Kogan.com Ltd (KGN) Earnings Call Transcript & Summary

[Audio Gap] of the FY '21 result and FY '22 growth outlook. And then following which, we'll have an opportunity for you to have your questions answered. Please put your Q&A into the box at the bottom of the screen, and I will moderate. My name is Ronn Bechler. I will -- we will now commence the presentation, followed by the Q&A. Thank you.

Good morning, and welcome to Kogan.com's FY '21 results presentation. I'm Ruslan Kogan, Founder and CEO of Kogan.com. Joining me here today is David Shafer [Technical Difficulty] and Chief Operating Officer. David and I are proud to present Kogan.com's full year FY '21 results today. There is a lot...

Sorry. I'm just having some technical difficulties here. We'll -- I'll just switch across to the main screen. Just one second, please. Sorry for the technical difficulty. Just be with us.

Good morning, and welcome to Kogan.com's FY '21 results presentation. I'm Ruslan Kogan, Founder and CEO of Kogan.com. Joining me here today is David Shafer, Kogan.com's Chief Financial Officer and Chief Operating Officer. David and I are proud to present Kogan.com's full year FY '21 results today. There is a lot of information to share with you, and we will also be taking your questions after the presentation. Like us, you probably believe in the growing role e-commerce will play in the future of retail. It's what we've been living and breathing every single day since 2006. There are lots of highlights when we reflect over the last year. Some of these include Kogan.com turned 15 years young. We surpassed $1 billion in gross sales for the first time ever. We surged past 3 million active customers. We had record-breaking Black Friday sales. And we made our largest acquisition to accelerate our expansion into New Zealand. And those are just the highlights. It's been a challenging year for so many people around the country and the world. I'm proud that our team remained focused through difficult COVID-impacted operating conditions and found ways to support our customers when they needed our help most. While we recently celebrated our 15th birthday, we feel like we're just getting started. Over the next year, we'll be rolling out new and exciting projects to further support our loyal Kogan community with Kogan First membership rewards, new and improved delivery solutions and further enhancements to online shopping experiences. Our Kogan First membership rewards program was launched in the last quarter of FY '19. At 30 June, we had grown our Kogan First memberships to more than 120,000 subscribers who received an average of $105 of member benefits this financial year. Kogan First members have stronger loyalty and repeat purchase behavior than nonmembers because they get such a great deal. It's fast getting to the point where if you shop online with any frequency, you'd be crazy not to be a Kogan First member. We work extra hard to delight these members and will soon roll out the next phase of our rewards program with a medium-term goal of reaching 1 million Kogan First subscribers. This year, we navigated through the challenges that come with rapid growth. We are a data-driven business, and our decision to significantly invest in inventory and operating capacity was made based on forecast using the best available data at the time. Hindsight would prove otherwise, and it became apparent that we didn't put ourselves in an optimal position. We quickly responded by taking the necessary steps to rebalance inventory levels which impacted short-term margins in the second half. This process was a valuable learning for our business, and we have already made significant improvements to several systems and processes. And our inventory is approaching the right level for the business. The company expects improved operating leverage moving forward, especially since growth in sales has resumed so far in FY '22. Over the past 18 months, we have witnessed a massive swing towards the e-commerce retail revolution. Kogan.com has been ready and waiting for this for well over a decade. We look forward to continuing to delight our customers by making the most in-demand products and services more affordable and accessible. Turning to Slide 4. I will take you through some of the group's highlights for the year. The business surpassed $1 billion in gross sales for the first time ever. Exceptional growth across key metrics, revenue, gross profit, adjusted EBITDA and adjusted NPAT, were achieved over FY '21. More and more customers are choosing Kogan.com as we attract new customers to our platform. The trust customers place in Kogan.com supports the continued investment we make in our platform and our obsessive focus on improving customer value. We can see the number of repeat orders from these customers rapidly accelerating along with the number of repeat customers on the Kogan.com platform over the last 12 months. Kogan Marketplace was a standout performer during the year, nearly doubling its gross sales year-on-year. The continued growth of Kogan Marketplace demonstrates the scalability of the platform and the strong customer and seller engagement. Kogan Marketplace continues to expand its offering both in Australia and New Zealand with Kogan Marketplace New Zealand having launched in June 2021. This is a huge opportunity, and we're still in the very early days of Kogan Marketplace. We saw strong growth across the product divisions with exclusive brands continuing to contribute more than half of the business' gross profit. Lastly, newly acquired Mighty Ape is off to a strong start for the 7 months of trading since completion in December 2020. On Slide 5, you can see the strong performance and trajectory of the business. Given the volatility over the COVID period, the compound annual growth rate from FY '19 to FY '21 is a useful metric to consider the underlying growth of the business. Shortly, I will hand over to David, who will discuss these financial results with you in more detail. Slide 6 shows key financial metrics against comparative years and the track record of the business. We are proud to be able to cycle strong growth in our business and continue to produce solid results for our shareholders. As you can see from Slide 7, we're continually evolving the business to respond to the demands of our customers and to strengthen our competitive advantage. Our growing portfolio of businesses provides diversification of income, making us a more resilient business. We're always looking for new ways to delight our customers. While our customer numbers are growing, at this stage, our platform represents only around 3% of Australian online retail trade. We still believe that we've barely scratched the surface. We see many more opportunities. We remain 100% focused on giving the Kogan community access to the products and services that are in high demand and delivering better value more efficiently. I always receive questions about the virtual cycle in our business and why it's important. I'll take a moment to explain this unique aspect of the Kogan.com business, as outlined on Slide 8. Each step in the cycle continuously works towards our mission to make the most in-demand products and services more affordable and accessible. We have continued to build our active customer base, which now consists of over 3.2 million Kogan.com customers and over 700,000 Mighty Ape customers, bringing our total customers to almost 4 million. The Kogan community continues its strong growth. Because of the trust and reach of our platform and the size of our community, we become more attractive to potential suppliers, marketplace sellers and partners and can, in turn, continue to onboard new brands, new sellers and broaden our product offering. This then allows us to grow and gives us the commercial [ cloud ] to secure a broader offer and improved value for the Kogan community, which then further grows our active customer base who wants access to these ever-improving deals. We consistently have more to offer our customers across many aspects of their lives, from our price-leading products to mobile phone plans, holidays, insurance, Internet, home loans, cars, superannuation, credit cards and energy utilities. Over the next year, we'll be rolling out new projects to further support our loyal Kogan community with Kogan First membership rewards, improved delivery solutions and further enhancements to the online shopping experience. Turning to Slide 9. You can see that our loyal customers are choosing Kogan.com time and time again. The year has seen rapid growth in repeat customers and repeat orders. As many others have said, once you've been able to shop for virtually anything you need with a few clicks or taps while sitting on your couch, why would you go back to battling parking lots and crowds? With a huge range, great value and first-class service, Kogan.com and Mighty Ape are well poised to continue capturing market share while helping to grow the market. Gross profit per customer is expected to grow as our product range expands. Loyalty benefits improve and customers increasingly come to rely on Kogan.com for more of their shopping needs. Slide 10 is a very important slide. You can see that our platform and loyal customer base continue to drive most of our traffic. As mentioned throughout this presentation, we have invested heavily in marketing over the year, recording our largest marketing spend. Given our record marketing investment, the proportion of traffic from free sources reduced on last year. But importantly, free traffic sources still represent the vast majority of our visits to our websites, which demonstrates that satisfied customers continue to return to Kogan.com. This is a key metric for the platform we have built. We also managed to keep our spend per new active customer consistent with last year while significantly growing active customers. Turning to Slide 11. The success of Kogan Marketplace has resulted in the platform nearly doubling its gross sales year-on-year. If you're shopping online, what's the final thing you want in addition to price and speed? For most of us, it's range. There is a huge and growing range of millions of products available on Kogan Marketplace. This makes Kogan.com more relevant to more customers. The building and development of Kogan Marketplace has made the company even more scalable by enabling us to grow infinitely without ongoing investment in [indiscernible]. Kogan Marketplace will create huge benefits to both our customers and our shareholders as we build one of the major e-commerce platforms in Australia and New Zealand, with Kogan Marketplace New Zealand having launched in June 2021. The continued growth of Kogan Marketplace and the strong pipeline of sellers ready to be onboarded demonstrates the scalability of the platform and the strong customer and seller engagement achieved to date whilst also indicating the size of the opportunity as the Kogan Marketplace expands its offering, both in Australia and New Zealand. When I reflect on the exclusive brand strategy of our business, it takes me back to my garage or my parents' garage in 2006 to a much younger me and a vision to make the latest consumer products more affordable. More than 15 years on, we have built a loyal customer base that loves the quality and value of our exclusive brands. This is reflected in the ongoing growth you can see on Slide 12. It is this strong customer demand that enables us to continue to invest in and expand and improve our offering. Slide 13 gives you insight into the future of our business. Here, we've revealed our Kogan First subscriber numbers for the first time. As mentioned earlier, Kogan First is more than just free shipping. Kogan First members are offered exclusive deals on top of everyday discounts on our platform, Kogan First rewards credit and priority customer care. More savvy customers are now being attracted to our Kogan First loyalty program. We have nearly doubled the members in the current year compared to FY '20, bringing us to 120,000 Kogan First members at 30 June. This growth rate is exciting for our business with Kogan First members demonstrating stronger loyalty and repeat purchase behavior than nonmembers. The Kogan First members on average have received $105 of member benefits in FY '21. Smart shoppers are driving strong growth in the Kogan First subscriber base. In fact, by the end of July, our subscribers had grown to 147,000. Our medium-term goal is to reach 1 million Kogan First members, and the company is investing in the program to work towards this goal. Turning to Slide 14. Our team also works hard to ensure that the shopping experience we deliver is first-class. So if you look beyond the range, the price and the speed we are able to get products to customers, what is the actual shopping experience like on the website or the app? We have the pleasure of using the latest technology and feedback loops to improve the shopping experience for millions of shoppers and to make it pleasant and fast. We use machine learning and AI at Kogan to ensure that our customers get the tailored shopping experience they deserve. Our proprietary algorithms and technology means that we are communicating the right product or service to the right customer at the right time. We have also created proprietary systems to reduce fraud and optimize marketing spend, making us smarter and stronger as a business and leading to the best deals for our customers. David will now take you through the financial results in more detail.

Thank you, Ruslan. Throughout the instability of this financial year, our business navigated major supply chain and operational challenges to achieve our highest-ever gross sales of $1.179 billion, a proud achievement to celebrate our 15th birthday. Gross margin increased by 0.7 percentage points to 26.1%. Gross margin growth was impacted by promotional activity in the second half of the year in order to bring inventory to the right level relative to the size of our business. Variable costs reflect the increased volume in transactions and stockholdings throughout the year, which enabled us to achieve $1.179 billion in gross sales. Variable costs also include one-off logistics detention charges of $7.7 million, driven by one-off warehousing and supply chain interruptions from late 2020 to April 2021. These charges have almost never previously been incurred and were resolved in full prior to the financial year-end. Marketing costs reflect the significant investment made by the group in growing our platform, enabling us to grow Kogan.com active customers to well over 3 million. Our marketing investment reflects our confidence in the future of the business. We're laying the foundation for growth. We're building a large and growing brand and customer base. And that will hold us in good stead for years to come. In the second half of the year, the company placed a strong focus on promotional activity to support the rebalancing of inventory. Following the end of the second half, inventory is approaching the right level for the size of the business, and we expect improved operating leverage moving forward, especially since growth has accelerated over the start of FY '22. Net profit after tax and earnings per share were materially impacted by certain adjusting items in this financial year. Annexure 2 within the presentation provides further detail on the items impacting NPAT over the course of FY '21. For instance, people costs are inclusive of a provision for the likely payment of Mighty Ape tranche 3 and 4 purchase price installments. As part of the sale agreement, payment of tranches 3 and 4 are contingent on the Mighty Ape founder and CEO remaining with the business until the delivery of the financial year 2023 results. In line with the accounting standards, tranche 3 and 4 payments will be considered as compensation for postcombination services, and as such, treated as employee remuneration. The group will proportionately account for these expenses up until the respective payment dates. It's important to highlight for income tax purposes, the $12 million recognized as people cost is considered capital in nature, and therefore, no tax deduction is available. People costs are further inclusive of equity-based compensation expense, driven by the recent award of options after the company's AGM in November 2020. We're proud to have been there to support our customers when we were needed most, supplying critical products around the country during the height of the pandemic over the year and then donating more than $2.5 million of PPE or personal protective equipment to Australian charities. We continue to support Aussies and New Zealanders today, shipping millions of essential goods directly to their homes. We wanted to ensure adequate supply of PPE under any likely health scenario, and we ended up having to write down some PPE stock as a result. Adjusted EBITDA, adjusted NPAT and adjusted earnings per share, which excludes unrealized FX gains, equity-based compensation and other adjusting items, grew to $61.8 million, $42.9 million and $0.41 per share, respectively. Please refer to annexure 2 of this presentation for a detailed reconciliation of adjusting items. The newly acquired Mighty Ape team and operations are progressively being integrated into the Kogan group. For the 7 months to 30 June 2021, Mighty Ape's trading showed strong sales over the Christmas peak trading period and end of financial year sales period, too, contributing 9.8% of the group's overall gross profit. For a full 12-month period to 31 March 2021, which is Mighty Ape's financial year-end, we are happy to announce that Mighty Ape achieved the forecasted EBITDA as disclosed in the ASX announcement on the 3rd of December 2020. We have high hopes for the ongoing success of Mighty Ape, especially as we start listing Mighty Ape products on Kogan's websites and vice versa. We are working to optimize group purchasing decisions and enhance logistics and operational systems and other synergies over the course of FY '22. On to the key drivers of group FY '21 financial performance. Firstly, platform growth. As Ruslan mentioned, we're attracting more and more customers to our platform. Our strategic investment in marketing activities has enabled active customers to grow by 46.9% in the last 12 months. This comprised Kogan.com active customers that grew to 3.2 million and Mighty Ape active customers that grew to 764,000. As more of these savvy shoppers engage with our platform for the first time, our marketing investment is also expected to have ongoing long-term benefits to our business through repeat purchasing from these incremental active customers and growth in Kogan First memberships. The company's inventory level has been widely discussed in this presentation and in previous announcements. I'm proud of our team's prompt response to rebalance inventory levels. In the second half of the year, we placed a strong focus on promotional activity to support the rebalancing of inventory. Following the end of the second half, inventory is approaching the right level for the business, and we expect improved operating leverage moving forward. Exclusive Brands continue to achieve year-on-year revenue growth with an increase of 62.5% on FY '20 and a compound annual growth rate of 43.3% since FY 2009. As highlighted by Ruslan previously, given the volatility over the COVID period, the compound annual growth rate from FY '19 to FY '21 may be a useful metric to assess the underlying growth of the business over the medium term. Exclusive brands also achieved gross profit growth of 63.4% on FY '20 and a compound annual growth rate of 52.7% since FY '19, contributing 51.6% to the group's overall gross profit in FY '21. This was achieved through ongoing investment in Exclusive Brands inventory to broaden our range and meet consumer demand from the growing base of active customers. Third-Party Brands achieved growth in revenue and gross profit, delivering an increase of 18.9% and 10.1% on FY '20, respectively, and a compound annual growth rate of 7.9% and 7.7%, respectively, since FY '19. The success of Kogan Marketplace. Each reporting period since its launch in late FY '19, we have discussed the success of Kogan Marketplace. It has gone from strength to strength, increasing gross sales by 91% in FY '21 compared to FY '20. The platform continues to resonate with sellers, with Kogan Marketplace increasing the number of sellers significantly while there continues to be a strong pipeline of new sellers about to be onboarded. This is wonderful for competition, enabling many small, medium and large businesses to grow through the pandemic by appealing directly to Kogan's large community of active customers. Of course, it's also a real win for consumers as our selection grows rapidly, enabling more consumer choice. We are continually improving our proprietary marketplace platform, which will enable the business to achieve ongoing growth without a corresponding investment in inventory. The growth of Kogan Marketplace means that customers have more choice than ever, and we launched the Kogan Marketplace in New Zealand prior to the end of the financial year. Kogan First subscription revenue and GP increased 280.1% in FY '21 when compared to FY '20. Subscription revenues have been reported separately within this presentation, which I will take you through shortly. As mentioned earlier, we have a medium-term goal of reaching 1 million Kogan First members. Newly acquired Mighty Ape. As I discussed earlier, the newly acquired Mighty Ape team and operations are progressively integrating into the Kogan group. Trading for the 7 months to 30 June 2021 has showed strong sales over the peak Christmas trading period and the end of financial year sales period with revenue and gross profit of $80.2 million and $19.9 million, respectively. Investments in the future. Variable costs predominantly consist of warehousing and selling costs. The increase in selling costs was largely driven by growing volumes of transactions, while the increase in warehousing costs was driven by the significant inventory holding referred to earlier. Variable costs also include one-off logistics demurrage charges of $7.7 million. These charges were driven by one-off warehousing and supply chain interruptions occurring from late 2020 to April 2021. As mentioned earlier, this has almost never previously occurred, and it was resolved prior to the financial year-end. We also continue to invest in our team members in order to incentivize and align their interest with our shareholders. The business has made strategic investments in team members. LTIs or long-term incentives remain in place, and people costs have increased year-on-year as a result. FY '21 is also inclusive of equity-based compensation expenses driven by the recent award of options after the company's AGM in November 2020. These options have been valued at grant date and are being expensed on a straight-line basis in line with accounting standards and as described in the Notice of Meeting of the 2020 AGM. As previously mentioned, people costs includes $12 million as a provision for the likely payment of Mighty Ape tranche 3 and tranche 4 purchase price installments. On the next page, we can see the gross profit mix for the year. As referred to earlier, Exclusive Brands generated 51.6% of the group's overall gross profit and continues to deliver the largest gross profit contribution across the business. Third-party brands, Kogan Marketplace, Kogan Mobile and now Mighty Ape and Kogan First, are all material contributors to overall gross profit. Kogan First reflects subscription revenues. In just its second full year since it was launched in late FY '19, it is contributing 4.4% of overall gross profit, indicating the growth opportunity in Kogan First. Over the past 4 financial years, we have delivered growth in gross margin, while delivered margin after all logistics costs, contribution margin and adjusted EBITDA margin declined in FY '21 from the level seen in FY '20 and from our prior track record of growth. FY '21 operating leverage was impacted by high levels of inventory in the second half of the financial year, which incurred significant warehousing costs. This led the company to focus on strong promotions to bring inventory to the right level relative to the size of the business. We take our responsibilities to ensure every dollar we spend is working hard for the business very seriously. We continually review our overheads and investments, and we're always working hard to improve this efficiency. When we create innovations and launch new growth plans for the business, we focus on scalable projects that leverage the assets we have already built and can offer isometric returns. When we invest in building our assets, we track return on investment very carefully. Our quick response to rebalance inventory levels has been important and successful. Following the end of the second half, inventory is approaching the right level for the size of the business, and we expect improved operating leverage moving forward and back to the track record we delivered prior to the second half of FY '21. The group had a cash balance net of drawn debt of $12.8 million as at 30 June 2021. The group held $191.8 million of inventory in warehouse at the end of the period, of which more than 99% of Kogan.com inventory and 94% of Mighty Ape inventory in warehouse was aged less than 365 days. Total inventory was $227.9 million, which includes inventory in transit, and was an increase of $115 million held at the same time last year. Financial assets and financial liabilities reflect the unrealized FX gain or loss recognized against forward contracts, which is noncash. Trade and other payables reached a seasonal high following the end of the financial year peak sales period. Acquisition payables reflects the tranche 2 payment of the Mighty Ape acquisition amount. The group significantly expanded its inventory levels to respond to forecasted demand leading out of the first half of FY '21. The company invested in inventory and operational capacity to be able to fulfill the growth we expected, increasing our payments to suppliers. The company ended up in a high inventory position, which led the business to focus on strong promotions to bring inventory closer to the right level. The promotional activity to rightsize the inventory position, combined with higher warehousing costs and incurred demurrage, impacted cash flows from operating activities in the second half. Refer to annexure 2 in this presentation for further details on adjusting items. Overall, the group finished the period with a cash balance of $91.7 million. The group completed the tranche 1 payment of the Mighty Ape acquisition and completed the $20 million share purchase plan during the period. I'll now hand back to Ruslan to discuss our outlook and some further detail on what's to come in FY '22. Thank you.

Thanks, David. We're excited about the opportunities ahead as we continue to grow our platform and expand our portfolio. Turning to Slide 26. It's sometimes important to take stock and observe the opportunity available to us. The online retail market continues to grow rapidly in Australia, and Kogan.com has consistently taken market share. On top of that, most of you already know that online retail is in its infancy in Australia. NAB estimates that online retail is a mere 13.3% of total retail sales, far lower than comparable economies. But online retail is growing quickly, and Kogan.com is taking market share in that growing market. There remains a long runway ahead, and we're excited about the future. Kogan.com is a dynamic portfolio of businesses. There is always more that we can do and new ways that we can delight our loyal customers. July 2021, unaudited management accounts show that year-on-year gross sales grew by 4.6% above July 2020. Gross margin improved on June 2021 while still below July 2020. Adjusted EBITDA was $2.1 million, reflecting higher operating costs, which are progressively reducing. Inventory was $215.4 million, comprising of $177.9 million in warehouse and $37.5 million in transit. We have a strong balance sheet that supports the planned growth initiatives of the business, and Kogan First members were 147,000 at the end of July. Further to this, the first 18 days of August 2021 have shown a strong acceleration above July 2021 performance with gross sales 24.5% above July and gross profit 25% above July for the equivalent number of days in unaudited management accounts. Kogan.com has a strong balance sheet at 30 June 2021 and attractive short-term and long-term growth opportunities. To support the company with its growth plans, the Board has decided to conserve cash for business investment and growth purposes and has paused dividends and will not be declaring at FY '21 final dividend. Over the next financial year, we expect strong growth in Kogan First memberships heading towards the medium-term goal of 1 million members, ongoing growth in Exclusive Brands, further enhancement and development of Kogan Marketplace, and we expect to see benefits from the full integration of Mighty Ape flowing through. Also, to improve the company's capabilities, we anticipate potentially implementing logistics projects that would not require significant capital expenditure and can be supported by the company's balance sheet and improved operating leverage consistent with the company's long-term track record. Our Board is looking forward to the second half of the year with confidence. This concludes our presentation. David and I look forward to meeting with many of our shareholders over the coming days, virtually, of course. For those of you who have any questions or are interested in hearing more, please stay with us for the Q&A. Thank you for your interest in Kogan.com.

Thank you, Ruslan, and thank you, David. [Operator Instructions] We might start with a couple of questions from Aryan Norozi at UBS. First question, could you please talk through marketing price investment in July and August '21 versus second half of FY '21?

Sure. Thank you, Aryan, for your question. In terms of marketing investment, it's consistent with the second half of FY '21. And in terms of price investments, we are seeing margin improvement combined with an acceleration in sales in the July, August period. So the start of FY '22 has seen both revenue, sales improvement and margin improvement. So less price investment [ per your words ].

And how big of a benefit was Afterpay promotions for August sales? And did you participate last year?

Our approach with the various payment providers and payment options for our customers is to give our customers a lot of choice. And you can see that in our checkout. We have a lot of choice available to our customers, depending on how they want to pay. Afterpay is a very valued partner to Kogan and they do a great job, but we don't disclose any information about individual payment providers on our side.

Thanks, Ruslan. Are you able to provide some color around year-on-year movements for August comparable with the July commentary?

I think we already said that there's a return or a resumption of growth that includes Kogan.com growth, excluding Mighty Ape, in FY '22 and an acceleration of that growth. So that's what we've said and happy to repeat that now.

Okay. Question from [indiscernible]. How long do you think it will take to finish resolving all of the inventory issues?

We're approaching a very comfortable level of inventory in the business now. That's why we've repeated 3 or 4 times that inventory is approaching the right level. Of course, the acceleration in sales through August is really helping with that. And I think we're very close to that point now. So it will be interesting in the lead up to Christmas, if you believe some of the commentary about supply chain issues, which are on the way, that there might be the other types of issues going on where there isn't enough stock in the market. So it's entirely possible that we will be in a position where we won't have enough inventory again like last year. But of course, that remains to be seen. In terms of our comfort level, we aim for 3 to 4 months of stock, and we're basically in that hitting zone.

A couple of questions from Johannes Faul from Morningstar. How sticky are active customers? Of the customers Kogan had in FY '20, how many of those were still active in fiscal year 2021?

We've disclosed, and you can see information in our presentation about the repeat purchase behavior of customers. And the repeat purchase behavior, obviously, of active customers, which are customers recently acquired. And we're seeing some very healthy numbers there, and we're seeing, obviously, as a result of our product range and our platform and so on. But the biggest thing around that our Kogan First initiative. And I know we spoke about it a lot in our presentation, and it's a very important part of our business because they are the most loyal customers. And we have disclosed that they're obviously shopping a lot more. You can see that number growing very quickly. These are people who are showing commitment to Kogan, paying a subscription membership fee to say, "Hey, I want to be a Kogan First customer." And in turn, the business invests in those customers and gives them free shipping, additional discounts and so on. And it really is a win-win relationship. And that is a big focus of our business as outlined in our presentation.

Question from Owen Humphries from Canaccord. Is the dividend suspended indefinitely?

We called it a dividend pause. So we don't intend it to be suspended indefinitely. We've said that we think that we're going to be able to deliver a return to operating leverage, consistent with our track record over the last 4 years. So that's a no. It's not an indefinite suspension. It's a pause.

Another question from Johannes Faul Morningstar. And I quote Johannes, "Huge growth in Kogan First numbers in July 2021. What was it mainly driven by? Lockdowns, marketing benefits for Kogan First members, other things?"

Kogan First loyalty program is the most incredible loyalty program in the country. If you're going to do multiple purchases online, there is no better and more rewarding program out there. And we're just getting started in terms of the promotional activity around it. You would have barely seen us promoted anywhere. We've been building out a lot of the functionality, a lot of the features, a lot of the customer offering. And with our goal of hitting 1 million Kogan First subscribers in the near term, we expect to see growth there accelerate, and we will be doing everything we can as a business to grow that cohort of customers. But it's a combination of a lot of things. Most importantly, delivering on the offer to customers and ensuring that you've got the right product at the right price with speedy logistics. And that will ensure that it keeps winning new subscribers, and that's what we're seeing in the business.

Maybe just staying on the question of logistics given you raised this, Ruslan. Another question from Owen Humphries from Canaccord. Can you please elaborate on the logistics investment you're planning to make, the expected return on investment in reducing warehousing costs over the medium term?

The investment that we're talking about making is to potentially operate our own distribution center in combination with third-party logistics distribution centers, which we currently operate. And the way that we're potentially looking at doing that is a low CapEx model where we would potentially either lease or buy, build, sell, lease back a facility and operator facility. We believe, and modeling is showing, that we'll be able to reduce cost by doing that while also delivering ourselves a purpose-built solution, enabling us to do some improvements in our logistics over time and have more control over that part of our operation into the medium term.

A couple of questions from [ Michael ] [indiscernible] regard -- and then both in relation to the annexure 2 adjustments. The first one is, given you treated equity-based compensation, people payment as an adjustment to NPAT, does this mean to say that such equity-based payments will not occur in future periods?

So the equity-based compensation awards that were previously issued, obviously, can't be issued again. But there will continue to be awards to staff to retain and incentivize them consistent with other businesses. The reason why that they're part of an adjustment is because they're noncash, and that's also consistent with many other companies.

And the second question from [ Michael ] relates to -- with revenue and sales growth, at least in part, benefiting from a shift to online retailers as a result of the pandemic, would it not have been better -- a better representation of underlying performance to maintain the COVID-19 adjusted stock provision-related logistics costs?

So the COVID-related stock provision is exclusively in relation to PPE. So we went out and, as we described in the presentation, purchased a lot of PPE to ensure that we could be there for Australians in any scenario. And as at financial year-end, we've taken the opportunity to donate $2.5 million of PPE and to write down a significant amount of PPE. We've never purchased PPE before. It's not part of our normal purchasing activity. It's not a product we would ordinarily purchase. Did we get it right? Did we get it wrong? We'll leave others to judge. But it's clearly a one-off because it's not part of the normal operations of the business, and it's not continuing in that fashion. So we're not reordering that product and we're not reinvesting in that type of inventory. In terms of the logistics charges in annexure 2, we mentioned that the $7.7 million that has been -- determined an adjustment relates to detention or demurrage charges. So what that means is goods was sitting with our shipping providers in containers at the docks, and we were unable to remove the containers from the yards within the specified period of time, which incurs a fine per day. The reason why we weren't able to remove the warehouse -- the containers from the yard is because all of our warehouses were full. We've never dealt with this issue before. It's caused by a combination of events we've spoken about over the last 6 months, and we resolved the issue in full by April. So we believe it is a one-off. Notwithstanding that -- and there's another question here in relation to logistics from an anonymous attendee other than the demurrage charges. So notwithstanding the demurrage charges, logistics costs were very high, and we haven't adjusted the unusually high level of logistics costs. So that's part of the actual variable costs that are included in these results. And that's driven by the high inventory holding, including the requirement that we spin up a heap of warehouses to ensure that we can get our containers off the shipping yards as quickly as possible. Now that is naturally working its way down, which will help improve our operating leverage and reduce our variable costs moving forward. So I hope that explains the answer to the question.