L O V I S A H O L D I N G S L I M I T E D
ANNUAL REPORT
2019
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ACN 602 304 503
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only 2
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only CONTENTS
Overview
Chairman’s Report
Directors’ Report
Financial Statements
Consolidated statement of financial position
Consolidated statement of profit or loss and
other comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to 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
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
OUR BRAND
MOVING GLOBALLY
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• 390 STORES IN 15 COUNTRIES
• EXPANSION OF US + FRANCE STORE FOOTPRINT
• ONLINE STORES OPEN FOR AUSTRALIA/NZ
AND UK/EUROPE
• 150 NEW PRODUCTS ARRIVING WEEKLY
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only HIGHLIGHTS
EBIT up 2.8%
$52.5M
$37.0M
NPAT
UP 3.0%
REVENUE UP 15.3%
$250.3M
LIKE FOR LIKE SALES
-0.5%
FINAL DIVIDEND
15.0 CPS
FULLY FRANKED
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TOTAL STORES
390
NET INCREASE OF
64 STORES
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Overview
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Overview
GLOBAL REACH
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KEY
Owned Stores
Franchise
STORE NUMBERS
Owned
FY19
FY18
Franchise
FY19
FY18
Aus/NZ
Australia
154
151
Asia
Middle East
Total Franchise
8
28
36
6
18
24
TOTAL STORES
390 326
Asia
New Zealand
Singapore
Malaysia
22
18
25
20
22
21
Africa
South Africa
61
56
Europe/Americas UK
38
24
Spain
France
9
8
19
5
2
1
354
302
USA
Total Owned
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 390 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 China.
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Overview
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Chairman’s Report
CHAIRMAN’S REPORT
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Five continents, fifteen countries, over four hundred stores,
and we will not stop here. Lovisa’s global presence
continues to expand at a rapid pace. The opportunities we
are seeing across the globe right now are more exciting
than at any point in Lovisa’s history. To capture this growth
and win the market we have to operate with speed and
efficiency. This is the way to go. Our customers connect
with our products, and our team is constantly striving to
meet all their needs.
We now have Lovisa boutiques from London to Los Angeles
and to Singapore. What is more exciting is, we also
have stores in Brea, Lille and Leeds, cities that one might
not immediately recognise. This demonstrates the global
reach and scale that Lovisa is now operating within. To
be present where the customers are, we will continue to
look for new opportunities to open new stores in new
countries, including smaller cities. We recognise the vast
opportunities for further growth and expansion, and
strive to continually improve to meet all the needs of our
customers, reaching them both digitally and physically, no
matter where they may be!
Our biggest opportunity to further improve is always what
we are not doing for our customer now - what is missing,
and what changes should we make to enhance our
customer experience so that we can continuously move the
needle even higher. Lovisa wants to be, and has to be, a
place where we can reinvent, test and trial new offerings,
not just in the important areas of product innovation and
fashion trends, but equally in the areas of cost, process,
training and automation. One of these trials in the past
year was piercing.
The opportunity for piercing had humble beginnings.
Holly Fraser is a young, astute and experienced leader
transferred to the United States of America (USA) to open
a new market. Holly paid extremely close attention to
what the customers were looking for. It was clear to her
that our customers not only wanted great products, they
also wanted someone to help them with their piercings. It
was Holly’s insight and customer obsession that led to the
successful testing of incorporating piercing in our American
market.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Chairman’s Report
These 2 examples show we have many dynamic,
ambitious, successful team members – we need more of
them! Both Erin and Kirra continue to show the drive and
commitment to themselves, Lovisa, and our customers. It is
the ‘Erins’ and ‘Kirras’ who are the lifeblood and success
of our global rollout. They, and many others deserve our
thanks and appreciation every day for the energy and
ambition they bring to their roles.
A big thank you to our customers and shareholders for your
continuous support. To all of Lovisa around the world, thank
you for your energy, for holding yourself to high standards,
taking necessary risks and reinventing every day.
Our global roll-out will march on with our team
continuously delivering exceptional customer experience,
opening new stores in new cities, and developing exciting
new products. Stay tuned, we have more customers to
serve!
Brett Blundy
Non-Executive Chairman
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It is not surprising that not only customers in America
are looking for help with their piercings, it is customers
worldwide! The Lovisa team took their learnings from the
USA and have now rolled out piercing services in stores
across the globe. As is Lovisa’s way, the team has rallied
behind this new category and has done a tremendous job
getting the offer and experience right for our customers.
This has required retrofitting each store, sourcing world-
class piercing products, and training the team to provide
the service our customers come to expect and deserve. The
collective results of these actions have proven to resonate
strongly with our customers and will continue to benefit
Lovisa for years to come. Lovisa’s customer focus is alive
and well.
While offering piercings might seem like a logical
extension now, it wasn’t obvious until we opened a store
on the other side of the world with focus on our customer’s
needs. This is a reminder that we should continually
challenge the status quo. What we know and accept today
must be questioned and must be improved upon. At Lovisa
we are working to do this every day.
Lovisa continues to be strongly led by Shane Fallscheer,
who has a continuing focus on developing the leadership
and management capabilities across the business whilst
ensuring the Lovisa culture is successfully and appropriately
maintained around the world. As we need to do more in
this area, the people side of Lovisa remains an intensive
focus for the leadership team and the board. Growth has
opened up enormous opportunities and need for ambitious
and driven individuals to succeed. It is always important to
develop and encourage our future leaders. In Lovisa’s case,
it is imperative that we continue to develop compelling
initiatives and innovation around attracting and developing
our current and future global leaders. A focus has to, and
will continue to be on who is the next country leader,
where is the next CEO coming from, who will open up the
next territory. The career opportunities at Lovisa are only
limited by the individual’s commitment to their career and
our collective support. Two recent examples are:
Kirra Gorton
Kirra is from the Sunshine Coast QLD, and has been with
Lovisa for over 6 years where she progressed her way up
from stores to Regional Manager QLD. Last year, Kirra
moved to New Zealand to take on the Country Manager
role. Kirra is remarkably only 23 years of age.
Erin McCrory
Erin started with Lovisa as a team member in one of our
first Lovisa stores, Macquarie NSW. She has been with
Lovisa for 9 years. Erin very quickly worked her way up
to Store Manager of Pitt St and then Regional Manager
NSW. Erin was then promoted to State Manager of NSW.
In 2018, Erin accepted the promotion to lead and manage
the United Kingdom. Erin is 28 years of age.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
THE
DIRECTORS’
REPORT
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Directors’ Report
THE
DIRECTORS
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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.
Brett Blundy
Shane Fallscheer
Tracey Blundy
Sei Jin Alt
James King
John Armstrong
Brett Blundy
Non-Executive Director & Chairman
Appointed 1 November 2018
Chairman of the Board
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 successful 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).
Shane Fallscheer
Managing Director
Appointed 6 November 2014
Shane Fallscheer is the Managing Director and founder of Lovisa. He
has 32 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 a 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.
Sei Jin Alt
Independent Non-Executive Director
Appointed 19 February 2019
Sei Jin brings to the Board broad merchandising, managerial,
financial, and operational experience in multiple fashion categories
as well as business leadership expertise gained over 20 years in the
industry across a number of major US retailers including Francesca’s,
JC Penny, Nordstrom and Macy’s.
James King
Independent Non-Executive Director
Appointed 17 May 2016
Chairman of the Remuneration & Nomination Committee
Member of the Audit, Business Risk & Compliance Committee
James King has over 31 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 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.
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John Armstrong
Independent Non-Executive Director
Appointed 25 September 2018
Chairman of the Audit, Business Risk & Compliance Committee
Member of the Remuneration & Nomination Committee
John 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. John’s focus was on SEEK’s Asian operations
and investments, including directorships of SEEK’s business in
China, Zhaopin Ltd (a US listed company), and SEEK Asia, which
operates across South East Asia. Prior to SEEK, he held financial
management roles at Carlton & United Breweries and commenced
his career at Ernst & Young.
John is a Non-Executive Director of Blackmores Limited and was
previously a Non-Executive Director of Melbourne IT and iProperty
Group Ltd.
Nico Van Der Merwe
Alternate Director to Brett Blundy
Appointed 19 February 2019
Nico has been Chief Financial Officer of BB Retail Capital for
the past 12 years and brings significant retail, investment, and
financial management experience to the Board.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Directors’ Report
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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 30
June 2019.
Director
M Kay
T Blundy
S Fallscheer
J King
B Blundy
J Armstrong
S J Alt
N Van Der Merwe
Board
Audit and Risk
Remuneration & Nomination
Number attended
Number held
Number attended
Number held
Number attended
Number held
3
5
6
6
4
4
2
-
3
6
6
6
6
4
2
2
1
3
4
4
2
3
2
1
1
4
4
4
4
3
2
2
2
3
4
4
4
3
2
-
2
4
4
4
4
3
2
2
Michael Kay was a Director of Lovisa Holdings Limited during the year until his resignation on 30 October 2018.
Brett Blundy was appointed as a Director and Chairman on 1 November 2018, having previously acted in the capacity of
alternate Director prior to that time.
John Armstrong was appointed as an independent non-executive Director on 25 September 2018.
Sei Jin Alt was appointed as an independent non-executive Director on 19 February 2019.
Nico Van Der Merwe was appointed as an alternate Director for Brett Blundy on 19 February 2019.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Directors’ Report
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.
1.2 Directors Interests in Shares
The relevant interest of each Director in the Company at the
date of the report is as follows:
Ordinary
Shares in the
Company
43,207,500
1,153,005
4,140,000
Director
B Blundy (1)
T Blundy (2)
S Fallscheer (3)
J King (4)
J Armstrong
S J Alt
N Van Der Merwe
(1) Shares held by BB Retail Capital Pty Ltd
(2) Shares held by Coloskye Pty Ltd
(3) Shares held by Centerville Pty Ltd
(4) Shares held by King Family Super Fund
4. REVIEW OF OPERATIONS
The following summary of operating results and operating
metrics reflects the Group’s performance for the year ended
30 June 2019:
4.1 Financial Performance
For the year ended 30 June 2019 the Group reported a net
profit after tax of $37.0 million following same store sales
being down 0.5% and the addition of net 64 stores across
the globe. This was also assisted by an increase in gross
margin on the back of tight inventory management and the
stronger USD hedge rate during the period.
This result reflects an increase of 3.0% on the Group’s 2018
net profit.
34,000
Consolidated $’000
FY2019
FY2018
Change
-
-
-
Sales
Gross profit
Gross Margin
250,282
217,010
15.3%
201,409
173,637
16.0%
80.5%
80.0%
0.5%
Operating expenses
139,087
115,437
20.5%
EBITDA
EBIT
62,322
58,200
52,484
51,074
Net profit after tax (NPAT)
37,043
35,954
7.1%
2.8%
3.0%
Basic Earnings per share
35.09c
34.24c
0.85c
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2. PRINCIPAL ACTIVITIES
The principal activity of the Group during the financial year
was the retail sale of fashion jewellery and accessories.
4.1.1 Sales
The business has 390 retail stores in operation at 30 June
2019 including 36 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:
2019
2018
$000's
$000's
14,779
7,980
19,002
13,652
Final ordinary dividend for the
year ended 30 June 2018 of 14.0
cents (2017: 7.6 cents) per fully
paid share fully franked paid on
25 October 2018
Interim ordinary dividend for the
year ended 30 June 2019 of 18.0
cents (2018: 13.0 cents) per fully
paid share fully franked paid on
26 April 2019
STRONG REVENUE GROWTH (A$M)
m
3
.
4
3
1
$
m
5
.
3
5
1
$
m
7
.
8
7
1
$
m
0
.
7
1
2
$
m
3
.
0
5
2
$
FY15
FY16
FY17
FY18
FY19
NUMBER OF STORES IN OFFSHORE
MARKETS CONTINUED TO GROW
Total dividends paid
33,781
21,632
In addition to the above dividends, since the end of the
financial year the Directors have declared the payment of
a final dividend of $15,835,000 (15.0 cents per fully paid
share) expected to be paid on 24 October 2019.
The dividend will be fully franked.
9
3
2
0
5
2
8
8
2
6
2
3
FY15
FY16
FY17
FY18
AUSTRALIA
OFFSHORE
FY17
0
9
3
FY19
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Directors’ Report
4.1.1 Sales (continued)
4.1.3 Cost Of Doing Business
The Group’s reported revenue was $250.3m, being a
15.3% increase on the prior year with comparable sales
being down 0.5% across the Group.
The offshore expansion continued during the year with the
addition of a net 64 stores across the Group, comprising of
70 new stores including new stores in France and the USA,
offset by 6 stores closed.
4.1.2 Gross Profit Margin
GROSS MARGIN %
%
7
FY13
7
%
4
FY14
7
%
9
FY15
7
%
0
FY16
8
%
FY17
0
8
FY15
FY16
FY17
FY18
FY19
INCREASE IN COST OF DOING BUSINESS
%
4
5
%
4
5
%
3
5
%
3
5
%
6
5
FY15
FY16
FY17
FY18
FY19
The Group’s Cost of Doing Business (CODB) increased
during the year due to investing ahead of the curve to
support the Company’s net opening of 64 new stores and
the ongoing store rollout plan. The company has continued
its investment in new territory infrastructure and senior
management roles to support the store rollout.
4.1.4 Earnings
The Group’s Gross Profit increased by 16.0% to $201.4m.
Gross Margin increased during the year to 80.5% on the
back of tight inventory management and the stronger USD
hedge rate during the period.
Earnings before interest and tax (EBIT) was $52.5m being a
2.8% increase on EBIT from the prior year. Financing costs
were positive during the year following strong cash flow and
debt facilities remaining undrawn for much of the year.
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This Margin increase benefited from currency tailwinds
associated with the Australian Dollar. We estimate 34bps
of the 46bps improvement in gross margin was a result of
the impact of the stronger AUD/USD hedge rate on stock
purchases.
Net profit after tax increased 3.0% to $37.0m with EPS
lifting to 35.1 cents.
4.1.5 Cash Flow
The Group’s net cash flow from operating activities increased
$8.3m during the year to $68.9m. Capital expenditure
of $24.1m relates predominately to new store openings
and refurbishments of current stores upon lease renewal.
The Group’s policy of distributing surplus cash by way of
increased dividends resulted in a net cash outflow for the
year, with net cash of $11.2m on hand at year end.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
FY2019
$’000
7,413
22,769
Actual
FY2018
$’000
4,881
14,945
(37,576)
(27,579)
(7,394)
38,418
4,418
35,442
11,192
645
6,372
53,651
(7,753)
22,411
3,563
18,221
21,057
1,429
4,535
45,242
Change
FY18/FY19
%
51.9%
52.4%
36.2%
(4.6%)
71.4%
24.0%
94.5%
(46.8%)
(54.9%)
40.5%
18.6%
The Group’s net working capital remained stable during the year. Inventory levels increased from $14.9m to $22.8m
during the year due to an increase of 52 company owned stores and 12 franchise stores, as well as additional stock
holdings to support new store openings in the first half of FY20 and the e-commerce business.
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 $7m contingent liability facility predominately for issuance
of Bank Guarantees and Letters of Credit to international landlords. The Group possesses net cash reserves of $11.2m at
year end.
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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 $250.3
million in FY2019. The Group continues to focus on its key drivers to deliver growth in sales and profit growth.
Growth pillar
International
expansion
Business
Strategy
Section
5.2
Streamline global
supply chain
5.3
Strategy
Risks
Achievements
• Continue to leverage current
• Competition (6.2)
international territories
• Leverage the Company’s capital in
large international markets
• Roll out USA, France and UK
territory and investigate other
Northern Hemisphere markets
• Consider franchise partners for
selected territories
• Expand into new international
markets, targeting one new trial
territory per annum
• Retail environment
and general
economic conditions
(6.3)
• Failure to successfully
implement growth
strategies (6.4)
• Availability of
appropriately
sized sites in good
locations
• Net 61 stores opened
outside of Australia
during the year including
14 stores in the United
Kingdom and 4 new
stores in Spain. In new
territories 6 stores were
opened in France and
18 new stores in the
USA. 12 franchise stores
were opened during the
year.
• Streamline and optimise supply
• Exchange rates (6.5)
base in Asia
• Optimise air and sea freight whilst
maintaining speed to market
operating model
• Consider alternative Northern
Hemisphere distribution model
• Product sourcing
or supply chain
disruptions
• Over 51% of product
was moved through
the China and HK
warehouses (FY18: 45%)
• Completed move of
Asian distribution hub
from HK to China
Enhance existing
store performance
5.4
• Optimise and improve existing
• Competition (6.2)
• FY19 LFL sales down
store network
• Retail environment
0.5%
• Continue to target high traffic
shopping precincts
• Judicious pricing
and general
economic conditions
(6.3)
• Global roll-out of in
store piercing service
underway
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Brand proliferation 5.5
• Continue to leverage online social
media to connect with customers
and increase brand loyalty
Lead and
pre-empt trends
5.1
• Stay on trend with shifts in
jewellery and accessory market
• Continue to provide a high quality
and diverse product offering
5.1 Lead and Pre-Empt Trends
• Prevailing fashions
and consumer
preferences may
change (6.6)
• Prevailing fashions
and consumer
preferences may
change (6.6)
• We continue to close
stores in
sub-optimal locations
• Opening of online store
for Australia/NZ and
United Kingdom/Europe
• Increased social media
• Privacy breaches
engagement
• Prevailing fashions
and consumer
preferences may
change (6.6)
• Continued strong
performance being
testament to an ability to
identify 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 the product team is primarily based in Melbourne, 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 - 30 June 2019For 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
FY2015
146
FY2016
144
FY2017
145
FY2018
151
FY2019
154
14
15
36
15
-
-
-
-
13
-
239
18
19
36
14
3
-
-
-
16
-
250
18
21
50
19
11
1
-
-
19
4
288
20
22
56
21
24
5
2
1
18
6
326
22
18
61
25
38
9
8
19
28
8
390
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* Franchise Stores
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 Australia and New Zealand) or its third party operated warehouse in China (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. The global roll-out of piercing services into stores is well underway with a
focus on enhancing customer loyalty.
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, focused
imagery, and the store “look and feel”. Stores are located in high foot traffic areas, in high performing centres.
The company’s online store is now operational for Australia/NZ and the UK/EU market.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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.
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
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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.
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.
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 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 - 30 June 2019For 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 $15,835,000
(15.0 cents per fully paid share) expected to be paid on 24 October 2019. The dividend will be fully franked.
No other matters or circumstance has arisen since 30 June 2019 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.
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Directors’ Report
9. REMUNERATION REPORT - AUDITED
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:
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1. Non-Executive Directors
2. Managing Director
3. Chief Executive Officer
4. Chief Financial Officer
Non-Executive Director KMP
Michael Kay
Brett Blundy
James King
Tracey Blundy
John Armstrong
Sei Jin Alt
Chairman
(Resigned 31 October 2018)
Director
Director
Director
(Appointed 25 September 2018)
Director
(Appointed 19 February 2019)
Nico Van Der Merwe Alternate Director
(Appointed 19 February 2019)
Executive KMP
Shane Fallscheer
Chris Lauder
Managing Director
Chief Financial Officer
A. Principles Used to Determine the Nature and Amount of
Remuneration
(a) Non-Executive Directors KMP Remuneration
Non-executive Directors’ fees are determined within an
aggregate Non-executive 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 30 June 2019 was
$391,333.
Brett Blundy, 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 between $60,000 to $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
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
2019 financial year is as follows:
Senior Executive
Shane Fallscheer
Chris Lauder
Fixed
remuneration
At risk
remuneration
16%
67%
84%
33%
Chairman
(Appointed Chairman 1 November 2018)
The current executive salary and reward framework consists of
the following components;
This report has been audited by the Company’s Auditor
KPMG as required by Section 308 (3C) of the Corporation
Act 2001.
The Remuneration and Nomination Committee is governed
by its Charter which was developed in line with ASX
Corporate Governance Principles and Recommendations.
The Charter specifies the purpose, authority, membership and
the activities of the Remuneration and Nomination Committee
and the Charter is annually reviewed by the Committee to
ensure it remains consistent with regulatory requirements.
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 %.
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 - 30 June 2019For personal use only
Directors’ Report
Short Term Incentive plan
EPS over the Performance Period
% Exercisable
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. The Company’s remuneration
policy for KMP is currently focused on long term incentives
only, and as a result no short term incentives are included
within remuneration for KMP.
Long Term Incentive plan
The Company operates a long term incentive plan. The plan
is designed to align the interests of the executives with the
interest of the shareholders by providing an opportunity for
the executives 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 profit based performance measures such
as EPS and EBIT to be the most appropriate performance
conditions as they align the interests of shareholders with
management.
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
associated with this Grant were:
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
• No options were forfeited during the year.
100% awarded
•
The actual compound annual growth rate in EPS over
the performance period ended 30 June 2019 was
29.5%. As a result of this the Board have determined
that 1,893,646 Performance Options have now vested
and are exercisable, including 1,687,764 granted to
the Managing Director
•
The expiry of the Performance Options is 12 months
following the end of the performance period.
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.
• 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,
and are consistent with the EPS hurdle for the FY2017
Performance Options noted above .
•
The Performance Options granted to the Managing
Director were approved at the 2017 AGM.
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•
•
The performance period commenced 4 July 2016 and
ended on 30 June 2019.
• 377,171 options were forfeited during the year.
FY2019 LTI – Performance Options
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.
In October 2018 a grant of Performance Options was made
to the Managing Director, Executives and Management as
part of the FY2019 LTI. The key terms associated with the
2019 Grant are:
• 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 Performance Options granted to the Managing
Director were approved at the 2016 AGM.
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 period commences 2 July 2018 and
ends 27 June 2021.
The exercise price of the Performance Options is
$10.95, which represents the 30 day VWAP to the date
of grant.
• A total of 2,758,608 Performance Options were
granted, with 2,564,103 of these options subject to
shareholder approval.
•
The grant of Performance Options are subject to
performance conditions based on delivering the
Company’s EBIT target over the performance period,
as set out below.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
•
•
•
For Performance Options granted to the Managing
Director, the Performance Options will be tested at
the end of the performance period, and if they are
determined to have vested they will then be subject to
a further 2 year holding restriction period ending 2 July
2023, after which time they may be exercised up to
their expiry date being 12 months following the end of
the restriction period.
For executives other than the Managing Director,
the expiry of the Performance Options is 12 months
following the end of the performance period.
The Performance Options granted to the Managing
Director were approved at the 2018 AGM.
• No options were forfeited during the year.
The Board has determined the EBIT Target growth hurdles
applicable to both the FY2018 and FY2019 grants are as
follows:
Performance Options granted to the Managing Director:
EBIT* over the Performance Period
% Exercisable
Less than threshold
24% compound growth
25% compound growth
26% compound growth
Nil
10% awarded
20% awarded
100% awarded
Performance Options granted to other Executives:
EBIT* over the Performance Period
% Exercisable
Less than threshold
17.5% compound growth
20% compound growth
22.5% compound growth
Nil
40% awarded
60% awarded
80% awarded
25% compound growth
100% awarded
* EBIT is defined as Earnings before Interest and Tax before Share Based Payments
expense for the purposes of testing the performance conditions above. Certain
executives (other than KMP) are also subject to personal performance hurdles in
addition to the EBIT hurdle noted above.
9.3 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
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S Fallscheer
FY17 LTIP
1,687,764
400,000
4 July 2016
133,360
100
FY18 LTIP
1,308,901
500,000
3 July 2017
FY19 LTIP
2,564,103
8,000,000
2 July 2018
C Lauder
FY18 LTIP
337,553
160,000
3 July 2017
FY19 LTIP
76,923
210,000
2 July 2018
166,667
133,333
64,000
17,500
-
-
-
-
-
-
-
-
-
30 June 2019
28 June 2020
27 June 2021
28 June 2020
27 June 2021
9.4 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 1
July 2018
Granted
Exercised
Forfeited
Held at 30
June 2019
Vested during the
year
%
Vested and
exercisable at 30
June 2019
Directors
S Fallscheer
- IPO LTIP
- FY17 LTIP
- FY18 LTIP
- FY19 LTIP
Executives
C Lauder
- FY18 LTIP
- FY19 LTIP
550,000
1,687,764
1,308,901
-
-
-
-
2,564,103
337,553
-
-
76,923
550,000
-
-
-
-
-
-
-
-
-
-
-
-
1,687,764
1,308,901
2,564,103
337,553
76,923
-
100
-
1,687,764
-
-
-
-
-
-
-
-
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Directors’ Report
9.5 Details of Remuneration
Details of the remuneration of the Directors and Key Management Personnel (KMPs) is set out below.
Short Term Employment Benefits
Post-
Employment
Benefits
Long Term
Benefits
Share
Based
Payments
Other
Benefits
Year
Salary &
Fees ($)
Non-
monetary
benefits
($)
Performance
based
payment ($)
Super
Contributions
($)
Annual
& Long
Service
Leave ($)
Options/
Rights ($)
Termination
Benefits ($)
Total ($)
NON-EXEC DIRECTORS
B Blundy (1)
M Kay (2)
T Blundy
J King
2019
2018
2019
100,000
-
45,662
2018
136,986
2019
2018
2019
2018
54,795
69,794
73,059
73,059
J Armstrong
(3)
2019
56,012
S J Alt (4)
P Cave (5)
N Van Der
Merwe (6)
TOTAL
NON-EXEC
DIRECTORS
2018
2019
2018
2019
2018
2019
2018
-
20,000
-
-
23,197
-
-
2019
349,528
2018
303,036
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
EXEC DIRECTORS
S Fallscheer
2019
1,282,749
27,841
2018
636,063
27,841
OTHER KMP
C Lauder
2019
376,831
2018
264,578
S Doyle (7)
2019
-
G Fallet (8)
2018
430,289
2019
2018
-
73,136
-
-
-
-
-
-
TOTAL EXEC
2019
1,659,580
27,841
-
-
4,338
13,014
25,205
10,206
6,941
6,941
5,321
-
-
-
-
3,470
-
-
41,805
33,631
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
190,923
433,360
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
-
50,000
150,000
80,000
80,000
80,000
80,000
61,333
-
20,000
-
-
26,667
-
-
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391,333
336,667
1,959,873
30,000
85,397
299,987
- 1,079,288
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,731
38,328
81,500
20,000
21,174
28,428
32,000
-
-
-
-
-
-
-
521,390
366,180
-
245,760
20,048
34,355
(100,000)
261,559
892,011
-
-
-
-
-
-
-
-
3,341
5,064
(40,000)
189,980
231,521
49,731
229,251
514,860
-
2,481,263
2018 1,404,066
27,841
265,760
74,563
153,244
191,987
451,539 2,569,000
(1) Appointed as Chairman on 1 November 2018
(2) Resigned as a Chairman and a Director on 30 October 2018
(3) Appointed on 25 September 2019
(4) Appointed on 19 February 2019
(5) Resigned as a Director on 31 October 2017
(6) Appointed as an Alternate Director of Lovisa Holdings on 19 February 2019
(7) Resigned on 20 April 2018
(8) Resigned on 15 September 2017
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Directors’ Report
9.6 Consequences of Performance on Shareholder Wealth
In considering the consolidated entity’s performance and
the benefits for shareholder wealth, the Remuneration and
Nomination Committee has regard to a range of indicators in
respect of senior executive remuneration and linked these to the
previously described short and long term incentives.
The following table presents these indicators showing the impact
of the Group’s performance on shareholder wealth, during the
financial years:
Earnings before interest and
tax ($000)
FY 2019
FY 2018
FY2017
52,484
51,074
40,704
Net profit after tax ($000)
37,043
35,954
29,046
Dividends paid ($000)
33,781
21,632
12,600
Share Price
$11.36
$11.70
$3.69
Earnings per share (cents)
35.09
34.24
27.66
KMP Shareholdings
The following table details the ordinary shareholdings and
the movements in the shareholdings of KMP (including their
personally related entities) for FY2019.
No. of shares
Held at 1
July 2018
Shares
Purchased
Shares
Sold
Held at 30
June 2019
Non-executive
Directors
B Blundy
43,207,500
T Blundy
1,153,005
J King
34,000
-
-
-
J Armstrong
S J Alt
N Van Der
Merwe
(alternate)
Executive
Directors
-
-
-
-
-
-
-
-
-
-
-
-
43,207,500
1,153,005
34,000
-
-
-
S Fallscheer
4,490,000
550,000 (900,000)
4,140,000
Executive
C Lauder
-
3,000
-
3,000
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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
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Brett Blundy
Non-Executive Chairman
Shane Fallscheer
Managing Director
Melbourne, 21 August 2019
10. INSURANCE OF OFFICERS AND
INDEMNITIES
During the financial year, Lovisa Holdings Limited paid a
premium of $303,000 (2018: $160,000) 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 30 June 2019, the
following fees were paid or were due and payable for
services provided by the external auditor, KPMG, of the
Consolidated Entity:
Consolidated Entity
2019
$000
2018
$000
Audit and assurance services
Audit and review of financial
statements
Other services
Tax compliance services
Other accounting services
270
240
60
132
462
103
113
456
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 - 30 June 2019For personal use only
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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
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 - 30 June 2019For 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
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52
52
53
53
54
60
62
62
62
63
63
65
66
67
69
69
71
76
77
81
84
88
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
FINANCIAL
STATEMENTS
2
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
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
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
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Note
C5
B1
B2
C4
A6
B3
B4
C5
B6
B8
B7
A6
B8
B7
30 June
2019
19,180
7,413
22,769
645
50,007
6,372
38,418
4,418
49,208
99,215
7,988
23,659
2,992
2,212
1,261
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
38,112
21,814
1,062
6,390
7,452
45,564
53,651
780
4,985
5,765
27,579
45,242
C1
209,791
208,526
(208,906)
(208,906)
6,302
46,464
53,651
2,270
43,352
45,242
The Notes on pages 38 to 72 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Financial Statements
CONSOLIDATED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME
For the financial year ended 30 June 2019
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
A3
A3
A6
A4
A4
2019
2018
250,282
(48,873)
201,409
(66,352)
(42,579)
(8,796)
(9,838)
(241)
(21,119)
52,484
436
(302)
134
52,618
(15,575)
37,043
(697)
2,329
1,632
1,632
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
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38,675
38,345
37,043
37,043
38,675
38,675
35.09
34.21
35,954
35,954
38,345
38,345
34.24
33.33
The Notes on pages 38 to 72 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 30 June 2019
Attributable to Equity Holders of the Company
Consolidated ($000s)
Note
Share
Capital
Common
Control
Reserve
Balance at 3 July 2017
208,526
(208,906)
Share Based
Payments
Reserve
Cash Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Total
Equity
556
(731)
(286)
28,189
-
-
-
-
340
-
340
896
896
-
-
-
-
-
1,981
-
-
35,954
1,981
-
410
410
1,981
410
38,345
-
-
-
1,250
1250
-
-
(697)
-
-
-
340
(21,632)
(21,292)
124
124
45,242
45,242
-
-
-
(150)
37,043
(697)
-
2,329
2,329
Retained
Earnings
29,030
35,954
-
-
35,954
-
(21,632)
(21,632)
43,352
43,352
(150)
37,043
-
-
D4
A5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
208,526
(208,906)
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
Balance at 1 July 2018
Balance at 2 July 2018
Impact of change in
accounting policy
Total comprehensive income
for the year
Profit
Cash flow hedges
Foreign operations - foreign
currency translation
differences
Total comprehensive income
for the year
Capital contributions
Employee share schemes
Dividends
Total transactions with owners
of the Company
Balance at 30 June 2019
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208,526
(208,906)
80,245
896
553
2,453
83,767
C1
D4
A5
1,265
-
-
1,265
-
-
-
-
-
-
(33,781)
-
2,400
-
(33,781)
2,400
-
-
-
-
-
-
-
-
1,265
2,400
(33,781)
(30,116)
209,791
(208,906)
46,464
3,296
553
2,453
53,651
The Notes on pages 38 to 72 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the financial year ended 30 June 2019
Consolidated ($000s)
Note
2019
2018
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
Share options exercised
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
278,004
243,407
(211,277)
(182,802)
66,727
60,605
436
(302)
(20,633)
46,228
192
(111)
(13,895)
46,791
(23,359)
(14,183)
55
(831)
(24,135)
1,265
(33,781)
(32,516)
(10,423)
21,057
558
11,192
67
(1,162)
(15,278)
-
(21,632)
(21,632)
9,881
11,039
137
21,057
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C5
B4
A5
C5
C5
The Notes on pages 38 to 72 are an integral part of these consolidated financial statements.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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.
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Lovisa Holdings Limited reports within a retail financial
period. The current financial year represents a 52 week
period ended on 30 June 2019 (2018: 52 week period
ended 1 July 2018). This treatment is consistent with section
323D of Corporations Act 2001.
The consolidated financial statements of the Group for the
financial year ended 30 June 2019 were authorised for
issue by the Board of Directors on 21 August 2019.
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. Intangible assets and goodwill 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 2018. This is the
first set of the Group’s annual financial statements in
which AASB 15 Revenue from Contracts with Customers
and AASB 9 Financial Instruments have been applied.
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 30 June 2019 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 B2 - inventories: recognition and measurement of
stock provisioning;
• 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 - 30 June 2019For personal use only
Notes to the Consolidated Financial Statements
When the settlement of a monetary item receivable from
or payable to a foreign operation is neither planned nor
likely to occur in the foreseeable future, foreign exchange
gains and losses arising from such a monetary item that
are considered to form part of a net investment in a foreign
operation are recognised in other comprehensive income,
and are presented in the translation reserve in equity.
About the Notes to the financial statements
The notes include information which is required to
understand the financial statements and is material
and relevant to the operations, financial position and
performance of the Group. Information is considered
material and relevant if, for example:
• The amount with respect to the information is significant
because of its size or nature;
• The information is important for understanding the results
of the Group;
• It helps to explain the impact of significant changes in
the Group’s business; or
• It relates to an aspect of the Group’s operations that is
important to its future performance.
Subsequent events
There are no matters or circumstances that have arisen
since the end of the financial year which significantly
affected or may significantly affect the operations of the
Group, the result of those operations, or the state of affairs
of the Group in future financial years.
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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.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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.
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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 regional
management, 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; and
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 - 30 June 2019For 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), Americas (United States of America) and Europe (United Kingdom, Spain
and France 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
e) Americas
Total
2019
2018
Non-current assets (i)
Non-current assets (i)
15,305
1,642
3,497
10,748
7,226
38,418
10,473
1,723
3,689
6,017
509
22,411
(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
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2019
2018
137,684
132,013
34,393
33,417
36,672
6,346
34,558
30,499
17,884
509
248,512
215,463
1,385
385
1,770
1,153
394
1,547
250,282
217,010
a) Revenue recognition and measurement
Revenue is recognised when the customer obtains control of the goods, 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 customer obtains control of the goods. A right of return
provision has been recognised in line with the Group’s returns policy in line with the requirements of IFRS 15 along with
a right to recover returned goods asset. The impact of this change in accounting policy has been quantified in note D9.
Franchise income
Franchise income, which is generally earned based upon a percentage of sales is recognised on an accrual basis.
There is no material impact from the introduction of IFRS 15 on franchise income.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Notes to the Consolidated Financial Statements
A3 EXPENSES
Expenses by nature
Consolidated ($000s)
Property expenses
Lease expenses
Outgoings
Total property expenses
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
Other expenses
Administrative expenses
Other expenses
Total other expenses
A4 EARNINGS PER SHARE (EPS)
Calculation methodology
2019
2018
32,113
10,466
42,579
60,361
5,123
282
586
66,352
14,429
6,690
21,119
26,856
7,857
34,713
50,824
4,178
172
340
55,514
13,259
4,275
17,534
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)
2019
35.09
34.21
2018
34.24
33.33
Profit attributable to ordinary shareholders ($000s)
37,043
35,954
Weighted average number of ordinary shares for basic EPS (shares)
105,566,000
105,016,000
Weighted average number of ordinary shares and potential ordinary shares for diluted EPS
(shares)
108,272,778
107,863,473
2019
2018
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
105,566,000
105,016,000
Adjustments for calculation of diluted earnings per share:
Options
2,706,778
2,847,473
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
108,272,778
107,863,473
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Notes to the Consolidated Financial Statements
A4 EARNINGS PER SHARE (EPS) (CONTINUED)
Information concerning the classification of securities
i) Options
Options 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 have not been included in the determination of basic earnings per share. Details relating to the options are set out
in note D4.
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)
14.0 cents per qualifying ordinary share (2018: 7.6 cents)
18.0 cents per qualifying ordinary share (2018: 13.0 cents)
2019
2018
14,779
19,002
7,980
13,652
33,781
21,632
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)
15.0 cents per qualifying ordinary share (2018: 14.0 cents)
Consolidated ($000s)
Dividend franking account
2019
2018
15,835
15,835
14,702
14,702
2019
2018
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Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2018:
30%)
4,620
8,623
A6 INCOME TAXES
Recognition and measurement
Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is recognised in
the statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following differences are not provided for: 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.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Notes to the Consolidated Financial Statements
A6 INCOME TAXES (CONTINUED)
(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
(b) Reconciliation of effective tax rate
Consolidated ($000s)
Profit before tax from continuing operations
Tax at the Australian tax rate of 30% (2018: 30%)
Effect of tax rates in foreign jurisdictions
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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
Other movements
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
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
2019
2018
17,264
16,372
103
171
17,367
16,543
(1,791)
(1,342)
(1)
-
(1,792)
(1,342)
15,575
15,201
2019
52,618
15,785
2018
51,155
15,347
(515)
(532)
379
(34)
-
(313)
761
(590)
102
499
(28)
(450)
(483)
645
32
171
15,575
15,201
(2,052)
1,837
(215)
149
1,260
1,409
15,360
16,610
6,534
3,819
(20,633)
(13,895)
1,261
6,534
1,261
6,534
-
-
1,261
6,534
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Notes to the Consolidated Financial Statements
A6 INCOME TAXES (CONTINUED)
(b) Reconciliation of effective tax rate (continued)
Effective tax rates (ETR)
Bases of calculation of each ETR
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
(c) Deferred tax assets and liabilities reconciliation
2019
2018
29.6%
27.8%
29.7%
30.4%
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
2019
1,681
1,485
902
505
-
1,799
-
2018
653
1,162
1,151
595
235
739
-
2019
(1,024)
(322)
259
90
235
(1,030)
(1,792)
2018
(294)
(194)
(66)
(303)
235
(720)
(1,342)
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6,372
4,535
Presented in the Statement of financial position as follows:
Deferred tax assets
6,372
4,535
Unused tax losses for which no deferred tax asset has been recognised total $1,063,000 (2018: $652,000).
(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
2019
2,774
3,617
6,391
19
-
19
2018
3,187
1,531
4,718
183
-
183
Net deferred tax assets
6,372
4,535
Lovisa Holdings Limited Annual Report - 30 June 2019For 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)
Note
Trade receivables
Deposits
Prepayments
Other receivables
Impairment of receivables
2019
3,147
1,120
3,052
94
7,413
2018
959
967
2,891
64
4,881
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.
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B2 INVENTORIES
Recognition and measurement
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in
the ordinary course of business, less the estimated costs of completion and selling expenses. Cost includes the product
purchase cost, import freight and duties together with other costs incurred in bringing inventory to its present location and
condition using the weighted average cost method. All stock on hand relates to finished goods.
Costs of goods sold comprises purchase price from the supplier, cost of shipping product from supplier to warehouse,
shrinkage and obsolescence. Warehouse and outbound freight costs are reported as distribution expenses. Inventories
recognised as expenses during 2019 and included in cost of sales amount to $44,609,000 (2018: $38,512,000).
During 2019 inventories of $3,503,000 (2018: $4,571,000) were written down to net realisable value and included in
cost of sales.
The impact of introduction of the right to recover returned goods recognised under AASB15 is disclosed in note D9.
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
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 3 July 2017
Additions
Disposals
Effect of movements in exchange rates
Balance at 1 July 2018
Balance at 2 July 2018
Additions
Disposals
Effect of movements in exchange rates
Balance at 30 June 2019
Consolidated ($000s)
Accumulated depreciation and
impairment losses
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
32,532
10,533
(2,892)
497
40,670
40,670
22,308
(2,610)
884
61,252
1,555
2,130
(96)
25
194
1,520
(1)
3
34,281
14,183
(2,989)
525
3,614
1,716
46,000
3,614
2,597
(174)
56
6,093
1,716
610
-
2
2,328
46,000
25,515
(2,784)
942
69,673
Note
Leasehold
improvements
Hardware and
software
Fixtures and
fittings
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Total
(17,881)
(6,065)
2,403
(288)
(704)
(789)
55
(10)
(38)
(271)
1
(1)
(18,623)
(7,126)
2,459
(299)
Balance at 1 July 2018
(21,831)
(1,448)
(309)
(23,589)
Balance at 2 July 2018
Depreciation
Disposals
Effect of movements in exchange rates
(21,831)
(7,668)
2,376
(366)
(1,448)
(1,645)
111
(29)
(309)
(445)
-
(1)
(23,588)
(9,758)
2,487
(396)
Balance at 30 June 2019
(27,489)
(3,011)
(755)
(31,255)
Carrying amounts
At 2 July 2017
At 1 July 2018
At 30 June 2019
14,651
18,839
33,763
851
2,166
3,082
156
1,407
1,573
15,658
22,411
38,418
Lovisa Holdings Limited Annual Report - 30 June 2019For 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)
Balance at 3 July 2017
Additions
Amortisation
Effect of movements in exchange rates
Balance at 1 July 2018
Balance at 2 July 2018
Additions
Amortisation
Effect of movements in exchange rates
Balance at 30 June 2019
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Note
Key Money
-
1,162
(11)
30
1,181
Goodwill
2,276
-
-
106
2,382
1,181
2,382
831
(80)
42
-
-
62
1,974
2,444
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)
2019
15.0%
3.0%
2018
15.0%
3.0%
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 indefinite-lived key money (continued)
The discount rate was a pre-tax measure based on the rate of 10-year government bonds issued by the government in the
relevant market and in the same currency as the cash flows, adjusted for a risk premium to reflect both the increased risk of
investing in equities generally and the systemic risk of the specific CGU.
Five years of cash flows were included in the discounted cash flow model with a long-term growth rate into perpetuity
determined as the lower of the nominal GDP rates for the countries in which the CGU operates and the long-term
compound annual EBITDA growth rate estimated by management.
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 FY20 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
2019
9,138
14,521
23,659
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2018
5,203
6,544
11,747
Trade payables are unsecured and are usually paid within 30 days of recognition.
Information about the Group’s exposure to currency and liquidity risk is included in Note C4.
B7 PROVISIONS
Recognition and measurement
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as
a finance cost.
A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly
recommended on or before the reporting date.
Consolidated ($000s)
Site restoration
Straight line rent and
lease incentive
Return
provision
Onerous
lease
Balance at 2 July 2018
Provisions made during the year
Provisions used during the year
Effect of movement in exchange rates
Balance at 30 June 2019
Current
Non-current
2,532
722
(165)
49
3,138
772
2,366
3,138
3,560
3,046
(1,441)
45
5,210
1,192
4,018
5,210
-
358
(114)
2
246
246
-
246
10
-
(2)
-
8
2
6
8
Total
6,102
4,126
(1,722)
96
8,602
2,212
6,390
8,602
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
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Onerous leases arise when the cost of exiting an existing lease is greater than the loss on the sub-lease
arrangement. In these circumstances, the best estimate is made of the expenditure required to settle
the present obligation at the end of the reporting period with a provision made based on the least
net cost alternative of exiting the lease. Provisions are based on the excess of the cash flows for the
unavoidable costs in meeting the obligations under the lease over the unrecognised estimated future
economic benefits from the lease.
Where the Group has agreed to exit an existing lease early, these balances have been accrued for at
year-end.
Key Estimates
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
B8 EMPLOYEE BENEFITS
Recognition and measurement
Long-term service benefits
The Group’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods. The obligation is calculated using expected future
increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using high
quality Australian corporate bond rates at the balance sheet date which have maturity dates approximating to the terms of
the Group’s obligations.
Short-term benefits
Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months
of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are
calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at
reporting date including related on-costs, such as workers compensation insurance and payroll tax.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
2019
2018
2,992
2,992
2,416
2,416
2019
2018
1,062
1,062
780
780
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.
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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
Share Capital
On issue at beginning of year
Exercise of performance rights
Share issue to Employee Share Trust
On issue at end of year
Treasury Shares
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On issue at beginning of year
Shares issued to trust
Shares allocated on option exercise
No. of Ordinary Shares
Value of Ordinary Shares
2019
‘000’s
2018
‘000’s
2019
‘000’s
2018
‘000’s
105,016
105,000
208,526
208,526
-
550
16
-
-
6,045
-
-
105,566
105,016
214,571
208,526
-
(550)
550
-
-
-
-
-
-
(6,045)
1,265
(4,780)
-
-
-
-
Share Capital After Treasury Shares
105,566
105,016
209,791
208,526
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.
(ii) Treasury shares
Treasury shares are shares in Lovisa Holdings Limited that are held by the Lovisa Holdings Limited Share Trust for the
purposes of issuing shares under the Long Term Incentive Plans. When shares recognised as equity are repurchased, the
amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity.
Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury
shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting
surplus or deficit on the transaction is presented within share capital.
(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.
C1 CAPITAL AND RESERVES (CONTINUED)
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Notes to the Consolidated Financial Statements
(b) Nature and purpose of reserves (continued)
(ii) Translation reserve
The translation reserve reflects all foreign currency differences of the international entities upon translation to the Group’s
functional currency.
(iii) Hedging Reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments
used in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows affect profit or loss.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the
derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of
changes in the fair value of the derivative is recognised immediately in profit or loss.
The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same
period or periods during which the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer
expected to occur, then the amount accumulated in equity is reclassified to profit or loss.
(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
2019
2018
7,988
-
Information about the Group’s exposure to interest rate, foreign currency and liquidity risk is included in Note C4.
(a) Terms and debt repayment schedule
Terms and conditions of outstanding loans are as follows:
Consolidated ($000s)
Currency
Cash advance facility
Multi-option facility
Contingent liability facility
Total interest-bearing liabilities
AUD
AUD
AUD
Nominal
interest
rate
2.37%
6.48%
2.30%
30 June 2019
1 July 2018
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
2020
2019
2019
-
-
7,988
7,988
-
-
7,988
7,988
-
-
-
-
-
-
-
-
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).
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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.
30 June 2019
Carrying Amount
Fair Value
Consolidated ($000s)
Note
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
Hedging
instruments
Loans and
receivables
Other
financial
assets/
liabilities
Total
Level 1
Level 2
Level
3
Total
645
645
-
-
-
-
-
-
-
-
-
7,413
19,180
26,593
-
-
-
-
-
-
-
-
-
-
645
645
7,413
19,180
26,593
-
7,988
7,988
23,659
23,659
31,647
31,647
-
-
-
-
-
-
-
-
-
645
645
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
645
645
-
-
-
-
-
-
-
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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)
1 July 2018
Carrying Amount
Fair Value
Consolidated ($000s)
Note
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
Trade and other
payables
B1
C5
B6
Hedging
instruments
Loans and
receivables
Other
financial
assets/
liabilities
Total
Level 1
Level 2
Level
3
Total
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
-
-
-
-
-
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(i) Valuation technique and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the
significant unobservable inputs used.
Financial instruments measured at fair value
Type
Valuation technique
Forward exchange
contracts
Market comparison technique: Fair value of
forward exchange contracts is determined
using forward exchange rates at the
balance sheet date. These over-the-counter
derivatives utilise valuation techniques
maximising the use of observable market
data where it is available.
Significant unobservable
inputs
Inter-relationship between key
unobservable inputs and fair value
measurement
Not applicable.
Not applicable.
Financial instruments not measured at fair value
Type
Valuation technique
Significant unobservable inputs
Secured bank loans
Discounted cash flows.
Not applicable.
(ii) Transfers between Level 1 and 2
There were no transfers between Level 1 and Level 2 during the year.
(iii) Level 3 fair values
Transfer out of Level 3
There were no transfers out of Level 3 during the year.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
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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 30 June 2019, no trade receivables were past due but not impaired (2018: 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; and
• $7 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 - 30 June 2019For 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)
30 June 2019
Contractual cash flows
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2 years
2-5
years
More than
5 years
9,138
9,138
7,988
7,988
9,138
7,988
17,126
17,126
17,126
-
-
-
- Outflow
- Inflow
Total
32,360
7,696
24,664
(33,005)
(7,882)
(25,123)
(645)
(645)
(186)
(459)
Consolidated ($000s)
Non-derivative financial liabilities
Trade payables
Bank overdrafts
Derivative financial liabilities
Forward exchange contracts used for
hedging:
Consolidated ($000s)
Non-derivative financial liabilities
Trade payables
Derivative financial liabilities
Forward exchange contracts used for
hedging:
5,203
5,203
5,203
5,203
5,203
5,203
-
-
- Outflow
- Inflow
Total
-
-
29,047
5,777
23,270
(30,476)
(6,105)
(24,371)
(1,429)
(1,429)
(328)
(1,101)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 July 2018
Contractual cash flows
Carrying
amount
Total
2 mths or
less
2-12 mths
1-2 years
2-5
years
More than
5 years
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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 - 30 June 2019For 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
60%
40%
30%
80%
50%
40%
100%
75%
50%
The summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group is
as follows:
In thousands of
Cash and cash equivalents
Trade receivables
Trade payables
30 June 2019
1 July 2018
SGD
935
USD
GBP
ZAR
SGD
1,072
947
14,801
1,411
67
1,969
-
282
-
USD
90
523
GBP
563
ZAR
7,746
-
249
-
(3,214)
(2,014)
-
(230)
(3,124)
(962)
(199)
Net statement of financial position exposure
1,002
(173)
(1,067)
15,083
1,181
(2,511)
(399)
7,796
Sensitivity analysis
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.
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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
30 June 2019
SGD (5 percent movement)
USD (5 percent movement)
GBP (5 percent movement)
ZAR (5 percent movement)
1 July 2018
SGD (5 percent movement)
USD (5 percent movement)
GBP (5 percent movement)
ZAR (5 percent movement)
Interest rate risk
Profit or loss
Strengthening
Weakening
(42)
8
51
(718)
(56)
120
19
(371)
53
(9)
(56)
794
62
(132)
(21)
410
The Group is subject to exposure to interest rate risk as changes in interest rates will impact borrowings which bear interest
at floating rates. Any increase in interest rates will impact Lovisa’s costs of servicing these borrowings which may adversely
impact its financial position. This impact is not assessed to be material.
Increases in interest rates may also affect consumer sentiment and the level of customer demand, potentially leading to a
decrease in consumer spending.
Exposure to interest rate risk
The interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the Group is
as follows:
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Consolidated ($000s)
Variable-rate instruments
Financial liabilities
Nominal amount
2019
7,988
7,988
2018
-
-
Cash flow sensitivity analysis for variable rate instruments
At 30 June 2019, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables
held constant, there would have been $41,000 impact on pre tax profit for the year (1 July 2018 - no impact), 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 - 30 June 2019For 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
2019
645
645
2018
1,429
1,429
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the
carrying amounts of the related hedging instruments.
Consolidated ($000s)
Forward exchange
contracts:
Assets
Liabilities
2019
2018
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
645
-
645
645
-
645
645
-
645
-
-
-
1,429
1,429
1,429
-
-
-
1,429
1,429
1,429
-
-
-
A loss of $89,000 was included in other expenses on foreign currency derivatives not qualifying as hedges (2018: gain of
$109,000).
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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
2019
2018
19,180
(7,988)
11,192
21,057
-
21,057
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only Notes to the Consolidated Financial Statements
C5 CASH FLOWS (CONTINUED)
Reconciliation of cash flows from operating activities
Consolidated ($000s)
Note
2019
2018
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
37,042
35,954
9,838
241
586
89
628
48,424
(7,824)
(2,532)
(1,837)
11,912
(5,273)
3,358
46,228
7,126
463
340
(109)
(222)
43,552
(1,266)
(1,818)
(1,260)
1,746
2,715
3,122
46,791
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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
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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
2019
33,280
90,123
24,259
147,662
2018
23,988
54,585
10,954
89,527
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 $5,432,000 at 30 June 2019
(2018: $3,648,000).
(b) Capital commitments and contingent liabilities
The Group is committed to incur capital expenditure of $1,006,000 (2018: $510,000). There are no contingent liabilities
that exist at 30 June 2019 (1 July 2018: 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 30 June 2019 the Group has the following share-based payment arrangements:
(i) Share option programmes (equity-settled)
Long Term Incentives - Annual Programmes (FY 2017 - FY 2018)
Share Option
Programme
Grant date/employee
entitled
Options granted
Number of
instruments
(000’s)
Contractual life
of options
Vesting conditions
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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
FY 2018 LTI (2)
October 2017
FY 2018 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.
The Board 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
Following completion of the FY2019 financial year, the Board determined that these hurdles had been met for the FY2017
options and therefore all remaining 1,893,646 of these options have vested and are exercisable. The actual compound
annual growth rate in EPS over the performance period ended 30 June 2019 was 29.5%.
All FY 2018 (2) share options were forfeited during the year.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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)
Long Term Incentives - Annual Programmes (FY 2019)
Share Option
Programme
Options granted
Grant date/employee
entitled
Number of
instruments
(000’s)
Contractual life
of options
Vesting conditions
FY 2019 LTI
October 2019
2,564
3 years
FY 2019 LTI
October 2019
195
3 years
Refer Performance Options granted to Managing
Director table below
Refer Performance Options granted to other
Executives table below
2,759
2,564,103 of the FY2019 LTI (1) options were approved at the Company’s AGM on 30 October 2018.
The Board has determined the EBIT Target growth hurdles applicable to both the FY2019 grants are as follows.
Performance Options granted to Managing Director
Company’s EBIT* over the Performance Period
% of Performance Options that become exercisable
Less than threshold
Equal to threshold
Between threshold and stretch
Stretch
Performance Options granted to other Executives
Nil
24% compound growth - 10% awarded
25% compound growth - 20% awarded
26% compound growth - 100% awarded
Company’s EBIT* over the Performance Period
% of Performance Options that become exercisable
Less than threshold
Equal to threshold
Between threshold and stretch
Stretch
Nil
17.5% compound growth - 40% awarded
20% compound growth - 60% awarded
22.5% compound growth - 80% awarded
25% compound growth - 100% awarded
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* EBIT is defined as Earnings before Interest and Tax before Share Based Payments expense for the purposes of testing the performance conditions above.
(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
FY2017
LTI (1)
FY2017
LTI (2)
FY2018
LTI (1)
FY2018
LTI (3)
FY2019 LTI
(MD)
FY2019 LTI
(EXEC)
Fair value at grant date
$0.24
$0.34
$0.38
$0.47
$3.12
$2.73
30 day VWAP share price at grant date
$2.10
$2.63
$3.79
$5.94
$10.95
$10.95
Exercise price
$2.10
$2.63
$3.79
$5.94
$10.95
$10.95
Expected volatility (weighted-average)
24.70%
25.88%
23.70%
20.50%
40.90%
40.90%
Expected life (weighted-average)
Expected dividends
3 years
3 years
3 years
2.5 years
3 years
3 years
5.11%
4.08%
5.60%
5.60%
3.50%
3.50%
Risk-free interest rate (based on government bonds)
1.86%
1.44%
1.87%
1.89%
2.15%
2.15%
Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 were as follows.
Number of options
Weighted average exercise
price
Number of performance
rights
Outstanding at 2 July 2018
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 30 June 2019
Exercisable at 30 June 2019
Outstanding at 3 July 2017
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 1 July 2018
Exercisable at 1 July 2018
000’s
5,046
2,759
(377)
(550)
6,878
1,894
4,216
3,674
(2,844)
-
5,046
550
$
$3.17
$10.95
$4.00
$2.30
$6.32
$2.16
$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
000’s
-
-
-
-
-
-
16
-
-
(16)
-
-
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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
2019
2,037
92
515
-
229
2018
2,001
108
192
452
153
2,873
2,906
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 30 June 2019 except for those disclosed in note D5 (c) (1 July 2018: nil).
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
Notes to the Consolidated Financial Statements
D5 RELATED PARTIES (CONTINUED)
(c) Other related party transactions
Consolidated ($000s)
30 June 2019
1 July 2018
30 June 2019
1 July 2018
Transaction values for the year ended
Balance outstanding as at
a) Expenses
Expense recharges
b) Sales
Recharges
101
-
44
-
-
-
(11)
-
Included in expenses in the period is $100,000 relating to Directors fees for Brett Blundy in his capacity as Director and
Chairman of the Company. Transactions between the Lovisa Group and BB Retail Capital and its related parties have been
disclosed above due to BB Retail Capital continuing to be in a position of holding significant influence in relation to the Group,
with representation on the Board of Directors. Lovisa has, and will continue to benefit from the relationships that its management
team and BB Retail Capital have developed over many years of retail operating experience. Non property management related
expense recharges are also priced on an arms length basis. The Group will continue to utilise BBRC Retail Capital’s retail
operating experience on an arms length basis.
All outstanding balances with other related parties are priced on an arm’s length basis and are to be settled in cash within two
months post the end of the reporting year. None of the balances are secured. No expense has been recognised in the current
year or prior year for bad or doubtful debts in respect of amounts owed by related parties.
D6 AUDITOR’S REMUNERATION
Consolidated ($)
a) KPMG
Audit and review services
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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
2019
2018
208,000
181,000
62,000
270,000
59,000
240,000
In relation to other assurance, taxation and due diligence services
166,710
182,757
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
24,965
191,675
461,675
25,125
25,125
39,247
39,247
64,372
33,729
216,486
456,486
21,601
21,601
43,846
43,846
65,447
526,047
521,933
Lovisa Holdings Limited Annual Report - 30 June 2019For 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 30 June 2019 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
Loss on disposal of property, plant and equipment
Other income/(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
Impact of change in accounting policy
Dividends recognised during the year
Retained earnings at end of year
2019
154,849
(46,836)
108,013
(42,170)
(19,081)
(1,556)
(3,765)
(6)
1,763
3,454
21
(297)
46,376
(12,024)
34,352
-
34,352
41,056
(72)
(33,781)
41,555
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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
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
Current tax receivables
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
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Current tax liabilities
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
30 June 2019
1 July 2018
979
39,577
12,123
356
645
53,680
3,265
14,174
210,000
227,439
281,119
7,988
11,506
2,109
-
696
22,299
1,062
1,638
2,700
24,999
256,120
209,791
925
3,296
553
41,555
256,120
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
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
2019
33,220
-
33,220
30,356
219,203
-
-
209,791
1,861
7,551
219,203
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 30 June 2019.
(c) Parent entity guarantees in respect of the debts of its subsidiaries
2018
25,041
-
25,041
12,057
223,188
5,654
5,654
208,526
896
8,113
217,535
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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 30
June 2019:
• AASB 9 : Financial Instruments
• AASB 15: Revenue from Contracts with Customers
A AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It
replaced AASB 118 Revenue, AASB 111 Construction Contracts and related interpretations.
The Group has adopted AASB 15 using the cumulative effect method (without practical expedients), with the effect of
initially applying this standard recognised at the date of initial application (i.e. 2 July 2018). Accordingly, the information
presented for 2018 has not been restated.
Details on the changes to accounting policy for revenue have been included in note A2.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
D9 NEW STANDARDS
AND INTERPRETATIONS
ADOPTED BY THE GROUP
(CONTINUED)
Notes to the Consolidated Financial Statements
D9 NEW STANDARDS AND INTERPRETATIONS ADOPTED BY THE GROUP
(CONTINUED)
A AASB 15 Revenue from Contracts with Customers (continued)
The following table summarises the impact, net of tax, of transition to AASB 15 on retained earnings at 2 July 2018.
($000s)
Retained earnings
Sales with a right of return
Related tax
Impact at 2 July 2018
Impact of adopting AASB 15 at 2 July 2018
204
(53)
151
The following tables summarise the impacts of adopting AASB 15 on the Group’s statement of financial position as at
30 June 2019 and its statement of profit or loss for the year then ended for each of the line items affected. There was no
material impact on the Group’s statement of cash flows for the year ended 30 June 2019.
Impact on the condensed consolidated statement
As reported
Adjustments
Amounts without adoption of
AASB 15
($000s)
Inventory
Deferred tax assets
Total assets
Current tax liabilities
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Provisions
Total liabilities
Retained earnings
Total equity
22,769
6,372
99,215
(1,261)
(8,602)
(45,564)
46,464
53,651
Impact on the consolidated statement of profit or loss
($000s)
Revenue
Cost of sales
Gross profit
Profit before tax
Income tax expense
Profit for the period
As reported
Adjustments
250,282
(48,873)
201,409
52,618
(15,575)
37,043
(49)
(47)
(96)
(6)
250
244
148
148
(1)
(1)
(2)
(2)
-
(2)
22,720
6,325
99,119
(1,267)
(8,352)
(45,320)
46,612
53,799
Amounts without adoption of
AASB 15
250,281
(48,874)
201,407
52,616
(15,575)
37,041
B AASB 9 Financial Instruments
On 2 July 2018 the Group adopted AASB 9, replacing the previous accounting standard, AASB 139 Financial
Instruments. The group has taken advantage of the exemption from restating comparative information for prior periods with
respect to classification and measurement (including impairment) requirements.
The hedge accounting requirements of AASB 9 have been applied. AASB 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. AASB 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 of
AASB 9 and are aligned with the entity’s risk management strategy and objective. The impact on reserves and retained
earnings at 2 July 2018 as a result of the application of the AASB 9 hedge accounting requirements is not material.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
D9 NEW STANDARDS AND INTERPRETATIONS ADOPTED BY THE GROUP
(CONTINUED)
B AASB 9 Financial Instruments (continued)
Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of AASB 9 are
recognised in retained earnings at 2 July 2018, and are not material for the Group. These relate solely to the recognition
of expected credit losses (ECLs) as a result of the revised requirements for impairment of the new standard. The key
changes to the Group’s accounting policies and the impacts resulting from the adoption of AASB 9 are described below.
i) Classification & measurement of financial assets and financial liabilities
AASB 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. AASB 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 AASB 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. The Group has assessed that the new classification requirements does not have a
material impact on its accounting for trade receivables.
AASB 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 AASB 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 therefore there is no
material impact regarding the classification of financial liabilities at 2 July 2018.
ii) Impairment
AASB 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 AASB 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.
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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 2019;
however, the Group has not applied the following new or amended standards in preparing these consolidated financial
statements.
(a) AASB 16 Leases
The Group is required to adopt AASB 16 Leases from 1 July 2019. The Group has assessed the estimated impact that
initial application of AASB 16 will have on its consolidated financial statements, as described below.
The actual impacts of adopting the standard on 1 July 2019 may change because:
•
the Group has not finalised the testing and assessment of controls over its new IT systems implemented to manage the
new accounting treatment; and
the new accounting policies are subject to change until the Group presents its first financial statements that include the
date of initial application.
•
AASB 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.
AASB 16 replaces existing leases guidance, including AASB 117 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.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
D10 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
(CONTINUED)
(a) AASB 16 Leases (continued)
i. Leases in which the Group is lessee
The Group will recognise new assets and liabilities for its operating leases of retail stores, offices and warehouse facilities
(see Note D2). The nature of expenses related to those leases will now change because the Group will recognise a
depreciation charge for right-of-use assets and interest expense on lease liabilities.
Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and
recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and
the expense recognised.
In addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous as described
in Note B7. Instead, the Group will include the payments due under the lease in its lease liability.
Based on the information currently available, the Group estimates that it will recognise additional lease liabilities of
between $130,000,000 and $145,000,000 as at 1 July 2019. The Group’s loan covenants will be amended to factor in
this accounting standard change.
ii. Transition
The Group plans to apply AASB 16 initially on 1 July 2019, using the modified retrospective approach. Therefore, the
cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings at
1 July 2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it
will apply AASB 16 to all contracts entered into before 1 July 2019 and identified as leases in accordance with AASB
117 and IFRIC 4. The Group also plans to apply the practical expedient relating to the application a single discount rate
to a portfolio of leases with reasonably similar characteristics. The Group will also exclude initial direct costs from the
measurement of the ROU asset at the date of initial application. The Group has assessed options available to extend or
terminate leases based on individual store performance and costs to be incurred as a result of extension or termination.
The Group has also relied on previous assessments of whether leases are onerous in accordance with IAS 37 immediately
before the date of initial application as an alternative to performing an impairment review.
(b) Other standards
The following amended standards and interpretations are not expected to have a significant impact on the Group’s
consolidated financial statements.
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•
•
•
•
IFRIC 23 Uncertainty over Tax Treatments;
Prepayment Features with Negative Compensation (Amendments to IFRS 9);
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28);
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19);
• Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards;
• Amendments to References to Conceptual Framework in IFRS Standards; and
•
IFRS 17 Insurance Contracts.
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only 4
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Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only SIGNED
REPORTS
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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 72 and the Remuneration report in
the Directors’ report, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2019 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 30 June 2019.
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.
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Signed in accordance with a resolution of the Directors.
________________________________________________
Shane Fallscheer
Director
Melbourne
21 August 2019
Lovisa Holdings Limited Annual Report - 30 June 2019For 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:
•
•
giving a true and fair view of the Group’s
financial position as at 30 June 2019 and
of its financial performance for the year
ended on that date; and
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
The Financial Report comprises:
• Consolidated statement of financial position as at
30 June 2019
• 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
• Notes including a summary of significant accounting
policies
• 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.
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.
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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 - 30 June 2019For personal use only
Signed Reports
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
LOVISA HOLDINGS LIMITED (CONTINUED)
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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.
This matter was 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 this matter.
Valuation of Inventories ($22.8m)
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 due to the:
•
•
•
relative size of inventories (being 23%
of total assets within the Group’s
consolidated statement of financial
position).
judgement we applied to assess the
Group’s provisioning for 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 by the Group at product level,
and therefore the value of inventories,
requires consideration of the ageing and
condition of products on hand, historic
trends in write-offs, inventory turnover,
seasonality of inventory and anticipated
future sales. Such judgements may
have a significant impact on the Group’s
provisioning, and therefore the overall
carrying value of inventories,
necessitating our audit effort thereon.
Group’s policy for the shrinkage
provision is calculated based on the
inventory counts performed and
expected misappropriation of
inventories as a percentage of sales.
We focus on the shrinkage provisioning
calculation which is largely manual and
is therefore at greater risk of error.
Our procedures included:
•
Evaluating the appropriateness of the Group’s inventory
provisioning policies against the requirements of the
accounting standards.
•
•
•
•
Assessing the historical accuracy of the Group’s
inventory provisioning against actual outcomes, to
inform our evaluation of the current year provisioning
and key judgements.
Challenging the Group’s judgements within their
obsolete inventory provisioning, particularly the extent
to which aged and seasonal inventory can be sold,
taking into account our knowledge of the industry and
past Group performance.
Analysing current and historic trends in inventory
turnover and ageing to identify indicators of slow-
moving or obsolete inventory and therefore those
inventory items at higher risk of obsolescence. We
compared this to the Group’s inventory ageing report.
Checking the integrity of the Group’s inventory ageing
report at 30 June 2019, as a key input used in the
obsolete inventory provisioning, by comparing on a
sample basis inventory age per the report to purchase
invoices.
• Attending a sample of inventory counts across the
Group’s store and warehouse locations
-
-
to observe the condition of a sample of products
held. We did this to check the condition of products
assumed in their recorded inventory value.
to observe the Group’s shrinkage process.
• Analysing the inventory shrinkage provision levels by
region against sales, including against historical trends.
• Assessing the integrity of the provisioning calculations.
This included checking the accuracy of the formulas
within the calculations.
• Comparing a statistical sample of inventory product
values recorded by the Group at year-end, to the
Group’s post year-end recommended retail selling
prices to identify products at risk of selling below cost.
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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.
The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s report. The
Chairman and Managing Director’s Report and the ASX 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.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001;
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
assessing the Group and Company’s ability to continue as a going concern and whether the use of
going concern basis of accounting is appropriate. 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 and Company 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:
•
•
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.
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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
30 June 2019, 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 30
June 2019.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
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KPMG
Rachel Milum
Partner
Melbourne
21 August 2019
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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 audit of Lovisa Holdings Limited
for the financial year ended 30 June 2019 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations Act
2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Rachel Milum
Partner
Melbourne
21 August 2019
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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 - 30 June 2019For personal use only
ASX
INFORMATION
2
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Lovisa Holdings Limited Annual Report - 30 June 2019For 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 2019 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 3 SEPTEMBER 2019)
SUBSTANTIAL SHAREHOLDERS
The number of shares held by substantial shareholders and their associates are set out below:
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Shareholder
BB Retail Capital Pty Ltd
FIL Limited
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
8,863,375
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
1,287
1,011
251
223
30
555,546
2,599,644
1,938,042
6,076,045
94,602,605
2,802
105,771,882
0.53
2.46
1.83
5.74
89.44
100.00
The number of shareholders holding less than a marketable parcel of ordinary shares is 92.
Lovisa Holdings Limited Annual Report - 30 June 2019For 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
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Centreville Pty Ltd
Citicorp Nominees Pty Limited
Grahger Retail Securities Pty Ltd
BNP Paribas Nominees Pty Ltd
Coloskye Pty Limited
PBC Investments Pty Limited
Mrs Vanessa Louise Speer
BNP Paribas Noms Pty Ltd
Truebell Capital Pty Ltd
Marich Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Stornoway Nominees Pty Ltd
Ellri Investment Trust
Mr Richard Waite & Mrs Susan Waite
43,207,500
13,597,630
12,004,638
5,749,899
4,140,000
3,339,455
2,000,000
1,551,906
1,153,005
1,000,000
927,460
685,270
600,000
575,237
547,768
527,559
506,096
450,000
250,000
232,065
40.85
12.86
11.35
5.44
3.91
3.16
1.89
1.47
1.09
0.95
0.88
0.65
0.57
0.54
0.52
0.50
0.48
0.43
0.24
0.22
88.00
12.00
100.00
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Total
Balance of register
93,045,488
12,726,394
Grand total
105,771,882
Options and performance rights issued under the Lovisa Holdings Ltd Long
Term Incentive Plan to take up ordinary shares
6,671,360
6
Number on issue
Number of holders
Lovisa Holdings Limited Annual Report - 30 June 2019For personal use only
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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 - 30 June 2019For personal use only