Earnings Call: H2 2021

Sep 20, 2021

Good day, ladies and gentlemen, and welcome to the Gertmange Holdings Limited Full Year 2021 Results Release. Kindly be reminded that there will be no rep questions taken. Only audio questions will be taken for today. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Daley. Please go ahead. Great. Thank you. Good morning, everyone, and thank you for joining us on today's presentation of the Kathmandu Holdings results for the full financial year of 2021. My name is Michael Daley, and I'm the CEO of the group. I'm joined on the call by Chris Kingraves, our Chief Financial Officer. We'll be talking to the presentation lodged on the NZX and ASX this morning. Unless otherwise specified, all financial numbers are in New Zealand dollars. We'll begin on Slide 2, which briefly outlines the strength of our 3 iconic outdoor active brands. In short, Rip Curl is among the top 3 global surf brands. Kathmandu is the leading outdoor brand in Australasia and Oboz is a fast growing North American footwear brand for hiking. We are highly engaged with our loyal and active consumer base, achieving a net promoter score that exceeds 70. We have 2,100,000 active Summit Club members and 44,000 Rip Curl Search GPS Watch users. One of our key strengths is the development of purpose built technical products. Research and development drives our innovation and we are focused on using sustainable materials. A leader in sustainability and ESG, Kathmandu was an early B Corp adopter and we are working towards extending B Corp accreditation across all of our brands. This year, we also committed to the largest syndicated sustainability linked loan in New Zealand. Lastly, we have built a diversified business with global reach. We're employing a multichannel approach to appeal to a wide range of customer buying preferences and having both the winter and summer focus, we appeal to customers across seasons. On to Slide 3, our brands have extensive global reach with over 3,000 wholesale doors in North America, over 2,000 in Europe, nearly 1,000 in each of Asia and South America, 23 in Africa and the Middle East and over 1,000 in Australia and New Zealand. There are substantial opportunities to leverage the wholesale networks of each brand to expand our sales reach. Turning to Slide 4, I'd like to discuss in more detail the group's 2021 financial year highlights. Total group sales were $922,800,000 and were up 15.1% on the prior year. And pleasingly, our underlying EBITDA was up 35.9 percent to $113,300,000 underpinned by a gross margin improvement of 40 basis points. Underlying net profit after tax the financial year was $66,300,000 and we delivered strong underlying operating cash flow of $93,300,000 We ended the period with a strong net cash balance of $37,000,000 Moving to Slide 5, I want to touch on some of the key operational highlights during the year. Ripkel delivered strong direct to consumer sales same store sales growth of 19.2% with online sales growing by 31.3%. Online growth was underpinned by changing consumer preferences brought about by the COVID-nineteen lockdown periods. We successfully relaunched Kathmandu's new brand platform in May, reminding people that being outside changes us and as human beings we are hardwired to be outside. The relaunch was very well received and pleasingly Kathmandu achieved an exceptionally high net promoter score of 76. Ivo successfully launched their online store in April and the wholesale business is well positioned with double digit growth in forward orders. Moving on to Slide 6, sustainability is at the core of each of our brands and I'd like to highlight some notable achievements. In conjunctions with our key stakeholders, we completed an ESG materiality assessment and we committed to the largest sustainability linked loan in New Zealand. Rupel launched the wet suit take back program with Terracycle and the business sources a sustainable cotton in line with the better cotton initiative. These are important sustainability initiatives for the brand. The Kathmandu brand meets the highest standards of environmental and social performance as certified by its B Corp status. We've also upped our efforts to limit climate change by offsetting our missions to climb carbon neutrality. For OBOs, over 4,000,000 trees have been planted since the company's inception with the company planting a tree for every pair of footwear sold and Oboz have 95% environmentally preferred leather materials in the product range. Moving to our Fresh Group strategy on Slide 8, we have been building a portfolio of global brands and aim to further expand our global footprint as we invest in world class brands and customer experiences. We will elevate our digital capabilities by investing in group digital platforms to deliver a world class unified commerce experience. We will also leverage and deliver operational excellence to all of our brands across shared group support functions. Finally, we will continue to demonstrate leadership across environmental, social and governance to drive long term value for our shareholders. Given the uncertainties associated with COVID-nineteen, it it is important for us to maintain balance sheet flexibility allowing for capital return options and the capacity for future M and A. On to Slide 9, our strategy focuses on building global brands. Our goal is for Rip Curls to be the number 1 surf brand in Australasia and the top 3 brand in North America and Europe. We will be building Ripcao's North American presence and see the potential to double the North American business across our own stores, online and wholesale channels. Kathmandu is the leading outdoor brand in Australasia with 2,100,000 loyal and engaged Summit Club members, which we aim to further leverage. There is significant market opportunity to expand into Europe and North America. And we aim to launch in both Canada and Europe during FY 'twenty two. We have an attractive new product pipeline, which includes an enhanced summer product offering. OBOs is undergoing the expansion of its product range into adjacent footwear categories, and we aim to grow OVOs into a U. S. $100,000,000 business in the medium term with growth opportunities in the recently launched online store and further expansion of the business in Canada and also Europe in time. In Slide 10, with the current COVID situation accelerating and move to online sales, significant investments have been made to elevate our digital capabilities. Our goal is to increase group online staff to 25% of direct to consumer sales in the medium term by enhancing our digital capability. With this goal in mind, a new group online platform is being rolled out across our brands. We're also making further enhancements to our omni channel foundations including making point of sale upgrades to support unified commerce and click and collect functions for contactless purchases. We're investing in our loyalty programs including the launch of our Club Rip Curl program in the coming year to leverage our strong consumer following. Furthermore, pricing and promotions are being enhanced based on data algorithms and we've developed personalized consumer content to encourage digital purchases. Moving on to Slide 11, we aim to leverage the collective operational excellence of our brands, having a target of improving our underlying EBITDA margin to 15 percent of sales. We also plan to accelerate cross brand revenue growth opportunities. The group has invested over $20,000,000 to date on core platforms to support the growth of our brands and over $10,000,000 will be invested in FY 'twenty two. Investments will be made to optimize our supply chain, efficiently manage our fixed cost base, collaborate on product innovation between brands and to enhance core systems to unlock growth potential across loyalty programs and online. Moving to Slide 12, being a leader in ESG will drive long term value for shareholders. We are working to extend Kathmandu's B Corp accreditation across all of our brands. Transparency and responsibility will continue to underpin everything that we do as we manage our environmental and social impact responsibly and ethically. We are highly engaged with our people and our communities and our ESG strategy starts with the well-being of workers in our supply chain. We are setting science based targets that align with the Paris Climate Agreement and our Circular business models target a 0 waste supply chain. I'll now hand over to Chris to cover the financial slides. Thanks, Michael. Our statutory results include the adoption of International Financial Reporting Standard 16. For comparability, the impact of IFRS 16 has been excluded from our underlying results. The full year of FY 2021 includes a full 12 months of Rip Curl while FY 2020 only included 9 post acquisition. As you can see, we have delivered growth across all key financial metrics underpinned by exceptional sales performance in both Rip Curl and OBOs. Total sales increased 15.1 percent to $922,800,000 while underlying EBITDA increased 35.9 percent to 113,300,000 dollars We continue to carefully manage operating expenses given the current operating environment. Our results include the benefit of $7,300,000 from rent abatements agreed with landlords and the $15,000,000 annualized restructuring and synergy synergy savings implemented during the onset of COVID pandemic last year. Lease renewals completed 14% of the store portfolio, which delivered $1,400,000 in annualized savings. The result also included a COVID related write down of Indonesian receivables of $2,700,000 and net wage subsidies across Australia and New Zealand of $16,600,000 Depreciation included $5,000,000 in notional amortization of Rip Curl customer relationships. Included in interest costs were the $2,100,000 write down of underwriting costs and related to the Rip Curl acquisition, these have been excluded from our underlying results. A future tax benefit of $7,000,000 was also recognized from the recognition of historical U. S. Tax losses. Moving to slide 15, we delivered strong sales of $922,800,000 underpinned by 12 months of Ripco ownership. While online sales moderated following 63% growth in FY 2020, they have grown at a strong CAGR of 21.9% since FY 2017 and now comprise 14.4% of total direct to consumer sales. Our sales mix is diversifying across brand, channel and region. Brookhill recorded strong online sales growth of 31.3% while Kathmandu online sales normalized from a COVID surge in FY 2020 to now make up 15.8% of direct to consumer sales of the brand. Given strategic investments made, we expect to achieve robust growth in online sales from both Rip Kill and Kathmandu over the medium term. Moving to our balance sheet on Slide 16, we're in a very strong position. We have significant balance sheet headroom with $37,000,000 net cash at year end and our current debt facility of circa $300,000,000 Our long term leverage ratio target is 0.5 times net debt to EBITDA. We've managed our inventory carefully during lockdown periods and we'll continue to do so in FY 2022. Our strong balance sheet position allows the group to ride through any short term COVID related challenges while supporting growth investments and providing room to pursue further M and A opportunities and flexibility for future capital management options. Moving to Slide 17, we delivered strong operating cash flows of $93,300,000 despite challenging conditions. Moving forward, capital expenditure for FY 2022 is expected to be around $35,000,000 which will support our continued investment in systems, capabilities and ongoing brand development. As a result of the strong performance across the group, we have resumed paying dividends following a suspension during FY 2020. Our directors declaring dividends totaling $0.05 per share for the full year including a final dividend of $0.03 per share. This will be fully franked for Australian shareholders however not intruded for New Zealand shareholders. I'll now talk through the segment results and performance of each of our brands. On to Slide 19 for Rip Curl, we can see the P and L contribution for the 12 months in FY 2021 compared to 9 months in FY 2020. Total sales were 10.5% above last year with continuing with sales continuing above pre COVID levels in the key regions of North America and Europe during the northern hemisphere summer season. Direct to consumer same store sales grew strongly at 19.2% for the 12 months ended 31 July. Sales for our online channel grew strongly to $33,500,000 and now comprise 12.5 percent of direct to consumer sales. Over the past 4 years, online sales have grown at a CAGR of 44.4%. Wholesale sales were 9.6% above the previous year. Despite a COVID disrupted sell in in the first half, order books are now significantly above pre COVID-nineteen levels, reflecting strong category performance. Sales are back to pre COVID levels, even though stores in airports, Australia, Hawaii, Asia and parts of Europe continue to be affected in FY 2021. Gross margins have increased as direct to consumer sales are increasing as a proportion of total sales. The next two slides focus on Rip Curl product and brand marketing initiatives. As shown on Slide 20, a key tenant of Rip Curl in all our brands is our technical excellence and innovation, which which allows us to provide the best possible products for our customers. The icons of surf collection is a selection of the most iconic logos in the industry. These products blend timeless design and bold graphics to create one of the strongest volume driving collections in surf. The Mirage Ultimate is the most unique and innovative swimwear and surf, tested by the world's best. The line includes premium Italian Lycra to offer support and flexibility with water repellent glide neoprene panels providing comfort compression and wind chill reduction. The Surf series includes technical surface fire products. These products are engineered with wetdry surf functionality and hydrophobic materials. Slide 21 covers Rip Curl's key marketing initiatives. The Rip Curl World Surf League title was decided last week for the first time in an exciting one day format, which included the top 5 men and women in surfing and featured both Olympic gold medalists from the Tokyo Olympic Games. The medal the men's title was taken out by Rip Curl athlete Gabriel Medina and the event was a great opportunity for us to host our key customer accounts and showcase the Rip Curl brand in a key growth market. In terms of bringing innovation to the market, the new E7 wet suit combines our latest stretch and warranty technologies will be launched by Mick Fanning and Molly Picklem. The launch is taking place this month and will cover digital, outdoor, retail and broadcast channels in Northern Hemisphere. Now on to Kathmandu. Slide 23 shows the underlying P and L of FY 'twenty one on a pre IFRS 'sixteen basis. COVID-nineteen lockdowns and travel restrictions impacted Kathmandu Financials with total sales declining 17%. In Australia, sales were 18% below last year with 4,700 trading days lost in FY 2021. In New Zealand, total sales were 14% below last year with 400 trading day loss compared to 2,450 in FY 2020. Online sales of $56,800,000 represented 15.8% of D2C sales and have grown at 14.3% CAGR over the last 4 years. Same store sales were 18.2% below last year. Strong winter launch momentum in conjunction with the Cantabou brand relaunch prior to the Australian lockdown resulted in the second half insulation growth compared to the pre COVID period in the second half of FY twenty nineteen despite significant store closures. Gross margin improved in the second half by 2.40 basis points. Improvement in operating expenses included the benefits from restructuring, rent abayments and net wage systems. Kathmandu's inventory is well controlled and ended the year in line with the expectations. Turning to slide 24, we are building a strong meaningful and differentiated brand with strong brand awareness in Australasia where we dominate the category. Kathmandu launched its new brand positioning during the winter this year to improve the well-being of the world through the outdoors, celebrating being out there in nature in a fun spontaneous and inclusive way. Our customer base is active and highly engaged with a net promoter score of 76, 4 points above the level last year. We have 2,100,000 active SunCom members and these members are responsible for over 70% of total Kathmandu sales and they spend approximately 30% more per transaction than non members. We're setting the foundations for Kathmandu brand growth. An integrated brand campaign we launched in May 2021 which generated 30,000,000 views. We have re launched our website, improved the user experience and we are planning to re launch the Summit Club during the first half of FY 'twenty two. We continue to lead in product innovation. Slide 25 shows how we are aiming to establish year round relevance and excitement, focusing on the 8 months of transitional weather. Our aim is to ultimately become in summer what we are in winter. Furthermore, we are broadening our customer appeal to reach a younger, more cosmopolitan consumer. Example is the new Mulga Summer range designed with playful characters and colors in collaboration with Sydney based artist Mulga. The new Sunstopper range launching in stores now is an example of a new product focus combining technical innovation while capitalizing on the summer opportunity. The range combines serious chemical free UPF 50 plus sun protection with fun colors and easy wearing silhouettes. Moving on to OVO's Slide 27, and it shows a strong financial performance in FY 2021. Sales grew 44.9% on a constant currency basis to reach 78,400,000 dollars The result was driven by a successful product innovation strategy and a strong recovery following the COVID lockdown period. Gross margin was impacted by 1 off airfreight costs of 1,500,000 to support key customer deliveries of winter seasonal styles in the first half, plus increased ocean freight costs due to supply chain congestion in the second half. We expect gross margins to normalize to historical levels when global supply chain congestions and related shipping rates return to normal. Pleasingly, our forward order book is at its highest level, which allows us to invest further to support future growth initiatives. Moving to Slide 28, OBO has been broadening the appeal of its product range since acquisition. With a series of strong product launches and robust brand activations underpinning continued strong growth. The recent launch of the new Ivo's online store also provides a significant growth sales growth potential. The brand experienced 20% growth in its social media audience during the second half and is currently involved in a number of exciting social initiatives. These include the Oboe's trial experience and the Oboe's first ever collaboration with the Black Folks Camp II initiative which launches this month. I'll now hand back to Michael to cover the outlook for the group. Thanks, Chris. Moving to Slide 30, COVID continues to impact the global business. Loss trading days in FY 2021 due to lockdown restrictions were around 13,000 compared to 15,000 in FY 2020. Continued lockdowns in New South Wales, Victoria, ACT and New Zealand will continue to impact our results during the first half of FY 'twenty two. Trade in airport locations in emerging countries such as Brazil, Indonesia and Thailand remain significantly impacted by COVID, while Northern Hemisphere retail stores are managing the staff constraints and sporadic closures as positive teen COVID results arise. COVID is also impacting our supply chain with reduced factory capacity stretching lead times, freight congestion leading to delivery delays and increased freight costs. As we continue to proactively manage the impacts of COVID daily, our main priority is to ensure the health and safety of our staff, our customers and our suppliers. On to slide 31, our key priorities for FY 2022 are to build global brands, elevate digital capabilities, leverage operational excellence and be a leader in ESG. To build our global brands, we will increase our investment in marketing sustainability initiatives. Importantly, we will be launching Kathmandu in Europe and Canada and we'll continue to launch innovative products to capitalize on growing participation rates in outdoors, beach and surfing activities. In relation to our digital capabilities, we'll be launching a loyalty program for Rip Curl initially in Australia and New Zealand and relaunching Kathmandu Summit Club. We will also implement unified commerce capabilities throughout ANZ and re platform our European online capabilities. We aim to increase the use of data insights, analysis and personalization to drive growth and to also expand our marketplace presence. In terms of driving operational excellence, we'll put a group executive structure in place to build out our group capabilities. We will align technical platforms across our brands initially in Australia and New Zealand. This will involve an investment of circa $10,000,000 in core systems capital expenditure in FY 2022. We are setting clear margin and expense targets to drive a permanent shift to 15% EBITDA margins as we emerge from the impacts of the COVID pandemic. Our key ESG priorities are to extend B Corp accreditation to all of our brands, set signs based ESG targets and implement the Rip Curl ESG strategy. Turning to our trading update on Slide 32, Rip Curl same store sales for the 1st 6 weeks on FY 2022 have declined 12.8% on an absolute basis. However, have increased 3.6% when adjusted for COVID lockdowns. Kathmandu same store sales have declined 19.9%, but are up 18.3% when adjusted for lockdowns. Online sales growth has been strong, up 25.9% across the group. Pleasingly Kathmandu has seen strong sales in regions less affected by COVID restrictions. COVID restrictions are impacting supplies in Asia and the group is actively managing supply chains to minimize impacts. The impact of freight costs and gross margin is expected to be offset by improved foreign exchange rates. Due to these ongoing COVID impacts, the first half FY twenty twenty two profit is expected to be below the first half of FY twenty twenty one. We are encouraged that both Rip Curl and Oboe's wholesale order books are significantly above pre COVID levels. In terms of the outlook, all of our brands are well positioned to capitalize on growing participation in outdoor beach and surfing activities. We are set to capitalize on opportunities resulting from the global COVID vaccination rollout as restrictions ease in key growth markets and international travel restrictions are expected to ease as FY 2022 progresses. This now concludes the formal part of today's presentation. I want to thank all of our shareholders for their support through this challenging year and for taking the time to join us on this call. I would now like to open the call for questions. Thank Good morning, guys. Andrew Steele from Jarden here. The first one for me Andrew. Hi, guys. The first one for me is just on the guidance. Obviously, current lockdown restrictions in Australia and New Zealand are key components of that. Can you just give a sense as to what your weekly loss run rate is in New Zealand and Victoria and New South Wales at this time of year? I'll pass to Chris for that one. Yes. I mean it will change in each month, Andrew. But in August is still a reasonable winter month for Kathmandu. But the circa run rate is between for the August period is between $8,000,000 $10,000,000 impact on EBITDA for that 1st month. It reduces a little bit for September, October, but that's the current run rate. So, also looking forward to all the stores opening up in due course. Great. Thanks. And just a little bit more detail on your launch in Europe and Canada. Could you sort of talk to the types of stores that you're going into, the numbers of stores and sort of any sort of expectation around revenue contribution at this stage? Yes, I'll take that one. It's obviously early days, Andrew, in terms of launching into Europe and Canada. The sell in period for the particular season we're aiming is in sort of November. So obviously being in mid September at the moment, we're sort of still in the initial planning phase, I guess, arranging samples and so forth. But certainly we've had various conversations with accounts and that includes everything from outdoor specialists to sports chains to online pure play retailers. And certainly from so far the conversations have been quite proactive and positive. It's hard to articulate in terms of how many accounts may very well look to buy into the range because as I said, we haven't actually sold it in and won't sell it until November. But certainly, as we've said before, if you look at the broader wholesale account base for Rib Curl, there's some 14% to 15% of our top 20 customers that stock both surf and outdoor. So in Europe in particular, a lot of the distribution is can it's at a volume distribution. They typically stock both all outdoor brands and that includes everything from surf right through to outdoor. So there's a lot of potential there as far as overall wholesale accounts, but it's a bit hard to articulate exactly how many accounts will buy into the range until we've actually had those detailed meetings. Great. Thank you. And just my last one. It seemed like a good result in terms of rent savings, the $1,400,000 I think it was. If you were to go through that process across your entire lease space, what would the annualized rent roll look like? What sort of saving would we be talking about? And is that a realistic or achievable outcome? I think yes, I mean in terms of overall savings, we don't expect that to I mean that was some of the negotiations last year and there were some good outcomes. We expect that probably normalized to some degree over the future negotiations. But so I don't expect I wouldn't roll it forward across the whole lease base and extrapolate that savings, Andrew. Okay. Great. Thank you. Thank you. We'll now take our next question from Bianca Fledores of UBS. Your line is open. Please go ahead. Yes, good morning guys. First question from me. So you mentioned that the impact of freight costs on gross margin is expected to be offset by improved foreign exchange rates. And just wondering sort of what about raw material costs? Do you still see pressure there? And how much of this can you push through to consumers? Yes. Look, we're definitely seeing freight costs, obviously, one component of the input costs, but we're just certainly seeing raw material prices increase as well. As you could appreciate, not necessarily across the broad, it's typically in certain areas. And to be quite honest, it's evolving on a daily and weekly basis. So look at this point in time, there's definitely I would say there's definitely some inflation in some areas of raw materials, fabrics and so forth. I think at this point in time, we're managing them quite well. We've got long term relationships with our suppliers, which puts us in a real for all of our brands. And as we've mentioned with the upside that we expect from foreign exchange, we're not too overly concerned on the overall impact of margins, but to be fair to say it's one that we are watching and managing on a daily basis. And that's my view today, but that could change quickly depending on what happens because obviously with the pandemic as we see in a regular basis things change very quickly. Okay. Yes, okay. Thanks. And then I guess second question on your inventory position at the moment. So yes, obviously, we see those global shipping issues. How are you sort of managing your inventory and purchasing for the future? And then I guess on the rebrand as well, how do you sort of expect the new Kathmandu products may impact your inventory as it's obviously a more colorful product? And therefore, I guess, possibly increased risk to managing the inventory, especially at the moment with lockdowns for example? Yes. So there's the 2 components to that. As far as our overall inventory, we're certainly seeing delays in the timeliness of delivery and depending on the reports in which products are coming out of and into and there's particular ports around the world that are quite congested. We're dealing with that by bringing forward buys and building into our buying timelines additional time to allow for those freight delays. We can't get it perfectly of course, but we feel we've made the adjustments to ensure that we have a free flow of inventory. And it's important to remember that 12 months ago we were in a very similar situation albeit different. Last 12 months ago, we were actively pulling back inventory and forward orders because of concerns of that pandemic. So we traded through the first half of last year with some challenging inventory positions and obviously we're going to be trading through the first half of this year with some interesting and challenging inventory positions. But we feel we've made the adjustments. There are some delays, but overall we're managing quite well. The one area that is well known globally where there's problems is footwear, footwear particularly out of Vietnam and other Southeast Asian countries. That's probably the category of most watch at this point in time and most under pressure and obviously Nike has been very open about those issues and I think most footwear brands have. In terms of the inventory risk with the reposition of the Kathmandu brand and products, look it's not something that we're overly concerned about the feedback that we've had from stores that are open at the moment with respect to the new colorful summer range has been extremely positive certainly on the Ripkaal side from which I'm from. Color has been a foundation of our business a long time and I'm an avid watcher of what's happening in North America and if you go into their stores at the moment they are very colorful. So I'm certainly confident that that color trend will continue here in Australia and I think we're going to be well placed with respect to our inventory and the Kathmandu side. Obviously, the lockdowns don't help. We will be accumulating some inventory in lockdowns, but we're just managing our forward inventory purchase to make sure we've managed that to deliver consistent inventory flows and reasonable levels of inventory. Yes. Okay, great. Very helpful. That's all for me. Thank you. Thank you. We'll now take our next question from Mark Waid of BLFA. Your line is open. Please go ahead. Good morning, Chris, Michael. Thanks for taking the questions. Hi, Mark. I'll continue on the relaunch the wear out there theme in the Kathmandu brand. I mean, how have you found it's gone? I mean, in terms of being able to measure it? What kind of customer apart from the 30,000,000 views, what kind of responses have you seen to the brand? And how have you been able to manage that? Yes. Well, it's obviously early days. The relaunch was only May and obviously some of the products associated with that relaunch are just landing in store as we speak for the spring summer. As I mentioned earlier, feedback overall has been quite positive from our teams and that's probably the best indicator that we have initially of the success of that launch. And so certainly the feedback from our teams both on the re launch and the product that is hitting stores now and is in stores now has been extremely positive. And certainly our net promoter scores that we measure in store with customer interactions have all been positive post that involvement. So and then on top of that, we manage and watch what's happening on social media. And again, all of the feedback we've received and the tracking of social measures and analysis are all positive. I think the numbers around about 95% positive sentiment on the rebrand positioning. So yes, we're very confident on that re position and I'm really excited by the pipeline of new products that we've got coming through. As part of that, we've really rebuilt both our marketing and product capabilities for the Kathmandu brand over the last 12 months and the new team is delivering some exciting things and we're looking forward to seeing how they work in store in the immediate future and through FY 2022. Yes. And Mark, there's also other points on I mean, we also saw that during the launch came to a trading quite strongly, especially in Australian markets in that winter launch and winter periods before sort of the lockdowns hit Melbourne and Sydney, so strong double digit growth. So, yes, we have some good sentiment and we saw that from the customer base. So, it gives us plenty of confidence going forward. Yes, exactly. Okay. Hope it goes well. And maybe one for Michael. I mean, what part of the strategy do you envisage will need to be tweaked? And what do you think will really stay largely the same under your health? Yes. So I mean the key focus areas I talked to are certainly the areas that I feel needs to be a major area of focus for us. I mentioned about building those global brands. Rip Curl, I guess is the closest to that and certainly at the back of Rip Curl's experience and Rip Curl's broader geographical spread, really excited by the opportunities that open for Kathmandu and Otho. So I guess that's probably where the biggest area of excitement for me is and probably the biggest area of change from where we were previously. We have talked about it, but really internally this is the first time that we've really pushed hard on it. So certainly from my point of view that's most exciting part. We have a lot of work to do on our digital capabilities in terms of building our platforms in a unified commerce experience. It's not a key strength that I would call out just yet, but certainly it's an area of major focus and major investment at the moment. And we certainly look to work through the FY 2022 year to look to our aim is to sort of be best in class in that space over that period. So major investment as we've outlined. And then in terms of the other areas in terms of ESG leadership and driving that operational excellence, I think there are 2 things that we've done well across our brands previously and there I guess a continuation of what we've done in the past with some minor tweaks. So yes, in terms of to answer your question, the 2 major changes have been really elevating that focus on our digital execution and then really a push towards making sure that all of our brands have global aspirations and really looking to do that in a smart, efficient and as much as possible low risk way. But with these things you need to make investments the future and that's what we're doing. And as we've stated in the announcements, investing in the brands most importantly is a major focus. Thank you. And lastly, the Kathmandu brand, you had online sales for 30%, a lot worse than the total brand down 17%. What were you I can't remember what you said you put that down to. So I think around was it just the fact when stores reopen? Yes. It's just the mix of yes, they keep. Yes. It's just the mix of yes, the mix of obviously a big COVID surge last year. So the percentage of sales that's normalized, but on a sort of a 2, 3 year basis, it's gone from FY 2019 a lever. So it's a stable basis of approaching 2016. And we've got a pretty firm goal of mostly driving that north from here. But it's a normalization once we share stores trading as well. So that's related to that. I mean the other thing I'd add is Kathmandu has built up an amazing business appealing to that traveling outdoor consumer and particularly it's got a loyal base that consistently come back for those products for when they're traveling to whether it's Japan or Europe. And obviously with that not happening, those educated consumers looking for that product aren't coming back online. So I'm certainly I suspect that's part of it. And the other part is, last year, we tightened up our inventory buys coming into summer because of the concerns of the pandemic and the impact on trade. And as a result of that we just didn't have as much stock on clearance. So and obviously the online consumer is a particularly price sensitive consumer. So if you've got less product to clear online, you're going to drive less sales. So certainly that was also an impact of reducing that online volume last year. Michael, Chris, thanks so much for those insights. Really appreciate it. Thanks, Matt. We'll now take our next question from Julien Mokharcie from EAP. Your line is open. Please go ahead. We'll now take our next question from Julien Mokharcie of EAP. Your line is open. Please go ahead. Hi, guys. Just a couple of questions. Firstly, how do you explain like the Australian sales being so much weaker, given the comparable trading days weren't that different from last year? And also why New Zealand fell quite a bit given the lost days of way less than last year? You're talking overall there, Julian, so specific to Just the Kathmandu business. Yes. Well, in terms of the Kathmandu brand, obviously, as I mentioned earlier, obviously, the impact of travel and the pullback on inventory definitely had a major impact on the Kathmandu brand. There's no doubt about that. They've built a big business appealing to that outdoor traveler. The positioning of the brand was very much around adventure travel. And on the back of those border closures, a big chunk of that business disappeared. So that's products appealing to that consumer. So backpacks, insulation, those type of products. Now with the benefit of hindsight, our stores would have been loaded up with tents and camping gear and so forth. And if it was, our results probably would have been a lot better. But the unfortunate situation was that we built a large business around adventure travel and when that adventure travel stops, it does have a very significant impact on our results, which clearly it has. And as I mentioned earlier, as far as New Zealand trade there, the New Zealand consumer is particularly a price sensitive consumer. If you've got less inventory on clearance, there's less for them to buy. So that again has a drag on your overall performance. That would be the 2 key call outs that I would make in terms of my observations. Chris, you got anything to add to that? Yes. I mean, at Kathmandu, I mean, second half was traveling reasonably well as I said earlier. We lost as we guided in our June update, The impacts are quite significant on the last back end of June, July, which is a key trading period for Kmendou. So overall, it was circa $22,000,000 impact on the EBITDA for those last sort of 6 weeks since lockdown. So the business is traveling overall as a group traveling well north of where we landed and the lockdown extended deeper into July than originally expected. So that's a massive impact when you've got at some stage over 50% of your store and it were closed. So that was a big impact overall in the second half. Right. But so is it like sensing more of a case of the result last year like the comp was boosted by sort of clearance of inventory and it was a bit cleaner this time around. It's just keep by stores maybe more. Yes, definitely a whole lot lower clearance, which is a good place to be, helps your long term margins. But a little bit more clearance this year, but significantly still lower than FY 'nineteen. So that will help. And we saw in August when you actually had more stock, the trading was going quite strongly until additional lockdowns, especially in New Zealand. And in Queensland, WA, we're trading quite strongly and continue to do okay. So it's really hard to get a really pure rate, thanks to ongoing closures. That's reality. In July, the trading period for Ketan and Doug. So it looks like their timing for the brand. Yes. Okay. And with the 1st 6 weeks trading with the adjusted numbers, how many stores does that actually include? I mean, I can say right now we've got, I think about 130 stores closed right now. It was about 150 until the New Zealand level 3 level 2 adjustment excluding Auckland. So right now it's about 42% of the networks closed. Right. And is that similar to last year? Well, it's actually worse than last year because Auckland only had a 2 week period last year. But we've got Victoria and New South Wales where last time it was just basically Victoria. So the lockdown period for the Q1 is worse than in prior years, which is pretty obvious. So looking forward to really moving on beyond Q1 and getting retail stores opened up and get everybody trading, that's what we're looking forward to. And just finally, just the launch into Canada and Europe, is it mainly just backpacks, bit wet weather gear or a broader range of Kathmandu products? Yes, really major focus on apparel to start with. There will be some pieces of equipment, but we won't be going with the full camping outdoor line. We'll start with a curated range which will really look to appeal to I guess more the apparel consumer than anything. There will be some pieces of backpacks in there for sure, but obviously a little challenging to sell backpacks in the in the current environment with various border closures and so forth. So more of the focus on apparel for the initial launch. Okay, great. Thanks guys. Thank you, Ian. Cheers. Thank you. We'll now take our next question from Marni of Macquarie Capital. Your line is open. Please go ahead. Good morning, Chris and Michael. Thanks for taking my questions. Good morning. Hey, I just wanted to understand just the Repco results. So it looks as though the second half of 'twenty one EBITDA margin came in the realm of 7.4% and obviously the first half of twenty twenty one was particularly strong. What's the how do we think about I mean, assuming in the absence of lockdown with the synergies that have come through and the cost measures you put in place, what's an ideal EBITDA margin for that service segment? Hi, Marni. How are you? Look, as we've previously discussed and outlined, certainly, our longer term aim, 15% EBITDA. We feel that that's a attainable ratio on an annual basis. That said, this half always used to the Northern Hemisphere, which is a lower margin. And obviously in this second half that we just saw we had 2 impacts. 1 was obviously the lockdowns that came light in terms of Australia which had a negative impact on our result. And also late in the year we picked up some doubtful debts with respect to one of our Indonesian partners. And the effect of both of those is probably looking at a circa 10% at least drop away in EBITDA in the last month of the year. So from that point of view, I would say that the 7% EBITDA you quoted for the second half is on the lower side. We'd normally expect that to be double digits in the second half in the normal year. And therefore that EBITDA ratio for RIPKA would be closer to the 15%. But we're also investing in the brand and investing in long term growth. We have strong aspirations to build our North American business. So we certainly want to invest in our marketing in particular over the next 12 months to 18 months to drive that future long term growth. So yes, continuing to invest in our brand. So we see that the EBITDA margin will only go up from here and certainly tracking towards 50%. Okay. And obviously, there might be some from what you just said, it implies that the first half might be just a bit north of 15%. Given that there are lockdowns in Australia, there could be a slight downside risk to that? Or is it because I mean, there's just so much exposure offshore, a lot of the weakness in the first half of twenty twenty two profitability is probably more skewed to Kathmandu? Yes. Look in terms of the first half with respect to well honestly with the first half with all brands to give any sort of guidance or detail at the moment would just be remiss of me because I mean as of a week ago, I was out of lockdown and a week later, I'm back in lockdown. So yes, I really can't comment on that. What we do know from everything we know today as of 21 September, we know that our first half for FY 'twenty two will be lower than the first half of last year. As far as how much we really just don't know until we can see when particularly New South Wales and Victoria open up and obviously we're hoping and assuming that there's no lockdowns or closures of other states or indeed other countries knowing that our breadth of results across all those and Rip Curl skews to Northern Hemisphere and Europe as well. Yes. And I think we're going to look the way we look at it, Mani, is I mean clearly for Q1, there's a lot of impacts with lockdowns. I mean that's pretty clear to everybody, but and some supply chain challenges related to that. Long term, I mean, we've got some as we mentioned a few times, the order books incredibly strong, especially for OVOs and for Rip Curl into 2H. And so I think we look at a lot of confidence that the first half will be impacting that out because of these lockdowns. Okay. Okay, that's clear. And if because there's talk in the press this week such as about markets like filing opening up. In the lead into the opening of borders of some markets, like we've spoken about, call out Hawaii performing really well. Do you get any kind of like lead indications from your partners there about the reopening and ordering? Or does the ordering kind of come through once they've reopened? Yes. Look, it's yes, James, on a daily basis, Marty. All I would say is that where we have seen historically where we have seen borders open and travel coming strong, we've seen outstanding results. 6 months ago, we're talking about Hawaii and our business there being decimated. Since they've opened up their travel back to Hawaii, those stores have come back online strongly and are back at pre COVID levels indeed above that. I have no doubt that when Bali open ultimately opens up and when Thailand opens up and quite frankly even in the Australian results particularly for the Rip Curl business with borders closed with tourists from Victoria and New South Wales not getting out to WA and not getting up to Queensland that has a negative result as well. So certainly I'd expect that once we see Australian borders open up, once we see Bali open up, Thailand open up, As we have seen historically, we're certainly expecting a really strong bounce which gives us a lot of encouragement for the future. But obviously, we've got to wait patiently for these borders to open up. Okay. And just a final question for me. You've called out M and A and I think I recall you calling out something similar at the interim result. Just in terms of like when you talk about your balance sheet providing you with the capacity to do that, is that something that you're going to prioritize as we remain in the lockdown? Are there very good opportunities? And are the opportunities skewed to offshore or within Australia? Yes. I think at the moment it's a very active space. Obviously, as you would know, a lot of things out there available for purchase. But at the same time, I would say across the board there's some probably some inflated expectations. So from our point of view, we want to have that flexibility and it's something that we'll look at. But is it a priority at this point in time? No. I think that with the complications of looking at particularly anything offshore and doing due diligence on the business when we can't travel that there is some obvious limitations on what we can do. So it's an option for us. We've got the balance sheet to do it. If something that comes up is perfect and a really ideal fit for us, but it's not certainly in that it's not front of mind for myself at this point in time. We've got plenty to work on with our existing brands and plenty of potential as the world opens up and that's my main focus. Well, that's clear. Those are my questions. Thank you for answering them, Chris and Michael. I'll jump back in the queue. No worries. Thanks, Mike. Thank you. It appears there are no further questions. Michael, I'd like to turn the conference back to you for any additional or closing remarks. Thanks. No, look, thanks everyone for your time. Look, we're really comfortable with the result and excited by the future. We're just going to get these things back open up and board is open and we're looking forward to that. So thanks for your time and patience. Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.