Kogan execs pocket $31m in share options as revenue plummets, but founder upbeat on turnaround

Kogan execs pocket $31m in share options as revenue plummets, but founder upbeat on turnaround

Under the retention package, founder Ruslan Kogan is entitled to 3.6 million options.

Melbourne-headquartered Kogan (ASX: KGN) saw its revenue dive by $229 million in FY23 and margins took a hit from a downward adjustment of inventory levels, but the outcome of an annual general meeting (AGM) three years ago means the e-commerce group's two executive directors will be receiving a financial boost.

In November 2020 when Kogan was riding high from a COVID-induced boom with its shares having reached a record of almost $25 a month earlier, shareholders voted to give six million long-term incentive shares to two directors, CEO and founder Ruslan Kogan and COO and CFO David Shafer.

The decision followed a detailed review by the board that found existing arrangements for the founder and Shafer were insufficient given the shareholder value they had been instrumental in creating since Kogan was listed in 2016, far outpacing the ASX 200 accumulation index. 

It was noted that their remuneration had been "substantially below" executives in peer companies, and there were no other long-term incentives in their employment packages.

The options were aimed at keeping the pair in their positions for three years, pertaining to the period from 12 May 2020 to the date of approval by the board for the FY23 financial report.

The package was met with contention at the time. Renowned shareholder activist Stephen Mayne sought a position on the board while taking aim at the way the group had been allocating shares, including the proposed retention options when Ruslan Kogan and David Shafer were "$90 million in the money and both founders have been recently selling down their holding".

Mayne's bid for the board was resoundingly rejected with 85 per cent of votes against his appointment, but the options for Ruslan Kogan and Shafer only got through by a whisker at 56.3 per cent.

Today the group has confirmed a non-cash equity-based compensation expense of $31.3 million driven by the award of these options at a strike price of $5.29.

The group today noted that its statutory loss after tax of $25.9 million for FY23 reflected the $31.3 million expense and the release of $3.9 million for the final tranche of payments for the Mighty Ape acquisition.

However, this does not mean that the company would have been profitable in the absence of these options. Adjusted net profit after tax, based on underlying performance and removing non-cash items, was still in the red with a $7.7 million loss.

Kogan reports a 31.9 per cent decline in revenue at $489.5 million for FY23, attributable to "soft market conditions caused by increasing cost-of-living pressures and consistent interest rate rises throughout the year".

Gross profit was down 26 per cent at $136.6 million due to both the decline in revenue and a lower margin in the first half when inventories were corrected to the prevailing trading conditions, down 57 per cent through FY23.

The group also highlights operational efficiency projects during the year that achieved savings across warehousing, marketing, consulting and administrative costs, thus helping to grow cash held from $31.2 million to $65.4 million at the end of FY23 - a period when Kogan fully repaid all its bank debt, spent $10 million in share buy-backs, expended another tranche for Mighty Ape, and acquired Brosa, one of Australia’s largest online luxury furniture retailers, for $1.5 million.

"Kogan.com was launched over 17 years ago with one key mission - to make the most in demand products more affordable and accessible," says Ruslan Kogan.

"That mission has never been more important for our customers than now. We are obsessed with delivering Aussies and Kiwis great value products to help them through these difficult times of increased cost-of-living pressures."

The founder says FY23 marked a significant milestone in the history of the business, with its platform-based sales - which refers to advertising,  seller fees from Kogan Marketplace, and its commission-based verticals like Kogan Mobile, Kogan Internet, Kogan Insurance and more - contributing to the majority of gross sales and profit for the first time.

"Importantly this has enabled us to deliver better quality earnings as we successfully transitioned into a higher margin, lower risk, platform and software based business while offering our customers increased competition and improved value," he says.

"We have set ourselves up for success in FY24 and beyond, and in doing so, we have ensured we’re in the best position possible to deliver exceptional value products and services to millions of customers."

He is confident for what lies ahead in FY24 after the group returned to to "sustained and increasing underlying profitability" in the second half of FY23.

"We expect the number of Kogan First subscribers to accelerate following the expansion of the program, continued growth in our verticals, a return to growth in Kogan Marketplace as well as our recently introduced advertising platform, the launch of a new vertical in New Zealand and continued improvement in our product division’s profitability," he says.

"These initiatives are expected to underpin continued growth in the business and support ongoing growth in shareholder value."

At the time of publication, KGN shares are down 14.19 per cent this morning at $4.90.

 

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