KATHMANDU HOLDINGS LIMITED Annual Report 2019

pack your bag. We believe that adventure begins when you we share acuriosity for the world we love to explore. ambassadors, athletes and Summit Club members, one of us. From our team in-store to our brand We’readventurers, travellersexplorersand every – the backs of our customers all around the world. designers, to the careful hands of our suppliers, to the planet in mind –from the creative minds of our Sustainability is in our DNA. We with act people and changing needs of travellers. weather conditions, diverse terrains, and the ever- continuously adapt our gear to endure dierent With Kiwi ingenuity, and an open mind, we out
t the adventurous spirit of our people. on the rugged landscapes of our homeland and to For 30 years, we have designed our gear to take the adventurer in all of us. At Kathmandu, our purpose is to inspire and equip KATHMANDU ANNUAL REPORT 2019

Our

Purpose. 1 2 KATHMANDU ANNUAL REPORT 2019 Highlights 2019

Sales $ Same store sales growth 545.6m 0.6% 9.7% AU 2.7% NZ (3.9%)

Gross margin Operating costs % of sales 60.9% 42.9% AU 50bps NZ 90bps NA 40.8% 2.5% lower than 2018

EBIT $ Net proˆt after tax $ 84.3m 57.6 m 12.7% 13.7%

Full year dividend Operating cash ow $ 16cps 61.7m 1 cps $13.9m

Online % of direct to consumer sales Summit Club members 10.1% 2.2m 9.2% online sales growth at 0.2m active members constant exchange rates KATHMANDU ANNUAL REPORT 2019 3 4 KATHMANDU ANNUAL REPORT 2019 Contents

5 Chairman and CEO’s Letter

7 Result and Financial Performance

10 Sustainability Highlights

12 The Board

13 Management Team

14 Corporate Governance

23 Remuneration Report

31 Financial Statements

79 Statutory Information

84 Directory

Notice of Annual Meeting 2019 11.00am Friday 22 November 2019 Link Market Services, Level 11, Deloitte Centre, 80 Queen Street, Auckland CHAIRMAN AND CEO'S LETTER KATHMANDU ANNUAL REPORT 2019 5

Chairman and CEO’s Letter

We have delivered another year of strategy can be summarised into record sales and prot. The key growth four strategic imperatives, each drivers were a positive contribution with a set of key initiatives. from the Australian business, and rapid Firstly, we will focus on growing the sales and prot growth from Oboz. core markets of Australia and New Australian sales growth was achieved Zealand. We see opportunities to on top of strong sales in our key supercharge the Summit Club loyalty winter period last year. At the same programme, and continue the dramatic time as delivering sales growth, optimisation of our store network. we maintained our focus on cost We are also working to diversify control, and beneted from wholesale by growing the contribution of the operating cost e ciencies that saw us Summer season, and elevating the grow earnings faster than revenue. performance of our key metro markets.

David Kirk Oboz has provided a signicant Secondly, we recognise that distinctive Chairman rst full year contribution to group product will set us apart from our sales and prots. Oboz is enabling competitors. We will focus on extending us to diversify our channels, our market leadership in key product brands, products and markets. categories, while accelerating growth in other high potential categories. Our team are proud to have delivered At the same time, we will work to four years of sales and prot growth. scale the the growth opportunity Over the last four years, we have in key women's categories. achieved strong operating cash ows and generated signicant value for Thirdly, we will continue to enhance our shareholders. We have delivered the customer experience through these strong nancial results while digital. We aim to make it easy for continuing our transformation from a customers by enhancing product leading Australasian retailer to a brand- information, payment options, and led global multi-channel business. fullment solutions. Technology provides opportunities for us to Growth Strategies leverage digital touchpoints and Xavier Simonet social channels to enhance brand Managing Director and Kathmandu is well positioned and product perception. We will also Chief Executive O cer to deliver on the next level of focus on maximising mobile as a key growth opportunities. Our growth method of customer engagement. 6 KATHMANDU ANNUAL REPORT 2019

Finally, we aim to become a global People Summary business. In particular, we see an opportunity to build the Kathmandu Director Sandra McPhee has retired Kathmandu and Oboz are two well brand to ignite demand in North from the board in September. established and distinctive brands, America. We will work to build Sandra has brought signicant with strong nancial fundamentals, strategic wholesale partnerships, non-executive director experience delivering great quality products leveraging Oboz relationships to and knowledge of a wide range to our loyal customers. of consumer facing sectors to the establish the Kathmandu brand. In North America we are leveraging board. Her insight and judgement Alongside wholesale growth, we have Oboz, and starting to build has been extremely benecial for an opportunity to accelerate the Kathmandu brand equity through the company. We thank Sandra very North America direct to consumer authentic outdoor wholesale much for her service and wish her all business. In addition to North America, channels. Kathmandu and Oboz are the best for her future endeavours. we will continue to explore other two great brands with signicant international market opportunities. Joining the board is Andrea Martens, international growth potential. appointed after an extensive search All of these strategic imperatives are internationally and in Australia and underpinned by a focus on inspiring New Zealand. We are very pleased that and enabling our team, and a drive to Andrea has agreed to join the board. demonstrate sustainability leadership. She brings rst rate experience and knowledge of consumer brand strategies. David Kirk Sustainability Leadership Her appointment adds important skills Chairman Sustainability is a core value for and experience to the board as we both Kathmandu and Oboz, and continue to implement our Australasian is an integral part of how we do and global growth strategies. business. We have made signicant The board would like to thank progress toward our goal of industry management and the wider team Xavier Simonet leadership thanks to the care and for their passion and determination Managing Director and dedication of our passionate team. to deliver another successful year. Chief Executive O cer We are very proud to become a certied B Corporation, meeting the Dividend highest veried standards of social The Directors have declared a nal and environmental performance. dividend of 12 cents per share, which We have also released our ‘Best for with the 4 cents interim dividend the World’ 2025 sustainability goals. makes a record payout of 16 cents Full details can be found in our 2019 per share, an increase of 1 cent per Sustainability Report, produced in share compared to last year. The conjunction with our Annual Report nal dividend will be fully imputed for and prepared in accordance with the New Zealand shareholders and fully Global Reporting Initiative (GRI). franked for Australian shareholders. CHAIRMAN AND CEO'S LETTER KATHMANDU ANNUAL REPORT 2019 7 Result and Financial Performance

Key performance indicators 2019 2018 % Change

Sales $545.6m $497.4m 9.7% Same store sales growth 0.6% 4.4%

Gross proˆt $332.5m $315.5m 5.4% Gross margin 60.9% 63.4%

Operating expenses ($234.0m) ($225.7m) Operating expenses % of sales 42.9% 45.4%

EBITDA $99.6m $89.8m 10.9% EBITDA margin 18.3% 18.1%

EBIT $84.3m $74.8m 12.7% EBIT margin 15.5% 15.0%

NPAT $57.6 m $50.7m 13.7%

Earnings per share 25.5cps 24.0cps 6.3%

Dividend 16.0cps 15.0cps 6.7%

Net debt $19.3m $31.4m

Share price (NZX) $2.13 $3.08

Summit Club members 2.2m 2.0m 12.4%

Store count 168 167 +1 8 KATHMANDU ANNUAL REPORT 2019

"Group sales of $545.6m increased by 9.7% overall, with the ‡rst full year inclusion of Oboz in North America."

We were pleased to achieve record high sales and proˆt results again in FY2019. The key contributors to the record result were Australian sales growth, and a full year impact of Oboz ownership. Oboz grew strongly this year, with a sales increase of 30.0%, and an EBIT increase of 38.6% on a $USD pro forma basis. Oboz growth is also enabling us to diversify our channels, brands, products and geography.

Group sales of $545.6m increased leverage showed a benet of channel Net ˆnance costs increased by by 9.7% overall, with the rst full diversication into wholesale. $1.9m, re ecting a full year of Oboz year inclusion of Oboz in North Operating expenses also include ownership. The Oboz acquisition in America. Excluding North America, $1.3m set-up costs for the Kathmandu April 2018 added approximately $60m sales increased by 2.1% at constant North America wholesale business. to net debt. Strong operating cash exchange rates. Same store sales ows in the subsequent 16 months Capital expenditure of $15.7m was increased by 0.6%, measured at have reduced the net debt balance $1.0m below last year. $10.3m was constant exchange rates. By country to $19.3m by the end of July 2019. invested to further optimise the store the change in same store sales was: network, with 4 new stores opened, and Taxation The e©ective tax rate • Australia +2.7% 12 major refurbishements completed. A returned to c. 29% from c.31% in • New Zealand -3.9% further $5.4m was invested in growth the prior year. The high e©ective tax enabler projects such as the online rate last year was caused by non- Gross proˆt increased by $17.0m platform upgrade and a new market deductible expenditure, in particular (5.4%). Gross margin (60.9%) was leading warehouse management acquisition costs in relation to Oboz. 250bps lower than last year. This system to be operational in FY2020. re ects the increased North American wholesale contribution. Kathmandu Depreciation and amortisation only gross margin was 63.6%. This remained relatively at, increasing by sits above our long-term target 2.1% to $15.3m. range 61% to 63%. By country the change in gross margins were:

• Australia -50 bps • New Zealand -90 bps

Our foreign currency forward hedging policy is on a 12 month basis with prescribed levels of maximum hedging beyond 6 months.

Operating expenses excluding depreciation, amortisation and nancing costs increased by $8.3m (3.7%), however as a percentage of sales decreased from 45.4% to 42.9%. The improved operating CHAIRMAN AND CEO'S LETTER KATHMANDU ANNUAL REPORT 2019 9 10 KATHMANDU ANNUAL REPORT 2019 Our top 5 sustainability highlights.

At Kathmandu, sustainability isn’t a department, it’s a way of doing things. Here are some of our highlights from last year. SUSTAINABILITY HIGHLIGHTS KATHMANDU ANNUAL REPORT 2019 11

BECAME A B CORP, MEETING THE HIGHEST VERIFIED STANDARDS OF SOCIAL AND ENVIRONMENTAL PERFORMANCE

A SCORED AN 'A' IN THE ETHICAL FASHION REPORT TWO YEARS RUNNING

RANKED SECOND IN THE TEXTILE EXCHANGE REPORT 2 THREE YEARS RUNNING

LAUNCHED OUR NEW 'BEST FOR THE WORLD' FIVE YEAR SUSTAINABILITY PLAN

RECYCLED 9.7 MILLION PLASTIC BOTTLES INTO OUR GEAR 12 KATHMANDU ANNUAL REPORT 2019 The Board

1 2 3

4 5 6 7

1 David Kirk Chairman 5 Brent Scrimshaw Non-executive Director Mr Kirk is the co-founder and Managing Partner of Bailador Mr Scrimshaw has held a number of senior executive roles Investment Management, and sits on the Board of Bailador with Nike Inc across marketing, commerce and general portfolio companies. Mr Kirk’s executive Management management. He was the Regional GM for Nike North career has seen him hold Chief Executive O£cer roles at America, the Chief Marketing O£cer for Nike EMEA, and also Fairfax Media and PMP Limited and the Regional President served as Vice President and Chief Executive of Nike Western (Australasia) for Norske Skog. Europe. He is a Non-Executive Director of Rhinomed Limited (ASX:RNO) and Catapult International Limited (ASX:CAT), 2 Xavier Simonet Managing Director and and was the CEO & Co-Founder of Unscriptd which was Chief Executive O£cer acquired in 2018 by Google Ventures backed 'The Players Mr Simonet joined Kathmandu in July 2015 with Tribune’ in New York. He was previously a Director at Fox over 20 years international experience in building Racing Action Sports in Irvine, California USA. brands and developing successful retail businesses in fashion, apparel, accessories and related products. 6 Sandra McPhee Non-executive Director (ceased September 2019) Prior roles include CEO of Radley (London), VP & GM Ms McPhee is an experienced executive and non-executive International of DB Apparel, 11 years at LVMH (primarily Director in consumer facing sectors including aviation, Asia-Paci
c) and International Director of Seafolly. retail, energy and media. She held a range of senior international executive roles in the aviation industry, most 3 Philip Bowman Non-executive Director recently with Qantas Airways Limited. Mr Bowman has extensive experience in retail including roles as CFO of Bass, CEO of Bass Taverns, executive 7 Andrea Martens Non-executive Director Chairman of Liberty PLC, CEO of Allied Domecq, Chairman (appointed 1 August 2019) of Coral Eurobet, CEO of Scottish Power and CEO of Smiths Ms Martens has substantial executive leadership Group. He has held o£ce as an independent director of experience having spent over 20 years working with some BSkyB, Scottish & Newcastle and Berry Bros. & Rudd. He of the world’s best known-brands and organisations. She currently sits on the boards of several entities, including, is currently the CEO of ADMA and has previously held Ferrovial SA, and is Chairman of Sky Network Television. roles as the Global Chief Marketing O£cer for Jurlique International, and Managing Director and VP Marketing, 4 John Harvey Non-executive Director Home and Personal Care for Unilever Australia and New Mr Harvey is a professional director with a background in Zealand. She previously held positions on the board of accounting and professional services, including 23 years Unilever Australia and New Zealand, Deputy Chair of the as a partner of PricewaterhouseCoopers where he held a Australian Association of National Advertisers and as a number of leadership and governance roles. Mr Harvey has Board Member of the Advertising Standards Bureau. extensive experience in
nancial reporting, governance, information systems and processes, business evaluation, acquisition, merger and takeover reviews. MANAGEMENT TEAM KATHMANDU ANNUAL REPORT 2019 13 Management Team

Xavier Simonet Reuben Casey Chris Kinraid Chief Financial O cer, Chief Executive O cer Chief Operating O cer Company Secretary

Paul Stern General Manager, Ben Ryan Rebecca Edwards Marketing & Online General Manager, Product General Manager, Human Resources

Stephen Domancie General Caleb Nicolson Jolann Van Dyk Manager, Retail Stores & Operations General Manager, Supply Chain Chief Information O cer

Mark Handy Amy Beck President Oboz / General Manager, Merchandising Kathmandu North America 14 KATHMANDU ANNUAL REPORT 2019 Corporate Governance

The board and management of governance arrangements. Where of Kathmandu in accordance Kathmandu Holdings Limited Kathmandu's governance arrangements with ASX Listing Rule 4.10.3. and its related companies (“the di©er from a recommendation in the Kathmandu Group” or “Kathmandu”) NZX Code or the ASX Code, the relevant Kathmandu’s Board are committed to implementing recommendation is separately identied best practice governance principles and accompanied by an explanation for Responsibilities and maintaining the highest ethical the reasons why the recommendation standards. The board is responsible for has not been followed and a summary The board is responsible for the overall the overall corporate governance of of the alternative governance supervision and governance of the Kathmandu, including adopting the arrangements in place at Kathmandu. Kathmandu Group. A framework for the e©ective operation of the board appropriate policies and procedures and For the duration of the reporting is set out in the board charter, which guiding Directors, management and period, Kathmandu has followed the includes the following responsibilities: employees of Kathmandu to full their recommendations set out in each functions e©ectively and responsibly. Code where appropriate, having regard • the long-term growth and Kathmandu regularly examines its to the size of Kathmandu and the protability of Kathmandu; board, the resources available and the governance arrangements against • developing the strategic and activities of Kathmandu. After due national and international standards. nancial objectives for Kathmandu; As an entity listed on both the New consideration, the board considers that the only signicant departures of Zealand Stock Exchange (NZX) • monitoring management’s Kathmandu’s corporate governance and the Australian Stock Exchange implementation of key policies, practices from the recommendations (ASX), Kathmandu has developed strategies and nancial objectives; set out in each Code during the its corporate governance policies reporting period are in relation to: • directing, monitoring and assessing and practices in line with the Kathmandu’s performance principles and recommendations (a) the recommendation to against strategic business plans; set out in both the NZX Corporate maintain a nomination Governance Code 2019 (NZX Code) committee of the board1; and • approving and monitoring and the ASX Corporate Governance the progress of major capital (b) the recommendation to disclose Principles and Recommendations expenditure, capital management its internal audit function.2 (Third Edition) (ASX Code). and acquisitions and divestitures; Information about Kathmandu’s • identifying the principal risks Kathmandu converted its admission approach in these areas is of Kathmandu’s business; category on ASX from an ASX Listing separately identied in this to an ASX Foreign Exempt Listing on corporate governance statement. • reviewing and ratifying 19 September 2019. This means that Kathmandu’s systems of internal Kathmandu will primarily be regulated Kathmandu’s relevant charters compliance and control, risk by its home exchange, NZX, and is and policies are available in the management, legal compliance, exempt from complying with most Governances section of Kathmandu’s corporate governance practices, of the ASX's Listing Rules, and the investor website https://www. kathmanduholdings.com/ nancial and other reporting; ASX Code. For the purposes of this investor-relations/governance/ Corporate Governance Statement, • appointing and removing the which is in respect of the period The information in this statement Chief Executive O cer (“CEO”); ending 31 July 2019, Kathmandu has is current as at 31 July 2019 (except • ratifying the appointment, reported against the ASX Code. where otherwise specied). and where appropriate, the This corporate governance statement This corporate governance statement removal of the senior executives details Kathmandu's key corporate has been approved by the board of the Kathmandu Group;

1. ASX Code – Recommendation 2.1; NZX Code – Recommendation 3.4 2. ASX Code – Recommendation 7.3; NZX Code – Recommendation 7.3 CORPORATE GOVERNANCE KATHMANDU ANNUAL REPORT 2019 15

• approving the remuneration framework for the Kathmandu Group; and

• monitoring and reviewing board succession planning.

The board delegates the responsibility for day to day management and operation of the Kathmandu Group to the CEO, who in turn delegates parts of these functions to senior executives and management personnel. Matters reserved for the board and the scope and limitations of delegations to the Director or senior executive, or putting Kathmandu has a robust process CEO and management are set out in a candidate forward to Kathmandu for annual evaluation of its senior a delegated authority policy approved shareholders for election as a Director. executives that compares the by the board on an annual basis. Kathmandu enters into written performance of each individual executive against the goals and Board Composition agreements with each newly appointed Director or senior executive establishing objectives set for the year. The board At 31 July 2019, the board was the terms of their appointment. approves the criteria for assessing comprised of six Directors, namely annual performance of the CEO and David Kirk, John Harvey, Sandra Board and Executive senior executives. A performance McPhee, Xavier Simonet, Philip Performance evaluation of the CEO and each senior Bowman and Brent Scrimshaw. The executive member took place during The board undertakes an annual Chairperson of the board is David the reporting period in accordance performance evaluation of its Kirk. Andrea Martens was appointed performance in comparison with the with this assessment process. e©ective 1 August 2019. Xavier Simonet requirements and expectations of (managing Director and CEO) is the the board charter. The performance Skills Matrix only executive Director on the board. of the board’s committees and each All other Directors are non-executive. The board benets from a combination individual Director is also reviewed of the di©erent skills, experiences and A brief biography of each board on an annual basis, alongside the expertise that Kathmandu’s Directors member is set out on page 12 goals and objectives for the board for bring to their roles and the insights that of this Annual Report and in the the upcoming year and e©ects any result from this diversity. The board is “Board of Directors” section of the changes needed to the board charter. satised that the current composition Kathmandu investor website. The board makes appropriate training of the board re ects an appropriate Nomination and Selection available to all Directors to enable range of the skills, experience, them to remain current on how best knowledge and diversity needed New Directors are selected through to discharge their responsibilities to discharge the board’s functions a nomination and appointment and to keep up to date on changes and responsibilities and to achieve procedure administered by the board, in areas relevant to their roles. the strategic aims of Kathmandu. as outlined in the board charter. The board has undertaken a review of The board continues to monitor and As will be discussed in more detail its performance during the reporting review board composition. The board below, the board has not maintained period by the anonymous completion has developed a skills matrix which a separate nomination committee by each Director of evaluation it uses to assist in developing plans as recommended by the principles. questionnaires relating to board for long-term succession to identify The board has systems in place which and committee composition and current and future skills gaps. require that appropriate checks are performance, and individual interviews conducted before appointing any new of Directors with the Chairperson. 16 KATHMANDU ANNUAL REPORT 2019

The following chart summarises the skills, attributes and experience held by the Directors of Kathmandu during the reporting period. Percentages are determined as at 31 July 2019.

Executive Leadership International Business Capital Projects, Mergers and Acquisitions

Retail and Consumer Experience Remuneration Governance Strategy Financial Acumen

Marketing and Product Development Technology and Data

0% 20% 40% 60% 80% 100%

Executive Leadership: Experienced Retail and Consumer Experience: Remuneration: Experience in and successful leadership at a senior Experienced in retail and consumer remuneration design to drive executive level of large organisations. sectors, understanding multi-channel business success. retailing and brand development. Governance: Knowledge and Technology and Data: Expertise experience of high standards of Marketing and Product Development: and experience in the adoption of corporate governance, including ASX/ Expertise and senior executive new technology and use of data NZX Listing Rules and practices. experience in marketing and new analytics in a consumer environment. media marketing metrics and tools. International Business: Experienced in multi-national, complex environments, including multi- channel business development.

Strategy: Expertise in the development and implementation of strategic plans and risk management to deliver investor returns over time.

Capital Projects, Mergers and Acquisitions: Experience in evaluating and implementing projects involving large-scale nancial commitments, investment horizons and major transactions.

Financial Acumen: Expertise in understanding nancial accounting and reporting, corporate nance and internal nancial controls, including an ability to probe the adequacies of nancial and risk controls. CORPORATE GOVERNANCE KATHMANDU ANNUAL REPORT 2019 17

Independence of Directors The tenure of appointment of the board as at 31 July 2019 is set out below:

The board assesses the independence of its Directors in accordance Name Originally appointed Last reappointed/elected with the requirements set out David Kirk (Chairperson) ³´ November ³µ´¶ ³¶ November ³µ´· in the board charter and the NZX and ASX Listing Rules. Xavier Simonet ³¸ June ³µ´¹ John Harvey ´º October ³µµ¸ ³» November ³µ´¼ Xavier Simonet, as managing Director, is employed by Kathmandu Sandra McPhee ´º October ³µµ¸ ³¶ November ³µ´· in an executive capacity and is not Brent Scrimshaw ³ October ³µ´¼ ³» November ³µ´¼ considered to be an independent Director. All other Directors are Philip Bowman ³ October ³µ´¼ ³» November ³µ´¼ considered independent Directors, namely David Kirk, John Harvey, Sandra In accordance with the updated Board Committees McPhee, Philip Bowman and Brent NZX Listing Rules, Xavier Simonet, The board has established and Scrimshaw (and Andrea Martens). as Managing Director, is no longer maintains two committees of the exempt from the requirement for Tenure board; the Audit and Risk Committee Directors to retire by rotation. Xavier and the Remuneration Committee, to Directors are appointed and retire Simonet will retire and stand for assist in the discharge of the board’s by rotation in accordance with reappointment at the next Annual responsibilities. The board may establish Kathmandu’s constitution and the Meeting of Kathmandu, along with other committees as and when required NZX Listing Rule requirements. Andrea Martens, who was appointed based on the needs of Kathmandu. Director tenure is taken into account by the board e©ective 1 August by the board when considering the 2019. Ms. Martens will retire at the Each Committee is governed by its own independence of each Director. next Annual Meeting and stand Charter, which has been adopted by for election in accordance with the the board, and is reviewed periodically. The average tenure for non- requirements of the Company’s The Committee charters are available executive Directors is 6 years constitution and the NZX Listing Rules. in the “Governance” section of with the following tenure mix: Kathmandu’s investor website. Director Shareholdings Membership of each Committee is Kathmandu considers that Directors based on the needs of Kathmandu, should generally be encouraged to relevant legislative and other hold securities in Kathmandu to requirements and the skills and align the interests of Directors with experience of individual Directors. those of Kathmandu security holders. Meetings of the Committees are Director ownership interests are set scheduled to coincide with the board 40% 40% % out in the “Statutory Information” meeting timetable. Each Committee section of this Annual Report. makes recommendations to the full board for consideration and decision- Company Secretary making as and when required.

20% The Company Secretary is appointed As noted above, Kathmandu does not by the board in accordance with maintain a nomination committee the board charter. The Company and therefore does not comply with Secretary is accountable directly to Recommendation 3.4 of the NZX 0 - 3 Years the board, through the Chairperson, Code / Recommendation 2.1 of the 4 - 6 Years on all matters to do with the proper ASX Code. Due to the size of the 7 - 9 Years functioning and a©airs of the board. At Kathmandu board, the board as the date of this Annual Report, Chris a whole retains the responsibility Kinraid is the Company Secretary. for recommending new Director 18 KATHMANDU ANNUAL REPORT 2019

appointments. The board considers that it is able to deal e ciently and e©ectively 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 Kathmandu in relation to the Director nomination process and whether a change of approach in this area is needed.

A summary of the role, responsibilities and membership of these two Committees (as at 31 July 2019) is set out below.

Audit and Risk Committee Remuneration Committee Roles and Overseeing the process of nancial reporting, Overseeing the development and application responsibilities internal control, continuous disclosure, of the Group Human Resources strategy, the nancial and non-nancial risk management remuneration framework and associated policies; and compliance and external audit;

Monitoring Kathmandu’s compliance with Assisting the board in relation to matters laws and regulations and Kathmandu’s concerning remuneration of senior executives, own codes of conduct and ethics; non-executive Directors and Directors;

Encouraging e©ective relationships Providing e©ective remuneration with, and communication between, policies and programs to motivate high the board, management and performance from all employees; and Kathmandu’s external auditor; and

Evaluating the adequacy of processes Implementing appropriate and e©ective and controls established to identify and policies for managing the performance and manage areas of potential risk and to development of employees at all levels. seek to safeguard Kathmandu’s assets.

Membership At least three members, a majority of At least three members, a majority of whom must be independent Directors whom must be independent Directors and all of whom must be non-executive and all of whom must be non-executive Directors. An independent chairperson Directors, and the chairperson to be an and at least one member with an independent, non-executive Director. accounting or nancial background Current members: Current members: Sandra McPhee (Chair) John Harvey (Chair) David Kirk David Kirk John Harvey Sandra McPhee Philip Bowman Philip Bowman Brent Scrimshaw Brent Scrimshaw CORPORATE GOVERNANCE KATHMANDU ANNUAL REPORT 2019 19

Attendance The key aspects of the Code of Conduct are to: The number of meetings of the board of Directors and the board Committees held during the year ended 31 July 2019 and the number of meetings attended by each • act with honesty, integrity Director were: and fairness and in the best interest of Kathmandu; Director Audit and Risk Remuneration • declare con icts of interest Meetings Committee Committee Meetings Meetings and proactively advise of any con icts of interest; Director ABABAB

David Kirk · · ¶ ¶ ¹ ¹ • act in accordance with all applicable laws, regulations, Xavier Simonet ·· XX XX XX XX policies and procedures;

John Harvey ¼ · ¶ ¶ » ¹ • follows procedures around Sandra McPhee · · ¶ ¶ ¹ ¹ the receiving of gifts;

Brent Scrimshaw · · ¶ ¶ ¹ ¹ • adhere to any procedures about whistle blowing; and Philip Bowman · · ¶ ¶ ¹ ¹ • use Kathmandu resources A – Number of meetings attended and property properly. B – Number of meetings held during the time the Director held o ce during the year Kathmandu maintains a formal XX - Not a member of relevant Committee whistleblowers policy, recognising that the protection of whistleblowers is integral to fostering transparency, business in an ethical and honest Takeover o§er protocols promoting integrity and detecting manner, and to always strive to do the The board has appropriate protocols misconduct. The best way to full right thing. Kathmandu is committed in place that set out the procedure this commitment is to create an to promoting a culture of corporate to be followed if there is a takeover environment in which employees who compliance and ethical behaviour and o©er for Kathmandu. A committee have genuine concerns about improper therefore expects its board, senior of independent Directors would be conduct, unacceptable behaviour, executives and all employees to act formed who would have responsibility or wrong doing, and feel safe to in accordance with the Kathmandu for managing the takeover process in report it without fear of reprisal. values, policies and legal obligations. accordance with the board protocols All Directors and employees Securities Trading Policy and the New Zealand Takeovers Code. joining the Kathmandu Group are Kathmandu has a policy for the dealing provided with information on the in Kathmandu securities by Directors Policies, practices Kathmandu values, and the following and employees, which provides and processes policies, updates and refreshers are provided on a regular basis. transparency about expectations and The main policies and practices requirements. The policy is not designed adopted by Kathmandu are Code of Conduct to prohibit Directors and employees summarised below. A copy of from investing in Kathmandu securities, The board recognises the need each policy is available at www. but recognises that there are times to observe the highest standards kathmanduholdings.com/investor- when Directors or employees cannot, of ethical corporate practice and relations/governance/ or should not, deal in those securities. business conduct. Accordingly, the board has a formal code of conduct, Subject to the overriding restriction A culture of acting lawfully, to be followed by all Directors, senior that persons may not deal in ethically and responsibly executives and employees. Any Kathmandu securities while they are One of Kathmandu’s core values is material breaches of the Code of in possession of material information, Integrity; to conduct the Kathmandu Conduct are reported to the board. Directors and employees will only be 20 KATHMANDU ANNUAL REPORT 2019

permitted to deal in securities during continuous disclosure obligations risks, and the board regularly reviews certain ‘window periods’; being the under the Listing Rules. The policy this framework and how the material periods immediately following the is available and accessible to all risks are impacting its business. The release of Kathmandu’s full and half Kathmandu employees and training board recognises that some element year nancial results or the release of a on its contents is provided regularly. of risk is inherently necessary in disclosure document o©ering securities order to achieve the strategic aims in Kathmandu Holdings Limited. CEO and CFO Declaration for the Kathmandu business and deliver value to shareholders. Directors, senior executives and key Before the board approves nancial statements for the Kathmandu group management personnel must receive Risk Management Policy clearance from the Chairperson of the for a nancial period, it receives The purpose of the Kathmandu board before any proposed dealing in from the CEO and CFO a declaration that, in their opinion, the nancial risk management policy is to Kathmandu securities in each instance. records of the Group have been highlight the risks relevant to Where a Director or senior executive is properly maintained and that the Kathmandu’s operations, and subject to exceptional circumstances nancial statements comply with the Kathmandu’s commitment to (such as severe nancial hardship), appropriate accounting standards and designing and implementing written approval may be granted by the present fairly the nancial position systems and methods appropriate independent Directors for the disposal and performance of Kathmandu, and to minimise and control its risks. of Kathmandu securities, provided that this opinion has been formed on the individual concerned is not in The Audit and Risk Committee the basis of a sound system of risk possession of any material information. assists the board in discharging its management and internal control responsibility for monitoring risk The policy prohibits Directors, senior which is operating e©ectively. management and that Committee is executives, key management personnel responsible for establishing procedures and all other employees from entering Economic, Environmental which seek to provide assurance that into hedging or other arrangements and Social Sustainability major business risks are identied, that have the e©ect of limiting the Kathmandu recognises the importance consistently assessed and appropriately economic risk in connection with of sharing information about its journey addressed. This Committee oversees unvested securities issued pursuant to to becoming a more sustainable the implementation of the risk any employee option or share plan. business. Kathmandu is committed management framework, monitors to protecting workers’ rights, its ongoing e©ectiveness and Reporting and Disclosure minimising waste and lowering the regularly reports to the board. The Kathmandu is committed to environmental impacts of its business Committee undertook a formal review promoting investor condence operations through understanding its of the risk management framework by providing all stakeholders with supply chain. Kathmandu prepares during the reporting period. timely, accurate and balanced a separate sustainability report in disclosure of information regarding its accordance with the Global Reporting Auditor Independence Initiative (GRI) Standards framework. nancial and operational matters. The Audit and Risk Committee It is available online at https:// is responsible for making Continuous Disclosure Policy www.kathmanduholdings.com/ recommendations to the board about about-us/corporate-responsibility/ Kathmandu has a policy that the appointment or replacement of, establishes procedures that are aimed and for monitoring the e©ectiveness Recognising and Managing at ensuring that Directors, executives and independence of, the Group’s our Risks and all employees are aware of and external auditors. The Committee full their obligations in relation to The identication and proper Charter requires that the external the timely disclosure of material management of Kathmandu’s material auditor or lead audit partner is information. The policy explains the risks is an important priority of the changed at least every ve years. respective roles and responsibilities, board. Kathmandu has a central risk The Committee reviews and assesses procedures and processes in place management framework in place to the independence of the external to ensure Kathmandu observes its identify, oversee, manage and control auditor on an annual basis. CORPORATE GOVERNANCE KATHMANDU ANNUAL REPORT 2019 21

Kathmandu does not currently have an More information on Health, Safety and Further information on Director internal audit function and therefore Wellbeing in the Group can be found in and O cer remuneration, including does not comply with Recommendation the Kathmandu Sustainability Report, the arrangements in place for 7.3 of the NZX Code / Recommendation a copy of which is available through remuneration of the Group’s CEO, is 7.3 of the ASX Code. Kathmandu the Kathmandu investor website. set out in the “Remuneration Report” considers that the external advisors it section of this Annual Report. currently engages provide a su cient Our Team Diversity Policy system for evaluating and continually Kathmandu’s goal is to attract, retain improving the e©ectiveness of risk Kathmandu recognises the value of and engage a world-class team of management for Kathmandu and a diverse and skilled workforce and is passionate professionals to drive the delivers appropriate objective assurance committed to creating and maintaining success of the Kathmandu business. on risk management. The Committee an inclusive and collaborative Kathmandu strives to support each will continue to monitor whether workplace culture that will provide team member to further develop his or this current practice is su cient sustainability for the business into her skill-set, to be fairly rewarded for for Kathmandu’s requirements. the future. Di©erent perspectives his or her e©orts, and to feel supported arising from diversity encourage an Kathmandu’s external auditor by an inclusive and progressive culture. innovative, responsive, productive and attends the annual meetings of competitive business and create value the company and is available to Remuneration Policy for our customers and shareholders. answer any questions from investors Kathmandu maintains a remuneration relevant to the external audit. policy in relation to its Directors, Kathmandu is dedicated to executives and employees which leveraging the diverse backgrounds, Health and Safety experiences and perspectives of its provides for remuneration at fair and people to provide excellent customer Kathmandu is dedicated to cultivating reasonable levels throughout the service and innovative products to a strong safety culture and awareness Kathmandu Group. The purpose of an equally diverse community. of health and safety risks, performance the policy is to provide for coherent and management within the remuneration practices which enable Kathmandu’s commitment to Kathmandu Group. Kathmandu has the attraction and retention of high recognising the importance of adopted an integrated approach to calibre individuals who contribute diversity extends to all areas of the safety and wellbeing, which recognises positively to the achievement of business including talent acquisition, that workplace safety, health and Kathmandu’s strategy and objectives, learning and development, succession mental health all contribute to an and ultimately create value for planning, internal transfer & employee’s overall wellbeing. Kathmandu shareholders. The promotion, retention of employees, and company policy and procedures. Kathmandu maintains a Safety and remuneration of executive and non- Wellbeing intranet site ‘Destination executive Director remuneration is Kathmandu has established a diversity Safe’ which contains a range of clearly di©erentiated in the policy. policy in accordance with the principles, resources, tools and information Kathmandu is committed to rewarding including the NZX Diversity Policies and employees can access to assist in its employees with compensation and Disclosure Guidance note. This policy keeping workplaces safe covering benet programmes that are based on encompasses Kathmandu’s Diversity incident and emergency response performance merit and experience. In Principles, which a rm Kathmandu’s and hazard and risk management. 2019, an audit on employee pay parity commitment to harnessing di©erences to encourage an innovative, responsive Lag indicators of health and safety was completed. Based upon the results and productive workplace, creating risks during the reporting period: of this audit, Kathmandu has evidence that supports pay equality between value and rewards for customers, the Lost time injury* frequency rate (number team, shareholders and the community. gender and other diversity indicators, of lost time injuries per 1,000,000 hours with no evidence of pay disparity As part of its diversity policy, worked): 4.35 (2018: 5.0) between persons holding the same Kathmandu has established * A lost time injury is an injury resulting or similar roles. A review of gender measurable objectives for achieving in time lost greater than 1 shift pay parity is conducted annually. diversity, including across the Gender, 22 KATHMANDU ANNUAL REPORT 2019

Generation and Culture proles of Kathmandu in accordance with all Approach to Seeking the Group. Kathmandu carries out applicable laws and Kathmandu’s Additional Equity Capital an annual assessment of its diversity communication strategy. The board acknowledges objectives and measures its progress Information is communicated to Recommendation 8.4 of the NZX Code towards achieving these objectives. investors through the lodgement of all which suggests that where Kathmandu In relation to its Generation and relevant nancial and other information requires additional equity capital, where Culture proles, Kathmandu has made with ASX and NZX, publishing practical, the board should favour progress towards achieving its age information on the Kathmandu investor capital raising methods that provide prole and cultural diversity objectives. website, annual shareholder meetings, existing equity security holders with Kathmandu is proud of its ethnic and annual and interim reporting, analyst an opportunity to participate in the cross-generational diversity, which and investor briengs and roadshows. o©er on a pro-rata basis. The board re ects the diversity of its customers, will take Recommendation 8.4 into business partners and community. Website account, along with a number of other factors when considering options for In relation to gender diversity, The Kathmandu investor website (www. any potential capital raising. Ultimately Kathmandu’s objective is to improve kathmanduholdings.com) contains the board will chose methods to representation of women at senior all key communications concerning raise equity, when needed, which are leadership levels. As at 31 July 2019, the company, along with information necessary and desirable to achieve the in relation to Kathmandu’s: about Kathmandu’s core values, best outcomes for Kathmandu in the corporate social responsibility, proles • Board of Directors, one out context of any anticipated transaction of its board and management, key of six Directors is female (this or proposal for which additional governance policies, the Charters is the same as FY18)* equity capital may be required. of the board Committees, copies of • Executive management, two out current and past annual reports and Meetings and Voting of eleven positions were held transcripts of annual meetings. Where voting by shareholders on by women (for FY18 this was All relevant announcements made a matter concerning Kathmandu one out of nine positions). to the market are shown on the is required, the board encourages • Across the entire organisation: Kathmandu investor website as soon investors to attend the shareholders meeting or to send in a proxy 58% of all team members as they have been released to ASX vote. All voting at the company’s are female, 42% male. (FY18, and NZX. Announcements lodged annual shareholder meetings is 59% female, 41% male) during the past ve years can also be conducted by way of poll on the accessed through the investor website. *Andrea Martens has been appointed basis of one share, one vote. as a Director e©ective 1 August 2019. Communication Kathmandu’s annual meetings are The board has been actively searching Kathmandu encourages investors held primarily in New Zealand, and for new candidates with the right to communicate with the company periodically in Australia, in order skills and experience to take up a electronically. Investors can contact to maximise the opportunity for position as a Director of Kathmandu the company through the investor shareholders to participate. Webcasts and has recently appointed Andrea website at www.kathmanduholdings. of annual meetings are also available Martens, e©ective 1 August 2019. The com/contact/. Investors have the option to allow participation where a board continues to strive towards of receiving their communications, shareholder is unable to attend in person. The company’s notice of achieving its gender diversity targets. which includes the annual report, meeting will be available at www. from Kathmandu electronically. Interacting with our Investors kathmanduholdings.com/investor- Kathmandu actively engages relations/nzx-announcements/ Kathmandu is committed to keeping with its investors through annual our stakeholders and owners e©ectively meetings, meeting with stakeholders and comprehensively informed of on request and responding to all relevant information a©ecting enquiries from time to time. REMUNERATION REPORT KATHMANDU ANNUAL REPORT 2019 23 Remuneration Report

1. Summary Other Management Team 3. Principles used to (Executive) members: Kathmandu’s nancial results determine the nature and for FY2019 re ect a continuation Currently Employed: amount of remuneration of a return to sustainable long- Ben Ryan The Company’s Remuneration term protable growth. – General Manager, Product Committee of the Board, currently comprising all independent non- Earnings before interest and tax Rebecca Edwards Executive Directors, determines the (EBIT) was $84.3m an increase of – General Manager, Human Resources 12.7% and Net Prot after Tax was quantum and structure of Directors $57.6m, a 13.7% increase over FY2018. Stephen Domancie and Executive remuneration. The – General Manager, Retail composition, role and responsibility FY2019 remuneration Stores & Operations of the Committee is outlined in the Corporate Governance Statement • Non-Executive Directors Caleb Nicolson on page 14 of this annual report. The fees increased by 2.0%. – General Manager, Supply Chain Committee adopts a series of principles • Executive base salary increases Paul Stern in determining remuneration related were limited to 2.0%. – General Manager, Marketing & Online decisions. The principles used are: • Short term incentives (cash) were Jolann van Dyk • The remuneration structure paid to all eligible Executives – Chief Information O cer should reward those employees (including the CEO) for partially who have the ability to in uence meeting the Group nancial Mark Handy the achievement of the Group’s performance target (EBIT). – General Manager, Merchandising (from 4 September 2017) strategic objectives and business • Short term incentives (equity) plans to enhance shareholder were not earned by any eligible Amy Beck value for successful Group Executive (excluding CEO and COO). – President Oboz / Kathmandu performance outcomes and North America (from 1 April 2019) their contribution to these;

2. Key Management The Group employed all of the • Executive remuneration should Personnel above Executives for the full be market competitive, and years ended 31 July 2018 and generally account for market The following Executives are identied 2019, unless otherwise stated. practice including consideration as Key Management Personnel with of employee place of domicile; the authority and responsibility along Throughout their period of with the Directors for planning, employment, Reuben Casey, Chris • Executives’ remuneration directing and controlling the Kinraid, Caleb Nicolson, Jolann Van package should have: activities of the Group, directly or Dyk, Rebecca Edwards, Mark Handy - a substantial portion of their indirectly, during the nancial year: and Ben Ryan were employees of Kathmandu Limited (New Zealand), total remuneration that is “at Currently Employed: Xavier Simonet, Paul Stern, and risk” and aligned with reward for creating shareholder value, Xavier Simonet Stephen Domancie were employees of – Chief Executive O cer Kathmandu Pty Limited (Australian) - an appropriate balance and Amy Beck was an employee of between short and long- Reuben Casey Oboz Footwear LLC (American). term performance focus – Chief Operating O cer and outcomes, (Chief Financial O cer to 14 May 2019) - a mix of cash and equity Chris Kinraid based remuneration; – Chief Financial O cer, Company Secretary (from 14 May 2019) 24 KATHMANDU ANNUAL REPORT 2019

• The CEO, because of his 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 should, relative to other Executives, have:

- a greater proportion of total remuneration (at least 50%) that is “at risk”, i.e. contingent upon the achievement of performance hurdles, and

- a greater proportion of “at risk” remuneration weighted b) Short term incentives determined tax (EBIT), has been determined as towards equity based on the basis of achievement of the appropriate nancial performance rewards rather than cash; specic targets and outcomes target to trigger payment of STI. • Non-Executive Directors’ relating to annual Group nancial The amount of any STI paid in performance and individual value remuneration should enable the a year is dependent upon: Company to attract and retain adding performance objectives. high quality Directors with the The available incentive reward is a. the level of performance relevant experience. In order split between cash and equity. achieved against the Group’s nancial performance target to maintain independence and c) Long term incentives via (EBIT) for the year; and impartiality non-Executive Directors participation in the Company’s should not receive performance Long Term Incentive plan. b. the outcome of individual based remuneration; and value adding performance, a) Base salary and beneˆts measured by achievement of • The Board uses discretion Base salary for Executives is individual KPI’s, subject to a when setting remuneration reviewed annually to assess minimum level of performance levels, taking into account appropriateness to the position and achieved by the Group relative interests of shareholders, the competitiveness with the market. to the nancial performance current market environment b) Short term incentives (STI) target (EBIT) for the year. and Group performance. Executives are eligible to participate The weighting of STI between Group in an annual STI that delivers rewards nancial performance, individual 4. Remuneration by way of cash and/or deferred equity. KPI’s, cash and deferred equity is: framework Group Earnings before interest and

The Board, through the Committee undertakes its governance role in Short term incentive weighting: CEO Executives establishing Executive remuneration Cash Equity Cash Equity including, where required, Group nancial performance target ¼µ% - ³¸% »º% use of external independent Individual KPI achievement ¶µ% - ³¹% - remuneration consultants and/ Total ®¯¯% - °±% ±²% or available market information.

The Executive remuneration For Executives where a short-term equity incentive is earned, vesting is subject to structure has three components: ongoing employment by the Group for a period of one year following the end of the a) Base salary and bene
ts nancial year in which the incentive is earned. REMUNERATION REPORT KATHMANDU ANNUAL REPORT 2019 25

c) Long Term Incentive Plan (LTI) The Board resolved to grant nil cost performance rights that:

Shareholders reapproved the current • Were measurable for a single specied performance period of three years; and LTI at the Company’s 2016 Annual • Required achievement of relative TSR targets and EPS growth targets over General Meeting based on the granting a single specied performance period of three years with the value of rights of nil cost performance rights. Rights allocated 50:50 between EPS and relative TSR. have been o©ered each year since the plan was originally approved in 2010. Performance measurement under either criterion is at the end of the performance period with no ability to re-test. The plan is intended to focus performance on achievement of key 5. CEO Remuneration details: long term performance metrics. The selected performance measures provide CEO remuneration comprises a mixture of base salary, STI and LTI: an appropriate balance between CEO 2019 Remuneration package A$’000 relative and absolute Company performance. The Board continues Fixed (Base salary, superannuation) ·³¼ to reassess the plan and its structure to best support and facilitate the STI (ºµ% of xed) »¸º growth in shareholder value over LTI (¼µ% of xed) * ¹¼¸ the long term relative to current Maximum potential remuneration ´,¸µ³ business plans and strategies. Any grants made to Executive Directors * Vesting dependent on achievement of performance hurdles measured over a three-year period. are subject to shareholder approval. Vesting date 1 December 2021.

Rights granted are dependent upon • More than half (57%) the total remuneration for the CEO is at risk; the Company achieving Earnings • Over 85% of the at risk remuneration (all except for the STI KPI’s) is solely per Share (EPS) and/or relative Total dependent on outcomes of Group nancial performance against short and long Shareholder Return (TSR) targets over term targets; and specied performance periods, with the value of rights allocated between • All long term incentive (70% of Fixed Annual Remuneration) will be measured on EPS and relative TSR determined each a single 3-year performance period. year. EPS is measured on a compound annual growth basis and TSR is Remuneration Structure – CEO and Executives: measured on a relative basis against a comparator group of ASX listed companies (other than metal and CEO 44% 26% 30% mining stocks) ranked 101 to 200 in the S&P/ASX200 as at the date of the grant.

Performance measurement under either criterion is at the end of each COO/CFO 56% 19% 25% applicable performance period with no ability to re-test. Fifty per cent of the relevant portion of the award vests for achievement of targets and a further fty per cent vests for the Executives 66% 34% achievement of aspirational targets. A sliding scale operates between target and aspirational performance levels. Fixed In FY2019, grants were STI made to the CEO and COO. LTI 26 KATHMANDU ANNUAL REPORT 2019

FY2019 STI outcomes Details of the remuneration of the Directors and Key Management For the year ended 31 July 2019 the Group nancial performance targets were Personnel and total remuneration met and as a result, short-term cash incentives were paid to the extent of 15% of other Executives of the Group, (26% of potential) of xed annual remuneration for the Chief Executive O cer. for the current and prior nancial 5 Year CEO Remuneration years are set out in Note 6.3 of the nancial statements. % STI Percentage Achieved Vested LTI's Span of LTI 6. Executive Service Single Figure Against Against Performance Remuneration1 Maximum Maximum Period agreements ³µ´¸ Xavier Simonet ´,µµ¶,¹¹·³ ³º% ´µµ% ³µ´¹-³µ´· All Executives are on employment ³µ´· Xavier Simonet ´,»µ·,¶´¹ ´µµ% N/A N/A terms consistent with the remuneration framework outlined in this report. ³µ´¼ Xavier Simonet ´,³¸µ,µ³º ·º% N/A N/A Each of the agreements has an open ³µ´º Xavier Simonet ´,¶¸´,¸·¶ ´µµ% N/A N/A term, and the period of notice to ³µ´¹ Xavier Simonet ´¶º,³º¼ - N/A N/A be given by the employee is three Mark Todd¶ ¼´¹,¹¶¸ - ¹»% ³µ´µ-³µ´» months (six months for the CEO). The agreements provide for three 1. Comprises of cash salary and fees, non-monetary benets, superannuation (excludes any accounting expense for LTI). months base salary inclusive of any 2. On 14 December 2018 407,463 shares vested at a market value of $1,120,631 which is in addition to applicable superannuation to be the single gure remuneration disclosed above. paid in the event of a redundancy 3. Acting CEO during FY2015. (six months for the CEO). REMUNERATION REPORT KATHMANDU ANNUAL REPORT 2019 27

7. Non-Executive Directors’ fees The current aggregate limit for non-Executive Directors’ fees is $A1,000,000 per annum. In FY2019 the base fee payable (including superannuation if applicable) to the Chairman was $A234,000 and to a non-Executive Director $A122,000 per annum. No additional fees are paid for sub-committee attendances. Overall, Directors fees for FY2019 have increased 2.0% from the fees payable in FY2018.

Any Executive Directors do not receive Directors’ fees. The amounts approved for Directors’ fees are expressed in AUD given the specic requirements for remuneration reporting applying to ASX listed companies, however all amounts reported in the tables within this report are specied in NZD, being the reporting currency of the Company.

The Board reviews Directors’ fees annually seeking advice from external independent remuneration consultants as necessary.

Non-Executive Directors do not participate in the Company short or long term incentive schemes.

The following fees apply per annum:

Total Fees AUD $ Chairman ³¶»,µµµ Other non-Executive Directors ´³³,µµµ Actual fees paid in year ended ¶´ July ³µ´¸ (converted to reporting currency) NZD $ Chairman ³¹¹,µµº Other non-Executive Directors ´¶¶,º³¸

8. Details of share-based compensation The Company Long term incentive plan entitles the Board to grant performance rights for no cash consideration, at intervals determined by the Board.

The number of rights granted and the applicable performance period over which EPS and relative TSR is measured is set out below, along with the fair value of the rights at the grant date. Total fair value of Rights Granted Date Performance Rights Grant Date during the year Exercisable Expiry Date at Grant Date $ Executive Director – Xavier Simonet ³µ´· ³µ Dec ³µ´· ³µ»,¼¶¸ ´ Dec ³µ³´ ´ Dec ³µ³´ ¶·¼,¼¶º ³µ´¼ ³µ Dec ³µ´¼ ³¸³,·µ¸ ´ Dec ³µ³µ ´ Dec ³µ³µ »··,»³µ ³µ´º ´¸ Dec ³µ´º ³¸¶,µ¼· ´ Dec ³µ´¸ ´ Dec ³µ´¸ ¶¼·,µ¼´ ³µ´¹ ´º Dec ³µ´¹ »µ¼,»º¶ ´ Dec ³µ´· ´ Dec ³µ´· »¶¶,¸»·´

Shares issued to Directors, Other Executives and Senior Management on Vesting of Performance Rights:

Date Granted Date Shares Issued Number of Shares Issued ³µ´· ´º Dec ³µ´¹ ´» Dec ³µ´· »µ¼,»º¶ ³µ´· º Dec ³µ´º ´µ Aug ³µ´· »ºº,³»¸ ³µ´¼ ´· Dec ³µ´¹ ³³ Aug ³µ´¼ ºº¸,ºº¸ ³µ´¼ ´· Dec ³µ´¹ ³¸ Mar ³µ´¼ ´³,¹¶¼

1. Shares 100% vested and were issued 14 December 2018. Performance rights granted to each Executive will, subject to satisfaction of performance conditions, vest on the basis of one ordinary share for each performance right which vests, at the end of each performance period. 28 KATHMANDU ANNUAL REPORT 2019

9. Additional information, Performance Rights Vesting Performance rights granted, the percentage that vested, the percentage that forfeited and future potential vesting periods are shown in the table below:

Grant Date Vested % Forfeited % Financial periods Maximum total Maximum total in which rights number of rights value of grants yet may vest yet to vest to vest

Executive Director – Xavier Simonet FY³µ´¸ µ.µ% µ.µ% FY³µ³³ ³µ»,¼¶¸ ¶·¼,¼¶º FY³µ´· µ.µ% µ.µ% FY³µ³´ ³¸³,·µ¸ »··,»³µ FY³µ´¼ µ.µ% µ.µ% FY³µ³µ ³¸¶,µ¼· ¶¼·,µ¼´ FY³µ´º ´µµ% µ.µ% FY³µ´¸´ »µ¼,»º¶ »¶¶,¸»·

Other Executives and Senior Management: FY³µ´¸ µ.µ% µ.µ% FY³µ³³ ¹º,º»¸ ´µ·,´¶´ FY³µ´¸ µ.µ% ´µµ% FY³µ³´ »¸º,¼¶» - FY³µ´· µ.µ% µ.µ% FY³µ³´ ·´,º³· ´¶º,´¹¸ FY³µ´· ¸µ.µ% ´µ.µ% FY³µ³µ³ ¹¹´,´·º ´,´·´,»º¶ FY³µ´¼ µ.µ% µ.µ% FY³µ³µ ·³,¼¶³ ´µº,¼³» FY³µ´¼ ·».¸% ´¹.´% FY³µ´¸¶ »ºº,³»¸ ¼¸¼,³· º

1. Shares 100% vested and were issued 14 December 2018. 2. Shares were issued on 14 August 2019. 3. Shares were issued on 10 August 2018

The maximum value of performance rights yet to vest has been determined as the total number of performance rights still to vest multiplied by the fair value of each performance right at grant date. REMUNERATION REPORT KATHMANDU ANNUAL REPORT 2019 29

Company performance

All Executives’ short term incentive is dependent upon the Company’s overall nancial performance for each nancial year. Long term incentive is dependent upon both earnings per share growth and relative total shareholder returns over a range of performance periods.

With reference to the measurement of long term incentive performance the table below outlines the Company’s earnings and share performance since its listing on 13 November 2009:

Basic EPS Share price Share price Ordinary cents per Basic EPS at start of at end of Share price dividends paid or Year NPAT Growth share growth year year growth declared per share FY³µ´µ À¸.» m NA µ.¶ NA À³.´¶ À³.µ¹ (¶.·%) Àµ.µ¼ FY³µ´´ À¶¸.´m ¶´º.µ% ´¸.¹ º¹x À³.µ¹ À³.³µ ¼. ¶% Àµ.´µ FY³µ´³ À¶».¸m (´µ.¼%) ´¼.» µ.¸x À³.³µ À´.¹¸ (³¼.¼ %) Àµ.´µ FY³µ´¶ À»».³m ³º.º% ³³.´ ´.¶x À´.¹¸ À³.¶¼ »¸.´% Àµ.´³ FY³µ´» À»³.³m (».¹%) ³´.µ ´.µx À³.¶¼ À¶.¶¶ »µ.¹% Àµ.´³ FY³µ´¹ À³µ.»m (¹´.¼%) ´µ.´ µ.¹x À¶.¶¶ À´.¼µ (»·.¸%) Àµ.µ· FY³µ´º À¶¶.¹m º».³% ´º.º ´.ºx À´.¼µ À´.·µ ¹.¸% Àµ.´´ FY³µ´¼ À¶·.µm ´¶.»% ´·.¸ ´.´x À´.·µ À³.³¼ ³º.´% Àµ.´¶ FY³µ´· À¹µ.¼m ¶¶.»% ³».µ ´.¶x À³.³¼ À¶.µ· ¶¹.º% Àµ.´¹ FY³µ´¸ À ¹¼.º m ´¶.¼% ³¹.¹ ´.´x À¶.µ· À³.´¶ (¶µ.·%) Àµ.´º

Share price quoted is the NZX listing price. The Company is listed on both the ASX and NZX and options will vest on both exchanges, dependent on where the employee is based.

Shares under options or performance rights

There are no unissued ordinary shares of the Company under any vested options or performance rights at the date of this report. 30 KATHMANDU ANNUAL REPORT 2019

10. Remuneration of Auditors Details of remuneration of Auditors is set out in Note 6.8 of the Financial Statements.

Non-Audit Services

PricewaterhouseCoopers were appointed auditors of Kathmandu Holdings Limited in 2009 and whilst their main role is to provide audit services to the Company, the Company does employ their specialist advice where appropriate. In each instance, the Board has considered the nature of the advice sought in the context of the audit relationship and in accordance with the advice received from the Audit and Risk Committee, does not consider these services compromised the auditor independence for the following reasons:

• All non-audit services have been reviewed by Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor

• None of the services undermined the general principles relating to auditor independence, including not reviewing or auditing the auditor's own work, not acting in a management or a decision making capacity for the Company, not acting as advocate for the Company or not jointly sharing economic risk or rewards.

This report is made in accordance with a resolution of the Directors.

David Kirk Xavier Simonet Chairman Managing Director FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 31 Financial Statements For the Year Ended 31 July 2019

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 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.... 32

Consolidated Statement of Comprehensive Income...... 33

Consolidated Statement of Changes in Equity...... 34

Consolidated Balance Sheet...... 35

Consolidated Statement of Cash Flows...... 36

Notes to the Consolidated Financial Statements

Section 1: Basis of Preparation...... 38

Section 2: Results for the Year...... 40

Section 3: Operating Assets and Liabilities...... 47

Section 4: Capital Structure and Financing Costs...... 54

Section 5: Group Structure...... 63

Section 6: Other Notes...... 65

Auditors’ Report...... 74 32 KATHMANDU ANNUAL REPORT 2019

Directors’ Approval of Consolidated Financial Statements For the Year Ended 31 July 2019

Authorisation for Issue The Board of Directors authorised the issue of these Consolidated Financial Statements on 18 September 2019.

Approval by Directors The Directors are pleased to present the Consolidated Financial Statements of Kathmandu Holdings Limited for the year ended 31 July 2019 on pages 33 to 73.

18 September 2019

David Kirk Date

18 September 2019

Xavier Simonet Date

For and on behalf of the Board of Directors FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 33

Consolidated Statement of Comprehensive Income For the Year Ended 31 July 2019

Section 2019 2018 NZ$’000 NZ$’000

Sales ƒ.ƒ „ „,‡ˆ‰ Š‹, Œ‹ Cost of sales (ƒˆŒ,ˆƒ„) (ˆ‰ˆ,Š‡ˆ) Gross pro“t ŒŒƒ, ŠŒ Œˆ„, ‹‡

Other income ˆ,ˆŒ• - Selling expenses ƒ.ƒ (ˆ‡•,„‰ˆ) (ˆ„„,‡‹‹) Administration and general expenses ƒ.ƒ (‹Œ, ‹‹) (‹•,•Œ‰) (ƒŒƒ,Šƒ‰) (ƒƒ„,‹ˆ„) Earnings before interest, tax, depreciation and amortisation ƒƒ,„ „ †ƒ,‡ ˆ

Depreciation and amortisation Œ.ƒ/Œ.Œ (ˆ„,ƒ‹ƒ) (ˆ ,Š„‰) Earnings before interest and tax †‰,Šƒ‹ ‡‰,†Œ‹

Finance income Œ‹ ‹ Finance expenses (ƒ,Š„ƒ) (ˆ,ˆ•‡) Finance costs - net .ˆ.ˆ (ƒ,Šˆ„) (ˆ,•„Š)

Profit before income tax †ˆ,‹‡† ‡‹,‡‰‰ Income tax expense ƒ.Œ (ƒŒ,‹ „) (ƒŒ,•‹Œ)

Profit after income tax „‡, ‹‹ „Œ, ‡ˆ

Other comprehensive income/(expense) that may be recycled through profit or loss:

Movement in cash œow hedge reserve .Œ.ƒ ‡ƒ• ‰,‰ƒ• Movement in foreign currency translation reserve .Œ.ƒ (Œ,ƒŠ‹) ˆ•,„ˆ‰

Other comprehensive income/(expense) for the year, net of tax (Š, ‡‡) ˆƒ,‹‹†

Total comprehensive income for the year attributable to shareholders „‰,ƒ„ ‡Œ,ŒŒƒ

Basic earnings per share ƒ. ƒ„.„cps ƒ .•cps Diluted earnings per share ƒ. ƒ„.Œcps ƒŒ.‰cps Weighted average basic ordinary shares outstanding (‘•••) ƒ. ƒƒ‡,•ƒ ƒˆˆ,ƒ‡ˆ Weighted average diluted ordinary shares outstanding (‘•••) ƒ. ƒƒ‹,Š‰Š ƒˆŒ,ˆ‰‹ 34 KATHMANDU ANNUAL REPORT 2019

Consolidated Statement of Changes in Equity For the Year Ended 31 July 2019

Foreign Share Cash Flow Currency Based Share Hedge Translation Payments Retained Total Capital Reserve Reserve Reserve Earnings Equity NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000

Balance as at Œˆ July ƒ•ˆ‹ ƒ••,ƒ•Š („,Œƒƒ) (ˆŠ, ŠŒ) ˆ,‰ˆŒ ˆ Š,‰ŠŒ Œƒ‹,ˆ•• Pro“t after tax - - - - „•,‡‹ˆ „•,‡‹ˆ Other comprehensive income - ‰,‰ƒ• ˆ•,„ˆ‰ - - ˆŠ,ŒŒ‰ Dividends paid - - - - (ƒ‹,ƒ•‰) (ƒ‹,ƒ•‰) Issue of share capital Š,‡‹Œ - - (Š‹ˆ) - ‰,‹•ƒ Share based payment expense - - - ˆ, ‰Š - ˆ, ‰Š Deferred tax on share-based payment - - - ƒŠ - ƒŠ transactions Balance as at ‹ˆ July ŠŒˆ† Š‰ƒ,††Š ‹,‰ƒ† (†,ƒ‡„) Š,‡ Œ ˆ‡‹,‹„ ‰ŠŒ,„Šˆ

Pro“t after tax - - - - „‹,‡ŒŒ „‹,‡ŒŒ Other comprehensive income - ‡ƒ• (Œ,ƒŠ‹) - - (ƒ,‡‹‹) Dividends paid - - - - (ŒŒ,‰‰Œ) (ŒŒ,‰‰Œ) Issue of share capital ˆ,ƒŒˆ - - (ˆ,ƒŒˆ) - - Share based payment expense - - - ‹ƒˆ - ‹ƒˆ Lapsed share options - - - (ˆ ) ˆ - Deferred tax on share-based payment - - - (ƒ„Œ) - (ƒ„Œ) transactions Balance as at ‹ˆ July ŠŒˆƒ Š„ˆ,ˆˆ‹ ‰,ˆˆ† (ˆŠ,Š‡Š) ˆ,ƒ†‹ ˆƒ‡,ˆŠŒ ‰‰Š,Œ Š FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 35

Consolidated Balance Sheet As at 31 July 2019

2019 2018 Section N Z $ ’ 0 0 0 NZ$’000

ASSETS Current assets Cash and cash equivalents Œ.ˆ.ƒ ‡,ƒŒ• ‰,ˆ ‡ Trade and other receivables Œ.ˆ.Œ ˆ ,ƒ•‡ ˆŒ, „Œ Inventories Œ.ˆ.ˆ ˆƒƒ,‹‹Œ ˆˆˆ,ŠƒŠ Derivative “nancial instruments .ƒ ,Š‡ „,•‹‡ Other “nancial assets Œ.ˆ. - ƒƒ,ˆ‰• Total current assets ˆ‰†,ˆ‡‹ ˆ Œ,‡†‰

Non-current assets Property, plant and equipment Œ.ƒ ‡•,ŒˆŠ ‡Œ,„ˆ Intangible assets Œ.Œ Œ‰‡,•‡ˆ Œ‰‡,Š•‡ Total non-current assets ‰‰ ,‹†Œ ‰„Œ,‰ŠŒ Total assets „ƒ‰,„„‹ ˆˆ,ŠŒ‰

LIABILITIES Current liabilities Trade and other payables Œ.ˆ.„ ‹ ,„‡• ‹ƒ,‹‹• Derivative “nancial instruments .ƒ ˆˆŒ ˆ„‡ Current tax liabilities ‡, „‰ Š,Š‡‰ Other “nancial liabilities Œ.ˆ.‡ - ƒˆ,ŠŠ Total current liabilities †ˆ,ˆ‹ˆ ˆŒ‰,†††

Non-current liabilities Derivative “nancial instruments .ƒ Š ‡ƒ Interest bearing liabilities .ˆ ƒ„,„•• ŒŠ,„•• Deferred tax ƒ.Œ „,‰„ˆ ‡,ƒŒŒ Total non-current liabilities ‡ˆ,‹ Œ †„,‡ƒ„ Total liabilities ˆ„Š,‰ƒˆ ˆƒŒ, †‹

Net assets ‰‰Š,Œ Š ‰ŠŒ,„Šˆ

EQUITY Contributed equity - ordinary shares .Œ.ˆ ƒ„ˆ,ˆˆŒ ƒ Š,‰‰ƒ Reserves .Œ.ƒ (‡,ˆ‹ˆ) (ƒ,‹ˆ‹) Retained earnings ˆŠ‹,ˆƒ• ˆ‹Œ,Œ„‡ Total equity ‰‰Š,Œ Š ‰ŠŒ,„Šˆ 36 KATHMANDU ANNUAL REPORT 2019

Consolidated Statement of Cash Flows For the Year Ended 31 July 2019

2019 2018 Section NZ$’000 NZ$’000

Cash flows from operating activities Cash was provided from: Receipts from customers „ ‡, ŠŠ „•ƒ,‹•Œ Income tax received ƒ•‹ ˆ„‡ Interest received ‡ƒˆ ‹ „ ‹,Œƒ‹ „•ƒ,Š•‡

Cash was applied to: Payments to suppliers and employees „„,‹ Œ •‡,„•‰ Income tax paid ƒ‡,‡‹Œ ˆ‰,‹ˆ• Interest paid Œ,ƒŒ‹ ƒ,•‰‹ ‰„,‡„Œ ƒ‹,Œ•„

Net cash inflow from operating activities ˆ, ‡‰ ‡„, Œˆ

Cash flows from investing activities Cash was provided from: Proceeds from sale of property, plant and equipment ˆ - Proceeds from investment in other “nancial assets Œ.ˆ. ƒƒ,Œƒˆ - ƒƒ,Œƒƒ - Cash was applied to: Purchase of property, plant and equipment Œ.ƒ ˆˆ,Œ „ ˆ ,Œ•• Purchase of intangibles Œ.Œ ,Œ„ˆ ƒ,ŒŠ Acquisition of subsidiaries „.ˆ ƒƒ,Œƒˆ ‰ƒ,‹ ‡ Investments in other “nancial assets Œ.ˆ. - ƒƒ,ˆ‰• Œ‰,•ˆ‹ ˆƒˆ,‡ƒ•

Net cash outflow from investing activities (ˆ„, ƒ„) (ˆŠˆ, ŠŒ)

Cash flows from financing activities Cash was provided from: Proceeds of loan advances Šƒ,‡•‡ ˆ ‰,‰ˆ„ Proceeds from share issues - ‰,‹•ƒ Šƒ,‡•‡ ˆŠ‹,„ˆ‹ Cash was applied to: Dividends paid ŒŒ,‰‰Œ ƒ‹,ƒ•‰ Repayment of loan advances ˆ•‡,‡•‡ ˆˆŠ,Š•‹ ˆ •, ‰Š ˆ ‹,ˆˆ„

Net cash inflow / (outflow) from financing activities (‰‡,††‹) „Œ,‰ŒŠ

Net increase / (decrease) in cash held (ˆ,ƒŒ‰) ‰,‹†‹

Opening cash and cash equivalents ‰,ˆ ‡ Œ,„Œ‹ E¦ect of foreign exchange rates (ˆƒ) ƒƒ‡ Closing cash and cash equivalents ‹.ˆ.Š ,Š‹Œ †,ˆ‰ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 37

Reconciliation of net prot aer taxation with cash inow from operating activities

Section 2019 2018 NZ$’000 NZ$’000

Pro“t after taxation „‹,‡ŒŒ „•,‡‹ˆ

Movement in working capital: (Increase) / decrease in trade and other receivables (Œ‹Š) „,ƒ‹ƒ (Increase) / decrease in inventories (ˆŒ,• ƒ) (ˆŒ,‰‹Œ) Increase / (decrease) in trade and other payables Œ,‡‡ƒ ˆ•,‰‰ Increase / (decrease) in tax liability (Œ,ƒ‡•) ‡, •„ (ˆŒ,•ˆŠ) ‰,‡‰‰

Add non-cash items: Depreciation Œ.ƒ ˆˆ,Šƒ• ˆˆ,„‹‡ Amortisation of intangibles Œ.Œ Œ,Œ„ƒ Œ,Œ‰ƒ Foreign currency translation of working capital balances (ƒ‰‡) ( Œ•) Increase / (decrease) in deferred taxation „ŒŠ (ˆ,‰Šˆ) Employee share based remuneration ‡. ‹ƒˆ ˆ, ‰Š Loss on sale of property, plant and equipment Œ.ƒ ‰ˆ ƒ,ˆˆ‡ ˆ‹,•‡• ˆ‡,ƒ ƒ

Cash in¤ow from operating activities ˆ, ‡‰ ‡„, Œˆ

Reconciliation of movement in term loans

Balance ‹ˆ July ŠŒˆ† ŒŠ,„••

Net cash œow movement (ˆ ,•••) Foreign exchange movement - Balance ‹ˆ July ŠŒˆƒ Š„,„ŒŒ 38 KATHMANDU ANNUAL REPORT 2019

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 nancial statements as a whole. Where an accounting policy is specic 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 The principal accounting policies adopted in the preparation subsidiaries (together the Group) is a designer, marketer, of the “nancial statements are set out below. These policies retailer and wholesaler of clothing, footwear and equipment have been consistently applied to all periods presented, unless for travel and adventure. It operates in New Zealand, otherwise stated. Australia, United Kingdom and United States of America. Basis of consolidation The Company is a limited liability company incorporated and The “nancial statements reported are for the consolidated domiciled in New Zealand. Kathmandu Holdings Limited is “Group” which is the economic entity comprising Kathmandu a company registered under the Companies Act 1993 and is Holdings Limited and its subsidiaries. a FMC reporting entity under Part 7 of the Financial Markets The Group is designated as a for pro“t entity for “nancial Conduct Act 2013. The address of its registered oªce is 223 reporting purposes. Tuam Street, Central Christchurch, Christchurch. Subsidiaries are consolidated from the date on which control The Company is listed on the NZX and ASX. is obtained to the date on which control is lost.

The “nancial statements of the Group have been prepared in In preparing the Group “nancial statements, all material accordance with the requirements of Part 7 of the Financial intra-group transactions, balances and unrealised gains Markets Conduct Act 2013 and the NZX Listing Rules. on transactions between Group companies are eliminated. These audited consolidated “nancial statements have Unrealised losses are also eliminated. When necessary, been approved for issue by the Board of Directors on amounts reported by subsidiaries have been adjusted to 18 September 2019. conform to the Group’s accounting policies. Historical cost convention 1.2 Summary of signi¦cant These “nancial statements have been prepared under accounting policies the historical cost convention, as modi“ed by the revaluation of certain assets as identi“ed in the speci“c accounting These consolidated “nancial statements have been polices provided below. 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 pro“t-oriented entities. The “nancial statements also comply with International Financial Reporting Standards (IFRS).

The “nancial statements are presented in New Zealand dollars, which is the Company’s functional currency and Group’s presentation currency. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 39

Critical accounting estimates Foreign currency translation The Group makes estimates and assumptions concerning the The results and “nancial position of all the Group entities future. The resulting accounting estimates will, by de“nition, (none of which has the currency of a hyper-inœationary seldom equal the related actual results. The estimates and economy) that have a functional currency di¦erent from the assumptions that have a signi“cant risk of causing a material presentation currency are translated into the presentation adjustment to the carrying amounts of assets and liabilities currency as follows: within the next “nancial year are discussed below. • Assets and liabilities for each balance sheet presented Estimates and judgements are continually evaluated and are translated at the closing rate at the date of that are based on historical experience as adjusted for current balance sheet; market conditions and other factors, including expectations • Income and expenses for each statement of of future events that are believed to be reasonable under comprehensive income are translated at average the circumstances. exchange rates (unless this average is not a reasonable Further explanation as to estimates and assumptions made approximation of the cumulative e¦ect of the rates by the Group can be found in the following notes to the prevailing on the transaction dates, in which case income “nancial statements: and expenses are translated at the rate on the dates of the transactions); and

Area of Estimation Section • All resulting exchange di¦erences are recognised in other Business Combinations – purchase price „.ˆ comprehensive income. allocation On consolidation, exchange di¦erences arising from the Goodwill and Brand – assumptions underlying Œ.Œ translation of the net investment in foreign operations, and recoverable value of borrowings and other currency instruments designated as Inventory – estimates of obsolescence Œ.ˆ.ˆ hedges of such investments, are taken to shareholders’ equity. Fair value of derivatives – assumptions underlying .ƒ fair value 40 KATHMANDU ANNUAL REPORT 2019

Section 2 Results for the Year

In this section This section focuses on the results and performance of the Group. On the following pages you will nd disclosures explaining the Group’s results for the year, segmental information, taxation and earnings per share.

2.1 Segment information An operating segment is a component of an entity that engages in business activities which earns revenue and incurs expenses and where the chief decision maker reviews the operating results on a regular basis and makes decisions on resource allocation. The Group is organised into four operating segments, depicting the four geographical regions the Group operates in. The New Zealand segment has been represented to exclude holding company balances. Other represents holding companies and consolidation eliminations.

New North Rest of Australia Zealand America World Other Total 31 July 2019 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000

Total segment sales ŒŒŠ,ˆ‰Š ˆŒŠ,ƒƒ‰ ‡‡,‹ „,‰•‰ - „„•,Š‡Š Inter-segment sales („•ˆ) (‡Œ‹) (ƒ,‡Š‰) (ˆ,„ˆ„) - („,Œ„ˆ) Sales from external customers ‹‹†, †† ˆ‹†,„ƒˆ ‰,Œ‰ ‰,Šƒ‹ - „‰„, ˆ† EBITDA „ƒ,„ˆ‹ ‹‹,†ƒ‡ ˆŒ,ŒƒŒ (ƒ„†) (Š,ƒ‡‡) ƒƒ,„ „ Depreciation and software amortisation ‰,Š‰Œ „,‹‡„ ‰ • - ˆ„,ƒ‹ƒ EBIT „Œ,„‹Œ Š†,ˆ‹Š ƒ, Œ (ƒƒ†) (Š,ƒ‡‡) †‰,Šƒ‹ Income tax expense ˆ , ‰ƒ ‹,„Š ƒ,Œ‰‰ (Œƒ‹) (ŒŠƒ) ƒŒ,‹ „ Total segment assets Š‰‹,ˆ ˆ ‹Œ‰,†‰ƒ ˆ‹Š,‡‰Š ‹,„ŠŒ (†ƒ,‡ˆƒ) „ƒ‰,„„‹ Total assets includes: Non-current assets ˆ‡‹,ƒ ƒ‡,‹‹‰ ˆˆ•,•ƒ ‡ ˆ ƒ,Œƒ‰ ‡,Œ‰• Additions to non-current assets ‡,‡ƒ‡ ‰,„ ˆ „ƒˆ ‰ - ˆ„,‡Š‡ Total segment liabilities †„,„Šˆ ‰‡,ƒˆˆ ˆ ,‰ˆ‡ ˆ , †‰ (ˆ‰,Œ‰Š) ˆ„Š,‰ƒˆ

New North Rest of Australia Zealand America World Other Total 31 July 2018 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000

Total segment sales ŒŒ„,‰‹‡ ˆ Œ,ˆ‡‹ ˆ‡,‹‰„ ‡,ŠŒƒ - „•ƒ,‹‡• Inter-segment sales (ƒ,ˆŠŒ) (ˆŠ•) (‡‡‡) (ƒ,ƒ‹ ) - („,ŒƒŒ) Sales from external customers ŒŒŒ,‡‰Œ ˆ ƒ,Š‹‹ ˆ‡,ˆˆŠ ,‡„‰ - Š‹, Œ‹ EBITDA „‡,‡‰‰ ‹„,ˆ„‰ Š,„‹„ ( †„) (‰,ƒ†‡) †ƒ,‡ ˆ Depreciation and software amortisation ‰,‡‰‹ ‡,ˆƒ„ ˆˆ‡ Œ• - ˆ ,Š„‰ EBIT ‰ƒ,Œ„‡ Šƒ,ŒŠƒ Š,‰ˆƒ (‡ˆ„) (‰,ƒ†‡) ‡‰,†Œ‹ Income tax expense ˆ ,„‡‡ ‰,ˆƒŠ ‹‡ˆ (ƒƒ„) (ˆ„‰) ƒŒ,•‹Œ Total segment assets Š‰ ,ˆ‡† Šƒ‡,‡ŒŒ ˆŠ‹,ƒƒ‹ †,„ƒˆ ( „,Š„†) ˆˆ,ŠŒ‰ Total assets includes: Non-current assets ˆ‹‹,„ • ƒŒ,Š Œ ŠŠ,Š „ - ˆ ‰,ŠŠƒ „•, ƒ• Additions to non-current assets ˆˆ,ƒŠ‰ „,Œ„ƒ ŠŠ,ŠŒ - - ˆˆ‡,„‰ Total segment liabilities †Š,ƒˆ „ƒ,Œ Œ Š„,‹ˆŠ Šˆ,ŠŠ‡ Š,ˆ † ˆƒŒ, †‹ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 41

EBITDA represents earnings before income taxes (a non- sell the goods, has the primary responsibility when onselling GAAP measure), excluding interest income, interest expense, the goods and bears the risks of obsolescence and loss depreciation and amortisation, as reported in the “nancial in relation to the goods. A receivable is recognised by the statements. EBIT represents EBITDA less depreciation and Group when the goods are delivered to the wholesaler amortisation. EBITDA and EBIT are key measurement criteria as this represents the point in time at which the right on which operating segments are reviewed by the Chief to consideration becomes unconditional, as only the Operating Decision Maker (the Executive Management Team). passage of time is required before payment is due.

The Group operates in one industry being the sale of outdoor Sales Returns clothing, footwear and equipment. Under the Group’s standard contract terms, customers Revenue is allocated based on the country in which the have a right of return within 30 days. At the point of customer is located. The Group has no reliance on any single sale, a refund liability and a corresponding adjustment major customer. to revenue is recognised for those products expected to be returned. The Group uses its accumulated historical Costs recharged between Group companies are calculated on experience to estimate the number of returns on a normal commercial terms. The default basis of allocation is % portfolio level using the expected value method. It is of revenue with other bases being used where appropriate. considered highly probable that a signi“cant reversal in Assets / liabilities are allocated based on where the assets / the cumulative revenue recognised will not occur given liabilities are located. the consistent level of returns over previous years.

Summit Club Loyalty Program 2.2 Pro¦t before tax The Group operates a Summit Club loyalty program through which retail customers accumulate points on purchases Accounting policies that entitles them to discounts on future purchases. Revenue recognition These points provide a discount to customers that they would The Group recognises revenue from the sale of not receive without purchasing the goods (i.e. a material footwear, clothing and equipment for travel and right). The promise to provide the discount to the customer adventure. Revenue comprises the fair value of the is therefore a separate performance obligation. consideration received or receivable for the sale of The transaction price is allocated between the product goods, excluding Goods and Services Tax and discounts, and the points on a relative stand-alone selling price basis. and after eliminating sales within the Group. The stand-alone selling price per point is estimated based Retail Sales on the discount to be given when the points are redeemed For sales of goods to retail customers, revenue is recognised by the customer and the likelihood of redemption, as when control of the goods has transferred, being at the evidenced by the Group’s historical experience. A contract point the customer purchases the goods at a retail outlet. liability is recognised for revenue relating to the loyalty Payment of the transaction price is due immediately points at the time of the initial sales transaction. at the point the customer purchases the goods. Revenue from the loyalty points is recognised when the points are redeemed by the customer. Revenue for points Online Sales that are not expected to be redeemed is recognised in For online sales, revenue is recognised when control proportion to the pattern of rights exercised by customers. of the goods has transferred to the customer, being at the point the goods are delivered to the customer. Note 2.1 provides a breakdown of revenue by geographical region. Delivery occurs when the goods have been shipped to Operating expenses the customer’s speci“c location. When the customer initially purchases the goods online, the transaction price Employee entitlements received by the Group is recognised as a contract liability until the goods have been delivered to the customer. 2019 2018 NZ$’000 NZ$’000 Wholesale Sales Wages, salaries and other ‰‡,Œƒ„ ‰„,•Š• For sales to the wholesale market, revenue is recognised short term bene“ts when control of the goods has transferred, being when Post-employment bene“ts ,Š‰Š ,ŠŒ the goods have been shipped to the wholesaler’s speci“c Employee share based ‹ƒˆ ˆ, ‰Š location (delivery). Following delivery, the wholesaler has remuneration full discretion over the manner of distribution and price to 42 KATHMANDU ANNUAL REPORT 2019

The number of full-time equivalent employees (excluding Rent expenses reported in these “nancial statements relate to short-term contractors), as at 31 July was: non-cancellable operating leases. The future commitments on these leases are as follows:

2019 2018 Australia ‡‰ ‡‹ƒ 2019 2018 NZ$’000 NZ$’000 New Zealand Œƒ Œ„ Due within ˆ year „ƒ,‹ŠŒ „ ,‹ƒ‹ United Kingdom ‡ ‡ Due within ˆ-ƒ years Œ,‹‰‡ „,•Œ‹ United States of America ƒƒ ƒ• Due within ƒ-„ years ‰Œ,ƒ‹ˆ ‰„,‹ˆŠ Due after „ years ƒ‡,‡ƒ‡ Œ ,‹ƒ‡ (i) Wages and salaries, annual leave and sick leave ƒ•‡, ‹‡ ƒƒ•,ƒ•Š Liabilities for wages and salaries, including non-monetary bene“ts and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables Some of the existing lease agreements have right of renewal in respect of employees’ services up to the reporting date options for varying terms. The Group leases various properties and are measured at the amounts expected to be paid when under non-cancellable lease agreements. These leases are the liabilities are settled. Liabilities for non-accumulating sick generally between 1 - 10 years. leave are recognised when the leave is taken and measured at the rates paid or payable. The liability for employee entitlements is carried at the present value of the estimated future cash œows.

Rental and operating leases The Group is a Lessee. Leases in which a signi“cant portion of the risks and rewards of ownership are retained by the lessor are classi“ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease.

2019 2018 NZ$’000 NZ$’000 Rental and operating lease expenses ‡Š,ˆ‰‹ ‡‹, ƒŠ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 43

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 prot before tax to the tax charge and the movements in deferred tax assets and liabilities.

Accounting policies Deferred income tax assets and liabilities are o¦set when there is a legally enforceable right to o¦set current tax assets Current and deferred income tax against current tax liabilities and when the deferred income The tax expense for the period comprises current and deferred taxes assets and liabilities relate to income taxes levied by the tax. Tax is recognised in the consolidated statement of same taxation authority on either the same taxable entity or comprehensive income, except to the extent that it relates di¦erent taxable entities where there is an intention to settle to items recognised in other comprehensive income or the balances on a net basis. directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively. Goods and Services Tax (GST) The consolidated statement of comprehensive income The current income tax charge is calculated on the basis and the consolidated statement of cash œows have of the tax laws enacted or substantively enacted at the been prepared so that all components are stated balance sheet date in the countries where the Company exclusive of GST. All items in the consolidated balance and Company’s subsidiaries operate and generate taxable sheet are stated net of GST, with the exception of income. Management periodically evaluates positions taken receivables and payables, which include GST invoiced. in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes Taxation – Consolidated statement of provisions where appropriate on the basis of amounts comprehensive income expected to be paid to the tax authorities. The total taxation charge in the consolidated statement of Deferred income tax is provided in full, using the liability comprehensive income is analysed as follows: method, on temporary di¦erences arising between tax bases of assets and liabilities and their carrying amounts in the 2019 2018 consolidated “nancial statements. However, the deferred NZ$’000 NZ$’000 income tax is not accounted for if it arises from initial Current income tax charge ƒŒ,ƒ•‡ ƒ ,Š‡ recognition of an asset or liability in a transaction other than Deferred income tax charge / (credit) „ŒŠ (ˆ,‰Šˆ) a business combination that at the time of the transaction Income tax charge reported in ƒŒ,‹ „ ƒŒ,•‹Œ a¦ects neither accounting nor taxable pro“t or loss. Deferred the consolidated statement of income tax liability is not recognised if it arises from the initial comprehensive income 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 In order to understand how, in the consolidated statement expected to apply when the related deferred income tax asset of comprehensive income, a tax charge of $23,744,580 (2018: is realised or the deferred income tax liability is settled. 23,073,435) arises on pro“t before income tax of $81,377,631 Deferred income tax assets are recognised to the extent (2018: $73,744,312), the taxation charge that would arise at that it is probable that future taxable pro“t will be available the standard rate of New Zealand corporate tax is reconciled against which the temporary di¦erences can be utilised. to the actual tax charge as follows:

Deferred income tax is provided on temporary di¦erences arising on investments in subsidiaries, except where the timing of the reversal of the temporary di¦erence is controlled by the Group and it is probable that the temporary di¦erence will not reverse in the foreseeable future. 44 KATHMANDU ANNUAL REPORT 2019

2019 2018 NZ$’000 NZ$’000

Pro“t before income tax ‰ˆ,Œ‹‰ ‹Œ,‹ Income tax calculated at ƒ‰% ƒƒ,‹‰‡ ƒ•,‡ ‰

Adjustments to taxation: Adjustments due to di¦erent rate in di¦erent jurisdictions ‹ ˆ ˆ,•ˆˆ Non-taxable income (Œƒ‹) (ƒ ‡) Expenses not deductible for tax purposes ˆ,ˆ„ƒ ‹ƒ„ Tax legislation enacted for employee share schemes („•‡) (‰‹) Utilisation of tax losses by group companies ƒ‹ (ƒ‡) Tax expense transferred to foreign currency translation reserve ƒ ˆ,ˆ‹Œ Adjustments in respect of prior years (ˆŒ•) (ˆƒ„) Income tax charge reported in the consolidated statement of comprehensive income ƒŒ,‹ „ ƒŒ,•‹Œ

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

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

2019 2018 NZ$’000 NZ$’000

Movement in cash œow hedge reserve before tax ˆŒ ˆƒ,ˆ‰• Tax impact relating to cash œow hedge reserve ‡•‹ (Œ,Œ‡•) Movement in cash œow hedge reserve after tax ‡ƒ• ‰,‰ƒ•

Foreign currency translation reserve before tax (Œ,ƒŠ‹) ˆ•,„ˆ‰ Tax credit / (charge) relating to foreign currency translation reserve - - Movement in foreign currency translation reserve after tax (Œ,ƒŠ‹) ˆ•,„ˆ‰

Total other comprehensive income/(expense) before tax (Œ,ƒ‰ ) ƒƒ,‡Š‰ Total tax credit / (charge) on other comprehensive income ‡•‹ (Œ,Œ‡•) Total other comprehensive income/(expense) after tax (ƒ,‡‹‹) ˆŠ,ŒŒ‰

Current tax - - Deferred tax ‡•‹ (Œ,Œ‡•) Total tax credit / (charge) on other comprehensive income ‡•‹ (Œ,Œ‡•)

Unrecognised tax losses

The Group has estimated tax losses to carry forward from Kathmandu (U.K.) Limited of £10,314,275 (NZ$19,759,147) (2018: £10,172,139 (NZ$19,561,807)) which can be carried forward to be o¦set against future pro“ts generated within the UK. These losses do not expire and no bene“t has been recognised in respect to these losses FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 45

Imputation credits 2019 2018 NZ$’000 NZ$’000 Imputation credits available for use in subsequent reporting periods based on a tax rate of ƒ‰% ˆ,‡ˆ„ , ƒ

The above amounts represent the balance of the imputation account as at the end of July 2019, adjusted for: • Imputation credits that will arise from the payment of the amount of the provision for income tax; • Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date; and • Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

The balance of Australian franking credits able to be used by the Group in subsequent periods as at 31 July 2019 is A$6,513,756 (2018: A$3,891,706).

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: Tax Employee Foreign Other temporary depreciation obligations Brand exchange diªerences Reserves Total NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 As at ‹ˆ July ŠŒˆ‡ ‰ ˆ,‹ƒƒ ( Œ,„‰•) (ˆ‰„) ‡,ƒˆˆ ˆ,‹„‹ (Œ ,•ƒ‹)

Recognised in the ˆ„‹ Š ƒ ˆ‹ (ƒˆƒ) Š‰‹ - ˆ,‰Šˆ consolidated statement of comprehensive income Recognised in other - - - - - (Œ,Œ‡•) (Œ,Œ‡•) comprehensive income Recognised directly in equity - ƒŠ - - - - ƒŠ Exchange di¦erences - Œ• (ˆ,Œ‰‹) („) ˆ‡Š - (ˆ,ˆŠŒ) Deferred tax on business - - (Š,Š‹Œ) - - - (Š,Š‹Œ) combinations („.ˆ) As at ‹ˆ July ŠŒˆ† ƒ•„ Œ,ˆƒŒ („ ,ŠƒŒ) ( •ƒ) ‹,Œ‡‹ (ˆ,‡•Œ) ( ‡,ƒŒŒ)

Recognised in the ˆ‡ („ƒŒ) „ˆ (ˆ,ˆ‹Œ) ˆ,•Š• - („ŒŠ) consolidated statement of comprehensive income Recognised in other - - - - - ‡•‹ ‡•‹ comprehensive income Recognised directly in equity - (ƒ„Œ) - - - - (ƒ„Œ) Exchange di¦erences (ƒ) (‡‰) ‰‡‰ - (ƒŒˆ) - „‡‹ As at ‹ˆ July ŠŒˆƒ ƒˆŠ ƒ,ƒ‹Š („ ,•• ) (ˆ,„‹„) ‰,ƒƒ‡ (ŠŠ‡) ( „,‰„ˆ)

The deferred tax balance relates to: • Realised gain/loss on foreign exchange contracts not • Property, plant and equipment temporary di¦erences arising yet charged in the consolidated statement of on di¦erences in accounting and tax depreciation rates comprehensive income • Employee bene“t accruals • Inventory provisioning • Kathmandu brand and Oboz brand and customer • Temporary di¦erences arising from landlord contributions relationship and rent free periods • Unrealised foreign exchange gain/loss on intercompany • Temporary di¦erences on the unrealised gain/loss loan (Kathmandu Pty Ltd) in hedge reserve • Employee share schemes • Other temporary di¦erences on miscellaneous items. 46 KATHMANDU ANNUAL REPORT 2019

2.4 Earnings per share

Keeping it simple Earnings per share (‘EPS’) is the amount of post-tax prot attributable to each share. Basic EPS is calculated by dividing the prot after tax attributable to equity holders of the Company of $57,633,052 (2018: $50,670,877) by the weighted average number of ordinary shares in issue during the year of 226,023,935 (2018: 211,260,697). Diluted EPS re–ects any commitments the Group has to issue shares in the future that would decrease EPS. In 2019, 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.

2019 2018 NZ$’000 NZ$’000 Weighted average number of shares in issue ƒƒ‡,•ƒ ƒˆˆ,ƒ‡ˆ Adjustment for: - Share options / performance rights ˆ,Š‡„ ˆ,Šƒ‡ ƒƒ‹,Š‰Š ƒˆŒ,ˆ‰‹ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 47

Section 3 Operating Assets and Liabilities

In this section This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a result. Liabilities relating to the Group’s nancing 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 denes working capital as inventory, cash, trade and other receivables, other nancial assets, trade and other payables and other nancial liabilities.

3.1 Working capital 3.1.2 Cash and cash equivalents

3.1.1 Inventory 2019 2018 Accounting policies NZ$’000 NZ$’000

Inventories are stated at the lower of cost and net realisable Cash on hand ˆŠƒ ˆ‹‰ value. Cost is determined on a weighted average cost method Cash at bank ‡,•Œ‰ ‹,Š‡‰ and includes expenditure incurred in acquiring the inventories ‡,ƒŒ• ‰,ˆ ‡ and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling The carrying amount of the Group's cash and cash equivalents expenses. Inventory is considered in transit when the risk and are denominated in the following currencies: rewards of ownership have transferred to the Group.

The Group assesses the likely residual value of inventory. Stock NZD ‹Œ‰ ƒŠ‰ provisions are recognised for inventory which is expected to AUD ƒ,‰Œƒ ˆ,ŠŒˆ sell for less than cost and also for the value of inventory likely GBP Œ•‡ ‹‰Š to have been lost to the business through shrinkage between USD ƒ,ƒŒ‰ ,Š•„ the date of the last applicable stocktake and balance sheet date. In recognising the provision for inventory, judgement EUR ˆˆ‡ ƒƒŒ has been applied by considering a range of factors including ‡,ƒŒ• ‰,ˆ ‡ historical results, stock shrinkage trends and product lifecycle.

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

2019 2018 NZ$’000 NZ$’000 Trading stock ˆ•„,ˆ‡ˆ ‰Š,‰•ƒ Goods in transit ˆ‹,‡ˆƒ ƒƒ,ˆƒ‹ ˆƒƒ,‹‹Œ ˆˆˆ,ŠƒŠ

Inventory has been reviewed for obsolescence and a provision of $294,742 (2018: $627,362) has been made. 48 KATHMANDU ANNUAL REPORT 2019

3.1.3 Trade and other receivables 3.1.5 Trade and other payables due within one year

Accounting policies Accounting policies Trade receivables are recognised initially at the value of the Trade payables are recognised at the value of the invoice invoice sent to the customer (fair value) and subsequently received from a supplier. The carrying value of trade payables at the amounts considered recoverable (amortised cost). is considered to approximate fair value as amounts are The collectability of trade receivables is reviewed on an on- unsecured and are usually paid by the 30th of the month going basis. following recognition.

An allowance for lifetime expected credit losses is recognised A provision is recognised if, as a result of a past event, the for trade receivables based on the Group’s historical credit Group has a present legal or constructive obligation that can loss experience, adjusted for factors that are speci“c to be estimated reliably, and it is probable that an outœow of the debtors, general economic conditions and an assessment economic bene“ts will be required to settle the obligation. of both the current as well as the forecast direction of conditions at the reporting date, including time value of 2019 2018 money where appropriate. NZ$’000 NZ$’000 The expected credit loss is estimated as the di¦erence Trade payables Œ•,„• ƒ ,••ˆ between all contractual cash œows that are due to the Group in accordance with the contract and all the cash œows that Employee ‰,„‰ƒ ˆŒ,Š„‹ the Group expects to receive, discounted at the original entitlements e¦ective interest rate. The allowance currently held is $114,829 Sundry creditors Œ ,ŒŠ‹ ŒŒ,‡„Š (2018: $212,610). and accruals Provisions ˆ,•‹‹ ˆ,ˆ„Œ 2019 2018 ‹ ,„‡• ‹ƒ,‹‹• NZ$’000 NZ$’000 Trade receivables Š,‡ˆŠ ‰,ƒ„ˆ Other receivables ,„‰‹ „,ƒ•ƒ The carrying amount of the Group's trade and other payables and prepayments are denominated in the following currencies: ˆ ,ƒ•‡ ˆŒ, „Œ 2019 2018 NZ$’000 NZ$’000 Other receivables and prepayments includes balances in NZD ˆˆ,ƒƒ‹ ˆƒ,‡ ‰ relation to landlord incentives. AUD •, ‹„ „, ˆŠ The carrying amount of the Group’s trade and other GBP ‡‹Š Šƒ„ receivables are denominated in the following currencies: EUR ˆŒ‹ Œƒ

NZD ƒ,•Š‹ ˆ,Š„Š USD ƒƒ,• ƒ ˆŒ,‹ ‡ AUD ˆ,ŠŒ„ ƒ,Šˆ‰ ‹ ,„‡• ‹ƒ,‹‹• USD Š,Œƒ‡ ‰, ‰‰ GBP ˆ • ‰‰ Provisions primarily relate to the restoration of leased CAD ‹•‰ - properties. These provisions are expected to be fully utilised within the next 12 months. ˆ ,ƒ•‡ ˆŒ, „Œ 3.1.6 Other „nancial liabilities 3.1.4 Other „nancial assets 2019 2018 2019 2018 NZ$’000 NZ$’000 NZ$’000 NZ$’000 Other “nancial liabilities - ƒˆ,ŠŠ Other “nancial assets - ƒƒ,ˆ‰•

In 2018 other “nancial liabilities related to the fair value of the In 2018 other “nancial assets related to the USD $15,000,000 USD $15,000,000 contingent earn out in relation to the Oboz term deposit and associated earned interest held in escrow in acquisition which was paid out fully in April 2019 (Note 5.1). relation to the Oboz acquisition (Note 5.1). FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 49

3.1.7 Credit risk As at balance sheet date the carrying amount is also considered to approximate fair value for each of the “nancial Credit risk is the risk of “nancial loss to the Group if a instruments. There are no impaired balances. customer or counterparty to a “nancial instrument fails to meet its contractual obligations. 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: Risk Exposure Monitoring Management arising from Credit Cash and cash Credit ratings, Credit is given 2019 2018 risk equivalents aging analysis to customers NZ$’000 NZ$’000 and review following Cash and cash equivalents: Trade and other of exposure obtaining receivables Standard & Poors - AA- Œ,‹‰Œ ƒ, •Œ within regular credit rating Standard & Poors - A¾ ˆ,‰‡ˆ ,„‹• Other “nancial terms of trade information, Standard & Poors - BBB¾ ŒŠ ŠŠ„ assets con“rming references Total cash and cash equivalents ‡,•Œ‰ ‹,Š‡‰ Derivative and setting “nancial appropriate instruments Past due but not impaired credit limits As at balance sheet date, trade receivables of $848,064 (2018: $1,441,212) were past due but not impaired. These relate to Concentration of credit risk is within the geographic segment wholesale customers where there is no history of default. of North America, where the 5 largest customers represent Interest is not charged on overdue debtors. The ageing 55% of trade receivables. analysis of these past due trade receivables is:

Exposure to credit risk The below balances are recorded at their carrying amount 2019 2018 NZ$’000 NZ$’000 after any allowance for expected credit loss on these “nancial instruments. The maximum exposure to credit risk at • to Œ• days „ ‰ ‰‰Œ reporting date was (carrying amount): Œ• to ‡• days ƒˆ‹ ƒŠ‹ ‡• to Š• days ‹Œ ˆŒ

2019 2018 Š• days and over ˆ• ˆƒ‹ NZ$’000 NZ$’000 ‰ ‰ ˆ, ˆ Cash and cash equivalents ‡,•Œ‰ ‹,Š‡‰ Trade receivables Š,‡ˆŠ ‰,ƒ„ˆ Other receivables ˆ,‹ ˆ ƒ,ƒ„„ Other “nancial assets - ƒƒ,ˆ‰• Derivative “nancial instruments ,‰ ƒ ,‰„‰ ƒƒ,ƒ • „,„ˆƒ 50 KATHMANDU ANNUAL REPORT 2019

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 prots. These assets include store and o›ce t-out, as well as equipment used in sales and support activities. Assets are recognised only when it is probable that future economic benets associated with the item will –ow to the Group and the cost of the item can be measured reliably.

Property, plant and equipment expense the cost of the assets over their useful lives. The rates are as follows: All property, plant and equipment are stated at historical cost less depreciation and impairment. Historical cost includes Leasehold improvements 5 – 50 % expenditure that is directly attributable to the acquisition Oªce, plant and equipment 8 – 50 % of the items. Cost may also include transfers from equity of Furniture and “ttings 10 – 50 % any gains/losses on qualifying cash œow hedges of foreign Computer equipment 10 – 60 % currency purchases of property, plant and equipment. Impairment of assets The assets’ residual value and useful lives are reviewed and adjusted if appropriate at each balance sheet date. Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that Capital work in progress is not depreciated until available for use. the carrying amount may not be recoverable. An impairment An asset’s carrying amount is written down immediately to its loss is recognised for the amount by which the asset’s carrying recoverable amount if the asset’s carrying amount is greater amount exceeds its recoverable amount. The recoverable than its estimated recoverable amount. amount is the higher of an asset’s fair value less costs of disposal and value in use. Depreciation Property, plant and equipment can be analysed as follows: Depreciation of property, plant and equipment is calculated using straight line and diminishing value methods so as to

Leasehold O¯ce, plant & Furniture & Computer improvement equipment ¦ttings equipment Total NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 Year ended ‹ˆ July ŠŒˆ† Opening net book value •,••Œ ˆ,„ŒŒ ˆ‹,ŒŠƒ ƒ,•Š‰ ‡ˆ,•ƒ‡ Additions ‹,‰Š‹ ˆ Š „,‹‹ƒ ‰ƒ ˆ ,Œ•• Acquisition of businesses (Note 5.1) ˆŒƒ ˆ - Š• ‡‡Œ Disposals (ˆ,Œ‹•) (ˆ•) (‡„„) (Œ) (ƒ,•Œ‰) Depreciation charge (‹,••‡) (ƒ‡‡) (Œ,‹ „) („„Š) (ˆˆ,„‹‡) Exchange di¦erences ‹Œ‡ ƒ ŒŒ‹ ƒ ˆ,ˆŒŠ Closing net book value •,ŒŠƒ ˆ,‰‰Š ˆŠ,ˆ•ˆ ƒ,ˆŒƒ ‡Œ,„ˆ As at ‹ˆ July ŠŒˆ† Cost ‹‰,‰ƒ ‡,ƒ‡Œ ŒŠ,‡ • Š,ƒ Œ ˆŒŒ,Š‹• Accumulated depreciation (Œ‰, Œƒ) ( ,Œ‹ ) (ƒ•,„ŒŠ) (‹,ˆˆˆ) (‹•, „‡) Closing net book value •,ŒŠƒ ˆ,‰‰Š ˆŠ,ˆ•ˆ ƒ,ˆŒƒ ‡Œ,„ˆ Year ended ‹ˆ July ŠŒˆƒ Opening net book value •,ŒŠƒ ˆ,‰‰Š ˆŠ,ˆ•ˆ ƒ,ˆŒƒ ‡Œ,„ˆ Additions „,‡Š• „„ , ‹ ‡„ ˆˆ,Œ „ Disposals (ŒŠ ) (‹) (Œ‰Œ) (ˆ‰) (‰•ƒ) Depreciation charge (‹,„Œ‡) (Œ„‡) (Œ,ŒŠ ) (‡Œ ) (ˆˆ,Šƒ•) Exchange di¦erences (ˆ,ˆŠ‡) ˆ („Š‹) (ƒ‡) (ˆ,‰ˆ‰) Closing net book value Œ‡,Š„‡ ƒ,•‰ˆ ˆŠ,ˆ‹ ƒ,ˆ•‰ ‡•,ŒˆŠ As at ‹ˆ July ŠŒˆƒ Cost ‹Š,ƒˆ‰ ‡,‡Šƒ ˆ,‹ƒ‡ Š,‡ŒŒ ˆŒ‹,ƒ‡Š Accumulated depreciation ( ƒ,ƒ‡ƒ) ( ,‡ˆˆ) (ƒƒ,„„ƒ) (‹,„ƒ„) (‹‡,Š„•) Closing net book value Œ‡,Š„‡ ƒ,•‰ˆ ˆŠ,ˆ‹ ƒ,ˆ•‰ ‡•,ŒˆŠ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 51

Depreciation 2019 2018 NZ$’000 NZ$’000 Leasehold improvement ‹,„Œ‡ ‹,••‡ Oªce, plant and equipment Œ„‡ ƒ‡‡ Furniture and “ttings Œ,ŒŠ Œ,‹ „ Computer equipment ‡Œ „„Š Total depreciation ˆˆ,Šƒ• ˆˆ,„‹‡

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

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. 2019 2018 NZ$’000 NZ$’000 Loss on sale of property, plant and equipment ‰ˆ ƒ,ˆˆ‡

Capital commitments

Capital commitments contracted for at balance sheet date include property, plant and equipment of $1,877,276 (2018: $2,461,029).

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 prots. These assets include brands, customer relationship, software development and goodwill. This section explains the accounting policies applied and the specic judgements and estimates made by the Directors in arriving at the net book value of these assets.

Accounting policies

Goodwill

Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the assets and liabilities of the acquiree. Separately recognised goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. It is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to bene“t from the business combination in which the goodwill arose.

Brand

Acquired brands are carried at original cost based on independent valuation obtained at the date of acquisition. The brand represents the price paid to acquire the rights to use the Kathmandu or Oboz 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. 52 KATHMANDU ANNUAL REPORT 2019

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

Software costs Software costs have a “nite useful life. Software costs are capitalised and written o¦ over the useful economic life.

Costs associated with developing or maintaining computer software programs are recognised as an expense when incurred. Costs that are directly associated with the production of identi“able and unique software products controlled by the Group, and that will probably generate economic bene“ts exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees.

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

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 inde“nite 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 identi“ed. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identi“able cash œows e.g. cash generating units.

Intangible assets Goodwill Brand Customer Relationship Software Total NZ$’000 NZ$’000 NZ$’000 NZ$’000 NZ$’000 Year ended ‹ˆ July ŠŒˆ† Opening net book value ˆƒˆ,„Œ‡ ˆ ‰,‡‡ - ‰,‰ˆ ƒ‹Š,•ˆ Additions - - - ƒ,ŒŠ ƒ,ŒŠ Acquisition of businesses (Note „.ˆ) ‡ƒ,‰Š‰ Œ ,„ ˆ ˆ,‡Š‡ Šƒ ŠŠ,ƒƒ‹) Disposals - - - (‹‰) (‹‰) Amortisation - - (‡•) (Œ,Œƒƒ) (Œ,Œ‰ƒ) Exchange di¦erences ,‰‹ ,‹ƒŒ ˆˆˆ ƒŒ Š,‹Œˆ Closing net book value ˆ‰Š,Œ•‰ ˆ‰‹,Šƒ‰ ˆ,‹ ‹ ‹,ŠƒŒ Œ‰‡,Š•‡

As at ‹ˆ July ŠŒˆ† Cost ˆŠ•,„‹Š ˆ‰‹,Šƒ‰ ˆ,‰•‹ ƒŠ,ˆ•Š •Š, ƒŒ Accumulated amortisation/impairment (ˆ,ƒ‹ˆ) - (‡•) (ƒˆ,ˆ‰‡) (ƒƒ,„ˆ‹) Closing net book value ˆ‰Š,Œ•‰ ˆ‰‹,Šƒ‰ ˆ,‹ ‹ ‹,ŠƒŒ Œ‰‡,Š•‡

Year ended ‹ˆ July ŠŒˆƒ Opening net book value ˆ‰Š,Œ•‰ ˆ‰‹,Šƒ‰ ˆ,‹ ‹ ‹,ŠƒŒ Œ‰‡,Š•‡ Additions - - - ,Œ„ˆ ,Œ„ˆ Disposals - - - (ˆŒ) (ˆŒ) Amortisation - - (ˆ‰ ) (Œ,ˆ‡‰) (Œ,Œ„ƒ) Exchange di¦erences ˆ,•ˆŒ (ƒ,‰ ‹) „„ („ƒ) (ˆ,‰Œˆ) Closing net book value ˆŠ•,Œƒˆ ˆ‰„,•‰ˆ ˆ,‡ˆ‰ Š,• ˆ Œ‰‡,•‡ˆ

As at ‹ˆ July ŠŒˆƒ Cost ˆŠˆ,„Šƒ ˆ‰„,•‰ˆ ˆ,‰‡‰ ŒŒ,ƒ•‡ ˆˆ,‹ ‹ Accumulated amortisation/impairment (ˆ,ƒ‹ˆ) - (ƒ„•) (ƒ ,ˆ‡„) (ƒ„,‡‰‡) Closing net book value ˆŠ•,Œƒˆ ˆ‰„,•‰ˆ ˆ,‡ˆ‰ Š,• ˆ Œ‰‡,•‡ˆ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 53

Impairment tests for goodwill and brand

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

Group Goodwill Brand 2019 2018 2019 2018 NZ$’000 NZ$’000 NZ$’000 NZ$’000 New Zealand „, ‰ „, ‰ „ˆ,••• „ˆ,••• Australia ‹„,„‡ ‹‡,‹‰„ Š‡,•Œ ˆ••,ˆ•‰ Oboz ‡Š,ƒ‹Œ ‡‹,•ŒŠ Œ‰,• ‹ Œ‡,‰ƒ• ˆŠ•,Œƒˆ ˆ‰Š,Œ•‰ ˆ‰„,•‰ˆ ˆ‰‹,Šƒ‰

For the purposes of goodwill and brand impairment testing, the Group operates as three groups of cash generating units, New Zealand, Australia and Oboz. The recoverable amount of each cash generating unit has been determined based on value in use.

The discounted cash œow valuations were calculated using projected “ve-year future cash œows based on Board approved business plans. Business plans are modelled assuming like for like sales growth based on historical performance taking into account changing market conditions. The key assumptions used for the value in use calculation are as follows:

2019 2018

Terminal growth rate ˆ.•% ˆ.•%

New Zealand CGU pre-tax discount rate ˆˆ.ƒ% ˆƒ. % Australia CGU pre-tax discount rate ˆ•.„% ˆƒ.ƒ% Oboz CGU pre-tax discount rate ˆƒ.‹% -

The terminal growth rate assumption is based on a conservative estimate considering the current inœationary environment. Pre-tax discount rates are calculated based on a market participants expected capital structure and cost of debt to derive a weighted average cost of capital.

The calculations con“rmed that there was no impairment of goodwill and brand during the year (2018: nil). The Board believes that any reasonably possible change in the key assumptions used in the calculations would not cause the carrying amount to exceed its recoverable amount.

The expected continued promotion and marketing of the Kathmandu and Oboz brands supports the assumption that the brand has an inde“nite life.

Capital commitments

Capital commitments contracted for at balance sheet date include intangible assets of $703,611 (2018: $748,139). 54 KATHMANDU ANNUAL REPORT 2019

Section 4 Capital Structure and Financing Costs

In this section This section outlines how the Group manages its capital structure and related nancing costs, including its balance sheet liquidity and access to capital markets. Capital structure is how a company nances its overall operations and growth by using dižerent sources of funds. The Directors determine and monitor the appropriate capital structure of Kathmandu, specically how much is raised from shareholders (equity) and how much is borrowed from nancial institutions (debt) in order to nance 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.

The Group has a multi-option facility agreement with 4.1 Interest bearing liabilities Commonwealth Bank of Australia and ASB Bank Limited, with A$45 million repayable in full on 1 August 2022, A$15 million Accounting policies repayable in full on 1 August 2021, and a multi-option facility Borrowings are initially recognised at fair value, net of agreement with Bank of New Zealand with $40 million and transaction costs incurred. Borrowings are subsequently $30 million repayable in full on 21 March 2020 and 21 March measured at amortised cost. Any di¦erence between the 2021, respectively. proceeds (net of transaction costs) and the redemption Interest is payable based on the BKBM rate (NZD borrowings), amount is recognised in the consolidated statement of the BBSY rate (AUD borrowings), or the applicable short term comprehensive income over the period of the borrowings rate for interest periods less than 30 days, plus a margin of up using the e¦ective interest method. to 1.30%. There are no assets pledged as security in relation to Borrowings are classi“ed as current liabilities unless the Group the unsecured debt in the 2019 “nancial year (2018: nil). has an unconditional right to defer settlement of the liability The covenants entered into by the Group require speci“ed for at least 12 months after the balance sheet date. calculations of Group earnings before interest, tax, The table below separates borrowings into current and non- depreciation and amortisation (EBITDA) plus lease rental costs current liabilities: to exceed total “xed charges (net interest expense and lease rental costs) at the end of each half during the “nancial year. Similarly EBITDA must be no less than a speci“ed proportion 2019 2018 of total net debt at the end of each six month interim period. NZ$’000 NZ$’000 The calculations of these covenants are speci“ed in the bank Current portion - - facility agreements of 19 December 2011 and have been complied with at 31 July 2019. Non-current portion ƒ„,„•• ŒŠ,„•• Total term loans ƒ„,„•• ŒŠ,„•• The current interest rates, prior to hedging, on the term loans ranged between 2.31% - 2.47% (2018: 2.60% - 3.17%). FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 55

Section 4 Capital Structure and Financing Costs

2019 2018 NZ$’000 NZ$’000 The principal of interest bearing liabilities is: Payable within ˆ year - - Payable ˆ to ƒ years - ŒŠ,„•• Payable ƒ to Œ years ˆ„,••• - Payable Œ to years ˆ•,„•• - ƒ„,„•• ŒŠ,„••

4.1.1 Finance costs

2019 2018 NZ$’000 NZ$’000 Interest income (Œ‹) ( ‹) Interest expense ˆ,‰‹‹ ˆ,Œ‰Š Other “nance costs ‰‰‡ ‡„ƒ Net exchange loss/(gain) on foreign currency borrowings ˆ‰Š (ŠŒ„) ƒ,Šˆ„ ˆ,•„Š

Other “nance costs relates to facility fees on banking arrangements.

4.1.2 Cash Œow and fair value interest rate risk

Interest rate risk is the risk that œuctuations in interest rates impact the Group’s “nancial performance.

Risk Exposure arising from Monitoring Management Interest rate risk Interest bearing liabilities at Cash œow forecasting Interest rate swaps œoating rates Sensitivity analysis

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

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

2019 2018 NZ$’000 NZ$’000

Total secured loans ƒ„,„•• ŒŠ,„•• less Principal covered by interest rate swaps (ƒŒ,ƒ‡Œ) (Œ‹,„‰‹) Net Principal subject to œoating interest ratesˆ ƒ,ƒŒ‹ ˆ,ŠˆŒ

1. Debt levels œuctuate throughout the year and as at 31 July, are at a cyclical low. Forecast debt levels are expected to remain in excess of the interest rate swaps for a signi“cant majority of the year.

Interest rate swaps have the economic e¦ect of converting borrowings from œoating to “xed rates. The cash œow hedge loss on interest rate swaps at balance sheet date was $111,252 (2018: $117,340). 56 KATHMANDU ANNUAL REPORT 2019

Summarised sensitivity analysis

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

A sensitivity of 1% (2018: 1%) has been selected for interest rate risk. The 1% is based on reasonably possible changes over a “nancial year, using the observed range of historical data for the preceding “ve 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% 31 July 2019 Carrying amount Pro¦t Equity Pro¦t Equity $’000 $’000 $’000 $’000 $’000 Derivative “nancial instruments (asset) / liability ( ,‰ ƒ) (ƒŒ„) ˆ„ ƒŒ„ (ˆ„ˆ) Financial assets Cash ‡,ƒŒ• ( „) - „ - ( „) - „ - Financial liabilities Borrowings ƒ„,„•• ƒ„„ - (ƒ„„) - ƒ„„ - (ƒ„„) - Total increase / (decrease) (ƒ„) ˆ„ ƒ„ (ˆ„ˆ)

-1% +1% 31 July 2018 Carrying amount Pro¦t Equity Pro¦t Equity $’000 $’000 $’000 $’000 $’000 Derivative “nancial instruments (asset) / liability ( ,‰„‰) (Œ‹‡) ŒƒŒ Œ‹‡ (Œˆƒ) Financial assets Cash ‰,ˆ ‡ („Š) - „Š - („Š) - „Š - Financial liabilities Borrowings ŒŠ,„•• ŒŠ„ - (ŒŠ„) - ŒŠ„ - (ŒŠ„) - Total increase / (decrease) ( •) ŒƒŒ • (Œˆƒ)

4.1.3 Liquidity Risk

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

Risk Exposure arising from Monitoring Management Liquidity risk Interest bearing and other Forecast and actual cash Active working capital liabilities œows management and œexibility in funding arrangements

The Group has borrowing facilities of NZD $137,849,687 / AUD $132,060,000 (2018: NZD $140,729,053 / AUD $129,330,000 AUD) and operates well within this facility. This includes short term bank overdraft requirements, and at balance sheet date no bank accounts were in overdraft. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 57

Keeping it simple The table below analyses the Group’s nancial liabilities and net-settled derivative nancial 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 –ows, so will not always reconcile with the amounts disclosed on the balance sheet.

Less than 1 year Between Between Over NZ$’000 1 and 2 years 2 and 5 years 5 years NZ$’000 NZ$’000 NZ$’000 Group ŠŒˆƒ Trade and other payables ‡ƒ,•‹„ - - - Other “nancial liabilities - - - - Borrowings ‡•• „ŠŠ ƒ„,‹„ˆ - ‡ƒ,‡‹„ „ŠŠ ƒ„,‹„ˆ - Group ŠŒˆ† Trade and other payables „„, Šƒ - - - Other “nancial liabilities ƒˆ,ŠŠ - - - Borrowings ˆ,ˆˆ‡ •,‡ˆŠ - - ‹‰,‡•ƒ •,‡ˆŠ - -

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 “nancial 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 œows. They are expected to occur and a¦ect the pro“t or loss at various dates between balance sheet dates and the following “ve years.

Less than 1 year Between Between NZ$’000 1 and 2 years 2 and 5 years NZ$’000 NZ$’000 At ‹ˆ July ŠŒˆƒ Forward foreign exchange contracts - Inœow ˆˆ‰,Š‡‰ - - - Outœow (ˆˆ ,•ˆ„) - - Net Inœow / (Outœow) ,Š„Œ - -

Net settled derivatives – interest rate swaps Net Inœow / (Outœow) ( ‡) Š -

At ‹ˆ July ŠŒˆ† Forward foreign exchange contracts - Inœow ˆ ‹,„•„ - - - Outœow (ˆ ƒ,„Œ•) - - Net Inœow / (Outœow) ,Š‹„ - -

Net settled derivatives – interest rate swaps Net Inœow / (Outœow) (‰ˆ) (ƒ ) - 58 KATHMANDU ANNUAL REPORT 2019

4.2 Derivative ¦nancial instruments

Keeping it simple A derivative is a type of nancial 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 xed 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 nancial 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 xed rate of interest for a –oating rate, or vice versa, or one type of –oating rate for another.

Accounting policies in the recognition of a non-“nancial asset (for example, inventory) or a non-“nancial liability, the gains and losses Derivatives are initially recognised at fair value on the date previously deferred in equity are transferred from equity and a derivative contract is entered into and are subsequently included in the measurement of the initial cost or carrying re-measured to their fair value. The method of recognising amount of the asset or liability. the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature When a hedging instrument expires or is sold or terminated, of the item being hedged. The Group designates certain or when a hedge no longer meets the criteria for hedge derivatives as hedges of highly probable forecast transactions accounting, any cumulative gain or loss existing in equity (cash œow hedges). at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the At inception of the hedging relationship, the Group consolidated statement of comprehensive income. When documents the economic relationship between hedging a forecast transaction is no longer expected to occur, instruments and hedged items, including whether changes the cumulative gain or loss that was reported in equity is in the cash œows of the hedging instruments are expected immediately transferred to the consolidated statement of to o¦set changes in the cash œows of the hedged items. The comprehensive income. Group also documents its risk management objectives and strategy for undertaking its hedge transactions. Foreign currency translation Cash Œow hedge Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at The e¦ective portion of changes in the fair value of derivatives the dates of the transaction. Foreign exchange gains and that are designated and qualify as cash œow hedges is losses resulting from the settlement of such transactions and recognised in equity in the hedging reserve. The gain or loss from the translation at year end exchange rates of monetary relating to the ine¦ective portion is recognised immediately in assets and liabilities denominated in foreign currencies are the consolidated statement of comprehensive income. recognised in the consolidated statement of comprehensive Amounts accumulated in equity are recycled in the income, except when deferred in other comprehensive consolidated statement of comprehensive income in the income. Translation di¦erences on monetary “nancial assets periods when the hedged item will a¦ect pro“t or loss. and liabilities are reported as part of the fair value gain or loss. However, when the forecast transaction that is hedged results FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 59

Derivative ¦nancial instruments 2019 2018 NZ$’000 NZ$’000 Foreign exchange contracts Current asset ,Š‡ „,•‹‡ Current liability (ˆˆ) (ˆ•ˆ) Net foreign exchange contracts – cash œow hedge (asset / (liability)) ,Š„Œ ,Š‹„

Interest rate swaps Current liability (ˆ•ƒ) („„) Non-current liability (Š) (‡ƒ) Net interest rate swaps – cash œow hedge (asset / (liability)) (ˆˆˆ) (ˆˆ‹) Total derivative “nancial instruments ,‰ ƒ ,‰„‰

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

Interest rate swaps - cash Œow hedge

Interest rate swaps are to exchange a œoating rate of interest for a “xed rate of interest. The objective of the transaction is to hedge the core œoating 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 “nancial results. The notional amount of interest rate swaps at balance sheet date was $23,263,048 (2018: $37,586,507). The “xed interest rates range between 1.32% and 2.63% (2018: 2.12% and 3.05%). Refer section 4.1.3 for timing of contractual cash œows relating to interest rate swaps.

Foreign exchange contracts - cash Œow hedge

The objective of these contracts is to hedge highly probable anticipated foreign currency purchases against currency œuctuations. These contracts are timed to mature when import purchases are scheduled for payment. The notional amount of foreign exchange contracts amount to US$79,350,000, NZ$115,606,572 (2018: US$102,300,000, NZ$144,562,936).

No material hedge ine¦ectiveness for interest rate swaps or foreign exchange contracts exists as at balance sheet date (2018: nil).

Refer to section 4.2.1 for a sensitivity analysis of foreign exchange risk associated with derivative “nancial instruments.

4.2.1 Foreign exchange risk

Foreign exchange risk is the risk that œuctuations in exchange rates will impact the Group’s “nancial 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 the GBP.

Risk Exposure arising from Monitoring Management Foreign exchange risk Foreign currency purchases Forecast purchases USD foreign exchange – over Š•% of purchases are Reviewing exchange rate derivatives in USD movements

The Group is exposed to currency risk on any cash remitted between Australia, the United Kingdom, United States of America and New Zealand. 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 cashœows generated in New Zealand or Australia. 60 KATHMANDU ANNUAL REPORT 2019

Summarised sensitivity analysis

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

A sensitivity of -10% / +10% (2018: -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% (2018: -10% / +10%) is reasonable given the exchange rate volatility observed on a historic basis for the preceding “ve 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.

-10% +10% 31 July 2019 Carrying amount Pro¦t Equity Pro¦t Equity $’000 $’000 $’000 $’000 $’000 Derivative “nancial instruments (asset) / liability ( ,‰ ƒ) - (ˆŒ,ŒŒŠ) - ˆ•,Šˆ„ Financial assets Cash ‡,ƒŒ• ŒŠ - (Œ„Š) - Trade receivables and other receivables ˆˆ,Œ‡• (‰•‡) - ‹•‡ - Other “nancial assets - - - - - (Œ‡‹) - Œ ‹ - Financial liabilities Trade payables ‹ ,„‡• („,•‡‹) - ,ˆ „ - Other “nancial liabilities - - - - - Borrowings ƒ„,„•• - - - - („,•‡‹) - ,ˆ „ - Total increase / (decrease) („,‰‹‰) (ˆ‹,‹‹ƒ) ‰,‰ƒŠ ˆŒ,ƒˆ„

-10% +10% 31 July 2018 Carrying amount Pro¦t Equity Pro¦t Equity $’000 $’000 $’000 $’000 $’000 Derivative “nancial instruments (asset) / liability ( ,‰„‰) - (ˆ‡, „‡) - ˆŒ, ‡ Financial assets Cash ‰,ˆ ‡ ‡ƒ‰ - („ˆ ) - Trade receivables and other receivables ˆ•,„•‡ (‰•ƒ) - ‡„‡ - Other “nancial assets ƒƒ,ˆ‰• (ˆ,‹‹ ) - ˆ, „ƒ - (ˆ,Š ‰) - ˆ,„Š - Financial liabilities Trade payables ‹ƒ,‹‹• ( ,‰ˆ•) - Œ,ŠŒ„ - Other “nancial liabilities ƒˆ,ŠŠ (ˆ,‹‡•) - ˆ, • - Borrowings ŒŠ,„•• - - - - (‡,„‹•) - „,Œ‹„ - Total increase / (decrease) (†,„ˆ†) (ˆ ,‰„ ) ,ƒ ƒ ˆ‹,‰ ‰ FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 61

4.3 Equity

Keeping it simple This section explains material movements recorded in shareholders’ equity that are not explained elsewhere in the nancial statements. The movements in equity and the balance at 31 July 2019 are presented in the consolidated statement of changes in equity.

Accounting policies

Share capital

Ordinary shares are classi“ed 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

2019 2018 NZ$’000 NZ$’000 Ordinary shares fully paid (Á) ƒ„ˆ,ˆˆŒ ƒ Š,‰‰ƒ

Balance at beginning of year ƒ Š,‰‰ƒ ƒ••,ƒ•Š Issue of shares under Executive and Senior Management Long Term Incentive Plan ˆ,ƒŒˆ Š‹ˆ Shares issued under share placement and share purchase plan - ‰,‹•ƒ Balance at end of year ƒ„ˆ,ˆˆŒ ƒ Š,‰‰ƒ

Number of issued shares 2019 2018 ’000 '000 Ordinary shares issued at beginning of the year ƒƒ„,Œˆ„ ƒ•ˆ, Š‹ Shares issued under Executive and Senior Management Long Term Incentive Plan ‰‹ ‡‹• Shares issued under share placement and share purchase plan - ƒŒ,ˆ ‰ Ordinary shares issued at end of the year ƒƒ‡,ˆ‰Š ƒƒ„,Œˆ„

As at 31 July 2019 there were 226,188,531 ordinary issued shares in Kathmandu Holdings Limited and these are classi“ed as equity.

873,712 shares (2018: 669,669) 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.

Refer to section 6.4 for Employee share based remuneration plans.

4.3.2 Reserves and retained earnings

Cash Œow hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash œow hedge that are recognised directly in other comprehensive income, as described in the accounting policy in section 4.2. The amounts are recognised in pro“t or loss when the associated hedged transaction a¦ects pro“t or loss. 62 KATHMANDU ANNUAL REPORT 2019

Foreign currency translation reserve The FCTR is used to record foreign currency translation di¦erences arising on the translation of the Group entities results and “nancial position. The amounts are accumulated in other comprehensive income and recognised in pro“t or loss when the foreign operation is partially disposed of or sold.

Share based payments reserve The share based payments reserve is used to recognise the fair value of share options and performance rights granted but not exercised or lapsed. Amounts are transferred to share capital when vested options are exercised by the employee or performance rights are vested.

2019 2018 Reserves NZ$’000 NZ$’000 (i) Cash œow hedging reserve Opening balance Œ, Š‰ („,Œƒƒ) Revaluation - gross (Š,‹‹ƒ) ˆŒ,‰‡„ Deferred taxation on revaluation ƒ.Œ ‡•‹ (Œ,Œ‡•) Transfer to hedged asset Š,„‹Š (ˆ,‹„‹) Transfer to net pro“t - gross ƒ•‡ ‹ƒ Closing balance ,ˆˆ‰ Œ, Š‰

(ii) Foreign currency translation reserve Opening balance (‰,Š‹„) (ˆŠ, ŠŒ) Currency translation di¦erences – Gross (Œ,ƒŠ‹) ˆ•,„ˆ‰ Currency translation di¦erences – Taxation ƒ.Œ - - Closing balance (ˆƒ,ƒ‹ƒ) (‰,Š‹„)

(iii) Share based payments reserve Opening balance ƒ,‹‡• ˆ,‰ˆŒ Current year amortisation ‹ƒˆ ˆ, ‰Š Deferred taxation on share options ƒ.Œ (ƒ„Œ) ƒŠ Transfer to Share Capital on vesting of shares to Employees (ˆ,ƒŒˆ) (Š‹ˆ) Share Options / Performance Rights lapsed (ˆ ) - Closing balance ˆ,Š‰Œ ƒ,‹‡•

Total Reserves (‡,ˆ‹ˆ) (ƒ,‹ˆ‹)

4.3.3 Dividends 2019 2018 NZ$’000 NZ$’000 Prior year “nal dividend paid ƒ ,‰Œ‡ ˆ‰,ˆŠ„ Current year interim dividend paid Š,• ‹ Š,•ˆŒ Dividends paid (Á•.ˆ„ per share (ƒ•ˆ‰: Á•.ˆŒ)) ŒŒ,‰‰Œ ƒ‹,ƒ•‰

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 bene“ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt or draw down more debt. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 63

Section 5 Group Structure

In this section This section provides information about the entities that make up the Kathmandu Group and how they ažect the nancial performance and position of the Group.

5.1 Acquisition of Ob z Footwear LLC ō In April 2018 Kathmandu Holdings Limited through its wholly-owned subsidiary Kathmandu US Holdings LLC acquired 100% of the equity interests in Oboz Footwear LLC based out of Bozeman, Montana. The total purchase price was USD$60,000,000 plus a proportionate contingent earn out of up to USD$15,000,000 based on an EBITDA target for the year ending 31 December 2018.

In accordance with the sale and purchase agreement the full contingent earn out of NZD$22,321,000 (USD$15,000,000) was paid in April 2019. This cash consideration was paid using funds held in escrow on term deposit since acquisition.

The acquisition accounting fair value adjustments were on a provisional basis in the Group’s 31 July 2018 consolidated “nancial statements. The acquisition accounting adjustments have now been “nalised and updated to reœect independent valuations performed on the net assets recognised on acquisition. As a result, the following adjustments (in NZD) have been recognised in the prior period; a decrease in the customer relationship ($11,984,000), a decrease in the deferred tax liability ($3,552,000), an increase in retained earnings ($139,000), and a corresponding increase in goodwill ($8,571,000).

Final Purchase Price Allocation NZD$’000 Purchase price ˆ•Œ,ˆ‡ Less indebtedness settled on acquisition (‰,Œ Š) Plus settlement adjustments ƒ,ƒ„Œ Total net consideration Š‹,•‡‰

Recognised amounts of identiable assets acquired and liabilities assumed; Current assets Cash and cash equivalents ‡•• Trade and other receivables ˆˆ,‹‡‹ Inventories ‡,‹‰‡ Non-current assets Property, plant and equipment ‡‡Œ Intangible assets Šƒ Customer relationships ˆ,‡Š‡ Brand Œ ,„ ˆ Current liabilities Trade and other payables („,•‰‹) Non-current liabilities Interest bearing liabilities (‡,Šˆ„) Deferred tax (Š,Š‹Œ) Net assets acquired Œ ,ˆ‹• Goodwill on acquisition ‡ƒ,‰Š‰ Total net consideration Š‹,•‡‰ 64 KATHMANDU ANNUAL REPORT 2019

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 • has the ability to use its power to a¦ect returns.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

Holding Subsidiary Companies Principal Activity Country of 2019 2018 Balance Sheet Incorporation Date Milford Group Holdings Limited Holding company New Zealand ˆ••% ˆ••% Œˆ July Kathmandu Limited Outdoor retailer New Zealand ˆ••% ˆ••% Œˆ July Kathmandu Pty Limited Outdoor retailer Australia ˆ••% ˆ••% Œˆ July Kathmandu (U.K.) Limited Outdoor retailer United Kingdom ˆ••% ˆ••% Œˆ July Kathmandu US Holdings LLC Holding company USA ˆ••% ˆ••% Œˆ July Oboz Footwear LLC Footwear wholesaler USA ˆ••% ˆ••% Œˆ December FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 65

Section 6 Other Notes 6.1 Related parties 6.2 Fair values All transactions with related parties were in the normal course The following methods and assumptions were used to of business and provided on commercial terms. No amounts estimate the fair values for each class of “nancial instrument: owed to related parties have been written o¦ or forgiven Trade debtors, trade creditors and bank balances during the period. The carrying value of these items is equivalent to their Key Management Personnel fair value. Term liabilities The fair value of the Group's term liabilities is estimated based 2019 2018 NZ$’000 NZ$’000 on current market rates available to the Group for debt of similar maturity. The fair value of term liabilities equates to Salaries Œ, ˆ Œ,•Œˆ their current carrying value. Other short-term „‹ ˆ,ˆŠ„ employee bene“ts Foreign exchange contracts and interest rate swaps The fair value of these instruments is determined using Post-employment ˆˆ‹ ˆˆˆ valuation techniques (as they are not traded in an active bene“ts market). These valuation techniques maximise the use of Employee Šˆ ŠƒŠ observable market data where it is available and rely as little performance rights as possible on entity speci“c estimates. , ‹Š „,ƒ‡‡ Speci“c valuation techniques used to value “nancial instruments include the fair value of interest rate swaps. These Key Management Personnel include the following employees: are calculated at the present value of the estimated future cash œows, based on observable yield curves and the fair Executive Directors: value of forward foreign exchange contracts, as determined • Chief Executive Oªcer using forward exchange rates at the balance sheet date, with Senior Managers: the resulting value discounted back to present value. • Chief Operating Oªcer These derivatives have all been determined to be within level • Chief Financial Oªcer and Company Secretary 2 (for the purposes of NZ IFRS 13) of the fair value hierarchy as all signi“cant inputs required to ascertain the fair value of Other Key Management Personnel: these derivatives are observable. • General Manager, Product Guarantees and overdraft facilities • General Manager, Marketing and Online The fair value of these instruments is estimated on the basis • General Manager, Supply Chain that management do not expect settlement at face value to • General Manager, Human Resources arise. The carrying value and fair value of these instruments • Chief Information Oªcer are approximately nil. All guarantees are payable on demand. • General Manager, Retail Stores and Operations • General Manager Merchandising • President Oboz / Kathmandu North America

Remuneration Detail – refer to section 6.3. 66 KATHMANDU ANNUAL REPORT 2019

6.3 Remuneration detail

2019 Short-term bene¦ts Post- Share based payments employment bene¦ts Name Cash Non- Salary Cash Monetary Super- Performance Equity Performance and fees bonus bene¦ts annuation Rights1 related Total related $ $ $ $ $ % $ % Non-Executive Directors David Kirk ƒ„„,••‡ - - - - •.•% ƒ„„,••‡ •.•% John Harvey ˆŒŒ,‡ƒŠ - - - - •.•% ˆŒŒ,‡ƒŠ •.•% Sandra McPhee ˆŒŒ,‡ƒŠ - - - - •.•% ˆŒŒ,‡ƒŠ •.•% Philip Bowman ˆŒŒ,‡ƒŠ - - - - •.•% ˆŒŒ,‡ƒŠ •.•% Brent Scrimshaw ˆŒŒ,‡ƒŠ - - - - •.•% ˆŒŒ,‡ƒŠ •.•% ‡†ƒ,„ŠŠ - - - - Œ.Œ% ‡†ƒ,„ŠŠ Œ.Œ% Executive Directors Xavier Simonet ‰„ ,ŒŒ‡ ˆƒ‹,„‰‹ - ƒˆ,‡Œ„ ƒƒ‹,‡Šˆ ˆ‰.„% ˆ,ƒŒˆ,ƒ Š ƒ‰.Š% †„‰,‹‹ ˆŠ‡,„†‡ - Šˆ, ‹„ ŠŠ‡, ƒˆ ˆ†.„% ˆ,Š‹ˆ,Š‰ƒ Š†.ƒ% Senior Managers and Other Key Management Personnel Reuben Casey •Š,•‡ˆ ƒ‹,‰ ‡ Œ, • ˆƒ,ƒ‹ƒ ‰‹, ˆ ˆ‡.ƒ% „ •,•‡• ƒˆ.Œ% Chris Kinraid2 „ˆ,„ƒ ƒˆ,ŠŒ‰ Œƒ„ ˆ,„ ‡ ‹,‰ „ Š. % ‰Œ,ˆ‹‰ Œ„.‰% Other Management ƒ,•ŠŠ,•ƒ ƒ„Š,„ƒ‰ ˆ‡,Œ‡‹ ‰ˆ, „ˆ ˆ‡‹,‹‡ ‡. % ƒ,‡ƒ ,ˆŒ ˆ‡.Œ% Total ‰,ŠŒ‹,‰ ‡ ‰‹ ,†ƒƒ ŠŒ,ˆ‹Š ˆˆ ,ƒŒ‰ ‰ƒŒ,‡‰ˆ ƒ.‹% „,Š †,ˆ‰‹ ˆ‡. %

1. This represents the accounting expense of amortising the value of performance rights during the year (refer to note 6.4). 618,555 performance rights were vested and issued to key management personnel during FY2019 of which 51,020 related to Reuben Casey and 407,463 related to Xavier Simonet. 2. CFO from 14 May 2019.

2018 Short-Term Bene¦ts Post- Share based payments employment bene¦ts Name Cash Non- Salary Cash Monetary Super- Performance Equity Performance and fees bonus bene¦ts annuation Rights1 related Total related $ $ $ $ $ % $ % Non-Executive Directors David Kirk ƒ ˆ,Œ•ƒ - - - - •.•% ƒ ˆ,Œ•ƒ •.•% John Harvey ˆƒ‡,ƒŒ‡ - - - - •.•% ˆƒ‡,ƒŒ‡ •.•% Sandra McPhee ˆƒ‡,ƒŒ‡ - - - - •.•% ˆƒ‡,ƒŒ‡ •.•% Philip Bowman ˆ•„,ˆŠ‹ - - - - •.•% ˆ•„,ˆŠ‹ •.•% Brent Scrimshaw ˆ•„,ˆŠ‹ - - - - •.•% ˆ•„,ˆŠ‹ •.•% John Holland ƒˆ,•ŒŠ - - - - •.•% ƒˆ,•ŒŠ •.•% Christine Cross ƒˆ,•ŒŠ - - - - •.•% ƒˆ,•ŒŠ •.•% ‡‰ ,Š‰ - - - - Œ.Œ% ‡‰ ,Š‰ Œ.Œ% Executive Directors Xavier Simonet ‰„‰, ‰• „ƒ‰,•Šˆ - ƒˆ,‹ ŒŠ‰,‡Œ‹ ƒƒ.ˆ% ˆ,‰•‡,Š„ƒ „ˆ.Œ% †„†,‰†Œ „Š†,Œƒˆ - Šˆ,‡‰‰ ‹ƒ†, ‹‡ ŠŠ.ˆ% ˆ,†Œ ,ƒ„Š „ˆ.‹% Senior Managers and Other Key Management Personnel Reuben Casey ŒŠ ,‰ˆ• ˆŒ‡,„•• ƒ,‹Šˆ ˆˆ,‰ ˆ ˆ‡‡,•„„ ƒŒ.Œ% ‹ˆˆ,ŠŠ‹ ƒ.„% Other Management ˆ,‹‹‹,‰„„ „ˆŠ,Š‹‹ ‰,•‹ƒ ‹‹,‡‰„ Œ‡ ,•‡„ ˆŒ.Œ% ƒ,‹ ‹,‡„ Œƒ.ƒ% Total ‹,‡‡‡,‹ƒˆ ˆ,ˆ†‰,„ † ˆŒ,† ‹ ˆˆˆ,Š‡Œ ƒŠ†,‡„‡ ˆ„.‰% ,ŒˆŠ,†‰ƒ ‹„.ˆ% 1. This represents the accounting expense of amortising the value of performance rights during the year (refer to note 6.4). 173,271 performance rights were vested and issued to key management personnel during FY2018 of which 59,167 related to Reuben Casey and nil related to Xavier Simonet. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 67

6.4 Employee share based remuneration

Accounting policy

Equity settled long term incentive plan The Executive and Senior Management Long Term Incentive plan grants Group employees performance rights subject to performance hurdles being met. The fair value of rights granted is recognised as an employee expense in the consolidated statement of comprehensive income with a corresponding increase in the employee share based payments reserve. The fair value is measured at grant date and amortised over the vesting periods. The fair value of the rights granted is measured using the Kathmandu Holdings Limited share price as at the grant date less the present value of the dividends forecast to be paid prior to each vesting date. When performance rights vest, the amount in the share based payments reserve relating to those rights are transferred to share capital. When any vested performance rights lapse upon employee termination, the amount in the share based payments reserve relating to those rights is transferred to retained earnings.

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

Executive Directors and Senior Managers

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

Grant Date Balance at Granted during Vested during Lapsed during Balance at start of year the year the year the year the end of year number number number number number 20 Dec 2018 - ƒ‡ˆ,Œ‰‰ - - ƒ‡ˆ,Œ‰‰ 20 Dec 2017 Œ‹ , Œ‹ - - - Œ‹ , Œ‹ 19 Dec 2016 Œ‹„,‰ˆ• - - - Œ‹„,‰ˆ• 16 Dec 2015 •‹, ‡Œ - ( •‹, ‡Œ) - - ˆ,ˆ„‹,‹ˆ• ƒ‡ˆ,Œ‰‰ ( •‹, ‡Œ) - ˆ,•ˆˆ,‡Œ„

The performance rights granted on 20 December 2018 are Long Term Incentive components only.

Long Term Incentive performance rights vest in equal tranches. In each tranche the rights are subject to a combination of a relative Total Shareholder Return (TSR) hurdle and/or an EPS growth hurdle. The relative weighting and number of tranches for each grant date are shown in the table below:

Grant Date Tranches EPS Weighting TSR Weighting ƒ• Dec ƒ•ˆ‰ ˆ „•% „•% ƒ• Dec ƒ•ˆ‹ ˆ „•% „•% ˆŠ Dec ƒ•ˆ‡ ˆ „•% „•% 68 KATHMANDU ANNUAL REPORT 2019

The proportion of rights subject to the relative TSR hurdle The estimated fair value for each tranche of rights issued is is dependent on Kathmandu Holdings Limited’s TSR amortised over the vesting period from the grant date. performance relative to a de“ned comparable group of The proportion of rights subject to the EPS growth hurdle companies in New Zealand and Australia listed on either is dependent on the compound average annual growth in the ASX or NZX. The percentage of TSR related rights vest Kathmandu Holdings Limited’s EPS relative to the year ending according to the following performance criteria: 31 July 2018. The applicable performance periods are:

Kathmandu Holdings Tranche 2019 2018 Limited relative TSR ranking % Vesting Performance Performance Below the „•th percentile •% Period Period „•th percentile „•% Tranche 1 FYƒˆ EPS relative FYƒ• EPS relative „ˆst – ‹ th percentile „•% ¾ ƒ% for each to FYˆ‰ EPS to FYˆ‹ EPS percentile above the „•th ‹„th percentile or above ˆ••% The percentage of the 2019 EPS growth related rights scales according to the compound average annual EPS growth The TSR performance is calculated for the following achieved as follows: performance periods: 2019 % 2018 % Rights EPS Rights Tranche 2019 2018 EPS Growth Vesting Growth Vesting Tranche 1 Œ‡ months to ˆ Œ‡ months to ˆ < 7% 0% < 7% 0% December ƒ•ƒˆ December ƒ•ƒ• >=7%, < 8% 50% >=7%, < 8% 50% >=8%, < 9% 60% >=8%, < 9% 60%

The fair value of the TSR rights have been valued under a >=9%, < 10% 70% >=9%, < 10% 70% Monte Carlo simulation approach predicting Kathmandu >=10%, < 11% 80% >=10%, < 11% 80% Holdings Limited’s TSR relative to the comparable group of >=11%, < 12% 90% >=11%, < 12% 90% companies at the respective vesting dates for each tranche. >=12% 100% >=12% 100% The fair value of TSR rights, along with the assumptions used to simulate the future share prices using a random-walk process are shown below: The fair value of the EPS rights have been assessed as the Kathmandu Holdings Limited share price as at the grant date less the present value of the dividends forecast to be paid 2019 2018 prior to each vesting date. The estimated fair value for each Fair value of TSR rights Áƒ•„,ˆŠ• Áƒ‡‹,ˆ‡ˆ tranche of options issued is amortised over the vesting period Current price at grant date Áƒ.‹‹ Áƒ. ƒ from the grant date.

Risk free interest rate ˆ.‹‡% ƒ.•‡% Vesting of Long Term Incentive performance rights also Expected life (years) Œ Œ require remaining in employment with the Company during Expected share volatility ƒ‰.Š% Œ.•% the performance period. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 69

Other Key Management Personnel and Wider Leadership Management

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

Grant Date Balance at start Granted during Vested during the Lapsed during Balance at of year the year year the year the end of year number number number number number 18 Dec 2018 - „ƒ ,ƒƒ• - („ƒ ,ƒƒ•) - 11 Dec 2017 „‡‰,Š ˆ - - (ˆ‹,‹„„) „„ˆ,ˆ‰‡ˆ 07 Dec 2016 ‡‡,ƒ Š - ( ‡‡,ƒ Š) - -

1. Remaining performance rights on vesting date 31 July 2019, which were subsequently issued on 14 August 2019.

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:

2019 2018 Grant Date ˆ‰ Dec ƒ•ˆ‰ ˆˆ Dec ƒ•ˆ‹ Performance period (year ending) Œˆ Jul ƒ•ˆŠ Œˆ Jul ƒ•ˆ‰ Vesting Date – Other Key Management Personnel and Wider Leadership Management Œˆ Jul ƒ•ƒ• Œˆ Jul ƒ•ˆŠ

The fair value of the rights were assessed as the Kathmandu Holdings Limited share price as at the grant date less the present value of the dividends forecast to be paid prior to the vesting date. The fair value of each right has been calculated to be NZ$2.54 per right (2018: NZ$2.14).

The non-market performance hurdles set for the year ending 31 July 2019 were met and accordingly an expense has been recognised in the consolidated statement of comprehensive income.

Expenses arising from equity settled share based payments transactions

2019 2018 NZ$’000 NZ$’000 Executive Director ƒƒ‰ ŒŠŠ Key Management Personnel and Wider Leadership Management ŠŒ ˆ,•Š• ‹ƒˆ ˆ, ‰Š 70 KATHMANDU ANNUAL REPORT 2019

6.5 Contingent liabilities Audit fees There are no contingent liabilities in 2019 (2018: nil). During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its 6.6 Contingent assets related practices and other network audit “rms: There are no contingent assets in 2019 (2018: nil). 2019 2018 NZ$’000 NZ$’000 6.7 Events occurring after Audit services - PricewaterhouseCoopers balance sheet date Group audit - PwC New Zealand ˆ‰‡ ˆ„„ There are no events after balance sheet date which materially UK Statutory audit - PwC UK ƒ• ƒ• a¦ect the information within the consolidated “nancial Half year review Œ‡ ŒŒ statements. Non-audit services - PricewaterhouseCoopers 6.8 Supplementary information Revenue certi“cates ˆƒ ˆ‡ Banking compliance certi“cates Œ ƒ Directors fees Total remuneration for ƒ„‹ ƒƒ‡ 2019 2018 PricewaterhouseCoopers services NZ$’000 NZ$’000 DirectorsÆ fees ‹Š• ‹ ‡

Directors fees for the Parent company were paid to the following: • David Kirk (Chairman) • Sandra McPhee • John Harvey • Philip Bowman • Brent Scrimshaw FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 71

6.9 New accounting standards New standards ¦rst applied in the year

New Eªective Date Accounting Applicable to Summary of Standard the Group Changes Group Impact NZ IFRS 9 1 August 2018 Addresses the classi“cation, The Group has reviewed its “nancial assets and liabilities and Financial measurement and de- noted no material impact from the adoption of NZ IFRS 9. Instruments recognition of “nancial The Group has assessed which business models apply to its assets and “nancial “nancial assets and classi“ed these into the appropriate liabilities and new rules for categories under NZ IFRS 9. The only reclassi“cation arising hedge accounting. is the “nancial assets previously classi“ed as loans and receivables now fall into the amortised cost category. The “nancial assets classi“ed in the amortised cost category are now subject to the new impairment model which requires the recognition of impairment provisions based on expected credit losses (ECL). Under NZ IAS 39 an incurred credit loss model was applied. Based on the Group’s assessment of historical provision rates and forward- looking analysis, there is no material “nancial impact on the impairment provisions. NZ IFRS 9 does not impact the classi“cation or measurement of the Group’s “nancial liabilities. The new hedge accounting rules align the accounting for hedging instruments more closely with the Group’s risk management practices. The Group has con“rmed that its current hedge relationships qualify as continuing hedges under NZ IFRS 9. Accordingly, there is no signi“cant impact on the accounting treatment for the Group’s hedging relationships. The nature and extent of the Group’s disclosure note in relation to its hedging relationships has been changed in these consolidated “nancial statements for the period ending 31 July 2019. 72 KATHMANDU ANNUAL REPORT 2019

New Eªective Date Accounting Applicable to Summary of Standard the Group Changes Group Impact NZ IFRS 15 1 August 2018 Establishes the reporting The group has reviewed its revenue recognition policies upon Revenue from principles relating to the adoption of NZ IFRS 15 and noted no material impact. Contracts with nature, amount, timing and Work focused on segregating the di¦erent revenue streams Customers uncertainty of revenue and within the business. The majority of revenue is made up of cash œows arising from a in store transactions with 21% earned through online and contract with a customer. wholesale sales. The following matters were identi“ed to be relevant to the Group under NZ IFRS 15: - A customers’ right of return in determining revenue to be recognised. Return rates for sales were analysed and it was determined that there was no material impact from adoption of NZ IFRS 15. - For online sales and wholesale sales, whether arranging the delivery of goods is a separate performance obligation as it may impact the timing, measurement and classi“cation of revenue recognised. After assessment of the Group’s current accounting policies there is no material impact from adoption of NZ IFRS 15.

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

NZ IFRS 16 1 August 2019 Introduces a single lessee This standard will materially impact the Group’s consolidated Leases accounting model requiring “nancial statements at transition and in future years, as a lessee to recognise the Group’s operating leases (primarily in relation to store, assets and liabilities for all distribution centre and oªce leases) are recognised on leases with a term of more balance sheet. than 12 months where The implementation plan for the new standard is now they are not considered complete including; low value. A right-of-use - Identi“cation of leases and contracts that include a asset will be recognised lease; representing the right to use the underlying leased - Collation of lease data required for the calculation of the asset and a lease liability impact assessment; representing the obligations - Identi“cation of necessary changes to systems and to make lease payments. processes required to enable reporting and accounting in As a consequence, a lessee accordance with the new standard; and recognises depreciation - Selection of appropriate accounting policies around of the right-of-use asset transition method, discount rates and estimates of and interest on the lease lease-term for leases with options. liability. The Group will adopt the simpli“ed transition approach under NZ IFRS 16 in the period ending 31 July 2020 and will not restate comparative amounts. FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 73

New Eªective Date Accounting Applicable to Summary of Standard the Group Changes Group Impact Note 2.2 reœects that as at 31 July 2019 the Group had lease commitments for operating leases of $206m. Based on the current leasing arrangements as at 31 July 2019 the application of NZ IFRS 16 is expected to have the following impact on the group balance sheet; - Recognition of a right of use asset of approximately $177m; - Recognition of a lease liability of approximately $212m; - Reduction in trade and other payables of approximately $13m; - Reduction in the deferred tax liability of approximately $10m; and - Reduction in opening retained earnings of approximately $12m. The impact on the consolidated statement of comprehensive income for the year ended 31 July 2020 is expected to be a; - Reduction in selling and administration and general expenses of approximately $59m; - Increase in depreciation and amortisation of approximately $51m; and - Increase in “nance expenses of approximately $7m. The impact on each of these line items is expected to be signi“cant however the overall net pro“t after tax is expected to be immaterial. Operating cash œows for the year ended 31 July 2020 are expected to increase by $48m under NZ IFRS 16 as result of reclassifying rent payments to “nancing activities reœecting the repayment of lease liabilities. The above has no e¦ect to the Group and the change is for “nancial reporting purposes only. Current estimates are likely to change for the period ending 31 July 2020, mainly due to; - Subsequent movements in the discount rate; - New lease contracts entered into by the Group; - Any changes to existing lease contracts; and - Change in management’s judgement to exercise rights of renewals under lease arrangements.

74 KATHMANDU ANNUAL REPORT 2019

Independent auditor’s report IndependentTo the shareholders of Kathmandu auditor’s Holdings report Limited WeTo the have shareholders audited the of consolidated Kathmandu financial Holdings statements Limited which comprise:  the consolidated balance sheet as at 31 July 2019; We have audited the consolidated financial statements which comprise:  the consolidated statement of comprehensive income for the year then ended;  the consolidated balance sheet as at 31 July 2019;  the consolidated statement of changes in equity for the year then ended;  the consolidated statement of comprehensive income for the year then ended;  the consolidated statement of cash flows for the year then ended; and  the consolidated statement of changes in equity for the year then ended;  the notes to the consolidated financial statements, which include a summary of significant  theaccounting consolidated policies. statement of cash flows for the year then ended; and  the notes to the consolidated financial statements, which include a summary of significant Ouraccounting opinion policies. In our opinion, the accompanying consolidated financial statements of Kathmandu Holdings Limited Our(the Company), opinion including its subsidiaries (the Group), present fairly, in all material respects, the fIninancial our opinion, position the of accompanying the Group as at consolidated 31 July 2019, financial its financial statements performance of Kathmandu and its cash Holdings flows Limited for the year(the Company),then ended includingin accordance its subsidiaries with New Zealand (the Group), Equivalents present to fairly, International in all material Financial respects, Reporting the Standafinancialrds position (NZ IFRS) of the and Group International as at 31 July Financial 2019, Reportingits financial Standards performance (IFRS). and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting BasisStandards for (NZ opinion IFRS) and International Financial Reporting Standards (IFRS). We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs Basis(NZ)) and for International opinion Standards on Auditing (ISAs). Our responsibilities under those standards are furtherWe conducted described our in audit the Auditor’sin accordance responsibilities with International for the audit Standards of the on consolidated Auditing (New financial Zealand) (ISAs statements(NZ)) and International section of our Standards report. on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for statements section of our report. our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) our opinion. Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance StandardsWe are independent Board and of the the Internat Group ionalin accordance Ethics Standards with Professional Board for and Accountants’ Ethical Standard Code of 1 Ethics (Revised) for ProfessionalCode of Ethics Accountants for Assurance (IESBA Practitioners Code), and (PES we 1)have issued fulfilled by the our New other Zealand ethical Auditing responsibilities and Assurance in Standardsaccordance Board with these and the requirements. International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in Our firm carries out other services for the Group in the areas of an assurance compliance accordanceengagement with in respect these requirements.of bank covenant compliance and agreed upon procedures for store turnover Ourcertificates. firm carries The provisionout other servicesof these otherfor the services Group inhas the not areas impaired of an ourassurance independence compliance as auditor of the engagementGroup. in respect of bank covenant compliance and agreed upon procedures for store turnover certificates. The provision of these other services has not impaired our independence as auditor of the Group.

PricewaterhouseCoopers PwC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand PricewaterhouseCoopersT: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz PwC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand T: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz

FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 75

Independent auditor’s report To the shareholders of Kathmandu Holdings Limited Independent auditor’s report ur audit approach WeTo the have shareholders audited the of consolidated Kathmandu financial Holdings statements Limited which comprise: ri  the consolidated balance sheet as at 31 July 2019; We have audited the consolidated financial statements which comprise:  the consolidated statement of comprehensive income for the year then ended; An audit is dsind to otain rasonal assuranc hthr th financial  the consolidated balance sheet as at 31 July 2019; statnts ar fr fro atrial isstatnt  the consolidated statement of changes in equity for the year then ended;  the consolidated statement of comprehensive income for the year then ended;  the consolidated statement of cash flows for the year then ended; and rall rou atrialit illion hich rrsnts aroiatl  the consolidated statement of changes in equity for the year then ended; of rofit for ta  the notes to the consolidated financial statements, which include a summary of significant  accountingthe consolidated policies. statement of cash flows for the year then ended; and chos rofit for ta as th nchar caus in our i it is th  the notes to the consolidated financial statements, which include a summary of significant nchar aainst hich th rforanc of th rou is ost coonl Ouraccounting opinion policies. asurd usrs and is a nrall acctd nchar

In our opinion, the accompanying consolidated financial statements of Kathmandu Holdings Limited ard ith th Audit and is oitt that ould rort to Our(the Company), opinion including its subsidiaries (the Group), present fairly, in all material respects, the th isstatnts idntifid durin th audit ao fIninancial our opinion, position the of accompanying the Group as at consolidated 31 July 2019, financial its financial statements performance of Kathmandu and its cash Holdings flows Limited for the year(the Company),then ended includingin accordance its subsidiaries with New Zealand (the Group Equivalents), present to fairly, International in all material Financial respects, Reporting the Standafinancialrds position (NZ IFRS) of the and Group International as at 31 July Financial 2019, Reportingits financial Standards performance (IFRS). and its cash flows for the ha dtrind that thr is to audit attrs year then ended in accordance with New Zealand Equivalents to International Financial Reporting

BasisStanda rdsfor (NZ opinion IFRS) and International Financial Reporting Standards (IFRS).  inalisation of th o ootar urchas ric allocation and We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs  nntor aluation and istnc Basis(NZ)) and for International opinion Standards on Auditing (ISAs). Our responsibilities under those standards are furtherWe conducted described our in audit the Auditor’sin accordance responsibilities with International for the audit Standards of the on consolidated Auditing (New financial Zealand) (ISAs atrialit statements(NZ)) and International section of our Standards report. on Auditing (ISAs). Our responsibilities under those standards are h sco of our audit as influncd our alication of atrialit further described in the Auditor’s responsibilities for the audit of the consolidated financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for Basd on our rofssional udnt dtrind crtain uantitati thrsholds for atrialit statements section of our report. our opinion. includin th orall rou atrialit for th consolidatd financial statnts as a hol as st out We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ao hs tothr ith ualitati considrations hld us to dtrin th sco of our audit We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) our opinion. th natur tiin and tnt of our audit rocdurs and to aluat th ffct of isstatnts oth Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance indiiduall and in arat on th consolidatd financial statnts as a hol StandardsWe are independent Board and of the the Internat Group ionalin accordance Ethics Standards with Professional Board for and Accountants’ Ethical Standard Code of 1 Ethics (Revised) for ProfessionalCode of Ethics Accountants for Assurance (IESBA Practitioners Code), and (PES we 1)have issued fulfilled by the our New other Zealand ethical Auditing responsibilities and Assurance in Audit sco accordanceStandards Board with these and the requirements. International Ethics Standards Board for Accountants’ Code of Ethics for dsind our audit assssin th riss of atrial isstatnt in th consolidatd financial Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in statnts and our alication of atrialit As in all of our audits also addrssd th ris of Our firm carries out other services for the Group in the areas of an assurance compliance accordance with these requirements. anant orrid of intrnal controls includin aon othr attrs considration of hthr engagement in respect of bank covenant compliance and agreed upon procedures for store turnover thr as idnc of ias that rrsntd a ris of atrial isstatnt du to fraud Ourcertificates. firm carries The provisionout other servicesof these otherfor the services Group inhas th note areas impaired of an ourassurance independence compliance as auditor of the engagementGroup. in respect of bank covenant compliance and agreed upon procedures for store turnover tailord th sco of our audit in ordr to rfor sufficint or to nal us to roid an certificates. The provision of these other services has not impaired our independence as auditor of the oinion on th consolidatd financial statnts as a hol tain into account th structur of th Group. rou th accountin rocsss and controls and th industris in hich th rou orats h accountin function for athandu is aintaind in aland th o accountin function is locatd in th SA h rou audit as conductd a aland asd ta e audit atters audit attrs ar thos attrs that in our rofssional udnt r of ost sinificanc in our audit of th consolidatd financial statnts of th currnt ar hs attrs r addrssd in th contt of our audit of th consolidatd financial statnts as a hol and in forin our oinion thron and do not roid a sarat oinion on ths attrs

PricewaterhouseCoopers P wC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand PricewaterhouseCoopersT: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz PwC Centre, Level 4, 60 Cashel Street, Christchurch Central, PO Box 13244, Christchurch 8141, New Zealand T: +64 3 374 3000, F: +64 3 374 3001, pwc.co.nz PwC 46

76 KATHMANDU ANNUAL REPORT 2019

Key audit matter How our audit addressed the key audit matter inalisation of the bo ootear n rsondin to th sinificant udnts inold in purchase price allocation idntifin and aluin th intanil assts acuird

As disclosd in not of th financial  id th sal and urchas arnt and othr statnts th rou acuird docunts rlatd to th acuisition to otain an of th shars of o ootar undrstandin of th transaction and to confir th o on Aril for considration considration of illion of hich illion as continnt on  onfird th final EBA tart as achid and an EBA tart in t for th th continnt considration as aid ar ndin cr  t ith rou and o anant to otain an

undrstandin of th usinss rocss undrtan to h urchas ric includd idntif and alu th assts acuird and liailitis idntifial tanil and intanil assud assts acuird and liailitis assud  onsidrd hthr idntification and rconition of anant nad a third art intanil assts as consistnt ith th ruirnts anant rt to assist in a of th accountin standards rocss to idntif and dtrin th  fair alu of ths assts and liailitis Enad our intrnal aluation rt to assss th aroriatnss of assts idntifid and th aluation n addition to oodill of thodolo alid anants rt illion anant idntifid  iscussd th aluation thodolo and intanil assts rlatin to Brand and assutions ith anants rt and ustor lationshis hld o  alud at illion and onsidrd hthr th rlant disclosurs r illion rsctil aroriat in th consolidatd financial statnts ro th rocdurs rford ha no attrs to ur audit focusd on this ara caus rort sinificant udnt and stiats ar inold in idntifin and dtrinin th fair alu of th intanil assts acuird

PwC 47

FINANCIAL STATEMENTS KATHMANDU ANNUAL REPORT 2019 77

Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter inalisation of the bo ootear n rsondin to th sinificant udnts inold in nentor aluation and eistence rford a nur of audit rocdurs or purchase price allocation idntifin and aluin th intanil assts acuird inntor istnc and aluation At ul th rou hld

As disclosd in not of th financial inntoris of illion  srd th stocta rocss at slctd stor  id th sal and urchas arnt and othr statnts th rou acuird nntor aluation and istnc as locations nar riod nd and undrtoo our on tst docunts rlatd to th acuisition to otain an of th shars of o ootar an audit focus ara caus of th counts undrstandin of th transaction and to confir th o on Aril for nur of storslocations that  Attndd th ar nd o distriution cntr count considration considration of illion of inntor as hld at and th and rford indndnt tst counts hich illion as continnt on  onfird th final EBA tart as achid and udnt alid in th aluation of  alidatd all stors had n countd tic in th ar inntor to incororat inntor an EBA tart in t for th th continnt considration as aid an indndnt third art slctin a sal of shrina As dscrid in not of ar ndin cr locations not isitd us and insctd rsults of  t ith rou and o anant to otain an th financial statnts inntoris stoc counts hld and confird ariancs r undrstandin of th usinss rocss undrtan to ar carrid at th lor of cost and nt h urchas ric includd corrctl accountd for and arod had offic idntif and alu th assts acuird and liailitis ralisal alu on a ihtd ara idntifial tanil and intanil anant assud asis  assts acuird and liailitis assud srd th dail stocta rocss at th hristchurch and lourn distriution cntrs nar  onsidrd hthr idntification and rconition of h rou has ssts and rocsss riod nd and undrtoo our on tst counts anant nad a third art includin a arcod inntor intanil assts as consistnt ith th ruirnts also alidatd that dail counts occurrd slctin a anant rt to assist in a anant sst to accuratl of th accountin standards sal of das for ach location and insctd th rocss to idntif and dtrin th rcord inntor onts  anant na an indndnt count rcords for thos das fair alu of ths assts and liailitis Enad our intrnal aluation rt to assss th third art to colt full stoc tas  Assssd th inntor shrina roision aroriatnss of assts idntifid and th aluation at ach stor tic a ar his rocss riin th ll of inntor rit dons durin n addition to oodill of thodolo alid anants rt is anad cntrall had offic for th riod tstd th shrina rat usd to illion anant idntifid  iscussd th aluation thodolo and consistnc ail ccl counts ar calculat th roision for ach stor sinc th last intanil assts rlatin to Brand and assutions ith anants rt and rford at th aland and stocta coarin it to th actual shrina rat ustor lationshis hld o in rior riods  onsidrd hthr th rlant disclosurs r Australian distriution cntrs A full alud at illion and inntor count as rford at th  Assssd stor inntor counts rford ost ar aroriat in th consolidatd financial statnts illion rsctil S o distriution cntr at ar nd to nsur th actual ll of shrina as ro th rocdurs rford ha no attrs to nd consistnt ith th arnd roisionin ur audit focusd on this ara caus rort  ld discussions ith anant includin hr ar udnts alid in sinificant udnt and stiats rchandisin rsonnl to undrstand and assssin th ll of roision for ar inold in idntifin and corroorat th assutions alid in stiatin inntor shrina anant dtrinin th fair alu of th inntor roisions roid for shrina ach onth on a intanil assts acuird  location location asis h ll of Ealuatd assution ad anant that roision is asd on historical currnt shrina lls r consistnt ith historical inntor counts and stocta lls throuh an analsis of inntor its shrina trnds cator and a and th ll of inntor rit dons durin th riod coard to rior riods and  std that inntor on hand at th nd of th riod as rcordd at th lor of cost and nt ralisal alu tstin a sal of inntor its to th ost rcnt rtail ric ro th rocdurs rford ha no attrs to rort

PwC 47 PwC 48

78 KATHMANDU ANNUAL REPORT 2019

Information other than the financial statements and auditor’s report h irctors ar rsonsil for th annual rort ur oinion on th consolidatd financial statnts dos not cor th othr inforation includd in th annual rort and do not and ill not rss an for of assuranc conclusion on th othr inforation n connction ith our audit of th consolidatd financial statnts our rsonsiilit is to rad th othr inforation and in doin so considr hthr th othr inforation is atriall inconsistnt ith th consolidatd financial statnts or our nold otaind in th audit or othris aars to atriall isstatd f asd on th or ha rford on th othr inforation that we obtained prior to the date of this auditor’s report, we conclude that there is a material isstatnt of this othr inforation ar ruird to rort that fact ha nothin to rort in this rard ct that not all othr inforation as aailal to us at th dat of our sinin

esponsibilities of the irectors for the consolidated financial statements h irctors ar rsonsil on half of th oan for th raration and fair rsntation of th consolidatd financial statnts in accordanc ith S and S and for such intrnal control as th irctors dtrin is ncssar to nal th raration of consolidatd financial statnts that ar fr fro atrial isstatnt hthr du to fraud or rror n rarin th consolidatd financial statnts th irctors ar rsonsil for assssin th Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concrn and usin th oin concrn asis of accountin unlss th irctors ithr intnd to liuidat th rou or to cas orations or ha no ralistic altrnati ut to do so

Auditor’s responsibilities for the audit of the consolidated financial statements ur octis ar to otain rasonal assuranc aout hthr th consolidatd financial statnts as a hol ar fr fro atrial isstatnt hthr du to fraud or rror and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, ut is not a uarant that an audit conductd in accordanc ith SAs and SAs ill alas dtct a atrial isstatnt hn it ists isstatnts can aris fro fraud or rror and ar considrd atrial if indiiduall or in th arat th could rasonal ctd to influnc th conoic dcisions of usrs tan on th asis of ths consolidatd financial statnts A furthr dscrition of our rsonsiilitis for th audit of th financial statnts is locatd at th External Reporting Board’s website at: httsrotnstandardsforassurancractitionrsauditorsrsonsiilitisaudit rort

This description forms part of our auditor’s report.

ho e report to This report is made solely to the Company’s shareholders, as a body. Our audit work has been undrtan so that iht stat thos attrs hich are required to state to them in an auditor’s rort and for no othr uros o th fullst tnt rittd la do not acct or assu responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit or for this rort or for th oinions ha ford

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

hartrd Accountants hristchurch Str

PwC 49

STATUTORY INFORMATION KATHMANDU ANNUAL REPORT 2019 79

Statutory Information

Information other than the financial statements and auditor’s report Employee Remuneration The Company has only one class of shares on issue, ordinary shares, and these shares are listed on the NZX and ASX. There The Directors are responsible for the annual report. Our opinion on the consolidated financial The Group operates in New Zealand, Australia, USA and the are no other classes or equity security currently on issue. The statements does not cover the other information included in the annual report and we do not, and will UK where remuneration market levels di¦er. The o¦shore Company’s ordinary shares each carry a right to vote on any not, express any form of assurance conclusion on the other information. remuneration amounts are converted into New Zealand resolution on a poll at a meeting of shareholders. Holders of In connection with our audit of the consolidated financial statements, our responsibility is to read the dollars. Of the employees noted in the table below, 56% are ordinary shares may vote at a meeting in person, or by proxy, other information and, in doing so, consider whether the other information is materially inconsistent employed by the Group outside New Zealand. During the year representative or attorney. Voting may be conducted by voice, with the consolidated financial statements or our knowledge obtained in the audit, or otherwise a number of employees or former employees, not being Non- by show of hands, or poll. There are no voting rights attached appears to be materially misstated. If, based on the work we have performed on the other information Executive Directors of the Group, received remuneration and to options. that we obtained prior to the date of this auditor’s report, we conclude that there is a material other bene“ts that exceeded NZ$100,000 in value as follows: There were 199 shareholders holding less than a marketable misstatement of this other information, we are required to report that fact. We have nothing to report parcel, as de“ned by ASX Listing Rules, of the Company’s in this regard, except that not all other information was available to us at the date of our signing. Remuneration Number of Employees ordinary shares, based on the market price as at 3 September $ $ 2019. Responsibilities of the Directors for the consolidated financial statements ˆ••,••• - ˆˆ•,••• ˆƒ The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of ˆˆ•,••• - ˆƒ•,••• ˆƒ There are no restricted securities or securities subject to the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal ˆƒ•,••• - ˆŒ•,••• ‹ voluntary escrow on issue. control as the Directors determine is necessary to enable the preparation of consolidated financial ˆŒ•,••• - ˆ •,••• ‰ statements that are free from material misstatement, whether due to fraud or error. ˆ •,••• - ˆ„•,••• ˆˆ Limitations on the Acquisition In preparing the consolidated financial statements, the Directors are responsible for assessing the ˆ„•,••• - ˆ‡•,••• ‰ of Securities Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going ˆ‡•,••• - ˆ‹•,••• „ The Company is not subject to Chapters 6, 6A, 6B and 6C concern and using the going concern basis of accounting unless the Directors either intend to liquidate ˆ‹•,••• - ˆ‰•,••• ‹ of the Corporations Act 2001 (Australia) dealing with the the Group or to cease operations, or have no realistic alternative but to do so. ˆ‰•,••• - ˆŠ•,••• ˆ acquisition of shares (i.e. substantial holdings and takeovers). ˆŠ•,••• - ƒ••,••• ˆ Auditor’s responsibilities for the audit of the consolidated financial statements ƒ••,••• - ƒˆ•,••• ƒ Limitations on the acquisition of the securities imposed by Our objectives are to obtain reasonable assurance about whether the consolidated financial ƒˆ•,••• - ƒƒ•,••• ˆ the jurisdiction in which the Company is incorporated (New statements, as a whole, are free from material misstatement, whether due to fraud or error, and to ƒƒ•,••• - ƒŒ•,••• ˆ Zealand) are: issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, ƒŒ•,••• - ƒ •,••• (a) In general, securities in the Company are freely but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always ƒ •,••• - ƒ„•,••• ˆ transferable and the only signi“cant restrictions or detect a material misstatement when it exists. Misstatements can arise from fraud or error and are ƒ„•,••• - ƒ‡•,••• Œ limitations in relation to the acquisition of securities are considered material if, individually or in the aggregate, they could reasonably be expected to influence ƒ‡•,••• - ƒ‹•,••• ƒ those imposed by New Zealand laws relating to takeovers, the economic decisions of users taken on the basis of these consolidated financial statements. Œƒ•,••• - ŒŒ•,••• ˆ overseas investment and competition. Œ„•,••• - Œ‡•,••• ˆ A further description of our responsibilities for the audit of the financial statements is located at the (b) The New Zealand Takeovers Code creates a general Œ‡•,••• - Œ‹•,••• ƒ External Reporting Board’s website at: rule under which the acquisition of 20% or more of Œ‹•,••• - Œ‰•,••• ˆ https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit- the voting rights in the Company or the increase of an report-1/ ••,••• - ˆ•,••• ˆ existing holding of 20% or more of the voting rights of „••,••• - „ˆ•,••• ˆ This description forms part of our auditor’s report. the Company can only occur in certain permitted ways. ‡••,••• - ‡ˆ•,••• ˆ These include a full takeover o¦er in accordance with the Who we report to ƒ,ˆƒ•,••• - ƒ,ˆŒ•,••• ˆ Takeovers Code, a partial takeover o¦er in accordance This report is made solely to the Company’s shareholders, as a body. Our audit work has been with the Takeovers Code, an acquisition approved by undertaken so that we might state those matters which we are required to state to them in an auditor’s an ordinary resolution, an allotment approved by an report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume Distribution of shareholders and holdings ordinary resolution, a creeping acquisition (in certain responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our circumstances) or compulsory acquisition of a shareholder Number % Number of % holds 90% or more of the shares of the Company. audit work, for this report or for the opinions we have formed. of Ordinary Holders Shares (c) The New Zealand Overseas Investment Act 2005 and The engagement partner on the audit resulting in this independent auditor’s report is Leopino Foliaki. ˆ to ŠŠŠ ˆ,ˆ‰„ Œ•% „‹Œ,Œ„‡ •% Overseas Investment Regulations 2005 (New Zealand) For and on behalf of: ˆ,••• to ,ŠŠŠ ˆ,„ƒŒ Œ‰% ,ˆŒ‡,‰‡ ƒ% regulate certain investments in New Zealand by overseas „,••• to Š,ŠŠŠ „Šƒ ˆ„% , ‡Š,ƒŠ‰ ƒ% persons. In general terms, the consent of the New Zealand ˆ•,••• to ŠŠ,ŠŠŠ ‡ƒŒ ˆ‡% ˆ„,‡‰‹,‹•• ‹% Overseas Investment Oªce is likely to be required where ˆ••,••• and over • ˆ% ƒ•ˆ,‰‹ƒ, ŠŠ ‰Š% an “overseas person” acquires shares in the Company that amount to 25% or more of the shares issued by the Total ‹,ƒ ‹ ˆŒŒ% ŠŠ ,‡‹ƒ,‡ˆ‡ ˆŒŒ% Chartered Accountants Christchurch Company, or if the overseas person already holds 25% or 18 September 2019 The details set out above were as at 3 September 2019. more, the acquisition increases that holding.

PwC 49

80 KATHMANDU ANNUAL REPORT 2019

(d) The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring shares in the Company if the acquisition would have, or would be likely to have, the e¦ect of substantially lessening competition in the market.

Substantial Security Holders According to notices given under the Securities Markets Act 1988 (New Zealand), the substantial security holders in ordinary shares (being the only class of listed voting securities) of the Company and their relevant interests according to the substantial security holder “le as at 3 September 2019, were as follows:

Ordinary Shares % Briscoe Group Limited (ƒˆ August ƒ•ˆ‰) ƒ,‡‹Œ,Œ•ƒ ˆ‰.‰% Jarden Partners Limited (Œ September ƒ•ˆŠ) Œ•,‡•Œ,Œ„ˆ ˆŒ.„% TA Universal Investment Holdings and others (ˆ„ August ƒ•ˆ‹) ƒ ,ƒˆƒ,‡‡ ˆ•.‹% Commonwealth Bank of Australia (ƒ June ƒ•ˆŠ) ˆ ,ƒ‹„,„„ ‡.Œ% Accident Compensation Corporation (ACC) (Œˆ July ƒ•ˆŠ) ˆˆ,Œ‹ ,‹•Š „.•%

As at 3 September 2019, the Company had 226,739,717 ordinary shares on issue.

Principal Shareholders The names and holdings of the twenty largest shareholders as at 3 September 2019 were:

Name Ordinary Shares % ˆ NEW ZEALAND CENTRAL SECURITIES DEPOSITORY LIMITED Š•,ŒŠ„,‡‰Œ ŒŠ.‰‹% Š BRISCOE GROUP LIMITED ƒ,‡‹Œ,Œ•ƒ ˆ‰.‰ƒ% ‹ J P MORGAN NOMINEES AUSTRALIA PTY LIMITED ƒˆ,Œ‡Œ,‰‡ˆ Š. ƒ% ‰ CITICORP NOMINEES PTY LIMITED ˆƒ,‹‡Œ,‡ŠŒ „.‡Œ% „ HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED Š, •,•‡‰ .ˆ‡% BNP PARIBAS NOMINEES PTY LTD Œ,‹Š , ‡‹ ˆ.‡‹% ‡ NATIONAL NOMINEES LIMITED Œ,Œ‡‰,ƒ•Š ˆ. Š% † BNP PARIBAS NOMS PTY LTD ƒ,‰ Œ,ˆŒ„ ˆ.ƒ„% ƒ BNP PARIBAS NOMINEES PTY LTD ƒ,ŒŠ„,‹‹‡ ˆ.•‡% ˆŒ FORSYTH BARR CUSTODIANS LIMITED ƒ,•‡ˆ,ˆŠ• •.Šˆ% ˆˆ NEW ZEALAND DEPOSITORY NOMINEE LIMITED ƒ,•‡•,• ˆ •.Šˆ% ˆŠ FNZ CUSTODIANS LIMITED ˆ,‰‹Œ,Œ„• •.‰Œ% ˆ‹ INVESTMENT CUSTODIAL SERVICES LIMITED ‰ ‡‹,Šƒ• •.Œ‰% ˆ‰ NEWECONOMY COM AU NOMINEES PTY LIMITED ‡ƒŠ,‹Œ„ •.ƒ‰% ˆ„ FNZ CUSTODIANS LIMITED „‹„,‡ƒ„ •.ƒ„% ˆ PT BOOSTER INVESTMENTS NOMINEES LIMITED „„•,ˆŠ •.ƒ % ˆ‡ MR XAVIER MARIE SIMONET ƒŒ,‹ƒ„ •.ˆŠ% ˆ† CITICORP NOMINEES PTY LIMITED ˆˆ,‰‡‰ •.ˆ‰% ˆƒ GUANQUAN LU Œ‰•,Œ•• •.ˆ‹% ŠŒ STRONG MOTORCYCLES PTY LTD ŒŒ‡,‰Š‰ •.ˆ„% STATUTORY INFORMATION KATHMANDU ANNUAL REPORT 2019 81

Directors’ Shareholdings Directors held interests in the following shares of the Company at 31 July 2019:

David Kirk bene“cially owned ‡‰,Š„„ Sandra McPhee bene“cially owned ‡„,‹‡‹ John Harvey bene“cially owned „‰,„•‰ Xavier Simonet bene“cially owned ƒŒ,‹ƒ„

Share Dealings by Directors In accordance with Section 148(2) of the Companies Act 1993, the Board has not received any disclosures from the Directors in relation to acquisitions or disposals of relevant interests in the Company between 1 August 2018 and 31 July 2019.

Subsidiary Company Directors Section 211(2) of the Companies Act 1993 requires the Company to disclose, in relation to its subsidiaries, the total remuneration and value of other bene“ts received by Directors and former Directors, and particulars of entries in the interests registers made during the year ended 31 July 2019.

No subsidiary has Directors who are not full-time employees of the Group.

The remuneration and other bene“ts of such employees (received as employees) totalling $100,000 or more during the year ended 31 July 2019, are included in the relevant bandings for remuneration disclosed at the beginning of the “Statutory Information” section of this annual report.

No employee of the Group appointed as a Director of Kathmandu Holdings Limited or its subsidiaries receives or retains any remuneration or other bene“ts in their capacity as a Director.

The persons who held oªce as Directors of subsidiary companies at 31 July 2019, and those who ceased to hold oªce during the year ended 31 July 2019, are as follows:

Milford Group Holdings Limited Reuben Casey, Xavier Simonet, Chris Kinraid (appointed 20 May 2019)

Kathmandu Limited Reuben Casey, Xavier Simonet, Chris Kinraid (appointed 20 May 2019)

Kathmandu Pty Limited Paul Stern, Reuben Casey, Xavier Simonet, Chris Kinraid (appointed 14 May 2019)

Kathmandu (U.K.) Limited Reuben Casey, Xavier Simonet, Chris Kinraid (appointed 20 May 2019)

Kathmandu US Holdings LLC Xavier Simonet, Reuben Casey (appointed 25 March 2019)

Oboz Footwear LLC Amy Beck (appointed 25 March 2019) 82 KATHMANDU ANNUAL REPORT 2019

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 2019 are as follows:

DAVID KIRK New Zealand Foodshare Trust Chairman NZ Rugby Players Association Chairman Forsyth Barr Group Limited Chairman Bailador Investment Management Pty Limited Managing Partner Bailador Technology Investments Limited (including investee companies) Chairman NZ Performance Horses Limited Director Lord Howe Island Board Director

JOHN HARVEY Stride Property Limited Director Investore Property Limited Director Heartland Bank Limited Director Pomare Investments Limited Director Port of Napier Limited Director Resource Coordination Partnership Limited Advisor to the Board

SANDRA McPHEE JP Morgan Advisory Council Member St Vincents and Mater Health Sydney Community Advisory Council Chairman NSW Public Service Commission Advisory Board Member Australian Public Service Commission Advisor

PHILIP BOWMAN Majid al Futtaim Properties LLC Chairman Tegel Group Holdings Limited Chairman Sky Network Television Limited Chairman Ferrovial SA Director Better Capital PCC Limited Director Potrero Distilling Holdings LLC Director Majid al Futtaim Holdings LLC Director

BRENT SCRIMSHAW Unscriptd Limited CEO and Co-Founder Rhinomed Limited Director Catapault Group International Limited Director STATUTORY INFORMATION KATHMANDU ANNUAL REPORT 2019 83

Directors’ and O¯cers’ Insurance and Indemnity The Group has arranged, as provided for under the Company’s Constitution, policies of Directors’ and Oªcers’ Liability Insurance which, with a Deed of Indemnity entered into with all Directors, ensures that generally Directors will incur no monetary loss as a result of actions undertaken by them as Directors. Certain actions are speci“cally excluded, for example, the incurring of penalties and “nes which may be imposed in respect of breaches of the law.

Use of Company Information There were no notices from Directors of the Company requesting to use Company information received in their capacity as Directors which would not otherwise have been available to them.

Group Structure Kathmandu Holdings Limited owns 100% of the following companies:

Milford Group Holdings Limited Kathmandu Limited Kathmandu Pty Limited Kathmandu (UK) Limited Kathmandu US Holdings LLC Oboz Footwear LLC

Directors’ Details David Kirk Chairman, Non-Executive Director Xavier Simonet Managing Director and Chief Executive Oªcer John Harvey Non-Executive Director Philip Bowman Non-Executive Director Brent Scrimshaw Non-Executive Director Sandra McPhee Non-Executive Director (ceased September 2019) Andrea Martens Non-Executive Director (appointed 1 August 2019)

Executives’ Details Xavier Simonet Chief Executive Oªcer

Directory The details of the Company’s principal administrative and registered oªce in New Zealand is:

223 Tuam Street Christchurch Central PO Box 1234 Christchurch 8011 84 KATHMANDU ANNUAL REPORT 2019

Directory

Share registry In New Zealand: Link Market Services (LINK)

Physical Address: Level 11, Deloitte Centre, 80 Queen Street, Auckland 1010 New Zealand

Postal Address: PO Box 91976, Auckland, 1142 New Zealand

Telephone: +64 9 375 5999

Investor enquiries: +64 9 375 5998

Facsimile: +64 9 375 5990

Internet address: www.linkmarketservices.com

In Australia: Link Market Services (LINK)

Physical Address: Level 1, 333 Collins Street Melbourne, VIC 3000 Australia

Postal Address: Locked Bag A14 Sydney, South NSW 1235 Australia

Telephone: +61 2 8280 7111

Investor enquiries: +61 2 8280 7111

Facsimile: +61 2 9287 0303

Internet address: www.linkmarketservices.com.au

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

Incorporation The Company is incorporated in New Zealand. Design by MOSHA. This document is printed on an environmentally responsible paper, produced using Elemental Chlorine Free (ECF), FSC® certied, Mixed Source pulp from Responsible Sources, and manufactured under strict ISO14001 Environmental Management System. kathmanduholdings.com