Good morning, everyone. It's wonderful to see such a good turnout. My name is David Kirk, and I'm pleased to welcome you as the Chairman of KMD Brands to our 2023 annual shareholders meeting. I extend a warm welcome to all shareholders joining us online today through our virtual meeting platform provided by our share registrar, Link Market Services. I declare that a quorum of shareholders is present, and the meeting has been duly convened. I'm also pleased to officially open online voting. Before we start the formal business, I would like to introduce you to my fellow directors, Michael Daly, who, as you all know, is the Group CEO and Managing Director. The other non-executive directors, Philip Bowman-
Good morning.
Andrea Martens.
Good morning.
Abby Foote.
Hello.
Brent Scrimshaw.
Morning.
Zion Armstrong.
Morning.
I also welcome Peter Taylor from KPMG, Chris Kinraid, our Group Chief Financial Officer, and Frances Blundell, Company Secretary. In terms of the format of today's meeting, I will start by making some brief comments about the 2023 financial year for KMD Brands. I'll then hand over to Michael, who will provide more details on the achievements and challenges we've experienced over the last year, including a summary of the group's financial performance and future strategy. We will then move to the formal business of the meeting. There are five resolutions to be considered by shareholders today, and these are set out in the notice of meeting. An opportunity will be given to shareholders to ask questions about or make comments on the items of business on the agenda for today's meeting.
All voting on the resolutions to be put to today's meeting will be conducted by way of a poll. For shareholders joining us in person today, you would have validated or been given your shareholder voting card. If you are a shareholder and did not register on arrival and wish to vote, please make your way to the registration desk outside the room, and staff from Link will assist you. Please mark your voting intention for each resolution, and the voting cards will be collected at the conclusion of the meeting. Shareholders joining online will be able to cast their vote using the electronic voting card received when online registration is validated. To vote, you will need to click Get Voting Card within the online meeting platform. You will be asked to validate your registration by entering your shareholder or proxy number, which can be found on your proxy form.
Once your registration is validated, you'll receive an electronic voting card, which will enable you to cast your votes on each of the resolutions that we will consider today. You can cast your votes on the resolutions at any time during the meeting today. Please mark your voting card in the way you wish to vote by clicking for, against, or abstain on the voting card. Once you have made your selection, please click Submit Vote on the bottom of the card to lodge your vote. If you have any issues with registration or voting, please refer to Link Market Services Virtual Meeting Online Portal Guide that can be accessed through the virtual meeting web link, or call the helpline on 0800 202 20.
There will also be an opportunity after the resolution set out in the notice of meeting have been considered for shareholders to ask any questions of a more general nature. To ask a question online, you will need to validate your registration. Please use the question function, and your question will be conveyed to the meeting. If you need further information about how to ask a question, please refer to the Virtual Meeting Online Portal Guide or call the helpline. I would encourage you to send through your questions as soon as you can. Questions may be moderated or combined with other questions where they relate to the same topic. Valid proxies have been received from 259 shareholders, holding approximately 61% of issued shares. More than 92% of the proxies directed are in favor of all resolutions.
The minutes of the 2022 annual meeting held last year have been reviewed and approved by the board and signed by me as a true and correct record of that meeting. These are available to view at the registration desk. I also note that the company's annual integrated report is available to all shareholders through the company's investor website. Any shareholder who has not received a copy of the annual integrated report in the post but would like to receive a physical copy, can do so by contacting the company's secretary or our share registrar, Link Market Services. We will address any questions from shareholders on the annual integrated report or financial statements under general business later in the meeting. Now, a few words about the year just passed. I'm pleased to say that 2023 was our first year of uninterrupted trade post-pandemic.
It was a year for KMD Brands to reset, consolidate, and set solid foundations that will position the company and its brands for growth this year and beyond. FY 2023 saw the group come together to ensure collective focus on our strategy. We consolidated expertise from across our brands, enhancing group teams in order to speed up delivery of our goals. We remain relentlessly focused on our four strategic pillars: building global brands, elevating digital, operational excellence, and leading in ESG. Our strategy delivered this year with a record sales result of AUD 1.1 billion. This is the first time KMD Brands has moved past the milestone of AUD 1 billion in sales, and we're proud of this achievement, which saw all of our brands deliver sales growth.
The directors maintained the previous year's record dividend payout, declaring AUD 42.7 million in dividends to shareholders in financial year 2023. In a period of higher interest rates, inflation, and dampened consumer sentiment, we are pleased with where we have landed. We have adjusted cost bases, focused distribution channels, continued to invest in our brands, and worked hard for distinct, distinctive, fit-for-purpose products. Despite current headwinds, we see growth opportunities in all of our brands. We continue to invest in digital infrastructure, store network, and our people, to deliver on the opportunity we see. Our strength is in our people, and with that, I must acknowledge and thank Group CEO and Managing Director, Michael Daly. Michael not only acted in his role as Group Managing Director and CEO, but stepped in as the acting CEO for Kathmandu as we look for a replacement.
It was worth the wait, as Michael will touch on shortly, but I want to express mine and the board's gratitude for what has been a very busy year for you, Michael. In December, we farewelled John Harvey, after more than 12 years of excellent service to the KMD Brands board, and introduced Zion Armstrong, who was appointed as a non-executive director. Zion has had a very successful 30-year career in the global branded sportswear industry. Zion spent 24 years with Adidas, stepping down as President, North America in early 2022 to return to New Zealand. On behalf of the board, welcome to our first annual shareholders meeting, Zion. In closing, I sincerely thank my board colleagues for their hard work, good humor, and ongoing commitment to making KMD Brands successful.
We have built a strong foundation for future growth, whatever the challenges ahead. Finally, thank you to all our shareholders for your continued support of the company. I'll now ask our Group CEO and Managing Director, Michael Daly, to address you.
Thank you, David. Good morning, everyone, and thank you for joining us for today's annual shareholder meeting for 2023. My name is Michael Daly, and I'm the CEO and Managing Director of the KMD Brands Group. Today, I'm going to talk you through the achievements and challenges we have experienced over the past year, including the group's financial performance and future strategy. I'll start by touching on our purpose and vision, which remain the same and continues to guide us. Our purpose is inspiring people to explore and love the outdoors. Our vision is to be the leading family of global outdoor brands, designed for purpose, driven by innovation, best for people and planet. These statements not only resonate with our employees, they're increasingly important as we look to differentiate our brands in a competitive global market.
To deliver this vision, we must use our existing global footprint to grow our brands. In FY 2023, we launched Kathmandu in Europe and Canada, leveraging the operational structure and network Rip Curl has established over a number of decades. Since our soft launch 12 months ago, our teams have opened almost 100 wholesale doors and delivered several new direct-to-consumer local language websites. We plan to use a similar strategy to extend the Oboz brand in ANZ and Europe. In addition to using the power of the group in this way, we also opened several new stores and increased our network to 327 owned stores globally. FY 20 23 was another year of significant achievements that delivered on our group strategy. In building global brands, Rip Curl continued its track record of innovation with a new wetsuit, the Flashbomb Fusion.
With decades of product expertise, we've created a wetsuit that stands out by featuring seam technology that doesn't leak, setting us apart from our competitors. Moving on to Kathmandu. We appointed Kathmandu's next CEO, Megan Welch. Joining us from the global footwear brand, Crocs, Megan brings extensive global brand and product experience, making her the ideal leader as we continue to grow the Kathmandu business and expand our global presence. And to Oboz, a brand with extraordinary potential. This year, we launched a new category in fast hike, the Katabatic range. This will attract new customers, excite our existing base, and grow market share. Under Elevating Digital, Club Rip Curl launched in Australasia, attracting over 220,000 members, and delivering over AUD 300 million in member-based sales. A significant achievement so far. E-commerce has been a big focus, with localized Kathmandu websites supporting our international launch.
Oboz grew online sales by over 350%, as we continue to see direct-to-consumer become a part of the brand's multi-channel strategy. We also worked on innovative ways to safeguard our brands. With a rise in counterfeit sites and online scams, we invested in security systems to mitigate IP infringement to protect our customers. We continued to leverage operational excellence with underlying EBITDA margin, improving by 0.2% of sales year-on-year. Softening consumer sentiment in the fourth quarter impacted the FY 2023 result. However, our strategy remains unchanged as we continue to target an underlying EBITDA margin of 15% of sales. We continue to grow scale across brands to maximize the efficiency of our overhead spend. As an example, our portfolio approach to lease negotiations in Australasia achieved an overall reduction in rent costs across 63 lease renewals.
And finally, to our strategic pillar, to leading ESG, I truly believe we are leading in this space. Our emissions reduction targets were approved by the Science-Based Targets Initiative, meaning our climate goals are aligned with the Paris Agreement. We were recognized for our integrated reporting with several awards and accolades received. And finally, earlier this year, we announced that our group and brands are now certified B Corporations. This is a significant achievement for a business as complex as ours, and we are one of only 45 listed companies globally to achieve this. Because we're asking you to vote on a change to the constitution today that supports our ongoing B Corp certification, I want to briefly remind you of what a B Corp is, what it means to our business, and to you as shareholders.
B Corps are businesses that meet high standards of social and environmental performance, accountability, and transparency. They envision a better economic system where businesses can benefit people, communities, and the planet. Put simply, it means that as well as making decisions that deliver returns to shareholders, B Corps consider the impact of these decisions for the long-term best interest of the company. As to why you should vote in favor of the resolution proposed today to change our constitution, B Corp certification gives our business a license to operate in an increasingly challenging regulatory environment. It allows KMD Brands to present as an attractive proposition for investors and shareholders. It protects the reputation of our brands, and it grows our appeal with customers in the competitive consumer retail space. Long-term returns to shareholders is a key benefit of B Corp certification and the priority for KMD Brands.
I'm proud to say we are a B Corp, as are the board and our employees. I hope you, our shareholders, are, too, and that you vote yes in support of this important change today. Moving on to financial achievements now. As David touched on, KMD Brands reached over AUD 1 billion in sales for the first time this year, a milestone that we're very pleased with in our first full year of uninterrupted trade post-pandemic. All of our iconic brands grew sales, with the group, Rip Curl, and Oboz achieving record sales and delivering growth of 12.6% on the previous year. Gross margin remained resilient, increasing 20 basis points to 59.1% of sales. Improved direct-to-consumer channel mix, wholesale pricing, and international freight costs offset currency headwinds.
As a result, underlying EBITDA was up over 15% year-on-year to AUD 105.9 million. Statutory NPAT was AUD 36.6 million, while underlying NPAT was up 8.6% year-on-year to AUD 43.3 million. As you know, our dividends declared will return over AUD 42 million to shareholders at AUD 0.06 per share. FY 2023 was the first full financial year of uninterrupted trade since the acquisition of both Oboz and Rip Curl. We're proud that the foundations put in place during the pandemic have helped us to reach this milestone. Over the year, we achieved strong sales growth across all three of our brands in all of our key geographies. Rip Curl grew sales by 8.3% to achieve another record sales result for the brand.
While Kathmandu continued its second phase of recovery post-pandemic, growing sales by 10.6%. Oboz sales recovered strongly following last year's supply constraints, growing sales by 61.8%. We've seen customers return to stores, with retail store sales up 17.5%. This had an impact on online sales, which normalized still significantly above pre-pandemic levels. Despite a challenging wholesale market, group wholesale sales grew by 11% as Oboz sales recovered. By region, Australia and New Zealand sales grew by 9.6% and 12.5%, respectively, cycling COVID lockdowns in the first quarter of last year. North America sales grew by 24.4%, with Oboz sales recovery and Hawaiian stores capitalizing on the return of international tourism.
Europe sales grew by 5.6%, and the rest of the world grew by 11.2%, with strong tourism-based growth in Thailand. Our strategy is working and remains unchanged. We will continue to build global brands with the design, development, and launch of market-leading, innovative products for the outdoors. Rip Curl aims to grow market share in the North American market by executing wholesale and omni-channel opportunities. With our new CEO in place, Kathmandu will focus on maintaining market dominance in ANZ and growth in international. Oboz will look to expand internationally with Europe and ANZ, the key geographies of focus. Elevating digital will be ramped up significantly in FY 2024. Kathmandu has now launched a revamped version of the Summit Club, Out There Rewards, which will incentivize members to get outside and experience nature and connect our target customer more closely with their local community.
In addition to the newly expanded Chief Information Officer role, we will also appoint a Chief Digital Officer, who will focus on digital strategy and innovation across the group. These roles will increase momentum in this space and deliver best-in-class experiences to our customers. Personalization remains a focus, leveraging our new loyalty programs with increased investment. We will use the power of the group to drive operational excellence across brands, and with significant progress made this year, continue to work towards reducing our working capital and improving our underlying EBITDA margin. We will continue our good work in ESG with a commitment to increase our responsible material content across brands, reduce our emissions in line with the Paris Agreement, and further explore commercializing circular business models. And finally, to slide 16, I want to take you through our outlook for FY 2024.
All three of our iconic brands are cycling a strong sales rebound last year. As we navigate a more challenging consumer environment this year, our strategic plans remain unchanged. We remain focused on executing our strategy, managing working capital, and improving gross margins. Progress towards our working capital target of 18% of sales is expected to drive strong cash flow generation in the second half of the year. The group is well-positioned to capitalize on the tailwinds from a continued return to travel, positive impacts from the launch of innovative products, and the outdoor lifestyle trend post-pandemic. Following our previous update in September, the group's first half results are dependent on the key Black Friday and Christmas retail peak trading periods to come. We intend to provide an update after Black Friday trade in mid-December.
Thank you for your continued support, and please feel free to ask me any questions at the end of the meeting. I'll now hand back to David.
... Thank you, Michael. I would again like to express my thanks and those of my fellow directors to you and your team, for the dedication and strength you have all demonstrated throughout 2023. We now move to item three on today's agenda, resolutions. Firstly, we move to resolutions concerning the election of directors. The NZX listing rules require that a director must not hold office without re-election past the third annual meeting following the director's appointment, or three years, whichever is longer. A director appointed by the board must not hold office without re-election past the next annual meeting following the director's appointment. So pursuant to the NZX listing rules, Brent Scrimshaw, Philip Bowman, and Zion Armstrong each retire at today's meeting and offer themselves for election by shareholders. The board unanimously supports the re-election of Brent and Philip and the election of Zion.
Information about each of Brent, Philip, and Zion is contained in the explanatory notes to the notice of today's meeting. I now move the following as an ordinary resolution that Brent Scrimshaw be re-re-elected as a director of the company, and I now invite Brent to address the meeting.
Thanks, David. My name is Brent Scrimshaw. Good morning, everyone. I've served as a director on the KMD Brands board over the past six years. I'm also currently a part of the KMD Remuneration Committee, and today I'm offering myself for re-election at today's meeting. Now, as an executive with many years of local and global experience, there are many challenges facing businesses as we move into 2024. Changes in the economy, society, and of course, the impact of geopolitical change. Each of these challenges continue to directly impact the way every business around the world operates, and KMD Brands and its brand portfolio is no different. I believe it's our ability to refine and sharpen our focus on serving the needs of the consumer, while understanding and adjusting for the impact, that will continue to keep KMD Brands as a progressive and world-class outdoor portfolio.
In my extensive international career, I've always reframed challenges like these as opportunities. I'm a global creative leader with deep expertise in the worldwide sports industry, digital, data, and tech businesses, communications and product creation, global consumer and brand management, and omni-channel retail. Seeing and acting on the opportunity in these consumer shifts has become a specialty for me. My current executive role is the CEO of ASX-listed marketing services business, Enero Group Limited, which is a global portfolio of creative technology, advertising, digital data, and communications businesses, with over 950 staff operating in 18 cities around the world. In this role, I'm also at the cutting edge of M&A, investor relations, risk management, and most importantly, consumer expectations.
I'm also frequently exposed to C-suite business leaders for such mega brands as Meta, Citrix, Honeywell, Adobe, Snapchat, Alinta, GlaxoSmithKline, and the Australian Government, in both the technology, healthcare, and consumer segments. Advising those brands on how they are using consumer insight, data, technology, and innovation to tackle these marketplace challenges. These are all best practice experiences I bring to the KMD boardroom to move our collective business forward. And so it's my job to help my clients all around the world and, of course, the KMD Brands portfolio, to navigate these modern business challenges and most importantly, turn them into opportunities. Prior to Enero, I was the vice president and chief executive of Nike multibillion-dollar European business based in Amsterdam, in the Netherlands, amongst other senior leadership roles across an 18-year career with Nike Inc. in Asia Pacific, North America, and Europe.
All of this experience and exposure equips me with a deep breadth of global expertise across different countries, brands, and functional skills that I believe have never been more important to the challenges and opportunities before us within the KMD Brands portfolio. I care deeply about this company and invested in its mission because KMD cares, and that's what I love about what this business stands for and our stance on doing better for everyone. I look forward to helping bring that vision to life. I remain committed to play a key role in helping KMD navigate and excel in the many and varied challenges 2024 and beyond will throw at us, and I hope you, our shareholders, will allow me to continue doing so. Thank you.
Thanks, Brent. Have we received any questions for discussion on the motion, Frances?
We have received a question from online from Barry Lindsay. Barry is interested to know if Mr. Scrimshaw intends to become a shareholder in KMD, having regard to the New Zealand Shareholders Association policy of asking why a director chooses not to own shares if in fact, none are owned.
Sure. Thank you. Thanks for the question. Yeah, I think it's certainly my belief that every individual has specific financial circumstances and specific financial investment strategy that determine where they invest their funds. So I can commit to the group that I will become a shareholder of KMD. There are certain personal reasons as to why I have not in the years gone by, but I'd like to offer my support in regards to that question and commit to that in the future.
Thank you. Are there any other questions, Frances?
None further from online-
Yeah.
But in the room?
In the room. Are there any questions in the room? Thank you.
... How long have you been a director with the company?
Six years.
That's an awful long time to take to buy some shares.
Yeah, as I mean, I'll repeat my answer. Every individual has their own personal financial circumstance, and so as I'm sure you'll appreciate, that I'm no different to that, so.
Are there any other questions? No. There being no further questions or discussion, I will now put the motion... That Brent Scrimshaw be re-elected as a director of the company. So please cast your votes now for resolution one, if you've not already done so. Please now select either for, against, or abstain for resolution one on the voting card. Thank you. Moving on to resolution two. I now move the following as an ordinary resolution, that Philip Bowman be re-elected as a director of the company. I now invite Philip to address the meeting.
David, thank you very much. Fellow shareholders, good morning. I'm Philip Bowman, and I first joined the KMD board in October 2017. I'm standing in front of you today to seek your support for my reappointment as one of your directors for a further three years. I accepted an invitation to join the KMD board, as I believed that the company was at a strategic crossroads. The Kathmandu brand was strong in Australia and New Zealand, but confined to this region, other than an unsuccessful and rather costly attempt to expand into the U.K. market. As a result, your company's revenue and profit was very seasonal. The challenge, to my mind, was simple in concept: develop the Kathmandu brand internationally and build a portfolio of brands, preferably with international exposure, that would broaden the customer offering and reduce the seasonality of the business.
The acquisitions of Oboz in April 2018 and Rip Curl in October 2019 have successfully delivered against the second strand of that strategy. The business is now less seasonal. We have significant exposure to international markets. Execution of the first strand of the strategy has, however, been slower. No one anticipated the disruption of COVID in 2020 and 2021, which impacted the supply chain and the lives and shopping habits of customers all over the world. While the pandemic was a catalyst for change, it inevitably delayed development plans for many businesses, KMD included. My career has been that of an international businessman in a wide range of industry sectors, living and working in Europe, the USA, Asia, Australia, and New Zealand.
I bring governance experience to the board, having been a director or chairman of many companies, whether listed, private, or private equity-owned. In terms of retail experience, I was executive chairman of Liberty of London, the iconic department store and fabric business, and subsequently, I was a director of Burberry during a fantastic 16-year journey after it was de-merged from Great Universal Stores. Today, I'm chairman of Dubai-based Majid Al Futtaim Properties. Majid Al Futtaim is a diverse conglomerate. We build, own, and operate in shopping malls all across the Middle East. Sister companies represent major brands, for example, Lululemon, across the region, as well as owning and operating the Carrefour supermarket brand across the region and into Africa. This role gives me a very privileged insight into changing brand and retail trends.
The fees that I've received as a director since appointment, less the inevitable tithe claimed by the IRD, have all been reinvested in Kathmandu shares. As of today, the investment experience has not been the happiest, with the value of my shares underwater compared with the acquisition price. As we know, this is a tough time, with high interest rates depressing consumer spending. Market sentiment is also negative on small cap stocks, and particularly those in the retail sector. That said, I believe in KMD, our brands, our team, the strategy we are following. I, like all my board colleagues, are motivated and determined to see investors better rewarded for their commitment to this company. Thank you for the opportunity that you provided by supporting my appointment to the board at two previous meetings. I now seek your support for re-election for a further and final three-year term.
Thank you very much.
Thanks, Philip. Have we received any questions for discussion on this motion?
We have received a couple of questions online from Stephen Mayne. I'm going to combine them. The comment to Philip: Congratulations on fighting the Yannon scandal at Coles Myer. Stephen mentions just criticizing the Solomon Lew board candidate at Myer yesterday on the topic. He asks a couple of questions. "Mr. Bowman, are you planning to serve a full three-year term at KMD? How much of your time is spent in New Zealand? And apart from Coles Myer, why hasn't Mr. Bowman ever served on a public company board based in Australia? Was he penalized by the Australian Directors Club for being that brave whistleblower who brought the Yannon scandal to light when serving as the finance director of Coles Myer in the mid-1990s?
Well, um-
A lot to unpack.
Quite, quite a topical list of questions, I would have to say. Coles Myer and Yannon was a very long time ago, and it's somewhat strange to be reminded of it today. I think in terms of the amount of time I spend working on Kathmandu and the amount of time I spend in New Zealand, I mean, these things vary, but I still have other business interests in New Zealand, so I tend to come to New Zealand at least four or maybe more times a year. And when I come here, I stay for a variety of time. Sometimes I only come for a couple of days, sometimes I come for a couple of weeks, from that perspective.
I think one thing, and as I've said at this, at the Sky ASM earlier this week, boards have become much more effective working virtually than they were pre-COVID. The COVID experience taught us a lot in terms of how we could do that. And therefore, I think candidly, what companies need is the best slate of directors on the board with the most relevant experience. And location of where they're based, I don't think is quite as important, certainly as it was, say, 20 years ago.
In terms of why I've never been on a public company board in Australia, I suppose after the saga with Coles Myer, I was offered a chief executive role in a company based in the U.K., and that was followed with two other chief executive roles based outside Australia or based outside New Zealand. So from that perspective, that took up pretty much all of my business career. And as I think people know, I'm currently living in Dubai. The reason for that was not only the fact that I'm Chairman of Majid Al Futtaim Properties and also on the board of some of the sister companies, but the founder of that business sadly passed at the end of 2021, and I've been much more involved in the succession to the new shareholders.
But that, you know, is a saga that will come to an end over the next year or so. But, thank you for the comments, and I hope I've answered your question.
Thank you, Philip. Are there any other questions online?
No, no further questions online.
Okay, we'll take questions in the room. Thank you.
Coralie Anne Camp, shareholder. Mr. Bowman, as Mr. Bowman mentioned, the Sky AGM the other day, I have to point out that under his stewardship there, our shareholding has been decimated in value with the cancellation of shares, and he might have lost money in KMD, but I bet it isn't anywhere as much as I've lost in Sky under your stewardship. So sorry, I have to vote against you, and I think you've got a lot of other things that you are involved in, and I don't know how you've really got time to do the job that you do here.
Okay. Well, I can say unequivocally that Philip manages his time excellently, and contributes significantly to the board. I have no concerns with Philip's ability to contribute to the board, given his other commitments. Are there any other questions in the room? There being no further discussion, I will now put the motion. Please cast your votes for resolution two, if you've not already done so. Please now select either for, against, or abstain for resolution two on your voting card. Just let everyone do that. Jolly good. Thank you. We now move on to resolution three. I now move the following as an ordinary resolution that Zion Armstrong be elected as a director of the company, and I now invite Zion to address the meeting.
Thank you, David, and good morning, everyone. I'm going to take a slightly different tack, given it's the first time I've been in front of our shareholders. So first and foremost, I grew up just behind us, across the Waitemata, water behind us there in Massey, West Auckland, and I've been offshore for the last 20-odd years. I'm just delighted to be home and have this wonderful opportunity to work with these Pacific iconic brands. By way of background, I was actually a track and field athlete. I represented New Zealand at the World Juniors and Commonwealth Games, and at the same time started unpacking shoes in a warehouse in Onehunga, and that was the start of my sporting goods industry over 30 years ago.
I was then lucky enough to have an opportunity in Germany to work at Adidas headquarters, where I spent some time in the European and global headquarters. I was then relocated to Hong Kong, looking after the Asia Pacific region for five years, then to South Korea, where I became the president of the Adidas Group in South Korea. Phenomenal time in Asia. Loved my time learning about the many different cultures there. And then I received a phone call to move to the United States. I was originally in charge of resetting the brand, and I'll, I'll, I'll flick between accents now. I'll say Adidas North America was going up against the powerhouse of the Nikes of the world, of the American brands, and we were struggling... so it was a very, very challenging environment.
This went gray very quickly, and I lost my hair. But we managed to reset the brand, and Adidas became the fastest growing brand in the most difficult market in the world, in my view. We went from $2 billion to $6 billion of revenues, from a loss-making entity to one of the most profitable markets in the world. Reason why I came home, I'd actually signed a three-year extension to stay with the group. But my children were stuck in New Zealand when the borders got closed. So I actually did isolation five times. So I've probably got the most horrible claim in New Zealand to spend a lot of time in isolation. But family comes first, and, and that's why I came home. My little ones became accustomed to living in New Zealand.
They were born offshore, so I was delighted to start raising my kiddos back here. So I took a year off and then had the phone call from David to have this opportunity. And the reason why I jumped it is, A, amazing brands. B, it's in the Pacific. And C, what the company stands for in terms of sustainability, and ESG really caught my attention. So I was lucky enough to join just under a year ago. Similar to bring extensive experience all around the world with major sporting goods brands. Standing here today to ask for your support, and I'm certainly committed to help take this company to the next level. Thank you very much.
Thank you, Zion. Have we received any questions for discussion, Frances?
We have received one question from Barry Lindsay, who would like to direct the same question he asked of Mr. Scrimshaw. Does Mr. Armstrong intend to become a shareholder in KMD? That's in relation to the New Zealand Shareholders Association policy of asking on this point.
Yes. Unfortunately, my renovation since coming home went way over budget, so that's the facts. Why I haven't invested, invested at this stage, but I can confirm I will become a shareholder in the very near future.
Thank you. Are there any other questions in the room? No. There being no further discussion, I will now put the motion. Please cast your votes for resolution three, if you've not already done so. Please now select either for, against, or abstain for resolution three on the voting card. Thank you. The fourth resolution on the agenda today relates to the fixing the remuneration of the company's auditor for the 2024 financial year. I move the following as an ordinary resolution, that the board be authorized to fix the remuneration of the company's auditor for the ensuing year. Have we received any questions or discussion on this motion?
We have received a question from Stephen Main. His question mentions that there is no resolution every year for Australian-based companies to appoint an auditor. Does the auditor and chair agree that this is a pointless exercise unless the auditor is being changed? I'd note the resolution is in relation to setting the remuneration, not the appointment of the auditor. A further question, why don't we instead move to annual elections of all directors, like in the U.K. and the U.S.?
Well, I'm not gonna try to answer the final question because it's not for me to determine what the corporations law and listing laws should be in Australia and New Zealand. But as far as the first question is concerned, I think it's always opportunity to give shareholders an opportunity to vote on matters concerning the company, particularly in this case, the remuneration of auditors. So, the board remains supportive of giving shareholders that opportunity each year. Are there any other questions on this? Yes.
How often do you change your auditor?
There's no particular rule or set time. Annie, is there?
We went through an RFP process, and we recently changed to KPMG. So, the KPMG, this is the first full year audit they've completed, so.
In terms of how often we would look at it, every-
I'm not sure I can answer that. Every five years or so-
Yeah, that's about-
I think.
Yeah.
Consistent with this practice would be our-
Of course, every year we are, you know, very focused on making sure we're getting the quality that we're looking for and, and our shareholders can be very confident in the auditor, which of course, has, has been the case this year. Any other questions? No. I will then. If there are no other questions, I will now put the motion. Please cast your votes for resolution four, if you've not already done so. Very good. The fifth and final resolution on the agenda today relates to the amendment of the constitution of the company. I move the following as a special resolution, that the company amend and replace its existing constitution in the form and manner described in explanatory notes with immediate effect. Have we received any questions on this, Frances?
We've received one question from Stephen Main. Stephen mentions that KMD is one of the only public companies that has lodged a full transcript of its AGM with the ASX, which Stephen says, "Well done." I note that we lodge a webcast rather than the full transcript. He asks whether this will be done again this year so shareholders can access a full copy of the debate on all items, including the proposed amendment to the Constitution. And I would answer that certainly, we will make the webcast available again.
Yep. Thank you... Are there any other questions on Resolution five? Yes, please. Just behind you is the-
Yes, Edward Stranahan. I'm a shareholder in the company. I think it would come under the heading of the constitution. That's the question as far as quorum is concerned. What is the number that's required as a quorum for the meeting?
For the board or for the shareholders meeting?
No, for the shareholders meeting.
I think it's three, is it? Or two. Three.
It's-
I'm reliably informed from, our lawyer in the front row that it's three.
Is that in person, or does that include online?
I would imagine it, that includes online. Rachel?
Well, I'd like to know definitively on this.
Well-
Could someone check?
I think Rachel said she's... Her fingers are flying. We're going to find out very soon.
We'll wait for them to stop flying then.
We certainly have a quorum today, obviously, so.
How many have we got here today? Shareholders.
Well, yeah, I'm gonna have to make an estimate, but it looks like 25 or something like that.
Wouldn't Link be able to tell you? We're all registered.
Yeah, I think we can find out if you really do want to know exactly.
19. 19.
19?
90 .
90. Oh, online as well. Sorry, I forgot about online. 90. That's a good, that's a good turnout.
That's online as well as here, obviously.
Yes, that is online.
How many in person?
Okay. Would anyone put their hand up? No.
20.
20.
20. We've got exactly 20. Yeah. Is that okay?
Do you have-
Yes, I'm just waiting for the,
Okay.
a definitive answer from here.
It'd be interesting to know what, if there's anything that lies behind the question. Is there-
Well, I assume it comes under the constitution. I wondered whether in actual fact that might be part of a change to the constitution, or whether it should be a change to the constitution. Because if the quorum is only three, that seems to be pretty small for a large public company.
Yeah, I think we... Well, that's, I mean-
That's what, that's what's behind the question.
Other public companies, that is, that is consistent with, I'm not sure exactly what the law, presumably corporations law. So it's, it's consistent across the board. It is what it is. I agree with you, it does seem quite a small number, but it is what it is in the, in the legislation.
Can you come back in a week?
Can we come back in a week?
Well, I mean, it's so flippant, unbelievable to bring that up.
I don't think it's flippant.
Okay. All right. We've actually,
Because I'm in a challenging state.
I don't think we need to debate amongst shareholders. That's probably unhelpful, but I think that we've dealt with that question now. There's clearly a quorum today, and we're considering a matter to do with the constitution.
What's the answer?
The answer is that three shareholders present and entitled to vote constitutes a quorum, and that quorum can be met in person or online.
Okay, thank you.
Thank you.
So we're actually gonna say that's the end of your question. Thank you. So we'll just grab the lady just behind you. Thanks. Great. Any other questions?
Another question, another question from Stephen Main: When disclosing the outcome of voting on all resolutions today, including the constitution amendment, could you please advise the ASX, which we would also advise the NZX, how many shareholders voted for and against each item? I confirm we will release the results to the market after the meeting.
Thanks, Frances. Right. If there are no other questions or no other discussion, I will now put the motion. Please cast your votes now for Resolution five. If you've not already done so, please now select either for, against, or abstain for Resolution five on the voting card.
There's no discussion on... Were we discussing Resolution five then?
Yes, we were, yeah.
Oh, okay.
Okay, that's good. We're about to have a more general discussion.
Yes.
Okay, great. Shareholders should ensure they have now submitted their votes for all five of the resolutions set out in the notice of meeting today. Voting cards will be collected by our registry, Link Market Services, who will now move to the room to collect your voting cards. For those shareholders online, you can now submit your vote. Voting will be open until the close of the meeting. Once voting is closed, Link Market Services will tally the votes. The results will be announced to the NZX and ASX once counting has been completed. Thank you. I'll make sure I put mine in later. I would now like to give shareholders an opportunity to ask questions concerning any matters addressed at this meeting or of a more general nature concerning the company.
Anybody who now wishes to ask any further questions, please ask your questions, using the Ask a Question button if you're online. If we run short of time and are unable to answer your question online today, we will endeavor to respond to you after the meeting. Have we received any online questions to begin with?
We have two so far. So the first question asked by Ti Chong: In the wake of the CFO's upcoming departure, is the management still committed to delivering a cumulative free cash flow of circa AUD 300 million over three financial years from FY 2024 to FY 2026, as laid out in the May 2023 Investor Day presentation?
Okay. I would- I'm always loath to say yes or no to numbers until I've been able to verify those numbers myself. But I'm not sure, Michael or Chris, whether you're comfortable. It's hard to know until we would see the numbers.
Chris Kinraid, Group CFO. We obviously gave that number out as part of our Investor Day presentation. It was approximately 300, not an exact number. You know, we're committed to driving a strong operating cash flow, FY 2024, our immediate year, with our working capital targets, as Michael alluded to in his presentation earlier. Of course, these targets are entirely dependent on our trading performance for the next three years. But internally, we remain steadfastly focused on delivering a strong cash flow generation over that period. So, that was guidance that we gave in terms of an approximate target, which we're driving towards.
Thank you, Chris. Any other online questions?
A further question from Ti Chong. Compared to pre-COVID levels, Kathmandu's sales are still down 11%, and its EBIT margin has collapsed to 7.9% from 15.8%. In comparison, a competitor, Macpac sales, have gone up by 56%, and its profit margin has improved by more than four percentage points. Can you please share your thoughts on the disparity in performance? Also, what are you doing about it with respect to taking costs out of the business, as well as restoring profitability and sales to previous peaks and beyond?
Michael?
Yeah, thanks for the question. In terms of Macpac, they've, they had a very aggressive store rollout expansion program over the last couple of years. They've significantly increased their number of stores across Australia and New Zealand. And that is certainly driving a lot of their underlying sales growth. We should obviously look at the overall total sales of Kathmandu versus Macpac as well, and we still maintain a fairly dominant position in terms of market share. In terms of our underlying EBITDA, we've certainly had our challenges through the pandemic. You know, having our stores closed in peak trade has been challenging. We saw a dramatic uplift in our sales last winter on the back of some favorable weather and some favorable economic conditions, and certainly this winter was a lot more challenging.
We've been working on the cost base and margin, and obviously, put in a new CEO, as part of a transition to really not only recover to our previous levels for Kathmandu, but we really want to build a global brand with Kathmandu, and that is our aim as a corporation, as a company, I should say. And looking forward to fulfilling those goals of building an international business for Kathmandu.
Thank you. Any other questions online?
We have a further online question from Stephen Main, asking about whether any of the five main proxy advisors, so that's ACSI, Ownership Matters, Glass Lewis, ISS, and NZSA, recommended a vote against any of today's resolutions. If so, what reasons did they give? Which of the proxy advisors are covering us, and please describe the engagement we had with them before today's meeting. Thank you for disclosing the proxies before the meeting, along with the formal addresses. Why were there double-digit votes in protest against Brent and Philip? I would note, we've engaged with Glass Lewis and New Zealand Shareholders Association in those. Both recommended in favor of all resolutions. And I'll hand over to you, David, to respond to the rest.
Okay. So that deals with the questions from proxy advisors and who we deal with. In terms of the votes against Philip and Brent, you know, relatively minor in the scheme of things. Well, it's still well into the 90s% for votes. And I know I can't speak for other people, why they cast their votes in whatever way they do, so I won't, I won't attempt to do so.
That's all the questions online for now.
Okay, great. Well, let's come to questions in the room. Do we have questions in the room? Yes.
What percentage of sales-
Could you just give your name? Sorry, could you just give your name, please?
Michael Bowden from Waterloo.
Hi, Michael.
Hi. What percentage of sales are online sales? Is that growing? And is it kind of reducing the seasonality issues that you have with, you know, being dependent on winters, winter sales and Christmas sales?
Yeah, in terms of the first one, our online penetration and sales has been growing progressively, obviously, through the pandemic. In terms of the FY 2023 year, it came back a little bit, just because we had a lot of people getting back into stores. But we're certainly settled at a level of sales which is higher than what we were pre-pandemic, and we're sort of in that mid-teen range as an overall business. Some of our brands are higher than that, and some of our brands are lower than that. In terms of the seasonality, look, I wouldn't say it necessarily addresses the seasonality as such. People are choosing to shop online or in store, depending on their preference.
Certainly, our aim is to give them a good service and a good experience however they choose to shop, whether that be through other marketplaces, through our own online channels or in-store. And our aim is to make sure that we please our customers in all of those channels.
... Thank you. Any other questions in the room?
Yes, Edward Stranahan again. Several questions I've got here. There's one item that's actually in the profit accounts that is talking about the foreign currency translation effect. Last year, that was a very significant item, like about AUD 36 million. This year it's about AUD 3 million. What exactly is it that is being measured there?
I'll pass you to Chris Kinraid, the CFO.
Thank you for that. I mean, it's basically just a retranslation of your equity of foreign subsidiaries. So and it's also in the statement of equity effectively. So it's not a pure profit number per se. It's actually just an ongoing translation of the equity of those businesses. So it's a non-cash retranslated every year, depending on where the U.S., Aussie dollar, for all the foreign currencies which we operate under.
So another way to describe that quickly is we made a fixed purchase at a fixed overseas exchange rate number, and obviously the exchange rate between, say, it was U.S. dollars, goes up and down, and we have to allow for that when we state the value of it each year.
Another question here was relating to the finance costs. Last year they were about AUD 13 million, this year they are about AUD 24 million. There was a reference made about high interest rates that we've got here. I don't think we've got high interest rates. We've got higher interest rates, but, that is, I think, coming back to a realistic level. What I would call high interest rates, which I've seen in my lifetime, is 19%-20%.
Yep, can't disagree with you. Have seen the same things, but clearly, the higher interest cost does relate to the higher interest rates. There's nothing else that would contribute, Chris?
Well, for a minute, included within that interest number is a notional kind of interest with the lease accounting of IFRS 15 lease accounting. So, that's to remind yourself, it's not purely all finance costs related to debt in that number.
Thank you.
Thank you.
I'll just make one final point here. We've heard lots of references during the addresses and so on here about looking after the customers. It doesn't seem you're looking after the shareholders very well. I mean, just this year alone, what we've seen, a drop in share value of about 20%. If we look over a longer period, it's been a longer drop. You're sort of pretty miserable in what you hand out to shareholders. We get a dividend, and that's about the lot. Not even a nice ballpoint pen to use when we come here.
Okay, well, we'll think about the ballpoint pens, but I think you'll find that our dividend payout ratio is competitive with a range of other companies. We paid AUD 42.7 million in dividends last year to shareholders. But we absolutely accept and feel your pain also on the share price. Share price has traded down in difficult trading circumstances with uncertainty in the world, and, you know, depressed or suppressed consumer demand. Consumers are watching their pockets a lot more, and interest rates have risen, of course, which chews up household budgets via mortgage payments in particular. So it is a challenging time.
Yes, it is a challenging time. We have got other companies and so on who are taking this on board and deciding, well, they need to get it, give a bit more encouragement to shareholders and so on like this. I mean, end of this month, we've got Goodman Property, for instance. They've arranged a shareholder day there, with a bus tour around their site, and so on like this. So they are seeking to create more goodwill among shareholders. And I think the goodwill among shareholders is the thing that you're missing and not even, perhaps even addressing enough.
Okay, well, that's a, that's a good suggestion. Thank you. We'll, we'll take that on board and think about it. Are there other questions? Hello, in the... Over here, just on the right.
Shareholders.
Only shareholders, okay. Thank you. All right, that seems that we've come to the end of the questions. So there being no further questions, we'll now conclude the meeting. Thank you all for attending today, whether online or here with us in person. We appreciate your continued support and attendance today, and I now declare the meeting closed. Thank you.