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Sustainably feed all Australians to help them
lead healthier, happier lives.
Coles Group Limited
ABN 11 004 089 936
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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, water and seas.
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 peoples.
Forward-looking statements
‘Coles’,
(‘the Company’) and
‘Coles Group’ or
This report contains forward-looking statements in relation to Coles
its controlled entities
Group Limited
(collectively,
including
‘the Group’),
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.
This report also includes forward-looking statements regarding
climate change and other environmental and energy transition
scenarios. 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’,
‘guidance’ and other similar expressions.
Any forward-looking statements are based on the Group’s good-
faith assumptions as to the financial, market, risk, 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 the relevant statements. There
are also limitations with respect to scenario analysis, and it is difficult
to predict which, if any, of the scenarios might eventuate. Scenario
analysis is not an indication of probable outcomes and relies on
assumptions that may or may not prove to be correct or eventuate.
Readers are cautioned not to place undue reliance on forward-
looking statements, which 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
in
forward-looking statements or to advise of any change
assumptions on which any such statement
is based. Past
performance cannot be relied on as a guide to future performance.
Non-IFRS Information
This report contains IFRS and non-IFRS financial information. IFRS
financial information is financial information that is presented in
accordance with all relevant accounting standards. Retail or 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.
Any non-IFRS financial information included in this report has been
labelled to differentiate it from statutory or IFRS financial information.
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.
Other Information
Photographs in our Annual Report may have been taken when
COVID-19 restrictions were not in place.
FRONT COVER: Coles Online team member Laura brings groceries
to a customer’s car as part of the Click & Collect (to the boot of
the car) service.
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Contents
Overview
2021 performance
2021 highlights
Message from the Chairman
Managing Director and
Chief Executive Officer’s report
Our vision, purpose and strategy
Sustainability at Coles
Governance at Coles
Operating and Financial Review
Board of Directors: Biographical Details
Directors’ Report
Remuneration Report
Financial Report
Independent Auditor’s Report
Shareholder Information
Corporate Directory
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Welcome to the
Coles Group
2021 Annual Report
From our origins in 1914
as a variety store,
Coles has become a leading,
trusted Australian retailer.
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Coles Group Limited 2021 Annual Report
Our purpose is to
sustainably feed all
Australians to help
them lead healthier,
happier lives.
2
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Coles Group Limited 2021 Annual Report DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
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3
Coles Group Limited 2021 Annual Report Coles Group Limited 2021 Annual Report
2021
performance
3.1%
Sales growth
$1.9bn
EBIT
$1.0bn
Net profit after tax
$355m
Net debt 1
106%
Cash realisation2
61.0c
Dividends per share3
2.3 points
Improvement in
supermarkets NPS4
$300m
Smarter Selling benefits
15.7%
Improvement in
total recordable injury
frequency rate5
1 Excluding lease liabilities.
2 Calculated as operating cash flow excluding interest and tax, divided by EBITDA.
3
Comprising an interim dividend of 33.0 cents per share (paid) and a final dividend of 28.0 cents per share. This represents a 6.1% increase in fully franked
dividends in respect of the year.
4 Net Promoter Score.
5 Refer to glossary of terms on page 35 for definition.
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2021
highlights
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Products on everyday
low prices
5,280
eCommerce sales reached
Australia’s
$2.1bn
most preferred
loyalty program
Progress on
automation
with Witron and Ocado
Q4 penetration
Exclusive to Coles products
Click & Collect to the
boot of the car
32%
>500 sites
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Provided more than
Launched
$143m
in community support
2.3pp
Sustainability Strategy
(percentage point)
increase women in leadership
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Coles Group Limited 2021 Annual Report
Message from
the Chairman
In challenging times as a nation we have come together and, at Coles,
we have seen first-hand the successes of our commitment to working
together. We achieved considerable progress in both short-term
performance and in our investment in longer-term commitments.
Dear Shareholder,
This past year has significantly challenged the whole Australian
community as we have responded to the impacts of COVID-19 and the
disruption to everyday traditional activities marked by lockdowns,
travel restrictions, isolation and associated health impacts of the
virus.
At Coles, we have worked closely with the State and Federal
Governments, health authorities, community groups and our team
members and suppliers, to ensure that Australians could safely and
assuredly continue to enjoy ready access to food, liquor and fuel
without disruption. Pleasingly, we have been able to adapt to changing
customer and community expectations in a manner which has seen
increased levels of trust in Coles. This is important as our overarching
vision is to build trust and to grow long-term shareholder value.
As we reflect upon the 2021 financial year, we achieved considerable
progress in both short-term performance and in our investment
in longer-term commitments. We recorded sales for the year of
$38.6 billion, which was a 3.1% increase on the previous year, which
itself had reflected elevated sales due to the earlier responses to
the pandemic. We also saw a 7.5% increase in net profit after tax,
excluding FY20 significant items, to $1,005 million which underpinned
a 6.1% increase in fully franked dividends for the year.
Despite ongoing costs incurred in responding to community health
concerns we were able to strengthen our operations with a further
$300 million of benefits achieved during the year under our targeted
Smarter Selling program. This also helped support our increased
investment in online capacity and associated infrastructure as we saw
substantial growth in customer demand for home deliveries and
contactless Click & Collect services to the boot of the car, now available
in more than 500 stores.
These increased levels of activity have been accompanied by
continued improvement in our total safety performance as a result of
a clear focus in identifying opportunities for improving working
patterns, training and having an embedded safety culture. For the year
Total Dividends
6.1%
Group sales
$38.6bn
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Coles Group Limited 2021 Annual Report O
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Sundrop Farms, in Port Augusta, South Australia, uses solar energy and desalinated water from the Spencer Gulf to grow truss tomatoes for Coles.
we saw a 15.7% reduction in the injury rate we consistently measure -
total recordable injury frequency rate. We will continue to strive for
further improvements in the year ahead.
During the year we were pleased to make significant progress in the
development of our major technology projects and especially the
in both our two automated
construction milestones met
distribution centres in Queensland and New South Wales, in
partnership with Witron, and our two customer fulfilment centres
in Melbourne and Sydney, in partnership with Ocado. These
projects are important in improving our future business efficiency
and customer engagement. The operating environment across our
business is dynamic and with increasing focus upon automation
and the use of digital data we aim to ensure that we are well placed
to meet the future needs of our customers.
In challenging times as a nation we have come together and at Coles
we have seen first-hand the successes of our working together
commitment from your Board, the management team under the
leadership of our CEO, Steven Cain, and importantly from all of our
120,000-plus team members. To each of whom I express my special
thanks for the significant contributions made.
With the vaccination rates now increasing across all of our community
and the anticipation of open borders within Australia and
internationally, we look forward to the continuing growth of our
economy with optimism.
Two highlights for the year were the resetting of our goals as we
seek to become Australia’s most sustainable supermarket and our
continuing engagement in projects in support of the communities
in which we operate across the nation.
James Graham AM
Chairman,
Coles Group Limited
In March 2021, we launched Together to Zero which sets out our goals
to achieve zero emissions, zero waste and zero hunger. These are
updated and significant targets which we believe are necessary and
achievable for us as a major Australian company, with our business
serving nearly everyone across the country.
In addition, the 2021 financial year was one where we again
contributed widely to the Australian community. Through our
longstanding partnerships with SecondBite and Foodbank, during
the year we provided the equivalent of 35.8 million meals through
community rescue organisations across the nation to Australians in
need; we also saw our contributions to the children’s cancer charity,
Redkite, surpass $40 million since our initial engagement eight years
ago; and, we undertook our largest single fundraising with the
support of our customers and Australian pork farmers in raising $6.7
million in just six weeks in support of the FightMND campaign to aid
research into motor neurone disease.
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Coles Group Limited 2021 Annual Report
Managing Director and
Chief Executive Officer’s report
Two years into our transformation program, we have set strong foundations
that will help us to grow trust and long-term shareholder value, with significant
progress recorded against each of our strategic pillars.
Working collaboratively to keep our community safe
COVID-19 continued to present challenges during the 2021 financial
year, with our 120,000-plus team members and thousands of
Australian suppliers again demonstrating tremendous resilience as
we worked together to ensure the security of food supply and a safe
environment for our customers.
In addition to the enhanced cleaning and hygiene measures
introduced in the previous financial year, we continued to work with
government health authorities to implement further initiatives in our
stores and throughout our supply chains, including the introduction
of QR Code check-ins.
The path towards a safer Australia in which we can all enjoy a more
normal lifestyle depends on the success of the vaccination program.
We have encouraged all of our team members to be vaccinated
against COVID-19 as soon as they can, subject to health advice. To
make it easier for them to access vaccination, we have partnered
with the State and Federal Governments to provide COVID-19
vaccinations on-site at our distribution centres and manufacturing
facilities to eligible team members, and provided access to paid
personal leave while they are attending vaccination appointments.
As our dedicated team members continue to work hard in their
capacity as essential service providers, I would like to thank all levels
of government for their ongoing support to help keep them safe.
While working from home and the periodic closure of hospitality
venues continued to amplify demand for food and liquor, we saw a
reduction in panic buying across the course of the year as the
community became increasingly accustomed to the need for
lockdowns, and more confident in the Australian food supply chain.
With more customers wanting or needing to do their grocery
shopping online, we increased our investment in capacity, with
same-day home delivery now available from more than 300 Coles
supermarkets, while more than 500 stores now have contact-free
Click & Collect, where one of our team members will pack customers’
shopping into the boot of their car.
We also accelerated the development of our Liquor eCommerce and
omnichannel capabilities, opening three eCommerce ‘dark stores’ to
provide additional capacity to fulfil customer orders.
At Coles Express, fuel volumes were impacted as COVID-19 restrictions
continued to reduce traffic on the road but, despite this, strong
convenience store sales and cost control helped deliver a satisfactory
result.
In recognition of the tremendous efforts of our team, we again
doubled the team member discount on shopping at Coles for those
working in lockdown zones. On behalf of the leadership team, I
would like to express our deep gratitude for the way that team
members across the country have met the challenges the year
presented, while living our Coles values of Customer obsession,
Passion and pace, Responsibility, and Health and happiness.
Inspire Customers
I am pleased to report that our team’s efforts have also been
appreciated by our customers, with Supermarkets and Liquor both
posting improvements in Net Promoter Score across the year, while
analysis from Roy Morgan ranked Coles as one of Australia’s most
trusted consumer brands.
We ceased door-to-door delivery of paper catalogues – the first
mainstream Australian supermarket to do so – underlining our
commitment not only to sustainability by removing 260 million
catalogues every year from the waste stream, but also to using our
technological capability for more direct, personalised and relevant
engagement with our customers through our digital platforms
including coles&co, which showcases our great value specials and
inspirational recipes.
By the end of the financial year, we had tailored 30% of store layouts
to better suit the needs of customers, while completing more than
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Coles Group Limited 2021 Annual Report Along with our community partners, we launched Together to Zero at the opening of our Moonee Ponds sustainability concept store. Pictured from left to right are
SecondBite co-founder Simone Carson, Coles Group CEO Steven Cain, Coles General Manager Corporate Affairs Sally Fielke, Store Manager Vignesh, Flemington Food
Pantry co-ordinator Marcus Curnow, Stan Yarramunua who performed a Welcome to Country ceremony, Coles Chief Sustainability, Property & Export Officer Thinus
Keeve, Coles Head of Indigenous Affairs Cristilee Houghton and Indigenous artist Nikita Ridgeway.
650 range changes in categories such as impulse, homecare and
health and beauty, driving improvements in customer feedback
throughout the year.
In our Store Support Centre, we implemented new people and
payroll systems, replacing more than 16 legacy systems and
simplifying ways of working for our team.
We have progressed our trusted and targeted value strategy, placing
a net 474 new products on everyday low prices during the year, while
customers increasingly embrace our Exclusive to Coles products,
which accounted for 32% of sales by value, up from 29% in FY19.
Customer demand for more convenient and healthy meal solutions
continued to grow. Our expanded Coles Kitchen offering, including
the ‘Balanced for you’ health range, is now available in more than 300
stores, while our new range of nutritionist-approved frozen sports
nutrition meals under the Coles PerForm brand is available nationally.
Coles Liquor has made significant progress in the first year of its
refreshed strategy to be a simpler, more accessible, locally relevant
drinks specialist, reshaping stores so they’re easier for customers to
shop, delivering trusted value by lowering prices for longer, and
targeting range changes in key growth categories like local craft beers
and gins, as well as low- or no-alcohol alternatives.
Construction has progressed on our two distribution centres being
built by global automation experts Witron, with the New South
Wales site underway and the majority of the structural building work
completed on the Queensland facility, while the Ocado customer
fulfilment centres being built for Coles Online in Melbourne and
Sydney are also progressing well.
We have made further progress in tailoring our supermarket store
formats to the needs of our customers, completing 65 renewals
during the year, including 10 Format A, 36 Format C and four Coles
Local supermarkets, including the first Queensland Coles Local store
in Ascot.
In Liquor, the First Choice Liquor Market format has now been rolled
out to 79% of the network, while trials of new formats for Liquorland
and Vintage Cellars are resonating well with customers and team
members.
Our portfolio of Exclusive Liquor Brands continues to win accolades,
bringing home a total of 479 medals and awards during the year, up
more than 100 from the previous year’s count.
Smarter Selling
We are driving efficiency in all parts of our business as part of our
Smarter Selling program, which has now delivered total cumulative
savings in excess of $550 million over the past two years, including
approximately $300 million in FY21.
This included the introduction of new technology to help our stores
forecast demand and improve availability for customers, using
artificial intelligence to help manage markdowns, logistics planning
to reduce truck movements and move products into our stores
quicker, so that they stay fresher for longer, and new self-service
solutions at the checkout to give customers greater choice in how
their bags are packed.
Win Together
As part of our ambition to be Australia’s most sustainable
supermarket, in the second half of FY21 we announced our detailed
Sustainability Strategy, grouped under the focus areas of ‘Together
to Zero’ and ‘Better Together’.
The strategy sets out our ambitions across the key sustainability
areas of climate change, waste and hunger, including commitments
for Coles Group to be powered by 100% renewable electricity by the
end of FY25 and to set a course to net zero greenhouse gas emissions
by 2050.
After becoming the first major Australian retailer to commit to buying
renewable electricity through a power purchase agreement in 2019,
we made further progress towards our emissions goals in FY21,
further renewable energy agreements with
announcing
four
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Coles Group Limited 2021 Annual Report
Our values.
Our behaviours.
renewable energy companies ENGIE, Neoen, Lal Lal Wind Farms and
CleanCo.
Our financial position
We also became a founding member of the Australia, New Zealand
and Pacific Islands Plastics Pact, committing Coles to clear and
actionable sustainable packaging targets by 2025 and helping to
drive sustainability across the industry.
Despite the challenges of COVID-19, we recorded a significant
improvement in team member safety, with a 15.7% reduction in our
total recordable injury frequency rate as we continued to invest in
technology to help our team work safely.
To help bolster our team’s resilience, we also invested in mental
health and wellbeing
‘Mind your Health’
communications, and Gratitude, Empathy and Mindfulness
challenges throughout the year.
including monthly
With Coles’ team members and customers representing the breadth
of the Australian community, I am particularly proud of the progress
we have made to support workplace diversity in FY21. Focusing on
the development of female leaders in store manager and technology
roles helped us to record a 2.3 percentage point improvement in
women in leadership positions. We were also recognised for our
leadership in LGBTQI+ inclusion with a Gold Australian Workplace
Equality Index award.
Coles recorded its highest ever engagement score in the 2021
Advantage supplier survey as we continued to build our relationships
with Australian suppliers. This included an increase in the number of
Australian beef farming families from which we buy cattle directly, to
more than 1,000. We have also extended our Coles Own Brand direct
milk sourcing model to more than 100 farms across Australia, with
transparent farmgate contracts of up to three years to provide
farmers with greater confidence over their future income so they can
invest in their businesses.
In our second full year as an ASX-listed company in our own right, we
have again delivered on our objective of providing shareholders with
sustainable earnings growth and attractive dividends, with annual
NPAT up 7.5%, excluding FY20 significant items, to $1,005 million,
enabling a 6.1% increase in fully franked dividends for the full year.
Full year sales revenue increased by 3.1% to $38,562 million with
sales growth across all segments. Following our return to earnings
growth in FY20, we were pleased to again report an increase in Group
EBIT with growth of 6.3% for FY21, driven by Smarter Selling benefits
and operating leverage across all segments, despite incurring
approximately $130 million of COVID-19 costs during the year.
Looking ahead
Having completed the second year of our strategy, we are now
increasing investment into the business, and our pace of change, to
take advantage of the opportunities created by a rapidly changing
consumer environment, advances in technology and a strong
balance sheet. Shareholders can expect
increased
differentiation around Coles Own Brand, Ocado online and Witron
efficiencies in the years ahead.
to see
As we face into a third financial year in which COVID-19 will exert an
influence on our business and the lives of all Australians, the safety of
our team and the communities we serve remains our highest priority.
I would like to thank our customers for the consideration, patience
and respect they have shown to our team members, our Board for
their invaluable counsel, our leadership team for their tirelessly
innovative approach both to the operational challenges we face on a
daily basis and the ongoing transformation of our 107-year-old
business as we focus on ‘winning in our second century’, and all of
our team members for their ongoing commitment to serving the
community as essential workers.
Steven Cain
Managing Director and Chief Executive Officer,
Coles Group Limited
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Coles Group Limited 2021 Annual Report
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.
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Coles Group Limited 2021 Annual Report Coles Group Limited 2021 Annual Report
Coles Head of Energy, Jane, and Coles Category Manager – Energy, Sustainability & Store Services, Vinay at Lal Lal Wind Farms, Victoria. In March 2021,
Coles announced a commitment to source 100% renewable electricity by the end of FY25. As part of this commitment, Coles signed an agreement with
Lal Lal Wind Farms near Ballarat, for the purchase of large-scale generation certificates for renewable electricity until the end of 2030.
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Coles Group Limited 2021 Annual Report Sustainability at Coles
With our vision to become the most trusted retailer in Australia and grow long-
term shareholder value, and our purpose to sustainably feed all Australians to
help them lead healthier, happier lives - sustainability is at our core.
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Coles’ corporate strategy has three strategic pillars to enable us to
deliver on our vision and purpose: Inspire Customers, Smarter Selling
and Win Together. Our Win Together pillar has five key focus areas:
Safer choices together, Great place to work, Together to zero to drive
generational sustainability, Better together through diversity and
stakeholder engagement, and Innovation through partnerships.
Our ambition is to be Australia’s most sustainable supermarket and
in FY21, we launched our refreshed Sustainability Strategy which
focuses on Together to Zero and Better Together. We also unveiled
Coles’ newest sustainability concept store in Moonee Ponds, Victoria,
which has been designed to set a new standard in supermarket
sustainability and help Coles create opportunities to reduce our
environmental impact.
Together to Zero
Together to Zero sets out our ambitions across key sustainability
areas including climate change, waste and hunger.
We will work together with our stakeholders to drive change in these
areas, with high expectations for ourselves and the broader
community. Our long-term ambitions include:
Together to zero emissions
Together to zero waste
Together to zero hunger
Better Together
We know that when we work together, we can create positive
outcomes for our team members, farmers, suppliers, customers and
the communities in which we live and work.
Better Together sets out our ambitions around how we will work with
all our stakeholders to drive positive change focusing on:
A team that is better together
A community that is better together
Sourcing that is better together
Farming that is better together
The way forward
Working towards our ambitions and targets under each of these
areas will enable us to take actions together now for generations
ahead. From our longstanding partnerships with SecondBite and
REDcycle through to sustainability being a key focus area for our
Coles Own Brand products – our sustainability journey is already
underway.
We know that we are not working alone. Our relationships with our
team members, shareholders,
farmers, suppliers, partners,
customers and the communities in which we live and work, drive our
sustainability agenda forward.
We have identified powerful initiatives which mean we are not only
committing to ambitious targets, but already progressing on the
plans that sit behind them.
We are optimistic about the future. Our sustainability focus is not
just guiding Coles in our second century, it is ensuring that future
generations will enjoy the same unique way of life and the fresh
Australian-sourced food that we do.
Our new sustainability icon
The new sustainability icon will become a key part of Coles’ visual
identity. The original artwork, created for Coles by Bundjalung/ Biripi
artist Nikita Ridgeway of Boss Lady Design and Communication, has
been designed to represent the importance of working together to
protect and sustain life.
The foundation highlights ‘Together’ as a circle which represents
community in Aboriginal artwork. The dots, as used in the art of
Northern Aboriginal Australian people, reflect the notion of
community with many different groups circling around a larger
collective goal. The cross-hatching designs, as used in the art of
Southern Aboriginal Australian people, represent the weaving
technique used to create tools to hunt and gather food. And finally,
the colour palette used in the artwork is representative of the many
beautiful colours and textures of Australia.
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Coles Group Limited 2021 Annual Report
Coles Store Manager David provides food donations to Major Brendan Nottle from the Salvation Army as part of Coles’ partnership with national food rescue
organisation, SecondBite.
Together to zero emissions
We understand our responsibility to minimise our environmental
footprint and show leadership in protecting our planet and climate.
We are a significant energy user and producer of greenhouse gas
emissions, both directly in our own operations and indirectly through
our extensive supply chains.
We are committed to addressing the impacts of climate change and
reducing greenhouse gas emissions by responsibly accelerating the
decarbonisation of our operations and direct supply chains.
During FY21, we announced targets to reduce greenhouse gas
emissions, including:
•
•
to deliver net zero greenhouse gas emissions by 2050;
for the entire Coles Group to be powered by 100% renewable
electricity by the end of FY25, building on the progress already
made towards this target through renewable power purchase
agreements, onsite solar and agreements with renewable
electricity generators; and
•
to reduce combined Scope 1 and 2 greenhouse gas emissions by
more than 75% by the end of FY30 (from a FY20 baseline).
At the end of FY21, Coles already had five renewable electricity
agreements in place, which will enable us to purchase more than
70% of the renewable electricity required by FY25, once the
agreements commence.
We are focused on reducing greenhouse gas emissions largely
through our energy efficiency and refrigeration management
programs. Further information is available on pages 43-50.
Together to zero waste
Our customers want to see reduced waste and packaging, as well as
increased efficiencies across our value chain, without compromising
the safety and quality of the products we sell.
We recognise the role we can play in reducing food waste and
packaging, reflecting customers’ needs while making our operations
more sustainable and efficient. By working with industry partners,
suppliers and customers we aim to increase food security, reduce
waste and overall, conserve our valuable resources as we move
towards a more circular economy.
In February 2021, we committed to no longer selling single-use
plastic tableware products including cups, plates, bowls, straws and
cutlery from 1 July 2021.
In March, in partnership with technology developer Licella, recycler
iQRenew, polymer manufacturer LyondellBasell and Nestlé, we
announced a joint feasibility study to determine the benefits of a
local advanced recycling facility in Victoria. Advanced recycling turns
old soft plastic, such as flexible packaging used for confectionery,
bread bags, cereal liners, biscuit wrappers and flexible packaging
used to protect fresh produce, back into oil which can be used to
produce new soft plastic food packaging.
We are working together with our supplier partners, government and
industry to accelerate packaging sustainability and transition to a
circular economy in Australia. We are aligned with Australia’s 2025
National Packaging Targets and during the year became a founding
member of the ANZPAC Plastics Pact.
Together to zero hunger
Coles and food rescue organisation SecondBite have been working
together since 2011 in the fight against hunger and food waste. Since
then, Coles has provided SecondBite with the equivalent of 151.1
million meals,* as well as funds raised with the support of our
generous customers. The food we provide to SecondBite
is
distributed to more than 1,300 community organisations who are
helping Australians in need.
We have been working with Foodbank since 2003, providing the
equivalent of 34.1 million meals.* The food we provide Foodbank
supports approximately 2,600 agencies and community groups.
*
SecondBite uses the conversion of total kilograms donated multiplied by two to determine equivalent meals. Foodbank uses the conversion of total kilograms
donated divided by 0.555 to determine equivalent meals.
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Coles Group Limited 2021 Annual Report Coles team members in Queensland show their support for the LGBTQI+ community at Brisbane’s Big Gay Day.
A team that is better together
We are all different and, at Coles, we see that as a good thing. We
know that our differences – our backgrounds, experiences and
perspectives – not only set us apart, they can also bring us together.
Coles provided more than $10 million in cash contributions to
charities and community organisations in FY21. This included cash
contributions from the sale of:
Our differences help us spark ideas, create connections and discover
commonality, helping us foster understanding, show empathy and
build communities. Being unique reminds us that every customer,
team member and supplier we work with is unique too. We strive to
have a team that energises us to win together to achieve our goal of
sustainably feeding all Australians.
We are making Coles somewhere everyone feels like they belong so
that we can all live healthier and happier lives. A team that is better
together focuses on:
• All together for Belonging
• All together for Gender equity
• All together for Accessibility
• All together for Pride
• All together for Indigenous engagement
During FY21, Coles’ leadership in LGBTQI+ was recognised as a Gold
Employer at the 2021 Australian Workplace Equality LGBTQ Inclusion
Awards.
A community that is better together
Better together includes supporting our communities through
partnerships, sponsorships and fundraising. We can build stronger
communities by working together to make a positive difference and
supporting each other in times of need.
Together with our customers, suppliers and team members, Coles
Group contributed $1431 million to the community in FY21. One of
the ways we support those who are disadvantaged is through our
key national partnerships with
rescue organisations,
SecondBite and Foodbank.
food
•
reusable bags designed by Australian school children;
• Coles Own Brand bread for Redkite;
• Mum’s Sause pasta and pizza sauce for Curing Homesickness, an
foundations and
initiative supporting children’s hospital
paediatric services across Australia;
• Coles Bakery biscuits and cookies for Bravery Trust in the lead up
to Anzac Day to support veterans facing financial hardship; and
• Coles Own Brand fresh pork for FightMND.
Coles’ customers, suppliers and team members contributed more
than $18 million from activities such as in-store fundraising for
SecondBite, FightMND, children’s cancer charity Redkite, children’s
hospital foundations and Guide Dogs Australia.
Fundraising highlights for Coles Group in FY21 included:
• a record $6.7 million raised for FightMND during our six-week
campaign through the sale of beanies in Coles supermarkets and
Coles Express outlets; Coles Own Brand
in
supermarkets; as well as donations from customers and Coles’
Australian pork farmers;
fresh pork
• our most successful Christmas
fundraising appeal, with
$3.2 million raised in our Coles supermarkets, Coles Liquor
stores and Coles Express sites in the lead up to Christmas for
SecondBite, Redkite and the Salvation Army; and
• a new record in our fundraising for the Curing Homesickness
initiative, with $2.5 million raised from the sale of Mum’s Sause
products, the sale of $2 donation cards and customer donations.
We also reached a key fundraising milestone in FY21 by raising more
than $40 million for Redkite since 2013, when our partnership began.
1
Includes Coles’ direct contribution of cash, time, in-kind donations and management costs as well as donations from customers and suppliers and team members
(leverage). Coles references the Business for Societal Impact (formerly London Benchmarking Group) framework for reporting community contributions.
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Coles Group Limited 2021 Annual Report
At Coles, we recognise the importance of our sustainability responsibilities
and that our ambitions can create momentum and activate change. We have
a clear ambition to become Australia’s most sustainable supermarket.
Our Sustainability Strategy focuses on those areas which are important
to us and to our stakeholders and where we can have the most impact.
It acknowledges that we are not working alone and that by acting together,
we can leave a better place for future Australians.
The funds raised by Coles help Redkite to provide counselling
services, financial assistance, information resources, education and
career support and grants to children with cancer and their families.
To help Australians to lead healthier, happier lives, we supported
grassroots, community sport by extending our partnerships with
Little Athletics Australia, Athletics Australia and Rowing Australia. In
addition, we continued our partnership with the AFL and the Healthy
Kicks program which encourages children to embrace healthy living,
mindfulness and exercise.
Coles team members also demonstrated their commitment to
supporting the community in times of need, particularly in the face
of natural disasters.
In February, Coles supermarkets, Coles Liquor stores and Coles
Express sites in Western Australia supported bushfire-affected
residents in Wooroloo and the Hills by raising more than $330,000 for
the Lord Mayor’s Distress Relief Fund and donating essential
supplies.
In March, in response to floods in New South Wales and Queensland,
our local store teams donated food and water to support the SES
and emergency services working on the front-line.
With an up-front donation of $100,000 and matching of customer
donations dollar-for-dollar, Coles and our customers contributed
more than $350,000 to provide emergency and household items to
flood-affected residents via relief organisation GIVIT.
In April, Coles provided support to cyclone-affected towns in the
mid-west of Western Australia by raising more than $153,000 to the
Lord Mayor’s Distress Relief Fund and donating essential supplies
and Coles care packages to evacuees and residents in Kalbarri and
Geraldton.
Sourcing that is better together
We work with our suppliers and producers to make life easier for our
customers by offering them quality, safe and trusted products which
are sourced in an ethical, transparent and responsible way.
We continue to strive to further safeguard human rights in our own
operations and extended supply chains through deeper engagement
with our stakeholders, analysis of our supply chains – including our
higher risk regions, products and suppliers – and aligning and
embedding our human rights strategy with our corporate objectives.
Farming that is better together
We want to win together with our supplier partners and build strong,
relationships with Australian
multigenerational, collaborative
farmers and producers.
We remain committed to our Australian-first sourcing policy for fresh
produce in our supermarkets so we can provide our customers with
quality Australian-grown fruit and vegetables as a first priority.
We aim to safeguard animal welfare by sourcing higher welfare meats
and ingredients in Coles Own Brand products – providing the
broadest range of RSPCA Approved products of any major Australian
supermarket.
In May 2021, we expanded our direct-sourcing model for Coles Own
Brand fresh milk to Tasmania and began direct-sourcing fresh white
milk for the production of many varieties of Coles Own Brand cheese.
Our direct-sourcing model allows Australian dairy farmers to secure
transparent pricing for up to three years, enabling them to plan for
the long term.
Coles has established the Coles Sustainable Dairy Development
Group, which works with dairy farmers to invest in farm-related
sustainability projects to improve productivity and animal welfare.
In April 2021, Coles welcomed 30 new Australian cattle farming
families as direct suppliers of our 100% No Added Hormone
Australian Coles Own Brand
fresh beef, demonstrating our
commitment to investing in the long-term sustainability of our beef
suppliers and in the Australian meat industry.
As part of our major sponsorship of Rockhampton’s Beef Week, in
April we launched an update of our electronic National Vendor
Declaration (eNVD) app, designed to help producers save time on
traceability paperwork and assist with purchasing decisions.
During the year, we also continued to support the food and grocery
sector by awarding more than $4 million in grants from the Coles
Nurture Fund to 16 small and medium-sized businesses which are
implementing plans to improve sustainability and produce more
Australian food and beverages.
For more information read the
2021 Sustainability Report which can
be found at www.colesgroup.com.au
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Coles Group Limited 2021 Annual Report O
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Coles has continued to help Australians to lead healthier, happier lives through its partnerships with the AFL and Little Athletics.
TOP: Richmond midfielder, Brownlow medallist and triple Norm Smith medallist Dustin Martin at the AFL Grand Final in Brisbane in 2020. Source: AFL Photos.
BOTTOM: Young athletes from the Albury Little Athletics Centre take part in a dedicated Coles Community Round to celebrate Coles’ partnership.
17
Coles Group Limited 2021 Annual Report
Governance at Coles
Coles’ robust corporate governance framework has been
integral to our ability to adapt at pace and respond to the
challenges of FY21, while continuing to deliver on our strategy.
The Board
Audit and Risk
Committee
Nomination
Committee
People and
Culture
Committee
Managing Director and Chief Executive Officer
Executive Leadership Team
Coles Team Members
Our corporate governance framework
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 and management
team 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 continue to strive to
achieve our vision to become the most trusted retailer in Australia
and to grow long-term shareholder value.
Coles’ 2021 Corporate Governance Statement contains a
comprehensive overview of our corporate governance framework
and highlights and
is available at www.colesgroup.com.au/
corporategovernance.
In FY21, our key corporate governance highlights and focus areas included:
1
1
1
Strategy
• Focused upon creating trust with all stakeholders and delivering long-term shareholder value.
• Differentiated customer product offering supported by Exclusive to Coles ranging.
• New format store renewal and development across our 2,500 outlets, enhanced by growing online infrastructure.
•
Investment in training, resourcing and safety of our more than 120,000 team members.
Board
• Oversight of strategy and performance across all business units.
• Support for management in a period of unparalleled community challenges.
• Strong focus upon values, reputation and stakeholder engagement.
• Close monitoring of risk and operational exposures, including new project initiatives.
Sustainability
• Launched Together to Zero and Better Together Sustainability Strategy.
• Announced new combined Scope 1 and Scope 2 emissions reduction target.
• Continued progress on our commitment to transition to renewable electricity.
• Maintained a strong focus on ethical sourcing and commitment to supporting our suppliers.
Risk Management
• Strengthened Group-wide risk management processes, including investment in risk technology.
• Embedded quality and behaviour overlays, including risk and compliance, in leadership performance measures.
• Obtained external reviews in critical risk areas.
• Continued to mature risk management governance for engagements with third-party goods not for resale providers.
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Coles Group Limited 2021 Annual Report
Board of Directors
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Chairman of the Board
Chairman of the Nomination Committee
and Member of the People and Culture Committee
Steven Cain
Managing Director and Chief Executive Officer
David Cheesewright
Member of the Nomination Committee
and the People and Culture Committee
Jacqueline Chow
Member of the Nomination Committee
and the Audit and Risk Committee
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Member of the Nomination Committee
and the People and Culture Committee
Richard Freudenstein
Chairman of the People and Culture Committee
and Member of the Nomination Committee
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Chairman of the Audit and Risk Committee
and Member of the Nomination Committee
Wendy Stops
Member of the Nomination Committee
and the Audit and Risk Committee
Biographical details of the Board of Directors can be found on pages 51–52.
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Coles Group Limited 2021 Annual Report
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 Company.
The current mix of skills and experience represented on the Board is
set out in the skills matrix below:
Skill/experience
Corporate governance
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.
Executive experience
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.
Financial acumen
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.
Strategic thinking
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 on delivery against
agreed strategic planning objectives.
People, culture and remuneration
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.
Risk management
Understanding of and experience in identifying and monitoring key risks to an organisation and implementing appropriate risk
management frameworks and procedures and controls.
Retail and FMCG skills and experience
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.
Customer service delivery
Advanced understanding of customer service delivery models, benchmarking and oversight.
Supply chains
Senior executive experience in managing or overseeing the operation of supply chains and distribution models in large,
complex entities, including retail suppliers.
Interstate / global business experience
Senior manager or equivalent experience in national or international business, providing exposure to a range of interstate or
international political, regulatory and business environments.
Property development and asset management
Experience in property development and asset management.
Marketing
Senior executive experience in consumer and brand marketing and in eCommerce and digital media, including in the
retail industry.
Digital technology and innovation
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.
Sustainability, environment, health and safety
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.
Regulatory and public policy
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.
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Number of Directors
with the requisite skill
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Coles Group Limited 2021 Annual Report Executive Leadership
Team
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Steven Cain
Managing Director and Chief Executive Officer
Leah Weckert
Chief Financial Officer
Greg Davis
Chief Executive Commercial & Express
Matthew Swindells
Chief Operations Officer
Darren Blackhurst
Chief Executive Liquor
David Brewster
Chief Legal & Safety Officer
Sally Fielke
General Manager Corporate Affairs
Ben Hassing
Chief Executive eCommerce
Thinus Keevé
Chief Sustainability, Property & Export Officer
Daniella Pereira
Company Secretary
Lisa Ronson
Chief Marketing Officer
George Saoud
Chief Executive Emerging Businesses
& Smarter Selling
Roger Sniezek
Chief Information Officer
Kris Webb
Chief People Officer
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Coles Group Limited 2021 Annual Report
Operating and Financial Review
Business model and strategy
The Operating and Financial Review relates to Coles Group Limited
(‘the Company’) and its controlled entities (together, ‘Coles’, ‘Coles
Group’, or ‘the Group’).
• Liquor: liquor retailer with 929 stores nationally under the brands
Liquorland, First Choice Liquor Market and Vintage Cellars,
including online liquor delivery services; and
Coles is an omnichannel retailer selling products including fresh
food, groceries and liquor through its supermarkets, liquor stores
and eCommerce platforms. Coles also sells convenience products
and, under its alliance with Viva Energy (Viva), is a commission agent
for retail fuel sales through the Coles Express network. We employ
more than 120,000 team members, engage with more than 7,000
suppliers, have more than 450,000 direct shareholders and we
welcome more than six million customers through our extensive
store network and eCommerce platforms every week.
Coles is one of the most trusted consumer brands in Australia with
businesses including Coles, Coles Local, Coles Express, Liquorland,
First Choice Liquor Market, Vintage Cellars and Coles Financial
Services. Coles is also a 50% shareholder of flybuys, one of Australia’s
most popular loyalty programs with more than six million active
households.
Coles’ core competencies
include merchandising, product
development and supplier relationships, marketing, customer
service and maintaining and operating a national store and online
network. Coles also operates an integrated supply chain, including
logistics, and a national distribution centre network.
• Express: convenience store operator and commission agent for
retail fuel sales across 717 sites nationally.
Other business operations that are not separately reportable, such
as Property, as well as costs associated with enterprise functions,
such as Insurance and Treasury, are included in Other.
In June 2019, Coles refreshed its strategy with a vision to become the
most trusted retailer in Australia and grow long-term shareholder
value. Achieving this requires us to deliver on our purpose, which is to
sustainably feed all Australians to help them lead healthier, happier
lives. Our values of customer obsession, passion and pace,
responsibility and health and happiness, guide the day-to-day
decisions and actions of our team members.
We have set ourselves the ambition to differentiate in five key areas:
1.
2.
3.
Win in online food and drinks with an optimised store and
supply chain network
Be a great value Own Brand powerhouse and destination for
health
Achieve long-term structural cost advantage through
automation and technology partnerships
The Group’s reportable segments are:
4. Create Australia’s most sustainable supermarket
• Supermarkets: fresh food, groceries and general merchandise
retailer with a national network of 834 supermarkets, including
Coles Online and Coles Financial Services;
5. Deliver through team engagement and pace of execution
We have made progress against our three strategic pillars of Inspire
Customers, Smarter Selling and Win Together while supporting our
team members, customers, suppliers, and community partners.
Our brands
Supermarkets
Liquor
Convenience
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Coles Group Limited 2021 Annual Report Inspire Customers
The focus areas of the first pillar of our strategy, ‘Inspire Customers
through best value food and drink solutions to make lives easier’, are
outlined below:
• Customer obsessed
• Tailored offer with trusted and targeted value
• Own Brand powerhouse
• Destination for convenience and health
• Leading anytime, anywhere, anyhow shopping
• Accelerate growth through new markets
Update on Inspire Customers pillar:
We have made progress against our strategic pillar of Inspire
Customers by improving customer advocacy and delivering
innovative and differentiated products to our customers
With a customer-obsessed lens, we continued to make progress in
building trust and loyalty with Australians. Underpinning this progress
was the launch of our new brand positioning ‘Value the Australian Way’
which reinforces Coles’ heritage and role in the Australian community.
At Coles, we measure customer advocacy through the Net Promoter
Score (NPS). We are pleased that our Supermarkets NPS increased by
2.3 points and Liquor NPS increased by 4.9 points in FY21. Coles also
significantly increased its trust perception with the Roy Morgan
survey recognising Coles as one of the most trusted consumer
brands in Australia.
In FY21, Coles implemented new technology, improved forecasting
and leveraged advanced analytics to enable a tailored offer to meet
the differing needs of our customers. To date we have tailored 30% of
our store layouts which was complemented by more than 650 range
changes during the year in categories such as impulse, homecare and
health and beauty. This has brought, and will continue to bring, more
innovation and more tailoring to customers both in store and online.
We continue to make progress on our trusted and targeted value
strategy, consistently investing in our offer, including placing a net
474 new products on everyday low prices during the year.
Coles Own Brand is a key strategic differentiator for Coles delivering
innovative products at great prices. From FY21, Coles is reporting its
Coles Own Brand and Exclusive Proprietary Brand sales under the
new banner ‘Exclusive to Coles’. Exclusive to Coles products
generated $10.9 billion in sales and, in FY21, Coles Own Brand won 46
awards, demonstrating the breadth of our brand capability and
quality of our products.
Our convenience offer in stores, assisted by the acquisition of the
Jewel Fine Foods assets in May 2020, has an extended range with
convenience destinations in more than 300 stores. Promoting
healthy eating has continued through our many partnerships
including the Heart Foundation and Stephanie Alexander’s Kitchen
Garden Foundation.
Coles continued to invest in our anytime, anywhere, anyhow
(eCommerce) offer with enhancements made to the user experience
improved navigation.
such as a single-click check out and
Investments have been made in capacity including the roll out of
more than 500 contactless Click & Collect (to the boot of car)
locations. Two eCommerce offers were added during the year - our
membership subscription offer Coles Plus, and Click & Collect Rapid,
our 90-minute order to pick up service. Both have resonated well
with customers and we have seen improvements in the Perfect
Order Rate and Online NPS almost doubled compared to the prior
year. In addition, investments have been made to support strong
Liquor eCommerce growth with the opening of three online fulfilment
centres to increase capacity, streamline order fulfilment and improve
speed of delivery for customers.
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles ambassador and chef Curtis Stone helped inspire customers to cook more at home during COVID-19 restrictions through marketing communications in FY21.
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Coles Group Limited 2021 Annual Report
Smarter Selling
The focus areas of the second pillar of our strategy ‘Smarter Selling
through efficiency and pace of change’, are outlined below:
• Technology-led stores & supply chain
• Strategic sourcing
• Optimised network and formats
• Efficient and agile Store Support Centre
Update on Smarter Selling pillar:
We have made progress against our strategic pillar of Smarter
Selling through our commitment to establishing a structural cost
advantage by increasing efficiency through rapid innovation and
execution at pace. Technology and digital investment supporting
efficiency and automation in our supply chain, stores and Store
Support Centre is critical, as is the continued optimisation of our
network and store formats, and our supplier network.
Since the launch of the Smarter Selling program in FY19, in excess of
$550 million of Smarter Selling benefits have been delivered and we
are on track to deliver $1 billion of benefits by the end of FY23. With
the savings being generated, the business has been able to partially
offset underlying inflation and invest in enhanced customer service,
both online and in store, accelerate our eCommerce plans, invest
further in technology, including digital catalogues and the launch of
coles&co to deliver more engagement with the ease, convenience
and integration of recipes and weekly specials as key benefits for our
customers.
Driving sustainable efficiencies through technology is at the core of
our Smarter Selling strategy. In store, we are digitising and
automating processes to deliver improved team and customer
experiences, such as our smarter forecasting tool which uses
machine learning to enhance existing supply chain algorithms and
increase availability for customers. Profit protection measures have
been implemented including dynamic markdowns, which uses
artificial intelligence to optimise markdowns in meat, and loss
prevention measures such as electronic entry gates in store.
The use of technology also extends from the stores into our supply
chain where we continue to drive an enhanced service. We are
generating benefits from the end-to-end optimisation of the supply
chain between stores, distribution centres and suppliers and we
have also digitised processes such as paperless operations,
removing manual processes for inbound and outbound deliveries
into our distribution centres.
Coles’ strategic and exclusive partnership with Witron to deliver two
automated distribution centres in Queensland and New South Wales
by FY23 is expected to provide best-in-class automated fulfilment
which importantly aims to improve safety for our team members by
reducing manual handling, while tailoring pallets to our stores.
Our optimised network and
formats delivered operational
efficiencies during the year with approximately 10% of our
supermarket store network being updated or opened in a new
format, whether that be our Format A stores, a full line supermarket
with all of our latest innovations and concepts, many of which are
deployed into Format B stores that have a mainstream offer, Format
C stores which are focused on driving operational efficiencies or a
Coles Local, an innovative convenience-focused smaller footprint
supermarket.
Coles Online team member Neranda provides groceries to customer Wendy as part of Coles’ Click & Collect service.
24
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report Win Together
The focus areas of the third and final pillar of our strategy ‘Win Together
with our team members, suppliers and communities’, are outlined below:
• Safer choices together
• Great place to work
• Together to Zero to drive generational sustainability
• Better Together through diversity and stakeholder
engagement
•
Innovation through partnerships
Update on Win Together pillar:
We have made progress against our strategic pillar of Win
Together focusing on helping all Australians to lead healthier
and happier lives, including our team members, our suppliers
and our communities.
Improvements in safety were demonstrated over the last year, with a
15.7% improvement in Total Recordable Injury Frequency Rate
(TRIFR). We continued to implement safety programs across Coles
including rolling out safety leadership and training, implementing
processes and investments to keep customers and team members
safe, especially during COVID-19, while continuing to focus on the
mental health and wellbeing of our team members.
We strive to build a Great place to work at Coles, one which provides
opportunities for team members to grow their career in a company
that is purpose-led and values-driven.
Our sustainability strategy focuses on ‘Together to Zero’ and ‘Better
Together’. Together to Zero sets our ambitions across the key
sustainability areas of emissions, waste and hunger. We have signed
five renewable energy contracts to progress our 100% renewable
electricity target including power purchase agreements, large scale
generation certificate agreements, and the installation of on-site
solar. 2021 marked the tenth year of Coles’ partnership with REDcycle,
providing customers with an option to recycle soft plastics. The
millions of pieces of soft plastic returned to our supermarkets have
been put to good use including in sanitiser stations used in some of
our supermarkets, playground equipment, fence posts and even in
Coles supermarket carparks. Furthermore, through our partnerships
with SecondBite and Foodbank, we are helping Australians in need by
donating edible, unsold food from our supermarkets and distribution
centres to feed vulnerable people in our community.
Better Together recognises that when we work together, we can make
a real difference to our team members, our suppliers, our customers
and to the communities in which we live and work. Our team is Better
Together through diversity and we are proud that Coles has increased
its gender balance with a 2.3 percentage point increase in women in
leadership positions, has continued to develop our Indigenous
engagement programs and was recognised as a leader in LGBTQI+
inclusion, winning a Gold Australian Workplace Equality Index award
in May 2021. We believe we can build stronger communities when we
work together to make a positive difference and support each other in
times of need, demonstrated by our local community initiatives and
our national partnerships. We are committed to working with our
suppliers to make life easier for our customers by offering them
quality, safe and trusted products which are sourced in an ethical,
transparent and responsible way. We remain committed to our
Australian first sourcing policy for fresh produce in our supermarkets
so we can provide our customers with quality Australian grown fruit
and vegetables.
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles and Redkite provided gift cards to nearly 2000 families affected by childhood cancer, including Western Australian mother Brooke and her daughters.
25
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Coles Group Limited 2021 Annual Report
Group performance
$M
Sales revenue
Supermarkets
Liquor
Express
Group sales revenue
EBIT
Supermarkets
Liquor
Express
Other
Group EBIT
Financing costs
Income tax expense
Profit after tax
FY21
FY20
CHANGE
33,845
3,525
1,192
38,562
1,702
165
67
(61)
1,873
(427)
(441)
1,005
32,993
3,308
1,107
37,408
1,618
138
33
(27)
1,762
(443)
(341)
978
2.6%
6.6%
7.7%
3.1%
5.2%
19.6%
103.0%
(125.9%)
6.3%
3.6%
(29.3%)
2.8%
Highlights
• Group sales revenue growth of 3.1% to $38.6 billion
• Group EBIT growth of 6.3%
EBIT for the Group increased 6.3% to $1,873 million primarily due to
improved trading performance and cost management initiatives, partly
offset by lower fuel commission income and higher administration
expenses (inclusive of costs associated with COVID-19).
• Robust balance sheet with investment-grade credit metrics
Impacts of COVID-19
• Cash realisation of 106% and net debt of $355 million
• The Board has determined a fully franked final dividend of
28.0 cents per share
Performance overview
The financial and operating performance of the Group is presented
on a statutory (IFRS) basis. Operating metrics prepared on a non-
IFRS basis have also been included to support an understanding of
comparable business performance. Further details relating to the
presentation of non-IFRS information is provided in the Non-IFRS
Information section.
Sales revenue for the Group increased 3.1% to $38,562 million driven
by sales growth across all segments. Supermarkets sales growth was
driven by successful value campaigns and growth in eCommerce.
Liquor revenue grew across all banners, categories and states,
supported by a strong performance in eCommerce. Express sales
growth was driven by food-to-go, confectionery and drinks,
supported by recent investments in new self-serve coffee machines
and fast-lane fridges. Both Supermarkets and Liquor experienced a
trading uplift from increased demand for in-home consumption
associated with the COVID-19 pandemic.
Over the course of FY21’s COVID-19 pandemic, Coles has supported
team members, partnered with suppliers and engaged with the
community to emerge stronger.
Supermarkets
Coles continued to experience elevated sales as a result of COVID-19
which led to greater in-home consumption with more people
working and studying from home. Throughout the year, customers
increasingly adopted online platforms to do their weekly shop, via
home delivery or contactless Click & Collect, which saw strong
growth rates in eCommerce. Customers also showed a preference
for local shopping leading to neighbourhood stores performing
strongly while shopping centre and CBD stores remained subdued, a
trend known as ‘local shopping’. Towards the end of the financial
year, notwithstanding lockdowns in Victoria, in Darwin and parts of
Sydney, consumer behaviour in the fourth quarter started to
normalise with customers returning to shopping centres and CBD
stores, workers returning to offices and indicators that ‘local
shopping’ effects were beginning to unwind. Increased shopping
trips and improved transaction growth supported a recovery in
impulse, convenience and food-to-go categories and Sunday
returned to being the busiest trading day of the week supported by
normalised routines of going to the office and children going back to
school.
26
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report Liquor
Liquor sales remained elevated during the year despite the relaxation
of restrictions for on-premise consumption, with a continued trend
towards eCommerce sales,
larger pack sizes and customer
preference for large format stores.
Express
Stay-at-home directives in FY21 impacted fuel volumes, most
notably in Victoria where restrictions were more prolonged. Fuel
volumes began to recover during the reporting period as restrictions
eased. Convenience store (C-Store) sales remained strong with
customers continuing to shop locally and use convenience stores for
top-up shopping.
Award covered salaried team member review
In February 2020, Coles announced it was conducting a review into
the pay arrangements for team members who receive a salary and
are covered by the General Retail Industry Award 2010 (GRIA). As
announced in February 2020, Coles recognised a provision of $20
million in its 2020 Half Year Financial Report in relation to expected
remediation costs.
Coles has been supported by a dedicated team of external experts in
this review. Remediation to affected current and former team
members commenced in June 2020.
Following the announcement in February 2020, the Fair Work
Ombudsman (FWO) commenced an investigation which is ongoing.
The potential outcomes of this investigation are uncertain as at the
date of this report.
In May 2020, Coles was notified that a class action proceeding had
been filed in the Federal Court of Australia in relation to payment of
Coles managers employed in supermarkets. Coles is defending the
proceeding. The potential outcome and total costs associated with
this matter remain uncertain as at the date of this report.
Non-IFRS information
This report contains IFRS and non-IFRS financial information. IFRS
financial information is financial information that is presented in
accordance with all relevant accounting standards. 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.
Any non-IFRS financial information included in this report has been
labelled to differentiate it from statutory or IFRS financial information.
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.
Forward-looking statements
This report contains forward-looking statements in relation to 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. This release also includes forward-looking
statements regarding climate change and other environmental and
energy transition scenarios. 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’, ‘guidance’ and other similar expressions.
Any forward-looking statements are based on the Group’s good-
faith assumptions as to the financial, market, risk, 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 the relevant statements. There
are also limitations with respect to scenario analysis, and it is difficult
to predict which, if any, of the scenarios might eventuate. Scenario
analysis is not an indication of probable outcomes and relies on
assumptions that may or may not prove to be correct or eventuate.
Readers are cautioned not to place undue reliance on forward-
looking statements, which 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. Past
performance cannot be relied on as a guide to future performance.
Earnings per share and dividends
Earnings per share (EPS) increased to 75.3 cents, a 2.7% increase
from the prior year.
Profit for the period ($M)
Weighted average number of
ordinary shares for basic EPS
(shares, million)
Weighted average number of
ordinary shares for diluted EPS
(shares, million)
Basic and diluted EPS (cents)
Basic and diluted EPS, excluding
significant items (cents)
FY21
1,005
FY20
978
1,334
1,334
1,335
75.3
75.3
1,334
73.3
70.1
The Board has determined a fully franked final dividend of 28.0 cents
per share (cps).
FRANKED AMOUNT
PER SECURITY
CPS
33.0 cents
28.0 cents
30.0 cents
27.5 cents
33.0 cents
28.0 cents
30.0 cents
27.5 cents
FY21
Interim dividend
Final dividend
FY20
Interim dividend
Final dividend
27
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
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Coles Group Limited 2021 Annual Report
Balance sheet
A summary of key balance sheet accounts for the Group:
$M
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Other
Total assets
Liabilities
Trade and other payables
Provisions
Interest-bearing liabilities
Lease liabilities
Other
Total liabilities
Net assets
FY20
CHANGE
FY21
787
368
2,107
4,463
7,288
1,698
873
539
992
434
2,166
4,127
7,660
1,597
849
524
18,123
18,349
3,660
1,408
1,142
8,756
344
15,310
2,813
3,737
1,333
1,354
9,083
227
15,734
2,615
(20.7%)
(15.2%)
(2.7%)
8.1%
(4.9%)
6.3%
2.8%
2.9%
(1.2%)
(2.1%)
5.6%
(15.7%)
(3.6%)
51.5%
(2.7%)
7.6%
Capital management
Interest-bearing liabilities reflect external borrowings and debt
capital funding commitments. During the year, Coles issued $450
million of Notes, comprising $300 million of 10-year fixed rate Notes
and $150 million of five-year floating rate Notes. The 10-year fixed
rate Notes are priced at a coupon of 2.1% and the five-year floating
rate Notes are priced at a margin of 0.97% over 3-month BBSW.
Proceeds from the Notes were used to repay bank debt.
As at 27 June 2021, Coles’ average debt maturity was 6.9 years, with
undrawn facilities of $2,406 million. Coles is committed to diversifying
funding sources and extending its debt maturity profile over time.
The lease-adjusted leverage ratio at the reporting date was 2.8x with
current published credit ratings of BBB+ with Standard & Poor’s and
Baa1 with Moody’s.
Cash and cash equivalents decreased to $787 million largely due to
the repayment of bank debt, partly offset by an issuance of $450
million of Australian dollar medium term notes (Notes).
Trade and other receivables decreased to $368 million largely driven
by the settlement of a one-off loan.
Right-of-use assets decreased to $7,288 million largely driven by
depreciation for the period, partly offset by new leases and
remeasurements.
increased to $4,463 million
Property, plant and equipment
reflecting investment in the Group’s annual capital program, partly
offset by depreciation and property transactions during the year.
Intangible assets increased to $1,698 million largely driven by the
Group’s investment in technology, partly offset by amortisation
during the period.
Provisions increased to $1,408 million largely due to an increase in
employee entitlements due to fewer team members taking leave due
to COVID-19 and an increase in workers compensation claims
provision based on claims experience.
Lease liabilities decreased to $8,756 million largely driven by lease
payments
leases and
for the period, partly offset by new
remeasurements.
28
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report
Cash flow
Summary cash flows of the Group
$M
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest paid
Interest component of lease payments
Interest received
Income tax paid
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
1 n/m denotes not meaningful.
FY21
FY20
CHANGE
42,124
(38,496)
(47)
(390)
4
(358)
2,837
(1,106)
(1,936)
(205)
39,971
(36,486)
(37)
(399)
7
(504)
2,552
(658)
(1,842)
52
5.4%
5.5%
27.0%
(2.3%)
(42.9%)
(29.0%)
11.2%
68.1%
5.1%
n/m1
Net cash flows from operating activities increased to $2,837 million
reflecting increased EBITDA across all segments, in addition to a
decrease in income tax paid attributable to a revised PAYG instalment
rate reflecting Coles’ position as a standalone taxpayer.
Net cash flows used in investing activities increased to $1,106
million reflecting investment in the Group’s annual capital program,
partly offset by the proceeds from property sales during the year.
Net cash flows used in financing activities increased to $1,936 million
reflecting proceeds from the issuance of $450 million Notes offset by
repayment of bank debt.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles’ Asian destination range has been rolled out to more stores as part of our tailored range strategy.
29
Coles Group Limited 2021 Annual Report
Supermarkets
Segment overview
$M
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)1
Operating metrics (non-IFRS)
Comparable sales growth (%)
Customer satisfaction2 (%)
Inflation excl. tobacco and fresh (%)
Sales per square metre3 (MAT $/sqm)
FY21
33,845
3,001
1,702
25.9
(20.8)
5.0
FY20
32,993
2,867
1,618
25.5
(20.6)
4.9
CHANGE
2.6%
4.7%
5.2%
35bps
(22bps)
13bps
FY21
(52 WEEKS)
2H21
(25 WEEKS)
1H21
(27 WEEKS)
FY20
(52 WEEKS)
2.5
89.7
(0.8)
(2.2)
89.6
(2.2)
7.2
89.8
0.7
5.9
87.1
1.5
17,847
17,847
18,101
17,547
1 Changes are calculated on an absolute percentage basis to more precisely reflect the movement.
2 Based on Tell Coles data. See glossary for explanation of Tell Coles.
3 Sales per square metre is on a moving annual total (MAT), calculated on a rolling 52-week basis.
Doors on upright refrigeration cases help to reduce energy consumption.
30
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report June Groves from Gatton became one of the longest-serving current Coles team members in Australia in May, when she celebrated 55 years working at Coles. June is
pictured here (second from left) with Coles State General Manager Jerry, Regional Manager Tracey and Store Manager Kelsee.
Highlights
Sales revenue for Supermarkets increased 2.6% to $33,845 million
driven by successful value campaigns throughout the year including
‘Helping lower the cost of breakfast, lunch, dinner and entertaining’,
successful execution across the MasterChef cookware and knives
campaigns and growth
in-home
consumption as a result of COVID-19 positively impacted sales
revenue growth throughout the year. Normalising consumer
behaviours in the fourth quarter supported a growth in transactions
as customers increased their shopping trips.
in eCommerce.
Increased
Exclusive to Coles products delivered $10.9 billion in sales during the
year, an increase of 5.3%. Coles continues to deliver new Coles Own
Brand product innovations and brands, with over 2,100 new products
launched during the year. With a focus on being a ‘destination for
convenience and health’, key launches were in the Coles Kitchen
salad kit range and Coles PerForm nutritional meal solutions. During
the year, Coles Own Brand won 46 awards including a record 11
Product of the Year awards across products such as Coles Finest
Chocolate and Hazelnut Mousse, Coles Urban Coffee Culture dark
roasted beans, Daley St medium/dark coffee capsules, KOi Jasmine
and Sandalwood Handwash and LPO gel cleanser.
Supermarkets recorded deflation excluding tobacco and fresh of
0.8% for the year and 3.7% for the fourth quarter. Total Supermarkets
price inflation of 0.8% was recorded for the year and deflation of
1.1% was recorded in the fourth quarter. Deflation in the fourth
quarter was driven by the grocery, dairy, frozen and convenience
categories due to the cycling of lower promotional activity in the
prior corresponding period to support improved availability during
COVID-19 pantry stocking. This was partly offset by inflation in fresh,
particularly in red meat from continued elevated livestock prices.
Coles completed 65 renewals during the year including 10 Format A,
36 Format C and four Coles Local stores. Coles now has 41 Format A,
69 Format C and nine Coles Local stores across the network with four
Coles Local stores in Sydney, four in Melbourne and one in Brisbane.
For the year, 20 new openings and 10 closures were completed. At
the end of the period there were 834 Supermarkets.
Gross margin increased by 35bps to 25.9% driven by strategic
sourcing as well as Smarter Selling benefits such as loss prevention
initiatives. These were partly offset by COVID-19 costs as well as
additional business continuity costs as a result of the industrial
action at the Smeaton Grange distribution centre.
CODB as a percentage of sales increased by 22bps to 20.8% largely due
to strategic investments in marketing, including coles&co, technology
initiatives and operating expenditure to support the capital
expenditure program. These costs were partly offset by Smarter
Selling benefits, and lower COVID-19 costs compared to the prior year.
EBIT for the year increased by 5.2% to $1,702 million and EBIT margin
improved by 13bps to 5.0%.
Coles Online
eCommerce sales grew 52% to $2.0 billion in FY21 as more consumers
shifted towards purchasing online, in part as a result of COVID-19
lockdowns. A number of improvements were made in the end-to-
end online customer experience during the year including in the
areas of digital experience, platform stability, expanded range and
availability, delivery in full and on-time and improved customer
support. As a result, Online NPS almost doubled compared to the
prior year. Coles Online also invested in its network adding 249
delivery stores and upgraded more than 100 Click & Collect locations.
A number of new services were added in the year including same day
home delivery, Click & Collect Rapid (order to pickup in 90 minutes),
and Coles Plus membership subscription offer. Monthly active
improved
increased 46% and customer retention
shoppers
compared to the prior year.
Coles Financial Services
Through Coles Financial Services, the Group offers credit cards and
personal loans in partnership with Citigroup to approximately
330,000 customer accounts and home, motor vehicle and landlord
insurance in partnership with Insurance Australia Group (IAG) to
approximately 350,000 policy holders. Coles also offers pet insurance
in partnership with Guild Insurance.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
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Coles Group Limited 2021 Annual Report
ABOVE: Customer Zsofia selects from our gin range at the First Choice Liquor Market in Bentley, Western Australia;
BELOW: Store Manager Ben and Coles Group Chief Executive Liquor Darren at the Liquorland store in Moonee Ponds.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report Liquor
Segment overview
$M
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)1
Operating metrics (non-IFRS)
Comparable sales growth (%)
Sales per square metre2 (MAT $/sqm)
FY21
3,525
276
165
21.8
(17.1)
4.7
FY20
3,308
242
138
21.6
(17.4)
4.2
CHANGE
6.6%
14.0%
19.6%
23bps
26bps
49bps
FY21
(52 WEEKS)
2H21
(25 WEEKS)
1H21
(27 WEEKS)
FY20
(52 WEEKS)
6.3
16,287
(2.9)
16,287
15.1
16,603
7.3
15,438
1
2
Changes are calculated on an absolute percentage basis to more precisely reflect the movement.
Sales per square metre is a moving annual total (MAT), calculated on a rolling 52-week basis.
Highlights
Sales revenue for Liquor increased 6.6% to $3,525 million driven by
sales growth across all banners, categories and states, underpinned
by a strong performance in eCommerce while spirits and ready-to-
drink (RTDs) were the key drivers of growth at the category level.
Targeted investments in capacity, order fulfilment, range and
customer experience during the year supported eCommerce sales
growth of 79%.
Optimisation of the Liquor store network continued during the year
with 31 new stores opened and 12 stores closed, taking the total
network to 929 Liquor sites. Liquor continues to maintain a focus on
underperforming stores whilst developing a pipeline for future
growth.
Gross margin increased by 23bps to 21.8% largely due to strategic
sourcing benefits from improved relationships with suppliers.
CODB as a percentage of sales improved by 26bps to 17.1% largely
driven by cost control initiatives and volume growth from higher
sales fractionalising Liquor’s fixed cost base, partly offset by strategic
investments in service.
Liquor EBIT increased by 19.6% for the year to $165 million and EBIT
margin increased by 49bps to 4.7%.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
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Coles Group Limited 2021 Annual Report
Express
Segment overview
$M
Sales revenue
EBITDA
EBIT
Gross margin (%)
Cost of doing business (CODB) (%)
EBIT margin (%)1
Operating metrics (non-IFRS)
Comparable convenience store (c-store) sales growth (%)
Weekly fuel volumes (million litres)
Fuel volume growth (%)
Comparable fuel volume growth (%)
FY21
1,192
207
67
52.4
(46.7)
5.7
FY20
1,107
167
33
53.7
(50.8)
3.0
CHANGE
7.7%
24.0%
103.0%
(134bps)
404bps
270bps
FY21
(52 WEEKS)
2H21
(25 WEEKS)
1H21
(27 WEEKS)
6.8
57.1
(4.0)
(5.4)
3.6
58.9
8.7
6.8
9.9
55.5
(13.8)
(14.9)
1 Changes are calculated on an absolute number / percentage basis to more precisely reflect the movement.
Highlights
Sales revenue for Express increased by 7.7% to $1,192 million largely
driven by food-to-go, confectionery and drinks, supported by recent
investments in new self-serve coffee machines and fast-lane fridges,
as well as benefits from the range review implemented in the drinks
category. Forecourt and tobacco sales also contributed to growth for
the year.
During the year, 13 new sites were opened and nine closed, taking
the total Express network to 717 sites.
traffic flows. Average weekly fuel volumes of 57.1mL per week were
recorded during the year. For the fourth quarter, average weekly fuel
volumes were 59.0mL per week, broadly flat quarter-on-quarter with
volume growth late in the quarter impacted by lockdowns.
Gross margin decreased by 134bps to 52.4% largely due to declining
fuel volumes and lower fuel margin income, partly offset by strategic
sourcing benefits. CODB as a percentage of sales improved by
404bps to 46.7% largely due to strong focus on cost control
throughout the year and higher sales fractionalising Express’ fixed
cost base.
Fuel volumes declined by 4.0% during the year with comparable fuel
volumes declining by 5.4% driven by COVID-19 restrictions impacting
Strong c-store sales and cost control supported an increase in Express
EBIT to $67 million with EBIT margin increasing by 270bps to 5.7%.
Other
Other includes corporate costs, Coles’ 50% share of flybuys net
result, the net gain generated by the Group’s property portfolio and
self-insurance provisions. Coles’ 50% share of flybuys’ net result was
a loss of $5 million in FY21 (FY20: $6 million loss). In aggregate, this
resulted in a $61 million net cost for the year (FY20: $27 million net
cost). The increase from FY20 was driven by a market-wide increase
in insurance costs, and lower property divestment income.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report Glossary of terms
Average basket size: A measure of how much each customer spends
on average per transaction
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: Costs 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 interest, tax, depreciation and amortisation
EPS: Earnings per share
Exclusive to Coles: Refers to the portfolio of product brands that are
exclusively available at Coles, and includes Coles Own Brand and
Exclusive Proprietary Brand products. Coles Own Brand refers to the
portfolio of product brands owned by Coles (e.g. Coles Finest, KOi,
Coles Nature’s Kitchen). Exclusive Proprietary Brands refers to the
portfolio of product brands owned by suppliers but exclusive to
Coles (e.g. La Espanola)
Gross margin: The residual income remaining after deducting cost of
goods sold, total loss and logistics from sales, divided by sales
revenue
IFRS: International Financial Reporting Standards
Leverage ratio: Gross debt less cash at bank and on deposit, divided
by EBITDA
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, calculated on a rolling 52-week basis
Net Promoter Score: Metric used to measure customer advocacy,
derived from an externally facilitated survey with a nationally
representative sample
Perfect Order Rate: The percentage of total Home Delivery orders
(excluding Click & Collect) that were fulfilled on time without any
missing items or substitutions
Retail calendar: 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 Coles monitors
customer 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, calculated on a rolling 12-month basis.
TRIFR includes all injury types including musculoskeletal injuries
Women in leadership: Comprises team members pay grade eight
(being middle managers and specialist roles) and above, and
Supermarket store managers
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
The Coles Express team in Alexandria, New South Wales, band together to support the Movember Foundation. Coles customers and team members across Australia
raised more than $580,000 for Movember to support mental health and cancer care.
35
Coles Group Limited 2021 Annual Report
Looking to the future
Coles has made significant strategic and financial progress since our ‘Winning in
our Second Century’ strategy was announced two years ago. We are operating
in a market with significant opportunities being created by rapidly changing
consumer needs and technology and we believe we are well positioned to take
advantage of these opportunities.
To further drive long term sales, efficiencies, trust and shareholder
value, we are increasing our investment in data, eCommerce,
technology, and automation to deliver an omnichannel tailored and
unique range. We will also invest in the acceleration of our Coles
Local and Liquorland renewal and new store program focused on
high quality locations and winning formats, and sustainability
initiatives – building on Together to Zero and Better Together. As a
result, we expect capital expenditure of up to $1.4 billion in FY22.
To Inspire Customers, we will strive to increase trust in Coles
delivering great value food and drink solutions for breakfast, lunch
and dinner. We will continue to invest in range across key growth
categories, grow the role of everyday low prices and use machine
learning and advanced analytics to optimise our promotional mix.
Critical to lowering the cost of shopping for our customers is our
Exclusive to Coles range of products and we will continue to deliver
great value through these products across all price tiers. To meet the
needs of our customers who shop online, further enhancements will
be made to the digital experience to enable Coles’ omnichannel
strategy, including unifying our eCommerce and digital channels into
one Coles App. In addition, we are continuing to build our two
automated online customer fulfilment centres in Melbourne and
Sydney, in partnership with Ocado, that will deliver a differentiated
online experience with extended ranges and improved metrics such
as delivered in full and on-time.
Since commencement in FY19, Coles continues to target $1 billion of
Smarter Selling benefits by the end of FY23. This will be achieved by
leveraging technology to drive efficiencies in our supply chain, such
as paperless operations
in our distribution centres while
construction continues, in partnership with Witron, on our two
automated distribution centres in Queensland and New South
Wales. This will deliver a step change improvement in cost per carton
through the network, support store range tailoring and improve
safety for our team members. We will also use technology in stores
such as self-serve options for customers and leveraging advanced
analytics to improve waste and markdowns. Our store network
strategy is expected to deliver approximately 1.5% space growth
which will be focused on population growth corridors and in areas
where there are market share gaps. In FY22, we expect to open
approximately 20 stores and renew approximately 50 stores.
Together to Zero encompasses our ambitions of Together to zero
emissions, Together to zero waste, and Together to zero hunger. Our
ambition of Together to zero emissions is underpinned by three key
commitments: to deliver net zero greenhouse gas emissions by 2050;
to be powered by 100% renewable electricity by the end of FY25 for
the entire Coles Group; and to reduce combined Scope 1 and 2
greenhouse gas emissions by more than 75% by the end of FY30
(from a FY20 baseline). Together to zero waste details our ambitions
around waste reduction and recycling. We are committed to diverting
85% of waste from landfill by FY25 with a continued focus on food
waste. As part of our Together to zero hunger ambition, we will
continue to work with our charity food partners SecondBite and
Foodbank to donate edible, unsold food from our supermarkets and
distribution centres to feed those Australians most in need.
We have made progress on being a Great place to work and we want
to be recognised as an Employer of Choice within Australia. As such,
we will continue to build team member engagement by focusing on
learning and career development, feedback and recognition. In
providing a safe environment for our team members, our focus will
be on the use of technology to drive improved safety outcomes,
ongoing mental health investments and fostering an environment
where all team members own safety decisions and work together to
improve safety outcomes.
We will be A team that is better together by celebrating our
commitments towards gender equity, accessibility, pride and
Indigenous engagement. A new commitment around belonging has
been introduced which recognises that our different backgrounds,
experiences and perspectives are what makes us unique and helps
us create ideas, connections and brings us together as a team.
Looking ahead, we aim to achieve 40% of women in leadership roles
and achieve pay parity, and provide more opportunities for
Indigenous peoples, suppliers and communities.
We will continue to foster key community partnerships, feed
Australians in need and support healthy lifestyles. We will continue
to work with our stakeholders throughout our supply chain including
farmers, food manufacturers, unions, transport providers and
accreditation bodies to promote best practice in ethical standards,
safety, labour standards, human rights and animal welfare. In
addition, we are committed to building strong, multigenerational,
collaborative relationships with Australian farmers and producers.
While the COVID-19 outlook remains uncertain, including the extent
of lockdowns, we believe the roll-out of the vaccination program will
continue the reversal of the local shopping trend as customers
become more confident to shop in larger shopping centres resulting
in a stronger performance of shopping centre stores. Increased
movement will also assist in the restoration of fuel volumes towards
pre-COVID-19 levels.
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Coles Group Limited 2021 Annual Report Risk management
Our operating environment continues to rapidly evolve, resulting in changes
to the risks and uncertainties that we face. We regularly review our risks
and their mitigations, so we can support the delivery of our purpose and
strategy and respond to challenges faced by Australian businesses, the retail
industry, and the communities we serve.
During the year, Coles has continued to identify and manage risks in
accordance with the Coles Risk Management Framework. The design
of this Framework is based on ISO 31000:2018 Risk management –
Guidelines (‘ISO 31000’), which provides an internationally recognised
set of principles and guidelines for managing risks in organisations.
Further information about our Risk Management Framework is
available in Coles’ Corporate Governance Statement.
Through application of the Coles Risk Management Framework, we
have identified material strategic, operational, and financial risks
which could adversely affect the achievement of our future financial
prospects. Each of these material risks is described below along with
key mitigation plans to manage them. Although the risks have been
described individually, there is a high level of interdependency
between them, such that an increased exposure for one material risk
can drive elevated levels of exposure in other areas of our risk profile.
In addition to these material risks, 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.
COVID-19
There continues to remain a high level of uncertainty with regard to
how the COVID-19 pandemic will evolve both domestically and
from
internationally, along with corresponding
governments, businesses, customers and the broader community
over the short and long term. Key drivers of uncertainty include, but
responses
are not limited to: evolution of the virus, rates of infection, the
treatment and vaccination rollout timeline, and government
regulatory and policy response (including government responses to
outbreaks, shutdowns of sectors of the economy, border closures,
and variations in restrictions between states and countries).
COVID-19 continues to adversely impact the local and global
economy. However, the severity, duration and extent of impact in
each affected jurisdiction remains uncertain and highly connected
to other key trends, including technology adoption, government
policies and geopolitical tensions, immigration patterns, population
growth, and demographic shifts, and the resilience of both domestic
and international supply chains. We mitigate exposures to macro-
economic and geopolitical conditions through our business-
planning process, which considers and routinely monitors future
market conditions and consumer preferences; and diversification of
products and markets.
The table overleaf sets out our existing material strategic, operational
and financial risks and a summary of the key mitigation plans in
place to manage them. We anticipate that the evolving nature of the
COVID-19 pandemic and the changing macro-economic and
geopolitical environment will drive continual changes to Coles’
material and emerging risks during the next financial year and
beyond. We will therefore continue to monitor and respond to further
developments as
review and
enhancement of our risk mitigation plans.
including ongoing
required,
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The health and safety of our customers and team members underpins our response to the COVID-19 pandemic. Programs to keep our customers and team members
safe include the use of QR code check-in systems, masks, sanitisation stations and additional cleaning and security.
37
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Coles Group Limited 2021 Annual Report
Strategic risks
Risk Description
Pandemic
Mitigations
If Coles does not monitor and respond to
the evolution of COVID-19 or future
pandemics, there is a risk of exposure to
material financial loss including as a result
of higher input costs, additional
operational costs, and reduction of sales
and margins; legal and regulatory action;
people, health and safety issues; and/or
reputational damage.
Furthermore, the pandemic exposes us to
the significant and/or prolonged
disruptions in the supply chain, store and
online operations which can impact on our
ability to serve our customers and the
community.
Coles continues to manage the evolution of the COVID-19 pandemic in accordance with our
Coles Group Response Policy and Program which sets out the governance arrangements,
accountabilities, and processes for crisis management and business continuity, and our
Coles SafetyCARE System which is the 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.
Our response is led by our Executive-level Response Leaders who are supported by the Head
of Response. Business continuity functional leads are assigned to manage dedicated streams
of work to identify, prepare and respond to emerging risks and issues across the Group.
Critical response decisions are reviewed by Coles’ Executive Leadership Team and elevated
to the Board, where required.
Business continuity plans are in place for critical functions and activities across our
operations including merchandising, supply chain and store and online operations. Our
plans include consideration of people, resources, physical sites, information technology and
digital requirements, and critical third parties required to continue to operate and serve our
customers and community.
These plans have been invoked when required during our response and continue to be
refined given the evolving nature of, and our continued exposure to, the pandemic. This
includes ongoing assessment of risks, contingency plans and resourcing arrangements.
Competition, changing consumer behaviour and digital acceleration
If Coles fails to respond to competitive
pressures and changing customer
behaviours and expectations, it could
result in loss of market share and,
ultimately, adverse margin impacts,
reduced customer retention and impact
to share price or value.
Strategy and transformation delivery
Inability to properly execute and deliver
our strategy and transformational
programs, including strategic projects with
Witron and Ocado, could result in loss of
market share, and variability in Coles’
earnings.
Pauses or delays in the execution of areas
within our strategy and transformation
programs and projects, may occur due to
disruptions brought about by the COVID-19
pandemic including disruptions in supply
of capital inputs and services, and to
critical third parties whom we rely on to
deliver our strategic and transformational
programs of work.
The COVID-19 pandemic has shifted consumer behaviour and expectations toward an
increased focus on safety measures, sourcing and shopping locally, and reliance and demand
on online shopping and digital channels. Key programs to respond to these risks and build on
opportunities are embedded in the implementation of our strategy including automation of
the supply chain.
Coles regularly monitors customer sentiment, best practice global retailers, local and
international learnings, and customer insights and research, so we can quickly respond to
changes in customer behaviours.
We continue to focus on driving an enhanced digital customer experience through Coles
Online, our digital catalogue, the coles.com.au platform including coles&co, the new Click &
Collect Rapid and Coles Plus subscription service; and leverage flybuys to help personalise
customer communications. We also continue to invest in new data analytics tools and
platforms to give suppliers and category decision makers fast and detailed insights across
products, stores, geographies and sales channels.
Delivery of our strategy and transformation program is determined by the effective
implementation of each of the three pillars of our strategy.
Furthermore, elements of our strategy are supported by third-party strategic partnerships
including Witron (automated distribution centres), and Ocado (enhanced online capability).
We also have joint ventures with Wesfarmers (flybuys) and Australian Venue Co. (Queensland
Venue Co. Pty Ltd), and an alliance with Viva (Coles Express).
In addition, Coles may undertake future acquisitions and divestments, and enter into other
third-party relationships, so we can more effectively execute our strategy.
We have governance structures and processes in place to oversee, manage and execute our
strategy and transformational programs of work, including our strategic projects with Witron
and Ocado. Projects and programs are regularly reviewed in detail to monitor progress of
program delivery, costs and benefits, and allocation of resources.
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Coles Group Limited 2021 Annual Report Climate change and the environment
Climate change presents an evolving set of
risks and opportunities for Coles, and has
the potential to contribute to and increase
the exposure of other material risks. These
include increased frequency/intensity of
extreme weather events and chronic
climate changes which can disrupt our
operations and compromise the safety of
our team members, customers, supply
chain and the food we sell; and changes to
government policy, law and regulation,
which can result in increased costs to
operate and the potential for litigation.
An inability to reduce our environmental
impact and meet our external
sustainability commitments could also
result in reputational damage, loss in
market share, and fines and penalties.
Coles had previously developed a roadmap to enable us to align with the recommendations
of the Task Force on Climate-related Financial Disclosures. During FY21, we continued to
implement actions identified. During the financial year we also worked with external climate
change specialists to further assess our climate change risks and opportunities. Additional
information on these risks and opportunities is set out in the Climate Change section.
In March 2021, we launched Together to Zero which communicates our ambitions to reduce
our impact on the environment (emissions, waste and hunger), along with targets for
greenhouse gas emissions and renewable electricity, and our public-facing Climate Change
Position Statement. In June 2021 we released our Sustainability Strategy which highlights
Coles’ commitments across the Together to Zero and Better Together pillars of our strategy.
The Board oversees the effectiveness of Coles’ environment, sustainability and governance
policies and retains ultimate oversight of material environmental and sustainability risks and
opportunities, including those related to climate change.
The Board has endorsed the Group Sustainability Steering Committee as the management
group responsible for overseeing the Group-wide identification and response to sustainability
issues, including climate change. It is chaired by the Chief Sustainability, Property & Export
Officer, a member of the Executive Leadership Team, who reports to the Chief Executive
Officer. The Chief Executive Officer has ultimate responsibility for sustainability at Coles.
The Sustainability Steering Committee is supported by other steering committees,
subcommittees and working groups including the Human Rights Steering Committee, the
Diversity and Inclusion Council, the Climate Change Subcommittee and the Coles Express
and Coles Liquor sustainability working groups. Our progress against the Sustainability
Strategy will be reported annually in the Coles Group Sustainability Report.
Operational risks
Risk Description
Industrial relations
Mitigations
As we execute our strategy, workforce
changes may lead to industrial action and/
or disruptions to operations, which can
result in increased costs, litigation and
financial impacts from reputational
damage. The emergence of COVID-19 along
with planned changes in our supply chain
operations, has heightened our exposure to
this risk.
Security of supply
Potential disruption to the supply of goods
for resale and services required to deliver
our core operations can occur due to
extreme weather events and changes in
climate, changes in domestic and
international government and policy,
regulation, geopolitical factors, and
disruptions caused by the evolving
COVID-19 pandemic, including suspension
of production, domestic and international
border closures, and restricted access to
the workforce our suppliers rely on to
produce goods. Supply chain disruptions
can result in an inability to supply to
customers, loss of market share, price
volatility and increased costs.
Coles has in place dedicated Employee Relations resources which are responsible for
monitoring and responding to industrial relations risks and issues. Key activities include
implementation of appropriate enterprise agreements and employee relations strategies;
maintaining and building strong working relationships with unions and
industry
organisations; and constructively liaising with our team members, third-party suppliers
and transport and logistic service providers.
The renegotiation of enterprise agreements is proactively managed and business
continuity plans are in place to mitigate disruption to operations if industrial action occurs.
We have business continuity plans to manage the supply chain and delivery of goods to
stores during extreme weather and business disruptive events.
Our COVID-19 response includes sourcing alternative supply arrangements, scaling up
production and distribution of substitute goods (potentially simplifying range to aid
production efficiency), rapid onboarding of new suppliers, management of the promotions
calendar to support availability and where necessary (for example during COVID-19) the
introduction of purchasing limits.
Medium and longer term international and domestic supply security risks and mitigations
are assessed on an ongoing basis as part of our category planning program. We also
continue to analyse Coles’ supply chain resilience in key food categories, including meat,
dairy and seafood.
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Health and safety
The safety of our team, customers, third
parties and contractors is paramount to
Coles. We employ an extensive and diverse
workforce, including third parties, with high
volumes of people interactions daily. This
may result in risk of fatality, life-threatening
injuries or transmission of disease to team
members, customers, suppliers,
contractors or visitors, due to unsafe work
practices, accidents or incidents.
Furthermore, the ongoing COVID-19
pandemic can have adverse impacts to
team member health and wellbeing
(including mental health) and introduces
the potential for loss of key personnel due
to infection.
Product and food safety
Product and food safety and quality is
critical for Coles. Serious illness, injury or
death are the most severe potential risks
from compromised product or food safety.
Loss in customer trust, reputational
damage, loss in sales and market share,
regulatory exposure, and potential litigation
could also occur.
Third-party management
An inability to successfully manage and
leverage our strategic third-party
relationships, or a critical failure of a key
supplier or service provider, may expose
Coles to risks related to compromised
safety and quality, misalignment with
ethical and sustainability objectives,
disruptions to supply or operations,
unrealised benefits, and legal and
regulatory exposure.
Our detailed Health, Safety and Injury Management system (SafetyCARE) is supported by a
team of experienced safety professionals throughout our network. SafetyCARE’s
performance 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 Safety Leadership and culture, Critical risk reduction, and Mind your health.
The health and safety of our customers and team members underpins our response to the
COVID-19 pandemic. Coles has adopted enhanced hygiene practices based on
recommendations from the Australian Government through Safe Work Australia and based
on information from the Federal Department of Health, state and territory governments
and departments of health and other applicable regulatory bodies. A large number of
measures have been implemented.
These include programs to keep our customers and team members safe incorporating:
social distancing measures, the use of QR code check-in systems, sneeze guards,
sanitisation stations, masks, additional cleaning and security, immediate escalation and
reporting protocols, and the implementation of large-scale mental health and wellbeing
programs for our team members.
Coles has a food safety governance program in place which is overseen by an experienced
technical team. The program comprises 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.
We also have a Product Safety Program which covers non-food products, and work closely
with our suppliers to ensure compliance with relevant mandatory product safety
and labelling standards and to meet consumer guarantees under the Australian Consumer
Law. Our Product and Food Safety Committee oversees continuous improvement of
food and product safety risks and issues across Coles.
Coles has due diligence processes in place to assess the adequacy and suitability of key
suppliers, service providers and strategic partners in accordance with our requirements.
We monitor and manage quality and performance of key suppliers and strategic third
parties throughout their engagement with Coles. Defined service level and key performance
indicators are in place for key supply contracts. Risks are managed via contractual
protections.
Third-party management (goods not for resale) is governed by the Third Party Management
Policy which includes requirements for sourcing and contract management, and the
application of our SAP Ariba technology platform for sourcing, contracting, buying and
invoicing. Plans for FY22 include the continued uplift and embedding of risk management,
contract management and supplier management requirements for goods not for resale
engagements.
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Coles Group Limited 2021 Annual Report Legal and regulatory
The diversity of our operations necessitates
compliance with extensive legislative
requirements at all levels of government,
including corporations law, competition and
consumer law, health and safety, industrial
relations, employment, product and food safety,
environment, council by-laws, privacy and
bio-security.
Non-compliance with key laws and regulations,
could expose Coles to loss of license to operate,
substantial financial penalties, reputational
damage, a deterioration in relationships with
regulators, class action or other litigation and
additional regulatory changes which may
adversely impact the execution of our strategy
and result in increased cost to operate.
Furthermore, where Coles is a party to litigation,
it can involve reputational damage, financial
costs, and high investment of Company
resources and time. For example, in February
2020, Coles announced that it had identified
discrepancies between the salaries paid to some
store team managers and their entitlements
under the General Retail Industry Award. At the
current time, Coles is defending a class action in
the Federal Court in relation to this issue, and
responding to an investigation by the Fair Work
Ombudsman.
Ethical sourcing
Failure to source product or conduct our
business in a manner that complies with our
Coles Ethical Sourcing Policy and relevant
legal requirements across Australia and the
countries we source from, can result in
impact to worker safety, wellbeing or living
conditions, material reputational damage,
loss in consumer confidence and market
share, regulator fines and penalties, and
adverse financial performance.
Coles has in place a Compliance Framework, which is based on AS ISO 19600:2015
Compliance Management Systems – Guidelines, and which sets out the standards,
requirements and accountability for managing regulatory compliance obligations across
the Group.
The Compliance Framework is subject to continual review and assurance, including
through Coles’ internal audit process.
We also maintain relationships with regulators and industry bodies and actively monitor
new and impending legislative and policy changes.
Our legal teams work in partnership with our compliance teams to monitor and manage
legal issues, matters, claims or disputes. We are supported by pre-agreed panel
arrangements with external legal firms and assess any potential litigation claims to
understand loss potential.
Our Ethical Sourcing Policy and supplier requirements are based on internationally
recognised standards and establish the minimum standards for all suppliers.
Coles’ Ethical Sourcing Program takes a risk-based approach which defines the level of
due diligence and monitoring that applies to suppliers based on risk exposure and
includes a requirement for ethical audits of selected suppliers. The program includes
Coles Own Brand and fresh produce suppliers, Coles Own Liquor Brands, and selected
Goods Not for Resale suppliers.
During the financial year we engaged external specialists to review the effectiveness of
our key risk indicators for ethical sourcing, and to support the development of a
risk-based approach for managing overdue non-conformances detected at suppliers’
sites relating to working hours.
We also introduced new resources dedicated to the execution of the Human Rights
Strategy and Ethical Sourcing Program, increased supplier and working education
including through our partnership with the Ethical Retail Supply Chain Accord, embedded
a program to follow-up on the closure of supplier critical and major non-conformances,
and conducted ‘risk deep dives’ in key areas such as security, uniforms and floor care.
Coles’ whistle-blower hotline and dedicated supply chain wages and conditions hotline
enable reporting of unethical, illegal, fraudulent or undesirable conduct.
Additional information on Coles’ Ethical Sourcing Program can be found in our 2021
Modern Slavery Statement.
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Coles Group Limited 2021 Annual Report
Information technology, resilience, data and cyber security
A failure or disruption to our information
technology applications and infrastructure,
including a cyber-security event, could
impede the processing of customer
transactions, or limit our ability to procure
or distribute stock for our stores or
otherwise impact the operations of our
business.
We have a rolling five-year technology strategy and continuously monitor our technology
operations. We also have a cyber-security framework in place which we use to assess the
maturity of our cyber-security capabilities and identify priority areas for improvement and
further investment. Our cyber-security framework is aligned to the internationally
recognised National Institute of Standards and Technology (NIST) Cybersecurity
Framework. Additionally, our security policies and standards are aligned to ISO
27002:2013 Information technology — Security techniques (‘ISO 27002’), which provides
an international code of practice for information security controls.
Our cyber-security roadmap is updated regularly and is independently assessed to help
us make investment decisions which are commensurate with risks to the business, in line
with similar businesses, and supports Coles’ business direction.
Our privacy and digital security policies, procedures, governance forums, education and
awareness programs, and active membership with the federal government Joint Cyber
Security Centre, help to strengthen our ongoing management of evolving data, privacy
and cyber-security threats. We also regularly test and review our information technology
infrastructure, systems, and processes to assess security threats and the adequacy of
controls.
We actively manage technology changes to reduce the risk of system instability, especially
during peak trading periods. Our service management function is responsible for
responding to incidents, should a disruption occur.
In the event of a disruption, we have information technology recovery plans in place for
critical systems and dedicated plans to respond to data loss. We also have retained
industry experts to be on call in the event of a cyber-security incident.
Cyber-security threats include ransomware,
product vulnerabilities, business email
compromise, and phishing scams resulting
in system compromise.
Many factors including increased flexible
working arrangements as a result of
COVID-19, our growing external digital
footprint, increased reliance on technology,
volume of third-party providers and
growing sophistication of cyber criminals,
has resulted in Coles operating in an ever
increasing cyber-security threat
environment.
Furthermore, our technology and data-rich
environment also exposes us to the risk of
unintentional or unauthorised access to
confidential, financial, or personal
information, which may result in loss in
consumer confidence, loss in market share,
regulatory fines and penalties, and
reputational damage.
Financial risks
Risk Description
Mitigations
Financial, treasury and insurance
The availability of funding and management
of capital and liquidity are important
requirements to fund 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 may also be
exposed to financial loss from accidents,
natural disasters and other events.
Our Group Treasury function is responsible for managing our cash funding position and
supporting the management of interest rate and foreign currency risks. Our Treasury
Policy and related policies are approved by the Board, and govern the management of
our financial risks, including liquidity, interest rates, foreign currency and commodity
risks and the use of other derivatives. Further information is included in Note 4.2
Financial Risk Management of the Financial Report.
Insurance is a tool to protect our customers, team members and the Group against
financial loss, where applicable. In some cases, we choose to self-insure a significant
proportion of the risk. This means that, in the event of an incident, the cost is covered
from internal premiums charged to the business or the losses are absorbed. Our
insurance function is responsible for managing both self-insurance and the purchase of
external insurance where we determine this is prudent. We monitor our self-insured risks
and have active programs to help us pre-empt and mitigate losses. We engage an
external actuary to determine the self-insurance liabilities recognised in the Statement
of Financial Position.
In the Operating and Financial Review we have documented the trading and financial
reporting impacts of the pandemic.
42
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Coles Group Limited 2021 Annual Report Climate change
We acknowledge the risks climate change presents to the community
and the planet. Coles supports the goals of the Paris Agreement to
limit global warming to well below 2, preferably to 1.5 degrees
Celsius, compared to pre-industrial levels.
We support the recommendations of the Task Force on Climate-
related Financial Disclosures (TCFD) and information in this section
responds to the four thematic areas against which the TCFD
recommendations are structured. We also use the TCFD framework
to drive our climate change strategy and response.
As one of Australia’s largest companies, we understand our
responsibility to minimise our environmental footprint, as well as to
mitigate the environmental, health and social impacts of climate
change. We will do this by:
• building the resilience of our business, supply chain and
community against climate change related
impacts, both
physical and transitional (managing climate-related risks and
opportunities);
• building a roadmap aligned with the Paris Agreement and taking
action to reduce our climate impacts (decarbonisation); and
• using our position and voice to play a constructive role in
influencing others to meet similar goals (influencing climate
action).
Coles supports the United Nations (UN) Sustainable Development
Goals including Goal 13 (Climate action) and the UN Global Compact
Principles (including Principles seven, eight and nine which relate to
the environment).
Governance
The Board oversees the effectiveness of Coles’ environment,
sustainability and governance policies and retains ultimate oversight
of material environmental and sustainability risks and opportunities,
including those related to climate change.
The Audit and Risk Committee assists the Board in fulfilling its
responsibilities. The Committee evaluates the adequacy and
effectiveness of Coles’ identification and management of material
environmental and social sustainability risks as well as reporting of
those risks. The Committee receives reports from management on
new and emerging sources of risk and the controls and mitigation
measures management has put in place to address those risks.
functions with key sustainability responsibilities including Risk and
Compliance, Sustainability, Coles Brand, People and Culture,
Marketing, Company Secretariat and Corporate Affairs.
As climate change is recognised as having wide-ranging implications
for our business, responsibilities for managing and mitigating
climate-related risks are Group-wide. The Group Sustainability
Steering Committee coordinates this response through a specific
Climate Change Subcommittee which oversees Coles’ climate
change approach and reports to the Sustainability Steering
Committee and its Chair.
The Subcommittee is chaired by the General Manager Sustainability
and Property Services and includes senior leaders from key functions
within Coles, including Finance, Strategy, Risk and Compliance, and
Sustainability.
Strategy and approach
Our approach to sustainability, and climate change, is captured
under the Win Together pillar of our corporate strategy.
During FY21, the Board endorsed our refreshed sustainability
strategy with its two focus areas – Together to Zero and Better
Together.
Together to Zero sets out our ambitions to reduce our impact on the
environment including in the areas of climate change, waste and
hunger. Better Together recognises that when we work together, we
can make a real difference to our team, our supplies and producers,
our customers and to the communities in which we live and work.
To enhance our climate change response and disclosures we are
continuing to develop a roadmap and associated action plans which
align with the recommendations of the TCFD. Our approach was
endorsed by the Board and highlights the key milestones we need to
meet to enable more comprehensive climate change responses and
disclosures.
We are addressing the Together to zero emissions component of our
sustainability strategy under the following three key areas:
Managing climate-related risks and opportunities
More details can be found in the Risk Management section below.
Influencing climate action
The Board has endorsed the Group Sustainability Steering
Committee as the management group responsible for overseeing
the Group-wide identification and response to sustainability issues,
including climate change. It is chaired by the Chief Sustainability,
Property and Export Officer, a member of the Executive Leadership
Team who reports to the Chief Executive Officer. The Chief Executive
Officer has management responsibility for sustainability at Coles.
The Committee’s standing members comprise management from
With thousands of locations across Australia, more than 120,000
team members and an average of 20 million customer transactions
across our business each week, we have a deep connection with
urban, regional and rural communities.
Our ability to influence climate action is not limited to those areas
directly under our control, but more broadly across our value chain.
We continue to seek out opportunities to work together with our
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Coles Group Limited 2021 Annual Report
Coles became the first major Australian retailer to commit to
buying renewable electricity through a 10-year Power Purchase
Agreement with global renewable power generation company
MYTILINEOS (Renewables & Storage Development Business Unit,
previously known as METKA EGN). The agreement with
MYTILINEOS’ RSD Business Unit will see Coles purchase 70% of the
electricity generated by three solar power plants which are being
constructed in Corowa, Wagga and Junee in regional New South
Wales. Pictured here are Coles Store Manager Stuart and Ian
Kirkham from MYTILINEOS’ RSD Business Unit at the Corowa site
which became fully operational in June 2021.
More information can be found at www.colesgroup.com.au
44
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Coles Group Limited 2021 Annual Report team members, suppliers, customers and communities to create
positive change. Our aim is to find constructive and proactive
approaches to reduce emissions, develop resilience to climate
impacts and build momentum towards the aims of the Paris
Agreement.
2.
3.
Ambitious global climate action – Where there is active
movement towards the goals set in the Paris Agreement to limit
global warming to well below 2, preferably to 1.5 degrees Celsius,
compared to pre-industrial levels.
Runaway climate change – Where there is no limit placed on
carbon emissions and warming is set to reach 4°C above pre-
industrial levels.
We continue to constructively engage on issues and challenges
associated with climate change and climate policy with a consistent
and balanced approach that
is responsive to the needs of
stakeholders.
Decarbonisation
We continue to reduce greenhouse gas emissions and implement
initiatives to reduce greenhouse gas emissions in areas over which
we have control and influence.
Where practicable we seek to deploy mature and available
technology to reduce our greenhouse gas emissions and work with
industry and stakeholders to invest in knowledge and research to
identify pathways to address difficult, or as yet unsolved,
decarbonisation challenges.
We are committed to delivering on our targets:
• net zero greenhouse gas emissions by 2050;
•
•
the entire Coles Group to be powered by 100% renewable
electricity by the end of FY25; and
reduce combined Scope 1 and 2 greenhouse gas emissions by
more than 75% by the end of FY30 (from a FY20 baseline).
We are progressing work to assess and analyse our Scope 3 emissions
with the intention of developing a Scope 3 target.
Risk management
Through the application of the Coles Risk Management Framework,
climate change has been identified as a material business risk to the
Group.
During FY21, we commenced a high-level scenario analysis on the
impacts of climate change on the resilience of our Coles Group
strategy. The purpose of this analysis was to identify possible
responses to increase Coles’ resilience to future climate change
under three possible climate change 2030 scenarios:
1.
Stated policies – Assuming current government policies already
in place result in 3°C warming above pre-industrial levels.
As a result of our analysis and risk assessment, we acknowledge
climate change will impact aspects of our business to varying levels
under each of the assessed scenarios.
The scenario analysis work, which continues to be refined, identified
actions to support Coles’ resilience to potential climate change
impacts that can be undertaken as part of Coles’ future annual
strategy planning process. This was the first scenario analysis
conducted for Coles’ strategy and will continue to be developed and
analysed over time. As such, we will continue to review internal
processes to adapt and respond in alignment with our strategy.
During FY21, we also updated our assessment of Coles’ climate-
related risks and opportunities. This qualitative assessment applied
the risk management processes defined within Coles’ Risk
Management Framework and applied the same three climate change
scenarios used to conduct the high-level analysis on the resilience of
our Coles Group strategy. The risk assessment included interviews
and workshops with stakeholders across the Group including
Property, Export, Supply Chain, Product, Coles Brand, Coles Liquor,
Coles Express, Legal and Corporate Affairs.
Our most significant climate-related risks and mitigants are
presented in the following table, along with our approach to
managing them. They have been grouped into the two major
categories of climate-related risks identified by the TCFD: (1) risks
related to the transition to a lower-carbon economy and (2) physical
risks (acute and chronic). Many of the physical and transitional risks
identified are also considered to be material business risks which
can become further exacerbated by climate change.
The analysis of the risk exposures considers financial, reputational,
regulatory, and operational
health and safety,
consequences in the short term (0-3 years) and medium-long term
(5-10 years).
legal and
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45
Coles Group Limited 2021 Annual Report
Transition risks
Risk and impact
Mitigation plans
Corporate responsibility and stakeholder expectations
Coles has a responsibility to minimise the impact of our
operations on the environment. We also recognise that the
expectations and preferences of our team members, customers,
community, investors and NGOs are shifting in relation to
climate change and the environment. This includes enhanced
expectations around sourcing and selling sustainable and
ethically sourced products, improving energy efficiency, and
reducing greenhouse gas emissions and waste.
Potential financial impacts if we do not respond to these
stakeholder expectations appropriately include reduced
revenue due to reduced demand for goods and services,
increased costs due to loss of team members or third parties
with whom we do business, and loss in market share.
Changing policy and regulatory requirements
New and evolving climate-related regulations can result in
increased implementation or operational cost to deliver
compliance, including enhanced reporting requirements. It
could also result in breaches of requirements leading to fines
and penalties. In extreme circumstances it can lead to litigation.
Changing policies in existing and future markets may also
negatively impact our business, including but not limited to, the
introduction and/or expansion of trading taxes and barriers on
high emissions including carbon pricing.
Physical risks
Risk and impact
Health and safety
Increases in the frequency and intensity of extreme weather
events, and changes in weather patterns, can lead to increasing
health and safety risks to Coles team members, customers, and
third-party suppliers and providers.
This includes exposure to the risk of physical harm in the event
of acute weather events (e.g. floods, storms and fires); and
adverse health and wellbeing impacts as a result of chronic
changes to climate patterns (e.g. longer and more frequent
instances of drought, heat or precipitation) which can threaten
wellbeing and livelihood.
In March 2021 we launched Together to Zero, along with targets for
greenhouse gas emissions reduction and renewable electricity, and
our public-facing Climate Change Position Statement.
We have teams and processes in place to understand, monitor and
respond to the concerns and expectations of our key stakeholders
and society more broadly.
A roadmap has been developed and action has commenced to
enhance our climate change response and transition to a lower-
carbon economy.
We have governance arrangements in place to manage and monitor
development and progress of sustainability plans and initiatives,
including for climate change.
For further information please refer to our 2021 Sustainability Report.
Regulatory non-compliance is one of our material business risks and
is managed with regards to the risk appetite statements and key risk
indicators agreed by the Board.
The Coles Compliance Framework, which is based on AS ISO
19600:2015 Compliance Management Systems – Guideline, sets out
the standards, requirements and accountability for managing
regulatory compliance obligations across the Coles Group. We also
monitor new and impending legislative and policy changes.
We recently commenced a high-level scenario analysis on the
impacts of climate change on the resilience of our Group strategy
which will continue to be developed and analysed over time. This
analysis considered policy and regulation outcomes under three
possible climate change scenarios. Refer to the Risk Management
section for further information on this scenario analysis.
Mitigation plans
Health and safety is one of our material business risks and is
managed with regards to the risk appetite statements and key risk
indicators agreed by the Board.
The Coles Health, Safety and Injury Management system
(SafetyCARE) factors in the acute (for example bushfires) and chronic
impacts (for example heat fatigue) of climate change.
The system is supplemented by emergency management (our
response to physical threats or events as coordinated by the Health
and Safety team), and Coles Group Response Policy and Program,
which sets out the governance arrangements, accountabilities and
processes for crisis management and business continuity.
Learnings from incidents and events, and opportunities for
improvement, are identified and incorporated into our safety,
emergency management and response plans and processes.
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Coles Group Limited 2021 Annual Report Supply chain disruption
Our ability to procure, move and sell products domestically and
internationally, can be adversely impacted by the occurrence of
extreme weather events, and longer-term changes in weather
patterns.
Key impacts include disruptions to transportation and logistics
routes; and to the continuity of site, store, and distribution
centre operations, and third-party operations, due to acute
weather events. Chronic changes to weather patterns can
adversely impact supplier productivity and result in increasing
cost to operate (e.g. due to changing production regions for
fresh produce) and reduced revenues.
Security of supply is one of our material business risks and is
managed with regards to the risk appetite statements and key risk
indicators agreed by the Board.
We have business continuity plans to manage the supply chain and
delivery of goods to stores during extreme weather and business
disruptive events.
Medium and longer-term supply security risks and mitigations are
assessed on an ongoing basis as part of category planning. We also
continue to analyse Coles’ supply chain resilience in key food
categories including meat, dairy and seafood.
Food safety and quality
An increase in the frequency and severity of extreme weather
events and long-term shifts in climate patterns, can lead to food
safety and quality risks throughout the supply chain, including
changing persistence and occurrence of pests and diseases, and
lower than expected shelf-life for fresh produce.
Potential financial impacts include reduced revenue and
increased operating costs, along with potential harm to
customers’ health and wellbeing, customer dissatisfaction and
reputational damage.
Asset integrity and continuity of operations
Acute and chronic weather events can result in physical damage
to assets and equipment; and/or inability to access assets and
equipment. There may also be more frequent and prolonged
instances of power outages; and decreases in the efficiency and
disruption to operation of assets and equipment which are
sensitive to climate (e.g. refrigeration units, heating and
cooling).
Potential financial impacts include increased operating and
capital costs, increased insurance premiums, and write-offs or
impairment of assets.
Product and food safety is one of our material business risks and is
managed with regards to the risk appetite statements and key risk
indicators agreed by the Board.
Coles’ Food Safety Program, including recall and monitoring
processes, is updated to adapt to changing conditions.
We work with suppliers, industry and regulators to understand and
anticipate new and incremental risks.
We have governance arrangements in place to manage and monitor
emerging and current food and product safety risks, and our plans to
manage them.
Crisis management, business continuity and emergency response
plans are in place to mitigate potential disruptions. These plans are
updated on a regular basis to take account of changing internal and
external risks and conditions.
Store design specifications consider future conditions to improve
their resilience in extreme conditions. We have an ongoing
maintenance and asset replacement program to make sure we
progressively maintain and replace our assets when required.
Insurance arrangements are in place for property and business
interruption (subject to policy terms, conditions and exclusions).
In addition, consideration has been given to the potential financial impacts of climate change related risks on the amounts reported in the
financial statements through a qualitative review of the Group’s climate change risk assessment. This review did not identify any material
financial reporting impacts.
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
47
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Our most significant climate-related opportunities are presented in the following table:
Climate change opportunities and actions
Opportunities
Actions
Resource efficiency and energy management
To continue to improve our resource efficiency and energy
management and seek opportunities to use lower emission
sources of energy.
Ongoing reduction in operational greenhouse gas footprint
To continue to reduce greenhouse gas emissions and
implement initiatives to reduce greenhouse gas emissions in
areas over which we have control and influence.
• Ongoing implementation of our Energy Strategy which guides our
approach to energy procurement, energy management, energy
efficiency, renewable energy, and energy-related greenhouse gas
emissions.
• To support our FY25 renewable electricity commitment, during
FY21 we announced the following agreements:
– An agreement with ENGIE – the largest independent power
producer in the world – to purchase large-scale generation
certificates (LGCs) from ENGIE’s Willogoleche and Canunda
Wind Farms, in South Australia.
– An agreement with French energy producer Neoen to purchase
LGCs from its portfolio of renewable power plants located
across New South Wales, Queensland, Victoria and South
Australia.
– An agreement with Lal Lal Wind Farms near Ballarat, Victoria,
to purchase LGCs.
– An agreement with CleanCo to source more than 90% of Coles’
Queensland electricity requirements.
These agreements are in addition to those reported in our
FY20 Sustainability Report when Coles became the first major
Australian retailer to commit to buying renewable energy through
a 10-year Power Purchase Agreement (PPA) with global renewable
power generation company MYTILINEOS RSD (previously known
as METKA EGN).
• Enhancement of sustainability features in the store design
blueprint, such as doors on fridges and optimising lighting.
• Ongoing
implementation of our refrigeration management
approach which includes investing in natural refrigerant gases –
natural gas compounds that have little or no impact on the ozone
layer and do not contribute to greenhouse gas emissions.
• During FY21, we
launched our refurbished Moonee Ponds
supermarket. While we have used natural refrigerants in some new
supermarkets, this is our first refurbished supermarket in which
we have installed this system, a complex process to undertake in a
store still trading during the upgrade.
•
In FY21, Coles Liquor trialed the first natural refrigerant inside a
standalone system design.
• Deliver targets for renewable energy and to reduce greenhouse
gas emissions. More details can be found in the section – Metrics
and Targets.
• Engagement with suppliers and service providers to identify
opportunities to innovate and develop low emissions products
and services.
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Coles Group Limited 2021 Annual Report
Coles Group Limited 2021 Annual Report
Supporting Australian producers
Coles Nurture Fund support since 2015
Since 2015, more than 80 Australian producers have now
received financial support from the Coles Nurture Fund to drive
sustainability, innovation and growth. Coles General Manager
Meat, Charlotte Gilbert is pictured with Deborah and Phil Reid
from Paringa Gold, at Capella, Queensland, who were awarded a
$450,000 Coles Nurture Fund grant to construct water storage
and install dedicated milling equipment and bunkers to ferment
locally-grown sorghum to feed their cattle.
$28 million
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM
Coles Group Limited 2021 Annual Report Increased operational resilience, supply chain resilience and business continuity planning
We will build the resilience of our business, our community and
our value chain against climate impacts, both physical and
transitional.
Stakeholder engagement
To seek out opportunities to work together with our team
members, suppliers, customers and communities to create
positive change. Our aim is to find constructive and proactive
approaches to reduce emissions, develop resilience to climate
impacts and build momentum towards the aims of the Paris
Agreement. We will constructively engage on issues and
challenges associated with climate change and climate policy
with a consistent and balanced approach that is responsive to
the needs of stakeholders.
Industry partnerships and membership
To work with industry and stakeholders to invest in knowledge
and research to identify pathways to address difficult or as yet
unsolved decarbonisation challenges.
• Ongoing update of our emergency management plans and
business continuity plans, including plans to manage the supply
chain and delivery of goods to stores during extreme weather and
business disruptive events.
• Working with strategic suppliers to scope initiatives for our most
exposed commodities.
• Provision of support to suppliers through grants for climate change
adaptation and mitigation initiatives via Coles Nurture Fund.
• We will continue to engage with stakeholders to influence climate
change action. In FY21, this included the launch of Together to zero
emissions where we engaged with many stakeholders to progress
and promote this ambition. It was a key focus of our bi-annual
Investor Day, our annual team member Sustainability Week and
has been promoted with suppliers in various forums. It was also
promoted at the
launch of our refreshed Moonee Ponds
supermarket, in advertising and online.
• Participation in the Australian Beef Sustainability Framework, an
initiative of the Red Meat Advisory Council managed by Meat and
Livestock Australia. We consider the framework the most
appropriate way to address climate and environmental issues
facing the beef industry (such as emissions reduction and
deforestation) from a national and industry-wide perspective.
• During FY21, we became a corporate member of the Carbon
Market Institute and our Chief Executive Officer joined the Climate
Leaders Coalition.
Work will continue in FY22 to further explore climate-related risks and opportunities referenced above and determine how these will be
addressed through our sustainability initiatives.
Metrics and targets
During FY21, we announced targets to reduce greenhouse gas emissions, including the following commitments:
•
•
•
to deliver net zero greenhouse gas emissions by 2050;
for the entire Coles Group to be powered by 100% renewable electricity by the end of FY25; and
to reduce combined Scope 1 and 2 greenhouse gas emissions by more than 75% by the end of FY30 (from a FY20 baseline).
As a result of the five agreements in place with renewable electricity providers, Coles has already committed to purchasing more than 70% of
the renewable electricity required to meet its FY25 target1 once the agreements commence.
Our main sources of Scope 1 (direct) emissions include emissions from refrigerant gases, natural gas, transport fuel, stationary LPG and
diesel for onsite back-up generators, while Scope 2 (indirect) emissions are those associated with electricity use. Scope 3 emissions are
indirect emissions (not included in Scope 2) that occur in Coles’ value chain.
We measure and report on Scope 1 and Scope 2 greenhouse gas emissions in line with the National Greenhouse and Energy Reporting
Scheme (NGERS) requirements. NGERS requires companies to report annually each October. As such, metrics, including greenhouse gas
metrics, are included in our 2021 Sustainability Report.
During FY21, we continued work to better understand our Scope 3 emissions. This work will continue in FY22 with development of a Scope 3
emissions inventory, planned to support our intention of developing a Scope 3 target. We will also progress work on determining boundaries
and identifying key areas to address as a priority.
Our climate change response and disclosures are not static. They will continue to evolve as we further understand implications to our
business and the community more broadly. We are committed to working together with our stakeholders to help realise our ambition of
Together to zero emissions, as detailed in our sustainability strategy.
1 FY25 electricity use has been calculated based on expected electricity growth compared with FY20.
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Coles Group Limited 2021 Annual Report Board of Directors:
Biographical Details
James Graham AM
BE (Chem) (Hons), MBA, FIEAust EngExec, FTSE, FAICD, SF Fin
David Cheesewright
BSc Mathematics and Sports Science (1st)
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Chairman and Non-executive Director, Chairman of the Nomination
Committee and Member of the People and Culture Committee
Non-executive Director, Member of the Nomination Committee and
the People and Culture Committee
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Age: 73
Age: 59
James Graham has extensive business, investment, corporate and
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 previously Managing
Director of Rothschild Australia Limited. James was made a member
of the Order of Australia in 2008.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Wesfarmers Limited (May 1998 to July 2018)
Steven Cain
MEng (1st)
Managing Director and CEO
Age: 56
Steven Cain has over 20 years of 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. Steven was also the
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 over a million associates 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), CEO Walmart Canada, and
COO Asda. David’s other prior roles include a range of key positions
with Mars Confectionery in the UK across manufacturing, marketing,
sales and logistics. David is also a previous board member of Walmex
(Walmart Mexico), Chinese online grocery business Yihaodian, South
African retailer and distributor Massmart, The Retail Council of
Canada and ECR Europe and is a prior Chair of Walmart Canada Bank
and Gazeley Holdings (UK). David currently sits on the Deans Advisory
Board of the Smith Business School and is a Non-executive Director
of Rapha Racing (UK).
Jacqueline Chow
MBA, BSc (Hons), GAICD
Non-executive Director, Member of the Nomination Committee and
the Audit and Risk Committee
Age: 49
Jacqueline Chow is a Non-executive Director of nib Holdings Limited,
Charter Hall Group and a Senior Advisor at McKinsey Consulting RTS,
advising clients across
industrial, retail, telecommunications,
financial services and consumer sectors on performance
transformation projects. She is also a Director of the Australia-Israel
Chamber of Commerce of New South Wales. From 2016 to 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 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 and
Deputy Chair, Global Dairy Platform Inc.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of nib Holdings Limited (since April 2018);
Charter Hall Group (since February 2021)
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DRAFT 2 COL1858_AR_2021_d2a September 16, 2021 9:39 PM
Coles Group Limited 2021 Annual Report
Abi Cleland
MBA, BCom/BA
Paul O’Malley
BCom, M.AppFinance, ACA
Non-executive Director, Member of the Nomination Committee and
the People and Culture Committee
Non-executive Director, Chairman of the Audit and Risk Committee
and Member of the Nomination Committee
Age: 47
Age: 57
Abi Cleland is currently a Non-executive Director of Computershare
Limited, Sydney Airport Corporation Limited and Orora Limited. Abi
was previously Chair of Planwise AU, a director of Swimming Australia
and on the Lazard PE Fund advisory committee. 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
Banking Group Limited, Incitec Pivot Limited and Amcor Limited.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Computershare Limited (since February
2018); Sydney Airport Corporation Limited (since April 2018); Orora
Limited (since February 2014)
Richard Freudenstein
LLB (Hons), BEc
Non-executive Director, Chairman of the People and Culture
Committee and Member of the Nomination Committee
Age: 56
Richard Freudenstein is a Non-executive Director and Chairman-
elect of Appen Limited as well as a Non-executive Director of REA
Group Limited (where he was Chairman from 2007 to 2012). He is also
a board member of Cricket Australia, Deputy Chancellor of the
University of Sydney and a member of the Advisory Board of artificial
intelligence software company, Afiniti. 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 Astro Malaysia Holdings
Berhad (2016 to 2019).
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Appen Limited (since August 2021); REA
Group Limited (since November 2006); Astro Malaysia Holdings
Berhad (September 2016 to August 2019)
Paul O’Malley is a Non-executive Director of Commonwealth Bank of
Australia Limited. He was Managing Director and Chief Executive
Officer of BlueScope Steel Limited from 2007 to 2017, after joining the
company as Chief Financial Officer. Paul was previously the Chief
Executive Officer of TXU Energy, a subsidiary of TXU Corp based in
Dallas, Texas. He held other senior financial management roles
within TXU and previously worked in the investment banking and
consulting sectors. Paul is a former Director of the Worldsteel
Association, Chair of their Nominating Committee and Trustee of the
Melbourne Cricket Ground Trust. He currently serves as the Chairman
for Australian Catholic Redress Ltd.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Commonwealth Bank of Australia Limited
(since January 2019)
Wendy Stops
BAppSc (Information Technology), GAICD
Non-executive Director, Member of the Nomination Committee and
the Audit and Risk Committee
Age: 60
Wendy Stops is a Non-executive Director of Blackmores Limited,
Director of Fitted for Work, a Council member at the University of
Melbourne, Chair of the Advisory Board for the Melbourne Business
School’s Centre for Business Analytics, a member of the AICD’s
Governance of Innovation and Technology Panel and a member of
the Advisory Committee to the Digital Technology Taskforce of the
Department of Prime Minister and Cabinet. Wendy was previously a
senior management executive in the information technology and
consulting sectors, including her last 16 years with Accenture in
various senior management positions in Australia, Asia Pacific and
globally. Her previous board experience includes Commonwealth
Bank of Australia Limited, Altium Limited, Accenture Software
Solutions Australia and Diversiti. She is currently a member of Chief
Executive Women and a Graduate of the AICD.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Blackmores Limited (since April 2021);
Commonwealth Bank of Australia Limited (March 2015 to October
2020); Altium Limited (February 2018 to November 2019)
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Coles Group Limited 2021 Annual Report
Directors’ Report
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The Directors present their report on the consolidated entity consisting of Coles Group Limited (‘the Company’) and its controlled entities at
the end of, or during, the financial year ended 27 June 2021 (collectively, ‘Coles’ or ‘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
the Remuneration Report
• Board of Directors: Biographical Details
• Note 7.3 Auditor’s remuneration to the financial statements accompanying this report
• Note 7.5 Events after the reporting period to the financial statements accompanying this report
•
the Auditor’s Independence Declaration required under section 307C of the Corporations Act 2001 (Cth).
Directors
The Directors in office as at the date of this report are:
NAME
POSITION HELD
PERIOD AS A DIRECTOR
James Graham AM
Chairman and Independent, Non-executive Director
Appointed 19 November 2018
Steven Cain
Managing Director and Chief Executive Officer
Appointed Chief Executive Officer 17 September 2018
Appointed Managing Director 2 November 2018
David Cheesewright
Independent, Non-executive Director
Jacqueline Chow
Independent, Non-executive Director
Abi Cleland
Independent, Non-executive Director
Richard Freudenstein
Independent, Non-executive Director
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Appointed 19 November 2018
Paul O’Malley
Wendy Stops
Independent, Non-executive Director
Appointed effective 1 October 2020
Independent, Non-executive Director
Appointed 19 November 2018
The biographical details of the current Directors set out information about the Directors’ qualifications, experience, special responsibilities
and other directorships.
The following person was also a Director during FY21:
NAME
POSITION HELD
PERIOD AS A DIRECTOR
Zlatko Todorcevski
Independent, Non-executive Director
Appointed 19 November 2018 and retired
30 September 2020
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).
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Coles Group Limited 2021 Annual Report
Directors’ meetings
The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the
Directors of the Company during the financial year are listed below:
DIRECTOR – CURRENT1,2
Held
Attended
Held
Attended
Held
Attended
Held
Attended
BOARD
AUDIT AND RISK
COMMITTEE
PEOPLE AND CULTURE
COMMITTEE
NOMINATION
COMMITTEE
James Graham
Steven Cain
David Cheesewright
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Paul O’Malley3
Wendy Stops
DIRECTOR – FORMER
Z Todorcevski4
14
14
14
14
14
14
11
14
3
14
14
14
14
14
14
11
14
3
5
3
5
2
5
3
5
2
5
5
5
5
5
5
5
5
2
2
2
2
2
1
2
1
2
2
2
2
2
1
2
1
1
2
3
‘Held’ indicates the number of meetings held during the period that the Director was a member of the Board or Committee.
‘Attended’ indicates the number of meetings attended during the period that the Director was a member of the Board or Committee.
Mr O’Malley was appointed as a Non-executive Director of Coles Group Limited, Chairman of the Audit and Risk Committee and a member of the Nomination Committee with effect from
1 October 2020.
4 Mr Todorcevski retired as a Non-executive Director of Coles Group Limited on 30 September 2020.
Directors’ shareholdings in the Company
Details of Directors’ shareholdings in the Company 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
Paul O’Malley
Wendy Stops
NUMBER OF SHARES HELD1
500,188
50,000
20,000
20,000
19,816
19,000
3,809
25,000
1
The number of shares held refers to shares held either directly or indirectly by Directors as at 18 August 2021. Refer to the Remuneration Report tables for total shares held by Directors and their
related parties directly, indirectly or beneficially as at 27 June 2021.
2
As at 18 August 2021, Steven Cain also holds 85,057 Restricted Shares, 85,057 Performance Shares, 75,866 STI Shares and 499,034 Performance Rights.
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. No significant changes have occurred
in the nature of these activities during the financial year.
State of affairs
There have been no significant changes in Coles’ state of affairs during the financial year.
Review and results of operations
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).
54
DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM
Coles Group Limited 2021 Annual Report 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 any likely material detriment to the Group, for example, information that 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.
Events after the reporting date
On 18 August 2021, the Directors determined a final dividend of 28.0 cents per fully paid ordinary share to be paid on 28 September 2021, fully
franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paid out of profits, but not recognised as a liability
at 27 June 2021, is expected to be $374 million.
Dividends
Dividends since Coles’ last Annual Report:
TYPE
Paid during the year
2020 final dividend
2021 interim dividend
To be paid after end of year
2021 final dividend
CENTS PER SHARE
TOTAL AMOUNT
$M
FRANKED
PERCENTAGE
DATE OF PAYMENT
27.5
33.0
28.0
367
440
374*
100%
100%
29 September 2020
26 March 2021
100%
28 September 2021
NOTE
3.3
$M
807
DEALT WITH IN THE FINANCIAL REPORT AS
Dividends paid
*
Estimated final dividend payable, subject to variations in the number of shares up to the record date.
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.
The Group has not incurred any significant liabilities under any environmental legislation during the financial year.
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 while 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 or any of its subsidiaries, 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.
Indemnification of auditors
Pursuant to the terms of engagement the Company has with its auditors, Ernst & Young (EY), the Company 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 the Company. No payment has been made to EY by the Company
pursuant to this indemnity, either during or since the end of the financial year.
55
DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM
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Coles Group Limited 2021 Annual Report
Non-audit services and auditor’s independence
Details of the non-audit services undertaken by, and amounts paid to, EY are detailed in Note 7.3 Auditor’s remuneration to the financial
statements.
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 forms part of this report.
Proceedings on behalf of the Company
No application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of the Company, and there are no proceedings
that a person has brought or intervened in on behalf of the Company 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
million 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
18 August 2021
Steven Cain
Managing Director and Chief Executive Officer
18 August 2021
56
DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM
Coles Group Limited 2021 Annual Report Remuneration Report
Letter to shareholders from the
Chair of the People and Culture Committee
Dear Shareholder,
On behalf of the Board, I am pleased to present the FY21 Remuneration Report for Coles Group Limited (‘the Company’) and its controlled
entities (together, ‘Coles’, ‘Coles Group’ or ‘the Group’). The Remuneration Report provides 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.
Our vision to be the most trusted retailer in Australia and grow long-term shareholder value
Coles has continued to pursue its vision to ‘become the most trusted retailer in Australia and grow long-term shareholder value’.
The Coles management team led by Managing Director and CEO, Steven Cain, has continued to deliver against the commitments made to our
customers and our shareholders amid the backdrop of ongoing lockdowns, border closures, restrictions, and economic uncertainty.
Notwithstanding the challenges and opportunities presented by the COVID-19 pandemic, Coles remains on track with our ‘Winning in our
second century’ strategy, with several key achievements across FY21 including:
Inspire Customers
• Our focus on building advocacy and trust with our customers has resulted in continued improvements in our key customer metrics
across all segments;
• We specifically progressed our trusted and targeted value strategy, placing a net 474 new products on everyday low prices during the
year, supporting improvements in the ‘competitively priced’ customer metric;
Smarter Selling
• Our Smarter Selling transformation program has delivered benefits of approximately $300 million in FY21. Since the launch of the
Smarter Selling program in FY19, in excess of $550 million of Smarter Selling benefits have been delivered and we are on track to deliver
$1 billion of benefits by the end of FY23;
• Smarter Selling benefits have enabled the business to partially offset underlying inflation and strategically reinvest back into the
business in areas such as customer service, eCommerce, and technology;
• Our tailored store format strategy continued during the year completing 65 renewals including 10 Format A, 36 Format C and four Coles
Local supermarkets;
Win Together
• We launched our ‘Together to Zero’ and ‘Better Together’ sustainability strategy. ‘Together to Zero’ sets our ambitions across key
sustainability areas of climate change, waste and hunger. ‘Better Together’ recognises that when we work together, we can make a real
difference to our team, our suppliers, our customers and to the communities in which we live and work;
• Our safety metrics continued to improve during the year. This was supported by the ongoing implementation of safety programs across
the business, a focus on the mental health and wellbeing of our team members, and investments to keep our customers and our team
members safe during COVID-19 outbreaks;
• We maintained strong team member engagement, despite a small step back compared to our highest ever engagement scores achieved
in FY20; and
• Beyond providing our customers with confidence that we could supply essential goods during the peaks of the pandemic, we continued
to support our charity partners and the communities in which we serve through organisations such as SecondBite, Foodbank, Redkite
and FightMND.
57
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information Outcomes for FY21
Company performance was strong against all financial metrics included in the Executive KMP short-term incentive (STI) balanced scorecards
for FY21. Performance against each of the financial metrics exceed the targets set by the Board, noting however that Group sales revenue was
positively impacted by COVID-19. Group sales revenue (adjusted retail basis) increased by 3.5% to $39,427 million, with earnings before
interest and tax (EBIT) (pre AASB 16 and significant items) increasing by 8.4% to $1,504 million.
Performance was also strong against strategic and non-financial metrics, in the areas of safety, customer, Smarter Selling and transformation
projects that underpin the long-term sustainability of our business. As noted above, while our team member engagement results stepped
back from the record increase in 2020, we remain on track and focused on our longer-term targets to improve engagement.
For FY21, the Board considered the STI outcomes in the context of the achievements and challenges of the year that unfolded. Section 4.4
covers the achievements in more detail and includes a summary of the Board’s approach to determining the final STI payable for Executive
KMP. The Board has chosen to exercise discretion to normalise the outcome against the Group sales metric in consideration of the positive
impacts of COVID-19. Accordingly, performance against the Group sales metric was calculated on an underlying basis, which resulted in this
metric being assessed as just above target, rather than meeting full stretch performance. This resulted in STI outcomes for the Executive KMP
being between 85.3% and 91.9% of the maximum STI opportunity. Due to the strong financial discipline of management, COVID-19 cost
impacts were minimised, and Group EBIT achieved stretch performance on both an actual and underlying basis. Therefore, the Board did not
make any adjustments on the calculated STI outcomes with respect to the Group EBIT metric. The Board believes the final STI outcomes
reflect the significant achievements delivered by management against the commitments made to shareholders and the unprecedented
impact of COVID-19.
Under the remuneration framework, 50% of the Managing Director and CEO’s STI award will be deferred into equity for two years, and 25% of
the Other Executive KMP STI awards will be deferred into equity for one year.
In addition to STI outcomes, the transitional LTI award granted to the Executive KMP in FY19, was tested at the end of FY21. This award had
two performance metrics. The first metric was cumulative EBIT with a ROC gateway. The targets set were fully achieved, with 100% of the
performance shares linked to this metric approved to vest. The second metric was relative TSR. Performance was assessed at the 72.6
percentile against the comparator group, with 95.3% of performance shares linked to this metric approved to vest. This resulted in an overall
outcome of 97.6% of the FY19-21 LTI award approved to vest.
The FY19-21 LTI was a one-off award granted at the time of the demerger. Since that time, Coles has implemented a performance rights long
term incentive award as detailed in the FY19 and FY20 Remuneration Reports, and as outlined in section 4.5 of this report.
Looking ahead
The Board regularly reviews the appropriateness of our remuneration and incentive frameworks and the applicable performance metrics.
With respect to the FY22 STI, the Board has decided to change a strategic performance metric for the Managing Director and CEO. Whilst
‘Smarter Selling’ will remain a key metric for all Other Executive KMP, it will be replaced in the Managing Director and CEO’s balanced scorecard
with a metric focused on the FY22 key deliverables critical to the successful delivery of the Ocado program.
The Board is very conscious of the extraordinary efforts made by all Coles team members during this pandemic centric year, and believes that
the remuneration outcomes appropriately reflect achievements in FY21.
Richard Freudenstein
Chair of the People and Culture Committee
58
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Introduction
The Directors of Coles Group Limited (‘the Company’) present the Remuneration Report for the Company and its controlled entities (together,
‘Coles’, ‘Coles Group’ or ‘the Group’) for the financial year ended 27 June 2021 (‘FY21’). This Remuneration 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.
This Remuneration Report covers the period from 29 June 2020 to 27 June 2021.
Structure of this report
The Remuneration Report is divided into the following sections:
SECTION
(1) Key Management Personnel
(2) Remuneration governance
(3) Remuneration policy and structure overview
(4) FY21 Executive KMP remuneration outcomes
(5) FY21 Non-executive Director remuneration
(6) Ordinary Shareholdings
Section 1: Key Management Personnel
The Group is required to prepare a Remuneration Report in respect of the Group’s Key Management Personnel (‘KMP’), being the people who
have the authority and responsibility for planning, directing, and controlling the Group’s activities, either directly or indirectly. This includes
the Board of Directors and Executive KMP.
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 Group during FY21.
Table 1 KMP of the Group during FY21
Non-executive Directors
NAME
James Graham AM
David Cheesewright
Jacqueline Chow
Abi Cleland
Richard Freudenstein
Paul O’Malley2
Wendy Stops
Zlatko Todorcevski3
POSITION HELD1
Chairman and Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
1 Unless noted otherwise, all Non-executive Directors were in office during the full financial year and up to the date of this report.
2 Mr O’Malley was appointed to the Board effective 1 October 2020.
3 Mr Todorcevski retired from the Board effective 30 September 2020.
Executive KMP
NAME
Steven Cain
Leah Weckert
Greg Davis
Matthew Swindells
POSITION HELD1
Managing Director and Chief Executive Officer
Chief Financial Officer
Chief Executive, Commercial & Express
Chief Operations Officer
1
All Executive KMP were in office during the full financial year and up to the date of this report.
Remuneration Report (Audited)
59
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information
Section 2: Remuneration Governance
2.1 Governance framework
The diagram below provides an overview of the remuneration governance framework that has been established by the Group. Further
information regarding the membership and meetings of the People and Culture Committee is provided in the Directors’ 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 FY21 Mercer provided independent benchmarking in relation to executive remuneration to the People and Culture Committee. No
remuneration recommendations were made by external consultants.
The Board
The Board maintains overall accountability for oversight of the Group’s remuneration policies to make sure that they are aligned with
the Group’s vision, values, strategic objectives, and risk appetite. The Board approves all remuneration and benefit arrangements as
they relate to the Managing Director and CEO and executive-level direct reports to the Managing Director and CEO (‘Executive Direct
Reports’), having regard to the recommendations made by the People and Culture Committee, and the remuneration arrangements for
Non-executive Directors.
The Board maintains absolute discretion to either positively or negatively adjust the remuneration outcomes for the Managing Director
and CEO and Executive Direct Reports. The Board will use its discretion based on the provision of supporting data and their assessment
of performance aligned to the Group’s values and LEaD behaviours, risk, compliance, reputational, safety and sustainability
considerations as well as the quality of earnings delivered.
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 Direct
Reports.
People and Culture Committee
External advisers
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 Direct
Reports.
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, the
Managing Director and CEO, and Executive Direct Reports;
the annual performance review of the Managing Director and
CEO and Executive Direct Reports;
remuneration outcomes for the Managing Director and CEO and
Executive Direct Reports; and
• delegating authority for the operation and administration of all
Group incentive and equity plans to management (as
appropriate).
Management
Management makes recommendations, to the People and Culture
Committee on matters including (but not limited to):
•
remuneration arrangements of Executive Direct Reports,
including the establishment of any new, or amendment to the
terms of any existing, incentive and equity plans;
• annual performance review of Executive Direct Reports; and
• changes to the Group’s remuneration policies.
Remuneration Report (Audited)
60
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 2.2 Corporate governance policies related to remuneration
To support a robust remuneration framework, the Group has a number of corporate governance policies related to remuneration, including
those outlined below.
2.2.1 Securities Dealing Policy
Coles has adopted a Securities Dealing Policy that applies to all Group team members including Non-executive Directors and Executive KMP
and their connected persons, as defined within the policy. This policy sets out the insider trading laws with which all Group team members
must comply along with specific restrictions with which KMP must comply, including obtaining approval prior to trading in the Group’s
securities and not trading within blackout periods. The policy aims to protect the reputation of the Group and maintain confidence in trading
in the Group’s securities. It also prohibits specific types of transactions being made which are not in accordance with market expectations or
may otherwise give rise to reputational risk.
2.2.2 Minimum Shareholding Policy
To build strong alignment between KMP and shareholders, the Group has established a Minimum Shareholding Policy. The policy requires
both Executive KMP and Non-executive Directors to build and maintain a significant shareholding in the Group.
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. The details of each Executive KMP
shareholding are summarised in Table 13.
In addition to Executive KMP, this policy also applies to all other Executive Direct Reports.
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 their 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 satisfies this requirement.
Within five years of appointment, each Non-executive Director is expected to increase their shareholding to an amount equivalent to 100% of
their annual base fee at that time. The details of each Non-executive Director’s shareholding are summarised in Table 12.
Section 3: Remuneration policy and structure overview
3.1 Remuneration policy for FY21
Our remuneration framework, introduced in FY20, is aligned to our ‘Winning in Our Second Century’ strategy and is guided by our remuneration
principles. It is designed to ensure remuneration at the Group is market competitive, performance-based, creates long-term value for
shareholders, and is fit-for-purpose.
The People and Culture Committee believes the framework is appropriately aligned to our strategy and the interests of our shareholders.
Market competitive
Performance-based
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.
A strong link to performance-
based pay to support the
achievement of strategy
aligned to 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 the Group operates. It
needs to be simple to
articulate, drive the right
behaviours and ensure we
deliver on our strategy.
Remuneration Report (Audited)
61
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information 3.2 Delivered through a simple, three-element structure:
Executive KMP remuneration is delivered using both fixed and variable (at-risk) components as outlined below.
Specific performance measures and outcomes for FY21 are included in section 4. Details of prior years’ remuneration, including performance
measures and outcomes, are set out in the Remuneration Report contained in the relevant prior years’ Annual Reports, which are available
on our website.
How it is
delivered
How it works
Fixed elements
Variable elements
Total Fixed
Compensation (TFC)
Short-term incentive (STI)
Long-term incentive (LTI)
Cash
Cash
Equity (Shares)
Equity (Performance Rights)
• 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
• delivered in Performance Rights, subject
= Managing Director and CEO 50% deferred into
shares and restricted for 2 years
= Other Executive KMP 25% deferred into shares
and restricted for 1 year
• opportunity levels (all Executive KMP):
= 80% of TFC at Target
= 120% of TFC at Maximum
to a 3-year Performance Period
• opportunity levels:
= Managing Director and CEO 175% of TFC
= Other Executive KMP 150% of TFC
• measured against:
= 50% Relative TSR (RTSR)
(ASX 100 comparator group)
• measured against an individual balanced
= 50% cumulative Return on Capital (ROC)
scorecard consisting of:
= 60% financial measures
= 40% strategic and non-financial measures
•
includes a mixture of group and functional
strategic measures
• 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 shareholder value
The graphic below demonstrates the award delivery time horizons which continue to apply in FY21.
C
F
T
I
T
S
I
T
L
Performance period (1 year)
Salary paid during the year
Performance period (1 year)
Other Executive KMP – 75% paid in cash
1-year vesting period
Other Executive KMP – 25% deferred into Shares held in restriction for 1 year
MD & CEO – 50% paid in cash
2-year vesting period
MD & CEO – 50% deferred into Shares held in restriction for 2 years
Performance period (3 years)
Performance Rights vest subject to performance hurdles being met
Financial Year 1
Financial Year 2
Financial Year 3
Financial Year 4
Remuneration Report (Audited)
62
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
3.3 FY21 target remuneration mix for Executive KMP
The FY21 remuneration mix at target for the Executive KMP is outlined below:
Chart 1
Managing Director and CEO
Other Executive KMP
50%
28%
11%
11%
TFC
STI Cash
STI Equity
LTI
3.4 Executive KMP service agreements
30%
46%
18%
6%
TFC
STI Cash
STI Equity
LTI
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.
Table 2 Executive KMP employment contracts
NAME
Steven Cain
Leah Weckert
Greg Davis
Matthew Swindells
NOTICE PERIOD1
RESTRAINT OF TRADE
12 months
12 months
6 months
6 months
12 months
12 months
6 months
6 months
1
Executive KMP can be terminated without notice if they are 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. The Group may also make a payment
in lieu of notice.
Section 4: FY21 Executive KMP remuneration outcomes
4.1 Company performance
This section of the report provides an overview of how the Company’s performance for FY21 has driven remuneration outcomes for our
Executive KMP.
The remuneration framework at the Group has been designed to reward Executive KMP for their contribution to the collective performance
of the Company and to support the alignment between the remuneration of Executive KMP and shareholder returns.
Table 3 summarises key indicators of Company performance and relevant shareholder returns over FY21.
As the Group listed on the ASX on 21 November 2018, it is not possible to address the statutory requirement that the Group provides a five-
year discussion of the link between performance and remuneration. This table will continue to be expanded each year in order to provide the
required comparative metrics for the financial years in which the Group was listed.
Remuneration Report (Audited)
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information
Table 3 Key Company performance indicators
FINANCIAL SUMMARY
Group Earnings Before Interest and Tax (EBIT)
Group EBIT (pre-AASB16 and significant items)
Group Sales Revenue1
Group Sales Revenue (adjusted retail basis)2
Coles Online Sales (retail basis)
Return on capital (ROC)3
ROC (pre-AASB16 and significant items)3
Dividends paid per ordinary share during the financial year (cents)4
Dividends determined in respect of the financial year (cents)5
Closing share price (as at end of financial year)6
Total shareholder return (TSR) (%)7
YEAR ENDED
27 JUNE 2021
YEAR ENDED
28 JUNE 2020
YEAR ENDED
30 JUNE 2019
$1,873m
$1,504m
$38,562m
$39,427m
$1,975m
16.0%
39.1%
60.5
61.0
$16.83
3.9%
$1,762m
$1,387m
$37,408m
$38,109m
$1,301m
15.2%
35.2%
65.5
57.5
$16.79
31.7%
$1,467m
$1,343m
$35,001m
$35,741m
$1,101m
n/a
32.9%
-
35.5
$13.35
6.9%
1
Retail sales reflect the retail calendar period and from FY19 exclude Fuel sales and Hotels sales. Fuel sales have been removed as the Group now recognises commission income following
commencement of the New Alliance Agreement in March 2019; Hotels sales have been removed to reflect no economic interest in this business since April 2019.
2
3
4
5
6
7
Retail sales adjusted to include concession sales and remove flybuys costs.
ROC is Group EBIT divided by capital employed. Capital employed is calculated on a rolling average basis (seven months in FY19).
The dividends paid per ordinary share reflect the dividends shareholders received within each financial period. Dividends paid within each financial year does not reflect the dividends determined for
the same financial year due to the dividend payment date. The Dividends paid in FY20 includes the special dividend of 11.5 cents per share determined by Directors in FY19. The final dividend
determined by Directors for FY21 was 28.0 cents per share to be paid on 28 September 2021 (FY22).
The dividends determined in respect of the financial year reflect the dividends determined for the financial year irrespective of the dividend payment date.
The opening share price on listing on the ASX on 21 November 2018 was $12.49.
TSR is calculated as the change in share price during the financial year, plus dividends reinvested on the respective ex-dividend dates.
4.2 Board oversight of remuneration outcomes
The Board maintains absolute discretion to ensure that remuneration outcomes are appropriate in the context of the Company’s performance,
our customer experience and shareholder expectations. The Board has discretion in evaluating the achievement against performance
measures, including to adjust for unusual factors. The steps undertaken by the Board to inform their decisions with respect to remuneration
outcomes for FY21 are further outlined in sections 4.3 to 4.5.
4.3 Total fixed compensation (TFC)
TFC is designed to be competitive to attract, motivate and retain the right talent. The TFC for Executive KMP is compared to the ASX 10-40
(based on market capitalisation) benchmark group, as well as both local and international retailers, and targeted at the 50th percentile of this
peer group for comparable roles. This approach to benchmarking has remained unchanged since FY19.
At the start of FY21, the Board conducted a review of Executive KMP TFC and total remuneration packages against the comparator group. This
was informed by a detailed benchmarking exercise conducted by Mercer. Considering the review outcomes, the Board determined that it was
appropriate to award an increase in TFC to Mr Swindells, effective from 1 October 2020. This increase was reflective of Mr Swindells’ relative
market positioning in the benchmarking peer group and his performance since becoming Chief Operating Officer at the start of FY20. There
were no other TFC increases for Executive KMP in FY21.
A review of fixed remuneration will be conducted in FY22 in line with our remuneration principles. Any approved changes will be disclosed in
our FY22 Remuneration Report.
4.4 Short-term incentive (STI)
The Group’s STI rewards Executive KMP for the achievement of key short-term performance measures.
The FY21 STI payable for the Executive KMP was assessed against individual balanced scorecards consisting of Financial, Strategic and Non-
financial metrics. Financial metrics were set on a pre AASB16 basis for FY21. The scorecards also include a mix of group and functional
Strategic metrics. The balanced scorecard approach for Executive KMP provides a simple and transparent approach to highlighting
performance priorities, measuring performance outcomes against each weighted metric, and provides clarity regarding the connection
between the performance assessment and reward outcomes.
The scorecards also include a ‘Quality and Behaviour’ overlay which considers:
• how the Executive KMP achieved performance aligned to the Group’s values and LEaD behaviours;
•
•
risk, compliance, and reputational matters; and
the quality of earnings delivered.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report The Executive KMP have a maximum STI opportunity equivalent to 150% of target (80% of TFC at target and 120% of TFC at maximum). The
FY21 Group Financial performance measures contribute up to 110% of the target STI opportunity for all Executive KMP (60% at target). The
Strategic and Non-financial measures contribute up to 40% of the target STI opportunity for all Executive KMP.
Details of the Managing Director and CEO’s calculated balanced scorecard for FY21 are set out in Tables 4 and 5 below.
Table 4 FY21 Financial Performance Measures for the Managing Director and CEO
MEASURE1
Group EBIT
Group Sales
Coles Online Sales
OVERALL PERFORMANCE
FY21
TARGET
$1,415m
$38,446m
$1,724m
FY21
ACTUAL
ACHIEVEMENT
TARGET
WEIGHTING
MAXIMUM
WEIGHTING
ACTUAL STI
OUTCOME
$1,504m
Above Stretch
$39,427m
Above Stretch
$1,975m
Above Target
35%
15%
10%
60%
70%
30%
10%
110%
70%
30%
10%
110%
1
Other Executive KMP share the same financial measures as the Managing Director and CEO, except for Ms Weckert who has a Group Cash Realisation metric instead of an Online Sales metric.
The Group Cash Realisation metric was achieved in full for FY21.
Further details regarding each financial performance measure in Table 4 is provided as follows:
Group EBIT (pre AASB 16 and significant items): Smarter Selling benefits and operating leverage have driven growth across all segments,
despite incurring approximately $130 million of COVID-19 costs during the year.
Group Sales (adjusted retail basis): Supermarkets, Liquor and Express experienced sales growth despite cycling elevated sales in the prior
corresponding period due to the onset of COVID-19 and the subsequent national lockdown. Growth was driven by strategic initiatives that
resonated with customers, including customers who were spending more time living and working at home due to COVID-19.
Coles Online Sales: Performance was driven by investment in strategic initiatives including increasing capacity, improving customer fulfilment
options through Next Day, Same Day, and Immediacy, rolling out Coles Click & Collect Rapid and extending our Direct to Boot service.
Table 5 FY21 Strategic and Non-Financial Measures for the Managing Director and CEO
MEASURE1
TARGET/ MAX
WEIGHTING
ACTUAL STI
OUTCOME
PERFORMANCE
Strategy – Smarter Selling
10%
10%
Safety – TRIFR
10%
People – mysay engagement score 10%
10%
0%
Customer –
Net Promoter Score (NPS)
Coles Supermarkets
10%
10%
OVERALL PERFORMANCE
40%
30%
Cost savings of approximately $300 million were achieved in FY21
through Smarter Selling initiatives. These initiatives led to
improvements in store level planning, information flow and
decision-making, reduced manual handling, improved availability
for customers, reduced loss, and optimised markdowns.
Transport and logistics solutions also improved the end-to-end
flow of fresh goods and unlocked significant benefits through the
network.
Team member safety significantly improved across FY21 with the
Total Recordable Injury Frequency Rate improving by 15.7%.
Team member engagement remained strong despite a small step
back (-3pp) compared to our highest ever engagement scores
achieved in FY20 (+7pp).
NPS improved by 2.3 points on FY20, and was ahead of target,
lifting customer perception scores across the key pillars of value,
quality, in-store experience, service, and reputation.
1
Strategic and Non-financial measures for Other Executive KMP are aligned to the Managing Director and CEO with variations relevant to their portfolio. For FY21, achievement against this
component for Other Executive KMP ranged from partially achievement to full achievement.
At the conclusion of FY21, the Board assessed the performance against the calculated balanced scorecards of the Managing Director and CEO
and the Other Executive KMP to determine any STI award payable. The Board also considered the appropriate application of the ‘Quality and
Behaviour’ overlay to determine the final Executive KMP STI outcomes for FY21 as detailed in Table 6.
In its assessment, the Board considered the STI outcomes in the context of the achievements and challenges of the year that unfolded.
Following that assessment, the Board chose to exercise discretion to normalise the outcome against the Group Sales metric in consideration
of the positive impacts of COVID-19. Subsequently, performance against this metric was re-calculated on an underlying basis, which resulted
in an outcome just above target, rather than meeting full stretch performance as shown in Table 4. During this review the Board also
considered underlying Group EBIT performance. Due to the strong financial discipline of management, COVID cost impacts were minimised,
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information and Group EBIT achieved stretch performance on both an actual and underlying basis. Therefore, the Board did not make any adjustments
on the calculated STI outcomes with respect to the Group EBIT metric. The Board believes the final STI outcomes as detailed in Table 6 reflect
the significant achievements delivered by management against the commitments made to shareholders and the unprecedented impact of
COVID-19.
Table 6 FY21 Executive KMP STI Outcomes
Details of the Executive KMP STI opportunity and actual payments received for FY21 are provided in Table 6.
STI OPPORTUNITY
(% OF TFC)1
STI AWARDED
NAME
Steven Cain
Leah Weckert
Greg Davis
Matthew Swindells
TARGET
MAXIMUM
$
% OF TFC
CASH2
EQUITY3
80%
80%
80%
80%
120%
120%
120%
120%
$2,148,300
$1,047,850
$937,125
$883,150
102.3%
110.3%
107.1%
103.9%
$1,074,150
$1,074,150
$785,887
$702,844
$662,362
$261,963
$234,281
$220,788
STI
FORFEITED4
(%)
14.8%
8.1%
10.8%
13.4%
1
2
3
The minimum STI opportunity was nil.
The FY21 cash component of the STI will be paid on or about 15 September 2021.
The FY21 equity component of the STI will be granted in STI Shares following the Coles 2021 AGM, using a 10-day Volume Weighted Average Price (VWAP) for the period up to and including 27 June
2021, of $16.65. Equity for the Managing Director and CEO will not be granted unless shareholder approval is obtained at the Coles 2021 AGM.
4
As a percentage of STI Maximum Opportunity.
Other Terms of the FY21 Short-term incentive (STI)
What was the Performance Period?
29 June 2020 – 27 June 2021
Why were the performance conditions chosen?
The Financial measures align with the Company’s strategy and the commitments made to shareholders. In particular, Group EBIT focuses
on delivering strong earnings through the business cycle and ensuring strong returns for shareholders. Including sales metrics as well as
Group EBIT ensures a strong focus upon our capability to deliver sustainable returns for shareholders in the long-term.
For FY21, the Board introduced a Coles Online Sales (Financial) metric, replacing the Group Cash Realisation (Financial) metric from FY20.
The exception is Ms Weckert who retained the Group Cash Realisation (Financial) metric. This change demonstrated the importance of
Online channel growth in our strategy.
Strategic and non-financial metrics align to all three pillars of the Coles strategy to ‘Inspire Customers’, ‘Win Together’, and streamline our
business through ‘Smarter Selling’.
In FY21, the Customer metric was adapted from a blended approach to a single Net Promoter Score (NPS) metric. This simplified the
measurement and highlighted the importance of going beyond satisfying our customers to recruiting them as advocates for our business
How were the conditions assessed?
Performance against the balanced scorecard metrics was assessed by the Board based on the Company’s annual audited results, financial
statements and other data provided to the Board.
This method was adopted as the Board believes it is the most appropriate way to assess the true performance of the Company and the
Executive KMP’s contribution to determine remuneration outcomes.
What portion of the STI component was deferred into equity?
As detailed in Table 6, once the individual scorecard calculation has been completed, the total STI award is determined. The equity deferred
amount is then determined by reference to 50% of the total STI award for the Managing Director and CEO, and 25% of the total STI award for
the Other Executive KMP.
This amount is then used to determine the number of STI Shares that will be granted and subject to deferral. This is calculated using the
10-day VWAP up to and including the final day in the performance period (i.e. 27 June 2021).
The shares are granted following the payment of the cash component of the STI award and are unable to be traded during the restricted
period, being one year for the Other Executive KMP and two years for the Managing Director and CEO. Once the restricted period ends, the
restriction is lifted and the Executive KMP may trade these shares in accordance with Coles’ Securities Dealing Policy.
When will the FY21 STI award be paid?
The cash component of the STI award will be paid in September 2021.
The STI equity component will be allocated following the Coles 2021 AGM, where shareholder approval will be sought for the grant to the
Managing Director and CEO.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report What happens if an Executive KMP leaves the organisation prior to payment?
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.
What happens if an Executive KMP leaves the organisation before STI equity vests?
During the restricted period, if an Executive KMP leaves the organisation in the event of resignation or dismissal for cause or significant
underperformance, all shares will be forfeited, unless the Board determines otherwise.
In any other circumstances (including by reason of redundancy, permanent disability, death, or ill health) the shares will continue on foot
until the usual vesting date, unless the Board determines otherwise.
Can the Board amend the STI program?
The Board retains discretion to suspend or terminate the program at any time or amend all or any elements of the program up until the date
of payment.
4.5 Long-term incentive (LTI)
The LTI rewards Executive KMP for the achievement of long-term sustainable returns for shareholders.
As outlined in section 3.2, for FY21 the LTI component of Executive KMP remuneration was delivered in Performance Rights. The Performance
Period for the FY21 LTI runs from 29 June 2020 to 25 June 2023 (retail year end for FY23).
Performance Rights will vest subject to the satisfaction of the following performance conditions measured over the Performance Period:
• 50% of Performance Rights are subject to a cumulative return on capital (‘ROC’) hurdle (‘ROC component’); and
• 50% of Performance Rights are subject to a relative total shareholder return (‘RTSR’) performance hurdle. Coles’ RTSR will be compared
to companies in the S&P ASX100 (‘Comparator Group’) as at 28 June 2020.
These performance conditions were chosen because they provide a direct link between Executive KMP reward and sustained shareholder
returns, to promote further alignment with shareholders.
4.5.1 ROC component
Vesting of the Performance Rights in the ROC component is subject to achievement of at least 95% of the cumulative ROC target over the
Performance Period.
Cumulative ROC measures the Company’s average annual return on capital over the Performance Period against targets set by the Board.
Cumulative ROC is calculated based on the Company’s audited financial information. The Board will assess Cumulative ROC after the end of
the Performance Period.
In assessing achievement against the Cumulative ROC performance condition, the Board may have regard to any matters that it considers
relevant and retains discretion to review outcomes to ensure that the results are appropriate.
The number of Performance Rights in the ROC component that vest, if any, will then be based on the Group’s cumulative ROC performance
determined over the Performance Period by reference to the following vesting schedule:
GROUP CUMULATIVE ROC OVER THE PERFORMANCE PERIOD
% OF PERFORMANCE RIGHTS THAT VEST
Equal to or below 95% of the cumulative ROC target is achieved
0%
Between 95% and 105% of the cumulative ROC target is achieved
Straight-line pro rata vesting between 0% – 100%
Equal to 105% or above of the cumulative ROC target is achieved
100%
The ROC 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.
4.5.2 RTSR component
The number of Performance Rights in the RTSR component that vest, if any, will be based on Coles’ RTSR ranking within the Comparator
Group over the Performance Period, as set out in the following vesting schedule:
COLES RTSR RANK IN THE COMPARATOR GROUP
% OF PERFORMANCE RIGHTS THAT VEST
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 Rights that do not vest will lapse. There is no re-testing of awards.
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Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information 4.5.3 FY21 LTI outcomes
Performance Rights granted under the FY21 LTI will be tested following the end of FY23 (the end of the Performance Period). Details of the
number of Performance Rights granted under the FY21 LTI are included in section 4.7. Details of equity awards granted to Executive KMP in
prior years (including applicable performance conditions and vesting dates) have been previously disclosed in the FY19 and FY20
Remuneration Report.
Other Terms of the FY21 Long-term incentive (LTI)
How was the LTI award delivered?
The LTI award was delivered in Performance Rights. Each Performance Right entitles the Executive KMP to one ordinary share in the
Company on vesting. The Board retains a discretion to make a cash equivalent payment in lieu of an allocation of shares.
Performance Rights vest subject to achievement of relevant performance conditions and were allocated to Executive KMP at no cost to the
Executive KMP, and no amount is payable on vesting.
When were Performance Rights allocated?
The Performance Rights for all Executive KMP under the FY21 Long Term Incentive plan were granted on 23 November 2020, following the
Coles 2020 AGM (at which the grant made to the Managing Director and CEO was approved for the purposes of ASX Listing Rule 10.14 and
details of which are published in this FY21 Remuneration Report).
How were Performance Rights allocated?
The number of Performance Rights allocated to the Executive KMP was determined by dividing each Executive KMP’s LTI opportunity by the
VWAP of Coles shares trading on the ASX over the 10 trading days up to and including 28 June 2020, rounded up to the nearest whole
number.
How are the performance conditions assessed?
RTSR performance is independently assessed each year of the Performance Period against the constituents of the Comparator Group. ROC
is calculated using Coles’ audited financial results.
These assessment methods are designed to safeguard the integrity of the performance assessment process and ensure the accuracy of
underlying information.
When does vesting occur?
Following testing, the Board will determine the number of Performance Rights to vest, which is expected to occur in late August 2023.
Details regarding the vesting of the Performance Rights will be included in the FY23 Remuneration Report.
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 Rights that do not vest will lapse. No retesting of the performance conditions is permitted.
What happens if an Executive KMP ceases employment?
In the event of resignation or dismissal for cause or significant underperformance, all unvested Performance Rights will lapse, 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
Rights (based on the proportion of the Performance Period that has been served) 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 Performance Rights have voting rights?
No. Prior to vesting, Performance Rights do not entitle Executive KMP to voting rights.
Are dividends paid on Performance Rights?
Executive KMP do not have an entitlement to dividends prior to vesting.
After testing against the performance conditions, Executive KMP will receive a dividend equivalent amount related to the vested
Performance Rights only. The dividend equivalent amount will be delivered in additional shares, equal in value to the value of dividends
that would have been paid on the vested rights had the Executive KMP been the owner of Coles shares during the period from the
Performance Rights grant date to the vesting date. There is no dividend payable on any Performance Rights that do not vest.
The Board retains a discretion to settle the dividend equivalent amount in cash.
How can the Board apply discretion to clawback outcomes?
The Board has broad clawback powers to determine that any Performance Rights may lapse, any shares allocated on vesting are 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 (for
example 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.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 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 Rights 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 Rights will
vest on a pro rata basis (based on the proportion of the Performance Period that has elapsed).
What restrictions are there on dealing in the Performance Rights?
Executive KMP must not sell, transfer, encumber, hedge, or otherwise deal with Performance Rights. Executive KMP will be free to deal with
the shares allocated on vesting of the Performance Rights, subject to the requirements of Coles’ Securities Dealing Policy.
4.5.4 LTI Test at the end of FY21 - FY19 LTI vesting outcome
In FY19, Executive KMP were invited to participate in the first LTI award for the Group. Full details relating to this LTI award are detailed in the
FY19 Remuneration Report. This award included the provision of Performance Shares, granted on 19 November 2019, as part of a transitional
remuneration structure put in place for Executive KMP following the demerger from Wesfarmers. The performance period for this award was
21 November 2018 to 27 June 2021.
Performance Shares were subject to two performance conditions (as well as a service condition):
• 50% - cumulative EBIT hurdle with a ROC gateway over the period 21 November 2018 and 27 June 2021; and
• 50% - RTSR hurdle, measured from 20 February 2019 (the day after the FY19 half-year results announcement) to 27 June 2021, compared
against companies in the Comparator Group.
Table 7 Testing of performance hurdles
Following the testing of each performance hurdle, the following vesting will occur on 25 August 2021 in relation to the FY19 LTI award and will
be reported in the FY22 Remuneration Report:
WEIGHTING
GATEWAY
MET
TARGET
50% vest
MAX
100% vest
RESULT
% VEST
Cumulative EBIT with ROC gateway
RTSR
Overall vesting
50%
50%
100%
YES
N/A
90% of target
100% of target
Gateway
Met & 102.5%
50th percentile
75th percentile
72.6 percentile
100%
95.3%
97.6%
Further details regarding each performance hurdle in Table 7 is provided as follows:
Cumulative EBIT with ROC gateway: The ROC gateway and EBIT target were met in full and resulted in 100% of this component of the LTI
vesting.
RTSR: The Company performed at the 72.6 percentile against the Comparator Group and so vested to 95.3%.
Based on the calculated performance, overall vesting outcome of 97.6% was achieved. The Board reviewed the vesting outcomes for each
metric, considered the Company’s strong performance over the period, including returns to shareholders, and believes that the vesting
outcomes are appropriate in this context.
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information -
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Remuneration Report (Audited)
70
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
4.7 Summary of Executive KMP shareholding and Performance Rights
Table 9.1 and 9.2 show the movements of Coles Performance Rights, Restricted Shares, Performance Shares and STI Shares, held beneficially,
by each Executive KMP during FY21. No other shares were acquired as remuneration during the year. Details of Executive KMP’s holdings of
ordinary shares are provided in Table 13.
Table 9.1 Restricted, Performance and STI Shares
MOVEMENTS DURING THE FINANCIAL PERIOD
BALANCE OF
SHARES HELD AT
29 JUNE 2020
GRANTED
DURING
THE YEAR
VESTED/
RELEASED
DURING
THE YEAR
FORFEITED
DURING
THE YEAR
CLOSING
BALANCE AT
27 JUNE 20216
ADDITIONAL
INFORMATION
ACCOUNTING
FAIR VALUE OF
GRANT YET TO
VEST ($)1
85,057
85,057
-
-
-
75,866
50,3774
36,453
-
-
-
17,305
46,3264
32,402
-
-
-
14,610
40,2514
26,327
-
-
-
14,354
-
-
-
(13,924)
-
-
(13,924)
-
-
(13,924)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85,057
$881,191
85,057
$696,617
75,866
$1,385,313
36,453
$377,653
36,453
$298,550
17,305
$310,625
32,402
$335,685
32,402
$265,372
14,610
$262,250
26,327
$272,748
26,327
$215,621
14,354
$257,654
NAME
Steven Cain
Leah Weckert
Greg Davis
SHARE TYPE
Restricted
Shares3
Performance
Shares2
STI
Shares5
Restricted
Shares3
Performance
Shares2
STI
Shares5
Restricted
Shares3
Performance
Shares2
STI
Shares5
Matthew Swindells Restricted
Shares3
Performance
Shares2
STI
Shares5
1
The fair value of STI Shares for Mr Cain was $18.26 at the grant date of 5 November 2020.The fair value of STI Shares at the grant date of 23 November 2020 was $17.95 for Other Executive KMP. The fair
value of Restricted Shares, Performance Shares and STI Shares is an estimate of the total maximum value of grants in future financial years. Restricted Shares, Performance Shares and STI Shares are
subject to the satisfaction of conditions and therefore the minimum total value of the awards for future financial years is nil. The accounting fair value does not include those detailed in footnote 4
(shares acquired through demerger as a result of WESAP holdings).
2
Performance Shares totals relate to shares allocated under the FY19 LTI award. Performance Shares vest based on the achievement of performance conditions aligned to RTSR and cumulative EBIT
with a ROC gateway. This award was tested following the end of the performance period, with Performance Shares to vest in accordance with Table 7 on 25 August 2021. Full details regarding this
award are detailed in the FY19 Remuneration Report and vesting outcomes will be reported in the FY22 Remuneration Report.
3
The Restricted Shares total include shares allocated under the FY19 Executive Restricted Share (ERS) offer. Restricted shares are time based only and full details of this award are detailed in the FY19
Remuneration Report.
4
The opening balance of Restricted Shares for the Other Executive KMP includes Coles shares acquired through demerger as a result of their holding of WESAP shares, as detailed in Table 8. These
shares are only subject to a holding lock while the Other Executive KMP remain employed by Coles, or until the date the WESAP award that these Coles shares were allocated as a result of, vest
(whichever is the earlier). During the year Ms Weckert, Mr Davis, and Mr Swindells each had 13,924 shares released. On release, the holding lock is removed. As at 27 June 2021, none of the Executive
KMP continue to hold shares linked to the 2017 WESAP.
5
STI Shares are time based only.
6 No Restricted, Performance or STI Shares were held nominally by the Executive KMP or their related parties as at 27 June 2021.
Remuneration Report (Audited)
71
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information Table 9.2 Performance Rights
NAME
Steven Cain
Leah Weckert
Greg Davis
Matthew Swindells
MOVEMENTS DURING THE FINANCIAL PERIOD
BALANCE OF
RIGHTS HELD AT
29 JUNE 2020
275,901
106,982
98,537
90,091
RIGHTS
ALLOCATED AS
REMUNERATION
223,1332
86,521
79,691
77,414
RIGHTS VESTED/
LAPSED DURING
THE YEAR
CLOSING
BALANCE AT
27 JUNE 2021
-
-
-
-
499,034
193,503
178,228
167,505
ADDITIONAL
INFORMATION
ACCOUNTING
FAIR VALUE OF
GRANT YET TO
VEST ($)1
$6,485,100
$2,441,087
$2,248,391
$2,113,345
1
The fair value of Performance Rights is an estimate of the total maximum value of grants in future financial years. The fair value of Mr Cain’s FY21 Performance Rights at the grant date of 5 November
2020 was $10.57 for the RTSR component and $16.46 for the ROC component. The fair value of the Other Executive KMP’s FY21 Performance Rights at the grant date of 23 November 2020 was $9.12 for
the RTSR component and $16.21 for the ROC component.
2
Approval from shareholders for the issue of these Performance Rights to Mr Cain was obtained for the purpose of ASX Listing Rule 10.14 at the Coles 2020 AGM.
Section 5: FY21 Non-executive Director remuneration
5.1 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.
5.2 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 the Company at a general
meeting held on 19 September 2018 prior to listing. There were no increases to Board and Committee fees in FY21.
Table 10 sets out the Board and committee fees in Australian dollars (inclusive of superannuation) for FY21.
Table 10 Board and committee fees in Australian dollars (inclusive of superannuation) for FY21
BOARD AND COMMITTEE FEES
Board
Audit and Risk Committee
People and Culture Committee
Nomination Committee
1
The Chairman of the Board does not receive Committee fees in addition to his Board fee.
CHAIR
$695,0001
$55,000
$55,000
No fee
MEMBER
$220,000
$27,000
$27,000
No fee
Remuneration Report (Audited)
72
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 5.3 FY21 Non-executive Director remuneration
Table 11 outlines the remuneration for the Non-executive Directors of Coles during FY21. There were no loans between Non-executive
Directors and the Company or any of its subsidiaries during FY21.
Table 11 FY21 Non-executive Director remuneration
NAME
James Graham
David Cheesewright1
Jacqueline Chow
Abigail Cleland2
Richard Freudenstein2
Paul O’Malley3
Wendy Stops
Zlatko Todorcevski4
TOTAL 2021
TOTAL 2020
BASE AND
COMMITTEE FEES
(EXCLUDING
SUPER-
ANNUATION)
FINANCIAL
YEAR
OTHER
BENEFITS5
SUPER-
ANNUATION
BENEFITS
TOTAL
COMPENSATION
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2021
20202
2021
2020
$673,306
$673,997
$247,000
$244,007
$225,306
$225,997
$241,576
$234,543
$264,153
$264,499
$189,979
$226,818
$231,248
$63,326
$253,997
$2,131,464
$2,128,288
$628
$1,273
-
-
$807
$1,088
$396
$91
-
-
-
$1,595
$1,191
$60
$372
$3,486
$4,015
$21,694
$21,003
-
$2,993
$21,694
$21,003
$5,424
$12,457
$10,847
$10,501
$16,271
$20,182
$15,752
$5,424
$21,003
$695,628
$696,273
$247,000
$ 247,000
$247,807
$248,088
$247,396
$247,091
$275,000
$275,000
$206,250
$248,595
$248,191
$68,810
$275,372
$101,536
$104,712
$2,236,486
$2,237,015
1
Due to Mr Cheesewright residing outside of Australia, superannuation obligations are only payable for any time worked in Australia. With travel restrictions in place during FY21 as a result of COVID-19,
Mr Cheesewright did not work in Australia during FY21, therefore no superannuation contributions were paid as part of Mr Cheesewright’s Non-executive Director Fees.
2
Approval was obtained from the ATO by individual Non-executive Directors to be exempt from making superannuation contributions due to superannuation obligations being met by other
employers.
3 Mr O’Malley was appointed to the Board on 1 October 2020. His remuneration for FY21 is disclosed from this date to 27 June 2021.
4 Mr Todorcevski retired from the Board effective 30 September 2020. His remuneration for FY21 is disclosed from 29 June 2020 to this date.
5 Other benefits include costs associated with directorships (including any applicable fringe benefits tax).
Section 6: Ordinary shareholdings
6.1 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 FY21.
Table 12 Non-executive Director Ordinary Shareholdings
NAME
James Graham
David Cheesewright
Jacqueline Chow
Abigail Cleland
Richard Freudenstein
Paul O’Malley
Wendy Stops
Zlatko Todorcevski2
TOTAL
BALANCE OF
SHARES HELD AT
29 JUNE 2020
SHARES
ACQUIRED
SHARES
DISPOSED
CLOSING
BALANCE AS AT
27 JUNE 2021
500,188
20,000
20,000
19,816
19,000
3,8091
20,000
19,201
622,014
-
-
-
-
-
-
5,000
-
5,000
-
-
-
-
-
-
-
-
-
500,188
20,000
20,000
19,816
19,000
3,809
25,000
19,201
627,014
1 Mr O’Malley’s shareholding of 3,809 shares held indirectly is as at 1 October 2020, upon appointment to the Board.
2 Mr Todorcevski held 19,201 shares indirectly as at his retirement date of 30 September 2020.
Remuneration Report (Audited)
73
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information 6.2 Executive KMP Ordinary Shareholdings
Table 13 shows the shareholdings and movements in shares held directly, or indirectly, by each KMP, including their related parties during
FY21.
Table 13 Executive KMP Ordinary Shareholdings
NAME
Steven Cain
Leah Weckert
Greg Davis
Matthew Swindells
TOTAL
BALANCE OF
SHARES HELD AT
29 JUNE 2020
SHARES
ACQUIRED
SHARES
DISPOSED
CLOSING
BALANCE AS AT
27 JUNE 2021
50,000
22,406
55,320
605
128,331
-
13,9241
13,9241
13,9241
41,772
-
-
-
-
-
50,000
36,330
69,244
14,529
170,103
1
Shares acquired by Ms Weckert, Mr Davis and Mr Swindells are shares released from holding lock as referred to in Table 9.1
Remuneration Report (Audited)
74
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
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
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
Auditor’s Independence Declaration to the Directors of Coles Group Limited
27 June 2021, I declare to the best of my knowledge and belief, there have been:
As lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
27 June 2021, I declare to the best of my knowledge and belief, there have been:
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
This declaration is in respect of Coles Group Limited and the entities it controlled during the financial
b) no contraventions of any applicable code of professional conduct in relation to the audit.
year.
This declaration is in respect of Coles Group Limited and the entities it controlled during the financial
year.
Ernst & Young
Ernst & Young
Fiona Campbell
Partner
18 August 2021
Fiona Campbell
Partner
18 August 2021
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
75
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder information
Financial Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Income Statement
Balance Sheet
Statement of Changes in Equity
Cash Flow Statement
Basis of preparation and accounting policies
Section 1: Performance
1.1 Segment reporting
1.2 Earnings per share
1.3 Sales revenue
1.4 Administration expenses
1.5 Financing costs
1.6 Income tax
Section 2: Assets and liabilities
2.1 Cash and cash equivalents
2.2 Trade and other receivables
2.3 Other assets
2.4 Inventories
2.5 Property, plant and equipment
2.6 Intangible assets
2.7 Leases
2.8 Trade and other payables
2.9 Provisions
Section 3: Capital
3.1 Interest-bearing liabilities
3.2 Contributed equity and reserves
3.3 Dividends paid and proposed
Section 4: Financial risk
4.1 Impairment of non-financial assets
4.2 Financial risk management
4.3 Financial instruments
Section 5: Group structure
5.1 Equity accounted investments
5.2 Assets held for sale
5.3 Subsidiaries
5.4 Parent entity information
Section 6: Unrecognised items
6.1 Commitments
6.2 Contingent liabilities
Section 7: Other disclosures
7.1 Related party disclosures
7.2 Employee share plans
7.3 Auditor’s remuneration
7.4 New accounting standards and interpretations
7.5 Events after the reporting period
Directors’ Declaration
Independent Auditor’s Report
76
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Income Statement
for the 52 weeks ended 27 June 2021
Sales revenue
Other operating revenue
Total operating revenue
Cost of sales
Gross profit
Other income
Administration expenses
Share of net loss from equity accounted investments
Earnings before interest and tax (EBIT)
Financing costs
Profit before income tax
Income tax expense
Profit for the period
Profit attributable to:
Equity holders of the parent entity
Earnings per share (EPS) attributable to equity holders of the parent:
Basic and diluted EPS (cents)
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 loss which may be reclassified to profit or loss in subsequent periods
Total comprehensive income attributable to:
Equity holders of the parent entity
The accompanying notes form part of the consolidated financial statements.
NOTES
1.3
1.4
5.1
1.5
1.6
1.2
1.6
2021
$M
38,562
370
38,932
(28,773)
10,159
111
(8,392)
(5)
1,873
(427)
1,446
(441)
1,005
1,005
75.3
(9)
3
(6)
999
2020
$M
37,408
376
37,784
(28,043)
9,741
108
(8,081)
(6)
1,762
(443)
1,319
(341)
978
978
73.3
(17)
5
(12)
966
77
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
Balance Sheet
as at 27 June 2021
NOTES
2.1
2.2
5.2
2.3
2.5
2.7
2.6
1.6
5.1
2.3
2.8
2.9
2.7
3.1
2.9
2.7
2021
$M
787
368
2,107
-
85
87
2020
$M
992
434
2,166
42
75
70
3,434
3,779
4,463
7,288
1,698
873
220
147
14,689
18,123
3,660
950
60
897
252
5,819
1,142
458
7,859
32
9,491
15,310
2,813
1,585
69
1,159
2,813
4,127
7,660
1,597
849
217
120
14,570
18,349
3,737
861
-
885
198
5,681
1,354
472
8,198
29
10,053
15,734
2,615
1,611
43
961
2,615
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income tax receivable
Assets held for sale
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Equity accounted investments
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Provisions
Income tax payable
Lease liabilities
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Lease liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
The accompanying notes form part of the consolidated financial statements.
78
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
Statement of Changes in Equity
for the 52 Weeks ended 27 June 2021
NUMBER OF
ORDINARY
SHARES
MILLIONS
CONTRIBUTED
EQUITY
$M
SHARE-BASED
PAYMENTS
RESERVE
$M
CASH FLOW
HEDGE
RESERVE
$M
RETAINED
EARNINGS
$M
2021
Balance at beginning of period
Net profit for the period
Other comprehensive income
Total comprehensive income for the period
Share-based payments expense
Purchase of shares under Equity Incentive Plan
Dividends paid
Balance at end of period
2020
Balance at beginning of period
Effect of adoption of AASB 16 Leases
Balance at beginning of period (adjusted)
Net profit for the period
Other comprehensive income
Total comprehensive income for the period
Share-based payments expense
Purchase of shares under Equity Incentive Plan
Dividends paid
Balance at end of period
1,334
1,611
-
-
-
-
-
-
-
-
-
-
(26)
-
1,334
1,585
1,334
-
1,334
-
-
-
-
-
-
1,628
-
1,628
-
-
-
-
(17)
-
1,334
1,611
The accompanying notes form part of the consolidated financial statements.
56
-
-
-
32
-
-
88
43
-
43
-
-
-
13
-
-
56
(13)
-
(6)
(6)
-
-
-
(19)
(1)
-
(1)
-
(12)
(12)
-
-
-
(13)
961
1,005
-
1,005
-
-
(807)
1,159
1,687
(831)
856
978
-
978
-
-
(873)
961
TOTAL
$M
2,615
1,005
(6)
999
32
(26)
(807)
2,813
3,357
(831)
2,526
978
(12)
966
13
(17)
(873)
2,615
79
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information Cash Flow Statement
for the 52 weeks ended 27 June 2021
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest paid
Interest component of lease payments
Interest received
Income tax paid
Net cash flows from operating activities
Cash flows used in investing activities
Purchase of property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Net investments in joint venture and associate
Acquisition of subsidiaries or businesses, net of cash acquired
Net cash flows used in investing activities
Cash flows used in financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of principal component of lease payments
Dividends paid
Purchase of shares under Equity Incentive Plan
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash at beginning of period
Cash at end of the period
The accompanying notes form part of the consolidated financial statements.
NOTES
2021
$M
2.1
5.1
42,124
(38,496)
(47)
(390)
4
(358)
2,837
(1,279)
181
(8)
-
(1,106)
7,232
(7,444)
(891)
(807)
(26)
(1,936)
(205)
992
787
2020
$M
39,971
(36,486)
(37)
(399)
7
(504)
2,552
(833)
211
(11)
(25)
(658)
5,120
(5,226)
(846)
(873)
(17)
(1,842)
52
940
992
80
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
Notes to the
Consolidated Financial Statements
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 52-week period ended 27 June 2021 (collectively, ‘the Group’) was authorised for issue in accordance with a resolution of the
Directors on 18 August 2021. The comparative period is for the 52-week period ended 28 June 2020.
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 1.1 Segment Reporting.
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 (Cth). 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 the notes to the consolidated financial statements (‘the Notes’).
The accounting policies adopted are consistent with those of the previous period. Refer to Note 7.4 New accounting standards and interpretations.
This Financial Report presents reclassified comparative information where required for consistency with the current period’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 Group has incorporated specific judgements, estimates and assumptions relating to the ongoing impacts of COVID-19 in determining the
amounts recognised in the financial statements based on conditions existing at the reporting date, recognising uncertainty still exists in
relation to its timeframe, the measures to control it and its economic impact.
The key areas involving judgement or significant estimates and assumptions are set out below:
NOTE
JUDGEMENTS
Note 2.7
Leases
Note 5.1
Equity accounted investments
NOTE
ESTIMATES AND ASSUMPTIONS
Note 2.4
Inventories
Note 2.7
Leases
Note 2.9
Provisions
Determining the lease term
Control and significant influence
Net realisable value, Commercial income
Incremental borrowing rate
Employee benefits, Self-insurance, Restructuring
Note 4.1
Impairment of non-financial assets
Assessment of recoverable amount
Note 6.2
Contingent liabilities
Note 7.2
Employee share plans
Contingent liabilities
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.
81
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information Basis of preparation and accounting policies (continued)
The notes
The Notes include information which is required to understand the consolidated financial statements and is material and relevant to the
operations, 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
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
The Notes are organised into the following sections:
1.
PERFORMANCE: this section provides information on the performance of the Group, including segment results, earnings per share and
income tax.
2.
ASSETS AND LIABILITIES: this section details the assets used in the Group’s operations and the liabilities incurred as a result.
3.
CAPITAL: this section provides information relating to the Group’s capital structure and financing.
4.
FINANCIAL 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 details the Group’s approach to managing these risks.
5. GROUP STRUCTURE: this section provides information relating to subsidiaries and other material investments of the Group.
6.
7.
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.
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.
Basis of consolidation
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.
Foreign currency
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 million 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.
82
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 1. Performance
This section provides information on the performance of the Group, including segment results, earnings per share and
income tax.
1.1 Segment reporting
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.
The Group’s reportable segments are set out below:
REPORTABLE SEGMENT
DESCRIPTION
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
Other business operations that are not separately reportable (such as Property), as well as costs associated with enterprise functions (such
as Insurance and 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.
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
$M
LIQUOR
$M
EXPRESS
$M
OTHER
$M
CONSOLIDATED
$M
2021
Sales revenue
Segment EBIT
Financing costs
Profit before income tax
Income tax expense
Profit for the period
Share of net loss of equity accounted
investments included in EBIT
2020
Sales revenue
Segment EBIT
Financing costs
Profit before income tax
Income tax expense
Profit for the period
Share of net loss of equity accounted
investments included in EBIT
33,845
1,702
3,525
165
1,192
67
-
(61)
32,993
1,618
3,308
138
1,107
33
-
(27)
38,562
1,873
(427)
1,446
(441)
1,005
(5)
37,408
1,762
(443)
1,319
(341)
978
(6)
83
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
1.2 Earnings per share (EPS)
EPS attributable to equity holders of the Company
Basic and diluted EPS (cents)
Profit for the period ($M)
Weighted average number of ordinary shares for basic EPS (shares, million)
Weighted average number of ordinary shares for diluted EPS (shares, million)
Calculation methodology
2021
75.3
1,005
1,334
1,335
2020
73.3
978
1,334
1,334
EPS is profit for the period attributable to ordinary equity holders of the Company, divided by the weighted average number of ordinary
shares on issue during the 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.
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.
1.3 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).
1.4 Administration expenses
Employee benefits expense
Occupancy and overheads
Depreciation and amortisation1
Marketing expenses
Impairment reversal
Other store expenses
Other administration expenses
Total administration expenses
2021
$M
4,898
707
1,513
242
(3)
623
412
2020
$M
4,768
652
1,440
216
(41)
659
387
8,392
8,081
1 Total depreciation and amortisation for FY21 is $1,559 million (FY20: $1,495 million), the remaining depreciation and amortisation is included within cost of sales.
Employee benefits expense is comprised of:
Remuneration, bonuses and on-costs
Superannuation expense
Share-based payments expense
Total employee benefits expense
Employee benefits expense
2021
$M
4,493
369
36
4,898
2020
$M
4,387
355
26
4,768
The Group’s accounting policy for liabilities associated with employee benefits is set out in Note 2.9 Provisions. The policy relating to share-
based payments is set out in Note 7.2 Employee share plans.
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.
84
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 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 Income Statement when incurred.
1.5 Financing costs
Interest expense
Imputed interest on lease liabilities
Discount rate adjustment
Other finance related costs
Total financing costs
Financing costs
2021
$M
23
390
-
14
427
2020
$M
32
399
3
9
443
Financing costs consist of interest and other costs incurred in connection with the borrowing of funds, imputed interest on lease liabilities as
well as the discount rate adjustments associated with non-current provisions (excluding employee benefits). Financing costs directly
attributable to the acquisition, construction or production of an asset, that necessarily takes more than 12 months to get ready for its
intended use or sale, are capitalised as part of the cost of the asset. All other financing costs are expensed in the period in which they are
incurred.
1.6 Income tax
The major components of income tax expense in the Income Statement are set out below:
Current income tax expense
Adjustment in respect of current income tax of previous periods
Deferred income tax relating to origination and reversal of temporary differences
Adjustment in respect of deferred income tax of previous periods
Income tax expense reported in the Income Statement
The components of income tax expense recognised in Other Comprehensive Income (OCI) are set out below:
Deferred tax related to items recognised in OCI during the period:
Net loss on revaluation of cash flow hedges
Deferred income tax charged to OCI
2021
$M
449
13
(18)
(3)
441
2021
$M
3
3
2020
$M
461
(5)
(79)
(36)
341
2020
$M
5
5
The tax expense included in the Income Statement consists of current and deferred income tax.
CURRENT INCOME TAX IS:
DEFERRED INCOME TAX IS:
•
the expected tax payable on taxable income for the period
•
recognised using the liability method
• 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 periods
• 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 Income Statement. However, when it relates to items charged or credited
directly to the Statement of Changes in Equity or Other Comprehensive Income, the tax is recognised in equity, or OCI, respectively.
85
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 1.6 Income tax (continued)
Reconciliation of the Group’s applicable tax rate to the effective tax rate
Profit before income tax
At Australia’s corporate tax rate of 30.0% (2020: 30.0%)
Adjustments in respect of income tax of previous periods
Share of results of joint venture
Non-deductible expenses for income tax purposes
Non-assessable income for income tax purposes
Significant item - tax consolidation
Significant item - incorporated joint venture with Australian Venue Co.
Income tax expense reported in the Income Statement1
1 At the effective income tax rate of 30.5% (2020: 25.9%)
Tax consolidation
2021
$M
1,446
434
10
2
2
(7)
-
-
441
2020
$M
1,319
396
2
2
5
(21)
(31)
(12)
341
The Company and its 100% owned Australian resident subsidiaries formed an income tax consolidated group 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 tax sharing agreement which
operates to manage joint and several liability for group tax liabilities amongst group members as well as enable 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 parent company in their accounts and are
settled as soon as practicable after lodgement of the consolidated tax return and payment of the tax liability.
Deferred income tax balances recognised in the Balance Sheet
2021
Provisions
Employee benefits
Trade and other payables
Inventories
Property, plant and equipment
Intangible assets
Lease Liabilities
Cash flow hedges
Other individually insignificant balances
Deferred tax assets
Accelerated depreciation for tax purposes
Right-of-use assets
Other assets
Other individually insignificant balances
Deferred tax liabilities
Net deferred tax assets
OPENING
BALANCE
$M
CHARGED
TO PROFIT
OR LOSS
$M
CREDITED
TO OCI
$M
OTHER
$M
CLOSING
BALANCE
$M
5
8
16
-
14
1
(268)
-
(7)
(231)
20
(272)
-
-
(252)
21
-
-
-
-
-
-
-
3
-
3
-
-
-
-
-
3
-
-
-
-
-
-
170
-
-
170
-
161
9
-
170
-
61
257
50
45
153
18
2,627
9
12
3,232
116
2,186
9
48
2,359
873
56
249
34
45
139
17
2,725
6
19
3,290
96
2,297
-
48
2,441
849
86
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report EFFECT OF
ADOPTION OF
AASB 16
LEASES
$M
(34)
-
-
-
-
-
2,681
-
(18)
2,629
-
2,280
(7)
2,273
356
OPENING
BALANCE
$M
92
215
15
41
127
(7)
-
1
22
506
88
-
53
141
365
CHARGED
TO PROFIT
OR LOSS
$M
CREDITED
TO OCI
$M
ACQUISITIONS
$M
CLOSING
BALANCE
$M
(3)
34
19
4
12
24
35
-
15
140
8
8
2
18
122
-
-
-
-
-
-
-
5
-
5
-
-
-
-
5
1
-
-
-
-
-
9
-
-
10
-
9
-
9
1
56
249
34
45
139
17
2,725
6
19
3,290
96
2,297
48
2,441
849
2020
Provisions
Employee benefits
Trade and other payables
Inventories
Property, plant and equipment
Intangible assets
Lease Liabilities
Cash flow hedges
Other individually insignificant balances
Deferred tax assets
Accelerated depreciation for tax
purposes
Right-of-use assets
Other individually insignificant balances
Deferred tax liabilities
Net deferred tax assets
Tax assets and liabilities
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 unrecognised deferred tax assets relating to temporary differences arising from its investments in Loyalty Pacific Pty Ltd
(operator of the flybuys loyalty program) and Queensland Venue Co. Pty Ltd (QVC), and capital losses from disposal of capital gains tax assets.
Deferred tax assets have not been recognised in relation to these amounts as the Group has determined that at the reporting date, it is not
probable that taxable profits will be available against which the Group can utilise these benefits. The unrecognised deferred tax asset is $109
million (2020: $112 million).
An uncertain tax treatment is any tax treatment applied by the Group where there is uncertainty over whether it will be accepted by the
relevant tax authority. If it is not probable that the treatment will be accepted, the effect of the uncertainty is reflected in the period in which
that determination is made (for example, by recognising an additional tax liability). The Group measures the impact of the uncertainty using
the method that best predicts the resolution of the uncertainty: either the most likely amount method or the expected value method. The
judgements and estimates made to recognise and measure the effect of uncertain tax treatments are reassessed whenever circumstances
change or when there is new information that affects those judgements.
The Group determined, based on its tax compliance, that it is probable that its tax treatments applied at 27 June 2021 will be accepted by the
taxation authorities.
Goods and services tax (GST)
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 Balance
Sheet. 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 Cash Flow Statement 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.
87
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 2. Assets and liabilities
This section details the assets used in the Group’s operations and the liabilities incurred as a result.
2.1 Cash and cash equivalents
Cash and cash equivalents are comprised of the following:
Cash on hand and in transit
Cash at bank and on deposit
Total cash and cash equivalents
2021
$M
576
211
787
2020
$M
540
452
992
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 Cash Flow Statement, 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 to net cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation and amortisation
Impairment reversal
Net loss on disposal of non-current assets
Share of net loss of equity accounted investments
Share-based payments expense
Other
Changes in assets and liabilities net of the effects of acquisitions and disposals of businesses:
(Increase) / decrease in inventories
(Increase) / decrease in trade and other receivables
Increase in prepayments
Increase in other assets
Increase in deferred tax assets
(Increase) / decrease in income tax receivable
Increase / (decrease) in trade and other payables
Increase in provisions
Increase in other liabilities
Net cash flows from operating activities
2021
$M
1,005
1,559
(3)
12
5
32
13
59
66
(12)
(32)
(24)
102
(77)
75
57
2020
$M
978
1,495
(41)
39
6
13
-
(201)
(78)
(20)
(4)
(121)
(42)
339
138
51
2,837
2,552
88
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
2.2 Trade and other receivables
Trade and other receivables are comprised of the following:
Trade receivables1
Other receivables
Allowance for expected credit losses
Total trade and other receivables
2021
$M
315
63
378
(10)
368
2020
$M
314
130
444
(10)
434
1
Includes commercial income due from suppliers of $119 million (2020: $140 million).
Trade receivables and other receivables are classified as financial assets held at amortised cost.
Trade receivables
Trade receivables are initially recognised at the amount due 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 Income Statement within ‘administration expenses’.
2.3 Other assets
Other assets are comprised of the following:
Prepayments
Other assets
Total other current assets
Prepayments
Other assets
Total other non-current assets
2021
$M
85
2
87
17
130
147
2020
$M
69
1
70
21
99
120
89
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
2.4 Inventories
Inventories comprise goods held for resale and 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 Income Statement 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 the legal right and the
intention to offset, in which case only the net amount receivable or payable is presented. Refer to Note 4.3 Financial instruments for details
of amounts offset in the Balance Sheet.
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.
90
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
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Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
2.6 Intangible assets
The Group’s intangible assets comprise licences, software and goodwill.
Licences and software
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.
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.
In respect to cloud computing arrangements, the Group assesses whether the arrangement contains a lease and if not, whether the
arrangement provides the Group with a resource that it can control. Costs associated with implementation are then assessed as to whether
they can be capitalised in accordance with relevant accounting standards.
Goodwill
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.
Refer to Note 4.1 Impairment of non-financial assets for further details on impairment testing.
92
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report M
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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
2.7 Leases
The Group has lease agreements for properties and various items of machinery, vehicles and other equipment used in its operations.
Set out below are the carrying amounts of recognised right-of-use assets and movements during the period:
2021
2020
PROPERTY
LEASES
$M
NON-PROPERTY
LEASES
$M
7,541
298
199
(862)
7,176
119
31
-
(38)
112
TOTAL
$M
7,660
329
199
(900)
7,288
PROPERTY
LEASES
$M
NON-PROPERTY
LEASES
$M
7,339
275
749
(822)
7,541
142
16
-
(39)
119
At beginning of period
Additions
Other remeasurements1
Depreciation expense
At end of period
1
Includes reasonably certain options and remeasurements, net of leases terminated.
Set out below are the carrying amounts of recognised lease liabilities and movements during the period:
At beginning of period
Additions
Other remeasurements1
Accretion of interest
Payments
At end of period
Current
Non-current
2021
$M
9,083
329
235
390
(1,281)
8,756
897
7,859
TOTAL
$M
7,481
291
749
(861)
7,660
2020
$M
8,856
291
782
399
(1,245)
9,083
885
8,198
1
Includes reasonably certain options and remeasurements, net of leases terminated.
The maturity analysis of lease liabilities is disclosed in Note 4.2 Financial risk management.
Variable lease payments based on sales
A number of the Group’s retail property lease agreements contain variable payment terms that are linked to sales. These lease payments are
based on a percentage of sales recorded by a particular store. The specific percentage rent adjustment mechanism varies by individual lease
agreement. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established stores.
Variable lease payments are recognised in profit or loss in the period in which the condition that triggers those payments occurs and are
generally payable for future periods in the lease term.
The following provides information on the Group’s variable lease payments, including the magnitude in relation to fixed payments:
FIXED
PAYMENTS
$M
2021
VARIABLE
PAYMENTS
$M
TOTAL
$M
FIXED
PAYMENTS
$M
2020
VARIABLE
PAYMENTS
$M
TOTAL
$M
567
42
609
511
39
550
Leases with lease payments
based on sales
Extension options
Extension options are included in the majority of property leases across the Group. Where practicable, the Group seeks to include extension
options when negotiating leases to provide flexibility and align with business needs. Leases may contain multiple extension options and are
exercisable only by the Group and not by the lessors.
Extension options are only reflected in the lease liability when it is reasonably certain they will be exercised. When assessing if an option is
reasonably certain to be exercised, a number of factors are considered including the option expiry date, whether formal approval to extend
the lease has been obtained, store trading performance and the strategic importance of the site. Where a lease contains multiple extension
options, only the next option is considered in the assessment. Option periods range from 1 to 15 years.
94
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Of the Group’s lease portfolio, 72% of leases have extension options (2020: 73%). Of those leases, 30%1 have an extension option included in
the calculation of the lease liability at 27 June 2021 (2020: 32%).
The following amounts have been recognised in the Income Statement:
Depreciation of right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases (included in administration expenses)
Variable lease payments based on sales (included in administration expenses)
Other variable lease payments (included in administration expenses)
2021
$M
900
390
6
42
7
2020
$M
861
399
7
39
9
Total amount recognised in the Income Statement
1,345
1,315
The Group recognised a total gain of $25 million relating to three sale and leaseback transactions during the period (2020: $14 million).
Group as lessee
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the
use of an identified asset for a period of time in exchange for consideration.
The Group applies a single recognition and measurement approach for all leases, except for short-term leases (leases with a term of 12
months or less) and leases of low-value assets. The Group recognises lease liabilities to make future lease payments and right-of-use assets
representing the right to use the underlying assets from the date the leased asset is available for use by the Group.
Each lease payment is apportioned between the liability and financing costs. Financing costs are recognised in the Income Statement over
the lease term so as to produce a constant periodic rate of interest on the remaining liability.
The right-of-use asset is depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term (which includes
options that are considered ‘reasonably certain’). Payments associated with short-term leases and leases of low-value assets are expensed
when incurred in the Income Statement.
Cash payments for the principal portion of the lease liability are presented within financing activities in the Cash Flow Statement, while
payments relating to short-term leases, low-value assets and variable lease components not included in the measurement of the lease
liability are presented within cash flows from operating activities.
Lease liabilities are initially measured at net present value and comprise the following:
•
fixed payments (including in-substance fixed payments), less any lease incentives
• variable lease payments based on an index or rate, using the index or rate at the commencement date
•
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option
• payment of termination penalties if the lessee is reasonably certain to terminate the lease and incur penalties.
If the interest rate implicit in the lease cannot be readily determined, the lease payments are discounted using the lessee’s incremental
borrowing rate at the lease commencement date.
Right-of-use assets are measured at cost and comprise the following:
•
the initial measurement of the lease liability
• any lease payments made at or before the commencement date, less any lease incentives received
• any initial direct costs
• any restoration costs.
Right-of-use assets are also subject to impairment testing. Refer to the accounting policies in Note 4.1 Impairment of non-financial assets.
1 51% of these leases contain one or more future extension options not included in the lease liability (2020: 50%).
95
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 2.7 Leases (continued)
Key estimate: Incremental borrowing rate
If the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate (IBR) to measure
lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The IBR requires estimation when no observable rates are available or when adjustments need to be made to reflect the terms and
conditions of the lease. The Group estimates the IBR using observable market inputs when available and is required to make certain
estimates specific to the Group (such as credit risk).
Key judgement: Determining the lease term
Extension options are included in the majority of property leases across the Group. In determining the lease term, all facts and
circumstances that create an economic incentive to exercise an extension option are considered. Extension options are only included
in the lease term if the lease is reasonably certain to be exercised. The assessment is reviewed if a significant event or change in
circumstance occurs which affects this assessment and is within the control of the Group.
Changes in the assessment of the lease term are accounted for as a reassessment of the lease liability at the date of the change.
Group as lessor
The Group leases out some of its freehold properties and sub-leases some of its right-of-use assets. The Group has classified these leases as
operating leases because they do not transfer all of the risks and rewards incidental to ownership of the assets.
The undiscounted lease payments to be received are set out below:
Within one year
Between one and five years
More than five years
Total
2021
$M
23
49
22
94
2020
$M
20
46
8
74
Rental income is accounted for on a straight-line basis over the lease term and is included in ‘other operating revenue’ in the Income
Statement. 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. Variable lease income not dependent on an index or rate is recognised
as revenue in the period in which it is earned. The Group recognised income of $21 million for the period with respect to subleasing of its
right-of-use assets (2020: $17 million).
2.8 Trade and other payables
Trade and other payables are comprised of the following:
Trade payables
Other payables
Total trade and other payables
2021
$M
2,794
866
3,660
2020
$M
2,898
839
3,737
Trade payables are non-interest-bearing and are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
96
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 2.9 Provisions
Current
Employee benefits
Restructuring provision
Self-insurance liabilities
Other
Total current provisions
Non-current
Employee benefits
Restructuring provision
Self-insurance liabilities
Total non-current provisions
2021
$M
2020
$M
778
51
110
11
950
91
104
263
458
746
6
100
9
861
89
127
256
472
Movements in restructuring, self-insurance and other provisions
At beginning of period
Arising during the period
Utilised
Unused amounts reversed
Unwind / changes in discount rate
At end of period
Current
Non-current
RESTRUCTURING
$M
SELF-
INSURANCE
$M
OTHER
$M
TOTAL
$M
133
32
(12)
-
2
155
51
104
356
130
(105)
(8)
-
373
110
263
9
9
(7)
-
-
11
11
-
498
171
(124)
(8)
2
539
172
367
97
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
2.9 Provisions (continued)
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 Income Statement.
PROVISION
Employee benefits
Provisions for employee entitlements to annual leave, long service leave and
employee incentives (where the Group does not have an unconditional right to
defer payment for at least twelve months after the reporting date) are recognised
within the current provision for employee benefits and 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 where the Group has an unconditional right to
defer payment for at least twelve months after the reporting date are recognised
within the non-current provision for employee benefits.
Self-insurance
The Group is self-insured for workers compensation and certain 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.
Restructuring
Restructuring provisions are recognised when restructuring has either
commenced or has raised a valid expectation in those affected, and the Group
has a detailed formal plan identifying:
KEY ESTIMATES
Employee benefits provisions are based on a
number of estimates including, but not limited to:
• expected future wages and salaries
• attrition (applicable to long service leave
provisions only)
• discount rates
• expected salary related payments, interest and
on-costs following a review of the pay
arrangements for award-covered salaried team
members
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
Restructuring provisions are based on a number of
estimates including, but not limited to:
• number of employees impacted
• employee tenure and costs
•
restructure timeframes
the business or part of the business impacted
•
•
the location and approximate number of employees impacted
• discount rates
• an estimate of the associated costs
•
the timeframe for restructuring activities
98
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
3. Capital
This section provides information relating to the Group’s capital structure and financing.
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 investment grade credit metrics 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:
•
repaying or raising debt in line with ongoing business requirements and growth opportunities aligned with the Group’s strategic
objectives
• amount of ordinary dividends paid to shareholders
•
raising and returning capital.
3.1 Interest-bearing liabilities
Non-current
Bank debt
Capital market debt
Total non-current interest-bearing liabilities
2021
$M
98
1,044
1,142
2020
$M
758
596
1,354
On 27 August 2020, Coles issued $450 million of Australian dollar medium term notes (Notes), comprising $300 million of 10-year fixed rate
Notes and $150 million of five-year floating rate Notes. The 10-year fixed rate Notes are priced at a coupon of 2.1% and the five-year floating
rate Notes are priced at a margin of 0.97% over 3-month BBSW. Proceeds from the Notes were used to repay bank debt.
In addition to the capital market debt, the Group is funded through a number of revolving multi-option and term loan facilities. These bilateral
bank debt facilities in aggregate total $2,815 million (‘Coles facilities’). The Coles facilities have the following maturities: $1,290 million in
November 2022, $1,425 million in November 2023 and $100 million in November 2025. At 27 June 2021, the facilities maturing in November
2022 and November 2023 were undrawn and the November 2025 facility was 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 Income Statement when the liabilities are derecognised.
3.2 Contributed equity and reserves
Ordinary shares
Ordinary shares on issue 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 Other Comprehensive Income within the
cash flow hedge reserve, while any ineffective portion is recognised immediately in the Income Statement.
Share-based payments reserve
The share-based payments reserve reflects the fair value of awards recognised as an expense in the Income Statement.
99
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 3.3 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 Balance Sheet in the period in which they are determined by the Board.
Determined and paid during the period
Paid final dividend (30% franked)
Paid special dividend (30% franked)
Paid interim dividend (30% franked)
Proposed and unrecognised at reporting date1
Final dividend proposed (30% franked)
CENTS PER SHARE
TOTAL $M
2021
2020
2021
2020
27.5
-
33.0
60.5
28.0
28.0
24.0
11.5
30.0
65.5
27.5
27.5
367
-
440
807
374
374
320
154
399
873
367
367
1 Estimated final dividend payable, subject to variations in the number of shares up to the record date.
The Company operates a Dividend Reinvestment Plan (DRP) under which eligible holders of ordinary shares are able to reinvest all or part of
their dividend payments into additional fully paid Coles Group Limited shares.
Franking account
Total franking credits available for subsequent periods based on a tax rate of 30% (2020: 30%)
2021
$M
420
2020
$M
408
100
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
4. FINANCIAL 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 details the Group’s approach to managing these risks.
4.1 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:
• 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). A discounted cash flow model is used to determine the recoverable amount under both FVLCOD and VIU.
FVLCOD is based on a market participant approach and is estimated using assumptions that a market participant would use when pricing the
asset or CGU. VIU is determined by discounting the future cash flows expected to be generated from the continuing use of an asset or CGU.
Key estimate: Assessment of recoverable amount
FVLCOD valuations are considered Level 3 in the fair value hierarchy due to the use of unobservable inputs in the calculation. The
assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data
from both external and internal sources. VIU calculation represent management’s best estimate of the economic conditions that will
exist over the remaining useful life of the asset or CGU in its current condition.
Both FVLCOD and VIU calculations use judgements and estimates. In particular, significant judgements and estimates are made in
relation to the following:
Forecast future cash flows
Forecast future cash flows 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. Internal forecasts have considered the
ongoing impacts of the COVID-19 pandemic on income and expenses. 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.
In addition, consideration has been given to the potential financial impacts of climate change related risks on the carrying value of
goodwill through a qualitative review of the Group’s climate change risk assessment. This review did not identify any material financial
reporting impacts.
When calculating the FVLCOD of an asset or CGU, future forecast cash flows also incorporate reasonably available market participant
assumptions such as enhancement capital expenditure.
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 asset or CGU and with reference
to 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 periods.
101
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Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 4.1 Impairment of non-financial assets (continued)
For the period ended 27 June 2021, a net impairment reversal for non-financial assets of $3 million was recognised. This amount includes a
$9 million net impairment reversal ($24 million reversal partly offset by $15 million impairment expense) relating to the Group’s property
portfolio. The impairment reversal arose from the disposal of a number of the Group’s properties during the period to the extent that an
impairment loss had previously been recognised with respect to the properties disposed.
The net impairment is included in ‘administration expenses’ in the Income Statement 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 period ended 28 June 2020, a net impairment reversal for non-financial assets of $41 million was recognised, of which $44 million ($52
million reversal offset by $8 million impairment expense) related to the Group’s property portfolio. This has been included in ‘administration
expenses’ in the Income Statement and within ‘Other’ for segment reporting purposes.
Recognised impairment
An impairment loss is recognised in the Income Statement if the carrying amount of an asset or a CGU exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and
then to reduce the carrying amount of other assets in the CGU.
Reversal of impairment
Where there is an indication that previously recognised impairment losses may no longer exist or may have decreased, the asset is re-tested
for impairment. The impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, had no impairment been recognised. Impairments recognised for
goodwill are not reversed.
Goodwill impairment testing
For the purpose of impairment testing, goodwill is allocated to CGUs or groups of CGUs according to the level at which management monitors
goodwill. The FVLCOD valuation methodology was applied to determine the recoverable amount of CGUs.
The following table presents a summary of the goodwill allocation and the key assumptions used in determining the recoverable amount of
each CGU:
Goodwill allocation ($m)
Indefinite life intangible assets ($m)
Post-tax discount rate (%)
Terminal growth rate (%)
2021
SUPERMARKETS
LIQUOR
EXPRESS
986
-
7.5%
2.7%
125
27
7.5%
2.7%
45
-
7.8%
nil
For the period ended 28 June 2020, goodwill and indefinite life intangibles were allocated to CGUs on a consistent basis. A post-tax discount
rate of 8.1% and a terminal growth rate of 3.0% for Supermarkets and Liquor were applied, along with a post-tax discount rate of 8.4% and a
terminal growth rate of 2.0% for Express.
Sensitivity analysis is performed to determine the point at which the recoverable amount is equal to the carrying amount for each CGU. For
the Group’s CGUs, based on current economic conditions and CGU performance, no reasonably possible change in a key assumption used in
the determination of the recoverable value is expected to result in a material impairment.
102
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 4.2 Financial risk management
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 debt, capital market debt 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.
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 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.
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 is exposed to various risks as set out below:
RISK
Market risks
Interest rate risk
Foreign exchange risk
Commodity price risk
Liquidity risk
EXPOSURE
MANAGEMENT
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.
The Group is exposed to changes in
commodity prices in respect to the
price of electricity.
The Group is exposed to liquidity and
funding risk from operations and
external borrowings.
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.
To mitigate the variability of wholesale electricity prices, the Group
utilises Power Purchase Arrangements (PPAs).
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.
103
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 4.2 Financial risk management (continued)
RISK
Credit risk
EXPOSURE
MANAGEMENT
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.
The majority of the Group’s sales are on a cash basis, 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 Balance Sheet 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 6.2 Contingent liabilities for further details.
Foreign exchange risk
The Group is primarily exposed to foreign exchange risk in relation to the United States dollar (USD), the Euro (EUR) and the British Pound
(GBP). The Group considers its exposure to USD, EUR and GBP 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:
BUY / SELL
USD / AUD
EUR / AUD
GBP / AUD
AUD / USD
NOTIONAL VALUE
CARRYING VALUE
WEIGHTED AVERAGE HEDGE RATE
2021
$M
56
291
36
(3)
2020
$M
72
411
46
-
2021
$M
1
(26)
1
-
2020
$M
-
(20)
(1)
-
2021
2020
0.77
0.58
0.55
0.76
0.69
0.58
0.54
-
104
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report At the reporting date, the Group has the following exposures to USD, EUR and GBP:
Financial assets
Cash and cash equivalents
Trade receivables
Forward exchange contracts
Financial liabilities
Trade and other payables
Forward exchange contracts
Net exposure
USD $M
EUR €M
GBP £M
2021
2020
2021
2020
2021
2020
4
6
44
(31)
(3)
20
4
-
49
(63)
-
(10)
-
1681
(13)
-
155
-
-
237
(21)
-
216
-
20
(4)
16
-
-
25
(5)
-
20
1
EUR forward exchange contracts of $137 million (2020: $191 million) relate to capital commitments. The remaining contracts hedge current and future trade
payables denominated in EUR.
Foreign exchange rate sensitivity
At the reporting date, had the Australian dollar moved against the USD, EUR and GBP (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:
RATE
AUD / USD
AUD / EUR
AUD / GBP
CHANGE
+10%
-10%
+10%
-10%
+10%
-10%
Interest rate risk
POST-TAX PROFIT INCREASE
(DECREASE):
POST-TAX OCI INCREASE
(DECREASE):
2021
$M
2020
$M
-
-
-
-
-
-
2
(2)
-
-
-
-
2021
$M
(2)
2
(15)
18
(2)
2
2020
$M
(1)
1
(22)
27
(2)
3
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:
Financial assets
Cash at bank and on deposit
Financial liabilities
Bank debt
Capital market debt
Less: interest rate swaps (notional principal amount)
Net exposure to cash flow interest rate risk
2021
2020
WEIGHTED
AVERAGE
INTEREST
RATE
%
0.3
(1.4)
(1.0)
1.8
EXPOSURE
$M
452
(760)
-
250
(58)
WEIGHTED
AVERAGE
INTEREST
RATE
%
0.6
(1.3)
-
(1.6)
EXPOSURE
$M
211
(100)
(150)
150
111
105
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
4.2 Financial risk management (continued)
Interest rate sensitivity
A 100 basis point increase 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 increased by 100 basis points, with all other variables held constant,
the impact would be:
Impacts of reasonably possible movements:
+1.0% (100 basis points)
Liquidity risk
POST-TAX PROFIT INCREASE
(DECREASE):
POST-TAX OCI INCREASE
(DECREASE):
2021
$M
1
2020
$M
-
2021
$M
4
2020
$M
6
The Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank debt with a
variety of counterparties.
The committed facilities of the Group are set out below:
Financing facilities available:
Bank overdrafts
Revolving multi-option facilities
Term loan facilities
Financing facilities utilised:
Revolving multi-option facilities
Guarantees issued1
Term loan facilities
Financing not utilised:
Bank overdrafts
Revolving multi-option facilities1
2021
$M
13
2,715
100
2,828
-
322
100
422
13
2,393
2,406
2020
$M
13
2,640
660
3,313
100
358
660
1,118
13
2,182
2,195
1
As at 27 June 2021, bank guarantees totalling $322 million (2020: $358 million) have been issued on behalf of the Company 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.
The Group holds $787 million cash and cash equivalents at the reporting date (2020: $992 million).
Assets pledged as security
A controlled entity has issued a floating charge over assets, capped at $80 million (2020: $80 million), as security for payment obligations for
fuel sales collected on behalf of Viva in accordance with the New Alliance Agreement. The assets are, therefore, excluded from financial
covenants in all debt documentation.
Maturity analysis
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 maturities of the Group’s financial liabilities and their carrying amounts are as
follows:
106
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report < 12 MONTHS
$M
1-2 YEARS
$M
2-5 YEARS
$M
> 5 YEARS
$M
TOTAL
CONTRACTUAL
CASH FLOWS
$M
CARRYING
AMOUNT
$M
3,652
14
22
-
10
22
1,244
1,210
3
11
(1)
3
13
(1)
-
106
216
3,334
4
-
1
-
-
960
4,987
-
-
3
3,652
130
1,220
10,775
10
24
2
3,652
100
1,048
8,756
7
24
9
4,945
1,257
3,661
5,950
15,813
13,596
3,737
21
15
-
19
15
1,250
1,219
4
6
2
8
-
633
44
3,325
7
7
-
151
646
5,592
-
-
3,737
824
720
11,386
13
21
3,737
760
598
9,083
11
21
5,033
1,263
4,016
6,389
16,701
14,210
2021
Trade and other payables
(less accrued interest)
Bank debt (principal and interest)
Capital market debt
(principal and interest)
Lease liabilities
Interest rate swaps
Forward exchange contracts
Power Purchase Arrangement
Total
2020
Trade and other payables
(less accrued interest)
Bank debt (principal and interest)
Capital market debt
(principal and interest)
Lease liabilities
Interest rate swaps
Forward exchange contracts
Total
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.
Changes in liabilities arising from financing activities
2021
Bank debt
Capital market debt
Lease liabilities
Derivatives
Total liabilities from
financing activities
2020
Bank debt
Capital market debt
Lease liabilities
Derivatives
Total liabilities from
financial activities
AT BEGINNING
OF PERIOD
$M
NOTE
CASH FLOWS
$M
CHANGES IN
FAIR VALUE
$M
LEASES
RECOGNISED
$M
OTHER
$M
AT END OF
PERIOD
$M
3.1
3.1
2.7
4.3
3.1
3.1
2.7
4.3
758
596
9,083
32
(660)
448
(1,281)
-
10,469
(1,493)
1,460
-
8,856
19
(702)
596
(1,245)
-
10,335
(1,351)
-
-
-
10
10
-
-
-
13
13
-
-
564
-
564
-
-
1,073
-
1,073
-
-
390
-
390
-
-
399
-
399
98
1,044
8,756
42
9,940
758
596
9,083
32
10,469
107
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
4.3 Financial instruments
Financial assets and liabilities measured at fair value
The following table sets out the fair value measurement hierarchy of the Group’s derivative financial instruments:
Cash flow hedges
Forward exchange contracts
Interest rates swaps
Power Purchase Agreement
LEVEL 2 FAIR VALUE HIERARCHY
2021
2020
ASSET
LIABILITY
ASSET
LIABILITY
2
-
-
(26)
(7)
(9)
1
-
-
(22)
(11)
(3)
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 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
LEVEL 2
LEVEL 3
Fair value is calculated using quoted prices in active markets for identical assets or liabilities
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)
Fair value is estimated using inputs for the asset or liability that are not based on observable market data
(unobservable inputs)
All of the Group’s financial instruments carried at fair value were valued using market observable inputs (Level 2).
For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers have occurred between
Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
There were no transfers between Level 1 and Level 2 during the period. The Group does not hold any material Level 3 financial instruments.
Derivatives
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade
credit ratings. Foreign exchange forward contracts, interest rate swap contracts and power purchase agreements 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, interest rate curves and electricity futures. Accordingly, these derivatives are classified as Level 2.
Carrying amounts versus fair values
The carrying amounts and fair values of the Group’s financial assets and financial liabilities recognised in the financial statements are
materially the same.
108
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Offsetting of financial assets and liabilities
The Group presents its derivative assets and liabilities on a gross basis, with the exception of derivative financial instruments which it intends
to settle on a net basis and 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 Balance Sheet at the reporting date:
GROSS FINANCIAL
ASSETS / (LIABILITIES)
$M
GROSS FINANCIAL
(LIABILITIES) / ASSETS
SET OFF
$M
NET FINANCIAL ASSETS /
(LIABILITIES) PRESENTED
IN THE BALANCE SHEET
$M
490
(3,782)
560
(3,863)
(122)
122
(126)
126
368
(3,660)
434
(3,737)
2021
Trade and other receivables
Trade and other payables
2020
Trade and other receivables
Trade and other payables
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.
The date the hedging instrument is entered into
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
Income Statement.
Recognition date
Measurement
Changes in fair value
109
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 5. Group structure
This section provides information relating to subsidiaries and other material investments of the Group.
5.1 Equity accounted investments
NAME OF COMPANY
PRINCIPAL ACTIVITY
Loyalty Pacific Pty Ltd
Queensland Venue
Co. Pty Ltd (QVC)
Operator of the flybuys
loyalty program
Operator of Spirit Hotels
and Queensland retail
liquor business
PLACE OF
INCORPORATION
TYPE
Australia
Joint Venture
Australia
Associate
OWNERSHIP INTEREST
2021
50%
50%
2020
50%
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. 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 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 Income Statement.
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 QVC are accounted for using the equity method of accounting in the Balance Sheet.
Loyalty pacific pty ltd
A reconciliation of the carrying amount of the Group’s investment in Loyalty Pacific Pty Ltd is set out below:
At beginning of period
Additions
Loss for the period
At end of period
2021
$M
16
8
(5)
19
2020
$M
11
11
(6)
16
110
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Queensland Venue Co. Pty Ltd
In FY19, the Company entered into an incorporated joint venture with Australian Venue Co. (AVC) for the operation of Spirit Hotels (the ‘Hotel
business’) and the retail liquor stores linked to Spirit Hotels venues (collectively the ‘Retail Liquor business’). An incorporated joint venture
company, QVC was established. Under the joint venture documents, the Company holds all R-shares in QVC and operates the Retail Liquor
business through its wholly-owned subsidiary, Liquorland (Australia) Pty. Ltd. (LLA).
For accounting purposes, 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 Income
Statement. 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.
A reconciliation of the carrying amount of the Group’s investment in QVC is set out below:
At beginning of period
Additions
Profit for the period
At end of period
5.2 Assets held for sale
2021
$M
201
-
-
201
2020
$M
201
-
-
201
At 27 June 2021, six of the Group’s properties with a total carrying value of $85 million have been classified as held for sale (2020: $75 million).
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.
111
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information 5.3 Subsidiaries
The ultimate parent of the Group is Coles Group Limited, a company incorporated in Australia. Subsidiaries are consolidated from the date of
acquisition, being the date Coles Group Limited obtains control, and continue to be consolidated until the date control ceases. Control exists
where the Group 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 of the Group. All entities were incorporated in Australia and 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%)
Coles Retail Services Pty Ltd
Coles Supermarkets Australia Pty Ltd *
Coles Trading (Shanghai) Co. Limited (incorporated in China)
Coles WFS Pty Ltd (formerly Wesfarmers Finance Pty Ltd)
CSA Retail (Finance) Pty Ltd
e.colesgroup Pty Ltd
Eureka Operations Pty Ltd *
Coles Export Asia Limited (incorporated in Hong Kong)
GBPL Pty Ltd
Coles Export Australia Pty Ltd (formerly Tooronga Holdings Pty Ltd) * Grocery Holdings Pty Ltd *
Coles Financial Services Pty Ltd
Katies Fashions (Aust) Pty Limited
Coles FS Holding Company Pty Ltd (formerly Wesfarmers Finance
Holding Company Pty Ltd)
Coles Group Deposit Services 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 Group Treasury Pty Ltd (formerly Coles Group Payments Pty
Ltd) *
Coles Online Pty Ltd *
Coles Property Management Pty Ltd
Liquorland (Australia) Pty. Ltd *
Newmart Pty Ltd
Procurement Online Pty Ltd
Retail Ready Operations Australia Pty. Ltd *
Richmond Plaza Shopping Centre Pty Ltd
Tickoth Pty Ltd
WFPL Funding Co Pty Ltd
WFPL No 2 Pty Ltd
WFPL Security SPV Pty Ltd
WFPL SPV Pty Ltd
Entities formed/incorporated or acquired during the financial year
Coles Captive Insurance Pte. Ltd. (incorporated in Singapore)
CNSCE Pty Ltd
* These entities are parties to the Deed of Cross Guarantee and are members of the Closed Group as at 27 June 2021.
112
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report Deed of cross guarantee
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (‘ASIC Instrument’) the wholly-owned subsidiaries listed on the
previous page (*) are relieved from the Corporations Act 2001(Cth) 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 the previous page have entered into a Deed of Cross
Guarantee (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.
An Income Statement and retained earnings and a Balance Sheet, 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 period are set out below:
Income Statement and retained earnings
Sales revenue
Other operating revenue
Total operating revenue
Cost of sales
Gross profit
Other income
Administration expenses
Share of net loss from equity accounted investments
Earnings before interest and tax
Financing costs
Profit before income tax
Income tax expense
Profit for the period
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 period
Retained earnings
Retained earnings at beginning of period
Effect of adoption of AASB 16 Leases
Profit for the period
Dividends paid
Retained earnings at end of period
CLOSED GROUP
2021
$M
38,562
370
38,932
(28,764)
10,168
110
(8,391)
(5)
1,882
(427)
1,455
(443)
1,012
(9)
3
(6)
1,006
1,040
-
1,012
(807)
1,245
2020
$M
37,408
376
37,784
(28,048)
9,736
114
(8,076)
(6)
1,768
(443)
1,325
(337)
988
(17)
5
(12)
976
1,756
(831)
988
(873)
1,040
113
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
5.3 Subsidiaries (continued)
Balance Sheet
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income tax receivable
Assets held for sale
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Investment in subsidiaries
Equity accounted investments
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Income tax payable
Provisions
Lease liabilities
Other
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Lease liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
CLOSED GROUP
2021
$M
778
357
2,102
-
85
87
2020
$M
992
434
2,161
43
75
69
3,409
3,774
4,423
7,283
1,695
869
249
220
147
14,886
18,295
4,091
7,655
1,594
847
238
217
120
14,762
18,536
3,756
3,858
62
947
897
252
-
858
884
198
5,914
5,798
1,142
457
7,854
29
9,482
15,396
2,899
1,585
69
1,245
2,899
1,354
472
8,193
25
10,044
15,842
2,694
1,611
43
1,040
2,694
114
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 5.4 Parent entity information
Summary financial information for the Company is set out below:
Profit for the period
Dividends received
Profit for the period (after dividends)
Other comprehensive income
Total comprehensive income for the period
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2021
$M
284
-
284
-
284
2021
$M
3,390
5,102
8,492
1,020
2,775
3,795
1,585
80
3,032
4,697
2020
$M
293
2,974
3,267
-
3,267
2020
$M
3,840
5,090
8,930
1,059
2,669
3,728
1,611
36
3,555
5,202
As at 27 June 2021, the Company has no guarantees in relation to the debts of its subsidiaries (2020: $nil).
As at 27 June 2021, the Company has no contingent liabilities (2020: $nil). As at 27 June 2021, the Company has bank guarantees totalling $290
million (2020: $324 million).
As at 27 June 2021, the Company has contractual commitments for the acquisition of property, plant and equipment totalling $349 million
(2020: $512 million).
115
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
6. 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.
6.1 Commitments
A commitment represents a contractual obligation to make a payment in the future. The Group’s commitments relate to capital expenditure
and certain operating leases not recognised. Commitments are not recognised in the Balance Sheet, but are disclosed.
Capital expenditure commitments of the Group at the reporting date are set out below:
Within one year
Between one and five years
Total capital commitments for expenditure
2021
$M
244
177
421
2020
$M
264
378
642
The commitment amounts disclosed above represent the maximum amounts that the Group is obliged to pay.
At 27 June 2021, the Group also has commitments relating to lease agreements that have not yet commenced. The future lease payments
(undiscounted) for non-cancellable periods are $21 million within one year, $457 million between one and five years and $1,748 million
thereafter (2020: $21 million within one year, $474 million between one and five years and $1,914 million thereafter). The commitments relate
to lease agreements associated with new stores, the Supply Chain Modernisation program and online fulfilment centres.
6.2 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 Balance Sheet but are disclosed.
In February 2020 Coles announced it was conducting a review into the pay arrangements for team members who receive a salary and are
covered by the General Retail Industry Award 2010 (GRIA). A provision of $20 million was recognised in FY20 in relation to this matter. Following
the announcement in February 2020, the Fair Work Ombudsman (FWO) commenced an investigation which is ongoing. The potential
outcomes of this investigation are uncertain as at the date of this report.
In May 2020, Coles was notified that a class action proceeding had been filed in the Federal Court of Australia in relation to payment of Coles
managers employed in supermarkets. Coles is defending the proceeding. The potential outcome and total costs associated with this matter
remain uncertain as at the date of this report.
From time to time, entities within the Group are party to various legal actions as well as inquiries from regulators and government bodies that
have arisen in the ordinary course of business. Consideration has been given to such matters and it is expected that the resolution of these
contingencies will not have a material impact on the financial position of the Group, or are not at a stage to support a reasonable evaluation
of the likely outcome.
Key estimate: 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.
116
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report 7. 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.
7.1 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 owing to Loyalty Pacific Pty Ltd
Queensland Venue Co. Pty Ltd
Sales of inventory to QVC
Service fees paid to QVC
Amounts receivable from QVC
Transactions with Key Management Personnel (KMP)
Compensation of KMP of the Group:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Total compensation paid to key management personnel
Terms and conditions of transactions with related parties
2021
$M
140
299
212
-
55
25
2020
$M
134
228
201
3
56
32
2021
$
2020
$
10,043,343
11,800,881
188,312
325,493
7,070,757
188,724
(5,678)
5,096,297
17,627,905
17,080,224
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.
The Group has not recognised a provision for expected credit losses relating to amounts owed by related parties (2020: $nil).
7.2 Employee share plans
The Group operates an Equity Incentive Plan (the ‘Plan’) which provide equity instruments to employees as a component of their remuneration.
Long Term Incentive (LTI) Program
Refer to the Remuneration Report for the terms and conditions of the LTI program.
The fair value of Performance Rights under each performance measure is determined at grant date by an independent valuation expert and
takes into account the terms and conditions upon which they were granted. The fair value is recognised as an employee expense (with a
corresponding increase in equity) over the vesting period.
For the relative total shareholder return (TSR) measure, the fair value is recognised as an expense irrespective of whether the Performance
Rights vest to the holder, and a reversal of the expense is only recognised in the event the instruments lapse due to cessation of employment
within the vesting period. For the return on capital (ROC) measure, the amount expensed is based on the expected number of Performance
Rights vesting, with the ultimate expense reflecting the actual Performance Rights that vest.
Short Term Incentive (STI)
For Executives, 25% of their STI is deferred into Restricted Shares (50% for the Managing Director and Chief Executive Officer) and are subject
to a one-year service condition (two years for the Managing Director and Chief Executive Officer). The cost of the deferred STI is based on the
market price at grant date and is recognised as an employee expense (with a corresponding increase in equity) over the vesting period.
Further explanation of the deferred STI is disclosed in the Remuneration Report.
117
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
7.2 Employee share plans (continued)
Restricted share offer
Restricted Shares are subject to a continued service condition, a three-year trading restriction period and cessation of employment
provisions. During the trading restriction period, Restricted Shares are held in trust by the Trustee on behalf of the employee. The number of
Restricted Shares to be granted is determined based on the currency value of the achieved Restricted Share offer divided by the volume
weighted average price (VWAP) at which the Company’s shares are traded on the Australian Stock Exchange over the period outlined in the
offer letter. The value of Restricted Shares granted is recognised as an employee expense (with a corresponding increase in equity) over the
vesting period.
Restricted Shares carry the same dividend and voting rights as other fully paid ordinary Shares in the Company.
Performance Rights (number)
Movements in Performance Rights granted under the LTI program that existed during the current or prior period are:
GRANT DATE
2021
Nov 2019
May 2020
Nov 2020
Nov 2020
GRANT DATE
2020
Nov 2019
May 2020
BALANCE AT
29 JUNE 2020
962,246
89,528
-
-
1,051,774
BALANCE AT
1 JULY 2019
GRANTED
FORFEITED
VESTED
BALANCE AT
27 JUNE 2021
EXERCISABLE AT
27 JUNE 2021
-
-
223,133
772,930
996,063
-
-
-
-
-
-
-
-
-
-
962,246
89,528
223,133
772,930
2,047,837
-
-
-
-
-
GRANTED
FORFEITED
VESTED
BALANCE AT
28 JUNE 2020
EXERCISABLE AT
28 JUNE 2020
-
-
962,246
89,528
-
1,051,774
-
-
-
-
-
-
962,246
89,528
1,051,774
-
-
-
Fair value of equity instruments
The assumptions underlying the fair value measurement of the performance rights are:
GRANT DATE
EXPIRY DATE
Nov 2019
May 2020
Nov 2020
Nov 2020
Aug 2022
Aug 2022
Aug 2023
Aug 2023
SHARE PRICE AT
GRANT DATE
$
EXPECTED
VOLATILITY IN
SHARE PRICE1
%
EXPECTED
DIVIDEND YEILD
%
RISK FREE
INTEREST RATE2
%
FAIR VALUE PER
INSTRUMENT
$
16.26
15.02
18.26
17.95
25.0
25.0
25.0
25.0
3.90
4.20
3.68
3.68
0.65
0.25
0.10
0.11
12.58
12.92
13.52
12.67
1 Reflects the assumption that the historical volatility is indicative of future trends.
2 Represents the zero coupon interest rate derived from government bond market interest rates on the valuation date and vary according to each maturity date.
118
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
Additional information on award schemes
Details of grants made under the Plan during the period 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
must be made. This includes, but is not limited to, share price volatility, discount rate and dividend yield.
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
measuring the fair value of awards subject to non-market based vesting conditions, the Black-Scholes Model has been utilised.
7.3 Auditor’s remuneration
Fees to Ernst & Young (Australia):
Audit services:
Audit or review of the Financial Report of the Group
Assurance related
Non-audit services:
Tax compliance services
Total fees to Ernst & Young (Australia)
Fees to overseas member firms of Ernst & Young:
Audit services:
Audit or review of the Financial Report of any controlled entities
Total fees to overseas member firms of Ernst & Young
Total auditor’s remuneration
2021
$000
2,738
709
69
3,516
57
57
3,573
2020
$000
2,631
7011
135
3,467
-
-
3,467
1 Certain FY20 services were in progress at the time of disclosure. These amounts have now been updated following completion of these services in FY21.
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 for our external auditor to perform.
The total fees for non-audit services of $69,000 represent 1.9% (2020: 3.9%) of the total fees paid or payable to EY and related practices for the
period.
7.4 New accounting standards and interpretations
There are amendments and interpretations that apply for the first time in this period. These did not have a material impact on the consolidated
financial statements of the Group.
New and revised Australian Accounting Standards and interpretations on issue but not yet effective
There are no standards that are not yet effective that would be expected to have a material impact on the Group in the current or future
reporting periods.
7.5 Events after the reporting period
Other than events disclosed elsewhere in this report, the Group is not aware of any matter or circumstance that has occurred since 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 reporting periods.
119
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
Directors’ Declaration
1. The directors of Coles Group Limited (the Company) declare that, in the directors’ opinion:
(a) the financial statements and the Notes 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.
3.
4.
A statement of compliance with the International Financial Reporting Standards is included in the Basis of Preparation and Accounting
Policies in the Notes to the consolidated financial statements.
The directors have been given the declaration required by section 295A of the Corporations Act 2001 (Cth) from the Managing Director and
Chief Executive Officer and Chief Financial Officer for the financial year ended 27 June 2021.
As at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note 5.3
Subsidiaries 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 5.3 Subsidiaries.
Signed in accordance with a resolution of the directors.
James Graham AM
Chairman
18 August 2021
Steven Cain
Managing Director and Chief Executive Officer
18 August 2021
120
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
Ernst & Young
GPO Box 67 Melbourne VIC 3001
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
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor's Report to the Members of Coles Group Limited
Independent Auditor's Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Report on the Audit of the Financial Report
Opinion
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
ended, notes to the consolidated financial statements, including a summary of significant accounting
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
policies, and the Directors' Declaration.
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:
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
and of its consolidated financial performance for the year ended on that date; and
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
and of its consolidated financial performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
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
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Report section of our report. We are independent of the Group in accordance with the auditor
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Report section of our report. We are independent of the Group in accordance with the auditor
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
with the Code.
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
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
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
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
our audit of the Financial Report of the current year. These matters were addressed in the context of
provide a separate opinion on these matters. For each matter below, our description of how our audit
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
addressed the matter is provided in that context.
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
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
included the performance of procedures designed to respond to our assessment of the risks of
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
material misstatement of the Financial Report. The results of our audit procedures, including the
included the performance of procedures designed to respond to our assessment of the risks of
procedures performed to address the matters below, provide the basis for our audit opinion on the
material misstatement of the Financial Report. The results of our audit procedures, including the
accompanying Financial Report.
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
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
121
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
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
1. Commercial income
Report on the Audit of the Financial Report
Why significant
Opinion
How our audit addressed the key audit matter
Our audit procedures in respect of commercial
income included the following:
Commercial income (also referred to in the
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
retail industry as “supplier rebates”) comprises
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
discounts and rebates received by the Group
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
from its suppliers.
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
Determining the value and timing of when
policies, and the Directors' Declaration.
commercial income is recognised through the
Consolidated Income Statement requires
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
judgement and the consideration of a number
Act 2001, including:
of factors including:
► We gained an understanding of the nature
of each significant type of commercial
income and assessed a sample of
agreements in place to determine whether
the terms of each agreement were
reflected in the accounting treatment;
► We assessed the design and operating
The terms of each individual rebate
agreement;
►
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
effectiveness of relevant controls in place
relating to the recognition and
and of its consolidated financial performance for the year ended on that date; and
measurement of amounts related to these
arrangements;
►
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
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 Income Statement; and
► 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;
The application of Australian Accounting
Standards and the Group’s related
processes and controls to these
arrangements.
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
agreements and assessed whether the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
agreements or other documentation
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
appropriately supported the recognition
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
and measurement of the rebates recorded
Disclosures relating to the measurement and
with the Code.
in the 27 June 2021 Financial Report,
recognition of commercial income can be found
including an assessment of amounts
in Note 2.4 Inventories.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
recorded before and after the balance date;
for our opinion.
► We selected a sample of supplier
Key Audit Matters
► 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; and
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
► We considered the associated financial
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.
report disclosures.
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.
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
122
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
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
2. Impairment of non-current assets including intangible assets
Report on the Audit of the Financial Report
Why significant
Opinion
How our audit addressed the key audit matter
► Determination of cash generating units;
Our audit procedures included an evaluation of
the following assumptions utilised in the Group’s
impairment assessment:
The determination of the recoverable amounts
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
of non-current assets including property, plant
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
and equipment, right of use assets, goodwill and
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
other intangible assets requires significant
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
judgement by the Group.
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors' Declaration.
Impairment assessments are complex and
involve significant management judgement. The
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
assessment completed by the Group includes
Act 2001, including:
numerous assumptions and estimates that will
be impacted by future performance and market
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
conditions. This includes the potential future
impacts of the COVID-19 pandemic on income
and expenses.
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Key assumptions, judgements and estimates
applied in the Group’s impairment assessment
Basis for Opinion
are set out in Note 4.1.
In performing our procedures, we considered
whether the Group’s forecasts considered the
potential future impacts of the COVID-19
pandemic on income and expenses.
Forecast cash flows, which were based on
the Group’s Board approved internal five-
year forecasts;
and of its consolidated financial performance for the year ended on that date; and
Long term inflation and growth rates;
► Other market evidence.
► Discount rates; and
►
►
Based upon the disclosed sensitivity analysis,
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
changes to the key assumptions applied in the
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
impairment test are not expected to give rise to
Report section of our report. We are independent of the Group in accordance with the auditor
an impairment of the carrying value of the
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Group’s cash generating units.
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We assessed whether the Group’s impairment
models were in accordance with Australian
Accounting Standards, as well as the
mathematical accuracy of the calculations.
We also considered the adequacy of the
Financial Report disclosures regarding the
impairment testing approach, key assumptions,
results and sensitivity analysis.
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.
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
123
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
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
3. IT environment
Report on the Audit of the Financial Report
Why significant
Opinion
How our audit addressed the key audit matter
A significant part of the Group’s financial
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
processes are heavily reliant on IT systems with
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
automated processes and controls over the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
capturing, valuing and recording of
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
transactions.
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors' Declaration.
This was a key audit matter because of the:
We performed procedures to understand the IT
environment, including procedures to identify
the Group’s manual and automated controls
relevant to Financial Reporting.
► Complex IT environment supporting diverse
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
business processes, with varying levels of
integration between them;
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 and related data.
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
► Mix of manual and automated controls;
and of its consolidated financial performance for the year ended on that date; and
► Multiple internal and outsourced support
arrangements; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
► Continuing enhancements to the Group’s IT
Basis for Opinion
systems, including new IT systems
implemented, which are significant to our
audit.
How our audit addressed the key audit matter
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
4. AASB 16 Leases
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Why significant
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We assessed the Group’s calculations of the
The recognition and measurement of new leases
financial impact of the standard and the
or lease amendments entered into during the
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
year in accordance with AASB 16 Leases
accounting policies, estimates and judgements
for our opinion.
made in respect of the Group’s right of use
(“AASB 16”) are dependent on a number of key
assets and lease liabilities, as well as related
judgements and estimates. These include:
Key Audit Matters
depreciation and interest expense recognised
through the Consolidated Income Statement.
►
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
We selected a sample of new and modified lease
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
agreements to determine the appropriateness of
provide a separate opinion on these matters. For each matter below, our description of how our audit
The determination of lease extension
the judgements applied including:
►
addressed the matter is provided in that context.
options recognised; and
The identification and determination of non-
lease components;
The determination of the lease term;
►
The treatment of lease extension options;
The calculation of incremental borrowing
rates.
►
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
The treatment of sub-lease arrangements;
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
Key assumptions, judgements and estimates
material misstatement of the Financial Report. The results of our audit procedures, including the
applied to the Group’s leases are set out in Note
The treatment of adjustments to lease
procedures performed to address the matters below, provide the basis for our audit opinion on the
2.7.
payments (both fixed and variable rate
accompanying Financial Report.
adjustments);
The identification of non-lease components;
►
►
►
A member firm of Ernst & Young Global Limited
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124
►
The impact of contract variations;
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
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
Why significant
How our audit addressed the key audit matter
Opinion
►
The incremental borrowing rate determined
by the Group; and
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
► Whether there were any material contracts
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors' Declaration.
containing a lease.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
and of its consolidated financial performance for the year ended on that date; and
We selected a sample of existing leases and
evaluated movements during the year in the
right of use asset and the right of use liability.
For each existing lease selected, we also
assessed the related depreciation expense and
interest expense for the year ended 27 June
2021.
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 involved our capital and debt advisory
specialists to assess the Group’s incremental
borrowing rates.
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
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
We assessed the adequacy of disclosures
Report section of our report. We are independent of the Group in accordance with the auditor
included in the Financial Report.
independence requirements of the Corporations Act 2001 and the ethical requirements of the
5. Inventory existence
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
Why significant
How our audit addressed the key audit matter
with the Code.
Basis for Opinion
►
Our audit procedures included the following:
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
At 27 June 2021, the Group held inventories of
for our opinion.
$2,107 million. Being one of the most
significant balances on the Consolidated
Key Audit Matters
Balance Sheet, the Group’s inventory
verification process is extensive and occurs
Key audit matters are those matters that, in our professional judgement, were of most significance in
routinely throughout the financial year.
our audit of the Financial Report of the current year. These matters were addressed in the context of
This inventory is held at geographically diverse
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
locations around Australia at various retail
provide a separate opinion on these matters. For each matter below, our description of how our audit
stores and distribution centres.
addressed the matter is provided in that context.
Selected a sample of stores and observed
and assessed the Group’s stocktake
processes and controls throughout the
year. This included observing a number of
stocktakes virtually through video
conferencing technology due to the
Government’s requirements to work from
home as a result of the COVID-19
pandemic;
The Group’s key estimates in respect of
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
inventories are disclosed in Note 2.4 of the
For the stocktakes we observed, we
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
assessed whether the required adjustment
Financial Report.
included the performance of procedures designed to respond to our assessment of the risks of
to inventory determined by the stocktake
material misstatement of the Financial Report. The results of our audit procedures, including the
was accurate and processed correctly;
procedures performed to address the matters below, provide the basis for our audit opinion on the
► Observed and assessed the daily stocktake
accompanying Financial Report.
process at a sample of distribution centres
near period end;
►
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125
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
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
► Observed a sample of cycle counts at
Opinion
distribution centres and assessed whether
daily counts occurred at distribution
centres during the year; and
►
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
For a select number of distribution centres
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
managed by third parties, we obtained
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
confirmation of inventory held by the third
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
party.
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors' Declaration.
Information Other than the Financial Report and Auditor’s Report Thereon
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
The directors are responsible for the other information. The other information comprises the
Act 2001, including:
information included in the Company’s 2021 Annual Report, but does not include the Financial Report
and our auditor’s report thereon. We obtained the Operating and Financial Review, Board of Directors
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
section and Directors’ Report that are to be included in the Annual Report, prior to the date of this
auditor’s report, and we expect to obtain the remaining sections of the Annual report after the date of
this auditor’s report.
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
and of its consolidated financial performance for the year ended on that date; and
Our opinion on the Financial Report does not cover the other information and accordingly we do not
Basis for Opinion
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance 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
In connection with our audit of the Financial Report, our responsibility is to read the other information
Report section of our report. We are independent of the Group in accordance with the auditor
and, in doing so, consider whether the other information is materially inconsistent with the Financial
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
If, based on the work we have performed on the other information obtained prior to the date of this
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
auditor’s report, we conclude that there is a material misstatement of this other information, we are
with the Code.
required to report that fact. We have nothing to report in this regard.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
Responsibilities of the Directors for the Financial Report
for our opinion.
The Directors of the Company are responsible for the preparation of the Financial Report that gives a
Key Audit Matters
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
Key audit matters are those matters that, in our professional judgement, were of most significance in
Financial Report that gives a true and fair view and is free from material misstatement, whether due
our audit of the Financial Report of the current year. These matters were addressed in the context of
to fraud or error.
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
In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to
addressed the matter is provided in that context.
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
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
operations, or have no realistic alternative but to do so.
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.
A member firm of Ernst & Young Global Limited
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126
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
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
Auditor's Responsibilities for the Audit of the Financial Report
Report on the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the Financial Report as a whole is
Opinion
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
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
audit conducted in accordance with the Australian Auditing Standards will always detect a material
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
if, individually or in the aggregate, they could reasonably be expected to influence the economic
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
decisions of users taken on the basis of this Financial Report.
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors' Declaration.
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:
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
•
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
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
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.
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
and of its consolidated financial performance for the year ended on that date; and
Basis for Opinion
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors.
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
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
opinion on the effectiveness of the Group’s internal control.
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 (including Independence Standards) (the Code) that are relevant to our audit of the
•
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
and, based on the audit evidence obtained, whether a material uncertainty exists related to
with the Code.
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.
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
•
Evaluate the overall presentation, structure and content of the Financial Report, including the
our audit of the Financial Report of the current year. These matters were addressed in the context of
disclosures, and whether the Financial Report represents the underlying transactions and
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
events in a manner that achieves fair presentation.
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.
•
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
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
responsible for the direction, supervision and performance of the Group audit. We remain solely
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
responsible for our audit opinion.
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
We communicate with the Directors regarding, among other matters, the planned scope and timing of
procedures performed to address the matters below, provide the basis for our audit opinion on the
the audit and significant audit findings, including any significant deficiencies in internal control that we
accompanying Financial Report.
identify during our audit.
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
127
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual ReportOverviewOperating and Financial ReviewDirectors’ ReportRemuneration ReportFinancial ReportShareholder Information
Coles Group Limited 2021 Annual Report
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
We also provide the Directors with a statement that we have complied with relevant ethical
Report on the Audit of the Financial Report
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, actions
Opinion
taken to eliminate threats or safeguards applied.
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
From the matters communicated to the Directors, we determine those matters that were of most
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the
significance in the audit of the Financial Report of the current year and are therefore the key audit
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
ended, notes to the consolidated financial statements, including a summary of significant accounting
should not be communicated in our report because the adverse consequences of doing so would
policies, and the Directors' Declaration.
reasonably be expected to outweigh the public interest benefits of such communication.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Report on the Audit of the Remuneration Report
Act 2001, including:
Opinion on the Remuneration Report
(a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021
and of its consolidated financial performance for the year ended on that date; and
We have audited the Remuneration Report included in the Directors’ report for the year ended
27 June 2021.
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
In our opinion, the Remuneration Report of Coles Group Limited for the year ended 27 June 2021,
Basis for Opinion
complies with section 300A of the Corporations Act 2001.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Responsibilities
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
The Directors of the Company are responsible for the preparation and presentation of the
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
accordance with Australian Auditing Standards.
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Ernst & Young
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
Fiona Campbell
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
Partner
provide a separate opinion on these matters. For each matter below, our description of how our audit
Melbourne
addressed the matter is provided in that context.
18 August 2021
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.
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
128
DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM
Coles Group Limited 2021 Annual Report
Shareholder Information
Listing information
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 2021
The number of shares to which each substantial holder and the substantial holders’ associates have a relevant interest, as disclosed in
substantial holding notices given to Coles, are as follows:
Holder
Vanguard Group
Blackrock Group
Twenty largest ordinary fully paid shareholders as at 26 August 2021
Coles Group Limited
1
2
3
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
4 Wesfarmers Retail Holdings Pty Ltd
5
6
7
8
9
BNP Paribas Nominees Pty Ltd
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