KMD BRANDS LIMITED — Annual Report 2021

Oct 18, 2021

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KATHMANDU HOLDINGS LIMITED

Annual Report 2021

Who we are

Kathmandu Holdings Limited (the Company) is a global outdoor, lifestyle and sports company, consisting of three iconic brands: Kathmandu, Rip Curl and Oboz, delivering 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.

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ANNUAL REPORT 2021

INTRODUCTION

KATHMANDU HOLDINGS LTD

Global reach

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North America
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Europe Asia
RC KMD Oboz Total RC Oboz Total
Owned stores 19 - - 19 Licensed stores 46 - 46
Licensed stores 14 - - 14 JV stores 20 - 20
Online sites 1 1 - 2 Online sites 1 - 1
Wholesale doors 2,037 28 114 2,179 Wholesale doors 567 152 719
Africa / Middle East Australia and New Zealand
RC RC KMD Total
Licensed stores 23 Owned stores 106 160 266
Licensed stores 18 - 18
Online sites 2 2 4
Wholesale doors 1,088 - 1,088
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RC KMD Oboz Total
Owned stores 31 - - 31
Licensed stores 13 - - 13
Online sites 1 1 1 3
Wholesale doors 1,353 - 1,863 3,216
TOTAL GROUP
RC KMD Oboz Total
South America
Owned stores 160 160 - 320
Licensed stores 207 - - 207 RC
JV stores 20 - - 20 Owned stores 4
Online sites 6 4 1 11 Licensed stores 93
Wholesale doors 5,958 28 2,129 8,115 Online sites 1
Wholesale doors 913
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RC Rip Curl KMD Kathmandu Oboz Oboz

ANNUAL REPORT 2021

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INTRODUCTION

KATHMANDU HOLDINGS LTD

2021 Highlights

Financial

$922.8m +40 bps

Gross margin improvement

Sales +15.1%

$113.3m

$66.3m

Underlying EBITDA[1] +35.9%

Underlying NPAT[1] Statutory NPAT $63.4m

$93.3m $37.0m

Underlying operating Net cash balance cash flow[1] Bank facility c.$300m

Operational

19.2% 31.3%

Direct to consumer Online sales growth (DTC) same store 12.5% of DTC sales sales growth

We’re out there 76 NPS Successful up 4 points in FY21 brand relaunch 169,000 responses May 2021

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Online Wholesale store Double digit growth in forward wholesale order Successful launch book to record levels April 2021

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1. Statutory results include the impact of IFRS 16 leases. For comparability, the impact of IFRS 16 is excluded from Underlying results. Refer to Appendix 1 of the FY21 Results Presentation for a reconciliation of Statutory to Underlying results.

6 CONTENTS

ANNUAL REPORT 2021

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KATHMANDU HOLDINGS LTD

Contents

Chairman’s letter

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Group CEO review

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ESG across the Group

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Rip Curl

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16 Kathmandu

• 18 Oboz

20 The Board

21 Management team

23 Financial statements

78 Corporate governance 89 Statutory information

Directory

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Notice of Annual Meeting 2021

1.00pm (NZDT) Tuesday 23 November 2021

www.virtualmeeting.co.nz/kmd21

Chairman’s letter

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The Group ended the 2021 financial year in a strong financial position, while continuing to navigate the impacts of the COVID pandemic.

balance sheet, reduce costs and adjust its operating structure.

The Group ended the financial year with a net cash position of $37.0 million. This provides significant funding headroom with a total bank facility of approximately $300 million.

Following the acquisition of Rip Curl in 2019, the Group has three high quality brands, and our results for the 2021 financial year show the benefit of having diversified channels to market, geographies, and product categories.

The strong balance sheet position provides significant flexibility to manage any short-term COVID challenges, support growth investment, and consider potential capital management options.

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David Kirk Chairman

We are excited by the growth prospects of our brands, and are investing in digital infrastructure, our store network and brand initiatives to maximise our opportunities as we look to a post-COVID world.

he will bring the same focus and energy to the wider Group.

Dividend

Refreshed strategy

Following the suspension of dividends last financial year, the directors have declared a final dividend of 3 cents per share. With the 2 cents per share interim dividend, this will make a total payout for the 2021 financial year of 5 cents per share. The final dividend will be fully franked for Australian shareholders, and not imputed for New Zealand shareholders.

Financial results

Under the leadership of Michael Daly, our refreshed Group strategy ensures we are focused on the things that matter most as we move forward: building global brands focused on active outdoor activities, investing in digital platforms to provide consumers with a truly world class unified commerce experience, leveraging the operational excellence of our brands, and leadership in sustainability (“ESG”).

The Group benefited from a full 12 months of Rip Curl ownership in the 2021 financial year, compared to nine months of ownership last year.

Here are the highlights:

• Sales of $922.8 million, an increase of 15.1%;

• Gross margin of 58.7%, an increase of 40 basis points;

People

• Earnings before interest, tax, depreciation, and amortisation of $208.0 million, an increase of 39.2%;

The Board appointed a new Group Chief Executive Officer during the year.

Thank you

The Board would like to thank management and their teams for outstanding resilience and flexibility navigating the ongoing impacts of COVID, allowing the Group to end the financial year well positioned for the future.

Former Group CEO Xavier Simonet resigned after five and a half years with the company. Xavier led the Group through an important period of growth and diversification of the company, including acquisitions of both the Oboz and Rip Curl brands.

• Net profit after tax of $63.4 million, an increase from $8.9 million in the 2020 financial year (which included transaction costs from the Rip Curl acquisition);

• Net cash position of $37.0 million

I would also like to thank my Board colleagues for their continuing commitment to make Kathmandu Holdings successful.

After an extensive international search, the Board appointed Michael Daly as the new Group CEO. Michael led Rip Curl for eight years with a relentless focus on brand, product, people and the bottom line. We are confident

Balance sheet strength

The Group is well positioned, following its fast response during the onset of the COVID pandemic to raise capital to strengthen its

Finally, thank you shareholders for your continued investment in Kathmandu Holdings Limited.

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ANNUAL REPORT 2021

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GROUP CEO REVIEW

KATHMANDU HOLDINGS LTD

Group CEO review

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Kathmandu continued to be impacted this year by ongoing COVID lockdown and travel restrictions. These included Government mandated closures of Australian stores in the key winter trading period, and reduced demand for travel related products. While Kathmandu has felt the impacts of COVID again this financial year, we were pleased with the early momentum following the brand relaunch in May 2021. This relaunch will build on strong brand fundamentals and position Kathmandu to grow to a truly global brand.

Result overview

We are proud of the results we have been able to produce over the past 12 months in the face of ongoing COVID challenges, delivering strong sales and positioning the business for sustained growth. Both of the Group’s acquired brands, Rip Curl and Oboz, are performing above pre-acquisition expectations, validating the Group’s diversification strategy.

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Michael Daly Managing Director and Group Chief Executive Officer

Rip Curl delivered an outstanding result, with sales above preCOVID levels in the key regions of Australasia, North America and Europe. Rip Curl is benefiting from not only increased participation in surfing, but also the brand’s technical product focus and strong consumer engagement.

the Group has three iconic outdoor active brands with significant potential for global expansion. We plan to further expand the global footprint of each of our brands and invest in world class brand and customer experiences.

Refreshed Group strategy

The refreshed Group strategy focuses on four key priorities:

Oboz continues its strong performance, with sales growth reflecting the successful product innovation strategy and diversification of its customer base.

Build global brands

A key growth strategy for the Group is to build a global house of brands. In Rip Curl, Kathmandu, and Oboz,

Elevate digital

We are also investing to elevate the Group’s digital platforms to deliver a truly world-class, unified commerce experience. The Group is implementing foundational common platforms for online and omni-channel, loyalty management, data insights and analysis, and personalisation.

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Leverage operational excellence

We will also leverage and deliver operational excellence to all our brands across shared group support functions. We are working to optimise our supply chain, efficiently manage our fixed cost base, collaborate on product innovation between brands, and investing to enhance core systems to unlock growth potential across

loyalty programs and online. We also plan to accelerate cross-brand revenue growth opportunities.

Lead in ESG

Being a leader in ESG will drive long-term value for shareholders. We are working to extend Kathmandu’s B Corp accreditation across all of our brands. Transparency and responsibility will continue to underpin everything we do, as we manage our environmental and social impact responsibly and ethically.

We are highly engaged with our people and communities, and our ESG strategy starts with the wellbeing of workers in our supply chain. We are setting science based targets that align with the Paris Climate Agreement and our circular business models target a zero-waste supply chain.

People

A key initial priority was to put in place a management structure to build out Group capabilities.

The Group have very experienced and capable leaders for the Kathmandu and Oboz brands in Reuben Casey and Amy Beck respectively. Following my acceptance of the Group CEO position, a thorough search process was undertaken for the new Rip Curl CEO. I was delighted to appoint Brooke Farris as the new Rip Curl CEO. Brooke has contributed greatly to Rip Curl’s success and growth over the past eleven years with her indisputable commitment to the brand, product, and team. I am confident she will bring this same commitment and leadership in her new role.

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to be below the first half of last financial year due to these ongoing COVID impacts.

Our brand CEO’s are also supported by leaders in key Group support functions of systems, ESG, finance, and legal.

The Group is well positioned with a strong balance sheet, significant bank facility headroom, and well controlled inventory. As we continue to proactively manage the impacts of COVID daily, our main priority is to ensure the health and safety of our staff, customers, and suppliers.

I would like to thank the leaders of our brands, Group support functions, and their worldwide teams for their outstanding resilience, flexibility, dedication and passion over the past year. The teams continued to meet the significant ongoing challenges of COVID on both their personal and professional lives, delivering outstanding results given the circumstances.

The Group’s brands are well positioned to capitalise on growing participation in outdoor, beach and surfing activities. We are set to capitalise on opportunities resulting from the global COVID vaccination rollout, as restrictions ease in key growth markets, and international travel restrictions are expected to ease as the 2022 financial year progresses.

Outlook

The 2022 financial year has started with widespread lockdowns throughout Australasia, the Group’s most significant geographical region. In addition, COVID is also impacting our supply chain, with reduced factory capacity stretching lead times, freight congestion leading to delivery delays and increased freight costs.

I’m excited by the platform we have in place to build a truly global house of brands to deliver sustainable long-term growth for our team members, retail consumers, wholesale customers and shareholders.

Our profit for the first half of the 2022 financial year is expected

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ESG ACROSS THE GROUP

ESG across the Group

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Identifying our material ESG issues

The Group’s progress in relation to Environmental, Social and Governance (“ESG”) issues this year has been driven by combining the strength of each of our brands to create a stronger Group.

Through aligning our supplier Code of Conduct and bringing all three brands under the Elevate supplier auditing programme, we have raised the bar across all three brands with one stroke.

The Company undertook its first group-wide ESG materiality assessment during the 2021 financial year. We now have a clear understanding of what is most important to the people our brands touch. This guides us on where to focus our work. Our priorities are:

loan is tied to ESG targets. If the targets are met, the interest rate on the loan decreases.

“This is only the start. Right now, it is early adopters getting in on these loans, but I can imagine that, in 10 years’ time, targets might be a requirement for all funding.”

• Our people, our communities

• Science based climate action

Kathmandu Chief Financial Officer Chris Kinraid says linking borrowing to ESG targets helps make sure that even the finance team has skin in the game when it comes to sustainability.

• Circular business models.

A key priority for the Group is to provide industry leadership in ESG, particularly on circular economy principles and transparency through its supply chains. The Group’s objective is to continue to lead in ESG, by developing a family of outdoor brands that strive to make a positive impact for people and planet.

Kathmandu has set targets around emissions reductions, science-based targets, supplier wellbeing and achieving B Corp certification for Rip Curl and Oboz.

“A sustainability linked loan helps us drive accountability internally. We set targets that are aligned to our strategy and then these are verified by a third party to make sure we have set sufficiently difficult targets,” Chris says.

“This loan helps improve our transparency on these targets and how easily we are able to achieve them,” says Chris. “If we reduce our costs by hitting the targets, we can reinvest that money in new initiatives.

New link between sustainability and finance

The Kathmandu loan was more complex because it is a syndicated loan, requiring cooperation from seven different lenders. Although sustainability linked funding is new, it is a growing trend.

It’s a good process for the finance department to be able to play a part in achieving the Group’s sustainability goals.”

In May this year, Kathmandu Holdings Limited secured New Zealand’s largest sustainability linked loan. The A$100 million

Our ESG focus areas

Science based climate action

Our people, our communities

• People-centred culture and workplaces

• • Set group-level science

• and workplaces based targets aligned

• • Wellbeing of workers with the Paris Climate in our supply chain Agreement.

• Engage, inspire and protect our wider community.

For more information, refer to the Kathmandu Holdings Limited 2021 Sustainability Report.

Circular business models

• Design for circularity throughout our value chain

• Target a zero waste supply chain.

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ANNUAL REPORT 2021

ESG ACROSS THE GROUP

KATHMANDU HOLDINGS LTD

Group CEO Michael Daly reflects on the progress Rip Curl has made this year.

Our transition from private to public company under the ownership of the Kathmandu Holdings umbrella has challenged us to be more open and to push ourselves harder on sustainability and social measures.

formal and more coordinated this year – thanks in part to the fact that we have created a new department to oversee our ESG work. This new four-person team shows our commitment to making big strides in this area.

recycling neoprene offcuts and launched wetsuit hangers made from ocean plastics. We started tracking our carbon footprint for the first time.

We’ve updated our supplier code of conduct and aligned our supply chain work with our sister company Kathmandu.

We’ve opened up the business to new levels of transparency and continued to innovate internally.

I’ve been very proud of the way our team has risen to that challenge over the last 12 months. Although Rip Curl has always done work for its community and environment, I feel that our efforts have become more

We’ve learned a lot this year, and we have more to learn – which is why our partnership with the other brands in our family is so important.

This year saw the launch of an important step towards circularity with our wetsuit takeback programme. We started

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For more information, refer to the Kathmandu Holdings Limited 2021 Sustainability Report.

1. Committed to largest syndicated sustainability linked loan at time of signing; 2. Certified carbon zero under the Toitu CarbonZero programme for our operation footprint. Scope 1,2 and mandatory scope 3 emissions; 3. Leather sourced from Leather Working Group tanneries; a not-for-profit organisation responsible for a leading environmental certification for the leather manufacturing industry.

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Oboz President Amy Beck looks back on a year of groundwork and planning.

This year, the Oboz journey was about taking steps toward B Corp certification, embarking on our first-ever materiality assessment and our first carbon audit.

This work helps us understand where we have the most impact and where we need to focus our improvements – knowledge that will become the basis for our first proper sustainability strategy.

Our first materiality assessment was completed this year. We quickly realised this process provided us a deep understanding of what issues are most important to our brand and the people who are impacted by our actions.

In fact, Oboz sustainability work is assessed each year by major retail partner REI. We scored well this year, especially in areas related to core practices, chemical management and packaging.

We engaged a sustainability consultant to help us pull together our three-year plan. What has become most clear is that our team is passionate about sustainability – every single person included these measures in their key performance indicators. The next step is to give them the knowledge and tools to make a difference.

Despite the challenges of the past year, we’ve hired 12 new people, bringing our workforce to 57% women.

I’m excited for the future at Oboz. We’ve laid the groundwork for big strides in the coming years – from how we treat each other and our partners to our impact on climate change and the world.

Kathmandu CEO Reuben Casey explains how the company’s new brand purpose, mission and values better reflect its past and its vision for the future.

We’ve redefined our vision to be the world’s most loved outdoor brand. This speaks to our aspirations to be a global brand but also about creating an emotional connection with our customers, with our team and with all the people our brand touches.

love what we do. We love each other’s company. And especially for our store teams, this is a value that guides our interactions with customers.

Open is about being open to diversity, which is reflected in our Rainbow Tick certification. We operate in a very diverse society and our team is quite diverse, so this value is about being open to our differences and open to new ideas.

Part of being a certified B Corp is looking at how we can benefit everyone that our brand comes into contact with from suppliers to customers.

Our vision, purpose and values all fit together to make up our why and our focus point or North Star.

Our new brand purpose is to improve the wellbeing of the world through the outdoors. This purpose resonates with our brand heritage. All the way back to the days of our “Live the dream” tagline, Kathmandu has always been about having fun in the outdoors, having a go and travelling the world.

Our values show up in our new partnerships with Beyond Blue and the Graeme Dingle Foundation – organisations that help people access the wellbeing benefits of the outdoors.

We’ve also refined our values to three simple words: courageous, joyful and open. Courageous is about doing the right thing even when it’s hard. Courageous also speaks to sustainability – looking for solutions to more-sustainable products and more-ethical supply chain practices.

Other things we’re doing around carbon emissions and sustainable materials also ladder up to that purpose. It’s a useful framework for setting goals.

I feel like we’ve finally got the words to reflect what’s really happening here at Kathmandu. I feel it adds authenticity and meaning to the work we’re doing.

Joyful acknowledges the passion of our team. We

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RIP CURL

KATHMANDU HOLDINGS LTD

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.

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.

Made by surfers for surfers, Rip Curl’s vision is to be regarded as the Ultimate Surfing Company in all that we do.

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ANNUAL REPORT 2021
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TOTAL SALES ONLINE SALES NZD NZD $490.4m $33.5m

Representing 12.5% of direct to consumer sales.

CHANNELS

160 owned stores

6 direct to consumer websites

5,958 wholesale doors

207 licensed stores

20 JV stores

FY21 SALES MIX

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Other
Rest of World
1%
9%
Europe
18%
BY BY
Wholesale AU & NZ
43% CHANNEL REGION 48%
Retail
Stores
49% North
America
Online 25%
7%
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ANNUAL REPORT 2021

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KATHMANDU HOLDINGS LTD

KATHMANDU

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Kathmandu is a leading global outdoor lifestyle brand whose journey began in Aotearoa over thirty years ago.

We’re on a mission to improve the wellbeing of the world by getting more people ‘out there’ in nature. The outdoors has a positive transformative effect on all of us. It makes us more happy, open, free and fun. When we spend time out there our stress goes down, our empathy goes up, we become more creative and we feel happier.

That’s why we’re all about creating the best, sustainably made outdoor gear – to get more people to experience nature’s benefits more often.

Kathmandu’s vision is to be the worlds most loved outdoor brand.

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TOTAL SALES ONLINE SALES NZD NZD $354.0m $56.8m

Representing 15.8% of direct to consumer sales.

FY21 SALES MIX

CHANNELS

160 owned stores

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Online
16%
BY
CHANNEL
Retail
Stores
84%
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4 direct to consumer websites

28 wholesale doors

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BRAND
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2.1m active Summit Club members

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KATHMANDU HOLDINGS LTD ANNUAL REPORT 2021

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OBOZ

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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.

A vision that began fourteen 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.

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TOTAL SALES NZD $78.4m

CHANNELS

2,129 wholesale doors

Direct to Consumer online store launched April 2021

BRAND

20% growth in social media audience in 2H FY21

SALES

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NZD $m constant currency [1 ]
+16.8% CAGR (FY18 - FY21)
86.1
70.1
59.4
54.0
FY18 FY19 FY20 FY21
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1. Constant currency uses NZD/USD FY20 conversion rate 0.636 to convert Oboz USD results to NZD (FY21 actual conversion rate 0.699).

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ANNUAL REPORT 2021

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KATHMANDU HOLDINGS LTD

THE BOARD AND MANAGEMENT TEAM

The Board

1 David Kirk

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Chairman

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 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.

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2 Philip Bowman

Non-executive Director

Philip has extensive experience in retail 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.

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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.

3 John Harvey

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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, 6 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 nonexecutive director roles include HT&E (formerly APN News & Media), Port Otago, Ballance Agri-Nutrients and New Zealand Opera.

4 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 Co Fox Head Inc in Irvine California and a non-executive director of Catapult International (CAT).

Brent is currently the CEO of Enero Group (EGG) and currently holds a Non-Executive Director role with ASX listed Rhinomed (RNO).

5 Andrea Martens

Non-executive Director

Andrea has extensive executive leadership experience having spent over 20 years working with some of the world’s best knownbrands 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. Andrea was appointed to the board of HYG Holdco Pty Limited (trading as Hoyts) in July 2021.

6 Michael Daly

Managing Director and

Group Chief Executive Officer

Michael joined Rip Curl in 2002 and fulfilled the roles of Chief Financial Officer and then Chief Operating Officer before being appointed as the Chief Executive Officer of Rip Curl in January 2013. While based predominantly in the Torquay head office, Michael spent over two years in the USA for Rip Curl. Prior to joining Rip Curl, Michael spent 10 years with PricewaterhouseCoopers across Australia and the USA specialising in servicing mining industry clients with debt or equity registered in the USA. Michael was appointed Group Chief Executive Officer and Managing Director of Kathmandu Holdings in May 2021.

Management team

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Michael Daly Brooke Farris Reuben Casey Amy Beck Group Rip Curl Kathmandu Oboz Chief Executive Officer Chief Executive Officer Chief Executive Officer President (appointed 16th August 2021)

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Chris Kinraid
Group
Chief Financial Officer
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Jolann Van Dyk Tony Roberts Frances Blundell Group Group General Manager ESG Chief Information Officer Legal Counsel and Company Secretary (appointed 1st August 2021)

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ANNUAL REPORT 2021

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

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Financial statements

For the Year Ended 31 July 2021

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 ............................41 Section 4: Capital Structure and Financing Costs ...........53 Section 5: Group Structure ................................................................63 Section 6: Other Notes ......................................................................... 68 Auditors’ Report .........................................................................................72

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ANNUAL REPORT 2021

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FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

Directors’ Approval of Consolidated Financial Statements

For the Year Ended 31 July 2021

Authorisation for Issue

The Board of Directors authorised the issue of these Consolidated Financial Statements on 21 September 2021.

Approval by Directors

The Directors are pleased to present the Consolidated Financial Statements of Kathmandu Holdings Limited for the year ended 31 July 2021 on pages 25 to 71.

21 September 2021 David Kirk Date 21 September 2021 Michael Daly Date

For and on behalf of the Board of Directors

Consolidated Statement of Comprehensive Income

For the Year Ended 31 July 2021

	Section	2021	2020
		NZ$’000	NZ$’000
Sales	2.2	922,792	801,524
Cost of sales		(381,170)	(334,493)
Gross profit		541,622	467,031
Other income	2.2	29,165	27,369
Selling expenses	1.2.1	(217,115)	(193,405)
Administration and general expenses	1.2.1	(145,641)	(151,537)
		(333,591)	(317,573)
Earnings before interest, tax, depreciation, and amortisation		208,031	149,458
Depreciation and amortisation	3.2-3.4	(115,847)	(103,585)
Earnings before interest and tax		92,184	45,873
Finance income		834	449
Finance expenses		(17,311)	(23,822)
Finance costs - net	4.1.1	(16,477)	(23,373)
Profit before income tax		75,707	22,500
Income tax expense	2.3	(12,278)	(13,632)
Profit after income tax		63,429	8,868
Profit for the year attributable to:
Shareholders of the Company		63,066	8,134
Non-controlling interest		363	734
Other comprehensive income / (expense) that may be recycled through profit or loss:
Movement in cash flow hedge reserve	4.3.2	6,482	(9,259)
Movement in foreign currency translation reserve	4.3.2	(17,527)	258
Movement in other reserves	4.3.2	14	(61)
Other comprehensive expense for the year, net of tax		(11,031)	(9,062)
Total comprehensive income / (expense) for the year		52,398	(194)
Total comprehensive income / (expense) for the year attributable to:
Shareholders of the Company		52,118	(932)
Non-controlling interest		280	738
Basic earnings per share (restated)	2.4	8.9cps	1.6cps
Diluted earnings per share (restated)	2.4	8.8cps	1.6cps
Weighted average basic ordinary shares outstanding (‘000) (restated)	2.4	709,001	493,347
Weighted average diluted ordinary shares outstanding (‘000) (restated)	2.4	713,006	494,582

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ANNUAL REPORT 2021

27

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet

As at 31 July 2021

For the Year Ended 31 July 2021

==> picture [501 x 441] intentionally omitted <==

----- Start of picture text -----

||||||||||
|---|---|---|---|---|---|---|---|---|
|Cash|Foreign|Share-|
|flow|currency|based|Non-|
|Share|hedge|translation|payments|Other|Retained|controlling|Total|
|capital|reserve|reserve|reserve|reserves|earnings|interest|equity|
|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|
|Balance as at 31 July 2019|251,113|4,118|(12,272)|1,983|-|197,120|-|442,062|
|Profit after tax|-|-|-|-|-|8,134|734|8,868|
|Other comprehensive income|-|(9,259)|254|-|(61)|-|4|(9,062)|
|-|-|-|-|-|-|
|Dividends paid|(27,209)|(27,209)|
|Issue of share capital|375,267|-|-|(1,666)|-|-|-|373,601|
|Share based payment expense|-|-|-|378|-|-|-|378|
|Deferred tax on share-based|-|-|-|(87)|-|-|-|(87)|
|payment transactions|
|Non-controlling interest|-|-|-|-|-|-|3,335|3,335|
|on acquisition|
|-|-|-|-|-|-|
|Disposal of non-controlling|(66)|(66)|
|interest|
|Transition to NZ IFRS 16|-|-|-|-|-|(12,630)|-|(12,630)|
|Balance as at 31 July 2020|626,380|(5,141)|(12,018)|608|(61)|165,415|4,007|779,190|
|Profit after tax|-|-|-|-|-|63,066|363|63,429|
|Other comprehensive income|-|6,482|(17,444)|-|14|-|(83)|(11,031)|
|-|-|-|-|-|-|
|Dividends paid|(14,180)|(14,180)|
|-|-|-|-|-|-|-|-|
|Issue of share capital|
|Share based payment expense|-|-|-|1,798|-|-|-|1,798|
|Lapsed share options|-|-|-|(58)|-|58|-|-|
|Deferred tax on share-based|-|-|-|289|-|-|-|289|
|payment transactions|
|-|-|-|-|-|
|Acquisition of remaining shares|(427)|(217)|(644)|
|in non-controlling interest|
|Balance as at 31 July 2021|626,380|1,341|(29,462)|2,637|(47)|213,932|4,070|818,851|

----- End of picture text -----

==> picture [501 x 647] intentionally omitted <==

----- Start of picture text -----

|||||
|---|---|---|---|
|Section|2021|2020|
|NZ$’000|NZ$’000|
|ASSETS|
|Current assets|
|Cash and cash equivalents|3.1.2|142,614|231,885|
|Trade and other receivables|3.1.3|68,931|73,668|
|Inventories|3.1.1|216,545|228,793|
|Derivative financial instruments|4.2|5,285|53|
|Current tax asset|3,430|3,790|
|Other current assets|3.1.5|2,320|2,799|
|Total current assets|439,125|540,988|
|Non-current assets|
|Trade and other receivables|3.1.3|1,549|3,945|
|Property, plant and equipment|3.2|79,284|88,458|
|Intangible assets|3.3|688,551|689,935|
|Deferred tax assets|2.3|13,977|5,380|
|Right-of-use assets|3.4.1|242,677|258,699|
|Total non-current assets|1,026,038|1,046,417|
|Total assets|1,465,163|1,587,405|
|LIABILITIES|
|Current liabilities|
|Trade and other payables|3.1.6|149,206|149,850|
|Derivative financial instruments|4.2|1,079|7,414|
|Current tax liabilities|10,159|10,245|
|Current lease liabilities|3.4.2|75,572|78,035|
|Total current liabilities|236,016|245,544|
|Non-current liabilities|
|Non-current trade and other payables|3.1.6|14,818|14,413|
|Interest bearing liabilities|4.1|105,597|241,270|
|Deferred tax liabilities|2.3|86,182|86,401|
|Non-current lease liabilities|3.4.2|203,699|220,587|
|Total non-current liabilities|410,296|562,671|
|Total liabilities|646,312|808,215|
|Net assets|818,851|779,190|
|EQUITY|
|Contributed equity - ordinary shares|4.3.1|626,380|626,380|
|Reserves|4.3.2|(25,531)|(16,612)|
|Retained earnings|213,932|165,415|
|Non-controlling interest|4,070|4,007|
|Total equity|818,851|779,190|

----- End of picture text -----

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ANNUAL REPORT 2021

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

Consolidated Statement of Cash Flows

For the Year Ended 31 July 2021

of Cash Flows For the Year Ended 31 July 2021
	Section 2021 NZ$’000 2020 NZ$’000
Cash flows from operating activities
Cash was provided from:
Receipts from customers	920,374 823,951
Government grants received	23,892 21,266
Interest received	834 449
Income tax received	1,050 1,379
Cash was applied to:	946,150 847,045
Payments to suppliers and employees	722,656 637,828
Income tax paid	24,987 16,897
Interest paid	15,435 21,979
	763,078 676,704
Net cash inflow from operating activities	183,072 170,341
Cash flows from investing activities
Cash was provided from:
Proceeds from sale of property, plant and equipment	2 61
Proceeds from sale of non-controlling interest	- 141
Cash was applied to:	2 202
Purchase of property, plant and equipment	3.2 15,044 15,399
Purchase of intangibles	3.3 20,509 4,463
Acquisition of subsidiaries	5.1 1,029 376,121
	36,582 395,983
Net cash (outflow) from investing activities	(36,580) (395,781)
Cash flows from financing activities
Cash was provided from:
Proceeds from borrowings	- 506,746
Proceeds from share issues	- 340,646
Cash was applied to:	- 847,392
Dividends paid	14,180 27,209
Repayment of borrowings	128,894 293,757
Repayment of lease liabilities	89,749 77,290
	232,823 398,256
Net cash (outflow) / inflow from financing activities	(232,823) 449,136
Net (decrease) / increase in cash and cash equivalents held	(86,331) 223,696
Opening cash and cash equivalents	231,885 6,230
Effect of foreign exchange rates	(2,940) 1,959
Closing cash and cash equivalents	3.1.2 142,614 231,885

Reconciliation of net profit after taxation with cash inflow from operating activities

cash inflow from operating activities
	Section	2021	2020
		NZ$’000	NZ$’000
Profit after taxation		63,429	8,868
Movement in working capital:
(Increase) / decrease in trade and other receivables		5,604	24,027
(Increase) / decrease in inventories		8,190	20,305
(Increase) / decrease in other current assets		431	-
Increase / (decrease) in trade and other payables		3,504	9,732
Increase / (decrease) in current tax liability		398	3,692
Add non-cash items:		18,127	57,756
Depreciation of property, plant and equipment	3.2	20,851	19,666
Amortisation of intangibles	3.3	8,614	7,539
Depreciation of right-of-use assets	3.4.1	86,382	76,380
Impairment of assets	3.2, 3.4.1	1,910	2,050
Paycheck Protection Program (PPP) loan forgiveness	4.1	(4,025)	-
Foreign currency translation of working capital balances		(3,319)	214
Increase / (decrease) in deferred taxation		(12,057)	(5,577)
Employee share-based remuneration	6.3	1,798	378
Loss on sale of property, plant and equipment and intangibles	3.2, 3.3	1,362	3,067
		101,516	103,717
Cash inflow from operating activities		183,072	170,341

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ANNUAL REPORT 2021

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

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 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 Company is a limited liability company incorporated and domiciled in New Zealand. Kathmandu Holdings Limited is a company registered under the Companies Act 1993 and is an FMC reporting entity under Part 7 of the Financial Markets Conduct Act 2013. The address of its registered office is 223 Tuam Street, Central Christchurch, Christchurch.

The 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.

The Company is listed on the NZX and ASX.

Subsidiaries are consolidated from the date on which control is obtained to the date on which control is lost.

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.

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.

These audited consolidated financial statements have been approved for issue by the Board of Directors on 21 September 2021.

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.

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).

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 on the following pages.

The consolidated financial statements are presented in New Zealand dollars, which is the Group’s presentation currency.

Critical accounting estimates

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimates and judgements are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Further explanation as to estimates and assumptions made by the Group can be found in the following notes to the consolidated financial statements:

Area of estimation

Section

Area of estimation	Section
Taxation – provision for tax payable	2.3
Inventory – estimates of obsolescence	3.1.1
Trade and other receivables – allowance	3.1.3
for lifetime expected credit losses

• Goodwill and brand – assumptions 3.3 underlying recoverable value Leases – judgment applied to lease term 3.4 Business combinations – 5.1 purchase price allocation

Foreign currency translation

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

• All resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity.

Changes in accounting policies and prior period restatements

Details about changes in accounting policies applied during the period are included in the following notes to the financial statements:

	Section
Earnings per share restatement	2.4
Finalisation of purchase price allocation	5.1
New standards and interpretations	6.8
first applied in theperiod

Selling and administration expense classification

During the year the Group identified an error in the surf segment’s classification of selling expenses and administration and general expenses in the previously reported financial statements for the year ended 31 July 2020. As a result, the prior period selling expenses have increased by $24,113,000 with a corresponding decrease in administration and general expenses to align with the current year and the Group policy. The restatement has no impact on total expenditure.

Consideration of the IFRS Interpretations Committee (‘IFRIC’) agenda decision

In April 2021, IFRIC issued an agenda decision clarifying its interpretation on how current accounting standards apply to configuration and customisation costs incurred in implementing Software-as-a-Service (‘SaaS’) cloud computing arrangements. The IFRIC decision has clarified that because SaaS arrangements are service contracts that provide the Group with the right to access the cloud provider’s application software over the contract period, costs to configure or customise this software should be recognised as operating expenses when the services are received.

The Group’s current accounting policy is to record these configuration and customisation costs as part of the cost of an intangible asset and amortise these costs over the useful life of the software assets. The Group has commenced a review process to quantify the impact of this agenda decision on the financial statements of the Group; however, given the short timeframe and the complexity involved, this has not been finalised as at the date of this report.

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FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

Section 2 Results for the Year

It is anticipated that this exercise will be completed in the second quarter of the 2022 financial year. In the last three years the Group has capitalised approximately $30 million in relation to cloud computing arrangements of which a subset may relate to customisation and configuration of cloud solutions and may need to be reclassified to operating expense. Once the impact has been fully quantified the Group will report the impact in its interim financial statements for the period ended 31 January 2022.

1.3 Impact of COVID-19

COVID-19 continues to have an impact on the Group, with local and global restrictions on movement, travel and gatherings resulting in a sustained reduction in footfall. Stores across our network continue to open and close based on government mandated lockdowns and closures.

There continues to be uncertainties due to the COVID-19 pandemic that affects the Group’s key estimates and judgements, including the following:

• Intangible assets – the ability to achieve future forecasts and the consequential impacts on the carrying value of goodwill and other finite life intangible assets (note 3.3)

• Receivables – the ability of wholesale customers to pay (note 3.1.3)

• Leases – certain landlords have provided the Group with rent concessions (note 2.2)

Despite the continuing impact of COVID-19, the Directors are satisfied that there will be adequate cash flows generated from operating and financing activities to meet the obligations of the Group for a period of at least 12 months from the date of approving the consolidated financial statements. The Group was fully compliant with all banking covenants during the year and, based on the current cash flow forecasts, the Group expects to remain compliant with all covenants for at least 12 months from the date of approving the consolidated financial statements. To address any risk of extended store closures across Australia and New Zealand into and beyond the key Christmas trading, the Group has worked proactively with its banking syndicate to reduce the fixed cover charge ratio (FCCR) from 1.5x to 1.25x for the January 2022 measurement period.

Taking into consideration the current trading results, the net cash (excluding lease liabilities) of $37,017,000 and liquidity of $329,729,000 at 31 July 2021 (refer note 4.1), the financial statements continue to be prepared on a going concern basis.

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.

retails and wholesales apparel, footwear and equipment for outdoor travel and adventure.

2.1 Segment information

An operating segment is a component of an entity that

Surf – including the Rip Curl brand and the Ozmosis multi-brand retailer. This segment designs, manufactures, wholesales and retails surfing equipment and apparel.

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.

Corporate – this segment represents group costs, holding companies and consolidation eliminations and constitutes other business activities that do not fall within outdoor or surf segments including goodwill, brand and customer relationships.

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,

Outdoor– including the Kathmandu and Oboz brands. This segment designs, markets,	,	.
31 July 2021	Outdoor Surf Corporate	Total
	NZ$’000 NZ$’000 NZ$’000	NZ$’000
Sales from external customers	432,354 490,438 -	922,792
EBITDA	109,667 103,991 (5,627)	208,031
Depreciation and amortisation	65,770 44,869 5,208	115,847
EBIT	43,897 59,122 (10,835)	92,184
Income tax expense	15,668 3,794 (7,184)	12,278
Total segment assets	700,470 365,920 398,773	1,465,163
Total assets include:
Non-current assets	488,415 149,226 388,397	1,026,038
Additions to non-current assets	58,929 53,455 22	112,406
Total segment liabilities	278,967 261,203 106,142	646,312
	Outdoor Surf Corporate	Total
31 July 2020	NZ$’000 NZ$’000 NZ$’000	NZ$’000
Sales from external customers	485,785 315,739 -	801,524
EBITDA	128,192 35,769 (14,503)	149,458
Depreciation and amortisation	63,291 36,362 3,932	103,585
EBIT	64,901 (593) (18,435)	45,873
Income tax expense	16,962 2,544 (5,874)	13,632
Total segment assets	750,026 394,838 442,541	1,587,405
Total assets include:
Non-current assets	503,162 139,207 404,048	1,046,417
Additions to non-current assets	43,446 14,355 -	57,801
Total segment liabilities	309,539 257,640 241,036	808,215

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FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

EBITDA represents earnings before income taxes (a non-GAAP measure), excluding interest income, interest expense, depreciation, and amortisation, as reported in the financial statements. EBIT represents EBITDA less depreciation and amortisation. EBITDA and EBIT are key measurement criteria on which operating segments are reviewed by the Group Chief Executive Officer and Group Executive Management team.

Costs recharged between Group companies are calculated on an arms-length basis. The default basis of allocation is percentage of revenue with other bases being used where appropriate.

Sales from external customers by geographical area

	2021	2020
	NZ$’000	NZ$’000
Australia	477,054	449,930
New Zealand	120,746	133,696
North America	195,317	131,244
UK & Europe	90,418	53,386
Asia	25,920	25,653
South America	13,337	7,615
	922,792	801,524

Non-current assets by geographical area

	2021	2020
	NZ$’000	NZ$’000
Australia	654,760	700,938
New Zealand	181,661	171,147
North America	162,273	145,211
UK & Europe	15,765	18,741
Asia	8,863	7,749
South America	2,716	2,631
	1,026,038	1,046,417

2.2 Profit before tax

Revenue recognition

The Group recognises revenue from the sale of footwear, clothing and equipment for surfing and the outdoors and brand licencing arrangements. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and brand licences, excluding Goods and Services Tax and discounts, and after eliminating sales within the Group.

Retail sales

For sales of goods to retail customers, revenue is recognised when control of the goods has transferred, being at the point the customer purchases the goods at a retail outlet. Payment of the transaction price is due immediately at the point the customer purchases the goods.

Online sales

For online sales, revenue is recognised when control of the goods has transferred to the customer, being at the point the goods are delivered to the customer. Delivery occurs when the goods have been shipped to the customer’s specific location. When the customer initially purchases the goods online, the transaction price received by the Group is recognised as a contract liability until the goods have been delivered to the customer.

Wholesale sales

For sales to the wholesale market, revenue is recognised when control of the goods has transferred, being when the goods have been shipped to the wholesaler’s specific location (delivery). Following delivery, the wholesaler has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility when on selling the goods and bears the risks of obsolescence and loss in relation to the goods. A receivable is recognised by the Group when the goods are delivered to the wholesaler as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due.

Sales returns

Under the Group’s standard contract terms, customers have a right of return, typically within 30 days. At the point of sale, a returns liability and a corresponding adjustment to revenue is recognised for those products expected to be returned. The Group uses its accumulated historical experience to estimate the number of returns on a portfolio level using the expected value method. It is considered highly probable that a significant reversal in the cumulative revenue recognised will not occur given the consistent level of returns over previous years.

Royalty revenue

Royalty revenue from brand license arrangements is recognised based on a right to access the license. Revenue is recognised over the contract period based on a fixed amount or reliable estimate of sales made by a licensee.

by a licensee.
	2021	2020
	NZ$’000	NZ$’000
Sale of goods	915,570	797,410
Royalty revenue	6,950	3,848
Commission revenue	272	266
	922,792	801,524

A breakdown of revenue by operating segment and geographical area is provided in note 2.1.

Other income

		2021	2020
		NZ$’000	NZ$’000
	Government grants	27,918	26,781
	Other	1,247	588
		29,165	27,369

Government grants are not recognised until there is reasonable assurance that the grants will be received and that the Group will comply with the conditions attaching to them. Government grants that compensate the Group for expenses incurred are recognised as revenue in the statement of comprehensive income on a systematic basis in the same period in which the expenses are recognised. In the current period Government grants relate to wage and other subsidies received in response to the impact of COVID-19.

Government grants income recognised during the year includes $4,025,000 (2020: nil) in relation to US Paycheck Protection Program loans as disclosed in note 4.1.

Government grants of nil (2020: $5,615,000) relating to the current year are receivable at balance date and have been included in other receivables and prepayments in note 3.1.3.

Employee entitlements

Employee entitlements
	2021	2020
	NZ$’000	NZ$’000
Wages, salaries, and other	187,700	167,161
short-term benefits
Post-employment benefits	9,692	8,629
Employee share-based	1,798	378
remuneration
	199,190	176,168

Lease expense

The Group is a lessee. Refer to note 3.4 for further details around the Group’s leases and lease accounting policies.

Lease amounts recognised in the consolidated statement of comprehensive income:

		2021	2020
		NZ$’000	NZ$’000
	Short-term lease expense	4,398	8,159
	Low-value lease expense	378	1,277
	Variable lease expense	(431)	532
	Rent concessions and	(7,306)	(4,834)
	abatements
	Lease outgoings	12,938	16,460
	Depreciation right-of-use	86,382	76,380
	asset (note 3.4.1)
	Interest expense related to	8,879	8,874
	lease liabilities (note 3.4.2)
		105,238	106,848

Some of the property leases in which the Group is the lessee contain variable lease payment terms that are linked to sales generated from the leased stores. Variable payment terms are used to link rental payments to store cash flows and reduce fixed cost.

Overall, the variable payments constitute up to 0.4% (2020: 0.5%) of the Group's entire lease payments. The variable payments depend on sales and consequently on the overall economic development over the next few years. Considering the development of sales expected over the next 3 years, variable rent expenses are expected to continue to present a similar proportion of store sales in future years.

The Group has adopted the practical expedient in paragraph 46A of NZ IFRS 16 and elected not to account for any rent concessions granted as result of the COVID-19 pandemic as a lease modification. The amounts are recognised in profit or loss due to changes in lease payments arising from such concessions, within the selling, administration, and general expenses in the consolidated statement of comprehensive income.

The total cash outflow for leases amounts to $121,291,000 (2020: $96,191,000).

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FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

2.3 Taxation

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

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.

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.

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.

The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate based on amounts expected to be paid to the tax authorities.

Goods and Services Tax (GST)

The consolidated statement of comprehensive income and the consolidated statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the consolidated balance sheet are stated net of GST, except for receivables and payables, which include GST invoiced.

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.

Taxation – Consolidated statement of comprehensive income

The total taxation charge in the consolidated statement of comprehensive income is analysed as follows:

	2021	2020
	NZ$’000	NZ$’000
Current income tax charge	24,334	19,209
Deferred income tax	(12,056)	(5,577)
charge / (credit)
Income tax charge reported in	12,278	13,632
the consolidated statement of
comprehensive income

To understand how, in the consolidated statement of comprehensive income, a tax charge of $12,278,000 (2020: $13,632,000) arises on profit before income tax of $75,707,000 (2020: $22,500,000), the taxation charge that would arise at the standard rate of New Zealand corporate tax is reconciled to the actual tax charge as follows:

	2021	2020
	NZ$’000	NZ$’000
Profit before income tax	75,707	22,500
Income tax calculated at 28%	21,198	6,300
Adjustments to taxation:
Adjustments due to different rate in different jurisdictions	1,608	(88)
Non-taxable income	(2,537)	(1,015)
Expenses not deductible for tax purposes	2,973	4,561
Utilisation of tax losses by group companies	(1,362)	(38)
Tax expense transferred to foreign currency translation reserve	(811)	(13)
Adjustments in respect of prior years	787	274
Tax losses not recognised	-	3,651
Historic tax losses and deferred tax assets recognised	(9,578)	-
Income tax charge reported in the consolidated statement of comprehensive income	12,278	13,632

Adjustments for prior periods primarily arise where an outcome is obtained on certain tax matters which differs from expectations held when the related provision was made. Where the outcome is more favourable than the provision made, the difference is released, lowering the current year tax charge. Where the outcome is less favourable than the provision, an additional charge to the current year tax will occur.

During the year the Group recognised $9,578,000 of previously unrecognised Rip Curl US tax losses. The Group has recognised these losses on the basis that the Rip Curl US profitability has improved significantly during the year, and it is probable these losses will be utilised against future taxable profit in the US.

As a result of recognising the deferred tax losses the deferred tax asset at year-end of $13,977,000 is separately disclosed in the consolidated balance sheet. For consistency the prior period deferred tax asset of $5,380,000 has also been separately disclosed in the consolidated balance sheet. The deferred tax assets for the year ended 31 July 2020 was previously netted off in the deferred tax liability balance of $81,021,000.

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.

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ANNUAL REPORT 2021

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

The tax charge / (credit) relating to components of other comprehensive income is as follows:

==> picture [501 x 323] intentionally omitted <==

----- Start of picture text -----

||||
|---|---|---|
|2021|2020|
|NZ$’000|NZ$’000|
|Movement in cash flow hedge reserve before tax|11,608|(13,162)|
|Tax credit / (charge) relating to cash flow hedge reserve|(5,126)|3,903|
|Movement in cash flow hedge reserve after tax|6,482|(9,259)|
|Foreign currency translation reserve before tax|(17,527)|258|
|-|-|
|Tax credit / (charge) relating to foreign currency translation reserve|
|Movement in foreign currency translation reserve after tax|(17,527)|258|
|Other reserves before tax|14|(61)|
|Tax credit / (charge) relating to other reserves|-|-|
|Movement in other reserves after tax|14|(61)|
|Total other comprehensive income / (expense) before tax|(5,905)|(12,965)|
|Total tax credit / (charge) on other comprehensive income|(5,126)|3,903|
|Total other comprehensive income / (expense) after tax|(11,031)|(9,062)|
|Current tax|-|-|
|Deferred tax|(5,126)|3,903|
|Total tax credit / (charge) on other comprehensive income|(5,126)|3,903|

----- End of picture text -----

Taxation – Balance sheet

The following are the major deferred taxation liabilities and assets recognised by the Group and movements thereon during the current and prior year:

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----- Start of picture text -----

|||||||||
|---|---|---|---|---|---|---|---|
|Other|
|Employee|temporary|
|obligations|Intangibles|Leases|differences|Reserves|Tax losses|Total|
|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|
|As at 31 July 2019|2,279|(54,004)|-|6,870|(996)|-|(45,851)|
|Recognised in the consolidated|(695)|1,402|421|4,449|-|-|5,577|
|statement of comprehensive income|
|Recognised in other|-|-|-|-|3,903|-|3,903|
|comprehensive income|
|-|-|-|-|-|
|Recognised directly in equity|(87)|(87)|
|Deferred tax on transition to|-|-|10,813|-|-|-|10,813|
|NZ IFRS 16|
|Deferred tax on business|1,963|(62,598)|-|5,635|-|-|(55,000)|
|combinations (note 5.1)|
|Exchange differences|33|(687)|13|265|-|-|(376)|
|As at 31 July 2020|3,493|(115,887)|11,247|17,219|2,907|-|(81,021)|
|Recognised in the consolidated|1,243|1,401|1,695|639|-|7,078|12,056|
|statement of comprehensive income|
|-|-|-|-|-|
|Recognised in other|(5,126)|(5,126)|
|comprehensive income|
|Recognised directly in equity|289|-|-|-|-|-|289|
|Exchange differences|(67)|2,258|(202)|(300)|27|(119)|1,597|
|As at 31 July 2021|4,958|(112,228)|12,740|17,558|(2,192)|6,959|(72,205)|

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The deferred tax balance relates to:

• Property, plant and equipment temporary differences arising on differences in accounting and tax depreciation rates

• Employee benefit accruals

• Brands and customer relationships

• Unrealised foreign exchange gain / loss on intercompany loans

• Realised gain / loss on foreign exchange contracts not yet charged in the consolidated statement of comprehensive income

Lease accounting

• Inventory provisioning

• Temporary differences on the unrealised gain / loss in hedge reserve

• Employee share schemes

• Historic tax losses recognised

• Other temporary differences on miscellaneous items

ANNUAL REPORT 2021

40

41

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

Section 3 Operating Assets and Liabilities

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

in respect of the following items:
	2021	2020
	NZ$’000	NZ$’000
Deductible temporary differences	-	2,060
Tax losses	5,548	18,370
	5,548	20,430

The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of overseas subsidiaries where it is not yet probable that future taxable profit will be generated in those territories to utilise these benefits.

Imputation credits

Imputation credits
	2021	2020
	NZ$’000	NZ$’000
Imputation credits available	66	(6,743)
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 31 July 2021, adjusted for:

• Imputation credits that will arise from the payment of the amount of the provision for income tax.

• Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date.

• Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

In the prior period tax payments of $6,808,000 had been financed at year end, which once transferred to the Inland Revenue Department resulted in a positive imputation balance.

The balance of Australian franking credits able to be used by the Group in subsequent periods as at 31 July 2021 is A$11,502,000 (2020: A$2,691,000).

2.4 Earnings per share

Keeping it simple

Earnings per share (‘EPS’) is the amount of post-tax profit attributable to each share.

Basic EPS is calculated by dividing the profit after tax attributable to equity holders of the Company of $63,065,666 (2020: $8,133,582) by the weighted average number of ordinary shares in issue during the year of 709,001,384 (2020: 493,346,733).

Diluted EPS reflects any commitments the Group has to issue shares in the future that would decrease EPS. In the current year, these are in the form of share options / performance rights. To calculate the impact, it is assumed that all share options are exercised / performance rights taken, and therefore, adjusting the weighted average number of shares.

	2021 ’000 2020 ’000
Weighted average number of	709,001 493,347
basic ordinary shares in issue
Adjustment for:
Share options /	4,005 1,235
performance rights
	713,006 494,582

The Group has restated the prior year basic and diluted EPS to reflect the impact of finalisation of the Rip Curl purchase price allocation as disclosed in note 5.1.

In this section

This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a result. Liabilities relating to the Group’s financing activities are addressed in Section 4. Deferred tax assets and liabilities are shown in note 2.3.

Keeping it simple

Working capital represents the assets and liabilities the Group generates through its trading activity. The Group therefore defines working capital as inventory, cash, trade and other receivables, other financial assets, other current assets and trade and other payables and other financial liabilities.

Inventory has been reviewed for obsolescence and a provision of $5,393,000 (2020: $4,580,000) has been made.

3.1 Working capital

3.1.1 Inventory

Accounting policies

3.1.2 Cash and cash equivalents

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.

	2021	2020
	NZ$’000	NZ$’000
Cash on hand	489	482
Cash at bank	140,617	230,429
Short term investments	1,508	974
convertible to cash
	142,614	231,885

The carrying amount of the Group's cash and cash equivalents are denominated in the following currencies:

The Group assesses the likely residual value of inventory. Stock provisions are recognised for inventory that is expected to sell for less than cost, and for the value of inventory likely to have been lost to the business through shrinkage between the date of the last applicable stocktake and balance sheet date. In recognising the provision for inventory, judgement has been applied by considering a range of factors including historical results, stock shrinkage trends and product lifecycle.

		2021	2020
		NZ$’000	NZ$’000
	AUD	82,056	163,503
	USD	27,350	22,275
	EUR	10,455	6,108
	NZD	9,626	32,330
	THB	3,241	3,371
	IDR	2,852	1,706
	BRL	2,112	1,126
	GBP	1,897	548
	CAD	1,476	394
	Other	currencies 1,549	524
		142,614	231,885

Inventory is broken down into trading stock and goods in transit below:

in transit below:
	2021	2020
	NZ$’000	NZ$’000
Raw materials and	3,297	2,528
consumables
Work in progress	1,324	2,397
Trading stock	189,221	209,958
Goods in transit	22,703	13,910
	216,545	228,793

43

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ANNUAL REPORT 2021

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

3.1.3 Trade and other receivables

Accounting policies

Trade and other receivables are recognised initially at the value of the invoice sent to the customer (fair value) and subsequently at the amounts considered recoverable (amortised cost). The collectability of trade and other receivables is reviewed on an on-going basis.

An allowance for lifetime expected credit losses is recognised for trade and other receivables based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions, and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. The expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.

2021	2020
NZ$’000	NZ$’000
Current Trade receivables 61,084	62,143
Allowance for expected (5,680)	(10,329)
credit losses Other receivables and prepayments 13,527	21,854
68,931	73,668
Non-current Other debtors 1,549	3,945
1,549	3,945

Other non-current debtors include debtors on extended credit terms and security deposits paid in relation to store leases.

The carrying amount of the Group’s trade and other receivables are denominated in the following currencies:

			2021	2020
			NZ$’000	NZ$’000
	USD		30,551	22,466
	AUD		12,858	20,853
	EUR		11,449	13,258
	BRL		3,645	2,991
	THB		3,125	4,406
	CAD		2,402	2,326
	GBP		2,163	1,650
	NZD		1,992	5,101
	JPY		1,173	2,246
	IDR		1,122	1,997
	Other	currencies	-	319
			70,480	77,613

Exposure to credit risk

The below balances are recorded at their carrying amount after any allowance for expected credit loss on these financial instruments. The maximum exposure to credit risk at reporting date was (carrying amount):

	2021	2020
	NZ$’000	NZ$’000
Cash and cash equivalents	142,125	231,403
Trade receivables	55,404	51,814
Other receivables	7,158	12,866
Derivative financial instruments	4,206	(7,361)
	208,893	288,722

As at balance sheet date the carrying amount is considered to approximate fair value for each of the financial instruments.

Allowance for expected credit losses

2021 NZ$’000 2020 NZ$’000 Opening balance (10,329) (115) Allowance recognised on acquisition (note 5.1) - (5,639) Additional allowance recognised in the consolidated statement of comprehensive income (3,104) (6,152) Receivables written-off during the year 5,186 1,004 Unused provision released to the consolidated statement of comprehensive income during the year 2,173 249 Foreign exchange 394 324 Closing balance (5,680) (10,329) 3.1.4 Credit risk	The credit quality of cash and cash equivalents can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: 2021 NZ$’000 2020 NZ$’000
	Cash and cash equivalents: Standard & Poors - AA- 104,885 207,811 Standard & Poors - A+ 25,919 14,008 Standard & Poors - A 1,768 1,567 Standard & Poors - A- 197 - Standard & Poors - BBB+ 3,359 3,822 Standard & Poors - BBB- 2,912 1,790 Standard & Poors - BB 978 1,282 Standard & Poors - BB- 2,107 1,123
	142,125 231,403

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.

Trade and other receivables consist of a large number of customers spread across diverse geographical areas.

==> picture [243 x 125] intentionally omitted <==

----- Start of picture text -----

Risk Exposure Monitoring Management
arising from
Credit risk Cash and cash Credit ratings Obtaining
equivalents Aging customer
Trade and other analysis credit rating
receivables Review of information
Derivative exposure with Confirming
financial regular terms references
instruments of trade Setting
appropriate
credit limits
----- End of picture text -----

As at balance sheet date, trade and other receivables of $15,931,000 (2020: $27,495,000) were past due. A provision of $5,680,000 (2020: $10,329,000) is held against these overdue amounts. Interest is charged on overdue debtors in some instances.

The ageing analysis of these past due trade receivables is:

	2021	2020
	NZ$’000	NZ$’000
0 to 30 days	5,301	4,825
30 to 60 days	2,926	3,503
60 to 90 days	2,311	7,394
90 days and over	5,393	11,773
	15,931	27,495

Due to COVID-19 credit terms have been extended for some customers, which has impacted the aging analysis above. The aging analysis disclosed is based on the original due dates agreed with customers, prior to any extension of credit terms being offered.

In the current year $4,438,000 of long overdue receivables were written off. These receivables were acquired in the prior period as part of the Rip Curl acquisition and were fully provided for prior to acquisition.

3.1.5 Other assets

Accounting policies

Other assets relate to rights of return assets. Rights of return recognises the estimated returned sales under the Group's returns policies. Management estimates the returned sales based on historical sales return information and any recent trends that may suggest future claims could differ from historical amounts. For sales that are expected to be returned, the Group recognises a returns provision as disclosed in note 3.1.6. The associated inventory value for sales that are expected to be returned is recognised as a right of return asset. The costs to recover the products are not material because the customers usually return them in a saleable condition.

	2021	2020
	NZ$’000	NZ$’000
Right of return assets
Opening balance	2,799	-
Right of return assets	-	2,803
recognised on acquisition
(note 5.1)
Additional amounts recognised	-	-
Amounts incurred and charged	(431)	-
Exchange differences	(48)	(4)
	2,320	2,799

ANNUAL REPORT 2021

45

44

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

3.1.6 Trade and other payables

Accounting policies

Trade payables, sundry creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Trade and other payables are initially measured at fair value and subsequently measured at amortised cost, using the effective interest method. The carrying value of trade payables is considered to approximate fair value as amounts are unsecured and are usually paid by the 30th of the month following recognition.

Employee entitlements relates to benefits accruing to employees in respect of wages and salaries, annual leave, and long service leave when it is probable that settlement will be required, and they are capable of being measured reliably. Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.

	2021	2020
	NZ$’000	NZ$’000
Current
Trade payables	72,230	63,939
Employee entitlements	27,642	21,357
Sundry creditors and	42,502	54,913
accruals
Other provisions	6,832	9,641
	149,206	149,850
Non-current
Employee entitlements	3,076	3,069
Other provisions	11,742	11,344
	14,818	14,413

The carrying amount of the Group's trade and other payables are denominated in the following currencies:

	2021	2020
	NZ$’000	NZ$’000
AUD	68,465	86,082
USD	47,776	31,906
NZD	17,239	19,529
EUR	15,254	15,799
BRL	6,138	3,372
THB	4,751	3,569
IDR	2,334	2,167
Other currencies	2,067	1,839
	164,024	164,263

Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The warranties provision represents the present value of the estimated future outflow of economic benefits that will be required under the Group’s obligations for warranties under local sale of goods legislation. The provision relates to wetsuits, watches and footwear and is based on estimates made from historical warranty data associated with similar products and services.

A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly at balance date.

Lease restoration provision represents the present value of the estimated cost to restore leased properties to their original condition upon expiry of the lease.

Where a customer has a right to return a product within a given period, the Group recognises a returns provision for the consideration received that will be required to be refunded to customers on return of the product. The Group also recognises a right to the returned goods as disclosed in note 3.1.5.

	Warranties NZ$’000 Restructuring NZ$’000 Lease restoration NZ$’000 Sales returns NZ$’000 Other NZ$’000 Total NZ$’000
Year ended 31 July 2020
Opening balance	- - 671 - 406 1,077
Provision recognised on acquisition	1,168 2,541 5,453 6,078 - 15,240
(note 5.1)
Provisions recognised on adoption of	- - 4,686 - - 4,686
NZ IFRS 16
Additional provisions recognised	478 1,367 633 148 216 2,842
Provisions used during the year	(296) (2,303) (191) - - (2,790)
Provisions re-measured during the year	(14) - (325) - - (339)
Foreign exchange	13 70 121 65 - 269
Closing balance	1,349 1,675 11,048 6,291 622 20,985
As at 31 July 2020
Current	1,349 1,675 193 6,291 133 9,641
Non-current	- - 10,855 - 489 11,344
	1,349 1,675 11,048 6,291 622 20,985
	Warranties NZ$’000 Restructuring NZ$’000 Lease restoration NZ$’000 Sales returns NZ$’000 Other NZ$’000 Total NZ$’000
Year ended 31 July 2021
Opening balance	1,349 1,675 11,048 6,291 622 20,985
Additional provisions recognised	686 70 1,391 - - 2,147
Provisions used during the year	(301) (1,324) (195) (135) (41) (1,996)
Provisions re-measured during the year	- - (723) (1,359) - (2,082)
Foreign exchange	(41) (61) (273) (105) - (480)
Closing balance	1,693 360 11,248 4,692 581 18,574
As at 31 July 2021
Current	1,693 360 - 4,692 87 6,832
Non-current	- - 11,248 - 494 11,742
	1,693 360 11,248 4,692 581 18,574

Other provisions relate to other miscellaneous amounts that meet the definition of a provision but do not fall into any of the other categories.

46

ANNUAL REPORT 2021

47

FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

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.

value methods to expense the cost of the assets over their useful lives. The rates are as follows:

Accounting policies

Property, plant and equipment

Buildings & leasehold improvements 5 – 50% Office, plant and equipment 5 – 50% Furniture and fittings 10 – 50% Computer equipment 10 – 60%

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.

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.

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.

Property, plant and equipment

Property, plant and equipment can be analysed as follows:

Depreciation

Depreciation of property, plant and equipment is calculated using straight line and diminishing

	Land & buildings Leasehold improvements Ofce, plant & equipment Furniture & fttings Computer equipment	Total
	NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000	NZ$’000
As at 31 July 2019
Cost	- 67,974 17,936 41,726 9,633	137,269
Accumulated depreciation	- (40,467) (6,406) (22,552) (7,525)	(76,950)
Closing net book value	- 27,507 11,530 19,174 2,108	60,319
Year ended 31 July 2020
Opening net book value	- 27,507 11,530 19,174 2,108	60,319
Acquisition of businesses (note 5.1)	6,475 6,033 3,603 16,440 2,725	35,276
Additions	15 6,478 3,108 5,059 739	15,399
Disposals	(305) (621) (474) (1,632) (96)	(3,128)
Depreciation	(370) (7,815) (2,581) (7,670) (1,230)	(19,666)
Transfers between categories	- - (289) 289 -	-
Exchange differences	(188) 184 199 123 (60)	258
Closing net book value	5,627 31,766 15,096 31,783 4,186	88,458

	Land & buildings NZ$’000 Leasehold improvements NZ$’000 Ofce, plant & equipment NZ$’000	Furniture & fttings NZ$’000 Computer equipment NZ$’000 Total NZ$’000
As at 31 July 2020
Cost	9,722 95,149 45,612	99,855 20,251 270,589
Accumulated depreciation	(4,095) (63,383) (30,516)	(68,072) (16,065) (182,131)
Closing net book value	5,627 31,766 15,096	31,783 4,186 88,458
Year ended 31 July 2021
Opening net book value	5,627 31,766 15,096	31,783 4,186 88,458
Additions	63 3,752 694	7,576 2,959 15,044
Disposals	(1) (865) (74)	(374) (23) (1,337)
Depreciation	(596) (8,369) (1,289)	(8,978) (1,619) (20,851)
Impairment	- - -	(16) - (16)
Transfers between categories	52 1,228 (2,169)	771 118 -
Exchange differences	(379) (512) (307)	(705) (111) (2,014)
Closing net book value	4,766 27,000 11,951	30,057 5,510 79,284
As at 31 July 2021
Cost	8,691 92,270 30,130	101,699 21,175 253,965
Accumulated depreciation	(3,925) (65,270) (18,179)	(71,642) (15,665) (174,681)
Closing net book value	4,766 27,000 11,951	30,057 5,510 79,284

Depreciation

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.

Depreciation
	2021 NZ$’000 2020 NZ$’000
Land and buildings	596 370
Leasehold improvement	8,369 7,815
Office, plant and equipment	1,289 2,581
Furniture and fittings	8,978 7,670
Computer equipment	1,619 1,230
	20,851 19,666

	2021	2020
	NZ$’000	NZ$’000
Loss on sale of property,	1,337	3,067
plant and equipment

Capital commitments

Depreciation expense is excluded from administration and general expenses in the consolidated statement of comprehensive income.

Capital commitments contracted for at balance sheet date include property, plant and equipment of $4,110,000 (2020: $975,000).

49

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KATHMANDU HOLDINGS LTD

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

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.

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.

Software is amortised using straight-line and diminishing value methods at rates of 20-67%.

Refer to note 1.2.1 for further consideration in respect of the IFRS Interpretations Committee (‘IFRIC’) agenda decision on configuration and customisation costs incurred in implementing Software-as-aService (‘SaaS’) cloud computing arrangements.

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 cashgenerating units that are expected to benefit from the business combination in which the goodwill arose.

Other intangibles

Brand

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.

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.

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.

Customer relationships

Acquired customer relationships are carried at original cost based on independent valuation obtained at the date of acquisition less accumulated amortisation. They are amortised on a straight-line basis over a useful life of 5-10 years. The estimated useful life and amortisation period is reviewed at the end of each annual reporting period.

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.

Software costs

Software costs have a finite useful life. Software costs are capitalised and written off over the useful economic life.

Intangible assets

Goodwill Brand Customer relationship Software Other intangibles	Total
NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000	NZ$’000
As at 31 July 2019 Cost 191,592 185,081 1,868 33,206 -	411,747
Accumulated amortisation (1,271) - (250) (24,165) -	(25,686)
Closing net book value 190,321 185,081 1,618 9,041 -	386,061
Year ended 31 July 2020 Opening net book value 190,321 185,081 1,618 9,041 -	386,061
Acquisition of businesses (note 5.1) 91,637 169,687 39,697 917 2,883	304,821
Additions - - - 4,463 -	4,463
Disposals - - - - -	-
Amortisation - - (3,932) (3,607) -	(7,539)
Exchange differences (199) 2,355 (101) 17 57	2,129
Closing net book value 281,759 357,123 37,282 10,831 2,940	689,935
As at 31 July 2020 Cost 283,030 357,123 41,495 58,943 4,552	745,143
Accumulated amortisation (1,271) - (4,213) (48,112) (1,612)	(55,208)
Closing net book value 281,759 357,123 37,282 10,831 2,940	689,935
Year ended 31 July 2021 Opening net book value 281,759 357,123 37,282 10,831 2,940	689,935
Additions - - - 20,509 -	20,509
Disposals - - - (25) -	(25)
Amortisation - - (5,203) (3,411) -	(8,614)
Exchange differences (5,358) (6,996) (695) (79) (126)	(13,254)
Closing net book value 276,401 350,127 31,384 27,825 2,814	688,551
As at 31 July 2021 Cost 277,672 350,127 40,621 78,725 4,358	751,503
Accumulated amortisation (1,271) - (9,237) (50,900) (1,544)	(62,952)
Closing net book value 276,401 350,127 31,384 27,825 2,814	688,551

Sale of intangibles

Impairment tests for goodwill and brand

The aggregate carrying amounts of goodwill and brand allocated to each unit for impairment testing are as follows:

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the consolidated statement of comprehensive income.

	Goodwill Brand
	2021 2020 2021	2020
	NZ$’000 NZ$’000 NZ$’000 NZ$’000
Kathmandu	45,484 45,484 51,000	51,000
New Zealand
Kathmandu	75,899 76,496 97,151	99,140
Australia
Oboz	65,315 68,239 35,873	37,479
Rip Curl	89,703 91,540 166,103	169,504
	276,401 281,759 350,127	357,123

comprehensive income.
	2021	2020
	NZ$’000	NZ$’000
Loss on sale of intangibles	25	-

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For the purposes of goodwill and brand impairment testing, the Group operates as four groups of cash generating units, Kathmandu New Zealand, Kathmandu Australia, Rip Curl and Oboz. The recoverable amount of each cash generating unit (CGU) has been determined based on the fair value less cost of disposal (FVLCOD). Five-year projected cash flows are used to determine the FVLCOD.

The 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. Pretax discount rates are calculated based on a market participant expected capital structure and cost of debt to derive a weighted average cost of capital.

The calculations confirmed that there was no impairment of goodwill and brand during the year (2020: nil). The Directors believe that any reasonably possible change in the key assumptions used in the calculations would not cause the carrying amount to exceed its recoverable amount.

The discounted cash flow valuations were calculated using post tax cash flow projections based on financial budgets prepared by management and approved by the Directors for the year ended 31 July 2022. Cash flows beyond July 2022 are based on threeyear business plans presented to the Directors.

The expected continued promotion and marketing of the Kathmandu, Oboz and Rip Curl brands supports the assumption that the brand has an indefinite life.

The key assumption used:

• The FVLCOD model assume continued COVID-19 disruption in the 2022 financial year and a return to more normalised trading conditions previously experienced in 2023 and beyond. The Group believes the assumptions used in cash flows reflect a combination of the Groups experience and uncertainty associated with COVID-19.

Capital commitments

Capital commitments contracted for at balance sheet date include intangible assets of $7,271,000 (2020: $709,000).

• 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:

CGU. Several scenarios have been assessed where trading conditions do not normalise until the 2024 financial year, in each scenario the fair value for the CGU exceeds the carrying value. Other assumptions used:
2021	2020
KMD NZ CGU KMD AU CGU Rip Curl CGU Oboz CGU Pre-tax WACC 11.3% 11.3% 11.3% 11.3% Post-tax WACC 8.1% 7.9% 7.9% 8.2% Terminal growth rate 2.0% 2.0% 2.0% 2.0%	KMD NZ CGU KMD AU CGU Rip Curl CGU Oboz CGU 11.5% 11.4% 13.2% 11.8% 8.3% 8.0% 9.3% 8.6% 1.0% 1.0% 1.5% 1.0%

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 lease term has changed in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

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.

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.

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 rightof-use asset in a similar economic environment.

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.

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.

Right-of-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset. The depreciation starts at the commencement date.

The 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 applies NZ IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

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KATHMANDU HOLDINGS LTD

Section 4 Capital Structure and Financing Costs

3.4.2 Lease liabilities

Variable rents

The movements in lease liabilities were as follows:

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.

	2021	2020
	NZ$’000	NZ$’000
Opening lease liabilities	298,622	-
Movements on transition	-	215,389
Lease liabilities recognised	-	119,725
on acquisition (note 5.1)
Additions and modifications	75,601	37,886
to lease liability
Interest expense on	8,879	8,874
lease liabilities
Repayment of lease liabilities	(98,694)	(86,110)
(including interest)
Exchange differences	(5,137)	2,858
Closing lease liabilities	279,271	298,622

Group as a lessee

The Group leases several assets including buildings and motor vehicles. Some of the existing lease arrangements have right of renewal options for varying terms. Renewal options are included within the lease liability if they are within 2 years and the Group is reasonably certain to take up the option. The average lease term for property leases, including expected rights of renewal, is 8 years (2020: 8 years). The average lease term for vehicle leases is 3 years (2020: 3 years).

Lease liability maturity analysis

y y.	Lease liability maturity analysis
3.4.1 Right-of-use assets The movements in right of use assets were as follows: 2021 NZ$’000 2020 NZ$’000 Opening net book value 258,699 - Movements on transition - 178,774 Right-of-use assets recognised on acquisition (note 5.1) - 118,457 Additions and modifications to right-of-use asset 76,853 37,939 Depreciation for the period (86,382) (76,380) Impairment for the period (1,894) (2,050) Exchange differences (4,599) 1,959 Closing net book value 242,677 258,699 Cost 391,327 336,942 Accumulated amortisation & impairment (148,650) (78,243)	Gross lease payments NZ$’000 Interest NZ$’000	Carrying amount NZ$’000
	As at 31 July 2021 Within one year 82,639 (7,067) One to five years 180,207 (12,559) Beyond five years 38,433 (2,382)
		75,572
		167,648
		36,051
	301,279 (22,008)	279,271
	Current Non-current
		75,572
		203,699
		279,271
	As at 31 July 2020 Within one year 85,909 (7,874) One to five years 195,128 (13,901) Beyond five years 41,907 (2,547)
		78,035
		181,227
		39,360
	322,944 (24,322)	298,622
Closing net book value 242,677 258,699	Current	78,035
	Non-current	220,587
		298,622

In this section

This section outlines how the Group manages its capital structure and related financing costs, including its balance sheet liquidity and access to capital markets.

Capital structure is how an entity finances its overall operations and growth by using different sources of funds. The Directors determine and monitor the appropriate capital structure of the Group, specifically how much is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) to finance the Group’s activities both now and in the future.

The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of announcing results and do so in the context of its ability to continue as a going concern, to execute strategy and to deliver its business plan.

debt is secured by the assets of the guaranteeing group in accordance with the Security Trust Deed dated 25 October 2019 as amended 26 May 2021.

4.1 Interest bearing liabilities

Accounting policies

Interest bearing liabilities are the Group’s borrowings. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method.

The covenants entered into by the Group require specified calculations of Group earnings before interest, tax, depreciation and amortisation (EBITDA) plus lease rental costs to exceed total fixed charges (net interest expense and lease rental costs) at the end of each half during the financial year. Similarly, EBITDA must be no less than a specified proportion of total net debt at the end of each six-month interim period. The calculations of these covenants are specified in the bank facility agreement of 25 October 2019 as amended and restated on 26 May 2021. The Group has complied with its banking covenants at all measurement points during the year.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

The table below separates borrowings into current and non-current liabilities:

The current interest rates, prior to hedging, on the term loans ranged between 0.95% - 1.05% (2020: 1% - 1.25%).

non-current liabilities:
	2021	2020
	NZ$’000	NZ$’000
Current portion	-	-
Non-current portion	105,597	241,270
	105,597	241,270

Paycheck Protection Program (PPP) loans

As part of the US government response to COVID-19 the Group’s US resident companies applied for Paycheck Protection Program (PPP) loans of US$2,814,000 in the year ended 31 July 2020. The Group believes that these entities met the criteria to qualify for the loans at the date of the application.

Group Facility Agreement

The Group has a multi-option syndicated facility agreement, with a sustainability linked loan of A$100 million, a revolving cash advance facility of A$115 million and NZ$24 million, trade finance sub-facilities of A$30 million and NZ$10 million, and instruments sub-facilities of A$20 million and NZ$4 million. All facilities are repayable in full on 26 May 2024.

The PPP loan is initially received as a loan and once various criteria are met the Group is able to apply for forgiveness of that loan. During the year, the Group has applied for and received forgiveness of the PPP loan for one of the US resident entities and consequently a $669,000 gain was recognised in the consolidated statement of comprehensive income during the year.

Interest is payable based on the BKBM rate (NZD borrowings), the BBSY rate (AUD borrowings), or the applicable short-term rate for interest periods less than 30 days, plus a margin of up to 1.25%. The

The Group has also applied for forgiveness of the remaining PPP loan prior to balance date as it believes it has provided all the necessary documents to support full forgiveness.

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FINANCIAL STATEMENTS

KATHMANDU HOLDINGS LTD

This application has been reviewed and approved by the lender and is in the final approval process with the US Small Business Association (SBA). Whilst the application is still being processed the Group believe it has reasonable assurance that it has met the conditions for forgiveness. Accordingly, the Group has recognised a further gain of $3,356,000 in the consolidated statement of comprehensive income during the year.

The eligibility and forgiveness of the application being processed remains subject to a possible audit by the federal government at which time the loan could be deemed not to be eligible. In the event of an unfavourable outcome of the forgiveness application the group would be required to repay the PPP loan as well as 1% interest on that loan from the period it was received until the date it was repaid.

Based on loan criteria and the steps taken by the Group above the balance of the PPP loan at 31 July 2021 is nil (2020: $4,201,000).

Reconciliation of movement in borrowings

	2021	2020
	NZ$’000	NZ$’000
Opening balance	241,270	25,500
Net cash flow movement	(128,894)	212,989
PPP loan forgiven	(4,025)	-
Foreign exchange movement	(2,754)	2,781
Closing balance	105,597	241,270

Borrowings maturity analysis

	2021	2020
	NZ$’000	NZ$’000
Principal of interest-bearing
liabilities:
Payable within 1 year	-	-
Payable 1 to 2 years	-	4,201
Payable 2 to 3 years	105,597	237,069
Payable 3 to 4 years	-	-
	105,597	241,270

4.1.1 Finance costs

4.1.1 Finance costs
	2021	2020
	NZ$’000	NZ$’000
Interest income	(834)	(449)
Interest expense on term	2,370	4,780
debt
Interest on lease liabilities	8,879	8,874
Other finance costs	5,358	9,246
Net exchange loss / (gain) on	704	922
foreign currency
	16,477	23,373

Other finance costs relate to facility fees on banking arrangements and debt underwriting costs.

4.1.2 Cash flow and fair value interest rate risk

Interest rate risk is the risk that fluctuations in interest rates impact the Group’s financial performance.

==> picture [243 x 107] intentionally omitted <==

----- Start of picture text -----

Risk Exposure Monitoring Management
arising from
Interest Interest Cash flow Interest rate
rate risk bearing forecasting swaps
liabilities Sensitivity
at floating analysis
interest
rates
----- End of picture text -----

Refer to note 4.2 for notional principal amounts and valuations of interest rate swaps outstanding at balance sheet date. A sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table below.

At the reporting date the interest rate profile of the Group's banking facilities was (carrying amount):

	2021	2020
	NZ$’000	NZ$’000
Total secured borrowings	105,597	241,270
Less Principal covered by	-	(5,000)
interest rate swaps
Net principal subject to	105,597	236,270
floating interest rates

Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. The cash flow hedge loss on interest rate swaps at balance sheet date was nil (2020: $54,106).

Summarised sensitivity analysis

The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk.

A sensitivity of 1% (2020: 1%) has been selected for interest rate risk. The 1% is based on reasonably possible changes over a financial year, using the observed range of historical data for the preceding five-year period.

Amounts are shown net of income tax. All variables other than applicable interest rates are held constant. The impact on equity is presented exclusive of the impact on retained earnings.

-1% +1%	-1% +1%	-1% +1%
Carrying amount NZ$’000	Proft NZ$’000 Equity NZ$’000	Proft NZ$’000 Equity NZ$’000
As at 31 July 2021 Derivative financial instruments (asset) / liability (4,206) Financial assets Cash and cash equivalents 142,614
	- -	- -
	(1,027) -	1,027 -
Financial liabilities Interest bearing liabilities (105,597) Lease liabilities (279,271)	(1,027) -	1,027 -
	1,056 -	(1,056) -
	2,793 -	(2,793) -
	3,849 -	(3,849) -
Net increase / (decrease)	2,822 -	(2,822) -

-1% +1%	-1% +1%	-1% +1%
Carrying amount NZ$’000	Proft NZ$’000 Equity NZ$’000	Proft NZ$’000 Equity NZ$’000
As at 31 July 2020 Derivative financial instruments asset / (liability) (7,361) Financial assets Cash and cash equivalents 231,885
	(50) 38	50 (37)
	(1,670) -	1,670 -
Financial liabilities Interest bearing liabilities (241,270) Lease liabilities (298,622)	(1,670) -	1,670 -
	2,413 -	(2,413) -
	2,986 -	(2,986) -
	5,399 -	(5,399) -
Net increase / (decrease)	3,679 38	(3,679) (37)

4.1.3 Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

==> picture [501 x 48] intentionally omitted <==

----- Start of picture text -----

Risk Exposure arising from Monitoring Management
Liquidity risk Trade and other payables Cash flow forecasting Active working capital management
Interest bearing liabilities Flexibility in funding arrangements
----- End of picture text -----

The Group has borrowing facilities of NZD $317,831,045 / AUD $300,986,000 (2020: NZD $398,818,966 / AUD $370,104,000) and operates well within this facility. This includes short term bank overdraft requirements, and at balance sheet date no bank accounts were in overdraft.

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4.2 Derivative financial instruments

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.

	Less than Between Between	Over
	1 year 1 - 2 years 2 - 5 years	5 years
	NZ$’000 NZ$’000 NZ$’000	NZ$’000
As at 31 July 2021
Trade and other payables	106,583 - -	-
Interest bearing liabilities	1,045 1,045 106,456	-
	107,628 1,045 106,456	-
As at 31 July 2020
Trade and other payables	109,644 - -	-
Interest bearing liabilities	3,007 7,197 238,060	-
	112,651 7,197 238,060	-

The Group enters into forward exchange contracts to manage the risks associated with the purchase of foreign currency denominated products.

The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. They are expected to occur and affect the profit or loss at various dates between balance sheet dates and the following five years.

occur and affect the profit or loss at various dates	between balance sheet dates and the following five years.
	Less than Between Between	Over
	1 year 1 - 2 years 2 - 5 years 5 years
	NZ$’000 NZ$’000 NZ$’000 NZ$’000
As at 31 July 2021
Forward foreign exchange contracts
Inflow	169,991 - -	-
Outflow	(165,785) - -	-
Net inflow / (outflow)	4,206 - -	-
Interest rate swaps
Outflow	- - -	-
Net inflow / (outflow)	- - -	-
As at 31 July 2020
Forward foreign exchange contracts
Inflow	179,857 - -	-
Outflow	(187,164) - -	-
Net inflow / (outflow)	(7,307) - -	-
Interest rate swaps
Outflow	(51) - -	-
Net inflow / (outflow)	(51) - -	-

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.

equity and included in the measurement of the initial cost or carrying amount of the asset or liability.

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).

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.

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.

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.

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

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Derivative financial instruments

==> picture [501 x 187] intentionally omitted <==

----- Start of picture text -----

||||
|---|---|---|
|2021|2020|
|NZ$’000|NZ$’000|
|Foreign exchange contracts|
|Current asset|5,285|53|
|Current liability|(1,079)|(7,360)|
|Net foreign exchange contracts - cash flow hedge (asset / (liability))|4,206|(7,307)|
|Interest rate swaps|
|-|
|Current liability|(54)|
|-|-|
|Non-current liability|
|-|
|Net interest rate swaps - cash flow hedge (asset / (liability))|(54)|
|Total derivative financial instruments|4,206|(7,361)|

----- End of picture text -----

The above table shows the Group’s financial derivative holdings at year end.

Interest rate swaps - cash flow hedge

Interest rate swaps are to exchange a floating rate of interest for a fixed rate of interest. The objective of the transaction is to hedge the core floating rate borrowings of the business to minimise the impact of interest rate volatility within acceptable levels of risk thereby limiting the volatility on the Group's financial results. The notional amount of interest rate swaps at balance sheet date was nil (2020: $5,000,000). The fixed interest rate is nil (2020: 1.32%). Refer to note 4.1.3 for timing of contractual cash flows relating to interest rate swaps.

Foreign exchange contracts - cash flow hedge

The objective of these contracts is to hedge highly probable anticipated foreign currency purchases against currency fluctuations. These contracts are timed to mature when import purchases are scheduled for payment. The notional amount of foreign exchange contracts amounts to US$117,650,000 / NZ$164,706,000 (2020: US$114,460,000 / NZ$179,803,000).

No material hedge ineffectiveness for interest rate swaps or foreign exchange contracts exists as at balance sheet date (2020: nil).

Refer to note 4.2.1 for a sensitivity analysis of foreign exchange risk associated with derivative financial instruments.

4.2.1 Foreign exchange risk

Foreign exchange risk is the risk that fluctuations in exchange rates will impact the Group’s financial performance. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the AUD, USD and EUR.

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Risk Exposure arising from Monitoring Management
Foreign Foreign currency purchases Forecast purchases USD foreign exchange derivatives
exchange risk (over 90% of
Reviewing exchange
purchases in USD)
rate movements
----- End of picture text -----

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.

Summarised sensitivity analysis

The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to foreign exchange risk.

A sensitivity of -10% / +10% (2020: -10% / +10%) for foreign exchange risk has been selected. While it is unlikely that an equal movement of the New Zealand dollar would be observed against all currencies, an overall sensitivity of -10% / +10% (2020: -10% / +10%) is reasonable given the exchange rate volatility observed on a historic basis for the preceding five-year period and market expectation for potential future movements.

Amounts are shown net of income tax. All variables other than applicable exchange rates are held constant. The impact on equity is presented exclusive of the impact on retained earnings.

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|||||||
|---|---|---|---|---|---|
|-10%|+10%|
|Carrying|Profit|Equity|Profit|Equity|
|amount|NZ$’000|NZ$’000|NZ$’000|NZ$’000|
|NZ$’000|
|As at 31 July 2021|
|Derivative financial instruments (asset) / liability|(4,206)|-|(18,755)|-|15,346|
|Financial assets|
|Cash and cash equivalents|142,614|10,639|-|(8,705)|-|
|Trade and other receivables|62,562|(4,967)|-|4,064|-|
|5,672|-|(4,641)|-|
|Financial liabilities|
|Trade and other payables|(164,024)|(11,743)|-|9,608|-|
|Interest bearing liabilities|(105,597)|8,448|-|(6,912)|-|
|(3,295)|-|2,696|-|
|Net increase / (decrease)|2,377|(18,755)|(1,945)|15,346|
|-10%|+10%|
|Carrying|
|amount|Profit|Equity|Profit|Equity|
|NZ$’000|NZ$’000|NZ$’000|NZ$’000|NZ$’000|
|As at 31 July 2020|
|Derivative financial instruments asset / (liability)|(7,361)|-|(19,160)|-|15,676|
|Financial assets|
|Cash and cash equivalents|231,885|15,964|-|(13,062)|-|
|Trade and other receivables|64,680|(5,063)|-|4,143|-|
|10,901|-|(8,919)|-|
|Financial liabilities|
|Trade and other payables|(164,263)|(11,579)|-|9,473|-|
|Interest bearing liabilities|(241,270)|19,302|-|(15,792)|-|
|7,723|-|(6,319)|-|
|Net increase / (decrease)|18,624|(19,160)|(15,238)|15,676|

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KATHMANDU HOLDINGS LTD

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 2021 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

	2021 NZ$’000 2020 NZ$’000
Ordinary shares fully paid	626,380 626,380
Opening balance	626,380 251,113
Shares issued under Executive and Senior Management Long-Term Incentive Plan	- 1,666
Shares issued under share entitlement offers and share placement	- 340,646
Shares issued as consideration on a business combination (note 5.1)	- 32,955
Closing balance	626,380 626,380

Number of issued shares

	2021 NZ$’000 2020 NZ$’000
Opening balance	709,001 226,189
Shares issued under Executive and Senior Management Long-Term Incentive Plan	- 927
Shares issued under share entitlement offers and share placement	- 470,612
Shares issued as consideration on a business combination (note 5.1)	- 11,273
Closing balance	709,001 709,001

As at 31 July 2021 there were 709,001,384 (2020: 709,001,384) ordinary issued shares in Kathmandu Holdings Limited and these are classified as equity.

No shares (2020: 926,996) were issued under the ‘Executive and Senior Management Long Term Incentive Plan 24 November 2010’ during the year.

All ordinary shares carry equal rights in respect of voting and the receipt of dividends. Ordinary shares do not have a par value.

4.3.2 Reserves and retained earnings

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.

Cash flow hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in other comprehensive income, as described in the accounting policy in note 4.2. The amounts are recognised in profit or loss when the associated hedged transaction affects profit or loss.

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.

Foreign currency translation reserve

The foreign currency translation reserve is used to record foreign currency translation differences arising on the translation of the Group entities

Reserves

Reserves
		2021	2020
		NZ$’000	NZ$’000
Cash flow hedging reserve
Opening balance		(5,141)	4,118
Revaluation - gross		5,685	(3,799)
Deferred taxation on revaluation	2.3	(5,126)	3,903
Transfer to hedged asset		5,923	(9,255)
Transfer to net profit - gross		-	(108)
Closing balance		1,341	(5,141)
Foreign currency translation reserve
Opening balance		(12,018)	(12,272)
Currency translation differences - gross		(17,444)	254
Currency translation differences - taxation	2.3	-	-
Closing balance		(29,462)	(12,018)
Share-based payments reserve
Opening balance		608	1,983
Current year amortisation		1,798	378
Deferred taxation on share options	2.3	289	(87)
Transfer to share capital on vesting of shares to employees		-	(1,666)
Share options / performance rights lapsed		(58)	-
Closing balance		2,637	608
Other reserves
Opening balance		(61)	-
Current year expense recognised in other comprehensive income		14	(61)
Deferred taxation on other comprehensive income	2.3	-	-
Closing balance		(47)	(61)
Total reserves		(25,531)	(16,612)

Refer to note 6.3 for Employee share-based remuneration plans.

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KATHMANDU HOLDINGS LTD

Section 5 Group Structure

4.3.3 Dividends

4.3.3 Dividends
	2021	2020
	NZ$’000	NZ$’000
Prior year final dividend paid	-	27,209
Current year interim dividend paid	14,180	-
Dividends paid	14,180	27,209

Dividends paid represent NZ$0.02 per share (2020: NZ $0.12).

4.3.4 Capital risk management

The Group’s capital includes contributed equity, reserves and retained earnings.

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt.

Keeping it simple

This section provides information about the entities that make up the Kathmandu Holdings Limited Group and how they affect the financial performance and position of the Group.

5.1 Acquisition of Rip Curl Group Pty Ltd

As a result, the following adjustments have been recognised in the finalised purchase price allocation; an increase in other current assets of $2,803,000, a decrease in property, plant, and equipment of $2,253,000, an increase in the right of use asset and lease liability of $1,161,000, an increase in trade and other payables of $6,158,000 and a corresponding increase in goodwill $5,608,000. Finally, in preparing the financial statements for the year ended 31 July 2021 the Group has identified an error in the interim financial statements which has been corrected in these financial statements. The nature of the error related to an overstatement of deferred tax by $454,000, understatement of current tax by $2,208,000 and an understatement of goodwill by $1,754,000. The statement if comprehensive income and cash flows remain unchanged.

On 31 October 2019 Kathmandu Holdings Limited through

its wholly owned subsidiary Barrel Wave Holdings Pty Limited acquired 100% of the equity interests in Rip Curl Group Pty Limited and its controlled entities based out of Australia. The total purchase price was A$350,000,000. The non-controlling interest on acquisition relates to the interest acquired by the Group in Rip Curl joint ventures in New Zealand, Thailand and Europe.

Rip Curl is a designer, manufacturer, wholesaler, and retailer of surfing equipment and apparel, and has a global presence across Australia, New Zealand, North America, Europe, South East Asia and Brazil. The acquisition creates a global outdoor and action sports Group anchored by two iconic Australian brands and provides the opportunity for Kathmandu to considerably diversify its geographic footprint, channels to market and seasonality profile.

The comparatives presented in these financial statements reflect these changes and the resultant cumulative impact as at 31 July 2020 is $11,000.

The acquisition accounting fair value adjustments were on a provisional basis in the Group’s 31 July 2020 consolidated financial statements. The acquisition accounting adjustments have now been finalised and updated to reflect independent valuations performed on the net assets recognised on acquisition.

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KATHMANDU HOLDINGS LTD

Final Purchase Price Allocation

	NZ$’000
Purchase price	377,562
Less Net indebtedness adjustment	(78,147)
Plus Working capital settlement adjustments	23,437
Total net consideration	322,852
Carrying amounts of identifiable assets acquired and liabilities assumed:
Current assets
Cash and cash equivalents	29,142
Trade and other receivables (net)	83,361
Inventories (net)	124,675
Derivative financial instruments	990
Current tax asset	6,216
Other current assets	2,803
Non-current assets
Other receivables	4,496
Property, plant and equipment	35,276
Right-of-use assets	118,457
Brand	169,687
Customer relationships	39,697
Other intangibles	3,800
Current liabilities
Trade and other payables	(84,164)
Current tax liability	(2,224)
Current lease liabilities	(33,788)
Non-current liabilities
Non-current trade and other payables	(7,571)
Non-current lease liabilities	(85,937)
Interest bearing liabilities	(115,366)
Deferred tax	(55,000)
_Less_Non-controlling interest acquired	(3,335)
Net assets acquired	231,215
Goodwill on acquisition	91,637
Total net consideration	322,852
Less Cash and cash equivalents acquired	(29,142)
Less Consideration paid as shares	(32,955)
Plus Indebtedness settled on acquisition	115,366
Net cash outflow on acquisition	376,121

5.2 Subsidiary companies

Subsidiaries are all entities over which the Group has control. Control is achieved when the Group:

• has power over the entity;

• is exposed to, or has rights to, variable returns from its involvement with the entity; and

• can use its power to affect returns.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. All subsidiaries in the Group have a balance date of 31 July.

The following entities comprise the significant trading and holding companies of the Group:

the Group loses control of the subsidiary. All subsidiaries in the Group have a balance date of 31 July. The following entities comprise the significant trading and holding companies of the Group:
Companies Parties to Deed of Cross Guarantee Country of incorporation Parent % holding 2021	Parent % holding 2020
Parent entity: Kathmandu Holdings Limited √ New Zealand Subsidiaries: Milford Group Holdings Limited √ New Zealand 100%	100%
Kathmandu Limited New Zealand 100%	100%
Kathmandu Pty Limited √ Australia 100%	100%
Kathmandu (U.K.) Limited United Kingdom 100%	100%
Kathmandu US Holdings LLC United States of America 100%	100%
Oboz Footwear LLC United States of America 100%	100%
Barrel Wave Holdings Pty Ltd √ Australia 100%	100%
Rip Curl Group Pty Ltd √ Australia 100%	100%
Rip Curl International Pty Ltd √ Australia 100%	100%
PT Jarosite Indonesia 100%	100%
Rip Curl Pty Ltd √ Australia 100%	100%
Onsmooth Thai Co Ltd Thailand 100%	100%
Rip Curl Investments Pty Ltd Australia 100%	100%
Blue Surf Pty Ltd Australia 100%	100%
RC Surf Pty Ltd Australia 100%	100%
Rip Curl Airport & Tourist Stores Pty Ltd Australia 100%	100%
JRRC Rundle Mall Pty Ltd Australia 100%	100%
Rip Curl (Thailand) Ltd Thailand 50%	50%
RC Airports Pty Ltd Australia 100%	100%
Ozmosis Pty Ltd √ Australia 100%	100%
RC Chermside Pty Ltd Australia 100%	100%
Bondi Rip Pty Ltd Australia 100%	100%
Rip Curl Japan Japan 100%	100%
Curl Retail No 1. Pty Ltd Australia 100%	100%
RC Surf Sydney Pty Ltd Australia 100%	100%
RC Surf South Pty Ltd Australia 100%	100%
RC Surf NZ Limited (50% share acquired 1 April 2021) New Zealand 100%	50%
Rip Curl Finance Pty Ltd √ Australia 100%	100%
Rip Curl Europe S.A.S France 100%	100%
Rip Curl Spain S.A.U Spain 100%	100%
Rip Curl Suisse S.A.R.L Switzerland 100%	100%
Surf Odyssey S.A.R.L (70% share sold in July 2020) France 0%	0%
Rip Surf LDA Portugal 100%	100%
Rip Curl UK Ltd United Kingdom 100%	100%
Rip Curl Germany GMBH Germany 100%	100%
Rip Curl Italy SRL (liquidated) Italy 0%	100%
Rip Curl Nordic AB Sweden 100%	100%
Rip Curl Inc United States of America 100%	100%
Ultra Manufacturing Inc (liquidated) Mexico 0%	100%
Rip Curl Canada Inc Canada 100%	100%
RipCurl Brazil LTDA Brazil 100%	100%

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KATHMANDU HOLDINGS LTD

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.

5.3 Deed of Cross Guarantee

Pursuant to ASIC Corporations (wholly owned Companies) Instrument 2016/785, the Australianincorporated 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.

A consolidated statement of comprehensive income and balance sheet, comprising the Company and controlled entities, which are parties to the Deed of Cross Guarantee, after eliminating all transactions between parties to the Deed of Cross Guarantee, at 31 July 2021, are set out as follows:

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

Consolidated Statement of Comprehensive Income and Retained Earnings for the year ended 31 July 2021

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||||
|---|---|---|
|2021|2020|
|NZ$’000|NZ$’000|
|Sales|492,039|457,884|
|Expenses|(439,194)|(425,850)|
|Finance costs - net|(13,601)|(16,249)|
|Profit before income tax|39,244|15,785|
|Income tax expense|(13,077)|(7,903)|
|Profit after income tax|26,167|7,882|
|Other comprehensive income|(2,245)|1,786|
|Total comprehensive income for the year|23,922|9,668|
|Opening retained earnings|(60,753)|(34,571)|
|Profit for the year after income tax|26,167|7,882|
|Dividends paid|(14,180)|(27,209)|
|Share options / performance rights lapsed|58|-|
|-|
|Adoption of NZ IFRS 16|(6,855)|
|Closing retained earnings|(48,708)|(60,753)|

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Consolidated Balance Sheet as at 31 July 2021

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||||
|---|---|---|
|2021|2020|
|NZ$’000|NZ$’000|
|ASSETS|
|Current assets|
|Cash and cash equivalents|100,627|204,918|
|Trade and other receivables|14,524|23,748|
|Inventories|115,886|106,825|
|Derivative financial instruments|4,044|4|
|Current tax asset|116|3,490|
|Other current assets|546|922|
|Total current assets|235,743|339,907|
|Non-current assets|
|Trade and other receivables|61,711|78,460|
|Investments|348,611|347,481|
|Property, plant and equipment|43,230|50,747|
|Intangible assets|460,819|474,495|
|Right-of-use assets|133,901|156,855|
|Total non-current assets|1,048,272|1,108,038|
|Total assets|1,284,015|1,447,945|
|LIABILITIES|
|Current liabilities|
|Trade and other payables|73,797|80,400|
|Derivative financial instruments|534|5,364|
|Current tax liabilities|9,037|10,036|
|Current lease liabilities|53,388|56,583|
|Total current liabilities|136,756|152,383|
|Non-current liabilities|
|Non-current trade and other payables|7,635|7,726|
|Interest bearing liabilities|105,597|237,069|
|Loans with related parties|289,129|295,614|
|Deferred tax|65,874|65,303|
|Non-current lease liabilities|106,239|128,893|
|Total non-current liabilities|574,474|734,605|
|Total liabilities|711,230|886,988|
|Net assets|572,785|560,957|
|EQUITY|
|Contributed equity - ordinary shares|626,380|626,380|
|Reserves|(4,887)|(4,670)|
|Retained earnings|(48,708)|(60,753)|
|Total equity|572,785|560,957|

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KATHMANDU HOLDINGS LTD

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

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||||
|---|---|---|
|2021|2020|
|NZ$’000|NZ$’000|
|Salaries|3,930|3,147|
|Other short-term employee|452|55|
|benefits|
|Post-employment benefits|75|58|
|Share-based payments|(196)|378|
|expense|
|4,261|3,638|

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6.2 Fair values

The following methods and assumptions were used to estimate the fair values for each class of financial instrument:

Trade debtors, trade creditors and bank balances

The carrying value of these items is equivalent to their fair value.

Term liabilities

The fair value of the Group's term liabilities is estimated based on current market rates available to the Group for debt of similar maturity. The fair value of term liabilities equates to their current carrying value.

Foreign exchange contracts and interest rate swaps

The fair value of these instruments is determined using valuation techniques (as they are not traded in an active market). These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.

Specific valuation techniques used to value financial instruments include the fair value of interest rate swaps. These are calculated at the present value of the estimated future cash flows, based on observable yield curves and the fair value of forward foreign exchange contracts, as determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value.

These derivatives have all been determined to be within level 2 (for the purposes of NZ IFRS 13) of the fair value hierarchy as all significant inputs required to ascertain the fair value of these derivatives are observable.

Guarantees and overdraft facilities

The fair value of these instruments is estimated on the basis that management do not expect settlement at face value to arise. The carrying value and fair value of these instruments are approximately nil. All guarantees are payable on demand.

6.3 Employee share-based remuneration

Accounting policy

Equity settled long term incentive plan

The Executive and Senior Management Long Term Incentive plan grants Group employee’s performance rights subject to performance hurdles being met. The fair value of rights granted is recognised as an employee expense in the consolidated statement of comprehensive income with a corresponding increase in the employee share-based payments reserve. The fair value is measured at grant date and amortised over the vesting periods. The fair value of the rights granted is measured using the Kathmandu Holdings Limited share price as at the grant date less the present value of the dividends forecast to be paid prior to each vesting date. At each balance sheet date, the Company revises its estimates of the number of shares expected to be distributed. It recognises the impact of the revision of original estimates, if any, in the consolidated statement of comprehensive income, and a corresponding adjustment to equity over the remaining vesting period.

Executive and Senior Management Long Term Incentive Plan

On 20 November 2013, shareholders approved at the Annual General Meeting the continuation of an Employee Long Term Incentive Plan (LTI) (previously established 24 November 2010) to grant performance rights to Executive Directors, Senior Managers, Other Key Management Personnel and Wider Leadership Management.

Executive Directors and Senior Managers

Performance rights granted to Executive Directors and Senior Managers are summarised below:

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|||||||
|---|---|---|---|---|---|
|Opening|Granted|Vested|Lapsed|Closing|
|balance|during the year|during the year|during the year|balance|
|Grant date|
|22 Dec 2020|-|1,351,890|-|-|1,351,890|
|9 Jul 2020|597,731|-|-|(276,372)|321,359|
|20 Dec 2018|261,388|-|-|(204,739)|56,649|
|20 Dec 2017|374,437|-|-|(374,437)|-|
|1,233,556|1,351,890|-|(855,548)|1,729,898|

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The performance rights granted on 22 December 2020 are Long Term Incentive components only.

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:

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:

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||||
|---|---|---|
|2021|2020|
|Fair value of TSR rights|$124,408|$119,546|
|Current price at grant date|$1.26|$1.14|
|Risk free interest rate|0.28%|0.34%|
|Expected life (years)|3|3|
|Expected share volatility|73.0%|69.5%|

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|||||
|---|---|---|---|
|Grant date|Tranche|EPS|TSR|
|weighting|weighting|
|22 Dec 2020|Tranche 1|50%|50%|
|9 Jul 2020|Tranche 1|0%|100%|
|20 Dec 2018|Tranche 1|50%|50%|
|20 Dec 2017|Tranche 1|50%|50%|

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The proportion of rights subject to the relative TSR hurdle

The estimated fair value for each tranche of rights issued is amortised over the vesting period from the grant date.

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:

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:

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|||
|---|---|
|Kathmandu Holdings Limited|% vesting|
|relative TSR ranking|
|Below 50th percentile|0%|
|50th percentile|50%|
|51st – 74th percentile|50% + 2% for each|
|percentile above the 50th|
|75th percentile or above|100%|

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||||
|---|---|---|
|Tranche|2021|2020|
|Tranche 1|FY23 EPS relative|Not applicable|
|to FY20 EPS|

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The TSR performance is calculated for the following performance periods:

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||||
|---|---|---|
|Tranche|2021|2020|
|Tranche 1|36 months to|36 months to|
|1 December 2023|1 December 2022|

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ANNUAL REPORT 2021

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KATHMANDU HOLDINGS LTD

The percentage of the December 2020 EPS growth related rights scales according to the compound average annual EPS growth over three years. Each year’s target is set annually, and an average is taken over the three years to determine overall achievement. The EPS growth targets for financial year ended 31 July 2021 are as follows:

EPS growth	2020 % of rights vesting
< 124%	0%
>= 124%, < 146%	50%
>= 146%, < 168%	60%
>= 168%, < 190%	70%
>= 190%, < 212%	80%
>= 212%, < 233%	90%
>= 233%	100%

The fair values of the EPS rights have been assessed as the Kathmandu Holdings Limited share price as at the grant date less the present value of the dividends forecast to be paid prior to each vesting date. The estimated fair value for each tranche of options issued is amortised over the vesting period from the grant date.

Vesting of Long Term Incentive performance rights also require remaining in employment with the Company during the performance period.

Other Key Management Personnel and Wider Leadership Management

Performance rights granted to Other Key Management Personnel and Wider Leadership Management are all Short Term Incentives under the shareholder approved Employee Long Term Incentive Plan, and are summarised below:

	Opening balance Granted during the year Vested during the year Lapsed during the year Closing balance
Grant date
22 Dec 2020	- 3,531,015 - (64,327) 3,466,688
20 Dec 2019	654,826 - - (654,826) -
	654,826 3,531,015 - (719,153) 3,466,688

Short Term Incentive performance rights vest:

• upon the Company achieving non-market performance hurdles; and

• the employee remaining in employment with the Company until the vesting date.

The performance period and vesting dates are summarised below:

The performance period and vesting dates are summarised below:
	2021	2020
Grant date	22 Dec 2020	20 Dec 2019
Performance period (year ending)	31 Jul 2021	31 Jul 2020
Vesting date - other Key Management Personnel and Wider Leadership Management	31 Jul 2022	31 Jul 2021

The fair values of the rights were assessed as the Kathmandu Holdings Limited share price at the grant date less the present value of the dividends forecast to be paid prior to the vesting date.

The non-market performance hurdles set for the year ending 31 July 2021 were met and accordingly $1,994,000 of expense was recognised in the consolidated statement of comprehensive income.

Expenses arising from equity settled sharebased payments transactions

6.5 Contingent assets

There are no contingent assets as at 31 July 2021 (2020: nil).

py			There are no contingent assets as at 31 July 20
	2021	2020	(2020: nil).
	NZ$’000	NZ$’000
Executive Director and Senior Managers Key Management Personnel and	(196) 1,994	378 -	6.6 Events occurring after balance sheet date
Wider Leadership Management			There are no events after balance sheet date
	1,798	378	which materially affect the information within

There are no events after balance sheet date which materially affect the information within the consolidated financial statements.

6.4 Contingent liabilities

6.7 Supplementary information

• The Group is subject to litigation incidental to its Directors’ fees

• business, none of which is expected to be material. 2021 2020 No provision has been made in the Group’s NZ$’000 NZ$’000 consolidated interim financial statements in relation Directors’ fees 790 779

• to any current litigation and the Directors believe that such litigation will not have a material effect on the Group’s consolidated interim financial position, Directors’ fees for the Company were paid to results of operations or cash flows. There are $558,000 the following: of contingent liabilities as at 31 July 2021 (2020: nil). • David Kirk (Chairman) • John Harvey • Philip Bowman • Brent Scrimshaw • Andrea Martens

Audit fees

During the year, the following fees were paid or payable for services provided by the auditor of the Company, its related practices and other network audit firms:

	2021	2020
	NZ$’000	NZ$’000
Audit services - PwC
Group audit - PwC New Zealand	407	434
Acquired balance sheet - PwC New Zealand	-	85
UK statutory audit - PwC UK	-	20
Half year review - PwC New Zealand	75	115
	482	654
Audit services - other audit firms	174	138
Non-audit services - PwC
Taxation services - PwC France & PwC UK	46	118
Revenue certificates - PwC New Zealand	6	11
Banking compliance certificates – PwC New Zealand	3	3
	55	132

6.8 New accounting standards and interpretations

New standards and interpretations first applied in the period

There are no new accounting standards or interpretations first applied in the period.

Standards, interpretations and amendments to published standards that are not yet effective

There are no standards or amendments published but not yet effective that are expected to have a significant impact on the Group.

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Independent auditor’s report

To the shareholders of Kathmandu Holdings Limited

Our opinion

In our opinion, the accompanying consolidated financial statements of Kathmandu Holdings Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 31 July 2021, its financial performance and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS).

What we have audited

The Group's consolidated financial statements comprise:

• the consolidated balance sheet as at 31 July 2021;

• the consolidated statement of comprehensive income for the year then ended;

• the consolidated statement of changes in equity for the year then ended;

• the consolidated statement of cash flows for the year then ended; and

• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our firm carries out other services for the Group in the areas of assurance compliance engagement in the respect of bank covenant compliance, agreed upon procedures for store turnover certificates and tax advisory. The provision of these other services has not impaired our independence as auditor of the Group.

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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 of $626.5 million may be materially

impaired is considered a Key Audit Matter, due to the material nature of these assets and the significant judgement exercised by management to:

• ●assess the appropriate cash generating units (CGU) to consider for testing;

• ●estimate the future results of the CGUs;

• ●include the ongoing impact of COVID-19 on revenue and margins;

• ●allocate shared costs to CGUs; and

• ●assess the discount rates and terminal growth rates.

As disclosed in note 3.3, the Group assessed the recoverable amount of each CGU as at 31 July 2021 using discounted cash flow valuations on a fair value less cost of disposal (FVLCOD) basis.

For all CGUs management performed their own calculation of the WACC as well as the discounted cash flows computation and related sensitivity analysis.

Based on the calculations performed for each CGU, the Group concluded that there was no impairment of goodwill and brand as at 31 July 2021.

The key assumptions used in the impairment testing have been disclosed in note 3.3.

How our audit addressed the key audit matter

Our audit procedures in assessing the indefinite life intangible assets cover all brands and goodwill. For each CGU we:

• obtained an understanding of the processes and controls in place for assessing the recoverability of indefinite life intangibles and confirmed their implementation at year end;

• reviewed management’s assessment of CGUs and compared this to our knowledge and understanding of the Group’s operations and reporting structure;

• obtained the calculations performed by management and understood the assumptions used in light of the current and forecast outlook for the business;

• used our auditor’s expert to independently review the discount and long-term growth rates;

• assessed the reasonableness of management's cash flow assumptions by considering external market forecasts, historical performance and other available information;

• considered the allocation of shared costs to each CGU;

• performed look back analysis to test the historical accuracy of management forecasts and performed sensitivity testing for each CGU; and

• audited the disclosures in the financial statements to ensure they are compliant with the requirements of the relevant accounting standards.

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.

PricewaterhouseCoopers, PwC Centre, Level 4, 60 Cashel Street, PO Box 13244, Christchurch 8141, New Zealand T: +64 3 374 3000, pwc.co.nz

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Description of the key audit matter How our audit addressed the key audit matter

• Inventory existence and valuation including the impact of COVID-19

In responding to the risk over inventory existence and valuation at year end, we:

At 31 July 2021, the Group held inventories of $216.5 million. Inventory valuation and existence was an audit focus area due to the number of locations that the inventory was held at, the judgement applied in the valuation of inventory on hand, and the continued uncertainty presented by COVID-19 related travel restrictions.

• observed the stocktake process at selected store locations and undertook our own test counts;

• attended the year end distribution centre count and performed independent test counts for Rip Curl;

• observed the daily stocktake process at the Christchurch and Melbourne Kathmandu distribution centres and undertook our own test counts. We also tested that the daily counts occurred by selecting a sample of days at each location and inspected the count records throughout the year;

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.

• confirmed the level of inventory held at year end directly with third party warehouses for inventory in the United States;

The Group has systems and processes, including a barcode inventory management system, to accurately record inventory movements.

• 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;

Management typically perform full stocktakes at each store twice a year, with annual full stocktakes taking place at Rip Curl distribution centres.

Daily cycle counts are performed at the Kathmandu New Zealand and Australian distribution centres. For Rip Curl US and Oboz management keep stock at third party warehouses who provide inventory management services.

• evaluated the assumptions made by management, and particularly the key assumption that current shrinkage levels are consistent with historical levels in assessing inventory obsolescence provisions, through an analysis of inventory items by category and age and the level of inventory write downs in these categories during the period, including any potential impact of COVID-19; and

There are a number of judgements applied in assessing the level of provision for inventory obsolescence and inventory shrinkage losses. Management provide for shrinkage based on historical inventory counts and stocktake shrinkage trends.

• tested that inventory on hand at the end of the period was recorded at the lower of cost and net realisable value by testing a sample of inventory items to the most recent retail price which includes any impact of COVID-19.

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Our audit approach

Overview

Overall group materiality: $3.6 million, which represents approximately 5% of profit before tax.

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We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark.

Full scope audits were performed for 8 of 24 entities in the Group based on their financial or operational significance; and

Specified audit procedures and analytical review procedures were performed on the remaining entities.

As reported above, we have two key audit matters, being:

• Impairment testing over indefinite life intangibles, including the impact of COVID-19

• Inventory and existence and valuation including the impact of COVID-19

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole.

How we tailored our group audit scope

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

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Other information

The Directors are responsible for the other information. The other information comprises the information included in the Annual report, but does not include the consolidated financial statements and our auditor's report thereon. The Annual report is expected to be made available to us after the date of this auditor's report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of audit opinion or assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Directors and use our professional judgement to determine the appropriate action to take.

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Who we report to

This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

The engagement partner on the audit resulting in this independent auditor’s report is Leopino Foliaki. For and on behalf of:

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Christchurch

Chartered Accountants

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.

21 September 2021

In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the External Reporting Board’s website at: https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-1/

This description forms part of our auditor’s report.

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Corporate governance

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 FY2021 Annual Report and corporate governance statement aligns to NZX reporting requirements to reflect the Company's 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 there have been no departures of the Company’s corporate governance practices from the recommendations set out in the NZX Code during the reporting period.

The Company’s relevant charters and policies are available in the Governance section of the Company’s Investor Website https://www.kathmanduholdings. com/investor-centre/corporate-governance/

The information in this statement is current as at 31 July 2021 (except where otherwise specified).

This corporate governance statement has been approved by the Board.

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 Company has a policy for dealing in the Company’s securities by Directors and employees, 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;

• monitoring management’s implementation of key policies, strategies and financial objectives;

• directing, monitoring and assessing the Company’s performance against strategic business plans;

• 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, Michael Daly, 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. Michael Daly (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. Michael Daly, 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.

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.

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.

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Skills Matrix

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 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 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 International Business Development 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% Executive Leadership: Experienced Governance: Knowledge and experience of and successful leadership at a senior high standards of corporate governance, executive level of large organisations. including NZX Listing Rules and practices. International Business Development: Experienced Strategy: Expertise in the development and in multi-national, complex environments, including implementation of strategic plans and risk multi-channel business development. management to deliver investor returns over time. Capital Projects, Mergers and Acquisitions: Financial Acumen: Expertise in understanding Experience in evaluating and implementing projects financial accounting and reporting, corporate finance involving large-scale financial commitments, and internal financial controls, including an ability to investment horizons and major transactions. probe the adequacies of financial and risk controls. Retail and Consumer Experience: Experienced Marketing and Product Development : Expertise in retail and consumer sectors, understanding and senior executive experience in marketing multi-channel retailing and brand development. and new media marketing metrics and tools. Remuneration: Experience in remuneration Technology and Data: Expertise and experience design to drive business success. in the adoption of new technology and use of data analytics in a consumer environment.

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 5 years with the following tenure mix:

Non-Executive Director Tenure

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6+ years
40%
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----- Start of picture text -----

<3 years
20%
3 - 5 years
40%
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The tenure of appointment of the Board as at 31 July 2021 is set out below:

Name	Originally	Last reappointed/
	appointed	elected
David Kirk	21 November 2013	23 November 2018
(Chairperson)
John Harvey	16 October 2009	25 November 2020
Brent Scrimshaw	2 October 2017	25 November 2020
PhilipBowman	2 October 2017	25 November 2020
Andrea Martens	1 August 2019	22 November 2019
Michael Daly	19 May 2021

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 a broad range of nationalities and ethnicities represented within our team, a diverse cross-generational team, and 63% female 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.

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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.

Gender composition of the Company's Board and Officers

As at 31 July 2021, the gender composition of the Company’s Board and Officers is as follows:

	Directors	Ofcers	Ofcers
		(Group Executive)
	FY21	FY20 FY21	FY20
Male	5	5 5	5
Female	1	1 1	0
Total	6	6 6	5

Group Diversity

For more information about diversity across the Group, please refer to the Kathmandu Holdings 2021 Sustainability Report available online at https://www. kathmanduholdings.com/corporate-responsibility/.

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 2021) is set out on the next page.

• Audit and Risk Committee Remuneration Committee

• Roles and • Overseeing the process of financial • Overseeing the development and responsibilities reporting, internal control, continuous application of the Group Human disclosure, financial and nonResources strategy, the remuneration financial risk management, framework and associated policies; compliance and external audit; • Assisting the Board in relation to

• • Monitoring the Group’s compliance matters concerning remuneration with laws and regulations and the of senior executives, and Directors; Company’s Code of Conduct; • Providing effective remuneration policies

• • Encouraging effective relationships and programmes to motivate high with, and communication between, performance from all employees; and the Board, management and the • Confirming that appropriate and

• Company’s external auditor; and effective policies for managing the

• • Evaluating the adequacy of processes performance and development of and controls established to identify and employees at all levels are in place. manage areas of potential risk and to seek to safeguard the Company’s assets.

Membership 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.

At least three members, a majority of whom must be independent Directors and all of whom must be nonexecutive Directors. The Chair is to be an independent, non-executive Director.

Current members: Andrea Martens (Chair) David Kirk John Harvey Philip Bowman Brent Scrimshaw

Current members:

John Harvey (Chair) David Kirk Philip Bowman Brent Scrimshaw Andrea Martens

Senior executives may be invited to attend Audit and Risk Committee meetings by invitation only.

Attendance

The number of meetings of the Board of Directors and the Board Committees held during the year ended 31 July 2021 and the numbers of meetings attended by each Director were:

	Board Audit and Risk Committee Remuneration Committee	Board Audit and Risk Committee Remuneration Committee
	Attended Eligible to Attended Eligible to Attended	Eligible to
	attend attend	attend
David Kirk	9 9 5 5 5	5
Xavier Simonet*	7 7 0 0 0	0
John Harvey	9 9 5 5 4	5
Andrea Martens	9 9 5 5 5	5
Brent Scrimshaw	8 9 4 5 4	5
Philip Bowman	9 9 5 5 5	5
Michael Daly	1 1 0 0 0	0

• Xavier Simonet retired effective 9 April 2021

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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.

Environment, Social and Governance

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. Further information is included in the “ESG across the Group” section on page 10.

The Company also prepares a separate sustainability report in accordance with the Global Reporting Initiative (GRI) Standards framework. It is available online at https://www.kathmanduholdings. com/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 longterm 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:

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);

• 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

• 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 objectives; and weighted towards equity-based rewards rather • Long term incentives via participation in the

• than cash; Company’s Long Term Incentive plan.

• Non-executive Directors’ remuneration should enable the Company to attract and retain high quality Directors with the relevant experience. In order to maintain independence and impartiality, non-Executive Directors should not receive performance-based remuneration; and

Short Term Incentives (STI)

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:

• The Board uses discretion when setting remuneration levels, taking into account interests of shareholders, the current market environment and Group performance.

• a) the level of performance achieved against the Group’s financial performance target (EBIT) for the year; and

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 2021, total fees paid to non-executive Directors amounted to NZD $789,605.

• 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.

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 90 of this Annual Report.

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.

Remuneration policy

Long Term Incentive Plan (LTI)

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 that 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 nonexecutive Directors is clearly differentiated in the policy.

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.

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.

Performance rights granted to the Group executive during the reporting period are dependent upon the following:

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• 50% of vesting is subject to an Earnings Per Share growth hurdle over a three-year period between 1 August 2020 and 31 July 2023 (“Performance Period”). The Board establishes annual EPS targets at the commencement of each relevant Financial Year. At the conclusion of the Performance Period, the EPS performance in each Financial Year will be pooled so that Earnings Per Share growth is measured from the start to the end of the Performance Period. Vesting is on a sliding scale proportionate to the total Earnings Per Share growth; and

• 50% of vesting is subject to the Company achieving relative TSR targets over the 36 months from 1 December 2020 to 1 December 2023. 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. Vesting is on a sliding scale proportionate to the total Shareholder Return performance.

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 that will vest is determined based on the percentile ranking of the Company against the comparator group at the end of the performance period. Performance rights are granted at nil cost.

Group CEO Remuneration

Group CEO remuneration comprises a mixture of base salary, STI and LTI.

Xavier Simonet was Group CEO of the Company for 8 months of FY2021 (from 1 August 2020 to 9 April 2021). Michael Daly was appointed as Group CEO from 19 May 2021. The Group CEO’s remuneration for the year ending 31 July 2021 for both Xavier and Michael is set out in the two separate tables below:

Xavier Simonet Group CEO 2021	A$
Remuneration package from
1 August 2020 to 9 April 2021
Fixed	$966,396
(Base salary, superannuation)
STI (60% of fixed)	None earned / to bepaid
LTI (70% of fixed)*	Not issued*
Maximum potential remuneration	$966,396

• At the date of issue of the LTI for FY2021, Xavier had tendered his resignation to the Company and therefore no LTI was issued to him for this period.

Michael Daly Group CEO 2021	A$
Remuneration package from
19 May 2021 to 31 July 2021
Fixed	$217,430
(Base salary, superannuation)*
STI (60% of fixed)*	Not issued
LTI (70% of fixed)**	Not issued
Maximum potential remuneration	$217,430

• Michael Daly’s annual fixed remuneration as Group CEO (including superannuation contribution) is A$1,028,500. During FY2021, Michael Daly received a base salary and superannuation contribution for his role as Rip Curl CEO, together with an STI calculated at 40% of his base salary as Rip Curl CEO. For FY2022, Michael Daly’s remuneration package will include an STI component calculated at 60% of his fixed salary as Group CEO.

** For FY2021, Michael Daly’s remuneration package included an LTI component in respect of his role as Rip Curl CEO at the threshold of 60% of his fixed salary as Rip Curl CEO. For FY2022, Michael Daly’s LTI entitlement will be issued at 70% of his fixed salary as Group CEO.

The key principles of the Company’s Remuneration policy for the Group CEO remuneration package are:

• More than half 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.

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. 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.

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.

Health and Safety

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.

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.

During the reporting period, the Company implemented an internal audit function. This function provides a system for evaluating and continually improving the effectiveness of risk management for the Group and delivers appropriate objective assurance on risk management.

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 & 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 and can also be accessed through the Company’s Investor Website. 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.

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Statutory information

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 in previous reporting periods. 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-centre/annoucements/ .

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 2021 are as follows:

DAVID KIRK

DAVID KIRK
NZ Rugby Players Association	Chairman
Forsyth Barr Group Limited and Forsyth Barr Limited	Chairman / Director
Bailador Investment Management Pty Limited	Managing Partner
Bailador Technology Investments Limited (including investee companies)	Chairman
NZ Performance Horses Limited	Director
Kiwi Harvest Limited	Chairman
Sydney Festival	Chairman
Lord Howe Island Board	Director
JOHN HARVEY
Stride Holdings Limited	Director
Stride Investment Management Limited	Director
Stride Property Limited	Director
Investore Property Limited	Director
Heartland Bank Limited	Director
Pomare Investments Limited	Director
Napier Port Holdings Limited	Director
Port of Napier Limited	Director
ANDREA MARTENS
ADMA – Australian Data Driven Marketing Association	CEO
HYG Holdco Pty Limited (effective 1 July 2021)	Director
PHILIP BOWMAN
Sky Network Television Limited	Chairman
Majid al Futtaim Properties LLC	Chairman
Tegel Group Holdings Limited	Chairman
Ferrovial SA	Director
Atropos SCI	Président Directeur Generale
Better Capital PCC Limited	Director
Vinula Pty Ltd	Director
Vinula Superfund Pty Ltd	Director
Tom Tom Holdings Inc	Director
Majid al Futtaim Capital LLC	Director
Majid al Futtaim Holdings LLC	Director
BRENT SCRIMSHAW
Enero Group Limited	CEO
Rhinomed Limited	Director
Catapault Group International Limited (resigned November 2020)	Director
Melbourne International Festival of the Arts Limited	Director
MICHAEL DALY
Stringydale Pty Ltd	Director

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KATHMANDU HOLDINGS LTD

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	Total Remuneration Other benefts
David Kirk	NZD $255,075 None
Philip Bowman	NZD $133,601 None
John Harvey	NZD $133,601 None
Andrea Martens	NZD $133,664 None
Brent Scrimshaw	NZD $133,664 None
Xavier Simonet (retired 9 April 2021)	NZD $1,016,660 $21,360 (superannuation)
Michael Daly (appointed 19 May 2021)	NZD $227,701 $5,843 (superannuation)

Directors’ Details

• David Kirk Chairman, Non-Executive Director

• John Harvey Non-Executive Director

• • Philip Bowman Non-Executive Director • Andrea Martens Non-Executive Director • Brent Scrimshaw Non-Executive Director

• Xavier Simonet Managing Director and Chief Executive Officer (retired 9 April 2021)

• Michael Daly Managing Director and Group Chief Executive Officer (appointed 19 May 2021)

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 2021.

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 2021, are included in the relevant bandings for remuneration disclosed on page 90.

Employee Remuneration

During the year ended 31 July 2021 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:

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----- Start of picture text -----

Remuneration (NZD $) Number of Employees Remuneration (NZD $) Number of Employees
$100,000 - $110,000 52 $310,000 - $320,000 1
$110,000 - $120,000 26 $320,000 - $330,000 1
$120,000 - $130,000 30 $330,000 - $340,000 1
$130,000 - $140,000 19 $340,000 - $350,000 1
$140,000 - $150,000 14 $350,000 - $360,000 2
$150,000 - $160,000 17 $360,000 - $370,000 1
$160,000 - $170,000 5 $380,000 - $390,000 1
$390,000 - $400,000 1
$170,000 - $180,000 10
$430,000 - $440,000 1
$180,000 - $190,000 6
$440,000 - $450,000 1
$190,000 - $200,000 8 $450,000 - $460,000 1
$200,000 - $210,000 6 $460,000 - $470,000 2
$210,000 - $220,000 7 $470,000 - $480,000 2
$220,000 - $230,000 6 $490,000 - $500,000 1
$230,000 - $240,000 4 $520,000 - $530,000 1
$240,000 - $250,000 4 $570,000 - $580,000 1
$250,000 - $260,000 1 $590,000 - $600,000 1
$260,000 - $270,000 2 $750,000 - $760,000 1
$280,000 - $290,000 4 $1,080,000 - $1,090,000 1
$290,000 - $300,000 1 $1,120,000 - $1,130,000 1
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Donations

During the year, the Group has made total donations of $578,649.

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 2021, and those who ceased to hold office during the year ended 31 July 2021, are as follows:

Company Director / Ofce Holder Milford Group Holdings Limited Kathmandu Limited Kathmandu (U.K.) Limited Reuben Casey, Xavier Simonet, Chris Kinraid Kathmandu Pty Limited Barrel Wave Holdings Pty Limited Reuben Casey, Xavier Simonet, Chris Kinraid, Anthony Roberts Kathmandu US Holdings LLC Xavier Simonet*, Reuben Casey, Chris Kinraid Oboz Footwear LLC Amy Beck 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 Michael Daly and Anthony Roberts 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 Anthony Roberts RC Surf NZ Limited Paul Pedersen(retired 31 March 2021),Anthony Roberts and Chris Kinraid(appointed 31 March 2021)	Company Director / Ofce Holder
	Rip Curl Brazil LTDA Carla Trindade
	Rip Curl Canada Inc Anthony Roberts and Nick Russell
	Rip Curl Japan Ietoshi Ueda
	Onsmooth Thai Co Ltd Anthony Roberts, Duncan Stewart, Michael Daly
	PT Jarosite James Hendy, Anthony John Roberts, Jeffry Robert Anderson, Michael Daly
	Rip Curl Europe S.A.S Mathieu Lefin and Isabelle Espil
	Rip Curl Spain SA Unipersonal Rip Curl UK Ltd Rip Surf Artigos De Desporto Unipessoal LDA Rip Curl Germany GmbH Rip Curl Italy SRL (voluntary liquidation effective 31 March 2021) Mathieu Lefin
	Rip Curl Suisse S.A.R.L Mathieu Lefin and Julien Haueter
	Rip Curl Nordic AB Mathieu Lefin, Alois Bersan and Isabelle Espil
	Surf Odyssey SARL (shareholding interest ceased effective 11 September 2020) Xavier Barjou
	50% subsidiary interests:
	Rip Curl (Thailand) Co. Ltd Sermchai Putamadilok

• (retired 9 April 2021)

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KATHMANDU HOLDINGS LTD

Principal Shareholders

The names and holdings of the twenty largest shareholders as at 20 September 2021 were:

	Name	Ordinary Shares	%
1	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	75,207,015	10.61
2	BRISCOE GROUP LIMITED	48,007,465	6.77
3	CITIBANK NOMINEES (NZ) LTD	43,663,443	6.16
4	CITICORP NOMINEES PTY LIMITED	39,983,021	5.64
5	NEW ZEALAND SUPERANNUATION FUND NOMINEES LIMITED	36,830,490	5.19
6	ACCIDENT COMPENSATION CORPORATION	33,098,135	4.67
7	HSBC NOMINEES (NEW ZEALAND) LIMITED	28,371,125	4.00
8	NATIONAL NOMINEES NEW ZEALAND LIMITED	24,852,688	3.51
9	NATIONAL NOMINEES LIMITED	24,748,330	3.49
10	J P MORGAN NOMINEES AUSTRALIA PTY LIMITED	22,644,520	3.19
11	TEA CUSTODIANS LIMITED	21,866,473	3.08
12	FNZ CUSTODIANS LIMITED	21,318,309	3.01
13	BNP PARIBAS NOMINEES NZ LIMITED BPSS40	20,226,627	2.85
14	NEW ZEALAND DEPOSITORY NOMINEE	19,950,853	2.81
15	JPMORGAN CHASE BANK	14,684,795	2.07
16	PT BOOSTER INVESTMENTS NOMINEES LIMITED	11,537,307	1.63
17	FORSYTH BARR CUSTODIANS LIMITED	9,181,001	1.29
18	BNP PARIBAS NOMINEES PTY LTD	8,575,631	1.21
19	CUSTODIAL SERVICES LIMITED	7,675,256	1.08
20	HSBC NOMINEES (NEW ZEALAND) LIMITED	7,649,486	1.08

Directors’ Shareholdings

Directors held interests in the following ordinary shares of the Company at 31 July 2021:

Director/Senior Manager	Nature of interest Number held at 31 July 2020 Acquired Disposed Total held at 31 July 2021
David Kirk	Beneficially owned 743,336 - - 743,336
Philip Bowman	Beneficially owned 150,000 150,000 - 300,000
John Harvey	Beneficially owned 160,897 - - 160,897
Michael Daly	Beneficially owned 406,720 - - 406,720

Michael Daly held the following interests in convertible financial products in the Company at 31 July 2021 due to his participation in the Kathmandu Holdings Limited Long Term Incentive Plan for Employees.

Executive Director –	Michael Daly
Nature of interest	Number granted	Grant Date	Vesting Period	Vesting Date	Total Fair Value of Performance
					Rights at Grant Date $A
Performance Rights	483,621	22 Dec 20	3 years	1 Dec 23	561,000

No other directors held interests in convertible financial products of the Company at 31 July 2021.

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

	Number of Holders % Number of Ordinary Shares	%
1 to 1,000	3,585 29.24 2,149,079	0.30
1,001 to 5,000	4,574 37.30 11,973,575	1.69
5,001 to 10,000	1,700 13.86 13,146,126	1.85
10,001 to 100,000	2,214 18.06 62,295,532	8.79
100,001 and over	189 1.54 619,437,072	87.37
Total	12,262 100% 709,001,384	100%

The details set out above were as at 20 September 2021.

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 2021, were as follows:

and their relevant interests as at 31 July 2021, were as follows:
	Ordinary Shares	%
Yarra Capital Management Limited	59,277,176	8.36
Jarden Securities Limited, Harbour Asset Management Limited and	59,221,361	8.35
Jarden Scientific Trading Limited
Briscoe Group Limited	48,007,465	6.77
New Zealand Superannuation Fund Nominees Limited	35,454,876	5.00

As at 31 July 2021, the Company had 709,001,384 ordinary shares on issue.

NZX Class Waivers Relied on

During the year, the Company did not rely on any Class Rulings or Waivers granted by NZX Regulation.

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.

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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: Level 30, PwC Tower, 15 Customs Street West, Auckland 1010 New Zealand Postal Address: PO Box 91976, Auckland, 1142 New Zealand Telephone: +64 9 375 5999 Investor enquiries: +64 9 375 5998 Facsimile: +64 9 375 5990 Internet address: www.linkmarketservices.co.nz In Australia: Link Market Services (LINK) Physical Address: Level 13, Tower 4 727 Collins Street Melbourne VIC 3000 Australia Postal Address: Locked Bag A14 Sydney, South NSW 1235 Australia Telephone: +61 3 9067 2005 Investor enquiries: +61 1300 554 474 (toll free within Australia) Facsimile: +61 2 9287 0303 Internet address: www.linkmarketservices.com.au

Stock Exchanges

The Company’s shares are listed on the NZX and the ASX.

Incorporation

The Company is incorporated in New Zealand.

kathmanduholdings.com