Kogan.com Ltd (KGN) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to Kogan.com's 2020 Annual General Meeting. My name is Greg Ridder, and I have the privilege of being the Chairman of our company and also of today's meeting. Due to the COVID-19 pandemic and result in public health concerns leading to restrictions on public gatherings, this meeting is being held virtually. It is the company's first virtual Annual General Meeting, and we will attempt to make the experience a pleasant one. As it is now 10 a.m., and a quorum is present, I declare the meeting open. I'm joined today by my fellow Board members, Ruslan Kogan, Founder, CEO and Executive Director; David Shafer, CFO, COO and Executive Director; and Harry Debney, Independent Non-Executive Director. Also in attendance today, we have Mark Licciardo, our company's Secretary; and Simon Dubois from KPMG, the company's auditor. Mr. Dubois will be available to answer questions on the conduct of the audit and the audit report as well as the accounting policies of the company for the period ended June 30, 2020. Representatives from Computershare, our share registry provider, are also in attendance. The notice of this meeting and explanatory memorandum was made available to all members, and I propose that the Notice of Meeting will be taken as read. Today, we will walk you through an outline of our strategy and performance. We will then conduct the formal business of the meeting. Voting at this meeting will be conducted by way of a poll. For those shareholders who have not already voted prior to the meeting, instructions on how to lodge your vote are now being displayed on the screen. Voting on the resolutions is now open. [Voting]

You can vote anytime during the proceedings until I declare the poll voting closed. You can also change your vote at any time throughout the proceedings. I will give you a clear prompt later in the meeting to warn of the closing voting. We will also provide the opportunity for questions as you are attending online. [Operator Instructions] If you have any difficulties voting or submitting questions, please consult the Lumi user guide, which can be accessed within the platform, linked from within your Notice of Meeting or as available on Kogan.com's investor website. Let's look at the year in review. I will commence with some highlights of financial year 2020, of which there are many. Following this, I will pass over to Ruslan Kogan, Founder, CEO and Executive Director, for a more detailed review and outline of your company's strategy, together with some comments on our start to the new financial year and recent trading. Through the extraordinary challenges, disruption and difficulty that financial year 2020 has imposed on our country and economy as a result of drought, bushfires and pandemic, our business has continued to deliver. We have been there to support our customers throughout these crises, and are being relied upon to bring millions of much-needed consumer goods into the homes of Australians. In fact, 1 in 8 adult Australians has purchased goods from Kogan.com over the last 12 months, and we are incredibly proud to have provided a high standard of service to so many people. I applaud our executive leadership and management team for their laser-like attention and rapid execution in recognizing and overcoming the many hurdles financial year 2020 raised, and in successfully exploring several new growth opportunities. In FY '20, the company grew the Exclusive Brands product division, achieving 26.4% growth in revenue on FY '19. Third-party Brands stabilized and Kogan Marketplace is showing its true potential, accelerating gross sales by 71.2% in the second half of FY '20 compared to the first half of FY '20. Financial year 2020 saw the purchase of Matt Blatt for $4.4 million, launching the brand as an online-only offering and combining Matt Blatt's decades old brand and industry expertise with our technology, systems and infrastructure to deliver a market-leading furniture and homewares offering. T. He results the team has achieved in FY '20 are testament to the tremendous commitment and passion of everyone at Kogan.com as well as to the strategic vision of the executive team led by Ruslan and David. As always, our team delivered fantastic value to our customers with best-in-market offers and services. The year ahead is shaping to be transformational, for both our business and the retail industry, as we witnessed a rapid acceleration of the evolution pollution away from bricks and mortar stores to digital platforms like Kogan.com. We look forward to continuing to deliver our long-term strategy for the benefit of our customers, team members and you, our shareholders, into FY '21 and beyond. Kogan.com delivered a strong result in financial year 2020: with gross sales of $768.9 million, up 39.3% on FY '19; adjusted EBITDA of $49.7 million, up 57.6% on FY '19; and net profit after tax of $26.8 million, up 55.9% on FY '19. Further, our company ended the year with a strong balance sheet, including $146.7 million in cash, excluding $20 million of proceeds from the Share Purchase Plan, which was completed in July 2020, and an undrawn bank facility of $30 million. Following the strong results of financial year 2020, the Board was pleased to declare total dividends of $0.21 per share fully franked in respect of the full financial year. This represents year-on-year growth of 46.9%, while earnings per share grew 61.1% on FY '19 to $0.29 per share. In terms of total shareholder return, the ultimate measure of the value we are providing to you, our shareholders, the company has achieved exceptional outperformance since the company's IPO in July 2016. From IPO up to 30th of September 2020, over 4 years and 3 months, our business has delivered a total shareholder return of 1,138% compared to the ASX200 return of 33%. Indeed, in the year since we came together at the 2019 AGM until now, we have delivered a TSR of some 162%. Your Board believes that total shareholder return over the long term is the ultimate measure of your Board and our executive team. As a Board, we see enormous opportunity for further growth in our existing businesses and in the expansion of our portfolio, including potential M&A. We anticipate further growth in our Exclusive Brands portfolio business, continued scaling of the Kogan Marketplace and continued expansion of our New Verticals. We also have a stronger balance sheet than ever before, which puts us in a very strong position to consider selective M&A opportunities. Ruslan will discuss these great opportunities further in his review. From a Board perspective, our team at Kogan.com never fails to deliver on bringing our long-term strategy to life for the benefit of our customers and shareholders, and we look forward to delivering these strategies into financial year 2021 and beyond. Throughout FY '20, the Kogan.com team has worked tirelessly to ensure our customers received truly incredible offers on the products and services they need most. Our team is committed to the long-term strategy of the business, and the Board has maintained the long-term incentive arrangements for members of the Kogan.com management team, other than the Executive Directors, to attract, reward and retain key team members at various levels of the business. As you know, items on today's agenda relate to the long-term incentive arrangements for the Executive Directors who, otherwise, have not received any LTI awards in the 4 years since IPO, and will not receive any other form of LTI over the coming 3 years. On behalf of the Board, I would like to thank each and every one of our amazing team members for their hard work and contribution in delivering yet another incredible year. I would now like to invite Ruslan Kogan, Founder, CEO and Executive Director of Kogan.com, to address the meeting and provide a more comprehensive review of the business during the 2020 financial year and an update on trading for the start of financial year 2021.

Thank you, Chairman. I'm delighted to address fellow shareholders at our 2020 virtual Annual General Meeting. We are grateful for the continued support from our shareholders and appreciate you taking the time today. Since we met at last year's AGM, the Kogan.com team has continued to delight our customers with an incredible digital experience that delivers value across many of the most important industries. We delivered strong growth in the business in the midst of an extremely turbulent and challenging period for the world, the country and the company. We have built a diversified and resilient business over many years, which has enabled us to help Australians in their time of need. Throughout the crisis, our team mobilized all our resources to ensure our supply chains remained open, our logistics operation continued functioning, customer service centers continued providing leading service and in-demand products remained available for speedy delivery. Our team stood shoulder to shoulder to support our customers during a time they needed us most. Our businesses has thrived through adversity, as years of preparation met opportunity. This resulted in our largest ever growth in gross sales, gross profit and adjusted EBITDA. We achieved this while heavily investing in our platform and in marketing. We significantly grew our brand and Active Customer base, which is expected to have ongoing long-term benefits for our business. The year had many highlights. Some of these include that gross sales outperformed the prior year by 39.3% to $768.9 million. Revenue, gross profit, adjusted EBITDA and NPAT outperformed the prior year by 13.5%, 39.6%, 57.6% and 59 -- and 55.9%, respectively. Earnings per share grew 61.1% on FY '19 to $0.29 per share for FY '20. Active Customers grew by 35.7% year-on-year, totaling just under 2.2 million Active Customers as of the end of the financial year. Exclusive Brands revenue and gross profit grew by 26.4% and 43.7%, respectively, contributing 51.3% of overall gross profit of the business. Kogan Marketplace was a standout performer during the year, exceeding all our expectations, increasing its gross sales by 71.2% in the second half of FY '20 compared to the first half of the financial year. EBITDA of $46.5 million, was up $16.4 million on FY '19. We ended the year with a strong balance sheet, with cash of $146.7 million and an undrawn bank debt facility of $30 million at 30 June 2020. We acquired an integrated Matt Blatt, one of Australia's premier furniture and homewares brands and a pioneer of the online furniture industry in Australia. In July, we successfully completed an institutional placement for $100 million, which will allow the business to capitalize on opportunities and accelerate growth. These key highlights are the result of meticulous planning and execution by the Kogan.com team during the year, with strong momentum moving into the financial year 2021. We are a customer-obsessed e-commerce company that strives to deliver better value for our customers across the products and services they need most. 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 and supply chains, making us a more resilient business. We're always looking for new ways to delight our customers. In FY '20, just under 2.2 million customers have transacted with our retail platform. While this is a great number and one of the most impressive in the industry, at this stage, our platform represents around only 3% of the Australian online retail trade. We're just getting started. We still believe that we've barely scratched the surface. We're seeing 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 value better and more efficiently. As mentioned earlier, we also acquired Matt Blatt in the second half of the financial year, growing our stable of iconic retail channels to now include Dick Smith, Matt Blatt and Kogan.com. On Slide 10, we talk about the Kogan Marketplace, and the Kogan Marketplace was a standout performer during the year, exceeding all of our expectations, increasing its gross sales by 71.2% in the second half of FY '20 compared to the first half of the financial year. We have broadened the product range available on Kogan.com to millions of items, making Kogan.com more relevant to more customers. Now you can search for almost anything and expect to find it on Kogan.com. Importantly, the emergence of Kogan Marketplace has made the company even more scalable by enabling us to grow infinitely without ongoing investment in inventory. In the long term, 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. If we turn to Slide 11 and focus on our Exclusive Brands strategy, our Exclusive Brands product division delivered 34.1% revenue growth year-on-year in the second half of FY '20. This was achieved through the growth of our platform, our large Active Customer base and development of proprietary systems and processes that enable us to quickly detect changing consumer demand and move quickly to service that demand. With almost 15 years' experience, we have built a loyal customer base that recognizes the quality and value of our Exclusive Brands. This strong customer demand enables us to continue to invest in and expand our range. As our long-term shareholders know, we make data-driven decisions relating to how we deploy your capital on inventory. We don't use gut feel of guesses when we make decisions about selecting the right inventory to service customer demand. We often joke internally about being a statistics business masquerading as an e-commerce platform. The Kogan First community of members grew exceptionally during the second half, and importantly, these loyal members on average purchase much more frequently. This demonstrates loyalty to the platform, and also is evidence of the significant savings available to Kogan First subscribers. We see the Kogan First program as a key driver of continued growth of our business. Over the past 4 years, we have delivered growth in gross margin, contribution margin, EBITDA margin and adjusted EBITDA margin. We continue to deliver significant projects to grow our products and services offering, while heavily investing in our platform and in our brand. We are proud to have delivered the greatest ever marketing investment into building the business, while also delivering the greatest ever profitability 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 conceive our growth plans for the business, we focus on scalable projects that leverage the assets we have already built. And when we invest in building our assets, we track return on our investment of your shareholder funds very carefully. We are proud to be able to present this slide today and illustrate the return we have created for our shareholders. We have continued to produce very attractive returns for our shareholders since our IPO in July 2016. As we execute on our long-term strategy and grow our business, we have delivered total shareholder returns of 1,138% from IPO to September 30, 2020. This is a significant outperformance relative to the ASX200 or the ASX300 and the Small Ordinaries Index, each of which delivered a return of around 30% to 35% over that same period. Our portfolio of businesses provides huge opportunities for growth, as you can see from the market size data. We are proud to have partnered with industry-leading providers for our New Verticals and to be able to bring more and more compelling offerings to the Kogan Community. Our ambition to achieve more than 1% market share across each New Vertical -- our ambition is to achieve 1% market share across each New Vertical, and we are working hard to achieve this with our existing verticals. There is a huge market potential for growth. This page also illustrates the diversification of our income and the future potential. For each New Vertical, Kogan.com provides the marketing services, branding and customer acquisition, while our Tier 1 partners provide most of the underlying service. This setup leverages our strengths and those of our partners to benefit our customers. We are leveraging our platform and business assets to form these partnerships, which, in turn, allows us to present our customers with great value offers in a wide array of services. Kogan Marketplace is a relatively new entrant on this slide, and we anticipate being in a position to add an additional tick next to Kogan Marketplace in the not-too-distant future. Our team's amazing work continues to be recognized, winning a number of prestigious awards in FY '20. Over the past 12 months, we achieved a three-peat of the people's Choice award at the Australia Post Online Retail Industry Awards and won more awards for Kogan Homeloans, Kogan Energy, Kogan Mobile and Kogan Internet. The continued recognition received from our customers and from industry experts reinforces the success of our strategy and our team's obsession with delighting customers. We'll now turn to Slide 17 for current trading and the November update. Turning now to year-to-date, that's July 2020 through to October 2020 trading. Based on unaudited management accounts, we are proud to have delivered another strong period of growth in gross sales, gross profit and adjusted EBITDA. For the financial year-to-date, gross profit has grown faster than gross sales, driven by strong performance from our product divisions and Kogan Marketplace. Both gross sales and gross profit outperformed the equivalent prior year by 99.8% and 131.7%, respectively, highlighting the scalability of Kogan.com's platform and business model. Adjusted EBITDA grew a notable 268.8% on prior year, whilst we have also made a series of our largest ever monthly marketing investments into building our customer base and brand, which we expect to have long-term benefits for the company. While the first 4 months of the financial year are exhibiting strong growth metrics, we know that the business end of the year is ahead of us with the Christmas trading period of November and December. These are usually the most important trading months of the year for us. Finally, I would like to echo Greg's sentiment and thank the incredibly hard working and dedicated team we have at Kogan.com. What we have been able to achieve and are currently achieving would not be possible without their relentless pursuit of excellence, alignment in values and obsession with delighting our customers. It's this obsession to delight our customers while focusing on digital efficiency and innovation that makes this business possible. Several of our senior team are viewing online today. I know many of you have enjoyed our previous AGMs, where you've got to talk to many of our team after the formalities, and I hope that we can do that all again very, very soon. It's always interesting having to read a script that was uploaded to the ASX just prior at AGMs. It's much better to have a conversation with our shareholders, and this new digital environment adds more complexities to that, and I can't wait to be in a room with not only our team, but also our shareholders again. I'd now like to also open up for any operational questions that our shareholders may have.

We have a few questions that have been provided by shareholders, and I'll work through them and announce the shareholders' name and the question for each one. A question from Mr. Mariano Costello and Ms. Jacquelyn N. Costello, I do not begrudge our extraordinary CEO and CFO being well-compensated. They have worked tirelessly and have delivered outstanding results. However, rewards should flow from transparent prearranged incentive plans. Otherwise, shareholders are left feeling are med to be taken advantage of rather than genuine partners in a great enterprise. I want to feel proud of the company that I'm a part owner of Kogan.com -- I'm proud owner of, sorry, Kogan.com is close to being a great company. I put to you that remuneration shenanigans don't belong in a great company and don't help the brand. What say you?

I suppose, I should come back to this one. It could well be, Mr. Costello, that there's been a distraction through media and other areas of focus. However, I draw everyone's attention to the announcement that was made in May with regard to the options, which did describe the quantum for each of our executives, the strike price, the strike methodology, the duration and the retention hurdles required. Essentially, they are all the key elements. Again, in our Notice of Meeting available to all shareholders and the explanatory memorandum, we went to great depths to explain that, including large amounts of extract from an independent expert's report, which validated where we were with on all of this. Indeed, now we are all here. Any shareholder is available indeed to vote on them, which would be an item of business with the resolution.

Mr. Chairman, there's other questions relating to specific items. So I might actually, sorry, hold them back when we get to those specific items, and I'll just cover some other general questions that are here. Another question from Mr. Mariano and Ms. Jacquelyn N. Costello. Given Kogan.com is still a capital-hungry high-growth stage in its life and only recently sold capital from the market, does it make sense to have a dividend at this stage?

That's a very good question. What I would say is, if you listen closely, and indeed in the CEO's response to -- address today, within our shift to marketplace, we work on a capital lean model, where we're not investing in inventory, first of all. That is expanding our product range, our revenue suite and our ability to serve and delight customers without a commensurate working capital investment. Secondly, we have this great benefit of being in the e-commerce business, where our customers pay for the items they purchase before we even elect to ship. So cash flow is particularly good in that regard. We continue to invest in holding the right levels of inventory to meet future demands and take opportunities as we see fit. If you recall our capital raising, 100% of our focus in raising that $100 million was all about future opportunities. Now that's not a working capital hunger. That might be an M&A hunger, and we're excited about what potential might reside there. And again, we've referred to that potential in the addresses today. We look forward to building out the product suite, the number of SKUs and the opportunities for Australians to take advantage of Kogan and all its brands. It takes a little bit of money to do that, but we're actually quite a light capital business. And indeed, you will note, we have a $30 million current debt facility, which is entirely undrawn.

Thank you, Mr. Chairman. I have a question here from Mr. Stephen David Mayne. Chairman, will you undertake to make a full audio and video recording of today's AGM available on the Kogan.com website, along with the full transcript of the proceedings, so the 13,000-plus shareholders who aren't attending today's virtual AGM can easily access a full record of the debate?

This meeting is indeed being recorded. I think it's worth noting that every shareholder has received the Notice of Meeting, has received links to this meeting and has every opportunity to both join and to ask questions. Beyond that, I'd take the question under advisement. I think we'd like to look at what's general practice amongst companies in terms of what is published. Certainly, there is an upload of all of the transcript of our addresses to the ASX, and is available on the regular websites.

Thank you. A question from Mr. Byron Riley Dexter. This is more, I guess, an AGM process question. What time will voting take place?

Voting is available throughout -- in my initial commentary, I had noted that voting is open, and it will be open until the end of proceedings, and then there'll be a 2 minute waiting period for us to give people their final opportunities to launch their votes. So it's open right now. I believe the links on Lumi should describe how that happens. I think it's been presented in some of the slides or maybe it comes up in -- as we deal with the resolutions.

Another question from Mr. Stephen David Mayne. Could the Chairman and representatives from KPMG and Computershare comment on what independent betting there was on the vote counting for today's AGM? Was the Chairman or any Kogan reps able to access information on how institutions had voted, such that this wasn't a secret ballot? Also, how many votes were excluded from the account and for what reason?

Computershare run all of this. Highly [ reccable ] company to this for so many on the ASX. Their counts, as they stand now, will be projected on slides from when voting closed, I believe, at 10 a.m. on Wednesday for those investors. They still have the opportunity to vary their votes during this meeting. So we will see what those are. Obviously, we as individuals, can't go in and invade the processes of Computershare. So if our company's Secretary wants to add anything more, I'm more than delighted to hear what that might be. But I think that's the -- should just be looked at as a very clear arm's length relationship properly done. I don't want to bring any Trumpism into clearing how that might be queried.

I think you've handled it adequately, Chairman. I don't have anything further to add.

Thank you.

Thank you. And next question from the Australian Shareholders' Association. This is from Brett Morris from the ASA. There's a couple of questions relating to items that are coming up, which I'll wait to ask as appropriate when those items are considered. The first question is, why did the Board find it necessary to offer a $30,000 SPP, share purchase plan, to retail shareholders and then proceed to do such a large-scale back, where there was a $115 million application from 6,793 shareholders that will scaled back to $20 million?

That's a nice question. You will recall, we went to market for the SPP for $15 million. We are conscious of keeping the relative weighting of retail shareholders to institutional in assemblance of order. So we raised $100 million from institutions on the 11th of June. We then opened this up -- the SPP up to everyone else at the same price, which happened to be $11.45. So it was, one, about maintaining that proportionality on our register. But really, the difference was we were raising for a specific view of the future and not asking for, if you like, lazy money on our balance sheet, and raising at $11.45 was very interesting because unlike institutional investors who had to make a decision within 24 or 48 hours and had, let's say, a high degree of risk about which direction share prices may go subsequent. SPP applicants had the ability to make a choice right up until closing on the 8th of July. At the 8th of July, our share price was $16.46. I'm absolutely delighted that our smaller shareholders had an absolute starting price gain of $5.01 or 44% return with no risk because they knew what the share price was when they had to put the check in. That may explain the heavy oversubscription. For us to continue to take money at $11.45 when the rest of the prices so much further without a specific purpose in which to use it would not have been a necessary action.

Thank you. We have a follow-up statement from the ASA, thanking the Chairman for meeting with them before the AGM. I've got one final question in relation to general business. And then the rest, either directly or indirectly tie into specific resolution. So I'll ask this final question on general business. It's from Kataria Investments PTY Ltd. Please confirm if Kogan is considering to take this model overseas, perhaps the U.S., India, et cetera?

I'll leave that for Ruslan. Finally, he got one.

Thank you, Mr. Chairman. And thank you, [indiscernible]. Yes, look, in terms of our business, we do have some overseas operations in New Zealand, and that is part of our strategy. But in general, I think, the huge opportunity for this company is in Australia. If we look at where we are and all the success that we've had so far, would put us at about 3% of the online retail market in Australia, and online retail represents roughly 10% of retail in Australia. So that puts us at 0.3% of overall retail. So in terms of opportunities, that is a huge runway ahead of us. And it wouldn't be right to divert our attention anywhere else now, while there's this huge retail revolution taking place. So our focus in the near to medium-term is the Australian market where retail is changing, the huge opportunity exists. And while we do have a very strong brand and a great operation here, there is huge runway for us to expand that.

Thank you, Ruslan. Mr. Chairman, there are no further questions on general business.

Okay. If that's the case, I'd like to turn to the resolutions. But before doing so, I'd just like to address a couple of things. So before turning to the formal business of today's meeting, I'd like to reflect on some key learnings and observations over, in particular, the past 4 weeks in the lead up to the AGM. Earlier this calendar year, Kogan.com was a small-cap stock, with the marketization of around $500 million. Since then, in a very short period, we have shifted to mid-cap status with the market capitalization in excess of $2 billion. Today, Kogan.com is a top 150 company on the ASX by market capitalization. And while we may not -- excuse me. And while we have not been admitted to the ASX200 Index yet, the large industry superfunds, institutional fund managers and proxy advisory firms have treated us as if we were already there. It is important that we constructively engage with our shareholders and their proxy advisers, and I look forward to building on the recent engagement program we've undertaken for this AGM. I have enjoyed meeting most of our large shareholders over the past 4 weeks, engaging with them on various issues, learning from them, and hopefully also helping them better understand our business and the exciting growth opportunities we are executing on under the leadership of Ruslan and David. What became clear from the meetings I had was that we should have held an Extraordinary General Meeting in May when we announced the grant of retention options to Ruslan and David. At that time, shareholders could only have dreamed that the value created for shareholders would be where it is today. With the benefit of hindsight, I think that had the EGM been held shortly after announcement of the retention options, proxy advisers and media would not have been distracted by the recent gains in share price when considering the value of the executive awards at the time they were announced. Also, the retention options do not vest until 2023 financial results are delivered. Who knows what our share price will be in 3 years' time. Hopefully, much higher than it is today, if Ruslan and David can successfully execute on the growth strategy we are positioned for. All shareholders will be happy if that is achieved. And that is why the retention options are aligned with the ultimate hurdle of total shareholder return over the long term. Based on proxies received prior to this meeting on the question of the retention options, it has become clear that there are 2 very distinct groups of shareholders. It is great to have the support of most of our largest shareholders, many of whom invested in the IPO or soon after, and have seen the shareholder value generated by exceptional strategy and execution of our management team. It is also great to have the support of many of our longest investors. The remainder, some of who have been quite vocal in their objections, tended to be recent entrants on the register, including many who participated in or even entered the register via our substantially oversubscribed placement in June, knowing about the retention options that have been announced in May. It now seems that the quiet majority group in the main, representing long-term shareholders of our company, we're very supportive of the granting of the retention options. They, like your Board, believe that having Ruslan and David, in my view, the 2 best e-commerce operators in Australia, retained, motivated and aligned to drive another 3.5 years of growth is in the best interests of all shareholders, especially given their achievements over the past 14 years since establishing Kogan.com and over the past 4 years as a listed company. Based on proxies received to date, the vote on adopting the Remuneration Report is also interesting. For a company that delivered strong returns in FY' 20, was right at the top of performance relative to peers and ASX200 companies. It did not pay any LTI to executive directors, and had executive directors with their pay at the bottom of the peer set, many of whom didn't generate positive returns to shareholders at all. It was perplexing to see proxy advisers recommend a vote against the adoption of the Remuneration Report and for many superfunds to follow the proxy advisers' recommendations. While the Remuneration Report is retrospective, it appears many of the votes received are prospective, and we will receive a strike. Albeit that, based on the proxies, it does seem that a majority of shareholders are in favor of adopting the report. Irrespective of how shareholders vote in today's resolutions, your Board remains squarely focused on delivering our long-term plan and delivering continued strong returns on your capital invested. As Chairman, I am here to represent all shareholders, and will continue to do so for the long-term benefit of our company. Lastly, as our company grows and we head for the ASX200, we are not only looking to find better ways to engage with our shareholders and proxy advisers, we are also looking to bolster our Board with an additional independent Director. We are in the midst of a search process that has been ongoing for several months with the leading independent search firm advising. We expect to appoint an additional independent Director within the next few months. I will now turn to the formal business of today's meeting. There are 6 items of business for the AGM today. As set out in the Notice of Meeting, 5 of these items are to be voted on. Proxy voting received prior to the meeting will be shown on the screen for each resolution dealt with today. Voting on the resolutions is currently open, and you can vote at any time until I declare the voting closed. Results won't be announced after each resolution. Rather, they will be released to the ASX after the conclusion of the meeting. The voting icon is available within the navigation bar. Once you click on this, resolutions will appear on your screen, along with the for, against and abstain voting options. Simply select one of these options to cast your vote. When voting is closed, your final voting selection will be recorded. If you have any difficulties, please refer to the User Guide, which can be accessed through the platform. I, again, confirm that, as stated in the Notice of Meeting, I and any Chair of this meeting propose to vote proxies left to the discretion of the Chairman in favor of items 2, 3, 5.1, 5.2 and 6 and against Item 4 in today's items of business. Shareholders, validly appointed proxies and corporate representatives will be given the ability to vote upon registration and also to ask questions at today's Annual General Meeting. [Operator Instructions] I note that Item 2, Adoption of the Remuneration Report; Item 5, Approval of Grant of Options to Directors; and Item 6, Ratification of Prior Issue of Shares under the Placement, are subject to voting exclusions as outlined in the Notice of Meeting. The first item of business is to receive and consider the company's Annual Financial Report, together with the directors' and auditor's reports for the period ended 30th June 2020. Are there any questions or comments in relation to the directors and auditors reports? As noted earlier, we have our auditor present, who will be providing responses to your pre-submitted questions as stated in the Notice of Meeting.

Thank you, Mr. Chairman. There's a question from -- well, there's a few questions from Stephen, David Mayne. But whilst he's noted that they relate to Item 1, they relate to items 5.1 and 5.2. There are no other questions that have been submitted in relation to Item 1, Mr. Chairman?

Thanks you. You could hold those questions over until items 5.1 and 5.2. We'll be more than happy to deal with them then. There being no questions, we come to the items of business for which a vote is required. Details of the proxy votes will be displayed on the screen after all resolutions are being considered. As previously stated and pursuant to the fourth addition Corporate Governance Principles and Recommendations, all votes will be taken on a poll. The second item of business and our first resolution to be voted on today relates to the adoption of the 2020 Remuneration Report. Proxy votes received are displayed on the screen now. Are there any questions or comments in relation to this item?

Yes, Mr. Chairman, there are. So if you just bear with me, I'm just trying to work through these questions. So the first question from Mr. Stephen David Mayne. Having described the proxy votes on the Rem Report is having triggered a first strike. And also suggested there was a big protest on the proposed options grant. Could the Chairman please display a slide detailing the proxy votes on all resolutions before we get into the debate on Item 2 today? ASX Chair, Rick Holliday-Smith, disclosed the proxies before the Cochlear AGM and both after paying Slater & Gordon did the same this week. It's only fair that all shareholders and board candidates have the same voting information as the directors going into this important debate.

We have a format by which we're running the meeting, and we are addressing each item in sequence. I'm very comfortable that all shareholders have the opportunity right now to vote, to alter their vote or to amend as they see fit as these unwind. So I'm intending to stay with the process we have in place now.

Thank you. I'm just working through these questions, pardon me. The remainder of the questions do not relate to item #2.

Okay. If there are no further questions or comments, I now put the motion that the Remuneration Report be adopted as set out in the Notice of Meeting. The next resolution relates to the reelection of Board-endorsed Mr. Harry Debney as a Director. Proxy votes received are display on the screen now. Are there any questions or comments in relation to this item?

Thank you, Mr. Chairman, there are no specific questions relating to Mr. Debney's reelection. However, there is a question from Mr. Stephen David Mayne in relation to Board composition. His question is as follows. We've been a public company for 4 years and have never had a female director. Why don't we show respect for capable females by entrusting a couple of them to serve on our Board? Isn't this blokey strategy risking a consumer boycott led by female customers? And when were the first-ever female Director to be appointed?

As I've alluded to and as we all know, we are in search right now for a fifth Director. We have a very broad net being cast, looking for the best candidate. We are very close to a decision on that. And we're looking for candidates, not just of gender, we are looking for candidates of caliber, who will bring the company forward. As soon as we have made a decision on that, we'll inform the market. And we think that, that will be a positive step forward in terms of reconstituting us to a 5-member Board and, obviously, reconstituting the balance of independent NEDs, which is a necessary step that we need to take.

Thank you, Mr. Chairman. Another question from Mr. Stephen David Mayne relating to Mr. Debney's reelection. Why did Harry sign-off on both an online and a paper voting form that named him as the candidate seeking reelection on Item 3, but then refused to do the same with the external candidate, Stephen Mayne, who was just described in Item 4 as Election of Non-Board Endorsed Director? Maybe should I -- would you like me to continue with this question or leave it for Item 4?

I think it's a broad question, which overlaps perhaps items 3 and 4. We have made our disclosures in a relevant way in the Notice of Meeting. I think this is a fine distinction nominating Mr. Debney by name. Once the Notice of Meeting had gone out and all of the details in the Notice of Meeting, we believe, fully disclosed everything required for shareholders to make choices. And I think we're at a point now where the votes are telling for that.

I'm not sure what item this question relates to, Mr. Chairman, but I'll ask it. It's from Mazara Pty. Ltd. There appears to be a very large excluded vote. Is there any explanation?

Yes. In -- it's not specific as to what that -- which resolution that relates to, probably not this one. But obviously, all of the directors of the company, including Ruslan and David, are excluded from voting on the Rem Report. And when you look at -- and indeed on their own option resolutions, 5.1 and 5.2. And if we were to look at some 21% of the shares held in the company, they would be the main reason for those exclusions. They can't vote on those resolutions.

Thank you. There are no further questions in relation to Item 3.

Okay. The next resolution relates to the Election of non-Board endorsed, Mr. Stephen Mayne, who has offered himself for election as a Director of the company. Proxy votes received are display on the screen now. Are there any questions or comments in relation to this item?

Mr. Chairman, there are no questions or comments in relation to this item.

As there are no questions or comments, I now put the motion that Mr. Mayne be elected as a Director of the company as set out in the Notice of Meeting. The fifth item of business today relates to the approval of a grant of options to executive directors, Mr. Ruslan Kogan and Mr. David Shafer, as set out in the Notice of Meeting. Items 5.1 and 5.2 will be the subject of separate resolutions. This resolution to be voted on today relates to the approval of a grant of options to Ruslan Kogan. Proxy votes received are displayed on the screen now. Are there any questions or comments in relation to this item?