KMD Brands Stock

Good morning, everyone, and thank you for joining us. Today, we're looking forward to taking you through the KMD Brands FY '26 financial results and outlook and also providing an update on the significant progress we've made with our Next Level group transformation in our first year of execution. My name is Brent Scrimshaw, and I'm the CEO of the group, and I'm joined on this morning's call by Carla Webb-Sear, our Group Chief Financial Officer. We'll be talking through the presentation lodged on the NZX and the ASX this morning. And unless otherwise specified, all financial numbers are in New Zealand dollars.

I'll begin with an executive summary of today's announcements before Carla takes you through the financial detail of our results, and I'll provide a more comprehensive update on our next level transformation progress and then we finish with a trading and outlook update.

So turning to Slide 4. FY '26 was a year of significant change for the group and today represents an important milestone on our journey to creating a stronger KMD Brands. At our Investor Day, in September 2025, we launched Next Level, our 3-year turnaround strategy created to unlock the full potential of our brands and return the group to sustainable profitable growth after several years of disappointing performance. I'm pleased to say that we've made significant progress against each of our objectives in FY '26. All 3 brands delivered sales growth. We improved gross margin, reduced operating expenses as a percentage of sales, significantly increased underlying EBITDA and completed major technology and operating model initiatives that the group can leverage for further efficiencies and sales growth.

Now while we're encouraged by the progress made, it's important to acknowledge that this is only the first year of Next Level. We've created a business with clear priorities and greater alignment across the group, which provide us with confidence as we enter FY '27.

Moving on to Slide 5. And as a management team, we've worked hard to build a high-performance culture, and I'm pleased to report that we have delivered a number of tangible and positive outcomes that have moved the business forward in FY '26. We reset the product road map for each of our brands, accelerating innovation and seasonal flow and enhancing our performance position within each brand. We also completed the implementation of a number of major technology platforms, whilst delivering $27.5 million in cost savings, exceeding our original target. And importantly, we've become leaner and more efficient through improved inventory optimization and a reset of our operating models in the U.S.A. for Rip Curl and in Europe for Katmandu.

Moving on to Slide 6. FY '26 demonstrates that our Next Level strategy is already translating into measurable and positive financial outcomes. Group sales for the year increased by 6.5% or more than $60 million in additional revenue to $1.053 billion. Gross margin improved by 120 basis points to 57.7%, reflecting our product mix changes and improved marketplace management execution. Operating expenses as a percentage of sales improved by 110 basis points and underlying EBITDA also increased 138% to $42 million. Most importantly, our improved profitability was achieved while strategically investing in future growth and strengthening our operating foundations. There's still significant work ahead, but the progress achieved during '26 confirms our path forward. Our brands continue to build deep consumer connection. Our categories remain attractive and the potential in front of us is significant.

So now I'll hand over to Carla to take you through the financial results in more detail.

Thanks, Brent. I'll now talk to Slide 8 and walk through the group profit and loss for FY '26. On our statutory results, including the adoption of IFRS 16 leases. The comparability, the impact of IFRS 16 has been excluded from our underlying results as well as one-off restructuring costs, impairment, Software-as-a-Service accounting and notional amortization of customer relationships. Statutory EBITDA was a loss of $323.6 million. On a like-for-like basis, EBITDA was $42 million. Total group sales, as Brent referenced, was up 6.5% year-on-year, with strong growth achieved in both the direct-to-consumer and wholesale channels. Growth was also supported by the appreciation of the Australian dollar compared to the Kiwi dollar, and on a constant currency basis total group sales were up 1.7%.

By brand, Katmandu continued momentum with strong D2C sales growth through the year in both Australia and New Zealand. Rip Curl sales growth was supported by U.S. and European summer sales and growing online channel momentum through H2, along with the appreciation of the Aussie dollar relative to the New Zealand dollar group reporting currency. Oboz grew year-on-year driven by growth across wholesale and online on the back of new product and investment in the online platform. Gross margin increased 120 basis points above last year to 57.7% with strong second half performance driven by improved sourcing and input costs, disciplined markdown management and inclusive of $8 million of tariff refunds received at the end of the year.

Underlying operating expenses at constant currency reduced by 0.2% despite continued inflationary pressure globally. The year-on-year impact of currency movements on the group can be seen in Appendix 3 of the results presentation. Underlying EBITDA increased $42 million from $17.7 million last year, representing, as Brent mentioned, the growth of 137.7%. Underlying EBIT improved to $7.5 million compared to a loss of $18 million in FY '25. On a statutory basis, the group reported a loss after tax of $414.4 million. The FY '26 statutory result includes a $462.7 million intangible asset impairment of all 3 brands. This one-off noncash item does not impact the day-to-day operations of the business and as such has been excluded from underlying results. In reference to the company's trading update in July, sales in the last 2 weeks of the year were particularly strong, aiding the group to deliver sales and EBITDA results above the guided range from the trading update to the week ended 19th of July 2026.

Drawing your attention now to Slide 9 and looking more closely at quarterly sales trends over the last 2 years by brand. You can see from these sales charts that quarterly sales results have been mixed, reflecting global market conditions, albeit on an overall improving trend. Rip Curl continued to grow despite softer consumer conditions in the second half, a more challenging wholesale market in Europe. Kathmandu delivered strong growth across every quarter, finishing the year with the fourth quarter of 9.4% growth. For Oboz sales accelerated as new products were launched and wholesale performance improved. Online sales accelerated with e-com sales up 30% year-on-year in the 5 months following the Shopify launch. Quarterly growth was influenced by product and shipment timing with Q2 benefiting from the earlier shipment of new season product, creating a corresponding impact in Q3. As flagged, Q4 returned to strong growth as forecast with fall/winter '26 product launching in market.

Turning to Slide 10. Digital remains one of the most significant long-term growth opportunities within the group. Online sales grew 9.6% during FY '26 and now represents approximately 15% of group direct-to-consumer sales. Growth was strong across all 3 brands and supported by continued investment, including the migration of Rip Curl and Oboz onto the Shopify platform and a successful trial of ship from store. Both of these investments paid immediate dividends and sales uplift, and we'll continue to do so into FY '27, evidenced by early FY '27 sales results.

Moving to the group balance sheet on Slide 11. Group inventory balances reduced for the fourth successive year. On a constant currency basis, inventory for July '26 was $240.3 million. The reduction was driven by a net 10 less stores, the wetsuit factory wind down and delays in handing over goods due to weather-induced port conditions. In terms of aged inventory and mix, inventory obsolescence provision represented 1.5% of gross inventory, 70 basis points below July '25. The group announced prior to year-end, the planned divestment of the Southeast Asian manufacturing facility with a phased production wind down and scale up at a third-party facility over the next 12 months. The intention is to realize value from the sale of land and buildings and working capital release. The land and building has been reclassified as held for sale on the balance sheet.

Intangible assets reduced at July '26 due to a $463 million impairment charge across all 3 brands, goodwill and brand assets. The impairment reflects the group's year-end intangible asset impairment assessment, which involves forward-looking assumptions and the exercise of judgment. In making the assessment, the Board took a conservative view having regard to the current macroeconomic environment, expected trading conditions and the company's market capitalization. The impairment is a noncash accounting charge and does not of itself affect the company's cash flow, banking covenants or day-to-day operations. Right of Use Asset and Lease Liabilities reduced during the year, driven by a reduction in store network. Interest-bearing liabilities included the impact of the weakening New Zealand dollar year-on-year with a constant currency impact of $7.4 million.

Moving to Slide 12. Net working capital as a percentage of sales was elevated in July '26 compared to the prior year due to lower trade and other payables as a result of changes in phasing of payment timing as part of overall trading term negotiations with selected suppliers. Pleasingly, stock turns improved from 1.65x at July '25 to 1.76x at July 2026. The group had a net debt position of $48.1 million at July '26 and an improved leverage ratio of 1.2x following the equity raise compared to 3.3x in the prior year. The group updated the market in July, estimating a net debt range of approximately $63 million to $66 million at the end of July '26, and was expecting net debt to be higher due to changes in phasing of payment timing and investment in additional working capital to secure inventory ahead of potential supply chain disruptions. The better-than-guided net debt position was driven primarily by better-than-anticipated trade in late July and all expected tariff refunds being received ahead of close.

Moving to Slide 13, which provides a walk of net debt from July '25 to July '26 and a maturity summary of the group's facilities. The group refinanced its existing syndicated debt facility on the 26th of June 2026, with a new facility term of 2.5 years, providing the group funding through the first of October 2028. The new facility continued to build on the company's previous sustainability linked loan structure includes a $43 million tranche maturing on the 30th of June 2027. The total facility as at 31 July '26, and was $195.1 million. The group confirmed that it complied with all banking covenants as at 31 July 2026. The new facility includes an additional working capital component that was unavailable until key milestone covenants were met. Subsequent to Balance Day, the group provided lenders with an independent review report on underlying forecast to satisfy the FY '27 FCCR covenant milestone and subsequent to year-end, the multi-option syndicated facility increased to a total facility of $205.2 million.

Turning to Slide 14, cash flow. Net loss after tax of $414.4 million includes the impact of restructuring payments as well as noncash impairment charges. In April 2026, the group completed a $65.5 million equity raise to strengthen its balance sheet and liquidity position, generating $61.9 million net of costs. Changes in net working capital cycle have impacted cash flow year-on-year, and management remains focused on driving positive operating cash flow by reducing inventory and net working capital into FY '26. No dividend was declared in the current year as a result of operating performance.

Moving on to Slide 16. Kathmandu sales grew 11.1% year-on-year to $402.3 million despite a net reduction of 4 stores. Stronger H1 sales momentum continued into the second half with growth in all quarters and Q4 pleasingly, as we've mentioned, closing at 9.4% year-on-year. Kathmandu had strong sales across both Australia and New Zealand. And on a same-store sale basis, including online, Kathmandu sales increased 8.2%. Online sales increased by 9.6% to $57.1 million, comprising 14.3% of direct-to-consumer sales. Kathmandu's gross margin decreased 40 basis points year-on-year due to product mix change and a focus on selling through aged inventory in the first half and managing competitive promotional intensity during that period.

Second half gross margin delivered 60 basis points improvement year-on-year despite being impacted in the fourth quarter by unseasonally warm weather on the East Coast of Australia. Underlying operating expenses reduced year-on-year on a constant currency basis, improving operating leverage following a strategic cost reset and ongoing cost discipline. Pleasingly, Kathmandu returned to positive earnings in FY '26, and underlying EBITDA was $16.1 million up from an EBITDA loss of $1.3 million in the prior year.

Turning to Slide 17. Rip Curl total sales were up $3.6 million -- sorry, 3.8% year-on-year, apologies there, aided by the year-on-year movement in exchange rates used to convert global sales to New Zealand dollar reporting currency. On a constant currency basis, Rip Curl total sales were down 1.2% year-on-year. Wholesale sales increased 5.5% with particularly strong demand in Europe. Within the direct-to-consumer channel, online sales delivered an increase of 9.1% to $45.5 million. Direct-to-consumer total Rip Curl branded store sales, excluding Ozmosis was 5.4% with U.S. retail sales highlight and European summer sales strong. Ozmosis is a regional multi-brand Australian retail chain owned by Rip Curl since 2011 and has been referenced separately in the commentary this year.

On a same-store sale basis, Rip Curl branded stores, excluding Ozmosis, increased 1.3%. Same-store sales for Ozmosis were down 5%. Gross margin increased 110 basis points as a result of favorable channel mix and strengthening exchange rates across key markets and input costs. Underlying operating expenses down year-on-year on a constant currency basis were benefited by the cost reset program helping to offset growth investments. Despite continued cost pressure Rip Curl delivered underlying EBITDA growth of 12.2%.

Now to Slide 18, Oboz. Oboz total sales were up 3.8% year-on-year, supported by strong product, improving wholesale performance and continued online growth. Online sales recorded year-on-year growth of 11.8%. Wholesale sales increased 2.8%, with growth led by new product introductions, seasonal flow and strong at-once sales. Gross margin improved 730 basis points, reflecting favorable channel and product mix plus onetime tariff refunds of $4.3 million. Operating expenses were tightly controlled with improved operating leverage versus last year. Collectively, these FY '26 results demonstrate that all 3 brands are continuing the group's turnaround.

I will now hand back to Brent, who will give an update on next level transformation.

Thanks, Carla. A lot to get through there. I'm on Slide 20 now, and we'll provide some further detail on our progress over the last 12 months. A year ago, we outlined a number of proof points for the delivery of our Next Level strategy, and I'm pleased to say that we've delivered significant progress against each of those proof points. On growth and profitability, as you've heard this morning, we delivered 6.5% or $60 million in revenue growth. We reset the strategy of each brand, led by our renewed commitment to improving our product through innovation. We restructured our cost base and refined our strategic growth investments whilst over-delivering on our cost savings target of $25 million. We also acted swiftly to close underperforming stores whilst delivering a step change in store profitability across both Rip Curl and Kathmandu, and I think there's still additional opportunity to capture in FY '27.

Whilst there's further work to do on inventory productivity, we've continued to improve throughout the year with inventory now at a 4-year low. We also conducted a business review of non-core assets across the portfolio, and I'll provide some more detail on that later this morning. Each of these initiatives are deeply interconnected components of a broader transformation program that aims to create a simpler, more efficient, more profitable and more agile KMD Brands for the future.

So on to Slide 21, and this is just a high-level reminder of our Next Level strategy and the key deliverables over the next few years. Our brand and product-led offense is committed to delivering iconic and distinctive product franchises that refresh each brand and are compelling for consumers at the point of sale. Data-driven insight process and the introduction of AI tools enable our teams to simplify our business, make better, more informed data-led decisions with a focus on working capital optimization, supply chain consolidation and integrated business excellence. In short, we're committed to creating a business that consistently delivers sustainable profitability and shareholder returns.

So let's dive a little deeper now at each of the brand's strategy and their FY '26 scorecard, starting with Kathmandu on Slide 22. For Kathmandu, FY '26 was all about creating and delivering what we call product distinction, product that's resonating with consumers, and is now driving the significant growth momentum Kathmandu has delivered in the first year of its turnaround. At the heart of this is the return of the XT Series, which reinforces Kathmandu's leadership position in authentic outdoor gear together with a sharper seasonal product offering and improved storytelling at retail to create consumer excitement. A reengineered digital platform as we've spoken about Click and Collect and ship from store enablement, together with some selected strategic price increases and a more sophisticated marketplace management program also positively impacted the year. Lastly, as we mentioned at the half, Kathmandu's international strategy was reset to a distributor-led business model and that we see scaling from H2 in FY '27.

So just to click further and look at some fundamental metrics that underpin the transformation of Kathmandu. And I think it really provides some further insight into the health of the Kathmandu brand, and in specific unit economics that underpin its most recent success. In terms of brand demand and basket quality and despite flat in-store traffic, Kathmandu delivered positive increases in conversion, units per transaction and average transaction value. Also, each of the focused categories in the business grew, including the largest category of insulation. So the improvement in each of these retail metrics together provide confidence in the continued turnaround of the Kathmandu and, of course, the consumer response to our new product and growth initiatives.

On to Slide 24. The Rip Curl team has also made significant progress to transform the Rip Curl brand for the next generation. Earlier in the year, we relocated global product creation teams to head office in Torquay, and we reset the entire product line plan for Rip Curl with a reduction of more than 2,000 SKUs versus FY '25. The result is really just coming to market now. It's the new search series collection of product, which launched only a few weeks ago with encouraging early sell-through. And we're also proud to announce the next month's global launch of the biggest innovation in wetsuits, and I think the last 25 years coming to market for the first time this Southern Hemisphere summer. Lastly, we returned our North American business to profitability, which was an immediate priority for management as we quickly identify the need to rightsize the cost base and to balance our footprint between the Mainland and Hawaii appropriately for future growth.

Moving on to Slide 25, and the Oboz strategy is, again, centered around a commitment to core product innovation. A fast-tracked entry into the trail running category to impact the market earlier than was originally planned. And for the first time, Oboz actually created a brand-new category. It's called Re-wild, a collection from the extensive vault of heritage products that celebrate Oboz unique trailblazing connection to the Bozeman Trail and Yellowstone, and that will also introduce the brand to a new younger and style conscious consumer.

Moving on to Slide 26 and our shared service functions have also been restructured in FY '26 as true growth enablers for each of our brands, providing deep functional expertise with maximum efficiency that our brands can leverage for growth. The online channel remains one of the largest growth priorities for the group, and whilst there's more work to do, as you can tell from our results, we've made significant progress in FY '26 by reengineering the group's digital capabilities. After several years of planning and capital investment, major milestones were also completed in technology and systems with Rip Curl moving on to the group ERP platform, D365, and together with Dayforce for human resources management.

This completion now provides a consistent and stable platform across the group to leverage in '27 and beyond. Our focus is also about improving overall inventory management, as I've mentioned, together with its mixed productivity. We trialed the introduction of AI technology to help improve our forecasting, buying, replenishment and allocation process, and this has allowed us to improve availability for customers whilst reducing working capital intensity. Our objective is to continue to improve inventory turns as we've done in FY '26 with the right mix of stock position to drive stronger returns on invested capital.

FY '26 has also been a year of action. We made significant and deliberate changes across the group to immediately reshape the group's cost base while at the same time recognizing that we need to invest in a responsible way to fuel future growth. We committed to a $25 million savings target in FY '26 and ultimately delivered $27.5 million of savings, whilst moderating our strategic growth investments to maintain flexibility and focus on returns. The reset of our cost base was required to mitigate cost and inflationary pressure and importantly, to responsibly self-fund our strategic growth agenda. It was important to do both at the same time. The cost savings delivered in '26 were driven from a number of initiatives, including organizational restructuring, store network review and the reset of businesses in international markets as I've mentioned.

The Next Level plan initially identified $15 million of the savings target to be reinvested in FY '26 for growth over the short to medium term. We committed to this being a staged approach to reinvestment and at the half year as a result of the equity raise and subsequent rapidly changing geopolitical and consumer market conditions, we reviewed our plans through this stage-gated approach to investment and paused on certain initiatives to focus on near-term ROI. The realized net savings of FY '26 after reinvestment of $8.7 million allowed us to offset baseline cost inflation on a constant currency basis.

Moving to Slide 28, which provides a summary of the ongoing fleet optimization program. And again, I'm pleased to report that we've significantly improved the quality of earnings across the entire fleet and in particular, at Kathmandu. FY '26 also completed the launch of 4 next-generation flagship stores in Sydney for both Rip Curl and Kathmandu, Melbourne and Kathmandu's hometown of Christchurch, representing the pinnacle experience of our store segmentation strategy. The FY '27 store plan continues to focus on continued reduction of exposure to lower returning locations and rightsizing the store network, along with improving sales density across the fleet.

And so just moving now to our FY '27 trading and outlook. Direct-to-consumer same-store sales, including online, year-on-year on a constant currency basis for the first 7 weeks from Monday, July 27th to Sunday, September 13th 2026 seasonally nonsignificant trading period are Kathmandu plus 7.4% year-on-year, supported by strong growth in New Zealand and online channels. Rip Curl plus 1% year-on-year. Rip Curl brand stores plus 4% year-on-year and Ozmosis multi-brand stores, minus 12.1% year-on-year. Rip Curl brand stores grew across multiple geographies and online, while Ozmosis multi-brand stores experienced some difficult trading conditions due to some product assortment challenges.

So in terms of outlook, the group remains focused on delivering continued performance improvement in FY '27 when compared to prior year. And so group FY '27 guidance is as follows: sales of between $1.055 billion and $1.075 billion. EBITDA between $52 million and $55 million; capital expenditure of between $15 million and $16 million. The Kathmandu sales momentum is expected to continue with seasonally relevant product flow and enablement of online fulfillment. Rip Curl sales are expected to benefit in H1 from the first deliveries of next-gen dined product into the market in time for the Australian peak trade. And Ozmosis remediation plan is currently in place, including the closure of 5 underperforming stores. Rip Curl and Oboz wholesale order book is consistent with prior year, with ongoing management within a dynamic shipping environment. Group gross margin expansion is anticipated to benefit from FX hedging already in place and strategic price increases.

EBITDA reflects revenue expectations with a further $10 million of annualized cost-saving initiatives already underway to mitigate inflationary pressure. These cost initiatives for FY '27 were taken to ensure the business maintains its EBITDA growth trajectory in a challenging global consumer operating environment. The group continues to focus on the optimization of its store network, as I've mentioned, as part of the Next Level integrated marketplace strategy. Capital expenditure is reduced as technology projects moderate and targeted store CapEx is prioritized. Depreciation is expected to be in the range of $40 million to $41 million.

And so lastly, to the business review and the conclusion of that review and its outcomes. KMD Brands has made significant progress in strengthening and simplifying the group, as you've heard, and the Board remains confident that disciplined execution of the Next Level strategy provides a clear pathway to improved performance and shareholder value as demonstrated by the FY '26 operating performance. As part of the comprehensive business review initiated in May 2026, the Board has considered the group's portfolio, its capital requirements and a range of potential value creation opportunities.

The review was undertaken with independent financial advisory from Deloitte and Barclay & Co, and legal advice from Chapman Tripp. The review was conducted objectively and without a predetermined outcome. The review resulted in actions to simplify the group and enhance its financial flexibility. These include the decisions to invest the group's manufacturing facility in Southeast Asia. The group also tested external interest in Rip Curl's multi-brand retail chain Ozmosis. No proposal for Ozmosis emerged that offered greater value than continuing to rationalize the chain and improve the profitability of the remaining store fleet.

The review also included a commitment to ongoing cost reduction, as you've heard, through the immediate offshoring of select group shared services. Throughout the review process, the Board has received and considered a number of indicative approaches from external parties and has determined that further engagement with a limited number of those parties is appropriate. Consistent with its responsibility to shareholders, the Board will assess whether any proposal could deliver greater value than continued execution of the group's Next Level strategy. The approaches are indicative, nonbinding and incomplete and no decision has been made, and there is no certainty that any proposal or transaction will result.

This engagement does not change the group's strategy, priorities or day-to-day focus. Management remains focused on delivering the FY '27 next level plan, improving profitability, generating free cash flow and reducing leverage. The Board will continue to support the execution of the strategy while carefully assessing any credible alternative that may deliver superior shareholder value and update the market in accordance with its continuous disclosure obligations.

And so to conclude, in summary, FY '26 was a year of a turnaround. We made a number of deliberate and meaningful changes across the group, and we expect to see increasing benefits over time from the product, marketing and capability changes implemented during '26, as new product ranges, particularly for Rip Curl, begin to impact consumers, brand storytelling is reset, and we transform to a more modern and agile brand portfolio. As we move into FY '27, our focus has immediately shifted from resetting the business to the sustained and relentless execution of our initiatives to create long-term shareholder value. There's still significant work ahead, but the progress achieved during the last 12 months confirms our path forward.

And so with that, I'll now conclude and return to the operator, and Carla and I would be pleased to take any questions that you may have.

[Operator Instructions] Your first question comes from the line of Kieran Carling with Craigs Investment Partners.

First question is just on your outlook commentary. I appreciate that you're in the process of closing stores, but at the midpoint of your guidance for '27, it's about 1% sales growth, down from 5.7% in the second half of '26. Just looking at your Q4 exit run rates by brand that looks on the conservative side, so can you just run us through what's feeding into the assumption in terms of same-store sales expectations by brand and make a few comments on what trends you're seeing by geography for Rip Curl?

Yes, I think -- Kieran, by the way, it's Brent here. When you think about, obviously, the performance that we've just posted in FY '26, I think the confidence that you referred to really comes from the actions that we've already taken, both in terms of delivering those results, but also the impact that we see and assumptions we've made around material improvement in the business as you look into FY '27. As we just talked about, clearly, we have delivered significant underlying EBITDA growth. We do have momentum in trading, as you have outlined, we've already taken action as it relates to $10 million worth of gross cost savings towards the back end of FY '26.

We have some further clarity around margin tailwinds with a pricing strategy in place and of course, understanding a little more about hedging and the impact there. So I think what I would suggest is that we're confident in our future performance. Clearly, there is significant uncertainty in the macroeconomic environment and to some degree, that differs by market. And in some cases, it remains challenging. But from our perspective, we have outperformed the market despite a number of headwinds that we faced in FY '26. And we believe that with the decisions and changes we've made, particularly around product, store profitability and a focus on optimization of inventory that we can continue to deliver that in FY '27.

I'd probably just add, Kieran, keeping at a -- so Kieran, I was just going to give you some...

Yes, sorry, I don't understand that, but it's your guidance implies sort of 1 -- just over 1% sales growth, which seems conservative.

So Kieran, that's where I was going...

Can -- your thoughts on where the slowdown will occur?

Yes. So I guess what I can say is our guidance assumes the consumer environment remains challenging. Hence, why you're seeing a bit of a moderation in that growth. We obviously report 7 weeks, but it's -- as we point out, nonseasonal and a small period within the greater scheme of the guidance for the year. You're correct in terms of picking up on some of the drivers around that in terms of the sales line is also the impact of the store closures, which will obviously impact the top line. And it's our -- it's our best estimate within that range, given we've also seen the benefit of currency in the '26 results, which we've clearly pointed out and its management's estimate across a globally diverse group in terms of our best estimate of the revenue range as a result of the exposure within the different currencies within our portfolio.

Right. So it's sort of clearly a challenging consumer environment still. So I guess just another question on your guidance. I'm trying to triangulate your comments. So based on what you delivered at an OpEx level in FY '26, you did $27 million cost out, OpEx still grew by 4%. You're targeting cost out of $10 million for the year ahead, but your EBITDA guidance seems to imply quite a significant lift in gross margin for FY '27. So against a challenging consumer backdrop, can you just help us understand what level of gross margin expansion you're expecting and where that's going to come from?

We haven't specifically guided to that today, but you have picked up correctly, Kieran, that the key drivers within that EBITDA guidance are the sales growth, as you've pointed out. There is, as we've also put within the commentary additional gross margin expansion assumed through our call outs with some sourcing initiatives, the FX benefits that we already have in place with our hedge book. And as Brent has referenced some pricing actions that we've already been putting underway. So they are driving what continues to be our belief in gross margin expansion.

And then to the point you made, we come off the back of having delivered cost savings in '26 and have continued to challenge ourselves around that cost base with the further annualization of additional cost savings to get to that EBITDA position. The other thing I probably would just reinforce is, obviously, we're getting the full year benefit of store optimization, and we're getting the full year benefit of cost savings executed in '26, which gives us a better run rate from that prior year.

And also the full year benefit of pricing decisions made at the half in FY '26 annualizing in '27 in addition to other strategic price increases for the full year.

But clearly, inflation continues to be a pressure point. And so we make all of these comments around savings in terms of the context of inflationary pressure, which we're continuing to like everyone is managed.

Okay. But I guess just at an absolute level, are you expecting OpEx to go up or come down over the year ahead compared to FY '26?

Well, I think I'll go back to -- we've given you the component parts of that. Gross margin expansion is absolutely part of what we said, that growth trajectory. And obviously, OpEx is a function of growing EBITDA is something that we continue to actively manage.

Right. Okay. And then maybe just a final question then on your balance sheet. Obviously, you came in slightly ahead of your July guidance. But this time last year, you were steering the market to a net debt of under $40 million by year-end. I guess, where you've landed and factoring in the equity raise earlier this year, you've missed that original guidance by over $70 million. Can you just help us understand how a miss of that size occurred and give us a steer on where you see net working capital and debt trending over the year ahead?

So I do acknowledge that we have missed that target and that the guidance we've also provided in July for working capital to land with net debt is in a particularly dynamic environment for us. I mean we can pull out the component parts, which I've tried to do in the commentary today. And clearly, as a percentage of sales, it's more elevated at July '26 than we had anticipated. I guess the component parts of that is that we do continue to be encouraged by what we can see and have called out around inventory quality and our stock turns. But the timing of our payments profile, which you can see within payables, and we've provided a bridge within the cash flow have driven the delta in terms of that position from what we've guided to where we landed.

I mean, obviously, we continue to focus on wanting to work towards a lower working capital investment position and supporting more cash generation in '26. And we do believe we've got levers to do that. But to the extent that we've provided guidance, it's very much been around continuing to target we had reinforced earlier, a comment of getting our net debt below 0.5x by the end '27, and that's what I guess I continue to remain as our target.

Your next question comes from the line of Paul Koraua with Forsyth Barr.

I might just pick up from where Kieran left off there. And just specifically about that payables balance. And so I think one of the concerns is after raising the money, the suppliers shortened those terms, so they don't fund the inventory. And I guess my question is, is that payables balance going to be reflected in better margin as you get better pricing by shortening your supplier terms? Or is this a little bit of suppliers not willing to fund the inventory as much anymore?

A balance of both, but I guess I go back to reinforcing that our gross margin assumptions within that outlook assumes a benefit pulling through flagged both in terms of pricing of our input costs as well as our FX hedge book. So I think you've picked up on the component parts of the commentary yourself in the question.

Okay. And then maybe just further on the balance sheet. So $40 million net debt, I think one of our concerns was around the maturity of the $40 million tranche at the end of this financial year. Considering your working capital swings are quite large in this business, are you still comfortable in how you traverse that over the next 12 months? And could you maybe give us a little bit more color on how that is going to look?

So the confirmation is we are comfortable. We continue to work towards, as we flagged very clearly that tranche that's going to be maturing at the end of '27. We obviously also have, as we flagged the commentary around further capacity that was unlocked as a result of going through the review with our lenders. I mean I guess I'll reiterate. We continue to have the support of our lenders to continue to fund our working capital position. And I'm really pleased to be able to provide the update today, which we worked hard to do with our lenders in terms of being able to give comfort and confidence that, that facility had been unlocked because we flagged when we first announced there was a component of it that wasn't. We've gone through that process. And we've -- obviously, the other side of it, got the full $205 million of capacity.

We still ultimately, though, we're targeting towards delevering. So I think at this point, I can just reaffirm we continue to feel comfortable with the covenants that we've negotiated. And also acknowledging we do have seasonality in our business, and we do have right now a fairly dynamic moving environment when it comes to just the timing of inventory leaving the ports, which we flagged, but the business is, it's not one lever, we're working on multiple levers here, and we continue to remain very confident in both being able to manage within our facility and continue to meet our covenants.

Awesome. And then maybe just on the tariff refunds you guys received, $8 million. Now that seemed like it was a surprise that it come in before the balance at end, sort of reflected in that debt position being lower. But it was obviously booked through the COGS line. And so is the read that the actual underlying EBITDA here was slightly worse than what you guys were looking at. I don't know if you booked that $8 million through COGS.

So it was a bit of a balance when it came to -- it wasn't -- when I say it's not a surprise, we'd obviously disclosed what we were anticipating in terms of the tariff refund.

And the team have been very proactive in lodging claims at the front of the queue.

But given it's a new process and one that no one had undertaken, we had to work on a conservative basis of not knowing when those funds would land. And so we considered that we were going -- we flagged that we were going to be going through that process and claiming it, but the timing of it was out of our control, and it was pleasingly received or within the close of the fiscal period, but that was not within our control, and it was quite an unusual process. So we had no other basis to estimate when it would land.

The only other thing I would add there is just...

Your guidance...

So I was just going to say, the only other thing I would add there is, obviously, it's a dynamic market with the introduction of tariffs, the uncertainty around tariffs. The team at both Oboz and at Rip Curl as it relates to the United States took immediate action and made a number of decisions to offset any of the specific impact of those tariffs as best as possible. Obviously, Carla spoken to the timing of that. But the pleasing thing from my perspective was the demand that you saw in the fiscal '26 even with increased price as one component of offsetting a potential tariff given the uncertainty of the situation. Obviously, everybody was in the same position and no one had really clear ideas about what that might do to demand. And both for Oboz and Rip Curl, we continue to see strong demand even after that action being taken.

Yes. No, that makes sense. I guess the point was in July when you set the guidance, whether you had baked in any tariff refund in that number in your EBITDA guidance or if -- the full year result was supported by the $8 million you got refunded?

We had assumed a portion of it, but we couldn't assume the fullest extent. And then we also, as I highlighted through the commentary today, had some particularly strong trading conditions in the last 2 weeks, which again was not within the guidance range that we had assumed.

For Kathmandu?

Yes.

Yes. And then maybe just last one on the strategic review outcome. Now obviously, there's a few offers in there that you guys have had that you are looking into a little bit further. There was a comment around the Board is going to decide whether it's the value it provides us greater than continuing on executing on the current plan. I guess the question is at what point, if at all, does the market get informed about what these offers might look like, noting that the market might have a slightly different opinion on what the fair value for this business is to maybe what the Board does.

Yes, I think as we've disclosed this morning and we're not going to go into more detail around it. Yes, there has been indicative opportunity come to the Board, and that's a process that's ongoing. Of course, at a particular time when the Board feels it appropriate aligned with continuous disclosure, we'll update the market. But for today, there's no further color that we can provide around specificity within those conversations.

Congratulations on an improved result.

Your final question on the phone comes from Harrison Elliott with Jarden.

Just to talk a bit about the Appendix 7, I think you had your FY '28 targets on there. Given FY '25 was 4% EBITDA margin, then 5% in FY sorry, FY '26 was 4%. And if I take the midpoint of your FY '26 guidance, I get to 5%. How -- what are you guys thinking when we go to that 10% target for EBITDA margin if it's going 4%, 5%, 10%. Is that a bit of a jump?

I think we continue to remain focused on what we provided in terms of '27 guidance. But clearly, we're not walking away from this 3-year ambition. So it continues to be something that we're targeting, and we're looking to continue to get momentum from '27 into '28 in an effort to work towards those targets. And to the extent we get a little bit further into '27, we'll continue to update the market. But I guess I go back to these intentionally within that time frame, and we're continuing to guide specifically in '27 with more guidance and building out towards that '28 view.

The one thing I would add, and I think we've been tried to be as transparent as possible in terms of performance. Specifically, you've seen Kathmandu who are probably 12 to 18 months ahead of implementing some of the significant change than Rip Curl. And so number one, it's pleasing to see the continued momentum of Kathmandu. But what we really need to do is make sure that we also have a healthy Rip Curl and a healthy Oboz, adding fuel to that contribution. And so a number of the significant changes that were made in Rip Curl throughout FY '26. The consumer is not yet seen any of that product come to market until literally the last few weeks.

So what we do expect with that brand reset, the decisions made around a sharper, younger, fresher product range, creating distinctive point of view from a sea of sameness in Surf. We believe that will only accelerate as we get into the back half of FY '27. And so the collective ambition of the brand portfolio together, we still think the consumer has yet to see the full benefit of the decisions that we've made in FY '26.

Your final question comes from the line of Marcus Curley with UBS.

Just a couple from me. Could you just confirm just on the gross margin guidance for an improvement this year, that's off the basis of the reported numbers. So i.e., the reported number included the tariff refund benefit. So it's -- you're basing it off that number rather than excluding that tariff refund.

We are -- yes, when it comes to Rip Curl, we absolutely are. And in the case of Oboz, which is a lot more material to their gross margin, that we do see that as more of a structural one-off. So I guess our guidance continues to...

Sorry, just to be clear...

Sorry, did you want to go ahead?

So would you say in the guidance for, yes, for improved gross margin, that's off the reported gross margin that you had for the year?

No. We have adjusted -- sorry, we have adjusted for the impact of tariffs as being considered structural. So as in being one-off, not being repeated in a subsequent year, but we have other levers outside of the tariff refund, which continues to give us this confidence in the statement that on the reported basis, we will get gross margin improvement in the current period. FY '27.

Okay. So the guidance includes gross margin in FY '27 above 57.7%?

On the reported basis. Yes.

And could you just give us an update on where you're sitting with tariffs at the moment? Are you...

All being completely...

And how does that compare to...

All being completely received. So it's all received. It's a onetime period in '26, and it has all been received and banked in '26. The cash is physically all being received. We have no outstanding...

Are you paying any tariffs at the moment?

Sorry, I'm talking about the tariff refunds. We obviously continue to work within a tariff regime, yes. I thought -- sorry, I must have misunderstood your question. I was referencing the tariff refunds.

Now I'm talking about -- I've moved on from tariff refunds, talking about the current tariff situation. So when you look at what you're paying today on tariffs, is that a hit of what you paid before the refund in FY '26?

Yes.

Just trying to -- could you maybe repeat the question?

We continue to pay tariff refunds...

I'm just trying to understand -- is there a tariff for your gross margin this year and your guidance, is there a tariff headwind on what you're actually paying forget about the refund.

Yes. Yes, there is. Having had tariff refunds received in the previous period.

But we paid tariffs like any other business who are bringing product into the United States, which, as you know, can change quite quickly.

Okay. So because the U.S. has obviously changed some of their tariffs over. So you are assuming that the existing tariffs continue and despite that, you're expecting an improvement in gross margin above 57.7% on a reported basis by -- in FY '27?

Yes, that's correct. Because I think I've confirmed in terms of some of those gross margin expansion levers, it's a combination of. So acknowledging your tariff point, it's also a combination of input sourcing initiatives, FX benefits and pricing actions, which feed into that commentary around gross margin.

And of course, the tariffs are different rates for different country of manufacturer. And across Rip Curl and Oboz, there are different countries of manufacturer for different lines of product at different tariff rates that then obviously are applied into the U.S. market.

Okay. And then just -- I know that you have a limited ability to talk about the approaches that you are working with. But can you put any time frames around any likely decision? Would shareholders expect to hear something by the end of the calendar year?

No, we're not going to put a time frame on it. I think it's about what is the best way to extract value for the business for shareholders. And so I don't want to put a deadline on that, needless to say, as we've referenced today, that there are a number of inbound indicative offers, and the Board is actively considering those.

There are no more questions via the phone.

We have received a question through the online platform from Richard Wilkins. Have we been paying our suppliers on time? Or are we missing payments like David Jones? Can you elaborate on the changes to payment terms that you have made with selective suppliers?

Yes. We clearly are paying our suppliers on time, and we are not missing payments like David Jones, just to be clear. And it's a very complex suite of payment terms across many tens of suppliers in our supply chain that we and the team have done a good job in terms of negotiating new terms with all in an effort to continue to optimize our business.

Further question from Richard Wilkins. Regarding the impairments in FY '26, have the carrying value of the Rip Curl and Kathmandu brands being written down to the average of the offers received from these businesses. There can be no better assessment of the value of the brands than what you have received in the business review. If not, how have the impairments been calculated?

So Richard, I can answer this one. If you go to our annual report, you'll actually find some substantial disclosures around how we calculate recoverable amount and our value and use calculation for the purposes of impairment. To your point, it is not writing it to a point of offer, but it's absolutely a judgment based on what the management and Board and our auditors put together around our future cash flow position, but we do triangulate to things like I referenced in my commentary, such as market capitalization and the premium to market cap that might be implied from that recoverable amount. We do look, as part of that process with our auditors around market multiples. But ultimately, we are not goal-seeking to something around offers. It is more a fairly robust process that continues to be done by all companies to assess recoverable amount, but it does take in market inputs as part of that assessment.

Final online question from Richard. Well, any offers for the Rip Curl business be put to the shareholders before any potential divestment. What is the absolute minimum offer that needs to be received for any potential offer to be considered.

I mean I think the comment I would make there is the Board clearly has an obligation to engage with shareholders before any such decision. So if it gets to that place and the Board considers an offer to represent fair value and on behalf of shareholders, of course, within which it acts, there will be engagement with shareholders at that point in time.

Further online question from [Indiscernible]. I would like to understand from management team on when we are expecting to reach NPAT positive based on current transformations underway.

I'm probably just going to refer back to the best we can give you as our guidance is around what we've put in market today for FY '27. And you can continue to look towards our broader 3-year ambition that's been published as part of Investor Day, but they continue to become the best markers of our continued moving towards both EBITDA expansion, but ultimately net profit after tax as well.

We have no further online questions.

Okay. No further questions. So thank you, everyone, for your attendance today. We appreciate it. We hope you are as optimistic as we are about the future, given our results in FY '26 in the first year of the execution of our Next Level strategy, and we'll end the call here. So thank you.

This concludes today's call. You may disconnect.

Good morning, everyone, and thank you for joining us. Today, we're looking forward to taking you through our first half FY '26 results and our outlook and also provide an update on the significant progress we're making with our Next Level group transformation.

My name is Brent Scrimshaw, and I'm the CEO of the group. And as usual, I'm joined on the call by Carla Webb-Sear, our group Chief Financial Officer. We'll be talking through the presentation lodged on the NZX and ASX this morning. And unless otherwise specified, all financial numbers are in New Zealand dollars.

I'll begin with an overview of today's announcement before Carla takes you through the detail of our first half results and outlook. And I'll then provide a more comprehensive update on our transformation progress before handing back to Carla, who will step you through the details of the fully underwritten equity raise and long-term debt refinancing package that we're also announcing today.

So starting on Slide 8, and today really is about another step forward in our journey towards a stronger KMD Brands. The group has returned to growth under new leadership with strong early progress delivered against our strategic initiatives in the first half of the FY '26 financial year.

With that said, we're still at the early stage of our transformation and a significant opportunity remains to drive sustainable sales and margin growth into the future. There are 3 key pillars that underpin our Next Level strategy that we'll recap on later this morning. And given our progress in H1, this provides us with further conviction that our strategy will transform the group over time.

Lastly, today, we're also announcing our plan to strengthen the balance sheet by a fully underwritten capital raise of $65 million in equity, along with the refinancing of our debt facility, enabling us to continue the execution of our Next Level transformation.

Moving to Slide 9 now, and it's important to remember that KMD Brands is a portfolio of 3 unique and iconic brands anchored in authenticity and all built for purpose. The synergy of our brand portfolio means the group benefits from significant diversification in terms of geographic footprint, channels to market, complementary seasonality, sourcing and manufacturing.

We have a refreshed leadership team in place who understands the power of brands, the role of product innovation and the flow of retail. With regards to cost control, I'm pleased to announce that we're on track to deliver an additional $2.5 million incremental cost savings above the $25 million cost savings we promised to deliver in FY '26. We continue to focus on optimizing our inventory balance to free up working capital and have made great progress in improving both quantum and inventory mix.

Moving to Slide 10 now, where we're pleased to deliver tangible progress against critical proof points in the first half of this financial year. It's pleasing to see significantly positive group sales results with all 3 brands returning to growth. It's particularly pleasing to see the momentum in the Kathmandu brand, which delivered a consistently strong sales result throughout the first half.

Gross margin has been strategically managed while optimizing our inventory mix, deliberately positioning us to excite consumers with the acceleration of new and fresh product innovation in the second half. In the first half, we've also improved the group's underlying EBITDA margin as planned. These proof points provide management with additional confidence that our strategy is beginning to build early momentum.

On Slide 11, and today, we're announcing that in conjunction with the equity raise, we've also completed the refinancing of our debt facility with a term of up to 2.5 years. These actions have been taken to provide sufficient liquidity and a stable capital structure whilst reducing leverage towards our target range of below 0.5x net debt to EBITDA by the end of FY '27.

Okay. So now we'll move on to the group's detailed results for the first half of FY '26 and of course, our outlook statement. We're on Slide 13 now. And as noted in this summary, we've seen early momentum in the first half as we execute Next Level. We've grown group sales in both the wholesale and direct-to-consumer channels. Gross margin has been strategically managed against the current macro and consumer backdrop while significantly improving our inventory position and mix.

We continue to be disciplined on our cost base, illustrated by operating expenses as a percentage of sales improvement versus prior year and now trending in the right direction towards our 50% of sales target. Lastly, we've also delivered significant underlying EBITDA growth year-on-year.

So now I'll introduce Carla, our group CFO, who will be taking you through the FY '26 half year results in detail.

Thanks, Brent. I'll now talk to Slide 14 and walk through the group's profit and loss for the first half of FY '27. Just a reminder, our statutory results include the adoption of IFRS 16 leases. For comparability, the impact of IFRS 16 has been excluded from our underlying results as well as one-off restructuring costs, Software-as-a-Service accounting and notional amortization of customer relationships.

Statutory EBITDA was $63.3 million for the first half of this year. And on an underlying like-for-like basis, first half EBITDA was $11.5 million, an increase from $3.9 million last year. Kathmandu has led the group sales momentum in the first half, as Brent pointed out. The total group sales 7.3% above the first half of last year.

Group sales result is underpinned by solid growth achieved in both the direct-to-consumer and wholesale channels. By brand, Kathmandu achieved strong direct-to-consumer sales growth in both Australia and New Zealand. Rip Curl's wholesale sales growth outperformed the direct-to-consumer channel with strong wholesale demand in Europe and North America. And Oboz's wholesale sales growth was supported by closeout activity and strong in-season buying from key accounts.

Gross margin decreased by 120 basis points below last year to 56.8% as we balance sales growth with gross margin achievement in a promotional marketplace. The group gross margin result of 56.8% in the first half is above the group gross margin for the second half of last year. Underlying operating expenses are lower than last year on a constant currency basis with the Next Level cost reset helping to offset strategic growth investments and continued global cost pressure. The year-on-year impact of currency movements on group operating expenses was $9.1 million. This can be seen in Appendix A of the results presentation.

The group's statutory net loss after tax was $13.1 million. On an underlying basis, the group's net loss was $11.5 million, which was an improvement on the first half of last year. Moving to Slide 15. Kathmandu total sales increased by 12.3% year-on-year despite ending the first half with 4 less stores year-on-year.

Strong sales growth was maintained throughout the first half, showing improved sales momentum from 2.5% year-on-year sales growth achieved in the fourth quarter of the last financial year. Pleasingly, Kathmandu has strong sales growth across both Australia and New Zealand, with Australia increasing 10.2% year-on-year and New Zealand increasing 8.9%.

Sales continued to grow strongly through the second quarter even when cycling a good Black Friday and Christmas result from last year. Online sales of $20.6 million were broadly in line with last year's strong growth result. On a same-store sales basis, including online, Kathmandu sales increased by 12.8% year-on-year for the first half. Kathmandu's gross margin decreased by 150 basis points year-on-year with a focus on selling through aged inventory in the first quarter and maintaining competitive promotional intensity in the second quarter.

It's worth noting here that Kathmandu inventory ended the first half $9.8 million lower than the first half of last year and $13.5 million lower on a constant currency basis. Underlying operating expenses reduced year-on-year with the cost reset and ongoing cost discipline, improving operating leverage.

Turning to Slide 16. Rip Curl total sales were up 4.6% above the first half of last year, helped by the year-on-year movement in exchange rates used to convert global sales to the New Zealand dollar reporting currency. On a constant currency basis, Rip Curl total sales were 0.3% above the first half of last year.

Wholesale sales increased 9.8% year-on-year with particularly strong demand in Europe and North America. Within the direct-to-consumer channel, online sales delivered a first half record of $22.5 million in sales, an increase of 6.7% year-on-year. Online now comprises 12% of direct-to-consumer sales. Direct-to-consumer sales, including online, grew by 1.9% year-on-year with strong results for North America, offsetting a challenging Australian market during the Southern Hemisphere peak summer period.

On a same-store constant exchange rate basis, direct-to-consumer comparable sales, including online, increased by 1.5% year-on-year. Rip Curl gross margin decreased by 120 basis points year-on-year, impacted by the wholesale channel mix and a more promotional marketplace. Underlying operating expenses were in line with last year on a constant currency basis, benefiting from the cost reset and moderate growth investment to address continued global cost pressure.

Now to Slide 17, Oboz. Oboz total sales were up 6.5% for the first half, mainly in the wholesale channel. Online sales increased 0.9% year-on-year, impacted by a lower closeout inventory level. In the second half, the Oboz website will move into a new group online trading platform. Digital marketing continues to be refined with new agency partners through an updated digital funnel strategy and fresh creative. Wholesale sales were up 7.5% year-on-year for the first half, benefiting from strong in-season buying from key accounts. Gross margin remained stable, improving by 20 basis points year-on-year despite tariff impacts, supported by lower closeout activity year-on-year. Underlying expenses were tightly managed and below last year.

To finish for Oboz, I'll point out the Kathmandu segment includes sales of Oboz products through Kathmandu Australia and New Zealand store network at full vertical gross margin. These sales totaled $3.2 million for the first half. What's great to see is that consumers are adopting the Oboz brand, which is now the largest footwear brand within the Kathmandu store network.

Moving to the group balance sheet. Net working capital efficiency has been a key focus. And pleasingly, the group inventory position has reduced for the third successive year and continues to reduce towards optimal levels. In terms of aged inventory and mix, inventory obsolescence provisions represented 1.7% of gross inventory, consistent with the last 2 years and 50 basis points below July '25.

Stock turns improved from 1.33x at January '25 to 1.56x at January '26. The year-on-year decrease in current trade and other payables at the end of January '26 includes a $17.1 million lower goods in transit balance year-on-year. At 31 January, the group net debt position of $94 million was with the weakening of the New Zealand dollar year-on-year, which impacted that net debt balance by $5.6 million.

On January -- 30th of January '26, the group extended its existing debt facility and adjusted the fixed cover ratio for July '26 and January '27 measurement periods. The group also reduced its total syndicated bank facility by $49 million to approximately $283 million. As part of the longer-term refinance plan, the group has now agreed terms with the majority of our existing bank syndicate for a multiyear bank facility, which we'll talk you through later in the presentation.

Moving to Slide 19, the cash flow. Working capital cash outflows is expected as January net working capital balances is elevated traditionally as stock to support Kathmandu's autumn/winter season and Rip Curl summer season is shipped before Chinese New Year. Inventory purchasing timing was phased earlier than last year, helping to bring newness into stores to capitalize on Black Friday and Christmas trade, which reduced trade payables at January '26. In addition, elevated trade payables at July '25, which unwound in August '25 resulted in additional cash outflow in the first half. As a result of operating performance, the directors have not declared an interim dividend.

Turning to Slide 20, now for the latest trading update. Direct-to-consumer same-store sales, including online for the first 6 weeks of the second half from the 2nd of February to the 15th of March, were Kathmandu plus 11.1% year-on-year, combined with gross margin improvement year-on-year of approximately 50 basis points. Rip Curl was up 1.2% year-on-year. We note that this is a seasonally nonsignificant trading period.

Turning to Slide 21. Before I hand you back to Brent, I'll provide some commentary on the group's outlook. Given early momentum in its Next Level turnaround strategy and despite a challenging global consumer environment, the group remains focused on delivering continued performance improvement compared to prior year. Kathmandu continued its recent sales momentum in the first 6 weeks of the second half with the key autumn and winter trade periods still to come.

Kathmandu are also on track to achieve gross margin expansion year-on-year in the second half with consumers responding positively to improved product flow and assortment. Rip Curl and Oboz's order -- wholesale order book, sorry, for the second half of FY '26 are in line with last year with the European and Northern American summer season to come.

Gross margin expansion is anticipated year-on-year in the second half, reflecting actions taken to offset U.S. tariffs and cycling specific clearance of inventory in the second half of last year. Group underlying operating expense as a percentage of sales are forecast to improve year-on-year, showing progress towards midterm targets.

Underlying operating expenses for the full year are planned to be broadly flat year-on-year on a constant currency basis and before FY '26 management incentives. The year-on-year impact of global currency fluctuation is expected to have a significant impact on operating expenses. In the first half, the impact of year-on-year currency movement was $9.1 million, as shown in our Appendix A disclosures.

The group remains on track to achieve its Next Level strategic cost reset savings, helping to offset cost inflation and deliver moderated reinvestment to drive Next Level strategic growth opportunities. In terms of EBITDA margin, we expect to deliver further EBITDA margin expansion in FY '26.

The group continues to focus on optimizing its store network as part of the Next Level integrated marketplace strategy. And capital expenditure for FY '26 is targeted to be at the lower end of the guided range, approximately $25 million. Finally, KMD Brands continues to target a leverage ratio below 0.5x net debt to EBITDA by the end of FY '27.

I'll now hand back to Brent.

Okay. Thanks, Carla. Now I'll provide everyone with an update on our Next Level transformation strategy. So on to Slide 23, and you can see we're delivering on our promise in the first 6 months of our Next Level plan. Last September, we laid out ambitious goals for the business, and we're pleased today to report that we've made significant progress across several critical areas with more still to come.

Our focus is on continuing to build trust through our execution and subsequent results, essentially doing what we said we would do. We've reset the strategy for each of our brands with accelerated product innovation, integrated storytelling and sharper channel relevant assortments, laying the foundations for sustainable growth. We're improving our systems and data capabilities to drive efficiencies and deploy technology that enables better and more intelligent decision-making in critical areas of our business operations.

In addition, we also implemented Shopify e-commerce technology across the group in our priority global regions. The online channel, where we're underpenetrated, continues to be a key opportunity for both consumer connection and business growth for the group. As previously mentioned, we're on track to deliver a $27.5 million in cost savings this fiscal year, helping us to offset cost inflation and fund measured reinvestment to drive future growth initiatives.

It's important to note that we've moderated our growth investment this financial year with a rigorous focus on prioritizing near-term ROI. We accelerated our focus on the optimization of our global store network as part of the Next Level integrated marketplace strategy with 15 stores closed so far and 6 more to come by September this year.

As Carla described, we've also made good progress in the first half of the year to optimize our inventory and working capital investment. Finally, we continue to work towards unlocking capital by divesting noncore assets that do not provide a competitive advantage to our 3 brands.

On to Slide 24, and let's quickly recap on our group strategy before we dive into updates from each of our brands. As you know, we're driving a brand and product-led strategy that's rooted in authentic purpose. We're introducing decision intelligence and data-led process to deliver increased efficiency as we scale. And we're doing this with a clear focus on managing our cost base and profit margins.

We'll maintain that discipline as we grow with our execution guided by clear profitability guardrails. As a reminder, each of our brands has strong consumer and industry relevance and are trusted in technical expertise and also well positioned in growing activity-based categories.

Our brands continue to have a complementary footprint with globally diversified regions and seasons. So let's dive a little deeper now at each brand's strategic initiative scorecard, starting with Kathmandu on Slide 26. Our focus continued to deliver an accelerated product innovation strategy combined with authentic brand storytelling. Product distinction is fundamental to Kathmandu's success, as we've discussed previously, along with a refreshed focus on product assortments and new flow at retail to create consumer excitement in a newly segmented store portfolio. We've also reset Kathmandu's future international strategy to be a distributor-led model with focus on capital-light and digital-led expansion into FY '27.

On to Slide 27 for Rip Curl, and we're resetting and contemporizing the Rip Curl brand for the next generation of surf consumers to really discover the search. This reset is defined through a new edit point, and it's now at the center of all of our product creation. Whilst we always stay true to serving core surface, we can also expand our market capacity with new purpose-designed product to address the significant but untapped growth that the culture of beach and surf culture represents.

Lastly, in the half, returning our North American business to profitability was also an immediate priority for us as we quickly identified the need to rightsize the cost base appropriately for future growth.

Moving on to Slide 28, and our Oboz strategy is centered around reenergizing our core product offering to drive a fresher product flow for our consumer. We've accelerated our product creation agenda in the last half to impact the market faster and earlier than was originally planned with a particular focus on the significant opportunity in the fast and light category, extending penetration and opportunity beyond traditional hiking and into an all-new terrain category.

So we move to Slide 29 now. And as I mentioned earlier, the online channel is a key growth priority for the group. We're working at pace to reset our digital capabilities and have taken significant action in FY '26 to reposition our digital platforms through Shopify and fuel our omnichannel experience. Our digital platform reset will provide us with the capabilities to significantly grow our online penetration with a clear pathway to reach industry averages into the future.

On Slide 30 now, which outlines how we're building a data-led intelligence to drive efficiency benefits as we scale. We're rapidly improving our capabilities to drive profitability, enabling us to be more agile and improve our planning and our decision-making across the business. Some examples of this include delivering better efficiency through procurement to reduce cost of goods sold, streamlining and simplifying our group technology systems to improve the ability of our brands to both forecast and plan using agile technology to accelerate market insights and decision-making and, of course, continue that focus we have on supply chain optimization.

We're on to Slide 31 now and our third and final strategic pillar is to deliver sustainable profitability. As mentioned, we're on track to deliver $27.5 million of cost savings this financial year, $2.5 million above the $25 million target we set for ourselves back in September. We've reset the cost base, helping us to offset cost inflation and focus on profitability.

On Slide 32, our Next Level strategy outlined that approximately $15 million of the savings would be reinvested in growth initiatives. Over the first half, we've moderated our investment plans down to $10.8 million for FY '26 to prioritize near-term return on investment.

We've held back select portions of the earmarked investment due to rapidly changing market conditions, and we'll continue to be disciplined in any further investment with a laser focus on returns and we will earn our way into additional investment over time as performance improves.

On Slide 33, we can also update you on our progress optimizing the store network we outlined as part of our Next Level integrated marketplace strategy. We're on track to deliver the 21 store closures we had previously announced. And to date, we've closed 15 of these stores with annualized lease cost savings of $4.2 million. Additionally, we're continually reviewing our store portfolio as best practice against a strict set of criteria to deliver further opportunities for network optimization over time.

Slide 34 is a recap of our financial ambition for the next 3 years. We acknowledge that trading conditions have been challenging over the past few years, and we saw our EBITDA margin under continued pressure. Next Level sets out a financial plan with ambition to achieve a 10% EBITDA margin over the next 3 years. We believe this is achievable by improving our gross margin over time to approximately 60% and lowering our operating expenses to 50% of sales. The ambition over 3 years is based on an underlying assumption of sales growth across the group. And as top line sales growth builds, we will realize more incremental benefits on profitability through improved operational leverage. And of course, we always look forward to updating you on our progress.

So now Carla will talk you through the details of today's equity raising and debt refinancing announcement. Carla?

Thanks, Brent. So Slides 36 and 37 provide an overview of the fully underwritten $65.3 million equity raising. The raising comprises of $58.5 million, 1-for-0.73 pro rata accelerated renounceable entitlement offer and a $6.8 million placement. The offer price is $0.06, representing a 47.1% discount to the theoretical ex-rights price and a 69.2% discount to the last traded price. For our shareholders in Australia, the Australian dollar offer price for the entitlement will be announced on the 2nd of April based on the prevailing exchange rate at the 31st of March.

In total, approximately 1,088 million new shares will be issued under the offer, which represents 152.8% of KMD's existing shares on issue. Proceeds from the equity raise will be used to reduce KMD's net debt position and strengthen the balance sheet in conjunction with the refinanced debt facility, providing a stable balance sheet to enable execution of the Next Level strategy. We also want to highlight that all directors who are shareholders are participating pro rata in the equity raise, which is detailed on Slide 37. And David Kirk and Philip Bowman will apply for at least twice their pro rata.

Slide 38. As announced, the institutional entitlement offer and placement open today on 31st of March will be conducted across today and tomorrow. We expect the announcement -- we expect -- sorry, to announce the results of the institutional entitlement offer placement and institutional book build on the 2nd of April, at which point the trading hold will be lifted and shares will recommence trading on the NZX and ASX on an ex-entitlement basis. Further details on the equity raising timetable is outlined in Slide 38.

On Slide 39, we're pleased to announce that in conjunction with the equity raise, we've also secured a refinance of our debt facility. Our refinance debt facility provided by a majority of our existing syndicate includes facilities of approximately $205 million, split across tranches with the longest date tranche, giving us a near term of -- sorry, giving us a term of 2.5 years. Refinance provides a stable capital structure for us to execute on our strategy.

Okay. Thanks, Carla. And now to close out quickly with a quick recap of the key messages I mentioned earlier. Of course, while we acknowledge there is still much to be done. We're at the beginning of our Next Level transformation. But we're encouraged by the strong progress made and the results in the first measurement point of the Next Level business turnaround, in particular, with Kathmandu.

We continue to have high conviction in our transformation if we continue to remain disciplined and focused in the execution of our strategy, given the significant opportunity to rebuild long-term value in KMD Brands into the future. So that now concludes the formal part of today's presentation. I want to thank you all for taking the time. I think we will now open it up for questions.

[Operator Instructions] Your first question comes from Kieran Carling with Craigs Investment Partners.

First question I have is on your equity raise. If we look back 6 months, your commentary suggested you're reasonably comfortable with the balance sheet positioning. At the September result, you said the $25 million of cost-out initiatives were going to be offset by growth investment.

CapEx guidance was flat to up. There was no update on core asset sales. And then in February, you said your trading momentum was positive and you expected to comply with amended covenants at the January testing point. So against that backdrop, what changed relative to your previous expectations in September? And what's ultimately put you in the position where you're not needing to do a deeply discounted equity raise now?

Well, Kieran, I guess what I would flag is that we had talked to a short-term extension of our debt facility. So it was important that we continue to consider equity and debt in the context of getting a longer-term facility. So part of what we did work with our advisers on was just shaping up both the appetite from our lender base where we had some very constructive conversations and just sizing as a result of that, the size of the equity raise. That was obviously done in conjunction with a longer-term view to get the business to a position where we could get long-term financing and equity was a component part of that.

The only thing I'd add, just obviously, we've sized the raise to accelerate our deleverage to below 0.5x net debt as we talked about this morning by FY '27. So we want to make sure we have a stable capital structure to continue the progress that we're making around Next Level.

I guess why was there a lack of urgency 6 months ago when it came to reducing your debt?

I don't think there was a lack of urgency. As Carla said, we've been in conversations and have obviously updated the market around conversations with our lenders around long-term debt and the right capital structure with advisory to secure certainty over the next 2.5 years to execute our plan.

And you can also see, Kieran, there's obviously a step down in the extension that we provided. So it has been on a path to delevering and working with our lenders around covenant packages that get towards that ambition as well.

All right. I might move on to Rip Curl. So I mean we've seen the sales run rate decline there for the last 3 quarters, and that's despite some modest improvement in the wholesale channel. Clothing and footwear sales trends in Aussie have improved for the last 3 quarters, and you've obviously had FX tailwinds as well.

So can you just talk us why -- talk us through why sales trends have been softening in that brand? Do you think it's market share loss or just category softness? And how do you expect it will trend from here?

Yes, I'd love to give some comments. I think as we all know, the surf industry has been what we would call a sea of sameness for quite a while now. It's been a messy promotional marketplace. Some competitors have flooded the market with lots of excess inventory.

We've seen some of that inventory show up in undesirable channels, let's call them. And I think the other observation we made in resetting the strategy was the fact that the industry has predominantly been focused on a much older consumer. For us, that really represents opportunity. And so as we detailed, with our Next Level strategy reset for the Rip Curl business less than 6 months ago, there's a few things that we are laser-focused on to turn that business into what we believe can be in terms of opportunity to reset against a far more youthful consumer, youthful consumer edit point that we talk about, and we've reset all of our product engines against that edit point. You won't see that product into the marketplace probably until early next year, but it's a much more youthfully orientated perspective around surf.

Obviously, Rip Curl is the one remaining true authentic surf brand around the world, and we've restructured our teams to focus on that opportunity. The second thing I'd point out is that over the last 6 months or for the full year, we will have taken $13 million worth of cost out of that business whilst restructuring it.

And so that's in terms of resetting its overall profitability into the future. We've rightsized the U.S.A. marketplace cost base, as I mentioned. We're focused on range and SKU consolidation, and we're resetting our digital capabilities. So whilst I don't think that, that's all obvious in the results that you see for the first half, we've made really significant decisions that's driven change in that business that you will start to see play out over the course of the next 12 months as all of the elements of that strategy come together and work in unison to reframe that brand as the true authentic surf brand with a connection to youth culture.

Okay. So just to give us a steer, do you think the sales run rate of that brand is going to improve going forward? Or do you think it will continue to trend down in the near term and back up in FY '27?

Our ambition is for improvement.

Okay. And then just last question is on your outlook commentary. So you've talked about expecting gross margin expansion in the second half of '26 for Kathmandu and then Rip Curl and Oboz in the wholesale channel. But given the gross margin trends through the first half where we saw compression, the fact consumers are coming under increased financial pressure and other retailers are talking about fairly significant lifts in freight costs. What gives you confidence you can actually grow gross margin in the second half of the year?

Yes. Maybe I'll talk to the consumer-facing opportunity, and Carla may talk to the cost side of it. I think particularly talking about Kathmandu, and if you do look at the outlook statement, it's the first time you've seen some gross margin expansion for Kathmandu in those first 6 weeks of trade in the second half.

For us, that's very encouraging because all of the major shifts in both product innovation, flow of that product into market, some strategic pricing decisions that we had made, the way that we've readjusted our markdown calendar together with some strategic price increases means that for us, that strategy is starting to come together. And obviously, the momentum in the Kathmandu business has now been sustained for over a half, which we feel pleased about.

Obviously, the larger part of the Kathmandu trade happens in the second half. And I think we feel quite positive about our offering and the way that the changes we've made will come together over the second half. No doubt, there's a volatile macro marketplace that everybody is facing at the moment, and we all know the reasons for that. I'll let Carla talk a little bit just about our agility as it relates to cost base.

Well, I think as Brent said, we're obviously, like everyone, managing and monitoring in a reasonably volatile environment. But I guess to the extent the things that we can focus on and control, which gives us some of the sentiment, as Brent mentioned, around our commentary, we continue to monitor those logistics and input costs closely. What we can control and maintain is our -- being tighter on our margin management.

We have seen and continue to prioritize full price mix, which has been pulling through from what we can see in that trading update. We've been tightening up our promotional cadence, and we've seen some pretty good opportunities with things like the Summit Club, our loyalty offering where we can see opportunity there as well that's possibly been underutilized in the past.

I mean all of that is we're trying to balance out with them what we're doing around working capital. So not to suggest that it's an easy balance, but it's something that I think like all out there who are trying to give the best guidance they can see at the time, we continue to manage the things that we feel we can control.

So sorry, just another follow-on there. With your gross margin commentary in the outlook statement and your OpEx guidance, can you sort of talk us through what you factor in, in terms of freight cost increases?

Look, we're not specifically calling out a freight cost increase. But I think, like I said, I'll just keep reiterating that we're monitoring those things closely.

Your next question comes from the line of Guy Hooper with Jarden.

If I could start with the intangibles value. I mean there's I think in the balance sheet about $650 million. I mean that's quite a marked gap to where the market cap is or going to sit post the raise. So if I could maybe just ask a quick 3-part on it. What risks exist around impairment? And then could you give us any stare of a breakdown of that intangibles value by business unit and why you wouldn't consider a breakup of the brands?

Look, I'll take the impairment question. I'm not going to give a breakdown to the component parts. But obviously, you can see back through history in terms of the size of the purchasing of Rip Curl that that's a significant component of it.

But Guy, as we would always do with audited accounts, we continue to do trigger testing and consider headroom that we have within that impairment testing and both management and our auditors remain comfortable that we don't have any indicators of impairment at this time. So clearly, that's a test that we do every 6 months, and we'll continue to do, but we haven't seen any need for impairment because of the headroom we currently have.

Yes. Okay. And I mean, given that and the material gap in value, could you talk about the considerations for a breakup of the various brands or maybe why the market might be missing such a big gap in value?

I think as we've said, we did a strategic review last year that resulted in the Next Level strategy. We've been clear about the synergy -- significant synergy that exists between the brands, whether that be some of the things we've mentioned this morning from sourcing, logistics, freight, Oboz now being the largest footwear business within the Kathmandu brand.

I think it's also fair to acknowledge the different difficult market conditions out there. I talked about rebuilding value in brands like Oboz and obviously, Rip Curl is part of our reset as well. So the strategy is consistent with the 3 brands in our portfolio and the interrelationship and synergy that exists between them as at today.

Okay. Maybe if we turn just to, I guess, some of the performance and moving parts at the moment. Maybe just a little bit around the supply chain risk from a raw commodity point of view and particularly around neoprene and other wetsuit inputs. I mean what sort of cost inflation are you seeing there? And what is the risk that supply chain from a raw point of view, how far away are we from basically seeing that stock?

All I would say is we're working very hard with our factories and partners as upstream in the supply chain on mitigating cost increases and in some cases, driving synergy to offset any potential cost inflators into the future.

As you can imagine, given product lead times, some of that takes a while to flow through. So from our perspective, that's something that we're focused on. We won't get into specifics about the cost of neoprene or anything else. But needless to say, I think we've called that out as a potential opportunity for efficiency into the future.

Okay. And maybe just one last one, a bit of a follow-up on the gross margin outlook commentary. I mean year-on-year expansion in gross margins are fairly low hurdle given what we're cycling. Can you talk to us about maybe direction half-on-half? And then also to what extent some of this cost inflation is actually factored into guidance or outlook?

Well, I think what I would just go back to reinforcing is some of the commentary, you're right, you acknowledge that the second half is a key trading period for Kathmandu in particular. And so the commentary in itself is acknowledging a peak trade period ahead.

I think what we'll keep going back to is at this point, looking at how we've improved the product assortment and some of the full price product that's coming through is a way in which we continue to be able to talk to that margin expansion. And I guess to the extent that we have talked to cost out across our target for the current year and have overdelivered against that target, cost base is something we continue to keep reviewing, and it's part of what we would be needing to do in this type of environment where we're seeing cost base inflators. And we continue to challenge ourselves around those cost-out initiatives and making sure we're addressing any other inflators we see to impact that margin.

I would say that the product mix in the second half for Kathmandu obviously contains a lot of insulation, rainwear, higher-priced products as an example. And it's fair to say that our mix of go-to-market will change and has changed in terms of percentage of different categories of product and percentage of different categories with different price mix.

I mentioned earlier about markdown strategy. Carla touched on rewards. These are all inputs to an integrated marketplace strategy that means we will look and feel slightly different at retail deliberately, most importantly, with the consumer and the consumer experience through product.

Starting to ramp up from now as you've seen in some of our results. So I think that's just important context, but it clearly is a marketplace that is very uncertain given all the things going on in the world from a macro perspective.

And probably my only other add, if I just think in reference to particularly Kathmandu with that trade period ahead. I mean, in looking at our trading update, I mean, what we've called out is something where we're seeing that growth across Australia and New Zealand.

We're seeing growth in ATV year-on-year. We're seeing stronger customer conversion. So those sort of points are ones that we continue to monitor, appreciating that sentiment changes over time, but they're pleasing to see in what we have got in front of us and can see pulling through.

Your next question comes from the line of Bianca Murphy with UBS.

So firstly, you've outlined a number of operational milestones under your Next Level strategy. Given the scale of the dilution from today's raise, which 2 or 3 do you see as most important in delivering earnings growth needed to offset some of that dilution over time?

Well, I mean, I might start, and I'm sure Carla will have some comments. I think they're all important for us, and they're all interrelated, as you know. The key priorities that we've laid out, though, which is why the first half result is encouraging as a first step on this journey is that we need to ensure that we get back to growth.

The growth in Oboz, the growth in Kathmandu, obviously, Rip Curl with some currency adjustment is slightly more challenged. But we need to grow the top line. And the only way to do that is by refreshed and improved focus on authenticity and innovation.

So that's the first thing. The second thing clearly is cost and management of cost and redefining how we think about cost for both investment and in absolute terms. And hopefully, what you've seen in the first half is testament to how we articulated our goals for the fiscal year.

Thirdly is gross margin, which we've obviously just had a conversation about. But then from a financial perspective, we talked about reducing our operating leverage and getting -- and rightsizing OpEx as a percentage of revenue and EBITDA as a percentage of revenue. And you can see through these results that we've taken the first step on that journey.

I mean all that I'd add is, I think wholesale distribution still provides an opportunity into the future. And look, I think we -- while off a small base, remain underpenetrated in online as well. So these are things that we've continued to call out.

You're not seeing all of the pull-through of the hard work that's going on within the business around the digital reset and some of the retooling that we've had to do for those businesses and getting those content engines and getting the product in place.

But I think that's probably the only other thing I'd emphasize. I think it's all important. I mean I think we've got to do all things balanced and equally important, but I think online provides, again, another opportunity.

Yes. And lastly, just to follow up on that. This isn't easy, right? We are driving significant change across the group with a mindset that captures the value we see in the opportunity for KMD Brands into the future. There's a lot of tough decisions here that have been made, some of which clearly have shorter-term impact, and you're starting to see some of those today.

Some of those decisions you won't see, as I mentioned, for example, with regards to Rip Curl and product for another 6 to 8 to 12 months in terms of impacting the consumer. So we feel that we're on the right track as a marker in the first half since our announcement of the Next Level strategy. We're encouraged by that.

Okay. And then in terms of your hedging, so net debt has been impacted by FX moves in the first half. Can you share what your current hedging position is as we move into the second half?

It hasn't changed. We sort of hedge out across a sort of 12-month time horizon and nothing has changed in terms of that approach or policy. But we sort of tend to look that far out and feel like we're in a good position.

Obviously, you've seen in our results where we've pulled out the impact of currency. There's an appendix at the back. So we acknowledge that there is a fair bit of currency movement going on, but our approach hasn't changed in terms of our hedge book.

We have no further questions.

Sorry, I think you're going to say the same thing as me is that there's no further questions. So with that, we'd just say thank you very much to everybody for your time and for dialing in. And that will be the conclusion of this morning's call.

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 Nonexecutive 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 2 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]

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 in the post, but 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 passed. It will not have escaped your 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 in 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 Brent Scrimshaw as Group Chief Executive Officer and Managing Director. Brent had served on the KMD Brands Board since 2017 and brings extensive global experience in building and scaling consumer brands, including an 18-year career with Nike across 3 continents. In a short period as 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 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 GPS3 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 Sawtooth shoe 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 Featherflight, 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 3 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 3 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 Bozeman 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 Featherflight 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 Precinct, 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 Riccarton 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 mannequins 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, Jonas Golze 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, Jurlique and ADMA, 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, years of managing large portfolios 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 we received any questions for discussion on the resolution?

No questions from online.

Thank you. Coralie?

Yes. I'm Coralie [indiscernible] 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 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 your -- 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, I 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 we 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 2 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. Anybody who now wishes to ask any further questions, please ask your questions using the Ask a Question button if you're online. If we run short of time and 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. Should we run through those first?

Yes, let's do those.

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

The answer -- 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 2 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 online and then we'll come back to the room.

A question also from Matthew 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 in the return on capital and the acquisition of Rip Curl. Time has shown that the acquisition price of Rip Curl was appropriate and indeed Rip Curl's earnings and return on capital has held up most strongly of all of our brands through very challenging trading conditions. So it's not -- those 2 things are not related.

But the question asker 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, 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 in 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 has 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 your CEO remuneration disclosure. It's not a surprise I'm raising it because all of us talked to you about it. It is one of the worst on the NZX50 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 -- well, Brent, but obviously his team too. So that's my question, and I have an invitation afterwards, but I'll wait for you, Chair.

Fair question. We just make the point, we absolutely disclose according to government's 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 the 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 to say, we're happy to execute on.

Thank you. My invitation is really actually to you, Chair, which is you've been involved with the Board 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 whether you want to say anything 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 sitting 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, that type of period.

We'll take another one from the room, and then we'll go to 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 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 down in Oboz?

There was a write...

And if so, what was it?

There's a write-down of -- those delivered a small operating loss, relatively small in the scale of the company, 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 -- sent in beforehand.

Another question submitted prior to the meeting by Matthew Ashton. Macpac is now the most common winter jacket brand in the [indiscernible], I have seen little in strategic thinking when it comes to targeting a recovery in this area in the coming years for...

Firstly, completely 100% wrong. Macpac is not the leading winter jacket brand, not leading in any categories that we compete in. 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 their 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 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 as Carla and others and Brent pointed out, our in-store environment is part of that process, but so is the quality of the newness and the innovation in 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] Chen, 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 and sign -- sorry, inside, I didn't find like clear sign of, for example, your products of the clothing they're wearing. Is it marketing for which brand and so on. So I'm not too 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 that because of the difficulty financially for this company, do you find it's necessary to even perform recapitalization in a way similar to actual performance?

Thanks. There's at least 3 questions buried in there. So I'll start 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've all been 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 booklet, 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 showcase the brands. So that's how we've dealt with it at the meeting.

Thank you. Anything more online -- in prior to meeting, sorry?

We've got a couple of new questions that have come 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. It 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 paid before the end of the close.

Carla, do you want to add anything to that?

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

Yes. We have absolute support of our banking syndicate. They're great. We're in good shape 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 been 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. My -- I guess that's related to Kathmandu, Frances, So I'll make a comment regarding Kathmandu stores. 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 to 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 assortments in each of those channels to drive operational upside and yield from each store.

So there is no magic number as it relates to 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 Riccarton or in Chatswood, a great expression of the entire Kathmandu brand. In other smaller store formats, you'll 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 in 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 brands 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 prior to meeting?

No further questions online.

Any in the room?

Thank you. My name is [ Heidi Xing ], shareholder for Kathmandu for a number of years. And I wish 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 the company still need improvement because recently reading the New Zealand Herald, Macpac got #1 customer service. Previously, Kathmandu is always on the top and now is overtaken by Macpac. We 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 it's certainly not consistent with my personal -- I do secret shopping quite a bit between the brands, and that's not consistent with what I've seen. I don't think people in Kathmandu are recognizing me when I'm doing it. But we'll investigate that. Thank you for that.

[indiscernible], shareholder. The reset of 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 there redundancies and what cost was that to the company?

Yes, there was redundancies. Most of that 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 brought and new people joined the business.

And with regard to the redundancies, there would have been redundancy payments and that has taken through the P&L in the normal way. I don't have at my fingers just actually what the dollar amount was.

Yes. 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, who's 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.

Good morning, everyone. Welcome to the KMD Brands Full Year Results presentation. Just a word before we hand over to Brent from KMD. Unfortunately, due to a technical difficulty with the phone system this morning, the phone lines are not available for this call. So just repeating that the phones are not available for the call this morning. [Operator Instructions] But yes, the phones are not available, and we'll hand over to Brent now.

Okay. Good morning, everyone, and thank you for joining us for today's presentation of KMD Brands financial results for the FY '25 financial year. My name is Brent Scrimshaw, and I'm the CEO of the group, and I'm joined on the call today by Carla Webb-Sear, our Group Chief Financial Officer; and Ben Washington, our Deputy Group Chief Financial Officer. We'll be talking through the presentation lodged on the NZX and the ASX this morning. And unless otherwise specified, all financial numbers are in New Zealand dollars.

So today, I'm going to begin with an introduction of our 'Next Level' turnaround strategy, along with the group's key achievements in the past year. Carla will then discuss the group's financial and brand results in more detail. And I'll then take you through the key components of the 'Next Level' strategy moving forward before finishing with the trading update and our outlook for the year ahead.

So I'll start with my observation about what really excites me about the opportunities for this group of brands. And I'll do that along with some, I think, honest observations of the challenges we continue to face. Drawing your attention to Slide 4 now. Our brands design quality products that are built for purpose, focusing on outdoor lifestyle and adventure activities with deep product ranges that provide technical foundation and diversity across seasons. Each of our brands continues to serve consumer needs for quality, activity-based technical apparel and equipment. And the combination of our brand portfolio means the group benefits from significant diversification in terms of geographic footprint, channels to market and seasonality profile.

At the same time, the synergies mean the group can continue to leverage its scale in terms of product development and manufacturing, marketing, systems and funding to name a few. On to Slide 5, and a reminder that we're truly a global active outdoor lifestyle group, operating over 300 owned stores with our brands sold in over 8,000 locations globally. Australasia is our biggest market with over $600 million in annual sales, 82% of which is in Australia. North America generates over $200 million of sales annually with Europe over $100 million and Asia and South America being our other key global markets. Now since joining the business as Group CEO a few months ago, I've been excited by the significant growth opportunities for our business. But realistically, I've also formed a hyperrealistic view, as I call it, on the key challenges we face, both from the outside in and from the inside out.

And whilst we've pursued many new opportunities as a group over the past few years, I know that if we truly understand the critical success factors that will drive a step change in our consumer connection and therefore, our financial result, and we align our businesses behind that strategy, we'll be well positioned for future success. The good news is we're starting from a strong position in terms of our brand strength and the way consumers think about and the consumer sentiment for our brands. What's also impressed me is the deep commitment from our people in each of our businesses around the world. The strength of alignment and passion that our people share for our brands is like nothing I've seen in 30 years in these types of brand-led businesses. But if we're truly honest, our product development has at times lacked relevance, design leadership and a relentless flow of fresh stories at retail. And our store portfolio across brands lacks product differentiation and clear store format segmentation. Market volatility notwithstanding, I am encouraged, however, by market growth in our key apparel segments around the world.

So leveraging our industry leadership position, if we can truly create innovative, relevant and distinctive commercial product stories that provide a unique competitive point of differentiation from the sea of sameness that I see, I'm confident our new plan will be successful.

So moving to Slide 7 and the KMD Brands next level turnaround strategy is specifically designed to address these market conditions and our observations that I've just outlined. We talked in detail about our 'Next Level' reset strategy 2 weeks ago at our Investor Day. And for those who did not attend, I would encourage you to check out the KMD Brands Investor Day presentation and webcast on our Investor Relations website.

In short, there are 3 key strategic priorities that make up our 'Next Level' focus, which are the fundamental anchor points for our future success. Number one is a brand and product-led offense, recognizing that consumers seek deeper and more emotional connection with brands and products in a sometimes crowded marketplace. We aim to lead with the strength of our brands and leverage that and bring to market a fresh flow of iconic, distinctive products with a renewed emphasis and focus on appropriate speed and style. Point two, in terms of data-driven processes and new tools that will enable our teams to simplify an overly complex business and make better data-informed decisions. And three is to execute a relentless focus on how we think about driving sustainable profit growth with clear financial guardrails guiding our growth investment.

Now I'll talk in more detail about 'Next Level' strategy later in this morning's presentation. But for now, let's talk more about the results of the last 12 months.

Moving on to Slide 8 and a summary of the key FY '25 financial results for the group. Global market conditions continue to be mixed. However, we were able to grow sales by 1% above last year with an improved trend in the direct-to-consumer channel, which includes online. 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 Asian excess inventory in the marketplace, particularly in Q4. The profit result is clearly not where we want it to be. Now 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. And after accounting for one-off noncash impairment of Oboz intangible assets, the group's net loss after tax was $93.6 million. And on an underlying basis, I should say, the group's net loss was $28.3 million. In a challenging trading environment, we again demonstrated our ability to manage the controllables.

We prioritized cash flow, reducing inventory and net working capital year-on-year. Pleasingly, net working capital ended $40.6 million lower than July last year, a significant achievement. And as a result, the group's balance sheet position is stable with $52.8 million in net debt, lower than the July balances of the last 2 years and with funding headroom of approximately $235 million.

Moving to Slide 9. Operationally, our brands have already demonstrated some progress against the key drivers in our 'Next Level' strategy, but we know we must do better. Our brands are delivering iconic product to market. For example, at Rip Curl, who launched the new Surf, GPS3 Surf and Tide watch in April, allowing surface to plan, track, compare and share every session. The all-new Search GPS iOS app enabled surf tracking for users of the Apple Watch as well. Oboz released a limited edition of its iconic Sawtooth shoe in collaboration with creative studio in the United States, Blackbird Spyplane, which sold out in minutes and captured the attention of a new group of fashion-forward customers.

In addition, our product development teams have also been recognized globally for pushing the boundaries of product innovation. Rip Curl won an ISPO award for the Mirage 3D-printed boardshort and Kathmandu won 2 ISPO awards in 2024 for the Feather Flight, a best-in-class iconic and innovative solution to lightweight carry-on luggage and another for the women's Seeker short, which uses fabric made from capturing carbon emissions from steel mills blended with recycled materials. Our integrated marketplace strategy will deliver a coherent and holistic mix of segmented store formats in the right geographies, providing consumers with a tailored and relevant brand and product experience. A great example of this is the new Rip Curl Bondi Women's store. This store has been designed to deliver a fresh and tailored brand experience for female surfers and beachgoers. And in addition, opening just last week, right next door is a new Rip Curl men's and kids concept. So Rip Curl now owns an elevated and iconic precinct overlooking one of the world's most famous beaches. Kathmandu have recently completed the development of the new flagship concept store of the future with lease agreements now finalized for 3 key locations with the first new format stores scheduled to launch in October this year.

We believe our brands are materially under-penetrated in digital and e-commerce, and we're accelerating our focus and investment to accelerate this digital growth. Our Shopify platform has shown fantastic UX results in the Kathmandu business so far and you'll see us doubling down on digital marketing efforts when we launch in Rip Curl and Oboz over the coming months. The group and each of our brands continue to be B Corp certified and demonstrate leadership in sustainable innovation particularly through the use of new sustainable materials in product development and the implementation of new reuse or recycling initiatives.

So that's my introduction. And so now I'd like to introduce Carla Webb-Sear. Carla has recently joined our executive team as our Group CFO, and she'll be taking you through a more detailed overview of the FY '25 results.

Thanks, Brent. I'll now talk to Slide 11 and walk through the group's profit and loss for FY '25. Our statutory results include the adoption of IFRS 16 leases. For comparability, the impact of IFRS 16 has been excluded from our underlying results as well as one-off restructuring costs Software-as-a-Service accounting, notional amortization of customer relationships, impairment and onerous contracts. Statutory EBITDA was $50.5 million for the year. On an underlying like-for-like basis, EBITDA was $17.7 million, a decrease from $50 million last year. Global market conditions have been mixed. However, we were able to slightly grow sales by 1% above last year, with the best results in the direct-to-consumer channel, which includes online. The full year sales results of 1% growth above last year improved slightly from 0.5% in the first half of the year.

By brand, the Kathmandu sales result was impacted by unseasonably warm weather in the third quarter, which contributed to decreased insulation sales. Rip Curl's direct-to-consumer sales outperformed the wholesale channel with pleasing flagship retail store sales growth in key global regions. Oboz wholesale sales continued an improving trend in the second half of FY '25, supported by new style launches. While we grew sales slightly, the combination of a decrease in gross margin and continued operating cost pressure impacted FY '25 profitability.

Gross margin decreased 190 basis points below last year to 56.5% as we focused on maintaining market share with increased promotional intensity and a highly competitive trading environment. I note here that prior period gross margin has been restated with the adjustment identified through an accounting system change at the group's wetsuit manufacturer with no impact on EBITDA or net profit.

Operating expenses are being tightly managed for facing global cost pressure, increasing by 3.9% year-on-year. Within this, we continue to support brand development, in particular, Kathmandu's brand marketing. The FY '25 result includes a $45.4 million impairment of Oboz intangible assets. This one-off noncash item does not impact the day-to-day operations of the business and as such, has been excluded from underlying results. Drawing your attention to Slide 12 and looking more closely at quarterly sales trends over the last 2 years by brand. You can see from these sales charts that quarterly sales results have been mixed, reflecting global market conditions, albeit on an overall improving trend. For Rip Curl, direct-to-consumer retail store and online sales channels led the improved sales trend with strong flagship store sales growth in key global regions, supported by new store openings.

Wholesale sales improved by 1.5% year-on-year in the second half of FY '25, supported by closeout sales for end-of-line styles. For Kathmandu, the unseasonally warm weather during the third quarter of FY '25 impacted insulation product category sales. Kathmandu pleasingly returned to sales growth of 2.5% year-on-year in the key fourth quarter with enhanced promotional activity, a return to cooler weather and the launch of the Shopify e-commerce platform. For Oboz, wholesale sales trends improved in the second half of FY '25. The third quarter of FY '25 included strong preseason orders for new season styles ahead of the North American summer hiking season, accelerating customer demand. In the fourth quarter, we did see in-season reorders soften following the announcement of U.S. tariffs.

Moving to Slide 13. Group online sales performance has been a highlight in FY '25 with all 3 brands achieving strong online sales growth year-on-year, reinforcing the growth opportunity. Our brands have worked hard to improve the consumer experience in online journey, and the results have been improved conversion of traffic to purchases. A few key sales highlights for each brand. Rip Curl delivered a record $41.7 million in online sales, an increase of over 10% year-on-year. Online sales now comprise 12.5% of direct-to-consumer sales. Kathmandu delivered $52.1 million online growing by more than 9% year-on-year. Online is now 14.5% of direct-to-consumer sales.

Oboz delivered a record $8.8 million in online sales, an 18.3% increase on last year, with strong sales results in key promotional periods. The online channel remains a key priority area for the group. Following a successful launch in Kathmandu in the fourth quarter of FY '25, we are now implementing Shopify, the e-commerce platform in Rip Curl and Oboz in the first half of FY '26.

Moving to our balance sheet. We continue to maintain a stable balance sheet position with low net debt, significant funding headroom and improved inventory levels. In a challenging trading environment, our net working capital efficiency has been a key focus. Pleasingly, group inventory reduced for the third successive year as inventory positions continue to reduce towards optimal levels. Reduced inventory balance was achieved despite higher goods in transit year-on-year at balance date. The year-on-year increase in current trade and other payables at the end of July 2025 includes the increased goods in transit balance plus some improvement in supplier payment terms.

Turning to Slide 15. You can see that the 31 July net debt balance was lower than both of the previous 2 years with significant funding headroom of approximately $235 million at balance date. In recent trading update, we guided to a net debt of approximately $70 million, and it's pleasing to report that we have closed out the year with a lower net debt position of $52.8 million. The group continues to have a strong active working relationship and support for Cement Banking Syndicate and remains compliant with all banking covenants at 31 July 2025. Over the long term, our leverage ratio target remains less than 0.5x net debt to EBITDA. Reducing the leverage ratio in FY '26 through both improved profitability and further reduction of debt year-on-year remains a high priority.

Moving to Slide 16. We prioritize cash flow in a challenging trading environment with positive operating cash flow achieved by reducing inventory and net working capital year-on-year. As a result of operating performance and challenging market conditions, the directors have not declared a final dividend. Moving to Slide 17. And moving on to the brands. Each of our brands continue to operate in challenging global market with mixed consumer sentiment, cautious wholesale customers and global cost pressure. In this environment, our brand has worked hard to in line on sales with a focus on maintaining market share.

We'll now turn to Slide 18. With Rip Curl. Rip Curl's total sales were up 2.1% for the full financial year, improving from our first half result that was fairly flat. The direct-to-consumer channel outperformed wholesale, with online sales being a highlight. Online delivered a record $41.7 million and increased 10.2% year-on-year. Direct-to-consumer total sales, including online, grew by 4.6% year-on-year, achieving strong flagship store sales across key global regions of Australia, Hawaii, Europe and South America and supported by store openings.

On a same-store constant exchange rate basis, D2C sales increased by 1.2%. Wholesale sales decreased by 2.9% for the full financial year, which was an improvement from the negative 7.9% result in the first half. During the second half of the year, wholesale sales grew by 1.5% year-on-year, supported by closeout sales for end-of-line stockpiles. Rip Curl's gross margin decreased by 90 basis points year-on-year with direct-to-consumer channel mix helping to offset the impacts of increased promotional intensity and clearance of the end-of-line styles.

Operating expenses continue to be a key focus for management, given global cost pressure and an evolving channel mix. Moving to Slide 19. Kathmandu total sales increased by 0.2% year-on-year in FY '25, impacted significantly by 8.8% year-on-year decrease in the third quarter. Sales returned to 2.5% positive growth in the key fourth quarter winter trading period with enhanced promotional activity, a return to cooler weather and the successful launch of the Shopify e-commerce platform. Online sales results are a highlight for '25, delivering $52.1 million and growing by 9.3% year-on-year.

Sales in Kathmandu's largest market, Australia, increased by 0.2% year-on-year, while New Zealand sales decreased 2.3% in a more challenging consumer environment. On a same-store basis, including online, Kathmandu sales decreased by 0.2% year-on-year.

In terms of product mix, both product categories achieved sales growth, including Rainwear, Fleece, Baselayer, Knits and Footwear. This partially decreased reliance on insulation product category -- sorry, this partially decreased the reliance on insulation, which achieved lower sales year-on-year, especially during that warmer third quarter. Kathmandu's gross margin decreased 300 basis points year-on-year with increased promotional intensity and a focus on maintaining market share in a highly competitive trading environment. Operating expense were tightly managed, while facing store labor and rent cost pressure and also included $2 million incremental brand marketing investment year-on-year.

Finishing up on Slide 20 for Oboz. Oboz total sales was down 3.5% for the full financial year, improving from negative 6.3% in the first half. Oboz continued to benefit from our commitment to diversified sales channels with strong online growth in key promotional periods. Oboz delivered a record $8.8 million in online sales, an 18.3% increase on last year. Wholesale sales were down 5.8% for the full financial year, improving from negative 10.6% in the first half. Wholesale sales trends improved in the second half with the launch of new season styles ahead of the North American summer hiking season.

Following the announcement of U.S. tariffs, we did see in-season reorders soften. However, this has not been a material impact on the FY '25 results. Gross margin decreased by 380 basis points as specific clearance of end-of-line inventory contributed to a lower gross margin result year-on-year. Operating expenses were lower than last year due to lower sales volumes. We continue to invest in key areas of brand, product and online to support Oboz' long-term growth objectives.

To finish, I'll point out that Kathmandu segment includes sales of Oboz products through the Kathmandu Australia and New Zealand store network at full vertical gross margin. These sales grew from $5.3 million last year to $7.1 million in FY '25.

I'll now hand back to Brent.

Okay. Thanks, Carla. And so now I'd like to provide some more context and detail on our next level transformation strategy. On to Slide 22. Next Level is a reset plan designed to specifically address what we acknowledge has been unacceptable performance. It's time to reset expectations of our brands, of our business and of ourselves. We've set ambitious cross-portfolio goals and a robust strategy to drive growth and further leverage our strong brands to their full potential in a highly competitive global market. And whilst growth is what we're committed to delivering, it's also crystal clear that at the same time, we need to immediately reset our cost base to deliver enhanced profitability. And at the same time, provide the opportunity to self-fund any growth investments.

Lastly, as we navigate towards success, it's critical we also hold ourselves accountable against a set of disciplined financial guardrails, and I'll explain more on this shortly.

On to Slide 23. We're already executing against the 'Next Level' strategy. These 3 strategic priorities are the fundamental anchor points of our success that I referred to earlier this morning. Number one, to succeed with the brand and product-led offense, it's critical we supercharge our product development, delivering iconic and distinctive product franchises, accelerated go-to-market capability and fresh flow at retail. To complement our existing technical product range, it's also critical that we add speed and style to our go-to-market capability as soon as possible.

Data-driven processes and AI tools will enable our teams to simplify a complex business and make better data-led decisions. There will be a continued focus on working capital optimization and investment, supply chain and marketing spend allocation and efficiency. And thirdly, ensure that we have a laser-sharp focus on profitability only releasing cost investments in line with our financial guardrails that must deliver sustainable profitable growth.

Moving on now to Slide 24, and this slide summarizes all the components of our 'Next Level' strategy. Whilst we've not changed our purpose or vision, we have reset our strategic priorities, our growth drivers and importantly, the behaviors that will get us there. We've enabled our plan with a clear step change in both thinking and obsession with execution in both the brands and functions. So for us and the team, this is what success must look like over the next few years.

On Slides 25 and 26, we've summarized a clear set of priority strategic initiatives that apply both across the group and within each of our individual brands. Firstly, at the group level, our shared functions are growth enablers for each of our brands and must provide functional expertise and the continued efficiency that our brands can in turn leverage for growth. We've set clear financial guardrails for our brands to now operate within, always with a focus on driving sustainable profit growth. We see opportunities to utilize data-driven process and tools that will increase efficiencies in the areas of working capital investment and supply chain, helping to deleverage our focus on our balance sheet, and enabling our brands to grow.

On Slide 26, we are making strategic shifts in all 3 of our brands. These are not incremental shifts tinkering around the edges or making small trade-offs. These are robust, bold strategic shifts, specifically designed to drive a different outcome.

For Rip Curl, we're very excited to reset towards a more youthful Rip Curl brand for the next generation contemporizing the relevancy of our brand equity in the search and redefining what it can mean to a whole new generation of consumers. We aim to grow beyond core surf to core surf plus beach. While still serving core surfers that will never go away, we can always address additional clear market capacity with relevant product, along with the right new distribution channels to address a significant but untapped growth that we believe beach consumers who connect with the culture of surf represent.

Lastly, as you know, there is significant uncertainty in the U.S. marketplace. And in response, we've already made responsible decisions to protect our profitability in this geography. For Kathmandu, product distinction and creating separation are fundamental to Kathmandu's success. Also critical to success is the way that our product stories show up in our newly segmented store portfolio. I think it's also a responsible and a clear decision that we've made to reset our international strategy to be both digitally and now distributor-led immediately reducing cost. For Oboz within the footwear industry, the trial category is hot right now, and the locations of Bozeman and Yellowstone, the home of Oboz, are also hot right now. So we're accelerating our product creation agenda to impact the market much faster and earlier than was our original plan. At the same time, we aim to introduce the brand with the help of new Vault and UltraRemain style-based products to a whole new group of consumers in new fashion forward channels.

On Slide 27, beyond the strategic intent of our next level plan, I want to be clear about our financial expectations. We've already commenced a $25 million reset of our cost base to mitigate cost pressure and importantly, to self-fund any strategic growth agenda. This cost reset will be driven from initiatives such as the current organizational restructure and store network review already completed. The 'Next Level' plan identifies $15 million of these savings to be reinvested in FY '26 to drive growth over the short to medium term. This will be a staged approach to reinvestment in growth initiatives, such as product, new store formats and performance marketing, only reallocating resources to fuel the areas across the portfolio that deliver the greatest return. This deliberately provides our plans with intended flexibility with a stage-gated approach to any investment based on the growth results to be delivered.

We anticipate realizing net savings over the next 12 months after reinvestment of $10 million, allowing us to offset baseline cost inflation.

On Slide 28, I'll now walk you through the areas of financial focus for the next 3 years. We're aware that trading conditions have been challenging over the past 2 years, and we've seen our EBITDA margin under continued pressure, while our leverage has increased. Next level sets out a financial plan with our ambition to achieve a 10% EBITDA margin over the next 3 years. We believe this is achievable by improving our gross margin over time to approximately 60% and lowering our operating expense to 50% of sales or below.

Improving top line sales momentum is by far the most important potential earnings driver given the high degree of operating leverage inherent in the business. And that being said, our focus over the next 3 years will also continue to be improving margins, lowering costs and as mentioned already, a continued focus on managing working capital. Gross margin pressure will remain in the short term, while we deliberately improve inventory composition to make way for new product launches. Our plans, however, build back towards a 60% gross margin in the medium term. We recognize investments in brands, product and marketing are all important to support top line and sales growth. Inflation continues to drive increases in people, property and other costs. However, our plan is to continue to work on areas within our cost base to continue to reduce cost.

The ambition over 3 years is based on an underlying assumption of sales growth across the group. As top line sales growth builds will realize more incremental benefits on profitability through improved operational leverage.

And finally, I'd like to recognize on this slide the hard work done by our teams to closely manage net working capital through the challenging economic conditions of the last 2 years. Our balance sheet is stable, thanks to the reduction in net working capital during FY '25, but we're not done yet.

So that's our 3-year financial ambition, and I'll finish today with a trading update and an outlook for FY '26. On Slide 30, I have a brief update of our trading performance for the start of the new financial year. Total August sales across all brands and channels were plus 10.5% above last year. In a seasonally nonsignificant trading period for both key brands, direct-to-consumer sales for the first seven full weeks ending 14th of September were as follows: Kathmandu total sales grew year-on-year by plus 19.4%. On a same-store basis, sales were up plus 22% year-on-year with targeted promotional intensity in a competitive trading environment. Kathmandu total gross profit dollars for the first seven full weeks to 14 September were plus 11% above the equivalent period last year.

Rip Curl total direct-to-consumer sales were minus 1.2% below last year, but on a same-store basis, were up plus 1.5% year-on-year. Wholesale trends are improving, but of course, uncertainty remains in key global marketplaces and forward orders and in-season buying from key accounts does support an improving wholesale trend. And now for our outlook for FY '26. Group gross margin in the first half of FY '26 is targeted at slightly above the second half of FY '25 as strategic promotional activity further improves our inventory composition ahead of new season product launches. The impact of the recently announced U.S. tariffs are embedded in the Oboz gross margin, which is expected to return to FY '25 levels in the second half of FY '26.

Group operating expenses are planned to be broadly flat before management incentives in FY '26 from the FY '25 expense base of $541.6 million, reflecting cost savings and ongoing investment to drive next-level growth opportunities. The recently completed restructure of the business is designed to deliver immediate cost efficiency against the cost reset target of $25 million.

We expect to deliver annualized cost savings from the organizational restructure of $5 million with a one-off restructuring charge of $2 million. We expect EBITDA margin expansion in the coming year with stronger margin expansion in the second half of FY '26. Net working capital remains a focus for all brands as mentioned today. The group is targeting net debt below $40 million at the end of July 2026 compared to $52.8 million at the end of July 2025.

Following our recent announcement of 21 future store closures across the group, we expect to close 14 of these stores in FY '26. However, we've committed to opening 6 new stores, including 3 new Kathmandu flagship concept stores in the first half of FY '26, and we continue to pursue other opportunities in line with our new integrated marketplace and store segmentation strategy. Capital expenditure is targeted to be in the range of $25 million to $30 million.

So that concludes the formal part of today's presentation, and I want to thank everybody on the call for taking the time to join us. So now I'd like to open up the call for questions.

We do have a few questions coming through. First question is from Paul Koraua. Can you talk to whether New Zealand $25 million cost out is enough given the size of your cost base and $15 million being reinvested and at profitability levels?

Yes. Thank you. Yes, it's Brent here. I -- we believe it is the right amount. We clearly want to focus on an immediate cost base reduction as mentioned this morning with regards to organizational restructure and other cost base initiatives across the group. But I think it's important to recognize that growth is the quickest way for us to create leverage in our business. And so therefore, it's important to make strategic and targeted investments through the gating process I outlined today that enable us to sow the seeds of future growth towards the back half of '26 and into FY '27.

Okay. Next question from Guy Hooper. Tariff impact in FY '25 was around $1 million. What is your expected annualized unmitigated and mitigated impact for FY '26?

Carla here, Guy. Thanks for the question. We have ring-fenced for FY '25, but I think in regards to FY '26, we're not giving a specific steer because as you can appreciate, tariffs remain a fairly fluid area to be managing. So we're working towards focusing on upstream with the suppliers to improve our landed costs. And we're also working on repricing items in alignment with some of our competitors in the market.

In the DTC channels, we've got a bit more flexibility with pricing, and it might take a season or 2 to get reset for wholesale pricing back to historical levels, but we remain cognizant that the U.S. economy has a level of uncertainty. And I guess we continue to take measures to try and reduce risk in that region.

Okay. Next question is from Bianca Murthy. Thanks for the update. In terms of inventory, could you talk about the inventory aging profile across the brands?

Yes. Thanks, Bianca. We've worked really hard to focus on clearing not only excess but more importantly, aged inventories. So it's critical for us. We do a number of things. One is make sure we cleanse the market of any aging inventory. And I think you've seen the result of the focus on inventory over the last quarter. Importantly, obviously, from a marketplace perspective, there's still some gross margin pressure as it relates to both the competitive marketplace as well as a continued focus for us to get our inventories clean and to clean the market. And most importantly, it's important for us to do that as we believe that with the new and fresh product and more innovative product replacing that clearance product in the market will be a driver of future growth, but also margin expansion over time.

Okay. Next question from Tom Renaud. Interesting result with plenty to look ahead to just on the announcement that 14 identified stores will close in FY '26. Are you able to confirm in which territories these will be? And how many particularly interested in New Zealand?

I could probably just add a comment there. So it's a mix of New Zealand, Australia and the U.S. But if we're focusing more in region, it's 3 closing in New Zealand and 2 in opening. Apologies, there's a little bit of ins and outs there. So 3 closing in New Zealand and 2 opening.

The one thing I would add is just to repeat the relentless focus on store profitability. We have been through a very robust process that evaluates the entire fleet across the group with a focus on achieving what we believe to be acceptable profitability hurdles for each of our stores. And that's what's both underpin the review, leading to some store closures, of course. But as we talked about today, also a store segmentation strategy for Kathmandu that has, again, announced both at Investor Day and today, the opening of new stores for Kathmandu with a particular focus on flagship stores that we believe represent really the first of what the best of the Kathmandu brand from a product and innovation and store experience can represent.

So we certainly won't be tolerating running loss-making stores or stores that aren't performing up to expectations and hence, a robust focus on our store portfolio.

Okay. Next question from T. Chung. In your strategy presentation, you mentioned asset sales in the cards. As Oboz has been a persistent drag and unnecessary distraction to the group since day 1, are you reviewing its strategic fit.

Well, I think we talked about this on our Investor Day. And just to be really clear, we talked a bit about always, as a management team, and I'm sure as a Board considering the disposal of any noncore assets that don't provide a competitive advantage to our brands assuming, of course, there was a potential for appropriate market value. So just to be clear, we're not talking about brands, we're talking about considering as any business would, the disposal of noncore assets that don't provide a competitive advantage to the group.

Okay. Next question is also from Mr. T. Chung. Considering years of poor sales, the large overly spacious Kathmandu store format designed for preliminary high footfall now seems out of line with the market reality, making the stores look cavernous with a vibe of product sparseness and more importantly, poor store productivity. Do you have any plan to downsize the square footage of the Kathmandu stores to improve store productivity and operating costs?

Yes. As part of our store segmentation strategy that, as mentioned earlier, relentless focus on profitability, but also average sales per square foot from the right stores in the right locations with the right product assortment and there's both working group now and product differentiation by store relevant to its geography, but also on store formats. So as we rationalize the fleet, and sharpen our focus on profitability, you could expect to see the shape and size of formats over time if and when appropriate, to be -- to fall in line with the new segmentation strategy, which may lead to some change in store format over a period of time.

Okay. This is the last current question from Mr. T. Chung. Can you share what you are doing about Rip Curl's EBITDA and EBIT margins, which have been on a persistent decline in trend for many years. What is your target EBITDA margin for this business?

Well, we can acknowledge that as we've outlined in that Rep Curl slide, we've historically been at higher levels in that FY '21 and FY '22 period with EBITDA margin. Probably just reference back to we've talked as part of our next level plans at Investor Day with our cost reset to make sure that, that's focused around Rip Curl's profitability. And that's included as we've mentioned, the review of store profitability in the U.S. as part of that plan. Obviously, tariffs remain a fluid area that we've highlighted, we're continuing to manage. But as you look to the medium term, we'd be anticipating we'll be getting back to those historic levels of 10% EBITDA in the margin plus.

Okay. No more questions.

Okay. If there's no more questions, I'd just like to thank everybody again for their time this morning, and we'll conclude the call. Thank you.