Metcash Limited
Annual Report 2006

Plain-text annual report

METCASH LIMITED Champion of the Independent Retailer – Coast to Coast Annual Report 2006 OUr MiSSiOn: TO Be The MArkeTing And diSTriBUTiOn leAder in fOOd And OTher fAST-MOving cOnSUMer gOOdS cOnTenTS Report from the Chairman and CEO 2 6 IGA Distribution 8 Australian Liquor Marketers 10 Campbells Wholesale 12 The Board The Executive Team 14 Financial and Statistical Highlights – Five Year Review Corporate Governance 16 17 22 Directors’ Report 36 Income Statement 37 Balance Sheet 38 Statement of changes in equity 40 Cash flow statement 41 Notes to the financial statement 93 Directors’ declaration Auditor’s Independence declaration 94 Independent Audit Report 95 . A W , e g a r o t s l d o c n o i t u b i r t s i D k n i l d o o F ABOUT US Metcash Limited is a leading marketing and distribution company operating in the grocery and liquor wholesale distribution industries through its three business pillars: > IGA Distribution (Independent Grocers of Australia) > Australian Liquor Marketers > Campbells Wholesale OUr cOre vAlUeS > Championing the customer > Our stakeholders are entitled to added value > Responsibility and personal accountability > Empowering our people and supporting our communities Are nOThing wiThOUT inTegriTy Caningvale Distribution Centre, WA. THE yEAr’S HIgHLIgHTS > Acquired Foodland Associated Limited’s Australian businesses, integration underway. > Seventh consecutive record annual profit. > Strong operating cash flow, $243m generated. > Dividends declared increased by 21%. Weighted Average Earnings per Share (cents) – excluding CULS, CUPS and Restructure Costs Cost of Doing Business as a per cent of Gross Profit 21.55 16.10 16.64 13.11 8.89 25 20 15 10 5 0 100% 90% 80% 70% 60% 50% 75.20 71.00 68.65 68.06 67.16 02 03 04 05 (AGAAP) 06 (AIFRS) 02 03 04 05 06 EBITA as a per cent of Sales Operating Cash Flow ($m) 2.74 2.91 2.56 2.28 2.04 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 242.70 136.00 113.40 130.60 129.30 280 240 200 160 120 80 40 0 02 03 04 05 06 02 03 04 05 06 www.metcash.com  rEpOrT frOM THE CHAIrMAn AnD THE CHIEf ExECUTIvE OffICEr h t i w n a m r i a h C , s o t n a S s o d S s o l r a C T: F E l . r e c i f f O e v i t u c e x E f i e h C , r e z t i e R w e r d n A . D L Q , e s u o h e r a w n o i t u b i r t s i d e c u d o r p h s e r f l a e k c o R CHAIrMAn’S & CEO’S rEpOrT The 2006 financial year was another successful one for Metcash with the posting of the seventh consecutive record annual profit. Wholesale sales increased by 10% to $7.7bn. Because of changed accounting standards as a consequence of the move to Australian International Financial Reporting Standards (AIFRS) and the Company’s altered capital structure, it is difficult to make a profit comparison on a profit before or after tax basis but the best indication of comparable profits is from the Earnings Before Interest, Tax and Amortisation (net of CULS, CUPS and Restructure costs) (EBITA) line. EBITA rose 19.5% to $226.9m, reflecting the underlying health of the Metcash businesses and the ability to generate a profit increase of 23.8% from a wholesale sales increase of 10%. On an after tax basis, excluding significant and non-recurring items related to the capital reorganisation, FAL Australian businesses acquisition and restructuring costs, after tax profit increased from the reported $103.3m in the 2005 year to $127.9m in 2006. A positive cash flow of $242.7m was generated during the year. Net interest paid was $39m, reflecting increased gearing and a more effective capital structure. A final dividend of 6 cents per share will be paid, resulting in dividends declared for the year of 11.5 cents per share, a 21% increase on 2005 dividends declared. All three Metcash businesses, IGA Distribution, Australian Liquor Marketers (ALM) and Campbells Wholesale, grew strongly.  Metcash Limited Annual Report 2006 A final dividend of 6 cents per share will be paid, resulting in dividends declared for the year of 11.5 cents per share, a 21% increase on 2005. o r t s e v l i S d n a A W , r e g a n a M l i a c r e m m o C , n o t s n h o J i n b o R T: F E l m o r F e h t r e h t r u f w o r g o t s y a w g n n n a P l i – A W , r e g a n a M l a r e n e G , o t i b a r o M . s s e n i s u b A W t n a c i f i n g i s y d a e r l a n o i t a s n e p m o C s r e k r o W & S H O p u o r G , s n g g i i W a s s e n a V T: F E l m o r F , W S N r e g a n a M e s u o h e r a W M L A – l l e h c t i M g e r G d n a , r e g a n a M . W S N e r t n e C n o i t u b i r t s i D r e t a w r e v l i S fInAnCIAL rESULTS All three Metcash businesses, IGA Distribution, Campbells Wholesale and Australian Liquor Marketers (ALM), grew strongly. It is a tribute to the management of those businesses that they continued to grow during a year in which the Company acquired its former parent company (Metoz Holdings Limited) in a capital reorganisation and the Australian businesses of Foodland Associated Limited (FAL). IGA Distribution’s market share rose from 13% to 18.5% at year end (as calculated by A C Nielsen) whilst EBITA grew 24.1% to $175.8m. Wholesale sales increased by 7.4% to $4.1bn. If the 2005 financial year sales to Franklins were excluded, the increase would be 21%. Growth has been driven by strong comparable store sales by the business’s customers, the IGA and Foodworks independent retailers. IGA’s comparable store sales grew by 6.3% in the year whilst Foodworks grew 6%. These ‘like on like’ sales were stronger than those generated by the two major Australian retail chains. As an investment in future growth, 44 new IGA stores opened during the year and 48 major refurbishments took place. 76 new stores are ‘on the drawing board’. Foodworks plans to open 37 new stores in the coming year and refurbish and expand a further 44 stores. ALM’s sales grew 11.6% on the previous year and EBITA increased by 17.6% to $30.7m. The sales increase was partly due to regaining the ALH Queensland business for a full year, whilst the profit improvement reflects the benefits of productivity gains in the face of competitive pressure on selling margins. Similarly, Campbells Wholesale lifted sales by 15.9% and EBITA by 22.9% to $21.2m. As well as an increase in sales, the mix of sales also improved with higher sales of the profitable categories of confectionery and grocery. These ‘primary sales’ increased to more than 55% of total sales. InTEgrATIOn Of fAL AUSTrALIAn BUSInESSES Ownership of the FAL Australian businesses was transferred to Metcash on 2 November 2005. The 2007 financial year will be the first year to reflect a full year of trading for the acquired businesses. The acquisition of the FAL Australian businesses commenced as a hostile takeover and was resolved through a Scheme of Arrangement. As a consequence, no ‘due diligence’ reviews were undertaken by Metcash. On taking possession, a lot of good news was discovered. The Western Australian grocery distribution business, four Cash & Carry branches, the Foodlink foodservice operation and the company operated Action retail stores are proving excellent buys. The high quality of the former FAL staff has also been part of the good news. An extensive action plan to integrate the FAL Australian businesses into Metcash was implemented and the actions are running on schedule. Good progress has been made in obtaining the synergy benefits envisaged at the time of acquisition. FAL buying terms have been brought in line with Metcash terms, the Metcash business model has been implemented in Western Australia, accounting and administration www.metcash.com  rEpOrT frOM THE CHAIrMAn AnD THE CHIEf ExECUTIvE OffICEr continued It is anticipated that additional EBIT of between $80m and $90m per annum, before restructuring costs, will be obtained with the integration of the former FAL Australian businesses. . D L Q , e r o m h s A A G I a p u S t a r e t n u o c i l e D . A W , h t r e P t n a r u t s e r t u H a z z P i o t y r e v i l e d k n i l d o o F has been transferred to the Metcash Silverwater Shared Services Centre and the Metcash logistics platform is being installed in the former FAL warehouses. The FAL Queensland ‘Richlands’ warehouse has been closed and all former Queensland Action stores are now serviced from the IGA Distribution warehouse complex. As acquisition of the FAL Australian businesses did not take place until 2 November 2005, with possession obtained on 24 November 2005, it was necessary to postpone the sale of Action stores to independent retailers until after the important Christmas seasonal sales period. It is anticipated that, with the exception of 12 large stores in Perth, the other 50 Action stores will be sold to independent retailers by November 2006. This is in line with the Metcash policy of not competing with the Company’s customers. The 12 large stores in Perth will be sold as a single unit at a later stage. A key feature of the Action stores was the strong fresh food offer, supported by fresh fruit, vegetables and meat warehouses. This operation has been retained and is planned to be extended to other IGA Distribution customers. All Action, Dewsons and Supa Valu stores that met IGA specifications have been rebranded ‘IGA’. The new name was launched in Western Australia on 1 May 2006 and has been strongly supported by Western Australian independent retailers and their customers. THE THIrD fOrCE Although ALM has been established in all states of Australia and New Zealand for some time, the IGA Distribution and Campbells Cash & Carry businesses have not previously operated in Western Australia. With the FAL Australian businesses acquisition, all businesses are now operating on a ‘coast-to-coast’ basis. This has been an important step as it increases the scale of operations, increases the customer base and allows the IGA Retail Banner to offer national programs to suppliers. Consumers on a coast-to-coast basis are now provided with an alternative to the two major chains. This further strengthening of the Metcash businesses enables the Company to provide additional support to its customers, the independent grocery, liquor and convenience retailers of Australia. The market share of Metcash and of its grocery customers has now increased to 18.5% (as calculated by A C Nielsen) and demonstrates the ability of independent retailers to survive and thrive in the face of the two dominant chain store groups. fUTUrE OUTLOOk The 2007 financial year will be a busy one as the integration of the FAL Australian businesses is completed. It is expected that 50 Action stores will be handed over to new independent retailer owners by November 2006 and the full synergies to be obtained by  Metcash Limited Annual Report 2006 . A W , e r o m h s A A G I integrating the businesses will be extracted. On a full year basis, it is still anticipated that additional EBIT of between $80m and $90m per annum, before restructuring costs, will be obtained with the integration of the former FAL Australian businesses. The Action fresh food offer is to be extended to other IGA Distribution customers in Queensland and Western Australia and this business will also be established in the other states. A joint venture buying business between Metcash and Foodstuffs, the leading New Zealand retail group, has been announced and will commence during the year. This venture will enable both Metcash and Foodstuffs to improve their buying terms and become more competitive. The Campbells Cstore Distribution business will continue to expand its share of the ‘Modern Petrol and Convenience’ market segment. ALM will continue its program of consolidating the brands of independent liquor retailers whilst reducing its cost of business through warehouse rationalisation and productivity gains. ApprECIATIOn We take this opportunity of thanking our fellow Directors, employees, customers and suppliers for their hard work, support and counselling during the past year. We especially thank Bernard Hale and Michael Wesslink, who have retired from their Board positions, for their contributions as Directors of the Company. Carlos S dos Santos Chairman Andrew Reitzer CEo . A W h c n a r B y r u b n u B , y r r a C & h s a C We take this opportunity of thanking our fellow Directors, employees, customers and suppliers for their hard work, support and counselling during the past year. www.metcash.com  IgA DISTrIBUTIOn 1 EBITA of $175.8m grew by 24.1% on the previous year with a market share of 18.5%. OpErATIOnS SUMMAry Major Activities Significant Achievements Future Direction > > > > IGA Distribution’s role is to be ‘The Champion of the Independent retailer’. marketing and distribution specialists, supply over 2,700 independent grocery stores in New South Wales, the ACT, Victoria, Queensland, South Australia and Western Australia. Providing expertise, tailored to the Independent retailer’s requirements. From the full range of marketing, merchandising, buying and operational and distribution services to the 1,209 IGA stores to distribution for 662 Foodworks stores. operating 12 major distribution centres, benchmarked to international standards to deliver 21,000 stock keeping units (SKUs) of dry, chilled and frozen groceries to 2,700 retail grocery stores. > > > > > > > Wholesale sales increased by 7.4% to $4.1bn. Sales increased by 6.3% for comparable IGA stores, 6.0% for comparable Foodworks stores. market share (as per A C Nielsen) at year end was 18.5%, compared to 13.5% in the previous year. EBITA of $175.8m grew by 24.1% on the previous year, 32.3% if 2005 sales to Franklins are excluded. Sale of the 62 Action supermarkets commenced. Agreement by Western Australian retailers to convert Dewsons and Supa Valu brands to IGA. opening of 44 new stores and 48 major refurbishments completed during the year. > Complete the sale of 62 Action stores. > > > > Continue to extract all available synergies from integrating the FAl businesses. Develop the Fresh Food business acquired from FAl and expand it into the IGA network in Queensland and Western Australia and enter the market in other states. Complete the construction of a new dry grocery distribution centre at the Crestmead, Queensland ‘mega Centre’. Convert the Western Australian warehouses to the metcash logistics platform.  Metcash Limited Annual Report 2006 Marketing and distribution specialists, supply over 2,700 independent grocery stores in New South Wales, the ACT, Victoria, Queensland, South Australia and Western Australia. PICTUrED: 1 Circle on Cavill IGA, Surfers Paradise QLD. 2 A view from the massive IGA Distribution Centre, Canningvale, WA. 3 From lEFT Peter Terpenis, Store Manager and Ben Fairchild with a customer at the Progressive Supa IGA Innaloo Central, WA. 4 IGA focus is on fresh food. 2 3 4 On 2 November 2005 ownership of the Foodland Associated Limited (FAL) Australian businesses passed to Metcash. These businesses consisted of the Western Australian wholesale grocery business and 62 company operated Action stores located in Western Australia, New South Wales and Queensland. In addition to the Western Australian distribution centres, a Queensland warehouse (Richlands) was also obtained. As soon as the critical Christmas sales period was concluded, work commenced on selling the Action stores to independent retailers. All stores, with the exception of 12 large Western Australian stores which will be sold as a single package, are expected to be sold by the end of November 2006. The stores have been rebranded from Action to Supa IGA. Western Australian Dewsons and Supa Valu store owners decided to also convert to the IGA brand and the new name was launched in Western Australia on 1 May 2006. Combining Action, Dewsons and Supa Valu brands in Western Australia gives the IGA brand a 32% market share which provides significant opportunities for marketing and advertising economies of scale. Importantly, the IGA brand now operates from ‘coast to coast’. The first stage of supplier term negotiations has been completed and IGA Distribution and FAL buying terms have now been aligned. This will result in the achievement of the first stage of buying synergies. Further synergy benefits will be obtained from improved warehouse productivity due to the implementation of the Metcash logistics platform in the Western Australian warehouses, overhead reductions with the transfer of all accounting and administrative functions to the Metcash Shared Services Centre, and the closure of the Queensland Richlands warehouse. Further benefits will be obtained from the second stage of the supplier term renegotiations. The 2005/2006 financial year saw continued growth of the IGA Distribution business. Wholesale sales grew by 7.4% to $4.1bn. Importantly, comparable store sales (excluding the acquired FAL Australian businesses) increased by 6.3%. This was an excellent result and demonstrates the success of the repositioning of the IGA brand through the ‘Local Heroes’ branding and marketing program. As a further demonstration of this growth, IGA Distribution, as calculated by A C Nielsen, grew by 8.3% whilst the overall market’s growth was 4.7%. On this basis IGA Distribution’s volume grew by almost twice the market growth. Reflecting the volume growth, EBITA during the year grew by 24.1% to $175.8m. If the profit generated in the previous year from sales to Franklins is excluded, EBITA increased by 32.3%. In addition to the successful ‘Local Heroes’ program, the IGA Distribution volume growth was underpinned by the opening of new stores and major refurbishments during the year. An additional 39,000 sqm of selling space was added to the IGA brand by the opening of 44 new stores. Additionally, 48 major refurbishments were completed during the year. Strong growth for the 2007 financial year should be underpinned by completion of the 76 new stores that are currently ‘on the drawing board’. Another strong performance was recorded by Foodworks, the parallel marketing brand. During a busy year in which their 350 stores were rebranded, comparable store growth of 6% was achieved, in line with the IGA growth. This growth was underpinned by a strong eastern seaboard TV campaign and local store area marketing. During the next 12 months, 37 new stores will be opened and 44 stores refurbished and expanded. Lou Jardin CEo IGA Distribution www.metcash.com  AUSTrALIAn LIqUOr MArkETErS 1 Sales grow 11.6% with a strong EBITA growth to $30.7m, up 17.7% on last year. OpErATIOnS SUMMAry Major Activities Significant Achievements Future Direction Continue to reduce the cost of doing business through warehouse productivity gains, warehouse rationalisation and increased customer use of electronic ordering and invoicing. Continue to encourage banner rationalisation through the growth of Independent Brands Australia. maximise support for all serviced hotel and bottle shop banners to increase their buying strength and improve their retail offer. > > > > Broad range liquor wholesaler, supplying over 13,000 hotels, liquor stores, restaurants and other licensed premises throughout Australia and New Zealand. Provides retailers with a one stop shop that allows them to receive all their liquor supplies in one delivery, on one invoice; in full, on time, every time, together with strong marketing support and a wide variety of retail services. operates out of 22 distribution centres throughout Australia and New Zealand. Includes a specialist on-premise liquor supply and support division to the on-premise sector including bars, restaurants and hotels in both Australia and New Zealand. > > > > > > > Strong sales growth, 11.6% up on previous year. Further growth of Independent Brands Australia to 1,647 retail liquor stores and 372 hotel outlets consolidated under the ‘Cellarbrations’, ‘IGA Plus liquor’, ‘Cheeers’ and ‘liquorwise’ brands. The hotel buying and promoting banner ‘liquor Alliance’, supported by Alm, has grown to 478 outlets. > > > Strong EBITA growth to $30.7m, up 17.7% on last year. Further productivity gains from the implementation of ‘Voice-Pick’ in major warehouses. Acquired magees liquor Wholesalers in North Queensland. At year end, 18% of Alm’s total customer orders were via the web portal.  Metcash Limited Annual Report 2006 At the end of the year, over 5,800 customers had registered to use the web portal and 18% of ALM’s total sales volume was ordered online. PICTUrED: 1 Strong branding inside the Helena Valley, WA Cellarbrations store. 2 Wine experts are always on-hand to assist customers at Cellarbrations stores Australia-wide. 3 Cellarbrations Store Beecroft, NSW. 2 3 The 2006 year saw a resurgence in sales, with growth of 11.6% on the previous year to $2.4bn. A key part of this sales growth was the full year effect of regaining the ALH business in Queensland and in gaining further ALH on-premise business in NSW, VIC, SA and WA. New terms of trade with key suppliers resulted in a significant sales uplift for Tasman Liquor, ALM’s wholesale business in New Zealand. The Magees liquor wholesale business in Queensland was acquired in mid-year. This business specialises in the on-premise market and its acquisition has allowed ALM and Harbottle On-Premise to streamline the independent distribution network in Far North Queensland without compromising the standard of customer service. Although a lot of the sales growth has been achieved at tight margins due to the competitive nature of the liquor wholesaling market, EBITA increased by 17.7% to $30.7m. This improved earning rate was based on continuing productivity gains in warehouses through the implementation of the Metcash logistics platform. Additionally, gains have been obtained through the rationalisation of a number of the small provincial warehouses in Queensland and New Zealand. Despite the acquisition of Magees, the total number of distribution centres operated by ALM has decreased by two to a total of 22 across Australia and New Zealand. The new ALM web portal continues to generate excitement as it delivers significant benefits to both customers and suppliers. By year’s end, over 5,800 customers had registered to be able to place orders and receipt invoices and 18% of ALM’s sales volume was being ordered online. Suppliers are now not only able to turn in orders, amend pricing and view their promotions, but they can also check their current stock level in ALM. The ongoing development of the portal means that soon these suppliers will be able to advertise both their promotions and products on the site. Further gains have been achieved in the rationalisation of the independent liquor segment banner groups. The number of liquor stores and hotels within the Independent Brands Australia umbrella has increased to 1,647. Additional scale for Independent Brands Australia (IBA) has been established by the joining of 452 IGA Plus Liquor stores. This takes the total number of outlets trading under IBA banners to 2,019. IBA’s ‘Cellarbrations’ banner continues to grow in both size and reputation and is now recognised as one of the leading liquor outlet brands in Australia. IBA has also taken over the responsibility for the national marketing for over 6,000 on-premise outlets serviced by Harbottle On-Premise In a similar vein, the ‘Liquor Alliance’ buying and promoting group has now increased to 478 hotels and provides marketing and buying benefits to combat the growth of chain operated hotels and liquor stores. Sales to the ‘On-Premise’ market continue to grow and at wholesale level totalled $359m for the 2006 year, an increase of 2.6%. To be successful in this market, it is necessary to provide a wide range of products at competitive prices combined with a high level of service and expertise. In order to achieve this, ALM operates specialist on-premise distribution units in both Australia (Harbottle On-Premise) and in New Zealand (Allied Liquor). The wholesale liquor market remains extremely competitive and faces constant erosion as the two chains increase their market share by purchasing independent retailers and hotels. The growth of IBA and its strategy of rationalising the number of independent retailer banner groups to provide promotional and buying economies of scale provides a partial solution to the chain expansion. Mike Wesslink CEo Australian liquor marketers www.metcash.com  CAMpBELLS wHOLESALE 1 EBITA has grown to $21.2m, an increase of 22.7%, with a market share of 26.4%. OpErATIOnS SUMMAry Major Activities Significant Achievements Future Direction > > Utilise the national network of Campbells Wholesale warehouses to increase sales volume with customers who require national supply across Australia. Continue to grow market share in the ‘modern Petrol and Convenience’ market, focusing on ‘one stop’ supply agreements. > > > > Acquisition of 4 Cash & Carry branches and a specialist foodservice business in Western Australia, as a consequence of the FAl acquisition. Campbells Wholesale now a coast-to-coast operator. Strong sales growth of 15.8% on the previous year to $1,147m. EBITA has grown to $21.2m, an increase of 22.7%. market share in the modern petrol and convenience market has grown to 26.4%. > > > 21 Cash & Carry warehouses and 22 regional wholesale distribution warehouses across New South Wales, Victoria, Queensland, South Australia and the Northern Territory, stocking a broad range of groceries, liquor, confectionery and foodservice, serving more than 78,000 business customers. 4 Convenience Store Distribution (CSD) Centres and 6 specialist confectionery wholesale outlets. Focusing on the convenience sector of the market and servicing customers who buy in quantities that cannot be economically serviced through a full case grocery or liquor distribution centre and require a total supply solution. 0 Metcash Limited Annual Report 2006 This structure has enabled increased focus and specialisation resulting in better productivity, efficiency and increased customer service levels. PICTUrED: 1 C-Store Distribution delivery to 7-Eleven, Maroubra, NSW. 2 C-Store Distribution delivery to Greater Union, Bondi Junction, NSW. 3 Foodlink distribution warehouse O’Connor, Perth, WA. 4 Cash & Carry, Bunbury Branch WA. 2 3 4 The re-engineering of the Campbells Wholesale branch network into four distinct divisions of business focus – Cash & Carry, Wholesale Distribution, Convenience Store Distribution (CSD) and Foodservice Distribution has been established. This structure has enabled increased focus and specialisation resulting in better productivity, efficiency and increased customer service levels. It is expected that over time the traditional Cash & Carry markets will continue to contract as a greater share of the convenience market is serviced by the ‘Modern Petrol and Convenience’ sector. The restructure of branches reflects this change and allows Campbells Wholesale to focus on the Modern Convenience market segment whilst still providing service to the traditional market. An example of this is the supply agreement with the 7-Eleven organisation. 7-Eleven has over 340 franchisees and operates in most Australian states. CSD and 7-Eleven are engaged in removing costs from the supply chain. The Campbells CSD business enables the needs of convenience organisations such as 7-Eleven to be met through one delivery providing all of the products required by convenience stores as opposed to multi-deliveries from the fragmented route trade operation. in 2005 provides Campbells Wholesale with the ability to supply confectionery products on a ‘coast-to-coast’ basis. As a consequence, supply arrangements have been entered into with the major cinema chains. Reflecting the Campbells Wholesale ‘one stop shop’ capability, the range of products supplied to the theatre chains has now expanded well past the confectionery category. In a similar vein, the acquisition of four Cash & Carry branches and a foodservice business in Western Australian as a result of the FAL acquisition means that the overall Campbells Wholesale business now operates from coast to coast. Benefits will be extracted from this during the 2007 financial year. In support of these marketing ventures, further productivity enhancing systems were introduced to the CSD warehouses. Further to the award-winning ‘Put-To-Light’ technology which provides accurate single item pick and pack capability, a ‘Voice-Pick’ process has been installed providing accuracy and productivity gains on the full carton component. The CSD warehouses are being reformatted to operate with ‘Just-In- Time’ inventory, which is cross-docked from manufacturers or IGA distribution centres. This provides cost savings and better utilisation of working capital. Confectionery is an important product category for convenience store sales and hence forms part of the CSD division. The acquisition of CDs, a Western Australian based specialist confectionery distributor, Peter Dubbelman CEo Campbells Wholesale www.metcash.com  THE BOArD , ) O E C ( r e z t i e R w e r d n A i , n d r a J u o L L T: F E l m o r F . i k s n o b a J l e k M i i , n b u R y e d u D V l , ) n a m r i a h C ( s o t n a S s o d s o l r a C T: F E l m o r F l . e a H d r a n r e B CARLOS S DOS SANTOS CA (SA) Non-Executive Chairman Member of the Remuneration & Nomination Committee ANDREW REITZER BComm MBL CEO Metcash Group of Companies BRUCE A HOGAN, AM BEc (Hons) FAICD Non-Executive Director Date of appointment to Metcash Limited: 18 April 2005 Member of the Audit Risk & Compliance Committee Date of appointment to Metcash Limited: 18 April 2005 Mr dos Santos is the Chief Executive of Metcash Trading Africa (Proprietary) Limited, a company that trades in 10 countries across Africa and the Far East. He has had 36 years industry experience. Mr Reitzer has 28 years experience in the retail/wholesale industry. Previous positions at Metro Cash and Carry include Group Operations Director, heading operations in Russia and Israel, Marketing Director, IT Director and managing various operating divisions. PETER L BARNES MBA (Melbourne), BComm (Hons) Non-Executive Director Member of the Remuneration & Nomination Committee Date of appointment to Metcash Limited: 18 April 2005 Mr Barnes is Chairman of Ansell Ltd, a Director of News Corporation and Chairman of Samuel Smith & Sons Pty Ltd. Mr Barnes was formerly an executive with Philip Morris International Inc. He held several senior management positions in Australia and overseas – including Managing Director Lindeman Holdings Ltd and President, Asia Region, based in Hong Kong. A E (TED) HARRIS, AC FID, FAIM, FAICD Non-Executive Deputy Chairman Chairman of the Remuneration & Nomination Committee Date of appointment to Metcash Limited: 18 April 2005 Mr Harris served as Managing Director and Chief Executive Officer of the Ampol Group for a period of 10 years. He was formerly Chairman of Australian Airlines, British Aerospace Australia, the Gazal Corporation and a Director of a number of public companies. Currently, Mr Harris is Chairman of Thakral Holdings, the Australian Radio Network and President of the St. Vincent’s Clinic Foundation. He is Deputy Chairman of APN News & Media, a member of the International Advisory Board of INP News & Media and a Director of the New Zealand Radio Network. He is a Life Governor of the Melanoma Foundation, a Life Member of the Australian Sports Commission, a former Commissioner of the ABC and was a member of the executive board of the Sydney Olympics 2000 Bid Company.  Metcash Limited Annual Report 2006 Date of appointment to Metcash Limited: 23 November 2005 Mr Hogan is currently the Chairman of State Super Financial Services Limited and a director of NSW Treasury Corporation and The Snowy Hydro Limited. Mr Hogan was formerly Joint Managing Director of Bankers Trust Australia Limited until 1994 and was previously a director of Coles Myer Limited, Adelaide Casino, Funds South Australia, Energy Australia and GIO Australia Limited. BERNARD J HALE BTh (SA) Executive Director Date of appointment to Metcash Limited: 18 April 2005 Mr Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Mr Hale has 31 years of IT industry experience, 24 of which have been within the Metro Cash and Carry organisation. Previous positions held in Metro include Operation Director IT, Group IT Director, Group Operations Director (Domestic) and Corporate Group IT Director. He was appointed Chief Information Officer of Metcash Trading Limited on 1 December 2002. Prior to being appointed to his current role, he served as a Non-Executive Director of Metcash Trading Limited. Mr Hale retired as a Director on 29 May 2006. . n a g o H e c u r B , s i r r a H ) d e T ( E A , s e n r a B L r e t e P T: F E l m o r F d n a z t i l w o e k n a J i n w d E , k n i i l s s e W e k M T: F E l m o r F . s e g n o L d r a h c R i Mr Jankelowitz has spent over 32 years in corporate offices of listed companies with excellent corporate governance reputations. He was a member of the Income Tax Special Court in South Africa for 20 years (1977-1997). Mr Longes was formerly a co-founder and principal of the corporate advisory and private equity firm, Wentworth Associates and prior to that a partner of Freehill Hollingdale & Page, solicitors. LOU JARDIN CEO IGA Distribution V DUDLEY RUBIN CA (SA), HDip BDP, MBA Non-Executive Director Date of appointment to Metcash Limited: 18 April 2005 Member of the Audit Risk & Compliance Committee MIKE JABLONSKI Group Merchandise Director Date of appointment to Metcash Limited: 18 April 2005 Mr Jablonski has 34 years experience in the food industry. Previous positions include: 1984 Merchandise Executive of Foods of OK Bazaars, 1987-1991 Merchandise and Marketing Director of Score Food Holdings Ltd, 1992-1996 Deputy Group Merchandise Director of Metro Cash and Carry, 1996-1998 Director of Distribution and Retail Development of Metro Cash and Carry. Mr Jablonski is the Group Merchandise Director of Metcash. He is responsible for the Group’s Merchandise and Supplier relationships, and the income derived thereof. EDWIN JANKELOWITZ BComm, CA (SA) Finance Director Date of appointment to Metcash Limited: 18 April 2005 Mr Jardin has extensive industry experience, including owning and operating independent supermarkets and holding senior positions within a chain store environment, as well as warehouse and distribution operations. He held a senior position with Coles Myer for 11 years before joining Metcash in 1997 as the National Manager of Company owned stores. In 1998, Mr Jardin moved to Queensland as the State General Manager until his current appointment in May 2000 to the role of CEO IGA Distribution. Qualified as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd in Head Office – promoted over time to Group Company Secretary and then Finance Director. RICHARD A LONGES BA (Sydney), LLB (Sydney), MBA (NSW), Solicitor (non-practising) Non-Executive Director Chairman of the Audit Risk & Compliance Committee Consulting January 1980 to March 1983 – business management and tax. Caxton Ltd 1983-1997 – Finance Director; Managing Director; Chairman. Chairman of other publicly quoted companies. Metcash Trading Limited – May 1998 to date – Finance Director. Date of appointment to Metcash Limited: 18 April 2005 Mr Longes has been a Director of a number of public companies and a member of various government bodies and enquiries for more than 20 years. He is currently Chairman of Austbrokers Holdings Ltd and a Director of Boral Limited, Viridis Energy Capital Pty Ltd and Investec Bank (Australia) Ltd. Date of appointment to Metcash Limited: 18 April 2005 Mr Rubin is a director of Metcash Trading Africa (Proprietary) Limited, a company that trades in 10 countries across Africa and the Far East. He has had 23 years experience in the industry. MIKE WESSLINK BSc (Chem Eng) Syd, MBA (UNSW) CEO Australian Liquor Marketers Date of appointment to Metcash Limited: 18 April 2005 Mr Wesslink joined ALM in March 1998. He has worked in the liquor industry for over 32 years, having previously held the Chief Executive position at Tooheys Limited and The Swan Brewery Company Limited. More recently, Mr Wesslink worked as Managing Director of Amcor Containers Packing, Asia in managing and establishing packaging operations throughout Asia, particularly in China and Singapore. Mr Wesslink retired as a Director on 29 May 2006. www.metcash.com  . l l a d n a R n h o J l , n a m e b b u D r e t e P , n a e B n e K : ) g n i t t i S ( T F E L M O R F . r e z t i e R w e r d n A , z t i l w o e k n a J i n w d E , k n i l s s e W e k M i , n o t s n h o J i d v a D THE ExECUTIvE TEAM l , e a H d r a n r e B , i k s n o b a J l e k M i i , n d r a J u o L i : ) g n d n a t S ( T F E L M O R F FROM LEFT (Standing): lou Jardin, mike Jablonski, Bernard Hale, David Johnston, mike Wesslink, Edwin Jankelowitz, Andrew reitzer. FROM LEFT (Sitting): Ken Bean, Peter Dubbelman, John randall. ANDREW REITZER BComm MBL CEO Metcash Group of Companies member of the Logistics Association of Australia and the Australian Logistics Council. BERNARD J HALE BTh (SA) Executive Director Mr Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Mr Hale has 31 years of IT industry experience, 24 of which have been within the Metro Cash and Carry organisation. Previous positions held in Metro include Operation Director IT, Group IT Director, Group Operations Director (Domestic) and Corporate Group IT Director. He was appointed Chief Information Officer of Metcash Trading Limited on 1 December 2002. Prior to being appointed to his current role, he served as a Non-Executive Director of Metcash Trading Limited. Mr Reitzer has 28 years experience in the retail/wholesale industry. Previous positions at Metro Cash and Carry include Group Operations Director, heading operations in Russia and Israel, Marketing Director, IT Director and managing various operating divisions. KEN BEAN MBA, Grad Dip Bus, Dip Acc Chief Executive, Group Logistics and Corporate Development Mr Bean has over 35 years experience in the retail wholesale industry. Previously, Mr Bean was General Manager of Coles Myer Logistics Pty Ltd and was also responsible for Coles Myer Asia’s buying offices. Mr Bean has also held senior roles in corporate development, as well as finance and administration. He also has significant industrial property development, and construction experience and is currently a PETER DUBBELMAN MBA (Melb) CEO, Campbells Wholsesale Appointed CEO of Campbells Wholesale in June 1998. He has over 22 years experience in fast moving consumer goods distribution at wholesale, primarily in multi-site general management. Mr Dubbelman has successfully initiated major growth of the wholesale business through the establishment of an effective network of Campbells and Cstore Distribution warehouses which service the hospitality, liquor and convenience sectors in Australia. Over the last 4 years, an effective national network of warehouses has been established, which, with integrated specialist confectionery businesses will continue to provide an effective total supply solution to the convenience industry in Australia.  Metcash Limited Annual Report 2006 All three Metcash businesses, IGA Distribution, Australian Liquor Marketers (ALM) and Campbells Wholesale, grew strongly. It is a tribute to the management of those businesses that they continued to grow during a year in which the Company acquired its former parent company (Metoz Holdings Limited) in a capital reorganisation and the Australian businesses of Foodland Associated Limited (FAL). MIKE JABLONSKI Group Merchandise Director Mr Jablonski has 34 years experience in the food industry. Previous positions include: 1984 Merchandise Executive of Foods of OK Bazaars, 1987-1991 Merchandise and Marketing Director of Score Food Holdings Ltd, 1992-1996 Deputy Group Merchandise Director of Metro Cash and Carry, 1996-1998 Director of Distribution and Retail Development of Metro Cash and Carry. Mr Jablonski is the Group Merchandise Director of Metcash. He is responsible for the Group’s Merchandise and Supplier relationships, and the income derived thereof. EDWIN JANKELOWITZ BComm, CA (SA) Finance Director Qualified as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd in Head Office – promoted over time to Group Company Secretary and then Finance Director. Consulting January 1980 to March 1983 – business management and tax. Caxton Ltd 1983-1997 – Finance Director; Managing Director; Chairman. Chairman of other publicly quoted companies. Metcash Trading Limited – May 1998 to date – Finance Director. Mr Jankelowitz has spent over 32 years in corporate offices of listed companies with excellent corporate governance reputations. He was a member of the Income Tax Special Court in South Africa for 20 years (1977-1997). LOU JARDIN CEO IGA Distribution Mr Jardin has extensive industry experience, including owning and operating independent supermarkets and holding senior positions within a chain store environment, as well as warehouse and distribution operations. He held a senior position with Coles Myer for 11 years before joining Metcash in 1997 as the National Manager of Company owned stores. In 1998, Mr Jardin moved to Queensland as the State General Manager until his current appointment in May 2000 to the role of CEO IGA Distribution. DAVID JOHNSTON MBus (Employment Law), AFAHRI, JP Chief Human Resources Officer Mr Johnston joined Metcash in December 2001. He has had 28 years experience in Human Resources with some of Australia’s leading FMCG companies including Cadbury Schweppes and Simplot Australia at senior executive level. He has designed and implemented successful programs in executive development and implemented major culture change initiatives at a national and international level. JOHN RANDALL BEc, FCPA, FCIS, MAICD General Manager Finance and Company Secretary Mr Randall joined the Company in 1997. Previously Chief Financial Officer of Metal Manufactures Limited and Overseas Telecommunications Corporation Limited. Member and former President of the Accounting Foundation, University of Sydney, a former National President of the Group of 100, NSW President and National Board member of CPA Australia. MIKE WESSLINK BSc (Chem Eng) Syd, MBA (UNSW) CEO Australian Liquor Marketers Mr Wesslink joined ALM in March 1998. He has worked in the liquor industry for over 32 years, having previously held the Chief Executive position at Tooheys Limited and The Swan Brewery Company Limited. More recently, Mr Wesslink worked as Managing Director of Amcor Containers Packing, Asia in managing and establishing packaging operations throughout Asia, particularly in China and Singapore. www.metcash.com  fInA nCI AL AnD STATISTICAL HIgHLIgHTS FIVE YEAR RE VIEW AIFrS AGAAP 2006 $’000 2005 $’000 2005 $’000 2004 $’000 2003 $’000 2002 $’000 Income Statement Net sales Earnings before amortisation, interest and taxation (a) 8,214,375 7,010,374 6,993,660 7,173,897 6,695,519 5,769,379 196,259 194,530 192,283 183,842 152,704 117,481 Earnings before interest and taxation (a) 174,000 186,601 170,519 163,241 133,549 Interest, net 40,514 1,455 1,455 7,590 7,503 Operating profit before tax (a) 133,486 185,146 169,064 155,651 126,046 98,915 9,689 89,226 Balance Sheet Metcash Shareholders Equity 1,032,867 4,465 763,588 470,155 427,102 343,634 Net tangible assets per share (cents) Interest-bearing debt to equity (%) (2.4) 73 (73) 76 (56) 54 36 15 29 29 16 51 Share Statistics Fully paid ordinary shares 747,741,353 427,395,233 739,129,828 636,761,358 630,748,848 604,199,148 Weighted average ordinary shares 593,675,382 427,395,233 675,509,174 633,572,081 620,622,370 531,914,131 Converting preference shares Earnings per ordinary share (cents) (b) Dividends declared per share (cents) Dividends per CPS (cents) Other Statistics – 13.67 11.50 – – 29.68 9.50 – – 15.30 9.50 – – 16.10 11.00 – – 13.10 8.60 – – 8.89 5.00 8.43 Number of employees (full-time equivalents) 7,033 4,316 4,316 4,317 4,202 4,156 (a) Earnings after CULS, CUPS and restructure costs in 2006 only. (b) Basic earnings per share has been calculated using weighted average number of shares before the effect of dilutive securities (share options). . A W , e r t n e C n o i t u b i r t s i l i D e a v g n n a C e d i s n I  Metcash Limited Annual Report 2006 . A W , r o n n o C O ’ f f a t s s n o i t a r e p o k n i l d o o F co rp o rate g overnance metca sh limite d a B N 3 2 11 2 073 480 The Directors support and adhere to the principles of corporate governance. In supporting these principles, the Directors acknowledge the need for the highest standards of behaviour and accountability. The Board The principal functions of the Board include: • • • • • charting the direction, strategies and financial objectives of the Company; monitoring implementation of those strategies and the operational and financial performance and risk of each of the Company’s activities; reviewing major capital expenditure, acquisitions, divestments and funding; reviewing performance, remuneration and succession of senior management; monitoring compliance with legal regulatory requirements, including occupational health and safety laws, product safety and the protection of the environment; • monitoring the Company’s relationships with its stakeholders and compliance with ethical standards and the Company’s Code of Conduct. The Board’s Charter can be found on the Company’s web site (www.metcash.com) under the heading ‘Corporate Governance’. NomiNaTioNs To The Board The composition of the Board is monitored (with respect to both size and membership) to ensure that the Board has the appropriate mix of skills and experience. When a vacancy exists, or when it is considered that the Board would benefit from the services of a new Director with particular skills, the Remuneration & Nomination Committee selects a panel of candidates with appropriate expertise and experience. This may be supplemented with advice from external consultants if necessary. The Board, on the Committee’s recommendation, then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. Directors are not appointed for a fixed term but, under the Company’s Constitution, must be re-elected each 3 years by rotation and are subject to Australian Stock Exchange (ASX) Listing Rules and Corporations Act provisions. Board ComposiTioN (asX GuideliNes priNCiple 2) Metcash has an overriding objective that the Board should consist of Directors who provide a mix of industry experience and knowledge and the overall skill and wisdom to enable the Company to grow for the benefit of all shareholders and stakeholders. The Board places a priority on selection of Directors for their ability to display independence of mind which will enable them to make decisions impartially and for the benefit of all shareholders. For details of the skills, experience and expertise of the individual Directors, please refer to page 12, headed ‘The Board’, of this report. The Board of Metcash Limited is currently constituted as follows: • • • 2 Non-Executive Directors, including the Chairman, who were representatives of the former majority shareholder. These Directors have extensive knowledge and experience of grocery wholesaling and marketing. As they were executives of Metoz Holdings Limited, the former majority shareholder, within the last 3 years, they do not meet the ASX Corporate Governance Guidelines definition of independent. 4 Independent Directors, holding key positions that include chairing the Board committees of Audit Risk & Compliance and Remuneration & Nomination. They provide an external perspective and checks and balances for the interests of all shareholders. 4 Executive Directors, each of whom is responsible for key activities of the Company. Their membership of the Board enables direct access to key executives by the Independent Directors such that Board discussions and decisions are held on a fully informed basis and it enables the Non-Executive Directors to obtain greater personal knowledge of key executives, aiding the management succession process. Prior to 25 May 2006, 6 Executive Directors were members of the Board. After the retirement of Mr Hale and Mr Wesslink as Directors, the Board now has a majority of Non-Executive Directors. The Board of Metcash Limited does not conform to ASX Corporate Governance Principle 2, in relation to Board composition in two respects: 1. The Board does not have a majority of Independent Directors; and 2. The Chairman (Carlos dos Santos) has an association with the former majority shareholder as described above. www.metcash.com 17 cor p orate governance metcas h limit ed a B N 3 2 11 2 0 73 480 Overall, the Board of Metcash Limited believes it has the capability and does bring independent judgement to bear on decision making. In 2004 the Board commissioned Cameron Ralph Pty Ltd, a consultancy specialising in Board performance, to conduct a review of the capacity of the Metcash Board to act in that way. With the reconstitution of the Board, it is proposed to conduct a similar review in the coming financial year. The Board believes that the presence of the Executive Directors adds considerable knowledge and expertise to the operations of the Board, and that the Board’s mode of operation and processes are always capable of ensuring that the presence of the Executive Directors does not limit the ability of the Independent Directors to contribute. Neither Mr Harris, Mr Barnes, Mr Hogan nor Mr Longes (the four Independent Directors) are substantial shareholders of the Company or associated with a substantial shareholder of the Company. They have not been employed by the Company in an executive position, are not material suppliers or customers of the Group, have no material contractual relationship with the Group, have no interest, business or other relationship, nor have they served on the Board for a period which could be perceived to materially interfere with the Directors’ responsibility to act in the best interests of the Company. Mr Harris has been a Director of Metcash Limited and its predecessors since 1994. The Board considers Mr Harris’ tenure to have provided valuable leadership continuity and experience and that this does not in any way limit his ability to act in the best interests of the Company. Mr Barnes is Chairman of Samuel Smith & Sons Pty Ltd and a Director and Chairman of Ansell Limited, suppliers to the Company; however, the level of purchases involved is not considered material. iNdepeNdeNT review of Board effeCTiveNess Board performance consultants Cameron Ralph Pty Ltd were engaged in 2004 to conduct an independent review of the Board’s effectiveness and, in particular, its capacity to act independently and in the interests of all shareholders. A review was not conducted in the current year due to the then pending Board reconstitution. It is proposed that an independent review be conducted in the coming financial year. iNdepeNdeNT professioNal adviCe The Board has a policy of enabling Directors to seek independent professional advice at the Company’s expense. The Board will review in advance the estimated costs for reasonableness, but will not impede the seeking of advice. audiT risk & CompliaNCe CommiTTee The membership of the Audit Risk & Compliance Committee consists of the following Non-Executive Directors. Member Qualifications Meetings Held Meetings Attended R A Longes (C) P L Barnes (to 23 November 2005) B A Hogan, AM (from 23 November 2005) V Dudley Rubin BA, LLB, MBA BComm (Hons), MBA BEc (Hons) FAICD CA (SA), HDip BDP, MBA (C) Chairman 4 3 1 4 4 3 1 4 The function of the Audit Risk & Compliance Committee is to advise on the establishment and maintenance of a framework of internal control, effective management of financial and other risks, compliance with laws and regulations and appropriate ethical standards for the management of Metcash. It also gives the Board additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial statements. The principal terms of reference of the Audit Risk & Compliance Committee are the effective management of financial and other risk through ensuring that systems and management processes are in place to identify and manage operational, financial and compliance risks. Specific areas of review include: • • • • • financial risk and exposure; occupational health and safety; environmental issues; HACCP; and integrity of information technology systems. 18 metcash limited Annual Report 2006 co rp o rate g overnance metca sh limite d a B N 3 2 11 2 073 480 The Board reviews the effectiveness of risk management policies and procedures by: • • • • • undertaking, annually, a comprehensive strategic and budget review of the Group’s activities; reviewing monthly financial performance against budget and updated forecasts at least quarterly; reviewing the internal audit of the Group’s financial controls, taxation compliance and adherence to policies and regulations; reviewing annually the effectiveness and adequacy of the Group’s insurance program; the provision of reliable management and financial reporting; this is done by reviewing and assessing the: – – – quality and timing of management reporting to the Board to enable internal and external reporting of the Company’s risks, operations and financial condition; accounting policies and practices against generally accepted accounting principles and the requirements of the Corporations Law, Australian Accounting Standards and Australian Stock Exchange requirements; half-yearly and annual financial statements; • compliance with laws and regulations by monitoring developments and changes in the various rules, laws and regulations relating to the Company’s business operations, the responsibilities of Directors and reviewing the extent to which the Board and the Company are meeting their obligations and to ensure that all requirements are met; • the maintenance of an effective and efficient audit function; this is achieved by: – – – – – – recommending to the Board the appointment of external and internal auditors; reviewing the effectiveness of the external and internal audit functions; ensuring audit scopes are adequate and cover areas of anticipated risk; reviewing audit findings and management response; reviewing the independence of the external auditor; ensuring auditors have the necessary access to Company information and staff to fulfil their obligations. The Committee’s Charter can be found on the Company’s web site (www.metcash.com) under the heading ‘Corporate Governance’. Code of eThiCs/CoNduCT The Company has a Code of Conduct that applies to Directors and all employees. Subjects covered by the Code include: • • • • • • • equal employment opportunity, discrimination and harassment; security of Company records and assets and confidentiality guidelines; conflict of interest, acceptance of gifts, entertainment and services; fraud, corruption and irregular transactions; legal compliance; honest ethical behaviour; environmental protection, safe working environment. The Code can be found on the Company’s web site (www.metcash.com) under the heading ‘Corporate Governance’. Compliance with the Code is checked through the Company’s processes including internal audit, security, human resources and occupational health and safety. New staff members are required to attend an induction program that includes behaviour guidelines. Additionally, the Company’s staff appraisal process includes employees’ performance against ‘Key Behavioural Indicators’ as well as ‘Key Performance Indicators’. The Company also has a Share Trading Policy and a Continuous Disclosure Policy, copies of which can be found on the Company’s web site (www.metcash.com) under the heading ‘Corporate Governance’. www.metcash.com 19 cor p orate governance metcas h limit ed a B N 3 2 11 2 0 73 480 remuNeraTioN & NomiNaTioN CommiTTee Members of the Committee, and attendance at meetings, are shown below: Member A E (Ted) Harris, AC (C) C S dos Santos P L Barnes (C) Chairman Qualifications FID, FAIM, FAICD CA (SA) BComm (Hons), MBA Meetings Held Meetings Attended 5 5 5 5 5 5 Responsibilities of the Committee include: • • • • • advise the Board on remuneration of the CEO and senior management; advise the Board on performance-linked compensation for management; oversee the administration of the Metcash Employees Option Plan; advise the Board on directorship appointments, performance of the CEO; implement processes to assess the effectiveness of the Board and its Committees. The Charter of the Committee can be found on the Company’s web site (www.metcash.com.) under the heading ‘Corporate Governance’. A formal review of the Board’s effectiveness was undertaken during the year 2004 by Cameron Ralph Pty Ltd. In relation to key executives, the Company maintains a performance evaluation process which measures them against Key Performances Indicators and Key Behavioural Indicators. This is performed formally once a year with quarterly reviews. remuNeraTioN poliCy The Company remuneration policy can be found on the Metcash Limited web site (www.metcash.com) under the heading of ‘Corporate Governance’. It is summarised in the ‘Remuneration Report’ contained within the Directors’ Report. Details of the compensation of key management personnel are also contained in the Directors’ Report. NoN-eXeCuTive direCTors CompeNsaTioN Refer to the ‘Remuneration Report’ contained within the Directors’ Report. TermiNaTioN eNTiTlemeNTs Refer to the ‘Remuneration Report’ contained within the Directors’ Report. 20 metcash limited Annual Report 2006 metca sh limite d a B N 3 2 11 2 073 480 Co nte n ts Directors’ Report financial report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Directors’ Declaration Auditor’s Independence Declaration Independent Audit Report to Members of Metcash Limited ASX Additional Information 22 36 37 38 40 41 93 94 95 97 Co rp o rate I nformatIon share register Registries Ltd PO Box R67 Royal Exchange Sydney NSW 1223 Telephone: 61 2 9290 9600 Facsimile: 61 2 9279 0664 auDitor Ernst & Young internet aDDress www.metcash.com aBn 32 112 073 480 Directors Carlos S dos Santos (Chairman) A E (Ted) Harris, AC (Deputy Chairman) Andrew Reitzer (CEO) Michael R Jablonski Edwin M Jankelowitz V Dudley Rubin Peter L Barnes Richard A Longes Bruce A Hogan, AM Joao Louis S Jardim (Lou Jardin) company secretary John Randall registereD office 4 Newington Road Silverwater NSW 2128 Telephone: 61 2 9741 3000 www.metcash.com 21 dIre Ctors’ report year eNded 30 ap ril 2006 Your Directors submit their report for the year ended 30 April 2006. Directors The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows: Carlos S dos Santos (Chairman) A E (Ted) Harris, AC (Deputy Chairman) Andrew Reitzer (CEO) Michael R Jablonski Edwin M Jankelowitz V Dudley Rubin Peter L Barnes Richard A Longes Bruce A Hogan, AM (appointed 24 November 2005) Bernard J Hale (resigned 29 May 2006) Joao Louis S Jardim (Lou Jardin) Michael Wesslink (resigned 29 May 2006) Directors were in office for this entire period unless otherwise stated. company secretary John Randall For qualifications and experience of Directors please refer to ‘the Board’ section of this annual report. For qualifications and experience of the Company Secretary please refer to ‘the Executive Team’ section of this annual report. interests in the shares anD options of the company anD relateD BoDies corporate As at the date of this report, the interests of the Directors in the shares and options of Metcash Limited were: Number of ordinary shares Number of options over ordinary shares 100 404,695 1,410,000 – 520,000 5,900 177,083 125,000 75,000 – 440,000 365,849 – – 1,540,000 820,000 820,000 – – – – 1,500,000 730,000 890,000 Cents 13.67 13.52 Carlos S dos Santos A E (Ted) Harris, AC Andrew Reitzer Michael R Jablonski Edwin M Jankelowitz V Dudley Rubin Peter L Barnes Richard A Longes Bruce A Hogan, AM Bernard J Hale Joao Louis S Jardim Michael Wesslink earnings per share Basic earnings per share Diluted earnings per share 22 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 DiViDenDs Dividends paid in the year Interim for the year – on ordinary shares in December 2005 Final for 2006 declared – on ordinary shares corporate information corporate structure $’000 27,732 27,732 44,864 44,864 Metcash Limited is a company limited by shares that is incorporated and domiciled in Australia. nature of operations and principal activities The principal activities during the year of entities within the consolidated entity were the wholesale distribution and marketing of groceries, liquor and associated products. employees The consolidated entity employed 7,033 employees as at 30 April 2006 (2005: 4,316 employees). reVieW anD results of operations group overview A review of the operations during the period and the results of those operations, appears in the ‘Report from the Chairman and the Chief Executive Officer’ on page 2. Summarised operating results are as follows: Business segments Food Distribution Cash & Carry Distribution Liquor Distribution Consolidated entity adjustments/(unallocated amounts) Consolidated entity sales and profit from ordinary activities before income tax expense 2006 Profit before tax $’000 175,808 21,235 30,712 227,755 (94,269) 133,486 Revenues $’000 4,659,265 1,147,438 2,407,672 8,214,375 37,271 8,251,646 significant changes in the state of affairs No significant changes in the state of affairs of the Company occurred during the financial period, not otherwise disclosed in the ‘Report from the Chairman and the Chief Executive Officer’. significant eVents after the Balance Date No significant events occurred after balance date. liKely DeVelopments anD eXpecteD results Information with respect to likely developments is set out within the ‘Report from the Chairman and the Chief Executive Officer’ elsewhere in this annual report. www.metcash.com 23 dIre Ctors’ report year eNded 30 ap ril 2006 Directors’ meeting The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each of the Directors were as follows: Directors’ meetings Meetings of committees Remuneration & Nomination Audit Risk & Compliance Number of meetings held: Number of meetings attended: C S dos Santos A E (Ted) Harris, AC Andrew Reitzer Michael R Jablonski Edwin M Jankelowitz V Dudley Rubin Peter L Barnes Richard A Longes Bruce A Hogan, AM Bernard J Hale Joao Louis S Jardin Michael Wesslink 5 4 5 5 5 5 5 5 5 2 5 5 5 5 5 5 – – – – 5 – – – – – 4 – – – – – 4 3 4 1 – – – All Directors were eligible to attend all meetings held, except for Bruce A Hogan, who was eligible to attend 2 Directors’ meetings and 1 Audit Risk & Compliance Committee meeting. committee membership As at the date of this report, the Company had an Audit Risk & Compliance Committee and a Remuneration & Nomination Committee. Members acting on the committees of the Board during the year were: Audit Risk & Compliance Remuneration & Nomination R A Longes (c) P L Barnes* V Dudley Rubin B A Hogan, AM* Notes A E (Ted) Harris, AC (c) P L Barnes C S dos Santos (c) Designates the chairman of the committee. * B A Hogan, AM replaced P L Barnes on the Audit Risk & Compliance Committee. For details of the committees, their charters and current membership, please refer to the section ‘Corporate Governance’. indemnification and insurance of directors and officers (i) The Constitution of the Company permits the grant of an indemnity (to the maximum extent permitted by law) in favour of each Director, the Company Secretary, past Directors and Secretaries, and all past and present Executive Officers. The Company has entered into Deeds of Indemnity and Access with F J Conroy, C P Curran, J R Fleming, T S Haggai, D W J Bourke, R S Allan, J J David and Sir Leo Heilscher together with all of the current Directors and certain other officers of the Company. This indemnity is against any liability to third parties (other than related Metcash companies), by such officers unless the liability arises out of conduct involving a lack of good faith. The indemnity also includes costs or expenses incurred by an officer in unsuccessfully defending proceedings relating to that person’s position. (ii) During the financial year, the Company has paid, or agreed to pay, a premium in respect of a contract of insurance insuring officers (and any persons who are officers in the future) against certain liabilities incurred in that capacity. Disclosure of the total amount of the premiums and the nature of the liabilities in respect of such insurance, is prohibited by the contract of insurance. 24 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 shareholDer returns The ongoing performance of the Group has ensured that returns to shareholders, through both dividends and capital growth has continued. Earnings before CULS, CUPS and restructure costs in 2006 only Earnings per share before goodwill/intangible amortisation Basic earnings per share (a) Dividends declared per share Dividends paid per share Return on equity (b) Share price (30 April) AIFRS AGAAP 2006 2005 2005 2004 2003 2002 21.55 14.16 13.67 11.50 5.50 15.70 4.60 31.81 29.68 29.68 9.50 15.50 28.80 3.20 16.64 19.29 15.30 9.50 15.50 15.30 3.20 16.10 13.10 18.86 16.10 11.00 9.60 22.70 2.05 16.19 13.10 8.60 7.00 21.10 2.19 8.89 14.09 8.89 5.00 2.00 16.50 2.40 (a) Under AIFRS, the comparative Earnings per Share (EPS) (2005) is calculated, under the reverse acquisition rules, using Metcash Limited (MTS) shares at the close (30 April 2005). This has impacted on EPS reported by 14.4 cents compared with EPS under AGAAP. Basic EPS under AGAAP was 15.3 cents. The weighted average of MTS shares issued on 30 April 2005 was 427,395,233 and on 30 April 2006 was 593,675,382. Basic earnings per share has been calculated using weighted average number of shares before the effect of dilutive securities (share options). (b) Return on equity has been impacted in 2005, under AIFRS, by the reverse acquisition. Average equity in 2005 under AIFRS was $440 million and under AGAAP was $673 million. rounDing The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. taX consoliDation Metcash Limited has entered a tax consolidation group including its 100% owned subsidiaries. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. occupational health anD safety health, safety, environment, and community (hsec) Metcash recognises that effective governance of Health, Safety, Environment and Community requires participation and support of all parts of our geographically diverse business. We have an obligation to our communities and a range of stakeholders to demonstrate a consistent corporate commitment to HSEC through leadership and the allocation of resources. Metcash aims to ensure that all stakeholders are aware of how their action or inaction can influence the effectiveness of HSEC governance, and strives to implement and continuously improve best practice models to achieve effectiveness in the areas of health, safety, environment and community governance. our people Workforce engagement At Metcash, engagement means the alignment of employees’ efforts and contributions to those of the business and of shareholders. It is about constant communication, regular and frequent team briefs and understanding and, perhaps more importantly, ‘doing something about’ what concerns employees in their day-to-day activities. Engagement at all levels of the workforce is one key to Metcash’s ongoing success. Re-enforced by work/life balance policies such as the highly successful ‘Pro-Fit’, which targets activities and programs designed to enrich the wellbeing of all employees, Metcash continues to acknowledge and value the contributions of all its employees. The results of the 2005 climate survey have been released to all employees. They show that there are still improvements to be made in areas such as rewarding performance and career development. Plans are being formulated to address these concerns. However, the majority of comments were positive and complimentary, including that employees care about the future of the organisation, understand how they contribute to Metcash’s success and believe that Metcash has effective leadership. The people side of the FAL integration was highly effective, with no major concerns arising. The incorporation of the Metcash culture was a high priority and feedback from the new Metcash employees shows a high regard and appreciation for engagement and wellbeing matters. www.metcash.com 25 dIre Ctors’ report year eNded 30 ap ril 2006 Workforce development and competency Metcash uses a competency framework to ensure that employee development is aligned to business needs and outcomes. As part of the annual review process, managers work with employees to establish an Employee Development Plan which addresses their individual development needs. These plans are analysed by the Company and used to plan the delivery of training programs across the Group. In addition to the standard operational training provided within each business pillar, a range of traineeships is offered across the Metcash Group. These allow employees to gain formal recognition of their skills and abilities leading to a nationally recognised qualification. Metcash has also adopted the Diploma of Business (Frontline Management) as a core element of its management development process. This program involves attendance at a range of workshops and the delivery of a business focused project, enabling participants to immediately apply their learning to a business issue. In addition, the Company offers a range of management and leadership development programs, including the Metcash High Performing Manager Program for middle managers, and the Metcash Executive Leadership Program for senior managers. While still offering traditional classroom training, Metcash is increasing its use of e-learning in the provision of training. E-learning allows greater flexibility for both the Company and employees and is particularly useful in efficiently servicing regional operations. Currently, employees can access an extensive range of desktop applications and recently the e-learning offering has been expanded to include a Discrimination and Harassment Awareness program. Metcash encourages employees to continue their personal and professional development through formal education at either undergraduate or postgraduate level. Through a Company sponsorship scheme, eligible employees receive a reimbursement towards course fees on the successful completion of each unit of study. Health services The Metcash Pro-Fit Program continued in its second year and offers all employees a range of wellbeing and family friendly initiatives. These include annual health checks and flu vaccinations, health education programs, employee counselling services, purchased annual leave, flexible start and finish times, paid parental leave, healthy cafeteria options, family fun days, walking tracks, lifestyle vouchers and wellbeing days. The Pro-Fit program has been embraced enthusiastically by employees and Metcash will continue to drive and expand the initiatives as part of broader morale, staff attraction and retention strategies. Safety Commitment and strategy The health and safety of our people at work is a high priority. Metcash acknowledges the continuing requirement to maintain vigilance towards safety and to be proactive in identifying new ways to improve performance through actively engaging our people in ‘Managing Safety Together’. Significant reductions in all areas of safety and workers’ compensation were achieved during the year. Effective implementation of our proactive safety, workers’ compensation and injury management strategy has specifically delivered these reductions. Key achievements included the development of new National Safe Work Systems procedures and a best practice Health, Safety, Environment and Community (HSEC) Standards Framework, which will be implemented over the next 12 months. This framework includes: • • • HSEC Governance Charter and Standards Framework to provide guidance, policy and principles on what constitutes acceptable levels of performance for HSEC; HSEC Assurance Guidelines for a reporting framework for performance targets, measurement, assurance and communication of performance for stakeholder and public reporting; HSEC Management Systems to provide integrated HSEC management systems and processes to ensure effective implementation and operation to realise HSEC principles. Risk and hazard management initiatives Metcash continues to drive its national safety strategy with annual Safety and Injury Management Plans for every Metcash site and annual internal audits demonstrating significant improvement in safety compliance for the business. Key areas of risk management continue to focus on reducing high risk industry hazards such as manual handling to ensure the improvement of safety in our operations for our employees. 26 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 Performance results, management evaluation and review Over the past 12 months, Metcash’s investment in the National Safety Management Strategy has resulted in significant improvements, as the table below shows: Statistic Percentage change from previous year Lost time incident frequency rate (LTIFR) Number of lost time injuries Number of hours lost Severity rate Number of workers’ compensation claims Number of hazard inspections Number of employee consultation safety meetings  36% decrease  35% decrease  26% decrease  21% decrease  35% decrease  285% increase  190% increase Metcash utilises positive performance indicators such as hazard inspections and employee consultation safety meetings alongside lag indicators (LTIFR), as a more holistic way of measuring the overall effectiveness of safety performance. our places of work The Company continues to actively set formal targets and develop and implement effective strategies to ensure its business units comply with chain of responsibility transport safety legislation requirements, dangerous goods management, packaging recycling legislation, while assisting with plastic bag reduction commitments of its retailers. Environmental management There were zero environmental incidents for the year. The gap analysis review from environmental audits completed at each site in 2005 and the plans developed from these audits are being reviewed against new Energy Efficiency Opportunity requirements. Energy and water consumption are undergoing reviews across Metcash warehouses over the next 6 months to identify improvement opportunities. Energy saving initiatives are already being designed into new building works under our commitment to reduce the impact of energy usage on the environment. The National Packaging Covenant joint Industry/Government system continues to be supported by Metcash. Negotiations for the national cardboard and plastic recovery programs are complete and the programs will commence from May 2006. The plastic shopping bags reduction campaign continued for IGA retailers in conjunction with the ARA Code of Practice, Metcash and Clean Up Australia. The report to the Federal Environment Minister advised that the major retailers (including IGA stores) were able to achieve a 45% reduction in plastic bags as at end of December 2005 compared to the 50% reduction target against December 2002 bag numbers. IGA stores will continue to work towards the 50% bag reduction target by the end of 2006 and maintain the education campaigns to encourage consumer behaviour change. Dangerous goods Formal consolidated data management for ongoing risk mitigation was implemented. Chain of responsibility Metcash is participating in the development of a retail industry code with other industry groups to ensure transport management and inspection procedures are agreed to and implemented efficiently by all groups involved. Implementation of this initiative will include training across all warehouses nationally in these procedures. Bioterrorism assessments Metcash continues to assist in a number of food industry consultative groups to increase security management across the businesses and to assist the Food Industry Infrastructure Assurance Action Group to better prepare the community and the Company controlled sites for possible pandemic or other bioterrorism risks. www.metcash.com 27 dIre Ctors’ report year eNded 30 ap ril 2006 our processes and products Product safety/public health The Company continues to implement effective strategies to ensure its business units comply with food safety and food labelling legislation plus assisting with the training and implementation of these programs with its independent retail customers. The merger of FAL and the takeover of Australian Asia Pacific Wholesalers (AAW) activities by Metcash continues with centralisation of product specifications management. These have now been fully centralised within Metcash to ensure ongoing compliance. New Country of Origin Labelling (Cool) requirements resulted in a joint application request by Metcash and key retail groups, in conjunction with the AFGC, to FSANZ (Food Standards Australia New Zealand). It was agreed by FSANZ to amend these proposed changes and make more practical guidelines for all delicatessens, meats, seafood and bakery displays. Food Safety Standards Metcash sites continue to implement best practice HACCP (Hazard Analysis and Critical Control Points) based Food Safety Programs. All new warehouse sites and stores acquired under the FAL merger have been reviewed and improvement areas identified. All retail store department managers of new corporately owned sites have begun undergoing full training on new food safety requirements while aiming to have HACCP certifications by the end of October 2006. Technical services audits and third party audits conducted since January 2006’s report have confirmed that no pre-existing Metcash site is operating below legislative food safety standards. Metcash warehouses have zero outstanding major non-conformances. remuneration report This report outlines the remuneration arrangements for Directors and executives of Metcash Limited (the Company). remuneration & nomination committee Role The Remuneration & Nomination Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the Chief Executive Officer (CEO) and the senior executive team. The principal responsibilities of the Committee (which are available on the Company’s web site) are to: 1. 2. review and advise the Board annually on the remuneration and components of remuneration for the Chief Executive Officer and executives reporting directly to the Chief Executive Officer; review management’s recommendation and advise the Board on performance linked compensation packages for management staff, Directors’ and executives’ retirement, pension and superannuation schemes, and employee participation schemes, including executive share and share option plans and employee share plans; 3. oversee the administration of the Metcash Employees Option Plan and exercise the Board’s discretionary power when required; 4. advise the Board on directorship appointments, and implement processes to assess the Board and its committees, review the Board’s required status, experience, mix of skills, and other qualities, including gender, and provide a Directors’ orientation and education program; 5. regularly evaluate and advise the Board on the performance of the Chief Executive Officer; 6. advise the Board on the successor to the Chief Executive Officer; and 7. assess the effectiveness of the Board as a whole and its committees as set out in Section 7 of the Metcash Board Charter. The Remuneration & Nomination Committee assesses the appropriateness of the nature and amount of remuneration of Directors and senior executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. compensation structure In accordance with best practice corporate governance, the structure of Non-Executive Director and senior executive remuneration is separate and distinct. Non-Executive Director compensation Aggregate Directors’ remuneration is determined from time to time at a general meeting. The current limit, $1,000,000, was agreed by members at the 1 September 2005 Annual General Meeting. 28 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 Non-Executive Directors are paid an annual fee which is periodically reviewed. The Remuneration & Nomination Committee has responsibility for reviewing and recommending the level of remuneration for Non-Executive Directors in relation to Board and committee dates. External professional advice is sought before any changes are made to the amount paid to Directors within the overall maximum amount approved by shareholders. Additional amounts are paid to the Chairman and Deputy Chairman to recognise the responsibilities involved with those positions. Directors performing committee duties are paid additional fees. The current fees were based on independent advice. Non-Executive Directors do not receive bonuses, and are not entitled to participate in the Company’s share option scheme. A retirement benefit was paid to Non-Executive Directors for past service. The benefits were in accordance with Section 8.3(h) and (i) of the Company’s Constitution and Section 200 of the Corporations Law. The retirement benefit scheme was discontinued as at the date of the 2005 Annual General Meeting and accrued benefits (as shown below) were frozen at that time. Directors’ fees were increased based on independent advice to reflect the cessation of this benefit. Accrued benefits A E Harris, AC R A Longes P L Barnes $ 301,882 211,619 211,619 $725,120 Senior Executive and Executive Director compensation The Remuneration & Nomination Committee recognises that the Group operates in a very competitive environment and that its performance depends on the quality of its people. To continue to prosper, the Group must be able to attract, motivate and retain highly skilled executives. The guiding principles of the Group’s remuneration policy are to: • • • • • • provide competitive rewards to attract and retain executive talent; apply demanding Key Performance Indicators to deliver results across the Group and to a significant portion of the total reward; link rewards to executives to the creation of value to shareholders; assess and reward executives using financial and non-financial measures of performance; ensure remuneration arrangements between executives are equitable and facilitate the deployment of human resources around the Group; and limit severance payments on termination to pre-established contractual arrangements which do not commit the Group to making unjustified payments in the event of non-performance. Advisors The Chief Executive Officer and the Chief Human Resources Officer have assisted the Committee in its deliberations during the year. In addition, independent advisors were retained to provide assistance and advice on market-related remuneration and short, medium and long-term incentives. Service contracts Service contracts exist for senior executives including the Chief Executive Officer. They are unlimited in term but capable of termination on 15 months notice in the case of the Chief Executive Officer and 9 months notice in the case of executives who are direct reports to the Chief Executive Officer. The Group retains the right to terminate a contract immediately, by making payments equal to the notice period, in lieu of notice. In addition, should termination be as a result of redundancy, a further payment of 9 months of fixed remuneration (base salary plus superannuation) is payable to the Chief Executive Officer and 6 months further payment to Executives who are direct reports to the Chief Executive Officer. The Chief Executive Officer and Executives who are direct reports to the Chief Executive Officer, may terminate their employment by giving 3 months notice. The service contracts typically outline the components of remuneration paid to Executives, but do not prescribe how remuneration levels are reviewed each year to take account of cost-of-living changes, any change in the scope of the role performed by the executive and any changes required to meet the principles of the remuneration policy. Remuneration is divided into two components. The first is the fixed or base component, which is made up of base salary and superannuation benefits. The second is the ‘at risk’ component, which is subject to Key Performance Indicators (KPIs) and performance hurdles and is generally made up of short, medium and long-term incentives that take the form of cash payments and/or participation in the equity plans. The amount of ‘at risk’ remuneration, if any, that is earned by an executive is wholly dependent on that executive’s and the Group’s performance against those pre-determined KPIs and performance hurdles. www.metcash.com 29 dIre Ctors’ report year eNded 30 ap ril 2006 Fixed remuneration Base salary and benefits Base salaries are determined by reference to the scope and nature of the individual’s role and their performance and experience. Market data is used to benchmark salary levels. Particular consideration is given to competitive remuneration levels and the need to retain talent. Superannuation benefits Superannuation benefits are delivered in accordance with the Federal Government’s Superannuation Guarantee Levy, which currently sits at 9% of fixed remuneration to a maximum of $153,647 p.a. and for amounts above that at a flat $12,696 p.a. At risk remuneration At risk remuneration is delivered as short, medium and long-term incentives and applies to the Group’s senior management, which includes the Company Secretary and assuming that maximum bonuses are earned, 50% of short-term income is at risk. The components of the at risk remuneration are as follows: • • • • Executive management bonus scheme (short-term incentive). This scheme delivers a maximum of 50% of fixed remuneration subject to achievement of pre-determined KPIs relating to Business Pillar and/or Group financial and individual performance. Synergy Gains Incentive Plan (medium-term incentive). This plan has a fixed life and delivers a maximum of 50% of fixed remuneration subject to achievement of specific and pre-determined synergies associated with the FAL integration over 2 years. Options plan (long-term incentive). This plan delivers share options to individuals and is subject to achievement of performance hurdles for Executive Directors based on increase in earnings per share. The Company’s policy is that unexercised options cannot be ‘hedged’. The Board has approved an additional long-term incentive payment of $5,000,000 to the Chief Executive Officer and $2,000,000 to each of the Chief Financial Officer, Group Merchandising Director, CEO of IGA Distribution and the Chief Information Officer subject to achievement of specific hurdles over a 5-year period (a compounding 12.5% increase in earnings per share based on 2005 earnings per share adjusted for material changes to the number of shares issued) and only payable on successful achievement of the hurdles in 2011 and if the executive is still employed by the Company at that time. Earnings per share growth has been selected as the performance measure for long-term incentives as it directly relates to the performance of the Company and is not distorted by external influences. The performance hurdle for options issued to Executive Directors in 2005, as agreed by members at the Annual General Meeting held on 1 September 2005, was that, in each of the years in which options became available for exercise, earnings per share for the financial year preceding the tranche exercise date must be at least equal to a 12.5% annual increase of earnings per share compounded from the 2005 earnings per share, adjusted for any dilution that might occur as a consequence of any alteration to the number of ordinary shares issued. Before options are exercised by Executive Directors, agreement is obtained from the Remuneration & Nomination Committee, which verifies that the hurdle has been achieved with confirmation obtained from the Company’s external auditor. Performance hurdles have not been applied to options issued to the key management executives as they do not have the ability to influence the performance of the Company to the same degree as Executive Directors. They also generally are offered a smaller number of options than Executive Directors. The employee option scheme applies to all of the Company’s employees and it is not considered practicable for hurdles to apply in all instances. The cut-off for hurdles selected by the Company is at the Executive Director level. At risk remuneration and Company performance The at risk remuneration, with the short-term focus on sales and profit and the long-term segment influenced by earnings per share and share price, has contributed to the growth in the shareholder returns as identified in another part of the Directors’ Report. 30 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 Details of Key Management Personnel Directors Carlos S dos Santos Non-Executive Chairman Executives Ken Bean CEO Group Logistics and Corporate Development A E (Ted) Harris, AC Non-Executive Deputy Chairman Peter Dubbelman CEO Campbells Wholesale Andrew Reitzer Chief Executive Officer John Randall General Manager Finance and Company Secretary Bernard J Hale Mike Jablonski Chief Information Officer David Johnston Chief Human Resources Officer Group Merchandise Director Gary Tempany National Group Manager Merchandise and Marketing Edwin M Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-Executive Director V Dudley Rubin Non-Executive Director Mike Wesslink Peter L Barnes CEO Australian Liquor Marketers Non-Executive Director Bruce A Hogan, AM Non-Executive Director (appointed 23 November 2005) Compensation of Key Management Personnel* Compensation for Key Management Personnel for the year ended 30 April 2006 Short-Term Post Employment Share-Based Payments Total Performance- Total Related (%) Salary and Fees Bonus Non- Monetary Benefits Superannuation Retirement Benefits Options Granted 252,887 190,211 166,399 123,899 115,568 72,709 1,287,932 544,403 387,507 572,626 431,489 537,944 393,416 326,276 386,362 338,559 314,192 – – – – – – 531,200 289,571 241,823 292,383 216,095 289,571 237,777 210,000 224,961 188,703 175,000 6,441,977 2,897,085 – – – – – – – 23,000 – – – 23,000 – – 23,000 – 19,000 88,000 12,140 – 12,128 11,003 10,401 – 100,587 12,140 96,140 12,140 48,724 18,199 81,950 93,724 40,560 38,848 16,808 605,492 – – – – – – – – – – – – – – – – – – – – – – – – 231,910 125,618 364,930 125,618 125,618 125,618 46,996 46,996 46,996 46,996 17,623 265,027 190,211 178,527 134,902 125,969 72,709 2,151,629 994,332 1,090,400 1,002,767 821,926 994,332 760,140 676,996 721,879 613,106 542,623 1,304,919 11,337,474 – – – – – – 35.47 41.76 55.65 41.68 41.57 41.76 37.46 37.96 37.67 38.44 35.50 37.06 Directors C dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany * The disclosures marked with an asterix have been included within the remuneration report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. www.metcash.com 31 dIre Ctors’ report year eNded 30 ap ril 2006 Compensation of Key Management Personnel for the year ended 30 April 2005 Short-Term Post Employment Share-Based Payments Total Performance- Total Related (%) Salary and Fees Bonus Non- Monetary Benefits Superannuation Retirement Benefits Options Granted Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale J E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany – 108,901 71,703 71,703 – – 1,151,540 523,324 848,831 546,324 415,320 488,620 379,119 324,222 371,277 338,930 261,569 – – – – – – 343,325 74,970 62,608 74,970 31,233 85,120 65,523 53,901 60,969 49,094 37,359 – – – – – – 2,669 23,000 – – – 135,846 45,904 – – – 19,000 – – 6,454 6,454 – – 84,947 11,488 10,522 11,488 48,072 17,547 33,769 78,072 81,002 26,912 16,156 5,901,383 939,072 226,419 432,833 Options granted as part of remuneration* – – – – – – – – – – – – – – – – – – – – – – – – – – 140,000 – – – – – – – – – 108,901 78,157 78,157 – – 1,582,481 632,782 933,594 632,782 494,625 727,133 524,315 456,195 513,248 414,936 334,084 140,000 7,639,757 – – – – – – 21.70 11.85 19.08 11.85 6.31 11.71 12.50 11.82 11.88 11.83 11.18 14.12 Grant date Grant number A Reitzer M Jablonski E Jankelowitz L Jardin K Bean M Wesslink B Hale J Randall P Dubbelman D Johnston G Tempany 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1 Sep 2005 1,200,000 650,000 650,000 650,000 400,000 650,000 650,000 400,000 400,000 400,000 150,000 Value per Value of Value of option at options granted options exercised grant date during the year Total value of options granted and exercised during the year during the period 1.27 1.27 1.27 1.27 1.30 1.27 1.27 1.30 1.30 1.30 1.30 1,524,000 825,500 825,500 825,500 520,000 825,500 825,500 520,000 520,000 520,000 195,000 1,085,960 1,621,120 1,653,420 1,485,720 1,433,300 552,860 – 216,296 1,063,040 610,080 91,152 2,609,960 2,446,620 2,478,920 2,311,220 1,953,300 1,378,360 825,500 736,296 1,583,040 1,130,080 286,152 Remuneration consisting of options for the year % 11.24 12.63 12.53 12.71 6.81 16.00 60.29 7.89 6.78 8.58 3.28 * The disclosures marked with an asterix have been included within the remuneration report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. 32 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 Compensation options: Granted and vested during the year* 30 April 2006 Vested number Granted number Grant date Terms and Conditions For each grant Fair value per option at grant date (per note 15) Exercise price per option (per note 15) Expiry date First exercise date Last exercise date Directors A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives P Dubbelman K Bean D Johnston J Randall G Tempany 30 April 2005 Directors A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives P Dubbelman K Bean D Johnston J Randall G Tempany 340,000 170,000 – 170,000 220,000 200,000 80,000 80,000 80,000 32,000 12,000 1,200,000 650,000 650,000 650,000 650,000 650,000 400,000 400,000 400,000 400,000 150,000 1,384,000 6,200,000 340,000 510,000 – 510,000 240,000 240,000 240,000 240,000 240,000 36,000 36,000 – – 850,000 – – – – – – – – 2,632,000 850,000 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 1 Sep 05 – – 2 Sep 04 – – – – – – – – 1.27 1.27 1.27 1.27 1.27 1.27 1.30 1.30 1.30 1.30 1.30 – – 0.97 – – – – – – – – 4.01 4.01 4.01 4.01 4.01 4.01 3.925 3.925 3.925 3.925 3.925 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 1 Sep 11 – – 2.43 – – – – – 1 Sep 10 – – – – – 1 Sep 07 – – – – – 1 Sep 10 – – – – – – – – – – – – – – – – – – – – – – – * The disclosures marked with an asterix have been included within the remuneration report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. www.metcash.com 33 dIre Ctors’ report year eNded 30 ap ril 2006 Details of bonus provided for in year ended 30 April 2006* Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan M Wesslink B Hale A Reitzer M Jablonski E Jankelowitz L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany All bonuses for the year ended 30 April 2006 were paid either in December 2005, June or July 2006. Details of bonus provided for in year ended 30 April 2005* Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan M Wesslink B Hale A Reitzer M Jablonski E Jankelowitz L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany All bonuses for the year ended 30 April 2005 were paid in either December 2004 or June 2005. Compensation by category* Short-Term Post Employment Other Long-Term Termination Benefits Share-Based Payments Total Potential bonus Bonus payable Bonus forfeited – – – – – – 240,105 241,823 650,000 289,571 292,383 289,571 237,778 210,000 224,961 188,703 175,000 – – – – – – 117,125 117,390 619,578 140,569 140,569 133,750 114,316 101,064 109,204 92,051 74,718 – – – – – – 216,096 241,823 531,200 289,571 292,383 289,571 237,778 210,000 224,961 188,703 175,000 – – – – – – 31,233 62,608 343,325 74,970 74,970 89,166 60,969 53,901 65,522 49,094 37,359 – – – – – – 24,009 – 118,800 – – – – – – – – – – – – – – 85,892 54,782 276,253 65,599 65,599 44,584 53,347 47,163 43,682 42,957 37,359 Metcash Group 2006 $ 9,427,063 605,492 – – 1,304,919 11,337,474 2005 $ 7,066,874 432,883 – – 140,000 7,639,757 * The disclosures marked with an asterix have been included within the remuneration report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. 34 metcash limited Annual Report 2006 dI re Ct ors’ report year eNded 3 0 a pril 2006 share options unissued shares As at the date of this report, there were 21,401,792 unissued ordinary shares under option (21,518,292 at the reporting date). Refer to note 15 of the financial statements for further details of the options outstanding. shares issued as a result of options During the financial year, employees and executives have exercised options to acquire 5,782,946 fully paid ordinary shares in Metcash Limited at a weighted average exercise price of $1.14. Since the end of the financial year, a further 116,500 options have been exercised, at a weighted average exercise price of $1.23. ceo anD cfo Declaration The Chief Executive Officer and Chief Financial Officer have provided a declaration which states: (a) With regard to the integrity of the financial report of Metcash Limited for the period to 30 April 2006: (i) (ii) (iii) The financial statements and associated notes comply in all material respects with the accounting standards as required by Section 296 of the Corporations Act 2001; The financial statements and associated notes give a true and fair view, in all material respects, of the financial position as at 30 April 2006 and performance of the Company for the period months then ended as required by Section 297 of the Corporations Act 2001; In our opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (b) With regard to the financial records and systems of risk management and internal compliance and control of Metcash Limited for the period ended 30 April 2006: (i) (ii) (iii) (iv) The financial records of the Company have been properly maintained in accordance with Section 286 of the Corporations Act 2001; The statements made in (a) above regarding the integrity of the financial statements are founded on a sound system of risk management and internal compliance and control which, in all material respects, implements the policies adopted by the Board of Directors; The risk management and internal compliance and control systems of the Company relating to financial reporting, compliance and operations objectives are operating efficiently and effectively, in all material respects. Subsequent to 30 April 2006, no changes or other matters have arisen that would have a material effect on the operation of risk management and internal control and control systems of the Company. auDitor’s inDepenDence Declaration The auditor’s independence declaration for the year ended 30 April 2006 has been received and can be found on page 94 of the financial report. non-auDit serVices The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance Assurance-related Other services $716,000 $20,000 $29,000 Signed in accordance with a resolution of the Directors. Andrew Reitzer Director Sydney, 17 July 2006 www.metcash.com 35 InCom e statement for t he y ear eN d ed 30 ap ril 2 006 Metcash Group Metcash Limited Revenue Cost of sales Gross profit Other income Distribution costs Administrative costs Share of profit of associates Restructure costs Finance costs CULS redemption premium CULS issue costs CUPS redemption premium Other finance costs Profit before income tax Income tax expense Net profit for period Notes 2006 $’000 2005 $’000 4 4 4 5 8,251,646 (7,406,154) 7,044,780 (6,398,120) 845,492 – (368,468) (254,856) 3,356 (17,267) (20,940) (6,003) (2,557) (45,271) 133,486 (52,308) 81,178 646,660 9,643 (225,934) (228,348) 273 – (7,100) (1,998) – (8,050) 185,146 (58,303) 126,843 2006 $’000 31,008 – 31,008 – – (3,260) – – – – – – 27,748 – 27,748 Profit attributable to the members of the parent company Earnings per share (cents per share) – basic earnings per share – diluted earnings per share – franked dividends paid per share 81,178 126,843 27,748 28 28 6 13.67 13.52 11.50 29.68 28.10 9.50 – – – Period ending 30 April 2005 $’000 – – – – – (16) – – – – – – (16) – (16) (16) – – – 36 metcash limited Annual Report 2006 ba l a nC e sheet as at 30 apr il 2 00 6 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Assets classified as held for sale Total current assets Non-current assets Receivables Investments in associates Other financial assets Property, plant and equipment Deferred tax assets Intangible assets and goodwill Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Interest-bearing loans and borrowings Income tax payable Provisions Liabilities directly associated with assets classified as held for sale Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Convertible, redeemable, subordinated, unsecured loan notes (CULS) Convertible undated preference shares (CUPS) Deferred tax liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Other equity Reserves Retained earnings TOTAL EQUITY Metcash Group Metcash Limited Notes 2006 $’000 2005 $’000 2006 $’000 2005 $’000 – 265,090 – – 265,090 – 265,090 – – 2,242,229 – – – 2,242,229 2,507,319 – – 8,525 – 8,525 – 8,525 – – – – – – – – – – – – – – – – 2,242,229 – – – 2,242,229 2,242,229 906,621 – – – 906,621 – 906,621 – – – – – – 906,621 7 8 9 29 10 11 12 13 5 14 16 17 18 29 17 17 17 5 18 19 19 19 220,199 866,024 534,995 4,334 1,625,552 185,505 1,811,057 8,019 50,171 227 147,220 36,592 1,050,734 1,292,963 3,104,020 1,175,468 5,810 17,984 33,081 1,232,343 189,607 648,006 385,474 4,163 1,227,250 206 1,227,456 29,814 2,450 4,121 77,014 29,027 326,100 468,526 1,695,982 826,879 7,995 22,156 30,977 888,007 49,655 – 1,281,998 888,007 751,299 341,248 375,080 50,000 18,344 18,838 803,510 1,691,517 – – 10,623 27,233 789,155 2,071,153 1,032,867 1,823,895 (765,923) 12,200 (37,305) 1,032,867 4,465 2,498,794 1,335,608 846,976 (765,923) 14,163 (90,751) 4,465 2,495,518 3,276 – – 2,498,794 1,335,608 16 – (16) 1,335,608 www.metcash.com 37 state ment of changes in e quit y year ended 3 0 a pr il 2 006 l a t o T y t i u q e 0 0 0 $ ’ ) 6 7 3 3 ( , , 8 9 4 3 6 4 7 8 1 9 9 3 5 , , 2 2 1 0 6 4 4 1 4 9 7 2 , ) 3 2 9 5 6 7 ( , 7 4 3 1 , 7 8 2 8 2 1 , , 4 3 6 9 2 1 ) 4 2 9 2 0 1 ( , 9 0 9 5 , ) 4 4 4 1 ( , 5 6 4 4 , 1 0 2 6 , 0 6 2 3 , ) 3 2 2 5 ( , 8 7 1 1 8 , 5 5 9 5 7 , ) 2 3 7 7 2 ( , 8 1 7 0 7 9 , , 7 6 8 2 3 0 1 , i n g e r o F y c n e r r u C n o i t a l s n a r T 0 0 0 $ ’ e v r e s e R – ) 5 8 1 ( ) 5 8 1 ( – – – – – – 7 4 3 1 , 7 4 3 1 , – 2 6 1 1 , 2 6 1 1 , – – – – – ) 3 2 2 5 ( , ) 3 2 2 5 ( , ) 1 6 0 4 ( , 0 0 0 $ ’ l a t i p a C e v r e s e R – 7 7 7 2 1 , 7 7 7 2 1 , – – – – – – – – – – – – – – – – 7 7 7 2 1 , 7 7 7 2 1 , 7 7 7 2 1 , p u o r G h s a c t e M 0 0 0 $ ’ i d e n a t e R i s g n n r a E ) 6 7 3 3 ( , ) 4 9 2 1 1 1 ( , ) 0 7 6 4 1 1 ( , – – – – – , 7 8 2 8 2 1 7 8 2 8 2 1 , ) 4 2 9 2 0 1 ( , ) 4 4 4 1 ( , ) 7 0 3 9 8 ( , ) 1 5 7 0 9 ( , – – – – 8 7 1 1 8 , 8 7 1 1 8 , ) 2 3 7 7 2 ( , ) 5 0 3 7 3 ( , – 7 3 7 3 – – 7 8 1 – – – – – – 4 2 2 4 2 2 – – 0 6 2 3 , – – – – – – – – – – – – – – ) 3 2 9 5 6 7 ( , – ) 3 2 9 5 6 7 ( , ) 3 2 9 5 6 7 ( , – – – – – – – 4 8 4 3 , ) 3 2 9 5 6 7 ( , 0 0 0 $ ’ s t n e m y a p d e s a b - e r a h S 0 0 0 $ ’ y t i u q e r e h t O y t i u q e 0 0 0 $ ’ – 3 6 1 2 6 5 , 9 9 3 5 , 3 6 1 2 6 5 , 4 1 4 9 7 2 , d e t u b i r t n o C – – – – – – – – – – – – 6 7 9 6 4 8 , 1 0 2 6 , 6 7 9 6 4 8 , 8 1 7 0 7 9 , s e t o N ) i i v x x ( 2 ) i i v x x ( 2 , 5 9 8 3 2 8 1 , 4 0 0 2 y a M 1 t a e c n a a b l d e t s u d A j t n e m y a p d e s a b - e r a h s f o t s o C n o i t i s i u q c a e s r e v e R s e c n e r e f f i d n o i t a l s n a r t y c n e r r u C d o i r e p e h t r o f t i f o r P l a t i p a c e r a h s f o e u s s I s n o i t p o f o e s i c r e x E d o i r e p e h t r o f e s n e p x e / e m o c n i l a t o T s t n e m t s u d a j 4 0 0 2 y a M 1 t A r o r r e d o i r e p r o i r P 38 Metcash Limited Annual Report 2006 s d n e d v D i i 5 0 0 2 l i r p A 0 3 t a e c n a a b l d e t s u d A j s e c n e r e f f i d n o i t a l s n a r t y c n e r r u C t n e m y a p d e s a b - e r a h s f o t s o C d o i r e p e h t r o f t i f o r P l a t i p a c e r a h s f o e u s s I s n o i t p o f o e s i c r e x E d o i r e p e h t r o f e s n e p x e / e m o c n i l a t o T s t n e m t s u d a j r o r r e d o i r e p r o i r P 5 0 0 2 l i r p A 0 3 t A 6 0 0 2 l i r p A 0 3 t A s d n e d v D i i s tate ment of ch anges in e quit y year ended 3 0 a pr il 2 00 6 At 1 May 2004 Conversion of shares from Metcash Trading Limited at $3.27 per share Conversion of CULS Cost of share-based payment Loss for the period Total income/expense for the period At 30 April 2005 Exercise of options Issue of share capital Conversion of CULS Cost of share-based payment Profit for the period Total income/expense for the period Dividends At 30 April 2006 Metcash Limited Contributed equity $’000 Share-based payments $’000 Retained Earnings $’000 – 1,152,618 182,990 – – – 1,335,608 6,201 970,718 182,991 – – – – – – – 16 – – 16 – – – 3,260 – – – – – – – (16) (16) (16) – – – – 27,748 27,748 (27,732) Total equity $’000 – 1,152,618 182,990 16 (16) (16) 1,335,608 6,201 970,718 182,991 3,260 27,748 27,748 (27,732) 2,495,518 3,276 – 2,498,794 www.metcash.com 39 ca s h f lo w statement year ended 3 0 a pr il 2 006 Metcash Group Metcash Limited Notes 2006 $’000 2005 $’000 2006 $’000 Period ending 30 April 2005 $’000 Cash from operating activities: Receipts from customers Payments to suppliers and employees Income taxes paid GST paid Dividends received Borrowing costs Interest received 9,479,154 (9,012,845) (77,523) (109,654) 781 (41,997) 4,757 8,281,009 (7,994,639) (54,271) (100,007) – (8,050) 6,595 Total cash from operating activities 7 242,673 130,637 Cash flows from investing activities: Proceeds from sale of plant and equipment Proceeds from sale of investment Proceeds from sale of businesses Payment on acquisition of businesses Purchase of property, plant and equipment Payment on acquisition of associates Payment of deferred acquisition costs Loan (to)/from other entities Loans to related parties – proceeds from repayments 27 Net cash used by investing activities Cash flows from financing activities: Proceeds from the issue of ordinary shares Proceeds/(Repayment) of CULS Proceeds/(Repayment) of CUPS Proceeds from borrowings – other Repayments of borrowings – other Repayment of financing facilities Payment of finance lease principal Payment of funding costs Payment of dividends on ordinary shares Net cash used by financing activities Net cash increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash Cash and cash equivalents at end of year 7 2,297 20 380 (55,679) (50,264) (45,990) – – 59 9,643 – – (1,083,961) (32,238) – (3,941) (40,159) – (149,177) (1,150,656) 34,324 (401,913) (52,557) 565,000 (150,000) (11,000) (9,011) (7,449) (27,732) 295,852 747,747 50,000 525,000 (305,876) – (7,000) (26,824) (102,924) (60,338) 1,175,975 33,158 189,607 (2,566) 220,199 155,956 33,651 – 189,607 – – – – – – – – – – – – – – – (2,949) – (2,949) 37,584 – – – – – – (6,903) (27,732) 2,949 – – – – – – – – – – – – – – – (1,097,503) – – – 1,097,503 – – – – – – – – – – – – – – – – 40 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 1 Corporate InforMatIon The financial report of Metcash Limited (the Company) for the year ended 30 April 2006 was authorised for issue in accordance with a resolution of the Directors on 17 July 2006. Metcash Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (i) Basis of accounting The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has been prepared using the historical cost basis, except for available for sale investments, which have been measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the class order applies. (ii) transition to aIfrS (a) Statement of Compliance The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). This is the first financial report prepared based on AIFRS and comparatives for the year ended 30 April 2005 have been restated accordingly. A summary of the significant accounting policies of the Group under AIFRS are disclosed in the notes below. Reconciliation of: • • AIFRS equity as at 1 May 2004 (the date of transition to AIFRS) and 30 April 2005; and AIFRS profit for the period ended 30 April 2005, to the figures reported in the 30 April 2005 full year financial report prepared under AGAAP are detailed in note 26. (b) AASB 1 transition exemptions The Group has made its election in relation to the transitional exemptions allowed by AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS) as follows: Business combinations AASB 3 Business Combinations was not applied retrospectively to past business combinations (i.e. business combinations that occurred before the date of transition to AIFRS). Share-based payment transactions AASB 2 Share-Based Payments is applied only to equity instruments granted after 7 November 2002 that had not vested on or before 1 May 2005. Exemption from the requirement to restate comparative information for AASB 132 and AASB 139 The Group has not elected to adopt this exemption and has applied AASB 132 Financial Instruments: Presentation and AASB 139 Financial Instruments: Recognition and Measurement to its comparative information. www.metcash.com 41 not e s to the financial statement s year ended 3 0 a pr il 2 006 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (c) Standards issued but not yet effective Except for the revised AASB 119 Employee Benefits (issued December 2005), Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ending 30 April 2006: Nature of change to accounting policy No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. Application date of standard* Application date for Group 1 Jan 2006 1 May 2006 1 Jan 2006 1 May 2006 No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. 1 Jan 2006 1 May 2006 1 Jan 2007 1 May 2007 AASB Amendment Affected Standards 2005-1 2005-5 AASB 139 Financial Instruments: Recognition and Measurement AASB 1 First-Time Adoption of AIFRS, AASB 139 Financial Instruments: Recognition and Measurement 2005-6 AASB 3 Business Combinations AASB 132 Financial Instruments: Disclosure and Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment Reporting, AASB 117 Leases, AASB 133 Earnings per Share, AASB 139 Financial Instruments: Recognition and Measurement 2005-10 New standard 2006-1 AASB 7 Financial Instruments: Disclosures No change to accounting policy required. Therefore no impact. 1 Jan 2007 1 May 2007 AASB 121 The Effects of Changes in Foreign Exchange Rates No change to accounting policy required. Therefore no impact. 31 Dec 2006 30 Apr 2007 * Application date is for the annual reporting periods beginning on or after the date shown in the above table, except for 2006-1 where the application date is for the annual reporting periods ending on or after the date shown in the above table. The following amendments are not applicable to the Group and therefore have no impact. AASB Amendment Affected Standards 2005-2 2005-4 2005-9 2005-12 2005-13 2006-2 AASB 1023 General Insurance Contracts AASB 139 Financial Instruments: Recognition and Measurement, AASB 132 Financial Instruments: Disclosure and Presentation, AASB 1 First-Time Adoption of AIFRS, AASB 1023 General Insurance Contracts and AASB 1028 Life Insurance Contracts AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts, AASB 139 Financial Instruments: Recognition and Measurement and AASB 132 Financial Instruments: Disclosure and Presentation AASB 1038 Life Insurance Contracts and AASB 132 Financial Instruments: Disclosure and Presentation AASB 25 Financial Reporting by Superannuation Plans AASB 1 First-Time Adoption of AIFRS (iii) Basis of consolidation The consolidated financial statements comprise the financial statements of Metcash Limited and its subsidiaries as at 30 April 2006. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. In preparing the consolidated financial statements all intercompany balances and transactions have been eliminated in full. The acquisition of Foodland Associated Limited (FAL) on 2 November 2005 has been accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Accordingly, the consolidated financial statements include the results of FAL for the 6-month period from its acquisition on 2 November 2005. 42 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (iv) reverse acquisition In accordance with AASB 3 Business Combinations, when Metcash Limited (the legal parent) acquired the Metoz group (being Metoz Holdings Limited and its controlled entities including Metcash Trading Limited) (the legal subsidiary), the acquisition was deemed to be a reverse acquisition since the substance of the transaction is that the existing public shareholders of Metcash Trading Limited have, through Metcash Limited, effectively acquired Metoz Holdings. Under reverse acquisition accounting, the consolidated financial statements are prepared as if Metcash Trading Limited had acquired Metcash Limited and its controlled entities, not vice versa as represented by the legal position. On consolidation by Metcash Limited, no goodwill arises on the acquisition by Metcash Limited of the Metoz Holdings shares and the amount paid in cash by Metcash Limited to Metoz Holdings shareholders for their shares will be eliminated against shareholder equity. As a consequence: • • • • an exercise is performed to fair value the assets and liabilities of the legal acquirer, Metcash Limited; the cost of investment held by the legal parent (Metcash Limited) in the legal subsidiary (Metoz Group) is eliminated on consolidation against the consolidated equity and reserves of Metcash Trading Limited and its consolidated entities. The effect of this is to restate the consolidated equity and reserves balances to reflect those of Metcash Trading Limited at the date of acquisition; the number of shares disclosed by the consolidated entity are those of Metcash Limited whilst the value of shares disclosed by the consolidated entity are those of Metcash Trading Limited; and the consolidated financial statements are issued under the name of the legal parent (Metcash Limited) but are a continuation of the financial statements of the deemed acquirer under the reverse acquisition rules (Metcash Trading Limited). (v) Significant accounting judgements, estimates and assumptions (i) Significant accounting judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Contractual customer relationships Identifying those relationships with customers that meet the definition of separately identifiable intangibles that have a finite life. (ii) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill is discussed in note 14. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a binomial model, using the assumptions detailed in note 15. Contractual customer relationships The useful life of contractual customer relationships of 25 years is based on management’s expectation of future attrition rates based on historical rates experienced. www.metcash.com 43 not e s to the financial statement s year ended 3 0 a pr il 2 006 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (vi) foreign currency translation Translation of foreign currency transactions Both the functional and presentation currency of Metcash Limited and its Australian subsidiaries is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated financial report are taken to profit or loss. Translation of financial reports of overseas operations The functional currency of the overseas subsidiaries is as follows: • • • • • Tasman Liquor Company Limited is New Zealand dollars. Metoz Holdings Limited is South African Rand. Pinnacle Holdings Limited is British Pounds Sterling. Soetensteeg 2–61 Exploitatiemaatschappij BV is Euros. Wickson Corporation NV is Euros. As at the reporting date the assets and liabilities of the overseas subsidiaries are translated into the presentation currency of Metcash Limited at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rate for the year. The exchange differences arising on the translation are taken directly to the foreign currency translation reserve. (vii) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash on hand and in banks and short-term deposits with an original maturity of 3 months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above. (viii) trade and other receivables Trade receivables, which generally have 7– 40-day terms, are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. (ix) Investments and other financial assets All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments, which are classified as held for trading and available-for-sale, are measured at fair value. Gains or losses on investments held for trading are recognised in the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. 44 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (x) Investment in associates The Group’s investments in its associates are accounted for under the equity method of accounting in the consolidated financial statements. These are the entities in which the Group has significant influence and which are neither subsidiaries nor joint ventures. The financial statements of the associates are used by the Group to apply the equity method. The investments in associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate, less any impairment in value. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. The consolidated income statement reflects the Group’s share of the results of operations of the associates. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. (xi) Inventories Inventories are valued at the lower of cost or net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for using the standard cost method. Cost is determined by deducting from the supplier’s invoice price any purchase incentives, allowances, discounts and net marketing income. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (xii) property, plant and equipment Cost All classes of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation Depreciation is provided on a straight-line basis on all property, plant and equipment, other than freehold land. Major depreciation periods are: Freehold buildings: Plant and equipment: Impairment 2006 2005 50 years 5–15 years 50 years 5–15 years The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the income statement. De-recognition An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is de-recognised. www.metcash.com 45 not e s to the financial statement s year ended 3 0 a pr il 2 006 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (xiii) Impairment of assets At each reporting date, the Group assesses whether there is any indication that the value of an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (xiv) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases (i) Group as a lessee Operating leases are those where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item. Operating lease payments are recognised as an expense on a straight-line basis. (ii) Group as a lessor Leases in which the Group transfers substantially all the risks and benefits of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Finance leases Leases which transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Capitalised leases are disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised. Minimum lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. (xv) goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash- generating unit retained. Impairment losses for goodwill are not subsequently reversed. 46 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (xvi) Intangible assets Intangible assets acquired separately or in a business combination are initially measured at cost. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the profit or loss on a straight-line basis. Intangible assets (excluding software development costs) created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Contractual customer relationships are recognised as intangible assets when the criteria specified in AASB 138 Intangible Assets have been met. Contractual customer relationships are assessed to have a finite life and are amortised over the asset’s useful life. The carrying value of these assets are reviewed for impairment where an indicator of impairment exists. Software development costs incurred on an individual project are carried forward when future recoverability can reasonably be assured. Following the initial recognition of software development costs, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any costs carried forward are amortised over the assets’ useful economic lives. The carrying value of software development costs is reviewed for impairment annually when an asset is not in use or more frequently when an indicator of impairment arises during a reporting period indicating that the carrying value may not be recoverable. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statements when the asset is de-recognised. The estimated useful lives of existing finite intangible assets are as follows: • • Customer contracts – 25 years; Software development costs – 5 years. (xvii) trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (xviii) employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match as closely as possible, the estimated future cash outflows. (xix) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are de-recognised. www.metcash.com 47 not e s to the financial statement s year ended 3 0 a pr il 2 006 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (xx) provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. Provisions for store lease and remediation are raised where the economic entity is committed by the requirements of the lease agreement. The future lease costs, net of any income from sub-leasing, are discounted to their net present value in determining the provision. Dividends payable are recognised when a legal or constructive obligation to pay the dividend arises, typically following approval of the dividend at a meeting of directors. (xxi) Share-based payment transactions The Group provides benefits to employees (including executive directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The Group provides benefits to executive directors, senior executives and its employees in the form of the Employee Share Option Plan (ESOP). The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a binomial model, further details of which are given in note 15. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Metcash Limited (market conditions). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. (xxii) revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer. Rendering of services Revenue from promotional activities is recognised when the promotional activities occur. 48 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (xxii) revenue recognition (continued) Interest Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Dividends Revenue is recognised when the right to receive the payment is established. Rental income Rental income is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. (xxiii) Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authority. The tax rates and tax laws used to compute the amount are those that are enacted or subsequently enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. (xxiv) other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables which 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. 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, which is recoverable from, or payable to, the taxation authority is classified as operating cash flow. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. www.metcash.com 49 not e s to the financial statement s year ended 3 0 a pr il 2 006 2 SuMMary of SIgnIfICant aCCountIng poLICIeS (continued) (xxv) earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: • • • costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (xxvi) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (xxvii) tasman Liquor – correction of prior period error A full reconstruction of the accounts of Tasman Liquor Company Ltd, a 100% owned subsidiary of Metcash Limited, has been conducted and errors made over a number of years have been identified and corrected. The errors arose from a number of incorrect journal entries affecting primarily, Sales, Inventory and Gross Profit. The company’s processes and procedures have now been changed and the accounting moved from New Zealand to Australia. A thorough investigation has been performed and no misappropriation has been identified. The profit after income tax for the year ended 30 April 2005 of $128.3 million has been reduced by $1.44 million and the accumulated losses at 1 May 2004 of $87.4 million have been increased by $3.4 million. Refer to note 3 for further details. Earnings per share for the year ended 30 April 2005 were reduced by 0.22 cents (basic) and by 0.21 cents (diluted). (xxviii) assets classified as held for sale A non-current asset classified as held for sale at its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. Gains for any subsequent increase in fair values less costs to sell, are recognised only to the extent of the cumulative impairment loss that has been previously recognised. (xxix) Borrowing costs Borrowing costs are recognised as an expense when incurred. (xxx) Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. 3 SegMent InforMatIon Segment products and locations The Group’s primary segment reporting format is business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services provided. The economic entity predominantly operates in the industries indicated. Food distribution activities comprise the distribution and marketing of grocery and tobacco supplies to retail outlets, convenience stores and hospitality outlets. Liquor distribution activities comprise the distribution of liquor products to retail outlets and hotels. Cash and Carry Distribution comprises the distribution of grocery and tobacco supplies via cash and carry warehouses. Geographically the Group operates predominantly in Australia. The New Zealand operation represents less than 5% of revenue, results, and assets of the consolidated entity. Segment accounting policies The selling price between segments is at normal selling price and is paid under similar terms and conditions as any other customers of the economic entity. 50 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 3 SegMent InforMatIon (continued) s t n e m g e S s s e n i s u B 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 5 0 0 2 l i r p A 6 0 0 2 l i r p A 5 0 0 2 l i r p A 6 0 0 2 l i r p A 5 0 0 2 l i r p A 6 0 0 2 l i r p A 5 0 0 2 l i r p A 6 0 0 2 l i r p A 5 0 0 2 l i r p A 6 0 0 2 l i r p A d e t a d i l o s n o C s n o i t a n m i i l E n o i t u b i r t s i D r o u q L i n o i t u b i r t s i D y r r a C d n a h s a C n o i t u b i r t s i D d o o F 6 0 4 4 3 , 1 7 2 7 3 , – – – – – – – – , 4 7 3 0 1 0 7 , , 5 7 3 4 1 2 8 , – – – – – – , 7 1 6 5 5 1 2 , , 2 7 6 7 0 4 2 , ) 9 0 4 3 7 5 ( , ) 8 5 4 9 3 8 ( , 4 1 9 6 2 1 , 3 8 3 4 1 1 , 5 8 0 6 2 , 1 1 7 0 3 , , 1 3 5 2 8 2 2 , , 5 5 0 2 2 5 2 , 5 9 0 0 9 9 , – – 7 1 2 1 1 0 9 9 , 8 0 3 7 1 , – – 4 2 5 , 8 3 4 7 4 1 1 , , 2 6 9 7 4 1 1 , – – , 2 6 6 4 6 8 3 , , 5 6 2 9 5 6 4 , e d i s t u o s r e m o t s u c o t l s e a S e u n e v e R t n e m g e S y t i t n e d e t a d i l o s n o c e h t m o r f s e u n e v e r r e h t O e h t e d i s t u o s r e m o t s u c y t i t n e d e t a d i l o s n o c 8 7 4 6 4 4 , 1 5 5 4 2 7 , s e u n e v e r t n e m g e s - r e t n I – – , 0 6 7 1 9 2 4 , , 6 1 8 3 8 3 5 , e u n e v e r t n e m g e s l a t o T e u n e v e r d e t a c o l l a n U 5 3 2 1 2 , 1 2 6 1 4 1 , 8 0 8 5 7 1 , t l u s e r t n e m g e S , 0 8 7 4 4 0 7 , , 6 4 6 1 5 2 8 , 2 3 1 4 1 0 5 8 1 , 5 5 7 7 2 2 , ) 9 6 2 4 9 ( , 6 4 1 5 8 1 , 6 8 4 3 3 1 , , 2 8 1 3 0 1 1 , 0 0 8 3 8 5 , , 2 8 9 6 8 6 1 , 9 0 4 6 8 6 , 8 0 1 6 9 9 , , 3 8 0 2 6 6 1 , , 7 3 9 1 4 4 1 , 5 6 4 9 9 9 , , 0 2 0 4 0 1 3 , , 8 8 6 1 7 0 1 , , 7 1 5 2 8 6 1 , , 3 5 1 1 7 0 2 , 9 0 7 8 , 4 6 0 7 , 0 6 0 3 , 1 6 8 1 3 1 7 , 3 7 7 3 , 6 6 1 4 1 , 8 7 1 2 , – – – – – – – – – – – – – – ) 9 0 4 3 7 5 ( , ) 8 5 4 9 3 8 ( , 6 0 3 1 4 4 , 4 1 4 9 8 4 , 2 7 4 4 8 1 , 3 5 7 9 9 1 , 4 0 4 7 7 4 , 6 1 9 2 7 9 , 9 4 9 6 9 2 , 0 8 0 1 0 3 , 4 7 9 9 5 , 6 4 6 4 8 , 6 8 4 9 2 3 , 9 3 7 3 1 6 , 8 6 4 1 , 5 6 5 1 , 9 6 6 9 1 5 7 , 3 9 2 2 , 9 5 7 9 6 8 1 , 5 9 4 2 , 2 5 0 1 , 8 9 1 4 , 2 7 5 2 , 7 2 2 1 , ) 6 9 4 ( 4 8 5 1 , ) 3 7 1 ( 0 6 2 2 7 3 5 , 4 0 0 3 , 9 3 3 1 , 0 3 5 1 , 9 4 4 2 , 6 6 2 2 , 7 8 7 1 , 4 3 3 e s n e p x e x a t e m o c n i e r o e b f t i f o r p y t i t n e d e t a d i l o s n o C s e i t i v i t c a i y r a n d r o m o r f s e s n e p x e d e t a c o l l a n U s t e s s A d e t a c o l l a n U s t e s s A t n e m g e S s t e s s A l a t o T s e i t i l i b a L i d e t a c o l l a n U s e i t i l i b a L i t n e m g e S s e i t i l i b a L i l a t o T d n a t n e m p u q e i d n a t n a p l , y t r e p o r p f o n o i t i s i u q c A r e h t o s e s n e p x e h s a c - n o N n o i i t a c e r p e d n a h t n o i i t a c e r p e D n o i t a s i t r o m A s t e s s a l i e b g n a t n i . e t o n t n e m g e s e h t f o n o i t r o p d e t a c o l l a n u e h t n i d e d u c n l i e r a y n a p m o c i g n d o h l e h t f o s e i t i l i b a i l d n a s t e s s a , s e s n e p x e , e u n e v e r e h T . a i l a r t s u A n i l d e h e r a y n a p m o c i g n d o h l e h t f o s e i t i l i b a i l d n a s t e s s a l l A n o i l l i m 5 5 1 2 $ . f o t l u s e r t n e m g e s n i n o i t c u d e r a , n o i l l i m 7 2 . $ f o s e a s l n i n o i t c u d e r a s a w 5 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f t n e m g e s n o i t u b i r t s i D r o u q L i e h t n o t c a p m i e h T r o r r e d o i r e p r o i r p f o n o i t c e r r o c – r o u q i L n a m s a t . n o i l l i m 3 3 7 $ . f o s t e s s a t n e m g e s n i n o i t c u d e r a d n a www.metcash.com 51 not e s to the financial statement s year ended 3 0 a pr il 2 006 4 revenue and expenSeS (a) Revenue Sale of goods Rent Interest from other person/corporation Dividend income Other revenue (b) Other income Profit from disposal of property, plant and equipment (c) Expenses Depreciation of non-current assets Amortisation of non-current assets Loss from disposal of property, plant and equipment Amortisation of customer relationships Doubtful debt provision Inventories obsolescence provision (d) Employee benefits expense Wages and salaries Defined contribution plan expense Workers’ compensation costs Share-based payments Other employee benefits costs (e) Other finance costs Interest expense Metcash Group Metcash Limited 2006 $’000 2005 $’000 8,214,375 29,127 4,757 – 3,387 8,251,646 7,010,374 26,587 6,595 – 1,224 7,044,780 – – 34,445 19,359 624 2,900 2,424 11,225 70,977 322,084 29,838 10,128 3,260 6,167 371,478 45,271 45,271 9,643 9,643 24,047 7,929 – – 6,011 8,693 46,680 233,952 21,063 7,727 224 4,025 266,991 8,050 8,050 2006 $’000 – – – 31,008 – 31,008 – – – – – – – – – – – – 3,260 – 3,260 – – 2005 $’000 – – – – – – – – – – – – – – – – – – 16 – 16 – – 52 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 5 InCoMe tax The major components of income tax expense are: Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in the income statement A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before income tax At the Group’s statutory income tax rate of 30% (2005: 30%) Expenditure not allowable for income tax purposes Income not assessable for income tax purposes Other Income tax expense reported in the consolidated income statement at an effective tax rate of 39% (2005: 31.5%) Deferred income tax Deferred income tax at 30 April relates to the following: Deferred tax liabilities Accelerated depreciation for tax purposes Deferred expenditure Deferred tax assets Provisions Future cost deductions Other Deferred tax income Metcash Group Metcash Limited 2006 $’000 2005 $’000 2006 $’000 2005 $’000 66,413 60,074 1,181 1,117 (15,286) 52,308 (2,888) 58,303 – – – – 133,486 40,046 11,898 – 364 185,146 55,544 2,729 – 30 27,748 8,324 978 (9,302) – 52,308 58,303 – – – – – (16) (5) 5 – – – Balance Sheet Income Statement 2006 $’000 2005 $’000 2006 $’000 2005 $’000 2,688 7,935 10,623 34,417 2,175 – 36,592 1,532 16,812 18,344 23,366 2,514 3,147 29,027 (1,156) 8,877 81 (2,512) 11,051 (339) (3,147) 6,790 – (1,471) 15,286 2,888 www.metcash.com 53 not e s to the financial statement s year ended 3 0 a pr il 2 006 5 InCoMe tax (continued) At 30 April 2006, there is no recognised or unrecognised deferred income tax liability (2005: $nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries and associates as the Group has no liability for additional taxation should these earnings be remitted. tax consolidation Metcash Limited and its 100% owned Australian resident subsidiaries intend to form a tax consolidated group with effect from 2 November 2005. Metcash Limited will be the head entity of the tax consolidated group. Members of the group intend to enter into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition the agreement will provide for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. As a result of the entry of Metcash Limited and its 100% owned Australian resident subsidiaries into a tax consolidated group, the Group is required to reset the tax values of assets in the subsidiaries using the Allocable Cost Amount (ACA) method. At the date of reporting, the impact of resetting the tax values of subsidiaries’ assets on current year earnings and deferred tax assets and liabilities as at 30 April 2006 has not been finalised. Metcash Limited will formally notify the Australian Taxation Office of its intentions when lodging its 30 April 2006 consolidated tax return. tax effect accounting by members of the tax consolidated group Members of the tax consolidated group intend to enter into a tax funding agreement. The tax funding agreement will provide for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement will be made at the end of each quarter. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Metcash Limited. Because under UIG 1052 Tax Consolidation Accounting the allocation of current taxes to tax consolidated group members on the basis of accounting profits is not an acceptable method of allocation given the group’s circumstances, the difference between the current tax amount that is allocated under the tax funding agreement and the amount that is allocated under an acceptable method is recognised as a contribution/distribution of the subsidiaries’ equity accounts. As a result, the group has applied the stand alone taxpayer approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. In preparing the accounts for Metcash Limited for the current year, the following amounts have been recognised as tax-consolidation contribution adjustments: Total increase to inter-company assets of Metcash Limited Metcash Limited 2006 $’000 8,525 2005 $’000 – 54 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 6 dIvIdendS paId (a) Dividends paid on ordinary shares during the year (i) Final franked dividend for 2005: 0.0c (2004: 6.0c) (ii) Interim franked dividend for 2006: 5.5c (2005: 9.5c) Metcash Group Metcash Limited 2006 $’000 – 27,732 27,732 2005 $’000 38,219 64,705 102,924 2006 $’000 – 27,732 27,732 2005 $’000 38,219 64,705 102,924 Dividends declared (not recognised as a liability as at 30 April 2006) Franked dividends for 2006: 6.0c per share (2005: nil) 44,864 – 44,864 (b) Franking credit balance The amount of franking credits available for the subsequent financial year are: – franking account balance as at the end of the financial year at 30% (2005: 30%) franking credits that will arise from the payment of income tax payable as at the end of the financial year – The amount of franking credits available for future reporting period: – amount of franking credit of dividends declared but not recognised as distribution to shareholders during the period The tax rate at which paid dividends have been franked is 30% (2005: 30%). Dividends declared have been franked at the rate of 30% (2005: 30%). 154,722 8,252 162,974 (19,228) 143,746 – – – – – – www.metcash.com 55 not e s to the financial statement s year ended 3 0 a pr il 2 006 7 CaSh and CaSh equIvaLentS Cash at bank and on hand Reconciliation of net profit after tax to net cash flows from operations Net profit Adjustments for: Depreciation Amortisation Net (profit)/loss on disposal of property, plant and equipment Share of associates’ net profit Dividends received from associates Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments (Increase)/decrease in inventories (Increase)/decrease in deferred tax assets (Decrease)/increase in payables and provisions (Decrease)/increase in deferred tax liabilities Net cash from operating activities 8 trade and other reCeIvaBLeS (Current) Trade receivables (i) Allowance for doubtful debts Other receivables (ii) Related party receivables: (iii) wholly owned subsidiaries Metcash Group Metcash Limited 2006 $’000 220,199 220,199 2005 $’000 189,607 189,607 81,178 126,843 34,445 22,259 624 (3,356) 781 – (89,634) 6,315 65,421 8,582 129,623 (13,565) 242,673 788,935 (5,023) 783,912 82,112 31,977 – (2,165) (273) – – 30,741 4,075 23,787 (26,443) (83,736) 25,831 130,637 612,998 (8,553) 604,445 43,561 2006 $’000 – – – – – – – – – – – – – – – – – – – – – – 866,024 648,006 265,090 265,090 2005 $’000 – – (16) – – – – – – 16 – – – – – – – – – – – – (i) Trade receivables are non-interest-bearing, terms vary by business unit. At 30 April 2006, 88.44% of trade receivables are required to be settled within 30 days and 11.56% of trade receivables have terms extending from 30 days to 60 days. An allowance for doubtful debt is made when there is objective evidence that a trade receivable is impaired. An allowance of $2,424,000 (Company: $nil) has been recognised as an expense for the current year of specific debtors for which such evidence exists. See note 4(c). The amount of the allowance/impairment loss has been measured as the difference between the carrying amount of the trade receivables and the estimated future cash flows expected to be received from the relevant debtors. (ii) Other receivables are non-interest-bearing and have repayment terms of less than 12 months. (iii) For terms and conditions relating to related party payables refer to note 23. 56 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 9 InventorIeS Metcash Group Metcash Limited Finished goods (at net realisable value) 534,995 385,474 Total inventories at the lower of cost and net realisable value 534,995 385,474 2006 $’000 2005 $’000 2006 $’000 – – 2005 $’000 – – Inventory write-downs recognised as an expense totalled $11,225,000 (2005: $8,693,000) for the Group and $nil (2005: $nil) for the Company. The expense is included in the cost of sales line item as a cost of inventory. 10 reCeIvaBLeS (non-Current) Loans (i) Other receivables (ii) Total 4,909 3,110 8,019 15,769 14,045 29,814 – – – – – – (i) Loans receivable are non-current and have repayment terms of greater than 12 months. $2,128,000 (2005: $10,560,000) of loans are non-interest-bearing. $2,781,000 (2005: $5,209,000) of loans have annual interest of 8% (2005: 8%). (ii) Other receivables are non-interest-bearing and have repayment terms greater than 12 months. www.metcash.com 57 not e s to the financial statement s year ended 3 0 a pr il 2 006 11 InveStMentS In aSSoCIateS Investments in associates Interest in associates Produce Traders Trust Abacus Retail Property Trust Ritchies Stores Pty Ltd Champions IGA Dramet Metcash Group Metcash Limited 2006 $’000 50,171 50,171 2005 $’000 2,450 2,450 2006 $’000 – – 2005 $’000 – – Principal activities Balance date Distribution of fruit and vegetables Retail property investment Grocery retailing Grocery retailing Grocery retailing 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun Ownership interest 2006 % 40 25 26 25 26 2005 % 40 25 – – – The following table illustrates summarised financial information relating to the Group’s investment in associates. Share of associates’ profit: Metcash Group Profit/(loss) before income tax Income tax expense Profit after income tax Share of associates’ balance sheet: Current assets Non-current assets Current liabilities Non-current liabilities Net assets 2006 $’000 4,796 (1,440) 3,356 18,369 44,230 62,599 (31,764) (12,554) (44,318) 18,281 2005 $’000 390 (117) 273 1,281 2,823 4,104 (2,223) (171) (2,394) 1,710 There were no impairment losses relating to the investments in associates and no capital commitments or other commitments relating to the associates. 12 other fInanCIaL aSSetS (non-Current) Metcash Group Metcash Limited 2006 $’000 227 – – 227 2005 $’000 180 3,941 – 4,121 2006 $’000 – – 2,242,229 2,242,229 2005 $’000 – – 2,242,229 2,242,229 Investment in shares (unlisted) Deferred acquisition costs Investments in controlled entities 58 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 13 property, pLant and equIpMent Metcash Group Metcash Limited Land and Buildings $’000 Plant and Equipment $’000 Total $’000 Land and Buildings $’000 Plant and Equipment $’000 Total $’000 Year ended 30 April 2006 At 1 May 2005, net of accumulated depreciation and impairment Additions Disposals Assets held for sale Additions through acquisition of entities/operations Depreciation charge for the year At 30 April 2006, net of accumulated depreciation and impairment At 1 May 2005 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2006 Cost or fair value Accumulated depreciation and impairment Net carrying amount Year ended 30 April 2005 At 1 May 2004, net of accumulated depreciation and impairment Additions Disposals Additions through acquisition of entities/operations Depreciation charge for the year At 30 April 2005, net of accumulated depreciation and impairment At 1 May 2004 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2005 Cost or fair value Accumulated depreciation and impairment Net carrying amount 27,092 2,779 (4,370) (23,139) 49,922 41,709 (4,796) (77,010) 77,014 44,488 (9,166) (100,149) 46,610 (1,843) 122,868 (32,602) 169,478 (34,445) 47,129 100,091 147,220 29,765 69,811 99,576 (2,673) 27,092 (19,889) 49,922 (22,562) 77,014 51,138 154,478 205,616 (4,009) 47,129 (54,387) 100,091 (58,396) 147,220 27,548 39 – – (495) 35,778 27,806 (11,529) 1,360 (3,493) 63,326 27,845 (11,529) 1,360 (3,988) – – – – – – – – – – – – – – – – – – 27,092 49,922 77,014 – 29,760 68,969 98,729 (2,212) 27,548 (33,191) 35,778 (35,403) 63,326 29,765 69,811 99,576 (2,673) 27,092 (19,889) 49,922 (22,562) 77,014 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 April 2006 is $21,109,000 (2005: $24,547,000). www.metcash.com 59 not e s to the financial statement s year ended 3 0 a pr il 2 006 14 IntangIBLe aSSetS and goodwILL Metcash Group Metcash Limited Software Development Costs Customer Contracts Goodwill Total Total 98,870 (46,811) 52,059 52,059 5,776 – (19,359) – – – – 274,041 – 274,041 372,911 (46,811) 326,100 – – 148,000 (2,900) – 274,041 16,857 585,260 – (9,000) 326,100 22,633 733,260 (22,259) (9,000) 38,476 145,100 867,158 1,050,734 104,646 (66,170) 38,476 85,671 (18,823) 66,848 66,848 13,199 – (27,988) – 52,059 98,870 (46,811) 52,059 148,000 (2,900) 145,100 – – – – – – – – – – – – 867,158 – 867,158 243,092 – 243,092 1,119,804 (69,070) 1,050,734 328,763 (18,823) 309,940 243,092 – 31,966 – (1,017) 309,940 45,165 – (27,988) (1,017) 274,041 326,100 274,041 – 274,041 372,911 (46,811) 326,100 – – – – – – – – – – – – – – – – – – – – – – – – At 1 May 2005 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 April 2006 At 1 May 2005, net of accumulated amortisation and impairment Additions Acquisition of subsidiary Amortisation Fair Value Adjustment At 30 April 2006, net of accumulated amortisation and impairment At 30 April 2006 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount At 1 May 2004 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 April 2005 At 1 May 2004, net of accumulated amortisation and impairment Additions Acquisition of subsidiary Amortisation Reverse acquisition At 30 April 2005, net of accumulated amortisation and impairment At 30 April 2005 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount 60 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 14 IntangIBLe aSSetS and goodwILL (continued) Intangibles – contractual customer relationships As part of the acquisition of FAL, contractual customer relationships were brought to account in line with AASB 3 Business Combinations and AASB 138 Intangible Assets. Valuation approach To value the contractual customer relationships, the multi-period excess-earnings approach (MEEM) that attributes value to intangible assets by reference to the excess earnings generated by an intangible has been applied. Specifically the MEEM approach adjusts the earnings stream and cash flows generated by customer relationships having regard to the longevity of the customer relationships. That is the period over which the relationship is expected to generate economic benefit. In the case of valuing a relationship with a number of similar customers, this will typically be modelled by reference to the attrition in relationships over time. The following describes the key assumptions applied by management in the valuation of contractual customer relationships: Cash flow forecasts – Cash flow forecasts are based on historical results extrapolated out to 25 years using forecast growth rates. Forecast growth rates – Forecast growth rates are based on past performance and management’s expectations for future performance. Forecast attrition rates – Attrition rates used are based on historical rates experienced and management’s expectations of future attrition. Discount rates – A discount rate approximating the weighted average cost of capital of an acquirer of the FAL business has been applied. The Company has arrived at a valuation of contractual customer relationships of $148 million with a finite life and amortised over 25 years, straight-line. Amortisation of $2.9 million has been recognised in profit or loss (in the administrative costs line) in the current financial year. Intangibles – software development costs Software development costs have been capitalised at cost and are amortised on a straight-line basis over the asset’s useful economic life which has been assessed as 5 years. Software development costs are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Impairment testing of goodwill Goodwill acquired through business combinations have been allocated to the three business pillars: IGA Distribution (IGA>D), Campbells Wholesale (CW) and Australian Liquor Marketers (ALM), which are reportable segments. In IGA>D these are further allocated by states. Under AIFRS, goodwill and intangibles with indefinite lives have to be tested annually, provided the testing is done at the same time each year. Management has elected to conduct the impairment test during the year. The cash generating units (CGU) used for impairment testing are as follows: IGA>D NSW IGA>D VIC IGA>D QLD IGA>D SA IGA>D WA CW; and ALM Carrying value $’000 53,432 41,364 134,734 45,011 472,371 33,371 77,546 www.metcash.com 61 not e s to the financial statement s year ended 3 0 a pr il 2 006 14 IntangIBLe aSSetS and goodwILL (continued) The recoverable amount of the CGUs have been determined based on a value in use calculation using cash flow projections based on financial projections approved by senior management covering a 5-year period. The discount rate applied to cash flow projections is 8.73% and cash flows beyond the 5-year period are extrapolated using the following growth rates: IGA>D NSW IGA>D VIC IGA>D QLD IGA>D SA IGA>D WA CW; and ALM 3.4% 2.8% 4.8% 3.5% 4.8% 2.9% 2.9% These growth rates are based on the historical population and food inflation growth rates for each CGU. Key assumptions used in value in use calculations The following describes the key assumptions on which management has based its cash flow projection: Budgeted gross margins. These have been estimated based on utilisation of existing assets and on the average gross margins achieved immediately before the budgeted year. Risk free rate based on current Commonwealth Government 10-year bond rate at the date of impairment test. Future growth driven by population growth, food inflation and changes in market share. 15 Share-BaSed payMentS Share-based payment plans During the year options were issued to certain Executive Directors. The performance hurdle determined by the Board in relation to these options is as follows: • • In each of the years in which options become available for exercise, earnings per share for the financial year preceding the tranche exercise date must be equal to a 12.5% increase in earnings per share compounded from the 2005 financial year earnings per share, adjusted for any dilution or reduction that might occur as a consequence of any material alteration to the number of shares issued. In addition during the year there was a general share option issue to the Group’s employees. There are no performance hurdles associated with these options. • The contractual life of the option is a maximum of 6 years. There were no cash settlement alternatives. 62 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 15 Share-BaSed payMentS (continued) The following table illustrates the number and exercise prices and movements during the year ended 30 April 2006 and 30 April 2005: Outstanding at the beginning of the year Granted during the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year The outstanding balance as at 30 April 2006 is represented by: 2006 Number 2006 Exercise price 2005 Number 2005 Exercise price 12,324,700 4,450,000 10,927,124 848,400 1,200 17,200 12,000 1,700,000 3,157,346 46,800 400,586 21,518,292 – 4.01 3.925 0.161 0.44 0.161 0.161 1.385 1.268 1.87 various – 19,242,210 – 850,000 – 2,114,490 838,920 1,020,000 1,556,490 – – 2,237,610 12,324,700 – – 2.70 – 0.44 0.431 1.655 1.538 – – various – • • • • • • • • 124,440 options over ordinary shares with an exercise price of $0.161 exercisable until 11 August 2006. 15,000 options over ordinary shares with an exercise price of $0.161 exercisable until 25 November 2006. 4,470,064 options over ordinary shares with an exercise price of $1.268 exercisable until 25 January 2008. 680,000 options over ordinary shares with an exercise price of $1.386 exercisable until 14 December 2007. 141,900 options over ordinary shares with an exercise price of $1.87 exercisable until 10 July 2007. 850,000 options over ordinary shares with an exercise price of $2.43 exercisable until 2 September 2010. 4,450,000 options over ordinary shares with an exercise price of $4.0134 exercisable until 2 September 2011. 10,786,888 options over ordinary shares with an exercise price of $3.9251 exercisable until 2 September 2011. The fair value of options granted during the year was $1.27 for the Executive Directors’ issue and $1.30 for the general staff issue. The fair value of the equity-settled share options granted is estimated at the date of the grant using a binomial model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model in the year ending 30 April 2006 and year ending 30 April 2005: Dividend yield (%) Expected Volatility (%) Risk free rate (%) Expected Life of Options (years) Option exercise price ($) Weighted average share price ($) 2006 3.91 37.80 5.47 6.00 3.92 4.01 4.00 2005 4.10 37.80 5.36 6.00 2.43 – 2.75 www.metcash.com 63 not e s to the financial statement s year ended 3 0 a pr il 2 006 16 trade and other payaBLeS (Current) Metcash Group Metcash Limited Trade payables (i) Other payables (i) Related party payables (ii) Wholly owned subsidiaries (i) Trade and other payables are non-interest-bearing and are normally settled within 30-day terms. (ii) For terms and conditions relating to related party payables refer to note 23. 17 IntereSt-BearIng LoanS and BorrowIngS Current Secured liabilities Finance lease obligation (i) Non-current Finance lease obligation (ii) Bank loans (ii) Convertible, redeemable, subordinated, unsecured loan notes – CULS (iii) Convertible undated preference shares – CUPS (iv) 2006 $’000 911,072 264,396 1,175,468 – – 1,175,468 2005 $’000 723,037 103,842 826,879 – – 826,879 5,810 5,810 7,995 7,995 16,771 734,528 751,299 – – 751,299 17,469 323,779 341,248 375,080 50,000 766,328 2006 $’000 – – – – – – – – – – – – – – 2005 $’000 – – – – 906,621 906,621 – – – – – – – – (i) Finance leases have an average lease term of 5 years with the option to purchase the asset at the completion of the lease term for the asset’s market value. The average discount rate implicit in the lease is 7.22% (2005: 7.2%). Secured lease liabilities are secured by a charge over the leased asset. (ii) Bank loans are a 3-year senior unsecured syndicated loan note subscription facility. The syndicated facility has been provided to Metcash by a syndicate of lenders. (iii) The above represents 50% of the original CULS issue, which were redeemed at the issue price plus redemption premium of 7.5% during the current financial year. (iv) All CUPS were redeemed at the issue price plus redemption premium of $2,557,000 during the current financial year. 64 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 18  Provisions 1 May 2005 Acquisition of subsidiary Arising during the year Utilised 30 April 2006 Metcash Group Employee entitlements $’000 Lease and remediation $’000 45,112 18,815 20,729 (27,161) 57,495 2,503 – 135 (1,351) 1,287 Other $’000 2,200 – 250 (918) 1,532 Total $’000 49,815 18,815 21,114 (29,430) 60,314 Other provisions contains a number of insignificant balances, the costs of which are expected to be incurred within the next financial year. Current Employee entitlements Lease and remediation Other Non-current Employee entitlements Lease and remediation Total Metcash Group Metcash Limited 2006 $’000 30,653 896 1,532 33,081 26,842 391 27,233 60,314 2005 $’000 27,364 1,413 2,200 30,977 17,748 1,090 18,838 49,815 2006 $’000 2005 $’000 – – – – – – – – – – – – – – – – 19  Contributed equity and reserves (a) Ordinary shares: Issued and fully paid Metcash Group Metcash Limited 2006 2005 2006 2005 1,823,895 1,823,895 846,976 846,976 2,498,794 2,498,794 1,335,608 1,335,608 www.metcash.com 65 not e s to the financial statement s year ended 3 0 a pr il 2 006 19  Contributed equity and reserves (continued) Movements in ordinary shares on issue At 1 May Issued during the year: Dividend Reinvestment Plan – Exercise of employee options – 877,600 ordinary shares at 16.1 cents per share Exercise of employee options – 1,200 ordinary shares at 44 cents per share Exercise of employee options – 3,157,346 ordinary shares at 126.8 cents per share Exercise of employee options – 1,700,000 ordinary shares at 138.6 cents per share Exercise of employee options – 46,800 ordinary shares at 187 cents per share – – – – FAL Share allotment – – Conversion of CULS (a) Transaction costs At 30 April Movements in ordinary shares on issue At 1 May Issued during the year: Conversion of shares from Metcash Trading Limited at $3.27 per share Less transaction costs Dividend Reinvestment Plan – Exercise of employee options – 877,600 ordinary shares at 16.1 cents per share Exercise of employee options – 1,200 ordinary shares at 44 cents per share Exercise of employee options – 3,157,346 ordinary shares at 126.8 cents per share Exercise of employee options – 1,700,000 ordinary shares at 138.6 cents per share Exercise of employee options – 46,800 ordinary shares at 187 cents per share – – – – FAL Share allotment – – Conversion of CULS (a) Transaction costs At 30 April Metcash Group 2006 2005 Number of shares $’000 Number of shares $’000 427,395,233 846,976 353,797,828 1,156,918 6,521,085 27,734 877,600 1,200 3,157,346 1,700,000 46,800 234,444,195 73,597,894 – 747,741,353 – – – – – – – – – – – – 73,597,405 – – 186,937 (8,247) 141 1 4,004 2,356 88 949,499 – (6,904) 1,823,895 427,395,233 1,335,608 Metcash Limited 2006 2005 Number of shares $’000 Number of shares $’000 427,395,233 1,335,608 – – – – 6,521,085 27,734 353,797,828 – – 1,156,918 (3,947) – 877,600 1,200 3,157,346 1,700,000 46,800 234,444,195 73,597,894 – 747,741,353 141 1 4,004 2,356 – – – – – – – – 88 949,499 186,937 (10,850) – – 73,597,405 – – – 186,937 (4,300) 2,495,518 427,395,233 1,335,608 (a) 25% of CULS were converted to ordinary shares in Metcash Limited on 19 September 2005 on a 1 to 1 basis (2005: 7 April 2005). (b) Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, Metcash Limited does not have authorised capital nor par value in respect of its issued shares. (c) Under AIFRS reverse acquisition rules, the number of shares disclosed by the consolidated group are those of Metcash Limited whilst the value of shares disclosed by the consolidated group are those of Metcash Trading Limited. (d) Fully paid ordinary shares carry one vote per share and carry the right to dividends. 66 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 19  Contributed equity and reserves (continued) Reserves Metcash Group Metcash Limited Share-based payments $’000 Capital reserves $’000 Foreign currency translation $’000 Tax Share-based consolidation reserve $’000 payments $’000 Total $’000 At 1 May 2004 Currency translation differences Share-based payments At 30 April 2005 Currency translation differences Share-based payments At 30 April 2006 37 12,777 (185) 12,629 – 187 224 – 3,260 3,484 – – 12,777 – – 12,777 1,347 – 1,162 (5,223) – (4,061) 1,347 187 14,163 (5,223) 3,260 12,200 – – 16 16 – 3,260 3,276 – – – – – – – Total $’000 – – 16 16 – 3,260 3,276 Nature and purpose of reserves Capital profits reserve The capital profits reserve is used to accumulate realised capital profits. The reserve can be used to pay dividends or issue bonus shares. Share-based payments reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 15 for further details of these plans. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Tax consolidation reserve The tax consolidation reserve records the changes in equity required by the application of UIG 1052. Retained earnings At 1 May Profit/(loss) for the period Dividends Prior period adjustment At 30 April Other Equity At 1 May Reverse acquisition At 30 April Nature and purpose Metcash Group Metcash Limited 2006 $’000 (90,751) 81,178 (27,732) – (37,305) 2005 $’000 (114,670) 128,287 (102,924) (1,444) (90,751) 2006 $’000 (16) 27,748 (27,732) – 2005 $’000 – (16) – – – (16) (765,923) – (765,923) – (765,923) (765,923) – – – – – – The other equity account is used to record the reverse acquisition adjustment on application of AASB 3 Business Combinations. www.metcash.com 67 not e s to the financial statement s year ended 3 0 a pr il 2 006 20  finanCiaL instruMents Interest rate risk The consolidated entity exposure to interest rate risk and the effective rates of financial assets and liabilities, both recognised and unrecognised at balance date, are as follows: Financial Instruments 1 year or less Over 1 to 5 years More than 5 years Total carrying amount Weighted average as per the Balance Sheet effective interest rate 2006 $’000 2005 $’000 2006 $’000 2005 $’000 2006 $’000 2005 $’000 2006 $’000 2005 $’000 2006 % 2005 % (i) Financial assets Fixed rate Trade and other receivables – – 7,801 10,600 Weighted average interest rate 8.00% 7.10% Floating rate Cash 220,199 189,607 – – Weighted average interest rate 5.35% 5.40% Total financial assets 220,199 189,607 7,801 10,600 – – – – 7,801 10,600 8.50 7.10 – 220,199 189,607 5.09 5.40 – 228,000 200,207 – – (ii) Financial liabilities Fixed rate Finance lease liability 5,810 7,995 13,288 12,694 3,483 4,775 22,581 25,464 7.22 7.20 Weighted average interest rate 7.36% 8.05% 7.24% 6.47% 6.51% 6.47% Floating rate CUPS – 50,000 Bank and other loans 734,528 335,000 Weighted average interest rate 7.00% 5.61% – – – – – – – – 50,000 – – 734,528 335,000 7.00 5.35 5.78 Total financial liabilities 740,338 392,995 13,288 12,694 3,483 4,775 757,109 410,646 – – At the reporting date, the carrying value of all financial assets and liabilities approximate their net fair values. The other financial instruments of the Group and parent that are not included in the above tables are non-interest-bearing and are therefore not subject to interest rate risk. 68 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 21  finanCiaL risk ManageMent financial risk management objectives and policies The Group’s principal financial instruments comprise bank loans and overdrafts, finance and operating leases and cash and short-term deposits. The main purpose of these instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and payables, which arise directly from its operations. The Group also enters into a small number of derivative transactions principally to manage interest rate risks arising from the Group’s operations and its sources of finance. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are detailed below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument, financial liability and equity instrument are disclosed in note 2 summary of significant accounting policies. Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with a floating interest rate. To manage the exposure, the Group enters into interest rate swaps designated to hedge underlying debt obligations. Credit risk The Group trades with a large number of customers across the business operations and it is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition receivables balances are monitored on an ongoing basis and a formal review of all balances occurs every 6 months and where necessary appropriate provisions are established. There are no significant concentrations of credit risk within the Group. Foreign currency risk The Group’s exposure to foreign currency risk is minimal. www.metcash.com 69 not e s to the financial statement s year ended 3 0 a pr il 2 006 22  CoMMitMents and ContingenCies (a)  operating lease commitments The Group has entered into commercial leases on certain forklifts, land and buildings. These leases have an average lease term of 5 years and an implicit interest rate of 7%. Contingent rentals are payable to reflect movements in the Consumer Price Index on certain leases and to reflect the turnover of certain stores occupying the land and buildings. Future minimum rentals payable under non-cancellable operating leases as at 30 April are as follows: Within 1 year After 1 year but not more than 5 years More than 5 years Aggregate expenditure commitments comprise: Store lease and remediation provision Aggregate lease expenditure contracted for at reporting date (b)  operating lease receivable Metcash Group Metcash Limited 2006 $’000 65,670 212,210 150,582 428,462 – (1,287) 2005 $’000 55,242 170,436 140,318 365,996 – (2,200) 427,175 363,796 2006 $’000 2005 $’000 – – – – – – – – – – – – – – Certain properties under operating lease have been sublet to third parties. These leases have an average lease term of 5 years and an implicit interest rate of 7%. The future lease payments expected to be received at the reporting date are: Within 1 year After 1 year but not more than 5 years More than 5 years (c)  finance lease commitments  Metcash Group Metcash Limited 2006 $’000 11,210 68,998 60,354 2005 $’000 21,390 62,064 57,538 140,562 140,992 2006 $’000 2005 $’000 – – – – – – – – The Group has finance leases for various items of vehicles and equipments. The weighted average interest rate impact in the leases is 7.22% (2005: 7.2%). The parent company has no finance lease commitments. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: Metcash Group Minimum lease payments Present value of lease payments Within 1 year After 1 year but not more than 5 years More than 5 years Less amounts representing finance charges Present value of minimum lease payments 2006 $’000 7,347 15,538 4,738 27,623 (5,042) 22,581 2005 $’000 9,639 15,312 5,763 30,714 (5,250) 25,464 2006 $’000 5,810 14,153 2,618 22,581 – 22,581 2005 $’000 8,002 14,187 3,275 25,464 – 25,464 70 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 23  reLated Party disCLosure The consolidated financial statements include the financial statements of Metcash Limited and the subsidiaries listed in the following table. Name Country of incorporation Percentage of equity interest held by the consolidated entity 2006 % 2005 % Metcash Trading Limited Australian Liquor Marketers Pty Limited (a) Campbells Cash and Carry Pty Ltd Clancy’s Food Stores Pty Ltd Cotswrap Pty Ltd (a) Metcash Export Services Pty Ltd Davids Supermarkets Pty Ltd IGA Retail Services Pty Ltd Jewel Food Stores Pty Ltd Jewel Superannuation Fund Pty Ltd (a) M C International Australia Pty Ltd (a) Metro Cash & Carry Pty Ltd (a) Property Reference Pty Ltd Retail Merchandise Services Pty Ltd Davids Food Services Pty Ltd (a) Australian Liquor Marketers (QLD) Pty Ltd (a) Denham Bros Pty Limited (a) Moucharo Pty Ltd (a) QIW Pty Limited (a) Queensland Independent Wholesalers Pty Limited (a) Regzem (No. 3) Pty Ltd (a) Regzem (No. 4) Pty Ltd (a) Retail Stores Development Finance Pty Limited (a) Rockblock Pty Ltd (a) RSDF Nominees Pty Ltd (a) Australis Marine Services (Australia) Pty Ltd Bofeme Pty Ltd (a) City Ice and Cold Storage Company Pty Ltd (a) Composite Buyers Finance Pty Ltd (a) Composite Buyers Pty Limited (a) Composite Pty Ltd (a) David Boehm Pty Ltd IGA Distribution Pty Ltd IGA Distribution (VIC) Pty Ltd Five Star Wholesalers Pty Ltd Metcash Holding Pty Limited Keithara Pty Ltd (a) Knoxfield Transport Service Pty Ltd (a) Moorebank Transport Pty Ltd (a) Payless Superbarn (NSW) Pty Ltd (a) Payless Superbarn (VIC) Pty Ltd (a) Rainbow Supermarkets Pty Ltd (a) Mirren (Australia) Pty Ltd Stonemans (Management) Pty Ltd Stonemans Self Service Pty Ltd Arrow Pty Limited Blue Lake Exporters Pty Ltd Casuarina Village Shopping Centre Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 www.metcash.com 71 not e s to the financial statement s year ended 3 0 a pr il 2 006 23  reLated Party disCLosure (continued) Name IGA Distribution (SA) Limited Metcash Management Pty Ltd Gawler Supermarkets Pty Ltd Metcash Storage Ltd Green Triangle Meatworks Limited Pasadena Properties Pty Ltd Pasadena Retail Pty Ltd Plympton Properties Pty Ltd Seaford Supermarket Pty Ltd Davids Group Staff Superannuation Fund Pty Ltd Australian Liquor Marketers (WA) Pty Ltd (a) Jorgensons Confectionery Pty Limited (a) Tasman Liquor Company Ltd Amalgamated Confectionery Wholesalers Pty Ltd Harvest Liquor Pty Ltd IGA Pacific Pty Limited IGA Retail Network Limited Independent Brands Australia Pty Limited Newton Cellars Pty Ltd Regeno Pty Limited Rennet Pty Limited Tasher No.8 Pty Limited Vawn No.3 Pty Ltd Australian Asia Pacific Wholesalers Pty Limited Rainbow Unit Trust Wimbledon Unit Trust QIW Employees Superannuation Pty Ltd QIW Staff Superannuation Pty Ltd Action Holdco Pty Limited GP New Co Pty Ltd IGA Community Chest Limited Melton New Co Pty Ltd NZ Holdco Limited Metoz Holding Limited Pinnacle Holdings Limited Wickson Corporation Limited Soetensteeg 2 61 Exploitatiemaat schappij BV Metcash Services Proprietary Ltd Action Holdings Pty Ltd Action Supermarkets Pty Ltd Action Projects Pty Ltd Quickstop Pty Ltd FAL Superannuating Fund Pty Ltd Drumstar V 2 Pty Ltd Foodland Property Holdings Pty Ltd FAL Properties Pty Ltd Foodland Property Unit Trust Foodland Properties Pty Ltd SR Brands Pty Ltd 72 Metcash Limited Annual Report 2006 Country of incorporation Percentage of equity interest held by the consolidated entity 2006 % 2005 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia South Africa Jersey Netherlands Antilles Netherlands Antilles Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 – – 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 86 100 100 – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 50 71 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – – no te s to the financial statements year ended 3 0 a pr il 2 00 6 23  reLated Party disCLosure (continued) Name Foodchain Holdings Pty Ltd IGA Distribution (WA) Pty Ltd IGA Retail Services Pty Ltd Retail merchandise Services Pty Ltd (a) Metcash Limited is the ultimate parent entity. (a)  entities subject to class order relief Country of incorporation Percentage of equity interest held by the consolidated entity 2006 % 100 100 100 100 2005 % – – – – Australia Australia Australia Australia Pursuant to Class Order 98/1418, relief has been granted to all controlled entities, except those marked (a), from the Corporations Law requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Metcash Limited and the controlled entities subject to the Class Order (the Closed Group) entered into a Deed of Cross Guarantee on 27 May 1994 or assumption deeds dated 7 February 1995 and 20 May 1996. The effect of the deed is that Metcash Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities. The controlled entities have also given similar guarantees in the event that Metcash Limited is wound up. www.metcash.com 73 not e s to the financial statement s year ended 3 0 a pr il 2 006 23  reLated Party disCLosure (continued) The consolidated income statement and balance sheet of the entities that are members of the ‘Closed Group’ are as follows: Closed Group 2006 $’000 2005 $’000 102,725 (43,080) 59,645 59,645 (182,457) (27,732) (150,544) 149,914 (50,460) 99,454 99,454 (178,987) (102,924) (182,457) 220,199 554,021 378,049 2,416 143,523 990,538 265,834 7,749 1,154,685 185,505 1,407,644 – 1,340,190 1,407,644 7,213 50,171 167 136,108 32,908 1,013,651 – 1,240,218 2,580,408 28,925 2,450 3,662 119,861 1,779 203,999 13,568 374,244 1,781,888 881,387 10,589 10,170 26,534 371,585 7,252 12,694 25,863 928,679 417,394 49,655 – 978,334 417,394 (i) Income Statement Profit before income tax Income tax expense Profit after tax Net profit for the financial year Retained profits at the beginning of the financial year Dividends provided for or paid Retained profits at the end of the financial year (ii) Balance Sheet ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other Non-current assets classified as held for sale Total Current Assets Non-Current Assets Receivables Investments accounted for using the equity method Other financial assets Property, plant and equipment Deferred income tax assets Intangible assets Other Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Interest-bearing loans and borrowings Current tax liabilities Provisions Liabilities directly associated with assets held for sale Total Current Liabilities 74 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 23  reLated Party disCLosure (continued) Non-Current Liabilities Interest-bearing loans and borrowings Convertible, redeemable, subordinated, unsecured loan notes (CULS) Convertible undated preference shares (CUPS) Deferred income tax liabilities Provisions Total Non-current Liabilities Total Liabilities NET ASSETS EQUITY Contributed equity Other equity Reserves Retained profits TOTAL EQUITY Associates Closed Group 2006 $’000 2005 $’000 749,946 – – 10,623 23,851 784,420 349,870 375,080 50,000 – 15,788 790,738 1,762,755 1,208,132 817,653 573,756 1,725,612 (762,439) 5,025 (150,544) 817,653 748,705 – 7,508 (182,457) 573,756 There were no transactions between the parent and its associates during the year (2005: nil). Subsidiaries Sales to, and purchases from, related parties are made in arm’s length transactions, both at normal market prices and on normal commercial terms. Related party Metcash Trading Limited – 2006 – 2005 Transactions with Metcash Trading Limited Metcash Trading Limited – 2006 Acquisition of Foodland Limited Transaction costs Dividend reinvestment plan Share options exercised CULS Dividend paid Dividend received Application of UIG 1052 Tax Consolidation Accounting – 2005 Acquisition of Metoz Holdings Transaction costs CULS Amounts owed by related parties $’000 Amounts owed to related parties $’000 265,090 – – 906,621 Income/(expense) $’000 949,499 (10,850) 27,734 6,590 186,939 (27,734) 31,008 8,525 (1,097,503) 3,946 186,936 www.metcash.com 75   not e s to the financial statement s year ended 3 0 a pr il 2 006 24  auditors’ reMuneration Amounts received or due and receivable by Ernst & Young (Australia) for: – – an audit or review of the financial report of the entity and any other entity in the consolidated entity other services in relation to the entity and any other entity in the consolidated entity – tax compliance – assurance related – other services Amounts received or due and receivable by Ernst & Young (New Zealand) for: – an audit or review of the financial report of the entity and any other entity in the consolidated entity – tax compliance – other services 25  direCtors’ and exeCutives’ disCLosures details of key Management Personnel Directors Carlos S dos Santos Non-Executive Chairman Metcash Group Metcash Limited 2006 $ 2005 $ 2006 $ 2005 $ 1,623,603 865,410 716,000 20,000 29,000 831,783 32,000 252,193 – – – 49,500 10,000 15,000 2,388,603 2,055,886 – – – – – – – – – – – – – – – – Executives Ken Bean CEO Group Logistics and Corporate Development A E (Ted) Harris, AC Non-Executive Deputy Chairman Peter Dubbelman CEO Campbells Wholesale Andrew Reitzer Chief Executive Officer John Randall General Manager Finance and Company Secretary Bruce A Hogan, AM Non-Executive Director David Johnston Chief Human Resources Officer Bernard J Hale Mike Jablonski Chief Information Officer Gary Tempany National Group Manager Merchandise and Marketing Group Merchandise Director Edwin Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-Executive Director V Dudley Rubin Non-Executive Director Mike Wesslink Peter L Barnes CEO Australian Liquor Marketers Non-Executive Director The Group has applied the exemption under Corporations Amendments Regulation 2006 which exempts listed companies from providing remuneration disclosures in relation to their key management personnel in their annual financial reports by Accounting Standard AASB 124 Related Party Disclosures. These disclosures are provided on pages 31 to 34 of the Directors’ Report designated as audited. 76 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 25  direCtors’ and exeCutives’ disCLosures (continued) Option holding of Key Management Personnel Granted as Remuneration Options Exercised Other Adjustments Balance at end of period 30 April 2006 Vested at 30 April 2006 Total Exercisable Balance at beginning of period 1 May 2005 – – – – – – 680,000 850,000 850,000 850,000 540,000 520,000 540,000 80,000 400,000 400,000 Balance at beginning of period 3 Dec 2004 – – – – – – 2,100,000 850,000 – 850,000 680,000 660,000 680,000 80,000 560,000 400,000 30 April 2006 Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston Total 30 April 2005 Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston Total – – – – – – 1,200,000 650,000 650,000 650,000 650,000 650,000 400,000 400,000 400,000 400,000 – – – – – – (340,000) (680,000) – (680,000) (140,000) (440,000) (460,000) (68,000) (320,000) (240,000) – – – – – – – – 850,000 – – – – – – – – – – – – – (1,420,000) – – – (140,000) (140,000) (140,000) – (160,000) – 6,860,000 850,000 (2,000,000) 5,710,000 6,050,000 (3,368,000) Granted as Remuneration Options Exercised Other Adjustments – – – – – – – – – – – – – – – – – – – – – – – 1,540,000 820,000 1,500,000 820,000 1,050,000 730,000 480,000 412,000 480,000 560,000 – – – – – – 340,000 170,000 – 170,000 400,000 80,000 80,000 12,000 80,000 160,000 – – – – – – 340,000 170,000 – 170,000 400,000 80,000 80,000 12,000 80,000 160,000 8,392,000 1,492,000 1,492,000 Balance at end of period 30 April 2005 Vested at 30 April 2006 Total Exercisable – – – – – – – – – – – – – – – – – – – – – – – 680,000 850,000 850000 850,000 540,000 520,000 540,000 80,000 400,000 400,000 – – – – – – – 510,000 – 510,000 240,000 240,000 240,000 36,000 240,000 240,000 – – – – – – – 510,000 – 510,000 240,000 240,000 240,000 36,000 240,000 240,000 5,710,000 2,256,000 2,256,000 www.metcash.com 77 not e s to the financial statement s year ended 3 0 a pr il 2 006 25  direCtors’ and exeCutives’ disCLosures (continued) Shareholding of Key Management Personnel Balance at beginning of period 1 May 2005 – 374,838 112,500 151,041 – – 1,820,000 – – 600,000 364,374 140,000 – 256,165 550,350 – 4,369,268 30 April 2006 Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston Total Granted as Remuneration On Market Trade Options Exercised Other Adjustments (CULS Conversion) Balance at end of period 30 April 2006 – – – – – – – – – – – – – – – – – 100 – – – 4,100 – (750,000) (680,000) – (760,000) (310,000) (140,000) (460,000) 12,846 (320,000) (240,000) – – – – – – 340,000 680,000 – 680,000 140,000 440,000 460,000 68,000 320,000 240,000 – 29,857 12,500 26,042 – – – – – – 11,475 – – 3,738 – – 100 404,695 125,000 177,083 4,100 – 1,410,000 – – 520,000 205,849 440,000 – 340,749 550,350 – (3,642,954) 3,368,000 83,612 4,177,926 78 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 25  direCtors’ and exeCutives’ disCLosures (continued) Shareholding of Key Management Personnel (continued) Balance at beginning of period 3 Dec 2004 – 340,000 100,000 125,000 – – 400,000 – – 600,000 425,000 – – 180,000 390,350 – 2,560,350 30 April 2005 Directors C S dos Santos A E Harris R Longes P Barnes D Rubin B Hogan A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston Total Granted as Remuneration On Market Trade Options Exercised Other Adjustments (CULS Conversion) Balance at end of period 30 April 2005 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,420,000 – – – (70,000) 140,000 – 60,000 160,000 – 2,030,000 – 34,838 12,500 26,041 – – – – – – 9,374 – – 16,165 – – 98,918 – 374,838 112,500 151,041 – – 1,820,000 – – 600,000 364,374 140,000 – 256,165 550,350 – 4,369,268 Other transactions with Key Management Personnel Mr Barnes is Chairman of Samuel Smith and Sons Pty Ltd and a Director of Ansell, both organisations are suppliers to the entity. However, the total level of purchases from both companies is less than 1% of Metcash’s annual purchases and is not considered material. www.metcash.com 79 not e s to the financial statement s year ended 3 0 a pr il 2 006 26  transition to aifrs For all periods up to and including the year ended 30 April 2005, the Group prepared its financial statements in accordance with Australian Generally Accepted Accounting Principles (AGAAP). These financial statements for the year ended 30 April 2006 are the first the Group is required to prepare in accordance with Australian equivalents to International Financial Recording Standards (AIFRS). Accordingly, the Group has prepared financial statements that comply with AIFRS applicable for periods beginning on or after 1 January 2005 and the significant accounting policies meeting those requirements are described in note 2. In preparing these financial statements the Group has started from an opening balance sheet as at 1 May 2004, the Group’s date of transition to AIFRS, and made changes in accounting policies and other restatements required by AASB 1 First-Time Adoption of AIFRS. This note explains the principal adjustments made by the Group in restating its AGAAP balance sheet as at 1 May 2004 and its previously published AGAAP financial statements for the year ended 30 April 2005. (i)  reconciliation of total equity as presented under agaaP to that under aifrs Metcash Group Total equity under AGAAP Adjustments to equity: Reverse acquisition (a) Write-back of goodwill amortisation (b) Unrealised rebates adjusted to inventory (c) CULS amortisation (d) Tax effect of the above adjustments (e) Total equity under AIFRS Tasman Liquor prior period error, net of tax (f) Total equity under AIFRS and with prior year adjustment 30 April 2005 $’000 1 May 2004 $’000 1,522,464 470,155 (1,524,799) 27,022 (9,006) (9,098) 2,702 9,285 (4,820) 4,465 – – (9,510) – 2,853 463,498 (3,376) 460,122 (a) The acquisition by Metcash Ltd of Metcash Trading Limited is treated as a reverse acquisition since the substance of the transaction is that the shareholders of Metcash Trading Limited have, through Metcash Ltd, effectively acquired Metoz Holdings Limited. (b) Goodwill is not amortised under AASB 3 Business Combinations, but was amortised under AGAAP. (c) AASB 118 Revenue and UIG 1002 Inventory Rebates and Settlement Discounts require rebates to be deducted from the cost of inventory. (d) In line with AASB 139 Financial Instruments: Presentation and Disclosure, the redemption premium associated with the CULS is required to be accrued over the life of the instrument. (e) The tax effect of adjustment in (c) has led to an increase in the deferred tax liability. (f) Prior period error: This adjustment relates to prior period errors under the previous reporting framework and does not relate to differences between the two frameworks (refer to notes 2 (xxvii) and 3 for further details). 80 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 26  transition to aifrs (continued) (ii)  reconciliation of profit after tax under agaaP to that under aifrs Metcash Group Profit after tax MTS for 1 month – as previously reported Profit after tax MTT for 11 months – Reverse acquisition (a) Profit after tax – MTT/MTS for the 12 months as per April 2005 4E Cost of share-based payments (b) Write-back of goodwill amortisation (c) Unrealised rebates adjusted to inventory (d) CULS amortisation (e) Tax effect of the above adjustment in (d) Profit after tax under AIFRS Tasman Liquor prior period error, net of tax (g) Profit after tax under AIFRS and with prior year adjustment Year ended 30 April 2005 $’000 6,632 103,580 110,212 (187) 27,022 483 (9,098) (145) 128,287 (1,444) 126,843 (a) The acquisition by Metcash Ltd of Metcash Trading Limited is treated as a reverse acquisition since the substance of the transaction is that the shareholders of Metcash Trading Limited have, through Metcash Ltd, effectively acquired Metoz Holdings Limited. (b) Under AASB 2 Share-Based Payments, costs of equity-settled share-based payment transactions are recognised as expenses with a correspondent increase in equity. (c) Goodwill is not amortised under AASB 3 Business Combinations, but was amortised under AGAAP. (d) AASB 118 Revenue and UIG 1002 Inventory Rebates and Settlement Discounts require rebates to be deducted from the cost of inventory. (e) In line with AASB 139 Financial Instruments: Presentation and Disclosure, the redemption premium associated with the CULS is required to be accrued over the life of the instrument. (f) The tax effect of adjustment (d) led to an increase in the deferred tax liability. (g) Prior period error: This adjustment relates to prior period errors under the previous reporting framework and does not relate to differences between the two frameworks (refer to notes 2 (xxvii) and 3 for further details). (iii)  explanation of material adjustments to the cash flow statements There are no material differences between the cash flow statements presented under AIFRS and those presented under AGAAP. www.metcash.com 81 not e s to the financial statement s year ended 3 0 a pr il 2 006 26  transition to aifrs (continued) d e t i m L i h s a c t e M p u o r G h s a c t e M S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ P A A G A S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ 1 P A A G A s e t o N 5 0 0 2 l i r p a 0 3 t a s a s r f i a o t s t n e m t s u j d a f o n o i t a i l i c n o c e r g n i t c e l f e r t e e h s e c n a l a b s t e s s A t n e r r u C s t e s s A – – – – – – – – – – – – – , 9 2 2 2 4 2 2 , , 9 2 2 2 4 2 2 , , 9 2 2 2 4 2 2 , – – – 1 2 6 6 0 9 , 1 2 6 6 0 9 , – , 1 2 6 6 0 9 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – , 9 2 2 2 4 2 2 , , 9 2 2 2 4 2 2 , , 9 2 2 2 4 2 2 , 7 0 6 9 8 1 , 6 0 0 8 4 6 , 4 7 4 5 8 3 , 3 6 1 4 , 6 0 2 , 0 5 2 7 2 2 1 , , 6 5 4 7 2 2 1 , 0 5 4 2 , 1 2 1 4 , 4 1 8 9 2 , 4 1 0 7 7 , 7 2 0 9 2 , – 0 0 1 6 2 3 , 6 2 5 8 6 4 , , 2 8 9 5 9 6 1 , – – ) 2 1 2 9 ( , ) 4 4 5 5 ( , 6 0 2 ) 6 5 7 4 1 ( , ) 0 5 5 4 1 ( , – – – ) 9 5 0 2 5 ( , 6 4 0 1 2 , , ) 8 1 7 5 4 4 1 ( , 7 0 6 9 8 1 , 6 0 0 8 4 6 , 6 8 6 4 9 3 , 7 0 7 9 , – , 6 0 0 2 4 2 1 , , 6 0 0 2 4 2 1 , 0 5 4 2 , 1 2 1 4 , 4 1 8 9 2 , 1 8 9 7 , 3 7 0 9 2 1 , , 8 1 8 1 7 7 1 , ) 8 6 5 3 1 ( , 8 6 5 3 1 , c b c d e h b , ) 9 9 2 0 9 4 1 ( , , ) 5 4 8 4 0 5 1 ( , , 5 2 8 8 5 9 1 , , 1 3 8 0 0 2 3 , – – – , 1 2 6 6 0 9 1 2 6 6 0 9 , – , 1 2 6 6 0 9 5 9 9 7 , 6 5 1 2 2 , 7 7 9 0 3 , 9 7 8 6 2 8 , 7 0 0 8 8 8 , – 7 0 0 8 8 8 , – – – – – – 5 9 9 7 , 6 5 1 2 2 , 7 7 9 0 3 , 9 7 8 6 2 8 , 7 0 0 8 8 8 , – 7 0 0 8 8 8 , . 3 d n a ) i i v x x ( 2 s e t o n n i d e s o c s i d l s a r o r r e d o i r e p r o i r p e h t r o f d e t a t s e r 5 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f s t n e m e t a t s l i a c n a n i f , a l s e b a v e c e r i r e h t o d n a e d a r T s t n e m y a p e r P s e i r o t n e v n I l a t o t - b u S l s t n e a v u q e i h s a c d n a h s a C l e a s r o f l d e h s a d e i f i s s a c l s t e s s A s t e s s A t n e r r u C l a t o T s t e s s A t n e r r u C - n o N , f , d l l i w d o o g d n a s t e s s a l i e b g n a t n I t n e m p u q e i d n a t n a p l , y t r e p o r P s t e s s a x a t d e r r e e D f i s e t a c o s s a n i s t n e m t s e v n I s t e s s a l i a c n a n i f r e h t O l s e b a v e c e R i P A A G A d e h s i l b u p y l s u o v e r p i s t n e s e r p e R . 1 h t i w d e t a c o s s a i y l t c e r i d s e i t i l i b a L i l e a s r o f l d e h s a d e i f i s s a c l s t e s s a s e i t i l i b a L i t n e r r u C l a t o T s e i t i l i b a i l g n i r a e b - t s e r e t n I l e b a y a p x a t e m o c n I s n o i s i v o r P l a t o t - b u S s t e s s A t n e r r u C - n o N l a t o T s t e s s a r e h t O s t e s s A l a t o T s e i t i l i b a L i s e i t i l i b a L i t n e r r u C l s e b a y a P 82 Metcash Limited Annual Report 2006                         no te s to the financial statements year ended 3 0 a pr il 2 00 6 26  transition to aifrs (continued) S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ P A A G A – – – – – – 1 2 6 6 0 9 , , 8 0 6 5 3 3 1 , – – ) 6 1 ( , 4 2 6 5 3 3 1 , , 8 0 6 5 3 3 1 , – – – – – – – – – – 6 1 ) 6 1 ( – – – – – – – , 1 2 6 6 0 9 , 8 0 6 5 3 3 1 , , 8 0 6 5 3 3 1 , – – – , 8 0 6 5 3 3 1 , S R F A I 0 0 0 $ ’ 8 4 2 1 4 3 , 0 8 0 5 7 3 , 0 0 0 0 5 , 4 4 3 8 1 , 8 3 8 8 1 , 0 1 5 3 0 8 , 5 6 4 4 , 6 7 9 6 4 8 , ) 3 2 9 5 6 7 ( , 3 6 1 4 1 , ) 1 5 7 0 9 ( , 5 6 4 4 , , 7 1 5 1 9 6 1 , 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ 1 P A A G A s e t o N 7 0 2 1 , ) 1 2 2 1 1 ( , – 0 3 3 8 , 0 3 3 8 , 4 4 3 8 1 , – 9 6 4 2 5 3 , 3 7 8 3 7 3 , 0 0 0 0 5 , 8 3 8 8 1 , 0 8 1 5 9 7 , , 7 8 1 3 8 6 1 , ) 3 2 6 1 7 6 ( , ) 3 2 9 5 6 7 ( , 0 3 9 6 1 , ) 3 6 5 2 9 ( , , ) 9 7 1 3 1 5 1 ( , , ) 9 7 1 3 1 5 1 ( , – ) 7 6 7 2 ( , 2 1 8 1 , , 4 4 6 7 1 5 1 , , 9 9 5 8 1 5 1 , , 4 4 6 7 1 5 1 , b g , b e h h i , h i , h , g , f , e , a s e i t i l i b a L i t n e r r u C - n o N l a t o T s e i t i l i b a i l g n i r a e b - t s e r e t n I s e i t i l i b a i l t n e r r u c - n o N y t i l i b a i l x a t d e r r e e D f s n o i s i v o r P S L U C S P U C s e i t i l i b a L i l a t o T s t e s s A t e N y t i u q E d e t u b i r t n o C i s g n n r a E i d e n a t e R y t i u q E l a t o T y t i u q E r e h t O s e v r e s e R d e t i m L i h s a c t e M p u o r G h s a c t e M ) d e u n i t n o c ( 5 0 0 2 l i r p a 0 3 t a s a s r f i a o t s t n e m t s u j d a f o n o i t a i l i c n o c e r g n i t c e l f e r t e e h s e c n a l a b . 3 d n a ) i i v x x ( 2 s e t o n n i d e s o c s i d l s a r o r r e d o i r e p r o i r p e h t r o f d e t a t s e r 5 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f s t n e m e t a t s l i a c n a n i f P A A G A d e h s i l b u p y l s u o v e r p i s t n e s e r p e R . 1 www.metcash.com 83                           not e s to the financial statement s year ended 3 0 a pr il 2 006 26  transition to aifrs (continued) d e t i m L i h s a c t e M p u o r G h s a c t e M S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ P A A G A S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ 1 P A A G A s e t o N 4 0 0 2 y a M 1 t a s a s r f i a o t s t n e m t s u j d a f o n o i t a i l i c n o c e r g n i t c e l f e r t e e h s e c n a l a b – 5 4 1 1 , 2 0 0 0 2 , 7 0 3 3 4 2 , 4 5 4 4 6 2 , – – 0 7 1 4 , 2 8 8 6 7 4 , – – – 2 5 0 1 8 4 , 6 0 5 5 4 7 , – – 0 0 0 5 4 , 9 3 9 9 0 1 , 9 3 9 4 5 1 , – – – – – – – – – – – – – – – – – – – – 5 4 1 1 , 2 0 0 0 2 , 7 0 3 3 4 2 , 4 5 4 4 6 2 , – – 0 7 1 4 , 2 8 8 6 7 4 , – – – 2 5 0 1 8 4 , 6 0 5 5 4 7 , – – 0 0 0 5 4 , 9 3 9 9 0 1 , 9 3 9 4 5 1 , 1 5 6 3 3 , 5 6 3 8 5 6 , 4 7 1 6 8 3 , 8 3 2 8 , , 8 2 4 6 8 0 1 , – 5 5 6 9 , 2 1 1 1 , 0 4 8 4 6 3 7 , 6 2 3 3 6 , 0 4 9 9 0 3 , 7 3 2 2 9 3 , , 5 6 6 8 7 4 1 , 7 6 5 2 5 , 7 1 6 3 1 , 0 8 3 2 3 , 5 5 0 4 8 8 , 9 1 6 2 8 9 , – – – – – – – ) 0 1 5 9 ( , 3 5 8 2 , ) 8 4 8 6 6 ( , – 8 4 8 6 6 , – – – – – – – 1 5 6 3 3 , 5 6 3 8 5 6 , 4 8 6 5 9 3 , 8 3 2 8 , , 8 3 9 5 9 0 1 , 5 5 6 9 , 2 1 1 1 , 0 4 8 – 1 1 5 4 , 4 7 1 0 3 1 , 2 9 0 3 4 2 , 4 8 3 9 8 3 , a d e d , 2 2 3 5 8 4 1 , 7 6 5 2 5 , 7 1 6 3 1 , 0 8 3 2 3 , 5 5 0 4 8 8 , 9 1 6 2 8 9 , . 3 d n a ) i i v x x ( 2 s e t o n n i d e s o c s i d l s a r o r r e d o i r e p r o i r p e h t r o f d e t a t s e r 4 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f s t n e m e t a t s l i a c n a n i f P A A G A d e h s i l b u p y l s u o v e r p i s t n e s e r p e R . 1 s t e s s a t n e r r u c - n o n l a t o T s e i t i l i b a i l g n i r a e b - t s e r e t n I l e b a y a p x a t e m o c n I s n o i s i v o r P s e i t i l i b a i l t n e r r u c l a t o T s e i t i l i b a i l t n e r r u C s e i t i l i b a L i l s e b a y a P s t e s s a l a t o T t n e m p u q e i d n a t n a p l , y t r e p o r P s t e s s a x a t d e r r e e D f r e h t O l l i w d o o g d n a s t e s s a i l e b g n a t n I s t e s s a t n e r r u c l a t o T s t e s s a t n e r r u c - n o N s t n e m y a p e r P s e i r o t n e v n I s t e s s a t n e r r u C s t e s s a h s a C s t e s s A l s e b a v e c e R i l s e b a v e c e R i i s e t a c o s s a n i s t n e m t s e v n I s t e s s a l i a c n a n i f r e h t O 84 Metcash Limited Annual Report 2006                         no te s to the financial statements year ended 3 0 a pr il 2 00 6 26  transition to aifrs (continued) S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ P A A G A – – – – 9 3 9 4 5 1 , 7 6 5 0 9 5 , 7 3 3 6 1 2 6 5 , 3 1 6 7 5 , ) 6 4 2 9 2 ( , 7 6 5 0 9 5 , 7 6 5 0 9 5 , – – – – – – – – – 7 3 ) 7 3 ( – – – – – – 9 3 9 4 5 1 , 7 6 5 0 9 5 , – 3 6 1 2 6 5 , 3 1 6 7 5 , ) 9 0 2 9 2 ( , 7 6 5 0 9 5 , 7 6 5 0 9 5 , S R F A I 0 0 0 $ ’ – 6 7 5 6 1 , 8 4 3 9 1 , 4 2 9 5 3 , 2 2 1 0 6 4 , 7 3 3 6 1 2 6 5 , 2 9 5 2 1 , ) 0 7 6 4 1 1 ( , 2 2 1 0 6 4 , 2 2 1 0 6 4 , , 3 4 5 8 1 0 1 , 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ 1 P A A G A s e t o N – – – – – – – 7 3 – ) 4 9 6 6 ( , – – – 6 7 5 6 1 , 8 4 3 9 1 , 4 2 9 5 3 , , 3 4 5 8 1 0 1 , 9 7 7 6 6 4 , – 3 6 1 2 6 5 , 2 9 5 2 1 , ) 6 7 9 7 0 1 ( , 9 7 7 6 6 4 , 9 7 7 6 6 4 , i i , e , a s e i t i l i b a i l g n i r a e b - t s e r e t n i - n o N s e i t i l i b a i l g n i r a e b - t s e r e t n I s e i t i l i b a i l t n e r r u c - n o N s n o i s i v o r P s e i t i l i b a i l t n e r r u c - n o n l a t o T y t i u q e d e t u b i r t n o C t s e r e t n i y t i t n e t n e r a P s t i f o r p i d e n a t e R y t i u q e r e h t O s e v r e s e R t s e r e t n i y t i t n e t n e r a p l a t o T y t i u q e n i y t i u q e l a t o T s e i t i l i b a i l l a t o T s t e s s a t e N y t i u q E d e t i m L i h s a c t e M p u o r G h s a c t e M ) d e u n i t n o c ( 4 0 0 2 y a M 1 t a s a s r f i a o t s t n e m t s u j d a f o n o i t a i l i c n o c e r g n i t c e l f e r t e e h s e c n a l a b . 3 d n a ) i i v x x ( 2 s e t o n n i d e s o c s i d l s a r o r r e d o i r e p r o i r p e h t r o f d e t a t s e r 4 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f s t n e m e t a t s l i a c n a n i f P A A G A d e h s i l b u p y l s u o v e r p i s t n e s e r p e R . 1 www.metcash.com 85                           not e s to the financial statement s year ended 3 0 a pr il 2 006 26  transition to aifrs (continued) S R F A I 0 0 0 $ ’ 0 0 0 $ ’ t c a p m I S R F A I 0 0 0 $ ’ P A A G A S R F A I 0 0 0 $ ’ t c a p m I S R F A I 1 P A A G A s e t o N d e t i m L i h s a c t e M p u o r G h s a c t e M 5 0 0 2 l i r p a 0 3 d e d n e r a e y e h t r o f t n e m e t a t s e m o c n i – – – – – – – – – – – – – – – – ) 6 1 ( – ) 6 1 ( – – – – – – ) 6 1 ( ) 6 1 ( – – – – – – – – – – – – – – , 4 9 9 0 9 9 6 , 0 0 0 $ ’ , 8 9 8 8 7 4 6 , 0 0 0 $ ’ 6 9 0 2 1 5 , 5 8 0 4 5 4 , 5 8 0 4 5 4 , – 4 7 8 2 9 5 , 7 7 9 6 8 5 , , ) 5 0 2 2 5 8 6 ( , , ) 6 0 0 6 4 3 6 ( , 7 9 8 5 , ) 9 9 1 6 0 5 ( , 3 7 2 3 3 2 0 4 9 2 4 3 6 , 0 7 1 8 , 9 5 2 5 5 , ) 4 3 9 5 2 2 ( , ) 4 5 4 7 0 2 ( , ) 0 8 4 8 1 ( , ) 8 4 3 8 2 2 ( , ) 9 1 3 8 9 1 ( , ) 0 5 0 8 ( , ) 8 9 9 1 ( , ) 0 0 1 7 ( , 6 4 1 5 8 1 , ) 3 0 3 8 5 ( , ) 1 1 9 5 ( , ) 8 9 9 1 ( , ) 0 0 1 7 ( , 8 9 5 4 7 1 , ) 3 4 9 2 5 ( , ) 9 2 0 0 3 ( , ) 9 3 1 2 ( , – – 8 4 5 0 1 , ) 0 6 3 5 ( , 3 4 8 6 2 1 , 5 5 6 1 2 1 , 8 8 1 5 , h h h h h h h , a i , h h g g h , e d o h t e m y t i u q e g n i s u e r u t n e v t n o i j d n a i s e t a c o s s a f o e r a h S n o i t u b i r t s i D d n a e s u o h e r a W s e s n e p x e s e s n e p x e n o i t a r t s i n m d a i d n a l a r e n e g , g n i l l e S d e s n e p x e s t s o c i g n w o r r o B s t s o c e u s s i e r a h s f o n o i t a s i t r o m A S L U C % 0 5 f o n o i t a s i t r o m A i m u m e r p n o i t p m e d e r x a t e m o c n i e r o f e b t i f o r P d o i r e p e h t r o f t i f o r p t e N e s n e p x e x a t e m o c n I x a t r e t f a t i f o r P s r e i l p p u s m o r f e u n e v e R e u n e v e r l s e a S m o r f s e u n e v e r r e h t O s e i t i v i t c a y r a n d r o i s e a s l f o t s o C t i f o r P s s o r G 86 Metcash Limited Annual Report 2006 . 3 d n a ) i i v x x ( 2 s e t o n n i d e s o c s i d l s a r o r r e d o i r e p r o i r p e h t r o f d e t a t s e r 5 0 0 2 l i r p A 0 3 d e d n e r a e y e h t r o f s t n e m e t a t s l i a c n a n i f P A A G A d e h s i l b u p y l s u o v e r p i s t n e s e r p e R . 1 . n o i t i s i u q c a e s r e v e r f o e s u a c e b 5 0 0 2 l i r p A t a d e t i m L i i g n d a r T h s a c t e M o t k c a b d e t s u d a j s i i s g n n r a e i d e n a t e R : e t o N ) . p u o r G h s a c t e M r o f t n e r a p e h t t c a f n i s i w o n T T M (                 no te s to the financial statements year ended 3 0 a pr il 2 00 6 26  TRANSITION TO AIFRS (continued) Impact of adopting AIFRS Reference Item AGAAP AIFRS Consolidated Parent Impact a. Inventories Rebate and co-operative income treated as other income. Under AASB 118 Revenue and UIG 1002 Inventory Rebates and Settlement Discounts require rebates to be deducted from the cost of inventory. b. Other Assets Interest Bearing Liabilities Reclass not required. c. Assets held for sale AASB 1042 Discontinuing Operations does not include a held for sale classification requirement, so no such disclosure is required. Under AASB 139 Financial Instruments: Measurement and Disclosure, when a financial asset or financial liability is recognised initially, it is measured at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Accordingly, these assets have been reclassed as transaction costs and therefore offset against the corresponding liability. AASB 5.38 Non-current Assets Held for Sale and Discontinued Operations requires the separate presentation in the balance sheet of non-current assets classified as held for sale. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: Decrease to retained earnings and inventories of $9,510,000. Equity at 30 April 2005: Decrease to retained earnings and inventories of $9,006,000. Profit for 30 April 2005: Increase to profit of $483,000. Equity at transition: No effect. Equity at 30 April 2005: Decrease in current ($5,544,000) and non-current ($5,677,000) other assets and interest-bearing liabilities of $11,221,000. Net effect is nil. Decrease in non-current other assets and CULS of $7,891,000. Net effect nil. Profit for 30 April 2005: $187,000 increase. Equity at transition: No effect. Equity at 30 April 2005: Decrease in inventory and increase in asset held for sale of $206,000. Net effect is nil. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. www.metcash.com 87 not e s to the financial statement s year ended 3 0 a pr il 2 006 26  TRANSITION TO AIFRS (continued) Reference Item AGAAP AIFRS Consolidated Parent Impact Property, Plant and Equipment Intangible Assets Computer software was classified as Property, Plant and Equipment (P,P&E). Under AASB 138 Intangible Assets, computer software is classified as an intangible asset. Therefore, computer software has been reclassified from P,P&E to Intangible assets. No effect. Deferred Tax Assets and Liabilities AASB 112 Income Taxes does not allow for the offsetting of deferred tax assets and liabilities. d. e. f. Equity at transition: Decrease to P,P&E and increase to Intangibles of $66,848,000. Net effect is zero. Equity at 30 April 2005: Decrease to P,P&E and increase to Intangibles of $52,059,000. Net effect is zero. Profit for 30 April 2005: No effect. Equity at transition: Net increase in Deferred Tax Asset and increase in retained earnings of $2,853,000. Equity at 30 April 2005: Net increase in Deferred Tax Asset ($21,046,000) and Deferred Tax Liability ($18,344,000); and increase in retained earnings of $2,702,000. Profit for 30 April 2005: Decrease in profit of $145,000. Equity at transition: No effect. Equity at 30 April 2005: Increase in retained earnings and increase to goodwill of $27,022,000. Profit for 30 April 2005: Increase to profit of $27,022,000. Equity at transition: No effect. Equity at 30 April 2005: Increase in CULS and decrease in retained earnings of $9,098,000. Profit for 30 April 2005: Decrease to profit of $9,098,000. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Under AASB 136 goodwill is subject to annual impairment testing and amortisation of goodwill is strictly prohibited. An adjustment is thus required to reverse the amortisation charge for 30 April 2005. In line with AASB 139 Financial Instruments: Presentation and Disclosure, the redemption premium and issue costs associated with the CULS is required to be accrued over the life of the instrument. Business Combination and Goodwill Goodwill was amortised over its useful life (not exceeding 20 years). g. CULS No effect. 88 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 26  TRANSITION TO AIFRS (continued) Reference Item AGAAP AIFRS Consolidated Parent Impact h. Reverse acquisition No effect. i. Share-based payments Share-based payments were not required to be expensed. In accordance with AASB 3 Business Combinations, when Metcash Limited (the legal parent) acquired the Metoz group (being Metoz Holdings Limited and its controlled entities including Metcash Trading Limited) (the legal subsidiary), the acquisition was deemed to be a reverse acquisition since the substance of the transaction is that the existing public shareholders of Metcash Trading Limited have, through Metcash Limited, effectively acquired Metoz Holdings. Under reverse acquisition accounting, the consolidated financial statements are prepared as if Metcash Trading Limited had acquired Metcash Limited and its controlled entities, not vice versa as represented by the legal position. AASB 2: Share-Based Payments requires entities to recognise an expense in relation to shares, options, and other equity instruments provided to employees (including directors). These share-based payment transactions must be fair valued at grant date and recognised as an expense in profit or loss evenly over the vesting period. Equity at transition: No effect. Equity at 30 April 2005: No effect. Profit for 30 April 2005: No effect. Equity at transition: No effect. Equity at 30 April 2005: Decrease in intangibles of $1,524,799,000; net decrease in Equity and Reserves of $1,420,840,000; and decrease in retained earnings of $103,959,000. Profit for 30 April 2005: Increase to profit of $103,580,000. Equity at transition: Increase in equity and decrease in retained earnings of $37,000. Equity at 30 April 2005: Increase in reserves and decrease in retained earnings of $224,000. Profit for 30 April 2005: Decrease to profit of $187,000. Equity at transition: Increase in equity and decrease in retained earnings of $37,000. Equity at 30 April 2005: Increase in equity and decrease in retained earnings of $16,000. Profit for 30 April 2005: Decrease to profit of $16,000. www.metcash.com 89 not e s to the financial statement s year ended 3 0 a pr il 2 006 27  BuSINeSS COMBINATIONS Acquisition of Foodland Associated Limited (FAL)  On 2 November 2005, Metcash acquired Foodland Associated Limited’s demerged Australian business. FAL’s trading results from 2 November, when economic benefits passed to Metcash, are included in Metcash results for the year. The total cost of the combination was $1,007 million and comprised an issue of equity instruments, cash and transaction costs directly attributable to the combination. Metcash issued 234,444,195 shares with a fair value of $4.05 each, based on the quoted price of the shares at the date economic benefits passed to Metcash. The fair value of the identifiable assets and liabilities of FAL as at the date of acquisition are: Property, plant and equipment Deferred income tax asset Cash and cash equivalent Trade receivables Inventories Intangibles – Goodwill Intangibles – Contractual Customer Relationships Assets – held for sale Trade Payables Provisions Deferred income tax liability Liabilities – held for sale Fair value of net assets Goodwill arising on acquisition Consideration Shares issued at fair value Cash consideration paid Costs associated with the acquisition Total consideration The cash outflow on acquisition is as follows: Net cash acquired with subsidiary Cash paid Net cash outflow From the date of acquisition, FAL has contributed $14,510,000 to the net profit of the Group. Recognised on Carrying value per FAL acquisition $’000 $’000 69,344 3,787 8,726 107,728 122,244 173,503 – 161,161 646,493 134,249 10,155 10,940 49,655 204,999 441,242 61,305 3,787 8,726 94,678 117,648 – 148,000 185,299 619,443 136,367 11,294 – 49,655 197,316 422,127 585,260 1,007,387 949,499 39,916 17,972 1,007,387 8,726 57,888 49,162 90 Metcash Limited Annual Report 2006 no te s to the financial statements year ended 3 0 a pr il 2 00 6 28  eARNINgS peR ShARe The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit attributable to ordinary equity holders of Metcash Limited Adjustments: Earnings used in calculating basic and diluted earnings per share 2006 $’000 2005 $’000 81,178 126,843 81,178 126,843 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 593,675,382 427,395,233 Effect of dilutive securities Share options Convertible, redeemable, subordinated, unsecured loan notes (CULS) 6,960,035 – 7,463,643 16,430,215 Weighted average number of ordinary shares used in calculating dilutive earnings per share 600,635,417 451,289,091 Note: Under AIFRS, the comparative EPS (2005) is calculated, under the reverse acquisition rules, using MTS shares at the close (30 April 2005). This has impacted on EPS reported by 14.4 cents compared with EPS under AGAAP. Basic EPS under AGAAP was 15.3 cents and diluted EPS was 15.1 cents. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. 29  ASSeTS CLASSIFIed AS heLd FOR SALe Assets classified as held for sale Liabilities directly associated with assets held for sale Metcash Group Metcash Limited 2006 $’000 185,505 49,655 2005 $’000 206 – 2006 $’000 – – 2005 $’000 – – Available for sale investments consist of Action stores (on acquisition of Foodland) expected to be sold in the next 12 months. The fair value of the Action stores have been estimated using valuation techniques based on turnover, market prices or rates. Management believes the estimated fair values resulting from the valuation techniques and recorded in the balance sheet are reasonable and most appropriate as at the balance sheet date. 30  SuBSeQueNT eVeNTS There are no subsequent events which impact the results. www.metcash.com 91 not e s to the financial statement s year ended 3 0 a pr il 2 006 31  CONTINgeNT LIABILITIeS A controlled entity has guaranteed third party loans to storeowners amounting to The Company and certain controlled entities have granted Bank guarantees to third parties in respect of property lease obligations to the value of The Company and certain controlled entities have granted Bank guarantees in respect of Workcover in WA Franklins Metcash Group Metcash Limited 2006 $’000 2005 $’000 2006 $’000 2005 $’000 1,580 1,580 19,242 18,991 4,900 – – – – – – – Following the termination of the Franklins contract in January 2005, Franklins has alleged that Metcash owes it various sums in respect of the supply contract. Franklins has commenced proceedings seeking as yet unquantified damages in respect of certain of the alleged claims. Metcash does not consider that Franklins has any valid claim against it. Should Franklins proceed with any of these alleged claims, they will be vigorously defended by Metcash. 92 Metcash Limited Annual Report 2006 di r e ct ors’ d ec laration year ended 3 0 a pr il 2 00 6 The Directors of the Company declare that: 1. the financial statements and notes, as set out on pages 36 to 92 and the additional disclosures included in the Directors’ report designated as audited, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the financial position as at 30 April 2006 and of the performance for the year ended on that date of the Company and the consolidated entity; 2. the Chief Executive Officer and Chief Financial Officer have each declared that: (a) the financial records of the economic entity for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; (b) the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view; 3. in the Directors’ opinion, there are reasonable grounds to believe that the economic entity will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Andrew Reitzer Director Sydney, 17 July 2006 www.metcash.com 93 au di tor ’s independence declaration year ended 3 0 a pr il 2 006 94 Metcash Limited Annual Report 2006 ind e penden t au dit report to m embers of metcash limited year ended 3 0 a pr il 2 00 6 www.metcash.com 95 inde pe nden t au dit report to m em bers of metcash limited year ended 3 0 a pr il 2 006 96 Metcash Limited Annual Report 2006 a sX a dd iti onal information year ended 3 0 a pr il 2 00 6 Additional information required by the Australian Stock Exchange and not shown elsewhere in this report is as follows. The information is current as at 7 July 2006. (a) distribution of equity securities The number of shareholders, by size of holding, in each class of share are: (b) Twenty largest shareholders The names of the 20 largest holders of quoted shares are: Name J P Morgan Nominees Australia Limited Westpac Custodian Nominees Limited National Nominees Limited Queensland Investment Corporation Westpac Financial Services Limited Cogent Nominees Pty Limited Citicorp Nominees Pty Limited ANz Nominees Limited ANz Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited RBC Dexia Investor Services Australia Nominees Pty Limited Victorian Workcover Authority IAG Nominees Pty Limited AMP Life Limited Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited UBS Wealth Management Australia Nominees Pty Ltd Westpac Life Insurance Services Limited (c) Substantial shareholders The following is extracted from the Company’s register of substantial shareholders: Perennial Investment Partners Limited (PIPL) Westpac Banking Corporation Lazard Asset Management Pacific Co Deutsche Bank AG Queensland Investment Corporation (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Size of holding Number of shareholders 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Total 3,408 10,595 3,517 2,608 172 20,300 Number of shares ordinary shares Percentage of 137,425,809 129,263,564 82,968,120 48,447,428 25,395,187 19,391,529 18,652,576 16,654,757 14,091,687 11,496,930 8,580,580 7,650,613 7,413,196 6,837,724 6,699,163 6,018,726 5,558,200 5,337,232 4,379,572 4,281,541 566,544,134 18.372 17.281 11.092 6.477 3.395 2.592 2.494 2.226 1.884 1.537 1.147 1.023 0.991 0.914 0.896 0.805 0.743 0.714 0.585 0.572 75.738 Number of shares 85,366,361 81,623,507 53,105,989 52,538,587 45,401,633 www.metcash.com 97

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