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Annual Report 2016
$3.9
million
EBITDA
$10.9
million
YoY
rEvEnuE
growTh
Kogan.com Limited
listed on the Australian
Stock Exchange on
7 July 2016. In FY16
we delivered:
116.7%
YoY EBITDA
growTh
chairman’s letter
Contents
1
2 cEo’s report
4 operating and financial review
15 Directors’ report
23 Auditor’s Independence Declaration
24 financial report
55 Directors’ Declaration
56
58 Shareholder Information
IBC corporate Directory
Independent Auditor’s report
Kogan.com Limited ACN 612 447 293
SuccESSful
lAunch
of
DIck SmITh
Chairman’s Letter
Dear shareholder,
on behalf of the directors of kogan.com limited
(“kogan.com”)(1), it is my pleasure to present
the company’s annual report for the year ended
30 June 2016 (“fY16”). Your company’s strong
financial performance during the year highlights
the significant opportunity for kogan.com as
a leader in the growing online retail market.
kogan.com listed on the Australian Securities
Exchange (ASX) on 7 July 2016 to raise funds
to accelerate growth. Prior to listing, kogan.com
acquired kogan operations holdings Pty ltd
(“kogan group”). on all key metrics, kogan group
has exceeded forecasts made in the kogan.com
replacement Prospectus dated 24 June 2016.
kogan group delivered statutory total revenue
of $211.2 million, exceeding prospectus forecasts
by 5.0%. Statutory EBITDA of $3.9 million reflects
both revenue growth and gross margin expansion.
After adjusting for the impact of one-off costs related
to the IPo, pro forma EBITDA was $4.0 million,
up 37.9% on the prospectus forecasts. Pro forma
nPAT was $0.8 million, exceeding the prospectus
forecast by 100%.
These results reflect the significant work undertaken
by the kogan.com team to grow your company’s
active customer and subscriber base – both
organically and via expansion strategies. During the
2016 financial year, the team successfully acquired
and integrated the Dick Smith online business and
continued to expand your company’s reach into
vertical categories including kogan mobile and
kogan Travel.
These carefully-executed growth initiatives,
combined with significant investment in back-end
systems and automation, have allowed kogan.com
to deliver a strong maiden result for shareholders.
The Australian online retail market has grown rapidly,
but remains underpenetrated compared to other
developed economies. Euromonitor estimates
that the Australian online retail market was valued
at $17 billion in cY2015, and is forecast to grow
at a compound annual growth rate (cAgr) of 11.5%
to cY2019. key structural drivers of growth include
a significant shift in consumer preferences; ongoing
technological innovation; enhancing user experience;
and increasing internet usage and download speeds.
The Board is confident in kogan.com’s growth
strategy and believes that the business has a strong
platform from which to expand. kogan.com’s growth
initiatives are designed to support its vision to be
Australia’s premier online retail destination through
leveraging its core business strengths.
management’s first priority is to bed down existing
growth initiatives to ensure the continued profitable
expansion of kogan mobile and kogan Travel and
an increasing contribution from Dick Smith.
The majority of funds raised from kogan.com’s
recent IPo are being invested in accelerating the
company’s growth strategy, including investment
in new private label products and marketing.
over the medium term, your company will also
assess new business verticals that can scale with
the kogan community and potential industry
consolidation opportunities.
on behalf of the Board, I would like to congratulate
the entire kogan.com team on delivering a strong
financial result. In the months since my appointment
to the Board, I have observed a team with a strong
culture that values analytics, innovation and high
levels of personal accountability. I would also like
to thank my fellow directors ruslan kogan, David
Shafer and harry Debney for their contribution
and collaboration.
finally, thank you to our fellow shareholders who have
recognised the achievements of kogan.com under
private ownership and invested in its future success
and growth as a listed company. we look forward
to delivering continued growth for shareholders
as the company pursues its growth plans.
Yours sincerely
greg ridder
Chairman
Note
(1) references to kogan.com in this annual report refer to the kogan group of entities that were held by kogan operations holdings
Pty ltd which was then acquired by kogan.com ltd prior to listing on 7 July 2016. refer to note 6.1 to the financial statements for
further detail.
Kogan.com Annual report
Kogan.com Annual report
1
1
CEo’s report
The team remains
focused on profitable
growth and is
motivated by the
investments we are
now able to make.
Kogan.com Annual report
Kogan.com Annual report
2
2
This financial year marks a major milestone
in kogan.com’s decade-long history as we set
out to raise capital for future growth via an initial
public offering (IPo). we are very conscious that
our accountability now extends to our shareholders,
however our core focus remains the same: we are
a challenger brand that stands for price leadership
through digital efficiency. our goal is to make
in-demand products and services more affordable
and accessible.
when I founded kogan.com in 2006, the product
range was limited to two private label televisions.
Today the business boasts tens of thousands of
products from leading household brands and an
expanding suite of our own Private label products.
consumers also turn to kogan for market-leading
offerings in mobile phone plans and travel packages.
The way people buy goods and services in Australia
has undergone significant change in the past
decade. It’s a wave of change that continues with
great momentum and we are proud to continue
playing a leading role in that change.
with a strong balance sheet post IPo, kogan.com
is looking forward to making investments in the
future growth of this business to the benefit of
all shareholders.
StroNg growth
kogan.com delivered strong growth on all
metrics during fY16. reported revenue was
$211.2 million, outperforming our prospectus
forecasts by $10.1 million (5.0%).
our successful launch of Dick Smith on 4 may
delivered sales of $6.5 million in under two months.
we are very pleased by this performance and proud
of the team’s ability to have Dick Smith re-launched
ahead of our original schedule.
The acquisition of Dick Smith’s online assets was
opportunistic and the kogan.com prospectus
included no forward forecasts or assumptions
about how that business would perform. It is still
early days for us, but we are pleased by the top
line contribution from dicksmith.com.au since its
relaunch and the additional operating leverage
we are generating via this channel.
Excluding Dick Smith, kogan.com still outperformed
prospectus forecasts by $3.6 million in revenue,
with third party domestic sales delivering faster than
expected growth and contributing to higher margins.
Today, almost one in every six Australians is
a subscriber to one of our websites. kogan.com
had 3.7 million active subscribers at 30 June 2016,
up 60.8% in the six months to 30 June 2016.
Excluding the impact of Dick Smith, subscriber
numbers achieved 26.1% growth over the same
period. Active customer numbers were up 13.0%
in total in the six months to 30 June 2016, and
8.2% organically, demonstrating the strength
of the kogan.com brand.
opErAtINg LEvErAgE
kogan.com delivered pro forma EBITDA of
$4 million for the year, up 37.9% on our prospectus
forecast and up 150.0% on last year. our strong
EBITDA performance reflects both sales growth
and gross margin expansion.
our gross margin for the financial year was 15.5%,
bolstered by an increase in third party domestic
sales (which operate at higher margins) and
investments in systems, proprietary technology
and logistics that were made prior to kogan.com’s
listing. Approximately 48.0% of kogan.com’s
overhead cost base is predominantly fixed, providing
the company with significant operating leverage
as we continue to scale.
The hard work undertaken by the team to
implement SAP has delivered efficiencies in time
and cost via automation, improved reporting and
business insights.
NEw vErtICALS
our new verticals – kogan Travel and kogan mobile
– together delivered $5.3 million in gross sales for
the year, exceeding management’s expectations.
Both of these channels are relatively new, but we
did have a full-year contribution from Travel, which
launched in may 2015 and delivered gross sales of
$4.8 million, up 11.6% on forecasts. kogan Travel
markets affordable holidays online, leveraging and
growing our subscriber base.
kogan mobile launched in october 2015 and
delivered $0.5 million in sales for the eight months
of the financial year that it was operational,
outperforming prospectus by 25.0%. kogan mobile’s
gross sales are commission-based, so they reflect
100% gross margin.
management remains motivated by the opportunities
to continue to scale these recently-launched
businesses into fY17 and beyond.
We made the right
purchasing decisions
driven by customer
insights and analytics.
growth FoCuS
kogan.com was severely capital constrained during
fY16, but we were able to deliver top line growth
because we made the right purchasing decisions
driven by customer insights and analytics. with the
support of our shareholders, we have moved into
the new financial year with a strong balance sheet
to fund our growth ambitions.
we are continuing to build on and personalise
our product range (including delivering on
Private label demand) and our marketing efforts.
As an analytics-driven business, our aim is to fulfil
on existing demand, not create it. This means,
it’s our role to ensure our fans are seeing the right
products, at the right price point, at the right time.
IPo proceeds are progressively being deployed
into Private label products that meet our strict
demand requirements. kogan and ovela are
probably our best known brands, but we believe
there are significant opportunities to grow our
product range in other categories.
we also plan to invest in third party branded
domestic inventory to meet increasing demand
from our rapidly growing subscriber base. we will
continue to use digital marketing to support
our brand partners, drive repeat purchasing
behaviour and build the kogan.com community.
The performance of the Third Party Domestic
product division has exceeded our expectations
and demonstrates the increased propensity of third
party brands to choose kogan.com as an online
retail channel partner. our ability to talk to over
3.7 million Aussie consumers provides a compelling
platform for immediate consumer engagement.
The team remains focused on profitable growth
and is motivated by the investments we are now
able to make. we believe that incredible teams
build incredible things and we are excited by the
opportunities to continue building on kogan.com’s
success together.
ruslan kogan
CEO
Kogan.com Annual report
Kogan.com Annual report
3
3
operating and Financial review
orgANISAtIoNAL ovErvIEw & BuSINESS MoDEL
ABout uS
founded in 2006, kogan.com is Australia’s leading pure play online retail website, having grown organically,
through the strength of the “kogan” brand, to generate more traffic, according to Alexa Internet, and google
search queries than any other Australian pure play online retail website.
In 2006, founder and cEo ruslan kogan established a supply chain which ‘cut out the middle men’ to source
consumer electronics products directly from international contract manufacturers. Sourced directly and
sold online, kogan.com was able to offer these products at lower price points than equivalent products sold
by Australian bricks and mortar retailers. David Shafer, cfo and coo, became a business partner in 2010,
joining the business full time to focus on driving further growth.
on 7 July 2016, kogan.com embarked on its next stage of growth, listing on the ASX (refer to note 6.1).
BuSINESS MoDEL
kogan.com believes that it is part of a ‘next generation’ of online retailers who are evolving the
online retail format beyond its origins as a disruptive, low-cost distribution platform. kogan.com aims
to deliver price leadership across products and services with established high consumer demand through
technology-driven efficiency.
we delivered value in fY16 through:
DAtA DrIvEN
CuLturE
BESt-IN-CLASS
SErvICE & tEChNoLogY
CoMpELLINg
oFFErINg
revenue growth through
precision purchasing, even
while capital constrained.
Increased automation driving
faster dispatch and improved
customer experience.
focus on personalisation
and precision marketing.
Scalable web infrastructure
enabling rapid integration
of Dick Smith.
Active customer and subscriber
growth, despite suppressed
marketing budget.
Improved digital efficiency:
• SAP (ErP) roll-out
and optimisations;
• Streamlining of supply chain;
and
• Automation initiatives.
continual improvement
of consumer offering,
servicing known consumer
demand through:
• growth of Private label
range and brands;
• new Third Party brands; and
• launch and growth of
new verticals, kogan mobile
and kogan Travel.
Kogan.com Annual report
4
kogan.com’s growth over the past 10 years has been supported by a large and highly-engaged user base, the
kogan community. In the six months to June 2016, the business achieved solid growth in Active Subscribers
and Active customers, excluding Dick Smith, of 600,000 (26.1%) and 51,000 (8.2%), respectively.
Table 1.1 Active Subscribers and Active Customers
Active subscribers
Active customers
opErAtIoNS
DEC-15
JuN-16
Kogan
Kogan Dick Smith
total
unique
2.3m
2.9m
1.2m
3.7m
621,000
672,000
32,000
(88.2% new)
702,000
kogan.com earns the majority of its revenue and profit through the sale of goods to Australian consumers.
Its offering comprises products released under kogan.com’s in-house brands, such as kogan and ovela
(“Private label Products”), and products sourced from third party brands such as Apple, canon, Samsung,
hTc and Swann (“Third Party Branded Products”).
kogan.com management analyses the sale of products using three divisions:
• Private label;
• Third Party International: third party branded products sourced from the international
wholesale market; and
• Third Party Domestic: third party branded products sourced domestically from Australian and
international third party brands, where kogan.com works in partnership with the brand, or an agent
of the brand, to feature its products.
kogan.com launched two new verticals in cY2015. kogan Travel offers travel packages and hotel and
cruise bookings online, while kogan mobile offers prepaid mobile phone plans online, in partnership with
vodafone hutchison Australia Pty ltd (“vodafone”).
In April 2016, kogan.com acquired the Dick Smith assets, which includes the “Dick Smith” brand name,
associated domain names, the DSE private label brand and Dick Smith’s database. Dick Smith was
successfully integrated into the business and launched on 4 may 2016. Dick Smith achieved revenue
of $6.5 million in fY16 and is delivering operating leverage into the business via additional revenues
from the existing operating cost base.
Kogan.com Annual report
5
Operating and Financial Review
continued
pErForMANCE rEvIEw & outLooK
rESuLtS SuMMArY
PRO FORMA RESULTS
Pro forma results are provided for the financial year ended 30 June 2016 to allow shareholders to make
a meaningful comparison with the Pro forma Prospectus forecast and to make an assessment of the group’s
performance as a listed company. Pro forma adjustments have been made on a consistent basis with those
made in the Prospectus. A reconciliation of the pro forma results to the statutory results is provided in Table 1.3
provided in this section. refer to Table 1.9 for an explanation of non IfrS financial measures used
throughout this report.
Figure 1.1 Pro Forma results
$225m
Revenue
$200m
$175m
$200.3m
$201.1m
$211.2m
18%
17%
16%
15%
14%
13%
12%
11%
10%
Gross Margin
$5m
Pro Forma1 EBITDA
$4m
$3m
$2m
$1m
$0m
$1.6m
$2.9m
$4.0m
14.4%
14.5%
15.5%
FY15A
FY16F2
FY16A
FY15A
FY16F2
FY16A
FY15A
FY16F2
FY16A
Table 1.2 Pro Forma results versus forecast – FY16
pro forma
forecast
pro forma
actual
FY2016
FY2016
variance
201.1
(171.9)
29.2
14.5%
(26.3)
2.9
1.4%
0.7
0.7
0.4
211.2
(178.5)
32.7
15.5%
(28.7)
4.0
1.9%
1.6
1.5
0.8
5.0%
3.8%
12.0%
6.9%
9.1%
37.9%
35.7%
128.6%
114.3%
100.0%
$m
Revenue
cost of sales
Gross Profit
Gross Margin (%)
operating costs
EBITDA
EBITDA Margin (%)
EBIT
Profit before tax
NPAT
+ve/-ve nPAT impact
Kogan.com Annual report
6
FY16 pro ForMA rESuLtS vErSuS proSpECtuS ForECASt
Revenue
revenue was $10.1 million above forecast, of which Dick Smith represented $6.5 million. Third Party
Domestic was a key out-performance area of the business, in addition to new verticals kogan mobile
and kogan Travel performing well. kogan mobile and kogan Travel gross Sales out-performed forecast
by 25.0% and 11.6%, respectively.
Gross margin
gross margin exceeded the Prospectus forecast of 14.5% by 6.9%. The increase in gross margin was largely
driven by mix change with Third Party Domestic sales representing 24.2% of product gross sales compared
to a forecast of 18.4%.
EBITDA
Approximately 48.0% of the overhead cost base is predominantly fixed, resulting in an increased EBITDA
margin against forecast. The business is successfully optimising SAP to improve regular reporting in order
to enable faster and better decision-making by management. Efficiencies gained from the optimisation
of SAP have also led to automation across various operational functions, improving customer experience,
reducing error and costs.
Table 1.3 Reconciliation of Statutory to Pro Forma results
$m
Revenue
cost of sales
Gross profit after freight
Gross margin after freight (%)
operating costs
EBITDA
EBITDA Margin (%)
EBIT
Profit before tax
Notes:
FY16
Statutory
transaction
Costs(1)
pro Forma
Costs(2)
FY16 pro
Forma
211.2
(178.5)
32.7
15.5%
(28.8)
3.9
1.9%
1.5
1.4
–
–
–
–
1.1
1.1
–
1.1
1.1
–
–
–
–
(1.1)
(1.1)
–
(1.1)
(1.1)
211.2
(178.5)
32.7
15.5%
(28.7)
4.0
1.9%
1.6
1.5
(1) Transaction costs comprise one-off IPo related costs recorded in fY16 are added back to reconcile to the Prospectus Pro
forma forecast.
(2) consistent with the Prospectus, pro-forma listed entity costs including Director fees; senior management salaries; the cost of obtaining
company secretarial and investor relations services; and other public company costs.
Kogan.com Annual report
7
Operating and Financial Review
continued
StAtutorY rESuLtS
Table 1.4 Statutory results for FY16 versus FY15
$m
revenue
cost of sales
Gross profit
operating costs
Results from operating activities
net finance costs
Profit before income tax
Net profit/(loss) for the year
EBITDA
+ve/-ve nPAT impact
2016
Statutory
2015
Statutory
variance
211.2
(178.5)
32.7
(31.1)
1.6
(0.2)
1.4
0.8
3.9
200.3
(171.4)
28.9
(27.5)
1.3
(1.0)
0.3
(0.1)
1.8
5.4%
4.1%
13.1%
13.1%
23.1%
80.0%
366.7%
n/a
116.7%
Statutory performance versus prior year
revenue increased by 5.4% year on year driven by:
• growth in Third Party Domestic revenue;
• launch of new verticals kogan Travel (may 2015) and kogan mobile (october 2015); and
• launch of Dick Smith on 4 may 2016.
The mix shift towards Third Party Domestic products, which have ~3x higher gross margins than Third Party
International products, partially offset by discounting in 1h fY16 to clear aged inventory from the initial SAP
implementation issues, drove the increase in gross margin of 7.6% year on year.
The increase in EBITDA was primarily driven by growth in revenue and gross margin. In addition, there was
a reduction in marketing expenditure to conserve cash, and lower people costs as a result of efficiencies
and automation achieved following the SAP implementation. This was partially offset by higher warehousing
costs, driven by an increase in volumes and Third Party Domestic revenue.
proDuCt DIvISIoN AND NEw vErtICALS INForMAtIoN
Figure 1.2 Product division Gross Sales
Gross Sales Mix By Product Division
(Excluding New Verticals)
Third Party Domestic
24.2%
Private Label Product
Gross Sales Mix
General Merchandise
43.3%
Private Label
37.2%
Third Party
International
38.6%
Consumer
Electronics
56.7%
Third Party Domestic was a key out-performance area of the business, as additional brands joined kogan.com
and the range was expanded, with Third Party Domestic sales representing 24.2% of product gross Sales
compared to a forecast of 18.4%. with margins ~3x Third Party International, Third Party Domestic growth
has a positive impact on overall gross margin.
Kogan.com Annual report
8
Table 1.5 New Verticals Gross Sales
$m
kogan Travel
kogan mobile
Gross sales
FY16
Forecast
FY16
Actual
variance
$m
4.3
0.4
4.7
4.8
0.5
5.3
0.5
0.1
0.6
%
11.6%
25.0%
12.8%
kogan Travel was launched in may 2015 to market affordable travel and holidays online through the existing
and new customer base. kogan Travel successfully outperformed fY16 forecast as a result of compelling
deals to a variety of destinations.
kogan mobile was launched in october 2015 to offer affordable pre-paid mobile plans and is continuing
to grow at a steady pace with new customer acquisitions and repeat customers exceeding forecast.
opErAtINg CoStS
Figure 1.3 Pro Forma Operating costs as % of revenue – FY16 versus Prospectus forecast and FY15
Pro Forma1 Operating Costs
Breakdown FY15A – FY16A
13.6%
2.1%
4.9%
3.0%
3.6%
13.6%
2.2%
4.4%
2.7%
4.3%
Predominately
Fixed
Predominately
Volume-Driven
16%
14%
12%
10%
8%
6%
4%
2%
0%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Pro Forma1 Operating Costs
Breakdown FY16F – FY16A
13.1%
2.1%
4.4%
2.5%
4.0%
13.6%
2.2%
4.4%
2.7%
4.3%
Predominately
Fixed
Predominately
Volume-Driven
FY15A
FY16A
FY16F
FY16A
Variable Costs/Revenue
Marketing Costs/Revenue
People Costs/Revenue
Other Expenses/Revenue
Pro forma operating costs as a % of revenue were flat on the prior year at 13.6%, albeit the split between
cost categories varied year on year. Pro forma fY16 operating costs as a % of revenue were ahead of the
forecast level by 0.5 percentage points, primarily driven by a mix shift. whilst gross margins on Third Party
Domestic products are ~3x higher than Third Party International, out-performance against forecast revenue
leads to marginally higher operating costs.
StAtEMENt oF FINANCIAL poSItIoN
Table 1.6 Summary net assets at 30 June 2016 and 30 June 2015
$m
current assets
non-current assets
Total assets
current liabilities
non-current liabilities
Total liabilities
Net assets
30-Jun-16
30-Jun-15
26.9
5.5
32.4
(25.3)
(0.0)
(25.4)
7.1
28.6
3.2
31.8
(22.5)
(0.5)
(23.1)
8.7
net assets decreased by $1.6 million largely driven by increased trade payables, and a decrease in inventory
as a result of cash constraints, partially offset by an increase in intangible assets following the Dick Smith
acquisition and a reduction in borrowings.
Kogan.com Annual report
9
Operating and Financial Review
continued
NEt DEBt
Table 1.7 Net debt at 30 June 2016 and 30 June 2015
$m
Total borrowings
less cash and cash equivalents
Net debt
30-Jun-16
30-Jun-15
4.9
(1.8)
3.1
8.1
(0.4)
7.7
net debt at 30 June 2016 was $4.6 million lower than the prior year. In november 2015, the group
reduced its banking facilities from $9 million to $5.5 million, which reduced the level of debt in the
business. on 31 may 2015, the group signed a new multi-option facility agreement with westpac Banking
corporation, maturing on 31 may 2019. The facility includes a cash Advance facility, Trade finance facility
and lc facility with a total limit of $10.0 million.
Pro forma net debt at 30 June 2016 was $2.6 million compared to the Prospectus assumed level prior
to listing of $4.0 million. The group received approximately $35 million in cash (prior to offer costs) from
the IPo on 7 July 2016.
CASh FLowS
Table 1.8 Statutory cash flow FY16
$m
EBITDA
change in net working capital
Operating cash flow before capital expenditure
Purchase of PP&E
Purchase of the Dick Smith Assets
Investment in intangibles
Cash flow before financing and taxation
Operating cash flow conversion
FY16
statutory
FY15
statutory
3.9
8.1
12.0
(0.0)
(2.7)
(1.7)
7.6
307.7%
1.8
(4.2)
(2.4)
(0.8)
–
(2.8)
(5.9)
n/a
The business generated $12.0 million of operating cash flow before capital expenditure in fY16, resulting in
an operating cash conversion ratio of 307.7%, driven by a reduction in net working capital. working capital
reduced by $8.1 million in fY16, predominantly driven by an increase in trade payables as a result of improved
payment terms negotiated with some Private label suppliers, and a decrease in inventory due to cash
constraints experienced during fY16, which were subsequently relieved by the receipt of IPo proceeds
(refer to note 6.1) on 7 July 2016.
Kogan.com Annual report
10
outLooK
The group has started the new financial year well and preparations are at an advanced stage for the peak
christmas trading season. The group intends to make further investments in Private label and Third Party
Domestic product divisions, as well as continuing to invest in marketing and technology.
with released capital constraints, the group expects fY17 to show:
• accelerated growth of the active customer base;
• increased value from the investment in SAP and automation;
• increased operating leverage (as demonstrated in late fY16 by Dick Smith);
• Private label growth;
• continued aggressive growth of Third Party Domestic; and
• continued growth of new verticals, kogan Travel and kogan mobile.
NoN IFrS MEASurES
Throughout this report, kogan.com has included certain non-IfrS financial information, including EBITDA,
gross Sales and net Debt. kogan.com believes that these non-IfrS measures provide useful information
to recipients for measuring the underlying operating performance of kogan.com’s business. non-IfrS
measures have not been subject to audit.
The table below provides details of the non-IfrS measures used in this report.
Table 1.9 Non-IFRS measures
EBITDA
EBIT
Gross Sales
Earnings before interest, tax, depreciation and amortisation.
Earnings before interest and tax.
gross Sales represents sales on a cash basis and prior to cancellations and
refunds. gross Sales is a key measure which management uses to track financial
performance and to make management decisions at a product group level.
In respect of commission based sales generated under kogan mobile and part
of kogan Travel, gross Sales represents only the commission received by the
company, and not the gross transaction value paid by consumers.
Net Debt
loans and borrowings less cash and cash equivalents.
Operating cash
flow conversion
operating cash conversion is calculated as operating cash flow before capital
expenditure/EBITDA.
Kogan.com Annual report
11
Operating and Financial Review
continued
StrAtEgY, rISKS AND opportuNItIES
StrAtEgY
kogan.com’s growth initiatives are designed to support its vision to become Australia’s premier online
retail destination through leveraging its core business strengths.
kogan.com’s corporate strategy involves a number of initiatives aimed at sustaining long-term growth,
which include:
• continued growth in kogan mobile and kogan Travel;
• growth in contribution from Dick Smith;
• Investment in Private label;
• continued growth in Third Party Domestic;
• Building the kogan community;
• launch of additional business verticals; and
• Selective and opportunistic m&A.
prIvAtE LABEL StrAtEgY
following the IPo, the business has sufficient funds to invest in Private label. IPo proceeds are being
deployed into products for which there is proven demand, with the benefits expected to be realised
from the second quarter of fY17.
Women’s
Personal
Care
Homewares
Consumer
Electronics
& Appliances
Bathroom
Fittings
Baby &
Toddlerware
Men’s
Grooming
Pet
Supplies
Footwear
Travel
Outdoor &
Camping
Home
Hardware
Fitness
& Sport
Pest Control
kogan.com maintains a prudent and disciplined approach to capital deployment and continues to invest
in growth opportunities in the medium to long-term that generate shareholder value.
Kogan.com Annual report
12
rISKS
Set out below are the key financial and operational risks facing the business. kogan.com manages and seeks
to mitigate these risks through internal review and control processes at the Board and management level.
topIC
SuMMArY
Australian retail
environment and
general economic
conditions may
worsen
many of kogan.com’s products are discretionary goods and, as a result, sales
levels are sensitive to consumer Sentiment. kogan.com’s offering of products,
and its financial and operational performance, may be affected by changes
in consumers’ disposable incomes, or their preferences as to the utilisation
of their disposable incomes.
Stagnation or
decline in the
Australian Online
Retail Market
growth in the Australian online retail market is expected to be driven partly by the
migration of customers from traditional retail formats to online retail platforms.
Competition
may increase
and change
kogan.com could be adversely affected by increased competition in the various
segments in which it operates. The Australian online retail market is highly
competitive and is subject to changing customer preferences.
Changes
in customer
preferences or
trading patterns
Inventory
management
Key supplier,
service provider
and counterparty
factors
Performance
and reliability
of Kogan.com’s
websites,
databases and
operating systems
Manufacturing and
product quality
There is a risk that kogan.com fails to anticipate and adapt to changing consumer
preferences in a timely manner. while kogan.com undertakes rigorous demand
analysis in relation to product launches and ordering, the products available
on kogan.com’s websites must appeal to a broad range of consumers whose
preferences cannot be predicted with certainty and are subject to change.
In order to operate its business successfully, kogan.com must maintain sufficient
inventory and also avoid the accumulation of excess inventory. kogan.com holds
inventory for its business, particularly in relation to its Private label Products and
Third Party Branded Domestic Products. kogan.com relies on its data analytics
and inventory management system to manage its stock levels relative to forecast
stock purchases.
kogan.com’s ability to offer a wide variety of brands, services, categories and
product types, including both Private label Products and Third Party Branded
Products, is a key contributor to the appeal of its business to customers.
kogan.com has a large number of international suppliers and service providers,
from which it sources a broad range of products and services. There is a risk that
kogan.com may be unable to continue to source products or services from existing
suppliers or service providers, and in the future, to source products from new
suppliers or services from new service providers, at favourable prices, on favourable
terms, in a timely manner or in sufficient volume.
kogan.com’s websites, Apps, databases, IT and management systems, including
its SAP and security systems, are critically important to its success. The satisfactory
performance, reliability and availability of kogan.com’s websites, Apps, databases,
IT and management systems are integral to the operation of the business.
kogan.com currently uses a wide range of third party suppliers to produce its
Private label Products. while kogan.com employs dedicated engineers to assess
product samples, and uses third party inspection agencies for quality control
and inspections, there is no guarantee that every supplier will meet kogan.com’s
cost, quality and volume requirements.
Kogan.com Annual report
13
Operating and Financial Review
continued
topIC
SuMMArY
Reputational
product sourcing
factors
The kogan.com portfolio of Private label brand names and related intellectual
property are key assets of the business. In addition, kogan.com sells a range
of Third Party Branded Products, where the intellectual property is owned
by third parties.
Changes in
technology
and inventory
obsolescence
Intellectual
property
infringement
claims against
Kogan.com
Inadvertent sale
of infringing Third
Party Branded
Products
Technology changes could drive a change in the level of demand for certain
products and, in particular, consumer Electronics products. The rate of technology
changes, such as a lower rate of new product development, could adversely impact
kogan.com’s financial and operational performance in the future. rapid changes
in technology are a key driver of demand for new products in certain segments
in which kogan.com operates.
other parties may develop and patent substantially similar or substitutable products,
processes, or technologies as those used by kogan.com. In addition, other parties
may allege that kogan.com’s Private label Products incorporate intellectual
property derived from third parties without their permission. kogan.com seeks
to mitigate this risk in a number of ways, including by endeavouring to obtain
warranties from its manufacturers and suppliers that Private label Products
do not infringe on third parties’ intellectual property and undertaking intellectual
property searches. no individual Private label product is material to kogan.com.
kogan.com can offer no assurances that Third Party Branded Products will not
attempt to infringe rights associated with other products sold by other third parties.
Changes in
GST and other
equivalent taxes
changes in local indirect tax, such as the goods and services tax in Australia (“GST”),
and duty treatment of any of the markets in which kogan.com operates, could have
an impact on the sales of imported brands.
Kogan.com Annual report
14
Directors’ report
The directors of kogan operations holdings Pty ltd and its controlled entities (“the group”) present
their report together with the financial report of the group for the financial year ended 30 June 2016.
DIrECtorS
The following persons were directors of the group at any time during the financial year and up to the date
of signing this report.
Greg Ridder – Independent, non-Executive chairman
Ruslan Kogan – chief Executive officer and Executive Director
David Shafer – chief financial officer, chief operating officer and Executive Director
Harry Debney – Independent, non-Executive Director
Particulars of each director’s experience and qualifications are set out later in this report.
CoMpANY SECrEtArY
kogan.com engages mertons corporate Services Pty ltd to provide company secretarial services, with
mark licciardo acting as kogan.com’s company secretary. mark’s qualifications and experience are set
out later in this report.
prINCIpAL ACtIvItIES
kogan.com is Australia’s leading pure play online retail website. The principal activities of the group during
the year ended 30 June 2016 were the online sale of goods and services in Australia, new Zealand and
various other geographies. The group earns the majority of its revenue and profit through the sale of goods
to Australian consumers.
An operating and financial review of the group during the financial year and the results of these operations
are contained on pages 4 to 14 of this report.
no significant change in the nature of these activities occurred during the year.
EvENtS SuBSEquENt to thE END oF thE FINANCIAL YEAr
on 8 June 2016, kogan.com ltd entered into a sale agreement with the Existing owners, pursuant
to which the Existing owners agreed to sell all of their shares in kogan operations holdings Pty ltd
(the parent entity of the kogan group) to kogan.com ltd on settlement of the Initial Public offering prior
to the listing on the ASX of kogan.com ltd, which took place on 7 July 2016. The aggregate consideration
paid by kogan.com ltd for the kogan operations holdings Pty ltd shares under the Sale Agreement was
$131,816,250. In preparation for listing kogan.com ltd acquired all of the issued shares in kogan operations
holdings Pty ltd prior to listing on 7 July 2016.
The consideration was paid by way of $15,000,012 in cash (payable out of the offer Proceeds) and the
issuance of 64,897,910 Shares (representing a value of $116,816,238 based on the offer Price).
The cash consideration payable by kogan.com limited to the Existing owners was allocated 50% to ruslan
kogan’s shareholder entity and 50% to David Shafer’s shareholder entity, with the balance by way of the
issuance of Shares.
The Initial Public offering resulted in the issuance of 27.8 million Shares at an issue price of $1.80 per share,
which raised a total of $50m in cash proceeds (prior to issue costs), plus 0.7 million shares were issued
to certain senior managers (excluding ruslan kogan and David Shafer) for nil consideration. After payment
of the cash proceeds to the Existing owners as detailed above, $35 million in cash (prior to issue costs) was
retained in the business to repay existing external debt and fund growth in the group’s operations as detailed
in prospectus disclosures.
Kogan.com Annual report
15
Directors’ Report
continued
INDEMNIFICAtIoN AND INSurANCE oF DIrECtorS AND oFFICErS
kogan.com has entered into a deed of indemnity, insurance and access with each Director confirming
the Director’s right of access to Board papers and requires kogan.com to indemnify the Director, on a full
indemnity basis and to the full extent permitted by law against all losses or liabilities (including all reasonable
legal costs) insured by the Director as an officer of kogan.com or of a related body corporate.
under the deeds of indemnity, insurance and access, kogan.com must maintain a Directors’ and officers’
insurance policy insuring a Director (among others) against liability as a director and officer of kogan.com
and its related bodies corporate until seven years after a Director ceases to hold office as a Director or
a related body corporate (or the date any relevant proceedings commenced during the seven year period
have been finally resolved).
Disclosure of the total amount of the premiums paid under this renewed insurance policy is not permitted
under the provisions of the insurance contract.
INDEMNIFICAtIoN AND INSurANCE oF AuDItorS
no indemnities have been given or insurance premiums paid, during or since the end of the year, for any
person who is or has been an auditor of the group.
proCEEDINgS oN BEhALF oF thE CoMpANY
no person has applied for leave of court to bring proceedings on behalf of the company or intervene
in any proceedings to which the company is a party for the purpose of taking responsibility on behalf
of the company for all or any part of those proceedings.
The company was not a party to any such proceedings during the year.
DIvIDEND poLICY
The Directors have no current intention to declare and pay a dividend. It is the Directors’ current intention
to reinvest cash flows generated in future in the further growth of kogan.com. During the year distributions
totalling $2.5 million were paid to the Existing owners of the group prior to IPo. kogan.com ltd has not paid
or declared any dividends during or since the end of the financial year.
NoN-AuDIt SErvICES
During the year kPmg, the group’s auditors, performed certain other services in addition to the audit and
review of the financial statements.
The Board of Directors has considered the non-audit services provided during the year by the auditor and
is satisfied that the provision of those non-audit services during the year is compatible with, and did not
compromise, the auditor independence requirements of the Corporations Act 2001. The directors are
satisfied that the services disclosed below did not compromise the external auditor’s independence for
the following reasons:
• all non-audit services were subject to the corporate governance procedures adopted by the group
to ensure they did not adversely affect the integrity and objectivity of the auditor; and
• the nature of the services provided do not undermine the general principles relating to auditor
independence as set out in APES 110: Code of Ethics for Professional Accountants, as they did not
involve reviewing or auditing the auditor’s own work, acting in a management or decision making
capacity for the group, acting as an advocate for the group or jointly sharing risks and rewards.
The following fees were paid or payable to kPmg for non-audit services provided during the year ended
30 June 2016:
IPo related advisory services including due diligence, taxation and remuneration
other advisory services (including r&D tax)
$
515,816
213,216
729,032
Kogan.com Annual report
16
AuDItor’S INDEpENDENCE DECLArAtIoN
The lead auditor’s independence declaration for the year ended 30 June 2016 has been received and can
be found on page 23 of the financial report.
thE BoArD oF DIrECtorS AND CoMpANY SECrEtArY
greg ridder
(BBus (Acc), grad Dip (mktg), gAIcD, cPA)
Non-Executive Chairman
mr ridder was appointed to the board of kogan.com in may 2016 as Independent,
non-Executive chairman. mr ridder also serves as chairman of the remuneration
and nomination committee.
formerly Asia Pacific regional President at nYSE listed owens-Illinois, greg led
growth and diversification from its traditional Australian base through joint ventures
and acquisitions in china and Southeast Asia. recently he has focused on intensive
business improvement, acting as cEo at the Australian Institute of Architects, cEo
at Phoenix Australia and as cfo at world vision Australia. greg is experienced
in leading businesses in multiple countries, cultures, economic circumstances and
market conditions.
greg holds a Bachelor of Business in Accounting from rmIT, a graduate Diploma
in marketing from monash university, and has completed the Advanced management
Programme at InSEAD in france. greg is a cPA and graduated member of the
Australian Institute of company Directors.
Board Committee membership
• member of the Audit and risk management committee
• chairman of the remuneration and nomination committee
ruslan Kogan
(BBS)
Chief Executive Officer and Executive Director
mr kogan founded kogan.com in 2006, and has been its cEo since inception, growing
the business into Australia’s leading Pure Play online retailer in under a decade.
Prior to founding kogan.com, mr kogan held roles in the IT departments of Bosch
and gE, and as consultant at Accenture.
mr kogan holds a Bachelor of Business Systems from monash university.
Board Committee membership
• member of the remuneration and nomination committee
David Shafer
(llB (hons), Bcom, cfA)
Chief Financial Officer, Chief Operating Officer and Executive Director
mr Shafer has worked with kogan.com since 2006, moving to a full time role
as chief operating officer and Executive Director in november 2010.
Prior to joining kogan.com, mr Shafer was a Senior Associate at Arnold Bloch leibler.
mr Shafer holds a Bachelor of law (honours) and Bachelor of commerce from
The university of melbourne and is a chartered financial Analyst.
Board Committee membership
• member of the Audit and risk management committee
• member of the remuneration and nomination committee
Kogan.com Annual report
17
Directors’ Report
continued
harry Debney
(BAppSc (hons))
Independent Non-Executive Director
mr Debney was appointed to the board of kogan.com in may 2016, as an
Independent, non-Executive Director and also serves as chairman of the
Audit and risk management committee.
mr Debney is cEo of costa group and has overseen the business’ transition
from a privately-owned company to a member of the S&P/ASX 200 Index.
Prior to joining costa group, mr Debney spent 24 years at visy Industries, including
eight years as cEo. During this time, he substantially grew the visy business, both
organically and through acquisitions.
mr Debney holds a Bachelor of Applied Science (honours) from The university
of Queensland.
Directorships of listed entities within the past three years:
• Director of costa group holdings ltd
Board Committee membership
• chairman of the Audit and risk management committee
• member of the remuneration and nomination committee
Mark Licciardo (mertons corporate Services Pty ltd)
(B Bus(Acc), gradDip cSP, fgIA, gAIcD)
Company Secretary
mr licciardo is the founder and managing Director of mertons corporate Services.
A former company secretary of Top 50 ASX listed companies Transurban group and
Australian foundation Investment company limited, his expertise includes working
with boards of directors in the areas of corporate governance, administration and
company secretarial.
mr licciardo is also the former chairman of the governance Institute of Australia (gIA)
victoria division and melbourne fringe festival and a current non-executive director
of a number of public and private companies.
Kogan.com Annual report
18
MEEtINgS oF DIrECtorS
As the group listed on the ASX on 7 July 2016, subsequent to the end of the financial year, no meetings
of Directors (including committees of Directors) were held during the financial year.
CorporAtE govErNANCE StAtEMENt
The Board is committed to achieving and demonstrating the highest standards of corporate governance.
The Board continues to refine and improve the governance framework and practices in place to ensure
they meet the interests of shareholders.
The company complies with the Australian Securities Exchange corporate governance council’s corporate
governance Principles and recommendations 3rd Edition (‘the ASX Principles’). kogan.com’s corporate
governance Statement, which summarises the company’s corporate governance practices and incorporates
the disclosures required by the ASX Principles, can be viewed at www.kogancorporate.com.
rEMuNErAtIoN rEport
INtroDuCtIoN
The directors are pleased to present the fY16 remuneration report, outlining the Board’s approach
to the remuneration for key management personnel (kmP).
kmP are individuals who have authority and responsibility for planning, directing and controlling the
activities of the group, directly or indirectly, and comprise the directors and the senior executives of the
group, as listed below.
DIrECtor
poSItIoN hELD
GREG RIDDER
chairman, non-executive Director
RUSLAN KOGAN
chief Executive officer and Executive Director
DAVID SHAFER
chief financial officer and chief operating officer and Executive Director
HARRY DEBNEY
non-executive Director
The Board recognises that the performance of the group depends on the quality and motivation of its
team members. The group remuneration strategy therefore seeks to appropriately attract, reward and
retain team members at all levels of the business, but in particular for management and key executives.
The Board aims to achieve this by establishing executive remuneration packages that include a mix of fixed
remuneration, short term incentives and long term incentives.
The Board has appointed the remuneration and nomination committee whose objective is to assist the
Board in relation to the group remuneration strategy, policies and actions. In performing this responsibility,
the committee must give appropriate consideration to the company’s performance and objectives,
employment conditions and external remuneration relativities.
The information in this report has been audited as required by section 308(3c) of the Corporations Act
2001 (cth).
Kogan.com Annual report
19
Directors’ Report
continued
rEMuNErAtIoN AND NoMINAtIoN CoMMIttEE
kogan.com’s remuneration and nomination committee is comprised of the Directors.
The responsibilities of the remuneration and nomination committee include to:
• Develop criteria for Board membership and identify specific individuals for nomination;
• Establish processes for the review of the performance of individual Directors, Board committees
and the Board as a whole and implementation of such processes;
• review and make recommendations to the Board on Board succession plans generally;
• review and make recommendations to the Board on the process for recruiting a new Director, including
evaluating the balance of skills, knowledge, experience, independence and diversity on the Board;
• review and make recommendations to the Board on kogan.com’s remuneration framework,
remuneration packages and policies applicable to senior management and Directors;
• review and make recommendations to the Board on equity-based remuneration plans for the executive
team and other employees;
• Define levels at which the cEo must make recommendations to the committee on proposed changes
to remuneration and employee benefit policies;
• Ensure that remuneration packages and policies attract, motivate and retain high calibre executives; and
• Ensure that remuneration policies demonstrate a clear relationship between executives’ performance
and remuneration.
All Directors who are not members of the committee are entitled to attend any meeting of the committee.
The committee may invite any Director, member of senior management.
A full charter outlining the remuneration and nomination committee’s responsibilities and the Process
for Evaluation of Performance are available at www.kogancorporate.com.
kogan.com has not engaged remuneration consultants for their services as at the date of this report.
rEMuNErAtIoN ovErvIEw For FY16 AND outLooK For FY17
Prior to the company’s ASX listing on 7 July 2016, ruslan kogan and David Shafer were not subject
to employment arrangements and instead received profit distributions proportionate to their shareholdings
in the group. Distributions paid in fY16 and fY15 are disclosed in the notes to the financial Statements.
Subsequent to listing, ruslan kogan and David Shafer entered into employment contracts with base
salaries, exclusive of superannuation at 9.5%, of $350,000 and $300,000, respectively. ruslan kogan
and David Shafer are subject to notice periods on termination of employment by either the individual
or kogan.com of 12 months and 6 months, respectively. Additionally, ruslan kogan and David Shafer are
subject to restraint of trade periods of 12 months and 6 months, respectively, during which time neither
can compete with kogan.com or provide services in any capacity to a competitor of kogan.com or solicit
suppliers, clients or employees of kogan.com. The enforceability of the restraint clause is subject to usual
legal requirements.
The Board may invite ruslan kogan and David Shafer to participate in kogan.com’s incentive programs,
but as at the date of this report, neither has been granted any additional incentives under kogan.com’s
incentive programs.
In fY17, the non-executive Directors’ fees, inclusive of superannuation, to be paid to greg ridder
(as chairman) and to harry Debney are $160,000 and $85,000, respectively. non-executive Directors did
not receive remuneration for any services provided in fY16 (fY15: nil). non-executive Directors are not
eligible to participate in kogan.com’s incentive programs. no additional fees are presently proposed to be
paid for membership or chairmanship of the Audit and risk management committee or the remuneration
and nomination committee. In subsequent years, additional fees for membership or chairmanship of these
committees may apply.
Kogan.com Annual report
20
The group has established incentive arrangements subsequent to listing on the ASX to assist in the attraction,
motivation and retention of the executive team and other selected employees. To align the interests of its
employees and the goals of the group, the Directors have decided the remuneration packages of the
executive team and other selected employees will consist of the following components:
• fixed remuneration (inclusive of superannuation); and
• Equity based long-term incentives.
The group has established an Equity Incentive Plan (EIP), which is designed to align the interests of eligible
employees more closely with the interests of Shareholders in the listed entity post 7 July (refer to note 6.1
to the financial Statements). under the EIP, eligible employees may be offered restricted Shares, options
or rights which may be subject to vesting conditions. The group may offer additional long-term incentive
schemes to senior management and other employees over time.
following the successful listing on 7 July 2016, certain senior management and other employees received
one-off bonuses in the form of shares. The aggregate amount of bonuses is $1,183,750 worth of shares
at the offer price of $1.80. This offer made to relevant employees was for nil consideration and the shares
vested immediately. no Directors received an IPo bonus.
INtErEStS oF DIrECtorS
The interests of each director upon listing on 7 July 2016 up to the date of signing this report, held directly,
indirectly or beneficially, including their related parties, were as follows:
Table 2.0 Interests of Directors
Greg Ridder
Ruslan Kogan
David Shafer
Harry Debney
% ownership
30 June 2016
–
70%
30%
–
Number of
shares held
post Ipo on
7 July 2016
111,110
47,095,205
17,802,705
222,221
Kogan.com Annual report
21
Directors’ Report
continued
pErForMANCE rIghtS uNDEr thE EquItY INCENtIvE pLAN (EIp)
kogan.com has adopted the EIP in order to assist in the motivation and retention of senior management and
other selected employees of kogan.com. The EIP is designed to align the interests of eligible employees more
closely with the interests of Shareholders, by providing an opportunity for eligible employees to receive an
equity interest in kogan.com. current grants under kogan.com’s long-term incentive plan are shown below.
Grant date
29 July 2016
Number and
exercise price
495,140 performance rights over unissued Shares (worth approximately $891,250
based on the offer Price), with nil exercise price. for each performance right that
vests, the holder will be issued one Share.
Consideration
nil.
Performance
period
The principal terms of the Performance rights are:
one fifth of the Performance rights will vest annually over a 5 year period to
30 June 2021, subject to the achievement of applicable performance conditions.
no amount is payable upon the exercise of a Performance right that has vested,
with each Performance right entitling the holder to one fully paid ordinary share
on exercise.
The period commencing from the grant date and ending on 30 June 2021.
Service condition
on vesting
Individual must be employed by the kogan group at time of vesting.
Performance
conditions
The performance rights will vest subject to a relative total shareholder
return (“TSR”) performance hurdle over the performance period.
kogan.com’s TSr from the date of listing will be assessed against the relative
performance of the constituent companies in the S&g ASX Emerging companies
Index, excluding mining and energy companies, over the performance period.
The relative TSr performance targets and corresponding vesting percentages
are as follows:
• below the median TSr growth – 0%;
• at the median TSr growth – 50%;
• between the median and 75th percentile TSr growth – pro-rata straight-line
between 50% and 100%; and
• above the 75th percentile growth – 100%.
Restrictions
on dealing
Shares allocated upon exercise of Performance rights will rank equally with all
existing ordinary shares from the date of issue (subject only to the requirements
of kogan’s Securities Trading Policy).
upon vesting, there will be no disposal restrictions placed on the Shares issued
to participants (subject only to the requirements of kogan.com’s Securities
Trading Policy).
Signed in accordance with a resolution of the Directors.
greg ridder
Non-Executive Chairman
melbourne, 28 September 2016
Kogan.com Annual report
22
Auditor’s Independence Declaration
Kogan.com Annual report
23
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Kogan Operations Holdings Pty Ltd and its controlled entities I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2016 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG BW Szentirmay Partner Melbourne 28 September 2016
Financial report
Contents
25 Consolidated Statement of Profit
or Loss and Other Comprehensive Income
26 Consolidated Statement of Financial Position
27 Consolidated Statement of Changes in Equity
28 Consolidated Statement of Cash Flows
29 Notes to the Financial Statements
29 BASIS of PrEPArATIon
31 SEcTIon 1: BuSInESS PErformAncE
1.1 revenue
1.2A Profit for the Year
1.2B finance costs
1.3 Tax Balances
31
32
32
32
34 1.4 notes to the cash flow Statement
35 SEcTIon 2: oPErATIng ASSETS AnD lIABIlITIES
35 2.1 working capital
37 2.2
Intangible Assets
39 2.3 Property, Plant and Equipment
41 SEcTIon 3: cAPITAl STrucTurE AnD fInAncIng
41 3.1 Borrowings
41 3.2 capital and financial risk management
48 3.3
Issued capital and reserves
49 SEcTIon 4: grouP STrucTurE
49 4.1 controlled Entities
50 4.2 Deed of cross guarantee
50 4.3 Parent Entity Disclosures
51 4.4 related Parties
52 SEcTIon 5: EmPloYEE rEwArD
AnD rEcognITIon
52 5.1
52 5.2
key management Personnel compensation
Incentive Plans
52 SEcTIon 6: oThEr
52 6.1 Subsequent Events
53 6.2 remuneration of Auditors
53 6.3 capital and leasing commitments
54 6.4
new Accounting Standards for Application
in future Periods
54 6.5 company Information
Kogan.com Annual report
24
Consolidated Statement of profit
or Loss and other Comprehensive Income
for The Year Ended 30 June 2016
revenue
cost of sales
Gross profit
Selling and distribution expenses
warehouse expenses
Administrative expenses
other expenses
Results from operating activities
finance income
finance costs
Net finance costs
Profit before income tax
Tax expense
Net profit/(loss) for the year
The accompanying notes form part of these financial statements.
CoNSoLIDAtED group
Note
2016
$
2015
$
1.1
211,158,595 200,288,613
(178,462,191) (171,422,406)
32,696,404
28,866,207
(10,182,023)
(8,949,321)
(4,672,696)
(4,257,270)
1.2a
(15,798,804)
(13,144,861)
(406,279)
(1,191,755)
1,636,602
1,323,000
6,207
9,561
1.2b
(211,588)
(1,046,620)
(205,381)
(1,037,059)
1,431,221
285,941
1.3
(622,072)
(355,531)
809,149
(69,590)
Kogan.com Annual report
25
Consolidated Statement of Financial position
As At 30 June 2016
ASSETS
currEnT ASSETS
cash and cash equivalents
Trade and other receivables
Inventories
other current assets
current tax receivable
ToTAl currEnT ASSETS
non-currEnT ASSETS
Plant and equipment
Intangible assets
Deferred tax assets
ToTAl non-currEnT ASSETS
TOTAL ASSETS
LIABILITIES
currEnT lIABIlITIES
Trade and other payables
Borrowings
Employee benefits
Provisions
Deferred income/revenue
ToTAl currEnT lIABIlITIES
non-currEnT lIABIlITIES
Deferred tax liabilities
Employee benefits
Deferred income/revenue
ToTAl non-currEnT lIABIlITIES
ToTAl lIABIlITIES
NET ASSETS
EQUITY
Issued capital
reserves
retained earnings
TOTAL EQUITY
The accompanying notes form part of these financial statements
Kogan.com Annual report
26
Note
2016
$
2015
$
1,808,301
397,781
2.1.2a
2,981,881
2,201,109
2.1.1
20,532,375
25,072,509
2.1.2b
1,444,206
138,753
1.3
132,217
758,073
26,898,980
28,568,225
2.3
2.2
1.3
571,302
710,682
4,633,473
2,497,810
339,536
–
5,544,311
3,208,492
32,443,291
31,776,717
2.1.3
15,469,375
7,944,653
3.1
4,900,000
8,100,000
341,233
235,812
279,054
344,732
4,382,340
5,854,873
25,328,760
22,523,312
–
43,364
427
43,791
137,835
15,692
378,185
531,712
25,372,551
23,055,024
7,070,740
8,721,693
3.3
343
343
(290,645)
(290,645)
7,361,042
9,011,995
7,070,740
8,721,693
Consolidated Statement of Changes In Equity
for The Year Ended 30 June 2016
Consolidated Group
Balance at 1 July 2014
Comprehensive income
loss for the year
Total comprehensive income
for the year
Transactions with owners,
in their capacity as owners,
and other transfers
Issue of ordinary shares
Distributions paid
Total transactions with owners,
in their capacity as owners
Balance at 30 June 2015
Balance at 1 July 2015
Comprehensive income
Profit for the year
Total comprehensive income
for the year
Transactions with owners,
in their capacity as owners,
and other transfers
Issued of ordinary shares
Distributions paid
Total transactions with owners and
other transfers
Balance at 30 June 2016
Share
Capital
retained
Earnings
translation
reserve
Note
$
$
$
total
Equity
$
337
9,568,687
(290,645)
9,278,379
–
–
6
–
6
(69,590)
(69,590)
–
(487,102)
(487,102)
–
–
–
–
–
(69,590)
(69,590)
6
(487,102)
(487,096)
343
9,011,995
(290,645)
8,721,693
343
9,011,995
(290,645)
8,721,693
–
–
–
–
–
809,149
809,149
–
(2,460,102)
(2,460,102)
–
–
–
–
–
809,149
809,149
–
(2,460,102)
(2,460,102)
343
7,361,042
(290,645)
7,070,740
3.3.1
3.3.1
The accompanying notes form part of these financial statements.
Kogan.com Annual report
27
Consolidated Statement of Cash Flows
for The Year Ended 30 June 2016
cASh flowS from oPErATIng AcTIvITIES
receipts from customers
Payments to suppliers and employees
Interest received
finance costs paid
Income tax paid
CoNSoLIDAtED group
Note
2016
$
2015
$
208,751,567 201,898,599
(196,594,316) (204,287,517)
6,224
9,561
(211,589)
(1,046,620)
(473,587)
(2,665,243)
net cash provided by/(used in) operating activities
1.4
11,478,299
(6,091,220)
cASh flowS from InvESTIng AcTIvITIES
Purchase of property, plant and equipment
Purchase of intangible assets
net cash used in investing activities
cASh flowS from fInAncIng AcTIvITIES
Proceeds from issue of shares
Proceeds from borrowings
Payment of borrowings
Distributions paid
net cash provided by/(used in) financing activities
net increase/(decrease) in cash held
cash and cash equivalents at beginning of financial year
(34,371)
(760,477)
(4,373,306)
(2,778,747)
(4,407,677)
(3,539,224)
–
6
4,900,000
8,100,000
(8,100,000)
(1,439,266)
(2,460,102)
(487,102)
(5,660,102)
6,173,638
1,410,520
(3,456,806)
397,781
3,854,587
cash and cash equivalents at end of financial year
3.2
1,808,301
397,781
The accompanying notes form part of these financial statements.
Kogan.com Annual report
28
Notes to the Financial Statements
for The Year Ended 30 June 2016
BASIS oF prEpArAtIoN
The financial report of kogan operations holdings Pty ltd and its controlled entities (“the group”) for
the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the Directors
on 28 September 2016.
The group is a for-profit entity for financial reporting purposes under Australian Accounting Standards
and the nature of its operations and principal activities are described in the Directors’ report.
These general purpose financial statements have been prepared in accordance with the Corporations Act
2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board
and International financial reporting Standards as issued by the International Accounting Standards Board
(IASB). material accounting policies adopted in the preparation of these financial statements are presented
below and have been consistently applied unless stated otherwise.
Except for cash flow information, the financial statements have been prepared on an accruals basis and
are based on historical costs, modified, where applicable, by the measurement at fair value of selected
non-current assets, financial assets and financial liabilities.
A. prINCIpLES oF CoNSoLIDAtIoN
The consolidated financial statements incorporate all of the assets, liabilities and results of the parent
(kogan operations holdings Pty ltd) and all of the subsidiaries (including any structured entities), in line
with AASB 10 Consolidated Financial Statements. Subsidiaries are entities the parent controls. The parent
controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries
is provided in note 4.1.
The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements
of the group from the date on which control is obtained by the group. The consolidation of a subsidiary
is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains
or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies
of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the
accounting policies adopted by the group.
B. CoMpArAtIvE FIgurES
when required by Accounting Standards, comparative figures have been adjusted to conform to changes
in presentation for the current financial year.
where the group retrospectively applies an accounting policy, makes a retrospective restatement or
reclassifies items in its financial statements, an additional (third) statement of financial position as at the
beginning of the preceding period in addition to the minimum comparative financial statements is presented.
C. AASB 1 First-time Adoption oF AustrAliAn Accounting stAndArds
In previous periods, the group prepared special purpose financial statements. Special purpose financial
statements are unable to claim compliance with International financial reporting Standards (IfrS) as they
do not comply with the disclosure requirements of all accounting standards. As a result of the group
preparing Tier 1 general purpose financial statements for the first time, the group has applied AASB 1
First-time Adoption of Australian Accounting Standards in preparing these consolidated financial statements.
As the group has always materially complied with recognition and measurement criteria of all AASBs, the
group’s accounting policies have not changed in the current period and there is no quantitative effect on
the prior year’s results, therefore no transition reconciliations are provided in the notes to these consolidated
financial statements. Additional disclosures have been included as required under Tier 1 general purpose
financial statements, including comparatives where relevant.
Kogan.com Annual report
29
Notes to the Financial Statements
continued
D. SEgMENt INForMAtIoN
The group’s operations consist primarily of selling goods and services online to Australian customers.
The group has considered the requirements of AASB 8 Operating Segments and assessed that the
group has one operating segment, representing the consolidated results, as this is the only segment
which meets the requirements of AASB 8.
E. uSES oF JuDgEMENtS AND EStIMAtES
In preparing the financial report, the Directors made an assessment of the ability of the group to continue
as a going concern, which contemplates the continuity of business operations, realisation of assets and
settlement of liabilities in the ordinary course of business and at the amounts stated in the financial report.
As disclosed in note 6.1, on 8 June 2016, kogan.com ltd entered into a sale agreement with the Existing
owners, pursuant to which the Existing owners agreed to sell all of their shares in kogan operations holdings
Pty ltd (the parent entity of the group) to kogan.com ltd on settlement of the Initial Public offering prior
to the listing on the ASX of kogan.com ltd, which took place on 7 July 2016. The IPo resulted in a capital
injection to the group of approximately $35 million, prior to listing costs. Based on the forecast trading
results and cash flows, the Directors believe that the group will continue to generate sufficient operating
results and cash flows necessary to meet financing terms and conditions including relevant covenants.
These forecasts are necessarily based on best-estimate assumptions that are subject to influences and
events outside of the control of the group. The forecasts, taking into account reasonably possible changes
in trading performance, show that the group will continue to operate within the level and terms of the loan
facility conditions and covenants.
After making enquiries and considering the matters described above, the Directors have a reasonable
expectation that the group will continue to have adequate financial resources to continue to meet its
obligations as they fall due and remain within the limits of its loan facility conditions and covenants.
for these reasons, the financial report has been prepared on a going concern basis.
furthermore, in preparing these financial statements management have made judgements, estimates and
assumptions that affect the application of the company’s accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. revisions to accounting estimates
are recognised prospectively.
Estimates and judgments that have the most significant effect on the amounts recognised in the financial
statements are:
(i) Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting
in a material adjustment within the year ended 30 June 2016 are:
• The provisions for warranties and sales returns are based on estimates from historical warranty and
sales returns data associated with similar products and services, as described in note 1.1. The group
expects to incur most of the liability over this next year.
• The assessment of the carrying value of non-current assets, including intangible assets, is based
on management’s assessment of the nature of the capitalised costs and their expected continued
contribution of economic benefit to the group, having regard to forecast performance and profitability.
• The provision for slow moving and obsolete inventory is based estimates of net realisable value of items
aged > 180 days.
F. CoMMoN CoNtroL trANSACtIoN
on 8 June 2016 kogan operations holdings Pty ltd acquired control over all existing kogan subsidiaries
as part of an internal re-organisation that was undertaken at book value in preparation for the Initial Public
offering and the group’s admission to the ASX on 7 July 2016 pursuant to a replacement prospectus dated
24 June 2016. A list of entities controlled by kogan operations holdings Pty ltd at 30 June 2016 can be
found in note 4.1.
The results, including prior year comparatives, reflect a full 12 months of trading for all kogan group entities
as if they were a consolidated group in both reporting periods. This ensures consistency of presentation with
historical and forecast financial information contained in the prospectus.
Kogan.com Annual report
30
SECtIoN 1: BuSINESS pErForMANCE
1.1 rEvENuE
Sale of goods
revenue is recognised when the significant risks and rewards of ownership have been transferred to the
customer, recovery of the consideration is probable, the associated costs and possible return of goods can
be estimated reliably, there is no continuing management involvement with the goods, and the amount
of revenue can be measured reliably. Prior to these conditions being met, receipts from the sale of goods
are recorded in deferred income. revenue is measured net of returns, trade discounts and volume rebates.
The timing of transfer of risks and rewards varies depending on the individual terms of the sales agreement.
for sale of goods, the transfer usually occurs upon dispatch of the goods, where risks and rewards
contractually transfer to the customer.
A provision for warranties is recognised when the underlying products or services are sold, based on historical
warranty data and a specific review of warranty claims outstanding.
A provision for sales returns is recognised for the expected value of returns, based on historical sales return
data and a specific review of the profile of sales for the period and post period-end.
Rendering of services
revenue from the rendering of services is recognised when management has fulfilled its service obligations
in providing mobile and travel services to the group’s customers, recovery of the consideration is probable
and the amount of revenue can be measured reliably. revenue is measured net of returns and trade discounts.
The timing of revenue recognition varies depending on the individual terms of the services agreement and
the contractual obligations of the group.
revenue from the rendering of services is deferred when a customer has paid up front but the group has not
yet fulfilled its obligation to the customer, in line with the terms and conditions of sale.
Revenue
Sales revenue:
– Sale of goods
– rendering of services
other revenue:
– marketing subsidies
– other revenue
Total revenue
CoNSoLIDAtED group
2016
$
2015
$
204,213,344
199,552,196
4,625,461
433,122
208,838,805 199,985,318
1,184,759
–
1,135,031
303,295
2,319,790
303,295
211,158,595 200,288,613
Kogan.com Annual report
31
Notes to the Financial Statements
continued
1.2A proFIt For thE YEAr
Expenses
cost of sales
cost of services
Total Cost of sales
Employee benefit expense
Depreciation and amortisation expense
costs associated with the group’s Initial Public offering
1.2B FINANCE CoStS
foreign exchange gains/(losses)
finance costs on debt facilities
Total Finance costs
1.3 tAX BALANCES
2016 $
2015 $
175,104,134
171,403,953
3,358,057
18,453
178,462,191
171,422,406
8,461,766
8,948,692
2,411,394
1,403,119
1,090,236
–
2016 $
2015 $
27,719
(784,320)
(239,307)
(262,300)
(211,588)
(1,046,620)
The income tax expense (income) for the year comprises current income tax expense (income) and deferred
tax expense (income).
current income tax expense charged to profit or loss is the tax payable on taxable income. current tax
liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant
taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances
during the year as well as unused tax losses.
current and deferred income tax expense (income) is charged or credited outside profit or loss when the
tax relates to items that are recognised outside profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled and their measurement also reflects the manner in which
management expects to recover or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent
that it is probable that future taxable profit will be available against which the benefits of the deferred tax
asset can be utilised.
Deferred tax assets and liabilities are offset where: (i) a legally enforceable right of set-off exists; and (ii)
the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either
the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous
realisation and settlement of the respective asset and liability will occur in future periods in which significant
amounts of deferred tax assets or liabilities are expected to be recovered or settled.
Kogan.com Annual report
32
cash flows are presented on a gross basis. The gST components of cash flows arising from investing
or financing activities which are recoverable from, or payable to, the ATo are presented as operating
cash flows included in receipts from customers or payments to suppliers.
a. The components of tax (expense) income comprise:
current tax
Deferred tax
under-provision in respect of prior years
b. The prima facie tax on profit from ordinary activities
before income tax is reconciled to income tax as follows:
Prima facie tax payable on profit from ordinary activities
before income tax at 30% (2015: 30%):
– consolidated group
Add:
Tax effect of:
– Amortisation of intangibles
– Entertainment (non-deductible)
– other items
less:
Tax effect of:
– Prior year losses now recognised
– rebateable fully franked dividends
– over provision for current year income tax
– current year revenue losses not recognised
– (over)/under provision of prior year income tax
– Trust related tax adjustments
Income tax attributable to entity
The applicable weighted average effective tax rates
are as follows:
CoNSoLIDAtED group
Note
2016
$
2015
$
831,918
50,622
1.3c
300,540
(57,000)
(510,386)
361,909
622,072
355,531
429,372
85,782
431,108
13,528
19,558
171,256
10,376
2,326
(11,783)
(12,078)
–
–
–
(377,623)
9,253
122,143
(510,386)
361,909
253,500
(20,668)
622,072
355,531
43%
124%
Kogan.com Annual report
33
Notes to the Financial Statements
continued
The effective tax rate for fY16 of 43% reflects the impact of non-deductible intangible amortization
and other non-deductible costs, offset by an overprovision for income tax in the prior year.
c. current and deferred tax balances:
Assets
currEnT/non-currEnT
current tax receivable
Deferred tax asset
Total
Liabilities
non-currEnT
Deferred tax liability
Total
1.4 NotES to thE CASh FLow StAtEMENt
a. Reconciliation of Cash Flows from Operating Activities with Profit after
Income Tax
Profit/(loss) after income tax
non-cash flows in profit:
– depreciation
– amortisation
changes in assets and liabilities:
– increase in trade and term receivables
– (Increase)/decrease in prepayments
– (Increase)/decrease in inventories
– increase in trade payables and accruals
– increase/(decrease) in deferred income
– increase/(decrease) in provisions
– (decrease)/increase in income taxes receivable
– increase/(decrease) in deferred taxes payable
– increase in deferred taxes receivable
cash flows from operating activities
CoNSoLIDAtED group
2016
$
2015
$
132,217
758,073
339,536
–
471,753
758,073
–
–
137,835
137,835
CoNSoLIDAtED group
2016
$
2015
$
809,149
(69,590)
173,751
180,492
2,237,643
1,222,626
(780,772)
(997,901)
(1,305,453)
268,252
4,540,134
(10,997,591)
7,524,719
3,882,905
(1,850,291)
2,537,326
(19,066)
191,973
625,856
(2,573,115)
(137,835)
362,687
(339,536)
(99,284)
11,478,299
(6,091,220)
Kogan.com Annual report
34
SECtIoN 2: opErAtINg ASSEtS AND LIABILItIES
2.1 worKINg CApItAL
2.1.1 Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based
on the weighted average cost principle and includes all direct costs attributable to purchase, such as freight
and insurance.
currEnT
Inventory in transit
Inventory on hand
CoNSoLIDAtED group
2016
$
2015
$
4,772,392
4,030,519
15,759,983
21,041,990
20,532,375
25,072,509
2.1.2a Trade and Other Receivables
Trade and other receivables include amounts due from customers for goods sold and services performed
in the ordinary course of business. receivables expected to be collected within 12 months of the end of the
reporting period are classified as current assets.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised
cost using the effective interest method, less any provision for impairment.
currEnT
Trade receivables
other receivables
Total current trade and other receivables
Credit risk
CoNSoLIDAtED group
2016
$
2015
$
627,436
1,353,153
627,436
1,353,153
2,354,445
847,956
2,981,881
2,201,109
The group has no significant concentration of credit risk with respect to any single counterparty or group
of counterparties other than those receivables specifically provided for and mentioned within note 3.2.
The class of assets described as “trade and other receivables” is considered to be the main source of credit
risk related to the group.
on a geographical basis, the group has significant credit risk exposures in Australia given the substantial
operations in this region. The group’s exposure to credit risk for receivables at the end of the reporting
period in those regions is as follows:
AuD
Australia
CoNSoLIDAtED group
2016
$
2015
$
2,981,881
2,201,109
2,981,881
2,201,109
Kogan.com Annual report
35
Notes to the Financial Statements
continued
The following table details the group’s trade and other receivables exposed to credit risk with ageing analysis
and impairment provided for thereon. Amounts are considered as “past due” when the debt has not been
settled, within the terms and conditions agreed between the group and the customer or counterparty to
the transaction. receivables that are past due are assessed for impairment by ascertaining solvency of the
debtors and are provided for where there are specific circumstances indicating that the debt may not be
fully repaid to the group.
The balances of receivables that remain within initial trade terms (as detailed in the table) are considered
to be of high credit quality.
past Due but Not Impaired (Days overdue)
gross
Amount
past Due and
Impaired
$
627,436
2,354,445
2,981,881
$
–
–
–
< 30
$
31–60
61–90
$
562,447
56,942
–
–
562,447
56,942
> 90
$
8,047
–
8,047
$
–
–
–
2016
Trade and term
receivables
other receivables
Total
2015
Trade and term
receivables
1,353,153
(20,000)
713,816
97,461
418,373
123,503
other receivables
847,956
–
–
–
–
–
Total
2,201,109
(20,000)
713,816
97,461
418,373
123,503
2.1.2b OTHER CURRENT ASSETS
Prepayments
rental bond
other
CoNSoLIDAtED group
2016
$
2015
$
1,034,115
106,223
218,397
191,694
1,444,206
–
32,530
138,753
2.1.3 TRADE AND OTHER PAYABLES
Trade and other payables represent the liabilities for goods and services received by the entity that remain
unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts
normally paid within 45 days of recognition of the liability.
currEnT
Trade payables
other payables
Accrued expenses
Kogan.com Annual report
36
CoNSoLIDAtED group
2016
$
2015
$
10,105,669
5,395,210
3,259,089
2,378,443
2,104,617
171,000
15,469,375
7,944,653
2.2 INtANgIBLE ASSEtS
(i) Website development and software costs
website development and software costs are measured at cost less any accumulated amortisation
and accumulated impairment losses. Such development costs are only capitalised if they can be reliably
measured, the process is technically and commercially feasible, future economic benefits are probable,
and the group has sufficient resources to complete development.
(ii) Intellectual property
Acquired intellectual property, including customer lists, which enable direct marketing of products and
services are capitalised to the extent it is probable that expected future economic benefits attributable
to the asset will flow to the entity, and the cost can be reliably measured.
(iii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill
and brands, is recognised in profit or loss as incurred.
(iv) Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using
the straight-line method over their estimated useful lives, and is generally recognised in profit or loss.
Intangibles that are considered to have indefinite useful lives are not subject to amortisation.
The estimated useful lives for the current and comparative periods are as follows:
Patents and trademarks
website development costs
Software costs
Intellectual Property
2.5 years
2.5 years
2.5 years
2.0 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted,
if appropriate.
(v) Impairment of Assets
At each reporting date, the group reviews the carrying amounts of its non-financial assets (other than
inventories and deferred tax assets) to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated.
for impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or cgus.
The recoverable amount of an asset or cgu is the greater of its value in use and its fair value less costs
to sell. value in use is based on the estimated future cash flows, discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset or cgu.
An impairment loss is recognised if the carrying amount of an asset or cgu exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated to reduce the carrying amount of assets
in the cgu on a pro rata basis. An impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Kogan.com Annual report
37
Notes to the Financial Statements
continued
Patents and Trademarks:
cost
Accumulated amortisation and impairment losses
net carrying amount
Website development costs:
cost
Accumulated amortisation and impairment losses
net carrying amount
Software costs:
cost
Accumulated amortisation and impairment losses
net carrying amount
Intellectual Property:
cost
Accumulated amortisation and impairment losses
net carrying amount
Total intangibles
CoNSoLIDAtED group
2016
$
2015
$
260,439
190,934
(152,011)
(63,146)
108,428
127,788
2,146,396
1,680,183
(1,502,986)
(1,070,370)
643,410
609,813
765,377
642,978
(416,074)
(124,939)
349,303
518,038
5,528,211
1,813,022
(1,995,879)
(570,852)
3,532,332
1,242,170
4,633,473
2,497,810
on 11 march 2016 the group agreed to acquire the online business of Dick Smith Electronics (receivers and
managers appointed) through the purchase of goodwill, brand and intellectual property. The total purchase
price was $2.61 million.
patents and
trademarks
$
website
Develop-
ment costs
$
Software
costs
$
Intellectual
property
$
total
$
Consolidated Group:
Year ended 30 June 2015
Balance at the beginning
of the year
Additions
Effect of movements
in exchange rates
Amortisation charge
136,125
41,591
729,845
346,338
75,727
-
941,697
566,284
1,813,022
2,767,235
–
–
–
–
–
(49,928)
(466,370)
(123,973)
(570,852)
(1,211,123)
closing value at 30 June 2015
127,788
609,813
518,038
1,242,170
2,497,809
Year ended 30 June 2016
Balance at the beginning
of the year
Additions
Effect of movements
in exchange rates
Amortisation charge
127,788
69,505
609,813
466,213
518,038
1,242,170
2,497,809
122,400
3,715,189
4,373,307
–
–
–
–
–
(88,865)
(432,616)
(291,135)
(1,425,027)
(2,237,643)
closing value at 30 June 2016
108,428
643,410
349,303
3,532,332
4,633,473
Kogan.com Annual report
38
2.3 propErtY, pLANt AND EquIpMENt
Property, Plant and Equipment
Each class of property, plant and equipment is carried at cost or fair value as indicated less, where
applicable, any accumulated depreciation and impairment losses.
Plant and Equipment
Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated
depreciation and any accumulated impairment losses. In the event the carrying amount of plant and
equipment is greater than the estimated recoverable amount, the carrying amount is written down
immediately to the estimated recoverable amount and impairment losses are recognised either in
profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal
assessment of recoverable amount is made when impairment indicators are present.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not
in excess of the recoverable amount from these assets. The recoverable amount is assessed on the
basis of the expected net cash flows that will be received from the asset’s employment and subsequent
disposal. The expected net cash flows have been discounted to their present values in determining
recoverable amounts.
The cost of fixed assets constructed within the consolidated group includes the cost of materials,
direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance
are recognised as expenses in profit or loss during the financial period in which they are incurred.
Depreciation
The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life
to the consolidated group commencing from the time the asset is held ready for use. leasehold improvements
are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of
the improvements.
The depreciation rates used for each class of depreciable assets are:
CLASS oF FIXED ASSEt
DEprECIAtIoN rAtE
computer equipment (reducing balance basis)
office equipment and furniture (reducing balance basis)
leasehold improvements
67%
10-25%
20%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.
gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains
and losses are recognised in profit or loss in the period in which they arise.
Kogan.com Annual report
39
Notes to the Financial Statements
continued
Plant and Equipment
computer Equipment:
At cost
Accumulated depreciation
office Equipment:
At cost
Accumulated depreciation
leasehold improvements:
At cost
Accumulated amortisation
Total plant and equipment
CoNSoLIDAtED group
2016
$
2015
$
167,033
145,528
(133,179)
(92,673)
33,854
52,855
859,367
856,311
(339,693)
(210,297)
519,674
646,014
22,350
12,540
(4,576)
17,774
(727)
11,813
571,302
710,682
a. Movements in Carrying Amounts
movements in the carrying amounts for each class of property, plant and equipment between the beginning
and the end of the current financial year:
Computer
Equipment
office
Equipment
$
$
47,381
83,317
Leasehold
improve-
ments
$
–
54,348
693,089
12,540
total
$
130,698
759,977
(48,874)
(130,392)
(727)
(179,993)
52,855
21,505
646,014
3,056
11,813
9,810
710,682
34,371
(40,506)
(129,396)
(3,849)
(173,751)
33,854
519,674
17,774
571,302
Consolidated Group:
Balance at 1 July 2014
Additions
Depreciation expense
Balance at 30 June 2015
Additions
Depreciation expense
Balance at 30 June 2016
Kogan.com Annual report
40
SECtIoN 3: CApItAL StruCturE AND FINANCINg
3.1 BorrowINgS
The group’s interest-bearing loans and borrowings are measured at amortised cost.
currEnT
working capital facility – secured
CoNSoLIDAtED group
2016
$
2015
$
4,900,000
8,100,000
4,900,000
8,100,000
The group had an undrawn facility of $5,100,000 (2015: nil) available to fund inventory purchases (total
facility limit: $10,000,000, 2015: $9,000,000).
on 31 may 2015, the group signed a new multi-option facility agreement with westpac Banking corporation,
maturing on 31 may 2019. The facility includes a cash Advance facility, Trade finance facility and lc
facility with a total limit of $10.0 million.
3.2 CApItAL AND FINANCIAL rISK MANAgEMENt
The group’s financial instruments consist mainly of deposits with banks, local money market instruments,
short-term investments and payable and derivatives.
Financial Risk Management Policies
The Board’s overall risk management strategy seeks to assist the consolidated group in meeting its financial
targets, while minimising potential adverse effects on financial performance. This includes the review of the
use of hedging derivative instruments, credit risk policies and future cash flow requirements.
Specific Financial Risk Exposures and Management
The main risks the group is exposed to through its financial instruments are credit risk, liquidity risk,
and market risk consisting of interest rate risk and foreign currency risk. There have been no substantive
changes in the types of risks the group is exposed to, how these risks arise, or the Board’s objectives,
policies and processes for managing or measuring the risks from the previous period.
Credit Risk
Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties
of contract obligations that could lead to a financial loss to the group.
credit risk is managed through the maintenance of procedures (such as the utilisation of systems for the
approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and
monitoring of the financial stability of significant customers and counterparties), ensuring to the extent
possible that customers and counterparties to transactions are of sound credit worthiness. Such monitoring
is used in assessing receivables for impairment.
risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating,
or in entities that the Board has otherwise assessed as being financially sound. where the group is unable
to ascertain a satisfactory credit risk profile in relation to a customer or counterparty, the risk may be further
managed through title retention clauses over goods or obtaining security by way of personal or commercial
guarantees over assets of sufficient value which can be claimed against in the event of any default.
Kogan.com Annual report
41
Notes to the Financial Statements
continued
Credit risk exposures
The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting
period excluding the value of any collateral or other security held, is equivalent to the carrying amount
and classification of those financial assets (net of any provisions) as presented in the statement of financial
position. credit risk also arises through the provision of financial guarantees, as approved at board level,
given to parties securing the liabilities of certain subsidiaries.
The group has no significant concentrations of credit risk with any single counterparty or group
of counterparties. however, the group has significant credit risk exposures to Australia given the
substantial operations in this region. Details with respect to credit risk of trade and other receivables
are provided in note 2.1.2a. The group’s exposure to credit risk is minimised given a significant portion
of sales are paid for at the time of purchase.
Trade and other receivables that are neither past due nor impaired are considered to be of high credit
quality. Aggregates of such amounts are detailed in note 2.1.2a.
credit risk related to balances with banks and other financial institutions is managed by the Board.
The following table provides information regarding the credit risk relating to cash and money market
securities based on Standard & Poor’s counterparty credit ratings.
cash and cash equivalents
Liquidity risk
CoNSoLIDAtED group
2016
$
1,808,301
1,808,301
2015
$
397,781
397,781
liquidity risk arises from the possibility that the group might encounter difficulty in settling its debts
or otherwise meeting its obligations related to financial liabilities. The group manages this risk through
the following mechanisms:
• preparing forward-looking cash flow analyses in relation to its operating, investing and
financing activities;
• using derivatives that are only traded in highly liquid markets;
• monitoring undrawn credit facilities;
• maintaining a reputable credit profile;
• managing credit risk related to financial assets; and
• only investing surplus cash with major financial institutions.
The table following reflects an undiscounted contractual maturity analysis for financial liabilities.
cash flows realised from financial assets reflect management’s expectation as to the timing of realisation.
Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table
to settle financial liabilities reflects the earliest contractual settlement dates.
Kogan.com Annual report
42
Financial liability and financial asset maturity analysis
wIthIN 1 YEAr
1 to 5 YEArS
ovEr 5 YEArS
totAL
Consolidated
Group
2016
$
2015
$
Financial liabilities due for payment
Borrowings
(4,900,000) (8,100,000)
Trade and
other payables (15,469,375)
(7,944,651)
Total expected
outflows
(20,369,375) (16,044,651)
Financial assets – cash flows realisable
cash and cash
equivalents
Trade, term
and loan
receivables
Total
anticipated
inflows
net (outflow)/
inflow on
financial
instruments
1,808,301
397,781
2,981,881
2,201,109
4,790,182
2,598,890
(15,579,193) (13,445,761)
Market risk
(i) Interest rate risk
2016
2015
2016
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
2015
$
2016
$
2015
$
– (4,900,000) (8,100,000)
– (15,469,375)
(7,944,651)
– (20,369,375) (16,044,651)
–
–
1,808,301
397,781
2,981,881
2,201,109
–
4,790,182
2,598,890
– (15,579,193) (13,445,761)
Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the
reporting period whereby a future change in interest rates will affect future cash flows or the fair value of
fixed rate financial instruments. The group is also exposed to earnings volatility on floating rate instruments.
The financial instruments that primarily expose the group to interest rate risk are borrowings and cash and
cash equivalents.
The net effective variable interest rate borrowings (i.e. unhedged debt) expose the group to interest rate risk,
which will impact future cash flows and interest charges and is indicated by the following floating interest
rate financial liabilities:
Borrowings
CoNSoLIDAtED group
2016
$
2015
$
4,900,000
8,100,000
4,900,000
8,100,000
Subsequent to 30 June 2016, the balance of borrowings has been fully repaid with IPo proceeds.
Kogan.com Annual report
43
Notes to the Financial Statements
continued
(ii) Foreign exchange risk
Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument
fluctuating due to movement in foreign exchange rates of currencies in which the group holds financial
instruments which are other than the AuD functional currency of the group.
with instruments being held by overseas operations, fluctuations in the uS dollar may impact on the group’s
financial results unless those exposures are appropriately hedged.
The foreign currency risk in the books of the parent entity is considered immaterial and is therefore not shown.
Foreign Currency Transactions
Functional and presentation currency
The functional currency of each of the group’s entities is measured using the currency of the primary
economic environment in which that entity operates. The consolidated financial statements are presented
in Australian dollars, which is the parent entity’s functional currency.
Foreign exchange forward contracts
The group has open foreign exchange forward contracts at the end of the reporting period relating to highly
probable forecast transactions and recognised financial assets and financial liabilities. These contracts commit
the group to buy and sell specified amounts of foreign currencies in the future at specified exchange rates.
It is the group’s policy to manage pricing of its products (with the exception of ageing and obsolete inventory)
according to specified target gross margins, rather than to sacrifice gross margin in order to drive sales
volumes. In an environment in which the Australian dollar is declining, in particular relative to the united States
dollar, the group’s ability to price Third Party Branded International Products competitively in comparison
with other Australian retailers deteriorates (to the extent that those retailers have not adjusted retail prices).
As a result, lower volumes of Third Party Branded International Products are generally sold during periods
of sharp decline in the Australian dollar, leading to lower revenues in that product segment. The reverse occurs
in periods in which there is a sharp increase in the Australian dollar, while there has historically been neutral
revenue impact in periods in which the currency is relatively stable, whether that is at high or low levels.
The following table summarises the notional amounts of the group’s commitments in relation to foreign
exchange forward contracts. The notional amounts do not represent amounts exchanged by the
transaction counterparties and are therefore not a measure of the exposure of the group through the
use of these contracts.
Consolidated group
Buy uSD/sell AuD:
NotIoNAL AMouNtS
2016
$
2015
$
Settlement
– less than 6 months
14,603,983
7,293,584
– 6 months to 1 year
–
–
AvErAgE EXChANgE
rAtE
2016
$
0.74
–
2015
$
0.782
–
The fair value of foreign exchange contracts at 30 June 2016 totalled $33,000 (2015: $125,000).
Kogan.com Annual report
44
Sensitivity analysis
The following table illustrates sensitivities to the group’s exposures to changes in interest rates, exchange
rates and commodity and equity prices. The table indicates the impact of how profit and equity values
reported at the end of the reporting period would have been affected by changes in the relevant risk variable
that management considers to be reasonably possible.
These sensitivities assume that the movement in a particular variable is independent of other variables.
Year ended 30 June 2016
+/–10bps in foreign exchange rates
Year ended 30 June 2015
+/–10bps in foreign exchange rates
CoNSoLIDAtED group
profit
Equity
$
$
1,460,398
1,460,398
729,358
729,358
The group, through its hedging of foreign exchange using forward contracts, reduces its exposure to foreign
exchange risk by locking in the exchange rate with the bank on deal date. Any movement in interest rates
has been deemed to be immaterial.
Fair values
The group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis,
depending on the requirements of the applicable Accounting Standard.
Fair value estimation
The carrying value of financial Assets and financial liabilities are not materially different to their fair values.
FINANCIAL INSTRUMENTS
Initial recognition and measurement
financial assets and financial liabilities are recognised when the entity becomes a party to the contractual
provisions to the instrument. for financial assets, this is equivalent to the date that the entity commits itself
to either the purchase or sale of the asset (i.e. trade date accounting is adopted).
financial instruments are initially measured at fair value plus transaction costs, except where the instrument
is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or
loss immediately.
Classification and subsequent measurement
financial instruments are subsequently measured at fair value, amortised cost using the effective interest
method, or cost.
Amortised cost is calculated as the amount at which the financial asset or financial liability is measured
at initial recognition less principal repayments and any reduction for impairment, and adjusted for any
cumulative amortisation of the difference between that initial amount and the maturity amount calculated
using the effective interest method.
The effective interest method is used to allocate interest income or interest expense over the relevant
period and is equivalent to the rate that discounts estimated future cash payments or receipts (including
fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot
be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the
financial asset or financial liability. revisions to expected future net cash flows will necessitate an adjustment
to the carrying amount with a consequential recognition of an income or expense item in profit or loss.
The group does not designate any interests in subsidiaries, associates or joint ventures as being subject
to the requirements of Accounting Standards specifically applicable to financial instruments.
Kogan.com Annual report
45
Notes to the Financial Statements
continued
I. Loans and receivables
loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market and are subsequently measured at amortised cost. gains or losses are recognised
in profit or loss through the amortisation process and when the financial asset is derecognised.
II. Financial liabilities
non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised
cost. gains or losses are recognised in profit or loss through the amortisation process and when the financial
liability is derecognised.
Derivative instruments
The group enters into forward exchange contracts to manage the cash flow risk attached to inventory
purchased in foreign currency. The group has elected not to adopt hedge accounting, with any period
movements in the fair value of the derivative contract taken to the income statement when material.
Impairment
A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an
impact on the estimated future cash flows of the financial asset(s).
In the case of available-for-sale financial assets, a significant or prolonged decline in the market value of
the instrument is considered to constitute a loss event. Impairment losses are recognised in profit or loss
immediately. Also, any cumulative decline in fair value previously recognised in other comprehensive income
is reclassified into profit or loss at this point.
In the case of financial assets carried at amortised cost, loss events may include: indications that the
debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency
in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation;
and changes in arrears or economic conditions that correlate with defaults.
when the terms of financial assets that would otherwise have been past due or impaired have been
renegotiated, the group recognises the impairment for such financial assets by taking into account the
original terms as if the terms have not been renegotiated so that the loss events that have occurred are
duly considered.
Derecognition
financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset
is transferred to another party whereby the entity no longer has any significant continuing involvement
in the risks and benefits associated with the asset. financial liabilities are derecognised when the related
obligations are discharged, cancelled or have expired. The difference between the carrying amount of the
financial liability extinguished or transferred to another party and the fair value of consideration paid,
including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.
Kogan.com Annual report
46
The group holds the following financial assets and liabilities at reporting date:
Financial assets
cash and cash equivalents
loans and receivables
Total financial assets
Financial liabilities
financial liabilities at amortised cost:
– trade and other payables
– borrowings
Total financial liabilities
FAIR VALUE MEASUREMENTS
NotE CoNSoLIDAtED group
2016
$
2015
$
1,808,301
397,781
2.1.2a
2,981,881
2,201,109
4,790,182
2,598,890
2.1.3
15,469,375
7,944,653
4,900,000
8,100,000
20,369,375
16,044,653
The group measures and recognises the following assets and liabilities at fair value on a recurring basis
after initial recognition:
• cash and cash equivalents; and
• foreign exchange forward contracts.
The group does not subsequently measure any liabilities at fair value on a non-recurring basis.
a. Fair Value Hierarchy
AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value
hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest
level that an input that is significant to the measurement can be categorised into as follows:
LEvEL 1
LEvEL 2
LEvEL 3
measurements based on quoted
prices (unadjusted) in active
markets for identical assets
or liabilities that the entity can
access at the measurement date.
measurements based on inputs
other than quoted prices
included in level 1 that are
observable for the asset or
liability, either directly
or indirectly.
measurements based on
unobservable inputs for
the asset or liability.
The fair values of assets and liabilities that are not traded in an active market are determined using one
or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of
observable market data. If all significant inputs required to measure fair value are observable, the asset
or liability is included in level 2. If one or more significant inputs are not based on observable market data,
the asset or liability is included in level 3.
cash and cash equivalents are level 1 measurements, whilst foreign exchange contracts are level 2.
The fair value of foreign exchange contracts at 30 June 2016 totalled $33,000 (2015: $125,000).
b. Disclosed Fair Value Measurements
The carrying amounts of assets and liabilities are the same as their carrying values.
Kogan.com Annual report
47
Notes to the Financial Statements
continued
3.3 ISSuED CApItAL AND rESErvES
fully paid ordinary shares
The group has issued share capital amounting to 343 ordinary shares.
a. Ordinary Shares
At the beginning of the reporting period
Shares issued during the year:
At the end of the reporting period
CoNSoLIDAtED group
2016
$
343
343
2015
$
343
343
CoNSoLIDAtED group
2016
No.
343
–
343
2015
No.
337
6
343
ordinary shares participate in dividends and the proceeds on winding-up of the parent entity in proportion
to the number of shares held. At the shareholders’ meetings each ordinary share is entitled to one vote when
a poll is called; otherwise each shareholder has one vote on a show of hands.
b. Capital Management
management controls the capital of the group in order to maintain a sustainable debt to equity
ratio, generate long-term shareholder value and ensure that the group can fund its operations
and continue as a going concern.
The group’s debt and capital include ordinary share capital and financial liabilities, supported
by financial assets.
The group is not subject to any externally imposed capital requirements.
management effectively manages the group’s capital by assessing the group’s financial risks and adjusting
its capital structure in response to changes in these risks and in the market. These responses include the
management of debt levels, distributions to shareholders and share issues.
There have been no changes in the strategy adopted by management to control the capital of the group
since the prior year. The gearing ratios for the years ended 30 June 2016 and 30 June 2015 are as follows:
NotE CoNSoLIDAtED group
2016
$
2015
$
4,900,000
8,100,000
(1,808,301)
(397,781)
3,091,699
7,702,219
7,070,740
8,721,693
44%
88%
Total borrowings
less cash and cash equivalents
net debt
Total equity
gearing ratio
Kogan.com Annual report
48
3.3.1 DISTRIBUTIONS
Distributions paid during the year
CoNSoLIDAtED group
2016
$
2,460,102
2,460,102
2015
$
487,102
487,102
Distributions have been paid to the trustees of the kogan Technologies unit Trust in their capacity
as beneficiaries, prior to the internal restructure on 8 June 2016 (refer to note 6.1).
SECtIoN 4: group StruCturE
4.1 CoNtroLLED ENtItIES
a. Information about Principal Subsidiaries
The subsidiaries listed below have share capital consisting solely of ordinary shares or, in the case of kogan
Technologies unit Trust, ordinary units, which are held directly by the group. The proportion of ownership
interests held equals the voting rights held by the group. Each subsidiary’s principal place of business is also
its country of incorporation.
NAME oF SuBSIDIArY
kogan mobile Australia Pty ltd
kogan mobile Pty ltd
kogan Australia Pty ltd
kogan International holdings Pty ltd
kogan hk limited
kogan hr Pty ltd
kogan Travel Pty ltd
Dick Smith IP holdings Pty ltd
(formerly kogan Technologies uk Pty ltd)
online Business number 1 Pty ltd
kogan Technologies unit Trust
b. Significant Restrictions
prINCIpAL
pLACE oF
BuSINESS
owNErShIp INtErESt
hELD BY thE group
2016
2015
Australia
Australia
Australia
Australia
hong kong
Australia
Australia
Australia
Australia
Australia
%
100
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
–
100
There are no significant restrictions over the group’s ability to access or use assets, and settle liabilities,
of the group.
Kogan.com Annual report
49
Notes to the Financial Statements
continued
4.2 DEED oF CroSS guArANtEE
A deed of cross guarantee between kogan operations holdings Pty ltd and all entities listed above was
enacted during the financial year and relief was obtained from preparing individual financial statements for
the group under ASIc class order 98/1418. under the deed, kogan operations holdings Pty ltd guarantees
to support the liabilities and obligations of the subsidiaries listed above. As all entities are a party to the
deed the income statement and balance sheet information of the combined class-ordered group is equivalent
to the consolidated information presented in this financial report.
4.3 pArENt ENtItY DISCLoSurES
The following information has been extracted from the books and
records of the parent and has been prepared in accordance with
Australian Accounting Standards.
Statement of Financial Position
ASSETS
current assets
non-current assets
ToTAl ASSETS
lIABIlITIES
current liabilities
non-current liabilities
ToTAl lIABIlITIES
nET ASSETS
EQuITY
Issued capital
retained earnings
ToTAl EQuITY
Statement of Profit or Loss and Other Comprehensive Income
Total profit
Total comprehensive income
2016
$
2015
$
26,018
1,200
27,218
–
–
–
27,218
1,200
26,018
27,218
26,018
26,018
–
–
–
–
–
–
–
–
–
–
–
–
The parent did not have any material contingent liabilities at period end (2015 : $nil).
The parent was incorporated in may 2016, and therefore there are no prior year comparatives.
The 2016 profit and loss disclosures are for the period of incorporation to 30 June 2016.
Kogan.com Annual report
50
4.4 rELAtED pArtIES
a. The Group’s main related parties are as follows:
(i) Entities exercising control over the Group:
The ultimate parent entity that exercised control over the group at year-end was kogan operations holdings
Pty ltd, which is incorporated in Australia (refer to 6.1).
(ii) Key management personnel:
Any person(s) having authority and responsibility for planning, directing and controlling the activities
of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity,
are considered key management personnel (refer to 5.1).
(iii) Entities subject to significant influence by the Group:
An entity that has the power to participate in the financial and operating policy decisions of an entity, but
does not have control over those policies, is an entity which holds significant influence. Significant influence
may be gained by share ownership, statute or agreement.
(iv) Other related parties:
other related parties include entities controlled by the ultimate parent entity and entities over which key
management personnel have joint control.
b. Transactions with related parties:
Transactions between related parties are on normal commercial terms and conditions no more favourable
than those available to other parties unless otherwise stated.
The following transactions occurred with related parties:
kogan Australia Pty ltd entered into a logistic Services Agreement with eStore logistics Pty ltd (“eStore”),
in a prior financial period, in relation to the provision of warehousing, distribution and logistics services
by eStore to kogan Australia. ruslan kogan is a minority shareholder and director of eStore. The agreement
was entered into on arm’s length terms.
Purchases from eStore warehousing
CoNSoLIDAtED group
2016
$
2015
$
4,625,251
4,037,557
Kogan.com Annual report
51
Notes to the Financial Statements
continued
SECtIoN 5: EMpLoYEE rEwArD AND rECogNItIoN
5.1 KEY MANAgEMENt pErSoNNEL CoMpENSAtIoN
During the year no salaries and wages were paid to any key management personnel. Distributions
of $2,460,102 were paid out of the kogan Technologies unit Trust to kogan management Pty ltd
ATf the ruslan Tech Trust and Shafer corporation Pty ltd ATf the Shafer family Trust in their
capacity as owners, in lieu of salaries to ruslan kogan and David Shafer.
following the IPo (note 6.1), ruslan kogan and David Shafer are subject to employment contracts with
base salaries of $350,000 and $300,000, respectively, plus superannuation of 9.5%. The Board may
invite ruslan kogan and David Shafer to participate in kogan.com’s incentive programs, but as at the
date of this report, neither has been granted any additional incentives under kogan.com’s incentive
programs (refer to the remuneration report).
5.2 INCENtIvE pLANS
kogan.com ltd has adopted an equity incentive plan to assist in the motivation and retention of management
and selected employees. refer to details provided in the remuneration report.
SECtIoN 6: othEr
6.1 SuBSEquENt EvENtS
on 8 June 2016, kogan.com ltd entered into a sale agreement with the Existing owners, pursuant to
which the Existing owners agreed to sell all of their shares in kogan operations holdings Pty ltd (the
parent entity of the kogan group) to kogan.com ltd on settlement of the Initial Public offering prior
to the listing on the ASX of kogan.com ltd, which took place on 7 July 2016. The aggregate consideration
paid by kogan.com ltd for the kogan operations holdings Pty ltd shares under the Sale Agreement was
$131,816,250. In preparation for listing kogan.com ltd acquired all of the issued shares in kogan operations
holdings Pty ltd prior to listing on 7 July 2016.
The consideration was paid by way of $15,000,012 in cash (payable out of the offer Proceeds) and the
issuance of 64,897,910 Shares (representing a value of $116,816,238 based on the offer Price).
The cash consideration payable by kogan.com limited to the Existing owners was allocated 50% to ruslan
kogan’s shareholder entity and 50% to David Shafer’s shareholder entity, with the balance by way of the
issuance of shares.
The Initial Public offering resulted in the issuance of 27.8 million shares at an issue price of $1.80 per share,
which raised a total of $50 million in cash proceeds (prior to issue costs), plus 0.7 million shares were issued
to certain senior managers (excluding ruslan kogan and David Shafer) for nil consideration. After payment
of the cash proceeds to the Existing owners as detailed above, $35 million in cash (prior to issue costs) was
retained in the business to repay existing external debt and fund growth in the group’s operations as detailed
in prospectus disclosures.
Kogan.com Annual report
52
6.2 rEMuNErAtIoN oF AuDItorS
CoNSoLIDAtED group
2016
$
2015
$
remuneration of the auditor for:
– auditing or reviewing the financial statements
210,000
77,500
– IPo related advisory services including due diligence, taxation and
remuneration
– other advisory services (including r&D tax)
515,816
213,216
939,032
–
38,929
116,429
6.3 CApItAL AND LEASINg CoMMItMENtS
lease payments for operating leases, where substantially all the risks and benefits remain with the lessor,
are recognised as expenses in the periods in which they are incurred.
lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis
over the lease term.
Operating Lease Commitments
non-cancellable operating leases contracted for but not recognised in the financial statements.
Payable – minimum lease payments:
– not later than 12 months
– between 12 months and 5 years
– later than 5 years
2016 $
2015 $
564,675
545,580
633,142
1,197,817
–
–
1,197,817
1,743,396
The property lease is a non-cancellable lease with a 3-year term, with rent payable monthly in advance.
contingent rental provisions within the lease agreement require the minimum lease payments shall be
increased by the lower of the change in the consumer price index (cPI) or 3.5% per annum. An option
exists to renew the lease at the end of the 3-year term for an additional term of 1 year.
Contingent Assets and Liabilities
In a prior year kogan mobile Pty ltd’s service provider, isponE, went into liquidation. kogan mobile Pty ltd
has commenced proceedings against the liquidator and is pursuing a statement of claim. There is also
a counter-claim against the company, which was launched prior to isponE entering voluntary administration
in August 2013, then stayed as a result of the administration. whilst the outcome of this matter is uncertain,
a commercial negotiation has commenced, and management expects to recover some funds from the
liquidator. The only amount brought to account in the financial statements is an amount of $293,320 for
counter-enforced recovery of costs owing from the liquidator and supported by a court order, which the
group is satisfied will be recovered through the settlement process based on information available as at the
date of this report.
In may 2016, the group received a notice to provide information to a government regulator in relation
to certain promotional sales events. All information was provided within the relevant timeline and no
response has been received as at the date of signing this report. The group receives such requests to
provide information from time to time. The directors do not expect that any possible finding would
materially impact the group.
Kogan.com Annual report
53
Notes to the Financial Statements
continued
6.4 NEw ACCouNtINg StANDArDS For AppLICAtIoN IN FuturE pErIoDS
The following standards, amendments to standards and the interpretations have been identified as those
which may impact the group in the period of initial application. They are not yet effective and their impacts
have not yet been determined nor adopted by the group in preparing this financial report.
• AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting
periods beginning on or after 1 January 2018).
• AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning
on or after 1 January 2018, as deferred by AASB 2015-8: Amendments to Australian Accounting Standards
– Effective Date of AASB 15).
• AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019).
• AASB 2014-3: Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests
in Joint Operations (applicable to annual reporting periods beginning on or after 1 January 2016).
• AASB 2014-10: Amendments to Australian Accounting Standards – Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture (applicable to annual reporting periods beginning on or after
1 January 2018, as deferred by AASB 2015-10: Amendments to Australian Accounting Standards – Effective
Date of Amendments to AASB 10 and AASB 128).
6.5 CoMpANY INForMAtIoN
The registered office of the company is:
kogan operations holdings Pty ltd
level 10
530 collins Street
melbourne vIc 3000
The principal places of business are:
kogan operations holdings Pty ltd
139 gladstone Street
South melbourne vIc
Kogan.com Annual report
54
Directors’ Declaration
1
In the opinion of the directors of kogan operations holdings Pty ltd (‘the company’):
(a) the consolidated financial statements and notes that are set out on pages 25 to 54 and the
remuneration report in sections 19 to 22 in the Directors’ report, are in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the group’s financial position as at 30 June 2016 and of its
performance, for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the corporations regulations 2001; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when
they become due and payable.
2 There are reasonable grounds to believe that the company and the group entities identified in note 4.1
will be able to meet any obligations or liabilities to which they are or may become subject to by virtue
of the Deed of cross guarantee between the company and those group entities pursuant to ASIc class
order 98/1418.
3 The directors draw attention to the Basis of Preparation note to the consolidated financial statements,
which includes a statement of compliance with International financial reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at melbourne 28 day of September 2016.
David Shafer
Director
Kogan.com Annual report
55
Independent Auditor’s report
To the members of kogan operations holdings Pty ltd and controlled Entities
Kogan.com Annual report
56
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Profession Standards Legislation. Independent auditor’s report to the members of Kogan Operations Holdings Pty Ltd Report on the financial report We have audited the accompanying financial report of Kogan Operations Holdings Pty Ltd (the company), which comprises the consolidated statement of financial position as at 30 June 2016, and consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, the Basis of Preparation, notes 1.1 to 6.5 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In the Basis of Preparation note, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Kogan.com Annual report
57
Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in the Basis of Preparation note. Report on the remuneration report We have audited the remuneration report within the directors’ report included in pages 19 to 22 of the annual report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Kogan Operations Holdings Pty Ltd for the year ended 30 June 2016, complies with Section 300A of the Corporations Act 2001. KPMG BW Szentirmay Partner 28 September 2016 Melbourne Shareholder Information
The Shareholder information set out below was applicable as at 14 September 2016.
Additional information required by the Australian Securities Exchange limited listing rules and not disclosed
elsewhere in this report, is listed below.
A. DIStrIButIoN oF EquItY SECurItIES
Analysis of numbers of equity security holders by size of holding:
holding
1–1000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
CLASS oF EquItY SECurItY
orDINArY ShArES
No of
Shareholders
Shares
percentage
(%)
492
286,014
1,007
4,240,747
260
6,385,392
4,354,465
14
7
0.306
4.544
6.841
4.665
78,066,716
83.644
There were 81 security holders with less than a marketable parcel of ordinary shares.
1,780 93,333,334
100.000
Kogan.com Annual report
58
B. EquItY SECurItY hoLDErS
Twenty largest quoted equity security holders
Name
kogan management Pty ltd
Shafer corporation Pty ltd
J P morgan nominees Australia limited >
national nominees limited
hSBc custody nominees (Australia) limited
citicorp nominees Pty limited
uBS nominees Pty ltd
Aust Executor Trustees ltd
Brispot nominees Pty ltd
Sandhurst Trustees ltd
mr goran Stefkovski
rainrose Pty ltd
Basapa Pty ltd
cs fourth nominees Pty limited
Austral capital Pty ltd
mrs rong ma
mr harry george Debney + mrs Jane Elizabeth Debney
Austral capital Pty ltd
D r Super holdings Pty ltd
mr richard Ewan Bromley mews + mrs wee khoon mews
Total
Total Remaining Holders Balance
C. SuBStANtIAL hoLDErS
Name
kogan management Pty ltd
Shafer corporation Pty ltd
orDINArY ShArES
Number
held
percentage
of issued
shares (%)
47,095,205
17,802,705
4,421,633
3,399,543
2,212,210
1,633,217
1,502,203
814,581
747,090
524,954
306,944
304,114
295,000
280,512
194,500
180,000
166,660
150,000
145,000
134,000
82,310,071
11,023,263
50.46
19.07
4.74
3.64
2.37
1.75
1.61
0.87
0.80
0.56
0.33
0.33
0.32
0.30
0.21
0.19
0.18
0.16
0.16
0.14
88.19
11.81
Number
held
percentage
of issued
shares (%)
47,095,205
17,802,705
50.46
19.07
Kogan.com Annual report
59
Shareholder Information
continued
D. votINg rIghtS
The voting rights attaching to each class of equity securities are set out below:
Each share is entitled to one vote when poll is called, otherwise each member present at a meeting or by
proxy has one vote on a show of hands.
E. StoCK EXChANgE LIStINg
Quotation has been granted for all of the ordinary shares of the company on all member Exchanges
of the ASX limited.
F. uNquotED SECurItIES
There are no unquoted shares.
g. SECurItIES SuBJECt to voLuNtArY ESCrow
There are the following securities subject to voluntary escrow:
Name
kogan management Pty ltd
Shafer corporation Pty ltd
I. oN MArKEt BuY-BACK
There is currently no on market buy-back.
Number held
47,095,205
17,802,705
Kogan.com Annual report
60
Corporate Directory
CoMpANY SECrEtArY
mark licciardo, mertons corporate Services
prINCIpAL rEgIStErED oFFICE
KogAN.CoM LtD
10/530 collins Street
melbourne vIc 3000
LoCAtIoN oF ShArE rEgIStrY
CoMputErShArE
Yarra falls
452 Johnston Street
Abbotsford vIc 3067
+61 3 9415 4000
StoCK EXChANgE LIStINg
kogan.com ltd (kgn) shares are listed on the ASX.
AuDItorS
KpMg
147 collins Street
melbourne victoria 3000
www.colliercreative.com.au #KOG0002
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