Friday, September 24, 2010

Kathmandu Holdings Ltd: 2010 full year profit analysis

The Kathmandu Holdings Ltd [KMD.NZX] 2010 Full Year Profit result out this morning is hard to fathom clearly because last years profit as disclosed in the 2009 Prospectus was a corrected pro -forma figure and this year profit figure has been impacted by IPO costs and associated listing costs.

The headline net profit of $25.2 million before IPO costs compares with the 2009 pro-forma net profit of $10.3 million. likewise the headline sales figure for FY 2010 was $245.8 million compared to 2009 $215.6 million.

Key Points

* Headline profit of $25.2 million compares well with $10.3 million (before adjustments for IPO costs and adjustments for comparison of 2009/2010)

*Missed most key prospectus forecasts.

*15 stores opened.

*Gross margins down.

*Dividend of 7c per share.

*Debt well down on last year (paid off from partial proceeds of IPO)

*Capital expenditure up on 2009.

Lets go by KMDs own preferred comparison though (hidden at the bottom of their release), which while hard still to get an accurate comparison year to year, because both 2010 and 2009 figures have been "adjusted" is probably the most relevant way of looking to see how they did in 2010.

2010 | 2009

Sales 245.8 240.0 5.8 2.4%
EBIT1 47.5 50.6 (3.1) -6.1%
NPBT pro-forma2 41.2 44.8 (3.6) -8.0%

1 Excluding IPO costs

So we can see that even with their own adjusted figures (which are not 100% accurate) that Kathmandu failed to hit key targets listed in their prospectus, only just beating last years sales figures by round $6 million.

The 2010 net profit then, along with other financial indicators in today's release make it hard to compare 2010 with 2009. For shareholders this means uncertainty on how well the company is accurately doing and they will only get some certainty in 12 months from now when figures can be more easily compared like for like.

On the year ahead and much like Briscoe Group Ltd [BGR.NZX] & The Warehouse Group Ltd [WHS.NZX] last week, CEO Peter Halkett concluded the 2010 profit release by saying that:

“Kathmandu is confident that given reasonable economic conditions there will be further improvement in profitability in the year ahead. The impact of the economic environment on consumer confidence, and cost pressures both domestically and internationally are a challenge, however given our market position and brand strength we remain well placed to continue our growth."

Unfortunately for shareholders Halkett seems to favour more store building over organic growth and this will come at the expense of higher capital costs, increased rental payments and possibly impact on gross margins as the company looks to focus on volume rather than quality.

Kathmandu @ Share Investor

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