1H FY19
Results
Presentation
March 2019
2
1H FY19 results summary
Trading» Group Sales up 13.3% to NZD $232.0m
» Gross margin improvement in AU +60 bps and NZ +50 bps, North America -40 bps
» Operating expenses reduced by 1.8% as a percentage of sales
Earnings» Normalised EBIT up 10.0% to $19.8m; reported EBIT $20.9m
» Normalised NPAT up 7.3% to $13.2m; reported NPAT $14.0m
Balance Sheet
Cash Flow
» Inventory $130m includes $18m to support International, plus early 2H FY19 deliveries
» Operating cashflow -$16.2m
» Interim dividend NZ 4 cents per share
North
America
» North America 1H FY19 sales $28.7m and EBIT $3.7m
» Oboz pro forma sales growth 1H FY19 +38.6% YOY, and EBIT growth +77.1% YOY
» Acquisition earn-out target achieved
3
1. Strategy update
2. Result overview
3. Key line items
4. Segment results
5. Balance Sheet, Cash Flow, Dividend
6. Summary
7. Questions
A. Appendices
Contents
4
1. Strategy update
5
Strategy
Transformation from a leading Australasian retailer to a
brand-led global multi-channel business
Focus on:
» Superior customer experience
» Authentic and inspirational brand
» Distinctive product
Transform through:
» Accelerate growth opportunities
» Diversify brand, channel, product
» Operating efficiencies
6
Superior customer experience
Update:
» Over two million active Summit Club members, contributing
over 75% of direct to consumer sales. This provides future
opportunities to engage with our loyal customer base
» Online re-platform launched Feb 19, enabling future
enhancement of the customer experience, and development of
fulfilment options
» Customer experience in our Australasian store network
continues to be improved through refurbishments, relocations
and new stores as opportunities arise
Customer-centric in everything we do:» Channel agnostic strategy
» Create a seamless customer multi-channel experience
» Elevate visual merchandising and product presentation
» Enhance the customer service experience and staff
product knowledge
7
Authentic and inspirational Brand
Authentic and inspirational:» New Zealand heritage with deep roots
» Elevate brand distinctiveness through product
design and innovation
» Focus on our expertise in adventure travel
» Inspire our customers and engage with our
Summit Club members, leveraging social media,
digital, and exclusive events
Update:
» Brand association improving as a result of the “World Ready”
brand campaign
» 34% increase in Summit Club participation in volunteering, run
clubs, adventure sponsorship, and international treks
» Social media reach increased by 33%, with an increasingly
global audience
» Successful sponsorship of the Coast to Coast, one of New
Zealand’s most iconic multisport events
8
Distinctive Product
» Recycled materials: REPREVETM helps us divert plastic bottles from going into landfill by upcycling
them into fabric. This year we are on track to recycle at least 7.5 million plastic bottles across many
equipment and apparel products
» Stockton jacket: made of three layers of recycled materials. Includes our very first bio-based waterproof
membrane partly derived from corn. This is a sustainable alternative to traditional waterproof membranes
which are typically made using fossil fuels
We design original, sustainable, engineered and adaptive products:
Oboz
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Oboz growth strategy:» Grow North America customer base in a controlled way
» Expand into adjacent footwear categories
» Improve Oboz representation within the Kathmandu
Australasia retail footprint
» Grow International business by leveraging Oboz and
Kathmandu customer relationships
Update:
» Fastest growing major hike footwear brand at REI, North
America’s largest outdoor retailer
» Fastest growing footwear brand in Kathmandu stores
» Amy Beck appointed as President of Oboz / Kathmandu
North America
» Oboz founder John Connelly to continue as brand
ambassador
International
10
International growth:» Build a sustainable business that delivers profitable growth
» Commitment to capital light model
» Controlled distribution through wholesale and online
» Develop brand equity through authentic outdoor channels
» Focus on long term partnerships
» Leverage our New Zealand heritage, expertise in adventure
travel and sustainability focus
Update:
» For northern hemisphere Autumn/Winter 2019, initial orders
received from several new European and North American
outdoor retailers, including trials with REI (North America) and
Blacks (UK)
» We delivered increased sell through at GO Outdoors (UK) in
Autumn/Winter 2018. They are now rationalising their SKU
range and suppliers. KMD products will only be available online
from Autumn/Winter 2019 for GO Outdoors
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2. Result overview
Result overview
NZD $m*1 1H FY19 1H FY18 Var $ Var %
SALES 232.0 204.8 27.2 13.3%
GROSS PROFIT
Gross margin
141.9
61.2%
129.7
63.3%
12.2 9.4%
OPERATING EXPENSES
% of Sales
(114.3)
49.3%
(104.6)
51.1%
9.7 9.3%
EBITDA NORMALISED*2
EBITDA margin %
27.6
11.9%
25.1
12.3%
2.5 10.0%
EBIT NORMALISED*3
EBIT margin %
19.8
8.5%
18.0
8.8%
1.8 10.0%
NPAT NORMALISED 13.2 12.3 0.9 7.3%
NPAT REPORTED 14.0 12.3 1.7 13.8%
1. 1H FY19 NZD/AUD conversion rate 0.938 (1H FY18: 0.911), 1H FY19 NZD/GBP conversion rate 0.525 (1H FY18: 0.532), 1H FY19 NZD/USD conversion rate 0.663
2. Normalised results exclude $1.1m abnormal income from a tax refund relating to the GST treatment of reward vouchers ($0.8m after tax). Refer to Appendix 1 for a
reconciliation to statutory financial statements
3. EBIT YOY exchange rate translation impact in 1H FY19: -$0.4m (1H FY18 +$0.7m)
4. Rounding differences may arise in totals, both $ and %
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» North America sales contribution $28.7m
» Excluding North America, sales increased
+1.3% at constant exchange rates
» North America contribution to Group EBIT
$3.7m
3. Key line items
Sales
» Sales growth by geography (at constant exch. rates):
» AU +2.7%
» NZ -1.9%
» Rest of World -1.9%
» North America (Oboz pro forma) +38.6%
» Sales growth by channel (at constant exch. rates):
» Retail stores +1.1%
» Online +2.4%
» Wholesale pro forma +38.2%
» Online sales 9.5% of direct to consumer sales over the
last 12 months
179.4196.0 196.3 204.8
232.0
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
Group Sales (NZD $m)
4yr CAGR 6.6%
104.9 114.2 120.8 125.3 128.7
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
Australia (AUD $m)
4yr CAGR 5.2%
65.2 68.2 68.7 64.3 63.1
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
New Zealand (NZD $m)
4yr CAGR -0.8%
1. Country sales totals exclude inter-company sales
14
SALES: +13.3% to $232.0m
Same Store Sales result
0.9%
4.8%4.3%3.1%
5.0%
1.2%1.9%
-6.3%
1.2%
-2.2%
Australia New Zealand
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
0.6%
2.7%
5.8%
3.8%
0.6%
3.4%2.7%
-0.8%-2.0%
0.0%
GROUP - Actual Rates GROUP - Constant Rates
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
» Flat at constant exchange rates
» Stores -0.2%
» Online +2.7%
» -2.0% actual exchange rates
1. Measurement period 1H FY19: 26 weeks ended 27 January 2019 compared to 26 weeks ended 28 January 2018
2. Same store sales measurement includes Online and all stores from their 53rd week of trading
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SAME STORE SALES: flat at constant rates
Gross Margin
61.4%
56.0%
64.6%
60.2%63.6%
58.2%
65.4%
59.7%
66.0%
60.2%
39.5%
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
AU NZ NORTH AMERICA
» Retail gross margin long-term target range 61% to 63% remains unchanged
» 1H FY19 retail gross margin 64.2%. Gross margin improvement from less
promotional discounting leading to a higher average selling price
» 2H FY19 promotional plan and margin pressure expected to deliver lower
gross margin YOY in AU and NZ
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59.3%
62.8%61.6%
63.3%
61.2%
GROUP
Australia64%
Rest of World1%
North America
8%
New Zealand
27%
1H FY19 SHARE OF BUSINESS (GROSS PROFIT $)
Cost of doing business
NZD $m 1H FY19 1H FY18 Var $ Var %
Rent
% of Sales
34.4
14.8%
33.2
16.2%
1.2 3.6%
Other operating expenses
% of Sales
79.9
34.5%
71.4
34.9%
8.5 11.9%
Total operating expenses*1
% of Sales
114.3
49.3%
104.6
51.1%
9.7 9.3%
Depreciation
% of Sales
7.8
3.4%
7.1
3.5%
0.7 9.9%
Cost of doing business
% of Sales
122.1
52.7%
111.7
54.5%
10.4 9.3%
» Channel diversification into wholesale delivering
overall operating cost structure improvement
» Incremental operating expenses from Oboz $7.3m
including $0.6m Kathmandu North America setup
investment
» Rent increases continue to be challenged with
landlords
» Retail labour wage rate increases being balanced
with sales growth expectations
» Online fulfilment labour realising the efficiency
benefits of infrastructure investment
1. 1H FY19 reported total operating expenses would be $2.1m higher if reported at constant exchange rates
2. Rounding differences may arise in totals, both $ and %
17
OPERATING EXPENSES: +9.3% to $114.3m
Earnings summary
1. Normalised results exclude $1.1m abnormal income from a tax refund relating to the GST treatment of reward vouchers. Refer to Appendix 1 for a
reconciliation to statutory financial statements
2. EBIT YOY exchange rate translation impact in 1H FY19: -0.4m (1H FY18 +$0.7m)
18
0.6
15.1 14.818.0 19.8
1HFY15
1HFY16
1HFY17
1HFY18
1HFY19
EBIT*1,2 $19.8m
+10.0%
6.8
21.9 21.525.1
27.6
1HFY15
1HFY16
1HFY17
1HFY18
1HFY19
EBITDA*1 $27.6m
+10.0%
-1.8
9.4 10.012.3 13.2
1HFY15
1HFY16
1HFY17
1HFY18
1HFY19
NPAT*1 $13.2m
+7.3%
4.8% 5.1% 6.0% 5.7%
NPAT %
0.3% 7.7% 7.5% 8.8% 8.5%
EBIT %EBITDA %
3.8% 11.2% 11.0% 12.3% 11.9%
4. Segment results
Australia
» Gross margin increased 60bps / 0.6% of sales
» Total operating expenses (incl. depreciation):
» 1H FY19 60.0% of sales
» 1H FY18 59.5% of sales
» 3 stores opened
» 2 stores closed
» 5 stores refurbished
AUD $m 1H FY19 1H FY18 Var %
Sales 128.7 125.3 2.7%
Same store sales growth 1.2% 1.9%
EBIT (trading result)*2 7.7 7.4 4.1%
EBIT margin % 6.0% 5.9%
Store count 119 116
-0.8
4.6 4.1
7.4 7.7
EBIT (trading result) AUD $m
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 220
SALES: +2.7% to $128.7m
New Zealand
» Gross margin increased 50bps / 0.5% of sales
» Total operating expenses (incl. depreciation):
» 1H FY19 45.6% of sales
» 1H FY18 42.0% of sales
» 2 stores refurbished
NZD $m 1H FY19 1H FY18 Var %
Sales 63.1 64.3 -1.9%
Same store sales growth -2.2% -6.3%
EBIT (trading result)*2 9.2 11.4 -19.3%
EBIT margin % 14.6% 17.7%
Store count 48 47
5.5
12.1 12.311.4
9.2
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
EBIT (trading result) NZD $m
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SALES: -1.9% to $63.1m
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
North America
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1. Oboz intercompany sales $0.6m eliminated. Includes US website sales $0.1m
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
3. Rounding differences may arise in totals, both $ and %
» Oboz 1H FY19 pro forma sales growth 38.6%, EBIT growth 77.1%
» EBITDA earn-out target USD $7.1m to December 2018 achieved
» Oboz expected to be neutral to Group earnings per share (EPS) in FY19,
and EPS accretive in FY20
» North America contribution to 1H FY19 Group EBIT $3.7m made up of:
» Oboz pro forma EBIT $4.7m, less
» amortisation of customer relationship recognised on acquisition -$0.4m
» Kathmandu Wholesale North America set-up investment -$0.6m
NORTH AMERICA (NZD $m) 1H FY19
Sales*1 28.7
EBIT (trading result)*2 3.7
EBIT margin % 12.9%
OBOZ (NZD $m) pro forma 1H FY19 1H FY18 Var %
Sales 29.2 21.0 38.6%
Gross margin % 39.3% 39.7%
EBIT 4.7 2.7 77.1%
EBIT margin % 16.2% 12.7%
Rest of World
» Direct to consumer sales $1.8m, c. 60% of total
sales
» Wholesale $1.2m, c. 40% of total sales
» Gross margin improvement in both wholesale
and direct to consumer channels
» Total operating expenses (incl. depreciation):
» 1H FY19 49.9% of sales
» 1H FY18 54.7% of sales
» Reduced promotional and labour costs
NZD $m 1H FY19 1H FY18 Var %
Sales 3.0 3.0 -0.4%
EBIT (trading result)*2 0.1 (0.2)
EBIT margin % 4.9% -6.9%
Store count 1 1
-2.8
-0.4 -0.2 -0.2
0.1
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
EBIT (trading result) NZD $m
23
SALES: NZD $3.0m in line with last year
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
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5. Balance Sheet, Cash Flow, Dividend
Balance Sheet
Balance Sheet (NZD $m) 1H FY19 1H FY18
Inventories 130.1 84.2
Property, plant and equipment 60.9 64.2
Intangible assets 384.6 283.1
Other assets 37.7 6.2
Total assets (excl. cash) 613.3 437.7
Net interest bearing liabilities and cash 79.2 17.0
Other non-current liabilities 0.0 0.1
Current liabilities 132.5 93.0
Total liabilities (net of cash) 211.7 110.1
Net assets 401.6 327.6
Key Ratios 1H FY19 1H FY18
Stock Turns*1 1.84x 1.87x
Net Debt to Equity*2 16.5% 4.9%
Fixed Charge Cover*3 2.28x 2.09x
ROIC*4 16.1% 17.5%
» Inventory increase to support Kathmandu International,
inclusion of Oboz, and early deliveries of core styles for
Autumn and Winter
» Clearance stock in line with last year
» Oboz acquisition during FY18 added c. $60m to net debt
1. COGS (rolling 12 months) / Average Inventories YOY
2. Net Debt / (Net Debt + Equity)
3. (EBITDA + Rent)/(Rent+ Net Finance Costs excl. FX)
4. EBIT/(Net Debt + Equity)
5. Rounding differences may arise in totals, both $ and %
25
1.58x 1.57x 1.62x
1.87x 1.84x
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
Stock Turns
Cash Flow
Cash Flow (NZD $m) 1H FY19 1H FY18
NPAT 14.0 12.3
Change in working capital (39.8) (3.5)
Change in non-cash items 9.6 8.1
Operating cash flow (16.2) 16.9
Key line items:
Net interest paid (including facility fees) (1.4) (0.8)
Income taxes paid (15.3) (9.8)
Capital expenditure (7.0) (8.7)
Dividends paid (24.8) (18.2)
Increase/(Decrease) in borrowings 44.6 9.3
Operating cash flow -$16.2m:
» Change in working capital includes the increase in
inventory, and timing of supplier and tax payments
Capital expenditure $7.0m:
» Stores $4.6m
» 3 new stores
» 7 refurbishments
» Systems and Infrastructure $2.0m
» Online platform upgrade
» North America $0.4m
. Rounding differences may arise in totals, both $ and %
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Dividend
» NZ 4.0 cents per share interim dividend (1H FY18 NZ 4.0 cps)
» Dividend will not be imputed for New Zealand shareholders
» Dividend will not be franked for Australian shareholders
» Record date 7 June 2019
» Payment date 21 June 2019
» Final dividend is expected to be fully franked and fully imputed
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3 3 4 4 4
5
8
9118
11
13
15
FY15 FY16 FY17 FY18 FY19
Interim Final
Dividends (NZ cents per share)
Foreign currency
» 1H FY19 USD hedging rates c. 1% above 1H FY18
» 2H FY19 USD hedging rates level with 2H FY18
» 1H FY20 USD hedging rates c. 5% below 1H FY19
» Forward hedging position:
» Longest dated hedges March 2020
» Rolling cover applied 12 months forward
» No hedging NZD/AUD » 1H FY17 -15% » 2H FY17 -4%
FORWARD HEDGING POSITION FY18 FY19 FY20
AUD/USD Effective Rate 0.759 0.764 0.726
NZD/USD Effective Rate 0.709 0.707 0.678
28
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6. Summary
Summary
30
» By fuelling growth and diversifying our group, the Oboz acquisition has advanced our transformation from a
leading Australasian retailer to a brand-led global multi-channel business
» We have made significant progress to move Kathmandu from being a retailer to being an authentic brand that
designs original, sustainable, engineered and adaptive products
» Notwithstanding the challenging retail environment we are focussed on sales and profit growth in our core
Australasian markets through:
» engaging with and inspiring our customers
» strengthening the Kathmandu brand credentials, emphasising our expertise in travel and adventure and
our New Zealand heritage
» distinctive product
» continued cost control
» In Kathmandu and Oboz, we have two great brands with significant international growth potential
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7. Questions
Appendix 1 – Reconciliation of reported results
32
1. Per the Kathmandu Holdings Limited Interim Report 2019
2. Abnormals include $1.1m tax refund for GST treatment of reward vouchers ($0.8m after tax)
NZD $m1H FY19
Reported*1 Abnormals*2 1H FY19
Normalised
SALES 232.0 232.0
GROSS PROFIT
Gross margin
141.9
61.2%
141.9
61.2%
OTHER INCOME 1.1 (1.1) -
OPERATING EXPENSES
% of Sales
(114.3)
49.3%
(114.3)
49.3%
EBITDA
EBITDA margin %
28.7
12.4%
(1.1) 27.6
11.9%
EBIT*3
EBIT margin %
20.9
9.0%
(1.1) 19.8
8.5%
NPAT 14.0 (0.8) 13.2
Appendix 2 – Reconciliation of segment EBIT trading results
33
1H FY18 ($’000) AustraliaNew
Zealand
North
America
Rest of
WorldOther Total
EBIT per financial statements (NZD) 8,418 11,118 - (207) (1,325) 18,004
Internal charges at full year allocation basis (773) 773 - - - -
Internal charges not trading related*2 (NZD) 520 (520) - - - -
EBIT (trading result) (NZD) 8,165 11,371 - (207) (1,325) 18,004
EBIT (trading result) (local currency) 7,438
1H FY19 ($’000) AustraliaNew
Zealand
North
America
Rest of
WorldOther Total
EBIT per financial statements (NZD) 7,649 10,933 3,699 144 (1,501) 20,924
Abnormals*1 (NZD) (1,115) - - - (1,115)
Internal charges not trading related*2 (NZD) 584 (584) - - - -
EBIT (trading result) (NZD) 8,233 9,234 3,699 144 (1,501) 19,809
EBIT (trading result) (local currency) 7,723
1. Abnormals include $1.1m tax refund for GST treatment of reward vouchers
2. Internal charges not trading related include arm’s length margins charged for internal services