Metcash Limited Annual Report 2007

Plain-text annual report

Metcash Limited Metcash Limited Annual Report 2007 Metcash_editorial(cover-20)_draf101 101 19/07/2007 10:20:07 AM www.metcash.com 101 METCASH LIMITED ABN 32 112 073 480 CONTENTS: Report from the Chairman and the Chief Executive Officer IGA Distribution Australian Liquor Marketers Campbells Wholesale The Board The Executive Team Five Year Review Corporate Governance Statement Directors’ 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 Corporate Directory 2 6 8 10 12 14 16 17 22 36 37 38 40 41 82 83 84 86 88 Our Mission: To be the marketing and distribution leader in food and other fast-moving consumer goods OUR Championing the Customer Our Stakeholders are Entitled to Added Value Responsibility and Personal Accountability Empowering Our People and Supporting our Communities VALUES – ARE NOTHING WITHOUT INTEGRITY Highlights > Successfully integrated the former Foodland Associated Limited’s Australian businesses > Eighth consecutive record annual profit > Total revenue increase by 18% to $9.7 billion > Dividends per share declared from 2007 profit increased 48% Canning Vale Distribution Centre, WA 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 OPERATING CASH FLOW ($M) 113.4 130.7 130.6 242.7 177.5 0 50 100 150 200 250 300 WEIGHTED AVERAGE EARNINGS PER SHARE (CENTS) – EXCLUDING CULS, CUPS AND RESTRUCTURE COSTS 13.11 16.10 16.64 21.55 23.23 0 5 10 15 20 25 Metcash_editorial(cover-20)_draf102 102 19/07/2007 10:20:24 AM Every day, across Australia, Every day, across Australia, the Metcash businesses are the Metcash businesses are focused on our mission and focused on our mission and core values. core values. 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 DIVIDENDS AS A % OF EARNINGS (%) EBITA AS A PERCENT OF SALES (%) 66.71 68.84 55.36 60.55 76.21 2003 2004 2005 2006 2007 2.50 2.80 2.96 2.95 3.33 0 10 20 30 40 50 60 70 80 90 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 COSTS OF DOING BUSINESS AS A PERCENT OF GROSS PROFIT (%) DIVIDEND PER SHARE (CENTS) 70.98 68.66 68.45 67.20 66.86 2003 2004 2005 2006 2007 8.6 9.5 11.0 11.5 17.0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 64 65 66 67 68 69 70 71 72 0 2 4 6 8 10 12 14 16 18 Metcash_editorial(cover-20)_draf1 1 19/07/2007 10:20:36 AM www.metcash.com 1 We are pleased to announce that the 2007 financial year was another successful one for Metcash and the eighth consecutive record annual profit has been posted. Total revenue for the Metcash Group increased by 18% to $9.7 billion with wholesale sales increasing by 22.7% to $9.5 billion. Before non-recurring items, Group net profit after tax increased 41.6% to $174 million. After non-recurring items, net profit after tax grew by 105% to $167 million. Importantly, earnings per share grew 62% to 22.15 cents (or 23.23 cents before non-recurring items). We are also pleased to announce that dividends per share to be paid from the 2007 profits increased 48% to 17 cents on a fully franked basis. FINANCIAL RESULTS The margin growth was aided by well controlled costs with the Cost of Doing Business (CODB) as a percentage of gross profit falling by 0.34% to 66.86%. As a consequence, normalised Profit Before Tax (PBT) as a percentage of sales rose 0.30% to 2.62%. The higher sales volume accompanied by the higher margin ratio resulted in the improved earnings per share and dividends paid and declared for the year. 2 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf2 2 19/07/2007 10:20:44 AM INTEGRATION OF FAL AUSTRALIAN BUSINESSES In July 2006, the Company provided profit guidance for the 2007 financial year. In that guidance it stated that the acquired FAL assets would generate incremental earnings before interest and tax for the year in the range of $80-$90 million before restructuring costs. It was pleasing to be able to announce that the FAL assets generated $87 million in incremental earnings, which was at the high end of the forecast range. Restructuring costs were also maintained between the $7 million and $10 million forecast in the guidance. Above: Crestmead Distribution Centre, QLD; Right: Andrew Reitzer, Chief Executive Ofﬁ cer and Carlos S dos Santos, Chairman www.metcash.com 3 Metcash_editorial(cover-20)_draf3 3 19/07/2007 10:20:53 AM Of the 67 Company owned Action stores acquired, 50 have been sold to independent retailers, five were closed or are in the process of being closed because of unprofitable locations or the conclusion of leases and 12 Western Australian stores have been retained for sale to a single buyer. The Western Australian Action, Dewsons and Supa Valu stores were rebranded as Supa IGA or IGA and ‘like for like’ sales increased by 17.2% as a consequence of the conversion and IGA marketing. Metcash’s Western Australian market share grew to 31.2%. Trading terms with customers have been reviewed and changed where necessary to ensure that the independent retail segment in Western Australia remains strong and vibrant and able to grow. Productivity standards of the FAL Western Australian warehouses were below those of other Metcash grocery warehouses. The introduction of Voice Pick and the EXE warehouse management system together with a focus on workplace management and organisation have substantially increased productivity levels. The purchasing terms of the FAL business were reviewed and compared to the Metcash negotiated terms. In most cases the FAL terms were less advantageous than the Metcash terms and the Metcash terms were implemented in Western Australia. HEALTH, SAFETY, ENVIRONMENT & COMMUNITY (HSEC) Metcash is continuing to make good progress with the implementation of the Company’s HSEC program. This encompasses care for our people with workplace engagement, development and competency, health services and safety. Environmental management, product safety and public health are also managed through the HSEC program. Progress with HSEC implementation can be demonstrated by the continuing improvement of occupational health and safety statistics, with strong reductions in the number of lost time injuries and hours lost. 4 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf4 4 19/07/2007 10:21:02 AM WAY FORWARD Over recent years the Company has grown substantially and sales are now approaching $10 billion, which is double the sales volume of 1997. Earnings, dividends and cash flow have grown commensurately and the Company’s balance sheet is strong. The Board has previously announced the objective of achieving and maintaining balance sheet ratios that would satisfy an investment grade rating of A-. It is pleasing that the balance sheet ratios for the end of the 2007 financial year are approaching that target. The growth initiatives that are in place will see sales grow in excess of anticipated inflation and earnings will grow in the high single digit range. This is an excellent anticipated result with ‘like for like’ growth in excess of that of our two chain competitors and is realistic in the light of the uncertainty that currently exists in the Australian grocery retail market with the recently announced sale of the Coles group. The Company has previously advised of its intention to acquire a fourth business or ‘pillar’ to complement the existing three businesses and provide further opportunities for growth. This intention remains current. The criteria for a fourth pillar are that it is aligned to the Metcash core competencies of distribution, marketing and merchandising, is in the fast-moving consumer goods sector, should be at least earnings per share neutral in year 1 and accretive thereafter. 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. Carlos S dos Santos Chairman Andrew Reitzer CEO Crestmead Distribution Centre, Queensland Crestmead, Queensland, the home of our new mega distribution centre site. At over 103,000 sq metres, with the potential to add another 20,000 sq metres, Crestmead will hold up to 23,500 stock keeping units (SKU) at one time. The Crestmead centre houses state of the art liquor, dry and perishable grocery warehouses – stocked ready for dispatch to customers of IGA>D, Campbells Wholesale and ALM. Above: Crestmead Distribution Centre, QLD; Left top: Cash & Carry, Bunbury Branch, WA; Left middle: Camp Metcash; Left bottom: Crestmead Distribution Centre, QLD from above www.metcash.com 5 Metcash_editorial(cover-20)_draf5 5 19/07/2007 10:21:21 AM IGA Distribution 2007 was an outstanding year for IGA Distribution. Wholesale sales increased by 27.6% to $5.6 billion whilst EBITA grew by 40.7% to $247.3 million. At the same time market share grew to 19%. The former FAL Western Australian business, now IGA Distribution WA, was successfully integrated with the IGA Distribution business. Voice Pick and the EXE Warehouse Management System were implemented in the Canning Vale distribution centre and have resulted in improved productivity. Further productivity gains have been obtained through introducing Metcash management processes. The former Action, Dewsons and Supa Valu stores were launched as Supa IGA or IGA stores accompanied by a strong promotional program. As a consequence of these actions, the store sales increased by 17.2% on a ‘like for like’ basis for the year. The share of the Western Australian market also grew and stood at 31.2% for the quarter ended 31 May 2007. The reversal of the former FAL policy where the Company owned Action stores competed with the independently owned Dewsons stores has been well-received by the independent retailers and their support is demonstrated in the market share and volume growth. In addition to the gains obtained from the former FAL business, the base or legacy IGA Distribution business continued to grow and perform strongly. Total IGA branded stores ‘like on like’ sales growth for the year was 10.3%. Within this, the ex-FAL Western 6 METCASH LIMITED Annual Report 2007 Australian stores grew by 17.2% and the legacy ‘IGA branded stores’ by 8.7%. Overall legacy ‘business sales’ grew by 7.8% or 5.8% if new stores are excluded. The combination of new store development, internal culture, the ‘Local Hero’ campaign and supply chain excellence have led to market share increasing to 19%. During the year 42 new stores were completed, adding 48,000 sq metres of new retail space, 23 stores extended which added 13,000 sq metres of retail and 61 stores were refurbished. In addition, 50 Action supermarkets were sold to independent supermarket operators in Western Australia and Queensland. To support the higher volumes a new dry grocery warehouse has been constructed at the Crestmead, Queensland, mega distribution centre site. The Crestmead centre now consists of state of the art liquor and dry and perishable grocery warehouses. The strong community base and relationship of IGA stores is recognised in the IGA promotional programs based on the ‘Local Heroes’ concept. This focuses on the benefits that IGA stores bring to local communities, through the owner of the store being a local resident and involvement in local charities through the IGA Community Chest program. During the year the IGA store owners and customers provided over $1 million to local community-based charitable organisations. Within the IGA family of retailers an internal cultural strategy centred on Family/Village/Tribe has been developed. This has enabled marketing opportunities to be realised on the strength of the Families, Villages and Tribes of IGA retailers and ensured that the IGA retailers are ‘Local Heroes’. The key drivers for growth in the 2008 financial year are the construction of new stores and store extensions and the expansion of the fresh produce program. During 2008 it is planned to open 60 new stores with a retail area of 82,000 sq metres, extend 53 stores which will add an additional 23,000 sq metres of retail area and refurbish 69 stores. Past 2008, this growth should continue as at present 252 new stores with a retail area of 367,000 sq metres are ‘on the books’. When the FAL business was acquired, the assets included fresh fruit and vegetable warehouses in Queensland and Western Australia and a fresh meat operation in Western Australia. These warehouses are now supplying not only the former Action stores but also the stores owned by other independent retailers. The Fresh business will be further grown in Queensland and Western Australia and extended into other states. This will be done by securing supply agreements with a large number of Queensland and Western Australian independent retailers and the selective acquisition of Fresh distributors in strategic locations. The 2007 financial year has been an extremely successful one for IGA Distribution and the 2008 financial year should be equally successful. LOU JARDIN CEO IGA DISTRIBUTION Metcash_editorial(cover-20)_draf6 6 19/07/2007 10:21:26 AM Fresh Distribution Centre, Canning Vale Western Australia Our expanding Fresh business serves over 240 stores throughout Australia, a number that’s on the rise. While our current focus is on the expansion of Queensland and Western Australia, we also plan to extend nationally. OPERATIONS SUMMARY MAJOR ACTIVITIES (cid:129) (cid:129) (cid:129) (cid:129) 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 Australian Capital Territory, Victoria, Queensland, South Australia and Western Australia. Providing expertise, tailored to the Independent Retailer’s requirements. From the full range of marketing, merchandising, buying, operational and distribution services to the 1,209 IGA stores to distribution for 574 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. SIGNIFICANT ACHIEVEMENTS (cid:129) (cid:129) Wholesale sales increased by 27.6% to $5.6 billion. EBITA of $247.3 million grew by 40.7% on the previous year. (cid:129) Market share grew to 19%. (cid:129) (cid:129) (cid:129) Metcash logistics platforms were implemented successfully in Western Australia, New South Wales and South Australia. Continual development of the ‘Local Heroes’ marketing strategy and Family/Village/Tribe internal culture strategy. Fresh business has grown steadily, the sales base expanded. FUTURE DIRECTION (cid:129) (cid:129) (cid:129) (cid:129) Continue to grow ‘like for like’ retail sales growth in real terms. Develop 60 new stores, complete 63 extensions and 69 store refurbishments during the 2008 financial year. Double fresh sales through IGA>F (IGA Fresh), geographically expand the program and increase ‘grower direct’ purchases. Continue to develop the community image of the IGA brand and the strong IGA ‘Family/Village/Tribe culture. Above: Canning Vale Distribution Centre, WA; below from left: Food 4 Life TV Program – hosted by Cindy Sargon; Family/Village/Tribe Meeting, a great community focused idea; Fresh produce from IGA Distribution Centre, Canning Vale, WA. Metcash_editorial(cover-20)_draf7 7 19/07/2007 10:21:32 AM The ALM portal continues to drive significant benefit to both our customers and suppliers. By year’s end over 7,400 customers had registered to place orders and receive invoices electronically. Volumes grew from 18% of ALM’s sales volume in 2006 to 29% in 2007 and suppliers can now advertise their products and promotions online. The website now displays over two million pages a month and is one of, if not the largest product movement site in Australia. The wholesale liquor market continues to experience extreme competitive pressures as the chains’ growth by acquisition continues. ALM and IBA are strongly positioned now to maintain, support and grow the market share of independent liquor retailers in the years ahead. FERGUS COLLINS CEO AUSTRALIAN LIQUOR MARKETERS Australian Liquor Marketers Sales grew during the year by 1.96% despite the loss of the Hedley business in Queensland, which was acquired by Coles. However, strong support from the independent retailers resulted in the effects of the Hedley volume loss and strong price competition limiting the fall in EBIT to 7.6%. ALM and IBA undertook a significant restructure during April 2007. This restructuring, while reducing indirect labour costs, will align the ALM strategy of supporting independent liquor stores with the most efficient and cost effective route to market to the strong marketing support provided by IBA. ALM continues to review the cost of doing business and, during the year, rationalisation continued with the closure of Toowoomba and Kawana Waters warehouses in Queensland. These regions are now supplied out of the Crestmead facility, which provides customers with access to a wider range and a more efficient route to market. IBA’s ‘Cellarbrations’ banner continues to grow in both size and reputation. Receiving the award as ‘Retail Banner Group of the Year 2006’ at the Australian Liquor Industry Awards, ‘Cellarbrations’ now operates a multi format offer from stand alone liquor stores to drive thrus and large format liquor barns. Current retail outlets under the ‘Cellarbrations’ brand stand at just under 400 but the recent acquisition of the Giants group in Queensland will see this figure approach 500 stores within the coming year. IBA launched the ‘Bottle-O’ retail brand in October 2006 as their second brand for independent liquor retailers. There are now over 200 ‘Bottle-O’ branded outlets and this number will grow considerably as the consolidation of independent liquor brands continues at pace. Total stores under the IBA banner now total 2,290. The strong relationship with the Liquor Alliance of independent hoteliers continues and its group now totals 653 outlets. Its brand ‘Thirsty Camel’ commenced rollout during the year and it continues to provide strong marketing and buying benefits to its members to combat the growth of chain operated liquor stores and hotels. Sales to the on-premise market were maintained despite strong competition from the chain’s discount operations. The Harbottle On Premise (Australia) and Allied Liquor (New Zealand) businesses continue to offer an expansive range, competitive pricing and expertise to support our customer base. 8 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf8 8 19/07/2007 10:22:00 AM ALM Warehouse, Crestmead Distribution Centre, Queensland ALM has continued to innovate – with a new online portal. The website now displays over two million pages a month and is one of, if not the largest product movement site in Australia. OPERATIONS SUMMARY MAJOR ACTIVITIES (cid:129) (cid:129) (cid:129) (cid:129) Broad range liquor wholesaler, supplying over 14,500 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 18 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. SIGNIFICANT ACHIEVEMENTS (cid:129) (cid:129) (cid:129) (cid:129) Sales growth up by 1.9% despite the loss of Hedley business in Queensland. Recent restructures have been undertaken to streamline the business for maximum cost effectiveness. Launch of ‘Bottle-O’ retail brand has been successful with the total number of stores under the Independent Brands Australia (IBA) banner continuing to grow significantly. Liquor Alliance relationship continues in strength with its brand ‘Thirsty Camel’ providing strong marketing and buying benefits. (cid:129) The ALM portal continues to drive significant benefit to both our customers and suppliers. FUTURE DIRECTION (cid:129) (cid:129) (cid:129) Continue to reduce the cost of doing business through warehouse productivity gains, warehouse rationalisation and increased customer use of electronic ordering and invoicing. Growth of Liquor Alliance and rebranding of pubs under the new ‘Thirsty Camel’ banner. Combining Liquor Alliance and IBA to be the largest customer in Australia for the top five suppliers. Above: ALM Crestmead Distribution Centre, QLD; below from left: ALM’s new web portal; ‘Thirsty Camel’ drive-thru liquor mart kicks new goals; Instore merchandise enhances the ‘Botte-O’ brand. Metcash_editorial(cover-20)_draf9 9 19/07/2007 10:22:06 AM initiatives to provide a controlled total supply to community owned stores in remote areas of Australia. CWD will continue to expand its specialist confectionery offer through its Coast and Country format. Foodlink continues to demonstrate excellence in foodservice operations. Foodlink is the premium specialist foodservice distributor in Western Australia. The business has taken full advantage of the buoyant resource market in Western Australia and prides itself on deliveries in full, on time, every time. Another major initiative undertaken by Campbells Wholesale is the rollout of the ‘Lucky 7’ banner which has been relaunched to provide independent convenience store owners with a formatted convenience offer. ‘Lucky 7’ is supported by strong consumer promotions, retail advisers and alignment to Campbells warehouses for procurement. Demand for the banner is strong and ‘Lucky 7’ will have 150 compliant operators by April 2008. Campbells Wholesale will continue to deliver growth in 2008. PETER DUBBELMAN CEO CAMPBELLS WHOLESALE Campbells Wholesale Campbells Wholesale (CW) had a record year with sales rising 23.5% over 2006 to $1.4 billion. The performance capitalised on the synergies from the FAL acquisition and the successful strategy of restructuring operations to match the requirements of distinct customer segments. The sales mix became further weighted in favour of the profitable grocery and confectionery categories, which now represent 55% of total sales. four specialist activities continues to pay dividends with sales volumes increasing substantially in each of the four specialist divisions, they being: Campbells Cash & Carry (CCC) which operates 24 Cash & Carry stores in metropolitan areas; Campbells Wholesale Division (CWD) which operates 19 small distribution centres in country and regional areas focused on ‘pick/pack/deliver’ and Convenience Store Distribution (CSD) which operates five convenience store and distribution warehouses together with four specialist confectionery warehouses; and Foodlink, a specialist foodservice operation based in Western Australia. CSD demonstrated the largest sales increase with a 51% gain over 2006. A key target area of this division is the growing modern petrol and convenience sector. Sales to the 7-Eleven Group have increased as a result of completing the rollout of all categories over the year and further gains will be made in 2008. The success of this lowest cost/one stop convenience supply chain solution is creating strong interest from other major convenience groups. Costs have been driven down by converting CSD to stockless warehouses, and the aggregation of stock ordered by customers is now cross-docked from other distribution centres using state of the art logistics technology. CCC sales grew by 18% during the year, aided by the new Western Australia stores. Grocery and confectionery sales continue to increase and now represent 62% of the total sales mix. Significant growth has been experienced in this division due to range expansion in confectionery and general merchandise to a broader base of small business owners. This division has also developed a successful confectionery concept within a cash and carry environment called ‘SweetSpot’. ‘SweetSpot’ will be introduced into selected cash and carry sites on a national scale. The CWD division’s sales increased 3% on the 2006 year. CWD is a low cost distributor and continues to provide convenience and liquor independent retailers with a distribution solution in regional Australia. CWD will also benefit from recent federal government 10 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf10 10 19/07/2007 10:22:31 AM Cash & Carry Warehouse, Alexandria, New South Wales Grocery and confectionery sales continue to increase with signiﬁ cant growth due to a range expansion in confectionery and general merchandise. SweetSpot is a new confectionery concept developed by this division and will be introduced into selected cash and carry sites nationally. OPERATIONS SUMMARY MAJOR ACTIVITIES Focusing on the convenience and ‘route’ sector of the grocery and liquor market servicing customers who require a total supply solution and buy in quantities that cannot be economically serviced through a full case grocery or liquor distribution centre. This takes place through – (cid:129) (cid:129) (cid:129) 24 Cash & Carry warehouses and 19 regional wholesale distribution warehouses coast to coast across all states and territories, stocking a broad range of groceries, liquor, confectionery and foodservice, serving more than 100,000 business customers. Five Convenience Store Distribution (CSD) Centres, supported by specialist confectionery wholesale outlets. The FoodLink Foodservice business in Western Australia provides leading distribution solutions to the food service industry. SIGNIFICANT ACHIEVEMENTS (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Sales rose 23.5% on last year to $1.4 billion. EBITA has grown by 36.1% to $28.9 million. Cost of doing business fell from 86.6% to 83.3% of gross profit. Campbells now offers four distribution solutions to reflect tailored distribution systems aligned to market needs on a national basis. Development of the Campbells web portal, growth in the number of users and increased sales through the portal. FUTURE DIRECTION (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Providing a total supply chain solution to the modern petrol and convenience channel. Growth of Independent convenience sector through the ‘Lucky 7’ convenience banner. Expanding the Foodservice offer. Continued growth in confectionery markets. Continued sales growth through the Campbells web portal. Above: ‘SweetSpot’ display at Cash & Carry, Alexandria Branch, NSW; below from left: Campbells Wholesale Distribution services regional Australia, including communities in Arnhemland, NT; Cash & Carry, Bunbury, WA; ‘Lucky 7’ Retail Coordinator, Steven Edwards, Campbells Cash & Carry Business Development Manager, Alison Connors and ‘Lucky 7’ store owner Catherine Thoi, Southbank, QLD. Metcash_editorial(cover-20)_draf11 11 19/07/2007 10:22:34 AM CARLOS S DOS SANTOS CA (SA) Non-executive Chairman Member of the Remuneration & Nomination Committee Date of Appointment to Metcash Limited: 18 April 2005. Mr dos Santos is a chartered accountant and is a director of various companies trading in Africa and the Far East. He has had 37 years industry experience. 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, Australian National Industries, 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. The Board ANDREW REITZER B Comm MBL CEO Metcash Group of Companies Date of Appointment to Metcash Limited: 18 April 2005. Mr Andrew Reitzer has 29 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), B Commerce (Hons) Non-executive Director Member of the Remuneration & Nomination Committee Date of Appointment to Metcash Limited: 18 April 2005. Mr Peter Barnes is Chairman of Ansell Ltd, a Director of News Corporation and Chairman of Samuel Smith & Sons Pty Ltd and 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. MICHAEL R BUTLER, AM B Sc, MBA Non-executive Director Member of the Audit Risk & Compliance Committee Date of Appointment to Metcash Limited: 8 February 2007. Mr Butler has extensive experience in investment banking gained as an executive director of Bankers Trust’s Corporate Finance Group and as Executive Vice President of its Private Equity group. He is presently a non- executive director of Members Equity Bank Pty Limited, AXA Asia Pacific Holdings Limited and APN Property Group Limited. He was previously a non-executive director and Chairman of Ausdoc Group Limited, Freightways Express Limited, Hamilton Island Limited and Verticon Group Limited. BERNARD J HALE B Th (CAN) Chief Information Officer Date of Appointment to Metcash Limited: 18 April 2005. Mr Hale retired as a director on 25 May 2006. Mr Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Mr Bernard Hale has 32 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. BRUCE A HOGAN, AM Non-executive Director Member of the Audit Risk & Compliance Committee Date of Appointment to Metcash Limited: 23 November 2005. Mr Hogan retired as a director of Metcash on 5 December 2006. At the time of his resignation Mr Hogan was 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 and a director of Coles Myer Limited, Adelaide Casino, Funds South Australia, Energy Australia and GIO Australia Limited. 12 Metcash_editorial(cover-20)_draf12 12 19/07/2007 10:23:04 AM MIKE JABLONSKI Group Merchandise Director Date of Appointment to Metcash Limited: 18 April 2005. Mr Jablonski has 35 years experience in the food industry. Previous positions include: 1984 Merchandise Executive – 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 Limited. He is responsible for the Group’s Merchandise, Supplier relationships, and the income derived thereof. EDWIN JANKELOWITZ Finance Director Date of Appointment to Metcash Limited: 18 April 2005. 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 33 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 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. RICHARD A LONGES (Sydney), MBA (NSW) Solicitor (non-practising) Non-executive Director Chairman of the Audit Risk & Compliance Committee Date of Appointment to Metcash Limited: 18 April 2005. Mr Richard Longes has been a director of a number of public companies and a member of various government bodies and inquiries 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. 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. V DUDLEY RUBIN Non-executive Director Member of the Audit Committee Date of Appointment to Metcash Limited: 18 April 2005. Mr Rubin is a chartered accountant and is a director of various companies trading in Africa. He has had 24 years industry experience. MIKE WESSLINK B Sc (Chem Eng) Syd, MBA (UNSW) CEO Australian Liquor Marketers Date of Appointment to Metcash Limited: 18 April 2005. Mr Wesslink retired as a director on 25 May 2006. 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. Below From left: Edwin Jankelowitz, Andrew Reitzer, A E (Ted) Harris, AC, Richard A Longes, Peter L Barnes, Michael R Butler, AM, V Dudley Rubin, Carlos S dos Santos, Lou Jardin, Mike Jablonski. Metcash_editorial(cover-20)_draf13 13 19/07/2007 10:23:07 AM 13 ANDREW REITZER B Comm MBL CEO Metcash Group of Companies Mr Andrew Reitzer has 29 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 Ken Bean has over 36 years experience in the retail wholesale industry. Previously Ken was General Manager of Coles Myer Logistics Pty Ltd and was also responsible for Coles Myer Asia’s buying offices. Ken 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 member of the Logistics Association of Australia and the Australian Logistics Council. FERGUS COLLINS B Comm (Hons) (Dublin), B Sc (Mgmt) (Ireland), MBA (UQ) CEO Australian Liquor Marketers Mr Collins joined ALM in December 2001 as Commercial Manager Qld and was promoted to General Manager Qld in May 2004. He became General Manager, IBA in July 2006. Mr Collins is a member of the Chartered Institute of Management Accountants of the UK and a graduate of the Metcash Executive Leadership Program. Prior to moving to Australia Mr Collins has had extensive retail and distribution experience with Texaco and Fosters in the UK. PETER DUBBELMAN MBA (Melb) CEO Campbells Wholesale Appointed CEO of Campbells Wholesale in June 1998. He has over 23 years experience in fast-moving consumer goods distribution at wholesale, primarily in multi-site general management. Peter has successfully initiated major growth of the wholesale business through the establishment of four distinct divisions each aligned with the specific needs of the convenience, liquor and hospitality markets throughout Australia. BERNARD J HALE B Th (CAN) Chief Information Officer Mr Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Mr Bernard Hale has 32 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. MIKE JABLONSKI Group Merchandise Director Mr Jablonski has 35 years experience in the food industry. Previous positions include: 1984 Merchandise Executive – 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 Limited. He is responsible for the Group’s Merchandise, Supplier relationships, and the income derived thereof. The Executive Team 14 Metcash_editorial(cover-20)_draf14 14 19/07/2007 10:23:11 AM DAVID JOHNSTON M Bus (Employment Relations), AFAHRI, JP Chief Human Resources Officer Mr Johnston joined Metcash in December 2001. He has had 29 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. EDWIN JANKELOWITZ B Comm 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 33 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. Below From left: Andrew Reitzer, Lou Jardin, Fergus Collins, Mike Jablonski, Peter Dubbelman, David Johnston, Ken Bean, Bernard J Hale, Edwin Jankelowitz, John Randall. 15 Metcash_editorial(cover-20)_draf15 15 19/07/2007 10:23:15 AM Five year review Income Statement Net sales Earnings before amortisation, interest and taxation Earnings before interest and taxation Interest, net Operating proﬁ t before tax(a) Balance Sheet AIFRS 2007 $’000 2006 $’000 2005 $’000 AGAAP 2004 $’000 2003 $’000 9,694,772 8,214,375 7,010,374 7,173,897 6,695,519 315,474 294,015 57,217 236,798 196,259 174,000 40,514 133,486 194,530 186,601 1,455 185,146 183,842 163,241 7,590 155,651 152,704 133,549 7,503 126,046 Metcash shareholder equity 1,163,024 1,032,867 4,465 470,155 427,102 Net tangible assets per share (cents) Interest bearing debt to equity (%) 2.76 53 (2.4) 73 (73) 76 36 15 29 29 Share Statistics Fully paid ordinary shares 762,405,655 747,741,353 427,395,233 636,761,358 630,748,848 Weighted average ordinary shares 753,116,068 593,675,382 427,395,233 633,572,081 620,622,370 Earnings per ordinary share (cents)(b) Dividends declared per share (cents) 22.15 17.00 13.67 11.50 29.68 9.50 16.10 11.00 13.10 8.60 Other Statistics Number of employees (full-time equivalents) 5,855 7,033 4,316 4,317 4,202 (a) Earnings after CULS, CUPS and restructure costs in 2006 and 2007 only. (b) Basic earnings per share has been calculated using weighted average number of shares before the effect of dilutive securities (share options). Below: Lucky 7 store, Southbank, QLD. METCASH LIMITED Metcash_editorial(cover-20)_draf16 16 19/07/2007 10:23:18 AM Corporate Governance Statement Metcash Limited ABN 32 112 073 480 The Directors of Metcash Limited (Metcash or Company) support and adhere to the principles of corporate governance set out in the Metcash Corporate Governance Statement. In supporting these principles, the Directors acknowledge the need for the highest standards of behaviour and accountability. Except for the departures explained in this Statement, the Directors believe that the Company’s policies and practices have complied in all substantial respects with corporate governance best practice in Australia, including the ASX Corporate Governance Council Principles of Good Corporate Governance (Principles) introduced in March 2003. The Board The principal functions of the Board include: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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; (cid:129) Corporate Governance generally. The roles of Chairman and Chief Executive Officer are not exercised by the same individual. The Board’s Charter can be found on the Company’s website (www.metcash.com) under the heading ‘Corporate Governance’. Appointment 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 Securities Exchange (ASX) Listing Rules and Corporations Act provisions. Board Composition (ASX Guidelines Principle 2) Maintaining a balance of experience and skills is an important factor in Board composition. 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 is currently constituted as follows: (cid:129) (cid:129) (cid:129) Two Non-executive Directors, including the Chairman, who were representatives of the former majority shareholder. This majority shareholder relationship ceased 2 years ago. 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. Four 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. Four 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. (cid:129) The Board has a majority of Non-executive Directors. The Board of Metcash does not conform to Principle 2, in relation to Board composition in two respects: 1. 2. The Board does not have a majority of Independent Directors; and The Chairman (Carlos dos Santos) has an association with the former majority shareholder as described above. The Deputy Chairman, Mr A E Harris, AC, fills the role of lead Independent Director. Overall, the Board of Metcash believes it has the capability and does bring independent judgement to bear on decision making. In May 2007, 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 (see below). 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. All directors, whether independent or not, bring an independent judgement to bear on Board decisions. www.metcash.com 17 Metcash_editorial(cover-20)_draf17 17 19/07/2007 10:23:29 AM Corporate Governance Statement Metcash Limited ABN 32 112 073 480 The Board’s four Independent Directors, Mr Harris, Mr Barnes, Mr Butler and Mr Longes, are Independent Directors within the definition of independence set out in the Principles. Having regard to the Principles, the four Independent Directors are not 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, AC 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 being less than 0.4% of the Company’s total purchases. Performance Evaluation of the Board and Board Committees Board performance consultants Cameron Ralph Pty Ltd were engaged in May 2007 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. The following summary of their findings is provided by Cameron Ralph. “The Cameron Ralph 2007 review noted the unique context for Metcash as a large wholesale grocery and liquor company operating in Australia. “Cameron Ralph considered materials provided by the Company, interviewed each of the Directors and reviewed board papers and decision processes for several key decisions over the past year. “Cameron Ralph is satisfied that the Board of Metcash (in its current composition) has both people and processes that enable it to act effectively and to apply independent judgement to actions and decisions. “Aspects of the culture and group dynamics which contribute to the Board’s effectiveness include: – – high degree of integrity, courage, and diligence of Non-executive Directors; high level of industry knowledge amongst the Non-executive Directors; – open and vigorous culture; – no inappropriate pressure from the Executive Directors. “The processes which produce this result include properly constituted and well-functioning committees of the Non-executive Directors, effective use of the Deputy Chair, and full access by Non-executives to Company executives. “Cameron Ralph observed that the ability of the Metcash Board to continue to bring independent judgement to bear in decision-making depends on the current composition, culture, systems and processes. Cameron Ralph made some suggestions aimed at maintaining this capacity for independence of judgement into the future.” 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 R A Longes (C) BA, LLB, MBA M R Butler, AM** (from 8 February 2007) B Sc, MBA B Ec (Hons) FAICD B A Hogan, AM* (from 23 November 2005 to 5 December 2006) V Dudley Rubin CA (SA), H Dip BDP, MBA MEETINGS HELD MEETINGS ATTENDED 3 – 3 3 3 – 2 3 (C) Chairman. * Mr Hogan, AM retired from the Metcash Board on 5 December 2006. ** Mr Butler, AM was appointed to the Audit Committee on 8 February 2007 and no meetings of the Committee were held between that date and 30 April 2007. 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. In accordance with the Principles, the Committee consists only of Non-executive Directors, consists of a majority of independent Directors and is chaired by an Independent Director who is not Chairman of the Board. The principal terms of reference of the Audit Risk & Compliance Committee are the effective management of financial and other risks through ensuring that systems and management processes are in place to identify and manage operational, financial and compliance risks. 18 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf18 18 19/07/2007 10:23:33 AM Corporate Governance Statement Metcash Limited ABN 32 112 073 480 Specific areas of review include: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) overseeing the establishment of a framework within which risks to the Company are identified and mitigating or risk avoidance processes are established and monitoring the effectiveness of the risk management process; financial risk and exposure; occupational health and safety; environmental issues; Hazard Analysis and Critical Control Points (HACCP) based food safety program; and (cid:129) integrity of information technology systems. The Board reviews the effectiveness of risk management policies and procedures by: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 Securities 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; (cid:129) 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 Audit Risk & Compliance Committee acts to ensure that operational, financial and compliance risks are managed in accordance with the Board’s risk tolerance. The Committee has obtained assurance regarding the effectiveness of the overall system of risk management through various means. These means have included direct enquiry of management, internal and external audit reports and the monitoring of financial and operational results. The Committee has taken the decision to further strengthen its risk monitoring activities through the establishment of an enterprise-wide Risk Management Framework (RMF). The RMF will implement the Australian Risk Management standard (AS 4360) across Metcash. The RMF will be supported with specialised software. Management will use this software to provide the Committee with timely and relevant reports regarding current and emerging risks and the continuing operation of key controls. It is the Board policy that the lead external audit partner and review partner are each rotated periodically. The Board has adopted a policy in relation to the provision of non-audit services by the Company’s external auditor that is based on the principle that work which may detract from the external auditor’s independence and impartiality, or be perceived as doing so, should not be carried out by the external auditor. Details of the amounts paid to the external auditor for non-audit services performed during the year are set out in the Directors’ Report at page 79. The Company’s external auditor has also confirmed its independence to the Directors in accordance with applicable laws and standards as set out in the Directors’ Report. The Committee’s Charter can be found on the Company’s website (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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 website (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’. www.metcash.com 19 Metcash_editorial(cover-20)_draf19 19 19/07/2007 10:23:34 AM Corporate Governance Statement Metcash Limited ABN 32 112 073 480 The Company also has a Share Trading Policy and a Continuous Disclosure Policy to ensure compliance with the ASX Listing Rules and to ensure accountability at a senior management level for that compliance. Copies of the policies can be found on the Company’s website (www.metcash.com) under the heading ‘Corporate Governance’. The Metcash Share Trading Policy restricts trading of Metcash securities by executives and Directors. Under the policy, no executive or Director may purchase or sell securities in Metcash during the periods between 1 October and the date of publication of preliminary half-year results and 1 April and date of publication of preliminary final results, except with the written authority of the Chairman of Metcash. Such authority will only be granted in exceptional circumstances. The Chairman may restrict dealings in securities of Metcash during other periods. Remuneration & Nomination Committee Members of the Committee, and attendance at meetings, are shown below: In relation to key executives, the Company maintains a performance evaluation process which measures them against previously agreed Key Performances Indicators and Key Behavioural Indicators. This is performed formally once a year with quarterly reviews and took place during the 2007 financial year in accordance with this process. Senior executives have access to continuing education to update and enhance their skills and knowledge. Remuneration Policy The Company remuneration policy can be found on the Metcash Limited website (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 MEETINGS HELD MEETINGS ATTENDED Refer to the ‘Remuneration Report’ contained within the Directors’ Report. Disclosure to Investors The Company has implemented procedures to ensure that it provides relevant and timely information to its shareholders and to the broader investment community in accordance with its obligations under the ASX continuous disclosure regime. In addition to the Company’s obligations to disclose information to the ASX and to distribute information to shareholders, the Company publishes annual and half- year reports, media releases, and other investor relations publications on its website (www.metcash.com). The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and discussion of the Company’s strategy and goals. The external auditor attends the Annual General Meeting to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. MEMBER QUALIFICATIONS A E (Ted) Harris, AC (C) FID, FAIM, FAICD C S dos Santos CA (SA) P L Barnes (C) Chairman. B Comm (Hons), MBA 4 4 4 4 4 4 Responsibilities of the Committee include: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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 and Board Committee appointments, Board succession planning, performance of the CEO; implement processes to assess the effectiveness of the Board and its Committees. The Committee consists only of Non-executive Directors, consists of a majority of Independent Directors and is chaired by an Independent Director who is not Chairman of the Board. The Charter of the Committee can be found on the Company’s website (www.metcash.com) under the heading ‘Corporate Governance’. A formal review of the Board’s effectiveness was undertaken during the year 2007 by Cameron Ralph Pty Ltd (as detailed above). 20 METCASH LIMITED Annual Report 2007 Metcash_editorial(cover-20)_draf20 20 19/07/2007 10:23:34 AM Metcash Limited Financial Report 2007 Directors’ 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 Corporate Directory 22 36 37 38 40 41 82 83 84 86 88 Corporate Information ABN 32 112 073 480 DIRECTORS Carlos S dos Santos (Chairman) A E (Ted) Harris, AC (Deputy Chairman) Andrew Reitzer (CEO) Peter L Barnes Michael R Butler, AM Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim (Lou Jardin) Richard A Longes V Dudley Rubin COMPANY SECRETARY John Randall REGISTERED OFFICE 4 Newington Road Silverwater NSW 2128 Telephone: 61 2 9741 3000 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 Metcash_financials (page 21-88)_21 21 20/07/2007 2:37:56 PM www.metcash.com 21 Directors’ Report Year ended 30 April 2007 Your Directors submit their report for the year ended 30 April 2007. DIRECTORS The names and details of the Company’s Directors in ofﬁ ce during the ﬁ nancial 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) Peter L Barnes Michael R Butler, AM (appointed 8 February 2007) Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim (Lou Jardin) Richard A Longes V Dudley Rubin Bruce A Hogan, AM (resigned 5 December 2006) Bernard J Hale (resigned 25 May 2006) Michael Wesslink (resigned 25 May 2006) Directors were in ofﬁ ce for this entire period unless otherwise stated. COMPANY SECRETARY John Randall For qualiﬁ cations and experience of Directors please refer to ‘the Board’ section of this annual report. For qualiﬁ cations 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: Carlos S dos Santos A E (Ted) Harris, AC Andrew Reitzer Peter L Barnes Michael R Butler, AM Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim Richard A Longes V Dudley Rubin EARNINGS PER SHARE Basic earnings per share Diluted earnings per share 22 METCASH LIMITED Annual Report 2007 Number of ordinary shares Number of options over ordinary shares 54,100 404,695 – – 1,750,000 1,200,000 177,083 50,000 – 520,000 329,986 128,154 15,000 – _ 650,000 650,000 650,000 – – Cents 22.15 21.98 Metcash_financials (page 21-88)_22 22 20/07/2007 2:38:09 PM Directors’ Report Year ended 30 April 2007 DIVIDENDS Dividends paid in the year Interim for the year – on ordinary shares in December 2006 Final for 2007 declared – on ordinary shares CORPORATE INFORMATION Corporate structure $’000 52,398 52,398 76,263 76,263 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 5,855 employees as at 30 April 2007 (2006: 7,033 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 Ofﬁ cer’ 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 proﬁ t from ordinary activities before income tax expense 2007 Revenues $’000 Proﬁ t before tax $’000 5,824,248 1,417,351 2,453,175 9,694,774 66,831 9,761,605 247,318 28,896 28,367 304,581 (67,783) 236,798 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No signiﬁ cant changes in the state of affairs of the Company occurred during the ﬁ nancial period, not otherwise disclosed in the ‘Report from the Chairman and the Chief Executive Ofﬁ cer’. SIGNIFICANT EVENTS AFTER THE BALANCE DATE No signiﬁ cant 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 Ofﬁ cer’ elsewhere in this annual report. Metcash_financials (page 21-88)_23 23 20/07/2007 2:38:10 PM www.metcash.com 23 Directors’ Report Year ended 30 April 2007 DIRECTORS’ MEETINGS 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: MEETINGS OF COMMITTEES Directors’ meetings Remuneration & Nomination Audit Risk & Compliance Number of meetings held: Number of meetings attended: Carlos S dos Santos A E (Ted) Harris, AC Andrew Reitzer Peter L Barnes Michael R Butler, AM** Bernard J Hale ++ Bruce A Hogan, AM* Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim Richard A Longes V Dudley Rubin Michael Wesslink ++ 6 6 6 6 6 1 1 2 6 6 6 5 6 1 4 4 4 – 4 – – – – – – – – – 3 – – – – – – 2 – – – 3 3 – * Bruce Hogan, AM retired from the Metcash Board on 5 December 2006. ** Michael Butler, AM was appointed to the Metcash Board on 8 February 2007. ++ Bernard Hale and Michael Wesslink retired from the Metcash Board on 25 May 2006. All Directors were eligible to attend all meetings held, except for Bruce A Hogan, AM, who was eligible to attend four Directors’ meetings and Michael R Butler, AM, Bernard J Hale and Michael Wesslink who were eligible to attend one Directors’ 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 R A Longes (C) M R Butler, AM* B A Hogan, AM* V Dudley Rubin Remuneration & Nomination A E (Ted) Harris, AC (C) P L Barnes C S dos Santos (C) Designates the chairman of the committee. * M R Butler, AM replaced B A Hogan, AM on the Audit Risk & Compliance Committee. For details of the committees, their charters and current membership, please refer to the section ‘Corporate Governance Statement’. 24 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_24 24 20/07/2007 2:38:10 PM Directors’ Report Year ended 30 April 2007 Indemniﬁ cation and insurance of directors and ofﬁ cers (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 Ofﬁ cers. 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, Sir Leo Heilscher, B A Hogan and M Wesslink together with all of the current Directors and certain other ofﬁ cers of the Company. This indemnity is against any liability to third parties (other than related Metcash companies), by such ofﬁ cers unless the liability arises out of conduct involving a lack of good faith. The indemnity also includes costs or expenses incurred by an ofﬁ cer in unsuccessfully defending proceedings relating to that person’s position. (ii) During the ﬁ nancial year, the Company has paid, or agreed to pay, a premium in respect of a contract of insurance insuring ofﬁ cers (and any persons who are ofﬁ cers 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. SHAREHOLDER RETURNS The ongoing performance of the Group has ensured that returns to shareholders, through both dividends and capital growth, has continued. AIFRS AGAAP 2007 2006 2005 2004 2003 23.23 22.94 22.15 17.00 13.00 15.20 5.24 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 16.10 18.86 16.10 11.00 9.60 22.70 2.05 13.10 16.19 13.10 8.60 7.00 21.10 2.19 Earnings per share before CULS, CUPS and restructure costs in 2006 and 2007 Earnings per share before goodwill/ intangible amortisation Basic earnings per share Dividends declared per share Dividends paid per share Return on equity Share price (30 April) ROUNDING The amounts contained in this report and in the ﬁ nancial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under Australian Securities and Investment Commission (ASIC) Class Order 98/0100. The Company is an entity to which the Class Order applies. TAX CONSOLIDATION Metcash Limited has formed a tax consolidation group including its 100% owned Australian 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 modiﬁ ed stand alone 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 is committed to being a responsible member of the communities in which we live and work. We endeavour to achieve high standards of workplace health and safety, fair and equitable conditions of employment, environmental protection and product safety by striving to always conduct our business in a safe, environmentally sustainable and socially responsible manner. The establishment and ongoing implementation of a HSEC Governance Standards Framework that provides guidance, policy and principles on what constitutes acceptable levels of performance for HSEC in Metcash allows us to implement and maintain HSEC objectives and targets, and provide necessary resources to support these objectives at each relevant function and level within the organisation. Through developing measurable objectives consistent with our HSEC values we aim to demonstrate best practice HSEC leadership in all matters pertaining to HSEC and promote individual responsibility for HSEC by all employees. This year has provided us with the ongoing opportunity to work with our employees, government, industry, and the public in support of regulations and programs that promote HSEC excellence. We have continued to share our knowledge through open communication with our employees and work with our external stakeholders and business partners to support best practice HSEC practices among our customers, suppliers, contractors and communities. www.metcash.com 25 Metcash_financials (page 21-88)_25 25 20/07/2007 2:38:11 PM Directors’ Report Year ended 30 April 2007 Our people Employee well-being – Metcash Pro-Fit We have continued to enhance our employee health and well-being initiatives including some new innovative programs for employees with children. Metcash recognises that school holidays are demanding on parents as they juggle work obligations and childcare responsibilities therefore we have partnered with YMCA to offer ‘Camp Metcash’. This tailored and subsidised 5 day vacation care program will be offered twice annually at all major Metcash sites for the children of Metcash employees. Parents bring their children to the Metcash site each morning from where they depart for a day of fun and educational activities such as museums, wildlife parks, sporting activities and outdoor adventures. In alignment with our Core Values and as part of our commitment for supporting community and social concerns, Metcash has also introduced Charity Leave for all full-time Metcash employees. We offer one additional paid leave day to provide volunteer assistance to the charity of the employee’s choice. In addition we have launched a new Compressed Working Week policy for eligible employees in recognition of the need to offer more ﬂ exible work arrangements to balance the demands of a high performance organisation. This concept enables employees to reallocate their working hours by commencing earlier or ﬁ nishing later during the week in return for working one 5 hour day. Further enhancements include an increase to paid parental leave provisions to 8 weeks and new health education training programs focusing this year on Stress Management. Other Pro-Fit programs such as annual health checks and ﬂ u vaccinations, counselling services, purchased leave, well-being days, ﬂ exible start and ﬁ nish times and family days continue to be embraced enthusiastically by employees and are a key feature of our employee attraction and retention strategies. Employee 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. The completion of the former FAL employee integration has been a major focus over the past 12 months. Alignment of all critical human resources processes such as performance management, remuneration and employee development programs have been completed. Indicators to date show that these efforts are having a tangible contribution to the performance of the business. Metcash continues to offer a range of reward and recognition programs aligned to key business outcomes and our Core Values for all employees. We have signiﬁ cantly increased the number of employees eligible for performance-based incentive payments this year. Employee development Metcash continues to review and improve employee development and talent management programs to ensure alignment with short and long-term business requirements. The Diploma of Business (Frontline Management) has recently been launched with 58 employees enrolled in the ﬁ rst year. The inclusion of the Diploma ensures that we offer a full range of management development programs from supervisory to executive levels. As part of our commitment to employee development, Metcash continues to have a preference for internal promotion with 34% of all vacancies ﬁ lled by internal Metcash employees. We have also encouraged more employees to look at interstate career opportunities by offering enhanced relocation packages and incentives as part of the ‘Sea-Change’ program. While still offering traditional classroom training, the use of e-learning continues to grow and develop. The Fraud Awareness e-learning program, launched this year, has had over 1,200 employees complete the course to date. Metcash encourages employees to continue their personal and professional development through formal education at either undergraduate or postgraduate levels. Through a company sponsorship scheme, eligible employees receive a reimbursement towards course fees on the successful completion of each unit of study. Safety Commitment and strategy The ongoing implementation of the HSEC Governance Standards Framework to provide guidance, policy and principles on what constitutes acceptable levels of performance for HSEC, alongside well developed OH&S assurance management systems and a reporting portfolio of well deﬁ ned performance targets and measurements, have greatly assisted to realise continuous improvement in safety performance. The 5 year OH&S strategy implemented in 2004 continues to deliver consistently favourable results in safety and workers compensation performance, amounting to improved safety conditions for employees and signiﬁ cant ﬁ nancial gains for the business. Risk and hazard management initiatives Initiatives introduced this year continue to enforce a zero tolerance to manual handling and mobile plant incidents, Metcash’s key safety risk focus areas. A rigorous compliance driven strategy has also delivered measured improved results in OH&S internal procedural compliance across the business. 26 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_26 26 20/07/2007 2:38:11 PM Directors’ Report Year ended 30 April 2007 Performance results, management evaluation and review Metcash continues to deliver a strong performance in OH&S and workers compensation. The annual statistics include the former FAL warehouses and Action retail stores. Although there has been an increase in the number of hours worked in 2007, the increase in the number of lost time injuries and hours lost also reﬂ ects a higher standard of reporting in the Action stores after the implementation of the Metcash reporting standards and OH&S procedures. What is pleasing to note is that Metcash’s lost time frequency rate (LTIFR), severity and duration rates have decreased from last year. Even with the challenges experienced in aligning the FAL business with existing Metcash OH&S systems, Metcash has achieved a cumulative reduction of the LTIFR rate from the past 2 years of 58% company wide. The Company has also experienced signiﬁ cant insurance premium reductions in some states and a national reduction of the number of claims and associated costs as a result of proactive and consistent claims performance and effective in-house injury management initiatives. A reduction in back injuries also indicates successful targeting of manual handling injury prevention through proactive strategies and initiatives in this risk area. Lead indicators such as employee consultation meetings and hazard inspections also continue to consistently improve upon last year’s performance to assure focus on preventing accidents before they occur. Statistic Percentage change from previous year Lost time incident frequency rate (LTIFR) Number of lost time injuries Number of hours lost Severity rate Duration rate Number of workers’ compensation claims Number of hazard inspections Number of employee consultation safety meetings Number of safety regulatory non-compliances/ improvement notices Our places of work (cid:118) (cid:117) (cid:117) (cid:118) (cid:118) 22% decrease 33% increase 36% increase 30% decrease 10% decrease (cid:118) 21% decrease (cid:117) 58% increase (cid:117) 185% increase (cid:118) 71% decrease The Company has also put in place 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 Company is implementing improved processes to enable the accurate measurement of water and energy consumption. Strategies and targets are being developed to reduce the usage of water and power and increase the rate of water recovery. Energy saving initiatives are being designed into new building works. Formal Proposals on Carbon Credit Schemes are being assessed to enable Metcash to meet the proposed national carbon trading scheme options planned for introduction in 2010. Metcash (in conjunction with the Company’s retailer customers) has been engaged in a number of strategies to help the environment including work being carried out over previous years to recover, recycle, re-use and or reduce excessive packaging in goods under National Packaging Covenant responsibilities. Other work done in conjunction with Clean Up Australia has supported education campaigns to help the retail grocery industry achieve a national 50% reduction in the consumption of plastic carry checkout bags. Dangerous goods Formal data management and action programs are in place. Chain of responsibility In November 2006, Metcash along with major retailers and transport providers agreed to jointly adopt a Code of Conduct for managing and monitoring supply chain transport safety requirements for long distance and heavy vehicle drivers. Training systems and audits have been developed to meet these industry agreed objectives and will be introduced over the next 12 months to all sites. Third party audits will commence from mid 2007. 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. Metcash_financials (page 21-88)_27 27 20/07/2007 2:38:12 PM www.metcash.com 27 Directors’ Report Year ended 30 April 2007 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. Food safety standards Metcash sites continue to implement best practice Hazard Analysis and Critical Control Points (HACCP) based Food Safety Programs. The relevant staff at warehouses and corporately operated retail stores previously owned by FAL have been trained and HACCP-based food safety systems and procedures implemented. 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 Ofﬁ cer (CEO) and the senior executive team. The principal responsibilities of the Committee (which are available on the Company’s website) 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 beneﬁ t 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 Non-executive 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. 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. 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 beneﬁ t was paid to Non-executive Directors for past service. The beneﬁ ts were in accordance with Section 8.3(h) and (i) of the Company’s Constitution and Section 200 of the Corporations Law. The retirement beneﬁ t scheme was discontinued as at the date of the 2005 Annual General Meeting and accrued beneﬁ ts (as shown below) were frozen at that time. Directors’ fees were increased based on independent advice to reﬂ ect the cessation of this beneﬁ t. 28 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_28 28 20/07/2007 2:38:12 PM Directors’ Report Year ended 30 April 2007 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: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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. Advisers The Chief Executive Ofﬁ cer and the Chief Human Resources Ofﬁ cer have assisted the Committee in its deliberations during the year. In addition, independent advisers 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 Ofﬁ cer. They are unlimited in term but capable of termination on 15 months notice in the case of the Chief Executive Ofﬁ cer and 9 months notice in the case of executives who are direct reports to the Chief Executive Ofﬁ cer. 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 ﬁ xed remuneration (base salary plus superannuation) is payable to the Chief Executive Ofﬁ cer and 6 months further payment to executives who are direct reports to the Chief Executive Ofﬁ cer. The Chief Executive Ofﬁ cer and executives who are direct reports to the Chief Executive Ofﬁ cer, 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 ﬁ rst is the ﬁ xed or base component, which is made up of base salary and superannuation beneﬁ ts. 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. Fixed remuneration Base salary and beneﬁ ts 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 beneﬁ ts Superannuation beneﬁ ts are delivered in accordance with the Federal Government’s Superannuation Guarantee Levy, which currently sits at 9% of ﬁ xed remuneration to a maximum of $159,009 p.a. and for amounts above that at a ﬂ at $13,129 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, 75% of short-term income is at risk. The components of the at risk remuneration are as follows: (cid:129) Executive management bonus scheme (short-term incentive). This is a scheme catering for different levels of management responsibility and delivers a maximum of 25% or 50% of fixed remuneration subject to achievement of pre-determined KPIs relating to Business Pillar and/or Group financial and individual performance. Metcash_financials (page 21-88)_29 29 20/07/2007 2:38:13 PM www.metcash.com 29 Directors’ Report Year ended 30 April 2007 (cid:129) (cid:129) (cid:129) (cid:129) Synergy Gains Incentive Plan (medium-term incentive). This plan has a fixed life and delivers a maximum of 50% per year of fixed remuneration subject to achievement of specific and pre-determined synergies associated with the FAL integration over 2 years, the 2006 and 2007 financial years. Bonus payments are made 1 year after the determination of each year’s synergy earnings. This plan concluded at the end of the 2007 financial year. 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’. A long-term retention payment of $5,000,000 to the Chief Executive Officer and $2,000,000 to each of the Finance Director, Group Merchandise Director, Chief Executive Officer 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 2010 and if the executive is still employed by the Company at that time. A long-term retention payment of $1,000,000 to each of the Chief Executive Officer Campbells Wholesale, Chief Executive Officer Group Logistics and Corporate Development, Chief Executive Officer ALM and the Chief Human Resources Officer subject to achievement of specific hurdles over a 5 year period (a compounding 10% increase in earnings per share based on 2007 earnings per share adjusted for material changes to the number of shares issued) and only payable on successful achievement of the hurdles in 2012 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 inﬂ uences. 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 ﬁ nancial 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 veriﬁ es that the hurdle has been achieved with conﬁ rmation obtained from the Company’s external auditor. Performance hurdles have not been applied to options issued in the past to the key management executives as they do not have the ability to inﬂ uence 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. However, should there be any future issue of share options, the use of hurdles will be considered for key management executives. 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. At risk remuneration and Company performance The ‘at risk’ remuneration, with the short-term focus on sales and proﬁ t and the long-term segment inﬂ uenced by earnings per share and share price, has contributed to the growth in the shareholder returns as identiﬁ ed in another part of the Directors’ Report. 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 Ofﬁ cer John Randall General Manager Finance and Company Secretary Peter L Barnes Non-executive Director David Johnston Chief Human Resources Ofﬁ cer Fergus Collins CEO Australian Liquor Marketers (appointed 19 February 2007) Michael R Butler, AM Non-executive Director (appointed 8 February 2007) Mike Jablonski Group Merchandise Director Edwin M Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-executive Director V Dudley Rubin Non-executive Director Bernard J Hale Chief Information Ofﬁ cer (resigned as director 25 May 2006) Bruce A Hogan, AM Non-executive Director (resigned as director 5 December 2006) Mike Wesslink CEO Australian Liquor Marketers (resigned 16 February 2007) (resigned as director 25 May 2006) 30 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_30 30 20/07/2007 2:38:13 PM Directors’ Report Year ended 30 April 2007 Compensation of Key Management Personnel* Compensation of Key Management Personnel for the year ended 30 April 2007* Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Butler, AM A Reitzer M Jablonski E Jankelowitz L Jardin Executives K Bean B Hale J Randall P Dubbelman D Johnston M Wesslink F Collins*2 SHORT-TERM POST EMPLOYMENT Salary and fees Bonus Non-monetary beneﬁ ts Superannuation TERMINATION BENEFITS Termination beneﬁ ts SHARE-BASED PAYMENTS Options granted TOTAL PERFORMANCE RELATED (%) TOTAL 216,760 182,140 125,000 110,000 110,000 51,649 – – – – – – – – 1,352,764 1,087,769 572,413 601,317 566,354 394,647 411,142 343,729 405,727 355,440 275,381 437,253 441,498 447,388 359,045 365,153 347,100 335,754 284,943 144,064 – – – – – – – 3,269 23,000 – 23,000 – – – 23,000 – – 263,564 128,333 6,338,027 4,378,300 14,000 86,269 12,687 – 11,250 9,900 9,900 – 47,709 105,113 12,687 12,687 18,746 104,687 96,687 97,271 43,691 40,837 60,769 12,687 – – – – – – – – – – – – – – – – – – – – – – – 371,186 201,059 201,059 201,059 75,216 440,371 75,216 75,216 75,216 229,447 182,140 136,250 119,900 119,900 51,649 47,709 2,920,101 1,246,412 1,256,561 1,256,547 933,595 1,313,353 863,316 883,388 756,436 724,193*1 – 1,204,407 – 28,207 446,791 697,308 724,193 1,743,805 13,967,902 – – – – – – – 49.96% 51.21% 51.14% 51.61% 46.51% 61.33% 48.92% 46.52% 47.61% – 35.04% 43.83% *1 The payment represents a termination payment (per the executive’s service contract) and normal statutory entitlements. *2 Compensation for the whole year. Compensation of Key Management Personnel for the year ended 30 April 2006* Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany SHORT-TERM POST EMPLOYMENT Salary and fees Bonus Non-monetary beneﬁ ts Superannuation TERMINATION BENEFITS Termination beneﬁ ts SHARE-BASED PAYMENTS Options granted TOTAL PERFORMANCE RELATED (%) TOTAL 252,887 190,211 166,399 123,899 115,568 72,709 1,287,932 544,003 387,507 572,626 431,489 537,944 393,414 326,276 386,362 338,559 314,192 – – – – – – 531,200 289,571 241,823 292,383 216,095 289,571 237,778 210,000 224,961 188,703 175,000 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 1,002,767 821,926 994,332 760,138 676,996 721,879 613,106 542,623 1,304,919 11,337,473 – – – – – – 35.47 41.76 55.65 41.68 41.57 41.76 37.46 37.96 37.67 38.44 35.50 37.06 * The disclosures marked with an asterisk have been included within the Remuneration Report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. www.metcash.com 31 Metcash_financials (page 21-88)_31 31 20/07/2007 2:38:14 PM Directors’ Report Year ended 30 April 2007 Options exercised as part of remuneration for the year ended 30 April 2007* Value of options exercised during the year A Reitzer M Jablonski E Jankelowitz L Jardin K Bean M Wesslink B Hale J Randall P Dubbelman D Johnston F Collins 1,133,560 556,631 559,657 270,560 266,560 1,251,200 – – 271,360 244,160 4,771 There were no options issued to Executive Directors during the ﬁ nancial year. Options granted as part of remuneration for the year ended 30 April 2006* A Reitzer M Jablonski Grant date Grant number 1 Sep 2005 1,200,000 1 Sep 2005 650,000 E Jankelowitz 1 Sep 2005 650,000 L Jardin K Bean M Wesslink B Hale J Randall 1 Sep 2005 650,000 1 Sep 2005 400,000 1 Sep 2005 650,000 1 Sep 2005 650,000 1 Sep 2005 400,000 P Dubbelman 1 Sep 2005 400,000 D Johnston G Tempany 1 Sep 2005 400,000 1 Sep 2005 150,000 Value per option at grant date Value of options granted during the year Value of options exercised during the year Total value of options granted and exercised during the period Remuneration consisting of options for the year % 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 1,085,960 2,609,960 825,500 1,621,120 2,446,620 825,500 1,653,420 2,478,920 825,500 1,485,720 2,311,220 520,000 1,433,300 1,953,300 825,500 552,860 1,378,360 825,500 – 825,500 520,000 216,296 736,296 520,000 1,063,040 1,583,040 520,000 610,080 1,130,080 195,000 91,152 286,152 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 asterisk have been included within the Remuneration Report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. 32 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_32 32 20/07/2007 2:38:15 PM Directors’ Report Year ended 30 April 2007 Compensation options: granted and vested for the year ended 30 April 2006* TERMS AND CONDITIONS FOR EACH GRANT Vested number Granted number Grant date 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 30 April 2006 Directors A Reitzer M Jablonski B Hale 340,000 1,200,000 1 Sep 05 170,000 650,000 1 Sep 05 – 650,000 1 Sep 05 E Jankelowitz 170,000 650,000 1 Sep 05 M Wesslink L Jardin Executives 220,000 650,000 1 Sep 05 200,000 650,000 1 Sep 05 P Dubbelman 80,000 400,000 1 Sep 05 K Bean D Johnston J Randall G Tempany 80,000 400,000 1 Sep 05 80,000 400,000 1 Sep 05 32,000 400,000 1 Sep 05 12,000 150,000 1 Sep 05 1,384,000 6,200,000 Details of bonus provided for in year ended 30 April 2007* Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Butler, AM A Reitzer M Jablonski E Jankelowitz L Jardin Executives K Bean J Randall P Dubbelman M Wesslink B Hale D Johnston F Collins 1.27 1.27 1.27 1.27 1.27 1.27 1.30 1.30 1.30 1.30 1.30 4.01 4.01 4.01 4.01 4.01 4.01 1 Sep 11 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 11 1 Sep 11 1 Sep 08 1 Sep 11 3.925 1 Sep 11 1 Sep 08 1 Sep 11 3.925 1 Sep 11 1 Sep 08 1 Sep 11 3.925 1 Sep 11 1 Sep 08 1 Sep 11 3.925 1 Sep 11 1 Sep 08 1 Sep 11 3.925 1 Sep 11 1 Sep 08 1 Sep 11 Potential bonus Bonus payable Bonus forfeited – – – – – – – – – – – – – – 1,439,229 1,087,769 598,979 604,794 598,979 491,844 434,385 465,332 213,695 500,211 390,333 145,126 437,253 441,498 447,388 359,045 347,100 335,754 144,064 365,153 284,942 128,333 – – – – – – – 351,460 161,726 163,296 151,591 132,799 87,285 129,578 69,631 135,058 105,391 16,793 All bonuses for the year ended 30 April 2007 were paid either in December 2006, April 2007 or June 2007. * The disclosures marked with an asterisk have been included within the Remuneration Report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. Metcash_financials (page 21-88)_33 33 20/07/2007 2:38:15 PM www.metcash.com 33 Directors’ Report Year ended 30 April 2007 Details of bonus provided for in year ended 30 April 2006* Potential bonus Bonus payable Bonus forfeited Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Wesslink B Hale A Reitzer M Jablonski E Jankelowitz L Jardin Executives K Bean J Randall P Dubbelman D Johnston G Tempany – – – – – – 240,105 241,823 650,000 289,571 292,383 289,571 237,778 210,000 224,961 188,703 175,000 – – – – – – 216,096 241,823 531,200 289,571 292,383 289,571 237,778 210,000 224,961 188,703 175,000 – – – – – – 24,009 – 118,800 – – – – – – – – All bonuses for the year ended 30 April 2006 were paid in either December 2005, June 2006 or July 2006. Compensation by category* Short-term Post employment Other long-term Termination beneﬁ ts Share-based payments Total METCASH GROUP 2007 $ 10,802,596 697,308 – 724,193 1,743,805 13,967,902 2006 $ 9,427,063 605,492 – – 1,304,919 11,337,474 * The disclosures marked with an asterisk have been included within the Remuneration Report and audited in accordance with the exemption under Corporation Amendments Regulations 2006. SHARE OPTIONS Unissued shares As at the date of this report, there were 16,782,131 unissued ordinary shares under option (18,007,840 at the reporting date). Refer to note 15 of the ﬁ nancial statements for further details of the options outstanding. Shares issued as a result of options During the ﬁ nancial year, employees and executives have exercised options to acquire 3,187,636 fully paid ordinary shares in Metcash Limited at a weighted average exercise price of $1.25. Since the end of the ﬁ nancial year, a further 384,997 options have been exercised, at a weighted average exercise price of $1.28. 34 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_34 34 20/07/2007 2:38:16 PM Directors’ Report Year ended 30 April 2007 CEO AND CFO DECLARATION The Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer have provided a declaration which states: (a) With regard to the integrity of the ﬁ nancial report of Metcash Limited for the period ended 30 April 2007: (i) the ﬁ nancial statements and associated notes comply in all material respects with the accounting standards as required by Section 296 of the Corporations Act 2001; (ii) the ﬁ nancial statements and associated notes give a true and fair view, in all material respects, of the ﬁ nancial position as at 30 April 2007 and performance of the Company for the period then ended as required by section 297 of the Corporations Act 2001; (iii) 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 ﬁ nancial records and systems of risk management and internal compliance and control of Metcash Limited for the period ended 30 April 2007: (i) the ﬁ nancial records of the Company have been properly maintained in accordance with section 286 of the Corporations Act 2001; (ii) the statements made in (a) above regarding the integrity of the ﬁ nancial 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; (iii) the risk management and internal compliance and control systems of the Company relating to ﬁ nancial reporting, compliance and operations objectives are operating efﬁ ciently and effectively, in all material respects; (iv) subsequent to 30 April 2007, 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 2007 has been received and is included on page 83 of the ﬁ nancial report. NON-AUDIT SERVICES The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisﬁ ed 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 is due to receive the following amounts for the provision of non-audit services: Tax compliance Assurance-related $866,000 $88,000 Signed in accordance with a resolution of the Directors. Andrew Reitzer Director Sydney, 19 July 2007 Metcash_financials (page 21-88)_35 35 20/07/2007 2:38:16 PM www.metcash.com 35 Income Statement For the Year ended 30 April 2007 Revenue Cost of sales Gross profit Distribution costs Administrative costs Share of proﬁ t of associates 11 Restructure costs Finance costs CULS redemption premium CULS issue costs CUPS redemption premium Other ﬁ nance costs Profit before income tax Income tax expense Net profit for period 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 4 5 27 27 6 METCASH GROUP METCASH LIMITED Notes 4 2007 $’000 2006 $’000 2007 $’000 9,761,605 8,251,646 178,418 (8,744,049) (7,406,154) 1,017,556 (425,583) (284,781) 4,261 (9,970) – – – (64,685) 236,798 (70,003) 166,795 845,492 (368,468) (254,856) 3,356 (17,267) (20,940) (6,003) (2,557) (45,271) 133,486 (52,308) 81,178 Period ending 2006 $’000 31,008 – 31,008 – – 178,418 – (4,287) (3,260) – – – – – – – – – – – – 174,131 – 174,131 27,748 – 27,748 166,795 81,178 174,131 27,748 22.15 21.98 17.00 13.67 13.52 11.50 – – – – – – 36 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_36 36 20/07/2007 2:38:17 PM Balance Sheet As at 30 April 2007 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Assets classiﬁ ed as held for sale Total current assets Non-current assets Receivables Investments in associates Other ﬁ nancial 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 classiﬁ ed as held for sale Total current liabilities Non-current liabilities Interest bearing loans and borrowings 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 2007 $’000 2006 $’000 2007 $’000 2006 $’000 7 8 9 28 10 11 12 13 5 14 16 17 18 28 17 5 18 19 19 19 19 141,873 969,641 595,145 5,402 220,199 865,883 524,903 4,334 – – 437,203 265,090 – – – – 1,712,061 1,615,319 437,203 265,090 206 168,778 – – 1,712,267 1,784,097 437,203 265,090 23,001 77,716 182 119,562 51,568 1,142,695 1,414,724 3,126,991 8,019 50,171 227 127,495 36,592 1,149,632 1,372,136 3,156,233 – – – – 2,242,229 2,242,229 – – – – – – 2,242,229 2,679,432 2,242,229 2,507,319 1,169,539 1,173,947 5,467 43,607 60,588 5,810 17,984 33,081 1,279,201 1,230,822 – 50,027 1,279,201 1,280,849 605,731 10,686 68,349 684,766 1,963,967 1,163,024 751,299 10,623 80,595 842,517 2,123,366 1,032,867 – – 43,872 – 43,872 – 43,872 – – – – – – 8,525 – 8,525 – 8,525 – – – – 43,872 8,525 2,635,560 2,498,794 1,880,111 1,823,895 2,551,734 2,495,518 (765,923) (765,923) 17,214 31,622 12,200 (37,305) – 7,563 76,263 – 3,276 – 1,163,024 1,032,867 2,635,560 2,498,794 www.metcash.com 37 Metcash_financials (page 21-88)_37 37 20/07/2007 2:38:17 PM Statement of Changes in Equity Year ended 30 April 2007 l a t o T y t i u q e 0 0 0 $ ’ 0 0 0 $ ’ e v r e s e r n o i t a l s n a r t y c n e r r u c n g i e r o F l a t i p a C e v r e s e r 0 0 0 $ ’ 0 0 0 $ ’ d e n i a t e R s g n i n r a e 0 0 0 $ ’ s t n e m y a p d e s a b - e r a h S r e h t O y t i u q e 0 0 0 $ ’ y t i u q e 0 0 0 $ ’ d e t u b i r t n o C P U O R G H S A C T E M 7 6 8 , 2 3 0 , 1 ) 1 6 0 , 4 ( 7 7 7 , 2 1 ) 5 0 3 , 7 3 ( 4 8 4 , 3 ) 3 2 9 , 5 6 7 ( 5 9 8 , 3 2 8 , 1 d o i r e p l i a c n a n ﬁ e h t f o i g n n n g e b i 6 0 0 2 l i r p A 0 3 t A e h t t a y t i u q e l a t o T 7 2 7 7 2 7 5 9 7 , 6 6 1 2 2 5 , 7 6 1 8 9 9 , 3 8 1 2 , 2 5 7 8 2 , 4 ) 8 6 8 , 7 9 ( 7 2 7 7 2 7 – 7 2 7 – – – – – – – – – – – – – – – – – 5 9 7 , 6 6 1 5 9 7 , 6 6 1 – – – – – – 7 8 2 , 4 ) 8 6 8 , 7 9 ( – – – – – – – – – – – – – – – 8 9 9 , 3 8 1 2 , 2 5 y t i u q e n i y l t c e r i d d e s i n g o c e r ) s e s n e p x e ( / e m o c n i t e N s e c n e r e f f i d n o i t a l s n a r t y c n e r r u C d o i r e p e h t r o f t ﬁ o r P d o i r e p e h t r o f s e s n e p x e d n a e m o c n i i d e s n g o c e r l a t o T t n e m y a p d e s a b - e r a h s f o t s o C l a t i p a c e r a h s f o e u s s I s n o i t p o f o e s i c r e x E 7 0 0 2 l i r p A 0 3 t A d n e d i v i D 4 2 0 , 3 6 1 , 1 ) 4 3 3 , 3 ( 7 7 7 , 2 1 2 2 6 , 1 3 1 7 7 , 7 ) 3 2 9 , 5 6 7 ( 1 1 1 , 0 8 8 , 1 d o i r e p l i a c n a n ﬁ e h t f o d n e e h t t a y t i u q e l a t o T 5 6 4 , 4 ) 3 2 2 , 5 ( – 8 7 1 , 1 8 5 5 9 , 5 7 1 0 2 , 6 0 6 2 , 3 8 1 7 , 0 7 9 ) 2 3 7 , 7 2 ( 2 6 1 , 1 ) 3 2 2 , 5 ( – – ) 3 2 2 , 5 ( – – – – 7 7 7 , 2 1 ) 1 5 7 , 0 9 ( 4 2 2 ) 3 2 9 , 5 6 7 ( 6 7 9 , 6 4 8 d o i r e p l i a c n a n ﬁ e h t f o i g n n n g e b i 5 0 0 2 l i r p A 0 3 t A e h t t a y t i u q e l a t o T – – – – – – – – – – 8 7 1 , 1 8 8 7 1 , 1 8 – – – – – – – – – 0 6 2 , 3 ) 2 3 7 , 7 2 ( – – – – – – – – – – – – – – – 1 0 2 , 6 8 1 7 , 0 7 9 d o i r e p e h t r o f s e s n e p x e d n a e m o c n i i d e s n g o c e r l a t o T y l t c e r i d d e s i n g o c e r ) s e s n e p x e ( / e m o c n i t e N s e c n e r e f f i d n o i t a l s n a r t y c n e r r u C d o i r e p e h t r o f t ﬁ o r P y t i u q e n i t n e m y a p d e s a b - e r a h s f o t s o C l a t i p a c e r a h s f o e u s s I s n o i t p o f o e s i c r e x E 6 0 0 2 l i r p A 0 3 t A s d n e d i v i D 7 6 8 , 2 3 0 , 1 ) 1 6 0 , 4 ( 7 7 7 , 2 1 ) 5 0 3 , 7 3 ( 4 8 4 , 3 ) 3 2 9 , 5 6 7 ( 5 9 8 , 3 2 8 , 1 d o i r e p l i a c n a n ﬁ e h t f o d n e e h t t a y t i u q e l a t o T 38 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_38 38 20/07/2007 2:38:18 PM Statement of Changes in Equity Year ended 30 April 2007 METCASH LIMITED Contributed equity $’000 Share-based payments $’000 Retained earnings $’000 Total equity $’000 At 1 May 2006 Total equity at the beginning of the ﬁ nancial period 2,495,518 3,276 Currency translation differences Net income/(expenses) recognised directly in equity Proﬁ t for the period Total recognised income/expense for the period Exercise of options Issue of share capital Cost of share-based payment Dividends At 30 April 2007 – – – – 3,998 52,218 – – – – – – – – 4,287 – – – – 174,131 174,131 – – – 2,498,794 – – 174,131 174,131 3,998 52,218 4,287 (97,868) (97,868) Total equity at the end of the ﬁ nancial period 2,551,734 7,563 76,263 2,635,560 At 1 May 2005 Total equity at the beginning of the ﬁ nancial period 1,335,608 16 (16) 1,335,608 Currency translation differences Net income/(expenses) recognised directly in equity Proﬁ t for the period Total recognised income/expense for the period Exercise of options Issue of share capital Conversion of CULS Cost of share-based payment Dividends At 30 April 2006 – – – – 6,201 970,718 182,991 – – – – – – – – – 3,260 – – – 27,748 27,748 – – – – – – 27,748 27,748 6,201 970,718 182,991 3,260 (27,732) (27,732) Total equity at the end of the ﬁ nancial period 2,495,518 3,276 – 2,498,794 Metcash_financials (page 21-88)_39 39 20/07/2007 2:38:19 PM www.metcash.com 39 Cash Flow Statement Year ended 30 April 2007 METCASH GROUP METCASH LIMITED Notes 2007 $’000 2006 $’000 2007 $’000 Period ending 2006 $’000 Cash from operating activities: Receipts from customers 11,365,612 9,479,154 Payments to suppliers and employees (10,967,894) (9,012,845) (51,927) (77,523) (117,450) (109,654) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 41,652 (2,949) – – – – – – 56,399 37,584 – – – – – – – – – – – – (183) (97,868) (41,652) (6,903) (27,732) 2,949 – – – – – – – – 1,971 (60,303) 7,468 177,477 11,622 – – 55,549 (97) (40,124) (24,949) – (31,992) (29,358) 1,322 (58,027) 56,399 – – – 781 (41,997) 4,757 242,673 2,297 20 380 – (55,679) (50,264) (45,990) – – – 59 34,324 (401,913) (52,557) 565,000 (150,000) (150,000) – (6,854) (183) (97,868) (198,506) (79,056) 220,199 730 141,873 (11,000) (9,011) (7,449) (27,732) (60,338) 33,158 189,607 (2,566) 220,199 (149,177) 41,652 (2,949) Income taxes paid GST paid Dividends received Borrowing costs Interest received Total cash from operating activities 7 Cash flows from investing activities: Proceeds from sale of plant and equipment Proceeds from sale of investment Proceeds from sale of businesses Net proceeds from assets classiﬁ ed as held for sale Payment on acquisition of businesses Purchase of property, plant and equipment Payment on acquisition of associates Loan (to)/from other entities Loan to associates Loan (to)/from other entities Proceeds from repayments of non-current receivables 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 ﬁ nancing facilities Payment of ﬁ nance 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 40 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_40 40 20/07/2007 2:38:19 PM Notes to the Financial Statements Year ended 30 April 2007 1 CORPORATE INFORMATION The ﬁ nancial report of Metcash Limited (the Company) for the year ended 30 April 2007 was authorised for issue in accordance with a resolution of the Directors on 19 July 2007. Metcash Limited and its controlled entities (the Group), is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities 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 ﬁ nancial report is a general purpose ﬁ nancial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The ﬁ nancial report has been prepared using the historical cost basis, except for available for sale investments, which have been measured at fair value. The ﬁ nancial 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) Statement of compliance The ﬁ nancial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the ﬁ nancial report, comprising the ﬁ nancial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (a) Changes in accounting policy Since 1 May 2006 the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on or after 1 May 2006. Adoption of these Standards and Interpretations did not have any effect on the ﬁ nancial position or performance of the Group. (cid:129) AASB 2007-10 Amendments to Australian Accounting Standards (AASB 4, 1023, 132 and 139) (b) Standards issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 April 2007. These are outlined in the table below: Reference Title Summary Application date of Standard* Impact on Group ﬁ nancial report Application date for Group* 1 January 2007 AASB 7 is a disclosure 1 May 2007 Amendments arise from the release in August 2005 of AASB 7 Financial Instruments: Disclosures. standard so will have no direct impact on the amounts included in the Group’s ﬁ nancial statements. However, the amendments will result in changes to the ﬁ nancial instrument disclosures included in the Group’s ﬁ nancial report. This is consistent with the Group’s existing accounting policies for share-based payments so will have no impact. 1 May 2007 Amending standard issued as a consequence of AASB Interpretation 11 Interim Financial Reporting and Impairment. 1 March 2007 AASB 2005-10 AASB 2007-1 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038] Amendments to Australian Accounting Standards arising from AASB Interpretation 11 [AASB 2] Metcash_financials (page 21-88)_41 41 20/07/2007 2:38:20 PM www.metcash.com 41 Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Reference Title Summary AASB 2007-2 AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB Interpretation 12 [AASB 1, AASB 117, AASB 118, AASB 120, AASB 121, AASB 127, AASB 131 & AASB 139] Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] AASB 7 AASB 8 Financial Instruments: Disclosures Operating Segments AASB Interpretation 10 Interim Financial Reporting and Impairment AASB Interpretation 11 Group and Treasury Share Transactions AASB Interpretation 12 Service Concession Arrangements Amending standard issued as a consequence of AASB Interpretation 12 Service Concession Arrangements. Amending standard issued as a consequence of AASB 8 Operating Segments. Application date of Standard* Impact on Group ﬁ nancial report Application date for Group* 1 January 2007 As the Group currently 1 May 2007 has no service concession arrangements or public- private-partnerships (PPP), it is expected that this Interpretation will have no impact on its ﬁ nancial report. 1 January 2009 AASB 8 is a disclosure 1 May 2009 standard so will have no direct impact on the amounts included in the Group’s ﬁ nancial statements. However, the new standard is expected to have an impact on the Group’s segment disclosures as segment information based on management reports are more detailed than those currently reported under AASB 114. New standard replacing disclosure requirements of AASB 132. This new standard will replace AASB 114 Segment Reporting and adopts a management approach to segment reporting. Addresses an inconsistency between AASB 134 Interim Financial Reporting and the impairment requirements relating to goodwill in AASB 136 Impairment of Assets and equity instruments classiﬁ ed as available for sale in AASB 139 Financial Instruments: Recognition and Measurement. Speciﬁ es that a share-based payment transaction in which an entity receives services as consideration for its own equity instruments shall be accounted for as equity-settled. Clariﬁ es how operators recognise the infrastructure as a ﬁ nancial asset and/or an intangible asset – not as property, plant and equipment. 1 January 2007 Refer to AASB 2005-10 above. 1 May 2007 1 January 2009 Refer to AASB 2007-3 above. 1 May 2009 1 November 2006 1 May 2007 The prohibitions on reversing impairment losses in AASB 136 and AASB 139 to take precedence over the more general statement in AASB 134 is not expected to have any impact on the Group’s ﬁ nancial report. 1 March 2007 Refer to AASB 2007-1 above. 1 May 2007 1 January 2007 Refer to AASB 2007-2 above. 1 May 2007 * Designates the beginning of the applicable annual reporting period. 42 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_42 42 20/07/2007 2:38:20 PM Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (iii) Basis of consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial statements of Metcash Limited and its subsidiaries as at 30 April 2007. The ﬁ nancial 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 ﬁ nancial statements all intercompany balances and transactions have been eliminated in full. (iv) Reverse acquisition In accordance with AASB 3 Business Combinations, in 2005 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. The consolidated ﬁ nancial statements are issued under the name of the legal parent (Metcash Limited) but are a continuation of the ﬁ nancial statements of the deemed acquirer under the reverse acquisition rules (Metcash Trading Limited). (v) Signiﬁ cant accounting judgements, estimates and assumptions (i) Signiﬁ cant 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 signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements: Contractual customer relationships Identifying those relationships with customers that meet the deﬁ nition of separately identiﬁ able intangibles that have a ﬁ nite life. (ii) Signiﬁ cant 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 signiﬁ cant 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. 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. (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 ﬁ nancial report are taken to proﬁ t or loss. Translation of ﬁ nancial reports of overseas operations The functional currency of the overseas subsidiaries is as follows: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 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. Metcash_financials (page 21-88)_43 43 20/07/2007 2:38:21 PM www.metcash.com 43 Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 deﬁ ned 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 ﬁ nancial 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 classiﬁ ed 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 ﬁ nancial markets, fair value is determined by reference to securities exchange quoted market bid prices at the close of business on the balance sheet date. (x) Investment in associates The Group’s investments in its associates are accounted for under the equity method of accounting in the consolidated ﬁ nancial statements. These are the entities in which the Group has signiﬁ cant inﬂ uence and which are neither subsidiaries nor joint ventures. The ﬁ nancial 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 reﬂ ects 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: 2007 2006 50 years 50 years 5-15 years 5-15 years 44 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_44 44 20/07/2007 2:38:21 PM Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment 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 inﬂ ows, 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 ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c 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 beneﬁ ts 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. (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 inﬂ ows 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 ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. (xiv) Leases Leases are classiﬁ ed at their inception as either operating or ﬁ nance leases based on the economic substance of the agreement so as to reﬂ ect the risks and beneﬁ ts 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 beneﬁ ts 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 beneﬁ ts of the leased asset are classiﬁ ed 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 beneﬁ ts 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 ﬁ nance 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. Metcash_financials (page 21-88)_45 45 20/07/2007 2:38:22 PM www.metcash.com 45 Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 identiﬁ able 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 beneﬁ t 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. (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 ﬁ nite or indeﬁ nite. Where amortisation is charged on assets with ﬁ nite lives, this expense is taken to the proﬁ t 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 proﬁ ts 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 speciﬁ ed in AASB 138 Intangible Assets have been met. Contractual customer relationships are assessed to have a ﬁ nite 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 ﬁ nite intangible assets are as follows: (cid:129) (cid:129) 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 ﬁ nancial 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 beneﬁ ts (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary beneﬁ ts, 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. 46 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_46 46 20/07/2007 2:38:22 PM Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁ ts 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 outﬂ ows. (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 proﬁ t or loss when the liabilities are de-recognised. (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 outﬂ ow of resources embodying economic beneﬁ ts 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 reﬂ ects the risks speciﬁ c 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 beneﬁ ts 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 beneﬁ ts 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 fulﬁ lled, 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 reﬂ ects (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. Where the terms of an equity-settled award are modiﬁ ed, as a minimum an expense is recognised as if the terms had not been modiﬁ ed. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modiﬁ cation, as measured at the date of modiﬁ cation. 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 modiﬁ cation of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reﬂ ected as additional share dilution in the computation of earnings per share. Metcash_financials (page 21-88)_47 47 20/07/2007 2:38:23 PM www.metcash.com 47 Notes to the Financial Statements Year ended 30 April 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (xxii) Revenue recognition Revenue is recognised to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the entity and the revenue can be reliably measured. The following speciﬁ c recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the signiﬁ cant 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. Interest Revenue is recognised as the interest is earned. 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 ﬁ nancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: (cid:129) (cid:129) 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 proﬁ t 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 proﬁ t will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: (cid:129) (cid:129) 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 proﬁ t 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 proﬁ t 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 sufﬁ cient taxable proﬁ t 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. 48 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_48 48 20/07/2007 2:38:23 PM Notes to the Financial Statements Year ended 30 April 2007 (xxiv) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: (cid:129) (cid:129) 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 ﬂ ows are included in the Cash Flow Statement on a gross basis and the GST component of cash ﬂ ows arising from investing and ﬁ nancing activities, which is recoverable from, or payable to, the taxation authority is classiﬁ ed as operating cash ﬂ ow. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (xxv) Earnings per share Basic earnings per share is calculated as net proﬁ t 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 proﬁ t attributable to members of the parent, adjusted for: (cid:129) (cid:129) (cid:129) (cid:129) 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 classiﬁ ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as deduction, net of tax, from the proceeds. (xxvii) Assets classiﬁ ed as held for sale A non-current asset classiﬁ ed as held for sale at its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets classiﬁ ed 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. (xxviii) Borrowing costs Borrowing costs are recognised as an expense when incurred. (xxix) Comparatives Where necessary, comparatives have been reclassiﬁ ed 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. Metcash_financials (page 21-88)_49 49 20/07/2007 2:38:24 PM www.metcash.com 49 Notes to the Financial Statements Year ended 30 April 2007 3 SEGMENT INFORMATION (continued) 0 0 0 $ ’ 6 0 0 2 l i r p A 0 0 0 $ ’ 7 0 0 2 l i r p A 0 0 0 $ ’ 6 0 0 2 l i r p A 0 0 0 $ ’ 7 0 0 2 l i r p A 0 0 0 $ ’ 6 0 0 2 l i r p A 0 0 0 $ ’ 7 0 0 2 l i r p A 0 0 0 $ ’ 6 0 0 2 l i r p A 0 0 0 $ ’ 7 0 0 2 l i r p A 0 0 0 $ ’ 6 0 0 2 l i r p A 0 0 0 $ ’ 7 0 0 2 l i r p A D E T A D I L O S N O C S N O I T A N M I L E I N O I T U B I R T S I D R O U Q I L N O I T U B I R T S I D Y R R A C D N A H S A C N O I T U B I R T S I D D O O F S T N E M G E S S S E N I S U B 5 7 3 , 4 1 2 , 8 4 7 7 , 4 9 6 , 9 – – 2 7 6 , 7 0 4 , 2 5 7 1 , 3 5 4 , 2 8 3 4 , 7 4 1 , 1 1 5 3 , 7 1 4 , 1 5 6 2 , 9 5 6 , 4 8 4 2 , 4 2 8 , 5 y t i t n e d e t a d i l o s n o c 1 7 2 , 7 3 1 3 8 , 6 6 – – – – – – ) 8 5 4 , 9 3 8 ( ) 2 2 7 , 3 4 0 , 1 ( 3 8 3 , 4 1 1 1 2 2 , 2 0 1 – 4 2 5 – – 1 5 5 , 4 2 7 1 0 5 , 1 4 9 s e u n e v e r t n e m g e s - r e t n I – – e u n e v e r d e t a c o l l a n U 6 4 6 , 1 5 2 , 8 5 0 6 , 1 6 7 , 9 ) 8 5 4 , 9 3 8 ( ) 2 2 7 , 3 4 0 , 1 ( 5 5 0 , 2 2 5 , 2 6 9 3 , 5 5 5 , 2 2 6 9 , 7 4 1 , 1 1 5 3 , 7 1 4 , 1 6 1 8 , 3 8 3 , 5 9 4 7 , 5 6 7 , 6 e u n e v e r t n e m g e s l a t o T e u n e v e R t n e m g e S s r e m o t s u c o t l s e a S e h t e d i s t u o ) 9 6 2 , 4 9 ( ) 3 8 7 , 7 6 ( 5 5 7 , 7 2 2 1 8 5 , 4 0 3 – 6 8 4 , 3 3 1 8 9 7 , 6 3 2 3 8 0 , 2 6 6 , 1 2 6 1 , 9 6 7 , 1 – 0 5 1 , 4 9 4 , 1 9 2 8 , 7 5 3 , 1 3 3 2 , 6 5 1 , 3 1 9 9 , 6 2 1 , 3 1 0 9 , 3 2 1 , 1 2 3 2 , 2 0 0 , 1 6 6 3 , 3 2 1 , 2 7 6 9 , 3 6 9 , 1 5 6 4 , 9 9 9 5 3 7 , 1 6 9 – 6 6 1 , 4 1 1 3 1 , 7 3 7 7 , 3 9 2 5 , 3 1 4 3 2 , 1 1 4 1 6 , 3 8 7 1 , 2 5 0 5 , 8 – – – – – – – – – – – 1 1 7 , 0 3 7 6 3 , 8 2 5 3 2 , 1 2 6 9 8 , 8 2 8 0 8 , 5 7 1 8 1 3 , 7 4 2 t l u s e r t n e m g e S i y r a n d r o m o r f t ﬁ o r p e r o f e b s e i t i v i t c a e s n e p x e x a t e m o c n i y t i t n e d e t a d i l o s n o C t l u s e r d e t a c o l l a n U 4 1 4 , 9 8 4 1 1 4 , 8 9 4 3 5 7 , 9 9 1 0 5 8 , 1 2 2 6 1 9 , 2 7 9 1 0 9 , 8 4 0 , 1 s t e s s A t n e m g e S s t e s s A d e t a c o l l a n U s t e s s A l a t o T 0 8 0 , 1 0 3 6 4 0 , 7 0 3 6 4 6 , 4 8 8 3 0 , 5 1 1 9 3 7 , 3 1 6 1 5 6 , 9 3 5 s e i t i l i b a L i t n e m g e S s e i t i l i b a L i d e t a c o l l a n U s e i t i l i b a L i l a t o T 9 1 5 , 7 3 9 2 , 2 9 5 7 8 8 2 , 1 3 3 2 , 3 9 9 6 8 9 1 , 4 2 7 5 , 2 7 2 2 , 1 0 7 3 , 6 0 3 2 , 3 1 3 1 , 1 9 4 4 , 2 6 6 2 , 2 7 8 7 , 1 1 7 8 , 5 1 7 7 , 4 4 8 7 , 1 4 8 5 , 1 8 3 0 , 1 0 6 2 7 9 8 , 1 4 3 3 0 7 5 , 5 t n e m p u q e i d n a t n a p l , y t r e p o r p f o n o i t i s i u q c A s t e s s a i l e b g n a t n i d n a s e s n e p x e h s a c - n o N i n o i t a c e r p e d n a h t r e h t o i n o i t a c e r p e D n o i t a s i t r o m A . e t o n t n e m g e s e h t f o n o i t r o p d e t a c o l l a n u e h t n i d e d u c n l i e r a y n a p m o c i g n d o h l e h t f o s e i t i l i b a i l d n a s t e s s a , s e s n e p x e , e u n e v e r e h T . a i l a r t s u A n i l d e h e r a y n a p m o c i g n d o h l e h t f o s e i t i l i b a i l d n a s t e s s a l l A 50 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_50 50 20/07/2007 2:38:24 PM Notes to the Financial Statements Year ended 30 April 2007 4 REVENUE AND EXPENSES (a) Revenue Sale of goods Rent Interest from other person/corporation Dividend income Other revenue METCASH GROUP METCASH LIMITED 2007 $’000 2006 $’000 2007 $’000 2006 $’000 9,694,772 8,214,375 52,344 7,468 – 7,021 29,127 4,757 – 3,387 – – – 178,418 – 9,761,605 8,251,646 178,418 – – – 31,008 – 31,008 (b) Other income (included in other revenue) Net proﬁ t from disposal of property, plant and equipment 5,020 – (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) Operating lease rental Minimum lease payments (e) Employee benefits expense Wages and salaries Deﬁ ned contribution plan expense Workers’ compensation costs Share-based payments Other employee beneﬁ ts costs (f) Other finance costs Interest expense 29,117 15,519 – 5,940 2,265 14,025 34,445 19,359 624 2,900 2,424 11,225 93,580 93,530 370,712 37,293 6,919 4,287 10,608 322,084 29,838 10,128 3,260 6,167 64,685 45,271 – – – – – – – – – – – – – – – – – – – – – – 4,287 3,260 – – – – Metcash_financials (page 21-88)_51 51 20/07/2007 2:38:25 PM www.metcash.com 51 Notes to the Financial Statements Year ended 30 April 2007 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 proﬁ t before income tax multiplied by the Group’s applicable income tax rate is as follows: METCASH GROUP METCASH LIMITED 2007 $’000 2006 $’000 2007 $’000 2006 $’000 69,172 66,413 (4,107) 1,181 4,938 70,003 (15,286) 52,308 – – – – – – – – Accounting proﬁ t before income tax 236,798 133,486 174,131 27,748 At the Group’s statutory income tax rate of 30% (2006: 30%) Expenditure not allowable for income tax purposes Income not assessable for income tax purposes Adjustment in respect of current income tax of previous years Other 71,039 3,380 – (4,107) (309) 40,046 11,898 – – 364 Income tax expense reported in the consolidated income statement at an effective tax rate of 30% (2006: 39%) 70,003 52,308 52,239 1,286 (53,525) – – – 8,324 978 (9,302) – – – 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 Project costs Other Deferred tax income BALANCE SHEET INCOME STATEMENT 2007 $’000 2006 $’000 2007 $’000 2006 $’000 3,143 7,543 10,686 35,175 2,175 14,218 – 51,568 2,688 7,935 10,623 34,417 2,175 – – 36,592 (455) 392 – 758 – (5,633) – – (1,156) 8,877 – 11,051 (339) – (3,147) – (4,938) 15,286 At 30 April 2007, there is no recognised or unrecognised deferred income tax liability (2006: $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. 52 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_52 52 20/07/2007 2:38:25 PM Notes to the Financial Statements Year ended 30 April 2007 5 INCOME TAX (continued) Tax consolidation Metcash Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 18 November 2005. Metcash Limited is the head entity of the tax consolidated group. 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 modiﬁ ed stand alone 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 2007 has not been ﬁ nalised. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their modiﬁ ed stand alone tax calculation 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. The allocation of tax expense 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. The group has applied the modiﬁ ed 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 2007 $’000 43,872 2006 $’000 8,525 Metcash_financials (page 21-88)_53 53 20/07/2007 2:38:26 PM www.metcash.com 53 Notes to the Financial Statements Year ended 30 April 2007 6 DIVIDENDS PAID (a) Dividends paid on ordinary shares during the year (i) Final franked dividend for 2006: 6.0c (2005: nil) (ii) Interim franked dividend for 2007: 7.0c (2006: 5.5c) Dividends declared (not recognised as a liability as at 30 April 2007) METCASH GROUP METCASH LIMITED 2007 $’000 45,470 52,398 97,868 2006 $’000 – 27,732 27,732 2007 $’000 45,470 52,398 97,868 2006 $’000 – 27,732 27,732 Franked dividends for 2007: 10.0c per share (2006: 6.0c) 76,263 45,470 76,263 45,470 (b) Franking credit balance The amount of franking credits available for the subsequent ﬁ nancial year are: – franking account balance as at the end of the ﬁ nancial year at 30% (2006: 30%) – franking credits that will arise from the payment of income tax payable as at the end of the ﬁ nancial 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% (2006: 30%). Dividends declared have been franked at the rate of 30% (2006: 30%). 146,752 154,722 15,956 8,252 (32,684) 130,024 (19,228) 143,746 54 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_54 54 20/07/2007 2:38:26 PM Notes to the Financial Statements Year ended 30 April 2007 7 CASH AND CASH EQUIVALENTS Cash at bank and on hand Reconciliation of net proﬁ t after tax to net cash ﬂ ows from operations Net proﬁ t Adjustments for: Depreciation Amortisation Net (proﬁ t)/loss on disposal of property, plant and equipment Share of associates’ net proﬁ t 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 – Securitised(i) Trade receivables – Non-securitised(ii) Allowance for doubtful debts Other receivables(iii) Related party receivables:(iv) wholly owned subsidiaries METCASH GROUP METCASH LIMITED 2007 $’000 141,873 141,873 2006 $’000 220,199 220,199 2007 $’000 – – 2006 $’000 – – 166,795 81,178 174,131 27,748 29,117 21,459 (1,820) (4,261) 1,971 – (4,703) (847) (60,069) (16,917) 46,752 – 177,477 687,060 166,355 (6,770) 846,645 122,996 34,445 22,259 624 (3,356) 781 – – – – – – – – – – – – – (89,634) (174,131) (27,748) 6,315 65,421 8,582 129,623 (13,565) 242,673 – 788,935 (5,023) 783,912 81,971 – – – – – – – – – – – – – – – – – – – – – – – – 969,641 865,883 437,203 437,203 265,090 265,090 (i) The economic entity has securitised certain trade receivables from 5 April 2007 by way of granting an equitable interest over those receivables to a special purpose trust managed by a major Australian bank. The terms of the securitisation require, as added security, that at any time the book value of the securitised receivables must exceed by at least a certain proportional amount, the funds provided by the trust to the economic entity as a consequence of securitisation. At the end of the ﬁ nancial year (refer to note 17iii) trade receivables of $687,060,000 (2006: $nil) had been securitised as disclosed above, with $150,000,000 (2006: $nil) of funds received. The resultant security margin exceeded the minimum required at that date. (ii) Trade receivables are non-interest bearing and terms vary by business unit. At 30 April 2007, 87.88% of trade receivables are required to be settled within 30 days and 12.12% 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 $2,265,000 (Company: $nil) has been recognised as an expense in the current year for speciﬁ c 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 ﬂ ows expected to be received from the relevant debtors. (iii) Other receivables are non-interest bearing and have repayment terms of less than 12 months. (iv) For terms and conditions relating to related party payables refer to note 23. Metcash_financials (page 21-88)_55 55 20/07/2007 2:38:27 PM www.metcash.com 55 Notes to the Financial Statements Year ended 30 April 2007 9 INVENTORIES Finished goods (at net realisable value) Total inventories at the lower of cost and net realisable value METCASH GROUP METCASH LIMITED 2007 $’000 2006 $’000 595,145 524,903 595,145 524,903 2007 $’000 – – Inventory write-downs recognised as an expense totalled $14,025,000 (2006: $11,225,000) for the Group and $nil (2006: $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 21,213 1,788 23,001 4,909 3,110 8,019 – – – (i) Loans receivable are non-current and have repayment terms of greater than 12 months. $3,854,000 (2006: $2,128,000) of loans are non-interest bearing. $17,356,000 (2006: $2,781,000) of loans have annual interest of 8.68% (2006: 8.00%). (ii) Other receivables are non-interest bearing and have repayment terms greater than 12 months. 11 INVESTMENTS IN ASSOCIATES METCASH GROUP METCASH LIMITED 2006 $’000 – – – – – Investments in associates Interest in associates 2007 $’000 77,716 77,716 2006 $’000 50,171 50,171 Principal activities Balance date Produce Traders Trust Distribution of fruit and vegetables Abacus Retail Property Trust Retail property investment Ritchies Stores Pty Ltd Grocery retailing Champions IGA Dramet Cocos Adcome Pty Ltd Metfoods Grocery retailing Grocery retailing Grocery retailing Grocery retailing Negotiate to reduce costs for Metcash and Foodstuffs 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Apr 2007 $’000 – – 2006 $’000 – – OWNERSHIP INTEREST 2007 % 2006 % 40 25 26 25 26 26 40 50 40 25 26 25 26 – – – 56 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_56 56 20/07/2007 2:38:27 PM Notes to the Financial Statements Year ended 30 April 2007 11 INVESTMENTS IN ASSOCIATES (continued) The following table illustrates summarised ﬁ nancial information relating to the Group’s investment in associates. Share of associates’ proﬁ t: METCASH GROUP Proﬁ t/(loss) before income tax Income tax expense Proﬁ t after income tax Share of associates’ balance sheet: Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net Assets 2007 $’000 6,087 (1,826) 4,261 19,436 52,943 72,379 (41,378) (12,753) (54,131) 18,248 2006 $’000 4,796 (1,440) 3,356 18,369 44,230 62,599 (31,764) (12,554) (44,318) 18,281 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) Investment in shares (unlisted) Investments in controlled entities METCASH GROUP METCASH LIMITED 2007 $’000 182 – 182 2006 $’000 227 – 227 2007 $’000 – 2006 $’000 – 2,242,229 2,242,229 2,242,229 2,242,229 Metcash_financials (page 21-88)_57 57 20/07/2007 2:38:28 PM www.metcash.com 57 Notes to the Financial Statements Year ended 30 April 2007 13 PROPERTY, PLANT AND EQUIPMENT Year ended 30 April 2007 At 1 May 2006, net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year At 30 April 2007, net of accumulated depreciation and impairment At 1 May 2006 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2007 Cost or fair value Accumulated depreciation and impairment Net carrying amount 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 METCASH GROUP METCASH LIMITED Land and buildings $’000 Plant and equipment $’000 Total $’000 Land and buildings $’000 Plant and equipment $’000 Total $’000 47,129 1,672 (677) 80,366 23,882 (3,693) 127,495 25,554 (4,370) (2,635) (26,482) (29,117) 45,489 74,073 119,562 51,138 134,753 185,891 (4,009) 47,129 (54,387) (58,396) 80,366 127,495 52,133 154,942 207,075 (6,644) 45,489 (80,869) 74,073 (87,513) 119,562 27,092 2,779 (4,370) 49,922 41,709 (4,796) 77,014 44,488 (9,166) (23,139) (77,010) (100,149) 46,610 (1,843) 103,143 149,753 (32,602) (34,445) 47,129 80,366 127,495 29,765 69,811 99,576 (2,673) 27,092 (19,889) (22,562) 49,922 77,014 51,138 134,753 185,891 (4,009) 47,129 (54,387) (58,396) 80,366 127,495 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – The carrying value of plant and equipment held under ﬁ nance leases and hire purchase contracts at 30 April 2007 is $17,571,000 (2006: $21,109,000). 58 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_58 58 20/07/2007 2:38:28 PM Notes to the Financial Statements Year ended 30 April 2007 14 INTANGIBLE ASSETS AND GOODWILL METCASH GROUP METCASH LIMITED Software development costs Customer contracts Goodwill Total Total At 1 May 2006 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 April 2007 At 1 May 2006, net of accumulated amortisation and impairment Additions/disposals Amortisation At 30 April 2007, net of accumulated amortisation and impairment At 30 April 2007 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount At 1 May 2005 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 – – – – – 104,646 (66,170) 38,476 148,000 966,056 1,218,702 (2,900) – (69,070) 145,100 966,056 1,149,632 38,476 14,570 (15,519) (5,940) 145,100 966,056 1,149,632 (48) – 14,522 (21,459) 37,527 139,160 966,008 1,142,695 148,000 966,008 1,233,224 (8,840) – (90,529) 139,160 966,008 1,142,695 – 274,041 (46,811) 326,100 – 148,000 (19,359) (2,900) – – (9,000) 274,041 16,857 684,158 – 326,100 22,633 832,158 (22,259) (9,000) 38,476 145,100 966,056 1,149,632 104,646 (66,170) 38,476 148,000 966,056 1,218,702 (2,900) – (69,070) 145,100 966,056 1,149,632 119,216 (81,689) 37,527 (46,811) 52,059 52,059 5,776 – – – – – – – – – – – – – – – – – – – – – Metcash_financials (page 21-88)_59 59 20/07/2007 2:38:29 PM www.metcash.com 59 Notes to the Financial Statements Year ended 30 April 2007 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 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. Speciﬁ cally the MEEM approach adjusts the earnings stream and cash ﬂ ows 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 beneﬁ t. 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 ﬂ ow 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 expectation for future performance. Forecast attrition rates – Attrition rates 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 customer relationships of $148 million with a ﬁ nite life and amortised over 25 years, straight line. Amortisation of $5.9 million has been charged to the proﬁ t and loss (in the administrative costs line) in the current ﬁ nancial year. Intangibles – software development costs Development costs have been capitalised at cost and are amortised using the straight-line method over the asset’s useful economic life which has been assessed as 5 years. Software development costs are tested for impairment where indicator of impairment exists. Useful lives are also estimated on an annual basis and adjustments, where applicable, are made on a prospective basis. Goodwill Goodwill acquired through business combinations have been allocated to the three business pillars (IGA>D, CW and ALM), which are reportable segments. In IGA>D these are further allocated by states. Under AIFRS, goodwill and intangibles with indeﬁ nite lives have to be tested annually, provided the testing is done at the same time each year. Management has elected to conduct the impairment testing 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 53,780 41,066 147,382 45,278 544,696 30,878 85,461 60 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_60 60 20/07/2007 2:38:30 PM Notes to the Financial Statements Year ended 30 April 2007 14 INTANGIBLE ASSETS AND GOODWILL (continued) The recoverable amount of the CGUs have been determined based on a value in use calculation using cash ﬂ ow projections based on ﬁ nancial projections approved by senior management covering a 5-year period. The discount rate applied to cash ﬂ ow projections is 8.3% and cash ﬂ ows 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% 5.4% 2.9% 4.8% These growth rates are based on the historical population and applicable food and liquor inﬂ ation growth rates for each CGU. The following describes the key assumptions on which management has based its cash ﬂ ow 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, increased for expected efﬁ ciency improvements. Risk free rate based on current Commonwealth Government 10 year bond rate at the date of the impairment test. Future growth driven by population growth, food inﬂ ation and changes in market share. 15 SHARE-BASED PAYMENTS Share-based payment plans During the year no options were issued to Executive Directors. There was a general share option issue to a number of employees who joined the Group as part of the FAL acquisition. These options were issued on the same basis and price as the general share option issue in the prior year. There are no performance hurdles associated with these options. The following table illustrates the number and exercise prices and movements during the year ended 30 April 2007 and 30 April 2006: 2007 Number 2007 Exercise price 2006 Number 2006 Exercise price Outstanding at the beginning of the year 21,518,292 Granted during the year Reinstated during the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year – 19,844 855,853 (117,760) – (11,800) – (680,000) (2,345,276) (32,800) (1,198,513) 18,007,840 – – various 3.925 0.161 – 0.161 – 1.385 1.268 1.87 various 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 – 0.44 0.161 0.161 1.385 1.268 1.87 various – Metcash_financials (page 21-88)_61 61 20/07/2007 2:38:30 PM www.metcash.com 61 Notes to the Financial Statements Year ended 30 April 2007 15 SHARE-BASED PAYMENTS (continued) The outstanding balance as at 30 April 2007 is represented by: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 4,000 options over ordinary shares with an exercise price of $0.161 exercisable until 25 November 2006. 2,018,238 options over ordinary shares with an exercise price of $1.268 exercisable until 25 January 2008. 105,300 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. 10,580,302 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 $1.30 for the general staff issue. The fair value of the equity-settled share options granted is estimated at the date of the grant using a binomial model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model in the year ending 30 April 2006 and 30 April 2007: Dividend yield (%) Expected volatility (%) Risk free rate (%) Expected life of options (years) Option exercise price ($) Weighted average share price ($) 2007 $ 3.91 37.80 5.47 6.00 3.92 4.01 4.00 2006 $ 3.91 37.80 5.47 6.00 3.92 4.01 4.00 62 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_62 62 20/07/2007 2:38:31 PM Notes to the Financial Statements Year ended 30 April 2007 16 TRADE AND OTHER PAYABLES (CURRENT) Trade payables(i) Other payables(i) METCASH GROUP METCASH LIMITED 2007 $’000 916,979 252,560 2006 $’000 911,072 262,875 1,169,539 1,173,947 2007 $’000 – – – 2006 $’000 – – – (i) Trade and other payables are non-interest bearing and are normally settled within 30-day terms. 17 INTEREST BEARING LOANS AND BORROWINGS Current Secured liabilities Finance lease obligation(i) Non-current Finance lease obligation(ii) Bank loans(ii) Debt securitisation(iii) METCASH GROUP METCASH LIMITED 2007 $’000 2006 $’000 2007 $’000 2006 $’000 5,467 5,467 14,129 441,602 150,000 605,731 5,810 5,810 16,771 734,528 – 751,299 – – – – – – – – – – – – (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 7.78% (2006: 7.22%). 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 securitisation ﬁ nance has no ﬁ nite term and is not expected to be repaid in the ordinary course of business in the coming ﬁ nancial year. The securitisation facility may be terminated by the trust manager at short notice in the event of an act of default, which includes the insolvency of any of the individual companies securitising trade receivables, failure of the economic entity to remit funds when due, or a substantial deterioration in the overdue proportion of the eligible receivables. Metcash_financials (page 21-88)_63 63 20/07/2007 2:38:31 PM www.metcash.com 63 Notes to the Financial Statements Year ended 30 April 2007 18 PROVISIONS 1 May 2006 Arising during the year Utilised 30 April 2007 METCASH GROUP Rental subsidy $’000 53,362 – (12,098) 41,264 Lease and remediation $’000 1,287 – (1,141) 146 Other $’000 1,532 700 (1,531) 701 Total $’000 56,181 700 (14,770) 42,111 Other provisions contain a number of insigniﬁ cant balances, the costs of which are expected to be incurred within the next ﬁ nancial year. Current Employee entitlements Lease and remediation Other Non-current Employee entitlements Rental subsidy Lease and remediation Total METCASH GROUP METCASH LIMITED 2007 $’000 59,741 146 701 60,588 27,085 41,264 – 68,349 128,937 2006 $’000 30,653 896 1,532 33,081 26,842 53,362 391 80,595 113,676 2007 $’000 2006 $’000 – – – – – – – – – – – – – – – – – – 19 CONTRIBUTED EQUITY AND RESERVES (a) Ordinary shares: Issued and fully paid METCASH GROUP METCASH LIMITED 2007 2006 2007 2006 1,880,111 1,880,111 1,823,895 1,823,895 2,551,734 2,551,734 2,495,518 2,495,518 64 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_64 64 20/07/2007 2:38:31 PM Notes to the Financial Statements Year ended 30 April 2007 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 – METCASH GROUP 2007 Number of shares $’000 2006 Number of shares $’000 747,741,353 1,823,895 427,395,233 846,976 11,476,666 52,218 6,521,085 27,734 129,560 ordinary shares at 16.1 cents per share 129,560 – Exercise of employee options – nil ordinary shares at 44 cents per share – Exercise of employee options – – 21 – 877,600 1,200 2,345,276 ordinary shares at 126.8 cents per share 2,345,276 2,974 3,157,346 – Exercise of employee options – 680,000 ordinary shares at 138.6 cents per share 680,000 942 1,700,000 – Exercise of employee options – 32,800 ordinary shares at 187 cents per share 32,800 141 1 4,004 2,356 88 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: Dividend Reinvestment Plan – Exercise of employee options – 61 – – – 46,800 234,444,195 949,499 73,597,894 – – (6,904) 762,405,655 1,880,111 747,741,353 1,823,895 METCASH LIMITED 2007 Number of shares $’000 2006 Number of shares $’000 747,741,353 2,495,518 427,395,233 1,335,608 11,476,666 52,218 6,521,085 27,734 129,560 ordinary shares at 16.1 cents per share 129,560 – Exercise of employee options – nil ordinary shares at 44 cents per share – Exercise of employee options – – 21 – 877,600 1,200 2,345,276 ordinary shares at 126.8 cents per share 2,345,276 2,974 3,157,346 – Exercise of employee options – 680,000 ordinary shares at 138.6 cents per share 680,000 942 1,700,000 – Exercise of employee options – 32,800 ordinary shares at 187 cents per share 32,800 141 1 4,004 2,356 88 949,499 186,937 (10,850) 61 – – – 46,800 234,444,195 73,597,894 – FAL Share allotment – Conversion of CULS – Transaction costs At 30 April 762,405,655 2,551,734 747,741,353 2,495,518 (a) Fully paid ordinary shares carry one vote per share and carry the right to dividends. Metcash_financials (page 21-88)_65 65 20/07/2007 2:38:32 PM www.metcash.com 65 – – – – – – Notes to the Financial Statements Year ended 30 April 2007 19 CONTRIBUTED EQUITY AND RESERVES (continued) Reserves METCASH GROUP METCASH LIMITED Share-based payments $’000 224 – 3,260 3,484 – 4,287 7,771 At 1 May 2005 Currency translation differences Share-based payments At 30 April 2006 Currency translation differences Share-based payments At 30 April 2007 Nature and purpose of reserves Capital proﬁ ts reserve Capital reserves $’000 12,777 Foreign currency translation $’000 Total $’000 Share-based payments $’000 1,162 14,163 – – (5,223) – (5,223) 3,260 12,777 (4,061) 12,200 – – 727 – 727 4,287 12,777 (3,334) 17,214 Total $‘000 16 – 3,260 3,276 – 4,287 7,563 16 – 3,260 3,276 – 4,287 7,563 The capital proﬁ ts reserve is used to accumulate realised capital proﬁ ts. 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 beneﬁ ts 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 ﬁ nancial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Retained earnings At 1 May Proﬁ t/(loss) for the period Dividends At 30 April Other equity At 1 May Reverse acquisition At 30 April Nature and purpose METCASH GROUP METCASH LIMITED 2007 $’000 (37,305) 166,795 (97,868) 31,622 2006 $’000 (90,751) 81,178 (27,732) (37,305) 2007 $’000 – 174,131 (97,868) 76,263 (765,923) (765,923) (765,923) (765,923) – – 2006 $’000 (16) 27,748 (27,732) – – – The other equity account is used to record the reverse acquisition adjustment on application of AASB 3 Business Combinations. 66 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_66 66 20/07/2007 2:38:33 PM Notes to the Financial Statements Year ended 30 April 2007 20 FINANCIAL INSTRUMENTS Interest rate risk The consolidated entity exposure to interest rate risk and the effective rates of ﬁ nancial 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 as per the balance sheet Weighted average effective interest rate 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2007 % 2006 % (i) Financial assets Fixed rate Trade and other receivables – – 17,356 2,781 Floating rate Cash 141,873 220,199 – – Total ﬁ nancial assets 141,873 220,199 17,356 2,781 – – – – – – 17,356 2,781 8.68 8.00 141,873 220,199 5.25 5.35 159,229 222,980 – – (ii) Financial liabilities Fixed rate Finance lease liability 5,467 5,810 10,065 13,288 4,064 3,483 19,596 22,581 7.78 7.22 Weighted average interest rate 8.21% 8.05% 7.73% 7.24% 6.49% 6.51% Floating rate Bank and other loans Total ﬁ nancial liabilities 591,602 734,528 – – – – 591,602 734,528 7.35 7.00 597,069 740,338 10,065 13,288 4,064 3,483 611,198 757,109 – – At the reporting date, the carrying value of all ﬁ nancial assets and liabilities approximate their net fair values. The other ﬁ nancial 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. Metcash_financials (page 21-88)_67 67 20/07/2007 2:38:33 PM www.metcash.com 67 Notes to the Financial Statements Year ended 30 April 2007 21 FINANCIAL RISK MANAGEMENT Financial risk management objectives and policies (Group and Company) The Group’s principal ﬁ nancial instruments comprise bank loans and overdrafts, ﬁ nance and operating leases and cash and short-term deposits. The main purpose of these instruments is to raise ﬁ nance for the Group’s operations. The Group has various other ﬁ nancial 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 ﬁ nance. The main risks arising from the Group’s ﬁ nancial instruments are cash ﬂ ow 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 signiﬁ cant 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 ﬁ nancial instrument, ﬁ nancial liability and equity instrument are disclosed in note 2 summary of signiﬁ cant 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 ﬂ oating 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 veriﬁ cation 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 signiﬁ cant concentrations of credit risk within the Group. Foreign currency risk The Group’s exposure to foreign currency risk is minimal. 68 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_68 68 20/07/2007 2:38:34 PM Notes to the Financial Statements Year ended 30 April 2007 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 reﬂ ect movements in the Consumer Price Index on certain leases and to reﬂ ect 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: METCASH GROUP METCASH LIMITED 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 receivables 2007 $’000 122,909 383,734 375,875 882,518 2006 $’000 116,271 388,728 396,016 901,015 – (1,287) 882,518 899,728 2007 $’000 2006 $’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 METCASH GROUP METCASH LIMITED 2007 $’000 39,118 111,685 98,590 249,393 2006 $’000 34,436 93,848 78,776 207,060 2007 $’000 2006 $’000 – – – – – – – – (c) Finance lease commitments The Group has ﬁ nance leases for various items of vehicles and equipments. The weighted average interest rate impact in the leases is 7.78% (2006: 7.22%). The parent company has no ﬁ nance lease commitments. Future minimum lease payments under ﬁ nance leases together with the present value of the net minimum lease payments are as follows: Within 1 year After 1 year but not more than 5 years More than 5 years Less amounts representing ﬁ nance charges Present value of minimum lease payments METCASH GROUP METCASH LIMITED 2007 $’000 6,392 14,317 3,566 24,275 (4,027) 20,248 2006 $’000 7,347 15,538 4,738 27,623 (5,042) 22,581 2007 $’000 5,017 13,146 2,085 20,248 – 20,248 2006 $’000 5,810 14,153 2,618 22,581 – 22,581 Metcash_financials (page 21-88)_69 69 20/07/2007 2:38:34 PM www.metcash.com 69 Notes to the Financial Statements Year ended 30 April 2007 23 RELATED PARTY DISCLOSURE The consolidated ﬁ nancial statements include the ﬁ nancial statements of Metcash Limited and the subsidiaries listed in the following table. Name Metcash Trading Limited Australian Liquor Marketers Pty Limited Campbells Cash and Carry Pty Ltd Clancy’s Food Stores Pty Ltd Cotswrap Pty Ltd (a) Metcash Export Services 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) 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) IGA Distribution Pty Ltd IGA Distribution (VIC) Pty Ltd Five Star Wholesalers Pty Ltd Metcash Holding Pty Limited Keithara Pty Ltd (a) Knoxﬁ eld 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 70 METCASH LIMITED Annual Report 2007 Country of incorporation Percentage of equity interest held by the consolidated entity 2007 % 2006 % 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 Metcash_financials (page 21-88)_70 70 20/07/2007 2:38:35 PM Notes to the Financial Statements Year ended 30 April 2007 23 RELATED PARTY DISCLOSURE (continued) Name IGA Distribution (SA) Pty Limited Metcash Management Pty Ltd Gawler Supermarkets Pty Ltd Metcash Storage Pty Ltd Green Triangle Meatworks Pty Ltd Plympton Properties Pty Ltd Davids Group Staff Superannuation Fund Pty Ltd Australian Liquor Marketers (WA) Pty Ltd Jorgensens Confectionery Pty Limited (a) Tasman Liquor Company Ltd Amalgamated Confectionery Wholesalers Pty Ltd Harvest Liquor Pty Ltd IGA Paciﬁ c 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 Paciﬁ c Wholesalers Pty Limited Rainbow Unit Trust Wimbledon Unit Trust 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 Exploitatiemaatschappij BV Metcash Services Proprietary Ltd Action Holdings Pty Ltd Action Supermarkets Pty Ltd Action Projects Pty Ltd Quickstop Pty Ltd FAL Superannuation 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 Foodchain Holdings Pty Ltd IGA Distribution (WA) Pty Ltd Metcash Limited is the ultimate parent entity. Country of incorporation Percentage of equity interest held by the consolidated entity 2007 % 2006 % 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 South Africa Jersey Netherlands Antilles Netherlands Antilles 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 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 Metcash_financials (page 21-88)_71 71 20/07/2007 2:38:35 PM www.metcash.com 71 Notes to the Financial Statements Year ended 30 April 2007 23 RELATED PARTY DISCLOSURE (continued) Entities subject to class order relief 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 ﬁ nancial 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 deﬁ ciency 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. The consolidated income statement and balance sheet of the entities that are members of the ‘Closed Group’ are as follows: CLOSED GROUP 2007 $’000 2006 $’000 236,798 (70,003) 166,795 166,795 (37,305) (97,868) 31,622 102,725 (43,080) 59,645 59,645 (182,457) (27,732) (150,544) 141,873 969,641 595,145 5,402 220,199 554,021 378,049 2,416 1,712,061 1,154,685 206 185,505 1,712,267 1,340,190 23,001 77,716 182 119,562 51,568 7,213 50,171 167 136,108 3,209 1,142,695 1,013,651 – 1,414,724 3,126,991 – 1,240,218 2,580,408 (i) Income Statement Proﬁ t before income tax Income tax expense Proﬁ t after tax Net proﬁ t for the ﬁ nancial year Retained proﬁ ts at the beginning of the ﬁ nancial year Dividends provided for or paid Retained proﬁ ts at the end of the ﬁ nancial year (ii) Balance Sheet ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other Non-current assets classiﬁ ed as held for sale Total Current Assets Non-current Assets Receivables Investments accounted for using the equity method Other ﬁ nancial assets Property, plant and equipment Deferred income tax assets Intangible assets Other Total Non-current Assets Total Assets 72 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_72 72 20/07/2007 2:38:36 PM Notes to the Financial Statements Year ended 30 April 2007 23 RELATED PARTY DISCLOSURE (continued) 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 Non-current Liabilities Interest bearing loans and borrowings Deferred income tax liabilities Provisions Total Non-current Liabilities Total Liabilities NET ASSETS EQUITY Contributed equity Other equity Reserves Retained proﬁ ts TOTAL EQUITY CLOSED GROUP 2007 $’000 2006 $’000 1,169,539 881,387 5,467 43,607 60,588 1,279,201 – 1,279,201 605,731 10,686 68,349 684,766 1,963,967 1,163,024 10,588 10,170 26,534 928,679 49,655 978,334 749,946 10,623 23,851 784,420 1,762,755 817,653 1,880,111 1,725,612 (765,923) (762,439) 17,214 31,622 1,163,024 5,025 (150,544) 817,653 Metcash_financials (page 21-88)_73 73 20/07/2007 2:38:36 PM www.metcash.com 73 Notes to the Financial Statements Year ended 30 April 2007 23 RELATED PARTY DISCLOSURE (continued) Associates There were no transactions between the parent and its associates during the year (2006: 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 – 2007 – 2006 Transactions with Metcash Trading Limited – 2007 Dividend received – 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 Other transactions with Key Management Personnel Amounts owed by related parties $’000 401,856 265,090 Income/(expense) $’000 178,418 949,499 (10,850) 27,734 6,590 186,939 (27,734) 31,008 8,525 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 0.4% of Metcash’s annual purchases and is not considered material. 74 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_74 74 20/07/2007 2:38:37 PM Notes to the Financial Statements Year ended 30 April 2007 24 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES 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 Peter L Barnes Chief Executive Ofﬁ cer Non-executive Director John Randall General Manager Finance and Company Secretary David Johnston Chief Human Resources Ofﬁ cer Michael Butler, AM Non-executive Director Fergus Collins CEO Australian Liquor Marketers Mike Jablonski Group Merchandise Director (appointed 19 February 2007) Edwin M Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-executive Director V Dudley Rubin Bernard J Hale Non-executive Director Chief Information Ofﬁ cer Bruce Hogan, AM Non-executive Director Mike Wesslink CEO Australian Liquor Marketers (resigned 16 February 2007) 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 ﬁ nancial 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. Option holding of Key Management Personnel Balance at beginning of period 1 May 2006 Granted as remuneration Options exercised Other adjustments Balance at end of period 30 April 2007 Vested at April 2007 Total Exercisable 30 April 2007 Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Butler, AM A Reitzer M Jablonski B Hale – – – – – – – 1,540,000 820,000 1,500,000 E Jankelowitz 820,000 M Wesslink 1,050,000 L Jardin Executives K Bean J Randall P Dubbelman D Johnston F Collins 730,000 480,000 412,000 480,000 560,000 53,200 Total 8,445,200 – – – – – – – – – – – – – – – – – – – – – – – – – – (340,000) (170,000) – (170,000) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,200,000 1,200,000 1,200,000 650,000 650,000 650,000 1,500,000 1,500,000 1,500,000 650,000 650,000 650,000 (400,000) (650,000) – – – (80,000) (80,000) – (80,000) (80,000) (1,600) – – – – – – 650,000 650,000 650,000 400,000 412,000 400,000 480,000 51,600 400,000 412,000 400,000 480,000 51,600 400,000 412,000 400,000 480,000 51,600 (1,401,600) (650,000) 6,393,600 6,393,600 6,393,600 www.metcash.com 75 Metcash_financials (page 21-88)_75 75 20/07/2007 2:38:37 PM Notes to the Financial Statements Year ended 30 April 2007 24 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) Balance at beginning of period 1 May 2005 Granted as remuneration Options exercised Other adjustments Balance at end of period 30 April 2006 Vested at April 2006 Total Exercisable 30 April 2006 Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston – – – – – – – – – – – – – – – – – – 680,000 1,200,000 (340,000) 850,000 850,000 850,000 540,000 520,000 540,000 80,000 400,000 400,000 650,000 650,000 650,000 650,000 650,000 400,000 400,000 400,000 400,000 (680,000) – (680,000) (140,000) (440,000) (460,000) (68,000) (320,000) (240,000) Total 5,710,000 6,050,000 (3,368,000) – – – – – – – – – – – – – – – – – – – – – – – 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 – – – – – – 340,000 170,000 – 170,000 400,000 80,000 80,000 12,000 80,000 160,000 160,000 8,392,000 1,492,000 1,492,000 76 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_76 76 20/07/2007 2:38:38 PM Notes to the Financial Statements Year ended 30 April 2007 24 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) Shareholding of Key Management Personnel 30 April 2007 Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Butler, AM A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston F Collins Total Balance at beginning of period 1 May 2006 100 404,695 125,000 177,083 4,100 – – 1,410,000 – – 520,000 205,849 440,000 – 340,749 550,350 – – 4,177,926 Granted as remuneration On market trade Options exercised Adjustments (DRP issue) Balance at end of period 30 April 2007 – – – – – – – – – – – – – – – – – – – – – – – 3,700 75,000 – – – – – – – – – – 340,000 – – (170,000) 170,000 (240,000) 400,000 – – 100 404,695 3,154 128,154 – – 1,150 – – – – – – 177,083 7,800 76,150 – 1,750,000 – – 520,000 365,849 (200,000) 80,000 9,986 329,986 – – – – – – – – – – – – 10,745 351,494 – – – 550,350 – – (531,300) 990,000 25,035 4,661,661 Metcash_financials (page 21-88)_77 77 20/07/2007 2:38:38 PM www.metcash.com 77 Notes to the Financial Statements Year ended 30 April 2007 24 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) Shareholding of Key Management Personnel (continued) 30 April 2006 Directors C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM A Reitzer M Jablonski B Hale E Jankelowitz M Wesslink L Jardin Executives K Bean J Randall P Dubbelman D Johnston Total Compensation by category Short-term Post employment Other long-term Termination beneﬁ ts Share-based payments Total 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 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) – – – – – – 340,000 680,000 – 680,000 140,000 440,000 (460,000) 460,000 12,846 (320,000) (240,000) 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 METCASH GROUP 2007 $ 2006 $ 10,802,596 9,427,063 697,308 605,492 – 724,193 – – 1,743,805 1,304,919 13,967,902 11,337,474 The Group has applied the option under Corporations Amendments Regulation 2006 to transfer key management personnel remuneration disclosures required by AASB 124 Related Party Disclosures paragraphs Aus 25.4 to Aus 25.7.2 to the Remuneration Report section of the Directors’ Report. These transferred disclosures have been audited. 78 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_78 78 20/07/2007 2:38:39 PM Notes to the Financial Statements Year ended 30 April 2007 25 AUDITORS’ REMUNERATION Amounts received or due and receivable by Ernst & Young (Australia) for: – an audit or review of the ﬁ nancial 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 26 BUSINESS COMBINATIONS Acquisition of Foodland Associated Limited (FAL) METCASH GROUP METCASH LIMITED 2007 $ 2006 $ 2007 $ 2006 $ 1,311,000 1,623,603 866,000 88,000 – 716,000 20,000 29,000 2,265,000 2,388,603 – – – – – – – – – – On 2 November 2005, Metcash acquired Foodland Associated Limited’s demerged Australian business. FAL’s trading results from 2 November, when economic beneﬁ ts 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 beneﬁ ts passed to Metcash. The revised fair value of the identiﬁ able 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 Relationship Assets – held for sale Trade payables Provisions Deferred income tax liability Liabilities – held for sale Fair value of net assets Goodwill arising on acquisition Recognised on acquisition $’000 Carrying value $’000 63,464 3,787 8,726 107,728 122,244 173,503 – 167,041 646,493 133,877 10,155 50,027 204,999 41,580 3,787 8,726 94,537 115,990 – 148,000 168,573 581,193 134,789 64,656 10,940 50,027 249,472 331,721 674,869 1,006,590 www.metcash.com 79 Metcash_financials (page 21-88)_79 79 20/07/2007 2:38:40 PM Notes to the Financial Statements Year ended 30 April 2007 26 BUSINESS COMBINATIONS (continued) During the half year ended 31 October 2006, valuations of the property, plant and equipment, inventories, leases and assets held for sale were revised which resulted in an increase in the previously reported fair valuation adjustments as follows: Recognition of onerous lease contract provisions Decrease in the carrying value of assets held for sale Decrease in value of property, plant and equipment Inventories and other Total $’000 53,362 16,727 19,725 650 90,464 These adjustments have been recognised in the accounts in line with AASB 3 Business Combinations, as reﬂ ected in the revised fair values above. The 30 April 2006 comparative information is restated to reﬂ ect these adjustments. These adjustments have no material impact on the reported proﬁ t for 2006. 27 EARNINGS PER SHARE The following reﬂ ects the income and share data used in the basic and diluted earnings per share computations: Net proﬁ t attributable to ordinary equity holders of Metcash Limited 166,795 81,178 Adjustments: Earnings used in calculating basic and diluted earnings per share 166,795 81,178 2007 $’000 2006 $’000 Weighted average number of ordinary shares used in calculating basic earnings per share 753,116,068 593,675,382 Number Number Effect of dilutive securities Share options 5,696,294 6,960,035 Weighted average number of ordinary shares used in calculating dilutive earnings per share 758,812,362 600,635,417 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these ﬁ nancial statements. 80 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_80 80 20/07/2007 2:38:40 PM Notes to the Financial Statements Year ended 30 April 2007 28 ASSETS CLASSIFIED AS HELD FOR SALE Assets classiﬁ ed as held for sale Liabilities directly associated with assets held for sale Available for sale investments consist of land held for sale. 29 SUBSEQUENT EVENTS There are no subsequent events which impact the results. 30 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 2007 $’000 206 – 2006 $’000 168,778 50,027 2007 $’000 – – 2006 $’000 – – METCASH GROUP METCASH LIMITED 2007 $’000 2006 $’000 2007 $’000 2006 $’000 – 1,580 18,374 19,242 3,200 4,900 – – – – – – Following the termination of the Franklins supply contract in January 2005, Franklins commenced proceedings against Metcash in the NSW Supreme Court for unquantiﬁ ed damages, alleging failure to pass on all rebates to which Franklins was entitled. The case proceeded in late 2006 with a hearing to determine the terms of the contract as a separate issue to the quantum of any damages, which Franklins may have suffered. The court decided to rectify the contract in accordance with Metcash’s submissions. Franklins are appealing this decision. Metcash maintains that it does not consider that Franklins has any valid claim against it and will continue to vigorously oppose Franklins’ claims. Metcash_financials (page 21-88)_81 81 20/07/2007 2:38:41 PM www.metcash.com 81 Directors’ Declaration Year ended 30 April 2007 The Directors of the Company declare that: 1. the ﬁ nancial statements and notes, as set out on pages 36 to 81 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 ﬁ nancial position as at 30 April 2007 and of the performance for the year ended on that date of the Company and the consolidated entity; 2. the Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer have each declared that: (a) the ﬁ nancial records of the economic entity for the ﬁ nancial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; (b) the ﬁ nancial statements and notes for the ﬁ nancial year comply with the Accounting Standards; and (c) the ﬁ nancial statements and notes for the ﬁ nancial year give a true and fair view; 3. in the Directors’ 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. 4. in the Directors’ opinion, as at the date of this declaration, there are reasonable grounds to believe that members of the Closed Group identiﬁ ed in note 23 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. This declaration is made in accordance with a resolution of the Board of Directors. Andrew Reitzer Director Sydney, 19 July 2007 82 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_82 82 20/07/2007 2:38:41 PM Auditor’s Independence Declaration Year ended 30 April 2007 Auditor’s Independence Declaration to the Directors of Metcash Limited In relation to our audit of the financial report of Metcash Limited for the financial year ended 30 April 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Neil Wykes Partner 19 July 2007 Liability limited by a scheme approved under Professional Standards Legislation. www.metcash.com 83 Metcash_financials (page 21-88)_83 83 20/07/2007 2:38:42 PM Independent Audit Report to Members of Metcash Limited Year ended 30 April 2007 Independent auditor’s report to members of Metcash Limited We have audited the accompanying financial report of Metcash Limited and the entities it controlled during the year, which comprises the balance sheet as at 30 April 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration. The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “Remuneration Report” on pages 28-34 of the directors’ report, as permitted by Corporations Regulation 2M.6.04. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. The directors are also responsible for the remuneration disclosures contained in the directors’ report. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that the remuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Liability limited by a scheme approved under Professional Standards Legislation. 84 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_84 84 20/07/2007 2:38:43 PM Independent Audit Report to Members of Metcash Limited Year ended 30 April 2007 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. The Auditor’s Independence Declaration would have been expressed in the same terms if it had been given to the directors at the date this auditor’s report was signed. In addition to our audit of the financial report and the remuneration disclosures, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Auditor’s Opinion In our opinion: 1. (a) the financial report of Metcash Limited is in accordance with: the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of Metcash Limited and the consolidated entity at 30 April 2007 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations); and (ii) (b) other mandatory financial reporting requirements in Australia. 2. 3. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. the remuneration disclosures that are contained on pages comply with Accounting Standard AASB 124 Related Party Disclosures. 31-34 of the directors’ report Ernst & Young Neil Wykes Partner Sydney 19 July 2007 Metcash_financials (page 21-88)_85 85 20/07/2007 2:38:44 PM www.metcash.com 85 ASX Additional Information Year ended 30 April 2007 Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 10 July 2007 (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 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Cogent Nominees Pty Limited Queensland Investment Corporation AMP Life Limited ANZ Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Cogent Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited UBS Wealth Management Australia Nominees Pty Ltd IAG Nominees Pty Limited Citicorp Nominees Pty Limited Australian Foundation Investment Company Limited UBS Nominees Pty Ltd Brispot Nominees Pty Ltd Size of holding 1-1,000 Number of shareholders 5,673 1,001-5,000 5,001-10,000 10,001-100,000 100,001-999,999,999 Total 17,506 5,619 3,745 204 32,747 Number of shares Percentage of ordinary shares 186,416,559 81,764,959 76,010,774 31,664,964 24,545,222 19,676,414 15,891,602 10,789,774 9,383,368 9,181,914 7,426,397 5,083,823 4,861,062 4,639,533 4,622,364 4,386,160 4,207,219 4,100,000 4,014,911 3,842,406 24.443 10.721 9.966 4.152 3.218 2.580 2.084 1.415 1.230 1.204 0.974 0.667 0.637 0.608 0.606 0.575 0.552 0.538 0.526 0.504 512,509,425 67.199 86 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_86 86 20/07/2007 2:38:45 PM ASX Additional Information Year ended 30 April 2007 (c) Substantial shareholders The following is extracted from the Company’s register of substantial shareholders: Name Perennial Investment Partners Limited (PIPL) Westpac Banking Corporation Lazard Asset Management Paciﬁ c Co IOOF Holdings Limited Deutsche Bank AG (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Number of shares 85,366,361 83,979,346 60,800,284 50,381,402 39,156,696 Metcash_financials (page 21-88)_87 87 20/07/2007 2:38:46 PM www.metcash.com 87 Corporate Directory Year ended 30 April 2007 METCASH LIMITED GROUP NATIONAL OFFICES METCASH LIMITED Corporate Ofﬁ ce CAMPBELLS WHOLESALE Head Ofﬁ ce Ph: (02) 9741 3000 Fax: (02) 9741 3399 National Ofﬁ ce Street Address 4 Newington Road Silverwater NSW 2128 Postal Address PO BOX 6226 Silverwater Business Centre SILVERWATER NSW 1811 ALM Head Ofﬁ ce Ph: (02) 9741 3450 Fax: (02) 9741 3009 Street Address 4 Newington Road Silverwater NSW 2128 Postal Address PO Box 6226 Silverwater Business Centre Silverwater NSW 1811 Ph: (02) 9683 9000 Fax: (02) 9630 0967 (Buying Dept) Fax: (02) 9890 1650 (Corporate) Street Address Unit 4D 6 Boundary Road Northmead NSW 1750 Postal Address PO BOX 2261 North Parramatta NSW 1750 IGA DISTRIBUTION Head Ofﬁ ce Ph: (02) 9741 3000 Fax: (02) 9741 3399 Street Address 4 Newington Road Silverwater NSW 2128 Postal Address PO BOX 6226 Silverwater Business Centre Silverwater NSW 1811 88 METCASH LIMITED Annual Report 2007 Metcash_financials (page 21-88)_88 88 20/07/2007 2:38:46 PM Metcash Limited Every day, across Australia Designed and Produced by Text Paciﬁ c Publishing / www.textpaciﬁ c.com.au Metcash_financials (page 21-88)_89 89 20/07/2007 2:38:54 PM Metcash_financials (page 21-88)_90 90 20/07/2007 2:39:07 PM

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