KMD Brands Limited (KMD.NZ) Earnings Call Transcript & Summary

Good morning, everyone. My name is David Kirk, and I'm pleased to welcome you as Chairman of KMD Brands Limited to our 2025 Annual Shareholders Meeting. I extend a warm welcome to all shareholders joining us online today through our virtual meeting platform provided by our share registrar, MUFG, pension and market services. I declare that a quorum of shareholders is present and the meeting has been duly convened. I'm also pleased to officially open online voting. Before we start the formal business, I would like to introduce my fellow directors to you. Brent Scrimshaw, our Group CEO and Managing Director. Thank you, Brent. And our Non-Executive Directors, Abby Foote, Andrea Martens, Philip Bowman and Zion Armstrong. I also welcome Peter Taylor from KPMG, Carla Webb-Sear, Group CFO; and Frances Blundell, Company Secretary. In terms of the format for today's meeting, I will start by making some brief comments about the 2025 year, financial year, for KMD Brands and then hand over to Brent, who will provide more details on our Next Level transformation strategy and how it's going to change our business as well as a summary of the group's financial performance. We will then move to the formal business of the meeting. There are two resolutions to be considered by shareholders today, and these are set out in the notice of meeting. An opportunity will be given to shareholders to ask questions about or make comments on the items of business on the agenda for today's meeting. All voting on the resolutions to be put to today's meeting will be conducted by way of a poll. For shareholders joining us in-person today, you would have validated or been given your shareholder voting card. If you are a shareholder and did not register on arrival and wish to vote, please make your way to the registration desk outside the room and staff from 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 will need to click, 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've 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 Pension and Market Services 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. [Operator Instructions] I would encourage you to send through your questions as soon as you can. Questions may be moderated or combined with other questions where they relate to the same topic. The minutes of the 2024 Annual General 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 financial year '25 annual integrated report is available to all shareholders through the company's investor website. Any shareholder who has not received a copy of the annual integrated report and the post that would like to request a physical copy can do so by contacting the Company Secretary or our share registrar, MUFG Pension and Market Services. We will address any questions from shareholders on the annual integrated report or financial statements under general business later in the meeting. Now just a few words about the year just past. It will not have a scope to notice that financial year 2025 presented a very challenging operating environment for KMD brands and the wider industry. Group sales were modestly up on last year with Rip Curl and Kathmandu delivering slight growth and Oboz seeing a small reduction in sales. Gross margin declined reflecting greater promotional activity, which was required to maintain market share in a highly competitive trading environment. Our operating expenses remain tightly controlled in the face of global cost pressures. Disciplined inventory management contributed to a reduction in net working capital. Net debt also decreased leaving the balance sheet in a solid position. Despite the trading challenges in 2025, we believe KMD brands is materially undervalued. We know that our brands and our group structure with geographic, channel and seasonal diversity has the potential for much greater growth and profitability. We have taken steps to manage the cyclical downturn and market volatility we have seen in the last year, and to emerge more resilient and ready for our next phase of growth. Part of this is executive team change and capacity building. In the last quarter of the financial year, the Board welcomed to Brent Scrimshaw as Group Chief Executive Officer and Managing Director. Brent served on the KMD Brands since 2017 and brings extensive global experience in building and scaling consumer brands, including an 18-year career with Nike across 3 continents. In his short period of CEO, Brent has led a major reset of the company's strategy and capacity to execute the strategy. Brent will talk more to this shortly. Towards the end of financial year '25, we launched KMD brands, Next Level, a new transformation strategy and operating approach that is designed to sharpen our focus, accelerate performance and unlock growth. Next Level reflects our ambition to operate with greater agility, accountability and alignment across our brands and markets. It is already guiding our decisions, our key decisions and investments and will continue to shape how we deliver sustainable profitability and value for our shareholders. Again, Brent will take you through this in greater detail later in the meeting. With the right team in place and the Next Level transformation strategy underway, we are confident KMD Brands is heading in the right direction. In closing, I sincerely thank my Board colleagues for their hard and ongoing commitment to the group. I extend our gratitude to all KMD Brands employees, including the group Chief Executive Officer, Group executive team for their continued dedication. Finally, we thank all our shareholders for your ongoing support and confidence in KMD Brands. As you'll hear from Brent, our new strategy is showing early signs of momentum, and we're confident this will carry through into financial year '26. I'd like now to invite Brent to address you.

Okay. Thank you, David. Good morning, everyone. It's great to see you all here. My name is Brent Scrimshaw, and I'm really pleased to address you all today for the first time as the Chief Executive Officer of KMD Brands. Today, I'm going to talk you through the FY '25 financial summary and operational highlights, provide a high-level recap of our Next Level 3-year strategy that David just referred to and of course, a trading update you may have seen this morning for the first quarter of FY '26. So FY '25 continued to be a challenging year for our group and the industry at large as cost of living pressures, geopolitical issues, all weighed on consumer sentiment. As a result, global market conditions continued to be mixed. However, we were able to grow revenue by 1% above the prior year with improved results in the direct-to-consumer channel, including e-commerce. Group gross margin decreased by 1.9% of sales year-on-year to 56.5% as we focused on maintaining market share with increased promotional intensity and a deliberate strategy to clear aged and excess inventory to make way for fresh, innovative product in the marketplace from Q4. The profit result was clearly not where we wanted it to be. And while sales grew slightly, the combination of a decrease in gross margin and continued operating cost pressure meant that underlying EBITDA decreased to $17.7 million. After accounting for a one-off noncash impairment of Oboz's intangible assets, the group's net loss after tax was $93.6 million. And on an underlying basis, the group's net loss was $28.3 million. Now despite this challenging trading environment, we continued to prioritize cash flow, reducing our inventory and net working capital year-on-year. So pleasingly, net working capital ended $40.6 million lower than July last year. So as a result, the group's balance sheet ended the year in a stable position with $52.8 million in net debt, lower than the July balances of the last 2 years, with funding headroom of approximately $235 million. Our brands continue to deliver iconic product to market. Rip Curl launched the new Search GPS 3 watch in April, allowing surface to plan, track, compare and share every session with the Search iOS app functionality also enabling surf tracking for users of the Apple Watch for the first time. Oboz released a limited edition of its iconic [ Sawgtooth II ] in a collaboration with New York Creative Studio, Blackbird Spyplane, which sold out in minutes and captured the attention of trend-focused consumers worldwide. In addition, Kathmandu was recognized for pushing the boundaries of product innovation, winning 2 ISPO awards for the Feather Flight, a best-in-class lightweight carry-on, and another for the Women's Seeker Short, which uses fabric made from captured carbon emissions and recycled materials. The new Rip Curl Bondi women's store marked the beginning of our Next Level integrated marketplace strategy, which will align consumer product, marketing and a renewed segmentation of our store portfolio in each geography. The group also maintained its commitment to sustainable innovation as each of our brands continue to be B Corp certified and demonstrate their leadership, particularly through the use of new responsible materials in product development. To be clear, sustainability remains integral to the DNA of our brands and how they develop products. So given our FY '25 performance, in early September, we introduced KMD Next Level, a reset and transformation plan designed to address our challenges and what we acknowledge has been unacceptable performance. So for myself and the team, it's time to reset expectations of our brands, of our business and of ourselves. And whilst growth is what we're ultimately committed to delivering, it's also crystal clear that we needed to immediately reset our cost base to deliver enhanced profitability and at the same time, provide the opportunity to self-fund future growth investments. Now in the last few months, we've already begun to execute against the Next Level strategy. And there are three strategic priorities that are fundamental to our success that I'd like to recap for you this morning. Firstly, to succeed with brand and product-led offense, we need to add speed and style to our technical product foundations, delivering iconic and distinctive product franchises and accelerating our go-to-market capability. Secondly, data-driven processes and AI tools are going to enable our team to simplify an overly complex business to make better data-led decisions. There will be a continued focus on working capital off the back of Q4 of last year and our investment. Our supply chain and marketing spend allocation will continue to be focused for efficiency. We also have a laser-sharp focus on profitability, only releasing our cost investments in line with our financial guardrails, delivering sustainable profitable growth. Now the KMD strategy house here summarizes all of the components of our new transformation Next Level strategy. And whilst we've not changed our purpose and vision, we have reset our strategic priorities, our growth drivers and importantly, the behaviors that are going to get us there. We've enabled our plan with a clear step change in both thinking and an obsession with execution in both our brands and our corporate functions. With a clear strategy, a renewed growth mindset and obsessive execution, we're already making significant progress to drive more positive outcomes. On Slide 16 and 17, we've summarized our priority strategic initiatives that apply both across the group and within each of our individual brands. Firstly, as you can see, at the group level, our shared functions become growth enablers for each of our brands, providing functional expertise and continued efficiency that our brands must leverage for growth. We've set clear financial guardrails for our brands to operate with, always with a focus on driving sustainable profit growth and increased efficiency in the areas of working capital investment and supply chain, helping to deleverage our balance sheet and enable our brands to grow. We've also made strategic shifts in each of our three brands. Now just to be clear, these are not incremental shifts. We're not tinkering around the edges or making small trade-offs. These are bold strategic shifts, specifically designed -- if we can just keep moving forward, specifically designed to drive an efficient and different outcome for each of those brands. At Rip Curl, we've reset towards a youthful brand for the next generation. We've contemporized the relevancy of our brand equity in the search, and we've redefined what it can mean to a whole new generation of consumers. We will grow beyond core surf to include beach consumers for the first time. While still serving core surfers, we can also address clear market capacity with relevant product along with the right new distribution channels to address a significant but untapped growth potential. And lastly, as you know, there's been significant uncertainty in the U.S.A. marketplace. And in response to this, we've made swift and responsible decisions to protect our profitability in that geography. For Kathmandu, product distinction and separation are fundamental to the brand and our portfolio's success. Also critical is the way that our product stories show up in a newly segmented store portfolio. Lastly, I think it's also a responsible and a clear decision that we've reset our international strategy for Kathmandu to be digitally and distributor-led, again, immediately reducing cost. For Oboz, within the footwear industry, the trail category is hot right now and the locations of [indiscernible] and for those of you who enjoy Netflix content, Yellowstone, which is the home of Oboz, are also hot right now. And we've accelerated our product creation agenda at Oboz to impact the market in a much faster way and much earlier than was originally planned. So at the same time, we aim to introduce the brand with the help of new vault, heritage and all-terrain style-based products to a whole new group of consumers in new channels of distribution. So beyond the strategic intent of the transformation of our business through the Next Level plan, I want to be really clear about the financial expectations. We're on track today with a $25 million cost reset from our cost base to mitigate cost pressure and importantly, to help self-fund our strategic growth agenda into the future. Now this cost set will be driven from initiatives such as the organizational restructure and a store network review that we've already completed and announced to the marketplace. The Next Level plan also identifies $15 million of these savings to be reinvested in the FY '26 fiscal year to drive growth over the medium term. This will be a staged approach to reinvestment in growth such as product, store formats and performance marketing, reallocating resources to fuel the areas that deliver the greatest return across the portfolio. Now this deliberately provides our plans with intended flexibility with a stage-gated approach to investment based on growth, enabling cost and results. We anticipate realizing net savings in FY '26 after reinvestment of $10 million, which allows us to offset baseline cost inflation. So with these financial guardrails in place as part of Next Level, the good news is we're already making early progress, and there are 3 strategic examples I wanted to highlight today to demonstrate those proof points of KMD Next Level in action. The first is a heightened focus on product, product innovation and in particularly, Kathmandu. This includes, as an example, our Feather Flight Carry-On, which I mentioned earlier, winner of the 2024 ISPO Global Product Innovation Award. From a single highly innovative carry-on that sold out almost instantly, we've pivoted this season to extend and expand into a range that will now provide and strengthen our position as a leader in premium adventure travel gear. And building on this momentum, our Trailhead pack has been recognized as the 2025 ISPO Global Product Innovation Award winner as well. This pack, which only launched this week, redefines global outdoor gear through a trademarked fully customizable design that combines sustainable materials, advanced performance features and self-expression opportunities for consumers that set a new standard for adaptable adventure equipment. So what you should expect is to see more of this caliber of product and innovation in a relentless flow from Kathmandu into the future. Now secondly, along with this step change in product, we're also elevating our storytelling capabilities through our integrated marketplace strategy that I mentioned earlier. So this is the Rip Curl Bondi Beach [indiscernible], an iconic brand at the world's most iconic beach location. On the left is our first Australian Rip Curl women's store, and on the right is the newly refurbished men's and kids flagship store. Our new CEO for Rip Curl, Ash Reade, an 8-time surfing world champion, our own [ Stephanie Gilmore ], recently opened this precinct to much fanfare at this iconic location. Both stores have been purpose designed and merchandised to set a new standard for Rip Curl's authentic surf and beach stories that connect with our core consumers. A purpose-built wet suit area also anchors the store experience, reinforcing Rip Curl's authority in technical performance and product innovation. And most importantly, the shopping experience of our first Australian women's store sets a new benchmark, a space designed specifically to reflect her energy, her confidence and her lifestyle. So we've spoken previously about the new Kathmandu next-generation concept store, and I'm really pleased to say that last month, we launched Kathmandu Ricketen in our hometown of Christchurch. Now this is the ultimate expression of the Kathmandu brand in a store experience that is fresh, open and designed to evoke the calm and clarity of the outdoors with innovative technical displays, digital [ manikins ] that all showcase our product and technical credentials in motion, highlighting design and enhanced performance. Moving inside the store, the experience is quite a departure, I hope you all agree, from the historical Kathmandu store format. It's contemporary, it's bright. Most importantly, it's easy to shop with sustainable materials embedded throughout the space. And lastly, you can see here how an increased focus on product storytelling and merchandising brings the Trailhead Stretch jacket to life, demonstrating purpose as well as design for a more connected and integrated customer experience. So in the coming weeks and in time for December trade, we'll also open [ Chatswood ] in Sydney with the CBD flagship store in Melbourne to follow in the second half of FY '26. And a core part of our integrated marketplace strategy also includes e-commerce. We know our brands are underpenetrated in digital. It's a huge opportunity for us, and we're sharpening our focus and our investment to accelerate growth in this channel. Our Shopify platform launch has already shown fantastic user experience results for the Kathmandu business. So moving to Slide 31. Our premium lifestyle and studio photography supported by a dynamic focus on video showcases the new Trailhead pack I just mentioned, inspiring consumers to express themselves through personalization. So you can see how product, channel and storytelling start to come to life. We've also recently relaunched or launched Rip Curl on Shopify as well across Australia, the United States and Europe all in time for Black Friday trade, delivering a faster and more dynamic online experience that brings the energy of surfing to life through immersive storytelling integrated throughout the site. So like Kathmandu, it not only connects customers with the brand through this premium photography and video, most importantly, it showcases product and simplifies the shopping experience to drive additional conversion. And then finally, alongside product innovation, our integrated marketplace strategy, you can see the power of change already in the last few months. We've also focused on finding and building the right team with the capabilities that we believe can deliver on our Next Level plan. Now more than half of our leadership team is newly appointed. I believe we now have the talent, the energy and the experience to deliver on this transformation. Ash Reade joined us 5 months ago as CEO of Rip Curl following a global career at Nike, Inc. Most recently, he led the fast-growing Pacific region. Now Ash is unique. He brings a global business perspective, having worked around the world and a deep cultural connection to the world of Surf. In July, we also welcomed ASX-listed executive, Carla Webb-Sear, as our Group CFO. Carla joins us from Qantas, where she was the Chief Financial and Strategy Officer of the Loyalty division, bringing over 2 decades of financial leadership across the consumer, media and technology sectors. And finally, to drive operational execution of our strategy, [indiscernible] joins the group as our Chief Operating Officer. Jonas has over 20 years of international experience across retail, consumer goods, operations and consulting as well as private equity. It's great to be able to attract great talent to this portfolio of brands. So together with the strengthened leadership team, we bring the right balance of industry experience and global perspective to deliver on our shared ambition. I hope you all agree. So now for an update of our trading performance in the first quarter of the FY '26 financial year. Total group sales for the first 3 months of the new financial year were plus 7.9% above last year. Break that down by brand, Rip Curl total sales were plus 6.6% above last year. Kathmandu total sales were plus 13.9% above last year, and Oboz's total sales were minus 1.3% below last year. Now direct-to-consumer same-store sales results, including online for the full 14 weeks ended November 2025 were Rip Curl plus 3% above last year, Kathmandu plus 14% above last year. The group gross margin result for the first quarter of FY '26 is 55.8% of sales. Now this is approximately 120 basis points below the first quarter of last year due to, as I mentioned, a continued focus by all brands to clear excess and aged inventory and enhance our balance sheet position, but most importantly, to make way for new season product. I note that the first quarter gross margin result for the group is above the gross margin result achieved in the second half of the last financial year. And at the end of October, the group inventory position was $8 million below October last year, continuing to demonstrate our focus on managing working capital. As I spoke to earlier, the $25 million reset of our cost base remains on track. Now moving to our outlook. The encouraging news is we're seeing some green shoots, as you can see from our sales performance in Q1 of the new financial year. However, the group's first half results, as you all know, are dependent on the key Black Friday and Christmas retail trading positions periods to come. The forward view of our wholesale order book remains stable and slightly above last year. So thank you for your time. We appreciate your attention today. And I'm now going to hand back to David to conclude the rest of the meeting. Thanks.

Thank you, Brent. That was an excellent and comprehensive review of the reset that Brent is leading. And I hope you will all appreciate how comprehensive that is, including a change in people and a very much sharpened focus on brand and product and a significant cost reduction opportunity, which is being executed right now. So we're very grateful for the progress that's been made early and some early encouraging signs from the trading update, but no one's counting their chickens before Black Friday and Christmas. We now move to Item 3 on today's agenda, which are the resolutions. We begin with Resolution 1 being the election of directors. As noted in the Notice of Meeting, the NZX listing rules require that a director must not hold office without reelection past the third annual meeting following the director's appointment or 3 years, whichever is longer. And a director appointed by the Board must not hold office without reelection past the next annual meeting following the director's appointment. So pursuant to the NZX listing rules, Andrea Martens retires at today's meeting and offers herself for reelection by shareholders. Andrea was appointed to the Board on the 1st of August 2019 and was last reelected in 2022. Her details are set out in the Notice of Meeting. I'll invite Andrea to speak to her reelection.

Thank you, [Foreign Language] and good morning, shareholders. I'm Andrea Martens, and I'm standing for reelection as a Non-Executive Director. I joined the KMD Brands Board in 2019, as David mentioned. And I joined the Board because I saw enormous potential in this group, iconic brands, strong customer communities and the opportunity to build a truly world-class omnichannel outdoor business. And that potential remains as strong as ever, and I would be honored to continue contributing to this next phase of growth. I bring more than 2 decades of senior leadership experience across Unilever, [indiscernible] and [indiscernible], leading major transformation programs, managing substantial P&Ls, guiding organizations through complexity and helping brands grow across global markets. My career has always focused on building customer-led, digitally capable future-ready businesses. And in my current role as CEO of [ ADMA ], I work closely with more than 600 leading organizations on data, digital capability, privacy reform, AI readiness and emerging digital standards. And this gives me a clear view of how companies are preparing for the future and importantly, informs the governance lens that I bring into the KMD boardroom. And this is particularly important for KMD Brands as we modernize our digital and data foundations and operate in markets where customers' expectations, technology and regulatory requirements are moving quickly. As David said, FY '25 was a challenging year, but it was also a very, very important year with steps taken to strengthen the group. And the Board supported the leadership transition and the launch of the Next Level transformation strategy, a strategy which was very much designed to sharpen focus, lift capability and create greater alignment and agility across our brands and regions. And it's against that backdrop and the areas where I can contribute most directly, particularly around the digital and data transformation oversight, deep expertise in how operations modernize their digital and data ecosystems, which are absolutely essential as we build a more connected, scalable technology-enabled group. AI privacy and governance expertise, active involvement with the industry and regulators on responsible AI, privacy reform and digital standards, ensuring that our governance anticipates future requirements and safeguard risks. Transformation leadership at global scale, having led digital organizational and brand transformation across 23 markets and major business resets I understand what it takes to deliver sustainable change and strong commercial and customer orientation of managing large folios and delivering growth ensures I bring a commercially grounded customer-focused perspective to the board discussions and strategic decisions. An overall commitment to continual governance improvement. As a Board, we remain focused on strengthening this to ensure alignment with evolving expectations and best practice. So with that in mind, I'd like to share why I'm seeking reelection. KMD brands is at an important inflection point. And we now have a refreshed leadership, a clear transformation agenda and the foundations of a modern data-enabled ecosystem that will support long-term value creation. And together with my fellow directors, my role is to help ensure this transformation is governed well with clarity around technology, data, customer insight capability and risk. And I believe strongly in the strength and purpose of our amazing brands and the community that we serve. So I care deeply about this business, and I'm committed to supporting the group as we deliver the Next Level strategy. Thank you for your time, and I respectively ask for your support in my reelection.

Thank you, Andrea. I note that each of the directors other than Andrea recommends the reelection of Andrea as a director. I will now move the following as an ordinary resolution that Andrea Martens be reelected as a Director of the company. Have received any questions for discussion on the resolution.

No questions from online.

Thank Coralie?

Yes. I'm Coralie, KMD shareholder. This is not personal Andrea. It is about the cost of bringing in overseas directors to sit on this board. And Andrea, you have been here for 6 years. The transformation has been a long time coming, if indeed, you can pull it off. I have to vote against on the basis of that. You've been there 6 years. I can't see that the value of bringing in overseas directors is reflected in any way in the past financials. So I have to vote against it.

Thank you. that doesn't need a response, but thanks for giving us your position. Are there any other questions? If there are no further comments, we'll now proceed. The proxies have been received in respect of this resolution and are set out on the screen. As noted in the notice of meeting as Chair intend to vote all undirected proxies in favor of the resolution. Please cast your votes now for Resolution 1, if you have not already done so. Please now select either for, against or abstain for Resolution 1 on the voting card. [Voting]

Thank you. The second resolution on the agenda today relates to fixing the remuneration of the company's auditor for the 2026 financial year. As noted in the notice of meeting, KPMG is the current auditor of the company and has indicated its willingness to continue in office. I move the following as an ordinary resolution that the Board be authorized to fix the remuneration of the company's auditor for the ensuing year. Have you received any questions for discussion on the motion?

No questions from online.

Thank you. There are no questions from online. Are there any questions from the room? If there are no further comments or questions, we'll now proceed. The proxies have been received in respect of this resolution and are set out on the screen. As noted in the Notice of Meeting, I as Chair intend to vote all undirected proxies in favor of the resolution. Please cast your votes now for Resolution 2, if you have not already done so. [Voting]

Shareholders should ensure that they have now submitted their votes for the two resolutions set out in the notice of today's meeting. Voting cards will be collected by our registrar, MUFG Pension and Market Services, who will now move through the room to collect your voting cards. For those shareholders voting online, you can now submit your vote. Voting will be open until the close of the meeting. Once voting is closed, MUFG will tally the votes. The results will be announced to the NZX and ASX once counting has been completed. Thank you. Very good. 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. [Operator Instructions]. If we run short of time and are unable to answer your question online today, we will endeavor to respond to you after the meeting. Have we received any questions for discussion Frances online?

We've received some questions in advance of the meeting from shareholders.

Okay.

Should we run through those first?

Yes, let's do those.

Okay. There is a question asked by Mathew Ashton. Are you considering exiting any of your brands in the short term? And if not, why is this not being considered?

The brief answer to that is no. We're not considering exiting any of our brands at the moment. But I'll just ask Brent to speak to the reasons for that?

Yes. I think there's two key points that we've spoken about publicly prior. One is consumer research tells us the brand health for each of our brands is very strong. So consumers identify with our brands. Our job is to leverage the deep connection that they already have and drive that into more sustainable revenue and profitability growth over time. The second thing that we've said publicly is that I'm sure, as a Board and also as a management team, we're always looking for opportunities to unlock capital where we believe investments don't provide a competitive advantage, but that does not include brands at this point in time. So rest assured, if there are opportunities to unlock capital, we're considering those as part of our Next Level strategy. But you should all feel you should all feel quite content in the fact that consumers continue to cover our brands and identify with our brands. We need to do a better job of creating iconic product that leverages that brand strength into financial outcomes.

Thank you. We'll take another one from prior, and then we'll come back to the room.

A question also from Mathew Ashton. The return on capital for KMD brands has suffered considerably since the purchase of Rip Curl ,6 years ago. How do you plan to address this?

Well, I think firstly, it's important to note that there's no direct connection between the decline and the return on capital and the acquisition of IPC at time has shown that the acquisition price of Rip Curl was appropriate. And indeed, Rip Curl's earnings and return on capital is held up most strongly of all of our brands through very challenging trading conditions. So it's not -- those two things are not related, but the question asks a very pertinent question. What are you doing to increase the return on capital in the business because it has declined. And it's declined through very difficult trading conditions, people will be very aware of because the question asker, references 6 years ago. And during that period, of course, we've had COVID shutdowns when most of our stores were closed in most parts of the world for extended periods. And then we've had high inflation and high interest rates, which have cramped consumer spending. And more recently, we've had global political instability and absolute moving feast of tariffs all of them pretty negative one way or another. So it has been a very challenging operating environment. And the reality is Kathmandu like a number of other brands or KMD Brands, I should say, and like a number of other brands are consumer discretionary brands. And we sort of, for a long period of expansion and growth in economies around the world, we forgot and some people forgot that economies and the world goes through economic cycles. And consumer discretionary brands are the most hardest hit during economic cycles by definition. If it's a discretionary purchase, then people can choose to put it off. And that's what we've seen. The good news in that story, though, is that as you go through the cycles of economic ups and downs, as you come out of those, you see rapid increases in consumer discretionary spending. And we're not predicting the future, but we do feel as if we're bouncing along the bottom and our first quarter results have been heartening in this FY '26 year. But as I've said before, we're not counting our chickens, given the big trading coming up on Black Friday and into the Christmas period. We'll take a question from the room now if there are questions in the room.

Thanks. Alex Paul, New Zealand Shareholders Association proxy holder. Very encouraging that you've reset your strategy. Very encouraging that you've got Brent on board very encouraging that Brent's rebuilt the capability and his executive team. So you're all set to go. The one question really I had is, the one thing you haven't done is improved CEO remuneration disclosure, it's not a surprise I'm raising it because [indiscernible] overs talked to you about it. It is one of the worst on the 50. I'm just asking when you will look to improve the disclosure around the measures in which the Board will assess the performance of Brent and is -- well, Brent, but obviously his team too. So that's my question, and I have an invitation afterwards, but I'll wait for the -- to you, Chair.

Fair question. We just make the point we absolutely disclose according to governance requirements. They have developed practices in New Zealand, which have led to greater disclosure, but it's not a requirement to do. We're not in breach of any requirement at all. But this is a question that's been posed to us a number of times. And we have given an undertaking to other shareholders who have posted, so it's nice to be able to say in this forum as well that we -- in our March People and Remuneration Committee, we will be looking at comprehensively at our disclosures, and moving them more into line with what is typical in the New Zealand market. So that is undertaken that we are happy to execute on.

My invitation is really actually to you, Chair, which is you've been involved with the board for quite a long time now. So one of the comments -- one of the topics we haven't talked about is Board succession. It's an invitation really to whether you want to say to think about your own tenure and your own plans?

Yes. And I said this when I was elected last year, this is my last term and it's a 3-year term, and we're 1 year into it. So I will be stepping down from the Board within the next -- it's difficult to put an absolute date on it, but we can do the math. And so it's kind of 18 months in that type of period. We'll take another one from the room, and then we'll go to one out wherever you would like to go.

I am very pleased with your new store look. I've been encouraging you to do that for about 2 or 3 AGMs. That's exactly what I thought you should do Brent. And I'd like your enthusiasm for it. I hope you keep your enthusiasm. It's the sort of store I would go into and buy from not the dark cabins that have been of the past. So just one question I had to skim through the financials this morning quickly before I came. Was there a big loss written down in Oboz?

There was a right...

And if so, what was it?

There's a write-down of it -- are those delivered a small operating loss, relatively small in the scale of the company. but a write-down in the value of Oboz, which needs to be taken through the P&L. So that accounts as a loss in the Oboz accounts, but it's not an operating loss. It's not a trading loss. It's a reduction in the carrying value of the company.

Does that mean you paid too much for it?

It does. In the current conditions, yes, it means that we can't justify the valuation that was being carried out in the books and that was set by what the price we paid at the time. So yes.

Does that apply to Rip Curl as well?

It does not apply to Rip Curl at all. There's lots of headroom there. Okay. We'll take another one from center in beforehand.

Yes. And I was a question submitted prior to the meeting by Mathew Ashton, Macpac is now the most common winter jacket brand and the ask, I have seen little and strategic thinking when it comes to targeting a recovery in this area in the coming years...

Firstly, completely you're 100% wrong. Macpac is not the leading winter jacket brands, not a leading in any categories that we're competing. Kathmandu is comfortably the largest insulation rainwear, anything you'd like to note. I think Macpac have gained a little bit of market share over the last year. That's largely been done by opening more shops more quickly. And also operating at lower gross margins. In other words, discounting the product more, which we don't believe is in the best interest of the long-term health of the brand or of the business to be a discount competitor. And so we've maintained higher gross margins and less discounting, and that's meant we've given up some short-term market share. But yes, you've heard today from Brent, a real focus on brand and product and investment in each of our brands. In this case, we're particularly talking about Kathmandu, and we intend to get any lost market share back. But in the right way through consumer preferences, buying our products at appropriate margins, which are strong margins. And there's Carla Webb-Sear and Brent pointed out, our in-store environment is part of that process. But so is the quality of the newness and the innovation and the product.

Maybe if I can just add one point, David. I mean, just so we're really clear about our ambition for product. Our ambition for product is not to be the most common brand. our ambition for product is to be the most distinctive brand. That's the way that we will continue to drive better outcomes for shareholders through financial performance. So when you think about product in the outdoor space. Our goal is for Kathmandu to be regarded as separate and distinctive from common brands.

More questions from the room.

My name is [indiscernible], recent new shareholder. And thanks for your explanation. But when I first came to the meeting in this room, i saw one thing is, no signs of even introducing your name, your position title on the table. And I also find that the material on the Notice of Meeting, so I try to look at the photos in sign -- sorry, inside. I didn't find like a clear sign of, for example, your products of the clothing, they're wearing, is it marketing for which brand and so on. So sure whether there is a general problem of marketing. And the second thing I would like to discuss is, can you explain more about the overhead reduction. The third is because of the difficulty financially for this company, do you find it's necessary to even perform recapitalization very similar to natural performance.

There's at least three questions buried in there. So I start on the first one, no, we have no intention of any equity raise or other recapitalization of the company as it's not necessary. So that's number one. And then I'll jump to the first one. I'm not sure if you're a little late coming in, but we introduced all the directors at the beginning. And so that was the way in which we -- yes. I guess we will be in around a while and many of the shareholders here are probably familiar with the directors, but we did introduce everyone. And in terms of the book, that's definitively not a marketing booklet for the products of the company. It's for the notice of meeting. And really the best -- the screens, again, before the meeting showed a lot of our product and showcased the brands. So that's how we've dealt with it at the meeting. Thank you. Anything more online or prior to meeting, sorry?

We've got a couple of new questions that if we go through from online. A question asked by Richard Wilkins. I understand that net debt has gone down, but why has trade payables ballooned from $157 million to $188 million, seems like we are not paying our debtors.

Okay. That's just a cyclical thing. They go up and down according to months, sometimes they slip into the next month and we get a benefit and other times they're paid before the end of the close. Carla, do you want to add anything to that?

A further question online from [ Rich Dockins ], which you've just touched on. Can you please advise whether we still have support of our creditors given the fact that decent interest is being funded by funds borrowed. If not, will you look at a capital raising or selling off brands to keep the business afloat, which would you look to first?

Yes. We have absolutely support of our banking syndicate, they're great. We're in good check there. And as I said earlier, we have no intention of raising equity capital, and there's no intention or need to sell any brands.

A further question from [ Richard Wilkins ] has any consideration being given to reducing the size of stores when the lease period of that store comes to an end, they seem to be very large. So it seems an easy way to save money.

Good question, and I'll pass over to Brent again because this is a big issue for us, and he's executing on it.

Thank you. I guess that's related to Kathmandu do, Frances. So I'll make a comment regarding Kathmandu. What I would say is we've been through a rigorous portfolio review. That rigorous portfolio review includes every store in the Kathmandu and Rip Curl profile. We've segmented stores from what we would call factory or value stores through the more than high street stores through to the next-generation flagship stores. Each of those stores has been targeted with improved financial performance where it warrants. And we've also been really clear about what we believe the optimum store size is for each of those formats, based on yield and return with specific targeted product assortment in each of those channels to drive operational upside, and yield from each store. So there is no magic number as it relates store size overall. But within each part of the store portfolio, our goal is to optimize return. And in some cases, you will see as per [indiscernible] or in [indiscernible]. A great expression of the entire Kathmandu brand in other smaller store formats. You will see a much more targeted product segmentation relative to the consumer that shops in each of those channels. And to try and bring some clarity to that in years gone by, we've had all the same product in all the same-store regardless of store format. So from a consumer standpoint, if you're in far North Queensland or if you're in the South Island of New Zealand, the assortment is very -- should be very different relative to the geographic conditions and the consumer footprint. You'll see us change the assortment and the store format relative to the geographic and weather conditions of each store to drive optimum performance into the future. Now that will take a little bit of time. But as each lease comes up, each location for each store in each of our brands. That is the process that we're going through, building into a marketplace vision that's 3-year forward. So what do we believe our brand should look like in each of the key cities in each of the geographies that we operate in around the world relative to our existing distribution and where we see growth opportunities for consumer shopping and sentiment.

Great. Thank you. Any other questions online or prior to meeting?

No further questions online.

Any in the room. Yes?

Thank you. My name is [ Heidi Shing ], shareholder for Kathmandu for a number of years. And I have read the annual report, and this is one of the company that all the directors have quite high number of shares in the company, all directors because some other companies, they do not have all the directors owning the shares. That means that directors have very good faith in the company. So do I. And I have one comment to make is that companies still need improvement because recently within the New Zealand [indiscernible] customer service. Previously, Kathmandu is always on the top. But now it's overtaken Macpac need to investigate that, why it is dropping not even of the top 10 companies that I think that will improve the performance of the company in the long run.

Thank you. And we completely agree, in-store service is very important, and we will investigate that -- because that's certainly not consistent with my personal, and I do secret shopping quite a bit between the between the brands, and that's not consistent with what I've seen. I don't think people in Kathmandu recognizing it when I'm doing it, but we invest go there. Thank you for that.

[indiscernible], shareholder. The reset of the management in the company, did that come within or from outside the company?

Sorry, the reset of?

The new management that is running.

new management, yes.

Did it come within the company or from outside? And was the redundancies and what cost was that to the company?

Yes, there was redundancies. Most of it came from outside the organization, but there have certainly been some promotions and rearrangements inside, but it's really new blood. And as Brent talked about, Ash Reade, for instance, long career with Nike. So really high-quality people we've got in and new people joined the business. And with regard to the redundancies, there would have been redundancy payments and that is taken through the P&L in the normal way. I don't have it might think that's just actually what the dollar amount was.

I mean I can tell you the dollar amount, it was announced in our full year results. It's annualized $5 million initially. And we also made comments that there were further opportunities to optimize the organization over the course of the balance of the fiscal year.

Any other questions from the room? Well, thank you. And in closing, on behalf of the Board, I'd like to thank the management team, and in particular, our new group CEO, Brent Scrimshaw, he had his hands full for the last 6 months. But thank you all for attending today as well, whether online or here with us in-person. We appreciate your continued support and attendance today, and I now declare the meeting closed. Join us for a cup of tea. Thanks.