KMD
06/08/2015 09:30
TAKEOVER
PRICE SENSITIVE
REL: 0930 HRS Kathmandu Holdings Limited
TAKEOVER: KMD: KMD Board REJECT Briscoe Offer / FY2015 trading update
KATHMANDU HOLDINGS LIMITED
ASX/NZX/MEDIA ANNOUNCEMENT
6 August 2015
KATHMANDU REJECTS BRISCOE'S OFFER / FY2015 TRADING UPDATE
The Directors of Kathmandu Holdings Limited ("Kathmandu") have unanimously
recommended that Kathmandu shareholders REJECT the unsolicited takeover offer
from Briscoe Group Limited ("Briscoe").
Kathmandu's Target Company Statement, released today sets out the key reasons
for this recommendation.
Briscoe is offering five shares for every nine Kathmandu shares and NZ$0.20
cents for each Kathmandu share (the "Offer").
The Directors of Kathmandu believe that the Offer, with an implied value of
NZ$1.80 per Kathmandu share is inadequate and does not reflect the
underlying value of Kathmandu.
Kathmandu engaged Grant Samuel as Independent Adviser to review the Offer.
Grant Samuel has concluded that the full underlying value of Kathmandu's
shares (on a control basis) is in the range of NZ$2.10 to NZ$2.41, well in
excess of the implied value of the Offer of NZ$1.80.1
The reasons for the Director's recommendation that Kathmandu shareholders
reject the Offer include:
o The Offer is below the Independent Adviser's valuation;
o The Offer is inadequate and does not reflect the underlying value of
Kathmandu;
o Briscoe can afford to offer a lot more for the Kathmandu shares and is not
sharing enough of the benefits of the transaction with Kathmandu
shareholders;
o The timing of the Offer is highly opportunistic, timed to exploit
Kathmandu's recent share price underperformance;
o The Offer fails to reflect the strength of Kathmandu's business and future
plans for growth;
o Becoming a Briscoe shareholder would change the profile of Kathmandu
shareholders investment; and
o The implied value of the Offer is uncertain.
Commenting on the Offer, Kathmandu's Chairman, David Kirk said:
"Briscoe's Offer is manifestly inadequate and does not reflect the value of
Kathmandu's shares.
The Board believes the Offer is intended to create value for Briscoe
shareholders at the expense of Kathmandu shareholders. It comes
opportunistically off the back of an isolated period of internal and external
challenges experienced by Kathmandu in the period leading up to and including
Q3 FY2015. I am confident that management can deliver strong results that
will, over time, result in superior value for Kathmandu shareholders".
Also included in the Target Company Statement is Kathmandu's preliminary
unaudited statement of financial performance for the year ended 31 July 2015.
The Directors will keep shareholders updated regarding any significant
developments in relation to the Offer. A Kathmandu Information Line has been
established for shareholders to address any queries in relation to the Offer.
The phone number for the shareholder information line is 0800 777 256 (from
within New Zealand), 1800 190 082 (from within Australia) or +64 9 375 5998
(from outside New Zealand and Australia).
FINANCIAL RESULTS FOR THE YEAR ENDED 31 JULY 2015
Kathmandu's sales performance and earnings forecast for the year ending 31
July 2015 is :
RESULTS OVERVIEW
NZ $m Change
Year ending 31 July 2015 FY2015 FY2014 NZ $m %
Sales 409.4 392.9 16.5 4.2%
Gross Profit 252.1 248.1 4.0 1.6%
EBITDA 47.3 74.5 (27.2) -36.5%
EBIT 33.7 64.3 (30.6) -47.6%
NPAT 20.0 42.2 (22.2) -52.6%
NPAT excluding non-recurring items 20.9 41.2 (20.3) -49.3%
Kathmandu delivered improved sales and profitability in the final quarter of
FY2015, highlighted by strong sales at improved margins of new winter season
products.
Xavier Simonet who started as CEO of Kathmandu in July said "Over our Winter
sale promotion we improved both sales and gross margin year on year, which
was a significantly better performance than our Christmas and Easter
campaigns. There was a strong uplift in sales to Summit Club members,
especially in Australia, and our gross margin performance was especially
satisfying. This reflected a shift in promotional strategy to emphasise our
product range newness, technical features and benefits rather than just
absolute price and discount messaging."
Challenging trading conditions in Q1 to Q3 combined with one-off higher
operating expenses contributed to the reduction in FY2015 earnings. Primary
contributory factors included:
o Aggressive clearance in Q1 of excess inventory at reduced gross margins
after lower than usual sales during Kathmandu's winter sale in FY2014.
o Promotional activity during Christmas and Easter was not innovative,
generally repetitive in both style and content of previous campaigns.
o Increased operating expenses such as marketing, store leases and labour in
anticipation of on-going sales growth.
Abnormal items impacting the FY2015 result include UK brand advertising of
$2.8m not undertaken in FY2014; $2.7m EBIT reduction through reduced revenue
from starting the winter sale one week later than in FY2014, and $1.4m of
non-recurring expenses relating to the relocation of the Australian
distribution centre and Christchurch support office.
Same store sales growth
(constant currency) 53 weeks ending
02 August 2015
Total Group -1.9%
Australia -2.7%
New Zealand -1.1%
United Kingdom +15.7%
Same store sales for the winter sale in Q4 2HFY15 were above the comparable
FY2014 winter sale promotion period. This followed a decline in same store
sales recorded in Q3.
Inventory and Debt Levels
Kathmandu has continued to effectively manage stock levels, and levels of
clearance stock in the business are one-third lower than at same time last
year. Effective working capital management has continued, and despite the
disappointing 1HFY15 trading performance our projected net debt position as
at 31 July ($55.3m to $69.7 m) will increase by less than $15m yoy.
FY2016 Outlook
Kathmandu expects significant sales growth and continued margin recovery in
FY2016 with sales increasing by 11.0% to NZ$454.6m and EBIT increasing by
43.0% to NZ$48.2m.
Specific strategies to drive same store sales growth include the on-going
contribution of Kathmandu's pricing and promotional mode, supported by
growing the contribution from traffic driving products and capitalising on
the activation of Summit Club members, now over 70% of total sales. Sales
growth will also be derived from continued store roll out in Australasia
(where justified by individual store ROI) and Kathmandu will continue to
realise its full online sales growth potential.
Expanding internationally will continue through a capital-light business
model and Kathmandu's FY2016 target earnings include a substantial reduction
in overall operating costs with actions already underway to deliver a
targeted $7.0m of cost base efficiencies.
For further information please contact:
Media:
Helen McCombie
Citadel-MAGNUS
+61 2 9290 3033
Investors:
Reuben Casey
Chief Financial Officer
+64 3 968 6166
End CA:00268007 For:KMD Type:TAKEOVER Time:2015-08-06 09:30:51
