KATHMANDU ANNUAL REPORT  2013 7 three major sales events per year. This vertical business model  has been the foundation of Kathmandu’s growth in Australasia  for the past 15 years, and we have continued to improve and  adapt over this period. Our successful execution of this model,  coupled with growing brand recognition, and product loyalty  that Kathmandu commands in its key markets, has seen Group  sales increase by over $165m or 75% in the four years since  our IPO. The same period of time has seen the spectacular growth of  the internet as a platform for social and consumer interaction.  Kathmandu, as a vertically integrated brand business with  strong margins in a growing category, is well placed to take  advantage of this opportunity, both locally and internationally.  We continue to build on our existing business, primarily through  store rollout in Australia, where we still see many opportunities  to increase Australian brand awareness and market penetration  relative to the level achieved in New Zealand. In tandem with  continuing to execute the model we know well, the online  opportunity will continue to get an increasing share of our  management attention and strategic investment.  Product is a key to our success. Ensuring we are bringing to  market innovative, well designed, high quality and competitively  priced products that meet the needs of our customers is  essential to our future success. Over the last seven years we  have invested in our product team and recruited many new  skills and capabilities into the business. Capability in areas  such as design, quality and fabric R&D have all been added, and their impact on product development will be seen in  the seasons ahead. We intend to increase our return from each sku in our  product range, through revenue growth and reduced cost  to market ratios, relative to the absolute level of inventory  investment and the costs associated with new product  development. Assortment range planning is a key medium  term enhancement required from our systems upgrade project,  which will enable us to maximise our performance in this area. Inventory levels were well managed throughout the year, and  the total value of inventory, $80.0m at 31 July 2013, was an  9.1% increase on the prior year. One-third of this increase was  the year-on-year change in goods in transit for the summer  season in FY2014, so after excluding this amount, the value  of stock on hand at 31 July was less than $5m higher than a  year earlier, a 4.3% reduction when measured on a per store  basis. This was an excellent outcome given the growth in  both sales and store numbers, and it was further reflected  in reduced volumes of clearance stock, especially in the  second half of the year. We do expect a slightly higher rate of  inventory growth in FY2014, as we are focused on maintaining  adequate range depth in key product groups planned to support  key promotional events across the year, as well as further  improving our seasonal range availability in regions with  major climatic variations.  We are confident that the Kathmandu store network when  fully rolled out across New Zealand and Australia will number  at least 170 stores. All current Kathmandu stores in Australasia  make a positive contribution to group earnings.  The makeup of Kathmandu’s store network and our strategy  for the location and sizing of new stores has continued to  evolve through our four years as a listed company, especially  in Australia which remains our key growth opportunity for  ongoing store rollout. As we previewed in last year’s annual  report, our store network plan has been further developed to  focus on small format site opportunities (stores of 350m 2  or  less). In Australia, this store format has become our standard  in mall locations, aligning well with the planned growth we are  achieving from more lifestyle orientated apparel categories.  In FY2014 our online platform will continue to be enhanced  as we progress with building systems infrastructure capable  of supporting both our current Australasian business growth,  and the future development of new multichannel retail options.  Potential opportunities for the Kathmandu brand internationally,  outside our core markets, cannot be effectively pursued until  we have implemented a tier one software platform which  properly integrates our retail stores and websites globally. Our investment in information systems infrastructure and  software continues to be a critical part of our business  improvement strategy. During FY2013 we made the strategic  decision to follow the development path provided by Microsoft  Dynamics AX for Retail in a number of core operational areas  of the business. We have already gone live with modules  relating to Customer Relationship and Product Information  Management, and our Forecasting and Planning software will  be live early in FY2014. There is a clear pathway for Kathmandu  to substantially upgrade its core systems utilising the AX suite  of applications, and replacement of our current Point Of Sale  software during the second half of FY2014 is the next stage of  our development plan. PRODUCT RANGE AND INVENTORY  ONLINE AND DIGITAL STORE NETWORK  Pitt Street, Sydney