Metcash Limited Annual Report 2009

Plain-text annual report

OUR MISSION To be the marketing and distribution leader in food and other fast-moving consumer goods OUR C hampioning the customer Our stakeholders are entitled to added value R esponsibility and personal accountability E mpowering our People and supporting our communities VALUES – ARE NOTHING WITHOUT INTEGRITY CONTENTS Chairman’s and CEO’s Report Financial Review IGA Distribution Australian Liquor Marketers Campbells Wholesale Board of Directors Executive Team Five-year Review 2 6 8 12 14 16 18 20 Corporate Governance Statement 21 Financial Report 2009 Directors’ Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement 33 34 52 53 54 56 Notes to the Financial Statements 57 Directors’ Declaration Auditor’s Independence Declaration Independent Audit Report ASX Additional Information 111 112 113 115 Corporate Information inside back cover annual general meeting Thursday, 3 September 2009 Ballroom 1 Four Seasons Hotel 199 George Street Sydney NSW 2000 Commencing 2.30pm METCASH LIMITED ABN 32 112 073 480 ii Metcash is a leading marketing and distribution company, operating in the grocery and liquor wholesale industries. Our customers are independent retailers and the company’s objective is to champion and support them. We do this by providing the scale necessary to create competitive buying power together with marketing, distribution and ﬁ nancial expertise and support. METCASH’S BUSINESS PILLARS ARE: IGA>D IGA Distribution (and IGA Fresh) ALM Australian Liquor Marketers CW Campbells Wholesale Metcash is an ASX Top 100 listed public company. METCASH LIMITED ANNUAL REPORT 2009 METCASH LIMITED ANNUAL REPORT 2009 EPPORORRRRRRRRRORORRORT 20T 20T 20T 20T 20T 20T 20T 2020T 20T 2TT 20T 20T 2020T 20T 20020T 20T 20020T 20222200909090909090909090909090909090909909090990909999909 EPOR UAAAAL RAL AL RAL RRL RAL RA EPOR EPORORORORORORORORRR EPOR METCMETCMETCMETCMETCMETCMETCTCTTCE ASH ASH ASHASASH ASH ASH AA ANNA ANNU ANNU LIMIM TEDTEDTEDTEDTEDTEDTED ANNU ANNU ANNU ANNU LIMI LIMI LIMI LIMLIMI LIMI 1 1 11111111111111 chairman’s & ceo’s report We are pleased to announce that the 2009 ﬁ nancial year was very successful and that Metcash recorded its tenth consecutive record proﬁ t. Proﬁ t for the year was generated from wholesale sales which grew 9.3% to $10.97 billion. This was a strong performance in a year of uncertainty created by the global economic crisis. Demonstrating excellent proﬁ t/sales leverage, proﬁ t before tax and non-recurring item (NRI) grew by 13.8% to reach $219.7 million. Earnings per share pre-goodwill amortisation and NRI increased 13.3% to 29.53 cents per share. This was above the earnings guidance given earlier in the year of 28.3 to 29.3 cents per share. We are also pleased to announce that the full year dividend of 24 cents per share has been declared. This is an increase of 14.3% on the 2008 full year dividend and is slightly higher than the increase in proﬁ t before tax and NRI. This dividend is fully franked at 30%. The non-recurring item referred to above is the $17.2 million after tax cost of terminating an interest rate collar in the ﬁ rst half of the year. This action was taken to allow the Company to take advantage of falling interest rates. The Metcash balance sheet remains strong and the Company has successfully extended its $700 million syndicated loan facility to May 2012. Each of the Metcash businesses performed well during the year demonstrating the resilience of the Metcash business model, in good times and bad. Last year we advised that a new focus was being placed on fresh food distribution, based on the two fresh produce warehouses obtained from the Foodland Associated Limited (FAL) acquisition, and that a national fresh produce distribution network was to be put in place. 2 This was successfully done during the year and a national fresh produce distribution network has been established for an acquisition cost of $65.8 million. Annualised sales of fresh products at the end of the ﬁ nancial year reached a ‘run rate’ of $950 million per annum. When announcing the intention to create the fresh distribution network we stated that the objective was to provide competitively priced quality fresh food to our independent retailers. This is being achieved through establishing common national supplier speciﬁ cations to ensure the quality and consistency of products, consumers shopping more at supermarkets and eating out less. It is also the result of the targeted ‘local’ market positioning and niche marketing by IGA retailers. Pleasingly, a 1.29 times operating leverage was obtained with IGA Distribution’s earnings before interest and tax (EBIT) growing by 14.7% during the year. Australian Liquor Marketers (ALM) wholesale sales increased by 5.6% during the year. This was a strong result considering the confusion and substitution that occurred in the liquor industry as a consequence of the developing retail standards to ensure that the product and category offer is optimised and to grow the number of retailers being serviced. With the exception of the fresh produce businesses that were acquired, the 9.3% increase in wholesale sales has been generated from internal growth. IGA Distribution’s wholesale sales increased 11.3% for the year. Of this, 2.3% came from new stores and acquisitions, resulting in a comparable store (that is, like-for-like) sales growth of 9%. Part of this growth has been due to the economic crisis that has led to Australian Government’s decision to impose higher excise duties on ready-mixed drinks. This sales growth was secured by the strategy of guiding independent liquor retailers and hoteliers to consolidate their banners, thus providing a more effective resistance to the growth of the two national chains. As evidence of this, sales to Independent Brands Australia (IBA) members grew during the year by 16%. An operating leverage of 1.46 times was achieved with EBIT increasing by 8.2% to $33.8 million. This was due to the continued focus on reducing the cost of doing business. Additionally, a Opposite page image: IGA>D warehouse in Crestmead, Queensland. Above image: Carlos S dos Santos (Chairman) and Andrew Reitzer (CEO). ‘Each of the Metcash businesses performed well during the year demonstrating the resilience of the Metcash business model, in good times and bad.’ speedy reaction to the volume impact of the ready-to-drink excise increase enabled the ‘cost to store’ effect to be contained. Campbell Wholesale (CW) sales grew by 7.1% to $1.66 billion. While the traditional Campbells Cash & Carry business continued to languish, sales of the important primary products category lifted by 10.6% due to the growth in foodservice, soft drinks and confectionery sales. In line with this, sales to the modern petrol and convenience sector grew by 12.2% with strong confectionery sales enabling CW’s convenience market share to increase to 35%. A more subdued operating leverage of 1.1 times was obtained with CW’s EBIT growing by 7.8% during the year. This reﬂ ected an increased cost of doing business in the second half due to costs associated with store closures, store refurbishments and freight subsidies in rural areas. HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY (HSEC) Good progress continues to be made in implementing 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. A wide range of development programs for all levels of management are provided by the Company, through face-to-face lectures, eLearning and distance learning, while the Metcash Pro-ﬁ t programs assist employees to derive the appropriate ‘work/life’ balance. The programs to reduce packaging waste and the utilisation of plastic bags continue and recycling of paper, cardboard and plastic is in place at all of the Company’s facilities. METCASH LIMITED ANNUAL REPORT 2009 3 chairman’s & ceo’s report A Metcash Environmental Sustainability Committee has been established, is chaired by the CEO and has key management as members. Energy and water consumption measurement is in place, reduction targets established and the retroﬁ tting of the top ten energy and water consuming sites with energy and water saving devices and technology has commenced. Workplace safety is a high priority. The Company continues to work hard to ensure that a strong safety culture is ingrained in all employees and a high level of safety is maintained. Last year we reported a small number of workplace incidents had affected the Occupational Health & Safety (OH&S) severity and duration rates. As a consequence, key operational risks were again reviewed and a number of projects have been commenced to control identiﬁ ed risk factors. These include ‘MESSI’, a collision avoidance system. The beneﬁ ts of the work over recent years to improve OH&S are showing and the continuous improvement programs in place or underway should continue to generate further beneﬁ ts. WAY FORWARD Last year we advised that Metcash would be pursuing growth both internally and through acquisitions and that, in relation to the latter, a bid was being prepared to acquire Symbion Pharmaceuticals’ wholesaling business. The strong internal generation of growth has been realised but we withdrew from the bidding for Symbion Pharmaceuticals. We still continue to look for major acquisition opportunities with each potential acquisition being tested for compatibility with Metcash’s business model and core competencies. Each of the Metcash businesses has strategies for increasing sales volumes 4 and proﬁ ts through internal growth and these are expected to be achieved during the 2010 ﬁ nancial year. The provision of a higher level of service to our customers, growing and developing our people and a focus on reducing the cost of doing business through continued productivity improvements remain key planks in the company’s approach to business. Metcash cannot be successful if its customers are not. The economic and ﬁ nancial environment remains uncertain but the resilience of the Metcash business model has held the company and its businesses in good stead. As a precaution, management has put in place a salary increase deferral for all employees earning more than $50,000 per annum. If the Company’s proﬁ t before tax targets for the 2010 year are met, then the salary increases that otherwise would have been paid at the beginning of the year will be paid. Bonuses for the year will only be paid if all salary increases have been paid and bonus targets met. The Directors have also resolved that Non-executive Directors fees and allowances will remain at their present level until 30 June 2010. Subject to unemployment and economic conditions not deteriorating above current Australian Government forecasts, earnings per share guidance for the 2010 ﬁ nancial year is a 7–10% growth of normalised earnings per share. OUR SHAREHOLDERS We would like to thank you, our shareholders, for your support over past years. Your continued support and investment in the resilient Metcash business model is appreciated. Since 2001 Metcash has provided strong returns to shareholders as the Total Shareholder Return (TSR) graph below demonstrates. The Directors and management of Metcash will continue to work hard to maintain this record of strong growth and dividend payments. TSR under current management vs. market ) d e s a b - e r ( e c i r r p e a h S 6.00 5.00 4.00 3.00 2.00 1.00 0.00 MTS TSR: 38% ASX 200 TSR: 6% Jan 01 Sep 02 May 04 Dec 05 Aug 07 Apr 09 We would like to thank our fellow Directors, employees, customers and suppliers for their good counsel, hard work and support during the year. Carlos S dos Santos Chairman Andrew Reitzer CEO Image: The new ‘mini loader’ installed in the Laverton, Victoria warehouse. ‘strategies for increasing sales volumes and proﬁ ts through internal growth are expected to be achieved during the 2010 ﬁ nancial year’ METCASH LIMITED ANNUAL REPORT 2009 5 ﬁ nancial review TOTAL REVENUE ($m) TOTAL SALES REVENUE ($m) 7,044.6 8,252.0 2005 2006 2007 2008 2009 9,765.9 10,202.4 11,067.5 2005 2006 2007 2008 2009 7,010.4 8,214.4 9,694.8 10,116.1 10,981.6 6,500 7,500 8,500 9,500 10,500 11,500 6,500 7,500 8,500 9,500 10,500 11,500 WHOLESALE SALES ($m) 6,565.0 7,705.0 2005 2006 2007 2008 2009 9,451.1 10,045.0 10,974.0 2005 2006 2007 2008 2009 MARKET SHARE (%) 13.5 18.5 18.6 18.8 19.0 6,500 7,500 8,500 9,500 10,500 11,500 0 5 10 15 20 EBITA ($m) 194.5 223.7 2005 2006 2007 2008 2009 COST OF DOING BUSINESS (%) 288.9 341.3 382.5 2005 2006 2007 2008 2009 68.2 67.2 66.9 65.2 62.4 185 225 265 305 345 385 60 65 70 PROFIT AFTER TAX ($m) OPERATING CASH FLOW ($m) 81.2 126.8 2005 2006 2007 2008 2009 158.6 197.4 202.5 130.6 2005 2006 2007 2008 2009 177.5 197.6 242.7 248.1 75 95 115 135 155 175 195 215 115 150 185 220 255 2009 proﬁ t after tax before non-recurring item was $219.7 million. A non-recurring cost of $17.2 million after tax was incurred from terminating an interest rate collar in the ﬁ rst half of the year. EARNINGS PER SHARE (BASIC) (CENTS) DIVIDENDS PER SHARE (CENTS) 2005 2006 2007 2008 2009 17.0 21.1 29.7 25.9 26.5 2005 2006 2007 2008 2009 9.5 11.5 17.0 21.0 10 15 20 25 30 5 10 15 20 24.0 25 2009 earnings per share calculated on proﬁ t after tax before non-recurring item ($219.7 million) was 28.73 cents. Notes: 1. 2007 ﬁ gures restated in FY2008. 2. 2005 impacted by FAL acquisition. 6 FINANCIAL PERFORMANCE FINANCIAL POSITION The onset of the economic and ﬁ nancial crisis became evident just prior to the Group’s half year results in September 2009, with central banks globally, and particularly in Australia, reducing interest rates by unprecedented levels. The Group had previously taken out an interest rate collar contract to hedge against, at the time, rising interest rates. At the previous ﬁ nancial year in 2008, this instrument had a favourable valuation to Metcash of some $3.8 million. As a result of the rapid decline in interest rates in this period, management took the decision to close this contract in November 2008 at a cost of $24.6 million. Since exiting the contract, the Group has enjoyed substantially lower interest rates on its debt, resulting in a saving of $5.2 million in the second half interest expense. The interest rate collar closure is the only substantial one-off cost in the annual result for the Group. The Group’s turnover growth has remained strong, with wholesale sales increasing by 9.3% on the previous period. The Metcash business model has remained resilient during the economic downturn. In addition, the Group has continued to drive costs down, with Cost of Doing Business as a percentage of Gross Proﬁ t reducing by a further 280 points this year. This has been due to the ﬁ nalisation of the withdrawal from Retail Operations for the Group and a focus on cost control and supply chain improvement. As a result of these factors, the Group was able to better its market guidance, reporting an Earnings Per Share (excluding one-off costs and intangible amortisation) of 29.53 cents per share and declaring a ﬁ nal dividend of 14 cents per share. This brings the total dividend payment to 24 cents per share for the year, a 14.3% increase over 2008. The Group’s previously announced strategy of expanding its capabilities in the areas of Fresh Foods has resulted in a substantial investment in the national fresh produce distribution network. At 30 April 2009, only the South Australian arm of this network remains to be ﬁ nalised, which is expected to occur in the ﬁ rst quarter of the 2010 ﬁ nancial year. In addition, the Group has extended the Foodservice capabilities of the Campbells Wholesale division with acquisitions in Queensland. The total investment in these expansions for the year was $65.8 million. Owing to the nature of these businesses, a large proportion of this investment resides in the Intangibles balance in the balance sheet. The Group’s working capital position has been affected by a number of factors. The changes to the mix of business created by the expansion of the Fresh offering have seen an overall reduction in both Debtor Days and Trade Creditor payment terms. In addition, owing to inbound service level issues with suppliers and the restocking of the Blacktown DC dry grocery distribution centre, which was closed for repair after the building was damaged and the stock destroyed after hail damage in December 2007, the group’s inventory levels have increased. This has been necessary to ensure Metcash’s customers continue to enjoy best-practice service levels on a daily basis. The Company has drawn down an additional $25 million of its debt facilities during the period to ﬁ nance these transactions and, subsequent to year end, ﬁ nalised negotiations to extend its $700 million syndicated loan facility to 31 May 2012. The Group continues to maintain a strong balance sheet with a solid cash position, adequate funding capacity and is well placed for future growth and expansion. Highlight WHOLESALE SALES (%) 2009 The Group’s turnover growth has remained strong, with wholesale sales increasing by 9.3% CASH FLOW The Company has continued its strong operating cash generation during the year, with operating cash ﬂ ows increasing by $50.5 million to $248.1 million. This is in spite of the working capital movements noted above and includes a one-off change to the Group’s tax paying position as a result of prior period adjustments predominantly related to the FAL acquisition. The Group has invested a net $106.2 million in the Produce and Foodservice networks noted above and in substantial infrastructure projects in Laverton, Darwin, Canning Vale and IT Systems. The Group has maintained a high dividend payout ratio (in excess of 80%) and dividend payments for the year totalled $168.3 million. METCASH LIMITED ANNUAL REPORT 2009 7 IGA Distribution IGA Distribution (IGA>D) has again delivered a strong performance, growing wholesale sales by 11.3% and EBITA by 14.7% to $315.5 million. This has been done during times of ﬁ nancial and economic uncertainty and in a market dominated by the two chains. The sales growth demonstrates the beneﬁ ts from IGA’s targeted ‘local’ market positioning and niche marketing. Additionally, in tougher economic times, consumers are shopping more at supermarkets and eating out less. By holidaying more ‘at home’ in Australia, they are further supporting the widely dispersed IGA store network. The focus on reducing the Cost of Doing Business (CODB) continued and beneﬁ ts were obtained from the introduction of improved technology and rationalising warehouse procedures. This has helped create the 1.29 times ‘leverage’ of EBITA growth to sales growth for the year. Market share of 19%, as measured by AC Nielsen (Nielsen), was maintained and growth of the market by IGA>D was 8.3% compared to overall market growth of 7.4%. During the year 43 new IGA stores were opened and 27 extended. This resulted in the addition of 66,969 square metres to the IGA retail area. In the 2008 annual report it was stated between 66,000 and 86,000 square metres were expected to be added in the 2009 year. The upper limit of this expectation has been exceeded if the area of non-IGA stores that have joined the IGA network is included. Additionally, 81 stores were refurbished in 2009. Adding to the beneﬁ ts of the higher retail area, sales growth was also generated through entrepreneurial IGA store owners driving a differentiated retail offer, a larger range of fresh and private label brands to meet changing consumer needs, strong branded price promotions to keep independent retailers competitive with the two chains and implementing the independent model of executing ‘locally’ while behaving like a chain globally. Sales of the Company’s generic Black & Gold range grew by 12% for the year, reﬂ ecting the brand’s ability to meet value consumer needs. The Black & Gold range now consists of 1,011 product items. During the year the new premium label range IGA ‘Signature’, was launched. 342 product items are in the launch phase, and the range is expected to consist of 600 products by December 2009. The execution of these Corporate Brand (Black & Gold and Signature) strategies provides independent retailers with products that can compete with the chains in this important area. The IGA brand and network have been strengthened during the year by retail excellence, training, retail analytics and marketing programs. A key initiative is to increase the Overall Shopping Experience (OSE) of customers in IGA stores. This is measured by identifying criteria within the Retail Standards Appraisal (RSA) that is performed on IGA stores. Stores that fall below an OSE score of 94% are analysed and action plans put in place to address and rectify areas of weakness. In a number of instances, this has led to retailers increasing their investment in the stores or commencing a refurbishment program. Training is an important aspect of brand and network development. The IGA Training Institute has worked with 570 stores and trained over 6,800 staff through online training. 1,200 staff are currently enrolled in IGA registered courses and this number grows each year. Typical training includes Certiﬁ cate II, III and IV in Retail Operations and Fresh Food, Meat and Seafood department skills. At the same time, the skills of IGA>D staff are enhanced through ongoing training and development such as Disc Proﬁ ling, Coaching, Leadership and OH&S. New opportunities to assist independent retailers make better use of their customer data to increase basket size and provide customers with more of what they want are being identiﬁ ed through retail analytics. A ‘proof of concept’ was tested across a range of stores using retail sales data which conﬁ rmed that signiﬁ cant beneﬁ ts can be achieved across the IGA network. This expanded project will be implemented across all IGA stores. As the IGA brand equity grows, ways are sought to differentiate the IGA offer from that of the two chains, through a focus on consumer lifestyle and wellbeing. The IGA multimedia ‘Food 4 Life’ program is providing consumers with convenient, wholesome, and value-added meal solutions using ingredients from IGA stores. This will continue to be a key driver in delivering a high quality fresh food offer in IGA supermarkets. EBITA ($m) 141.6 175.8 2005 2006 2007 2008 2009 TOTAL SALES ($m) 3,864.7 4,659.3 247.3 275.1 315.5 2005 2006 2007 2008 2009 5,824.2 6,066.0 6,681.8 120 170 220 270 320 3,500 4,500 5,500 6,500 7,500 8 MAJOR ACTIVITIES SIGNIFICANT ACHIEVEMENTS FUTURE DIRECTION • • Marketing and distribution specialists supplying IGA branded and non- branded independent grocery stores in New South Wales, the Australian Capital Territory, Victoria, Queensland, South Australia and Western Australia. Providing expertise tailored to independent retailers’ requirements, with a range of marketing, merchandising, buying, operational and distribution services. • • • EBITA grew by $31 million achieving a ratio of 4.73% to sales. The number of IGA stores grew with 43 new stores as well as 27 extensions and 81 refurbishments to existing stores. Expansion and improvement of the state distribution centres including the establishment of a national fully automated distribution centre in Laverton. TERMS OF ENGAGEMENT – PROJECT LION Project Lion (Leadership, Innovation, Ownership and Negotiation) was established early in 2008 to analyse the IGA business model and ensure that the structure and relationships between IGA>D and IGA retailers were optimal. Business processes have been reviewed at both the Wholesaler and Retailer levels. The need to be more ﬂ exible and adaptable to change in a dynamic trading environment was identiﬁ ed at an early stage. The Culture and Governance Committee, one of seven committees formed from the Project Lion process, undertook an analysis of the IGA National Board structure and processes. The Board structure enables IGA>D and the IGA retailers to manage the IGA network and make joint decisions. The resultant report has revealed strengths and some opportunities for improvement that will be worked on. The process is designed to enhance the protocols and procedures for a highly effective and resilient IGA Board structure to provide the basis for future growth and stability. • • • • • Implement the ‘Project Lion’ strategies. Continue to improve consumers’ overall IGA shopping experience through the ‘Retail Resolution’ process and store refurbishment. Implement fresh food strategies to grow wholesale and retail sales and produce a consistent and high quality range of products. Reduce the cost of doing business. Grow retail area through new stores and extensions. WAREHOUSING AND LOGISTICS A number of projects have resulted in improvements in productivity during the year, including: • • expanded perishable warehouse facilities completed in QLD and WA to cater for increased demand; improved processes that have been tested and are being implemented including radio frequency receiving and blue tooth scanning of security items. A new fully automated ‘mini loader’ distribution centre is being installed at the Laverton, Victoria, distribution complex. This will enable major METCASH LIMITED ANNUAL REPORT 2009 9 IGA Distribution expansion of our small goods range. It will provide expansion into cross- docking and the ranging of products from smaller local suppliers. It also provides opportunities for new fresh, organic and confectionery ranges to ensure product ranges meet consumers’ needs. Retailers are expected to start receiving the beneﬁ ts of the new facility in the second half of FY2010. HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY (HSEC) • • • • • • • IGA>D have implemented strategies in line with Metcash’s HSEC policy to further reduce packaging waste and increase the recycling of paper, cardboard and plastic to reduce landﬁ ll. A new corporate branded range now includes 37 organic products certiﬁ ed by the Biological Farmers of Australia (BFA). Corporate Brand suppliers have agreed not to use genetically modiﬁ ed materials in their products. This has earned a Green rating in the Greenpeace True Food Guide. IGA donated $1.5 million in IGA vouchers to the Bushﬁ re Appeal, distributed via the Salvation Army. Strict site speciﬁ c Food Safety Plans are in place to ensure food safety. IGA’s national `Fast Food Blitz’ was launched in May and requires participants to abstain from eating unhealthy take away/fast food for 21 days – the length of time research suggests it takes to make or break a habit. The program is designed to encourage healthy eating and reduce obesity. Launched in 1998, IGA Community Chest raises funds to give back to the local community from the sale of selected products. Over the last ﬁ ve years, independent store owners, IGA Community Chest and associated programs have raised over $37 million for local communities and charities. 10 • • IGA Community Chest Unsung Heroes Awards 2008 recognised and rewarded hundreds of deserving individuals who give up their time for the good of others – usually unpaid, and often without thanks – while reinforcing IGA’s community focus at a local level. Unsung Heroes 2009 starts on 1st June 2009. Food 4 Life is IGA’s healthy living philosophy. It incorporates information about healthy shopping, cooking, eating and living; it’s an holistic approach to a healthier lifestyle that Australian consumers are encouraged to follow. GENERAL With our commitment to excellence at both wholesale and retail levels, IGA>D and its stakeholders have a resilient model to ensure continued growth both now and into the future. LOU JARDIN CEO IGA DISTRIBUTION IGA FRESH IGA Fresh achieved many key milestones in its ﬁ rst full year. This includes the establishment of a distribution network that enabled the generation of annualised sales of $950 million at year end from Fresh Produce, Meat, Delicatessen and Bakery. IGA Fresh distribution national capabilities are underpinned by 11 dedicated fresh produce distribution centres and two meat processing facilities. When combined with the established IGA>D distribution centres, these provide a platform that ensures independent supermarkets have a complete supply chain in place to compete in today’s market place. Recruitment has been a major focus to ensure skilled personnel are in place to support independent retailers. A state-wide structure is now in place to assist customers with their fresh food buying, merchandising and retailing. NATIONAL FRESH PRODUCE NETWORK The main objective for the 2009 ﬁ nancial year was the establishment of a national Fresh Produce network. The acquisition of targeted produce wholesalers was completed relatively quickly and a national network of 11 warehouses established. The network will be completed on ﬁ nalising the conversion of a minority equity interest in a South Australian wholesaler to a wholly owned subsidiary. With Fresh Produce annualised sales of $390 million, the business is well placed to increase sales volumes. IGA Fresh Produce now services over 600 retailers nationally providing operational support while delivering a competitive offer to ensure independent retailers continue to compete and grow. A national fresh produce buying strategy has been initiated to create a greater consistency of high quality products to enable independent retailers to provide an exceptional consumer offer. This is further supported by the IGA 200% Fresh Guarantee. A private label fresh produce range under the ‘Field Fresh’ brand was launched in July 2008. The range has grown to 70 products with a further 30 under development. The fresh produce distribution network also provides the opportunity to supply foodservice customers. This is an area where IGA Fresh, in conjunction with Foodlink, will generate sales under the brand ‘Foodlink Fresh’. MEAT Sales of meat have grown 24% during the year, generated by providing high quality, competitive products coupled with advice and expertise to independent retailer customers. In addition to the Malaga (WA) processing centre acquired from FAL, Fresh Market Meats has been acquired. These two sites, in conjunction with the IGA>D distribution centre, provide a complete meat offer to WA retailers. A similar strategy for the east coast is being developed to provide ‘retail Bright Supa IGA, Victoria. MAJOR ACTIVITIES SIGNIFICANT ACHIEVEMENTS FUTURE DIRECTION • • • Fresh food concept development in conjunction with IGA>D. Develop strategic supplier partnership through business plan development, catalogue activity, promotional programs and advertising panels. Provide competitive fresh food, retail and consumer solutions for all independent channels. • • • • Establishment of a national Fresh product distribution network. Acquisition of the ‘retail ready’ meat facility in WA. $950 million in annualised sales. IGA Fresh team is now in place. • • • • Assist retailers in the execution of a ‘Fresh’ offer. Source growth opportunities in the fresh produce food service area. Establish retail ready meat program on the east coast. Supply chain effectiveness in all areas of fresh food. ready’ meat offers. A private label meat range has been created with 70 products currently available and a further 15 being developed. DELICATESSEN Delicatessen sales have demonstrated excellent growth with a 30% increase. The major focus has been to increase supply chain efﬁ ciencies by nationally warehousing smallgoods products, replacing the previous direct delivery process. This has reduced the demand for alternative forms of distribution and provides the retailers with an efﬁ cient and effective ‘one stop shop’ distribution process. Private label product development has been very strong with available products expected to grow from 56 to 95 by December 2009. POULTRY During the year an exclusive arrangement was agreed with Lenard’s to supply their range of fresh poultry products. The combination of IGA and Lenard’s branding provides opportunities for IGA retailers to offer a well recognised consumer poultry offer exclusive to IGA supermarkets. BAKERY Bakery has again shown excellent sales growth with a 93% increase over the prior year. The ‘Bakers Oven’ brand continues to be rolled out with 257 different bakery products now available. The other key bakery strategy, ‘Quick Bake’, has proven successful with 210 ovens being delivered to IGA retailers within the ﬁ rst 12 months. ‘Quick Bake’ enables a range of fresh bread to be baked in store in approximately 20 minutes. 2009 was an exceptional and exciting year. An effective fresh food distribution network has been established that is adding signiﬁ cant value to participating IGA retailers. The platform is now in place to drive top quality fresh food sales in independent supermarkets. Harry Rumpler CEO IGA FRESH METCASH LIMITED ANNUAL REPORT 2009 11 Australian Liquor Marketers model. IBA, under the Cellarbrations, Bottle-O and IGA Plus Liquor banners, is now a key retail partner for all the major liquor suppliers. It provides an excellent platform for suppliers to drive key growth strategies through the integrated wholesale and retail network. BRANDED IBA (IGA PLUS LIQUOR, CELLARBRATIONS, BOTTLE-O) STORES April 2006 April 2007 April 2008 April 2009 863 1075 1527 1578 LIQUOR ALLIANCE Our strategic partners, the Liquor Alliance, trading under the Thirsty Camel banner, continued to show strong growth during the year. Consolidation of the state-based brands, under one national brand, has delivered its members strong buying and cost efﬁ ciencies during the year. INCREASED BEER VOLUMES ALM and IBA are committed to providing our customers the most efﬁ cient and cost effective supply chain model possible. The ability to have their entire product requirements MAJOR ACTIVITIES • • • Broad range liquor wholesaler supplying over 15,000 hotels, liquor stores, restaurants and other licensed premises throughout Australia and New Zealand. Operates out of 18 distribution centres throughout Australia and New Zealand. Provides a complete service allowing customers 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. • Includes a specialist liquor supply and support division to the on-premise sector including bars, restaurants and hotels in both Australia and New Zealand. EBITA ($m) 26.1 2005 2006 2007 2008 2009 28.4 30.7 31.2 33.8 35 25 30 SALES ($m) 2,155.6 2005 2006 2007 2008 2009 2,407.7 2,453.2 2,499.3 2,639.4 2,000 2,200 2,400 2,600 2,800 Sales during the ﬁ nancial year showed a strong growth of 5.6% on last year while EBITA grew by 8.2%. This produced excellent leverage of 1.46 times. ALM continues to grow sales in a competitive market as a direct result of the resilience and improved retail offer of independent retailers. COST OF DOING BUSINESS (CODB) The year has seen the beneﬁ ts of the restructure undertaken at the start of 2008 ﬁ nancial year and continues to advantage the ALM business. The CODB fell against prior year and, while no major changes to the network were undertaken during the year, management focus is maintained on driving cost efﬁ ciency within our supplier’s network. Management emphasis on stock control has continued to see our stock turns increase and has resulted in sizeable improvements in service levels to our customers. PREMIX VOLUMES The government tax change on premix drinks severely impacted premix sales during the ﬁ nancial year. Volume of cases dropped by 35% from last year and the sales value was down 11% on the same year. However, sales of full strength spirits more than compensated the loss in premix sales. The volumes of premix sales have shown signs of recovery at year end. The effect of this will ﬂ ow into the 2009–2010 ﬁ nancial year. INVESTMENT IN INDEPENDENT BRANDS AUSTRALIA (IBA) The IBA model continues to generate strong growth both in store numbers and comparable (like-for-like) sales growth within the current network. The successful launch of the IGA Plus Liquor banner in Western Australia during the year is another step in growing the footprint of this successful 12 SIGNIFICANT ACHIEVEMENTS FUTURE DIRECTION • • • • Sales growth up by 5.65% and EBITA up by 8.2%. The beneﬁ ts of the 2008 restructure continue to advantage the network with the CODB falling by 4%. Branded IBA stores grow from 1,527 to 1,578 stores in 2009. ‘Thirsty Camel’ banner consolidation continues to deliver its members strong buying and cost efﬁ ciencies. • • • Sales and equity growth for the major IBA brands under ‘Cellarbrations’, ‘The Bottle-O’ and ‘IGA plus Liquor’. Continue to reduce controllable costs to ensure the ALM remains the most efﬁ cient and cost effective route to market for all independent liquor outlets. Working with major suppliers to redirect beer purchases through ALM Warehouses across Australia, maximising beer distribution and enabling Najda’s Cellarbrations, North Geelong, Victoria. Independents to receive one order, one invoice and one delivery. • Continue to strengthen our ‘Liquor Alliance’ relationship with the further expansion of the ‘Thirsty Camel’ brand around Australia. available through one supply chain is a key strategy for a large percentage of our customer base. ALM and IBA are working with all our major suppliers to provide this solution so that our customers can perform in a highly competitive environment on a level playing ﬁ eld and provide the end consumer with a competitively priced extensive range coupled with knowledgeable friendly service. HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY (HSEC) • ALM has implemented strategies in line with Metcash’s HSEC policy. There has been a focus to reduce • • packaging waste and continue recycling of paper, cardboard and plastic to reduce landﬁ ll. Improving data collection processes from suppliers to facilitate more accurate reporting via the National Packaging Covenant. ID 25 Program is a responsible service of alcohol education campaign about the importance of checking the ID of those deemed close to the legal age, targeting the 18 to 25 age group. • ‘Don’t buy it for them’ is an in store marketing campaign to educate parents and other legal age customers not to purchase alcohol for or on behalf of under age people. ALM and IBA continue to support independent retailers by building strong brands, enhancing the retail offer and providing strong promotional support. Our share of market continues to grow and IBA is now a key retail group for all the major liquor suppliers. ALM is well positioned to continue to support independent retailers and the continued consolidation of the retail liquor market. FERGUS COLLINS CEO AUSTRALIAN LIQUOR MARKETERS METCASH LIMITED ANNUAL REPORT 2009 13 Campbells Wholesale Campbells Wholesale had another solid year with sales increasing by 7.1% to $1.66 billion and EBITA growing by 7.8% to $32.9 million. Strong growth was generated by each of the four divisions: Campbells Cash & Carry (CCC), Campbells Wholesale Division (CWD), C-Store Distribution (CSD) and Foodlink. Each division is tailored to meet the needs of their customers in the route, convenience and hospitality market segments. Campbells Wholesale, through its national network of 45 warehouses, is a multi-format distributor of grocery, confectionery, tobacco, liquor, soft drinks and foodservice products. Signiﬁ cant gains have been made through leveraging the ability to offer a uniform supply solution to all nationally based customers. The business has evolved from purely cash and carry to a full distribution service. 70% of Campbells Wholesale volume is based on a full delivery format, with electronic ordering, processing and invoicing. Campbells has also invested substantially in automated picking technology to provide the accuracy and efﬁ ciency in single item picking required by its convenience customers. CONVENIENCE/ ROUTE MARKET Campbells Wholesale has seen a rise in market share to 35% of the organised convenience channel. The 2008–2009 year has seen major growth with both 7-Eleven and BP, through its CSD division. The CSD model is unique in that it offers a total supply solution to oil companies and national convenience store chains seeking supply chain efﬁ ciencies, electronic processing and less forecourt disruption through a ‘one-stop’ delivery process. This model is replicated across regional and remote areas of Australia through CWD, and the establishment 14 of Coast and Country distribution outlets within the stores further supports the customers’ confectionery needs. Campbells Wholesale continues to invest in its network, especially catering for the distribution needs in remote areas of Australia – a state-of-the-art 12,000m2 warehouse was opened successfully in Darwin in October 2008. CCC continues to offer a wide range of products to its independent route customers in all capital cities of Australia. Independent retailers favour the Cash & Carry format, providing the retailer with a wide selection of products and visibility to new products and market information not normally available to this channel through conventional distribution wholesaling. Campbells Wholesale’s retail banner, Lucky 7, again grew solidly to 250 sites, generating retail sales of over $170 million. The Lucky 7 banner provides the independent retailer with a formatted retail offer, range control and pricing which allows retailers to compete effectively. HOSPITALITY The hospitality market remains an attractive target for Campbells Wholesale. Campbells’ fourth division, Foodlink, based in Perth, is a specialist foodservice distributor to free trade, franchised networks and corporate caterers. Recently Foodlink established its second operation through the acquisition of Solomon Food Group in Murarrie, Brisbane. This is the ﬁ rst step to the creation of a national network of Foodlink warehouses. The foodservice category is also well represented in Campbells Cash & Carry and its ‘Catering Connection’ concept, which supplies independent restaurants, bistros, clubs, pubs and takeaways outlets. The feature of a wide range of foodservice products and the inclusion of liquor to licensed premises provides a unique offer to the foodservice market in Australia. HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY (HSEC) • Campbells Wholesale has implemented strategies in line with Metcash’s HSEC policy. There has been a focus to reduce packaging waste and continue recycling of paper, cardboard and plastic to reduce landﬁ ll. • 30,000 plastic totes (containers) are utilised to replace cartons that were previously used to package loose items to the convenience market. MAJOR ACTIVITIES • • • Primarily focused on the convenience, route and hospitality channels of trade. Services customers who require a total supply solution across a broad range of fast moving consumer goods (FMCG) products. Campbells Wholesale has national service and distribution covered via: 22 Cash & Carry warehouses (CCC) and 17 regional warehouse distribution centres (CWD), servicing over 100,000 customers across all • • Campbells Cash & Carry no longer provides plastic shopping bags, instead reusing manufacturers packaging from goods received. Campbells Wholesale raised over $100,000 in cash and stock for victims of the Victorian ﬁ re disaster. Campbells Wholesale expects its growth to continue across all divisions in the new ﬁ nancial year. PETER DUBBELMAN CEO CAMPBELLS WHOLESALE C-Store Distribution delivery to 7-Eleven, Maroubra, Western Australia. Foodlink delivery to Pizza Hut restaurant Perth, Western Australia. Cash & Carry, Bunbury, Western Australia. SIGNIFICANT ACHIEVEMENTS FUTURE DIRECTION • • states and territories, stocking a broad range of groceries, confectionery, cigarettes, foodservice and liquor; four C-Store Distribution centres (CSD) supported by specialist confectionery distribution centres; the FoodLink Foodservice business in Western Australia providing the leading distribution solution to the food service industry. • • • • • Sales increased by 7.1% to $1.66 billion. • EBITA grew 7.8% to $33 million. A 12,000m 2 state-of-the-art warehouse was opened in Darwin to cater for the distribution needs of remote areas of northern Australia. Lucky 7 banner grew from 180 to 250 sites. Acquisition of the Solomon Food Group is Brisbane creates ﬁ rst step towards a national network of FoodLink warehouses. • • • • Continuing to provide the total supply chain solution to the modern petrol and convenience channel throughout metropolitan and regional centres. Growth of independent convenience sector through the ‘Lucky 7’ banner. Expanding the foodservice offer nationally. Continued growth in confectionery markets. Continue to expand in convenience and hospitality and small business markets. EBITA ($m) 17.3 21.2 2005 2006 2007 2008 2009 28.9 30.6 33.0 15 20 25 30 35 SALES ($m) 990.1 1,147.4 2005 2006 2007 2008 2009 1,417.4 1,550.8 1,660.4 850 1,050 1,250 1,450 1,650 METCASH LIMITED ANNUAL REPORT 2009 15 board of directors 1. 2. 3. 4. 5. 1. 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 39 years’ industry experience and has been involved with the Metcash business as a Director since May 1998. 2. PETER L BARNES MBA (MELBOURNE), B COMMERCE (HONS) Non-executive Deputy Chairman Chairman 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. Mr Barnes was formerly an executive with Philip Morris International Inc. He held several senior management positions in Australia and overseas – including Managing Director Lindeman Holdings Ltd and President, Asia Region. 16 3. ANDREW REITZER B COMM MBL CEO Metcash Group of Companies Date of appointment to Metcash Limited: 18 April 2005. Mr Andrew Reitzer has 31 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. 4. MICHAEL R BUTLER 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 AXA Asia Paciﬁ c Holdings Limited, APN Property Group Limited and Position Partners Pty Ltd. He was previously a Non-executive Director and Chairman of Ausdoc Group Limited, Freightways Express Limited, Hamilton Island Limited, Members Equity Bank Pty Limited, Industry Super Holdings Pty Ltd and Verticon Group Limited. 5. NEIL D HAMILTON LLB (UWA) Non-executive Director Member of the Remuneration & Nomination Committee Date of appointment to Metcash Limited: 7 February 2008. Mr Hamilton is based in Perth and Sydney and has over 26 years’ experience in the legal profession and in business with substantial experience in a number of industries including investment/funds management, insurance, banking and resources. Mr Hamilton is Chairman of IRESS Market Technology Limited, Mount Gibson Iron Limited and Northern Iron Limited. 6. MIKE JABLONSKI Group Merchandise Director Date of appointment to Metcash Limited: 18 April 2005. Mr Jablonski has 37 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 Limited. 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. 6. 7. 8. 9. 10. 7. EDWIN JANKELOWITZ B COMM, CA (SA) Finance Director Date of appointment to Metcash Limited: 18 April 2005. Qualiﬁ ed as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd in Head Ofﬁ ce – 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, Metcash Limited – May 1998 to date – Finance Director. Mr Jankelowitz has spent over 35 years in corporate ofﬁ ces of listed companies. He was a member of the Income Tax Special Court in South Africa for 20 years (1977–1997). 8. 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 of IGA Distribution until his current appointment in May 2000 to the role of CEO IGA Distribution. 9. RICHARD A LONGES BA (SYDNEY), LLB (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 and Investec Bank (Australia) Ltd. Mr Longes was formerly a co-founder and principal of the corporate advisory and private equity ﬁ rm, Wentworth Associates, and prior to that a partner of Freehill Hollingdale & Page, solicitors. 10. V. DUDLEY RUBIN CA (SA), H DIP BDP, MBA 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 26 years’ industry experience and has been involved with the Metcash business as a Director since May 1998. JOHN RANDALL BEC, FCPA, FCIS, MAICD Company Secretary Mr Randall joined the Company in 1997. Previously Chief Financial Ofﬁ cer 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. METCASH LIMITED ANNUAL REPORT 2009 17 executive team 1. 2. 3. 4. 5. 1. ANDREW REITZER B COMM MBL CEO Metcash Group of Companies 3. FERGUS COLLINS B COMM (HONS) (DUBLIN), B SC MGMT (IRELAND), Mr Andrew Reitzer has 31 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. 2. KEN BEAN MBA, GRAD DIP BUS, DIP. ACC. Chief Executive, Group Logistics and Corporate Development Mr Ken Bean has over 38 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 ofﬁ ces. Ken has also held senior roles in corporate development as well as ﬁ nance and administration. He also has signiﬁ cant industrial property development and construction experience and is currently a member of the Logistics Association of Australia and the Australian Logistics Council. MBA (UQ) CEO Australian Liquor Marketers Fergus Collins joined ALM in December 2001 as Commercial Manager Queensland and was promoted to General Manager Queensland in May 2004. He became General Manager, IBA in July 2006. In February 2007, he was appointed Chief Executive Ofﬁ cer. Fergus is a member of the Chartered Institute of Management Accountants of the UK and a graduate of the Metcash Executive Leadership Program. 4. PETER DUBBELMAN MBA (MELB) CEO Campbells Wholesale Appointed CEO of Campbells Wholesale in June 1998. Peter has over 25 years’ experience in fast moving consumer goods distribution primarily in multi-site general management. Major growth in the convenience sector has been achieved through the successful development of an efﬁ cient supply chain solution to organised and franchised retailers and the development of retail formats in the independent convenience market. Good growth in the hospitality sector has been achieved more recently through the successful development of specialist foodservice distribution outlets. Peter has successfully initiated major growth of the business through the establishment of four distinct divisions each aligned with the speciﬁ c needs of the convenience, liquor and hospitality markets throughout Australia. 5. ADRIAN GRATWICKE BA (HONS), ACA, MBA General Manager Finance An experienced ﬁ nance professional, Mr Gratwicke brings over 21 years’ commercial and industry experience to his current position as General Manager Finance. Since joining Metcash in April 1998, he has held several senior roles including National Accounting Manager, National Commercial Manager IGA Distribution and General Manager Mergers & Acquisitions, Risk and Investor Relations. 6. BERNARD J HALE B TH (CAN) Chief Information Ofﬁ cer Mr Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Mr Bernard Hale has 34 years of IT industry experience, 25 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 Ofﬁ cer of Metcash Trading Limited on 18 6. 7. 8. 9. 10. 11. 1 December 2002. Prior to being appointed to his current role he served as a Non-executive Director of Metcash Trading Limited. 7. MIKE JABLONSKI Group Merchandise Director Mr Jablonski has 37 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 Limited. 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. 8. EDWIN JANKELOWITZ B COMM, CA (SA) Finance Director Qualiﬁ ed as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd in Head Ofﬁ ce – 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. 10. DAVID JOHNSTON M BUS (EMPLOYMENT RELATIONS), FAHRI, JP Metcash Trading Limited, Metcash Limited – May 1998 to date – Finance Director. Mr Jankelowitz has spent over 35 years in corporate ofﬁ ces of listed companies. He was a member of the Income Tax Special Court in South Africa for 20 years (1977–1997). 9. 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 of IGA Distribution until his current appointment in May 2000 to the role of CEO IGA Distribution. Chief Human Resources Ofﬁ cer Mr Johnston joined Metcash in December 2001. He brings over 31 years’ experience in Human Resources with some of the world’s most successful FMCG companies. He has developed and delivered highly successful culture change initiatives and executive development programs at national and international levels, and pioneering Australian industrial relations agreements. Mr Johnston’s current focus at Metcash is to further strengthen leadership capability, implement effective succession and talent development strategies and continue to develop ways to make Metcash a great employer. 11. HARRY RUMPLER CEO IGA Fresh Mr Rumpler joined the Company in November 1997 as National Fresh Food Manager for Merchandise and was then appointed to General Manager IGA Distribution Queensland in 2005. He was appointed CEO of IGA Fresh in November 2007. Mr Rumpler has been in retail for 32 years working in all areas of the business including operations, merchandise and buying. METCASH LIMITED ANNUAL REPORT 2009 19 ﬁ ve-year review INCOME STATEMENT Net Sales ($’m) Earnings before interest and taxation ($’m) Interest, net ($’m) Operating Proﬁ t before Tax ($’m) Proﬁ t After Tax ($’m) BALANCE SHEET AIFRS AGAAP 2009 2008 RESTATED 2007 2006 2005 10,981.7 10,116.1 9,694.8 8,214.4 7,010.4 351.8 61.0 290.8 202.5 335.4 51.1 284.3 197.4 282.9 57.2 225.7 158.6 174.0 40.5 133.5 81.2 186.6 1.5 185.1 126.8 4.5 (73.00) 98.8 Metcash Shareholder Equity ($’m) 1,279.4 1,239.7 1,180.2 1,032.9 Net Tangible Assets per share (cents) Gearing (debt/debt+equity) (%) 12.98 33.5 16.16 33.2 8.65 34.1 (2.40) 42.3 SHARE STATISTICS Fully Paid Ordinary Shares 764,888,363 764,792,593 762,405,655 747,741,353 427,395,233 Weighted Average Ordinary Shares 764,843,880 763,484,392 753,116,068 593,675,382 427,395,233 Earnings per ordinary share (cents) Dividends declared per share (cents) 26.47 24.00 25.86 21.00 21.06 17.00 16.99 11.50 29.68 9.50 OTHER STATISTICS Number of employees (full-time equivalents) 5,358 5,056 5,855 7,033 4,316 Premium label range IGA ‘Signature’ products. 20 corporate governance statement 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 and revised in August 2007. The table below summarises the Company’s compliance with the Corporate Governance Council’s recommendations. RECOMMENDATION COMPLY YES/ NO REFERENCE/ EXPLANATION PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1.1 Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 1.2 Companies should disclose the process for evaluating the performance of senior executives. 1.3 Companies should provide the information indicated in the guide to reporting on Principle 1. PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE 2.1 A majority of the Board should be Independent Directors. 2.2 The Chair should be an Independent Director. 2.3 The roles of Chair and Chief Executive Ofﬁ cer should not be exercised by the same individual. 2.4 The Board should establish a Nomination Committee. 2.5 Companies should disclose the process for evaluating the performance of the Board, its Committees and individual Directors. 2.6 Companies should provide the information indicated in the guide to reporting on Principle 2. PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING Page 23 Page 23 Page 23 Page 25 Page 25 Page 25 Page 26 Yes Yes Yes Yes Yes Yes Yes Yes Yes 3.1 Companies should establish a code of conduct and disclose the code or a summary Yes Page 26 of the code as to: (cid:129) (cid:129) the practices necessary to maintain conﬁ dence in the Company’s integrity; the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. (cid:129) 3.2 Companies should establish a policy concerning trading in Company securities by Directors, senior executives and employees, and disclose the policy or a summary of that policy. Yes Page 26 3.3 Companies should provide the information indicated in the guide to reporting Yes on Principle 3. METCASH LIMITED ANNUAL REPORT 2009 21 corporate governance statement RECOMMENDATION PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 4.1 The Board should establish an Audit Committee. 4.2 The Audit Committee should be structured so that it: (cid:129) (cid:129) (cid:129) (cid:129) consists only of Non-executive Directors; consists of a majority of Independent Directors; is chaired by an Independent Chair, who is not Chair of the Board; has at least three members. COMPLY YES/ NO REFERENCE/ EXPLANATION Yes Yes Page 27 Page 27 4.3 The Audit Committee should have a formal charter. 4.4 Companies should provide the information indicated in the guide to reporting Yes Yes Page 27 on Principle 4. PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Yes Page 29 5.2 Companies should provide the information indicated in the guide to reporting Yes on Principle 5. PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS 6.1 Companies should design a communications policy for promoting effective Yes Page 29 communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. 6.2 Companies should provide the information indicated in the guide to reporting on Principle 6. PRINCIPLE 7 – RECOGNISE AND MANAGE RISK 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2 The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. Yes Yes Yes Page 30 Page 31 7.3 The Board should disclose whether it has received assurance from the Chief Executive Yes Page 32 Ofﬁ cer (or equivalent) and the Chief Financial Ofﬁ cer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to ﬁ nancial reporting risks. 7.4 Companies should provide the information indicated in the guide to reporting on Principle 7. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY 8.1 The Board should establish a Remuneration Committee. 8.2 Companies should clearly distinguish the structure of Non-executive Directors’ remuneration from that of Executive Directors and senior executives. 8.3 Companies should provide the information indicated in the guide to reporting Yes Yes Yes Yes Page 32 Refer to Remuneration Report on Principle 8. 22 The Company’s policies and practices and their relationship to the Council’s recommendations are set out in more detail as follows. PRINCIPLE 1– LAY SOLID FOUNDATION FOR MANAGEMENT AND OVERSIGHT RESPONSIBILITIES OF THE BOARD AND MANAGEMENT The Board of Directors is responsible for setting the strategic direction of the Company and for overseeing and monitoring its businesses and affairs. The Board reviews and approves the Company’s strategic and business plans and guiding policies. Day-to-day management of the Company’s affairs and implementation of its strategy and policy initiatives are delegated to the Chief Executive Ofﬁ cer and senior executives, who operate in accordance with Board-approved policies and delegated limits of authority. The principal functions of the Board include: (cid:129) charting the direction, strategies and ﬁ nancial objectives of the Company; (cid:129) monitoring implementation of those strategies and the operational and ﬁ nancial performance and risk of each of the Company’s activities; (cid:129) reviewing major capital expenditure, acquisitions, divestments and funding; (cid:129) reviewing performance, remuneration and succession of senior management; (cid:129) (cid:129) 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 Board’s Charter can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. EVALUATING THE PERFORMANCE OF SENIOR EXECUTIVES On an annual basis, the Remuneration & Nomination Committee reviews the performance of the Chief Executive Ofﬁ cer against qualitative and quantitative criteria, which include proﬁ t performance, other ﬁ nancial measures and achievement of the Company’s strategic objectives. This occurred during the 2009 ﬁ nancial year in accordance with this process. The Company maintains a performance evaluation process that measures other senior executives against previously agreed Key Performance Indicators and Key Behavioural Indicators. This process is performed formally once a year with quarterly reviews and took place for each senior executive during the 2009 ﬁ nancial year. Senior executives have access to continuing education to update and enhance their skills and knowledge. PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE A MAJORITY OF THE BOARD SHOULD BE INDEPENDENT DIRECTORS APPOINTMENT TO THE BOARD The Board’s policy for the selection, appointment and re-appointment of Directors is to ensure that the Board possesses an appropriate range of skills, experience and expertise to enable the Board to most effectively carry out its responsibilities. As part of this appointment process, the Directors consider Board renewal and succession plans and whether the Board is of a size and composition that is conducive to making appropriate decisions. Prior to Directors standing for re-election, the Remuneration & Nomination Committee reviews the skills and contribution of the Directors concerned and decides whether the committee supports their re-election. The committee then recommends their decision to the Board. When a vacancy exists, or when it is considered that the Board would beneﬁ t 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. METCASH LIMITED ANNUAL REPORT 2009 23 corporate governance statement Directors are not appointed for a ﬁ xed term but, under the Company’s Constitution, must be re-elected each three years by rotation and are subject to Australian Securities Exchange (ASX) Listing Rules and Corporations Act provisions. BOARD COMPOSITION 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, and the period of ofﬁ ce held by each Director, please refer to page 16, headed ‘Board of Directors’, of this report. The Board of Metcash is currently constituted as follows: INDEPENDENT NON-EXECUTIVE DIRECTORS Six Independent Directors hold key positions that include chairing the Board and 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. The Board’s six Non-executive Directors (at the date of this report), Mr dos Santos, Mr Barnes, Mr Butler, Mr Hamilton, Mr Longes and Mr Rubin, are considered by the Board to be Independent Directors. The Board has adopted a deﬁ nition of independence that is derived from the deﬁ nition set out in the Principles. Directors are considered independent if they are not a member of management and are free of any business or other relationship that would materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement. When assessing the independence of a Director, the Board will consider whether the Director: (cid:129) (cid:129) (cid:129) (cid:129) is a substantial shareholder of the Company or an ofﬁ cer of, or otherwise associated directly with, a substantial shareholder of the Company; is employed or has previously been employed in an executive capacity by the Company or another group member and there has not been a period of at least three years between ceasing to hold any such employment and serving on the Board; has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided; is a material supplier or customer of the Company or other group member, or an ofﬁ cer of or otherwise associated directly or indirectly with a material supplier or customer; (cid:129) has a material contractual relationship with the Company or another group member other than as a Director of the Company. The Board regularly assesses whether each Non-executive Director is independent, based on this deﬁ nition, and in light of information disclosed by those Directors that may be relevant to this assessment. The six Non-executive Directors are considered to be independent for the reasons set out as follows. (cid:129) (cid:129) (cid:129) None of the six Non-executive Directors are substantial shareholders of the Company or associated with a substantial shareholder of the Company (holding 5% or more of the Company’s issued shares). Messrs Barnes, Butler, Hamilton and Longes are not employed by, nor have they previously been employed by, the Company or another group member. Mr dos Santos and Mr Rubin were employed in executive positions by Metoz, the former group holding company and now a wholly owned Metcash subsidiary. That employment ceased on 18 April 2005 when the Metoz scheme became effective. A period of more than three years has thus elapsed during which Mr dos Santos and Mr Rubin have remained as Metcash Directors. Although there has not been ‘...a period of at least three years between ceasing such employment and serving on the Board’, it is noted that their roles as Metoz employees did not put them in a position of authority, responsibility, and/ or directing the activities of Metcash itself and, that this fact, combined with the four-year elapsed period are important factors in determining their capacity to bring independent judgement to bear on Metcash Board deliberations. At all times, they have been Non-executive Directors of Metcash. Given the speciﬁ c facts of their situation, this test does not preclude them from being considered independent. (cid:129) The Board considered all relevant factors and concluded that Mr dos Santos and Mr Rubin are Independent Directors and accordingly, Mr dos Santos is considered to be an Independent Chairman. 24 (cid:129) (cid:129) (cid:129) (cid:129) None of the six Non-executive Directors have a contractual relationship with the group, nor have they been a professional adviser or consultant to the group or an employee associated with the service provided. None of the six Non-executive Directors is a material supplier or customer of the Company or an ofﬁ cer of, or otherwise associated directly or indirectly with, a material supplier or customer. Materiality is assessed as supplying 2.5% or more of the Company’s annual purchases or a customer representing 2.5% or more of the Company’s annual sales. 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. Mr Hamilton was a Director of Insurance Australia Group Limited and Programmed Maintenance Services Limited, suppliers of insurance and maintenance services to the Company. However, the value of services provided is less than 0.1% of the Company’s total costs and expenses. (cid:129) None of the six Non-executive Directors has a contractual relationship with the Company or another group member, other than as a Director of the Company. EXECUTIVE DIRECTORS The Board has four Executive Directors: Mr Andrew Reitzer, Mr Michael Jablonski, Mr Edwin Jankelowitz and Mr Lou Jardin. Mr Andrew Reitzer is the Company’s Chief Executive Ofﬁ cer and each of the other three Directors is responsible for key activities of the Company. All Directors, whether independent or not, bring an independent judgement to bear on Board decisions. 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. COMPANY SECRETARY All Directors have access to the Company Secretary who is accountable to the Board, through the Chairman, on all governance matters. THE CHAIR SHOULD BE AN INDEPENDENT DIRECTOR The Chair, Mr Carlos dos Santos, is considered by the Board to be an Independent Director. Please see above. THE ROLES OF CHAIR AND CHIEF EXECUTIVE OFFICER SHOULD NOT BE EXERCISED BY THE SAME INDIVIDUAL The roles of Chief Executive Ofﬁ cer and Chair are not exercised by the same individual. THE BOARD SHOULD ESTABLISH A NOMINATION COMMITTEE The Board has a Remuneration & Nomination Committee. REMUNERATION & NOMINATION COMMITTEE The membership of the Remuneration & Nomination Committee consists of the Non-executive Independent Directors who are listed below, together with details of their qualiﬁ cations and attendance at meetings during the past ﬁ nancial year. MEMBER QUALIFICATIONS P L Barnes (C) C S dos Santos N D Hamilton (C) Chairman. B Comm (Hons), MBA CA (SA) LLB Responsibilities of the committee include to: (cid:129) advise the Board on remuneration of the CEO and senior management; MEETINGS HELD DURING 2009 FINANCIAL YEAR MEETINGS ATTENDED DURING 2009 FINANCIAL YEAR 6 6 6 6 6 6 METCASH LIMITED ANNUAL REPORT 2009 25 corporate governance statement (cid:129) advise the Board on performance-linked compensation for management; (cid:129) oversee the administration of the Metcash Employees Option Plan; (cid:129) advise the Board on directorship and Board Committee appointments, Board succession planning and performance of the CEO; and (cid:129) implement processes to assess the effectiveness of the Board and its Committees. The Committee consists only 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’. PROCESS FOR EVALUATING THE PERFORMANCE OF THE BOARD, ITS COMMITTEES AND INDIVIDUAL DIRECTORS The Board has previously reviewed performance each second year using the services of a recognised Board Performance Consultant. During the past year, it was decided that annual reviews of the Board, its committees and directors would be performed using a self-evaluation questionnaire, with an independent review to be conducted each third year using an external Board Performance Consultant. The questionnaire used covered the areas of Board structure and role, Board composition and succession, meeting processes, strategy and planning, performance monitoring and communication. The process was managed by the Company Secretary on a conﬁ dential basis. Results of the questionnaire were provided to all Directors with any comments from Directors passed to the Chairman. The results were reviewed by the Chairman individually with each Director, then by the Remuneration & Nomination Committee and ﬁ nally by the Board. It was agreed by Directors that the evaluation process had been effective and that the individual discussions with the Chairman had been frank and open. The overall conclusion was that the Board and its committees are effective, decisions are made in a timely manner and Directors are adding value to the Company. PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING ESTABLISH A CODE OF CONDUCT The Company has a Code of Conduct that applies to Directors and all employees. Subjects covered by the Code include: (cid:129) equal employment opportunity, discrimination and harassment; (cid:129) security of Company records and assets and conﬁ dentiality guidelines; (cid:129) conﬂ ict of interest, acceptance of gifts, entertainment and services; (cid:129) fraud, corruption and irregular transactions; (cid:129) legal compliance; (cid:129) honest ethical behaviour; (cid:129) environmental protection and 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. Additionally, the Company has a ‘Serious Complaints’ policy that endeavours to protect those who report, in good faith, violations of the Code of Conduct. This policy can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. 26 TRADING IN COMPANY SECURITIES The Company has a code for Directors, senior executives and all Metcash employees who are advised of closed trading periods in March and September each year in respect of security transactions and it 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 Directors, senior executives and all Metcash employees who are advised of closed trading periods. Under the policy, no Director, senior executive or Metcash employee advised of the closed trading period 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 ﬁ nal results, except with the written authority of the Chairman of Metcash. Such authority will only be granted in exceptional circumstances. The Chairman may also restrict dealings in securities of Metcash during other periods. Trading in all of these periods is monitored to ensure Directors, senior executives and all Metcash employees who are advised of closed trading periods have not traded in Metcash securities. Further, Directors and members of the Metcash Executive Team (direct reports to the CEO) who wish to deal in Metcash securities must ﬁ rst notify the Chairman in writing of the proposed dealing, which must not be engaged in until approval has been given by the Chairman. The use of derivatives over unvested Metcash securities can have the effect of distorting the proper functioning of performance hurdles and reducing the intended alignment between management and shareholder. Metcash employees must not use, or allow to be used, any derivatives in relation to unvested Metcash securities. In respect of investments in Metcash shares that are ﬁ nanced by margin call loans, Directors and members of the Metcash Executive Team are required to advise the Chairman of such investments and the Company Secretary is to maintain a register of such instances. The Chairman is to be advised of any lender’s intention to sell Metcash shares held by Directors and senior executives to satisfy margin loans. This policy in no way alters the obligation of Directors to notify the Company Secretary of any change in the beneﬁ cial ownership of Metcash shares held by them. PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING THE BOARD SHOULD ESTABLISH AN AUDIT COMMITTEE The Board has an Audit, Risk & Compliance Committee. The membership of the Audit Risk & Compliance Committee consists of the Non-executive Independent Directors who are listed below, together with details of their qualiﬁ cations and attendance at meetings during the past ﬁ nancial year. MEMBER R A Longes (C) M R Butler V D Rubin (C) Chairman. QUALIFICATIONS BA, LLB, MBA B Sc, MBA CA(SA), HDip BDP, MBA MEETINGS HELD DURING 2009 FINANCIAL YEAR MEETINGS ATTENDED DURING 2009 FINANCIAL YEAR 4 4 4 4 4 4 The function of the Audit Risk & Compliance Committee is to advise on the establishment and maintenance of a framework of internal control, effective management of ﬁ nancial 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 ﬁ nancial information prepared for use by the Board in determining policies or for inclusion in the ﬁ nancial statements. In accordance with the Principles, the Committee consists only of Independent Directors and is chaired by an Independent Director who is not the Chairman of the Board. METCASH LIMITED ANNUAL REPORT 2009 27 corporate governance statement COMMITTEE CHARTER The Committee’s Charter, which is summarised below, sets out the speciﬁ c responsibilities delegated to it by the Board and details the manner in which the Committee will operate. The Charter can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. The principal terms of reference of the Audit Risk & Compliance Committee are the effective management of ﬁ nancial and other risks through ensuring that systems and management processes are in place to identify and manage operational, ﬁ nancial and compliance risks. Speciﬁ c areas of review include: (cid:129) overseeing the establishment of a framework within which risks to the Company are identiﬁ ed and mitigated and risk avoidance processes are established and the effectiveness of the risk management process monitored; (cid:129) ﬁ nancial risk and exposure; (cid:129) occupational health and safety; (cid:129) environmental issues; (cid:129) Hazard Analysis and Critical Control Points (HACCP) based food safety program; and (cid:129) integrity of information technology systems. The Committee reviews the effectiveness of risk management policies and procedures by: (cid:129) undertaking annually a comprehensive strategic and budget review of the Group’s activities; (cid:129) reviewing monthly ﬁ nancial performance against budget and updated forecasts at least quarterly; (cid:129) reviewing the internal audit of the Group’s ﬁ nancial controls, taxation compliance and adherence to policies and regulations; (cid:129) reviewing annually the effectiveness and adequacy of the Group’s insurance program; (cid:129) (cid:129) (cid:129) the provision of reliable management and ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements; – – assessing compliance with laws and regulations by monitoring developments and changes in the various rules, laws and regulations relating to the Company’s business operations and the responsibilities of Directors and reviewing the extent to which the Board and the Company are meeting their obligations to ensure that all requirements are met; the maintenance of an effective and efﬁ cient 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 ﬁ ndings and management response; – reviewing the independence of the external auditor; – ensuring auditors have the necessary access to Company information and staff to fulﬁ l their obligations. The Audit Risk & Compliance Committee acts to ensure that operational, ﬁ nancial and compliance risks are managed in accordance with the Board’s risk tolerance. The Company has implemented a Risk Management Framework, which is supported by specialised risk management teams (refer Principle 7 – Recognise and Manage Risk). 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 ﬁ nancial and operational results. The Committee meets regularly, in camera, with the Lead External Audit Partner and the Chief Internal Auditor. A ‘Charter of Audit Independence’ is in place that details the circumstances in which the Company’s external auditor may perform non-audit related services and the procedures to be followed to obtain approval for those services where they are permitted. The Charter also contains the Company’s policies on the hiring of former partners and senior managers of the external auditor and the rotation of lead and review external audit engagement partners. The Charter can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. 28 In principle, the appointment of an external auditor would be based on a tender process conducted by the Audit Risk & Compliance Committee. The Committee would select suitable candidates for the role, issue and evaluate tenders, interview the candidates and then make a recommendation to the Board. PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE COMPLIANCE WITH ASX LISTING RULE DISCLOSURE REQUIREMENTS The Metcash Market Disclosure Policy is designed to ensure that: (cid:129) (cid:129) there is full and timely disclosure of Metcash’s activities to shareholders and the market, in accordance with Metcash’s legal and regulatory obligations; and all stakeholders (including shareholders, the market and other interested parties) have an equal opportunity to receive and obtain externally available information issued by Metcash. The policy reﬂ ects Metcash’s obligation to comply with the disclosure requirements of the Listing Rules of the Australian Securities Exchange (ASX), as well as relevant corporations and securities legislation. The policy is reviewed regularly to ensure that the policy reﬂ ects any legislative or regulatory requirements or ‘best practice’ developments. DISCLOSURE RESPONSIBILITIES AND PROCEDURES Metcash has designated the Chairman, Chief Executive Ofﬁ cer and Company Secretary as ‘Disclosure Ofﬁ cers’. The Chairman’s approval, or that of his delegate, is required for disclosures. The Company Secretary has responsibility for liaising with the ASX in relation to all announcement and disclosure issues. Disclosure Ofﬁ cers have responsibility for reviewing proposed disclosures and making decisions in relation to what information can or should be disclosed to the market. All Metcash staff are required to inform a Disclosure Ofﬁ cer of any potential ‘price sensitive’ information concerning Metcash as soon as they become aware of it. Staff may speak to their Business Pillar Head or a Disclosure Ofﬁ cer if they are in doubt as to whether information is potentially ‘price sensitive’. The Market Disclosure Policy can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS Metcash Limited believes that shareholder and market conﬁ dence in all its dealings is paramount and is committed to ensuring it complies with continuous disclosure obligations so that its investors have timely and equal access to important company information. Information provided to the ASX is made available on the Company’s website so that all shareholders and other key stakeholders have timely access to it. In addition to meeting its continuous disclosure obligations, Metcash ensures shareholders and the broader investment community have timely access to important company information through a series of regular disclosure events during the ﬁ nancial year. The calendar for these events is posted on the company’s website. The Shareholder Communication Policy can be found on the Company’s website www.metcash.com under the heading ‘Corporate Governance’. The Company is encouraging electronic communication with shareholders to facilitate the speedy and inexpensive dissemination of information. This is being done through a program to obtain shareholder email addresses to alert them to new information on the Metcash website and to distribute information to them directly. The Company’s website contains more than three years of ASX and media announcements and annual reports. This information is shown under the heading ‘Investors’. Electronic proxy voting has been introduced. METCASH LIMITED ANNUAL REPORT 2009 29 corporate governance statement 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. PRINCIPLE 7 – RECOGNISE AND MANAGE RISK POLICES FOR THE OVERSIGHT AND MANAGEMENT OF MATERIAL BUSINESS RISKS The Metcash Board is responsible for designing and reviewing Metcash’s Risk Management Policy and for determining the Company’s appetite for risk, taking into account the Company’s strategic objectives and other factors including stakeholder expectations. The level of tolerance for risk varies according to the risk area. The Metcash Group Risk Department, the Internal Audit Department and the Metcash Audit Risk & Compliance Committee, a Committee of the Metcash Board, implement a continuous process of communication with Metcash’s internal stakeholders at each stage of the risk management process. They also conduct annual examinations of Metcash’s external and internal environments, so as to establish the basic parameters within which risks must be managed. Metcash’s policies on risk oversight and management of material business risks are summarised in a document entitled ‘Risk Management Policy – Summary’, which can be found on the Metcash website www.metcash.com under the heading ‘Corporate Governance’. Metcash’s risk management philosophy and practices are documented more fully in the Metcash Risk Management Framework and Guidelines (Risk Management Framework). The company has adopted the Australian/New Zealand Standard for Risk Management – AS/NZ 4360:2004 as the basis for its Risk Management Framework. Metcash has implemented its Risk Management Framework through, amongst other things, the identiﬁ cation of material business risk categories and the development of risk proﬁ les for all the major segments and functions of the business. Material business risks that have been identiﬁ ed and included in the Risk Management Framework are grouped under the following categories: (cid:129) Asset Management; (cid:129) Business Continuity; (cid:129) Health, Safety, Environment and Community (HSEC); (cid:129) Compliance and Legal (Non-HSEC); (cid:129) Employee; (cid:129) Financial Reporting; (cid:129) Criminal Activity; (cid:129) Information Technology; (cid:129) Reputational; (cid:129) Solvency; (cid:129) Operations/Warehouse; (cid:129) Merchandising, Customer and Supplier (i.e. Supply chain); and (cid:129) Strategic/Sustainability. The risk management process includes the following elements: (cid:129) Risk assessment: – – – risk identiﬁ cation; risk analysis; risk treatment; (cid:129) Monitoring and review; and (cid:129) Recording the risk management process. 30 ROLES AND RESPONSIBILITIES In addition to the speciﬁ c responsibilities and reporting roles of the Metcash Group Risk Department and Internal Audit Department, the Metcash Executive Team is regularly required to report to the Metcash Board as to the emergence of any signiﬁ cant risk issues and the management of previously reported material risk issues. The Audit Risk & Compliance Committee is responsible for monitoring management’s risk processes other than corporate strategy, the oversight of which is a Board responsibility. On behalf of the Metcash Board, the Audit Risk & Compliance Committee monitors those risk events that could prevent the achievement of Metcash’s corporate strategies. All Metcash employees are responsible for the management of risk within their areas. Management is responsible for assessing and monitoring risk and designing cost-effective mitigation to facilitate the achievement of goals and objectives. Non-management employees are always responsible for ensuring that risk controls within their scope of responsibility operate effectively as well as advising management of increasing or new risk exposures and signiﬁ cant operational incidents as they become aware of them. This ‘front line’ of risk management is supported by specialised risk management teams covering speciﬁ c areas of risk within Metcash and by independent reviews conducted by the Metcash Internal Audit Department to verify the adequacy and effectiveness of risk management. THE BOARD SHOULD REQUIRE MANAGEMENT TO DESIGN AND IMPLEMENT THE RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM TO MANAGE THE COMPANY’S MATERIAL BUSINESS RISKS AND REPORT TO IT ON WHETHER THOSE RISKS ARE BEING MANAGED EFFECTIVELY. Metcash implements a risk oversight and risk management process that is based on Risk Management Standard AUS/NZ 4360. This system is used to proﬁ le all potential risks by identifying, prioritising and managing such risks across the enterprise. Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks using this internal system. The Risk Management Policy and Risk Management Framework utilised at Metcash cover a wide range of activities and are used to identify, analyse, evaluate, manage and monitor risks across all areas of the business. Risk proﬁ les are fully in place for existing sites, and are implemented at newly acquired sites. These are prepared in consultation with senior management, agreed with site business management and are periodically reviewed and updated by risk team members. Ongoing risk management activities include: (cid:129) conﬁ rmation of key controls; (cid:129) reporting of incidents: recording and monitoring of key risk indicators (‘real time’ monitoring of residual risk levels); (cid:129) follow-up on risk treatment/action plans (cid:129) escalation of issues; and (cid:129) regular reporting processes to all levels of management. The ongoing process of communication, consultation, monitoring and review enables management to demonstrate continuous improvement while encouraging greater ownership by individuals across the business. The risk management and internal control system provides regular ‘real time’ feedback to management on their effectiveness in managing business risks. This is supported by the Risk Management platform database (software) which holds the risk controls library, all risk categories and events, risk proﬁ les for each pillar/business, business/functional objectives, critical success factors, processes, compliance data and incidents and corrective actions. The Risk Management Policy and Risk Management Framework documents form an integral part of Company’s risk management. The Board continues to review these and provide support in deﬁ ning clear accountabilities, responsibilities and embedding Enterprise Risk Managmeent (ERM) in planning, strategy and company culture. The Board and the Audit Risk & Compliance Committee remain responsible for the oversight of the risk management process. Management has reported to the Board as to the effectiveness of the Company’s management of its material risks. METCASH LIMITED ANNUAL REPORT 2009 31 corporate governance statement CEO AND FINANCE DIRECTOR DECLARATION The Chief Executive Ofﬁ cer and the Finance Director have provided a declaration in writing to the Board in accordance with section 295A of the Corporations Act that, among other things, the Company’s ﬁ nancial reports present a true and fair view, in all material respects, of the Company’s ﬁ nancial condition and operational results and are in accordance with relevant accounting standards (refer to the Directors’ Report). The Board has received written assurance from the Chief Executive Ofﬁ cer and the Finance Director that the declaration provided by them in accordance with section 295A of the Corporations Act (refer to the Directors’ Report) is founded on a sound system of risk management and internal compliance and control and that the system is operating effectively in all material respects in relation to ﬁ nancial reporting risks. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIVELY THE BOARD SHOULD ESTABLISH A REMUNERATION COMMITTEE The Board has established a Remuneration & Nomination Committee. For details of the Committee’s membership, their attendance at Committee meetings and a summary of the Committee’s Charter, please refer to Principle 2 – ‘The Board should establish a Nomination Committee’. REMUNERATION POLICY The Company’s 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 senior executives are also contained in the Directors’ Report. The Company’s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under any equity-based remuneration schemes is set out in the Metcash Code for Directors and Executives in Respect of Share Transactions, which can be found on the Company’s website www.metcash.com. NON-EXECUTIVE DIRECTORS’ COMPENSATION AND RETIREMENT BENEFITS Refer to the ‘Remuneration Report’ contained within the Directors’ Report. TERMINATION ENTITLEMENTS OF CEO AND SENIOR EXECUTIVES Refer to the ‘Remuneration Report’ contained within the Directors’ Report. 32 ﬁ nancial report 09 Directors’ Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements 1. Corporate Information 2. Summary of Signiﬁ cant Accounting Policies 3. Segment Information 4. Revenue and Expenses 5. Income Tax 6. Dividends Paid and Proposed 7. Cash and Cash Equivalents 8. Trade and Other Receivables (current) 9. Inventories 10. Receivables (non-current) 11. Investments in Associates 12. Other Financial Assets (non-current) 13. Property, Plant and Equipment 14. Intangible Assets and Goodwill 15. Share-based Payments 16. Trade and Other Payables (current) 17. Interest-bearing Loans and Borrowings 18. Provisions 19. Contributed Equity and Reserves 20. Financial Risk Management Objectives and Policies 21. Commitments 22. Related Party Disclosure 23. Directors’ and Executives’ Disclosures 24. Auditor’s Remuneration 25. Business Combinations 26. Earnings per Share 27. Contingent Liabilities 28. Subsequent Events Directors’ Declaration Auditor’s Independence Declaration Independent Audit Report ASX Additional Information 34 52 53 54 56 57 57 57 72 74 75 77 78 79 81 81 82 83 84 85 87 89 89 90 90 93 97 98 104 107 108 109 109 110 111 112 113 115 Corporate Information Inside Back Cover METCASH LIMITED ANNUAL REPORT 2009 33 directors’ report year ended 30 April 2009 Your Directors submit their report for the year ended 30 April 2009. 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) Peter L Barnes (Deputy Chairman) Andrew Reitzer (CEO) Michael R Butler Neil D Hamilton Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim (Lou Jardin) Richard A Longes V Dudley Rubin Directors were in ofﬁ ce for this entire period unless otherwise stated. For qualiﬁ cations and experience of Directors please refer to ‘Board of Directors’ section of this annual report. COMPANY SECRETARY John A Randall For qualiﬁ cations and experience of the Company Secretary please refer to ‘Board of Directors’ 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 Peter L Barnes Andrew Reitzer Michael R Butler Neil D Hamilton 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 34 NUMBER OF ORDINARY SHARES NUMBER OF OPTIONS OVER ORDINARY SHARES 54,100 177,083 – – 1,750,000 1,200,000 50,000 – – 520,000 – 128,154 15,000 – – 650,000 650,000 650,000 – – CENTS 26.47 26.45 DIVIDENDS Final dividends for 2009 recommended – on ordinary shares Dividends paid in the year Interim for the year – on ordinary shares in December 2008 Final for 2008 recommended in the 2008 ﬁ nancial report – on ordinary shares Total dividends paid in the year 2009 Dividends declared per share CORPORATE INFORMATION CENTS $’m 14.0 107.1 10.0 12.0 24.0 76.5 91.8 168.3 CORPORATE STRUCTURE 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 5,358 employees as at 30 April 2009 (2008: 5,698 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 ‘Chairman’s and CEO’s report’ 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 2009 REVENUES $’m PROFIT BEFORE TAX $’m 6,681.8 1,660.4 2,639.5 10,981.7 85.8 11,067.5 315.5 33.0 33.8 382.3 (91.5) 290.8 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 ‘Chairman’s and CEO’s report’. METCASH LIMITED ANNUAL REPORT 2009 35 directors’ report year ended 30 April 2009 SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 22 May 2009 the Company entered into a new Financing Agreement with new and ongoing Financiers. The Agreement in large part was an extension of the existing facility and provides the Group with security of funding for the three years to May 2012. The new Agreement provides Metcash with an unsecured senior loan facility totalling $700 million and split into two tranches. The ﬁ rst tranche is $500 million and will be fully drawn throughout the term of the Agreement. The second tranche of $200 million is at call according to the Company’s borrowing requirements and similarly can be repaid when not required. The new facility has three covenants that the Group must comply with, being a ﬁ xed charges cover ratio (Earnings Before Interest, Tax, Depreciation, Amortisation and Rent (EBITDAR) divided by Total Net Interest plus Gross Rent Expense), senior leverage ratio (Total Group Debt divided by Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)) and minimum shareholders funds (a ﬁ xed ﬁ gure representing the Group share capital and reserves). These covenants and other key terms of the Agreement remain largely unchanged from the previous Agreement. Interest payable on the facility is based on BBSY plus a margin and rollover is monthly. The applicable margin is dependent upon an escalation matrix linked to the senior leverage ratio achieved. Management and the Board of Metcash are pleased to have successfully secured funding for the Group in such difﬁ cult credit market conditions. The facility provides the Company with an appropriate level of funding to support its growth and working capital needs. Whilst the debt line is more expensive than that previously enjoyed by the Company, certainty of funding took precedence. In the Company’s results announcement on 1 June 2009, Management advised that the beneﬁ t of being able to access lower prevailing cash rates (as a result of terminating the interest rate collar) would be largely offset by the increased margin applicable under the new Financing Agreement. Management concluded therefore that their expectations for net interest expense for the ﬁ nancial year 2010 would be similar to 2009 at $61 million. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Information with respect to likely developments is set out within the ‘Chairman’s and CEO’s report’ elsewhere in this annual report. 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: Number of meetings held: Number of meetings attended: Carlos S dos Santos Peter L Barnes Andrew Reitzer Michael R Butler Neil D Hamilton Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim Richard A Longes V Dudley Rubin COMMITTEE MEETINGS DIRECTORS’ MEETINGS REMUNERATION & NOMINATION AUDIT RISK & COMPLIANCE 9 9 8 9 8 9 7 8 7 8 9 6 6 6 – – 6 – – – – – 4 – – – 4 – – – – 4 4 All Directors were eligible to attend all meetings held. COMMITTEE MEMBERSHIP As at the date of this report, the Company had an Audit Risk & Compliance Committee and a Remuneration & Nomination Committee. 36 Members acting on the committees of the Board during the year were: AUDIT RISK & COMPLIANCE REMUNERATION & NOMINATION R A Longes (c) M R Butler V Dudley Rubin (c) Designates the chairman of the committee. P L Barnes (c) C S dos Santos N D Hamilton For details of the committees, their charters and current membership, please refer to the section ‘Corporate Governance Statement’. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS i. The Constitution of the Company permits the grant of an indemnity (to the maximum extent permitted by law) in favour of each Director, the Company Secretary, past Directors and Secretaries, and all past and present Executive Ofﬁ cers. The Company has entered into Deeds of Indemnity and Access with F J Conroy, C P Curran, T S Haggai, 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 RESTATED 2009 2008 2007 2006 2005 28.7 26.5 24.0 14.3 90.7 16.1 4.12 5.8 25.2 25.9 21.0 23.5 81.2 16.3 4.22 5.0 21.8 21.1 17.0 47.8 80.7 14.2 5.24 3.2 24.9 17.0 11.5 21.1 67.7 19.0 4.60 2.5 31.8 29.7 9.5 (13.6) 32.0 28.8 3.20 3.0 Earnings per share before CULS, CUPS in 2006 and 2007 and non-recurring items (cents) Basic earnings per share (cents) Dividends declared per share (cents) Increase/(decrease) in dividends declared per share (%) Dividend payout ratio (%) Return on equity (%) Share price (30 April) ($) Dividend yield (%) ROUNDING The amounts contained in this report and in the ﬁ nancial report have been rounded to the nearest $100,000 (where rounding is applicable) under the option available to the Company under Australian Securities and Investments Commission (ASIC) Class Order 98/0100. The Company is an entity to which the Class Order applies. METCASH LIMITED ANNUAL REPORT 2009 37 directors’ report year ended 30 April 2009 TAX CONSOLIDATION Metcash Limited has formed a tax consolidation group including its 100% owned Australian 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. HEALTH, SAFETY, ENVIRONMENTAL 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 Metcash HSEC Governance Standards Framework provides guidance, policy and principles on what constitutes acceptable levels of performance for HSEC and enables us to implement and maintain HSEC objectives and targets. To achieve these targets, the necessary resources are provided at each function and level within the organisation. By developing measurable objectives consistent with our HSEC values we aim to demonstrate best practice HSEC leadership in all matters pertaining to Health, Safety, Environment and Community and promote individual responsibility for HSEC by all employees. OUR PEOPLE EMPLOYEE ENGAGEMENT The Metcash Pro-ﬁ t Program continues to be an integral part of the company’s focus on employee health and well-being and also to support employee engagement and performance. The program includes the very popular and well attended ‘Camp Metcash’, which provides employees’ children the opportunity to participate in a range of activities over the school holidays. This program is designed to support parents with managing the care of their children over the holiday periods. Other Pro-ﬁ t initiatives carried out this year were the annual employee ﬂ u vaccinations and health checks. Employee counselling services continue to be provided on an ‘as needed’ basis. Flexible work arrangements, including the ability to purchase additional leave, compress the working week and utilise well-being days, remain features of the company’s efforts to engage and align employees. Since 2007, the Company has provided eight weeks’ paid maternity leave. Metcash continues to offer a range of reward and recognition programs aligned to key business outcomes and employee performance. These include service awards and CEO awards as well as performance-based incentive payments. EMPLOYEE DEVELOPMENT A recent re-organisation of the Learning & Development Department will provide further support to the Company’s talent strategy and ensure we are building both our people and our organisational capability. In shifting to a more blended learning and business focused approach the aims are to produce managers who are problem solvers, ﬂ exible and quick in adapting to changing circumstances (both externally and internally) and whose behaviours reﬂ ect the company’s core values. The new Metcash Learning & Development team continues to focus on building leadership capability across the organisation. At the frontline leadership level the company offers the Diploma of Management as well as the introduction of a new program, the LIFT Warehouse Leadership Program. The High-Performing Manager Program was also conducted with a select group of managers. To ensure a focus on the critical behaviours that will drive business performance, the company has launched a new Leadership Competency Framework. This will be the foundation of all the company’s people processes including recruitment, succession planning, leadership development and performance management. The company also continues to support employees in completing accredited vocational and tertiary education through the Metcash Employee Vocational Education Sponsorship Program (MEVES). 38 SAFETY OCCUPATIONAL HEALTH AND SAFETY (OH&S) In recent years, the Metcash Group has undertaken a major transformation program to set in place the appropriate accountabilities, standards and tools, to embed a ‘no blame’ safety culture across our business. We have gone back to basics to ensure our employees are the focus of our safety programs. We aim to ensure every task, every day, is done safely, as opposed to being driven by ‘paper and reporting compliance’. Some of the key focus areas include: (cid:129) introduction of safety criteria into contractor/subcontractor tenders; (cid:129) development of a national Metcash induction program, including online ergonomic assessments for new employees in the ofﬁ ce and manual handling assessments for new warehouse operators; (cid:129) comprehensive OH&S and workers compensation due diligence assessments for business acquisitions; (cid:129) (cid:129) improved injury case management through proactively working with all stakeholders including the workforce, health and legal providers and contractors to make this vision a reality; involvement in key government risk projects, including manual handling, trafﬁ c management in warehousing and ‘young employee’ targeted programs to develop best practice industry initiatives. The 2008–2009 OH&S/Injury Management Team strategic projects: (cid:129) Following two key signiﬁ cant incidents in 2007–2008, Metcash reviewed key operational risks and identiﬁ ed the following projects to control risk factors: – – – – – I-CARE – national strategic injury management model; MESSI – collision avoidance system; LIFT – risk management tool for determining and managing manual handling risks for high-volume order picking warehouse facilities; Ofﬁ ce Safety – development of an online ergonomic education and assessment tool for new employees; and Fit For Work – program encompassing pre-employment medicals, random drug and alcohol testing, cause testing and self testing implemented at every level of the organisation. The year ahead will see the company-wide adoption of an online safety management and reporting system that will help identify major safety risk areas across all business activities. This data will generate a snapshot of leading and lagging safety metrics that will allow us to monitor safety performance, proactively manage risks and share the lessons learned. METCASH FIVE-YEAR OHS LAG INDICATORS LTIFR LTI 2004–05 2005–06 2006–07 2007–08 2008–09 52 365 33.6 238 25.7 317 27.3 275 30.7 273 Overall, 2009 was a pleasing year with reductions of key OH&S indicators, including lost time injuries, hours lost, claim numbers and claim costs. Nil signiﬁ cant reportable occurrences took place during the year. METCASH FIVE-YEAR LTIFR/LTI TREND 400 300 200 100 0 2004–05 2005–06 2006–07 2007–08 2008–09 METCASH LIMITED ANNUAL REPORT 2009 39 LTI LTIFR directors’ report year ended 30 April 2009 MISSION ZERO Many of the workplace safety issues that stand between us and the reality of operating free from workplace incidents are systemic and universal in nature and require holistic solutions to improve the systems, process and controls to adopt world-class safety performance. Metcash is addressing these issues through the Mission Zero ﬁ ve-year strategic plan, which is establishing more user-friendly and easily understood standards and tools to enhance the safety culture of our business. The underpinning principles of Mission Zero due to be implemented in 2009 are: (cid:129) it is unacceptable that our people and those working with us should be injured while undertaking our business activities; (cid:129) every employee and contractor has the right to come to work and go home unharmed by any work task or activity. In order to achieve this vision, we need to operate on the basis that Metcash is intolerant of any injury or incident. This will require: (cid:129) every individual at every level of the organisation taking a personal stand and commit to safety, with the mindset that ‘the standard we walk past is the standard we set’; (cid:129) every employee being responsible for their own workplace safety behaviour. This vision is achievable if our employees and stakeholders are totally committed to it and are prepared to challenge and question the ‘way’ we have always done things within the business. Our Mission Zero vision touches every aspect of the Metcash business, from the buildings we design and construct to the tasks that we undertake day to day. We will be working more closely with our business partners, employees and contractors to create safe places to work and visit. OUR PLACES OF WORK SUSTAINABILITY A Sustainability Strategy and Policy has been developed and endorsed by the Board. It covers the four key performance areas in each of which the Company is undertaking action – Our Business, Our Products, Our Suppliers and Our Customers. OUR BUSINESS (cid:129) Compliance with all relevant legislation (cid:129) Carbon emission monitoring and management (cid:129) Climate change adaptation and risk management (cid:129) A resource efﬁ ciency retroﬁ t program including initiatives such as the conversion of 69% of company vehicles to LPG fuel at April 2009 (cid:129) Waste reduction programs (cid:129) Integrating sustainability into existing policies, plans and procedures, including the development of an Environmental Management System. OUR PRODUCTS (cid:129) Improving the resource efﬁ ciency and recyclability of packaging (cid:129) Reporting annually to the National Packaging Covenant. OUR SUPPLIERS (cid:129) Working with manufacturers to improve their resource efﬁ ciency in manufacturing our products (cid:129) Developing a supplier engagement program. OUR CUSTOMERS (cid:129) A comprehensive Sustainability@Retail support program (cid:129) Information sharing and promotion of sustainable in-store initiatives undertaken by our independent retailers. 40 A Metcash Environmental Sustainability Committee has been established to implement effective sustainability policies and initiatives throughout the Company. The Committee is chaired by Andrew Reitzer, the CEO, and its members include key executives who are responsible for implementing the objectives and tasks established by the committee. In the interest of corporate social responsibility, Metcash works with, supports or partners industry and governmental groups such as POPAI (Point of Purchase Advertising International), the Victorian Government’s ‘Grow Me the Money Program’, New South Wales Government’s ‘Sustainability Advantage’, the Green Building Council of Australia and the Department of Environmental Heritage and the Arts’ Plastic Bag Working Group. BUSINESS CONTINUITY MANAGEMENT (BCM) A robust business continuity program is a characteristic of good corporate governance. Metcash continues to develop and review existing plans and procedures to improve our preparedness in the event of an incident, disaster or community issue (e.g. pandemic). OUR PROCESSES AND PRODUCTS PRODUCT SAFETY/PUBLIC HEALTH The Company continues to implement strategies to ensure its business units comply with food safety and food labelling legislation while assisting with the training and implementation of retail food safety programs with its independent retail customers. The National Approved Supplier Program ensures Metcash contracted products are produced by suppliers with appropriate Supplier Quality Assurance certiﬁ cation schemes using safe and ethical methods. The Company-owned food and consumer products operate under product speciﬁ cation management and trade measurement monitoring systems including regular physical, chemical, and microbiological batch testing to ensure compliance and consumer safety. FOOD SAFETY STANDARDS Hazard Analysis and Critical Control Points (HACCP) based food safety programs are in place at all Metcash warehouses and are implemented into new businesses as required. These warehouse programs are reviewed and certiﬁ ed to HACCP (Codex Alimentarius) by third parties. The internal and external third party audits conducted during the past year conﬁ rmed that all Metcash sites are operating at legislated food safety standards and have no outstanding major non-conformances. CRITICAL INFRASTRUCTURE PLANNING Metcash continues to assist the Food Industry Infrastructure Assurance Action Group to better prepare the community and the industry’s critical infrastructure sites for possible pandemic, bioterrorism and regional disasters such as major ﬂ oods, cyclones and bushﬁ re risks. The pandemic contingency plans developed over the last three years by the Retail Action Working Group with the Food and Grocery Industry were recently activated and are being monitored weekly to ensure adequate responses meet current community and staff health needs. REMUNERATION REPORT (AUDITED) 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: (cid:129) review and advise the Board annually on the remuneration and components of remuneration for the Chief Executive Ofﬁ cer and executives reporting directly to the Chief Executive Ofﬁ cer; METCASH LIMITED ANNUAL REPORT 2009 41 directors’ report year ended 30 April 2009 (cid:129) (cid:129) (cid:129) 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; oversee the administration of the Metcash Employees Option Plan and exercise the Board’s discretionary power when required; 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; (cid:129) regularly evaluate and advise the Board on the performance of the Chief Executive Ofﬁ cer; (cid:129) advise the Board on the successor to the Chief Executive Ofﬁ cer; and (cid:129) 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 and are: BASE FEE CHAIR FEE COMMITTEE FEE SUPERANNUATION TOTAL Chairman $105,000 $157,500 $10,500 $13,745 $286,745 Deputy Chairman/Chairman Remuneration & Nomination Committee $105,000 $73,500 Chairman, Audit Risk & Compliance Committee Directors (3) $105,000 $315,000 $26,250 – $630,000 $257,250 – – $31,500 $42,000 $13,745 $192,245 $11,813 $143,063 $31,185 $377,685 $70,488 $999,738 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(g) and (h) 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. 42 ACCRUED BENEFITS R A Longes P L Barnes $ 211,619 211,619 423,238 SENIOR EXECUTIVE AND EXECUTIVE DIRECTOR COMPENSATION It is the policy of Metcash to remunerate employees in appropriate ways that recognise the market’s value of individual skills, the need to attract and retain essential key skills for the growth and development of the Company and to provide sufﬁ cient incentive to ensure alignment with shareholder expectations. 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) provide competitive rewards to attract and retain executive talent; (cid:129) apply Key Performance Indicators (KPIs) to deliver results across the Group and to a signiﬁ cant portion of the total reward; (cid:129) link rewards to executives to the creation of value to shareholders; (cid:129) assess and reward executives using ﬁ nancial and non-ﬁ nancial measures of performance; (cid:129) (cid:129) 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 that do not commit the Group to making unjustiﬁ ed 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 nine 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 nine months of ﬁ xed remuneration (base salary plus superannuation) is payable to the Chief Executive Ofﬁ cer and six 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 three months’ notice. The service contracts typically outline the components of remuneration paid to executives, but do not prescribe how remuneration levels are viewed 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 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 KPIs and performance hurdles and is generally made up of short- 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. METCASH LIMITED ANNUAL REPORT 2009 43 directors’ report year ended 30 April 2009 FIXED REMUNERATION BASE SALARY AND BENEFITS Base salaries are determined by reference to the scope and nature of the individual’s role and their performance and experience. Market data is used to benchmark salary levels. Particular consideration is given to competitive remuneration levels and the need to retain talent. SUPERANNUATION BENEFITS Superannuation beneﬁ ts are delivered in accordance with the Australian Government’s Superannuation Guarantee Levy, which currently sits at 9% of ﬁ xed remuneration to a maximum of $152,720 per annum ($166,465 including superannuation) and for amounts above that at a ﬂ at $13,745 per annum. AT RISK REMUNERATION At risk remuneration is delivered as short- and long-term incentives. As applied to the Company’s senior management, if the maximum bonuses are earned, 45.1% of short-term income is at risk. SHORT-TERM INCENTIVES – BONUS SCHEMES Each Business Pillar and the Corporate Team have separate bonus schemes, designed to align each executive’s incentives to the ﬁ nancial objectives of the pillar concerned which aggregate to overall group objectives. Two KPIs are utilised – sales and proﬁ t – to form a matrix to measure performance usually with the previous year’s sales and proﬁ t results as the origin, or zero point. The targets vary from business to business depending on the circumstances and objectives of each pillar. However, they are all constructed so as to provide a stretch to exceed sales and proﬁ t budgets. Bonuses are normally paid at six-monthly intervals with the ﬁ rst payment based on the ﬁ rst half results and the second payment based on the achievement for the full year less the ﬁ rst half payment. For the 2009 year, the payment for achieving the minimum target was set at 33.3% of the maximum; a payment of 86.7% of the maximum payment for the achievement of budget and 100% was paid for meeting the stretch objectives. The stretch target is normally set so as to meet and exceed market guidance on anticipated earnings. All short-term incentive schemes operate on the condition that they are self-liquidating. That is, that the cost of the bonus has been deducted from proﬁ t earned for the year prior to determining the level of performance achieved. 1. BONUS ELIGIBILITY CRITERIA The bonus scheme is designed to provide an incentive to those whose decisions and actions make a signiﬁ cant contribution to the achievement of the Company’s ﬁ nancial objectives. 2. PARTICIPANTS ELIGIBLE FOR BONUS AT 75% OF FIXED REMUNERATION (EXECUTIVE MANAGEMENT BONUS SCHEME) (NUMBER OF PARTICIPANTS: 56) These positions have a high level/critical strategic accountability that directly impacts on company performance. To be considered eligible, the position: (cid:129) operates as a member of the Metcash Executive Management Team or Pillar Executive Management Team; (cid:129) has objectives that are deﬁ ned in terms of group/pillar objectives; (cid:129) has signiﬁ cant input into the group/pillar strategic plan and direction; (cid:129) has direct impact on proﬁ tability. 3. PARTICIPANTS ELIGIBLE FOR BONUS AT 50% FIXED REMUNERATION (MANAGEMENT BONUS SCHEME) (NUMBER OF PARTICIPANTS: 151) These positions either provide specialist knowledge relied upon by the Company or are a national or state member of a Pillar Executive Management Team directly responsible for the achievement of sales and proﬁ t targets and contribute strategically to group and or business pillar objectives. 44 To be eligible, the position: (cid:129) has extensive specialist technical or professional knowledge in an area of expertise; (cid:129) has high level budgetary and/or strategic responsibility; (cid:129) is responsible for several related activities, i.e. a whole function. 4. PARTICIPANTS ELIGIBLE FOR BONUS AT 25% OF FIXED REMUNERATION (METCASH BONUS SCHEME) (NUMBER OF PARTICIPANTS: 318) These positions are generally compliance and/or process driven. To be considered eligible, the position: (cid:129) has a positive contribution to proﬁ tability; (cid:129) is a specialist in a ﬁ eld; (cid:129) has a direct impact on sales and proﬁ t; or (cid:129) may have an element of retention or attraction. 5. OTHER INCENTIVE SCHEMES Other incentive schemes are also in operation and designed speciﬁ cally for warehouse supervisors, re-buyers, stock controllers, merchandisers and other specialist key roles and are based on achievement of internal KPIs e.g. cost per case etc. LONG-TERM RETENTION PLAN (THE PLAN) The objective of the Plan is to ensure the retention by the Company of key senior executives, while providing further incentives to increase total shareholders’ return. In order to provide a more complete description of the Plan, details of the starting point from which the incentive is earned are provided below. A long-term retention payment of $5 million to the Chief Executive Ofﬁ cer and $2 million to each of the Finance Director, Group Merchandising Director, CEO of IGA Distribution and the Chief Information Ofﬁ cer (entered into in August 2006) subject to achievement of speciﬁ c hurdles over a ﬁ ve-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 the time. If the compound annual growth from the base year be equal to or greater than the target, then the maximum amount ($5 million or $2 million) will be payable. Should the compound annual growth rate be less than 40% of the target at the end of the ﬁ ve-year period, no payment will be made. Should the compound annual growth rate achieved by the Company be greater than or equal to 40% of the target, then the amount paid will be increased to the maximum amount on a pro-rata basis. A long-term retention payment of $1 million to each of the Chief Executive Ofﬁ cer Campbell’s Wholesale, Chief Executive Ofﬁ cer, Logistics and Corporate Development, Chief Executive Ofﬁ cer ALM and the Chief Human Resources Ofﬁ cer (entered into in April 2007) subject to achievement of speciﬁ c hurdles over a ﬁ ve-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. If the compound annual growth from the base year be equal to or greater than the target, then the maximum amount ($1 million) will be payable. Should the compound annual growth rate be less than 40% of the target at the end of the ﬁ ve-year period, no payment will be made. Should the compound annual growth rate achieved by the Company be greater than or equal to 40% of the target, then the amount paid will be increased to the maximum amount on a pro-rata basis. METCASH LIMITED ANNUAL REPORT 2009 45 directors’ report year ended 30 April 2009 A long-term retention payment of $1 million to each of the Chief Executive Ofﬁ cer, IGA Fresh and the General Manager Finance (entered into in May 2009) subject to achievement of speciﬁ c hurdles over a ﬁ ve-year period (a compounding 8% increase in earnings per share based on 2009 earnings per share adjusted for material changes to the number of shares issued) and only payable on successful achievement of the hurdles in 2014 and if the executive is still employed by the Company at that time and a member of the Metcash Executive Team. If the compound annual growth from the base year be equal to or greater than the target, then the maximum amount ($1 million) will be paid. Should the compound annual growth rate be less than 40% of the target at the end of the ﬁ ve-year period, no payment will be made. Should the compound annual growth rate achieved by the Company be greater than or equal to 40% of the target, then the amount paid will be increased to the maximum amount of a pro-rata basis. These two positions were not previously included in Plan, but the executives concerned were issued with share options in 2008 (refer below). They have now been included in the Plan because of the need to ensure their equitable treatment in relation to other members of the Executive Team and to ensure effective retention arrangements are in place. In recognition that these two executives have the opportunity to earn beneﬁ ts from the options issued to them in 2008, but which beneﬁ ts are not available to the other members of the Executive Team, in the event they have exercised any of their options during the period up to 30 April 2014, the amount which would otherwise have been payable to them under the retention plan will be reduced by an amount equal to the pre-tax proﬁ ts in respect of exercising the options. In this case, pre-tax proﬁ t is calculated using the number of options exercised and the difference between the market price of the options on the day of exercise and the price at which the options were issued. It should be noted that options not exercised by 7 February 2014 will be cancelled. The maximum amount payable to these two executives under the retention plan will be $1 million less any applicable pre-tax proﬁ t earned from exercising the 2008 options. 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. OPTIONS 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. Options were issued in February 2008 to the CEO, IGA Fresh and the General Manager Finance but were not offered to Executive Directors and other members of the Executive Team included in the Plan. A performance hurdle applies to these options, the hurdle being a compounding 10% increase in earnings per share based on earnings per share for the 2007 ﬁ nancial year is to be achieved in the ﬁ nancial year prior to the ﬁ nancial year in which a tranche of options becomes able to be exercised. Before options are exercised by members of the Executive Team, agreement is obtained from the Remuneration & Nomination Committee which veriﬁ es that the hurdle has been achieved with conﬁ rmation from the Company’s external auditor. Options are issued to all of the Company’s staff and performance hurdles have not been applied to options issued to other employees. 46 SALARY REVIEWS AND BONUSES FY2009–2010 As a precaution, management have put in place a salary increase deferral for all employees earning more than $50,000 per annum. If the Company’s proﬁ t before tax targets for the 2010 year are met, then the salary increases that otherwise would have been paid at the beginning of the year will be paid. Bonuses for the year will only be paid if all salary increases have been paid and bonus targets met. The Directors have also resolved that Non-executive Directors fees and allowances will remain at their present level until 30 June 2010. 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 the Shareholder Returns section of the Directors’ Report. DETAILS OF KEY MANAGEMENT PERSONNEL DIRECTORS EXECUTIVES Carlos S dos Santos Non-executive Chairman Ken Bean CEO Group Logistics and Corporate Peter L Barnes Andrew Reitzer Non-executive Deputy Chairman Chief Executive Ofﬁ cer Michael R Butler Non-executive Director Neil D Hamilton Non-executive Director Development Fergus Collins CEO Australian Liquor Marketers Peter Dubbelman CEO Campbells Wholesale Adrian Gratwicke General Manager Finance Michael R Jablonski Group Merchandise Director Bernard Hale Chief Information Ofﬁ cer Edwin M Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-executive Director V Dudley Rubin Non-executive Director David Johnston Chief Human Resources Ofﬁ cer Harry Rumpler CEO IGA Fresh METCASH LIMITED ANNUAL REPORT 2009 47 directors’ report year ended 30 April 2009 COMPENSATION OF KEY MANAGEMENT PERSONNEL COMPENSATION FOR KEY MANAGEMENT PERSONNEL AND THE FIVE HIGHEST PAID EXECUTIVES OF THE COMPANY AND THE GROUP FOR THE YEAR ENDED 30 APRIL 2009 SHORT-TERM POST- EMPLOYMENT LONG-TERM TERMINATION BENEFITS SHARE-BASED PAYMENTS TOTAL RELATED (%) TOTAL PERFORMANCE SALARY AND FEES $ BONUS $ OTHER BENEFITS $ SUPER- ANNUATION $ BONUS AND LEAVE TERMINATION BENEFITS $ EXPENSE $ $ % DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler 257,250 176,375 – – 1,614,459 1,215,021 – – 487,350 492,081 407,350 – – 114,125 115,612 651,980 681,666 645,921 129,687 114,125 470,946 501,524 461,922 403,029 472,058 343,805 333,024 403,922 321,000 378,610 302,400 403,186 317,588 246,400 7,487,508 4,974,908 – – 3,578 – – 23,000 – 23,000 – – – 14,000 23,000 – – – – 86,578 20,421 15,480 95,833 10,271 10,856 13,642 13,642 99,701 11,672 10,271 99,742 13,642 49,978 26,138 97,642 104,945 13,642 – – 1,050,315 – – 419,122 419,350 421,176 – – 214,690 212,801 214,907 10,030 413,122 210,856 11,443 – – – – – – – – – – – – – – – – – – – 242,289 – – 131,240 131,240 131,240 – – 49,097 6,137 49,097 60,286 180,983 49,097 60,286 277,671 191,855 4,221,495 124,396 126,468 1,726,334 1,737,979 1,728,388 141,359 124,396 1,238,397 1,069,104 1,177,514 801,883 1,566,991 1,026,291 664,795 707,518 3,597,812 – 1,090,992 17,945,316 COMPENSATION FOR KEY MANAGEMENT PERSONNEL AND THE FIVE HIGHEST PAID EXECUTIVES OF THE COMPANY AND THE GROUP FOR THE YEAR ENDED 30 APRIL 2008 DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin A E Harris, AC+ EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler 211,690 145,000 – – 1,471,924 1,935,923 – – 792,050 799,740 711,202 – – – 125,513 14,872 607,517 636,765 601,458 125,000 110,000 145,833 430,845 453,778 427,953 314,356 436,165 332,515 279,998 654,128 350,000 552,138 463,250 657,639 516,151 327,997 6,871,182 7,760,218 + Retired 30 August 2007. 48 – – 3,269 – – 23,000 – 23,000 – – – – 14,000 23,000 – – – – 86,269 13,055 11,784 106,990 12,121 888 13,055 13,055 186,329 11,250 9,900 – 101,778 13,055 49,022 24,291 97,056 86,878 13,055 – – 1,048,728 – – 417,229 417,396 419,112 – – – 215,535 219,205 213,207 23,594 450,416 209,702 14,939 – – – – – – – – – – 301,882 – – – – – – – – – 371,186 – – 201,059 201,059 201,059 – – – 75,216 28,207 75,216 9,402 440,371 75,216 9,402 224,745 156,784 4,938,020 137,634 15,760 2,053,910 2,068,015 2,142,160 136,250 119,900 447,715 1,477,502 1,078,245 1,340,536 834,893 2,081,647 1,220,462 645,391 763,562 3,649,063 301,882 1,687,393 21,119,569 – – 58.21% – – 59.00% 58.88% 54.30% – – 52.73% 49.31% 53.31% 46.48% 62.81% 55.22% 47.85% 52.75% – – 66.97% – – 67.83% 67.74% 61.26% – – – 62.90% 53.62% 61.72% 56.61% 71.96% 64.84% 52.28% 60.83% OPTIONS EXERCISED AS PART OF REMUNERATION FOR THE YEAR ENDED 2008 AND 2009 VALUE OF OPTIONS EXERCISED DURING THE YEAR A Reitzer M Jablonski E Jankelowitz L Jardin K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston J Randall H Rumpler There were no options issued to Executive Directors during the current or prior ﬁ nancial years. DETAILS OF BONUS PROVIDED FOR IN YEAR ENDED 30 APRIL 2009 2009 $ 2008 $ – – – – – – – – – – – – – – – – – 4,851 – – 1,162,800 247,360 37,224 – DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler POTENTIAL BONUS $ BONUS PAYABLE $ BONUS FORFEITED $ – – 1,301,809 – – 522,161 527,230 522,160 – – 432,773 401,250 405,653 324,000 431,985 340,272 264,000 – – 1,215,021 – – 487,350 492,081 407,350 – – 403,922 321,000 378,610 302,400 403,186 317,588 246,400 – – 86,788 – – 34,811 35,149 114,810 – – 28,851 80,250 27,043 21,600 28,799 22,684 17,600 All bonuses for the year ended 30 April 2009 were paid either in December 2008, April 2009 or June 2009. METCASH LIMITED ANNUAL REPORT 2009 49 directors’ report year ended 30 April 2009 DETAILS OF BONUS PROVIDED FOR IN YEAR ENDED 30 APRIL 2008 DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin A E Harris, AC (Retired 30 August 2007) EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke (appointed 11 February 2008) B Hale D Johnston H Rumpler (appointed 1 November 2007) POTENTIAL BONUS $ BONUS PAYABLE $ BONUS FORFEITED $ – – 1,935,923 – – 792,050 799,740 792,050 – – – 654,128 375,000 615,324 463,250 657,639 516,151 369,597 – – 1,935,923 – – 792,050 799,740 711,202 – – – 654,128 350,000 552,138 463,250 657,639 516,151 327,997 – – – – – – – 80,848 – – – – 25,000 63,186 – – – 41,600 All bonuses for the year ended 30 April 2008 were paid either in December 2007, April 2008 or June 2008. SHARE OPTIONS UNISSUED SHARES As at the date of this report, there were 32,033,621 unissued ordinary shares under option (32,202,323 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 95,770 fully paid ordinary shares in Metcash Limited at a weighted average exercise price of $3.43. Since the end of the ﬁ nancial year, a further 23,340 options have been exercised, at a weighted average exercise price of $3.92. 50 CEO AND FINANCE DIRECTOR DECLARATION The Chief Executive Ofﬁ cer and Finance Director have provided a declaration that states: a. With regard to the integrity of the ﬁ nancial report of Metcash Limited for the period to 30 April 2009: i. ii. 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; 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 2009 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 2009: i. ii. The ﬁ nancial records of the Company have been properly maintained in accordance with Section 286 of the Corporations Act 2001; The statements made in (a) above regarding the integrity of the 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 2009, 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 2009 has been received and is included on page 112. 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 are due to receive the following amounts for the provision of non-audit services: Tax compliance Assurance-related $683,041 $17,800 Signed in accordance with a resolution of the Directors. Andrew Reitzer Director Sydney, 17 July 2009 METCASH LIMITED ANNUAL REPORT 2009 51 income statement for the year ended 30 April 2009 Revenue Cost of sales Gross proﬁ t Distribution costs Administrative costs Share of proﬁ t of associates Termination of derivative ﬁ nancial instrument Finance costs Other ﬁ nance costs Proﬁ t before income tax Income tax expense Net proﬁ t for period Proﬁ t attributable to minority interest Proﬁ t attributable to the members of the parent company Earnings per share (cents per share) – basic earnings per share – diluted earnings per share Franked dividends per share METCASH GROUP METCASH LIMITED NOTES 2009 $’m 2008 $’m 4(a) 11,067.5 (9,950.9) 1,116.6 (369.5) (363.5) 1.9 (24.6) (70.2) 290.7 (87.5) 203.2 (0.7) 4(f) 4(g) 5 10,199.1 (9,137.0) 1,062.1 (335.4) (383.7) 3.2 – (61.9) 284.3 (86.8) 197.5 – 2009 $’m 390.8 – 390.8 – (4.5) – – (202.7) 183.6 – 183.6 – 2008 $’m 383.2 – 383.2 – (4.8) – – (217.9) 160.5 – 160.5 – 202.5 197.5 183.6 160.5 26 26 6 26.47 26.45 24.00 25.86 25.74 21.00 – – – – – – 52 balance sheet as at 30 April 2009 METCASH GROUP METCASH LIMITED NOTES 2009 $’m 2008 $’m 2009 $’m 2008 $’m ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative ﬁ nancial instruments Income tax receivable Other Total current assets Non-current assets Receivables Investments in associates accounted for using the equity method Other ﬁ nancial assets Property, plant and equipment Net 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 Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Other equity Reserves Retained earnings Parent Interest Minority Interest TOTAL EQUITY 7 8 9 20 10 11 12 13 5 14 16 17 18 17 18 19 19 19 19 – 850.4 – – 10.1 – 860.5 – – 148.6 967.7 680.5 – – 5.6 180.5 975.1 576.7 3.8 10.2 4.6 – 1,125.3 – – – – 1,802.4 1,750.9 1,125.3 40.1 35.8 84.1 0.2 163.4 16.2 1,180.1 1,484.1 3,286.5 80.5 0.2 140.0 20.1 1,116.1 1,392.7 3,143.6 – – 4,616.1 4,616.1 – – – – – – 4,616.1 5,741.4 4,616.1 5,476.6 1,188.0 1,153.9 6.9 42.2 72.7 5.7 – 73.1 1,309.8 1,232.7 – – 42.0 – 42.0 – – – – – 638.2 59.1 697.3 2,007.1 1,279.4 1,889.7 (765.9) 23.9 129.7 610.6 60.6 671.2 1,903.9 1,239.7 1,889.4 (765.9) 20.7 95.5 3,019.7 2,817.0 – 3,019.7 3,061.7 2,679.7 – 2,817.0 2,817.0 2,659.6 2,555.7 2,555.4 – 16.9 107.1 – 12.4 91.8 1,277.4 1,239.7 2,679.7 2,659.6 2.0 – – – 1,279.4 1,239.7 2,679.7 2,659.6 METCASH LIMITED ANNUAL REPORT 2009 53 statement of changes in equity for the year ended 30 April 2009 ) 3 . 1 ( 7 . 9 3 2 , 1 ) 3 . 1 ( 2 . 3 0 2 3 . 0 3 . 1 5 . 4 9 . 1 0 2 ) 3 . 8 6 1 ( – – – 7 . 0 7 . 0 – 3 . 1 – – ) 7 . 4 ( ) 3 . 1 ( – ) 3 . 1 ( ) 3 . 1 ( – – – – – – – – – – – – – – 5 . 2 0 2 . 5 2 0 2 – – – . ) 3 8 6 1 ( – – – – – – – 5 4 . – – – – – – – – 8 . 2 1 5 . 5 9 6 . 2 1 ) 9 . 5 6 7 ( . 4 9 8 8 1 , d o i r e p l i a c n a n ﬁ e h t f o i i g n n n g e b e h t 8 0 0 2 Y A M 1 T A t a y t i u q e l a t o T – – – – – – – 3 0 . s e s n e p x e d n a e m o c n i d e s i n g o c e r l a t o T 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 n o i t p o f o e s i c e x E r n o i t i s i u q c a n o t s e e t n r I y t i r o n M i t n e m y a p d e s a b - e a h s r f o t s o C d n e d v D i i 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 9 0 0 2 L I R P A 0 3 T A 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 y t i u q e n i y l t c e r i d s e c n e e r f f i d n o i t a l s n a r t y c n e r r u C 4 . 9 7 2 , 1 0 . 2 ) 0 . 6 ( 8 . 2 1 7 . 9 2 1 1 . 7 1 . ) 9 5 6 7 ( 7 . 9 8 8 1 , e h t f i i o g n n n g e b e h t 7 0 0 2 Y A M 1 T A t a y t i u q e l a t o T d o i r e p ) 4 . 1 ( 2 . 0 8 1 , 1 ) 4 . 1 ( 5 . 7 9 1 6 . 3 8 . 4 1 . 6 9 1 ) 0 . 5 4 1 ( 7 . 9 3 2 , 1 – – – – – – – – – ) 3 . 3 ( ) 4 . 1 ( – ) 4 . 1 ( ) 4 . 1 ( – – – – – – – – – – – – – – 5 . 7 9 1 . 5 7 9 1 . ) 0 5 4 1 ( – – – – – – 8 4 . – – – – – – – 8 . 2 1 0 . 3 4 8 . 7 ) 9 . 5 6 7 ( . 8 5 8 8 1 , d o i r e p l i a c n a n ﬁ – – – – – – 6 3 . s e s n e p x e d n a e m o c n i d e s i n g o c e r l a t o T d o i r e p e h t r o f t ﬁ o r P t n e m y a p d e s a b - e a h s r f o t s o C d o i r e p e h t r o f s n o i t p o f o e s i c e x E r d n e d v D i i 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 y t i u q e n i y l t c e r i d s e c n e e r f f i d n o i t a l s n a r t y c n e r r u C ) 7 . 4 ( 8 . 2 1 5 . 5 9 6 . 2 1 . ) 9 5 6 7 ( 4 . 9 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 8 0 0 2 L I R P A 0 3 T A m ’ $ L A T O T Y T I U Q E m ’ $ T S E R E T N I Y T I R O N M I m ’ $ E V R E S E R I N G E R O F Y C N E R R U C N O I T A L S N A R T m ’ $ L A T I P A C E V R E S E R m ’ $ I D E N A T E R I S G N N R A E m ’ $ S T N E M Y A P D E S A B - E R A H S m ’ $ R E H T O Y T I U Q E I D E T U B R T N O C m ’ $ Y T I U Q E S E T O N P U O R G H S A C T E M 54 statement of changes in equity for the year ended 30 April 2009 METCASH LIMITED CONTRIBUTED EQUITY $’m SHARE-BASED PAYMENTS $’m RETAINED EARNINGS $’m TOTAL EQUITY $’m AT 1 MAY 2008 Total equity at the beginning of the ﬁ nancial period 2,555.4 12.4 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 2009 – – – 0.3 – – – – – – – – 4.5 – 91.8 – 183.6 183.6 – – – 2,659.6 – 183.6 183.6 0.3 – 4.5 (168.3) (168.3) Total equity at the end of the ﬁ nancial period 2,555.7 16.9 107.1 2,679.7 AT 1 MAY 2007 Total equity at the beginning of the ﬁ nancial period 2,551.8 7.6 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 2008 – – – 3.6 – – – – – – – – 4.8 – 76.3 – 160.5 160.5 – – – 2,635.7 – 160.5 160.5 3.6 – 4.8 (145.0) (145.0) Total equity at the end of the ﬁ nancial period 2,555.4 12.4 91.8 2,659.6 METCASH LIMITED ANNUAL REPORT 2009 55 cash ﬂ ow statement for the year ended 30 April 2009 METCASH GROUP METCASH LIMITED NOTES 2009 $’m 2008 $’m 2009 $’m 2008 $’m Cash from operating activities: Receipts from customers Receipts from related parties Payments to suppliers and employees Income taxes paid GST paid Dividends received Borrowing costs Interest received Total cash from operating activities Cash ﬂ ows from investing activities: Proceeds from sale of plant and equipment Proceeds from sale of retail stores Payment on acquisition of businesses Purchase of property, plant and equipment Payments for intangibles Payment on acquisition of associates Loan (to)/from subsidiaries Loan to associates Loan (to)/from other entities 7 25 Proceeds from repayments of non-current receivables Net cash used by investing activities Cash ﬂ ows from ﬁ nancing activities: Proceeds from the issue of ordinary shares Payment to terminate derivative ﬁ nancial instrument Proceeds from borrowings – other Repayments of borrowings – other Payment of ﬁ nance lease principal Payment of dividends on ordinary shares Net cash used by ﬁ nancing 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 11,818.3 10,855.5 – – (11,380.9) (10,429.2) (31.0) (104.8) 1.3 (64.0) 9.2 248.1 7.1 7.1 (65.8) (36.7) (21.3) (1.6) – – (16.1) 21.1 (106.2) 0.3 (24.6) 550.0 (525.0) (6.1) (168.3) (173.7) (31.8) 180.5 (0.1) 148.6 (63.8) (113.5) 1.5 (60.1) 7.1 197.5 21.6 5.7 (5.8) (31.8) (15.1) (1.0) – (12.5) (8.2) 35.1 (12.0) 3.6 – 575.0 (575.0) (5.4) (145.0) (146.8) 38.7 141.9 (0.1) 180.5 – 207.2 – – – 183.6 (202.7) – – 222.7 – – – 160.5 (217.9) – 188.1 165.3 – – – – – – – – – – – – (20.1) (23.9) – – – – – – (20.1) (23.9) 0.3 3.6 – – – – – – – – (168.3) (168.0) (145.0) (141.4) – – – – – – – – 56 notes to the ﬁ nancial statements for the year ended 30 April 2009 1 CORPORATE INFORMATION The ﬁ nancial report of Metcash Limited (the Company) for the year ended 30 April 2009 was authorised for issue in accordance with a resolution of the Directors on 17 July 2009. 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 that has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The ﬁ nancial report has been prepared using the historical cost basis except for derivative ﬁ nancial instruments, which have been measured at fair value. The ﬁ nancial report is presented in Australian dollars and all values are rounded to the nearest $100,000 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. The ﬁ nancial report also complies with International Financial Reporting Standards (IFRS). (a) CHANGES IN ACCOUNTING POLICY Since 1 May 2008 the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on or after 1 May 2008. Adoption of these Standards and Interpretations did not have any effect on the ﬁ nancial position or performance of the Group. REFERENCE TITLE SUMMARY AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments [AASB 1, 2, 3, 4, 5, 6, 7, 102, 107, 108, 110, 112, 114, 116, 117, 118, 119, 120, 121, 127, 128, 129, 130, 131, 132, 133, 134, 136, 137, 138, 139, 141, 1023 & 1038] Amendments arising as a result of the AASB decision that, in principle, all options that currently exist under IFRSs should be included in the Australian equivalents to IFRSs and additional Australian disclosures should be eliminated, other than those now considered particularly relevant in the Australian reporting environment. AASB Interpretation 4 (revised) Determining whether an Arrangement contains a Lease The revised Interpretation speciﬁ cally scopes out arrangements that fall within the scope of AASB Interpretation 12. The adoption of these standards has only affected the disclosure in these ﬁ nancial statements. There has been no effect on proﬁ t and loss or the ﬁ nancial position of the entity. METCASH LIMITED ANNUAL REPORT 2009 57 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 2009. These are outlined in the table below: REFERENCE TITLE SUMMARY AASB 8 and AASB 2007-3 AASB 101 (Revised), AASB 2007-8 and AASB 2007-10 Operating Segments and consequential amendments to other Australian Accounting Standards Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards AASB 127 (Revised), AASB 2008-3 Consolidated and Separate Financial Statements New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting. Introduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassiﬁ cations of items in the ﬁ nancial statements, changes in the presentation requirements for dividends and changes to the titles of the ﬁ nancial statements. Under the revised standard, a change in the ownership interest of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction. APPLICATION DATE OF STANDARD 1 January 2009 IMPACT ON GROUP FINANCIAL REPORT AASB 8 is a disclosure standard and as such will have no direct impact on the amounts included in the Group’s ﬁ nancial statements. APPLICATION DATE FOR GROUP 1 May 2009 1 January 2009 1 May 2009 The amendments are expected to only affect the presentation of the Group’s ﬁ nancial report and will not have a direct impact on the measurement and recognition of amounts under the current AASB 101. The Group has not determined at this stage whether to present the new statement of comprehensive income as a single statement or as two statements. 1 July 2009 1 May 2010 The Group intends to acquire business entities in the future and outstanding non- controlling interests. Impact to the Group’s ﬁ nancial report is unable to be assessed. No impact on previous acquisitions. 58 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) REFERENCE TITLE SUMMARY AASB 3 (Revised) Business Combinations AASB 123 (Revised) and AASB 2007-6 Borrowing Costs The revised standard introduces a number of changes to the accounting for business combinations, the most signiﬁ cant of which allows entities a choice for each business combination entered into – to measure a non- controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. Also, under the revised standard, transaction costs under business combination are expensed and contingent considerations are recognised at fair values. The changes apply prospectively. Borrowing Costs and consequential amendments to other Australian Accounting Standards APPLICATION DATE OF STANDARD 1 July 2009 IMPACT ON GROUP FINANCIAL REPORT Refer to AASB 127 (Revised), AASB 2008-3 Above. APPLICATION DATE FOR GROUP 1 May 2010 1 January 2009 The Group has borrowing costs associated with qualifying assets. The amendments are not expected to have any impact on the Group ﬁ nancial report. 1 May 2009 METCASH LIMITED ANNUAL REPORT 2009 59 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) APPLICATION DATE FOR GROUP 1 May 2009 APPLICATION DATE OF STANDARD 1 January 2009 IMPACT ON GROUP FINANCIAL REPORT The Group has an employee option plan in place. The Group may issue employee options in the future. The impact of this standard is unable to be assessed at this stage. 1 January 2009 No material impact on the Group is expected from the adoption of the Standard. 1 May 2009 1 January 2009 No material impact on the Group is expected from the adoption of the Standard. 1 May 2009 REFERENCE TITLE SUMMARY AASB 2008-1 Amendments to Australian Accounting Standard – Share- based Payments: Vesting Conditions and Cancellations AASB 2008-2 AASB 2008-5 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation Amendments to Australian Accounting Standards arising from the Annual Improvements Project The amendments clarify the deﬁ nition of ‘vesting conditions’, introducing the term ‘non-vesting conditions’ for conditions other than vesting conditions as speciﬁ cally deﬁ ned and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisﬁ ed. The amendments provide a limited exception to the deﬁ nition of a liability so as to allow an entity that issues puttable ﬁ nancial instruments with certain speciﬁ ed features, to classify those instruments as equity rather than ﬁ nancial liabilities. The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part I deals with changes the IASB identiﬁ ed resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. 60 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) REFERENCE TITLE SUMMARY AASB 2008-6 AASB 2008-7 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate AASB 2008-8 Amendments to Australian Accounting Standards – Eligible Hedged Items Refer to AASB 2008-5 above. The main amendments of relevance to Australian entities are those made to AASB 127 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in proﬁ t or loss in an entity’s separate ﬁ nancial statements (i.e. parent company accounts). The distinction between pre- and post-acquisition proﬁ ts is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value. The amendment to AASB 139 clariﬁ es how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item and (ii) inﬂ ation in a ﬁ nancial hedged item existed or was likely to exist. APPLICATION DATE OF STANDARD 1 July 2009 IMPACT ON GROUP FINANCIAL REPORT No material impact on the Group is expected from the adoption of the Standard. APPLICATION DATE FOR GROUP 1 May 2009 1 January 2009 Refer to AASB 127 (Revised), AASB 2008-3 above. 1 May 2009 1 July 2009 No material impact on the Group is expected from the adoption of the Standard. 1 May 2010 METCASH LIMITED ANNUAL REPORT 2009 61 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) APPLICATION DATE OF STANDARD IMPACT ON GROUP FINANCIAL REPORT Ending on or after 30 June 2009 No material impact on the Group is expected from the adoption of the Standard. APPLICATION DATE FOR GROUP 1 May 2009 1 January 2009 1 May 2009 This amendment relates to a disclosure standard so it will have no direct material impact on the amounts included in the Group’s ﬁ nancial report. However, it will result in additional disclosure included in the Group’s ﬁ nancial report. 1 July 2008 1 May 2009 The Group does not have any customer loyalty programs and as such this interpretation is not expected to have any impact on the Group’s ﬁ nancial report. REFERENCE TITLE SUMMARY The amendments clarify that on reclassiﬁ cation of a ﬁ nancial asset out of the ‘at fair value through proﬁ t or loss’ category all embedded derivatives have to be assessed and, if necessary, separately accounted for in ﬁ nancial statements. The amended IFRS 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy: (cid:129) (cid:129) (cid:129) Quoted prices in active markets for identical assets or liabilities (Level 1) Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3) Deals with the accounting for customer loyalty programmes, which are used by companies to provide incentives to their customers to buy their products or use their services. Amendments to International Financial Reporting Standards Embedded Derivatives (Amendments to IFRIC 9 and IAS 39) Amendments to IFRS 7 Amendments to International Financial Reporting Standards AASB Interpretation 13 Customer Loyalty Programmes 62 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) APPLICATION DATE OF STANDARD 1 October 2008 IMPACT ON GROUP FINANCIAL REPORT No material impact on the Group is expected from the adoption of the Standard. APPLICATION DATE FOR GROUP 1 May 2009 1 July 2008 No material impact on the Group is expected from the adoption of the Standard. 1 May 2009 No material impact on the Group is expected from the adoption of the Standard. 1 July 2009 Applies prospectively to transfer of assets from customers received on or after 1 July 2009 REFERENCE TITLE SUMMARY AASB Interpretation 18 Hedges of a Net Investment in a Foreign Operation AASB Interpretation 17 and AASB 2008-13 Distributions of Non-cash Assets to Owners and consequential amendments to other Australian Accounting Standards AASB Interpretation 18 Transfers of Assets from Customers This interpretation requires that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches. The Interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-offs, split offs or demergers and in-specie distributions. This Interpretation provides guidance on the transfer of assets such as items of property, plant and equipment or transfers of cash received from customers. It requires a transferred asset (which is controlled by the entity) to recognise that asset at fair value. It also requires revenue from ongoing access to goods/services to be recognised over the period that access is provided and revenue from connection to a network to be recognised when the connection to the network is completed. METCASH LIMITED ANNUAL REPORT 2009 63 notes to the ﬁ nancial statements for the year ended 30 April 2009 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 2009. The ﬁ nancial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Controlled entities are all those entities over which the Group has the power to govern the ﬁ nancial and operating policies so as to obtain beneﬁ ts from their activities. Controlled entities 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. Investments in subsidiaries held by Metcash Limited are accounted for at cost in the separate ﬁ nancial statements of the parent entity. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the costs of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Minority interests not held by the Group are allocated their share of net proﬁ t after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from the parent shareholders’ equity. (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) SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (a) SIGNIFICANT ACCOUNTING JUDGEMENTS In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have a signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements: CONTRACTUAL CUSTOMER RELATIONSHIPS Identifying those acquired relationships with customers that meet the deﬁ nition of separately identiﬁ able intangibles that have a ﬁ nite life. (b) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a 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 the 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. 64 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (vi) FOREIGN CURRENCY TRANSLATION TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS Both the functional and presentation currency of Metcash Limited and its Australian subsidiaries is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated ﬁ nancial report are taken to proﬁ t or loss. TRANSLATION OF FINANCIAL REPORTS OF OVERSEAS OPERATIONS The functional currency of the overseas subsidiaries is as follows: (cid:129) Tasman Liquor Company Limited is New Zealand dollars. (cid:129) Metoz Holdings Limited is South African rand. (cid:129) Pinnacle Holdings Limited is British pounds sterling. (cid:129) Soetensteeg 2–61 Exploitatiemaatschappij BV is euros. (cid:129) Wickson Corporation NV is euros. As at the reporting date the results of the overseas subsidiaries are translated into the presentation currency of Metcash Limited. Assets and liabilities are translated at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rate for the year. The exchange differences arising on the translation are taken directly to the foreign currency translation reserve. (vii) CASH AND CASH EQUIVALENTS Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insigniﬁ cant risk of changes in value and have a maturity of three months or less at the date of acquisition. (viii) TRADE AND OTHER RECEIVABLES Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. (ix) INVESTMENTS AND OTHER FINANCIAL ASSETS All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments, which are 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 Stock Exchange quoted market bid prices at the close of business on the balance sheet date. (x) DERIVATIVE FINANCIAL INSTRUMENTS Derivative ﬁ nancial instruments (interest rate collar) are initially recognised at fair value on the date on which a derivate contract is entered into and are subsequently measured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash ﬂ ow hedges, are taken directly to proﬁ t or loss for the year. The fair value of interest rate collar contracts are determined by reference to market values for similar instruments. METCASH LIMITED ANNUAL REPORT 2009 65 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) For the purposes of hedge accounting, hedges are classiﬁ ed as: (cid:129) fair value hedges, when they hedge the exposure to changes in the fair value of recognised asset or liability; or (cid:129) cash ﬂ ow hedges, when they hedge the exposure to variability in cash ﬂ ows that is attributable either to a particular risk associated with a recognised asset or liability or to a forecast transaction. The Group has no hedges that meet the strict criteria for hedge accounting and therefore any gains or losses arising from changes in the fair value of derivatives are taken directly to proﬁ t or loss for the year. (xi) INVESTMENT IN ASSOCIATES The Group’s investments in its associates are accounted for using 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 in the consolidated statement of changes in equity. (xii) 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. (xiii) 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 2009 2008 50 years 50 years 5–15 years 5–15 years 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. 66 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. (xiv) 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 this 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. (xv) 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 retains 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 that 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 lower of fair value of the leased property or 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 assets 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 shorter of the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. METCASH LIMITED ANNUAL REPORT 2009 67 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (xvi) 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 acquirer’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. (xvii) 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. 68 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The estimated useful lives of existing ﬁ nite intangible assets are as follows: (cid:129) Customer contracts – 25 years (cid:129) Software development costs – ﬁ ve years (cid:129) Other – 10 years. (xviii) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised costs. They 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. (xix) EMPLOYEE LEAVE BENEFITS (a) 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. (b) 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. (xx) 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. (xxi) 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. METCASH LIMITED ANNUAL REPORT 2009 69 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. (xxii) 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. (xxiii) 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. 70 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. (xxiv) 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 substantively 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. Deferred tax assets and deferred liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. (xxv) OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: (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 (cid:129) 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. METCASH LIMITED ANNUAL REPORT 2009 71 notes to the ﬁ nancial statements for the year ended 30 April 2009 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. (xxvi) 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) costs of servicing equity (other than dividends); (cid:129) (cid:129) 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. (xxvii) 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 a deduction, net of tax, from the proceeds. (xxviii) BORROWING COSTS Borrowing costs are recognised as an expense when incurred. 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. 72 3 SEGMENT INFORMATION (continued) 8 0 0 2 m ’ $ 9 0 0 2 m ’ $ 8 0 0 2 m ’ $ 9 0 0 2 m ’ $ 8 0 0 2 m ’ $ 9 0 0 2 m ’ $ 8 0 0 2 m ’ $ 9 0 0 2 m ’ $ 8 0 0 2 m ’ $ 9 0 0 2 m ’ $ D E T A D I L O S N O C S N O I T A N M I I L E I N O I T U B R T S I D R O U Q I L Y R R A C D N A H S A C N O I T U B R T S I D I I N O I T U B 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 – 0 . 3 8 – 8 . 5 8 – – – – ) 7 . 4 7 9 ( . ) 3 9 1 9 ( . 6 9 9 . 6 9 0 1 – – – – 1 . 6 1 1 , 0 1 7 . 1 8 9 , 0 1 – – . 3 9 9 4 2 , 5 . 9 3 6 2 , . 8 0 5 5 , 1 . 4 0 6 6 1 , – – . 1 5 7 8 7 . 9 0 8 0 . 6 6 0 , 6 8 . 1 8 6 , 6 e h t e d i s t u o s r e m o t s u c o t l s e a S y t i t n e d e t a d i l o s n o c 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 T N E M G E S e u n e v e r d e t a c o l l a n U 1 . 9 9 1 , 0 1 5 . 7 6 0 , 1 1 ) 7 . 4 7 9 ( ) 3 . 9 1 9 ( 9 . 8 9 5 , 2 . 1 9 4 7 , 2 8 . 0 5 5 , 1 . 4 0 6 6 1 , . 1 1 4 9 , 6 5 . 1 9 4 , 7 e u n e v e r t n e m g e s l a t o T ) 6 . 2 5 ( 9 . 6 3 3 ) 5 . 1 9 ( 3 . 2 8 3 3 . 4 8 2 8 . 0 9 2 8 . 1 9 8 , 2 8 . 1 2 1 , 3 8 . 1 5 2 6 . 3 4 1 , 3 5 . 6 6 2 , 1 3 . 7 3 6 7 . 4 6 1 5 . 6 8 2 , 3 9 . 9 9 2 , 1 2 . 7 0 7 8 . 3 0 9 , 1 1 . 7 0 0 , 2 5 . 7 1 9 . 2 1 4 . 4 5 . 4 0 . 2 8 1 . 4 1 0 . 6 8 . 3 1 – – – – – – – – – – – – – – . 2 1 3 . 8 3 3 . 6 0 3 . 0 3 3 . 1 5 7 2 5 . 5 1 3 t l u s e r t n e m g e S t l u s e r d e t a c o l l a n U 9 . 1 2 6 6 . 9 1 6 . 2 6 5 3 . 2 1 3 4 . 7 3 1 9 1 , 0 . 1 7 0 , 2 6 . 4 6 3 5 . 0 7 3 . 3 3 4 1 . 3 2 5 1 7 . 8 5 7 1 . 7 7 7 8 . 4 6 4 . 7 . 0 0 1 . 2 . 1 8 4 . 0 . 1 0 1 . 0 . 8 5 3 . 4 . 1 3 0 . 9 3 . 9 1 . . 4 6 1 8 1 . 7 4 . 8 4 . 3 . 2 2 3 . 4 . 5 1 . 3 4 . 4 6 0 . 1 1 m o r f r t ﬁ o p y t i t n e d e t a d i l o s n o C r f e o e b s e i t i v i t c a y r a n d o r i e s n e p x e x a t e m o c n i s t e s s A d e t a c o l l a n U s t e s s A t n e m g e S s e i t i l i b a L i t n e m g e S s t e s s A l a t o T s e i t i l i i b a L d e t a c o l l a n U d n a l t n a p , y t r e p o p r s e i t i l i b a L i l a t o T f o n o i t i s i u q c A l s t e s s a e b g n a t n i i d n a t n e m p u q e i n o i t i a c e p e D r n a h t r e h t o s e s n e p x e h s a c - n o N n o i t a s i t r o m a e s a e L n o i t i a c e p e d r . 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 r e a y n a p m o c g n d o h e h t i l 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 r d e h e a y n a p m o c g n d o h e h t l i 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 METCASH LIMITED ANNUAL REPORT 2009 73 notes to the ﬁ nancial statements for the year ended 30 April 2009 4 REVENUE AND EXPENSES (a) REVENUE Sale of goods Rent Interest from other person/corporation Fair value gain on derivative ﬁ nancial instrument Dividend income Other revenue (b) OTHER INCOME METCASH GROUP METCASH LIMITED 2009 $’m 2008 $’m 2009 $’m 2008 $’m 10,981.7 10,116.1 76.6 9.2 – – – 66.0 7.0 3.8 – 6.2 11,067.5 10,199.1 – – – – 183.6 207.2 390.8 – – – – 160.5 222.7 383.2 Net proﬁ t from disposal of property, plant and equipment 0.1 5.3 (c) OTHER EXPENSES Depreciation of property, plant and equipment Amortisation of intangibles – software Amortisation of Intangibles – customer contracts Impairment of trade receivables 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) SIGNIFICANT ITEM 27.5 12.9 6.2 10.7 7.8 28.9 12.8 5.9 9.3 13.5 83.2 88.0 364.2 31.6 8.5 4.5 7.8 362.4 32.8 8.7 4.8 7.6 – – – – – – – – – – – – – – – – – – – – 4.5 – 4.8 – Termination of derivative ﬁ nancial instrument 24.6 – – – Metcash Limited entered into an interest rate collar as a condition of its syndicated loan agreement. Due to signiﬁ cant movements in interest rates, steps were taken to terminate the derivative ﬁ nancial instrument (g) OTHER FINANCE COSTS Interest expense Fair value loss on derivative ﬁ nancial instrument 66.4 3.8 70.2 61.9 – 61.9 202.7 – 202.7 217.9 – 217.9 74 5 INCOME TAX The major components of income tax expense are: CURRENT INCOME TAX Current income tax charge 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: Accounting proﬁ t before income tax At the Group’s statutory income tax rate of 30% (2008: 30%) Expenditure not allowable for income tax purposes Income not assessable for income tax purposes Adjustments in respect of current income tax of previous years Income tax expense reported in the consolidated income statement at an effective tax rate of 30% (2008: 31%) DEFERRED INCOME TAX Deferred income tax of the Metcash Group at 30 April relates to the following: DEFERRED TAX LIABILITIES Accelerated depreciation for tax purposes Deferred expenditure Intangibles Other receivables Set off of deferred tax assets DEFERRED TAX ASSETS Provisions Project Costs Other Set off of deferred tax liabilities Deferred tax income expense METCASH GROUP METCASH LIMITED 2009 $’m 2008 $’m 2009 $’m 2008 $’m 83.6 54.2 3.9 87.5 32.6 86.8 290.7 87.2 1.6 – (1.3) 284.3 85.3 1.5 – – 87.5 86.8 – – – 183.6 55.1 1.4 (56.5) – – – – – 160.5 48.2 1.4 (49.6) – – BALANCE SHEET INCOME STATEMENT 2009 $’m 2008 $’m 2009 $’m 2008 $’m – 5.6 41.4 2.6 (49.6) – 50.4 3.1 12.3 (49.6) 16.2 0.1 6.7 40.1 3.8 (50.7) – 48.0 7.4 15.4 (50.7) 20.1 (0.1) (1.1) 1.3 (1.2) (2.4) 4.3 3.1 (0.8) 0.2 (1.6) 3.8 (2.6) 5.6 28.0 3.9 32.6 METCASH LIMITED ANNUAL REPORT 2009 75 notes to the ﬁ nancial statements for the year ended 30 April 2009 5 INCOME TAX (continued) In the prior year, deferred tax assets of $70.7 million have been presented in non-current assets and deferred tax liabilities of $50.6 million in non-current liabilities. To the extent that there exists a legally enforceable right to set off current tax against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority, deferred tax assets and deferred tax liabilities are set off. Accordingly, the comparative prior year balances were reclassiﬁ ed and the net deferred tax assets presented in other non-current assets. At 30 April 2009, there is no recognised or unrecognised deferred income tax liability (2008: $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. The Group has an unrecognised beneﬁ t relating to capital losses in Australia of $18 million that are available indeﬁ nitely for offset against future capital gains. TAX CONSOLIDATION Metcash Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 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 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 a group allocation method using modiﬁ ed stand-alone tax calculation as the basis for allocation. Deferred taxes or members of the tax consolidated group are measured and recognised in accordance with the principles of AASB 112 Income Taxes. Under the tax funding agreement, funding is based upon the amounts allocated and recognised by the member entities. Accordingly, funding results in an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Metcash Limited. In preparing the accounts for Metcash Limited for the current year, the following amounts have been recognised as tax-consolidation contribution adjustments: Total (decrease)/increase to inter-company assets of Metcash Limited METCASH LIMITED 2009 $’m 52.1 2008 $’m (10.1) 76 6 DIVIDENDS PAID AND PROPOSED (a) DIVIDENDS PAID ON ORDINARY SHARES DURING THE YEAR (i) Final franked dividend for 2008: 12.0c (2007: 10.0c) (ii) Interim franked dividend for 2009: 10.0c (2008: 9.0c) Dividends declared (not recognised as a liability as at 30 April 2009) METCASH GROUP METCASH LIMITED 2009 $’m 91.8 76.5 168.3 2008 $’m 76.3 68.7 145.0 2009 $’m 91.8 76.5 168.3 2008 $’m 76.3 68.7 145.0 Franked dividends for 2009: 14.0c per share (2008: 12.0c) 107.1 91.8 107.1 91.8 (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% (2008: 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 (c) TAX RATES The tax rate at which paid dividends have been franked is 30% (2008: 30%). Dividends declared have been franked at the rate of 30% (2008: 30%). 83.6 16.3 125.4 11.5 (45.9) 54.0 (39.3) 97.6 METCASH LIMITED ANNUAL REPORT 2009 77 notes to the ﬁ nancial statements for the year ended 30 April 2009 7 CASH AND CASH EQUIVALENTS Cash at bank and on hand (a) RECONCILIATION OF NET PROFIT AFTER TAX TO NET CASH FLOWS 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 Termination of derivative ﬁ nancial instrument Deferred borrowing costs Share-based payments Net (proﬁ t) on disposal of retail business 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 other current assets (Increase)/decrease in inventories (Increase)/decrease in deferred tax assets (Decrease)/increase in payables and provisions (Decrease)/increase in tax payable (Decrease)/increase in derivative ﬁ nancial instruments Net cash from operating activities (b) NON-CASH FINANCING AND INVESTING ACTIVITIES Acquisition of assets by means of ﬁ nance lease Capitalisation of debtor to investment in associate METCASH GROUP METCASH LIMITED 2009 $’m 148.6 148.6 2008 $’m 180.5 180.5 2009 $’m – – 2008 $’m – – 203.2 197.5 183.6 160.5 27.5 19.1 (0.1) (1.9) 1.3 24.6 2.8 4.5 – (6.4) (1.0) (103.0) 4.0 17.0 52.7 3.8 248.1 7.5 1.8 28.9 18.8 (5.3) (3.2) 1.5 – 1.7 4.8 (3.6) (52.1) 0.8 8.2 32.1 (19.8) (9.0) (3.8) 197.5 8.6 – – – – – – – – 4.5 – – – – – – – – – – – – – – – 4.8 – – – – – – – – 188.1 165.3 – – – – 78 8 TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables – Securitised (i) Trade receivables – Non-securitised (ii) Allowance for impairment loss Customer loans (iii) Other receivables (iv) Related-party receivables: (v) wholly owned subsidiaries METCASH GROUP METCASH LIMITED 2009 $’m 735.6 134.3 (22.8) 847.1 38.6 82.0 – 967.7 2008 $’m 778.2 32.4 (12.9) 797.7 49.7 127.7 – 975.1 2009 $’m 2008 $’m – – – – – – – – – – – – 1,125.3 1,125.3 850.4 850.4 (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 $735.6 million (2008: $778.2) had been securitised as disclosed above, with $125.0 million (2008: $200.0 million) 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 2009, 94.2% of trade receivables are required to be settled within 30 days and 5.8% of trade receivables have terms extending from 30 days to 84 days. 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) Customer loans receivable are current and have repayment terms of less than 12 months. $17.0 million (2008: $15.5 million) of loans are non-interest bearing. $21.6 million (2008: $34.2) of loans have annual interest of 7.66% (2008: 8.54%). (iv) Other receivables are non-interest bearing and have repayment terms of less than 12 months. (v) For terms and conditions relating to related party receivables refer to Note 22. Amounts receivable from related parties are neither past due nor impaired. These receivables are non-interest bearing. The credit quality of these receivables is good. The amount of this receivable is considered to be recoverable in full. IMPAIRED TRADE RECEIVABLES During the year ended 30 April 2009, receivables to the value of $5.5 million (2008 $3.2 million) were considered impaired and written off. As at 30 April 2009 trade receivables with a notional value of $22.8 million (2008 $12.9 million) were provided for as potential impairment. Movement in the allowance for impairment loss: At 1 May Charge for the year Accounts written off as non-recoverable Amounts reclassiﬁ ed from other payables Closing balance METCASH GROUP 2009 $’m (12.9) (10.7) 5.5 (4.7) (22.8) 2008 $’m (6.8) (9.3) 3.2 – (12.9) METCASH LIMITED ANNUAL REPORT 2009 79 notes to the ﬁ nancial statements for the year ended 30 April 2009 8 TRADE AND OTHER RECEIVABLES (CURRENT) (continued) DEBTORS AGEING As at 30 April 2009, the analysis of trade receivables for the Metcash Group that were past due but not impaired is as follows: NEITHER PAST DUE OR IMPAIRED $’m LESS THAN 30 DAYS OVERDUE $’m MORE THAN 30 LESS THAN 60 $’m MORE THAN 60 LESS THAN 90 $’m MORE THAN 90 LESS THAN 120 $’m MORE THAN 120 $’m 2009 2008 689.3 81.4% 623.1 78.1% 108.3 12.8% 132.4 16.6% 12.6 1.5% 14.9 1.9% 7.3 0.9% 10.8 1.3% 7.3 0.9% 5.6 0.7% 22.3 2.6% 10.9 1.4% TOTAL $’m 847.1 100.0% 797.7 100.0% The credit quality of the unimpaired trade receivables is good. Metcash believe that the above trade receivables will be fully recovered. CUSTOMER LOANS AGEING As at 30 April 2009, the analysis of customer loans receivable for the Metcash Group that were past due but not impaired is as follows: NEITHER PAST DUE OR IMPAIRED $’m LESS THAN 30 DAYS OVERDUE $’m MORE THAN 30 LESS THAN 60 $’m MORE THAN 60 LESS THAN 90 $’m MORE THAN 90 LESS THAN 120 $’m MORE THAN 120 $’m 2009 2008 34.5 49.6% 61.9 79.1% 2.3 3.3% 0.3 0.4% 2.2 3.2% 0.3 0.3% 2.1 3.0% 0.2 0.3% 1.8 2.6% 0.2 0.2% 26.6 38.3% 15.4 19.7% TOTAL $’m 69.5 100.0% 78.3 100.0% The credit quality of the customer loans is good. As these amounts do not contain impaired assets Metcash believe that the above receivables will be fully recovered. OTHER RECEIVABLES AGEING As at 30 April 2009, the analysis of other receivables for the Metcash Group that were past due but not impaired is as follows: NEITHER PAST DUE OR IMPAIRED $’m LESS THAN 30 DAYS OVERDUE $’m MORE THAN 30 LESS THAN 60 $’m MORE THAN 60 LESS THAN 90 $’m MORE THAN 90 LESS THAN 120 $’m MORE THAN 120 $’m 2009 2008 73.3 89.4% 96.7 75.7% 6.4 7.8% 21.9 17.1% 1.4 1.7% 4.9 3.8% 0.2 0.2% 3.0 2.4% 0.4 0.5% 0.2 0.2% 0.3 0.4% 1.0 0.8% TOTAL $’m 82.0 100.0% 127.7 100.0% The credit quality of the unimpaired other receivables is good. Metcash believe that all the above other receivables will be fully recovered. 80 8 TRADE AND OTHER RECEIVABLES (CURRENT) (continued) CUSTOMER LOAN SECURITY As at balance date, Metcash provided loans to a number of customers. The outstanding loan balance can be summarised as follows: Current loans Non-current loans METCASH GROUP 2009 $’m 38.6 30.9 69.5 2008 $’m 49.7 28.6 78.3 For certain loans, customers are required to provide security in the event of default. These may include bank guarantees, ﬁ xed and ﬂ oating charges and security over property assets. The fair value of these securities as at 30 April 2009 was $25.2 million (2008: $28.1 million). 9 INVENTORIES Finished goods (at net realisable value) Total inventories at the lower of cost and net realisable value METCASH GROUP METCASH LIMITED 2009 $’m 680.5 680.5 2008 $’m 576.7 576.7 2009 $’m – – 2008 $’m – – Inventory write-downs recognised as an expense totalled $7.8 million (2008: $13.5 million) for the Group and $nil (2008: $nil) for the Company. The expense is included in the cost of sales line item as a cost of inventory. 10 RECEIVABLES (NON-CURRENT) Customer loans (i) Other receivables (ii) Total METCASH GROUP METCASH LIMITED 2009 $’m 30.9 9.2 40.1 2008 $’m 28.6 7.2 35.8 2009 $’m – – – 2008 $’m – – – (i) Customer loans receivable are non-current and have repayment terms of greater than 12 months. $6 million (2008: $5.0 million) of loans are non-interest bearing. $24.9 million (2008: $23.6 million) of loans have annual interest of 7.66% (2008: 8.54%). Refer to Note 8 for ageing analysis. (ii) Other receivables are non-interest bearing and have repayment terms greater than 12 months. These receivables are all neither past due nor impaired. METCASH LIMITED ANNUAL REPORT 2009 81 notes to the ﬁ nancial statements for the year ended 30 April 2009 11 INVESTMENTS IN ASSOCIATES Investments in associates INTEREST IN ASSOCIATES METCASH GROUP METCASH LIMITED 2009 $’m 84.1 2008 $’m 80.5 2009 $’m – OWNERSHIP INTEREST PRINCIPAL ACTIVITIES BALANCE DATE Produce Traders Trust Distribution of fruit and vegetables Abacus Independent Retail Property Trust Retail property investment Ritchies Stores Pty Ltd BMS Retail Group Pty Ltd Dramet Pty Ltd Coco’s Fresh Food Markets Dart Trading Co Pty Ltd Bamlane Pty Ltd Mundin Pty Ltd G’Butt Pty ltd Mussen Pty Ltd Ully Pty Ltd Adcome Pty Ltd Metfood Pty Limited Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Negotiate to reduce costs for Metcash and Foodstuffs Progressive Trading Pty Ltd (Progressive) Grocery retailing 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 April 30 June 2009 % 40.0 25.0 26.0 25.1 26.0 26.0 26.0 26.0 26.0 26.0 26.0 26.0 40.0 50.0 55.4 2008 $’m – 2008 % 40.0 25.0 26.0 25.1 26.0 26.0 – – – – – – 40.0 50.0 55.4 Metcash has a direct ownership of 49.0% in Progressive, and an indirect ownership of 6.4% via the 25.1% interest in BMS Retail Group Pty Ltd. Although the Group’s total ownership interest in Progressive is greater than 50%, it is still considered to be an associate of the Group, as Metcash Limited do not have the power to govern the ﬁ nancial and operating policies of Progressive. 82 11 INVESTMENTS IN ASSOCIATES (continued) The following table illustrates summarised ﬁ nancial information relating to the Group’s investment in associates. SHARE OF ASSOCIATES’ PROFIT 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 2009 $’m 2.8 (0.9) 1.9 60.0 127.4 187.4 (81.7) (50.4) (132.1) 55.3 2008 $’m 4.6 (1.4) 3.2 21.6 70.1 91.7 (31.7) (36.7) (68.4) 23.3 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 subsidiaries METCASH GROUP METCASH LIMITED 2009 $’m 0.2 – 0.2 2008 $’m 0.2 – 0.2 2009 $’m – 2008 $’m – 4,616.1 4,616.1 4,616.1 4,616.1 METCASH LIMITED ANNUAL REPORT 2009 83 notes to the ﬁ nancial statements for the year ended 30 April 2009 13 PROPERTY, PLANT AND EQUIPMENT METCASH GROUP METCASH LIMITED LAND AND BUILDINGS $’m PLANT AND EQUIPMENT $’m TOTAL $’m LAND AND BUILDINGS $’m PLANT AND EQUIPMENT $’m TOTAL $’m YEAR ENDED 30 APRIL 2009 At 1 May 2008, net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year At 30 April 2009, net of accumulated depreciation and impairment At 1 May 2008, Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2009, Cost or fair value Accumulated depreciation and impairment Net carrying amount YEAR ENDED 30 APRIL 2008 At 1 May 2007, net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year At 30 April 2008, net of accumulated depreciation and impairment At 1 May 2007, Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2008, Cost or fair value Accumulated depreciation and impairment Net carrying amount 51.4 – – (0.8) 88.6 52.0 (1.1) (26.7) 140.0 52.0 (1.1) (27.5) 50.6 112.8 163.4 55.8 236.6 292.4 (4.4) 51.4 (148.0) 88.6 (152.4) 140.0 55.2 269.6 324.8 (4.6) 50.6 (156.8) 112.8 (161.4) 163.4 58.1 – (4.0) (2.7) 86.2 41.1 (12.5) (26.2) 144.3 41.1 (16.5) (28.9) 51.4 88.6 140.0 64.7 208.1 272.8 (6.6) 58.1 (121.9) 86.2 (128.5) 144.3 55.8 236.6 292.4 (4.4) 51.4 (148.0) 88.6 (152.4) 140.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – The carrying value of plant and equipment held under ﬁ nance leases and hire purchase contracts at 30 April 2009 is $17.7 million (2008: $18.2 million). 84 14 INTANGIBLE ASSETS AND GOODWILL METCASH GROUP METCASH LIMITED SOFTWARE DEVELOPMENT $’m CUSTOMER CONTRACTS $’m GOODWILL $’m OTHER $’m TOTAL $’m TOTAL $’m YEAR ENDED 30 APRIL 2009 At 1 May 2008 Net carrying amount Additions Acquisition from business combination (Refer Note 25) Amortisation At 30 April 2009 Net carrying amount At 30 April 2009 46.2 12.4 – (12.9) 138.8 5.2 – (6.1) 931.1 0.2 62.3 – – 3.0 – (0.1) 1,116.1 20.8 62.3 (19.1) 45.7 137.9 993.6 2.9 1,180.1 Cost (gross carrying amount) 153.3 159.0 993.6 3.0 1,308.9 Accumulated amortisation and impairment Net carrying amount YEAR ENDED 30 APRIL 2008 At 1 May 2007 (107.6) 45.7 (21.1) 137.9 – 993.6 (0.1) 2.9 (128.8) 1,180.1 Cost (gross carrying amount) 129.1 151.1 924.6 Accumulated amortisation and impairment Net carrying amount (81.7) 47.4 (8.8) 142.3 – 924.6 YEAR ENDED 30 APRIL 2008 At 1 May 2007 Net carrying amount Additions Acquisition from business combination Amortisation At 30 April 2008 47.4 11.4 – (12.6) 142.3 2.5 – (6.0) 924.6 4.1 2.4 – Net carrying amount 46.2 138.8 931.1 – – – – – – – – 1,204.8 (90.5) 1,114.3 1,114.3 18.0 2.4 (18.6) 1,116.1 – – – – – – – – – – – – – – – – CUSTOMER CONTRACTS VALUATION APPROACH To value the customer relationships on acquisition, the multi-period excess-earnings (MEEM) approach 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 a customer relationship having regard to the longevity of the customer relationship. 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. METCASH LIMITED ANNUAL REPORT 2009 85 notes to the ﬁ nancial statements for the year ended 30 April 2009 14 INTANGIBLE ASSETS AND GOODWILL (continued) The following describes the key assumptions applied by management in the valuation of contractual customer relationships: (cid:129) (cid:129) (cid:129) Cash ﬂ ow forecasts growth rates. – Cash ﬂ ow forecasts are based on historical results extrapolated out to 25 years using forecast Forecast growth rates performance. – Forecast growth rates are based on past performance and management’s expectation for future Forecast attrition rates of future attrition. – Attrition rates are based on historical rates experienced and management’s expectations (cid:129) Discount rates – A discount rate approximating the weighted average cost of capital has been applied. The Company has arrived at a valuation of customer relationships from the acquisition of the FAL business of $148 million with a ﬁ nite life and amortised over 25 years, straight line. It also purchased other customer relationships amounting to $5.5 million (2008: $5.6million) with a ﬁ nite life and amortised over 25 years straight line. Amortisation of $6.1 million has been charged to the proﬁ t and loss (in the administrative costs line) in the current ﬁ nancial year for all customer relationships. 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 ﬁ ve years. Software development costs are tested for impairment where an indicator of impairment exists. Useful lifes are also estimated on an annual basis and adjustments, where applicable, are made on a prospective basis. OTHER The company entered into an Alliance Agreement with Lenard’s Pty Ltd during the year to offer customers the opportunity to purchase products under a Lenards Franchise. The agreement fee will be amortised over 10 years, straight line. GOODWILL Goodwill acquired through business combinations have been allocated to the three business pillars (IGA>D, CCC 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 and when impairment indicators arise, provided the testing is done at the same time each year. Management has elected to conduct the impairment testing in December 2008. The cash generating units (CGU) used for impairment testing are as follows: IGA>D NSW, IGA>D Victoria, IGA>D Queensland, IGA>D South Australia, IGA>Western Australia, Campbells Wholesale and Australian Liquor Marketers. The recoverable amount of the CGUs has been determined based on fair value less costs to sell calculation using cash ﬂ ow projections based on ﬁ nancial projections approved by senior management covering a ﬁ ve-year period. The pre-tax discount rate applied to cash ﬂ ow projections is 12.26% (2008: 13.1%) and cash ﬂ ows beyond the ﬁ ve-year period are extrapolated using a 2.5 % growth rate (2008: 2.5%), which is based on the historical population and applicable food inﬂ ation and liquor growth rates for each CGU. The following describes the key assumptions on which management has based its cash ﬂ ow projection: (cid:129) Budgeted gross margins margins achieved immediately before the budgeted year, increased for expected efﬁ ciency improvements. . These have been estimated based on utilisation of existing assets and on the average gross (cid:129) Risk free rate based on current Australian Government 10 year bond rate at the date of the impairment test. (cid:129) Future growth driven by population growth, food inﬂ ation and changes in market share. 86 14 INTANGIBLE ASSETS AND GOODWILL (continued) The table below summarises the Goodwill attributed to each CGU and potential impairment trigger point at the impairment testing date of December 2008: CGU IGAD>NSW IGAD>Victoria IGAD>Queensland IGAD>South Australia IGAD>Western Australia Campbells Wholesale Australian Liquor Marketers GOODWILL $’m DISCOUNT RATE AT WHICH IMPAIRMENT IS TRIGGERED % 67.2 63.7 145.4 45.3 533.1 32.9 89.1 * * * * 15.23% * 18.04% * Management believe that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. 15 SHARE-BASED PAYMENTS SHARE-BASED PAYMENT PLANS During the year no options were issued to Executive Directors other than as disclosed in Note 23 (b). The following table illustrates the number and exercise prices and movements during the year ended 30 April 2009 and 30 April 2008: Outstanding at the beginning of the year Reinstated during the year Granted during the year Exercised during the year 2009 NUMBER 2008 EXERCISE PRICE 2009 NUMBER 2008 EXERCISE PRICE 13,523,106 21,325 21,091,806 – 18,007,840 – various 4.267 32,255 various – – – – (38,000) (57,770) – – 1.870 3.925 (510,000) (1,837,938) (39,000) – 2.430 1.268 1.870 – Expired during the year (2,338,144) various (2,130,051) various Outstanding at the end of the year 32,202,323 – 13,523,106 – The outstanding balance as at 30 April 2009 is represented by: (cid:129) 340,000 options over ordinary shares with an exercise price of $2.430 exercisable until 2 September 2010. (cid:129) 3,800,000 options over ordinary shares with an exercise price of $4.0134 exercisable until 2 September 2011. (cid:129) 8,675,181 options over ordinary shares with an exercise price of $3.9251 exercisable until 2 September 2011. (cid:129) 19,387,142 options over ordinary shares with an exercise price of $4.267 exercisable until 7 February 2014. The weighted average fair value of options granted during the year was $0.88 (2008: nil). METCASH LIMITED ANNUAL REPORT 2009 87 notes to the ﬁ nancial statements for the year ended 30 April 2009 15 SHARE-BASED PAYMENTS (continued) The fair value of the equity-settled share options granted is estimated at the date of the grant using a binomial model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model in the year ending 30 April 2009 and 30 April 2008: Dividend yield (%) Expected Volatility (%) Risk-free rate (%) Expected Life of Options (years) Option exercise price ($) Weighted average share price ($) 2009 5.00 23.88 6.70 6.00 4.27 4.22 2008 – – – – – – EMPLOYEE SHARE OPTION PLAN (ESOP) The Board may at such times as it determines issue invitations to eligible employees and hurdle participants to participate in the Employee Share Option Plan. Eligibility is usually achieved after three months of employment. The purpose of the scheme is to: (cid:129) create a joint purpose of success between Metcash and its employees; (cid:129) involve employees directly in the outcomes achieved by Metcash; and (cid:129) add wealth for employees and other shareholders. The exercise price of options is determined as the closing price on the Stock Exchange Automated Trading System (SEATS), excluding special crossings, overnight sales and exchange traded option exercises of the shares on the grant date, or such other price as determined by the Board. The vesting of options occurs as follows: (cid:129) 60% of the options issued to a participant become exercisable from the third anniversary of the grant date; (cid:129) a further 20% become exercisable from the fourth anniversary of the grant date; and (cid:129) the remaining 20% become exercisable from the ﬁ fth anniversary of the grant date. Options must be exercised prior to the sixth anniversary of the grant date, at which time they expire. Where an employee ceases to be employed by any Group Company the options issued to that participant will automatically lapse, except where the employee has ceased to be an employee by reason of total and permanent disability, death, retirement and such other circumstances as the Board may determine. In these circumstances, the Board may give its written approval to the Participant or their personal representative to exercise the options during such further period as the Board may determine. In addition, options will lapse on the winding up of the company or where the Participant has acted fraudulently or dishonestly. In the event of: (cid:129) any party becoming entitled to acquire shares by way of a compulsory acquisition; (cid:129) (cid:129) a resolution being passed by the Company to which any party becomes or will become ‘entitled’ to 100% of the issued shares; or a participant’s employment being terminated by any Group Company at any time within the period of six months after any party who is not at the grant date ‘entitled’ to 50% or more of the shares becomes so entitled, then an option may be exercised immediately. Exercise prices or option holdings will be pro-rated in the event of a Bonus issue, rights issue or reorganisation of the share capital of the Company. 88 16 TRADE AND OTHER PAYABLES (CURRENT) Trade payables Other payables METCASH GROUP METCASH LIMITED 2009 $’m 989.0 199.0 1,188.0 2008 $’m 999.9 154.0 1,153.9 2009 $’m – – – 2008 $’m – – – Trade and other payables are non-interest bearing and are normally settled within 30-day terms. (a) FAIR VALUE Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. 17 INTEREST-BEARING LOANS AND BORROWINGS CURRENT Secured liabilities Finance lease obligation (i) NON-CURRENT Finance lease obligation (i) Bank loans (ii) Debt securitisation (iii) Loans from subsidiaries (iv) METCASH GROUP METCASH LIMITED 2009 $’m 2008 $’m 2009 $’m 2008 $’m 6.9 6.9 17.3 495.9 125.0 – 638.2 5.7 5.7 17.3 393.3 200.0 – 610.6 – – – – – 3,019.7 3,019.7 – – – – – 2,817.0 2,817.0 (i) Finance leases have an average lease term of ﬁ ve 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 8.14% (2008: 7.69%). Secured lease liabilities are secured by a charge over the leased asset. (ii) Bank loans are a three-year senior unsecured syndicated loan note subscription facility. The syndicated facility has been provided to Metcash by a syndicate of lenders. The bank loans are covered by certain ﬁ nancial undertakings. Refer to Note 28 Subsequent Events for the new Financing Agreement. (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. (iv) Loans from subsidiaries are repayable on 12 October 2010 and attract a variable interest rate. The interest rate at 30 April 2009 was 3.91% (2008: 8.91%). (a) FAIR VALUE The carrying amount of the Group’s current and non-current borrowings approximate their fair value. (b) DEFAULTS OR BREACHES During the current and prior years, there were no defaults or breaches on any of the loans. (c) INTEREST RATE RISK AND LIQUIDITY RISK Details regarding interest rate risk and liquidity risk is disclosed in Note 20. METCASH LIMITED ANNUAL REPORT 2009 89 notes to the ﬁ nancial statements for the year ended 30 April 2009 18 PROVISIONS CURRENT Employee entitlements Rental subsidy (i) Lease and remediation Other (ii) NON-CURRENT Employee entitlements Rental subsidy (i) Other (ii) METCASH GROUP METCASH LIMITED 2009 $’m 60.7 9.3 2.3 0.4 72.7 25.8 31.0 2.3 59.1 2008 $’m 63.3 9.4 0.1 0.3 73.1 22.4 38.2 – 60.6 2009 $’m 2008 $’m – – – – – – – – – – – – – – – – – – – – Total 131.8 133.7 (a) MOVEMENTS IN PROVISIONS 1 May 2008 Arising during the year Utilised Unused amounts released 30 April 2009 METCASH GROUP RENTAL SUBSIDY $’m LEASE AND REMEDIATION $’m 47.6 1.7 (3.9) (5.1) 40.3 0.1 2.2 – – 2.3 OTHER $’m 0.3 2.7 (0.3) – 2.7 TOTAL $’m 48.0 6.6 (4.2) (5.1) 45.3 (b) NATURE AND TIMING OF PROVISIONS (i) RENTAL SUBSIDY PROVISION From time to time, Metcash will enter into head lease arrangements on certain retail properties. These properties are typically sub-leased to retail customers on commercial terms and conditions. Where the head lease rental expense exceeds the sub-lease rental income, a provision is raised for the difference in rental streams for the period of the sub-lease. These cash ﬂ ow differentials are then discounted back to their present value using a discount rate for an equivalent security of similar terms. (ii) Other current provisions contain a number of insigniﬁ cant balances, the costs of which are expected to be incurred within the next ﬁ nancial year. Non-current provisions represent the future payment for the exercise of a put option held by the vendor of Market Garden Produce. 19 CONTRIBUTED EQUITY AND RESERVES (a) ORDINARY SHARES: Issued and fully paid 90 METCASH GROUP METCASH LIMITED 2009 2008 2009 2008 1,889.7 1,889.7 1,889.4 1,889.4 2,555.7 2,555.7 2,555.4 2,555.4 19 CONTRIBUTED EQUITY AND RESERVES (continued) METCASH GROUP 2009 2008 NUMBER OF SHARES $’m NUMBER OF SHARES $’m MOVEMENTS IN ORDINARY SHARES ON ISSUE At 1 May 764,792,593 1,889.4 762,405,655 1,885.8 Issued during the year: – Exercise of employee options – 1,837,938 ordinary shares at 126.8 cents per share – Exercise of employee options – 39,000 ordinary shares at 187.0 cents per share – Exercise of employee options – 510,000 ordinary shares at 243.0 cents per share – Exercise of employee options – 38,000 ordinary shares at 187.0 cents per share – Exercise of employee options – 57,770 ordinary shares at 392.5 cents per share – – – 38,000 57,770 – – – 0.1 0.2 1,837,938 39,000 510,000 – – 2.3 0.1 1.2 – – At 30 April 764,888,363 1,889.7 764,792,593 1,889.4 METCASH LIMITED 2009 2008 NUMBER OF SHARES $’m NUMBER OF SHARES $’m MOVEMENTS IN ORDINARY SHARES ON ISSUE At 1 May 764,792,593 2,555.4 762,405,655 2,551.8 Issued during the year: – Exercise of employee options – 1,837,938 ordinary shares at 126.8 cents per share – Exercise of employee options – 39,000 ordinary shares at 187.0 cents per share – Exercise of employee options – 510,000 ordinary shares at 243.0 cents per share – Exercise of employee options – 38,000 ordinary shares at 187.0 cents per share – Exercise of employee options – 57,770 ordinary shares at 392.5 cents per share – – – 38,000 57,770 – – – 0.1 0.2 1,837,938 39,000 510,000 – – 2.3 0.1 1.2 – – At 30 April 764,888,363 2,555.7 764,792,593 2,555.4 (a) Fully paid ordinary shares carry one vote per share and carry the right to dividends. METCASH LIMITED ANNUAL REPORT 2009 91 notes to the ﬁ nancial statements for the year ended 30 April 2009 19 CONTRIBUTED EQUITY AND RESERVES (continued) RESERVES METCASH GROUP METCASH LIMITED SHARE-BASED PAYMENTS $’m CAPITAL RESERVES $’m FOREIGN CURRENCY TRANSLATION $’m TOTAL $’m SHARE-BASED PAYMENTS $’m At 1 May 2007 Currency translation differences Share-based payments At 30 April 2008 Currency translation differences Share-based payments At 30 April 2009 7.8 – 4.8 12.6 – 4.5 17.1 12.8 – – 12.8 – – 12.8 (3.3) (1.4) – (4.7) (1.3) – (6.0) 17.3 (1.4) 4.8 20.7 (1.3) 4.5 23.9 7.6 – 4.8 12.4 – 4.5 16.9 TOTAL $’m 7.6 – 4.8 12.4 – 4.5 16.9 NATURE AND PURPOSE OF RESERVES 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. CAPITAL PROFITS RESERVE 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. 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 30 April METCASH GROUP METCASH LIMITED 2009 $’m 95.5 202.5 (168.3) 129.7 2008 $’m 43.1 197.4 (145.0) 95.5 2009 $’m 91.8 183.6 (168.3) 107.1 2008 $’m 76.3 160.5 (145.0) 91.8 (765.9) (765.9) – – NATURE AND PURPOSE The other equity account is used to record the reverse acquisition adjustment on application of AASB 3 Business Combinations in 2005. 92 20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES 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 manages its exposure to key ﬁ nancial risks including interest rate and credit risks in accordance with the Group’s ﬁ nancial risk management policy. The objective of the policy is to support delivery of the Group’s ﬁ nancial targets while protecting future ﬁ nancial securities. The Group also enters into a small number of derivative transactions from time to time 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. RISK EXPOSURES AND LIQUIDITY RISK EXPOSURES 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. The Group enters into interest rate collars designated to limit the Group’s exposure to volatility in interest payments from time to time. As at 30 April 2009, the Group has no interest rate derivative ﬁ nancial instruments. The interest rate collar in effect at 30 April 2008 was terminated on 12 November 2008. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate collar METCASH GROUP METCASH LIMITED 2009 $’m – 2008 $’m 3.8 2009 $’m – 2008 $’m – METCASH LIMITED ANNUAL REPORT 2009 93 notes to the ﬁ nancial statements for the year ended 30 April 2009 20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) 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 (i) FINANCIAL ASSETS Fixed rate Trade and other receivables Floating rate Cash Total ﬁ nancial assets (ii) FINANCIAL LIABILITIES Fixed rate 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 2009 $’m 2008 $’m 2009 $’m 2008 $’m 2009 $’m 2008 $’m 2009 $’m 2008 $’m 2009 % 2008 % 21.6 34.2 30.9 23.5 148.6 170.2 180.5 214.7 – – 30.9 23.5 – – – – – – 52.5 57.7 7.66 8.54 148.6 201.1 180.5 238.2 3.0 – 6.64 – Finance lease liability* 6.9 5.7 17.1 15.2 0.2 2.1 24.2 23.0 8.14 7.69 Weighted average interest rate Floating rate 8.19% 7.98% 8.13% 7.72% 6.42% 6.70% Bank and other loans** – – 620.9 593.3 Non-interest bearing Trade and other payables 1,188.0 1,153.9 – – – – – – 620.9 593.3 4.02 8.31 1,188.0 1,153.9 – – – – Total ﬁ nancial liabilities 1,194.9 1,159.6 638.0 608.5 0.2 2.1 1,833.1 1,770.2 * Finance leases have an average lease term of ﬁ ve 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 8.14% (2008: 7.69%). Secured lease liabilities are secured by a charge over the leased asset. ** Bank loans are a three-year senior unsecured syndicated loan note subscription facility. The syndicated facility has been provided to Metcash by a syndicate of lenders. Refer to Note 28 for the new Financing Agreement signed after balance date. 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. LIQUIDITY RISK AND FUNDING MANAGEMENT Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. To limit this risk, management manages assets with liquidity in mind, and monitors future cash ﬂ ows and liquidity on a daily basis. The Group has two independent sources of debt funding of which at 30 April 2009, 51.7% have been utilised. REMAINING CONTRACTUAL MATURITIES Remaining contractual liabilities consist of non-interest-bearing liabilities amounting to $1,188 million for the Group and nil for the Parent and are due one year or less. 94 20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) MATURITY ANALYSIS OF FINANCIAL LIABILITIES BASED ON CONTRACTED DATE The risk implied from the values shown in the table below reﬂ ects a balanced view of cash inﬂ ows and outﬂ ows. Leasing obligations, trade payables and other ﬁ nancial liabilities mainly originate from the ﬁ nancing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital such as inventories and trade receivables. These assets are considered in the Group’s overall liquidity risk. The following table reﬂ ects the contracted date of settlement of ﬁ nancial liabilities. METCASH GROUP METCASH LIMITED 1 YEAR OR LESS $’m 1–5 YEARS $’m MORE THAN 5 YEARS $’m TOTAL $’m 1 YEAR OR LESS $’m 1–5 YEARS $’m MORE THAN 5 YEARS $’m TOTAL $’m YEAR ENDED 30 APRIL 2009 Financial liabilities Trade and other payables 1,188.0 Finance lease liability Bank and other loans Loans from subsidiaries 8.6 41.4 – – 18.0 640.5 – – 1.8 – – 1,188.0 28.4 681.9 – 1,238.0 658.5 1.8 1,898.3 – – – – – – – – – – – – – – – – 3,193.2 3,193.2 3,193.2 3,193.2 Interest due on loans from subsidiaries will not be settled, but rolled into the principal each year. Management expects these loans to not be settled before 12 October 2010, at which point the amount due will be $3,193.2 million. The Group monitors forecasts of liquidity reserves on the basis of expected cash ﬂ ow. At balance date, the Group had unused credit facilities available for its immediate use as follows: Senior facility Bills Overdraft/Guarantees Cash and cash equivalents TOTAL FACILITY $’m 700.0 400.0 150.0 1,250.0 – 1,250.0 DEBT USAGE $’m 500.0 125.0 21.6 646.6 – 646.6 CASH $’m FACILITY AVAILABLE $’m – – – – 148.6 148.6 200.0 275.0 128.4 603.4 148.6 752.0 SENSITIVITY ANALYSIS The table below shows the effect on proﬁ t after tax (PAT) at balance date if interest rates had moved by 0.5% higher or 0.25% lower. These movements have been selected as they are considered reasonable, giving the current economic climate and the current levels of short- and long-term Australian interest rates. It is assumed within this calculation that all other variables have been held constant and that the borrowings are in Australian dollars. It also includes the impact any interest rate derivatives that the company may have in place. METCASH LIMITED ANNUAL REPORT 2009 95 notes to the ﬁ nancial statements for the year ended 30 April 2009 20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) If interest rates were to increase by 0.50% (50 basis points), proﬁ t after tax (PAT) would increase/(decrease) by: If interest rates were to decrease by 0.25% (25 basis points), proﬁ t after tax (PAT) would increase/(decrease) by: METCASH GROUP PROFIT AFTER TAX HIGHER/(LOWER) METCASH LIMITED PROFIT AFTER TAX HIGHER/(LOWER) 2009 $’m (3.1) 1.6 2008 $’m (0.6) 0.6 2009 $’m 2008 $’m – – – – 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, in certain circumstances where a loan has been provided, the Group takes security over certain assets of the customer. The management of the receivables balance is key in the minimisation of the potential bad debt exposure to the company. Receivables balances are monitored on an ongoing basis and a formal review of all balances occurs every six months and where necessary appropriate provisions are established. As identiﬁ ed in Note 8 Trade and Other Receivables, the current level of impairment provision represents less than 2.6% of the receivables balance, indicating that the balances are actively and effectively managed. There are no signiﬁ cant concentrations of credit risk within the Group. FOREIGN CURRENCY RISK The Group’s exposure to foreign exchange ﬂ uctuations is minimal. The Operations denominated in New Zealand dollars represent less than 5% of total sales and total proﬁ t after tax. In addition, the Group undertakes some foreign currency transactions in the purchases of goods and services. These are minimal and no speciﬁ c derivative transactions are undertaken to hedge against any foreign currency exposure. PRICE RISK The Metcash Group purchases energy in the form of electricity, petrol and oil, LPG and water from various sources. These costs represent less than 5% of combined Distribution and Administrative expenses. The group enters into periodic contracts for supply of these products via third party tender. No derivative price instruments are used to manage price risk associated with these commodities as the Group’s exposure to commodity and equity security price risk is minimal. CAPITAL MANAGEMENT The Board’s intention is to return earnings to shareholders while retaining adequate funds within the business to reinvest in future growth opportunities. A minimum payout ratio of 60% of reported Earnings Per Share has been set by the Board. A Dividend Reinvestment Plan is in existence and is currently suspended as the Board considers the Company has sufﬁ cient Capital and is generating sufﬁ cient cash ﬂ ow to pay dividends as and when they fall due. The plan is able to be reinstituted at any time. 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). Details are disclosed in Note15. Management and the Board remained focused on seeking growth opportunities, both organic and via acquisition. The Board and Management set out to achieve and maintain balance sheet ratios that would satisfy an investment grade rating. Certain balance sheet ratios are imposed by the Syndicated Debt Facility. The nature and calculation of these ratios are not disclosed due to commercial sensitivity. Management monitor capital through the gearing ratio (debt / total capital). The gearing ratios at 30 April 2009 and 2008 were 33.5% and 33.2% respectively. This is within an acceptable target range. 96 21 COMMITMENTS (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 ﬁ ve years and an implicit interest rate of 7.9%. 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 2009 $’m 138.1 455.6 447.8 Aggregate lease expenditure contracted for at reporting date 1,041.5 2008 $’m 122.8 404.0 348.1 874.9 2009 $’m 2008 $’m – – – – – – – – (b) OPERATING LEASE RECEIVABLES Certain properties under operating lease have been sublet to third parties. These leases have an average lease term of ﬁ ve years and an implicit interest rate of 7.9%. 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 2009 $’m 62.3 199.2 264.0 525.5 2008 $’m 56.0 174.1 222.8 452.9 2009 $’m 2008 $’m – – – – – – – – (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 8.14% (2008: 7.69%). 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 for the Group 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 FUTURE MINIMUM LEASE PAYMENTS PRESENT VALUE OF MINIMUM LEASE PAYMENTS 2009 $’m 8.6 18.0 1.8 28.4 (4.2) 24.2 2008 $’m 7.2 16.6 3.5 27.3 (4.4) 22.9 2009 $’m 8.7 15.3 0.2 24.2 – 24.2 2008 $’m 5.6 15.1 2.2 22.9 – 22.9 METCASH LIMITED ANNUAL REPORT 2009 97 notes to the ﬁ nancial statements for the year ended 30 April 2009 22 RELATED PARTY DISCLOSURE (a) SUBSIDIARIES The consolidated ﬁ nancial statements include the ﬁ nancial statements of Metcash Limited and the subsidiaries listed in the following table. PERCENTAGE OF EQUITY INTEREST HELD BY THE CONSOLIDATED ENTITY NAME A.C.N. 131 933 376 Pty Ltd Action Holdco Pty Limited Action Holdings Pty Ltd (i) Action Projects Proprietary Limited Action Supermarkets Pty Ltd (i) Amalgamated Confectionery Wholesalers Pty. Ltd. (i) Arrow Pty Limited Australian Asia Paciﬁ c Wholesalers Pty Ltd Australian Liquor Marketers (QLD) Pty Ltd (i) Australian Liquor Marketers (WA) Pty Ltd (i) Australian Liquor Marketers Pty. Limited (i) Blue Lake Exporters Pty Ltd Bofeme Pty Ltd Campbells Cash and Carry Pty. Limited (i) Casuarina Village Shopping Centre Pty. Ltd. City Ice and Cold Storage Company Proprietary Limited Clancy’s Food Stores Pty Limited Composite Buyers Finance Pty. Ltd. Composite Buyers Pty Limited Composite Pty. Ltd. Cotswrap Pty. Limited Davids Food Services Pty Ltd Davids Group Staff Superannuation Fund Pty. Ltd. Denham Bros. Pty Limited Drumstar V2 Pty Ltd FAL Properties Pty. Ltd. FAL Share Plan Nominees Pty Ltd FAL Superannuation Fund Pty Ltd Five Star Wholesalers Pty. Ltd. Foodchain Holdings Pty Ltd Foodland Properties Pty Ltd Foodland Property Holdings Pty. Ltd. Foodland Property Unit Trust Gawler Supermarkets Pty. Ltd. GP New Co Pty Ltd Green Triangle Meatworks Pty Limited Harvest Liquor Pty. Ltd. IGA Community Chest Limited (ii) 98 COUNTRY OF INCORPORATION 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 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2008 % – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 22 RELATED PARTY DISCLOSURE (continued) NAME IGA Distribution (SA) Pty Limited (i) IGA Distribution (Vic) Pty Limited (i) IGA Distribution (WA) Pty Limited (i) IGA Distribution Pty Limited (i) IGA Fresh (Northern Queensland) Pty Limited IGA Fresh (NSW) Pty Limited (formerly RKH Services Pty Ltd) IGA Paciﬁ c Pty Limited IGA Retail Network Limited (ii) IGA Retail Services Pty Limited Independent Brands Australia Pty Limited (ii) Jewel Food Stores Pty. Ltd. Jewel Superannuation Fund Pty Ltd Jorgensens Confectionery Pty. Limited Keithara Pty. Ltd. Knoxﬁ eld Transport Service Pty. Ltd. M C International Australia Pty Limited Melton New Co Pty Ltd Metcash Export Services Pty Ltd Metcash Holdings Pty Ltd Metcash Management Pty Limited Metcash Services Proprietary Limited Metcash Storage Pty Limited Metcash Trading Limited (i) Metoz Holding Limited Metro Cash & Carry Pty Limited Mirren (Australia) Pty. Ltd. Moorebank Transport Pty Ltd Moucharo Pty. Ltd. Newton Cellars Pty Ltd NFRF Developments Pty Ltd Nu Fruit Pty. Ltd. NZ Holdco Limited (ii) Payless Superbarn (N.S.W.) Pty Ltd Payless Superbarn (VIC.) Pty. Ltd. Pinnacle Holdings Corporation Pty Limited Plympton Properties Pty. Ltd. Property Reference Pty. Limited QIW Pty Limited Queensland Independent Wholesalers Pty Limited Quickstop Pty Ltd (i) Rainbow Supermarkets Pty Ltd COUNTRY OF INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia South Africa Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia PERCENTAGE OF EQUITY INTEREST HELD BY THE CONSOLIDATED ENTITY 2009 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 51 100 100 100 100 100 100 100 100 100 100 2008 % 100 100 100 100 100 74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 100 100 100 100 100 100 100 METCASH LIMITED ANNUAL REPORT 2009 99 notes to the ﬁ nancial statements for the year ended 30 April 2009 22 RELATED PARTY DISCLOSURE (continued) NAME Rainbow Unit Trust Rainfresh Vic Pty. Ltd. Regeno Pty Limited Regzem (No 3) Pty. Ltd. Regzem (No 4) Pty. Ltd. Rennet Pty. Ltd. Retail Merchandise Services Pty. Limited Retail Stores Development Finance Pty. Limited Rockblock Pty. Ltd. R.S.D.F. Nominees Pty. Ltd. COUNTRY OF INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Soetensteeg 2 61 Exploitatiemaatschappij BV Netherlands SR Brands Pty Ltd Stonemans (Management) Proprietary Limited Stonemans Self Service Pty. Ltd. Tasher No 8 Pty. Ltd. Tasman Liquor Company Limited Vawn No 3 Pty. Ltd. Wickson Corporation Pty Limited Wimbledon Unit Trust (b) ULTIMATE PARENT Metcash Limited is the ultimate parent entity. Australia Australia Australia Australia New Zealand Australia Australia Australia PERCENTAGE OF EQUITY INTEREST HELD BY THE CONSOLIDATED ENTITY 2009 % 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2008 % 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (c) ENTITIES SUBJECT TO CLASS ORDER RELIEF Pursuant to an order from ASIC under section 340(1) of the Corporations Act dated 26 April 2006 which is based on Class Order 98/1418 (Order), relief has been granted to certain controlled entities of Metcash Limited, being those marked (i), from the Corporations Act requirements for preparation, audit and lodgment of their ﬁ nancial reports. As a condition of the Order, Metcash Limited and the controlled entities, being those marked as (i) (the Closed Group) entered into a Deed of Cross Guarantee on 27 April 2006 or assumption deed on 17 January 2007. The entities marked (ii) are also party to the Deed of Cross Guarantee, but are not eligible for inclusion in the ﬁ nancial reporting relief. 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. These controlled entities have also given similar guarantees in the event that Metcash Limited is wound up. 100 22 RELATED PARTY DISCLOSURE (continued) The consolidated income statement and balance sheet of the entities that are members of the ‘Closed Group’ are as follows: (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 Derivative ﬁ nancial instruments Income tax receivable Other Total Current Assets Non-Current Assets Receivables Investments Property, plant and equipment Net Deferred tax assets Intangible assets Total Non-Current Assets Total Assets CLOSED GROUP 2009 $’m 2008 $’m 293.4 (89.4) 204.0 204.0 95.5 (168.3) 131.2 135.3 819.5 680.5 – – 5.6 280.8 (86.6) 194.2 194.2 46.3 (145.0) 95.5 181.8 849.0 559.0 3.8 10.1 4.6 1,640.9 1,608.3 40.1 35.8 2,439.7 2,435.8 104.8 14.3 1,017.2 3,616.1 5,257.0 102.4 14.3 1,005.6 3,593.9 5,202.2 METCASH LIMITED ANNUAL REPORT 2009 101 notes to the ﬁ nancial statements for the year ended 30 April 2009 22 RELATED PARTY DISCLOSURE (continued) LIABILITIES Current Liabilities Trade and other payables Interest-bearing loans and borrowings Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Interest-bearing loans and borrowings Provisions Total Non-current Liabilities Total Liabilities NET ASSETS EQUITY Contributed equity Other equity Reserves Retained proﬁ ts TOTAL EQUITY (d) TRANSACTIONS WITH RELATED PARTIES RELATED PARTY CONSOLIDATED Associates Sales to Associates Dividends received from associates 2009 2008 2009 2008 102 CLOSED GROUP 2009 $’m 2008 $’m 1,053.3 1,016.3 5.0 42.0 26.7 3.8 – 28.1 1,127.0 1,048.2 2,826.8 2,893.3 18.5 2,845.3 3,972.3 1,284.7 1,889.7 (765.9) 29.7 131.2 16.6 2,909.9 3,958.1 1,244.1 1,889.4 (765.9) 25.1 95.5 1,284.7 1,244.1 SALES TO RELATED PARTIES $’m PURCHASES FROM RELATED PARTIES $’m OTHER TRANSACTIONS WITH RELATED PARTIES $’m 1,188.3 910.1 – – – – – – – – 1.3 1.5 22 RELATED PARTY DISCLOSURE (continued) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Mr Barnes is Chairman of Samuel Smith and Sons Pty Ltd and a Director of Ansell. Both organisations are suppliers to the entity under normal commercial terms and conditions. However, the total level of purchases from both companies is less than 0.4% of Metcash’s annual purchases and is not considered material. Mr Hamilton was a Director of Insurance Australia Group Limited and Programmed Maintenance Services Limited, suppliers of insurance and maintenance services to the Company. However, the value of services provided is less than 0.1% of the Company’s total costs and expenses. PARENT ASSOCIATES There were no transactions between the parent and its associates during the year (2008: nil). RELATED PARTY Subsidiaries Dividend received Current tax payable/(receivable) assumed from wholly owned consolidated entities Management fees received Interest Paid 2009 2008 2009 2008 2009 2008 2009 2008 SALES TO RELATED PARTIES $’m PURCHASES FROM RELATED PARTIES $’m OTHER TRANSACTIONS WITH RELATED PARTIES $’m – – – – – – – – – – – – – – 183.6 160.5 42.0 (10.1) 207.2 222.7 202.7 217.9 TERMS AND CONDITIONS OF TRANSACTIONS WITH RELATED PARTIES All transactions with related parties are made on normal commercial terms and conditions. Terms and conditions of the tax funding arrangement are set out in Note 5. METCASH LIMITED ANNUAL REPORT 2009 103 notes to the ﬁ nancial statements for the year ended 30 April 2009 22 RELATED PARTY DISCLOSURE (continued) (e) AMOUNTS DUE FROM OR PAYABLE TO RELATED PARTIES RELATED PARTY CONSOLIDATED Associates Trade Accounts Receivable Loans Receivable PARENT Subsidiaries Loans receivable Loans Payable 2009 $’m 2008 $’m 127.1 23.5 88.3 24.2 1,125.3 3,019.7 850.4 2,817.0 TERMS AND CONDITIONS OF AMOUNTS DUE FROM AND PAYABLE TO RELATED PARTIES Loans and trade accounts receivable are due and payable on normal commercial terms and conditions. For the year ending 30 April 2009, the Group has not made any allowance for impairment loss relating to trade accounts receivable or loans due from associates. 23 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (a) DETAILS OF KEY MANAGEMENT PERSONNEL DIRECTORS EXECUTIVES Carlos S dos Santos Non-executive Chairman Ken Bean Peter L Barnes Andrew Reitzer Non-executive Deputy Chairman Chief Executive Ofﬁ cer Michael R Butler Non-executive Director Neil D Hamilton Non-executive Director CEO Group Logistics and Corporate Development Fergus Collins CEO Australian Liquor Marketers Peter Dubbelman CEO Campbells Wholesale Adrian Gratwicke General Manager Finance Michael R Jablonski Group Merchandise Director Bernard Hale Chief Information Ofﬁ cer Edwin M Jankelowitz Finance Director Lou Jardin CEO IGA Distribution Richard A Longes Non-executive Director V Dudley Rubin Non-executive Director David Johnston Chief Human Resources Ofﬁ cer Harry Rumpler CEO IGA Fresh The Group has applied the exemption under Corporations Amendments Regulations 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 48 to 50 of the Directors’ Report designated as audited. 104 23 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) (b) OPTION HOLDING OF KEY MANAGEMENT PERSONNEL Total 5,490,000 1,000,000 30 APRIL 2009 DIRECTORS C S dos Santos P Barnes M Butler R Longes D Rubin A Reitzer M Jablonski E Jankelowitz L Jardin EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler BALANCE AT BEGINNING OF PERIOD 1 MAY 2008 – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 50,000 990,000 400,000 50,000 30 APRIL 2008 DIRECTORS C S dos Santos A E Harris, AC R Longes P Barnes D Rubin B Hogan, AM M Butler A Reitzer M Jablonski E Jankelowitz L Jardin EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler Total BALANCE AT BEGINNING OF PERIOD 1 MAY 2007 – – – – – – – 1,200,000 650,000 650,000 650,000 400,000 51,600 400,000 50,000 1,500,000 480,000 50,000 6,081,600 GRANTED AS REMUNERATION OPTIONS EXERCISED OTHER ADJUSTMENTS BALANCE AT END OF PERIOD 30 APRIL 2009 VESTED AT 30 APRIL 2009 TOTAL EXERCISABLE – – – – – – – – – – – – 500,000 – – 500,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 550,000 990,000 400,000 550,000 – – – – – 720,000 390,000 390,000 390,000 240,000 30,000 240,000 30,000 170,000 240,000 30,000 – – – – – 720,000 390,000 390,000 390,000 240,000 30,000 240,000 30,000 170,000 240,000 30,000 6,490,000 2,870,000 2,870,000 VESTED AT 30 APRIL 2008 GRANTED AS REMUNERATION OPTIONS EXERCISED OTHER ADJUSTMENTS BALANCE AT END OF PERIOD 30 APRIL 2008 TOTAL EXERCISABLE – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,600) – – (510,000) (80,000) – (591,600) – – – – – – – – – – – – – – – – – – – – – – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 50,000 990,000 400,000 50,000 5,490,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – METCASH LIMITED ANNUAL REPORT 2009 105 notes to the ﬁ nancial statements for the year ended 30 April 2009 23 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) (c) SHAREHOLDING OF KEY MANAGEMENT PERSONNEL 30 APRIL 2009 DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler Total 30 APRIL 2008 DIRECTORS C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin A E Harris, AC* EXECUTIVES K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler Total BALANCE AT BEGINNING OF PERIOD 1 MAY 2008 54,100 177,083 1,750,000 50,000 – – 520,000 329,986 128,154 15,000 – 1,600 500,350 35,242 510,000 80,000 – 4,151,515 BALANCE AT BEGINNING OF PERIOD 1 MAY 2007 100 177,083 1,750,000 – – – 520,000 329,986 128,154 7,800 404,695 – – 550,350 – – – – 3,868,168 GRANTED AS REMUNERATION ON MARKET TRADE OPTIONS EXERCISED OTHER ADJUSTMENTS (DRP ISSUE) BALANCE AT END OF PERIOD 30 APRIL 2009 – – – – – – – – – – – – – – – – – – – – – – – – – (329,986) – – – – (100,000) – (240,000) – – (669,986) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 54,100 177,083 1,750,000 50,000 – – 520,000 – 128,154 15,000 – 1,600 400,350 35,242 270,000 80,000 – 3,481,529 GRANTED AS REMUNERATION ON MARKET TRADE OPTIONS EXERCISED OTHER ADJUSTMENTS (DRP ISSUE) BALANCE AT END OF PERIOD 30 APRIL 2008 – – – – – – – – – – – – – – – – – – – 54,000 – – 50,000 – – – – – 7,200 – – – (50,000) 35,242 – – – 96,442 – – – – – – – – – – – – 1,600 – – 510,000 80,000 – 591,600 – – – – – – – – – – – – – – – – – – – 54,100 177,083 1,750,000 50,000 – – 520,000 329,986 128,154 15,000 404,695 – 1,600 500,350 35,242 510,000 80,000 – 4,556,210 * Number of shares held as at date of retirement. 106 23 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (continued) (d) COMPENSATION BY CATEGORY Short-Term Long-Term Post-Employment Termination Beneﬁ ts Share-Based Payments Total METCASH GROUP 2009 $’m 12.5 3.6 0.7 – 1.1 17.9 2008 $’m 14.7 3.6 0.8 0.3 1.7 21.1 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. The remuneration report has been audited. (e) LOANS TO KEY MANAGEMENT PERSONNEL There are no loans to key management personnel. (f) OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL There are no other transactions and balances with key management personnel. 24 AUDITOR’S REMUNERATION METCASH GROUP METCASH LIMITED 2009 $ 2008 $ 2009 $ 2008 $ 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 1,580,500 1,419,472 – other services in relation to the entity and any other entity in the consolidated entity – tax compliance – assurance related – other services – 683,041 17,800 – – 807,000 137,000 – 2,281,341 2,363,472 – – – – – – – – – – – – METCASH LIMITED ANNUAL REPORT 2009 107 notes to the ﬁ nancial statements for the year ended 30 April 2009 25 BUSINESS COMBINATIONS The Metcash Group acquired the assets of the following entities: DATE OF ACQUISITION ENTITY PURCHASED % ACQUIRED 2 June 2008 3 July 2008 Market Garden Produce (MGP) Solomons Food Group (SFG) – Produce 16 August 2008 APFB GemFruitz (APFB) 28 December 2008 IGA Fresh (NSW) Pty Ltd (formerly RKH Services Pty Ltd) 28 November 2008 Rainfresh Group (Rainfresh Pty Ltd, Nufruit Pty Ltd, NFRF Developments Pty Ltd) 5 February 2009 Solomons Food Group (SFG) – Food Service 1 April 2009 Kelly’s Providores Pty Ltd 100% 100% (1) 100% (1) 26% (2) 51% 100% (1) 100% (1) (1) Acquisition of business assets. (2) Acquisition of minority interest. On 29 February 2008, Metcash acquired 74% of RKH Services Pty Ltd (Dark Earth) demerged Australian business. Dark Earth’s trading results from 29 February 2008, when economic beneﬁ ts passed to Metcash, are included in Metcash results for the year. The total cost of the combination was $2.4 million and comprised cash and transaction costs directly attributable to the combination. IGA Fresh (NSW) Pty Ltd is now 100% owned. Details of the fair value of the assets and liabilities acquired are as follows: (b) PURCHASE CONSIDERATION Cash paid to date Direct costs relating to the acquisition Total purchase consideration Cash acquired Net purchase consideration Deferred Consideration Fair value of net identiﬁ able assets acquired (c) Goodwill (c) ASSETS AND LIABILITIES ACQUIRED The assets and liabilities arising from the acquisition are as follows: Accounts Receivable Property, plant and equipment Inventory Goodwill Creditors and Employee beneﬁ ts provision Deferred tax asset relating to employee beneﬁ ts provision Minority Interest Fair value of net identiﬁ able assets acquired TOTAL $’m 63.1 2.8 65.9 (0.1) 65.8 2.3 (6.9) 61.2 TOTAL $’m 10.2 7.8 1.0 1.1 (12.2) 0.3 (1.3) 6.9 The fair value of the identiﬁ able assets and liabilities of MGP, SFG, APFB, Kelly’s, IGA Fresh (NSW) Pty Ltd and Rainfresh Group approximated their carrying values at the dates of acquisition. The results of MGP, SFG, APFB, Kelly’s, IGA Fresh (NSW) Pty Ltd and Rainfresh Group from acquisition have not been disclosed separately as they are not signiﬁ cant to the total Group results. 108 25 BUSINESS COMBINATIONS (continued) The revenue and results of the total Metcash Group for the period ended 30 April 2009, as though MGP, SFG, APFB, Kelly’s , IGA Fresh and Rainfresh had been acquired on 1 May 2008, would not be signiﬁ cantly different to the Group results as currently reported. The accounting for the above business combinations is provisional as at 30 April 2009. ACQUISITION OF OTHER BUSINESSES Effective 11 May 2009, Metcash acquired the assets of Fresh Market Meats for $4.1 million. 26 EARNINGS PER SHARE 2009 $’m 2008 $’m 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 202.5 197.5 Adjustments: Earnings used in calculating basic and diluted earnings per share 202.5 197.5 NUMBER NUMBER Weighted average number of ordinary shares used in calculating basic earnings per share 764,843,880 763,484,392 Effect of dilutive securities: Share options 579,379 3,418,952 Weighted average number of ordinary shares used in calculating dilutive earnings per share 765,423,259 766,903,344 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. 27 CONTINGENT LIABILITIES 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 The total face value of the outstanding charges due to American Express under the charge card arrangement is The Company and certain controlled entities have granted put options to third parties to the value of METCASH GROUP METCASH LIMITED 2009 $’m 2008 $’m 2009 $’m 2008 $’m 18.4 3.2 77.3 13.6 20.2 3.2 38.1 13.6 – – – – – – – – FRANKLINS 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 that Franklins may have suffered. The court decided to rectify the contract in accordance with Metcash’s submissions but the actual form of the rectiﬁ cation ordered did not accord precisely with the rectiﬁ cation sought by Metcash. METCASH LIMITED ANNUAL REPORT 2009 109 notes to the ﬁ nancial statements for the year ended 30 April 2009 27 CONTINGENT LIABILITIES (continued) Subsequently, Metcash ﬁ led a motion seeking clariﬁ cation of the rectiﬁ cation order, as well as judgment and costs. On 13 September 2007 and 17 October 2007, the judge dismissed all Applications before him and noted that both parties intended to seek leave to appeal to the NSW Court of Appeal. In the meantime, Franklins had ﬁ led an Application for leave to Appeal to the Court of Appeal, and Metcash ﬁ led an Application for Leave to Cross-Appeal. The Court of Appeal heard the Leave Applications (i.e. not the appeals themselves) on 14 March 2008 and granted leave to appeal to Franklins and granted Metcash leave to cross-appeal. The appeal and cross-appeal were heard from 23 to 26 March 2009. At the conclusion of the proceedings, the Court of Appeal reserved its judgment. The written judgment is expected to be delivered in the latter part of 2009. AMERICAN EXPRESS CHARGE CARD On 9 May 2007 Metcash Trading Limited entered into an agreement with American Express (Amex), due to expire on 31 July 2010, in relation to Customer Charge Cards. Under the agreement, should a customer default on payment, where Amex has previously made a payment to Metcash Trading Limited, then Metcash Trading Limited must pay Amex an amount equal to the charge outstanding. The maximum amount payable shall be limited to the actual face value of the outstanding charge due to Amex. This does not include any interest or other fees payable by the customer to Amex. Metcash Trading Limited shall have no other obligation to Amex in respect of the outstanding charge and shall not be liable for any costs, loss or liability of any nature whatsoever incurred by Amex as a result of the failure by the customer to make payment. PUT OPTIONS FOR SALE OF RETAIL STORE ASSETS The Company and certain controlled entities have granted put options relating to the sale of retail store assets to certain customers and associates. The holders of the put option have the right to ‘put’ these non-ﬁ nancial assets back to the Company within an agreed period and under certain prescribed circumstances. The estimate of the ﬁ nancial effect of the put options, if exercised, is the aggregate of the purchase price as deﬁ ned in the option deed or business sale agreement. 28 SUBSEQUENT EVENTS On 22 May 2009 the Company entered into a new Financing Agreement with new and ongoing Financiers. The Agreement in large part was an extension of the existing facility and provides the Group with security of funding for the three years to May 2012. The new Agreement provides Metcash with an unsecured senior loan facility totalling $700 million and split into two tranches. The ﬁ rst tranche is $500 million and will be fully drawn throughout the term of the Agreement. The second tranche of $200 million is at call according to the Company’s borrowing requirements and similarly can be repaid when not required. The new facility has three covenants that the Group must comply with, being a ﬁ xed charges cover ratio (Earnings Before Interest, Tax, Depreciation, Amortisation and Rent (EBITDAR) divided by Total Net Interest plus Gross Rent Expense), senior leverage ratio (Total Group Debt divided by Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)) and minimum shareholders funds (a ﬁ xed ﬁ gure representing the Group share capital and reserves). These covenants and other key terms of the Agreement remain largely unchanged from the previous Agreement. Interest payable on the facility is based on BBSY plus a margin and rollover is monthly. The applicable margin is dependent upon an escalation matrix linked to the senior leverage ratio achieved. Management and the Board of Metcash are pleased to have successfully secured funding for the Group in such difﬁ cult credit market conditions. The facility provides the Company with an appropriate level of funding to support its growth and working capital needs. Whilst the debt line is more expensive than that previously enjoyed by the Company, certainty of funding took precedence. In the Company’s results announcement on 1 June 2009, Management advised that the beneﬁ t of being able to access lower prevailing cash rates (as a result of terminating the interest rate collar) would be largely offset by the increased margin applicable under the new Financing Agreement. Management concluded therefore that their expectations for net interest expense for the ﬁ nancial year 2010 would be similar to 2009 at $61 million. 110 directors’ declaration for the year ended 30 April 2009 In accordance with a resolution of the directors of Metcash Limited, I state that: 1. In the opinion of the directors: a. The ﬁ nancial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of the Company’s and consolidated entity’s ﬁ nancial position as at 30 April 2009 and of their performance for the year ended on that date; and ii. Complying with Accounting Standards and Corporations Regulations 2001; and b. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the ﬁ nancial year ending 30 April 2009. 3. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identiﬁ ed in Note 22 will be able to meet any obligation or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. On behalf of the Board Andrew Reitzer Director Sydney, 17 July 2009 METCASH LIMITED ANNUAL REPORT 2009 111 auditor’s independence declaration for the year ended 30 April 2009 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 2009, 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 Sydney 17 July 2009 112 Liability limited by a scheme approved under Professional Standards Legislation independent audit report to members of Metcash Limited the year ended 30 April 2009 Independent auditor’s report to the members of Metcash Limited We have audited the accompanying financial report of Metcash Limited, which comprises the balance sheet as at 30 April 2009, 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 of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. The 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 Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing 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 that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors are also responsible for the remuneration disclosures contained in the remuneration 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 and International Standards on Auditing. 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. 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 complied with 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 by reference in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the non-audit services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Liability limited by a scheme approved under Professional Standards Legislation METCASH LIMITED ANNUAL REPORT 2009 113 independent audit report to members of Metcash Limited the year ended 30 April 2009 Auditor’s Opinion In our opinion: 1. The financial report of Metcash Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the financial position of Metcash Limited and the consolidated entity at 30 April 2009 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Report on the Remuneration Report We have audited the Remuneration Report included in 41 to 50 of the directors’ report for the year ended 30 April 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Metcash Limited for the year ended 30 April 2009, complies with section 300A of the Corporations Act 2001 Ernst & Young Neil Wykes Partner Sydney 17 July 2009 114 ASX additional information for the year ended 30 April 2009 Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 17 July 2009. (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: SIZE OF HOLDING 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Total NUMBER OF SHAREHOLDERS 6,307 16,704 4,941 3,202 151 31,305 NUMBER OF SHARES PERCENTAGE OF ORDINARY SHARES HSBC Custody Nominees (Australia) Limited National Nominees Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited ANZ Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited Cogent Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited AMP Life Limited Cogent Nominees Pty Limited Queensland Investment Corporation Australian Foundation Investment Company Limited RBC Dexia Investor Services Australia Nominees Pty Limited UBS Nominees Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Australian Reward Investment Alliance Citicorp nominees Pty Limited ANZ Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited 185,655,112 106,808,825 105,611,019 28,955,859 28,029,766 21,614,782 14,381,352 9,577,465 8,844,444 6,178,138 5,596,871 4,500,000 4,262,794 4,251,569 4,028,465 4,018,046 3,417,412 3,199,051 2,906,425 2,874,626 24.271 13.963 13.807 3.785 3.664 2.826 1.880 1.252 1.156 0.808 0.732 0.588 0.557 0.556 0.527 0.525 0.447 0.418 0.380 0.376 554,712,021 72.518 METCASH LIMITED ANNUAL REPORT 2009 115 ASX additional information for the year ended 30 April 2009 (c) SUBSTANTIAL SHAREHOLDERS The following is extracted from the Company’s register of substantial shareholders: NAME Westpac Banking Corporation Group Perennial Investment Partners Limited (PIPL) Barclays Global Investors Australia Limited NUMBER OF SHARES 85,870,034 85,366,361 38,595,739 (d) VOTING RIGHTS All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 116 corporate information ABN 32 112 073 480 DIRECTORS Carlos S dos Santos (Chairman) Peter L Barnes (Deputy Chairman) Andrew Reitzer (CEO) Michael R Butler Neil D Hamilton Michael R Jablonski Edwin M Jankelowitz Joao Louis S Jardim (Lou Jardin) Richard A Longes V Dudley Rubin COMPANY SECRETARY John A Randall REGISTERED OFFICE 50 Waterloo Road Macquarie Park NSW 2113 Telephone: 61 2 9751 8200 SHARE REGISTER Registries Limited GPO Box 3993 Sydney NSW 2001 Telephone: 61 2 9290 9600 Facsimile: 61 2 9279 0664 AUDITOR Ernst & Young INTERNET ADDRESS www.metcash.com NATIONAL OFFICE Ph: 61 2 9751 8200 Fax: 61 2 9889 1557 50 Waterloo Road Macquarie Park NSW 2113 Postal Address PO Box 6226 Silverwater Business Centre NSW 1811 IGA DISTRIBUTION HEAD OFFICE Ph: 61 2 9751 8200 Fax: 61 2 9741 3055 50 Waterloo Road Macquarie Park NSW 2113 Postal Address PO Box 6226 Silverwater Business Centre NSW 1811 AUSTRALIAN LIQUOR MARKETERS HEAD OFFICE Ph: 61 2 9741 3450 Fax: 61 2 9741 3009 4 Newington Road Silverwater NSW 2128 Postal Address PO Box 6226 Silverwater Business Centre NSW 1811 CAMPBELLS WHOLESALE HEAD OFFICE Ph: 61 2 9741 3000 Fax: 61 2 9751 8298 4 Newington Road Silverwater NSW 2128 Postal Address PO Box 6226 Silverwater Business Centre NSW 1811 This annual report was produced using Monza Recycled paper. MONZA RECYCLED Monza Recycled contains 55% recycled ﬁ ber (25% post consumer and 30% pre consumer) and FSC Certiﬁ ed pulp, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. It is manufactured by an ISO 14001 certiﬁ ed mill. Monza Recycled is an FSC Mixed Sources Certified paper. Cert no. SGS-COC-003898 METCASH LIMITED CORPORATE OFFICE 50 Waterloo Road Macquarie Park NSW 2113 Postal Address PO Box 6226 Silverwater Business Centre NSW 1811 Ph: 61 2 9751 8200 Fax: 61 2 9889 1557 www.metcash.com 2

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