Lovisa Holdings Limited
Annual Report 2024

Plain-text annual report

A N N U A L R E P O R T 2 0 2 4 LOVI SA H O L D I N GS L I M I T ED C O N T E N T S O v e r v i e w 0 3 C h a i r m a n ’ s R e p o r t 0 8 D i r e c t o r s ’ R e p o r t 1 1 F i n a n c i a l S t a t e m e n t s Consolidated statement of financial position 37 Consolidated statement of profit or loss and other comprehensive income 38 Consolidated statement of changes in equity 39 Consolidated statement of cash flows 40 N o t e s t o F i n a n c i a l S t a t e m e n t s Setting the scene 41 Business performance 43 Asset platform 50 Risk and capital management 58 Other information 69 Consolidated Entity Disclosure Statement 81 Signed Reports Directors’ declaration 87 Independent auditor’s report 88 Lead auditor’s independence declaration 93 A S X I n f o r m a t i o n Shareholder information 97 Corporate Directory 103 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 2 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 3 900 STORES IN 46 COUNTRIES ON 6 CONTINENTS CONTINUED EXPANSION OF GLOBAL FOOTPRINT 7 NEW MARKETS OPENED DURING THE YEAR ONGOING INVESTMENT IN PEOPLE AND INFRASTRUCTURE STRONG BALANCE SHEET TO SUPPORT FUTURE GROWTH POTENTIAL B E C O M I N G A G L O B A L L E A D E R O V E R V I E W Lovisa Holdings Limited Annual Report - 30 June 2024 P / 4 900 T O T A L S T O R E S 128 NEW STORES OPENED FOR THE PERIOD $698.7M R E V E N U E (UP 17.1%) $128.2M E B I T (UP 21.2%) $82.4M N P A T (UP 20.9%) 87.0c F U L L Y E A R D I V I D E N D S (UP 18.0 CENTS) H I G H L I G H T S O V E R V I E W Lovisa Holdings Limited Annual Report - 30 June 2024 P / 5 O V E R V I E W Lovisa Holdings Limited Annual Report - 30 June 2024 P / 6 Total Owned 865 765 Owned FY24 FY23 Asia Singapore 16 16 Malaysia 44 41 Hong Kong 9 8 Taiwan 1 1 Vietnam 1 0 China 1 0 Africa South Africa 81 75 Botswana 3 1 Namibia 3 2 Middle East UAE 5 1 O V E R V I E W S T O R E N U M B E R S Owned FY24 FY23 Aus/NZ Australia 178 168 New Zealand 28 27 Americas USA 207 190 Canada 14 7 Mexico 4 4 Europe/UK UK 50 44 France 86 68 Germany 53 47 Belgium 17 11 Switzerland 8 9 Netherlands 9 7 Austria 9 7 Luxembourg 2 2 Poland 19 18 Spain 2 1 Hungary 2 2 Romania 1 1 Italy 9 7 Ireland 3 0 Franchise FY24 FY23 Middle East 15 28 Africa 5 2 South America 15 6 G L O B A L R E A C H K EY Owned Stores Franchise TOTAL STORES 900 801 Total Franchise 35 36 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 7 O V E R V I E W Lovisa was born from a desire to fill the void for fashion forward and directional jewellery that is brilliantly affordable. Now trading from 900 stores across 46 countries as well as our expanding digital presence across our own websites and third party marketplaces, the customer is at the centre of everything we do. Our business model ensures trends are quickly identified and our customers are provided with a broad, quality product range. We have deployed a vertically integrated business model through which we develop, design, source and merchandise 100% Lovisa branded products. A B O U T L O V I S A Lovisa Holdings Limited Annual Report - 30 June 2024 P / 8 C H A I R M A N ’ S R E P O R T This year has been marked by significant strides in our global expansion and continued growth across multiple markets. Some of the operational highlights of the past year and our plans for the future are set out below. Store Expansion We opened 128 new stores during FY24, bringing our total store count to 900 stores. This expansion has solidified our position as a leading jewellery retailer in numerous markets worldwide. Market Penetration We entered 7 new markets in FY24, including China, Vietnam, Ireland, Senegal, Ecuador, Guadeloupe, and Gabon. Building on this momentum, we have already expanded our presence to Ivory Coast, the Republic of Congo, and Panama since the end of the financial year. Global Footprint Our operations now span 6 continents, and at the date of this report we are now serving customers in 49 markets and trading in 32 currencies. This remarkable achievement underscores our organisational capabilities. Distribution Centres In August 2024, we opened our third Lovisa operated inventory distribution centre in Columbus, Ohio, USA. This facility added 45 new Lovisa team members. Since opening, the warehouse has already successfully received 2 million units and dispatched 1 million units of inventory, whilst providing no disruption to our store and customer network. As our operations in the Americas region expand, we anticipate that this warehouse has the capacity to support over 1,000 stores, handling all inventory needs including those for e-commerce, marketplaces, fixtures, back-of-house supplies, and marketing materials. This facility represents the second major company-owned warehouse we have launched in under 18 months, following our opening last year in Wroclaw, Poland. This move aligns with our strategy to provide continuous improvement to our distribution services via Lovisa’s in-house teams rather than relying on third-party logistics providers. Combined with our existing warehouses in Melbourne, Australia and Qingdao, China, we are ready to support our growing network of stores globally and ensure efficient logistics and timely delivery of products to our customers. Our People Our global team continues to be the backbone of our success. Their passion, expertise, and commitment to Lovisa have been instrumental in driving our growth and achieving our goals. This is an appropriate place to pause and reflect. Fourteen years ago, we set out to create a concept “To bring brilliantly affordable, on trend jewellery to the women of the world”. I am both lucky and grateful to sit at the pinnacle of an organisation that has achieved this mission in a very short period. We have become big, really big. I continue to applaud, acknowledge and be very grateful for the many individuals at Lovisa who continuously contribute to our great story. It is important that I highlight some examples of remarkable individuals that have contributed so strongly to Lovisa. We are lucky to have them and many others like them. Avitra Brhma Dava – Country Manager, Singapore Feb 2017 Age 21 Part-Time Team Member (IOI City Mall Malaysia) Nov 2017 Full Timer (Internship Genting Highlands Malaysia) Apr 2018 Store Manager (Fahrenheit 88 Malaysia) Sep 2018 Store Manager (Nu Sentral Malaysia) Mar 2019 Accepted into Global Future Lovisa Leaders Malaysia program Aug 2019 Flagship Store Manager (KLCC Malaysia) Feb 2020 Regional Manager (Malaysia) Jun 2024 Country Manager (Singapore) Brooke Tipton – Global Visual Merchandise Manager, Australia Jun 2015 Age 17, Part-Time Team Member (Chadstone, Australia) Jun 2016 Store Manager (Doncaster, Victoria Gardens, and Melbourne Central locations, Australia) Sep 2018 Visual Merchandiser (Australia) Dec 2019 Senior Visual Merchandiser (Australia) Dec 2021 Global Visual Merchandise Manager (manages over 1,000 planograms and leads product operations communications for the broader business) C H A I R M A N ’ S R E P O R T Lovisa Holdings Limited Annual Report - 30 June 2024 P / 9 C H A I R M A N ’ S R E P O R T Georgia Holman – Regional Training Manager, Europe Aug 2017 Age 16, Part-Time Team Member (Guildford, UK) Nov 2019 Store Manager (Hammersmith, UK) Mar 2020 Accepted into Global Future Lovisa Leaders program Aug 2020 Store Manager (flagship store Stratford, UK) Apr 2021 Store Manager (flagship store White City, UK) Oct 2021 Regional Manager (Central London, UK) Mar 2024 Regional Training Manager, Europe Helena Klassmann - State Manager, Queensland and Northern Territory, Australia Sep 2017 Age 20, Part-Time Team Member (Kawana, Australia) Mar 2018 Store Manager (Noosa, Australia) Mar 2019 Accepted into Global Future Lovisa Leaders program May 2019 Regional Manager (Queensland, Australia) Jan 2020 State Manager (South Australia) Oct 2022 New Store Openings Operation Support (United Kingdom and Europe) Dec 2023 State Manager (Queensland and Northern Territory, Australia) Victor Herrero – Global CEO Finally, not forgetting our remarkable Global CEO, Victor Herrero. After a phenomenal 3-year run, Victor will be stepping down on 31 May, 2025. It has been an outstanding three years together with the opening of 25 new markets and increasing the store network by 350 stores so far, now at over 900 stores globally. The Board of Directors extends their heartfelt thanks for his exceptional effort and contributions to Lovisa. John Cheston A new era - starting 4 June, 2025, the reins will be passed to the talented John Cheston. With a wealth of retail experience and a proven track record of success, John is poised to take Lovisa to even greater heights. Get ready for a new era of operational excellence, growth, innovation, and excitement under his leadership! Our Priorities We continue to remind everybody that our customer comes first and sits at the top of our ‘inverted’ organisational pyramid, with our focus on: • Delivering operational excellence across our physical and digital stores to drive comparable store sales growth in our existing store network; • Acceleration of our store network growth and expansion of our market presence; • Continued investment in our people, their development and succession; and • Continued refinement and investment in technologies and infrastructure that will keep us nimble, efficient and better able to globalise our support functions. I want to express my deepest gratitude to our customers, teams, board members, and loyal shareholders. Our collective efforts are the driving force behind our sustainable growth and long-term success. With our team’s dedication and the strength of our business model, I am confident we will continue to create value for our customers and shareholders, whilst providing a huge opportunity for our team to grow wherever they choose to. Brett Blundy Chairman of the Board Lovisa Holdings Limited Annual Report - 30 June 2024 P / 10 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 11 D I R E C T O R S ’ R E P O R T Lovisa Holdings Limited Annual Report - 30 June 2024 P / 12 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 13 D I R E C T O R S ’ R E P O R T Lovisa Holdings Limited Annual Report - 30 June 2024 P / 14 D I R E C T O R S ’ R E P O R T Details of the qualifications and experience of each Director in accordance with the requirements of the Corporations Act have been included below. Tracey Blundy Brett Blundy Bruce Carter John Charlton Victor Herrero Sei Jin Alt Brett Blundy Non-Executive Director & Chairman Appointed 1 November 2018 Chairman of the Board Along with being the Chairman, co-founder and substantial shareholder of Lovisa, 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 2,000 stores across 45 countries. Brett is currently a non-executive Director of Accent Group Limited (ASX:AX1). Victor Herrero Chief Executive officer Appointed 14 October 2021 Victor brings vast global experience having spent 13 years with the Inditex Group, one of the world’s largest fashion retailers with 8 store formats such as Zara, Pull & Bear and Massimo Dutti. The Inditex group with over 7,000 stores in 80 markets and sales over US$30billion pioneered fast fashion retailing growing numerous brands, including Zara, around the world. During Victor’s time at Inditex, he held numerous roles including Head of Asia Pacific and Managing Director Greater China and led the company’s expansion through this region rolling out 800 stores across multiple countries including China and India. Victor also spent four years as CEO of global retail brand Guess based in California, and was most recently Chairman and CEO of international shoe manufacturer and retailer Clarks. Victor is also director of G-III Apparel Group (Nasdaq Listed) and Viva China Holdings Limited (listed on the Hong Kong Stock Exchange). Tracey Blundy Non-Executive Director Appointed 6 November 2014 Member of the Audit, Business Risk & Compliance Committee Chair of the People, Leadsership, 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. John Charlton Independent Non-Executive Director Appointed 26 August 2020 Member of the Audit, Business Risk & Compliance Committee Member of the People, Leadership, Remuneration & Nomination Committee John is a career retailer and brings over 38 years’ experience in retailing operations in Australia. He was previously the founder and owner of Spendless Shoes Pty Ltd, a company he grew to 248 stores as well as a successful online site before selling to The Shoe Group in July 2019. He has served as a member of the Council of Wilderness School for 12 years (7 years as Chair), Saint Peter’s College for 5 years, is currently a member of the Council of the University of Adelaide, and is a Non- Executive Director of the Detmold Group Advisory Board. Bruce Carter AO Independent Non-Executive Director Appointed 18 November 2022 Member of the People, Leadership, Remuneration & Nomination Committee Chairman of the Audit, Business Risk & Compliance Committee Bruce has spent over 30 years in corporate recovery and insolvency and was formerly managing partner at Ferrier Hodgson Adelaide for 19 years and prior to that a partner at Ernst & Young, Chair of the South Australian Economic Development Board and a member of the Executive Committee of Cabinet. He holds a Masters of Business Administration from Heriot- Watt University and a Bachelor of Economics from University of Adelaide. He is a Fellow of both the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. Bruce is currently Chair of the Australian Submarine Corporation, chair of AIG Australia Ltd and a director of Bank of Queensland Limited. Bruce is a former director of Crown Resorts Limited, SkyCity Entertainment Group Ltd, Genesee and Wyoming Inc (NYSE) and the Aventus Group. 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 along with advisory role experience for wholesale and retail brands. Nico van der Merwe Alternate Director to Brett Blundy Appointed 19 February 2019 Nico van der Merwe has over 30 years’ experience in commercial roles across the retail, consumer and private equity sectors. Nico has held a number of senior financial roles in BBRC from 1997 to 2020 including 12 years as Group Chief Financial Officer and is currently an Advisor to the Group. He holds Bachelor of Accounting Science (Hons) and Bachelor of Commerce degrees and is a member of the Institute of Chartered Accountants in Australia. Nico was appointed alternate director for Brett Blundy on 19 February 2019. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 15 D I R E C T O R S ’ R E P O R T 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 2024. Director Board Audit and Risk Remuneration & Nomination Number attended Number held Number attended Number held Number attended Number held T Blundy 5 5 4 4 5 5 B Carter 5 5 4 4 5 5 V Herrero 4 5 4 4 5 5 B Blundy 5 5 3 4 5 5 J Charlton 4 5 4 4 5 5 S J Alt 5 5 4 4 5 5 N van der Merwe - - 4 4 - - 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: Director Ordinary Shares in the Company B Blundy (1) 43,207,500 T Blundy (2) 1,153,005 V Herrero 2,140,328 J Charlton 29,000 S J Alt - B Carter 15,000 N van der Merwe - (1) Shares held by BB Retail Capital Pty Ltd (2) Shares held by Coloskye Pty Ltd 2. PRINCIPAL ACTIVITIES The principal activity of the Group during the financial year was the retail sale of fashion jewellery and accessories. The business has 900 retail stores in operation at 30 June 2024 across 46 markets, including 35 franchise stores. There was no significant change in the nature of the activities of the Group during the period. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 16 D I R E C T O R S ’ R E P O R T 3. DIVIDENDS Dividends paid to members during the financial year were as follows: 2024 2023 $000's $000's Final ordinary dividend for the year ended 2 July 2023 of 31.0 cents per fully paid share 70% franked paid on 19 October 2023 (2023: 37.0 cents, 30% franked) 34,005 39,898 Interim ordinary dividend for the year ended 30 June 2024 of 50.0 cents per fully paid share 30% franked paid on 18 April 2024 (2023: 38.0 cents, fully franked) 54,846 40,976 Total dividends paid 88,851 80,874 4. REVIEW OF OPERATIONS The following summary of operating results and operating metrics reflects the Group’s performance for the year ended 30 June 2024: 4.1 Financial Performance Revenue for the year ended 30 June 2024 was up 17.1% on FY23 reflecting growth in the store network offset by comparable store sales down 2.0% on FY23, an improvement on the first half of the financial year with the Group returning to positive comparable store sales in the second half. This resulted in Earnings Before Interest and Tax of $128.2m, up 21.2% on FY23, and Net Profit after Tax up 20.9% on FY23. Consolidated $’000 2024 2023 Change Sales 698,664 596,456 17.1% Gross profit 565,790 476,714 18.7% Gross Margin 81.0% 79.9% 1.1% EBIT 128,177 105,742 21.2% Net profit after tax (NPAT) 82,411 68,164 20.9% Basic Earnings per share 75.4 63.3 19.1% Lovisa Holdings Limited Annual Report - 30 June 2024 P / 17 D I R E C T O R S ’ R E P O R T FY17 AUSTRALIA OFFSHORE 435 544 629 NUMBER OF STORES IN OFFSHORE MARKETS CONTINUED TO GROW FY23 FY20 FY22 FY21 FY24 801 900 Revenue was $698.7m up 17.1% on FY23 with comparable store sales down 2.0%. The business was able to again deliver strong growth in the store network for the financial year, with 900 stores now trading globally across over 46 markets at financial year end, a net increase of 99 stores including 7 new markets. This included 128 new stores opened for the financial year, offset by 28 closures and 1 relocation. Pleasingly the store rollout was able to be delivered across all regions, with 14 new stores in Australia/NZ, 8 in Asia, 15 in Africa/ Middle East, 50 in Europe and 27 in the Americas as well as 14 new franchise stores in South America, Africa and the Middle East. The growth in the store network included 3 new company owned market openings in the financial year, with our first stores opened in China, Vietnam and Ireland, complementing the opening of 12 new markets in the year prior. Included in store closures were 14 UAE franchise stores closed by our franchise partner as part of the change of this market to company owned. The growth in the store network has set a solid foundation for ongoing growth. 4.1.3 Cost Of Doing Business, Depreciation and Net Finance Costs 4.1.4 Earnings Statutory earnings before interest and tax (EBIT) was $128.2m being a 21.2% increase on EBIT from the prior year. Statutory net profit after tax increased 20.9% to $82.4m with EPS at 75.4 cents. 4.1.5 Cash Flow The Group’s net cash flow from operating activities before interest and tax was $240.4m. Capital expenditure of $23.3m relates predominately to new store openings and refurbishments of current stores upon lease renewal, as well as investment into the Group’s IT systems and supply chain capability. The Group closed the financial year with $23.5m in net debt, a reduction of $9.9m on the prior year. 4.1.1 Sales Gross profit for the financial year was $565.8m, an increase of 18.7% on the prior year. Gross Margin was 81.0% compared to 79.9% in FY23, benefitting from ongoing focus on price points and tight management of product cost and inventory. GROSS MARGIN % FY15 FY16 FY14 FY13 FY17 77% 77% 79% 80% 81% FY23 FY22 FY21 FY20 FY24 We were able to continue to invest in rolling out new markets, new stores in existing markets, and the structures required to manage them effectively on an ongoing basis, including support teams, logistics and technology to drive a more efficient operating model. This combined with inflationary pressures resulted in higher cost of doing business in the period, which was offset by a reduction in CEO Long-Term Incentive expense from $27.0m in the prior year to $11.9m in the current period. Depreciation expense, including impairment expense, for the period was up 28.5% on the prior year, impacted by the significant growth in the store network over the past 2 years. Net finance costs were up 36.9%, reflecting the interest charge associated with higher lease liabilities, combined with higher borrowings and interest rates during the year. 4.1.2 Gross Profit Margin FY23 FY22 FY21 FY20 FY24 $242.2m $288.0m $458.7m $596.5m $698.7m REVENUE GROWTH (A$M) Lovisa Holdings Limited Annual Report - 30 June 2024 P / 18 D I R E C T O R S ’ R E P O R T 4.2 Financial Position Consolidated Actual 2024 $’000 Actual 2023 $’000 Change 2023/2024 % Net debt (23,480) (33,350) (29.6%) Trade receivables and prepayments 19,445 23,202 (16.2%) Inventories 68,622 60,098 14.2% Trade payables and provisions (82,106) (57,957) 41.7% Net lease liabilities (53,668) (51,846) 3.5% Property, plant & equipment 123,588 121,389 1.8% Intangible assets and goodwill 4,419 4,274 3.4% Net derivative (liability)/asset (318) 915 (134.8%) Net current tax (liability)/receivable 3,250 (7,660) 142.4% Net deferred tax balances 20,534 20,924 (1.9%) Net assets/equity 80,286 79,989 0.4% *Represents total cash and cash equivalents less total loans and borrowings. Working capital The Group’s net working capital position increased during the year with inventory levels increasing from $60.1m to $68.6m, in line with growth in store network, with payables benefitting from tight cash flow management including improvements in supplier trading terms during the year. Property, plant and equipment Capital expenditure during the year reflects fit out costs associated with new stores and refurbishment of existing stores, as well as investment into technology and supply chain capability. Store fit out costs are depreciated over the expected useful life. Debt facilities The Group currently has total debt facilities of $120m. As at the end of the financial year, $54m remained drawn on the term debt facility, which has been classified as a non- current liability due to the maturity date of the facility not being within the next 12 months. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 19 D I R E C T O R S ’ R E P O R T 5. BUSINESS STRATEGIES Lovisa has achieved rapid growth since it was founded, with revenue growing from $25.5 million in FY2011 to $698.7 million in FY2024. The Group continues to focus on its key drivers to deliver growth in sales and profit. Growth pillar Business Strategy Section Strategy Risks Achievements Global expansion 5.2 • Continue to leverage current global territories including continued rollout in newer territories and filling remaining gaps in other existing markets • Expansion into new global markets • Leverage the Company’s capital in large international markets • Consider franchise partners for selected territories • Continue to develop our digital capability and ensure that all markets we trade in have access to a digital sales channel • Competition (6.1) • Retail environment and general economic conditions (6.2) • Failure to successfully implement growth strategies (6.4) • Availability of appropriately sized sites in good locations with satisfactory cost structures • We continued to grow the store network during the financial year with net 99 new Lovisa stores (including 128 new and 29 closed stores). This included 7 new markets opened during the year across Europe, the Americas, Africa and Asia. • We now have dedicated e-commerce sites across all key markets in which we operate, as well as presence on a number of popular online marketplaces globally. Streamline global supply chain 5.3 • Streamline and optimise supply base in Asia • Optimise air and sea freight whilst maintaining speed to market operating model • Ongoing review of size, location and number of warehouses globally to ensure most efficient movement of products to our stores • Exchange rates (6.5) • Product sourcing or supply chain disruptions • Fluctuations in global freight costs as a result of market disruptions experienced by logistics providers • Chinese warehouse operates to support our Asian, Americas and African stores, Australian warehouse to support Australia/ New Zealand, and Poland warehouse operates to support Europe. Since the end of the financial year we have opened a new warehouse in the USA (Ohio) to support our American market. • Dedicated warehouses now operational in the UK, South Africa (3PL), Malaysia and the USA to support e-commerce sales Enhance existing store performance 5.4 • Optimise and improve existing store network • Continue to target high traffic shopping precincts • Judicious pricing • Competition (6.1) • Retail environment and general economic conditions (6.2) • Prevailing fashions and consumer preferences may change (6.6) • Global roll-out of in-store piercing service, now including nose piercing and more premium piercing products such as 14 carat gold and diamond studs • We continue to close stores in sub- optimal locations • Investment in regional support team structures and learning and development to ensure consistent high quality retail execution Brand proliferation 5.5 • Continue to leverage social media to connect with customers and increase brand loyalty • Prevailing fashions and consumer preferences may change (6.6) • Privacy breaches • Continued focus on online execution across all existing markets • Presence on online marketplaces in key markets • Increased social media engagement Lead and pre-empt trends 5.1 • Stay on trend with shifts in jewellery and accessory market • Continue to provide a high quality and diverse product offering • Prevailing fashions and consumer preferences may change (6.6) • Continued strong performance being testament to an ability to identify trends • Implementation of Buying teams in the UK and USA to complement central team in Australia 5.1 Lead and Pre-Empt Trends Product innovation is a core component of Lovisa’s competitive advantage. Our 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 large and experienced product team 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, teams are now also in place in London and Los Angeles to provide more constant localised intelligence to the global buying process, with the team also travelling 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 2024 P / 20 D I R E C T O R S ’ R E P O R T 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 50-80 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 between 2-4 weeks to fit out a new Lovisa store depending on local conditions. The key driver of future growth for Lovisa is the continued global store roll-out. Lovisa has proven it is capable of successfully operating profitably globally, having established a portfolio of stores in 46 markets and supporting franchised stores across 13 markets in the Middle East, Africa and South America. Lovisa will continue to explore other markets, with our first stores opened during the year in company owned markets in China, Vietnam and Ireland, as well as new franchise markets in Ecuador, Senegal, Guadeloupe and Gabon. 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: 2020 2021 2022 2023 2024 Australia 152 153 154 168 178 New Zealand 23 24 25 27 28 Singapore 19 18 17 16 16 South Africa 62 64 69 75 81 Malaysia 27 28 32 41 44 United Kingdom 42 41 42 44 50 Spain - - - 1 2 France (i) 21 52 59 68 86 Germany (ii) - 38 40 47 53 Belgium (ii) - 8 11 11 17 Netherlands (ii) - 6 5 7 9 Austria (ii) - 3 3 7 9 Luxembourg (ii) - 2 2 2 2 Switzerland (ii) - 8 6 9 8 Poland - - 1 18 19 USA 48 63 118 190 207 Canada - - 1 7 14 Hong Kong - - - 8 9 Taiwan - - - 1 1 Botswana - - - 1 3 Namibia - - - 2 3 Mexico - - - 4 4 Hungary - - - 2 2 Romania - - - 1 1 Italy - - - 7 9 UAE - - - 1 5 China - - - - 1 Ireland - - - - 3 Vietnam - - - - 1 Middle East/Africa Franchise 34 36 44 30 20 South America Franchise - - - 6 15 Vietnam Franchise 7 - - - - Total 435 544 629 801 900 (i) Of these stores, 22 were acquired as a result of the acquisition of the retail assets of beeline GmbH during 2021 (ii) These stores were acquired as a result of the acquisition of the retail assets of beeline GmbH during 2021 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 21 D I R E C T O R S ’ R E P O R T 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 company operated warehouses in Melbourne, Australia (for stock to be sold in Australia and New Zealand) or Wroclaw, Poland (for stock to be sold in Europe), or our 3PL warehouse in Qingdao 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. As a result of this constant review the company has implemented warehouses in the USA, South Africa (3PL), the UK and Malaysia to better support our online customers in these markets. 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 continues to assess new sites as they arise. The global roll-out of piercing services into stores has been successful in driving enhanced customer loyalty and providing new customers an additional reason to choose to shop at Lovisa. Also critically important in optimising store performance both in new and existing markets is the focus on operational execution at store level to ensure consistently high operational standards across all markets delivering the best experience for our customers. To ensure that we deliver on this, we continue to invest in people and localised support structures as well as enhancing our learning and development capabilities to ensure that we not only have the right team in place but that they are equipped to operate consistently to the level required. 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 focused 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 Group’s online stores and presence on 3rd party marketplaces operate to service the markets in which the Group operates company- owned stores. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 22 D I R E C T O R S ’ R E P O R T 6. MATERIAL 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. 6.1 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, global 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, online presence and execution, product presentation and customer service. Lovisa’s competitive position may deteriorate as a result of factors including actions by existing competitors, the entry of new competitors or a failure by Lovisa to successfully respond to changes in the industry. To mitigate this risk, Lovisa employs a large product team to meet market demands as described in section 5.1. Management believes 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. 6.2 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 is less likely to have a material impact on our business compared to other discretionary categories. 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. 6.3 Public health crises, political crises and other catastrophic events outside of our control affect our sales or supply of inventory Natural disasters, such as hurricanes, earthquakes, tsunamis, power shortages or outages, or floods; public health crises, such as pandemics and epidemics; social unrest; political crises, such as terrorism, war, political instability or other conflict; or other events outside of our control, could damage or destroy our stores or our products, make it difficult for our employees or customers to travel to our stores, result in delays or disruptions in the production and/or delivery of merchandise to our distribution centres or our stores or in the fulfillment of e-commerce orders to our consumers, or require us to incur substantial additional costs to ensure timely delivery. Moreover, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our operating results. Factors mitigating these risks include the significant geographical diversity of our operations, continued investment in e-commerce channels to offset temporary inability to trade from physical stores, and business continuity plans and experience developed during the COVID-19 pandemic. 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. Lovisa’s store roll-out program is dependent on securing stores in suitable locations on acceptable terms, and may be impacted by factors including delays, cost overruns and disputes with landlords. The following risks apply to the roll-out program: • new stores opened by Lovisa may be unprofitable; • Lovisa may be unable to source new stores in preferred areas, and this could reduce Lovisa’s ability to continue to expand its store footprint; • new stores may reduce revenues of existing stores; and • establishment costs may be greater than budgeted for. Factors mitigating these risks are that fit-out costs are low with minimal standard deviation in set-up costs across sites and territories through our small store format and homogeneous store layout, minimising potential downside for new stores. The Group assesses store performance regularly and evaluates store proximity and likely impact on other Lovisa stores as part of its roll-out planning. When entering new markets, Lovisa assesses the region, which involves building knowledge by leveraging a global network of industry contacts as well as our significantly globally experienced senior leadership team, 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 23 D I R E C T O R S ’ R E P O R T 6.5 Exchange Rates The majority of inventory purchases made by Lovisa are priced in USD. 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 and overall profitability of non-AUD denominated markets. 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 against movements in currencies required to be converted to USD associated with payments for inventory. 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 and piercing services, which is subject to changes in prevailing fashions and consumer preferences. Failure 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 an experienced global product team 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. 7. EVENTS SUBSEQUENT TO REPORTING DATE No matter or circumstance has arisen since 30 June 2024 that has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years, or (b) the results of those operations in future financial years, or (c) the Group’s state of affairs in future financial years. 8. LIKELY DEVELOPMENTS Information on likely developments is contained within the Review of Operations section of this annual report. 9. REMUNERATION REPORT - 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 around the world. 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. In performing this responsibility, the Committee must give appropriate consideration to the Group’s performance and objectives, employment conditions and external remuneration relativities in the global market that Lovisa operates in. Further information surrounding the responsibilities of the People, Leadership, 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: • Non-Executive Directors • Chief Executive Officer • Chief Financial Officer Non-Executive Director KMP Brett Blundy Chairman Tracey Blundy Director John Charlton Director Sei Jin Alt Director Bruce Carter AO Director Nico van der Merwe Alternate Director Executive KMP Victor Herrero Chief Executive Officer Chris Lauder Chief Financial Officer This report has been audited by the Company’s Auditor KPMG as required by Section 308 (3C) of the Corporation Act 2001. The People, Leadership, 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 Committee and the Charter is annually reviewed by the Committee to ensure it remains consistent with regulatory requirements. A. Principles Used to Determine the Nature and Amount of Remuneration (a) Non-Executive Directors KMP Remuneration Non-executive Directors’ fees are determined within an aggregate Non-executive Directors’ pool limit of $800,000. Total Non-executive Directors’ remuneration including non- monetary benefits and superannuation paid at the statutory prescribed rate for the year ended 30 June 2024 was $598,031. Brett Blundy, the Non-executive Chairman, is entitled to receive annual fees of $240,000. Other Non- executive Directors are entitled to receive annual fees between $77,000 to $97,000 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; and • Ensure executive remuneration is set with regard to the size and nature of the position with reference to global market benchmarks (in the context of the Group operating in a global marketplace) and the performance of the individual. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 24 D I R E C T O R S ’ R E P O R T D I R E C T O R S ’ R E P O R T Senior Executive Fixed remuneration At risk remuneration Victor Herrero 15% 85% Chris Lauder 54% 46% Remuneration will incorporate at risk elements to: • Link executive reward with the achievement of Lovisa’s business objectives, continued growth and financial performance; and • Ensure total remuneration is competitive by global market standards. The Board believes that the remuneration structures in place for the executive team, and in particular the Chief Executive Officer, Victor Herrero are appropriate. The Board were therefore disappointed to receive votes against the Remuneration Report at the 2023 Annual General Meeting totalling 73.4% of votes cast. Lovisa is a global business competing for talent in the global market with significant global growth potential, which requires compensation packages competitive in this context to attract and retain the appropriate calibre of executive to deliver the Group’s strategy and growth targets. Whilst the Board understands the concerns of some shareholders in relation to the potential remuneration payable, it is of the view that the structure and at risk remuneration in place for the leadership of the Group is appropriate. As announced by the Company on 3 June 2024, the Company’s current Chief Executive Officer, Victor Herrero, will leave the company on 31 May 2025, and John Cheston has been appointed to the Chief Executive Officer role and will commence in the role on 4 June 2025. The Board have taken the opportunity as part of this change to review the remuneration package structure in place for both Victor (in relation to the 2025 financial year) and John (upon his commencement), with the following remuneration packages in place respectively: • Victor Herrero’s fixed cash remuneration will remain at US$1,300,000 per annum for the remainder of his tenure, and he will not be entitled to any further short or long term incentives other than those already in place and vesting in August 2024 as set out in this report • John Cheston’s remuneration package will comprise the following components from his commencement in June 2025: o Fixed Remuneration of A$2,350,000 per annum; o Short-term Incentive Opportunity of A$2,350,000 per annum vesting on a straight-line basis subject to the following performance hurdles: - EBIT Growth <18.5%: Nil - EBIT Growth 18.5%: $188,000 - EBIT Growth 30% or greater: $2,350,000 o Subject to shareholder approval, John shall be eligible to participate in the Group’s Long Term Incentive Plan (LTI) as amended and restated from time to time. He will be entitled to an initial 3-year LTI Grant vesting annually over its 3 year term to a maximum value of A$2,350,000 per annum, based on the following vesting schedule: - FY26: A$2,350,000 - FY27: A$2,350,000 - FY28: A$2,350,000 - TOTAL: A$7,050,000 o Vested LTI will be satisfied by the issue of Rights over ordinary shares in the Company, that will be subject to a 2-year holding lock during which time they will be entitled to receipt of dividends from the company by way of an equivalent cash payment. At the end of the 2-year holding lock they are convertible to ordinary shares for nil consideration at any time within the following 10 year period. o For each Performance Period, the number of Rights to be granted will be calculated by dividing the value of the applicable vested LTI Opportunity (following testing against the performance hurdle) by the 30 calendar-day volume-weighted average price (VWAP) of a Share for the period up to and including 30 June of the relevant Performance Period. o The performance hurdles for each year will be based on EBIT growth over the EBIT performance of the financial year immediately prior for each year as follows: - EBIT Growth <18.5%: Nil - EBIT Growth 18.5%: A$188,000 - EBIT Growth 30% or greater: A$2,350,000 o Calculation of the EBIT Hurdle and achievement against the EBIT Hurdle will be determined by the Board (or a committee of the Board) in its reasonable good faith discretion, having regard to any matters that it considers relevant. B. Remuneration Structure The current executive salary and reward framework consists of the following components: • Base salary and benefits including superannuation • Short-term incentive scheme comprising cash • Long-term incentive scheme comprising cash and options or performance rights The mix, quantum, terms and conditions associated with each of these components is determined annually by the Board using their discretion for each individual executive. The mix of fixed and at risk components for each Senior Executive as a percentage of total actual remuneration for the 2024 financial year is as follows: Lovisa Holdings Limited Annual Report - 30 June 2024 P / 25 D I R E C T O R S ’ R E P O R T The STI plan structure in place for FY24 was as follows: KMP Opportunity Performance Period Performance Measures FY24 Outcome Victor Herrero Chief Executive Officer nil n/a n/a n/a Chris Lauder Chief Financial Officer $341,250 12 months, subject to continued employment until the date of payment Discretionary based on the Board’s assessment of performance with reference to the following KPI: Delivery of 18% growth in EBIT on FY23 to $125m in FY24 (actual outcome 21% growth) Delivery of 20% growth in Total Sales on FY23 to $715m in FY24 (actual outcome 17% growth) Delivery of cost of doing business as a % to sales lower than FY23 (actual outcome - 0.6% to sales) Stock at cost per store (on a constant currency basis) equal to or below LY (actual outcome achieved) 70% Victor Herrero, Chief Executive Officer was not eligible to participate in the annual STI program, with his at-risk remuneration comprised entirely of his LTI. The award of 70% of the Chief Financial Officer’s STI was based on the Board’s assessment of his performance against the criteria noted above, and therefore $238,875 of the STI opportunity of $341,250 to be paid. Long Term Incentive plan The Company operates a long-term incentive (LTI) 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 and in some cases a cash payment. 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 LTI plan are: • A Performance Option or Right 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 (for Performance Rights, the exercise price is nil). • Options will be granted for nil consideration. 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. 9.2 Principles Used to Determine the Nature and Amount of Remuneration (continued) B. Remuneration Structure (continued) FY2022 Chief Executive Officer LTI Plan Following his appointment as Chief Executive Officer of the Group in November 2021, Victor Herrero was granted a 3-year LTI Grant on 23 November 2021 (Grant Date) vesting annually over its 3 year term including a Cash Award and a Performance Rights component, with the number of Performance Rights to be granted under the award determined at the date set out in the table below (Determination Date). The table below sets out the maximum LTI opportunity for each performance period, split between a Cash Award and Performance Rights. The number of Performance Rights to be granted to Victor is determined on the Determination Dates specified below by dividing the grant value by the 30-day volume weighted average price (VWAP) of the Company’s Shares at the relevant Determination Date specified below (Fair Value). Tranche End of Performance Period Date number of Performance Rights determined (Determination Date) Maximum Value of Performance Rights to be Granted (AUD) Maximum Cash Award Opportunity (AUD) Total Maximum LTI Opportunity (AUD) Number of Performance Rights Granted at Determination Date Tranche 1 3 July 2022 23 November 2021 8,400,000 3,600,000 12,000,000 400,000 Tranche 2 2 July 2023 4 July 2022 24,400,000 3,600,000 28,000,000 1,742,857 Tranche 3 30 June 2024 3 July 2023 24,400,000 3,600,000 28,000,000 1,242,995 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 where relevant. The Group has no interest or ongoing liability to the fund or the employee in respect of retirement benefits. Short Term Incentive plan The Group 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 26 D I R E C T O R S ’ R E P O R T D I R E C T O R S ’ R E P O R T The performance hurdles for each LTI tranche are set out below, with performance against the EBIT hurdles to be tested at the end of each Performance Period and based on EBIT before the share-based payments expense recognised in the period associated with the LTI grants made to the CEO as set out above. Actual EBIT (before CEO’s LTI) outcomes between hurdles will result in a pro-rata vesting of the cash and rights. Tranche EBIT Hurdle (pre LTI) (A$m) Cash Award Amount (A$m) Value of Performance Rights that Vest (based on value per right at Grant Date) ($Am) Total LTI Award value (based on value of Performance Rights at Grant Date) ($Am) Tranche 1 (vesting based on performance against EBIT Hurdle for FY22) less than 65.0 0.0 0.0 0.0 65.0 1.5 1.5 3.0 70.0 1.75 1.75 3.5 80.0 2.5 2.5 5.0 95.0 3.6 5.4 9.0 105+ 3.6 8.4 12.0 Tranche 2 (vesting based on performance against EBIT Hurdle for FY23) less than 90.0 0.0 0.0 0.0 90.0 1.0 1.0 2.0 95.0 1.5 1.5 3.0 100.0 2.5 2.5 5.0 110.0 3.6 4.4 8.0 115.0 3.6 8.4 12.0 120.0 3.6 14.4 18.0 130+ 3.6 24.4 28.0 Tranche 3 (vesting based on performance against EBIT Hurdle for FY24) less than 95.0 0.0 0.0 0.0 95.0 2.0 2.0 4.0 100.0 3.0 3.0 6.0 110.0 3.6 5.4 9.0 125.0 3.6 10.4 14.0 140.0 3.6 18.4 22.0 155+ 3.6 24.4 28.0 Calculation of the EBIT Hurdle and achievement against the EBIT Hurdle has been determined by the Board (or a committee of the Board) in its reasonable good faith discretion, having regard to any matters that it considered relevant. The number of Performance Rights that vest is calculated by dividing the value of the Performance Rights that vest as specified above by the Fair Value of each Performance Right for that Tranche as calculated at the Determination Date. Upon Vesting of the Performance Rights and conversion to shares, the shares will be subject to a 12-month holding restriction period (this does not apply to the Cash component). The actual vesting outcome for the Tranche 3 Performance Rights described above was determined by the Board based on the financial performance for the 2024 financial year, Tranche 2 based on the 2023 financial year, and Tranche 1 based on the 2022 financial year, as follows: Tranche Performance Outcome (EBIT pre share-based payments expense) % of total opportunity vested Total LTI Opportunity ($) LTI Vested ($) Vested LTI Cash ($) Vested LTI – Performance Rights ($) Vested Performance Rights (Number) Tranche 1 $101.3m 90.80% $12,000,000 $10,901,100 $3,600,000 $7,301,100 347,671 Tranche 2 $132.8m 92.80% $28,000,000 $26,000,000 $1,600,000 $24,400,000 1,742,857 Tranche 3 $140.1m 78.76% $28,000,000 $22,053,083 $3,600,000 $18,453,083 940,045 The vesting % of Tranche 2 noted above reflects the agreed vesting outcome between the Board and Mr Herrero, with the actual vesting % based on the EBIT outcome equal to 100% then reduced to the 92.8% vesting noted above by mutual agreement. The Fair Value of each Performance Right for the purpose of determining the number of Performance Rights granted under Tranche 1 above was $21.00, $14.00 for Tranche 2, and $19.63 for Tranche 3. The grant of the Chief Executive Officer LTI Plan noted above was approved by shareholders at the 2021 Annual General Meeting, including the 400,000 Performance Rights granted on 23 November 2021 the 1,742,857 Performance Rights granted on 4 July 2022, and the 1,242,995 Performance Rights granted on 3 July 2023. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 27 D I R E C T O R S ’ R E P O R T For the Performance Rights and Cash Award to Vest, the Group needs to meet or exceed the following performance hurdles based on the Group’s Earnings Before Interest and Tax for the FY24 financial year and continued employment with the Group as follows: Tranche End of Performance Period Primary Performance Hurdle Secondary Performance Hurdle Tranche 1 30 June 2024 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date Tranche 2 29 June 2025 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date Tranche 3 28 June 2026 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date The FY24 EBIT Hurdle is calculated based on growth on FY23 Statutory EBIT. Once the FY24 EBIT Hurdle performance has been determined and the resulting vesting percentage determined for Tranche 1, this vesting percentage will also be applied to Tranche 2 and 3 assuming continued employment at the vesting date for each of those tranches. The actual EBIT for the financial year ended 30 June 2024 was $128.2m, representing growth of 21.2% on FY23. As a result, subsequent to the end of the financial year the Board have determined that 43.8% of the LTI Award granted under Tranche 1 has vested, with an equivalent vesting percentage to be applied to the subsequent tranches and those LTI Awards also vesting should each executive remain employed at the subsequent vesting dates. FY2024 Executive LTI Plan On 6 September 2023 an LTI Award was made to certain Executives as part of the FY2024 LTI, comprising Performance Rights and a Cash component. The key terms associated with the FY2024 Executive LTI Grant are: • The performance period commences 3 July 2023 and ends 28 June 2026, with the LTI Award vesting evenly over the 3 year period. • Upon Vesting of the Performance Rights and conversion to shares, the shares will be subject to a 12-month holding restriction period (this does not apply to the Cash component). • A total of 34,170 Performance Rights were granted, based on a total grant value of $670,758 divided by the 30 day VWAP of the Company’s Shares to the date of grant of $19.63. The LTI Award also included a Cash component totalling $670,758, with the total LTI Award value $1,341,516. The cash component is paid out annually at equal tranches over the 3 year period. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 28 D I R E C T O R S ’ R E P O R T For the Performance Rights and Cash Award to Vest, the Group needed to meet or exceed the following performance hurdles based on the Group’s Earnings Before Interest and Tax for the FY23 financial year and continued employment with the Group as follows: Tranche End of Performance Period Primary Performance Hurdle Secondary Performance Hurdle Tranche 1 2 July 2023 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date Tranche 2 30 June 2024 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date Tranche 3 29 June 2025 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date The FY23 EBIT Hurdle was calculated based on growth on FY22 Statutory EBIT adjusted to remove the 53rd week of trading in FY22 to ensure comparability between periods. The actual EBIT for the financial year ended 2 July 2023 was $105.7m, representing growth of 31.5% on FY22 (on a 52 week basis). As a result, subsequent to the end of the 2023 financial year the Board determined that 100% of the LTI Award granted under Tranche 1 had vested, with an equivalent vesting percentage to be applied to the subsequent tranches and those LTI Awards also vesting should each executive remain employed at the subsequent vesting dates. As a result, 17,919 Tranche 1 rights vested and were converted to shares for the relevant executives during FY24, with cash LTI payments made totalling $250,882. Each executive entitled to Tranche 2 above remained employed with the Company at 30 June 2024 and therefore at that date a further 17,919 rights vested and were issued to executives subsequent to financial year end, with the Tranche 2 cash LTI payment also made subsequent to financial year end totalling $250,882. FY2023 Executive LTI Plan On 29 August 2022 an LTI Award was made to certain Executives as part of the FY2023 LTI, comprising Performance Rights and a Cash component. The key terms associated with the FY2023 Executive LTI Grant are: • The performance period commences 4 July 2022 and ends 29 June 2025, with the LTI Award vesting evenly over the 3 year period. • Upon Vesting of the Performance Rights and conversion to shares, the shares will be subject to a 12-month holding restriction period (this does not apply to the Cash component). • A total of 53,757 Performance Rights were granted, based on a total grant value of $752,645 divided by the 30 day VWAP of the Company’s Shares to the date of grant of $14.00. The LTI Award also included a Cash component totalling $752,645, with the total LTI Award value $1,505,290. The cash component is paid out annually at equal tranches over the 3 year period. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 29 D I R E C T O R S ’ R E P O R T FY2022 Executive LTI Plan In September 2021 a grant of Performance Options was made to certain Executives as part of the FY2022 LTI. The key terms associated with the FY2022 Executive LTI Grant are: • The performance period commences 28 June 2021 and ends 30 June 2024. • The exercise price of the Performance Options is $14.37, which represents the 30 day VWAP to the date of grant. • A total of 150,000 Performance Options were granted. • The grant of Performance Options is subject to performance conditions based on delivering the Group’s EBIT target over the performance period, as set out below. • The expiry of the Performance Options is 12 months following the end of the performance period. • 90,000 options were forfeited during a prior year. The Board determined the EBIT Target growth hurdles applicable to the FY2022 grant is as follows: Group’s EBIT for the financial year ending 30 June 2024 % of LTI Options that vest and become exercisable Less than $90m Nil $90m - $95m 20% awarded $95m - $100m 35% awarded $100m - $110m 50% awarded $110m - $120m 75% awarded >$120m 100% awarded The actual EBIT for the financial year ended 30 June 2024 was $128.2m. As a result, subsequent to the end of the financial year the Board have determined that 60,000 of the Performance Options with a value of $479,404 granted under this tranche have vested. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 30 D I R E C T O R S ’ R E P O R T 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 Grant date Included in Remuneration for the current year $ % vested in the period % forfeited in the period Financial period in which grant vests Maximum Value yet to vest (iii) Number Value $ Performance period commences V Herrero FY22 LTIP Tranche 2 (FY23 vesting)(i) 1,742,857 24,400,000 4 Jul 2022 23 Nov 2021 2,255,788 100% - 30 Jun 2024 - FY22 LTIP Tranche 3 (FY24 vesting)(i) 1,242,995 24,400,000 3 Jul 2023 23 Nov 2021 8,041,170 (iv) - 29 Jun 2025 1,127,183 C Lauder FY21 LTIP 100,000 289,100 29-Jun-20 16-Oct-20 41,300 100% - 30-Jun-24 N/A FY22 LTIP 60,000 479,404 28-Jun-21 25-Aug-21 136,526 (iv) - 29-Jun-25 N/A FY23 LTIP Tranche 1 (FY23 vesting)(ii) 3,869 54,167 4-Jul-22 29-Aug-22 7,683 100% - 30-Jun-24 - FY23 LTIP Tranche 2 (FY24 vesting)(ii) 3,869 54,167 4-Jul-22 29-Aug-22 24,989 100% - 30-Jun-24 - FY23 LTIP Tranche 3 (FY25 vesting)(ii) 3,869 54,167 4-Jul-22 29-Aug-22 17,085 - - 29-Jun-25 20,043 FY24 LTIP Tranche 1 (FY24 vesting)(ii) 2,897 62,090 3-Jul-23 6-Sep-23 23,227 (v) (v) 29-Jun-25 3,967 FY24 LTIP Tranche 2 (FY25 vesting)(ii) 2,897 62,090 3-Jul-23 6-Sep-23 12,495 - - 29-Jun-25 14,699 FY24 LTIP Tranche 3 (FY26 vesting)(ii) 2,897 62,090 3-Jul-23 6-Sep-23 8,549 - - 28-Jun-26 18,647 (i) During FY22, Mr Herrero was granted long term incentives as set out at 9.2 above, including performance rights vesting over the financial years 2022, 2023 and 2024. Whilst the value of the performance rights were granted as at November 2021, the number of performance rights granted under each tranche of the grant has been determined at the start of each performance period, with tranche 1 determined at 23 November 2021, tranche 2 determined on 4 July 2022, and tranche 3 determined on 3 July 2023 based on the 30 day VWAP of Lovisa shares at that date. The total potential value of the long term incentive at inception across the 3 year term was $68 million, including $57.2 million performance rights (as set out above) and $10.8m in cash settled incentives. (ii) During FY23, Mr Lauder was granted an LTI Award comprising 3 Tranches vesting over the period FY23 to FY25, to a total value of $325,000, comprising Performance Rights granted across the 3 tranches totalling $162,500 resulting in the grant of a total of 11,607 Performance Rights, and a cash component also totalling $162,500. During FY24, Mr Lauder was granted an LTI Award comprising 3 Tranches vesting over the period FY24 to FY26, to a total value of $341,250 at calculation date, comprising Performance Rights granted across the 3 tranches based on an allocation at calculation date of $170,625 resulting in the grant of a total of 8,692 Performance Rights (with a fair value at grant date of $186,271), and a cash component totalling $170,625. (iii) The maximum value of performance rights yet to vest is determined based on the amount of the grant date fair value that is yet to be expensed. The minimum value of share rights yet to vest is nil since the shares will be forfeited if the vesting conditions are not met. (iv) Vesting of rights and options is known at the date of this report for these tranches, as detailed elsewhere in this report. (v) 43.8% vesting of these rights is known at the date of this report. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 31 D I R E C T O R S ’ R E P O R T The value of performance rights or options granted or exercised by each key management person during the financial year is detailed below: Key Management Person Granted in year $(i) No. of shares issued on exercise Value of rights or options exercised in year $(ii) Exercise price of Options Exercised during the year V Herrero - 1,742,857 37,349,429 N/A C Lauder 186,270 103,869 1,510,913 7.15 (i) The value of performance rights granted in the year is the fair value of the performance rights calculated at grant date. The total value of the performance rights granted is included in the table above. This amount is allocated to remuneration over the vesting period. (ii) The value of options exercised during the year is calculated as the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the option. 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: Key Management Person Held at 3 July 2023 Granted Exercised Forfeited Held at 30 June 2024 Vested during the year Vested and exercisable at 30 June 2024 Directors V Herrero - FY22 LTIP (Tranche 2) 1,742,857 - (1,742,857) - - 100% - - FY22 LTIP (Tranche 3) - 1,242,995 - - 1,242,995 - (i) Executives C Lauder - FY21 LTIP 100,000 - (100,000) - - 100% - - FY22 LTIP 60,000 - - - 60,000 - (ii) - FY23 LTIP (Tranche 1) 3,869 - (3,869) - - 100% - - FY23 LTIP (Tranche 2) 3,869 - - - 3,869 100% 3,869 - FY23 LTIP (Tranche 3) 3,869 - - - 3,869 - - - FY24 LTIP (Tranche 1) - 2,897 - - 2,897 - (iii) - FY24 LTIP (Tranche 2) - 2,897 - - 2,897 - (iii) - FY24 LTIP (Tranche 3) - 2,898 - - 2,898 - (iii) (i) 78.76% vesting of rights and options is known at the date of this report. (ii) 100% vesting of options is known at the date of this report. (iii) 43.8% vesting of Tranche 1 rights is known at the date of this report, with the remaining 56.2% of each of Tranche 1, 2 and 3 of the FY24 LTI therefore forfeited and the future vesting of the remaining 43.8% of Tranche 2 and 3 subject to continued employment as set out above. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 32 D I R E C T O R S ’ R E P O R T (1) Victor Herrero was appointed as a Director of the Company on 14 October 2021 and commenced as Chief Executive Officer on 9 November 2021. Included in Other Monetary Benefits is remuneration related to car allowance and reimbursement of personal costs related to life insurance and tax advice. Mr Herrero’s LTI award described above includes both cash and equity settled components subject to performance conditions over the performance periods ending 3 July 2022, 2 July 2023 and 30 June 2024, with the associated expense recognised over the relevant performance period. (2) Chris Lauder was granted a cash retention incentive of $300,000 in March 2022 payable in August 2023 based on continued employment at that date, with the associated expense included in remuneration over that period in the table above. (3) Resigned 18 November 2022. 9.5 Details of Remuneration Details of the remuneration of the Directors and Key Management Personnel (KMPs) is set out below. Year Short Term Employment Benefits Post-Employment Benefits Long Term Benefits Share Based Payments Salary & Fees ($) Other monetary benefits ($) Performance based payment ($) Super Contributions ($) Annual & Long Service Leave ($) Performance based payment ($) Options / Rights ($) Total ($) NON-EXEC DIRECTORS B Blundy 2024 240,000 - - - - - - 240,000 2023 150,000 - - - - - - 150,000 T Blundy 2024 87,387 - - 9,629 - - - 97,016 2023 73,059 - - 7,685 - - - 80,744 B Carter 2024 97,000 - - - - - - 97,000 2023 44,955 - - 4,734 - - - 49,689 J Charlton 2024 78,378 - - 8,637 - - - 87,015 2023 73,059 - - 7,685 - - - 80,744 S J Alt 2024 77,000 - - - - - - 77,000 2023 70,000 - - - - - - 70,000 J King (3) 2024 - - - - - - - - 2023 28,100 - - 2,950 - - - 31,050 N van der Merwe 2024 - - - - - - - - 2023 - - - - - - - - TOTAL NON-EXEC DIRECTORS 2024 579,765 - - 18,266 - - - 598,031 2023 439,713 - - 23,054 - - - 462,227 EXEC DIRECTORS V Herrero (1) 2024 1,982,158 70,748 - - - 1,623,854 10,296,948 13,973,708 2023 1,908,225 62,940 - - 88,314 2,058,028 24,975,099 29,092,606 OTHER KMP C Lauder (2) 2024 617,375 - 238,875 27,577 61,942 90,309 271,854 1,307,932 2023 568,281 - 260,000 25,292 64,701 321,776 439,222 1,679,272 TOTAL EXEC 2024 2,599,533 70,748 238,875 27,577 61,942 1,714,163 10,568,802 15,281,640 2023 2,476,506 62,940 260,000 25,292 153,015 2,379,804 25,414,321 30,771,878 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 33 D I R E C T O R S ’ R E P O R T 9.6 Details of KMP Employment Contracts The remuneration and other terms of employment of the CEO and CFO are set out in individual employment contracts. Victor Herrero’s existing employment contract with the Company was amended on 1 June 2024 to include a fixed term ending on 31 May 2025. Chris Lauder’s employment contract is not subject to a fixed term. Notice periods under these employment contracts are as follows: Name Notice period/termination payment Victor Herrero The Company may terminate the employment contract immediately for “Cause”, and Victor can terminate the employment contract immediately for “Good Reason”, each by providing written notice to the other subject to relevant cure periods in each circumstance. Termination for “Cause” includes serious misconduct, wilful and continuous failure to perform duties, and material breach of the employment contract, for “Good Reason” includes material breach of the employment contract and customary change of control provisions. Where Victor’s employment is terminated for Cause by the Company, no termination benefits are payable. Where Victor’s employment is terminated by Victor for good reason, he may be eligible for a termination payment equal to the base salary of the remaining term of the contract, subject to a minimum payment of 3 months base salary. Chris Lauder 6 months’ notice by either party (or payment in lieu). Where Mr Lauder’s employment is terminated due to serious misconduct or gross negligence, Mr Lauder’s employment may be terminated immediately without any pay in lieu and the stated notice period will not apply. 9.7 Consequences of Performance on Shareholder Wealth In considering the consolidated entity’s performance and the benefits for shareholder wealth, the People, 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: 2024 2023 2022 2021 2020 Earnings before interest and tax ($000) 128,177 105,742 82,684 43,527 25,667 Net profit after tax ($000) 82,411 68,164 58,387 24,829 11,221 Dividends paid 88,851 80,874 59,103 37,611 15,866 Share Price $32.87 $19.30 $14.26 $14.45 $8.08 Earnings per share 75.4 63.3 54.3 23.1 10.6 KMP Shareholdings The following table details the ordinary shareholdings and the movements in the shareholdings of KMP (including their personally related entities) for the financial year ended 30 June 2024. No. of shares Held at 3 July 2023 Shares Purchased Shares Purchased from Options and Rights Shares Sold Other Movements Held at 30 June 2024 Non-executive Directors B Blundy 43,207,500 - - - - 43,207,500 T Blundy 1,153,005 - - - - 1,153,005 B Carter 15,000 - - - - 15,000 J Charlton 29,000 - - - - 29,000 S J Alt - - - - - - N van der Merwe (alternate) - - - - - - Executive Directors V Herrero 397,471 - 1,742,857 - - 2,140,328 Executive C Lauder 27,546 - 103,869 (15,000) - 116,415 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 34 D I R E C T O R S ’ R E P O R T 10. INSURANCE OF OFFICERS AND INDEMNITIES During the financial year, Lovisa Holdings Limited paid a premium of $430,300 (2023: $480,000) 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 92 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 2024 the following fees were paid or were due and payable for services provided by the external auditor, KPMG, of the Consolidated Entity: Consolidated Entity 2024 $000 2023 $000 Audit and assurance services Audit and review of financial statements 990 674 Other services Tax compliance services 354 377 Other accounting services 36 141 1,380 1,192 The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. The Board of Directors has considered the position and, in accordance with advice received from the Audit, Business Risk and Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit, Business Risk and Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 12. PROCEEDINGS ON BEHALF OF COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. 13. ENVIRONMENTAL REGULATION The Company’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. However, the Directors believe that the Company has adequate systems in place for the management of its environmental requirements and is not aware of any breach of these environmental requirements as they apply to the entity. 14. NON-IFRS FINANCIAL INFORMATION This report contains certain non-IFRS financial measures of historical financial performance. The measures are used by management and the Directors for the purpose of assessing the financial performance of the Group and individual segments. The measures are also used to enhance the comparability of information between reporting periods by adjusting for non-recurring or controllable factors which affect IFRS measures, to aid the user in understanding the Group’s performance. These measures are not subject to audit. 15. 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 Brett Blundy Non-Executive Chairman Victor Herrero Chief Executive Officer Melbourne, 26 August 2024 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 35 C O N T E N T S F I N A N C I A L S T A T E M E N T S Consolidated statement of financial position 37 Consolidated statement of profit or loss and other comprehensive income 38 Consolidated statement of changes in equity 39 Consolidated statement of cash flows 40 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Setting the scene 41 Business performance 43 A1 Operating segments 43 A2 Revenue 44 A3 Expenses 45 A4 Impairment 46 A5 Earnings per share 46 A6 Dividends 47 A7 Income taxes 47 Asset platform 50 B1 Trade and other receivables 50 B2 Inventories 50 B3 Property, plant and equipment 50 B4 Right-of-use asset 52 B5 Intangible assets and goodwill 53 B6 Impairment of property, plant and equipment & intangible assets and goodwill 54 B7 Trade and other payables 55 B8 Provisions 55 B9 Employee benefits 56 B10 Lease liabilities 57 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 36 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D Risk and capital management 58 C1 Capital and reserves 58 C2 Capital management 59 C3 Loans and borrowings 60 C4 Financial instruments – Fair values and risk management 61 C5 Cash flows 67 Other information 69 D1 List of subsidiaries 69 D2 Commitments and contingencies 70 D3 Share-based payment arrangements 71 D4 Related parties 75 D5 Auditors’ remuneration 76 D6 Deed of cross guarantee 77 D7 Parent entity disclosures 79 D8 New standards and interpretations adopted by the group 80 D9 New standards and interpretations not yet adopted 80 C O N S O L I D A T E D E N T I T Y D I S C L O S U R E S T A T E M E N T Consolidated entity disclosure statement 83 Signed Reports Directors’ declaration 87 Independent auditor’s report 88 Lead auditor’s independence declaration 93 ASX Information Shareholder Information 97 Corporate Directory 103 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 37 F I N A N C I A L S T A T E M E N T S CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2024 The Notes on pages 41 to 80 are an integral part of these consolidated financial statements. Note 30 June 2 July Consolidated ($000s) 2024 2023 Assets Cash and cash equivalents C5 30,520 31,650 Trade and other receivables B1 19,445 23,202 Current tax receivables 11,521 210 Inventories B2 68,622 60,098 Derivatives C4 - 915 Total current assets 130,108 116,075 Deferred tax assets A7 23,285 20,924 Property, plant and equipment B3 123,588 121,389 Right-of-use asset B4 251,399 255,741 Intangible assets and goodwill B5 4,419 4,274 Total non-current assets 402,691 402,328 Total assets 532,799 518,403 Liabilities Trade and other payables B7 61,140 39,677 Employee benefits - current B9 9,180 7,667 Provisions - current B8 2,522 2,413 Lease liability - current B10 58,406 57,606 Derivatives C4 318 - Current tax liabilities 8,271 7,870 Total current liabilities 139,837 115,233 Employee benefits - non current B9 432 339 Lease liability - non current B10 246,661 249,981 Provisions - non current B8 8,832 7,861 Deferred tax liabilities A7 2,751 - Loans and borrowings - non current C3 54,000 65,000 Total non-current liabilities 312,676 328,131 Total liabilities 452,513 438,414 Net assets 80,286 79,989 Equity Issued capital C1 214,852 214,137 Common control reserve (208,906) (208,906) Other reserves 20,240 43,524 Retained earnings 54,100 31,234 Total equity 80,286 79,989 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 38 F I N A N C I A L S T A T E M E N T S Consolidated ($000s) Note 2024 2023 Revenue A2 698,664 596,456 Cost of sales B2 (132,874) (119,742) Gross profit 565,790 476,714 Salaries and employee benefits expense A3 (206,281) (182,377) Property expenses A3 (41,487) (25,313) Distribution costs B2 (25,398) (28,403) Depreciation and amortisation expense (93,122) (74,224) Loss on disposal of property, plant and equipment (108) (1,181) Impairment (expenses) / reversals A4 (2,220) 19 Other income 535 614 Other expenses A3 (69,532) (60,107) Operating profit 128,177 105,742 Finance income 248 224 Finance costs (17,833) (13,068) Net finance costs (17,585) (12,844) Profit before tax 110,592 92,898 Income tax expense A7 (28,181) (24,734) Profit after tax 82,411 68,164 Other comprehensive income Items that may be reclassified to profit or loss: Cash flow hedges (656) (878) Foreign operations - foreign currency translation differences (8,612) 3,697 (9,268) 2,819 Other comprehensive income, net of tax (9,268) 2,819 Total comprehensive income 73,143 70,983 Profit attributable to: Owners of the Company 82,411 68,164 82,411 68,164 Total comprehensive income attributable to: Owners of the Company 73,143 70,983 Total comprehensive income for the year 73,143 70,983 Earnings per share Basic earnings per share (cents) A5 75.38 63.25 Diluted earnings per share (cents) A5 74.47 61.94 CONSOLIDATED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2024 The Notes on pages 41 to 80 are an integral part of these consolidated financial statements. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 39 F I N A N C I A L S T A T E M E N T S CONSOLIDATED STATEMENT OF CHANGES IN EQUITY As at 30 June 2024 Consolidated ($000s) Note Share Capital Common Control Reserve Retained Earnings Share Based Payments Reserve Cash Flow Hedge Reserve Foreign Currency Translation Reserve Total Equity Balance at 4 July 2022 213,877 (208,906) 28,321 22,570 1,544 6,917 64,323 Total comprehensive income for the year Profit - - 68,164 - - - 68,164 Cash flow hedges - - - - (878) - (878) Foreign operations - foreign currency translation differences - - - - - 3,697 3,697 Total comprehensive income for the year - - 68,164 (878) 3,697 70,983 Capital contributions C1 260 - - - - - 260 Employee share schemes D3 - - - 25,297 - - 25,297 Transfers from Reserves - - 15,623 (15,623) - - - Dividends A6 - - (80,874) - - - (80,874) Total transactions with owners of the company 260 - (65,251) 9,674 - - (55,317) Balance at 2 July 2023 214,137 (208,906) 31,234 32,244 666 10,614 79,989 Balance at 3 July 2023 214,137 (208,906) 31,234 32,244 666 10,614 79,989 Total comprehensive income for the year Profit - - 82,411 - - - 82,411 Cash flow hedges - - - - (656) - (656) Foreign operations - foreign currency translation differences - - - - - (8,612) (8,612) Total comprehensive income for the year - - 82,411 - (656) (8,612) 73,143 Capital contributions C1 715 - - - - - 715 Employee share schemes D3 - - - 15,290 - - 15,290 Transfers from Reserves - - 29,306 (29,306) - - - Dividends A6 - - (88,851) - - - (88,851) Total transactions with owners of the company 715 - (59,545) (14,016) - - (72,846) Balance at 30 June 2024 214,852 (208,906) 54,100 18,228 10 2,002 80,286 The Notes on pages 41 to 80 are an integral part of these consolidated financial statements. Attributable to Equity Holders of the Company Lovisa Holdings Limited Annual Report - 30 June 2024 P / 40 F I N A N C I A L S T A T E M E N T S CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 30 June 2024 Consolidated ($000s) Note 2024 2023 Cash flows from operating activities Cash receipts from customers 784,907 665,072 Cash paid to suppliers and employees (544,502) (476,695) Cash generated from operating activities 240,405 188,377 Interest received 248 224 Interest paid (17,833) (13,068) Income taxes paid (35,306) (34,369) Net cash from operating activities C5 187,514 141,164 Cash flows from investing activities Acquisition of fixed assets (38,459) (76,677) Proceeds from fit out contributions 15,338 16,147 Acquisition of key money intangibles B5 (147) (191) Net cash used in investing activities (23,268) (60,721) Cash flows from financing activities Share options exercised 715 260 (Repayment of borrowings)/Facility proceeds C3 (11,000) 55,000 Payment of lease liabilities B10 (66,020) (57,997) Dividends paid A6 (88,851) (80,874) Net cash used in financing activities (165,156) (83,611) Net decrease in cash and cash equivalents (910) (3,168) Cash and cash equivalents at the beginning of the year C5 31,650 34,153 Effect of movement in exchange rates on cash held (220) 665 Cash and cash equivalents at the end of the year C5 30,520 31,650 The Notes on pages 41 to 80 are an integral part of these consolidated financial statements. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 41 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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. Lovisa Holdings Limited reports within a retail financial period. The current financial year represents a 52 week period ended on 30 June 2024 (2023: 52 week period ended 2 July 2023). 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 2024 were authorised for issue by the Board of Directors on 26 August 2024. 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; • 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 2023. These do not result in significant impacts on the FY24 Consolidated Financial Statements; • 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 D9; and • Has been prepared on a going concern basis of accounting. At 30 June 2024, the Group’s statement S E T T I N G T H E S C E N E of financial position is in a net current liability position of $9.7m, with net assets of $80.3m. The Group’s approach to managing liquidity risk is detailed in Note C4 and the Group’s undrawn credit facilities are detailed in Note C3. The Group continues to be able to meet its financial obligations as and when they fall due and remains a going concern. 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 In making estimates of future performance, key assumptions and judgements have been stress tested for the impacts of prevailing economic conditions. Global economic conditions remain uncertain and with a number of our markets continuing to experience above average levels of inflation and associated rising interest rates, this may slow demand and consumer spending across the broader global economy. In respect of these financial statements, the impact of the uncertainties arising from these economic conditions is primarily relevant to estimates of future performance, which is in turn relevant to the areas of impairment of non-financial assets. In all scenarios modelled, the liquidity requirements of the Group are within the available facilities and are forecast to meet financial covenants. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the financial year ended 30 June 2024 are included in the following notes: • Note A7 – 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 B6 – impairment test: key assumptions underlying Lovisa Holdings Limited Annual Report - 30 June 2024 P / 42 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S recoverable amounts, including the recoverability of goodwill and key money; • Notes B8 and D2 – recognition and measurement of provisions for site restoration and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources; and • Note B10 - recognition and measurement of lease liabilities: key assumptions underlying the lease term including the exericise or not of options or break clauses. 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 B6). Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities (see note C1). The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Acquisition of assets The Group accounts for asset purchases by allocating the transaction price to the individual assets and liabilities acquired based on their relative fair values at the date of purchase. 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. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. Translation of foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Lovisa at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the end of the reporting period. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the exchange rates at the end of the reporting period. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. When a foreign currency operation is disposed of, the cumulative amount in the translation reserve related to that foreign operation is transferred to profit or loss on disposal of the entity. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange 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 Other than the dividend determined to be paid as set out in Note A6, 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 43 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A1 OPERATING SEGMENTS (a) Basis for segmentation The Chief Operating Decision Maker (CODM) for Lovisa Holdings Limited and its controlled entities is the Chief Executive Officer (CEO). For management purposes, the Group is organised into geographic segments to review sales by territory as the CODM relies primarily on revenue to assess the performance of the segment and make decisions about resources to be allocated. 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 CEO and the Group’s management team. Store performance is typically assessed at an individual store level. The individual stores are reportable segments but meet the aggregation criteria to form reportable segments at a geographic level. The Group’s stores exhibit similar long-term financial performance and economic characteristics within each geography, which include: a. Consistent products are offered; b. All stock sold utilises common design processes and products are sourced from the same supplier base; and c. Customer base is similar. 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. (b) Geographic information The segments have been disclosed on a regional basis consisting of Australia and New Zealand, Asia (Singapore, Malaysia, Hong Kong, Taiwan, Vietnam, and China), Africa/Middle East (South Africa, Botswana, Namibia, and United Arab Emirates), Americas (United States of America, Canada, and Mexico), and Europe (United Kingdom, Spain, France, Luxembourg, Belgium, Germany, Netherlands, Austria, Switzerland, Poland, Italy, Hungary, Romania, and Ireland) and the Group’s franchise stores in the Middle East, Africa, and South America. Geographic revenue information is included in Note A2. In presenting the following information, segment assets were based on the geographic location of the assets. 2024 2023 ($000s) Non-current assets (i) Non-current assets (i) Australia / New Zealand (ii) 59,158 63,795 Asia 9,231 11,750 Africa / Middle East 9,286 7,366 Europe 144,553 123,330 Americas 152,759 170,889 Total 374,987 377,130 (i) Excluding financial instruments, deferred tax assets, employee benefit assets and intangible assets. (ii) Australia’s non-current assets as at 30 June 2024 are $53,932,000 (2023: $56,850,000). B U S I N E S S P E R F O R M A N C E Lovisa Holdings Limited Annual Report - 30 June 2024 P / 44 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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) 2024 2023 Sale of Goods Australia / New Zealand (i) 200,075 198,646 Asia 36,976 37,311 Africa / Middle East 52,195 48,800 Europe 230,413 181,639 Americas 177,498 128,183 Total Sale of Goods 697,157 594,579 Franchise Revenue South America 289 292 Middle East 947 1,547 Africa 271 38 Total Franchise Revenue 1,507 1,877 Total Revenue 698,664 596,456 (i) Australia’s revenue for the year ended 30 June 2024 is $175,639,000 (2023: $174,839,000) 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 and in line with the requirements of AASB 15 along with a right to recover returned goods asset. The right of return provision decreases revenue and the right to recover returned goods decreases cost of sales. Franchise income Franchise income, which is generally earned based upon a percentage of sales is recognised on an accrual basis. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 45 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A3 EXPENSES Expenses by nature Consolidated ($000s) 2024 2023 Property expenses Variable lease expenses 10,978 2,626 Outgoings 30,509 22,687 Total property expenses 41,487 25,313 Salaries and employee benefits expense Wages and salaries 172,820 138,715 Compulsory social security contributions 20,465 15,819 Increase in liability for long-service leave 218 78 LTI - Cash component 2,018 2,468 Share-based payment expense 10,760 25,297 Total salaries and employee benefits expense 206,281 182,377 Other expenses Administrative expenses 21,021 15,992 Banking expenses 8,723 7,382 Data and communication expenses 14,135 9,403 Legal and consulting expenses 10,336 10,617 Other expenses 15,317 16,713 Total other expenses 69,532 60,107 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 46 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A4 IMPAIRMENT Amounts recognised in profit or loss Consolidated ($000s) 2024 2023 Store impairment charges 3,959 2,075 Key money impairment charges - 78 Reversal of store impairment charges (1,739) (2,172) 2,220 (19) During the year ended 30 June 2024, net impairment expense of $2,220,000 ($2,220,000 after tax) (2023: $19,000 impairment reversal ($19,000 after tax)) was included within the consolidated statement of profit or loss and other comprehensive income. This impairment expense was in the Americas, Europe and Asian regions. Refer to Note B6. A5 EARNINGS PER SHARE (EPS) Calculation methodology The calculation of basic earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding. The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. EPS for profit attributable to ordinary shareholders of Lovisa Holdings Limited 2024 2023 Basic EPS (cents) 75.38 63.25 Diluted EPS (cents) 74.47 61.94 Profit attributable to ordinary shareholders ($000s) 82,411 68,164 Weighted average number of ordinary shares for basic EPS (shares) 109,324,573 107,763,351 Weighted average number of ordinary shares and potential ordinary shares for diluted EPS (shares) 110,662,667 110,049,842 2024 2023 Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 109,324,573 107,763,351 Adjustments for calculation of diluted earnings per share: - Options 25,091 89,878 - Performance rights 1,313,003 2,196,613 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 110,662,667 110,049,842 Information concerning the classification of securities i) Options and performance rights Options and performance rights granted to employees under the Lovisa Holdings Long Term Incentive Plan are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required hurdles would have been met based on the Group’s performance up to the reporting date, and to the extent to which they are dilutive. The options and performance rights have not been included in the determination of basic earnings per share. Details relating to the options and performance rights are set out in note D3. At 30 June 2024, no options and performance rights (2023: nil) were excluded from the diluted weighted average number of ordinary shares calculation because their effect would have been anti-dilutive. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 47 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A6 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 paid by the Company for the year. Consolidated ($000s) 2024 2023 31.0 cents per qualifying ordinary share, 70% franked (2023: 37.0 cents, 30% franked) 34,005 39,898 50.0 cents per qualifying ordinary share, 30% franked (2023: 38.0 cents, fully franked) 54,846 40,976 88,851 80,874 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) 2024 2023 37.0 cents per qualifying ordinary share, unfranked (2023: 31.0 cents, 70% franked) 40,586 33,428 40,586 33,428 Consolidated ($000s) 2024 2023 Dividend franking account Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2023: 30%) 3,508 5,933 A7 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. Deferred taxes arising from a single transaction The Group has adopted Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to AASB 12) from 1 July 2023. The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences such as leases. An entity is required to recognise the associated deferred tax assets and liabilities from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to retained earnings. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 48 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A7 INCOME TAXES (CONTINUED) (a) Amounts recognised in profit or loss Consolidated ($000s) 2024 2023 Current tax expense Current period 29,696 30,161 Changes in estimates related to prior years (756) 603 28,940 30,764 Deferred tax (benefit)/expense Origination and reversal of temporary differences (1,721) (5,978) Changes in temporary differences related to prior years 962 (52) (759) (6,030) Total income tax expense 28,181 24,734 (b) Reconciliation of effective tax rate Consolidated ($000s) 2024 2023 Profit before tax from continuing operations 110,592 92,898 Tax at the Australian tax rate of 30% (2023: 30%) 33,178 27,869 Effect of tax rates in foreign jurisdictions (2,577) (2,757) Non-deductible expenses 277 121 Recognition of tax effect of previously unrecognised tax losses (3,454) (2,073) Current year losses for which no deferred tax asset is recognised 614 782 Other movements (1,378) (201) Changes in estimate related to prior years 603 603 Withholding tax payable 918 390 Total current period tax expense 28,181 24,734 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 2024 2023 ETR Global operations – Total consolidated tax expense 25.5% 26.6% Australian operations – Australian company income tax expense 27.4% 31.5% Lovisa Holdings Limited Annual Report - 30 June 2024 P / 49 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A7 INCOME TAXES (CONTINUED) (c) Deferred tax assets and liabilities reconciliation Unused tax losses for which no deferred tax asset has been recognised total $2,719,000 (2023: $5,043,000). (d) Expected settlement of deferred tax balances Statement of financial position Statement of profit or loss Consolidated ($000s) 2024 2023 2024 2023 Property, plant and equipment (2,332) (5,852) (3,604) 2,342 Employee benefits 2,644 2,134 (515) (422) Long term incentives 8,621 10,472 8,813 (7,250) Provisions 1,608 1,127 (490) (60) Other items 982 1,329 (768) 532 Lease liabilities 67,130 70,696 (3,566) 28,675 Right-of-use assets (63,912) (67,841) 1,436 (28,785) Transaction costs 58 94 36 13 Carry forward tax losses 5,735 8,765 (2,101) (1,075) Deferred tax expense - - (759) (6,030) Net deferred tax assets 20,534 20,924 Presented in the Statement of financial position as follows: Deferred tax assets 23,825 20,924 Deferred tax liability 2,751 - Consolidated ($000s) 2024 2023 Deferred tax assets expected to be settled within 12 months 39,736 28,821 Deferred tax assets expected to be settled after 12 months 48,256 66,850 87,992 95,671 Deferred tax liabilities expected to be settled within 12 months 14,647 15,808 Deferred tax liabilities expected to be settled after 12 months 52,811 58,939 67,458 74,747 Net deferred tax assets 20,534 20,924 Global minimum tax framework The Group has adopted International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12) upon their release on 23 May 2023. The amendments provide a temporary mandatory exception from deferred tax accounting for the top-up tax, which is effective immediately, and require new disclosures about the Pillar Two exposure. The Group operates in several countries (refer note D1) which have either enacted or substantively enacted new tax legislation to implement the Pillar Two global minimum top-up tax (top-up tax), which seeks to apply a 15% global minimum tax. The Group does not expect to be subject to material top-up tax in relation to its operations in any of these countries. The Group has applied a temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax and will account for it as a current tax if it is incurred from 1 July 2024. The Group continues to monitor and evaluate domestic implementation of Pillar Two by relevant countries of the OECD and based on the information available at this point in time, the exposure to the additional taxation under Pillar Two is not estimated to be material for the Group. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 50 Impairment of receivables Recoverability of receivables is assessed monthly to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognised in profit or loss if the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Significant receivables are individually assessed for impairment. Receivables with a short duration are not discounted. Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other receivables is disclosed in Note C4. B2 INVENTORIES Recognition and measurement Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost includes the product purchase cost, import freight and duties together with other costs incurred in bringing inventory to its present location and condition using the weighted average cost method. All stock on hand relates to finished goods. Costs of goods sold comprises purchase price from the supplier, cost of shipping product from supplier to warehouse, shrinkage and obsolescence. Warehouse and outbound freight costs are reported as distribution expenses. Inventories recognised as expenses during 2024 and included in cost of sales amount to $128,962,000 (2023: $116,799,000). During 2024, inventories of $19,017,000 (2023: $13,354,000) were written down to net realisable value and included in cost of sales. B3 PROPERTY, PLANT AND EQUIPMENT Recognition and measurement Owned Assets Items of property, plant and equipment are stated at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of acquired assets includes estimates of the costs of dismantling and removing the items and restoring the site on which they are located where it is probable that such costs will be incurred. Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the entity and the cost of the item can be measured reliably. All other costs are recognised in the profit or loss as an expense as incurred. Depreciation and amortisation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful life on all property, plant and equipment. The residual value, the useful life and the depreciation method applied to an asset are re-assessed at least annually. N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 2024 2023 Trade receivables 1,397 1,857 Deposits 4,424 3,496 Prepayments 7,578 4,809 Other receivables (i) 6,046 13,040 19,445 23,202 (i) Other receivables include landlord fit-out contributions receivable. A S S E T P L A T F O R M Lovisa Holdings Limited Annual Report - 30 June 2024 P / 51 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B3 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Gains and losses on disposals are determined by comparing disposal proceeds with the carrying amount of the disposed asset and are recognised in the profit or loss in the year the disposal occurs. Reconciliation of carrying amount Consolidated ($000s) Note Leasehold improvements Hardware and software Fixtures and fittings Total Accumulated depreciation and impairment losses Balance at 4 July 2022 (63,710) (8,527) (2,265) (74,502) Depreciation (20,347) (1,644) (356) (22,347) Impairment (1,086) - - (1,086) Disposals 2,676 125 126 2,927 Effect of movements in exchange rates (1,593) (64) (5) (1,662) Balance at 2 July 2023 (84,060) (10,110) (2,500) (96,670) Balance at 3 Jul 2023 (84,060) (10,110) (2,500) (96,670) Depreciation (29,522) (1,704) (228) (31,454) Impairment (1,741) - - (1,741) Disposals 1,096 86 - 1,182 Effect of movements in exchange rates 599 25 - 624 Balance at 30 June 2024 (113,628) (11,703) (2,728) (128,059) Carrying amounts At 3 July 2022 64,900 1,878 477 67,255 At 2 July 2023 118,565 2,368 456 121,389 At 30 June 2024 121,420 1,883 285 123,588 Consolidated ($000s) Note Leasehold improvements Hardware and software Fixtures and fittings Total Depreciation policy Lease term 3 years 3 years Cost Balance at 4 July 2022 128,610 10,405 2,742 141,757 Additions 75,036 2,070 308 77,414 Disposals (4,755) (155) (137) (5,047) Effect of movements in exchange rates 3,734 158 43 3,935 Balance at 2 July 2023 202,625 12,478 2,956 218,059 Balance at 3 July 2023 202,625 12,478 2,956 218,059 Additions 35,633 1,217 55 36,905 Disposals (1,781) (92) - (1,873) Effect of movements in exchange rates (1,429) (17) 2 (1,444) Balance at 30 June 2024 235,048 13,586 3,013 251,647 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 52 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Consolidated ($000s) Note Total Accumulated depreciation and impairment losses Balance at 4 July 2022 (116,330) Depreciation and impairment charges for the year (51,866) Impairments 1,183 Effect of movements in exchange rates (3,727) Balance at 2 July 2023 (170,740) Balance at 3 July 2023 (170,740) Depreciation and impairment charges for the year (61,652) Impairments 9 Effect of movements in exchange rates 1,700 Balance at 30 June 2024 (230,683) Carrying amounts At 3 July 2022 172,037 At 2 July 2023 255,741 At 30 June 2024 251,399 Consolidated ($000s) Note Total Cost Balance at 4 July 2022 288,367 Additions 105,618 Re-measurement of lease liabilities 20,665 Effect of movements in exchange rates 11,831 Balance at 2 July 2023 426,481 Balance at 3 July 2023 426,481 Additions 51,997 Re-measurement of lease liabilities 7,563 Effect of movements in exchange rates (3,959) Balance at 30 June 2024 482,082 B4 RIGHT-OF-USE ASSET The Group has leases for retail stores, offices and warehouse facilities. The leases run for a period of 3 to 10 years but may have extension options as described below. Accounting policy At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. It may subsequently be reduced by impairment losses and adjusted for certain remeasurements of the lease liability. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 53 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B4 RIGHT-OF-USE ASSET (CONTINUED) Accounting policy (continued) The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group’s incremental borrowing rate. The Group determines its incremental borrowing rate by adjusting its current borrowing rates with market specific interest rates obtained from external financing sources. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right- of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. Variable lease payments: Leases may include variable lease payments, including payments that are variable based on a percentage of sales, depend on an index or rate, as well as variable payments for items such as property taxes, insurance, promotion spend, and other operating expenses associated with leased assets. Such variable lease payments are excluded from the calculation of the right-of-use asset and are recognised in the period in which the obligation is incurred. Low value assets: The Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value assets, such as office equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Recognition and measurement Additions to right-of-use assets represent leases for new stores. Right-of-use assets have been adjusted for the re-measurement of lease liabilities due to changes to existing lease terms, including extensions to existing lease terms. As a result of re- measurement adjustments exceeding the carrying value of the right-of-use asset, a gain of $535,000 has been recognised in other income in the statement of profit or loss and other comprehensive income during the year ended 30 June 2024 (2023: $614,000). At 30 June 2024, the Group has executed leases for which the lease commencement date has not yet occurred. These leases have a duration of up to 10 years and once commenced will result in an increase in lease liabilities and right-of-use assets, on a total basis, of approximately $7,996,000 (2023: $14,129,000). The Group has not recognised any rent concessions that are a direct consequence of the COVID-19 pandemic in the statement of profit or loss and other comprehensive income for the year ended 30 June 2024 (2023: $306,000). Expenses relating to variable lease payments not included in lease liabilities of $10,956,000 have been recognised in the statement of profit or loss and other comprehensive income for the year ended 30 June 2024 (2023: $2,910,000). B5 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 54 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B6 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSETS AND INTANGIBLE ASSETS AND GOODWILL Recognition and measurement Impairment The carrying amounts of the Group’s goodwill and indefinite life intangibles are tested for impairment at each reporting period. Property, plant and equipment are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in line with the calculation methodology listed below. Cash-generating units An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit (CGU) 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. Goodwill is tested at the level at which it is monitored, identified by the Group as the country level. Key money is tested at the store level. Property, plant and equipment and right-of-use assets are tested at the store level when there is an indication of impairment. 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. The Group uses value in use for the purposes of impairment testing, with the estimated future cash flows discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Sensitivity analysis is performed on this modelling by using a range of discount rates reflecting the potential risk of variability in the underlying forecasts or regional or market specific risks. Cash flow forecasts Cash flow forecasts are based on the Group’s most recent plans and are based on expectations of future outcomes having regard to market demand and past experience, incorporating individual trading environment and risks specific to the CGU. For store level tests, cash flow forecasts are modelled for the length of the lease, identified as the essential asset for store CGUs. No terminal value is reflected in store level tests. Discount rates The Group applies a post-tax discount rate to post-tax cash flows. The post-tax discount rates incorporate a risk adjustment relative to the risks associated with the specific CGU (geographic position or otherwise), with a high and low range used to apply sensitivity analysis to the cash flow modelling. B5 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Consolidated ($000s) Note Key Money Goodwill Balance at 4 July 2022 2,048 2,186 Additions 191 - Disposals - - Impairment (78) - Amortisation (10) - Effect of movements in exchange rates 155 (218) Balance at 2 July 2023 2,306 1,968 Balance at 3 July 2023 2,306 1,968 Additions 147 - Disposals - - Impairment - - Amortisation (24) - Effect of movements in exchange rates (50) 72 Balance at 30 June 2024 2,379 2,040 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 55 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Key assumptions for the impairment testing carried out at 30 June 2024 Stores with indicators of impairment at 30 June 2024 were identified in certain of the Group’s markets, requiring more detailed testing for certain stores. The following key assumptions were utilised for this impairment testing: • Discount rate by country applied based on a high and low range to provide sensitivity analysis. The discount rates applied to store tests in these countries were in the range of 10% to 15% pre-tax. • Growth rate based on expected sales profile by market with a longer term growth rate assumption of 3% in relation to sales and costs to allow for inflationary impacts until the end of the lease term which is considered to be the essential asset. No terminal value is included in discounted cash flow modelling at store level. As a result of this testing, an impairment expense of $3,959,000 was recognised for store fit-out and lease right-of-use assets (2023: $2,075,000 for store fit-out and lease right-of-use assets). Refer to notes B3, B4 and B5 for further detail. 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. Prior years’ impairment losses totalling $1,739,000 were reversed during the current year (2023: $2,172,000). B7 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) 2024 2023 Trade payables 33,071 19,075 Accrued expenses 28,069 20,602 61,140 39,677 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. B8 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 Return provision Total Balance at 3 July 2023 9,721 553 10,274 Provisions made during the year 1,859 400 2,259 Provisions used during the year (808) (311) (1,119) Effect of movement in exchange rates (56) (4) (60) Balance at 30 June 2024 10,716 638 11,354 Current 1,884 638 2,522 Non-current 8,832 - 8,832 10,716 638 11,354 B6 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSETS AND INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Lovisa Holdings Limited Annual Report - 30 June 2024 P / 56 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B8 PROVISIONS (CONTINUED) (a) Site restoration Key Estimates 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. Since the adoption of AASB 16 Leases from 1 July 2019, site restoration is now capitalised as part of the lease right-of-use asset and depreciated over the life of the lease term. For prior periods the amount of the provision for future restoration costs was capitalised as part of leasehold improvements and depreciated over the estimated useful life of the leasehold improvements. The unwinding of the effect of discounting on the provision was recognised as a finance cost. Expenditure to settle the restoration obligation at the end of the lease term is based on the Group’s best estimate of cost of restorations. B9 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. Consolidated ($000s) 2024 2023 Current Liability for annual leave 8,437 6,992 Liability for long-service leave 743 675 Non-Current Liability for long-service leave 432 339 Total employee benefit liabilities 9,612 8,006 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 57 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B10 LEASE LIABILITIES The Group has leases for retail stores, offices and warehouse facilities. The leases run for a period of 3 to 10 years but may have extension options as described below. Consolidated ($000s) Note Total Balance at 4 July 2022 218,372 Liability recognised during the period 117,660 Re-measurement of lease liabilities 20,100 Lease payments (68,574) Interest 10,577 Effect of movements in exchange rates 9,452 Balance at 2 July 2023 307,587 Balance at 3 July 2023 307,587 Liability recognised during the period 55,228 Re-measurement of lease liabilities 10,914 Lease payments (79,389) Interest 13,369 Effect of movements in exchange rates (2,642) Balance at 30 June 2024 305,067 Current lease liability 58,406 Non-current lease liability 246,661 305,067 Accounting policy Refer to note B4. Recognition and measurement Additions to lease liabilities represent leases for new stores. Lease liabilities have been re-measured due to changes to existing lease terms, including extensions to existing lease terms and exercise of break clauses. The Group has executed leases for which the lease commencement date has not yet occurred and therefore the lease liability has not been recognised at 30 June 2024, refer to note B4. The timing of the contractual cash flows for the lease liabilities are disclosed in note C4(b). Lovisa Holdings Limited Annual Report - 30 June 2024 P / 58 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S This section discusses the Group’s capital management practices, as well as the instruments and strategies utilised by the Group in minimising exposures to and impact of various financial risks on the financial position and performance of the Group. C1 CAPITAL AND RESERVES Recognition and measurement Ordinary shares Initially, share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (a) Share capital No. of Ordinary Shares Value of Ordinary Shares 2024 2023 2024 2023 Share Capital ‘000’s ‘000’s ‘000’s ‘000’s On issue at beginning of year 107,832 107,460 241,684 234,165 Shares issue to Employee Share Trust 1,861 372 39,876 7,519 On issue at end of year 109,693 107,832 281,560 241,684 Treasury Shares On issue at beginning of year - - (27,547) (20,288) Shares issued to trust (1,861) (372) (39,876) (7,519) Shares allocated on option exercise 1,861 372 715 260 - - (66,708) (27,547) Share Capital After Treasury Shares 109,693 107,832 214,852 214,137 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. R I S K & C A P I T A L M A N A G E M E N T Lovisa Holdings Limited Annual Report - 30 June 2024 P / 59 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C1 CAPITAL AND RESERVES (CONTINUED) (b) Nature and purpose of reserves (i) Common control reserve The Group’s accounting policy is to use book value accounting for common control transactions. The book value used is the book value of the transferor of the investment. Book value accounting is applied on the basis that the entities are part of a larger economic group, and that the figures from the larger group are the relevant ones. In applying book value accounting, no entries are recognised in profit or loss; instead, the result of the transaction is recognised in equity as arising from a transaction with shareholders. The book value (carry-over basis) is accounted for on the basis that the investment has simply been moved from one Group owner to a new Group Company. In applying book value accounting, an adjustment may be required in equity to reflect any difference between the consideration received and the aggregated capital of the transferee. The adjustment is reflected in the ‘common control reserve’ capital account. (ii) Translation reserve The translation reserve reflects all foreign currency differences of the international entities upon translation to the Group’s functional currency. (iii) Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows affect profit or loss. Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss. 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 and performance rights 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 60 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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. 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: 30 June 2024 2 July 2023 Consolidated ($000s) Lender Currency Nominal interest rate Year of maturity Facility Limit Amount Drawn Facility Limit Amount Drawn Cash advance facility CBA AUD 0.85% - 1.10% + AUD BBSY Bid 2026 80,000 34,000 80,000 65,000 Multi-option facility - Overdraft and Trade Finance CBA AUD 0.60% + AUD BBSY Bid 2026 20,000 - 20,000 - Revolving loan facility HSBC AUD 1.75% - 2.10% + AUD BBSY Bid 2026 20,000 20,000 20,000 - Total interest-bearing liabilities 120,000 54,000 120,000 65,000 The Group holds the following lines of credit with the Commonwealth Bank of Australia (CBA): • $80 million revolving cash advance facility (2023: $80 million) • $20 million multi option facility available for overdraft, trade finance and a contingent liability facility for global letters of credit and bank guarantees (2023: $20 million). The facilities were renewed during 2023 extending the maturity date of the facilities to 19 April 2026 (notwithstanding that individual products by virtue of their nature have their own maturity dates) and increasing the available credit limit as outlined above. 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). Under the facility the Group has financial covenants and has been in compliance with these through the year ended 30 June 2024. The Group holds the following lines of credit with the HSBC Bank Australia Limited (HSBC): • $20 million revolving loan facility (2023: $20 million) • $20 million bank guarantee facility for global letters of credit and bank guarantees (2023: $20 million) The revolving loan facility was finalised in April 2023, and the bank guarantee facility was renewed at the same time, extending the maturity date of the facilities to 19 April 2026 (notwithstanding that individual products by virtue of their nature have their own maturity dates) and increasing the available credit limit as outlined above. The HSBC facilities have been incorporated into the security deed for the CBA lending facilities. The financial covenants for the CBA facilities also apply to this facility. In addition to the above facilities with CBA and HSBC, the Group holds lines of credit in certain of its overseas markets which are solely for the purpose of providing bank guarantees as security for store lease agreements. Credit facilities for bank guarantees with ING Belgium (Euro 600,000) and Credit Suisse Switzerland (CHF 550,000) are subject to annual credit reviews. Facilities with other banks are secured either by standby letters of credit or restricted savings accounts, that is they are cash collateralised. Refer to note D2(a) for guarantees outstanding at 30 June 2024. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 61 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 2024 Carrying Amount Fair Value Consolidated ($000s) Note Hedging instruments Loans and receivables Other financial assets/ liabilities Total Level 1 Level 2 Level 3 Total Financial liabilities measured at fair value Derivatives 318 - - 318 - 318 - 318 318 - - 318 - 318 - 318 Financial assets not measured at fair value Trade and other receivables B1 - 19,445 - 19,445 - - - - Cash and cash equivalents C5 - 30,520 - 30,520 - - - - - 49,965 - 49,965 - - - - Financial liabilities not measured at fair value Secured bank loans C3 - 54,000 - 54,000 - - - - Trade and other payables B7 - - 61,140 61,140 - - - - - 54,000 61,140 115,140 - - - - Lovisa Holdings Limited Annual Report - 30 June 2024 P / 62 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED) (a) Fair values (continued) Recognition and measurement (continued) 2 July 2023 Carrying Amount Fair Value Consolidated ($000s) Note Hedging instruments Loans and receivables Other financial assets/ liabilities Total Level 1 Level 2 Level 3 Total Financial assets measured at fair value Derivatives 915 - - 915 - 915 - 915 915 - - 915 - 915 - 915 Financial assets not measured at fair value Trade and other receivables B1 - 23,202 - 23,202 - - - - Cash and cash equivalents C5 - 31,650 - 31,650 - - - - - 54,852 - 54,852 - - - - Financial liabilities not measured at fair value Secured bank loans C3 - 65,000 - 65,000 - - - - Trade and other payables B7 - - 39,677 39,677 - - - - - 65,000 39,677 104,677 - - - - (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 Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement 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. None 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 There were no Level 3 financial assets or liabilities during the year. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 63 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED) (b) Financial risk management The Group has exposure to the following risks arising from financial instruments: • credit risk (see (b)(ii)) • liquidity risk (see (b)(iii)) • market risk (see (b)(iv)) (i) Risk Management framework The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Directors has established the Audit, Business Risk and Compliance Committee, which is responsible for developing and monitoring the Group’s risk management policies. The Committee reports regularly to the Board of Directors on its activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit, Business Risk and Compliance Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Committee’s specific function with respect to risk management is to review and report to the Board that: a) the Group’s ongoing risk management program effectively identifies all areas of potential risk; b) adequate policies and procedures have been designed and implemented to manage identified risks; c) a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and d) proper remedial action is undertaken to redress areas of weakness. (ii) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and deposits placed for leased outlets. The Group’s credit risk on its receivables is recognised on the consolidated statement of financial position at the carrying amount of those receivable assets, net of any provisions for doubtful debts. Receivable balances and deposit balances are monitored on a monthly basis with the result that the Group’s exposure to bad debts is not considered to be material. Credit risk also arises from cash and cash equivalents and derivatives with banks and financial institutions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted by Lovisa. At the reporting date, the carrying amount of financial assets recorded in the financial statements, net of any allowances for impairment losses, represents the Group’s maximum exposure to credit risk. There were no significant concentrations of credit risk. Past due but not impaired As at 30 June 2024, no trade receivables were past due but not impaired (2023: 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. The Group maintains the following lines of credit secured by security interests granted by Lovisa Holdings Ltd and certain of its subsidiaries over all of their assets in favour of the Commonwealth Bank of Australia (CBA): • $80 million revolving cash advance facility; and • $20 million multi option facility available for overdraft, trade finance and a contingent liability facility for global letters of credit and bank guarantees. The Group also holds the following lines of credit with the HSBC Bank Australia Limited (HSBC): • $20 million revolving loan facility; and • $20 million bank guarantee facility for global letters of credit and bank guarantees In addition to the above facilities with CBA and HSBC, the Group holds lines of credit in certain of its overseas markets which are solely for the purpose of providing bank guarantees as security for store lease agreements. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 64 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED) (b) Financial risk management (continued) (iii) Liquidity risk (continued) 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 exclude interest payments and the impact of netting agreements. 30 June 2024 Contractual cash flows Consolidated ($000s) Carrying amount Total 2 mths or less 2-12 mths 1-2 years 2-5 years More than 5 years Non-derivative financial liabilities Trade payables 33,071 33,071 24,357 8,714 - - - Secured bank loans 54,000 54,000 - - - 54,000 - Lease liabilities 305,067 345,953 10,930 60,815 67,831 141,134 65,243 392,138 433,024 35,287 69,529 67,831 195,134 65,243 Derivative financial liabilities Forward exchange contracts used for hedging: - Outflow 33,320 33,320 8,454 24,866 - - - - Inflow (33,002) (33,002) (8,356) (24,646) - - - Total 318 318 98 220 - - - 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. 2 July 2023 Contractual cash flows Consolidated ($000s) Carrying amount Total 2 mths or less 2-12 mths 1-2 years 2-5 years More than 5 years Non-derivative financial liabilities Trade payables 19,075 19,075 19,075 - - - - Secured bank loans 65,000 65,000 - - - 65,000 - Lease liabilities 307,587 348,933 11,705 56,729 62,012 140,562 77,925 391,662 433,008 30,780 56,729 62,012 205,562 77,925 Derivative financial assets Forward exchange contracts used for hedging: - Outflow 42,776 42,776 10,453 32,323 - - - - Inflow (43,691) (43,691) (10,855) (32,836) - - - Total (915) (915) (402) (513) - - - Lovisa Holdings Limited Annual Report - 30 June 2024 P / 65 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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, Euro, 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 because inventory purchases are in USD. 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 60% 80% 100% Purchases 7 to 9 months 40% 50% 75% Purchases 10 to 12 months 30% 40% 50% Exposure to currency risk The summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group is as follows: 30 June 2024 2 July 2023 In thousands of EUR USD EUR USD Cash and cash equivalents 143 1,117 6 689 Trade receivables - 1,144 - 922 Trade payables (1,755) (15,447) (1,485) (11,436) Net statement of financial position exposure (1,612) (13,186) (1,479) (9,825) Sensitivity analysis A reasonably possible strengthening (weakening) of the USD or EUR 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 reserves in equity as the foreign currency denominated assets and liabilities represent cash, receivables and payables. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 66 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C4 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (CONTINUED) (b) Financial risk management (continued) (iv) Market risk (continued) Sensitivity Analysis (continued) Profit or loss Effect in thousands of dollars Strengthening Weakening 30 June 2024 EUR (5 percent movement) (81) 81 USD (5 percent movement) (659) 659 2 July 2023 EUR (5 percent movement) (74) 74 USD (5 percent movement) (491) 491 Interest rate risk 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. Cash flow sensitivity analysis for variable rate instruments The Group’s debt facilities all have variable interest rates. At 30 June 2024, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held constant, there would have been +/- $54,000 impact on pre tax profit for the year (2 July 2023: $98,000), 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 2024 P / 67 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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: 2024 2023 Derivatives Forward exchange contracts (318) 915 (318) 915 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. 2024 2023 Expected Cash Flows Expected Cash Flows Consolidated ($000s) Carrying Amount Total 12 mths of less More than 1 year Carrying Amount Total 12 mths of less More than 1 year Forward exchange contracts: Assets - - - - 915 915 915 - Liabilities (318) (318) (318) - - - - - (318) (318) (318) - 915 915 915 - A loss of $115,000 was included in other expenses on foreign currency derivatives not qualifying as hedges (2023: loss of $78,000). C5 CASH FLOWS Recognition and measurement Cash and cash equivalents comprise cash balances, and cash in transit and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Consolidated ($000s) 2024 2023 Bank balances Cash and cash equivalents in the statement of financial position (i) (ii) 30,520 31,650 Bank overdrafts used for cash management purposes - - Cash and cash equivalents in the statement of cash flows 30,520 31,650 (i) Includes $409,000 (2023: $417,000) of cash in savings accounts to collateralise bank guarantees. (ii) Includes $9,640,000 (2023: $9,350,000) relating to receivables from credit card merchants for electronic funds transfers, credit card and debit card point of sale transactions. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 68 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C5 CASH FLOWS (CONTINUED) Reconciliation of cash flows from operating activities Consolidated ($000s) Note 2024 2023 Cash flows from operating activities Profit after tax 82,411 68,164 Adjustments for: Depreciation 93,122 74,224 Impairment (reversals) / charges 2,220 (19) Gain on remeasurement of lease liability (535) (614) Loss on sale of property, plant and equipment 109 1,181 Share based payments 10,760 25,297 Fair value adjustment to derivatives C4 115 78 Exchange differences (7,332) 2,901 180,870 171,212 Change in inventories (8,524) (9,884) Change in trade and other receivables (i) (3,116) (2,656) Change in tax receivables (11,311) 586 Change in deferred tax assets / (liabilities) (i) 4,921 (3,775) Change in trade and other payables (i) 23,016 (8,454) Change in current tax liabilities 401 (6,214) Change in provisions and employee benefits (i) 1,257 349 Net cash from operating activities 187,514 141,164 (i) Net of changes in balances for non-operating activities. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 69 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 Principal place of business Lovisa Australia Pty Ltd Australia Lovisa Pty Ltd Australia Lovisa Employee Share Plan Pty Ltd Australia Lovisa International Pte Ltd Singapore Lovisa Singapore Pte Ltd Singapore Lovisa Accessories Pty Ltd South Africa DCK Jewellery South Africa (Pty) Ltd South Africa Lovisa New Zealand Pty Ltd New Zealand Lovisa Malaysia Sdn Bhd Malaysia Lovisa UK Ltd United Kingdom Lovisa Global Pte Ltd Singapore Lovisa Complementos España SL Spain Lovisa America, LLC United States of America Lovisa France SARL France Lovisa Hong Kong Ltd Hong Kong Lovisa Germany GmbH Germany Lovisa Retail Germany GmbH Germany Lovisa Austria GmbH Austria Lovisa Belgium BV Belgium Lovisa Netherlands BV Netherlands Lovisa Switzerland AG Switzerland Lovisa Retail France SARL France Lovisa Luxembourg SARL Luxembourg Lovisa Canada Ltd Canada Lovisa Poland sp. Z o.o. Poland Lovisa Retail Mexico S.A. DE C.V. Mexico Lovisa Retail Namibia (Pty) Ltd Namibia Lovisa Italy S.R.L. Italy Lovisa Hungary Kft. Hungary Lovisa Portugal, Unipessoal LDA Portugal Lovisa Retail S.R.L. Romania Lovisa Ireland Limited Ireland Lovisa Taiwan Limited Taiwan O T H E R I N F O R M A T I O N Lovisa Holdings Limited Annual Report - 30 June 2024 P / 70 D2 COMMITMENTS AND CONTINGENCIES (a) Guarantees The Group has guarantees outstanding to landlords and other parties to the value of $15,741,000 at 30 June 2024 (2023: $14,871,000). (b) Capital commitments and contingent liabilities The Group is committed to incur capital expenditure of $641,000 at 30 June 2024 (2023: $6,673,000). There are no contingent liabilities that exist at 30 June 2024 (2 July 2023: none). N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D1 LIST OF SUBSIDIARIES (CONTINUED) Lovisa (Shenzhen) Retail Company Ltd China Lovisa Macau Limited Macau Lovisa Botswana Propietary Limited Botswana Lovisa Fashion Accesories L.L.C. United Arab Emirates Lovisa Vietnam Company Limited Vietnam Lovisa Holdings Limited Annual Report - 30 June 2024 P / 71 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T D3 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 and performance rights The Board has issued share options and performance rights programmes that entitle key management personnel and senior management to acquire shares in the Company. Under these programmes, holders of vested options are entitled to purchase shares at the relevant exercise price at the grant date. Currently, these programmes are limited to key management personnel and senior management. All options and performance rights are to be settled by physical delivery of shares. At 30 June 2024 the Group has the following share-based payment arrangements: (i) Share options and rights programmes (equity-settled) Long Term Incentives - Annual Programmes (FY 2022) Share Option Programme Grant date Number of instruments (000’s) Exercise Price ($) Contractual life of options Vesting conditions Granted FY 2022 LTI (CEO FY22 Tranche 1) November 2021 - - N/A 347,761 Performance Rights vested during FY23 FY 2022 LTI (CEO FY22 Tranche 2) November 2021 - - N/A 1,742,857 Performance Rights vested during the current financial year FY 2022 LTI (CEO FY22 Tranche 3) November 2021 1,243 - 3 years Refer CEO Performance Rights granted table below FY 2022 LTI (Exec FY22) August 2021 60 $14.37 3 years Refer Executive Performance Options granted table below 400,000 Performance Rights granted to the CEO under the CEO FY22 Tranche 1 Grant were approved at the Company’s AGM on 22 November 2021, with 347,671 vested and exercised in FY23 and the remaining 52,329 lapsing unvested. In July 2022, a further 1,742,857 rights were granted to the CEO under the CEO FY22 Tranche 2 Grant, which vested and were exercised in full during the current financial year. In July 2023, a further 1,242,995 rights were granted to the CEO under the CEO FY22 Tranche 3 Grant. Subsequent to the end of the financial year, the Board have determined that 940,045 of these Performance Rights have vested, with the remaining 302,950 lapsing unvested. Subsequent to the end of the financial year, the Board also determined that 60,000 Performance Options under the FY2022 Executive LTI have vested. Performance Hurdles in relation to Performance Rights Granted to the CEO Company’s EBIT (pre LTI) for the financial year ending 30 June 2024 % of Performance Rights that vest and become exercisable $95.0m - $100.0m 8% to 12% $100.0m - $110.0m 12% to 22% $110.0m - $125.0m 22% to 43% $125.0m - $140.0m 43% to 75% $140.0m to $155.0m 75% to 100% $155.0m + 100% Lovisa Holdings Limited Annual Report - 30 June 2024 P / 72 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T Performance Hurdles in relation to Performance Options Granted to Other Executives Group’s EBIT for the financial year ending 30 June 2024 % of LTI Options that vest and become exercisable Less than $90m Nil $90m - $95m 20% awarded $95m - $100m 35% awarded $100m - $110m 50% awarded $110m - $120m 75% awarded >$120m 100% awarded D3 SHARE-BASED PAYMENT ARRANGEMENTS (CONTINUED) (i) Share options and rights programmes (equity-settled) (continued) (a) Descriptions of the share-based payment arrangements and performance rights Long Term Incentives - Annual Programmes (FY 2024) Performance Right Programme Grant Date Number of Instruments (000’s) Exercise Price ($) Contractual Life of Rights Vesting Conditions Performance Rights Granted FY 2024 LTI (Executive Tranche 1) September 2023 11,390 - 1 Year Refer Performance Rights Granted table below FY 2024 LTI (Executive Tranche 2) September 2023 11,390 - 2 Years Refer Performance Rights Granted table below FY 2024 LTI (Executive Tranche 3) September 2023 11,390 - 3 Years Refer Performance Rights Granted table below 34,170 Tranche End of Performance Period Primary Performance Hurdle* Secondary Performance Hurdle Tranche 1 30 June 2024 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date Tranche 2 29 June 2025 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date Tranche 3 28 June 2026 Growth in Company EBIT for FY24 of between 17.5% (20% vesting) to 30% (100% vesting) over FY23 (FY24 EBIT Hurdle) Continued employment at the vesting date During the financial year, 34,170 performance rights were granted to Executives. Subsequent to the end of the financial year, the Board have determined that based on performance against the FY24 EBIT Hurdle noted below, 43.8% of the Tranche 1 Executive Performance Rights above have vested, equal to 4,989 Rights, with the remaining 6,402 Performance Rights lapsing unvested. This vesting percentage will now also be applied to Tranche 2 and 3 vesting, which is based on continued employment at the end of the relevant performance periods. As a result, a further 12,803 Tranche 2 and 3 Performance Rights have also lapsed unvested subsequent to the end of the financial year. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 73 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T D3 SHARE-BASED PAYMENT ARRANGEMENTS (CONTINUED) (i) Share options and rights programmes (equity-settled) (continued) (a) Descriptions of the share-based payment arrangements and performance rights (continued) Long Term Incentives - Annual Programmes (FY 2023) Performance Right Programme Grant Date Number of Instruments (000’s) Exercise Price ($) Contractual Life of Rights Vesting Conditions Performance Rights Granted FY 2023 LTI (Executive Tranche 1) September 2022 - - 1 Year 17,919 Performance Rights vested during the current financial year FY 2023 LTI (Executive Tranche 2) September 2022 17,919 - 2 Years Refer Performance Rights Granted table below FY 2023 LTI (Executive Tranche 3) September 2022 17,919 - 3 Years Refer Performance Rights Granted table below 35,838 Tranche End of Performance Period Primary Performance Hurdle* Secondary Performance Hurdle Tranche 1 2 July 2023 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date Tranche 2 30 June 2024 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date Tranche 3 29 June 2025 Growth in Company EBIT for FY23 of between 17.5% (20% vesting) to 30% (100% vesting) over FY22 (FY23 EBIT Hurdle) Continued employment at the vesting date * The FY23 EBIT Hurdle is calculated based on growth on FY22 Statutory EBIT adjusted to remove the 53rd week of trading in FY22 to ensure comparability between periods. The FY23 EBIT Hurdle performance was determined during the current financial year, with the resulting vesting percentage of 100% for Tranche 1, with this vesting percentage also applied to Tranche 2 and 3 assuming continued employment at the vesting date for each of those tranches. Subsequent to the end of the current financial year a further 17,919 of Tranche 2 Performance Rights were determined to have vested based on the continued employment of the relevant Executives at vesting date. (b) Measurement of fair values (i) Equity-settled share-based payment arrangements The fair value of the employee share options (see (a)(i)) 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. FY2021 LTI FY2022 LTI (EXEC) Fair value at grant date $1.25 $2.50 30 day VWAP share price at grant date $7.15 $14.37 Exercise price $7.15 $14.37 Expected volatility (weighted-average) 33.70% 33.70% Expected life (weighted-average) 3 years 3 years Expected dividends 3.50% 3.50% Risk-free interest rate (based on government bonds) 0.25% 0.22% Lovisa Holdings Limited Annual Report - 30 June 2024 P / 74 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T (c) Reconciliation of outstanding share options/rights The number and weighted average exercise prices of share options and performance rights under the share options and rights programmes were as follows. Performance Rights Share Options Number Weighted average remaining life Number Weighted average exercise price Weighted average remaining life 000’s 000’s $ Outstanding at 3 July 2023 1,797 0.2 years 160 9.86 0.9 years Granted during the year 1,277 - - - - Forfeited during the year - - - - - Exercised during the year (1,761) - (100) 7.15 - Outstanding at 30 June 2024 1,313 0.2 years 60 14.37 0.2 years Exercisable at 30 June 2024 18 - - Exercisable at release of the Group’s full year results 945 60 14.37 Outstanding at 4 July 2022 400 0.2 years 262 10.15 1.3 years Granted during the year 1,797 - - - - Forfeited during the year (52) - (77) 10.60 - Exercised during the year (348) - (25) 10.60 - Outstanding at 2 July 2023 1,797 0.2 years 160 9.86 0.9 years Exercisable at 2 July 2023 - - - Exercisable at release of the Group’s full year results 1,754 100 7.15 D3 SHARE-BASED PAYMENT ARRANGEMENTS (CONTINUED) (b) Measurement of fair values (continued) (i) Equity-settled share-based payment arrangements (continued) Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price. The fair values of each Performance Rights grant was determined based on the 30 day VWAP of Lovisa shares as of the relevant grant date as follows Programme Fair Value at Grant Date FY 2022 LTI (CEO FY22 Tranche 1) $21.00 FY 2022 LTI (CEO FY22 Tranche 2) $14.00 FY 2022 LTI (CEO FY22 Tranche 3) $19.63 FY 2023 LTI (Exec FY23) $14.00 FY 2024 LTI (Exec FY24) $19.63 (d) Expenses recognised in profit or loss For details on the related employee benefit expenses, see Note A3. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 75 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T D4 RELATED PARTIES (a) Parent and ultimate controlling party Lovisa Holdings Limited is the parent entity and ultimate controlling party in the Group comprising itself and its subsidiaries. Subsidiaries of the Group are listed in note D1. (b) Transactions with key management personnel (i) Key management personnel compensation The key management personnel compensation comprised the following: Consolidated ($000s) 2024 2023 Short-term employee benefits 3,489 3,239 Post-employment benefits 46 48 Share based payment 10,569 25,414 Termination benefits - - Other long term benefits 1,776 2,533 15,880 31,234 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 23 to 33. (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 2024 except for those disclosed in note D4(c) (2 July 2023: nil). (c) Other related party transactions Transaction values for the year ended Balance outstanding as at Consolidated ($000s) 30 June 2024 2 July 2023 30 June 2024 2 July 2023 a) Expenses Expense recharges 261 231 - - b) Sales Recharges - - - - Included in expenses in the period is $240,000 relating to Directors fees for Brett Blundy in his capacity as Director and Chairman of the Company. Transactions between the Lovisa Group and BB Retail Capital (BBRC) and its related parties have been disclosed above due to BBRC continuing to be in a position of holding significant influence in relation to the Group, with representation on the Board of Directors. Lovisa has, and will continue to benefit from the relationships that its management team and BBRC have developed over many years of retail operating experience. During the year, BBRC has recharged expenses relating to travel and conferences attended by Lovisa executives. Expense recharges are priced on an arm’s length basis. The Group will continue to utilise BBRC’s retail operating experience on an arm’s length basis. All outstanding balances with other related parties are priced on an arm’s length basis and are to be settled in cash within two months post the end of the reporting year. None of the balances are secured. No expense has been recognised in the current year or prior year for bad or doubtful debts in respect of amounts owed by related parties. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 76 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T D5 AUDITOR’S REMUNERATION Consolidated ($) 2024 2023 a) KPMG Audit and review services Auditors of the Company - KPMG Australia Audit and review of financial statements 699,980 476,000 Network firms of KPMG Australia Audit and review of financial statements 290,051 198,000 Total remuneration for audit and review services 990,031 674,000 Other services Auditors of the Company - KPMG Australia In relation to other assurance, taxation and due diligence services 44,924 186,970 Network firms of KPMG Australia In relation to other assurance, taxation and due diligence services 345,373 330,940 Total remuneration for other services 390,297 517,910 Total remuneration of KPMG 1,380,328 1,191,910 b) Non-KPMG audit firms Audit and review services Audit and review of financial statements 130,414 26,639 Total remuneration for audit and review services 130,414 26,639 Other services In relation to other assurance, taxation and due diligence services 132,410 151,121 Total remuneration for other services 132,410 151,121 Total remuneration of non-KPMG audit firms 262,824 177,760 Total auditors remuneration 1,643,152 1,369,670 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 77 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D6 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 2024 is set out as follows. Statement of profit or loss and other comprehensive income and retained earnings Consolidated ($000s) 2024 2023 Revenue 220,970 217,156 Cost of sales (78,594) (74,071) Gross profit 142,376 143,085 Salaries and employee benefits expense (75,212) (86,513) Property expenses (5,948) (3,348) Distribution costs (2,930) (1,163) Depreciation (20,208) (18,051) Gain / (loss) on disposal of property, plant and equipment 52 (46) Other income and expenses 11,930 11,352 Dividend income 25,249 32,907 Finance income 61 26 Finance costs (6,081) (4,345) Profit before tax 69,289 73,904 Tax expense (12,257) (12,621) Profit after tax 57,032 61,283 Other comprehensive income for the year, net of tax - - Total comprehensive income for the year, net of tax 57,032 61,283 Retained earnings at beginning of year 12,786 16,754 Transfer from reserves 29,306 15,623 Impact of change in accounting policy - - Dividends recognised during the year (88,851) (80,874) Retained earnings at end of year 10,273 12,786 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 78 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D6 DEED OF CROSS GUARANTEE (CONTINUED) Statement of financial position Consolidated ($000s) 30 June 2024 2 July 2023 Assets Cash and cash equivalents 4,371 4,086 Trade and other receivables 65,861 97,199 Inventories 20,229 17,699 Current tax receivables 10,328 - Derivatives - 915 Total current assets 100,789 119,899 Deferred tax assets 11,280 14,538 Property, plant and equipment 22,527 21,462 Right-of-use asset 31,482 37,146 Investments 210,119 210,080 Total non-current assets 275,408 283,226 Total assets 376,197 403,125 Liabilities Trade and other payables 32,636 27,114 Employee benefits - current 3,390 3,045 Derivatives 318 - Lease liability - current 11,365 13,468 Current tax liabilities - 42 Provisions - current 708 1,882 Total current liabilities 48,417 45,551 Employee benefits - non-current 1,175 1,013 Lease liability - non-current 27,337 30,053 Loans and borrowings - non-current 54,000 65,000 Provisions - non current 980 750 Total non-current liabilities 83,492 96,816 Total liabilities 131,909 142,367 Net assets 244,288 260,758 Equity Issued capital 214,852 214,137 Common control reserve 925 925 Share based payments reserve 18,228 32,244 Cash flow hedge reserve 10 666 Retained earnings 10,273 12,786 Total equity 244,288 260,758 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 79 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D7 PARENT ENTITY DISCLOSURES ($000s) 2024 2023 Result of parent entity Profit for the year 55,249 67,906 Other comprehensive income - - Total comprehensive income for the year 55,249 67,906 Financial position of parent entity at year end Current assets 39,673 47,702 Non-current assets 210,905 210,905 Total assets 250,578 258,607 Current liabilities - - Non-current liabilities - - Total liabilities - - Net assets 250,578 258,607 Total equity of parent entity comprising of: Share capital 216,326 215,611 Share based payments reserve 18,228 22,676 Accumulated profits 16,024 20,320 Total equity 250,578 258,607 (a) Parent entity accounting policies 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 2024. (c) Parent entity guarantees in respect of the debts of its subsidiaries The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in Note D6. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 80 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S D8 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 2024: • AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules; • AASB 2021-5 Amendments to Australian Accounting Standards - Deferred Tax related to Assets and Liabilities arising from a Single Transaction; • AASB 2021-2 Amendments to Australian Accounting Standards - Disclosure of Accounting Policies and Definition of Accounting Estimates; • AASB 17 Insurance Contracts; and • Disclosure of Accounting Policies - Amendements to IAS1 and IFRS Practice Statement 2 D9 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED A number of new standards are effective for annual periods beginning after 1 July 2024 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements: • AASB 2020-1 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non- Current; • AASB 2022-6 Amendments to Australian Accounting Standards – Non-current Liabilities with Covenants; • AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture; • AASB 2023-1 Amendments to Australian Accounting Standards – Supplier Finance Arrangements; • AASB 2022-5 Amendments to Australian Accounting standards – Lease Liability in a Sale and Leaseback; and • Lack of Exchangeability –Amendments to IAS 21 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 81 C O N S O L I D A T E D E N T I T Y D I S C L O S U R E S T A T E M E N T Lovisa Holdings Limited Annual Report - 30 June 2024 P / 82 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 83 C O N S O L I D A T E D E N T I T Y D I S C L O S U R E S T A T E M E N T C O N S O L I D A T E D E N T I T Y D I S C L O S U R E S T A T E M E N T Section 295(3A) of the Corporations Act 2001 requires disclosure of the tax residency of each entity included in the Consolidated Entity Disclosure Statement (CEDS). In the context of an entity which was an Australian resident, “Australian resident” has the meaning provided in the Income Tax Assessment Act 1997. The determination of tax residency involves judgement as it is highly fact dependent and there are currently several different interpretations that could be adopted, and which could give rise to a different conclusion on residency. In determining tax residency, the consolidated entity has applied the following interpretations: • Australian tax residency has been assessed based on current legislation and judicial precedent, including having regard to the Commissioner of Taxation’s public guidance in Tax Ruling TR 2018/5. • Foreign tax residency has been assessed based on applicable foreign legislation and where available judicial precedent. Set out below is relevant information relating to entities that are consolidated in the consolidated financial statements at the end of the financial year as required by the Corporations Act 2021 (s.295(3A)(a)). As at 30 June 2024, no entities had a different or an additional tax residency from their country of incorporation. For the year ended 30 June 2024: Entity Name Body corporate, partnership or trust Place incorporated/ formed % of share capital held directly or indirectly by the Company in the body corporate Australian or Foreign tax resident Jurisdiction for Foreign tax resident Lovisa Holdings Limited (the Company) Body corporate Australia Australian N/A Lovisa Australia Pty Ltd Body corporate Australia 100% Australian N/A Lovisa Pty Ltd Body corporate Australia 100% Australian N/A Lovisa Employee Share Plan Pty Ltd Body corporate Australia 100% Australian N/A Lovisa International Pte Ltd Body corporate Singapore 100% Foreign Singapore Lovisa Singapore Pte Ltd Body corporate Singapore 100% Foreign Singapore Lovisa Accessories Pty Ltd Body corporate South Africa 100% Foreign South Africa DCK Jewellery South Africa (Pty) Ltd Body corporate South Africa 100% Foreign South Africa Lovisa New Zealand Pty Ltd Body corporate New Zealand 100% Foreign New Zealand Lovisa Malaysia Sdn Bhd Body corporate Malaysia 100% Foreign Malaysia Lovisa UK Ltd Body corporate United Kingdom 100% Foreign United Kingdom Lovisa Global Pte Ltd Body corporate Singapore 100% Foreign Singapore Lovisa Complementos España SL Body corporate Spain 100% Foreign Spain Lovisa America, LLC Body corporate United States of America 100% Foreign United States of America Lovisa France SARL Body corporate France 100% Foreign France Lovisa Hong Kong Ltd Body corporate Hong Kong 100% Foreign Hong Kong Lovisa Germany GmbH Body corporate Germany 100% Foreign Germany Lovisa Retail Germany GmbH Body corporate Germany 100% Foreign Germany Lovisa Austria GmbH Body corporate Austria 100% Foreign Austria Lovisa Holdings Limited Annual Report - 30 June 2024 P / 84 C O N S O L I D A T E D E N T I T Y D I S C L O S U R E S T A T E M E N T Entity Name Body corporate, partnership or trust Place incorporated/ formed % of share capital held directly or indirectly by the Company in the body corporate Australian or Foreign tax resident Jurisdiction for Foreign tax resident Lovisa Belgium BV Body corporate Belgium 100% Foreign Belgium Lovisa Netherlands BV Body corporate Netherlands 100% Foreign Netherlands Lovisa Switzerland AG Body corporate Switzerland 100% Foreign Switzerland Lovisa Retail France SARL Body corporate France 100% Foreign France Lovisa Luxembourg SARL Body corporate Luxembourg 100% Foreign Luxembourg Lovisa Canada Ltd Body corporate Canada 100% Foreign Canada Lovisa Poland sp. Z o.o Body corporate Poland 100% Foreign Poland Lovisa Retail Mexico S.A. DE C.V. Body corporate Mexico 100% Foreign Mexico Lovisa Retail Namibia (Pty) Ltd Body corporate Namibia 100% Foreign Namibia Lovisa Italy S.R.L. Body corporate Italy 100% Foreign Italy Lovisa Hungary Kft. Body corporate Hungary 100% Foreign Hungary Lovisa Portugal, Unipessoal LDA Body corporate Portugal 100% Foreign Portugal Lovisa Retail S.R.L. Body corporate Romania 100% Foreign Romania Lovisa Ireland Limited Body corporate Ireland 100% Foreign Ireland Lovisa Taiwan Limited Body corporate Taiwan 100% Foreign Taiwan Lovisa (Shenzhen) Retail Company Ltd Body corporate China 100% Foreign China Lovisa Macau Limited Body corporate Macau 100% Foreign Macau Lovisa Botswana Propietary Limited Body corporate Botswana 100% Foreign Botswana Lovisa Fashion Accesories L.L.C. Body corporate United Arab Emirates 100% Foreign United Arab Emirates Lovisa Vietnam Company Limited Body corporate Vietnam 100% Foreign Vietnam Lovisa Holdings Limited Annual Report - 30 June 2024 P / 85 S I G N E D R E P O R T S Lovisa Holdings Limited Annual Report - 30 June 2024 P / 86 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 87 S I G N E D R E P O R T S 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 37 to 80 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 2024 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 D6 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 2024. 4. The Directors draw attention to the Basis of Accounting for the consolidated financial statements set out on page 41, which includes a statement of compliance with International Financial Reporting Standards. 5. In the Directors’ opinion, the consolidated entity disclosure statement required by section 295(3A) of the Corporations Act 2001 for the year ended 30 June 2024 is true and correct. Signed in accordance with a resolution of the Directors. ________________________________________________ Victor Herrero Chief Executive Officer Melbourne 26 August 2024 D I R E C T O R S ’ D E C L A R A T I O N Lovisa Holdings Limited Annual Report - 30 June 2024 P / 88 S I G N E D R E P O R T S KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 gives a true and fair view, including of the Group’s financial position as at 30 June 2024 and of its financial performance for the year then ended, in accordance with the Corporations Act 2001, in compliance with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2024. • 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 • Consolidated entity disclosure statement and accompanying basis of preparation as at 30 June 2024. • Notes, including material 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 (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 89 S I G N E D R E P O R T S 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. Recoverability of property, plant and equipment ($123.6 million) and right-of-use assets ($251.4 million) Refer to Note B3, B4 and B6 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 assessment of its property plant and equipment and right-of-use assets for impairment, given the size of their balances (being 72% of total assets). In addition, the Group recorded an impairment charge of $3,959,000 excluding reversals against its property plant and equipment and right-of-use assets for underperforming stores. The assessment for impairment indicators is made at a store-by-store basis as each store is determined to be a Cash Generating Unit (CGU). If such indicators exist, the specific CGU’s recoverable amount is estimated using the value in use model. For CGUs for which a value in use model was prepared, we focussed on the key forward- looking assumptions the Group applied, including: • forecast operating cash flows and growth rates – the Group operates in competitive market conditions, especially given the current uncertain retail environment impacting consumer spending which are anticipated to continue in the near term in certain markets. These conditions, increase the possibility of property, plant and equipment and right-of-use assets being impaired. • discount rate – these are complicated in nature because they are required to reflect the individual trading environment and the model’s approach to incorporating the CGU-specific risks into the cash flows or discount rates. Our procedures included: • We considered the reasonableness of parameters applied in the impairment indicator assessment performed by the Group, and relevant disclosures against the requirements of the accounting standards. For CGUs with indicators of impairment: • We considered the appropriateness of the value in use method applied by the Group to determine recoverable amounts, against the requirements of the accounting standards. • We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. • We compared the forecast cash flows contained in the value in use models to Board approved forecasts. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models by comparing them to financial results achieved in the current year. • We considered the sensitivity of the models to changes in key assumptions, such as forecast growth rates and discount rates, within a reasonably possible range, to identify those CGUs at higher risk of impairment, or those assumptions at higher risk of bias or inconsistency in application, in order to focus our further procedures. • We challenged the Group’s forecast cash flow and growth assumptions in light of the expected continuation of depressed Lovisa Holdings Limited Annual Report - 30 June 2024 P / 90 S I G N E D R E P O R T S We involve our valuations specialists with the assessment. Given the extensive number of CGUs, the Group performs many individual impairment assessments. The models are largely manually developed, and use adjusted historical performance and a range of internal and external sources as inputs to the assumptions as the basis to estimate forecast cash flows. The selection of these forward-looking assumptions is potentially prone to greater risk for bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions. consumer spending. We compared forecast growth rates, including those implicit in the year 1 forecast cash flows, to published studies of industry trends and expectations, and considered differences for the Group’s operations. We used our knowledge of the Group, its past performance, business and customers, and our industry experience. • We checked the consistency of the growth rates for the respective CGUs to external indices, past performance of the Group, and our experience regarding the feasibility of these in the industry and economic environment in which they operate. • Working with our valuation specialists, we independently developed a discount rate range for each CGU subject to recoverable amount determinations using publicly available market data for comparable entities, adjusted by risk factors specific to the individual CGUs and the retail sector they operate in, and compared them with the rates used by the Group. • We recalculated the impairment charge and compared it to the amount recorded by management. • We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Lovisa Holdings Limited’s annual report which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do 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. Lovisa Holdings Limited Annual Report - 30 June 2024 P / 91 Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report in accordance with the Corporations Act 2001, including giving a true and fair view of the financial position and performance of the Group, and in compliance with Australian Accounting Standards and the Corporations Regulations 2001 • implementing necessary internal control to enable the preparation of a Financial Report in accordance with the Corporations Act 2001, including giving a true and fair view of the financial position and performance of the Group, and that 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 the 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. S I G N E D R E P O R T S Lovisa Holdings Limited Annual Report - 30 June 2024 P / 92 Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Lovisa Holdings Limited for the year ended 30 June 2024, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities 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 2024. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Trent Duvall Partner Melbourne 26 August 2024 S I G N E D R E P O R T S Lovisa Holdings Limited Annual Report - 30 June 2024 P / 93 S I G N E D R E P O R T S KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 2024 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Trent Duvall Partner Melbourne 26 August 2024 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 94 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 95 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 96 A S X I N F O M A T I O N Lovisa Holdings Limited Annual Report - 30 June 2024 P / 97 A S X I N F O R M A T I O N 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 (4th 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 30 August 2024 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 30 AUGUST 2024) SUBSTANTIAL SHAREHOLDERS The number of shares held by substantial shareholders and their associates are set out below: Shareholder Number BB Retail Capital Pty Ltd 43,207,500 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 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 Number of equity security holders Units % of Issued Capital 1 - 1,000 8,743 2,740,788 2.50 1,001 - 5,000 2,367 5,252,799 4.79 5,001 - 10,000 276 2,037,789 1.86 10,001 - 100,000 218 5,588,818 5.09 100,001 and over 29 94,090,364 85.76 Total 11,633 109,710,558 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares is 260. A S X A D D I T I O N A L I N F O R M A T I O N Lovisa Holdings Limited Annual Report - 30 June 2024 P / 98 A S X I N F O R M A T I O N Securities Exchange The Company is listed on the Australian Securities Exchange. The Home exchange is Sydney. Other information Lovisa Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Twenty largest shareholders The names of the twenty largest holders of quoted equity securities are listed below: Name Number of ordinary shares held Percentage of capital held BB RETAIL CAPITAL PTY LTD 43,207,500 39.38 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 12,786,171 11.65 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 12,416,946 11.32 CITICORP NOMINEES PTY LIMITED 11,913,111 10.86 BNP PARIBAS NOMINEES PTY LTD 2,638,197 2.40 VICTOR HERRERO AMIGO 2,090,528 1.91 NATIONAL NOMINEES LIMITED 1,567,404 1.43 BNP PARIBAS NOMS PTY LTD 1,394,838 1.27 COLOSKYE PTY LIMITED 1,153,005 1.05 MRS VANESSA LOUISE SPEER 927,460 0.85 TRUEBELL CAPITAL PTY LTD 690,000 0.63 MARICH NOMINEES PTY LTD 486,361 0.44 BNP PARIBAS NOMINEES PTY LTD 395,769 0.36 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 270,925 0.25 MOORGATE INVESTMENTS PTY LTD 192,725 0.18 CLYDE BANK HOLDINGS (AUST) PTY LTD 190,006 0.17 CITICORP NOMINEES PTY LIMITED 184,961 0.17 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 178,523 0.16 BNP PARIBAS NOMINEES PTY LTD 169,287 0.15 STORNOWAY NOMINEES PTY LTD 145,000 0.13 Total 92,998,717 84.77 Balance of register 16,711,841 15.23 Grand total 109,710,558 100.00 Number on issue Number of holders Options and performance rights issued under the Lovisa Holdings Ltd Long Term Incentive Plan to take up ordinary shares 1,355,084 5 Lovisa Holdings Limited Annual Report - 30 June 2024 P / 99 N O T E S Lovisa Holdings Limited Annual Report - 30 June 2024 P / 100 N O T E S Lovisa Holdings Limited Annual Report - 30 June 2024 P / 101 N O T E S 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 7042 6440 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

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