainability is ingrained in
everything we do
•We embrace diversity and
inclusion in the workplace
•Building up strong ties with
local communities is in our
ethos
30| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
•Deliver operational excellence
in sourcing, supply chain and
systems
•Accelerate digital
transformation
•Drive margin expansion
through synergies and
leveraging the complementary
expertise and core capabilities
Group strategy
OrganicGrowth
We place priority on
organic growth and
commit significant
resources todevelop
each of ourbrands
Seamless
customerjourney
and experience
Customercentricity
requiresthatwe offer a
great experience through
relevantcommercial
channels
Digital
Acceleration
The integrationof
digitaltechnology
into allareas
of the business
fundamentally
changes how we
operate anddeliver
Enhanced
Customer
Loyalty
We engage core
customers and invest
behinddriving long
term loyalty to our
brands
Decentralised
Organisation
Our structure and
operating principles
ensure that the
brands have a high
level of autonomy,
accountability and
agility within the
Group requirements
Synergies
The brands leverage
respective strengths
and build on each
other’s competitive
advantages over time
31| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Our operating model is anchored by 6 pillars
FY21 key priorities and outlook
32| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Key priorities
•Brand differentiation and product innovation
•Online and digital acceleration
•Loyalty, personalisation, and data analytics
Outlook
•COVID-19 has continued to impact some key markets at the start of FY21with Melbourne, Auckland, Hawaii, Bali and airport store closures. Given post-lockdown
retail store performance in FY20, we expect demand to return in these markets when stores reopen
•As a result of the COVID-19 disruption, the Group has experienced mixed same store sales performance over the first seven weeks of FY21 (a non-indicative
trading period)
•Wholesale order books for both Rip Curl and Oboz are improving for 2H FY21
•Our brands are well positioned to capitalise on increased participation in outdoor, beach and surfing activities resulting from COVID-19
•Omni channel capabilities allow us to quickly respond to shifts in consumer habits and strong growth in online demand
•Risk to consumer sentiment remains given potential economic impact of COVID-19 outbreak
33| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
Questions
Appendix 1: Statutory to Underlying Profit & Loss
34| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
FY20FY19
IFRS 16TransactionOtherIFRS 16TransactionOther
Statutory
Leases
*1
Costs
*2
one-offs
*3
Underlying
Statutory
LeasesCostsone-offs
*3
Underlying
Sales801.5 801.5 538.9 538.9
Gross profit467.0 467.0 332.5 332.5
Gross margin58.3%58.3%61.7%61.7%
Operating expenses(318.1) (81.7) 11.6 4.6 (383.7) (232.9) (1.1) (234.0)
% of sales-39.7%-47.9%-43.2%-43.4%
EBITDA148.9 (81.7) 11.6 4.6 83.4 99.6 (1.1) 98.4
EBITDA margin %18.6%10.4%18.5%18.3%
EBIT45.9 (5.9) 11.6 4.6 56.2 84.3 (1.1) 83.2
EBIT margin %5.7%7.0%15.6%15.4%
NPAT8.9 2.6 16.9 3.2 31.5 57.6 (0.8) 56.8
1.FY20 Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results
2.FY20 includes $11.6m incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group structure
3.FY20 includes further one-off costs of $4.6m incurred in relation to restructuring support office roles
4.FY19 includes abnormal income $1.1m from a tax refund relating to the GST treatment of reward vouchers ($0.8m after tax)
5.Rounding differences may arise in totals, both $ and %
Appendix 2: Segment Note
35| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
SALESEBIT
FY20 (NZD $'000)OutdoorSurfCorporateTotalFY20 (NZD $'000)OutdoorSurfCorporateTotal
SALES per segment note485,785 315,739 - 801,524 EBIT per segment note64,901 (602) (18,435) 45,864
- IFRS 16 Leases Adjustment(7,787) 1,892 - (5,895)
Transaction Costs & Abnormals1,546 2,933 11,722 16,200
SALES (underlying)485,785 315,739 - 801,524 EBIT (underlying)58,660 4,223 (6,713) 56,170
FY19 (NZD $'000)OutdoorSurfCorporateTotalFY19 (NZD $'000)OutdoorSurfCorporateTotal
SALES per segment note538,855 - - 538,855 EBIT per segment note87,454 - (3,161) 84,293
- IFRS 16 Leases Adjustment- - - -
Transaction Costs & Abnormals(1,115) - - (1,115)
SALES (underlying)538,855 - - 538,855 EBIT (underlying)86,339 - (3,161) 83,178
1.FY20 Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results
2.FY20 includes $11.6m incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group structure
3.FY20 includes further one-off costs of $4.6m incurred in relation to restructuring support office roles
4.FY19 includes abnormal income $1.1m from a tax refund relating to the GST treatment of reward vouchers ($0.8m after tax)
5.Rounding differences may arise in totals, both $ and %
Appendix 3: Segment Summary
1.Refer to Appendix 2 for a reconciliation of Statutory to underlying segment Sales andEBIT
2.Rounding differences may arise in totals, both $ and %
•Outdoor segment includes both Kathmandu and Oboz brands
•Surf segment contains the Rip Curl brand, including the Ozmosis group of multi-brand surf stores operated by Rip Curl in Australia
•Corporate costs include director and listing costs, plus amortisation of Oboz and Rip Curl customer relationships $3.9m
•Gross Profit $ mix charts below include ninemonths of Rip Curl contribution since acquisition
Kathmandu Holdings Group Gross Profit $ Mix FY20
36| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
FY20FY19Var %
Kathmandu sales426.4 472.3
(9.7%)
Oboz sales59.4 66.5
(10.7%)
Outdoor segment sales485.8 538.9 (9.8%)
Surf segment sales315.7 -
Total segment sales801.5538.948.7%
Kathmandu underlying EBIT51.4 74.7
(31.3%)
Oboz underlying EBIT7.3 11.6
(37.2%)
Outdoor segment underlying EBIT58.7 86.3 (32.1%)
Surf segment underlying EBIT4.2 -
Total segment underlying EBIT62.986.3(27.2%)
Corporate costs(6.7) (3.2)
Group underlying EBIT56.283.2(32.5%)
Retail
stores
69%
Online
14%
Wholesale
17%
Other
0%
BY
CHANNEL
AU & NZ
76%
North
America
13%
Europe
6%
Rest of World
5%
BY
REGION
Kathmandu
57%
Rip Curl
38%
Oboz
5%
BY
BRAND
Important Notice and Disclosure
This presentation prepared by Kathmandu Holdings Limited (the “Company” or the “Group”) (ASX/NZX:KMD) dated 23 September 2020 provides additional comment
on the financial statements of the Company for the 12 months ended 31 July 2020, and accompanying information, released to the market on the same date. As
such, it should be read in conjunction with the explanations and views in those documents.
This presentation is not a prospectus, investment statement or disclosure document, or an offer of shares for subscription, or sale, in any jurisdiction.Past
performance is not indicative of future performance and no guarantee of future returns is implied or given.
The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment
decision. This presentation has been prepared without taking into account the investment objectives, financial situation or specific needs of any particular person.
Potential investors must make their own independent assessment and investigation of the information contained in this presentation and should not rely on any
statement or the adequacy or accuracy of the information provided.
To the maximum extent permitted by law, none of the Group of Companies, its directors, employees or agents accepts any liability, including, without limitation, any
liability arising out of fault or negligence, for any loss arising from the use of the information contained in this presentation. In particular, no representation or warranty,
express or implied, is given as to the accuracy, completeness or correctness, likelihood of achievement or reasonableness of anyforecasts, prospects, statement or
returns contained in this presentation. Such forecasts, prospects, statement or returns are by their nature subject to significant uncertainties and contingencies. Actual
future events may vary from those included in this presentation.
The statements and information in this presentation are made only as at the date of this presentation unless otherwise statedand remain subject to change without
notice.
All intellectual property, proprietary and other rights and interests in this presentation are owned by the Company.
37| KATHMANDU HOLDINGS FY20 RESULTS PRESENTATION
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