1H FY19 Results Presentation - March 2019 - Kathmandu Holdings
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1H FY19 Results Presentation March 2019
1H FY19 results summary
» Group Sales up 13.3% to NZD $232.0m
Trading » Gross margin improvement in AU +60 bps and NZ +50 bps, North America -40 bps
» Operating expenses reduced by 1.8% as a percentage of sales
» Normalised EBIT up 10.0% to $19.8m; reported EBIT $20.9m
Earnings » Normalised NPAT up 7.3% to $13.2m; reported NPAT $14.0m
Inventory $130m includes $18m to support International, plus early 2H FY19 deliveries
Balance Sheet »
» Operating cashflow -$16.2m
Cash Flow » Interim dividend NZ 4 cents per share
» North America 1H FY19 sales $28.7m and EBIT $3.7m
North » Oboz pro forma sales growth 1H FY19 +38.6% YOY, and EBIT growth +77.1% YOY
America » Acquisition earn-out target achieved
2
Contents 1. Strategy update
2. Result overview
3. Key line items
4. Segment results
5. Balance Sheet, Cash Flow, Dividend
6. Summary
7. Questions
A. Appendices
3
1. Strategy update
4
Strategy
Transformation from a leading Australasian retailer to a
brand-led global multi-channel business
Focus on: Transform through:
» Superior customer experience » Accelerate growth opportunities
» Authentic and inspirational brand » Diversify brand, channel, product
» Distinctive product » Operating efficiencies
5
Superior customer experience
Customer-centric in everything we do:
» Channel agnostic strategy
» Create a seamless customer multi-channel experience
» Elevate visual merchandising and product presentation
» Enhance the customer service experience and staff
product knowledge
Update:
» Over two million active Summit Club members, contributing
over 75% of direct to consumer sales. This provides future
opportunities to engage with our loyal customer base
» Online re-platform launched Feb 19, enabling future
enhancement of the customer experience, and development of
fulfilment options
» Customer experience in our Australasian store network
continues to be improved through refurbishments, relocations
and new stores as opportunities arise
6
Authentic and inspirational Brand
Authentic and inspirational:
» New Zealand heritage with deep roots
» Elevate brand distinctiveness through product
design and innovation
» Focus on our expertise in adventure travel
» Inspire our customers and engage with our
Summit Club members, leveraging social media,
digital, and exclusive events
Update:
» Brand association improving as a result of the “World Ready”
brand campaign
» 34% increase in Summit Club participation in volunteering, run
clubs, adventure sponsorship, and international treks
» Social media reach increased by 33%, with an increasingly
global audience
» Successful sponsorship of the Coast to Coast, one of New
Zealand’s most iconic multisport events
7
Distinctive Product
We design original, sustainable, engineered and adaptive products:
» Recycled materials: REPREVETM helps us divert plastic bottles from going into landfill by upcycling
them into fabric. This year we are on track to recycle at least 7.5 million plastic bottles across many
equipment and apparel products
» Stockton jacket: made of three layers of recycled materials. Includes our very first bio-based waterproof
membrane partly derived from corn. This is a sustainable alternative to traditional waterproof membranes
which are typically made using fossil fuels
8
Oboz
Update:
Oboz growth strategy:
» Fastest growing major hike footwear brand at REI, North
» Grow North America customer base in a controlled way
America’s largest outdoor retailer
» Expand into adjacent footwear categories
» Fastest growing footwear brand in Kathmandu stores
» Improve Oboz representation within the Kathmandu
» Amy Beck appointed as President of Oboz / Kathmandu
Australasia retail footprint
North America
» Grow International business by leveraging Oboz and
» Oboz founder John Connelly to continue as brand
Kathmandu customer relationships
ambassador
9
International
International growth:
» Build a sustainable business that delivers profitable growth
» Commitment to capital light model
» Controlled distribution through wholesale and online
» Develop brand equity through authentic outdoor channels
» Focus on long term partnerships
» Leverage our New Zealand heritage, expertise in adventure
travel and sustainability focus
Update:
» For northern hemisphere Autumn/Winter 2019, initial orders
received from several new European and North American
outdoor retailers, including trials with REI (North America) and
Blacks (UK)
» We delivered increased sell through at GO Outdoors (UK) in
Autumn/Winter 2018. They are now rationalising their SKU
range and suppliers. KMD products will only be available online
from Autumn/Winter 2019 for GO Outdoors
102. Result overview
11Result overview
NZD $m*1 1H FY19 1H FY18 Var $ Var %
SALES 232.0 204.8 27.2 13.3% » North America sales contribution $28.7m
GROSS PROFIT 141.9 129.7 12.2 9.4% » Excluding North America, sales increased
Gross margin 61.2% 63.3%
+1.3% at constant exchange rates
OPERATING EXPENSES (114.3) (104.6) 9.7 9.3%
% of Sales 49.3% 51.1%
EBITDA NORMALISED*2 27.6 25.1 2.5 10.0%
EBITDA margin % 11.9% 12.3%
EBIT NORMALISED*3 19.8 18.0 1.8 10.0% » North America contribution to Group EBIT
EBIT margin % 8.5% 8.8% $3.7m
NPAT NORMALISED 13.2 12.3 0.9 7.3%
NPAT REPORTED 14.0 12.3 1.7 13.8%
1. 1H FY19 NZD/AUD conversion rate 0.938 (1H FY18: 0.911), 1H FY19 NZD/GBP conversion rate 0.525 (1H FY18: 0.532), 1H FY19 NZD/USD conversion rate 0.663
2. Normalised results exclude $1.1m abnormal income from a tax refund relating to the GST treatment of reward vouchers ($0.8m after tax). Refer to Appendix 1 for a
reconciliation to statutory financial statements
3. EBIT YOY exchange rate translation impact in 1H FY19: -$0.4m (1H FY18 +$0.7m)
4. Rounding differences may arise in totals, both $ and %
123. Key line items
Sales
SALES: +13.3% to $232.0m Group Sales (NZD $m)
» Sales growth by geography (at constant exch. rates): 4yr CAGR 6.6%
» AU +2.7% 232.0
204.8
» NZ -1.9% 179.4
196.0 196.3
» Rest of World -1.9%
» North America (Oboz pro forma) +38.6%
» Sales growth by channel (at constant exch. rates):
» Retail stores +1.1%
» Online +2.4% 1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
» Wholesale pro forma +38.2%
» Online sales 9.5% of direct to consumer sales over the
last 12 months
Australia (AUD $m) New Zealand (NZD $m)
4yr CAGR 5.2% 4yr CAGR -0.8%
114.2 120.8 125.3 128.7
104.9
65.2 68.2 68.7 64.3 63.1
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19 1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
1. Country sales totals exclude inter-company sales
14Same Store Sales result
SAME STORE SALES: flat at constant rates Australia New Zealand
» Flat at constant exchange rates 5.0% 4.8%
4.3%
3.1%
» Stores -0.2% 0.9% 1.9% 1.2% 1.2%
» Online +2.7%
-2.2%
» -2.0% actual exchange rates
-6.3%
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
GROUP - Actual Rates GROUP - Constant Rates
5.8%
3.8% 3.4%
2.7% 2.7%
0.6% 0.6% 0.0%
-0.8%
-2.0%
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
1. Measurement period 1H FY19: 26 weeks ended 27 January 2019 compared to 26 weeks ended 28 January 2018
2. Same store sales measurement includes Online and all stores from their 53rd week of trading
15Gross Margin
GROUP
» Retail gross margin long-term target range 61% to 63% remains unchanged
62.8% 63.3%
61.6% 61.2% » 1H FY19 retail gross margin 64.2%. Gross margin improvement from less
59.3% promotional discounting leading to a higher average selling price
» 2H FY19 promotional plan and margin pressure expected to deliver lower
gross margin YOY in AU and NZ
1H FY19 SHARE OF BUSINESS
(GROSS PROFIT $)
AU NZ NORTH AMERICA
64.6% 63.6% 65.4% 66.0% New
61.4% 60.2% 60.2%
58.2% 59.7% Zealand
56.0% 27%
39.5% North Australia
America 64%
8%
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19 Rest of World
1%
16Cost of doing business
OPERATING EXPENSES: +9.3% to $114.3m NZD $m 1H FY19 1H FY18 Var $ Var %
» Channel diversification into wholesale delivering Rent 34.4 33.2 1.2 3.6%
overall operating cost structure improvement % of Sales 14.8% 16.2%
» Incremental operating expenses from Oboz $7.3m Other operating expenses 79.9 71.4 8.5 11.9%
including $0.6m Kathmandu North America setup % of Sales 34.5% 34.9%
investment
Total operating expenses*1 114.3 104.6 9.7 9.3%
» Rent increases continue to be challenged with % of Sales 49.3% 51.1%
landlords
Depreciation 7.8 7.1 0.7 9.9%
» Retail labour wage rate increases being balanced % of Sales 3.4% 3.5%
with sales growth expectations
Cost of doing business 122.1 111.7 10.4 9.3%
» Online fulfilment labour realising the efficiency % of Sales 52.7% 54.5%
benefits of infrastructure investment
1. 1H FY19 reported total operating expenses would be $2.1m higher if reported at constant exchange rates
2. Rounding differences may arise in totals, both $ and %
17Earnings summary
EBITDA*1 $27.6m EBIT*1,2 $19.8m NPAT*1 $13.2m
+10.0% +10.0% +7.3%
27.6
25.1
21.9 21.5 19.8
18.0
15.1 14.8 13.2
10.0 12.3
9.4
6.8
0.6
-1.8
1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19
EBITDA % EBIT % NPAT %
3.8% 11.2% 11.0% 12.3% 11.9% 0.3% 7.7% 7.5% 8.8% 8.5% 4.8% 5.1% 6.0% 5.7%
1. Normalised results exclude $1.1m abnormal income from a tax refund relating to the GST treatment of reward vouchers. Refer to Appendix 1 for a
reconciliation to statutory financial statements
2. EBIT YOY exchange rate translation impact in 1H FY19: -0.4m (1H FY18 +$0.7m)
184. Segment results
Australia
SALES: +2.7% to $128.7m AUD $m 1H FY19 1H FY18 Var %
» Gross margin increased 60bps / 0.6% of sales Sales 128.7 125.3 2.7%
» Total operating expenses (incl. depreciation): Same store sales growth 1.2% 1.9%
» 1H FY19 60.0% of sales
» 1H FY18 59.5% of sales EBIT (trading result)*2 7.7 7.4 4.1%
» 3 stores opened EBIT margin % 6.0% 5.9%
» 2 stores closed Store count 119 116
» 5 stores refurbished
EBIT (trading result) AUD $m
7.4 7.7
4.6 4.1
-0.8
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
20New Zealand
SALES: -1.9% to $63.1m NZD $m 1H FY19 1H FY18 Var %
» Gross margin increased 50bps / 0.5% of sales Sales 63.1 64.3 -1.9%
» Total operating expenses (incl. depreciation): Same store sales growth -2.2% -6.3%
» 1H FY19 45.6% of sales
» 1H FY18 42.0% of sales EBIT (trading result)*2 9.2 11.4 -19.3%
» 2 stores refurbished EBIT margin % 14.6% 17.7%
Store count 48 47
EBIT (trading result) NZD $m
12.1 12.3 11.4
9.2
5.5
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
21North America
OBOZ (NZD $m) pro forma 1H FY19 1H FY18 Var % NORTH AMERICA (NZD $m) 1H FY19
Sales 29.2 21.0 38.6% Sales*1 28.7
Gross margin % 39.3% 39.7% EBIT (trading result)*2 3.7
EBIT 4.7 2.7 77.1% EBIT margin % 12.9%
EBIT margin % 16.2% 12.7%
» Oboz 1H FY19 pro forma sales growth 38.6%, EBIT growth 77.1%
» EBITDA earn-out target USD $7.1m to December 2018 achieved
» Oboz expected to be neutral to Group earnings per share (EPS) in FY19,
and EPS accretive in FY20
» North America contribution to 1H FY19 Group EBIT $3.7m made up of:
» Oboz pro forma EBIT $4.7m, less
» amortisation of customer relationship recognised on acquisition -$0.4m
» Kathmandu Wholesale North America set-up investment -$0.6m
1. Oboz intercompany sales $0.6m eliminated. Includes US website sales $0.1m
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
3. Rounding differences may arise in totals, both $ and %
22Rest of World
SALES: NZD $3.0m in line with last year NZD $m 1H FY19 1H FY18 Var %
» Direct to consumer sales $1.8m, c. 60% of total Sales 3.0 3.0 -0.4%
sales
EBIT (trading result)*2 0.1 (0.2)
» Wholesale $1.2m, c. 40% of total sales
EBIT margin % 4.9% -6.9%
» Gross margin improvement in both wholesale
and direct to consumer channels Store count 1 1
» Total operating expenses (incl. depreciation):
» 1H FY19 49.9% of sales
» 1H FY18 54.7% of sales
EBIT (trading result) NZD $m
» Reduced promotional and labour costs 1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
0.1
-0.4 -0.2 -0.2
-2.8
1. Rounding differences may arise in totals, both $ and %
2. A reconciliation of EBIT (trading result) to the financial statements is included in Appendix 2
235. Balance Sheet, Cash Flow, Dividend
24Balance Sheet
Stock Turns Balance Sheet (NZD $m) 1H FY19 1H FY18
1.87x 1.84x Inventories 130.1 84.2
1.58x 1.57x 1.62x
Property, plant and equipment 60.9 64.2
Intangible assets 384.6 283.1
Other assets 37.7 6.2
Total assets (excl. cash) 613.3 437.7
1H FY15 1H FY16 1H FY17 1H FY18 1H FY19
Net interest bearing liabilities and cash 79.2 17.0
Other non-current liabilities 0.0 0.1
» Inventory increase to support Kathmandu International,
Current liabilities 132.5 93.0
inclusion of Oboz, and early deliveries of core styles for
Autumn and Winter Total liabilities (net of cash) 211.7 110.1
» Clearance stock in line with last year Net assets 401.6 327.6
» Oboz acquisition during FY18 added c. $60m to net debt Key Ratios 1H FY19 1H FY18
Stock Turns*1 1.84x 1.87x
Net Debt to Equity*2 16.5% 4.9%
1. COGS (rolling 12 months) / Average Inventories YOY
2. Net Debt / (Net Debt + Equity) Fixed Charge Cover*3 2.28x 2.09x
3. (EBITDA + Rent)/(Rent+ Net Finance Costs excl. FX)
4. EBIT/(Net Debt + Equity) ROIC*4 16.1% 17.5%
5. Rounding differences may arise in totals, both $ and %
25Cash Flow
Operating cash flow -$16.2m: Cash Flow (NZD $m) 1H FY19 1H FY18
» Change in working capital includes the increase in
NPAT 14.0 12.3
inventory, and timing of supplier and tax payments
Change in working capital (39.8) (3.5)
Change in non-cash items 9.6 8.1
Capital expenditure $7.0m:
» Stores $4.6m Operating cash flow (16.2) 16.9
» 3 new stores
» 7 refurbishments
» Systems and Infrastructure $2.0m Key line items:
» Online platform upgrade Net interest paid (including facility fees) (1.4) (0.8)
» North America $0.4m Income taxes paid (15.3) (9.8)
Capital expenditure (7.0) (8.7)
Dividends paid (24.8) (18.2)
Increase/(Decrease) in borrowings 44.6 9.3
. Rounding differences may arise in totals, both $ and %
26Dividend
Dividends (NZ cents per share)
» NZ 4.0 cents per share interim dividend (1H FY18 NZ 4.0 cps) Interim Final
15
» Dividend will not be imputed for New Zealand shareholders 13
11
» Dividend will not be franked for Australian shareholders
8 11
9
» Record date 7 June 2019 8
5
» Payment date 21 June 2019
3 3 4 4 4
» Final dividend is expected to be fully franked and fully imputed
FY15 FY16 FY17 FY18 FY19
27Foreign currency
FORWARD HEDGING POSITION FY18 FY19 FY20
AUD/USD Effective Rate 0.759 0.764 0.726
NZD/USD Effective Rate 0.709 0.707 0.678
» 1H FY19 USD hedging rates c. 1% above 1H FY18
» 2H FY19 USD hedging rates level with 2H FY18
» 1H FY20 USD hedging rates c. 5% below 1H FY19
» Forward hedging position:
» Longest dated hedges March 2020
» Rolling cover applied 12 months forward
» No hedging NZD/AUD » 1H FY17 -15% » 2H FY17 -4%
286. Summary
29Summary
» By fuelling growth and diversifying our group, the Oboz acquisition has advanced our transformation from a
leading Australasian retailer to a brand-led global multi-channel business
» We have made significant progress to move Kathmandu from being a retailer to being an authentic brand that
designs original, sustainable, engineered and adaptive products
» Notwithstanding the challenging retail environment we are focussed on sales and profit growth in our core
Australasian markets through:
» engaging with and inspiring our customers
» strengthening the Kathmandu brand credentials, emphasising our expertise in travel and adventure and
our New Zealand heritage
» distinctive product
» continued cost control
» In Kathmandu and Oboz, we have two great brands with significant international growth potential
307. Questions
31Appendix 1 – Reconciliation of reported results
1H FY19 1H FY19
NZD $m Abnormals*2
Reported*1 Normalised
SALES 232.0 232.0
GROSS PROFIT 141.9 141.9
Gross margin 61.2% 61.2%
OTHER INCOME 1.1 (1.1) -
OPERATING EXPENSES (114.3) (114.3)
% of Sales 49.3% 49.3%
EBITDA 28.7 (1.1) 27.6
EBITDA margin % 12.4% 11.9%
EBIT*3 20.9 (1.1) 19.8
EBIT margin % 9.0% 8.5%
NPAT 14.0 (0.8) 13.2
1. Per the Kathmandu Holdings Limited Interim Report 2019
2. Abnormals include $1.1m tax refund for GST treatment of reward vouchers ($0.8m after tax)
32Appendix 2 – Reconciliation of segment EBIT trading results
New North Rest of
1H FY19 ($’000) Australia Other Total
Zealand America World
EBIT per financial statements (NZD) 7,649 10,933 3,699 144 (1,501) 20,924
Abnormals*1 (NZD) (1,115) - - - (1,115)
Internal charges not trading related*2 (NZD) 584 (584) - - - -
EBIT (trading result) (NZD) 8,233 9,234 3,699 144 (1,501) 19,809
EBIT (trading result) (local currency) 7,723
New North Rest of
1H FY18 ($’000) Australia Other Total
Zealand America World
EBIT per financial statements (NZD) 8,418 11,118 - (207) (1,325) 18,004
Internal charges at full year allocation basis (773) 773 - - - -
Internal charges not trading related*2 (NZD) 520 (520) - - - -
EBIT (trading result) (NZD) 8,165 11,371 - (207) (1,325) 18,004
EBIT (trading result) (local currency) 7,438
1. Abnormals include $1.1m tax refund for GST treatment of reward vouchers
2. Internal charges not trading related include arm’s length margins charged for internal services
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