Ladies and gentlemen, thank you for standing by, and welcome to the Lovisa Holdings Annual General Meeting. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Mr. Brett Blundy, Chairman for Lovisa Holdings. Thank you. Please go ahead.
Ladies and gentlemen, I welcome you to the Lovisa Holdings 2020 Annual General Meeting. My name is Brett Blundy, and I am the Chairman of the company. It's now 4:30 P.M., and I have been advised that there is a quorum present, and I declare the annual general meeting of the shareholders open. In light of the restrictions imposed as a result of COVID-19, we have been required to hold this meeting virtually. Every effort has been made to ensure that this virtual meeting runs smoothly. We have published on our website and on the ASX an online guide which explains how to attend and participate in this AGM virtually. If I do encounter any technical difficulties and I am unable to continue as the chair of the meeting, my fellow director, and thanks, Jim, James King will take over as chair of the meeting until I'm able to reconnect.
The board has temporarily appointed Jim as deputy chair for this purpose, and the appointment will end at the conclusion of this meeting. If we encounter any technical difficulties which result in us being unable to continue the meeting, I will adjourn the meeting for 30 minutes, after which we will reconvene. If the meeting is unable to be reconvened, we will adjourn the meeting to a time and place to be announced and lodge an ASX release setting out the next steps. I'd like to take the opportunity to introduce to you my fellow directors. They're all present for the meeting via the telephone today. Shane Fallscheer, who is our very able Managing Director. James King, Non-Executive Director. Tracey Blundy, Non-Executive Director. Sei Jin Alt, who is our Non-Executive Director and U.S.-based. John Charlton, a Non-Executive Director.
I'd like to thank all the directors for their work through the course of the year, particularly through this COVID-19 period. We also have present our company secretary and financial officer, Chris Lauder. Chris will read out any questions raised during the meeting. As well, we have Rachel Milum, who is our company's auditor and partner at KPMG. Traditionally, the chairman presents an address at the AGM, and the managing director would then present an operational update. However, given the virtual format of this meeting, we have taken a different approach this year. An operational and trading update was lodged this morning on the ASX. It contains an update on our current trading conditions, and therefore I don't intend to formally present this update at the meeting today. I would like now to outline the procedures for this meeting.
Voting on the resolutions will be conducted by way of a poll using the electronic voting card that you all should have received after clicking the Get a Voting Card button. Shareholders can submit written questions during the meeting by clicking on the Ask a Question button, I do encourage shareholders who have questions to submit them as soon as possible. If you do have any trouble using the platform, please check the online portal guide on our website or contact the help lines that are shown on your screen. We will now deal with the formal business as set out in the notice of the meeting. At the close of the formal business, my fellow directors and I will answer any general questions already submitted as well as those submitted during the course of the meeting.
There are five items of business on the agenda today, as we set out in the notice of the meeting, as well as the sixth item of business in relation to a contingent spill resolution. I will introduce each separately and then answer any specific questions from shareholders in relation to that item of business. After any discussion on the item, I will advise the proxy votes. The proxy votes have been submitted, will be set out in the slides shown for each resolution. Valid proxies have been received from the shareholders representing 82,498,888, with being 76.8% of the company's issued capital voting either for, against, or with the discretion for all resolutions.
As indicated on the proxy form and in the notice of meeting, my intention as chair is to vote all discretionary or undirected proxies held by me in favor of each resolution, with the exception of item 6, which I intend to vote against. Our share registry provider, Link Market Services, will conduct the voting by way of poll, and Saxton Tokay of Link will act as returning officer. Votes will be counted after the end of the meeting and results published on both the ASX and the Lovisa websites. Shareholders can cast their vote using the electronic voting card received after validating online registration. To validate registration, you'll be asked to enter your security holder reference number or holder identification number, plus postcode if you're in Australia, or country if you're outside of Australia. To cast your vote, click the Get Voting Card button.
If you are intending to vote, you'll be able to finalize and submit votes up to five minutes after the meeting ends, and I will remind you of that at the end of the meeting. The first item of business is to receive and consider the financial report of the company for the year ended 28th of June 2020, together with the directors' report and the auditors' report. Chris, have we received any specific questions in relation to the financial statements?
No, Brett. No questions at this point.
Thank you. As there are no further questions in relation to the financial statements, we shall now move to the next item of business. Item two. It relates to the adoption of the remuneration report. The remuneration report, which sets out the directors' and executives' remuneration for the financial year ended 28th of June 2020 must be submitted for adoption by shareholders. The remuneration report forms part of the directors' report and is set out in the annual report. The board supports the adoption of the remuneration report and recommends that shareholders vote in favor of this resolution. Chris, have we received any specific questions in relation to the remuneration report?
No, Brett. No questions specifically on this item of business. Basically, yes, there's no question. The proxy vote should be on the screen now. Over to you, Brett.
Thank you. I now propose resolution two as set out in the notice of the meeting and put the motion to a vote. If you haven't already done so, please cast your vote now. We will now move to the next item of business. Item 3A relates to the election of Mr. John Charlton as director of the company. John was appointed as a non-executive director of the company on the 26th of August 2020 and is an independent director. Under the company's constitution, a director who is not the managing director must stand for election at the first annual general meeting following their appointment. Accordingly, John retires as a director at the conclusion of the meeting and being eligible, offers himself up for election. John is a career retailer. He brings to Lovisa over 38 years of experience in retail operations.
He was previously the founder and the owner of Spendless Shoes, a company that he grew to 248 stores, as well as a successful online business. He recently sold that business. He has also served on the council of Wilderness School for 12 years, seven years of that as chair, St Peter's College for five years, and is currently a member of the Finance and Infrastructure Committee at the University of Adelaide. The board, excluding John, supports the election of Mr. Charlton and recommends that shareholders vote in favor of the resolution. Chris, do we have any questions specifically to the appointment of John?
No, Chairman. No questions at this point.
Thanks, Chris. I can confirm the company has received the following valid proxy votes in relation to the resolution. They will be shown on the screen. I now propose resolution 3A as set out in the notice of the meeting. I put the motion to a vote. If you haven't already done so, please cast your vote now. We'll move to the next item of business. Item three B relates to the re-election of Tracey Blundy as director of the company. Tracey was appointed as non-executive director of the company on the 6th of November 2014 and is an independent director.
Under the company's constitution, a director who is not the managing director may not hold office without re-election beyond a third annual general meeting at which the director was last elected and re-elected. Accordingly, Tracey retires as a director at the conclusion of this meeting and being eligible, offers herself for re-election by the shareholders at this AGM. The board supports the re-election of Tracey and recommends that shareholders vote in favor of this resolution. Chris, have we received any specific questions in relation to Tracey's re-election?
No, Chairman, no questions at this point.
I can confirm that the valid proxies will be on your screen that we have received validly in relation to this resolution. I now propose resolution 3B as set out in the notice of meeting and put the motion to a vote. If you haven't already done so, please cast your vote now. We will now move to the next item of business. Item four. Item four relates to renewal of the proportional takeover approval provisions. The company's constitution currently contains provisions dealing with proportional takeover bids for Lovisa shares in accordance with the Corporations Act. The provisions which are contained in Rule 6 of the company's constitution are designed to assist shareholders to receive proper value for their shares if a proportional takeover bid is made for the company. Under the Corporations Act, these provisions must be renewed every three years, or they will cease to have effect.
As these provisions were last renewed at the annual general meeting on the 31st of October 2017, the proportional takeover provisions must be reinserted at this AGM in order to apply to any future proportional takeover offers. If these provisions are reinserted by shareholders at the meeting, they will be in exactly the same terms as Rule 6 of the company's constitution and will operate for three years from the date of the AGM. Further detail on the effect of the proportional takeover provisions, the reasons for the renewal, and the potential advantages and disadvantages of the proportional takeover provisions in the company's constitutions are contained in the explanatory statement accompanying the notice of the meeting. The board does support the renewal of the proportional takeover approval provisions and recommends that shareholders vote in favor of this special resolution. Chris, any questions with regard to the takeover approval provisions?
No, Chairman, no questions on this item of business. Thank you.
I can confirm the company has received the following valid proxies that should appear on your screen. I now propose resolution 4 as set out in the notice of meeting and put the motion to a vote. If you haven't already done so, please cast your vote now. We will move to the next item of business. Item 5. Item 5 relates to approval of grant of securities to the managing director. The details of the grant are detailed in the explanatory statement accompanying the notice of the meeting. The board, excluding Shane Fallscheer, supports the grant of securities and recommends that shareholders vote in favor of this resolution. Chris, do we have any questions in relation to the Managing Director's long-term incentives grant?
No, Chairman, no questions at this point.
Thanks, Chris. I can confirm that the company has received the valid proxy votes in relation to this resolution, which should appear on your screen. I now propose resolution five as set out in the notice of meeting and put this motion to vote. If you haven't already done so, please cast your vote now. We will now move to the next item of business. Item six. As a result of the strike received against the company's remuneration report last year, and therefore the potential for a second strike this year, the company is required to undertake the contingent spill resolution included in the notice of meeting.
If this resolution is passed and becomes effective, then it will be necessary for the board to convene a special general meeting of the company, known as a spill meeting, within 90 days of today's meeting in order to consider the composition of the board. If a spill is required, the date of the meeting will be notified to shareholders in due course. If a spill meeting is held, all directors of the company, with the exception of the managing director, Shane Fallscheer, will automatically vacate office at the conclusion of the spill meeting unless they are willing to stand for re-election and are re-elected at that meeting. I can confirm the company has received the following valid proxy votes in relation to this resolution.
They should be shown on your screen. I now propose resolution six as set out in the Notice of Meeting and put the motion to a vote. If you haven't already done so, please cast your vote now. As you can see from the voting in relation to the Remuneration Report earlier, it is unlikely that a second strike will be received, and therefore unlikely that the outcome of this resolution will be of any consequence. We have now dealt with all items of the business as set out in the Notice of Meeting. I now declare that the polls in respect of each item of business will be closed at the time, which is five minutes after the time the meeting is closed. Formally ask Link Market Services as Returning Officer to count the votes at the expiry of that period. Thank you.
I will now address general questions raised by our shareholders, both in advance of and during the meeting, to the extent that we have not already covered them. Our Company Secretary, Chris Lauder, will read the questions and I will provide a response, or where relevant, I will hand over to my fellow directors to answer. Over to you, Chris, for any questions, please.
Thanks, Brett. The first question comes from shareholder James McCauley. The question is, "Chairman, would you kindly share your views on the size of the U.S. and EU opportunity for Lovisa, and what are the major challenges/risks in realizing this opportunity?
Thanks, James. The potential for Lovisa generally is really quite an extraordinary opportunity that we have for growth in our stores, both our online stores and our offline stores. The size of the U.S. market, without a doubt, will be our most important market in time, both from a size and profitability. Europe, of equal importance. We have multiple opportunities in Europe across multiple countries. We will continue to advance trials in countries. I also would extend that answer, not only the U.S. and Europe are vitally important and represent spectacular opportunities well into the future. We also have other parts of the country that are equally important. Asia has magnificent opportunities. South America, we would eventually see great opportunities there. Really, the world presents great opportunities where we have limited competition and a demand from our customers.
The summary is, the world has vast opportunities, which rest assured we are chasing as rapidly and sensibly as we can. Thanks for the question. Any more questions, Chris?
Yes, there is. Another one from James McCauley. "Chairman, would you please also discuss the online opportunity and in particular the change in approach that has seen recent success versus previous attempts to build an online business?
James, we have a market strategy of digital first. Online is critically important to all retailers. Lovisa is the same. The difference that we have now is the scale that was a little different to our earlier start of our success on online. There is no doubt that online will continue to grow. We are putting enormous effort into that. Investment has a high focus digitally. Customers really enjoy the multi-approach. Those things that many people are aware of, click and collect, click and dispatch, give us an enormous advantage. The amount of stores that we have, the way in which we collect data through our physical stores that assist digital. These are really important considerations for our strategy. We are growing at a very rapid rate and will continue to do so into the future. Thanks.
Okay. The next question comes from shareholder Peter Caliero. The question is, "Regarding the reopening of stores in Melbourne, now that Lovisa is no longer eligible for JobKeeper, what has happened to the staff in Melbourne? Have they been stood down without pay, been told to apply for the lower rate JobSeeker, or are partially paid by Lovisa?
Thanks for the question. Peter, I might ask Shane Fallscheer to give some commentary to that question.
Sure. Happy to talk to it. I just want to remind everyone, across all of the markets we operate around the world. This year, calendar year has been hard on everyone, and obviously there's been a global impact to our team globally. Around the world, at a more broader space, some markets when stores are being closed, Lovisa's subsidized team salaries. Some markets we've accessed government funding on the team's behalf. Other markets the team have unfortunately needed to rely on some government interaction directly with the individual to ensure that they have some income. In Melbourne, more recently, as the JobKeeper's dropped away, we've endeavored to find roles and keep as many team paid as normal. However, some team have had to rely on government funding whilst the stores are closed. Obviously we're looking forward to getting our stores reopened as soon as possible.
Thank you, Shane. Chris, any more questions?
The next question is from Robin Burrows from the Australian Shareholders' Association. Last year there was a 32.5% vote against adoption of the remuneration report. Has this meaningful vote generated any specific corrective action by the board?
Thanks for the question, Robin. I think, of course, 32% strike against us was considered strongly by the board. The policy and the way in which we approach remuneration is collectively about what we have to do to achieve the opportunities that Lovisa has before it, how do we attract the caliber of team and leadership that we need to execute on the great opportunities that Lovisa has around the world. Importantly, I'd note that we consider ourself and need to consider ourself as a global business. We are not a Melbourne-centric or Australian-centric business. We are a global business, and as a result, compete in the global market for leadership. That's important that we continue to do that.
We are really guided by what we need to do, what the market is doing, and the balance of the competency that we need and the price that we need to pay to not only attract but keep the quality of management we need to deliver a global business that operates across multiple time zones, that requires extraordinary travel, and does require extraordinary commitment to continue to grow at the rate that we have grown, and we would like to see that continue. They're all the things that we balance when considering the way in which we should reward our senior team. Thank you for the question. Chris, any more questions?
The next question also comes from Robin Burrows from the Australian Shareholders' Association. The question is: Has there been any consideration of the appointment of an independent chairman?
No. Any more questions?
Yes. Next question is also from Robin Burrows from the Shareholders' Association. Last year, we raised the topic of the lack of a cyber risk policy statement and the potential risk related to the warehousing move from Hong Kong to China. Has there been any further consideration of these matters?
Shane, would you mind having a go at answering that question?
No problem. I just want to remind everyone that we currently operate our warehouse in China under a third-party agreement. That third-party agreement sits with one of the world's largest logistics providers. We're comfortable that as they run their systems in China and not ours, we're comfortable with their processes that are safeguarded as well as anyone could be safeguarded.
Thanks, Shane. Chris?
One more from Robin Burrows from the Australian Shareholders' Association. Would the managing director care to comment on the company total liabilities to total tangible assets ratio, which might be considered to be stretched possibly due to the recognition of operating leases as liabilities?
I think, would you like me to address that one, Chairman?
Yes, please, Chris.
Yep. Obviously you're correct in saying that the recognition of operating leases as liabilities has had an impact on the structure of our balance sheet. That is obviously an accounting change, an accounting adjustment. The overall
The economics of the business and the liquidity position of the business remain the same as they were prior to that accounting standard. As you would have seen from the balance sheet at the end of the financial year, we had a net cash position of around AUD 20 million and AUD 50 million of available facilities there to support the ongoing cash flow in the business. We're a highly cash-generative business. That stands us in a good position to get through the current challenging period that we've been through. Obviously, with all of our stores back trading, that cash flow is quite solid and we don't consider our balance sheet to be stretched at the current time. We actually consider it to be quite strong and stable.
Thanks, Chris. Robin, I'd probably like to supplement that because the change in the accounting standards has caused some confusion. Reiterate what Chris says, that the board considers that we have an excellent balance sheet that positions us very well to take advantage of the opportunities that I mentioned before, the strategy of growth that we have. Even though the previous year has been a tough year around COVID-19, we are in very good shape, not only as a company should be, but more importantly for Lovisa, we are in very good shape to be able to take on the expansion opportunities that Lovisa has before it. Hopefully, that would clarify the confusion that sometimes comes around the change in accounting standards. Thanks, Robin. Chris?
The next question comes from Peter Richardson, shareholder. It's along a similar line. The change in accounting standards for leases has had a significant impact on reported company debt and assets. Does this change affect the structure of commercial leases that are being negotiated or entered into?
Thanks, Peter. Short answer is no, that it hasn't changed the approach of how we are viewing lease and lease deals around the world. I would note that we expect that lease deals and cost of occupancy will get better over time. We should see an improvement on that. That is generally speaking across all countries we operate and those countries in which we are considering operating in next. Thanks for the question, Peter. Chris.
Last question, Chairman. Another one from James McCauley. How has COVID changed retail in your view? Has it changed the way Lovisa will do business moving forward?
James, the question around COVID-19 has certainly impacted the business. How has it changed us going forward? Currently, as we sit, all markets are, with the exception of Melbourne and three stores in Malaysia, are up and trading, and the trade is quite encouraging. It has certainly shifted the focus to digital, which we're in a good position to capture that. What happens once we get through COVID-19, get the vaccinations, and the world gets back to largely normal, doesn't change, in our view, the store rollout and the customers that are waiting for Lovisa to arrive around the world. It does not change our focus on being able to deliver digitally, market digitally, and use the stores and our digital sites working as one and together to satisfy the needs of the customers.
It may have accelerated our digital growth, but it doesn't change, in our view, the long-term strategy of digital and physical together and working together. I hope that gives you an understanding, James. Thank you for the question. Chris, no further questions?
No, that's all, Chairman.
I thank everybody for their questions and hope that that gives a better insight into Lovisa. Lovisa remains a wonderful company that is well managed, has huge opportunity in front of it, and we thank you all for your support. There are no further questions, that brings us to the end of the meeting. In a moment, I'll formally close the meeting. If you are intending to vote on the formal business of the meeting, you should now finalize and submit your votes as voting will close in five minutes' time. I mentioned earlier, the results of the voting will be released on the ASX once the votes have been counted after this meeting. I thank you all for your attendance. I thank you for the questions, and I formally declare the meeting closed. Thank you and goodbye.
Ladies and gentlemen, that does conclude today's conference call. We thank you all for your participation. You may now disconnect.