L O V I S A H O L D I N G S L I M I T E D
ANNUAL REPORT
2018
P
/
1
ACN 602 304 503
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only 2
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only CONTENTS
Overview
Chairman’s and MD’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 Financial Statements
Setting the scene
Business performance
Asset platform
Risk and capital management
Other information
Signed Reports
Directors’ declaration
Independent auditor’s report
Lead auditor’s independence declaration
ASX information
Shareholder information
04
10
12
34
35
36
37
38
40
46
52
62
76
77
81
84
P
/
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
OUR BRAND
MOVING GLOBALLY
4
/
P
• 326 Stores in 15 Countries
• First USA store opened in November 2017
• First French Store Opened in February 2018
• 120 new products arriving weekly
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only HIGHLIGHTS
EBIT up 26%
$51.1m
$36.0m
NPAT
up 24%
Revenue up 21.4%
$217m
Like For Like sales
+6.8%
Final Dividend
14.0 CPS
Fully Franked
P
/
5
Total Stores
326
Net increase of 38 stores
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Overview
6
6
/
/
P
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Overview
GLOBAL REACH
KEY
Owned Stores
Franchise
P
/
7
STORE NUMBERS
Owned
FY18 FY17
Franchise
FY18 FY17
Aus/NZ
Australia
151
145
Asia
Middle East
Total Franchise
6
18
24
4
19
23
TOTAL STORES
326 288
New Zealand
20
Asia
Singapore
Malaysia
Africa
South Africa
22
21
56
Europe/Americas UK 24
Spain
France
USA
5
2
1
18
21
19
50
11
1
-
-
Total Owned
302
265
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Overview
ABOUT
LOVISA
Lovisa was born from
a desire to fill the void
for fashion forward and
directional jewellery that is
brilliantly affordable.
Now trading from 326 stores
in 15 Countries. 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.
8
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Overview
P
/
9
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Chairman’s Report
CHAIRMAN’S &
MANAGING DIRECTOR’S REPORT
0
1
/
P
Strong earnings growth in 2018, with global rollout continuing.
OVERVIEW
FINANCIALS
It is very pleasing to report that Lovisa Holdings Limited
(Lovisa) has delivered another record result for the year
ended 1 July 2018 with sales, profits, cash flow and
dividends all significantly up on the prior year. This result
was driven by a combination of sales growth, margin
improvement and cost of doing business management
underpinned by emphasis on ensuring our retail offer
resonates with our customers.
The company continued its international expansion with
a net increase of 38 stores which included entry into two
new markets, and closed the financial year with 54% of
the store network in markets outside Australia. Following
another year of strong operating cash flows, the
company is well positioned to accelerate its international
growth plans.
Revenue for the year was $217m being a 21.4% increase
on the prior year. Sales momentum was again strong
throughout the year with comparable store sales growth
of 6.8% driven by growth across all regions, with a
strong Christmas and Boxing Day period and continued
delivery on key trends in the fashion jewellery sector.
Trading margins increased to 80.0% from 78.8% in the
prior year as a result of continuing to deliver on-trend
product, strong inventory management and favourable
foreign exchange rates. We estimate that on a constant
currency basis, gross margin was 79.1%, a 30 basis
point improvement on FY17.
The Company’s Cost of Doing Business (CODB) margin
was consistent with FY17 at 53% of sales, despite the
continued investment in the structures to support the
global growth of the business, and the opening of 38 net
new stores.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
CHAIRMAN’S &
MANAGING DIRECTOR’S REPORT
Chairman’s Report
Earnings before interest and tax (EBIT) was $51.1m being
a 26% increase on EBIT from the prior year resulting
in the delivery of Net profit after tax of $36.0m, a 24%
increase on FY17, and earnings per share of 34.2 cents.
The Company’s cash flow was again strong with
operating cash conversion at 104% resulting in cashflow
from operating activities lifting $10.2m to $60.6m. Capital
expenditure predominantly from new stores and existing
store refurbishments was $15.3m. Free cash flow after
dividends was $9.9m.
CAPITAL MANAGEMENT
The balance sheet was further strengthened during
the year with strong cash generation delivering net
cash reserves at year-end of $21.1m, and enabling the
Directors to announce a final dividend of 14 cents per
share, an increase of 6.4 cents on the prior year.
INTERNATIONAL STORE EXPANSION
During the year the company increased its store
network to 326 stores. The company’s international
expansion continued with store openings across all
existing markets, the United Kingdom store rollout
gaining momentum with 13 new stores for the year, and
importantly the company now has stores operating in
Spain, the USA, and France as we test our model in
those markets with a view to them becoming important
parts of our global rollout strategy. We continue to be
diligent in ensuring store location and rent economics
meet our internal hurdles before signing long term
leases. We are engaged with Landlords across all
markets ensuring Landlords are familiar with the Lovisa
Brand and the company’s financial strength.
DIVIDENDS
Following the strong earnings and cash flow
performance, the Directors declared a final dividend of
14.0 cents per share fully franked for the year ended 1
July 2018, taking the total dividends for the year to 27.0
cents, a 53% increase on FY17. The final dividend will be
paid on 25 October 2018.
BOARD RENEWAL
We are pleased to announce that Mr John Armstrong
has agreed to join the Board as an Independent Non-
Executive Director, effective from 25 September 2018.
Mr Armstrong has more than 30 years’ experience in
various financial and commercial management roles and
brings significant financial experience to the Board. His
most recent executive role was at SEEK Limited, an ASX
50 listed leading recruitment and education provider,
where he was the Chief Financial Officer for over
12 years.
After completing an agreed term of two years,
the Chairman has decided to stand down and retire
from the Board at the Annual General Meeting on 30
October 2018. Mr Kay agreed to join the board to bring
his experience in public markets to the then recently
listed Lovisa. Lovisa is now well established with the
investment community and the task now is to accelerate
the roll out of stores and the online sales channel in
suitable countries around the world.
With this in mind, we are delighted Mr Brett Blundy
has agreed to join the board as a full-time director
(he is currently alternate to Ms Tracey Blundy) from
1 November 2018. Mr Blundy will assume the role of
Chairman on that date.
OUTLOOK
We continue to cycle particularly strong comparable
store sales delivered over recent years, with growth
above our target range delivered in each of the past 4
years, which will make continuation of the comparable
store sales momentum delivered in FY18 more
challenging. Whilst we continue to maintain positive
comparable store sales growth as we begin FY19,
we are currently trading below our long-term target
range of 3-5%.
Subject to being able to source suitable sites, we expect
to accelerate the store rollout in the coming year, with
the increase in number of stores for FY19 to be higher
than FY18. We will continue to invest in our support
structures ahead of the growth curve to drive store
network expansion. We forecast to go into Christmas
trading with at least 7 stores in each of the US, France,
and Spain markets as we continue to build our presence.
The key drivers of success for Lovisa continue to be a
dedicated fast fashion jewellery offer to it its customers
supported by a talented and enthusiastic team. Your
Board and Management team remain committed to
maintaining this and we look forward to another exciting
and successful year.
P
/
1
1
Michael Kay
Non-Executive Chairman
Shane Fallscheer
Managing Director
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
THE
DIRECTORS
REPORT
2
1
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only P
/
1
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
THE
DIRECTORS
4
1
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
Details of the qualifications and experience of each Director in accordance with
the requirements of the Corporation Act have been included below.
Michael Kay
Shane Fallscheer
Tracey Blundy
James King
Brett Blundy
Michael Kay
Independent Non-Executive Director & Chairman
Appointed 13 April 2016
Chairman of the Board
Chairman of the Remuneration & Nomination Committee
Member of the Audit, Business Risk & 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 is Chairman of ASX listed litigation funder, IMF Bentham
Ltd (ASX : IMF) and is Chairman of Apply Direct Ltd (ASX : AD1).
Michael is a non-executive Director of Royal Automotive Club
Insurance (WA) and was also a non-executive Director of Quintis
Limited (ASX : QIN). Michael holds a Bachelor of Laws from The
University of Sydney.
Shane Fallscheer
Managing Director
Appointed 6 November 2014
Shane Fallscheer is the Managing Director and founder of Lovisa.
He has 31 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.
Tracey Blundy
Non-Executive Director
Appointed 6 November 2014
Member of the Audit, Business Risk & Compliance Committee
Member of the Remuneration & Nomination Committee.
Tracey joined BB Retail Capital in 1981 and is the nominated
representative of BB Retail Capital on the Board of Lovisa. Tracey
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 and
BB Retail Property Pty Limited.
P
/
1
5
James King
Independent Non-Executive Director
Appointed 17 May 2016
Chairman of the Audit, Business Risk &
Compliance Committee
Member of the Remuneration & Nomination
Committee
James King has over 30 years’ experience
as a Director and a Senior 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 Chairman
of Dutt Industries Pty Ltd and and is a member
of Global Coaching Partnership. Previously he
was a Director of ASX listed JB Hi-Fi Ltd, Trust
Company Ltd, Navitas Ltd, Pacific Brands Ltd
and Tattersalls Ltd. He also served as a member
of the Council of Xavier College and Chairman of
Juvenile Diabetes Research Foundation (Victoria).
Jim holds a Bachelor of Commerce from
University of New South Wales and is a Fellow of
the Australian Institute of Company Directors.
Brett Blundy
Alternate Director for Tracey Blundy
Appointed 16 April 2018
Along with being co-founder and substantial
shareholder, Brett is also the Chairman and
Founder of BB Retail Capital (“BBRC”), a private
investment group with diverse global interests
across retail, capital management, retail property,
beef, and other innovative ventures.
Brett is one of Australia’s most succesful retailers,
with BBRC’s retail presence extending to over
800 stores across more than 15 countries. Brett
is currently a non-executive director of Accent
Group Limited (ASX: AX1) and Aventus Retail
Property Fund (ASX: AVN). Brett also sits on the
Board of Directors of Human Longevity Inc.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
6
1
/
P
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 1
July 2018.
Board
Audit and Risk
Remuneration & Nomination
Number
attended
Number
held
Number
attended
Number held
Number attended
Number held
10
9
3
10
10
1
10
10
3
10
10
3
4
3
1
-
4
-
4
4
1
-
4
-
6
5
1
-
6
-
6
6
1
-
6
-
Director
M Kay
T Blundy
P Cave
S Fallscheer
J King
B Blundy
Paul Cave was a Director of Lovisa Holdings Limited during the year until his resignation on 31 October 2017.
1.1 Company Secretary
Chris Lauder was appointed Company Secretary on 15 September 2017. He is also the company’s Chief Financial
Officer. Mr Lauder is a Chartered Accountant. Graeme Fallet resigned as Company Secretary on 15 September 2017.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
1.2 Directors Interests in Shares
The relevant interest of each Director in the Company at
the date of the report is as follows:
4. REVIEW OF OPERATIONS
The following summary of operating results and operating
metrics reflects the Group’s performance for the year
ended 1 July 2018:
Consolidated
Gross Margin %
EBITDA ($000)
NPAT ($000)
2018
80%
2017
79%
58,200
46,243
35,954
29,046
Basic Earnings per share
34.24c
27.66c
Ordinary
Shares in the
Company
250,000
1,153,005
4,490,000
34,000
Director
M Kay (1)
T Blundy (2)
S Fallscheer (3)
J King (4)
B Blundy (5)
43,207,500
4.1 Financial Performance
(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 Coloskye Pty Ltd
(3) Shares held by Centerville Pty Ltd
(4) Shares held by King Family Super Fund
(5) Shares held by BB Retail Capital Pty Ltd
For the year ended 1 July 2018 the Group reported a
net profit after tax of $36.0 million following continued
strong same store sales growth of 6.8% and the addition
of a further net 38 stores across the globe. This was also
assisted by an increase in gross margin on the back of
strong range performance, tight inventory management
and the stronger Australian dollar.
This result reflects an increase of 23.8% on the Group’s
2017 net profit.
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 326 retail stores in operation at 1 July
2018 including 24 franchise stores.
There was no significant change in the nature of the
activities of the Group during the period.
3. DIVIDENDS
Dividends paid to members during the financial year were
as follows:
Consolidated $’000
FY2018
FY2017 Change
Sales
217,010 178,746
21.4%
Gross profit
173,637 140,822
23.3%
Operating expenses
115,437
94,579
22.1%
EBITDA
EBIT
Net profit after tax
(NPAT)
58,200
46,243
25.9%
51,074
40,704
25.5%
35,954
29,046
23.8%
P
/
1
7
2018
2017
4.1.1 Sales
$000's
$000's
Final ordinary dividend for the
year ended 30 June 2017 of
7.6 cents (2016: 2.0 cents) per
fully paid share fully franked
paid on 26 October 2017
Interim ordinary dividend for
the year ended 30 June 2018
of 13.0 cents (2017: 10.0
cents) per fully paid share fully
franked paid on 27 April 2018
7,980
2,100
13,652
10,500
Total dividends paid
21,632
12,600
In addition to the above dividends, since the end of
the financial year the Directors have recommended the
payment of a final dividend of $14,702,000 (14.0 cents per
fully paid share) expected to be paid on 25 October 2018.
The dividend will be fully franked.
STRONG REVENUE GROWTH (A$M)
.
m
7
5
0
1
$
.
m
3
4
3
1
$
.
m
5
3
5
1
$
.
m
7
8
7
1
$
.
m
0
7
1
2
$
FY14
FY15
FY16
FY17
FY18
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
4.1.1 Sales (continued)
4.1.3 Cost Of Doing Business
NUMBER OF STORES IN OFFSHORE
MARKETS GROWING
STABLE COST OF DOING BUSINESS
%
1
6
%
4
5
%
4
5
%
3
5
%
3
5
FY14
FY15
FY16
FY17
FY18
The Group’s Cost of Doing Business (CODB) remained
steady during the year despite the continued investment
in new territory infastructure, management bench strength
and the net opening of 38 new stores. The Group continues
to invest in its international operating structure ahead of
the curve.
4.1.4 Earnings
Earnings before interest and tax (EBIT) was $51.1m being
a 25.5% increase on EBIT from the prior year. Financing
costs were positive during the year following strong cash
flow and debt facilities remaining undrawn.
Net profit after tax increased 23.8% to $36.0m with EPS
lifting to 34.2 cents.
4.1.5 Cash Flow
The Group’s net cash flow from operating activities
increased $7.2m during the year to $46.8m. The Group’s
cash flow before tax and financing costs was $60.6m.
Capital expenditure of $14.2m relates predominately to
new store openings and refurbishments of current stores
upon lease renewal. The Group has net cash of $21.1m on
hand at year end.
0
1
2
9
3
2
0
5
2
8
8
2
FY14
FY15
FY16
FY17
FY17
6
2
3
FY18
AUSTRALIA
OFFSHORE
The Group’s reported revenue was $217.0m, being a
21.4% increase on the prior year with comparable sales
growth of 6.8% across the Group. Total Company sales
were $215.5m being 21.3% up on last year. Franchise
income increased by 37.6% to $1.5m.
The offshore expansion continued during the year with the
addition of a net 38 stores across the Group, comprising
of 52 new stores including new stores in France and the
USA, offset by 14 stores closed.
4.1.2 Gross Profit Margin
LIFT IN GROSS MARGINS
8
1
/
P
%
6
FY13
7
%
7
FY14
7
%
4
FY15
7
%
9
FY16
7
%
FY17
0
8
FY14
FY15
FY16
FY17
FY18
The Group’s Gross Profit increased by 23.3% to $173.6m.
Gross Margin increased to 80.0% from 78.8% in the
prior year on the back of strong range performance, tight
inventory management and the stronger Australian dollar.
This Margin increase benefited from currency tailwinds
associated with the Australian Dollar. We estimate 90bps
of the 120bps improvement in gross margin was a result
of the impact of the stronger Australian dollar on stock
purchases.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
4.2 Financial Position
Consolidated
Trade receivables and prepayments
Inventories
Trade payables and provisions
Net working capital
Property, plant & equipment
Intangible assets and goodwill
Total funds employed
Net cash
Net derivative asset/(liability)
Net deferred tax balances
Net assets/equity
Net working capital
Directors’ Report
Actual
FY2018
$’000
4,881
14,945
(27,579)
(7,753)
22,411
3,563
18,221
21,057
1,429
4,535
45,242
Actual
FY2017
$’000
3,615
13,127
(19,996)
(3,254)
15,658
2,276
14,680
11,039
(805)
3,275
28,189
Change
FY17/FY18
%
35.0%
13.8%
37.9%
138.3%
43.1%
56.5%
24.1%
90.8%
(277.5%)
38.5%
60.5%
The Group’s net working capital strengthened during the year predominately from improved inventory management.
Inventory levels increased from $13.1m to $14.9m during the year due to an increase of 37 company owned stores and
1 Franchise store.
Property, plant and equipment
Capital expenditure during the year reflects fit out costs associated with new stores and refurbishment of existing
stores. Fit out costs are depreciated over the term of the lease.
Debt facilities
The Group maintains its debt facilities at $25m along with a $5m contingent liability facility predominately for issuance
of Bank Guarantees and Letters of Credit to international landlords. Following the strong cash flow during the year the
Group possesses net cash reserves of $21.1m at year end.
P
/
1
9
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
5. BUSINESS STRATEGIES
Lovisa has achieved rapid growth since it was founded, with revenue growing from $25.5 million in FY2011 to $217.0
million in FY2018. The Group continues to focus on its key drivers to deliver growth in sales and profit growth.
Strategy
Risks
Achievements
Business
Strategy
Section
Growth pillar
International
expansion
5.2
• Continue to leverage current
international territories
• Leverage the Company’s
capital in large international
markets
• Competition (6.2)
• Retail
environment and
general economic
conditions (6.3)
• Roll out UK territory and
• Failure to
investigate other Northern
Hemisphere markets
• Consider franchise partners
for selected territories
• Expand into new international
markets, targeting one new
trial territory per annum
successfully
implement growth
strategies (6.4)
Streamline
global supply
chain
5.3
• Streamline and optimise
• Exchange rates
supply base in Asia
(6.5)
• Optimise air and sea freight
whilst maintaining speed to
market operating model
• Product sourcing
or supply chain
disruptions
• Consider Northern
Hemisphere distribution
centre
• Net 32 stores
opened outside of
Australia during the
year including 13
stores in the United
Kingdom and 4 new
stores in Spain. Two
new territories were
entered during the
year with 2 stores in
France and a new
store in the USA. Two
franchise stores were
opened during the
year, with one closed.
• Over 45% of product
was moved through
the HK warehouse
(FY17: 36%)
• Planned move of
Asian distribution hub
from HK to China
0
2
/
P
Enhance
existing store
performance
5.4
• Optimise and improve existing
store network
• Continue to target high traffic
shopping precincts
• Judicious pricing
• Competition (6.2)
• Retail
• FY18 LFL sales
growth of 6.8%
environment and
general economic
conditions (6.3)
• We continue to close
stores in
sub-optimal locations
• Prevailing
fashions and
consumer
preferences may
change (6.6)
Brand
proliferation
Lead and
pre-empt
trends
5.5
• Continue to leverage online
• Prevailing
social media to connect with
customers and increase brand
loyalty
fashions and
consumer
preferences may
change (6.6)
• Privacy breaches
•
Increased social
media engagement
5.1
• Stay on trend with shifts
• Prevailing
in jewellery and accessory
market
• Continue to provide a high
quality and diverse product
offering
fashions and
consumer
preferences may
change (6.6)
• Continued strong
LFL growth being
testament to an
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
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 target 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 a portfolio of company owned stores in
Australia, New Zealand, Singapore, Malaysia, South Africa, the United Kingdom, Spain, France and the United States
of America and supporting franchised stores in Kuwait, the United Arab Emirates, Oman, Bahrain , Saudi Arabia and
Vietnam. Lovisa will continue to explore other markets through pilot programs and will advise shareholders upon successful
completion of those pilot programs in order to capitalise on the opportunities presented and obtain scale in these markets.
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 are not presented at the
relevant time.
The history of Lovisa stores is as follows:
Australia
New Zealand
Singapore
South Africa
Malaysia
United Kingdom
Spain
France
USA
Middle East*
Vietnam*
Total
* Franchise Stores
FY2014
FY2015
FY2016
FY2017
166
14
10
11
7
-
-
-
-
2
-
210
146
14
15
36
15
-
-
-
-
13
-
239
144
145
18
19
36
14
3
-
-
-
16
-
250
18
21
50
19
11
1
-
-
19
4
288
FY2018
151
20
22
56
21
24
5
2
1
18
6
326
P
/
2
1
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, New Zealand and US stores) or its third party operated warehouse in Hong
Kong (for stock to be sold in all other countries).
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. In August 2018, the Group successfully transitioned the HK third
party warehouse to a new third party warehouse in Qingdao, China to ensure we are better placed to efficiently support
the global expansion of the business.
5.4 Enhance Existing Store Performance
Lovisa is constantly reviewing the efficiency of its existing store network to ensure that stores are run as profitably as
possible, with stores closed if they are not performing to expectations and new sites continuing to be identified. Whilst
some of the markets Lovisa operates in are mature and have less opportunities for new store openings, our leasing
team continue to assess new sites as they arise.
5.5 Brand Proliferation
Lovisa supports the growth of 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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
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.
2
2
/
P
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 due to 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 a
low average retail spend 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 on trend
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
homogeneous 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 are
not 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 associated with its cost of goods.
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
7. EVENTS SUBSEQUENT TO REPORTING DATE
Since the end of the financial year the Directors have recommended the payment of a final dividend of $14,702,000
(14.0 cents per fully paid share) expected to be paid on 25 October 2018. The dividend will be fully franked.
No other matters or circumstance has arisen since 1 July 2018 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.
P
/
2
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
9. REMUNERATION REPORT - AUDITED
A. Principles Used to Determine the Nature and Amount
of Remuneration
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 Group’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:
4
2
/
P
1. Non-Executive Directors
2. Managing Director
3. Chief Executive Officer
4. Chief Financial Officer
Non-Executive Director KMP
Michael Kay
Chairman
James King
Director
Tracey Blundy
Director
Brett Blundy
Alternate Director
Paul Cave
Director
(Resigned 31 October 2017)
Executive KMP
Shane Fallscheer Managing Director
Steven Doyle
Chief Executive Officer
(Resigned 20 April 2018)
Chris Lauder
Chief Financial Officer
(Appointed 13 September 2017)
Graeme Fallet
Chief Financial Officer
(Resigned 15 September 2017)
(a) Non-Executive Directors KMP Remuneration
Non-executive Directors’ fees are determined within an
aggregate Non-executive Directors’ 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 1 July 2018 was $336,667.
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:
• Offer a remuneration structure that will attract, focus,
retain and reward highly capable people
•
•
•
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
The mix of fixed and at risk components for each Senior
Executive as a percentage of total target remuneration for the
2018 financial year is as follows:
Senior Executive
Shane Fallscheer
Steven Doyle
Chris Lauder
Fixed
remuneration
At risk
remuneration
64%
50%
69%
36%
50%
31%
This report has been audited by the Company’s Auditor
KPMG as required by Section 308 (3C) of the Corporation
Act 2001.
Note: the above assumes each KMP receives their maximum STI and LTI in the
relevant period. If this is not the case, then the mix would change in favour of the fixed
remuneration %.
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.
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
Short Term Incentive plan
associated with the 2016 Grant are:
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.
Long Term Incentive plan
The Company operates a long term incentive plan. 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.
•
No exercise price is payable in respect of Performance
Rights.
Performance Conditions
The Board considers EPS Growth the most appropriate
performance condition as it aligns the interests of
shareholders with management.
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 ended 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.
Following completion of the 2017 financial year 100% of
these options vested with an aggregate EPS of 43.42 cents
achieved over the 2016 and 2017 financial years.
FY2017 LTI – Performance Options
In May 2016 and August 2016 a grant of Performance
Options was made to the Managing Director, Executives
and Management as part of the FY2017 LTI. The key terms
•
•
•
•
•
•
•
The performance period commences 4 July 2016 and
ends 30 June 2019.
The exercise price of the Performance Options is
$2.10 for the May granted options, and $2.63 for the
August granted options, which represents the 30 day
VWAP to the date of grant.
A total of 3,459,916 Performance Options were
granted in the May grant and 411,764 in the August
grant. 1,687,764 of these options were subject to
shareholder approval.
The expiry of the Performance Options is 12 months
following the end of the performance period.
The grant of Performance Options are subject to
performance conditions based on delivering the
Company’s EPS target growth over the performance
period, as set out below.
The Performance Options granted to the Managing
Director were approved at the 2016 AGM.
1,772,152 options were forfeited during the year.
FY2018 LTI – Performance Options
In July 2017, October 2017 and November 2017 a grant of
Performance Options was made to the Managing Director,
Executives and Management as part of the FY2018 LTI.
The key terms associated with the 2017 Grant are:
•
•
•
•
•
•
•
The performance period commences 3 July 2017 and
ends 28 June 2020.
The exercise price of the Performance Options is
$3.79 for the July 2017 granted options, $4.00 for
the October 2017 granted options and $5.94 for the
November 2017 granted options, which represents
the 30 day VWAP to the date of grant.
P
/
2
5
A total of 2,959,660 Performance Options were
granted in the July 2017 grant, 377,171 in the
October 2017 grant and 337,553 in the November
2017 grant. 1,308,901 of these options were subject
to shareholder approval.
The expiry of the Performance Options is 12 months
following the end of the performance period.
The grant of Performance Options are subject to
performance conditions based on delivering the
Company’s EPS target over the performance period,
as set out below.
The Performance Options granted to the Managing
Director were approved at the 2017 AGM.
1,072,225 options were forfeited during the year.
The Board has determined the EPS Target growth hurdles
applicable to both the FY2017 and FY2018 grants are as
follows:
EPS over the Performance Period % Exercisable
Less than threshold
10% compound growth
12.5% compound growth
15% compound growth
17.5% compound growth
Nil
20% awarded
40% awarded
60% awarded
80% awarded
20% compound growth
100% awarded
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
9.3 Details of Remuneration
Details of the remuneration of the Directors and Key Management Personnel (KMPs) is set out below.
Year
Short Term Employment Benefits
Post-
Employment
Benefits
Long
Term
Benefits
Salary &
Fees ($)
Non-
monetary
benefits
($)
Performance
based
payment ($)
Super
Contributions
($)
Annual
& Long
Service
Leave ($)
Other
Benefits
Share
Based
Payments
Options/
Rights ($)
Total ($)
NON-EXEC DIRECTORS
M Kay
P Cave (1)
T Blundy
J King
2018
2017
2018
2017
2018
2017
2018
2017
B Blundy (2)
2018
2017
2018
TOTAL
NON-EXEC
DIRECTORS
136,986
136,986
23,197
73,059
69,794
60,000
73,059
73,059
-
-
303,036
2017
343,104
EXEC DIRECTORS
-
-
-
-
-
-
-
-
-
-
-
-
S Fallscheer
2018
636,063
27,841
2017
607,025
22,023
6
2
/
P
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,014
13,014
3,470
6,941
10,206
20,000
6,941
6,941
-
-
33,631
46,896
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,000
85,397
299,987
30,000
65,891
245,144
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
150,000
26,667
80,000
80,000
80,000
80,000
80,000
-
-
336,667
390,000
1,079,288
970,083
OTHER KMP
S Doyle (3)
2018
2017
430,289
546,118
C Lauder (4)
2018
264,578
2017
2018
2017
-
73,136
367,217
G Fallet (5)
TOTAL
EXEC
-
-
-
-
-
-
245,760
225,000
20,000
-
-
20,048
34,355
(100,000)
261,559
892,011
19,616
47,787
100,000
21,174
28,428
32,000
-
-
-
-
-
-
938,521
366,180
-
3,341
5,064
(40,000)
189,980
231,521
60,000
21,250
30,299
40,000
-
518,766
2018
1,404,066
27,841
265,760
74,563
153,244
191,987
451,539
2,569,000
2017
1,520,360
22,023
285,000
70,866
143,978
385,144
-
2,427,370
(1) Resigned as a Director on 31 October 2017
(2) Appointed as Alternate Director of Lovisa Holdings on 16 April 2018
(3) Resigned on 20 April 2018
(4) Appointed on 13 September 2017
(5) Resigned on 15 September 2017
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
9.4 STI Remuneration Analysis
Analysis of STI included in remuneration
Details of STI bonuses awarded as remuneration to each key management person are detailed below.
Grant Date
STI awarded ($)
STI awarded as % of
maximum STI
% of STI award forfeited
S Doyle
C Lauder
May 2018
August 2018
245,760
20,000
100%
100%
0%
0%
9.5 Equity Remuneration Analysis
Analysis of Options and Performance Rights over Equity Instruments Granted as Compensation
Details of the vesting profile of options and performance rights awarded as remuneration to each key management
person are detailed below.
Performance Rights/Options granted
Number
Value
$
Performance period
commences
Included in
Remuneration
$
%
vested
in the
period
%
forfeited
in the
period
Financial
period in
which grant
vests
S Fallscheer
IPO LTIP
550,000
210,000
18 December 2014
-
100
FY17 LTIP
1,687,764 400,000
4 July 2016
FY18 LTIP
1,308,901 500,000
3 July 2017
133,320
166,667
S Doyle
FY17 LTIP
1,265,823 300,000
4 July 2016
(100,000)
FY18 LTIP
1,072,225 409,950
3 July 2017
-
G Fallet
FY17 LTIP
506,329
120,000
4 July 2016
(40,000)
C Lauder
FY18 LTIP
337,553
160,000
3 July 2017
32,000
-
-
-
-
-
-
-
-
-
2 July 2017
30 June 2019
28 June 2020
100
100
30 June 2019
28 June 2020
100
30 June 2019
P
/
2
7
-
28 June 2020
9.6 Options and Performance Rights Over Equity Instruments
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 3
July 2017
Granted
Exercised
Forfeited
Held at 1
July 2018
Vested during
the year
%
Vested and
exercisable at 1
July 2018
Directors
S Fallscheer
- IPO LTIP
550,000
- FY17 LTIP
1,687,764
-
-
- FY18 LTIP
Executives
S Doyle
-
1,308,901
- FY17 LTIP
1,265,823
-
- FY18 LTIP
C Lauder
-
1,072,225
- FY18 LTIP
-
337,553
G Fallet
- FY17 LTIP
506,329
-
-
-
-
-
-
-
-
-
-
-
550,000
1,687,764
1,308,901
(1,265,823)
(1,072,225)
-
-
-
337,553
(506,329)
-
-
-
-
-
-
-
-
550,000
-
-
-
-
-
-
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Directors’ Report
9.7 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 Group’s performance on shareholder
wealth, during the financial years:
FY 2018 FY 2017
FY2016
Net profit after tax ($000)
35,954
29,046
16,553
Dividends paid ($000)
21,632
12,600
11,277
Share Price
$11.70
$3.69
$2.28
Earnings per share (cents)
34.24
27.66
15.76
KMP Shareholdings
The following table details the ordinary shareholdings and
the movements in the shareholdings of KMP (including
their personally related entities) for FY2018.
Held at 3
July 2017
Shares
Purchased
Held at 1 July
2018
8
2
/
P
No. of shares
Non-executive
Directors
M Kay
T Blundy
J King
B Blundy
(alternate)
Executive
Directors
250,000
1,153,005
34,000
43,207,500
S Fallscheer
4,490,000
Executive
C Lauder
-
-
-
-
-
-
-
250,000
1,153,005
34,000
43,207,500
4,490,000
-
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Directors’ Report
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 Group 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
P
/
2
9
Michael Kay
Non-Executive Chairman
Shane Fallscheer
Managing Director
Melbourne, 21 August 2018
10. INSURANCE OF OFFICERS AND
INDEMNITIES
During the financial year, Lovisa Holdings Limited paid
a premium of $160,000 (2017: $43,000) 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 81 and forms part of this Directors’
Report.
11.2 Audit and Non-Audit Services Provided by the
External Auditor
During the financial year ended 1 July 2018, the
following fees were paid or were due and payable for
services provided by the external auditor, KPMG, of the
Consolidated Entity:
Consolidated Entity
2018
$000
2017
$000
Audit and assurance services
Audit and review of
financial statements
Other services
Tax compliance services
Other accounting services
240
230
103
113
456
129
86
445
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For 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 consolidated financial statements
0
3
/
P
Setting the scene
Business performance
A1 Operating segments
A2 Revenue
A3 Expenses
A4 Earnings per share
A5 Dividends
A6 Income taxes
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
34
35
36
37
38
40
40
41
42
42
43
43
46
46
46
46
48
48
49
49
50
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the consolidated 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 auditor’s report
Lead auditor’s independence declaration
ASX information
Shareholder information
Corporate directory
P
/
3
1
52
52
53
53
54
60
62
62
62
63
63
65
67
68
70
70
70
76
77
81
84
88
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
FINANCIAL
STATEMENTS
2
3
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only P
/
3
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 1 July 2018
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
Provisions - non current
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Common control reserve
Other reserves
Retained earnings
Total equity
4
3
/
P
Note
C5
B1
B2
A6
B3
B4
C5
B6
B8
C4
B7
B8
B7
C1
1 July
2018
21,057
4,881
14,945
1,429
42,312
4,535
22,411
3,563
30,509
72,821
-
11,747
2,416
-
1,117
6,534
21,814
780
4,985
5,765
27,579
45,242
3 July
2017
12,744
3,615
13,127
-
29,486
3,275
15,658
2,276
21,209
50,695
1,705
10,001
2,075
805
1,042
3,819
19,447
608
2,451
3,059
22,506
28,189
208,526
(208,906)
2,270
43,352
45,242
208,526
(208,906)
(461)
29,030
28,189
The Notes on pages 38 to 73 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Financial Statements
CONSOLIDATED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME
For the financial year ended 1 July 2018
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
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
A6
A4
A4
2018
217,010
(43,373)
173,637
(55,514)
(34,713)
(7,213)
(7,126)
(463)
(17,534)
51,074
192
(111)
81
51,155
(15,201)
35,954
1,981
410
2,391
2,391
2017
178,746
(37,924)
140,822
(45,276)
(28,683)
(4,464)
(5,539)
(785)
(15,371)
40,704
142
(404)
(262)
40,442
(11,396)
29,046
41
90
131
131
P
/
3
5
38,345
29,177
35,954
35,954
38,345
38,345
34.24
33.33
29,046
29,046
29,177
29,177
27.66
27.25
The Notes on pages 38 to 73 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 1 July 2018
Attributable to Equity Holders of the Company
Consolidated ($000s)
Note
Share
Capital
Common
Control
Reserve
Retained
Earnings
Share
Based
Payments
Reserve
Cash
Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Total
Equity
Balance at 4 July 2016
208,526 (208,906)
12,584
116
(772)
(376)
11,172
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
Employee share schemes
Dividends
Total transactions with
owners of the Company
D4
A5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 2 July 2017
208,526 (208,906)
Balance at 3 July 2017
208,526 (208,906)
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
Employee share schemes
Dividends
Total transactions with
owners of the Company
D4
A5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,046
-
-
29,046
-
(12,600)
(12,600)
29,030
29,030
35,954
-
-
35,954
-
(21,632)
(21,632)
Balance at 1 July 2018
208,526 (208,906)
43,352
6
3
/
P
-
-
-
-
440
-
440
556
556
-
-
-
-
340
-
340
896
-
41
-
41
-
-
-
(731)
(731)
-
1,981
-
-
90
29,046
41
90
90
29,177
-
-
-
440
(12,600)
(12,160)
(286)
28,189
(286)
28,189
-
-
35,954
1,981
-
410
410
1,981
410
38,345
-
-
-
-
-
-
340
(21,632)
(21,292)
1,250
124
45,242
The Notes on pages 38 to 73 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the financial year ended 1 July 2018
Consolidated ($000s)
Note
2018
2017
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 key money intangibles
Net cash used in investing activities
Cash flows from financing activities
Repayment of cash advance facility
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
243,407
(182,802)
60,605
192
(111)
(13,895)
46,791
197,296
(146,931)
50,365
142
(404)
(10,471)
39,632
(14,183)
(8,800)
67
(1,162)
(15,278)
-
(21,632)
(21,632)
9,881
11,039
137
21,057
-
-
(8,800)
(12,000)
(12,600)
(24,600)
6,231
4,729
79
11,039
P
/
3
7
C5
B3
B4
A5
C5
C5
The Notes on pages 38 to 73 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
SETTING
THE SCENE
Lovisa Holdings Limited (the “Company”) is a for-profit
company incorporated and domiciled in Australia with
its registered office at Level 1, 818-820 Glenferrie Road,
Hawthorn, Victoria 3122. 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.
8
3
/
P
Lovisa Holdings Limited reports within a retail financial
period. The current financial year represents a 52 week
period ended on 1 July 2018 (2017: 52 week period
ended 2 July 2017). This treatment is consistent with
section 323D of Corporations Act 2001.
The consolidated financial statements of the Group for the
financial year ended 1 July 2018 were authorised for issue
by the Board of Directors on 21 August 2018.
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 2017.
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 1 July 2018 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 key money; and
• Notes B7 and D3 – recognition and measurement of
provisions and contingencies: key assumptions about the
likelihood and magnitude of an outflow of resources.
Basis of consolidation
Business combinations
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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.
P
/
3
9
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 Group 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.
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
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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.
0
4
/
P
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). For management purposes, the Group is organised into geographic segments to review sales by
territory. All territories offer similar products and services and are managed by sales teams in each territory reporting
to the Global GM of Sales, however overall company performance is managed on a global level by the MD and the
Group’s management team. Store performance is typically assessed at an individual store level. Lovisa results are
aggregated to form one reportable operating segment, being the retail sale of fashion jewellery and accessories. The
individual stores meet the aggregation criteria to form a reportable segment.
The company’s stores exhibit similar long-term financial performance and economic characteristics throughout the
world, which include:
a. Consistent products are offered throughout the company’s stores worldwide;
b. All stock sold throughout the world utilises common design processes and products are sourced from the same supplier
base;
c. Customer base is similar throughout the world;
d. All stores are serviced from two delivery centres;
e. No major regulatory environment differences exist between operating territories.
As the Group reports utilising one reportable operating segment, no reconciliation of the total of the reportable
segments measure of profit or loss to the consolidated profit has been provided as no reconciling items exist.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
(b) Geographic information
The segments have been disclosed on a regional basis consisting of Australia and New Zealand, Asia (consisting of
Singapore and Malaysia), Africa (South Africa) and Europe/Americas (United Kingdom, Spain, France and the United
States of America) and the Group’s franchise stores in the Middle East and Asia. 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 / New Zealand
b) Asia
c) Africa
d) Europe / Americas
Total
2018
2017
Non-current assets (i)
Non-current assets (i)
10,473
1,723
3,689
6,526
22,411
8,499
1,763
3,186
2,210
15,658
(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 region. In presenting the following information,
segment revenue has been based on the geographic location of customers.
($000s)
Sale of Goods
Australia / New Zealand
Asia
Africa
Europe / Americas
Total Sale of Goods
Franchise Revenue
Middle East
Asia
Total Franchise Revenue
Total Revenue
2018
2017
132,013
34,558
30,499
18,393
215,463
1,153
394
1,547
217,010
P
/
4
1
122,577
28,320
21,895
4,830
177,622
891
233
1,124
178,746
a) Revenue recognition and measurement
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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
A4 EARNINGS PER SHARE (EPS)
Calculation methodology
2018
26,864
50,824
4,178
172
340
55,514
2017
23,861
41,047
3,677
112
440
45,276
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)
2
4
/
P
2018
34.24
33.33
2017
27.66
27.25
Profit attributable to ordinary shareholders ($000s)
35,954
29,046
Weighted average number of ordinary shares for basic EPS (shares)
105,016,000 105,000,000
Weighted average number of ordinary shares and potential ordinary shares for diluted
EPS (shares)
107,863,473 106,581,406
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
105,016,000 105,000,000
2018
2017
Adjustments for calculation of diluted earnings per share:
Options
Performance Rights
2,847,473
1,565,406
-
16,000
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
107,863,473 106,581,406
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 Group’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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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)
7.6 cents per qualifying ordinary share (2017: 2.0 cents)
13.0 cents per qualifying ordinary share (2017: 10.0 cents)
2018
7,980
13,652
21,632
2017
2,100
10,500
12,600
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)
14.0 cents per qualifying ordinary share (2017: 7.6 cents)
Consolidated ($000s)
Dividend franking account
2018
14,702
14,702
2017
7,980
7,980
2018
2017
Franking credits available for subsequent reporting periods based on a tax rate of
30.0% (2017: 30%)
8,623
5,363
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.
P
/
4
3
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: 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
Changes in estimates related to prior years
Deferred tax (benefit)/expense
Origination and reversal of temporary differences
Changes in temporary differences related to prior years
Total income tax expense
2018
2017
16,372
12,933
171
(79)
16,543
12,854
(1,342)
(1,148)
-
(1,342)
15,201
(310)
(1,458)
11,396
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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% (2017: 30%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income
Utilisation of carried-forward tax losses
Recognition of tax effect of previously unrecognised tax losses
Current year losses for which no deferred tax asset is recognised
Changes in estimate related to prior years
Total non temporary differences
Temporary differences
Amounts recognised in OCI
Net movement in deferred tax balances
Total temporary differences
4
4
/
P
Income taxes payable for the current financial year
Income taxes payable at the beginning of the year
Less: tax paid during the year
Income taxes payable as at year end
Represented in the Statement of financial position by:
Current tax liabilities
Current tax assets
Effective tax rates (ETR)
Bases of calculation of each ETR
2018
51,155
15,347
(532)
531
(28)
(450)
(483)
645
171
2017
40,442
12,133
(674)
318
(52)
(201)
-
262
(390)
15,201
11,396
149
1,260
1,409
(51)
1,458
1,407
16,610
12,803
3,819
1,487
(13,895)
(10,471)
6,534
3,819
6,534
3,819
-
-
6,534
3,819
Global operations – Total consolidated tax expense ETR: IFRS calculated total consolidated company income tax
expense divided by total consolidated accounting profit on continuing operations.
Australian operations – Australian company income tax expense ETR: IFRS calculated company income tax expense
for all Australian companies and Australian operations of overseas companies included in these consolidated financial
statements, divided by accounting profit derived by all Australian companies included in these consolidated
financial statements.
Percentage
ETR
Global operations – Total consolidated tax expense
Australian operations – Australian company income tax expense
2018
2017
29.7%
30.4%
28.2%
29.9%
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
A6 INCOME TAXES (CONTINUED)
(c) Deferred tax assets and liabilities reconciliation
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
2018
653
1,162
1,151
595
235
739
-
2017
357
967
1,084
397
469
-
-
2018
(294)
(194)
(66)
(303)
235
(720)
2017
(760)
(248)
(332)
(353)
235
-
(1,342)
(1,458)
4,535
3,275
Presented in the Statement of financial position as
follows:
Deferred tax assets
4,535
3,275
Unused tax losses for which no deferred tax asset has been recognised total $652,000 (2017: $913,000).
(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
P
/
4
5
2018
3,187
1,531
4,718
183
-
183
2017
2,454
1,169
3,623
178
171
348
Net deferred tax assets
4,535
3,275
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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
2018
959
967
2,891
64
4,881
2017
1,001
1,954
620
40
3,615
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
6
4
/
P
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 2018 and included in cost of sales amount to $38,512,000 (2017: $32,508,000).
During 2018 inventories of $4,571,000 (2017: $5,180,000) 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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
B3 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Reconciliation of carrying amount
Consolidated ($000s)
Depreciation policy
Cost
Balance at 4 July 2016
Additions
Disposals
Effect of movements in exchange rates
Balance at 2 July 2017
Balance at 3 July 2017
Additions
Disposals
Effect of movements in exchange rates
Balance at 1 July 2018
Consolidated ($000s)
Accumulated depreciation and
impairment losses
Balance at 4 July 2016
Depreciation
Disposals
Effect of movements in exchange rates
Balance at 2 July 2017
Balance at 3 July 2017
Depreciation
Disposals
Effect of movements in exchange rates
Note
Leasehold
improvements
Hardware and
software
Fixtures and
fittings
Total
Lease term
3 years
3 years
28,153
7,962
(3,495)
(89)
32,532
32,532
10,533
(2,892)
497
40,670
2,987
684
(2,124)
8
1,555
1,555
2,130
(96)
25
3,614
772
154
(732)
-
194
194
1,520
(1)
3
1,716
31,912
8,800
(6,351)
(81)
34,281
34,281
14,183
(2,989)
525
46,000
Note
Leasehold
improvements
Hardware and
software
Fixtures and
fittings
P
/
4
7
Total
(16,245)
(4,861)
3,089
137
(17,881)
(17,881)
(6,065)
2,403
(288)
(2,104)
(522)
1,920
2
(704)
(704)
(789)
55
(10)
(439)
(156)
556
1
(38)
(38)
(271)
1
(1)
(18,789)
(5,539)
5,566
140
(18,623)
(18,623)
(7,126)
2,459
(299)
Balance at 1 July 2018
(21,831)
(1,448)
(309)
(23,589)
Carrying amounts
At 3 July 2016
At 2 July 2017
At 1 July 2018
11,908
14,651
18,839
883
851
2,166
333
156
1,407
13,123
15,658
22,411
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
B4 INTANGIBLE ASSETS AND GOODWILL
Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill is
not amortised.
Key Money
Key money represents expenditure associated with acquiring existing operating lease agreements for company-
operated stores in countries where there is an active market for key money (e.g. regularly published transaction prices),
also referred to as ‘rights of use’. Key money is not amortised but annually tested for impairment. Key money in
countries where there is not an active market for key money is amortised over the contractual lease period.
(a) Reconciliation of carrying amount
Consolidated ($000s)
Cost
Balance at 4 July 2016
Effect of movements in exchange rates
Balance at 2 July 2017
Balance at 3 July 2017
Additions
Amortisation
Effect of movements in exchange rates
Balance at 1 July 2018
Note
Key Money
Goodwill
-
-
-
-
1,162
(11)
30
1,181
2,073
203
2,276
2,276
-
-
106
2,382
8
4
/
P
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 and indefinite-lived key money
For the purpose of impairment testing, goodwill and key money are 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
EBITDA growth rate (average of next five years)
2018
15.0%
3.0%
2017
15.0%
3.0%
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
B5 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE
ASSETS AND GOODWILL (CONTINUED)
Impairment test (continued)
Impairment testing for CGUs containing goodwill and key money (continued)
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.
EBITDA for the purposes of impairment testing was based on expectations of future outcomes taking into account past
experience, adjusted for the anticipated revenue growth with FY19 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.
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 payables 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
Accrued expenses
2018
5,203
6,544
11,747
P
/
4
9
2017
4,568
5,433
10,001
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)
Balance at 3 July 2017
Provisions made during the year
Provisions used during the year
Effect of movement in exchange rates
Balance at 1 July 2018
Current
Non-current
Site
restoration
Straight line rent and
lease incentive
Onerous
lease
1,956
1,195
(722)
103
2,532
656
1,876
2,532
1,126
3,292
(908)
50
3,560
458
3,102
3,560
411
13
(414)
-
10
3
7
10
Total
3,493
4,500
(2,044)
153
6,102
1,117
4,985
6,102
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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.
(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 ten years).
c) Onerous leases
Description
0
5
/
P
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.
B8 EMPLOYEE BENEFITS
Recognition and measurement
Long-term service benefits
Key Estimates
Expenditure to settle the
restoration obligation at
the end of the lease term
is based on the Group’s
best estimate.
Key Estimates
No major estimation
required in the calculation
of these provisions.
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 Group’s best
estimate
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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
2018
2,416
2,416
2017
2,075
2,075
2018
2017
780
780
608
608
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.
P
/
5
1
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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
No. of Ordinary Shares
Value of Ordinary Shares
2018
‘000’s
2017
‘000’s
2018
‘000’s
2017
‘000’s
On issue at beginning of year
105,000
105,000
208,526
208,526
Exercise of performance rights
16
-
-
-
On issue at end of year
105,016
105,000
208,526
208,526
2
5
/
P
All ordinary shares rank equally with regard to the Company’s residual assets.
(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 accounted for 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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
C1 CAPITAL AND RESERVES (CONTINUED)
(b) Nature and purpose of reserves (continued)
(iii) Hedging Reserve (continued)
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.
(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
Note
2018
-
P
/
5
3
2017
1,705
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)
Cash advance facility
Multi-option facility
Contingent liability facility
Currency Nominal
interest
rate
AUD
AUD
AUD
4.01%
6.73%
2.30%
Corporate card facility
AUD
17.99%
Total interest-bearing liabilities
1 July 2018
2 July 2017
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2020
2018
2018
2018
-
-
-
-
-
-
-
-
-
-
-
-
1,705
1,705
-
54
-
54
1,759
1,759
The bank loans are secured by security interests granted by Lovisa Holdings Limited and a number of its subsidiaries
over all of their assets in favour of the Commonwealth Bank of Australia (CBA).
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT
(a) Fair values
Recognition and measurement
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.
The Group has established 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.
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 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 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 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 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).
• 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 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.
The Group recognises transfers between levels of the fair value hierarchy at the end of the financial year during which
the change has occurred.
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 fair value if the carrying amount is a reasonable approximation of fair value.
4
5
/
P
1 July 2018
Carrying Amount
Fair Value
Consolidated ($000s) Note
Hedging
instruments
Loans and
receivables
Other
financial
assets/
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
B1
C5
Financial liabilities
not measured at fair
value
Trade and other
payables
B6
1,429
1,429
-
-
4,881
21,057
25,938
-
-
-
-
-
-
-
-
-
-
1,429
1,429
4,881
21,057
25,938
-
-
11,747
11,747
11,747
11,747
-
-
-
-
-
-
-
1,429
1,429
-
-
-
-
-
-
-
-
-
-
-
-
1,429
1,429
-
-
-
-
-
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
(a) Fair values (continued)
Recognition and measurement (continued)
2 July 2017
Carrying Amount
Fair Value
Consolidated ($000s) Note
Hedging
instruments
Loans and
receivables
Other
financial
assets/
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
Trade and other
payables
B1
C5
C5
B6
805
805
-
-
3,615
12,744
16,359
-
-
-
-
-
805
805
3,615
12,744
16,359
-
-
-
1,705
1,705
10,001
10,001
11,706
11,706
-
-
-
-
-
-
-
-
-
-
-
-
-
-
805
805
-
-
-
-
-
-
-
-
-
-
-
-
-
-
805
805
-
-
-
-
-
-
P
/
5
5
(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
Significant
unobservable
inputs
Inter-relationship between key
unobservable inputs and fair
value measurement
Not applicable.
Not applicable.
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.
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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
6
5
/
P
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 1 July 2018, no trade receivables were past due but not impaired (2017: 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 secured by security interests granted by Lovisa Holdings
Ltd and its subsidiaries over all of their assets in favour of the Commonwealth Bank of Australia (CBA):
• $15 million revolving cash advance facility
• $10 million multi option facility
• $5 million contingent liability facility for global letters of credit and bank guarantees.
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
(b) Financial risk management (continued)
(iii) Liquidity risk (continued)
1 July 2018
Contractual cash flows
Consolidated ($000s)
Non-derivative financial
liabilities
Trade payables
Derivative financial liabilities
Forward exchange contracts
used for hedging:
- Outflow
- Inflow
Total
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2
years
2-5
years
More
than 5
years
5,203
5,203
5,203
5,203
5,203
5,203
-
-
-
-
29,047
5,777
23,270
(30,476)
(6,105)
(24,371)
(1,429)
(1,429)
(328)
(1,101)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2 July 2017
Contractual cash flows
Consolidated ($000s)
Non-derivative financial
liabilities
Trade payables
Bank overdrafts
Derivative financial liabilities
Forward exchange contracts
used for hedging:
- Outflow
- Inflow
Total
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2
years
2-5
years
P
/
5
7
More
than 5
years
4,568
1,705
6,273
4,568
1,705
6,273
4,568
-
4,568
-
1,705
1,705
-
-
35,586
7,140
28,446
(34,781)
(7,015)
(27,766)
805
805
125
680
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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 applies hedge accounting 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 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, British pounds 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
8
5
/
P
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
SGD
USD
GBP
ZAR
SGD
USD
GBP
ZAR
1 July 2018
2 July 2017
Cash and cash equivalents
Trade receivables
Trade payables
Net statement of financial position
exposure
Sensitivity analysis
1,411
-
90
523
563
7,746
1,174
-
1,108
7,404
-
249
-
406
-
-
(230)
(3,124)
(962)
(199)
(28)
(3,491)
(117)
(136)
1,181 (2,511)
(399)
7,796
1,146 (3,085)
991
7,268
A reasonably possible strengthening (weakening) of the USD, the SGD, the GBP 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.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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
Strengthening
Weakening
Profit or loss
1 July 2018
SGD (5 percent movement)
USD (5 percent movement)
GBP (5 percent movement)
ZAR (5 percent movement)
2 July 2017
SGD (5 percent movement)
USD (5 percent movement)
GBP (5 percent movement)
ZAR (5 percent movement)
Interest rate risk
(56)
120
19
(371)
(55)
147
(54)
(346)
62
(132)
(21)
410
60
(162)
59
383
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.
P
/
5
9
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
2018
-
-
2017
1,705
1,705
Cash flow sensitivity analysis for variable rate instruments
At 1 July 2018, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held
constant, there would have been no impact on pre tax profit for the year (2 July 2017 - $114,000 lower/higher), as a
result of higher/lower interest expense from variable rate borrowings. There is no 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).
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
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)
Derivatives
Forward exchange contracts
2018
1,429
1,429
2017
(805)
(805)
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.
2018
2017
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
1,429
1,429
1,429
-
-
-
1,429
1,429
1,429
-
-
-
-
(805)
(805)
-
(805)
(805)
-
(805)
(805)
-
-
-
Consolidated ($000s)
Forward exchange
contracts:
Assets
Liabilities
A gain of $109,000 was included in other expenses on foreign currency derivatives not qualifying as hedges
(2017: loss of $64,000).
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
2018
2017
21,057
-
21,057
12,744
(1,705)
11,039
0
6
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
C5 CASH FLOWS (CONTINUED)
Reconciliation of cash flows from operating activities
Consolidated ($000s)
Note
2018
2017
Cash flows from operating activities
Profit
Adjustments for:
Depreciation
Loss on sale of property, plant and equipment
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 trade and other payables
Change in current tax liabilities
Change in provisions and employee benefits
Net cash from operating activities
35,954
29,046
7,126
463
340
(109)
(222)
43,552
(1,266)
(1,818)
(1,260)
1,746
2,715
3,122
46,791
5,539
785
440
64
(376)
35,498
1,907
(1,322)
(1,452)
1,651
2,332
1,018
39,632
P
/
6
1
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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 subsidiaries of the Group. All subsidiaries are wholly owned, unless otherwise stated.
Name
Lovisa Australia Pty Ltd
Lovisa Pty Ltd
Lovisa Employee Share Plan 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
Lovisa Complementos España SL
2
6
/
P
Lovisa America, LLC
Lovisa France SARL
Lovisa Hong Kong Ltd
D2 OPERATING LEASES
Recognition and measurement
Principal place of business
Australia
Australia
Australia
Singapore
Singapore
South Africa
South Africa
New Zealand
Malaysia
United Kingdom
Singapore
Spain
United States of America
France
Hong Kong
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 ten 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 10 years. 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
2018
23,988
54,585
10,954
89,527
2017
17,930
36,062
5,552
59,544
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D3 COMMITMENTS AND CONTINGENCIES
(a) Guarantees
The Group has guarantees outstanding to landlords and other parties to the value of $3,648,000 at 1 July 2018
(2017: $1,810,000).
(b) Capital commitments and contingent liabilities
The Group is committed to incur capital expenditure of $510,000 (2017: $557,000). There are no contingent liabilities
that exist at 1 July 2018 (2 July 2017: none).
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.
All options are to be settled by physical delivery of shares.
At 1 July 2018 the Group has the following share-based payment arrangements:
(i) Share option programmes (equity-settled)
Long Term Incentives - Annual Programmes
Share Option
Programme
Grant date/employee
entitled
Number of
instruments
(000’s)
Contractual
life of
options
Vesting conditions
P
/
6
3
Options granted
FY 2017 LTI (1)
May 2016
3,460
3 years
FY 2017 LTI (2)
August 2016
412
3 years
FY 2018 LTI (1)
July 2017
2,960
3 years
FY2018 LTI (2)
October 2017
FY2018 LTI (3)
November 2017
3 years
3 years
377
338
7,547
20% compound increase in EPS over 3
years,with a decrease in the number of
options vesting down to a minimum of 10%
compound EPS growth over the 3 year
period in line with the table below.
1,308,901 of the FY2018 LTI (1) options were approved at the Company’s AGM on 31 October 2017.
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 Performance 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
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D4 SHARE-BASED PAYMENT ARRANGEMENTS (CONTINUED)
(a) Descriptions of the share-based payment arrangements (continued)
i) Share option programmes (equity-settled) (continued)
Initial Public Offering - Performance Options
Grant date/employee entitled
Options granted
Number of
instruments
(000’s)
Vesting conditions
Contractual
life of options
On 23 December 2014
550 As per table below
2.5 years
Total share options
550
The achievement of forecast EPS for FY15 (15.62c) resulted in the award of one third of the options. The remaining two
thirds of Options were subject to a performance condition based on the Company’s EPS over FY16 and FY17 (EPS
Hurdle). Following completion of the FY2017 financial year, the Board determined that these hurdles had been met and
therefore all 550,000 of these options have vested.
(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.
Share option programme
IPO LTI
FY2017
LTI (1)
FY2017
LTI (2)
FY2018
LTI (1)
FY2018
LTI (2)
FY2018
LTI (3)
4
6
/
P
Fair value at grant date
$0.39
$0.24
$0.34
$0.38
$0.40
30 day VWAP share price at grant date
N/A
$2.10
$2.63
$3.79
$4.00
Exercise price
$2.30
$2.10
$2.63
$3.79
$4.00
$0.47
$5.94
$5.94
Expected volatility (weighted-average)
34% 24.70% 25.88% 23.70% 23.70% 20.50%
Expected life (weighted-average)
2.5 years
3 years
3 years
3 years
3 years
2.5 years
Expected dividends
4.67% 5.11% 4.08% 5.60% 5.60%
5.60%
Risk-free interest rate (based on government bonds)
2.23% 1.86% 1.44% 1.87% 1.87%
1.89%
Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D4 SHARE-BASED PAYMENT ARRANGEMENTS (CONTINUED)
(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
Outstanding at 3 July
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 1 July
Exercisable at 1 July
2018
000’s
4,216
3,674
(2,844)
-
5,046
550
2018
$
$2.15
$4.01
$2.74
-
$3.17
$2.30
(d) Expenses recognised in profit or loss
For details on the related employee benefit expenses, see Note A3.
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. 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
Termination benefits
Other long term benefits
2018
2,001
108
192
452
153
2018
000’s
16
-
-
(16)
-
-
2017
2,170
118
385
-
144
P
/
6
5
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 24 to 28.
(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. There were no transactions or balances outstanding from these
related parties during the period or at 1 July 2018 (2 July 2017: nil).
2,906
2,817
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D5 RELATED PARTIES (CONTINUED)
(c) Other related party transactions
Consolidated ($000s)
1 July 2018
2 July 2017
1 July 2018
2 July 2017
Transaction values for the year ended
Balance outstanding as at
a) Expenses
Expense recharges
b) Sales
Recharges
44
-
752
121
(11)
-
-
32
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. In the prior period, BB Retail Capital provided 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 ceased as at 2 July 2017 with property management services now provided
in-house. The company was reimbursed $161,000 to take on the employee benefits of team who transferred to the company.
Non property management related expense recharges are also priced on an arms length basis. The Group will continue to
utilise BBRC Retail Capital’s retail operating experience on an arms length basis.
All outstanding balances with other related parties are priced on an arm’s length basis and are to be settled in cash within
two months post the end of the reporting year. None of the balances are secured. No expense has been recognised in the
current year or prior year for bad or doubtful debts in respect of amounts owed by related parties.
6
6
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D6 AUDITOR’S REMUNERATION
Consolidated ($)
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
2018
2017
181,000
186,787
59,000
240,000
43,213
230,000
In relation to other assurance, taxation and due diligence services
182,757
193,430
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
33,729
216,486
456,486
21,601
21,601
43,846
43,846
65,447
521,933
21,402
214,832
444,832
9,972
9,972
P
/
6
7
46,803
46,803
56,775
501,607
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D7 DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities
and Investment Commission, 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 Instrument 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 1 July 2018 is set out as follows.
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
8
6
/
P
Loss on disposal of property, plant and equipment
Other expenses
Dividend income
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
2018
129,265
(24,847)
104,418
(40,041)
(18,100)
(1,776)
(3,020)
12
(1,367)
25,242
72
(105)
65,335
(12,138)
53,197
-
53,197
9,491
(21,632)
41,056
2017
112,825
(26,298)
86,527
(35,081)
(18,167)
(1,183)
(2,995)
(666)
(3,899)
4,750
7
(403)
28,890
(7,225)
21,665
41
21,705
426
(12,600)
9,491
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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
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
1 July 2018
2 July 2017
8,303
33,340
6,615
1,429
49,687
3,165
9,447
210,000
222,612
272,299
-
8,879
1,861
5,654
-
677
17,071
780
1,794
2,574
19,645
252,653
208,526
925
896
1,250
41,056
252,653
1,770
27,311
6,224
-
35,305
2,806
7,421
210,000
220,227
255,532
1,705
26,870
1,660
2,774
805
886
P
/
6
9
34,700
608
1,457
2,065
36,765
218,767
208,526
925
556
(731)
9,491
218,767
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
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 profits
Total equity
(a) Parent entity accounting policies
2018
25,041
-
25,041
12,057
223,188
5,654
5,654
208,526
896
8,113
217,535
2017
17,194
-
17,194
5,535
216,560
2,774
2,774
208,526
556
4,704
213,786
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 1 July 2018.
(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
2 July 2017:
• AASB 2016-1 AASB112: Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
• AASB 2016-2 AASB107: Statement of Cashflows: Disclosure Initiative
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.
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 2017;
however, the Group has not applied the following new or amended standards in preparing these consolidated financial
statements.
(a) IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition
and Measurement.
0
7
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Notes to the Consolidated Financial Statements
D10 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
(CONTINUED)
(a) IFRS 9 Financial Instruments (continued)
i. Classification – Financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in
which assets are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and
FVTPL. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available
for sale.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are
never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.
Based on its assessment, the Group does not believe that the new classification requirements will have a material
impact on its accounting for trade receivables.
ii. Impairment – Financial assets and contract assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. This will
require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a
probability-weighted basis.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments
in equity instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the following bases:
• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date;
and
• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial
instrument.
Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial
asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime
ECL measurement always applies for trade receivables without a significant financing component; the Group has
chosen to apply this policy also for trade receivables with a significant financing component.
The cash and cash equivalents are held with bank and financial institution counterparties, with a minimum ‘A’ rating.
The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the
counterparties.
P
/
7
1
iii. Classification – Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under
IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas under IFRS 9
these fair value changes are generally presented as follows:
• the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in
OCI; and
• the remaining amount of change in the fair value is presented in profit or loss.
The Group has not designated any financial liabilities at FVTPL and it has no current intention to do so. The Group’s
assessment did not indicate any material impact regarding the classification of financial liabilities at 1 July 2018.
iv. Hedge accounting
When initially applying IFRS 9, the Group may choose as its accounting policy to continue to apply the hedge
accounting requirements of IAS 39 instead of the requirements in IFRS 9. The Group has chosen to apply the new
requirements of IFRS 9.
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management
objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge
effectiveness. IFRS 9 also introduces new requirements on rebalancing hedge relationships and prohibiting voluntary
discontinuation of hedge accounting. Under the new model, it is possible that more risk management strategies,
particularly those involving hedging a risk component (other than foreign currency risk) of a non-financial item, will be
likely to qualify for hedge accounting. The Group does not currently undertake hedges of such risk components.
The Group uses forward foreign exchange contracts to hedge the variability in cash flows arising from changes in
foreign exchange rates relating to inventory purchases.
The types of hedge accounting relationships that the Group currently designates meet the requirements of IFRS 9 and
are aligned with the entity’s risk management strategy and objective.
The estimated impact on reserves and retained earnings at 2 July 2018 as a result of the application of the IFRS 9
hedge accounting requirements is not expected to be material.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
D10 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
(CONTINUED)
(a) IFRS 9 Financial Instruments (continued)
v. Disclosures
IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and ECLs. The Group’s
assessment included an analysis to identify data gaps against current processes and the Group is in the process of
implementing the system and controls changes that it believes will be necessary to capture the required data.
vi. Transition
Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied retrospectively, except as
described below.
• The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods
with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts
of financial assets and financial liabilities resulting from the adoption of IFRS 9 will generally be recognised in retained
earnings and reserves as at 2 July 2018.
• The new hedge accounting requirements are expected to be applied prospectively.
(b) 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.
i) Sales of goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer,
recovery of the consideration is probable, there is no continuing management involvement with the goods and the
amount of revenue can be measured reliably.
Under IFRS 15, revenue will be recognised when a customer obtains control of the goods. This is not expected to
change the timing of the company’s recognition of revenue.
Revenue is measured net of returns. Under IFRS 15, revenue will be recognised to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognised will not occur. The estimated impact on
retained earnings at 2 July 2018 as a result of changes in the timing of accounting for these returns is not expected
to be material. The impact of these changes on other items in the consolidated statement of financial position is the
recognition of a refund liability and a new asset for the right to recover returned goods.
2
7
/
P
ii) Transition
The Group plans to adopt IFRS 15 using the cumulative effect method, with the effect of initially applying this standard
recognised at the date of initial application (i.e. 2 July 2018). As a result, the Group will not apply the requirements of
IFRS 15 to the comparative period presented.
(c) IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for
entities that apply IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use
asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting
remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
The Group has completed an initial assessment of the potential impact on its consolidated financial statements but
has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the financial statements in
the period of initial application will depend on future economic conditions, including the Group’s borrowing rate at
1 July 2019, the composition of the Group’s lease portfolio at that date, the Group’s latest assessment of whether it
will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and
recognition exemptions.
So far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating
leases of retail premises, offices and warehouse facilities. As at 1 July 2018, the Group’s future minimum lease
payments under non-cancellable operating leases amounted to $89,527,000 on an undiscounted basis (see Note D2).
In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-line
operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.
The Group does not expect the adoption of IFRS 16 to impact its ability to comply with its banking covenants due to a
“frozen GAAP” clause existing in our facility agreement.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only Notes to the Consolidated Financial Statements
D10 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
(CONTINUED)
(c) IFRS 16 Leases (continued)
i) Transition
As a lessee, the Group can either apply the standard using a:
• retrospective approach; or
• modified retrospective approach with optional practical expedients.
The lessee applies the election consistently to all of its leases.
The Group plans to apply IFRS 16 initially on 1 July 2019, using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings
at 1 July 2019, with no restatement of comparative information.
When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17,
the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The
Group is assessing the potential impact of using these practical expedients.
P
/
7
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only 4
7
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only SIGNED
REPORTS
P
/
7
5
Lovisa Holdings Limited Annual Report - 1 July 2018For 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 34 to 73 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 1 July 2018 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 Corporations (Wholly owned
Companies) Instrument 2016/785
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 1 July 2018.
4. The Directors draw attention to the Basis of Accounting for the consolidated financial statements set out on page
38, which includes a statement of compliance with International Financial Reporting Standards.
6
7
/
P
Signed in accordance with a resolution of the Directors.
________________________________________________
Shane Fallscheer
Director
Melbourne
21 August 2018
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
LOVISA HOLDINGS LIMITED
Independent Auditor’s Report
To the shareholders of Lovisa Holdings Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Lovisa Holdings Limited (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance
with the Corporations Act 2001, including:
(cid:120) giving a true and fair view of the Group’s
financial position as at 1 July 2018 and of
its financial performance for the year
ended on that date; and
(cid:120)
complying with Australian Accounting
Corporations
and
Standards
Regulations 2001.
the
The Financial Report comprises:
(cid:120) Consolidated Statement of financial position as at 1
July 2018.
(cid:120) 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 then ended
(cid:120) Notes including a summary of significant accounting
policies
(cid:120) Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during the
financial year.
P
/
7
7
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We
have fulfilled our other ethical responsibilities in accordance with the Code.
1
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Signed Reports
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
LOVISA HOLDINGS LIMITED (CONTINUED)
8
7
/
P
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current period.
These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Valuation of Inventories ($14.9m)
Refer to Note B2 to the Financial Report
The key audit matter
How the matter was addressed in our audit
A key audit matter for us was the Group s
valuation of inventories, given the relative size of
the balance (being 21% of total assets within the
Group s consolidated statement of financial
position) and the judgement we apply to assess
the Group s estimates specific to the value of
obsolete inventory.
The Group sells fashion jewellery and is therefore
subject to changing consumer demands and
fashion trends. This increases the risk that, as
trends change, products may either need to be
sold at a discount below their recorded cost, or
ultimately disposed of for zero value. Estimating
the level of provisioning for obsolete inventory
requires consideration of the ageing and condition
of products on hand, historic trends in write-offs
and inventory turnover and anticipated future
sales. Such judgements may have a significant
impact on the calculation of the inventory
provision, and therefore the overall carrying value
of inventories, necessitating our audit effort
thereon.
Our procedures included:
(cid:120) Assessing the historical accuracy of the Group s
inventory provision against actual outcomes, to
inform our evaluation of the current year
provision and assumptions;
(cid:120) Challenging the Group s assumptions within their
provision, particularly the extent to which aged
and seasonal inventory can be sold, taking into
account our knowledge of the industry and past
Group performance;
(cid:120) Analysing current and historic trends in inventory
holdings and ageing to identify indicators of slow-
moving or obsolete inventory. We compared this
to the Group s listing of obsolete inventory;
(cid:120) Checking the integrity of the inventory ageing
report at 1 July 2018, as a key input used in the
provision calculation, by comparing on a sample
basis inventory age per the report to purchase
invoices;
(cid:120) Attending a sample of inventory counts across
the store and warehouse locations to observe
the existence and condition of products held; and
(cid:120) Comparing a statistical sample of inventory
carrying values to post year-end sales prices, and
against amounts recorded in the provision.
2
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Signed Reports
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
LOVISA HOLDINGS LIMITED (CONTINUED)
Other Information
Other Information is financial and non-financial information in Lovisa Holdings Limited s annual reporting
which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible
for the Other Information. Other Information is financial and non-financial information in Lovisa Holdings
Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report.The
Directors is responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor s Report was the Director s report. The
Chairman and Chief Executive s Report, and the ASX Additional Information are expected to be made
available to us after the date of the Auditor's Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and
will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and
based on the work we have performed on the Other Information that we obtained prior to the date of this
Auditor s Report we have nothing to report.
P
/
7
9
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
(cid:120) preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
(cid:120)
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error
(cid:120) assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do
so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
(cid:120)
(cid:120)
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our Auditor’s Report.
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Signed Reports
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
LOVISA HOLDINGS LIMITED (CONTINUED)
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Lovisa Holdings Limited for the year ended 1
July 2018, complies with Section 300A of
the Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report
in accordance with Section 300A of the Corporations Act
2001.
Our responsibilities
We have audited the Remuneration Report included in
section 9 of the Directors’ report for the year ended 1 July
2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
0
8
/
P
KPMG
Maurice Bisetto
Partner
Melbourne
21 August 2018
4
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
Signed Reports
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 review of Lovisa Holdings
Limited for the financial year ended 1 July 2018 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.
P
/
8
1
KPMG
Maurice Bisetto
Partner
Melbourne
21 August 2018
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
1
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
Professional Standards Legislation.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
ASX
INFORMATION
2
8
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only P
/
8
3
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only ASX Information
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 Holdings 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://www.lovisa.com/shareholder-info/),
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 21 August 2018 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 31 AUGUST 2018)
SUBSTANTIAL SHAREHOLDERS
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
BB Retail Capital Pty Ltd
Grahger Retail Securities Pty Ltd
Vinva Investment Management
4
8
/
P
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.
Redeemable preference shares
Number
43,207,500
6,340,000
5,253,902
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
1,108
1,061
268
236
38
510,822
2,759,435
2,057,345
6,150,552
94,087,846
2,711
105,566,000
0.48
2.61
1.95
5.83
89.13
100.00
The number of shareholders holding less than a marketable parcel of ordinary shares is 95.
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only ASX Information
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:
Number of ordinary
shares held
Percentage of capital
held
Name
BB Retail Capital Pty Ltd
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Centreville Pty Ltd
Grahger Retail Securities Pty Ltd
National Nominees Limited
BNP Paribas Noms Pty Ltd
Coloskye Pty Limited
BNP Paribas Nominees Pty Ltd
PBC Investments Pty Limited
Mrs Vanessa Louise Speer
HSBC Custody Nominees (Australia) Limited - A/C 2
Grahger Capital Securities Pty Ltd
UBS Nominees Pty Ltd
CS Third Nominees Pty Limited
Stornoway Nominees Pty Ltd
Shane Roland Fallscheer
Warbont Nominees Pty Ltd
Sandhurst Trustees Ltd
43,207,500
10,444,694
7,813,320
5,796,794
4,490,000
4,000,000
3,351,614
2,075,909
1,153,005
1,020,312
1,000,000
927,460
925,796
675,000
597,977
593,437
555,000
550,000
516,751
495,426
40.93
9.89
7.40
5.49
4.25
3.79
3.17
1.97
1.09
0.97
0.95
0.88
0.88
0.64
0.57
0.56
0.53
0.52
0.49
0.47
85.43
14.57
100.00
P
/
8
5
Total
Balance of register
90,189,995
15,376,005
Grand total
105,566,000
Options and performance rights issued under the Lovisa Holdings
Ltd Long Term Incentive Plan to take up ordinary shares
Number on issue
Number of holders
4,495,805
6
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only
6
8
/
P
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only P
/
8
7
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only 8
8
/
P
CORPORATE DIRECTORY
Company Secretary
Chris Lauder, Chief Financial Officer and Company Secretary
Principal Registered Office
Lovisa Holdings Limited
Level 1, 818-820 Glenferrie Road
Hawthorn VIC 3122
+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
Tower 2, Collins Square
727 Collins Street
Melbourne Victoria 3000
Website
www.lovisa.com
Lovisa Holdings Limited Annual Report - 1 July 2018For personal use only