KATHMANDU HOLDINGS LIMITED
Annual
Report
2020
Who we are
Kathmandu Holdings Limited (KHL) is a global outdoor,
lifestyle and sports company, consisting of three iconic
brands: Kathmandu, Rip Curl and Oboz, bringing to market
technical products with a focus on sustainability.
The Kathmandu brand was born in 1987. Kathmandu Holdings
formed in 2009 as a publicly listed company. Together with
the acquisition of Oboz (2018) and Rip Curl (2019), Kathmandu
Holdings has transformed from a leading Australasian
retailer to a brand-led global multi-channel business.
2
3
Global reach
North America
RC
KMD Oboz
Total
Owned stores
Licensed stores
Online sites
30
10
1
Wholesale doors
1,206
-
-
1
-
-
-
-
30
10
2
1,500
2,706
Europe
Owned stores
Licensed stores
Online sites
RC
KMD
Oboz
Total
20
17
1
-
-
1
-
-
-
20
17
2
Wholesale doors
2,146
28
97
2,271
Asia
RC Oboz
Total
Owned stores
Licensed stores
JV stores
Online sites
2
54
20
1
-
-
-
-
Wholesale doors
565
152
2
54
20
1
717
TOTAL GROUP
Owned stores
Licensed stores
JV stores
Online sites
RC
KMD Oboz
Total
160
207
26
6
165
-
-
4
-
-
-
-
325
207
26
10
Wholesale doors
5,786
28
1,749
7,563
Owned Regions
Licensed Regions
RC Rip Curl KMD Kathmandu Oboz Oboz
South America
Owned stores
Licensed stores
Online sites
Wholesale doors
RC
3
90
1
815
Australia and New Zealand
RC
KMD
Total
Africa / Middle East
Owned stores
105
165
270
Licensed stores
RC
21
Licensed stores
JV stores
Online sites
15
6
2
Wholesale doors
1,054
-
-
2
-
15
6
4
1,054
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDINTRODUCTION 4
5
Performance
highlights
RIP CURL ACQUISITION WAS TRANSFORMATIONAL
Delivered diversification in geography, channel to market
and seasonality.
Strong cash generating brands with global reach.
Three iconic, inspirational brands with loyal customers.
GROUP SALES
OPERATING CASH FLOW
up 48.7% to $801.5m up 50.9% to $93.1m
including 9 months of Rip Curl
adjusted for impacts of adopting IFRS 16
RESPONSE TO COVID-19 WAS SWIFT AND STRONG
Decisive action to:
Raise capital and suspend dividends.
Reduce costs and accelerate synergies.
Balance sheet well positioned.
CAPITAL RAISED
CLOSING NET DEBT
$207m
in April 2020
$9.4m
with over $350m debt facility headroom
SALES AND PROFIT RESULTS REFLECT
COVID-19 IMPACT
COVID-19 revenue impact estimated at c. $135m.
Enhanced online capacity and capability to rapidly scale up
to meet demand.
GROUP ONLINE SALES1
RETAIL SAME STORE SALES3
up 63% to $106.4m
15.7% of direct to consumer sales2
Growth stronger post-lockdown
than pre-lockdown for both
Rip Curl and Kathmandu.
UNDERLYING EBITDA4
UNDERLYING EBIT4
down 15.3% to $83.4m down 32.5% to $56.2m
UNDERLYING NET PROFIT AFTER TAX4
STATUTORY NET PROFIT AFTER TAX
down 44.5% to $31.5m $8.9m
includes $18.0m one-off transaction
costs, $4.6m restructuring costs, and
$2.6m impact from the implementation
of IFRS 16 leasing standard (in total
$22.6m impact net of tax).
Includes full financial years of Rip Curl sales for comparability, including $3.7m Rip Curl online sales for the three months pre-acquisition.
Sales from Rip Curl and Kathmandu retail stores and direct online sites and marketplaces.
1
2
3 Adjusted to remove stores that were not able to open for a comparable week because of COVID-19 lockdowns.
4
Excluding the impacts of IFRS 16 and one-off transaction and abnormal costs.
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDINTRODUCTION 6
CONTENTS
7
Contents
7
10
12
16
19
20
21
23
78
88
94
Chairman and CEO’s Letter
Sustainability highlights
Rip Curl
Kathmandu
Oboz
The Board
Management team
Financial statements
Corporate governance
Statutory information
Directory
Notice of Annual Meeting 2020
11.00am Wednesday
25 November 2020
www.virtualmeeting.co.nz/kmd20
Chairman and
CEO’s letter
COVID-19 response
This was a transformational year
for the business and our team,
with the successful acquisition
and integration of Rip Curl, the
Group’s swift and strong response
to COVID-19, and the strength of
our three brands clearly evident.
Sales and profit results for Rip Curl,
Kathmandu, and Oboz in FY20
reflect the global impact of the
COVID-19 pandemic. The Group
responded quickly by raising
capital to strengthen its balance
sheet, reduced costs and adjusted
its operating structure. As initial
lockdowns and social distancing
measures eased, strong sales
recovery and cash generation
allowed the Group to end the
financial year well placed both
financially and operationally.
Rip Curl acquisition
We are very pleased with the
successful acquisition and
integration of Rip Curl over the
last nine months. Rip Curl is an
iconic global surf brand and
action sports company, with a
vision to be regarded as “the
Ultimate Surfing Company”.
The Group now comprises three
iconic, inspirational brands with
loyal customers. The acquisition
of Rip Curl allowed the Group
to considerably diversify its
geographic footprint, channels
to market and seasonality profile.
We are now a truly global outdoor,
lifestyle and sports company.
Kathmandu, Oboz, and Rip
Curl are very culturally aligned
with a shared focus on brand
differentiation, technical
innovation, quality, customer
engagement and sustainability.
David Kirk
Chairman
Xavier Simonet
Managing Director and
Chief Executive Officer
The Group acted quickly and
decisively in reponse to COVID-19.
Protecting the safety and wellbeing
of employees and customers has
always been paramount, and
even more so throughout our
COVID-19 response. In accordance
with Government directives,
all of the Group’s global retail
stores were closed for varying
lengths of time from late March.
At the beginning of April, the
Group moved quickly, raising
$207 million of equity to provide
balance sheet strength and
enabling investment for the future.
We also took decisive action early
to reduce costs, adjusting the
operating structure of the business
and accelerating synergies
following the Rip Curl acquisition.
Consumer preference for
online increased during the
initial lockdowns. The Group’s
onmi-channel capability and
infrastructure capacity allowed
both Kathmandu and Rip Curl
to rapidly scale up to meet the
surge in online demand.
As retail stores reopened following
the initial lockdowns, sales
rebounded strongly, reducing
inventory significantly, and
generating strong cashflow.
As a result, the Group finished
the financial year with a robust
balance sheet and healthy
inventory level, positioning the
Group well for the future.
Growth strategy
We are a global outdoor,
lifestyle and sports company,
underpinned by iconic brands
and technical products, with
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 8
9
channel capabilities also allow
us to quickly respond to shifts
in consumer habits and strong
growth in online demand.
Risk to consumer sentiment
remains, given the potential
economic impact of COVID-19.
However, the Group is well
positioned with a robust
balance sheet, low net
debt, healthy inventory, and
strong cash generation.
In Kathmandu, Oboz, and Rip
Curl, the Group has authentic
and inspirational brands that
will continue to attract loyal
consumers for the long-term.
David Kirk
Chairman
Xavier Simonet
Managing Director and
Chief Executive Officer
a focus on sustainability and
customer engagement . The
Group’s long-term strategy has
not changed throughout this
challenging period and, in fact,
it has been further reinforced.
The Group has now built a
portfolio of brands that provide
diversification across geography,
channel, product and seasonality.
These brands allow us to meet
global year-round needs of
customers in the outdoor, sports
and lifestyle categories.
We are now starting to leverage
this portfolio of brands, with plans
to deliver operational excellence in
sourcing, supply chain and systems.
We will continue accelerating
digital transformation and driving
margin expansion through
synergies, and leveraging the
complementary expertise and
core capabilities of our brands.
We plan to grow each brand by
maintaining a relentless focus
on core customers, delivering
solutions to their needs, and
enhancing customer loyalty. Each
brand will continue to bring to
market technical, differentiated
and sustainable products, and
accelerate expansion of the
direct-to-consumer business.
Throughout this journey, we
will remain true to our values.
Sustainability is ingrained in
everything we do. We also
embrace diversity and inclusion
in the workplace and build strong
ties with local communities.
Sustainability highlights
A key priority for the Group is to
provide industry leadership in
sustainability, particularly on
circular economy principles across
all aspects of our business. An
ongoing goal for the Kathmandu
brand is to achieve net zero
environmental harm by 2025, and
we are tracking well to achieve this.
In addition, we aim for all direct
suppliers to meet our minimum
expectations on social and
environmental impacts. Rip Curl
has scored a B+ in the Ethical
Fashion Report for the second
year running, and will continue
to strive towards improvement
along with Kathmandu and Oboz.
We have focused on using recycled
materials across our brands.
Kathmandu uses 100% sustainable
cotton, recycles plastic bottles
through the Repreve product
ranges, and has moved to solution
dyed fabrics to save water. Rip
Curl uses 30% recycled plastic
in packaging, and uses Forest
Stewardship Council certified
recycled paper swing tags. Oboz
launched the Sypes and Bozeman
collections containing recycled
materials and algae bloom insoles.
People
The Board would like to thank
management and their worldwide
teams for outstanding resilience,
flexibility, commitment and passion
over the past year. The teams
met the significant unexpected
challenges of COVID-19, and the
Group ended the financial year
well positioned for the future.
Outlook
The Group’s brands are well
positioned to capitalise on
increased participation in
outdoor, beach and surfing
activities following the end of
COVID-19 lockdowns. Omni
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDINTRODUCTION 10
SUSTAINABILITY
11
Sustainability
highlights
As our family of brands has grown, we
have new opportunities and face new
challenges. We can leverage each
of our strengths to work together for
an even greater positive impact.
We are excited to launch our first
combined sustainability report with
all three brands. Here are some of
our highlights from the last year.
Bottles worth of fresh
water saved by moving
to solution dyed
fabrics (2017 - 2020)
Plastic bottles
recycled through
our Repreve product
ranges (2015 - 2020)
100%
Sustainable Cotton
in our range
Obtained the
Rainbow Tick Certification in
New Zealand for embracing
diversity and inclusion
First solar panel
store in Australia
Launched the Sypes
and Bozeman
collections
containing recycled
materials and algae
bloom insoles
Trees
planted
since the
company
started
Improved
gender
diversity
in our team
now with
Scored a B+ in the
Ethical Fashion Report
two years running
Recycled plastic
in our polybags
20th
year anniversary of
Rip Curl Planet Day
Collaborated with
Kathmandu on
developing our
sustainability journey
Recycled paper
swing tags
on products
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 12
RIP CURL
13
Founded in 1969 by Brian “Sing Ding”
Singer and Doug “Claw” Warbrick, Rip
Curl is one of the world’s most recognised
and respected brands. It has been at the
forefront of the surf and snow scenes since
its creation. Made by surfers for surfers,
Rip Curl’s vision is to be regarded as the
Ultimate Surfing Company in all that we do.
Rip Curl is a company for, and about, the crew on
The Search. The Search is the driving force that
led to the creation of Rip Curl, and it lives in the
spirit of everything the Rip Curl crew do. It's what
makes Rip Curl unique. It defines who we are. The
products we make, the events we run, the riders
we support and the people we reach globally,
are all a part of that Search that Rip Curl is on.
TOTAL SALES
NZD
$315.7m (in the last 12 months, including $3.7m
ONLINE SALES
NZD$25.5m
for the three months pre-acquisition)
• 52% growth year on year
• 10.6% of direct to consumer sales
9 months since acquisition
CHANNELS
160 owned stores
207 licensed stores
26 JV stores
6 direct to consumer websites
5,786 wholesale doors
RIP CURL SALES MIX (LAST 12 MONTHS)
BY CHANNEL
BY REGION
Retail Stores
50%
Online
6%
Wholesale
43%
Other
1%
AUS & NZ
48%
North America
23%
Europe
16%
ROW*
13%
RIP CURL GROSS PROFIT $ MIX (LAST 12 MONTHS)
BY CHANNEL
BY REGION
Retail Stores
55%
Online
8%
Wholesale
36%
Other
1%
AUS & NZ
50%
North America
21%
Europe
15%
ROW*
14%
*Rest of the World
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 14
15
E-Bomb E7
limited edition
Rip Curl launched the Limited Edition E-Bomb E7 Wetsuit in July 2020. This product is the
latest in a long line of world’s first wetsuit technology for Rip Curl and was the culmination
of a 3 year project from the Rip Curl wetsuit development team involving the expertise
of Rip Curl World Champion surfers Tyler Wright, Mick Fanning and Gabriel Medina.
The E-Bomb was designed for ultimate performance
and features Rip Curl’s latest breakthrough in
high stretch neoprene in the upper body. This
single one-piece panel stretches from wrist to
wrist and with no seams provides the full stretch
performance benefits of E7. The body of the suit
features E6 neoprene and the entire suit has internal
Thermo Lining for stretch, comfort and warmth.
The success of the E-Bomb has been incredible with the
limited edition wetsuit selling strongly in core markets.
The E-Bomb demonstrates Rip Curl’s dedication to
delivering leading-edge innovation and technical
performance across its product range.
Rip Curl continues to connect with surf, snow and
beach going customers across the world through
content based on its world class pro surf team, World
Surf League and grassroots events programs and its
range of core and fashionable surfing products which
can be found in use at every beach on the planet.
MICK FANNING - 3X WORLD SURFING CHAMPION
MADE BY WORLD CHAMPIONS
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDRIP CURL 16
17
Kathmandu opened its first store along
Melbourne’s iconic Hardware Lane in 1987.
With a focus on producing original, adaptive,
sustainable and expertly engineered
gear and apparel, Kathmandu has been
inspiring adventure for over 30 years to
become Australia and New Zealand’s
largest outdoor adventure brand.
Kathmandu has 165 retail stores in Australia, New
Zealand, and an online and a wholesale presence the
United Kingdom, and the United States of America.
Sustainability lies at the heart of everything Kathmandu
does, and in 2019 it became the first outdoor apparel
and equipment brand in Australasia to become
a certified B Corp, meeting the highest standards
of social and environmental performance.
TOTAL SALES
ONLINE SALES
NZD
NZD$80.9m
$426.4m • 67% growth year on year
• 18.5% of direct to consumer sales
CHANNELS
165 retail stores
4 direct to consumer websites
28 wholesale doors
KATHMANDU SALES MIX FY20
KATHMANDU GROSS PROFIT $ MIX FY20
BY CHANNEL
BY CHANNEL
Retail Stores
81%
Online
19%
Retail Stores
82%
Online
18%
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDKATHMANDU 18
KATHMANDU HOLDINGS LTD
ANNUAL REPORT 2020
19
Kathmandu
partners with Uber
Inspired by our customer-centric approach and innovative thinking, Kathmandu
teamed up with Uber to launch same-day delivery in Sydney and Melbourne in response
to COVID-19 postage delays. This made it possible for customers to place an order
online by 3pm and receive delivery of goods to their doorstep the very same day.
The Australian-first partnership drove significant
media coverage for Kathmandu, with the brand
front and centre across print and news outlets
nationwide. After a successful trial, the service was
rolled out across a wider area including addresses
within a 10km radius of key stores in Adelaide,
Canberra, Perth, Hobart and Queensland.
With the resurgence of cases in some Australian
states, and increased restrictions, same-day
delivery has become an important additional
offering which has proved popular with customers.
Whilst bricks-and-mortar stores continue to
offer personalised experiences and expertise,
same-day delivery via Uber gives customers
increased flexibility during uncertain times.
For Kathmandu, it was important to provide an
alternative method to get product to customers as
quickly as possible using contactless delivery.
As pressure increased on traditional transport networks,
we welcomed the opportunity to partner with Uber’s
ride-sharing platform to utilise their large pool of drivers.
The flexibility provided by the Uber delivery
service also enabled Kathmandu to make use of
its bricks and mortar store teams to help relieve
some of the pressure placed on our hard-working
Distribution Centre as online orders surged.
This partnership is also a long-term strategy,
addressing the predicted changes in consumer
behaviour following COVID-19, including potentially
less foot fall in stores, expectations around
contactless service and a boom in online sales.
Moving forward, Kathmandu hopes to continue
to work with Uber to expand the service
across further parts of our store network.
X
Oboz began in 2007 in the small town of
Bozeman, Montana (Outside + Bozeman
= Oboz) and has quickly grown to be a
leading North American brand of handmade
outdoor footwear. Oboz continues to
differentiate itself by pairing a focus on
expertly designed and constructed footwear
with strong corporate responsibility.
Bozeman, Montana. It's where it all started. It's what
inspired the Oboz name. And it's what motivates us
to lace up daily and explore the 18 million acres of
Greater Yellowstone Ecosystem that surround us. A
vast and breathtaking landscape of peaks, valleys
and rivers just waiting to be explored on two feet.
A vision that began over ten years ago in Bozeman,
Montana now has roots around the world. Our “True
To The Trail®” philosophy is the compass heading
that guides everything we do. From building
great fitting footwear to how we give back to our
community and the way we treat each other
and our planet. It's a mindset that grounds us in
what's most important - doing things the right way,
having fun, and exploring our path in life. Because
any other way, just wouldn't be true to the trail.
TOTAL SALES
NZD
$59.4m
CHANNELS
1,749 wholesale doors
Direct to Consumer online trading
site to be launched during FY21
KATHMANDU 20
21
The Board
Management team
1 David Kirk
Chairman
4 Philip Bowman
Non-executive Director
David is the Co-founder and Managing
Partner of Bailador Investment Management
and is Chairman of Bailador Technology
Investments, Forsyth Barr Group, and the
NZ Rugby Players Association. He sits on the
Board of various Bailador portfolio companies
and charitable organisations including
KiwiHarvest and the Sydney Festival.
David’s Executive Management career
included roles as the CEO of Fairfax Media
and CEO and Managing Director of PMP.
David was Chief Policy Advisor to the Prime
Minister of New Zealand from 1992 to 1994
and was a management consultant with
McKinsey & Company in London prior to that.
David’s past roles include the Chairman
of Trade Me Group. David is a Rhodes
Scholar with degrees in Medicine from
Otago University and Philosophy, Politics
and Economics from Oxford University.
2 Xavier Simonet
Managing Director and
Group Chief Executive Officer
Xavier joined Kathmandu in July 2015 with
over 20 years international experience in
building brands and developing successful
retail businesses in fashion, apparel,
accessories and related products.
Prior roles include CEO of Radley (London),
VP & GM International of DB Apparel, 11
years at LVMH (primarily Asia-Pacific)
and International Director of Seafolly.
3 Brent Scrimshaw
Non-executive Director
Brent has extensive experience leading and
growing consumer brands around the world
including an 18-year career with Nike Inc
across Marketing, Commerce and General
Management in three continents. He led
Brand marketing for Nike Pacific, was the
Regional GM for Nike North America in New
York, was also the Chief Marketing Officer for
Nike EMEA. Brent also served as Vice President
and Chief Executive of Nike Western Europe
leading Nike's European operations from
Amsterdam. Brent subsequently founded
Unscriptd, a sports technology and media
business sold to The Players’ Tribune (a
large USA media company) in 2019. He
was previously a director of action sports
company Fox Head Inc in Irvine California.
Brent currently holds Non-Executive Director
roles with ASX listed Rhinomed (RNO)
and Catapult International (CAT). Brent is
currently the CEO of Enero Group (EGG).
Philip has extensive experience in in retail,
brands and international, including 15 years
as a director of Burberry. Other past roles
include CFO of Bass, CEO of Bass Taverns,
Executive Chairman of Liberty PLC, CEO of
Allied Domecq, CEO of Scottish Power, CEO of
Smiths Group and Chairman of Coral Eurobet
and Miller Group. He has also held office as
an independent director of BSkyB, Scottish
& Newcastle Group and Berry Bros. & Rudd.
He currently sits on the boards of Ferrovial
SA, Better Capital PCC and is Chairman of
Sky Network Television, Majid al Futtaim
Properties and Tegel Group Holdings.
5 John Harvey
Non-executive Director
John is a professional Director with a
background in accounting and professional
services. He has over 35 years professional
experience, including 23 years as a partner of
PricewaterhouseCoopers where he also held
a number of leadership and governance roles.
John retired from PwC in 2009. John has
extensive experience in financial reporting,
governance, information systems and
processes, initial public offerings, business
evaluation, acquisitions and mergers.
John is currently a non-Executive Director of
Stride Property, Investore Property, Heartland
Bank and Napier Port Holdings. Former non-
Executive director roles include HT&E (formerly
APN News & Media), Port Otago, Ballance
Agri-Nutrients and New Zealand Opera.
6 Andrea Martens
Non-executive Director
(appointed 1 August 2019)
Andrea has extensive executive leadership
experience having spent over 20 years
working with some of the world’s best known-
brands and organisations. She is currently
the CEO of ADMA and has previously held
roles as the Global Chief Marketing Officer for
Jurlique International, and Managing Director
and VP Marketing, Home and Personal Care
for Unilever Australia and New Zealand.
Andrea is also a member of the Australian
Institute of Company Directors and
named as one of the top 50 CMOs
in Australia by CMO Magazine.
1
2
3
4
5
6
Xavier Simonet
Group
Chief Executive Officer
Chris Kinraid
Group
Chief Financial Officer
Reuben Casey
Kathmandu
Chief Executive Officer
Michael Daly
Rip Curl
Chief Executive Officer
Jolann Van Dyk
Group
Chief Information Officer
Tony Roberts
Group
Legal Counsel
Amy Beck
President Oboz
ANNUAL REPORT 2020KATHMANDU HOLDINGS LTDTHE BOARD AND MANAGEMENT TEAM
22
FINANCIAL STATEMENTS
KATHMANDU HOLDINGS LTD
ANNUAL REPORT 2020
23
Financial
statements
For the Year Ended 31 July 2020
In this section...
The consolidated financial statements have been presented in a style which attempts to make them
less complex and more relevant to shareholders. We have grouped the note disclosures into six sections:
‘Basis of Preparation’, ‘Results for the Year’, ‘Operating Assets and Liabilities’, ‘Capital Structure and
Financing Costs’, ‘Group Structure’ and ‘Other Notes’. Each section sets out the accounting policies
applied in producing the relevant notes. The purpose of this format is to provide readers with a clearer
understanding of what drives financial performance of the Group. The aim of the text boxes is to provide
commentary on each section or note, in plain English.
Keeping it simple...
Notes to the consolidated financial statements provide information required by accounting standards
or Listing Rules to explain a particular feature of the financial statements. The notes which follow will also
provide explanations and additional disclosures to assist readers’ understanding and interpretation of the
annual report and the financial statements.
Table of Contents
Directors’ Approval of
Consolidated Financial Statements ...........................................24
Consolidated Statement of Comprehensive Income ...25
Consolidated Statement of Changes in Equity ..................26
Consolidated Balance Sheet ........................................................... 27
Consolidated Statement of Cash Flows ..................................28
Notes to the Consolidated Financial Statements
Section 1: Basis of Preparation ........................................................30
Section 2: Results for the Year .........................................................33
Section 3: Operating Assets and Liabilities .......................... 40
Section 4: Capital Structure and Financing Costs ............51
Section 5: Group Structure .................................................................61
Section 6: Other Notes ......................................................................... 66
Auditors’ Report .......................................................................................... 71
24
25
Directors’ Approval of
Consolidated Financial Statements
For the Year Ended 31 July 2020
Consolidated Statement
of Comprehensive Income
For the Year Ended 31 July 2020
Authorisation for Issue
The Board of Directors authorised the issue of these Consolidated Financial Statements on 23 September 2020.
Approval by Directors
The Directors are pleased to present the Consolidated Financial Statements of Kathmandu Holdings Limited for
the year ended 31 July 2020 on pages 25 to 77.
David Kirk
Xavier Simonet
For and on behalf of the Board of Directors
23 September 2020
Date
23 September 2020
Date
Sales
Cost of sales
Gross profit
Other income
Selling expenses
Administration and general expenses
Earnings before interest, tax, depreciation and amortisation
Depreciation and amortisation
Earnings before interest and tax
Finance income
Finance expenses
Finance costs - net
Profit before income tax
Income tax expense
Profit after income tax
Profit for the period attributable to:
Shareholders of the company
Non-controlling interest
Section
2020
NZ$’000
2019
NZ$’000
2.2
801,524
538,855
(334,493)
(206,362)
467,031
332,493)
2.2
2.2
2.2
27,369
(169,272)
(176,237)
(318,140)
148,891
3.2-3.4
(103,027)
45,864
449
(23,803)
(23,354)
22,510
(13,631)
1,130)
(160,581)
(73,477)
(232,928)
99,565)
(15,272)
84,293
37)
(2,952)
(2,915)
81,378)
(23,745)
4.1.1
2.3
4.3.2
4.3.2
4.3.2
2.4
2.4
2.4
2.4
8,879
57,633)
8,145
734
(9,259)
259
(61)
57,633)
-)
620)
(3,297)
-)
(9,061)
(2,677)
(182)
54,956)
(920)
738
1.7cps
1.6cps
493,347
494,582
54,956)
-)
16.0cps)
15.9cps)
359,600)
361,566
Other comprehensive income/(expense) that may be recycled through profit or loss:
Movement in cash flow hedge reserve
Movement in foreign currency translation reserve
Movement in other reserves
Other comprehensive expense for the year, net of tax
Total comprehensive income/(expense) for the year
Total comprehensive income/(expense) for the period attributable to:
Shareholders of the company
Non-controlling interest
Basic earnings per share
Diluted earnings per share
Weighted average basic ordinary shares outstanding (‘000)
Weighted average diluted ordinary shares outstanding (‘000)
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
26
27
Consolidated Statement
of Changes in Equity
For the Year Ended 31 July 2020
Consolidated Balance Sheet
As at 31 July 2020
Cash
Flow
Hedge
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Share
Based
Payments
Reserve
NZ$’000
Share
Capital
NZ$’000
249,882
3,498
(8,975)
2,760
-
-
-
1,231
-
-
-
-
620
-
(3,297)
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,231)
721
(14)
(253)
251,113
4,118
(12,272)
1,983
-
-
-
375,267
-
-
-
-
-
-
(9,259)
-
255
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,666)
378
(87)
-
-
-
Other
Reserves
NZ$’000
Retained
Earnings
NZ$’000
Non-
controlling
Interest
NZ$’000
Total
Equity
NZ$’000
420,521
57,633
(2,677)
(33,883)
-
721
-
(253)
173,356
57,633
-
(33,883)
-
-
14
-
-
-
-
-
-
-
-
-
197,120
-
442,062
8,145
-
(27,209)
-
-
-
-
-
734
8,879
4
-
-
-
-
(9,061)
(27,209)
373,601
378
(87)
3,335
3,335
(66)
(66)
(12,630)
-
(12,630)
-
-
-
-
-
-
-
-
-
-
(61)
-
-
-
-
-
-
-
626,380
(5,141)
(12,017)
608
(61)
165,426
4,007
779,202
Balance as at 31 July 2018
Profit after tax
Other comprehensive income
Dividends paid
Issue of share capital
Share based payment expense
Lapsed share options
Deferred tax on share-based
payment transactions
Balance as at 31 July 2019
Profit after tax
Other comprehensive income
Dividends paid
Issue of share capital
Share based payment expense
Deferred tax on share-based
payment transactions
Non-controlling interest on
acquisition
Disposal of non-controlling
interest
Transition to NZ IFRS 16
Balance as at 31 July 2020
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax asset
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Right-of-use assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest bearing liabilities
Derivative financial instruments
Current tax liabilities
Current lease liabilities
Total current liabilities
Non-current liabilities
Derivative financial instruments
Non-current trade and other payables
Interest bearing liabilities
Deferred tax
Non-current lease liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity - ordinary shares
Reserves
Retained earnings
Non-controlling interest
Total equity
Section
2020
NZ$’000
2019
NZ$’000
3.1.2
3.1.3
3.1.1
4.2
3.1.3
3.2
3.3
3.4.1
3.1.5
4.1
4.2
3.4.2
4.2
3.1.5
4.1
2.3
3.4.2
4.3.1
4.3.2
231,885
73,668
228,793
53
3,790
6,230
14,206
122,773
4,964
-
538,189
148,173
3,945
90,722
682,578
257,998
1,035,243
1,573,432
-
60,319
386,061
-
446,380
594,553
143,698
74,560
-
7,414
8,060
77,579
-
113
6,458
-
236,751
81,131
-
14,413
241,270
81,452
220,344
557,479
794,230
9
-
25,500
45,851
-
71,360
152,491
779,202
442,062
626,380
(16,611)
165,426
4,007
779,202
251,113
(6,171)
197,120
-
442,062
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 28
29
Consolidated Statement
of Cash Flows
For the Year Ended 31 July 2020
Reconciliation of net profit after taxation with
cash inflow from operating activities
Profit after taxation
Movement in working capital:
(Increase) / decrease in trade and other receivables
(Increase) / decrease in inventories
Increase / (decrease) in trade and other payables
Increase / (decrease) in current tax liability
Add non-cash items:
Depreciation of property, plant and equipment
Amortisation of intangibles
Depreciation of right-of-use assets
Impairment of right-of-use assets
Foreign currency translation of working capital balances
Increase / (decrease) in deferred taxation
Employee share based remuneration
Loss on sale of property, plant and equipment and intangibles
Cash inflow from operating activities
Section
2020
NZ$’000
2019
NZ$’000
8,879
57,633
24,027
20,305
9,732
1,526
55,590
19,653
7,539
75,835
2,050
215
(3,413)
378
3,069
(379)
(13,042)
3,662
(3,260)
(13,019)
11,920
3,352
-
-
(286)
539
721
814
105,326
17,060
169,795
61,674
3.2
3.3
3.4.1
3.4.1
6.3
3.2, 3.3
Cash flows from operating activities
Cash was provided from:
Receipts from customers
Government grants received
Interest received
Income tax received
Cash was applied to:
Payments to suppliers and employees
Income tax paid
Interest paid
Net cash inflow from operating activities
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment
Proceeds from sale of non-controlling interest
Proceeds from investment in other financial assets
Cash was applied to:
Purchase of property, plant and equipment
Purchase of intangibles
Acquisition of subsidiaries
Section
2020
NZ$’000
2019
NZ$’000
823,951
21,266
449
1,379
847,045
638,393
16,897
21,960
677,250
546,499
-
621
207
547,327
455,743
26,673
3,237
485,653
169,795
61,674
61
141
-
202
15,399
4,463
376,121
395,983
1
-
22,321
22,322
11,345
4,351
22,321
38,017
3.2
3.3
5.1
Net cash (outflow) from investing activities
(395,781)
(15,695)
Cash flows from financing activities
Cash was provided from:
Proceeds of loan advances
Proceeds from share issues
Cash was applied to:
Dividends paid
Repayment of loan advances
Repayment of lease liabilities
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents held
Opening cash and cash equivalents
Effect of foreign exchange rates
Closing cash and cash equivalents
506,746
340,646
847,392
27,209
293,757
76,744
397,710
92,606
-
92,606
33,883
106,606
-
140,489
449,682
(47,883)
223,696
(1,904)
6,230
1,959
3.1.2
231,885
8,146
(12)
6,230
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 30
31
Notes to the Consolidated Financial Statements
Section 1 Basis of Preparation
In this section
This section sets out the Group’s accounting policies that relate to the consolidated financial
statements as a whole. Where an accounting policy is specific to one note, the policy is described
in the note to which it relates.
1.1 General information
1.2.1 Basis of preparation
Kathmandu Holdings Limited (the Company) and
its subsidiaries (together the Group) is a designer,
marketer, retailer and wholesaler of apparel,
footwear and equipment for surfing and the
outdoors. It operates in New Zealand, Australia,
North America, Europe, South East Asia and Brazil.
The Company is a limited liability company
incorporated and domiciled in New Zealand.
Kathmandu Holdings Limited is a company registered
under the Companies Act 1993 and is a FMC reporting
entity under Part 7 of the Financial Markets Conduct
Act 2013. The address of its registered office is 223
Tuam Street, Central Christchurch, Christchurch.
The Company is listed on the NZX and ASX.
The consolidated financial statements of the
Group have been prepared in accordance with
the requirements of Part 7 of the Financial Markets
Conduct Act 2013 and the NZX Listing Rules.
These audited consolidated financial statements
have been approved for issue by the Board
of Directors on 23 September 2020.
1.2 Summary of significant
accounting policies
These consolidated financial statements have
been prepared in accordance with Generally
Accepted Accounting Practice. They comply with
the New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and other
applicable Financial Reporting Standards, as
appropriate for for-profit entities. The consolidated
financial statements also comply with International
Financial Reporting Standards (IFRS).
The consolidated financial statements are
presented in New Zealand dollars, which
is the Group’s presentation currency.
The principal accounting policies adopted in the
preparation of the consolidated financial statements
are set out below. These policies have been
consistently applied to all periods presented,
unless otherwise stated.
Basis of consolidation
The consolidated financial statements reported are
for the consolidated “Group” which is the economic
entity comprising Kathmandu Holdings Limited and
its subsidiaries.
The Group is designated as a for-profit entity for
financial reporting purposes.
Subsidiaries are consolidated from the date on which
control is obtained to the date on which control is lost.
Non-controlling interests are measured at their
proportionate share of the acquiree’s identified net
assets at the acquisition date. Changes in the Group’s
interests in a subsidiary that do not result in a loss of
control are accounted for as equity transactions.
In preparing the consolidated financial statements,
all material intra-group transactions, balances
and unrealised gains on transactions between
Group companies are eliminated. Unrealised losses
are also eliminated. When necessary, amounts
reported by subsidiaries have been adjusted to
conform to the Group’s accounting policies.
Historical cost convention
These consolidated financial statements have
been prepared under the historical cost convention,
as modified by the revaluation of certain assets as
identified in the specific accounting policies
provided below.
Critical accounting estimates
Foreign currency translation
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.
Estimates and judgements are continually evaluated
and are based on historical experience as adjusted
for current market conditions and other factors,
including expectations of future events that are
believed to be reasonable under the circumstances.
Further explanation as to estimates and assumptions
made by the Group can be found in the following
notes to the consolidated financial statements:
The results and financial position of all the Group
entities (none of which has the currency of a hyper-
inflationary economy) that have a functional
currency different from the presentation currency are
translated into the presentation currency as follows:
• Assets and liabilities for each balance sheet
presented are translated at the closing
rate at the date of that balance sheet;
•
Income and expenses for each statement of
comprehensive income are translated at average
exchange rates (unless this average is not a
reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in
which case income and expenses are translated
at the rate on the dates of the transactions); and
Area of Estimation
Business Combinations –
purchase price allocation
Goodwill and Brand – assumptions
underlying recoverable value
Inventory – estimates of obsolescence
Leases – judgment applied to lease term
Taxation – provision for tax payable
• All resulting exchange differences are
Section
recognised in other comprehensive income.
5.1
3.3
3.1.1
3.4
2.3
On consolidation, exchange differences arising
from the translation of the net investment in
foreign operations, and of borrowings and other
currency instruments designated as hedges of such
investments, are taken to shareholders’ equity.
Changes in accounting policies
Details about changes in accounting policies applied
during the period are included in the following notes to
the financial statements:
Operating segments
Earnings per share restatement
New standards and interpretations
first applied in the period
Section
2.1
2.4
6.8
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 32
33
1.3 Going Concern and the
impact of COVID-19
On 11 March 2020 the World Health Organisation
declared a global pandemic as a result of the
outbreak and spread of COVID-19. Global restrictions
on movement, travel and gatherings resulted in
significant footfall reduction and the closure of
our entire store network in late March with gradual
reopening commencing in early May in most markets.
As a result, the Group took decisive action to
manage its liquidity and profitability specifically:
• Reduced operating expenditure;
• Deferred non-essential capital projects;
• Suspended dividend payments;
• Raised capital; and
• Accessed government subsidies.
In addition, the Group obtained support from
its bank syndicate in the form of a waiver
of the current covenant measurements
until 31 July 2021 measurement point.
In April 2020 the Group completed a successful
$207 million equity raising to strengthen its balance
sheet and liquidity position in response to the
COVID-19 pandemic. The capital raise, strong trading
performance and cash generation in key markets
has reduced net debt to $9.4 million (excluding lease
liabilities) at balance date. There remains continued
uncertainty over future economic conditions and
further COVID-19 outbreaks however the Group has
$377 million of liquidity to manage this uncertainty.
Based on the additional capital secured, including
an earlier reopening and a significantly stronger
trading performance above our COVID-19 forecasts
made in April, the Board considers that compliance
with financial covenants will continue to be met for
at least the next 12 months from approving these
consolidated financial statements (refer note 4.1).
The ongoing uncertainties discussed, and other
economic effects of the pandemic have been
considered in the Group’s key estimates and
judgements as disclosed in the following notes:
•
Intangible assets - the ability to achieve future
forecasts and the consequential impacts
on the carrying value of goodwill and other
finite life intangibles (refer note 3.3).
• Receivables - the ability of wholesale
customers to pay (refer note 3.1.3.)
•
Leases – certain landlords have provided the
Group with rent concessions (refer note 2.2).
Considering the above, the Board has reviewed the
operating and cash flow forecasts for the three-year
period to 2023. The Board is satisfied based on their
review of these financial forecasts that during the
period to at least 12 months from the approving of
the consolidated financial statements there will be
adequate cash flows generated from operating and
financing activities to meet the obligations of the Group.
Section 2 Results for the Year
In this section
This section focuses on the results and performance of the Group. On the following pages you will
find disclosures explaining the Group’s results for the year, segmental information, taxation and
earnings per share.
2.1 Segment information
An operating segment is a component of an entity that
engages in business activities which earns revenue
and incurs expenses and where the chief decision
maker reviews the operating results on a regular
basis and makes decisions on resource allocation.
Following the acquisition of Rip Curl Group Pty
Limited in October 2019 the Group has three
operating segments. These operating segments
have been determined based on the reports
reviewed by the Group Chief Executive Officer
and Group Executive Management team.
Outdoor – including the Kathmandu and
Oboz brands. This segment designs, markets,
retails and wholesales apparel, footwear and
equipment for outdoor travel and adventure.
Surf – including the Rip Curl brand. This
segment designs, manufactures, wholesales
and retails surfing equipment and apparel.
The Corporate segment represents group costs,
holding companies and consolidation eliminations
and constitutes other business activities that
do not fall within outdoor or surf segments.
31 July 2020
Sales from external customers
EBITDA
Depreciation and amortisation
EBIT
Income tax expense
Total segment assets
Total assets includes:
Non-current assets
Additions to non-current assets
Total segment liabilities
31 July 2019
Sales from external customers
EBITDA
Depreciation and amortisation
EBIT
Income tax expense
Total segment assets
Total assets includes:
Non-current assets
Additions to non-current assets
Total segment liabilities
Outdoor
NZ$’000
485,785
128,192
63,291
64,901
16,962
Surf
NZ$’000
315,739
35,202
35,804
(602)
2,543
Corporate
NZ$’000
-
(14,503)
3,932
(18,435)
(5,874)
Total
NZ$’000
801,524
148,891
103,027
45,864
13,631
750,026
388,222
435,184
1,573,432
503,162
43,446
309,539
Outdoor
NZ$’000
538,855
102,542
15,088
87,454
24,188
483,038
337,441
15,696
152,006
396,691
1,035,243
135,390
14,279
243,655
Surf
NZ$’000
Corporate
NZ$’000
-
241,036
-
(2,977)
184
(3,161)
(443)
57,725
794,230
Total
NZ$’000
538,855
99,565
15,272
84,293
23,745
111,515
594,553
108,939
-
485
446,380
15,696
152,491
-
-
-
-
-
-
-
-
-
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 34
35
EBITDA represents earnings before income taxes
(a non-GAAP measure), excluding interest income,
interest expense, depreciation and amortisation, as
reported in the financial statements. EBIT represents
EBITDA less depreciation and amortisation. EBITDA and
EBIT are key measurement criteria on which operating
segments are reviewed by the Group Chief Executive
Officer and Group Executive Management team.
Costs recharged between Group companies
are calculated on an arms-length basis. The
default basis of allocation is % of revenue with
other bases being used where appropriate.
Sales from external customers by geographical area
Australia
New Zealand
North America
UK and Europe
Asia
Rest of World
2020
NZ$’000
449,930
133,696
131,244
53,386
25,653
7,615
2019
NZ$’000
334,532
136,950
63,840
3,533
-
-
801,524
538,855
Non-current assets by geographical area
Australia
New Zealand
North America
UK and Europe
Asia
Rest of World
2020
NZ$’000
695,389
171,075
143,618
16,425
7,057
1,679
2019
NZ$’000
230,827
105,523
110,024
6
-
-
1,035,243
446,380
2.2 Profit before tax
Revenue recognition
The Group recognises revenue from the sale of
footwear, clothing and equipment for surfing and the
outdoors and brand licencing arrangements. Revenue
comprises the fair value of the consideration received
or receivable for the sale of goods and brand licences,
excluding Goods and Services Tax and discounts,
and after eliminating sales within the Group.
Retail Sales
Royalty Revenue
Lease expense
For sales of goods to retail customers, revenue is
recognised when control of the goods has transferred,
being at the point the customer purchases the goods
at a retail outlet. Payment of the transaction price is
due immediately at the point the customer purchases
the goods.
Online Sales
For online sales, revenue is recognised when control
of the goods has transferred to the customer,
being at the point the goods are delivered to the
customer. Delivery occurs when the goods have
been shipped to the customer’s specific location.
When the customer initially purchases the goods
online, the transaction price received by the
Group is recognised as a contract liability until the
goods have been delivered to the customer.
Wholesale Sales
For sales to the wholesale market, revenue is recognised
when control of the goods has transferred, being when
the goods have been shipped to the wholesaler’s
specific location (delivery). Following delivery, the
wholesaler has full discretion over the manner of
distribution and price to sell the goods, has the
primary responsibility when onselling the goods and
bears the risks of obsolescence and loss in relation to
the goods. A receivable is recognised by the Group
when the goods are delivered to the wholesaler as
this represents the point in time at which the right to
consideration becomes unconditional, as only the
passage of time is required before payment is due.
Sales Returns
Under the Group’s standard contract terms, customers
have a right of return within 30 days. At the point of sale,
a refund liability and a corresponding adjustment to
revenue is recognised for those products expected to
be returned. The Group uses its accumulated historical
experience to estimate the number of returns on a
portfolio level using the expected value method. It is
considered highly probable that a significant reversal
in the cumulative revenue recognised will not occur
given the consistent level of returns over previous years.
Royalty revenue from brand license arrangements
is recognised based on a right to access the
license. Revenue is recognised over the contract
period based on a fixed amount or reliable
estimate of sales made by a licensee.
The Group is a lessee. Refer to section 3.4 for further
details around the group’s leases and lease
accounting policies.
Lease amounts recognised in the consolidated
statement of comprehensive income:
Sale of goods
Royalty revenue
Commission revenue
2020
NZ$’000
797,410
3,848
266
2019
NZ$’000
538,855
-
-
801,524
538,855
Note 2.1 provides a breakdown of revenue by operating
segment and geographical area.
Other Income
Government grants
GST refund
Other
2020
NZ$’000
26,781
-
588
27,369
-
1,107
23
1,130
Government grants that compensate the Group
for expenses incurred are recognised as revenue
in the statement of comprehensive income on a
systematic basis in the same period in which the
expenses are recognised. In the current period
Government grants relate to wage and other subsidies
received in response to the impact of COVID-19.
Government grants of $5,615,016 relating to the current
year are receivable at balance date and have been
included in other receivables and prepayments in
Note 3.1.3.
GST refund relates to a refund received resulting
from the treatment of GST on reward vouchers.
Employee entitlements
Wages, salaries and other
short term benefits
Post-employment benefits
Employee share based
remuneration
2020
NZ$’000
2019
NZ$’000
167,161
86,325
8,629
378
4,989
721
176,168
92,035
Rent expenses
Short-term lease expense
Low-value lease expense
Variable lease expense
Lease outgoings
Depreciation right-of-use
asset
2019
NZ$’000
Interest expense related to
lease liabilities
2020
NZ$’000
2019
NZ$’000
-
69,187
3,872
1,277
532
16,480
75,835
8,855
-
211
-
-
-
-
106,851
69,398
Some of the property leases in which the Group is
the lessee contain variable lease payment terms
that are linked to sales generated from the leased
stores. Variable payment terms are used to link rental
payments to store cash flows and reduce fixed cost.
Overall the variable payments constitute up to 0.5%
of the Group's entire lease payments. The variable
payments depend on sales and consequently on
the overall economic development over the next
few years. Taking into account the development of
sales expected over the next 3 years, variable rent
expenses are expected to continue to present a
similar proportion of store sales in future years.
The Group has adopted the practical expedient
in paragraph 46A of NZ IFRS 16 and elected not to
account for any rent concessions granted as result of
the COVID-19 pandemic as a lease modification. The
amount recognised in profit or loss due to changes
in lease payments arising from such concessions
was $5 million which has been recognised within the
selling, administration and general expenses in the
consolidated statement of comprehensive income.
The total cash outflow for leases amounts to
NZ$95,892,000 (2019 NZ$68,986,000).
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 36
37
2.3 Taxation
In order to understand how, in the consolidated statement of comprehensive income, a tax charge of $13,630,851
(2019: $23,744,580) arises on profit before income tax of $22,509,690 (2019: $81,377,631), the taxation charge that
would arise at the standard rate of New Zealand corporate tax is reconciled to the actual tax charge as follows:
Keeping it simple
This section lays out the tax accounting policies, the current and deferred tax charges or credits in
the year (which together make up the total tax charge or credit in the consolidated statement of
comprehensive income), a reconciliation of profit before tax to the tax charge and the movements in
deferred tax assets and liabilities. The Group is subject to income taxes in multiple jurisdictions. As result
there is complexity and judgement involved in determining the worldwide provision for income taxes.
Accounting policies
Current and deferred income tax
The tax expense for the period comprises current and
deferred tax. Tax is recognised in the consolidated
statement of comprehensive income, except to the
extent that it relates to items recognised in other
comprehensive income or directly in equity. In this
case, the tax is recognised in other comprehensive
income or directly in equity, respectively.
The current income tax charge is calculated on
the basis of the tax laws enacted or substantively
enacted at the balance sheet date in the countries
where the Company and Company’s subsidiaries
operate and generate taxable income. Management
periodically evaluates positions taken in tax returns
with respect to situations in which applicable
tax regulations are subject to interpretation and
establishes provisions where appropriate on the basis
of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the
liability method, on temporary differences arising
between tax bases of assets and liabilities and their
carrying amounts in the consolidated financial
statements. However, the deferred income tax is not
accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business
combination that at the time of the transaction
affects neither accounting nor taxable profit or loss.
Deferred income tax liability is not recognised if it
arises from the initial recognition of goodwill. Deferred
income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted
by the balance sheet date and are expected to
apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised
to the extent that it is probable that future
taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax is provided on temporary
differences arising on investments in subsidiaries,
except where the timing of the reversal of the
temporary difference is controlled by the Group
and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset
when there is a legally enforceable right to offset
current tax assets against current tax liabilities
and when the deferred income taxes assets and
liabilities relate to income taxes levied by the same
taxation authority on either the same taxable
entity or different taxable entities where there is an
intention to settle the balances on a net basis.
Goods and Services Tax (GST)
The consolidated statement of comprehensive income
and the consolidated statement of cash flows have
been prepared so that all components are stated
exclusive of GST. All items in the consolidated balance
sheet are stated net of GST, with the exception of
receivables and payables, which include GST invoiced.
Taxation – Consolidated statement
of comprehensive income
The total taxation charge in the consolidated statement
of comprehensive income is analysed as follows:
2020
NZ$’000
2019
NZ$’000
17,049
(3,418)
23,206
539
13,631
23,745
Current income tax charge
Deferred income tax charge /
(credit)
Income tax charge reported in
the consolidated statement of
comprehensive income
Profit before income tax
Income tax calculated at 28%
Adjustments to taxation:
Adjustments due to different rate in different jurisdictions
Non-taxable income
Expenses not deductible for tax purposes
Tax legislation enacted for employee share schemes
Utilisation of tax losses by group companies
Tax expense transferred to foreign currency translation reserve
Adjustments in respect of prior years
Tax losses not recognised
Income tax charge reported in the consolidated statement of comprehensive income
2020
NZ$’000
22,510
6,303
(91)
(1,015)
4,560
-
(38)
(13)
274
3,651
13,631
2019
NZ$’000
81,378
22,786
741
(327)
1,152
(506)
-
2
(130)
27
23,745
Adjustments for prior periods primarily arise where an outcome is obtained on certain tax matters which differs from
expectations held when the related provision was made. Where the outcome is more favourable than the provision
made, the difference is released, lowering the current year tax charge. Where the outcome is less favourable than
the provision, an additional charge to the current year tax will occur.
The tax charge / (credit) relating to components of other comprehensive income is as follows:
Movement in cash flow hedge reserve before tax
Tax impact relating to cash flow hedge reserve
Movement in cash flow hedge reserve after tax
Foreign currency translation reserve before tax
Tax credit / (charge) relating to foreign currency translation reserve
Movement in foreign currency translation reserve after tax
Other reserves before tax
Tax credit / (charge) relating to other reserves
Movement in other reserves after tax
Total other comprehensive income/(expense) before tax
Total tax credit / (charge) on other comprehensive income
Total other comprehensive income/(expense) after tax
Current tax
Deferred tax
Total tax credit / (charge) on other comprehensive income
2020
NZ$’000
(13,162)
3,903
(9,259)
259
-
259
(61)
-
(61)
(12,964)
3,903
(9,061)
-
3,903
3,903
2019
NZ$’000
13
607
620
(3,297)
-
(3,297)
-
-
-
(3,284)
607
(2,677)
-
607
607
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 38
39
Taxation – Balance sheet
Unrecognised deferred tax assets
2.4 Earnings per share
The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon
during the current and prior year:
Deferred tax assets have not been recognised
in respect of the following items;
As at 31 July 2018
Recognised in the consolidated
statement of comprehensive income
Recognised in other comprehensive
income
Recognised directly in equity
Exchange differences
As at 31 July 2019
Recognised in the consolidated
statement of comprehensive income
Recognised in other comprehensive
income
Recognised directly in equity
Deferred tax on transition to NZ IFRS 16
Deferred tax on business
combinations (Note 5.1)
Exchange differences
As at 31 July 2020
Tax
depreciation
NZ$’000
Employee
obligations
NZ$’000
Intangibles
NZ$’000
Leases
NZ$’000
205
16
-
-
(2)
219
3,123
(54,923)
(523)
51
-
(253)
(68)
-
-
868
2,279
(54,004)
-
-
-
-
-
-
Other
temporary
differences
NZ$’000
Reserves
NZ$’000
Total
NZ$’000
6,965
(1,603)
(46,233)
(83)
-
(539)
-
-
(231)
607
607
-
-
(253)
567
6,651
(996)
(45,851)
(2,356)
(695)
1,402
422
4,645
-
3,418
-
-
-
-
(87)
-
-
-
-
4,053
1,963
(62,598)
(33)
33
(687)
-
-
10,813
-
13
-
-
-
3,337
271
3,903
3,903
-
-
-
-
(87)
10,813
(53,245)
(403)
1,883
3,493
(115,887)
11,248
14,904
2,907
(81,452)
The deferred tax balance relates to:
• Property, plant and equipment temporary differences arising on differences in accounting and
tax depreciation rates
•
Employee benefit accruals
• Brands and customer relationships
• Unrealised foreign exchange gain/loss on intercompany loans
• Realised gain/loss on foreign exchange contracts not yet charged in the consolidated statement
of comprehensive income
•
•
Lease accounting
Inventory provisioning
• Temporary differences on the unrealised gain/loss in hedge reserve
•
Employee share schemes
• Other temporary differences on miscellaneous items
Deductible temporary
differences
Tax losses
2020
NZ$’000
2,060
2019
NZ$’000
-
18,370
20,430
3,609
3,609
The deductible temporary differences do not expire
under current tax legislation. Deferred tax assets have
not been recognised in respect of overseas subsidiaries
where it is not yet probable that future taxable profit will
be generated in those territories to utilise these benefits.
Imputation credits
2020
NZ$’000
(6,743)
2019
NZ$’000
1,615
Imputation credits available
for use in subsequent
reporting periods based
on a tax rate of 28%
The above amounts represent the balance of the
imputation account as at the end of July 2020,
adjusted for:
•
•
•
Imputation credits that will arise from the payment
of the amount of the provision for income tax;
Imputation debits that will arise from the
payment of dividends recognised as a
liability at the reporting date; and
Imputation credits that will arise from
the receipt of dividends recognised as
receivables at the reporting date.
Tax payments of $6,808,421 have been financed at
year end which once transferred to the Inland Revenue
Department will result in a positive imputation balance.
The balance of Australian franking credits able to
be used by the Group in subsequent periods as
at 31 July 2020 is A$2,691,472 (2019: A$6,513,756).
Keeping it simple
Earnings per share (‘EPS’) is the amount of
post-tax profit attributable to each share.
Basic EPS is calculated by dividing the profit
after tax attributable to equity holders
of the Company of NZ$8,144,784 (2019:
NZ$57,633,052) by the weighted average
number of ordinary shares in issue during the
year of 493,346,733 (2019: 359,600,086).
Diluted EPS reflects any commitments the
Group has to issue shares in the future that
would decrease EPS. In 2020, these are in the
form of share options / performance rights.
To calculate the impact it is assumed that all
share options are exercised / performance
rights taken, and therefore, adjusting the
weighted average number of shares.
Weighted average number of
basic ordinary shares in issue
Adjustment for:
- Share options / performance
rights
2020
’000
Restated
2019
’000
493,347
359,600
1,235
1,966
494,582
361,566
The Group has restated the prior year basic and
diluted EPS to reflect the impact of the implied bonus
element on shares issued during the year (Note 4.3.1).
In October 2019 shares were issued as result of an
institutional and retail entitlement offer and share
placement at an issue price of NZ$2.55, representing
a 14.4% discount to the NZ$2.98 volume weighted
average price (ex-dividend) of Kathmandu’s shares
traded on the NZX for the last five trading days
prior to 1 October 2019, and a 13.6% discount to the
theoretical ex-entitlement price of NZ$2.95.
In April 2020 shares were issued as result of an
institutional and retail entitlement offer and share
placement at an issue price of NZ$0.50, representing
a 51.0% discount to the NZ$1.02 NZX closing price
on 30 March 2020, and a 30.6% discount to the
theoretical ex-entitlement price of NZ$0.72.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 40
41
Section 3 Operating Assets and Liabilities
In this section
This section shows the assets used to generate the Group’s trading performance and the liabilities
incurred as a result. Liabilities relating to the Group’s financing activities are addressed in Section 4.
Deferred tax assets and liabilities are shown in note 2.3.
Keeping it simple
Working capital represents the assets and liabilities the Group generates through its trading activity. The
Group therefore defines working capital as inventory, cash, trade and other receivables, other financial
assets, trade and other payables and other financial liabilities.
3.1 Working capital
3.1.1 Inventory
Accounting policies
Inventories are stated at the lower of cost and net
realisable value. Cost is determined on a weighted
average cost method and includes expenditure
incurred in acquiring the inventories and bringing them
to their existing location and condition. In the case of
manufactured inventories and work in progress, cost
includes an appropriate share of production overheads
based on normal operating capacity. Net realisable
value is the estimated selling price in the ordinary
course of business, less applicable variable selling
expenses. Inventory is considered in transit when the risk
and rewards of ownership have transferred to the Group.
The Group assesses the likely residual value of
inventory. Stock provisions are recognised for
inventory which is expected to sell for less than
cost and also for the value of inventory likely to
have been lost to the business through shrinkage
between the date of the last applicable stocktake
and balance sheet date. In recognising the provision
for inventory, judgement has been applied by
considering a range of factors including historical
results, stock shrinkage trends and product lifecycle.
Inventory is broken down into trading stock and goods
in transit below:
2020
NZ$’000
2019
NZ$’000
Raw materials and
consumables
Work in progress
Trading stock
Goods in transit
2,528
2,397
-
-
209,958
105,161
13,910
17,612
228,793
122,773
Inventory has been reviewed for obsolescence and
a provision of $4,579,854 (2019: $294,742) has been
made. The acquired inventory obsolescence provision
recognised on acquisition of the Rip Curl entities
was $1,997,523.
3.1.2 Cash and cash equivalents
Cash on hand
Cash at bank
Short term investments
convertible to cash
2020
NZ$’000
2019
NZ$’000
482
230,429
974
192
6,038
-
231,885
6,230
The carrying amount of the Group's cash and cash
equivalents are denominated in the following
currencies:
NZD
AUD
USD
EUR
THB
IDR
BRL
Other currencies
32,330
163,503
22,275
6,108
3,371
1,706
1,126
1,466
231,885
738
2,832
2,238
116
-
-
-
306
6,230
3.1.3 Trade and other receivables
Accounting policies
Trade and other receivables are recognised initially
at the value of the invoice sent to the customer (fair
value) and subsequently at the amounts considered
recoverable (amortised cost). The collectability of trade
and other receivables is reviewed on an on-going basis.
An allowance for lifetime expected credit losses is
recognised for trade and other receivables based on
the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general
economic conditions and an assessment of both the
current as well as the forecast direction of conditions at
the reporting date, including time value of money where
appropriate. The expected credit loss is estimated as
the difference between all contractual cash flows that
are due to the Group in accordance with the contract
and all the cash flows that the Group expects to receive,
discounted at the original effective interest rate.
NZD
AUD
USD
EUR
GBP
CAD
BRL
THB
IDR
JPY
Other currencies
3.1.4 Credit risk
2020
NZ$’000
2019
NZ$’000
5,101
20,853
22,466
13,258
1,650
2,326
2,991
4,406
1,997
2,246
319
2,097
1,935
9,326
-
140
708
-
-
-
-
-
77,613
14,206
Current
Trade receivables
Allowance for expected
credit losses
Other receivables
and prepayments
Non-current
Other debtors
2020
NZ$’000
2019
NZ$’000
62,143
(10,329)
9,734
(115)
21,854
4,587
73,668
14,206
3,945
3,945
-
-
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument
fails to meet its contractual obligations.
Risk
Credit
risk
Exposure
arising from
Cash
and cash
equivalents
Trade
and other
receivables
Derivative
financial
instruments
Monitoring
Management
Credit ratings,
aging analysis
and review of
exposure within
regular terms of
trade
Credit is given
to customers
following
obtaining
credit rating
information,
confirming
references
and setting
appropriate
credit limits
The acquired allowance for expected credit losses
recognised on acquisition of the Rip Curl entities
was $5,638,857.
Other non-current debtors includes debtors on
extended credit terms and security deposits paid in
relation to store leases.
The carrying amount of the Group’s trade and other
receivables are denominated in the
following currencies:
Exposure to credit risk
The below balances are recorded at their carrying
amount after any allowance for expected credit loss
on these financial instruments. The maximum exposure
to credit risk at reporting date was (carrying amount):
Cash and cash equivalents
Trade receivables
Other receivables
Derivative financial
instruments
2020
NZ$’000
231,403
51,814
12,866
(7,361)
2019
NZ$’000
6,038
9,619
1,741
4,842
288,722
22,240
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 42
43
As at balance sheet date the carrying amount is also
considered to approximate fair value for each of the
financial instruments.
The credit quality of cash and cash equivalents can
be assessed by reference to external credit ratings
(if available) or to historical information about
counterparty default rates:
Cash and cash equivalents;
Standard & Poors - AA-
Standard & Poors - A+
Standard & Poors - A
Standard & Poors - A-
Standard & Poors - BBB+
Standard & Poors - BBB-
Standard & Poors - BB
Standard & Poors - BB-
2020
NZ$’000
2019
NZ$’000
207,811
3,783
14,008
1,567
-
3,822
1,790
1,282
1,123
-
-
1,861
394
-
-
-
Total cash and cash equivalents
231,403
6,038
Trade and other receivables consist of a large number
of customers spread across diverse geographical areas.
As at balance sheet date, trade and other receivables
of NZ$27,495,000 (2019: NZ$848,000) were past due.
A provision of NZ$10,329,000 (2019: NZ$115,000) is
held against these overdue amounts. Interest is
charged on overdue debtors in some instances.
The ageing analysis of these past due trade
receivables is:
0 to 30 days
30 to 60 days
60 to 90 days
90 days and over
2020
NZ$’000
2019
NZ$’000
4,825
3,503
7,394
11,773
27,495
548
217
73
10
848
payables are initially measured at fair value and
subsequently measured at amortised cost, using
the effective interest method. The carrying value of
trade payables is considered to approximate fair
value as amounts are unsecured and are usually
paid by the 30th of the month following recognition.
Employee entitlements relates to benefits accruing to
employees in respect of wages and salaries, annual
leave, and long service leave when it is probable that
settlement will be required and they are capable of
being measured reliably. Provisions made in respect
of employee benefits expected to be settled within
12 months are measured at their nominal values
using the remuneration rate expected to apply at
the time of settlement. Provisions made in respect
of employee benefits which are not expected to
be settled within 12 months are measured as the
present value of the estimated future cash outflows
to be made by the Group in respect of services
provided by employees up to the reporting date.
Current
Trade payables
Employee entitlements
Sundry creditors and accruals
Other Provisions
Non-Current
Employee entitlements
Other Provisions
2020
NZ$’000
2019
NZ$’000
63,939
21,357
54,912
3,490
143,698
3,069
11,344
14,413
30,504
8,582
34,397
1,077
74,560
-
-
-
The carrying amount of the Group's trade and other
payables are denominated in the following currencies:
Due to COVID-19 credit terms have been extended
for some customers which has impacted the aging
analysis above.
3.1.5 Trade and other payables
Accounting policies
NZD
AUD
USD
EUR
BRL
THB
IDR
Trade payables, sundry creditors and accruals
principally comprise amounts outstanding for trade
purchases and ongoing costs. Trade and other
Other currencies
2020
NZ$’000
2019
NZ$’000
19,351
83,997
30,046
14,944
3,041
3,523
2,052
1,156
11,227
40,475
22,042
137
-
-
-
679
158,110
74,560
Provisions
A provision is recognised if, as a result of a past
event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits
will be required to settle the obligation.
The warranties provision represents the present value
of the estimated future outflow of economic benefits
that will be required under the Group’s obligations for
warranties under local sale of goods legislation. The
provision relates to wetsuits, watches and footwear and
is based on estimates made from historical warranty
data associated with similar products and services.
A restructuring provision is recognised when the Group
has approved a detailed and formal restructuring
plan, and the restructuring has either commenced
or has been announced publicly at balance date.
Lease restoration provision represents the present
value of the estimated cost to restore leased properties
to their original condition upon expiry of the lease.
Other provisions relate to other miscellaneous
amounts that meet the definition of a provision
but do not fall into any of the other categories.
Warranties
NZ$’000
Restructuring
NZ$’000
Lease restoration
NZ$’000
Other
NZ$’000
Balance at 31 July 2018
Additional provisions recognised
Provisions used during the year
Provisions re-measured during the year
Foreign exchange
Balance at 31 July 2019
As at 31 July 2019
Current
Non-current
Balance at 31 July 2019
Provision recognised on acquisition
(Note 5.1)
Provisions recognised on adoption of NZ IFRS 16
Additional provisions recognised
Provisions used during the year
Provisions re-measured during the year
Foreign exchange
Balance at 31 July 2020
As at 31 July 2020
Current
Non-current
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
NZ$’000
1,153
174
(129)
(97)
(24)
535
-
(129)
-
-
406
1,077
406
-
406
1,077
-
1,077
618
174
-
(97)
(24)
671
671
-
671
671
406
1,077
1,168
-
478
(296)
(14)
13
2,541
-
1,367
(2,303)
-
70
5,453
4,686
633
(191)
(325)
121
1,349
1,675
11,048
1,349
-
1,349
1,675
-
1,675
193
10,855
11,048
-
-
364
-
-
(8)
762
273
489
762
9,162
4,686
2,842
(2,790)
(339)
196
14,834
3,490
11,344
14,834
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 44
45
3.2 Property, plant and equipment
Keeping it simple
The following section shows the physical assets used by the Group to operate the business, generating
revenues and profits. These assets include store and office fit-out, as well as equipment used in sales
and support activities. Assets are recognised only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably.
Accounting policies
Depreciation
Property, plant and equipment
All property, plant and equipment are stated at
historical cost less depreciation and impairment.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Cost may
also include transfers from equity of any gains/losses
on qualifying cash flow hedges of foreign currency
purchases of property, plant and equipment.
The assets’ residual value and useful lives are reviewed
and adjusted if appropriate at each balance sheet date.
Capital work in progress is not depreciated until
available for use.
An asset’s carrying amount is written down immediately
to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount.
Depreciation of property, plant and equipment is
calculated using straight line and diminishing value
methods so as to expense the cost of the assets
over their useful lives. The rates are as follows:
Buildings and leasehold improvements
Office, plant and equipment
Furniture and fittings
Computer equipment
5 – 50%
5 – 50%
10 – 50%
10 – 60%
Impairment of assets
Property, plant and equipment is reviewed for
impairment whenever events or changes in
circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s
fair value less costs of disposal and value in use.
Property, plant and equipment can be analysed
as follows:
Year ended 31 July 2019
Opening net book value
Additions
Disposals
Depreciation charge
Exchange differences
Closing net book value
As at 31 July 2019
Cost
Accumulated depreciation
Closing net book value
Land
and Buildings
NZ$’000
Leasehold
improvement
NZ$’000
Office, plant
and equipment
NZ$’000
Furniture
and fittings
NZ$’000
Computer
equipment
NZ$’000
Total
NZ$’000
-
-
-
-
-
-
-
-
-
29,949
5,690
(394)
(6,962)
(776)
12,332
554
(7)
(930)
(419)
19,101
4,447
(383)
(3,394)
(597)
2,132
654
(18)
(634)
(26)
63,514
11,345
(802)
(11,920)
(1,818)
27,507
11,530
19,174
2,108
60,319
67,974
(40,467)
27,507
17,936
(6,406)
41,726
(22,552)
11,530
19,174
9,633
(7,525)
2,108
137,269
(76,950)
60,319
Land and
Buildings
NZ$’000
Leasehold
improvement
NZ$’000
Office,
plant and
equipment
NZ$’000
Furniture
and fittings
NZ$’000
Computer
equipment
NZ$’000
Total
NZ$’000
-
15
6,475
(305)
(370)
-
(188)
5,627
9,722
(4,095)
5,627
27,507
6,478
8,286
(621)
(7,802)
-
182
11,530
3,108
3,603
(474)
(2,581)
(289)
199
19,174
5,059
16,440
(1,632)
(7,670)
289
123
2,108
739
2,725
60,319
15,399
37,529
(96)
(3,128)
(1,230)
(19,653)
-
(60)
-
256
34,030
15,096
31,783
4,186
90,722
97,400
45,612
99,855
20,251
272,840
(63,370)
(30,516)
(68,072)
(16,065)
(182,118)
34,030
15,096
31,783
4,186
90,722
Sale of property, plant and equipment
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in the consolidated statement of
comprehensive income.
2020
NZ$’000
2019
NZ$’000
370
7,802
2,581
7,670
1,230
-
6,962
930
3,394
634
19,653
11,920
Loss on sale of property, plant
and equipment
2020
NZ$’000
3,069
2019
NZ$’000
801
Year ended 31 July 2020
Opening net book value
Additions
Acquisition of businesses (Note 5.1)
Disposals
Depreciation charge
Transfers between categories
Exchange differences
Closing net book value
As at 31 July 2020
Cost
Accumulated depreciation
Closing net book value
Depreciation
Land and buildings
Leasehold improvement
Office, plant and equipment
Furniture and fittings
Computer equipment
Total property, plant and
equipment depreciation
Depreciation expenditure is excluded from
administration and general expenses in the
consolidated statement of comprehensive income.
Capital commitments
Capital commitments contracted for at balance
sheet date include property, plant and equipment of
NZ$974,531 (2019: NZ$1,877,276).
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 46
47
3.3 Intangible assets
Keeping it simple
The following section shows the non-physical assets used by the Group to operate the business,
generating revenues and profits. These assets include brands, customer relationship, software
development and goodwill. This section explains the accounting policies applied and the specific
judgements and estimates made by the Directors in arriving at the net book value of these assets.
Accounting policies
Goodwill
Goodwill arises on the acquisition of subsidiaries.
Goodwill represents the excess of the cost of the
acquisition over the Group’s interest in the net fair
value of the assets and liabilities of the acquiree.
Separately recognised goodwill is tested annually for
impairment or more frequently if events or changes in
circumstances indicate that it might be impaired. It is
carried at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed.
Goodwill is allocated to cash-generating units for the
purpose of impairment testing. The allocation is made
to those cash-generating units or groups of cash-
generating units that are expected to benefit from the
business combination in which the goodwill arose.
Brand
Acquired brands are carried at original cost based
on independent valuation obtained at the date of
acquisition. The brand represents the price paid to
acquire the rights to use the Kathmandu, Oboz or
Rip Curl brand. The brand is not amortised. Instead
the brand is tested for impairment annually or more
frequently if events or changes in circumstances
indicate that it might be impaired and is carried
at cost less accumulated impairment losses.
Customer Relationship
Acquired customer relationships are carried at
original cost based on independent valuation
obtained at the date of acquisition less accumulated
amortisation. They are amortised on a straight line
basis over a useful life of 5-10 years. The estimated
useful life and amortisation period is reviewed
at the end of each annual reporting period.
Software costs
Software costs have a finite useful life. Software costs are
capitalised and written off over the useful economic life.
Costs associated with developing or maintaining
computer software programs are recognised as
an expense when incurred. Costs that are directly
associated with the production of identifiable
and unique software products controlled by the
Group, and that will probably generate economic
benefits exceeding costs beyond one year, are
recognised as intangible assets. Direct costs include
the costs of software development employees.
Software is amortised using straight line and
diminishing value methods at rates of 20-67%.
Other intangibles
Other intangibles relate to lease rights expenditure
associated with acquiring existing lease agreements
for stores where there is an active market for key money.
They are carried at original cost less accumulated
impairment losses. Other intangibles have an indefinite
useful life and are tested annually for impairment.
Impairment
Assets are reviewed for impairment whenever
events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Intangible assets that have an indefinite useful life,
including goodwill, are not subject to amortisation
and are tested annually for impairment irrespective
of whether any circumstances identifying a possible
impairment have been identified. An impairment loss
is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s
fair value less costs of disposal and value in use.
For the purposes of assessing impairment,
assets are grouped at the lowest levels
for which there are separately identifiable
cash flows e.g. cash generating units.
Intangible assets
Year ended 31 July 2019
Opening net book value
Additions
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2019
Cost
Accumulated amortisation/impairment
Closing net book value
Year ended 31 July 2020
Opening net book value
Additions
Acquisition of businesses (Note 5.1)
Disposals
Amortisation
Exchange differences
Closing net book value
As at 31 July 2020
Cost
Accumulated amortisation/impairment
Closing net book value
Goodwill
NZ$’000
Brand
NZ$’000
Customer
Relationship
NZ$’000
Software
NZ$’000
Other
Intangibles
NZ$’000
Total
NZ$’000
189,308
187,928
1,747
-
-
-
-
-
-
7,923
4,351
(13)
-
-
(184)
(3,168)
1,013
(2,847)
55
(52)
190,321
185,081
1,618
9,041
191,592
185,081
1,868
33,206
(1,271)
-
(250)
(24,165)
190,321
185,081
1,618
9,041
190,321
185,081
-
-
84,274
169,687
-
-
-
-
1,618
-
39,697
-
9,041
4,463
917
-
(3,932)
(3,607)
(193)
2,355
(101)
17
-
-
-
-
-
-
-
-
-
-
-
386,906
4,351
(13)
(3,352)
(1,831)
386,061
411,747
(25,686)
386,061
386,061
4,463
2,883
297,458
-
-
57
-
(7,539)
2,135
274,402
357,123
37,282
10,831
2,940
682,578
275,673
357,123
41,495
58,943
4,552
737,786
(1,271)
-
(4,213)
(48,112)
(1,612)
(55,208)
274,402
357,123
37,282
10,831
2,940
682,578
Sale of intangibles
Impairment tests for goodwill and brand
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in the consolidated statement of
comprehensive income.
Loss on sale of intangibles
2020
NZ$’000
2019
NZ$’000
-
13
The aggregate carrying amounts of goodwill and
brand allocated to each unit for impairment testing
are as follows:
Goodwill
Brand
2020
NZ$’000
2019
NZ$’000
2020
NZ$’000
2019
NZ$’000
45,484
45,484
51,000
51,000
76,496
75,564
99,140
96,034
68,239
69,273
37,479
38,047
84,183
-
169,504
-
274,402
190,321
357,123
185,081
Kathmandu
New Zealand
Kathmandu
Australia
Oboz
Rip Curl
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 48
49
For the purposes of goodwill and brand impairment
testing, the Group operates as four groups of cash
generating units, Kathmandu New Zealand, Kathmandu
Australia, Rip Curl and Oboz. The recoverable amount of
each cash generating unit has been determined based
on the fair value less cost of disposal (FVLCOD). Five year
projected cash flows are used to determine the FVLCOD.
The terminal growth rate assumption is based on
a conservative estimate considering the current
inflation targets and do not exceed the historical
long-term average growth rate for each CGU. Pre-
tax discount rates are calculated based on a market
participant expected capital structure and cost of
debt to derive a weighted average cost of capital.
We note that while the sensitivity of key assumptions
provided above would not result in an impairment
in each case, it is possible that they could occur in a
combination. Furthermore, the CGU with the lowest
headroom is the Oboz CGU. Prior to COVID-19 the Oboz
CGU achieved year on year double digit revenue and
EBITDA growth percentages. For impairment testing
purposes cash flows for FY21 are lower than those
achieved in FY20 with an expected recovery in FY22 to
levels similar to FY19. Beyond FY22 it is assumed that
historical growth percentages resume. Oboz revenue is
forecast to grow at an annual compound growth rate of
approximately 15% through to the terminal year in FY25.
Prior to the impact of COVID-19 the CGU achieved an
annual compound growth rate of 29% from FY17-FY19.
The calculations confirmed that there was no
impairment of goodwill and brand during the year
(2019: nil). The Board believes that any reasonably
possible change in the key assumptions used in
the calculations would not cause the carrying
amount to exceed its recoverable amount.
The expected continued promotion and marketing of
the Kathmandu, Oboz and Rip Curl brands supports
the assumption that the brand has an indefinite life.
Capital commitments
Capital commitments contracted for at balance
sheet date include intangible assets of NZ$709,417
(2019: NZ$703,611).
The discounted cash flow valuations were calculated
using post tax cash flow projections based on financial
budgets prepared by management and approved by
the Board for the year ended 31 July 2021. Cash flows
beyond July 2021 have been extrapolated based on
historical results and a return to pre COVID-19 levels of
sales and EBITDA margin over the near to medium term.
The Group engaged an external valuer to perform the
valuation of the Rip Curl CGU as at 31 July 2020 using
the post tax cash flow projections approved to the
Board for the year ending 31 July 2021 and the three year
plan that extrapolates cash flows based on historic
results and a return to pre-COVID-19 levels of sales
and EBITDA margin over the near to medium term.
The key assumption used:
• The FVLCOD model assumes an economic
downturn in the 2021 financial year and a return
to more normalised trading conditions previously
experienced in 2022 and beyond. The Group
believes the assumptions used in cash flows
reflect a combination of the Groups experience
and uncertainty associated with COVID-19.
• While temporary store and market closures may
impact short term results, these are not expected
to impact the long-term performance of each
CGU. Several scenarios have been assessed
where trading conditions do not normalise until
the 2024 financial year, in each scenario the fair
value for the CGU exceeds the carrying value.
Other assumptions used:
Pre tax
discount rate
2020 2019
11.5%
11.2%
Terminal
growth rate
2020
1.0%
2019
1.0%
11.4%
10.5%
1.0%
1.0%
13.2%
-
11.8%
12.7%
1.5%
1.0%
-
1.0%
Kathmandu
New Zealand CGU
Kathmandu
Australia CGU
Rip Curl CGU
Oboz CGU
3.4 Leases
Keeping it simple
The following section shows the assets leased by the Group to operate the business, generating revenues
and profits. These assets include the lease of retail stores.
This section explains the accounting policies applied and the specific judgements and estimates made
by the Directors in arriving at the carrying value of these assets and the corresponding lease liability.
Accounting policies
The Group assesses whether a contract is or contains
a lease, at inception of a contract. The Group
recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements
in which it is the lessee, except for short-term leases
(defined as leases with a term of 12 months or less)
and leases of low value assets. For these leases, the
Group recognises the lease payments as an operating
expense on a straight-line basis over the term of
the lease unless another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.
Lease Liability
The lease liability is initially measured at the present
value of the lease payments that are not paid at
the commencement date, discounted by using
the rate implicit in the lease. If this rate cannot be
readily determined, the Group uses its incremental
borrowing rate. The Group's incremental borrowing
rate has been determined as the rate of interest that
the Group would have to pay to borrow over a similar
term and with a similar security the funds necessary
to obtain an asset of a similar value to the right-
of-use asset in a similar economic environment.
Lease payments included in the measurement
of the lease liability comprise:
•
fixed lease payments (including in-substance
fixed payments), less any lease incentives; and
• variable lease payments that depend on an
index or rate, initially measured using the
index or rate at the commencement date.
The lease liability is subsequently measured
by increasing the carrying amount to reflect
interest on the lease liability (using the effective
interest method) and by reducing the carrying
amount to reflect the lease payments made.
The Group remeasures the lease liability (and
makes a corresponding adjustment to the
related right-of-use asset) whenever;
•
•
the lease term has changed in which case the lease
liability is remeasured by discounting the revised
lease payments using a revised discount rate;
the lease payments change due to changes in an
index or rate or a change in expected payment
under a guaranteed residual value, in which cases
the lease liability is remeasured by discounting
the revised lease payments using the initial
discount rate (unless the lease payments change
is due to a change in a floating interest rate, in
which case a revised discount rate is used);
• a lease contract is modified and the lease
modification is not accounted for as a separate
lease, in which case the lease liability is
remeasured by discounting the revised lease
payments using a revised discount rate.
Right of Use Asset
The right-of-use assets comprise the initial
measurement of the corresponding lease
liability, lease payments made at or before the
commencement day and any initial direct costs.
They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for
costs to dismantle and remove a leased asset,
restore the site on which it is located or restore the
underlying asset to the condition required by the
terms and conditions of the lease, a provision is
recognised and measured under NZ IAS 37. The costs
are included in the related right-of-use asset.
Right-of-use assets are depreciated over the
shorter period of the lease term and useful
life of the underlying asset. The depreciation
starts at the commencement date.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 50
51
The Group applies NZ IAS 36 Impairment of Assets to
determine whether a right-of-use asset is impaired and
accounts for any identified impairment loss.
3.4.2 Lease liabilities
Reconciliation of operating lease commitments to
lease liabilities recognised on initial application;
Variable Rents
Variable rents that do not depend on an index or
rate are not included in the measurement of the
lease liability and the right-of-use asset. The related
payments are recognised as an expense in the
period in which the event or condition that triggers
those payments occurs and are included in the
selling expenses line in the consolidated statement of
comprehensive income.
Group as a lessee
The Group leases several assets including buildings
and motor vehicles. Some of the existing lease
arrangements have right of renewal options for varying
terms. Renewal options are included within the lease
liability if they are within 2 years and the Group is
reasonably certain to take up the option. The average
lease term including rights of renewal is 8 years.
3.4.1 Right-of-use assets
Operating lease commitment as at 31 July 2019
Above discounted using incremental borrowing
rate as of 1 August 2019
Recognition exemption for short term leases
Adjustments as result of different treatment of
renewal options
Lease contracts committed to but not yet
available for use
Lease liabilities as at 1 August 2019
NZ$'000
206,476
193,682
(318)
28,281
(6,256)
215,389
The weighted average incremental borrowing
rate applied to lease liabilities recognised in the
consolidated balance sheet at 1 August 2019 is 3.05%.
The movements in lease liabilities for the year ended 31
July 2020 were as follows:
The movements in right of use assets for the year ended
31 July 2020 were as follows:
Opening lease liabilities 1 August 2019
Opening carrying amount 1 August 2019
Movements on transition
Additions
Right-of-use assets recognised on acquisition
(Note 5.1)
Depreciation for the period
Impairment of right-of-use assets
Exchange differences
Closing carrying amount 31 July 2020
Cost
Accumulated depreciation and impairment
Closing carrying amount 31 July 2020
NZ$'000
-
178,774
37,863
117,296
(75,835)
(2,050)
1,950
257,998
335,692
(77,694)
257,998
Movements on transition
Additions
Lease liabilities recognised on acquisition
(Note 5.1)
Interest expense related to lease liabilities
Repayment of lease liabilities
(including interest)
Exchange differences
Closing lease liabilities 31 July 2020
Lease liability maturity analysis
Within one year
One to five years
Beyond five years
Total
Current
Non-current
Total
NZ$'000
-
215,389
37,811
118,564
8,855
(85,545)
2,849
297,923
NZ$’000
77,579
172,340
48,004
297,923
77,579
220,344
297,923
Section 4 Capital Structure and Financing Costs
In this section
This section outlines how the Group manages its capital structure and related financing costs, including
its balance sheet liquidity and access to capital markets.
Capital structure is how a company finances its overall operations and growth by using different sources
of funds. The Directors determine and monitor the appropriate capital structure of the Group, specifically
how much is raised from shareholders (equity) and how much is borrowed from financial institutions
(debt) in order to finance the Group’s activities both now and in the future.
The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead
of announcing results and do so in the context of its ability to continue as a going concern, to execute
strategy and to deliver its business plan.
4.1 Interest bearing liabilities
Accounting policies
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between
the proceeds (net of transaction costs) and the
redemption amount is recognised in the consolidated
statement of comprehensive income over the period
of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement
of the liability for at least 12 months after the balance
sheet date.
The covenants entered into by the Group require
specified calculations of Group earnings (excluding
one-off transaction costs) before interest, tax,
depreciation and amortisation (EBITDA) plus lease
rental costs to exceed total fixed charges (net interest
expense and lease rental costs) at the end of each half
during the financial year. Similarly EBITDA (excluding
one-off transaction costs) must be no less than a
specified proportion of total net debt at the end of
each six month interim period. The calculations of
these covenants are specified in the bank facility
agreement of 25 October 2019. The Group has obtained
a waiver from its banking syndicate of the current
covenants until the 31 July 2021 measurement point.
The table below separates borrowings into current and
non-current liabilities:
The current interest rates, prior to hedging, on the term
loans ranged between 1.00% - 1.25% (2019: 2.31% - 2.47%).
Current portion
Non-current portion
Total term loans
2020
NZ$’000
2019
NZ$’000
-
241,270
241,270
-
25,500
25,500
Group Facility Agreement
The Group has a multi-option syndicated facility
agreement, with a term loan facility of A$220
million, a revolving cash advances facility of
NZ$58 million and A$37 million, a trade finance
sub-facility of A$30 million and NZ$10 million, and
instruments sub-facility of A$20 million. All facilities
are repayable in full on 30 November 2022.
Interest is payable based on the BKBM rate (NZD
borrowings), the BBSY rate (AUD borrowings),
or the applicable short term rate for interest
periods less than 30 days, plus a margin of up
to 1.05%. The debt is secured by the assets of
the guaranteeing group in accordance with the
Security Trust Deed dated 25 October 2019.
Paycheck Protection Program (PPP) loans
As part of the US government response to COVID-19
the Group’s US resident companies applied for
Paycheck Protection Program (PPP) loans of $4,200,632
(US $2,814,423). The Group believes that these entities
met the criteria to qualify for the loans at the date of
the application. The eligibility is subject to a possible
audit by the federal government at which time the
entities may be deemed not to be eligible. In the
event of an unfavourable outcome of the forgiveness
application the group would be required to repay the
PPP loan as well as 1% interest on that loan from the
period it was received until the date it was repaid. The
Group believes that the US resident entities meet the
criteria to qualify for the loan and future forgiveness.
The PPP loan was initially received as a loan and
once various criteria are met the Group can apply
for forgiveness of that loan. Once forgiveness of the
loan has been approved it will be recognised in the
consolidated statement of comprehensive income, until
that time it is recognised as a loan.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 52
53
Reconciliation of movement in term loans
Balance 31 July 2019
Net cash flow movement
Foreign exchange movement
Balance 31 July 2020
The principal of interest bearing liabilities is:
Payable within 1 year
Payable 1 to 2 years
Payable 2 to 3 years
Payable 3 to 4 years
4.1.1 Finance costs
Interest income
Interest expense on term debt
Interest on lease liabilities
Other finance costs
Net exchange loss/(gain) on foreign currency
NZ$’000
25,500
212,989
2,781
241,270
2020
NZ$’000
2019
NZ$’000
-
4,201
237,069
-
241,270
2020
NZ$’000
(449)
4,780
8,855
9,246
922
-
-
15,000
10,500
25,500
2019
NZ$’000
(37)
1,877
-
886
189
Other finance costs relate to facility fees on banking arrangements and debt underwriting costs.
4.1.2 Cash flow and fair value interest rate risk
Interest rate risk is the risk that fluctuations in interest rates impact the Group’s financial performance.
Risk
Exposure arising from
Monitoring
Management
Interest rate risk
Interest bearing liabilities
at floating rates
Cash flow forecasting
Sensitivity analysis
Interest rate swaps
Refer to section 4.2 for notional principal amounts and valuations of interest rate swaps outstanding at balance sheet
date. A sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table below.
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
2020
NZ$’000
241,270
(5,000)
236,270
2019
NZ$’000
25,500
(23,263)
2,237
Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. The cash flow
hedge loss on interest rate swaps at balance sheet date was NZ$54,106 (2019: NZ$111,252).
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.
A sensitivity of 1% (2019: 1%) has been selected for interest rate risk. The 1% is based on reasonably possible
changes over a financial year, using the observed range of historical data for the preceding five year period.
Amounts are shown net of income tax. All variables other than applicable interest rates are held constant. The
impact on equity is presented exclusive of the impact on retained earnings.
31 July 2020
Derivative financial instruments (asset) / liability
Financial assets
Cash
Financial liabilities
Borrowings
Lease liabilities
Total increase / (decrease)
Financial assets
Cash
Financial liabilities
Borrowings
Total increase / (decrease)
4.1.3 Liquidity Risk
Carrying
amount
NZ$’000
7,361
231,885
241,270
297,923
Carrying
amount
NZ$’000
(4,842)
6,230
25,500
-1%
+1%
Profit
NZ$’000
(50)
Equity
NZ$’000
38
Profit
NZ$’000
50
Equity
NZ$’000
(37)
(1,670)
(1,670)
2,413
2,979
5,392
3,672
-
-
-
-
-
38
1,670
1,670
(2,413)
(2,979)
(5,392)
(3,672)
-
-
-
-
-
(37)
-1%
+1%
Profit
NZ$’000
(235)
Equity
NZ$’000
154
Profit
NZ$’000
235
Equity
NZ$’000
(151)
(45)
(45)
255
255
(25)
-
-
-
-
154
45
45
(255)
(255)
25
-
-
-
-
(151)
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Risk
Liquidity risk
Exposure arising from Monitoring
Management
Interest bearing and
other liabilities
Forecast and
actual cash flows
Active working capital management
and flexibility in funding arrangements
The Group has borrowing facilities of NZD $398,818,966 / AUD $370,104,000 (2019: NZD $140,729,053 AUD $132,060,000)
and operates well within this facility. This includes short term bank overdraft requirements, and at balance sheet
date no bank accounts were in overdraft.
23,354
2,915
31 July 2019
Derivative financial instruments (asset) / liability
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 54
55
Keeping it simple
The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into
relevant maturity groupings based on the remaining period at the balance sheet date to the contractual
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, so will not
always reconcile with the amounts disclosed on the balance sheet.
Group 2020
Trade and other payables
Borrowings
Group 2019
Trade and other payables
Borrowings
Less than
1 year
NZ$’000
Between
1 and 2 years
NZ$’000
Between
2 and 5 years
NZ$’000
Over
5 years
NZ$’000
109,643
3,007
112,650
62,075
600
62,675
-
7,197
7,197
-
599
599
-
238,060
238,060
-
25,751
25,751
-
-
-
-
-
-
The Group enters into forward exchange contracts to manage the risks associated with the purchase of foreign
currency denominated products.
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into
relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity
date. The amounts disclosed in the table are the contractual undiscounted cash flows. They are expected to
occur and affect the profit or loss at various dates between balance sheet dates and the following five years.
At 31 July 2020
Forward foreign exchange contracts
- Inflow
- Outflow
Net Inflow / (Outflow)
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
At 31 July 2019
Forward foreign exchange contracts
- Inflow
- Outflow
Net Inflow / (Outflow)
Net settled derivatives – interest rate swaps
Net Inflow / (Outflow)
Less than
1 year
NZ$’000
Between
1 and 2 years
NZ$’000
Between
2 and 5 years
NZ$’000
179,857
(187,164)
(7,307)
(51)
118,968
(114,015)
4,953
(46)
-
-
-
-
-
-
-
9
-
-
-
-
-
-
-
-
4.2 Derivative financial instruments
Keeping it simple
A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes
over time in response to underlying variables such as exchange rates or interest rates and is entered into
for a fixed period. A hedge is where a derivative is used to manage an underlying exposure.
The Group is exposed to changes in interest rates on its borrowings and to changes in foreign exchange
rates on its foreign currency (largely USD) purchases. The Group uses derivatives to hedge these
underlying exposures.
Derivative financial instruments are initially included in the balance sheet at their fair value, either as
assets or liabilities, and are subsequently re-measured at fair value at each reporting date.
An interest rate swap is an instrument to exchange a fixed rate of interest for a floating rate, or vice versa,
or one type of floating rate for another.
Accounting policies
Derivatives are initially recognised at fair value on
the date a derivative contract is entered into and
are subsequently re-measured to their fair value.
The method of recognising the resulting gain or loss
depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of
the item being hedged. The Group designates
certain derivatives as hedges of highly probable
forecast transactions (cash flow hedges).
At inception of the hedging relationship, the Group
documents the economic relationship between
hedging instruments and hedged items, including
whether changes in the cash flows of the hedging
instruments are expected to offset changes in the
cash flows of the hedged items. The Group also
documents its risk management objectives and
strategy for undertaking its hedge transactions.
Cash flow hedge
The effective portion of changes in the fair value
of derivatives that are designated and qualify as
cash flow hedges is recognised in equity in the
hedging reserve. The gain or loss relating to the
ineffective portion is recognised immediately in the
consolidated statement of comprehensive income.
Amounts accumulated in equity are recycled in
the consolidated statement of comprehensive
income in the periods when the hedged item will
affect profit or loss. However, when the forecast
transaction that is hedged results in the recognition
of a non-financial asset (for example, inventory)
or a non-financial liability, the gains and losses
previously deferred in equity are transferred from
equity and included in the measurement of the initial
cost or carrying amount of the asset or liability.
When a hedging instrument expires or is sold or
terminated, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity
and is recognised when the forecast transaction is
ultimately recognised in the consolidated statement of
comprehensive income. When a forecast transaction is
no longer expected to occur, the cumulative gain or loss
that was reported in equity is immediately transferred to
the consolidated statement of comprehensive income.
Foreign currency transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transaction. Foreign
exchange gains and losses resulting from the
settlement of such transactions and from the
translation at year end exchange rates of monetary
assets and liabilities denominated in foreign currencies
are recognised in the consolidated statement of
comprehensive income, except when deferred in
other comprehensive income. Translation differences
on monetary financial assets and liabilities are
reported as part of the fair value gain or loss.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 56
57
Derivative financial instruments
Summarised sensitivity analysis
2020
NZ$’000
2019
NZ$’000
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to foreign
exchange risk.
Foreign exchange contracts
Current asset
Current liability
Net foreign exchange contracts – cash flow hedge (asset / (liability))
Interest rate swaps
Current liability
Non-current liability
Net interest rate swaps – cash flow hedge (asset / (liability))
53
(7,360)
(7,307)
(54)
-
(54)
4,964
(11)
4,953
(102)
(9)
(111)
Total derivative financial instruments
(7,361)
4,842
The above table shows the Group’s financial derivative holdings at year end.
Interest rate swaps - cash flow hedge
Interest rate swaps are to exchange a floating rate of interest for a fixed rate of interest. The objective of the transaction
is to hedge the core floating rate borrowings of the business to minimise the impact of interest rate volatility within
acceptable levels of risk thereby limiting the volatility on the Group's financial results. The notional amount of interest
rate swaps at balance sheet date was NZ$5,000,000 (2019: NZ$23,263,048). The fixed interest rate is 1.32% (2019: range
from 1.32% and 2.63%). Refer section 4.1.3 for timing of contractual cash flows relating to interest rate swaps.
Foreign exchange contracts - cash flow hedge
The objective of these contracts is to hedge highly probable anticipated foreign currency purchases against
currency fluctuations. These contracts are timed to mature when import purchases are scheduled for payment.
The notional amount of foreign exchange contracts amount to US$114,460,000 NZ$179,802,938 (2019: US$79,350,000,
NZ$115,606,572).
No material hedge ineffectiveness for interest rate swaps or foreign exchange contracts exists as at balance sheet
date (2019: nil).
Refer to section 4.2.1 for a sensitivity analysis of foreign exchange risk associated with derivative financial instruments.
4.2.1 Foreign exchange risk
Foreign exchange risk is the risk that fluctuations in exchange rates will impact the Group’s financial performance.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the NZD, USD and EUR.
Risk
Exposure arising from
Monitoring
Management
Foreign exchange risk
Foreign currency purchases – over
90% of purchases are in USD
Forecast purchases
Reviewing exchange rate movements
USD foreign exchange
derivatives
The Group is exposed to currency risk on any cash remitted between entities in different jurisdictions. The Group
does not hedge for such remittances. Interest on borrowings is denominated in either New Zealand dollars or
Australian dollars and is paid for out of surplus operating cashflows generated in New Zealand or Australia.
A sensitivity of -10% / +10% (2019: -10% / +10%) for foreign exchange risk has been selected. While it is unlikely that an
equal movement of the New Zealand dollar would be observed against all currencies, an overall sensitivity of -10% /
+10% (2019: -10% / +10%) is reasonable given the exchange rate volatility observed on a historic basis for the preceding
five year period and market expectation for potential future movements.
Amounts are shown net of income tax. All variables other than applicable exchange rates are held constant. The
impact on equity is presented exclusive of the impact on retained earnings.
31 July 2020
Derivative financial instruments (asset) / liability
Financial assets
Cash
Trade receivables and other receivables
Financial liabilities
Trade and other payables
Borrowings
Total increase / (decrease)
31 July 2019
Derivative financial instruments (asset) / liability
Financial assets
Cash
Trade receivables and other receivables
Financial liabilities
Trade and other payables
Borrowings
Carrying
amount
NZ$’000
7,361
231,885
64,680
158,111
241,270
Carrying
amount
NZ$’000
(4,842)
6,230
11,360
74,560
25,500
-10%
+10%
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
-
(19,160)
-
15,676
15,964
(5,063)
10,901
(11,101)
19,302
8,201
-
-
-
-
-
-
(13,062)
4,143
(8,919)
9,082
(15,792)
(6,710)
-
-
-
-
-
-
19,102
(19,160)
(15,629)
15,676
-10%
+10%
Profit
NZ$’000
Equity
NZ$’000
Profit
NZ$’000
Equity
NZ$’000
-
(13,339)
-
10,915
439
(806)
(367)
(5,067)
-
(5,067)
-
-
-
-
-
-
(359)
706
347
4,145
-
4,145
4,492
-
-
-
-
-
-
10,915
Total increase / (decrease)
(5,434)
(13,339)
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 58
4.3 Equity
Keeping it simple
This section explains material movements recorded in shareholders’ equity that are not explained
elsewhere in the financial statements. The movements in equity and the balance at 31 July 2020 are
presented in the consolidated statement of changes in equity.
Accounting policies
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised through equity following the approval by the Company’s directors.
4.3.1 Contributed equity - ordinary shares
Ordinary shares fully paid ($)
Balance at beginning of year
Issue of shares under Executive and Senior Management Long Term Incentive Plan
Shares issued under share entitlement offers and share placement
Shares issued as consideration on a business combination (Note 5.1)
Balance at end of year
Number of issued shares
Ordinary shares issued at beginning of the year
Shares issued under Executive and Senior Management Long Term Incentive Plan
Shares issued under share entitlement offers and share placement
Shares issued as consideration on a business combination (Note 5.1)
Ordinary shares issued at end of the year
2020
NZ$’000
626,380
2019
NZ$’000
251,113
251,113
1,666
340,646
32,955
626,380
2020
226,189
927
470,612
11,273
709,001
249,882
1,231
-
-
251,113
2019
225,315
874
-
-
226,189
59
4.3.2 Reserves and retained earnings
Cash flow hedging reserve
The hedging reserve is used to record gains or losses
on a hedging instrument in a cash flow hedge that are
recognised directly in other comprehensive income,
as described in the accounting policy in section 4.2.
The amounts are recognised in profit or loss when the
associated hedged transaction affects profit or loss.
Foreign currency translation reserve
The FCTR is used to record foreign currency
translation differences arising on the translation of
the Group entities results and financial position. The
amounts are accumulated in other comprehensive
income and recognised in profit or loss when the
foreign operation is partially disposed of or sold.
Share based payments reserve
The share based payments reserve is used to
recognise the fair value of share options and
performance rights granted but not exercised
or lapsed. Amounts are transferred to share
capital when vested options are exercised by the
employee or performance rights are vested.
Reserves
Cash flow hedging reserve
Opening balance
Revaluation - gross
Deferred taxation on revaluation
Transfer to hedged asset
Transfer to net profit - gross
Closing balance
Foreign currency translation reserve
Opening balance
Currency translation differences – Gross
Currency translation differences – Taxation
Closing balance
Share based payments reserve
Opening balance
Current year amortisation
Deferred taxation on share options
2020
NZ$’000
2019
NZ$’000
4,118
(3,799)
3,903
(9,255)
(108)
(5,141)
(12,272)
255
-
3,498
(9,772)
607
9,579
206
4,118
(8,975)
(3,297)
-
(12,017)
(12,272)
1,983
378
(87)
(1,666)
-
608
-
(61)
-
(61)
2,760
721
(253)
(1,231)
(14)
1,983
-
-
-
-
(16,611)
(6,171)
2.3
2.3
2.3
2.3
As at 31 July 2020 there were 709,001,384 ordinary issued shares in Kathmandu Holdings Limited and these are
classified as equity.
926,996 shares (2019: 873,712) were issued under the “Executive and Senior Management Long Term Incentive Plan
24 November 2010” during the year.
Closing balance
Other Reserves
Opening balance
During the year 470,613,096 shares were issued in relation to a share placement and share entitlement offers.
Total capital raised of $351,510,652 is net of directly attributable share issue costs of $10,864,686.
Current year expense recognised in other comprehensive income
Deferred taxation on other comprehensive income
All ordinary shares carry equal rights in respect of voting and the receipt of dividends. Ordinary shares do not have
a par value.
Refer to section 6.3 for Employee share-based remuneration plans.
Closing balance
Total Reserves
Transfer to Share Capital on vesting of shares to Employees
Share Options / Performance Rights lapsed
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 60
61
4.3.3 Dividends
Prior year final dividend paid
Current year interim dividend paid
Dividends paid (NZ$0.12 per share (2019: NZ$0.15))
2020
NZ$’000
27,209
-
27,209
2019
NZ$’000
24,836
9,047
33,883
4.3.4 Capital risk management
The Group’s capital includes contributed equity, reserves and retained earnings.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern
in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt.
Section 5 Group Structure
Keeping it simple
This section provides information about the entities that make up the Kathmandu Group and how they
affect the financial performance and position of the Group.
5.1 Acquisition of Rip Curl Group Pty Ltd
Goodwill arising on acquisition
On 31 October 2019 Kathmandu Holdings Limited through
its wholly-owned subsidiary Barrel Wave Holdings Pty
Limited acquired 100% of the equity interests in Rip Curl
Group Pty Limited and its controlled entities based out
of Australia. The total purchase price was A$350,000,000.
The non-controlling interest on acquisition relates
to the interest acquired by the Group in Rip Curl joint
ventures in New Zealand, Thailand and Europe.
Rip Curl is a designer, wholesaler, manufacturer and
retailer of surfing equipment and apparel, and has
a global presence across Australia, New Zealand,
North America, Europe, South East Asia and Brazil.
The acquisition creates a global outdoor and action
sports company anchored by two iconic Australasian
brands and provides the opportunity for Kathmandu
to considerably diversify its geographic footprint,
channels to market and seasonality profile.
At the time the financial statements were authorised
for issue, the Group had not yet finalised the purchase
price allocation for the acquisition of Rip Curl. Fair
values of the assets and liabilities disclosed below
are determined provisionally as management is
in process of reviewing the details of independent
valuations. In segment information (Note 2.1),
management temporarily allocates related assets
and liabilities of the acquired business in the "Surf"
segment. The Group expects to finalise the purchase
price allocation in the next few months and will record
any allocation adjustments in next financial period.
On completion of the purchase price allocation,
goodwill may be recognised on the acquisition of Rip
Curl because of the established workforce and control
premiums paid. This is not recognised separately from
goodwill as the expected future economic benefits
arising cannot be reliably measured and they do not
meet the definition of identifiable intangible assets.
Acquisition costs
Acquisition related costs of $11,895,000 have been
excluded from the consideration transferred and are
included in administration and general expenses in
the statement of comprehensive income and in
operating cash flows in the statement of cash flows
in the current year.
Impact of the acquisition on
the results of the Group
Group revenue for the year includes $315,739,000 in
respect of Rip Curl. Had the Rip Curl acquisition been
effective from 1 August 2019, the unaudited revenue
of the Group would have been $922,635,000 and
the unaudited profit for the year would have been
$14,910,000.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 62
63
Provisional Purchase Price Allocation
Purchase price
Less net indebtedness adjustment
Plus working capital settlement adjustments
Total net consideration
Carrying amounts of identifiable assets acquired and liabilities assumed;
Current assets
Cash and cash equivalents
Trade and other receivables (net)
Inventories (net)
Derivative financial instruments
Current tax asset
Non-current assets
Other receivables
Property, plant and equipment
Brand
Customer relationships
Other intangibles
Right-of-use assets
Current liabilities
Trade and other payables
Current tax liability
Current lease liabilities
Non-current liabilities
Non-current trade and other payables
Non-current lease liabilities
Interest bearing liabilities
Deferred tax
Less non-controlling interest acquired
Net assets acquired
Goodwill on acquisition
Total net consideration
Less cash and cash equivalents acquired
Less consideration paid as shares
Plus indebtedness settled on acquisition
Net cash outflow on acquisition
NZ$’000
377,562
(78,147)
23,437
322,852
29,142
83,361
124,675
990
6,216
4,496
37,529
169,687
39,697
3,800
117,296
(78,006)
(2,224)
(33,167)
(7,571)
(85,397)
(115,366)
(53,245)
(3,335)
238,578
84,274
322,852
(29,142)
(32,955)
115,366
376,121
5.2 Subsidiary Companies
Subsidiaries are all entities over which the Group has control. Control is achieved when the Group:
• has power over the entity;
•
• can use its power to affect returns.
is exposed to, or has rights to, variable returns from its involvement with the entity; and
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the
Group loses control of the subsidiary.
The following entities comprise the significant trading and holding companies of the Group;
Companies
Parent entity:
Kathmandu Holdings Limited
Subsidiaries:
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu Pty Limited
Kathmandu (U.K.) Limited
Kathmandu US Holdings LLC
Oboz Footwear LLC
Barrel Wave Holdings Pty Ltd
Rip Curl Group Pty Ltd
Rip Curl International Pty Ltd
PT Jarosite
Rip Curl Pty Ltd
Onsmooth Thai Co Ltd
Rip Curl Investments Pty Ltd
Blue Surf Pty Ltd
RC Surf Pty Ltd
Rip Curl Airport and Tourist Stores Pty Ltd
JRRC Rundle Mall Pty Ltd
Rip Curl (Thailand) Ltd
RC Airports Pty Ltd
Ozmosis Pty Ltd
RC Chermside Pty Ltd
Bondi Rip Pty Ltd
Rip Curl Japan
Curl Retail No 1. Pty Ltd
RC Surf Sydney Pty Ltd
RC Surf South Pty Ltd
RC Surf NZ Limited
Rip Curl Finance Pty Ltd
Rip Curl Europe S.A.S
Rip Curl Spain S.A.U
Rip Curl Suisse S.A.R.L
Surf Odyssey S.A.R.L (70% share sold in July 2020)
Rip Surf LDA
Rip Curl UK Ltd
Rip Curl Germany GMBH
Rip Curl Italy SRL
Rip Curl Nordic AB
Rip Curl Inc
Ultra Manufacturing Inc (in liquidation)
Rip Curl Canada Inc
Rip Curl Brazil LTDA
Parties to Deed of
Cross Guarantee
Country of
Incorporation
Holding
2020
2019
√
√
√
√
√
√
√
√
√
New Zealand
-
-
New Zealand
New Zealand
Australia
United Kingdom
United States of America
United States of America
Australia
Australia
Australia
Indonesia
Australia
Thailand
Australia
Australia
Australia
Australia
Australia
Thailand
Australia
Australia
Australia
Australia
Japan
Australia
Australia
Australia
New Zealand
Australia
France
Spain
Switzerland
France
Portugal
United Kingdom
Germany
Italy
Sweden
United States of America
Mexico
Canada
Brazil
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
All subsidiaries have a balance date of 31 July except for RC Surf NZ Limited which has a 31 March balance date.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 64
65
5.3 Deed of Cross Guarantee
Pursuant to ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785, the Australian-
incorporated wholly owned subsidiaries listed in Note
5.2 as parties to the Deed of Cross Guarantee are
relived from the Corporations Act 2001 requirements
for preparation, audit and lodgement of financial
reports and directors’ reports in Australia.
It is a condition of the ASIC Corporations Instrument
that the Company and each of the subsidiaries listed
enter a Deed of Cross Guarantee. The effect of the
Deed is that each party guarantees to each creditor
of each other party payment in full of any debt in the
event of winding up of the other party under certain
provisions of the Corporations Act 2001. If a winding up
occurs under other provisions of the Act, the guarantee
will only apply if after six months after a resolution or
order winding up any creditor has not been paid in full.
A consolidated statement of comprehensive income
and balance sheet, comprising the Company and
controlled entities which are parties to the Deed of
Cross Guarantee, after eliminating all transactions
between parties to the Deed of Cross Guarantee, at
31 July 2020, are set out as follows:
Consolidated Statement of Comprehensive Income and Retained Earnings for the year ended 31 July 2020
Sales
Expenses
Finance costs - net
Profit before income tax
Income tax expense
Profit after income tax
Other comprehensive income
Total comprehensive income for the year
Retained Earnings at beginning of the year
Profit for the year after income tax
Dividends paid
Lapsed share options
Adoption of NZ IFRS 16
Retained Earnings at the end of the year
2020
NZ$’000
457,884
2019
NZ$’000
339,671
(425,853)
(292,303)
(16,234)
15,797
(7,903)
7,894
2,036
9,930
(34,571)
7,894
(27,209)
-
(6,855)
(60,741)
(279)
47,089
(14,141)
32,948
(4,995)
27,953
(33,650)
32,948
(33,883)
14
-
(34,571)
Consolidated Balance Sheet as at 31 July 2020
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax asset
Total current assets
Non-current assets
Trade and other receivables
Investments
Property, plant and equipment
Intangible assets
Right-of-use assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Current lease liabilities
Total current liabilities
Non-current liabilities
Non-current trade and other payables
Interest bearing liabilities
Loans with related parties
Deferred tax
Non-current lease liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity - ordinary shares
Reserves
Retained earnings
Total equity
2020
NZ$’000
2019
NZ$’000
204,918
23,748
106,825
4
3,490
3,206
2,160
67,407
3,373
2,344
338,985
78,490
78,460
349,911
53,010
467,138
156,400
1,104,919
1,443,904
78,316
5,364
7,923
56,245
38,277
175,183
41,389
172,607
-
427,456
505,946
46,790
36
6,378
-
147,848
53,204
7,726
237,069
295,614
65,651
128,777
734,837
882,685
-
-
220,237
21,044
-
241,281
294,485
561,219
211,461
626,380
(4,420)
(60,741)
561,219
251,113
(5,081)
(34,571)
211,461
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 66
67
Section 6 Other Notes
6.1 Related parties
All transactions with related parties were in the normal
course of business and provided on commercial terms.
No amounts owed to related parties have been written
off or forgiven during the period.
Key Management Personnel
Salaries
Other short-term
employee benefits
Post-employment
benefits
Employee performance
rights
2020
NZ$’000
3,147
55
58
378
2019
NZ$’000
3,414
457
117
491
3,638
4,479
6.2 Fair values
The following methods and assumptions were used
to estimate the fair values for each class of financial
instrument:
Trade debtors, trade creditors and bank balances
The carrying value of these items is equivalent to their
fair value.
Term liabilities
The fair value of the Group's term liabilities is estimated
based on current market rates available to the Group
for debt of similar maturity. The fair value of term
liabilities equates to their current carrying value.
Foreign exchange contracts and interest
rate swaps
The fair value of these instruments is determined using
valuation techniques (as they are not traded in an
active market). These valuation techniques maximise
the use of observable market data where it is available
and rely as little as possible on entity specific estimates.
Specific valuation techniques used to value financial
instruments include the fair value of interest rate
swaps. These are calculated at the present value of
the estimated future cash flows, based on observable
yield curves and the fair value of forward foreign
exchange contracts, as determined using forward
exchange rates at the balance sheet date, with the
resulting value discounted back to present value.
These derivatives have all been determined to be within
level 2 (for the purposes of NZ IFRS 13) of the fair value
hierarchy as all significant inputs required to ascertain
the fair value of these derivatives are observable.
Guarantees and overdraft facilities
The fair value of these instruments is estimated on
the basis that management do not expect settlement
at face value to arise. The carrying value and fair
value of these instruments are approximately
nil. All guarantees are payable on demand.
6.3 Employee share-based remuneration
Accounting policy
Equity settled long term incentive plan
The Executive and Senior Management Long Term
Incentive plan grants Group employee’s performance
rights subject to performance hurdles being met.
The fair value of rights granted is recognised as an
employee expense in the consolidated statement
of comprehensive income with a corresponding
increase in the employee share-based payments
reserve. The fair value is measured at grant date and
amortised over the vesting periods. The fair value of
the rights granted is measured using the Kathmandu
Holdings Limited share price as at the grant date
less the present value of the dividends forecast to be
paid prior to each vesting date. When performance
rights vest, the amount in the share-based payments
reserve relating to those rights are transferred to
share capital. When any vested performance rights
lapse upon employee termination, the amount
in the share-based payments reserve relating to
those rights is transferred to retained earnings.
Executive and Senior Management
Long Term Incentive Plan
On 20 November 2013, shareholders approved
at the Annual General Meeting the continuation
of an Employee Long Term Incentive Plan (LTI)
(previously established 24 November 2010) to
grant performance rights to Executive Directors,
Senior Managers, Other Key Management
Personnel and Wider Leadership Management.
Executive Directors and Senior Managers
Performance rights granted to Executive Directors and Senior Managers are summarised below:
Grant Date
9 Jul 2020
20 Dec 2018
20 Dec 2017
19 Dec 2016
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
-
261,388
374,437
375,810
597,731
-
-
-
1,011,635
597,731
-
-
-
(375,810)
(375,810)
-
-
-
-
-
597,731
261,388
374,437
-
1,233,556
The performance rights granted on 9 July 2020
are Long Term Incentive components only.
The TSR performance is calculated for the following
performance periods:
Long Term Incentive performance rights vest in equal
tranches. In each tranche the rights are subject
to a combination of a relative Total Shareholder
Return (TSR) hurdle and/or an EPS growth hurdle.
The relative weighting and number of tranches for
each grant date are shown in the table below:
Grant Date
Tranches
EPS
Weighting
TSR
Weighting
9 Jul 2020
20 Dec 2018
20 Dec 2017
1
1
1
0%
50%
50%
100%
50%
50%
Tranche
Tranche 1
2020
2019
36 months to 1
December 2022
36 months to 1
December 2021
The fair value of the TSR rights have been valued
under a Monte Carlo simulation approach predicting
Kathmandu Holdings Limited’s TSR relative to the
comparable group of companies at the respective
vesting dates for each tranche. The fair value of TSR
rights, along with the assumptions used to simulate the
future share prices using a random-walk process are
shown below:
The proportion of rights subject to the relative TSR hurdle
is dependent on Kathmandu Holdings Limited’s TSR
performance relative to a defined comparable group of
companies in New Zealand and Australia listed on either
the ASX or NZX. The percentage of TSR related rights
vest according to the following performance criteria:
Kathmandu Holdings Limited
relative TSR ranking
% Vesting
Fair value of TSR rights
Current price at grant date
Risk free interest rate
Expected life (years)
Expected share volatility
2020
2019
$119,546
$205,190
$1.14
0.34%
3
$2.77
1.76%
3
69.5%
28.9%
Below the 50th percentile
50th percentile
51st – 74th percentile
75th percentile or above
100%
50% + 2% for each
percentile above the 50th
0%
50%
The estimated fair value for each tranche of rights
issued is amortised over the vesting period from the
grant date.
The proportion of rights subject to the EPS growth
hurdle is dependent on the compound average
annual growth in Kathmandu Holdings Limited’s
EPS relative to the year ending 31 July 2020.
The applicable performance periods are:
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 68
Tranche
Tranche 1
2020 Performance Period
2019 Performance Period
Not applicable
FY21 EPS relative to FY18 EPS
Expenses arising from equity settled
share based payments transactions
6.7 Supplementary information
69
The percentage of the 2019 EPS growth related rights scales according to the compound average annual EPS growth
achieved as follows:
EPS Growth
< 7%
>=7%, < 8%
>=8%, < 9%
>=9%, < 10%
>=10%, < 11%
>=11%, < 12%
>=12%
2019 % Rights Vesting
0%
50%
60%
70%
80%
90%
100%
The fair value of the EPS rights have been assessed as the Kathmandu Holdings Limited share price as at the
grant date less the present value of the dividends forecast to be paid prior to each vesting date. The estimated
fair value for each tranche of options issued is amortised over the vesting period from the grant date.
Vesting of Long Term Incentive performance rights also require remaining in employment with the Company during
the performance period.
Other Key Management Personnel and Wider Leadership Management
Performance rights granted to Other Key Management Personnel and Wider Leadership Management are all Short
Term Incentives under the shareholder approved Employee Long Term Incentive Plan, and are summarised below:
Grant Date
20 Dec 2019
11 Dec 2017
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
-
551,186
654,836
-
-
(551,186)
-
-
654,836
-
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)
2020
2019
20 Dec 2019
18 Dec 2018
31 Jul 2020
31 Jul 2019
Executive Director and Senior
Managers
Key Management Personnel
and Wider Leadership
Management
2020
NZ$’000
2019
NZ$’000
378
-
228
493
Directors fees
Directors' fees
2020
NZ$’000
2019
NZ$’000
779
790
378
721
Directors fees for the Parent company were paid to
the following:
6.4 Contingent liabilities
There are no contingent liabilities in 2020 (2019: nil).
6.5 Contingent assets
• David Kirk (Chairman)
•
John Harvey
• Philip Bowman
• Brent Scrimshaw
There are no contingent assets in 2020 (2019: nil).
• Andrea Martens (appointed 1 August 2019)
6.6 Events occurring after
balance sheet date
• Sandra McPhee (retired 27 September 2019)
Audit fees
There are no events after balance sheet date which
materially affect the information within the consolidated
financial statements.
During the year the following fees were paid or payable
for services provided by the auditor of the parent entity,
its related practices and other network audit firms:
Audit services - PricewaterhouseCoopers
Group audit – PwC New Zealand
Acquired balance sheet – PwC New Zealand
UK Statutory audit – PwC UK
Half year review – PwC New Zealand
Total remuneration for PricewaterhouseCoopers audit services
Audit services – other audit firms
Non-audit services - PricewaterhouseCoopers
Taxation Services – PwC France
Revenue Certificates – PwC New Zealand
Banking compliance certificates – PwC New Zealand
2020
NZ$’000
2019
NZ$’000
434
85
20
115
654
138
118
11
3
132
186
-
20
36
242
-
-
12
3
15
Vesting Date – Other Key Management Personnel and Wider Leadership Management
31 Jul 2021
31 Jul 2020
Total remuneration for PricewaterhouseCoopers non-audit services
The fair value of the rights were assessed as the Kathmandu Holdings Limited share price as at the grant date less
the present value of the dividends forecast to be paid prior to the vesting date.
The non-market performance hurdles set for the year ending 31 July 2020 were not met and accordingly no expense
has been recognised in the consolidated statement of comprehensive income.
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 70
71
6.8 New accounting standards and interpretations
New standards and interpretations first applied in the period
Independent auditor’s report
To the shareholders of Kathmandu Holdings Limited
New Accounting
Standard
NZ IFRS 16
Leases
Effective Date
Applicable to
the Group
1 August 2019
Summary of Changes
Group Impact
Introduces a single
lessee accounting
model requiring a
lessee to recognise
assets and liabilities
for all leases with a
term of more than 12
months where they
are not considered low
value. A right-of-use
asset is recognised
representing the right
to use the underlying
leased asset and
a lease liability
representing the
obligations to make
lease payments. As
a consequence, a
lessee recognises
depreciation of the
right-of-use asset and
interest on the lease
liability.
The Group has applied NZ IFRS 16 using a modified retrospective
transition method. Comparative figures have not been restated
and the cumulative effect of initially applying IFRS 16 has been
recognised as an opening retained earnings adjustment.
NZ IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under NZ IAS 17, which were off-
balance-sheet.
Applying NZ IFRS 16, for all leases (except as noted below), the
Group has:
a) recognised lease liabilities and right-of-use assets in the
consolidated balance sheet. Lease liabilities have been
initially measured at the present value of the remaining lease
payments, discounted using the incremental borrowing
rate at 1 August 2019. Right-of-use assets have been initially
measured at carrying amount as if NZ IFRS 16 had always
applied since the lease commencement date, using a
discount rate based on the incremental borrowing rate at 1
August 2019;
b) recognised depreciation of right-of-use assets and
interest on lease liabilities in the consolidated statement of
comprehensive income; and
c) separated the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within operating activities) in the consolidated
statement of cash flows.
Lease incentives (eg rent free periods) are recognised as part of
the measurement of the right-of-use assets and lease liabilities
whereas under NZ IAS 17 they resulted in the recognition of a
lease liability, amortised as a reduction of rental expense on a
straight-line basis.
Under NZ IFRS 16, right-of-use assets are tested for impairment in
accordance with NZ IAS 36 Impairment of Assets. This replaces
the previous requirement to recognise a provision for onerous
lease contracts.
For short-term leases (lease term of 12 months or less) and
leases of low-value assets (such as office equipment), the Group
has opted to recognise a lease expense on a straight-line basis
as permitted by NZ IFRS 16. This expense is presented within
selling expenses and administration and general expenses
within the consolidated statement of comprehensive income.
The Group has used the following practical expedients on initial
application of NZ IFRS 16;
- whether an existing contract is, or contains, a lease has not
been reassessed;
- applied a single discount rate to a portfolio of leases with
reasonably similar characteristics;
- relied on its assessment of whether leases are onerous
applying NZ IAS 37 Provisions, Contingent Liabilities and
Contingent Assets immediately before 1 August 2019 as an
alternative to performing an impairment review;
- excluded initial direct costs from the measurement of the
right-of-use asset at 1 August 2019;
- used hindsight in determining the lease term if the contract
contains options to extend or terminate the lease.
the consolidated statement of comprehensive income for the year then ended;
the consolidated balance sheet as at 31 July 2020;
We have audited the consolidated financial statements which comprise:
•
•
•
•
•
the consolidated statement of cash flows for the year then ended; and
the consolidated statement of changes in equity for the year then ended;
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Our opinion
In our opinion, the accompanying consolidated financial statements of Kathmandu Holdings Limited
(the Company), including its subsidiaries (the Group), present fairly, in all material respects, the
financial position of the Group as at 31 July 2020, its financial performance and its cash flows for the
year then ended in accordance with New Zealand Equivalents to International Financial Reporting
Standards (NZ IFRS) and International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
International Code of Ethics for Assurance Practitioners (including International Independence
Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards
Board and the International Code of Ethics for Professional Accountants (including International
Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of assurance compliance engagement in
respect of bank covenant compliance, agreed upon procedures for store turnover certificates and tax
advisory. The provision of these other services has not impaired our independence as auditor of the
Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the consolidated financial statements of the current year. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Standards, interpretations and amendments to published standards that are not yet effective
There are no standards or amendments published but not yet effective that are expected to have a significant impact on the group.
PricewaterhouseCoopers
PwC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand
T: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz
54
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
72
73
Description of the key audit matter
Acquisition of Rip Curl Group
As disclosed in note 5.1 of the consolidated
financial statements, the Group acquired 100%
of the shares of Rip Curl Group Pty Limited
(Rip Curl), on 31 October 2019, for base
consideration of A$350m.
The purchase price included identifiable
tangible and intangible assets acquired and
liabilities assumed.
At the time the consolidated financial
statements were authorised for issue,
management had not yet completed the
purchase price allocation.
Management have completed a provisional
assessment of the fair value of the assets and
liabilities that were acquired. This process
included engaging a third party valuation
expert to assist in the process to identify and
determine the fair value of the intangible
assets. The full valuation process has not yet
been finalised and management’s expert has
not yet issued their final report. It is therefore
possible that changes in the acquisition
accounting may still occur.
Intangible assets have been identified in
relation to brand and customer relationships
provisionally held by Rip Curl at NZ$169.7m
and $39.7m respectively, in addition to the
provisional goodwill of $84.3m.
Our audit focused on this area because the
acquisition of Rip Curl was a major transaction
and significant judgements and assumptions
are involved in identifying and determining
fair value of the acquired assets and liabilities,
particularly the identified intangible assets.
How our audit addressed the key audit
matter
In responding to the significant judgements
involved in identifying and valuing the
identifiable intangible assets we:
• obtained an understanding of the
acquisition by reading the sale and purchase
agreement, other relevant contractual
agreements and documents;
• confirmed the fair value of the consideration
paid to the sale and purchase agreement;
• obtained the provisional valuation
undertaken by management’s expert to
determine the purchase price allocations and
tested the mathematical accuracy of the
models;
• held discussions with Group management and
their valuation expert to obtain an
understanding of the business process
undertaken to identify and value of the assets
acquired and liabilities assumed;
• we engaged our own internal valuation
specialist to assess the appropriateness of
assets identified, evaluate the valuation
methodology and consider the key
judgements and assumptions as
provisionally determined by management
and management’s expert;
• considered whether the identification and
recognition of intangible assets was consistent
with the requirements of the accounting
standards; and
• considered whether the relevant disclosures
were appropriate.
Description of the key audit matter
Impairment testing over indefinite life
intangibles, including the impact of COVID-19
The risk that the Group’s indefinite life assets
may be materially impaired is considered a key
audit matter, due to the material nature of
these assets and the significant judgement
exercised by management to:
• assess the appropriate cash generating
units (CGU) to consider for testing;
• estimate the future results of the CGUs;
•
include the impact of COVID-19, revenue
and margins;
• allocate shared costs to CGUs; and
• assess the discount rates and terminal
growth rates.
As disclosed in note 3.3, the Group assessed
the recoverable amount of each CGU as at 31
July 2020 using discounted cash flow
valuations on a fair value less cost of disposal
(FVLCD) basis.
For Kathmandu New Zealand, Australia and
Oboz management performed their own
calculation and engaged a third party valuation
expert to:
• provide expert advice on the appropriate
discount rate for each CGU;
• provide macro-economic analysis for each
CGU;
• provide advice on the appropriate valuation
multiples for alternative valuation cross
checks; and
• perform sensitivity analyses.
For Rip Curl, management engaged the third
party valuation expert to perform a full year-
end valuation.
Based on the testing performed for each CGU
the Group concluded that there was no
impairment of goodwill and brand as at 31 July
2020.
The key assumptions used in the impairment
testing has been disclosed in note 3.3.
How our audit addressed the key audit
matter
Our audit procedures in assessing the
indefinite life intangible assets included the
following:
For all brands and goodwill we:
• obtained the calculations performed by
management and considered the assumptions
used in light of the current and forecast
outlook for the business;
•
reviewed management’s assessment of CGUs
and compared this to our knowledge and
understanding of the Group’s operations and
reporting structure;
• engaged our auditor’s expert to
independently consider the
appropriateness of the discount and long-
term growth rates;
• assessed the reasonableness of management's
cash flow assumptions by considering
external market forecasts, historical
performance and other available information;
• considered the allocation of shared costs
to each CGU;
• performed look back tested on historical
accuracy of management forecasts; and
• performed sensitivity testing for each CGU.
For Rip Curl we also:
• used our auditor’s expert to review and
challenge the appropriateness of the
assumptions used by management expert’s in
the valuation of Rip Curl and assess the
appropriateness of the valuation methodology
employed by management’s expert.
We audited the disclosures in the financial
statements to ensure they are compliant with the
requirements of the relevant accounting
standards.
PwC
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FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
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75
Description of the key audit matter
Inventory existence and valuation including
the impact of COVID-19
At 31 July 2020, the Group held inventories of
$228.8m. Inventory valuation and existence
was an audit focus area due to the number of
locations that the inventory was held at and the
judgement applied in the valuation of
inventory on hand.
As described in note 3.1.1 of the consolidated
financial statements, inventories are carried at
the lower of cost and net realisable value on a
weighted average basis.
The Group has systems and processes,
including a barcode inventory management
system, to accurately record inventory
movements.
Management perform full stocktakes at each
store twice a year, with annual full stocktakes
taking place at Rip Curl distribution centres.
Daily cycle counts are performed at the
Kathmandu New Zealand and Australian
distribution centres.
For Rip Curl US and Oboz management keep
stock at third party warehouses who provide
inventory management services.
How our audit addressed the key audit
matter
We performed a number of audit procedures over
inventory existence and valuation at year end. We:
• observed the stocktake process at selected
store locations near period end and undertook
our own test counts;
• attended the year end distribution centre
count and performed independent test counts
for Rip Curl;
• observed the daily stocktake process at the
Christchurch and Melbourne Kathmandu
distribution centres near period end and
undertook our own test counts. We also tested
that the daily counts occurred by selecting a
sample of days at each location and inspected
the count records throughout the year;
• confirmed the level of inventory held at year
end directly with third party warehouses for
inventory in the United States;
• assessed the inventory shrinkage provision by
reviewing the level of inventory write downs
during the period. We tested the shrinkage
rate used to calculate the provision for each
store since the last stocktake by comparing it
to the actual shrinkage rate in prior periods;
• assessed store inventory counts performed
post year end to ensure the actual level of
shrinkage was consistent with the year end
provisioning;
• evaluated the assumptions made by
management, and particularly the key
assumption that current shrinkage levels are
consistent with historical levels, in assessing
inventory obsolescence provisions through an
analysis of inventory items by category and age
and the level of inventory write downs in these
categories during the period including the
potential impact of COVID-19; and
•
tested that inventory on hand at the end of the
period was recorded at the lower of cost and
net realisable value by testing a sample of
inventory items to the most recent retail price
which includes the impact of COVID-19.
Description of the key audit matter
Adoption of the accounting standard NZ IFRS
16 Leases
The Group adopted NZ IFRS 16 Leases on 1
August 2019. The standard requires the
recognition of a right of use asset and lease
liability on the balance sheet for all leases.
Previously operating leases were not
recognised on the balance sheet. The adoption
of the standard has resulted in the recognition
of a right of use asset of $178.8m and a lease
liability of $206.5m.
As outlined in note 3.4 and 6.8, a number of
judgements and estimates have been made by
management in establishing these opening
values. These comprise of the:
●
incremental borrowing rates at the time of
adoption;
lease terms, including any rights of
renewals expected to be exercised;
● application of practical expedients in
●
respect of short term lease exemptions; and
● recognition of abatements received from
landlords.
This was considered an area of focus for our
audit due to the number of leases and the
significant judgements and estimates inherent
in the calculation.
How our audit addressed the key audit
matter
We have performed the following audit
procedures in relation to the adoption of the new
accounting standard for leases. We:
● held discussions with management to
understand the implementation process
including the basis for key assumptions used
in the calculation of opening balances and
management's process;
● performed testing, on a sample basis, of the
accuracy of information included in the
calculations by comparing them to the terms
in the underlying lease contracts;
●
tested completeness of the identified lease
contracts by checking that leased stores and
other major leased assets were included in the
calculation through reconciliation to the
audited lease commitments schedule at
1 August 2019;
● on a sample basis, recalculated the right of use
asset and lease liability for individual leases;
●
●
reviewed assumptions used to determine the
lease term including rights of renewal and
assessed whether they were supported by past
practice and current business plans;
reviewed the appropriateness of practical
expedients applied for exclusion of low value
and short term lease exemptions;
● on a sample basis, assessed the appropriate
treatment of rent abatements received from
landlords; and
●
reviewed the appropriateness of disclosures in
the financial statements.
In relation to the incremental borrowing rates, we
engaged our auditor's valuation expert to assess
the appropriateness of the discount rates used.
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FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
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77
Our audit approach
Overview
An audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement.
Overall Group materiality: $3.7m, which represents approximately 5% of
weighted average of last three years’ annualised profit before tax,
excluding the acquisition cost in relation to Rip Curl.
Given the volatility in profit before tax due to the impacts of COVID-19 we
chose a weighted average of the last three years’ annualised profit before
tax adjusted for the acquisition cost, as the appropriate benchmark for the
year ended 31 July 2020.
In order to appropriately reflect the current brand profile of the
Kathmandu Group, we have annualised the past financial performance by
incorporating Rip Curl Group’s audited profit before tax in our
calculation. This ensured the historical profits reflects the financial
performance of all brands within the Group.
Further, we have excluded the acquisition cost in relation to the
acquisition of Rip Curl which, due to its size, causes unusual fluctuation in
profit before tax due to its infrequent occurrence.
As reported above, we have four key audit matters, being:
•
•
•
•
Acquisition of Rip Curl Group
Impairment testing over indefinite life intangibles, including the
impact of COVID-19
Inventory existence and valuation, including the impact of COVID-19
Adoption of the accounting standard NZ IFRS 16 Leases
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out
above. These, together with qualitative considerations, helped us to determine the scope of our audit,
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the consolidated financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated financial
statements and our application of materiality. As in all of our audits, we also addressed the risk of
management override of internal controls including among other matters, consideration of whether
there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in which the Group operates.
Information other than the consolidated financial statements and auditor’s report
The Directors are responsible for the annual report. Prior to the date of our auditor’s report, we
received a first draft of the corporate governance section of the annual report, but we have not received
any of the other components of the annual report, which is expected to be made available to us at a
later date. Our opinion on the consolidated financial statements does not cover the other information
included in the annual report and we do not and will not express any form of assurance conclusion on
the other information.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed on the other information
that we obtained prior to the date of this auditor’s report, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard, except that not all other information was available to us at the date of our signing.
Responsibilities of the Directors for the consolidated financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements, as a whole, are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is
located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Leopino Foliaki.
The Group audit was conducted by a New Zealand based team, with support from component auditors
in France and Thailand.
For and on behalf of:
PwC
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Chartered Accountants
23 September 2020
Christchurch
FINANCIAL STATEMENTSANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
78
79
Corporate governance
This corporate governance statement
has been approved by the Board.
The Board and management of Kathmandu Holdings
Limited (the “Company”) and its related companies
(“the Group”) are committed to adhering to best
practice governance principles and maintaining
the highest ethical standards. The Board is
responsible for the overall governance of the Group,
including adopting the appropriate policies and
procedures and guiding Directors, management
and employees of the Group’s businesses to fulfil
their functions effectively and responsibly.
The Company regularly examines its governance
arrangements against national and international
standards. The Company has developed its corporate
governance policies and practices in line with the
principles and recommendations set out in the New
Zealand Stock Exchange (NZX) Corporate Governance
Code (NZX Code). The structure of the Company’s FY20
Annual Report and Corporate Governance statement
aligns to NZX reporting requirements to reflect the
change to Foreign Exempt Listing status on the ASX.
This corporate governance statement details the
Company’s key corporate governance arrangements.
Where the Company’s governance arrangements
differ from a recommendation in the NZX Code, the
relevant recommendation is separately identified
and accompanied by an explanation for the reasons
why the recommendation has not been followed
and a summary of the alternative governance
arrangements in place for the Company.
For the duration of the reporting period, the Company
has followed the recommendations set out in the NZX
Code where appropriate, having regard to the size
of the Group and the Board, the resources available
and the activities of the Group’s businesses. After
due consideration, the Board considers that the only
departures of the Company’s corporate governance
practices from the recommendations set out in the
NZX Code during the reporting period are in relation to
the recommendation to provide notice of meeting at
least 20 working days prior to any special meeting.1
Information about the Company’s approach
in this area is separately identified in this
corporate governance statement.
The Company’s relevant charters and policies are
available in the Governance section of the Company’s
Investor Website https://www.kathmanduholdings.
com/investor-relations/governance/
Principle 1 – Code of ethical behaviour
One of the Group’s core values is integrity: to conduct
the Group’s businesses in an ethical and honest
manner, and to always strive to do the right thing. The
Company is committed to promoting a culture of best
practice and ethical behaviour and therefore expects
the members of its Board and all employees to act
in accordance with the Company’s values, policies
and legal obligations. All Directors and employees
joining the Group are provided with information on the
Group’s values, and the following policies, and updates
and refreshers are provided on a regular basis.
Code of Conduct
The Board recognises the need to observe the
highest standards of ethical corporate practice
and business conduct. Accordingly, the Board has
a formal code of conduct, to be followed by all
Directors and employees. Any material breaches of
the Code of Conduct are reported to the Board.
The key aspects of the Code of Conduct are to:
• act with honesty, integrity and fairness and
in the best interests of the Company;
• declare conflicts of interest and proactively
advise of any conflicts of interest;
• act in accordance with all applicable laws,
regulations, policies and procedures;
•
follow procedures around the receiving of gifts;
• adhere to any procedures about whistleblowing; and
• use Group resources and property properly.
The Group maintains formal whistleblowing policies
in New Zealand and Australia, recognising that the
protection of whistle-blowers is integral to fostering
transparency, promoting integrity and detecting
misconduct. The best way to fulfil this commitment
is to create an environment in which employees
who have genuine concerns about improper
conduct, unacceptable behaviour or wrong-doing
feel safe to report it without fear of reprisal.
Securities trading policy
The information in this statement is current as at
31 July 2020 (except where otherwise specified).
The Company has a policy for dealing in the
Company’s securities by Directors and employees,
1. NZX Code Recommendation 8.5
which provides transparency about expectations
and requirements. The policy is not designed to
prohibit Directors and employees from investing
in the Company’s securities, but recognises that
there are times when Directors or employees
cannot, or should not, deal in those securities.
Subject to the overriding restriction that persons may
not deal in the Company’s securities while they are
in possession of non-public material information,
Directors, senior executives and key management
personnel are only permitted to deal in securities during
certain ‘window periods’; being the periods immediately
following the release of the Company’s full and half
year financial results or the release of a disclosure
document offering securities in Kathmandu Holdings
Limited. All other employees are strongly encouraged
to deal in securities only during these ‘window periods’.
Directors, senior executives and key management
personnel must receive clearance from the
Chairperson of the board before any proposed
dealing in Company securities in each instance.
Where a Director or senior executive is subject to
exceptional circumstances (such as severe financial
hardship), written approval may be granted by the
independent Directors for the disposal of Company
securities, provided the individual concerned is not in
possession of any non-public material information.
The policy prohibits Directors, senior executives, key
management personnel and all other employees
from entering into hedging or other arrangements
that have the effect of limiting the economic risk
in connection with unvested securities issued
pursuant to any employee option or share plan.
Principle 2 – Board Composition
and Performance
Roles and Responsibilities
The Board is responsible for the overall supervision
and governance of the Group. A framework for the
effective operation of the Board is set out in the Board
Charter, which includes the following responsibilities:
•
the long-term growth and
profitability of the Company;
• developing the strategic and financial
objectives for the Company;
• approving and monitoring the progress of
major capital expenditure, capital management
and acquisitions and divestitures;
•
•
identifying the principal risks of
the Company’s business;
reviewing and ratifying the Company’s systems of
internal compliance and control, risk management,
legal compliance, corporate governance
practices, financial and other reporting;
• appointing and removing the Group
Chief Executive Officer (“CEO”);
•
ratifying the appointment, and where appropriate,
the removal of the senior executives of the Group;
• approving the remuneration
framework for the Group; and
• monitoring and reviewing board
succession planning.
The Board delegates the responsibility for day to
day management and operation of the Group to
the Group CEO, who in turn delegates parts of these
functions to senior group executive and management
personnel. Matters reserved for the Board and the
scope and limitations of delegations to the Group
CEO, group executives and management personnel
are set out in a Group delegated authority policy
approved by the Board on an annual basis.
Board Composition
At present, the Board is comprised of six Directors,
namely David Kirk, John Harvey, Xavier Simonet, Philip
Bowman, Brent Scrimshaw and Andrea Martens.
The Chairperson of the Board is David Kirk. Five out
of the six Directors are non-executive Directors.
Xavier Simonet (managing Director and Group
CEO) is the only executive Director on the Board.
The Board assesses the independence of its Directors
in accordance with the requirements set out in
the Board Charter and the NZX Listing Rules. Xavier
Simonet, as managing Director, is employed by
the Company in an executive capacity and is not
considered to be an independent Director. David Kirk,
John Harvey, Philip Bowman, Brent Scrimshaw and
Andrea Martens are considered independent Directors
having regard to the factors set out in the NZX Code.
• monitoring management’s implementation of
key policies, strategies and financial objectives;
• directing, monitoring and assessing the Company’s
performance against strategic business plans;
A brief biography of each Board member is
set out on page 20 of this Annual Report and
can also be found in the “Board of Directors”
section of the Company’s Investor Website.
CORPORATE GOVERNANCEANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 80
81
Nomination and Appointment
New Directors are selected through a nomination
and appointment procedure administered by
the Board, as outlined in the Board Charter.
The Board has systems in place which require that
appropriate checks are conducted before appointing
any new Director or putting a candidate forward to the
Company’s shareholders for election as a Director.
The Company enters into written agreements with
each newly appointed Director or senior executive
establishing the terms of their appointment.
Skills Matrix
The Board benefits from a combination of the different
skills, experiences and expertise that the Company’s
Directors bring to the Board and the insights that result
from this diversity. The Board is satisfied that the current
composition of the Board reflects an appropriate range
of the skills, experience, knowledge and diversity needed
to discharge the Board’s functions and responsibilities
and to achieve the strategic aims of the Group.
The Board continues to monitor and review Board
composition. The Board has developed a skills matrix
which it uses to assist in developing plans for long-term
succession to identify current and future skills gaps.
The following chart summarises the skills, attributes
and experience held by the Directors of the Company
during the reporting period. Percentages are
determined as at the date of this statement.
Executive Leadership: Experienced and successful
leadership at a senior executive level of large
organisations.
International Business Development: Experienced in
multi-national, complex environments, including multi-
channel business development.
Capital Projects, Mergers and Acquisitions: Experience
in evaluating and implementing projects involving
large-scale financial commitments, investment horizons
and major transactions.
Retail and Consumer Experience: Experienced in retail
and consumer sectors, understanding multi-channel
retailing and brand development.
Remuneration: Experience in remuneration design to
drive business success.
Governance: Knowledge and experience of high
standards of corporate governance, including NZX
Listing Rules and practices.
Strategy: Expertise in the development and
implementation of strategic plans and risk
management to deliver investor returns over time.
Financial acumen: Expertise in understanding financial
accounting and reporting, corporate finance and
internal financial controls, including an ability to probe
the adequacies of financial and risk controls.
Marketing and product development: Expertise and
senior executive experience in marketing and new
media marketing metrics and tools.
Technology and data: Expertise and experience in the
adoption of new technology and use of data analytics
in a consumer environment.
Executive Leadership
International Business
Capital Projects, Mergers and Acquisitions
Retail and Consumer Experience
Remuneration
Governance
Strategy
Financial Acumen
Marketing and Product Development
Technology and Data
0%
20%
40%
60%
80%
100%
Tenure
Directors are appointed and retire by rotation
in accordance with the Company’s constitution
and the NZX Listing Rule requirements. Director
tenure is taken into account by the Board when
considering the independence of each Director.
The average tenure for non-executive Directors
is 4 years with the following tenure mix:
40%
20%
40%
<2 Years
2 - 5 Years
6+ Years
The tenure of appointment of the Board
as at 31 July 2020 is set out below:
Name
David Kirk
(Chairperson)
Xavier Simonet
John Harvey
Originally
appointed
Last reappointed/
elected
21 November 2013
23 November 2018
29 June 2015
22 November 2019
16 October 2009
24 November 2017
Brent Scrimshaw
2 October 2017
24 November 2017
Philip Bowman
2 October 2017
24 November 2017
Andrea Martens
1 August 2019
22 November 2019
Measuring Board performance
The Board undertakes an annual evaluation of
its performance against the requirements and
expectations of the Board Charter. The performance of
the Board’s committees and each individual Director
is also reviewed on an annual basis, alongside the
goals and objectives for the Board for the upcoming
year. This review also identifies any changes needed
to the Board Charter. The Board approves the criteria
for assessing annual performance of the Group CEO.
The Board has undertaken a review of its performance
in respect of the reporting period by individual
interviews of Directors with the Chairperson.
The Board makes appropriate training available to all
Directors to enable them to remain current on how
best to discharge their responsibilities and to keep up
to date on changes in areas relevant to their roles.
Diversity
The Group embraces and encourages a diverse
workplace culture. This enriches collaborative
and creative thinking to provide innovative
products and world class customer service
to an equally diverse global community.
The Group seeks out the best talent from around
the world to join its brands and is proud to have
over 75 Nationalities, a diverse cross-generational
team ranging from 18 years – 76 years and 59%
women representation across the Group.
The Company’s commitment to diversity and inclusion
goes beyond championing gender equality. Improving
and evolving its inclusive and collaborative workplace
culture is a shared passion across all brands that
enhances the Group’s competitive advantage.
The Company maintains a written diversity policy
in accordance with the NZX Code, which affirms the
Group’s commitment to harnessing differences to
encourage an innovative, responsive and productive
workplace, creating value and rewards for customers,
the team, shareholders and the community.
As part of its diversity policy, the Remuneration
Committee sets measurable objectives for achieving
diversity across the Group. The Remuneration
Committee carries out an annual assessment of
its diversity objectives and measures its progress
towards achieving these objectives. Following this
review, the Board considers that the principles of the
Group’s diversity policy are currently well-reflected
in the variety of cultures, unique experiences,
perspectives, and beliefs represented by its teams.
More information about the Group’s approach to
diversity can be found in our Sustainability Report, a
copy of which is available through the Investor Website.
CORPORATE GOVERNANCEANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 82
83
Roles and responsibilities
• Overseeing the process of
• Overseeing the development and
Audit and Risk Committee
Remuneration Committee
Current Group gender composition
As at 31 July 2020, the gender composition of the Company’s Board, Executive and Management team, and across
the entire Group, is:
Directors
Officers
(Group Executive)
Kathmandu
and Oboz Brand
Management
Rip Curl
Brand
Management
Total
Organisation
FY19
FY20
FY19
FY20*
FY19
FY20^
FY19
FY20^^
FY19**
Male
Female
Total
5
1
6
5
1
6
-
-
-
5
0
5
-
-
-
4
5
9
-
-
-
7
3
10
42%
58%
FY20
41%
59%
100%
100%
Principle 3 - Board committees
The Board has established and maintains two
committees of the Board to assist with discharging
the Board’s responsibilities: the Audit and Risk
Committee and the Remuneration Committee.
The Board may establish other committees as and
when required based on the needs of the Group.
Each Committee is governed by its own
Charter, which has been adopted by the Board,
and is reviewed periodically. The Committee
charters are available in the “Governance”
section of the Company’s Investor Website.
Membership of each Committee is based on
the needs of the Company, relevant legislative
and other requirements and the skills and
experience of individual Directors. Meetings of the
Committees are scheduled to coincide with the
Board meeting timetable. Each Committee makes
recommendations to the full Board for consideration
and decision-making as and when required.
The Company does not have a nomination committee.
Due to the size of the Company’s Board, the Board as
a whole retains the responsibility for recommending
new Director appointments. The Board considers
that it is able to deal efficiently and effectively with
the processes of appointment and reappointment of
Directors to the Board and considerations of Board
composition and succession planning. The Board
draws on the experience and advice of external
recruitment specialists for assistance when required.
The Board will continue to review the needs of the Group
in relation to the Director nomination process and
whether a change of approach in this area is needed.
A summary of the roles, responsibilities and
membership of these two Committees (as at 31 July
2020) is set out on the next page.
Membership
financial reporting, internal control,
continuous disclosure, financial and
non-financial risk management,
compliance and external audit;
• Monitoring the Group’s compliance
with laws and regulations and the
Company’s Code of Conduct;
•
•
Encouraging effective relationships
with, and communication between,
the Board, management and the
Company’s external auditor; and
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.
At least three members, a majority of
whom must be independent Directors
and all of whom must be non-executive
Directors. At least one member must
have an accounting or financial
background. The Chair is to be an
independent non-executive Director,
who is not the Chair of the Board.
Current members:
John Harvey (Chair)
David Kirk
Philip Bowman
Brent Scrimshaw
Andrea Martens
application of the Group Human
Resources strategy, the remuneration
framework and associated policies;
• Assisting the Board in relation to
matters concerning remuneration
of senior executives, and Directors;
• Providing effective remuneration
policies and programmes to
motivate high performance
from all employees; and
• Confirming that appropriate and
effective policies for managing the
performance and development of
employees at all levels are in place.
At least three members, a majority of
whom must be independent Directors
and all of whom must be non-executive
Directors. The Chair is to be an
independent, non-executive Director.
Current members:
Andrea Martens (Chair)
David Kirk
John Harvey
Philip Bowman
Brent Scrimshaw
* A new Group Executive structure was established following the acquisition of the Rip Curl Group.
** Kathmandu and Oboz brands only.
^ Direct reports to Kathmandu Chief Executive Officer.
^^ Direct reports to Rip Curl Chief Executive Officer.
Attendance
The number of meetings of the Board of Directors and the Board Committees held during the
year ended 31 July 2020 and the numbers of meetings attended by each Director were:
Board
Audit and Risk Committee
Remuneration Committee
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
David Kirk
Xavier Simonet
John Harvey
Andrea Martens
Brent Scrimshaw
Philip Bowman
Sandra McPhee*
12
12
12
12
12
12
2
12
12
12
12
12
12
2
* Sandra McPhee retired effective 27 August 2019
6
0
6
6
6
6
2
6
0
6
6
6
6
2
5
0
5
5
5
5
2
5
0
5
5
5
5
2
CORPORATE GOVERNANCEANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 84
85
Takeover protocols
The Board has appropriate protocols in place
that set out the procedure to be followed if there
is a takeover offer for the Company. A committee
of independent Directors would be formed who
would have responsibility for managing the
takeover process in accordance with the Board
protocols and the New Zealand Takeovers Code.
Principle 4 – Reporting and Disclosure
The Company is committed to promoting investor
confidence by providing all stakeholders with timely,
accurate and balanced disclosure of information
regarding its financial and operational matters.
The Company’s Code of Conduct, Board and
Committee Charters and other key governance
policies and documents are available on its Investor
Website at https://www.kathmanduholdings.
com/investor-centre/corporate-governance/
Continuous disclosure policy
The Company’s Continuous disclosure policy provides
that all Directors, executives and employees are
required to be aware of and fulfil their obligations
in relation to the timely disclosure of material
information. The policy explains the respective roles and
responsibilities, procedures and processes in place to
ensure the Company observes its continuous disclosure
obligations under the NZX Listing Rules. The policy
is available and accessible to all Group employees
and training on its contents is provided regularly.
Financial Reporting
The Audit and Risk Committee oversees the
quality of external financial reporting including
the veracity, comprehensiveness and timeliness
of financial statements. The Company seeks to
provide clear, concise financial statements.
Before the Board approves financial statements for the
Group for a financial period, it receives from the Group
CEO and Group CFO a declaration that, in their opinion:
•
•
•
the financial records of the Group
have been properly maintained;
the financial statements comply with the
appropriate accounting standards and
other applicable laws and regulations;
the financial statements give a true and
fair view of the financial position and
performance of the Group; and
•
that the opinion has been formed on the basis
of a sound system of risk management and
internal control which is operating effectively.
Economic, Environmental and Social Sustainability
The Company recognises the importance of
sharing information about its journey to becoming
a more sustainable business. Across the Group, the
Company is committed to protecting workers’ rights,
minimising waste and lowering the environmental
impacts of the Group’s business operations
through understanding its supply chain.
The Company prepares a separate sustainability
report in accordance with the Global Reporting
Initiative (GRI) Standards framework. It is available
online at https://www.kathmanduholdings.
com/about-us/corporate-responsibility/
Principle 5 – Remuneration
The Remuneration Committee is responsible
for reviewing remuneration packages for the
Group CEO and senior executives and making
recommendations to shareholders in relation
to non-executive Director’s remuneration.
The Remuneration Committee adopts a series
of principles in determining remuneration
related decisions. The principles used are:
• The remuneration structure should reward
those employees who can influence the
achievement of the Group’s strategic objectives
and business plans to enhance shareholder
value for successful Group performance
outcomes and their contribution to these;
•
Executive remuneration should be market
competitive, and generally account for
market practice including consideration
of employee place of domicile;
•
Executives’ remuneration packages should have:
- a substantial portion of their total remuneration
that is “at risk” and aligned with reward
for creating shareholder value,
- an appropriate balance between short and
long-term performance focus and outcomes,
- a mix of cash and equity-based remuneration;
• Due to the Group CEO’s leadership role in
establishing and delivering achievement
of medium and long term Group strategic
objectives and business plans, and increasing
shareholder value over that period, the Group
CEO, relative to other Executives, should have:
- a greater proportion of total remuneration (at
least 50%) that is “at risk”, i.e. contingent upon
the achievement of performance hurdles, and
- a greater proportion of “at risk”
remuneration weighted towards equity-
based rewards rather than cash;
• Short term incentives determined on the basis of
achievement of specific targets and outcomes
relating to annual Group financial performance, and
individual value adding performance objectives; and
•
Long term incentives via participation in the
Company’s Long Term Incentive plan.
• Non-executive Directors’ remuneration should
Short Term Incentives (STI)
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; and
• The Board uses discretion when setting
remuneration levels, taking into account
interests of shareholders, the current market
environment and Group performance.
The current approved pool of remuneration available
for payment to non-executive Directors is AUD
$1,000,000 in aggregate. This was approved by
shareholders at the Annual Meeting on 26 November
2018. In the year ended 31 July 2020, total fees paid to
non-executive Directors amounted to NZD$778,780.81.
Details of the total remuneration and value of
other benefits received by each director from
the Company during the reporting period is
set out on page 89 of this Annual Report.
Remuneration policy
The Company maintains a remuneration policy in
relation to its Directors, executives and employees
which provides for remuneration at fair and reasonable
levels throughout the Group. The purpose of the policy
is to provide for coherent remuneration practices
which enable the attraction and retention of high
calibre individuals who contribute positively to the
achievement of the Group’s strategy and objectives,
and ultimately create value for the Company’s
shareholders. The remuneration of executive and non-
executive Directors is clearly differentiated in the policy.
The Board, through the Remuneration Committee,
undertakes its governance role in setting Group
executive remuneration including, where required,
use of external independent remuneration
consultants and/or available market information.
The Group executive remuneration
structure has three components:
• Base salary and benefits (reviewed annually
to assess appropriateness to the position
and competitiveness within the market);
Group executives are eligible to participate in an
annual STI that delivers rewards by way of cash and/
or deferred equity. Group Earnings before interest and
tax (EBIT), has been determined as the appropriate
financial performance target to trigger payment of STI.
The amount of any STI paid in a year is dependent upon:
a) the level of performance achieved against
the Group’s financial performance
target (EBIT) for the year; and
b) the outcome of individual value adding
performance, measured by achievement of
individual KPI’s, subject to a minimum level of
performance achieved by the Group relative to the
financial performance target (EBIT) for the year.
For Executives where a short-term equity incentive is
earned, vesting is subject to ongoing employment by
the Group for a period of one year following the end
of the financial year in which the incentive is earned.
Long Term Incentive Plan (LTI)
Performance Rights under the Group’s Long-Term
Incentive Plan have been offered each year since
the plan was originally implemented in 2010.
The plan 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 Board
continues to reassess the plan and its structure
to confirm it will best support and facilitate the
growth in shareholder value over the long term
relative to current business plans and strategies.
Performance rights granted to the Group executive
during the reporting period are dependent upon the
Company achieving relative TSR targets over the 36
months from 1 December 2019. TSR is measured on
a relative basis against a comparator group of ASX
listed companies (other than metal and mining stocks)
ranked 101 to 200 in the S&P/ASX200 as at the date of
the grant. Performance rights are granted at nil cost.
Performance measurement is at the end of the
applicable performance period with no ability
to re-test. In respect of rights granted during the
reporting period, the relevant portion of the award
CORPORATE GOVERNANCEANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 86
87
that will vest is determined based on the percentile
ranking of the Company against the comparator
group at the end of the performance period.
Group CEO Remuneration
Group CEO remuneration comprises a mixture of base
salary, STI and LTI:
Group CEO 2020 Remuneration package
Fixed
(Base salary, superannuation)
STI (60% of fixed)
(not achieved for FY20)
LTI (70% of fixed)*
Maximum potential remuneration
A$
$951,510
$570,906
$666,057
$2,188,473
Risk management policy
The purpose of the Company’s risk management
policy is to highlight the risks relevant to the Group’s
operations, and the Company’s commitment to
designing and implementing systems and methods
appropriate to minimise and control its risks.
The Audit and Risk Committee assists the Board
in discharging its responsibility for monitoring risk
management. The Committee is responsible for
establishing procedures which seek to provide
assurance that major business risks are identified,
consistently assessed and appropriately addressed.
This Committee oversees the implementation
of the risk management framework, monitors
its ongoing effectiveness and regularly reports
to the Board. The Audit and Risk Committee
undertook a formal review of the risk management
framework during the reporting period.
* Vesting is dependent on achievement of performance hurdles
measured over a three-year period. Vesting date 1 December 2022
Health and Safety
• More than half (57%) the total remuneration
for the Group CEO is at risk;
• Over 85% of the at-risk remuneration (all
except for the STI KPI’s) is solely dependent on
outcomes of Group financial performance
against short and long term targets, and
• All long-term incentive (70% of Fixed Annual
Remuneration) will be measured on a
single 3-year performance period.
FY20 STI outcomes
For the year ended 31 July 2020 the Group financial
performance targets were not met and as a
result, no short-term cash incentives were paid
to the Group CEO or the Group executive.
Principle 6 – Risk Management
The identification and proper management of the
Group’s material risks is an important priority of the
Board. The Company has a central risk management
framework in place to identify, oversee, manage
and control risks. During the reporting period, work
commenced to bring the Rip Curl brand within the
Group framework. The Board regularly reviews this
framework and the assessments of how the material
risks are impacting its business. The Board recognises
that some element of risk is inherently necessary in
order to achieve the strategic aims for the Group’s
businesses and deliver value to shareholders.
The Company is dedicated to cultivating a strong
safety culture and awareness of health and safety
risks, performance and management within the Group.
The Company has adopted an integrated approach
to safety and wellbeing across the Group, which
recognises that workplace safety, health and mental
health all contribute to an employee’s overall wellbeing.
During the reporting period, work began to bring Rip
Curl within the Group’s existing health and safety
reporting framework and initiatives were commenced
to drive process improvements and education
throughout the regions where the business operates.
The Board receives and reviews detailed
reports on health and safety matters at each
Board meeting from the Brand CEOs.
More information on Health, Safety and
Wellbeing in the Group can be found in the
Company’s sustainability report, a copy of which
is available through the Investor Website.
Principle 7 - Auditors
The Audit and Risk Committee is responsible for
making recommendations to the Board about the
appointment or replacement of, and for monitoring
the effectiveness and independence of, the
Group’s external auditor. The Committee Charter
requires that the external auditor or lead audit
partner is changed at least every five years. The
Committee reviews and assesses the independence
of the external auditor on an annual basis.
The Company’s external auditor is PwC. The audit
partner responsible was appointed in 2018.
The Company does not currently have an internal
audit function. To date, the Company has considered
that the external advisors it currently engages provide
a sufficient system for evaluating and continually
improving the effectiveness of risk management
for the Group and delivers appropriate objective
assurance on risk management. Given the increased
size of the Group following the Rip Curl acquisition,
the Company is currently developing an internal
audit function to be formalised during FY21.
The Company’s external auditor attends the annual
meetings of the Company and is available to answer
any questions from investors relevant to the audit.
Principle 8 – Shareholder
Rights and Relations
The Company is committed to keeping its stakeholders
and owners effectively and comprehensively
informed of all relevant information affecting the
Group in accordance with all applicable laws
and the Company’s communication strategy.
Information is communicated to investors through
the lodgement of all relevant financial and other
information with NZX and ASX, publishing information
on the Company’s Investor Website, annual
shareholder meetings, annual and interim reporting,
analyst and investor briefings and roadshows.
Investor Website
The Company’s Investor Website (www.
kathmanduholdings.com) contains all key
communications concerning the Company and
information about its brands: Kathmandu, Rip Curl
and Oboz. Shareholders can also view profiles of the
Company’s Board and Group Executive Management
team on the Investor Website, along with its key
governance policies, the Charters of the Board
Committees, copies of current and past annual reports
and transcripts of annual shareholder meetings.
All relevant announcements made to the market are
shown on the Company’s Investor Website as soon as
they have been released to NZX and ASX. Investors can
subscribe through the Investor Website to receive an
email alert when a new announcement is lodged.
Communication
The Board encourages investors to communicate
with the Company electronically. Investors can
contact the Company through the Investor
Website at www.kathmanduholdings.com/
contact/. Investors have the option of receiving
their communications, which includes the annual
report, from the Company electronically.
The Company actively engages with its
investors through annual shareholder meetings,
its investor briefings and roadshows, and
meeting with stakeholders on request.
Approach to seeking additional equity capital
The Board acknowledges Recommendation 8.4 of the
NZX Code which suggests that where the Company
requires additional equity capital, where practical,
the Board should favour capital raising methods
that provide existing equity security holders with an
opportunity to participate in the offer on a pro-rata
basis. The Board has taken Recommendation 8.4 into
account, along with a number of other factors when
considering options for the capital raisings undertaken
during the reporting period. The Company raised
capital via a 1 for 4 pro-rata accelerated entitlement
offer and vendor placement in October 2019, and a
1.2 for 1 pro-rata accelerated entitlement offer and
institutional placement in April 2020. Ultimately the
Board will choose methods to raise equity, when
needed, which are necessary and desirable to
achieve the best outcomes for the Company in the
context of any anticipated transaction or proposal
for which additional equity capital may be required.
Meetings and voting
Where voting by shareholders on a matter concerning
the Company is required, the Board encourages
investors to attend the shareholders’ meeting or to
send in a proxy vote. All voting at the Company’s
annual shareholder meeting is conducted by
way of poll on the basis of one share, one vote.
The Company’s annual shareholder meeting is held
primarily in New Zealand, and periodically in Australia,
in order to maximise the opportunity for shareholders
to participate. In 2019, the Company began using a
virtual meeting platform for its shareholder meetings
to allow participation where a shareholder is unable
to attend in person. The Company’s notice of
meeting will be available at least 20 working days
prior to the meeting at www.kathmanduholdings.
com/investor-relations/nzx-announcements/
In 2019, the Company held a special meeting to
approve the acquisition of Rip Curl. As a result of
the overall transaction timetable, the Company
was unable to provide 20 working days’ notice to
shareholders. However, the Company provided
as much notice as was practicable in the
circumstances, and more than the minimum period
prescribed under the Companies Act 1993.
CORPORATE GOVERNANCEANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 88
89
Statutory information
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 2020 are as follows:
DAVID KIRK
NZ Rugby Players Association
Forsyth Barr Group Limited and Forsyth Barr Limited
Bailador Investment Management Pty Limited
Bailador Technology Investments Limited (including investee companies)
NZ Performance Horses Limited
Kiwi Harvest Limited
Sydney Festival
Lord Howe Island Board
JOHN HARVEY
Stride Holdings Limited
Stride Investment Management Limited
Stride Property Limited
Investore Property Limited
Heartland Bank Limited
Pomare Investments Limited
Napier Port Holdings Limited
Port of Napier Limited
Chairman
Chairman / Director
Managing Partner
Chairman
Director
Chairman
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Resource Coordination Partnership Limited
Advisor to the Board
ANDREA MARTENS
ADMA – Australian Data Driven Marketing Association
CEO
PHILIP BOWMAN
Sky Network Television Limited (effective 1 September 2019)
Majid al Futtaim Properties LLC
Tegel Group Holdings Limited
Ferrovial SA
Atropos SCI
Better Capital PCC Limited
Vinula Pty Ltd
Vinula Superfund Pty Ltd
Tom Tom Holdings Inc
Majid al Futtaim Capital LLC
Majid al Futtaim Holdings LLC
BRENT SCRIMSHAW
Enero Group Limited (effective 1 July 2020)
Rhinomed Limited
Catapault Group International Limited
Melbourne International Festival of the Arts Limited
Chairman
Chairman
Chairman
Director
President Directeur Generale
Director
Director
Director
Director
Director
Director
CEO
Director
Director
Director
Directors’ Remuneration and Other Benefits
During the year, the Directors and former Directors of the Company received the following remuneration and other
benefits, which were approved by the Board:
Director
David Kirk
Philip Bowman
John Harvey
Andrea Martens
Brent Scrimshaw
Sandra McPhee (retired)
Xavier Simonet
Total Remuneration
Other benefits
NZD $237,980
NZD $131,333
NZD $124,706
NZD $131,333
NZD $131,333
NZD $22,096
None
None
None
None
None
None
NZD $931,773.95
$22,956 (superannuation)
Employee Remuneration
During the year ended 31 July 2020 a number of employees or former employees, not being Directors of
the Company, received remuneration and other benefits that exceeded NZ$100,000 in value as follows:
Remuneration
Number of Employees
Remuneration
Number of Employees
NZD$
100,000
110,000
120,000
130,000
140,000
150,000
160,000
170,000
180,000
190,000
200,000
210,000
220,000
230,000
250,000
260,000
270,000
280,000
300,000
NZD$
110,000
120,000
130,000
140,000
150,000
160,000
170,000
180,000
190,000
200,000
210,000
220,000
230,000
240,000
260,000
270,000
280,000
290,000
310,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NZD$
310,000
320,000
330,000
340,000
350,000
360,000
370,000
380,000
400,000
440,000
450,000
470,000
480,000
510,000
590,000
630,000
680,000
790,000
880,000
1,080,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NZD$
320,000
330,000
340,000
350,000
360,000
370,000
380,000
390,000
410,000
450,000
460,000
480,000
490,000
520,000
600,000
640,000
690,000
800,000
890,000
1,090,000
23
16
22
9
15
16
6
2
5
7
4
6
2
2
1
1
1
3
2
1
2
4
2
2
2
1
1
1
2
1
2
1
1
1
1
1
1
1
1
Donations
During the year, the Group has made total donations of NZD$159,938.
STATUTORY INFORMATIONANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 90
91
Directors’ Details
Principal Shareholders
David Kirk Chairman, Non-Executive Director
Xavier Simonet Managing Director and Group Chief Executive Officer
The names and holdings of the twenty largest shareholders as at 7 September 2020 were:
John Harvey Non-Executive Director
Philip Bowman Non-Executive Director
Brent Scrimshaw Non-Executive Director
Andrea Martens Non-Executive Director
Sandra McPhee Non-Executive Director (retired 27 September 2019)
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 2020.
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 2020, are included in the relevant bandings for remuneration disclosed on the previous page.
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 (or the legal equivalent in various jurisdictions) of subsidiary companies at
31 July 2020, and those who ceased to hold office during the year ended 31 July 2020, are as follows:
Company
Director / Office Holder
Company
Director / Office Holder
Milford Group Holdings Limited
Kathmandu Limited
Kathmandu (U.K.) Limited
Reuben Casey, Xavier
Simonet, Chris Kinraid
Rip Curl Canada Inc
Anthony Roberts and
Nick Russell
Rip Curl Japan
Ietoshi Ueda
Kathmandu Pty Limited
Barrel Wave Holdings Pty
Limited
Reuben Casey, Xavier
Simonet, Chris Kinraid,
Anthony Roberts (appointed
3rd February 2020)
Onsmooth Thai Co Ltd
PT Jarosite
Kathmandu US Holdings LLC
Xavier Simonet,
Reuben Casey
Oboz Footwear LLC
Amy Beck
Rip Curl Europe S.A.S
Michael Daly and
Anthony Roberts
Rip Curl Spain SA Unipersonal
Rip Curl UK Ltd
Rip Surf Artigos De Desporto
Unipessoal LDA
Rip Curl Germany GmbH
Rip Curl Italy SRL
Rip Curl Suisse S.A.R.L
Anthony Roberts
Rip Curl Nordic AB
Rip Curl, Inc
Rip Curl International Pty Ltd
Rip Curl Proprietary Limited
RC Airports Pty Ltd
Rip Curl Finance Pty Ltd
Rip Curl Group Pty Ltd
Rip Curl Investments Pty Ltd
Bondi Rip Pty Ltd
Bluesurf Pty Ltd
Curl Retail No 1 Pty Ltd
JRRC Rundle Mall Pty Ltd
Ozmosis Pty Ltd
RC Chermside Pty Ltd
RC Surf Sydney Pty Ltd
RC Surf Pty Ltd
RC Surf South Pty Ltd
Rip Curl Airport and
Tourist Stores Pty Ltd
Surf Odyssey SARL
Xavier Barjou
50% subsidiary interests:
RC Surf NZ Limited
Paul Pedersen and
Anthony Roberts
Rip Curl Brazil LTDA
Carla Trindade
Rip Curl (Thailand) Co. Ltd
Sermchai Putamadilok
Anthony Roberts, Duncan
Stewart, Michael Daly
James Hendy, Anthony
John Roberts, Jeffry Robert
Anderson, Francois Jean
Payot
Mathieu Lefin and
Isabelle Espil
Mathieu Lefin
Mathieu Lefin and
Julien Haueter
Mathieu Lefin, Alois Bersan
and Isabelle Espil
Name
NEW ZEALAND CENTRAL SECURITIES DEPOSITORY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
BRISCOE GROUP LIMITED
CITICORP NOMINEES PTY LIMITED
NEW ZEALAND DEPOSITORY NOMINEE
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
FNZ CUSTODIANS LIMITED
PT BOOSTER INVESTMENTS NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
JASMINE INVESTMENT HOLDINGS NO 6 LIMITED
FORSYTH BARR CUSTODIANS LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
LONDEE PTY LIMITED
BUTTONWOOD NOMINEES PTY LTD
HAILONG INVESTMENTS PTE LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
LONEE PTY LIMITED
Directors’ Shareholdings
Ordinary Shares
%
228,533,369
32.23
54,401,647
50,167,446
48,007,465
39,058,166
26,814,538
17,304,888
15,062,444
11,625,195
7,063,307
6,912,263
6,476,481
5,950,629
4,517,995
4,434,704
3,744,000
3,696,339
3,582,136
3,119,924
2,956,845
7.67
7.08
6.77
5.51
3.78
2.44
2.12
1.64
1.00
0.97
0.91
0.84
0.64
0.63
0.53
0.52
0.51
0.44
0.42
Directors held interests in the following ordinary shares of the Company at 31 July 2020:
Director
Nature of interest
Number held at
31 July 2019
Acquired
Disposed
David Kirk
Philip Bowman
John Harvey
Xavier Simonet
Beneficially owned
Beneficially owned
Beneficially owned
Beneficially owned
68,955
0
58,508
423,725
674,381
150,000
102,389
889,008
-
-
-
-
Total held at
31 July 2020
743,336
150,000
160,897
1,312,733
STATUTORY INFORMATIONANNUAL REPORT 2020KATHMANDU HOLDINGS LTD 92
93
Xavier Simonet held the following interests in convertible financial products in the Company at 31 July 2020 due to
his participation in the Kathmandu Holdings Limited Long Term Incentive Plan for Employees in his capacity as Group
Chief Executive Officer.
Executive Director – Xavier Simonet
Nature of interest
Number granted Grant Date Vesting Period Vesting Date
Total Fair Value of Performance
Rights at Grant Date $
NZX Class Waivers Relied on
During the year, the Company relied on the Class Rulings and Waivers granted by NZX Regulation
on 19 March 2020 and 26 March 2020 from the NZX Listing Rules in relation to accelerated non-
renounceable entitlement offers and placements. In addition, the Company was granted a waiver
by NZX Regulation on 27 March 2020 that permitted it to release its half year results for the six
months ended 31 January 2020 no later than 75 days after the end of the half year period.
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, provides 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.
Performance Rights
Performance Rights
Performance Rights
276,372
9 Jul 20
204,739
20 Dec 18
292,809
20 Dec 17
3 years
3 years
3 years
1 Dec 22
1 Dec 21
1 Dec 20
No other directors held interests in convertible financial products of the Company at 31 July 2020.
Performance rights granted 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.
Distribution of Shareholders and Holdings
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
Number of Holders
%
Number of Ordinary Shares
4,419
6,113
2,174
2,760
203
15,669
28.2%
39.0%
13.9%
17.6%
1.3%
100%
2,851,120
16,063,941
16,829,809
76,581,995
596,674,519
709,001,384
666,057
387,736
488,420
%
0.4%
2.3%
2.4%
10.8%
84.2%
100%
The details set out above were as at 7 September 2020.
Substantial Product Holders
The substantial product holders of ordinary shares (being the only class of quoted voting products) of the Company
and their relevant interests as at 31 July 2020, were as follows:
Yarra Capital Management
Harbour Asset Management Limited
Briscoe Group Limited
Accident Compensation Corporation
New Zealand Superannuation Fund Nominees Limited
As at 31 July 2020, the Company had 709,001,384 ordinary shares on issue.
Ordinary Shares
72,436,067
50,329,611
48,007,465
44,673,660
35,858,935
%
10.22
7.10
6.77
6.30
5.06
STATUTORY INFORMATIONANNUAL REPORT 2020KATHMANDU HOLDINGS LTD
94
Directory
The details of the Company’s principal administrative and registered office in New Zealand is:
223 Tuam Street
Christchurch Central
PO Box 1234
Christchurch 8011
Share Registry
In New Zealand:
Link Market Services (LINK)
Physical Address:
Postal Address:
Level 11, Deloitte Centre,
80 Queen Street, Auckland 1010
New Zealand
PO Box 91976,
Auckland, 1142
New Zealand
Telephone:
Investor enquiries:
Facsimile:
Internet address:
+64 9 375 5999
+64 9 375 5998
+64 9 375 5990
www.linkmarketservices.co.nz
In Australia:
Link Market Services (LINK)
Physical Address:
Postal Address:
Level 1, 333 Collins Street
Melbourne, VIC 3000
Australia
Locked Bag A14
Sydney, South NSW 1235
Australia
Telephone:
Investor enquiries:
Facsimile:
Internet address:
+61 2 8280 7111
+61 2 8280 7111
+61 2 9287 0303
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.
STATUTORY INFORMATION
kathmanduholdings.com