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to have nine of these stores trading before the end of 2012. these will include our flagship site in pitt Street Mall, Sydney. During that same period, we will also complete four major store refurbishments or relocations, including our new flagship site in Hay Street perth. Given this development programme, we are confident that by comparison to FY2012, the rollout of the new stores will contribute incremental earnings in FY2013. 

We are committed to continuing re-investment in our store portfolio, where justified on the basis of both return on investment and the continuing improvement of our brand positioning in key markets. In FY2012, we enlarged our stores in newcastle and Hobart and refurbished our Victoria Street store in auckland. all of these stores are in prime Kathmandu markets and locations, and there will be a number of similar projects undertaken each year, generally in conjunction with lease renewals. In the first quarter of FY2013, we refurbished our Highpoint and Knox City stores in Melbourne, and relocated our nelson store to larger and more central premises. 

Store formats will continue to be evaluated and potentially modified in response to the wider retail and economic trends, but also in response to local opportunities. In particular we are confident from our experience in the past two years that we have a number of new small format store opportunities in australia which we will now pursue within our overall network plan. 

## product range and inventory 

effective and relevant expansion of our product range has been a core growth strategy since the Company listed in 2009. During this period, we have increased our total SKu count by approximately 30%. this range expansion occurred through expanded product categories with new styles, additional colours and sizes in existing styles, and new fabrications or technologies offered. the successful 

execution of this strategy is directly relevant to the same store sales growth achieved in FY2011 and FY2012. 

total inventories, $73.3m at 31 July 2012 increased by 35% on the previous year. this increase was in line with our targets, apart from the impact of opening fewer new stores than planned. also the adjusted summer season delivery schedule meant levels of goods in transit increased at 31 July by 88% (c. $6m) on the same time last year. on a per store basis, there was an 11% increase in inventory after adjusting for these one-off variations. We anticipate that in the future, our investment in inventory will generally increase in line with the rate of increase in sales and store numbers. our primary focus is now on the management of our inventory range, investing in highest growth product groups and range planning to match the variation in our store formats and geographical locations, particularly in australia. 

## uk Business 

our uK store portfolio is under review, but we remain committed to maintaining a small retail network to support the brand in that market. In FY2012, we closed our uK regional office and warehouse, and integrated management of the uK business back into the applicable functional responsibilities of the australasian based Kathmandu executive team. Costs associated with this re-organisation had a one-off impact on earnings of c. $1m. Warehousing and distribution are now being undertaken by a third party provider. We envisage future sales growth in the uK will be derived primarily from the online channel. We intend to support the brand and our long-term emphasis on web based selling with retail stores merchandised and fitted out to best present the new brand identity, and located primarily in london. Where required we will realign our retail portfolio accordingly. 

## infrastructure 

We completed several major infrastructure projects during FY2012. Both the new Zealand and australian distribution centres have been enlarged and will meet our projected capacity requirements in the medium term. the new Zealand distribution centre in Christchurch was a design build project for Kathmandu, and became operational at the start of FY2013. the lease of our previous site has been exited. the Melbourne distribution centre had its floor area increased by one-third following the end of a sublease arrangement, and the full site will be re-laid prior to this year’s Christmas sale. these projects will substantially enhance distribution efficiency going forward. our Melbourne support office was relocated at the beginning of 2012. no other major physical projects relating to our distribution centres or support offices are envisaged for at least the next two years. 

## systems and online 

We will continuously invest in improved systems to support business growth. In august 2011, our upgraded 

