Ladies and gentlemen, a good afternoon. Could someone just close the door at the back so we can get underway? Thank you. My name is David Kirk, and I'm pleased to welcome you as Chairman of KMD Brands Limited to our 2024 Annual Shareholders Meeting. I extend a warm welcome to all those shareholders joining us online today through our virtual meeting platform provided by our share registrar, MUFG Corporate Markets. 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 my fellow directors to you: Michael Daly, the Managing Director, and our Non-Executive Directors, Abby Foote, Philip Bowman, Andrea Martens, Zion Armstrong, and Brent Scrimshaw. I also welcome Gabriella Finness from KPMG, Ben Washington, our Interim Group Financial Officer, and Frances Blundell, Company Secretary.
In terms of the format for today's meeting, I will start by making some brief comments about the 2024 financial year for KMD Brands. I'll then hand over to Michael, who will provide more details on some of the challenges and the highlights we've experienced over the past year, including a summary of the group's financial performance and future strategy. We'll then move to the formal business of the meeting. There are four resolutions to be considered by the 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 had 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 MUFG 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'll need to click a "Get a 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 will 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 the MUFG Virtual Meeting Online Portal guide that can be accessed through the virtual meeting web link or call the helpline on 0800 200 220.
There will also be an opportunity after the resolutions 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 will 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. We may have to limit the number of questions at some stage. Valid proxies have been received from 265 shareholders holding approximately 59% of issued shares. More than 93% of proxies directed are in favor of all resolutions.
The minutes of the 2023 Annual Meeting held last year have been reviewed and approved by the board and signed by me as a true and correct record of the 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 financial year 2024 annual integrated report in the post but would like to request a physical copy can do so by contacting the company secretary or our share registrar, MUFG. We will answer any questions from shareholders on the annual integrated report or financial statements during other business later in the meeting. Now, a few words about the year just passed. FY24 was a difficult year for KMD Brands, with group sales down compared to last year's record result.
brands, Rip Curl, Kathmandu, and Oboz, faced significant headwinds due to weaker consumer sentiment and challenging global economic conditions. Despite the challenging sales environment, gross margins remained resilient, decreasing just 0.2% overall, with Rip Curl and Oboz performing particularly well. Operating costs were significantly lower than last year, benefiting from consolidation of activities and roles, as well as tight cost controls. Strong inventory management across the group delivered a pleasing reduction in inventory. I do want to stress two points: maintaining gross margins and reducing inventory in the face of significant sales reductions is no mean feat, and we thank management for the hard work undertaken to achieve this. Due to our operating performance and challenging market conditions, the board decided not to declare a dividend in FY24. Our dividend policy remains aligned with earnings. As earnings rise, dividends will be restored.
On behalf of the board, I want to acknowledge the decline in our share price. As I stated in our FY24 Annual Integrated Report, we believe the current share price materially undervalues our iconic brands. We're all committed to improving the company's financial performance, which will result in the restoration of shareholder value. The group executive remained focused on the basics: growing sales and gross margin, controlling operating expenses, creating great products, communicating our brand values effectively, and simplifying the business for greater efficiency. Together, we remain committed to our long-term vision to be the leading family of global outdoor brands and our strategic pillars: building global brands, elevating digital operational excellence, and best for people and planet. In the coming months, Brent Scrimshaw, currently a Non-Executive Director of the board, will step into the Group CEO role.
Brent brings a wealth of experience, both as a leader in the outdoor and sporting goods industries. Among other achievements, Brent has previously held positions as Chief Executive Western Europe for Nike and General Manager for Nike USA Eastern States. Having a current board member transition into the CEO role ensures continuity and a deep understanding of the group's strategic direction. Brent has been a part of shaping that strategy, and he is well positioned to lead the group through the next phase of growth. We look forward to Brent formally taking on the role in the second half of financial year 2025. On behalf of the board, I would like to acknowledge Group CEO and Managing Director Michael Daly, who announced his resignation to the market in October.
Thank you, Michael, for your dedicated service to KMD Brands over the last three and a half years as Chief Executive and, before that, for your 22 years' service with Rip Curl. Michael has been instrumental in bringing the three brands of KMD Brands together and steering the company through the difficult COVID years, and we thank him for his leadership. We wish Michael all the best for the future. And in closing, I sincerely thank my board colleagues for their hard work and ongoing commitment to KMD Brands through these challenging times. I extend our gratitude to all KMD Brands employees, including the group executive team, for their continued dedication. Finally, we thank you, our shareholders, for your ongoing support and confidence in KMD Brands during this difficult year. We are committed to improving profitability, driving sustainable growth across all our brands, and improving the share price.
I'd like to invite Michael to address you now. As mentioned in our market update, Michael continues to act as CEO until Brent's commencement. Thank you, Michael.
Thank you, David. Good afternoon, everyone. My name is Michael Daly, and I'm the CEO and Managing Director of KMD Brands. Today, I'm going to talk to you through the achievements and challenges we have experienced over the past year, including the group's financial performance and strategy. I'll start by touching on our purpose and vision, which remain the same and continue 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. Move to slide 10 and reminding you of our strategic pillars.
Firstly, building global brands, continuing to strengthen and expand our global brand presence, elevating digital, enhancing our digital capabilities to improve our customer experiences and engagement, operational excellence, optimizing efficiency and effectiveness across our operations, and best for people and planet, continuing to embrace responsible and sustainable business practices to deliver positive social, environmental, and financial impact. Our strategy remains unchanged. To deliver this strategy, we will continue to use our global footprint to build our brands. This includes using our existing infrastructure in North America and Europe to grow all three of our four brands - sorry, all three of our brands - in these key international markets. We operate over 300 owned stores, and our brands are sold in over 8,000 locations around the world. The global nature of our business is also an important consideration as macroeconomic conditions start to improve at different paces in key markets.
Australasia is still our biggest market, with over NZD 600 million in sales, 80% of which is from Australia. North America generates over NZD 200 million of sales, Europe NZD 100 million, Asia NZD 40 million, and South America NZD 20 million. The next slide provides a quick overview of the strengths of each of our brands. Each brand is iconic, authentic, and distinct, with highly credible and technical products and a loyal customer base. We believe that now more than ever, strong brand identity is critical. We certainly have this for our three brands with category-leading products, and we believe that each brand is well positioned for continued growth. Moving on now to review the financials, FY24 was a challenging year for the group and the industry at large. We saw cost of living pressures and increased geopolitical issues have a prolonged impact on consumer sentiment globally.
These factors contributed to an unfavorable trading environment for our brands, particularly in retail for Kathmandu and wholesale for Rip Curl and Oboz. Sales were 11.2% below last year's record sales result, reflecting ongoing weakness in consumer sentiment. Sales declined for all three of our brands, cycling their strong sales growth achieved last year. Despite the challenges on sales, it was pleasing to see gross margin remaining resilient, underlying operating expenses reducing despite global inflation, and working capital reducing despite the sales decrease. Gross margin decreased by 0.2% of sales to 58.9% for the group, with increased promotional activity for the Kathmandu brand. Operating expenses were tightly controlled in a challenging sales environment. On an underlying basis, operating expenses were 3.6% or NZD 19.6 million below last year, with sales more than NZD 120 million lower than last year.
Despite resilient gross margin and reduced operating expenses, underlying EBITDA decreased to NZD 50 million for the year. After accounting for a one-off non-cash impairment of Oboz goodwill, the group's net loss after tax was NZD 48.3 million. On an underlying basis, excluding the Oboz impairment and some restructuring costs, the group's net loss was NZD 1.1 million. Working capital ended 9.7% lower than July last year, with a NZD 23.5 million reduction to inventory, a significant achievement given the sales result. The group's balance sheet position is stable, with NZD 59.7 million net debt at year-end and approximately NZD 230 million of available funding headroom. Moving to some operational highlights during FY24, we've made some progress this year with highlights demonstrating the positive direction we are heading in, including operational excellence. We demonstrate our ability to manage the controllable through challenging trading conditions.
Gross margin continuing to improve for Rip Curl and Oboz, offset by increased promotional activity for Kathmandu. Operating expenses reduced by NZD 19.6 million on an underlying basis. We carefully controlled inventory and working capital, with Rip Curl and Oboz inventory levels reducing back towards historical levels. Challenging market conditions also saw us focusing on the basics of what core customers love most about our brands. Kathmandu has worked hard to refine its marketing execution, returning to its authentic outdoor heritage. Rip Curl has reignited the surf as the primary product creative and marketing vehicle. This strong brand DNA has been injected into new innovative products and collaborations centered around athletes, with execution tailored to regional markets. Our core customers continue to tell us that they love our brands, as demonstrated by our industry-leading NPS scores for Kathmandu and Rip Curl in Australasia.
Internationally, we continue to strengthen and grow our global brand presence.
Rip Curl achieved strong sales growth in Indonesia and Thailand in particular, supported by pleasing direct-to-consumer sales results in Europe and South America. Kathmandu recorded sales growth in North America and Europe as we continue to test and learn with select accounts. This remains a small part of the business while we focus on stabilizing and growing sales in ANZ. Oboz's global product positioning has been elevated, with shop-in-shop trials in select locations within Kathmandu's Australasian store network. Digital, we also made some good progress on enhancing our digital capabilities to improve customer experiences and engagement. Oboz and Rip Curl achieved record online sales this year. Oboz benefited from diversified sales channels, trading its online site effectively with increased traffic, conversion, and strategic promotional activity. Rip Curl achieved record online sales of nearly NZD 38 million.
Kathmandu's online sales showed improving trends through each quarter, implementing continuous improvements to improve our customer experience, including additional payment gateways. For Rip Curl, we aligned the US point of sale with group systems, and we launched the Club Rip Curl loyalty program in North America. Drawing your attention to slide 15, Rip Curl and Kathmandu showed continued improvement on first-half sales trends during both the third and fourth quarters of FY24. For Rip Curl, direct-to-consumer retail store and online channels led the improving sales trends in the second half of FY24, supported by strategic new store openings in Europe, Asia, and South America. Wholesale sales remained subdued through the year as wholesale accounts continued to reduce their inventory holdings to manage risk in a challenging economic environment.
Sales trends in Kathmandu's largest market, Australia, continued to improve in each quarter, supported by strategic airport and outlet store openings, enhanced in-store execution, and improved products. Kathmandu New Zealand, experienced the impact of a more challenging consumer environment. Oboz benefited from diversified sales channels, achieving strong online sales growth with increased traffic, conversion, and promotional activity. Wholesale sales remained subdued through the year, impacted by post-COVID industry challenges in the North American outdoor footwear category. Just to note here that timing of certain wholesale dispatches changed year on year from April to May, impacting the Oboz Q3 and Q4 variances. Now for an update of our trading performance in the first quarter of the FY25 financial year. Total group sales for the first three months of the new financial year were 5.8% below last year. By brand, Rip Curl total sales were 6.7% below last year.
Kathmandu total sales were 2.7% below last year, and Oboz total sales were 8.6% below last year. Direct-to-consumer sales results have improved for both Rip Curl and Kathmandu since our last trading update at the results release on the 25th of September 2024. Rip Curl direct-to-consumer sales continued to outperform the wholesale channel, with Rip Curl first quarter direct-to-consumer sales 3.4% below last year. Kathmandu quarterly direct-to-consumer sales trends continued to improve. Kathmandu Australia sales for the first quarter were 4.3% above last year. New Zealand sales decreased by 15.4% as they cycled strong end-of-line clearance sales in August last year. While Kathmandu sales for the first quarter were down 2.7%, gross profit dollars were 3.6% above last year. Moving now to the wholesale channel, wholesale accounts remain cautious on pre-season commitments for Rip Curl and Oboz. Rip Curl wholesale sales decreased by 11.2% below last year.
However, forward orders indicate improving wholesale trends in the second half. Oboz wholesale sales were 8.5% below the first quarter of last year. However, sell-in for the second half of the year is not yet complete. Pleasingly, the group's margin was above last year for the first quarter, and all brands continue to actively manage costs while facing global inflation pressure. And finally, I want to summarise our focus areas for FY25 and our outlook for the year ahead. Our concise focus areas for FY25 are as follows. First and most importantly, stabilise sales and return to growth. Grow gross margin, continue to simplify our business, continue to reduce working capital and use our inventory investments efficiently, and return to dividends. In terms of outlook, the group's first half results are dependent on the key Black Friday and Christmas retail trading periods to come.
We remain cautious on consumer sentiment given the challenging global macroeconomic environment. We are encouraged that Kathmandu has continued to show an improving sales trend through the first quarter of the new financial year. Refreshed, authentic outdoor brand advertising has outperformed previous campaigns in Kathmandu's largest market in Australia. Brand awareness has improved, and we expect the new campaign will have a positive impact on building key long-term brand associations. Kathmandu has increased product newness and innovation for the spring-summer season, resulting in a positive consumer response in key categories. Kathmandu will continue to leverage its elevated brand positioning, sustainability credentials, and innovative new products moving forward. We are also encouraged that Rip Curl direct-to-consumer results are outperforming the wholesale channel. We remain optimistic that wholesale sales will start to improve as the wholesale customer inventory reduction cycle ends. Our strategy remains unchanged.
For FY25, we remain focused on returning to sales growth, improving profitability, and reducing inventory. In closing, as David mentioned earlier, I have announced my resignation from KMD Brands in October. After joining Rip Curl 22 years ago, including the last five years as part of the KMD Brands Group, I feel like the time is right for me to step down and take a long break before I consider my next professional challenge. I'm grateful to you, our shareholders, our board of directors, and our chairman, David Kirk, for the opportunity to have led this incredible business. Thank you again for your continued support during my tenure as Group CEO. I look forward to watching as KMD Brands returns to growth. Please feel free to ask me any questions at the end of the meeting.
Given my departure in the coming months, Lachlan Farren, our Chief Commercial Officer , our Chief Commercial Officer, will step in as the interim Rip Curl CEO as we continue our external search for the new CEO of Rip Curl. I will 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 to your team, many of whom are in the room, for your efforts throughout FY24. We now move to agenda item three, the 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, and 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, myself, Abby Foote, and Michael Daly each retire at today's meeting and offer themselves for election by shareholders. The board unanimously supports the re-election of myself, Abby, and Michael. Information about each of us is contained in the explanatory notes of the notice of today's meeting. Each of us will briefly address you as we move through the resolutions. To comply with the listing rules, it is necessary for each director, including myself, to be appointed by separate resolution, and I will now ask Abby Foote to chair the meeting for the purposes of proposing the first resolution. Thank you, Abby.
Thanks, David. I'm now going to move the following as an ordinary resolution: that David Kirk be re-elected as a director of the company, and I'm now going to invite David to address the meeting.
Thank you very much for the opportunity to say a few words. I've been on the board for a long time, for 10 years, and that is a long time for a director, and I acknowledge that. During that time, when I began, KMD Brands, of course, was just Kathmandu in New Zealand, with a growing business in Australia. And during my time on the board and leading the board, along with the management and the directors that have been involved in the company, we've grown the company from that initial start of Kathmandu Brands into the global house of brands, if you like, with Kathmandu, Rip Curl, and Oboz in the United States. That's brought the benefits of scale to the organization.
It's brought diversification of revenue in seasons, winter and summer, and hemispheres, and in distribution channel or sources of customers, retail and wholesale, and we've grown online a lot as well. All of that was very valuable to us during the difficult COVID years, and the business, notwithstanding a poor year this year, is actually in good shape, with vibrant brands, with the opportunity to grow well into the future. I understand performance has been poor this year. There's no ducking that. Our profitability is much reduced, and we've had to remove our dividends for this year, and there's no ducking that for the whole board, and myself as chairman, I need to take my full share of responsibility for that performance.
But I do have a wide range of skills and experiences which are valuable to the board and consistent with the board's strategy and growth strategy for the future. So, after discussion with my colleagues and their support, I have decided to put myself forward again for re-election to the board for another period. I can say definitively that this will be—if I am re-elected, this will be my last term on the board. Thank you.
Thanks, David. I'm going to start by asking if there are any questions from the floor in relation to this resolution.
Do we have any questions from shareholders joining online?
Yes, we do have some questions online. Starting with a question from T. Chong. The company's share price, adjusted for rights issues, peaked at NZD 2.73 in 2014, the year the chairman assumed his role, and it has been on a secular decline since then.
Attributing it largely to macro factors over two economic cycles would seem implausible and untenable. I am curious if the chairman has any thoughts on this massive shareholder value destruction and any insights into the real causes. The market has undoubtedly spoken, and the clock is ticking fast on this iconic company's fortunes. Does the chairman have any fresh ideas to help turn around the company?
Thank you for the question. It's a good question. Just one sort of initial correction. The NZD 2.73 in 2014 needs to be adjusted for the number of shares that have been issued since that time, and that's rather a lot. We raised a lot of money in the COVID period when all of our shops were shut down, so we weren't able to trade at all, and it was very necessary to raise that money.
That proved to be a very prudent thing to do for the company. So, I can't do the math in my head to tell you what NZD 2.73 would be, but it would certainly be around about half of that. So, that's the number to compare to the current share price, but that by no means gets us off the hook for poor performance and a very low share price and a suspended dividend. So, it's right that that should be pointed out, that the company has not performed well in the last period. You only have to go back to 2019, of course, though, to see record performance in the company. That was just before COVID. COVID caused all our shops to be closed down. It caused inflation. It caused massive supply chain issues and a whole range of different challenges for the company.
Everyone will now be familiar with the fact that we are in a cyclical downturn, particularly in consumer consumption, how much discretionary income consumers have got to go and spend on products like Kathmandu, Rip Curl, and Oboz sell. Genuine consumer discretionary products and not cheap ones. Our products, our puffer jackets and our shoes and our wetsuits are not cheap. They are high-quality technical products. So, it's not that surprising that in challenging market conditions, when consumer discretionary spend is challenged, that companies like ours will be dinged pretty hard and people will keep their wallets in their pockets. None of that is to make an excuse. I think the business needs to perform better, and I feel confident will perform better in the future.
But I understand the questioner has put myself and the rest of the board on notice that he expects better performance in the future, and we accept that challenge.
Thanks, David. And of course, as a result of the investments that have been made, we have greater diversity and less exposure to the New Zealand market than we would have had at the time of the question. It appears we have another question for you, David, so I'll let Frances read that out and you respond.
This question is from Stephen Mayne. Looking back with a sense of honesty and self-reflection, does David Kirk agree with the observation that he has a track record of overpaying for acquisitions as the CEO of Sydney-based Fairfax Media leading into the GFC? It was Rural Press and Southern Cross Broadcasting shareholders who benefited from his expanding ways.
Then, fast forward to 2019, we clearly overpaid, shelling out AUD 350 million for Rip Curl. Can he point to any other major acquisitions on his CV which have worked out better for shareholders?
Thank you, Stephen, for the question. Stephen, of course, is familiar with Fairfax Media. He was a journalist and debate partner at AGMs over much of that period. Looking back at - I won't spend a lot of time on the past, on previous acquisitions in other places, but Stephen, you will be familiar with the fact that we paid for Rural Press 75% with stock of Fairfax Media, which was at a reasonably cyclical high point before the mass immigration of classified advertising to online sources. So, I would certainly debate whether that was a good or a bad acquisition.
I think it was a good acquisition for the company and provided lots of cash flow to help the company manage the transition to a world without classified advertising and newspapers and shut down printing presses and so on. I also would debate. I would just disagree with you when you say that the company overpaid and that KMD Brands overpaid in purchasing Rip Curl for AUD 350 million. That was back in 2019 as well, before COVID, and that was generally considered at the time to be a fair price for the business, and we received no pushback in the media or from analysts at that time. So, it's very much looking back over the years of COVID and of the downturn that we're in now that you come to that conclusion. So, thank you for your question.
Thank you, David. Frances, I think, has another question there.
We have a further question from Stephen Mayne. Thank you for disclosing the proxies early, along with formal addresses to the ASX five hours and 23 minutes before today's meeting commenced. This allows for a more informed debate, given that the AGM is essentially an election outcome announcement event. Therefore, can David Kirk provide his analysis as to why there were 23.4 million votes against his re-election, but less than two million against the other two candidates facing voters this season?
Well, I can't know for sure what the reason is, but I can speculate, and my speculation is people are annoyed and frustrated with the performance of the company. And as the Chair seeking re-election, there's a good opportunity to send the message that they're annoyed and frustrated by the performance of the company. That would be one likelihood.
And the second one would be that I'm a long-standing director seeking election, and some people would have a clear view that they prefer their directors not to go beyond a 10-year tenure. So, there's two guesses for you.
Thanks, David. Is there anything more, Frances?
No further questions.
Wonderful. So, there being no further discussion, I'm now going to put the motion. So, if you could 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. I'm now going to hand back to David to continue chairing the meeting.
Thank you, Abby. Moving on to Resolution two, I now move the following as an ordinary resolution that Abby Foote be re-elected as the director of the company. And I now invite Abby back again to address the meeting.
Thanks, David. Tēnā koutou katoa, good afternoon. I'd like to offer my greetings also to our shareholders, members of the KMD team, my fellow board members, and representatives of some of our key stakeholders who've joined us either online or in the room today. Next year will mark 20 years since I took on my first role as a director of a listed company. And since that time, I've built significant experience as a director of predominantly listed entities. My governance experience covers a wide range of areas, including strategic development and implementation, significant transactions, stakeholder engagement, risk management, health and safety, and ESG-related issues. I'm a proud New Zealander based in Christchurch, and currently I am also a director of Freightways. I'm seeking your support for my reappointment to the KMD Brands board for a further term.
I've been a member of the board and the chair of our audit and risk committee for over three years now. It's been a privilege to govern the company over that time. Trading conditions have been challenging since the COVID lockdowns, but there's no doubt that the last 18 months have been particularly tough, not just for KMD Brands, but for all of those in the retail sector and for many of our customers. I want to acknowledge the disappointment that you will have about the current share price and assure you that it is also something that concerns me. I'm a shareholder like you, and I do not believe that the current share price is a fair or accurate reflection of the value of our brands.
While there's no doubt that we've been through a period of challenging economic conditions, as David and Michael have already covered, we have focused on controlling the controllables, and executing well. We have a strong and experienced team who are determined, like the board, to deliver improved outcomes. Having worked alongside Brent throughout my time on the board, I'm very confident that he will be a strong and impactful CEO for KMD Brands. He knows the organization well, and the transition from Michael to Brent will be a smooth and quick one as a result. This is a great result for KMD Brands, and while we will be very sorry to say farewell to Michael, I am also looking forward to Brent's leadership of the company.
We are fortunate to have the depth of relevant experience that we have on this board, but we also acknowledge that we have work to do. I'm committed to continuing to contribute my experience alongside that of my fellow directors to help KMD Brands deliver on its vision to be the leading family of global outdoor brands. I'm committed to high standards of corporate governance that delivers long-term value for our shareholders, and I'd be grateful for your support today for my reappointment. Thank you.
Thanks, Abby. Are there any questions from the floor in relation to this resolution? Nope. And do we have any questions from shareholders joining online?
No, we do not.
Okay. There being no further discussion, I will now put the motion. Okay, here we go. Please cast your votes now for Resolution two if you have not already done so.
Please now select either for, against, or abstain for Resolution two on the voting card. Thank you. We now move on to Resolution three. I now move the following as an ordinary resolution: that Michael Daly be re-elected as the director of the company. I want to note here that upon his handover with incoming CEO Brent Scrimshaw, Michael will resign as director. Until that time, Michael will continue as a member of the board to ensure a seamless transition in the coming months. I now invite Michael to address the meeting.
Yeah, thanks, David. Obviously, as has been referenced, I have given my notice. I should say it was a very tough decision for me. You don't stay at an organization for over 22 years without enjoying it and loving it. So, it was a tough decision for me to make that decision.
That said, I do, over that 22-plus years, I have a lot of intrinsic and inbuilt knowledge of how this company works, particularly on the Rip Curl side, and certainly, from my point of view, what I want to make sure is there is a smooth and thorough handover to Brent as the incoming CEO and Managing Director, so certainly on that basis, I look for your support with my re-election for a to-be-determined period of time so I can make sure there is that smooth handover and transfer of my knowledge in the day-to-day runnings of the business to Brent so he is successful, and most importantly, so that KMD Brands is successful in the future, which I certainly am looking forward to watch from afar. That's all for me.
Thanks, Michael. Are there any questions from the floor in relation to this resolution?
Do we have any questions from shareholders joining online?
Yes, we have a question from T. Chong. Can the CEO, Mr. Daly, please share how he sees the stock market has judged his tenure with the market cap falling from NZD 1.13 billion to now only NZD 300 million? Billion to now only NZD 300 million?
Yeah, look, hey, thanks for the question. It's obviously a tough one to answer as both a shareholder and a CEO. It's been a really tough time for not only our company but many companies out there, particularly the consumer sentiment and the disruptions of COVID that we've referenced in this discussion. So, of course, am I proud of that market value? No. Do I think that the shareholder, do I think the share market adequately reflects the value of our brands? Also, no.
I think we are severely undervalued from what we are, but I have no direct control over the share market, so I can't help set the price. What we can focus on is the fundamentals of running the business. And certainly, as we've referenced in this call, us focusing on the controllables, working on our margin, our cost control, and our working capital, is something that we are continuing to work on and continued areas of improvement. And if we do that, hopefully with time, that will be reflected in the share price.
We have a further question from T. Chong. What is the business decision you regret most as CEO?
Look, I don't think I regret anything that I've done in terms of managing this business or the Rip Curl business over 20-plus years.
As I said before, I've loved all aspects of what I have done at KMD Brands and Rip Curl.
In what was a very challenging time, I should say, with COVID in particular, and then coming out of COVID, seeing our numbers, record sales in 2023, some strong underlying profitability, and then to be met with some really challenging consumer sentiment. So, yeah, no, look, no specific regrets from my point of view. Of course, I would like the performance to be better as I'm leaving, but I can't pick the timing of the market, and I have to do what's right for me and my family. And as we've referenced, after 22 years, I think it's time for me to have a bit of a break.
Is that it?
No further questions online.
No further. Okay, great. There being no further discussion or questions, I will now put the motion. Please cast your votes now for Resolution three if you have not already done so.
Please now select either for, against, or abstain for Resolution 3 on the voting card. Thank you. The fourth resolution on the agenda today relates to fixing the remuneration of the company's auditor for the 2025 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. Are there any questions from the floor in relation to this resolution? Nope. Do we have any questions from shareholders joining online?
We have one question from Stephen Mayne. When disclosing the outcome of voting on all resolutions today, including this ho-hum audit pay item, please advise the ASX how many shareholders voted for and against similar to scheme of arrangement.
This will provide a better gauge of retail shareholder sentiment and was a voluntary disclosure initiative adopted by the likes of Tabcorp, ASX, Qantas and Myer. I will note that we did this last year with our results and can do so again today. Did you want to make any additional comment?
No, no further additional comment in addition to yours, Frances.
No other questions online.
Thank you. There being no further discussion, I will now put the motion. Please cast your votes now for Resolution four if you have not already done so. Shareholders should ensure they have now submitted their votes for all four of the resolutions set out in the notice of today's meeting. Voting cards will be collected by our registrar, MUFG, who will now move through 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 has closed, MUFG will tally the votes. The results will be announced to NZX and ASX once counting has been completed. Thank you. While the votes are being collected, I will continue. 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 we're unable to answer your question online today, we will endeavor to respond to you after the meeting. Do we have any questions from the floor? Yes, Coraline.
Yesterday, I went to St.
St Lukes for a little retail investigation and to have a look at the Kathmandu store there, and I'm sure I've touched on this before. It's in a time warp. Now, I know the mall is tired, and there was a very personable young man there that I had a good chat with who told me why Hannahs had moved out and across the road to the Number One Shoes store across the road out of the mall because he said that the rents were high. But in your store, it is not inviting. It looks like it would appeal to people who go caving rather than on a white sandy beach under a blue sky. The ceiling is dark, and there's strip lighting, and it's actually quite hard to see the stock in there.
There was such a nice young man standing there, and I was the only other person in the store. Mind you, Monday's probably quiet anyway. So, I think you really need to refresh. I don't know what your other stores are like. I'm only telling you that this is the only one I've been in. I don't know whether you've got a general like lessons to a certain look through all their stores.
Yeah, well, thank you for that question and comment. We do, of course, upgrade our stores on a very regular basis, and many of our stores are very bright and light and good. I'm not particularly familiar with the St Lukes store. Michael, are you? Great.
Yeah, really good observation.
Certainly, as David said, we do have some stores that are on the end of their life, and that's certainly one that is due for an upgrade, subject to us negotiating successful lease renewal. One thing we are excited about internally, we're really working on the look and feel of our Kathmandu stores in the future. We've got a new concept that will be launched in the Chadstone Mall in Australia, unfortunately, but we'll look to get one in New Zealand as well sometime in 2025, which will bring a lighter, brighter concept, really bringing the life of our products to enable us better to tell stories about our products with the right lighting, the right atmosphere, which we're certainly excited for, and we think it's the future of the Kathmandu brand to bring that new look and feel to life.
Look, even if you painted the ceiling a light color.
Yeah, yeah, absolutely. Yeah, certainly stores that were done six or seven years ago, which I think in that case that was done probably even more, there was a phase when a lot of retailers were going through their dark, gloomy with some halogen lighting, and it certainly needs some love, that store, and that's something we'll be looking at as the renewal is undertaken. But we're certainly excited by the new look and feel that will come through in 2025.
Are there any other questions from the floor? Okay, we can come back, of course. If you come up with something, feel free to ask. Do we have any questions from shareholders joining us online?
We do. We will start with a question from Stephen Mayne. Fonterra is ending its dual listing on the ASX to save money.
How much extra does it cost us to be dual listed in Australia and N.Z.? And if we were to delist from one of those exchanges, which would make more sense given the current split of the register and trading data? Restaurant technology company Task shifted its HQ and primary listing from New Zealand to Australia last year and was then taken over by a U.S. firm. Have we looked at doing the same, particularly after the AUD 350 million purchase of Australian-based business Rip Curl?
No, I don't know exactly what the cost is. It would be not material in the scale of the business. And we do have significant liquidity on both exchanges. So, lots of trading in New Zealand and lots of trading in Australia. And one of the things that are important for companies of our size is that there's liquidity.
So, shareholders can get in and out, and there are a whole range of different funds that will only invest in companies that have adequate liquidity. So, we think it would be detrimental to the company, significantly detrimental to the company, to delist from either stock exchange.
Great. Our next question is from Alan Best. While stock levels are down, stock turn is also down. Does this indicate a redundant stock problem? Please comment on the stock levels and quality of inventory.
Michael's the man for that.
Yeah, it's a good observation. The quality of our inventory is really good.
We are definitely holding more in the form of black wetsuits, black puffer jackets, and rainwear than we would like on the back of some supply chain issues we had, particularly with wetsuits through COVID and us stockpiling some inventory in that area, as well as on the back of some warmer winters with respect to insulation and rainwear. But the actual quality of our inventory is really good. Anything that we're holding that's in excess of requirements is very much black, fairly safe, ongoing perennial products that will sell well into the future. So, we're not concerned by the quality of our inventory, but certainly we acknowledge we're still operating at levels above where we think are optimal.
And if those of you have looked at the depth of our presentation, we give some history with our inventory by each brand, and you'll see some of those lows for those inventories are a little bit lower than where we are today. I think Rip Curl's low was 2021, Kathmandu's was 2023, and we'll be looking to get both of our brands back to those sort of historical low levels over the next 12-15 months. But certainly, we're not concerned with the quality of the inventory we're holding.
Our next question is from T. Chong. Oboz has been a perennial loss maker, notably suffering from cost blowout over the last few years, with sales only slightly higher than in 2019, largely due to the currency translation effect of a very weak NZ dollar.
Do you have a solid plan to grow this business profitably, or is it better to hive it off?
No, we definitely do have a solid plan to grow this business profitably. As you haven't asked for that to be detailed, I won't go into it, but we feel very confident about the Oboz business. It's an excellent business. It really understands it has a place in the U.S. market, and it's focused very much on building its distribution and its channels, going to markets through online and creating new and fit-for-purpose product. So, we feel good about Oboz's prospects.
Our next question from T. Chong, directed at Mr. Scrimshaw, but I will let David decide where to answer.
The current management strategy of selling increasingly large amounts of third-party brands at Kathmandu stores is effectively turning it into a more general distribution business, putting it against an even larger myriad of retail stores. Do you think it will confuse the customer in terms of brand proposition and poses a threat of detracting value from the Kathmandu brand?
It's a very quick answer, but I will let Brent say something because I'm sure he'd like to. It's good to hear from him, and the questioner has directed his question to Brent, so I think it's only fair that Brent has the opportunity to answer. But also, that's actually just not true. We're not selling an increasingly large number of third-party brands. We are getting some more prominent third-party brands, but we're actually cutting off a fairly long tail of smaller brands that haven't really worked for us.
Yeah, I think my perspective is our job as a group, whether it's Kathmandu, Oboz, or Rip Curl, is to exceed customer expectations. And that, as you'll see going forward, and I'm sure has been the case, is really a maniacal focus on creating innovative products that resonate with consumers. And that will be under the Kathmandu brand, under the Rip Curl brand, under the Oboz brand. And I think to David's point, particularly in footwear, you've seen some third-party brands build out a footwear experience, but the strategy is very clear: exceed customer expectations and do that with a relentless focus on innovation to surprise and delight customers wherever they are, every touchpoint, every retail experience. And that is led and underpinned by a maniacal focus on products. So, you can continue to expect that from any brand within the KMD portfolio for the future.
Thanks, Brent.
Our next question from Stephen Mayne. New Zealand AGMs are boring because there are so few things to vote on. NZ is also becoming a governance backwater as it continues to resist mandating annual voting on remuneration reports, which is standard in many countries. Will the chair undertake to consult with major shareholders and lead a board discussion on whether you will voluntarily put up a REM report for an advisory vote at next year's AGM? This is the law in Australia, and we are dual listed on the ASX, so why don't we step up and adopt Australian market practice?
Yeah, this is a question I know, Stephen, this is one of your bugbears. You ask this question at a lot of AGMs and of a lot of people, and I think you've asked it here in previous years.
We're very clear, and we will follow the requirements of all the regulatory bodies in the countries in which we are required to follow those requirements. So, that gives you your answer.
Our next question online was a pre-submitted question from Malcolm Wade. The question is, it would be good if five-year financial metrics were shown in the annual report along the lines of what's displayed on page eight, plus EPS, DPS. I note that we have additional metrics in our investor presentation materials.
Thanks, Frances, and thanks, Malcolm, for the question, and we will take that on notice and have a look at it.
Our next question from T. Chong. Since the incoming CEO, Mr. Scrimshaw, has long been involved with the company, can he please share his views with regard to the following two questions?
One, other than attributing to macro factors, what are the fundamental and critical problems dogging the company, especially the Kathmandu business, while competitors with competent management like Macpac are thriving and eating KMD's lunch? Number two, what are you going to do differently from the current management to turn around the company?
I want to give Brent an opportunity for a brief response on that in just a minute. But again, these sort of assertions that Macpac are thriving and eating KMD's lunch is actually just wrong. So, that's not true in the most recent data. Kathmandu is growing faster than Macpac. We have much higher gross margins. They have thrown a lot of capital at trying to build new stores. They'll have very low return on that capital. And I think if you find, if you take the capital into it, they're not doing as well as we are.
I will just stick up for our brand and the facts before passing over to Brent.
Yeah, I mean, I think I would echo David's point, particularly around margin when you compare Macpac and Kathmandu. But again, one of the things you'll hear from me, apart from the fact, notwithstanding some of the conversation around the current market sentiment, is it's our job at Kathmandu to exceed customer expectations, as I said earlier. So, I think if you look at the competitive environment over the last three to four to five years, the competitive environment in the space within which Kathmandu operates, particularly in Australia and New Zealand, obviously, has become much more challenging.
So, it's incumbent on us to step up our game as it relates to product innovation, as it relates to storytelling, as it relates to bringing product and story together in a compelling retail presentation that excites and, most importantly, connects emotionally with consumers. That's our job. And is there room for improvement on that? Absolutely, there is, and there always will be. So, from my perspective, I think expectation-wise, you should continue to see us focus on being the very best we can, but that doesn't mean mirroring our competition. That means carving out a unique position that we can own, that consumers identify with, and most importantly, turning transaction into an emotional connection.
So, I think those are the pillars of the strategy that Michael and the team have already laid out, but you can absolutely expect me to be laser-focused on our execution of those strategic pillars as it relates to Kathmandu.
We've got another question in the room, which is good. We'll take that next. Coraline.
Thank you. Talking about Macpac, they have an advertisement on television, which they play frequently, of a guy hanging off a cliff, being supported by the jacket. Now, can Kathmandu match that?
Match the... Could I hang off a cliff?
Like the Macpac?
Because I mean, you know, because Kathmandu would be very lightweight.
You're setting me up there, Coraline, to promote the brand.
I just think if you're going to compare Macpac and...
Yeah, I think it was a good ad, actually. It's a little bit tired now, to be honest.
It's a great ad, but is it true?
Yeah, you'd probably last hanging there for a few days. Okay, back to you, Frances.
Our next question online from Ezekiel Chavez. Can you give us an update on how Kathmandu brand is doing in Europe and what the marketing plan for the brand is? The Instagram page has less than 6,000 followers. I saw you were partnering with some influencers, but it doesn't seem to be helping. Can you please comment on your strategy?
Just to say, it's early days, very early days for the Kathmandu brand in Europe. And so, you wouldn't expect to have much in the way of followers because we are working with a range of different potential wholesale partners, but we're not in a position, and we've seen some small but positive results.
But that's going to take time to scale up, and we haven't put a lot of energy and focus behind that right now.
Our next question from Lorraine Mary McCaffrey. Are store lease renewals rent higher or lower?
I'll let Michael again comment on that one because it's different for different places.
Yeah, great question. We're seeing definitely some good results on renewal of leases. I wouldn't say that's in every single location around the world. There are still some premium locations around the world that demand a renewal that probably includes an increase, but they would, for the most part, be in a minority at this point in time. With the broader consumer sentiment the way it is, with the cost of living the way it is, certainly we're seeing some good positivity with our rent renewals at the moment. So, hopefully, that will continue into the future.
We have another question from Stephen Mayne. How many enterprise agreements with unions does our company have across the business, and are we worried about these ongoing proposed changes to industrial relations laws by the Australian government, such as the right to disconnect and same job, same pay rules? JB Hi-Fi and Domino's both said at recent AGMs that they pay award wages, have no enterprise agreements, and virtually non-existent union memberships among its workforce. Is our situation the same? Also, what is the pay differential between our Australian and NZ store workers?
I'm just going to ask Michael to come up and make some comments on this, but I will say before that, Stephen, this is the fifth question, I think, from you, and they're sort of quite detailed operating questions.
If you have a good reason for having these questions answered, it would be we will do so outside of this environment, an AGM environment. There are a lot of people here that may not be so interested in these detailed questions, so we'll probably draw a line under questions from you after this one.
Yes, just to confirm, yes, your assumption that ours is virtually non-existent union representative, like JB Hi-Fi and Domino's that you mentioned, that is true. We have virtually non-existent workforce that is a member of the unions. As far as the pay differential in Australia and New Zealand, historically, the Australian pay rates have been higher than New Zealand, but certainly over recent years, the rate of growth in New Zealand rates have been significant, and so that gap is continuing to close. And certainly, that's been the longer-term trend that we've seen.
A further question from T. Chong. Why has the company not appointed a new CFO after resignation of the previous one 16 months ago?
Well, we're in the process of making a decision on that process. We had a very able interim CEO, and we're very happy with his performance, and the company is performing well. So, with Mr. Chong, I think we'll probably apply the same rule as Mr. Mayne, that we'll draw a line under your questioning now as well. No further questions. No further questions online at this time. Strange coincidence. So, in closing, I want to again thank our CEO, Michael Daly. This will be Michael's last shareholder meeting. On behalf of the board, I'd like to congratulate Brent and look forward to his appointment date, which we will announce in due course. Brent, would you like to say anything before we conclude the meeting?
Sure, sure. Thank you, David. Yeah, I think just to share some initial thoughts. Obviously, I've been associated with the business for a number of years now, but I've spent 30 years building brands around the world. I've lived and worked right here in New Zealand. I've run Browns Bay, Australia. I've run a EUR 4 billion business in Europe. I've run a region for Nike out of New York. But I've never been more excited by the opportunity that I see in front of me today. And despite the operating challenges that we've all experienced, the consumer sentiment that we're all experiencing, I wouldn't have taken this job if I didn't believe in the opportunity that these three iconic brands represent. And they are truly iconic. So, I look forward to the future with optimism.
I look forward to a future full of, as I've mentioned earlier, innovative product that really does continue to build on the unique DNA that's a part of every one of our brands. And most importantly, I look forward to working with both all of the talented teams that exist in the Rip Curl business, in the Kathmandu business, and of course, in the Oboz business. And I look forward to working with all of you from a shareholder perspective. I really think that this is the next phase of opportunity over the next few years with KMD Brands. And I'm really excited to be a part of it.
I just wanted to share that sentiment with you and let you know that as soon as we're able to communicate a start date for myself, you should expect someone who's fully engaged, fully aware of the challenges that we face, but most importantly, full of optimism about how we overcome those challenges in the coming years. Thank you, and thank you to David and the board for their faith in me and entrusting me with this amazing opportunity.