Kogan shoots down risks associated with GST changes
CEO Ruslan Kogan confident as the retailer debuts IPO.
Kogan.com's debut on the Australian Securities Exchange (ASX) this week has raised concerns that tax changes on imported goods could result in financial challenges.
The online retailer generated a $50 million initial public offering (IPO), listing with a market capitalisation of $168 million.
However, industry sources told the AFR Kogan hasn't properly addressed the potential risks associated with looming GST policy changes.
These sources claim Kogan is a low-margin business and even modest declines in international sales could hurt earnings.
In the past Aussie shoppers have been exempt from paying GST on anything imported from overseas which costs less than $1,000. Why? The cost of collecting the tax was determined to be higher than the actual revenue it would bring in.
But as of 1 July 2017, this will change.
The low-value import threshold will be scrapped and GST will be applied to all purchases.
In its IPO prospectus Kogan says third party branded international products are a highly cash generative business segment. In particular, they are a source of working capital funding which can be redeployed into Kogan.com's private label product range.
30% of all gross sales in the first half FY2016 were attributed to third party branded international products, according to the AFR.
Despite this, CEO Ruslan Kogan told the AFR that changes to the GST would only affect "one area of the business that has the slowest forecast growth" and the lowest margins.
"The investors we spoke to were more focused on the fact that we have been growing for 10 years and we have been EBITDA [earnings before interest, tax, depreciation and amortisation] positive for 10 years," he said.
Currently Kogan.com's prices on international products are up to 30% cheaper than conventional Aussie retailers, however, the elimination of the GST-free threshold may tighten the gap to around 15%-20%.
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