ANNUAL REPORT 2013
contents
Chairman’s Report
Highlights For The Year
Chief Executive’s Report
Board
Management
Directors’ Report
Corporate Governance
Financial Statements
Statutory Information
Share Registry
KATHMANDU ANNUAL REPORT 2013 1
2
4
6
12
13
15
25
29
75
80
NOTICE OF ANNUAL GENERAL MEETING
11:00am Wednesday
20 November 2013
Stamford Plaza Hotel
22-26 Albert St
Auckland 1010
New Zealand
2 ANNUAL REPORT 2013 KATHMANDU
chairman’s report
John Harvey
Chairman
Kathmandu Holdings Ltd achieved record sales and earnings in FY2013. Net
profit increased by 26.6% to $44.2m, following strong same store sales
increases in both Australia and New Zealand in tandem with the sales uplift
achieved from the 17 permanent new stores opened during the year. Profit
growth over the four years since our IPO in 2009 has been founded upon
consistently strong yearly sales increases, as we continue to maintain our
leadership of the outdoor, travel and adventure categories in Australia and
New Zealand. Our growth strategies, underpinned by a substantial capital
investment programme, are expected to continue to deliver increasing profits
in future years, given reasonable market conditions for outdoor, travel and
adventure retailers.
MARKET OVERVIEW
The challenging economic environment prevalent since the
start of the global financial crisis in 2008 has not shown any
substantial signs of easing to date. Nevertheless, despite this
environment, demand in the outdoor, travel and adventure
categories has proven more resilient than in other consumer
discretionary spend categories. In this period, Kathmandu’s
success, the substantial growth in the number of competitor
outlets, and the increase of over 1.5 million / 25% in short term
overseas trips by Australians, are just a few of the indicators
of this resilience. Only recently have signs of a slowdown in
Australia associated with the resources sector, suggested
there may be a pullback in consumer spending growth rates
that could impact our categories. Your Board continues to
have confidence in the resilience of our markets to support
our investment in the Kathmandu business and our core
growth strategies.
FINANCIAL RESULTS
The key financial highlights for the year ended 31 July 2013
were:
Growth in sales by 10.6% to $384.0m;
Gross profit margin of 63.0% (FY2012: 63.2%);
Increase in earnings before interest and tax of
11.2% from NZ$57.0m to NZ$63.4m
Earnings per share of 22.1 cents per share, up 27.0%.
We achieved solid same store sales growth in both Australia
(6.7%) and New Zealand (4.4%). Gross profit margin was
slightly down compared to FY2012 but comfortably within the
Company’s long term targets. Operating costs reduced as a
% of sales, and the primary reasons for this were carefully
managed advertising spend, and efficient management of head
office and distribution costs enabled by continued investment
in improved technology. Overall EBITDA and EBIT margins
increased slightly.
GROWTH STRATEGIES
Kathmandu continues to develop and deliver the following key
growth strategies:
New store rollout in Australia and New Zealand;
Optimise the existing store network;
Enhance product offering;
Grow our Summit Club Loyalty Programme; and
Develop and grow online and digital channel capabilities.
We have recently achieved the milestone of 1 million active
Summit Club customers. The size and effectiveness of
our customer loyalty programme is a cornerstone of our
Australasian business. The real value attached to membership
will result in increasing sales in the future. This will be
enhanced further by the successful execution of our other
growth strategies, as every year we offer new and innovative
products to our customers in an expanding network of quality
stores and enhanced online capabilities. Our growth strategies
are also supported by the commitment we have made to
sustainability which we recognise has particular significance to
many of our customers, as well as being directly relevant to the
future for the wider outdoor, travel and adventure sector.
Our store network is one of a number of available channels to
market. Developing the capability of our online platform, and
continuously improving our business systems, is critical to our
capability to pursue the wider international sales opportunities
available to Kathmandu. The starting point for this is our re-
organised UK business, where we are focused on online selling
and the introduction of Kathmandu product to the market in
other web based channels rather than further store rollout. Our
experience in the UK and the performance of that business unit
will be an important benchmark for your Board in the pathway
to further expansion of the Kathmandu brand globally.
CAPITAL INVESTMENT
We are continuing to budget for a substantial capital
expenditure programme with a focus on delivering our store
network plan, including a planned programme for store
refurbishment and replenishment, along with investment in
systems improvements. Over the past year we completed a
record number of new and re-located store projects, and we
have invested in the capability to continue this pace of store
network expansion as we work towards a target of at least
170 stores in Australia and New Zealand. Additionally, we have
a substantial investment continuing in systems development,
in particular on the retail platform, to integrate with compatible
applications such as our online engine. Our planning and
prioritisation for systems upgrades will place us in a strong
position to pursue strategic expansion opportunities for the
Kathmandu brand.
DIVIDEND
The Directors have declared an increase in the final dividend
to 9 cents per share, which with the 3 cents interim dividend
makes a total payout for the year of 12 cents per share, a 20%
increase on the previous year. The final dividend will be fully
imputed for New Zealand shareholders, and fully franked for
Australian shareholders.
This dividend reflects the growth in earnings per share, and
represents a payout ratio of over 54%, which is in the middle
of the payout range previously advised by the Board.
PEOPLE
Whilst it is pleasing to be writing this report after such
a successful year, it is also very sad to recognise that it
coincided with the tragic loss of our founding Chairman,
Perth, Australia
KATHMANDU ANNUAL REPORT 2013 3
James Strong AO. James died in March 2013 and the
recognition he received from the business, sporting, arts
and the wider community reflected his position as an
outstanding Australasian of his generation. Kathmandu was
very privileged to have had his leadership and guidance
during our formative years as a listed company. In May, we
were very pleased to announce the James Strong Memorial
Project in his honour, which will provide additional education
funding to benefit children in the Solu Khumbu, one of the
most remote parts of Nepal. This project is being initiated
in association with the Australian Himalayan Foundation, an
organisation that James and Kathmandu have worked with in
recognition of the source of our heritage as an outdoor brand.
I have had the privilege to act as Interim Chairman for the
period since James’ death, and your Board expects to be
in a position to announce the appointment of an additional
independent Director at our Annual General Meeting. The
Board again thanks Kathmandu’s Chief Executive Officer,
Peter Halkett, and his team for the results achieved by the
Company in FY2013. The Kathmandu team successfully
support and deliver the growth opportunities we target year
after year, in a working and business environment where
change is the norm rather than the exception. This reflects
their capabilities and commitment to the long term success
of our brand.
OUTLOOK
Your Board believes there are sound reasons to remain
confident about Kathmandu’s prospects for continued growth.
The New Zealand economy is in relatively good shape, and
despite the recent slow-down in the Australian economy,
we consider most Australian consumers spending money
in our category are still benefitting from a relatively strong
exchange rate and they retain reasonable confidence in
general. Economic indicators globally are more positive than
a year ago, even if that improvement is relatively small.
We believe that the Kathmandu brand has the opportunity and
genuine potential to develop a significant global presence in the
outdoor, travel and adventure market. However we are still very
clear that the short term key growth strategy remains to invest
and grow Kathmandu’s business and brand in the Australasian
market. We anticipate a solid performance again next year as
Kathmandu maintains its pre-eminent position as the brand of
choice for outdoor, travel and adventure customers in Australia
and New Zealand.
John Harvey
Chairman
4 ANNUAL REPORT 2013 KATHMANDU
4 ANNUAL REPORT 2013 KATHMANDU
highlights
for the year
SALES UP 10.6%
RECORD PROFIT AT $44.2M
STORE COUNT UP TO 136
SUMMIT CLUB MEMBERSHIP
OVER 1 MILLION
KATHMANDU ANNUAL REPORT 2013 5
KATHMANDU ANNUAL REPORT 2013 5
SALES (NZ$m)
$384.0
FY2009
FY2010
FY2011
FY2012
FY2013
EBIT (NZ$m)*
$63.4
FY2009
FY2010
FY2011
FY2012
FY2013
NPAT (NZ$m)*
$44.2
FY2009
FY2010
FY2011
FY2012
FY2013
* FY2009 as presented in the Prospectus dated 23 October 2009, and
FY2010 excluding the impact of IPO listings costs, and $0.6m of net
exchange losses on foreign currency borrowings.
$245.8$215.6$306.1$347.1$44.1$48.5$64.0$57.0$14.9$25.2$39.1$34.9 6 ANNUAL REPORT 2013 KATHMANDU
chief executive’s report
Peter Halkett
Managing Director and Chief Executive Officer
KEY HIGHLIGHTS
Sales increased 10.6% to $384.0m.
Same store sales growth of 5.6% at
constant exchange rates.
Strong gross profit margins.
Online sales grew by 55% and are
now over $15.0m per annum.
Summit club membership exceeds
1 million customers.
UK business re-organisation completed.
Australian distribution centre floor space
extended by 50%.
17 permanent new stores opened.
Record earnings result; net profit after tax
$44.2m, up 26.6%; improved EBIT margin
and earnings per share.
RESULT OVERVIEW
Kathmandu’s FY2013 sales and profit result was very pleasing,
with strong same store sales growth in both New Zealand and
Australia underpinning a substantial increase in earnings. Gross
profit margins achieved during the year were little changed
from FY2012, and the resulting increase in gross profit coupled
with improved operating expense leverage, lifted Group
earnings to record levels. This result was achieved despite
tough market conditions for discretionary retailers, and the
continuing expansion of both local and international competitors
through more store fronts and online sales channels.
The sales performance in FY2013 warrants particular
mention. It is always challenging in an economic environment
characterised by low levels of growth and consumer
confidence, to achieve the combination of acceptable same
store sales growth whilst maintaining gross profit margins. A
very small reduction in gross profit margin did occur, down
20 bps over the full year, but this was primarily a reflection of
product mix and timing. We continued to effectively maintain
Kathmandu’s retail price points and value proposition in a period
of aggressive promotional activity from our major competitors.
Kathmandu’s sales grew 19.5% in Australia and 8.6% in New
Zealand, as we improved our market penetration and brand
awareness in Australia, coupled with strong support for key
promotions in both countries from our growing Summit Club
membership base.
Our FY2013 sales included excellent results from a number
of newly opened small format stores in prime retail locations
in Australia, which immediately met or exceeded our initial
sales expectations. We opened 17 permanent new stores, and
overall we were trading in 137 locations at 31 July (including
one short term lease). Most new stores were Australian
mall stores, usually utilising our latest small format concept.
Additionally, our online sales channel continued to deliver
excellent sales growth, up 55% year-on-year. In both Australia
and New Zealand, we achieved a positive same store sales
increase from our bricks and mortar stores.
Operating expenses continued to be well controlled, and
reduced by 30 bps as a % of sales. The increasing portion
of expenses being incurred in our Australian retail stores
where operating costs are structurally highest, will continue
to counterbalance leverage obtained from the relative lower
rate of increase in the operating costs of other areas of
the business.
Kathmandu’s excellent overall performance this year reflects
the successful execution of our key growth strategies that we
have regularly communicated to our shareholders since our
IPO in 2009. Throughout this period, a key strategy has been
the enhancement of our customer loyalty programme. We now
have more than 1 million active Summit Club members, and
we plan to further enhance the benefits for members in the
future. We are confident our evolving product range and store
network, in tandem with the loyalty that our core customers
have for the Kathmandu brand, will continue to support
further growth.
BUSINESS OVERVIEW
THE KATHMANDU BUSINESS MODEL
The completion of our brand identity upgrade project is an
appropriate milestone to reflect upon the success of the
Kathmandu business model. We are first and foremost a brand,
and then a retailer. Kathmandu branded product can still only
be bought today through our wholly owned store network
and our websites. The majority of our customers are Summit
Club members rather than off the street consumers, and they
strongly support a long-established promotional model that has
three major sales events per year. This vertical business model
has been the foundation of Kathmandu’s growth in Australasia
for the past 15 years, and we have continued to improve and
adapt over this period. Our successful execution of this model,
coupled with growing brand recognition, and product loyalty
that Kathmandu commands in its key markets, has seen Group
sales increase by over $165m or 75% in the four years since
our IPO.
The same period of time has seen the spectacular growth of
the internet as a platform for social and consumer interaction.
Kathmandu, as a vertically integrated brand business with
strong margins in a growing category, is well placed to take
advantage of this opportunity, both locally and internationally.
We continue to build on our existing business, primarily through
store rollout in Australia, where we still see many opportunities
to increase Australian brand awareness and market penetration
relative to the level achieved in New Zealand. In tandem with
continuing to execute the model we know well, the online
opportunity will continue to get an increasing share of our
management attention and strategic investment.
PRODUCT RANGE AND INVENTORY
Product is a key to our success. Ensuring we are bringing to
market innovative, well designed, high quality and competitively
priced products that meet the needs of our customers is
essential to our future success. Over the last seven years we
have invested in our product team and recruited many new
skills and capabilities into the business. Capability in areas
such as design, quality and fabric R&D have all been added,
and their impact on product development will be seen in
the seasons ahead.
We intend to increase our return from each sku in our
product range, through revenue growth and reduced cost
to market ratios, relative to the absolute level of inventory
investment and the costs associated with new product
development. Assortment range planning is a key medium
term enhancement required from our systems upgrade project,
which will enable us to maximise our performance in this area.
Inventory levels were well managed throughout the year, and
the total value of inventory, $80.0m at 31 July 2013, was an
9.1% increase on the prior year. One-third of this increase was
the year-on-year change in goods in transit for the summer
season in FY2014, so after excluding this amount, the value
of stock on hand at 31 July was less than $5m higher than a
year earlier, a 4.3% reduction when measured on a per store
basis. This was an excellent outcome given the growth in
both sales and store numbers, and it was further reflected
in reduced volumes of clearance stock, especially in the
second half of the year. We do expect a slightly higher rate of
inventory growth in FY2014, as we are focused on maintaining
adequate range depth in key product groups planned to support
key promotional events across the year, as well as further
improving our seasonal range availability in regions with
major climatic variations.
KATHMANDU ANNUAL REPORT 2013 7
Pitt Street, Sydney
ONLINE AND DIGITAL
Our investment in information systems infrastructure and
software continues to be a critical part of our business
improvement strategy. During FY2013 we made the strategic
decision to follow the development path provided by Microsoft
Dynamics AX for Retail in a number of core operational areas
of the business. We have already gone live with modules
relating to Customer Relationship and Product Information
Management, and our Forecasting and Planning software will
be live early in FY2014. There is a clear pathway for Kathmandu
to substantially upgrade its core systems utilising the AX suite
of applications, and replacement of our current Point Of Sale
software during the second half of FY2014 is the next stage of
our development plan.
In FY2014 our online platform will continue to be enhanced
as we progress with building systems infrastructure capable
of supporting both our current Australasian business growth,
and the future development of new multichannel retail options.
Potential opportunities for the Kathmandu brand internationally,
outside our core markets, cannot be effectively pursued until
we have implemented a tier one software platform which
properly integrates our retail stores and websites globally.
STORE NETWORK
The makeup of Kathmandu’s store network and our strategy
for the location and sizing of new stores has continued to
evolve through our four years as a listed company, especially
in Australia which remains our key growth opportunity for
ongoing store rollout. As we previewed in last year’s annual
report, our store network plan has been further developed to
focus on small format site opportunities (stores of 350m2 or
less). In Australia, this store format has become our standard
in mall locations, aligning well with the planned growth we are
achieving from more lifestyle orientated apparel categories.
We are confident that the Kathmandu store network when
fully rolled out across New Zealand and Australia will number
at least 170 stores. All current Kathmandu stores in Australasia
make a positive contribution to group earnings.
8 ANNUAL REPORT 2013 KATHMANDU
Permanent store numbers totalled 136 as at 31 July: New
Zealand 44, Australia 87 and UK 5. Since balance date we have
closed our Westfield White City store in the UK. We continue
to trade successfully in a temporary site in the Christchurch
Re-start precinct.
The permanent new stores opened during the year were:
Australia: Carindale (Brisbane), Fountain Gate (Melbourne),
Tuggerah (NSW), Robina (QLD), Morley Galleria (Perth), Pitt
St (Sydney), Mackay (QLD), Coffs Harbour (NSW), Casuarina
(Darwin), The Glen (Melbourne), Eastgardens (Sydney),
Hobart CBD (TAS), Penrith (Sydney), Nunawading Brand Smart
(Melbourne). Moonee Ponds in Melbourne was originally
opened in FY2012 as a temporary site, but is now a
permanent store.
New Zealand: Pukekohe and Westgate (Auckland).
United Kingdom: Kensington High St (London).
We closed our Berners St (London) and Brighton stores during
the year as part of the re-organisation of our UK business
detailed later in this report.
There was an uplift of earnings from the new stores opened
in the last year, relative to the comparable group opened in
FY2012. In FY2014, we have seven new store leases currently
confirmed; five of these are expected to open by the end of
2013. This is a slightly slower rate of opening than in the first
half of FY2013, but we are confident that we will achieve our
target of 15 new stores again in FY2014.
Re-investment in our existing store portfolio will continue
to be very important with regard to sustaining strong same
store sales growth over the medium and long term. In
FY2013, we relocated our flagship store in the Perth CBD. We
also relocated our Richmond (Melbourne), and Nelson and
Invercargill stores in New Zealand to larger and more visible
premises. These relocations were all opportunities to move to
better located and larger sites appropriate for maximising sales
growth in those markets. Major refurbishments were carried
out at the Highpoint and Knox City stores in Melbourne, our
Bondi Junction store in Sydney, and our Covent Garden store in
London. Investment in projects of this type will be increasingly
important in future years as we maintain our market leadership
position.
UK BUSINESS
We undertook substantial work re-organising the UK business
and store portfolio in FY2013. Most of this work and the
associated planned capital expenditure has now been
completed. Only the refurbishment of our Spitalfields store
remained in progress, and this store re-opened in September.
The 18 month re-alignment of the UK business has involved:
In FY2012, closure of our UK regional office and warehouse
and shifting to an outsourced distribution service.
In FY2013;
• Re-aligning our London store portfolio to position
these in appropriate locations for outdoor and travel
apparel and equipment retailing. We closed our
Berners Street and White City stores, and opened a
new store in Kensington High Street. This store, along
with our Covent Garden and Spitalfield stores are all in
close proximity to major competitors in the UK market.
• Refurbishing the London stores with the new
Kathmandu branding and fixtures.
• Placing all ongoing customer services and UK
support functions in our Bristol store, which is our
only regional location following the closure of our
Brighton store.
The UK market remains challenging. It is a weakened economy
post the GFC, and daily competitive retail price points are
more critical than ever. There is relatively less affinity with the
outdoor and travel category in the UK compared to Australasia,
and a much stronger uptake of shopping online rather than in
retail stores. It is this last aspect of consumer buying behaviour
in the UK market that is our key future focus. We plan for our
reduced store network to support a more aggressive online
based selling strategy across the UK. Our future investment in
the UK is intended to grow Kathmandu brand awareness and
support year-round competitive promotional activity, in both
our own and other relevant online channels.
INFRASTRUCTURE
FY2013 was generally a year of consolidation in our office
and distribution infrastructure. We completed the planned
enlargement of our Melbourne Distribution Centre. In FY2012
we ended the previous sublet of one-third of the premises,
and in the first half of FY2013 we completely re-worked the
internal layout of the warehouse to better cater for current
and projected growth in activity levels. Apart from this
project, there was a limited requirement for expenditure
on infrastructure assets to support the store network. The
exception to this was our continuing investment in systems
improvement. We expect a similar scenario to apply in FY2014.
FINANCIAL PERFORMANCE
Group sales $384.0m increased by 10.6% over the previous
year. The increase in same store sales, by 1.8% overall and
5.6% at constant exchange rates, was a good outcome given
market conditions. Country by country change in same store
sales was as follows:
Australia 6.7%
New Zealand 4.4%
UK (6.5%).
Total gross profit increased by $22.5m (10.3%). The gross
margins achieved continue to sit comfortably within our long
term target range of 62% to 64%, and generally match the
levels achieved last year. Gross margins were up 10bps in
New Zealand and down 60 bps in Australia. As previously
noted, the relatively small gross margin variations in FY2013
compared to the prior year were primarily attributable to
the product mix sold and the timing of sales during our key
promotional periods. Weather, particularly in winter, can
influence our gross profit outcome, however in Australia
and New Zealand we assess the weather impact was
neutral overall in FY2013. Also, the hedging rates we
received on USD purchasing in FY2013 and the impact
KATHMANDU ANNUAL REPORT 2013 9
of input cost changes were not particularly significant with
regard to the year-on-year variation in gross margin.
Expenses, excluding depreciation, amortisation and financing
costs, increased by $15.0m (9.8%). This was a decrease as
a percentage of sales from 44.1% to 43.8%, but there was
a favourable movement in the NZD:AUD cross rate during
the year.
Across the year:
Property rent increased by $4.2m (10.6%) and was
unchanged as a % of sales (11.4%). When reviewed prior
to adjusting for the impact of exchange rates, rent in
Australia did increase as a % of sales by c.40bps, as we
continued our planned strategy of opening stores in higher
cost but ultimately more profitable locations.
All other operating expenses reduced by 30 bps as a %
of sales, largely as a result of operating cost efficiencies
in distribution and advertising. Excluding advertising costs,
operating expenses increased slightly as a % of sales due
to the increased weighting of our Australian retail stores.
We continued to increase necessary operating and capital
expenditure to support growth in the online sales channel,
and the uplift in expenses relating to online partially offset
the savings in other operating costs as a % of sales.
Operating expenses were similar in total dollars between the
first half and second half of FY2013. We expect our trading
pattern and resulting earnings profile for the Australasian
market between first half and second half in each financial
year to continue. Specifically, our c.40/60 split of total sales
between two half years matched with operating costs that
are incurred on close to a 50/50 basis for the same periods,
will mean Australasian earnings growth will continue to be
primarily determined by performance in the second half of
each financial year.
Our level of capital expenditure in FY2013 was very similar to
the prior year, after adjusting for $2.2m of FY2012 spend that
related to projects completed in FY2013. Our average spend
per completed capital project was not as high as anticipated.
This was mainly attributable to effective management of
the cost of new and existing store projects, along with later
than planned timing of spend on major systems projects.
We opened seven more permanent stores in FY2013
than in FY2012, and also completed more relocation and
refurbishment projects than in the prior year. Depreciation
and amortisation expense increased by $1.1m, 11.6%. We are
forecasting to increase capital expenditure in FY2014, and our
planned capital projects mean that we will maintain an annual
capital expenditure spend of $20m or more for several years
ahead.
Our expectation with regard to the core Australasian business
remains that the pattern of reducing overheads as a % of
sales in areas such as warehousing and distribution, will be
approximately offset by increasing store rental, retail direct
costs and online costs.
We recently extended our existing bank facilities for a further
year to the end of 2015, on slightly improved terms, and
with a A$10m increase in facility limits related specifically to
increased requirements for rental bonds, guarantees and trade
credit instruments. The total available banking facility remains
10 ANNUAL REPORT 2013 KATHMANDU
sufficient to meet our capital expenditure requirements in
tandem with Kathmandu’s working capital cycle. Facility fees
and interest expense in FY2013 were down by over $1.4m
compared to the prior year, and the better terms attached to
the facility agreements now in place were the major reason
for this year-on-year reduction.
Net profit after tax increased by $9.3m after a favourable
taxation expense outcome for the year. Total tax expense
of $14.8m includes the benefit of the reduced tax charge in
the Australian trading company (Kathmandu Pty Ltd) arising
from the annual revaluation of its NZD denominated loan from
Kathmandu Ltd. This loan primarily arises from the amount
due by our Australian subsidiary for the purchase of the IP and
rights to use the Kathmandu brand in Australia, based on the
valuation determined at the time of the IPO in 2009. Because
it is NZD denominated, exchange rate conversion gains (or as
in this year losses) on the value of the loan at each balance
date are taxable in the Australian company. Whilst this loan
remains outstanding, this one-off benefit in FY2013 could
reverse in a future year when the AUD:NZD exchange rate
strengthens.
SUSTAINABILITY
Kathmandu is committed to a sustainable future. In
recognising its importance to our customers, investors and
our team, sustainability is a Kathmandu core value. Our
sustainability journey continued in 2013 and brought to a close
our first ‘Sustain the Dream Plan 2011-2013’. This plan set out
the pathway for driving our sustainability performance in the
areas of our people, our customers, our products and
our community.
We have made considerable progress in integrating
sustainability into the way our business is organised and run,
KATHMANDU ANNUAL REPORT 2013 11
Just as in our retail stores, retention of customers in the
online space will be strongly influenced by how well we utilise
customer analytics, and how we engage with those customers
through channels such as social media and unique online only
deals. Customer relationship management is critical to us in
building the Summit Club through all channels we sell in.
We have confidence that the Kathmandu brand and its product
range can have wider growth potential internationally, and
we are going to test this going forward with greater focus in
the UK market initially. Our development of a path for global
growth of the Kathmandu brand requires us to learn from the
re-organised UK business, now a relatively low cost and low
risk aspect of the business.
We intend to take up on a structured basis the opportunities
that online and digital technology provide, and the quality and
effectiveness of our systems must be adequate to enable us
to operate globally in a multichannel environment. We have
recently launched a selected range of Kathmandu product on
Amazon UK, and plan to explore other similar marketplace
opportunities. Development is underway to enhance our
capability to transact with customers via mobile devices,
providing functionality for flexible ordering and customer
product collection. These are all steps in developing the
systems required to support growth initiatives available to
Kathmandu outside our current business model.
Kathmandu’s future continues to look positive, with
opportunities for growth continuing to be identified, prioritised
and implemented. We believe our competitive advantage, and
a profitable core business, will enable us to grow our brand’s
market reach.
Peter Halkett
Managing Director and Chief Executive Officer
and have developed a new two-year sustainability plan for
2014 - 2015. Our goal is to deliver value to our stakeholders
through sustainability, while positioning Kathmandu as a leader
in this area.
A full account of our achievements is in our annual 2013
sustainability report, prepared in accordance with the
Global Reporting Initiative guidelines.
OUR TEAM
Employee numbers as at 31 July 2013 increased from 1,722
last year to 1,920 this year, in line with our continuing growth
in store numbers. Approximately 69% of the total workforce is
full time or part time permanent employees. We have made a
substantial investment in training and development capability
during the year. It remains important to our success, that
Kathmandu’s staff continue to maintain their positive view of
us as their preferred employer, and that we provide a career
pathway to leadership roles within our business and the wider
retail sector. On a personal note I want to thank my Executive
management team for the support and leadership they
provided in delivering an excellent result, in particular during
my period of absence from the business during the second
half of FY2013.
MARKET OVERVIEW AND FUTURE OUTLOOK
Kathmandu faces strong and growing competition from local
and international outdoor and travel brands and retailers. The
latter group are increasingly moving, in whole or in part, to
operating the same vertical business model as Kathmandu.
Overall this model appears to be the most successful and
resilient retail model in our current markets, and it aligns
effectively with online sales channels. The outdoor category
remains an attractive sector for investment, hence there
continues to be both local and global merger and acquisition
opportunity for good outdoor businesses and brands. The
sustained growth in category store numbers over a number
of years in both New Zealand and Australia reinforces our
assessment of the relatively strong outlook for the category.
This contrasts with other retail sectors dependent on
discretionary consumer spend that have been much less
resilient since the 2008 GFC.
GROWTH OPPORTUNITIES
We continue to develop our store network plan to ensure our
target of 170+ stores in Australia and New Zealand is aligned
with our continuously evolving analysis of the optimal footprint
and location for each prospective new site, and in due course
numerous current sites that we will relocate. In conjunction
with this, to further maximise store-by-store profitability, our
product development and ranging strategy will continue to link
closely into store planning.
We now have 1 million active members in our Summit Club
programme. Our improved customer relationship management
platform will further enhance our ability to target the right
offers to these core customers. Summit Club fits well with
the opportunity for growth in online sales, in both current and
future markets.
12 ANNUAL REPORT 2013 KATHMANDU
board
left to right - John Holland, Christine Cross, Peter Halkett, John Harvey, Sandra McPhee and Mark Todd.
John Harvey
Chairman
Mr Harvey is a professional Director
with a background in accounting
and professional services,
including 23 years as a partner of
PricewaterhouseCoopers where he
also held a number of leadership
and governance roles. Mr Harvey
has extensive experience in financial
reporting, governance, information
systems and processes, business
evaluation, acquisition, merger
and takeover reviews.
Mr Harvey is currently a non-Executive
Director of DNZ Property Fund,
Heartland Bank, Ballance Agri-
Nutrients, Port Otago and NZ Opera.
Peter Halkett
Managing Director and
Chief Executive Officer
Mr Halkett joined Kathmandu in
2006 and has directed the growth
strategy for the business throughout
the period of current ownership.
Mr Halkett has had a management
career with extensive retail experience
including Chief Executive Officer
roles in New Zealand and the United
Kingdom. The companies he has led
include two that were publicly listed,
in particular Pacific Retail Group.
Mark Todd
Finance Director and
Chief Financial Officer
Mr Todd joined Kathmandu in
1998, following previous financial
management experience in both
the apparel and retail sectors.
Mr Todd has been Kathmandu’s
senior financial executive throughout
his 15 years with the Group, a Director
of various Group companies and
manager of the New Zealand
business from 2004-2006.
Mr Todd is the Company Secretary.
Mr Todd is currently a non-
Executive Director of City Care.
John Holland
Non-Executive Director
Mr Holland is a partner in the national
New Zealand law firm Chapman Tripp
and specialises in general corporate
and commercial law. Mr Holland’s
securities law experience includes
acting on initial public offerings,
advising on employee share schemes
and in the private equity area.
Mr Holland is is currently a non-
Executive Director of Southbase
Construction, a member of the Financial
Markets Authority Capital Markets
Disclosure Consideration Panel, having
previously been a member of the
Securities Commission of New Zealand
and is an accredited director of the
New Zealand Institute of Directors.
Sandra McPhee AM
Non-Executive Director
Ms McPhee is an experienced
executive and non-Executive
Director in consumer facing sectors
including aviation, retail, energy and
media. She held a range of senior
international executive roles in the
aviation industry, most recently
with Qantas Airways Limited.
Ms McPhee is currently a non-
Executive Director of Fairfax Media,
AGL Energy, Westfield Retail
Trust, Tourism Australia and Vice
President of the Art Gallery of NSW.
She is also a member of the JP
Morgan Advisory Council, MMC
Advisory Board and President of St
Vincents and Mater Health Sydney
Community Advisory Council.
Christine Cross
Non-Executive Director
Ms Cross has extensive experience
in the international retail and
consumer goods sector including
14 years as a Director on the
operating board of Tesco Plc.
Ms Cross currently runs a retail
advisory consultancy focusing on
international best practice in customer
led business planning and value chain
management. Ms Cross also has
Non-Executive Directorships with
Woolworths, Next plc, Sonae Group
plc and Plantasjen. In addition Ms
Cross is an advisor to several private
equity funds and private companies.
KATHMANDU ANNUAL REPORT 2013 13
management
Peter Halkett
Managing Director and
Chief Executive Officer
Refer to Page 12.
Mark Todd
Finance Director and
Chief Financial Officer
Refer to Page 12.
Tamalin Morton
GM, Marketing
Joined Kathmandu in 2007, with extensive
experience in marketing management and brand
strategy gained through senior marketing roles
with Coles Group and Bass plc (UK).
Michelle Adams
GM, Product
Joined Kathmandu in 2009 following extensive
product and brand management experience with
Pacific Brands and Canterbury.
Caleb Nicolson
GM, Supply Chain
Joined Kathmandu in 2007, after eight years with
The Warehouse, where he had responsibility for
delivering change across the supply chain and the
merchandise function.
Paul Stern
GM,Business
Development
& Sustainability
Joined Kathmandu in January 2010 with over 18
years experience in senior Retail and Marketing
roles, including at Kmart, A.S. Watson (Hong
Kong), and Cadbury Schweppes.
Grant Taylor
Chief Information
Officer
Joined Kathmandu in August 2010 with 15 years
experience in senior IT roles, including CIO at
Otago and Southland District Health Boards
and Group IT Manager for PGG Wrightson.
Matthew Watts
GM, Retail
(Australia)
Joined Kathmandu in 2011, with over 10 years
multi site management experience in zone and
national roles with Coles and Coles Express.
Brandon Beveridge
GM, Retail
(New Zealand)
Joined Kathmandu in 2007, with an extensive
retail management background in multi site,
proprietorship and national roles. Prior to
Kathmandu, he was 15 years with Pacific
Retail Group.
14 ANNUAL REPORT 2013 KATHMANDU
KATHMANDU ANNUAL REPORT 2013 15
directors’ report
YOUR DIRECTORS PRESENT THEIR REPORT AND THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2013.
DIRECTORS
The following persons were Directors of Kathmandu Holdings
Limited during the financial year.
James Strong
Was re-appointed Chairman, non-Executive Director,
Member of the Audit and Risk Committee, Member of the
Remuneration and Nominee Committee on 16 November 2012,
and ceased in these offices as at 4 March 2013.
Peter Halkett
Was appointed as Managing Director and Chief Executive
Officer on 9 October 2009, and continues in these offices at
the date of this report.
Mark Todd
Was re-appointed as an Executive Director on 18 November
2011 and appointed as Finance Director, Chief Financial Officer
and Company Secretary on 9 October 2009, and continues in
these offices at the date of this report.
John Harvey
Was re-appointed as a non-Executive Director, Chair of the
Audit and Risk Committee, Member of the Remuneration
and Nominee Committee on 16 November 2012, appointed
as Interim Chairman and retired as Chair of the Audit and Risk
Committee on 25 March 2013. He continues in these offices at
the date of this report.
John Holland
Was re-appointed as a non-Executive Director, Member of
the Audit and Risk Committee, Member of the Remuneration
and Nominee Committee on 24 November 2010, appointed
as Interim Chair of the Audit and Risk Committee on 25 March
2013, and continues in these offices at the date of this report.
Sandra McPhee
Was re-appointed as a non-Executive Director, Member of
the Audit and Risk Committee, Chair of the Remuneration and
Nominee Committee on 18 November 2011, and continues in
these offices at the date of this report.
Christine Cross
Was appointed as a non-Executive Director, Member of the
Remuneration and Nominee Committee on 12 December 2012,
and continues in these offices at the date of this report.
MEETING OF DIRECTORS
The number of meetings of the Board of Directors and
Committees held during the year ended 31 July 2013 and the
numbers of meetings attended by each Director were:
Director
Meetings
Audit and Risk
Committee
Meetings
Remuneration
And Nominee
Committee
Meetings
Director
James Strong
Peter Halkett
Mark Todd
John Harvey
John Holland
Sandra McPhee
Christine Cross
A
4
6
8
8
7
8
4
B
4
8
8
8
8
8
4
A
4
XX
XX
7
7
7
B
4
XX
XX
7
7
7
XX
XX
A
4
XX
XX
8
7
8
4
B
4
XX
XX
8
8
8
4
A - Number of meetings attended
B - Number of meetings held during the time the Director held office during the year
XX - Not a member of relevant Committee
REVIEW OF OPERATIONS
The profit of the consolidated entity for the financial year after
providing for income tax amounted to $44,174,000 (2012:
$34,852,000).
A detailed review of operations is provided on pages 2 to 11 of
this annual report.
SIGNIFICANT CHANGES OF AFFAIRS
There has been no material change in the state of affairs of the
Company or the Group.
PRINCIPAL ACTIVITIES
The Group’s principal activity in the course of the financial
year was the design, marketing and retailing of clothing and
equipment for outdoor, travel and adventure. It operates in
New Zealand, Australia and the United Kingdom.
MATTERS SUBSEQUENT TO THE END OF THE
FINANCIAL YEAR
No matters or circumstances have arisen since the end of the
financial year which significantly affect or may significantly affect
the operations of the consolidated entity, the results of those
operations, or the state of affairs of the consolidated entity in
future financial years.
RETIREMENT OF DIRECTORS
In accordance with the Company’s constitution, John Holland
and Sandra McPhee will retire as Directors at the annual
general meeting and being eligible, offer themselves
for re-election.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
OF OPERATIONS
Likely developments in the operations of the consolidated entity
and the expected results of those operations in future financial
years are contained on pages 2 to 11 of this annual report.
16 ANNUAL REPORT 2013 KATHMANDU
ENVIRONMENTAL REGULATION
The consolidated entity's operations are not regulated by
any significant environmental regulation under a law of the
Commonwealth or of a State or Territory of Australia, or
of New Zealand.
DIVIDENDS
Since the end of the financial year the Directors have declared
the payment of a final ordinary dividend of NZ 9.0 cents per
share. Dividends will carry full New Zealand imputation credits
and full Australian franking credits. The dividend will be paid on
22 November 2013.
The Company does not currently have an active dividend re-
investment plan.
INSURANCE OF OFFICERS
The Company has entered into deeds of indemnity, insurance
and access with each Director which confirms each person’s
right of access to certain books and records of the Company
for a period of seven years after the Director ceases to hold
office. This seven year period can be extended where certain
proceedings or investigations commence before the seven
years expires. The deed also requires the Company to provide
an indemnity for liability incurred as an officer of the Company,
to the maximum extent permitted by law.
Indemnification: Pursuant to the Constitution, the Company
is required to indemnify all Directors and employees, past and
present against all liabilities allowed under law. The Company
has entered into an agreement with each Director to indemnify
those parties against all liabilities to another person that may
arise from their position as Director or other officer of the
Company or its controlled entities to the extent permitted by
law. The deed stipulates that the Company will meet the full
amount of any such liabilities, including reasonable legal costs
and expenses.
Insurance: Pursuant to the Constitution, the Company may
arrange and maintain Directors’ and officers’ insurance during
each Director’s period of office, and for a period of seven years
after a Director ceases to hold office. This seven year period
can be extended where certain proceedings or investigations
commence before the seven years expires.
REMUNERATION REPORT
The remuneration report is set out in the following sections:
A PRINCIPLES USED TO DETERMINE THE NATURE
AND AMOUNT OF REMUNERATION
B DETAILS OF REMUNERATION
C SERVICE AGREEMENTS
D DETAILS OF SHARE-BASED COMPENSATION
E ADDITIONAL INFORMATION, PERFORMANCE
RIGHTS VESTING
The information provided in this remuneration report has not
been audited as Kathmandu Holdings Limited is a foreign
company in terms of the Corporations Act 2001 (Australia).
However, the report provided generally follows the same
principles applied by Australian companies listed on the ASX,
and the audited remuneration disclosures contained in note 9 of
the financial statements generally comply with those required
under the Corporations Act 2001 (Australia).
A PRINCIPLES USED TO DETERMINE THE NATURE
AND AMOUNT OF REMUNERATION
The Company’s Remuneration and Nomination Committee is
the primary body that determines the quantum and framework
of Directors and Executive remuneration. The composition, role
and responsibility of the Committee is outlined in the Corporate
Governance Statement on page 26 of this annual report.
The Committee adopts a series of principles in determining
remuneration related decisions. The principles used are:
Remuneration (quantum and/or structures) whether
measured at base or total level, should be market
competitive, and generally account for key relevant
internal and external factors such as employee level of
responsibility and place of domicile, Company
commercial circumstances, and market practice;
Those employees with the ability to influence the
achievement of the Company’s strategic objectives and
business plans (“key management and senior management
personnel”) should be rewarded by way of performance
based rewards structured to reflect achievement against
those objectives and plans;
The alignment and mix of remuneration should not be
based primarily upon cash incentives earned from Company
short term profit performance. The remuneration
framework recognises the varying Executive roles,
remunerates these accordingly and has an incentive
structure that has a reduced and appropriate proportion of
total remuneration that is cash based;
The opportunity to participate in equity based rewards
should be a component of the reward structure for key
management personnel, both to align their reward with the
creation of shareholder value, and to encourage their
ongoing participation in and retention by the Company;
Key management personnel includes all Executives,
which are personnel who are reporting directly to the Chief
Executive Officer or Chief Financial Officer, designated
as an Executive by the CEO and with responsibility and
authority for management of a significant profit or cost
centre. Executives should have a substantial portion (as
a target no less than one-third) of their total remuneration
aligned with reward for creating shareholder value. This
should generally be achieved through the application of
appropriate and measureable performance hurdles to be
met as criteria for receiving incentive based remuneration
by way of cash or equity;
The Executive Directors (Chief Executive Officer and Chief
Financial Officer) should, relative to other Executives have
• a greater proportion of total remuneration (at least
45%) that is “at risk”, i.e. contingent upon the
achievement of performance hurdles, and
KATHMANDU ANNUAL REPORT 2013 17
• a greater proportion of “at risk” remuneration weighted
towards equity based rewards rather than cash,
and/or available market information, with reference to both total
remuneration and its various components.
because of their role in establishing and delivering achievement
of medium and long term Company strategic objectives and
business plans, and increasing shareholder value over that
period.
The opportunity to participate in equity based rewards
should be a component of remuneration for all key and
senior management personnel.
The audited consolidated financial results for the Group
are the basis for measuring achievement against the
financial performance target.
Non-Executive Directors’ remuneration should enable
the Company to attract and retain high quality
Directors with the relevant experience. In order to maintain
independence and impartiality, non-Executive Directors
should not receive performance based remuneration.
The Board uses discretion when setting remuneration
levels, taking into account the current market environment.
REMUNERATION REVIEW 31 JULY 2013
The Board on the advice of the Committee has accountability
to set all Executive remuneration. Recognising the principles
above, the current prevailing market conditions and the
reported performance of the Company, the committee
determined the following in relation to the 31 July 2013 review
of base remuneration:
Board Directors, 3% increase;
Executive Directors, no increase in base salary for Chief
Financial Officer. Chief Executive Officer remuneration
detailed below;
Executives, base salary increase 2% in New Zealand,
2.5% in Australia;
There was no increase in any of the base remuneration levels
in the 31 July 2012 review of remuneration.
The structure and levels of available short and long term
incentives for FY2014 have been reviewed. In considering the
total remuneration opportunity made available, the Board on
the advice of the Committee have determined it is appropriate
to increase the quantum of incentive based earnings available
for Executives and Executive Directors. This will enable
higher total remuneration to be earned by these employees,
but only in conjunction with the Group achieving appropriate
financial performance targets for the relevant future period of
performance management.
EXECUTIVE REWARDS
The Company’s objective is to provide a remuneration
framework whereby every incentive payment over and above
an Executive’s fixed pay, whether in the form of cash or equity,
is appropriate for the results delivered by the Company and
the employee and is based on reward for performance. The
Board, through the Committee undertakes its governance
role in establishing Executive remuneration including, where
required, use of external independent remuneration consultants
The Executive remuneration framework (currently applying
to 9 Executives including the 2 Executive Directors) has
four components:
1. Base salary and benefits;
2. Short term cash incentives;
3. Short term equity incentives with associated
requirements relating to continuing employment
with the Company, and
4. Long term incentives via participation in the
Company’s Option and Long Term Incentive plans.
The combination of these comprises the Executives’ total
remuneration. Other senior management personnel have a
remuneration framework incorporating components 1. to 3.
1. Base salary and benefits
Executive base salaries are structured as part of a total
employment remuneration package which is delivered as a mix
of cash and non-monetary benefits determined by negotiation
with the Executive.
Executives are offered a competitive base salary that
comprises the fixed component of pay and rewards. External
independent remuneration consultants provide analysis
and advice to assess whether base salary as well as total
remuneration reflects the market positioning for a comparable
role. Base salary for Executives is reviewed annually to provide
competitiveness with the market but there are no guaranteed
base salary increases in any Executive’s contracts, except as
specifically stated in this report. An Executive’s remuneration
is also reviewed on promotion.
Executive benefits made available are superannuation
contributions made in accordance with the legislation specific
to each country in which the employee is resident, and for
some Executives leasing and/or reimbursement of vehicle
running costs, and medical insurance. Key management and
senior management personnel who relocate their place of
working between countries may be assisted in the cost of
such relocation.
2. Short term cash incentives
Executives including the Executive Directors are eligible
to participate in an annual short term cash incentive which
delivers rewards by way of cash bonuses, subject to the
achievement of Group financial performance targets and
individual KPI’s.
Group Earnings before interest, tax, depreciation and
amortisation (EBITDA) has been determined as the appropriate
financial performance target to trigger payment of short term
cash incentives. This criterion excludes depreciation and
amortisation expenses arising from the substantial capital
investment programme approved and overseen by the
Board over the medium term. The programme dollar spend
and number of projects, means substantial variability in the
depreciation and amortisation expense arising year by year
is possible. This could be both within and beyond Executive
18 ANNUAL REPORT 2013 KATHMANDU
control given the nature and mix of the Group’s capital assets
and leases, and the structure of the Group Executive whereby
the bulk of the capital investment programme is determined
and approved by the Chief Executive Officer and/or the Chief
Financial Officer.
For the years ended 31 July 2013 and 2012 the Group’s
financial performance targets (EBITDA) were not met and
consequently no short term equity incentives granted to
Executives (including the Executive Directors) or senior
management personnel in relation to this period will vest.
The amount of any short term cash incentive paid in a year is
dependent upon:
the level of over performance achieved against the Group’s
financial performance target (EBITDA) for the year; and
if financial performance targets have been met or
exceeded, the achievement of individual KPI’s.
For the year ended 31 July 2013 the Group’s financial
performance targets were not met and the annual short term
cash incentive was not paid. A smaller discretionary cash
bonus was paid to key and senior management personnel
including Executives in recognition of the EBITDA result for the
year being very close to the annual performance target once
the adverse impact of non-controllable exchange rate (AUD to
NZD) translation was adjusted for.
For the year ended 31 July 2012 the Group’s financial
performance targets were not met and no short term cash
incentives were paid.
3. Short term equity incentives with
performance conditions
The shareholder approved long term incentive plan enables the
Board to offer equity incentives as part of short and long term
remuneration. Key and senior management personnel including
Executives participate in short term equity incentives.
Executives excluding the Executive Directors have 50% of
the total value of their annual short term incentive equity
based, with rewards delivered by way of nil cost performance
rights. The entitlement to the short term equity incentive will
be subject to the achievement of the same Group financial
performance and individual KPI’s as for the short term cash
incentive.
Executive Directors annual short term incentive is a lower %
of their base salary than for other Executives, and all of their
annual short term incentive is cash based.
Senior management personnel also have an annual short term
incentive that is equity based, generally up to 15% of base
salary, with rewards delivered by way of nil cost performance
rights. The entitlement to the short term equity incentive is also
subject to the achievement of Group’s financial performance
target for the year (EBITDA).
If the Group financial performance targets and individual KPI’s
are achieved, vesting of the performance rights granted under
this incentive will generally require:
the Executive staff member to remain employed by the
Group for a period of two years after the end of the financial
year in which Group financial performance that determines
entitlement to the rights is measured, or
4. Long Term Incentive Plans
Options Plan 2009
The Company implemented the Employee Option plan on
16 October 2009, and it was developed in the lead in to the
Company’s IPO in order to provide an incentive scheme for
selected senior employees in conjunction with the public
listing of the Company. An initial grant of options was made in
conjunction with the IPO to seven Executives of the Company
(five of these Executives are still employed as at 31 July 2013).
Vesting of the options is subject to the Company achieving
a compound annual growth in Total Shareholder Return
(TSR) of 15% for the period applying to each tested period
of performance measurement. TSR was determined as the
criterion for performance measurement based on research
against the market, and advice from external independent
remuneration consultants with reference to the approach
considered appropriate for a Company undertaking an IPO of
shares.
Subject to achievement of this condition and Executives
remaining in employment with the Company at the vesting
date, the options granted to each Executive as detailed below
vest progressively in three equal tranches on the test dates
of 1 October 2010, 2011 and 2012. If the TSR performance
condition has not been achieved on the applicable test date
there will be re-testing of this condition on 1 October 2011,
2012 and 2013. All options have an expiry date five years from
their date of grant.
The Board do not intend to grant any further options under
the existing plan. The Board are of the view that the existing
plan no longer represents an appropriate on-going long term
incentive structure for the Company post the IPO.
Long-term incentive plan November 2010
Shareholders approved the current long term incentive plan
at the Company’s 2010 Annual General Meeting based on
the granting of nil cost performance rights. Rights have been
offered each year since the plan was approved. Vesting of the
rights are dependent upon the Company achieving Earnings per
Share (EPS) and /or relative TSR targets over a 2, 3 and 4 year
performance period, with 50% of the value of rights allocated
under each target.
EPS is measured on a compound annual growth basis and TSR
is measured on a relative basis against similar sized Australian
and New Zealand listed retail organisations. Performance
measurement under either criterion is at the end of each
applicable performance period with no ability to re-test.
Fifty percent of the relevant portion of the award vests for
achievement of targets and a further fifty percent vests for the
achievement of aspirational targets. A sliding scale operates
between target and aspirational performance levels.
the senior management staff member to remain employed
by the Group for a period of one year after the end of
the financial year in which Group financial performance that
determines entitlement to the rights is measured.
This long-term incentive is intended to focus performance
on achievement of key long-term performance metrics. The
selected performance measures provide an appropriate balance
between relative and absolute Company performance. The
KATHMANDU ANNUAL REPORT 2013 19
Committee considers this plan will best support and facilitate
the growth in shareholder value over the long term.
Paul Stern - General Manager, Business Development
and Sustainability
From 2011 onwards, the Committee resolved to grant only
Executive Directors with nil cost performance rights that will
require achievement of EPS and relative TSR targets over the 2,
3 and 4 year periods. These grants are subject to shareholder
approval.
NON-EXECUTIVE DIRECTORS’ FEES
The current aggregate limit for non-Executive Directors’ fees
is $A800,000 per annum. In FY2013 the base fee payable
(including superannuation if applicable) to the Chairman of
$A206,000 and to a non-Executive Director currently of
$A103,000 per annum. Additionally $A10,000 per annum is
paid for sub-committee attendances. These amounts were
increased by 3% with effect from 1 August 2013.
The Managing Director and Finance Director do not receive
Directors’ fees. The amounts approved for Directors’ fees
are expressed in AUD given the specific requirements for
remuneration reporting applying to ASX listed companies,
however all amounts reported in the tables within this report
are specified in NZD, being the reporting currency of the
Company.
It remains the Board’s intention that Directors’ fees will be
reviewed annually; with external independent remuneration
consultants providing advice to ensure fees reflect market
rates. There are no guaranteed annual increases in any
Director’s fees.
Non-Executive Directors do not participate in the Company
short or long term incentive schemes.
The following fees apply per annum, including sub-committee
attendance fees:
BASE FEES
Chairman
Other non-Executive Directors
Actual fees paid in year ended 31 July 2013
(converted to reporting currency)
Chairman
Other non-Executive Directors
AUD $
216,000
113,000
NZD $
267,876
140,139
B DETAILS OF REMUNERATION
The following Executives along with the Directors are
identified as key management personnel with the authority
and responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly, during the
financial year:
Peter Halkett - Chief Executive Officer
Mark Todd - Chief Financial Officer
Tamalin Morton - General Manager, Marketing
Michelle Adams - General Manager, Product
Caleb Nicolson - General Manager, Supply Chain
Grant Taylor - Chief Information Officer
Matthew Watts - General Manager, Retail Australia
(from 1 March 2012)
Brandon Beveridge - General Manager, Retail New Zealand
(from 1 March 2012)
All of the above persons were employed by the Group and
were key management personnel for the full years ended
31 July 2013 and 2012, unless otherwise stated. Mark Todd,
Michelle Adams, Caleb Nicolson, Grant Taylor and Brandon
Beveridge are employees of Kathmandu Limited (New Zealand
domiciled), and Peter Halkett, Tamalin Morton, Paul Stern and
Matthew Watts, are employees of Kathmandu Pty Limited
(Australian domiciled).
Details of the remuneration of the Directors and total
remuneration of other key management personnel of the
Group, for the current and prior financial years are set out in
note 9 of the financial statements.
For the year ended 31 July 2013 the Group’s financial
performance targets were not met and thus the annual
short term cash and equity incentives were not paid. A
smaller discretionary cash bonus was paid to key and senior
management personnel in recognition of the EBITDA outcome
for the year being very close to the financial performance target
once the adverse impact of non-controllable exchange rate
AUD to NZD translation was adjusted for.
COST OF CHIEF EXECUTIVE OFFICER’S CHANGE
OF TAX RESIDENCY
In the second half of FY2013 the Board reviewed the
appropriate primary workplace of the Chief Executive Officer,
and in conjunction with its taxation advisors also assessed
his associated current and historical residency for taxation
purposes. As Peter Halkett has been required to operate
primarily out of our Melbourne office in the period following
the Christchurch earthquake in February 2011, it has been
determined that since May 2011 he has been primarily tax
resident in Australia. The Board and Chief Executive Officer
have negotiated a sharing of the expenses including personal
income tax and other associated deductions for the period
from May 2011 to July 2013 arising from this required
change of taxation residency. This expense is reported in
his remuneration in note 9c of the financial statements. The
Board and the Chief Executive Officer have also entered into a
new employment agreement recognising this new residency
circumstance that is effective from FY2014 onwards. The Chief
Executive Officer’s new remuneration under this agreement is
detailed in the Notice of Annual General Meeting for 2013.
C SERVICE AGREEMENTS
All Executives are on employment terms consistent with the
remuneration framework outlined in this report. Each of the
agreements has an open term, and the period of notice to
be given by the employee is three months. The agreements
provide for three months base salary inclusive of any applicable
superannuation to be paid in the event of a redundancy.
20 ANNUAL REPORT 2013 KATHMANDU
D DETAILS OF SHARE-BASED COMPENSATION
Options Plan 2009
The Company Employee Option plan entitles the holder to acquire one share for each option granted by paying the prescribed
exercise price to the Company once the option has vested in the holder and the relevant exercise conditions have been met.
Testing for the vesting of options granted under the Company Employee Option plan is 1 October in each year (for one-third of
the options granted). In the event that the initial tranche of options do not vest on initial testing because the TSR performance target
for the tested period has not been met, the options do not lapse. There is annual retesting against the 15% compound TSR growth
target on 1 October each year through to 2013 for each tranche.
As noted above, the Board do not intend to grant any further options under the existing plan.
The number of options previously granted by the Company and thus provided as remuneration to Executive Directors and other
key management personnel under this plan is set out below.
Year Ended
31 July 2010
Options grant
date
Options granted
during the year
First vesting
date
Last vesting
date
Total fair value
of options at
grant date $
Options vested
during the year
Executive Directors
Peter Halkett
Peter Halkett
Peter Halkett
Mark Todd
Mark Todd
Mark Todd
Other Key Management
Personnel
Michelle Adams
Michelle Adams
Michelle Adams
Tamalin Morton
Tamalin Morton
Tamalin Morton
Caleb Nicolson
Caleb Nicolson
Caleb Nicolson
Total
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
18 Nov 2009
186,218
186,218
186,218
53,377
53,377
53,377
26,755
26,755
26,756
36,932
36,932
36,933
15,518
15,518
15,518
956,402
1 Oct 2010
1 Oct 2013
1 Oct 2011
1 Oct 2013
1 Oct 2012
1 Oct 2013
1 Oct 2010
1 Oct 2013
1 Oct 2011
1 Oct 2013
1 Oct 2012
1 Oct 2013
1 Oct 2010
1 Oct 2013
1 Oct 2011
1 Oct 2013
1 Oct 2012
1 Oct 2013
1 Oct 2010
1 Oct 2013
1 Oct 2011
1 Oct 2013
1 Oct 2012
1 Oct 2013
1 Oct 2010
1 Oct 2013
1 Oct 2011
1 Oct 2013
1 Oct 2012
1 Oct 2013
78,925
88,912
90,841
22,623
25,485
26,038
11,340
12,774
13,052
15,653
17,634
18,017
6,577
7,409
7,570
442,850
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The fair value of the options granted on 18 November 2009 is $0.46 per option.
All options granted under this plan will vest on the exercise dates above provided the required performance hurdles are achieved and
the employee remains employed with the Company at the vesting date. In the event an employee leaves the Company prior to the
vesting date the options will lapse. Any options that vest under this plan must be exercised no later than 18 November 2014. The
total payable per employee on the exercise of one or more options on a particular day is the price per share in the Company paid for
by the purchasers of shares in the IPO, being $A1.70 and $NZ2.1333, regardless of the number exercised on that day.
No options in the Company were granted or vested in the previous year. No grants have been made subsequent to year end.
KATHMANDU ANNUAL REPORT 2013 21
Long-term incentive plan November 2010
The Company Long term incentive plan entitles the Board to grant performance rights for no cash consideration, at intervals
determined by the Board.
For Executives (including Executive Directors) granted rights in 2010, vesting of the rights will be dependent upon the Company
achieving Earnings per Share (EPS) and /or relative TSR targets over a 2, 3 and 4 year performance period, with 50% of the value
of rights allocated under each target. Rights were offered in 2010 to all Executives domiciled in Australia and New Zealand.
In 2011 and 2012 rights under this long term performance measurement structure were offered only to the Executive Directors.
For each Executive the number of rights granted and the applicable performance period over which EPS and relative TSR is
measured is set out below, along with the fair value of the rights at the grant date.
2013
Executive Directors
Peter Halkett
Peter Halkett
Peter Halkett
Mark Todd
Mark Todd
Mark Todd
Total
2012
Executive Directors
Peter Halkett
Peter Halkett
Peter Halkett
Mark Todd
Mark Todd
Mark Todd
Total
Grant date
Rights granted
during the year
Date exercisable
Expiry date
11 Dec 2012
11 Dec 2012
11 Dec 2012
11 Dec 2012
11 Dec 2012
11 Dec 2012
54,688
54,688
54,688
32,315
32,315
32,315
261,009
1 Dec 2014
1 Dec 2015
1 Dec 2016
1 Dec 2014
1 Dec 2015
1 Dec 2016
1 Dec 2016
1 Dec 2016
1 Dec 2016
1 Dec 2016
1 Dec 2016
1 Dec 2016
Grant date
Rights granted
during the year
Date exercisable
Expiry date
30 Nov 2011
30 Nov 2011
30 Nov 2011
30 Nov 2011
30 Nov 2011
30 Nov 2011
46,498
46,497
46,497
27,476
27,476
27,476
221,920
1 Dec 2013
1 Dec 2014
1 Dec 2015
1 Dec 2013
1 Dec 2014
1 Dec 2015
1 Dec 2015
1 Dec 2015
1 Dec 2015
1 Dec 2015
1 Dec 2015
1 Dec 2015
Total fair value
of performance
rights at grant
date $
82,087
72,188))
69,727
48,506
42,657
41,203
356,368
Total fair value
of performance
rights at grant
date $
86,487
84,160))
81,137))
51,105))
49,732
47,945
400,566
22 ANNUAL REPORT 2013 KATHMANDU
Shares Issued to Directors and Other Key Management Personnel on Exercise of Options or Performance Rights:
2013
Type
Date granted
Date Exercised
Number of shares
Issued
Exercise $
Executive Directors
Peter Halkett
Mark Todd
Other Key Management
Personnel
Michelle Adams
Tamalin Morton
Paul Stern
Caleb Nicolson
Grant Taylor
Total
Rights
Rights
Rights
Rights
Rights
Rights
Rights
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
29 Nov 2010
18 Dec 2012
25,686
9,062
2,667
3,810
3,810
2,589
2,330
49,954
-
-
-
-
-
-
-
-
No shares were issued to Executive Directors or Other Key Management Personnel on exercise of options or Performance Rights
during FY2012.
Performance rights granted to each Executive will, subject to satisfaction of performance conditions, vest on the basis of one
ordinary share for each performance right which vests, at the end of each performance period.
KATHMANDU ANNUAL REPORT 2013 23
E ADDITIONAL INFORMATION, PERFORMANCE RIGHTS VESTING
For each grant of performance rights included in the table below, the percentage of the grant that vested, in the financial period, and
the percentage that was forfeited because the performance criteria were not achieved or the person did not meet the service criteria
is as listed. The performance rights vest over several years provided the vesting conditions are met. No performance rights will vest
if the conditions are not satisfied, hence the minimum value of each performance right yet to vest is $Nil. The maximum value of
performance rights yet to vest has been determined as the total number of performance rights still to vest multiplied by the fair
value of each performance right at grant date.
2013
Grant date
Vested %
Forfeited %
Executive Directors
Financial
periods In
which rights
may vest
Maximum total
number of rights
yet to vest
Maximum total
value of grants
yet to vest
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Peter Halkett
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Mark Todd
Other Key Management
Personnel
Michelle Adams
Michelle Adams
Michelle Adams
Tamalin Morton
Tamalin Morton
Tamalin Morton
Paul Stern
Paul Stern
Paul Stern
Caleb Nicolson
Caleb Nicolson
Caleb Nicolson
Grant Taylor
Grant Taylor
Grant Taylor
FY2013
FY2013
FY2013
FY2012
FY2012
FY2012
FY2011
FY2011
FY2011
FY2013
FY2013
FY2013
FY2012
FY2012
FY2012
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
FY2011
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
43.5%
56.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
43.5%
56.5%
0.0%
0.0%
43.5%
0.0%
0.0%
43.5%
0.0%
0.0%
43.5%
0.0%
0.0%
43.5%
0.0%
0.0%
43.5%
0.0%
0.0%
56.5%
0.0%
0.0%
56.5%
0.0%
0.0%
56.5%
0.0%
0.0%
56.5%
0.0%
0.0%
56.5%
FY2017
FY2016
FY2015
FY2016
FY2015
FY2014
FY2015
FY2014
FY2013
FY2017
FY2016
FY2015
FY2016
FY2015
FY2014
FY2015
FY2014
FY2013
FY2015
FY2014
FY2013
FY2015
FY2014
FY2013
FY2015
FY2014
FY2013
FY2015
FY2014
FY2013
FY2015
FY2014
FY2013
54,687
54,688
54,688
46,499
46,498
46,498
59,048
59,048
-
32,316
32,315
32,315
27,476
27,476
27,476
20,833
20,833
-
6,131
6,131
-
8,759
8,759
-
8,759
8,759
-
5,952
5,952
-
5,357
5,357
-
69,726
72,188
82,087
81,140
84,161
86,486
63,181
66,429
-
41,203
42,656
48,505
47,945
49,731
51,105
22,291
23,437
-
6,560
6,897
-
9,372
9,854
-
9,372
9,854
-
6,369
6,696
-
5,732
6,027
-
24 ANNUAL REPORT 2013 KATHMANDU
Company performance
All key management personnel’s short term cash incentive is dependent upon the Company’s overall financial performance for each
financial year and their long term incentive is dependent upon both earnings per share growth and relative total shareholder returns
over a range of performance periods.
With reference to the measurement of long term incentive performance the table below outlines the Company’s earnings and share
performance since its listing on 13 November 2009:
Year
NPAT
Growth
EPS cents
per share
EPS growth
Share price
at start of
year
Share price
at end of
year
Share price
growth
Ordinary
dividends
paid or
declared per
share
FY2010
$9.4m
NA
FY2011
$39.1m
316.0%
FY2012
FY2013
$34.9m
(10.7%)
$44.2m
26.6%
0.3
19.5
17.4
22.1
NA
65x
0.9x
1.3x
$2.13
$2.05
$2.20
$1.59
$2.05
$2.20
$1.59
$2.68
(3.8%)
7.3%
(27.7%)
68.6%
$0.07
$0.10
$0.10
$0.12
Share price quoted is the NZX listing price. The Company is listed on both the ASX and NZX and options will vest on both exchanges,
dependent on where the employee is based.
Historical performance prior to the Company’s listing is not considered meaningful with respect to the Company’s performance and
its impact on shareholder wealth.
Shares under options or performance rights
There are no unissued ordinary shares of the Company under any vested options or performance rights at the date of this report.
REMUNERATION OF AUDITORS
Details of remuneration of Auditors is set out in Note 22 of the Financial Statements.
Non-Audit Services
PricewaterhouseCoopers were appointed auditors of Kathmandu Holdings Limited in 2009 and whilst their main role is to provide
audit services to the Company, the Company does employ their specialist advice where appropriate. In each instance, the Board has
considered the nature of the advice sought in the context of the audit relationship and in accordance with the advice received from
the Audit and Risk Committee, does not consider these services compromised the auditor independence for the following reasons:
All non-audit services have been reviewed by Audit and Risk Committee to ensure they do not impact the impartiality and
objectivity of the auditor
None of the services undermined the general principles relating to auditor independence, including not reviewing or auditing
the auditor's own work, not acting in a management or a decision making capacity for the Company, not acting as advocate
for the Company or not jointly sharing economic risk or rewards.
This report is made in accordance with a resolution of the Directors.
John Harvey
Chairman
Peter Halkett
Managing Director and
Chief Executive Officer
KATHMANDU ANNUAL REPORT 2013 25
BOARD, MANAGEMENT AND CORPORATE GOVERNANCE
corporate governance
The Board and management of the Company are committed to ensuring that the Company adheres to best practice governance
principles and maintains the highest ethical standards. The Board is responsible for the overall corporate governance of the
Company, including adopting the appropriate policies and procedures and seeking to ensure Directors, management and
employees fulfil their functions effectively and responsibly. The Company is listed on both the New Zealand and Australian stock
exchanges. Corporate governance principles and guidelines have been introduced in both countries. These include the Australian
Securities Exchange (ASX) Corporate Governance Council Corporate Governance Principles and Recommendations, the New
Zealand Stock Exchange Listing Rules relating to corporate governance, the NZX Corporate Governance Best Practice Code, and
the New Zealand Securities Commission’s Corporate Governance Principles and Guidelines (collectively, the Principles). The
Board considers that the Company’s corporate governance practices and procedures substantially reflect the principles. The full
content of the Company’s Corporate Governance policies, practices and procedures can be found on the Company’s website
(www.kathmanduholdings.com).
The main policies and practices adopted by the Company are summarised below.
BOARD CHARTERS OF DIRECTORS AND
ITS COMMITTEES
The Board has adopted a written charter to provide a
framework for the effective operation of the Board. The
charter addresses the following matters and responsibilities
of the Board:
enhancing Shareholder value;
oversight of the Company, including its control and
accountability systems;
appointing and removing the Managing Director (or
equivalent) and the Chief Financial Officer;
ratifying the appointment, and where appropriate, the
removal of the senior executives;
input into and approval of corporate strategy and
performance objectives;
reviewing and ratifying systems of risk management and
internal compliance and control, codes of conduct and
legal compliance;
monitoring senior management’s performance and
implementation strategy, and seeking to ensure
appropriate resources are available;
approving and monitoring the progress of major capital
expenditure, capital management and acquisitions and
divestitures;
approving budgets; and
approving and monitoring financial and other reporting.
BOARD COMPOSITION
At present, there are six Directors on the Board. Four out of
the six Directors are non-Executive Directors. Peter Halkett,
(Managing Director and Chief Executive Officer), and Mark
Todd (Finance Director and Chief Financial Officer) are the
only Executive Directors on the Board. The Chairman of the
Board is John Harvey. The biography of each Board member,
including each Director’s skills, experience, expertise and the
term of office held by each Director at the date of this Annual
Report is set out in the “Board of Directors” section of this
Annual Report.
INDEPENDENCE OF DIRECTORS
The factors that the Company will take into account when
assessing the independence of its Directors are set out in
its Charter, a copy of which is available on the Company’s
website (www.kathmanduholdings.com).
The Managing Director (Peter Halkett) and Finance Director
(Mark Todd) are employed by the Company or another Group
member in an executive capacity and are not considered to
be independent Directors based on the criteria set out in the
Board Charter. All remaining Directors satisfy the criteria and
are considered independent Directors, namely John Harvey,
John Holland, Sandra McPhee and Christine Cross.
BOARD COMMITTEES
The Board may from time to time establish appropriate
committees to assist in the discharge of its responsibilities.
The Board has established the Audit and Risk Committee
and the Remuneration and Nomination Committee. Other
committees may be established by the Board as and when
required. Membership of Board committees will be based
on the needs of the Company, relevant legislative and other
requirements and the skills and experience of individual
Directors.
Audit and Risk Committee
Under its charter, this committee must have at least three
members, a majority of whom must be independent Directors
and all of whom must be non-Executive Directors. Currently,
all the non-Executive Directors, other than Christine Cross
are members of this committee. John Holland is Chair of
the committee.
The primary role of this committee includes:
overseeing the process of financial reporting, internal
control, continuous disclosure, financial and non-financial
risk management and compliance and external audit;
monitoring Kathmandu’s compliance with laws and
regulations and Kathmandu’s own codes of conduct
and ethics;
encouraging effective relationships with, and
communication between, the Board, Management and
Kathmandu’s external auditor; and
26 ANNUAL REPORT 2013 KATHMANDU
evaluating the adequacy of processes and controls
established to identify and manage areas of potential risk
and to seek to safeguard the Company’s assets.
fairly and responsibly remunerates Directors and
Executives, having regard to the performance of the
Company, the performance of the Executives and the
Under the charter it is the policy of the Company that its
external auditing firm must be independent of the Company.
The committee will review and assess the independence of
the external auditor on an annual basis.
Remuneration and Nomination Committee
Under its charter, this committee must have at least three
members, a majority of whom must be independent
Directors and all of whom must be non-Executive Directors.
Currently, all the non-Executive Directors are members of
this committee. Sandra McPhee is Chair of the committee.
The main functions of the committee, are to assist the Board
with a view to establishing a Board of effective composition,
size, expertise and commitment to adequately discharge its
responsibilities and duties, and assist the Board with a view
to discharging its responsibilities to Shareholders and other
stakeholders to seek to ensure that the Company:
general remuneration environment; and
has effective policies and procedures to attract, motivate
and retain appropriately skilled persons to meet the
Company’s needs.
RISK MANAGEMENT POLICY
The identification and proper management of the Company’s
risk are an important priority of the Board. The Company
has a risk management policy appropriate for its business.
This policy highlights the risks relevant to the Company’s
operations, and the Company’s commitment to designing
and implementing systems and methods appropriate to
minimise and control its risk. The Audit and Risk Committee is
responsible for monitoring risk management and establishing
procedures which seek to provide assurance that major
business risks are identified, consistently assessed and
appropriately addressed.
has coherent remuneration policies and practices which
enable the Company to attract and retain Executives and
Directors who will create value for Shareholders;
CONTINUOUS DISCLOSURE POLICY
The Company is committed to observing its disclosure
obligations under the Listing Rules. The Company has a policy
KATHMANDU ANNUAL REPORT 2013 27
GENDER DIVERSITY
In accordance with ASX CGC Corporate Governance
Principles and Recommendations, Recommendation 3.4;
the proportion of females employed by Kathmandu as at
31 July 2013 was as follows:
Board: 33% being 2 female of 6 Directors
Executive Management: Total 9
= 7 males (78%), 2 females (22%)
Senior Management (Wider Leadership Team):
Total 43 = 25 Male (58%), 18 Female (42%)
Total Employees New Zealand: Total 714
= 266 Male (37%) and 448 Female (63%)
Total Employees Australia: Total 1159
= 551 Male (47.5%) and 608 Female (52.5%)
Total Employees United Kingdom: Total 47
= 30 Male (64%) and 17 Female (36%)
Total Kathmandu Group: Total 1920
= 847 Males (44%) and 1073 Females (56%)
Kathmandu considers our current employee gender diversity
as a strength and we will continue to support strategies and
initiatives that address any significant changes in diversity
ratios through employee turnover. Kathmandu is also proud
of its ethnic diversity which reflects the diversity of its
customers; business partners and community. Return to work
and flexible working arrangements which facilitate gender
diversity will be expanded to provide further provision to the
retention of our team.
A study of employee pay parity was conducted and audited
as part of the company annual salary review process, to
consider whether any employee gender pay disparity existed.
Based upon the results there is little evidence of any disparity
between male and female employees. A review of gender pay
parity will continue to be an on-going focus for the company.
COMMUNICATIONS WITH SHAREHOLDERS
The Company is committed to keeping Shareholders informed
of all major developments affecting the Company’s state
of affairs relevant to Shareholders in accordance with all
applicable laws. Information is communicated to Shareholders
through the lodgement of all relevant financial and other
information with ASX and NZX and publishing information on
the Company’s website (www.kathmanduholdings.com). In
particular, the Company’s website will contain information
about the Company, including media releases,key policies and
the terms of reference of the Company’s Board Committees.
All relevant announcements made to the market and any other
relevant information will be posted on the Company’s website
as soon as they have been released to ASX and NZX.
which establishes procedures which are aimed at ensuring
that Directors and Management are aware of and fulfil their
obligations in relation to the timely disclosure of material
price-sensitive information.
SECURITIES TRADING POLICY
The Company has guidelines for dealing in securities which
are intended to explain the prohibited type of conduct in
relation to dealings in securities under the Corporations
Act 2001 (Australia) and the Securities Markets Act 1988
(NZ) and to establish a best practice procedure in relation
to Directors’, management’s and employees’ dealings in
Shares in the Company. Subject to the overriding restriction
that persons may not deal in Shares while they are in
possession of material price sensitive information, Directors
and management will only be permitted to deal in Shares
during certain ‘window periods’, following the release of the
Company’s full and half year financial results or the release
of a disclosure document offering shares in the Company.
Outside of these periods, Directors and management must
receive clearance for any proposed dealing in Shares.
CODE OF CONDUCT
The Board recognises the need to observe the highest
standards of corporate practice and business conduct.
Accordingly, the Board has a formal code of conduct, to be
followed by all employees and officers. The key aspects of
this code are to:
act with honesty, integrity and fairness and in the best
interest of the Company;
act in accordance with all applicable laws, regulations,
policies and procedures; and
use Company resources and property properly.
DIVERSITY POLICY
Our employees are a vital resource and play a key role in
the success of the company. The skills and expertise of
Kathmandu’s employees drive innovation throughout the
business.
Kathmandu aspires to appoint the best people to do the best
job. In seeking to achieve this objective, the importance
of employee diversity is recognised in our commitment to
recruit, develop and promote employees on merit, at all levels
across the company, without any form of discrimination. The
benefits of diversity will continue to be tested and re-affirmed
with reference to our team composition.
Kathmandu has established a Diversity Policy in accordance
with ASX CGC Corporate Governance Principles and
Recommendations. A copy of this Policy can be obtained
from the Company Website.
We consider our current level of employee gender diversity
to be effective; however we will continue to be vigilant in the
review of measureable diversity objectives in accordance with
Recommendation 3.3 of the ASX CGC Corporate Governance
Principles and Recommendations.
KATHMANDU ANNUAL REPORT 2013 29
financial statements
FOR THE YEAR ENDED 31 JULY 2013
Directors’ Approval of Financial Statements
Statements of Comprehensive Income
Statements of Changes in Equity
Balance Sheets
Statements of Cash Flows
Notes to the Financial Statements
Auditors’ Report
Inventories
Intangible assets
Investment in subsidiaries
CONTENTS OF NOTES TO FINANCIAL STATEMENTS
General information
1
Summary of significant accounting policies
2
Standards, interpretations and amendments to published standards
3
Income and expenses
4
Income tax expense
5
Reconciliation of net profit after taxation with cash inflow from operating activities
6
Cash and cash equivalents
7
Trade and other receivables
8
9
Related party disclosures
10 Derivative financial instruments
11
12 Property, plant and equipment
13
14
15 Deferred taxation
16 Trade and other payables
Interest bearing liabilities
17
18 Contributed equity - ordinary shares
19 Employee share based remuneration
20 Reserves and retained earnings
21 Dividends
22 Remuneration of auditors
23 Contingent liabilities
24 Contingent assets
25 Commitments
26
27 Segmental information
28 Earnings per share
29 Earthquake disclosures
30 Events occurring after the balance date
Financial risk management
30
31
32
33
34
35
73
35
35
41
42
43
44
45
45
46
49
49
50
51
53
54
55
56
57
57
62
63
63
63
64
64
65
70
72
72
72
30 ANNUAL REPORT 2013 KATHMANDU
directors’ approval of
financial statements
FOR THE YEAR ENDED 31 JULY 2013
Authorisation for Issue
The Board of Directors authorised the issue of these Financial Statements on 24 September 2013.
Approval by Directors
The Directors are pleased to present the Financial Statements of Kathmandu Holdings Limited for the year ended 31 July 2013
on pages 31 to 72.
Director
Date: 24 September 2013
Director
Date: 24 September 2013
For and on behalf of the Board of Directors
KATHMANDU ANNUAL REPORT 2013 31
statements of comprehensive income
FOR THE YEAR ENDED 31 JULY 2013
Sales
Cost of sales
Gross profit
Other income
Selling expenses
Administration and general expenses
Finance income
Finance expenses
Finance costs - net
Profit before income tax
Income tax (expense)/benefit
Profit after income tax
Comprehensive Income that will be recycled to
the Income Statement:
Movement in cash flow hedge reserve
Movement in foreign currency translation reserve
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to
shareholders
Basic earnings per share
Diluted earnings per share
Weighted average basic ordinary shares outstanding (‘000)
Weighted average diluted ordinary shares outstanding (‘000)
GROUP
PARENT
Note
2013
2012
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
383,983)
347,104)
(141,958)
(127,559)
242,025)
219,545)
-)
-)
-)
-
-
-
864)
48)
20,133)
20,013)
(121,800)
(113,774)
(57,700)
(48,854)
63,389)
56,965)
187)
(4,594)
(4,407)
144)
(5,983)
(5,839)
-)
(1,941)
18,192)
-)
(17)
(17)
-
(1,794)
18,219)
-
(92)
(92)
58,982)
51,126)
18,175)
18,127)
(14,808)
(16,274)
(45)
154)
44,174)
34,852)
18,130)
18,281)
8,376)
(18,186)
5,746)
3,739)
(9,810)
9,485)
-)
-)
-)
-
-
-
34,364)
44,337)
18,130
18,281)
22.1cps)
21.9cps)
17.4cps
17.2cps
200,197))
200,000)
202,121))
203,121)
4
4
4
5
20
20
28
28
28
28
32 ANNUAL REPORT 2013 KATHMANDU
statements of changes in equity
FOR THE YEAR ENDED 31 JULY 2013
GROUP
Balance as at 31 July 2011
Total comprehensive income
Dividends paid
Issue of share capital
Share Options / Performance Rights lapsed
Share based payment expense
Balance as at 31 July 2012
Total comprehensive income
Dividends paid
Issue of share capital
Share Options / Performance Rights lapsed
Share based payment expense
Balance as at 31 July 2013
PARENT
Balance as at 31 July 2011
Total comprehensive income
Dividends paid
Issue of share capital
Share Options / Performance Rights lapsed
Share based payment expense
Balance as at 31 July 2012
Total comprehensive income
Dividends paid
Issue of share capital
Share Options / Performance Rights lapsed
Share based payment expense
Balance as at 31 July 2013
Share
Capital
Cash Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Share
Based
Payments
Reserve
Retained
Earnings
Total Equity
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
197,049)
-)
-)
249)
-)
-)
(9,055)
5,746))
3,889)
3,739)
-)
-)
-)
-)
-)
-)
-)
-)
197,298)
(3,309)
7,628)
-)
-)
72)
-)
-)
8,376))
(18,186)
-)
-)
-)
-)
-
-
-
-
197,370)
5,067))
(10,558)
625))
-)
-)
(249)
(8)
371))
739))
-)
-)
(72)
(53)
209))
823))
62,418)
34,852)
254,926
44,337
(20,000)
(20,000)
-
8)
-
-)
-)
371
77,278)
279,634
44,174
(20,018)
34,364
(20,018)
-
53)
-
-
-
209
101,487
294,189
Share
Capital
Cash Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Share
Based
Payments
Reserve
Retained
Earnings
Total Equity
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
422,137
-
-
249
-
-
422,386
-
-
72
-
-
422,458
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
625
-
-
(249)
(8)
371
739
-
-
(72)
(53)
209
823
(13,943)
18,281
(20,000)
-
8
-
NZ$’000
408,819
18,281
(20,000)
-
-
371
(15,654)
407,471
18,130
(20,018)
18,130
(20,018)
-
53
-
-
-
209
(17,489)
405,792
KATHMANDU ANNUAL REPORT 2013 33
balance sheets
AS AT 31 JULY 2013
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Related party receivable
Derivative financial instruments
Inventories
Current tax assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Derivative financial instruments
Investment in subsidiaries
Deferred tax
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Interest bearing liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Derivative financial instruments
Interest bearing liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity - ordinary shares
Reserves
Retained earnings
Total equity
Note
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
7
8
9
10
11
12
13
10
14
15
16
10
17
10
17
18
20
20
2,345
3,668
-
7,887
80,031
-
1,811
3,503
-
-
73,295
-
93,931
78,609
43,379
234,863
27
-
4,017
282,286
376,217
33,032
58
223
5,507
38,820
628
42,580
43,208
82,028
41,911
249,092
-
-
3,218
294,221
372,830
29,304
3,128
-
6,276
38,708
751
53,737
54,488
93,196
5
256
26
261
81,944
82,885
-
-
2,589
84,794
-
4
-
-
-
3,113
86,285
-
-
-
321,234
321,234
17
321,255
406,049
-
321,234
407,519
257
-
-
-
257
-
-
-
257
48
-
-
-
48
-
-
-
48
294,189
279,634
405,792
407,471
197,370
(4,668)
101,487
294,189
197,298
5,058
77,278
279,634
422,458
422,386
823
(17,489)
405,792
739
(15,654)
407,471
34 ANNUAL REPORT 2013 KATHMANDU
statements of cash flows
FOR THE YEAR ENDED 31 JULY 2013
Cash flows from operating activities
Cash was provided from:
Receipts from customers
Dividends received
Income tax received
Interest received
Cash was applied to:
Payments to suppliers and employees
Income tax paid
Interest paid
Note
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
384,515
345,974
-
-
50
-
-
131
-
20,018
462
-
-
20,000
257
-
384,565
346,105
20,480
20,257
315,892
18,411
4,586
338,889
291,626
16,002
5,949
313,577
1,415
1,567
-
-
-
-
1,415
1,567
Net cash inflow from operating activities
6
45,676
32,528
19,065
18,690
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment
Cash was applied to:
Purchase of property, plant and equipment
Purchase of intangibles
10
10
14,819
2,600
17,419
32
32
17,868
3,985
21,853
12
13
-
-
-
7
7
Net cash (outflow) from investing activities
(17,409)
(21,821)
(7)
-
-
-
-
-
-
Cash flows from financing activities
Cash was provided from:
Proceeds of loan advances
Cash was applied to:
Dividends paid
Repayment of loan advances
96,225
96,225
20,018
103,758
123,776
206,226
206,226
20,000
199,040
219,040
941
941
20,018
-
20,018
1,331
1,331
20,000
-
20,000
Net cash inflow / (outflow) from financing activities
(27,551)
(12,814)
(19,077)
(18,669)
Net increase / (decrease) in cash held
Opening cash and cash equivalents
Effect of foreign exchange rates
Closing Cash
716
(2,107)
1,811
(182)
2,345
3,574
344
1,811
(19)
26
(2)
5
21
5
-
26
7
KATHMANDU ANNUAL REPORT 2013 35
notes to the financial statements
1 GENERAL INFORMATION
Kathmandu Holdings Limited (the Company) and its subsidiaries
(together the Group) is a designer, marketer and retailer of
clothing and equipment for travel and adventure. It operates in
New Zealand, Australia and the United Kingdom.
The Company is a limited liability company incorporated and
domiciled in New Zealand. The address of its registered office is
11 Mary Muller Drive, Heathcote, Christchurch.
The Company is listed on the NZX and ASX.
These audited consolidated financial statements have been
approved for issue by the Board of Directors on 24 September
2013.
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
These financial statements have been prepared in accordance
with Generally Accepted Accounting Practice in New Zealand.
They comply with the New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and other applicable
Financial Reporting Standards, as appropriate for profit-oriented
entities. The financial statements also comply with International
Financial Reporting Standards (IFRS).
The reporting currency used in the preparation of these
consolidated financial statements is New Zealand dollars,
rounded where necessary to the nearest thousand dollars.
(A) BASIS OF PREPARATION
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies
have been consistently applied to all periods presented, unless
otherwise stated.
Entities reporting
The financial statements for the “Parent” are for Kathmandu
Holdings Limited as a separate legal entity.
The consolidated financial statements for the “Group” are for the
economic entity comprising Kathmandu Holdings Limited and its
subsidiaries. The Company and Group are designated as profit
oriented entities for financial reporting purposes.
Statutory base
Kathmandu Holdings Limited is a company registered under the
Companies Act 1993.
The financial statements have been prepared in accordance with
the requirements of the Financial Reporting Act 1993 and the
Companies Act 1993.
Historical cost convention
These financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
certain assets as identified in specific accounting policies 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.
(i) Estimated impairment of goodwill and brands
The group tests annually whether goodwill and brands have
suffered any impairment in accordance with the accounting policy
stated in note 2 (q) (i) & (ii). The recoverable amounts of cash-
generating units have been determined based on the fair value
less cost to sell calculation. These calculations require the use of
estimates (note 13).
(ii) Stock obsolescence
The Group assesses the likely residual value of inventory. A stock
provision is recognised for stock which is selling for less than
cost. Any increase in these provisions is taken as a reduction to
inventory on the balance sheet and expensed into gross profit on
the income statement.
(B) PRINCIPLES OF CONSOLIDATION
(i) Subsidiaries
Subsidiaries are all entities (including special purpose entities)
over which the Group has the power to govern the financial
and operating policies generally accompanying a shareholding
of more than one half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group
controls another entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account
for business combinations by the Group. The consideration
transferred for the acquisition of a subsidiary is the fair values
of the assets transferred, the liabilities incurred and the equity
interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from
a contingent consideration arrangement. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date. On an acquisition-by-acquisition basis, the Group
recognises any non-controlling interest in the acquiree either at
fair value or at the non-controlling interest’s proportionate share
of the acquiree’s net assets.
36 ANNUAL REPORT 2013 KATHMANDU
The excess of the consideration transferred over the amount of
any non-controlling interest in the acquiree and the acquisition
date fair value of any previous equity interest in the acquiree
over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill. If this is less than the
fair value of the net assets of the subsidiary acquired in the case
of a bargain purchase, the difference is recognised directly in the
income statement.
Inter-company transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
(ii) Transactions and non-controlling interests
The Group treats transactions with non-controlling interests as
transactions with equity owners of the Group. For purchases
from non-controlling interests, the difference between any
consideration paid and the relevant share acquired of the carrying
value of net assets of the subsidiary is recorded in equity. Gains
or losses on disposals to non-controlling interests are also
recorded in equity.
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 income statement 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 as a separate
component of equity.
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. When a foreign operation is partially disposed of or sold,
exchange differences that were recorded in equity are recognised
in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
(C) SEGMENT REPORTING
(E) REVENUE RECOGNITION
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 is organised into three operating segments, depicting
the three geographical regions the Group operates in.
(D) FOREIGN CURRENCY TRANSLATION
(i) Functional and presentation currency
Items included in the financial statements of each of the
subsidiaries’ operations are measured using the currency of the
primary economic environment in which it operates (‘functional
currency’). The financial statements are presented in New
Zealand dollars, which is the Company’s functional currency and
Group’s presentation currency.
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 income
statement, except when deferred in equity as qualifying cash
flow hedges. Translation differences on monetary financial assets
and liabilities are reported as part of the fair value gain or loss.
Revenue comprises the fair value of the consideration received
or receivable for the sale of goods and services, excluding Goods
and Services Tax, rebates and discounts and after eliminating
sales within the Group. Revenue is recognised as follows:
(i) Sales of goods
Sales of goods are recognised when a Group entity has delivered
a product to the customer. Retail sales are usually in cash or
by credit card. The recorded revenue is the gross amount of
sale (excluding GST), including credit card fees payable for the
transaction. Such fees are included in selling expenses.
(ii) Sales of services
Management fees are recognised in the accounting period in
which the services are rendered.
(iii) Interest income
Interest income is recognised on a time-portion basis using the
effective interest method.
(iv) Dividend income
Dividend income is recognised when the right to receive
payment is established.
(ii) Group companies
(F) CURRENT AND DEFERRED INCOME TAX
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:
The tax expense for the year comprises current and deferred tax.
Tax is recognised in the income statement, except to the extent
that it relates to items recognised directly in equity. In this case,
the tax is also recognised in equity.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet
date in the countries where the Company’s subsidiaries operate
and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However, the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries and associates, 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.
(G) GOODS AND SERVICES TAX (GST)
The income statement and the cash flow statement have
been prepared so that all components are stated exclusive
of GST. All items in the balance sheet are stated net of GST,
with the exception of receivables and payables, which include
GST invoiced.
(H) LEASES
The Group is the lessee
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
(I) IMPAIRMENT OF NON-FINANCIAL ASSETS
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
KATHMANDU ANNUAL REPORT 2013 37
amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell 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 (cash generating units).
(J) CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term highly liquid
investments with original maturities of three months or less that
are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value, and bank
overdrafts. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
(K) TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost, less provision for
doubtful debts.
The collectability of trade receivables is reviewed on an on-going
basis. Debts, which are known to be uncollectible, are written
off. A provision for doubtful receivables is established when there
is objective evidence that the Group will not be able to collect
all amounts due according to the original terms of receivables.
Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganisation, and
default or delinquency in payments are considered indicators
that the trade receivable is impaired. The amount of the provision
is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the
effective interest rate. The amount of the provision is recognised
in the income statement.
(L) INVENTORIES
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. Net
realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses.
(M) INVESTMENTS AND OTHER FINANCIAL ASSETS
The Group classifies its investments in the following categories:
loans and receivables, and financial assets at fair value through
profit or loss. The classification depends on the purpose for
which the investments were acquired. Regular purchases and
sales of financial assets are recognised on the trade date - the
date on which the Group commits to purchase or sell the asset.
Management determines the classification of its investments at
the initial recognition and re-evaluates this designation at every
reporting date.
38 ANNUAL REPORT 2013 KATHMANDU
(i) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods
or services directly to a debtor with no intention of selling the
receivable. They are included in current assets, except for those
with maturities greater than 12 months after the balance sheet
date which are classified as non-current assets.
(ii) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial
assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the
short-term. Derivatives are also categorised as held for trading
unless they are designated as hedges. Assets in this category
are classified as current assets.
Financial assets carried at fair value through profit or loss
are initially recognised at fair value, and transaction costs
are expensed in the income statement. Financial assets are
derecognised when the rights to receive cash flows from the
investments have expired or have been transferred and the
Group has transferred substantially all risks and rewards of
ownership. Loans and receivables are carried at amortised cost
using the effective interest method.
Gains or losses arising from changes in the fair value of
‘financial assets at fair value through profit or loss’ are
presented in the income statement, except for foreign exchange
movements on monetary assets, which are recognised in
the income statement within ‘finance costs – net’. Dividend
income from financial assets at fair value through profit or loss
is recognised in the income statement as part of other income
when the Group’s right to receive payments is established.
The Group assesses at each balance sheet date whether there
is objective evidence that a financial asset or a group of financial
assets is impaired.
(N) DERIVATIVES
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 either; (1) hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedge); or (2) hedges
of highly probable forecast transactions (cash flow hedges).
The Group documents, at the inception of the transaction,
the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy
for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on
an on-going basis, of whether the derivatives that are used in
hedging transactions have been and will continue to be highly
effective in offsetting changes in fair values or cash flows of
hedged items.
(i) Fair value hedge
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting,
the adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to profit
and loss over the period of maturity.
(ii) 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 income
statement. Amounts accumulated in equity are recycled in the
income statement in the periods when the hedged item will
affect profit or loss (for instance when the forecast sale that is
hedged takes place). 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 income statement. 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
income statement.
(iii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge
accounting or hedge accounting has not been adopted. Changes
in the fair value of these derivative instruments are recognised
immediately in the income statement within ‘finance costs – net’.
(O) FAIR VALUE ESTIMATION
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure
purposes.
The fair value of financial instruments that are not traded in an
active market (for example, over-the-counter derivatives) is
determined using valuation techniques. The fair value of forward
exchange contracts is determined using forward exchange
market rates at the balance sheet date.
Quoted market prices or dealer quotes for similar instruments are
used for long-term debt. Other techniques, such as estimated
KATHMANDU ANNUAL REPORT 2013 39
discounted cash flows, are used to determine fair value for the
remaining financial instruments. The fair value of interest rate
swaps is calculated as the present value of the estimated future
cash flows. The fair value of forward foreign exchange contracts
is determined using quoted forward exchange rates at the
balance sheet date.
The carrying value less impairment provision of trade receivables
and payables are assumed to approximate their fair values.
(P) 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.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, 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. All other repairs and maintenance are charged to the
income statement during the financial period in which they are
incurred.
Depreciation of property, plant and equipment is calculated using
diminishing value method so as to expense the cost of the assets
over their useful lives. The rates are as follows:
Leasehold Improvements
Office, Plant and Equipment
Furniture and Fittings
Computer Equipment
Motor Vehicles
8 – 50 %
8 – 80 %
6 – 60 %
6 – 67%
15 – 30%
The assets’ residual value and useful lives are reviewed and
adjusted if appropriate at each balance sheet date.
expected to benefit from the business combination in which
the goodwill arose.
(ii) 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 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.
(iii) Software costs
Software costs have a finite useful life. Software costs are
capitalised and written off over the useful economic life using
diminishing value method and rates of 10-60%.
Costs associated with developing or maintaining computer
software programs are recognised as an expense as 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.
(R) TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year which
are unpaid. The amounts are unsecured and are usually paid by
the 30th of the month following recognition. Trade payables are
recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
Capital work in progress is not depreciated until available for use.
(S) PROVISIONS
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.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.
(Q) INTANGIBLE ASSETS
(i) Goodwill
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. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
(T) BORROWINGS
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 and carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed.
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 income statement over the period of the borrowings using
the effective interest method.
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
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.
40 ANNUAL REPORT 2013 KATHMANDU
(U) SHARE CAPITAL
Ordinary shares are classified as equity.
termination or unexercised options reaching maturity, the amount
in the share based payments reserve relating to those options is
transferred to retained earnings.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the proceeds.
(iv) Equity settled long term incentive plan
The Executive and Senior Management Long Term Incentive
plan grants Group employees performance rights subject to
performance hurdles being met. The fair value of rights granted
is recognised as an employee expense in the Income Statement
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 the each vesting date.
When performance rights vest, the amount in the share based
payments reserve relating to those rights are transferred to
share capital. When any vested performance rights lapse upon
employee termination, the amount in the share based payments
reserve relating to those rights is transferred to retained earnings.
(W) DIVIDENDS
Dividend distribution to the Company shareholders is recognised
as a liability in the Company’s and Group’s financial statements in
the period in which the dividends are approved by the Company’s
shareholders.
(X) CASH FLOW STATEMENT
The following are definitions of the terms used in the Cash
Flow Statement:
a. Cash comprises: cash at bank, cash on hand and overdraft
balances;
b. Investing activities are those activities relating to the
acquisition, holding and disposal of property, plant and
equipment and of investments. Investments can include
securities not falling within the definition of cash;
c. Financing activities are those activities which result in
changes in the size and composition of the capital structure of
the Company;
d. Operating activities include all transactions and other events
that are not investing or financing activities.
(Y) CHANGES IN ACCOUNTING POLICIES
There were no changes in the accounting policies during the period.
Where any Group company purchases the Company’s equity
share capital (treasury shares), the consideration paid, including
any directly attributable incremental costs (net of income taxes)
is deducted from equity attributable to the Company’s equity
holders until the shares are cancelled or reissued. Where such
shares are subsequently reissued, any consideration received net
of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the
Company’s equity holders.
(V) EMPLOYEE BENEFITS
(i) Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary
benefits, annual leave, and accumulating sick leave expected to
be settled within 12 months of the reporting date are recognised
in other payables in respect of employees’ services up to the
reporting date and are measured at the amounts expected
to be paid when the liabilities are settled. Liabilities for non-
accumulating sick leave are recognised when the leave is
taken and measured at the rates paid or payable. The liability
for employee entitlements is carried at the present value of the
estimated future cash flows.
(ii) Long service leave
The liability for long service leave is recognised in the provision
for employee benefits and measured as the present value of
expected future payments to be made in respect of services
provided by employees up to the reporting date using the
projected unit credit method. Consideration is given to expected
future wage and salary levels, experience of employee
departures and periods of service. Expected future payments are
discounted using market yields at the reporting date on national
government bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash flows.
(iii) Equity settled share option plan
The Employee Share Option Plan allows Group employees to
acquire shares of the Company. The fair value of options granted
is recognised as an employee expense in the Income Statement
with a corresponding increase in the employee share based
payments reserve. The fair value is measured at grant date and
spread over the vesting periods. The fair value of the options
granted is measured using the Monte Carlo simulation approach,
taking into account the terms and conditions upon which the
options are granted. When options are exercised the amount
in the share option reserve relating to those options, together
with the exercise price paid by the employee, is transferred to
share capital. When any vested options lapse, upon employee
KATHMANDU ANNUAL REPORT 2013 41
3 STANDARDS, INTERPRETATIONS AND
AMENDMENTS TO PUBLISHED STANDARDS
The following new standards and amendments to standards
were applied during the period;
NZ IAS 1 Amendments Presentation of Items of Other
Comprehensive Income (effective 1 July 2012):
NZ IAS 27 is renamed Separate Financial Statements and
is now a standard dealing solely with separate financial
statements. Application of this standard by the group and
parent entity will not affect any of the amounts recognised
in the financial statements, but may impact the type of
information disclosed in relation to the parent’s investments
in the separate parent entity financial statements.
NZ IFRS 13 Fair Value Measurement
(effective 1 January 2013)
NZ IFRS 13 explains how to measure fair value and aims to
enhance fair value disclosures. The Group has yet to determine
which, if any, of its current measurement techniques will have
to change as a result of the new guidance. It is therefore not
possible to state the impact, if any, of the new rules on any of
the amounts recognised in the financial statements. However,
application of the new standard will impact the type of
information disclosed in the notes to the financial statements.
The Group does not intend to adopt the new standards before
their operative date, which means that all of the above new
standards would be first applied in the annual reporting period
ending 31 July 2014, with the exception of NZ IFRS 9 that will
be applied in the annual period ending 31 July 2016.
The amendment requires entities to separate items presented
in other comprehensive income into two groups, based on
whether they may be recycled to profit or loss in the future.
This will not affect the measurement of any of the items
recognised in the balance sheet or the profit or loss in the
current period.
Standards, interpretations and amendments to published
standards that are not yet effective:
NZ IFRS 9: Financial Instruments (effective for annual
reporting periods beginning on or after 1 January 2015)
This standard replaces the parts of NZ IAS 39 Financial
Instruments: Recognition and Measurement that relates to the
classification and measurement of financial instruments.
All financial assets are required to be classified into two
measurement categories: at fair value and at amortised cost.
The determination is based on the entity’s business model for
managing the financial assets and the contractual cash flow
characteristics of the financial asset.
For financial liabilities, the standard retains most of the NZ IAS
39 requirements. An additional presentational requirement has
been added for liabilities designated at fair value through profit
and loss. Where the fair value option is taken, the part of a fair
value change due to an entity’s own credit risk is recorded in
other comprehensive income.
NZ IFRS 10 Consolidated Financial Statements (effective
1 January 2013), revised NZ IAS 27 Separate Financial
Statements
NZ IFRS 10 replaces all of the guidance on control and
consolidation in NZ IAS 27 Consolidated and Separate
Financial Statements, and NZ IFRIC 12 Consolidation – Special
Purpose Entities. The core principle that a consolidated entity
presents a parent and its subsidiaries as if they are a single
economic entity remains unchanged, as do the mechanics
of consolidation. However, the standard introduces a single
definition of control that applies to all entities. It focuses on
the need to have both power and rights or exposure to variable
returns before control is present. Power is the current ability to
direct the activities that significantly influence returns. Returns
must vary and can be positive, negative or both. There is
also new guidance on participating and protective rights and
on agent/principal relationships. While the Group does not
expect the new standard to have a significant impact on its
composition, it has yet to perform a detailed analysis of the
new guidance in the context of its various investees that may
or may not be controlled under the new rules.
42 ANNUAL REPORT 2013 KATHMANDU
4
INCOME AND EXPENSES
Profit / (loss) before income tax includes the following specific
(income) and expenses:
Income
Dividends received
EXPENSES
Depreciation
- Leasehold improvements
- Office, plant and equipment
- Furniture and fittings
- Computer equipment
- Motor vehicles
Total depreciation
Amortisation
- Software
Total amortisation
(Gain) / Loss on sale of property, plant and equipment
Rental and operating lease expenses
Directors’ fees
Employee entitlements:
- Wages, salaries and other short term benefits
- Employee share based remuneration
Finance Costs
Interest income
Interest expense
Other finance costs
Net exchange (gain) / loss on foreign currency borrowings
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
-
-
(20,018)
(20,000)
5,225
537
2,544
496
12
8,814
1,795
1,795
955
43,801
717
68,719
209
(50)
3,868
607
(18)
4,407
4,986
485
2,020
421
20
7,932
1,599
1,599
891
39,595
714
61,795
371
(131)
4,274
1,587
109
5,839
-
-
-
-
-
-
3
3
-
-
717
-
209
-
-
-
17
17
-
-
-
-
-
-
-
-
-
-
714
-
371
-
-
-
92
92
Remuneration of auditors is detailed in note 22.
Amortisation expenditure is included in administration and general expenses in the income statement.
5
INCOME TAX EXPENSE
Income statement
Current income tax charge
Deferred income tax charge (refer note 15)
Income tax charge / (credit) reported in income statement
Reconciliation of effective tax charge
Profit before income tax
Income tax calculated at 28% (2012: 28%)
Adjustments to taxation:
Adjustments due to different rate in different jurisdictions
Non-taxable income
Expenses not deductible for tax purposes
Effect of change in corporate tax rate
Utilisation of tax losses by group companies
Tax expense transferred to foreign currency translation reserve
Adjustments in respect of prior years
Income tax charge / (credit) reported in income statement
The tax charge / (credit) relating to components of other
comprehensive income is as follows:
KATHMANDU ANNUAL REPORT 2013 43
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
18,826
(4,018)
14,808
17,053
(779)
16,274
62
(17)
45
(154)
-
(154)
58,982
16,515
51,126
14,315
18,175
5,089
18,127
5,075
530
-
630
-
-
(2,929)
62
14,808
654
-
946
-
-
464
(105)
16,274
-
-
(5,606)
(5,600)
69
-
-
-
493
45
31
-
-
-
340
(154)
Note
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Movement in cash flow hedge reserve before tax
Tax credit / (charge) relating to cash flow hedge reserve
Movement in cash flow hedge reserve after tax
Foreign currency translation reserve before tax
Tax credit / (charge) relating to foreign currency translation reserve
Movement in foreign currency translation reserve after tax
Total other comprehensive income before tax
Total tax credit / (charge) on other comprehensive income
Total other comprehensive income after tax
Current tax
Deferred tax
15
Total tax credit / (charge) on other comprehensive income
11,203)
(2,827)
8,376)
(20,723)
2,537)
(18,186)
(9,520)
(290)
(9,810)
2,929)
(3,219)
(290)
6,818)
(1,072)
5,746
4,159)
(420)
3,739)
10,977)
(1,492)
9,485)
(464)
(1,028)
(1,492)
-)
-)
-
-)
-)
-
-)
-)
-
-)
-)
-
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
44 ANNUAL REPORT 2013 KATHMANDU
Unrecognised tax losses
The group has estimated tax losses to carry forward from Kathmandu (U.K.) Limited of £8,186,293 (NZ$15,387,769) (2012:
£7,290,184 (NZ$14,350,756)) which can be carried forward to be offset against future profits generated within the UK.
IMPUTATION CREDITS
Imputation credits available for use in subsequent reporting
periods based on a tax rate of 28%
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
4,527
3,554
(1)
(1)
The above amounts represent the balance of the imputation account as at the end of July 2013, adjusted for:
Imputation credits that will arise from the payment of the amount of the provision for income tax;
Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The balance of Australian franking credits able to be used by the Group as at 31 July 2013 is A$5,794,857 (2012: A$3,369,445).
6 RECONCILIATION OF NET PROFIT AFTER TAXATION WITH CASH INFLOW FROM OPERATING ACTIVITIES
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Profit after taxation
44,174
34,852
18,130
18,281
Movement in working capital:
(Increase) / decrease in trade and other receivables
(Increase) / decrease in inventories
Increase / (decrease) in trade and other payables
Increase / (decrease) in tax liability
Add non cash items:
Depreciation
Amortisation of intangibles
Revaluation of derivative financial instruments
(Increase) / decrease in deferred taxation
Employee share based remuneration
Loss on sale of property, plant and equipment
(332)
(11,915)
6,348
(243)
(6,142)
8,814
1,795
(3,053)
(1,076)
209
955
7,644
(1,130)
(18,473)
7,887
(558)
(12,274)
7,932
1,599
(1,131)
288
371
891
9,950
5
-
210
525
740
-
3
-
(17)
209
-
195
(69)
-
6
101
38
-
-
-
-
371
-
371
Cash inflow from operating activities
45,676
32,528
19,065
18,690
7 CASH AND CASH EQUIVALENTS
KATHMANDU ANNUAL REPORT 2013 45
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Cash on hand
Cash at bank
Short term deposits
165
2,166
14
2,345
The carrying amount of the Group’s cash and cash equivalents are denominated in the following currencies:
NZD
AUD
GBP
USD
EUR
527
1,464
270
84
-
167
1,455
189
1,811
487
211
927
177
9
8 TRADE AND OTHER RECEIVABLES
2,345
1,811
-
5
-
5
5
-
-
-
-
5
-
26
-
26
26
-
-
-
-
26
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Trade receivables
Sundry debtors and prepayments
125
3,543
3,668
206
3,297
3,503
Bad and doubtful trade receivables
The Group has recognised a loss of $0 (2012: $0) in respect of bad and doubtful trade receivables during the year ended 31 July 2013.
The carrying amount of the Group’s trade and other receivables are denominated in the following currencies:
NZD
AUD
GBP
2,076
1,019
573
3,668
1,565
1,241
697
3,503
-
256
256
256
-
-
256
-
261
261
261
-
-
261
46 ANNUAL REPORT 2013 KATHMANDU
9 RELATED PARTY DISCLOSURES
Parent and Ultimate Controlling Party
Kathmandu Holdings Limited is the immediate parent, ultimate
parent and controlling party.
During the year, legal fees of $84,863 (2012: $163,683) were
paid to Chapman Tripp for services provided (primarily related to
property leases). John Holland is both a Director of Kathmandu
Holdings Limited and a Partner of Chapman Tripp. As at 31
July 2013, there were outstanding legal fees of $4,989 (2012:
$20,149).
During the year, operating lease costs of $229,282 (2012:
$223,054) were paid to Chalmers Properties Limited, a
subsidiary of Port Otago Limited. John Harvey is a Director of
both of these companies.
All subsidiaries within the group (note 14) are related parties.
No amounts owed to related parties have been written off or
forgiven during the year.
(a) Key Management Personnel
Salaries
Other short-term employee benefits
Employee performance rights
Employee share option plans
Key management personnel include the following employees:
Executive Directors:
Chief Executive Officer
Chief Financial Officer
Other Key Management Personnel:
GM, Product
GM, Marketing
During the year the Company advanced and repaid loans to its
subsidiaries by way of an internal current account. In presenting
the financial statements of the Group, the effect of transactions
and balances between fellow subsidiaries and those with the
parent have been eliminated. All transactions with related
parties were in the normal course of business and provided on
commercial terms.
Material amounts outstanding between the parent and
subsidiaries at year end were:
Loans from the parent to subsidiaries (Kathmandu Limited)
$81,944,045 (2012: $82,884,844).
Loans to the parent from subsidiaries $0 (2012: $0).
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
3,124)
1,187)
202)
7)
4,520
3,193
81
204
67
3,545
-
-
202
7
209
-
-
204
67
271
Chief Information Officer
GM, Retail (Australia)
GM, Business Development & Sustainability
GM, Retail (New Zealand)
GM, Supply Chain
KATHMANDU ANNUAL REPORT 2013 47
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
717
713
717
713
(b) Non-Executive Directors
Total directors fees
Directors fees for the Parent company were paid to the following:
James Strong (Deceased 4 March 2013)
Sandra McPhee
John Harvey (Acting Chairman from 4 March 2013)
John Holland
Christine Cross
(c) Remuneration Detail (as referred to in the Remuneration Report)
2013
SHORT-TERM BENEFITS
SHARE BASED PAYMENTS
POST-EM-
PLOYMENT
BENEFITS
Name
Cash salary
and fees
$
Cash
bonus
$
Non-monetary
benefits
$
Super
-annuation
$
Share
options
$
Performance
rights
$
Proportion of
remuneration as
equity related
%
Total
$
Proportion of
remuneration as
performance
related
%
Non-Executive Directors
James Strong
John Harvey
John Holland
Sandra McPhee
Christine Cross
159,136
191,984
140,139
140,139
85,229
Total Non-Executive Directors
716,627
Executive Directors
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
0.0%
159,136
191,984
140,139
140,139
85,229
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
716,627
0.0%
Peter Halkett1
831,975
100,000
680,998)
Mark Todd
483,171
80,000
3,551
45,738
11,261
3,689
1,057
117,508
58,977
6.8% 1,779,908
9.4%
638,017
5.6%
12.5%
Total Executive Directors
1,315,146
180,000
684,549)
56,999
4,746
176,485
7.5% 2,417,925)
7.4%
Total Other Key Management Personnel
1,686,329
304,502
18,323
65,475
Total
3,718,102
484,502
702,872
122,474
1,769
6,515
26,006
202,491
1.3% 2,102,204
4.0% 5,236,956
14.5%
9.3%
1.
This includes amounts paid by the Group in settling the obligations arising from a change in the primary tax residency (from New Zealand
to Australia) for the period from May 2011 to July 2013. The amounts involved are primarily non-monetary benefits, being net amounts paid
or payable directly to the relevant taxation authorities as a result of the prior taxation residency being corrected.
48 ANNUAL REPORT 2013 KATHMANDU
(c) Remuneration Detail (as referred to in the Remuneration Report)
2012
SHORT-TERM BENEFITS
SHARE BASED PAYMENTS
POST-EM-
PLOYMENT
BENEFITS
Name
Cash salary
and fees
$
Cash
bonus
$
Non-monetary
benefits
$
Super
- annuation
$
Share
options
$
Performance
rights
$
Proportion of
remuneration
as equity
related
%
Total
$
Proportion of
remuneration
as
performance
related
%
Non-Executive Directors
James Strong
John Harvey
John Holland
Sandra McPhee
277,534
145,182
145,182
145,182
Total Non-Executive Directors
Executive Directors
Peter Halkett
Mark Todd
713,080
850,981
499,753
Total Executive Directors
1,350,734
-
-
-
-
-
-
-
-
Total Other Key Management Personnel
-
-
-
-
-
59,483
3,374
-
-
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
277,534
145,182
145,182
145,182
0.0%
0.0%
0.0%
0.0%
0.0%
713,080
0.0%
-
-
-
-
-
-
38,877
110,363
14.1% 1,059,704
13,465
11,144
48,929
10.4%
576,665
0.0%
0.0%
62,857
13,465
50,021
159,292
12.8% 1,636,369
0.0%
Total
1,752,924
3,816,738
-
-
18,581
81,438
75,713
16,536
44,621
3.2% 1,908,375
89,178
66,557
203,913
6.4% 4,257,824
0.0%
0.0%
10 DERIVATIVE FINANCIAL INSTRUMENTS
Asset
Interest rate swaps - cash flow hedge
Foreign exchange contracts - cash flow hedge
Less non-current portion:
Interest rate swaps - cash flow hedge
Current portion
Liabilities
Interest rate swaps - cash flow hedge
Foreign exchange contracts - cash flow hedge
Less non-current portion:
Interest rate swaps - cash flow hedge
Current portion
KATHMANDU ANNUAL REPORT 2013 49
GROUP
2013
NZ$’000
2012
NZ$’000
PARENT
2013
NZ$’000
2012
NZ$’000
27
7,887
7,914
27
7,887
686
-
686
628
58
-
-
-
-
-
990
2,889
3,879
751
3,128
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The above table shows the Group’s financial derivative holdings at year end. Refer to note 2(o) for information on the calculation of fair
values.
(a) Interest rate swaps - cash flow hedge
(b) Foreign exchange contracts - 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 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 total
amount of interest rate swaps at balance date was $44,971,623
(2012: $45,940,337). The fixed interest rates range between
3.05% and 5.71% (2012: 3.99% and 5.71%).
Refer note 26 for timing of expected cash flows relating to
interest rate swaps.
11 INVENTORIES
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 total of foreign
exchange contracts amount to US$90,700,000, NZ$107,499,336
(2012: US$76,750,000, NZ$99,138,128).
No material hedge ineffectiveness for interest rate swaps or
foreign exchange contracts exists as at balance date (2012:Nil).
Trading stock
Goods in transit
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
64,597
15,434
80,031
60,391
12,904
73,295
-
-
-
-
-
-
Inventory has been reviewed for stock selling below cost and no provision (2012: $0) has been made.
50 ANNUAL REPORT 2013 KATHMANDU
12 PROPERTY, PLANT AND EQUIPMENT
GROUP
Year ended 31 July 2012
Opening net book value
Additions
Disposals
Depreciation charge
Exchange differences
Closing net book value
As at 31 July 2012
Cost
Accumulated depreciation
Closing net book value
Year ended 31 July 2013
Opening net book value
Additions
Disposals
Depreciation charge
Exchange differences
Closing net book value
As at 31 July 2013
Cost
Accumulated depreciation
Closing net book value
Leasehold
improvement
Office, plant
& equipment
Furniture &
fittings
Computer
equipment
Motor
vehicles
Total
$’000
$’000
$’000
$’000
$’000
$’000
23,066
12,407
(535)
(4,986)
394
30,346
49,362
(19,016)
30,346
30,346
5,633
(985)
(5,225)
(2,390)
27,379
49,298
(21,919)
27,379
1,405
517
(7)
(485)
19
1,449
4,441
(2,992)
1,449
1,449
1,224
(169)
(537)
(82)
1,885
4,868
(2,983)
1,885
5,962
4,077
(779)
(2,020)
85
7,325
14,070
(6,745)
7,325
7,325
7,056
(350)
(2,544)
(438)
11,049
19,279
(8,230)
11,049
2,299
859
(19)
(421)
14
2,732
8,379
(5,647)
2,732
2,732
906
(38)
(496)
(75)
3,029
7,279
(4,250)
3,029
90
8
(20)
(20)
1
59
252
(193)
59
59
-
(7)
(12)
(3)
37
191
(154)
37
32,822
17,868
(1,360)
(7,932)
513
41,911
76,504
(34,593)
41,911
41,911
14,819
(1,549)
(8,814)
(2,988)
43,379
80,915
(37,536)
43,379
13 INTANGIBLE ASSETS
GROUP
Year ended 31 July 2012
Opening net book value
Additions
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2012
Cost
Accumulated amortisation
Closing net book value
Year ended 31 July 2013
Opening net book value
Additions
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2013
Cost
Accumulated amortisation
Closing net book value
KATHMANDU ANNUAL REPORT 2013 51
Goodwill
Brand
Software
Total
NZ$’000
NZ$’000
NZ$’000
NZ$’000
75,406
167,308
-
-
-
-
75,406
76,677
(1,271)
75,406
-
-
-
3,018
170,326
170,326
-
170,326
75,406
170,326
-
-
-
-
75,406
76,677
(1,271)
75,406
-
-
-
(14,900)
155,426
155,426
-
155,426
971
3,985
(9)
(1,599)
12
3,360
7,801
(4,441)
3,360
3,360
2,600
-
(1,795)
(134)
4,031
9,942
(5,911)
4,031
243,685
3,985
(9)
(1,599)
3,030
249,092
254,804
(5,712)
249,092
249,092
2,600
-
(1,795)
(15,034)
234,863
242,045
(7,182)
234,863
52 ANNUAL REPORT 2013 KATHMANDU
PARENT
Year ended 31 July 2012
Opening net book value
Additions
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2012
Cost
Accumulated amortisation
Closing net book value
Year ended 31 July 2013
Opening net book value
Additions
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2013
Cost
Accumulated amortisation
Closing net book value
Goodwill
Brand
Software
Total
NZ$’000
NZ$’000
NZ$’000
NZ$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
-
(3)
-
4
7
(3)
4
-
-
-
-
-
-
-
-
-
-
7
-
(3)
-
4
7
(3)
4
Impairment tests for goodwill and brand
The aggregate carrying amounts of goodwill and brand allocated to each unit are as follows:
GROUP
New Zealand
Australia
GOODWILL
2013
2012
BRAND
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
28,654
46,752
75,406
28,654
46,752
75,406
51,000
104,426
155,426
51,000
119,326
170,326
KATHMANDU ANNUAL REPORT 2013 53
For the purposes of goodwill and brand impairment testing, the Group operates as two cash generating units, New Zealand and
Australia. The recoverable amount of the cash generating units has been determined based on value in use.
The discounted cash flow valuations were calculated using projected five year future cash flows, based on Board approved business
plans. Growth is expected to continue as the store rollout programme (approximately fifteen stores per year) continues and like for like
sales increase. Cash flows beyond five years have been extrapolated using the following key assumptions:
Terminal growth rate
New Zealand CGU pre-tax discount rate
Australia CGU pre-tax discount rate
2013
2.5%
15.0%
14.6%
2012
2.5%
15.2%
14.9%
Consolidated pre-tax discount rate
14.8%
15.1%
The calculations confirmed that there was no impairment of goodwill and brand during the year (2012: nil). The Board believes that
any reasonably possible change in the key assumptions used in the calculations would not cause the carrying amount to exceed its
recoverable amount.
The expected continued promotion and marketing of the Kathmandu brand support the assumption that the brand has an indefinite life.
14 INVESTMENT IN SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described in note 2:
Name of entity
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu Pty Limited
Kathmandu (U.K.) Limited
Equity Holding
2013
100%
100%
100%
100%
2012
100%
100%
100%
100%
All subsidiary entities have a balance date of 31 July. Kathmandu Pty Limited and Kathmandu (U.K.) Limited are incorporated in Australia
and the United Kingdom, respectively. All other subsidiary entities are incorporated in New Zealand.
The principal activities of the subsidiaries are:
Country of Registration
Principal Activity
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu Pty Limited
Kathmandu (U.K.) Limited
Investment in subsidiaries
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu Pty Limited
Kathmandu (U.K.) Limited
New Zealand
New Zealand
Australia
United Kingdom
2013
NZ$
Holding company
Outdoor retailer
Outdoor retailer
Outdoor retailer
2012
NZ$
321,233,808
321,233,808
-
-
-
-
-
-
321,233,808
321,233,808
54 ANNUAL REPORT 2013 KATHMANDU
15 DEFERRED TAXATION
The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon during the current
and prior year.
GROUP
Tax
depreciation
Employee
obligations
Losses
Other timing
differences
Reserves
Total
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
68
19
-
87
125
-
212
931
(94)
-
837
285
-
1,122
1
-
-
1
-
-
1
853
854
44
1,614
-
3,467
779
(1,072)
(1,028)
1,751
542
3,218
3,608
(392)
-
(2,827)
4,018
(3,219)
4,967
(2,285)
4,017
PARENT
Tax
depreciation
Employee
obligations
Losses
Other timing
differences
Reserves
Total
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17
17
-
-
-
-
-
-
-
-
17
17
As at 31 July 2011
Charge / (credit) to the income statement
Charge / (credit) to other comprehensive
income
As at 31 July 2012
Charge / (credit) to the income statement
Charge / (credit) to other comprehensive
income
As at 31 July 2013
As at 31 July 2011
Charge / (credit) to the income statement
As at 31 July 2012
Charge / (credit) to the income statement
As at 31 July 2013
Certain deferred taxation assets and liabilities have been offset. The following is the analysis of the deferred taxation balances (after
offset) for financial reporting purposes:
Deferred taxation assets:
- Deferred tax asset to be recovered after more than 12 months
- Deferred tax asset to be recovered within 12 months
Deferred taxation liabilities:
- Deferred tax liability to be recovered after more than 12 months
- Deferred tax liability to be recovered within 12 months
GROUP
2013
NZ$’000
2012
NZ$’000
PARENT
2013
NZ$’000
2012
NZ$’000
1,705
2,803
(342)
(149)
4,017
1,461
1,779
(1)
(21)
3,218
-
17
-
-
17
-
-
-
-
-
Movements
The gross movement on the deferred income tax account is as follows
Opening balance
Income statement charge
Tax charged directly to equity
Closing balance
16 TRADE AND OTHER PAYABLES
KATHMANDU ANNUAL REPORT 2013 55
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
3,218
4,018
(3,219)
4,017
3,467
779
(1,028)
3,218
-
17
-
17
-
-
-
-
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Trade payables
Employee entitlements
Sundry creditors and accruals
7,930
6,989
18,113
33,032
The carrying amount of the Group’s trade and other payables are denominated in the following currencies:
NZD
AUD
GBP
USD
7,534
22,301
906
2,291
33,032
10,084
3,868
15,352
29,304
5,943
20,064
1,768
1,529
29,304
43
-
214
257
169
88
-
-
257
10
-
38
48
53
(5)
-
-
48
56 ANNUAL REPORT 2013 KATHMANDU
17 INTEREST BEARING LIABILITIES
Current portion
Non-current portion
Total term loans
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
223
42,580
42,803
-
53,737
53,737
-
-
-
-
-
-
The bank loan is part of a multi option facility agreement with
Commonwealth Bank of Australia and ASB Bank Limited and
a facility agreement with Bank of New Zealand and National
Bank of Australia, both dated 19 December 2011. The loans are
repayable in full on final maturity date of the facilities being 21
December 2015. 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 1.15%. The bank loans are secured against
the assets of the company and its subsidiaries.
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 half. The calculations of these covenants are specified
in the bank facility agreements of 19 December 2011 and have
been complied with at 31 July 2013.
The current interest rates, prior to hedging, on the term loans
ranged between 3.53% - 3.73% (2012: 3.59% - 4.47%).
During the year the Group entered into a 36 month loan to
finance software licenses. For accounting purposes, an interest
rate has been imputed on the loan. The imputed rate is within
the range shown above for current interest rates on external
borrowings. The loan balance at 31 July 2013 is $493,894.
The loan is not repayable on demand.
The principal of interest bearing liabilities is:
Payable within 1 year
Payable 1 to 2 years
Payable 2 to 3 years
Payable 3 to 4 years
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
223
-
-
-
42,580
53,737
-
-
42,803
53,737
-
-
-
-
-
-
-
-
-
-
18 CONTRIBUTED EQUITY - ORDINARY SHARES
Ordinary shares fully paid ($)
Balance at beginning of year
KATHMANDU ANNUAL REPORT 2013 57
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
197,370
197,298
422,458
422,386
197,298
197,049
422,386
422,137
Issue of shares under Executive and Senior Management Long Term Incentive Plan
72
249
72
249
Balance at end of year
197,370
197,298
422,458
422,386
NUMBER OF AUTHORISED SHARES
GROUP
2013
’000
2012
’000
PARENT
2013
’000
2012
’000
Ordinary shares on hand at beginning of the year
200,166
200,000
200,166
200,000
Shares issued under Executive and Senior Management Long Term Incentive Plan
50
166
50
166
Ordinary shares on hand at end of the year
200,216
200,166
200,216
200,166
Ordinary shares
As at 31 July 2013 there were 200,215,894 ordinary issued shares in Kathmandu Holdings Limited and these are classified as equity.
49,954 shares were issued under the “Executive and Senior Management Long Term Incentive Plan 24 November 2010” during the
year ending 31 July 2013 (2012:165,940).
All ordinary shares carry equal rights in respect of voting and the receipt of dividends. Ordinary shares do not have a par value.
19 EMPLOYEE SHARE BASED REMUNERATION
Executive Share Option Plan 16 October 2009:
On 16 October 2009 the Board approved an Executive Share
Option Plan to issue options to selected senior executives and
to Executive Directors. Options will vest annually in part or in full
with the holder, in three tranches commencing 1 October 2010.
All options not vested expire on 1 October 2013, and all options
vested must be exercised within five years from date of grant.
Entitlement to exercise is conditional on the Company achieving
in relation to each tranche a compound total shareholder return
of 15% per annum over the period of trading that is measured
in relation to that tranche. Each option entitles the holder to
one ordinary share in the capital of the Company. The exercise
price is determined by the Board but is generally $2.1333 for
New Zealand based employees and A$1.70 for Australian based
employees.
During the financial year the Company issued nil options (2012:
nil) to Executive Directors and senior executives. The fair value
of options issued during the financial year is $0 (2012: $0). The
options issued during 2010 were valued under a Monte Carlo
simulation approach factoring in the total shareholder return
condition using the following assumptions:
Current price at issue date
Risk free interest rate
Expected life (years)
Expected share volatility
$2.14
5.40%
5
30%
A 50% Net Profit after Tax dividend pay-out ratio was factored
into the valuation of the options based on management budgets.
The expected volatility was estimated based on the historical
volatility of comparable listed retail businesses.
The estimated fair value for each tranche of options issued is
amortised over the vesting period from the grant date. The
Company has recognised a compensatory expense in the income
statement of $6,515 (2012: $21,911) which represents this
amortisation.
The performance period and vesting dates are summarised below:
58 ANNUAL REPORT 2013 KATHMANDU
Movements in the number of share options outstanding and their related weighted average exercise price are as follows:
2013
2012
Average
exercise price
$ per share
Options
‘000
Average
exercise price
$ per share
Balance at beginning of year
Issued
Forfeited
Balance at end of year
2.1333
-
-
2.1333
956
-
-
956
Share options outstanding at the end of the year have the following expiry date, exercise dates and exercise prices.
First Vesting Month
October 2010
October 2011
October 2012
Last Vesting
Month
October 2013
October 2013
October 2013
Exercise
Price
$2.1333
$2.1333
$2.1333
2.1333
-
2.1333
2.1333
2013
‘000
319
319
318
956
Options
‘000
1,074
-
(118)
956
2012
‘000
319
319
318
956
Executive and Senior Management Long Term Incentive Plan 24 November 2010
On 24 November 2010, shareholders approved at the Annual General Meeting the establishment of an Employee Long Term Incentive
Plan (LTI) to grant performance rights to Executive Directors, Key Management Personnel and other Senior Management. Performance
rights will vest subject to the satisfaction of performance conditions which will be different for Executive Directors as compared with
the Key Management Personnel and Senior Management.
Executive Directors and Key Management Personnel
Performance rights granted to Executive Directors and six Key Management Personnel are summarised below:
Grant Date*
11 Dec 2012
30 Nov 2011
29 Nov 2010
Balance at
start of year
Number
Granted during
the year
Number
Vested during
the year
Number
Lapsed during
the year
Number
Balance at the
end of year
Number
-
365,412
221,920
344,517
566,437
-
-
365,412
-
-
(49,954)
(49,954)
(104,403)
-
(64,885)
(169,288)
261,009
221,920
229,678
712,607
* From 2011 Performance Rights granted to Executive Directors only.
The performance rights granted are divided between Long Term Incentive (261,009) and Short Term Incentive (104,403) components.
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:
Grant Date
Performance period (year ending)
Vesting Date
2013
11 Dec 2012
31 Jul 2013
31 Jul 2015
2012
30 Nov 2011
31 Jul 2012
31 Jul 2014
The fair value of the 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 the vesting date. The fair value of each right has been calculated to be NZ$1.69 per
right (2012: $2.23).
KATHMANDU ANNUAL REPORT 2013 59
The non-market performance hurdles set for the year ending 31 July 2013 were not met and accordingly:
• no expense has been recorded in the income statement; and
• all of these rights have lapsed
The Long Term Incentive performance rights will vest in three equal tranches. In each tranche 50% of the rights are subject to a relative
Total Shareholder Return (TSR) hurdle and the remaining 50% are subject to an EPS growth hurdle.
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, and with market capitalisation
indicatively in a range between 300% and 45% of Kathmandu Holdings Limited market capitalisation. The percentage of TSR related
rights vest according to the following performance criteria:
Kathmandu Holdings Limited relative TSR ranking
Below the 50th percentile
50th percentile
51st – 74th percentile
75th percentile or above
The TSR performance is calculated for the following performance periods:
% Vesting
0%
50%
50% + 2% for each percentile above the 50th
100%
2012
2013
24 months to 1 December 2014
24 months to 1 December 2013
24 months to 1 December 2015
24 months to 1 December 2014
24 months to 1 December 2016
24 months to 1 December 2015
Tranche
Tranche 1
Tranche 2
Tranche 3
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:
Fair value of TSR rights
Current price at issue date
Risk free interest rate
Expected life (years)
Expected share volatility
2013
$158,346
$1.95
2.92%
2-4
40%
2012
$165,331
$2.48
3.54%
2-4
36%
The estimated fair value for each tranche of rights issued is amortised over the vesting period from the grant date. The Company has
recognised a compensatory expense in the income statement of $36,925 (2012: $54,101) which represents this amortisation.
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 2010. The applicable performance periods are:
Tranche
Tranche 1
Tranche 2
Tranche 3
2013 Performance Period
2012 Performance Period
FY14 EPS relative to FY12 EPS
FY13 EPS relative to FY11 EPS
FY15 EPS relative to FY12 EPS
FY14 EPS relative to FY11 EPS
FY16 EPS relative to FY12 EPS
FY15 EPS relative to FY11 EPS
60 ANNUAL REPORT 2013 KATHMANDU
The percentage of the EPS growth related rights scales according to the compound average annual EPS growth achieved as follows:
EPS Growth
< 10%
>=10%, < 11%
>=11%, < 12%
>=12%, < 13%
>=13%, < 14%
>=14%, < 15%
>=15%
% Vesting
0%
50%
60%
70%
80%
90%
100%
The fair value of the 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. The Company has recognised a compensatory expense in the income statement
of $47,907 (2012: $78,923) which represents this amortisation.
Key Management Personnel
Performance rights granted to Key Management Personnel under the shareholder approved Employee Long Term Incentive Plan are
summarised below:
Grant Date
04 Dec 2012
30 Nov 2011
Balance at
start of year
Number
Granted during
the year
Number
Vested during
the year
Number
Lapsed during
the year
Number
Balance at the
end of year
-
-
-
121,156
-
121,156
-
-
-
(121,156)
-
(121,156)
-
-
-
Short Term Incentive performance rights vest:
• upon the Company achieving specified non-market performance hurdles; and
•
the employee remaining in employment with the Company until the vesting date.
The performance periods and vesting dates are summarised below:
Grant Date
Performance period (year ending)
Vesting Date
2013
2012
04 Dec 2012
30 Nov 2011
31 Jul 2013
31 Jul 2015
31 Jul 2012
31 Jul 2014
The fair value of the rights were assessed as the Kathmandu Holdings Limited share price as at the grant date less the present value of
the dividends forecast to be paid prior to the vesting date. The fair value of each right has been calculated to be NZ$1.58
per right (2012: $2.23).
The non-market performance hurdles set for the year ending 31 July 2013 were not met and accordingly:
• no expense has been recorded in the income statement.
• all of these rights have lapsed
KATHMANDU ANNUAL REPORT 2013 61
Senior Management
Performance rights granted to Key Management Personnel under the shareholder approved Employee Long Term Incentive Plan are
summarised below:
Grant Date
04 Dec 2012
30 Nov 2011
Balance at
start of year
Number
Granted during
the year
Number
Vested during
the year
Number
Lapsed during
the year
Number
Balance at the
end of year
-
-
-
259,133
-
259,133
-
-
-
(259,133)
-
(259,133)
-
-
-
Short Term Incentive performance rights vest:
• upon the Company achieving specified non-market performance hurdles; and
•
the employee remaining in employment with the Company until the vesting date.
The performance periods and vesting dates are summarised below:
Grant Date
Performance period (year ending)
Vesting Date
2013
2012
04 Dec 2012
30 Nov 2011
31 Jul 2013
31 Jul 2014
31 Jul 2012
31 Jul 2013
The fair value of the rights were assessed as the Kathmandu Holdings Limited share price as at the grant date less the present value
of the dividends forecast to be paid prior to the vesting date. The fair value of each right has been calculated to be NZ$1.70 per right
(2012: $2.35).
The non-market performance hurdles set for the year ending 31 July 2013 were not met and accordingly:
• no expense has been recorded in the income statement; and
• all of these rights have lapsed
Expenses arising from share based payments:
Share Option Plan 2009
Executive Directors and Key Management Personnel
Senior Management
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
7
202
-
209
22
200
149
371
7
202
-
209
22
200
149
371
62 ANNUAL REPORT 2013 KATHMANDU
20 RESERVES AND RETAINED EARNINGS
(A) RESERVES
(i) Cash flow hedging reserve
Opening balance
Revaluation - gross
Deferred taxation on revaluation
Transfer to net profit - gross
Closing balance
(ii) Foreign currency translation reserve
Opening balance
Currency translation differences - Gross
Currency translation differences - Taxation
Closing balance
(iii) Share based payments reserve
Opening balance
Current year amortisation
Transfer to Share Capital on vesting of shares to Employees
Share Options / Performance Rights lapsed
Closing balance
Total Reserves
Nature and purpose of reserves
(i) Cash flow hedging reserve
Note
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
5
5
(3,309)
11,230
(2,827)
(27)
5,067
7,628)
(20,723)
2,537)
(10,558)
739
209
(72)
(53)
823
(9,055)
6,967
(1,072)
(149)
(3,309)
3,889
4,159
(420)
7,628
625
371
(249)
(8)
739
(4,668)
5,058
-
-
-
-
-
-
-
-
-
739
209
(72)
(53)
823
823
-
-
-
-
-
-
-
-
-
625
371
(249)
(8)
739
739
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in
equity, as described in policy 2 (n) (ii). The amounts are recognised in profit and loss when the associated hedged transaction affects
profit and loss.
(ii) Foreign currency translation reserve
The foreign currency translation reserve is used to record gains or losses on investments in foreign operations. The amounts are
accumulated in equity and recognised in profit and loss when the foreign operation is partially disposed of or sold.
(iii) Share based payments reserve
The share based payments reserve is used to recognise the fair value of share options and performance rights granted but not
exercised or lapsed. Amounts are transferred to share capital when vested options are exercised by the employee or performance
rights are granted.
KATHMANDU ANNUAL REPORT 2013 63
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
77,278
44,174
53
(20,018)
101,487
62,418
34,852
8
(20,000)
77,278
(15,654)
18,130
53
(20,018)
(17,489)
(13,943)
18,281
8
(20,000)
(15,654)
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
14,012
6,006
20,018
14,000
6,000
20,000
14,012
6,006
20,018
14,000
6,000
20,000
B) RETAINED EARNINGS
Opening retained earnings
Profit for the year
Share Options/Performance Rights lapsed
Less dividends paid
Balance at 31 July
21 DIVIDENDS
Prior year final dividend paid
Current year interim dividend paid
Dividends paid ($0.10 per share (2012; $0.10))
22 REMUNERATION OF AUDITORS
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
other network audit firms:
Audit Services - Pricewaterhouse Coopers
Statutory audit
Half year review
Other assurance services
Total remuneration for audit services
23 CONTINGENT LIABILITIES
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
121
28
19
168
122
28
5
155
78
28
-
106
59
28
-
87
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Liabilities outstanding under letters of credit
2,161
1,542
Rent guarantees
Financial guarantees
9,131
1,813
9,848
1,713
-
-
-
-
-
-
64 ANNUAL REPORT 2013 KATHMANDU
24 CONTINGENT ASSETS
There are no contingent assets in 2013 (2012: nil).
25 COMMITMENTS
(a) Capital commitments
Capital commitments contracted for at balance date are:
Property, plant and equipment
Intangible assets
(b) Operating lease commitments
Group company as lessee:
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
479
720
1,199
1,680
1,183
2,863
-
-
-
-
-
-
Rent expenses reported in these financial statements relate to non-cancellable operating leases. The future commitments on these
leases are as follows:
Due within 1 year
Due within 1-2 years
Due within 2-5 years
Due after 5 years
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
43,618
38,618
70,916
16,159
39,193
34,446
73,580
20,048
169,311
167,267
-
-
-
-
-
-
-
-
-
-
Some of the existing lease agreements have right of renewal options for varying terms.
The Group leases various properties under non-cancellable lease agreements. These leases are generally between 1 - 10 years.
KATHMANDU ANNUAL REPORT 2013 65
26 FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks,
market risk (including currency risk and interest rate risk), credit
risk and liquidity risk. The Group’s overall risk management
programme focuses on the unpredictability of financial markets
and seeks to minimise potential adverse effects on the financial
performance of the Group. The Group uses derivative financial
instruments such as foreign exchange contracts and interest
rate swaps to manage certain risk exposures. Derivatives
are exclusively used for economic hedging purposes, i.e. not
as trading or other speculative instruments, however not all
derivative financial instruments qualify for hedge accounting.
Risk management is carried out based on policies approved
by the Board of Directors. The Group treasury policy provides
written principles for overall risk management, as well as policies
covering specific areas, such as foreign exchange risk. The Parent
is not directly exposed to any significant financial risk.
(a) Market risk
Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to the AUD, USD and the GBP. The Group is
exposed to currency risk on conversion of the trading results
from its subsidiaries operating in Australia and the United
Kingdom, and any cash remitted between Australia and the
United Kingdom and New Zealand. The Group does not hedge
for such remittances. The Group is exposed to purchases that
are denominated in a currency other than the functional currency
of Group entities, and over 90% of purchases are denominated
in United States dollars. Hedging of this exposure is detailed in
note 10. 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.
Refer to note 10 which shows the forward foreign exchange
contracts held by the Group as derivative financial instruments at
balance date. A sensitivity analysis of foreign exchange rate risk
on the Group’s financial assets and liabilities is provided in the
table below.
Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from floating rate
borrowings drawn down under bank debt facilities. The Group
uses interest rate swaps to hedge floating rate borrowings in
accordance with the Group treasury policy. Interest rate swaps
have the economic effect of converting borrowings from floating
to fixed rates.
Refer to note 10 for notional principal amounts and valuations
of interest rate swaps outstanding at balance date. A sensitivity
analysis of interest rate risk on the Group’s financial assets and
liabilities is provided in the table below. Refer to note 17 for
further details of the Group’s borrowings.
At the reporting date the interest rate profile of the Group’s banking facilities was:
CARRYING AMOUNT
Total secured loans
less Principal covered by interest rate swaps
Net Principal subject to floating interest rates*1
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
42,309
(44,972)
(2,663)
53,737
(45,940)
7,797
-
-
-
-
-
-
1. Debt levels fluctuate throughout the year and as at 31 July, are typically at a cyclical low.
Interest rates on loans currently range from 3.53% – 3.73% (2012: 3.59% – 4.47%). The Group has entered into interest rate swap
agreements to reduce the impact of changes in interest rates on its long-term debt. The cashflow hedge (gain)/loss on interest rate
swaps at balance date was $659,211 (2012: $986,157).
66 ANNUAL REPORT 2013 KATHMANDU
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign
exchange risk.
A sensitivity of -10% / +10% (2012: -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% (2012: -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.
A sensitivity of 1% (2012: 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 and exchange rates are held constant.
The impact on equity is presented exclusive of the impact on retained earnings.
GROUP
31 July 2013
INTEREST RATE RISK
+1%
-1%
FOREIGN EXCHANGE RISK
-10%
+10%
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Carrying
amount
$’000
Derivative financial instruments (asset)
/ liability
Financial assets
Cash
Trade receivables and sundry debtors
Financial liabilities
Trade payables
Borrowings
Total increase / (decrease)
GROUP
31 July 2012
Derivative financial instruments (asset)
/ liability
Financial assets
Cash
Trade receivables and sundry debtors
Financial liabilities
Trade payables
Borrowings
Total increase / (decrease)
(7,228)
(449)
735
449
(761)
-
(12,036)
-
9,847
2,345
1,008
33,032
42,309
(17)
-
(17)
-
423
423
(43)
-
-
-
-
-
-
735
17
-
17
-
(423)
(423)
43
-
-
-
-
-
-
145
(17)
128
(2,040)
-
-
-
-
-
(2,225)
(2,040)
(2,225)
(761)
(1,912)
(14,261)
(119)
14
(105)
1,669
-
1,669
1,564
-
-
-
-
1,820
1,820
11,667
INTEREST RATE RISK
+1%
-1%
FOREIGN EXCHANGE RISK
-10%
+10%
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Carrying
amount
$’000
3,879
(459)
209
459
(216)
-
(9,246)
-
7,565
1,811
1,422
29,304
53,737
(13)
-
(13)
-
537
537
65
-
-
-
-
-
-
209
13
-
13
-
(537)
(537)
(65)
-
-
-
-
-
-
106
(79)
27
(1,869)
-
-
-
-
-
(2,179)
(1,869)
(2,179)
(216)
(1,842)
(11,425)
(87)
65
(22)
1,529
-
1,529
1,507
-
-
-
-
1,783
1,783
9,348
The parent is not sensitive to either interest rate or foreign exchange risk.
KATHMANDU ANNUAL REPORT 2013 67
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. This would arise principally from the Group’s receivables from customers. The nature of the customer base is such that
there is no individual customer concentration of credit risk. Other financial instruments which potentially subject the Group to credit
risks principally consist of bank balances, loans, advances and refund of taxes.
Trade and other receivables
The nature of the customer base is such that there is no individual customer concentration of credit risk.
The Group does not carry out credit evaluations for all new customers requiring credit. Credit is generally only given to government
or local council backed institutions.
Exposure to credit risk
The below balances are recorded at their carrying amount after any provision for loss on these financial instruments. The maximum
exposure to credit risk at reporting date was:
CARRYING AMOUNT
Cash and cash equivalents
Trade receivables
Sundry debtors
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
2,345
125
883
3,353
1,811
206
1,216
3,233
5
-
-
5
26
-
-
26
As at balance date the carrying amount is also considered the fair value for each of the financial instruments.
There are no past due balances.
The credit quality of financial assets that are neither past due not impaired can be assessed by reference to external credit ratings
(if available) or to historical information about counterparty default rates:
CASH AND CASH EQUIVALENTS
Standard & Poors - AA -
Standard & Poors - A
Total Cash and cash equivalents
Trade receivables:
Counterparties with external credit rating
Counterparties without external credit rating1
Total trade receivables
1. Existing customers with no defaults in the past.
GROUP
2013
2012
PARENT
2013
2012
NZ$’000
NZ$’000
NZ$’000
NZ$’000
2,075
270
2,345
-
125
125
884
927
1,811
-
206
206
5
-
5
-
-
-
26
-
26
-
-
-
68 ANNUAL REPORT 2013 KATHMANDU
(c) Liquidity risk
Liquidity risk is the risk that an unforeseen event or miscalculation
in the required liquidity level will result in the Group foregoing
based on regular monitoring of cash flow forecasts. The Group
has lending facilities of $130,533,485 / $115,000,000 AUD (2012:
$142,671,855 / $110,000,000 AUD) and operates well within this
investment opportunities or not being able to meet its obligations
facility. This includes short term bank overdraft requirements, and
in a timely manner, and therefore gives rise to lower investment
at balance date no bank accounts were in overdraft.
income or to higher borrowing costs than normal. Prudent
liquidity risk management includes maintaining sufficient cash,
The table below analyses the Group’s financial liabilities and
and ensuring the availability of funding from adequate amounts of
net-settled derivative financial liabilities into relevant maturity
credit facilities.
groupings based on the remaining period at the balance date to
The Group’s liquidity exposure is managed by ensuring sufficient
the contractual maturity date. The amounts disclosed in the table
levels of liquid assets and committed facilities are maintained
are the contractual undiscounted cash flows.
Group 2013
Trade and other payables
Guarantees
Borrowings
Group 2012
Trade and other payables
Guarantees
Borrowings
Less than
1 year
NZ$’000
Between
1 and 2 years
NZ$’000
Between
2 and 5 years
NZ$’000
Over
5 years
NZ$’000
33,032
13,105
1,542
47,679
29,304
13,103
3,128
45,535
-
-
1,542
1,542
-
-
3,128
3,128
-
-
42,914
42,914
-
-
54,932
54,932
-
-
-
-
-
-
-
-
The Group enters into forward exchange contracts to manage the risks associated with the purchase of foreign currency denominated
products.
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant maturity
groupings based on the remaining period at the balance date to the contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows. They are expected to occur and affect the profit or loss at various dates between balance date
and the following five years.
At 31 July 2013
Forward foreign exchange contracts
-Inflow
-Outflow
Net Inflow / (Outflow)
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
At 31 July 2012
Forward foreign exchange contracts
-Inflow
-Outflow
Net Inflow / (Outflow)
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
Less than
1 year
NZ$’000
Between
1 and 2 years
NZ$’000
Between
2 and 5 years
NZ$’000
115,386
(107,499)
7,887
-
-
-
-
-
-
(470)
(270)
(102)
96,243
(99,138)
(2,895)
-
-
-
-
-
-
(606)
(300)
(83)
KATHMANDU ANNUAL REPORT 2013 69
(d) Fair values
The only financial instruments held by the Group that are
measured at fair value are over the counter derivatives. These
derivatives have all been determined to be within level 2 (for the
purposes of NZ IFRS7) of the fair value hierarchy as all significant
inputs required to ascertain the fair value of these derivatives are
observable.
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.
Foreign exchange contracts and interest rate swaps
The fair value of these instruments is estimated based on the
quoted market price of these instruments.
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 is nil. Details of
guarantees are included in note 23. All guarantees are repayable
on demand.
Financial instruments by category
Group
At 31 July 2013
Cash and cash equivalents
Trade and other receivables
Derivative financial instrument assets
Total financial assets
Trade and other payables
Interest bearing liabilities
Derivative financial instrument liabilities
Total financial liabilities
At 31 July 2012
Cash and cash equivalents
Trade and other receivables
Total financial assets
Trade and other payables
Interest bearing liabilities
Derivative financial instrument liabilities
Total financial liabilities
Parent
At 31 July 2013
Cash and cash equivalents
Related party receivable
Total financial assets
Trade and other payables
Total financial liabilities
At 31 July 2012
Cash and cash equivalents
Related party receivable
Total financial assets
Trade and other payables
Total financial liabilities
Loans and
receivables
Derivatives
used
for hedging
Measured at
amortised cost
Total
NZ$’000
NZ$’000
NZ$’000
NZ$’000
2,345
1,008
-
3,353
-
-
-
-
1,811
1,422
3,233
-
-
-
-
5
81,944
81,949
-
-
26
82,885
82,911
-
-
-
-
7,914
7,914
-
-
686
686
-
-
-
-
-
3,879
3,879
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,901
42,309
-
72,210
-
-
-
26,521
53,737
-
80,258
-
-
-
257
257
-
-
-
48
48
2,345
1,008
7,914
11,267
29,901
42,309
686
72,896
1,811
1,422
3,233
26,521
53,737
3,879
84,137
5
81,944
81,949
257
257
26
82,885
82,911
48
48
70 ANNUAL REPORT 2013 KATHMANDU
(e) Capital risk management
The Group’s capital includes contributed equity, reserves and
retained earnings.
The Group’s objectives when managing capital are to safeguard
the Group’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt or draw down more debt.
(f) Externally imposed capital requirements
The Group is subject to various covenants with its banking
syndicate in relation to the ratios of earnings to total debt and
interest on that debt, which were complied with during and at the
end of the year.
27 SEGMENTAL INFORMATION
The Group operates in three geographical areas: New Zealand, Australia and the United Kingdom.
31 July 2013
Australia
New Zealand United Kingdom Elimination
Total
Segment profit / (loss) before income tax
NZ$’000
20,540
NZ$’000
30,330
NZ$’000
NZ$’000
NZ$’000
(2,348)
10,460
58,982)
Income tax expense
(6,183)
(8,625)
-
Profit / (loss) after tax
Segment profit / (loss) before income tax includes the
following specific income and (expenses):
Sales to external customers
Sales to Group entities
Cost of sales
Interest income
Interest expense
Other finance costs
Intercompany net finance income/(expense)
Intercompany recharges income/(expense)
Depreciation and software amortisation
Exchange gain/(loss) on foreign currency borrowing
Additions of non-current assets
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
241,130
588
(81,251)
40
(2,148)
(299)
(3,386)
(8,895)
(7,009)
(10,415)
10,238
50,904
136,438
187,342
(98,524)
(28,341)
(126,865)
136,983
1,169
(57,881)
10
(1,720)
(308)
3,386
9,575
(3,202)
(164)
5,555
420,143
339,257
759,400
(11,562)
(14,867)
(26,429)
-
-
(14,808)
44,174)
383,983
(1,757)
-
-
-
-
-
-
-
-
10,460
(141,958)
50
(3,868)
(607)
-
-
(10,609)
18
-
17,419
(379,895)
93,931
(194,828)
282,286
(574,723)
376,217
5,870
-
(2,826)
-
-
-
-
(680)
(398)
137
1,626
2,779
1,419
4,198
(9,834)
81,100
-
-
(9,834)
81,100
(38,820)
(43,208)
(82,028)
KATHMANDU ANNUAL REPORT 2013 71
31 July 2012
Australia
New Zealand United Kingdom Elimination
Total
Segment profit / (loss) before income tax
NZ$’000
29,240
NZ$’000
26,977
NZ$’000
NZ$’000
NZ$’000
(3,435)
(1,656)
51,126
Income tax expense
(8,746)
(7,528)
-
-
(16,274)
Profit / (loss) after tax
34,852
Segment profit / (loss) before income tax includes the
Sales to external customers
Sales to Group entities
Cost of sales
Interest income
Interest expense
Other finance costs
Intercompany net finance income/(expense)
Intercompany recharges income/(expense)
Depreciation and software amortisation
Exchange gain/(loss) on foreign currency borrowing
213,974
896
(70,839)
48
(2,420)
(882)
(3,867)
(8,135)
(5,882)
1,583
126,127
1,357
(53,489)
83
(1,850)
(705)
3,867
8,135
(3,321)
(123)
Additions of non-current assets
13,817
7,831
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
42,676
150,085
192,761
(97,826)
(27,739)
(125,565)
407,330
338,718
746,048
(9,928)
(26,749)
(36,677)
7,003
297
(3,231)
-
(4)
-
-
-
(328)
87
205
3,954
246
4,200
-
347,104
(2,550)
-
-
-
-
-
-
-
-
(1,656)
(127,559)
131
(4,274)
(1,587)
-
-
(9,531)
(109)
-
21,853
(375,351)
78,609
(194,828)
294,221
(570,179)
372,830
(7,510)
76,556
-
-
(7,510)
76,556
(38,708)
(54,488)
(93,196)
Revenue is allocated based on the country in which the customer is located. New Zealand includes holding company costs and head
office charges.
Assets / liabilities are allocated based on where the assets / liabilities are located.
The Group operates in one industry being outdoor clothing and equipment.
Deferred tax assets have been included within non-current assets as they form part of the amounts provided to the Chief Operating
Decision Maker, and the comparative information has been updated to reflect this.
The Group has no reliance on any single major customers.
Costs recharged between Group companies are calculated on an arms-length basis. The default basis of allocation is % of revenue
with other bases being used where appropriate.
72 ANNUAL REPORT 2013 KATHMANDU
28 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all
dilutive potential ordinary shares. The Group’s dilutive potential ordinary shares are in the form of share options / performance rights.
Weighted average number of shares in issue
Adjustment for:
- Share options / performance rights
Total potential diluted ordinary shares
29 EARTHQUAKE DISCLOSURES
2013
’000
200,197
1,924
202,121
2012
’000
200,000
3,121
203,121
The Christchurch earthquake that occurred on 22 February 2011 did not have a significant impact on trading. Kathmandu has business
interruption insurance that provided cover for this event. Kathmandu’s Cashel Street store was damaged in the earthquake and the
lease of that store has since been terminated.
In the financial statements:
• Net proceeds received to date of $293,000 (2012: $0) arising from the business interruption and material damage claim relating
to this has been recognised in the financial statements. The claim has still to be finally agreed with the insurers.
• All assets lost or damaged as a result of the earthquake have been written off, and the cost of this write-off is included in the
calculation of net proceeds above.
30 EVENTS OCCURRING AFTER THE BALANCE DATE
There are no events occurring after balance date that materially affect the information within the financial statements.
KATHMANDU ANNUAL REPORT 2013 73
74 ANNUAL REPORT 2013 KATHMANDU
KATHMANDU ANNUAL REPORT 2013 75
statutory information
EMPLOYEE REMUNERATION
The Group operates in New Zealand, Australia and the UK where remuneration market levels differ. The offshore remuneration amounts
are converted into New Zealand dollars. Of the employees noted in the table below, 50% are employed by the Group outside New
Zealand. During the year a number of employees or former employees, not being Non-Executive Directors of the Group, received
remuneration and other benefits that exceeded NZ$100,000 in value as follows:
REMUNERATION
NUMBER OF EMPLOYEES
$
100,000
110,001
120,001
130,001
140,001
150,001
160,001
180,001
200,001
240,001
250,001
280,001
300,001
320,001
330,001
390,001
630,001
1,770,001
$
110,000
120,000
130,000
140,000
150,000
160,000
170,000
190,000
210,000
250,000
260,000
290,000
310,000
330,000
340,000
400,000
640,000
1,780,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
5
6
6
2
6
2
1
2
1
1
1
1
1
1
1
1
1
DISTRIBUTION OF SHAREHOLDERS AND HOLDINGS
1 to 999
1,000 to 4,999
5,000 to 9,999
10,000 to 99,999
100,000 and over
Total
Number of
Holders
%
Number of
Ordinary Shares
%
483
1,031
444
402
45
20%
43%
18%
17%
2%
274,029
2,727,074
3,248,662
9,501,173
184,464,956
2,405
100%
200,215,894
0%
1%
2%
5%
92%
100%
The details set out above were as at 4 September 2013.
The Company has only one class of shares on issue, ordinary shares, and these shares are listed on the NZX and ASX. There are no
other classes or equity security currently on issue. The Company’s ordinary shares each carry a right to vote on any resolution on a poll
at a meeting of shareholders. Holders of ordinary shares may vote at a meeting in person, or by proxy, representative or attorney. Voting
may be conducted by voice, by show of hands, or poll. There are no voting rights attached to options.
There were 49 shareholders holding less than a marketable parcel, as defined by ASX Listing Rules, of the Company’s ordinary shares,
based on the market price as at 4 September 2013.
There are no restricted securities or securities subject to voluntary escrow on issue.
76 ANNUAL REPORT 2013 KATHMANDU
LIMITATIONS ON THE ACQUISITION OF SECURITIES
The Company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Australia) dealing with the acquisition of shares
(i.e. substantial holdings and takeovers).
Limitations on the acquisition of the securities imposed by the jurisdiction in which the Company is incorporated (New Zealand) are:
a. In general, securities in the Company are freely transferable and the only significant restrictions or limitations in relation to the
acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition.
b. The New Zealand Takeovers Code creates a general rule under which the acquisition of 20% or more of the voting rights in
the Company or the increase of an existing holding of 20% or more of the voting rights of the Company can only occur in certain
permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance
with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a
creeping acquisition (in certain circumstances) or compulsory acquisition of a shareholder holds 90% or more of the shares of
the Company.
c. The New Zealand Overseas Investment Act 2005 and Overseas Investment Regulations 2005 (New Zealand) regulate certain
investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Office
is likely to be required where an “overseas person” acquires shares in the Company that amount to 25% or more of the shares
issued by the Company, or if the overseas person already holds 25% or more, the acquisition increases that holding.
d. The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring shares in the Company if the acquisition would
have, or would be likely to have, the effect of substantially lessening competition in the market.
SUBSTANTIAL SECURITY HOLDERS
According to notices given under the Securities Markets Act 1988 (New Zealand), the substantial security holders in ordinary shares
(being the only class of listed voting securities) of the Company and their relevant interests according to the substantial security holder
file as at 4 September 2013, were as follows:
Commonwealth Bank of Australia (8 April 2013)
National Australia Bank (9 July 2013)
Accident Compensation Corporation (4 September 2013)
Milford Asset Management Limited (3 September 2013)
FMR LLC and FIL Limited (11 April 2013)
Fisher Funds Management Limited (9 July 2013)
AMP (4 September 2013)
Australian Super Pty Limited (5 July 2013)
Ordinary shares
16,609,706
13,050,566
11,970,983
11,698,194
11,287,339
10,447,023
10,113,837
10,110,349
%
8.3%
6.5%
6.0%
5.8%
5.6%
5.2%
5.1%
5.0%
As at 4 September 2013, the Company had 200,215,894 ordinary shares on issue.
KATHMANDU ANNUAL REPORT 2013 77
PRINCIPAL SHAREHOLDERS
The names and holdings of the twenty largest shareholders as at 4 September 2013 were:
Name
Ordinary Shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NEW ZEALAND CENTRAL SECURITIES DEPOSITORY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
RBC INVESTOR SERVICES – AUSTRALIA NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
FNZ CUSTODIANS LIMITED
BNP PARIBAS NOMS (NZ) LTD
PETER HALKETT
NEW ZEALAND DEPOSITORY NOMINEE LIMITED
INVESTMENT CUSTODIAL SERVICES LIMITED
RBC INVESTOR SERVICES – AUSTRALIA NOMINEES PTY LIMITED
FRANED PTY LIMITED
GOLDMAN SACHS AUSTRALIA PTY LTD
QIC LIMITED
BAINPRO NOMINEES PTY LIMITED
ABN AMRO CLEARING SYDNEY – NOMINEES PTY LIMITED
DIRECTORS’ SHAREHOLDINGS
Directors held interests in the following shares of the Company at 31 July 2013:
Peter Halkett
Mark Todd
John Harvey
John Holland
Sandra McPhee
beneficially owned
beneficially owned
not beneficially owned
beneficially owned
beneficially owned
beneficially owned
63,639,562
37,998,867
35,689,764
12,981,895
6,607,257
4,083,395
3,404,614
3,345,901
2,387,090
1,733,685
1,674,561
1,485,518
949,575
908,902
841,252
717,600
428,819
407,790
341,374
338,261
1,485,518
370,480
43,437
51,563
102,033
58,823
%
31.79%
18.98%
17.83%
6.48%
3.30%
2.04%
1.70%
1.67%
1.19%
0.87%
0.84%
0.72%
0.47%
0.45%
0.42%
0.36%
0.21%
0.20%
0.17%
0.17%
78 ANNUAL REPORT 2013 KATHMANDU
SHARE DEALINGS BY DIRECTORS
In accordance with Section 148(2) of the Companies Act 1993, the Board has received disclosures from the Directors named below of
acquisitions or disposals of relevant interests in the Company between 1 August 2012 and 31 July 2013, the details of those dealings
were entered in the Company’s interests register. The particulars of such disclosures are:
Director
John Holland
Peter Halkett 1
Mark Todd 1
Nature of Interest
Shares Acquired
Consideration
Beneficial
Beneficial
Beneficial
20,000
25,686
9,062
NZD 1.75
-
-
Date
05/10/2012
18/12/2012
18/12/2012
1. Shares were issued as part of the Long Term Incentive Plan (refer note 19 of the financial statements).
SUBSIDIARY COMPANY DIRECTORS
Section 211(2) of the Companies Act 1993 requires the Company to disclose, in relation to its subsidiaries, the total remuneration and
value of other benefits received by Directors and former Directors, and particulars of entries in the interests registers made during the
year ended 31 July 2013.
No subsidiary has Directors who are not full-time employees of the Group.
The remuneration and other benefits of such employees (received as employees) totalling $100,000 or more during the year ended 31
July 2013, are included in the relevant bandings for remuneration disclosed at the beginning of the “Statutory Information” section of
this annual report.
No employee of the Group appointed as a Director of Kathmandu Holdings Limited or its subsidiaries receives or retains any
remuneration or other benefits in their capacity as a Director.
The persons who held office as Directors of subsidiary companies at 31 July 2013, and those who ceased to hold office during the year
ended 31 July 2012, are as follows:
Milford Group Holdings Limited
Peter Halkett, Mark Todd
Kathmandu Limited
Peter Halkett, Mark Todd
Kathmandu Pty Limited
Peter Halkett, Mark Todd, Paul Stern (Matthew Spencer ceased to hold office in the year ended 31 July 2012)
Kathmandu (U.K.) Limited
Peter Halkett, Mark Todd
KATHMANDU ANNUAL REPORT 2013 79
DIRECTORS’ AND OFFICERS’ INSURANCE AND
INDEMNITY
The Group has arranged, as provided for under the Company’s
Constitution, policies of Directors’ and Officers’ Liability
Insurance which, with a Deed of Indemnity entered into
with all Directors, ensures that generally Directors will incur
no monetary loss as a result of actions undertaken by them
as Directors. Certain actions are specifically excluded, for
example, the incurring of penalties and fines which may
be imposed in respect of breaches of the law.
USE OF COMPANY INFORMATION
There were no notices from Directors of the Company
requesting to use Company information received in their
capacity as Directors which would not otherwise have been
available to them.
GROUP STRUCTURE
Kathmandu Holdings Limited owns 100% of the
following companies:
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu Pty Limited
Kathmandu (UK) Limited
DIRECTORS’ DETAILS
John Harvey
Acting Chairman, Non-Executive
Peter Halkett
Managing Director and
Chief Executive Officer
Mark Todd
Finance Director and Chief Financial
Officer and Company Secretary
Christine Cross
Non-Executive Director
John Holland
Non-Executive Director
Sandra McPhee Non-Executive Director
EXECUTIVES’ DETAILS
Peter Halkett
Chief Executive Officer
Mark Todd
Chief Financial Officer
DIRECTORY
The details of the Company’s principal administrative and
registered office in New Zealand is:
11 Mary Muller Drive
Heathcote
PO Box 1234
Christchurch 8140
DISCLOSURE OF INTERESTS BY DIRECTORS
In accordance with Section 140(2) of the Companies Act
1993, the Directors named below have made a general
disclosure of interest, by a general notice disclosed to the
Board and entered in the Company’s interests register.
General notices given by Directors which remain current
as at 31 July 2013 are as follows:
MARK TODD
A director of:
City Care Limited
JOHN HARVEY
A director of:
DNZ Property Fund Limited
Port Otago Limited
New Zealand Opera Limited
Heartland Bank Limited
Balance Agri-Nutrients Limited
An advisor to the board of:
Resource Coordination Partnership Limited
SANDRA MCPHEE AM
A director of:
AGL Energy Limited
Tourism Australia
Fairfax Media Limited
Westfield Retail Trust
A vice president of:
The Art Gallery of NSW Trust
A member of:
JP Morgan Advisory Council
Advisory Board of MMC
St Vincents and Mater Health Sydney Community
Advisory Council
JOHN HOLLAND
A partner of:
Chapman Tripp
A director of:
Southbase Construction Limited (appointed March 2013)
A member of:
Financial Markets Authority Capital Markets Disclosure
Consideration Panel
CHRISTINE CROSS
A director of:
Next Plc
Sonae Group Plc
Woolworths Limited
Plantasjen ASA
80 ANNUAL REPORT 2013 KATHMANDU
SHARE REGISTRY
In New Zealand:
Link Market Services (LINK)
Physical Address: Level 16, Brookfields House,
19 Victoria Street West, Auckland 1010
New Zealand
Postal Address:
PO Box 91976,
Auckland, 1142
New Zealand
Telephone:
+64 9 375 5999
Investor enquiries: +64 9 375 5998
Facsimile:
+64 9 375 5990
Internet address: www.linkmarketservices.com
In Australia:
Link Market Services (LINK)
Physical Address: Level 1, 333 Collins Street
Melbourne, VIC 3000
Australia
Postal Address:
Locked Bag A14
Sydney, South NSW 1235
Australia
Telephone:
+61 2 8280 7111
Investor enquiries: +61 2 8280 7111
Facsimile:
+61 2 9287 0303
Internet address: www.linkmarketservices.com.au
STOCK EXCHANGES
The Company’s shares are listed on the NZX and the ASX.
INCORPORATION
The Company is incorporated in New Zealand.
store locations
AUSTRALIA
www.kathmandu.com.au
VIC
Ballarat
Bendigo
Blackburn
Camberwell
Chadstone
Doncaster
Fitzroy
Fountain Gate
Frankston
Geelong
Hampton East
Highpoint
Knox
Melbourne (Bourke Street)
Moonee Ponds
Moorabbin Outlet Store
Nunawading Outlet Store
Prahran
Richmond
Smith Street Outlet Store
South Wharf DFO Outlet Store
Southland
Spencer Street Fashion Station
The Glen
Warrnambool
NSW
Albury
Birkenhead Point Outlet Store
Bondi Junction
Castle Towers
Chatswood Outlet Store
Chatswood Westfield
Coffs Harbour
Cronulla
Eastgardens
Erina Fair
Hornsby
Macarthur
Macquarie
Newcastle
Orange
Parramatta
Penrith
Sydney City (Kent Street)
Sydney City (Pitt Street)
Redyard (Auburn)
Rouse Hill
Shellharbour
Tamworth
The Rocks
Tuggerah
Wagga Wagga
Warringah
Wollongong
SA
Adelaide Harbour Town Outlet Store
Adelaide (Rundle Street)
Marion Shopping Centre
Tea Tree
ACT
Belconnen
Canberra Centre
Canberra Outlet Store
Woden
NEW ZEALAND
www.kathmandu.co.nz
NORTH ISLAND
Albany
Auckland (Queen Street)
Auckland (Victoria Street)
Botany
Broadway
Coastlands
Gisborne
Hamilton
Hastings
Lyall Bay
Manukau
Masterton
Napier
New Plymouth
Onehunga Outlet Store
Otaki
Palmerston North
Petone
Pukekohe
Rotorua
Sylvia Park
Takapuna
Taupo
Tauranga CBD
Tauranga (Fraser Cove)
Te Rapa
Waitakere
Wanganui
Whakatane
Whangarei
Wellington
QLD
Brisbane City
Cairns
Carindale
Chermside
Fortitude Valley
Kawana
Logan
Mackay
Pacific Fair (Broadbeach)
Robina
Southport
Toowoomba
Townsville
TAS
Devonport
Hobart (Salamanca Square)
Hobart CBD (Elizabeth Street)
Launceston
WA
Carousel
Cottesloe
Fremantle
Innaloo
Morley
Perth CBD
Perth Harbourtown Outlet Store
Whitford
NT
Casuarina
Westgate
Willis Street Outlet Store
SOUTH ISLAND
Ashburton
Blenheim
Christchurch (Cashel Street)
Dunedin
Invercargill
Nelson
Papanui
Queenstown
Riccarton
The Palms
Timaru
Tower Junction
UNITED KINGDOM
www.kathmandu.co.uk
Bristol
London (Covent Garden)
London (High Street Kensington)
London (Spitalfields)
London (White City)
This publication is printed on paper
pulp sourced from sustainably
grown and managed forests, using
Elemental Chlorine Free (ECF)
bleaching,and printed with 100%
vegetable - based inks.
Designed by Mosha - www.mosha.co.nz
Print Production - Landau Group Limited
KATHMANDU HOLDINGS LIMITED
ANNUAL REPORT 2013
www.kathmanduholdings.com