Booktopia agrees to fork out $6m in penalties over misleading returns claims to customers

As embattled e-commerce group Booktopia (ASX: BKG) continues a costly restructuring exercise that has dented the bottom line of an already loss-making business, the plot has thickened with the company agreeing to pay $6 million in penalties over misleading refund messaging to customers.

In December the Australian Competition and Consumer Commission (ACCC) filed proceedings against Booktopia alleging the company's website and customer service staff had made representations that did not reflect consumers’ rights to obtain a refund or other remedy, as per Australian Consumer Law (ACL).

The allegation was that Booktopia claimed consumers had no right to refunds on certain products such as digital content and eBooks under any circumstances.

"Consumers who buy digital products or buy products online have the same rights as those who shop in physical stores,” said then ACCC chair Rod Sims at the time.

"Australian consumers have a right to refund, repair or replacement for goods that do not meet their consumer guarantee rights which apply for a reasonable period, and no business can exclude, limit or modify those rights."

Eight months later, Booktopia has reached an agreement with the regulator to seek orders from the Federal Court to pay the pecuniary penalties in instalments over five years, and has made a provision of $4.95 million to reflect the present value of the proposed fine. The exact sum however will be at the discretion of the court, which is expected to hear the matter in December this year.

It is a provision that adds to a series of knocks for the Sydney-headquartered group that was ahead of its time for the online commerce revolution, and which against a backdrop of profitability struggles opted to unceremoniously oust founder and former CEO Tony Nash in July - a move revealed to have come at a cost of $1.3 million.

Today the group also reported depreciation costs of $2.8 million relating to property, plant and equipment as part of plans to move to a new distribution centre, as well as $1.7 million in fees connected to exploring M&A opportunities that never came to fruition.

In addition, a decision was made not to take on distribution services for Welbeck ANZ, a British publisher that Booktopia planned to invest $3 million into in a bid to bolster its publishing nous. An impairment of $2.1 million has been registered to account for a portion of its investment that is expected to be non-recoverable.

This does not represent an abandonment of its ties to Welbeck though, with that partnership and another with Zookal highlighted in today's results as strong points of differentiation in the retail environment.

The accumulation of these costs have combined with higher fulfilment expenses to soften performance for Booktopia. Even though it recorded a 7.5 per cent revenue rise to $240.8 million in FY22 with average order values up 6 per cent as well, underlying EBITDA fell by more than half to $6.2 million. There was a slight improvement at a statutory level, although the company still reported a loss of $15 million for the period.

Booktopia's acting chief executive officer Geoff Stalley, who was formerly the chief financial officer, said Booktopia remained Australia's number one choice for book buyers, noting his pride in how the team has responded to market conditions over the past 12 months.

"We have continued to grow our business across our key metrics, even compared to the extraordinary levels of activity in FY20 and FY21," said Stalley, whose former CFO role has now been filled by Fiona Levens, formerly the group chief financial controller, effective today.

"The last financial year also presented a number of challenges for our business as we dealt with Sydney’s lockdowns during the first half and the broader economic, supply chain and human resource challenges of the second half," Stalley said.

"We have taken decisive action to address rising costs and have developed a comprehensive strategy to return the business to sustainable, profitable growth over the next few years."