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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
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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, $243m generated.
> Dividends declared increased by 21%.
Weighted Average Earnings per Share (cents)
– excluding CULS, CUPS and Restructure Costs
Cost of Doing Business as a per cent of Gross Profit
21.55
16.10
16.64
13.11
8.89
25
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90%
80%
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75.20
71.00
68.65
68.06
67.16
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06 (AIFRS)
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05
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EBITA as a per cent of Sales
Operating Cash Flow ($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
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www.metcash.com
rEpOrT frOM THE CHAIrMAn
AnD THE CHIEf ExECUTIvE OffICEr
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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.
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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.
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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
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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
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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.
>
>
>
>
>
>
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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
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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.
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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
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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).
.
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Metcash Limited Annual Report 2006
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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
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38 Metcash Limited Annual Report 2006
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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)
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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
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year ended 3 0 a pr il 2 006
26 transition to aifrs (continued)
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82 Metcash Limited Annual Report 2006
no te s to the financial statements
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26 transition to aifrs (continued)
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www.metcash.com
83
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year ended 3 0 a pr il 2 006
26 transition to aifrs (continued)
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(
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
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