2019 Annual Report.
Sustainably feed all
Australians to help them lead
healthier, happier lives.
Coles acknowledges the Traditional Custodians of
Country throughout Australia and pays its respects
to elders past and present. We recognise their rich
cultures and continuing connection to land and waters.
Aboriginal and Torres Strait Islander peoples are
advised that this document may contain names and
images of people who are deceased.
All references to Indigenous people in this document
are intended to include Aboriginal and/or Torres Strait
Islander people.
Contents
3 Welcome to Coles
2019 performance
4
2019 highlights
5
6 Message from the Chairman
8 Managing Director and
Chief Executive Officer’s report
12 Our vision, purpose and strategy
14 How we create value
17 Sustainability overview
18 Sustainability highlights
20 Our financial and operating performance
29 Looking to the future
30 How we manage risk
35 Climate change
38 Corporate governance
45 Directors’ report
63 Financial report
104 Shareholder information
Forward-looking statements
This report contains forward-looking statements in relation to
Coles Group Limited ('Coles' or the 'Company') and its related
bodies corporate (together, the 'Group'), including statements
regarding the Group's intent, belief, goals, objectives, initiatives,
commitments or current expectations with respect to the
Group’s business and operations, market conditions, results
of operations and financial conditions, and risk management
practices. Forward-looking statements can generally be
identified by the use of words such as ‘forecast’, ‘estimate’,
‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’,
‘intend’, ‘outlook’ and ‘guidance’ and other similar expressions.
These forward-looking statements are based on the Group's
good-faith assumptions as to the financial, market, regulatory
and other relevant environments that will exist and affect the
Group's business and operations in the future. The Group
does not give any assurance that the assumptions will prove
to be correct. The forward-looking statements involve known
and unknown risks, uncertainties and assumptions and other
important factors, many of which are beyond the reasonable
control of the Group, that could cause the actual results,
performances or achievements of the Group to be materially
different from future results, performances or achievements
expressed or implied by the statements.
Readers are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements
in this report speak only as at the date of issue. Except as
required by applicable laws or regulations, the Group does not
undertake any obligation to publicly update or revise any of
the forward-looking statements or to advise of any change in
assumptions on which any such statement is based.
1914.
1914
The first Coles
variety store opens in
Collingwood, Victoria,
founded by George
James Coles and his
brother Jim.
1924
Coles’ first city store
opens in Bourke
Street, Melbourne.
1956
The first self-service store
opens in February.
1980s
Coles acquires a number
of liquor businesses,
including the Liquorland
and Vintage Cellars
brands.
1999
Online shopping is first
trialled by Coles in
23 Melbourne postcodes,
paving the way for the
current Coles Online
offering.
2006
Coles Myer Limited
becomes known as the
Coles Group after selling
its Myer stores to TPG
(formerly Newbridge
Capital) and the
Myer family.
2012
The flybuys brand and
program, originally
introduced in 1994,
is relaunched.
1939-1945
During World War II,
women manage the
stores as 90% of male
team members enlist
to fight.
1960
The first Coles
supermarket opens
in North Balwyn,
Victoria.
1985
Coles merges with
The Myer Emporium
Limited to create
Coles Myer Limited.
2003
Coles enters into an
Alliance Agreement
with Shell whereby
Coles operates the
Shell convenience and
fuel outlets. Coles then
establishes a nationwide
network of Coles Express
convenience stores.
2007
Coles Group (including
Coles, Kmart, Target
and Officeworks)
is acquired by
Wesfarmers Limited
and undergoes a period
of transformation.
2018
Coles Group demerges
from Wesfarmers
Limited, rejoining
the ASX as an
independently listed
company.
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1
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2019
Coles enters into
partnerships with Witron
and Ocado to develop
world-class, automated
distribution solutions.
2019.
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2
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3
Welcome to
Coles.
Our Vision
Become the most trusted retailer in Australia
and grow long-term shareholder value.
Our Purpose
Sustainably feed all Australians to help them
lead healthier, happier lives.
From our origins in 1914 as a variety store in Collingwood,
Victoria, Coles has grown to become a leading Australian retailer
and a household name.
Customers trust Coles, as part of the fabric of Australian society for
more than 100 years, to provide great value food and drinks.
We are known for our value, range and customer service through our
extensive store network and for providing online shopping solutions
across Australia.
Our vision to become the most trusted retailer in
Australia and grow long-term shareholder value is
underpinned by our purpose and our strategy.
We believe this will enable us to ‘Win in our second century’.
This is our first annual report after
rejoining the ASX as a listed company.
Welcome.
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4
Coles Group Limited 2019 Annual Report
5
2019 performance.
2019 highlights.
3.1%
sales growth1
87.7%
customer satisfaction
for Supermarkets
1.5%
Supermarkets
sales density growth
celebrated
105 years
in retailing
entered
Witron
partnership
113,000+
team members
$1.3bn
EBIT2
$520m
net debt
110%
cash realisation3
35.5c
dividends per share4
3pp
(percentage point)
improvement in
team member engagement
20.3%
reduction in Total
Recordable Injury
Frequency Rate3
$32.1bn
payments to suppliers
entered into a
New Alliance
Agreement
with Viva Energy
4,100+
Indigenous
team members
6.6m
active flybuys households
entered
Ocado
partnership
$19m
funding to food producers
through Coles Nurture
Fund since 2015
1. On a non-IFRS basis (excluding fuel sales and Hotels).
2. On a non-IFRS basis (excluding Hotels and Significant Items).
3. Refer to Glossary of terms on page 28 for definition.
4. Comprising a final dividend of 24.0 cents per share and a special dividend of 11.5 cents per share.
$3.7bn
cash taxes paid
established
Hotels and Retail
Liquor JV
with Australian Venue Co.
provided
$115m
community support
Coles Group Limited 2019 Annual Report
6
Message from
the Chairman.
James Graham
In this milestone year for the Company, it is
pleasing to see the energy and commitment of
our 113,000+ team members establishing such
a strong foundation for our future.
Coles has a proud history as an Australian company, having
started 105 years ago when G.J. Coles opened our first store in
Collingwood, Victoria. Since that time we have built upon the
principles he established of providing quality goods and customer
service and lowering the cost of living for Australian families.
During the period 2007 to 2018, Coles formed part of Wesfarmers
Limited. During this period, considerable transformation of the
business took place, facilitating its demerger in November 2018.
This was a significant and complex initiative and, on behalf of the
Board, I express my thanks to all of the Coles and Wesfarmers
team members who contributed to this successful outcome.
I would especially like to acknowledge and thank Wesfarmers
Chief Executive Rob Scott and Coles’ previous Managing Director
John Durkan for their substantial contribution and leadership
over many years of personal engagement.
Results
The Directors declared a fully franked dividend of 35.5 cents
per share, comprising a final dividend of 24.0 cents per share in
relation to the period 31 December 2018 to 23 June 2019 and a
special dividend of 11.5 cents per share in relation to the period
28 November 2018 to 30 December 2018 and 24 June 2019 to
30 June 2019. This dividend will be paid to shareholders on 26
September 2019.
Our focus
In our first period since listing on the ASX, a number of important
initiatives have been undertaken as we set our course for the
period ahead.
Team
Under the leadership of our new Managing Director and Chief
Executive Officer Steven Cain, we have established a leadership
team which is customer obsessed and committed to our vision of
becoming the most trusted retailer in Australia and growing long-
term shareholder value.
Our more than 113,000 team members are adapting to our
changing customer expectations and the opportunities offered
by new technology to improve our service delivery. The market
environment is dynamic and requires our identifying opportunities
early and adapting our operations, at pace.
With more than 2,400 outlets across our portfolio of Australian
supermarkets, liquor and convenience stores, we achieved total
sales revenue for the full year ended 30 June 2019 of $38,176m
and net profit after tax of $1,078m from continuing operations.
Portfolio
Two important initiatives in reshaping our portfolio have been
implemented since the demerger.
Firstly, through Coles Express, we have restructured our fuel
alliance with Viva Energy to better align our contributions
and incentives. From March 2019, Coles Express has offered
customers fuel through our Shell-branded service stations under
a commission agent model, and Viva Energy has set the price of
retail fuel. This has ensured that Coles Express can focus upon
its retail shop operations, which is a core competency.
Secondly, Coles Liquor has entered into a joint venture with
Australian Venue Co. (AVC) relating to the Spirit Hotels business
formerly operated by Coles and Coles’ associated Retail Liquor
business. This has allowed Coles to focus on management of its
retail liquor businesses operated through the Liquorland, First
Choice Liquor and Vintage Cellars brands. Again a much better
alignment, which allows Coles to focus on its core competencies.
Technology
In the fast-changing customer and competitive landscape, Coles
is investing in new technology and new strategic partnerships.
Since the demerger, Coles has entered into new long-term
commitments with global leaders in automated distribution
centres, online fulfilment centres, and digital software and
systems provision, to name but a few.
These investments in new technology and new partnerships
are, of necessity, long term and will progressively transform our
capacity to operate more quickly and more efficiently. These
commitments are substantial and, in many cases, have been
secured on a basis that provides Coles with exclusivity in the
Australian market for these new facilities.
Sustainability
We are committed to driving sustainability in all aspects of our
business as we set course for our second century.
Critical to our success is the social impact of our business through
investment in team and community. We are committed to being
a major employer of Indigenous Australians where, pleasingly, we
have seen our Indigenous team members grow from just 65 eight
years ago to more than 4,100 today. We have recently committed
to growing this number further to 5,500 by 2023.
Similarly, we are committed to making a difference in the
communities in which we live and work across Australia. We have
many wonderful community partnerships, including those with
SecondBite, where we donate unsold, edible food to Australians
in need, and where our food donated since the inception of our
partnership has exceeded 84 million meal equivalents; and
with Redkite, where we have supported directly and with our
customers the wellbeing of children with cancer and their families
in a way that is making a difference.
In 2015, Coles established the Nurture Fund to support small
and medium-sized Australian businesses to innovate and grow.
Through this fund, we have supported more than 50 producers.
We have also provided direct support in aid of drought relief, and
enabled producers to undertake projects to reduce the impact of
water scarcity.
Importantly, part of Coles’ DNA is ensuring that we address our
long-term environmental sustainability. With significant focus
across all aspects of our relationships with suppliers, our logistics
Coles Group Limited 2019 Annual Report
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Indigenous team member Tim is a qualified butcher at Coles Broome and has worked at Coles
for 15 years.
operations, our distribution centres, our stores, our energy
utilisation, packaging and our water usage, it is our aim to be the
most sustainable supermarket in Australia. We are determined
to contribute to
I
encourage you to review the details of these initiatives, which are
set out in our 2019 Sustainability Report.
improving environmental sustainability.
Future
As a significant Australian company, Coles is committed to
operating in a way that is transparent and builds trust with
its team, its customers and its community. We recognise the
increasing expectations of all our stakeholders whose support
and engagement is critical to our enduring success.
With the support of our Board and management team, I
look forward to the challenges ahead as we build upon the
contributions of all those who underpinned our first century. We
are encouraged by our early initiatives and customer responses
as an independently listed company and believe that we have
a strong team and a strong balance sheet to actively build our
business in this competitive environment.
James Graham AM
Chairman, Coles Group Limited.
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Coles Group Limited 2019 Annual Report
9
Managing Director and
Chief Executive Officer’s
report.
Steven Cain
'Winning in our second century'
For more than 100 years, the success of Coles has been built on
innovation that inspires our customers, and we are proud of the
contribution Coles has made to the Australian community and
economy. We are determined to make the second century of our
Company every bit as successful.
Our aim to at least maintain our market share in the medium
term is based on a practical and realistic assessment of the
highly competitive and rapidly changing retail landscape.
Costs in our business have been growing faster than sales in
recent times and this must be addressed as a matter of urgency.
With our Smarter Selling initiative we have set ourselves a gross
cumulative cost-out target of $1bn over four years and this will
be delivered through a simpler, streamlined organisation with
significant technology investments that will improve efficiency.
We are also pursuing new growth opportunities, including our
meat export business by building on the brand credentials we
have established in key Asian markets.
During the past year, our leadership team has reflected on our
history, our place in the market today, our role in the Australian
community and how we best secure success into the future. Our
refreshed strategy is outlined on the following pages.
I am extremely proud to be leading Coles at the
most exciting time in retailing history. It has been a
year of far-reaching change at Coles, not least our
demerger from Wesfarmers, rejoining the ASX as a
listed company in our own right, a new board and
a number of new appointments to the leadership
team. Importantly, one thing hasn’t changed
- the passionate dedication of our 113,000+
team members around Australia to serving our
customers and contributing to the communities in
which we live and work.
Our success is in our hands, and our team is acutely aware
that our pace of execution needs to increase as we rise to the
challenges ahead of us. Customer expectations and behaviours
are changing faster than ever. Whilst time-poor customers
demand healthier and more convenient solutions, there are
also many in Australia who are struggling to make ends meet
every week and we must continue to deliver better value and
keep prices low. It’s also clear that new international entrants,
rising costs of doing business and an ongoing shift towards
online shopping present potential headwinds. However, the
Australian food and beverage market is resilient and continues
to grow. The adoption of new technology and automation, and
analysing increasing amounts of data, present significant growth
opportunities for a business prepared to meet these challenges
head-on. Our strategy at Coles is to do just that.
Our vision
1
Become the most trusted retailer in Australia
and grow long-term shareholder value.
That’s why we have declared that our purpose is to ‘sustainably
feed all Australians to help them lead healthier, happier lives’.
We will deliver this by:
•
Inspiring customers through best-value food and drink
solutions to make lives easier;
• Smarter selling through efficiency and pace of change; and
2
• Winning together with our team members, suppliers and
communities.
Inspire customers
Coles will become a retailer that is truly customer obsessed.
Using our insights from more than one billion transactions each
year, we can make more informed decisions on our offer to
customers including the use of advanced analytics to support
better ranging decisions in our stores. We will continue to
focus on building customer trust in value via Own Brand and
an increased focus on Everyday Low Prices. Coles will become
the destination of choice for convenience and healthy solutions
with our Wellness Road health products, Nature’s Kitchen vegan
range and I’m Free From products, designed for customers with
allergies and intolerances, all launched over the past year.
We will lead in online shopping through a compelling digital
experience. In March, we entered into an exclusive partnership
with Ocado, a global leader in online grocery retailing, to launch
an end-to-end online shopping solution. The agreement will
provide Coles customers with a market-leading online customer
experience through Ocado’s proprietary applications. The deal
also includes two automated customer fulfilment centres, one in
each of Victoria and New South Wales, increasing capacity while
reducing cost to serve.
Smarter selling
Just as technology is transforming the retail industry landscape,
the needs and expectations of customers are also evolving
rapidly. We will tailor our offer through a new store format
strategy, which aligns store layouts to specific demographics.
New partnerships with global technology leaders in cloud
computing, artificial intelligence, digitalisation, warehousing and
online fulfilment will provide Coles with a suite of capabilities to
deliver the service customers want and will expect now and into
the future.
In January, we signed an agreement with Witron, a world leader in
automated warehousing, to develop two automated distribution
centres to be located in Queensland and New South Wales.
We have also partnered with SAP and Optus to improve our
systems and streamline our business, delivering a range of
benefits to improve the shopping experience and help make life
easier for our customers and team members.
1. Coles Southern Livestock Manager Stephen congratulates Gippsland cattle producers
Trevor and Carryn Caithness. The Caithness family is one of 16 Australian food producers who
will share $5m from the Coles Nurture Fund to help combat drought.
2. Our strategy includes making a positive difference for Australians and we have a long-
standing relationship with SecondBite.
A strategy is only a good strategy if it can be delivered and
executed well at pace. We are changing our ways of working at
Coles to become more agile, and we are investing in the new
skills we need to complement our existing ones.
Win together
We have an exceptional team at Coles, and they are dedicated
to executing our strategy to bring a great retail experience to our
customers. Their commitment is demonstrated in the ‘mysay’
team member survey, which this year recorded an increased
level of engagement during the year. It has been an exciting
journey sharing the vision and ambitions of our business with
team members at Coles. As further evidence of engagement, our
team member share offer was well supported. That’s a vote of
confidence in Coles’ future by the people operating the business.
We know that innovation is often best formulated through
partnerships, and we also know we are better together through
diversity. I like to think Coles has the most diverse team in
Australia, and we need to continue to celebrate that. We have
a modern workforce – we now have more Indigenous team
members than any other private sector employer in Australia,
and more women in senior management positions. The Coles
team also reflects Australia’s great multicultural diversity. This
diversity ensures the decisions we make are informed by many
different perspectives, which translates to better representation
of what our customers and other stakeholders want and need.
For Coles, trust is primarily about knowing that we’ll do the
right thing by team members, our customers, the community,
our partners and our shareholders. Safety is a priority for Coles.
Coles Group Limited 2019 Annual Report
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Proud moment
Our farmers believe that good-
quality beef doesn’t need
added hormones, and that’s
why all of our Own Brand fresh
beef is 100% Australian with
no added hormones.
Kelsey with
grain-fed beef at a cattle
property near Capella in
Queensland.
Coles Group Limited 2019 Annual Report
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There is nothing more important than everyone going home
safely at the end of the working day. I am delighted to report a
significant improvement in our safety performance. In FY19, our
total number of recordable injuries dropped by more than 700
compared to the previous year, an outstanding result.
At Coles we are all committed to helping the community and this
year contributions increased by 26% to $115m. Our relationships
with our major partners SecondBite and Redkite continue to
grow, helping provide meals for those in need and support for
kids with cancer.
associated Retail Liquor business. Under the joint venture, AVC
manages the day-to-day operations of Spirit Hotels and will
receive the economic benefit of this business. Coles manages
the day-to-day operations of the 243 retail liquor stores in
Queensland and the 10 retail liquor stores attached to Spirit
Hotels venues in Western Australia and South Australia and
will receive the economic benefit of this business. Our focus is
once again on our core business of retail, with our Retail Liquor
business now operating under the Liquorland, First Choice, First
Choice Liquor Market and Vintage Cellars brands.
Our financial position
Coles’ financial framework is aligned with our objective of
providing shareholders with sustainable earnings growth and
attractive dividends over the long term.
Coles is committed to maintaining a strong balance sheet and
credit metrics, sustainable cash flow generation and a disciplined
approach to capital allocation focused on growth and efficiency
initiatives while returning surplus capital to shareholders.
Statutory EBIT for the Group was $1,467m ($1,343m excluding
Significant Items) for the year. Increased EBIT from Supermarkets
and Liquor was more than offset by declines in Express from
lower fuel volumes, as well as Significant Items and additional
corporate costs associated with becoming a standalone ASX-
listed company. We also achieved a reduction in net debt during
the year despite a 38% increase in gross operating capital
investment to $893m.
Our financial performance for FY19 includes a number of
Significant Items, with the demerger and our transition to a
Retail calendar creating further complexity in the statutory
results. For FY19, the Retail (non-IFRS) calendar also covers a
53 week period.
In terms of segment performance on a retail basis, Supermarkets
continues to show resilience in an increasingly competitive
market, with 3.2% sales growth and total revenue of $30,890m
for the year. Pleasingly, Supermarkets EBIT returned to full year
growth for the first time in three years driven by higher sales
and improved gross margin. Within this result, Coles Online
also delivered strong sales growth of 30%. Our Liquor business
(excluding Hotels) achieved sales growth of 1.9% to $3,063m and
improvements in gross margin during the year.
Our target to realise $1bn in cumulative cost savings over four
years will be delivered through increased use of technology in
stores and across our supply chain, strategic sourcing, optimising
our store network and formats, and more efficient store support
centres. As a highly cash generative business, Coles aims to
achieve cash realisation greater than 100% each year.
Our new partnership arrangements
In February, a new 10-year Alliance Agreement was signed with
Viva Energy. Under this agreement Coles Express became a
commission agent – a strategic step that allows Coles Express
to focus on what we do best as we work to become the leading
Australian convenience retailer.
In March, we entered into an incorporated joint venture with AVC
for the ongoing operation of the Spirit Hotels business and the
Looking ahead
Very few organisations in this country can lay claim to a history
of more than 100 years, let alone in retail! As we embrace the
opportunities of the future, it is vital that we maintain the
customer focus and appetite for innovation that our customers
and stakeholders love about Coles. This energy and dynamism
will help us to deliver a second century of success for Coles.
I would like to thank the Board for their support through a year
of significant change and for applying their valuable skills and
insights to the important tasks of governance and setting our
future course.
I pay tribute to our team of more than 113,000 dedicated people
in stores, our distribution centres and our store support centres
who come to work every day to provide the best retail experience
possible for our customers.
To our more than 7,000 suppliers, we are grateful for your
ongoing support in delivering great quality food, drinks and other
products that inspire our customers and enable our businesses
to grow together.
To the millions of customers we serve every week, we are working
harder than ever to understand and meet your needs so that we
can earn your ongoing loyalty and help you live healthier, happier
lives with your friends and family.
To the Australian communities we operate in, we are committed
to making Coles the most sustainable supermarket - for the next
generation of Australians.
Finally to our approximately 460,000 shareholders, I thank you
on behalf of the Board and team for your ongoing support as
we strive to increase long-term shareholder value in our great
Australian company. We have made a solid start to our four year
transformation program but we recognise there is still much to do!
Steven Cain
Managing Director and Chief Executive Officer, Coles Group
Limited.
Coles Group Limited 2019 Annual Report
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Our strategy
Three pillars underpin our strategy: Inspire customers, Smarter selling and Win together.
Coles Group Limited 2019 Annual Report
13
Our vision, purpose
and strategy.
Our vision.
Become the most trusted retailer in Australia
and grow long-term shareholder value.
Our purpose
Sustainably feed
all Australians
to help them
lead healthier,
happier lives.
Smarter selling
through efficiency
and pace of change.
Win together
with our team
members, suppliers
and communities.
Inspire customers
through best value
food and drink
solutions to make
lives easier.
Our LEaD behaviours
Look ahead
Energise
everyone
Deliver
with pride
We will Inspire customers through best value food and
drink solutions to make lives easier. This means being customer
than
obsessed, where we know our customers better
anyone else. We will take the stress out of
for
dinner tonight?’ by tailoring our offer with trusted and
targeted value,
inspiring Coles Own Brand products, being
a destination for convenience and health, leading anytime,
anywhere shopping and accelerating growth through new markets.
‘what’s
Coles Own Brand is the portfolio of product brands owned by
Coles. All Own Brand products are exclusive to Coles and only
available to Coles customers. We go to great lengths to ensure
they are compelling, great value and loved by our customers.
Our partnership with Ocado, a global leader in online shopping solutions, will provide our
customers with a market-leading online customer experience.
We need to Win together with our team members, suppliers and
communities to help make a positive difference for all Australians.
We will continue to build a great place to work, where we are
better together through diversity, and have wellbeing and safety
in our DNA. To drive generational sustainability, we will focus on
building sustainable communities, delivering sustainable products
and using sustainable environmental practices. Coles strives to be
recognised as an employer of choice by building and retaining a
diverse team, acting sustainably on behalf of our customers and
rapidly driving innovation through a culture of collaboration.
Wellness Road is a Coles Own Brand product. Own Brand products are sourced ethically and
responsibly with a focus on protecting human rights and animal welfare.
Smarter selling through efficiency and pace of change will
enable us to invest in the areas that matter for our customers.
We will take a more disciplined approach to operating costs, with
a gross cumulative cost reduction target across the business
of $1bn by FY23. The retail world is rapidly changing. To keep
pace we will be creating agile ways of working to deliver changes
faster. We will be technology-led across our stores and supply
chain to provide safe, high quality products at the best price to
our customers. We will optimise our existing store network and
work more efficiently at our store support centres.
We strive to make Coles a great place to work by attracting, engaging and retaining talented
team members like Joe and Todd, pictured at Coles Mernda, Victoria.
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
15
How we
create value.
We are driven by our purpose to…
sustainably feed all Australians to help them
lead healthier, happier lives
…which means we need to consider our social and environmental
impacts in all that we do.
Our vision is centred on earning the trust of Australians and creating
long-term shareholder value. For Coles, trust is primarily about
being reliable and responsible. It is also recognising that we have a
significant responsibility as a food provider.
Customers tell us that they want to shop with a company that does
the right thing by farmers and suppliers. Customers are seeking to
purchase products that have been sourced responsibly and ethically,
without compromising on food safety, quality or nutrition.
Sustainability at Coles is broader than environmental management.
It is about the way we treat people, the way we govern ourselves and
manage the impact of our business on society. We understand that
focusing on all these areas is not only the right thing to do,
it creates value for all our stakeholders.
Coles economic value creation
Suppliers
Team members
Shareholders
Governments
Community
$32.1bn
in supplier and
services spend
$4.5bn
payments and benefits
to team members
$473.5m
$3.7bn
$115m
total dividend payment
cash taxes paid
in community support
Farming and
production
Through our commitment
to Australian First sourcing
and long-term partnerships,
we are supporting Australian
farmers, growers and suppliers
who provide us with healthy,
quality products, sourced in a
responsible and ethical way with
a focus on protecting human
rights and animal welfare. Our
support includes the $50m
Coles Nurture Fund.
Nurture Fund
Packaging and
processing
Five Freedoms for
animal welfare
Freedom:
from hunger and thirst;
from discomfort;
from pain, injury or disease;
to express normal behaviour;
from fear and distress.
Innovation R&D
Our targets and commitment
to work with our suppliers on
sustainable Own Brand packaging
will make it easier for our customers
to recycle, including through our
soft plastics recycling program with
REDcycle, which is available in all
supermarkets. We help customers
make sustainable choices by
promoting country of origin labelling
and health star ratings.
Retail and store
network
We support local economic growth
through our investment in new stores and
infrastructure, while continuing to reduce
greenhouse gas emissions. We are driving
innovation to provide online grocery
and convenience shopping experiences
to make life easier for our customers.
We are committed to providing safe,
responsibly sourced, nutritious products
at competitive prices.
Coles Online
Convenience
Transport and
distribution
Working with our logistics partners, we are
reducing our environmental footprint through
more efficient fleet movements. Our quality
inspection program completes more than
200,000 fresh food checks annually to make
sure we are providing customers with quality,
safe products.
Team members
Customers and community
With more than 113,000 team members,
including the largest number of
Indigenous team members in Australia’s
private sector, our workforce reflects
the diversity of our customers and the
community. We strive for a safe and
inclusive workforce for all.
Through our community partnerships, we
are supporting Australians and reducing our
environmental impact. Our work with SecondBite
provides Australians in need with healthy,
nutritious food that might otherwise have gone
to waste. Disaster relief and business continuity
plans support customers and communities in
times of extreme weather events.
Coles Group Limited 2019 Annual Report
16
Proud moment
In FY19, Coles was awarded
the Marine Stewardship
Council’s Oceania Sustainable
Supermarket of the Year
for the third year in a row.
The award recognises that we
have the widest eco-labelled
fresh seafood range of any
Australian supermarket, with
all Own Brand seafood products
labelled according to the
methodology to which they
are certified.
BUDI from Australia Bay Seafoods,
supplier of Coles’ responsibly sourced
snapper off the coast of Darwin,
Northern Territory.
Coles Group Limited 2019 Annual Report
17
Sustainability
overview.
Our Sustainability Strategy has a key role in realising our purpose
to sustainably feed all Australians to help them lead healthier,
happier lives. Our credentials provide assurance that shopping
with Coles means making sustainable choices.
Understanding our key sustainability issues
During FY19, we assessed our environmental, social and economic
issues and impacts to identify the material aspects of sustainability.
This shaped our Sustainability Strategy and forms the basis of our
2019 Sustainability Report.
The sustainability issues that matter most to our stakeholders
are grouped under key focus areas:
Sustainable communities
Coles is supporting Australian farmers and suppliers and
contributing to the communities in which we live and work.
Sustainable products
Coles is committed to sourcing quality, healthy products in an
ethical and responsible way.
Sustainable environmental practices
Coles is reducing environmental impacts across our business.
Details of our performance across our key sustainability areas are
set out in our 2019 Sustainability Report. Our material economic,
environmental and social sustainability risks, including risks
associated with climate change, are also explained in How we
manage risk (refer to page 30).
Coles Group Limited 2019 Annual Report
18
Coles Group Limited 2019 Annual Report
19
Sustainability highlights.
Sustainable
communities
Sustainable
products
$16m
to provide drought relief
in FY19
Health stars on
1,900+
Own Brand products
at the end of FY19
114m meals1
donated to Australians
in need
550+
third-party ethical audits
conducted at supplier sites
Australian
First
sourcing policy
100%
Own Brand fresh lamb,
pork, chicken, beef,
milk and eggs sourced
from Australian suppliers
200,000+
quality checks
for allergens, imports,
and authenticity
in FY19
110 tonnes
of salt
150 tonnes
of sugar
removed from Own Brand
products in FY19
1. Total meal equivalents donated to SecondBite since 2011 and Foodbank since 2003.
Sustainable
environmental
practices
Removed
1.7bn
lightweight, single-use
plastic shopping bags
in FY19
Greenhouse gas
emissions
6% from FY18
(Scope 1 and 2)
74% waste
diverted from landfill
in FY19
REDcycle
soft plastics recycling
in all supermarkets
in FY19
We are proud of our responsible sourcing and animal welfare commitments.
Our approach and FY19 performance
In FY19, we set our Sustainability Strategy to focus on
sustainable communities, products and environmental practices.
In doing this, our Board, Executive Leadership Team and all team
members will work to achieve our ambition to be Australia’s most
sustainable supermarket.
During the year, with the assistance of our customers and
team members, we provided more than $115m in community
support. We worked with food rescue organisations to help
sustainably feed Australians and marked a special milestone
with the equivalent of 114 million meals donated to food charity
organisations.
We continued to build our credentials around sustainable Own
Brand products, particularly human rights in the supply chain,
with 97% of Own Brand direct suppliers registered on the global
ethical supply chain management platform Sedex and monitored
under the Coles Ethical Sourcing Program. For Own Brand, we
reduced sugar and salt, removed artificial colours and flavours,
and enhanced our animal welfare and responsibly sourced
seafood programs.
Plastic packaging was an important challenge during the year.
While packaging plays a key role in maintaining food safety,
supporting product longevity and reducing food waste, we are
continually looking for opportunities to further reduce packaging
and help drive more recyclable packaging in our supply chain. In
FY19, we removed 1.7bn lightweight single-use plastic bags.
We are committed to climate change mitigation and managing
its impacts on our business and operations. We have reduced
our carbon emissions by 36% four years earlier than targeted.
Solar is now installed on 30 supermarkets and in August 2019
we announced a 10-year agreement to purchase renewable
energy from three solar plants. As part of our commitment to
sustainable environmental practices, all Coles supermarkets and
distribution centres are now connected to programs diverting
food waste from landfill.
During the year, Coles joined the United Nations Global Compact,
committing to its 10 principles. This is an important platform for
driving corporate leadership and collective action.
We are making progress on our journey to drive generational
sustainability, supported by our dedicated team members, loyal
customers and committed suppliers. Looking ahead, our focus
will be on:
•
increasing the number of Indigenous team members to 5,500
including 500 in trade and leadership positions by 2023;
• achieving a year-on-year reduction in TRIFR;
• achieving 40% women in leadership positions by 2023;
• continuing to enhance our Ethical Sourcing Program to
protect human rights;
• maintaining our leading animal welfare and responsibly
sourced seafood programs;
• ensuring all Own Brand packaging can be recycled kerbside
or in store by the end of 2020;
• diverting 90% of waste from landfill by 2022 and further
reducing food waste; and
• developing and implementing new greenhouse emissions
reduction targets.
By doing this, we will continue to create long-term shareholder
value while delivering on our purpose to sustainably feed all
Australians to help them lead healthier, happier lives.
Coles Group Limited 2019 Annual Report
20
Coles Group Limited 2019 Annual Report
21
Our financial and operating performance.
Group performance highlights for continuing operations
Highlights
$ MILLION
Sales revenue
Supermarkets
Liquor
Express
Group sales revenue
EBIT
Supermarkets
Liquor
Express
Other
Significant Items
Group EBIT
Financing costs
Income tax expense
Profit after tax
Retail (non-IFRS)
Group sales revenue2
Group EBIT3
FY19
FY18
CHANGE
• Statutory sales revenue growth of 3.2% in Supermarkets and
30,992.6
3,204.8
3,978.4
38,175.8
1,191.4
133.1
45.8
(27.8)
124.2
1,466.7
(41.5)
(347.0)
1,078.2
30,018.2
3,180.8
5,735.4
38,934.4
1,171.9
130.2
164.0
13.3
-
1,479.4
(0.1)
(456.1)
1,023.2
3.2%
0.8%
(30.6%)
(1.9%)
1.7%
2.2%
(72.1%)
n/m1
n/m
(0.9%)
n/m
(23.9%)
5.4%
0.8% in Liquor
• Supermarkets EBIT returned to full year growth for the first
time in three years driven by higher sales and improved gross
margin
• 30% sales growth in Coles Online, generating $1.1bn in sales,
and achieving profitability for the first time in FY19
• Robust balance sheet with investment-grade credit metrics
• Net cash flows from operating activities increased by 19.1%
• The Board has declared a fully franked total dividend of 35.5
cents per share (details on page 21).
35,000.7
1,325.2
33,960.6
1,442.3
3.1%
(8.1%)
1 n/m denotes not meaningful.
2 On a non-IFRS basis (excluding fuel sales and Hotels).
3 On a non-IFRS basis (excluding Hotels and Significant Items).
Performance overview
Non-IFRS information
Sales revenue from continuing operations reduced by 1.9%
to $38,175.8m. Growth in Supermarkets and Liquor was offset
by lower sales revenue in Express driven by a decline in fuel
volumes and the move to a commission agent model under the
New Alliance Agreement, effective 1 March 2019. In accordance
with the terms of the New Alliance Agreement, Express no
longer recognises fuel sales revenue; however, it is entitled to
commission income (recognised in ‘other operating revenue’)
from fuel sold at Alliance sites.
Sales revenue growth in Supermarkets was achieved through
Coles Online, new stores and successful collectable campaigns,
including Little Shop.
Group EBIT from continuing operations reduced 0.9% to $1,466.7m
during the period ended 30 June 2019. This result was driven by lower
fuel volumes in Express, largely offset by EBIT growth in Supermarkets
from higher sales and improved gross margin.
This Annual Report contains non-IFRS financial information. IFRS
financial information is financial information that is presented
in accordance with all relevant accounting standard. Non-IFRS
financial information is financial information that is not defined
or specified under any relevant accounting standards and may
not be directly comparable with other companies' information.
Coles changed its statutory reporting calendar during FY19, on a
prospective basis, from a Gregorian calendar to a Retail calendar.
This will align Coles’ statutory reporting calendar with internal
management reporting.
The financial and operating performance in this section is
presented on a statutory (IFRS) basis. Results prepared on a
retail (non-IFRS) calendar basis have also been included to
support an understanding of comparable business performance.
Retail results have been prepared on a 52 week basis, beginning
25 June 2018 and ending 23 June 2019.
impacting EBIT for the year
Significant Items
include: a
restructuring provision of $145.8m relating to the Supply Chain
Modernisation program; a one-off payment of $137.0m from Viva
Energy in consideration for forgoing the retail fuel margin under
the New Alliance Agreement; and a net gain of $133.0m associated
with the establishment of the Queensland Venue Co. Pty Ltd
(QVC) joint venture with AVC.
Any non-IFRS financial information included in this section
is clearly labelled to differentiate it from statutory financial
information and is defined in the glossary on page 28. Non-
IFRS measures are used by management to assess and monitor
business performance at the Group and segment level and should
be considered in addition to, and not as a substitute for, IFRS
information. Non-IFRS information is not subject to audit or review.
Profit after tax for the Group increased 5.4% to $1,078.2m,
largely driven by lower income tax expense, partially offset by
higher financing costs as a result of the drawdown of external
borrowings post demerger. The lower income tax expense was
driven by the non-assessable accounting gain arising from the
establishment of QVC and the net credit to income tax expense
from reset of the tax cost base of the Group’s assets following
Coles’ decision to form an income tax consolidated group.
The presentation of non-IFRS measures is in line with Regulatory
Guide 230 issued by Australian Securities and Investments
Commission (ASIC) to promote full and clear disclosure for
investors and other users of financial information and minimise
the possibility of those users being misled by such information.
Coles Prahran store manager Steve with long-serving team members Graeme and Sabah, who have worked at Coles for 50 years and 35 years respectively.
Strategic highlights
Earnings per share and dividends
FY19 was a year of significant achievement for our team members,
shareholders, suppliers and community partners:
Earnings per share (EPS) increased to 80.8 cents, a 4.1 cent
increase from the prior year.
• ASX-listed following a successful demerger from Wesfarmers
• Strategic refresh to ‘sustainably feed all Australians to help
them lead healthier, happier lives’
• Entered into an exclusive partnership with Ocado to bring the
world’s leading online grocery website, two automated single
pick fulfilment facilities and home delivery solution to Australia
• Entered into a partnership with Witron to develop two world-
class automated distribution centres
• Strategic partnerships announced with Optus and SAP (HR
and Procurement systems) to accelerate technology-led
transformation of stores, support centres and supply chain
• Entered into a New Alliance Agreement with Viva Energy to
restore fuel growth
• Established an incorporated joint venture with AVC in relation
to Spirit Hotels and the associated Retail Liquor business
• Own Brand penetration reached 30% at year end with over
1,200 new products launched in FY19
• Commenced rollout of new store formats with Eastgardens
in New South Wales and Clayton, Ardeer and Surrey Hills in
Victoria
•
Improved team member safety and engagement scores
• Contributed $115m to communities and suppliers through
SecondBite, Redkite, Community Bags, FightMND, drought
relief and the Coles Nurture Fund.
Profit for the period from continuing operations
($ million)
FY19
FY18
1,078.2
1,023.2
Weighted average number of ordinary shares for basic
and diluted EPS (shares, million)
1,333.9
1,333.9
Basic and diluted EPS (cents)
80.8
76.7
The weighted average number of shares in FY18 has been
restated to reflect the change in Coles’ capital structure as a
result of the demerger from Wesfarmers, as if the change had
occurred at the beginning of FY18.
The Board has declared a fully franked total dividend of 35.5
cents per share (cps), comprising a final and a special dividend,
which covers the period from 28 November 2018 (being the
effective date of the demerger) to 30 June 2019.
DIVIDEND AMOUNT
PERIOD
(cps)
24.0
11.5
Final
Special
31 December 2018 to 23 June 2019
28 November 2018 to 30 December 2018 and
24 June 2019 to 30 June 2019
Total
35.5
28 November 2018 to 30 June 2019
Note: Wesfarmers paid an interim dividend in March 2019, which reflected in part Coles’
earnings up to and including 27 November 2018.
Coles Group Limited 2019 Annual Report
23
Proud moment
We believe you can’t rush
quality. It’s why we’ve
partnered with expert French
baker Laurent to create Coles
Finest 30 Hour Recipe Stone
Baked Sourdough using 100%
Australian flour.
Coles Group Limited 2019 Annual Report
22
Balance sheet
Cash flow
Key balance sheet accounts for the Group
Cash flows from continuing operations of the Group
$ MILLION
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Deferred tax assets
Other
Total assets
Liabilities
Trade and other payables
Provisions
Interest-bearing liabilities
Other
Total liabilities
Net assets
1 n/m denotes not meaningful.
30 JUNE 2019
30 JUNE 2018
CHANGE
$ MILLION
FY19
FY18 CHANGE
Cash flows from operating activities
940.4
359.7
1,964.7
4,119.2
1,540.6
364.9
487.5
686.1
497.2
37.1%
Receipts from customers
41,125.5
41,756.1
(1.5%)
(27.7%)
Receipt from Viva Energy
137.0
-
n/m1
3,442.3
(42.9%)
Payments to suppliers and employees
(38,664.6)
(39,351.4)
(1.7%)
5,223.0
(21.1%)
Interest (paid) / received
(28.6)
2.7
n/m
1,965.7
(21.6%)
Income tax paid
(293.9)
(497.5)
(40.9%)
540.3
190.1
(32.5%)
Net cash flows from operating activities
2,275.4
1,909.9
19.1%
156.4%
Net cash flows used in investing activities
(279.8)
(502.5)
(44.3%)
9,777.0
12,544.7
(22.1%)
Net cash flows used in financing activities
(1,611.2)
(1,237.0)
30.3%
Net increase in cash and cash equivalents
384.4
170.4
125.6%
8,008.5
(57.8%)
1n/m denotes not meaningful.
3,379.9
1,341.3
1,460.0
238.7
6,419.9
3,357.1
1,091.7
-
194.9
22.9%
n/m1
22.5%
9,295.1
(30.9%)
3,249.6
3.3%
Net cash flows from operating activities increased by 19.1%
to $2,275.4m. This was largely driven by the one-off payment of
$137.0m from Viva Energy and a tax timing benefit due to the clear
exit from the Wesfarmers’ Australian income tax consolidated
group prior to demerger.
Net cash flows used in investing activities decreased by 44.3%
to $279.8m driven by proceeds associated with the transfer of
KTO to Wesfarmers and the net cash received from the sale
of Spirit Hotels. This was partially offset by an increase in net
capital expenditure during the year from increased investment in
efficiency initiatives and the store renewal program.
Cash and cash equivalents growth of 37.1% to $940.4m largely
reflects increased cash on deposit. Trade and other receivables
reduced by 27.7% to $359.7m, largely due to the settlement of
intercompany balances prior to the demerger from Wesfarmers.
The reduction in inventories, property, plant and equipment,
deferred tax assets and intangible assets is largely the result of
the transfer of Kmart, Target and Officeworks (KTO) to Wesfarmers
as part of the corporate restructure associated with the demerger.
Net cash flows used in financing activities increased by 30.3%
to $1,611.2m largely driven by repayment of borrowings from
Wesfarmers prior to demerger, partially offset by net proceeds
from the drawdown of new external borrowing facilities.
The increase in other assets is driven by the Group’s equity
accounted investment in QVC.
Trade and other payables reduced by 57.8% to $3,379.9m
driven by the transfer of KTO and the repayment of intercompany
borrowings from Wesfarmers prior to demerger. The increase
in provisions of 22.9% to $1,341.3m largely reflects the Group’s
self-insurance liabilities, which were previously recognised by
Wesfarmers prior to demerger. Provisions at 30 June 2019 also
include the $145.8m restructuring provision associated with the
Supply Chain Modernisation program.
Capital management
Interest-bearing liabilities of $1,460.0m reflect Coles’ external
borrowings. At the time of the demerger, Coles drew down
$2,000.0m from its initial $4,000.0m committed debt facilities.
Since then part of this debt has been repaid, taking gross debt to
$1,460.0m as at 30 June 2019. The repayment of debt is a result of
strong cash generation during the period, together with proceeds
received from the New Alliance Agreement and the sale of Spirit
Hotels. As at 30 June 2019, the average debt maturity was 4.6
years, with undrawn facilities of $2,210.8m.
The leverage ratio as at 30 June 2019 was 0.5x with current published
credit ratings of BBB+ with Standard & Poor’s and Baa1 with Moody’s.
Borrowing costs for the period from 28 November 2018 to 30 June
2019 averaged approximately 2.9% per annum.
Review of operations
Employing more than 113,000 team members, Coles is a leading
Australian retailer, with over 2,400 retail outlets nationally,
providing customers with everyday products including fresh food,
groceries, general merchandise, liquor, fuel and financial services
through its store network and online platforms.
Following its demerger from Wesfarmers, Coles was listed on the
ASX as an independent company on 21 November 2018.
The Group’s reportable segments are set out below:
•
•
•
fresh
food, groceries and general
Supermarkets:
merchandise retailer across a national network of 821
supermarkets, including Coles Online and Coles Financial
Services
Liquor: liquor retailer with 910 stores nationally under the
brands Liquorland, First Choice, First Choice Liquor Market
and Vintage Cellars, including online liquor delivery services
through Coles Online and Liquor Direct
Express: convenience store operator and commission agent
for retail fuel sales across 714 outlets nationally.
Coles is a 50% shareholder of flybuys, one of Australia’s most
popular loyalty programs with over eight million members,
covering 6.6 million active households. flybuys, as well as other
business operations that are not separately reportable, such as
Property, as well as costs associated with enterprise functions, such
as Treasury, are included in Other on page 28.
Coles Group Limited 2019 Annual Report
24
Supermarkets.
Segment overview
$ MILLION
Sales revenue
EBIT
EBIT margin (%)
Retail (non-IFRS)
$ MILLION
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)
Operating metrics (non-IFRS)
Comparable sales growth (%)
Customer satisfaction1 (%)
Inflation / (deflation) excl. tobacco and fresh (%)
Sales per square metre2 (MAT $/sqm)
FY19
30,992.6
1,191.4
3.8
FY19
30,889.8
1,735.3
1,182.9
24.8
(20.9)
3.8
FY18
30,018.2
1,171.9
3.9
FY18
29,919.2
1,714.1
1,156.9
24.6
(20.7)
3.9
CHANGE
3.2%
1.7%
(6bps)
CHANGE
3.2%
1.2%
2.2%
20bps
(24bps)
(4bps)
FY19
(52 WEEKS)
2H19
(25 WEEKS)
1H19
(27 WEEKS)
2.7
87.7
(1.2)
16,704
2.3
87.7
(1.2)
16,704
3.0
87.7
(1.2)
16,533
1 Based on Tell Coles data. See glossary on page 28 for explanation of Tell Coles.
2 Sales per square metre is a moving annual total (MAT) or exit rate calculated on a rolling 12 months of data basis.
Highlights
Statutory sales revenue increased 3.2% on the prior year to
$30,992.6m driven by Coles Online, new stores and successful
collectable campaigns, including Little Shop in the first quarter
and Fresh Stikeez in the third quarter. Inflation also started to
increase, impacted by drought conditions in Australia.
On a Retail calendar basis, sales increased by 3.2% to
$30,889.8m, with comparable sales growth of 2.7%. For the
fourth quarter, Supermarkets sales revenue increased by 3.0%
and comparable sales growth was 2.2%, the 47th consecutive
quarter of positive comparable sales growth. Comparable
sales growth for the year was largely driven by basket size.
Transaction growth also showed signs of improvement since
the beginning of the second quarter.
Sales growth for the year was recorded across all states; and
category growth was particularly strong in bakery, meat and dairy.
flybuys also had a positive impact on customer engagement
and sales, with flybuys membership reaching record highs in the
fourth quarter with 6.6 million active households.
Coles continued to invest in lowering prices for its customers
which saw deflation, excluding tobacco and fresh, of 1.2% for
FY19. Adverse weather conditions throughout the year, most
notably the drought, resulted in a marked inflationary period
in fresh food. The Group continues to work hard with suppliers
through these difficult times and to minimise the impact on
our customers. Overall, total Supermarkets price inflation of
0.8% was recorded for FY19.
Own Brand sales grew by 5.9% in FY19 and now represents
a $9bn business. New products were key to delivering this
result, with over 1,200 new products introduced during the
year across areas such as health foods, prepared and ready-
to-cook meals, personal care and meat alternatives. New
brands launched include Wellness Road health products,
Nature’s Kitchen vegan range, Curtis Stone’s Cook with Curtis
and I’m Free From, designed for customers with allergies or
intolerances. Of the new products introduced during the year,
90 products won awards for their quality, including Gold at the
Sydney Royal Cheese & Dairy Awards for Coles Vanilla Bean
and Coles Cookies and Cream ice cream and 2019 Product of
the Year win for Coles Finest White Sourdough Vienna bread.
In addition to Own Brand, Supermarkets continued to deliver
trusted and targeted value via Everyday Low Prices.
Supermarkets continued to invest in the store network with
the rollout of new formats and tailored store offerings to meet
local customer tastes and demand. The Group commenced
the rollout of its new Format A stores focused on convenience
and a premium fresh food offer. One store in Eastgardens,
New South Wales, has already been completed. The rollout of
Format C stores, focused on driving operational efficiencies,
also continues with Clayton and Ardeer in Victoria already
completed. Coles Local has opened in Surrey Hills Victoria. It
is designed to provide the convenience of a supermarket with
a product range and service proposition tailored to meet the
needs of its local community.
Separately, a dedicated front of store convenience space
featuring our expanded 'food for now' and 'food for later' range
is expected to be rolled out to 100 stores by the end of the
2019 calendar year.
Coles Group Limited 2019 Annual Report
25
Coles unveiled its new look Eastgardens supermarket in New South Wales in November 2018 with an entire area dedicated to convenience meals; expanded dairy, deli and produce departments;
and a continental delicatessen with a self-serve olive bar and a large selection of local and international cheeses.
Supermarkets expanded and improved its network during
the year with 51 refurbishments, 22 openings and 10 closures,
ending the period with 821 supermarkets.
Gross margin increased by 20bps to 24.8%, primarily due to
strategic sourcing and the continued execution of Coles’ Own
Brand powerhouse strategy.
Costs of doing business (CODB) as a percentage of sales
increased by 24bps to 20.9%. This was largely due to higher
energy costs and higher wages following the implementation
of the new store enterprise bargaining agreement in April 2018,
which resulted in pay increases for the majority of Coles’ in-
store team members.
Statutory EBIT increased by 1.7% to $1,191.4m, while Retail
EBIT
increased by 2.2% to $1,182.9m driven by higher
sales and improved gross margin, partially offset by higher
administration expenses (noting second half EBIT included
the Smarter selling restructuring provision of $18.7m).
provides flexibility for customers and, with over 1,000 locations
at year end, contributed strongly to sales growth.
Click & Collect now represents more than 30% of online
sales and is the fastest growing channel in the Coles Online
offering. By increasing the number of delivery slots available
for customers, shortening delivery windows and simplifying
delivery fees, online customer satisfaction was maintained in
an increasingly competitive market.
Financial services
Through Coles Financial Services, the Group offers credit cards
in partnership with Citigroup to approximately 350,000 customer
accounts and home, car and landlord insurance in partnership
with Insurance Australia Group (IAG) to approximately 400,000
policy holders.
The Coles Financial Services business model changed in FY18,
transitioning to a 100% white-labelled partnership via the sale of
the Coles cards portfolio to Citigroup.
Coles Online
Anytime, anywhere shopping
increasingly
important for customers, and Coles Online achieved $1.1bn of
sales revenue in FY19, an increase of 30% on the prior year.
is becoming
Coles Online now contributes 3.6% of Supermarkets sales
and importantly, achieved profitability for the first time in
its 20 year history. Profitability has been largely achieved
through scale, the growth in Click & Collect and technology
investments in home delivery which have optimised van
utilisation rates and reduced delivery times. Click & Collect also
Coles Group Limited 2019 Annual Report
26
Segment overview
$ MILLION
Sales revenue
EBIT
EBIT margin (%)
Retail excluding Hotels (non-IFRS)
$ MILLION
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)
Operating metrics (non-IFRS)
Comparable sales growth (%)
NYE1 adjusted comparable sales growth (%)
Sales per square metre (MAT $/sqm)2
Liquor.
Express.
Coles Group Limited 2019 Annual Report
27
FY19
3,204.8
133.1
4.2
FY19
3,063.0
152.7
120.3
22.3
(18.4)
3.9
FY18
3,180.8
130.2
4.1
FY18
3,005.9
146.1
111.0
21.9
(18.2)
3.7
CHANGE
0.8%
2.2%
6bps
CHANGE
1.9%
4.5%
8.4%
41bps
(18bps)
23bps
FY19
(52 WEEKS)
2H19
(25 WEEKS)
1H19
(27 WEEKS)
1.2
1.2
14,354
2.6
1.2
14,354
(0.1)
1.1
14,161
Segment overview
$ MILLION
Sales revenue
EBIT
EBIT margin (%)
Retail excluding fuel sales (non-IFRS)
$ MILLION
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)
Operating metrics (non-IFRS)
Comparable c-store sales growth (%)
Weekly fuel volumes (million litres)
Fuel volume growth (%)
Comparable fuel volume growth (%)
FY19
3,978.4
45.8
1.2
FY19
1,047.9
76.0
49.5
61.4
(56.7)
4.7
FY18
5,735.4
164.0
2.9
FY18
1,035.5
187.2
161.1
70.5
(55.0)
15.6
CHANGE
(30.6%)
(72.1%)
(171bps)
CHANGE
1.2%
(59.4%)
(69.3%)
(909bps)
(175bps)
(1084bps)
FY19
(52 WEEKS)
2H19
(25 WEEKS)
1H19
(27 WEEKS)
0.1
60.9
(13.0)
(13.7)
(1.4)
59.5
(9.6)
(10.0)
1.5
62.4
(15.8)
(16.7)
1 New Year's Eve.
2 Sales per square metre is a moving annual total (MAT) or exit rate calculated on a rolling 12 months of data basis.
Highlights
Incorporated joint venture with Australian Venue Co.
Highlights
New Alliance Agreement
Liquor sales revenue was $3,204.8m for the year on a statutory
basis, an increase of 0.8% from the prior year. Sales revenue
on a Retail calendar basis (excluding Hotels) was $3,063.0m
for the year, an increase of 1.9% from the prior year with
comparable sales growth of 1.2%. Sales performance was
positively impacted by the First Choice Liquor Market (FCLM)
rollout during the year and growth in online, partially offset by
moderating growth in the broader retail liquor market.
Liquorland continued to grow during the year, albeit at a lower
rate, as its renewal program neared completion.
Investment in the Liquor store network continued, with 27 new
Liquorland stores opened and 16 stores closed (one FCLM, two
Vintage Cellars and 13 Liquorland), resulting in a total of 910
Liquor sites at the end of the year.
Across all banners, Exclusive Liquor Brand (ELB) sales in the
wine category continued to be strong, with ELB sales growth
more than double the rate of the rest of the Liquor business.
There were 64 new ELB lines launched, and a total of 189
medals and awards received over the year.
Gross margin increased by 41bps to 22.3% driven by margin
improvements from ELB and improved supplier collaboration.
EBIT growth of 2.2% on a statutory basis or 8.4% on a retail
basis was driven by gross margin improvements.
As previously announced, Coles entered into an incorporated
joint venture with AVC, for the operation of:
•
•
the 87 hotels that comprised the Group’s hotel and gaming
business (Spirit Hotels); and
the 243 retail liquor stores in Queensland, and the 10 retail
liquor stores in South Australia and Western Australia
attached to Spirit Hotels’ venues (collectively the ‘Retail
Liquor business’).
These operations were previously held within a wholly-
owned subsidiary of the Group, Liquorland (Qld) Pty Ltd,
and its controlled entities (collectively, ‘LLQ’). Under the new
structure, LLQ has been converted into an incorporated joint
venture company, QVC, whereby:
• Coles holds ‘R-class’ shares in QVC which confer rights to the
economic benefits of the Retail Liquor business; and
• AVC holds ‘H-class’ shares in QVC which confer rights to the
economic benefits of Spirit Hotels.
The transaction was completed on 29 April 2019. Coles
recognised a net gain of $133.0m relating to the sale of Spirit
Hotels, the transfer of its Retail Liquor business assets to QVC
and the fair value of its interest in QVC.
Statutory sales revenue for Express decreased by 30.6% to
$3,978.4m driven by a decline in fuel volumes and the move to
a commission agent model under the New Alliance Agreement,
effective 1 March 2019. In accordance with the terms of the
New Alliance Agreement, Express no longer recognises fuel
sales revenue; however, it is entitled to commission income
(recognised in ‘other operating revenue’) from fuel sold at
Alliance sites.
The New Alliance Agreement with Viva Energy aims to deliver
a more competitive customer offer, providing an opportunity
to expand the network and better align contributions and
incentives for both Coles and Viva Energy to jointly grow
the business. It allows each party to leverage their core
competencies: Coles
in respect of convenience retailing
and Viva Energy in respect of fuel retailing, together in a
competitive, integrated offering.
Certain terms relating to Coles achieving a satisfactory return
on capital over the medium term have also been included in
the New Alliance Agreement.
Coles received a one-off payment of $137.0m at transaction
close in consideration of forgoing the retail fuel margin
(recognised in ‘other income’). Ongoing commission per litre is
recognised in ‘other operating revenue’.
Statutory EBIT decreased by 72.1% to $45.8m, largely the
result of lower fuel volumes.
Convenience store (c-store) sales growth was 1.2% for the year
and 0.1% on a comparable c-store sales growth basis, largely a
result of declining tobacco sales.
Outside of tobacco, the trends were positive with the food-to-
go (FTG) category growing at double digit rates. Coles Express
continues to rollout convenience offerings in store, delivering
healthy meal solutions, with the FTG offer now rolled out to
93% of stores. Express has an extensive network, and during
the year, six new sites were opened and three sites closed,
taking the total network to 714 sites.
Fuel volumes declined by 13.0% during the year, with
comparable fuel volumes declining by 13.7%. CODB as a
percentage of sales increased 175bps to 56.7%, impacted by
higher store operating costs.
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
29
Other
Other includes corporate costs, Coles’ 50% share of flybuys
net profit and the net gain generated by the Group's property
portfolio. In aggregate, this resulted in a $27.8m net loss for the
year.
This result was predominantly due to investment in setting up
flybuys to operate as an independent standalone business and
higher redemptions experienced in the first half, particularly
during the Christmas period.
Corporate costs incurred in FY19 were slightly below the
estimated annualised costs of $66.0m. This was due to the full
run rate of costs only being reached in the second half once all
corporate functions had been established.
Coles’ share of net profit for its 50% equity interest in flybuys
was $5.0m in FY19, down from $16.3m in the prior year.
A net gain of $7.0m from property related activities was also
recognised for the year, along with one-off demerger costs of
$17.0m.
Glossary of terms
Average basket size: A measure of how much each customer
spends on average per transaction
Leverage ratio: Gross debt less cash at bank and on deposit,
divided by EBITDA
bps: Basis points. One basis point is equivalent to 0.01%
Cash realisation: Calculated as operating cash flow excluding
interest and tax, divided by EBITDA (excluding Significant
Items)
CODB: Cost of doing business. These are expenses which
relate to the operation of the business below gross profit and
above EBIT
Comparable sales: A measure which excludes stores that
have been opened or closed in the last 12 months and excludes
demonstrable impact on existing stores from store disruption
as a result of store refurbishment or new store openings
EBIT: Earnings before interest and tax
EBITDA: Earnings before
amortisation
EPS: Earnings per share
interest, tax, depreciation and
Gross margin: The residual income remaining after deducting
cost of goods sold, total loss and logistics from sales, divided
by sales revenue
Group sales revenue or Group EBIT: Total sales revenue or
EBIT generated by the Group for the period
IFRS: International Financial Reporting Standards
MAT: Moving Annual Total. Sales per square metre
is
calculated as sales divided by Net Selling Area. Both sales and
Net Selling Area are based on a MAT, or exit rate calculated on
a rolling 12 months of data basis
pp: Percentage point
Retail calendar basis: A reporting calendar based on a
defined number of weeks, with the annual reporting period
ending on the last Sunday in June
Significant Items: Large gains, losses, income, expenditure
or events that are not in the ordinary course of business. They
typically arise from events that are not considered part of the
core operations of the business
Tell Coles: A post-shop customer satisfaction survey
completed by over two million customers annually, through
which we monitor customers' satisfaction with service, product
availability, quality and price
TRIFR: Total Recordable Injury Frequency Rate. The number
of lost time injuries, medically treated injuries and restricted
duties injuries per million hours worked, calcuated on a rolling
12 month basis. TRIFR includes all injury types including all
musculoskeletal injuries
Looking to the future.
Our vision is to become the most trusted retailer in Australia and grow
long-term shareholder value. Competition in the Australian food and
liquor market is strong and constantly evolving with new entrants
challenging the existing operating model. Guided by our purpose to
'Sustainably feed all Australians to help them lead healthier, happier lives'
we are transforming Coles into a retailer of the future leveraging global
partnerships, technology and the energy and ideas of our more than
113,000 team members.
In FY20, we will continue to implement our refreshed strategy,
focusing on our programs of work to Inspire customers through
best value food and drink solutions to make lives easier; deliver
Smarter selling through efficiency and pace of change; and Win
together with our team members, suppliers and communities.
We will aim to inspire customers by being customer obsessed in
our decision making processes enabling a more tailored offer with
trusted value to be rolled out across our stores and sites. We will
continue to drive innovation and differentiation by growing our Own
Brand range of products and building a destination for convenience
and health. This will include introducing a convenience destination
at the front of around 100 supermarkets. Our anytime, anywhere
shopping offer will continue to evolve to meet customer needs
including expansion of our Click & Collect network in Supermarkets,
re-platforming of the Liquor online site and trials with UberEats.
Given the competitor activity in the market, cycling the comparable
sales growth in Supermarkets from last year’s highly successful
Little Shop will be challenging in the early part of FY20. In Express,
it will take time to build fuel volumes to target levels, following the
reset of the Alliance with Viva Energy.
in new markets will
Acceleration of growth
include further
investment into flybuys to enable new offers, products and services.
The recently established export team will continue to build our
meat export business from today's sales baseline of approximately
$400m.
Implementing Smarter selling initiatives will be a focus as we
work towards our cumulative cost-out target of $1bn by FY23.
Deployment of technology in stores and supply chain to drive
efficiency, control loss and lower expenses will be a key activity
for our operations teams. The Store Support Centre will become
simpler and more efficient through removing 450 roles and
introducing agile working practices. We expect to deliver in excess
of $150m annualised gross cost savings in FY20 as a result of these
initiatives. Optimisation of our network and formats will continue
with the rollout of approximately 75 Format A and Format C
renewals in Supermarkets, further Coles Local rollouts, First Choice
Liquor Market renewals in Liquor, and the opening of new stores
predominantly in population growth corridors.
Longer term, the partnerships with Witron, to build two automated
distribution centres, and Ocado, to build two customer fulfillment
centres for online orders, will be important components of the
Smarter selling agenda. Dedicated teams for delivery of these
transformational initiatives are well established and property and
design work is underway.
Working with our team, suppliers and communities has always been
integral to the culture of Coles and that will not change in FY20.
We will continue to improve safety outcomes, foster a culture that
embraces diversity and create a workplace our team are proud of.
Driving generational sustainability is an important priority for us.
By FY22 we are aiming to divert 90% of waste from landfill and
we are working to develop new greenhouse emission reduction
targets. Continuing to enhance our ethical and responsible sourcing
programs in FY20 to ensure we meet stakeholder and community
expectations will build upon the good work done in this space over
the last decade.
While we have made early progress on our refreshed strategy, there
is more work to do, and FY20 will be an important year in embedding
our strategy pillars.
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
31
How we manage risk.
Our enterprise risk management program is a critical and
integrated component of our operations. The program allows
Coles to manage material and emerging risks that may
impact the delivery of our strategy and supports our ability to
identify and unlock new opportunities.
Managing our risks and opportunities
Coles operates in a rapidly changing environment that is becoming
increasingly competitive. The following describes the material
risks to Coles, including strategic, operational, compliance and
financial risks, and how we seek to manage them. Our performance
may also be impacted by risks that apply generally to Australian
businesses and the retail industry, as well as by the emergence of
new material risks not reported below.
report on
We continually monitor, assess, manage and
implementation of our Coles Risk
our risks through the
Management Framework.
information
about our Risk Management Framework by viewing the Coles
Corporate Governance Statement, available on our website
www.colesgroup.com.au/corporategovernance.
You can find more
Additional information on environmental and sustainability risks is
available in our 2019 Sustainability Report.
Strategic Risks
Competition, changing consumer behaviour and digital
disruption
Our market is changing, with new entrants, including international
discount retailers, digital disruptors and specialist retailers
contributing to an increasingly competitive market. Consumer
behaviours and expectations are also rapidly evolving, with more
reliance placed on digital platforms and greater expectations for
convenience, lower prices and targeted range. If Coles fails to
respond to competitive pressures or to meet customer behaviours
and expectations, or if an existing or new competitor adapts to
these more rapidly, this could result in loss of market share and,
ultimately, declining profits.
Key programs to manage these risks are embedded in the
implementation of our strategy, which is focused on Inspiring
customers, Smarter selling and Winning together. Programs
include using advanced analytics to support ranging decisions,
forecasting, promotions and markdowns; introducing changes
to store formats, products and pricing to better meet customer
needs; trialling new technologies and in-store initiatives to keep
pace with emerging trends; and developing strategic technology
partnerships such as those recently established with SAP and
Optus.
Strategy and transformation
To deliver our strategy, we are currently running multiple large-
scale programs, including our partnerships with Witron and Ocado;
pursuing growth from exports; executing our Smarter selling
program; and undertaking technology implementations, including
SAP Ariba and HR/Success Factors. We have joint ventures with
Wesfarmers (flybuys) and AVC (Spirit Hotels and associated
liquor retail) and an alliance with Viva Energy. In addition to these
existing programs and partnerships, Coles may undertake future
acquisitions and divestments and may enter into other third-party
relationships, so we can more effectively execute our strategy.
Implementation and delivery of these programs may be challenged
by several variables, including changes to the macro-economic
environment, ineffective project management, loss of key talent,
Supply chain conformance specialist Giulia.
lack of specialist skills, or
ineffective change management.
Inability to properly execute these programs of work or manage
our third-party relationships could result in failure to maintain or
increase operating margins, loss of market share, and variability in
earnings to Coles.
through our ongoing ‘mysay’ surveys. Our Better Together pillars
(Accessibility, Gender balance, Pride, Flexibility, and Indigenous)
are critical to our engagement program. More information on
these pillars can be found online in our Corporate Governance
Statement and in our 2019 Sustainability Report.
We have governance structures and processes in place to oversee,
manage and execute strategic and transformational programs
of work. We also have contractual agreements and governance
arrangements in place to manage our joint venture partners and
strategic partnerships. We recently appointed a Group Executive,
Transformation to oversee the execution of our Smarter selling
program; and, in concert with our people resources, we are
investing in systems, data collection and automation technology.
Operational Risks
Talent management and capability
We know that our team members are central to our success; and
we must attract, retain, develop, and effectively engage our team
to execute and deliver on our strategy.
To manage our talent and people risks, we have talent retention,
succession planning and talent development programs, such
as our Retail Leaders Program in Supermarkets, our leading
graduate programs, and Coles’ functional academies. Our culture
is underpinned by our LEaD behaviours (Look ahead, Energise
everyone, and Deliver with pride), which embodies the behaviours
of our team and are integrated throughout our ways of working. We
assess and drive actions to address team member engagement
Workplace relations
As we execute our strategy, there is a risk that workforce changes
may lead to industrial action and/or disruptions to operations.
We take proactive steps to manage these risks,
including
appropriate enterprise bargaining and employee relations
strategies; maintaining and developing
strong working
industry organisations; and
relationships with unions and
constructively
liaising with our team members, third-party
suppliers, transport and service logistic providers. We also
continue to manage the renegotiation of collective bargaining
agreements when they expire, and we have business continuity
plans in place to mitigate disruption to operations if industrial
action occurs.
Climate change
Climate change presents an evolving set of risks for Coles. These
include potential for disruption to our operations due to extreme
weather events and changing weather patterns; changing
customer behaviours as demand moves to food and products
with lower carbon footprints; changes to government policy, law
and regulation, which can result in increased costs to operate
and potential for litigation; and failure to meet expectations of
Coles Group Limited 2019 Annual Report
Coles Group Limited 2019 Annual Report
32
stakeholders (investors, non-government organisations) resulting
in reputational damage.
In the case of extreme weather events, we have business
continuity processes for sourcing and delivering goods to stores.
To minimise the impact of climate change over the longer term,
we are supporting suppliers to implement new technology and
growing methods as well as providing ongoing support of climate-
change resilience strategies to industry.
To reduce our impact on the environment, we have an Energy
includes our approach to energy purchasing,
Strategy that
monitoring and management; commitment to initiatives and
investment in renewable energy.
Security of supply
Potential disruption to the supply of goods for resale can occur
due to production risks associated with climate change, disruption
to key growing regions and suppliers, changes in overseas and
domestic competitor demand, and regulatory risks. Potential
consequences include loss of market share, price volatility,
inflation, and adverse financial impacts.
We have business continuity plans to manage the supply chain
and goods to stores during extreme weather events. We also
monitor commodity prices to determine cost pressures and have
agreements in place to secure supply across key food categories.
Future plans to manage this risk include analysis of Coles’
supply chain resilience across a number of food categories being
conducted in a collaborative project with CSIRO. The results will
be used to contain possible future disruptions to supply.
Health and safety
The safety of our team, customers, third parties and contractors is
paramount to Coles. We employ an extensive workforce, including
third parties, with high volumes of people interactions daily. This
brings risk of fatality, or life-threatening injuries to team members,
customers, suppliers, contractors or visitors, due to unsafe work
practices, accidents or incidents.
Our Coles SafetyCARE System
is the documented safety
management system that provides a framework for Coles to
look after the health, safety and wellbeing of our team members,
customers, contractors, suppliers and visitors. Implementation of
the system is measured through a range of indicators, and the
effectiveness of the system is assessed through a verification
program.
A rolling five-year Safety and Wellbeing Plan focuses on the three
pillars of: Safety leadership and culture, Critical risk reduction,
and Mind your health, which is focused on supporting a positive,
healthy team member experience.
Product and food safety
Product and food safety and quality are critical for Coles. Serious
illness, injury or death are the most severe potential consequences
from compromised product or food safety. Loss of customer trust,
damage to reputation, loss of sales and market share, regulatory
exposure and potential litigation could also occur.
We have a Food Safety governance program in place, with oversight
by an experienced technical team. We have targeted policies and
procedures, including well-established food recall and withdrawal
processes, specific supplier requirements for different food
categories (for example, chilled versus ambient) and a supporting
assurance program to ensure key controls are operating and
effective. A Product and Food Safety Steering Committee was
established in FY19 to oversee continuous improvement of food
and product safety risks and issues across Coles.
Food and plastic waste
There is a potential for significant reputational risk if we do not
reduce food and plastic waste in line with consumer, shareholder
and government expectations. Food and plastic waste negatively
impacts the environment, economy and society, particularly given
the current external waste collection and recycling challenges in
Australia.
Coles also has an opportunity to become a leader in reducing
food and packaging waste within Australia. We have made
public commitments to minimise waste and promote recycling
including to divert 90% of all waste from landfill by 2022 and to
help customers recycle by rolling out the Australasian Recycling
Label on Own Brand products and have all Own Brand packaging
recyclable by the end of 2020.
We have waste management strategies in place to support these
commitments, which include multiple food donation partnerships
(SecondBite, Foodbank and local farmers) that divert food waste
from landfill, and industry partnerships and internal programs that
target recycling (such as REDcycle).
Detailed information on how we manage food and packaging
waste is provided in our 2019 Sustainability Report.
Legal, regulatory and compliance
The diversity of our operations necessitates compliance with
extensive legislative requirements at all levels of government,
including Corporations Law, Competition and Consumer Law
including the Grocery Code of Conduct and Country of Origin
labelling standards, Product and Food Safety, Environment,
Council By-Laws, Privacy and Bio-security.
Non-compliance with key laws and regulations could expose
Coles to significant enforcement action, including loss of licence
to operate, substantial financial penalties, reputational risk and
a deterioration in relationships with regulators. Furthermore,
regulatory changes may adversely impact the execution of our
strategy and result in increased cost to operate, resulting in
adverse financial performance.
We maintain relationships with regulators and industry bodies,
monitor new and impending legislative and policy changes
and implement our Compliance Framework, which sets out
the standards, requirements and accountability for managing
compliance obligations across the Group. Coles has targeted
controls in place across the various areas of compliance, including
policies, procedures, training and system controls. The framework
is subject to assurance to ensure controls are in operation and
operating effectively.
33
loss of consumer confidence, loss of market share, regulator fines
and penalties, and reputational damage.
We manage the risk of a disruption to our technology environment
through continuous monitoring of our technology operations and
the existence of a service management function to respond to
incidents. A Change Advisory Board manages technology changes,
to reduce the risk of system instability especially during peak
trading periods. We also have information technology recovery
plans in place.
Our Group Privacy and Digital Security frameworks include
policies, procedures, governance forums, and education and
awareness programs to help assess and manage ongoing data
and cyber security threats. We regularly test and review our
information technology infrastructure, systems and processes to
assess security threats and the adequacy of controls. We are also
committed to the ongoing delivery of our Cyber Security program
to continually improve our people, process and technology
controls.
Financial Risks
Financial and treasury
The availability of funding and management of capital and
liquidity are important requirements to support our business
operations and growth. In addition, we are exposed to material
adverse fluctuations in interest rates, foreign exchange rates and
commodity movements, which could impact business profitability.
We have Treasury policies approved by the Board, which govern
the management of our financial risks, including liquidity, interest
rates, foreign currency, commodity risks and the use of other
derivatives. To manage these risks we have a Treasury function
that is responsible for managing our cash funding positions and
supports the management of these financial, interest rate and
foreign currency risks. Further information is included in the Notes
to the consolidated financial statements.
Insurance
Insurance is a tool to protect our customers, team members and
the Group against losses from accidents, natural disasters and
other unplanned events. In some cases, we choose to self-insure
risks. This means that, in the event of an incident, we cannot make
a claim against a third-party insurer but we will pay or absorb
the losses ourselves. We monitor our self-insured risks and have
active programs to help us pre-empt and mitigate losses. Our
Insurance function is also responsible for managing the purchase
of insurance where we determine this is prudent.
Litigation
If Coles is a party to litigation, it can involve brand reputation,
investment of
financial costs, potential penalties and high
Company resources and time.
Our legal team works in partnership with our compliance teams to
monitor and manage any legal issues, matters, claims or disputes.
We are supported by pre-agreed panel arrangements with external
legal firms and undertake risk analysis on any potential litigation
claims to understand loss potential.
Third-party management
Coles is reliant on third parties to provide us with products, goods
and services and to manage delivery. This may expose Coles to
risks related to compromised safety and quality, misalignment
with ethical and sustainability objectives, disruptions to supply
or operations, unrealised benefits, mishandling or inadequate
security of data and confidential information, and legal and
regulatory exposure.
We have due diligence processes to assess the adequacy and
suitability of suppliers in accordance with our requirements and
contractual protections, and we monitor and manage quality and
performance of third parties throughout their engagement with Coles.
Ethical sourcing
We are a responsible retailer and continually aim to ensure we are
sourcing and operating ethically in all areas, with specific emphasis
on compliance with the Modern Slavery legislation and Fair
Work Act, including working with our third parties to ensure they
are also acting responsibly and in compliance with the law. An
ethical sourcing incident in our supply chain or operations, such
as committing human rights abuses or breaching labour rights,
can result in material reputational damage, loss of consumer
confidence and market share, regulatory fines and penalties, and
adverse financial performance.
We have an Ethical Sourcing policy, program and requirements,
which establish the minimum standards for all suppliers providing
Own Brand products, fresh produce and meat sold in Coles
supermarkets. A whistle-blower hotline enables reporting of
breaches of ethical obligations. Our Human Rights Steering
Committee oversees ethical sourcing governance,
including
human rights risks, issues and improvement actions across Coles.
Plans are in place to roll out the ethical sourcing program more
broadly across Coles.
Technology resilience, data and cyber security
Coles relies on our own, as well as third-party, information
technology applications and infrastructure for its operations,
including processing customer transactions, maintaining our
websites, product ordering, warehouse management and logistics
systems, and maintaining other back-office functions. Any failure
of or disruption to these systems, including a cyber security event,
could impede the processing of customer transactions or limit our
ability to procure or distribute stock for our stores. Furthermore,
our technology and data-rich environment also expose us to
the risk of unintentional or unauthorised release of secret,
confidential, financial, or private information, which can result in
Coles Group Limited 2019 Annual Report
34
Proud moment
Fruit and vegetable grower Brian Crust
and his sons Matthew and Clinton
hope to increase their water storage by
20% by using $183,000 support from
the Coles Nurture Fund to line a dam
on their property at Mt Sylvia near
Toowoomba in Queensland. They also
installed a new pumping station to
reduce their use of water and power.
Coles Group Limited 2019 Annual Report
35
Climate change.
As one of Australia’s largest companies, we know we have a
responsibility to minimise our environmental footprint. Our business
is impacted by climate change, and we need to adapt to be able to
respond to extreme weather events and maintain security of food
supply as our climate changes in order to sustainably
feed all Australians.
Climate change presents an evolving set of risks and
opportunities for Coles. These range from potential disruption
to our operations due to extreme weather events, to changes
to government policy, law and regulation. We understand
that stakeholders expect us to manage and mitigate climate
change risks in line with local and global commitments and
recommendations.
We support the United Nations Sustainable Development Goals
and the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD). The information in this section
responds to the four thematic areas against which the TCFD
recommendations are structured. Going forward, we will work
towards more comprehensive disclosures.
Governance
The Board has oversight of material risks, including climate
change, through the Audit and Risk Committee. Members of
this committee are listed on page 43, and further information is
available in the Corporate Governance Statement on our website
www.colesgroup.com.au/corporategovernance.
In recognition of the importance of climate change as an
emerging issue, we have a Climate Change Steering Committee
chaired by our Chief Property and Export Officer, who reports
includes
to the Chief Executive Officer. The committee
representatives from across Coles, including senior members of
the risk and compliance, finance and operational functions, and
will prepare quarterly updates on material risks for the Audit and
Risk Committee.
Risk management
Our Risk Management Framework and Risk Management Policy
detail our approach to identifying, assessing and managing
risk,
including climate-related risks. Our approach to risk
management can be found on page 30 and in the corporate
governance section of our website.
While we have tactical plans to manage climate-related risks and
opportunities, as detailed in the following section, the Climate
Change Steering Committee is preparing a more comprehensive
Climate Change Strategy, which will be informed by further risk
analysis and scenario planning and will include new greenhouse
emission reduction targets. An external consultant will assist us
with this work.
Following the development of the Climate Change Strategy,
we expect to provide more detailed information in next year’s
Annual and Sustainability Reports.
Strategy
In FY19, following the Coles demerger from Wesfarmers and as
part of the development of the corporate risk profile, climate
change was identified as a material business risk. The risk profile
was presented to and endorsed by the Audit and Risk Committee
in May 2019 and approved by the Board in June 2019.
We acknowledge that climate change
is a complex and
multidimensional risk to the business and to our supply chains
and includes risks related to:
•
potential disruption to our operations due to extreme
weather events and changing weather patterns;
Coles Group Limited 2019 Annual Report
37
Proud moment
The Crowe family, located near
Coolac in New South Wales,
has established an automated
factory with support from the
Coles Nurture Fund. This is
allowing them to produce
fodder indoors to supplement
grass for their cattle.
Coles Group Limited 2019 Annual Report
36
DAM
Crust Farms received support from the Coles Nurture Fund for drought-proofing initiatives.
•
•
changing customer behaviours as demand moves to food
and products with lower carbon footprints;
changes to government policy, law and regulation (including
pricing carbon) that could result in increased operational
costs and potential for litigation; and
•
failure to meet expectations of stakeholders.
We recognise that the impacts of climate change are varied and
long-ranging over different time horizons. The risks identified
could prevent us from meeting our strategic objectives and
could result in reputational damage and adverse operational,
compliance and financial impacts.
The risks identified are consistent with the assessment of the
TCFD, which groups risks into two major categories: risks related
to the transition to a lower-carbon economy (policy and legal,
technology, market and reputation) and physical risks (acute and
chronic).
We also understand that, in managing these risks, there are
associated opportunities, such as improved energy efficiency,
reduced water use and improved recycling. These are detailed in
our 2019 Sustainability Report.
We apply an internal carbon price to inform decisions on selected
large capital projects and plan to continue this approach. Our
Energy Strategy includes our approach to energy purchasing and
maintaining security of energy supply. During FY19, Coles’ supply
chain entered into an electricity demand response program run
by the Australian Energy Market Operator to assist it to reduce
energy load during times of high demand.
Maintaining supply to customers
We understand that climate change and extreme weather events
can impact supply security and our ability to provide goods to
our customers. This could include severe or total disruption to
the production and transportation of goods due to extreme
weather events, as well as production risks associated with
climate change.
We seek to manage these risks through business continuity
processes for sourcing and delivering goods to stores in the
event of extreme weather events, such as floods, storms and
bushfires. For example, following floods in far north Queensland
in early 2019, special road trains and air freight were organised to
transport food and groceries to our supermarkets.
We work with suppliers impacted by extreme weather events. In
early 2018 and early 2019, apple suppliers in South Australia were
hit by severe hailstorms. As a result, we introduced the ‘hailstorm
heroes’ apple range, providing suppliers with the opportunity
to sell hail-damaged fruit. An excessively hot summer in FY19
also impacted the growth of citrus and apples. We amended our
specifications to allow smaller fruit to be sold in our stores.
To minimise the impact of climate change on supply of products
over the longer term, we are supporting suppliers in developing
new technology and growing methods and supporting industry
with climate change resilience strategies. Lack of action could
include loss of market share, increased costs and price volatility.
Through the Coles Nurture Fund, we are supporting suppliers
with climate adaptation programs, particularly to mitigate the
impact of drought. More information can be found in the 2019
Sustainability Report.
We participate in the Australian Beef Sustainability Framework,
an initiative of the Red Meat Advisory Council managed by
Meat and Livestock Australia. The framework has identified six
priority areas to drive continuous improvement across the value
chain. We consider the framework as the most appropriate way
to address climate and environmental issues facing the beef
industry from a national and industry-wide perspective.
Metrics and targets
We had set a target to reduce greenhouse emissions by 30%
from a 2009 baseline by 2020. Through a focus on reducing all
emissions, particularly emissions associated with refrigeration,
we were able to meet this target in 2016. This included
refrigeration upgrades and replacement and investment in
leak detection technology. New greenhouse targets are being
developed as part of our Climate Change Strategy, and details on
our energy and greenhouse emissions reduction activities can be
found in our 2019 Sustainability Report.
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
39
Corporate governance.
The Board and the management team of Coles are committed to
the highest standards of corporate governance and believe that a
robust and transparent corporate governance framework is central
to the success of our business. We are committed to maintaining
and building on the confidence of our shareholders, our customers,
our suppliers, our team members and the broader community as
we strive to achieve our vision to become the most trusted retailer
in Australia and to grow long-term shareholder value.
FY19 corporate governance highlights
Corporate governance framework
FY19 was a significant year for Coles with its demerger from
Wesfarmers Limited and listing on the ASX as an independent
company. As a standalone entity, Coles has established a strong
governance framework and continues to be committed to a
high level of integrity and ethical standards in all its business
practices. The FY19 corporate governance highlights and focus
areas included:
Board
Strategy
Establishing the new Board of Directors, appointing
a new Managing Director and Chief Executive Officer
(CEO) Steven Cain and adopting new Board and
Committee Charters and Group policies.
Announcing our refreshed strategy to 'Win in our
second century', which is underpinned by our vision to
become the most trusted retailer in Australia and grow
long-term shareholder value.
Risk
management
Reviewing and updating the Group’s risk management
processes and procedures.
Diversity and
Inclusion
Continuing our progress towards achieving
our Better Together commitments and objectives,
including in relation to gender diversity, with
the proportion of men and women across Coles'
workforce for FY19 being 49% men, 51% women.
Reviewing gender pay equity to identify, target and
reduce any gender pay gaps within the organisation.
Remuneration Reviewing the executive remuneration framework so
that there is a greater focus on performance-based pay,
including the development of new principles to guide
future decisions in relation to remuneration.
Introducing a minimum shareholding policy for
executives and Directors to drive greater alignment with
shareholders.
The 2019 Corporate Governance Statement contains a
comprehensive overview of Coles' corporate governance
framework and FY19 highlights and is available on our website
www.colesgroup.com.au/corporategovernance.
Shareholders
The Board
Nomination
Committee
Audit and Risk
Committee
People and Culture
Committee
Managing Director and
Chief Executive Officer
Executive Leadership Team
Coles Team Members
Board role and responsibilities
Board composition
The Board provides leadership and approves the strategic
direction and objectives of the Group in the long-term interests
of, and to maximise value to, shareholders. The Board is
accountable to shareholders for the overall performance of the
Company, having regard to the interests of other stakeholders,
including team members, customers, suppliers and the broader
community.
The Constitution states that the number of Directors shall be
not less than three Directors and not more than 10 Directors.
Other than the Managing Director, Directors may not retain office
without re-election for more than three years or past the third
annual general meeting following their last election or re-election.
Any newly appointed Directors are required to seek re-election
at the first annual general meeting after their appointment.
The Board has a Charter that outlines the responsibilities of
the Board, including powers that are expressly reserved to the
Board and powers that are specifically delegated to the CEO and
management.
The Board will review periodically its composition and the
duration of terms served by Directors, upon recommendation
from the Nomination Committee.
Our Board of Directors.
Left to right: David Cheesewright, Jacqueline Chow, Wendy Stops, James Graham (Chairman), Steven Cain (Managing Director and
CEO), Zlatko Todorcevski, Abi Cleland and Richard Freudenstein.
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
41
James Graham AM
David Cheesewright
BE (Chem) (Hons), MBA, FIEAust, FTSE, FAICD, SF Fin
BSc Mathematics and Sports Science (1st)
Abi Cleland
MBA, BCom/BA
Wendy Stops
BAppSc (Information Technology), GAICD
Chairman, Chairman, Nomination Committee and Member of
the People and Culture Committee
Non-executive Director, Member of the Nomination Committee
and the People and Culture Committee
Non-executive Director, Member of the Nomination Committee
and the People and Culture Committee
Non-executive Director, Member of the Nomination Committee
and the Audit and Risk Committee
Age: 71
Age: 57
Age: 45
Age: 58
investment, corporate
and
James Graham has extensive
governance experience, including as a Non-executive Director of
Wesfarmers Limited for 20 years, prior to his retirement in July
2018. James is Chairman of Gresham Partners Limited, having
founded the Gresham Partners Group in 1985. From 2001 to
2009, he was a Director of Rabobank Australia Limited, initially as
Deputy Chairman and then Chairman, responsible for the Bank’s
operations in Australia and New Zealand. He was also Chairman
of the Darling Harbour Authority between 1989 and 1995. James
was made a member of the Order of Australia in 2008.
Directorships of listed entities, current and recent (last
three years):
Director of Wesfarmers Limited (May 1998 to July 2018)
Steven Cain
MEng (1st)
Managing Director and CEO
Age: 54
Steven Cain has over 20 years experience in Australian and
international retail. Steven was previously Chief Executive Officer
of Supermarkets and Convenience at Metcash Limited. He was
Chief Executive of Carlton Communications plc, a FTSE 100
media group company, and Operating Director and Portfolio
Company Chairman at Pacific Equity Partners, a private equity
firm. He was Group Marketing Director, Store Development
Director and Grocery Trading Director of Asda Stores Ltd (UK)
during its turnaround and has held roles at UK retail group
Kingfisher plc, and Bain & Company. Steven was previously the
Managing Director of Food, Liquor and Fuel at Coles Myer and
was an advisor to Wesfarmers Limited on its takeover of the
Coles Group in 2007.
David Cheesewright retired in early 2018 as President and Chief
Executive Officer of Walmart International, which comprises
Walmart’s operations outside the United States,
including
more than 6,200 stores and more than 796,000 employees
in 27 countries. David was also responsible for Walmart’s
global sourcing operations and offices around the world. He
was previously President and CEO of Walmart EMEA (Europe,
Middle East and Africa) and Canada region, overseeing the
integration of the Massmart acquisition, as well as growth in the
UK and Canada. David’s other prior roles include Chief Operating
Officer of Asda in the UK and a range of key positions with Mars
Confectionery in the UK. David is also a previous board member
of Chinese online grocery business Yihaodian, South African
retailer and distributor Massmart, Queens Business School, The
Retail Council of Canada and ECR Europe and is a prior Chair
of Walmart Canada Bank. David currently sits on the Dean’s
Advisory Board at the Queen’s University School of Business.
Jacqueline Chow
MBA, BSc (Hons), GAICD
Non-executive Director, Member of the Nomination Committee
and the Audit and Risk Committee
Age: 47
Jacqueline Chow is a Director of nib Holdings Limited (appointed
2018) and a Senior Advisor at McKinsey Consulting RTS, advising
clients across industrial, retail, telecommunications, financial
services and consumer sectors on performance transformation
projects. From 2016 to June 2019, Jacqueline was a Director of
Fisher & Paykel Appliances. Jacqueline previously held senior
management positions with Fonterra Co-operative Group, one
of the world’s largest dairy product producers and exporters,
including most recently as Chief Operating Officer, Global
Consumer and Food Service. Prior to that, she was in senior
management with Campbell Arnott’s and Kellogg Company.
She was also Programme Steering Group Director, Ministry for
Primary Industries, NZ (2013 to 2016) and Deputy Chair, Global
Dairy Platform Inc (2014 to 2018).
Directorships of listed entities, current and recent (last
three years):
Director of nib Holdings Limited (since April 2018)
Abi Cleland is a Director of Computershare Limited (appointed
2018), Sydney Airport Corporation Limited (appointed 2018)
and Orora Limited (appointed 2014). Abi is also a Director of
Swimming Australia and Chairman of Planwise Australia. Abi’s
previous board appointments include Australian Independent
Business Media and membership of the advisory committee of
Lazard PE Fund 2. From 2012 to 2017, Abi established and ran an
advisory and management business, Absolute Partners, focusing
on strategy, mergers and acquisitions and disruption. Before that,
she held senior management roles at KordaMentha’s 333, where
she was Managing Director, and at ANZ, Incitec Pivot Limited
and Amcor Limited.
Directorships of listed entities, current and recent (last
three years):
Director of Computershare Limited (since February 2018);
Director of Sydney Airport Corporation Limited (since April
2018); Director of Orora Limited (since February 2014); Director
of BWX Limited (August 2017 to December 2017)
Richard Freudenstein
LLB (Hons), BEc
Non-executive Director, Chairman, People and Culture
Committee and Member of the Nomination Committee
Age: 54
Richard Freudenstein has been a Director of REA Group Limited
since 2006, including as Chairman from 2007 to 2012. He is
also currently a board member of Cricket Australia, Deputy
Chancellor of the University of Sydney and a member of the
Advisory Committee of start-up artificial intelligence software
company Afiniti Ltd. Richard was previously Chief Executive
Officer of Foxtel (2011 to 2016), Chief Executive Officer of The
Australian and News Digital Media at News Ltd (2006 to 2010),
and Chief Operating Officer at British Sky Broadcasting plc (2000
to 2006). His previous board positions include Ten Network
Holdings (2015 to 2016), Foxtel (2009 to 2011) and ESPN STAR
Sports ESS (2009 to 2012).
Directorships of listed entities, current and recent (last
three years):
Director of REA Group Limited (since November 2006); Director
of Astro Malaysia Holdings Berhad (September 2016 to August
2019)
Wendy Stops is a Director of Commonwealth Bank of Australia
Limited (appointed 2015) and Altium Limited (appointed 2018).
She is also a Director of Fitted for Work, a Council member at
the University of Melbourne and Chair of the Advisory Board for
the Melbourne Business School’s Centre for Business Analytics.
Wendy was previously a senior management executive in the
information technology and consulting sectors, including 16
years with Accenture in various senior management positions
in Australia, Asia Pacific and globally. Her previous board
experience includes Accenture Software Solutions Australia and
Diversiti. She is currently a member of Chief Executive Women.
Directorships of listed entities, current and recent (last
three years):
Director of Commonwealth Bank of Australia Limited (since
March 2015); Director of Altium Limited (since February 2018)
Zlatko Todorcevski
MBA, BCom
Non-executive Director, Chairman, Audit and Risk Committee
and Member of the Nomination Committee
Age: 51
Zlatko Todorcevski is Deputy Chairman and Lead Independent
Director of Adelaide Brighton Ltd, having served as Chairman
from May 2018 to May 2019. He is also a Director of The Star
Entertainment Group Ltd and a Council member of the University
of Wollongong. Zlatko’s previous appointments include President
of the Group of 100 and Chairman of the ASIC Accounting and
Audit Standing Committee. Zlatko’s executive career included
four years as Chief Financial Officer of Brambles Ltd and from
2009 to 2012 as Chief Financial Officer of Oil Search Ltd. From
1986 to 2009, he held various senior roles at BHP, including Chief
Financial Officer of Energy based in London and Houston.
Directorships of listed entities, current and recent (last
three years):
Deputy Chairman of Adelaide Brighton Limited (since March
2017); Director of Star Entertainment Group (since May 2018)
Coles Group Limited 2019 Annual Report
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Coles Group Limited 2019 Annual Report
43
Board skills matrix
The Board recognises the importance of having Directors who
possess a broad range of skills, background, expertise, diversity
and experience in order to facilitate constructive decision making
and facilitate good governance processes and procedures.
The Board, on the recommendation of the Nomination Committee,
determines the composition, size and structure requirements
for the Board and will regularly review its mix of skills to make
sure it covers the skills needed to address existing and emerging
business and governance issues relevant to the entity.
The current mix of skills and experience represented on the Board
is set out in the below skills matrix:
Number of Directors with the requisite skill
Corporate governance
Executive experience
Financial acumen
Strategic thinking
People, culture and
remuneration
Risk management
Retail and FMCG skills and
experience
Customer service delivery
Supply chains
Interstate / global business
experience
Property development and
asset management
Marketing
Digital technology and
innovation
Sustainability, environment,
health and safety
Regulatory and public
policy
8
8
8
8
8
8
6
7
6
8
4
6
8
7
7
Skill/
experience
Explanation
Experience serving on boards in diverse industries and for a range
of organisations, including public listed entities or other large,
complex organisations. An awareness of global practices and trends.
Experience in implementing high standards of governance in a large
organisation and assessing the effectiveness of senior management.
Effective senior leadership in a large, complex organisation or public
listed company. Successfully leading organisational transformation
and delivering sustained business success, including through line
management responsibilities.
Senior executive or other experience in financial accounting and
reporting, internal financial and risk controls, corporate finance and/
or restructuring, corporate transactions, including ability to probe the
adequacies of financial and risk controls.
Demonstrated ability to identify and critically assess strategic
opportunities and threats and to develop and implement successful
strategies to create sustained, resilient business outcomes. Ability
to question and challenge delivery against agreed strategic planning
objectives.
Experience overseeing or implementing a company’s culture and
people management framework, including succession planning
to develop talent, culture and identity. Board or senior executive
experience in applying remuneration policy and framework, including
linking remuneration to strategy and performance, and the legislative
and contractual framework governing remuneration.
Understanding of and experience in identifying and monitoring
key risks to an organisation and implementing appropriate risk
management frameworks and procedures and controls.
Senior management experience in the retail and fast moving
consumer goods (FMCG) industry, particularly in the food and liquor
industry, including an in-depth knowledge of merchandising, product
development, exporting, logistics and customer strategy.
Board committees
The Board has established three committees and has delegated
to each committee a number of duties to assist the Board in
exercising its responsibilities and discharging its duties. Together,
they play an important role in assisting the Board’s oversight and
governance of the Group’s operations.
Each committee has a separate charter that sets out the roles
and responsibilities of that committee, as well as the membership
and any other requirements for the running of the committee.
All committees are chaired by, and comprise a majority of,
independent Non-executive Directors. Each committee keeps
the Board informed of its activities through the provision of the
minutes of each meeting, and the Chairman of each committee
formally advises the Chairman of the Board of any matters or
recommendations requiring the Board’s attention.
The Remuneration Committee was renamed the 'People and
Culture Committee' in August 2019 to more accurately reflect
the Committee’s role and responsibilities.
The members of each committee are set out in the table below.
Nomination Committee
James Graham (Chairman)
David Cheesewright
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Wendy Stops
Zlatko Todorcevski
Zlatko Todorcevski (Chairman)
Jacqueline Chow
Wendy Stops
Advanced understanding of customer service delivery models,
benchmarking and oversight.
Audit and Risk Committee
People and Culture Committee Richard Freudenstein (Chairman)
David Cheesewright
Abi Cleland
James Graham
Senior executive experience in managing or overseeing the operation
of supply chains and distribution models in large, complex entities,
including retail suppliers.
Senior manager or equivalent experience in national or international
business, providing exposure to a range of interstate or international
political, regulatory and business environments.
Experience in property development and asset management.
Senior executive experience in consumer and brand marketing and in
e-commerce and digital media, including in the retail industry.
Expertise and experience in the adoption and implementation of
new technology. Understanding of key factors relevant to digital
disruption and innovation, including opportunities to leverage digital
technologies and cyber security and understanding the use of data
and analytics.
Identification of key health and safety issues, including management
of workplace safety, and mental and physical health. Experience
in managing and driving environmental management and social
responsibility initiatives, including in relation to sustainability and
climate change.
Senior management experience working in diverse political, cultural,
regulatory and business environments. Experience in regulatory
and competition policy and influencing public policy decisions and
outcomes, particularly in relation to regulation relevant to food and
liquor industries.
A culture of acting lawfully, ethically and
responsibly
Our LEaD framework
LEaD provides a framework for the behaviours and actions
expected of all team members,
including executives and
Directors. The LEaD framework comprises three key pillars
that drive the way we work to execute our strategy, deliver
against our purpose and build long-term sustainable value for
our shareholders. The three pillars are: Look ahead, Energise
everyone and Deliver with pride.
is all about being
Look ahead
focused: knowing
the landscape, being less reactive and more planned and
communicating the vision well.
future
Energise everyone is all about bringing people on the journey:
collaborating across the business, supporting and empowering
everyone, while taking the time to celebrate the wins along the
way.
Deliver with pride is all about executing: being accountable and
holding each other to account, staying the course and having fun
while we do it.
LEaD underpins our recruitment,
induction, training and
development programs for all team members and managers.
By meeting these behaviours, we can build deeper long-
term relationships with our suppliers, provide an outstanding
customer experience and have caring and passionate team
members. Our behaviours and the LEaD framework reflect the
expectations of our customers, investors, regulators and the
community.
Our LEaD behaviours
Look ahead
Energise
everyone
Know your stuff
Have a plan
Explain the why
Build it together
Empower and support
Celebrate progress
Deliver
with pride
Own it
Stay the course
Have fun with it
Code of Conduct
Coles has a Code of Conduct that sets out the standards
of behaviour expected of its Directors and team members
(including senior executives). This is supported by key policies,
including our Whistleblower Policy; Anti-bribery Policy; Health,
Safety and Wellbeing Policy; Securities Dealing Policy; as well
as a number of other Company policies which outline expected
standards of behaviour of Directors and team members.
Coles Group Limited 2019 Annual Report
44
Our Executive
Leadership Team.
Steven Cain
Managing Director and
Chief Executive Officer
Leah Weckert
Chief Financial Officer
Greg Davis
Chief Executive -
Commercial and Express
Matthew Swindells
Chief Operations Officer
Thinus Keeve
Chief Property and
Export Officer
Lisa Ronson
Chief Marketing Officer
Kris Webb
Chief People Officer
Roger Sniezek
Chief Information and
Digital Officer
David Brewster
Chief Legal Officer
Cathi Scarce
Acting Chief
Executive Liquor
Alister Jordan
Chief Executive Online
and Corporate Affairs
Ian Bowring
Group Executive,
Transformation
Daniella Pereira
Company Secretary
Directors’
report.
Coles Group Limited 2019 Annual Report
46
Coles Group Limited 2019 Annual Report
47
The Directors present their report on the consolidated entity
consisting of Coles Group Limited ('Coles' or the 'Company') and its
controlled entities at the end of, or during the financial year ended,
30 June 2019 (the 'Group').
The information referred to below forms part of and is to be read in
conjunction with this Directors’ Report:
• the Operating and Financial Review comprising the Message from
the Chairman (pages 6 to 7), the Managing Director and Chief
Executive Officer's report (pages 8 to 10), Our financial and operating
performance (pages 20 to 28), Looking to the future (page 29) and
How we manage risk (pages 30 to 36);
• the Remuneration Report (pages 50 to 62);
• biographical details of the current Directors (pages 40 to 41) and the
Company Secretary (page 46);
• Note 9.5 (Events after the reporting period) to the financial
statements accompanying this report;
• Note 9.3 (Auditor’s remuneration) to the financial statements
accompanying this report; and
• the auditor’s independence declaration required under section 307C
of the Corporations Act 2001 (Cth) (page 49).
Directors
The Directors in office as at the date of this report are:
Name
Position held
Period as a director during FY19
James
Graham
Steven Cain
David
Cheesewright
Jacqueline
Chow
Abi Cleland
Richard
Freudenstein
Wendy Stops
Zlatko
Todorcevski
Chairman and
independent,
Non-
executive
Director
Managing
Director
and Chief
Executive
Officer
Non-
executive
Director
(Wesfarmers
Nominee)
Independent,
Non-
executive
Director
Independent,
Non-
executive
Director
Independent,
Non-
executive
Director
Independent,
Non-
executive
Director
Independent,
Non-
executive
Director
Appointed 19 November 2018
Appointed Chief Executive Officer
17 September 2018
Appointed Managing Director and Chief
Executive Officer 2 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Information about the Directors’ qualifications, experience, special
responsibilities and other directorships is set out on pages 40 to 43.
The following persons were also Directors during FY19:
Directors’ meetings
Name
Position
held
Period as a director during FY19
Rob Scott
Director
1 July 2018 to 19 November 2018
Anthony Gianotti
Director
1 July 2018 to 19 November 2018
John Durkan
Director
1 July 2018 to 17 September 2018
Leah Weckert
Director
17 September 2018 to 19 November
2018
Company Secretary
Daniella Pereira LLB (Hons), BA
Daniella Pereira was appointed the Company Secretary of Coles Group
Limited on 19 November 2018. Daniella has an extensive career in legal,
governance and company secretariat, including a 14-year career with
ASX-listed industrial chemicals company Incitec Pivot Limited. Daniella
began her career as a lawyer with Ashurst (formerly Blake Dawson),
advising on corporate transactions.
The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the current
Directors of the Company from 20 November 2018 (the day of the first Board meeting after the demerger was approved by Wesfarmers Limited
(Wesfarmers) shareholders) to 30 June 2019 are listed below:
Director
Board
Audit and Risk Committee
People and Culture Committee1
Nomination Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
James Graham
Steven Cain
David Cheesewright
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Wendy Stops
Zlatko Todorcevski
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
5
5
5
5
5
3
5
5
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
1 On 22 August 2019, the Remuneration Committee was renamed People and Culture Committee to more accurately reflect the committee’s roles and responsibilities.
Directors’ shareholdings in Coles
Details of Directors’ shareholdings in Coles as at the date of this
Directors’ Report are shown in the table below. All Directors have met
the minimum shareholding requirement under the Board Charter.
Director
James Graham
Steven Cain2
David Cheesewright
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Wendy Stops
Zlatko Todorcevski
Number of shares held1
460,188
50,000
20,000
20,000
19,816
19,000
20,000
19,201
1 The number of shares held refers to shares held either directly or indirectly by
Directors as at 20 September 2019. Refer to the Remuneration Report tables
for total shares held by Directors and their related parties directly, indirectly or
beneficially as at 30 June 2019.
2 Steven Cain also holds 85,057 Restricted Shares and 85,057 Performance Shares.
Principal activities
The principal activities of Coles during the financial year were providing
customers with everyday products, including fresh food, groceries,
general merchandise, liquor, fuel and financial services through its
store network and online platforms.
Coles demerged from Wesfarmers during the financial year. Refer to the
section titled State of Affairs below for further information.
Additionally, on 6 February 2019, the Company entered into an
agreement to restructure the terms of its Alliance Agreement with Viva
Energy. Under the New Alliance Agreement which commenced on 1
March 2019, Viva Energy is responsible for setting the retail price of fuel
and receives the retail fuel margin. The Company has been appointed
as Viva Energy’s agent for selling fuel at Alliance sites. Ongoing
commission per litre is payable to the Company.
On 5 March 2019, the Company announced its agreement to enter into
an incorporated joint venture with Australian Venue Co. Ltd (AVC), for
the operation of:
• the 87 hotels that comprised the Group’s hotel and gaming business
(Spirit Hotels); and
• the 243 retail liquor stores in Queensland, and the 10 retail liquor
stores in South Australia and Western Australia attached to Spirit
Hotels’ venues, which operate under the Liquorland, First Choice,
First Choice Liquor Market and Vintage Cellars brands (collectively,
the Retail Liquor business).
These operations were previously held within a wholly-owned
subsidiary of the Group, Liquorland (Qld) Pty Ltd, and its controlled
entities (collectively LLQ). Under the new structure, LLQ has been
converted into an incorporated joint venture company, Queensland
Venue Co. Pty Ltd (QVC).
Under the new structure, Coles has rights to the economic performance
of the Retail Liquor business and AVC has rights to the economic
performance of Spirit Hotels.
The transaction was completed on 29 April 2019.
There were no other significant changes in the nature of the principal
activities of Coles during the financial year.
State of affairs
Demerger
A significant change in the state of affairs of Coles Group Limited was
its demerger from Wesfarmers during the financial year. Details of the
demerger proposal were set out in the Demerger Scheme Booklet dated
5 October 2018, which was distributed to Wesfarmers shareholders. The
demerger was approved by Wesfarmers shareholders on 15 November
2018.
On Wednesday 21 November 2018, Coles Group Limited listed as a
separate standalone entity on the ASX. Economic separation was
effective on Wednesday 28 November 2018.
To implement the demerger, changes were made to the corporate
structure of Coles. In particular, ownership of Kmart, Target and
Officeworks and associated entities (KTO) was transferred to
Wesfarmers. The results of the Group for the year ended 30 June 2019
therefore include the results of the KTO businesses up until the date
of transfer, being 19 November 2018. These businesses have been
reported as discontinued operations in the Financial Report.
Deed of Cross Guarantee
On 17 December 2018, certain of Coles’ Australian wholly owned
subsidiaries entered into a Deed of Cross Guarantee (Deed) with Coles
in accordance with ASIC Corporations (Wholly-owned Companies)
Instrument 2016/785 (ASIC Instrument). Under the ASIC Instrument,
relief has been granted from specific accounting and financial reporting
requirements. Refer to Note 7.4 of the financial statements on pages 90
to 91 for further information in relation to the Deed.
There were no other significant changes in the state of affairs of the
Group during the year.
Coles Group Limited 2019 Annual Report
48
Coles Group Limited 2019 Annual Report
49
Review and results of operations
Indemnification of Auditors
A review of the operations of the Group during the financial year, the
results of those operations and the Group’s financial position are
contained in the Operating and Financial Review (OFR), comprising
the Message from the Chairman, the Managing Director and Chief
Executive Officer's report, Our financial and operating performance,
Looking to the future and How we manage risk.
Business strategies and prospects for future financial years
The OFR sets out
information on the business strategies and
prospects for future financial years and refers to likely developments
in Coles’ operations and the expected results of those operations in
future financial years. Information in the OFR is provided to enable
shareholders to make an informed assessment about the business
strategies and prospects for future financial years of the Group.
Information that could give rise to likely material detriment to the
Group, for example,
is commercially sensitive,
confidential or could give a third party a commercial advantage, has
not been included. Other than the information set out in the OFR,
information about other likely developments in the Group’s operations
and the expected results of these operations in future financial years
has not been included.
information that
Dividends
On 22 August 2019, the Directors declared a total fully franked dividend
of 35.5 cents per share, comprising a final dividend of 24.0 cents per
share and a special dividend of 11.5 cents per share, which covers the
period from 28 November 2018 to 30 June 2019.
Environmental regulations
The activities of the Company are subject to a range of environmental
regulations under the law of the Commonwealth of Australia and its
states and territories. The Group is also subject to various state and
local government food licensing requirements, and may be subject
to environmental and town planning regulations incidental to the
development of shopping centre sites.
The Group has not incurred any significant liabilities under any
environmental legislation during the financial year.
The Group has introduced a range of initiatives to make a positive
difference on waste and recycling, resource efficiency and responsible
and ethical sourcing. More specific details about our sustainability
initiatives and performance can be found in the 2019 Sustainability
Report.
Indemnification and insurance of officers
The Company’s Constitution requires the Company to indemnify any
person who is, or has been, an officer of the Company, including the
Directors, the Company Secretary and other executive officers, against
the liabilities incurred whilst acting as such officers to the extent
permitted by law.
In accordance with the Company’s Constitution, the Company has
entered into a Deed of Indemnity, Insurance and Access with each of
the Company’s Directors, Company Secretary, Chief Financial Officer
and certain executives. No Director or officer of the Company has
received benefits under an indemnity from the Company during or
since the end of the financial year.
The Company has paid a premium in respect of a contract insuring
current and former directors, company secretaries and executives of
the Company and its subsidiaries against liability that they may incur
as an officer of the Company, including liability for costs and expenses
incurred by them in defending civil or criminal proceedings involving
them as such officers, with certain exceptions. It is a condition of the
insurance contract that no details of the premiums payable or the
nature of the liabilities insured are disclosed.
Pursuant to the terms of engagement Coles has with its auditors,
Ernst and Young (EY), Coles has agreed to indemnify EY to the extent
permitted by law and professional regulations, against any losses,
liabilities, costs or expenses incurred by EY where they arise out of or
occur in relation to any negligent, wrongful or wilful act or omission
by Coles. No payment has been made to EY by Coles pursuant to this
indemnity, either during or since the end of the financial year.
Non-audit services and Auditor’s independence
Details of the non-audit services undertaken by, and amounts paid to
EY are detailed in Note 9.3 to the financial statements in section 9.
The Board is satisfied that the provision of non–audit services during
the year by the Auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations Act 2001 (Cth)
for the following reasons:
• all non-audit services provided by EY were reviewed and approved
to ensure they do not impact the integrity and objectivity of the
Auditor; and
• the non–audit services provided did not undermine the general
principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants as they did not involve
reviewing or auditing the Auditor’s own work, acting in a management
or decision making capacity of the Company, acting as an advocate
of the Company or jointly sharing risks or rewards.
A copy of the Auditor’s independence declaration is contained on page
49 and forms part of this report.
Proceedings on behalf of Coles
No application has been made under section 237 of the Corporations
Act 2001 (Cth) in respect of Coles, and there are no proceedings that
a person has brought or intervened in on behalf of Coles under that
section.
Rounding
The amounts shown in this report and in the financial statements have
been rounded off, except where otherwise stated, to the nearest one
hundred thousand dollars, with the Company being in a class specified
in the ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191.
Signed on behalf of the Board in accordance with a resolution of the
Directors of the Company.
James Graham AM
Chairman
20 September 2019
Steven Cain
Managing Director and Chief Executive Officer
20 September 2019
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of Coles Group Limited
As lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended 30 June
2019, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Coles Group Limited and the entities it controlled during the financial year.
Ernst & Young
Fiona Campbell
Partner
20 September 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Coles Group Limited 2019 Annual Report
50
Remuneration
Report 2019.
Letter to shareholders from the
Chair of the People and Culture Committee
Dear shareholder,
Looking to the future
On behalf of the Board, I am pleased to present to you the inaugural
Remuneration Report for Coles. The Remuneration Report provides you with
information on the remuneration arrangements for our Key Management
Personnel (‘KMP’) which include the Managing Director and Chief Executive
Officer (‘Managing Director and CEO’), Other Executive KMP and Non-
executive Directors of the Company.
A year of transition
As FY19 was a year of significant transition for Coles, we have outlined
the remuneration framework that was in place for FY19, the remuneration
outcomes for FY19 and a summary of the changes to the KMP remuneration
arrangements that we propose to make for future years.
The remuneration arrangements put in place by Wesfarmers for FY19
were intended to be transitionary only. The remuneration structure for our
Executive KMP at the time of demerger reflected minimal change from prior
years, provided much needed stability and focused our leadership team on
the task at hand to support our successful demerger.
Outcomes for FY19
For the purposes of calculating short-term incentive awards for Executive
KMP, the Board assessed performance against a number of metrics including
EBIT, safety, team member engagement and other key strategic measures
that set the foundation for strong growth as a newly listed public company.
Statutory EBIT performance (pre-Significant Items) for the Group was below
the target level set by the Board as part of the demerger from Wesfarmers,
but above the threshold target. Notwithstanding outperformance in the
Supermarkets category, this had a material impact on the overall STI
outcome for the Executive KMP.
In a strong display of leadership across a year of such significant change,
the Board is pleased to report that management were able to deliver
outperformance against both safety and engagement. Safety performance
improved by 20.3% and team member engagement increased by three
percentage points when compared to the prior year. Key strategic outcomes
were also achieved with our first profitable year in Coles Online, a reset of
the Group strategy and new alliances with Australian Venue Co. for the Spirit
Hotels business and Viva Energy for Coles Express.
While the FY19 remuneration arrangements were appropriate for supporting
Coles’ transition as a separate listed company, as a newly formed People
and Culture Committee, we have spent considerable time and effort this
year considering what a fresh, fit-for-purpose remuneration framework for
a successful Coles looks like.
In doing so, we recognise that our remuneration framework needs to support
sustainable short and long-term performance for Coles and outcomes for our
shareholders as we put in place a new strategy to transform the business. We
know that we will need a market competitive framework to attract the best
talent to help us do this. We also understand that the external environment
we are operating in is changing – with heightened community, regulatory
and shareholder expectations of executive remuneration.
We have developed principles to guide future decisions in relation to
remuneration at Coles: be market competitive, be performance-based,
create long-term value for shareholders, and be fit-for-purpose.
Our new framework for FY20, which applies to the Managing Director and
CEO and all of his executive-level direct reports, is a step towards achieving
this. This new remuneration framework, outlined in section 5 of this report
will include a change to how we assess short-term performance and achieve
a greater focus on performance-based pay through the removal of restricted
shares as a long-term incentive vehicle. The Board is also of the belief that
encouraging executives to build their own shareholdings in Coles will drive
alignment between executives and shareholders. As such, equity will be a
greater feature from FY20, with the introduction of a deferral into equity
for the short-term incentive plan and minimum shareholding guidelines for
the Managing Director and CEO, and all of his executive-level direct reports.
As a Board, we believe this new remuneration framework is a true enabler
of our strategy, and delivers on the expectations of you, our shareholders.
Richard Freudenstein
Chair of the People and Culture Committee
Introduction
Section 1: Key Management Personnel
Coles Group Limited 2019 Annual Report
51
The Directors of Coles Group Limited (‘Coles’ or the ‘Company’) present the
Remuneration Report (‘Report’) for the Company and its controlled entities
(collectively, the ‘Group’) for the financial year ended 30 June 2019 (‘FY19’).
This Report forms part of the Directors’ Report and has been prepared in
accordance with section 300A of the Corporations Act 2001 (Cth) and is
audited.
Coles is required to prepare a Remuneration Report in respect of the
Group’s KMP, being the people who have the authority and responsibility for
planning, directing and controlling the Group’s activities, either directly or
indirectly, including any Director. For FY19, the Remuneration Report covers
the full financial year (pre and post demerger) and captures any individuals
who were Coles KMP during this period.
This is Coles’ first Remuneration Report as a newly listed public company
following our demerger from Wesfarmers Limited (‘Wesfarmers’). On 15
November 2018, shareholders of Wesfarmers approved the demerger of
Coles. On 21 November 2018, Coles shares commenced trading on the ASX
on a deferred settlement basis. Effective 28 November 2018, the demerger
was completed, and Coles ceased to be a wholly owned subsidiary of
Wesfarmers.
In this Remuneration Report, ‘Executive KMP’ includes the Managing
Director and CEO, and all other executives considered to be KMP. References
to ‘Other Executive KMP’ means the Executive KMP excluding the Managing
Director and CEO.
Table 1 sets out the details of those persons who were considered KMP of
the Coles Group during FY19.
Table 1
This Remuneration Report therefore covers two periods:
Non-executive Directors
• the pre demerger period from 1 July 2018 to 27 November 2018; and
Name
Position held
Period as KMP during FY191
• the post demerger period from 28 November 2018 to 30 June 2019.
James Graham
Chairman and Non-
executive Director
From 19 November 2018
While this Remuneration Report covers both the pre and post demerger
periods, the focus of this Remuneration Report is on the remuneration
arrangements of Coles as a separately listed entity post demerger, including
Coles’ remuneration policy, opportunities and components that will apply
with effect from FY20.
Structure of this report
The Remuneration Report is divided into the following sections:
David Cheesewright
Non-executive Director
From 19 November 2018
Jacqueline Chow
Non-executive Director
From 19 November 2018
Abi Cleland
Non-executive Director
From 19 November 2018
Richard Freudenstein
Non-executive Director
From 19 November 2018
Wendy Stops
Non-executive Director
From 19 November 2018
Zlatko Todorcevski
Non-executive Director
From 19 November 2018
Section
(1) Key Management Personnel
(2) Remuneration governance
(3) FY19 remuneration policy and structure overview
(4) FY19 Executive KMP remuneration outcomes
(5) FY20 Executive KMP remuneration framework
(6) FY19 Non-executive Director remuneration
Page No.
51
52
53
54
60
62
Executive KMP
Name
Steven Cain
Leah Weckert2
Position held
Period as KMP during FY19
From 17 September 2018
From 17 September 2018
Chief Executive Officer
from
17 September 2018
Managing Director and
CEO from 2 November
2018
Director of Coles
between 17 September
and 19 November 2018
Chief Financial Officer
from 28 November 2018
Greg Davis3
Chief Operating Officer
From 28 November 2018
Additional persons considered KMP in the pre demerger period only
Name
Rob Scott4
Chairman of Coles
Position held
Period as KMP during FY19
Anthony Gianotti4
Director of Coles
John Durkan5
Director of Coles
Between 1 July 2018 –
19 November 2018
Between 1 July 2018 –
19 November 2018
Between 1 July 2018 –
17 September 2018
1For the Non-executive Directors, the date on which they were appointed to the Board as a Non-
executive Director is their commencement date as KMP.
2Ms Weckert was a Director of Coles from 17 September 2018 to 19 November 2018 but did not
receive any remuneration in relation to her service as a Director of Coles during that period. Ms
Weckert is considered Executive KMP following legal separation of Coles from Wesfarmers on
28 November 2018 due to her role as Chief Financial Officer.
3Mr Davis is considered Executive KMP following legal separation of Coles from Wesfarmers on
28 November 2018.
4Mr Scott and Mr Gianotti are considered KMP as they were Directors of Coles during the pre
demerger period.
5Mr Durkan ceased to be a KMP of Wesfarmers on 14 September 2018, however his resignation
as a Director of Coles was effective on 17 September 2018.
Coles Group Limited 2019 Annual Report
52
Section 2: Remuneration governance
2.1 Governance framework
The diagram below provides an overview of the remuneration governance framework that has been established by Coles. Further information regarding
the membership and meetings of the People and Culture Committee is provided on page 47 of this Annual Report.
Remuneration consultants and external advisors
External advisors may be engaged either directly by the People and Culture Committee or through management, to provide information on remuneration-
related issues, including benchmarking information and market data.
During FY19, the People and Culture Committee engaged KPMG to provide independent benchmarking and market analysis in relation to executive
remuneration. No remuneration recommendations were made by KPMG.
Section 3: Remuneration policy and structure overview
Coles Group Limited 2019 Annual Report
53
3.1 Remuneration policy for FY19
3.2 FY19 remuneration framework for Executive KMP
The FY19 remuneration policy for Coles reflects arrangements that were
put in place by Wesfarmers pre demerger and the remuneration principles
applicable for FY19 are outlined in the diagram under section 3.2. The
Demerger Scheme Booklet noted that the Coles Board was committed to
reviewing executive remuneration in FY19 to ensure that it continued to be
appropriate for Coles as a newly listed public company. Further details of
the proposed changes for FY20 are outlined in section 5.
Executive KMP remuneration is delivered using both fixed and variable
(at-risk) components as outlined below. Specific performance measures and
outcomes for FY19 are included in section 4.
During FY19, to support the transition of our business through the demerger, we followed three remuneration principles:
The Board
The Board maintains overall accountability for oversight of the Group’s
remuneration policies. Specifically, the Board approves all remuneration
and benefits arrangements as they relate to the Managing Director and
CEO and executive-level direct reports to the Managing Director and
CEO, having regard to the recommendations made by the People and
Culture Committee, and the remuneration arrangements for Non-
executive Directors.
Reward for sustained
business performance
Retention of key talent (during
a period of significant change)
Minimise change from established
remuneration framework
To drive this, we delivered remuneration through five separate elements:
Fixed elements
Variable elements
Total Fixed
Compensation (TFC)
Restricted Shares
(ERS)
Short-term incentive
(STI)
Transition Incentive
Long-term incentive
(LTI)
Cash
Equity
Cash
Cash
Equity
Shareholders and other
stakeholders
The People and Culture
Committee may consult
with shareholders, proxy
advisors and other relevant
stakeholders, in determining
appropriate remuneration
policies for the Group,
including remuneration
arrangements for the
Managing Director and CEO,
and executive-level direct
reports to the Managing
Director and CEO.
People and Culture Committee
External advisors
The role of the Committee is to assist the Board in fulfilling its
responsibilities to shareholders and regulators in relation to the Group’s
remuneration policies. The Committee does this by reviewing and
making recommendations to the Board on matters including (but not
limited to):
• remuneration arrangements of Non-executive Directors, Managing
Director and CEO and executive-level direct reports to the Managing
Director and CEO
• annual performance review of the Managing Director and CEO and
executive-level direct reports to the Managing Director and CEO
• remuneration outcomes for the Managing Director and CEO and
executive-level direct reports to the Managing Director and CEO
• delegating power for the operation and administration of all Group
incentive and equity plans to management (as appropriate)
The People and Culture
Committee may seek
advice from independent
remuneration consultants
in determining appropriate
remuneration policies for
the Group, and specifically
remuneration arrangements
for the Managing Director
and CEO, and executive-level
direct reports to the Managing
Director and CEO.
How it is
delivered
How it
works
Management makes recommendations, to the People and Culture
Committee on matters including (but not limited to):
Management
• remuneration arrangements of executive-level direct reports to the
Managing Director and CEO, including the establishment of any new,
or amendment to the terms of any existing, incentive and equity plans
• annual performance review of executive-level direct reports to the
Managing Director and CEO
• changes to the Group’s remuneration policies
• delivered as
Restricted Shares
• equivalent to 50%
of TFC
• Restricted Shares vest
after 3 years, subject
to the satisfaction of a
service condition
• dividend escrowed and
paid upon vesting
• consists of base salary
and superannuation
• set in relation to the
external market,
considering size and
complexity of role,
and the individual’s
experience, skills and
performance
target TFC position
is the 75th percentile
of the ASX 100
comparator group (plus
reference to local and
international retailers,
as appropriate)
•
2.2 Corporate governance policies related to remuneration
2.2.2 Minimum Shareholding Policy
What it
does
Aimed at attracting and retaining key talent
in the competitive retail environment
• paid as cash
• opportunity levels (all
Executive KMP):
= 60% of TFC at
Target
= 120% of TFC at
Maximum
• Other Executive KMP
measured against a
Company scorecard
(consisting of EBIT,
Safety, Engagement and
Discretionary Financial
measures), and an
individual performance
rating
• Managing Director and
CEO measured against
a balanced scorecard
consisting of Financial,
Safety, People, and
Individual Strategic
metrics
Incentivises strong
individual and group
performance through
variation, at risk awards
• paid as cash
• opportunity levels (all
Other Executive KMP):
= 60% of TFC at
Target
= 90% of TFC at
Maximum
• Other Executive KMP
measured against
personal individual
performance in
supporting Group
operational and
strategic goals, subject
to the satisfaction of a
service condition
Note: The Managing Director
and CEO was not a part of
this Transition Incentive.
• delivered as
Performance Shares
• equivalent to 50%
of TFC
• Performance Shares
vest after 3 years,
subject to the
satisfaction of the
following performance
conditions:
= 50% relative
TSR (ASX 100
comparator
group)
= 50% cumulative EBIT
with a ROC gateway
• dividends escrowed
and paid upon vesting
Retains key talent during
a period of transition,
rewards for personal
performance to support
the delivery of Company
operational and
strategic goals
Aligns reward with creation
of sustainable, long-term
customer and shareholder
value
To support a robust remuneration framework, Coles has a number of
corporate governance policies related to remuneration in place, including
those outlined below.
2.2.1 Securities Dealing Policy
Coles has adopted a Securities Dealing Policy that applies to all Coles
team members including Non-executive Directors and Executive KMP and
their connected persons, as defined within the policy. This policy has been
introduced to ensure compliance with insider trading laws, to protect the
reputation of the Group, maintain confidence in trading in Coles securities,
and prohibit specific types of transactions being made which are not
in accordance with market expectations or may otherwise give rise to
reputational risk.
To build strong alignment between KMP and our shareholders, Coles has
established a Minimum Shareholding Policy. The policy requires both
Executive KMP and Non-executive Directors to build and maintain a
significant shareholding in Coles.
Executive KMP
Each Executive KMP is required to achieve a minimum shareholding
equivalent to 100% of total fixed compensation (‘TFC’) by the later of five
years from the date they commence, or five years from the introduction of
the policy on 1 July 2019.
In addition to Executive KMP, this policy also applies to all other executive-
level direct reports to the Managing Director and CEO.
Non-executive Directors
Each Non-executive Director is required to hold at least 1,000 ordinary
shares in the Company within six months of their appointment. The shares
may be held by a Non-executive Director either in his or her own name, or
indirectly in the name of either an entity controlled by the Non-executive
Director or a closely related party. As at the date of this Remuneration
Report, each Non-executive Director meets this requirement.
Within five years of appointment, each Non-executive Director is expected
to increase his or her shareholding to an amount equivalent to 100% of their
annual base fee at that time.
3.3 FY19 remuneration mix for Executive KMP
3.4 Executive KMP service agreements
The remuneration mix for Executive KMP for FY19 is based on the
remuneration arrangements in place prior to demerger. Chart 1 highlights the
portion of total remuneration (at-target) attributable to each remuneration
component during the FY19 transition year.
The terms of employment for the Executive KMP are formalised in
employment contracts that have no fixed term. Specific information relating
to the terms of the Executive KMP’s employment contracts is set out in
Table 2.
Chart 1
Executive KMP1
LTI
19.2%
STI
23.1%
ERS
19.2%
Total fixed compensation (TFC)
Short-term incentive (STI)
Restricted Shares (ERS)
Long-term incentive (LTI)
TFC
38.5%
1Excludes all Transition Awards as
detailed in section 4.6.
Table 2
Name
Steven Cain
Leah Weckert
Greg Davis
Notice Period1
Restraint of Trade
12 months
12 months
6 months
12 months
12 months
6 months
1Executive KMP can be terminated without notice if they were found to have engaged in serious
or wilful misconduct, are seriously negligent in the performance of their duties, commit a
serious or persistent breach of their employment contract, or commit an act, whether at work
or otherwise, that would bring the Group into disrepute. Coles may also make a payment in lieu
of notice.
Coles Group Limited 2019 Annual Report
54
Section 4: FY19 Executive KMP remuneration outcomes
4.3 Short-term incentive (STI) (continued)
Coles Group Limited 2019 Annual Report
55
4.1 Company performance
4.2 Total fixed compensation (TFC)
For FY19, TFC was designed to be competitive to retain, motivate and attract
the right talent. In order to benchmark TFC, the TFC for Executive KMP was
compared to the ASX 100, as well as both local and international retailers.
TFC was targeted at the 75th percentile of this peer group for comparable
roles.
There were no increases in TFC for any Executive KMP during FY19. For Mr
Cain and Ms Weckert, their TFC remained as disclosed in the Demerger
Scheme Booklet, at $2,100,000 for Mr Cain and $900,000 for Ms Weckert.
4.3 Short-term incentive (STI)
The FY19 Coles STI was designed to reward Executive KMP for the
achievement of key short-term performance measures. In FY19, the STI
component of Executive KMP remuneration was delivered 100% in cash.
Going forward, the Board has resolved to introduce deferral of a portion of
STI into equity as detailed in section 5 of this report.
For FY19, the Managing Director and CEO was assessed against a balanced
scorecard (as demonstrated in Table 4) consisting of Financial, Safety,
People, and Individual Strategic metrics. This structure is more closely
aligned to the FY20 STI scorecard structure for all Executive KMP.
This section of the report provides an overview of how the Company’s
performance for FY19 has driven remuneration outcomes for our
Executive KMP.
Coles’ remuneration framework has been designed to reward Executive KMP
for their contribution to the collective performance of Coles and to support
the alignment between the remuneration of Executive KMP and shareholder
returns.
Table 3 summarises key indicators of the performance of Coles and relevant
shareholder returns over FY19.
As Coles only listed on the ASX on 21 November 2018, it is not possible to
address the statutory requirement that Coles provides a five-year discussion
of the link between Company performance and remuneration. This table will
be expanded in future years to provide comparative metrics for the financial
years in which Coles is listed.
Table 3
Financial Summary for year ended 30 June
Earnings before interest and tax (EBIT) ($)1
Return on capital (ROC) (%)1
Dividends paid per ordinary share (cents) 2
Closing share price (as at 30 June) 3
Total shareholder return (TSR) (%)4
2019
$1,466.7m
36.0%
nil
$13.35
6.9%
1EBIT is calcuated on a statutory basis. ROC is EBIT divided by capital employed. Capital
employed is calculated on a seven-month rolling average basis.
2 Subsequent to 30 June 2019, the Directors declared a total fully franked dividend of 35.5 cents
per fully paid ordinary share, to be paid on 26 September 2019.
3The opening share price on listing on the ASX on 21 November 2018 was $12.49.
4TSR is calculated as the change in share price since listing on the ASX, plus dividends paid
during the financial year, divided by the opening share price for the financial year.
Table 4
Managing Director and CEO FY19 scorecard
Performance Metric
Weighting
Rationale for Performance Metric
Outcome
Summary of Achievement
Financial: earnings before
interest and tax (EBIT)1
Safety: total recordable injury
frequency rate (TRIFR)
People: engagement
45%
10%
15%
EBIT aligns STI awards with Coles’ focus on delivering
strong earnings through the business cycle, which
aligns with shareholder interests.
Between
threshold
and target
Coles is committed to reinforcing a strong safety
culture and improving safety leadership. This metric
maintains a focus on safety performance, as measured
by TRIFR, to prevent serious injuries.
People are at the core of Coles’ business. Engagement
measures the level of connection, motivation and
commitment our team members feel for Coles based
on our Company result in the mysay engagement
survey.
Above
target
Above
target
Statutory EBIT1 decreased by 0.9%, with an increase
in Supermarkets (1.7%) and Liquor (2.2%) offset by
declines in Express (72.1%) and higher corporate
costs associated with Coles being a separately
listed entity.
The total number of recordable injuries dropped by
more than 700 compared to the prior year – a 20.3%
improvement in TRIFR.
Team member engagement increased by 3
percentage points compared to the prior year’s
survey.
Individual strategic metrics
30%
A number of strategic metrics and measures
to determine the individual performance and
effectiveness of the Managing Director and CEO as
assessed by the Board.
Majority
fully
achieved
The Board assessed each strategic metric and
the achievements delivered during FY19, and
determined the Managing Director and CEO met or
exceeded the target performance for most metrics.
1The Board has adjusted the statutory EBIT result to ensure the assessment appropriately recognises outcomes that are within the control and influence of Executive KMP. The Board reviewed each
exceptional item to assess if it should be included in the result for the purposes of deriving the STI outcome. Ultimately the Board resolved to make both positive and negative adjustments to the EBIT
outcome for the purposes of the STI calculation, which included the exclusion of Significant Items detailed in the financial statements, as well as the loss of EBIT due to the new alliance with Viva
Energy and AVC (Spirit Hotels) partnership, and one-off costs due to corporate restructuring. Had the Board chosen not to make any adjustments to statutory EBIT for the purpose of STI calculations,
it would have resulted in an above target outcome for the EBIT performance metric for Executive KMP.
For FY19, the STI for Other Executive KMP was calculated using two key performance factors, one based on Company performance, and one based on
individual performance.
1.
Company performance is based on a scorecard with four key
performance categories, Financial, Safety, People, and a Discretionary
Financial component, allowing the Board the flexibility to adjust a
small portion of the scorecard (either downward or upward) to deliver
appropriate outcomes.
2.
Individual performance is based on the individual performance
rating assessment for each Executive KMP. Performance ratings
are determined based on both the achievement of strategy aligned
objectives within the Other Executive KMP’s direct area of influence,
and the way those outcomes were delivered.
The STI award calculation for Other Executive KMP is demonstrated in the diagram below. The Board retains ultimate discretion to adjust the Company
performance component, the individual performance component, or the overall STI outcome to ensure outcomes remain appropriate. This includes
considering compliance with Company policies and governance requirements.
Company
Performance
Based on Financial,
Safety, People, and
Discretionary Financial
X
Individual
Performance
Based on Individual
Performance Rating
X
STI
Target Opportunity
60% x TFC ($)
=
STI Outcome
($)
Maximum Opportunity
120% of TFC
FY19 Company Performance Scorecard
Table 5 provides an overview of the specific performance metrics included within the FY19 Company Performance Scorecard, and the actual performance
achieved against each metric.
Table 5
Performance Metric
Weighting
Rationale for Performance Metric
Outcome
Summary of Achievement
Financial: earnings before
interest and tax (EBIT)
60.0%
EBIT aligns STI awards with Coles’ focus on delivering
strong earnings through the business cycle, which
aligns with shareholder interests.
Between
threshold
and target
See Table 4
Safety: total recordable injury
frequency rate (TRIFR)
13.33%
People: engagement
13.33%
Discretionary Financial
13.33%
FY19 STI Award Outcomes
Coles is committed to reinforcing a strong safety
culture and improving safety leadership. This metric
maintains a focus on safety performance, as measured
by TRIFR, to prevent serious injuries.
People are at the core of Coles’ business. Engagement
measures the level of connection, motivation and
commitment our team members feel for Coles based on
our Company result in the mysay engagement survey.
Above target
See Table 4
Above target
See Table 4
This element is to provide an opportunity to recognise
achievements across the Group of strategic importance,
whilst ensuring the affordability of the overall STI
award.
Fully
achieved
The Board awarded full achievement of this metric
due to strong performance in Supermarkets, reset of
Group strategy, progress of strategic projects including
Witron, Ocado, SAP investment, as well as commercial
transactions for the Hotels business and Viva Energy
Alliance.
At the conclusion of FY19, the Board assessed the Company’s performance against the scorecard and the individual performance of each Executive KMP to
determine any STI award outcome payable based on this assessment.
Details of the Executive KMP STI opportunity and actual payments received for FY19 are provided in Table 6.
Table 6
Name
Steven Cain4
Leah Weckert
Greg Davis
STI Maximum
Opportunity1
94.3% of TFC
120% of TFC
120% of TFC
STI Target
Opportunity
47.2% of TFC
60% of TFC
60% of TFC
STI Awarded2
($)
STI Awarded2
(% of TFC)
STI Forfeited3
(%)
$822,314
$408,240
$362,880
39.2%
45.4%
45.4%
58.5%
62.2%
62.2%
1The minimum STI opportunity was nil.
2The FY19 STI was paid on 15 September 2019.
3As a percentage of STI Maximum Opportunity.
4Mr Cain’s FY19 STI was pro-rated to his date of commencement 17 September 2018.
Coles Group Limited 2019 Annual Report
56
Terms of the FY19 STI
Short-term incentive (STI)
Terms of the FY19 ERS Offer
Restricted Shares
4.5 Long-term incentive (LTI) (continued)
Performance Shares will vest subject to the satisfaction of the following
performance conditions:
What is the Performance Period?
Coles Group Limited 2019 Annual Report
57
What was the Performance Period?
How is the award delivered?
1 July 2018 – 30 June 2019
What were the performance conditions?
For the Managing Director and CEO, the STI award was calculated
using a balanced scorecard that includes both Company and Individual
metrics.
For Other Executive KMP, two key performance factors were used:
1. Company performance: comprising financial, safety, people, and
discretionary financial metrics; and
2. Individual performance rating.
See above for further details.
How were the conditions assessed?
Performance against the Company Group Performance Scorecard and
Managing Director and CEO Scorecard was assessed by the Board based
on the Company’s annual audited results and financial statements and
other data provided to the Board.
For the individual performance of the Managing Director and CEO, the
Board, upon recommendation of the People and Culture Committee,
determined the assessment of the Managing Director and CEO’s
individual performance. For Other Executive KMP, the Board, upon
recommendation of the People and Culture Committee and Managing
Director and CEO, determined their individual performance rating.
The methods adopted to assess performance were chosen as the
Board believes they are the most appropriate way to assess the true
financial performance of the Company, the Executive KMP’s individual
contribution and determine remuneration outcomes.
When was the FY19 STI award paid?
15 September 2019
What happens if an Executive KMP left the organisation?
In the event of resignation or dismissal for cause or significant
underperformance prior to payment of the STI, an Executive KMP would
not be eligible for any STI award.
If an Executive KMP had ceased employment on or after 1 April 2019
due to retirement, redundancy, permanent disability, or death, they
may have been eligible for a pro rata STI award calculated up to the last
day of their employment. Any such STI award would have been paid in
September 2019 in the ordinary course.
Can the Board amend the STI program?
The Board retains discretion to, at any time, suspend or terminate the
program, or amend all or any elements of the program up until the date
of payment.
Restricted Shares, being fully paid ordinary shares in Coles held in trust
and restricted from trading until they vest at the end of a Restriction
Period.
Restricted Shares were allocated to Executive KMP at no cost to the
Executive KMP.
When were the Restricted Shares allocated?
19 December 2018
What is the Restriction Period?
19 December 2018 – 19 December 2021.
The Restricted Shares will be held in trust on the Executive KMP’s behalf
during the Restriction Period. During that time, the Executive KMP will
be unable to sell, transfer or otherwise deal in the Restricted Shares.
What happens if an Executive KMP ceases employment?
In the event of resignation, termination for cause or significant
underperformance, the Executive KMP will forfeit all unvested Restricted
Shares, unless the Board determines otherwise.
In any other circumstances (including by reason of redundancy,
permanent disability, death or ill health), a pro rata number of unvested
Restricted Shares (based on the proportion of the Restriction Period
that has elapsed) will remain on foot and subject to the original terms of
offer as though the Executive KMP had not ceased employment, unless
the Board determines otherwise.
Do Restricted Shares have voting rights?
Yes. Restricted Shares carry the same voting rights as other ordinary
shares.
Are dividends paid on Restricted Shares?
During the Restriction Period, dividends paid on Restricted Shares will
be held in escrow. If an Executive KMP incurs a tax liability on dividends
held in escrow, an amount will be released to cover that tax liability.
Dividend payments will only be released to the Executive KMP to the
extent that the underlying shares vest (less any amount already released
to satisfy tax payable in respect of dividends).
How can the Board apply discretion to clawback outcomes?
The Board has broad clawback powers to determine that any Restricted
Shares granted under the FY19 ERS Offer may be forfeited or that the
Executive KMP is required to pay as a debt the net proceeds of the sale
of shares or dividends provided in certain circumstances (for example,
where the Executive KMP has acted fraudulently or dishonestly, has
engaged in gross misconduct, brought the Group into disrepute or
breached their obligations to the Group). This protects Coles against the
payment of benefits where participants have acted inappropriately.
4.4 Restricted Shares
What happens if there is a change of control?
The FY19 Executive Restricted Share Offer (‘FY19 ERS Offer’) was designed
to support Executive KMP in accumulating a shareholding in the Company,
with the aim of driving alignment between Executive KMP and shareholders
and aid in the attraction and retention of local and international talent.
The Executive Restricted Share Offer will be discontinued in FY20 (see
section 5 for a summary of remuneration changes for FY20).
Under the terms of the Offer, the Board may determine in its absolute
discretion that some or all the Executive KMP’s Restricted Shares will
vest or cease to be subject to restrictions on a likely change of control.
Where there is an actual change in control of the Company then, unless
the Board determines otherwise, unvested Restricted Shares will vest on
a pro rata basis (based on the proportion of the Restriction Period that
has elapsed).
Under the FY19 ERS Offer, Executive KMP were allocated shares that are
subject to a continued service condition and a three-year dealing restriction.
4.5 Long-term incentive (LTI)
The maximum opportunity for all Executive KMP under the FY19 ERS
Offer was 50% of TFC. Shares were allocated to each Executive KMP on 19
December 2018, with the number of shares allocated calculated by dividing
the opportunity value by the volume weighted average price of shares
traded on the ASX over the 10 trading days up to and including 19 December
2018, being $12.344647, rounded down to the nearest whole number.
Details of the number of Restricted Shares awarded to Executive KMP under
the FY19 ERS Offer are outlined in section 4.8.
The FY19 LTI was designed to reward Executive KMP for the achievement of
long-term sustainable returns for shareholders.
As outlined in section 3.2, for FY19 the LTI component of Executive KMP
remuneration is delivered in Performance Shares. The Performance Period
for the FY19 LTI runs from the date that Coles was listed on the ASX (21
November 2018) to 27 June 2021 (‘Performance Period’) being the last day
in the retail calendar for FY21.
• 50% of Performance Shares are subject to a cumulative earnings before
interest and tax (‘EBIT’) hurdle over the Performance Period, subject to a
return on capital (‘ROC’) gateway (‘EBIT and ROC component’); and
• 50% of Performance Shares are subject to a relative total shareholder
return (‘TSR’) performance hurdle, measured over a period commencing
on 20 February 2019 (the day after Coles’ FY19 half-year results
announcement) and ending on 27 June 2021 (‘TSR measurement period’)
(‘TSR component’). Coles’ relative TSR will be compared to companies in
the ASX 100 (‘Comparator Group’).
EBIT and ROC component
Vesting of the Performance Shares in the EBIT and ROC component is
subject to achievement of at least 90% of the cumulative ROC target over
the Performance Period.
The number of Performance Shares in the EBIT and ROC component that
vest, if any, will then be based on the Group’s cumulative EBIT performance
determined over the Performance Period by reference to the following
vesting schedule:
The total Performance Period is 21 November 2018 (Coles’ listing
date) to 27 June 2021. The cumulative EBIT and ROC hurdles are
measured over this period. The TSR hurdle is measured over the period
from 20 February 2019 (the day after Coles’ FY19 half-year results
announcement) to 27 June 2021.
What are the performance conditions?
Performance Shares are subject to the following performance conditions:
• 50% of the LTI award is subject to an EBIT hurdle with a ROC gateway; and
• 50% of the LTI award is subject to a TSR hurdle.
Further information on the performance conditions is provided earlier in
section 4.5.
How are the performance conditions assessed?
TSR performance is independently assessed over the Performance
Period against the constituents of the S&P ASX 100 index.
EBIT and ROC is calculated using Coles’ audited financial results.
TSR performance and EBIT and ROC have been chosen as performance
conditions for the LTI as the Board felt these were relevant in the
circumstances.
Group cumulative EBIT over the
Performance Period
% of Performance Shares
that vest
When does testing and vesting occur?
Less than 90% of the cumulative EBIT
target is achieved
90% of the cumulative EBIT target is
achieved
0%
50%
Between 90% and 100% of the cumulative
EBIT target is achieved
Straight-line pro rata vesting between
50% - 100%
100% or more of the cumulative EBIT target
is achieved
100%
The ROC and EBIT targets are considered by Coles to be commercially
sensitive. However, the Board will disclose the relevant vesting outcomes
following the end of the Performance Period.
TSR component
The number of Performance Shares in the TSR component that vest, if
any, will be based on Coles’ TSR ranking within the ASX 100 Comparator
Group over the TSR measurement period, as set out in the following vesting
schedule:
Testing of performance against performance conditions will occur after
the end of the Performance Period (being 27 June 2021). Following
testing, the Board will determine the number of Performance Shares to
vest, which is expected to occur in September 2021.
If the anticipated vesting date falls within a Blackout Period (as defined
within the Company’s Securities Dealing Policy), vesting will be delayed
until the end of that period.
Following testing, any Performance Shares that do not vest will be
forfeited.
What happens if an Executive KMP ceases employment?
In the event of resignation or dismissal for cause or significant
underperformance, all unvested Performance Shares will be forfeited,
unless the Board determines otherwise.
In any other circumstances (including by reason of redundancy,
permanent disability, death or ill health), a pro rata number of
Performance Shares (based on the proportion of the Performance
Period that has elapsed) will remain on foot and subject to the original
performance conditions as though the Executive KMP had not ceased
employment, unless the Board determines otherwise.
Do Performance Shares have voting rights?
Coles TSR rank in the Comparator Group
% of Performance Shares
that vest
Yes. Performance Shares carry the same voting rights as other ordinary
shares.
Below the 50th percentile
Equal to the 50th percentile
0%
50%
Between 50th percentile and 75th percentile
Straight-line pro rata vesting between
50% - 100%
Equal to the 75th percentile or above
100%
Following testing, any Performance Shares that do not vest will be forfeited.
There is no re-testing of awards.
Are dividends paid on Performance Shares?
During the Performance Period, dividends paid on Performance Shares
will be held in escrow. If an Executive KMP incurs a tax liability on
dividends held in escrow, an amount will be released to cover that tax
liability.
Dividend payments will only be released to the Executive KMP to the
extent that the underlying shares vest (less any amount already released
to satisfy tax payable in respect of dividends).
FY19 LTI outcomes
How can the Board apply discretion to clawback outcomes?
Performance Shares granted under the FY19 LTI will be tested in 2021.
Details of the number of Performance Shares granted under the FY19 LTI on
19 December 2018 are included in section 4.8.
Terms of the FY19 LTI
Long-term incentive (LTI)
How is the LTI award delivered?
Performance Shares, being fully paid ordinary shares in Coles which
vest subject to achievement of relevant performance conditions.
Performance Shares are allocated to Executive KMP at no cost to the
Executive KMP.
When were Performance Shares allocated?
19 December 2018
The Board has broad clawback powers to determine that any
Performance Shares may be forfeited or that the Executive KMP is
required to pay as a debt the net proceeds of the sale of shares or
dividends in certain circumstances (e.g. the Executive KMP has acted
fraudulently or dishonestly, has engaged in gross misconduct, brought
the Group into disrepute or breached their obligations to the Group).
This protects Coles against the payment of benefits where participants
have acted inappropriately.
What happens if there is a change of control?
Under the Offer terms, the Board may determine in its absolute
discretion that some or all the Executive KMP’s Performance Shares will
vest or cease to be subject to restrictions on a likely change of control.
Where there is an actual change in control of the Company then, unless
the Board determines otherwise, unvested Performance Shares will vest
on a pro rata basis (based on the proportion of the Performance Period
that has elapsed).
4.8 Summary of Executive KMP shareholding
Coles Group Limited 2019 Annual Report
59
Table 8 shows the movements of Coles ordinary shares, Restricted Shares and Performance Shares, held directly, indirectly or beneficially, by each Executive
KMP, including their related parties during FY19.
Table 8
NAME AND HOLDING
Steven Cain
Coles Ordinary Shares
Coles Restricted Shares
Coles Performance Shares
Leah Weckert
Coles Ordinary Shares
Coles Restricted Shares
Coles Performance Shares
Greg Davis
Coles Ordinary Shares
Coles Restricted Shares
Coles Performance Shares
Movements during the financial period
Additional
Information
BALANCE OF
SHARES HELD
AT 1 JULY 2018
SHARES ACQUIRED
THROUGH
DEMERGER
SHARES ACQUIRED
AS REMUNERATION
OTHER CHANGES
DURING THE YEAR1
CLOSING
BALANCE AT 30
JUNE 20192
ACCOUNTING FAIR
VALUE OF GRANT
YET TO VEST ($)3
-
-
-
10,000
-
40,000
-
85,057
-
85,057
-
11,511
-
-
-
24,8194
36,453
-
36,453
-
23,445
-
-
-
29,1784
32,402
-
32,402
-
-
-
-
-
-
-
-
50,000
85,057
85,057
11,511
61,272
36,453
23,445
61,580
32,402
-
$881,191
$696,617
-
$377,653
$298,550
-
$335,685
$265,372
1Includes shares purchased or sold on-market.
2 No shareholdings were held nominally by the Executive KMP or their related parties as at 30 June 2019.
3The fair value of Restricted Shares and Performance Shares is an estimate of the total value of grants in future financial years. Restricted Shares and Performance Shares are subject to the
satisfaction of conditions and therefore the minimum total value of the awards for future financial years is nil.
4Restricted Shares acquired through demerger are only subject to a holding lock whilst Ms Weckert and Mr Davis remain employed by Coles, or until the date the Wesfarmers shares, that these
Coles shares were allocated as a result of, vest, whichever date is earlier.
Coles Group Limited 2019 Annual Report
58
4.6 Transition awards
Wesfarmers put in place a small number of transition arrangements for
certain Coles executives. These arrangements were temporary and will
not be replicated post demerger. The transition arrangements are outlined
below.
Managing Director and CEO
As part of Mr Cain’s employment agreement with Coles, Wesfarmers
agreed to compensate Mr Cain for short and long-term incentives that were
forfeited or forgone with his prior employer, due to his acceptance of the
role with Coles.
As disclosed in the Demerger Scheme Booklet, the maximum cash amount
of compensation payable to Mr Cain is $3,900,000. This amount has been
structured into three tranches:
Other Executive KMP
Prior to the demerger, Ms Weckert and Mr Davis participated in an incentive
arrangement provided by Wesfarmers linked to the business’ operational
and strategic goals referred to earlier in the Report as the Transition
Incentive. Under that arrangement, and as disclosed in section 4.6.1 of the
Demerger Scheme Booklet, both Ms Weckert and Mr Davis were entitled
to receive a cash payment based on personal performance in supporting
the business’ operational and strategic goals, and provided they remain
employed by the Group until the payment date.
Both Ms Weckert and Mr Davis satisfied these conditions and the following
payments were made:
1. $709,560, which was paid to Ms Weckert on 25 June 2019; and
1. $900,000, which was paid by Coles on 4 December 2018;
2. $630,720, which was paid to Mr Davis on 25 June 2019.
2. $1,500,000, which was paid by Coles on 28 December 2018;
4.7 Summary of remuneration received by Executive KMP
3. $1,500,000, which will be paid by Coles at the end of December 2019.
In order to receive the final instalment (tranche 3), on the date of payment,
Mr Cain must not have tendered his resignation or been dismissed for cause.
The payments made at the end of December 2018 and December 2019 are
subject to clawback (for example, where there is a material misstatement
in, or omission from, the Company’s financial statements or as a result of
fraud, dishonesty or breach of obligations) for a period of two years from the
date of payment.
Table 7 details the nature and amount of each element of remuneration of the
Executive KMP. There were no transactions or loans between Executive KMP
and the Company or any of its subsidiaries during FY19.
Table 7
NAME
Current Executive KMP
Steven Cain
Leah Weckert3
Greg Davis4
Former KMP
John Durkan5
TOTAL
YEAR
2019
2019
2019
2019
2019
Short-term
Long-term
Post
employment
Value of share-
based payments2
BASE
SALARY
OTHER
BENEFITS1
CASH STI
LONG SERVICE
LEAVE
SUPERANNUATION
BENEFITS
SHARE-BASED
PAYMENTS
TOTAL
COMPENSATION
$1,815,929
$2,403,010
$686,674
$465,265
$710,255
$631,667
$822,314
$408,240
$362,880
$447,089
$6,501
$687,123
$3,414,957
$3,751,433
$2,280,557
$10,284
$6,988
$8,136
$7,635
$33,043
$25,665
$16,197
$12,148
$5,133
$59,143
$319,110
$443,693
$364,142
$5,396,312
$2,272,047
$1,844,238
$365,158
$1,518,639
$1,492,103
$11,031,236
1 Other benefits include costs associated with employment (including any applicable fringe benefits tax) including awards noted under section 4.6.
2 The figures in this column for share-based payments represent share-based awards that are not actually vested in favour of the Executive KMP in the financial period presented (with the
exception of Mr Durkan, see footnote 5). The amounts represent the accounting fair value of the grants of Restricted Shares, Performance Shares, and legacy Wesfarmers share awards allocated
to Ms Weckert and Mr Davis prior to the demerger pursuant to Wesfarmers share plans, which Ms Weckert and Mr Davis received as Wesfarmers employees and are being expensed over the
relevant performance period. In accordance with the Accounting Standards the accounting fair value of the grants is recognised proportionally over the grant’s performance period. Refer to
sections 4.4 and 4.5 for further details of the grants, their performance conditions and performance periods. If the performance conditions are not met, the Executive KMP will not be entitled to
the shares.
3Represents remuneration received as Coles KMP from 17 September 2018. Total base salary received by Ms Weckert for FY19 was $875,877. Prior to the demerger, Ms Weckert participated in the
2015, 2016 and 2017 Wesfarmers Employee Share Acquisition Plan (WESAP) and was granted a total of 29,368 Wesfarmers Restricted Shares subject to service conditions and 6,962 Wesfarmers
Performance Shares subject to service and performance conditions. On 26 November 2018, 11,511 Wesfarmers Restricted Shares granted under the 2015 WESAP were released from holding lock.
10,895 Wesfarmers Restricted Shares granted under the 2016 WESAP are eligible to be released from holding lock on or around November 2019 and 6,962 Wesfarmers Restricted Shares and 6,962
Wesfarmers Performance Shares granted under the 2017 WESAP are eligible to vest and be released from holding lock on or around December 2020.
4Represents remuneration received as Executive KMP from 28 November 2018. Total base salary received by Mr Davis for FY19 was $785,354. Prior to the demerger, Mr Davis participated in the
2015, 2016 and 2017 Wesfarmers Employee Share Acquisition Plan (WESAP) and was granted a total of 22,646 Wesfarmers Restricted Shares subject to service conditions and 22,646 Wesfarmers
Performance Shares subject to service and performance conditions. On 26 November 2018, 8,057 Wesfarmers Restricted Shares and 2,819 Wesfarmers Performance Shares granted under the
2015 WESAP vested and were released from holding lock. 7,627 Wesfarmers Restricted Shares and 7,627 Wesfarmers Performance Shares granted under the 2016 WESAP are eligible to vest and
be released from holding lock on or around November 2019 and 6,962 Wesfarmers Restricted Shares and 6,962 Wesfarmers Performance Shares granted under the 2017 WESAP are eligible to vest
and be released from holding lock on or around December 2020.
5Mr Durkan was a Director of Coles in FY19 from 1 July 2018 until 17 September 2018 (during the pre demerger period). The value of share-based payments disclosed in Table 7 relates to
Wesfarmers Performance Rights, Wesfarmers Performance Shares and Wesfarmers Restricted Shares received by Mr Durkan pre demerger under the Wesfarmers 2016 and 2017 Key Executive
Equity Performance Plan and the 2015 Wesfarmers Long-Term Incentive Plan and are subject to the satisfaction of vesting conditions. Refer to the 2019 Wesfarmers Remuneration Report for
further details.
Coles Group Limited 2019 Annual Report
60
Section 5: FY20 Executive KMP remuneration framework
Following completion of the demerger and as part of our commitment to
ensuring a remuneration framework which is fit-for-purpose for Coles
into the future, new remuneration principles have been developed during
the year. We have developed these principles to guide future decisions in
relation to remuneration at Coles: be market competitive, be performance-
based, create long-term value for shareholders, and be fit-for-purpose.
As a newly listed entity, we have developed our business strategy to enable
Coles to 'win in our second century'. The People and Culture Committee and
the Board have spent a significant amount of time and effort considering the
most appropriate remuneration framework to support the delivery of this
new strategy, and to enable the business culture we want to create. This
process included consultation with external stakeholders, including the
proxy advisor community and working with subject matter experts in KPMG
and Mercer, to help inform our final position.
The FY20 framework is more heavily focused on performance-based pay
delivered through equity awards. Under the terms of his appointment, the
Managing Director and CEO was contractually entitled to an LTI award for
FY20 equal to 150% of TFC. With the shift to greater performance-based pay
under the FY20 framework, the Company will instead provide the Managing
Director and CEO with an LTI opportunity for FY20 which is equal to 175%
of TFC and remove the time-based Restricted Share arrangements which
applied in FY19. This results in a shift from 51.7% of the Managing Director
and CEO’s overall remuneration package being performance-based in
FY19, to 71.8% in FY20. The People and Culture Committee considers the
new levels of ‘at risk’ remuneration to be appropriate, when balanced with
the performance conditions to be met, and believe the overall framework
is appropriately aligned to our new strategy and the interests of our
shareholders.
Market competitive
Retail is a globally
competitive industry.
We need to be able to attract,
motivate and retain high
calibre executives in both the
local and global talent market.
Performance-based
A strong link to performance-
based pay to support the
achievement of strategy
aligned short, medium and
long-term financial targets.
Creates long-term value
for shareholders
Ensuring there is a common
interest between executives
and shareholders by aligning
reward to the achievement
of sustainable shareholder
returns.
Fit-for-purpose
Designed to be relevant to
how Coles operates. It needs
to be simple to articulate,
drive the right behaviours
and ensure we deliver on our
strategy.
Aligned to our guiding principles, our new remuneration framework for FY20:
Is market
competitive, but does
not lead the market
Is better aligned to
Company and individual
performance outcomes
Is better aligned with
shareholders through
more focus on equity
Is fit-for-purpose for
Coles, aligned to our
new strategy
Delivered through a simpler, three-element structure:
How it is
delivered
How it
works
Fixed elements
Total Fixed
Compensation (TFC)
Variable elements
Short-term incentive
(STI)
Long-term incentive
(LTI)
Cash
Cash
Equity
Equity
•
•
consists of base salary and
superannuation
target position is the 50th
percentile of the ASX 10-
40 comparator group (plus
reference to local and
international retailers, as
required)
•
•
•
paid as part cash, part deferred equity
= Managing Director and CEO
50% is deferred for 2 years
= Other Executive KMP
25% is deferred for 1 year
opportunity levels (all Executive KMP):
= 80% of TFC at Target
= 120% of TFC at Maximum
•
•
delivered in performance rights,
subject to a 3 year Performance
Period
opportunity levels:
= Managing Director and CEO
175% of TFC
= Other Executive KMP
150% of TFC
measured against an individual balanced
scorecard consisting of:
= 60% financial measures
= 40% strategic and non-financial measures
• measured against:
= 50% relative TSR
(ASX 100 comparator group)
• = 50% cumulative ROC
•
includes a mixture of group and functional
strategic metrics
• dividend equivalent payment made
in shares upon vesting
What it
does
Allows us to attract and retain
key talent through competitive and
fair fixed remuneration
Incentivises strong individual and Company
performance, based on strategically aligned
deliverables, through variable, at risk
payments
Aligns reward with creation of
sustainable, long-term customer and
shareholder value
Table 9
Summary of key changes for FY20
Coles Group Limited 2019 Annual Report
61
Component
FY19
FY20 (Change)
Rationale
Fixed remuneration
Market Positioning
and Benchmark
Comparator Group
75th Percentile against the ASX
100 and reference to local and
international retailers
50th Percentile against the ASX 10-40
and reference to local and international
retailers
A more focused comparator group, and relative positioning against
that comparator group, that better aligns with the size of the Group
and still includes the organisations we compete with most for talent.
Short-term incentive
Structure
Company and Individual
Performance components
Balanced Scorecard
60% Financial
40% Strategic and
Non-financial metrics
A balanced scorecard approach to STI calculation is consistent
with market practice. It also provides more transparency regarding
performance priorities, performance outcomes against each weighted
metric, and more clarity regarding the connection between the
performance assessment and reward outcome.
Target amount: 60% of TFC
Maximum: 120% of TFC
Target amount: 80% of TFC
Maximum: 120% of TFC
New target opportunity requires the deferral of a portion into equity
and is appropriately benchmarked across the ASX 10-40.
100% Cash
No Deferral
Managing Director and CEO:
50% Cash and
50% Deferred into equity
(2-year deferral)
Other Executive KMP:
75% Cash and
25% Deferred into equity
(1-year deferral)
A deferred equity element assists in the alignment between Executive
KMP and shareholder interests and supports the introduction of a
minimum shareholding policy for Executive KMP. Forfeiture conditions
also apply on cessation of employment, to support retention.
Introducing an equity component will also allow the application of
malus and clawback to the STI.
Managing Director and CEO:
50% of TFC
Other Executive KMP:
50% of TFC
Nil – no offer for FY20
(reflecting increased
performance-based LTI)
Coles is committed to performance-based pay and is removing the
Restricted Share component from FY20, in favour of an increased
performance-based LTI award (see below).
Opportunity
Delivery
Restricted Shares
Opportunity
Long-term incentive
Opportunity
Managing Director and CEO:
50% of TFC
Managing Director and CEO:
175% of TFC
Other Executive KMP:
50% of TFC
Other Executive KMP:
150% of TFC
Delivery
Performance Shares
Performance rights allocated at face
value
Performance
Conditions
50% relative TSR against ASX
100 comparator group
50% relative TSR against ASX 100
comparator group
50% cumulative EBIT with a
ROC gateway
50% cumulative ROC
Coles is committed to delivering long-term value for shareholders.
To support this strategy a greater shift to long-term performance-
based pay has been made. The overall quantum of the LTI award has
been benchmarked against the ASX 10-40 and the Board believes
this quantum appropriately recognises a transition from the FY19
structure, specifically the removal of Restricted Shares (which were
not subject to performance conditions).
Performance rights are considered the most widely used instrument
for LTI programs across the ASX 100. With the use of performance
rights Executive KMP do not receive an entitlement to a Coles share
until the vesting conditions are satisfied.
Coles considers relative TSR (benchmarked against the broader ASX
100) to be an appropriate external metric aligned to the interests of
shareholders. The shift from cumulative EBIT (with a ROC gateway)
to cumulative ROC ensures Coles maintains an appropriate internal
return metric and removes duplication of EBIT across both the STI and
LTI programs.
Treatment of
Dividends
Dividends held in escrow on
behalf of the participant with
funds released to the extent that
the underlying shares vest.
Dividend equivalent payment in the
form of additional shares provided
upon vesting.
This approach is to ensure Executive KMP continue to receive a similar
benefit in the transition from Performance Shares to performance
rights.
Other
Minimum
Shareholding Policy
Applicable to Non-executive
Directors only: 1,000 shares
within 6 months from
appointment. Holding equivalent
to 100% of base fees within 5
years.
Applicable to both Non-executive
Directors (no change) and Executive
KMP.
For Executive KMP: 100% of TFC
within 5 years from the later of the
date they commence acting as KMP or
commencement of policy.
Coles considers the accumulation of shares in the Company by both
Non-executive Directors and Executive KMP will drive an increase in
the alignment between those individuals and the shareholders of our
Company.
Coles Group Limited 2019 Annual Report
62
Section 6: FY19 Non-executive Director remuneration
6.1 Non-executive Director remuneration framework
Non-executive Director remuneration is designed to ensure that the
Company can attract and retain suitably qualified and experienced
Non-executive Directors.
Non-executive Directors receive a base fee for their service as a director
of the Company, and other than the Chairman, an additional fee for
membership of, or for chairing a Board committee. To maintain the
independence of directors, Non-executive Directors do not receive shares
or any performance-related incentives as part of their remuneration from
the Company. A minimum shareholding policy applies to Non-executive
Directors (see section 2.2.2).
Non-executive Directors are reimbursed for travel and other expenses
reasonably incurred when attending meetings of the Board or conducting
the business of the Company.
The People and Culture Committee reviews and makes recommendations
to the Board with respect to Non-executive Directors’ fees and Board
committee fees.
6.2 Current Non-executive Director remuneration policy
The Non-executive Director remuneration policy enables the Company
to attract and retain high-quality directors with relevant experience.
The remuneration policy is reviewed annually by the People and Culture
Committee. Non-executive Director fees are set after consideration of fees
paid by companies of comparable size, complexity, industry, and geography,
and reflect the qualifications and experience necessary to discharge the
Board’s responsibilities.
The current Non-executive Director aggregate fee limit is $3,600,000 and
was approved by the then shareholders of Coles at a general meeting held
on 19 September 2018 prior to listing.
Table 10 sets out the Board and committee fees in Australian dollars
(inclusive of superannuation) for FY19.
Table 10
Board and committee fees
Board
Audit and Risk Committee
People and Culture Committee
Nomination Committee
Chair
$695,0001
$55,000
$55,000
No fee
Member
$220,000
$27,000
$27,000
No fee
1The Chairman of the Board does not receive Committee fees in addition to his Board fee.
6.3 FY19 Non-executive Director remuneration
6.3.1 Directors considered KMP in the pre demerger period
During the pre demerger period, Rob Scott and Anthony Gianotti (as MD
and CEO and CFO of Wesfarmers respectively) both acted as Directors of
Coles. Mr Scott and Mr Gianotti received remuneration from Wesfarmers in
their capacity as executives of Wesfarmers and did not receive remuneration
in their capacity as Directors of Coles. For this reason, no remuneration
details have been disclosed for Mr Scott or Mr Gianotti in Table 11 below.
Their role as Directors of Coles ceased on 19 November 2018. Full details
of the remuneration received by Mr Scott and Mr Gianotti for their role
as executives of Wesfarmers will be disclosed by Wesfarmers in its FY19
Remuneration Report.
Ms Weckert was a Director of Coles from 17 September 2018 to 19 November
2018. She did not receive remuneration in her capacity as a Director of Coles.
For the purposes of this Remuneration Report, Mr Durkan was an Executive
Director from 1 July 2018 to 17 September 2018 and received remuneration
for his role as an executive of Wesfarmers. Details of Ms Weckert’s and Mr
Durkan’s executive remuneration for FY19 is disclosed in Table 7.
6.3.2 FY19 remuneration for Non-executive Directors
Table 11 outlines the remuneration for the Non-executive Directors of Coles
during FY19. There were no transactions or loans between Non-executive
Directors and the Company or any of its subsidiaries during FY19.
Table 11
Name
Financial Year
Base and committee fees
(excluding superannuation)
Other benefits1
Superannuation benefits
Total compensation
James Graham
David Cheesewright2
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Wendy Stops
Zlatko Todorcevski
TOTAL
2019
2019
2019
2019
2019
2019
2019
2019
$416,344
$149,111
$140,329
$140,329
$157,401
$140,329
$157,401
$1,301,244
$131
$0
$187
$0
$0
$109
$60
$487
$15,399
$4,328
$13,110
$13,110
$13,432
$13,110
$13,432
$85,921
$431,874
$153,439
$153,626
$153,439
$170,833
$153,548
$170,893
$1,387,652
1Other benefits include costs associated with employment (inclusive of any applicable fringe benefits tax).
2 Mr Cheesewright's superannuation benefits reflect the proportion of time spent working in Australia as a Non-executive Director of the Company during FY19.
6.4 Non-executive Director Ordinary Shareholdings
Table 12 shows the shareholdings and movements in shares held directly, or indirectly, by each Non-executive Director, including their related parties during
FY19.
Table 12
Name
James Graham
David Cheesewright1
Jacqueline Chow
Abi Cleland1
Richard Freudenstein
Wendy Stops1
Zlatko Todorcevski
TOTAL
Financial Year
Balance of shares held at
1 July 2018
Shares acquired
Shares disposed
Closing Balance as
at 30 June 20192
2019
2019
2019
2019
2019
2019
2019
2019
-
-
-
-
-
-
-
-
460,988
-
20,000
1,816
19,000
11,910
19,201
532,915
800
-
-
-
-
-
-
800
460,188
-
20,000
1,816
19,000
11,910
19,201
532,115
1Mr Cheesewright, Ms Cleland and Ms Stops have all increased their shareholding since the closing balance date of 30 June 2019. Refer to the Directors’ Report for further details.
2No shareholdings were held nominally by the Non-executive Directors or their related parties as at 30 June 2019.
Financial
report.
Coles Group Limited 2019 Annual Report
64
Financial report contents.
Consolidated financial statements.
Statement of Profit or Loss
Statement of Other Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the consolidated financial statements.
2.1 Basis of preparation and accounting policies
2.2 Significant items
3: Performance.
3.1 Segment reporting for continuing operations
3.2 Earnings per share
3.3 Sales revenue
3.4 Administration expenses
3.5 Financing costs
Income tax
3.6
4: Assets and liabilities.
Inventories
4.1 Cash and cash equivalents
4.2 Trade and other receivables
4.3 Other assets
4.4
4.5 Property, plant and equipment
4.6
4.7 Trade and other payables
4.8 Provisions
Intangible assets
5: Capital.
5.1
Interest-bearing liabilities
5.2 Contributed equity and reserves
5.3 Dividends paid and proposed
Impairment of non-financial assets
6: Risk.
6.1
6.2 Financial risk management
6.3 Financial instruments
7: Group structure.
7.1 Equity accounted investments
7.2 Non-current assets held for sale
7.3 Discontinued operations
7.4 Subsidiaries
7.5 Parent entity information
8: Unrecognised items.
8.1 Capital expenditure commitments
8.2 Operating lease commitments
8.3 Contingent liabilities
9: Other disclosures.
9.1 Related party disclosures
9.2 Share-based payments
9.3 Auditor’s remuneration
9.4 New accounting standards and interpretations
9.5 Events after the reporting period
Directors’ Declaration.
Independent Auditor’s Report.
Coles Group Limited 2019 Annual Report
65
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
$M
38,175.8
288.4
38,464.2
(29,253.4)
9,210.8
427.7
(8,031.0)
(145.8)
5.0
1,466.7
(41.5)
1,425.2
(347.0)
1,078.2
356.5
1,434.7
38,934.4
211.0
39,145.4
(30,119.3)
9,026.1
168.7
(7,731.7)
-
16.3
1,479.4
(0.1)
1,479.3
(456.1)
1,023.2
555.6
1,578.8
1,434.7
1,578.8
107.6
80.8
118.4
76.7
Statement of
Profit or Loss
for the year ended 30 June 2019.
Notes
3.3
3.4
7.1
3.5
3.6
7.3
Continuing operations
Sales revenue
Other operating revenue
Total operating revenue
Cost of sales
Gross profit
Other income
Administration expenses
Other expenses
Share of net profit of equity accounted investments
Earnings before interest and tax (EBIT)
Financing costs
Profit before income tax
Income tax expense
Profit for the year from continuing operations
Discontinued operations
Profit from discontinued operations after tax
Profit for the year
Profit attributable to:
Equity holders of the parent entity
Earnings per share (EPS) attributable to equity holders of the Company
Basic and diluted EPS (cents)
EPS attributable to equity holders of the Company from continuing operations
Basic and diluted EPS (cents)
3.2
The accompanying notes form part of the consolidated financial statements.
Coles Group Limited 2019 Annual Report
66
Coles Group Limited 2019 Annual Report
67
Statement of Other
Comprehensive Income
for the year ended 30 June 2019.
Statement of
Financial Position
as at 30 June 2019.
Profit for the year
Other Comprehensive Income
Items that may be reclassified to profit or loss:
Net movement in the fair value of cash flow hedges
Income tax effect
Other comprehensive income which may be reclassified
to profit or loss in subsequent periods
Total comprehensive income attributable to:
Equity holders of the parent entity
Total comprehensive income from continuing
operations attributable to:
Equity holders of the parent entity
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
1,434.7
(2.0)
0.6
(1.4)
$M
1,578.8
-
-
-
Notes
3.6
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Non-current assets held for sale
Other assets
Total current assets
Non-current assets
1,433.3
1,578.8
Property, plant and equipment
1,076.8
1,023.2
Intangible assets
Deferred tax assets
Equity accounted investments
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Income tax payable / (receivable)
Provisions
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
Consolidated
30 JUNE 2019
30 JUNE 2018
Notes
$M
$M
4.1
4.2
4.4
7.2
4.3
4.5
4.6
3.6
7.1
4.3
4.7
4.8
5.1
4.8
5.2
940.4
359.7
1,964.7
94.1
47.0
3,405.9
4,119.2
1,540.6
364.9
212.3
134.1
6,371.1
9,777.0
3,379.9
0.1
742.9
167.6
4,290.5
1,460.0
598.4
71.0
2,129.4
6,419.9
3,357.1
1,627.8
42.0
1,687.3
3,357.1
686.1
497.2
3,442.3
-
99.5
4,725.1
5,223.0
1,965.7
540.3
-
90.6
7,819.6
12,544.7
8,008.5
(25.3)
819.3
178.4
8,980.9
-
272.4
41.8
314.2
9,295.1
3,249.6
2,192.6
38.8
1,018.2
3,249.6
The accompanying notes form part of the consolidated financial statements.
The accompanying notes form part of the consolidated financial statements.
Coles Group Limited 2019 Annual Report
68
Coles Group Limited 2019 Annual Report
69
Statement of
Changes in Equity
for the year ended 30 June 2019.
Statement of
Cash Flows
for the year ended 30 June 2019.
Attributable to equity holders of the parent
CONTRIBUTED
EQUITY
SHARE-BASED
PAYMENTS
RESERVE
CASH FLOW
HEDGE
RESERVE
RETAINED
EARNINGS
TOTAL
$M
2,192.6
-
-
-
(538.0)
-
(26.8)
-
1,627.8
$M
38.8
-
-
-
-
4.6
-
-
43.4
2,192.6
38.8
-
-
-
-
-
-
2,192.6
38.8
$M
-
-
(1.4)
(1.4)
-
-
-
-
(1.4)
-
-
-
-
-
$M
1,018.2
1,434.7
-
$M
3,249.6
1,434.7
(1.4)
1,434.7
1,433.3
-
-
-
(765.6)
1,687.3
1,047.4
1,578.8
1,578.8
(538.0)
4.6
(26.8)
(765.6)
3,357.1
3,278.8
1,578.8
1,578.8
(1,608.0)
(1,608.0)
1,018.2
3,249.6
Notes
At 1 July 2018
Net profit for the year
Other comprehensive income
Total comprehensive income for the year
Capital return
Share-based payments expense
Purchase of shares under Equity Incentive Plan
5.2
Distributions to Wesfarmers1
Balance as at 30 June 2019
At 1 July 2017
Net profit for the year
Total comprehensive income for the year
Distributions to Wesfarmers1
Balance as at 30 June 2018
1 Includes retained earnings relating to discontinued operations.
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
Notes
$M
$M
Cash flows from operating activities from continuing operations
Receipts from customers
Receipt from Viva Energy
Payments to suppliers and employees
Interest (paid) / received
Income tax paid
Net cash flows from operating activities from continuing operations
Cash flows used in investing activities from continuing operations
Purchase of property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Proceeds from sale of controlled entities
Net investment in joint venture
Acquisition of businesses, net of cash acquired
Net cash flows used in investing activities from continuing operations
Cash flows used in financing activities from continuing operations
Proceeds from borrowings
Repayment of borrowings
Proceeds from borrowings with related parties
Repayment of borrowings with related parties
Distributions to Wesfarmers
Redemption of redeemable preference shares
Capital return to Wesfarmers
Purchase of shares under Equity Incentive Plan
Net cash flows used in financing activities from continuing operations
Net increase in cash and cash equivalents from continuing operations
Cash at the beginning of the year from continuing operations
Cash at the end of the year from continuing operations
4.1
4.1
41,125.5
137.0
(38,664.6)
(28.6)
(293.9)
2,275.4
(1,104.0)
288.4
544.4
(6.3)
(2.3)
(279.8)
10,260.0
(8,800.0)
169.6
(3,677.6)
(320.4)
1,322.0
(538.0)
(26.8)
(1,611.2)
384.4
556.0
940.4
41,756.1
-
(39,351.4)
2.7
(497.5)
1,909.9
(714.7)
213.0
-
-
(0.8)
(502.5)
-
-
-
(131.0)
(1,106.0)
-
-
-
(1,237.0)
170.4
385.6
556.0
The accompanying notes form part of the consolidated financial statements.
The accompanying notes form part of the consolidated financial statements.
Coles Group Limited 2019 Annual Report
70
Coles Group Limited 2019 Annual Report
71
The Notes
Basis of consolidation
Notes to the consolidated
financial statements.
The Notes include information which is required to understand the
consolidated financial statements and is material and relevant to the
operations and financial performance and position of the Group.
Information is considered material and relevant if, for example:
• the amount in question is significant because of its size or nature
•
it is important for understanding the results of the Group
In preparing these consolidated financial statements, subsidiaries are
consolidated from the date the Group gains control until the date on
which control ceases. The Group’s share of results of its equity accounted
investments is included in the consolidated financial statements from
the date that significant influence or joint control commences until the
date that significant influence or joint control ceases. All intercompany
transactions are eliminated.
The financial statements of subsidiaries are prepared for the same
reporting period as the parent company, using consistent accounting
policies.
it helps to explain the impact of significant changes in the Group’s
business
•
•
it relates to an aspect of the Group’s operations that is important to its
future performance
Foreign currency
The Notes are organised into the following sections:
3. Performance: this section provides information on the performance of
the Group, including segment results, earnings per share and income tax.
4. Assets and liabilities: this section details the assets used in the
Group’s operations and the liabilities incurred as a result.
5. Capital: this section provides information relating to the Group’s capital
structure and financing.
6. Risk: this section details the Group’s exposure to various financial risks,
explains how these risks may impact the Group’s financial performance or
position, and how the Group manages these risks.
7. Group structure: this section provides information relating to
subsidiaries and other material investments of the Group.
8. Unrecognised items: this section provides information about items
that are not recognised in the consolidated financial statements but could
potentially have a significant impact on the Group’s financial performance
or position in the future.
9. Other disclosures: this section provides other disclosures required
by Australian Accounting Standards that are considered relevant to
understanding the Group’s financial performance or position.
These consolidated financial statements are presented in Australian
dollars, which is the functional currency of the Group. Foreign currency
transactions are translated into the functional currency using the exchange
rates at the transaction date. Foreign exchange gains and losses resulting
from the settlement of such transactions, and from the translation of
monetary assets and liabilities denominated in foreign currencies at
reporting date exchange rates are generally recognised in profit or loss.
They are deferred in equity if they relate to qualifying cash flow hedges.
Accounting policies
Accounting policies that summarise the classification, recognition and
measurement basis of financial statement line items and that are relevant
to the understanding of the consolidated financial statements are provided
throughout the Notes.
Rounding of amounts
The amounts contained in the Financial Report have been rounded to
the nearest one hundred thousand dollars (unless specifically stated to
be otherwise) under the option available to the Company under ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191. The Company is an entity to which this legislative instrument
applies.
The Financial Report of Coles Group Limited (the ‘Company’) in respect
of the Company and the entities it controlled at the reporting date
or during the year ended 30 June 2019 (collectively, the ‘Group’) was
authorised for issue in accordance with a resolution of the Directors on
20 September 2019.
Reporting entity
The Company is a for-profit company limited by shares which is
incorporated and domiciled in Australia and listed on the Australian
Securities Exchange (ASX).
The nature of the operations and principal activities of the Group are
described in Note 3.1 Segment reporting for continuing operations.
2.1. Basis of preparation and accounting policies.
The Financial Report is a general purpose financial report, which has been
prepared in accordance with Australian Accounting Standards issued by
the Australian Accounting Standards Board (AASB) and the Corporations
Act 2001. The Financial Report also complies with International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board.
The consolidated financial statements have been prepared on a historical
cost basis except for certain financial instruments measured at fair
value as explained in notes to the consolidated financial statements (the
'Notes').
Accounting policies have been applied consistently for all periods
presented, except for the adoption of new standards effective as of
1 July 2018 (refer to Note 9.4).
Reporting period and comparatives
Following the demerger from Wesfarmers Limited (‘Wesfarmers’), the
Group changed from a Gregorian calendar to a Retail calendar for statutory
reporting purposes.
Under a Gregorian calendar, the annual reporting period is 12 months (from
1 July to 30 June), whilst under a Retail calendar the reporting period is
based on a defined number of weeks, with the annual reporting period
ending on the last Sunday in June.
The change to a Retail calendar has been applied prospectively from
1 July 2018 and, therefore, the statutory reporting periods for this Financial
Report are as follows:
Statutory reporting periods (Retail calendar applied prospectively)
Current
Commencing on 1 July 2018 and ending 30 June 2019
Comparative
Commencing on 1 July 2017 and ending 30 June 2018
The comparative period commencing 1 July 2017 and ending 30 June 2018
reflects the original Gregorian calendar and has not been restated to a
Retail calendar.
Had the Retail calendar been applied retrospectively for statutory
reporting purposes, the reporting periods would have been:
Retail calendar applied retrospectively
Current
Commencing on 25 June 2018 and ending 30 June 20191
Comparative
Commencing on 26 June 2017 and ending 24 June 2018
1For the current period, the Retail calendar covers 53 weeks (comparative period: 52 weeks)
For the annual reporting period commencing on 1 July 2019 and ending
28 June 2020, the statutory reporting period will be aligned with the Retail
calendar.
This Financial Report presents reclassified comparative information where
required for consistency with current year’s presentation.
Key judgements, estimates and assumptions
The preparation of the financial statements requires judgement and the
use of estimates and assumptions in applying the Group’s accounting
policies, which affect amounts reported for assets, liabilities, income and
expenses.
Judgements, estimates and assumptions are continuously evaluated and
are based on the following:
• historical experience
• current market conditions
• reasonable expectations of future events
Actual results may differ from these judgements, estimates and
assumptions. Uncertainty about these judgements, estimates and
assumptions could result in outcomes that require a material adjustment
to the carrying amount of assets or liabilities in future periods.
The key areas involving judgement or significant estimates and
assumptions are set out below:
Note
Judgements
Note 7.1 Equity accounted investments Control and significant influence
Note 8.2 Operating lease commitments Classification of leases
Note
Note 3.6 Income tax
Note 4.4 Inventories
Note 4.4 Inventories
Estimates and assumptions
Tax cost base of revenue and capital assets
Net realisable value
Commercial income
Note 6.1 Impairment of non-financial
Assessment of recoverable amount
assets
Note 4.8 Provisions
Note 4.8 Provisions
Note 4.8 Provisions
Employee benefits
Self-insurance
Restructuring
Note 9.2 Share-based payments
Valuation of share-based payments
Detailed information about each of these judgements, estimates and
assumptions is included in the Notes together with information about the
basis of calculation for each affected line item in the financial statements.
Coles Group Limited 2019 Annual Report
72
Coles Group Limited 2019 Annual Report
73
2.2. Significant Items.
New Alliance Agreement with Viva Energy
3. Performance.
Significant Items are large gains, losses, income, expenditures or events
that are not in the ordinary course of business. They typically arise from
events that are not considered part of the core operations of the Group.
These items have been highlighted below to help users of the Financial
Report understand the financial performance of the Group.
Significant gains or income are included in ‘other income’, whilst significant
losses or expenditures are included within ‘other expenses’ or ‘income tax
expense’ in the consolidated Statement of Profit or Loss.
Demerger of Coles and corporate restructure
On 16 March 2018, Wesfarmers announced its intention to demerge its
Coles division to create an independent ASX-listed company.
To implement the demerger, Wesfarmers undertook a capital reduction,
the proceeds of which were automatically applied to the acquisition of
the Company’s shares on behalf of Wesfarmers' shareholders. Eligible
Wesfarmers shareholders received one Coles Group Limited share for every
Wesfarmers share held. Wesfarmers has retained a minority ownership
interest of 15% in the Company following the demerger.
The Company’s shares commenced trading on the ASX on
21 November 2018, initially on a deferred settlement basis. Trading of the
Company’s shares on standard settlement terms commenced on
29 November 2018.
Prior to the demerger, the Group and Wesfarmers undertook an internal
corporate restructure. The restructure included the transfer of the
following businesses from the Company to Wesfarmers:
Kmart
Target
Retailer of apparel and general merchandise, including toys, leisure,
entertainment, home and consumables
Retailer of apparel, homewares and general merchandise, including
accessories, electricals and toys
Officeworks Retailer and supplier of office products and solutions for home and
small to medium-sized businesses and education providers
The statutory financial information for the Group has been presented
for the year ended 30 June 2019 and for the comparative year ended
30 June 2018, including the results of Kmart, Target and Officeworks (KTO)
until the date that control was transferred to Wesfarmers. The statutory
financial information does not therefore present the performance of the
Group as it is currently structured.
Results from these discontinued operations are disclosed in Note 7.3.
Coles supply chain modernisation – restructuring provision
On 24 January 2019, the Company announced it had executed contracts
to develop two new automated ambient distribution centres, one each
in Queensland and New South Wales. Net profit before tax for the year
includes a provision expense of $145.8 million (recognised in ‘other
expenses’) relating to redundancies and lease exit costs for a number of
existing distribution centres that will be closed as part of the Supply Chain
Modernisation program.
On 6 February 2019, the Company entered into an agreement to
restructure the terms of its Alliance Agreement with Viva Energy Limited
('Viva Energy'). Under the New Alliance Agreement which commenced on
1 March 2019, Viva Energy is responsible for setting the retail price of fuel
and receives the retail fuel margin. The Company has been appointed as
Viva Energy’s agent for selling fuel at Alliance sites.
The Company received a one-off payment of $137.0 million at transaction
close in consideration for forgoing the retail fuel margin (recognised in
‘other income’). Ongoing commission per litre is payable to the Company
and is recognised in ’other operating revenue’.
Incorporated joint venture with Australian Venue Co.
On 5 March 2019, the Company announced its agreement to enter into
an incorporated joint venture with Australian Venue Co. Ltd (AVC) for the
operation of:
• the 87 hotels that comprised the Group’s hotel and gaming business
(‘Spirit Hotels’); and
• the 243 retail liquor stores in Queensland and the 10 retail liquor stores
in South Australia and Western Australia attached to Spirit Hotels’
venues, which operate under the Liquorland, First Choice, First Choice
Liquor Market and Vintage Cellars brands (collectively the ‘Retail Liquor
business’).
These operations were previously held within a wholly-owned subsidiary of
the Group, Liquorland (Qld) Pty Ltd, and its controlled entities (collectively
‘LLQ’). Under the new structure, LLQ has been converted into an
incorporated joint venture company, Queensland Venue Co. Pty Ltd (QVC),
whereby:
• the Company holds ‘R-class’ shares in QVC with entitlements that,
in conjunction with its rights under an operations agreement, confer
the right to the economic performance of the Retail Liquor business
(‘R-Shares’)
• AVC holds ‘H-class’ shares in QVC with entitlements that confer the
right to the economic performance of Spirit Hotels (‘H-Shares’)
• R-Shares and H-Shares each represent 50% of the total shares in QVC.
The Company is responsible for managing the day-to-day operations of
the Retail Liquor business and is considered, for accounting purposes, the
principal in retail liquor sales transactions. AVC is responsible for managing
the operations of Spirit Hotels.
The transaction was completed on 29 April 2019. The Company recognised
a net gain of $133.0 million (included in ‘other income’) relating to the sale
of Spirit Hotels, the transfer of Retail Liquor business assets into the joint
venture and the fair value of its interest in QVC.
Tax consolidation
During the year, the Company made a decision to form an income tax
consolidated group with its 100% owned Australian resident subsidiaries
with effect from 31 December 2018. As a consequence, the tax cost
base of the Group’s assets has been reset resulting in a $49.9 million net
credit to income tax expense.
This section provides information on the performance of the Group, including segment results, earnings per share
and income tax.
3.1 Segment reporting for continuing operations
The Group has identified its operating segments based on internal
reporting to the Managing Director and Chief Executive Officer (the chief
operating decision maker). The Managing Director and Chief Executive
Officer regularly reviews the Group’s internal reporting to assess
performance and allocate resources across the operating segments. The
segments identified offer different products and services and are managed
separately.
Other business operations that are not separately reportable (such as
Property), as well as costs associated with enterprise functions (such as
Treasury) are included in ‘Other’.
There are varying levels of integration between operating segments. This
includes the common usage of property, services and administration
functions. Financing costs and income tax are managed on a Group basis
and are not allocated to operating segments.
The Group’s reportable segments are set out below:
Supermarkets
Fresh food, groceries and general merchandise retailing (includes
Coles Online and Coles Financial Services)
Liquor
Express
Liquor retailing, including online delivery services
Convenience store operations and commission agent for retail fuel
sales
EBIT is the key measure by which management monitors the performance
of the segments.
The Group does not have operations in other geographic areas or economic
exposure to any individual customer that is in excess of 10% of sales
revenue.
SUPERMARKETS
LIQUOR
EXPRESS
OTHER
$M
$M
$M
$M
30,992.6
3,204.8
1,191.4
133.1
3,978.4
45.8
-
(27.8)
30,018.2
1,171.9
3,180.8
130.2
5,735.4
164.0
-
13.3
Year ended 30 June 2019
Sales revenue
Segment EBIT
Significant Items
Financing costs
Profit before income tax
Income tax expense
Profit for the period from continuing operations
Share of net profit of equity accounted investments included
in EBIT
Year ended 30 June 2018
Sales revenue
Segment EBIT
Financing costs
Profit before income tax
Income tax expense
Profit for the period from continuing operations
Share of net profit of equity accounted investments included
in EBIT
TOTAL
$M
38,175.8
1,342.5
124.2
(41.5)
1,425.2
(347.0)
1,078.2
5.0
38,934.4
1,479.4
(0.1)
1,479.3
(456.1)
1,023.2
16.3
Coles Group Limited 2019 Annual Report
74
Coles Group Limited 2019 Annual Report
75
3.2 Earnings per share (EPS)
Employee benefits expense includes the following:
3.6 Income tax (continued)
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
4,155.5
345.8
31.6
$M
3,973.6
327.8
20.0
Remuneration, bonuses and on-costs
Superannuation expense
Share-based payments expense
Total employee benefits expense
4,532.9
4,321.4
76.7
1,023.2
1,333.9
Employee benefits expense
EPS attributable to equity holders
of the Company from continuing
operations
Basic and diluted EPS (cents)
Profit for the period from continuing
operations ($M)
Weighted average number of ordinary
shares for basic and diluted EPS
(shares, million)
Calculation methodology
80.8
1,078.2
1,333.9
EPS is profit for the period from continuing operations attributable to
ordinary equity holders of the Company, divided by the weighted average
number of ordinary shares during the year. The weighted average number
of ordinary shares for the year ended 30 June 2018 has been restated to
reflect the change in the Company’s capital structure as a result of the
demerger from Wesfarmers, as if the change had occurred at the beginning
of the comparative period.
Diluted EPS is calculated on the same basis except that it includes the
impact of any potential commitments the Group has to issue shares in
the future. For the period, the potential dilution to the weighted average
number of ordinary shares from employee performance rights was nil as
shares are already issued and held by the Plan Trustee on behalf of the
participants.
Between the reporting date and the issue date of the Financial Report,
there have been no transactions involving ordinary shares or potential
ordinary shares that would impact the calculation of EPS disclosed in the
table above.
3.3 Sales revenue
Sale of goods
The Group operates a network of supermarkets, retail liquor stores and
convenience stores, as well as online platforms. Revenue is recognised by
the Group when it is the principal in the sales transaction. Revenue from
the sale of goods is recognised when control of the goods has transferred
to the customer. For goods purchased in-store, control of the goods
transfers to the customer at the point of sale. For goods purchased online,
control of the goods transfers to the customer upon delivery, or when
collected by the customer.
Revenue comprises the fair value of consideration received or receivable
for the sale of goods and is recorded net of discounts and goods and
services tax (GST).
3.4 Administration expenses
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
The Group’s accounting policy for liabilities associated with employee
benefits is set out in Note 4.8. The policy relating to share-based payments
is set out in Note 9.2.
Share-based payments expense includes both awards granted by the
Company that will be settled in equity of the Company and awards granted
by Wesfarmers (pre demerger) to employees of the Group that will be
settled in equity of Wesfarmers.
Retirement benefit obligations
The Group contributes to a number of superannuation funds on behalf of
its employees, and the Group’s legal or constructive obligation is limited to
these contributions. Contributions payable by the Group are recognised as
an expense in the Statement of Profit or Loss when incurred.
3.5 Financing costs
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
29.8
7.3
4.4
41.5
$M
-
0.1
-
0.1
Interest expense
Discount rate adjustment
Other finance related costs
Total financing costs
Financing costs
Financing costs consist of interest and other costs incurred in connection
with the borrowing of funds as well as the discount rate adjustments
associated with non-current provisions (excluding employee benefits).
Financing costs are expensed in the period in which they are incurred.
3.6 Income tax
The major components of income tax expense in the consolidated
Statement of Profit or Loss are set out below:
Employee benefits expense
Occupancy and overheads
Depreciation and amortisation
Marketing expenses
Impairment
Other
Total administration expenses
$M
4,532.9
1,635.1
639.6
213.6
42.0
967.8
8,031.0
$M
4,321.4
1,600.3
649.6
212.5
49.0
898.9
7,731.7
Current income tax expense
Adjustment in respect of current income
tax of previous years
Deferred income tax relating to origination
and reversal of temporary differences
Adjustment in respect of deferred income
tax of previous years
Income tax expense reported in
Statement of Profit or Loss
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
428.5
8.3
(85.6)
(4.2)
347.0
$M
460.5
6.4
(6.3)
(4.5)
456.1
The components of income tax expense recognised in the consolidated
Statement of Other Comprehensive Income are set out below:
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
0.6
0.6
$M
-
-
Deferred tax related to items recognised in
OCI during the year:
Net loss on revaluation of cash flow hedges
Deferred tax charged to OCI
The tax expense included in the Statement of Profit or Loss consists of
current and deferred income tax.
Current income tax is:
Deferred income tax is:
•
•
•
the expected tax payable on the
taxable income for the year
calculated using tax rates enacted
or substantively enacted at the
reporting date
inclusive of any adjustment to
income tax payable or recoverable
in respect of previous years
• recognised using the liability
method
• based on temporary differences
between the carrying amounts of
assets and liabilities for financial
reporting purposes and the
amounts for taxation purposes
• calculated using the tax rates
that are expected to apply in
the period when the liability is
settled or the asset realised,
based on the tax rates that have
been enacted or substantively
enacted by the reporting date
Both current and deferred income tax are charged or credited to the
Statement of Profit or Loss. However, when it relates to items charged
or credited directly to the Statement of Changes in Equity or Statement
of Other Comprehensive Income, the tax is recognised in equity, or other
comprehensive income (OCI), respectively.
Reconciliation of the Group’s applicable tax rate to the effective
tax rate
Profit before tax from continuing operations
Profit before tax from discontinued operations
Profit before income tax
At Australia’s corporate tax rate of 30% (30 June 2018: 30%)
Adjustments in respect of income tax of previous years
Share of results of joint venture
Non-deductible expenses for income tax purposes
Non-assessable income for income tax purposes1
Tax consolidation adjustments2
At the effective income tax rate of 25.8% (30 June 2018: 30.5%)
Income tax expense reported in the consolidated Statement of Profit or Loss
Income tax attributable to discontinued operations
Tax Consolidation
Pre demerger
For the period up to 27 November 2018, the Group paid tax as part of
Wesfarmers’ group taxation arrangements. On 28 November 2018, the
Group exited Wesfarmers’ Australian income tax consolidated group. The
Group’s entities exited clear from any further income tax liability; past or
future tax obligations that may arise in respect of the period the Group was
a member of the Wesfarmers’ Australian income tax consolidated group
will be borne by Wesfarmers.
Post demerger
The Company has made a decision to form an income tax consolidated
group with its 100% owned Australian resident subsidiaries with effect from
31 December 2018.
The Company is the head entity of the tax consolidated group. Members of
the group have entered into a taxation sharing agreement which operates
to manage joint and several liability for group tax liabilities amongst group
members, as well as enabling group members to leave the group clear of
future group tax liabilities. Members of the group have also entered into a
taxation funding agreement which provides that each member of the tax
consolidated group pay a tax equivalent amount to or from the parent in
accordance with their notional current tax liability or current tax asset.
Such amounts are reflected in amounts receivable from or payable to the
Company in the financial statements of subsidiaries and are settled as
soon as practicable after lodgement of the consolidated tax return and
payment of the tax liability.
Key estimate: Tax cost base of revenue and capital assets
Upon formation of the income tax consolidated group, the tax cost
base of revenue and capital assets are required to be reset under
Australian taxation legislation which is calculated by reference to
independent market valuations. In performing these valuations,
certain judgements and assumptions are made such as future earnings
and discount rates.
The tax cost base of revenue and capital assets was reset on
31 December 2018 giving rise to a $49.9m net credit to income tax
expense with corresponding changes to deferred tax balances.
The judgements and assumptions adopted in the independent market
valuations may be subject to review at a future date which could
impact the net credit to income tax expense and deferred tax
balances recognised in the year ended 30 June 2019.
Consolidated
YEAR ENDED 30 JUNE 2019
YEAR ENDED 30 JUNE 2018
$M
1,425.2
508.5
1,933.7
580.1
4.1
(1.5)
14.9
(48.7)
(49.9)
499.0
347.0
152.0
499.0
$M
1,479.3
791.5
2,270.8
681.2
1.9
(4.9)
13.8
-
-
692.0
456.1
235.9
692.0
1 Reflects the accounting gain arising from the establishment of the incorporated joint venture that is not assessable for income tax purposes (refer to Note 2.2).
2 Reflects the reset of the tax cost base of revenue assets and capital assets associated with the formation of an income tax consolidated group (refer to Note 2.2).
Coles Group Limited 2019 Annual Report
76
Coles Group Limited 2019 Annual Report
77
3.6 Income tax (continued)
Deferred income tax balances recognised in the consolidated Statement of Financial Position
4. Assets and liabilities.
30 June 2019
Provisions
Employee benefits
Trade and other payables
Inventories
Property, plant and equipment
Cash flow hedges
Other individually insignificant balances
Deferred tax assets
Accelerated depreciation for tax purposes
Intangible assets
Other individually insignificant balances
Deferred tax liabilities
Net deferred tax assets
30 June 2018
Provisions
Employee benefits
Trade and other payables
Inventories
Property, plant and equipment
Other individually insignificant balances
Deferred tax assets
Accelerated depreciation for tax purposes
Intangible assets
Other individually insignificant balances
Deferred tax liabilities
Net deferred tax assets
OPENING BALANCE
CHARGED TO PROFIT
OR LOSS
Consolidated
CREDITED TO OCI
ACQUISITIONS /
(DISPOSALS)
CLOSING BALANCE
$M
80.2
277.0
11.7
65.1
241.2
-
48.8
724.0
59.3
69.9
54.5
183.7
540.3
$M
48.3
6.9
(2.5)
(1.9)
(2.5)
-
1.4
49.7
29.8
(56.8)
(2.6)
(29.6)
79.3
$M
-
-
-
-
-
0.6
-
0.6
-
-
-
-
$M
(36.3)
(68.6)
5.9
(22.2)
(111.9)
-
(28.7)
(261.8)
(0.8)
(6.0)
0.3
(6.5)
0.6
(255.3)
$M
92.2
215.3
15.1
41.0
126.8
0.6
21.5
512.5
88.3
7.1
52.2
147.6
364.9
OPENING BALANCE
CHARGED TO PROFIT
OR LOSS
Consolidated
CREDITED TO OCI
ACQUISITIONS /
(DISPOSALS)
CLOSING BALANCE
$M
71.2
258.3
1.5
59.1
221.1
38.2
649.4
24.6
71.7
52.5
148.8
500.6
$M
9.0
18.7
10.2
6.0
20.1
10.6
74.6
34.7
(1.8)
2.0
34.9
39.7
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$M
80.2
277.0
11.7
65.1
241.2
48.8
724.0
59.3
69.9
54.5
183.7
540.3
Note: Movement in deferred income tax balances includes KTO.
Tax assets and liabilities
Goods and Services Tax (GST)
Deferred tax assets are recognised to the extent it is probable that taxable
profits will be available against which deductible temporary differences
can be utilised. The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the
assets to be recovered.
Deferred tax assets and liabilities are offset against each other when there is
a legally enforceable right to set off current taxation assets against current
taxation liabilities and it is the intention to settle these on a net basis.
The Group has an unrecognised deferred tax asset relating to a deductible
temporary difference arising from its investment in Loyalty Pacific Pty Ltd
(operator of flybuys loyalty program). A deferred tax asset has not been
recognised for this item because the Group has determined that, at this
time, it is not probable that eligible capital gains will be available against
which the Group can utilise these benefits. The unrecognised deferred tax
asset is $55.2 million (2018: $nil).
Tax provisions are recognised for uncertain tax positions where a risk of an
additional tax liability has been identified and it is probable that the Group
will be required to settle that tax. Measurement is based on expectations of
the outcome of decisions by taxation authorities. There were no uncertain
tax provisions recognised by the Group at 30 June 2019.
Revenue, expenses and assets are recognised net of GST, except:
• when the GST incurred on the sale or purchase of assets or services is
not payable to or recoverable from the taxation authority, in which case
GST is recognised as part of the revenue or the expense item or as part
of the cost of acquisition of the asset; or
• when receivables are stated with the amount of GST included.
The net amount of GST recoverable from or payable to the taxation
authority is included as part of receivables or payables in the Statement of
Financial Position. Commitments and contingencies are disclosed net of
the amount of GST recoverable from or payable to the taxation authority.
Cash flows are included in the Statement of Cash Flows on a gross basis
and the GST component of cash flows arising from investing and financing
activities where recoverable or payable to the taxation authority is
classified as part of operating cash flows.
This section details the assets used in the Group’s operations and the liabilities incurred as a result.
4.1 Cash and cash equivalents
4.2 Trade and other receivables
Cash and cash equivalents are comprised of the following:
Consolidated
30 JUNE 2019
30 JUNE 20181
$M
530.0
410.4
-
940.4
$M
555.0
1.0
130.1
686.1
Trade receivables1
Other receivables
Allowance for expected credit losses
Total trade and other receivables
Consolidated
30 JUNE 2019
30 JUNE 20182
$M
225.5
142.2
367.7
(8.0)
359.7
$M
310.8
204.5
515.3
(18.1)
497.2
Cash on hand and in transit
Cash at bank and on deposit
Cash attributable to discontinued operations
Total cash and cash equivalents
1 Includes commercial income due from suppliers of $102.0 million (2018: $124.0 million).
2 EFT, debit and credit card transactions not yet settled have been reclassified from trade
receivables to cash and cash equivalents (resulting in a $230.9 million adjustment for the
comparative period).
Trade and other receivables are classified as financial assets held at
amortised cost.
Trade receivables
Trade receivables are initially recognised at fair value and subsequently
at amortised cost using the effective interest method, less an allowance
for expected credit losses (impairment provision). The carrying value of
trade and other receivables, less impairment provisions, is considered to
approximate fair value, due to the short-term nature of the receivables.
Impairment of trade receivables
The collectability of trade and other receivables is reviewed on an ongoing
basis. Individual debts which are known to be uncollectable are written off
when identified.
The Group recognises an impairment provision based upon anticipated
lifetime losses of trade receivables. The anticipated lifetime losses are
determined with reference to historical experience and are regularly
reviewed and updated.
The amount of the impairment loss is recognised in the Statement of Profit
or Loss within ‘administration expenses’.
4.3 Other assets
Other assets are comprised of the following:
Prepayments
Other assets
Total other current assets
Prepayments
Other assets
Total other non-current assets
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
45.8
1.2
47.0
23.7
110.4
134.1
$M
97.9
1.6
99.5
-
90.6
90.6
1 Electronic funds transfer (EFT), debit and credit card transactions not yet settled have been
reclassified from trade receivables to cash and cash equivalents (resulting in a $230.9 million
adjustment for the comparative period).
All receivables from EFT, credit card and debit card point of sale
transactions during the period are classified as cash and cash equivalents.
For the purpose of the Statement of Cash Flows, cash and cash equivalents
includes cash on hand and in transit, at bank and on deposit, net of
outstanding bank overdrafts which are repayable on demand.
Cash at bank earns interest at floating rates based on daily bank deposit
rates. Short-term deposits earn interest at the respective short-term
deposit rates.
Reconciliation of profit for the period from continuing operations to
net cash flows from operating activities
Consolidated
YEAR ENDED
30 JUNE
2019
YEAR ENDED
30 JUNE
2018
$M
$M
1,078.2
1,023.2
639.6
42.0
(133.0)
4.7
(5.0)
4.6
-
(3.8)
137.0
(44.6)
(1.0)
(11.1)
(91.0)
143.1
(9.0)
586.0
(61.3)
649.6
49.0
-
(25.7)
(16.3)
-
16.3
(7.7)
1.7
16.9
4.3
(3.2)
(21.0)
(23.5)
182.3
50.4
13.6
Profit for the period
Adjusted for:
Depreciation and amortisation
Impairment and write-off of non-current assets
Net gain on sale of controlled entities
Net loss / (gain) on disposal of non-current
assets
Share of profit of equity accounted investments
Share-based payments expense
Dividends and distributions received from
equity accounted investment
Other
Changes in assets and liabilities:
Decrease in inventories
(Increase) / decrease in trade and other
receivables
(Increase) / decrease in prepayments
Increase in other assets
Increase in deferred tax assets
Increase / (decrease) in income tax payable
(Decrease) / increase in trade and other
payables
Increase in provisions
(Decrease) / increase in other liabilities
Net cash flows from operating activities
2,275.4
1,909.9
Note: Changes in assets and liabilities reflect continuing operations only and exclude KTO.
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4.4 Inventories
Inventories comprise goods held for resale which are valued at the lower
of cost and net realisable value, which is the estimated selling price less
estimated costs to sell.
The cost of inventory is based on purchase cost, after deducting certain
types of commercial income and including logistics and store remuneration
incurred in bringing inventories to their present location and condition.
Volume-related supplier rebates, and supplier promotional rebates where
they exceed spend on promotional activities, are accounted for as a
reduction in the cost of inventory and recognised in the Statement of Profit
or Loss when the inventory is sold.
Key estimate: Net realisable value
An inventory provision is recognised where the realisable value from
sale of inventory is estimated to be lower than the inventory’s
carrying value. Inventory provisions for different product categories
are estimated based on various factors, including expected sales
profile, prevailing sales prices, seasonality and expected losses
associated with slow-moving inventory items.
Commercial income
Commercial income represents various discounts or rebates provided by
suppliers. These include:
• settlement discounts for the purchase of inventory
• discounts based on purchase or sales volumes
• contributions towards promotional activity for a supplier’s product
Depending on the type of arrangement with the supplier, commercial
income will either be deducted from the cost of inventory (where it relates
to the purchase of inventory) or recognised as a reduction in related
expenses (where it relates to the sale of goods).
Amounts due from suppliers are recognised within trade receivables,
except in cases where the Group currently has a legally enforceable
right of set-off, in which case only the net amount receivable or payable
is presented. Refer to Note 6.3 for details of amounts offset in the
consolidated Statement of Financial Position.
Key estimate: Commercial income
The recognition of certain types of commercial income requires the
following estimates:
• the volume of inventory purchases that will be made during
a specific period
• the amount of the related product that will be sold
• the balance remaining in inventory at the reporting date.
Estimates are based on historical and forecast sales and inventory
turnover levels.
4.5 Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and any recognised impairment. Cost comprises expenditure
that is directly attributable to the acquisition of the item and subsequent
costs incurred that are eligible for capitalisation.
Repairs and maintenance costs are charged to the Statement of Profit
or Loss during the period in which they are incurred. Property, plant and
equipment is depreciated on a straight-line basis to its residual value over
its expected useful life.
Consolidated
LAND
BUILDINGS
PLANT &
EQUIPMENT
LEASEHOLD
IMPROVEMENTS
TOTAL
$M
$M
$M
$M
$M
Useful life (range)
Not applicable
20 – 40 Years
3 – 20 Years
Term of lease
At 30 June 2019
Cost
Accumulated depreciation and impairment
Net carrying amount
Carrying amount at beginning of the financial year
Additions
Transfers between classes
Transfer to non-current assets held for sale
Depreciation
Impairment
Disposals and write-offs1
Carrying amount at end of the financial year
Construction work in progress included above
At 30 June 2018
Cost
Accumulated depreciation and impairment
Net carrying amount
Carrying amount at beginning of the financial year
Additions
Transfers between classes
Depreciation
Impairment
Disposals1
Carrying amount at end of the financial year
Construction work in progress included above
472.1
-
472.1
627.9
59.9
-
(68.9)
-
(38.0)
(108.8)
472.1
-
627.9
-
627.9
676.5
58.1
21.7
-
(53.7)
(74.7)
627.9
-
260.1
(8.7)
251.4
334.8
64.0
-
(10.2)
(5.5)
-
(131.7)
251.4
92.1
354.9
(20.1)
334.8
380.5
73.1
(21.0)
(4.2)
-
(93.6)
334.8
97.9
6,245.0
(3,298.3)
2,946.7
3,800.8
864.4
9.6
(14.4)
(533.0)
(4.0)
(1,176.7)
2,946.7
345.1
8,255.3
(4,454.5)
3,800.8
3,873.5
656.8
(2.6)
(663.0)
(18.7)
(45.2)
3,800.8
312.8
967.9
(518.9)
449.0
459.5
88.2
4.4
(0.6)
(68.4)
-
(34.1)
449.0
57.4
978.2
(518.7)
459.5
436.6
87.7
1.9
(65.1)
(0.8)
(0.8)
459.5
52.4
7,945.1
(3,825.9)
4,119.2
5,223.0
1,076.5
14.0
(94.1)
(606.9)
(42.0)
(1,451.3)
4,119.2
494.6
10,216.3
(4,993.3)
5,223.0
5,367.1
875.7
-
(732.3)
(73.2)
(214.3)
5,223.0
463.1
1 Net loss on disposal of property, plant and equipment during the year from continuing operations was $4.7 million (2018: $28.2 million net gain).
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4.6 Intangible assets
The Group’s intangible assets comprise licences, software and goodwill.
Licences and software
Goodwill
Licences and software are measured initially at acquisition cost or costs
incurred to develop the asset. Intangible assets acquired in a business
combination are recognised at fair value at the acquisition date. Following
initial recognition, intangible assets with finite useful lives are carried at
cost less accumulated amortisation and accumulated impairment losses.
They are amortised on a straight-line basis over their estimated useful
lives. Intangible assets with indefinite useful lives are not amortised.
Instead they are tested for impairment annually or more frequently if
events or changes in circumstances indicate they may be impaired.
Licences have been assessed as having indefinite lives on the basis that
the licences are expected to be renewed in line with business continuity
requirements.
The goodwill recognised by the Group has arisen as a result of business
combinations and represents the future economic benefits that arise from
assets that are not capable of being individually identified and separately
recognised.
Goodwill is initially measured as the amount the Group has paid in
acquiring a business over and above the fair value of the individual assets
and liabilities acquired. Goodwill is considered to have an indefinite useful
economic life. It is therefore not amortised but is instead tested annually
for impairment or more frequently, if events or changes in circumstances
indicate that it might be impaired. Goodwill is carried at cost less any
accumulated impairment losses and, for the purpose of impairment
testing, is allocated to cash generating units.
4.7 Trade and other payables
Trade and other payables are comprised of the following:
Trade payables
Other payables
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
2,662.0
717.9
$M
4,198.7
3,809.8
Total trade and other payables
3,379.9
8,008.5
Trade payables are non-interest-bearing and are recognised initially at fair
value and subsequently measured at amortised cost using the effective
interest method.
4.8 Provisions
Provision
Employee benefits
Provisions for employee entitlements to wages,
salaries and annual leave (which are expected to be
settled wholly within 12 months of the reporting date)
represent the amount which the Group has a present
obligation to pay, resulting from employees’ services up
to the reporting date.
All other short-term employee benefit obligations are
presented as payables.
Liabilities for long service leave and non-current annual
leave (which are not expected to be settled wholly
within 12 months of the reporting date) are recognised
within the non-current provision for employee benefits
and measured as the present value of expected future
payments to be made in respect of services up to the
reporting date.
Refer to Note 6.1 for further details on impairment testing.
Consolidated
Restructuring
For internally generated software, research costs are expensed as incurred.
Development expenditure is capitalised when management has the
intention to develop the asset, it is probable that future economic benefits
will flow to the Group and the cost can be reliably measured.
Consolidated
GOODWILL
BRANDS
SOFTWARE
LICENCES
$M
$M
$M
$M
Useful life
Not applicable
Indefinite
5 years
Indefinite
At 30 June 2019
Cost
Accumulated amortisation and impairment
Net carrying amount
Carrying amount at beginning of the financial year
Additions
Transfers between classes
Disposals and write-offs
Amortisation
Carrying amount at end of the financial year
Development work in progress included above
At 30 June 2018
Cost
Accumulated amortisation and impairment
Net carrying amount
1,152.5
-
1,152.5
1,193.1
0.4
-
(41.0)
-
1,152.5
-
1,193.1
-
1,193.1
Carrying amount at beginning of the financial year
1,192.4
Additions
Disposals and write-offs
Amortisation
Carrying amount at end of the financial year
Development work in progress included above
0.7
-
-
1,193.1
-
-
-
-
100.0
-
-
(100.0)
-
-
-
100.0
-
100.0
-
100.0
-
-
100.0
-
1,191.0
(829.1)
361.9
517.0
86.3
(14.0)
(103.7)
(123.7)
361.9
82.1
1,387.0
(870.0)
517.0
531.3
130.4
-
(144.7)
517.0
92.4
27.0
(0.8)
26.2
155.6
0.6
-
(130.0)
-
26.2
-
159.2
(3.6)
155.6
154.7
1.3
(0.4)
-
155.6
-
TOTAL
$M
2,370.5
(829.9)
1,540.6
1,965.7
87.3
(14.0)
(374.7)
(123.7)
1,540.6
82.1
2,839.3
(873.6)
1,965.7
1,878.4
232.4
(0.4)
(144.7)
1,965.7
92.4
Key estimates
• expected future wages
and salaries
• attrition (applicable
to long service leave
provisions only)
• discount rates
Restructuring provisions
are based on a number of
estimates including, but
not limited to:
• number of employees
impacted
• employee tenure and
costs
• restructure timeframes
• discount rates
Self-insurance provisions
are based on a number of
estimates including, but
not limited to:
• discount rates
• future inflation
• average claim size
• claims development
• risk margin
Current
Employee benefits
Restructuring provision
Lease provision
Self-insurance liabilities
Other
Total current
Non-current
Employee benefits
Restructuring provisions
Lease provisions
Self-insurance liabilities
Other
Total non-current
30 JUNE 2019
30 JUNE 2018
$M
$M
600.6
18.7
6.5
108.1
9.0
742.9
87.1
149.5
105.5
256.3
-
787.9
17.3
1.7
-
12.4
819.3
108.3
0.5
156.4
-
7.2
598.4
272.4
Restructuring provisions are recognised when
restructuring has either commenced or been publicly
announced and the Group has a detailed formal plan
identifying:
• the business or part of the business impacted
• the location and approximate number of employees
impacted
• an estimate of the associated costs
• the timeframe for restructuring activities
Self-insurance
The Group is self-insured for workers compensation
and general liability risks. The Group seeks external
actuarial advice in determining self-insurance
provisions. Provisions are discounted and are based on
claims reported and an estimate of claims incurred but
not reported.
These estimates are reviewed bi-annually, and any
reassessment of these estimates will impact self-
insurance expense.
Provisions are:
• recognised when the Group has a legal or constructive obligation as a
result of a past event, it is probable that cash will be required to settle
the obligation and the amount can be reliably estimated
• measured at the present value of the estimated cash outflow required to
settle the obligation.
Where a provision is non-current, and the effect is material, the nominal
amount is discounted. The discount is recognised as a financing cost in the
Statement of Profit or Loss.
Movements in restructuring, leases, self-insurance and other provisions
RESTRUCTURING
LEASE1
SELF-INSURANCE
OTHER
TOTAL
Consolidated
$M
17.8
164.7
(3.8)
-
3.5
(14.0)
168.2
18.7
149.5
$M
158.1
4.4
(6.8)
-
-
(43.7)
112.0
6.5
105.5
$M
-
423.6
(66.6)
(9.8)
17.2
-
364.4
108.1
256.3
$M
19.6
3.8
(4.4)
-
-
(10.0)
9.0
9.0
-
$M
195.5
596.5
(81.6)
(9.8)
20.7
(67.7)
653.6
142.3
511.3
At 1 July 2018
Arising during the year
Utilised
Unused amounts reversed
Unwind / changes in the discount rate
Disposal of subsidiaries
At 30 June 2019
Current
Non-current
1The lease provision covers stepped lease arrangements to enable lease expenses to be recognised on a straight-line basis over the lease term. Actual lease payments may vary from the
amounts provided where alternate uses are found for these premises, including attraction of new tenants.
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83
5. Capital.
6. Risk.
This section provides information relating to the Group’s capital structure and financing.
This section details the Group’s exposure to various financial risks, explains how these risks may impact the Group’s
financial performance or position and how the Group manages these risks.
5.3 Dividends paid and proposed
The Company considers current earnings, future cash flow requirements,
targeted credit metrics and availability of franking credits in determining
the amount of dividends to be paid.
Dividends are recognised as a liability in the Statement of Financial
Position in the period in which they are declared by the Board.
Dividends proposed and not recognised as a liability
Since the reporting date, the Directors have declared a total dividend of
35.5 cents per fully paid ordinary share. This comprises a final dividend of
24.0 cents per fully paid ordinary share and a special dividend of 11.5 cents
per fully paid ordinary share, fully franked at the corporate tax rate of 30%.
The aggregate amount of the total dividend to be paid out of profits, but
not recognised as a liability at 30 June 2019, will be $473.5 million. The
record date for determining entitlements to both dividends was 29 August
2019, with the payment date being 26 September 2019.
Franking account
Franking account balance as at reporting date
at 30%
Franking credits that will arise from the payment
of income tax payable as at the end of the
financial year
Total franking credits available for
subsequent financial years based on a tax
rate of 30%
30 JUNE 2019
30 JUNE 2018
$M
277.4
0.1
277.5
$M
-
-
-
The Group’s capital management strategy aims to ensure the Group has
continued access to funding for current and future business activities by
maintaining a mix of equity and debt financing, while maximising returns to
shareholders.
The Group’s objective is to maintain an investment grade credit rating to
optimise the weighted average cost of capital over the long term, enable
access to long term debt capital markets and build investor confidence.
The Directors consider the capital structure at least twice a year and
provide oversight of the Group’s capital management. Capital is managed
through the following:
• the amount of ordinary dividends paid to shareholders
• raising and returning capital
• repaying or raising debt in line with ongoing business requirements and
growth opportunities aligned with the Group’s strategic objectives.
5.1 Interest-bearing liabilities
Prior to the demerger, the Group was funded through working capital
facilities and intercompany loans provided by Wesfarmers. In November
2018, the Group entered into a number of revolving multi-option and term
loan facilities. These bilateral bank loan facilities in aggregate total
$4,000.0 million (‘Coles facilities’). The Coles facilities have the following
maturities: $2,540.0 million in November 2021, $1,310.0 million in
November 2023 and $150.0 million in November 2025. At 30 June 2019, the
facilities maturing in November 2023 and November 2025 were fully drawn.
Interest-bearing loans and borrowings are initially recorded at fair value,
net of attributable transaction costs. Subsequent to initial recognition,
interest-bearing loans and borrowings are measured at amortised cost
using the effective interest method. Gains and losses are recognised in the
Statement of Profit or Loss when the liabilities are derecognised.
5.2 Contributed equity and reserves
Ordinary shares
No. (millions)
$M
At 30 June 2018
1,200.3
2,192.6
Share split associated with the demerger
133.6
Capital return to Wesfarmers
Purchase of shares under Equity Incentive
Plan
-
-
-
(538.0)
(26.8)
At 30 June 2019
Ordinary shares
1,333.9
1,627.8
Ordinary shares issued are classified as equity, are fully paid and carry
one vote per share and the right to dividends. Incremental costs directly
attributable to the issue of new shares are recognised as a deduction from
equity, net of any related income tax benefit.
Cash flow hedge reserve
The hedging reserve records the portion of the gain or loss on a cash
flow hedging instrument that is determined to be in an effective hedge
relationship. The effective portion of the gain or loss on the hedging
instrument is recognised in the Statement of Other Comprehensive
Income within the cash flow hedge reserve, while any ineffective portion is
recognised immediately in the Statement of Profit or Loss.
Share-based payments reserve
The share-based payments reserve reflects the fair value of awards
recognised as an expense in the Statement of Profit or Loss.
6.1 Impairment of non-financial assets
The Group tests property, plant and equipment and intangible assets
for impairment to ensure they are not carried above their recoverable
amounts:
For the year ended 30 June 2019, net impairment of non-financial
assets of $42.0 million was recognised for continuing operations,
of which $38.0 million ($87.9 million offset by $49.9 million reversal)
relates to the Group’s property portfolio.
• at least annually for goodwill
• where there is an indication that assets may be impaired (which is
assessed at least at each reporting date).
These tests are performed by assessing the recoverable amount of
each individual asset or, if this is not possible, the recoverable amount
of the cash generating unit (CGU) to which the asset belongs. CGUs are
the lowest levels at which assets are grouped and generate separately
identifiable cash inflows. The recoverable amount, measured at the asset
or CGU level, is the higher of fair value less costs of disposal (FVLCOD), or
value in use (VIU). VIU calculations are based on the discounted cash flows
expected to arise from the asset or CGU.
Key estimate: Assessment of recoverable amount
In assessing VIU, the estimated future cash flows are discounted to
their present value using a discount rate that reflects the current
market assessment of the time value of money and the risks specific
to the asset or CGU. These calculations depend on judgements and
estimates.
In particular, significant judgements and estimates are made in
relation to the following:
• Forecast future cash flows
These are based on the Group’s latest Board approved internal
five-year forecasts and reflect management’s best estimate of
income, expenses, capital expenditure and cash flows for each asset
or CGU. Changes in selling prices and direct costs are based on past
experience and management’s expectation of future changes in the
markets in which the Group operates.
• Discount rates
Estimated future cash flows are discounted to their present value
using discount rates that reflect the Group’s weighted average cost
of capital, adjusted for risks specific to the asset or CGU. The rates
have been calculated in conjunction with independent valuation
experts.
• Expected long-term growth rates
Cash flows beyond the five-year period are extrapolated using
estimated long-term growth rates. The growth rates are based
on historical performance as well as expected long-term market
operating conditions specific to each CGU and are consistent with
long-term average industry growth rates. Growth rates have been
calculated with the assistance of independent valuation experts.
The judgements and estimates used in assessing impairment are
best estimates based on current and forecast market conditions
and are subject to change in the event of shifting economic and
operational conditions. Actual cash flows may therefore differ from
forecasts and could result in changes to impairment recognised in
future years.
The net impairment is included in administration expenses in the
Statement of Profit or Loss as it relates to the day-to-day management of
the Group’s freehold property portfolio (included within ‘other’ for segment
reporting purposes).
For the year ended 30 June 2018, net impairment of non-financial
assets of $49.0 million was recognised for continuing operations, of
which $45.4 million ($52.7 million offset by $7.3 million reversal) related
to the Group’s property portfolio (included in administration expenses
in the Statement of Profit or Loss and within ‘other’ for segment
reporting purposes).
Recognised impairment
An impairment loss is recognised in the Statement of Profit or Loss if the
carrying amount of an asset or a CGU exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the CGU and then
to reduce the carrying amount of the other assets in the CGU.
Reversal of impairment
Where there is an indication that previously recognised impairment losses
may no longer exist or may have decreased, the asset is re-tested for
impairment. The impairment loss is reversed only to the extent that the
carrying amount of the asset does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, had no
impairment loss been recognised. Impairments recognised for goodwill are
not reversed.
Goodwill impairment testing
For the purpose of impairment testing, goodwill is allocated to CGUs or
groups of CGUs according to the level at which management monitors
goodwill. The VIU valuation methodology was applied to determine the
recoverable amount of CGUs in the current year.
The following table presents a summary of the goodwill allocation and the
key assumptions used in determining the recoverable amount of each CGU:
SUPERMARKETS
LIQUOR
EXPRESS
Goodwill allocation ($M)
983.0
Indefinite-life intangible
assets ($M)
Post-tax discount rate (%)
Growth rate (%)
-
8.3
3.0
124.5
26.2
8.3
3.0
45.0
-
8.6
2.0
In the year ended 30 June 2018, goodwill and indefinite life intangibles
were allocated to CGUs on a consistent basis. The FVLCOD valuation
methodology was used to determine the recoverable amount of each CGU,
using a post-tax discount rate of 8.6% and a growth rate of 3.0%.
Based on current economic conditions and CGU performance, no
reasonably possible change in a key assumption used in the determination
of the recoverable value of CGUs is expected to result in a material
impairment for the Group.
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6.2 Financial risk management
6.2 Financial risk management (continued)
Liquidity risk for continuing operations
The following note outlines the Group’s exposure to and management of financial risks. These arise from the
Group’s requirement to access financing (bank loans and overdrafts), from the Group’s operational activities
(cash, trade receivables and payables) and from instruments held as part of the Group’s risk management activities
(derivative financial instruments).
The Group’s financial risk management is carried out by the Group
Treasury function and governed by the Board-approved Treasury Policy
(the ‘Policy’). The Policy strictly prohibits speculative positions to be taken.
The Policy requires periodic reporting of financial risks to the Board, and its
application is subject to oversight from the Chief Financial Officer and the
Chair of the Audit and Risk Committee.
Management of financial risks is undertaken by the Group in line with its
risk management principles and includes the following key steps: risk
identification, risk measurement, setting risk tolerances and hedging
objectives, strategy design and strategy implementation.
The Policy allows the use of various derivatives to hedge financial risks and
provides guidance in relation to volume and tenor of these instruments.
In the normal course of business the Group’s continuing operations are
exposed to various risks as set out below:
Risk
Exposure
Management
Market risks
Interest rate
risk
Foreign
exchange risk
The Group’s exposure to interest rate risk
relates primarily to interest-bearing liabilities
where interest is charged at variable rates.
The Group manages interest rate risk by having access to both fixed and variable debt facilities. In line
with the Policy, this risk is further managed by hedging a portion of the variable rate debt exposures with
derivative financial instruments to convert floating rate debt obligations to fixed rate obligations.
The Group has exposure to foreign exchange
risk principally arising from purchases
of inventory and capital equipment
denominated in foreign currencies.
To manage foreign currency transaction risk, the Group hedges material foreign currency denominated
expenditure at the time of the commitment and hedges a proportion of foreign currency denominated
forecast exposures (mainly relating to the purchase of inventory) through the use of forward foreign
exchange contracts.
Liquidity risk
The Group is exposed to liquidity and funding
risk from operations and external borrowings.
Credit risk
Liquidity risk is the risk that unforeseen
events cause pressure on, or curtail, the
Group’s cash flows.
Funding risk is the risk that sufficient funds
will not be available to meet the Group’s
financial commitments in a timely manner.
The Group is exposed to credit risk from its
financing activities, including deposits with
financial institutions and other financial
instruments.
With respect to credit risk arising from
cash and cash equivalents, trade and
other receivables and certain derivative
instruments, the Group’s exposure arises
from default of the counterparty.
Credit risk for the Group also arises from
various financial guarantees in which
members of the Group act as guarantor.
Liquidity risk is measured under both normal market operating conditions and under a crisis situation which
curtails cash flows for an extended period. This approach is designed to ensure that the Group’s funding
framework is sufficiently flexible to ensure liquidity under a wide range of market conditions.
The Group regularly reviews its short, medium and long term funding requirements. The Policy requires that
sufficient committed funds are available to meet medium term requirements, with flexibility and headroom
in the event a strategic opportunity should arise. The Group maintains a liquidity reserve in the form of
undrawn facilities of at least $1 billion.
The majority of the Group’s sales are on cash terms, and the Group’s exposure to credit risk from customer
sales is therefore minimal.
The Group’s trade and other receivables relate largely to commercial income due from suppliers and other
receivables from creditworthy third parties.
Counterparty limits, credit ratings and exposures are actively managed in accordance with the Policy. The
Group’s exposure to bad debts is not significant, and default rates have historically been very low. The credit
quality of trade and other receivables neither past due nor impaired has been assessed as high on the basis
of credit ratings (where available) or historical information about counterparty default.
Since the Group trades only with recognised creditworthy third parties, there is no requirement for collateral
by either party.
The carrying amount of trade and other receivables and other financial assets in the consolidated Statement
of Financial Position represents the Group’s maximum exposure to credit risk.
There is also exposure to credit risk where members of the Group have entered into guarantees; however, the
probability of being required to make payments under these guarantees is considered remote. Refer to
Note 8.3 for further details.
Foreign exchange risk for continuing operations
The Group is primarily exposed to foreign exchange risk in relation to the
United States dollar (USD) and the Euro (EUR). The Group considers its
exposure to USD and EUR arising from purchases to be a long-term and
ongoing exposure that is highly probable.
The table below sets out the total forward exchange contracts at the
reporting date and the carrying value of the derivative asset / (liability)
positions:
At the reporting date, the Group has the following exposures to USD and
EUR:
USD
$M
EUR
€M
2019
2018
2019
2018
NOTIONAL VALUE
CARRYING VALUE
Buy / sell
USD / AUD
2019
$M
63.1
EUR / AUD
419.6
2018
$M
-
-
2019
$M
0.9
(13.3)
2018
$M
-
-
WEIGHTED
AVERAGE HEDGE
RATE
2019
2018
0.71
0.58
-
-
Financial assets
Cash and cash equivalents
Forward exchange
contracts
Financial liabilities
2.2
45.0
-
-
Trade and other payables
(39.2)
(28.9)
Net exposure
8.0
(28.9)
-
242.61
(16.3)
226.3
-
-
(12.8)
(12.8)
1 EUR forward exchange contracts of $212.6 million relate to capital commitments.
The remaining contracts hedge current and future trade payables denominated in EUR.
The Group aims to maintain a balance between continuity of funding and
flexibility through the use of bank overdrafts and bank loans with a variety
of counterparties.
The committed facilities of the Group are set out below:
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
$M
Foreign exchange rate sensitivity for continuing operations
At the reporting date, had the Australian dollar moved against the USD and
EUR (with all other variables held constant), the Group’s post-tax profit
and OCI would have been affected by the change in value of its financial
assets and financial liabilities.
The following sensitivities are based on the foreign exchange risk
exposures in existence at the reporting date and the determination of
reasonably possible movements based on management’s assessment of
reasonable fluctuations:
POST-TAX PROFIT
INCREASE / (DECREASE)
POST-TAX OCI
INCREASE / (DECREASE)
2019
$M
0.2
(0.2)
(0.6)
0.7
2018
$M
2.5
(3.1)
1.3
(1.6)
2019
$M
(0.9)
1.1
(22.7)
27.8
2018
$M
-
-
-
-
Rate
Change
AUD / USD
+10%
-10%
AUD / EUR
+10%
-10%
Financing facilities available:
Bank overdrafts
Revolving multi-option facilities
Term loan facilities
Financing facilities utilised:
Revolving multi-option facilities
Guarantees issued1
Term loan facilities
Interest rate risk for continuing operations
At the reporting date, the Group has the following financial assets and
liabilities exposed to variable interest rate risk that, with the exception of
interest rate swaps, are not designated as cash flow hedges:
Financing not utilised:
Bank overdrafts
Revolving multi-option facilities1
13.0
2,640.0
1,360.0
4,013.0
100.0
342.2
1,360.0
1,802.2
13.0
2,197.8
2,210.8
-
-
-
-
-
-
-
-
-
-
-
1 At 30 June 2019, the Company has issued bank guarantees totalling $342.2 million
(2018: $nil) through the revolving multi-option facilities. While the Company has entered into
these guarantees, the probability of having to make payments under these guarantees is
considered remote. Refer to Note 8.3 for further details.
The Group holds, at the reporting date, $940.4 million (2018: $686.1 million)
cash and cash equivalents.
Assets pledged as security for continuing operations
A controlled entity has issued a floating charge over assets, capped at
$80.0 million (30 June 2018: $80.0 million), as security for payment
obligations for fuel sales collected on behalf of Viva Energy in accordance
with the New Alliance Agreement. The assets are, therefore, excluded from
financial covenants in all debt documentation.
Consolidated
EXPOSURE WEIGHTED
AVERAGE
INTEREST
RATE
EXPOSURE WEIGHTED
AVERAGE
INTEREST
RATE
2019
$M
410.4
(1,460.0)
400.0
(649.6)
%
1.6
(2.4)
(0.4)
2018
$M
1.0
-
-
1.0
%
1.0
-
-
Financial assets
Cash at bank and on
deposit
Financial liabilities
Bank loans
Less: interest rate swaps
(notional principal amount)
Net exposure to cash
flow interest rate risk
Interest rate sensitivity for continuing operations
A 100 basis point increase or decrease represents management’s
assessment of the reasonably possible change in interest rates. Based on
the variable interest rate exposures in existence at the reporting date, if
interest rates moved by +/- 100 basis points, with all other variables held
constant, the impact would be:
POST-TAX PROFIT
INCREASE / (DECREASE)
POST-TAX OCI
INCREASE / (DECREASE)
Impacts of reasonably
possible movements:
+1.0% (100 basis points)
-1.0% (100 basis points)
2019
$M
(4.5)
4.5
2018
$M
-
-
2019
$M
7.9
(7.9)
2018
$M
-
-
Coles Group Limited 2019 Annual Report
86
Coles Group Limited 2019 Annual Report
87
6.3 Financial instruments (continued)
Hedge accounting
Where the Group undertakes a hedge transaction it documents at the
inception of the transaction the type of hedge, the relationship between
hedging instruments and hedged items and its risk management objective
and strategy for undertaking the hedge.
The documentation also demonstrates, both at hedge inception and on an
ongoing basis, that the hedge has been, and is expected to continue to be,
highly effective. The Group uses derivative financial instruments for cash
flow hedging purposes and designates them as such.
Cash flow hedge
Derivatives or other financial instruments that hedge the exposure to variability in cash flows attributable to a particular risk
associated with an asset, liability or forecast transaction.
The Group uses cash flows hedges to mitigate the risk of variability of:
• future cash flows attributable to foreign currency fluctuations over the hedging period where the Group has highly
probable purchase or settlement commitments denominated in foreign currencies; and
•
interest rate fluctuations over the hedging period where the Group has variable rate debt obligations.
Recognition date
At the date the hedging instrument is entered into.
Measurement
Measured at fair value.
Changes in fair value
Changes in the fair value of derivatives designated as cash flow hedges are recognised directly in OCI and accumulated in
equity in the hedging reserve to the extent that the hedge is highly effective. To the extent that the hedge is ineffective,
changes in fair value are recognised immediately in the Statement of Profit or Loss.
Amounts accumulated in equity are transferred to the Statement of Profit or Loss, or the Statement of Financial Position for
a non-financial asset, at the same time as the hedged item is recognised.
At the time the forecast transaction impacts profit or loss or when the forecast transaction is no longer expected to occur,
the cumulative gain or loss accumulated in equity is reclassified into profit or loss.
6.2 Financial risk management (continued)
Maturity analysis for continuing operations
The table below sets out the Group’s financial liabilities across the relevant
maturity periods based on their contractual maturity date. At the reporting
date, the remaining undiscounted contractual cash flows of the Group’s
financial liabilities and their carrying amounts are as follows:
Consolidated
< 12
MONTHS
1-2
YEARS
2-5
YEARS
> 5
YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
$M
$M
$M
$M
$M
$M
3,378.1
-
-
-
3,378.1
3,378.1
44.2
44.2
1,400.0
155.4
1,643.8
1,461.9
1.6
1.1
2.6
0.6
5.9
6.5
0.6
2.8
9.3
-
12.7
12.4
30 June 2019
Trade and
other payables
Bank loans
(principal and
interest)
Interest rate
swaps
Forward
exchange
contracts
Total
3,424.5
48.1
1,411.9
156.0
5,040.5
4,858.9
30 June 2018
Trade and
other payables
6,136.0
Total
6,136.0
-
-
-
-
-
-
6,136.0
6,136.0
6,136.0
6,136.0
For variable rate instruments, the amount disclosed is determined by
reference to the interest rate at the last re-pricing date. Contractual cash
flows are undiscounted and as such will not necessarily agree with their
carrying amounts.
6.3 Financial instruments
Financial assets and liabilities measured at fair value
The following table sets out the fair value measurement hierarchy of the
Group’s financial assets and liabilities at 30 June 2019 for continuing
operations:
Consolidated
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
$M
$M
$M
$M
-
-
-
1.3
(6.5)
(13.7)
-
-
-
1.3
(6.5)
(13.7)
Financial assets
Forward exchange
contracts
Financial liabilities
Interest rates swaps
Forward exchange
contracts
Valuation of financial instruments
The Group measures certain financial instruments, such as derivatives,
at fair value at each reporting date. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value of an asset or liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest. The
Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the
financial statements are categorised within the fair value hierarchy based
on the lowest level input that is significant to the fair value measurement
as a whole.
Level 1
Fair value is calculated using quoted prices in active markets for
identical assets or liabilities.
Level 2
Fair value is estimated using inputs other than quoted prices included
in Level 1 that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices).
Level 3
Fair value is estimated using inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
For financial instruments that are carried at fair value on a recurring basis,
the Group reassesses categorisation at the end of each reporting period.
There have been no transfers between Level 1, Level 2 and Level 3 during
the period.
Derivatives
The Group enters into derivative financial instruments with various
counterparties, principally financial institutions with investment grade
credit ratings. Foreign exchange forward contracts and interest rate swap
contracts are valued using forward pricing techniques. This includes
the use of market observable inputs, such as foreign exchange spot and
forward rates, yield curves of the respective currencies and interest rate
curves. Accordingly, these derivatives are classified as Level 2.
Fair value of financial instruments that are not measured at fair value
on a recurring basis
The carrying value of cash and cash equivalents, trade and other
receivables, trade and other payables and interest bearing liabilities of the
Group appriximate their fair value.
Offsetting of financial instruments
The Group presents its derivative assets and liabilities on a gross basis,
with the exception of derivative financial instruments which are subject to
enforceable master netting arrangements, such as an International Swaps
and Derivatives Association (ISDA) master netting agreement. In certain
circumstances, for example when a credit event such as default occurs, all
outstanding transactions under an ISDA agreement are terminated. The
termination value is assessed, and only a single net amount is payable in
settlement of all transactions.
Commercial income due from suppliers is recognised within trade
receivables, except in cases where the Group currently has a legally
enforceable right of set-off and the intention to settle on a net basis, in
which case only the net amount receivable or payable is recognised.
The following table sets out the Group’s financial assets and financial
liabilities which have been offset in the consolidated Statement of
Financial Position at the reporting date:
GROSS
FINANCIAL
ASSETS /
(LIABILITIES)
Consolidated
GROSS
FINANCIAL
(LIABILITIES)
/ ASSETS SET
OFF
NET FINANCIAL
ASSETS /
(LIABILITIES)
PRESENTED IN
THE STATEMENT
OF FINANCIAL
POSITION
$M
$M
$M
30 June 2019
Trade and other receivables
499.8
Trade and other payables
(3,520.0)
30 June 2018
Trade and other receivables
Trade and other payables
605.7
(8,117.0)
(140.1)
140.1
(108.5)
108.5
359.7
(3,379.9)
497.2
(8,008.5)
Coles Group Limited 2019 Annual Report
88
7. Group structure.
This section provides information relating to subsidiaries and other material investments of the Group.
7.1 Equity accounted investments
Loyalty Pacific Pty Ltd
NAME OF
COMPANY
PRINCIPAL
ACTIVITY
PLACE OF
INCORPORATION TYPE
Ownership interest
30 JUNE
2019
30 JUNE
2018
Loyalty
Pacific Pty
Ltd
Operator of
flybuys loyalty
program
Queensland
Venue Co.
Pty Ltd
Operator of
Spirit Hotels
and Queensland
Retail Liquor
business
Australia
Joint
venture
50%
50%
Australia
Associate
50%
-
A joint venture is a type of joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of the
joint venture. Joint control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control.
An associate is an entity that is not controlled or jointly controlled by the
Group, but over which the Group has significant influence.
The Group accounts for its investments in joint ventures and associates
using the equity method of accounting in the consolidated financial
statements. Under the equity method, the investment in a joint venture or
associate is initially recognised at cost. Thereafter, the carrying amount
of the investment is adjusted to recognise the Group’s share of profit
after tax of the joint venture or associate, which is recognised in profit
or loss. The Group’s share of OCI is recognised within the Statement of
Other Comprehensive Income. Dividends received from a joint venture or
associate reduce the carrying amount of the investment.
After application of the equity method, the Group determines whether
it is necessary to recognise an impairment loss for its investment in a
joint venture or associate. At each reporting date, the Group determines
whether there is objective evidence that the investment in the joint venture
or associate is impaired. If there is such evidence, the Group calculates the
amount of impairment as the difference between the recoverable amount
of the joint venture or associate and its carrying value. Any impairment
loss will be recognised within ‘share of net profit of equity accounted
investments’ in the consolidated Statement of Profit or Loss.
Key judgement: Control and significant influence
The Group has a number of management agreements relating to its
joint venture and associate investments which it considers when
determining whether it has control, joint control or significant
influence. The Group assesses whether it has the power to direct the
relevant activities of the investee by considering the rights it holds to
appoint or remove key management and the decision making rights
and scope of powers specified in the agreements.
The Group’s interests in Loyalty Pacific Pty Ltd and Queensland Venue
Co. Pty Ltd are accounted for using the equity method in the consolidated
Statement of Financial Position.
A reconciliation of the carrying amount of the Group’s investment in
Loyalty Pacific Pty Ltd is set out below:
Beginning of the period
Net investment
Profit for the period
Dividends paid
End of the period
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
-
6.3
5.0
-
11.3
$M
-
-
16.3
(16.3)
-
Queensland Venue Co. Pty Ltd
As disclosed in Note 2.2 Significant Items, during the year the Company
entered into an incorporated joint venture with AVC for the operation of:
• the 87 hotels that comprised the Group’s hotel and gaming business
(Spirit Hotels); and
• the 243 retail liquor stores in Queensland, and the 10 retail liquor stores
in South Australia and Western Australia attached to Spirit Hotels’
venues, which operate under the Liquorland, First Choice, First Choice
Liquor Market and Vintage Cellars brands (collectively the ‘Retail Liquor
business’).
As part of the transaction a group subsidiary company, LLQ, was converted
into an incorporated joint venture company, QVC. To facilitate the
transaction, QVC restructured its share capital by issuing two classes of
shares: R-Shares which confer the right to the full economic benefit of
the Retail Liquor business and H-Shares which confer the right to the full
economic benefit of Spirit Hotels.
The Company sold the H-shares to AVC, while retaining the R-shares. The
transaction was implemented through a number of agreements, the most
relevant of which are described below:
• the Shareholders’ Deed, which governs the respective shareholding and
decision making rights of the holders of H-shares and R-shares
• the Retail Liquor Business Operations Agreement (RLBOA), which
governs the rights and obligations of the parties in relation to the
continued operation of the Retail Liquor business
• the Supply Agreement which governs the supply of liquor by members
of the Group to QVC for the Retail Liquor business.
Under the Shareholders’ Deed the Company holds all R-shares in QVC and
operates the Retail Liquor business through its wholly owned subsidiary,
Liquorland (Australia) Pty Ltd (LLA), subject to the terms of the RLBOA.
Through its ownership of R-shares, the Company has significant influence
over QVC for accounting purposes and its investment in QVC is classified
as an investment in an associate. Accordingly, the Company has recognised
its interest in QVC at fair value using the equity method. This reflects the
combined fair value of the R-shares and the economic rights under the
RLBOA as a single arrangement.
For accounting purposes, and under the operation of the RLBOA and
Supply Agreement, LLA is considered the principal in relation to retail
liquor sales due to its exposure to the economic risks and benefits
associated with the Retail Liquor business. Accordingly, LLA recognises
revenue from retail liquor sales by QVC directly in its Statement of Profit or
Loss. Revenue recognised by QVC relates solely to Spirit Hotels.
Furthermore, due to the application of service fees and cost recoveries
between the Company and QVC, net profit relating to the Retail Liquor
business as recognised by QVC is nominal.
Coles Group Limited 2019 Annual Report
89
7.1 Equity accounted investments (continued)
The table below provides summary financial information for QVC based
on 100% ownership. The table also reconciles the Company’s rights to
the net assets of the Retail Liquor business to the carrying amount of the
Company’s investment in QVC:
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Net assets attributable to R-class shareholding1
Fair value adjustment2
Carrying amount of interest in associate
30 JUNE 2019
$M
56.8
279.1
335.9
63.0
14.5
77.5
258.4
40.1
160.9
201.0
1Reflects net assets used in the operations of the Retail Liquor business.
2Reflects the fair value of the R-shares and the associated economic rights under the RLBOA
at the acquisition date.
Revenue
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period attributable to
R-class shareholding
30 JUNE 2019
$M
49.8
1.0
-
1.0
-
7.2 Non-current assets held for sale
At 30 June 2019, six of the Group’s properties with a total carrying value of
$94.1 million have been classified as held for sale (2018: $nil).
The Group classifies non-current assets and disposal groups as held for
sale if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. They are measured at the
lower of their carrying amount and fair value less costs to sell.
The criteria for held for sale classification is met only when the sale is
highly probable and the asset or disposal group is available for immediate
sale in its present condition. A sale is considered highly probable when
actions required to complete the sale indicate that it is unlikely significant
changes to the sale will be made or that the decision to sell will be
withdrawn, and where management is committed to a plan to sell the asset
and the sale is expected to be completed within one year from the date of
the classification.
7.3 Discontinued operations
The Group presents as discontinued operations any component of the
Group that has either been disposed of or is classified as held for sale, and:
• represents a separate major line of business or geographical area of
operations; and
is part of a single coordinated plan to dispose of a separate major line of
business, or geographical area of operations; or
is a subsidiary acquired exclusively with a view to resale.
•
•
The net results of discontinued operations are presented separately in the
consolidated Statement of Profit or Loss.
The following entities were material wholly-owned subsidiaries during
the financial year until 19 November 2018 when the Company transferred
control of these entities to Wesfarmers as part of the corporate
restructure:
• Kmart Australia Limited and controlled entities (‘Kmart’)
• Target Australia Pty Ltd and controlled entities (‘Target’)
• Officeworks Ltd and controlled entities (‘Officeworks’)
The profit for the year for KTO discontinued operations is set out below,
including comparative information:
Revenue
Expenses
Profit before income tax
Income tax expense
Profit for the period from discontinued
operations
YEAR ENDED
30 JUNE 20191
YEAR ENDED
30 JUNE 2018
$M
$M
4,341.2
11,023.6
(3,832.7)
(10,232.1)
508.5
(152.0)
356.5
791.5
(235.9)
555.6
1 Financial performance reflects the period up to 19 November 2018.
Assets and liabilities of KTO discontinued operations at the date of transfer
to Wesfarmers are set out below, including comparative information:
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Goodwill and intangibles
Other assets
Total assets disposed
Liabilities
Trade and other payables
Other liabilities
Total liabilities disposed
Net assets disposed
19 NOVEMBER
2018
30 JUNE
2018
$M
$M
138.3
76.8
1,707.4
997.0
236.0
279.8
130.1
90.5
1,337.3
984.7
253.8
291.4
3,435.3
3,087.8
2,205.4
874.6
3,080.0
1,709.0
612.0
2,321.0
355.3
766.8
Cash flows for KTO discontinued operations during the year are set out
below, including comparative information:
Net cash flows from operating activities
Net cash flows from / (used in) investing activities
Net cash flows used in financing activities
Net increase in cash and cash equivalents
from discontinued operations
1 Cash flows reflect period up to 19 November 2018.
YEAR ENDED
30 JUNE 20191
YEAR ENDED
30 JUNE 2018
$M
321.8
219.0
(531.6)
$M
1,007.7
(328.9)
(630.6)
9.2
48.2
EPS for KTO discontinued operations is set out below:
Basic and diluted EPS (cents)
26.7
41.7
YEAR ENDED
30 JUNE 20191
YEAR ENDED
30 JUNE 2018
1 EPS reflects period up to 19 November 2018.
Gain / loss on disposal
Gain or loss on disposal is the difference between:
• the carrying amount of the net assets plus any attributable goodwill and
amounts accumulated in OCI; and
• the proceeds of sale.
No gain or loss has been recognised for the disposal of KTO.
Coles Group Limited 2019 Annual Report
90
7.4 Subsidiaries
The Company, which is the ultimate parent of the Group, is incorporated in
Australia. Subsidiaries are consolidated from the date of acquisition, being
the date the Company obtains control, and continue to be consolidated
until the date that such control ceases.
Control exists where the Company has the power to govern the financial
and operating policies of the entity in order to obtain benefits from its
activities. Set out below are the subsidiaries within the Group. All entities
controlled by the Company at 30 June 2019 were incorporated in Australia
and are wholly-owned unless stated otherwise.
Andearp Pty Ltd
Australian Liquor Group Ltd *
Bi-Lo Pty. Limited *
Charlie Carter (Norwest) Pty Ltd
Chef Fresh Pty Ltd
CMPQ (CML) Pty Ltd
Coles Ansett Travel Pty Ltd (97.5% ownership)
Coles Group Deposit Services Pty Ltd
Coles Group Finance (USA) Pty Ltd
Coles Group Finance Limited *
Coles Group Properties Holdings Ltd *
Coles Group Property Developments Ltd *
Coles Group Superannuation Fund Pty Ltd
Coles Group Supply Chain Pty Ltd *
Coles Supermarkets Australia Pty Ltd *
CSA Retail (Finance) Pty Ltd
e.colesgroup Pty Ltd
Eureka Operations Pty Ltd *
GBPL Pty Ltd
Grocery Holdings Pty Ltd *
Katies Fashions (Aust) Pty Limited
Liquorland (Australia) Pty. Ltd. *
Newmart Pty Ltd
now.com.au Pty Ltd
Procurement Online Pty Ltd
Retail Ready Operations Australia Pty. Ltd. *
Richmond Plaza Shopping Centre Pty Ltd
Tickoth Pty Ltd
Coles Group Treasury Pty Ltd (formerly Coles Group Payments Pty Ltd) *
Tooronga Holdings Pty Ltd
Coles Online Pty Ltd *
Coles Property Management Pty Ltd
Coles Retail Services Pty Ltd
Tyremaster Pty Ltd
Waratah Cove Pty Ltd
Entities formed/incorporated or acquired during the financial year
Coles Financial Services Pty Ltd
Coles FS Holding Company Pty Ltd (formerly Wesfarmers Finance Holding Company
Pty Ltd)
WFPL No 2 Pty Ltd
WFPL Security SPV Pty Ltd
Coles WFS Pty Ltd (formerly Wesfarmers Finance Pty Ltd)
WFPL SPV Pty Ltd
WFPL Funding Co Pty Ltd
Entities disposed of during the financial year
ACN 007 870 484 Pty Ltd
ACN 061 462 593 Pty Ltd (formerly Mycar Automotive Pty Ltd)
ACN 092 194 904 Pty Ltd
LHG Pty Ltd
LHG2 Pty Ltd
LHG3 Pty Ltd
ANKO Global Holdings Pty Ltd (formerly KAS Global Holdings Pty Ltd)
Queensland Venue Co. Pty Ltd (formerly Liquorland (Qld) Pty Ltd)
ANKO Retail Incorporated
Brian Pty Ltd
CMNZ Investments Pty Ltd
Officeworks Businessdirect Pty Ltd
Officeworks Ltd
Officeworks NZ Limited
Wesfarmers International Holdings Pty Ltd (formerly Coles Group International Pty Ltd)
Officeworks Property Pty Ltd
Kmart NZ Holdings Pty Limited (formerly Coles Group New Zealand Holdings Limited)
Relationship Services Pty Limited
Fitzgibbons Hotel Pty Ltd
Fitzinn Pty Ltd
Fosseys (Australia) Pty Ltd
Hotel Wickham Investments Pty Ltd
KAS Direct Sourcing Private Limited
KAS Global Trading Pty Ltd
KAS International Sourcing Bangladesh Pvt Ltd
KAS International Trading (Shanghai) Company Limited
KAS Pty Limited
KAS Services India Private Limited
Kmart Australia Limited
Entities deregistered during the financial year
CMFL Services Ltd
Coles Melbourne Ltd
Coles Properties WA Ltd
Retail Investments Pty Ltd
Target Australia Pty Ltd
Target Australia Sourcing (Shanghai) Co Ltd
Target Australia Sourcing Limited
The Grape Management Pty Ltd
Tyre and Auto Pty Ltd
Tyremaster (Wholesale) Pty Ltd
Viking Direct Pty Ltd
W4K-World 4 Kids Pty Ltd
Wesfarmers Risk Management (Singapore) Pte Ltd
e.tailing (Coles Group) Pty Ltd
FBP Awards Fund Pty Ltd
* These entities are parties to the Deed of Cross Guarantee and members of the Closed Group as at 30 June 2019.
Coles Group Limited 2019 Annual Report
91
Closed Group
30 JUNE 2019
$M
940.4
358.5
1,964.0
90.6
47.1
3,400.6
4,103.4
1,540.6
364.9
238.1
212.3
134.1
6,593.4
9,994.0
3,528.3
0.3
742.5
167.6
4,438.7
1,460.0
598.6
70.8
2,129.4
6,568.1
3,425.9
1,627.8
42.0
1,756.1
3,425.9
7.4 Subsidiaries (continued)
Deed of Cross Guarantee
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument
2016/785 (‘ASIC Instrument’) the wholly-owned subsidiaries listed on
page 90 (*) are relieved from the Corporations Act 2001 requirements
for preparation, audit and lodgement of financial reports, and Directors’
Reports.
As a condition of the ASIC Instrument, the Company and the subsidiaries
listed on page 90 entered into a Deed of Cross Guarantee on
17 December 2018 (the ‘Deed’). The effect of the Deed is that the Company
guarantees to pay any deficiency in the event of winding up any controlled
entity, or if they do not meet their obligations under the terms of any
overdrafts, loans, leases or other liabilities subject to the guarantee. The
controlled entities have also given a similar guarantee in the event that the
Company is wound up or if it does not meet its obligations under the terms
of any overdrafts, loans, leases or other liabilities subject to the guarantee.
A Statement of Comprehensive Income, retained earnings and a Statement
of Financial Position, comprising the Company and controlled entities
which are a party to the Deed, after eliminating all transactions between
the parties to the Deed, for the year ended 30 June 2019 are set out below:
Statement of Comprehensive Income and retained earnings
Closed Group
Statement of Financial Position
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Non-current assets held for sale
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Investment in subsidiaries
Investment in joint venture
Other assets
Total non-current assets
YEAR ENDED
30 JUNE 2019
Total assets
$M
Liabilities
Continuing Operations
Sales revenue
Other operating revenue
Total operating revenue
Cost of sales
Gross profit
Other income
Administration expenses
Other expenses
Share of net profit of equity accounted investments
Earnings before interest and tax
Financing costs
Profit before income tax
Income tax expense
Profit for the year
Items that may be reclassified to profit or loss:
Net movement in the fair value of cash flow hedges
Income tax effect
Other comprehensive income which may be
reclassified to profit or loss in subsequent periods
Total comprehensive income for the year
Retained earnings
Retained earnings at the beginning of the year
Distributions to Wesfarmers
Retained earnings at the end of the year
Current liabilities
Trade and other payables
Income tax payable
Provisions
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
37,262.5
185.7
37,448.2
(28,591.5)
8,856.7
416.5
(8,198.9)
(145.8)
5.0
933.5
(41.5)
892.0
(290.8)
601.2
(2.0)
0.6
(1.4)
599.8
1,497.3
(341.0)
1,756.1
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7.5 Parent entity information
Summary financial information for the Company is set out below:
Profit for the period
Other comprehensive income
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
$M
1,266.3
1,458.2
-
-
Total comprehensive income for the period
1,266.3
1,458.2
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Contributed equity
Share-based payments reserve
Retained earnings
Total equity
30 JUNE 2019
30 JUNE 2018
$M
$M
1,903.2
5,070.6
6,973.8
741.3
3,405.1
4,146.4
1,627.8
38.8
1,160.8
699.6
3,903.5
4,603.1
1,678.9
477.9
2,156.8
2,192.6
38.8
214.9
2,827.4
2,446.3
As at 30 June 2019, the Company has no guarantees in relation to the
debts of its subsidiaries (2018: $nil).
As at 30 June 2019, the Company has no contingent liabilities (2018: $nil).
As at 30 June 2019, the Company has bank guarantees totalling
$310.2 million (2018: $nil).
As at 30 June 2019, the Company has contractual commitments for the
acquisition of property, plant and equipment totalling $589.9 million
(2018: $nil).
8. Unrecognised items.
This section provides information about items that are not recognised in the financial statements but could
potentially have a significant impact on the Group’s future financial performance or position.
8.1 Capital expenditure commitments
Group as lessor
Future minimum rentals receivable under non-cancellable operating leases
at the reporting date are set out below:
A commitment represents a contractual obligation to make a payment in
the future. The Group’s commitments relate to capital expenditure and
operating leases. Commitments are not recognised in the Statement of
Financial Position, but are disclosed.
Capital expenditure commitments of the Group at the reporting date are
set out below:
Within one year
Consolidated
Between one and five years
30 JUNE 2019
30 JUNE 2018
More than five years
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
13.1
11.5
21.1
45.7
$M
10.9
22.9
3.4
37.2
Within one year
Between one and five years
Total capital expenditure commitments
$M
139.8
514.4
654.2
$M
90.5
5.2
95.7
The commitment amounts disclosed above represent the maximum
amounts that the Group is obliged to pay.
8.2 Operating lease commitments
Group as lessee
Future minimum rentals under non-cancellable operating leases at the
reporting date are set out below:
Within one year
Between one and five years
More than five years
Consolidated
30 JUNE 2019
30 JUNE 2018
$M
1,214.1
4,134.4
5,228.2
$M
1,765.1
5,878.3
6,823.5
Total operating lease commitments
10,576.7
14,466.9
The reported lease commitments of the Group exclude rent that was
considered contingent at lease inception. The effect of this exclusion on
the reported lease commitments is not considered material.
Leases are classified as operating leases whenever the terms of the lease
do not transfer substantially all the risks and rewards of ownership to
the lessee. Leases that transfer substantially all the risks and rewards of
ownership to the lessee are classified as finance leases. Finance leases are
recognised as assets by the lessee, whereas operating leases are recognised
as assets by the lessor and disclosed as a commitment by the lessee.
Operating lease payments are recognised as an operating expense in the
Statement of Profit or Loss on a straight-line basis over the lease term.
Key judgement: Classification of leases
The Group classifies leases as either finance or operating depending
on whether the Group holds substantially all of the risks and rewards
incidental to ownership. In making this assessment, the Group
primarily considers asset ownership at the end of the lease term, any
purchase options, the lease term in relation to the asset’s life, the
present value of future lease payments in relation to the asset’s fair
value and the nature of the asset.
Total rental receivable
Rental income is accounted for on a straight-line basis over the lease term
and is included in ‘other operating revenue’ in the Statement of Profit or
Loss. Initial direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased asset and recognised
over the lease term on the same basis as rental income. Contingent rent is
recognised as revenue in the period in which it is earned.
8.3 Contingent liabilities
Contingent liabilities are potential future cash outflows where the
likelihood of payment is more than remote but is not considered probable
or cannot be reliably measured.
Contingent liabilities are not recognised in the Statement of Financial
Position but are disclosed.
As at 30 June 2019, the Group has bank guarantees totalling $342.2 million
(2018: $9.8m relating to KTO).
While the entities in the Group have entered into these guarantees,
the probability of having to make payments under these guarantees is
considered remote. The nature of the guarantees provided is set out below:
• guarantees in the normal course of business relating to conditions set
out in property development applications and for the sale of properties
• guarantees relating to workers compensation self-insurance liabilities
as required by State WorkCover authorities. These guarantees provide
the authorities with security in the event that the Group is unable to
meet its workers compensation insurance obligations. The guarantees
required are determined by reference to the value of the self-insurance
provisions for workers compensation which form part of the self-
insurance provisions recognised by the Group and disclosed in Note 4.8.
Key judgement: Contingent liabilities
Contingent liabilities are possible obligations whose existence
will be confirmed only on the occurrence or non-occurrence of
uncertain future events outside the Group’s control, or present
obligations that are not recognised because it is not probable that
a settlement will be required or the value of such a payment
cannot be reliably estimated.
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9. Other disclosures.
9.2 Share-based payments
9.4 New accounting standards and interpretations
This section provides other disclosures required by Australian Accounting Standards that are considered relevant to
understanding the Group’s financial performance or position.
9.1 Related party disclosures
Joint ventures and associates
Loyalty Pacific Pty Ltd
Sale of goods to members of flybuys
Purchase of points from Loyalty Pacific Pty Ltd
Amounts receivable from Loyalty Pacific Pty Ltd
Amounts owing to Loyalty Pacific Pty Ltd
Queensland Venue Co. Pty Ltd (QVC)
Sales to QVC
Amounts paid to QVC
Amounts receivable from QVC
Other related parties
Wesfarmers Limited and its controlled entities
Rental income received
Rental expenses paid
Sales to Wesfarmers Limited and its controlled
entities
Purchases from Wesfarmers Limited and its
controlled entities
Amounts owing to Wesfarmers Limited and its
controlled entities
Parent entity
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$M
$M
269.1
232.9
-
169.8
1.4
8.9
39.9
2.6
14.9
1.9
56.9
6.1
235.0
192.4
14.9
-
-
-
-
-
-
-
50.8
2.3
The ultimate parent entity of the Group is Coles Group Limited, which
is domiciled and incorporated in Australia. Prior to the demerger from
Wesfarmers and subsequent listing as a standalone entity on the ASX, the
ultimate parent entity of the Group was Wesfarmers Limited.
Transactions with subsidiaries
Intercompany transactions, assets and liabilities between entities within
the Group have been eliminated in the consolidated financial statements.
Transactions with entities transferred from the Group to Wesfarmers have
been treated as related party transactions following the transfer of these
entities to Wesfarmers. The nature of these transactions is set out below.
Transactions with joint venture and associate
Various transactions occurred between the Group and Loyalty Pacific Pty
Ltd (operator of flybuys) during the year ended 30 June 2019, including:
• reimbursement of costs incurred
• sale of goods to members of flybuys
• purchase of points from Loyalty Pacific Pty Ltd
Various transactions occurred between the Group and QVC during the year
ended 30 June 2019, including:
• service fees paid
• sales to QVC of inventory
Transactions with Wesfarmers Limited and its controlled entities
(‘Wesfarmers Group’)
As part of the demerger, certain members of the Wesfarmers Group and
the Group entered into Transitional Services Agreements (TSA) for the
provision of services for up to 24 months. All services provided under a TSA
are charged at cost.
The transitional services to be provided by the Wesfarmers Group to the
Group are:
• workers compensation services
• general insurance services
• other services, including the support of a merchandise ordering system
The transitional services to be provided by the Group to the Wesfarmers
Group are:
•
information technology services
• payroll services and business process outsourcing
• finance services and systems support
• other services including the management and facilitation of
telecommunications and other third-party recharge products
In addition, the Company is party to arrangements with third parties
which were negotiated on behalf of all subsidiaries of Wesfarmers prior to
demerger. These arrangements include amongst others, property leases
where the Group is a head lessee and a sub-lessor to its related parties
and vice versa. Where these arrangements remain in place, the Group or its
related party settle the liabilities on each other’s behalf and subsequently
recover the third party costs by on-charging without a margin.
The Group views the on-charging of third party costs without a margin
as transactions with a third party. Therefore, these transactions have not
been disclosed as related party transactions. However, as balances that
remain unsettled at the reporting date are amounts owed to or from related
parties, these are disclosed as related party payables or receivables.
Transactions with Key Management Personnel
Compensation of Key Management Personnel (KMP) of the Group:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Total compensation paid to KMP
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$
$
9,446,947
3,182,374
59,143
33,043
20,049
36,666
1,492,103
1,673,163
11,031,236
4,912,252
The transactions with KMP for the year ended 30 June 2019 include the
compensation of the Company's Executive and Non-executive Directors
as detailed in the Remuneration Report. Transactions with KMP for the
year ended 30 June 2018 reflect compensation for the previous Managing
Director of Coles as detailed in the Remuneration Report section of the
Wesfarmers 2018 Annual Report.
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms equivalent
to those that prevail in arm’s length transactions. Outstanding balances at
the reporting date are unsecured and interest free and settlement occurs in
cash. There have been no guarantees provided or received for any related
party receivables or payables.
For the year ended 30 June 2019, the Group has not recognised a provision
for expected credit losses relating to amounts owed by related parties
(2018: $nil).
The Group applied AASB 15 Revenue from Contracts with Customers
(‘AASB 15’) and AASB 9 Financial Instruments (‘AASB 9’) for the first time
in this annual reporting period. The nature and effect of the changes as a
result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in
this financial year but do not have a material impact on the consolidated
financial statements of the Group. The Group has not early adopted any
standards, interpretations or amendments that have been issued but are
not yet effective.
AASB 15
The Group adopted this standard from 1 July 2018. The introduction of
this standard did not have a material impact on the Group’s financial
statements; accordingly there are no retrospective adjustments.
Additional disclosure of the Group’s revenue accounting policies required
by the standard are included in Note 3.3.
AASB 9
The Group adopted this standard from 1 July 2018. The introduction of
this standard did not have a material impact on the financial statements;
accordingly there are no retrospective adjustments.
The Group has applied AASB 9 in accordance with the transitional
provisions set out in the standard. The key change for the Group as a result
of adopting this standard is in relation to the impairment of financial assets
(mainly loans and receivables). Specifically, the new standard requires the
Group to account for expected credit losses at the point these financial
assets are first recognised, and to recognise full lifetime expected losses
for financial assets where the credit risk has increased significantly since
initial recognition.
During the year, the Group established the Coles Group Limited Equity
Incentive Plan (the ‘Plan’) to assist in the motivation, retention and
reward of employees. The Plan provides flexibility for the Group to offer
rights, options and restricted shares as incentives, subject to the terms
of individual offers and the satisfaction of performance and/or service
conditions determined by the Board. It also provides the Group with the
ability to invite employees to acquire Coles Group Limited shares through a
salary sacrifice arrangement.
Additional information on award schemes
Details of grants made under the Plan during the year are set out in the
Remuneration Report.
Key estimate: Share-based payments
The fair value of share-based payment transactions has been
determined by an independent valuation expert.
Estimating the fair value of share-based payment transactions
requires the determination of the most appropriate valuation model,
which depends on the terms and conditions of the grant.
Assumptions regarding the most appropriate inputs to the valuation
model including, but not limited to, share price volatility, discount
rate and dividend yield must also be made.
In measuring the fair value of awards issued under the Long-Term
Incentive (LTI) plan subject to the relative total shareholder return
(TSR) vesting condition, an adjusted form of the Black-Scholes
Model that includes a Monte Carlo Simulation Model has been
utilised. The Monte Carlo Simulation Model has been modified to
incorporate an estimate of the probability of achieving the TSR
hurdle. In valuing the awards subject to non-market based vesting
conditions, the Black-Scholes Model has been utilised.
9.3 Auditor’s remuneration
Amounts received, or due and receivable, by
Ernst & Young (Australia) for:
Audit services
Audit or review of the Financial Report of the
Company and entities in the Group
Assurance related
Non-audit services
Tax compliance services
Total auditor’s remuneration
Consolidated
YEAR ENDED
30 JUNE 2019
YEAR ENDED
30 JUNE 2018
$000
$000
1,900
2,1781
140
4,218
1,738
246
130
2,114
1Fees for assurance related services for the current year include $1,750,000 for services
associated with the demerger from Wesfarmers.
The auditor of the Group is Ernst & Young (EY). Fees charged by EY for
‘Assurance related services’ are for services that are reasonably related
to the performance of the audit or review of financial reports, for other
assurance engagements (such as assurance over the Group’s Sustainability
Report) and for other assurance related engagements which are
appropriate to be performed by our external auditor.
The total fees for non-audit services of $140,000 represents 3% (2018: 6%)
of the total fees paid or payable to EY and related practices for the year
ended 30 June 2019.
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9.4 New accounting standards and interpretations (continued)
New and revised Australian accounting standards and interpretations on issue but not yet effective
The expected impact for the Group of significant new and revised accounting standards and interpretations, which are not yet effective, are summarised
below:
AASB 16 Leases (‘AASB 16’)
Nature of change
Impact
This standard introduces a single lessee accounting
model and requires a lessee to recognise assets and
liabilities for all leases with a term of greater than
12 months, unless the underlying asset is of low value.
A lessee is required to recognise a right-of-use (ROU)
asset representing its right to use the underlying leased
asset and a lease liability representing its obligation to
make lease payments. A depreciation charge for ROU
assets and interest expense for lease liabilities will be
recognised in the Statement of Profit or Loss.
The Group will also be required to remeasure the lease
liability upon the occurrence of certain events (e.g. a
change in the lease term or a change in future lease
payments resulting from a change in an index or rate).
The Group will generally recognise the amount of the
remeasurement of the lease liability as an adjustment to
the ROU asset.
Lessor accounting under AASB 16 is substantially
unchanged from the accounting under AASB 117 Leases.
The Group will apply AASB 16 from 1 July 2019 using the modified retrospective transition
approach. Under this approach, the Group will elect on a lease-by-lease basis whether
to calculate the ROU asset as either equal to the lease liability, or to retrospectively
measure the ROU asset at the incremental borrowing rate on transition. The cumulative
effect of adopting AASB 16 will be recognised as an adjustment to the opening retained
earnings at 1 July 2019, with no restatement of comparatives.
The Group will elect to apply a number of the practical expedients available on transition
including:
• the application of a single discount rate to a portfolio of leases with reasonably similar
characteristics
• utilising previous assessments of onerous leases
• the use of hindsight in determining the lease term.
A practical expedient also available to the Group is to combine lease and non-lease
components, and account for these as a single lease component. The Group will not elect
to apply this practical expedient for its property leases. As such, the calculated lease
liability for property leases will exclude an estimate of the stand-alone price of any non-
lease components.
The Group has substantially completed the impact assessment of adopting AASB 16. The
estimated impact on the consolidated Statement of Financial Position as at 1 July 2019 is
as follows:
• new (incremental) ROU assets of $7.2 billion to $7.7 billion
• new (incremental) lease liability of $8.5 billion to $9.0 billion
• the net impact of these balances, adjusted for deferred tax and reversal of current
lease accounting, will be recognised within retained earnings.
Assuming AASB 16 had been adopted from 1 July 2018, the estimated impact on profit
before tax from continuing operations for the year ended 30 June 2019 would have
remained broadly neutral, including:
•
•
increase in depreciation of $750 million to $800 million
increase in financing costs of $400 million to $450 million.
The actual impact on the financial performance and position for the financial year ended
28 June 2020 will depend on the composition of the Group’s lease portfolio and any new
leases that are entered into during the financial year.
There are no other standards that are not yet effective and that would be expected to have a material impact on the Group in the current or future
reporting periods.
9.5 Events after the reporting period
On 22 August 2019, the Directors declared a total dividend of 35.5 cents per fully paid ordinary share to be paid on 26 September 2019, fully franked at
the corporate tax rate of 30%. This comprises a final dividend of 24.0 cents per fully paid ordinary share and a special dividend of 11.5 cents per fully paid
ordinary share. The aggregate amount of the total dividend to be paid out of profits, but not recognised as a liability at 30 June 2019, is $473.5 million.
The Group is not aware of any other matter or circumstance that has occurred since the end of the reporting date that has significantly affected or may
significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in subsequent financial years.
Directors’
Declaration.
1. The directors of Coles Group Limited (the Company) declare that, in the directors’ opinion:
(a) the financial statements and the notes that are set out on pages 65 to 96, are in accordance
with the Corporations Act 2001 (Cth), including:
(i) complying with the accounting standards and Corporations Regulations 2001; and
(ii) giving a true and fair view of the financial position and performance of the Company and
its consolidated entities;
(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. A statement of compliance with the International Financial Reporting Standards is included in
Note 2.1 to the consolidated financial statements.
3. The directors have been given the declaration required by section 295A of the Corporations Act
2001 from the Managing Director and Chief Executive Officer and Chief Financial Officer for the
financial year ended 30 June 2019.
4. As at the date of this declaration, there are reasonable grounds to believe that the members
of the closed group identified in Note 7.4 to the financial statements will be able to meet any
obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross
Guarantee described in Note 7.4.
Signed in accordance with a resolution of the directors.
James Graham AM
Chairman
20 September 2019
Steven Cain
Managing Director and Chief Executive Officer
20 September 2019
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Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor's Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries (collectively, the
Group), which comprises the Consolidated Statement of Financial Position as at 30 June 2019, the Consolidated
Statement of Profit or Loss, Consolidated Statement of Other Comprehensive Income, Consolidated Statement of
Changes in Equity and Consolidated Statement of Cash Flows for the year then ended, notes to the consolidated
financial statements, including a summary of significant accounting policies, and the Directors' Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001,
including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its
consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. 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 auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the Directors of Coles Group Limited, would be in the same terms if given to the Directors as at the time of this
auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
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 year. These matters were addressed in the context of our audit of the
Financial Report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on
these matters. For each matter below, our description of how our audit addressed the matter is provided in that
context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report, including in relation to these matters. Accordingly, our audit included the
performance of procedures designed to respond to our assessment of the risks of material misstatement of the
Financial Report. The results of our audit procedures, including the procedures performed to address the matters
below, provide the basis for our audit opinion on the accompanying Financial Report.
1. Commercial income
Why significant
How our audit addressed the key audit matter
Commercial income (also referred to in the retail industry
as “Supplier rebates”) comprises discounts and rebates
received by the Group from its suppliers.
Our audit procedures in respect of commercial income
included the following:
The value and timing of commercial income recognised
through the Consolidated Statement of Profit or Loss
requires judgement and the consideration of a number of
factors including:
►
►
►
The terms of each individual rebate agreement
The nature and substance of the arrangement to
determine whether the amount reflects a reduction
in the purchase price of inventory, requiring the
rebate to be applied against the carrying value of
inventory or can be otherwise recognised in the
Consolidated Statement of Profit or Loss
The application of Australian Accounting Standards
and the Group’s related processes and controls to
these arrangements.
Disclosures relating to the measurement and recognition
of commercial income can be found in Note 4.4
Inventories.
► We gained an understanding of the nature of each
material type of commercial income and assessed the
significant agreements in place
► We assessed the effectiveness of relevant controls in
place relating to the recognition and measurement of
amounts related to these arrangements
► We performed comparisons of the various arrangements
against the prior year, including analysis of ageing
profiles and where material variances were identified,
obtained supporting evidence
► We selected a sample of supplier agreements and
assessed whether appropriate agreements or other
documentation supported the recognition and
measurement of the rebates in the 30 June 2019
Financial Report, including an assessment of amounts
recorded before and after the balance date
► We inquired of the Group including business category
managers, supply chain managers and procurement
management as to the existence of any non-standard
agreements or side arrangements.
2. Impairment of non-current assets including intangible assets
Why significant
How our audit addressed the key audit matter
The determination of the recoverable amounts of
property, plant and equipment, goodwill and other
intangible assets required significant judgement by the
Group.
Impairment assessments are complex and involve
significant management judgement. The assessment
completed by the Group includes numerous assumptions
and estimates that will be impacted by future
performance and market conditions.
Key assumptions, judgements and estimates applied in
the Group’s impairment assessment are set out in Note
6.1.
Based upon the disclosed sensitivity analysis, changes to
the key assumptions applied in the impairment test are
not expected to give rise to an impairment of the carrying
value of the Group’s cash generating units.
Our audit procedures included an evaluation of the following
assumptions utilised in the Group’s assessment:
►
►
►
►
►
►
Determination of cash generating units
Forecast cash flows
Growth rates
Discount rates
Comparative industry valuation multiples
Other market evidence.
We involved our valuation specialists to evaluate the
appropriateness of these key inputs, where relevant to the
impairment tests:
►
►
Discount rates
Terminal growth rates
► Market evidence of industry earnings valuation multiples
►
►
Long-term inflation and growth rate assumptions
Forecast exchange rate assumptions.
We also considered the adequacy of the Financial Report
disclosures regarding the impairment testing approach, key
assumptions and sensitivity analysis.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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3. IT environment
5. Inventory existence
Why significant
How our audit addressed the key audit matter
Why significant
How our audit addressed the key audit matter
A significant part of the Group’s financial processes are
heavily reliant on IT systems with automated processes
and controls over the capturing, valuing and recording of
transactions.
We performed procedures to understand the IT environment,
including procedures to identify the Group’s manual and
automated controls relevant to financial reporting.
We tested the Group’s controls which included assessing the
key IT controls over changes made to the material financial
reporting systems and controls over appropriate access to
these systems.
This was a key audit matter because of the:
►
complex IT environment supporting diverse
business processes, with varying levels of
integration between them;
► mix of manual and automated controls;
► multiple internal and outsourced support
arrangements; and
►
continuing enhancements to the Group’s IT systems
which are significant to our audit.
4. AASB 16 Leases
At 30 June 2019, the Group held inventories of $1,964.7
million. Being one of the most significant balances on the
Consolidated Statement of Financial Position, the Group’s
inventory verification process is extensive and occurs
routinely throughout the financial year.
This inventory is held at geographically diverse locations
around Australia at various stores and distribution
centres.
Our audit procedures included the following:
►
►
►
►
Selected a sample of stores so as to observe and assess
the Group’s stocktake processes throughout the year.
For the stocktakes we attended, we assessed whether
the required adjustment to inventory determined by the
stocktake was processed correctly.
Observed and assessed the daily stocktake process at a
sample of distribution centres near period end.
Validated that daily counts occurred at distribution
centres during the year.
6. Accounting for the demerger of the Group from Wesfarmers Limited
Why significant
How our audit addressed the key audit matter
Why significant
How our audit addressed the key audit matter
During the year, the Group demerged from Wesfarmers
Limited (Wesfarmers) which gave rise to consequential
events with complex accounting and financial reporting
implications. These included:
AASB 16 Leases (“AASB 16”) applies to the Group from 1
July 2019. The adoption of this accounting standard is
inherently complex due to the need to apply its
requirements to:
►
►
►
existing commitments, including embedded lease
agreements;
the volume of operating leases held by the Group;
and
the judgements applied by management when
determining how to apply key requirements of this
standard such as the impact of lease options.
During the period the Group substantially completed the
analysis of the impact of this new standard on the Group.
Disclosure is required of the expected financial impact on
first time adoption in the Financial Report for the year
ended 30 June 2019. These disclosures can be found in
Note 9.4.
We assessed the Group’s process for determining the expected
impact of the new standard.
We assessed the analysis of the expected financial impact of
the new standard and the accounting policies, estimates and
judgements made in respect of the products and services of
the Group. We selected a sample of lease agreements to
determine the appropriateness of the judgements applied
including:
►
►
►
►
►
►
►
►
the treatment of lease options;
the treatment of sub-lease arrangements;
the identification of non-lease components;
the treatment of adjustments to lease payments (both
fixed and variable rate adjustments);
the impact of contract variations;
the interest rate implicit in the agreements;
the application of practical expedients available under
AASB 16; and
whether there were any material contracts containing a
lease.
We evaluated the effectiveness of the Group’s processes and
controls to capture and measure the right of use asset and
associated liability including the completeness of the balances.
We tested the calculation of the adjustment to opening
retained earnings calculated by the Group.
We evaluated the adequacy of disclosures included in Note
9.4.
Our audit procedures included the following:
► We examined significant agreements relating to the
demerger to consider the rights and obligations of each
party, and the appropriateness of resultant accounting
positions adopted.
► We assessed the appropriateness of the deconsolidation
of Kmart, Target, and Officeworks, and the related
disclosure of these as discontinued operations, as
included in Note 7.3.
Transitional service agreements were executed
between the Group, Wesfarmers, and certain
Wesfarmers subsidiaries
Kmart, Target, and Officeworks were
deconsolidated and transferred to Wesfarmers
►
►
►
►
New debt facility agreements were executed
7. Accounting for major contracts
Group entities exited the Wesfarmers tax
consolidated group, without any further income tax
liability relating to periods whilst part of that tax
consolidated group
►
Involving our tax specialists, we assessed the
implications of the Group exiting the Wesfarmers tax
consolidated group and evidenced the payment of the
Group’s final obligations to exit that tax consolidated
group.
► We examined the new debt facility agreements to
understand the obligations, restrictions, and any
financial covenants applicable to the Group.
► We evaluated the presentation and disclosure of these
matters in the Financial Report.
Why significant
How our audit addressed the key audit matter
During the year the Group entered into major capital
expenditure contracts and various other business
arrangements that have had or will have a significant
impact on the Group’s operations and business
relationships.
We examined each of these contracts and the conclusions
reached by management in respect of the related accounting
and financial reporting outcomes. Where specialist expertise
was required, we involved our subject matter specialists in
these procedures.
Each of these contracts and agreements included
complexities that required the Group to make judgements
and estimates involving extensive analysis to ensure
compliance with the applicable accounting standards.
Where estimation processes were involved, we conducted
sensitivity analysis to understand the impact of reasonably
possible changes.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Coles Group Limited 2019 Annual Report
102
Coles Group Limited 2019 Annual Report
103
Information Other than the Financial Report and Auditor’s Report Thereon
The Directors are responsible for the other information. The other information comprises the information
included in the Company’s 2019 Annual Report, but does not include the Financial Report and our auditor’s
report thereon.
Our opinion on the Financial Report does not cover the other information and accordingly we do not express 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 and, in
doing so, 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.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The Directors of the Company are responsible for the preparation of the Financial Report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the Directors determine is necessary to enable the preparation of the Financial Report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
•
•
•
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the Financial Report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the Financial Report, including the disclosures,
and whether the Financial Report represents the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the Financial Report. We are responsible for the
direction, supervision and performance of the Group audit. We remain solely responsible for our audit
opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the Directors, we determine those matters that were of most significance in
the audit of the Financial Report of the current year and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Auditor's Responsibilities for the Audit of the Financial Report
Report on the Audit of the Remuneration Report
Our objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and 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 this Financial Report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
•
•
•
Identify and assess the risks of material misstatement of the Financial Report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Directors.
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Coles Group Limited for the year ended 30 June 2019, complies with
section 300A of the Corporations Act 2001.
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 responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Ernst & Young
Fiona Campbell
Partner
Melbourne
20 September 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Coles Group Limited 2019 Annual Report
104
Coles Group Limited 2019 Annual Report
105
Listing information
Voting Rights
Coles Group Limited is listed, and our issued shares are quoted on the
Australian Securities Exchange (ASX) under the code: COL.
Substantial shareholdings in Coles Group Limited as at 26 August 2019
Votes of shareholders are governed by the Company’s Constitution. In
broad summary, but without prejudice to the provisions of these rules, the
Constitution provides for votes to be cast:
Shareholder
information.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Holder
Wesfarmers Limited
Number of fully paid shares
200,089,454
Twenty largest ordinary fully paid shareholders as at 26 August 2019
Coles Group Limited
Number of
fully paid
shares
% of
issued
capital
HSBC Custody Nominees (Australia) Limited
268,471,371
Wesfarmers Retail Holdings Pty Ltd
200,089,454
(a) on a show of hands, one vote for each shareholder; and
(b) on a poll, one vote for each fully paid share.
On market share acquisitions
During the 2019 financial year 2,148,375 Coles ordinary shares were
purchased on market at an average price of AUD$12.87 per share for
the purposes of various Coles employee incentive schemes. Refer to
the Remuneration Report on pages 50 to 62 for further details of Coles’
employee incentive schemes.
There is no current on-market buy-back of the Company's shares.
Corporate Governance Statement
A copy of the Corporate Governance Statement can be found on our
website at www.colesgroup.com.au/corporategovernance.
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
< Agency Lending DRP A/C>
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited
Australian Foundation Investment Company
Limited
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited-
GSCO ECA
12.
ARGO Investments Limited
13. Woodross Nominees Pty Ltd
14.
15.
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
16. Milton Corporation Limited
17.
Australian Executor Trustees Limited
18
Mutual Trust Pty Ltd
19. Mr Peter Alexander Brown
20. Netwealth Investments Limited
20.13
15.00
13.80
6.17
3.02
1.58
1.27
0.75
184,124,225
82,237,368
40,294,153
21,010,992
16,969,772
9,984,003
6,722,500
0.50
6,555,777
0.49
5,299,201
0.40
5,040,027
3,707,841
3,166,599
2,902,623
2,877,375
2,623,993
1,699,926
1,552,825
1,502,739
0.38
0.28
0.24
0.22
0.22
0.20
0.13
0.12
0.11
Distribution of shareholders and shareholdings as at 26 August 2019
Size of holding
Number of shareholders
Number of shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
373,376
76,174
8,792
4,524
140
113,824,358
159,278,231
61,123,704
91,860,376
907,843,027
463,006
1,333,929,696
There were 34,913 shareholders holding less than a marketable parcel
($500).
Coles Group Limited 2019 Annual Report
107
Shareholder Calendar*
Event
Record date for final dividend
Final dividend payment date
Date
29 August 2019
26 September 2019
Coles Group Limited Annual General Meeting in Melbourne
13 November 2019
Half-year end
Year-end
* Timing of events is subject to change
Annual General Meeting
29 December 2019
28 June 2020
The 2019 Annual General Meeting of Coles Group Limited will be held on
Wednesday 13 November 2019 commencing at 1.30pm (Melbourne time) at
the Melbourne Convention and Exhibition Centre, Melbourne Room,
1 Convention Centre Place, South Wharf, Melbourne, Victoria, Australia.
Coles Group Limited 2019 Annual Report
106
Corporate Directory
Registered office
800-838 Toorak Road
Hawthorn East VIC 3123
Australia
Telephone
+61 3 9829 5111
Website
www.colesgroup.com.au
Chairman
Mr James Graham AM
Managing Director and Chief Executive Officer
Mr Steven Cain
Non-executive directors
Mr James Graham AM
Mr David Cheesewright
Ms Jacqueline Chow
Ms Abi Cleland
Mr Richard Freudenstein
Ms Wendy Stops
Mr Zlatko Todorcevski
Company Secretary
Ms Daniella Pereira
Auditor
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000
Australia
Coles Share Registry
Computershare Investor Service Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford VIC 3067
Australia
Postal address
GPO Box 2975
Melbourne VIC 3001
Australia
Telephone
1300 171 785 (within Australia)
+61 3 9415 4078 (outside Australia)
Online
www.investorcentre.com/contact
Website
www.computershare.com
Coles Group Limited 2019 Annual Report
108
Coles Group Limited
ABN 11 004 089 936
800-838 Toorak Road
Hawthorn East VIC 3123