New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>KMD Brands 1H22 Result — Initial Impressions</h2>
KMD Brands (KMD) reported yet another COVID-19 impacted result with few surprises given guidance provided after the period end. Underlying (pre-IFRS 16) EBITDA was ~NZ$10m, at the mid-point of company guidance range (NZ$9m – NZ$11m) and in line with our expectations. Supply chain issues persisted through the period, with factory closures in Vietnam preventing Oboz from meeting demand, and wetsuit shortages and port congestion impacting Rip Curl’s North American operations. Elevated freight costs also contributed to gross margin pressures across the group. The balance sheet remains healthy. Net debt was at ~NZ$50m at period end, with ~NZ$250m funding headroom. Operating cash flow was –NZ$50m during the period attributed to COVID-19 lockdowns and investment in inventory (up ~+9% in the period) to mitigate supply chains delays. The company will pay an interim dividend of 3cps (fully franked), this is ahead of our expectations and up from 2cps at 1H21.
The company expects 2H22 gross margins to be in line with 1H21 and is beginning to see some supply chain challenges easing. The performance of the Kathmandu brand in the second half (historically ~75% of EBIT) will be a key component in the recovery of KMD’s earnings. Current FY22 NPAT consensus of ~NZ$87m implies a significantly stronger second half than in recent years.
Key segmental points
<ul>
<li>Kathmandu: sales down -1%. Gross margin was 56%, down from 63% with elevated freight costs and a higher clearance mix. Online sales grew ~+46% representing&nbsp; 21% of DTC sales.</li>
<li>Rip Curl: sales up +3%. Gross margin was 59% down from 60%, impacted by higher wholesale mix and elevated freight costs.</li>
<li>Oboz: sales down -30% impacted by COVID-related closures of its Vietnam factories. Gross margin was ~36%, an improvement on 1H21, but hampered by freight costs +300% over historic averages. Forward orderbook remains supportive of medium term growth aspirations</li>
</ul>
Conference call
Management will host a post-result briefing call at 8:30am AEST / 10:30am NZST. Australia 1 800 590 693, New Zealand 0800 423 972. Participant code 177616.
Result Summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 120.5pt; height: 13.2pt;">
&nbsp;
</td>
<td style="width: 34.7pt; height: 13.2pt;">
1H21
</td>
<td style="width: 43.8pt; height: 13.2pt;">
1H22
</td>
<td style="width: 47.5pt; height: 13.2pt;">
Change
</td>
<td style="width: 51.55pt; height: 13.2pt;">
Forsyth Barr
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Revenue
</td>
<td style="width: 34.7pt; height: 12.6pt;">
411
</td>
<td style="width: 43.8pt; height: 12.6pt;">
407
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-1%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
405
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
EBITDA post-IFRS 16
</td>
<td style="width: 34.7pt; height: 12.6pt;">
95
</td>
<td style="width: 43.8pt; height: 12.6pt;">
56
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-41%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
53
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 13.8pt;">
EBITDA pre-IFRS 16
</td>
<td style="width: 34.7pt; height: 13.8pt;">
48
</td>
<td style="width: 43.8pt; height: 13.8pt;">
10
</td>
<td style="width: 47.5pt; height: 13.8pt;">
-79%
</td>
<td style="width: 51.55pt; height: 13.8pt;">
10
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
NPAT
</td>
<td style="width: 34.7pt; height: 12.6pt;">
22
</td>
<td style="width: 43.8pt; height: 12.6pt;">
(5.5)
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-125%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
(6)
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
EPS (cps)
</td>
<td style="width: 34.7pt; height: 12.6pt;">
3.3
</td>
<td style="width: 43.8pt; height: 12.6pt;">
(0.8)
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-124%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
(0.8)
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Interim DPS (cps)
</td>
<td style="width: 34.7pt; height: 12.6pt;">
2.0
</td>
<td style="width: 43.8pt; height: 12.6pt;">
3.0
</td>
<td style="width: 47.5pt; height: 12.6pt;">
50%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
2.0
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;"></td>
<td style="width: 34.7pt; height: 12.6pt;"></td>
<td style="width: 43.8pt; height: 12.6pt;"></td>
<td style="width: 47.5pt; height: 12.6pt;"></td>
<td style="width: 51.55pt; height: 12.6pt;"></td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Outdoor
</td>
<td style="width: 34.7pt; height: 12.6pt;">
160
</td>
<td style="width: 43.8pt; height: 12.6pt;">
150
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-6%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
161
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Surf
</td>
<td style="width: 34.7pt; height: 12.6pt;">
251
</td>
<td style="width: 43.8pt; height: 12.6pt;">
258
</td>
<td style="width: 47.5pt; height: 12.6pt;">
3%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
244
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Total revenue
</td>
<td style="width: 34.7pt; height: 12.6pt;">
411
</td>
<td style="width: 43.8pt; height: 12.6pt;">
407
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-1%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
405
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;"></td>
<td style="width: 34.7pt; height: 12.6pt;"></td>
<td style="width: 43.8pt; height: 12.6pt;"></td>
<td style="width: 47.5pt; height: 12.6pt;"></td>
<td style="width: 51.55pt; height: 12.6pt;"></td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Outdoor
</td>
<td style="width: 34.7pt; height: 12.6pt;">
32
</td>
<td style="width: 43.8pt; height: 12.6pt;">
8
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-74%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
15
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
Surf
</td>
<td style="width: 34.7pt; height: 12.6pt;">
68
</td>
<td style="width: 43.8pt; height: 12.6pt;">
53
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-22%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
41
</td>
</tr>
<tr>
<td style="width: 120.5pt; height: 12.6pt;">
EBITDA (post-IFRS 16)
</td>
<td style="width: 34.7pt; height: 12.6pt;">
95
</td>
<td style="width: 43.8pt; height: 12.6pt;">
56
</td>
<td style="width: 47.5pt; height: 12.6pt;">
-41%
</td>
<td style="width: 51.55pt; height: 12.6pt;">
53
</td>
</tr>
</tbody>
</table>
Source: KMD, Forsyth Barr analysis

KMD Brands 1H22 Result — Initial Impressions
KMD Brands (KMD) reported yet another COVID-19 impacted result with few surprises given guidance provided after the period end. Underlying (pre-IFRS 16) EBITDA was ~NZ$10m, at the mid-point of company guidance range (NZ$9m – NZ$11m) and in line with our expectations. Supply chain issues persisted through the period, with factory closures in Vietnam preventing Oboz from meeting demand, and wetsuit shortages and port congestion impacting Rip Curl’s North American operations. Elevated freight costs also contributed to gross margin pressures across the group. The balance sheet remains healthy. Net debt was at ~NZ$50m at period end, with ~NZ$250m funding headroom. Operating cash flow was –NZ$50m during the period attributed to COVID-19 lockdowns and investment in inventory (up ~+9% in the period) to mitigate supply chains delays. The company will pay an interim dividend of 3cps (fully franked), this is ahead of our expectations and up from 2cps at 1H21.
The company expects 2H22 gross margins to be in line with 1H21 and is beginning to see some supply chain challenges easing. The performance of the Kathmandu brand in the second half (historically ~75% of EBIT) will be a key component in the recovery of KMD’s earnings. Current FY22 NPAT consensus of ~NZ$87m implies a significantly stronger second half than in recent years.
Key segmental points

Kathmandu: sales down -1%. Gross margin was 56%, down from 63% with elevated freight costs and a higher clearance mix. Online sales grew ~+46% representing&nbsp; 21% of DTC sales.
Rip Curl: sales up +3%. Gross margin was 59% down from 60%, impacted by higher wholesale mix and elevated freight costs.
Oboz: sales down -30% impacted by COVID-related closures of its Vietnam factories. Gross margin was ~36%, an improvement on 1H21, but hampered by freight costs +300% over historic averages. Forward orderbook remains supportive of medium term growth aspirations

Conference call
Management will host a post-result briefing call at 8:30am AEST / 10:30am NZST. Australia 1 800 590 693, New Zealand 0800 423 972. Participant code 177616.
Result Summary (NZ$m)




&nbsp;


1H21


1H22


Change


Forsyth Barr




Revenue


411


407


-1%


405




EBITDA post-IFRS 16


95


56


-41%


53




EBITDA pre-IFRS 16


48


10


-79%


10




NPAT


22


(5.5)


-125%


(6)




EPS (cps)


3.3


(0.8)


-124%


(0.8)




Interim DPS (cps)


2.0


3.0


50%


2.0











Outdoor


160


150


-6%


161




Surf


251


258


3%


244




Total revenue


411


407


-1%


405











Outdoor


32


8


-74%


15




Surf


68


53


-22%


41




EBITDA (post-IFRS 16)


95


56


-41%


53




Source: KMD, Forsyth Barr analysis

KMD Brands: 1H22 Result — Initial Impressions

Kathmandu Holdings

KMD Brands: 1H22 Result — Initial Impressions