FY21 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 2021
Previous Reporting Period 12 months to 31 July 2020
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$922,792 15.1%
Total Revenue $922,792 15.1%
Net profit/(loss) from continuing
operations
$63,429 615.3%
Total net profit/(loss) $63,066 675.3%
Dividend
Amount per Quoted Equity
Security
$0.03
Imputed amount per Quoted
Equity Security
NIL
Record Date 30
th
November 2021
Dividend Payment Date 15
th
December 2021
Current period Prior comparable period
Net tangible assets per Quoted
Equity Security
$0.18 $0.13
A brief explanation of any of the
figures above necessary to
enable the figures to be
understood
The results are based on accounts which have been subject to audit.
Refer to accompanying audited financial statements and media release
for further information.
Authority for this announcement
Name of person
authorised to
make this announcement
Frances Blundell
Contact person for this
announcement
Frances Blundell
Contact phone number 0064 3 421 5397
Contact email address companysecretary@kathmandu.co.nz
Date of release through MAP
Tuesday, 21
st
September 2021
Audited financial statements accompany this announcement.
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Kathmandu Holdings Ltd
kathmanduholdings.com
1
21 September 2021
(All amounts in NZ$ unless otherwise stated)
Group result underpinned by strong Rip Curl performance
• Strong sales performance from Rip Curl and Oboz, driven by participation growth in
surfing and hiking
• Kathmandu impacted by COVID related travel restrictions
• Investment program in online capabilities delivering results, with online sales
accounting for 14.4% of direct to consumer (DTC) sales; a 4-year CAGR of 21.9% p.a.
• Strong forward order books for Rip Curl and Oboz, above pre-COVID levels
• Strong balance sheet with $37 million net cash, and clean inventory position
• Final dividend of 3.0 cents per share (fully franked for Australian shareholders); total
FY21 dividend of 5.0 cents per share
• Refreshed Group strategy to drive global brand growth and cement ESG leadership
Kathmandu Holdings Limited (ASX/NZX: KMD) is pleased to announce its results for the 12 months
ended 31 July 2021 (FY21).
FY21 key highlights (vs FY20):
• Sales up 15.1% to $922.8 million, including a full 12-month contribution from Rip Curl
• Gross margin up 40 bps to 58.7%
• Underlying EBITDA up 35.9% to $113.3 million (excluding the impact of IFRS 16 and one-off
abnormal costs), driven by strong sales performance and focused management of operating
expenses
• Statutory NPAT of $63.4 million
• Underlying NPAT up 110% to $66.3 million (excluding the impact of IFRS 16 and one-off
abnormal costs)
• Strong balance sheet with $37.0 million net cash, allows the Group to manage any short-term
COVID-related challenges while supporting continued growth investment
• Final dividend of 3.0 cents per share (fully franked for Australian shareholders); total FY21
dividend of 5.0 cents per share
Commenting on the FY21 results, Group CEO & Managing Director Michael Daly said:
“We are proud of the results we have been able to produce over the past 12 months in the face of
ongoing COVID challenges, delivering strong sales and positioning the business for sustained
growth.”
“Rip Curl achieved sales above pre-COVID levels in the key regions of North America and Europe
during the Northern Hemisphere summer season, benefiting from increased participation in surfing,
and reflecting the brand’s technical product focus and strong consumer engagement. Rip Curl’s
wholesale order books are now significantly above pre-COVID levels.”
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“While Kathmandu has felt the impacts of COVID related travel restrictions, we were pleased with
the early momentum following the brand relaunch in May 2021. This relaunch will build on strong
brand fundamentals and position Kathmandu to grow to a truly global brand.”
“Oboz continues its strong performance, with sales growth reflecting the successful product
innovation strategy and diversification of its customer base. The forward order book is at its highest
level ever, allowing investment to support future growth.”
“Our refreshed Group strategy ensures we are focused on the things that matter most as we move
into FY22 – building global brands focused on active outdoor activities, investing in digital platforms
to provide consumers with a truly world class unified commerce experience, operational excellence,
and sustainability [ESG] leadership.”
Group financial performance
Statutory Underlying
1
NZ$ million
2
FY21 FY21 FY20 Change %
Sales 922.8 922.8 801.5 15.1%
Gross Profit 541.6 541.6 467.0 16.0%
Operating Expenses (333.6) (428.3) (383.7) 11.6%
EBITDA 208.0 113.3 83.4 35.9%
EBIT 92.2 83.8 56.2 49.3%
The FY21 Group results were underpinned by strong sales from both Rip Curl and Oboz, and
included a full 12 months of Rip Curl (FY20 included 9 months of Rip Curl post-acquisition).
Earnings growth further reflected the Group’s focused management of operating expenses,
including the benefit of rent abatements, and approx. $15 million annualised restructuring and
synergy savings implemented during the onset of the COVID pandemic last financial year.
Rip Curl: result underpinned by growth in surfing
Underlying
1
NZ$ million
FY21
FY20
Nov 19 to Jul 20
Change
Sales 490.4 315.7 55.3%
Gross Profit 288.9 178.5 61.9%
Operating Expenses (222.6) (166.8) 33.5%
EBITDA 66.3 11.7 468.1%
EBIT 56.9 4.2 1252.4%
Rip Curl’s results have outperformed acquisition expectations, with total sales up 10.5% on the prior
comparable twelve months, and sales levels above pre-COVID levels in the key regions of
North America and Europe during the Northern Hemisphere summer season.
Direct-to-consumer (DTC) same store sales growth (comprising owned retail stores and online) was
up 19.2% overall. Online sales of $33.5 million represented 12.5% of DTC sales, and generated a
4-year CAGR of 44.4% p.a.
1
Underlying results exclude the impact of IFRS 16 leases and one-off abnormal costs
2
FY21 NZD/AUD conversion rate 0.931 (FY20: 0.939), FY21 NZD/GBP conversion rate 0.515 (FY20: 0.504), FY21 NZD/USD conversion
rate 0.699 (FY20 0.636)
Kathmandu Holdings Ltd
kathmanduholdings.com
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Overall, sales returned to pre-COVID levels, even though stores in airports, Australia, Hawaii, Asia,
and parts of Europe, continued to be affected in FY21.
Wholesale sales were 9.6% above the prior comparable twelve months despite a COVID disrupted
sell-in period for 1H FY21. Wholesale forward order books are now significantly above pre-COVID
levels.
Kathmandu: result reflects COVID impacts
Underlying
1
NZ$ million FY21 FY20 Var %
Sales 354.0 426.4 (17.0%)
Gross Profit 224.7 265.1 (15.2%)
Operating Expenses (183.9) (198.2) (7.2%)
EBITDA 40.8 66.9 (38.9%)
EBIT 26.3 51.4 (48.8%)
Kathmandu’s performance continued to be impacted by ongoing COVID lockdown and travel
restrictions. These included Government mandated closures of Australian stores in the key winter
trading period, and reduced demand for travel related products. Same store sales (including online)
were down 18.2% overall for the full year, and down 3.1% for the second half year.
Gross margin increased by 130 bps (1.3% of sales), benefitting from improved currency rates as
well as a focus on promotional execution and inventory management.
Online sales of $56.8 million represented 15.8% of DTC sales, and generated a 4-year CAGR of
14.3% p.a.
Oboz: result underpinned by strong hiking participation
Underlying
1
NZ$ million FY21
Reported
FY21
Constant
Currency
FY20
Reported
Var
Constant
Currency
Sales 78.4 86.1 59.4 44.9%
Gross Profit 28.0 30.7 23.5 30.7%
Operating Expenses (16.2) (17.8) (15.9) 11.7%
EBITDA 11.8 12.9 7.6 70.3%
EBIT 11.4 12.6 7.3 72.6%
Oboz continues to grow strongly, with sales growth driven by a successful product innovation
strategy and diversification of the customer base.
Gross margin was impacted by significant one-off air freight costs to support key customer deliveries
of winter seasonal styles in 1H FY21, plus increased ocean freight costs due to supply chain
congestion in 2H FY21. Gross margin is expected to normalise to historical levels when global
supply chain congestions and related shipping rates come back into line.
The forward order book is at its highest level ever, allowing investment to support future growth.
Kathmandu Holdings Ltd
kathmanduholdings.com
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Strong balance sheet and resilient cash flows
The Group finished FY21 with a net cash position of $37 million, providing significant balance sheet
flexibility to manage any short-term COVID challenges, support growth investment, and consider
potential capital management options.
In addition to the strong balance sheet position, adjusted operating cash flows of $93 million in FY21
has enabled the Directors to declare a final dividend of 3.0 cents per share, fully franked for
Australian shareholders, and not imputed for New Zealand shareholders. The record date for this
dividend is 30 November 2021, and the payment date is 15 December 2021.
Sustainability is at the core
Commenting on the Group’s sustainability initiatives, Mr Daly said: “Our three brands are all about
outdoor activities and experiencing the environment around us. Sustainability is at the core of our
businesses.”
“In 2019, Kathmandu became the largest certified B Corporation in Australasia at the time, and in
2021 the Group committed to the largest syndicated sustainability linked loan in New Zealand. Rip
Curl has a wetsuit take-back program and is sourcing sustainable cotton, Kathmandu achieved
carbon zero certification, and Oboz has planted four million trees since its establishment.”
“We’re not slowing down and there’s a lot more we’re doing to cement our sustainability leadership
position going forward.”
Trading update & outlook
Same store sales (including online) for the six full weeks to 12 September 2021 were significantly
impacted by ongoing Australasian COVID lockdowns as follows:
• Rip Curl -12.8% overall; +3.6% adjusted for COVID lockdowns
3
• Kathmandu -19.9% overall; +18.3% adjusted for COVID lockdowns
3
These results include online sales growth to date of 25.9%, with Kathmandu sales in regions less
affected by COVID restrictions performing strongly. Rip Curl and Oboz wholesale order books are
now significantly above pre-COVID levels.
In addition to ongoing Australasian lockdowns, COVID restrictions are also impacting the Group’s
supply chain. Suppliers have reduced factory capacity due to enforced closures, and freight
congestion is leading to delivery delays and increased freight costs.
As a result, first half FY22 profit is expected to be below first half FY21.
3
Adjusted same store sales removes stores that were not able to open for a comparable week in either year because of COVID
lockdowns
Kathmandu Holdings Ltd
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Commenting on the outlook for the Group, Mr Daly said:
“Despite navigating the ongoing impacts from COVID, our brands are well positioned to capitalise on
growing participation in outdoor, beach and surfing activities. The rollout of COVID vaccinations
across the globe is opening up markets and countries again, presenting exciting opportunities for
our Group.”
“We will continue to invest in building our global brands, through brand advertising, sponsorship, and
sustainability initiatives, which include extending Kathmandu’s B Corp accreditation to all Group
brands and setting science-based targets.”
“We have a number of key initiatives planned to elevate our digital capabilities, including the launch
of Rip Curl loyalty, and the relaunch of Kathmandu Summit Club. We also plan to leverage
Kathmandu online platform enhancements to increase conversion, and increase the use of data
analytics and personalisation capability. We will also continue to invest in core systems and platform
upgrades in order to leverage operational excellence across our brands.”
“Rip Curl and Oboz wholesale order books are now significantly above pre-COVID levels. Rip Curl
and Kathmandu are generating like-for-like retail sales growth excluding COVID-impacts from store
closures. Online sales are continuing to grow for all three brands.”
“I’m excited by the platform we have in place to build a truly global house of brands to deliver
sustainable long-term growth for our team members, retail consumers, wholesale customers and
shareholders.”
Investor briefing being held today @ 8:30am AEST / 10:30am NZST
Michael Daly (Group CEO & Managing Director) and Chris Kinraid (Group CFO) will be holding a
briefing session for investors and analysts at 8:30am AEST / 10:30am NZST today. To pre-register
and avoid a queue when calling, please follow this link:
https://event.webcasts.com/starthere.jsp?ei=1488260&tp_key=c191381705
If you are unable to pre-register, at the time of the call please dial one of the numbers below and
provide the Participant Code 329079 to the operator.
Australia Toll Free: 1800 590 693
Australia Local: +61 7 3105 0937
Australia Alt. Local: +61 3 8317 0929
New Zealand Toll Free: 0800 423 972
United States: +1 323 794 2095
This announcement has been authorised for release to ASX by the Board of Directors of Kathmandu
Holdings Limited.
- ENDS -
Kathmandu Holdings Ltd
kathmanduholdings.com
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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
CONSOLIDATED FINANCIAL STATEMENTS
31 July 2021
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
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 34
Section 5: Group Structure 44
Section 6: Other Notes 49
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 – FINANCIAL STATEMENTS 2021
3
21 September 2021
21 September 2021
Directors’ Approval of Consolidated Financial Statements
For the Year Ended 31 July 2021
Authorisation for Issue
The Board of Directors authorised the issue of these Consolidated Financial Statements on 21 September 2021.
Approval by Directors
The Directors are pleased to present the Consolidated Financial Statements of Kathmandu Holdings Limited for the year
ended 31 July 2021 on pages 4 to 53.
David Kirk Date
Michael Daly Date
For and on behalf of the Board of Directors
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
4
Consolidated Statement of Comprehensive Income
For the Year Ended 31 July 2021
2021 2020
Section NZ$’000 NZ$’000
Sales 2.2 922,792 801,524
Cost of sales (381,170) (334,493)
Gross profit
541,622 467,031
Other income 2.2 29,165 27,369
Selling expenses 1.2.1 (217,115) (193,405)
Administration and general expenses 1.2.1 (145,641) (151,537)
(333,591) (317,573)
Earnings before interest, tax, depreciation, and amortisation
208,031 149,458
Depreciation and amortisation 3.2-3.4 (115,847) (103,585)
Earnings before interest and tax
92,184 45,873
Finance income 834 449
Finance expenses (17,311) (23,822)
Finance costs - net 4.1.1 (16,477) (23,373)
Profit before income tax
75,707 22,500
Income tax expense 2.3 (12,278) (13,632)
Profit after income tax
63,429 8,868
Profit for the year attributable to:
Shareholders of the Company 63,066 8,134
Non-controlling interest 363 734
Other comprehensive income / (expense) that may be recycled through profit or loss:
Movement in cash flow hedge reserve 4.3.2 6,482 (9,259)
Movement in foreign currency translation reserve 4.3.2 (17,527) 258
Movement in other reserves 4.3.2 14 (61)
Other comprehensive expense for the year, net of tax
(11,031) (9,062)
Total comprehensive income / (expense) for the year 52,398 (194)
Total comprehensive income / (expense) for the year attributable to:
Shareholders of the Company 52,118 (932)
Non-controlling interest 280 738
Basic earnings per share (restated) 2.4 8.9cps 1.6cps
Diluted earnings per share (restated) 2.4 8.8cps 1.6cps
Weighted average basic ordinary shares outstanding (‘000)
(restated)
2.4 709,001 493,347
Weighted average diluted ordinary shares outstanding (‘000)
(restated)
2.4 713,006 494,582
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
5
Consolidated Statement of Changes in Equity
For the Year Ended 31 July 2021
Share
capital
Cash flow
hedge
reserve
Foreign
currency
translation
reserve
Share-
based
payments
reserve
Other
reserves
Retained
earnings
Non-
controlling
interest
Total
equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Balance as at 31 July 2019 251,113 4,118 (12,272) 1,983 - 197,120 - 442,062
Profit after tax - - - - - 8,134 734 8,868
Other comprehensive income - (9,259) 254 - (61) - 4 (9,062)
Dividends paid - - - - - (27,209) - (27,209)
Issue of share capital 375,267 - - (1,666) - - - 373,601
Share based payment expense - - - 378 - - - 378
Deferred tax on share-based - - - (87) - - - (87)
payment transactions
Non-controlling interest on - - - - - - 3,335 3,335
acquisition
Disposal of non-controlling - - - - - - (66) (66)
interest
Transition to NZ IFRS 16 - - - - - (12,630) - (12,630)
Balance as at 31 July 2020 626,380 (5,141) (12,018) 608 (61) 165,415 4,007 779,190
Profit after tax - - - - - 63,066 363 63,429
Other comprehensive income - 6,482 (17,444) - 14 - (83) (11,031)
Dividends paid - - - - - (14,180) - (14,180)
Issue of share capital - - - - - - - -
Share based payment expense - - - 1,798 - - - 1,798
Lapsed share options - - - (58) - 58 - -
Deferred tax on share-based - - - 289 - - - 289
payment transactions
Acquisition of remaining shares - - - - - (427) (217) (644)
in non-controlling interest
Balance as at 31 July 2021 626,380 1,341 (29,462) 2,637 (47) 213,932 4,070 818,851
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
6
Consolidated Balance Sheet
As at 31 July 2021
2021 2020
Section
NZ$’000 NZ$’000
ASSETS
Current assets
Cash and cash equivalents 3.1.2 142,614 231,885
Trade and other receivables 3.1.3 68,931 73,668
Inventories 3.1.1 216,545 228,793
Derivative financial instruments 4.2 5,285 53
Current tax asset 3,430 3,790
Other current assets 3.1.5 2,320 2,799
Total current assets
439,125 540,988
Non-current assets
Trade and other receivables 3.1.3 1,549 3,945
Property, plant and equipment 3.2 79,284 88,458
Intangible assets 3.3 688,551 689,935
Deferred tax assets 2.3 13,977 5,380
Right-of-use assets 3.4.1 242,677 258,699
Total non-current assets
1,026,038 1,046,417
Total assets
1,465,163 1,587,405
LIABILITIES
Current liabilities
Trade and other payables 3.1.6 149,206 149,850
Derivative financial instruments 4.2 1,079 7,414
Current tax liabilities 10,159 10,245
Current lease liabilities 3.4.2 75,572 78,035
Total current liabilities
236,016 245,544
Non-current liabilities
Non-current trade and other payables 3.1.6 14,818 14,413
Interest bearing liabilities 4.1 105,597 241,270
Deferred tax liabilities 2.3 86,182 86,401
Non-current lease liabilities 3.4.2 203,699 220,587
Total non-current liabilities
410,296 562,671
Total liabilities
646,312 808,215
Net assets
818,851 779,190
EQUITY
Contributed equity - ordinary shares 4.3.1 626,380 626,380
Reserves 4.3.2 (25,531) (16,612)
Retained earnings 213,932 165,415
Non-controlling interest 4,070 4,007
Total equity
818,851 779,190
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
7
Consolidated Statement of Cash Flows
For the Year Ended 31 July 2021
2021 2020
Section NZ$’000 NZ$’000
Cash flows from operating activities
Cash was provided from:
Receipts from customers 920,374 823,951
Government grants received 23,892 21,266
Interest received 834 449
Income tax received 1,050 1,379
946,150 847,045
Cash was applied to:
Payments to suppliers and employees 722,656 637,828
Income tax paid 24,987 16,897
Interest paid 15,435 21,979
763,078 676,704
Net cash inflow from operating activities
183,072 170,341
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment 2 61
Proceeds from sale of non-controlling interest - 141
2 202
Cash was applied to:
Purchase of property, plant and equipment 3.2 15,044 15,399
Purchase of intangibles 3.3 20,509 4,463
Acquisition of subsidiaries 5.1 1,029 376,121
36,582 395,983
Net cash (outflow) from investing activities
(36,580) (395,781)
Cash flows from financing activities
Cash was provided from:
Proceeds from borrowings - 506,746
Proceeds from share issues - 340,646
- 847,392
Cash was applied to:
Dividends paid 14,180 27,209
Repayment of borrowings 128,894 293,757
Repayment of lease liabilities 89,749 77,290
232,823 398,256
Net cash (outflow) / inflow / from financing activities
(232,823) 449,136
Net (decrease) / increase in cash and cash equivalents held
(86,331) 223,696
Opening cash and cash equivalents 231,885 6,230
Effect of foreign exchange rates (2,940) 1,959
Closing cash and cash equivalents 3.1.2 142,614 231,885
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
8
Reconciliation of net profit after taxation with cash inflow from operating activities
2021 2020
Section NZ$’000 NZ$’000
Profit after taxation 63,429 8,868
Movement in working capital:
(Increase) / decrease in trade and other receivables 5,604 24,027
(Increase) / decrease in inventories 8,190 20,305
(Increase) / decrease in other current assets 431 -
Increase / (decrease) in trade and other payables 3,504 9,732
Increase / (decrease) in current tax liability 398 3,692
18,127 57,756
Add non-cash items:
Depreciation of property, plant and equipment 3.2 20,851 19,666
Amortisation of intangibles 3.3 8,614 7,539
Depreciation of right-of-use assets 3.4.1 86,382 76,380
Impairment of assets 3.2, 3.4.1 1,910 2,050
Paycheck Protection Program (PPP) loan forgiveness 4.1 (4,025) -
Foreign currency translation of working capital balances (3,319) 214
Increase / (decrease) in deferred taxation (12,057) (5,577)
Employee share-based remuneration 6.3 1,798 378
Loss on sale of property, plant and equipment and intangibles 3.2, 3.3 1,362 3,067
101,516 103,717
Cash inflow from operating activities
183,072 170,341
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
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 an 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 21
September 2021.
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 – FINANCIAL STATEMENTS 2021
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
Taxation – provision for tax payable
2.3
Inventory – estimates of obsolescence
3.1.1
Trade and other receivables – allowance for lifetime expected credit losses
3.1.3
Goodwill and brand – assumptions underlying recoverable value
3.3
Leases – judgment applied to lease term
3.4
Business combinations – purchase price allocation
5.1
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 and prior period restatements
Details about changes in accounting policies applied during the period are included in the following notes to the financial
statements:
Section
Earnings per share restatement
2.4
Finalisation of purchase price allocation
5.1
New standards and interpretations first applied in the period 6.8
Selling and administrations expenses classification
During the year the Group identified an error in the surf segment’s classification of selling expenses and administration
and general expenses in the previously reported financial statements for the year ended 31 July 2020. As a result, the
prior period selling expenses have increased by $24,113,000 with a corresponding decrease in administration and
general expenses to align with the current year and the Group policy. The restatement has no impact on total
expenditure.
Consideration of the IFRS Interpretations Committee (‘IFRIC’) agenda decision
In April 2021, IFRIC issued an agenda decision clarifying its interpretation on how current accounting standards apply to
configuration and customisation costs incurred in implementing Software-as-a-Service (‘SaaS’) cloud computing
arrangements. The IFRIC decision has clarified that because SaaS arrangements are service contracts that provide the
Group with the right to access the cloud provider’s application software over the contract period, costs to configure or
customise this software should be recognised as operating expenses when the services are received.
The Group’s current accounting policy is to record these configuration and customisation costs as part of the cost of an
intangible asset and amortise these costs over the useful life of the software assets. The Group has commenced a
review process to quantify the impact of this agenda decision on the financial statements of the Group; however, given
the short timeframe and the complexity involved, this has not been finalised as at the date of this report.
It is anticipated that this exercise will be completed in the second quarter of the 2022 financial year. In the last three
years the Group has capitalised approximately $30 million in relation to cloud computing arrangements of which a subset
may relate to customisation and configuration of cloud solutions and may need to be reclassified to operating expense.
Once the impact has been fully quantified the Group will report the impact in its interim financial statements for the period
ended 31 January 2022.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
11
1.3 Impact of COVID-19
COVID-19 continues to have an impact on the Group, with local and global restrictions on movement, travel and
gatherings resulting in a sustained reduction in footfall. Stores across our network continue to open and close based on
government mandated lockdowns and closures.
There continues to be uncertainties due to the COVID-19 pandemic that affects the Group’s key estimates and
judgements, including the following:
• Intangible assets – the ability to achieve future forecasts and the consequential impacts on the carrying value of
goodwill and other finite life intangible assets (note 3.3)
• Receivables – the ability of wholesale customers to pay (note 3.1.3)
• Leases – certain landlords have provided the Group with rent concessions (note 2.2)
Despite the continuing impact of COVID-19, the Directors are satisfied that there will be adequate cash flows generated
from operating and financing activities to meet the obligations of the Group for a period of at least 12 months from the
date of approving the consolidated financial statements. The Group was fully compliant with all banking covenants during
the year and, based on the current cash flow forecasts, the Group expects to remain compliant with all covenants for at
least 12 months from the date of approving the consolidated financial statements. To address any risk of extended store
closures across Australia and New Zealand into and beyond the key Christmas trading, the Group has worked
proactively with its banking syndicate to reduce the fixed cover charge ratio (FCCR) from 1.5x to 1.25x for the January
2022 measurement period.
Taking into consideration the current trading results, the net cash (excluding lease liabilities) of $37,017,000 and liquidity
of $329,729,000 at 31 July 2021 (refer note 4.1), the financial statements continue to be prepared on a going concern
basis.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
12
Section 2: Results for the Year
2.1 Segment information
An operating segment is a component of an entity that engages in business activities which earns revenue and incurs
expenses and where the chief decision maker reviews the operating results on a regular basis and makes decisions on
resource allocation.
The Group has three operating segments. These operating segments have been determined based on the reports
reviewed by the Group Chief Executive Officer and Group Executive Management team.
Outdoor – including the Kathmandu and Oboz brands. This segment designs, markets, retails and wholesales apparel,
footwear and equipment for outdoor travel and adventure.
Surf – including the Rip Curl brand and the Ozmosis multi-brand retailer. This segment designs, manufactures,
wholesales and retails surfing equipment and apparel.
Corporate – this segment represents group costs, holding companies and consolidation eliminations and constitutes
other business activities that do not fall within outdoor or surf segments including goodwill, brand and customer
relationships.
31 July 2021
Outdoor Surf Corporate Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Sales from external customers 432,354 490,438 - 922,792
EBITDA 109,667 103,991 (5,627) 208,031
Depreciation and amortisation 65,770 44,869 5,208 115,847
EBIT 43,897 59,122 (10,835) 92,184
Income tax expense 15,668 3,794 (7,184) 12,278
Total segment assets 700,470 365,920 398,773 1,465,163
Total assets include:
Non-current assets 488,415 149,226 388,397 1,026,038
Additions to non-current assets 58,929 53,455 22 112,406
Total segment liabilities 278,967 261,203 106,142 646,312
31 July 2020
Outdoor Surf Corporate Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Sales from external customers 485,785 315,739 - 801,524
EBITDA 128,192 35,769 (14,503) 149,458
Depreciation and amortisation 63,291 36,362 3,932 103,585
EBIT 64,901 (593) (18,435) 45,873
Income tax expense 16,962 2,544 (5,874) 13,632
Total segment assets 750,026 394,838 442,541 1,587,405
Total assets include:
Non-current assets 503,162 139,207 404,048 1,046,417
Additions to non-current assets 43,446 14,355 - 57,801
Total segment liabilities 309,539 257,640 241,036 808,215
In this section ...
This section focuses on the results and performance of the Group. On the following pages you will find
disclosures explaining the Group’s results for the year, segmental information, taxation and earnings per
share.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
13
EBITDA represents earnings before income taxes (a non-GAAP measure), excluding interest income, interest expense,
depreciation, and amortisation, as reported in the financial statements. EBIT represents EBITDA less depreciation and
amortisation. EBITDA and EBIT are key measurement criteria on which operating segments are reviewed by the Group
Chief Executive Officer and Group Executive Management team.
Costs recharged between Group companies are calculated on an arms-length basis. The default basis of allocation is
percentage of revenue with other bases being used where appropriate.
Sales from external customers by geographical area
2021 2020
NZ$’000 NZ$’000
Australia
477,054 449,930
New Zealand
120,746 133,696
North America
195,317 131,244
UK & Europe
90,418 53,386
Asia
25,920 25,653
South America
13,337 7,615
922,792 801,524
Non-current assets by geographical area
2021 2020
NZ$’000 NZ$’000
Australia
654,760 700,938
New Zealand
181,661 171,147
North America
162,273 145,211
UK & Europe
15,765 18,741
Asia
8,863 7,749
South America
2,716 2,631
1,026,038 1,046,417
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 on selling 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.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
14
Sales returns
Under the Group’s standard contract terms, customers have a right of return, typically within 30 days. At the point of sale,
a returns 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 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.
2021 2020
NZ$’000 NZ$’000
Sale of goods
915,570 797,410
Royalty revenue
6,950 3,848
Commission revenue
272 266
922,792 801,524
A breakdown of revenue by operating segment and geographical area is provided in note 2.1.
Other income
2021 2020
NZ$’000 NZ$’000
Government grants
27,918
26,781
Other
1,247
588
29,165 27,369
Government grants are not recognised until there is reasonable assurance that the grants will be received and that the
Group will comply with the conditions attaching to them. 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 income recognised during the year includes $4,025,000 (2020: nil) in relation to US Paycheck
Protection Program loans as disclosed in note 4.1.
Government grants of nil (2020: $5,615,000) relating to the current year are receivable at balance date and have been
included in other receivables and prepayments in note 3.1.3.
Employee entitlements
2021 2020
NZ$’000 NZ$’000
Wages, salaries, and other short-term benefits
187,700 167,161
Post-employment benefits
9,692 8,629
Employee share-based remuneration
1,798 378
199,190 176,168
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
15
Lease expense
The Group is a lessee. Refer to note 3.4 for further details around the Group’s leases and lease accounting policies.
Lease amounts recognised in the consolidated statement of comprehensive income:
2021 2020
NZ$’000 NZ$’000
Short-term lease expense
4,398 8,159
Low-value lease expense
378 1,277
Variable lease expense
(431) 532
Rent concessions and abatements
(7,306) (4,834)
Lease outgoings
12,938 16,460
Depreciation right-of-use asset (note 3.4.1)
86,382 76,380
Interest expense related to lease liabilities (note 3.4.2) 8,879 8,874
105,238 106,848
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 0.4% (2020: 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. Considering
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 amounts are recognised in profit
or loss due to changes in lease payments arising from such concessions, within the selling, administration, and general
expenses in the consolidated statement of comprehensive income.
The total cash outflow for leases amounts to $121,291,000 (2020: $96,191,000).
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 based on the tax laws enacted or substantively enacted at the balance sheet
date in the countries where the Company and the 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 based on 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.
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 – FINANCIAL STATEMENTS 2021
16
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,
except for receivables and payables, which include GST invoiced.
Taxation – Consolidated statement of comprehensive income
The total taxation charge in the consolidated statement of comprehensive income is analysed as follows:
2021 2020
NZ$’000 NZ$’000
Current income tax charge
24,334 19,209
Deferred income tax charge / (credit)
(12,056) (5,577)
Income tax charge reported in the consolidated statement of
comprehensive income
12,278 13,632
To understand how, in the consolidated statement of comprehensive income, a tax charge of $12,278,000 (2020:
$13,632,000) arises on profit before income tax of $75,707,000 (2020: $22,500,000), the taxation charge that would arise
at the standard rate of New Zealand corporate tax is reconciled to the actual tax charge as follows:
2021 2020
NZ$’000 NZ$’000
Profit before income tax
75,707 22,500
Income tax calculated at 28%
21,198 6,300
Adjustments to taxation:
Adjustments due to different rate in different jurisdictions 1,608 (88)
Non-taxable income
(2,537) (1,015)
Expenses not deductible for tax purposes
2,973 4,561
Utilisation of tax losses by group companies
(1,362) (38)
Tax expense transferred to foreign currency translation
reserve
(811) (13)
Adjustments in respect of prior years
787 274
Tax losses not recognised
- 3,651
Historic tax losses and deferred tax assets recognised (9,578) -
Income tax charge reported in the consolidated statement of
comprehensive income
12,278 13,632
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.
During the year the Group recognised $9,578,000 of previously unrecognised Rip Curl US tax losses. The Group has
recognised these losses on the basis that the Rip Curl US profitability has improved significantly during the year, and it is
probable these losses will be utilised against future taxable profit in the US.
As a result of recognising the deferred tax losses the deferred tax asset at year-end of $13,977,000 is separately
disclosed in the consolidated balance sheet. For consistency the prior period deferred tax asset of $5,380,000 has also
been separately disclosed in the consolidated balance sheet. The deferred tax assets for the year ended 31 July 2020
was previously netted off in the deferred tax liability balance of $81,021,000.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
17
The tax charge / (credit) relating to components of other comprehensive income is as follows:
2021 2020
NZ$’000 NZ$’000
Movement in cash flow hedge reserve before tax 11,608 (13,162)
Tax credit / (charge) relating to cash flow hedge reserve (5,126) 3,903
Movement in cash flow hedge reserve after tax
6,482 (9,259)
Foreign currency translation reserve before tax (17,527) 258
Tax credit / (charge) relating to foreign currency translation
reserve
- -
Movement in foreign currency translation reserve after tax (17,527) 258
Other reserves before tax 14 (61)
Tax credit / (charge) relating to other reserves - -
Movement in other reserves after tax
14 (61)
Total other comprehensive income / (expense) before tax (5,905) (12,965)
Total tax credit / (charge) on other comprehensive income (5,126) 3,903
Total other comprehensive income / (expense) after tax (11,031) (9,062)
Current tax
- -
Deferred tax
(5,126) 3,903
Total tax credit / (charge) on other comprehensive income (5,126) 3,903
Taxation – Balance sheet
The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon
during the current and prior year:
Employee
obligations
Intangibles Leases Other
temporary
differences
Reserves Tax
losses
Total
NZ$’000
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2019 2,279 (54,004) - 6,870 (996) - (45,851)
Recognised in the consolidated
statement of comprehensive
(695) 1,402 421 4,449 - - 5,577
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)
1,963 (62,598) - 5,635 - - (55,000)
Exchange differences 33 (687) 13 265 - - (376)
As at 31 July 2020 3,493 (115,887) 11,247 17,219 2,907 - (81,021)
Recognised in the consolidated
statement of comprehensive
1,243 1,401 1,695 639 - 7,078 12,056
Recognised in other
comprehensive income
- - - - (5,126) - (5,126)
Recognised directly in equity 289 - - - - - 289
Exchange differences (67) 2,258 (202) (300) 27 (119) 1,597
As at 31 July 2021
4,958 (112,228) 12,740 17,558 (2,192) 6,959 (72,205)
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
18
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
• Historic tax losses recognised
• Other temporary differences on miscellaneous items
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
2021 2020
NZ$’000 NZ$’000
Deductible temporary differences
- 2,060
Tax losses
5,548 18,370
5,548 20,430
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
2021 2020
NZ$’000 NZ$’000
Imputation credits available for use in subsequent reporting
periods based on a tax rate of 28%
66 (6,743)
The above amounts represent the balance of the imputation account as at 31 July 2021, 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.
• Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
In the prior period tax payments of $6,808,000 had been financed at year end, which once transferred to the Inland
Revenue Department resulted 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 2021 is
A$11,502,000 (2020: A$2,691,000).
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
19
2.4 Earnings per share
2021 2020
’000 ’000
Weighted average number of basic ordinary shares in issue 709,001 493,347
Adjustment for:
Share options / performance rights
4,005 1,235
713,006 494,582
The Group has restated the prior year basic and diluted EPS to reflect the impact of finalisation of the Rip Curl purchase
price allocation as disclosed in note 5.1.
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
$63,065,666 (2020: $8,133,582) by the weighted average number of ordinary shares in issue during
the year of 709,001,384 (2020: 493,346,733).
Diluted EPS reflects any commitments the Group has to issue shares in the future that would decrease
EPS. In the current year, these are in the form of share options / performance rights. To calculate the
impact, it is assumed that all share options are exercised / performance rights taken, and therefore,
adjusting the weighted average number of shares.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
20
Section 3: Operating Assets and Liabilities
3.1 Working capital
3.1.1 Inventory
Accounting policies
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average cost
method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course
of business, less applicable variable selling expenses. Inventory is considered in transit when the risk and rewards of
ownership have transferred to the Group.
The Group assesses the likely residual value of inventory. Stock provisions are recognised for inventory that is expected
to sell for less than cost, and for the value of inventory likely to have been lost to the business through shrinkage
between the date of the last applicable stocktake and balance sheet date. In recognising the provision for inventory,
judgement has been applied by considering a range of factors including historical results, stock shrinkage trends and
product lifecycle.
Inventory is broken down into trading stock and goods in transit below:
2021 2020
NZ$’000 NZ$’000
Raw materials and consumables
3,297 2,528
Work in progress
1,324 2,397
Trading stock
189,221 209,958
Goods in transit
22,703 13,910
216,545 228,793
Inventory has been reviewed for obsolescence and a provision of $5,393,000 (2020: $4,580,000) has been made.
3.1.2 Cash and cash equivalents
2021 2020
NZ$’000 NZ$’000
Cash on hand
489 482
Cash at bank
140,617 230,429
Short term investments convertible to cash
1,508 974
142,614 231,885
In this section ...
This section shows the assets used to generate the Group’s trading performance and the liabilities
incurred as a result. Liabilities relating to the Group’s financing activities are addressed in Section 4.
Deferred tax assets and liabilities are shown in note 2.3.
Keeping it simple ...
Working capital represents the assets and liabilities the Group generates through its trading activity. The
Group therefore defines working capital as inventory, cash, trade and other receivables, other financial
assets, other current assets and trade and other payables and other financial liabilities.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
21
The carrying amount of the Group's cash and cash equivalents are denominated in the following currencies:
2021 2020
NZ$’000 NZ$’000
AUD
82,056 163,503
USD
27,350 22,275
EUR
10,455 6,108
NZD
9,626 32,330
THB
3,241 3,371
IDR
2,852 1,706
BRL
2,112 1,126
GBP
1,897 548
CAD
1,476 394
Other currencies
1,549 524
142,614 231,885
3.1.3 Trade and other receivables
Accounting policies
Trade and other receivables are recognised initially at the value of the invoice sent to the customer (fair value) and
subsequently at the amounts considered recoverable (amortised cost). The collectability of trade and other receivables is
reviewed on an on-going basis.
An allowance for lifetime expected credit losses is recognised for trade and other receivables based on the Group’s
historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions, and an
assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of
money where appropriate. The expected credit loss is estimated as the difference between all contractual cash flows that
are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted
at the original effective interest rate.
2021 2020
NZ$’000 NZ$’000
Current
Trade receivables
61,084 62,143
Allowance for expected credit losses
(5,680) (10,329)
Other receivables and prepayments
13,527 21,854
68,931 73,668
Non-current
Other debtors
1,549 3,945
1,549 3,945
Other non-current debtors include debtors on extended credit terms and security deposits paid in relation to store leases.
The carrying amount of the Group’s trade and other receivables are denominated in the following currencies:
2021 2020
NZ$’000 NZ$’000
USD
30,551 22,466
AUD
12,858 20,853
EUR
11,449 13,258
BRL
3,645 2,991
THB
3,125 4,406
CAD
2,402 2,326
GBP
2,163 1,650
NZD
1,992 5,101
JPY
1,173 2,246
IDR
1,122 1,997
Other currencies
- 319
70,480 77,613
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
22
Allowance for expected credit losses
2021 2020
NZ$’000 NZ$’000
Opening balance
(10,329) (115)
Allowance recognised on acquisition (note 5.1) - (5,639)
Additional allowance recognised in the consolidated
statement of comprehensive income
(3,104) (6,152)
Receivables written-off during the year
5,186 1,004
Unused provision released to the consolidated statement of
comprehensive during the year
2,173 249
Foreign exchange
394 324
Closing balance
(5,680) (10,329)
3.1.4 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
Risk Exposure arising from Monitoring Management
Credit risk Cash and cash equivalents Credit ratings Obtaining customer credit
Trade and other receivables Aging analysis rating information
Derivative financial instruments Review of exposure with Confirming references
regular terms of trade Setting appropriate credit
limits
Exposure to credit risk
The below balances are recorded at their carrying amount after any allowance for expected credit loss on these financial
instruments. The maximum exposure to credit risk at reporting date was (carrying amount):
2021 2020
NZ$’000 NZ$’000
Cash and cash equivalents
142,125 231,403
Trade receivables
55,404 51,814
Other receivables
7,158 12,866
Derivative financial instruments
4,206 (7,361)
208,893 288,722
As at balance sheet date the carrying amount is considered to approximate fair value for each of the financial
instruments.
The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings (if available) or to
historical information about counterparty default rates:
2021 2020
NZ$’000 NZ$’000
Cash and cash equivalents:
Standard & Poors - AA-
104,885 207,811
Standard & Poors - A+
25,919 14,008
Standard & Poors - A
1,768 1,567
Standard & Poors - A-
197 -
Standard & Poors - BBB+
3,359 3,822
Standard & Poors - BBB-
2,912 1,790
Standard & Poors - BB
978 1,282
Standard & Poors - BB-
2,107 1,123
142,125 231,403
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
23
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 $15,931,000 (2020: $27,495,000) were past due. A provision of
$5,680,000 (2020: $10,329,000) is held against these overdue amounts. Interest is charged on overdue debtors in some
instances.
The ageing analysis of these past due trade receivables is:
2021 2020
NZ$’000 NZ$’000
0 to 30 days
5,301 4,825
30 to 60 days
2,926 3,503
60 to 90 days
2,311 7,394
90 days and over
5,393 11,773
15,931 27,495
Due to COVID-19 credit terms have been extended for some customers, which has impacted the aging analysis above.
The aging analysis disclosed is based on the original due dates agreed with customers, prior to any extension of credit
terms being offered.
In the current year $4,438,000 of long overdue receivables were written off. These receivables were acquired in the prior
period as part of the Rip Curl acquisition and were fully provided for prior to acquisition.
3.1.5 Other assets
Accounting policies
Other assets relate to rights of return assets. Rights of return recognises the estimated returned sales under the Group's
returns policies. Management estimates the returned sales based on historical sales return information and any recent
trends that may suggest future claims could differ from historical amounts. For sales that are expected to be returned, the
Group recognises a returns provision as disclosed in note 3.1.6. The associated inventory value for sales that are
expected to be returned is recognised as a right of return asset. The costs to recover the products are not material
because the customers usually return them in a saleable condition.
2021 2020
NZ$’000 NZ$’000
Right of return assets
Opening balance
2,799 -
Right of return assets recognised on acquisition (note 5.1) - 2,803
Additional amounts recognised
- -
Amounts incurred and charged
(431) -
Exchange differences
(48) (4)
2,320 2,799
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
24
3.1.6 Trade and other payables
Accounting policies
Trade payables, sundry creditors and accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. Trade and other payables are initially measured at fair value and subsequently measured at amortised
cost, using the effective interest method. The carrying value of trade payables is considered to approximate fair value as
amounts are unsecured and are usually paid by the 30th of the month following recognition.
Employee entitlements relates to benefits accruing to employees in respect of wages and salaries, annual leave, and
long service leave when it is probable that settlement will be required, and they are capable of being measured reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal
values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee
benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future
cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.
2021 2020
NZ$’000 NZ$’000
Current
Trade payables
72,230 63,939
Employee entitlements
27,642 21,357
Sundry creditors and accruals
42,502 54,913
Other provisions
6,832 9,641
149,206 149,850
Non-current
Employee entitlements
3,076 3,069
Other provisions
11,742 11,344
14,818 14,413
The carrying amount of the Group's trade and other payables are denominated in the following currencies:
2021 2020
NZ$’000 NZ$’000
AUD
68,465 86,082
USD
47,776 31,906
NZD
17,239 19,529
EUR
15,254 15,799
BRL
6,138 3,372
THB
4,751 3,569
IDR
2,334 2,167
Other currencies
2,067 1,839
164,024 164,263
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The warranties provision represents the present value of the estimated future outflow of economic benefits that will be
required under the Group’s obligations for warranties under local sale of goods legislation. The provision relates to
wetsuits, watches and footwear and is based on estimates made from historical warranty data associated with similar
products and services.
A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been announced publicly at balance date.
Lease restoration provision represents the present value of the estimated cost to restore leased properties to their
original condition upon expiry of the lease.
Where a customer has a right to return a product within a given period, the Group recognises a returns provision for the
consideration received that will be required to be refunded to customers on return of the product. The Group also
recognises a right to the returned goods as disclosed in note 3.1.5.
Other provisions relate to other miscellaneous amounts that meet the definition of a provision but do not fall into any of
the other categories.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
25
Warranties Restructuring Lease
restoration
Sales
returns
Other Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Year ended 31 July 2020
Opening balance - - 671 - 406 1,077
Provision recognised on acquisition
(note 5.1)
1,168 2,541 5,453 6,078 - 15,240
Provisions recognised on adoption of
NZ IFRS 16
- - 4,686 - - 4,686
Additional provisions recognised 478 1,367 633 148 216 2,842
Provisions used during the year (296) (2,303) (191) - - (2,790)
Provisions re-measured during the year (14) - (325) - - (339)
Foreign exchange 13 70 121 65 - 269
Closing balance 1,349 1,675 11,048 6,291 622 20,985
As at 31 July 2020
Current
1,349 1,675 193
6,291
133 9,641
Non-current
- - 10,855
-
489 11,344
1,349 1,675 11,048 6,291 622 20,985
Warranties Restructuring Lease
restoration
Sales
returns
Other Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
Year ended 31 July 2021
Opening balance 1,349 1,675 11,048 6,291 622 20,985
Additional provisions recognised 686 70 1,391 - - 2,147
Provisions used during the year (301) (1,324) (195) (135) (41) (1,996)
Provisions re-measured during the year - - (723) (1,359) - (2,082)
Foreign exchange (41) (61) (273) (105) - (480)
Closing balance 1,693 360 11,248 4,692 581 18,574
As at 31 July 2021
Current
1,693 360 - 4,692 87 6,832
Non-current
- - 11,248 - 494 11,742
1,693 360 11,248 4,692 581 18,574
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
26
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 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.
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 – FINANCIAL STATEMENTS 2021
27
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Land &
buildings
Leasehold
improvements
Office, plant
& equipment
Furniture &
fittings
Computer
equipment
Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2019
Cost - 67,974 17,936 41,726 9,633 137,269
Accumulated depreciation - (40,467) (6,406) (22,552) (7,525) (76,950)
Closing net book value - 27,507 11,530 19,174 2,108 60,319
Year ended 31 July 2020
Opening net book value - 27,507 11,530 19,174 2,108 60,319
Acquisition of businesses (note 5.1) 6,475 6,033 3,603 16,440 2,725 35,276
Additions 15 6,478 3,108 5,059 739 15,399
Disposals (305) (621) (474) (1,632) (96) (3,128)
Depreciation (370) (7,815) (2,581) (7,670) (1,230) (19,666)
Transfers between categories - - (289) 289 - -
Exchange differences (188) 184 199 123 (60) 258
Closing net book value 5,627 31,766 15,096 31,783 4,186 88,458
As at 31 July 2020
Cost 9,722 95,149 45,612 99,855 20,251 270,589
Accumulated depreciation (4,095) (63,383) (30,516) (68,072) (16,065) (182,131)
Closing net book value 5,627 31,766 15,096 31,783 4,186 88,458
Year ended 31 July 2021
Opening net book value 5,627 31,766 15,096 31,783 4,186 88,458
Additions 63 3,752 694 7,576 2,959 15,044
Disposals (1) (865) (74) (374) (23) (1,337)
Depreciation (596) (8,369) (1,289) (8,978) (1,619) (20,851)
Impairment - - - (16) - (16)
Transfers between categories 52 1,228 (2,169) 771 118 -
Exchange differences (379) (512) (307) (705) (111) (2,014)
Closing net book value 4,766 27,000 11,951 30,057 5,510 79,284
As at 31 July 2021
Cost 8,691 92,270 30,130 101,699 21,175 253,965
Accumulated depreciation (3,925) (65,270) (18,179) (71,642) (15,665) (174,681)
Closing net book value 4,766 27,000 11,951 30,057 5,510 79,284
Depreciation
2021 2020
NZ$’000 NZ$’000
Land and buildings
596 370
Leasehold improvement
8,369 7,815
Office, plant and equipment
1,289 2,581
Furniture and fittings
8,978 7,670
Computer equipment
1,619 1,230
20,851 19,666
Depreciation expense is excluded from administration and general expenses in the consolidated statement of
comprehensive income.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
28
Sale of property, plant and equipment
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
2021 2020
NZ$’000 NZ$’000
Loss on sale of property, plant and equipment
1,337 3,067
Capital commitments
Capital commitments contracted for at balance sheet date include property, plant and equipment of $4,110,000 (2020:
$975,000).
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 relationships
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%.
Refer to note 1.2.1 for further consideration in respect of the IFRS Interpretations Committee (‘IFRIC’) agenda decision
on configuration and customisation costs incurred in implementing Software-as-a-Service (‘SaaS’) cloud computing
arrangements.
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.
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 – FINANCIAL STATEMENTS 2021
29
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.
Intangible assets
Goodwill Brand Customer
relationship
Software Other
intangibles
Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2019
Cost 191,592 185,081 1,868 33,206 - 411,747
Accumulated amortisation (1,271) - (250) (24,165) - (25,686)
Closing net book value 190,321 185,081 1,618 9,041 - 386,061
Year ended 31 July 2020
Opening net book value 190,321 185,081 1,618 9,041 - 386,061
Acquisition of businesses (note 5.1) 91,637 169,687 39,697 917 2,883 304,821
Additions - - - 4,463 - 4,463
Disposals - - - - - -
Amortisation - - (3,932) (3,607) - (7,539)
Exchange differences (199) 2,355 (101) 17 57 2,129
Closing net book value 281,759 357,123 37,282 10,831 2,940 689,935
As at 31 July 2020
Cost 283,030 357,123 41,495 58,943 4,552 745,143
Accumulated amortisation (1,271) - (4,213) (48,112) (1,612) (55,208)
Closing net book value 281,759 357,123 37,282 10,831 2,940 689,935
Year ended 31 July 2021
Opening net book value 281,759 357,123 37,282 10,831 2,940 689,935
Additions - - - 20,509 - 20,509
Disposals - - - (25) - (25)
Amortisation - - (5,203) (3,411) - (8,614)
Exchange differences (5,358) (6,996) (695) (79) (126) (13,254)
Closing net book value 276,401 350,127 31,384 27,825 2,814 688,551
As at 31 July 2021
Cost 277,672 350,127 40,621 78,725 4,358 751,503
Accumulated amortisation (1,271) - (9,237) (50,900) (1,544) (62,952)
Closing net book value 276,401 350,127 31,384 27,825 2,814 688,551
Sale of intangibles
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the
consolidated statement of comprehensive income.
2021 2020
NZ$’000 NZ$’000
Loss on sale of intangibles
25 -
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
30
Impairment tests for goodwill and brand
The aggregate carrying amounts of goodwill and brand allocated to each unit for impairment testing are as follows:
Goodwill Brand
2021 2020 2021 2020
NZ$’000 NZ$’000 NZ$’000 NZ$’000
Kathmandu New Zealand 45,484 45,484 51,000 51,000
Kathmandu Australia 75,899 76,496 97,151 99,140
Oboz 65,315 68,239 35,873 37,479
Rip Curl 89,703 91,540 166,103 169,504
276,401 281,759 350,127 357,123
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 (CGU) 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 Directors for the year ended 31 July 2022. Cash flows beyond July 2022
are based on three-year business plans presented to the Directors.
The key assumption used:
• The FVLCOD model assume continued COVID-19 disruption in the 2022 financial year and a return to more
normalised trading conditions previously experienced in 2023 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:
2021 2020
KMD NZ
CGU
KMD AU
CGU
Rip Curl
CGU
Oboz
CGU
KMD NZ
CGU
KMD AU
CGU
Rip Curl
CGU
Oboz
CGU
Pre-tax WACC 11.3% 11.3% 11.3% 11.3%
11.5% 11.4% 13.2% 11.8%
Post-tax WACC 8.1% 7.9% 7.9% 8.2%
8.3% 8.0% 9.3% 8.6%
Terminal growth rate 2.0% 2.0% 2.0% 2.0%
1.0% 1.0% 1.5% 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.
The calculations confirmed that there was no impairment of goodwill and brand during the year (2020: nil). The Directors
believe 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 $7,271,000 (2020: $709,000).
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
31
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 – FINANCIAL STATEMENTS 2021
32
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 for property leases, including
expected rights of renewal, is 8 years (2020: 8 years). The average lease term for vehicle leases is 3 years (2020: 3
years).
3.4.1 Right-of-use assets
The movements in right of use assets were as follows:
2021 2020
NZ$’000 NZ$’000
Opening net book value
258,699 -
Movements on transition
- 178,774
Right-of-use assets recognised on acquisition (note 5.1) - 118,457
Additions and modifications to right-of-use asset
76,853 37,939
Depreciation for the period
(86,382) (76,380)
Impairment for the period
(1,894) (2,050)
Exchange differences
(4,599) 1,959
Closing net book value
242,677 258,699
Cost
391,327 336,942
Accumulated amortisation & impairment
(148,650) (78,243)
Closing net book value
242,677 258,699
3.4.2 Lease liabilities
The movements in lease liabilities were as follows:
2021 2020
NZ$’000 NZ$’000
Opening lease liabilities
298,622 -
Movements on transition
- 215,389
Lease liabilities recognised on acquisition (note 5.1) - 119,725
Additions and modifications to lease liability
75,601 37,886
Interest expense on lease liabilities
8,879 8,874
Repayment of lease liabilities (including interest)
(98,694) (86,110)
Exchange differences
(5,137) 2,858
Closing lease liabilities
279,271 298,622
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
33
Lease liability maturity analysis
Gross lease
payments
Interest Carrying
amount
NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Within one year
82,639 (7,067) 75,572
One to five years
180,207 (12,559) 167,648
Beyond five years
38,433 (2,382) 36,051
301,279 (22,008) 279,271
Current
75,572
Non-current
203,699
279,271
As at 31 July 2020
Within one year
85,909 (7,874) 78,035
One to five years
195,128 (13,901) 181,227
Beyond five years
41,907 (2,547) 39,360
322,944 (24,322) 298,622
Current
78,035
Non-current
220,587
298,622
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
34
Section 4: Capital Structure and Financing Costs
4.1 Interest bearing liabilities
Accounting policies
Interest bearing liabilities are the Group’s borrowings. 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:
2021 2020
NZ$’000 NZ$’000
Current portion
- -
Non-current portion
105,597 241,270
105,597 241,270
Group Facility Agreement
The Group has a multi-option syndicated facility agreement, with a sustainability linked loan of A$100 million, a revolving
cash advance facility of A$115 million and NZ$24 million, trade finance sub-facilities of A$30 million and NZ$10 million,
and instruments sub-facilities of A$20 million and NZ$4 million. All facilities are repayable in full on 26 May 2024.
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 1.25%. The debt is secured by the assets of the
guaranteeing group in accordance with the Security Trust Deed dated 25 October 2019 as amended 26 May 2021.
The covenants entered into by the Group require specified calculations of Group earnings 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 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 as amended and restated on 26 May 2021. The Group has complied
with its banking covenants at all measurement points during the year.
The current interest rates, prior to hedging, on the term loans ranged between 0.95% - 1.05% (2020: 1% - 1.25%).
Paycheck Protection Program (PPP) loans
As part of the US government response to COVID-19 the Group’s US resident companies applied for Paycheck
Protection Program (PPP) loans of US$2,814,000 in the year ended 31 July 2020. The Group believes that these entities
met the criteria to qualify for the loans at the date of the application.
The PPP loan is initially received as a loan and once various criteria are met the Group is able to apply for forgiveness of
that loan. During the year, the Group has applied for and received forgiveness of the PPP loan for one of the US resident
entities and consequently a $669,000 gain was recognised in the consolidated statement of comprehensive income in
during the year.
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 an entity 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) 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 – FINANCIAL STATEMENTS 2021
35
The Group has also applied for forgiveness of the remaining PPP loan prior to balance date as it believes it has provided
all the necessary documents to support full forgiveness. This application has been reviewed and approved by the lender
and is in the final approval process with the US Small Business Association (SBA). Whilst the application is still being
processed the Group believe it has reasonable assurance that it has met the conditions for forgiveness. Accordingly, the
Group has recognised a further gain of $3,356,000 in the consolidated statement of comprehensive income during the
year.
The eligibility and forgiveness of the application being processed remains subject to a possible audit by the federal
government at which time the loan could 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.
Based on loan criteria and the steps taken by the Group above the balance of the PPP loan at 31 July 2021 is nil (2020:
$4,201,000).
Reconciliation of movement in borrowings
2021 2020
NZ$’000 NZ$’000
Opening balance
241,270 25,500
Net cash flow movement
(128,894) 212,989
PPP loan forgiven
(4,025) -
Foreign exchange movement
(2,754) 2,781
Closing balance
105,597 241,270
Borrowings maturity analysis
2021 2020
NZ$’000 NZ$’000
Principal of interest-bearing liabilities:
Payable within 1 year
- -
Payable 1 to 2 years
- 4,201
Payable 2 to 3 years
105,597 237,069
Payable 3 to 4 years
- -
105,597 241,270
4.1.1 Finance costs
2021 2020
NZ$’000 NZ$’000
Interest income
(834) (449)
Interest expense on term debt
2,370 4,780
Interest on lease liabilities
8,879 8,874
Other finance costs
5,358 9,246
Net exchange loss / (gain) on foreign currency
704 922
16,477 23,373
Other finance costs relate to facility fees on banking arrangements and debt underwriting costs.
4.1.2 Cash flow and fair value interest rate risk
Interest rate risk is the risk that fluctuations in interest rates impact the Group’s financial performance.
Risk Exposure arising from Monitoring Management
Interest rate risk Interest bearing liabilities at Cash flow forecasting Interest rate swaps
floating interest rates Sensitivity analysis
Refer to note 4.2 for notional principal amounts and valuations of interest rate swaps outstanding at balance sheet date.
A sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table below.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
36
At the reporting date the interest rate profile of the Group's banking facilities was (carrying amount):
2021 2020
NZ$’000 NZ$’000
Total secured borrowings
105,597 241,270
Less Principal covered by interest rate swaps
- (5,000)
Net principal subject to floating interest rates
105,597 236,270
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 nil (2020: $54,106).
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.
A sensitivity of 1% (2020: 1%) has been selected for interest rate risk. The 1% is based on reasonably possible changes
over a financial year, using the observed range of historical data for the preceding five-year period.
Amounts are shown net of income tax. All variables other than applicable interest rates are held constant. The impact on
equity is presented exclusive of the impact on retained earnings.
Carrying -1% +1%
amount Profit Equity Profit Equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Derivative financial instruments (4,206) - - - -
(asset) / liability
Financial assets
Cash and cash equivalents 142,614 (1,027) - 1,027 -
(1,027) - 1,027 -
Financial liabilities
Interest bearing liabilities (105,597) 1,056 - (1,056) -
Lease liabilities (279,271) 2,793 - (2,793) -
3,849 - (3,849) -
Net increase / (decrease) 2,822 - (2,822) -
Carrying -1% +1%
amount Profit Equity Profit Equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2020
Derivative financial instruments (7,361) (50) 38 50 (37)
asset / (liability)
Financial assets
Cash and cash equivalents 231,885 (1,670) - 1,670 -
(1,670) - 1,670 -
Financial liabilities
Interest bearing liabilities (241,270) 2,413 - (2,413) -
Lease liabilities (298,622) 2,986 - (2,986) -
5,399 - (5,399) -
Net increase / (decrease) 3,679 38 (3,679) (37)
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
37
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 Trade and other payables Cash flow forecasting Active working capital
Interest bearing liabilities management
Flexibility in funding
arrangements
The Group has borrowing facilities of NZD $317,831,045 / AUD $300,986,000 (2020: NZD $398,818,966 / AUD
$370,104,000) and operates well within this facility. This includes short term bank overdraft requirements, and at balance
sheet date no bank accounts were in overdraft.
Less than 1
year
Between
1 - 2 years
Between
2 - 5 years
Over 5
years
NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Trade and other payables 106,583 - - -
Interest bearing liabilities 1,045 1,045 106,456 -
107,628 1,045
106,456 -
As at 31 July 2020
Trade and other payables 109,644 - - -
Interest bearing liabilities 3,007 7,197 238,060 -
112,651 7,197 238,060 -
The Group enters into forward exchange contracts to manage the risks associated with the purchase of foreign currency
denominated products.
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant
maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows. They are expected to occur and affect the
profit or loss at various dates between balance sheet dates and the following five years.
Less than 1
year
Between
1 - 2 years
Between
2 - 5 years
Over 5
years
NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Forward foreign exchange contracts
Inflow 169,991 - - -
Outflow (165,785) - - -
Net inflow / (outflow) 4,206 -
- -
Interest rate swaps
Outflow - - - -
Net inflow / (outflow) - - - -
Keeping it simple ...
The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities
into relevant maturity groupings based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows, so will not always reconcile with the amounts disclosed on the balance sheet.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
38
Less than 1
year
Between
1 - 2 years
Between
2 - 5 years
Over 5 years
NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2020
Forward foreign exchange contracts
Inflow 179,857 - - -
Outflow (187,164) - - -
Net inflow / (outflow) (7,307) - - -
Interest rate swaps
Outflow (51) - - -
Net inflow / (outflow) (51) - - -
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.
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 – FINANCIAL STATEMENTS 2021
39
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.
Derivative financial instruments
2021 2020
NZ$’000 NZ$’000
Foreign exchange contracts
Current asset
5,285 53
Current liability
(1,079) (7,360)
Net foreign exchange contracts - cash flow hedge (asset / 4,206 (7,307)
(liability))
Interest rate swaps
Current liability
- (54)
Non-current liability
- -
Net interest rate swaps - cash flow hedge (asset / (liability)) - (54)
Total derivative financial instruments
4,206 (7,361)
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 nil (2020: $5,000,000). The fixed interest rate is nil (2020: 1.32%). Refer to note 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 amounts to US$117,650,000 / NZ$164,706,000 (2020: US$114,460,000 /
NZ$179,803,000).
No material hedge ineffectiveness for interest rate swaps or foreign exchange contracts exists as at balance sheet date
(2020: nil).
Refer to note 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 AUD, USD and EUR.
Risk Exposure arising from Monitoring Management
Foreign exchange risk Foreign currency purchases Forecast purchases USD foreign exchange
(over 90% of purchases in USD) Reviewing exchange rate derivatives
movements
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 – FINANCIAL STATEMENTS 2021
40
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% (2020: -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% (2020: -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.
Carrying -10% +10%
amount Profit Equity Profit Equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Derivative financial instruments (4,206) - (18,755) - 15,346
(asset) / liability
Financial assets
Cash and cash equivalents 142,614 10,639 - (8,705) -
Trade and other receivables 62,562 (4,967) - 4,064 -
5,672 - (4,641) -
Financial liabilities
Trade and other payables (164,024) (11,743) - 9,608 -
Interest bearing liabilities (105,597) 8,448 - (6,912) -
(3,295) - 2,696 -
Net increase / (decrease) 2,377 (18,755) (1,945) 15,346
Carrying -10% +10%
amount Profit Equity Profit Equity
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2020
Derivative financial instruments (7,361) - (19,160) - 15,676
asset / (liability)
Financial assets
Cash and cash equivalents 231,885 15,964 - (13,062) -
Trade and other receivables 64,680 (5,063) - 4,143 -
10,901 - (8,919) -
Financial liabilities
Trade and other payables (164,263) (11,579) - 9,473 -
Interest bearing liabilities (241,270) 19,302 - (15,792) -
7,723 - (6,319) -
Net increase / (decrease) 18,624 (19,160) (15,238) 15,676
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
41
4.3 Equity
Accounting policies
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised through equity following the approval by the Company’s directors.
4.3.1 Contributed equity - ordinary shares
2021 2020
NZ$’000 NZ$’000
Ordinary shares fully paid
626,380 626,380
Opening balance
626,380 251,113
Shares issued under Executive and Senior Management
Long-Term Incentive Plan
- 1,666
Shares issued under share entitlement offers and share
placement
- 340,646
Shares issued as consideration on a business combination
(note 5.1)
- 32,955
Closing balance
626,380 626,380
Number of issued shares
2021 2020
’000 ’000
Opening balance 709,001 226,189
Shares issued under Executive and Senior Management
Long-Term Incentive Plan
- 927
Shares issued under share entitlement offers and share
placement
- 470,612
Shares issued as consideration on a business combination
(note 5.1)
- 11,273
Closing balance
709,001 709,001
As at 31 July 2021 there were 709,001,384 (2020: 709,001,384) ordinary issued shares in Kathmandu Holdings Limited
and these are classified as equity.
No shares (2020: 926,996) were issued under the ‘Executive and Senior Management Long Term Incentive Plan 24
November 2010’ during the year.
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 note 6.3 for Employee share-based remuneration plans.
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 note 4.2. The amounts are recognised in
profit or loss when the associated hedged transaction affects profit or loss.
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 2021 are
presented in the consolidated statement of changes in equity.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
42
Foreign currency translation reserve
The foreign currency translation reserve 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
2021 2020
NZ$’000 NZ$’000
Cash flow hedging reserve
Opening balance (5,141) 4,118
Revaluation - gross 5,685 (3,799)
Deferred taxation on revaluation 2.3 (5,126) 3,903
Transfer to hedged asset 5,923 (9,255)
Transfer to net profit - gross - (108)
Closing balance
1,341
(5,141)
Foreign currency translation reserve
Opening balance (12,018) (12,272)
Currency translation differences - gross (17,444) 254
Currency translation differences - taxation 2.3 - -
Closing balance
(29,462)
(12,018)
Share-based payments reserve
Opening balance 608 1,983
Current year amortisation 1,798 378
Deferred taxation on share options 2.3 289 (87)
Transfer to share capital on vesting of shares to
employees
- (1,666)
Share options / performance rights lapsed (58) -
Closing balance
2,637 608
Other reserves
Opening balance (61) -
Current year expense recognised in other
comprehensive income
14 (61)
Deferred taxation on other comprehensive income 2.3 - -
Closing balance
(47) (61)
Total reserves
(25,531) (16,612)
4.3.3 Dividends
2021 2020
NZ$’000 NZ$’000
Prior year final dividend paid
- 27,209
Current year interim dividend paid
14,180 -
Dividends paid 14,180 27,209
Dividends paid represent NZ$0.02 per share (2020: NZ $0.12).
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
43
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.
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 – FINANCIAL STATEMENTS 2021
44
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, manufacturer, wholesaler, 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 Group anchored by two iconic Australian brands and provides the opportunity for
Kathmandu to considerably diversify its geographic footprint, channels to market and seasonality profile.
The acquisition accounting fair value adjustments were on a provisional basis in the Group’s 31 July 2020 consolidated
financial statements. The acquisition accounting adjustments have now been finalised and updated to reflect
independent valuations performed on the net assets recognised on acquisition.
As a result, the following adjustments have been recognised in the finalised purchase price allocation; an increase in
other current assets of $2,803,000, a decrease in property, plant, and equipment of $2,253,000, an increase in the right
of use asset and lease liability of $1,161,000, an increase in trade and other payables of $6,158,000 and a
corresponding increase in goodwill $5,608,000. Finally, in preparing the financial statements for the year ended 31 July
2021 the Group has identified an error in the interim financial statements which has been corrected in these financial
statements. The nature of the error related to an overstatement of deferred tax by $454,000, understatement of current
tax by $2,208,000 and an understatement of goodwill by $1,754,000. The statement if comprehensive income and cash
flows remain unchanged.
The comparatives presented in these financial statements reflect these changes and the resultant cumulative impact as
at 31 July 2020 is $11,000.
Final Purchase Price Allocation
NZ$’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
Other current assets 2,803
Non-current assets
Other receivables 4,496
Property, plant and equipment 35,276
Right-of-use assets 118,457
Brand 169,687
Customer relationships 39,697
Other intangibles 3,800
Keeping it simple ...
This section provides information about the entities that make up the Kathmandu Holdings Limited
Group and how they affect the financial performance and position of the Group.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
45
Current liabilities
Trade and other payables (84,164)
Current tax liability (2,224)
Current lease liabilities (33,788)
Non-current liabilities
Non-current trade and other payables (7,571)
Non-current lease liabilities (85,937)
Interest bearing liabilities (115,366)
Deferred tax (55,000)
Less Non-controlling interest acquired
(3,335)
Net assets acquired 231,215
Goodwill on acquisition 91,637
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
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
46
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. All subsidiaries in the Group have a balance date of 31 July.
The following entities comprise the significant trading and holding companies of the Group:
Companies Parties to Deed of Country of Parent % holding
Cross Guarantee incorporation 2021 2020
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% 100%
Rip Curl Group Pty Ltd
✔
Australia 100% 100%
Rip Curl International Pty Ltd
✔
Australia 100% 100%
PT Jarosite
Indonesia 100% 100%
Rip Curl Pty Ltd
✔
Australia 100% 100%
Onsmooth Thai Co Ltd
Thailand 100% 100%
Rip Curl Investments Pty Ltd
Australia 100% 100%
Blue Surf Pty Ltd
Australia 100% 100%
RC Surf Pty Ltd
Australia 100% 100%
Rip Curl Airport & Tourist Stores Pty Ltd
Australia 100% 100%
JRRC Rundle Mall Pty Ltd
Australia 100% 100%
Rip Curl (Thailand) Ltd
Thailand 50% 50%
RC Airports Pty Ltd
Australia 100% 100%
Ozmosis Pty Ltd
✔
Australia 100% 100%
RC Chermside Pty Ltd
Australia 100% 100%
Bondi Rip Pty Ltd
Australia 100% 100%
Rip Curl Japan
Japan 100% 100%
Curl Retail No 1. Pty Ltd
Australia 100% 100%
RC Surf Sydney Pty Ltd
Australia 100% 100%
RC Surf South Pty Ltd
Australia 100% 100%
RC Surf NZ Limited (50% share acquired 1 April 2021) New Zealand 100% 50%
Rip Curl Finance Pty Ltd
✔
Australia 100% 100%
Rip Curl Europe S.A.S
France 100% 100%
Rip Curl Spain S.A.U
Spain 100% 100%
Rip Curl Suisse S.A.R.L
Switzerland 100% 100%
Surf Odyssey S.A.R.L (70% share sold in July 2020) France 0% 0%
Rip Surf LDA Portugal 100% 100%
Rip Curl UK Ltd United Kingdom 100% 100%
Rip Curl Germany GMBH Germany 100% 100%
Rip Curl Italy SRL (liquidated) Italy 0% 100%
Rip Curl Nordic AB Sweden 100% 100%
Rip Curl Inc United States of America 100% 100%
Ultra Manufacturing Inc (liquidated) Mexico 0% 100%
Rip Curl Canada Inc Canada 100% 100%
Rip Curl Brazil LTDA Brazil 100% 100%
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
47
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 2021, are set out as follows:
Consolidated Statement of Comprehensive Income and Retained Earnings
for the year ended 31 July 2021
2021 2020
NZ$’000 NZ$’000
Sales
492,039 457,884
Expenses
(439,194) (425,850)
Finance costs - net
(13,601) (16,249)
Profit before income tax
39,244 15,785
Income tax expense
(13,077) (7,903)
Profit after income tax
26,167 7,882
Other comprehensive income (2,245) 1,786
Total comprehensive income for the year
23,922 9,668
Opening retained earnings (60,753) (34,571)
Profit for the year after income tax 26,167 7,882
Dividends paid (14,180) (27,209)
Share options / performance rights lapsed 58 -
Adoption of NZ IFRS 16 - (6,855)
Closing retained earnings
(48,708) (60,753)
Consolidated Balance Sheet
as at 31 July 2021
2021 2020
NZ$’000 NZ$’000
ASSETS
Current assets
Cash and cash equivalents 100,627 204,918
Trade and other receivables 14,524 23,748
Inventories 115,886 106,825
Derivative financial instruments 4,044 4
Current tax asset 116 3,490
Other current assets 546 922
Total current assets
235,743 339,907
Non-current assets
Trade and other receivables 61,711 78,460
Investments 348,611 347,481
Property, plant and equipment 43,230 50,747
Intangible assets 460,819 474,495
Right-of-use assets 133,901 156,855
Total non-current assets
1,048,272 1,108,038
Total assets
1,284,015 1,447,945
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
48
LIABILITIES
Current liabilities
Trade and other payables 73,797 80,400
Derivative financial instruments 534 5,364
Current tax liabilities 9,037 10,036
Current lease liabilities 53,388 56,583
Total current liabilities
136,756 152,383
Non-current liabilities
Non-current trade and other payables 7,635 7,726
Interest bearing liabilities 105,597 237,069
Loans with related parties 289,129 295,614
Deferred tax 65,874 65,303
Non-current lease liabilities 106,239 128,893
Total non-current liabilities
574,474 734,605
Total liabilities
711,230 886,988
Net assets 572,785 560,957
EQUITY
Contributed equity - ordinary shares 626,380 626,380
Reserves (4,887) (4,670)
Retained earnings (48,708) (60,753)
Total equity 572,785 560,957
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
49
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
2021 2020
NZ$’000 NZ$’000
Salaries
3,930 3,147
Other short-term employee benefits
452 55
Post-employment benefits
75 58
Share-based payments expense
(196) 378
4,261 3,638
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. At each balance sheet date, the Company revises its estimates
of the number of shares expected to be distributed. It recognises the impact of the revision of original estimates, if any, in
the consolidated statement of comprehensive income, and a corresponding adjustment to equity over the remaining
vesting period.
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 – FINANCIAL STATEMENTS 2021
50
Executive Directors and Senior Managers
Performance rights granted to Executive Directors and Senior Managers are summarised below:
Opening
balance
Granted
during the
year
Vested
during the
year
Lapsed
during the
year
Closing
balance
Grant date
22 Dec 2020 - 1,351,890 - - 1,351,890
9 Jul 2020 597,731 - - (276,372) 321,359
20 Dec 2018 261,388 - - (204,739) 56,649
20 Dec 2017 374,437 - - (374,437) -
1,233,556 1,351,890 - (855,548) 1,729,898
The performance rights granted on 22 December 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 Tranche EPS
weighting
TSR
weighting
22 Dec 2020 Tranche 1 50% 50%
9 Jul 2020 Tranche 1 0% 100%
20 Dec 2018 Tranche 1 50% 50%
20 Dec 2017 Tranche 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 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 2021 2020
Tranche 1 36 months to 1
December 2023
36 months to 1
December 2022
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:
2021 2020
Fair value of TSR rights $124,408 $119,546
Current price at grant date $1.26 $1.14
Risk free interest rate 0.28% 0.34%
Expected life (years) 3 3
Expected share volatility 73.0% 69.5%
The estimated fair value for each tranche of rights issued is amortised over the vesting period from the grant date.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
51
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
2021 2020
Tranche 1 FY23 EPS relative to
FY20 EPS
Not applicable
The percentage of the December 2020 EPS growth related rights scales according to the compound average annual
EPS growth over three years. Each year’s target is set annually, and an average is taken over the three years to
determine overall achievement. The EPS growth targets for financial year ended 31 July 2021 are as follows:
EPS growth 2020 % of
rights vesting
< 124% 0%
>= 124%, < 146% 50%
>= 146%, < 168% 60%
>= 168%, < 190% 70%
>= 190%, < 212% 80%
>= 212%, < 233% 90%
>= 233% 100%
The fair values 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:
Opening
balance
Granted
during the
year
Vested
during the
year
Lapsed
during the
year
Closing
balance
Grant date
22 Dec 2020 - 3,531,015 -
(64,327)
3,466,688
20 Dec 2019 654,826 - - (654,826) -
654,826 3,531,015 - (719,153) 3,466,688
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:
2021 2020
Grant date 22 Dec 2020 20 Dec 2019
Performance period (year ending) 31 Jul 2021 31 Jul 2020
Vesting date - other Key Management Personnel and Wider
Leadership Management
31 Jul 2022 31 Jul 2021
The fair values of the rights were assessed as the Kathmandu Holdings Limited share price at the grant date less the
present value of the dividends forecast to be paid prior to the vesting date.
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
52
The non-market performance hurdles set for the year ending 31 July 2021 were met and accordingly $1,994,000 of
expense was recognised in the consolidated statement of comprehensive income.
Expenses arising from equity settled share-based payments transactions
2021 2020
NZ$’000 NZ$’000
Executive Director and Senior Managers
(196) 378
Key Management Personnel and Wider Leadership
Management
1,994 -
1,798 378
6.4 Contingent liabilities
The Group is subject to litigation incidental to its business, none of which is expected to be material. No provision has
been made in the Group’s consolidated interim financial statements in relation to any current litigation and the Directors
believe that such litigation will not have a material effect on the Group’s consolidated interim financial position, results of
operations or cash flows. There are $558,000 of contingent liabilities as at 31 July 2021 (2020: nil).
6.5 Contingent assets
There are no contingent assets as at 31 July 2021 (2020: nil).
6.6 Events occurring after balance sheet date
There are no events after balance sheet date which materially affect the information within the consolidated financial
statements.
6.7 Supplementary information
Directors’ fees
2021 2020
NZ$’000 NZ$’000
Directors’ fees 790 779
Directors’ fees for the Company were paid to the following:
• David Kirk (Chairman)
• John Harvey
• Philip Bowman
• Brent Scrimshaw
• Andrea Martens
KATHMANDU HOLDINGS LIMITED – FINANCIAL STATEMENTS 2021
53
Audit fees
During the year, the following fees were paid or payable for services provided by the auditor of the Company, its related
practices and other network audit firms:
2021 2020
NZ$’000 NZ$’000
Audit services - PwC
Group audit - PwC New Zealand 407 434
Acquired balance sheet - PwC New Zealand - 85
UK statutory audit - PwC UK - 20
Half year review - PwC New Zealand 75 115
482 654
Audit services - other audit firms 174 138
Non-audit services - PwC
Taxation services - PwC France & PwC UK 46 118
Revenue certificates - PwC New Zealand 6 11
Banking compliance certificates – PwC New Zealand 3 3
55 132
6.8 New accounting standards and interpretations
New standards and interpretations first applied in the period
There are no new accounting standards or interpretations first applied in the period.
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, PO Box 13244, Christchurch 8141, New Zealand
T: +64 3 374 3000, pwc.co.nz
Independent auditor’s report
To the shareholders of Kathmandu Holdings Limited
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 2021, 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).
What we have audited
The Group's consolidated financial statements comprise:
● the consolidated balance sheet as at 31 July 2021;
● 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 significant accounting policies
and other explanatory information.
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.
Independence
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
the 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
Impairment testing over indefinite life
intangibles, including the impact of
COVID-19
The risk that the Group’s indefinite life
assets of $626.5 million 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 ongoing impact of
COVID-19 on 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 2021 using discounted
cash flow valuations on a fair value less
cost of disposal (FVLCOD) basis.
For all CGUs management performed their
own calculation of the WACC as well as
the discounted cash flows computation and
related sensitivity analysis.
Based on the calculations performed for
each CGU, the Group concluded that there
was no impairment of goodwill and brand
as at 31 July 2021.
The key assumptions used in the
impairment testing have been disclosed in
note 3.3.
Our audit procedures in assessing the indefinite life
intangible assets cover all brands and goodwill. For
each CGU we:
●obtained an understanding of the processes and
controls in place for assessing the recoverability of
indefinite life intangibles and confirmed their
implementation at year end;
●reviewed management’s assessment of CGUs and
compared this to our knowledge and understanding
of the Group’s operations and reporting structure;
●obtained the calculations performed by
management and understood the assumptions
used in light of the current and forecast outlook for
the business;
●used our auditor’s expert to independently review
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 analysis to test the historical
accuracy of management forecasts and performed
sensitivity testing for each CGU; and
●audited the disclosures in the financial statements
to ensure they are compliant with the requirements
of the relevant accounting standards.
PwC 56
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 2021, the Group held inventories
of $216.5 million. Inventory valuation and
existence was an audit focus area due to
the number of locations that the inventory
was held at, the judgement applied in the
valuation of inventory on hand, and the
continued uncertainty presented by
COVID-19 related travel restrictions.
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 typically 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.
There are a number of judgements applied
in assessing the level of provision for
inventory obsolescence and inventory
shrinkage losses. Management provide for
shrinkage based on historical inventory
counts and stocktake shrinkage trends.
In responding to the risk over inventory existence and
valuation at year end, we:
●observed the stocktake process at selected store
locations 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 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;
●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 any 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
any impact of COVID-19.
PwC 57
Our audit approach
Overview
Overall group materiality: $3.6 million, which represents
approximately 5% of profit before tax.
We chose profit before tax as the benchmark because, in our view, it
is the benchmark against which the performance of the Group is
most commonly measured by users, and is a generally accepted
benchmark.
Full scope audits were performed for 8 of 24 entities in the Group
based on their financial or operational significance; and
Specified audit procedures and analytical review procedures were
performed on the remaining entities.
As reported above, we have two key audit matters, being:
●Impairment testing over indefinite life intangibles, including the
impact of COVID-19
●Inventory and existence and valuation including the impact of
COVID-19
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the consolidated financial statements. In particular, we considered where
management made subjective judgements; for example, in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. 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.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the consolidated financial statements.
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.
How we tailored our group audit scope
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.
PwC 58
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the Annual report, but does not include the consolidated financial statements
and our auditor's report thereon. The Annual report is expected to be made available to us after the
date of this auditor's report.
Our opinion on the consolidated financial statements does not cover the other information and we will
not express any form of audit opinion or assurance conclusion thereon.
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.
When we read the other information not yet received, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the Directors and use our
professional judgement to determine the appropriate action to take.
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/assurance-standards/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
PwC 59
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
21 September 2021
Christchurch
---
KathmanduHoldings
FY21 Results
Presentation
21 September 2021
Owner of leading global outdoor active brands
1.Kantar Brand Health Report Mar-Apr 2021
2.Net Promoter Scores: Kathmandu 76, Rip Curl Australia 74
•Rip Curl: top 3 global
surf brand
•Kathmandu: leading
outdoor brand in
Australasia
1
•Oboz: fast growing
North American hike
footwear brand
Iconic brands
•NPS
2
above 70
•2.1m active Summit
Club members
•44k Rip Curl Search
GPS watch users
Loyal, active
consumers
•Early B-Corp adopter
•Largest syndicated
Sustainability linked
loan in New Zealand
Leader in ESG
•R&D driving innovation
•Sustainable materials
•Designed for purpose
Technical
products
•Geography
•Multi-channel
•Seasonality
•Products
Diversified
2| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Africa/ Middle
East
RC
Licensed stores23
South AmericaRC
Owned stores4
Licensed stores93
Online sites1
Wholesale doors913
Europe RCKMDObozTotal
Owned stores19--19
Licensed stores14--14
Online sites11-2
Wholesale doors2,037281142,179
North AmericaRCKMDObozTotal
Owned stores31--31
Licensed stores13--13
Online sites1113
Wholesale doors1,353-1,8633,216
AU & NZRCKMDTotal
Owned stores106160266
Licensed stores18-18
Online sites224
Wholesale doors1,088-1,088
AsiaRCObozTotal
Licensed stores46-46
JV stores20-20
Online sites1-1
Wholesale doors567152719
Brands with global reach
3| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Total GroupRCKMDObozTotal
Owned stores160160-320
Licensed stores207--207
JV stores20--20
Online sites64111
Wholesale doors5,958282,1298,115
RC Rip Curl |KMD Kathmandu |Oboz Oboz
KEY
Financial highlights
4| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
1.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
$66.3m
Underlying NPAT
1
Statutory NPAT $63.4m
$93.3m
Underlying operating
cash flow
1
$922.8m
Sales +15.1%
+40 bps
Gross margin
improvement
$113.3m
Underlying EBITDA
1
+35.9%
$37.0m
Net cash balance
Bank facility c.$300m
Operational highlights
5| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Online sales growth
12.5% of DTC sales
We’re Out
There
Successful brand
relaunch May 21
Online Store
Successful launch
Apr 21
Direct to consumer
(DTC) same store
sales growth
up 4 points in FY21
169,000 responses
Wholesale
Double digit growth in
forward wholesale order
book to record levels
76 NPS
19.2%
31.3%
Sustainability highlights
6| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
For more information, refer to the Kathmandu Holdings Limited Sustainability Report to be released in October 2021
1.Committed to largest syndicated sustainability linked loan at time of signing
2.Certified carbon zero under the Toitu CarbonZero programme for our operation footprint. Scope 1,2 and mandatory scope 3 emissions
3.Leather sourced from Leather Working Group tanneries; anot-for-profit organisationresponsible for a leading environmental certification for the leather manufacturing industry
1
2
3
7| KATHMANDU HOLDINGS 0 RESULTS PRESENTATION
7| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Group
Strategy
Expand global footprint
and invest in world class
brand and customer
experiences
Build Global
Brands
Demonstrate leadership
across environmental,
social and governance to
drive long-term value for
our shareholders
Lead in
ESG
Invest in Group digital
platforms to deliver a
truly world-class, unified
commerce experience
Elevate
Digital
Leverage
Operational
Excellence
Deliver operational
excellence to all brands
across shared group
support functions
Refreshed group strategy
Maintain balance sheet flexibility to manage through COVID uncertainties, allowing capital return options and capacity for future M&A
8| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
9| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Build global brands
1.Kantar Brand Health Report Mar-Apr 2021
•Grow product range into adjacent
categories
•Build on the successful launch of an
online store
•Grow European market
•Grow to a USD$100m business in the
medium term
•Leverage Summit Club, with 2.1m loyal
and engaged members
•Launch in mainland Europe and Canada
in FY22, significant market opportunity
•Grow product offering, with strong new
product pipeline, and enhanced summer
product range
•Goal to be No.1 surf brand in Australasia,
and top 3 in North America / Europe
•Grow North America, potential to double
business across own store, online and
wholesale channels
•Launch global loyalty programme
•Grow online and expand marketplaces
ICONIC, INSPIRATIONAL, AND
AUTHENTIC GLOBAL SURF BRAND
LEADING OUTDOOR BRAND IN
AUSTRALASIA
1
ESTABLISHED AND DISTINCTIVE
AMERICAN FOOTWEAR BRAND
Online platform
enhancement
Omni-channel
foundations
Personalisation
Data insights
and analysis
Loyalty
management
10| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Elevate digital
Significant investments being made to elevate our digital capabilities
Group target: increase online to 25% of DTC sales in the medium-term through:
Online platform enhancement
•New Group platform launched
•Platform being rolled out across brands
Omni-channel foundations
•POS upgrade to support unified commerce
•Click collect, endless aisle and fulfilment from store
Loyalty management
•Club Rip Curl launch
•Summit Club relaunch
Data insights and analysis
•Data algorithms for pricing and promotions –initial Kathmandu phase launched
•Customer data platform –single view of customer interaction across brands
Personalisation
•New personalisation engine for tailored customer content and offers
•Integration with loyalty platform
11| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Leverage operational excellence
Optimisation of supply
chain logistics, alignment
of factories, and
consolidating freight
vendors to deliver gross
margin benefit
Supply Chain
Leverage scale across
the Group to efficiently
manage fixed cost base,
including infrastructure
for new markets
Property
Collaboration in technical
development, fabrics,
and seasonal expertise
Product
innovation
Core systems
investment
Shared platforms to
integrate ERP business
processes, loyalty
management, and unlock
growth potential across
loyalty and online
Group target: improve underlying EBITDA margin to 15% of sales
Accelerate cross-brand revenue growth opportunities
The Group has invested over $20m to date on core platforms to support the growth of its brands, with over $10m to be investedinFY22
Lead in ESG
12| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
We aspire to be a leader in ESG, to drive long-term value for our shareholders
We are striving to extend Kathmandu’s B-Corp accreditation across all our brands
Transparency and responsibility will continue to underpin everything we do by managing our environmental and social impact responsibly and ethically
Our people, our communitiesCircular business modelsScience based climate action
•People-centred culture and workplaces
•Wellbeing of workers in our supply chain
•Engage, inspire and protect our wider
community
•Set group-level Science Based Targets
aligned with the Paris Climate
Agreement
•Design for circularity throughout our value
chain
•Target a zero waste supply chain
•For more information, refer to the Kathmandu Holdings Limited Sustainability Report to be released in October 2021
13| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Group
Financials
1.Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results. In FY20, $16.2m was incurred in relation to the acquisition and integration of Rip Curl, and restructuring
support office roles. These one-off costs have been excluded from Underlying results. Refer to Appendix 1 for a reconciliation of Statutory to Underlying results
2.FY21 NZD/AUD conversion rate 0.931 (FY20: 0.939), FY21 NZD/GBP conversion rate 0.515 (FY20: 0.504), FY21 NZD/USD conversion rate0.699 (FY20 0.636)
3.The Group has now finalised the Rip Curl purchase price allocation. As a result, the income statement, balance sheet, and cash flow for prior periods have been restated
•FY21 result includes a full twelve months of Rip Curl, compared to
FY20 which includes nine months of Rip Curl post-acquisition
•Exceptional sales performance from both Rip Curl and Oboz
•Focused management of operating expenses include the benefit
of rent abatements agreed with landlords ($7.3m), as well as
restructuring and synergy savings delivering c. $15m annualised
cost reduction
•Lease renewals completed for 14% of the retail store portfolio in
FY21, delivering $1.4m annualised savings
•COVID related write down of Indonesia receivables provision
$2.7m
•Net wage subsidies across Australia and New Zealand $16.6m
•FY21 includes $4.0m subsidy from North American PPP loans
granted in FY20
•Depreciation includes $5.0m notional amortisation of Rip Curl
customer relationships (FY20 $3.7m)
•Interest costs include $2.1m one-off bank facility underwriting
costs ($1.5m net of tax), excluded from underlying results
•Future tax benefit of $7.0m realised from recognition of historical
US tax losses
14| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Group result underpinned by strong Rip Curl performance
GROUPStatutoryUnderlying
NZD $m
*2
FY21FY21FY20Var %
SALES922.8922.8801.515.1%
GROSS PROFIT541.6541.6467.016.0%
Gross margin58.7%58.7%58.3%
OPERATING EXPENSES(333.6)(428.3)(383.7)11.6%
% of Sales36.2%46.4%47.9%
EBITDA208.0113.383.435.9%
EBITDA margin %22.5%12.3%10.4%
EBIT92.283.856.249.3%
EBIT margin %10.0%9.1%7.0%
NPAT63.466.331.5110.2%
Group sales growth
15| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
440.0
492.9
538.9
801.5
922.8
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
FY17FY18
incl. 4 months
of Oboz
FY19FY20
incl. 9 months
of Rip Curl
FY21
incl. 12 months
of Rip Curl
Total Group Reported Sales ($m)
DTC
Retail
stores
58%
DTC
Online
10%
Wholesale
31%
Other
1%
BY
CHANNEL
AU &
NZ
65%
North
America
21%
Europe
10%
Rest of World
4%
BY
REGION
Rip Curl
53%
Kathmandu
38%
Oboz
9%
BY
BRAND
Group Sales Mix FY21
41.0
56.7
65.1
106.4
90.5
5.8%
7.6%
8.8%
15.7%
14.4%
FY17FY18FY19FY20FY21
Online Sales ($m)
Online sales
% of DTC sales
+21.9% CAGR
(FY17 -FY21)
Online
Sales
(NZD $m)
YOY
Var %
% of DTC
FY21
33.531.3%12.5%
56.8-29.8%15.8%
1.DTC sales include all sales from Rip Curl and Kathmandu retail stores, online sites and marketplaces
2.All years include a full twelve months of both Kathmandu and Rip Curl online and total DTC sales for
comparability over time
Strong balance sheet with $37m net cash
•Significant funding headroom, with total bank facility of c. $300m
•Long-term leverage ratio target c.0.5x Net Debt / EBITDA
•Inventory well managed in COVID demand environment
•The strong balance sheet position allows the Group to:
•ride through any short-term challenges
•support growth investment
•pursue future M&A
•consider capital management options
1.Key ratios calculated using 12 month underlying P&L measures, including a full 12 months of Rip Curl P&L results last year
2.Net Debt / EBITDA
3.Net Debt / (Net Debt + Equity). At July 21, the net cash position means this measure is not meaningful (“n.m.”)
4.COGS / Average Inventories YOY
5.EBIT/(Net Debt + Equity)
6.(EBITDA + Rent)/(Rent + Net Finance Costs excl. FX)
16| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
(31.4)
(79.2)
(19.3)
(9.4)
(10.1)
37.0
-100
-80
-60
-40
-20
0
20
40
Jul18Jan 19Jul 19Jan 20Jul 20Jan 21Jul 21
Net Cash / (Net Debt)
NZD $m
Key Balance Sheet items ($m) and ratios
*1
Jul 21Jul 20
Net cash / (Net interest bearing liabilities)37.0 (9.4)
Leverage Ratio
*2
-0.3x0.1x
Net Debt to Equity
*3
n.m.1.2%
Inventories216.5 228.8
Trade and other receivables68.9 73.7
Trade and other payables(149.2) (149.9)
Net working capital136.2 152.6
Net work ing capital % of sales14.8%16.5%
Stock Turns
*4
1.71x1.68x
Equity818.9 779.2
ROIC
*5
10.7%8.2%
Fixed Charge Cover
*6
2.0x1.7x
(273.2)
Resilient cash flows and resumed dividends
17| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
8.1
8.1
9.0
0.0
14.2
18.1
24.8
27.2
0.0
21.3
26.2
32.9
36.2
35.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
FY17FY18FY19FY20FY21
Dividends declared (NZ $m)
InterimFinal
•FY22 capex c. $35m
•NZ 3.0 cents per share final dividend
•Dividend will not be imputed for New Zealand shareholders
•Dividend will be fully franked for Australian shareholders
•Record date 30 November 2021
•Payment date 15 December 2021
Cash Flow (NZD $m) FY21FY20
NPAT63.48.9
Change in working capital18.157.8
Non-cash items11.826.4
Adjusted operating cash flow
*1
93.393.1
Key Line Items:
Net interest paid (including facility fees)
*2
(5.7)(12.7)
Net income taxes paid(23.9)(15.5)
Capital expenditure(35.6)(19.8)
Dividends paid(14.2)(27.2)
Interim4.04.04.0-2.0
Final9.011.012.0-3.0
Total13.015.016.0-5.0
Dividends declared (NZ cents per share)
1.Adjusted for impacts of adopting IFRS 16
2.FY20 includes debt underwrite costs of $6.3m in relation to the Rip Curl acquisition
18| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Rip Curl result underpinned by growth in surfing
•Outperforming acquisition expectations
•Total sales 10.5% above the prior comparable twelve months, with
sales continuing above pre-COVID levels in the key regions of
North America and Europe during the Northern Hemisphere
summer season
•Direct to consumer same store sales growth (incl. online) +19.2%
1
•Online sales $33.5m, representing 12.5% of DTC sales. Online
sales 4 year CAGR 44.4%
•Wholesale sales 9.6% above pcpdespite a COVID disrupted sell-
in period for 1H FY21
•Wholesale forward order books significantly above pre-COVID
levels
•Sales back to pre-COVID levels, even though stores in airports,
Australia, Hawaii, Asia and parts of Europe, have continued to be
affected in FY21
•Gross margin improvement due to increased direct to consumer
mix
19| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Rip Curl FY21 Sales Mix
1.Same store sales are measured at constant currency. Same store sales are for the 53 full
weeks ended 1 August 2021
Rip Curl owned for a full twelve months in FY21 compared to nine months in FY20
Pre IFRS 16
RIP CURL FY21FY20
NZD $m
Aug 20 to
Jul 21
Nov 19 to
Jul 20
Var %
SALES490.4315.755.3%
GROSS PROFIT288.9178.561.9%
Gross margin58.9%56.5%
OPERATING EXPENSES(222.6)(166.8)33.5%
% of Sales45.4%52.8%
EBITDA (underlying)66.311.7468.1%
EBITDA margin %13.5%3.7%
EBIT (underlying)56.94.21252.4%
EBIT margin %11.6%1.3%
Retail
stores
49%
Online
7%
Wholesale
43%
Other
1%
BY
CHANNEL
AU &
NZ
48%
North
America
25%
Europe
18%
Rest of World
9%
BY
REGION
Continued innovation excellence on land and in water
Mirage Ultimate
The most unique and innovative swimwear in
surf, tested by the world’s best.
Premium Italian Lycra offers support and
flexibility with water repellent Glide neoprene
panels providing comfort, compression and
wind chill reduction
Icons of Surf
A selection of the most iconic logos in the industry
These products blend timeless design and bold
graphics to create one of the strongest volume
driving collections in surf
Surf Series
Technical surf inspired products
From a surf trip down the coast, to a day on the
beach, these products are engineered with wet dry
surf functionality, hydrophobic materials and
signed off with the most respected core graphic -
the wetsuit logo
20| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Focus on leadership and technology
The all new E7 Heatseeker
Combining the best of Rip Curl’s stretch and warmth technologies, this is the single
best wetsuit Rip Curl has ever produced. The new “Imagined By The Best”
campaign starring 3 X World Champion Mick Fanning and his Australian protégé
Molly Picklum is set to launch the E7 Heatseeker across all digital, outdoor, retail
and broadcast channels in the Northern Hemisphere this September
21| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
The Rip Curl World Surf League (WSL) Finals
For the first time in history, the WSL world title was decided in a one-day
competition, with the top 5 men and women going head to head at
Trestles, in surfing’s “Superbowl” sponsorship. It was broadcast live,
replayed On Demand and showcased on linear TV networks like
Foxsports and ABC in the USA. The Rip Curl WSL Finals included both
Olympic Gold Medallists, and 7 out of 10 in the field competed at the
Tokyo Games, taking the mainstream media momentum into the event
22| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Kathmandu result reflects COVID impacts
23| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Kathmandu Sales Mix FY21
1.Same store sales are measured at constant currency. Same store sales are for the 53 full weeks ended 1 August 2021
KATHMANDUPre IFRS 16
NZD $mFY21FY20Var %
SALES354.0426.4(17.0%)
GROSS PROFIT224.7265.1(15.2%)
Gross margin63.5%62.2%
OPERATING EXPENSES(183.9)(198.2)(7.2%)
% of Sales52.0%46.5%
EBITDA (underlying)40.866.9(38.9%)
EBITDA margin %11.5%15.7%
EBIT (underlying)26.351.4(48.8%)
EBIT margin %7.4%12.0%
Retail
stores
84%
Online
16%
BY
CHANNEL
•Total sales by market (at constant exchange rates):
•Australia -18.0%, with 4,700 lost trading days in FY21 vs 4,400 in FY20
•New Zealand -14.1%, with 400 lost trading days in FY21 vs 2,450 in FY20
•Online sales $56.8m, representing 15.8% of DTC sales. Online sales 4 year
CAGR 14.3%
•Same store sales (incl. online) -18.2%
1
full year (2H -3.1%)
•Strong winter launch momentum in conjunction with brand relaunch prior to
Australian lockdowns resulted in 2H insulation growth vs FY19 despite store
closures
•Reduced demand for travel related products
•2H gross margin improvement of 240 bps (2.4% of sales)
•Operating expenses include the benefits from restructuring, rent abatements,
and net government wage assistance
•Inventory well controlled, ending the year in line with expectations
Building a strong, meaningful, differentiated brand
24| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Strong brand fundamentals:
Number 1 outdoor brand in Australasia
1
:
•Kathmandu dominates the category in both AU and NZ; leading the market for
top of mind awareness consideration, preference and equity
•97% brand awareness in Australia and 100% in New Zealand
1.Kantar Brand Health Report Mar-Apr 2021
Setting the foundations for brand growth:
•Integrated brand campaign launched May 2021 generating 30 million views via
paid and owned channels
•Website relaunched Aug 2021 improved user experience, speed and world
class design
•Summit Club relaunch planned 1H FY22
Activeand engaged customer base:
•NPS 76 across all customer groups, 4 points above last year, 169k responses
•2.1 million active Summit Club members. 4-year CAGR 6.8%
•Over 70% of Kathmandu sales from Summit Club members
•Summit Club members spend c. 30% more per transaction than non-members
Kathmandu x Mulga x Beach Retreat
•Nobody conjures the playful vibe of summer
more than Sydney-based artist Mulga
•His whimsical characters and cheerful colours
remind us to not take ourselves so seriously
when we’re ‘out there’
SUN-Stopper. Stop the sun, not the fun
•A brand-new critical franchise in the Kathmandu line
•Chemical-free UPF 50+ sun protection in fun colours, easy
wearing, versatile silhouettes. For her, for him, for kids
•Serious protection for not-so-serious fun!
25| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Year-round product desirability and innovation
•Establish year-round relevance and excitement
•Become in summer, what we are in winter
•Activate on the 8 months of ‘transitional’ weather opportunity
•Reduce reliance on travel activity
•Reach a younger, more diverse, more cosmopolitan consumer
•Generate desirability, specialness, and customer full-price urgency
•Use International aspirations to drive growth in ANZ, and vice versa
26| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Oboz result underpinned by strong hiking participation
27| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
OBOZPre IFRS 16
NZD $m
FY21
Reported
FY21
Constant
Currency
FY20
Reported
Var %
Constant
Currency
SALES78.486.159.444.9%
GROSS PROFIT28.030.723.530.7%
Gross margin35.7%35.7%39.6%
OPERATING EXPENSES(16.2)(17.8)(15.9)11.7%
% of Sales20.6%20.6%26.8%
EBITDA (underlying)11.812.97.670.3%
EBITDA margin %15.0%15.0%12.8%
EBIT (underlying)11.412.67.372.6%
EBIT margin %14.6%14.6%12.3%
54.0
70.1
59.4
86.1
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
FY18FY19FY20FY21
•Outperforming acquisition expectations
•Oboz sales above last year with a strong recovery from
COVID closures. Also driven by successful product innovation
strategy and diversification of customer base
•Gross margin impacted by significant one-off air freight costs
(c. $1.5m) to support key customer deliveries of winter
seasonal styles in 1H FY21, plus increased ocean freight
costs due to supply chain congestion in 2H FY21
•Gross margin to normalise to historical levels when global
supply chain congestion and related shipping rates come back
into line
•Forward order book at highest level ever, allowing investment
to support future growth
1.Constant currency uses NZD/USD FY20 conversion rate 0.636 to convert Oboz USD results to NZD (FY21 actual conversion rate 0.699)
Sales
NZD $m constant currency
1
+16.8% CAGR (FY18 –FY21)
New online store and broader product appeal
Product highlights:
•Sypes Franchise delivers: Highlight of Spring/Summer 2021
line is strong across North America
•Mountain Town Insulated: New Fall 2021 styles Andesite and
Sphinx experience breakthrough pre-season sales
•Sell-in SS22 sets records: Led by Sawtooth X and new
Whakatā franchise, Spring/Summer debuts with record orders
•Big Sky II brings Montana roots to marketfor Fall 2021
launch
Brand and marketing highlights:
•20% growth in social media audience in 2H FY21
•Oboz Trails Experience launches in 7 markets + CDT Project
gets Oboz Team on the trail this summer and fall
•First ever collab with Black Folks Camp Too launching in Sept
Strong product launches and robust brand activations
lead footwear brand to new heights
28| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
29| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Outlook
COVID continues to impact the global business
30| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
•Lost trading days due to COVID lockdown restrictions FY21 c. 13,000 vs FY20 c. 15,000
•Widespread lockdowns in NSW, VIC, ACT and NZ to date will impact the first half result
•Trade in airport locations and emerging markets of Brazil, Indonesia and Thailand expected to remain significantly impacted
by COVID
•Northern Hemisphere retail stores managing with staff constraints and sporadic closures as positive team cases arise
•COVID restrictions impacting supply chain:
•Reduced factory capacity due to enforced closures stretching lead times
•Freight congestion leading to delivery delays
•Increased freight costs
•The Group continues to proactively manage the impacts of COVID daily
•Our key priority is the health and safety of our staff, customers and suppliers
31| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Key FY22 priorities
•Increase investment in marketing
and sustainability initiatives to
drive brand awareness
•Launch Kathmandu in mainland
Europe and Canada
•Launch innovative products to
capitalise on growing
participation in the outdoors,
beach and surfing
Build Global Brands
•Extend Kathmandu B Corp
accreditation to all Group
brands
•Set science based targets
•Complete and implement
Rip Curl brand ESG strategy
Lead in ESG
•Launch Rip Curl loyalty
programme in ANZ
•Re-launch Kathmandu Summit
Club
•Implement unified commerce
capabilities throughout ANZ
•European online re-platform
•Increased use of data insights
and analysis and personalisation
•Expand marketplace presence
Elevate Digital
•Complete Group executive
structure to build out group
capabilities
•Align ANZ technical platforms
between brands c. $10m core
systems capital expenditure in
FY22
•Implement clear margin and
expense targets to drive
towards 15% EBITDA margins
Leverage Operational
Excellence
Trading update and outlook
32| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Trading update
•Same store sales (incl. online) for the six full weeks to 12 September 2021 were significantly impacted by ongoing Australasian COVID lockdowns:
•Rip Curl -12.8% overall, +3.6% adjusted for COVID lockdowns
1
•Kathmandu -19.9% overall, +18.3% adjusted for COVID lockdowns
1
•Online sales growth to date +25.9% (Rip Curl +16.8%, Kathmandu +33.7%)
•Kathmandu sales strong in regions less affected by COVID restrictions
•COVID restrictions impacting suppliers in Asia. The Group is actively managing supply chain to minimise impact where possible
•Impact of freight costs on gross margin expected to be offset by improved foreign exchange rates
•First half FY22 profit expected to be below first half FY21 due to ongoing COVID impacts
•Both Rip Curl and Oboz wholesale order books are significantly above pre-COVID levels
Outlook
•All brands are well positioned to capitalise on growing participation in outdoor, beach and surfing activities
•Capitalise on opportunities from the global COVID vaccination rollout:
•Easing COVID restrictions in key growth markets: Europe (Rip Curl and Kathmandu) and North America (Rip Curl and Oboz)
•International travel restrictions expected to ease as FY22 progresses, benefiting the Kathmandu brand and emerging markets for Rip Curl
1.Adjusted same store sales removes stores that were not able to open for a comparable week in either year because of COVID lockdowns
33| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Questions
Appendix 1: Statutory to underlying profit & loss
34| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
1.Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results
2.FY21 interest costs include $2.1m one-off bank facility underwriting costs ($1.5m net of tax)
3.In FY20, $11.6m was incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group structure. Further one-off costs of $4.6m were incurred in FY20 in relation to restructuring support office roles
GROUP
FY21FY20
NZD $mIFRS 16TransactionOtherIFRS 16TransactionOther
Statutory
Leases
*1
Costs
*2
one-offsUnderlying
Statutory
Leases
*1
Costs
*3
one-offs
*3
Underlying
Sales922.8 - - - 922.8 801.5 - - - 801.5
Gross profit541.6 - - - 541.6 467.0 - - - 467.0
Gross margin58.7%58.7%58.3%58.3%
Operating expenses(333.6) (94.7) - - (428.3) (317.6) (82.3) 11.6 4.6 (383.7)
% of sales36.2%46.4%39.6%47.9%
EBITDA208.0 (94.7) - - 113.3 149.5 (82.3) 11.6 4.6 83.4
EBITDA margin %22.5%12.3%18.7%10.4%
EBIT92.2 (8.4) - - 83.8 45.9 (5.9) 11.6 4.6 56.2
EBIT margin %10.0%9.1%5.7%7.0%
NPAT63.4 1.3 1.5 - 66.3 8.9 2.6 16.9 3.2 31.5
Appendix 2: Segment note
35| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
1.Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results
2.In FY20, $11.6m was incurred in relation to the acquisition and integration of Rip Curl, including establishment of a new Group structure. Further one-off costs of $4.6m were incurred in FY20 in relation to restructuring support office roles
SALESEBIT
FY21 (NZD $'000)OutdoorSurfCorporateTotalFY21 (NZD $'000)OutdoorSurfCorporateTotal
SALES per segment note432,354 490,438 - 922,792 EBIT per segment note43,897 59,122 (10,835) 92,184
IFRS 16 Leases Adjustment(6,169) (2,195) - (8,364)
Transaction Costs & Abnormals- - - -
SALES (underlying)432,354 490,438 - 922,792 EBIT (underlying)37,728 56,927 (10,835) 83,820
FY20 (NZD $'000)OutdoorSurfCorporateTotalFY20 (NZD $'000)OutdoorSurfCorporateTotal
SALES per segment note485,785 315,739 - 801,524 EBIT per segment note64,901 (593) (18,435) 45,873
IFRS 16 Leases Adjustment(7,787) 1,871 - (5,916)
Transaction Costs & Abnormals1,546 2,933 11,722 16,200
SALES (underlying)485,785 315,739 - 801,524 EBIT (underlying)58,660 4,210 (6,713) 56,157
Appendix 3: Segment summary
1.Refer to Appendix 2 for a reconciliation of Statutory to underlying segment Sales andEBIT
•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 for a full 12 months of Rip Curl ownership include director and listing costs, plus amortisation of Rip Curl customer relationships
36| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Gross Profit $ Mix FY21
NZD $mFY21FY20Var %
Kathmandu sales354.0 426.4
(17.0%)
Oboz sales78.4 59.4
31.9%
Outdoor segment sales432.4 485.8 (11.0%)
Surf segment sales490.4 315.7
Total segment sales922.8801.515.1%
Kathmandu underlying EBIT26.3 51.4
(48.8%)
Oboz underlying EBIT11.4 7.3
57.0%
Outdoor segment underlying EBIT37.7 58.7 (35.7%)
Surf segment underlying EBIT56.9 4.2
Total segment underlying EBIT94.762.950.6%
Corporate costs(10.8) (6.7)
Group underlying EBIT83.856.249.3%
Retail
stores
62%
Online
11%
Wholesale
24%
Other
3%
BY
CHANNEL
AU & NZ
67%
North
America
18%
Europe
8%
Rest of World
7%
BY
REGION
Rip Curl
53%
Kathmandu
42%
Oboz
5%
BY
BRAND
Appendix 4: Balance sheet
37| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
Balance Sheet (NZD $m)Jul 21Jul 20
Inventories216.5 228.8
Property, plant and equipment79.3 88.5
Right of Use Asset (IFRS 16)242.7 258.7
Intangible assets688.6 689.9
Other assets95.5 89.6
Total assets (excl. cash)1,322.6 1,355.5
Net interest bearing liabilities and cash37.0 (9.4)
Lease Liability (IFRS 16)(279.3) (298.6)
Other non-current liabilities(101.0) (100.8)
Current liabilities(160.4) (167.5)
Total liabilities (net of cash)(503.7) (576.3)
Net assets818.9 779.2
Important notice and disclosure
This presentation prepared by Kathmandu Holdings Limited (the “Company” or the “Group”) (ASX/NZX:KMD) provides additional comment on the financial
statements of the Company, and accompanying information released to the market. As such, it should be read in conjunction with the explanations and viewsin 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.
This presentation includes certain “forward-looking statements” about the Company and the environment in which the Company operates. Forward-looking
information is inherently uncertain and subject to contingencies, known and unknown risks and uncertainties and other factors, many of which are outside of the
Company’s control, and may involve significant elements of subjective judgement and assumptions as to future events which mayormay not be correct. A number of
important factors could cause actual results or performance to differ materially from the forward-looking statements. No assurance can be given that actual outcomes
or performance will not materially differ from the forward-looking statements. The forward-looking statements are based on information available to the Company as
at the date of this presentation.
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.Some of the information in this presentation is based on unaudited financial data which may be subject to change. Informationin this presentation is rounded
to the nearest hundred thousand dollars, whereas the financial statements of the Company are rounded to the nearest thousand dollars. Rounding differences may
arise in totals, both dollars and percentages.
All intellectual property, proprietary and other rights and interests in this presentation are owned by the Company.
All currency amounts in this presentation are in NZD unless stated otherwise.
38| KATHMANDU HOLDINGS FY21 RESULTS PRESENTATION
---
Distribution Notice
Kathmandu Holdings Ltd
kathmanduholdings.com
1
Please note: all cash amounts in this form should be provided to 8 decimal places
Section 1: Issuer information
Name of issuer Kathmandu Holdings Limited
Financial product name/description Ordinary Shares
NZX ticker code KMD
ISIN (If unknown, check on NZX website) NZKMDE0001S3
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies
Record date 30
th
November 2021
Ex-Date (one business day before the
Record Date)
29
th
November 2021
Payment date (and allotment date for
DRP)
15
th
December 2021
Total monies associated with the
distribution
1
$21,270,041.52
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.03000000
Gross taxable amount
3
$0.03000000
Total cash distribution
4
$0.03000000
Excluded amount (applicable to listed
PIEs)
N/A
Supplementary distribution amount $0.00000000
Section 3: Imputation credits and Resident Withholding Tax
5
Is the distribution imputed Fully imputed
Partial imputation
No imputation
If fully or partially imputed, please state
imputation rate as % applied
6
N/A
Imputation tax credits per financial
product
N/A
Resident Withholding Tax per financial
product
$0.00990000
1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Gross taxable amount” is the gross distribution minus any excluded income.
4
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
5
The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is
fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute
advice as to whether or not RWT needs to be withheld.
6
Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.
Distribution Notice
Kathmandu Holdings Ltd
kathmanduholdings.com
2
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
Start date and end date for determining
market price for DRP
Date strike price to be announced (if not
available at this time)
Specify source of financial products to be
issued under DRP programme (new issue
or to be bought on market)
DRP strike price per financial product
Last date to submit a participation notice
for this distribution in accordance with
DRP participation terms
Section 5: Authority for this announcement
Name of person
authorised to make this
announcement
Frances Blundell
Contact person for this announcement Frances Blundell
Contact phone number +64 3 421 5397
Contact email address companysecretary@kathmandu.co.nz
Date of release through MAP
Tuesday, 21
st
September 2021
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.