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    (Company Analysis) Kathmandu Holdings Limited Essay

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    Table of contents 1. EXECUTIVE SUMMARY 2. INTRODUCTION 3. HISTORY 4. CORE VALUES 5. BUSSINESS OVERVIIEW 5. 1. Market 5. 1. 1. Specialist 5. 1. 2. Mainstream/lifestyle 5. 1. 3. General merchandise retailers 5. 2. Market participants: retailers 5. 3. Market participants: wholesalers/brand competitors 5. 4. List of Major Competitors in the industry (Australian stores New Zealand stores) 6. CUSTOMER TRENDS 7. BUSINESS MODEL 8. MARKETING ACTIVITY AND PRODUCT STRATEGY 8. 1. Marketing activity 8. 2. Brand planning 8. 3. Customer research 9. BRAND HIGHLIGHTS 9. 1.

    Brand recognition 9. 2. A market leader in Australia and New Zealand 9. 3. Technical products with wide market appeal 9. 4. Distinct advantages from Vertical integration 9. 5. Attractive and stable margins 9. 6. Significant store rollout potential 10. FUTURE VISION 10. 1. New store rollout 10. 2. Upgrade existing store network 10. 3. Target stores 10. 4. Introducing new products 10. 5. Grow and Maximise the Customer Database 11. CUSTOMER CATEGORIES 11. 1. Young Go-Getters 11. 2. Adventurous Families 11. 3. Older Outdoor Enthusiasts 12. OPERATIONAL EFFICIENCIES 3. RESOURCES / CAPABILITIES 14. COMPANY. S PRODUCTS 15. GOVERNANCE SYSTEM 15. 1. Board Charter 15. 2. Code of Conduct 15. 3. Continuous Disclosure Policy 15. 4. Securities Trading Policy 15. 5. Audit and Risk Committee 15. 6. Remuneration and Nomination Committee 15. 7. Communications Strategy 16. ANALYSIS 16. 1. Key investment risks on the company and Challenges 17. SPONSORSHIPS 18. CONCLUSION 19. REFERENCES / BIBLIOGRAPHY 1. EXECUTIVE SUMMARY A Kathmandu holding limited is a designer, marketer and retailer of clothing and equipment for travel and adventure.

    It operates in New Zealand, Australia and the United Kingdom. Kathmandu is a leading retailer of clothing and equipment for travel and adventure in Australia and New Zealand and has a small presence in the UK. Kathmandu. s product offering generally falls into two retailing statistical categories: apparel retailing and recreational goods retailing. The sizes of the Australian apparel retail and recreational goods retailing categories for the year ended August 2009 were approximately Au$19. 1 billion and Au$4. 8 billion respectively.

    The sizes of the New Zealand apparel retail and recreational goods retailing categories for the year ended July 2009 were approximately NZ$3. 0 billion and NZ$2. 3 billion respectively. The company is Limited Liability Company incorporated in New Zealand and the Head Office is s in Christchurch, with a second Head Office and distribution centre in Melbourne dedicated to looking after the Australian stores. Recently, a third distribution centre was acquired in London to assist with the growing number of stores in the UK.

    Since its establishment 22 years ago, Kathmandu has become a leading specialist in quality clothing and equipment for travel and adventure in New Zealand and Australia. Kathmandu has grown from a small retailer of adventure clothing and equipment to a vertically integrated business with a significant retail presence. Approximately 95% of sales in Kathmandu stores are Kathmandu-branded products, manufactured by third parties using Kathmandu sourced or specified material and designs. The Company does not sell these products via wholesale channels and consequently achieves both a wholesale and a retail margin on these sales.

    Founded in 1987, Kathmandu was bought out by Goldman Sachs JB Were and Quadrant Private Equity in 2006, and the company says it has opened 36 new stores since then to have a total of 85 stores in Australia and New Zealand, and 6 in the UK. In November 2009 Kathmandu Holdings Limited was listed on the Australia and New Zealand Stock Exchanges. 2. INTRODUCTION KATHMANDU HOLDINGS LIMITED ASX Code: KMD ITS Abbreviation: KATHMANDU ISIN: NZKMDE0001S3 Home Branch: Sydney Industry Classification: 2520 – Consumer Durables & Apparel Registered Office: PricewaterhouseCoopers

    Darling Park, Tower 2, Level 1 201 Sussex Street Sydney NSW 2000 Corporate Office: 4 Mary Muller Drive Christchurch 8006 New Zealand Phone: 64 3 373 6115 Fax: 64 3 373 6116 Web address: www. kathmandu. co. nz Company Secretary: Mark Todd Share Registry: Link Market Services Ltd Level 1 333 Collins Street Melbourne VIC 3000 Joint Lead Managers: Goldman Sachs JBWere Pty Limited Level 42, Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Phone: 1300 366 566 Macquarie Capital Advisers Limited Level 9 1 Martin Place Sydney NSW 2000 Phone: (02) 8232 3333

    Activities: Retailer of clothing and equipment for travel and adventure http://www. kathmandu. com. au/images/assetimages/info_livethedream. gif 3. HISTORY Kathmandu opened its first store in 1987 and through the 1990s remained a small specialist outdoor retailer, manufacturing many of its own products. During the 1990s, Kathmandu scaled back its manufacturing operations and shifted to an offshore sourcing model. By 2002, Kathmandu no longer manufactured any products in-house. The shift to offshore manufacturing enabled Kathmandu to access quality products at a lower cost which, combined with the Company. in-house design process and Company-operated retail distribution network, has helped generate its strong margins. In 2003/2004, Kathmandu commenced its UK initiative (where it now has six stores) as well as launching basecamp in New Zealand – the Company. s dedicated family camping equipment offering. In 2006, Kathmandu was acquired by a consortium of private equity funds and subsequently a new management team was introduced. Since the acquisition, Kathmandu has invested heavily in its business platform, including staff, IT infrastructure and distribution capacity, and its store footprint. . CORE VALUES As the company states: For us the dream is individually defined. It may be that moment of escape on Friday at 5pm as you leave the office for a weekend of adventure. Packing up the family and car for a holiday along the coast. Seeing those hard-earned savings turn into an around the world ticket to destinations unexplored and fitting your essential world into a backpack. Finding a weekend when everyone is free to play, sleeping under the stars, reaching the summit, or simply making time for friends. Whatever the dream, it. about getting out there and having fun – however you define it. A group of people passionate about living the dream – not playing it safe but trying new things, always searching out new toys. We. re not world famous explorers (though they can be our customers) but everyday people helping turn fantasies of escape into real possibilities. 5. BUSSINESS OVERVIIEW . Kathmandu is a leading retailer of clothing and equipment for travel and adventure in Australia and New Zealand . Vertically integrated business from in-house design team to company-owned . retail chain Total sales are split approximately 60% clothing and 40% equipment . Design tailored specifically for Australian and New Zealand conditions . 93 stores as at 5 May including 6 UK . Sales of approximately NZ$240 million and EBITDA of NZ$57 million forecast in FY2010 . Existing stores in Australia and New Zealand 5. 1. Market Kathmandu divides the clothing and equipment for travel and adventure Market into three categories: 5. 1. 1. Specialist Equipment and clothing intended for mountaineers and other adventure market participants who require highly technical roducts for their activities 5. 1. 2. Mainstream/lifestyle Products which incorporate some of the technical authenticity and function but not the top of the line specifications 5. 1. 3. General merchandise retailers Simple clothing and equipment such as fleece, and certain backpacks and sleeping bags for use by the price sensitive consumer With affordable, technical products, Kathmandu competes in all three categories, recognising its view that the mass market represents a significant financial opportunity where buyers will pay for technical credibility.

    Kathmandu. s wide appeal and technical credibility increases the size of its addressable market 5. 2. Market participants: retailers Within the categories listed above, a number of retailers and brands/wholesalers operate under a range of business models. There are degrees of overlap between retailers and brands/wholesalers as well as with the product range of indirect competitors. The travel and adventure gear markets in Australia and New Zealand are highly fragmented and comprise a wide range of retail formats including (but not limited to): Specialty outdoor industry retailers including Mountain Designs, Snowgum, and Macpac in both Australia and New Zealand, Bivouac and R&R Sports in New Zealand; and Anaconda, Columbia, Aussie Disposals, Paddy Pallin, BCF ,Ray. s Outdoors and The North Face in Australia; . Lifestyle/sporting goods retailers: including Rebel Sport and Colorado and fashion and footwear stores such as Athletes . Foot and Surf Dive „N. Ski . General merchandise/full service department stores: Including Kmart, Target, Big W, David Jones and Myer in Australia and The Warehouse and Farmers in New Zealand.

    Online retailers also offer competing products. 5. 3. Market participants: wholesalers/brand competitors Kathmandu also competes with a number of brands which sell through specialist travel and adventure retailers, sports stores and department stores. A number of international brands have gained credibility amongst broader market consumers as a result of their technical merit and have consequently gained popularity as lifestyle wear. As a specialist in clothing and equipment for travel and adventure focused in Australia and New Zealand, Kathmandu. advantage over many of its Northern Hemisphere brand competitors is that it designs and markets products specifically intended for each region. s unique requirements and conditions. Furthermore, Kathmandu. s extensive retail footprint and brand differentiate the Company from many brand competitors, and its vertical integration as a designer and retailer generally allows it to offer products to customers at very attractive price points. There are competing brands located in Australia and New Zealand, such as Mountain Designs, which also focus on this region; however, Kathmandu has a more significant store footprint. . 4. List of Major Competitors in the industry (Australian stores New Zealand stores) 1. Columbia 2. The North Face 3. R&R Sports 4. Paddy Pallin 5. Bivouac 6. Anaconda 7. Macpac 8. Aussie Disposals 9. Ray’s Outdoors 10. Mountain 11. Designs 12. BCF 6. CUSTOMER TRENDS The travel and adventure clothing and equipment market appeals to a broad customer base – from specialist outdoor adventurers, looking for technical products, to recreational users, buying for lifestyle and practical reasons. The market. s customers span a wide range of ages and demographics.

    In recent years, there has been an emphasis on activities which promote health and fitness, and government programs have been developed to encourage active and healthy lifestyles. In Australia, the Federal Government has implemented the „Measure Up. campaign as part of the Australian Better Health Initiative (“ABHI”). The „Measure Up. campaign is for all Australians and aims to provide them with the tools and understanding to make healthy lifestyle choices. The ABHI was announced in February 2006 by the Council of Australian Governments and a total of Au$500 million was assigned to the program over four years.

    In New Zealand, the New Zealand Ministry of Health has launch edits „Healthy Eating – Healthy Action. campaign as part of its strategic approach to improving nutrition, increasing physical activity and achieving healthy weight for all New Zealanders. Australia and New Zealand are fitness-focused countries. More than 63% of New Zealanders and 58% of Australians were classified as highly active in a 2004 study, 1 making the New Zealand and Australian populations the first and fifth most active of the 20 countries studied. Australians have become more active in the past few years, with the median frequency of participation in physical activity per week up 50% since 2001 (from two to three times) and the percentage of Australians participating in regular physical activity up 33% since 2001. 3 1. Bauman A, Bull F, Chey T, Craig C, Ainsworth B, Sallis J et al. (2009) The International Prevalence Study on Physical Activity: Results from 20 countries. International Journal of Behavioral Nutrition and Physical Activity 2009, Vol. 6: 21. 2. Countries studied comprised Argentina, Australia, Belgium, Brazil, Canada,

    China, Colombia, Czech Republic, Hong Kong, India, Japan, Lithuania, New Zealand, Norway, Portugal, Saudi Arabia, Spain, Sweden, Taiwan and the USA. 3. Australian Sports Commission: Participation in Exercise, Recreation and Sport Annual Report (2008). http://www. sheffield. co. nz 7. BUSINESS MODEL Design . Manufacture and logistics . Stores Kathmandu. s products are designed to suit specific New Zealand and Australian requirements, such as terrain and climate. The technical aspects of Kathmandu. s products make them less seasonal compared to fashion apparel.

    A key focus for Kathmandu is to develop products with technical credibility and broad market appeal across a range of price points. The Company. s supply chain is organised by region and is focused on a process of pre-loading and replenishment as required by the Company. s promotional sales strategy. The product journey for Kathmandu begins with the in-house design and third party manufacturing of Kathmandu. s own-branded product. Approximately 80% of Kathmandu product is manufactured in China, with the remainder primarily around the rest of Asia, Europe and North America.

    The majority of products are shipped from these manufacturers to Kathmandu. s distribution centres in each of its countries of operation. The Company has recently successfully piloted direct reducing demand on our distribution centres. Kathmandu typically contracts with suppliers using materials and components sourced or specified by Kathmandu with pricing and volume fixed for each order. Suppliers to Kathmandu typically make to order, meaning the lead times on orders are approximately three to six months. Kathmandu. s ertically integrated approach to bringing product into the business has enabled it to generate gross profit margins that capture the equivalent of the wholesaler. s margin in addition to a retail margin. The Company. s top 10 supplier. s account for approximately58% of its product and 45 suppliers account for 90% of the Company. s product. The strong relationships Kathmandu has established with many of its suppliers, over a number of years, and the high volumes of product ordered, assist the Company to achieve attractive buying terms.

    With own-brand product accounting for more than 95%of sales, Kathmandu has an advantage over many of its competitors in that the Company does not compete with others for shelf space; controls its own merchandising and relies on its own marketing strategy. 8. MARKETING ACTIVITY AND PRODUCT STRATEGY 8. 1. Marketing activity The Kathmandu marketing function is responsible for the development and implementation of the marketing strategy including brand planning, customer research, targeted database development, annual advertising and promotions, store merchandising and new store design. 8. 2. Brand planning

    The brand is at the heart of all Kathmandu marketing. Brand planning supports Kathmandu. s positioning as a specialist provider of quality clothing and equipment for travel and adventure and drives brand awareness and preference. 8. 3. Customer research The Kathmandu marketing and product teams work together to understand customer requirements, studying market trends and translating these into product and pricing strategies. This information also sets the future product development plans and priorities. Targeted database development The Summit Club database is a key source of information supporting Kathmandu. customer research. With over 285,000 members (as at 31 July 2009), the database represents approximately 30% of total sales and allows Kathmandu to better understand its customers and their interests, purchasing habits and communication preferences. By segmenting the customer base, Kathmandu can deliver targeted communications and promotions to market efficiently and productively. The Summit Club holds significant scope for growth and development and represents a major opportunity for Kathmandu. Annual advertising and promotion Kathmandu communicates regularly with the market and has historically spent between 5. 0% and 6. % of annual sales on marketing initiatives. Forecast spend in FY2010 is also within this range. Media spend in dollar terms is amongst the highest of its major retail competitors in the specialist outdoor – travel and adventure market across Australia and New Zealand. The marketing program commences early in the design process, with the team engaged in testing the product ranges in a variety of locations, recently including Borneo, Hokkaido and Morocco. Evocative travel and adventure shots are taken in these locations, to reflect and capture the essence of Kathmandu, with the experience and output used to promote the new ranges in stores. . BRAND HIGHLIGHTS 9. 1. Brand recognition Amongst outdoor enthusiasts, Kathmandu is the #1 recognised outdoor clothing brand in New Zealand and Australia, with 99% recognition in New Zealand and 88% recognition in Australia, according to the latest GORETEX® Brand survey* 9. 2. A market leader in Australia and New Zealand Kathmandu is a leading provider of quality clothing and equipment for the travel and adventure market with the largest number of retail stores in this category across Australia and New Zealand 9. 3. Technical products with wide market appeal

    Kathmandu offers a wide range of products with technical specifications which appeal to a broad market Kathmandu. s customer base is not limited to recreational activity participants as its products appeal to many customers as a lifestyle brand 9. 4. Distinct advantages from Vertical integration From in-house design to Company-owned retail stores, Kathmandu. s vertically integrated business model gives the Company control of its brand, products and customer experience 9. 5. Attractive and stable margins Vertical integration allows Kathmandu to achieve both a retail and wholesale margin Gross margin >60% maintained every year since FY2007* . 6. Significant store rollout potential Kathmandu has grown from 41 stores in FY2005 to 82 as at the end of FY2009* Plans to open 12 new stores during FY2010, of which three have already opened and a further three are expected to open before Christmas* 70 locations in Australia and New Zealand have been identified to assess for suitable new store sites in the future (Including the 12 FY2010 stores) * 10. FUTURE VISION Kathmandu believes that there are further opportunities to drive earnings by improving existing store sales and margins through refurbishment, enhanced marketing strategies and expansion of product offerings.

    Kathmandu intends to drive sales growth through: 10. 1. New store rollout Continuing the store rollout in Australia and New Zealand; as they have identified 150 potential Stores in ANZ, at least 60 further opportunities* to assess for suitable new store sites in the next three to five years, 15-20 stores per year . Profitability of current network . Penetration of NZ versus AU . Regional and infill opportunities . Formats and size . Destination, strip and small locations . Cannibalisation 10. 2. Upgrade existing store network

    Optimizing its existing store footprint for the Profitability of current network by upgrading Existing Store Network: 5-8 stores per year 10. 3. Target stores Smaller stores Secondary locations Older, inefficient fit outs Enlarge, relocate and renovate Recent upgrades: Canberra CBD Queenstown Brisbane CBD Cashel St, Christchurch Bourke St, Melbourne 10. 4. Introducing new products Expand the Product Offer: 5-7% per year. Growth over last 3 years in ranges such as Active, Kids, thermals Many gaps in our product range – clothing and equipment Keep away from fashion – stay technical

    Stay within technical travel and adventure Specific future opportunities – examples: luggage and bags, travel accessories, more cycling and active, tee shirts, underwear and footwear 10. 5. Grow and Maximise the Customer Database Summit Club members attributes and opportunity: -Loyal customers, frequent purchasers and lower marketing costs to service Current membership 340,000+ across all 3 countries, increased 20% + in last yearMembership has more than doubled in past 4 years with average spend up Significant further potential to grown numbers, especially in Australia

    Doubling of membership numbers realistic objective Supported by improved recognition and reward of individual members utilising effective CRM tools 11. CUSTOMER CATEGORIES Kathmandu. s core customer base can be classified into three categories, providing the company with access to a broad range of customers 11. 1. Young Go-Getters Emerging professionals (become Adventurous Families) Explorers who make time to travel and enjoy the outdoors, they also fit walks, gym, jogging, Swimming and cycling into busy Lives 11. 2. Adventurous Families Typically professionals who enjoy the outdoors Higher than average incomes Have children 11. 3.

    Older Outdoor Enthusiasts Enjoying their freedom as their children are partly or fully-grown Seeking new challenges and interests through outdoor experiences Many are empty nesters 12. OPERATIONAL EFFICIENCIES • Lower cost of doing business in precent terms / Gain operating leverage • Internal systems and processes • Core systems upgrade to enable new efficiencies • Improved reporting and mgmt. information • Reduced cost of goods/improved supplier terms • New stock mgmt. and forecasting systems • Improved terms for larger orders as business grows • Consolidation of suppliers while maintaining competitive pressure • Supply chain enhancements DC Bypass & Cross Docking • New WMS & Wireless technology to assist DC efficiency In addition to these sales growth strategies, Kathmandu has opportunities to enhance profitability through controlling cost as the business grows, through further investing in systems and technology to deliver efficiencies and savings, including potentially through a reduction in supply chain costs and lead times and improved inventory management. Launching an enhanced website with online transactional capabilities; and continuing to develop its online capabilities through its new transactional website. 13. RESOURCES / CAPABILITIES

    Kathmandu has invested significant resources in its product design innovation and quality. Since 2006, the product team has grown from 23 to 34 people. A key strategy for the product design team has been to ensure it obtains products at multiple price points. This „good, better and best. product strategy allows Kathmandu to create quality products with features and price points to meet the needs of different customer segments within the market. For instance, in its thermals category, the Company offers polypro (good), thermaplus (better) and merino (best). This is consistent with Kathmandu. strategy of providing technically credible products to a broad customer base. A key component of ongoing sales growth is the continual introduction of innovative products. This is a core competency of Kathmandu which has a long track record of designing, sourcing, marketing and retailing products that appeal to the needs of its customer base. Kathmandu also offers specialized product lines such as Kathmandu Kids, a children. s range, and basecamp®, a family camping offering. basecamp®, products are sold through the company. s large stores with key products including tents and shelters, furniture, lighting and kitchenware. 4. COMPANY’S PRODUCTS Technical wear . Down jacket . Thermals . Fleece . Woven casual wear . Merino Packs . Bags . Sleeping bags . Tents . Camping Accessories . Footwear and socks 15. GOVERNANCE SYSTEM 15. 1. Board Charter The Board has adopted a written charter to provide a framework for the effective operation of the Board. The charter addresses the following matters and responsibilities of the Board. enhancing Shareholder value; oversight of Kathmandu, including its control and accountability systems; appointing and removing the Managing Director (or equivalent) and the Chief Financial Officer; atifying the appointment, and where appropriate, the removal of the senior executives; input into and approval of corporate strategy and performance objectives; reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; monitoring senior management. s performance and implementation strategy, and seeking to ensure appropriate resources are available; approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures; approving budgets; and approving and monitoring financial and other reporting. 15. 2.

    Code of Conduct The Board recognises the need to observe the highest standards of corporate practice and business conduct. Accordingly, the Board has adopted a formal code of conduct, to take effect from Listing, to be followed by all employees and officers. The key aspects of this code are to: act with honesty, integrity and fairness and in the best interest of the Company; act in accordance with all applicable laws, regulations, policies and procedures; and use Kathmandu resources and property properly 15. 3. Continuous Disclosure Policy Kathmandu is committed to observing its disclosure obligations under the Listing Rules.

    Kathmandu has adopted a policy to take effect from Listing which establishes procedures which are aimed at ensuring that Directors and Management are aware of and fulfil their obligations in relation to the timely disclosure of material price-sensitive information 15. 4. Securities Trading Policy Kathmandu has adopted guidelines to take effect from Listing for dealing in securities which are intended to explain the prohibited type of conduct in relation to dealings in securities under the Corporations Act and the Securities Markets Act 1988 (NZ) and to establish a best practice procedure in relation to Directors. management. s and employees. dealings in Shares in Kathmandu. Subject to the overriding restriction that persons may not deal in Shares while they are in possession of material price-sensitive information, Directors and management will only be permitted to deal in Shares during certain „window periods. , such as following the annual general meeting, the release of Kathmandu. s full and half year financial results or the release of a disclosure document offering shares in Kathmandu. Outside of these periods, Directors and management must receive clearance for any proposed dealing in Shares. 15. 5.

    Audit and Risk Committee Under its charter, this committee must have at least three members, a majority of whom must be independent Directors and all of whom must be non-executive Directors. Currently, all the non-executive Directors are members of this committee. John Harvey will act as chairman of the committee. The primary role of this committee includes: . overseeing the process of financial reporting, internal control, continuous disclosure, financial and non-financial risk management and compliance and external audit; . monitoring Kathmandu. s compliance with laws and regulations and Kathmandu. own codes of conduct and ethics; . encouraging effective relationships with, and communication between, the Board, Management and Kathmandu. s external auditor; and . evaluating the adequacy of processes and controls established to identify and manage areas of potential risk and to seek to safeguard the Company. s assets. Under the charter it is the policy of the Company that its external auditing firm must be independent of the Company. The committee will review and assess the independence of the external auditor on an annual basis. Risk Management Policy The identification and proper management of Kathmandu. risk are an important priority of the Board. Kathmandu has adopted a risk management policy appropriate for its business. This policy highlights the risks relevant to Kathmandu. s operations, and Kathmandu. s commitment to designing and implementing systems and methods appropriate to minimise and control its risk. The Audit and Risk Committee is responsible for monitoring risk management and establishing procedures which seek to provide assurance that major business risks are identified, consistently assessed and appropriately addressed. 15. 6. Remuneration and Nomination Committee

    Under its charter, this committee must have at least three members, a majority of whom must be independent Directors and all of whom must be non-executive Directors. Currently, all the non-executive Directors are members of this committee. Sandra McPhee will act as chairman of the committee. The main functions of the committee are to assist the Board with a view to establishing a Board of effective composition, size, expertise and commitment to adequately discharge its responsibilities and duties, and assist the Board with a view to discharging its responsibilities to Shareholders and other stakeholders to seek to ensure that Kathmandu: has coherent remuneration policies and practices which enable Kathmandu to attract and retain executives and Directors who will create value for Shareholders; . fairly and responsibly remunerates Directors and executives, having regard to the performance of Kathmandu, the performance of the executives and the general remuneration environment; . and has effective policies and procedures to attract, motivate and retain appropriately skilled persons to meet Kathmandu. s needs. 15. 7. Communications Strategy Kathmandu is committed to keeping Shareholders informed of all major evelopments affecting the Company. s state of affairs relevant to Shareholders in accordance with all applicable laws. Information will be communicated to Shareholders through the lodgement of all relevant financial and other information with ASX and NZX and publishing information on the Company. s website (http://www. kathmandu. co. nz/ or http://www. kathmandu. com. au/). In particular, the Company. s website will contain information about the Company, including media releases, key policies and the terms of reference of the Company. s Board Committees.

    All relevant announcements made to the market and any other relevant information will be posted on the Company. s website as soon as they have been released to ASX and NZX. 16. ANALYSIS 16. 1. Key investment risks on the company and Challenges Potential investors should be aware that there are risks associated with Investing in Kathmandu, including risks Associated with the Kathmandu business and risks associated with investing in the Stock market generally. Some risks are beyond the control of Kathmandu and its Directors and management and may have a material impact on Kathmandu. financial Performance or position. See section 9 for further information on the key risks. Before deciding whether to apply for Shares, potential investors should Read this prospectus in its entirety and carefully consider the assumptions underlying the financial forecasts and the risk factors that could affect the Future performance of Kathmandu. Some of the key risks of investing In Kathmandu include but are not limited to the following: . The retail environment may deteriorate. . A downturn in General economic conditions may Have a material adverse effect On Kathmandu; and . The success of Kathmandu is heavily reliant on its reputation and branding. Unexpected Issues or events may damage . Kathmandu. s reputation or the Value of its brand . Kathmandu may face aggressive competition or its competitive Position may deteriorate; . Kathmandu. s sales may be adversely affected by unseasonal Weather conditions; . A sale promotion failure would adversely impact . Kathmandu. s earnings and cash flow; Product sourcing from third parties carries risk; . Kathmandu may lose key management personnel and may not Be able to recruit equally qualified replacements; . Information technology failures may occur and information . Technology projects may not be successfully implemented; . Unforeseen or unexpected regulation could adversely . Affect operations; . Foreign exchange movements may result in a change of . Relative competitiveness in the short term; . Kathmandu may be unable to secure suitable sites for new . Stores at competitive rates; and . There could be a greater than expected impact to existing Store sales from the new store rollout. 17. SPONSORSHIPS Outward Bound and Kathmandu (adventure scholarship) Kathmandu. s partnership with Outward Bound started in July 2005 and ever since then we have been busy sorting clothing and equipment for their courses, product testing and providing all Outward Bound instructors with Kathmandu clothing, and running our Live the Dream® Adventure scholarships. • First Foundation and Kathmandu (education and training) The First Foundation was established in 1998 to help talented young people whose families may not have the financial resources available to help them achieve their tertiary goals.

    The Foundation has 65 current scholars working through the program, with more commencing next year. Each scholarship involves a significant commitment from all concerned. • Kathmandu Supports the Creation of One of the World’s Largest Private Nature Reserves (environment) Kathmandu is proud to announce its support for the establishment of one of the world. s newest and largest private nature reserves by Australian Wildlife Conservancy (AWC), an independent, non-profit organization dedicated to saving Australia. s threatened wildlife and ecosystems. 18.

    CONCLUSION The story of Kathmandu began with a sewing machine in the back room of a med student. s flat where it was being used to make outdoor clothing and equipment for friends and family. Over 21 years, it is today – a company of more than 80 stores spread across Australia, New Zealand & the United Kingdom The growth prospects of Kathmandu are likely to result from increased contribution from existing stores and the Company. s ability to continue to open and operate new stores on a profitable basis. The store rollout program is dependent on Kathmandu. ability to secure suitable sites on acceptable terms. A significant increase in rental costs associated with new stores could impact margins and the profitability of some stores. Similarly, the inability of Kathmandu to source new locations in target areas could reduce the Company. s ability to continue to expand its store footprint. In addition, Kathmandu. s tri-annual sales account for a significant proportion of revenue each year and require significant inventory to be stocked in preparation. A sale promotion failure could lead to a meaningful ncrease in working capital, potentially breaching the Company. s working capital facility, and a marked reduction in sales revenue. In the three and a half year period under the current ownership there has been substantial investment in core organisational structure to support ongoing growth. In all three countries of operation, new or redeveloped leased head office and distribution facilities have been established with sufficient capacity to support future store growth. Kathmandu. s business depends on effective marketing and advertising.

    There is a risk that one or more marketing or advertising campaigns may be unsuccessful, which may adversely impact margins, reduce overall profitability and have an adverse effect on Kathmandu. s future financial performance or position The executive management team has been enlarged with new personnel and roles introduced to facilitate the Company. s growth strategy in respect to store rollout, product development and logistics. Key systems improvements, such as new point-of- sales and electronic time and attendance/rostering systems will provide IT infrastructure for ongoing growth.

    Total capital expenditure for these initiatives represented approximately NZ$3. 5 million over FY2007 to FY2009. Store rollout Kathmandu has grown from 46 stores in 2006 to 82 as at the end of FY2009. New store openings have been a key driver of sales and earnings growth. Having determined the appropriate store formats and rollout opportunities, the rate of new store openings has also taken into account the economic environment, business capacity, availability of suitable locations, and optimal use of capital. Kathmandu. s vertical business model has assisted individual stores to quickly make positive contributions.

    The speed of new store rollout and targeting in fill of stores in existing areas (particularly in New Zealand) has caused some reduction in existing store sales. There are a number of risks, both specific to Kathmandu and of a general nature, which may either individually, or in combination, materially and adversely affect the future operating and financial performance of Kathmandu, its investment returns control of Kathmandu, its Directors and management. There can be no guarantee that Kathmandu will achieve its stated objectives or that any forward looking statements or forecast will eventuate.

    There are pricing and other risks associated with any investment in a company listed on a stock market. The price of shares on ASX and NZX may rise or fall due to numerous factors which may affect the market performance of Kathmandu, including changes in Australian, New Zealand and other international stock markets and investor sentiment, domestic and world economic conditions and outlook, inflation rates, interest rates, employment, taxation and changes to government policy, legislation or regulation.

    The market price for the Shares could be volatile or fluctuate in response to a wide range of factors and actual or anticipated events, including variations in Kathmandu. s prospects or operating results, the outlook for the retail, industrial, textile or clothing markets, the discovery or development of competing projects, adverse industry publicity, and other events or factors affecting the operations, financial performance or actual or perceived value of Kathmandu. 19. REFERENCES / BIBLIOGRAPHY http://www. shares. com. au/forum/showthread. php? t=7055 www. investsmart. com. u/shares/asx/Kathmandu-Holdings-KMD. asp – Cached http://www. businessspectator. com. au/bs. nsf/Article/Kathmandu-profit-lifts-after-IPO- pd20100318-3MT92? OpenDocument&src=tnb http://www. sheffield. co. nz https://www. asxonline. com/intradoc- cgi/groups/participant_services/documents/communications/asx_025383. pdf * GORE-TEX survey June 2008 by W L Gore & Associates (Australia) Pty Ltd. Comprises both unprompted recognition of the Kathmandu brand and recognition of the Kathmandu brand when prompted by the surveyor. * Source: http://www. kathmanduholdings. com/presentations/Information. pdf

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