LOVISA HOLDINGS LIMITED
2016
annual report
ACN 602 304 503
For personal use only Lovisa was born from
a desire to fill the
void for fashion
forward and directional
jewellery that is
brilliantly affordable.
For personal use only For personal use only For personal use only Contents
Company overview
Chairman’s report
Directors’ report
Financial statements
Consolidated statement of financial position
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Setting the scene
Business performance
Asset platform
Risk and capital management
Other information
Signed reports
Directors’ declaration
Independent auditors’ report
Lead auditor’s independence declaration
ASX information
Shareholder information
Corporate directory
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For personal use only 2016 OVERVIEW
our brand
moving globally
Established in 2010
Listed on the Australian stock exchange in 2014
Each store contains an average of 2,500 product lines
120 new product lines in store every week
Vertical integration from supply to point of sale
6
LOvISA HOLDINgS LImIteD ANNuAL RepOR t - 3 JuLy 2016
For personal use only total store numbers
250
npat
$16.6M
gross profit up
9.8% to
$114m
territory highlight
succesful
uk pilot program
undertaken
final dividend
of 2.ocps
fully franked
revenue up
14.3% to
$153m
lfl sales
+5.5%
For personal use only 2016 OVERVIEW
flagship opening
chadstone australia
8
LOvISA HOLDINgS LImIteD ANNuAL RepOR t - 3 JuLy 2016
For personal use only For personal use only 2016 OVERVIEW
3
UK
TRADING
FROM 250
STORES IN
10 COUNTRIES
aus
uk
nz
saf
mAL
kuwait
sing
uae
saudi
oman
10
16
MIDDLE EAST
36
SOUTH AFRICA
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only our movement
SUPPLY & WAREHOUSE
To stay ahead of trend, Lovisa utilises daily inventory
monitoring software and airfreight to move product to
store locations within 48 hours from our centrally located
warehouses in Melbourne and Hong Kong.
CHINA
SUPPLIERS
LOVISA WAREHOUSE
SUPPLIERS
HONG KONG
WAREHOUSE
INDIA
SUPPLIERS
THAILAND
SUPPLIERS
19
14
SINGAPORE
MALAYSIA
144
AUSTRALIA
MELbOURNE
WAREHOUSE
18
NEW ZEALAND
11
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Chairman & Chief Executive’s
REPORT
Following the success of the 2015 Initial Public Offering,
2016 has been a year of consolidation for Lovisa with the
strengthening of the Board and Management and the
continued expansion of the company’s global footprint.
12
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Lovisa continues to generate strong cash flow with
operating cash at $23.3m after tax. Capital expenditure
totalled $9.3m for the year and relates predominantly to
new store openings and refurbishments of current stores
upon lease renewal to Lovisa’s new concept fit out. The
final payment for the South African acquisition in 2015 of
$250k was made during the year. Net debt reduced by
$2.4m to $7.3m at year end.
international store expansion
During the year the company increased its store network
to 250 stores. The company’s international expansion
continued with store openings in South Africa, Singapore,
Malaysia, New Zealand and the UK. The company’s
flagship store at Chadstone reopened in June 2016
following a relocation during the year.
A total of 43 new stores opened or were relocated during
the year with the expected closures associated with the
South African and previous Australian and NZ acquisitions
driving the net increase of 11.
overview
We are pleased to report that Lovisa Holdings Limited has
delivered a solid result for the year ended 3 July 2016.
The company reported a net profit after tax of $16.6m
and a gross margin of 74%. This result was driven by a
combination of strong sales growth and increased gross
profit underpinned by our ongoing focus on customer
service despite significant currency headwinds.
While the result reflects a reduction on the prior year,
the underlying business performance remains strong
and demonstrates the strength of the Lovisa brand and
integrated model. We estimate that after adjusting for the
devaluation of the Australian dollar on stock purchases
gross profit would have increased by 15.2% and gross
margin would have lifted by 8bps on the prior year.
We continued to expand and optimise our store network to
drive growth and performance with 43 (gross) new stores
opened in the Fy16 and a portfolio of 250 stores at year
end. Importantly, our UK pilot has proven successful to
date and the Board has resolved to proceed with the roll
out strategy.
financials
The company reported a statutory net profit after tax
of $16.6m following continued strong same store sales
growth and the addition of a further 11 stores across the
globe, offset by currency headwinds associated with the
Australian dollar and the South African rand. This result
reflects a decrease of 6% on the company’s 2015 proforma
net profit after taking into account the exceptional items
related to the company’s IPO in 2015.
Lovisa achieved revenue of $153.5m, up 14.3% on FY15
with strong same store sale growth of 5.5%. International
sales now make up 36% of the Group’s revenue with
franchise income increasing 40% to $848k. Trading in the
June quarter was particularly strong as we saw the benefit
of retail price increases during the year. Sales in South
Africa lifted 71% in the year following the 2015 acquisition
with additional stores offsetting planned closures. New
Zealand sales lifted 30% following the refurbishment of a
number of its stores along with a further 4 stores opening
during the year.
Gross profit increased by $10.1m to $113.6m despite a
significant devaluation of the Australian dollar and South
African rand. We have estimated that on a constant
currency basis from the prior year, gross profit would have
increased by 15.2% to $119.3m and gross margins would
have increased to 77.7%.
The Cost of Doing Business (CODB) remained consistent at
54% despite a conscious decision to increase both Board
and Management bench strength along with additional
investment in our international footprint. Distribution costs
increased in line with overseas expansion. The result
includes a $1.1m foreign exchange loss predominantly
from the depreciating South African rand on the company’s
working capital.
Earnings before interest and tax were $24.2m with
financing costs marginally up on the prior year following a
full twelve months of financing facilities in place.
Earnings per share was 15.8 cents per share compared to
FY15 proforma earnings of 16.8 cents per share.
The balance sheet continues to be healthy with low
operating leverage reflected in our solid fixed charge cover
of 2.18 times and gross leverage of 0.52. Disciplined
inventory management in the second half has seen
inventory levels consistent with the prior year despite store
growth and currency headwinds.
13
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only uk pilot program
In November 2015 Lovisa embarked on a pilot program to
determine the feasibility of the UK market. The outcome of the
pilot program was that stores have traded within the KPI’s set
at the outset of the pilot program. Following this successful
pilot program the Board resolved to proceed with the rollout
with additional stores expected to be trading by Christmas.
We will continue to take a disciplined and patient approach
to expanding in the UK market, being particularly careful
to ensure we secure good sites at the right rental rates.
We consider the UK market a significant growth market for
Lovisa and stepping stone for further Northern Hemisphere
expansion.
board and management changes
During the year the company announced a number of
Board and Management changes reflecting the company’s
intention to increase its capability to facilitate its global
expansion. Michael Kay joined the Board in April as
Chairman. Michael, a qualified lawyer brings a wealth
of commercial experience most recently as CEO and
managing Director of ASX listed macmillan Shakespeare
and previously as CEO of national insurer AAMI.
Paul Cave stepped down as Chairman upon Michael’s
appointment. Paul agreed to serve as Interim Chairman
following the sudden unexpected death of David Carter on
the 28th January 2015 and the Board would like to take
this opportunity to thank Paul for his valuable contribution
to the Board and Company as Chairman.
In addition to Michael, James King joined the Board in May
and will service as Audit, Business Risk and Compliance
Committee Chairman. James also brings a wealth of
experience serving most recently on the boards of JB Hi Fi
and Pacific Brands and with Fosters Group as Managing
Director of Carlton & United Breweries and Managing
Director, Fosters Asia.
Graeme Fallet joined the company in April as Chief
Financial Officer and Company Secretary following
the resignation of Iain Sadler. Steven Doyle joined the
company as Global General Manager in November 2015
and Armando Pedruco joined as Global Sales Manager in
December 2015.
These appointments strengthen our capabilities and
position the company well in anticipation of strong offshore
growth over the coming years.
14
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only dividends
The Directors declared a final dividend of 2.0 cents per
share fully franked for the year ended 3 July 2016. While
this equates to a reduction in the payout ratio from the
prior year the Directors have considered the expected
investment in international store growth in the coming
years and consider it prudent to ensure the company
can fund its medium term growth objectives whilst not
materially increasing its operating leverage.
The final dividend will be paid on 27th October 2016.
outlook
It has been a positive start to the year and in July we
opened our first Vietnam franchise store with early sales
encouraging. We expect FY17 to be a year of further
growth for Lovisa as we continue to open new stores in all
current markets and are targeting to open between 20 to
30 stores during the year.
Lovisa are a dedicated and determined fast fashion
jewellery retailer with deep specialist expertise. Coupled
with the additional board and management capability and
based on the strength of our integrated model, we have a
solid platform for further growth and a confident outlook.
Michael Kay
Non-Executive Chairman
Shane Fallscheer
Chief Executive Officer
15
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
directors’ report
Details of the
qualifications and
experience of each
Director in accordance
with the requirments of
the Corporation Act have
been included below.
MICHAEL KAY
independent
non-executive
director & chairman
Shane Fallscheer
Chief Executive
Officer & Executive
Director
Appointed 13 April 2016
Appointed 6 November 2014
Shane Fallscheer is the Chief
Executive Officer, Managing Director
and founder of Lovisa. He has 29
years of experience in retailing
operations across Australia, UK
and US markets. He was previously
in senior management roles with
retailers including: General Manager,
Sanity Australia; Chief Executive
Officer, Sanity UK; Chief Executive
Officer, Diva; and Global Retail
Chairman and Chief Operating
Officer, Rip Curl USA.
•
•
Chairman of the Board
Chairman of the Remuneration
and Nomination Committee
• Member of the Audit, Business
Risk and Compliance Committee
A qualified lawyer, Michael Kay
brings a wealth of commercial
experience to Lovisa. Michael was
CeO and managing Director of listed
salary packaging business McMillan
Shakespeare, a position he held for
six years. Previously, Michael was
CeO of national insurer AAmI after
serving in a variety of senior roles
with that firm. Prior to joining AAMI,
he spent 12 years in private legal
practice. Michael became Chairman
of ASX listed litigation funder, IMF
Bentham Ltd (ASX : IMF) in July
2015 and is Chairman of Apply
Direct Ltd (ASX : AD1). Michael
has also been a non-executive
Director of TFS Corporation (ASX
: TFC) since February 2015 and is
a non-executive Director of Royal
Automotive Insurance Pty Limited.
Michael holds a Bachelor of Laws
from Sydney University.
16
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Tracey Blundy
Non-Executive
Director
paul cave
independent
non-executive
director
james king
independent
non-executive
director
Appointed 6 November 2014
Appointed 6 November 2014
Appointed 17 May 2016
• Member of the Audit, Business
Risk and Compliance Committee
• Member of the Remuneration and
Nomination Committee
Tracey joined BB Retail Capital
in 1981 and is the nominated
representative of BB Retail Capital
on the Board of Lovisa. Over
the past 35 years, she has held
a number of senior executive
positions across BB Retail Capital’s
brands, including Chief Executive
Officer of Sanity Entertainment and
Bras n Things. She is a Board-
level advisor across the BB Retail
Capital portfolio bringing in-depth
knowledge and expertise on retail
operations and roll-out strategy.
Tracey was a founding shareholder
of Lovisa in 2010, and has since
been a senior advisor to the
Company’s management team.
tracey is currently a Director of BB
Retail Capital Pty Limited, Bras N
things pty Limited and BB Retail
Property Pty Limited.
• Member of the Audit, Business
Risk and Compliance Committee
•
Chairman of the Audit, Business
Risk and Compliance Committee
• Member of the Remuneration and
• Member of the Remuneration and
Nomination Committee
Nomination Committee
Paul is a Non-Executive Director
of Domino’s pizza enterprises Ltd
since 2005 and the Chairman and
Founder of BridgeClimb. Paul was
made a Member of the Order of
Australia in 2010 for his services
to the tourism industry. Paul has
previously worked in marketing and
general management roles for B&D
Roll A-Door and also founded the
Amber Group in 1974, which he
sold in 1996. Paul was a founding
Director of Chris O’Brien Lifehouse
at the Royal Prince Alfred Hospital,
and founding Director of InterRisk
Australia Pty Ltd. He is a patron of
the Hunter Melanoma Foundation,
and holds a Bachelor of Commerce
from the University of New South
Wales.
James has over 30 years’
experience as a Director and an
Executive in major multinational
corporations in Australia and
internationally. He was previously
with Foster’s Group Limited as
managing Director Carlton & united
Breweries and Managing Director
Foster’s Asia. Prior to joining
Foster’s, he spent six years in Hong
Kong as President of Kraft Foods
(Asia Pacific). He is currently a non-
executive Director of Pacific Brands,
Navitas Ltd and a member of Global
Coaching Partnership. Previously
James was a Director of JB Hi-Fi
Limited, Trust Company Ltd, a
member of the Council of Xavier
College and Chairman of Juvenile
Diabetes Research Foundation
(Victoria). James holds a Bachelor
of Commerce from University of
New South Wales and is a Fellow of
the Australian Institute of Company
Directors.
DIReCtORS’ RepORt
17
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 1. DIRECTORS’
The Directors of Lovisa Holdings Limited (the ‘Company’) present their report together with the Consolidated Financial Statements
of the Company and its controlled entities (the ‘Group’ or ‘Consolidated Entity’) for the financial year ended 3 July 2016.
Director
M Kay
t Blundy
P Cave
S Fallscheer
J King
N Osborne
Board
Audit and Risk
Remuneration & Nomination
Number attended
Number held
Number attended Number held Number attended Number held
2
12
12
11
1
4
2
12
12
12
1
4
1
5
5
-
1
2
1
5
5
-
1
2
2
6
6
-
-
2
2
6
6
-
-
2
• Neil Osborne was a Director of Lovisa Holdings Limited from his appointment on 1 April 2015 until his resignation on 17 November 2015.
• Graeme Fallet was appointed Company Secretary on 14 April 2016. He is also the company’s Chief Financial Officer.
Mr Fallet is a Chartered Accountant and a Member of the Institute of Company Directors.
•
Iain Sadler was Company Secretary of Lovisa Holdings Limited from 6 November 2014 until his resignation on 13 April 2016.
• Michael Kay was appointed as Chairman and independent non-executive Director on 13 April 2016.
•
James King was appointed as an independent non-executive Director on 17 May 2016.
1.1 Directors Interests in Shares
The relevant interest of each Director in the Company at the
date of the report is as follows:
Director
M Kay (1)
P Cave (2)
T Blundy (3)
S Fallscheer (4)
J King
Ordinary
Shares in the
Company
250,000
1,000,000
1,153,005
4,490,000
-
(1) Shares held by Doveton Kay Investments Pty Ltd ATF
Doveton Kay Investments Trust and M&S Kay Superannuation
Fund Pty Ltd ATF M&S Kay Superannuation Fund
(2) Shares held by P.B.C. Investments Pty Limited
(3) Shares held by Coloskye Pty Ltd
(4) Shares held by Centerville Pty Ltd
18
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
2. Principal Activities
The principal activity of the Group during the financial year
was the retail sale of fashion jewellery and accessories.
The business has 250 retail stores in operation at 3 July
2016 including 16 franchise stores.
the group opened an additional 43 stores during the year
and closed 32 stores.
There was no significant change in the nature of the
activities of the Company during the period.
3. Dividends
Dividends paid to members during the financial year were as follows:
Final ordinary dividend for the year ended 30 June 2015 of 4.07
cents (2014-758.73 cents) per fully paid share fully franked paid
on 30 October 2015
Interim ordinary dividend for the year ended 30 June 2016 of
6.67 cents (2015-6.67 cents) per fully paid share 75% franked
(2015: fully franked) paid on 29 April 2016
Total dividends paid
2016
$000's
4,273
7,004
11,277
2015
$000's
7,587
7,004
14,591
In addition to the above dividends, since the end of the financial year the Directors have recommended the payment of a final
dividend of $2,100,000 (2.00 cents per fully paid share) expected to be paid on 27 October 2016. The dividend will be fully
franked.
DIReCtORS’ RepORt
19
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
4. Review of Operations
The analysis below reflects the Group’s performance at a statutory level. Actual FY2016 and Actual FY2015 results relate to the
performance of all Lovisa group companies for the entirety of both years.
The following summary of operating results and operating metrics reflects the Group’s performance for the year ended 3 July
2016:
Proforma Consolidated $000
gross margin %
EBITDA (Proforma)
NPAT (Proforma)
NPAT (Statutory)
Basic Earnings per share (Proforma)
Basic Earnings per share (Statutory)
4.1 Financial Performance
2016
74%
30,256
16,553
16,553
15.76c
15.76c
2015
77%
30,830
17,602
30,598
16.76c
29.14c
For the year ended 3 July 2016 the Company reported a net profit after tax of $16.5 million following continued strong same
store sales growth of 5.5% and the addition of a further 43 stores across the globe offset by higher cost of sales due to the
weakening Australia dollar and a higher level of markdowns.
This result reflects a decrease of 6% on the Company’s 2015 Proforma net profit after taking into account the reversal of the
put option and other costs associated with the IPO.
During the year the Company suffered headwinds associated with the decreasing Australian dollar and the devaluation of the
South African Rand.
The analysis below reflects the Group’s performance on a ‘proforma’ basis and a statutory basis.
Proforma Consolidated $000
Sales
Gross profit
Operating expenses
eBItDA
eBIt
Net profit after tax (NPAT)
FY2016
153,461
113,562
83,306
30,256
24,222
16,553
A reconciliation of the statutory and proforma results has been included below.
$’000
Consolidated Statutory eBIt
Change in provision for share buy back
IpO costs
proforma eBIt
Statutory Consolidated $’000
Sales
Gross profit
Operating expenses
Change in provision for share buy back
eBItDA
eBIt
Net profit after tax (NPAT)
FY2016
153,461
113,562
83,306
-
30,256
24,222
16,553
FY2015
134,260
103,461
72,631
30,830
24,829
17,602
FY2015
134,260
103,461
74,746
14,756
43,471
37,470
30,598
Change
14.3%
9.8%
14.7%
(1.9%)
(2.4%)
(6.0%)
FY2015
37,470
(14,756)
2,115
24,829
Change
14.3%
9.8%
11.4%
(100%)
(30.4%)
(35.4%)
(45.9%)
20
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 4.1 Financial Performance (continued)
4.1.4 Operating Expenses
4.1.1 Sales
STRONG revenue growth (A$m)
MAINTAINING COST OF DOING BUSINESS
14.3%
60%
50%
40%
30%
20%
10%
0%
54%
54%
Fy15
Fy16
NUMBER OF STOREs IN OFFSHORE
MARKETS GROWING
160
140
120
100
80
60
40
20
0
300
250
200
150
100
50
0
Fy15
Fy16
The Company’s Cost of Doing Business was consistent
with the prior year and is predominantly from the opening
of new stores, additional investment in the Lovisa global
rollout working capital and foreign currency losses
associated with repatriating cash from its offshore
businesses.
During the year Lovisia significantly increased its
investment in its offshore rollout and management capacity
to facilitate its global expansion. The Board considers it
imperative that Lovisa resources itself in anticipation of
strong offshore growth during the next three years.
Distribution costs increased in line with the offshore
expansion as stock was managed through the Company’s
Hong Kong Distribution Centre and shipped to South
Africa, United Kingdom, Singapore and Malaysia.
Other costs increased predominantly from foreign
exchange losses associated with the devaluation of the
South African Rand.
4.1.5 Earnings
Earnings before interest and tax was $24.2m being a
decrease of 2.4% on underlying EBIT from the prior year
after excluding one-off items associated with the IPO.
Financing costs associated with the Company’s debt
facilities increased due to debt facilities only being in place
for the post IPO period in FY15.
Net Profit after Tax after adjusting for one off items
associated with the IPO decreased by 6% to $16.5m.
4.1.6 Cash Flow
The Company’s operating cash flow improved during the
year with $23.3m generated from operations after tax and
financing payments. Capital expenditure of $9.3m relates
predominantly to new store openings and refurbishments
of current stores upon lease renewal. The final payment
for the South African acquisition in 2015 of $250,000 was
made during the year.
Fy12
Fy13
Fy14
Fy15
Fy16
AUSTRALIA
OFFSHORE
The Company’s reported revenue was $153.5m being a 14.3%
increase on the prior period from strong like for like sales of
5.5% and the addition of a net 11 new stores. The offshore
expansion continues with a UK pilot program of 3 stores at
June to determine the feasibility of the UK market. An additional
franchise territory in Vietnam opened in July 2016.
4.1.2 Gross Profit Margin
CONSISTENT GROSS MARGINS
79%
79%
76%
77%
74%
100
80
60
40
20
0
Fy12
Fy13
Fy14
Fy15
Fy16
The Company’s Gross profit increased by 9.8% to $113.6m
against a back drop of a significant weakening of the
Australian dollar affecting the Company’s stock purchases.
the decrease in the Australian dollar resulted in the
Company’s Gross Margin reducing to 74%.
4.1.3 Change in value of put option liability
In previous years the Company made provision for the buy-
back of shares from Centerville Pty Ltd, a private vehicle
owned by the CEO. As a result of the IPO, the provision was
reversed in FY2015.
DIReCtORS’ RepORt
21
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
4.2 Financial Position
Statutory
Consolidated
Trade receivables and prepayments
Inventories
Trade payables and provisions
Net working capital
Property, plant & equipment
Intangible assets and goodwill
total funds employed
Net debt
Net derivative liability
Net deferred tax balances
Net assets/equity
Net working capital
Actual
FY2016
$’000
2,293
15,034
(14,995)
2,332
13,123
2,073
17,528
(7,271)
(909)
1,823
11,171
Actual
FY2015
$’000
2,147
15,012
(16,274)
885
10,400
1,610
12,895
(9,657)
30
3,541
6,809
Change FY15/FY16
%
6.8%
0.1%
(7.9%)
163.5%
26.2%
28.8%
35.9%
(24.7%)
(3130.0%)
(48.5%)
64.1%
The Company’s working capital continues to be a focus with inventory levels managed at prior year levels despite the cost of
goods increasing due to currency changes and the increase of a net 11 stores after closures. Working capital includes both
security deposits for landlords and cash reserved for Bank Guarantees issued to landlords.
Property, plant and equipment
Capital expenditure during the year largely reflects fit-out costs associated with new stores and fixed asset renewal costs for
existing stores reaching the end of their lease term. Fit-out costs are depreciated over the lifetime of the store lease.
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
Australia
45
54
160
166
146
144
New Zealand
Singapore
South Africa
Malaysia
United Kingdom
Middle East*
6
0
0
0
0
0
6
0
0
0
0
0
6
6
0
3
0
0
14
10
11
7
0
2
14
15
36
15
0
13
18
19
36
14
3
16
Total
51
60
175
210
239
250
* Franchise Stores
Net debt
The Company’s net debt reduced to $7.3m which reflects a $2.4m reduction on the prior year.
22
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 5. business strategies
Lovisa has achieved rapid growth since it was founded, with revenue growing from $25.5 million in FY2011 to $153.5 million in
FY2016, representing a compound annual growth rate of 43.2%. This historical growth has been driven by Lovisa’s swift store
roll out. The Group continues to focus on its key drivers to deliver growth in sales and profit growth.
Growth pillar
Business
Strategy
Section
Strategy
Risks
Achievements
International
expansion
5.2
• Continue to leverage current
international territories
• Leverage the Company’s capital in
large international markets
• Complete UK pilot program and roll
out UK territory
• Consider franchise partners for
selected territories
• Expand into new international
markets, targeting one new territory
per annum
• Streamline and optimise supply
base in Asia
• Optimise air and sea freight whilst
maintaining speed to market
operating model
• Consider Northern Hemisphere
distribution centre
Streamline global
supply chain
5.3
Enhance
existing store
performance
5.4
• Optimise and improve existing store
network
• Continue to target high traffic
shopping precincts
Brand
proliferation
5.5
• Continue to leverage online social
media to connect with customers
and increase brand loyalty
• Competition (6.2)
• Retail environment
and general
economic conditions
(6.3)
• Failure to
successfully
implement growth
strategies (6.4)
• Net 13 stores
opened outside of
Australia during
the year including
3 stores in the
United Kingdom
and 3 franchise
stores
• Exchange rates (6.5)
• product sourcing
or supply chain
disruptions
• Competition (6.2)
• Retail environment
and general
economic conditions
(6.3)
• Prevailing fashions
and consumer
preferences may
change (6.6)
• Prevailing fashions
and consumer
preferences may
change (6.6)
• Privacy breaches
• Over 34% of
product was
moved through
the HK warehouse
(30% FY15)
• Re-engineering of
supply chain to
accomodate sea
freight
• 32 stores in
sub-optimal
locations closed
during the year
• Fy16 LFL sales
growth of 5.5%
•
Increased
social media
engagement
Lead and
pre-empt trends
5.1
• Stay on trend with shifts in jewellery
and accessory market
• Continue to provide a high quality
and diverse product offering
• Prevailing fashions
and consumer
preferences may
change (6.6)
• Continued strong
LFL growth being
testament in
ability to identify
trends
5.1 Lead and Pre-Empt Trends
Product innovation is a core component of Lovisa’s competitive advantage. Its customers expect a broad range of fashionable
products that are in line with the latest global fashion trends. In order to meet this expectation, Lovisa employs a product team
of more than 20 people who are responsible for Lovisa’s forward range planning, designs, product development, production,
visual merchandising and merchandise planning, ensuring Lovisa is continually meeting market demand. Whilst product teams
are based in Melbourne and London, its team members travel the world to identify global trends. In addition, its product teams
meet with suppliers in China, India, Thailand and other parts of Asia frequently.
As Lovisa is frequently developing new products in response to evolving fashion trends, it does not register patents on its
product designs. This is consistent with practices in the fast fashion industry.
DIReCtORS’ RepORt
23
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 5.2 New Store Rollouts & International Expansion
One of the key attributes of the Group’s success has been the ability to identify and secure quality retail store sites in locations
with high pedestrian traffic. This typically involves securing leases in AA, A or B grade rating shopping centres and malls.
Lovisa has refined its global store model based on what it understands to be the optimal store size, location and format. The
combination of a 50 square metre floor space and a homogenised layout allows Lovisa to have strict criteria when identifying
and securing potential store sites in new regions, facilitating the roll-out of stores quickly, at low cost. On average, it takes
approximately 14 days to fit out a new Lovisa store.
The key driver of future growth for Lovisa is the continued international store roll-out. Lovisa has proven it is capable of
successfully operating profitably in international territories, having established its initial portfolio of company owned stores in
Australia, New Zealand, Singapore, Malaysia and South Africa and supporting franchised stores in Kuwait, the United Arab
Emirates, Oman and Saudi Arabia. During the year, Lovisa commenced a pilot program in the UK with the Board approving the
continued rollout of the UK market on 22 August 2016.
The Group plans to remain nimble and opportunistic in expanding and moving into new markets, such that if opportunities
arise, the Group may accelerate its plans to enter a new market or continue to grow an existing market. Likewise it will defer its
entry into a new market if it considers that appropriate opportunities aren’t presented at the relevant time.
Lovisa’s objective is to fully maximise its footprint in its current territories within the medium term (1-2 years) and target to
achieve 20 - 30 new stores per annum.
5.3 Streamline Global Supply Chain
Lovisa’s third party suppliers are currently located in mainland China, India and Thailand. Stock is inspected by Lovisa’s quality
control team in China. Once manufactured, stock is transported to Lovisa’s leased warehouse in Melbourne, Australia (for
stock to be sold in Australian and New Zealand stores) or its third party operated warehouse in Hong Kong (for stock to be
sold in all other countries). There is sufficient capacity in Lovisa’s third party operated Hong Kong warehouse to handle further
international growth.
Lovisa constantly reviews its supply chain process for potential efficiency gains and cost reductions in order to generate
higher gross margins. This includes improvements in its global warehouse and logistics program and the consolidation and
rationalisation of its supplier base.
5.4 Enhance Existing Store Performance
Lovisa’s store roll-out in Australia is largely complete with 144 stores in operation as at 3 July 2016. Subject to the availability
of attractive sites, Lovisa will still seek to open a small number of new stores per year in Australia for the foreseeable future.
This growth is expected to be supplemented by store optimisation and improvement initiatives.
Lovisa believes it will be able to enhance profitability through improvements to its store portfolio and operations. This includes
the closure of 11 company owned stores in sub-optimal locations in Australia during FY2017 while the rationalisation of stores
associated with the April 2015 DCK South Africa acquisition is now complete.
5.5 Brand Proliferation
Lovisa supports the growth in its brand through social media and promotional activity that matches our customer base, and
our International footprint. Efforts are focussed on social media, rather than traditional media, as we believe it connects us
directly to our customers in a way that suits their lifestyle.
The brand is also developed through the customer in-store experience – on trend product, cleanly merchandised, focussed
imagery, and the store “look and feel”. Stores are located in high foot traffic areas, in high performing centres.
24
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 6. material business risks
6.1 Business Risks
The business risks faced by the Group and how it
manages these risks are set out below. Further information
surrounding how the Group monitors, assesses, manages
and responds to risks identified is included within Principle
7 of the Company’s Corporate Governance statement.
6.2 Competition
The fast fashion jewellery sector in which Lovisa operates is
highly competitive. While the costs and time that would be
required to replicate Lovisa’s business model, design team,
IT systems, store network, warehouse facilities and level
of brand recognition would be substantial, the industry as
a whole has relatively low barriers to entry. The industry is
also subject to ever changing customer preferences.
Lovisa’s current competitors include:
• specialty retailers selling predominately fashion
jewellery;
• department stores;
• fashion apparel retailers with a fashion jewellery section;
and
• smaller retailers (i.e. less than five stores) that specialise
in the affordable jewellery segment.
Competition is based on a variety of factors including
merchandise selection, price, advertising, new stores,
store location, store appearance, product presentation and
customer service.
Lovisa’s competitive position may deteriorate as a result of
factors including actions by existing competitors, the entry
of new competitors (such as international retailers or online
retailers) or a failure by Lovisa to successfully respond to
changes in the industry.
To mitigate this risk, Lovisa employs a product team
of more than 20 people to meet market demands as
described in section 5.1. Management believe it would
take a number of years for a new entrant to establish a
portfolio of leases comparable with Lovisa in premium store
locations with substantial barrier to entry costs as detailed
above.
6.3 Retail Environment and General Economic
Conditions
As Lovisa’s products are typically viewed by consumers
to be ‘discretionary’ items rather than ‘necessities’,
Lovisa’s financial performance is sensitive to the current
state of, and future changes in, the retail environment
in the countries in which it operates. However, with an
average retail spend of $20 per transaction, macro market
performance has minimal impact for Lovisa.
Lovisa’s main strategy to overcome any downturn in the
retail environment or economic conditions is to continue
to offer our customers quality, affordable and ontrend
products.
6.4 Failure to Successfully Implement Growth Strategies
Lovisa’s growth strategy is based on its ability to increase
earnings contributions from existing stores and continue
to open and operate new stores on a timely and profitable
basis. This includes the opening of new stores in both
Australia and overseas.
Lovisa’s store roll-out program is dependent on securing
stores in suitable locations on acceptable terms, and may
be impacted by factors including delays, cost overruns and
disputes with landlords.
The following risks apply to the roll out program:
• new stores opened by Lovisa may be unprofitable;
• Lovisa may be unable to source new stores in preferred
areas, and this could reduce Lovisa’s ability to continue
to expand its store footprint;
• new stores may reduce revenues of existing stores; and
• establishment costs may be greater than budgeted for.
Factors mitigating these risks are that fit-out costs are low
with minimal standard deviation in set-up costs across
sites and territories through our small store format and
homogenous store layout, minimising potential downside
for new stores. The Group assesses store performance
regularly and evaluates store proximity and likely impact on
other Lovisa stores as part of its roll-out planning.
When entering new markets, Lovisa assesses the region,
which involves building knowledge by leveraging a local
network of industry contacts, and aims to secure a portfolio
of stores in order to launch an operating footprint upon
entry. The Group plans to remain nimble and opportunistic
in expanding and moving into new markets, such that if
opportunities arise, the Group may accelerate its plans
to enter a new market or continue to grow an existing
market. Likewise it will defer its entry into a new market if it
considers that appropriate opportunities aren’t presented
at the relevant time. Regular investigation and evaluation
of new stores and territories is undertaken by management
to ensure that the group’s store footprint continues to
expand.
6.5 Exchange Rates
The majority of inventory purchases that are imported by
Lovisa are priced in USD. Consequently, Lovisa is exposed
to movements in the exchange rate in the markets it
operates in. Adverse movements could have an adverse
impact on Lovisa’s gross profit margin.
The Group’s foreign exchange policy is aimed at managing
its foreign currency exposure in order to protect profit
margins by entering into forward exchange contracts
specifically against movements in the USD rate against
the AUD. The Group does not currently hedge its foreign
currency earnings. The Group monitors its working capital
in its foreign subsidiaries to ensure exposure to movements
in currency is limited.
6.6 Prevailing Fashions and Consumer Preferences May
Change
Lovisa’s revenues are entirely generated from the retailing
of jewellery, which is subject to changes in prevailing
fashions and consumer preferences. Failure by Lovisa to
predict or respond to such changes could adversely impact
the future financial performance of Lovisa. In addition, any
failure by Lovisa to correctly judge customer preferences,
or to convert market trends into appealing product offerings
on a timely basis, may result in lower revenue and margins.
In addition, any unexpected change in prevailing fashions
or customer preferences may lead to Lovisa carrying
increased obsolete inventory.
To mitigate this risk, Lovisa employs a product team
of more than 20 people to meet market demands as
described in section 5.1. As the Group responds to trends
as they occur, this drives store visits by customers and
significantly reduces the risk of obsolete stock.
DIReCtORS’ RepORt
25
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 7. Events subsequent to reporting date
Since the end of the financial year the Directors have recommended the payment of a final dividend of $2,100,000 (2.00 cents
per fully paid share) expected to be paid on 27 October 2016. The dividend will be fully franked.
No other matters or circumstance has arisen since 3 July 2016 that has significantly affected, or may significantly affect:
(a) the Group’s operations in future financial years, or
(b) the results of those operations in future financial years, or
(c) the Group’s state of affairs in future financial years.
8. Likely developments
Information on likely developments is contained within the Review of Operations section of this annual report.
9. Remuneration Report
9.1 Remuneration Overview
the Board recognises that the performance of the group
depends on the quality and motivation of its team members
employed by the Group across Australia and internationally.
the group remuneration strategy therefore seeks to
appropriately attract, reward and retain team members at
all levels of the business, but in particular for management
and key executives. The Board aims to achieve this by
establishing executive remuneration packages that include
a mix of fixed remuneration, short term incentives and long
term incentives.
the Board has appointed the Remuneration and
Nomination Committee whose objective is to assist the
Board in relation to the Group remuneration strategy,
policies and actions. In performing this responsibility, the
Committee must give appropriate consideration to the
Company’s performance and objectives, employment
conditions and external remuneration relativities.
Further information surrounding the responsibilities of the
Remuneration and Nomination Committee is included
within Principle 8 of the Company’s Corporate Governance
statement.
9.2 Principles Used to Determine the Nature and
Amount of Remuneration
Key Management Personnel
Key Management Personnel (KMP) have the authority and
responsibility for planning, directing and controlling the
activities of the consolidated entity, and comprise;
1. Non-Executive Directors
2. Managing Director and Chief Executive Officer
3. Chief Financial Officer
4. Global General Manager
Non-Executive Director KMP
Michael Kay
Chairman
Paul Cave
James King
Director
Director
tracy Blundy
Director
Executive KMP
Shane Fallscheer Managing Director and Chief Executive
Officer
Graeme Fallet
Iain Sadler
Chief Financial Officer
(Appointed 14 April 2016)
Chief Financial Officer
(Resigned 13 April 2016)
Steven Doyle
Global General Manager
(Appointed 4 November 2015)
26
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
This report has been audited by the Company’s Auditor
KPMG as required by Section 308 (3C) of the Corporation
Act 2001.
The Remuneration and Nomination Committee is governed
by its Charter which was developed in line with ASX
Corporate Governance Principles and Recommendations.
The Charter specifies the purpose, authority, membership
and the activities of the Remuneration and Nomination
Committee and the Charter is annually reviewed by the
Committee to ensure it remains consistent with regulatory
requirements.
A. Principles Used to Determine the Nature and Amount
of Remuneration
(a) Non-Executive Directors KMP Remuneration
Non-executive Directors’ fees are determined within an
aggregate Non-executive Director’s pool limit of $600,000.
Total Non-executive Directors remuneration including
non-monetary benefits and superannuation paid at the
statutory prescribed rate for the year ended 3 July 2016
was $280,047.
Michael Kay, the Non-executive Chairman, is entitled
to receive annual fees of $150,000, which is inclusive
of superannuation. Other Non-executive Directors are
entitled to receive annual fees of $80,000 inclusive of
superannuation.
The Non-executive Directors fees are reviewed annually
to ensure that the fees reflect market rates. There are no
guaranteed annual increases in any Directors’ fees. None
of the non-executive Directors participate in the short or
long term incentives.
(b) Executive remuneration
Lovisa’s remuneration strategy is to;
Short Term Incentive plan
The Company operates a short-term incentive (STI) plan
that rewards some Executives and Management on the
achievement of pre-determined key performance indicators
(KPIs) established for each financial year according to
the accountabilities of his/her role and its impact on the
organisation’s performance. KPIs include company profit
targets and personal performance criteria. Using a profit
target ensures variable reward is paid only when value is
created for shareholders. No STI was payable for the 2016
year as the Company’s profit target was not met.
Long Term Incentive plan
The Company operates a long term incentive plan scheme.
the plan is designed to align the interests of the employees
with the interest of the shareholders by providing an
opportunity for the employees to receive an equity interest
in Lovisa. The plan provides flexibility for the Company to
grant performance rights and options as incentives, subject
to the terms of the individual offers and the satisfaction of
performance conditions determined by the Board from time
to time.
The key terms associated with the Long Term Incentive
plan are;
•
•
A performance Option entitles the holder to acquire a
share upon payment of an applicable exercise price at
the end of the performance period, subject to meeting
specific performance conditions.
A performance Right entitles the holder to acquire
a share for nil consideration at the end of the
performance period, subject to meeting specific
performance conditions.
• Options and Performance Rights will be granted for nil
consideration.
• Offer a remuneration structure that will attract, focus,
retain and reward highly capable people
• No exercise price is payable in respect of the
Performance Rights.
• Have a clear and transparent link between
performance and remuneration
• Build employee engagement and align management
and shareholder interest through ownership of
Company shares
•
Ensure executive remuneration is set with regard to the
size and nature of the position with reference to market
benchmarks and the performance of the individual.
Remuneration will incorporate at risk elements to;
•
•
Link executive reward with the achievement of Lovisa’s
business objectives and financial performance
Ensure total remuneration is competitive by market
standards.
B. Remuneration Structure
The current executive salary and reward framework
consists of the following components;
1. Base salary and benefits including superannuation
2. Short term incentive scheme comprising cash
3. Long term incentive scheme comprising options and
performance rights
Base Salary and Benefits
Base pay is structured as a total employment cost package
which may be delivered as a combination of cash and
non-cash benefits. Retirement benefits are delivered to the
employee’s choice of Superannuation fund. The company
has no interest or ongoing liability to the fund or the
employee in respect of retirement benefits.
DIReCtORS’ RepORt
27
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only the Board has determined the threshold epS target as
follows;
EPS over the Performance Period
% Exercisable
Less than threshold
10% compound growth
12.5% compound growth
15% compound growth
17.5% compound growth
Nil
20% awarded
40% awarded
60% awarded
80% awarded
20% compound growth
100% awarded
Initial Public Offering Grant – Performance Rights
In conjunction with the Initial Public Offering a number of
Executives and Management were granted Performance
Rights.
The key terms associated with the IPO Grant are;
•
•
The performance period ends 30 June 2017.
The grant of Performance Rights are subject to
performance conditions based on achieving the
Company’s EPS over the performance period.
• One third of the Performance Rights will vest on the
achievement of the Company’s EPS Prospectus
forecast.
•
•
50% of the remaining Performance Rights will vest
on an aggregate EPS of 37.33 cents over the 2016
and 2017 financial year.
The remaining 50% will vest on a straight line basis
from 37.33 cents to 41.23 cents.
During the year 20,000 Performance Rights lapsed.
Initial Public Offering Grant - Options
In conjunction with the Initial Public Offering the Managing
Director Shane Fallscheer was granted 550,000 Options
at a face value of $210,000.
The key terms associated with these options are:
• the performance period commences from the time of
the Initial Public Offering and ends on 2 July 2017.
• An exercise price of $2.30 is payable on exercise of the
Options.
The grant of options were subject to the following
performance conditions;
• One third awarded upon achievement of prospectus
forecast.
• 50% of the remaining options will vest on an aggregate
EPS of 37.33 cents over the 2016 and 2017 financial
year.
• The remaining 50% will vest on a straight line basis
from 37.33 cents to 41.23 cents.
While the prospectus indicated that the options would be
granted at or around listing the options have not in fact
been formally issued. Following administrative delays
the options were not issued within the 12 month waiver
period. Not withstanding that the options were fully
disclosed in the prospectus and the 2015 Annual Report
the Company will seek shareholder approval for the issue
of the options.
FY2017 LTI – Performance Options
In May 2016 a grant of Performance Options was made
to Executives and Management as part of the FY2017 LTI.
The key terms associated with the 2016 Grant are;
•
•
•
•
•
the performance period commences 4 July 2016 and
ends 30 June 2019.
The exercise price of the Performance Options is
$2.10, which represents the 30 day VWAP to the date
of grant.
A total of 3,459,916 Performance Options were
granted, 1,687,764 of these options are subject to
shareholder approval.
The expiry of the Performance Options is 12 months
following the anniversary of the performance period.
The grant of Performance Options are subject to
performance conditions based on achieving the
Company’s EPS over the performance period.
28
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 9.3 Details of Remuneration
Details of the remuneration of the Directors and Key Management Personnel (KMPs) is set out below.
Year
Short Term Employment Benefits
Post-
Employment
Long
Term
Benefits
Share
Based
Payments
Salary &
Fees ($)
Non-
monetary
benefits
($)
Performance
based
payment ($)
Super
Contributions
($)
Annual
& Long
Service
Leave ($)
Options/
Rights ($)
Total ($)
NON-EXEC DIRECTORS
M Kay (1)
P Cave (2)
T Blundy (3)
J King (4)
N Osborne (5)
D Carter (6)
tOtAL
NON-eXeC
DIReCtORS
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
34,247
-
111,510
51,751
58,333
-
9,133
-
30,444
20,000
-
18,265
243,667
2015
90,016
EXEC DIRECTORS
-
-
-
-
-
-
-
-
-
-
-
-
-
-
S Fallscheer
(CEO)
2016
668,454
8,425
2015
619,986
20,825
OTHER KMP
G Fallet (CFO
and Co. Sec) (7)
I Sadler (CFO
and Co. Sec) (8)
S Doyle (Global
GM) (9)
2016
84,598
2015
2016
2015
2016
2015
-
246,045
216,988
382,519
-
-
-
-
-
-
-
TOTAL EXEC
2016
1,381,615
8,425
3,253
-
10,593
4,916
21,667
-
867
-
-
-
-
1,735
36,380
6,651
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,500
-
122,103
56,667
80,000
-
10,000
-
30,444
20,000
-
20,000
280,047
96,667
30,000
96,415
100,489
903,783
30,000
70,983
4,291
6,493
-
-
15,324
13,717
12,872
29,630
-
-
-
-
-
-
-
-
-
741,794
95,382
-
275,086
283,651
425,021
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,909
18,783
21,971
62,487
146,255
100,489
1,699,271
2015
836,974
20,825
25,909
48,783
92,954
-
1,025,445
(1) Appointed to the Board of Lovisa Holdings on 13th April 2016
(2) Appointed to the Board of Lovisa Holdings on 6th November 2014
(3) Appointed to the Board of Lovisa Holdings on 6th November 2014
(4) Appointed to the Board of Lovisa Holdings on 17th May 2016
(5) Appointed to the Board of Lovisa Holdings on 1st April 2015. Resigned as a Director on 17 November 2015.
(6) Appointed to the Board of Lovisa Holdings on 6th November 2014. Ceased to be a Director on 27th January 2015.
(7) Appointed on 14th April 2016
(8) Resigned on 13th April 2016
(9) Appointed on 4th November 2015
DIReCtORS’ RepORt
29
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
9.4 Equity Remuneration Analysis - Audited
Analysis of Performance Rights over Equity Instruments Granted as Compensation
Details of the vesting profile of performance rights awarded as remuneration to each key management person are
detailed below.
performance Rights/Options granted
Executive
Director
Number
Value
Performance period
commences
Included in
Remuneration
Mr S Fallscheer
IpO LtIp*
550,000 210,000
18 December 2014
100,489
Fy17 LtIp*
1,687,764 400,000
4 July 2016
Mr G Fallet
Fy17 LtIp
506,329 120,000
4 July 2016
Mr S Doyle
Fy17 LtIp
1,265,823 300,000
4 July 2016
Mr I Sadler
IpO LtIp
20,000
40,000
18 December 2014
* Subject to shareholder approval.
9.5 Options and Performance Rights Over Equity Instruments
-
-
-
-
%
vested
in the
period
%
forfeited
in the
period
Financial
period in
which grant
vests
-
-
-
-
-
-
-
-
-
2 July 2017
30 June 2019
30 June 2019
30 June 2019
100
-
The movement during the reporting period in the number of performance rights and options over ordinary shares in Lovisa
Holdings Limited held directly or beneficially, by each key management person, including their related parties, is as follows:
Held at
29 June
2015
Granted
Exercised
Forfeited
Held at 3
July 2016
Vested
during
the year
Vested and
exercisable at 3
July 2016
Directors
mr S Fallscheer
- IpO LtIp*
- Fy17 LtIp*
Executive
mr g Fallet
- Fy17 LtIp
mr S Doyle
- Fy17 LtIp
mr I Sadler
- IpO
performance
Rights
-
-
-
-
-
550,000
1,687,764
506 329
1,265,823
20 000
-
-
-
-
-
-
-
-
-
550,000
1,687,764
506 329
1,265,823
(20 000)
-
-
-
-
-
-
-
-
-
-
-
* Subject to shareholder approval.
30
DIReCtORS’ RepORt
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
9.6 Consequences of Performance on Shareholder
Wealth
In considering the consolidated entity’s performance and
the benefits for shareholder wealth, the Remuneration and
Nomination Committee has regard to a range of indicators
in respect of senior executive remuneration and linked
these to the previously described short and long term
incentives.
The following table presents these indicators showing the
impact of the Company’s performance on shareholder
wealth, during the financial years:
Fy
2016
Fy
2015
Net profit after tax ($000)
16,553
30,598
Dividends paid ($000)
11,277
14,591
Share price
$2.28
$3.50
10. Insurance of officers and
indemnities
During the financial year, Lovisa Holdings Limited paid a
premium of $37,000 (2015: $35,000) to insure the Directors
and officers of the Group.
The liabilities insured are costs and expenses that may
be incurred in defending civil or criminal proceedings that
may be brought against the officers in their capacity as
officers of the Group, and any other payments arising from
liabilities incurred by the officers in connection with such
proceedings, other than where such liabilities arise out of
conduct involving a wilful breach of duty by the officers
or the improper use by the officers of their position or of
information to gain advantage for themselves or someone
else or to cause detriment to the Group.
11. Audit services
11.1 Auditors Independence Declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Corporations Act 2001
is set out on page 77 and forms part of this Directors’
Report.
11.2 Audit and Non-Audit Services Provided by the
External Auditor
During the financial year ended 3 July 2016, the
following fees were paid or were due and payable for
services provided by the external auditor, KPMG, of the
Consolidated Entity:
Consolidated Entity
Audit and assurance services
Audit and review of financial
statements
IpO due diligence
Other services
IPO tax related services
Tax compliance services
Other accounting services
2016
$000
2015
$000
220
180
-
-
47
107
374
342
176
70
40
808
the group may decide to employ the auditor on
assignments additional to their statutory audit duties where
the auditor’s expertise and experience with the Group are
important.
The Board of Directors has considered the position and, in
accordance with advice received from the Audit, Business
Risk and Compliance Committee, is satisfied that the
provision of the non-audit services is compatible with the
general standard of independence for auditors imposed by
the Corporations Act 2001. The Directors are satisfied that
the provision of non-audit services by the auditor did not
compromise the auditor independence requirements of the
Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Audit,
Business Risk and Compliance Committee to ensure
they do not impact the impartiality and objectivity of the
auditor; and
• none of the services undermine the general principles
relating to auditor independence as set out in ApeS 110
Code of Ethics for Professional Accountants.
12. Proceedings on behalf of
company
No person has applied to the Court under section
237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the company, or to intervene in
any proceedings to which the Company is a party, for the
purpose of taking responsibility on behalf of the Company
for all or part of those proceedings.
No proceedings have been brought or intervened in on
behalf of the Company with leave of the Court under
section 237 of the Corporations Act 2001.
13. Environmental Regulation
The Company’s operations are not subject to any
significant environmental regulations under either
Commonwealth or State legislation. However, the Directors
believe that the Company has adequate systems in place
for the management of its environmental requirements
and is not aware of any breach of these environmental
requirements as they apply to the entity.
14. Rounding of amounts
the Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 issued by the Australian Securities and
Investments Commission, relating to the ‘rounding off’ of
amounts in the Directors’ report. Amounts in the Directors’
Report have been rounded off in accordance with that
Instrument to the nearest thousand dollars, or in certain
cases, to the nearest dollar.
Signed in accordance with a resolution of the Directors
Michael Kay
Non-Executive Chairman
Shane Fallscheer
Chief Executive Officer
Melbourne, 22 August 2016
DIReCtORS’ RepORt
LOvISA HOLDINgS LImIteD ANNuAL RepOR t - 3 JuLy 2016
31
For personal use only
Contents
Financial statements
Consolidated statement of financial position
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Setting the scene
Business performance
A1 Operating segments
A2 Revenue
A3 Expenses
A4 earnings per share
A5 Dividends
A6 Income taxes
A7 Acquisition of subsidiary
Asset platform
B1 Trade and other receivables
B2 Inventories
B3 Property, plant and equipment
B4 Intangible assets and goodwill
B5 Impairment of property, plant and equipment & intangible assets and goodwill
B6 Trade and other payables
B7 Provisions
B8 Employee benefits
36
37
38
39
40
42
42
43
44
44
45
45
47
48
48
48
48
50
50
51
51
52
For personal use only
Notes to the financial statements cont’d
Risk and capital management
C1 Capital and reserves
C2 Capital management
C3 Loans and borrowings
C4 Financial instruments – Fair values and risk management
C5 Cash flows
Other information
D1 List of subsidiaries
D2 Operating leases
D3 Commitments and contingencies
D4 Share-based payment arrangements
D5 Related parties
D6 Auditors’ remuneration
D7 Deed of cross guarantee
D8 parent entity disclosures
D9 New standards and interpretations adopted by the group
D10 New standards and interpretations not yet adopted
Signed reports
Directors’ declaration
Independent auditors’ report
Lead auditor’s independence declaration
ASX information
Shareholder information
Corporate directory
54
54
55
55
56
62
64
64
64
64
65
67
68
68
71
71
72
74
75
77
80
84
For personal use only For personal use only financial statements
35
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Consolidated Statement of Financial PositIon
As at 3 July 2016
Consolidated ($000s)
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Total current assets
Deferred tax assets
Property, plant and equipment
Intangible assets and goodwill
Total non-current assets
Total assets
Liabilities
Bank overdraft
Trade and other payables
Employee benefits - current
Derivatives
Provisions - current
Current tax liabilities
Total current liabilities
Employee benefits - non current
Loans and borrowings
Provisions - non current
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Common control reserve
Other reserves
Retained earnings
Total equity
Note
C5
B1
B2
C4
A6
B3
B4
C5
B6
B8
C4
B7
B8
C3
B7
3 July
2016
8,295
2,293
15,034
-
25,622
1,823
13,123
2,073
17,019
42,641
3,566
8,350
1,594
909
655
1,487
16,561
401
12,000
2,508
14,909
31,470
11,171
28 June
2015
4,251
2,147
15,012
30
21,440
3,541
10,400
1,610
15,551
36,991
1,908
7,770
1,382
-
612
3,628
15,300
279
12,000
2,603
14,882
30,182
6,809
C1
208,526
208,526
(208,906)
(208,906)
(1,032)
12,584
11,171
(119)
7,308
6,809
The Notes on pages 40 to 72 are an integral part of these consolidated financial statements.
36
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Consolidated Statement of Profit or loss and other Comprehensive Income
For the financial year ended 3 July 2016
Consolidated ($000s)
Revenue
Cost of sales
Gross profit
Salaries and employee benefits expense
Property expenses
Distribution costs
Depreciation and amortisation expense
Loss on disposal of property, plant and equipment
IpO transaction costs
Reversal of buy back of company shares
Other expenses
Operating profit
Finance income
Finance costs
Net finance costs
Profit before tax
Income tax expense
Profit after tax
Other comprehensive income
Items that may be reclassified to profit or loss:
Cash flow hedges
Foreign operations - foreign currency translation differences
Other comprehensive income, net of tax
Total comprehensive income
Profit attributable to:
Owners of the Company
Total comprehensive income attributable to:
Owners of the Company
Total comprehensive income for the year
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
A2
A3
A3
A6
A4
A4
2016
153,461
(39,899)
113,562
(39,980)
(25,881)
(4,340)
(6,034)
(162)
-
-
(12,943)
24,222
49
(723)
(674)
23,548
(6,995)
16,553
(772)
(257)
(1,029)
(1,029)
15,524
16,553
16,553
15,524
15,524
15.76
15.74
2015
134,260
(30,799)
103,461
(35,119)
(23,261)
(3,567)
(6,001)
(77)
(2,115)
14,756
(10,607)
37,470
34
(284)
(250)
37,220
(6,622)
30,598
-
(275)
(275)
(275)
30,323
30,598
30,598
30,323
30,323
29.14
29.14
The Notes on pages 40 to 72 are an integral part of these consolidated financial statements.
37
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Consolidated Statement of CHANGES IN EQUITY
For the financial year ended 3 July 2016
Attributable to Equity Holders of the Company
Consolidated ($000s)
Note
Share
Capital
Common
Control
Reserve
(Accumulated
losses)/
Retained
Earnings
Share
Based
Payments
Reserve
Cash
Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Total
Equity
Balance at 30 June 2014
1,086
7
(8,699)
Total comprehensive income
for the year
Profit
Foreign operations - foreign
currency translation differences
Total comprehensive income for
the year
Transactions with owners of
the Company
Contributions and distributions
Dividends
A5
Total contributions and
distributions
Changes in ownership
interests
Acquisitions of subsidiaries
through common control
-
-
-
-
-
-
-
-
-
-
208,914
(208,914)
transaction costs
C1
(1,474)
-
207,440
(208,914)
Total changes in ownership
interests
Total transactions with owners
of the Company
30,598
-
30,598
(14,591)
(14,591)
-
-
-
207,440
(208,914)
(14,591)
Balance at 28 June 2015
208,526 (208,907)
7,308
Balance at 29 June 2015
208,526 (208,907)
7,308
Total comprehensive income
for the year
Profit
Cash flow hedges
Foreign operations - foreign
currency translation differences
Total comprehensive income for
the year
Transactions with owners of
the Company
Contributions and distributions
employee share schemes
Dividends
Total contributions and
distributions
D4
A5
Total transactions with owners
of the Company
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 3 July 2016
208,526 (208,907)
16,553
-
-
16,553
-
(11,277)
(11,277)
(11,277)
12,584
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(772)
-
156
(7,450)
-
30,598
(275)
(275)
(275)
30,323
-
(14,591)
-
(14,591)
-
-
-
-
(1,474)
(1,474)
-
(16,065)
(119)
6,808
(119)
6,808
-
-
(257)
16,553
(772)
(257)
(772)
(257)
15,524
116
-
116
116
116
-
-
-
-
-
-
-
116
(11,277)
(11,161)
-
(11,161)
(772)
(376)
11,171
The Notes on pages 40 to 72 are an integral part of these consolidated financial statements.
38
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
Consolidated Statement of Cash Flows
For the financial year ended 3 July 2016
Consolidated ($000s)
Note
2016
2015
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operating activities
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of fixed assets
Proceeds from sale of property, plant and equipment
Acquisition of subsidiary, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Repayment of shareholder loans
Proceeds from cash advance facility
Share issue costs
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of movement in exchange rates on cash held
Cash and cash equivalents at the end of the year
169,891
147,834
(137,475)
(122,166)
32,416
25,668
49
(723)
(8,404)
23,338
(9,282)
21
(250)
(9,511)
-
-
-
(11,277)
(11,277)
2,550
2,343
(164)
4,729
34
(284)
(5,958)
19,460
(4,686)
206
(2,323)
(6,803)
(5,524)
12,000
(4,222)
(14,591)
(12,337)
320
1,845
178
2,343
C5
B3
A7
A5
C5
C5
The Notes on pages 40 to 72 are an integral part of these consolidated financial statements.
39
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only setting the scene
Basis of consolidation
Business combinations
Lovisa Holdings Limited (the “Company”) is a for-profit
company incorporated and domiciled in Australia with its
registered office at 41-45 Camberwell Road, Hawthorn
East, Victoria 3123. The consolidated financial statements
comprise the Company and its subsidiaries (collectively
the “Group” and individually the “Group companies”).
The Group is primarily involved in the retail sale of fashion
jewellery and accessories.
Lovisa Holdings Limited reports within a retail financial
period. The current financial year represents a 53 week
period ended on the 3 July 2016 (2015: 52 week period
ended 28 June 2015). This treatment is consistent with
section 323D of Corporations Act 2001.
The consolidated financial statements of the Group for the
financial year ended 3 July 2016 were authorised for issue
by the Board of Directors on 22 August 2016.
Basis of accounting
The consolidated financial statements and supporting
notes form a general purpose financial report. It:
• Has been prepared in accordance with the requirements
of the Corporations Act 2001, Australian Accounting
Standards (AASBs) including Australian Accounting
Interpretations, adopted by the Australian Accounting
Standards Board (AASB) and International Financial
reporting Standards (IFRS) and Interpretations as issued
by the International Accounting Standards Board;
• Has been prepared on a historical cost basis except for
derivative financial instruments which are measured at
fair value. Non-current assets are stated at the lower of
carrying amount and fair value less costs to sell;
• Presents reclassified comparative information where
required for consistency with the current year’s
presentation;
• Adopts all new and amended Accounting Standards and
Interpretations issued by the AASB that are relevant to
the operations of the Group and effective for reporting
periods beginning on or after 1 July 2015. Refer to note
D9 for further details; and
• Does not early adopt any Accounting Standards and
Interpretations that have been issued or amended but
are not yet effective except as disclosed in note D10.
Use of judgements and estimates
In preparing these consolidated financial statements,
management has made a number of judgements, estimates
and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these
estimates. Judgements and estimates which are material to
the financial statements are outlined below:
Assumptions and estimation uncertainties
Information about assumptions and estimation
uncertainties that have a significant risk of resulting in a
material adjustment within the financial year ended 3 July
2016 are included in the following notes:
• Note A6 – recognition of deferred tax assets: availability
of future taxable profit against which carry forward tax
losses can be used;
• Note B5 – impairment test: key assumptions underlying
recoverable amounts, including the recoverability of
goodwill; and
• Notes B7 and D3 – recognition and measurement of
provisions and contingencies: key assumptions about
the likelihood and magnitude of an outflow of resources.
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group.
the consideration transferred in the acquisition is generally
measured at fair value, as are the identifiable net assets
acquired. Any goodwill that arises is tested annually for
impairment (see note B5). Any gain on a bargain purchase is
recognised in profit or loss immediately. Transaction costs
are expensed as incurred, except if related to the issue of
debt or equity securities (see note C1).
the consideration transferred does not include amounts
related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Any contingent consideration payable is measured at fair
value at the acquisition date. If the contingent consideration
is classified as equity, then it is not remeasured and
settlement is accounted for within equity. Otherwise,
subsequent changes in the fair value of the contingent
consideration are recognised in profit or loss.
Acquisition of entities under common control
Lovisa Holdings Limited was incorporated on 6 November
2014. On 18 December 2014, as part of a reorganisation
of the corporate structure of the Group, Lovisa Holdings
Limited became the new holding company and parent
company of the Group. As part of this restructure, Lovisa
Pty Limited and Lovisa International Pte. Limited became
subsidiaries of Lovisa Holdings Limited.
The acquisition of Lovisa Pty Limited and Lovisa
International Pte. Limited by Lovisa Holdings Limited falls
outside the scope of IFRS 3 ‘Business Combinations’
as a common control transaction. There was no change
in control of the group as a result of the internal
reorganisation. In order to reflect the economic substance
of the transaction, the consolidated financial statements
of Lovisa Holdings Limited have been presented as a
continuation of business with the pre-existing accounting
book values of assets and liabilities of Lovisa Pty Limited
and Lovisa International Pte. Limited as at 18 December
2014.
Subsidiaries
Subsidiaries are all entities over which the Group has
control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its
investment with the entity and has the ability to affect those
returns through its power to direct activities of the entity.
The financial results of subsidiaries are included in the
consolidated financial information from the date that
control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed
when necessary to align them with the policies adopted by
the Group.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised
income and expenses arising from intra-group transactions,
are eliminated.
Foreign currency
Functional and presentation currency
These consolidated financial statements are presented
in Australian dollars, which is the Company’s functional
currency and the functional currency of the majority of the
Group.
the Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 and in accordance with that instrument all
financial information presented in Australian dollars has
been rounded to the nearest thousand unless otherwise
stated.
40
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
Translation of foreign currency transactions
transactions in foreign currencies are translated to the
respective functional currencies of Lovisa at the exchange
rates at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the reporting
date are retranslated to the functional currency at the
exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign
currencies that are measured at fair value are retranslated
to the functional currency at the exchange rate at the date
that the fair value was determined. Non-monetary items in
a foreign currency that are measured in terms of historical
cost are translated using the exchange rate at the date of
the transaction.
Foreign currency differences arising on retranslation are
recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are
translated to Australian dollars at exchange rates at the
end of the reporting period. The income and expenses of
foreign operations are translated to Australian dollars at
exchange rates at the dates of the transactions. Goodwill
and fair value adjustments arising on the acquisition of a
foreign operation are treated as assets and liabilities of the
foreign operation and are translated at the exchange rates
at the end of the reporting period.
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign
currency translation reserve in equity. When a foreign
currency operation is disposed of, the cumulative amount
in the translation reserve related to that foreign operation is
transferred to profit or loss on disposal of the entity.
When the settlement of a monetary item receivable from
or payable to a foreign operation is neither planned nor
likely to occur in the foreseeable future, foreign exchange
gains and losses arising from such a monetary item that
are considered to form part of a net investment in a foreign
operation are recognised in other comprehensive income,
and are presented in the translation reserve in equity.
About the Notes to the financial statements
The notes include information which is required to
understand the financial statements and is material
and relevant to the operations, financial position and
performance of the Group. Information is considered
material and relevant if, for example:
• The amount with respect to the information is significant
because of its size or nature;
• the information is important for understanding the
•
•
results of the group;
It helps to explain the impact of significant changes in
the Group’s business; or
It relates to an aspect of the group’s operations that is
important to its future performance.
Subsequent events
There are no matters or circumstances that have arisen
since the end of the financial year which significantly
affected or may significantly affect the operations of the
Group, the result of those operations, or the state of affairs
of the Group in future financial years.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
41
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
business performance
This section highlights key financial performance measures of the Lovisa Group’s operating segments,
as well as Group financial metrics incorporating revenue, earnings, taxation and dividends.
A1 Operating segments
(a) Basis for segmentation
The Chief Operating Decision Maker (CODM) for Lovisa Holdings Limited and its controlled entities, is the Managing Director
(MD). The Group has the following strategic divisions, which are its reportable segments. These divisions offer similar products
and services, but are managed separately due to the allocation of management resources between these regional areas and
assessed separately based on information provided to the MD and the Group’s management team. Internal sales reports of
each segment are reviewed on a daily basis to monitor and evaluate segmental performance.
The following summary describes the operations of each reportable segment.
Reportable segments
Australia & New Zealand
Rest of World
Operations
Retail of women’s jewellery and accessories
Retail of women’s jewellery and accessories
(b) Information about reportable segments
Information related to each reportable segment is set out below.
Reportable Segments
($000s)
Australia & NZ
Rest of World
Eliminations
Total consolidated
2016 Restated
2015
2016 Restated
2015
2016 Restated
2015
2016
2015
108,401
102,212
45,060
32,048
-
- 153,461
134,260
5,691
6,256
1,798
2,222
(7,489)
(8,478)
-
-
114,092
108,468
46,858
34,270
(7,489)
(8,478)
153,461
134,260
External revenues
Inter-segment revenue
Segment revenue
Interest income
Interest expense
1
4
(722)
(283)
48
(1)
30
(1)
Depreciation and amortisation
(4,116)
(4,522)
(1,918)
(1,479)
Segment profit (loss) before tax
and reversal of buy-back
Reversal of buy-back of
company shares
17,702
16,292
5,846
6,091
-
14,756
-
-
Segment profit (loss) before tax
17,702
31,048
5,846
6,091
-
-
-
-
-
-
-
-
-
49
34
(723)
(284)
(6,034)
(6,001)
80
23,548
22,463
-
-
14,756
80
23,548
37,219
All intra-segment revenue and expenses have been eliminated on consolidation in the information above.
There are no differences in the measurements of the reportable segments’ assets and liabilities and the entity’s assets and
liabilities.
The 2015 result has been adjusted to reflect the updated transfer pricing policy implemented during the year.
42
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
A1 Operating segments (CONTINUED)
(c) Geographic information
The segments are managed on a regional basis, operating in Australia and New Zealand with the Rest of the World consisting
of Singapore, South Africa, Malaysia, the United Kingdom and the Group’s franchise stores in the Middle East. Geographic
revenue information is included in Note A2.
In presenting the following information, segment assets were based on the geographic location of the assets.
($000s)
a) Australia
b) New Zealand
c) Singapore
d) South Africa
e) Malaysia
f) United Kingdom
total
2016
2015
Non-current assets (i)
Non-current assets (i)
6,876
1,132
1,389
2,344
657
725
13,123
6,125
377
1,292
1,823
782
-
10,400
(i)
Excluding financial instruments, deferred tax assets, employee benefit assets and intangible assets.
A2 Revenue
Revenue by nature and geography
The geographic information below analyses the Group’s revenue by the country of domicile. In presenting the following
information, segment revenue has been based on the geographic location of customers.
($000s)
Sale of Goods Franchise Income
Total Sale of Goods
Franchise Income
Total
2016
2015
a) Australia
b) New Zealand
c) Singapore
d) South Africa
e) Malaysia
f) United Kingdom
g) Middle East
total
98,823
9,578
17,551
18,182
7,949
530
-
152,613
a) Revenue recognition and measurement
-
-
-
-
-
-
848
848
98,823
9,578
17,551
18,182
7,949
530
848
94,839
7,373
14,312
10,659
6,470
-
-
153,461
133,653
-
-
-
-
-
-
94,839
7,373
14,312
10,659
6,470
-
607
607
607 134,260
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery
of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no
continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue is
measured net of returns and trade discounts. The following specific recognition criteria must also be met before revenue is
recognised:
Sale of Goods
Revenue from the sale of fashion jewellery is recognised when the significant risks and rewards of ownership have been
transferred to the buyer.
Franchise income
Franchise income, which is generally earned based upon a percentage of sales is recognised on an accrual basis.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
43
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only A3 Expenses
Expenses by nature
Consolidated ($000s)
Lease expense
Salaries and employee benefits expense
Wages and salaries
Compulsory social security contributions
Increase in liability for long-service leave
Share-based payment expense
Total salaries and employee benefits expense
2016
24,516
36,362
3,380
122
116
39,980
2015
22,087
32,252
2,793
74
-
35,119
Reversal of/(provision for) buy-back of company shares
In previous years the Group made provision for the buy-back of shares from Centerville Pty Ltd, a private vehicle owned by the
CEO. As a result of the IPO, and in accordance with the prospectus disclosures, the provision was reversed in FY2015.
A4 Earnings per share (EPS)
Calculation methodology
The calculation of basic earnings per share has been based on the following profit attributable to ordinary shareholders and
weighted-average number of ordinary shares outstanding.
The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders
and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary
shares.
EPS for profit attributable to ordinary shareholders of Lovisa Holdings Limited
Basic EPS (cents)
Diluted EPS (cents)
2016
15.76
15.74
2015
29.14
29.14
Profit attributable to ordinary shareholders ($000s)
16,553
30,598
Weighted average number of ordinary shares for basic EPS (shares)1
105,000,000
105,000,000
Weighted average number of ordinary shares and potential ordinary shares for diluted EPS
(shares)1
105,193,666
105,000,000
1Due to the number of ordinary shares increasing subsequent to the reorganisation of the Group and associated capital, the calculation of basic
and diluted earnings per share for FY2015 has been adjusted as if the transaction took place 12 months prior.
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
105,000,000
105,000,000
2016
2015
Adjustments for calculation of diluted earnings per share:
Options
performance Rights
188,333
5,333
-
-
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
105,193,666
105,000,000
Information concerning the classification of securities
i) Options and performance rights
Options and performance rights granted to employees under the Lovisa Holdings Long Term Incentive Plan are considered to
be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required hurdles
would have been met based on the company’s performance up to the reporting date, and to the extent to which they are
dilutive. The options and performance rights have not been included in the determination of basic earnings per share. Details
relating to the options are set out in note D4.
44
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
A5 Dividends
The Board may pay any interim and final dividends that, in its judgement, the financial position of the Company justifies. The
Board may also pay any dividend required to be paid under the terms of issue of a Share, and fix a record date for a dividend
and the timing and method of payment.
The following dividends were declared and paid by the Company for the year.
Consolidated ($000s)
4.07 cents per qualifying ordinary share (2015: 758.73 cents)
6.67 cents per qualifying ordinary share (2015: 6.67 cents)
2016
4,273
7,004
2015
7,587
7,004
11,277
14,591
Dividends in relation to FY2014 of $7,587,000 were paid to shareholders of Lovisa Pty Ltd (share capital: $1,000,000), prior to
the reorganisation of the Group.
After the reporting date, the following dividends were proposed by the Board of Directors. The dividends have not been
recognised as liabilities and there are no tax consequences.
Consolidated ($000s)
2.00 cents per qualifying ordinary share (2015: 4.07 cents)
Consolidated ($000s)
Dividend franking account
2016
2,100
2,100
2015
4,274
4,274
2016
2015
Franking credits available for subsequent reporting periods based on a tax rate of 30.0%
(2015: 30%)
2,308
2,543
A6 Income taxes
Recognition and measurement
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognised in
the statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at
the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following
differences are not provided for: reversal of buy back of company shares, goodwill not deductible for tax purposes, the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided
is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend is recognised.
(a) Amounts recognised in profit or loss
Consolidated ($000s)
Current tax expense
Current period
Deferred tax benefit
Origination and reversal of temporary differences
2016
2015
6,218
6,218
777
777
7,369
7,369
(748)
(748)
Total income tax expense
6,995
6,622
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
45
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only A6 Income taxes (continued)
(b) Reconciliation of effective tax rate
Consolidated ($000s)
Profit before tax from continuing operations
Tax at the Australian tax rate of 30% (2015: 30%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income
Utilisation of carried-forward tax losses
Current year losses for which no deferred tax asset is recognised
(c) Deferred tax assets and liabilities reconciliation
2016
23,548
7,064
(384)
225
(8)
(24)
122
2015
37,219
11,166
(577)
460
(4,427)
-
-
6,995
6,622
Consolidated ($000s)
Property, plant and equipment
Employee benefits
Provisions
Other items
transaction costs
Carry forward tax losses
Deferred tax expense
Net deferred tax assets
Statement of financial
position
Statement of profit or loss
2016
(397)
719
754
43
704
-
2015
217
667
843
(75)
1,013
876
1,823
3,541
2016
563
(160)
92
(27)
309
-
777
2015
(75)
(170)
(288)
92
(381)
74
(748)
Presented in the Statement of financial position as follows:
Deferred tax assets
1,823
3,541
The defered tax assets recognised in 2015 based on provisional numbers of an acquisition have been derecognised when final
numbers were trued up at 3 July 2016.
Unused tax losses for which no deferred tax asset has been recognised total $907,000 (2015: nil).
(d) Expected settlement of deferred tax balances
Consolidated ($000s)
Deferred tax assets expected to be settled within 12 months
Deferred tax assets expected to be settled after 12 months
Deferred tax liabilities expected to be settled within 12 months
Deferred tax liabilities expected to be settled after 12 months
2016
1,604
863
2,467
302
342
644
2015
1,796
1,897
3,693
151
-
151
Net deferred tax assets
1,823
3,541
46
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
A7 Acquisition of subsidiary
On 10 April 2015 the Group acquired 100% of the stores and voting interests in DCK Jewellery South Africa (Pty) Ltd.
(a) Consideration transferred
The following table summarises the acquisition-date fair value of each major class of consideration transferred.
Consolidated ($000s)
Cash
Deferred consideration
Total consideration transferred
2,153
250
2,403
(b) Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date.
In thousands of dollars
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax assets
Trade and other payables
Total identifiable net assets acquired
Measurement of fair values
Note
B3
Revised
19
434
234
(171)
-
(455)
61
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Assets acquired
Valuation technique
Property, plant and
equipment
Items have been written-down to their net recoverable value based on whether the fixed assets would
continue to be utilised by the business or replaced. Remaining asset values have been assessed by
the Company to ensure valuation is in line with the expected benefits to accrue to the business over
the remaining useful lives of the assets.
Deferred tax assets
Revised - Deferred tax assets of $984,000 have not been recorded on the basis the utilisation of
carried forward tax losses is not expected to be fully realised in the immediate course of business due
to the isolation of tax losses within the legal entity in accordance with provisional fair value acquisition
accounting principles.
Inventories
The fair value was determined based on the estimated selling price in the ordinary course of business.
All trade and other receivable balances were valued at cost and are fully recoverable.
(c) Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Consolidated ($000s)
Consideration transferred
Fair value of identifiable assets
Goodwill recognised at 28 June 2015
Revision of fair value of identifiable assets
Goodwill
Note
(a)
2,403
(1,045)
1,358
984
2,342
This adjustment relates to the acquisition of DCK Jewellery South Africa (Pty) Ltd, moving provisional numbers that were
initially booked on acquisition through to final fair values.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
47
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
Asset Platform
This section outlines the key operating assets owned and liabilities incurred by the Group.
B1 Trade and other receivables
Recognition and measurement
Trade and other receivables are initially recognised at fair value and subsequently stated at their amortised cost using the
effective interest method, less impairment losses.
Consolidated ($000s)
Trade receivables
Deposits
prepayments
Other receivables
Impairment of receivables
Note
2016
375
1,214
610
94
2,293
2015
752
951
367
77
2,147
Recoverability of receivables is assessed monthly to determine whether there is any indication of impairment. If any such
indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognised in profit or loss if the
carrying amount of an asset exceeds its recoverable amount.
The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated
future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition
of these financial assets). Significant receivables are individually assessed for impairment. Receivables with a short duration
are not discounted.
Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other receivables is
disclosed in Note C4.
B2 Inventories
Recognition and measurement
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses. Cost includes the product purchase
cost, import freight and duties together with other costs incurred in bringing inventory to its present location and condition
using the weighted average cost method. All stock on hand relates to finished goods.
Costs of goods sold comprises purchase price from the supplier, cost of shipping product from supplier to warehouse,
shrinkage and obsolescence. Warehouse and outbound freight costs are reported as distribution expenses. Inventories
recognised as expenses during 2016 and included in cost of sales amount to $34,564,000 (2015: $26,764,000).
During 2016 inventories of $4,801,000 (2015: $3,854,000) were written down to net realisable value and included in cost of
sales.
B3 Property, plant and equipment
Recognition and measurement
Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation. Cost includes expenditures that are
directly attributable to the acquisition of the assets. The cost of acquired assets includes estimates of the costs of dismantling
and removing the items and restoring the site on which they are located where it is probable that such costs will be incurred.
Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an
item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the entity
and the cost of the item can be measured reliably. All other costs are recognised in the profit or loss as an expense as incurred.
Depreciation and amortisation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful life on all property, plant and
equipment. Land is not depreciated.
The residual value, the useful life and the depreciation method applied to an asset are re-assessed at least annually.
Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
from its use. Gains and losses on disposals are determined by comparing disposal proceeds with the carrying amount of the
disposed asset and are recognised in the profit or loss in the year the disposal occurs.
48
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only B3 Property, plant and equipment (continued)
Reconciliation of carrying amount
Consolidated ($000s)
Depreciation policy
Cost
Note
Leasehold
improvements
Hardware
and
software
Fixtures
and
fittings
Office
equipment
Total
Lease term
3 years
3 years
3 years
Balance at 30 June 2014
20,621
1,879
431
Additions
Acquisitions through business combinations
A7
Disposals
Effect of movements in exchange rates
4,012
-
(1,502)
269
634
19
(67)
16
4
-
-
-
17
36
-
-
-
22,948
4,686
19
(1,568)
285
Balance at 28 June 2015
23,400
2,482
436
53
26,371
Balance at 29 June 2015
23,400
2,482
Additions
Disposals
Effect of movements in exchange rates
Balance at 3 July 2016
8,379
(3,320)
(306)
28,153
436
283
-
-
53
26,371
-
-
-
9,282
(3,414)
(327)
620
(94)
(21)
2,987
719
53
31,912
Consolidated ($000s)
Accumulated depreciation and
impairment losses
Balance at 30 June 2014
Depreciation
Disposals
Effect of movements in exchange rates
Note
Leasehold
improvements
Hardware
and
software
Fixtures
and
fittings
Office
equipment
Total
(9,702)
(1,251)
(5,475)
(447)
1,238
(79)
48
(7)
(207)
(61)
-
-
(10)
(11,170)
(18)
(6,001)
-
-
1,286
(86)
Balance at 28 June 2015
(14,017)
(1,657)
(269)
(27)
(15,971)
Balance at 29 June 2015
Depreciation
Disposals
Effect of movements in exchange rates
(14,017)
(1,657)
(5,356)
(535)
3,148
(20)
83
5
(269)
(127)
-
-
(27)
(15,971)
(16)
(6,034)
-
-
3,231
(15)
Balance at 3 July 2016
(16,245)
(2,104)
(396)
(43)
(18,789)
Carrying amounts
At 30 June 2014
At 28 June 2015
At 3 July 2016
10,919
9,382
11,908
628
825
883
224
167
323
7
25
10
11,778
10,400
13,123
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
49
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
B4 Intangible assets and goodwill
Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Amortisation
Goodwill is not amortised.
(a) Reconciliation of carrying amount
Consolidated ($000s)
Cost
Balance at 30 June 2014
Acquisitions through business combination
Effect of movements in exchange rates
Balance at 28 June 2015
Balance at 29 June 2015
Finalisation of purchase price adjustment from previous business combination
Effect of movements in exchange rates
Balance at 3 July 2016
Note
Goodwill
259
1,358
(7)
1,610
1,610
984
(522)
2,073
B5 Impairment of Property, plant and equipment and Intangible assets and goodwill
Recognition and measurement
Impairment
The carrying amounts of the Group’s property, plant and equipment, and intangible assets and goodwill, are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s
recoverable amount is estimated in line with the calculation methodology listed below.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent
from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect
of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to
reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
Calculation of recoverable amount
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment test
Impairment testing for CGUs containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s CGUs identified by country.
The recoverable amount of each CGU was based on its value in use, determined by discounting the future cash flows to be
generated from the continuing use of the CGU.
Key assumptions used in the calculation of value in use were as follows:
In Percent
Discount rate
Budgeted EBITDA growth rate (average of next five years)
2016
12.7%
5.0%
2015
12.7%
5.0%
The discount rate was a pre-tax measure based on the rate of 10-year government bonds issued by the government in the
relevant market and in the same currency as the cash flows, adjusted for a risk premium to reflect both the increased risk of
investing in equities generally and the systemic risk of the specific CGU.
Five years of cash flows were included in the discounted cash flow model with a long-term growth rate into perpetuity
determined as the lower of the nominal GDP rates for the countries in which the CGU operates and the long-term compound
annual EBITDA growth rate estimated by management.
Budgeted EBITDA was based on expectations of future outcomes taking into account past experience, adjusted for the
anticipated revenue growth with FY17 balances based on budgeted results. Beyond this period, revenue growth was projected
taking into account the growth levels experienced over the past five years and the estimated sales volume and price growth for
the next five years.
If no growth was budgeted to occur no impairment would result.
50
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
B5 Impairment of Property, plant and equipment and Intangible assets and goodwiLl (continued)
Reversals of impairment
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in previous
years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss
is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation, if no impairment loss had been recognised.
There were no material reversals of impairment in the current or prior year.
B6 Trade and other payables
Recognition and measurement
Liabilities for trade creditors and other amounts are carried at their amortised cost.
Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an
expense on an accrual basis.
Consolidated ($000s)
Trade payables
Non-trade payables and accrued expenses
2016
4,292
4,058
8,350
2015
4,677
3,093
7,770
Trade payables are unsecured and are usually paid within 30 days of recognition.
Information about the Group’s exposure to currency and liquidity risk is included in Note C4.
B7 Provisions
Recognition and measurement
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.
A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly
recommended on or before the reporting date.
Consolidated ($000s)
Site restoration
Straight line rent and
lease incentive
Onerous
lease
Other
provisions
Balance at 29 June 2015
Provisions made during the year
Provisions used during the year
Provisions released during the year
Effect of movement in exchange rates
Balance at 3 July 2016
Current
Non-current
1,500
557
(319)
-
(17)
1,721
109
1,612
1,721
916
112
(232)
-
(5)
791
82
709
791
799
-
(388)
-
-
-
240
-
-
-
Total
3,215
909
(939)
-
(22)
411
240
3,163
224
187
411
240
-
240
655
2,508
3,163
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
51
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
B7 Provisions (CONTINUED)
Recognition and measurement (continued)
(a) Site restoration
Description
In accordance with the Group’s legal requirements, a provision for site restoration in respect of
make good of leased premises is recognised when the premises are occupied.
The provision is the best estimate of the present value of the expenditure required to settle
the restoration obligation at the reporting date, based on current legal requirements and
technology. Future restoration costs are reviewed annually and any changes are reflected in the
present value of the restoration provision at the end of the reporting period.
The amount of the provision for future restoration costs is capitalised and is depreciated in
accordance with the policy set out above. The unwinding of the effect of discounting on the
provision is recognised as a finance cost.
Key Estimates
Expenditure to settle the
restoration obligation at
the end of the lease term is
based on the Company’s
best estimate.
(b) Straight line rent and lease incentive
Description
Lease payments are recognised on a straight-line basis over the lease term.
The lease incentive liability in relation to non-cancellable operating leases are offset against lease
rental expense on a straight line basis over the lease term (generally three to five years).
Key Estimates
No major estimation
required in the
calculation of these
provisions.
c) Onerous leases
Description
Onerous leases arise when the cost of exiting an existing lease is greater than the loss on the
sub-lease arrangement. In these circumstances, the best estimate is made of the expenditure
required to settle the present obligation at the end of the reporting period with a provision
made based on the least net cost alternative of exiting the lease. Provisions are based on the
excess of the cash flows for the unavoidable costs in meeting the obligations under the lease
over the unrecognised estimated future economic benefits from the lease.
Where the Group has agreed to exit an existing lease early, these balances have been accrued
for at year-end.
Key Estimates
• Sub-lease party to
undertake rental in line
with agreements
• Expenditure to settle
the lease at the end of
the lease term is based
on the Company’s best
estimate
B8 Employee benefits
Recognition and measurement
Long-term service benefits
The Group’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases
in wage and salary rates including related on-costs and expected settlement dates, and is discounted using high quality
Australian corporate bond rates at the balance sheet date which have maturity dates approximating to the terms of the Group’s
obligations.
Short-Term Benefits
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the
reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated
at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date
including related on-costs, such as workers compensation insurance and payroll tax.
52
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
B8 Employee benefits (continued)
Recognition and measurement (continued)
Consolidated ($000s)
Current
Liability for annual leave
Total employee benefit liabilities
Consolidated ($000s)
Non-Current
Liability for long-service leave
Total employee benefit liabilities
2016
2015
1,594
1,594
1,382
1,382
2016
2015
401
401
279
279
For details on the related employee benefit expenses, see Note A3.
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution plans are expensed as the related service is provided. Prepaid contributions are recognised as an asset to the
extent that a cash refund or a reduction in future payments is available.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
53
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Risk and Capital Management
This section discusses the Group’s capital management practices, as well as the instruments and strategies utilised by the
Group in minimising exposures to and impact of various financial risks on the financial position and performance of the Group.
C1 Capital and reserves
Recognition and measurement
Ordinary shares
Initially, share capital is recognised at the fair value of the consideration received by the Company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share
proceeds received.
(a) Share capital
On issue at beginning of year
Reallocation as part of business reorganisation
Issued as part of business reorganisation
transaction costs
On issue at end of year
No. of Ordinary Shares
Value of Ordinary Shares
2016
'000's
105,000
-
-
-
2015
'000's
1,100
(1,100)
105,000
-
2016
2015
'$000's
'$000's
208,526
1,086
-
-
-
(1,086)
210,000
(1,474)
105,000
105,000
208,526
208,526
All ordinary shares rank equally with regard to the Company’s residual assets.
Share capital reallocated for statutory reporting purposes from being the share capital of Lovisa Pty Ltd and Lovisa
International Pte Ltd in 2014 to being the share capital of Lovisa Holdings Limited, created as part of the internal reorganisation
during the previous financial year.
(i) Ordinary shares
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid.
The holders of these shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per
share at general meetings of the Company. All rights attached to the Company’s shares held by the Group are suspended until
those shares are reissued.
(b) Nature and purpose of reserves
(i) Common control reserve
The Group’s accounting policy is to use book value accounting for common control transactions. The book value used is the
book value of the transferor of the investment. Book value accounting is applied on the basis that the entities are part of a
larger economic group, and that the figures from the larger group are the relevant ones. In applying book value accounting, no
entries are recognised in profit or loss; instead, the result of the transaction is recognised in equity as arising from a transaction
with shareholders.
The book value (carry-over basis) is accounting on the basis that the investment has simply been moved from one Group
owner to a new Group Company. In applying book value accounting, an adjustment may be required in equity to reflect any
difference between the consideration received and the aggregated capital of the transferee. The adjustment is reflected in the
‘common control reserve’ capital account.
(ii) Translation reserve
The translation reserve reflects all foreign currency differences of the international entities upon translation to the Group’s
functional currency.
(iii) Hedging Reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used
in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows affect profit or loss.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the
derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of
changes in the fair value of the derivative is recognised immediately in profit or loss.
The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same
period or periods during which the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected
to occur, then the amount accumulated in equity is reclassified to profit or loss.
54
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C1 Capital and reserves (CONTINUED)
(b) Nature and purpose of reserves (continued)
(iv) Share-based payments reserve
The share-based payments reserve is used to recognise:
• the grant date fair value of options issued to employees but not exercised
• the grant date fair value of shares issued to employees
• the grant date fair value of deferred shares granted to employees but not yet vested
C2 Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The Board of Directors seeks to maintain a balance between the higher returns
that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders or issue new shares.
C3 Loans and borrowings
Recognition and measurement
Loans and borrowings are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using the effective interest method.
Consolidated ($000s)
Current liabilities
Bank overdraft
Non-current liabilities
Secured bank loans
Note
2016
3,566
2015
1,908
12,000
12,000
Information about the Group’s exposure to interest rate, foreign currency and liquidity risk is included in Note C4.
(a) Terms and debt repayment schedule
Terms and conditions of outstanding loans are as follows:
Consolidated ($000s)
Currency
Cash advance facility
multi-option facility
Corporate card facility
Total interest-bearing liabilities
AuD
AuD
AuD
Nominal
interest
rate
3.89%
6.86%
17.99%
3 July 2016
28 June 2015
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2017
2016
2016
12,000
12,000
12,000
12,000
3,566
3,566
1,908
1,908
-
-
78
78
15,566
15,566
13,986
13,986
The secured bank loans are secured by security interests granted by Lovisa Pty Ltd over all of its assets and the assets of
Lovisa New Zealand Pty Ltd and Lovisa Singapore Pte Ltd in favour of the Commonwealth Bank of Australia (CBA). In addition,
Lovisa Pty Ltd must ensure that the ‘EBITDA’ and ‘Total Assets’ of those members of the Group equal at least 75% of the
‘EBITDA’ and ‘Total Assets’ of the Group. Any such guarantor must grant security over all of their respective assets in favour of
the CBA.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
55
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
C4 Financial instruments – Fair values and risk management
C4 Financial instruments – Fair values and risk management
(a) Fair values
(a) Fair values
Recognition and measurement
Recognition and measurement
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and
non-financial assets and liabilities.
non-financial assets and liabilities.
The Group has begun to establish a control framework with respect to the measurement of fair values. This includes
The Group has begun to establish a control framework with respect to the measurement of fair values. This includes
overseeing all significant fair value measurements, including Level 3 fair values, by the CFO.
overseeing all significant fair value measurements, including Level 3 fair values, by the CFO.
The Group periodically reviews significant unobservable inputs and valuation adjustments. If third party information, such as
The Group periodically reviews significant unobservable inputs and valuation adjustments. If third party information, such as
broker quotes or pricing services, is used to measure fair values, then the Group assesses the evidence obtained from the
broker quotes or pricing services, is used to measure fair values, then the Group assesses the evidence obtained from the
third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value
third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value
hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Group Audit, Business
hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Group Audit, Business
Risk and Compliance Committee.
Risk and Compliance Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e.
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e.
as prices) or indirectly (i.e. derived from prices).
as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire measurement.
lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the financial year during which the
The Group recognises transfers between levels of the fair value hierarchy at the end of the financial year during which the
change has occurred.
change has occurred.
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels
in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at
in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at
fair value if the carrying amount is a reasonable approximation of fair value.
fair value if the carrying amount is a reasonable approximation of fair value.
3 July 2016
3 July 2016
Carrying Amount
Carrying Amount
Fair Value
Fair Value
Consolidated ($000s)
Consolidated ($000s)
Note
Note
Hedging
Hedging
instruments
instruments
Loans and
Loans and
receivables
receivables
Other
Other
financial
financial
liabilities
liabilities
Total
Total
Level 1 Level 2
Level 1 Level 2
Level 3 Total
Level 3 Total
Financial liabilities
Financial liabilities
measured at fair
measured at fair
value
value
Derivatives
Derivatives
Financial assets not
Financial assets not
measured at fair
measured at fair
value
value
trade and other
trade and other
receivables
receivables
Cash and cash
Cash and cash
equivalents
equivalents
Financial liabilities
Financial liabilities
not measured at fair
not measured at fair
value
value
Bank overdrafts
Bank overdrafts
Secured bank loans
Secured bank loans
trade and other
trade and other
payables
payables
B1
B1
C5
C5
C5
C5
C3
C3
B6
B6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
909
909
909
909
2,293
2,293
8,295
8,295
10,588
10,558
3,566
3,566
12,000
12,000
909
909
909
909
-
-
-
-
2,293
2,293
8,295
8,295
10,588
10,558
3,566
3,566
12,000
12,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,350
8,350
8,350
8,350
15,566
15,566
8,350
8,350
23,916
23,916
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
909
909
909
909
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
909
909
909
909
-
-
-
-
-
-
-
-
-
-
-
-
-
-
56
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C4 Financial instruments – Fair values and risk management (CONTINUED)
(a) Fair values (continued)
Recognition and measurement (continued)
28 June 2015
Carrying Amount
Fair Value
Consolidated ($000s)
Note
Hedging
instruments
Loans and
receivables
Other
financial
liabilities
Total
Level 1 Level 2
Level 3 Total
Financial liabilities
measured at fair
value
Derivatives
Financial assets not
measured at fair value
trade and other
receivables
Cash and cash
equivalents
Financial liabilities
not measured at fair
value
Bank overdrafts
Secured bank loans
trade and other
payables
B1
C5
C5
C3
B6
(30)
(30)
-
-
-
-
(30)
(30)
-
-
-
-
-
-
-
2,147
-
2,147
4,251
-
4,251
6,397
-
6,397
1,908
12,000
-
1,908
-
12,000
-
7,770
7,770
13,908
7,770
21,678
-
-
-
-
-
-
-
-
-
(30)
(30)
-
-
(30)
(30)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i) Valuation technique and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant
unobservable inputs used.
Financial instruments measured at fair value.
Type
Valuation technique
Forward exchange
contracts
Market comparison technique:
Fair value of forward exchange
contracts is determined using
forward exchange rates at the
balance sheet date. These
over-the-counter derivatives
utilise valuation techniques
maximising the use of
observable market data where
it is available.
Significant unobservable
inputs
Inter-relationship between key
unobservable inputs and fair value
measurement
Not applicable.
Not applicable.
Financial instruments not measured at fair value
Type
Valuation technique
Significant unobservable inputs
Secured bank loans Discounted cash flows.
Not applicable.
(ii) Transfers between Level 1 and 2
There were no transfers between Level 1 and Level 2 during the year.
(iii) Level 3 fair values
Transfer out of Level 3
There were no transfers out of Level 3 during the year.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
57
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
C4 Financial instruments – Fair values and risk management (CONTINUED)
(b) Financial risk management
The Group has exposure to the following risks arising from financial instruments:
• credit risk (see (b)(ii))
•
liquidity risk (see (b)(iii))
• market risk (see (b)(iv))
(i) Risk Management framework
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The Board of Directors has established the Audit, Business Risk and Compliance Committee, which
is responsible for developing and monitoring the Group’s risk management policies. The Committee reports regularly to the
Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed to
reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards
and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their
roles and obligations.
The Audit, Business Risk and Compliance Committee oversees how management monitors compliance with the Group’s risk
management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks
faced by the Group.
The Committee’s specific function with respect to risk management is to review and report to the Board that:
a) the Group’s ongoing risk management program effectively identifies all areas of potential risk;
b) adequate policies and procedures have been designed and implemented to manage identified risks;
c) a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and
d) proper remedial action is undertaken to redress areas of weakness.
(ii) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers and deposits placed for leased
outlets.
The Group’s credit risk on its receivables is recognised on the consolidated statement of financial position at the carrying
amount of those receivable assets, net of any provisions for doubtful debts. Receivable balances and deposit balances are
monitored on a monthly basis with the result that the Group’s exposure to bad debts is not considered to be material.
Credit risk also arises from cash and cash equivalents and derivatives with banks and financial institutions. For banks and
financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted by Lovisa.
At the reporting date, the carrying amount of financial assets recorded in the financial statements, net of any allowances for
impairment losses, represents the Group’s maximum exposure to credit risk. There were no significant concentrations of credit
risk.
Past due but not impaired
As at 3 July 2016, no trade receivables were past due but not impaired (2015: nil). The other classes within trade and other
receivables do not contain impaired assets and are not past due.
(iii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as
possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation. Cash flow forecasts are updated and
monitored weekly.
In addition, the Group maintains the following lines of credit:
• $12 million revolving cash advance facility that is secured by security interests granted by Lovisa Pty Ltd over all of its
assets and the assets of Lovisa New Zealand Pty Ltd and Lovisa Singapore Pte Ltd in favour of the Commonwealth Bank of
Australia (CBA).
• $6 million multi option overdraft facility that is secured by security interests granted by Lovisa Pty Ltd over all of its assets in
favour of the CBA.
Exposure to liquidity risk
The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and
undiscounted, and include estimated interest payments and exclude the impact of netting agreements.
58
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only -
-
-
-
-
-
-
-
-
-
-
-
-
-
C4 Financial instruments – Fair values and risk management (CONTINUED)
(b) Financial risk management (continued)
(iii) Liquidity risk (continued)
3 July 2016
Contractual cash flows
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2
years
2-5
years
More
than 5
years
Consolidated ($000s)
Non-derivative financial liabilities
Trade payables
Bank overdrafts
Secured bank loans
Derivative financial liabilities
Forward exchange contracts used for
hedging:
4,292
3,566
4,292
3,566
12,000
12,000
4,292
-
-
-
3,566
-
-
-
12,000
19,858
19,858
4,292
3,566
12,000
- Outflow
- Inflow
total
-
-
25,633
6,861
18,772
(24,724)
(6,532)
(18,192)
909
909
329
580
-
-
-
28 June 2015
Contractual cash flows
Consolidated ($000s)
Non-derivative financial liabilities
Trade payables
Bank overdrafts
Secured bank loans
Derivative financial liabilities
Forward exchange contracts used for
hedging:
- Outflow
- Inflow
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2
years
2-5
years
More
than 5
years
4,677
4,677
4,677
-
1,908
1,908
12,000
12,000
-
-
1,908
-
18,585
18,585
4,677
1,908
-
-
19,565
5,175
14,390
(19,595)
(5,225)
(14,370)
(30)
(30)
(50)
20
-
-
-
-
-
-
-
-
-
12,000
12,000
-
-
-
-
-
-
-
-
-
-
The gross inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to
derivative financial liabilities held for risk management purposes and which are usually not closed out before contractual
maturity. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and gross cash inflow and
outflow amounts for derivatives that have simultaneous gross cash settlement.
As disclosed in Notes C3, the Group has a secured bank loan which contains a loan covenant. A future breach of covenant
may require the Group to repay the loan earlier than indicated in the above table. The interest payments on bank overdrafts
and secured bank loans in the table above reflect market forward interest rates at the reporting date and these amounts may
change as market interest rates change. The future cash flows on trade payables may be different from the amount in the
above table as exchange rates change. Except for these financial liabilities, it is not expected that the cash flows included in
the maturity analysis could occur significantly earlier, or at significantly different amounts.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
59
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C4 Financial instruments – Fair values and risk management (CONTINUED)
(b) Financial risk management (continued)
(iv) Market risk
Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates and equity prices – will
affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group uses derivatives to manage market risks. All such transactions are carried out within the guidelines set by the
Audit, Business Risk and Compliance Committee. The group also has begun to apply hedge accounting during the year in
order to manage volatility in profit or loss.
Currency risk
The Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases
and borrowings are denominated and the respective functional currencies of Group companies. The presentation currency of
the Group companies is the Australian dollar (AUD) which is the functional currency of the majority of Lovisa. The currencies in
which transactions are primarily denominated are Australian dollars, Singapore dollars, US dollars and South African Rand.
The Company’s foreign exchange policy is aimed at managing its foreign currency exposure in order to protect profit margins
by entering into forward exchange contracts and currency options, specifically against movements in the USD rate against the
AUD.
The following table defines the range of cover that has been authorised by the Board relating to purchases over a defined
period:
Exposure
Minimum Hedge Position
Neutral Hedge Position
Maximum Hedge Position
purchases 0 to 6 months
Purchases 7 to 9 months
purchases 10 to 12 months
Exposure to currency risk
60%
40%
30%
80%
50%
40%
100%
75%
50%
The summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group is as
follows:
In thousands of
Cash and cash equivalents
Trade receivables
Trade payables
3 July 2016
28 June 2015
SGD
1,920
-
USD
-
108
(127)
(2,876)
ZAR
1,951
10
(12)
SGD
1,190
USD
ZAR
-
1,565
-
548
-
(129)
(3,521)
(166)
Net statement of financial position exposure
1,793
(2,768)
1,949
1,061
(2,972)
1,398
Sensitivity analysis
A reasonably possible strengthening (weakening) of the USD, the SGD, or ZAR against all other currencies would have affected
the measurement of financial instruments denominated in a foreign currency and affected profit or loss by the amounts shown
below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact
of forecast sales and purchases. The translation of the net assets in subsidiaries with a functional currency other than the
Australian dollar has not been included in the sensitivity analysis as part of the equity movement.
There is no impact on equity as the foreign currency denominated assets and liabilities represent cash, receivables and payables.
60
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C4 Financial instruments – Fair values and risk management (CONTINUED)
(b) Financial risk management (continued)
(iv) Market risk (continued)
Sensitivity Analysis (continued)
Effect in thousands of dollars
3 July 2016
SGD (5 percent movement)
USD (5 percent movement)
ZAR (5 percent movement)
28 June 2015
SGD (5 percent movement)
USD (5 percent movement)
ZAR (5 percent movement)
Interest rate risk
Profit or loss
Strengthening
Weakening
(85)
132
(93)
(51)
142
(67)
94
(146)
103
56
(156)
74
The Group is subject to exposure to interest rate risk as changes in interest rates will impact borrowings which bear interest
at floating rates. Any increase in interest rates will impact Lovisa’s costs of servicing these borrowings which may adversely
impact its financial position. This impact is not assessed to be material.
Increases in interest rates may also affect consumer sentiment and the level of customer demand, potentially leading to a
decrease in consumer spending.
Exposure to interest rate risk
The interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the Group is as
follows:
Consolidated ($000s)
Variable-rate instruments
Financial liabilities
Nominal amount
2016
15,566
15,566
2015
13,908
13,908
Cash flow sensitivity analysis for variable rate instruments
At 3 July 2016, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held
constant, pre tax profit for the year would have been $122,000 lower/higher (28 June 2015 - $55,000 lower/higher), as a result
of higher/lower interest expense from variable rate borrowings. There is no additional impact on equity.
(c) Derivative assets and liabilities
The Group holds derivative financial instruments to manage its foreign currency risk exposures.
Recognition and measurement
Derivative financial instruments are recognised initially at fair value; any directly attributable transaction costs are recognised in
profit or loss as they are incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value,
and changes therein are generally recognised in profit or loss.
Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-
financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the
following methods.
Forward rate contracts
The fair value of forward exchange contracts is based on their quoted price, if available. If a quoted price is not available, then
fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the
residual maturity of the contract using a credit-adjusted risk-free interest rate (based on government bonds).
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
61
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C4 Financial instruments – Fair values and risk management (CONTINUED)
(c) Derivative assets and liabilities (continued)
Forward rate contracts (continued)
The following table provides details of the derivative financial assets and liabilities included on the balance sheet:
Consolidated ($000s)
Current Investments
Forward exchange contracts
2016
(909)
(909)
2015
30
30
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and
the carrying amounts of the related hedging instruments.
Consolidated ($000s)
Forward exchange contracts:
Assets
Liabilities
2016
2015
Expected Cash Flows
Expected Cash Flows
Carrying
Amount
Total
12 mths
of less
More
than 1
year
Carrying
Amount
Total
12 mths
of less
More
than 1
year
-
(909)
(909)
-
(909)
(909)
-
(909)
(909)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A loss of $3,000 was included in other expenses on foreign currency derivatives not qualifying as hedges.
C5 Cash flows
Recognition and measurement
Cash and cash equivalents comprise cash balances, and cash in transit and call deposits. Bank overdrafts that are repayable
on demand and form an integral part of the entity’s cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows.
Consolidated ($000s)
Bank balances
Cash and cash equivalents in the statement of financial position
Bank overdrafts used for cash management purposes
Cash and cash equivalents in the statement of cash flows
2016
2015
8,295
(3,566)
4,729
4,251
(1,908)
2,343
62
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only C5 Cash flows (continued)
Reconciliation of cash flows from operating activities
Consolidated ($000s)
Note
2016
2015
Cash flows from operating activities
Profit
Adjustments for:
Depreciation
Loss on sale of property, plant and equipment
(Reversal of)/provision for buy back of company shares
A3
Transaction costs taken to profit and loss
Share based payments
Fair value adjustment to derivatives
C4
Exchange differences
Change in inventories
Change in trade and other receivables
Change in deferred tax assets
Change in derivatives
Change in trade and other payables
Change in current tax liabilities
Change in provisions and employee benefits
Net cash from operating activities
16,553
30,598
6,034
162
-
-
116
3
1,154
24,022
(146)
(23)
734
30
580
(2,141)
282
23,338
6,001
77
(14,756)
2,115
-
-
933
24,968
(6,761)
(113)
(2,330)
(30)
1,562
1,440
724
19,460
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
63
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Other Information
This section includes mandatory disclosures to comply with Australian Accounting Standards, the Corporations Act 2001 and
other regulatory pronouncements.
D1 List of subsidiaries
Set out below is a list of material subsidiaries of the Group. All subsidiaries are wholly owned, unless otherwise stated.
Name
Lovisa Australia Pty Ltd
Lovisa Pty Ltd
Lovisa International Pte Ltd
Lovisa Singapore Pte Ltd
Lovisa Accessories Pty Ltd
DCK Jewellery South Africa (Pty) Ltd
Lovisa New Zealand Pty Ltd
Lovisa Malaysia Sdn Bhd
Lovisa UK Ltd
Lovisa Global Pte Ltd
D2 Operating leases
Recognition and measurement
Principal place of business
Australia
Australia
Singapore
Singapore
South Africa
South Africa
New Zealand
malaysia
United Kingdom
Singapore
Leases are classified at their inception as either operating or finance leases based on the economic substance of the
agreement so as to reflect the risks and benefits incidental to ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits
of ownership of the leased item, are recognised as an expense on a straight-line basis.
The lease incentive liability in relation to the non-cancellable operating leases are offset against lease rental expense on a
straight line basis over the lease terms (generally three to five years).
(a) Leases as lessee
The Group has a number of lease commitments related to the operation of its retail stores. The leases typically run for a period
of 3 to 5 years, with an option to renew the lease after that date. Leases typically have an annual rental increase linked to CPI
or a fixed annual increase.
(i) Future minimum lease payments
The future minimum lease payments under non-cancellable leases are payable as follows:
Consolidated ($000s)
Less than one year
Between one and five years
More than five years
2016
14,574
21,280
364
36,218
2015
14,454
19,039
83
33,576
D3 Commitments and contingencies
(a) Guarantees
Lovisa has guarantees outstanding to landlords and other parties to the value of $670,000 at 3 July 2016.
(b) Capital commitments and contingent liabilities
There are no capital commitments or contingent liabilities that exist at 3 July 2016 and 28 June 2015.
64
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
D4 share-based payment arrangements
The grant-date fair value of equity-settled share-based payment awards granted to employees is generally recognised as
an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an
expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related
service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting
conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up
for differences between expected and actual outcomes.
(a) Descriptions of the share-based payment arrangements
the Board has issued share option programmes that entitle key management personnel and senior management to purchase
shares in the Company. Under these programmes, holders of vested options are entitled to purchase shares at the market
price of the shares at the grant date. Currently, these programmes are limited to key management personnel and senior
management.
The key terms and conditions related to the grants under these programmes are as follows; all options are to be settled by
physical delivery of shares.
At 3 July 2016 the Group has the following share-based payment arrangements:
(i) Share option programmes (equity-settled)
FY2017 LTI - Performance Options
Grant date/employee entitiled
Options granted
On 18 may 2016
Number of
instruments
(000’s)
Vesting conditions
Contractual
life of options
3,460 20% compound increase in EBIT over 3 years, with
3 years
a decrease in the number of options vesting down to a
minimum of 10% compound EBIT growth over the 3 year
period in line with the table below.
total share options
3,460
The Board has determined that the threshold EPS target is 10% compound growth over the 3 year period and the stretch EPS
target is 20% compound growth over the 3 year period.
Company’s EPS over the Performance Period
% of Performace Options that become exercisable
Less than threshold
equal to threshold
Between threshold and stretch
Nil
10% compound growth - 20% awarded
12.5% compound growth - 40% awarded
15% compound growth - 60% awarded
17.5% compound growth - 80% awarded
Stretch
20% compound growth - 100% awarded
No expense has been recognised in relation to these options as the performance period is the period from 4 July 2016 through
to 30 June 2019, with the expense to be recognised over the vesting period as service is provided. 1,687,764 of these options
are subject to shareholders approval.
Initial Public Offering - Performance Options
Grant date/employee entitiled
Options granted
Number of
instruments
(000’s)
Vesting conditions
On 23 December 2014
550 As per table below
total share options
550
Contractual
life of options
2.5 years
The achievement of forecast EPS for FY15 (15.62c) will result in the award of one third of the options.
The remaining two thirds of Options are subject to a performance condition based on the Company’s EPS over FY16 and FY17
(EPS Hurdle). The Board has determined that the threshold EPS target is 37.33c and the stretch EPS target is 41.23c over
FY16 and FY17.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
65
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
D4 share-based payment arrangements (continued)
(a) Descriptions of the share-based payment arrangements (continued)
i) Share option programmes (equity-settled) (continued)
Company’s EPS over the Performance Period
% of Performace Options that become exercisable
Less than threshold
equal to threshold
Nil
50% awarded
Between threshold and stretch
50% - 100%, on a straight-line sliding scale
Stretch
100% awarded
These options are subject to shareholder approval.
(ii) Performance rights (equity-settled)
On 18 November 2015, the Group granted 20,000 and 16,000 performance rights to the former CFO and Head of Product
respectively, which entitle them to acquire a Share for nil consideration at the end of the performance period, subject to
satisfaction of specific performance conditions.
The 20,000 performance rights were cancelled upon the resignation of the former CFO.
(b) Measurement of fair values
(i) Equity-settled share-based payment arrangements
The fair value of the employee share options and performance rights (see (a)(i) and (a)(ii)) have been measured using the Black-
Scholes formula. Service and non-market performance conditions attached to the transactions were not taken into account in
measuring fair value.
The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as
follows.
Fair value at grant date
Share price at grant date
30 day vWAp share price at grant date
Exercise price
Expected volatility (weighted-average)
Expected life (weighted-average)
Expected dividends
Risk-free interest rate (based on government bonds)
Share option programme
IPO LTI
$0.386
$2.300
N/A
$2.300
34%
2.5 years
4.67%
2.23%
FY2017 LTI
$0.237
$2.050
$2.100
$2.100
24.70%
3 years
5.11%
1.86%
Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price.
(c) Reconciliation of outstanding share options
The number and weighted average exercise prices of share options under the share option programmes (see (a)(i)) and
performance rights (see (a)(ii)) were as follows.
Number of options Weighted average exercise price
Number of performance rights
granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 3 July
Exercisable at 3 July
2016
000’s
4,010
-
-
4,010
-
No options were issued or on issue in FY2015.
(d) Expenses recognised in profit or loss
For details on the related employee benefit expenses, see Note A3.
2016
$
$2.13
-
-
$2.13
-
2016
000’s
36
(20)
-
16
-
66
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only D5 Related parties
(a) Parent and ultimate controlling party
Lovisa Holdings Limited is the parent entity and ultimate controlling party in the Group comprising itself and its subsidiaries.
Material subsidiaries of the Group are listed in note D1.
(b) Transactions with key management personnel
(i) Key management personnel compensation
The key management personnel compensation comprised the following:
Consolidated ($000s)
Short-term employee benefits
Post-employment benefits
Share based payment
Other long term benefits
2016
1,390
62
100
146
1,699
2015
884
49
-
93
1,025
Compensation of the Group’s key management personnel includes salaries and non-cash benefits (see Note A3).
Detailed remuneration disclosures are provided in the Remuneration report on pages 26 to 31.
(ii) Key management personnel and Director transactions
A number of key management personnel, or their related parties, hold positions in other companies that result in them having
control or joint control over these companies.
The aggregate value of outstanding balances relating to key management personnel and entities over which they have control
or joint control were as follows:
Consolidated ($000s)
Transaction values for the year
ended
Balance outstanding as at
Director
Transaction
3 July 2016
28 June 2015
3 July 2016
28 June 2015
S Fallscheer
Centerville Loan Receivable
t Blundy
Coloskye Loan Receivable
-
-
(593)
(43)
-
-
-
-
Loans receivable from key management personnel were short-term loans over which interest was not charged. Any interest
not charged would be trivial given the short-term nature of these loans. No write-downs or allowances for doubtful receivables
have been recognised in relation to any loans receivable from key management personnel.
(c) Other related party transactions
Consolidated ($000s)
3 July 2016
28 June 2015
3 July 2016
28 June 2015
Transaction values for the year ended
Balance outstanding as at
a) Loans
Loan Receivable
Shareholder loan payable
b) Expenses
Expense recharges
c) Sales
Recharges
-
-
394
3
(65)
5,524
333
-
-
-
(28)
2
-
-
(22)
-
Transactions between the Lovisa Group and BB Retail Capital and its related parties have been disclosed above due to BB
Retail Capital continuing to be in a position of holding significant influence in relation to the Group, with representation on the
Board of Directors. Lovisa has, and will continue to benefit from the relationships that its management team and BB Retail
Capital have developed over many years of retail operating experience. BB Retail Capital currently provides certain property
management services to Lovisa on an arm’s length basis including managing negotiations with landlords for new leases and
lease renewals. This arrangement provides Lovisa with a strong potential negotiation partner when dealing with landlords,
however the arrangement is also flexible as it can be cancelled at Lovisa’s discretion, after giving three months’ notice. Non
property management related expense recharges are also priced on an arm’s length basis.
All outstanding balances with other related parties are priced on an arm’s length basis and are to be settled in cash within two
months post the end of the reporting year. None of the balances are secured. No expense has been recognised in the current
year or prior year for bad or doubtful debts in respect of amounts owed by related parties.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
67
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
D6 Auditors’ remuneration
Consolidated ($)
a) KPMG
Audit and review services
Auditors of the Company - KPMG Australia
Audit and review of financial statements
Network firms of KPMG Australia
Audit and review of financial statements
Total remuneration for audit and review services
Other services
Auditors of the Company - KPMG Australia
2016
2015
199,240
108,000
20,760
220,000
72,000
180,000
In relation to other assurance, taxation and due diligence services
137,250
612,600
Network firms of KPMG Australia
In relation to other assurance, taxation and due diligence services
Total remuneration for other services
Total remuneration of KPMG
b) Non-KPMG audit firms
Audit and review services
Audit and review of financial statements
Total remuneration for audit and review services
Other services
In relation to other assurance, taxation and due diligence services
Total remuneration for other services
Total remuneration of non-KPMG audit firms
Total auditors remuneration
D7 Deed of cross guarantee
16,842
154,092
374,092
18,978
18,978
165
165
19,143
393,235
15,536
628,136
808,136
19,213
19,213
20,353
20,353
39,566
847,702
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below are
relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’
reports.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The
effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of
any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions
of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The
subsidiaries have also given similar guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
• Lovisa Australia Pty Ltd
• Lovisa Pty Ltd
Both of these companies became a party to the Deed on 18 June 2015, by virtue of a Deed of Assumption.
A consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position,
comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between
parties to the Deed of Cross Guarantee, at 3 July 2016 is set out as follows.
68
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only D7 Deed of cross guarantee (CONTINUED)
Statement of profit or loss and other comprehensive income and retained earnings
Consolidated ($000s)
Revenue
Cost of sales
Gross profit
Salaries and employee benefits expense
Property expenses
Distribution costs
Depreciation
Loss on disposal of property, plant and equipment
IpO transaction costs
Reversal of buy-back of company shares
Other expenses
Finance income
Finance costs
Profit before tax
Tax expense
Profit after tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year, net of tax
Retained earnings at beginning of year
Dividends recognised during the year
Retained earnings at end of year
2016
100,387
(26,507)
73,880
(32,198)
(17,035)
(767)
(3,726)
(184)
-
-
(3,075)
1
(706)
16,189
(4,736)
11,453
(772)
10,681
250
(11,277)
426
2015
96,431
(24,075)
72,356
(29,460)
(16,970)
(675)
(4,181)
(76)
(2,115)
14,756
(4,841)
4
(283)
28,515
(4,551)
23,964
-
23,964
(9,123)
(14,591)
250
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
69
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only D7 Deed of cross guarantee (CONTINUED)
Statement of financial position
Consolidated ($000s)
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Total current assets
Deferred tax assets
Property, plant and equipment
Investments
Total non-current assets
Total assets
Liabilities
Bank overdraft
Trade and other payables
Employee benefits - current
Current tax liabilities
Derivatives
Provisions - current
Total current liabilities
Employee benefits - non-current
Loans and borrowings
Provisions - non current
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Common control reserve
Share based payments reserve
Cash flow hedge reserve
Retained earnings
Total equity
3 July 2016
28 June 2015
2,055
6,587
10,062
-
18,704
1,541
6,876
210,000
218,417
237,121
3,566
6,474
1,404
874
909
357
13,584
401
12,000
1,916
14,317
27,901
1,107
14,725
9,256
30
25,118
2,430
6,125
210,000
218,555
243,673
1,908
13,273
1,225
2,471
-
595
19,472
279
12,000
2,221
14,500
33,972
209,221
209,701
208,526
208,526
925
116
(772)
426
925
-
-
250
209,221
209,701
70
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only D8 Parent entity disclosures
($000s)
Result of parent entity
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of parent entity at year end
Current assets
total assets
Current liabilities
Total liabilities
Total equity of parent entity comprising of:
Share capital
Share based payments reserve
Accumulated losses
Total equity
(a) Parent entity accounting policies
2016
13,208
-
13,208
-
210,826
2,074
2,074
208,526
116
110
208,752
2015
5,183
-
5,183
-
211,013
4,307
4,307
208,526
-
(1,820)
206,706
The financial information for the parent entity, Lovisa Holdings Limited, has been prepared on the same basis as the
consolidated financial report, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost.
(b) Parent entity contingent liabilities
The parent entity did not have any contingent liabilities as at 3 July 2016.
(c) Parent entity guarantees in respect of the debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of
certain subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in
Note D7.
D9 New standards and interpretations adopted by the group
The Group has applied the following standards and amendments for the first time for the annual reporting year ending
3 July 2016:
• AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality
• AASB 2015-4 Amendments to Australian Accounting Standards - Financial Reporting Requirements for Australian group’s
with a Foreign Parent
The adoption of these standards did not have any impact on the current year or any prior year and are not likely to affect future years.
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
71
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
D10 New standards and interpretations not yet adopted
A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2015;
however, the Group has not applied the following new or amended standards in preparing these consolidated financial
statements.
New or amended
standards
IFRS 9 Financial
Instruments
Summary of the requirements
IFRS 9, published in July 2014, replaces the existing
guidance in IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes revised guidance on the
classification and measurement of financial instruments,
including a new expected credit loss model for calculating
impairment on financial assets, and the new general
hedge accounting requirements. It also carries forward
the guidance on recognition and derecognition of financial
instruments from IAS 39.
IFRS 9 is effective for annual reporting periods beginning
on or after 1 January 2018, with early adoption permitted.
Possible impact on consolidated
financial statements
the group is assessing the potential
impact on its consolidated financial
statements resulting from the
application of IFRS 9 however the
impact of the new standard is not
expected to be material.
IFRS 15 Revenue
from Contracts with
Customers
IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition
guidance, including IAS 18 Revenue, IAS 11 Construction
Contracts and IFRIC 13 Customer Loyalty Programmes.
IFRS 15 is effective for annual reporting periods beginning
on or after 1 January 2018, with early adoption permitted.
Adoption of IFRS 15 is not expected to
have a material impact on the Group’s
future revenue recognition.
IFRS 16 Leases
IFRS 16 removes the classification of leases as either
operating or finance leases – for the lessee – effectively
treating all leases as finance leases.
Short-term leases (less than 12 months) and leases of
low-value assets are exempt from the lease accounting
requirements.
There are also changes in accounting over the life of the
lease. This will result in the recognition of a front-loaded
pattern of expense for most leases, even when constant
annual rentals are paid.
Lessor accounting remains similar to current practice.
As a lessee with a substantial portfolio
of operating leases, the implementation
of IFRS 16 is expected to have a
material impact on the future statutory
performance of Lovisa Holdings Limited.
A summary of the key impacts are as
follows:
•
•
•
EBITDA: increases because no
operating lease expense is included
Equity: decreases as carrying
amount of right-of-use asset
reduces faster than the reduction of
the lease liability in the early years
of the lease
Profit before tax/EPS: Decreases
as amortisation and interest
expense recognised is greater than
operating lease expense in the early
years of the lease
The overall income statement impact is
profit neutral over the course of a lease.
72
NOteS tO tHe CONSOLIDAteD FINANCIAL StAtemeNtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only signed reports
73
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only Directors’ declaration
1.
In the opinion of the Directors of Lovisa Holdings Limited (‘the Company’):
(a) the consolidated financial statements and notes that are set out on pages 36 to 72 and the Remuneration report in the
Directors’ report, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 3 July 2016 and of its performance, for the
financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2. There are reasonable grounds to believe that the Company and the group entities identified in Note D7 will be able to
meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee
between the Company and those Group entities pursuant to ASIC Class Order 98/1418.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief
Executive Officer and Chief Financial Officer for the financial year ended 3 July 2016.
4. The Directors draw attention to the Basis of Accounting for the consolidated financial statements set out on page 40,
which includes a statement of compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors.
________________________________________________
Shane Fallscheer
Director
Melbourne
22 August 2016
74
SIgNeD RepORtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
independent audit report to the
members of lovisa holdings limited
Independent auditor’s report to the members of Lovisa Holdings Limited
Report on the financial report
We have audited the accompanying financial report of Lovisa Holdings Limited (the company),
which comprises the consolidated statement of financial position as at 3 July 2016, and
consolidated statement of profit or loss and other comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows for the year ended on that date, basis
of accounting set out on page 40, notes A1 to D10 comprising a summary of significant accounting
policies and other explanatory information and the directors’ declaration of the Group comprising
the company and the entities it controlled at the year’s end or from time to time during the financial
year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that is free from material misstatement whether due to fraud or
error. In the basis of accounting set out on page 40, the directors also state, in accordance with
Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the
financial statements of the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. These Auditing Standards require that
we comply with relevant ethical requirements relating to audit engagements and plan and perform
the audit to obtain reasonable assurance whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation of the financial report that gives a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents
fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true
and fair view which is consistent with our understanding of the Group’s financial position and of
its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Profession Standards Legislation.
SIgNeD RepORtS
75
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only independent audit report to the
members of lovisa holdings limited
(CONTINUED)
(i)
Auditor’s opinion
Independent auditor’s report to the members of Lovisa Holdings Limited
In our opinion:
Report on the financial report
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
We have audited the accompanying financial report of Lovisa Holdings Limited (the company),
giving a
financial position as
which comprises the consolidated statement of financial position as at 3 July 2016, and
at 3 July 2016 and of its performance for the year ended on that date; and
consolidated statement of profit or loss and other comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows for the year ended on that date,
complying with Australian Accounting Standards and the Corporations Regulations
basis of accounting set out on page 24, notes A1 to D10 comprising a summary of significant
2001.
accounting policies and other explanatory information and the directors’ declaration of the
(b) the financial report also complies with International Financial Reporting Standards as disclosed
Group comprising the company and the entities it controlled at the year’s end or from time to
on page 40.
time during the financial year.
fair view of
the Group’s
true and
(ii)
Report on the remuneration report
Directors’ responsibility for the financial report
We have audited the Remuneration Report included in paragraph 9 of the directors’ report for the
The directors of the company are responsible for the preparation of the financial report that gives
year ended 3 July 2016. The directors of the company are responsible for the preparation and
a true and fair view in accordance with Australian Accounting Standards and the Corporations
presentation of the remuneration report in accordance with Section 300A of the Corporations Act
Act 2001 and for such internal control as the directors determine is necessary to enable the
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
preparation of the financial report that is free from material misstatement whether due to fraud or
conducted in accordance with auditing standards.
error. In the basis of accounting set out on page 24, the directors also state, in accordance with
Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the
Auditor’s opinion
financial statements of the Group comply with International Financial Reporting Standards.
In our opinion, the remuneration report of Lovisa Holdings Limited for the year ended 3 July 2016,
Auditor’s responsibility
complies with Section 300A of the Corporations Act 2001.
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
KPMG
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
Maurice Bisetto
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
Partner
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
Melbourne
We performed the procedures to assess whether in all material respects the financial report
22 August 2016
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
KPM_INI_01
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
PAR_SIG_01
PAR_NAM_01
PAR_DAT_01
PAR_POS_01
PAR_CIT_01
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Profession Standards Legislation.
76
SIgNeD RepORtS
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
Lead auditor’s independence
declaration under Section 307C
of the Corporations Act 2001
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Lovisa Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial
year ended 3 July 2016 there have been:
(i)
(ii)
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
KPMG
Maurice Bisetto
Partner
22 August 2016
Melbourne
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Profession Standards Legislation.
SIgNeD RepORtS
77
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only 78
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only asx information
79
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only ASX additional information
Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below.
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Lovisa Holdings Limited is responsible for the corporate governance of the Group. The Lovisa
Holdings Board of Directors is committed to achieving best practice in the area of corporate governance and business
conduct. Lovisa Holding Limited’s Corporate Governance Statement outlines the main corporate governance principles
and practices followed by the Group. These policies and practices are in accordance with the ASX Corporate Governance
Council’s Corporate Governance Principles and Recommendations (3rd Edition) unless otherwise stated.
Details of the Company’s Corporate Governance Statement as well as key policies and practices and the charters for
the Board and each of its committees are available on the Company’s website (http://investors.lovisa.com.au/corporate-
governance), including performance against measurable objectives. The Corporate Governance Statement will be lodged with
ASX at the same time that this Annual Report is lodged with ASX.
The Corporate Governance Statement includes details of the main corporate governance practices in place throughout the
reporting period (unless otherwise stated) in relation to the corporate governance principles and recommendations published
by the ASX Corporate Governance Council and are current as at 27 September 2016 and have been approved by the Board.
The Board is comfortable that the practices are appropriate for a Company of Lovisa Holdings’ size.
Shareholdings (as at 7 september 2016)
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
BB Retail Capital Pty Ltd
Grahger Capital Securities Pty Ltd
Renaissance Smaller Companies Pty Ltd
Commonwealth Bank of Australia
Voting rights
Ordinary shares
Refer to Note C1 in the financial statements.
Options
There are no voting rights attached to options.
Rights
There are no voting rights attached to rights.
Number
43,207,500
7,432,210
6,645,635
5,270,661
Redeemable preference shares
There are no voting rights attached to redeemable preference shares.
Non-redeemable preference shares
There are no voting rights attached to non-redeemable preference shares.
Distribution of equity security holders
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Number of equity security holders
Units
% of Issued Capital
238
588
231
251
36
119,389
1,867,266
1,873,586
7,102,794
94,036,965
1,344
105,000,000
0.11
1.78
1.78
6.76
89.56
100.00
The number of shareholders holding less than a marketable parcel of ordinary shares is 51.
80
ASX ADDItIONAL INFORmAtION
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
Securities Exchange
The Company is listed on the Australian Securities Exchange. The Home exchange is Sydney.
Other information
Lovisa Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
Twenty largest shareholders
The names of the twenty largest holders of quoted equity securities are listed below:
Name
BB Retail Capital pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees pty Limited
J p morgan Nominees Australia Limited
National Nominees Limited
Centreville Pty Ltd
grahger Capital Securities pty Ltd
Sandhurst trustees Ltd
grahger Capital Securities pty Ltd
uBS Nominees pty Ltd
BNP Paribas Noms Pty Ltd
grahger Retail Securities pty Ltd
mrs vanessa Louise Speer
Coloskye pty Ltd
grahger Retail Securities pty Ltd
PBC Investments Pty Limited
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
Mr Robert Thomas & Mrs Kyrenia Thomas
Truebell Capital Pty Ltd
Number of ordinary
shares held
Percentage of capital
held
43,207,500
41.15
7,252,581
6,129,476
5,798,867
4,766,602
4,490,000
3,000,000
2,133,269
2,000,000
1,789,394
1,361,025
1,304,414
1,227,460
1,153,005
1,100,000
1,000,000
784,654
783,834
645,000
460,000
6.91
5.84
5.52
4.54
4.28
2.86
2.03
1.90
1.70
1.30
1.24
1.17
1.10
1.05
0.95
0.75
0.75
0.61
0.44
Total
Balance of register
90,387,081
14,612,919
Grand total
105,000,000
86.08
13.92
100.00
ASX ADDItIONAL INFORmAtION
81
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only
taking inspiration from
high fashion couture
runways and current
street style,
lovisa delivers new
product lines in store
every week.
For personal use only
For personal use only CORPORATE DIRECTORY
Company Secretary
Graeme Fallet, Chief Financial Officer and Company Secretary
Principal Registered Office
Lovisa Holdings Limited
41-45 Camberwell Road
Hawthorn East VIC 3123
+61 3 9831 1800
Location of Share Registry
Link Market Services Limited
Tower 4
727 Collins Street
Melbourne Victoria 3000
+61 3 9615 9800
Stock Exchange Listing
Lovisa Holdings Limited (LOV) shares are listed on the ASX.
Auditors
KPMG
147 Collins Street
Melbourne Victoria 3000
Website
www.lovisa.com.au
84
ASX ADDItIONAL INFORmAtION
Lovisa HoLdings Limited annuaL RepoRt - 3 JuLy 2016For personal use only